CNBC Transcript: Billionaire Investor Paul Tudor Jones Speaks with CNBC's Andrew Ross Sorkin Today

WHEN: Today, Monday, December 10, 2018

WHERE: CNBC's "Squawk Box"

The following is the unofficial transcript of a CNBC interview with Paul Tudor Jones and CNBC's Andrew Ross Sorkin on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Monday, December 10th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2018/12/10/watch-cnbcs-full-interview-with-paul-tudor-jones.html.

All references must be sourced to CNBC.

JOE KERNEN: Let's get over to Andrew now. He's at the offices of Tudor Investment. He's joined by a special guest. Andrew.

ANDREW ROSS SORKIN: Thank you, Joe. We are at the offices of Paul Tudor Jones, legendary investor. Of course he's looking at me -- he hates when I say legendary. But the legendary investor is here he founded Robin Hood, he founded Just Capital. We have a lot to talk to you about this morning. Including these new rankings from Just Capital. I want to get to that. We are going to do a two part interview. Effectively we want to talk about just capital the other about the markets and where things are at. I know you have a bold call on what the fed is maybe going to do we'll get to that in just a bit. But first, give me a taste in the past couple weeks the volatility has been enormous what are you doing with your money? What are you thinking about these markets?

PAUL TUDOR JONES: I think we're going to see a lot of more of what we just saw which is a lot more volatility. It's really easy to say I'm really bullish, or I'm really bearish I see a two-sided market. I think in the next year we'll be from where we are today ten down and ten up.

ANDREW ROSS SORKIN: Ten down and ten up.

PAUL TUDOR JONES: Both sides of it. At least 10% either way. Maybe 15% either way from where we are right now.

ANDREW ROSS SORKIN: We'll put a pin in that for a second and talk about it in a moment i want to understand how you position yourself for that if that is the case but I want to talk about just capital this morning you're releasing new rankings for 2018. This is your effort effectively to rank companies based on the way the public perceives these businesses and you have an ETF out that you launched. You talked about it last time in the spring. We should say that ETF I think is down about 5%, pretty much matching where the S&P was since that began.

PAUL TUDOR JONES: That's about right. It's outperformed the S&P and the Russell 1000 for seven straight quarters though. So it outperformed the Russell 1000 and I think the S&P for seven straight quarters.

ANDREW ROSS SORKIN: Let's talk about, though, this ranking. Top of the list is Microsoft and it's a very tech heavy list at the top this year. What was the big surprise and difference when you made the rankings this year?

PAUL TUDOR JONES: Oh, there weren't that many changes. We had 33 new companies move into the just 100. In the top 5, we had Alphabet move into the top 5. It is tech heavy because tech does such a great job on worker pay. That's our number one metric. The American public said the most important thing for just for a company 25% worker pay, 18% customers, 15% products. So, and what's so interesting about that, is that 25% for workers and 18% for customers is so different when you think about what the public's telling us. It's about people. Right? It's about workers and customers and it's about people. Yet on Wall Street, companies always manage for profit. There's a big difference there.

ANDREW ROSS SORKIN: here's the thing I don't understand. If Jeff Bezos was making this list I assume he would put product at the top he'd either put product or customer at the top before you get to worker at some point you'd want leadership and shareholders. And I am not discounting the environment or communities or jobs or all of these other issues but clearly if you don't have the product and the customer part right you probably don't have a business.

PAUL TUDOR JONES: Right. And if you don't have really well incentivized, smart, engaged workers, you're not going to have a product and you're not going to have customers. None of this is black or white. It's all shades of gray. It all works into this wonderful thing called capitalism. And of course the reason we started Just Capital was because we want to make capitalism work for all. We're trying through the private sector which you know $18 trillion four times the size of the public sector. 40 times the size of philanthropy. We're trying to change the most important thing in our lives which is our work in a way that's going to give us a society that's more sustainable. Here's something that is a little scary there was a poll recently conducted 51% of millennials between 18 and 29 are opposed to capitalism. You're going to be 20 years from now doing this from Havana unless we change the way that capitalism works right now. Because we're leaving too many behind. Right? In the past 40 years, we've had an 80% increase in worker productivity but they've only shared in 10% of that. So we have to change, we have to modernize. Or this great system that we have is not going to continue as we know it now.

ANDREW ROSS SORKIN: Okay, so explain this though: number three on the list you mentioned earlier is Alphabet. Alphabet's also come in the news because of data protection issues and other things. How does that then rank in this?

