Legendary trader Paul Tudor Jones told an audience Monday that the next U.S. recession will be “frightening,” that “prices in stocks, real estate, anything” will revert to the mean, and we’ll have “to get back to a sustainable fiscal policy and that probably means the price of assets goes down in the very long run.”
Jones, interviewed by Goldman Sachs CEO Lloyd Blankfein, was speaking as part of the firm’s “Talk at GS” series.
Regarding assets, “in the short run it’s, like, jacked up and ready to go,” he said, with Blankfein adding that “it’s like lighter fluid on a fire.”
Other points Jones made:
- “Monetary policy the way it is currently conducted is not sustainable over time … and fiscal policy, are you kidding me?”
- He equated last February’s market break to the 1987 market crash, “as a bomb ready to explode.” He added that almost all market breaks over the last 30 years have been derivative-led.
- He said what makes the next recession more frightening is there will be “no stabilizers. We’ll have monetary policy that will exhaust very quickly, but we don’t have any fiscal stabilizers.” In 2000, he said, when we had 3.8% unemployment, “we had a 2.5% budget surplus.”
- “If we’re going to have societal change,” he said, “it has to happen through the way we do business.”
Jones, a founder of the Robin Hood Foundation, also launched JUST Capital, a nonprofit with a mission of promoting economic justice, and developed a list of the 100 most “just” companies based on what the American public believes is important. For example, in surveys, 23% of the public said how companies pay and treat their people is the most important aspect of justice, followed by how companies treat their customers, how products are made and whether they are socially beneficial and sustainable, and how companies help communities.
Last on the list of important things, Jones said, was how firms are serving the interest of their shareholders, which is “wild when you think about it … when we know the way Wall Street’s managed [it's] 85% of what we do.”
Jones noted that the top 50% of the Russell 1000 on average pay better than bottom 50%, create 20% more jobs, are fined 70-90% less, give at least two times more to charity, and the “real kicker” is they earn 7% more return on equity on average.
“So if you follow what the American public says, you can not only end up being more just but also end up being more profitable,” Jones said. He pointed out that one reason for this is if the biggest metric is employee payment, those companies on top probably have a highly motivated workforce that makes great products and treats customers well, so “it’s a simple business model that has a ton of alpha in it.,” Jones said. “We as a society need to rethink the old definition of capitalism.”
He noted that in 1985, the bottom 90% of the public owned 35% of wealth, and today that’s dropped to 23%, and that 12% has shifted to the top tenth of 1%. “This is unsustainable,” he said. Blankfein interjected, “That will be reversed by hook or by crook,” whereas Jones added that Marie Antoinette, the beheaded queen of France, would be a good example of what could happen.
JUST Capital partnered with Goldman Sachs Asset Management to develop the JUST U.S. Large Cap Equity ETF launched last week with $251 million traded the first day, making it the most successful ESG ETF launched, according to Yahoo News.
— Related on ThinkAdvisor: