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Paul Tudor Jones Calls Out Buyback “Mania” CNBC Interview From Inside ETFs [FULL TRANSCRIPT]

CNBC Exclusive: CNBC Transcript: Billionaire Investor Paul Tudor Jones Speaks with CNBC’s Bob Pisani Today

WHEN: Today, Monday, February 11, 2019

WHERE: CNBC’s “Closing Bell” – Live from the Inside ETFs Conference

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The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Billionaire Investor Paul Tudor Jones Speaks with CNBC’s Bob Pisani on CNBC’s “Closing Bell” (M-F 3PM – 5PM) today, Monday, February 11th.

Billionaire Investor Paul Tudor Jones: We have a mania going on in buybacks

 

SARA EISEN: The world’s largest ETF conference is currently under way in Florida. Our own Bob Pisani is there and he is joined by legendary hedge fund manager and Tudor Investment founder Paul Tudor Jones. It is a CNBC exclusive. Bob, take it away.

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BOB PISANI: And we’re here at the biggest ETF conference in the world, Sara. 2,500 investment professionals talking about the future outlook for global growth and of course, investing in general. Paul, thanks very much for joining us. You are about to give a major speech on, let’s call it social responsible investing. ESG, environment social governance, in general. Your point is an interesting one. You’re telling the crowd: It’s time for the American investing public to change their outlook on how and what they believe the purpose of corporations are. The old Milton Friedman model. You argue that the purpose of a corporation is to maximize shareholder returns is an outmoded one. Why and what do you want to replace it with?

PAUL TUDOR JONES: Well, you have to realize when Milton Friedman said that, and he was always a hero of mine, that was in 1970. The top income tax rate had been 90%, had just come to 70. Wealth inequality was one fifth of what it is today. So we were living in that semi socialist state in that point of time. And so, he was the kind of counter balance to that. Fast forward to where we are today, and we now have the highest wealth inequality in the history of this country. We’ve got literally half the country that can’t raise $1,000 for a family emergency. We have got -- 35% of the wealth used to be owned by the lowest 90% of the population -- the lowest -- bottom 90% of the population in 1985. Today the bottom 90% of the population owns 23% of the wealth. So they have lost a third. And that 12% has gone to the top 1%. So we’ve got a system that I think we all could agree on the wrong track.

BOB PISANI: You’re going to share a slide with the people here that I think is fascinating. JUST Capital firm -- you’re very involved with – you’ve helped found.

PAUL TUDOR JONES: Foundation.

BOB PISANI: Foundation, excuse me. You helped found.

PAUL TUDOR JONES: Right.

BOB PISANI: Has very different principles in maximizing shareholder return. You went to the American public, surveyed them, and they had very different values about what a corporation should be doing to maximize shareholder return. They said 25% of the corporation should be doing is making sure workers get fair pay and benefits. 20% say customer treatment of privacy are essentially. Products should be socially beneficial, 15% say. Look at this. And good for the environment, 13%. I want to put up the next one because only -- respondents felt that only about 9% of the real purpose of a company, 8%, excuse me, should be to maximize investor returns. That’s old the Milton Friedman– Friedman said 100%. Your point is the American public is already socially responsible. How do you get them to change the attitude? How do you go to a boardroom of investors and tell them: “No, no. Adopt this model. Don’t adopt Milton Friedman,”?

PAUL TUDOR JONES: So here are the facts. The facts are, since 2008, 92% of corporate profits gone to shareholders. It’s the exact photo negative of what the American public thinks a “just company should do. So we have this big disconnect of what the American public thinks and what corporate boardrooms, the C-suite, are actually doing. The interesting thing is there’s a way to bridge that gap where everyone wins. So what JUST Capital does is we rank the Russell 1000 companies 1 to 1,000 every year according to those metrics, not determined by us are an academic panel but by the American public. We’ve polled over 100,000 people over 4 years. So this is what the American public thinks. We rank those companies 1 to 1,000. We created an ETF, which is why I’m here, that takes in the 33 industries that track the Russell 1,000, it takes the top half, the top performing of those 33 sectors and we have an ETF that has half the names of the Russell, the best performing on those metrics, according to the American public, that are important. That index on so many metrics outperforms the rest of the companies.

BOB PISANI: Now, that symbol –

PAUL TUDOR JONES: It outperforms stock prices better. It outperforms the Just index. It outperforms the Russell 1,000. On average those companies create jobs that are 27% faster rate. Has a 3% higher return on equity. Recycles waste nine times the average. I could go on and on.

