WEBVTT - Morgan Stanley's Jim Caron Talks Fed, Greenspan, Investment Trends 0:00:02.520 --> 0:00:07.000 Bloomberg Audio Studios, Podcasts, radio news. 0:00:07.800 --> 0:00:11.440 Jim Karen, chief investment Officer of Portfolio Solutions at Morgan 0:00:11.520 --> 0:00:14.640 Stanley Investment Management, he's back with us. We've got a 0:00:14.640 --> 0:00:16.919 little bit of a special treat for this last hour 0:00:17.000 --> 0:00:19.720 of Bloomberg Business Week Daily. He's joining us for the 0:00:19.760 --> 0:00:21.880 rest of the show. Jim, it's good to see you. 0:00:21.920 --> 0:00:22.919 Welcome back, Thank you. 0:00:22.920 --> 0:00:24.040 It's great to see both of you. 0:00:24.000 --> 0:00:25.720 And thanks for taking the time this afternoon. You know, 0:00:25.760 --> 0:00:29.880 we obviously weren't planning on starting with Alan Greenspan and 0:00:29.920 --> 0:00:32.040 his life and legacy. We're going to talk about the FED. 0:00:32.080 --> 0:00:35.920 We'll talk about rates, risk, portfolio positioning, the US versus 0:00:36.000 --> 0:00:38.120 the rest of the world. Matt Miller wants us to 0:00:38.120 --> 0:00:40.720 talk about motorcycles. Yes, I don't think I will be 0:00:40.760 --> 0:00:41.680 able to do that. 0:00:41.640 --> 0:00:44.640 In an intelligent way that we'll I did's ride on 0:00:44.680 --> 0:00:47.280 it with two other people. That was dangerous when I 0:00:47.320 --> 0:00:47.840 was really young. 0:00:48.560 --> 0:00:51.240 But we do want to start with Alan Greenspan in 0:00:51.280 --> 0:00:53.360 the legacy because early in your career, I mean, he 0:00:53.440 --> 0:00:55.720 was the FED chair. You knew he was it. 0:00:56.680 --> 0:00:59.320 He was a legend. So I you know, if we 0:00:59.320 --> 0:01:01.480 put this in and I think it's very important to 0:01:01.480 --> 0:01:05.600 have context around this. He started his position as chair 0:01:05.680 --> 0:01:08.199 and nineteen eighty seven, he ended in two thousand and six. 0:01:08.520 --> 0:01:11.600 That's a nineteen year period. So for most people's that's 0:01:11.640 --> 0:01:14.399 a large chunk of their career. I started the business 0:01:14.400 --> 0:01:16.920 in ninety one ninety two. That's all I knew for 0:01:17.040 --> 0:01:21.040 fourteen or fifteen years of the starting point of my career. 0:01:21.840 --> 0:01:26.720 He was somebody that was not going to be challenged 0:01:26.760 --> 0:01:29.200 easily by other members of the FED. It's whatever he 0:01:29.280 --> 0:01:32.720 said went and that was it. But he also did 0:01:33.080 --> 0:01:36.039 a bunch of different things. He changed things at the 0:01:36.080 --> 0:01:38.000 FED in the sense that he made it a lot 0:01:38.080 --> 0:01:41.760 more transparent, if I could say those words. So, what 0:01:41.920 --> 0:01:43.960 the way the FED operated, and we take this for 0:01:44.040 --> 0:01:47.680 granted today that you find out on Wednesday at two 0:01:47.680 --> 0:01:50.240 o'clock what the Fed's decision was and we all go 0:01:50.320 --> 0:01:54.200 to work. Prior to green Span, it was vulgar. And 0:01:54.280 --> 0:01:57.240 what happened at about four fifteen four ten on a 0:01:57.360 --> 0:02:01.840 Thursday afternoon, you got money data. Based on what the 0:02:01.880 --> 0:02:05.400 money supply data was, that was the change in policy. 0:02:05.440 --> 0:02:07.200 You had to figure it out. Nobody told you if 0:02:07.240 --> 0:02:09.120 it was twenty five or fifty basis points you were 0:02:09.160 --> 0:02:11.840 guessing and you were trying to analyze and figure out 0:02:11.880 --> 0:02:15.520 what that was. So what green Span started to introduce 0:02:16.040 --> 0:02:19.840 through communications and things like that was what today we 0:02:19.960 --> 0:02:25.160 take for granted, was absolutely monumental in groundbreaking as far 0:02:25.200 --> 0:02:27.760 as saying, hey, by the way, we just hiked or 0:02:27.840 --> 0:02:30.600 cut twenty five