Citadel CEO Ken Griffin shares his views on the markets and the industry in 2024 — 3/12/2024

[Music] conference attendees please welcome to the stage Citadel founder and CEO Ken Griffin and CNBC anchor Sarah [Music] Eisen hi everybody again Sarah Eisen with Ken Griffin who doesn't really need an introduction but runs world's most profitable hedge fund in history one of the biggest philanthropists and a bokeh native or you grew up here I went to high school here in bone here we are I went to ready for this bah High bah High boah I thought I think of you as a Chicago guy well now you're a Miami guy but yes Miami let's start with the news Ken um and we'll talk about Miami later on but just on on the news and on the markets we got an inflation report this morning that was hotter than than expected again the markets don't seem that concerned about it shrugging it off what what is your view right now on the inflation threat that we're facing look I the inflation number this morning was was actually pretty close to consensus it was not it was not I wouldn't say it was either hot or lukewarm it was pretty close to consensus big picture you know we still have an enormous amount of government spending and that's and we are also going through a a period of history with deglobalization that's West towards de globalization so should the FED be cutting rates at this point in time look I think they've been pretty clear they're going to continue to wait to see how the data plays out and if I'm them I don't want to cut too quickly the worst thing they could end up doing is cutting pausing and then changing direction back towards higher rates quickly that would in my opinion be the most devastating course of action they could pursue so I think they're going to be a bit slower than people were expecting let's call it two months ago and cutting rates and I think we're seeing that play out Market's expecting now three or four as much as four rate Cuts this year you think the Market's a little overe excited about it I I think the market is um looking at some of the increases in unemployment there's a little sign of softening in the labor markets and I think the Market's very focused on the belief that the fed's going to try to prevent us from heading into a higher unemployment regime so that would be the the case for more Cuts than the inflation Hawks might be hoping for which is I would rather see the inflation Genie put back in the bottle and resoundingly put back in the bottle before the FED starts to cut too fast it's helped fuel this rise in stocks that's continued in to 2024 we're at record highs how does the market look to you is this and that's that's part of the challenge right the fed the fed's trying to slow down the economy they're trying to take the wind out of the sales of inflation the Market's projecting multiple rate Cuts over the months ahead and then that's fueling increases in asset prices looser conditions looser Financial conditions and that makes it harder for the FED to actually achieve its objective of of cooling the economy enough to put the you think do you think they're making a mistake hinting at Cuts I I think I think that um I think it's got to be the worst job in America to be chairman of the fed the worst job in America the worst job in America no matter what you say it's a very powerful job uh not as powerful as you'd think well it's no Ken Griffin well no I mean here's the big picture you get to take as a given all the craziness that happens on Capitol Hill all right if we had an integrated set of fiscal policies with monetary policies then you'd be talking about a job that was really powerful and really interesting but but the people at the FED have to take as a given the the spending Insanity of Washington and try to figure out how to navigate the economy through these very powerful competing forces I mean to be blunt it's like an economics it's like an economics nightmare that's it is and they also have to be apolitical right they don't want to look like they're cutting into an election I I think you you've hit on a topic that they're sensitive to my guess though is that they'll do what they believe is right for the country push come to shove in terms of monetary policy they'll let the politics they'll let the chips fall where they may they'll do what they believe is right for America so as an investor what what do you do right now with a record high stock market is it time to be adding risk or pairing risk I look I think the stock market is the tale of many worlds right now you've got the Magnificent 7 you've got this incredible story that's just ripping through the equity Market about the transformative changes that are coming with AI and then you've got much of the market is at at earnings priced earnings levels that are far more in line with historical averages particularly across the industrial base so it's these are this a moment in time where you can you can in some sense you can sign up for big bold you know these companies are changing the future or you can put your money to work in areas of the market where price earnings ratios are much much more in line with historical averages and have a very different risk reward profile which one which one are you I'm so happy I run a hedge fund multi strategy multi strategy hedge fund I let my colleagues have to make those choices although you must have thoughts on on AI and the momentum that we've seen in some of these stocks and whether it looks frothy or it looks like we're at the beginning so none of us know where we are in this journey what I will tell you is the team in Nvidia looks like they're really on top of their game right now yes I mean there's no ifans or butts they have done just an incredible job this is like the the gold mining in California those that sold the picks made a lot of money and it's very clear that Nvidia right now sells one of the most important ingredients in the AI story they've done done an incredible job of capitalizing on it what's really interesting to see is that the large language models the barriers to the production of a worldclass model appear to be somewhat lower than we had thought they were 9 months ago or 12 months ago I mean if you look at just recent events you know anthropics most recent model release is a real competitor to what's been done at open Ai and that's that's one hell of a statement and in fact I think you could argue that there are you're not an investor anthropic right I'm not okay I'm not just see if I'm talking my book yeah sorry transparent no no go go on so so they're competitors we want to find out who the next Nvidia is I don't I don't know who the next Nvidia is going to be I don't you know I don't know where AMD is going to get on their race against Nvidia I don't know where Intel is going to get but right now Nvidia sits in a pretty good position also in the market there have been some worries some concerns were one year out from SBB collapse and Regional Banks commercial real estate has been a problem spot just last week New York Community Bank you were part of the capital infusion along with treasury secretary former treasury secretary Steven minuchin why did you invest uh a billion dollars into that bank which looks to have some problematic commercial real estate exposure and also I think has some problematic internal controls look the the question with every investment is about what whether or not it's the right price that's that's the fundamental of investing you know a building where rents have come down may still be an incredibly attractive building at the right price and for the risks intrinsic in um New York Community Bank I think that this is the right price and and to be clear Steve has an incredible record investing in the banking space he's very thoughtful on these issues I think if you wanted to know you know blowby blow how he how he thinks the bank should best be run to address the issues at hand you should ask them to join you live on TV because there are very few people in this world who are as talented as he and his team are at thinking about opportunities in the banking banking sector of the economy do you expect more ripples from the Regional Bank Fallout I I think we're going to see just a continuation of these one-off idiosyncratic stories over the next couple of years as both commercial real estate struggles and as the broader economy encounters various different idiosyncratic setbacks so we'll see we'll see more of these stories over the years to come are there any risks out there whether it's commercial real estate or others that you don't think are adequately priced into the market right now look I I think the biggest issue that's not priced the market right now is is The Sovereign risk of Us credit Us credit Us credit AAA credit that's not AAA anymore right I wish you were trip AA you think that should be better priced in bonds I I think that it's just not part of the day in and day out dialogue and that allows Washington to continue to spend at levels that are are borderline in sanity at this point in the economic cycle I mean we're talking about a budget next year of7 trillion spending is up about 20% in two years I mean this is just out of control and unfortunately when when your Sovereign markets start to put the hammer down in terms of of discipline that could be pretty brutal and there's no country that's going to bail America out we're going to have to write our own ship there's no IMF for the United States of America but as long as people still want our bonds and our dollars and we're the reserve currency it's okay isn't it well that's that's the key question which is will we start to see a loss of confidence in owning an ever increasing stockpile of US debt particularly amongst countries with whom our Behavior has become ever increasingly adversarial over the last couple of years so it's a really interesting question we're going to have to turn more and more to funding our domestic liabilities with domestic money do you think treasuries are risky BET right now I don't think they're a risky bet at this moment I just think if you ask what risks underappreciated by the marketplace I think that risk is underappreciated by the marketplace because the story on the US right now is it's it's the main game in town we're outgrowing the rest of the world um we we had a conversation this morning with the exchange panel there's transparency even on regulation which I know we can talk about um and that a lot of capital is just coming into the US China's got issues it's slowing down their politics Europe isn't growing do you do you disagree with that do you see better alter so I think holistically in the western world there's a demographic challenge which is which is slowing apps of growth across all the major Western economies and there's there's no doubt that right now the rate of technological innovation continues to be extraordinary in the United States and that brings Capital here and the AI Revolution is sort of this hope for a productivity GameChanger that will allow us to put our fiscal house in order and we're going to ride off into the sunset with no problems the challenge is is that it's not clear to me that we're going to get the productivity gains out of AI that the Market's broadly hoping for we're certainly going to see it in certain areas is you know we we we've spoken in the past you and I have about the impact for example in call centers and a major company that uses call centers talked about how they let go of 700 people by using AI to assist their call center productivity now the downside of that that's a lot of jobs that are entry-level jobs that just disappeared the upside is it does show where you can find productivity gains but I think that the the C change of productivity gains that people are hoping for are still a still a fair ways away on the horizon they're not they're not close they're not they're not about to happen in the next 12 or 24 36 months what about how it could change investing I know you've been experimenting with it at Citadel I'm sure you've been using AI for years and and now experimenting with generative AI how do you think it changes that game so I I think it's really important to when we talk about AI there's machine learning which Google revolutionized for the whole world with the introduction of tensor flow and we have been a substantial user of machine learning Technologies since literally days after Google release tensor flow to the world and it's made a real difference in how we invest Capital large language models which is what generative AI is is Created from is is a new phenomena open AI of course being you know the company that comes to mind first in the space and what we're seeing there is the ability to have incremental gains whether it's in software development productivity in helping to produce memos and other written work in helping to manage classify data we're seeing some interesting