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>> Alan Greenspan, the Federal Reserve

chairman, proclaimed a wizard for

guiding then record US economic

expansion only to see his luster dimmed

by the financial crisis that erupted

less than 2 years after he stepped down

has died. He was 100 years old. 18 years

as Fed chief, 1987 all the way Carol

until his retirement at the start of

2006.

Stock market boom, low unemployment is

what we saw over that time.

>> Yeah, some remarkable cycles certainly

in the market environment. Um, we should

point out that uh more so than um four

presidents or more than four presidents

he served under

uh or the seven Treasury secretaries he

worked alongside. I mean, Greenspan was

really seen as the maestro who kept the

economy humming. And there were so many

things that you think about um we

watched, we monitored with him, we

parsed his words like we do with any Fed

chair, but there are things that he said

um that have stayed with us even until

today.

>> I want to bring in Betsy Duke, former

governor of the Federal Reserve. She was

nominated to that position by President

George W. Bush in 2007. She served until

2013. She's also the former chair of

Wells Fargo. The former chair, too, of

the American Bankers Association. She

joins us from Virginia Beach. Betsy,

welcome. You were also on the board of

directors of the Richmond Fed from 1998

to 2000. That time, of course,

overlapped when Alan Greenspan was was

chair of the Fed.

Just today, as you remember his legacy,

what is it to you and to us?

>> So, a couple of things for for Chairman

Greenspan, and this is both a sad day,

but a day to celebrate certainly a life

well lived. Um I I think the two things

when I think about him, remarkably,

first one is communications, and not in

the way you might think, cuz he was so

famous for that sort of doublespeak that

nobody could understand. But, he really

pioneered Fed communications and the

communications that we're used to today

in hearing from the committee after the

meetings. And then the other piece would

be his crisis management. He oversaw a

number of crises, and again, um

shepherded the the economy and the

country through them in ways that had

not been necessarily

um normal operations for the Fed.

>> Yeah, you know, it's interesting. Um

when we think about his legacy and his

standing in the he really did make make

a mark. I mean,

what

you know, I was trying I was curious

about things he said more recently in

terms of the market environment, and I

do wonder how he was thinking um about

the environment where we we are in

today, where we question so much whether

or not we will have an independent Fed.

It's hard to believe that, you know, the

most revered US central bank globally is

having these kind of thoughts or people

around it are having these thoughts.

>> Well, you know, in Greenspan's day,

nobody dared challenge the independence

of the Fed, and quite frankly, nobody on

the Fed

F- Federal Open Market Committee dared

challenge Alan Greenspan. So, um things

are a lot different today, and and the

independence, I think, I still believe

the Fed is going to remain independent.

Um I've been very much heartened by

Kevin Warsh's first statement since he's

been there, and his first press

conference. I think he's made it clear

that he's going to

um certainly

carry the flag for Fed independence.

>> You know, it's it's interesting that you

you went to the Fed independence part of

this because up up until Greenspan, the

Fed had been under pressure when it when

it came to its independence. I mean,

certainly during the Nixon

administration, I think it's it's fair

to say at this point.

>> Yeah, and and um you know, certainly

Volcker came in at a time when when the

Fed's lack of independence had really

caused difficulty for the country and

for the president. So,

um you know, that's the last I think

example we have of the Fed not acting

independently. And um it was only when

Volcker got there and and really decided

to move forward and conquer inflation

that since that day at least the the

Fed's independence has been taken as

seriously important to the country.

Um recently, there have been so many

challenges to that.

Um but hopefully between the courts and

and also,

you know, some understanding of exactly

how dangerous it is to bring the the

Fed's independence into question and

what that does to markets and investors

and our economy in general.

>> The other thing though, you know, you

think about this dual mandate, um Betsy,

when it comes to the Federal Reserve and

you know,

not the financial markets being a part

really of their mandate.

And and you know,

the read by investors, the Greenspan put

the expectation that if things got

messy, that he would be there to shore

up markets. Um good thing, bad thing,

you know, when you think about what the

Federal Reserve is really supposed to be

focusing on?

