Having previously warned of the "disastrous market mania," and told Janet Yellen to "be terrified" in April, legendary trader Paul Tudor Jones has a new message for CEOs, urging them to stop embracing the profit-above-all-else ethic creating massive wealth-inequality, or face the "tearing down of our civilization via war, revolution, or taxes."
“One of the key things that always ends up tearing down great civilizations and countries is wealth disparity. It’s not sustainable," explained the billionaire hedge fund manager at the Forbes Under 30 Summit in Boston, telling corporate chiefs that they have gone too far in embracing economist Milton Friedman’s profit-above-all-else ethic and they need to change how they do business.
Corporations have paid too much attention to prioritizing shareholders, said Jones, who’s backing a nonprofit called JUST Capital that will rank companies on how well they treat their employees, consumers, communities and investors.
Bloomberg reports that Jones said that even Friedman would rethink his ideas if he could see how divided the U.S. has become in terms of wealth, and worries about the outcome...
“The way wealth disparity has been historically dealt with is either wars, revolution or taxes. My guess is in the future it’ll be one of those three in this country.”
At the time of Friedman’s 1970 article, “The Social Responsibility of Business Is to Increase Its Profits,” the maximum federal individual tax rate was 70 percent, versus about 40 percent today. The wealth gap was one-fifth of what it is today, said Jones.
Friedman believed corporate executives should make as much money as possible while “conforming to the basic rules of the society.”
The economist also thought that if people want to do good in society they should do so through personal charity rather than through the companies they manage, direct, or invest in.
“I would argue today if he came back and saw where we are as a country, I don’t think he would say that,” said Jones, 63. “Shareholders have benefited at the expense of labor and that has had a huge social impact on this country.”
Jones ranked his own company using the JUST criteria and discovered that he underpaid the people hired to landscape the property surrounding his Greenwich, Connecticut-based firm. They were paid $11 an per hour.
“We looked through our contractual workers and upped their pay so they could get to a living wage,” said Jones, whose net worth is estimated at $3.1 billion, according to the Bloomberg Billionaires Index.
Notably, Jones laid off 15 percent of his employees last year, a rare move for a man who’s known for his loyalty towards staff, and as Bloomberg reports, after living in Connecticut for decades, Jones moved to Florida last year, which has no income tax.
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This is not the first time that Tudor Jones has discussed so-called "Just Capital." In 2015 he delivered a TED Talk on the topic...
Can capital be just? As a firm believer in capitalism and the free market, Paul Tudor Jones II believes that it can be. Tudor is the founder of the Tudor Investment Corporation and the Tudor Group, which trade in the fixed-income, equity, currency and commodity markets. He thinks it is time to expand the “narrow definitions of capitalism” that threaten the underpinnings of our society and develop a new model for corporate profit that includes justness and responsibility.
It’s a good time for companies: in the US, corporate revenues are at their highest point in 40 years. The problem, Tudor points out, is that as profit margins grow, so does income inequality. And income inequality is closely linked to lower life expectancy, literacy and math proficiency, infant mortality, homicides, imprisonment, teenage births, trust among ourselves, obesity, and, finally, social mobility. In these measures, the US is off the charts.
“This gap between the 1 percent and the rest of America, and between the US and the rest of the world, cannot and will not persist,” says the investor.
“Historically, these kinds of gaps get closed in one of three ways: by revolution, higher taxes or wars. None are on my bucket list.”
Tudor proposes a fourth way: just corporate behavior. He formed Just Capital, a not-for-profit that aims to increase justness in companies. It all starts with defining “justness” — to do this, he is asking the public for input. As it stands, there is no universal standard monitoring company behavior. Tudor and his team will conduct annual national surveys in the US, polling individuals on their top priorities, be it job creation, inventing healthy products or being eco-friendly. Just Capital will release these results annually – keep an eye out for the first survey results this September.
Ultimately, Tudor hopes, the free market will take hold and reward the companies that are the most just. “Capitalism has driven just about every great innovation that has made our world a more prosperous, comfortable and inspiring place to live. But capitalism has to be based on justice and morality…and never more so than today with economic divisions large and growing.”
This is not an argument against progress, Tudor emphasizes. “I want that electric car, or the jet packs that we all thought we’d have by now.” But he’s hoping that increased wealth will bring with it a stronger sense of corporate responsibility. “When we begin to put justness on par with profits, we get the most valuable thing in the world. We get back our humanity.”
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And here is his full TED Talk on the topic..
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Finally as a reminder, in April, Tudor Jones, who runs the $10 billion Tudor Investment hedge fund, said Yellen should be very afraid, warning that years of low interest rates have bloated stock valuations to a level not seen since 2000, right before the Nasdaq tumbled 75 percent over two-plus years.
That measure - the value of the S&P relative to the size of the economy - should be “terrifying” to a central banker, Jones said earlier this month at a closed-door Goldman Sachs Asset Management conference, according to people who heard him.
While the billionaire didn’t say when a market turn might come, or what the magnitude of the fall might be, he did pinpoint a likely culprit.
Just as portfolio insurance caused the 1987 rout, he says, the new danger zone is the half-trillion dollars in risk parity funds. These funds aim to systematically spread risk equally across different asset classes by putting more money in lower volatility securities and less in those whose prices move more dramatically. Because risk-parity funds have been scooping up equities of late as volatility hit historic lows, some market participants, Jones included, believe they’ll be forced to dump them quickly in a stock tumble, exacerbating any decline.
“Risk parity,” Jones told the Goldman audience, “will be the hammer on the downside.”
Indeed, with all that low-vol leveraged, it wouldn't be the first time.
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