WHEN: Today, Tuesday, October 10, 2023
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC interview with Tudor Investment Corporation Founder & CIO Paul Tudor Jones on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Tuesday, October 10. Following are links to video on CNBC.com: https://www.cnbc.com/video/2023/10/10/legendary-investor-paul-tudor-jones-us-might-be-in-weakest-fiscal-position-since-world-war-ii.html and https://www.cnbc.com/video/2023/10/10/paul-tudor-jones-really-challenging-time-to-want-to-be-an-equity-investor-in-u-s-stocks-right-now.html.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: We have another important guest at the table this morning. Paul Tudor Jones is here to talk markets, rates, the Fed, and everything happening in the Middle East right now. He’s the founder and CIO of Tudor Investments, founder, of course, of the Robinhood Foundation. And it’s great to see you here, especially at a moment where we’re all trying to make sense of a lot of senseless things. But let’s start with Israel in terms of thinking about the geopolitical implications of this, but also how you think it’s going to long-term and short-term affect markets.
PAUL TUDOR JONES: Well, I think Israel, obviously, it’s a – it’s a huge tragedy, but you have to put it in a larger geopolitical context, which is, we now have possibly three theaters where we’re going to have geopolitical challenges. We’ve got the Middle East in Israel, obviously the Ukraine and Russia, and then at some point down the road Taiwan and China. So, it’s a really — I would say since — certainly since I was born it might be the most threatening and challenging geopolitical environment that I’ve ever seen because you have four nuclear powers, three of whom are led by sociopaths, and that would be China, Russia, and North Korea. Obviously, those leaders have zero accountability, responsibility, to anyone but themselves. And they have not an ounce of humanity in their bones because they regularly disappear, both their friends and their enemies. And then the fourth, Iran, is led by someone who thinks God is talking to him and has avowedly said that they want to remove from this earth a nation state with probably the most brilliant people ever assembled within a national boundary. So, it’s a really challenging environment. If you think about it too much, I want my lucky color to be invisible, right? It’s, it’s a very threatening time. So that is also happening at the same time, the United States is probably in its weakest fiscal position since certainly World War II with debt-to-GDP at 122 percent. So, it’s a really tough time for, I think, the moral voice of the world, certainly been the leader since World War II. It’s a, it’s a really difficult time.
SORKIN: Let’s break this apart. I want to talk U.S. in just a moment. But on, to this existential risk that you talk about, you know, these nuclear powers, is there any way as an investor to even think about that beyond just the end? Meaning, do you say to yourself, I need to dare I say hedge myself against these risks, or do you say that these risks are just what they are and so I have to keep going?
JONES: I think we’ve become inured to headline risk. If you think about the market’s reaction to what happened over the weekend, it was a linear response, right? It was, it was risk off, but it wasn’t anything that possibly recognizes just how dangerous this could be. So and I think that’s because we’ve gotten exhausted with, with headline risk. It doesn’t mean that we can’t have a non-linear reaction to markets down the road if something bad happens. So, it doesn’t mean that it means and I think at this point in time we’re just probably incorrectly exhausted by seeing this.
BECKY QUICK: This was pretty bad, though. Like, what, when you say something bad happens, what would that have to be? Something that happens domestically?
JONES: Well, I mean, if you think about, again, what happened, where this really gets bad is obviously if Iran and Israel get in direct conflict. That’s when it really gets bad because then you’ve got the ability to have kind of a First World War cascade when everyone gets involved. Obviously, the big question now is, was Hamas a proxy for Iran, like Hezbollah is, or was it simply an ally? And there’s the, there’s big, different responses that come from which one of those is ultimately determined by Israel. So, yes, if, from a personal standpoint, would I be investing in risk assets now in stocks until I saw what the resolution was with Israel and Iran? You know Israel’s going to respond in some way, shape, or form. The determination of whether or not Iran was actually responsible is enormous because, again, it has the possibility to really escalate into something terrible.
SORKIN: And so, does that mean you, that you are, we would be, as an investor, risk off in terms of, you just said, would you want to own equities? I mean there’s also the question of what you think is going on in the United States with our economy, with the rest of the world, with what the Federal Reserve is or isn’t going to do.
JONES: It’s a, it’s a really challenging time to want to be an equity investor in U.S. stocks right now. It’s really hard because again you’ve got the geopolitical uncertainty, which we, I think, come to live with to a certain extent. But again, all of those had the ability to, to have a non-linear outcome. So, something not just business as usual. But I think it’s, I think equally as much of a problem is the fiscal situation that we’re facing in the United States, which is going to – which is going to require a completely different political mentality to what—
JOE KERNEN: That’s pretty, that’s pretty telling. So, we’re, you know, the possibility of a real possibility of a nuclear war is, is there.
JONES: Right.
KERNEN: But our fiscal situation is just as bad. That’s, I mean, that’s a statement. So, black swans, they’re not black swans anymore, they’re, they’re actual quantifiable risks. We need a new word for black swans. There’s like four or five of them that used to be, you didn’t even have to really, if it happened, we’re all gone anyway, so you don’t worry about it. But now they’re actually something that are on your radar. Well, so was the pandemic, which was on your radar in Davos before anyone knew the word.
JONES: I would say the fiscal situation is very different from other cataclysmic events that we’ve suffered as a country. It’s not Pearl Harbor. It’s not 9/11. It’s not Covid, where we did not see them coming. They were external shocks. The fiscal situation we have is one that’s really clear and there are obvious remedies for it. And it’s something that we’re going to have to deal with. It’s not part of the political dialogue yet, really, I don’t think so.
KERNEN: You’re talking about entitlements again?
JONES: It’s, well, it’s a variety of things.
KERNEN: But mostly—
JONES: So, if you just think about what’s happened in since really in the last three or four months, we’re getting ready, I don’t know if we’ll have a Minsky moment in the bond market. I don’t know if we’ll have that point of recognition. But we’re going to have the grinding reality that with 122 percent of debt-to-GDP, as interest costs go up in the United States, you get in this vicious circle where higher interest rates cause higher funding costs, cause higher debt issuance, which cause further bond liquidation, which cause higher rates, which put us in an untenable fiscal position. We, our interest bill is going to, very shortly, exceed our defense spending, in just a couple of years. Our, it’s probably in four- or five-years ceteris paribus will have the highest interest bill as a percentage of GDP that we’ve ever had. It will probably be close to 20 percent of your taxes will go to pay interest on the debt unless we do something.
SORKIN: Right.
JONES: So, that has to be part of the dialogue. That has to be the main dialogue for next year’s presidential election. And right now the real problem is, the two guys that put us in this situation, and I think that’s what the bond markets kind of recognizes as we get closer to primaries, are the, are the ones that are our choices for president and, and can you imagine Donald Trump or Joe Biden, they’re, they’re the ones that started this. It actually started with Trump, right? Trump in 2016 was going to come in and he was going to cut taxes and cut spending. Well, along the way, cutting taxes was a great idea, but he didn’t cut spending. So, he inherited a 2.6 percent budget deficit. In 2019, it was 4.8 percent, before the pandemic. So, it almost doubled. And then in 2020, it went to 14 percent with the pandemic. But he’s the one who, with a strong economy, said I’m going to double down and cut taxes. We’re going to grow our way out of it. Joe Biden, when he got elected, said, ah, the sugar high is pretty good. You had two or three Oreos. I’m going to eat the entire, the entire package. And the Build Back Better Act was really the build back debtor act. So, between the two of them, we kind of added 20 percent of debt-to-GDP. Neither one of them, the people that created the problem, as Einstein said, are not the ones to fix it. Neither one of them can be president. It’s really, it’s that simple.
SORKIN: Is there a candidate that you like and is also there a candidate that you think has a chance given the numbers that we see today?
JONES: Well, it’s going to be really interesting. No Labels will probably nominate Joe, Joe Manchin. We, as a country, you know, freedom’s not free, right? That’s, that’s the old saying. We, we love to laud our troops who put their bodies and souls on the line for this great country. It’s clearly, we’re going to have to have, fiscal retrenchment. We’re going to have to sacrifice. We’re going to have to cut spending. We’re going to have to deal with entitlements. We’re going to have to change Social Security. We’re going to have to limit Medicare and Medicaid, we’re going to have to raise taxes on the very wealthy. We’re going to unequivocally raise taxes. The United States right now has the fifth lowest tax take out of 40 OECD countries. So, there’s plenty of room for to us raise taxes.
KERNEN: Would you have shut down the government? Were you with those guys that said, we need to, you know, we need to take distraction measures? They, they say the same thing about the $33 trillion.
JONES: Yes.
KERNEN: And we’re never going to get anywhere.
JONES: Yes, the problem with them–
KERNEN: Yes.
JONES: Is that they only look at one side of the equation, which is that we have to cut spending. They are unwilling to talk about the other side of the equation, which is, we’re going to have to raise taxes. You cannot do this simply by cutting spending. We have, right now, here’s what the bond market’s telling you. Last year, or this year rather, we had $2.3 trillion of funding that the private sector is required to find the funding for. So, that has caused a 100-basis point spike in bond yields. In 2024 it’s going to be $2.7 trillion in the U.S. $2.7 trillion, almost 10 percent of our budget is going to have to be to fund our federal, our federal spendings.
