Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Thank you all so much for joining for this conversation. Ken,
Speaker 2: Thank you so much for sitting down with me this evening.
Speaker 1: It is it is great to be here today, and
Speaker 1: it is such a pleasure to be in your particularly
Speaker 1: during this time of year.
Speaker 2: Should we start with that, because perhaps everyone will have
Speaker 2: noticed it's two Americans speaking in Europe. Ken, it feels
Speaker 2: like recently there's been a lot of American barbs, let's say,
Speaker 2: thrown at Europe. President Trump warning about end of civilization
Speaker 2: because of Europe's overreliance on America, Jamie diamond saying it's
Speaker 2: a region that's anti business, that has a lack of innovation.
Speaker 2: Are those most dire of forecasts for Europe? Are they correct?
Speaker 1: What a cheery way to start today. And I feel
Speaker 1: like I was just handing the hot potato quest.
Speaker 2: Yes, I'm sorry, Ken, you were indeed. So.
Speaker 1: First of all, you know, President Trump is a bit
Speaker 1: prone to heaperballe and having said that, there's no doubt
Speaker 1: that the Western world needs Europe to be more successful.
Speaker 1: We need to see higher economic growth in Europe, we
Speaker 1: need to see more innovation, we need to see more
Speaker 1: consumer demand, for goods and services, because the Western world
Speaker 1: will only be strong and prosperous if we have a
Speaker 1: strong and prosperous Europe.
Speaker 2: What does the road ahead to get that strong and
Speaker 2: prosperous Europe look like?
Speaker 1: How do we get there? Look, I think Mario Dragi
Speaker 1: did a fantastic job putting forth a playbook for how
Speaker 1: to revitalize Europe. And I would say that, you know,
Speaker 1: I'll agree with eighty or ninety percent of what he wrote,
Speaker 1: but rather than regurgitate what he wrote, and he wrote
Speaker 1: really thoughtfully. I think the sailing points are Europe needs
Speaker 1: to create a culture of entrepreneurism. Far too much the
Speaker 1: world's innovation takes place in the United States, in China,
Speaker 1: and Europe, having such an incredibly well educated population, should
Speaker 1: have far more entrepreneurial success stories than it does. So
Speaker 1: that's a really big issue that Europe needs to address.
Speaker 1: It's a cultural issue. And the second is that Europe's
Speaker 1: capital markets simply aren't deep and robust enough. The venture
Speaker 1: capital community of the United States, the depth of the
Speaker 1: private equity markets, the depth of the growth equity markets,
Speaker 1: the depth of the public markets makes it much easier
Speaker 1: to organize to secure capital and to grow a business
Speaker 1: than it is here in Europe.
Speaker 2: Let's talk about leadership in the US because it's also
Speaker 2: been a moment of questions in the early elections, local
Speaker 2: electionsment governor elections. The trend has been very clear. When
Speaker 2: Democrats run on affordability, they had been winning. Twenty twenty
Speaker 2: six is a midterm year. Do the Republicans risk losing
Speaker 2: the American public?
Speaker 1: So, you know, it's really it's quite ironic to see
Speaker 1: how the tables have turned because just twelve months ago
Speaker 1: President Trump and the Republicans swept into office on the
Speaker 1: issue of inflation, and the Democrats have rebranded the problem
Speaker 1: of inflation as the issue of affordability, and they are
Speaker 1: now well poised to return to control of the House,
Speaker 1: and there's even discussion of them retaking the Senate on
Speaker 1: the back of how the affordability issue strikes accord with
Speaker 1: the American public. And the big picture is the American
Speaker 1: consumer is tired of the persistent and sticky inflation. They
Speaker 1: feel like they can't get ahead in a world where
Speaker 1: their savings and their wages are constantly deprecated by the
Speaker 1: impact of inflation.
Speaker 2: Why aren't Republicans speaking to that is it an issue
Speaker 2: of not having the policies, of not communicating the policies correctly.