basis points and that's and that's all 0:02:30.639 --> 0:02:31.400 it is. 0:02:31.400 --> 0:02:32.079 Is it too much? 0:02:32.160 --> 0:02:34.919 Though, like would some say it's gone too far? 0:02:35.200 --> 0:02:37.800 So there's been iterations like there's there's pre green Span 0:02:37.880 --> 0:02:40.400 and then there's post green Span. Right, So what happened 0:02:40.400 --> 0:02:43.600 in the nineteen years subsequent, you know, from two thousand 0:02:43.600 --> 0:02:46.720 and six, say to two thousand and you know, twenty 0:02:46.760 --> 0:02:51.400 twenty six. What we've had now is Bernanki, Yellin, and Powell, 0:02:51.880 --> 0:02:56.120 they've all followed effectively the green Span mode, but they 0:02:56.200 --> 0:02:58.760 added on to it. Now. Clearly Bernanki had a very 0:02:58.800 --> 0:03:00.800 special situation in the financial crisis. He had to do 0:03:00.880 --> 0:03:05.160 enhance communications and things and things of that nature. I 0:03:05.240 --> 0:03:10.920 think that what is is it too much today? In 0:03:11.000 --> 0:03:15.520 terms of communication? I'm gonna say that it is a 0:03:15.560 --> 0:03:19.160 bit because what the FED is trying to do is 0:03:19.360 --> 0:03:23.080 they're trying to telegraph and televise too much such that 0:03:23.160 --> 0:03:27.120 they're actually directing and dictating how the markets should think 0:03:27.160 --> 0:03:30.000 about things, as opposed to what Warsh said, which is 0:03:30.360 --> 0:03:32.880 let the markets figure it out. I mean, so the 0:03:32.919 --> 0:03:35.760 way I think about it managed well, I mean, you 0:03:35.800 --> 0:03:37.720 know the way I think about Kevin Warsh. If I'm 0:03:37.720 --> 0:03:39.400 going to put him in this in this period of 0:03:39.400 --> 0:03:42.960 time from nineteen eighty seven to twenty twenty six, I'm 0:03:42.960 --> 0:03:45.160 going to say that what green what Worsh is trying 0:03:45.200 --> 0:03:47.960 to do is bring us back to the period that 0:03:48.160 --> 0:03:51.320 was pre Ben Bernanke. So it was green Span in 0:03:51.360 --> 0:03:55.280 the nineteen nineties, so very similar economic setup, too big 0:03:55.320 --> 0:03:58.280 cap X cycle, big productivity boom. You know that, you 0:03:58.320 --> 0:04:01.800 know that we're going through. And I think what Worsh 0:04:01.920 --> 0:04:03.640 is trying to do is bring us back to that 0:04:03.720 --> 0:04:06.960 period where he lets the markets assess what monetary policy 0:04:07.000 --> 0:04:10.080 ought to be, as opposed to what Greenspan did. Greenspan 0:04:10.240 --> 0:04:11.880 was the guy that really started to come in because 0:04:11.920 --> 0:04:14.000 the Vulcar and everybody else just looked at money supply 0:04:14.200 --> 0:04:16.040 M one, M two. They were you know, very very 0:04:16.120 --> 0:04:19.160 much and that's what they did. Greenspan was one who 0:04:19.160 --> 0:04:21.680 started saying, you know, we should think about GDP, growth 0:04:21.720 --> 0:04:24.679 in the labor market and inflation, and let's talk about 0:04:24.680 --> 0:04:28.080 inflation anchoring and all of these various things. Things that 0:04:28.120 --> 0:04:31.039 we think of today is very common, it was very 0:04:31.240 --> 0:04:35.159 uncommon at the time. So I'd say, let's give Kevin 0:04:35.240 --> 0:04:38.360 Warsh an opportunity. This is his moment in history. He 0:04:38.400 --> 0:04:40.839 wants to remake the FED. But this isn't groundbreaking what 0:04:40.920 --> 0:04:42.839 I think Warsh is trying to do. I think he's 0:04:42.920 --> 0:04:44.839 just getting back to a period that looks more like 0:04:44.880 --> 0:04:45.760 the nineteen nineties. 0:04:46.000 --> 0:04:50.440 So it's fair to say you see a hint or 0:04:50.520 --> 0:04:53.960 more of Alan Greenspan in Kevin Worsh today. 