CNBC: Bubble Warning

Summary

On October 10, 2022 — the day before the Robin Hood Investors Conference opened in New York — Paul Tudor Jones sat down with CNBC's Squawk Box for a 23-minute interview that became one of the defining macro statements of the 2022 bear market. With the Federal Reserve midway through its most aggressive tightening cycle in four decades, his message was blunt: the Fed was fighting something it had not seen in almost forty years, inflation is like toothpaste that will not go back in the tube, and the correct posture for general investors was defense.

The interview ranges across the full macro board: the calibration problem facing Powell, with wage inflation at five and a half percent against a two percent target; the binary, nearly untradeable risk of a losing dictator in Russia and Tudor's rule that everyone "cover their tails"; a decade-by-decade review of bubbles from the 1970s forward; and the recession playbook — short rates stop rising before equities bottom, which is why two-year notes "may have some value." He confirmed he still held a small bitcoin allocation even as Stan Druckenmiller exited his, and closed with an extended defense of ESG and JUST Capital against politicized critics, backed by the performance spread of the JUST 100.

Full Text

Machine transcript (YouTube auto-captions), punctuation lightly normalized; wording as transcribed. Recognition errors possible — see sources.yaml for provenance.

Morgan Robin Hood conference which kicks off here in New York City tomorrow joining us right now live in an exclusive interview is Paul Tudor Jones founder and chief investment officer of tutor Investment corporation just Capital chairman and of course Robin Hood foundation's founder and of course a board member it's great to see you this morning good to see you we've all been trying to make sense of these markets of this economy we see these hot employment numbers coming in trying to understand what the Federal Reserve is going to do we're seeing what's happening in Europe we have the issues in Ukraine and Russia and some of the comments by President Putin I want to put it all into the mix as as um as a macro Trader and you're going to be doing a master class we should say about ma about macro trading coming up on Wednesday what is your take on what's happening in this economy in this market right now well these are Spectacular times for macro and great times for macro are typically not good times for the for General investment owning stocks owning bonds macro works when everything is broken a bit that's when you have the most volatility when it's really best for the type of trading that I do so for me it's bad Times Are Good Times bad times good times for me or bad times for General investors and if you think about where we are right now the Federal Reserve board is fighting something and hasn't seen really in almost four decades which is inflation and inflation's it's a bit like toothpaste once you get it out of the tube it's it's hard to get it back in right and so the FED is it's fed is furiously right now trying to wash that taste out of their mouth and they're doing it by raising interest rates and of course there's a big calibration question here just how much are they going to raise them how much do they have to raise them and what's the consequence of that and typically for when you have an extreme event like inflation we have right now the only way to to get it back in the tube is to raise interest rates to a level Pal's already talked about pain I take that as a metaphor for a recession and if we go into recession that has really negative consequences for a variety about so which side of the debate are you on there is a version of the debate which says it's the Jay Powell version which is the credibility of the FED is at stake we have to keep going the Market's expecting 75 basis points then there's the Barry Sterling position a regular here at this conference who says already gone too far that the lagging effect hasn't really caught up we haven't seen it but boy are we going to and by then it's going to be too late well the fed's really caught between a rock and a hard place you've got wage inflation at five and a half percent that has to come down to three and a half percent for us to get inflation back to two percent right there's that one one to one and a half percent productivity above the normal two percent inflation which allow which means again inflation's got to get back to three and a half I mean excuse me wage inflation has to get back to three and a half percent and that's really really hard to do right if I just think about the coal increases we had for Social Security last year you know at our company we're just kind of beginning to talk about what are going to be our wage increases for next year and so for that compensation level that most Americans are in or in certain certainly that tier everyone is kind of expecting us to play catch-up for what they suffered this year and they weren't compensated for at the beginning of last year and salary so we're looking at wage Rises of five to ten percent in that kind of average American comp level so it's really challenging for the FED if they're truly uh going to hit the two percent Target and I think they should there's so many long-term do you think he should continue to keep going 75 basis points make sense to you you think you should lighten up what's your what's pay me now or pay me later so if if they if they don't keep going and we have high and permanent inflation it just creates I think more issues down the road we went through the greatest period of global Prosperity the greatest period of reduction in poverty rates globally when we had two percent inflation on average in most the developed world and it was a real struggle to get there if you remember