Become a nice tradition. This is, I think, our third time doing this together at the Milkin Conference.
Okay. So, I hope you're in the mood to talk, Ken.
Sounds great. Sounds great.
Well, what's new this year is we're in a war.
I feel like I'm being lured into a trap. You sort of have that sense.
Never. Never. No. Just an intimate fireside conversation with our friends.
So the war, I did want to start there. Obviously that's top of mind and I feel like investors here are trying to figure out what the economic and market implications are of this war, heightened geopolitical risks, higher oil prices. So far the market feels optimistic about it. How are you thinking about all of this?
So we're going to go from like the smiley introduction to the war. So, right.
Let's go from like a happy moment to a depressing moment all in 30 seconds.
It is. I mean, you know, there is an act of war in the Middle East. There are thousands and thousands of casualties.
And no matter how one wants to view the moral justification for the war, it is still a humanitarian crisis. And I applaud the president for having the willingness to actually try to ensure a nuclear-free Middle East. Like I don't think he has made that case strongly to the American people, but we should all sleep better knowing that he has set back the Iranians in their nuclear ambitions for years, if not decades, over the course of his time as president.
This room agrees, but the war is not popular broadly in America.
Like I said, I don't think the president has made his case publicly strong enough. I think if you take a step back and think about, you know, I'm a bit older than you are, and I look a lot older than you do.
Thank you. But, you know, when I was a child, there would be those drills in school where you would get under the desk and effectively pray to God as a nuclear weapon was going to strike your city and hope you were going to live in some fantasy world. And we have grown up, children today have grown up post the end of the Cold War without that fear. It's remarkable. And a nuclear Iran would put into question the safety and security of the people of our nation. So I applaud the president.
You think he's doing the right thing?
Look, I think that they have made many good decisions here, but they have encountered something that they did not anticipate, which is a military capacity in Iran and a commitment to the preservation of their regime that is completely different than what they saw in Venezuela. In some sense, the extraordinary success in Venezuela almost certainly led all of us to believe that we could have such a remarkable success in Iran. And Venezuela is one of the great political and foreign policy accomplishments of this decade. I mean, if you think about it, overnight a regime that was adverse to the interest of the United States disappeared.
And Venezuela, which is one of the great oil producing nations of the world, or potentially one of the great oil producing nations of the world, is now firmly in our orbit. It was a remarkable strategic outcome. All right. So, why hasn't the war in Iran impacted the stock market more? Well, first of all, there is a sense that the worst case scenarios are off the table. The Iranian military has been successfully contained, but they have not been defeated. In this stalemate situation, the price of energy has clearly gone higher. The United States holistically is largely shielded from that. Now, the consumer not, but fuel efficiency much higher than it was 30 years ago. Dependency upon automobiles for transportation less than 30 years ago on a per capita basis. The ability for our and our economy so much bigger than 30 years ago. Our ability to withstand this price shock in oil is much greater than it is in any time in the history of our country. So we have that. The other thing that we have is due to American ingenuity, we're energy independent. Now, we still need to import products and we export raw crude, but the United States as a net energy consumer is now energy independent from the rest of the world, which is just, you know, everyone forgets that fracking did not exist 20 years ago.
And it has literally freed our nation.
It's like and we can't even name in most cases the person who invented this technology.
I mean, it's like, do you know? Actually, I don't know right this minute and it's killing me.
But, you know, talk about unsung heroes.
We know the name Steve Jobs. We know the name Bill Gates. But the name of the engineer who developed fracking eludes me at this moment.
Right. And it literally has changed the entire trajectory of our nation.
We also have an AI boom which is helping.
We do. We do. But I think it's a broader boom. I think it's a technology boom.
Again, has created within the C-suite an embracing of digitization, again like a reanalysis of both our business processes, how we conduct business, how we use technology to further the interests of our business, how do we re-engineer our processes to be modern in the context of today's technology. And AI plays a role in that transformation, but I think the biggest transformation that's taking place is that corporate America is taking a step back and saying, 'How do we use technology to further our business interest?' I'll give you a concrete example. I was with a group of seven or eight of the world's largest companies, CEOs, and we're going around the table. I sort of set these games up. Everyone share with me the story of how you're using AI to transform your business because I want to know. I got six or seven extraordinary stories of how these companies were transforming their businesses. All of which involved technology, none of which involved AI.