Speaker 1: So I think it's actually fairly complicated. I think that
Speaker 1: the Republicans struggle with the reality that many of their
Speaker 1: policies which they ran on, for example, ending illegal immigration
Speaker 1: into the United States, are actually pro inflationary. Right when
Speaker 1: you end illegal immigration, you reduce the size the available workforce.
Speaker 1: That's proneflation. And so the Republicans are grappling with tariffs
Speaker 1: another case study. You impose a tariff, it's a regressive
Speaker 1: tax on consumers. It's proneflation. So some of the very
Speaker 1: policies that the Republicans have put forth and have been
Speaker 1: successful in implementing, are actually the very policies that tend
Speaker 1: to be proneflation. Some of the other policies, for example, deregulation,
Speaker 1: are just going to take longer to play out. And ultimately,
Speaker 1: ultimately deregulation, which should unleash productivity gains, will create will
Speaker 1: create a reduction inflation, a very healthy reduction. But we
Speaker 1: need to get to that point in time.
Speaker 2: It's a timing issue. And President Trump said something similar,
Speaker 2: not exactly what you're saying, Ken, but he had spoken
Speaker 2: to the Wall Street Journal just this week saying that
Speaker 2: the reason the American public hasn't realized his policies are
Speaker 2: working is just because they take time to take effect,
Speaker 2: and what Americans are experiencing now is democrat led inflation.
Speaker 2: It seems like you would maybe take issue with the
Speaker 2: latter that maybe it's current policies leading to some of
Speaker 2: the stickiness.
Speaker 1: Look, I think there's no doubt that the President inherited
Speaker 1: an environment that was still struggling with inflation. But the
Speaker 1: easiest parts of his agenda to implement were, unfortunately, when
Speaker 1: it comes to the issue before to build through the
Speaker 1: issue of inflation, were those policy choices that actually most
Speaker 1: fuel inflation. Right, the curtailing of the labor markets, the
Speaker 1: clear cut inflationary pressure of tariffs. Those were easy things
Speaker 1: for the President to implement, and unfortunately they have continued
Speaker 1: to lead to this inflationary environment that we live in.
Speaker 2: Well, you have seen the White House try to backtrack
Speaker 2: on some of it, be it tariffs on Brazil because
Speaker 2: of the impact on agricultural goods and the bills that
Speaker 2: Americans face in the groceries. We're looking at tariffs now
Speaker 2: making their way through the Supreme Court. Is it too late, though.
Speaker 1: So I think it's gonna be hard to roll back
Speaker 1: tariffs writ large unless the Supreme Court makes a pretty
Speaker 1: bold decision. And I only say that because the Supreme
Speaker 1: Court is going to face the challenge doesn't want to
Speaker 1: take on the President with respect to one of his
Speaker 1: single most important policy wins from the perspective of the
Speaker 1: White House, Right, does the Supreme Court really want to
Speaker 1: take that issue on as a matter of law. I
Speaker 1: hope they do, and I hope they take it on
Speaker 1: with a very thoughtful and reasoned opinion. But that's going
Speaker 1: to be a tough call for the Supreme Court to
Speaker 1: make now. Having said that, we have seen the rollback
Speaker 1: of tariffs, in particular in products that consumers put in
Speaker 1: their grocery cart. The President's getting the message from the
Speaker 1: front lines, from the Congress people that serve our people
Speaker 1: that the voters are angry about inflation and they're looking
Speaker 1: for ways, they're looking for ways to help to address
Speaker 1: the issues of affordability. You know, it was very interesting.
Speaker 1: I was with a group of business executives and the President.
Speaker 1: He was very much listening for ideas on how to
Speaker 1: address the issues of affordability in America. He cares about
Speaker 1: this issue.
Speaker 2: Maybe it's too late for some of the local elections though,
Speaker 2: in getting to the American public. New York a big
Speaker 2: change for the city with a Democratic socialist Miami too,
Speaker 2: your hometown Ken where you have the first Democrat in
Speaker 2: three decades. You've praised the leadership of Florida many times.
