WEBVTT - Bloomberg Wall Street Week - September 15th, 2023 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.560 --> 0:00:04.480 We may not have an overall recession, We're having a 0:00:04.559 --> 0:00:06.840 rolling recession. To KNYE, roll looks pretty strongly. It is 0:00:06.840 --> 0:00:09.440 when it comes to jobs, the financial stories that shape 0:00:09.440 --> 0:00:12.840 our world. Three major regional bank failures send shockwaves through 0:00:12.880 --> 0:00:14.960 the banking system. We're all trying to figure out what 0:00:15.040 --> 0:00:17.000 to make of generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America, 0:00:22.560 --> 0:00:25.320 deebro Laiir of the Paulson Institute, Welen Hubbard of the 0:00:25.360 --> 0:00:26.280 Columbia Business School. 0:00:26.280 --> 0:00:30.160 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.320 --> 0:00:34.040 Are we going forward backward or just marching in place? 0:00:34.479 --> 0:00:38.400 This is Bloomberg Wall Street Week. I'm David Weston. This 0:00:38.479 --> 0:00:41.839 week's special contributor Larry Summers On renewing his campaign with 0:00:41.960 --> 0:00:44.760 Bono on behalf of the world's poorest nations. 0:00:45.840 --> 0:00:49.640 This is a moment when show me the money. 0:00:50.680 --> 0:00:53.520 Marty schav has a Six Street Partners on what AI 0:00:53.640 --> 0:00:55.640 could mean for the world of finance. 0:00:56.520 --> 0:01:00.520 At some fundamental level, it's just math. This time it 0:01:00.640 --> 0:01:02.360 actually is different. 0:01:03.000 --> 0:01:06.040 And former President of Brown Ruth Simmons, I'm making sure 0:01:06.120 --> 0:01:09.880 we're giving our future workforce what they need to succeed. 0:01:10.760 --> 0:01:16.880 I believe firmly that corporations have to be along with 0:01:16.959 --> 0:01:19.400 the universities leading this struggle. 0:01:33.200 --> 0:01:35.399 It was a week of movement, but not always in 0:01:35.400 --> 0:01:38.520 the same direction, and sometimes not in any particular direction 0:01:38.760 --> 0:01:42.240 at all. ECV took a modest step forward in its 0:01:42.280 --> 0:01:45.400 battle with inflation by raising another twenty five basis points. 0:01:45.880 --> 0:01:48.480 The focus is probably going to move a bit more 0:01:48.560 --> 0:01:53.040 to the duration, but it is not to say, because 0:01:53.080 --> 0:01:56.320 we can't say that now that we are at peak. 0:01:57.120 --> 0:01:59.280 ARM took a big step forward as it went to 0:01:59.320 --> 0:02:04.040 market with it. You can't really run AI without ARM. 0:02:04.400 --> 0:02:07.120 The auto industry took a big step backward as the 0:02:07.160 --> 0:02:09.840 UAW failed to come to terms of Detroit Big three 0:02:09.919 --> 0:02:11.880 automakers and moved to strike. 0:02:12.400 --> 0:02:14.959 If we need to go all out, we will. 0:02:15.520 --> 0:02:16.840 Everything is on the table. 0:02:17.080 --> 0:02:20.240 From job security, we have jobs for all of our 0:02:20.320 --> 0:02:22.040 people as we make this transformation. 0:02:22.800 --> 0:02:25.840 The US economy more or less continue to march in place. 0:02:26.040 --> 0:02:28.920 As CPI numbers came in just about as expected, with 0:02:29.000 --> 0:02:31.959 inflation higher than the FED once but lower than some 0:02:32.120 --> 0:02:32.639 ad feared. 0:02:33.200 --> 0:02:36.560 The level of inflation that we're going to be forecasting 0:02:36.680 --> 0:02:41.480 for the year is well above what people forecast at 0:02:42.280 --> 0:02:42.919 the beginning. 