N Hot Pepper Hot Pepper He what is up duties. We're coming back at July for a I guess a specialty stream of sorts and I know you guys might be thinking to yourself what's going on This isn't normal. This isn't the right time and you are 100% spot on. It is not normal.

It is not the right time We sense something's going on in. The Ether Something is a foot if you will and right about now we actually have Ken Griffin the owner and operator of Citadel The Hedge in Citadel Securities is doing some sort of like live talk so I basically want to tune in to make sure that no Sus stuff is going on and then if it is, If this ghoul as someone in here just called them is up to something, we'll be able to call them out in real time. But um, you know you got to keep an eye on your enemies type of a Vibe so we should have this live and ready to go. They are running some commercials right now.

let me make sure should be starting at 100 p.m. let me switch this up to you guys. Uh, what do we have going on here Matt Miller Let start with a quick check of the markets after a pretty incredible uh beginning of the trading session. um, the S&P 500 you can see now up 1.9% the NASDAQ gaining more than 2% the Russell 2000 gaining 4 and 23% and making up for all of the losses.

Year-to date, so the Russell 2000 had been down year to date and we're now just above unchanged I think it's gained about a half a percent in 2023. The Bloomberg US dollar Index off more than 1% or 14 points. It's the biggest drop that we've seen in this the in a year now. this is Bloomberg dollar Index showing um and I'm reading this for the Euro and the pound am mind the dollar.

Um, that's Bloomberg markets Tuesday 10 Griff 1M New York These moves the Big Driver after inflation Uh numbers came in in the form of CPI a lot cooler than had been anticipated. 2 year moves down 20 basis points the 5year down 22, um, the 10year down to 4466. Um, remember just October 19th. We were above 5% there.

Yesterday we were above 5% on the 2year and now we're down at 450 less than 450 on the 10 year, less than 485 on the 2 year, the US 30-year is down uh 11 basis points to Four Spot 6452. Some huge moves in yields and that really, Um has driven the moves in the equity markets as well. Here you can see uh a better shot of the 2-year and what we saw as I said trading for more than 5% The yields were more than 5% before this CPI data came out and then it just Dives down at one point to 482 and change we the to 482 and change reaction on Bloomberg to the US inflation print. Here's some of what uh people told us the data means to the FED.

We certainly see the early signs of a slow down, sort of gradually sliding into a softish landing. Potential for a soft Landing is still there waiting for that folks. Do not forget. Uh, if you want to join the Goon Discord you could get one month of free access pinned to the top of chat in the description of the video.

These were the trades I put out today. You probably can't see it, but check this out. Uh D P&l 3.5k already locked in 2.7 So it just have some like weird Runner positions on right now. but it's $30 a month after your free month.

I Mean this literally pays for over a decade of it. So does it provide value? I Think so Mqu locals.com pin to the top of chat in the description of the video. If you want to be in a group of like actual legitimate traders who are just trying to make each other a better Trader within the market. in just a few minutes, he's going to sit down and uh, they're going to fill these empty chairs.

um Ken Griffin and our own. Wall Street Reporter Shanal Bassic will get his take on what inflation means for the FED for the US economy and for markets. Next up though, let's go to our chief correspondent for Global Macro Markets Liz McCormack She's standing by Uh Liz Huge moves and I mean if it hadn't been for the fact that we've seen big swings like this the last couple of weeks, it would be I guess unprecedented right to see. um, such an amazing amount of volatility in the treasury market.

What do you make? First off, of the inflation numbers. Yeah. I think that array of Clips you played um I Would agree with those people that you know it. The bar is really really high now for the FED to keep hiking.

So I think those everybody saying they're done, they're done. they're done. I think people are going to lean into that. You know whether they prove to ease as fast as the Market's pricing? Okay, that's a second question, but I think you know we remember we got the labor data of course that finally showed more cracks now.

inflation coming in softer even like super core. The one they really watch was softer. So I think they're getting the numbers. They can definitely sit tight and and something has to happen really bad for them to reverse core.

So I I think that's what the market reacting like. some kind of like options Market picking up ever since 1222, 1225 options getting a bit more bullish at least their Peak let's kind of buy well and I look at I mean if I look at the workp function. um, we're pricing in now three or four cuts for 2024. Um, does that jive with what Drome Powell has been telling us I think SPX is about to touch 4,500 Again, well, no, only because he doesn't want to say anything I think all the FED officials which is smart of them, don't want to open the door, they don't.

They say we're not really talking about Cuts yet? um, only in kind of a surgical way. Etc Uh, we do have their Dot Plot Matt right which their quarterly updates show two quarter point cuts for next year. So that's in the official forecast from all the officials. like the median fed officials themselves as a group.

haven't said yeah, we're cutting, but if things keep going the way they are, you know I think they might have like I think Jay Bryson was just on in your clip saying at least sometime in the second half. So let let's be conservative. You know Market's pricing. Maybe it could come a little sooner.

Um, but let's just see if things you know go as they they are I think maybe at least in the second half. Let's say a quarter point two that maybe they fill their Dot Plot You know, as they predict what has to happen Liz Me: Do we necessarily have to have a very bad recession for the FED to cut? Or let's get to Griffin2 growth slows down to you know, a 1% level about is that going to be enough? Um, you know the labor market starts to weaken to the point that we're losing jobs. Is that going to be enough for the FED to cut rates? Well I Don't think Matt that's enough for the FED to cut as much as some of the Wall Street firms are saying like 300 basis points I mean that you're going to have to have a recession and a pretty bad one. Um, but like like we're saying they Dot Plot Why they're putting those in there um and again I Feel like we say this a lot, but it's like kind of the the math of how it works.