That means that the subtle details of how the problems are being solved, they actually didn't know. But it doesn't matter. What they do know is that they've empowered their technology teams. They've empowered the people within their businesses that work on optimization and logistics to embrace technology more aggressively and they are transforming their businesses on the back of doing so.
So add it all together and it sounds like a very, I mean maybe it sounds like you agree that the outlook is okay and we can withstand the oil shock, the geopolitical shock. Stock market's at an all-time high. I think 5% higher than it was before the war.
Well, you made the question a bit different there. Okay.
Okay. We can withstand the energy shock.
Right. Many of the developing nations around the world cannot.
And that risks materially reducing global GDP and will have knock-on effects here in the United States if this stalemate persists. All right. So that's an important point. The United States as an economy directly shielded from most of the adverse consequences of the war. But if you're Pakistan or Bangladesh and you've had a curtailment, a literal curtailment of the availability of energy, your economy is already taking a major hit and that will spread across the developing world as energy continues to become more and more scarce. That will create the conditions for a global recession and the United States will unquestionably feel some of that pain if this persists for 6 months or 9 months or 12 months longer, that will happen.
What about the inflation problem? You know, we see it prices at the pump. How long-lasting and how severe of a problem do you see with inflation? Because there's a big debate. Is this short term or is it more persistent?
So, have you been to McDonald's recently?
Oh, yes. I haven't had McDonald's Coke since this morning.
Oh, you have Coke at McDonald's in the morning.
Absolutely. Do you have coffee?
Okay. You have your sin, I have my sin.
So, you know, 2.50 for a Coke. And before the Biden administration, it was 99 cents. The United States has endured prolonged and persistent inflation now for six years. And in some sense, the rise of gasoline prices at the gas station, it's like a triggering event. Like it just brings back to all of us the fact that the purchasing power of the dollar has declined so precipitously for six years now. You know, what do you pay for eggs in New York City today? Well, they're not as high as they were in the last, I don't know, year. They've come down a little bit, but still high.
Seven, eight, $9 for a dozen eggs.
Mhm. Right. Like the brown ones.
That's what we get at home. I could make so many jokes that I'm going to sort of skip that moment.
So, so the big picture is...
Do you buy your own eggs?
In a typical week, no, but I have been spotted at Target shopping for groceries.
So, so big picture is I think everybody in our country when we see a price shock in any of our day-to-day commodities, gasoline for example, it's just deeply triggering. And I think that there's just a general apprehension of how much more purchasing power are we going to lose because of the economic policies that we're pursuing in Washington. And I think it's very important that this administration and that the legislature continues to stay focused on how do we strengthen the purchasing power of the dollar? How do we make sure that Americans' paychecks go further?
How do you do that? What would you like to see?
Well, deregulation's a big help.
Well, they're doing that, right? They're doing that. That's an active focus of the administration. Increasing productivity is a big help. You know, people forget that what happens in a highly competitive economy like ours. If AI lets companies run their businesses more efficiently or for that matter if technology lets their companies run their business more efficiently, ultimately that value accrues back to the American people both in the form of their dollars go further at the cash register and number two is wages ultimately go up. You know, there's a constant focus. Why is Washington focused on the word productivity or why do economists always talk about productivity? Because higher productivity is the path to prosperity.
And we need to increase productivity in our country. We do that through deregulation. We do that through investments in research and development. We do that through educating our children to be the future leaders and scientists and engineers that our country needs. These are all mechanisms that we use to increase productivity. And I got to tell you, America needs to profoundly increase productivity over the years to come.
So, do you think the Fed will be able to do anything this year?
I think the Fed this year is probably on hold. You know, inflation, core inflation is still running above target and now the risks have tilted to the upside on inflation given the energy price shock and the labor market's strengthening again. So from that vantage point, I think the arguments that we saw, and it's hard to believe just eight weeks ago, 10 weeks ago, that we needed to cut rates further this year are looking a bit dated at this point in time. It's good to see the strength in the labor market starting to pick up again.