0:02:43.680 --> 0:02:46.080 And maybe the biggest step of all this week, at 0:02:46.160 --> 0:02:48.880 least for New York football and for a future Hall 0:02:48.960 --> 0:02:51.440 of Famer, was the one Aaron Rodgers took on Monday 0:02:51.480 --> 0:02:54.119 Night's game against the Bills when he tore his achilles 0:02:54.200 --> 0:02:57.960 tendon and ended his season only three plays into his 0:02:57.960 --> 0:03:00.359 New York Jets career were all. 0:03:00.360 --> 0:03:03.560 His contract was about one hundred and twelve millions, so 0:03:03.600 --> 0:03:05.480 we even if you can't play like he's going to be. 0:03:05.400 --> 0:03:10.079 Okay in the end. The equity Americans took a step 0:03:10.120 --> 0:03:12.000 back this week, with the S and P five hundred 0:03:12.000 --> 0:03:14.840 giving up just under two tenths of percent, ending the 0:03:14.840 --> 0:03:17.480 week at forty four fifty. That is still nicely above 0:03:17.480 --> 0:03:19.920 where our Bloomberg Elves predicted will end up the year. 0:03:20.320 --> 0:03:23.079 The Nasdaq had a bit rougher time, down nearly four 0:03:23.200 --> 0:03:26.040 tenths of percent. For her views on what the market 0:03:26.080 --> 0:03:28.760 action told us about our investments, we welcome back now 0:03:28.800 --> 0:03:31.520 one of our Bloomberg Alves, Savina Supermania, and she's Blank 0:03:31.560 --> 0:03:35.200 of America's Securities, Head of US Equity and quantitative strategy. 0:03:35.280 --> 0:03:37.320 So Cee Vidiot, welcome. Great to have you here in 0:03:37.400 --> 0:03:38.320 the studio. 0:03:38.160 --> 0:03:41.839 To be here, and I love the moniker, I love 0:03:41.880 --> 0:03:42.240 having you. 0:03:42.920 --> 0:03:45.320 So give us your take on where we are right now. 0:03:45.400 --> 0:03:47.960 The actually was doing pretty well till Friday and then 0:03:48.080 --> 0:03:50.520 backed off some. But did we learn anything this week 0:03:50.520 --> 0:03:52.160 about exactly where we think we're headed? 0:03:52.920 --> 0:03:54.880 I think this week was well. 0:03:55.040 --> 0:03:57.360 This week was a week where we heard a lot 0:03:57.360 --> 0:04:01.880 of really negative headlines around put potentially sticky wage inflation, 0:04:02.040 --> 0:04:06.160 I mean, the the auto worker strike. We're seeing signs of, 0:04:06.800 --> 0:04:09.480 you know, kind of trends that we were expecting to 0:04:09.760 --> 0:04:13.640 mean revert very quickly remaining high. So our view is 0:04:14.360 --> 0:04:17.080 we're not necessarily out of the woods yet in terms 0:04:17.240 --> 0:04:22.080 of the FED controlling inflation, and we think that the 0:04:22.080 --> 0:04:25.559 the mistake to be made at this point is betting 0:04:25.640 --> 0:04:28.680 that the FED will start cutting aggressively next year. We 0:04:28.680 --> 0:04:31.840 we don't necessarilyssarily see that as a slam dunk, and 0:04:31.880 --> 0:04:34.159 that's what a lot of investors that we speak to 0:04:34.360 --> 0:04:37.839 are expecting. So there's this this theme around resumption to 0:04:38.560 --> 0:04:40.800 what happened over the last ten years, and our view 0:04:40.839 --> 0:04:42.720 is that we're at a break point where we may 0:04:42.800 --> 0:04:45.760 never see these low rates of the last ten years 0:04:45.839 --> 0:04:48.760 ever again. And in fact, I think it's important to 0:04:48.800 --> 0:04:50.680 remember that what we saw over the last ten years 0:04:50.800 --> 0:04:54.000 was an anomaly. Negative real rates are not the norm, 0:04:54.000 --> 0:04:56.320 they're the exception, and where we are now just feels 0:04:56.360 --> 0:04:57.840 a little bit more like firm footing. 0:04:58.160 --> 0:04:59.880 What does that tell you at equity valuation? 0:05:00.240 --> 0:05:02.839 So I feel like the SMP five hundred right now 0:05:02.920 --> 0:05:06.039 is kind of a tale of two cities, and there's 0:05:06.400 --> 0:05:09.279 you know, the benchmark isn't a broad market composite like 0:05:09.320 --> 0:05:12.599 it normally is. It's a top heavy benchmark where thirty 0:05:12.640 --> 0:05:16.560 percent of it roughly is made up of seven big 0:05:16.680 --> 0:05:20.800 companies that play this megacab tech growth theme, and that 0:05:21.000 --> 0:05:24.800 area of the market is relatively pricey. Perhaps that's where 0:05:24.839 --> 0:05:26.520 we will see the greatest growth over. 0:05:26.400 --> 0:05:27.159 The long term. 0:05:27.440 --> 0:05:29.839 But I think what has yet to happen as these 0:05:29.880 --> 0:05:33.159 companies need to recalibrate to an environment where the hurdle 0:05:33.240 --> 0:05:36.520 rate is no longer zero, it's a lot higher than zero. 0:05:36.600 --> 0:05:38.599 We just saw the FED move us from zero to 0:05:38.640 --> 0:05:41.840 five very quickly. I think that when you take the 0:05:41.880 --> 0:05:45.760 broader market index, you see a very different valuation story, 0:05:46.040 --> 0:05:49.719 a very different growth expectation story. And I feel really 0:05:49.800 --> 0:05:53.120 bullish about the equal weighted SMP five hundred because I 0:05:53.120 --> 0:05:55.440 think what a lot of companies are doing right now 0:05:56.000 --> 0:05:58.320 is smart. They've done the right things over the last 0:05:58.320 --> 0:06:01.320 ten years. They haven't necessarily taken on a lot of 0:06:01.360 --> 0:06:05.720 floating rate risk, They've paid down debt in many industries, 0:06:05.960 --> 0:06:10.480 energy industrials, materials, a lot of these manufacturing exposed sectors 0:06:10.800 --> 0:06:13.880 have been starved of capital and have gotten leader and 0:06:14.000 --> 0:06:18.480 meaner and now look like they're focused on efficiency, which 0:06:18.520 --> 0:06:22.279 I think is the best bowl case for the next 0:06:22.360 --> 0:06:22.960 ten years. 0:06:23.000 --> 0:06:24.280 And we can talk more about that. 0:06:24.400 --> 0:06:26.680 Well, does that suggest, perhaps, Sevita, that there will be 0:06:26.720 --> 0:06:28.840 some separation of the companies who can really get their 0:06:28.839 --> 0:06:32.000 head around increasing productivity, being more efficient, as you say, 0:06:32.040 --> 0:06:34.680 cutting costs, and ones that may have a tougher time 0:06:34.720 --> 0:06:36.840 at that because some people do that better than others. 0:06:37.080 --> 0:06:37.320 Yeah. 0:06:37.360 --> 0:06:40.480 Absolutely, it's a story of the haves and the have nots, 0:06:40.520 --> 0:06:42.479 who gets it right and who doesn't. And I think 0:06:42.520 --> 0:06:46.160 that's where fundamental analysis, which hasn't really. 0:06:45.960 --> 0:06:47.480 Mattered for a very long time. 0:06:47.800 --> 0:06:49.719 It feels like all you wanted to do is buy 0:06:49.760 --> 0:06:52.120 the rip, focus on the index, and now I think 0:06:52.120 --> 0:06:55.440 it's the time to get in the weeds into the fundamentals, 0:06:55.720 --> 0:06:58.599 and that's where you can figure out which CEOs and 0:06:58.680 --> 0:07:02.680 CTOs are figured out, how to use technology to replace 0:07:02.800 --> 0:07:07.320 more expensive workers, how to make markets more efficient. We're 0:07:07.320 --> 0:07:10.840 seeing this already in a lot of industries, like, for example, restaurants. 0:07:10.840 --> 0:07:15.240 Our analysts have been writing about how today's kitchen looks 0:07:15.400 --> 0:07:18.000 so different from the kitchen ten years ago in terms 0:07:18.000 --> 0:07:21.800 of automating and getting a lot more labor light, if 0:07:21.840 --> 0:07:22.200 you will. 0:07:22.680 --> 0:07:25.080 So that's automation. What about labor? I mean, we did 0:07:25.120 --> 0:07:28.640 have that UAW strike yees specific plants. Yes, we don't 0:07:28.680 --> 0:07:31.040 know where that's going exactly, but it's against a backdrop 0:07:31.080 --> 0:07:35.360 of larger pattern of labor unrest and demands for workers. 0:07:35.480 --> 0:07:38.760 Could that cut into some of those margins that maybe productivity. 0:07:38.160 --> 0:07:40.960 Would give you, Oh absolutely, I think that right now 0:07:41.000 --> 0:07:46.080 there is a tension between real inflation and financial asset inflation. 0:07:46.320 --> 0:07:48.600 And what we saw for the last you know, during 0:07:48.760 --> 0:07:52.560 post financial crisis, was this wonderful frictionless environment where there 0:07:52.640 --> 0:07:56.160 was barely any inflation to speak of. If something got 0:07:56.200 --> 0:07:58.520 expensive in the US, we could move it somewhere else, 0:07:58.640 --> 0:08:01.160 or we could import from anywhere we wanted to, and 0:08:01.200 --> 0:08:04.720 now we're in a very different setup. The disparity between 0:08:04.720 --> 0:08:06.040 the wealthy and and the. 0:08:06.000 --> 0:08:07.520 Poor has just grown larger. 0:08:07.560 --> 0:08:09.440 We all talk about this, but I think what we're 0:08:09.440 --> 0:08:13.840 seeing now is real evidence of closing that gap. So 0:08:13.880 --> 0:08:16.080 that's going to be bad for some corporations. And I 0:08:16.120 --> 0:08:19.200 think where it's going to get difficult is for companies 0:08:19.200 --> 0:08:24.120 that haven't been able to really think about how to navigate. 0:08:23.680 --> 0:08:25.280 A higher interest rate environment. 0:08:25.960 --> 0:08:29.560 And again, when I think about the indices within the market, 0:08:30.080 --> 0:08:33.240 the S and P five hundred is this top heavy benchmark, 0:08:33.480 --> 0:08:36.360 and then the Russell two thousand, which are smaller companies. 0:08:36.800 --> 0:08:38.600 A lot of the companies that are in the Russell 0:08:38.679 --> 0:08:43.760 today aren't necessarily these economically sensitive growth companies. It's a 0:08:43.760 --> 0:08:46.480 lot of these so called zombie companies that have you know, 0:08:46.520 --> 0:08:49.840 we're iPod in a much friendlier environment and are no 0:08:49.920 --> 0:08:54.439 longer able to handle this rising rate shock, if you will. 0:08:54.559 --> 0:08:56.720 So, Vita, taking a look at all of that analysis, 0:08:56.880 --> 0:08:58.960 what is it indicate to you about where we're going next? 0:08:59.040 --> 0:09:01.439 Is we look toward twenty twenty four. I mean, as 0:09:01.440 --> 0:09:03.079 one of our l's you're at forty three hundred, which 0:09:03.120 --> 0:09:06.440 is by the way, right at the median number right now, Oh, 0:09:06.440 --> 0:09:09.080 that's proverty good, probably right, But what can you tell 0:09:09.160 --> 0:09:10.640 us what where you think we may be headed as 0:09:10.640 --> 0:09:11.680 we go into twenty twenty four. 0:09:12.040 --> 0:09:14.560 Yeah, so, I mean I think that we're we're what 0:09:14.600 --> 0:09:17.520 we're facing right now is again a market that's likely 0:09:17.600 --> 0:09:22.079 to right size technology. I think that tech shrinks as 0:09:22.120 --> 0:09:24.400 a percentage of the S and P five hundred, and 0:09:24.440 --> 0:09:27.800 we see leadership broadened out to other old economy sectors 0:09:28.200 --> 0:09:31.079 that are actually using these new tools to. 0:09:31.040 --> 0:09:31.960 Get more efficient. 0:09:32.600 --> 0:09:35.080 Next year I think could be a good year for earnings. 0:09:35.080 --> 0:09:38.080 It could be a good year for nomenal growth. I 0:09:38.120 --> 0:09:41.520 think the trick is figuring out which companies are doing 0:09:41.600 --> 0:09:44.200 it right and which companies are are going to become 0:09:44.559 --> 0:09:47.480 you know, obsolete, and that's that's where the challenges remain. 0:09:47.520 --> 0:09:49.839 So it's really a stock pickers market. But I think 0:09:49.840 --> 0:09:52.120 that if you want to buy an index, the equal 0:09:52.120 --> 0:09:55.439 weighted SMP five hundred to me looks pretty interesting. These 0:09:55.440 --> 0:09:58.200 are companies that are relatively cheap. The trading value is 0:09:58.440 --> 0:10:01.920 I think something like fifteen times earnings, which is, you know, 0:10:02.160 --> 0:10:08.240 a relatively average valuation, not expensive, not cheap. And my 0:10:08.400 --> 0:10:10.920 sense is that we've all gotten used to just one 0:10:11.000 --> 0:10:14.400 sector and one theme driving equities, but we could be 0:10:14.440 --> 0:10:17.440 in an environment where the themes broaden out and we 0:10:17.559 --> 0:10:19.960 see different stories for different sectors. 