Uh, say inflation keeps going down. They keep the funds rate right where it is. Effectively, that's somewhat of a tightening right, because if you look at the real rate, you know the funds rate less inflation. If inflation's going down, they're getting tighter, so say they want to just ma maintain the level of restrictiveness.

I So I think they could cut even if we don't have a recession and Fed officials now and the staffers aren't calling for a recession. so you know I Think it's possible. but I Just think there's no way you're going to get these massive cuts that some on Wall Street are saying unless and then they're saying we have a recession so if that pans out and it's a bad one, then it'll happen. But otherwise I Just don't think so.

You know We've been through a decade where inflation was bumping up against 2% as a ceiling and um, the FED wants to take it back to that level. but if you look at the previous 50 years Liz you know before we had Zer um inflation averaged about 3% So does the does the FED really want to get it down to two or will be the they'd be happy with they wanted to get it to two. What a stupid question. Well I'll speak Jerome Pal's own words because he was asked this I think in the last presser and he said like because there's a lot of people saying to your point are are they changing the target, Are they willing to accept 3% And at least officially they're not saying they are, they're saying our Target is still 2% We're going to get there.

Of course it doesn't mean they have to wait till we're exactly two to you know, say that Miss should accomplished but that it's the trajectory seems clear enough. they get to it. So I think so I think they you know. Unless they do kind of a big review again and change that Target which it doesn't seem likely they're going to stick with it.

You know they and I I forget I'm losing track. We had a Fed speaker today saying it's not going to be a straight line to 2% so they sound you know they're being cautious. Uh, this is a good number and but you know, like the core rate is still at like four, you know? and they target Pce of course, but we're still above their target. So I I Don't think they're going to wave any flags that 3% is okay, right? Uh, Phil Jefferson Was speaking today with the Snb's Thomas Yordan.

Um, so that must have been who it was in terms of the growth. Uh, trajectory that we're on. Does it look like to you, um, that we're going to see a recession next year because we've just had almost 5% growth in the first quarter, but a lot of people are projecting. you know, 1 to 2% in Q4 You know that seems to be a trajectory that's just headed down? Yeah, and you know I really want to see that Q4 because I if I'm if my memory is correct going into Q three people thought we would not see the growth we had.

and of course it's surprised to the upside. So yes, the consensus of forecasters are saying we're going to have a Slowdown in the fourth quarter and so if that pans out, then you know maybe then the anti starts getting up. That maybe oh, we could be getting a recession next year if this continues. If the Fed keeps rates high and doesn't cut quick enough, etc.

etc. But um, so far it's like even in your Clips a lot of people talking this kind of I call it the ephemeral the thing that doesn't happen much, the soft Landing got it all right. Hey, Liz I got to cut you off there. Um, because we're going to get down to Miami but thanks very much Bloomberg's Liz McCormack as I mentioned earlier Bloomberg Chenal Bassic sitting down with Ken Griffin right now from Citadel Securities at the Global Macro conference in Miami Let's listen in print: I'm actually a bit surprised at how strong the Market's reaction has been to today's number.

This was not a a a huge upside surprise py stretch the imagination. It may also be a response to just how overextended the move in the tenure was just a few weeks ago. I Mean it's hard to believe, but we broke the fiveyear yield point for the first time in decades just a few weeks ago, and the market is at this moment in time enjoying a pretty substantial Rally from the lows in bond prices, high in yields, and today might be just a continuation of that momentum. Now, do you think it's crazy then for people not to be buying at this point given the move downward that we're seeing, Do you think that this move is sustained? look I I think any any yield on the 10 around this 4 and a half% number plus or minus 50 basis points is a reasonable number to be at I Think it's it's hard to.

It's hard to argue that that we're way off the market no pun intended on the current 10year yield. Now, what does this mean for the FED Do you think it would be a mistake for the FED to take their foot off the pedal here given what we're seeing in the inflation print and even cut into next year like the market is expecting? Well, so the question is heading into next year: how fast do we cut? So if if you look at where inflation's likely to print over the first half of next year and unemployment's likely to head to somewhere in the low fours, you're going to have monetary policy that's too restrictive under those circumstances. Now the the key from my perspective is is the Fed needs to stay on. Message that they're going to put the inflation Genie back in the bottle and so if they if they cut too soon I Think they risk losing credibility around their commitment to a 2% inflation.

Target So you know the Market's pretty optimistic that we're going to head into an easing cycle next year and I think the FED needs to balance that with making sure they're able to stay on. Message that they're committed to a 2% Target That all speaks to tighter Financial conditions to the extent that there are more things that could break in this environment. What else breaks, What else breaks Are you looking for the next Silon? Valley Bank I Sure am. So the the risk in the banking system still lies in credit risk in Middle tier.

Banks and in particular, their exposure to commercial office is is a big risk factor. Less so their consumer. Their exposure to midsize Enterprises I mean to be clear, to be a a midsize bank today is a really tough place to be. The market for deposits is becoming increasingly competitive.

The cost of compliance has soared over the last decade. The amount of technology that the consumer expects you to bring to bear to solve their problems comes with a pretty hefty price tag. It's a really tough place to be today as a as a community bank or as a as a mid-tier bank. And now you've got not only those headwinds of cost and expectations around customer service and customer experience, but you got a credit cycle unfolding.

So I Think that's where the risk lies today within the banking system. First and foremost is is in those mid-tier Banks Now does the FED get to where they need to go without causing a deeper recession? Now, you've said before pretty recently that you would expect a recession at some point. Uh, and so well. I will be writing that eventually eventually.

I mean every Economist is at some point right? I'm call. So instead of asking you when I'm going to ask you what it looks like. So here's here's our best guess. Our best guess was sometime late this year.