Speaker 2: Does that change your outlook at all? To have the
Speaker 2: local election in Florida also shift in terms of who's
Speaker 2: leading it.
Speaker 1: Well, Miami Dade County has had a Democratic mayor actually
Speaker 1: for quite a bit of time now, and Miami just
Speaker 1: recently elected a Democrat to be the mayor of the
Speaker 1: City of Miami. And I think there's a stark contrast
Speaker 1: between the Democratic leader elect of Miami and the leader
Speaker 1: elect of New York City. The elect of New York
Speaker 1: City ran on a set of policies that will either
Speaker 1: be impossible to implement or that will come with a
Speaker 1: draconian long term cost to the City of New York.
Speaker 1: You know, for example, if you want to address the
Speaker 1: issue of housing affordability, you need to build more homes.
Speaker 1: And when you're talking about rent control, all you're doing
Speaker 1: is telling developers and big neon lights don't build in
Speaker 1: New York City. Now, contrast that with the incoming mayor
Speaker 1: of Miami. She has a long history of being pragmatic
Speaker 1: with respect to policy choices that will improve the lives
Speaker 1: of the people who live in Miami. She very much
Speaker 1: wants to accelerate the permitting process for builders to create
Speaker 1: more housing stock. She wants to help release lands into
Speaker 1: the private market to help and create available housing. She
Speaker 1: wants to address the issue of housing affordability with thoughtful,
Speaker 1: time tested, and proven policies rather than the fantasy that's
Speaker 1: being espoused by mayor elect for New York City.
Speaker 2: Are you confident that Americans will continue to elect in
Speaker 2: people of positions of power like you're describing with common
Speaker 2: sense policy or do you look at New York as
Speaker 2: a red flag for twenty twenty six?
Speaker 1: Look? I think that New York City is a red
Speaker 1: flag because people put aside good sense and common sense
Speaker 1: to lect somebody who is incredibly charismatic, who ran a
Speaker 1: really powerful campaign on social media, but who ultimately doesn't
Speaker 1: have the ability to deliver on the promises that he
Speaker 1: set forth. In contrast, I think the mayor elect of Miami,
Speaker 1: she ran on a much less powerful set of campaign messages.
Speaker 1: But do you know what she'll deliver on the promises
Speaker 1: that she made to the voters of Miami.
Speaker 2: You still have a good chunk of your business in
Speaker 2: New York. Would you reath think just how much exposure
Speaker 2: you have to the city at the moment.
Speaker 1: Look, I think every business executive is thinking through the
Speaker 1: magnitude of exposure they have to New York. And there's
Speaker 1: a very common talking point on this we survived to Blasio, is.
Speaker 2: That enough comfort?
Speaker 1: Well that's the talking point, and unfortunately you know that.
Speaker 1: I think there's some truth to that. New York took
Speaker 1: a big set back during the Deblasio days, and I
Speaker 1: hope that Mandamie starts to think about how to pivot
Speaker 1: to a more thoughtful set of policies that will allow
Speaker 1: New York City to maintain its position. Not only is
Speaker 1: one of the greatest cities in America, but one of
Speaker 1: the greatest cities in the world.
Speaker 2: I'm struck that it's not just the American populist that's
Speaker 2: thinking about affordability or inflation, it's markets too. Since the
Speaker 2: FED started its cutting cycle, cutting seventy five basis points
Speaker 2: so far this year, thirty year boniarlds are up eighty
Speaker 2: basis points. Ten year boniolds are up thirty basis points
Speaker 2: of fifty. Rather, it's not the move that you would expect.
Speaker 2: Is there signal in that?
Speaker 1: Well, Unfortunately, the bond markets are expressing their anxiety about inflation.
