WEBVTT - Citadel's Ken Griffin Talks GOP Policies; Inflation 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, radio News. 0:00:07.840 --> 0:00:10.600 Thank you all so much for joining for this conversation. Ken, 0:00:10.680 --> 0:00:12.720 Thank you so much for sitting down with me this evening. 0:00:13.320 --> 0:00:16.040 It is it is great to be here today, and 0:00:16.160 --> 0:00:18.200 it is such a pleasure to be in your particularly 0:00:18.280 --> 0:00:19.200 during this time of year. 0:00:20.200 --> 0:00:23.439 Should we start with that, because perhaps everyone will have 0:00:23.520 --> 0:00:27.400 noticed it's two Americans speaking in Europe. Ken, it feels 0:00:27.440 --> 0:00:30.320 like recently there's been a lot of American barbs, let's say, 0:00:30.400 --> 0:00:34.320 thrown at Europe. President Trump warning about end of civilization 0:00:34.400 --> 0:00:38.360 because of Europe's overreliance on America, Jamie diamond saying it's 0:00:38.360 --> 0:00:41.720 a region that's anti business, that has a lack of innovation. 0:00:42.600 --> 0:00:46.280 Are those most dire of forecasts for Europe? Are they correct? 0:00:47.040 --> 0:00:50.720 What a cheery way to start today. And I feel 0:00:50.760 --> 0:00:52.280 like I was just handing the hot potato quest. 0:00:52.320 --> 0:00:54.360 Yes, I'm sorry, Ken, you were indeed. So. 0:00:54.760 --> 0:00:57.200 First of all, you know, President Trump is a bit 0:00:57.440 --> 0:01:02.560 prone to heaperballe and having said that, there's no doubt 0:01:03.560 --> 0:01:09.039 that the Western world needs Europe to be more successful. 0:01:09.880 --> 0:01:12.840 We need to see higher economic growth in Europe, we 0:01:12.880 --> 0:01:15.800 need to see more innovation, we need to see more 0:01:15.800 --> 0:01:19.680 consumer demand, for goods and services, because the Western world 0:01:19.720 --> 0:01:22.880 will only be strong and prosperous if we have a 0:01:22.920 --> 0:01:25.440 strong and prosperous Europe. 0:01:26.200 --> 0:01:28.520 What does the road ahead to get that strong and 0:01:28.560 --> 0:01:29.800 prosperous Europe look like? 0:01:29.920 --> 0:01:32.880 How do we get there? Look, I think Mario Dragi 0:01:32.920 --> 0:01:37.280 did a fantastic job putting forth a playbook for how 0:01:37.319 --> 0:01:41.200 to revitalize Europe. And I would say that, you know, 0:01:41.360 --> 0:01:43.600 I'll agree with eighty or ninety percent of what he wrote, 0:01:43.840 --> 0:01:46.399 but rather than regurgitate what he wrote, and he wrote 0:01:46.520 --> 0:01:50.480 really thoughtfully. I think the sailing points are Europe needs 0:01:50.520 --> 0:01:55.640 to create a culture of entrepreneurism. Far too much the 0:01:55.720 --> 0:02:00.840 world's innovation takes place in the United States, in China, 0:02:01.680 --> 0:02:06.280 and Europe, having such an incredibly well educated population, should 0:02:06.360 --> 0:02:10.480 have far more entrepreneurial success stories than it does. So 0:02:10.520 --> 0:02:13.040 that's a really big issue that Europe needs to address. 0:02:13.080 --> 0:02:16.440 It's a cultural issue. And the second is that Europe's 0:02:16.440 --> 0:02:20.720 capital markets simply aren't deep and robust enough. The venture 0:02:20.760 --> 0:02:23.440 capital community of the United States, the depth of the 0:02:23.480 --> 0:02:26.200 private equity markets, the depth of the growth equity markets, 0:02:26.240 --> 0:02:30.079 the depth of the public markets makes it much easier 0:02:30.720 --> 0:02:35.639 to organize to secure capital and to grow a business 0:02:35.680 --> 0:02:36.760 than it is here in Europe. 0:02:37.600 --> 0:02:40.560 Let's talk about leadership in the US because it's also 0:02:40.600 --> 0:02:44.040 been a moment of questions in the early elections, local 0:02:44.080 --> 0:02:48.079 electionsment governor elections. The trend has been very clear. When 0:02:48.080 --> 0:02:51.880 Democrats run on affordability, they had been winning. Twenty twenty 0:02:51.919 --> 0:02:56.040 six is a midterm year. Do the Republicans risk losing 0:02:56.120 --> 0:02:57.040 the American public? 