And our speaker today is Paul Tudor
Jones, II the prominent investment manager,
conservationist and philanthropist. Paul is cochairman chief
investment officer in the controlling principal of Tudor Investment Corporation,
which he formed in 1980. Tudor is part of the Tudor group affiliated companies engaged
in trading across global fixed income equity, currency and commodity markets
for an international client base. And Paul is a portfolio manager
focusing on discretionary macro trading and is the principal risk taker
for Tudor’s flagship client strategy. And Paul is also well known
for his tireless efforts as a conservationist and philanthropist. He is co-founder and a board member
of the Everglades Foundation committed to protection and restoration
of the Everglades through science, advocacy and education. And since its founding in 1993,
the Everglades Foundation has worked to bring people together to provide a powerful voice at the state
and national levels. And Paul is a board member of the Robin
Hood Foundation, which partners with more than 200 organizations
to fight poverty in New York City. And he is chairman of the Just Capital
Foundation, a former chairman and current board member of the National Fish
and Wildlife Foundation. And Paul is also a director
of our favorite organization, the Palm Beach Civic Association,
and has been a member since 2016. And now I give you Chairman
Pucillo and Mr. Paul Tudor Jones the second. Thank you, Mary. Can you hear us? Okay. All right. Okay. First of all, Paul,
thank you very much for being here today. On our second of our signature series,
We very, very much appreciate it. I'm going to start with trying to give the audience
little sense of what you do. You've been described as a macro trader. You describe yourself as a, quote,
technical trader who reads the tape. And you also say that
that's now becoming a lost art form. So tell us a little bit about what
those terms mean and and what that translates to for you. Well, a macro trader these way to describe that is to look at what most people are used to doing, which is investing in stocks,
whether it's through your 401k or IRA. I don't really trade individual stocks. A macro trader is kind of a prehistoric throwback, someone I don't trade individual stocks. I trade baskets of stocks
or I'll trade the S&P 500. I'll trade the Nikkei to 25 and Japan euro Stoxx 50 in Europe and then I'll also so I'm trading basically the large asset classes
they're four of them their stocks
which I trade most all of them globally. There's bond markets
obviously the US bond market the European bond market, UK, Japan, China
so I'll trade bond markets and debt instruments
and different tenors within those bond markets, whether it's something within one or two years,
all the way up to 30 years. Then the third thing
that a macro trader does is trade foreign exchange relationships. So I'll trade the relationship between
the euro and the US dollar sterling in the US dollar, Australia and the US
dollar, the one in the US dollar. And then finally where I cut my teeth was actually trading
commodities back in 1976. So that's the fourth asset class. And when someone says macro, it's because you're trading
all these global relationships. And the reason why technical analysis as opposed to fundamental
analysis is so critical in macro critical and everything is that technical analysis
basically looks at the open hello closed of every single day
of every single instrument. And the one thing that I learned
really early on, particularly back in 76, 77, when there wasn't the Internet,
there wasn't this deluge of information. And I'm sitting there reading,
literally reading the print out from at that point in time, a Reuters feed, because that was
there were no computers at that. At what days? Marcel I feel like I feel like a back to the future and,
and I'm talking about the DeLorean, right? When you're talking about 76. Good gosh. Anyway, so you're reading that
and there's such a positive information. The only way that you could really make a decision
a la Times was looking at price charts and the great news about price charts
are they never lie right you get paid depending upon
where that instrument closes that day. So I've seen many, many people who confuse being right
fundamentally with making money. And you can be right fundamentally
and absolutely lose your shirt and go bankrupt. I've seen that many times. So I don't think you can trade macro. All the really great directional macro
traders are people who you look at the chart
and it's real simple. If something is pointing that way, you're long and something something's
pointing that way, you're short it. And I know that that's an oversimplified in the process, but critical
to any kind of longevity in it. Definitely. And you've also said that to be a good trader, you need to be a contrarian. And no, I'm not. You're not a control. No. Okay. Well, one one example I can think of is and I mentioned we would talk about this
the 1987 October crash. The markets were on a straight tear
going up. And many of us in this room
remember that Black Monday where the stock market declined
20% in one day. Dow is down about 22 points. The S&P 500 about 20. You saw that coming
and had the conviction to take positions short that took advantage of that. Tell us how that happened. How did how were you able to to see that coming when everyone else saw
nothing but a raging bull market? Well, it was really interesting because, again, I started out in 76 trading futures and futures. You know, you're trading on 4%, 5% margin. So your leverage is 20 to 1. And and then particularly
in the seventies, we had inflation. It was the greatest, most volatile period that I can remember
in my entire career and stuff. When I started out,
I would literally seen grains stuff was doubling and cutting in half
in the space of six months. So that was a great and a bad lesson. At the same time, it taught me
never to trust ownership of anything. We're all products of our environment
while I'm a macro trader. When I went to look for a job
and 76 equity markets were they were they were we had been in a bear market
for four years. Rates were punitive. Equity markets were shunned out. Literally when I was getting
out of college, I thought, I can go into stocks. But they I don't know what, though. I don't know what my career would be
in the stock market, but I know what my career had been the commodity market
because people had to eat. And that was literally
what my thought process was. People always have to eat.