Speaker 1: And when you look at the ten year yell point
Speaker 1: to the thirty year yell point, what you're really observing
Speaker 1: is how much risk premium, How much like insurance premium
Speaker 1: does the market demand for higher inflation? Because remember, you're
Speaker 1: lending the money to the US government for ten or
Speaker 1: thirty years at a time at a fixed rate. So
Speaker 1: you want to think very long and hard about what
Speaker 1: rate do you lend money to the US government which
Speaker 1: is running a staggering deficit, that is now running very
Speaker 1: very easy monetary policy relative to the inflationary pressures that
Speaker 1: we're facing. What risk premium do you demand to do so? So,
Speaker 1: although the FED has brought short term interest rates down,
Speaker 1: what is really done. It is unnerved a bond market
Speaker 1: community that invests or commits capital for ten years or
Speaker 1: thirty years at a time. And why is that matter?
Speaker 1: Because capital formation building a new factory is funded with
Speaker 1: ten and thirty year debt. So the hope that will
Speaker 1: we will stimulate the economy, that we will encourage the
Speaker 1: investments that we need in America that are all funded
Speaker 1: with long term debt are actually being undermined by the
Speaker 1: easy monetary policy at the Fed. Today.
Speaker 2: Markets are incredibly sanguine on this idea that we're going
Speaker 2: to run it hot, we're going to cut, we're going
Speaker 2: to get stimulus. Are you essentially saying that markets are
Speaker 2: underpricing a clear risk.
Speaker 1: Well, there's two markets. There's the fixed income market, which
Speaker 1: is anxious about this journey, and there's the equity market.
Speaker 1: The equity market loves an easy money story. So what
Speaker 1: we're seeing is a tale of two very different worlds
Speaker 1: from the perspective of two very different investor groups. Your
Speaker 1: fixed income investor doesn't participate directly in the easy money policies.
Speaker 1: In fact, they're adverse to that. They're anxious about that
Speaker 1: how much will inflation erode the value the dollar that
Speaker 1: I lend to the government today. The equity market thrives
Speaker 1: on this.
Speaker 2: It's going to be right.
Speaker 1: Well, Unfortunately, I think that the fixed income markets probably
Speaker 1: has its head screw done better here that we do
Speaker 1: have an issue with stickiness and inflation, goods deflation. The
Speaker 1: story of our adult life fuel by globalization is over.
Speaker 1: It's over for now. Maybe in ten years, as robotics
Speaker 1: continue to accelerate, we'll have another big wave of goods deflation.
Speaker 1: But the goods deflation that we've enjoyed from globalization is over.
Speaker 1: Supply chains are being re architected, Manufacturing has been moved
Speaker 1: into higher cost jurisdictions. That's going to end the goods
Speaker 1: deflation that's been the theme of our lifetime. With that,
Speaker 1: you have more pressure on services, inflation and the cost
Speaker 1: of housing flowing through the inflationary picture that American households face.
Speaker 2: So just to kind of paint the picture of what
Speaker 2: this actually looks like on the ground, If you get
Speaker 2: a FED that continues to cut, maybe supported by a
Speaker 2: candidate that President Trump puts in place who is loyal
Speaker 2: to him, the FED continues to cut, you get this
Speaker 2: real pressure where bond yields go up. What does that
Speaker 2: look like? Does it look like risk markets crashing? Does
Speaker 2: the business environment which America has enjoyed, does it get curtailed?
Speaker 2: Just how dramatic of an impact or reachalking.
Speaker 1: I don't think we're actually looking at a scenario like that,
Speaker 1: all right, I think you're looking at higher bondials as
Speaker 1: a possibility. But remember the easy money will fuel the
Speaker 1: stock market boom. Right, There's two different investor communities here,
Speaker 1: and the stock market investors when they see lower interest
Speaker 1: rates bid up for stocks. That's just the propensity of
Speaker 1: that community is easy money means higher prices.
Speaker 2: I mentioned the FED maybe playing a role in here.
Speaker 2: In About three months ago, you wrote an op ed
Speaker 2: in the Wall Street Journal. I'd love to read a
Speaker 2: line from it because it was really important and timely.