>> Yeah. So, there was always this idea

that that that somehow the Fed would

protect markets in in in some way. And I

don't think the Fed's, you know, it's

certainly not in the Fed's remit to

protect markets, but to provide

liquidity and stability and to

um

to make sure that that panic doesn't

take hold is really the Fed's reason for

being originally. So, the Fed was

originally formed because back before

there was a Fed, you had um they called

them country banks at that time, country

banks and city banks, and the country

banks would borrow from the city banks

and then if the city banks didn't have

enough money or got concerned about the

country banks, they quit lending to them

and then those country banks didn't have

enough liquidity to operate, they would

fail, and then you'd have panic around

the country. So, um that's why the Fed

has a discount window, that's why the

Fed has its lending authority, and

that's really really one of the most

important functions of the Fed.

>> One of the things we talked about with

Mike McKee last hour, who covers

international economic and policy for

for Bloomberg TV and radio, was the way

that Chair Greenspan changed the way the

bank communicates with the public. And

and I'm curious now if if if you think

and and not just the public, but

markets, too.

Um

net net right now is the Fed

communicating enough?

>> Right now, the Fed's communicating

probably too much and um

so so Chairman Greenspan did he

originated the statement coming out

after the committee meeting, after the

FOMC meeting,

and originally came out a little bit

later than it does now and and it

finally moved to being

um to come out right after the meeting

ended, and he also originally it was the

chairman's statement alone and later

became the committee statement, which

the committee would would ratify.

Before that, I actually um

as a banker took a class in how to read

through the weekly publications of the

Fed and try to discern where M1 and M2

and three were going and what the Fed

was trying to do, that was all you had

to go on.

And so I think it is really important

that the Fed communicate what it's

thinking what it's thinking about. The

second thing Alan Greenspan put in the

statement was something about the

balance of risks and he would would at

that point they would talk about whether

they thought risks were more on the

inflation side, more on the the

unemployment side.

And you know, again, that helped markets

understand what the Fed was thinking.

What has happened today and I think

particularly with the dot plots is that

markets and investors now take those dot

plots as this is where rates are going.

>> Stay with us, more from Bloomberg

Businessweek Daily coming [music] up

after this.

You are listening to the Bloomberg

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>> Jim [music] Caron, Chief Investment

Officer of Portfolio Solutions at Morgan

Stanley Investment Management. He's back

with us. We've got a little bit of a

special treat for this last hour of

Bloomberg Businessweek Daily. He's

joining us for the rest of the show.

Jim, it's good to see you. Welcome back.

>> Thank you. It's great to see both of

you.

>> And thanks for taking the time this

afternoon. You know, we obviously

weren't planning on on starting

with Alan Greenspan and his his life and

legacy. We're going to talk about the

Fed. We'll talk about rates, risk,

portfolio positioning, the US versus the

rest of the world. Matt Miller wants us

to talk about motorcycles, but I don't

think I will be able to do that

[laughter] in an intelligent way that

will

>> I did once ride on it with two two other

people. That was dangerous. That's when

I was really young.

>> But [laughter] we do want to start with

Alan Greenspan and the legacy because

early in your career, I mean, he was the

Fed chair you you knew. He was it.

>> He was a legend. So, I you know, if if

put this in perspective and I think it's

very important to have context around

this,

he started his position as chair in

1987, he ended in 2006. That's a 19-year

period. So, for most people, that's

that's a large chunk of their career. I

started in the business in '91, '92,

that's all I knew for 14 or 15 years of

my of of the starting point of my

career.

He was uh

somebody that was not going to be

challenged easily by other members of

the Fed, it's whatever he said went, and

that was it. So, but he also did uh a

bunch of different things. He he changed

things at the Fed in the sense that he

made it a lot more transparent, if I

could say those words. The So, what the

way the Fed operated, and we take this

for granted today that you find out on

Wednesday at 2:00 what the Fed's

decision was, and we all go to work.

Prior to Greenspan, it was Volcker. And

what happened at about 4:15, 4:10 on a

Thursday afternoon, you got money supply

data. Based on what the money supply

data was, that was the change in policy.

You had to figure it out. Nobody told

you if it was 25 or 50 basis points, you

were guessing, and you were trying to

analyze and figure out what that was.

So, what Greenspan started to introduce

through communications and things like

that was what today we take for granted

was absolutely monumental and

groundbreaking as far as saying, "Hey,

by the way, we just hiked or cut 25

basis points, and that's and that's all

it is."

>> Is it too much, though? Like, would some

say it's gone too too far?

