Hedge fund manager Paul Tudor Jones said the world was living in the worst possible geopolitical environment amidst the current international war.
The deadly escalation of the Middle East war between Israel and Palestine, the war between Ukraine and Russia, and perhaps Taiwan and China as well. “It’s certainly the most threatening and difficult geopolitical environment I’ve ever seen since I was born,” he said.
The founder of Tudor Investment Corporation said in an interview on CNBC on Tuesday that the United States will head into recession in the first quarter of 2024, with a debt-to-GDP ratio of 122%.
Similarly, the investor market’s reaction to news of the weekend’s war in Israel was linear, he said. That’s because we’re exhausted by headline risks. ”
The worst danger could arise if Iran were involved, he added. “The big question now is: Was Hamas an Iranian proxy like Hezbollah, or just an ally?” And there are a variety of reactions, of which the final decision will be made. It depends on Israel. ”
Jones also said he plans to invest in equity risk assets until it becomes clear how Israel will respond to Iranian involvement.
He said that due to the country’s financial situation, “we are currently in a very difficult time to invest in U.S. stocks,” and that “a completely different political mentality will be needed.”
He explained that the current US fiscal situation is very different from “other catastrophes” that were not foreseen.
“The financial situation of our country is very clear, and there are clear remedies for it,” he said. Remedies “not yet part of the political dialogue.”
In order to break out of the “vicious cycle of increased funding due to rising interest rates,” [which] The federal government would be required to cut spending if it “causes an increase in debt issuance, further liquidation of debt, increases in interest rates, and an unsustainable fiscal situation.”
He argued that it would mean cutting social rights such as Social Security benefits, restricting Medicare and Medicaid, and raising taxes on the ultra-wealthy and most Americans.
As the old saying goes, “Freedom isn’t free,” he said.
Jones said the U.S. interest bill will soon exceed defense spending in “just a few years,” making the interest bill the highest percentage of GDP in recent generations. “Unless something is done,” nearly 20% of people’s taxes will be used to pay interest on debt.
From a bond market perspective, the private sector needs to raise $2.3 trillion, he added. This caused bond yields to jump by as much as 100 basis points. In 2024, he said, it will be $2.7 trillion, and “nearly 10% of the budget will have to go to federal spending.”
He said that would result in a recession sometime in the first quarter of 2024, as the bond market would drive further interest rate hikes through supply and demand, as the liquidation price for long-term debt has not yet been determined.
“We need to have budgets that allow us to lower interest rates and reduce interest costs, but the market is not going to tolerate that and is not going to give us the premium that comes with being a reserve currency.”
But neither Joe Biden nor Donald Trump have touched on these issues in their election campaigns.
“The real problem is that these are the two men who got us into this situation — and the bond market is kind of realizing that as we get closer to the primaries — that we’re the president. These are the two people I chose,” Jones said.
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