Uh, it's November so we're going to be wrong on that guess. Q2 Right now is is roughly the center point of our distribution as to when we're likely to see the United States in a recessionary environment. and I think I think there's a couple of really important questions that will come into bear at that moment in time that that should influence one's view as to how deep this recession is going to be. Number one is what's going to happen to fiscal policy.

In the United States for choice, we think next year fiscal policy will not will not tighten that much. We're we're heading into a presidential presidential election. It's really hard for politicians on either side of the aisle to do what we need to do, which is to rein in our deficit spending in front of a presidential election. It's just it's going to be really hard politically to get there next year on that front.

The second real question next year is how much will companies start to unwind? The labor hoarding that we've seen over the last couple of years, it's been really hard to hire people and as such, your large companies have been very reticent to let people go no matter what the circumstances are. So even if margins are Contracting, even if you have games from automation, people have been very reticent to let people go. Now we're starting to see For the First Time The unwinding of that labor hoarding I Don't know why the chat's not updating. Can you guys chat something really quick? Does that trigger it toes me in a in a hybrid work environment or work from home environment.

Need to refresh this. The cultural social contract that holds people together in a company is unquestionably weaker. I mean we've all read about companies that have fired thousands of people on Zoom calls. There's no sense of J who worked down the hall with me for years and I'm going to go the extra distance to try to keep Jane employed here.

It's like here's the email to all. here's the video conference with a bunch of people and goodbye. It's a very different moment in American employment history where I believe the bond between the company and the employee has become far weaker and that worri IES me in terms of the willingness of corporate America to make cuts on their Workforce that they just would have made at other similar points in the labor market cycle. Is that you saying that the employment Market will crack much, um, more significantly than many are expecting It Could is what? I'm saying it could.

It's a wild card so there's a lot to unpack here. We are going to go Global But we're going to start here at home because you've been pretty critical about the picture here. for the fiscal situation in the United States Um I Want to talk about the Treasury Market because it's behaving little bit like a meme stock. It's one of the most volatile markets here.

Oh no, no no no. I I Played meme stocks all right. So I Journey This is nothing like that moment in time, you know, but it is quite volatile and I'm wondering to what extent it does concern you that treasuries are moving around so drastically. So I mean first of all, the Treasury Market is moving around drastically in comparison to 10 years ago.

five years ago, when we had extremely low inflation, we were consistently below our 2% Target and the government was involved in a variety of very aggressive policies to try to bring inflation back up towards 2% It's it's a very different world. We've come off the zero boundary and inflation. We've come off the zero boundary and rates. we're We're in a market that for for the trading of government bonds is a nor Noral Market Condition like this is actually this: I mean it's a little more volatile than you might otherwise want it to be, but these are pretty normal pretty typical conditions when you're in a full employment economy late in the business cycle.

There's nothing about this that I would call in any way unusual or unexpected. I Think what was more unusual was that all of us in this room went through such a long period of time with such aggressive government intervention in our Market trying to encourage growth trying to bring inflation levels up. so that was government Interventional What about the Treasury's management of how they handled the future fiscal load? You know, pretty recently billionaire Stanley dren Miller had rebuked Treasury secretary Janet Yellen for not doing more to finance the United States when rates were low. Uh, and she has since push pushed back.

but I'm wondering what you think about it? Well, with hindsight, we would have done really well with our Trading do you think they should have done I mean if I knew where race were going to be today, could you imagine how much money we would made position two years ago? So that's that's a bit of the same call that you know is being led against. Janet Yellen you can't cry over spilt milk of course. and I actually do believe he's right. We could have issued more debt at lower rates over the last several years.

there's no doubt about it. And and the what's ironic is DC is constantly concerned about the fragility of the private Market sector and one of the sources of fragility in the private. Market is the amount of short-term debt and the amount of short-term um, mindset that we have and how we allocate assets. So the amount of money that's on deposit with banks rather than being invested in seveny year 10y year corporate loans, everything that brings things shorter in term increases fragility.

Bear Sterns Went broke in a day because of the amount of funding they did overnight. All right. that's important to note. Ironically, the US Treasury has been shortening its maturity as our debts been going higher.

So if if you think about any playbook for how to prud manage your balance sheet, let's let's not play the role of rate Speculator Like stand like we're going to push that aside and he's amongst the best in the world at this. So it's you know, like push aside the fact that the the FED did not play the role Rate Speculator But put on your your hat of balance sheet manager, the more debt you need to manage, the more you want to extend your weight at average maturity. Like that's just Basic Finance 101. But as the treasury tries to do this now, one of the big problems is you are seeing a fracturing of what it looks like to be issuing the longer dated Securities and with foreign buyers less willing to step in.

What do you think? this means for the ability of the United States to finance itself? Well, at some point we need to actually take the message that's being delivered to us there and put our fiscal house into order. I Mean that's what the Market's telling us. The market is telling us that we cannot run annual deficits of the magnitude that we're running, that we need to put our fiscal house into order. That's the message being delivered by the market us, pivoting to issuing more and more short-term debt means that if there were a day of recog, the degrees of freedom that we have to navigate that crisis are far more limited.

Now there are a lot of people in the market who believe that with foreign buyers stepping back that the marginal buyer is the leverage hedge fund People like Citadel Um, and the American public becoming increasingly active as buyers of treasuries would Citadel step in in a bigger way to buy more treasuries into next year. Well, let's just be very clear: the marginal buyer of treasur IES is going to have to be American Savers no ifs, no, ANS nor buts. And that's going to crowd out investment that American households would otherwise make in corporate bonds, equities, and other assets that contribute to the productive growth of our economy. Like that's where we're going to find the marginal buyer.

and it's going to come at a cost in terms of our ability to create jobs and into to enjoy a level of innovation and productivity that has defined so much of the life that we have lived in this country over the last century. Are there limitations? especially as bank balance sheets shrink into next year for how much you can step in? So there's uh, there's quite a bit of chatter today about the bond basis trade and I' I've never seen so many people fixated on such a trivial problem. I Mean it's it's It's actually just bewildering to me. You're a a significant asset manager.