0:10:20.080 --> 0:10:21.760 One last quick one, if I could, are we as 0:10:21.760 --> 0:10:23.600 divers about it as we think we are given going 0:10:23.600 --> 0:10:24.400 on in the INDIAXES. 0:10:24.640 --> 0:10:26.160 So this is where it gets interesting. 0:10:26.200 --> 0:10:29.280 I think that portfolio managers and active managers are in 0:10:29.360 --> 0:10:32.200 a tough spot because we've been in a market where 0:10:32.240 --> 0:10:36.280 seven stocks have been driving the index and they're almost 0:10:36.360 --> 0:10:39.199 forced to own these companies. We're now at a point 0:10:39.200 --> 0:10:43.880 where one out of ten active managers has more than 0:10:44.080 --> 0:10:48.520 forty percent of their portfolio in five companies, not diversified 0:10:48.559 --> 0:10:48.839 at all. 0:10:49.040 --> 0:10:50.840 Peter, thank you so much for being a CEVIA super 0:10:50.960 --> 0:10:53.480 nion of Bank of America. Coming up, we're told artificial 0:10:53.520 --> 0:10:55.559 intelligen will take over the world. What can we be 0:10:55.600 --> 0:11:00.600 for finans? We talked on Martyschow as a Six Street partners. 0:11:01.600 --> 0:11:05.840 This is Bloomberg Wall Street Week with David Weston from 0:11:05.960 --> 0:11:06.880 Bloomberg Radio. 0:11:14.160 --> 0:11:17.200 This is Wall Street Week. I'm David Weston. Generative AI 0:11:17.400 --> 0:11:20.200 may be here already, but we're told that we ain't 0:11:20.240 --> 0:11:23.240 seen nothing yet. That it will change much of our world, 0:11:23.320 --> 0:11:25.960 including potentially the world of finance. Here to give us 0:11:25.960 --> 0:11:28.280 a sneak peek of what that world might look like 0:11:28.520 --> 0:11:30.800 is Marty Schavez. He is a vice chairman of Six 0:11:30.960 --> 0:11:33.160 Street Partners. Marty, welcome back to Wall Street. 0:11:33.160 --> 0:11:35.040 Great to have you here, pleasure to be here. Thank you, David. 0:11:35.120 --> 0:11:36.800 And we're talking about changing the world. Start with the 0:11:36.800 --> 0:11:41.560 world of Six Street Partners. How is potentially AI changing 0:11:41.640 --> 0:11:42.480 your world? 0:11:43.000 --> 0:11:46.560 The first thing I noticed about AI is that all 0:11:46.679 --> 0:11:51.280 of our limited partners, our investors, and all of our 0:11:51.320 --> 0:11:57.320 portfolio companies to first approximation, want to understand it, and 0:11:57.520 --> 0:12:00.920 they're also looking to us to have some thoughts that 0:12:00.960 --> 0:12:04.440 are differentiated, not just to understand it, but to understand 0:12:04.440 --> 0:12:07.079 what to do about it and what to do with it. 0:12:07.160 --> 0:12:09.840 So there's a lot of conversations going on. 0:12:10.320 --> 0:12:12.120 So will help us a little bit as if we 0:12:12.120 --> 0:12:14.800 were one of your clients. Okay, give us a sense 0:12:14.800 --> 0:12:15.880 a little bit of understanding. 0:12:15.880 --> 0:12:16.120 Here. 0:12:16.320 --> 0:12:18.400 We hear a lot of things that are wonderful potentially 0:12:18.400 --> 0:12:20.800 about gender, some things that are pretty scary about it 0:12:20.840 --> 0:12:23.720 as well. What do you tell them about the upside potential? 0:12:24.040 --> 0:12:27.319 So I tend to be rather calm about it, maybe 0:12:27.360 --> 0:12:30.480 in part because I've been working on AI in one 0:12:30.559 --> 0:12:34.000 form or another for a long time. My PhD from 0:12:34.000 --> 0:12:37.280 a million years ago nineteen ninety one was on AI 0:12:37.400 --> 0:12:40.800 and an early iteration of AI when we didn't really 0:12:40.880 --> 0:12:45.520 get that far, and the techniques that have now become 0:12:45.679 --> 0:12:50.400 really valuable were techniques that actually was pretty skeptical about 0:12:50.440 --> 0:12:52.960 thirty years ago. But what happened is the computers got 0:12:53.040 --> 0:12:57.680 way faster, doubling about every eighteen months, and enough doubling 0:12:57.800 --> 0:13:00.760 between nineteen ninety one and