Speaker 2: You wrote that pressuring the Central Bank to adopt a
Speaker 2: more permissive stance toward inflation carries deep costs. Can Since then,
Speaker 2: we've seen a NEC director Kevin Hassett, emerge as the
Speaker 2: front runner from the FED. There's reporting overnight that there's
Speaker 2: been some pushback in Trump's inner circle. Is that pushback warranted?
Speaker 2: Would you support a Kevin Hassett as leading the FED,
Speaker 2: someone who's seen as very loyal to the president?
Speaker 1: Look, I think the most important move the President and
Speaker 1: the incoming FED chairman can make or chairwoman is the
Speaker 1: case maybe is to separate, is to create distance between
Speaker 1: the White House and the FED because the most difficult
Speaker 1: job the FED has is the job of raising rates
Speaker 1: to combat inflation, which can result in higher unemployment. It's
Speaker 1: a politically unpopular decision to have to make. The White
Speaker 1: House having distance from the FED gives the FED more
Speaker 1: latitude to make the tough calls you need to make
Speaker 1: to protect the long term stability of the dollar and
Speaker 1: to protect the long term interests of the economy. And
Speaker 1: sometimes the long term interest the economy involves short term
Speaker 1: pain and misery. Vulgar experienced this back when he was
Speaker 1: FED chairman. This is a real issue. And when the
Speaker 1: White House usurps control the FED, even if they don't
Speaker 1: actually have it as a practical matter, if they're perceived
Speaker 1: to control the FED, then if inflation rears its ugly head,
Speaker 1: the President can't blame the chair of the FED. The
Speaker 1: buck stops on his desk. So I don't know why
Speaker 1: President Trump wants to take that risk in an environment
Speaker 1: where the outlook for inflation is so difficult to forecast
Speaker 1: or predict. And there is again a lot of pro
Speaker 1: inflationary pressures that have been created by the change labor markets,
Speaker 1: the high fiscal deficits, that is, fiscal stimulus, and of
Speaker 1: course right now, the relatively easy monetary policy.
Speaker 2: Well, I mean you started this with mentioning you'd been
Speaker 2: in Washington, DC with some of their business leaders with
Speaker 2: the Trump administration looking at solutions for affordability. Did you
Speaker 2: get a word in and who your pick would be
Speaker 2: for FED chair?
Speaker 1: You said, who you.
Speaker 2: Perhaps the characteristics of who you don't want it to be,
Speaker 2: who would make sense for this job.
Speaker 1: I think the President has a number of really good
Speaker 1: people to choose from for the role. I don't think
Speaker 1: throwing my sort of choice into the mix helps to
Speaker 1: add anything to the argument or decision at hand. I
Speaker 1: think the President will hopefully make a decision from the
Speaker 1: perspective of who will give the global markets and the
Speaker 1: American investing public and the American consumer the greatest peace
Speaker 1: of mind that we will manage inflation in.
Speaker 2: America, and someone not from the White House ideally is
Speaker 2: what you're saying.
Speaker 1: I actually don't think that that's as important as the
Speaker 1: ability of that candidate to make it clear to the
Speaker 1: House of Representatives or the Senate in this case, and
Speaker 1: the American people that they will make the decisions that
Speaker 1: need to be made to protect the long term interest
Speaker 1: to the US economy.
Speaker 2: So ken, if reducing rates is one thing that's excited
Speaker 2: risk markets, we'd be remiss if we didn't talk about
Speaker 2: the other thing that's been talked about all day today,
Speaker 2: and that is an AI. In twenty twenty three, you
Speaker 2: said that there was a lot of hype, maybe too
Speaker 2: much hype in AI. In the past two and a
Speaker 2: half years, we have seen advancements, better jobs at producing images,
Speaker 2: better voice recognition, and a whole slew of businesses at
Speaker 2: least they say that they're adopting AI. Have you reassessed
Speaker 2: in the past two and a half years or do
Speaker 2: you still think there's too much hype?