obviously volcker came in Jack rates we went through we paid a huge cost for it but even then after he took rates almost to 20 percent he still didn't win the fight against inflation it took a decade for that to work its way through but if the argument is that it always tips over into recession are you arguing that is the right decision I'm saying that more likely than not if we're going to have long-term Prosperity you have to have a stable currency a stable in a stable way to Value it so yes you have to have something two percent and under inflation in the very long run to have a stable Society so there's going to be short-term paying associated with long-term gain yes okay throw into the mix this Putin now talking about a nuclear war how do you how do you even conceive of that it's so hard to trade it because it's such a binary event I mean if you think about it we have a a dictator who's losing and typically that doesn't end well he typically that's going to end with the violent death and the question is who is he going to take with that right is it going to be Regional Focus between Russia and Ukraine or does it expand beyond that and obviously if you think that the two outcomes have such two dramatically different um impacts in the markets if if we have if all of a sudden he was gone tomorrow by some coup or something it had this massive rally and risk and yet if what I think is probably more probable he escalates the kinetic side of his response then you have just the opposite the Armageddon scenario and I'm not smart enough to know which one I don't think anyone can accurately predict the outcome of this right is there a trade I mean are people trading this uh well if I just take our company we make everyone cover their tails so if you've got if you've got something that's going to be exposed to again an escalation in the kinetic response whether it's chemical weapons or a tactical nuke or whatever we make everyone cover their tails because again the outcomes are so so binary and they have such massively different uh consequences for so many different asset classes you know in the middle of the pandemic I remember you joining us and talking about the possibility of runaway inflation and one of the things you talked about then was a hedge around using crypto and Bitcoin and your fan your friend Stan druckenmiller had bought some Bitcoin at the time too Stan druckenville recently had an interview with Joe Kernan at delivering Alpha said he's out of Bitcoin where are you I've still got a very minor allocation I've always had a small allocation to it I think you know if you think about every decade the 70s were the decade of inflation the 80s was a decade of kind of Boom bust huge swings in dollar volatility the 90s was equitization the.com bubble the odds was the mortgage bubble and the great financial crisis the teens or the peak of globalization and probably the peak of Central Bank experimentation with monetary policy right uh the 20s I'm afraid are going to be that period where we really focus on debt Dynamics country by country fiscal deficits and the need to run certainly fiscal policy in a way that gives people confidence in the long run value of the currency and the problem that we've had really for the last 12 years is that we've we've we've done this massive experimentation with monetary policy where we suppressed yields and we did this massive experimentation the fiscal side during the pandemic and so my guess is the 20s are going to be just the opposite of both we're already seeing that right now from the central bank we're gonna the whoever is the president in 24 is going to be dealing with debt dynamics that are so dire and so every so dire that what this is the 1970s no so dire that that we're going to have to have fiscal retrenchment and that fiscal entrenchment means that if we don't have fiscal retrenchment then everything that we spent if you think about the teens which was all about suppressing yields right I think the 20s will be just the opposite I mean higher term premiums and bond markets higher term premiums and stock markets it'll be just the opposite of what we experienced the last decade so in a time when there's too much money which is why we have inflation and too much fiscal Spirit spending something like crypto specifically Bitcoin and ethereum where there's a finite amount of that that will have value at some point someday I don't know when that will be but it will have value that scarce and the value at a much higher number than where we are today oh I think so yeah like I I would think there so we're probably getting ready to go through the rep the recession Playbook more likely than not sometime I don't know whether it started now or whether it started two months ago you always find out and you're always surprised about when recession officially starts but I'm assuming we're going to go into one there's a specific Playbook around that uh and what what is that Playbook well so that Playbook is most recessions last about 300 days from the commencement of it the stock market's down say 10 percent um the first thing that will happen will be short rates will stop going up and we'll start going down before the stock market actually bottoms so that's why you could argue that two-year rates here may have some value or somewhere through here and term premium gets put back into variety of assets into Bond markets into stock markets and that's obviously what's happening so you're seeing multiples compressed in the stock market as they should and you're starting to see bond market sell off because again term premiums being put back into them so I would say when we get into that recession there will be a point when the FED stops hiking there will be a point when it starts to either slow down or even at some point it'll reverse those cuts