0:02:57.639 --> 0:02:59.959 So, you know, it's really it's quite ironic to see 0:03:00.080 --> 0:03:03.280 how the tables have turned because just twelve months ago 0:03:03.840 --> 0:03:07.880 President Trump and the Republicans swept into office on the 0:03:07.919 --> 0:03:12.600 issue of inflation, and the Democrats have rebranded the problem 0:03:12.680 --> 0:03:16.560 of inflation as the issue of affordability, and they are 0:03:16.600 --> 0:03:19.799 now well poised to return to control of the House, 0:03:20.440 --> 0:03:23.320 and there's even discussion of them retaking the Senate on 0:03:23.400 --> 0:03:27.280 the back of how the affordability issue strikes accord with 0:03:27.320 --> 0:03:31.239 the American public. And the big picture is the American 0:03:31.320 --> 0:03:36.240 consumer is tired of the persistent and sticky inflation. They 0:03:36.320 --> 0:03:39.680 feel like they can't get ahead in a world where 0:03:39.720 --> 0:03:44.680 their savings and their wages are constantly deprecated by the 0:03:44.720 --> 0:03:45.920 impact of inflation. 0:03:46.960 --> 0:03:49.600 Why aren't Republicans speaking to that is it an issue 0:03:49.600 --> 0:03:52.920 of not having the policies, of not communicating the policies correctly. 0:03:53.400 --> 0:03:56.400 So I think it's actually fairly complicated. I think that 0:03:56.440 --> 0:04:00.920 the Republicans struggle with the reality that many of their 0:04:01.000 --> 0:04:05.720 policies which they ran on, for example, ending illegal immigration 0:04:05.920 --> 0:04:10.840 into the United States, are actually pro inflationary. Right when 0:04:10.880 --> 0:04:14.560 you end illegal immigration, you reduce the size the available workforce. 0:04:15.280 --> 0:04:19.359 That's proneflation. And so the Republicans are grappling with tariffs 0:04:19.600 --> 0:04:24.039 another case study. You impose a tariff, it's a regressive 0:04:24.080 --> 0:04:27.840 tax on consumers. It's proneflation. So some of the very 0:04:27.920 --> 0:04:31.680 policies that the Republicans have put forth and have been 0:04:31.680 --> 0:04:35.640 successful in implementing, are actually the very policies that tend 0:04:35.640 --> 0:04:40.320 to be proneflation. Some of the other policies, for example, deregulation, 0:04:40.920 --> 0:04:44.520 are just going to take longer to play out. And ultimately, 0:04:45.400 --> 0:04:50.800 ultimately deregulation, which should unleash productivity gains, will create will 0:04:50.839 --> 0:04:54.560 create a reduction inflation, a very healthy reduction. But we 0:04:54.680 --> 0:04:56.279 need to get to that point in time. 0:04:56.400 --> 0:05:01.120 It's a timing issue. And President Trump said something similar, 0:05:01.240 --> 0:05:03.880 not exactly what you're saying, Ken, but he had spoken 0:05:03.880 --> 0:05:06.560 to the Wall Street Journal just this week saying that 0:05:06.640 --> 0:05:09.680 the reason the American public hasn't realized his policies are 0:05:09.720 --> 0:05:12.360 working is just because they take time to take effect, 0:05:12.400 --> 0:05:16.040 and what Americans are experiencing now is democrat led inflation. 0:05:16.720 --> 0:05:19.000 It seems like you would maybe take issue with the 0:05:19.040 --> 0:05:22.400 latter that maybe it's current policies leading to some of 0:05:22.400 --> 0:05:23.040 the stickiness. 0:05:23.400 --> 0:05:26.360 Look, I think there's no doubt that the President inherited 0:05:27.400 --> 0:05:30.919 an environment that was still struggling with inflation. But the 0:05:30.960 --> 0:05:34.880 easiest parts of his agenda to implement were, unfortunately, when 0:05:34.880 --> 0:05:36.640 it comes to the issue before to build through the 0:05:36.680 --> 0:05:42.240 issue of inflation, were those policy choices that actually most 0:05:42.320 --> 0:05:46.680 fuel inflation. Right, the curtailing of the labor markets, the 0:05:46.760 --> 0:05:50.480 clear cut inflationary pressure of tariffs. Those were easy things 0:05:50.520 --> 0:05:54.200 for the President to implement, and unfortunately they have continued 0:05:54.240 --> 0:05:56.359 to lead to this inflationary environment that we live in. 0:05:56.520 --> 0:05:59.480 Well, you have seen the White House try to backtrack 0:05:59.520 --> 0:06:02.320 on some of it, be it tariffs on Brazil because 0:06:02.320 --> 0:06:05.000 of the impact on agricultural goods and the bills that 0:06:05.040 --> 0:06:08.400 Americans face in the groceries. We're looking at tariffs now 0:06:08.640 --> 0:06:12.400 making their way through the Supreme Court. Is it too late, though. 