QUICK: So that, it doesn’t matter what the Federal Reserve says at this point. They’ve lost control. This is going to be the bond market talking and setting rates here.
JONES: Yes, the bond market. So, what’s happening is and why we’re probably getting, we’re probably going to go in a recession sometime in the first quarter of next year, probably because the bond market, simply through supply and demand, is going to deliver more rate hikes because we don’t have a clearing price yet for long-term debt.
SORKIN: Right.
JONES: And so, those rate hikes are probably going to tip us into recession.
KERNEN: Paul, we hear people say, the only way out of this is growth, or at least we need growth to help us. How do you raise taxes in a way that doesn’t cause growth to be hindered? Who, you say on the rich. How rich? Are you talking about corporations, too? Are you talking about—
JONES: I think, again, I think all Americans, you know, if you think about it, here’s what we need, we need politicians, first of all, who will tell us the truth. We have a big fiscal problem. A 122 percent of GDP means every 1 percent increase in interest rates over a course of the next decade, ceteris paribus, everything the same, adds 10 percent to debt-to-GDP. So, we have to have a budget that allows us to reduce interest rates and reduce our interest costs, and the markets are not going to tolerate that and give us that premium that comes with being the reserve currency unless we get—
KERNEN: Right. But there’s not enough guys like you–
JONES: Yes.
KERNEN: Around to raise taxes on to do it. You’ve got to go down pretty far. You need to broaden the base. You can’t just do it on you and Bezos and people like that.
JONES: Yes. I would agree that we’re going to have to have higher taxes on the vast majority of Americans.
KERNEN: Okay.
JONES: And we’re going to also have to cut spending. Can I just say, it’s going to take, first of all, politicians who are willing to have a truthful conversation with us.
KERNEN: Okay, that’s not going to happen.
JONES: Then, secondly, it’s going to take an American public, again, freedoms not free. We’ve got to remember that, who has the fortitude to listen and to understand. And then finally, if you think about our generation, right, particularly yours and mine, Joe, we have probably been asked to do the least of any generation in the history of this country. We’ve been asked to do the smallest amount to sacrifice the least.
KERNEN: I didn’t live at home until I was 40, Paul. I actually, I actually did go to grad school and then got a job. So, I’m—
JONES: So, I’m just saying, we’re all going to have to, we’re all going to have to give a bit. We’re going to have to compromise. We’re going to have to deal with a lot of real things that politically right now people won’t even talk about, are going to have to be part of the conversation and discussion. It’s going to take great leadership. But we’ve seen this happen before. We’ve seen fiscal retrenchments happen time and time again through history. We’re getting ready to have one.
SORKIN: Can I ask you just one other geopolitical issue in here, and then I actually want to talk to you about Robinhood, but China. China has been buying our treasuries for a very, very long time and yet we now have a more complicated relationship with them than ever. How concerned are you about that piece of this?
JONES: Well, again, I look at markets from a flow of funds standpoint. So, we’ve lost a lot of our foreign central bank support. There’s going to be a crowding out effect, right? If you, and the crowding out effect, you already see it. We’ve got, the governments now borrowing at 5 percent. So, all this worked ten years ago when rates were zero, right? You could paper over any problems you want, taking on whatever debt you want. That was the problem with QE and zero rates is we indebted ourselves when there was no cost. Now, all of a sudden, there’s a cost, right? Corporate borrowing rates are 6.5 percent, high yields, 9.25. Credit card debt is 23 percent, right? And a loan shark all of a sudden looks like Mother Teresa. So, we’re at a point where we’re going to have to get our fiscal house in order. And, yes, it’s going to take tough, tough discussions.
KERNEN: I’m still, Paul, I’m still trying to figure out how we, how we do this. So, at a certain point in New Jersey and New York, marginal rates are almost 60 percent.
JONES: Right.
KERNEN: So, what, where it, so, is 70 OK for certain people, a, and, b, should we raise rates on corporations or are they the people that are the individual – they’re – they’re not people, but supposedly they are, the Supreme Court said. But do we raise rates on we’re trying to be compete globally, corporations are. Should we raise taxes on corporations and is 70 percent an OK marginal rate?
JONES: Yes, that’s obviously the most difficult question a politician has to deal with.
KERNEN: Well, we all have to think about that.
JONES: If you think about where we were when the last time we had debt-to-GDP in the 50s, and the 60s, and the 70s—
KERNEN: So, we should go to 70 percent?
JONES: I’m saying that some combination of entitlement reform, right, 70 percent of our budget deficit comes from Social Security, Medicare, Medicaid. There’s going to have to be entitlement reform.
KERNEN: Definitely.