You have a a portfolio that's tracking a a a fixed income Benchmark part government bonds, part corporate bonds, part mortgage back Securities and you want to optimize the return for your investors? I Mean that's what that's asset managers do. We're here to create Alpha for our end investors. And so you look at the treasury, part of your portfolio and you go. You know what? I can sell my treasuries, replace that duration risk with a treasury Futures Contract and invest the money in corporate and other interest bearing assets and free up that cash to put it to a more productive use in the economy holistically.

the hedge fund Community buys those treasuries and sells the Futures contracts to the real money. Community It's just that simple fake money. Confirm the reason I'm asking because with this great attempt to clamp down on the basis trade by Regulators would that really constrain how much uh, hedge funds are stepping into to buy treasuries at just as they're being issued? Well, I Mean here's here's what's going to happen. The cost of doing that trade for the real money account will go up.

so the return hurdle they need to earn to move from treasuries into corporates will go up, which makes the cost of capital higher for Corporate America which reduces economic growth. All right, the trade will end there. The trade will end End by by real money managers committing less money to Corporate America That's what's going to happen here. The hedge fund community in some sense just provides intermediation between access to the short-term funding Market which is extremely efficient and access to the longer term bwing Market Which is far more balance sheet constrained.

That's what's That's what's going to happen here. And there's no doubt, like the Federal Government Can readily end this trade and they may just choose to do so. And they'll do so at the expense of the American taxpayer to the tunes of of tens of billions of dollars of Interest costs. And they'll do this at the expense of American companies and raise the cost of capital for Corporate America I Mean they they will probably do this.

So we're going to get back to regulation and its other many forms. But let's spend a note to broaden out for a minute on what's happening in the world. Um, particularly the outbreak of two major Wars As somebody who's leading, Citadel how do you prepare for events that can cause such drastic IC geopolitical consequences in the world? So geopolitics has been a big part of our business now for for quite a bit of time. I Mean we we have seen the end of the peace dividend.

there's a war in Europe I Mean did did you ever think in your lifetime you'd say there' be a war in Europe I Didn't I mean it's just we lived through peace time for so long. So the Re Resurgence of the lack of peace time. What does that mean for investors? So first and foremost, it means that all of us are going to just we're going to have higher anxiety in our day-to-day life. I Mean there's just there's no doubt about it and that that changes people's perspectives towards how they deploy.

Capital Right when when it's bright, sunny skies, it's It's a lot easier to take on a variety of different risks. Whether it's building a new Factory Whether it's engaging in long-term investing like it's just a very different world when the world is at peace In terms of how Business Leaders and investors think. now, let's take a step back to the to the nuts and bolts of what this higher level geopolitical risk means. It means we spend a lot more time with people who are involved in geopolitical Risk analysis and there's a number of firms that are extremely good at providing this insight.

and Analysis it means that our portfolio managers are very focused on what they have to say. and it means we're trying to understand in the context of our portfolios what exposures do we have to emerging geopolitical risk developments around the world? So when you saw the Russians M their their troops on the border with Ukraine you're thinking about if they come across, what are the odds that they're going to cut off gas supplies to Europe if they cut off gas supplies to Europe What's that mean in terms of the European economic response to support their industrial base? What's it mean for the the largest users of energy in Europe in the industrial space? Are they going to shut their factories down? Are they going to absorb the cost and destroy their margins and run at a loss like you're working through all that analysis in your investing time. What's what's unfortunate about that is you're not looking at the next biotech company that's going to cure cancer, right? It shifts your allocation of time as an investor away from what are the the really saing growth stories that that power Global growth to plain defense. Which is where are we going to get caught flat-footed by a crisis somewhere in the world? How much do you worry that some of the conflict that we're seeing, particularly the outbreak of the Israel Hamas War Do you worry about it turning into a broader conflict in the Middle East So what are the odds that the war between Israel and Hamas turns into a a war that engulfs the entire Middle East I Believe the odds.

I Pray the odds are small I None of us know, but we believe the odds are small. The trend in the Middle East has been towards peace. I mean Saudi Arabia and Israel were about to reach a historic Accord that only would strengthen peace the Middle East And there's some high probability that the actions by Hamas were influenced by this normalization of relations between Israel and Saudi Arabia that were likely to take place. So what's unfortunate is is that peace in the Middle East holistically has been pushed further out in time.

But I think across the regimes of the Middle East, they're not looking to escalate this into a larger Dynamic of war between these these countries of significance. Now Israel does have a real problem. They're going to have to understand how to contain and control Hamas They suffered an immeasurable loss of human life the worst day for the Jewish population, since the Holocaust and Israel clearly has a right to defend itself. One of the things that frustrates me about Israel's current strategy is they will not clarify how they will deal with Gaza post these initial strikes, this initial movement of troops into the region.

What does the world look like post the next 3 to six months? I Think Israel really needs to give Clarity on that issue to keep the Western World aligned in support of Israel. Speaking of the western world, we were talking a lot about the US fiscal situation and the fact here also that National defense spending is rising quite meaningfully, both in response to Ukraine and Israel. How do you pair the two things? So National defense spending is not Rising nearly fast enough and we we know this by just looking at American stockpiles of weapons. I mean one of the reasons that we that we sent to the Ukraine cluster ammunitions is we're running out of ammunitions to send.

