Billionaire Investor Paul Tudor Jones Explains Why He Is Long on Gold and Bitcoin: ‘All Roads Lead to Inflation’

On Tuesday, October 22, Billionaire investor Paul Tudor Jones, founder and chief investment officer of Tudor Investment Corporation, joined Andrew Ross Sorkin on CNBC’s “Squawk Box” to discuss the pressing issues surrounding the upcoming U.S. presidential election, the state of the U.S. economy, and the looming threat of a debt crisis.

PTJ kicked off the discussion by calling the 2024 U.S. presidential election the “macro Super Bowl,” explaining that, for hedge fund managers like himself, this election is highly consequential. Jones noted that while some elections are not so binary in their outcomes, this one could be. However, PTJ clarified that it’s not just about who wins—it’s about how the market reacts to the winning candidate’s policies. He hinted that the market could either continue on its current path or experience a shift if the market’s perception diverges from what candidates have been promising.

When asked about Stan Druckenmiller’s prediction that Trump would win, PTJ acknowledged that the markets—especially betting markets—seem to be skewed toward a Trump victory. However, he expressed skepticism, noting that markets can sometimes be heavily biased, especially when influenced by political leanings. PTJ drew an analogy with sports betting, where home bias can distort the odds, making it clear that while market indicators point toward a Trump win, he is cautious about relying too heavily on them.

PTJ admitted that he, like Dan Loeb, had repositioned his portfolio under the assumption that Trump might win the election. He shared that this repositioning involves taking on more inflation-sensitive trades, emphasizing the importance of understanding how election outcomes influence market trends. However, PTJ pivoted quickly, indicating that the more pressing issue isn’t necessarily who wins but rather the U.S. debt trajectory.

According to PTJ, the most significant issue facing the U.S. is its growing debt. He pointed out that in just 25 years, the federal debt-to-GDP ratio has surged from around 40% to nearly 100%. PTJ provided a sobering projection from the Congressional Budget Office (CBO), which estimates that U.S. debt could hit 124% of GDP in the next decade. Even more concerning, Jones projected that if this trend continues over the next 30 years, debt could reach 200% of GDP.

He described this as unsustainable, raising the question of whether markets will continue to tolerate such high debt levels after the election, especially considering the spending and tax cuts both candidates are proposing.

In a sharp critique of the current political landscape, PTJ highlighted that both sides of the political aisle are handing out “tax cuts like they’re Mardi Gras beads,” referring to the unsustainable promises made by both parties. PTJ stressed that these promises of tax cuts, combined with an already massive budget deficit of around 7-8%, are unrealistic. He predicted that regardless of who wins, the U.S. Treasury market—especially debt markets—will not tolerate these fiscal policies.

PTJ explained that financial crises tend to simmer for years before erupting suddenly, often in the span of just a few weeks. He expressed concern that this election could be one of those turning points. According to PTJ, the U.S. government is essentially asking bondholders to buy into a long-term proposition that is increasingly unsustainable. He framed it with a personal analogy, explaining that if he earned $100,000 a year but owed a friend $700,000, and then asked to borrow an additional $40,000 each year, the friend would likely say no. PTJ emphasized that this is the exact proposition the U.S. government is making to bondholders today.

In addition to his broader concerns about the U.S. debt crisis, PTJ also touched on specific policy measures that he believes are necessary to stabilize the debt-to-GDP ratio. He emphasized that letting the Trump-era tax cuts expire is non-negotiable, describing it as the first essential step in addressing the deficit. PTJ noted that simply allowing these cuts to expire would bring in $390 billion, but even this alone would not be enough. According to PTJ, raising the payroll tax by 1% on all workers is another critical step to closing the fiscal gap.

However, PTJ acknowledged that such measures would likely lead to a period of economic contraction. He talked about the importance of the Federal Reserve’s role in offsetting the contractionary effects of these fiscal policies, advocating for an accommodative monetary stance to prevent the economy from suffering too deeply. PTJ proposed increasing individual tax rates on higher income earners, potentially raising the top rate to nearly 50%, while also considering an increase in the capital gains tax. Yet, he pointed out that these measures would only stabilize, not eliminate, the growing debt.

PTJ also reiterated his long-standing view that inflation is inevitable given current fiscal and monetary policies. He explained that historically, countries have inflated their way out of high debt levels, and he believes the U.S. will likely follow the same playbook. PTJ recommended hedging against inflation by investing in commodities, gold, Bitcoin, and even technology stocks like those in the NASDAQ, which he said many younger investors prefer as inflation hedges.

PTJ is long on gold and Bitcoin, both of which he sees as excellent stores of value in an inflationary environment. He went further to explain that he holds no long-term fixed income, as he believes it is a poor investment given the inevitable rise in inflation. Instead, he advocates for short-term cash holdings and a diversified basket of inflation hedges. According to PTJ, maintaining a dovish Federal Reserve policy is crucial to stabilizing the debt-to-GDP ratio, but it must be done without allowing inflation to become an overly burdensome “tax” on citizens.

PTJ introduced a term borrowed from professional wrestling—”K-Fab”—to describe the current global economic environment. In wrestling, “K-Fab” refers to the unspoken agreement between fans and wrestlers to suspend disbelief and accept the scripted nature of matches. PTJ argued that we are living in an “economic K-Fab” in which the U.S., as well as countries like the U.K., France, Greece, Italy, and Japan, are all operating under the illusion that their fiscal policies are sustainable. He suggested that the real question is whether, after the election, the markets will have a “Minsky moment,” a sudden realization that these fiscal positions are untenable.