0:06:13.040 --> 0:06:15.720 So I think it's gonna be hard to roll back 0:06:15.960 --> 0:06:21.599 tariffs writ large unless the Supreme Court makes a pretty 0:06:21.600 --> 0:06:24.520 bold decision. And I only say that because the Supreme 0:06:24.560 --> 0:06:28.000 Court is going to face the challenge doesn't want to 0:06:28.040 --> 0:06:31.320 take on the President with respect to one of his 0:06:31.520 --> 0:06:36.279 single most important policy wins from the perspective of the 0:06:36.279 --> 0:06:39.599 White House, Right, does the Supreme Court really want to 0:06:39.600 --> 0:06:42.479 take that issue on as a matter of law. I 0:06:42.520 --> 0:06:44.039 hope they do, and I hope they take it on 0:06:44.160 --> 0:06:47.080 with a very thoughtful and reasoned opinion. But that's going 0:06:47.160 --> 0:06:49.000 to be a tough call for the Supreme Court to 0:06:49.040 --> 0:06:53.960 make now. Having said that, we have seen the rollback 0:06:54.000 --> 0:06:58.279 of tariffs, in particular in products that consumers put in 0:06:58.360 --> 0:07:02.120 their grocery cart. The President's getting the message from the 0:07:02.120 --> 0:07:05.240 front lines, from the Congress people that serve our people 0:07:05.800 --> 0:07:08.600 that the voters are angry about inflation and they're looking 0:07:08.640 --> 0:07:12.160 for ways, they're looking for ways to help to address 0:07:12.160 --> 0:07:14.960 the issues of affordability. You know, it was very interesting. 0:07:15.040 --> 0:07:17.880 I was with a group of business executives and the President. 0:07:18.480 --> 0:07:23.560 He was very much listening for ideas on how to 0:07:23.600 --> 0:07:27.080 address the issues of affordability in America. He cares about 0:07:27.080 --> 0:07:27.800 this issue. 0:07:28.480 --> 0:07:30.840 Maybe it's too late for some of the local elections though, 0:07:30.960 --> 0:07:33.720 in getting to the American public. New York a big 0:07:33.800 --> 0:07:36.760 change for the city with a Democratic socialist Miami too, 0:07:36.800 --> 0:07:40.240 your hometown Ken where you have the first Democrat in 0:07:40.280 --> 0:07:44.000 three decades. You've praised the leadership of Florida many times. 0:07:44.320 --> 0:07:46.720 Does that change your outlook at all? To have the 0:07:46.760 --> 0:07:50.160 local election in Florida also shift in terms of who's 0:07:50.200 --> 0:07:50.600 leading it. 0:07:51.000 --> 0:07:54.200 Well, Miami Dade County has had a Democratic mayor actually 0:07:54.280 --> 0:07:57.560 for quite a bit of time now, and Miami just 0:07:57.680 --> 0:08:00.080 recently elected a Democrat to be the mayor of the 0:08:00.080 --> 0:08:03.400 City of Miami. And I think there's a stark contrast 0:08:03.480 --> 0:08:07.640 between the Democratic leader elect of Miami and the leader 0:08:07.680 --> 0:08:10.760 elect of New York City. The elect of New York 0:08:10.800 --> 0:08:13.360 City ran on a set of policies that will either 0:08:13.400 --> 0:08:16.360 be impossible to implement or that will come with a 0:08:16.440 --> 0:08:19.280 draconian long term cost to the City of New York. 0:08:20.080 --> 0:08:22.240 You know, for example, if you want to address the 0:08:22.280 --> 0:08:26.640 issue of housing affordability, you need to build more homes. 