0:04:54.080 --> 0:04:56.880 Yeah, I do now now, Now, you know, whenever you 0:04:56.920 --> 0:04:59.440 compare somebody to like somebody who was a legend and 0:04:59.440 --> 0:05:02.400 somebody's just starting out, that's always a very very difficult 0:05:02.440 --> 0:05:04.880 you know. We'll see how Warsh does. Right, It's going 0:05:04.920 --> 0:05:07.960 to be a long journey and long road ahead. But 0:05:08.440 --> 0:05:12.320 I think on paper, conceptually, what Kevin Worsh is trying 0:05:12.360 --> 0:05:15.560 to do is get the FED back to a much 0:05:15.600 --> 0:05:18.680 more narrow focus, not as narrow as the Vulcar FED, 0:05:18.720 --> 0:05:22.239 which was just money supply, but something that's a little 0:05:22.279 --> 0:05:28.280 more growth, inflation, outlook, jobs market. But let's ease up 0:05:28.279 --> 0:05:31.360 on the communications. I think he's really just going back 0:05:31.400 --> 0:05:34.760 to a nineteen nineties green Span model right now. And 0:05:34.760 --> 0:05:36.680 that's my perspective. And a lot of people weren't even 0:05:36.720 --> 0:05:39.320 around in the nineties in this business practicing, right, so 0:05:39.320 --> 0:05:41.440 they don't really have a good perspective on this. It 0:05:41.560 --> 0:05:44.000 wasn't chaos, It was fine. You know, you just have 0:05:44.080 --> 0:05:45.800 to get used to the new there's a new sheriff 0:05:45.839 --> 0:05:46.160 in town. 0:05:46.279 --> 0:05:49.200 What's the downside of kind of where we are and 0:05:49.240 --> 0:05:51.119 what we expect from today's Fed. 0:05:52.279 --> 0:05:55.240 I think the downside is that there's a lot of 0:05:55.360 --> 0:05:58.320 mission creep with the FED. Right so now we have 0:05:58.400 --> 0:06:01.359 to put this in context as well. Prior to the 0:06:01.360 --> 0:06:04.160 financial crisis, we had this much more narrow This is 0:06:04.160 --> 0:06:06.240 what green Span kind of created. I mean, he opened 0:06:06.279 --> 0:06:09.320 it up more transparency than Bernank kicked the door wide open. 0:06:09.520 --> 0:06:11.920 He had to. We had a financial crisis, we had 0:06:11.920 --> 0:06:14.640 interest policy, we had QWI, we had policy rates at zero, 0:06:14.839 --> 0:06:17.159 so we had to find a way to communicate policy 0:06:17.200 --> 0:06:19.839 to the markets. I totally get it. But what happens 0:06:19.920 --> 0:06:22.720 is is that once the FED starts to have this 0:06:22.800 --> 0:06:24.920 mission creep and they start to be asked to do 0:06:25.520 --> 0:06:29.360 more and more, even from a regulatory standpoint, or even 0:06:29.400 --> 0:06:31.719 you know, the FED was being asked, what's your policy 0:06:31.720 --> 0:06:34.000 on climate? You know, you know, things like that. This 0:06:34.160 --> 0:06:36.800 is not what the Fed's job is. The FED and 0:06:37.000 --> 0:06:40.279 according to Kevin Warsh, should color in a very very 0:06:40.360 --> 0:06:44.160 narrow set of lines and stick to what their job is. 0:06:44.240 --> 0:06:45.760 Under Vulcar, it was money supply. 0:06:46.760 --> 0:06:49.919 Well, what if the economy has gotten more complicated? Climate 0:06:50.000 --> 0:06:53.000 change is an issue. Companies have to think about it, 0:06:53.080 --> 0:06:56.000 you know, because it is ultimately going to impact their 0:06:56.000 --> 0:06:56.560 bottom line. 0:06:56.600 --> 0:06:57.800 This does it affective duel mandate? 0:06:57.839 --> 0:07:01.680 I guess some might say, well it might, it can't work, Yeah, 0:07:01.720 --> 0:07:02.600 you can extrapolate. 0:07:02.680 --> 0:07:06.039 Right, So what Warsh is basically saying is don't ask 0:07:06.080 --> 0:07:10.240 me that question. That is an elected officials job to do. 0:07:11.040 --> 0:07:13.160 My job is Kevin Warsh, right, if you're Kevin Warsh, 0:07:13.200 --> 0:07:15.920 if you're the chair of the FED, is to is 0:07:16.000 --> 0:07:20.040 price stability in full employment and to really focus on 0:07:20.040 --> 0:07:21.200 the price stability component. 