PAUL TUDOR JONES: Right so remember something like data privacy is going to be a component of probably -- we collect over 80 different subsets of components that go into our overall ranking. And I forgot how many hundreds of thousands different data streams. So it's just one small part. They do a great job on worker pay and treatment, pay equity. They do a great job on the customer experience and customer satisfaction. So you can't look at any one thing in isolation – you have look at the whole --

ANDREW ROSS SORKIN: I mentioned Jeff Bezos before he comes in, Amazon's only number 30. And they're the top retailer in your group what happened there?

PAUL TUDOR JONES: So they'll probably move up again next year. Remember our rankings are in may 31 when they went to the $15 minimum wage, that was after that fact and that'll be definitely a real positive for them next year. Retail I'm excited about because you've had Target, you've had Walmart, you've had Amazon all increase their basic minimum wages that they're paying across the board. And see, that's what's so great. I think about these rankings. These really are a competition for goodness. I'll give you a great example. Microsoft, why is Microsoft number one? They have 100% compliance on pay equity. Meaning they go through and do a survey and they make sure their women are paid just as much as their men are. It's funny I have a small business. Has cnbc ever conducted a pay equity survey?

ANDREW ROSS SORKIN: I don't know the answer to that.

PAUL TUDOR JONES: Okay, so 39 out of the top 100 just companies have conducted a pay equity survey. and it's interesting because until I got into this, I am a small business I never would have thought about it.

ANDREW ROSS SORKIN: Do you do a pay equity here?

PAUL TUDOR JONES: I just got finished asking our HR. She said, "We've been doing this for 4 years but we've never actually conducted a formal survey." I said, "Well, maybe we should." She goes, "Well, we're not like a large corporation that probably has tens of thousands of employees. We've got 380. I think we're covered." But the point is the reason this is so much more important and you talking about damn earnings all the time, is these best practices are what everyone whether you're a public company or private company needs to do so we have a just workplace.

ANDREW ROSS SORKIN: Let me throw another name at you. General Motors I'm surprised came in at 14. This is above Amazon, above Facebook and these other bigger companies we often talk about.

PAUL TUDOR JONES: Great job on worker pay and treatment. Great customer experience.

ANDREW ROSS SORKIN: They just laid off 14,000 people.

PAUL TUDOR JONES: That again, happened after May 31. That will have an impact in next year's rankings. Right? So these are as of May 31. So the only thing I would say is what we're trying to do here is to take the message that's really to me most important, which is: it's about the human side of what companies do. And we've got to make sure that in businesses as well as when we're investing that we don't look at companies just as these lifeless entities that do nothing but make profits. Because we're not going to have a sustainable social structure. Capitalism will not survive unless we change.

ANDREW ROSS SORKIN: Let me ask you about two other ones. One is Tesla, we talk about automakers, in the bottom 10% on this list. Basically doesn't make the list.

PAUL TUDOR JONES: Yeah. You know the way I look at that look at the room for improvement he has next year. Right? They don't do a great job on worker pay and treatment. If I was on the board of Tesla or if I was Elon Musk, that would really bother me. That would really bother me. And so hopefully I'd be focused on that and I'd say, "I don't want to be there. I want to be—"

ANDREW ROSS SORKIN: He's trying to avoid the unions right now he's saying -- he's actually saying he does pay his people well because he pays them in stock. He'll tell you people on the floor get a lot of money – could potentially make a lot of money given the stock. But how much of this is deals with governance? I ask only because I don't know if you saw "60 Minutes" last night he said he doesn't respect the S.E.C.

PAUL TUDOR JONES: So that particular bucket is about 7% or 8%. Again, remember there's so many different issues that go into it. It's not just one thing that makes or breaks or disqualifies you. It's the whole range of things.

ANDREW ROSS SORKIN: How much do you want CEOs to look at this list, call you up, say, "How can I get higher on the list?" And say, "What do I have to do to move – How do I have to reposition myself?" Then the question is –

PAUL TUDOR JONES: Hold on. They're not calling me. We poll the American public.

ANDREW ROSS SORKIN: I know. But I assume they call you and say, okay, I need to understand the metrics with which you're using because I want to figure out how I can do better. But if the focus is on worker pay, for example, over making a killer product or delighting the consumer –

PAUL TUDOR JONES: It's not black or white. Remember, it's all shades of gray. So it's about worker pay and treatment. It's about having a great customer experience. It's about having a socially beneficial product at a reasonable cost of great quality. It's about, "How do I treat my communities?" It's about, "Am I creating domestic jobs for American workers?" And we were.