>> So, there's been iterations, like

there's there's pre-Greenspan, and then

there's post-Greenspan, right? So, what

happened in the 19 years subsequent, um

you know, from 2006 say to 2000 and uh

you know, 2026, um what what we've had

now is Bernanke, Yellen, and Powell.

They've all followed effectively the

Greenspan mode, but they added on to it.

Now, clearly Bernanke had a very special

situation, the financial crisis. He had

to do enhanced communications and things

like and and and things of that nature.

Um I think that

what

is is it too much today

in terms of communication? I I'm going

to say that it it it is a bit.

>> Mhm.

>> Um because what the Fed is trying to do

is they're trying to telegraph and

televise too much such that they're

actually directing and dictating how the

markets should think about things as

opposed to what Warsh said, which is let

the markets figure it out. I mean, I so

so the way I think about Kevin

>> managed?

>> Well, I mean, you know, the way I think

about Kevin Warsh if if I'm going to put

him in this in this period of time from

1987 to 2026,

I'm going to say that what Greens- what

what Warsh is trying to do is bring us

back to the period that was uh pre-Ben

Bernanke. So it was Greenspan in the

1990s. So very similar economic setup,

too. Big capex cycle, big productivity

boom, you know, that you know, that

we're going through. And and I think

what Warsh is trying to do is bring us

back to that period where he lets the

markets assess what monetary policy

ought to be as opposed to what Greenspan

did. Greenspan was the guy that really

started to come in cuz like Volcker and

everybody else just looked at money

supply, M1, M2. They were, you know,

very very much in that that's what they

did. Greenspan was one who started

saying, "You know, we should think about

GDP growth and the labor market and

inflation. And let's talk about

inflation anchoring and and all of these

various things." Things that we think of

today as very common.

>> Right.

>> Was very uncommon at the time. So I'd

say let's give Kevin Warsh an

opportunity. This is his moment in

history. He wants to remake the Fed, but

this isn't groundbreaking what I think

Warsh is trying to do. I think he's just

getting back to a period that looks more

like the 1990s.

>> So it's it's fair to say you see

a a hint or more of Alan Greenspan

in Kevin Warsh today.

>> Yeah, I I do. Now Now Now whenever you

compare somebody to like somebody who

was a legend and somebody who's just

starting out, that's always a very very

difficult, you know, we'll see how Warsh

does, right? It's going to be a long

journey and long road ahead.

Um but I think on paper conceptually

what Kevin Warsh is trying to do is get

the Fed back to a much more narrow

focus. Not as narrow as the Volcker Fed

which was was just money supply, but

something that's a little more growth

inflation outlook, uh jobs market, but

let's ease up on the communications. I

think he's really just going back to a

1990s Greenspan model right now. And

that's my perspective and a lot of

people weren't even around in the 90s in

in this business practicing, right? So

they don't really have a good

perspective on this. It wasn't chaos, it

was fine, you know, you just have to get

used to the new there's a new sheriff in

town.

>> What's the downside of kind of where we

are and what we expect from today's Fed?

>> I think the downside is that there's a

lot of mission creep with the Fed,

right? So now we have to we have to put

this in context as well.

Prior to the financial crisis, we had

this much more narrow This is what

Greenspan kind of created. I mean he

opened it up more transparency then

Bernanke kicked the door wide open. He

had to. We had a financial crisis, we

had interest policy, we had QE, we had

policy rates at zero. So we had to find

a way to communicate policy to the

markets. I totally get it. But what

happens is that once the Fed starts to

have this mission creep and they start

to be asked to do more and more even

from a regulatory standpoint or even,

you know, the Fed was being asked,

"What's your policy on climate?" You

know, you know, things like that. This

is not what the Fed's job is. The Fed

and and according to Kevin Warsh should

color in a very very narrow set of lines

and stick to what their job is. Under

Volcker, it was money supply.

>> But what if But what if the economy has

gotten more complicated? Climate change

is an issue. Companies have to think

about it, you know, because it is

ultimately going to impact their bottom

lines.

>> it affect the dual mandate? I guess some

might say.

>> Well, it might because people can't

work. Yeah.

>> You can extrapolate, right? So, what

what Warsh is basically saying is,

"Don't ask me that question. That is an

elected official's uh uh job to do."

My job as Kevin Warsh, right? If you're

Kevin Warsh, if you're the chair of the

Fed, is to is price stability and and

full employment and to really focus on

the price stability component.