use cases for it but I do not see some of the hope for gamechanging outcomes that other people talk about when it comes to the use of llms like what look I think there are people that have a fantasy that LMS are going to tell you which stocks to buy and it's just a fantasy just a fantasy but wouldn't they be smart enough to tell you which stocks to buy no because they're not smart they're just programmed they are very good at thoughtfully regurgitating what is available to us on the worldwide web that's what they're very good at which is why Citadel will do well and others I think that active managers that are really taking the time to be thoughtful about what businesses are creating competitive Moes products valued by consumers will have an important role to play in this post llm world I think that the audience would be happy to hear that the audience should be happy to hear I mean it's just it's just it is reality yeah well since we're at the Futures industry Association we have to get to this very sexy topic of Regulation which we talked a lot about today this morning and I know you have very strong strong thoughts on and strong views on on which way our country is headed and what to make of some of the proposals from our regulatory leaders Gary Gensler I know you're a fan oh we're best friends I mean like Snapchat besties uh Gary I hope you're saving your messages too because I'm not saving my Snapchats with you which is your favorite proposal oh do I have to go there look you know first of all um you know chairman gunler as the head of the CFC did some really important work in reforming clearing of derivatives in the United States and I would say that his tenure as chair of the cftc most of us in this room would agree with was a huge success for the markets in Futures and derivatives and I think everybody in this room would would would share that sentiment to various degrees I'm very GR ful for his successes at the cftc at the SEC I I find this to be a moment in time where there's a a bewildering quantity of regulatory proposals most of which appear to be Solutions in search of problems but the problems I just don't think are there and they come with an Incredible cost to to the entire industry where I don't see the value creation proposition either for American investors or American consumers American business or for any of us in this room who are part of the industry I just I don't see what we're trying to accomplish here so it's hard for me to comment on the regulation because I don't I don't really understand the goals so let's take climate they just finalized the climate disclosures it was water down from the original version but now companies have to disclose things like emissions so let's let's talk about this how well do you think the average company in the United States can actually measure that not too well okay so are we doing this for the plaintiff's lawyers or are we doing this for investors I'm just kind of curious investors the environment uh so but shouldn't they be able to measure it wouldn't that be responsible how about this if you're going to go on a on a strategy to reduce carbon how about thinking about addressing that at the source which would be for example a carbon tax there you'll actually get changes in Behavior here what you're going to get is a multi-billion dollar bill that Corporate America is going to have to pay you're going to see fewer companies go public which means less investment opportunities for American households and American retirees with fewer companies going public you're going to see less Venture Capital formation well with that you're going to see less R&D in America VC back firms at our public account for about 2third of all America's research and development budget so you see this as political this is 150% political and it comes at a really staggering price to the average American household which will be the price of a new drug that wasn't developed because the company never raised the capital to pursue its dream that's where you're going to see the bill paid it's going to be paid by all of us who don't have something in our future that we otherwise would have had or you know what's even worse it'll be built by a country that's adversarial to us and we'll have to pay them for it unintended consequences these are huge unintended consequences do you weigh in when Gensler when they when they ask for comment on some of these proposals uh I think we probably have several 100 Pages if not a thousand pages of comments logged with with this Administration on their proposed changes in capital markets and for the most part are they heated are they are they considered I mean once in a while we find ourselves cited several times in Ru making and other times I think we're just sort of thoughtfully um overlooked it gets to a broader problem and the reason we're thoughtfully overlooked is we do real analysis like we crunch the numbers like what will this legislation do for our Capital markets and were there are good aspects we'll talk about that were there are negative aspects we'll talk about that Citadel does well when America's capital markets flourish we're the largest market maker in the US Equity Market I want to see companies going public in the United States I want people to say my dream is to have a company listed on the New York Stock Exchange or NASDAQ and I'm going to make that happen and we as a beneficiary of the of the robustness of our Capital markets want rules and regulations that are going to encourage just that to happen so we spend an enormous amount of time and energy trying to thoughtfully provide constructive feedback back to the policy makers in DC to make our markets more vibrant and more efficient I was going to say it gets to a broader problem that you've had with this Administration around regulation you and I were talking about it didn't get a lot of attention but the the ban on natural gas exports or pause on natural gas exports for instance okay so actually this is always too fun just winding that's like red meat in front of a I knew you were hot to talk we just talked about climate change disclosure right all right you want less carbon in the world LG is an incredibly efficient way to help get us there is it carbon free of course not but what does it displace it displaces coal that's what LG displaces now when the United States and our Infinite Wisdom said we're not going to do any more LG permitting what did we say to the world