I'll always have a job. They'll always be something that's moving
and you won't be dealing with dissolved free markets
like we were at that point in time. And equities. The point is,
so I started out in futures and futures taught me never to trust others. It was actually the worst thing
that could have happened to me if I if I look back retrospectively, because that was the best time
to go in the equity markets, because the fact if you were
if you were predisposed to ownership of something
and wanting to keep something and not always seeing great clouds
everywhere, then obviously we've had the greatest
bull run of all time. And and yet I grew up in a period again,
my first six years all the way to 1982. Good gosh, equities were just a bad term, a bad word, 1982. We start in financial futures. That's when the first futures contract on an equity market was began trading the S&P 500,
the New York Stock Exchange index. And all of a sudden we had now you could buy stocks basically 21, 20 to 1 leverage. And that went on to we got to 1987, 1987. The market was really overvalued. You had rates over six and a half percent. And so that was as overvalued, as more overvalued
actually on a relative basis. If you just look at, for instance,
the earnings yield minus the dividend yield. But there had been over that five years this massive, massive move towards using futures, they were becoming a lot
more they actually became the price discovery mechanism
rather than individual stocks themselves. And that's the way every futures market
that's ever existed works. It actually becomes the focal point
liquidity anyway, in 1987, someone came up with this
bright idea called insurance portfolio insurance, where they thought
because we'd been in bull markets forever, that you could have a strategy
where the market started going down, you could start hedging
and they started selling these products. That essentially was like
selling a massive out of the money put on the stock market. But options at that point in time
had only been trading a couple of years. And so the discovery and the understanding
around options was also very limited. And since I started out in futures, I really understood derivatives
and I saw what was going on in all these portfolio insurance
that people were buying. And it was really clear to me
that once the market started to break, there was no way the liquidity was there
to be able to execute all the programs
that were going to that were going to that were going to be enacted. It was one of those deals
where as the market went down, it actually accelerated the selling
and there were no limits. No limits. And so the one thing about trading
commodities starting out, as they learned 50 years ago, that you can have a lynching
and in any instrument you can have a lynching
in that instrument, the market can do that because everyone just gets fear takes over and the fear hits this apogee. And same thing
with greed and excitement in the upside, it can go to some increase credible point. And that's why in in the commodities
markets, they had limits. Every day we all will move X amount
and then we'll close the market or we'll just stop trading unless people
want to enact it that amount. So they had a break, a rest period. It makes a lot of sense. Well, the financial futures
markets thought we don't need that. We're you know,
we're we're we're adults here. We don't need to have
that type of limitation. And that's why
when that thing broke on that day, again, just because I understood
the derivatives markets, because I had had I'd seen so many insane bear markets, I'd already had all the reps
in commodities in particular, I'd already had the reps
and I'd been through the seventh in the late seventies and early eighties
and remember, we were took we went, we took interest rates to 20 to 21%
and back to back
to under ten in the space of six months. So I was used.
I understood that volatility. I knew it could happen. So that was one in a great call
that was just being has having domain expertise
when other people did well. Interesting. I want to sort
of move to markets generally. You've
talked about some times in the markets when inflation was very high,
interest rates, as you indicated,
early eighties went into the twenties. We've just gone through a period
where we've had very significant fast increases
by the Fed in interest rates and I remember
you bet you gave a little talk in October where you indicated you were concerned
interest rates were still high since that time,
it appears inflation is coming down, employment still is pretty good. It looks like maybe we're headed towards
that soft landing and not experiencing a recession. Are you surprised at the extent
to which inflation has come down, come down in a relatively orderly fashion and may be heading towards a soft landing? Maybe not? Well, inflation's coming down like the Mike Pence for presence posters
did in Iowa, Right? It's dropping. It's dropping really fast. And I fully anticipate the Fed starts cutting in March. You got to realize the stock market is is it's not I would not say it's necessarily reflective of fundamentals per say stock market is just a reflection of all of our ideas of what value is. The same way some people want to pay
$100 million for a Picasso. So right now, the stock market's is being boosted by a as it should be. It's dragging everything up. If you look at the S&P for 93,
it's kind of unchanged. But you've got the max seven, which is
driving everything through the roof. So what happens the stock market
in the next 12 to 24 months has a huge amount to do
with what the policy response is by whoever our next president
is to the fiscal situation that we have in the United States. So we've got really divergent paths for the stock market. I think if you said to me,
where do I think the stock market will be five years from now
or ten years from now? I think it will be. It's quite possible that it's here lower and I'll I'll unpacked that in a moment, but it's also possible
that let's now sound like a lawyer. It's also possible it can be much higher. Again, it depends on what kind of what kind of policy responses
that we have next year when then
when the new administration comes in. So you mentioned I right now
it's obviously you indicate you indicated you think it's affecting the market,