ANDREW ROSS SORKIN: But interestingly, we all want domestic jobs for American workers. We all want higher wages. By the way, you care about macroeconomics more than anybody else. Look at what the Fed is thinking about the fact that wages getting where they're getting. Think how the market is reacting to that. I mean, you look at this list and then you think about the reaction, and you think what?

PAUL TUDOR JONES: You mean with regard to the Fed?

ANDREW ROSS SORKIN: With regard to the Fed. But even just more broadly, with regard to the way the stock market reacts when wages go higher. You think that actually they would – that companies or shareholders would effectively give you kudos for this. But they do the opposite. For obvious reasons, by the way. For obvious reasons.

PAUL TUDOR JONES: It's really interesting, right? Jeff Bezos was probably the only CEO that could come in and say, "I'm going to have a $15 minimum for every one of my employees." He's probably the only guy. Because any person that was kind of a hired contractor CEO is going to have a board and shareholders that are going to absolutely eviscerate that person. But Jeff Bezos, you know, he is Amazon. So he and his regal God-like way could do the right thing, the beneficial thing. I guess, you know, the thing that I look at -- when I look at the wealth disparity in this country, which I think is the single biggest single threat we have. Because it's a threat to our entire -- the capitalist way of life, which is the best form of economic governance. We've got too many Americans left behind. And so, I look at this almost like climate change. We know climate change is bringing impending doom and disaster, but it's happening incrementally so we don't do anything about it. When I think about worker pay and going to 15 bucks, okay so maybe it's going to cost a little bit in terms of R.O.E. But in the long run, if we don't do this, we're going to lose our whole form of capitalism. And so, I we've got to -- I think as Americans, as shareholders, as any stake holder, we've got to realize there has to be a better balance. There has to be a better balance than the way we divide corporate revenue between shareholders, as well as workers, customers, communities, and the planet. It's out of whack and we've got to change it.

ANDREW ROSS SORKIN: Okay. I'm going to press pause for a moment. We're going to take a quick commercial break. When we come back though, we're going to continue our conversation with Paul Tudor Jones. This time we're going to talk about a bold market call he's got We'll talk about the Fed, China, tariffs, and so much more. Paul Tudor Jones when we return.

PAUL TUDOR JONES: Okay.

ANDREW ROSS SORKIN: Welcome back to "Squawk Box." We are on the trading floor of Paul Tudor Jones' firm continuing our conversation with him. Just finished up talking about Just Capital but --

PAUL TUDOR JONES: A day of celebration for great companies doing just things.

ANDREW ROSS SORKIN: I also want to talk to you about what I think is a relatively bold call that you have about what the Fed may or may not do when it comes to hikes. What do you think is going to happen?

PAUL TUDOR JONES: Well, Central Banks always, generally speaking, manage by looking in the rearview mirror. So they're always looking at data that's old. The whole four guidance thing locks them into these intractable paths that's difficult for them to deviate from. And that's probably not the best way to manage an economy, but it's -- when you're driving that many different stake holders and you have so much momentum, it's very hard for them to change. What's different this time is that I started out as a cotton trader. So commodities, I was trading. That was the first thing there were no financial futures or certainly no stock index futures when I first started. And all the financial futures had just begun. My point being, I always look at commodities because they're a great leading indicator for the economy. So right now we have the Goldman Sachs commodity index down about 15% over the past 40 days. Never in the history of the Fed have we had that kind of a deflationary impulse eight days before a hike. So just within the last two months, we've got this incoming data. And we had this -- what I think is the bellwether of the economy telling us –

ANDREW ROSS SORKIN: There's a problem here.

PAUL TUDOR JONES: There's potentially a problem, right? And real question, is it supply driven or demand driven? It's demand driven. Oh, my god. It's funny, if you just kind of go query up 'Goldman Sachs commodity index down 15% over the past 40 days,' and you go look at those times through history, you find it typically is happening during cutting cycles, not hiking cycles. So this is different this time. We are hiking with this really contemporaneous set of very important data telling you 'Watch it because you could be hiking at exactly the time you should be cutting.' So, and if I just -- the only other times we've even been close to this was '74. I think the GSEN was down 11% in '97. And then December of 2015. And so in '74, that was the -- they hiked us right into a recession. And '97, that was one hike before we ended up getting into '98 and all the problems associated with that. And then in 2015, that was the first hike when we went to 150 basis points and we were on pause for years. So the one thing that I would say is there's a high probability that this hike will be -- assuming they hike – will be the last one for a long time.