now, and now you are 0:13:00.800 --> 0:13:05.680 seeing some amazing things. And so yet I would also say, 0:13:06.320 --> 0:13:11.200 at some fundamental level, it's just math. These neural networks 0:13:11.240 --> 0:13:14.520 are doing some really interesting math, but they're just doing 0:13:14.559 --> 0:13:19.080 some calculations. The calculations are letting us do pattern matching 0:13:19.360 --> 0:13:26.200 statistical recognition in an unprecedented way, and that is really powerful. So, 0:13:26.440 --> 0:13:30.280 having seen so many ups and downs of AI, I believe, 0:13:30.480 --> 0:13:33.040 and I think many people share this belief that this 0:13:33.200 --> 0:13:36.480 time it actually is different and you can see it. 0:13:36.679 --> 0:13:39.560 You can go to bard or chat GPT and ask 0:13:39.600 --> 0:13:44.160 it some questions and get some pretty amazing things coming back. Now, 0:13:44.280 --> 0:13:47.640 it's also got problems. There's the hallucinations that are much 0:13:47.679 --> 0:13:50.080 talked about, and so what are we going to do 0:13:50.360 --> 0:13:54.520 to ground those hallucinations? I think is one interesting topic. 0:13:54.840 --> 0:13:59.560 Another interesting topic is as the doubling continues, and I 0:13:59.559 --> 0:14:02.600 can tell you that every three months, I'm seeing something 0:14:03.000 --> 0:14:05.760 that's not more twice as interesting as what I saw 0:14:05.920 --> 0:14:09.439 three months before, but ten times more interesting. We are 0:14:09.559 --> 0:14:14.520 in some crazy exponential inflection point. So looking out into 0:14:14.559 --> 0:14:18.040 the future, we're starting to ask ourselves, when are these 0:14:18.080 --> 0:14:21.040 computers going to be as smart as we are. We 0:14:21.120 --> 0:14:23.400 don't think they're going to be conscious in any way, 0:14:23.720 --> 0:14:26.880 but they might be intelligent. They might be as intelligent, 0:14:27.120 --> 0:14:30.680 they might be more intelligent. What kind of things will 0:14:30.720 --> 0:14:34.680 happen once we can tell the AIS? Go read every 0:14:34.720 --> 0:14:38.360 book ever written, especially all the textbooks. If that can 0:14:38.400 --> 0:14:41.760 be done in a way that respects intellectual property. Go 0:14:41.800 --> 0:14:44.920 read all the textbooks and learn everything in them, and 0:14:45.000 --> 0:14:48.320 tell us everything that is implied by what's in them, 0:14:48.560 --> 0:14:51.440 and feed that back into the AI and train the 0:14:51.480 --> 0:14:55.160 next generation of yourself. As this sloop gets going, we 0:14:55.240 --> 0:14:59.200 can see the prospects for some really interesting things. It 0:14:59.240 --> 0:15:02.360 wouldn't surprise me if in a few years we can 0:15:02.360 --> 0:15:09.240 tell the computers, please invent a commercially effective nuclear fusion 0:15:09.520 --> 0:15:13.400 reactor that's safe, and they might just go and do it. 0:15:13.680 --> 0:15:16.160 And you can imagine the computers doing the same thing. 0:15:16.560 --> 0:15:20.240 For climate change, we're already seeing and they can talk 0:15:20.240 --> 0:15:24.560 about a company I'm working with, Recursion Pharmaceuticals. We're already 0:15:24.600 --> 0:15:28.080 seeing what the computers can do for really hard problems 0:15:28.120 --> 0:15:31.800 such as drug discovery. So there's no question in my 0:15:31.840 --> 0:15:34.400 mind that they're going to make a huge difference. There's 0:15:34.440 --> 0:15:38.240 also some concerns, and so delivering AI in a way 0:15:38.280 --> 0:15:43.480 that is bold and also responsible and safe and ethical 0:15:43.880 --> 0:15:45.280 is a huge area of concern. 0:15:45.520 --> 0:15:49.000 Put those two things together, the AI and its potential 0:15:49.080 --> 0:15:51.880 for good and potentially some risks as well. With the 0:15:51.880 --> 0:15:54.720 financial world. I mean, when you talk about, for example, hallucinations, 0:15:54.840 --> 0:15:57.040 that doesn't sound very good to me if that's part 0:15:57.080 --> 0:15:58.600 of what's running the financial systems. 