but is it also affecting fundamental boosting productivity,
doing things like that? Hugely important. Yeah, hugely important. So there was a Fed paper in 2000, every 1% increase in productivity
is probably worth 30 to 50 basis points off of inflation. And it also you could
you could see it add somewhere between 1 to 2% in GDP growth. So it's hugely important and they're going to be a lot of
and that's actually if you had to pick the silver
lining that gets us out of the fiscal mess we're in, it can be a a could be that that could be the the the the night on on the horse
that rides and saves us. I'm a little concerned about a tie in well two ways one and that this would be another whole topic
but they I don't know if if you all saw that there's they they surveyed 2758 air experts and they asked them what is the chance that, A, do you think that there's a 5% chance that A could in humanity and and 58% of them said yes. So you got to think, wow, wow. The people who are the closest to this think there's a one in 20 shot that it could in wipe out all of us here. And so man you've got to think
how do I like if I'm if I'm Congress,
if I'm Chuck Schumer who's leading up this this panel we're actually having an air conference in New York. Robin Hood is sponsoring one where
we're giving out we've got $3 million prizes and various poverty fighting silos to who can come up with an a, a solution on workforce,
on education, etc.. And he's he's going to be at that. I can't wait to ask him
how do you risk manage a 5% chance of the end of humanity? How do you. I don't know. No futures contracts for that. Yeah, you're right. Yeah. You'd be short all those futures. Right. So anyway, and why is it that a is moving unbridled at the pace one. Because there is so much money in it and I would say that in two
it is going to have massive benefits. And so but again you've got this
benefit cost right. You've got the tail of it. I was reading there's a great book and it says it'd be very simple with a now and a couple of years for one bad actor to go create a pathogen that would be resistant to almost anything
that could kill a billion people. That's really scary, right? And I just read that last night. I thought, wow, that's wonderful, wonderful bedtime reading. But, you know, it's it's that's how powerful a neural net is in terms of its computational capability
and what it can do. So, yeah,
it'll be really interesting to see. My guess is that
it'll be one of those deals where it'll take an accident
before something happens. That's the scary part of it. Yeah, hopefully not too bad an accident. You mentioned debt and the fiscal outlook,
and I know that this is an issue that you've spoken about
and feel very strongly about. And just to frame the issue, our debt now is about 120% or so of GDP. 125 125 Okay. It's there doesn't
seem to be any indication that anyone's addressing the issue. Tell us your concerns with respect to where we are now with regard to this debt situation in our country. So if I if I, if I if I ask you what what do you think
the fiscal deficit is today? Well, it's if it's 109. No. What do you think
our deficit spending is for calendar 2024? Just I'm just I'm not trying to comment,
but I'm just curious. Well, we haven't had balanced budgets
in 25 years. So it's it's got to be multiples of
of what it what it was earlier. In seven and a half percent. Seven and a half. Think about that. Seven
and a half percent. So next year we have I don't know if you all remember,
but Trump enacted tax cuts, brilliant man, enacted tax cuts with 4% unemployment because we're going
to grow our our way out of this. And of course, in 2019, before COVID, we had under Trump a 4.8% budget deficit. And again, these numbers from the macro
world are just critically important. I remember back in 1993 when Europe was on the verge
of creating the European Union, They had this treaty called
Maastricht and Maastricht, the absolute no go zone, the absolute no fly zone. The the red boundary was 3%. That was the outer boundary,
and everyone had to march inside it. So anyway, with the Trump's cap,
the Trump tax cuts, then he enacted, they expire in 2025. So that will mean everyone's
tax rate here in this room will go from 37% back to 39 and a half. So that gives you about 300 and $350 billion in savings. So when the Trump tax cuts expire and all our taxes go up
just a little under 10%, that only leaves us with another trillion trillion that we have to find to be able
to stabilize our debt to GDP at 125%. So at 125%, we're clocking in number four behind Japan, Italy and Greece. And we're 125 when the Trump tax cuts
expire, assuming they expire next year, he'll try to do everything he can
to ignore that when they expire. That'll still leave us with wait for it
a budget deficit of five and a half percent. And if you just look at the CBO
projections, 2030, we'll have a budget deficit
with the Trump camp, with the Trump tax cuts extended,
I mean, excuse me, expired of 8% and then 2050, we'll have a budget deficit
annually of 10%. So, you know, I'm
one of my first professors at the University of Virginia
is Herbert Stein. And he said if something can't go on forever,
it stops. And so you know that the situation we're in
is not sustainable. And the question is, is when does it
manifest itself in the marketplace? When does this lalala we wonder
why our stock market is where it is. We wonder why the dollar's as strong
as it is. We have. If you look at the US relative
to the rest of the world, we are the largest and most egregious
fiscal and fiscal aggressors that there are. So my guess is sometime this year, this year, which will be second only to two years ago in the private markets,
we're going to bring the US Treasury is going to bring to market $2.8 trillion worth of the debt, 2.8 trillion. So we did that in 2021 with no problem. But the Fed was buying securities debt,
which kicked off the inflationary bout that obviously we've experienced
and been fighting as short term rates
have gone to five and a half percent. So the question is we're going to have to
we're going to have to have $2.8 trillion worth of buyers of the US debt. They're going to be looking
at all of us in this room and will the market. The big question is, is
will the market tolerate it and will it tolerate in particular,
if we look out and see nothing but we see nothing but larger debt to GDP, if right now CBO projections
is the debt to GDP in the United States without some drastic measures
will be about 250%. In 2000, 50, I would argue well, before then we'll have lost
our reserve currency status and we would have yeah,
we'll have you more like them. That will have what we clearly have a debt default. I don't think anyone would
would fund that. So we know
we're going to have a reckoning. And the question is
what does that reckoning look like? I will say again, the white knight,
which could allow us to kick it down the road, is the productivity boom
that you referenced that could actually offset all the increase in debt to GDP in the next seven years. We saw something, you know,
you had three big productivity miracles, say, in the last century,
had in the fifties when we were rebuilding our infrastructure
in the US, coming out of the war we had in the eighties
with the introduction, the personal computer, we had the nineties
with the internet, inflation dropped in all instances that's actually
had a really inflationary boom post 45. And it was, it was that
productivity miracle that actually brought inflation down while we had interest
rates fixed at two and a half percent. So it could have been you had a and that's
why debt to GDP came down so much because we were growing at five and 6% with interest rates
fixed at two and a half percent. And inflation actually wasn't going up. It was coming down
because productivity offset so much of it. So that could be our great white knight. I'm a little concerned when I had when I tried to think
about productivity being a great savior. I'll look at Elon Musk right now and he's he's wow, what a what a incredibly new us to individual
he is. So I don't know maybe seeing he wants
25% of Tesla that's what he wants to continue
leading Tesla he wants 25 he just got finished
selling down 50 and well he wants me to he wants you to,
he wants the company to give that back. If he's going to continue
to put all his resource, his intellectual resources into it,
robotics and a variety of other thing. So that's the trick with the productivity. Miracle is okay, if we get one and a half percent of GDP, who's a go to does it, what do you do? There'll be huge displacement
and white collar jobs. It's estimated you could lose 30%
of knowledge workers, accounts, lawyers, doctors, a variety of knowledge workers. So who gets how do we distribute
that productivity miracle? Elon, and give him credit? Right. He's probably maybe one of the most greatest human contributors
since Einstein. But here's a guy
who looks a thousand years in the future with space travel,
but his governance goes actually back a thousand years ago. It's very tribal, right? It's all for me. You work for me,
you do what I tell you, it's all for me. So how productivity miracles
distribute is going to be one of the biggest social challenges
that we've deal with as a country. He's going to take his net worth
from 250 billion to 500 billion, and it's going to be at the expense of millions
of knowledge workers in the United States. And so that's that's a real challenge,
is it for anybody with any kind of wealth? He's the poster child for a wealth tax. He's the poster child
for the French Revolution. If, God forbid, a better if you said what could actually fly, a suggestion would be and now I'm going to put my just capital
hat on. A suggestion would be, why not? Okay. If this contribution, if your understanding of a robotics
and a variety of things is that great, why not do an Aesop, an employee stock
ownership program for Tesla? Why not let everyone that's involved that as well as attract
a variety of outside talent? Why not do it where you're capped in five
or 10% of that? Aesop Why not share that wealth in a and in a way that's not going to create further increase the the the wealth gap in this country, further
increase the divisiveness in this country. You know, here's just I'm rambling now, but, you know,
one of the most able. To bring you back don't. Worry. One of the most interesting statistics
is that a country's social harmony is a direct reflection of the wealth gap
between the top 10% and the bottom 20. It's just you can go look across, you can look back through history,
You can look horizontally right now. How people feel about society in general is a function of the relative wealth
within that society. We've as a country gotten our are poverty levels are so much lower than they were
20 years ago. It doesn't make any difference
because, like it or not, human nature is as much about the relative game
as it is the absolute game. And when you've got a group of people
sitting at the top, they they are perceived to be entitled
and it creates social disharmony. That's why if you look for the happiest
countries, there are typically ones where the income skews it's call
it, it's called a Gini coefficient. It's not as skewed as it is in the United States, and we're
the one of the most skewed in the world. So how we distribute
the productivity gains is going to be another social challenge
for this country. Big challenge. Well, you mentioned productivity as possibly one savior to this debt situation. There have been a number that have been kicked around in the media
by politicians. I'm from what you've said, I'm gathering
that you probably don't believe in the notion of just
grow our way out of it by cutting taxes. It's like it's like being in a Christmas party
and you'll say, I'm just going to have one shot of tequila,
but just just one. It just doesn't happen, right? History's
not really friendly to that idea. So no, that's just complete bullshit. I mean, we've seen it time and time
and time again. My God. And it won't happen this time. That's what Trump will try to do
if he's elected. Remember, this guy is he got
he got to realize this guy's a a real estate developer who loves debt. The problem is
we're probably the tipping point. That's why I'm really nervous
about this year, because I think the bond markets will revolt if he's elected. I think they'll just absolutely revolt. He'll what he'll do, and this is why. See, it's really interesting. So we've got we've got to find four
or five to stabilize, not to reduce debt to GDP,
but to stabilize debt to GDP. We've got to find somewhere around 4%, 5% of GDP, somewhere around
assume the Trump tax cuts expire. You still got to find a trillion.
