WHEN: Today, Monday, May 6, 2024
WHERE: CNBC’s “Power Lunch”
Following is the unofficial transcript of a CNBC interview with Citadel Founder & CEO Ken Griffin on CNBC’s “Power Lunch” (M-F, 2PM-3PM ET) today, Monday, May 6 from the 2024 Milken Institute Global Conference. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/05/06/citadel-ceo-ken-griffin-the-fed-is-making-the-right-choice-higher-for-longer.html.
All references must be sourced to CNBC.
SARA EISEN: Tyler, hi again. And, yes, it’s a pleasure to be joined here by Ken Griffin. We just got off the stage, the CEO of Citadel. Thank you for doing so.
KEN GRIFFIN: Such a pleasure to be here.
EISEN: We, Tyler was just talking about the market, the fixation on the Federal Reserve and what’s going to happen in the economy. I think one of the central questions right now, Ken, is, how big of an inflation problem do we still have? What do you think?
GRIFFIN: So, we still have an inflation challenge. In goods, clearly the inflationary surge caused by the pandemic, caused by supply chain challenges has peaked and dissipated. But now, in services, there’s still a very steady level of inflation, right around 4 percent. And, at 4 percent, it’s a challenge for the Fed, which is why they’re staying the course, leaving rates unchanged for the foreseeable future. It’s the right policy path. They need to bring inflation down over time,.
EISEN: Right. The question is, how challenging that — will that be to get all the way back down to 2 percent?
GRIFFIN: So we don’t know. We don’t know how sticky inflation is going to be when it comes to services. With goods, it was really great to see that inflation did dissipate. Now, with goods, there’s a bit of a backstory that we need to worry about. With de-globalization, we’re likely to see the level of inflationary pressure in goods be higher than it was for the last 30 years. And the Fed has to know that. They’re thinking about the fact that goods are likely to be a higher baseline effect for the foreseeable future, and services still unacceptably high with where they’re running today, which is why Powell and the team, I think, has made the right choice of staying higher for longer and looking to bring inflation down.
EISEN: And yet everybody here — I have talked to — I was talking to Bruce Flatt in — at Brookfield about commercial real estate. There are private equity players here. They’re excited about the prospect of rates getting cut.
GRIFFIN: Absolutely. If you borrow money, you want to pay less in interest. I mean, who would not be excited about that?
EISEN: Are you excited about the prospect of that on a — as a market catalyst and an economic catalyst?
GRIFFIN: Look, the Fed has a very clear dual mandate, inflation 2 percent — it’s an unwritten rule, but that’s where the Fed’s heading — and trying to maximize full employment. That’s the dual mandate of the Fed. They have to be independent in their decision-making and their actions to best try to hit that dual mandate. And, right now, with employment near full employment, inflation well above where it should be, they have got to stay with higher rates to bring inflation back in check.
EISEN: How does the overall equity market look to you, Ken, right now, given this kind of benign economic environment, a path toward rate cuts, AI tailwinds? That’s what’s fueled us so far. I wonder how much more it has left to go.
GRIFFIN: We will find out. And that’s the best you can ever do late in the cycle. We will see how much further this has to go. AI has really transformed the mind-set of corporate America towards using technology again to really, really try to jump-start productivity, and corporate America’s rising to that moment. It’s been really exciting to see how many C-suite groups of executives are really focusing on, how do we use machine learning, how do we use digitalization to drive up productivity. This really improves the quality of life for the average American, and helps to keep our economy strong and robust.
EISEN: You have also been monitoring the regulations coming out of Washington. We have been speaking for months now about Gary Gensler, the SEC. There’s a new one that I wanted to ask you about, because you guys have really taken the lead in fighting it. And this is the SEC’s new tools. They call it for transparency and surveillance. You find it very problematic. Just fill us in on what the big issue is here.
GRIFFIN: Well, the issue with the CAT program is twofold. Number one is, it creates a repository of every trade done by every single American with all their personal identifying information. As an American who had my tax return stolen from the IRS and published all over the pages of American papers, I can tell you, I worry about whether or not the federal government is going to take steps to protect my PII, your PII. They’re very, very strict in making corporate America protect that information, but the SEC has yet to even agree on their own cybersecurity standards for the PIA — PII in the CAT program. And that should give every American pause, is the government working for them to protect their privacy? That’s number one. Number two is, the program has been just an absolute out-of-control spend-fest.