0:15:59.080 --> 0:16:03.520 Right. So I started working on Wall Street in ninety three, 0:16:03.840 --> 0:16:07.440 and in ninety three, when people like me showed up 0:16:07.440 --> 0:16:11.000 on Wall Street, I often got asked, could you help 0:16:11.040 --> 0:16:14.000 me figure out how to print this document or turn 0:16:14.120 --> 0:16:17.520 my computer on and off? R What is this kind 0:16:17.520 --> 0:16:20.960 of quant math and software guy doing here? So it 0:16:21.000 --> 0:16:24.800 took a little while where we people like me, could 0:16:24.800 --> 0:16:28.240 find the problems that we could actually solve that would 0:16:28.320 --> 0:16:31.400 help us make better markets for our clients and manage 0:16:31.440 --> 0:16:34.560 our risk more effectively. That's something we've been working on 0:16:34.640 --> 0:16:37.880 for a very long time, bringing math to Wall Street. 0:16:38.080 --> 0:16:41.240 And so I've had an opportunity to see many iterations 0:16:41.280 --> 0:16:44.720 of this movie, of this movie. So initially one of 0:16:44.760 --> 0:16:46.920 the things I might work on would be, we've got 0:16:46.960 --> 0:16:49.560 a complicated book of risk. How do we hedge it? 0:16:49.800 --> 0:16:53.080 We've got thirty seconds to make a phone call and 0:16:53.280 --> 0:16:55.880 construct the first order hedge of the book. All right, 0:16:56.000 --> 0:16:58.480 so we do that lots of math and software. We 0:16:58.520 --> 0:17:01.160 want to do it reliably, don't want to make mistakes. 0:17:01.360 --> 0:17:03.240 We certainly don't want to hoose to me and get 0:17:03.240 --> 0:17:06.159 the wrong hedge and maybe make the risk position worse. 0:17:06.520 --> 0:17:08.600 And we got pretty good at that. But I remember 0:17:08.600 --> 0:17:12.080 thinking even then, Okay, so now we're calculating this hedge 0:17:12.080 --> 0:17:14.560 and the person next to me is calling the exchange 0:17:14.560 --> 0:17:17.840 and saying buy or sell that many futures. I remember thinking, 0:17:17.880 --> 0:17:20.680 even as a kid, well, we could do that part too, 0:17:21.160 --> 0:17:24.520 But it took a long time. Eventually we got there, 0:17:24.760 --> 0:17:28.479 especially in equities markets that were exchange traded where there 0:17:28.520 --> 0:17:31.080 was a lot of data, and we could close that loop. 0:17:31.200 --> 0:17:33.520 You could do some analysis, and then you could say 0:17:33.680 --> 0:17:35.439 this is the trade we should do, and then you 0:17:35.440 --> 0:17:38.640 could have the computers just do that trade. And at 0:17:38.640 --> 0:17:41.719 the time that began, there was a lot of concerns, 0:17:41.800 --> 0:17:44.400 how could that go wrong? What if the computer puts 0:17:44.440 --> 0:17:47.080 in the wrong trade? And then the whole loop got 0:17:47.119 --> 0:17:51.080 faster and faster, and computers were putting in orders with 0:17:51.160 --> 0:17:54.760 a latency of sub one millisecond, much faster than a 0:17:54.800 --> 0:17:58.119 trader could ever operate. And then we actually had some 0:17:58.920 --> 0:18:03.040 train wrecks. There was a company night Trading where the 0:18:03.080 --> 0:18:07.000 algos run amok and kept putting orders into the exchange 0:18:07.720 --> 0:18:10.119 that were at the wrong price, and so all the 0:18:10.240 --> 0:18:13.720 orders got taken out on the other side, and they 0:18:13.720 --> 0:18:16.800 eroded their capital in forty five minutes, and then they 0:18:16.800 --> 0:18:20.399 were bankrupt. So some things have gone horribly wrong we 0:18:20.560 --> 0:18:24.840 learned from those episodes. I'm in the camp that sees 0:18:24.960 --> 0:18:29.440 AI as essentially wonderful, but still more of the same, 0:18:29.840 --> 0:18:34.199 So more math, more analysis, things going faster and faster, 0:18:34.720 --> 0:18:37.880 and yet I think there are some principles that are 0:18:38.080 --> 0:18:43.000 stable in time. So here's one. I remember a town 0:18:43.080 --> 0:18:46.560 hall years ago where I was talking and I said, 0:18:46.600 --> 0:18:50.320 there's really three strategies that I see when it comes 0:18:50.320 --> 0:18:53.800 to computers. Number one is, you could be a person 0:18:53.880 --> 0:18:56.840 who tells the computers what to do. That's my strategy, 0:18:56.880 --> 0:18:59.600 and it's working pretty well for me, it's not for everybody. 