0:07:21.280 --> 0:07:23.480 But don't you sometimes need Okay, I'm going to get 0:07:23.480 --> 0:07:26.440 into trouble by needing a figure that's not political. But 0:07:27.360 --> 0:07:29.840 we understand that politics has certainly crept its way dim 0:07:30.080 --> 0:07:33.440 into the US Central Bank. But I think there are 0:07:33.480 --> 0:07:37.240 times we look at the FED chair, even if there 0:07:37.280 --> 0:07:40.119 is a political backdrop, as being kind of a voice 0:07:40.200 --> 0:07:43.680 of reason on all of these major issues that will 0:07:43.720 --> 0:07:47.600 impact economic growth globally, will impact corporate bottom lines, Like 0:07:48.040 --> 0:07:50.480 is it not important to have that voice of reason? 0:07:51.280 --> 0:07:53.680 It is absolutely important to have a voice of reason. 0:07:53.760 --> 0:07:56.480 But in a position like that, in the way that 0:07:56.560 --> 0:07:59.320 I believe that Warsh interprets it is that it's a 0:07:59.440 --> 0:08:01.120 very narrow remit. And one of the things that he 0:08:01.200 --> 0:08:04.800 said is that the FED should have absolute independence on 0:08:04.840 --> 0:08:09.000 a narrow set of items. Everything else this this is 0:08:09.040 --> 0:08:11.120 not this is what the FED is. That's not what 0:08:11.160 --> 0:08:14.400 the FED does. And I think keeping that very very 0:08:14.440 --> 0:08:16.760 clear and setting these boundaries, right, you know, we all 0:08:16.760 --> 0:08:18.280 have to set boundaries, right, you know, this is a 0:08:18.360 --> 0:08:21.840 very important aspect of things. Is like, look, don't ask 0:08:21.880 --> 0:08:24.080 me these questions. I mean, these aren't questions that are 0:08:24.080 --> 0:08:27.000 for Kevin Walsh, right, you know. So that's what he's 0:08:27.040 --> 0:08:30.080 basically saying, And what he's basically what he says ultimately 0:08:30.560 --> 0:08:32.640 is that the FED can do its job better if 0:08:32.679 --> 0:08:35.079 it's just doing the job that it was tasked to do, 0:08:35.200 --> 0:08:37.680 but is not being asked to solve all these other problems. 0:08:37.720 --> 0:08:39.800 In the words of j. Powell, will stick to our 0:08:39.880 --> 0:08:42.600 knitting is what he said over and over exactly right. 0:08:43.000 --> 0:08:45.160 So it just reminds me of that sort of go 0:08:45.280 --> 0:08:47.480 to for him. We're speaking with Jim Karen, the CIO 0:08:47.520 --> 0:08:51.520 of Portfolio Solutions at Morgan Stanley Investment Management. So, so 0:08:51.559 --> 0:08:54.200 what does all this mean for rates under a Warsh regime? 0:08:55.080 --> 0:08:56.800 So this is pretty clear. 0:08:57.240 --> 0:08:59.559 Yeah, it was in the market in a very clear way. 0:08:59.600 --> 0:09:03.520 The market well yeah, so I have a very out 0:09:03.520 --> 0:09:06.480 of consensus view on this, Okay, Okay, so I actually 0:09:06.520 --> 0:09:11.480 think Warsh was more dubvish than what the markets thought. Okay, 0:09:11.880 --> 0:09:15.880 so I know what he said in a traditional interpretation. 0:09:15.400 --> 0:09:16.400 So market's got it wrong. 0:09:16.559 --> 0:09:21.000 I think so so so effectively under a Bernanky, a Yelling, 0:09:21.080 --> 0:09:24.080 and a Powell. If that's your mindset, and say, look traditionally, 0:09:24.120 --> 0:09:26.040 if I think about what war said and I use 0:09:26.200 --> 0:09:30.240 that framework BERNANKI Yelling, and Powell, then yes he was 0:09:30.280 --> 0:09:33.120 absolutely very hawkish, right, you know, you know, there's no question. 