keep using coal and by the way if they can't get their LG from the United States they're often going to have to acquire from countries that are again adversarial to the interests of the West I mean this is just an incredible story of catering cater ing to a part of your voter base domestically and and just ignoring the brutal reality that all you're doing is you're encouraging the rest of the world to burn far more coal it is absolutely mindblowing to me I think the administration would say that it it doesn't jeopardize our allies needs because we've already committed to that it's for future commitments for climate purposes but they don't want to build these LG export great so we're hoping that our allies become energy poor is that the foreign policy objective we're trying to obtain I mean let's be clear if you're not burning coal then you're going to burn out natural gas that you Source from Russia again in the future is that the rosy optimistic view I mean seriously yeah so so do you find the administration energy policies as a whole have you have you had a problem with it and do you think it'll be do you think it'll hurt them in the election hurt him I so I I don't know I you know I think if you look at where American voters are is the country heading the right direction or the wrong direction the numbers speak for themselves the American voter doesn't really know why but they know things aren't right right just hug step back unemployment's got a three handle on it inflation's back down to sort of upper twos 3% numbers real wages are growing real wages have growth and yet people when they talk about the economy miserable they're miserable and why are they miserable because they know deep down that the house our house is not in order that this this Collective set of regulatory tax and spending policies is putting America on the wrong course so you were backing Nikki Haley she's no longer in the race will you back Donald Trump can I just have a moment to be sad over Nikki not being in the race one moment well I mean like let me enjoy that for a few more days why wouldn't you back Trump look I just as I'm very critical of of the policies of this Administration I want to hear what Trump's going to do for the United States I want to see what his policy platform looks like and I think that by in some sense holding that line I have a bit more optimism we're going to see a bit more thoughtfulness in policies and a little less in the realm of just rhetoric now what we do know is that the four years that Trump was President we pursued a set of regulatory policies that were incredibly progrowth we did see real wage gains starting to play out before the pandemic hit and we saw we saw a bold experiment on tax policy unclear how that was going to end but we were certainly seeing real productivity gains for the first time in a long time so I think I think the American people are saying under Trump I don't really know about certain parts of of what that Administration represents but I do know that from an economic perspective I felt better and I think that people felt from a national security perspective they felt safer but I still think it's time for for president Trump to come forth with what are his policies for America going to be and to share those with the American people we've gotten Snippets and one of them is tariffs and he has pursued that policy in the past and he appears to be wanting to continue to pursue that policy is that good I think that's regretful regretful I think it's regretful with China I think the United States being globally integrated and globally competitive is our best path forward in the short run tariffs of course boost boost profitability for American companies but on the backs of American consumers that's not the right way and American companies have a short-term gain from tariffs but they lose their long-term competitiveness that sort of protection protectionism doesn't encourage them to be the best they can be so short run better for American profitability long run bad for American competitiveness short run bad bad for American consumers and I really think here you know I I hope somebody just sits down with with with the president and says let me walk through who pays the price of these tariffs it is the person on Main Street who picks up the bill for that do you think Trump's going to win right here right now elections tomorrow yeah he wins it but we'll be up late last time we were up pretty late really late last time yeah really late I was on at 2 in the morning and here's here's the but you backed him last time what you backed him last time didn't you I I I didn't back him last time he ran you didn't you backed him during his administration oh I when he was in the White House had a fantastic working relationship with with with the president and with his team and and I'll give the president credit he listened he listened he cared deeply about the American people and he's very different in a small room with a small number of people he really engages in problems he really tries to get to the heart of the matter he really tries to do what he believes is best for our country you see in his choice of words you see in his actions you see in his demeanor he's very different than the person he's often personified by in the media or in the Press it's actually it's actually quite touching to be blunt it's it's surprising to be right to the point but I I will tell you that you know during the pandemic worked with him extensively whether it was on economic policy or operation warp speed or you know I brought five plane loads of Americas Americans back from muhan China and did that with Mike Pompeo secretary of state so we did a lot together during the pandemic and then other issues that's that connectivity with the business community that the president really thrived in I I don't see what this Administration how should investors think about another Trump administ rtion look I think for investors overall a trump administration's good for our Capital markets it encourages the sense that governments aligned with you and not opposed to you this goes back to the LG Point here America is unequivocally a leader in the world in energy production we we are a leader I mean it's unbelievable the the fact that American fracking has allowed us to become one of the great energy producers in the world now people who are very focused in climate go we're we're still producing fossil fuels yes we are we're