There's quite a bit of backlash on the United States sending that type of of military equipment to to the front lines because of the risk to civilians, but the United States stock pilot are being depleted at a incredibly brisk rate. So what this speaks to is the need for us to rebuild our military-industrial complex if we're in a post peace dividend. World We're going to have to put the investment unfortunately into National Defense capabilities to protect American interests around the world. So that's a real pressure on the federal spending picture going forward that I don't really think the markets have yet fully Incorporated like we're still yearning for the reality of three years ago in a world that feels very much like Cold War II So if you're thinking about this idea of a Cold War II there's kind of a third player here and we have to think about the presence of China and the relationship between China and the United States Uh, One question I have for you is if you were advising President Biden as he meets with China's president she what would you say? Number one is we need to turn the mutual temperature down on the military touch points around Taiwan and in the greater China Seas like there is no room for an accident to take place and and both countries need to be very thoughtful around that reality.

We don't want to give the people of either country that incident where two planes Collide that create the Outburst of nationalism that just continues to accelerate the degradation of of the coupling between our two countries. I mean the United States Imports Circa $500 billion dollars of goods from China a year. Our economies are incredibly coupled together and a an Abrupt decoupling would come at just catastrophic costs to the people of both countries. You know if if you look at some some of the worst case scenarios access loss of access for example to the Taiwanese chip manufacturers, just wake up tomorrow and we can't buy chips from Tsmc how many weeks till every single production line of consequence in America shuts down? No Teslas No Fords No Boeing aircraft.

Probably an 8 to 10% hit to GDP So it's really important that we try to find common ground to build a better relationship with China on rather than continuing this downward spiral of Tit for Tat on trade policies and otherwise he say TI how do you think about this as somebody who runs a business in terms of whether you so no so just take a step back if I'm Biden I don't show weakness I don't project weakness in any way I need to project a strong America The Chinese Respect a country that is comfortable in its own strength just as the United States should respect. China and its position on the world stage. I Think one of the Mis calculations by by the Trump Administration was to make the Chinese feel belittled or attacked it. It was the wrong tone, the wrong rhetoric.

With one of our most important trading partners in the world, it sounds like as you speak about the way Global relationship ship are changing under the environment that we're in. you're calling for more of a normalization of relationships across the globe, let alone, um, this idea that existed a couple of years ago where there was a call for more de globalization. Do you think that the world is too interconnected to be dellink? No. I Think the cost to the world of dinking is too high to even imagine like that's what's getting lost is the cost of a delink.

World is a world in which we're all profound, ly poor, and we're poor at a moment in time, where we almost everywhere in the Western world have aging societies, large structural, both deficits and debts, and we need to have economies that are growing and creating for the future. If we're going to meet the obligations to our retirees, and if we're going to offer a better future to our children, and in a world in which we're rapidly decoupling, there's no way we're going to make our promises and commitments to our retirees. And our children will actually for the first time have a Bleaker future than we had and our parents had and our parents had. So how do you think about this back to as a business owner? Uh, there has been a sense that Citadel Securities has s to expand in China In particular.

what's the opportunity? Uh, in terms of the Chinese economy and what's the risk given the global tension? Well, let's take a huge step back. One of the areas in which the United States is extraordinary Good is financial services and many of the world top asset management businesses are right here in the United States. From Fidelity to Blackstone to KKR to Citadel the list goes on and on. Most of the preeminent Asset Management firms in the world are here in America.

These firms create incredibly highp paying jobs and throw off enormous sums of taxable income. That helps to deal with the financial problems that we have have government. I Mean, think about the banking system. Name the most important banks in the world, the ones based in China or the United States.

The world would say it's the banks based in America. Like JP Morgan. You want to think about the dominant Bank of the world. The first thing you're going to think about is JP Morgan.

It's just that simple. and think about the incredible amount of both employment and taxable income that a JP Morgan throws off. Now why do I talk about this? this in these ways: in: Washington there's a real pressure to attack Wall Street To attack financial services I Don't understand why we want to injure a sector of our economy that is a world champion. Most countries try to their world champion.

Industries They try to encourage their growth and prosperity. So for me, I'm completely befuddled by the efforts of the progressive Left to attack a part of our economy where we not only Thrive domestically, but we Thrive globally. Well, let's just get into it. Let's talk about Gary Gensler Um, it's no secret that you've been frustrated with his approach.

He has a pretty sweeping agenda. You've said some pretty harsh things about his approach, but what frustrates you the most about what he is trying to accomplish? Well, there's there's a huge amount of effort to solve to find solutions for problems that don't exist like that's that's if I want to put in a sentence, it's why are we finding solutions for problems that don't exist? Well, you know what would the equity market look like? He's on a path to really change the way Equity Market Structure works. If he succeeds with his current proposals, what would happen? So actually none of us know because his proposal has so many different moving. Parts The intersection of which is is not appreciated or understood so we don't really know what that world looks like.

I'll give you a simple sound bite in the retail Market Market One of the most important concerns that retail investors have is how is their order handled. And in particular, there's an entire body of law that says a a firm that manages the execution of a retail order cannot front run that order. And it's it's a very important law because it gives the retail investor confidence that they're being treated fairly. Now here's what's remarkable: What's remk: Market Proposals: Every retail order must be sent to a publicly displayed auction.

So not only can the market maker front run that order, but every single Market maker can front run that order legally. How in the world do you reconcile Decades of regulatory decisionmaking all designed to protect retail investors and undermine it in one foul swoop like this? So that's that's a great example of a solution. And in this's to that, in search of a problem. I'm glad you brought up the issue about the retail investor.

You kind of made the joke about the the meme stocks a little earlier. Gary Gan Was trying to protect the retail investor before I came uh to interview you I mentioned that I was interviewing you online and about 600 responses came in about you and what you do. Why do you think that the American retail investor feel so much like Wall Street has an unfair Advantage What do you tell them? Well I mean first of all, that's that's a There's two conversations here. there is I'm a retail investor and I'm going to compete with Wall Street And the second is when it comes down to the moment of execution, how am I treated All right? So let's just start with Basics What's the day job of all my investment team? It's to understand stocks.

