Billionaire investor Paul Tudor Jones speaks with CNBC’s “Squawk Box” today and discusses inflation trade and meme stocks.
Q1 2021 hedge fund letters, conferences and more
WHEN: Today, Monday, June 14, 2021
WHERE: CNBC’s “Squawk Box”
Paul Tudor Jones: 'Go all in on inflation trade' if Fed keeps ignoring higher prices
Billionaire investor Paul Tudor Jones on meme stocks
ANDREW ROSS SORKIN: Thanks Becky. Let's get straight to our very special guest of the hour. I don’t know if he likes when I call him legendary but legendary trader Paul Tudor Jones laughs every time we say founder and chief investment officer of Tudor Investment Corporation. He's also of course, the chairman of JUST Capital and the founder and a board member of Robin Hood Foundation. Paul, we're going to talk about the upcoming Robin Hood conference happening this Wednesday in just a couple of minutes but first, let's start with the markets. And I actually want to start with the Fed because we've had a big debate, sort of a raging debate about inflation, whether it's transitory, whether there's a new normal here and what the, the macro, legendary macro trader thinks of all of this.
PAUL TUDOR JONES: Well, I think this Fed meeting could be the most important Fed meeting in Jay Powell’s career, certainly the most important Fed meeting of the past four or five years. And the reason why is because we had so much incoming data. The challenge is both their mission and their model. So, how they react to that will be extraordinarily important and will be signaling I think for investors as to how they should deal with their portfolios going forward. You have to remember that the Fed right now is really operating with a single mandate. Their stated goal is maximizing employment and you can almost see how important that is to them and just the way that they view the difference between employment and inflation with employment, they want to see outcomes, we want to see material gains and employment. With inflation, they tell you it's transitory trust our forecast is an intellectual incongruity that risks damaging their credibility if they're wrong on their forecast. So, this meeting is really important because you've had a variety of data points to come in a bit again challenge both their mission and their model.
ANDREW ROSS SORKIN: So do you believe that that is that the inflation we're seeing if it is inflation at all is transitory. Do you believe that their credibility is at risk because their model is wrong?
PAUL TUDOR JONES: Well, first of all you have to, it's somewhat disingenuous to say that inflation is transitory for them to say inflation is transitory because if we look at the past episodes where inflation has been transitory, it was with reaction function to a Federal Reserve Board with a completely different mandate, right? They had a dual mandate. This Fed is focused primarily on maximizing employment so how can you use historical antecedents to sit there and predict the future when you got a different reaction function now than the Feds of the past have had. A great example of that would be take 2013. 2013 when they first began to talk about taper, inflation was 1.5%, CPI was 1.5% versus 4.9% now. And at that time, you had 6.3 million people unemployed more than there were job offers. So today, we have the same number of people unemployed, 9.3 million people as we have job offers, they're exactly equal. So if we go back to 2013 and we look at both inflation, which is much greater today than it was then, and we look at the number of unemployed relative to the number of opportunities to be employed, you had a situation that's completely different than now and yet that Fed in 2013 was concerned enough about inflation to begin to taper which they ultimately did miss the beginning of 2014. So, when you say today that inflation is going to be transitory and you compare the taper to 2013, they're miles apart, they're miles apart. When you look at the Fed today and the Fed back then, you wonder how can you have such wildly different policy views on what constitutes the right levels for employment, the right levels for inflation, how can you have that within an eight year timeframe. It's, it's almost like a split personality and you wonder why Bitcoin has a $2 trillion market cap and goals at $1,865 an ounce. And the reason why is because you have this dichotomy and policy that again questions, questions, the institutional credibility of something.
ANDREW ROSS SORKIN: I want to talk about Bitcoin and gold in just a second but if you were Jay Powell, right now, you would do what?