Speaker 1: No? I think actually we've been pretty spot on with
Speaker 1: that forecast so far. Now, what has happened over the
Speaker 1: last two years is, actually, though a very important and
Speaker 1: powerful story in the C suite of corporate America, is
Speaker 1: a greater focus on how do you use technology to
Speaker 1: increase productivity. It may not be generative AI, but there's
Speaker 1: a reawakening to the importance of using technology to empower
Speaker 1: business outcomes. I was with a group of international business
Speaker 1: executives about a year and change ago, and everybody who
Speaker 1: was excited around the dinner table talking about AI, and
Speaker 1: I thought, you know what, let's all share a story
Speaker 1: as to how we're using AI to make our businesses better.
Speaker 1: And I heard five or six really interesting stories of
Speaker 1: how corporations were transforming their businesses through the use of technology,
Speaker 1: but not one story involved generative AI.
Speaker 2: If you are one of these players, then that exists.
Speaker 2: In this eco system where Hyperscalers has spent two hundred
Speaker 2: and thirty billion dollars just in twenty twenty five, with
Speaker 2: projections to go somewhere near three trillion over the next decade.
Speaker 2: That seems a little bit worrying ken that people aren't
Speaker 2: finding uses for AI, that they're instead just finding uses
Speaker 2: for other technology and maybe wrapping it in an AI bo.
Speaker 1: Well, I mean, first of all, like I said, these
Speaker 1: corporate executives shared really great stories, like how they increased
Speaker 1: their ability to put fifteen percent more cargo onto a
Speaker 1: train onto a shipping vessel. I mean, that's just money
Speaker 1: right to the bottom line, less environmental impact, higher margins,
Speaker 1: that's good business. So the upshot of this is that
Speaker 1: Corporate America is securing gains from the use of technology. Again,
Speaker 1: I think they're just securing a greater share of those
Speaker 1: gains from the uses of more traditional technologies optimization technology,
Speaker 1: long standing machine learning technology. Most of their gains are
Speaker 1: coming from generative AI. Now, having said that, with the
Speaker 1: enormity of the investment that's being made in the field
Speaker 1: of artificial intelligence, I think there is some chance that
Speaker 1: we will see meaningful progress in this field that will
Speaker 1: change the calculation that I'm or calculus that I'm setting forth.
Speaker 1: There are so many bright people in their twenties and
Speaker 1: thirties trying to unlock trying to unlock true intelligence that
Speaker 1: this does create the environment in which a breakthrough may happen.
Speaker 1: But I think that generative AI as we know today
Speaker 1: will have a very pointed, but relatively limited impact on
Speaker 1: the broader economy. Call centers are being completely re architected
Speaker 1: by jenerative AI, translation of documents between languages completely re
Speaker 1: architected by generative AI, but most of the white collar work,
Speaker 1: for example, that we do at Citadel very modest impacts
Speaker 1: so far. In fact, Harvard Business Review did a great
Speaker 1: piece on this, and it was called AI WORKSLOP, which
Speaker 1: basically you find that the younger generation tends to use
Speaker 1: AI to create work product that more seasoned professionals look
Speaker 1: at and go, that's just wrong, and the net perctivity
Speaker 1: gain is therefore deminimous because you go back and have
Speaker 1: to redo the work with more senior people. I was
Speaker 1: with one of my partners and we were going through
Speaker 1: an interesting problem and he handed me a report and
Speaker 1: the first few sentences were very insightful, and then the
Speaker 1: rest was just gibberish. And I said, so, how did
Speaker 1: this come to be chat GPT? And that was frightening
Speaker 1: because if I know, if I did not have the
Speaker 1: domain expertise that I had, I probably would have accepted
Speaker 1: the totality the product right. Like I said, the first
Speaker 1: few sentences were really insightful, and then it just evolved
Speaker 1: into gibberish that the average person in the field would
Speaker 1: not necessarily have known or appreciated.
Speaker 2: And it feels like there's this really tension between the
Speaker 2: promise of AI being priced into markets spending, like the
Speaker 2: promise of AI is coming in the actual reality. Does
Speaker 2: that end with pain for someone the people have been overspending,
Speaker 2: the focus firms that have been investing in.