BOB PISANI: That symbol is JUST, that ETF you’re talking about. You talk a lot about wealth inequality. Is there a connection here? Do you think if corporations address the issues and started adopting the kind of values you’re espousing here, that that would help address the wealth inequality problem? Is there a connection here?

PAUL TUDOR JONES: Clearly there is a connection. I think we have got a mania going on in buybacks and a mania going on in terms of shareholder primacy. It wasn’t always that way. Right? If we go back to when I was a youngster, corporate pay, CEOs made 20 times that of the average line worker. So things have been different and can be different again. And if they’re not, I’m really nervous about what the ultimate social consequences are in this country.

BOB PISANI: Well Senator Schumer and Sanders introduced a bill to limit buybacks recently. Do you support that?

PAUL TUDOR JONES: Well I’ve been talking with Senator Schumer on justness for over a year. I don’t know if I want to see a legislative outcome for this. I’d love to see this happen organically. If I was, and I’m not, if I was a director on a public company or a private company, for-profit company, there’s two questions I would ask before I even thought about shareholder buybacks, dividends or anything. The first question would be: how many of my employees are not making a living wage? That’s the first question that I would ask. The second one, if I were a director I would ask is: what are we doing to help local communities? What percentage charitable contribution is going to the most needy and the place where we have customers? What are we doing? So, in 1985, charitable contributions by companies were 2% of revenues. Today it’s 1%. Why is that? Why is that?

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BOB PISANI: Let me just move on. Let’s go to the taxing wealth question that we’ve had in general -- we have seen a spade of democratic hopefuls announce recently. How do you feel about the new democratic proposals for taxing wealth?

PAUL TUDOR JONES: Well I think the reason that we started JUST is so that we wouldn’t get to this point, right? If I think about the taxes, it is the most inefficient way to allocate resources within an economy. So that’s why I think JUST Capital is so important. I’d like to find an organic solution and that means a complete cultural, social, intellectual shift of the way that we think about our companies and what their responsibilities are. Why don’t they have greater social responsibilities? The smartest people in the world run American companies. Let them -- let’s bring them into this discussion on how we take care of those left behind.

BOB PISANI: I’ve got to move on and ask you about the global economy and about the markets. Obviously people here -- global growth is the major issue. Can you just a give us you brief overview of the markets. What do you think of the United States markets right now? Europe and China right now?

PAUL TUDOR JONES: I’m very bullish on the U.S. stock market. If you think about what happened last year, last year we – I think of things in terms of flows, and last year we walked into a situation with a lot of euphoria. A huge amount of investor positioning long equities. Both in the United States and globally. And we took those positions and pretty much washed them into a trillion dollars of corporate buybacks. Fast forward to where we are today, all that leverage positioning in particular from the long short community, the macro community, the discretionary asset managers, that’s all been washed out. But we still have, like the Terminator, 1 trillion plus in buybacks probably scheduled -- well, certainly globally and maybe close to that even in the United States. I don’t know where the stock’s going to come from. It will have to be I think higher prices defined, a group of investors willing to sell their stocks.

BOB PISANI: Europe, EU last week, essentially flat growth in Italy going nowhere, 1% at best for the rest of Europe right now. Is there any kind of relative value play given how Europe has underperformed? What do – how should our viewers feel about Europe?

PAUL TUDOR JONES: So again – right. So I think we are going to have -- I think this year we are going to continue to have U.S. exceptionalism and U.S. outperformance. And I think the S&P 500 will outperform its peers, it will outperform emerging markets. And I think from that, you’ll have to take all the correlated trades. So I think rates won’t go down. They’ll probably go back up. And I think the dollar will probably stay firm.

BOB PISANI: Okay. Paul Tudor Jones, it’s a very timely topic you’ve got about wealth inequality and ways to address it. We’ll follow JUST Capital, and I’m going to go in with you and watch your speech. Thank you for joining us.

PAUL TUDOR JONES: And don’t forget the ETF, don’t forget it.

BOB PISANI: J-U-S-T.

PAUL TUDOR JONES: Yeah that’s the index and the ETF is J-U-L-C-D.

BOB PISANI: J-U-L-C-D. Thank you very much. Paul Tudor Jones, always a pleasure here. I’m here today and tomorrow. The biggest ETF Conference in the world. We will have a lot of other guests we’ll be talking about, as well. Sara, back to you.