Ken Griffin Discusses America’s Business Landscape, Policy Uncertainty and AI | WSJ

[laughter] This sounds like a trick asset I know your customer ALM question. Sounds like I need to call the FBI. So, I got a suitcase full of cash here.

So, we've got clean money.

Clean money. Great. So, first of all, thank you for being here in South Florida.

It's still about 40° warmer than New York.

So, yes, 55's freezing, but it's not truly freezing. So, if I was handed a suitcase of money, this is 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 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 want to 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.

Well, so actually I know my investment portfolio and my partners and I at Citadel were 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 chance to work with dozens of the world's best investors and they get to deploy the capital of partnership across really interesting opportunities from the energy market to equities and it's a really fun place to be a part of.

[laughter] Sorry.

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 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. 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. 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, 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 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 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 3-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.

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. 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 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 3 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. Yeah. 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 in 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.

Look, I, 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. 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 it's a powerful assertion that the Fed will maintain needed independence in policy decision-making.

You know, it's really interesting that 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's 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 cabinets is a step in the right direction. The rolling back in tariffs and number of goods that consumers buy day in day out is 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.

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 where 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. Now, 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 A16, you've got a 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 suck up to one administration after another to succeed in running their business. They want to focus on better products, better marketing, better distribution, more value created for their customers, some of which is shared with their shareholders.

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 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 that they create the jobs that we all need in our lives? Do we really want to have their voices completely extinguished? They're very important voices. Otherwise, you're crowding out. You get the voices of like Mondami. Like good luck creating a job other than at the expense of a taxpayer. Good luck. 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 you can just look at the backlash on Elon Musk. All 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.

I mean, of course it bothers me. Like of course it does, right? One of the things that you want to believe is that those who serve the public interest have the public interest at heart in everything they do. And I think that this administration has definitely made mistakes in choosing decisions or courses that have been very enriching to the families of those in the administration. And that calls into question is the public interest being served? And I think that there's just a necessity for us as a society to re-embrace some of the critical concepts of ethics and public service. You know, we saw the same problem with the Supreme Court several years ago. Wherever you see the signs of conflicts of interest, you give rise to concerns about whether the interests of the public are being put first and foremost by those in public service.

No.

No, I'm not.

I think it's more important to be just objective about it because that will then create the dialogue that maybe more will permit us to effectuate change. But if we just say, 'Oh, of course it'll get better.' That actually sort of misses the big picture, which is I think for example I think the work that you did at the Journal in exposing this story is the very work that we need to see done day in day out to keep the American public informed about the behaviors of our politicians on both sides of the aisle. And to help to create, you know the process has always been a very important part of the checks and balances in American society. It's a very important check on curtailing these types of conflicts of interest.

That's a great question. And I don't think it's going to be, I will dread these words in 9 months, I don't think this is going to be a major election issue in this cycle. And I, you've caught me thinking through a problem here, right? One of the challenges that exists is during the pandemic the labor markets were very tight. It was very hard to hire people. And across corporate America companies hoarded labor. Like, you know, I have a number of friends who are in the tech space, they would tell you openly that their workforces were 20% bigger than they were 30% bigger than need be. But they didn't want to let anybody go because no one knew what work from home was going to mean in terms of productivity. Clearly most of the country's gone back to work in the office but in that transition there was a lot of turnover of people. You know, Citadel put in place a thou must come back to the office very early and we lost a few percent of our workforce over that. For us it was worth it for the collaboration that goes with that, but like these are the kinds of issues that corporate America was navigating. Okay, the employment market today is still reasonably robust, but it's not as tight as it was 2 years ago. And companies are now saying do you know what? I can trim some of my workforce in areas that are not strategic. I can tighten my belt a little bit here at this moment in time. What a great headline. I'm sorry I'm letting you go because we've introduced AI in our business. It's just much more kinder and gentler than saying I've kind of employed you for the last 3 years, but I don't really need you. Right? So I think AI has gotten a lot of very negative headlines in terms of being the excuse that companies have used to trim their workforces down. But objectively I think very few businesses are actually seeing productivity gains that come anywhere close to the headline of job losses that we have seen. I just haven't seen it.

