Money Talk…

in November, investment industry sages from near and far gathered at the Delamar Hotel for the first-ever Greenwich Economic Forum, and the news they brought, like the weather outside, was a wintry mix. The nine-year bull market is nearing an end. Interest rates are creeping up. An economic downturn could hit as early as this year, though most of the sages guessed it would begin in 2020.

Paul Tudor Jones, founder of Tudor Investment Corporation and one of two Greenwich billionaire rock stars at the forum, spoke of “really challenging times” and “scary moments” ahead. The other rock star, Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world, has been thinking about hard times so intensely that he wrote an entire book about them, Principles for Navigating Big Debt Crises, which is available for free download. “As a bubble nears its top,” Dalio writes, “the economy is most vulnerable, but people are feeling the wealthiest and the most bullish.”

Outside the Delamar, in the world of economic laypeople, the sentiment was bullish indeed. How could it not be, with low unemployment, a soaring (if newly volatile) stock market, and robust consumer confidence? But the sages at the Greenwich Economic Forum—some 300 leading minds in finance from Washington to Abu Dhabi to Beijing—know more and see farther than the rest of us do. Jones, for instance, has his eye on a worrisome corporate debt bubble. Having gorged on cheap credit for a decade, companies may soon find themselves squeezed by debt as interest rates rise and growth slows. “I don’t know whether we’re supposed to run for the exits,” he said as the sky thickened outside the windows; before long snow would be falling rapidly into the green chop of Greenwich Harbor. “But there probably will be some really scary moments in corporate credit, and those cracks are beginning to show—dramatically.” Jones does not count himself a fan of 2017’s huge corporate tax cuts. Like any sugar high, the cuts’ pleasant effects wore off quickly and are leaving some sluggishness in their wake; and because they encouraged yet more borrowing, the cuts may even “prick the bubble” and spur a recession, Jones remarked.

Speakers who shied from using the “R” word provided little more comfort. “Over the last earnings period you could hear the tone changing,” Dmitry Balyasny, a founder of Balyasny Asset Management, noted. “There’s definitely a lot more caution than there was before.” “It’s not that there’s going to be a crisis or a disaster,” said William Michaelcheck, founder of the Mariner Investment Group, “but we may have a bumpy ride for the next four or five years.”


Beyond the ROI

The two-day Greenwich Economic Forum is designed to be a “mini-Davos”—a mini-World Economic Forum—according to Bruce McGuire, a forum cofounder and president of the Connecticut Hedge Fund Association. In this it succeeded, complete with snowy backdrop. The forum delivered expert views on what lies over the economic horizon, even if those views were mostly bearish and a little depressing. We should note, however, that a little bearishness excites the salivary glands of some investors. Hedge fund managers, for example, are known to do well in volatile conditions, where expertise really counts, whereas any fool can ride a bull market. Over the last decade, the average fool did much better than the average hedge fund manager. Obliquely referencing this, apparently, were the red baseball caps tucked in forum-goers’ gift bags: “Make Volatility Great Again,” they read.

But the forum concerned itself with far greater stuff than anyone’s return on investment. The most bracing news—even more bracing than the specter of a recession—had to do with the “wealth gap,” as Ray Dalio calls it, that is widening as you read this and will widen further in a downturn. While the downturn probably won’t look like the tumble off a cliff that 2008 looked like, it will deepen the social and political divides we see now. “Right now, times are good and we’re sort of at each other’s throats,” Dalio said in a recent interview. As a close student of history’s economic cycles and crises, what did late 2018 remind Dalio of? The disconcerting answer was 1937. In that year, we were lifting ourselves admirably out of the Great Depression when a recession hit, plunging us back into the muck.

As Dalio noted, severe economic stress typically provokes a populist surge—it did so in the Gilded Age and again in the 1930s. It’s fair to say that the Great Recession of 2008 and its too-slow recovery gave us President Trump. There’s a rich irony in this—a man who washes his hands in a gold-plated sink as savior of the working person. Trump undeniably made believers of the (white) disaffected, but it’s hard to see how he’ll improve the wealth gap with policy choices like diminished access to health care, gutted consumer protections, farm-unfriendly trade tariffs, and tax cuts keyed to corporations and the wealthy. Dalio, for his part, considers the wealth gap a “national emergency” and has said he hopes the president will appoint a bipartisan commission to study the problem and generate solutions.