0:09:33.600 --> 0:09:35.640 But I think if you read between the lines and 0:09:35.760 --> 0:09:38.199 listen to what he's really saying. What he's saying is 0:09:38.240 --> 0:09:40.840 that like is he's going to create these task forces 0:09:40.920 --> 0:09:43.040 in terms of like, so, how do we think about 0:09:43.080 --> 0:09:45.560 the data. So if you were to ask me a 0:09:45.600 --> 0:09:48.800 week ago, two weeks ago, what is the Fed's most 0:09:48.840 --> 0:09:52.400 favored measure of inflation, I'd say core PCEE. That's the 0:09:52.400 --> 0:09:55.160 Fed's favored measure of inflation. Today. I don't know what 0:09:55.200 --> 0:09:57.160 it is. I don't know what the task force is 0:09:57.200 --> 0:09:58.880 going to say that it is. Is it year over 0:09:59.000 --> 0:10:01.280 year PC or is it month over month or is 0:10:01.280 --> 0:10:03.240 it three month over there? This is what the task 0:10:03.240 --> 0:10:05.720 force is going to figure out. So the market, I think, 0:10:05.800 --> 0:10:08.120 for the next six months until this task force gets 0:10:08.200 --> 0:10:11.720 us all done, is going to be very confused as 0:10:11.760 --> 0:10:15.400 to what the inputs are to the fed's large scale 0:10:15.520 --> 0:10:18.200 policy model, which is there what they call the FURBUS 0:10:18.280 --> 0:10:21.400 model Federal Reserve Bank of the US model. And what 0:10:21.760 --> 0:10:23.640 Warsh is doing is he's not saying I'm going to 0:10:23.760 --> 0:10:26.600 change the model. What he's saying is I want to 0:10:26.600 --> 0:10:28.839 look at different inputs. I want to look at labor 0:10:28.920 --> 0:10:31.120 data in a different way. I want to think about 0:10:31.120 --> 0:10:35.760 productivity differently. Kevin Warsh is a supply side economist. He's 0:10:35.760 --> 0:10:38.839 going to start to create a lot of supply side 0:10:38.960 --> 0:10:41.920 indicators to inform him as opposed to the more traditional 0:10:41.960 --> 0:10:46.960 demand side components of the economy and those indicators. This 0:10:47.240 --> 0:10:49.520 is in my career and I've been doing this since 0:10:49.800 --> 0:10:53.679 ninety one ninety two, so about thirty four years. Is 0:10:53.760 --> 0:10:57.440 the most monumental shift that I've seen take place. I 0:10:57.520 --> 0:11:01.000 inherited Greenspan. When I started, Greenspan was there. That's all 0:11:01.040 --> 0:11:03.199 I knew. This is a major shift. And I think 0:11:03.240 --> 0:11:06.760 that people are underestimating how monumental of a shift this is. 0:11:06.760 --> 0:11:08.880 And where they going to get it wrong is by 0:11:08.920 --> 0:11:12.280 applying what they've learned over the last twenty five thirty 0:11:12.320 --> 0:11:15.160 years under a green Span to then say, oh, well, 0:11:15.200 --> 0:11:17.320 this is what it's This is how I would interpret this. 0:11:17.800 --> 0:11:20.000 I think the rules or the ground is shifting. Not 0:11:20.080 --> 0:11:21.839 the rules have change, but the ground to shifting so. 0:11:21.800 --> 0:11:23.840 Good that it's shifting. Could that we kind of take 0:11:23.840 --> 0:11:25.959 a look at a system that we've been kind of 0:11:26.320 --> 0:11:27.960 moving along for a long time. 0:11:28.120 --> 0:11:30.280 Well, I mean, you know, changes happened, right, So green 0:11:30.280 --> 0:11:32.720 Span changed it right when he came in because he 0:11:32.760 --> 0:11:35.080 felt that and you and you mentioned yourself the economy 0:11:35.120 --> 0:11:37.800 has changed, right, So when we look at labor data 0:11:37.840 --> 0:11:41.760 and labor statistics, I think the data has been challenged 0:11:41.760 --> 0:11:44.880 for the last five years. The non farm payroll data 0:11:45.000 --> 0:11:47.280 for me used to be the sun rose and set on. 0:11:47.360 --> 0:11:49.640 The non farm payroll data for me for most of 0:11:49.679 --> 0:11:53.600 my career, last five years not very informative. Weekly jobbles 0:11:53.600 --> 0:11:56.000 claims were a bit better. So I think there's a 0:11:56.040 --> 0:11:57.080 lot of challenge to the data. 0:11:57.240 --> 0:11:59.480 So what is the what's the bat I mean, there's 0:11:59.520 --> 0:12:02.120 no single best piece of data, but what's replaced the 0:12:02.200 --> 0:12:03.240 non farm payrolls. 