So how do you close that gap? What sounds like taxes
is one way to do it. Well, it's going to be a combination of reducing spending
where you probably find 300 billion or increase in an increase in taxes
where you find 700 billion. So just a menu of what it takes for us not to increase our debt to GDP, a menu would be I'm just going to get in. There's a great
there's a great on the Internet. You can go and you can sit there
and you can play with it yourself. Turn on the dials
to figure out how you go and close it. But here's a menu. You increase the corporate tax rate from 21 to 25%. You increase the payroll tax 1% or 1%. And then you are right now
it's capped at $150,000 per person. You take the cap off, you increase
Social Security from 65 to 70. You means test
all Social Security benefits for the top 50% and means it means test Medicare also for the top 10 to 20%. And that does a really good job. And then excuse me, you increase
you let the Trump tax cuts expire and that gets you about. you also in addition to that, you have a carbon
you have a carbon tax. I think that gets you about 50 billion. You get you also implement a carbon tax and then that still leaves you
about 350 billion short. And to close the final 350, you can do one of three things
or some combination. You can have
you can increase the top marginal tax rate on the super wealthy to 70%. You can increase the top marginal tax rate on anyone
earning over $108,000 to 50%. Or you can have a wealth tax for anyone over $50 million in 2% and over $1,000,000,000 of 3% annually. And all those measures together, obviously
reducing increasing Social Security, all of those things together
will stabilize debt at 125% of GDP. The fourth worst in the world
at And remember, we're talking that means we've got more debt
to GDP than Argentina or Mexico or Australia or Turkey
or Iran or Iraq or China. So, yeah, it's a
it's a it's a daunting set of metrics and it's not complete doom and because we do have we are the center of the revolution,
there is a productivity miracle coming. It's amazing. I ask that our CTO at Twitter, I said,
what do you think in in software engineering,
what do you think our productivity increase
will be in the coming year? And he told me 25%, 25%, because we can use a
we our coders can use a to go ahead and write code
that they used to have to do manually. And then can
I just ask question every anyone here and you have to raise your hand
if you do it. How many people here use either
Chad, Djibouti, bard or perplexity air? Raise your hand. So that's about, I'd say, half the group. Certainly within 12 months
the entire group will be using it. And the more you use it,
the more you recognize how much more efficient
you are at everything you do. So I can sit there and just even in preparing for this, what doing in our company
and the research and analysis, that it's just amazing the efficiency gains that come with it. Well, in describing
the menu of potential options to deal to deal with the fiscal situation,
you talked about significant change in changes in Social Security,
Medicare, tax structure. You hit about three third
rail of American politics. Yes, You said that know,
which I'm guessing are probably not likely to be enacted
under any administration. So let's hope we do get that
productivity boost. Well, it'll be so so the way that our poll, our political
the way everything works is right. It'll go until it done. So they'll have to be in action. If you kind of rewind to 2008
when Lehman went under and the financial system
was completely broken, it took Congress
passed an $800 billion TARP TARP bill to bail out
most of corporate America. And then at the last moment,
the Republicans nixed it. Are we can't be
this is socialism, blah, blah, blah. And the stock market went, really? Whoop pow. And we're getting ready
to hammer on the banks. And they passed it about three days later. So my guess is what will happen is that sometime this year we'll have a sometime in the coming year,
there's going to be an accident. It'll it'll be in the bond market first. There'll be an accident in the bond market
and that's going to get everyone's attention is that and it won't
necessarily be in front end, Right. It'll be really interesting
because you'll see the Fed cutting rates because we're in a disinflationary period
and then but you'll see coupons, tenors
of ten years and 30 years out. You'll see you'll see those those long term buyers
just kind of give up, I think. So it'll be really interesting
what what you have to do when you're thinking about your portfolio. You have to watch what the response
is, right? There's really two ways that this can go. One is
and in the historical way that it's gone in many countries is we have austerity. Think about Greece in 2010. Now, Greece was different because it was part of the European Union
and they forced on Greece measures that literally made made those countries,
made those people just cry. Then you have a situation in Argentina, right, where there's
no one to force them to do anything. And so their recklessness
has led to this inflationary spiral. Until they just threw out this president, they put in this new guy
with these radical he's going enforce austerity is essentially
what's going to happen. So there's two ways to go. And they have really different
consequences for the markets. You can go the austerity route
and that's going to be raising taxes. Then you can just stop and think about it. Wow, What's that going to do to GDP? GDP
get slammed. What's that going to do to earnings?