EISEN: Spending?
GRIFFIN: Spending. We’re going to spend $200 million-plus a year in administering this program. That’s roughly, rough numbers, 20 percent of the entire budget of the SEC. And yet not one member of Congress approved this legislation. This is really the regulatory state growing out of control. And who pays that $200 million? American investors pay it.
EISEN: SEC would say that they’re just trying to gain more transparency to spot fraud and they’re not using it to spy on you.
GRIFFIN: Well, it’s always about cost-benefit analysis, which has been woefully lacking in this entire undertaking. Now, of note, since we launched our litigation, they have been able to find tens of millions of dollars of cost savings. And I’m certain we will see announcements over the months to come about how they’re going to try to address security. But it’s sad, it’s really sad that it took a lawsuit from a private firm against their regulator to really drive needed cost savings in this program and to drive home the point that we need to have better security protocols. For choice, I think they should go back to the drawing board and think about the most cost-effective way to hit that sweet spot of good market surveillance, protecting PII, and achieving both regulatory compliance goals they seek to achieve in a manner that doesn’t deprive American investors from the returns that they should have in investing in the stock market.
EISEN: This is just the latest SEC rule that you have been critical of. There’s been a long line of them. And is it having an impact, Ken, do you think, on the markets and on the economy, that kind of overreach that you accuse them of?
GRIFFIN: Yes, it does. And, in particular, it makes it harder for active managers to be successful. Why does that matter? Roughly 35, 40 percent of the entire U.S. equity market is owned by passive investment funds. The entire theory of passive investing is predicated on markets being efficient. That happens because of the work of active money managers like Citadel, like Wellington, Capital Research. All these big firms, these really big commitments to active management make America’s equity markets efficient. When the SEC introduces rules that make it much more difficult, much more expensive to be an active money manager, they take away those participants who create the fairness and equity in the U.S. capital markets that allows the promise of passive investing to work. And that’s important because that’s how we — capital moves across our economy. That’s how millions of Americans save for their retirement is in passive investment funds.
EISEN: What about the FTC? There’s been a lot of action there as well, blocking deals, suing to block deals, the noncompete. I’m sure you have thoughts on how that’s going to impact businesses even like your own.
GRIFFIN: Well, I mean, we have had the most hyperaggressive FTC in modern history. And I really don’t understand their agenda. American businesses consolidating under longstanding principles of undue concentration is good in terms of the rationalization and efficiency of our economy. And, of note, one of the key ways that venture capital-funded businesses actually realize their full potential is when they’re bought by large companies that have the distribution and scale to really capitalize on the innovation that was built. So the FTC’s adamant anti-merger stance is really reducing the efficiency of capital formation in the United States. We don’t know how big that number is, if that’s a number in the hundreds of billions, trillions of dollars. Like, we don’t know where this is going to land, but it’s a big hit. The most recent position anti-competes, I mean, three unelected officials just threw out tens of millions of contracts between employers and employees. And these contracts were written in good faith, entered into good faith by consenting parties. Why is this a problem? American companies have to invest a tremendous amount in building their work forces, given how broken our K-12 education system is and, frankly, how off-point so much of America’s college education is. American companies want to know as they make this investment in training their work forces, how will they be treated fairly? And much of this legislation is going to discourage the investment of training in American workers. So maybe some employees will be able to secure a short-term bump in pay, but, overall, the federal government’s not doing its job of educating the American people. That burden falls on the shoulders of American corporations. American corporations are going to be far more hesitant to invest money in training people on the back of this legislative shift. For us at Citadel Securities, it’s a whole different story. It’s about protecting trade secrets. There’s a recent case between Jane Street and Millennium where Jane Street argues that a trade secret that they developed was taken by one of their traders to Millennium. Now, for Jane Street, that trade secret was a billion dollars a year in revenues. And they spend billions of dollars a year developing their intellectual property. They lost that trade secret to Millennium. Their revenues cut in half. In going to protect their trade secret, it was disclosed to the world just enough hints about what they were doing that now Citadel knows exactly what Jane Street was doing. So, for all intents and purposes, Jane Street’s trade secret, it’s forever lost. It’s gone. And all the money they spent to build it is forever gone.