0:12:03.000 --> 0:12:05.600 So this is what Worsh is trying to figure out 0:12:05.720 --> 0:12:10.520 in terms of looking at the is using this task force. Right, 0:12:10.720 --> 0:12:13.040 So you've got this other series, this Quarterly Census of 0:12:13.480 --> 0:12:17.160 Employment in Wages a QCEW series. This is the thing 0:12:17.160 --> 0:12:20.880 that constantly gets revised or revises down the monthly non 0:12:20.920 --> 0:12:23.760 farm payroll numbers and things like that. So so what 0:12:23.880 --> 0:12:26.880 I think Worsh is going to try to do is 0:12:27.080 --> 0:12:30.320 use more real time estimates of the market and to 0:12:30.360 --> 0:12:33.480 try to understand whether it's inflation data, maybe even shorter 0:12:33.559 --> 0:12:35.920 term measures. I'm not saying that we're going to live 0:12:35.960 --> 0:12:38.160 and die by the weekly jobas claims number. But I'm 0:12:38.200 --> 0:12:40.000 just saying, you know, you've got jolts, you've got these 0:12:40.040 --> 0:12:44.800 other surveys, you have other industries that create surveys of 0:12:44.880 --> 0:12:47.600 data as well. Why not start to look at this 0:12:47.640 --> 0:12:48.679 a little bit more broadly. 0:12:48.800 --> 0:12:50.760 Well, it's interesting that you say that because we get 0:12:50.760 --> 0:12:53.000 PCE this week, right, and worsh is not so keen 0:12:53.280 --> 0:12:56.480 on this read in terms of inflation, Is he right? 0:12:57.080 --> 0:13:00.120 And is there something to maybe rethink about this two 0:13:00.120 --> 0:13:03.520 percent target that we obsess about that maybe that doesn't 0:13:03.520 --> 0:13:05.680 make sense because we can't seem to get there. 0:13:06.080 --> 0:13:08.240 Yeah, yeah, yeah, No, I mean, I mean this is 0:13:08.280 --> 0:13:10.760 you know, same thing the nineties. We didn't really get 0:13:10.800 --> 0:13:13.520 to two percent as a target either. We didn't even 0:13:13.600 --> 0:13:16.559 really have the target of two percent at that time, 0:13:16.640 --> 0:13:19.400 which is another thing. So maybe, as I'm saying, as 0:13:19.480 --> 0:13:21.480 Kevin Warsh is kind of going back to the nineties, 0:13:21.640 --> 0:13:23.960 maybe we should think about the target. Is it more 0:13:24.000 --> 0:13:26.240 of a range or is it a specific point target? 0:13:27.400 --> 0:13:30.160 And the other thing that I think is going to 0:13:30.160 --> 0:13:32.920 be very very different is that the way that the 0:13:32.960 --> 0:13:35.520 traditional way over the last twenty five years or so 0:13:35.559 --> 0:13:39.439 that we thought about controlling inflation was to adjust the 0:13:39.559 --> 0:13:42.360 jobs market. Right, So if inflation's running too hot, this 0:13:42.480 --> 0:13:46.640 is the irrational exuberance. How do you control inflation? You 0:13:46.720 --> 0:13:48.760 kill the jobs market, you create a recession, you get 0:13:48.800 --> 0:13:51.640 the unemployment rate up, you get prices back down, and 0:13:51.720 --> 0:13:54.880 you tamp down inflation. What Warsh is saying is that 0:13:54.920 --> 0:13:59.840 if you're in this period of higher productivity, then lower 0:14:00.080 --> 0:14:02.440 levels of unemployment. So an unemployment rate that say falls 0:14:02.440 --> 0:14:04.680 from four point three to three point eight or something 0:14:04.760 --> 0:14:08.680 like that, doesn't necessarily mean that it's going to be 0:14:08.720 --> 0:14:12.760 inflationary if it's because you're getting higher productive growth. That's 0:14:12.760 --> 0:14:17.200 a very supply side view of the world. And basically 0:14:17.240 --> 0:14:21.080 saying that if industry is creating more efficiencies, that doesn't 0:14:21.080 --> 0:14:25.800 necessarily create a higher inflation rate. So a lot is changing, 0:14:25.920 --> 0:14:28.560 and you know, it's a lot of people should really 0:14:28.640 --> 0:14:30.400 just you know, when they speak to say, Look, I'm 0:14:30.400 --> 0:14:33.080 not really sure, but what I think is as opposed 0:14:33.080 --> 0:14:35.560 to being so definitive. So I'm keeping a very open 0:14:35.640 --> 0:14:36.960 mind about all of this. 0:14:37.120 --> 0:14:40.440 Does aay I completely change everything that we're talking about? 