Billionaire hedge fund manager Paul Tudor Jones is sounding the alarm over the U.S. government’s ballooning fiscal deficit, warning that the current trajectory of spending, exacerbated by the promises of both presidential candidates, could push the country toward a financial reckoning. He predicts the bond market may ultimately force Washington to address the issue post-election.
“We’re going to be broke really quickly unless we get serious about reining in our spending,” Jones bluntly told CNBC’s Andrew Ross Sorkin on Tuesday.
As the founder and chief investment officer of Tudor Investment, Jones expressed deep concern that runaway government spending could trigger a sharp sell-off in the bond market, leading to a spike in interest rates.
He revealed his personal strategy: steering clear of fixed income and actively shorting the longer-dated portion of the bond market.
“I think all roads lead to inflation,” he said. “I’m long gold, long bitcoin.” Tudor added that he would short fixed income, particularly longer duration paper.
“The question is, after this election, will we experience a Minsky moment in the U.S. debt markets?” Jones asked, referencing the term used to describe a sudden collapse in asset prices when markets can no longer sustain excessive risk.
“Will there come a moment of collective realization that what we’re talking about is fiscally unsustainable?” he continued.
For fiscal year 2024, the federal deficit soared past $1.8 trillion—up 8% from the previous year, according to the Treasury Department. To cover this gap, the government sells Treasury bonds, a process closely monitored by Wall Street traders. Rising interest rates over the past three years have further complicated matters, as they make servicing the national debt increasingly expensive.
Jones highlighted that budget deficits swelled during both the Trump and Biden administrations, and he pointedly criticized both Trump and Vice President Kamala Harris as being “least suited” to tackle the looming budget crisis. He added that inflation remains a significant concern, especially if Trump were to regain office.
Jones emphasized that the U.S. has options to bring spending under control, but they won’t be easy. Potential solutions include allowing the expiration of Trump-era tax cuts or implementing drastic reductions in the federal workforce.
Having founded his hedge fund over four decades ago, Jones earned his reputation by correctly predicting the 1987 stock market crash. Now, his latest prediction warns of another looming financial storm, with the bond market at its center.
It’s also a sign that Bitcoiners and Goldbugs are now on the same page. Both have performed well this year, with Gold up 30%, and Bitcoin up 52%.
Source: Trading View