and when that happens you'll have it just to you'll probably have a massive rally in a variety of beaten down inflation trades including I want to bring Becky into the conversation because she's got a question but when do you expect that to happen well we have I mean look we've got rates at three point unemployment rates at 3.6 percent I believe we have it's very possible we haven't even started yet it's very possible that when the NBR goes back and says here's when the the recession officially started that it'll be somewhere within a month or two of now maybe I I doubt again with the unemployment rate so low that they would they would date it earlier than this it's it's they look at six or seven different measures and you're always surprised ex-posts when they do hey Becky yeah thanks Andrew um Paul just wondering we we heard from Ray dalio I think it was just a week ago today that after years and years of saying cash is trash he thinks cash is not necessarily such a bad place to be it's it's an unusual call I understand there could be dislocations and maybe that's good reason for it but when you have such high inflation average investors trying to play along with that game could get burned what are your thoughts just about cash and whether or not to hold it I think he's 100 right I mean that's kind of the Playbook that we're in at this part of the cycle when central banks are aggressively trying to attack inflation globally assuming that they follow through with what they said they're going to do which is to again bring inflation back to reasonable level you would unequivocally want to favor cash you have to think about it's so hard to take what we've learned from investing for the past 12 years and put that behind you but you really have to it's a different the market changes it's a it's a completely different environment we're in right now when I think about the quote January effect that we're going to see next year and all the money that theoretically is going to come into the stock market and bond markets you know all of a sudden if two-year rates are 4.3 percent or higher you've got to wonder whether you get the same flush into assets that you normally see in January and February and March that you've had in the past because all of a sudden we've got for the first time in 13 years a really attractive short-term rate 4.3 percent I wanted to ask you about another piece of news this morning Ben Bernanke just winning the Nobel Prize for economics that prize in large part a result of what he did frankly when he was 30 years old a long time ago but we'll of course be brought forward to talk about how he dealt with the the 2008 crisis but of course people then say you know did we stay too long at the party and then of course we had the pandemic how do you see it so by the way Ken Griffin's interviewing Ben Bernanke I believe tomorrow so our investors conference our investors conference always has so many great trade ideas of you would have been a katrillionaire by simply following what uh so many of our our great panelists say over the course of that conference um I think monetary policy has been was was relatively straightforward and somewhat easy to understand all the way until we got to really 2000 18 and 19 and 20. and that's when it went off the went off the rails and kind of deviated from Orthodoxy um the quantitative easing that we went through from 2011 to 15 clearly that was a stretch but it wasn't necessarily egregious it kind of I think opened Pandora's Box and then of course I think this particular Federal Reserve board has taken it to a new level and now there again as fast as they possibly can trying to take it back and that's why you've got this extreme volatility in the markets I wanted to Pivot the conversation to talk a little bit about ESG something you've been talking about one of the Pioneers in this space for a very long time having LED just Capital all these years we're seeing a real politicization of the idea of ESG you've even had people like Elon Musk call ESG a scam we now have States both blue and red fighting each other the treasury of Louisiana taking money out of BlackRock because they don't like some of the policies that they have around climate investing and some of the letters that Larry Fink has written what do you make of what's Happening Here well I think the critics of ESG are just they're they're as wrong as a frog and a fire ESG first of all It suffers because they have the emphasis on the wrong wrong syllable it really should be social governance environmental you know it's just Capital we pulled the American public every year and ask them what constitutes just corporate behavior and with that we rank a thousand largest companies according to what the American public tells us and many of the things that we ask the public on are ESG components some of the same things uh uh some of the critical factors we use in our just rankings and if you just look and again ESG has been so politicized and there's so much and it's really just to serve a lot of people's purposes I think as opposed to looking at the facts so if we take our just one thousand right we take the top 100 companies and the bottom 100 companies since we started calculating the index in 2018 the top 100 companies have returned about 58 percent the bottom 100 companies have returned about 14 that's a 44 spread on Alpha that is derived from looking at many ESG components but so what do you say to the Pension funds in some of the red states that are pulling their money out of the black rocks of the world but at the same time you could look at a calipers which you know there was a study recently that they took their money um frankly they said they wouldn't want to be buying into gun makers they were other uh tobacco products and other things and people looked back and said