It's to understand companies. It's to meet with management teams. It's really hard as a retail investor who trades stocks in the free minutes of their day to compete with people whose entire life comes down to researching and understanding business models and the pricing of Securities It'd be like if we went on the street right now and found somebody to do this interview and to put them in the seat to moderate this interview. Fair to say they'd struggle.

They had all the questions for you right? Like it's just. it's just not a fair comparison. So so one of the challenges is I think the SEC If you want to protect retail investors, it's get them into the right products. It's get them into mutual funds.

It's to get them into index funds. It's to make sure that we encourage them to own portfolios of ETFs and diversified portfolios to take advantage of the wealth management products of the large Banks like JP Morgan or Morgan Stanley offer like that's a really powerful way to protect the interest of retail investors is to encourage them to be in products that are professionally managed that offer a a much better risk return ratio than the average retail investor has the market. Now, having said that, having seen a substantial amount of order flow from the US retail investor over the years, there are retail investors who are really good at at understanding emerging. Trends I Mean look at how much money retail investors made in Tesla and God bless like they were there at the start of this transformation the of the of the automobile on the E EV wave that Elon Musk created like they crushed it.

Same with Apple. Same with a number of other really powerful stories. So clearly we want to make sure retail has access to trading stocks directly, because for for many of these investors, they're actually they're pretty good at it. But big picture.

The SEC should encourage people to be in professionally managed products. For those that really do have a gift at understanding how the world's going on, be comfortable in trading single stocks, Be comfortable in having portfolios that manifest your views. When we get down to the nuts and bolts of execution, let me tell you about the good old days when I was a retail investor in college. I Paid 1995 in commission and was lucky to have a 25c wi bit ass spread in the early days of Citadel.

In the good old days, we used to have spare phones. Do you know why? why Traders would break them in frustration over their experience trading a stock on a given exchange? We'll leave it at that. All right, we don't have any extra phones today. Sounds like an expensive habit.

It was an expensive habit. But there were a lot of expensive days. You'd go to buy 100,000 shares You' buy 10,000 the price is up a quarter of a point. You buy 10,000 more.

the price is up a quarter of a point. Not a quarter of a cent. A quarter of a point. That was the good old days in the 1990s trading stocks.

The United States Wait. So it's his argument that relatively better. So stop complaining. That doesn't mean it can't continue to get better spread.

that's a fraction of the posted spread on the marketplace. So a stock that's a penny wide retail trades for 8/10 of a cent or 710 of a cent. It's a remarkably efficient market. It's a real Testament to the power of technology to the power of of the ability to process millions of transactions a day at costs that are next to zero within our fin.

Financial Infrastructure Well, let's talk about uh, efficiency for a second here. What does this mean for the equity markets relative to other less efficient markets? Citadel has been expanding into many new areas. both Citadel and Citadel Securities. It's captured the attention of a lot of Wall Street that move into to fix income in a much bigger way.

Are you looking to places outside of the equity? Market in a much bigger way? And are you concerned about the ability to capture more Alpha in the equity markets these days? Well, there's a there's a lot in that question so let's let's unpack that in a couple different ways. Equity Market in the United States Holistically extraordinar efficient and that's great. That means our Market is allocating Capital to the best and highest use. That's how we create jobs.

That's how we create a stronger America Fixed income markets in United States Treasury Market Unfortunately, it's getting too big. we need to get our fiscal hous order. We've talked about that corporate bond market under quite a bit of change. The rise of of private lending is is is really starting to to show an impact on the overall corporate bond market and I do worry about that I Worry about the lack of price transparency I Worry about the lack of real-time feedback loops that indicate to both managers and investors how good or how well is my Capital being allocated.

So one of my worries about the rise of private credit is we're undermining the transparency of price. That's so important for all of us to understand. understand how good of a job are we doing at allocating risk? Now in in trading markets in capital markets and C Securities I mean to be clear, what we've done is, we have been at the Forefront of the electronification of markets. We felt that the good old days where you broke phones were days that would be left in the past by the rise of technology and we went all in on that bet.

And we were right. like we got that one right. The rise of electronic trading in options in equities and fixed income has really dramatically changed or transformed the end users experience in trading these products. even if you're trading by voice because the trade you're doing is bigger than the trade that's typical in the electronic.

Market You're leveraging the price transparency and you're leveraging the liquidity that takes place in those electronic markets. So that that's been a transformation that we have been a huge beneficiary of as Cital Securities We've pushed this transformation and it's been. It's been a sea change for end investors around the world. Bid ass spreads have plummeted holistically.

Liquidity has soared across virtually every product type that's moved to electronic markets and price formation far more clear and transparent. Now, what does this mean in the context of new technologies? AI Gener Generative AI In particular, does it add something to the table that existing Technologies don't already do? so? I I Think the impact on financial markets will be less than it will be in other parts of the economy. And I think you know one things to keep in mind with Generative: AI Is it: It does produce written words. It produces images.

It pushes. It produces things that we as humans can immediately relate to in. in fact, it's It's almost like magic, right? Like, write a speech on X and it write back a pretty a pretty good speech. Write a paper on y I Mean it's remarkable how it's able to create free form text that seems logical and coherent accurate.