PAUL TUDOR JONES: Well, you know, traditional economic orthodoxy would call for an immediate course correction, it would call for okay, we've had two hugely material sets of data that have occurred since the last meeting that two CPI increases, they're the highest in 50 years and more importantly those CPI increases were outside the Fed’s model forecasts. So that's, I know when we run our models at Tudor, our systematic models, when you see something that's out of balance, you immediately review that model, you immediately, first, we typically when something's out of bounds, we typically cut capital to it. The second piece of data that came in that's, that's really, really material is the, the job offers, which is now, again, also, the highest in 50 years. That's important because if you take the trajectory right now of job offers and you extrapolate that for the next four months and extrapolate the same type of increases we've been having in employment for the past four months, by October, you'll have a surplus of job offers to unemployed that will be exactly the same as January of 2020 before the pandemic hit. So, again if you think about what they could do they could say, they could declare victory and say we've won. We're going to be where we were pre-pandemic by October. And yet at the same time, right now, we are instead quantitative easing and juicing an economy that's already red hot. The way I like to think about Fed policy right now, imagine a war to Sherman’s tack on top you've got this massive weapon, which in this case, in the case of the Fed is monetary policy, but your field of vision is this narrow slit in the front and the only thing that you see is you see maximizing employment. I really think that Fed listens they did and May 2020 had a profound effect on them. The problem with that is that on one side, you've got these inherent dangers right you've got inflation on this side and you've got financial stability on this side. So when you're looking through that slit, you allow these two to all of a sudden grow in both threat level and importance and I think that's what's happening right now.
ANDREW ROSS SORKIN: Okay. Couple that with what the Biden administration and potentially Congress want to do or not on infrastructure spending and other spending. Do you think they should take their foot off of that gas pedal?
PAUL TUDOR JONES: Well, look, you got the craziest mix of fiscal and monetary policy. You know since the Federal Reserve Board was created it's, it's, it goes against again all traditional economic orthodoxy and listen, this really started in 2017 when President Trump cut corporate taxes and gave us a 5% peacetime budget deficit when employment was at 4.5% on the way to 4.1%. That had a really palpable impact because when you have the person at the top say to heck with, to heck with orthodoxy, to heck with tradition, we're going to do something that's off, it has a signaling effect to everything else in society. Would we be where we are today with the Fed and the Treasury leaning on each other had we not started back in 2017? Would many media outlets be promoting narratives that they know are false simply because it plays to their audience? Would we have had the Capital insurrection that we had on January 6 if everyone thought, well, he can do it, they can do it, why can't we, the world's crazy anyway. Little manifestations of that show up in this world we have today right? Meme stocks going up 1500%. SPACs, SPACs right there was more money raised in SPACs this year in the first four months than were raised in all of IPOs in 2020. So, think about what that says, that says that investors were more willing to put money in companies where they had no idea what they're going to invest in than they were into IPOs of known businesses that had business plans and were often viable so all of a sudden, there's a premium on the perceived scarcity of uncertainty. It's turned economic orthodoxy upside down and that's why this meeting’s so important because things are absolutely bad as crazy. And at some point, we have to say, okay wait, slow down, we're gonna get back in the lanes and we're gonna drive like we used to.
ANDREW ROSS SORKIN: Okay so here's the, here's the real question, if things are bad as crazy.
PAUL TUDOR JONES: Right.
ANDREW ROSS SORKIN: Right now and you are a trader.
PAUL TUDOR JONES: Right.
ANDREW ROSS SORKIN: Not necessarily a long term investor but a trader, let's just say you're thinking about how to, where to put your money, I'd actually love to hear about it in the context of being a trader but also actually as a long term investor, what are you supposed to do in this environment?
PAUL TUDOR JONES: Well I'm going to watch the Fed on Wednesday. If they treat these numbers, which were material events, they're very material, if they treat them with nonchalance, than I think it's just a green light to bet heavily on every inflation trade. The idea that inflation is transitory to me is that that one just doesn't work the way I see the world. So, I look at $88 trillion of assets that are managed by asset managers of that 670 billion are invested in commodity indices like Bloomberg Commodity Index, Goldman Sachs Commodity Index, that's about three quarters of 1%. If I rewind just to 2011 when inflation was peaking at 3%, not CPE at 4.9%, those same investors had 1.2% of their assets which would imply today if they just got back to wait another $400 billion of buying in commodity indices and if you, certainly the impact models that we run what are, what are you that GSER or BCOM would double or triple. So you've got, if I just look at where asset managers are, the one thing that they should be invested in, they're not invested in, probably because they're hearing these assurances that inflation is transitory so you've got this massive short, really, in the commodity complex, a massive short there so that makes me think that and I'll look at the balances in a variety of commodities and they're all so razor thin, they're all so razor thin. And this is just what happens if institutional money would get to where they should be given the level of real rates. What happens if the Reddit crowd ever gets into commodities, god forbid, if the bullies, the financial markets, ever were to take it on for instance like retail did back in the 70s.