To move from Chicago or to move my art from Chicago?

Look, I couldn't, you know, there's a natural question here which is why did you leave Chicago? That's actually the more important question. We're actually in Palm Beach, Florida. So you're at the start of the pandemic. It's a respiratory virus. Most respiratory viruses are less transmissible in hot, humid environments. This is just science. So, we're going to open an office in one of the hottest, most humid parts of the United States that we can find. And we rented the entire Four Seasons just down the street. In about 5 days, we assembled enough technology and infrastructure that we could run the entire US equity market if need be from the ballroom of the Four Seasons in Palm Beach, Florida. And it was one of the coolest things I've ever seen done. We had 200 people working three shifts, five days straight. I mean, they brought in a portable truck with a generator that used in a hurricane to power the thousands of servers. Why am I sharing this? Because the government of the state of Florida was 110% behind us in transforming the Four Seasons into NYSE South if need be. Like the sense of we're in a national crisis and we will be a constructive partner with you as you literally turn a hotel into a trading floor, no problem. The people that came here, they lived in a bubble. You could not come and go from the hotel property, period. Like no one was allowed to come or go. So, think about the conditions they lived under, which were actually pretty good in retrospect because at least they had the company of a few hundred of their friends and family. When they moved back to Chicago, one of my most senior partners came to my office and said, 'I just have a question. Why did we come back?' And I said, 'Well, I mean, what do you mean?' He goes, 'Quality of life in Florida's better. In particular, the streets are safer. The schools are better, the weather's certainly better. Why do we come back? Why do we come back to a city that is gripped in violence, where the schools are failing the children, where it's very hard to recruit talent today because of these headlines? Why do we come back?' And since that moment in time, Miami has become our third largest office in the world, far bigger than Chicago. Everyone who's moved here has been extraordinarily pleased to be in a community which has so much positive vibrancy and energy. Like it's, I must tell you, it's really fun to go out with friends at night and just talk about how your kids are doing and what you're building and where your life's going. Whereas in Chicago, you frankly often end up talking about violent crime because it touched your life in such a profound way each and every day. So, having said that, this being home, this will be my home for the rest of my life, of course things like my art collection moved from Chicago to Palm Beach.

All right, like it's just not complicated once you understand the big picture. And I will tell you that the Norton's one of the great art museums in the Southeast United States, and it's been really great to see this museum really thrive under its current leadership over the last several years. It's really great to see that.

I mean, I always get asked is the market going up or down over the next 3 months?

Sure.

That's a bold question.

So, you know, I studied economics and government at Harvard. And have always had deep interest in public policy issues. You know, I like to believe that at a future point in my life, I will be involved in public service. I'm very grateful for the opportunities this nation has afforded me. But over the next few years, I love my job. I love the colleagues I work with. And I'm very fortunate to have a number of ties to friends and to acquaintances in Washington on both sides of the aisle. And I think that I've been able to have my voice heard on important issues. And I'd like to think that I've nudged the country in small ways in good directions. I mean, you know, the president and I worked on Operation Warp Speed together in the first administration. The flights out of Wuhan, Mike Pompeo and I made most of that happen together. So, you know, I found that this administration and for that matter the Obama administration were administrations that you could make meaningful things happen that benefited the American people. You know, in the Biden administration, we were able to take an idea that we funded in Chicago. A small group of us funded providing every child in Chicago in the pandemic with internet access. I mean, it's incomprehensible to believe that there are kids in America that did not have access to the internet. And there were tens of thousands of such kids in Chicago. That concept was rolled into one of the national infrastructure bills in the Biden administration. So, I'd like to believe that I can continue to pursue philanthropic efforts and efforts that do help to improve, let me give you just different words, to ensure that every single child in America can still get on that on-ramp to the American dream.