0:14:40.760 --> 0:14:41.240 Possibly? 0:14:41.640 --> 0:14:45.200 Possibly, you know, I mean, I think the issues with 0:14:45.360 --> 0:14:49.920 AI that I have in economic forecasting is that it's 0:14:50.000 --> 0:14:52.120 kind of just going to look at the survey data. 0:14:52.120 --> 0:14:54.240 It's it's going to look at the available data sets 0:14:54.240 --> 0:14:56.600 that are out there unless you train it to look at. 0:14:56.760 --> 0:14:59.120 I just mean that from productivity for something. Oh yeah, 0:14:59.120 --> 0:14:59.560 that's what I mean. 0:14:59.640 --> 0:15:01.200 Hundred yeah, yeah, I see what you're thinking. 0:15:01.280 --> 0:15:03.880 Yeah, not on the data analysis, but just on productivity 0:15:03.920 --> 0:15:05.160 and what it does to this economy. 0:15:05.280 --> 0:15:08.360 So in my view, it does, right. So I think 0:15:08.400 --> 0:15:10.840 the productivity, I think you're going to get a lot. 0:15:11.320 --> 0:15:13.840 I think you can get higher levels of growth and 0:15:14.080 --> 0:15:16.920 lower levels of unemployment. But if it's more productive because 0:15:16.960 --> 0:15:20.520 AI is becoming more efficient, is going to be it's 0:15:20.560 --> 0:15:23.000 going to be a positive. So when we think about AI, 0:15:23.200 --> 0:15:25.880 people think about it in terms of profit margins, right, 0:15:25.920 --> 0:15:27.920 and today the way they think about it is it 0:15:27.960 --> 0:15:33.480 reduces costs, so more AI, less junior analysts, higher unemployment rate, 0:15:33.920 --> 0:15:35.920 and that's kind of the negative view of AI. I 0:15:35.920 --> 0:15:37.880 don't think it's going to work that way. I think 0:15:37.880 --> 0:15:39.920 what we're going to see is you're going to have 0:15:40.560 --> 0:15:43.520 more AI. It's going to create more demand. It's the 0:15:43.600 --> 0:15:46.960 Javon's paradox, right, Whereas when something becomes cheaper, you demand 0:15:47.000 --> 0:15:50.120 more of it, which is what I think AI is 0:15:50.160 --> 0:15:53.560 going to do. You'd have more people asking critical questions 0:15:53.600 --> 0:15:56.760 of this tool called AI, and we're going to be 0:15:56.840 --> 0:16:00.240 judging the results of these things, and ultimately, if you 0:16:00.280 --> 0:16:04.560 get better, more efficient decisions and higher productivity, these are 0:16:04.560 --> 0:16:07.040 the companies that you know that actually use this. These 0:16:07.040 --> 0:16:09.120 are the winners. There's a lot of creative destruction here. 0:16:09.160 --> 0:16:10.400 There are going to be winners and losers. 0:16:10.720 --> 0:16:13.720 Yeah, I agree. Do you think that that means that 0:16:13.800 --> 0:16:16.760 some of the companies we talk about NonStop could be 0:16:16.800 --> 0:16:18.240 a possible loser down the road? 0:16:18.280 --> 0:16:18.480 Yeah? 0:16:18.480 --> 0:16:22.880 Absolutely, right. So it's all about adapting and it's looking 0:16:22.920 --> 0:16:27.600 at companies that can actually use this tool very efficiently. 0:16:27.920 --> 0:16:30.560 So right now, there's a big productivity gap between the 0:16:30.560 --> 0:16:31.720 way that we evaluate this. 0:16:31.840 --> 0:16:31.960 Right. 0:16:31.960 --> 0:16:33.760 We're just in the infancy of all this stuff. Right, 0:16:33.960 --> 0:16:36.880 So if you ask any individual person, hey, do you 0:16:36.960 --> 0:16:39.600 use AI? Yes? I do. Are you more productive because 0:16:39.640 --> 0:16:42.680 you use it? Yes? I am Okay, Now go ask 0:16:42.680 --> 0:16:46.040 the CEO of that company if your employees thirty percent 0:16:46.080 --> 0:16:49.720 more productive? Are your profits thirty percent higher? And they're 0:16:49.720 --> 0:16:53.400 going to say I don't think so. Not yet. Over time, 0:16:53.760 --> 0:16:58.080 that gap, that productivity gap is going to narrow relative 0:16:58.120 --> 0:17:00.800 to the individual being more productive in the company, becoming 0:17:00.840 --> 0:17:04.280 more productive. Companies right now don't quite know how to 0:17:04.440 --> 0:17:06.760 use this tool efficiently or effectively. 