ANDREW ROSS SORKIN: Explain what you mean by that.
PAUL TUDOR JONES: What I mean is, is that commodity, commodities are finite supply, small markets generally speaking, and if we ever get an inflationary psychology, like for instance, we did when I was in my 20s back in the 70s if we ever get that again and if you ever got retail actually nervous about inflation then the one thing that leads inflation which is commodity prices or the it's, the it's the easiest tautology there is, those things can literally scream double or triple with no problem whatsoever.
ANDREW ROSS SORKIN: So you're working but you're worried about the Reddit crowd getting involved in commodities right now.
PAUL TUDOR JONES: No, I'm, I'm saying that right now, I would be a lot, look, I'm, I think I'm the most conservative investor in the world, that's a hedge fund manager by definition hates risk, loves edges, loves competitive edges, does great reward risk trades. I would be really concerned about arguing that inflation is transitory when I know that you've got. Look, think about it, we have a just in time mentality, we have inventories at record low, we have demand screaming and we have people who are really under invested where they should be given the valuations of a variety of financial assets.
ANDREW ROSS SORKIN: You said if the, if the Fed doesn't make any moves this week that it's going to be a green light.
PAUL TUDOR JONES: Well for me, it'd be a green light.
ANDREW ROSS SORKIN: Well, the question is, so it may be a green light temporarily but you're also suggesting that there's going to be a hard stop at some point, that it's going to create an even bigger problem. So how do, how is a long term investor think about that?
PAUL TUDOR JONES: Listen I have maintained I'm so happy I don't have to run a Pension Fund. I don't know how you'd invest those assets when valuations for both interest rates and stocks are at, if you combine the two, they're, they're so overvalued they're at 100-year highs. I don't know. I don't know what you do. I know one thing I'd want to do is the one thing that can hurt that is inflation. I’d have as many inflation hedges on as I possibly could. I sit on, you know, the investment committee of these not-for-profits and it's really difficult to try to explain to some of the board members of our not-for-profits, gee maybe now's not the best time to be invested in a variety of financial, maybe we should be, maybe we should own commodities at this stage of the game. Can I just say one last thing, the December 2018 meeting, do you think about that meeting that the Fed had with pretty much the same board makeup, they had a lot of incoming data between that meeting and the one prior to that, stock market was down 12%, GSCI was down, commodities were down 20%, the credit markets were frozen, but they went on in height because they were locked in to this linear belief that I can have a forecast, and that we should stay with it. The predictability was more important than reactivity. So I think they had the same, in seven months later, they had to reverse course and take that back. I think we're confronted with exactly the same situation right now.
ANDREW ROSS SORKIN: What do you make and you mentioned earlier the meme stock phenomenon, this social media enabled group of people on Reddit and Wall Street Bets trading. I know you, you think that it's part of this larger, larger inflationary issue I imagine or stimulus or, but does it need to be stopped if you're Gary Gensler, if you're the Fed, if you're how, what do you think of it?
PAUL TUDOR JONES: I would have raised margin, if I was Fed Chair, I would have raised margin requirements two years ago. I would have said, okay, we're gonna experiment with a unproven untried negative real rate economic program is going to encourage a lot of leverage. I'm going to raise margin requirements because I want to signal you need to be prudent. We want you, yes we want asset prices to rise, we want you to take risks, we want to extend duration but you need to be prudent in how you use your leverage and what you invest in.
ANDREW ROSS SORKIN: But what do you make of the stock traders many of whom would argue that they're doing what the hedge fund community has long done and that they're sticking it to the man.
PAUL TUDOR JONES: Listen, people can have whatever reasons they want to invest. Again, I consider myself very, very, very conservative. I would probably not be pursuing the investment thesis as they are. I don't really trade individual stocks that much. But, for, for me, I want to have a sound investment thesis other than just necessarily running shorts in or necessarily doing things simply because the fact it's extraordinary and hasn't done before and it's working for one year at a time but I'm not, I don't think I'm smart enough to at this point in time to judge whether they're right or wrong. More power to them I hope they succeed.