0:08:27.320 --> 0:08:30.880 And when you're talking about rent control, all you're doing 0:08:31.000 --> 0:08:35.640 is telling developers and big neon lights don't build in 0:08:35.679 --> 0:08:39.040 New York City. Now, contrast that with the incoming mayor 0:08:39.040 --> 0:08:42.960 of Miami. She has a long history of being pragmatic 0:08:43.480 --> 0:08:47.079 with respect to policy choices that will improve the lives 0:08:47.120 --> 0:08:49.440 of the people who live in Miami. She very much 0:08:49.480 --> 0:08:54.160 wants to accelerate the permitting process for builders to create 0:08:54.360 --> 0:08:57.800 more housing stock. She wants to help release lands into 0:08:57.840 --> 0:09:02.080 the private market to help and create available housing. She 0:09:02.280 --> 0:09:06.240 wants to address the issue of housing affordability with thoughtful, 0:09:06.640 --> 0:09:11.160 time tested, and proven policies rather than the fantasy that's 0:09:11.200 --> 0:09:14.040 being espoused by mayor elect for New York City. 0:09:14.160 --> 0:09:16.880 Are you confident that Americans will continue to elect in 0:09:17.360 --> 0:09:20.040 people of positions of power like you're describing with common 0:09:20.040 --> 0:09:22.440 sense policy or do you look at New York as 0:09:22.480 --> 0:09:24.000 a red flag for twenty twenty six? 0:09:24.240 --> 0:09:27.600 Look? I think that New York City is a red 0:09:27.600 --> 0:09:31.760 flag because people put aside good sense and common sense 0:09:32.240 --> 0:09:35.240 to lect somebody who is incredibly charismatic, who ran a 0:09:35.280 --> 0:09:40.240 really powerful campaign on social media, but who ultimately doesn't 0:09:40.360 --> 0:09:43.040 have the ability to deliver on the promises that he 0:09:43.160 --> 0:09:47.319 set forth. In contrast, I think the mayor elect of Miami, 0:09:48.040 --> 0:09:52.040 she ran on a much less powerful set of campaign messages. 0:09:52.520 --> 0:09:55.120 But do you know what she'll deliver on the promises 0:09:55.120 --> 0:09:56.640 that she made to the voters of Miami. 0:09:57.160 --> 0:09:58.920 You still have a good chunk of your business in 0:09:58.960 --> 0:10:01.680 New York. Would you reath think just how much exposure 0:10:01.720 --> 0:10:03.080 you have to the city at the moment. 0:10:03.360 --> 0:10:06.400 Look, I think every business executive is thinking through the 0:10:06.440 --> 0:10:10.319 magnitude of exposure they have to New York. And there's 0:10:10.360 --> 0:10:17.439 a very common talking point on this we survived to Blasio, is. 0:10:17.360 --> 0:10:18.240 That enough comfort? 0:10:18.559 --> 0:10:23.040 Well that's the talking point, and unfortunately you know that. 0:10:23.080 --> 0:10:25.199 I think there's some truth to that. New York took 0:10:25.240 --> 0:10:28.360 a big set back during the Deblasio days, and I 0:10:28.400 --> 0:10:30.600 hope that Mandamie starts to think about how to pivot 0:10:30.640 --> 0:10:33.920 to a more thoughtful set of policies that will allow 0:10:34.000 --> 0:10:37.240 New York City to maintain its position. Not only is 0:10:37.240 --> 0:10:39.000 one of the greatest cities in America, but one of 0:10:39.040 --> 0:10:40.559 the greatest cities in the world. 0:10:41.200 --> 0:10:43.480 I'm struck that it's not just the American populist that's 0:10:43.520 --> 0:10:47.560 thinking about affordability or inflation, it's markets too. Since the 0:10:47.559 --> 0:10:50.720 FED started its cutting cycle, cutting seventy five basis points 0:10:50.760 --> 0:10:54.079 so far this year, thirty year boniarlds are up eighty 0:10:54.120 --> 0:10:57.920 basis points. Ten year boniolds are up thirty basis points 0:10:57.920 --> 0:11:01.360 of fifty. Rather, it's not the move that you would expect. 0:11:02.040 --> 0:11:03.680 Is there signal in that? 0:11:04.200 --> 0:11:09.400 Well, Unfortunately, the bond markets are expressing their anxiety about inflation. 0:11:09.960 --> 0:11:11.800 And when you look at the ten year yell point 0:11:11.800 --> 0:11:14.359 to the thirty year yell point, what you're really observing 0:11:15.760 --> 0:11:20.160 is how much risk premium, How much like insurance premium 0:11:20.520 --> 0:11:26.000 does the market demand for higher inflation? Because remember, you're 0:11:26.080 --> 0:11:28.600 lending the money to the US government for ten or 0:11:28.640 --> 0:11:32.080 thirty years at a time at a fixed rate. So 0:11:32.800 --> 0:11:34.880 you want to think very long and hard about what 0:11:34.960 --> 0:11:37.520 rate do you lend money to the US government which 0:11:37.559 --> 0:11:42.360 is running a staggering deficit, that is now running very 0:11:43.080 --> 0:11:46.760 very easy monetary policy relative to the inflationary pressures that 0:11:46.800 --> 0:11:50.920 we're facing. What risk premium do you demand to do so? So, 0:11:51.480 --> 0:11:55.400 although the FED has brought short term interest rates down, 0:11:57.040 --> 0:12:00.880 what is really done. It is unnerved a bond market 0:12:01.120 --> 0:12:04.240 community that invests or commits capital for ten years or 0:12:04.280 --> 0:12:06.360 thirty years at a time. And why is that matter? 