0:17:07.200 --> 0:17:09.040 But I think the concern that a lot of people 0:17:09.080 --> 0:17:14.080 have is that, well, maybe when an employee leaves, that 0:17:14.200 --> 0:17:18.480 employee doesn't need to be replaced by headcount, and it's 0:17:18.520 --> 0:17:23.200 the margins that where you'll see and fewer people producing 0:17:23.200 --> 0:17:26.840 the same amount of work. Great for shareholders, not so 0:17:26.960 --> 0:17:29.679 great for those folks with jobs. 0:17:29.920 --> 0:17:33.160 Yeah, it could be right. So my take on it 0:17:33.240 --> 0:17:39.119 is that the real power of a powerful user of 0:17:39.200 --> 0:17:44.240 AI is somebody who can ask really good, creative, insightful questions. 0:17:44.840 --> 0:17:48.840 So the work that you know, whether it's software programmers, 0:17:49.040 --> 0:17:52.200 engineers that create a lot of the software, a lot 0:17:52.240 --> 0:17:54.720 of that work is going to get displaced, I think. 0:17:55.119 --> 0:17:59.280 But the people asking the questions, the more creative questions 0:17:59.280 --> 0:18:02.640 that come in that try to solve problems, I think 0:18:02.760 --> 0:18:04.960 that doesn't go away. And then you have to judge it, 0:18:04.960 --> 0:18:06.639 you have to interpret it, and then you have to 0:18:06.680 --> 0:18:09.040 apply it. And I think that's where the job growth 0:18:09.080 --> 0:18:09.720 is actually going to be. 0:18:09.880 --> 0:18:11.359 So maybe that liberal arts education. 0:18:12.440 --> 0:18:15.560 Hey one said a Boden guy here and a Colby 0:18:15.640 --> 0:18:18.399 guy here, We're getting along right now, Yes. 0:18:18.480 --> 0:18:21.159 Exact girl here, but no, but I think about that 0:18:21.240 --> 0:18:24.920 a lot like learning how to you know, ask the 0:18:25.000 --> 0:18:27.840 right question. And we keep talking about this too. It's 0:18:27.840 --> 0:18:32.880 not these basic simple questions. It's really complicated, smart, thoughtful questions. 0:18:32.440 --> 0:18:34.879 And the critical thinking that you develop when you're writing 0:18:34.880 --> 0:18:37.520 those papers late at night that now AI is writing 0:18:37.520 --> 0:18:39.680 for you. Unfortunately, so the kids aren't learning how. 0:18:39.600 --> 0:18:41.000 To do well think about it. I mean, like, you know, 0:18:41.280 --> 0:18:43.000 you may not be able to code, but you can 0:18:43.040 --> 0:18:45.720 ask a lot of really good questions, right, so there 0:18:45.760 --> 0:18:47.440 you go. I mean, and if you could ask really 0:18:47.440 --> 0:18:49.159 good questions, well, don't worry about it. The machine's going 0:18:49.200 --> 0:18:49.840 to code for you. 0:18:49.920 --> 0:18:52.520 Exactly. If you have a vision for something because you 0:18:52.560 --> 0:18:54.960 have an analytical mind, right, you have an idea for 0:18:55.000 --> 0:18:57.040 creating something, you no longer need to find that person 0:18:57.040 --> 0:18:58.960 to code for you. You can get clot code or 0:18:58.960 --> 0:19:00.719 code X from open air to do it for so. 0:19:00.760 --> 0:19:04.399 Albert Einstein said that the true measure of intelligence is imagination. 0:19:05.320 --> 0:19:08.680 It's not all these hard technicals. Is if you're very imaginative, 0:19:08.920 --> 0:19:12.360 that's actual intelligence. I'll go with Albert Einstein on this one. 0:19:12.600 --> 0:19:16.120 Yeah, it makes us think, you know, there are people 0:19:16.119 --> 0:19:18.639 who've been writing things about you know, you have to 0:19:18.640 --> 0:19:20.840 give you your mind, your brain kind of a moment 0:19:20.920 --> 0:19:23.320 to think, right, some space to think rather than kind 0:19:23.359 --> 0:19:26.520