>> But don't you sometimes need Okay, I'm

going to get into trouble by needing a

figure that's not political, but

we understand that politics has

certainly crept its way into the the US

Central Bank, but I think there are

times we look at the Fed chair,

even if it there is a political

backdrop, as being kind of a voice of

reason on all of these major issues that

will impact economic growth globally,

will impact corporate bottom lines. Like

>> Yeah.

>> is it not important to have that voice

of reason?

>> It it is absolutely important to have a

voice of reason, but in in a position

like that, in the way that I believe

that Warsh interprets it, is that it's a

very narrow remit. And one of the things

that he said is that the Fed should have

absolute independence on a narrow set of

items. Everything else, this this is not

This is what the Fed is, you know, this

is not what the Fed does. And I think

keeping that very, very clear and

setting these boundaries, right?

>> Yeah.

>> You know, we all have to set boundaries,

right? You know, this is a very

important aspect of things. Um is like

look, don't ask me these questions. I

mean, like the these aren't questions

that are for Kevin Warsh, right? You

know, so so that's what he's basically

saying and what he's what he says

ultimately is that the Fed can do its

job better if it's just doing the job

that it was tasked to do, but is not

being asked to solve all these other

problems.

>> In the words of J. Powell, "We'll stick

to our knitting." is what he said over

and over again.

So, it just reminds me of of that sort

of go-to for him. We're speaking with

Jim Caron, the CIO of Portfolio

Solutions at Morgan Stanley Investment

Management. So, so what does all this

mean for for rates under a Warsh regime?

>> So, it was pretty clear. Yeah.

>> and the market reacted in a very clear

way.

>> Well, yeah. So, so I I have a I have a

very out of consensus view on this.

Okay, so I I actually think

Warsh was more dovish than what the

markets thought. Okay? So, I I know what

he said and in a traditional

interpretation

>> So, markets got it wrong.

>> I think so.

>> Okay.

>> So, so effectively under a Bernanke, a

Yellen, and a Powell, if that's your

mindset and say, "Look, traditionally if

I think about what Warsh said and I use

that framework, Bernanke

Yellen and Powell, then yes, he was

absolutely very hawkish, right? You

know, you know, there's no question. But

I think if you read between the lines

and listen to what he's really saying,

what he's saying is that like is he's

going to create these task forces in in

terms of like, "So, how do we think

about the data?" So, if you were to ask

me

a week ago, two weeks ago, what is the

Fed's most favored measure of inflation?

I'd say core PCE. That's the Fed's

favored measure of inflation. Today, I

don't know what it is. I don't know what

the task force is going to say that it

is. Is it year-over-year PCE or is it

month-over-month or is it

three-month-over-three? This is what the

task force is going to figure out. So,

the market I think for the next six

months until this task force gets this

all done, is going to be very confused

as to what the inputs are to the Fed's

large-scale policy model, which is their

what they call the FRBUS model, Federal

Reserve Bank of the US model. Um and

what what Warsh is doing is he's not

saying I'm going to change the model.

What he's saying is I want to look at

different inputs. I want to look at

labor data in a different way. I want to

think about productivity differently.

Kevin Warsh is a supply-side economist.

He's going to start to create a lot of

supply-side indicators to inform him as

opposed to the more traditional

demand-side components of of the economy

and and and those indicators.

This is in my career and I've been doing

this since, you know, '91, '92, so about

34 years.

Um

is the most monumental shift that I've

seen take place. I inherited Greenspan.

When I started, Greenspan was there.

That's all I knew. This is a major shift

and I think that people are

underestimating how monumental of a

shift this is and where they're going to

get it wrong is by applying what they've

learned over the last 25, 30 years under

a Greenspan to then say, "Oh, well, this

is what it's This is how I would

interpret this." I think the rules are

the ground is shifting. Not the rules

have changed, but the ground is

shifting.

>> So, good that it's shifting? Good that

we kind of take a look at at a system

that we've been kind of moving along for

a long time?

>> Well, I mean, you know, changes happen,

right? So, Greenspan changed it, right?

When he came in because he felt that and

and you and you mentioned yourself the

economy has changed. Right? So, when we

look at labor data and labor statistics,

I I think the data is has been

challenged for the last 5 years. The

nonfarm payroll data for me used to be

the sun rose and set on the nonfarm

payroll data for me for for most of my

career. Last 5 years, not very

informative. Weekly jobless claims were

a bit better. So, I think there's a lot

of challenge to the data.