ANDREW ROSS SORKIN: Okay, let me ask a different question which is around bitcoin because last, I want to say last spring, said, you know what, I'm getting into crypto for the first time.
PAUL TUDOR JONES: Again, I thought things were crazy then, I think they're crazy now. bitcoin. Listen, I like bitcoin. Right. Bitcoin is math and math has been around for thousands of years and two plus two is going to equal four and it will for the next 2000 years so I like the idea of investing in something that's reliable, consistent, honest, and 100% certain. So, bitcoin has appealed to me because it's a way for me to invest in certainty where, again, I look at the difference between the Fed of 2013, the Fed of 2021. I'm going, how can this, do I want to have faith necessarily. I look at the difference between Trump and Biden, do I want to have faith in that same reliability and consistency of human nature and the linear nature of human nature which we know is anything but that.
ANDREW ROSS SORKIN: You like bitcoin at these prices.
PAUL TUDOR JONES: I’m, I, listen.
ANDREW ROSS SORKIN: You got in at what about, 10,000?
PAUL TUDOR JONES: I like bitcoin as a portfolio diversifier. Everyone always asked me what should I do with my portfolio, my employees ask me and I say okay listen, the only thing that I know for certain is that want to have 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities. At this point in time, I don't know what I want to do with the other 80%, I want to wait and see what the Fed’s gonna do because what they do will have a big impact.
ANDREW ROSS SORKIN: Let me ask you about certainty when it relates to bitcoin, I mean, look at what a tweet by Elon Musk over the weekend, arguably, and I know there's an argument about it pushed it up over 10%. At one point, couple months ago, pushed it down, you know.
PAUL TUDOR JONES: So, I have a lot of friends who are heavily invested in crypto. More power to them. I have a defensive position for myself personally and my family that I just don't even look at it anymore. I really don't look at it, I don't think of it oh wow I made X today or I lost X today. For me, it's just a way of kind of foundationally looking at how do I protect my wealth through time and I think it's a great diversifier and I look at it again I look at bitcoin as a store of wealth. I looked to crypto as a store of wealth. Others will argue that this is a different ecosystem, it's transactional in nature, it's gonna be, those are great things that's not why I-
ANDREW ROSS SORKIN: You made the argument though that's math and that, not that it's risk free but in terms of the risks, we haven't talked about two risks which are risks long on your, on the JUST Capital list, things around the environment. For example, geopolitical risks, whether the Chinese government or other governments society even allow whether the Fed at some point says we're not doing this, how do you how do you peg those risks.
PAUL TUDOR JONES: So, again, we, it costs more to mine gold energy wise and it does bitcoin, clearly I'm concerned about the environmental impacts of bitcoin have if I was, if I was all, all, if I was king of the world, I’d ban bitcoin mining.
ANDREW ROSS SORKIN: You would.
PAUL TUDOR JONES: Just, just because of the environmental impacts and then make the ecosystem figure out a way to do it without expanding supply anymore at all, that's what I would do. But can I just say, I do think that we are in extraordinary times. I hope that we can, I hope that we’ll mean revert, mean revert back to economic orthodoxy, I really do. I get nervous from a financial instability standpoint when the stock market is 220% of GDP. I get nervous when I know that number was 45% higher than the 2000 bubble and I know it's 90% higher than the 2007 top so if you just look at the amount of quantitative easing that we have planned just between now and December and you think about the 60% correlation between the NASDAQ and the reserves that the Fed holds, you could argue the NASDAQ is going to go up 20% if we stay on this pace of $120 billion of treasury purchases per month, you could argue, that's where we're going to be at year end. And so, I don't know if that's necessarily a good thing. I don't know if continuing to increase valuations through monetization is the right and most prudent course right now.
ANDREW ROSS SORKIN: We want to talk about Robin Hood but Becky's back the studio and she's got a question for you, Paul. Becky?