Speaker 1: This look the Internet bubble. Just to go back to
Speaker 1: a time in our life that we all know well
Speaker 1: saw some enormous misallocations of capital and also a number
Speaker 1: of really important transformative changes for the economy. And again,
Speaker 1: I believe that this current revisiting technology by corporate America
Speaker 1: is creating some incredible lasting value in our economy. It's
Speaker 1: just what will be the role of generative AI in
Speaker 1: that story. You know, one of the large firms, I'll
Speaker 1: leave them nameless, in their advertising campaign for AI, laid
Speaker 1: out three key principles for the successful implementation of generative
Speaker 1: AI in the workplace, and the very first point was,
Speaker 1: in essence, used this moment to rethink and re architect
Speaker 1: your business processes. That's timeless advice. Every business has to
Speaker 1: episodically go back and re underwrite how it does what
Speaker 1: it does to do things better.
Speaker 2: We've seen a lot of that though, of companies saying
Speaker 2: they're laying off people and have specifically cited AI. Are
Speaker 2: you saying that's more of an excuse at the stage, then, look.
Speaker 1: I think the AI driven layoffs, if one may use
Speaker 1: that choice of words, Number one is when businesses do
Speaker 1: go back and re architect their processes, they realize often
Speaker 1: they can do things with fewer people, whether or not
Speaker 1: they use gender AI. We've made a huge push in
Speaker 1: using technology, it's stated all over the last several years,
Speaker 1: to streamline and automated processes. Now we haven't had to
Speaker 1: lay people off because of that. We're rapidly growing, so
Speaker 1: those people are put into other new areas of work
Speaker 1: for us. But we've taken a lot of labor onto
Speaker 1: what we do each and every day in our business.
Speaker 1: America is doing this everywhere. The second dynamic that's happening
Speaker 1: right now is some of the labor hoarding of the
Speaker 1: pandemic era is ending. And it's much easier to tell
Speaker 1: your employees because of AI, we're reducing headcount than to say,
Speaker 1: because we've maintained a fair number of people on our
Speaker 1: team that we really didn't have good work for, we're
Speaker 1: reducing our workforce. Right One depersonalizes a decision. It's a
Speaker 1: technological transformation that's out of my control and I'm sorry
Speaker 1: this is happening, whereas admitting that you hoarded labor for
Speaker 1: years is just a very different message one that people
Speaker 1: don't want to make state or hear.
Speaker 2: There have been plenty of surveys that younger people coming
Speaker 2: out of college feel a lot of anxiety, and maybe
Speaker 2: it's because the headlines that are driven by executives saying
Speaker 2: this ken, What advice would you give to someone who's
Speaker 2: newly graduating and considering pursuing a field in finance somewhere?
Speaker 2: Do they need to drastically rethink of what they study,
Speaker 2: how they enter the field, and what their jobs exactly
Speaker 2: will be because of changes in technology or because of
Speaker 2: the state of a labor market.
Speaker 1: Look, I think the most important advice I can give
Speaker 1: is not the person who just graduated. It's the person
Speaker 1: who's just starting college. Pursue a course of study where
Speaker 1: you will learn to be a good problem solver. Pursue
Speaker 1: a course of study in which you will have the toolkit,
Speaker 1: the mathematical skills, the statistics background to really be highly
Speaker 1: employable in this global economy we live in today. There's
Speaker 1: still a huge deficit in the Western world of individuals
Speaker 1: with backgrounds and STEM degrees. It's really important that you
Speaker 1: think about your college years as doing two things. It
Speaker 1: creates for you the foundation to be a lifetime learner,
Speaker 1: because whether you just graduate from college or you're just
Speaker 1: starting college, you're going to have to learn for the
Speaker 1: rest of your life. Because what you learn in college
Speaker 1: or just learned in college, will soon be antiquated. And
Speaker 1: if you're not a lifetime learner, you've got a really
Speaker 1: rough road ahead of you. And then number two is
Speaker 1: the world will always value people who can solve problems.