ANDREW ROSS SORKIN: So you don't think they're going to hike in 2019?

PAUL TUDOR JONES: No, no, no. I don't think they're going to hike in 2019.

ANDREW ROSS SORKIN: Really? I mean, by the way, the market still expects them to hike in 2019.

PAUL TUDOR JONES: There's 20 basis points – there's not that much priced in. But I don't think they're going to hike. No.

ANDREW ROSS SORKIN: And what do you think the chances that they don't hike in a week?

PAUL TUDOR JONES: I think they'll probably hike. Again, there is so much momentum and Central Bankers by definition are so conservative and for them to change that quickly would require this unbelievable change. The mindset -- and look, you know, so on the one hand we've got this fact set that we have never seen before hiking into clear deflationary singles coming from the commodity complex. So let's say, okay, I don't think they're going to hike in 2019. So now let's look and say what happens if this is the last hike? What happens--

ANDREW ROSS SORKIN: Are we off to the races?

PAUL TUDOR JONES: Well so we've got three episodes to look at. We've got the end -- when I say episodes, long hiking cycles so I will throw out '97 long hiking cycles followed by termination points. So that gives us '95, that gives us 2000, and 2006. So those are the last three modern days of hiking cycles. And when they ened, they were generally speaking great times about the stock market. Within a month or so, the stock market was off the races. So, we've got -- if you just thought okay this is going to be like last time. You'd want to be thinking about in this turbulent period, buying stocks because history would say '95, we exploded. 2000, we at least went back and retested the highs. It kind of -- I think they stopped in May or June and we were back retesting the highs in October. And then in 2006, we went on for another 20% or 25%. We went all the way up to October 2007. So modern day history would say if this is the end, we've got to get ready for a big rally next year.

ANDREW ROSS SORKIN: So your gang, that's behind me and around us, are they positioning themselves – are you guys buying right now amidst all this?

PAUL TUDOR JONES: Well, and again, on the other side, all of a sudden we got them hiking into this deflationary impulse which if you remember in December 2015, we had that horrific January 2016 and '74 we got annihilated. Even '97 after the hike we went down. So you've got kind of two -- if I am just looking for historic analogs, I've got --

ANDREW ROSS SORKIN: Which one are you betting on though?

PAUL TUDOR JONES: Well that's why I said I think 10 up, 10 down. We're going to be both sides. Because I don't necessarily know just yet.

ANDREW ROSS SORKIN: But then what do you do about it, if you are going to be ten up or ten down?

PAUL TUDOR JONES: Well, I am going to –

ANDREW ROSS SORKIN: You just play the volatility.

PAUL TUDOR JONES: I'm going to buy the hell of a ten lower for sure. To me that's an absolute lay-up. The difference between now and say December 2015 is the market has deleveraged so much, we probably -- if you think of all the buy backs which we are going to have all of next year, I can't imagine sometimes next year we won't be up 10% or 15% next year. I can't imagine because we still have the same buy backs we had this past year. The difference is we are walking into next year completely, totally deleveraged. And so, if we're being honest, the markets, a lot of time, is just about herding cattle back and forth.

ANDREW ROSS SORKIN: But you've also talked about the whole system being overleveraged, talk about deleveraged.

PAUL TUDOR JONES: Yes.

ANDREW ROSS SORKIN: How much do you worry about that?

PAUL TUDOR JONES: So – so -- again, and again that's why I think we can be both sides. We probably are sitting on a big global credit bubble. And I hope I am not underestimating the potential negative impact that popping that bubble. What's interesting about this hike is that this one, you're seeing that the problems coming from it, or the consequences of it, you're seeing it – where the bubbles are greatest, you're seeing it in China domestically on the private side, you're seeing it in Italy who has a credit bubble in terms of their public deficits, or excuse me, their public debt. So we are seeing this hike playing out in the areas of the greatest credit vulnerability, the biggest bubbles.

ANDREW ROSS SORKIN: We've got to run but to hit two things. Real quick, China, China trade, how much do you think that's impacting the market?

PAUL TUDOR JONES: I'd say – I'd say there is an emotional aspect of it that had a huge impact. No doubt about it. And clearly it's had an impact domestically in China and popping their credit bubble which is having ramifications. So yes, it is a big deal. I would say 50 China and 50 the Fed.

ANDREW ROSS SORKIN: Okay. We're going to leave the conversation there. Paul Tudor Jones, thank you. Congratulations on the Just Capital rankings today.

PAUL TUDOR JONES: Day of celebration. Let's talk about all these great things they're doing.

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