0:12:07.000 --> 0:12:12.400 Because capital formation building a new factory is funded with 0:12:12.600 --> 0:12:16.920 ten and thirty year debt. So the hope that will 0:12:17.120 --> 0:12:20.880 we will stimulate the economy, that we will encourage the 0:12:20.920 --> 0:12:24.240 investments that we need in America that are all funded 0:12:24.240 --> 0:12:28.520 with long term debt are actually being undermined by the 0:12:28.600 --> 0:12:30.560 easy monetary policy at the Fed. Today. 0:12:31.200 --> 0:12:33.480 Markets are incredibly sanguine on this idea that we're going 0:12:33.559 --> 0:12:35.200 to run it hot, we're going to cut, we're going 0:12:35.240 --> 0:12:39.000 to get stimulus. Are you essentially saying that markets are 0:12:39.080 --> 0:12:40.680 underpricing a clear risk. 0:12:40.760 --> 0:12:44.880 Well, there's two markets. There's the fixed income market, which 0:12:44.920 --> 0:12:48.520 is anxious about this journey, and there's the equity market. 0:12:49.160 --> 0:12:53.880 The equity market loves an easy money story. So what 0:12:53.880 --> 0:12:56.439 we're seeing is a tale of two very different worlds 0:12:56.800 --> 0:13:00.719 from the perspective of two very different investor groups. Your 0:13:00.720 --> 0:13:05.600 fixed income investor doesn't participate directly in the easy money policies. 0:13:05.600 --> 0:13:08.079 In fact, they're adverse to that. They're anxious about that 0:13:08.480 --> 0:13:11.040 how much will inflation erode the value the dollar that 0:13:11.080 --> 0:13:14.280 I lend to the government today. The equity market thrives 0:13:14.280 --> 0:13:14.760 on this. 0:13:15.160 --> 0:13:15.920 It's going to be right. 0:13:18.080 --> 0:13:22.400 Well, Unfortunately, I think that the fixed income markets probably 0:13:22.800 --> 0:13:25.800 has its head screw done better here that we do 0:13:25.880 --> 0:13:30.480 have an issue with stickiness and inflation, goods deflation. The 0:13:30.520 --> 0:13:35.360 story of our adult life fuel by globalization is over. 0:13:36.600 --> 0:13:40.160 It's over for now. Maybe in ten years, as robotics 0:13:40.160 --> 0:13:43.960 continue to accelerate, we'll have another big wave of goods deflation. 0:13:44.480 --> 0:13:48.079 But the goods deflation that we've enjoyed from globalization is over. 0:13:48.400 --> 0:13:53.160 Supply chains are being re architected, Manufacturing has been moved 0:13:53.160 --> 0:13:56.920 into higher cost jurisdictions. That's going to end the goods 0:13:56.960 --> 0:14:00.439 deflation that's been the theme of our lifetime. With that, 0:14:01.120 --> 0:14:04.080 you have more pressure on services, inflation and the cost 0:14:04.120 --> 0:14:09.000 of housing flowing through the inflationary picture that American households face. 0:14:09.200 --> 0:14:10.720 So just to kind of paint the picture of what 0:14:10.760 --> 0:14:12.960 this actually looks like on the ground, If you get 0:14:13.000 --> 0:14:15.360 a FED that continues to cut, maybe supported by a 0:14:15.400 --> 0:14:18.079 candidate that President Trump puts in place who is loyal 0:14:18.120 --> 0:14:21.360 to him, the FED continues to cut, you get this 0:14:21.400 --> 0:14:24.120 real pressure where bond yields go up. What does that 0:14:24.160 --> 0:14:26.840 look like? Does it look like risk markets crashing? Does 0:14:27.040 --> 0:14:30.960 the business environment which America has enjoyed, does it get curtailed? 0:14:31.320 --> 0:14:33.480 Just how dramatic of an impact or reachalking. 