Ira Sohn Investment Conference Presentation

Summary

On May 5, 2014, Paul Tudor Jones — a speaker so rare that the conference's own note-takers remarked on it — took the stage at the 19th Ira Sohn Investment Conference in New York with a presentation titled "Manic depressive trading in a volatility-compressed world." His diagnosis: macro trading had become as difficult as he had ever seen it in his career, and central banks were the cause of the market's manic depression. Realized volatility across G7 equity and currency markets sat at multi-decade lows, the euro had just ended 2013 with its tightest trading range since inception, and nobody in the audience was old enough to have been born when the Bank of Japan last hiked rates.

His practical guidance matched the diagnosis. With the first implied Fed rate hike not priced until mid-2015 (and mid-2016 for Europe), he counseled against shorting bonds until roughly three months before each event, suggested UK gilts were a decent sale sometime in late summer, and reminded the room that what's obvious in macro is usually wrong — offering the previous Friday's jobs report, the strongest data in memory with bonds closing up, as exhibit A. The presentation registers PTJ in the Sohn tradition of public thesis-giving, in the same years Druckenmiller was using the venue for his own monetary warnings.

Full Text

Paul Tudor Jones II is founder, Co-Chairman, Chief Investment Officer and the controlling principal of Tudor Investment Corporation which he formed in 1980. Tudor is part of the Tudor Group, a group of affiliated companies engaged in trading in the fixed income, equity, currency and commodity markets. Tudor manages approximately $13.6 billion and has offices in the US, UK, Singapore and Australia. Paul is a portfolio manager focusing on discretionary macro trading and is a principal risk-taker for the firm's flagship fund, The Tudor BVI Global Portfolio L.P., and the sole risk-taker for Tudor Futures Fund.

Paul Tudor Jones spoke at the IRA Sohn Investment Conference. Below are notes from his presentation.

Paul Tudor Jones RARELY speaks although he is a big philanthropist so that is likely why he is speaking at the Sohn Conference.

Paul Tudor Jones' presentation for the Ira Sohn Conference is entitled "Manic depressive trading in a volatility-compressed world."

"Macro trading is about as difficult as I've ever seen it in my career," says Paul Tudor Jones, quoting the late Jimmy Hendrix.

Paul Tudor Jones comparing it to "make-up sex - you got to finish to make up."

What is the cause? Paul Tudor Jones says that central banks are the cause for this manic depression in markets.

Paul Tudor Jones, who has had gaffes himself (including his comments about women being bad traders because of motherhood), just said his presentations are "about as boring as a Joe Biden speech."

Continuing with his slightly strange humor, Paul Tudor Jones is now discussing the need for "central bank Viagra."

Now on to some economics, Paul Tudor Jones says that "realized volatility in G7 equity, forex markets are all at multi-decade lows."

In FX, Jones notes that 2013 ended with the tightest spread since inception of the euro. He asks: if you actually knew when the Federal Reserve was going to hike interest rates, what would you do in response?

With FI, Paul Tudor Jones suggests investors wait until you see the whites of the eyes.

Continuing with macro, Jones says members in the audience were not born when the Bank of Japan last hiked interest rates.

Jones notes that the first implied rate hike is not until the middle of next year, mid 2015, and mid 2016 for Europe. He suggests investors not short bonds until three months or so before each event. No interest rate volatility likely means that there is no foreign exchange volatility.

Friday last week was one of the greatest days that Paul Tudor Jones can remember in macro trading as economic data (jobs numbers) were very strong, yet bonds closed up. He asks how can anyone possibly think or predict that bonds would close up on that day? This just goes to show that what's obvious in macro is usually wrong.

Jones says that while "fundamentals will show you one hand, and in reality there are two hands." Therefore, Jones started a flow of funds group.

He says that nothing happened in fixed income in the first 7 months of this year, but investors will start to see changes in bonds when taper starts to end.

Paul Tudor Jones says UK bonds are probably a "decent sale" sometime in late summer.

Key Themes

The presentation is the analog model turned on the policy calendar: rather than forecasting from conviction, Jones reads the implied rate path and maps the historical pattern of bond behavior around first hikes, concluding the asymmetric trade is to wait — don't short bonds until the event is roughly three months away. That patience-until-the-setup structure is pure 5:1 risk/reward discipline: in a volatility-compressed world the reward for early positioning is thin, so the correct trade is often no trade. The "two hands" remark — fundamentals show one, flow of funds shows the other — is the intellectual bridge between fundamental macro and the price-action epistemology of losers average losers: what the market actually does outranks what the data says it should do, which is why a monster jobs number can close with bonds up.

Context & Significance

The 2014 Sohn appearance captures PTJ at the midpoint of the post-QE era, publicly naming the condition that would define macro trading for the rest of the decade: central banks had suppressed the volatility that discretionary macro traders live on. His complaint was widely shared — 2014 was the year several famous macro funds shrank or closed — but his framing ("manic depressive trading in a volatility-compressed world") became the period's shorthand, and the presentation's timing discipline around first hikes proved sound when the Fed finally moved in December 2015.

In this archive, the talk complements the 2014 Robin Hood commodity thesis from the same year: one private, one public, both built on reading the cycle rather than predicting it. It also documents the showman side of the Sohn stage persona — the Biden joke, the "central bank Viagra" line — that the written record of PTJ's investor letters never shows.