>> Well, so what is the what's the best I

mean, there's no single best piece of

data, but what's replaced the nonfarm

payroll series?

>> So, so this is what Warsh is trying to

figure out in terms of looking at the

is using this task force, right? So,

you've got this other series, this

quarterly census of of employment and

wages, the QCEW series. This is the

thing that constantly gets revised or

revises down the monthly nonfarm payroll

numbers and things like that. So, so

what I think

Warsh is going to try to do is use more

real-time estimates of of the market and

to try to understand whether it's

inflation data, maybe even shorter term

measures.

Uh I'm not saying that we're going to

live and die by the weekly jobless

claims number, but I'm just saying, you

know, you've got jolts, you've got these

other surveys, you have other uh

industries that create surveys of data

as well. Why not start to look at this a

little bit more broadly?

>> Well, it's interesting that you say that

because we get PCE this week, right? And

Warsh is not so keen on on this read in

terms of inflation. Is he right? Like

and is there something to maybe rethink

about this 2% target that we obsess

about? That maybe that doesn't make

sense because we can't seem to get

there.

>> Yeah. Yeah, yeah, no. I mean I mean this

is, you know, same same thing the '90s.

We didn't really get to 2% as a target,

either. We didn't even really have the

target of of 2% at that time, which is

another thing. So, maybe as I'm saying,

as Kevin Warsh is kind of going back to

the '90s, maybe we should think about

the target. Is it more of a range or is

it a specific point target? Um and and

the other thing that I I think is going

to be very, very different is that the

way that the traditional way over the

last 25 years or so that we thought

about controlling inflation was to

adjust the jobs market, right? So, if

inflation's running too hot, this is the

irrational exuberance. How do you How do

you control inflation? You kill the jobs

market, you create a recession, you get

the unemployment rate up, you get prices

back down, and you tamp down inflation.

What Warsh is saying is that if you're

in this period of higher productivity,

then lower lower levels of unemployment,

so an unemployment rate that say falls

from 4.3 to 3.8 or something like that,

doesn't necessarily mean that it's going

to be inflationary if it's because

you're getting higher productive growth.

That's a very supply-side

view of the world. And basically saying

that if if industry is creating more

efficiencies, that doesn't necessarily

create a higher inflation rate. So, a

lot is changing and, you know, it's a

lot of people should really just, you

know, when they speak to say, "Look, I'm

not really sure, but what I think is."

As opposed to being so definitive. So,

I'm keeping a very open mind about all

of this.

>> Does AI completely change everything

that we're talking about?

>> Possibly.

>> Possibly, you know, I mean, I think the

issues with AI that that I have in

economic forecasting is that it it's

kind of just going to look at the survey

data. It's going to It's going to look

at the available data sets that are out

there. Unless you train it to look at

specific

>> mean that from productivity perspective.

That's what I mean.

>> Yeah, yeah, I see what you're saying.

>> Yeah, not on the data analysis, but just

on productivity and what it does to this

economy.

>> So, in in my view, it does, right? So, I

think the productivity I think you're

going to get a lot I think you can get

higher levels of growth and lower levels

of unemployment, but if it's more

productive because AI is becoming more

efficient, it's going to be a it's going

to be a positive. So, when we think

about AI, people think about it in terms

of profit margins, right? And today, the

way they think about it is it reduces

costs. So, more AI, less junior

analysts, higher unemployment rate, it

would and that's kind of the negative

view of AI.

>> Yeah.

>> I don't think it's going to work that

way. I think what we're going to see is

you're going to have more AI, it's going

to create more demand. It's the Jevons

paradox, right? Where once something

becomes cheaper, you demand more of it.

Um, which is which is what I think AI is

going to do. You'd have more people

asking critical questions of this tool

called AI, and we're going to be judging

the results of these things. And

ultimately, if you get better, more

efficient decisions and higher

productivity, these are the companies

that, you know, that actually use this.

These are the winners. There's a lot of

creative destruction here. There are

going to be winners and losers.

>> Yeah, I agree. Do you think that that

means that some of the companies we talk

about nonstop could be a possible loser

down the road?

>> Yeah, absolutely. Right? So, it's all

about adapting and and it's looking at

companies that can actually use this

tool very efficiently. So right now

there's a big productivity gap between

the way that we evaluate this, right?