Well, that's another question sometimes, but it's really transform formational as compared to predecessor forms of machine learning which produced zeros and ones much more inscrutable. Now, machine learning has been used by the market maker Community for years. It's part of how we've been able to bring down bit ass spreads and increased liquidity is through machine learning, we can better understand how to price risk and how to manage risk and those techniques are widely used across. Wall Street Today from my perspective, the big impact of Generative AI is going to be Call Centers translation work producing content for Hollywood I mean the ability to render I I've told this story before.

a friend of mine showed me an image of a future Star Trek clip or movie which has yet to be created and there's James Kirk and there is Dr Mr Spock and they look perfect except they don't exist. So over at the hedge fund at Citadel How do you think about either getting in on the AI craze or do you think that it's in too much of a bubble? Well, I mean okay. so the minute you say get in on the AI craze you've given the answer like we're not. We're not trying to get in on craze.

We're trying to get into businesses where where the market has yet to perceive the value or impact. that's that's where we want to put our Capital. We want to put our capital on what's going to be important in the future. Now there are dimensions of the AI craze that we think are really interesting.

For example, how Microsoft is using AI to empower its Suite of software and how Microsoft is driving its users towards the cloud is a really interesting study in corporate strategy. I mean I Got to tell you they're just crushing it and by creating a product Suite that pushes you towards their Cloud environment, they really marry you to Microsoft holistically in a very different way than you've been married to Microsoft in the last 10 or 15 years. So we think about these second order effects that these technologies have. We think about how um, you know first order fact of Zumic is people lose a bunch of weight.

Second order effect is they drink less alcohol so you want to make sure you don't own as much of the of the alcohol or companies around the world. The second order effects: We spend a lot of time at thinking in our in our investment management like we all know what's happening. First order, what's going to happen second order, how do we capitalize on that? Another question quickly on the future of Citadel Securities You About a year and a half ago, maybe a little more than that now took an investment from Paradigm and what does that mean in terms of the direction of travel? Uh, what have you learned from them in terms of technology and does the signal an IPO anytime soon? Well so I think we need to ask Gary Genser, do we want public companies in America That's a bit of a a question mark these days. In fact, there's there's roughly 1,200 plus unicorns companies valued at over a billion dollars that are not public.

What is it that we have done to destroy the value proposition of being public public in America And by the way, that's 1,200 companies that would have written tens of thousands, hundreds of thousands or millions of retirement stories, right? Think about all the people that we've met in our lives that have a story of you know, my grandmother bought IBM when it first went public and she owned it till the day she died and she died with $10 million right? We we all know these stories. People who able to take is Grandma Buy American Entrepreneurs and these companies staying private for longer is depriving American retail investors of that opportunity. So that's number one. Number two.

Sequ has been a fantastic partner in the business. They are. They are absolutely great in the boardroom. They keep my management team focused on the right issues.

So stoked by Oh My! God he is the best ever! Chill on they do have the exper piece as to what it takes to run a Su and they bring that to the table each and every day. So they've been a great partner to work with. I I Really value the relationship that we have with Sequoia Does this all signal an intent for you, particularly at the hedge fund firm to be investing more in the private markets? So there's no doubt that market forces today are pushing one to think more and more about investing in private markets. There's no doubt as the SEC continues to pursue strategies that shrink the relative size of the public markets, you need to think about: what's your growth Equity Strategy: What's your private credit strategy? What's your private private? Equity Strategy Like this is where the SEC is ironically pushing the business is away from public markets and that unfortunately pushes more and more capital appreciation opportunities outside of the hands of American retail investors.

So before I let you go, we have about 10 minutes left here. We talked about the future of Citadel. We've talked about the future of the economy. What do you think is a bigger issue? We are so close to the US election and frankly, there's no stage you've been on that anyone gets away with not asking you what you think.

the future of the country is, What do you think is a bigger issue going into the election next year? the economy or national security. At this point people are going to vote their pocketbook. How are you voting with your pocketbook? Your my pocket's doing okay these days. So I'm going to vote the the National security issue.

Well to that to that to that event too, spoken quite favor favorably of: Nikki Haley Uh, partially because of her expertise in this in this: Arena Do you think she has a chance to beat Donald Trump in the primaries? And if not, what do you think is her biggest challenge? Look, we're going to find out over the next 12 weeks if she has that chance or not the issue is going to come down to. Is he brave enough to face her in a debate? Are you supporting her financially yet? That's a decision that we're actively contemplating I mean we're at the finish line on that choice? Yes or know? but I think the real issue is is Donald Trump for all of his Bluster willing to get on stage with Niki Haley or not I mean Joe Biden at least had the excuse. why do what's Trump's excuse So you would like to see Face's I' like to see what's he made up at this moment in time I mean I Want Think the americ public deserves to see the American public needs to see. Can Donald Trump hold his own with Nikki Haley If he can, that's actually pretty important because if it ends up being Trump versus Biden we're both going to be.

We're all going to be asking: ask yourselves about their relative mental capacity. What do you think? The chances are that she could one's a a Roomba it sounds like you're pretty in her corner I Like I mean I'd like to see the battle I'd like to see that. So you've also mentioned I'm I'm kind of curious and by the way I'd like to see a battle of ideas rather than a battle of name calling I like run the largest economy in the world. As a name calling bully, you can run the largest economy in the world with the right Poli policies.

What we're facing right now in our country is since President Biden became President, the consumer faces prices that are almost 20% higher. They've had no wage growth to speak of in real terms, and our deficits increased. Our national debts increased by 15% of GDP. The American public knows things aren't working in this economy for them and they actually ask, well, who's it working for They have this misplaced idea works for Wall Street Okay dude, welcome to the the price of bad economic policies.

I Mean who ever told to run on Bomic has no idea how to read an economics textbook. So the question here in looking forward is where's Biden Biden going to go on his economic policies And are we going to see policies that are going to create real wage growth that are going to control inflation that are going to give us a brighter future that we deserve as an American people? And then for Donald Trump Is he willing to get on stage with Dicky Haley and talk about these policies whether it's National Defense or economics because this is what the American voter should care about. And nine months ago, a year ago, you might have argued that the American voter could look at this election as being a bit of an entertainment moment. Doesn't really matter who President is, things are okay, but they're not.

