Thank you very much, Gunjan. And good morning everyone. And a big thank you to Ken for joining us today for a discussion about who knows where it's going to take us, Ken. We'll see. But it's almost impossible to know where to start. There's so much going on in the markets, in the world, certainly in the news cycle. So I thought I'd start with a very simple question. Somebody's just handed you a suitcase of freshly minted dollars. What are you going to do with those dollars?
This sounds like a trick asset. A know your customer ALM question. Sounds like I need to call the FBI and go, I've got a suitcase full of cash here.
Okay. After you've done that and they've said it's fine, you can keep them.
So, we've got clean money.
Great. So, first of all, thank you for being here in South Florida.
It's my pleasure. The weather notwithstanding, it's still about 40 degrees warmer than New York.
True. So, yes, 55 is freezing, but it's not truly freezing.
So, if I was handed a suitcase of money today, this is like such a strange way to frame a question. Look, what investors need to focus on is what is the purpose of their portfolio. And so if you're in your early 20s, your investment objective is very different than if you're in your mid-70s and you need to always invest your money from the vantage point of what you need to achieve with your investment portfolio. So if you're in your 20s, even though the equity markets is somewhat frothy right now, you're still going to be investing the preponderance of that money in equity markets around the world. And if you're in your mid-70s, obviously you worry about inflation. You worry about downside risk. You worry about the fact that you don't have 20 or 30 years potentially as your investment horizon. You're going to have much more of that money invested in TIPS or in commercial real estate or in other assets that have greater protection from the potential damaging influence of inflation.
But let's say the investor is you. It's your money. Where would you put it?
Well, so I actually know my investment portfolio and my partners and I at Citadel, we're the largest investor in our hedge fund and we deploy that capital across a variety of alternative investment strategies. But that's a very different question because I have a chance to work with dozens of the world's best investors and they get to deploy the capital to partnership across really interesting opportunities from the energy market to equities and it's a really fun place to be a part of.
Good. What he hasn't said is what he said to me behind backstage, which is he'd put it under his mattress. But sorry, she had way too much fun with that.
Right. Okay. On to more serious matters. Debt. Now, you've always made it very clear that you think debt levels in this country have got too high. The national debt is now running at exceeding 38 trillion and off the back of that there's some evidence of a sort of sell America trade going on. So my question to you is, do you think we're witnessing the early stages of a genuine challenge to dollar primacy?
Look, the US dollar has lost some of its luster over the last 12 months. There's no doubt about that. And I do believe that the United States is unquestionably still one of the great safe harbors in the world. And there's a bit of an irony here. The United States from a geopolitical perspective is asserting its strength in very profound ways. If we look for example what happened in Venezuela just a few days ago, the United States pulled off a military mission that was in some sense almost like it was out of a Mission Impossible movie. Like can you believe we actually extracted the leader of a narco-terrorism organization from his bed in his home country? It's incomprehensible. But the US military today has really reshaped the conception of what the United States is able to accomplish from a national security perspective. And at the same time, policies relating to tariffs, some of the rhetoric from the administration has taken some of the shine off of the dollar. And at the end of the day, I do believe that when it's all said and done, if you are the strongest nation in the world, you are going to be predisposed to having a strong currency. And that strong currency, that reserve currency status, reduces your cost to capital, brings down interest rates, all else being equal, increases the quality of living for those citizens of that nation, and allows us to engage in the global economy on a much stronger footing. Yes, it makes exports a bit more challenging, but the fact that we can amass so much capital and deploy it across corporate America is stunning. You know, if you think about it, there's very few companies in Europe with a market cap of north of 10 billion dollars. Anthropic raised that in a couple days just recently to fuel their continued growth in their AI business. I mean the juxtaposition between the strength of America's capital markets and virtually every other country in the world is breathtaking.
And we want to protect that ability for American firms to raise tens of billions or hundreds of billions of dollars, whether it's to build hyperscale data centers, whether it's to pursue pharmaceutical R&D, leaves us in an envied position by the rest of the world. So what do you think the administration needs to do to sort of make sure that that supremacy is maintained? Like is it on the right fiscal track to do that?
So we need to increase fiscal discipline in the United States. We're late in an economic cycle. We don't know if we're in the sixth inning or seventh inning or eighth inning, but very few cycles run as long as this cycle has run. And we're still running a significant deficit. At this point in the economic cycle, we should be running close to a break even. I mean, if you're not paying down your national debt at moments like this, when will you pay it down? And the fact that we're still running a very large annual deficit does tell you that too much of the economy is being supported by the sugar high of fiscal spending. We need to dial that back. We need to have more discipline in both spending and thoughtfulness in how we generate revenues. Like we need to put our fiscal house in order. And I do worry that that's lost attention and focus in Washington. And I know the president has to be frustrated. You know, his first term, his tax cuts were about reigniting growth in America, right? And to get Americans to in essence be bolder again, right? How do we increase investment? How do we increase productivity? And he's trying to play the same playbook again. But what I think is being missed in this analysis is the incredible amount of spending during the pandemic, right? That three-year era of profligate spending, just out-of-control spending. We need to deal with the reality that we need to pay that debt down. And America did this after World War II and America should be doing that again here today.