Earnings get slammed. What's that going to do? The stock market,
the stock market's going to get crushed. That's one way. In the long run,
that's probably the best way. It's short term
pain, long term gain to go stabilize, to actually live within your means
and keep everything where we have longevity
For those wonderful kids sitting there in the front row,
that's probably the best way to go. The path of least resistance,
which will happen probably if Trump's elected, is he will stick to the we're going to grow our way out. He will really come down hard on Jay Powell. Remember, Jay Powell under Bonds,
had a pass, right? He raised interest rates 500 basis points in the shortest amount of time
that any Fed chairman started. And Joe Biden didn't say a word. Joe Biden is done. What president should do with the Federal
Reserve Board and leave them alone. So what will most likely
happen is Trump will come in just as a sad note. So the Fed last year,
for the first time in its history, lost $115 billion lost out and $15 billion
it typically in the last five years has been remitting $75 billion
to a to the Treasury. So that's a $200 billion swing
which has to be financed. That's part of the 2.8 trillion
that had to be funded. It's going to have to be financed
by the Treasury. Why did it lose 115 billion? Because to fight inflation, he raised
interest rates to five and a half percent. They had this portfolio
that they had accumulated during COVID. They got absolutely annihilated. And they also have there's a
there's a within the banking system. They're paying reserves that banks
hold at the Fed for their capital base. They're paying reserves at five and
a half percent When they have a portfolio of debt,
this earning three and a half percent. So they got a -200 basis point spread,
which is why they lost 115 billion. Anyway. The reason I bring it up is because
Trump will come in and he'll say, look, these problems, we've got this problem, the bond market, it's
because the rates are too high. This Fed, these guys are going to kill us. We can grow our way out of this. So let's cut rates. And I will promise you the Fed's already, though they haven't said it
and they will deny their are ready. I'll bet you. Jay Powell, are you looking ahead
and going, my God, this guy's coming back. Wow. So he he will be under so much pressure to cut. And that's one reason
why the stock market's rallying. Right. It's looking ahead and going, okay,
we're going to get a lot of rate cuts. That's good. And that's good, right, Renee? It's going to stop. It's going to start
if here's an interesting statistic. Every meeting that the Fed delays, cutting 25 basis point cost America an extra $25 billion in the deficit
one year forward. So if he stays abnormally tight to fight inflation
that cost us seminars a person this room extra if he stays too tight so clearly he has an incentive to cut to to cut rates
and that'll be good for the stock market. Donald Trump will get in and we'll hammer into cutting rates probably to the point where he will is very possible that much like 1975, 1976,
when we had this disinflationary pulse from the oil embargo of 73,
and then the Fed started cutting rates under Arthur Burns
and they cut rates too far too fast. And then we had that massive inflationary upside resumption in the late seventies. If you said to me,
what do I think's going to happen? Donald Trump gets in even if he does. And I think that what will happen
is there'll be so much pressure on the Federal Reserve Board to cut rates
that there's a good chance will. And if you kind of go back for 2000
years, the history of indebted countries or empires is you inflate your way out, you inflate
your way out of your debt problems. So my kind of base case
is we're going to see inflation rising sometime next year. We'll always run interest rates to lose. That's the only way that you deal. It's the kind of classic way that you deal
with overly indebted countries. You inflate your way out. And then the the the big question here is
stocks could do well under that scenario. The last thing that you want to own is any duration,
fixed income, anything over five years that has that
just right now is so grossly mispriced. That's the absolute last thing
that you want to own. People are going to go out of here
and call their brokers. What their stock looks like. I mean, stop and think we're getting ready
to get we're going to get the juice here and the next. And with Donald Trump,
we're going to get a lot of these stocks could like it for a period of time. The problem is what is the bond
market will absolutely be jumping out that window. And at what point in time
does that catch up with the stock market? So it's going to be it's
going to be, from a macro perspective, the best thing that can happen to me
is Donald Trump gets elected because it's going to it's
going to be like being at the rodeo and you're on the toughest bull
that's ever gone up here. The doors open, get ready. And my guess is it'll be something
that looks like 1976 to 1980. It'll just be crazier in hell if Biden gets reelected. Something tells me that the markets and maybe I'm wrong
that the markets will enforce on him because I think he's weak enough. They'll probably try to go
more of the austerity. And under Trump again, I don't know. That's why
I'm saying you have to pay attention to what happens here in the next 12 months
because it'll have a huge impact under Trump. You could be long stocks,
you want to be long, all the inflation assets,
you going to be long, Bitcoin and gold and you don't want to have any duration
in fixed income and you want to kind of bet
on the resumption of inflation. And if we went the austerity route,
you wouldn't want to own stocks, you'd want to own
fixed income, you'd want to I'm not
sure the dollar does well under under either one of those guys under either
administration, but you wouldn't want to own any inflation
assets under true austerity. I just don't
see how in our electoral system that anybody survives
being voted for taking the the the the medicine
that we're going to have to take. Yeah. Well, we've about debt
and some pretty thought provoking remarks we haven't even talked
about the geo political situation put top of everything you've described the fact
that we've got a war in Ukraine that's about to go into its third year
war in the Mideast, that appears to be heating up
and not cooling down. The stock market doesn't
seem to have reacted too much to this, but do you think that's going to continue and how you think you put that overlay
on everything you've just described? How is that going to play out? You know, it's funny. There's there's actually a geopolitical
risk index that you can track that's been around. And actually it goes back to 1900
where we're actually really low on the index right now
having spiked in 23 with Russia, Ukraine. The problem with the geopolitical, it's
not so much that we have that many more wars
or conflicts right now. The problem