EISEN: And that’s what happens if you get rid of noncompetes; is that what you’re saying?
GRIFFIN: Well, the judge, the judge said to Jane Street, why don’t you have a noncompete? That’s why we have noncompetes in America. It’s to protect trade secrets. Well, Lina Khan just took away—
EISEN: Right.
GRIFFIN: One of the only ways that Jane Street could protect its trade secret. They chose not to have a noncompete at Jane Street. They lost that trade secret and they lost it forever. When you lose your trade secret, you lose your incentives to invest in R&D. It’s part of what makes American business so successful is, we have been so good at creating insights—
EISEN: Yes.
GRIFFIN: In whether it’s technology, financial markets, health care that leads us as a world leader, a world leader in innovation. And Lina Khan just said, I don’t care about American innovation.
EISEN: Well, we will see if she prevails in the courts. It’s going to be obviously a big fight.
GRIFFIN: Back in the courts.
EISEN: Back in the courts.
GRIFFIN: Here we go again.
EISEN: Does it make you, Ken, less enthusiastic about President Biden? We have an election coming up. I know that you were betting on Nikki Haley. That didn’t happen. You’re going through the state — you’re focusing more on state elections as far as where you’re giving money. But how do you think about the world after this election? And who would you rather see for all of these key priorities that you have?
GRIFFIN: Look, I would like to see both Biden and Trump really put forward their best foot to the American people as to why they should be elected. We have elections for a reason. It’s a chance to really vet our candidates and their policies. And I think it’s more important that we have a good, fulsome debate about the future direction of America. I do worry about the regulatory overreach of the Biden administration. I worry about the profligate spending. And I worry about the fact that we’re now in two wars around the world of consequence. The war in Ukraine, I mean, it’s a war in Europe. You and I never thought we’d see a war in Europe again in our lifetime. That’s — I’m willing to bet that’s the case. I never thought we’d see one. I can’t imagine you did either.
EISEN: A lot of things that we’re seeing I didn’t think I would see in my lifetime.
GRIFFIN: And that’s really, really, really worrisome. So I’d like to know from President Biden, what are you going to do to keep this country and the Western world out of wars? Like, I want concrete answers. And he’s going to have a test of that over the weeks to come. He drew a red line with China about China’s support of Russia. Let’s see what he does. Like, this is a really critical moment in the Biden administration. But I think the American voters need to see from both Biden and Trump, what’s the path forward for America?
EISEN: How do you envision at this point another Trump presidency, if that happens, for the country, for investors? How are you thinking about it?
GRIFFIN: Well, you know, what gives me the greatest hope about the Trump presidency as a prospect is the short list of names I’m seeing for key Cabinet positions, really qualified — qualified, capable, thoughtful Americans who will give some of the prime years of their life in service of our country. So that’s a good sign. And I hope Trump’s in a position to really talk about his future Cabinet. It’s the biggest weakness in the narrative that he has in running for president is this sort of theory he will have a hard time finding good people to serve around him. I don’t think that’s true. I’d like to see him put that question to bed.
EISEN: Ken Griffin, thank you so much for the time—
GRIFFIN: Sara, it’s great to be here today.
EISEN: On a number of issues that people are talking about here. I know you’re thinking about it.
GRIFFIN: You know, these are important issues. You know, a friend of mine runs an auto dealership. He takes real pride in training people to be mechanics. I was at his house for dinner on Monday, mutual friend’s house, and he talked about a man who was homeless who he put through training who now makes $100,000-plus a year. That’s the person I worry about when we think about Lina Khan’s decision at the FTC because that story will no longer be written. And that’s a heartbreaking reality.
EISEN: Wow.
GRIFFIN: Sara, thank you for your time today.
EISEN: Thank you. Thank you.
GRIFFIN: I really appreciate it.
EISEN: Yes, thanks Ken Griffin, the CEO of Citadel.