And how, I mean politically though it's a difficult needle to thread that one. How would you, if you had the president's ear, what would you say to him? What should he do to bring that deficit down?
Look, you know, in the United States, I'm not sure if I have the exact pronunciation right, but Simpson-Bowles was the committee formed decades ago to address this issue in a prior administration. You need, and I know this sounds very almost fanciful, you need to get bipartisan agreement on the steps we're going to take to put our fiscal house in order. And here's the big issue. Politicians deferring some of these decisions means that the impact of future decisions will be so much more painful for the American people. Like that's what we're really doing is we're not deferring some fixed amount of pain. We're going to cause far more pain 20 years down the road. I mean, could you imagine today being in your 20s and you see Social Security come out of your paycheck each and every year? Okay. Will the government safety net be there for you when it's your turn to retire? That's a legitimate question given the level of deficit spending we have today.
So, another area of pain, certainly one that you've highlighted a lot, is that of tariffs, which for the last year has been this sort of flip-flopping story. One minute they're up, one minute they're down, one country's is up, whatever. You know, only yesterday we learned that tariffs on India are going to be cut to 18%. How difficult is it to sort of come up with an investment strategy thesis when this backdrop keeps changing all the time?
So, you know, I've seen my colleagues firsthand have to grapple with this problem over the last year. I mean, all of us do in the money management business. You know, how do you create a portfolio when every single company that you invest in can have the terms of engagement changed by the stroke of a pen in Washington? And this goes to, you know, you often hear business people say just don't change the rules. All right? And you sit there and go like are they that inflexible? Are they that unwilling to change? Like can't they go with the flow? But the problem is that when you're running a business and you're trying to grow that business, you're making decisions that have horizons often of three years, 5 years, 10 years, 20 years. I mean we're building a new office building in New York for Citadel. That's a 50 to 100-year horizon decision. Okay. If you tell me the rules of the road are going to change every couple of years, you make that decision a far more difficult choice. If you tell me the rules of the road are going to change every couple months, I'm best off making no decision. Right. And that's where Washington needs to think about what is the pace of change it's trying to create in the economy and having certainty or having a higher degree of confidence what the rules of the road will be will actually help the president achieve his goal of, in my opinion, of creating more capital investment in the United States and strengthening America's manufacturing base.
So, talking of certainty, there was a big announcement last week, a new Fed chairman, Kevin Warsh. I wondered what you made of that appointment and also how you think he's going to manage in what's clearly going to be quite a tricky role.
Look, you know, the front runners in the choice coming into that decision day were Rick and Kevin. Both were outstanding candidates for the role and I applaud the president for picking somebody who has, and both choices were great choices but either choice would have represented choosing a professional with credibility with global investors who understands economics who will carry on the role of the chairman of the Fed to make the decisions that we need to make to balance the risk of inflation and trying to maximize full employment. So, I think the president made a really solid choice with Kevin, but I'm more impressed by a process that brought us to two really strong candidates at the finish line. You know, there's been a lot of debate around whether or not this administration was going to undermine the independence of the Fed and frankly, they did some things that made that a legitimate question. But the choice by the president here I think is a powerful assertion that the Fed will maintain needed independence in policy decision-making.
And then so on the issue of inflation, I mean you have said that, I've got it here. You wouldn't underestimate how grating a 3% inflation rate would be to tens of millions of American households. And you said that unless they get that under control, it could cost them the midterms. I'm not quite sure when you said that, but anyway, what's your message to the White House as we head into the midterms in November?
