Legendary investor Paul Tudor Jones said that regardless of whether Trump or Harris wins the presidential election, US inflation will rise - both are making "crazy" promises of tax cuts and increased fiscal spending, turning a blind eye to America's deficit problem. If this issue is not resolved, the US will need to rely on inflation to get rid of its debt. Therefore, he is avoiding fixed income and shorting long-term US bonds
Tudor Fund founder, billionaire, and legendary investor Paul Tudor Jones hedged against inflation risks by buying gold and bitcoin before the election.
On Tuesday, October 22, Jones told CNBC that regardless of whether Trump or Harris wins the presidential election, U.S. inflation will rise - both presidential candidates are making "crazy" promises of tax cuts and increased fiscal spending, turning a blind eye to America's deficit issue. If this problem is not resolved, the U.S. will need to use inflation to get rid of debt.
Jones stated that U.S. government debt has grown from 40% of GDP to nearly 100% in twenty-five years, seemingly on an unsustainable path. Therefore, he is avoiding fixed income and shorting long-term U.S. bonds.
"All roads lead to inflation. I am bullish on gold, bullish on bitcoin, and I think commodities are severely undervalued, so I am also bullish on commodities. I think many young people are looking for inflation hedges through the Nasdaq, which is also performing well."
Jones is not the only billionaire investor issuing fiscal warnings, as Stanley Druckenmiller also stated earlier this month that he is shorting bonds. Druckenmiller mentioned that the actions of both parties in terms of "fiscal recklessness" are about to emerge.
However, economists predict that if Trump wins, the U.S. inflation issue will worsen, as Trump plans to significantly increase tariffs and continue the 2017 corporate tax cut policy. Jones mentioned that he has realigned his portfolio to include more inflation trades because he believes Trump may win.
Recently, strong U.S. economic data has raised the risk of an economic "non-landing," coupled with increased market expectations of a Trump victory, leading to a rapid rise in U.S. bond yields. On Monday, the yield on the U.S. 10-year Treasury rose by 11 basis points, and today it increased by 2 basis points to 4.232%.
Failure to address the inflation issue may trigger protests in the bond market
Jones believes that both candidates are worrisome because they both seem to not take the country's expanding debt seriously. Regarding the U.S. budget, Trump and Harris are both "the least suitable for the job."
If the next president does not adjust policies to address the rising debt-to-GDP ratio in the U.S., the solution to this situation will be inflation.
Jones added that this will include raising consumption taxes and lowering interest rates as much as possible.
According to the Congressional Budget Office's projections, by 2034, U.S. debt as a percentage of GDP will reach 122%, but Jones holds a strongly pessimistic view of America's fiscal trajectory, considering this to be a very conservative estimate.
**Jones believes that the next president must address the issue of massive deficits, or else face protests in the bond market. "Bond vigilantes" have already taken action last year, refusing to buy U.S. bonds, leading to the 10-year Treasury yield hitting 5% in October last year**
"Under Trump's administration, the deficit increased by $500 billion each year. Under Harris's plan, the deficit would increase by another $600 billion each year. I feel that these are all fantasies, and the bond market will not tolerate this situation."
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