0:19:00.080 --> 0:19:05.240 Number Two, you could collaborate effectively with the computers and 0:19:05.440 --> 0:19:08.040 the people who tell the computers what to do. And 0:19:08.280 --> 0:19:12.240 I recommend that to everybody. Everybody can embrace that strategy 0:19:12.600 --> 0:19:16.080 and use the computers to give yourself a force multiplier, 0:19:16.200 --> 0:19:19.280 leverage a superpower, and then go on and do more 0:19:19.320 --> 0:19:23.760 interesting things that the computers can't do. And you always worry, well, 0:19:23.800 --> 0:19:26.800 maybe we won't be needed at all and the computers 0:19:26.800 --> 0:19:30.680 will take over. I've never seen that happen. The third strategy, 0:19:30.800 --> 0:19:33.600 which I have also seen, is stand in the way 0:19:33.600 --> 0:19:37.119 of progress. See if, in the name of your job security, 0:19:37.400 --> 0:19:41.080 you can stop the computers, and that is really dumb, 0:19:41.160 --> 0:19:44.200 and don't do that, and some people do do that. 0:19:44.640 --> 0:19:48.840 I think that that advice applies today. I think everybody 0:19:48.880 --> 0:19:52.639 needs to be looking at computers and generative AI and 0:19:52.720 --> 0:19:56.520 thinking how can I use this to be more productive. 0:19:56.680 --> 0:19:58.720 Mario, It's such a treat you have here on Wall Street. 0:19:58.720 --> 0:20:01.280 We thank you so much. As Marie Chavez of Six 0:20:01.320 --> 0:20:06.560 Street Partners coming up. Is a college degree still a 0:20:06.600 --> 0:20:09.320 ticket to a better life? And if so, what can 0:20:09.359 --> 0:20:11.760 we do to make sure everyone has a shot at 0:20:11.800 --> 0:20:16.320 that ticket? We asked Ruth Simmons, former president of Brown University. 0:20:17.440 --> 0:20:21.959 I want those elite institutions to stop it, to stop 0:20:22.119 --> 0:20:23.960 saying we are so much better. 0:20:24.560 --> 0:20:26.639 This is Wall Street Week on Bloomberg. 0:20:27.840 --> 0:20:32.080 This is Bloomberg Wall Street Week with David Weston from 0:20:32.160 --> 0:20:33.119 Bloomberg Radio. 0:20:41.440 --> 0:20:45.160 A college diploma. The GI Bill sent soldiers returning from 0:20:45.200 --> 0:20:47.960 World War Two off to get their degrees, and ever 0:20:48.000 --> 0:20:51.159 since that higher education has been seen as the ticket 0:20:51.359 --> 0:20:54.040 to a better life in the United States, helping not 0:20:54.200 --> 0:20:57.639 just those getting the opportunity, but driving the economic force 0:20:57.720 --> 0:20:59.280 of the United States as well. 0:20:59.480 --> 0:21:03.160 There's not an of college educated white men to drive 0:21:03.200 --> 0:21:06.119 the economy in the next thirty or forty years as demographics, 0:21:06.240 --> 0:21:09.200 so you need blacks to start businesses, you need Latinos 0:21:09.200 --> 0:21:10.800 and women to be part of the economy. 0:21:10.960 --> 0:21:13.640 But over time, the cost of going to college has skyrocketed, 0:21:13.760 --> 0:21:16.560 putting increased pressure on the system to make sure young 0:21:16.600 --> 0:21:17.640 people can get there. 0:21:17.720 --> 0:21:19.280 We've got to find a way to break the back 0:21:19.320 --> 0:21:22.479 of the education system and make it more accessible, cheaper, 0:21:22.720 --> 0:21:26.160 get more people into college, get higher graduation rates. That's 0:21:26.359 --> 0:21:28.040 I think a societal thing that we have to face them. 0:21:28.040 --> 0:21:30.600