We're we're there's two. Wars In this world, there's an out of- control problem with spending in Washington. We've got to put our national security, our budget to have a brighter future for America. Now, you've mentioned in a recent interview with David Rubenstein that you would prefer more younger candidates coming into office U both on the Republican and Democratic side.

Frankly, is there anyone you would support as an up-and-comer So it doesn't matter like who I would support? It's who's running today. That's I Mean one of the challenges with being involved in politics is you have to accept the reality of what the playing field is. Now with Nikki Haley we do have somebody who's younger. We've got somebody who has the foreign policy experience to be helpful.

That's a real plus, but in both parties, we just we need to. We need to encourage people who are younger to step into The Fray And on the Democratic side. Let's be clear: In Fairness to their younger, upand cominging Uh party members, it's hard to run against the incoming President. You're not likely to win, and you're likely to hurt that person's odds in a general election.

so that makes people hesitant to insert themselves into a race against Biden I've got to ask? You know. Also, in that same interview, you had mentioned that you had political Ambitions in the distant past maybe for governor or a lawmaker one day and you've pushed back on the idea of running for president yourself. What are the circumstances in the nation and personally that you would accept a call to serve as the Treasury Secretary? Dude, he would take that overnight. All right.

Well, let's let's just give a little context here. David and I uh are both huge collectors of American documents or documents of our government, right? I have I own a copy of the US Constitution He has a great copy of the Declaration of Independence The context was I I Really have great interest in public policy and in good governance I All of us in this room are committed and want to have good governance in America and having studied government at Harvard like, there's no doubt there's moments in my life. I Thought about what it would be like to be in public office like that's just that's part of being in government at Harvard Is you have that fantasy all right? I have no fantasy in being a treasury I've got a I've got a great day job I've got 4,000 colleagues I work for. If if there were a financial crisis, of course, I would serve our country in a heartbeat of course.

But right here right now I Don't think that being Secretary Treasury would create the opportunity to change our country for the better in a way that would be profound enough for me to walk away from my lifetime work in building Citadel and my three kids who are all basically teenagers right now. Very last question for you: You uh, have been building out your presence right here in Miami Uh, you have a big presence in New York You have reduced your exposure to Chicago Miami or New York. You know what is kind of the the vote for both sides here? What? what is in favor of either? City Well, so that's a that's a great question and he's looking for tax Haven Florida York is the financial capital of America today and it's New York's to lose the density of talent both in financial services and just RIT large in New York City is amongst the top in the world. I mean New York really is an epicenter of thoughtful people passionately engaged in their careers.

It's a it's a very unique and Powerful City both in the United States and around the world. It's also the cultural center of the United States. It's A whether it's Broadway or otherwise, the Arts New York York is New York has just so much to offer. Now having said that, Miami I think represents the future of America incredibly vibrant economy.

You will have people on stage today that are part of the government. Here in Florida you won't be able to tell the Republican Or Democrats you would not be able to tell. They're focused on civil society, they're focused on the business community, and they're focused on good governance. This is a state that has done an incredible job of electing people into office who care about Safe Streets Good schools and good jobs and it's really great to be in a state where those are the focuses of your leaders.

And I say that as somebody that that was committed to Chicago for 30 years who saw my city devolve into Anarchy under poor governance and I really do believe there are very important lessons for America from the good governance that you see here in the State of Florida particularly at the state and county level. I Just. it's really it's just such a delight to be here. Next time we'll be debating this one for for years to come.

We we will and we'll see how big Wall Street South becomes. Um, we're on Bickle Bickle Bay right here and maybe in 50 Years it'll be um Bickle Bay North was how we'll refer to New York in finance Anyways, we have to leave it there Ken Thank you so much for your time and thank you guys all for joining us. Ken Griffin there of course the head of Citadel speaking with Griffin um so nothing too crazy. Honestly, uh I mean some things he's going to say uh I'm I'm obviously not going to agree with him still talking about how there's like no other way to improve Market ordering and no, no, no no no, come on, let's be honest, he's doing it in a way that like is still going to benefit him.

um, but there were other things he said where he was just kind of basically calling out Gendler for just not being good at his job that I'm like I tend to agree with it. Now the things I want to see Genzer do probably not the same thing that K Griffin wants to do, but at least it's kind of crazy that you could be within Wall Street or within retail and just everyone seems to unanimously not like Gensler like the dude has just fumbled the bag time and time again. But overall I mean I I Don't think there's anything like, really, too surprising or insightful. uh I didn't know that he was somewhat of a Nicki Haley fan I know historically he was funding the santis and then he kind of pulled back on that and now he's talking about Nikki Haley and Trump and uh I I I guess I Didn't know that Griffin was such a a war hawk if you will.

So I guess that was like the biggest surprise but nothing too special. related to the markets folks. that's what I have for you for now. Uh, obviously.

Uh, don't forget if you want to join the gooni Discord trade with other people trading competitions Uh, we have a sports channel for sports gambling gaming channel. Uh, there's private lessons. Uh maor Locals.com That's how you can sign up for the Discord if you want one month of free access, use the code Gooni G, O N I E pinned to the top of chat in the description of the video. Today alone the trades I posted above 3K That would have bought you a decade worth of access to it.

So I think the value is apparent and it's there. But hey, that's my opinion and it happens to be my server. So of course I'm going to be pretty stoked about it. But anyway, pin to the top of chat in the description of the video.

Macar Locals.com That's what I have for you now. Uh, I'll catch you later today with the update video and then tomorrow morning we're streaming once again early for the PPI and retail sales report. That's what I have for you. Much love Peace Out.