Paul Tudor Jones is equally concerned. “Wealth disparity is the single most threatening social problem we face as a country,” he said, the chilling message softened only a little by his warm Tennessee drawl. “You can see the fissures.” These fissures had begun to remind him of the social unrest he witnessed in the late sixties and early seventies. Among the present signs of discontent is a 2018 Gallup Poll finding that, for the first time, American millennials hold a more positive view of socialism than of capitalism, Jones told his decidedly capitalist audience. The statistics suggest why: 95 percent of growth since the recovery has gone to the top 1 percent of the population, and the wealth of the top one-tenth of 1 percent is now equal to that of the bottom 90 percent.

We’ve been traveling toward this moment for a long time—since the 1980s—when productivity growth began to far outpace income growth, indicating that average Americans weren’t sharing in the spoils. “We have to modernize capitalism” when it isn’t working for the majority of Americans, Jones warned. “If you’re going to have social change in this country, it has to start with our companies.”

Companies are where the economic power lies: The $19 trillion private sector is four times bigger than the public sector and forty times bigger than the philanthropic sector. In advancing the notion of companies contributing to the greater good—corporate “justness”—Jones breaks sharply with Nobel Prize-winning economist Milton Friedman and his influential view that a company’s sole job is to increase shareholder profits, social conscience be damned. “We have to invest in good, old-fashioned business practices,” Jones said. “It can’t just be about shareholders and profits.”

In 2013 Jones founded Just Capital, a non-profit that ranks companies based on how they treat and compensate their employees, how good their products are, how they treat their customers, and their impact on the environment, among other “just” metrics. (Intel topped Just Capital’s 2017 ranking, followed by Texas Instruments, Nvidia, Microsoft and IBM.) But does it pay to be just? Apparently so. In a comparison of the justest versus the biggest, the Just 500 Index is outperforming the Russell 1000 by about 4 percent, Jones noted with satisfaction.

The hip-hop artist Akon—a forum highlight—also exemplified doing well by doing good. Dressed in a white suit with black buttons, the five-time Grammy nominee spoke inspiringly of his “network of untapped entrepreneurs,” the NUE Initiative. Born in St. Louis and raised in Senegal and New Jersey, Akon said his difficult younger years, including a brief stretch in prison, made him a natural entrepreneur—“a natural born hustler.” But in the ’hood there were no channels for his gifts. “It’s all halted and stalled by lack of funds, lack of investment,” he said. “It becomes wasted talent that goes down the drain, because there’s nothing there to support it.” NUE’s goal is to create an “entrepreneurial ecosystem” for the young Akons of the world, people brimming with ideas and energy who live in opportunity deserts. “Where are these entrepreneurs? They’re all over,” said Robert Smith, one of Akon’s key business partners, who was sitting next to him. “The problem is, most people only think about Silicon Valley, Silicon Beach and Silicon Alley,” the tech/venture capital hubs of the San Francisco Bay area, Los Angeles and New York.

Akon rose to the top of the music world around 2007 (producing for Lady Gaga and Michael Jackson in addition to making his own multi-platinum records), and then bounced to the top of the entrepreneurial class. Much of his business activity is in Africa. Smith gave the audience an idea of the scale of Akon’s achievement: “What he’s been able to do in navigating across a war-torn continent is truly monumental. He’s provided electricity to now approaching 100 million people.” Akon continues to think big. Not only has he launched a cryptocurrency—Akoin—but he’s also building a futuristic town in Senegal—Akon Crypto City—for which Akoin will be the exclusive currency. Oh, and he’s “seriously considering” running for president of the United States in 2020.