Speaker 1: If you can put your hand up and say I
Speaker 1: will take that challenge on, you will always have a
Speaker 1: job in the Western economy.
Speaker 2: Can we talk about a young Ken, entrepreneurial Ken in
Speaker 2: college coming out of college in nineteen eighty seven, when
Speaker 2: you started your first fund at nineteen years of age
Speaker 2: and you made an absolute killing because you were short
Speaker 2: the market going into Black Monday? Should you be in
Speaker 2: that scenario now? Do you think that there's something you
Speaker 2: could bet against in this market currently that you could
Speaker 2: create the magic of what happened in that year?
Speaker 1: It would be the good luck, Hey, good.
Speaker 2: Luck anything you think would give you a little bit
Speaker 2: of skill in achieving that good luck.
Speaker 1: So you know, it's funny. I look back at the
Speaker 1: crash of eighty seven and I was long a portfolio
Speaker 1: cordal bonds, and the uncertainty and how that portfolio would
Speaker 1: behave in a bear market was high, So for choice,
Speaker 1: I was short a bit more stock than I should
Speaker 1: have been. Risk management's about trying to deal with the
Speaker 1: unknown when things go wrong, and because of that, I
Speaker 1: was a bit more short than one might mathematically have
Speaker 1: said would be optimal. So that was the good fortune
Speaker 1: of nineteen eighty seven. Look, I think that we really
Speaker 1: spend our time at Citadel playing offense where will value
Speaker 1: be created? And then of course we take the time
Speaker 1: to think about how do we risk manage the portfolio
Speaker 1: that we're building. But the story, the success story of
Speaker 1: America is a success story written by optimists. And I
Speaker 1: think that in building a business or in building your career,
Speaker 1: it's really important that you bring optimist first and foremost
Speaker 1: each and every day to what you do in life.
Speaker 1: So we're always looking for how do you create value?
Speaker 1: And then, having said that, survival is about having their
Speaker 1: realistic paranoia that the world will go through difficult times
Speaker 1: and how do you create the risk management to get
Speaker 1: through those difficult times. But we come to work as
Speaker 1: optimists first, paranoid pessimists making sure we can survive difficult times. Second,
Speaker 1: can I just.
Speaker 2: Quickly ask, because we're almost out of time, A lot
Speaker 2: of folks have expressed paranoia and that shift and a
Speaker 2: lot of risk from public markets has shifted into private markets.
Speaker 2: Does that hit the list of your paranoia at all?
Speaker 1: Look, I think there's a lot of virtues to the
Speaker 1: rise and depth of the private markets in the United States.
Speaker 1: You have a tremendous number of mid sized companies or
Speaker 1: even large companies owned by privacy firms, and you have
Speaker 1: very tight agency between the owner of the business and
Speaker 1: the management business. That's been very instrumental in increasing American productivity.
Speaker 1: I think that's the great strength of the private equity
Speaker 1: system that we have in the United States. The downside
Speaker 1: in private markets, one of the downsides is you don't
Speaker 1: have good price discovery, and price discovery is one of
Speaker 1: the ways that you, as a management team have an
Speaker 1: appreciation for how the world values what you're doing, and
Speaker 1: that investors are able to use as a metric or
Speaker 1: milestone in measuring their own skills as an investor. You know,
Speaker 1: one of my concerns with private credit, for example, the
Speaker 1: vast majority of companies will never default. You invest your
Speaker 1: money today in a company's credit, you won't know for
Speaker 1: five or seven years if you made a good investment,
Speaker 1: which means that a substantial portion of your career will
Speaker 1: have slipped through your fingers before you learn whether or
Speaker 1: not you made a good underwriting decision. And as we
Speaker 1: go back to the start of the story, one of
Speaker 1: the distinguishing factors of the American success story is the
Speaker 1: depth and efficiency of our capital markets. And as we
Speaker 1: move more into the private realm, we take away some
Speaker 1: of the learning experiences that have driven the vitality and
Speaker 1: success of the American capital markets.