0:14:33.520 --> 0:14:35.720 I don't think we're actually looking at a scenario like that, 0:14:36.080 --> 0:14:38.360 all right, I think you're looking at higher bondials as 0:14:38.360 --> 0:14:41.680 a possibility. But remember the easy money will fuel the 0:14:41.720 --> 0:14:45.920 stock market boom. Right, There's two different investor communities here, 0:14:46.200 --> 0:14:49.320 and the stock market investors when they see lower interest 0:14:49.400 --> 0:14:53.120 rates bid up for stocks. That's just the propensity of 0:14:53.120 --> 0:14:56.080 that community is easy money means higher prices. 0:14:57.040 --> 0:14:59.440 I mentioned the FED maybe playing a role in here. 0:14:59.440 --> 0:15:01.360 In About three months ago, you wrote an op ed 0:15:01.440 --> 0:15:02.920 in the Wall Street Journal. I'd love to read a 0:15:02.960 --> 0:15:05.280 line from it because it was really important and timely. 0:15:05.360 --> 0:15:07.920 You wrote that pressuring the Central Bank to adopt a 0:15:07.920 --> 0:15:14.000 more permissive stance toward inflation carries deep costs. Can Since then, 0:15:14.200 --> 0:15:16.720 we've seen a NEC director Kevin Hassett, emerge as the 0:15:16.720 --> 0:15:19.560 front runner from the FED. There's reporting overnight that there's 0:15:19.600 --> 0:15:23.640 been some pushback in Trump's inner circle. Is that pushback warranted? 0:15:23.680 --> 0:15:27.160 Would you support a Kevin Hassett as leading the FED, 0:15:27.200 --> 0:15:29.320 someone who's seen as very loyal to the president? 0:15:30.120 --> 0:15:34.160 Look, I think the most important move the President and 0:15:34.200 --> 0:15:37.280 the incoming FED chairman can make or chairwoman is the 0:15:37.280 --> 0:15:42.200 case maybe is to separate, is to create distance between 0:15:42.240 --> 0:15:45.800 the White House and the FED because the most difficult 0:15:45.960 --> 0:15:49.760 job the FED has is the job of raising rates 0:15:49.760 --> 0:15:54.680 to combat inflation, which can result in higher unemployment. It's 0:15:54.720 --> 0:15:58.520 a politically unpopular decision to have to make. The White 0:15:58.520 --> 0:16:01.000 House having distance from the FED gives the FED more 0:16:01.120 --> 0:16:04.880 latitude to make the tough calls you need to make 0:16:05.400 --> 0:16:08.440 to protect the long term stability of the dollar and 0:16:08.520 --> 0:16:12.720 to protect the long term interests of the economy. And 0:16:12.840 --> 0:16:17.640 sometimes the long term interest the economy involves short term 0:16:17.720 --> 0:16:21.800 pain and misery. Vulgar experienced this back when he was 0:16:21.800 --> 0:16:24.760 FED chairman. This is a real issue. And when the 0:16:24.760 --> 0:16:29.080 White House usurps control the FED, even if they don't 0:16:29.120 --> 0:16:32.400 actually have it as a practical matter, if they're perceived 0:16:32.440 --> 0:16:37.760 to control the FED, then if inflation rears its ugly head, 0:16:38.360 --> 0:16:42.040 the President can't blame the chair of the FED. The 0:16:42.080 --> 0:16:45.000 buck stops on his desk. So I don't know why 0:16:45.040 --> 0:16:48.840 President Trump wants to take that risk in an environment 0:16:48.880 --> 0:16:52.960 where the outlook for inflation is so difficult to forecast 0:16:53.080 --> 0:16:56.680 or predict. And there is again a lot of pro 0:16:56.720 --> 0:17:01.680 inflationary pressures that have been created by the change labor markets, 0:17:02.160 --> 0:17:07.639 the high fiscal deficits, that is, fiscal stimulus, and of 0:17:07.720 --> 0:17:10.880 course right now, the relatively easy monetary policy. 0:17:11.119 --> 0:17:12.959 Well, I mean you started this with mentioning you'd been 0:17:12.960 --> 0:17:15.159 in Washington, DC with some of their business leaders with 0:17:15.160 --> 0:17:19.159 the Trump administration looking at solutions for affordability. Did you 0:17:19.200 --> 0:17:21.520 get a word in and who your pick would be 0:17:21.560 --> 0:17:22.400 for FED chair? 