Globally Speaking

Other dominant themes at the forum included America’s retreat from globalization, which everybody seemed to think was regrettable, and China’s concurrent embrace of it. China seemed to be on everybody’s lips. On the credit side, investors were bullish, seeing China as a land of limitless opportunity. Ray Dalio, who has opened a fund there, said, “Yeah, I’m excited about China. I can’t understand how anybody couldn’t be.” Even though it’s coming off a bad year, he added, “a bad year in China is going to have twice the productivity of a good year in the United States.” On the debit side, investing in China can be tricky because regulations change by the day. There are also those pesky trade tensions to worry about.

Afsaneh Beschloss, the founder and CEO of the Rock Creek Group, said the time is right to watch emerging markets closely, particularly Africa. After a lackluster five years, they could be poised for big growth again as U.S. interest rates rise and our economy slows. “[Emerging markets] probably have some of the best values you’ve seen in a very long time,” she said. “But we haven’t seen the trigger point yet.”

McGuire had heard similar news. “You’d be surprised at how many big financial firms are spending a lot of time focusing on Africa,” he said. He mentioned a talk he had recently with the CEO of a large U.S. financial services firm. “I’d just come back from a trip to China, and I said, ‘Everything’s going on in China, right? I’ll bet your spending a lot of time on China.’ And he looked at me and said, ‘No, actually, China’s kind of a pain in the neck. We’re spending more of our time on Africa.”

But the talk always circled back to the snow clouds massing on the American horizon. If things get really bad, we’ll not only see tried-and-true corporations go bust (the faltering GE and Anheuser-Busch were both mentioned darkly), but we’ll also see states and municipalities fail to meet their pension and health-care obligations. Brrr!

The Greenwich Economic Forum grew out of a concern that onerous Connecticut tax policies were driving financial service leaders from the state, First Selectman Peter Tesei told us. How serious was the problem? Tesei, McGuire, cofounder Jim Aiello and others decided to flip the question around: Why not showcase Greenwich’s enduring financial hegemony?

“Sure, the forum was a cool, fun thing to do,” said McGuire, “but we also wanted to cement Greenwich’s position as a finance capital.” Connecticut is home to 211 active hedge fund managers—the vast majority of them in Greenwich—with $390 billion in their care. Connecticut is thus the second biggest hedge fund state, behind New York, and Greenwich boasts the greatest concentration of hedge fund managers outside Manhattan.

The inaugural forum hinted at big, broad intellectual ambitions. As Tesei said in his opening remarks, “Among the questions to ponder and consider are: Will the machines take over? Will our children be plagued by mass unemployment? Will environmental changes be our civilization’s downfall?” (An optimist, Tesei believes that man and machine will together steer us through whatever rough waters lie ahead.) “Our vision is to be something like Greenwich’s answer to the Aspen Institute or the Milken Institute,” said McGuire, naming famous think tanks that hold annual “ideas” conferences.

The Greenwich Economic Forum isn’t quite there yet. “But it worked out beyond our expectations for the first year,” McGuire said, noting the international press coverage and enthusiastic feedback from attendees. Tesei and McGuire suggested that future forums could draw on the region’s abundant “intellectual capital”—people in the arts, entertainment and sports—to supplement the finance crowd’s view of anything economic.

For now, the Greenwich Economic Forum seems a natural evolution for a town that wants to flex its cultural muscle. It joins the Greenwich Town Party (2011) and the Greenwich International Film Festival (2015) as new events of impressive quality and scope. One future challenge will be the venue: Though the Delamar is perfect in many ways—waterfront setting, luxurious ambience—it’s a bit small. In coming years the town might explore holding some forum talks at the new, world-class Bruce Museum, whose expansion will be complete (we hope) in 2020.

On the second day of the forum, rain fell in sheets and the wind blew fiercely, making the colorful “Greenwich Economic Forum” banners lining Arch Street flap and shake. Inside, panelists talked about artificial intelligence, algorithmic trading, and once again, the volatile future. But by midday, out of nowhere, the sky turned blue. Portent or coincidence? We shall see.

share this story

© Moffly Media, 2008-2022. All rights reserved. Website by Web Publisher PRO