producing natural gas and it's infinitely better than burning coal and by the way when we have the economic resources that go with the level of energy Independence that we have we have the fiscal flexibility this is an important concept to pursue Alternative forms of energy whether it be nuclear nuclear Vision nuclear fusion we need to find a cleaner more reliable source of energy in the long run than a fantasy that we're going to produce it all from Hydro wind and solar that's not going to work we need base load power that's cheap reliable dependable and scalable is that a good is that an interesting opportunity for you investing wise is that something you're you're big in right now you know I've personally invested in nuclear fusion I think it's an incredibly fascinating area of I mean if we if we crack the problem of nuclear fusion that's huge right it's huge like that is that's like that's one of the most game-changing accomplishments in the history of humanity and what's interesting is if you look at the Innovation taking place in the field of nuclear fusion you know where it's taking place in the US not in our universities not in our National Labs it's taking place in the private sector where billions of dollars are coming together to solve problems that have befuddled us in our National Labs for decades now why is this money more effective in the private sector because it'll take bigger Bolder risk if you're trying to write a grant request to the government you're always thinking about like well what little incremental change can I make that I'm highly confident is going to work so that if I get this grant there's no chance I will look like I have failed because if I fail they won't give me another Grant whereas in the private sector you know what we do all the time moonshots we do moonshots like we just go all in on ideas and so although we have less capital in the private sector than we have in the in the government sector we've got the willingness to take risk to make those Moon shots happen speaking of I wanted since because of the crowd and because of where we are I want to ask about Citadel Securities which was born how many years ago now 20 years ago 20 years ago you already had one of the biggest and most successful hedge funds why did why did you create what is now one of the largest trading firms market makers in the country well actually a number of the people in this room were on the moonshot of how can we Revolution revolutionize markets with electronic trading you did that we did that all of us in this room did that and it has dramatically increased liquidity it has dramatically reduced the cost of of changing one's portfolio it has revolutionized it has revolutionized our financial markets I mean if you're a retail investor today you pay no commission to trade I you know I you know Gary G's like well you know they're still there's still uh payment for order flow Gary like when I was in the good old day as a college I was happy to have a quarter of a cent spread when I traded a stock 25 cents a share spread and to pay $29 in commissions today typical spread is less than a fraction of a penny and it's zero commissions right that's all that's all possible because the people in this room came together around a vision that we could use technology to move to a world of electronic markets and that has happened so what do you do next with it where does this go next we're seeing product by product move into that regime and that's that's been a transform formational change over two decades started in equities in options it's moving into fixed income assets On The Run bonds for example now trade almost exclusively electronically it will continue to spread across the markets as a whole crypto if we had better regulatory policy better regulatory policy from who from the you should you should send that in your WhatsApp to again Snapchat again right s chat you want better better crypto policy yes we do because when you have regulatory Clarity you'll bring the big players into the space and that again will drive down the cost of trading it'll drive up resiliency in the markets and it will drive out shyy characters you know one of the things that that markets that are poorly regulated do is they create space for for Bad actors to live in when markets are transparent when they're thoughtfully regulated you push out Bad actors and you encourage more thoughtful both asset allocation and capital formation would you take Citadel Securities public is that a consideration it's a debate it's a debate and unquestionably over the decades to come it will will happen but here now it's a debate that's good that's more than I thought you'd give me on that and can we're we're we're here in South Florida I do have to ask you about Miami and how it's going it was a few year two years ago now that you that you made the big decision to go from Chicago to Miami bringing Securities and the hedge fund you've invested a lot of money in real estate here and have spoken very highly about what what do you call it Wall Street South Wall Street Wall Street of the South how's it going yes this is Wall Street how's it going yeah I mean in in like just a few words it is spectacular are you finding the talent down here we we have always recruited people from around the world to work at Citadel so what does here mean for us here means planet Earth if I met our partner's dinner I mean people are there from from Africa from Asia from South America from North America it's like the United Nations is our partners dinner so here is the world and we try to bring the best and brightest people from around the world to work at Citadel in fact that's that's a big part of the success story of American Business is we have that mindset it doesn't matter where you came from it matters what you bring and if you bring to the table a richness of ideas and a strong work ethic you can do incredible things in our country and I do hope that we do get immigration policies right under either Biden or Trump and we encourage we encourage the best and brightest from around the world to come to America to work for American firms to pay taxes in America and to contribute to our country can you sound like you should be running for president I run Citadel we'll leave it there thank you very much Ken Griffin thank you [Music] very

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Id: SIwcCy5zg5E

Length: 37min 30sec (2250 seconds)

Published: Tue Mar 12 2024