0:17:22.880 --> 0:17:23.560 You said, who you. 0:17:23.880 --> 0:17:25.960 Perhaps the characteristics of who you don't want it to be, 0:17:25.960 --> 0:17:27.600 who would make sense for this job. 0:17:27.920 --> 0:17:30.120 I think the President has a number of really good 0:17:30.119 --> 0:17:33.120 people to choose from for the role. I don't think 0:17:33.160 --> 0:17:36.120 throwing my sort of choice into the mix helps to 0:17:36.320 --> 0:17:39.479 add anything to the argument or decision at hand. I 0:17:39.480 --> 0:17:42.840 think the President will hopefully make a decision from the 0:17:42.960 --> 0:17:48.080 perspective of who will give the global markets and the 0:17:48.119 --> 0:17:52.879 American investing public and the American consumer the greatest peace 0:17:52.920 --> 0:17:55.640 of mind that we will manage inflation in. 0:17:55.560 --> 0:17:58.399 America, and someone not from the White House ideally is 0:17:58.440 --> 0:17:58.960 what you're saying. 0:17:59.119 --> 0:18:01.639 I actually don't think that that's as important as the 0:18:01.800 --> 0:18:05.479 ability of that candidate to make it clear to the 0:18:05.480 --> 0:18:08.840 House of Representatives or the Senate in this case, and 0:18:08.960 --> 0:18:13.919 the American people that they will make the decisions that 0:18:14.080 --> 0:18:16.640 need to be made to protect the long term interest 0:18:16.680 --> 0:18:17.600 to the US economy. 0:18:18.320 --> 0:18:21.520 So ken, if reducing rates is one thing that's excited 0:18:21.600 --> 0:18:24.080 risk markets, we'd be remiss if we didn't talk about 0:18:24.080 --> 0:18:26.399 the other thing that's been talked about all day today, 0:18:26.680 --> 0:18:30.320 and that is an AI. In twenty twenty three, you 0:18:30.400 --> 0:18:32.080 said that there was a lot of hype, maybe too 0:18:32.160 --> 0:18:34.520 much hype in AI. In the past two and a 0:18:34.560 --> 0:18:39.200 half years, we have seen advancements, better jobs at producing images, 0:18:39.400 --> 0:18:43.480 better voice recognition, and a whole slew of businesses at 0:18:43.560 --> 0:18:47.439 least they say that they're adopting AI. Have you reassessed 0:18:47.520 --> 0:18:49.040 in the past two and a half years or do 0:18:49.080 --> 0:18:50.440 you still think there's too much hype? 0:18:50.720 --> 0:18:53.560 No? I think actually we've been pretty spot on with 0:18:53.640 --> 0:18:58.560 that forecast so far. Now, what has happened over the 0:18:58.640 --> 0:19:02.479 last two years is, actually, though a very important and 0:19:02.520 --> 0:19:08.199 powerful story in the C suite of corporate America, is 0:19:08.240 --> 0:19:12.520 a greater focus on how do you use technology to 0:19:12.880 --> 0:19:17.280 increase productivity. It may not be generative AI, but there's 0:19:17.320 --> 0:19:21.400 a reawakening to the importance of using technology to empower 0:19:21.520 --> 0:19:24.720 business outcomes. I was with a group of international business 0:19:24.760 --> 0:19:28.560 executives about a year and change ago, and everybody who 0:19:28.600 --> 0:19:31.239 was excited around the dinner table talking about AI, and 0:19:31.600 --> 0:19:35.360 I thought, you know what, let's all share a story 0:19:35.480 --> 0:19:39.000 as to how we're using AI to make our businesses better. 0:19:40.119 --> 0:19:44.520 And I heard five or six really interesting stories of 0:19:44.640 --> 0:19:51.840 how corporations were transforming their businesses through the use of technology, 0:19:51.960 --> 0:19:55.600 but not one story involved generative AI. 0:19:56.760 --> 0:19:59.280 If you are one of these players, then that exists. 0:19:59.320 --> 0:20:02.960 In this eco system where Hyperscalers has spent two hundred 0:20:02.960 --> 0:20:06.199 and thirty billion dollars just in twenty twenty five, with 0:20:06.280 --> 0:20:10.440 projections to go somewhere near three trillion over the next decade. 