Tudor Jones Fears a Revolution?
The rich are getting worried.I share those sentiments, if you think it's crazy now, wait till we hit full campaign mode.
Billionaire hedge fund manager Paul Tudor Jones; Robert Shiller, the Yale University professor who is a co-winner of the Nobel Prize in economic sciences; and DoubleLine Capital’s deputy chief investment officer Jeffrey Sherman all pointed to growing concerns over wealth disparity during sessions this week at the Inside ETFs conference in Hollywood, Florida.
Shiller remarked on stage Tuesday that people at this year's World Economic Forum in Davos, Switzerland were “spooked by rising populism” and “machines replacing jobs.” He found the Davos crowd “a bit beleaguered” that people don't admire rich chief executive officers as much as they used to.
As the wealth divide widens — with CEOs making more than ever compared to their workers — the risk of revolution is also increasing, according to Jones, who is the founder of hedge fund firm Tudor Investment Corp. The high and increasing level of income inequality is not sustainable, he said Monday at the event.
That's unsettling for the hedge fund manager, who said he hasn't seen such a social divide since the 1960s or 70s.
“It’s a scary time for someone who grew up and prospered” in the private sector, Jones said. He wants the private sector to work on solving divisive issues and says his research has found that companies with good behavior tend to perform better.
He sought to make his case through JUST Capital, the nonprofit firm that he co-founded to align Wall Street’s priorities with those of the public. JUST Capital ranks companies on the issues most important to Americans, including how well workers are paid and treated.
Jones said he is personally invested in the exchange-traded fund that's tied to the performance of JUST Capital's JULCD index, which tracks large U.S. companies based on the firm's annual ranking of just business behavior. The index has outperformed the Russell 1000 by 3.4 percentage points since its inception on November 30, 2016, he said.
The Tudor Investment founder isn't the sole hedge fund manager speaking out about wealth disparity as a threat to U.S. stability. Bridgewater Associates founder Ray Dalio has expressed similar fears, writing in an April LinkedIn blog post that today's geopolitical environment is analogous to the 1930s, in part because of the election of populist leaders as well as “large wealth gaps.”
A lot of people feel “disenfranchised” or “left out,” said Sherman, DoubleLine Capital’s deputy CIO, while sharing the stage with Shiller at the ETF conference on Tuesday.
Investors may be disappointed by their gains over the next decade.
“U.S. stock market returns are likely to be lower than usual over the next 10 years,” Shiller said.
The long U.S. economic expansion and 10-year bull market have many worried that a turning point must be near. By some accounts, it’s the longest bull market ever, he said. “It can’t just keep going up and up.”
Many of Shiller's comments Tuesday focused on “narratives” tied to the economy and markets. While “economists don’t like to talk about them because they’re too plebeian,” narratives can be powerful, and more memorable than numbers, he said.
He mentioned the crowds that surround New York’s iconic statue of a bull, proudly taking selfies in front of what represents the world's strongest stock market. Shiller suggested the bull has eclipsed the Statue of Liberty in popularity — but that narrative could change when the market goes down.
He also pointed to U.S. congresswoman Alexandria Ocasio-Cortez, who has proposed a 70 percent marginal tax rate on incomes over $10 million, as an unexpected viral force. “Where did she come from?” Shiller said.
DoubleLine’s Sherman expects the tumultuous political environment will be nothing compared to what lies ahead in the next U.S. presidential election.
“If you think it’s crazy now,” he said, “just strap in!”
Paul Tudor Jones ("Tudor Jones") is the third high-profile hedge fund manager to come out since Davos earlier this year warning of rising social tensions and the potential for social chaos.
The first was Seth Klarman, founder of the Baupost Group, who wrote a sobering letter warning his investors of the economic impact of global tension, rising debt and pervasive political divide.
The second was Ray Dalio, who recently wrote a comment on LinkedIn warning of rising populism, a weakening economy and limited central bank power to ease. Dalio has also pondered if capitalism is reaching its limits and said if he was president, he would treat rising wealth/ income inequality as a national emergency.
As I've stated plenty of times on this blog, rising/ inequality is a secular theme, it will continue, and it's deflationary and doesn't portend well for economic growth over the long run. The same goes for US student debt, it's deflationary and not surprisingly, serious delinquencies just topped $166 billion.
While Congresswoman Alexandra Ocasio-Cortez is pitching her "Green New Deal," last week I discussed why the US urgently needs to adopt a Pension New Deal, allowing millions of Americans to retire in dignity and security.
At the very least, the US needs to privatize Social Security, model it after CPP-CPPIB, adopting the same governance, and enhance it so millions of working Americans can retire more comfortably.
Of course, that won't happen anytime soon, and even if it does, millions of baby boomers will still succumb pension poverty because enhanced Social Security won't help them.
In the meantime, get ready for QE Infinity, I foresee the Fed's balance sheet rising to record highs after the next crisis hits us.
Below, CNBC's Bob Pisani talks with Paul Tudor Jones, founder and CIO of Tudor Investment, about socially-responsible investing and the US market. He explains why there's a buyback mania going and rising inequality is a real concern. He also says raising taxes is an inefficient way to address the situation (Bill and Melinda Gates disagree, saying the current system isn't progressive enough).
Lastly, Grant's Interest Rate Observer Founder and Editor Jim Grant and CNBC's Rick Santelli discuss the bond market in Europe and the Fed's balance sheet.
Jim posted this clip on LinkedIn and this is what I replied:
The scale of the Fed's balance sheet is unprecedented but the same thing is going on in Europe and Japan. Bond bears will sound the alarm but the truth is the Fed's balance sheet is the ONLY thing keeping the financial system (and capitalism) afloat and no matter what anyone says, nobody has proven to me that the Fed's balance sheet cannot keep growing indefinitely in the future. In fact, as long as the power elite have control of the Fed and corporate America, I'm willing to bet it will grow to new record levels when the next crisis hits us.So maybe Tudor Jones is right, prepare for a revolution, a monetary revolution unlike anything we've ever seen before.
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