is the tails associated with them. Now we've got now everyone every year, the technology, the warfare technology gets so much better. And, you know, we just had enter in to the dialog in the Russia, Ukraine,
the the the the concept that we actually have tactical nukes in a
in a war theater. So it's not so much
the matter of the conflict. It's just the tails
because our technology is so much better. And so that's way down on my list of things
to worry about. I mean, clearly, the other thing is, and the way this geopolitical risk
index is, is calculated, it just looks through newspapers
and looks at the headlines and then quantify it and then it sits
there and measures it against prior years. The problem is, is that you've got you've got G who's a of a dictator. You've got Putin who's a thug and a dictator, Kim Jong un,
and then you've got the theocracy in Iran. So you've got four unhinged and megalomaniacs that all have the capability
to create huge problems. And I can't remember, like if you compare and contrast now to let's go back to 2000. Wow. In 2000, we had democracy and capitalism
breaking out everywhere. And you had this basically a geopolitical
kumbayah moment, whereas now we've got we've got very unpredictable people with hugely nationalistic tendencies. And so it's the tail of events, really. It's not so much that we have the issues. Italy's quantitatively down, it's
just that we know they can in any moment explode into something
that's much more dire. Well. We want to I want to have room
for a few questions from the audience. So I want to touch quickly on
some of your philanthropic endeavors. You talked about Robin Hood, just capital. And we're going to I want to ask you about the Everglades
Foundation as well. These are important things to you. You've been focused on these. You've had some challenges with them. But tell me why these are are
some of the things that that that you find very important, why you've been drawn
to these type of endeavors? Well, I was I was raised in, you know, I think one of the best things
going for the United States, the reason why we are today and it's so funny,
I was having lunch with a guy from a really good trader at Deutsche Bank who's an Indian,
and he was talking about we were talking about just geopolitics. And he said and we were talking about the difference between democracy, Western democracy, which most of most of them were based
on Judeo-Christian principles, India,
which is based on Hindu principles. And we're just thinking about and then you look at China, which is China really is a country that doesn't have, I guess Confucianism to a certain extent,
doesn't really have a strong set of religious moral standards. And it's a problem, right? It's it's the reason why Judeo
Christian countries have done so incredibly well because they embed in their citizenry
the difference between right and wrong. It's important to them
through their religion. So that's that's really important. To Robin Hood's point point. I was raised in a Christian family. I was taught from a very early age
Christian principles of love, your fellow man, do unto others
as you would have them do unto you. You help those that are destitute. So that was clearly what motivated me
in the early years of Robin Hood. And I would say Robin
Hood was really interesting because in fighting poverty, probably by 2010, it was really, you know, for us
the big win was if I think about private philanthropy,
what is it is the crucible is the crucible where you're able to experiment,
to find the best ways to go alleviate society's problems
and in particular property. That's really
what private philanthropy does. And there's so many instances. We were the first ones to fund
charter schools back in 1993. There's so many is I can go on and on. There's a litany of things
that we've done that then ultimately embed themselves in public policy. So a big win for us is we do something
and the city or the state, in the case of Robin
Hood in New York, takes it over. We work with all 23 agencies
in New York City and virtually all the state agencies,
and we always try to embed our intellectual capital, which is much,
much more valuable than financial capital. But by 2010, it was really apparent to me,
wow, we're trying. We're really trying to be the Pathfinder,
the rudder on the on the governmental aircraft carrier. We're trying to steer it same way. We are at the Everglades Foundation. We're trying to be the rudder
and provide the intellectual capital that we bring from our staff
and board there into public policy. The elephant in the room for social change,
right where we spend. If you think about it, private
philanthropy is probably 560 billion. The federal budget's about 5 trillion. So it's ten times
bigger than private philanthropy. The elephant in the room
really is the corporate sector, right? The corporate sector is 50 times
larger than private philanthropy. So just capital was a recognition,
holy cow, if we're going to fight poverty where we spend 40% of our waking
hours is at work, is at work. So if we're really going to fight poverty,
if we're going to fight society's ills, it it really has to involve
the corporate sector, how we conduct ourselves in businesses,
how businesses conduct themselves. So I was really I was really happy when I walked in because a gentleman walked up to me
and he goes, Hey, I'd like to meet you. I said, Great. And he goes, Yeah, Tutor Foundation
just gave us a grant this year. And that made me feel so wonderful because our company, having opened a Palm Office in Palm Beach,
we got here seven years immediately because of our ethos, tried to integrate into this town and do good things for this town. And so thank you. You're here. You're welcome. So my point is,
just think about this right now. Corporations give 1%, 1% of their profits to two for two philanthropy, 1%. That works out to be about how about, let's see, two and a half trillion 1%? I guess that's 25 billion. So if you if they just went to 2% or even 3%, that 25 being that 50 billion,
for instance, at Robinhood, we think that our grant making
has an 8 to 1 payoff, 8 to 1 because the fact we've got 40
smart as hell board members, women and men
who really, really are thinking about how do we quality engineer
what we're doing. Again look at the difference in in charter school
performance versus public education. So the idea to get companies and the intellectual capital
and intellectual capital that companies have into the game
of being positive change agents for social good
is really why we started just capital. And I would say it's funny, 2019 was probably the best point of our company,
and that was when the S&P 500 that excuse me, the Business Roundtable,
which is the 500 top CEOs, said we're going to change
the purpose of business. They have a statutory definition
which says the purpose of business that to that point in time
was to manage on behalf of shareholders. And then they changed it to, you know,
the purpose of business is to manage on behalf of all stakeholders. And they took our five categories, which