0:20:11.480 --> 0:20:13.680 That seems a little bit worrying ken that people aren't 0:20:13.680 --> 0:20:16.959 finding uses for AI, that they're instead just finding uses 0:20:16.960 --> 0:20:20.320 for other technology and maybe wrapping it in an AI bo. 0:20:20.400 --> 0:20:23.000 Well, I mean, first of all, like I said, these 0:20:23.000 --> 0:20:26.720 corporate executives shared really great stories, like how they increased 0:20:26.720 --> 0:20:31.720 their ability to put fifteen percent more cargo onto a 0:20:31.800 --> 0:20:36.240 train onto a shipping vessel. I mean, that's just money 0:20:36.320 --> 0:20:40.639 right to the bottom line, less environmental impact, higher margins, 0:20:40.800 --> 0:20:44.719 that's good business. So the upshot of this is that 0:20:44.760 --> 0:20:48.680 Corporate America is securing gains from the use of technology. Again, 0:20:49.240 --> 0:20:51.680 I think they're just securing a greater share of those 0:20:51.720 --> 0:20:56.280 gains from the uses of more traditional technologies optimization technology, 0:20:56.840 --> 0:21:00.760 long standing machine learning technology. Most of their gains are 0:21:00.760 --> 0:21:04.639 coming from generative AI. Now, having said that, with the 0:21:04.800 --> 0:21:07.119 enormity of the investment that's being made in the field 0:21:07.119 --> 0:21:10.840 of artificial intelligence, I think there is some chance that 0:21:10.880 --> 0:21:15.240 we will see meaningful progress in this field that will 0:21:15.320 --> 0:21:18.720 change the calculation that I'm or calculus that I'm setting forth. 0:21:19.560 --> 0:21:22.080 There are so many bright people in their twenties and 0:21:22.119 --> 0:21:28.600 thirties trying to unlock trying to unlock true intelligence that 0:21:28.680 --> 0:21:31.760 this does create the environment in which a breakthrough may happen. 0:21:32.280 --> 0:21:34.720 But I think that generative AI as we know today 0:21:35.440 --> 0:21:39.960 will have a very pointed, but relatively limited impact on 0:21:40.000 --> 0:21:44.640 the broader economy. Call centers are being completely re architected 0:21:44.680 --> 0:21:50.200 by jenerative AI, translation of documents between languages completely re 0:21:50.400 --> 0:21:54.360 architected by generative AI, but most of the white collar work, 0:21:54.400 --> 0:21:57.920 for example, that we do at Citadel very modest impacts 0:21:58.000 --> 0:22:00.800 so far. In fact, Harvard Business Review did a great 0:22:00.840 --> 0:22:04.840 piece on this, and it was called AI WORKSLOP, which 0:22:04.920 --> 0:22:07.880 basically you find that the younger generation tends to use 0:22:07.920 --> 0:22:12.520 AI to create work product that more seasoned professionals look 0:22:12.560 --> 0:22:16.520 at and go, that's just wrong, and the net perctivity 0:22:16.520 --> 0:22:20.000 gain is therefore deminimous because you go back and have 0:22:20.080 --> 0:22:23.439 to redo the work with more senior people. I was 0:22:23.480 --> 0:22:25.360 with one of my partners and we were going through 0:22:25.760 --> 0:22:28.520 an interesting problem and he handed me a report and 0:22:28.560 --> 0:22:32.520 the first few sentences were very insightful, and then the 0:22:32.560 --> 0:22:35.159 rest was just gibberish. And I said, so, how did 0:22:35.160 --> 0:22:39.720 this come to be chat GPT? And that was frightening 0:22:39.800 --> 0:22:41.879 because if I know, if I did not have the 0:22:41.920 --> 0:22:45.160 domain expertise that I had, I probably would have accepted 0:22:45.160 --> 0:22:48.040 the totality the product right. Like I said, the first 0:22:48.040 --> 0:22:52.320 few sentences were really insightful, and then it just evolved 0:22:52.320 --> 0:22:55.960 into gibberish that the average person in the field would 0:22:56.040 --> 0:22:57.800 not necessarily have known or appreciated. 0:22:58.119 --> 0:23:00.919 And it feels like there's this really tension between the 0:23:00.960 --> 0:23:04.520 promise of AI being priced into markets spending, like the 0:23:04.520 --> 0:23:08.359 promise of AI is coming in the actual reality. Does 0:23:08.400 --> 0:23:12.040 that end with pain for someone the people have been overspending, 0:23:12.280 --> 0:23:14.040 the focus firms that have been investing in. 0:23:14.000 --> 0:23:16.600 This look the Internet bubble. Just to go back to 0:23:16.760 --> 0:23:18.480 a time in our life that we all know well 0:23:19.160 --> 0:23:23.560 saw some enormous misallocations of capital and also a number 0:23:23.600 --> 0:23:27.800 of really important transformative changes for the economy. And again, 0:23:27.920 --> 0:23:31.840