BECKY QUICK: Thanks Andrew. Hey, Paul just a quick question if the Fed is so important and you're waiting to make decisions on 80% of your portfolio based on what they say, what would you do if they don't change their statement if they kind of roll along it's business as usual for this most recent meeting and what would you do if they were to say okay we are seeing signs of inflation maybe it's time for us to start to pull back on, on, on purchases, what would be the two things that you'd wind up doing in that binary situation?
PAUL TUDOR JONES: Well, if they treat it with nonchalance, if they say we're on, we're on path, things are good, then I would just go all in on the inflation, on the inflation trades. I’d probably buy commodities, buy crypto, buy gold. If they, if they course correct, if they say we've got incoming data. we've accomplished our mission or we're on the way, very rapidly to accomplishing our mission, unemployment, then I, you're going to get a taper tantrum, you're gonna get, you're gonna get a selloff in fixed income, you're going to get a correction stocks doesn't necessarily mean it's over. In 2014 when they taper, fixed income actually ended up rallying. The problem the Fed’s got is that right now, they're buying about 54% of this year's issuance in 2013 they were buying 72%. You could argue that they're going to actually, because they were such a bigger part of the market then, you could argue they're actually going to have to taper quicker and high quicker to have the same impact on treasury prices that they did back in 2014.
ANDREW ROSS SORKIN: We want to talk about Robin Hood, but before we do that I want one other question which is around taxes. There's obviously a big question about corporate taxes, it's 15% floor with the G7. There's also a question about taxes among billionaires and you happen to be lucky enough to be one. And there's a ProPublica story last weekend if you saw, Jeff Bezos, Warren Buffett, there were certain years where they didn't pay anything in taxes. With a piece over the weekend, The New York Times around private equity, and this idea of moving the management fee into carried interest. Do you think the tax policy should change it should change in a way that effectively taxes the billionaire class at much higher levels?
PAUL TUDOR JONES: Yes.
ANDREW ROSS SORKIN: You do?
PAUL TUDOR JONES: Absolutely. But I think you've got to look at. So, the ones that they picked out have made all their money through owning stock in their companies and it’s made, they made all their money because the fact that they haven't realized capital gains to a great extent in those companies so it's, it's really, really difficult because you cannot, cannot tax unrealized capital gains because the volatility of them so it's really difficult but should, so should the top 1% pay more? Absolutely.
ANDREW ROSS SORKIN: But so what would you do?
PAUL TUDOR JONES: I mean, next time I come on I'll have a better answer. How about that.
ANDREW ROSS SORKIN: Okay, we'll take that. We'll follow up.
PAUL TUDOR JONES: I have enough trouble trying to figure out what to do come Wednesday.
ANDREW ROSS SORKIN: Okay, let's talk about Wednesday because Robin Hood has a big conference coming up, it's a big event for you. And I know it's something you've been looking forward to what's, what's on tap?
PAUL TUDOR JONES: Well, it's the J.P. Morgan/Robin Hood Investors Conference. We have it every year. I think this one, honestly, is the greatest of all time. And I say-
ANDREW ROSS SORKIN: The timing couldn’t be better.
PAUL TUDOR JONES: The timing could not be better. We've got Druckenmiller interviewing Kevin Warsh. We have Ray Dalio. I’m interviewing David Tepper who's going tell us where the markets are going to go as well as why the Carolina Panthers are going to get in the playoffs. We got Cathie Wood. We have Dawn Fitzpatrick, we have JAY-Z, we have Ashton Kutcher. Do you know last year at our conference, every single best idea made money including the shorts and average a 30% return. So, this is one where you can go and get actionable ideas and make some money and most importantly, this is the way we're going to rebuild New York or the way we're gonna bring this city back is we're gonna start in the trenches with the people who were hurt the most in this pandemic so I hope everyone, even if you don't watch all of it, sign up, go to robinhood.org, investors.robinhood.org, or robinhood.org, sign up, make the contribution. 100% of that money because J.P. Morgan's paying for it is going to go to help people in need.
ANDREW ROSS SORKIN: Paul Tudor Jones, thank you for spending the half hour with us appreciate it.
PAUL TUDOR JONES: It’s always great to seeing my friends.
ANDREW ROSS SORKIN: It’s great to see you. Appreciate it very, very much. Thank you. Becky?
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