is employees, customers, shareholders, local communities and the plan and said
we're going to manage them. They left the planet out to manage
on behalf of all stakeholders. And that's really, again,
that's so important. If you, if, if the reason country is is at each other's throats
so much is because we can't find some common on things. And one of the easiest ways to do
that is to try to get everybody on page on the same page where they're at work
and spend 40% of their day. Well, thank you all. We appreciate your coming
to the Civic Association today. We're running short on time. And I want to have if Mary,
if we have a minute, do we have time for maybe one or two questions
from the from the audience? Because there have been a lot of thought
provoking comments this morning. And we appreciate your coming
and talking to us. And maybe we could just take
a couple of questions, if that's okay. All right. Yes, please. As you pointed out, any rational thinker
understands that we need austerity to get out of the situation
that we're in, as families do, as businesses do, as nonprofits
do, and you're spending more than you're taking in on top of lumbering
with a lot of debt, which is such a wasted opportunity with the hundreds of billions
we spend every year our government spends. It doesn't build roads or parks or schools or anything else. So we need austerity, obviously. And you talked a lot
about austerity today, but on the private sector, because
raising taxes is a form of austerity. But you really didn't
mention the government. Taking you know, I'm sorry, included in that just base case, we had to put a 1% cap on discretionary
spending per year where it's typically 5%. So that included a 1% cap
on discretionary spending. But do you think our government because, you know,
I bringing tons of efficiency to the private sector, 25%
in your own businesses case, that means people
that won't be working there. Don't you think that productivity gains
could help our government run more efficiency with less people and maybe our government
gets out of some of the businesses that it's failing at
that could lower our government spending. So we do both and we lower government
spending to actually help solve the problem because doesn't seem
it seems like our government is passing austerity on to us. Inflation is austerity, for example. So the most heartening conversation
that I had in the past couple of years was with Glenn Youngkin,
who's the governor of Virginia. And we were talking
about what he was doing now that he was governor. And he said, you know, he goes, What I'm trying to do
is to try to get a 25% productivity gain in efficiency gain in the state government in Virginia. And he talked about and he goes, in my first 18 months,
I think I'm halfway there already. He goes, we've got the DMV waiting line down from 45 minutes to 13 minutes. And he goes, I've called in Virginia, funds a bunch of those state
universities got called in every president. And we have a meeting
now every six months. And I've asked them to go over
their university budgets with me to see where their expenditures
and their revenues are. And they're all looking at me like I'm
crazy. What are you talking about? A budget. So the best statement I ever heard was from Mike Bloomberg,
who said, I simply want exactly. You can make the trains run on time. If we could magically elect anyone,
I would elect someone who knows how to value engineer a five train dollar budget,
who actually wants to take the time to go and deal
with the minuscule details of governance with every single cabinet
head and go through and value engineer. I can tell you that so much of
the government doesn't work today. I'm involved
in a land exchange in Colorado that has been going on for 23 years. You can't make it up, I swear. I mean, I don't even think Moscow back
to its best days. The Soviet Union could match this one. And we, in the deal that we're making for
this land exchange is probably a 2 to 1. That's not true. It's probably a three
to benefit for the public. So we just bend over. I'll take that back. It probably is a 2 to 1 benefit,
but you just you have nonfunctioning bureaucracies
in the United States right now. And that's because we have a leader
who has no idea even how to get dressed today. And then we're getting ready to put
somebody and he's just going to want to he's just going to want to talk
and feel good and play golf. So it's not it's not necessarily
the greatest situation that we're facing. We really need an extraordinary manager is what we desperately need,
much more than an ideologue. I me one more with your hands next here. We've got a mike for you. There. If you are asked by the new administration to serve in any capacity for them,
would you? Well, I don't. Think hope so. No. No, I, I it's funny because I'm the one thing that worries me
about Trump getting elected. Who's going to say
who is he going to get to serve? We need and you need look, no person with any kind of chops. It has to be a contest of ideas. We can't have one guy at the top
or one woman at the top. It just as it's my way or the highway.
No, no, no. It has to be
that if you think about all the progress that mankind has made from the beginning
and the countries in the societies and the areas that do the best,
why is the United States number one, we have a contest of ideas
we import through immigration. The greatest intellectual talent
in the world is because we're not afraid
to have a contest of ideas and let the best idea win. So anything that short circuits that. And I'm really nervous about Trump because
I think the quality of his Cabinet, particularly given the fact that I don't
know, it'd be interesting to see what the quit
and fire rate was from his first cabinet. I don't know where he gets
people of substance that are going to want to go there and work if they if somehow you were able to ring
fence him from policy, you could. But who would want to work for somebody
where you're where you are? All your hard work is for nothing. Because at 2:00 in
the morning, he throws a fit. I know that's hard for him in the end again. And it would be. The chief
financial. Officer, Right? And I would do Larry. And then to Jimmy, please, you know. Don't label no label. The concept of a third party candidate against two
two candidates are not very popular. You have any thoughts on that? I'm I'm a big fan of No labels
there have an execution type. Yeah I think they're having execution
problems. It'll be interesting to see what happens. But yeah, of course I would vote for something on the alternatives
we're facing right now. And to Jim. Thanks for your time today. I'm going to to ask a question in the room
whose insurance has gone up by about 50%
in the last two years. Yeah. Can you comment? Yeah, I'm going to self-insure. Well, thanks so much. We really. Are, you know, on behalf of on behalf of our members, our directors, my colleagues,
our chairman, Michael Fossella. Paul, we thank you so much for your time. We do have a gift for you. And we're going to get.