You know, it's really interesting that, you know, there are a couple of issues that the president won this election with. One was the border and the chaos that we had on the southern border of the United States. And the president has been true to his word. He has secured the border. There is no doubt that there's a huge sigh of relief across our country that we're now in a position to pursue a thoughtful legal immigration policy. Like that's a huge win by the president. And then the second area that was important or fundamental to the president winning the White House was the inflation of the Biden administration. I mean, prices in America rose at a stunning clip in some sense because of the same profligate fiscal spending we spoke about just a few minutes ago. And what we saw was the American voter doesn't like the inflation genie out of the bottle. And in particular, if you're in your 50s or 60s or 70s and you're seeing your purchasing power of your savings eroded, that's a very frightening place to be. Now, I give the Democrats real credit. In 12 months, they've changed the dialogue from inflation, where they got killed by this administration in the elections, to the dialogue being affordability. Like, we changed one word. All right. But what we're really talking about is the same set of issues, which is that for the American people, prices are a lot higher than they were 5 years ago. And the president, he's very right to be focused on how do I respond to the voters' angst and anxiety over inflation. The appointment of Kevin's a step in the right direction. The rolling back in tariffs on a number of goods that consumers buy day in and day out. It's a step in the right direction. The focus on housing affordability is a step in the right direction. I really do hope the president's able to make enough moves over the next few months to convince the American voters that he really is passionate about controlling the issue of inflation in the United States.
I wanted to ask you about sort of the dangers of crony capitalism. You are a big free market champion. You always have been. But there has been sort of, and you know you were very clear that you didn't like the regulatory burden of the previous administration, very outspoken on that, but now you've got a situation where the government is taking stakes in companies, you've got sort of talk about a credit card and a cap on interest on credit cards, you've got all the interference with tariffs and the attempt to reshore manufacturing. Do you think there's a role for that sort of interference given that America has to sort of take a stand against the biggest crony capitalist of all, China, or does that sort of behavior make you shudder?
Well, let's take a huge step back. Government has a really important role to play in the economy. It has an important role in the economy to ensure that consumers have fair and reasonable disclosure. Like when you're a consumer that picks a credit card, you should be able to get through the fine print pretty quickly and understand the cost and interest rates you're going to pay. Government has a really important role in the economy in preventing externalities. The archetype of that being pollution. You know, you can't just build a factory and dump your waste into the river in the backyard. You just can't do that. So, I think it's important to appreciate that no one when they argue for less regulation is arguing for a reversal of these very important policies that protect the safe and health welfare of the American people. But what we are seeing today in Washington is something different. We're seeing this involvement of government in corporate America in a distinctly different way than 20 or 30 years ago. We saw the green shoots of this in the Obama and Biden administration when the government started to invest into the various green energy companies and you and I both know a number of those companies ended up in bankruptcy and all the money's just in some sense disappeared and into where? And as a taxpayer, that's really frustrating. We have an incredible venture capital community in the United States. We don't need the US government to pretend to be venture capitalists. They're not. All right. You've got Sequoia and New Enterprise and A16Z. You've got tremendous number of great VC firms in the United States. You don't need the US government to pretend to be something it's not. And when the US government starts to engage in corporate America in a way that tastes of favoritism, I know for most CEOs that I'm friends with, they find it incredibly distasteful. Like we want to go run our businesses and win on the merits of providing a better customer to our products at a lower price. Like that's how we win. And when you start to say that you're going to win or lose because you get a regulatory favor out of Washington, do you know what you say? God, I mean, I'm close to this administration, but does that mean the next administration is going to grant a favor to one of my competitors or take a favor away from me because I don't support them publicly? Like most CEOs just don't want to find themselves in the business of having to in some sense suck up to one administration after another to succeed in running their business. They want to focus better products, better marketing, better distribution, more value created for their customers, some of which is shared with their shareholders.
So these are all great points and you know we live in a country where people really look up to corporate leaders. Why is it so difficult for the corporate world to sort of voice publicly the sort of thing you're saying now?
So I think there's a couple of challenges that corporate executives face on this front. You know what we saw over the last, you know, we go back over the last 10 years, companies that found themselves in the middle of the whole woke movement would find their products either embraced or ostracized by tens of millions of Americans overnight. And that's created a level of fear and apprehension amongst the corporate CEO class to insert themselves in any publicly facing issues these days. Like the power of social media to persuade millions or tens of millions of consumers to make a product choice is really terrifying to corporate executives. And I think it's put them in a very just intrinsically withdrawn position. And I think we want to think about this. Is it really good that the people that are so focused they create the jobs that we all need in our lives, do we really want to have their voices completely extinguished? They have very important voices. Otherwise, you crowd them out. You get the voices of like Mamdani. Like, good luck creating a job other than at the expense of a taxpayer. Good luck. Like, he's never built anything. We need the voices of America's corporate leadership in the halls of Washington, in the front page of papers to talk about the issues that we need to have for domestic prosperity. So, number one is social media has been a huge impact on the voice of corporate America. I mean, even just look at the backlash on Elon Musk, right? We can quibble back and forth and we can do more than quibble about some of the choices or things that he said. But you know what? The most successful business person in the United States walked away from his companies to commit himself to public service for months. We may not love everything he did, but we should admire that willingness to give up oneself to make our country better.