JONES: There’s going to have to be — we’re going to pull on every – we’re going to turn every knob a little bit, right? That’s what’s going to have to happen. We’re going to have to turn down the spending. We’re going to have to turn up taxes, incrementally, at every point in time to deal with this. And again, it can’t be one of these situations where everything — where something’s off the table, right? We don’t — I don’t think we have the ability to find $1 trillion of savings. That’s what we need to stabilize debt-to-GDP, we’re going to have to find $1 trillion of savings in 2025. That’s what it’s going to take. And the markets, I don’t think, are going to give the U.S. a pass until we get to that. So that $1 trillion of savings can come from somewhere. It’s going to take people getting in a room and compromising and having the ability to have a discourse and find, as Americans have for 250 years, find the best solution that works for everybody.
SORKIN: I said I wanted to talk about Robinhood, but I also just looked on the screen behind you and I saw the price of Bitcoin. And I know every time we’ve spoken, you’ve had a take on Bitcoin. Do you have a new take? Still holding?
JONES: I think – I think – I think now the barber’s relics and I would love gold and Bitcoin together. I think they probably take on a larger percentage of your portfolio than historically they would because we’re going to go through both a challenging political time here in the United States, and we’re going to go through — we’ve obviously got a geopolitical situation.
SORKIN: Right.
JONES: So, I would – I would say —
SORKIN: But high interest rates were supposed to be the thing that was actually going to be unhelpful to Bitcoin?
JONES: Well, it – and I think, on a relative basis, look what’s happened to gold. It actually has been. Clearly, it’s suppressed it. So, you know that more likely than not we’re going to go into a recession. There’s some pretty clear-cut recession trades. The easiest are the yield curve gets really steep, term premium goes into the backends of debt markets, right, into 30-year, and 10-year, and 7-year paper. The stock market typically, right before a recession, declines about 12 percent. That’s probably going to happen at some point, from some level. And you look at the big shorts in gold, more likely than not in a recession, the market’s typically really long.
SORKIN: Right.
JONES: Assets like Bitcoin and gold. So, there’s probably a $40 billion worth of buying that has to come into gold at some point between now and if that recession actually occurs. So, yes, I like Bitcoin and I like gold right here.
SORKIN: All right. Before we let you go, I want to talk about Robinhood, which, of course, you’re the founder of, but also the migrant issue in New York. Given what Robinhood has done over the years to try to help New Yorkers, we are now facing a new crisis.
JONES: Right. So, you just have to remember, being a New Yorker is a very special thing. We have the gray lady sitting in New York Harbor and she says, bring me your tired, your poor, your hungry, those huddled masses that yearn for freedom. And I would argue that describes 90 percent of the migrants that have come into this country. I think when we go to heaven, and you get to the pearly gates, they’re not asking for your national identity card. They’re not. They take everyone, depending upon who you are. Robinhood is going to help the people in New York City who are in need, whether they’ve been here for ten minutes or ten years. That’s what we’re going to do. We’re going to reach out. Now, having said that, clearly, we have an unsustainable situation in New York City. We have 120,000 migrants on an already over-taxed situation. We’re now putting people who are poor and destitute on top of the underserved and under resourced in this city. It’s not fair. It’s wrong. So, I thought Joe Manchin, who, by the way, I hope runs for president under No Labels, had a great solution on Friday. Declare a temporary state of emergency. Close the border. Let us digest the 3 million migrants that have come here in the past two years. Let us go through a natural — a legal naturalization process where they learn, those that make it, what it means to be an American, how our founders built this country, what democracy is, what civic duty is, what an election means, which they haven’t seen, right? So, yes, we have a problem. It’s impacting us. And we’re doing everything we can at Robinhood to ameliorate it.
SORKIN: Paul, we want to thank you. You’ve done remarkable work for –
JONES: Can I just say –
SORKIN: You have a conference coming up –
JONES: We have – October –
SORKIN: A big investor conference coming up that raises an enormous amount of money for – for New York.
JONES: And I hope everyone that — that can afford to come will come. We’ve got Sam Alton, Condoleezza Rice, Stan Druckerman, Steve Cohen, Ken Griffin. It’s going to be absolutely the best one we’ve ever had. And all that money goes to helping people in need.
QUICK: And where can you sign up for it?
JONES: Pardon?
QUICK: Where can you find details and sign up for it?
JONES: Yes.
SORKIN: On the Robinhood site.
JONES: Absolutely. Please.
SORKIN: All right. OK. Paul, thank you for coming in this morning. Thank you for your perspective on all of this and helping us through it. And we look forward to seeing you again very soon. Good luck with the event. We’ll be watching that one as well. Thanks.
JONES: Thank you.