actually that they lost money on those deals that they should have stayed if they're if their entire purpose if you will um was not ESG but was simply making a return so again staying away from politics and ideology focusing on the data I simply look at our just index and the reality is is the just index has the top 100 have outperformed the Russell 1000 every year for the past five years there's a lot of Alpha and investing in what the American public says is Corporate just Behavior the number one metric the number one metric is by wide margin is do you pay your employees a fair and living wage and so again when I see people attacking ESG I'm going Hold Us hold it wait a second Democrats and Republicans rich and poor young and old men and women 85 percent of Americans agree that the most important metric for just corporate behavior is do you pay your employees I get all that and you know where I stand on a lot of these issues however you could look at the fossil fuel companies we have we have a guest who's just on the program we have an energy company in our top in our just 100 again we we have to make sure we're defining what we mean by ESG the most important the most important metric is how you treat your employees and and I don't know who's going to argue with that I want to see the person that's coming going to come and say we should not treat them fairly or Endeavor to pay by the way Elon Musk is debating this as you know and one of the reasons that he was taken out of the s p ESG fund or or index was this idea not that he wasn't on the right side on climate but that he wasn't on the right side on governance right again as a multitude of factors and I don't think you can hold every single company on accountable on every single factor I think you have to look at this with a broad brush and should we be endeavoring as companies and as people to try to sit there and take into account all the stakeholders that are involved in valuing a company and that is how you treat your employees how you treat your customers how you treat your shareholders how you treat your communities and how you treat Mother Nature can I just if you if you said I've got two tombstones and I'm either chairman of a chairman of the board or I'm on the board or I'm a stakeholder in that company I got two tombstones at the end of my life one is I made an elephant's belly full of money for myself and my shareholders that's one tombstone the other one is I treated my employees my customers my shareholders my communities and Mother Earth with respect which one of those two tombstones do you want clear as day okay that's that's how that's how I look at the critics of ESG they're not thinking clearly but a lot of Business Leaders who don't necessarily agree with the ESG moniker would say the only way to run our business as profitably is to do it that way the second way you just described yeah I would say there's again if I look at the just 100 in their performance and I look at what they've done forget just the stock performance how many more jobs they create uh a whole host of metrics it's just so clear that the best business is around doing what the American public tells you to do and that's treat your employees fairly treat your customers fairly treat your uh treat your communities we got to jump but but as you can tell everything's getting set up here for this big conference uh you have an interview tomorrow with Steve Cohen I do talk a little Mets absolutely maybe some trading all I know is um I I wish the meds had advance so much I look forward to hearing what he has to say he's done so much for that franchise he's given us hope giving Mets fans hope so God bless them I wish they had done better what else you looking forward to doing well I'm teaching that master class and macro and anyone that's there for that is going to learn how to have sleepless nights and get a tick by the time they're my age and uh yeah it's going to be fun that's going to be about the mechanics not necessarily about markets but about the mechanics of what you got to do to create manage and follow through on on a trade okay and it's for a good cause the Rob an investor conference sponsored by JP Morgan all we appreciate it thank you so much it's always a pleasure always a pleasure thanks Joe all right coming up Jim Cramer's First Take on the trading week ahead Futures right now uh indicated uh up Squawk Box we'll be right back

Key Themes

The interview is defense first as market call: when the central bank must inflict pain to restore a stable currency, capital preservation is the position, and "bad times are good times" only for those built to trade them. The decade review that ends in "debt dynamics country by country" is the bridge from the Great Monetary Inflation thesis to his later sovereign-debt warnings, and the small retained bitcoin allocation is the fastest horse framework kept at minimum size through the crypto winter. The closing ESG exchange — JUST 100 performance, fair wages as the public's top metric — is stakeholder capitalism defended on returns rather than sentiment.

Context & Significance

The timing gives the interview its weight. It aired two days before the S&P 500's closing low of the 2022 bear market, with the gilt crisis fresh in London, Putin raising nuclear rhetoric, and the Fed funds rate headed through four percent. The recession PTJ handicapped as "more likely than not" never officially arrived — a reminder that his playbook is probabilistic, not prophetic — but the frame he debuted here, the 2020s as the decade of debt dynamics, became the organizing thesis of his legacy-era commentary, restated in the 2025 Squawk Box interview and the 2025 Bloomberg interview. He was in New York to teach a macro master class at the Robin Hood conference the next day; this was the public version of the lesson.