We're just in the infancy of all this

stuff, right? So if you ask any

individual person, "Hey, do you use AI?"

Yes, I do. "Are you more productive

because you use it?" Yes, I am. Okay,

now go ask the CEO of that company, uh

"If your If your employee's 30% more

productive, are your profits 30%

higher?" And they're going to say, "Uh I

don't think so, not yet." Over time,

that gap, that productivity gap, is

going to narrow relative to the

individual being more productive in the

company becoming more productive.

Companies right now don't quite know how

to use this tool efficiently or

effectively.

>> But I think the concern that a lot of

people have is that well, maybe when

an employee leaves, that employee

doesn't need to be replaced by head

count. And and it's the margins that

where you'll see. And fewer people

producing the same amount of work, great

for shareholders, not so great for

those folks with jobs.

>> Yeah, it could be, right? So so my take

on it is that the real the real power of

a

powerful user of AI is somebody who can

ask really good, creative, insightful

questions. So the work that, you know,

whether it's software, it's programmers,

engineers, that create a lot of the

software,

a lot of that work is going to get

displaced, I I think. But the people

asking the questions, the more creative

questions that come in that try to solve

problems, I think that doesn't go away.

And then you have to judge it, you have

to interpret it, and then you have to

apply it. And I think that's where the

job growth is actually going to be.

>> So maybe that liberal arts education

>> 100%

>> makes it Hey,

>> 100%

>> a Bowdoin guy here and a Kolbe guy here,

so we're getting along right now.

Exactly.

>> girl here. But no, but I think about

that a lot. Like learning how to, you

know, ask the right question. And we we

keep talking about this, too. It's not

these basic simple questions. It's

really complicated, smart, thoughtful

questions. And

>> The critical thinking that you develop

when you're writing those papers late at

night that now AI is writing for you,

unfortunately, so the kids aren't

learning how to do it.

>> Well, think about it. I mean, like, you

know, you may not be able to code, but

you can ask a lot of really good

questions, right? So, there you go. I

mean, and if you can ask really good

questions, well, don't worry about it.

The machine's going to code for you.

>> Exactly. If you have a vision for

something, because you have an

analytical mind, you have an idea for

creating something, you no longer need

to find that person to code for you. You

can get Cloud Code or Codex from Open AI

to do it for you.

>> So, Albert Einstein said that the true

measure of intelligence is imagination.

It's not all these hard technical

skills. It's is if you're very

imaginative, that's actual intelligence.

I'll go with Albert Einstein on this

one.

>> Yeah. It makes us think, you know,

there people who've been writing things

about, you know, you have to give your

your mind, your brain kind of a moment

to think, right? Some space to think

rather than kind of non-stop either on a

computer or on your phone and and

thinking things through. Um having said

that, we've got about 4 minutes. We're

going to take a break and come back and

talk some more cuz I want to address

some of the things that the president

has been saying. Um

when it comes to the spend that we see

non-stop. And we've been talking a lot

about SpaceX now tapping the debt

market. Um I don't know. How do you work

that into the investment narrative? Is

it smart? Do we get nervous? We just had

our credit analyst on and kind of all in

on Elon and comfortable with it that we

don't even know where this is all going,

but if you're going to bet on someone,

this guy seems to make sense.

>> Well, look, I mean, things are going to

go in cycles. There's no question about

this. So, there is a large spend right

now, and everybody's going to ask a

question, is the juice worth the

squeeze, right? We're spending a lot of

money, are we going to get the profits

or is this going to is this going to

happen?

I think it will. It's going to happen

over time, but it has to be an

enterprise solution. Meaning that

companies, corporate America, is is

who's going to build data centers in

space, for example, right? It's going to

be the need from business that says,

"Hey, I've got a whole team of people

that I just hired and they're using this

AI engine, this AI tool, creating agents

non-stop, and their productivity is off

the charts. We need to do more of this.

It's an enterprise solution that's going

to actually create the profitability,

and and I don't think we're I don't

think we're close to it yet. Because

right now you're asking CEOs, like, "Oh,

so is this profitable?" Like, "Yeah, I

think it is." I mean, they're not quite

sure how to measure it.

>> Well, the flip side of that is some some

CFOs pulling back on on those tokens

because they're not necessarily seeing

the ROI.

>> Expensive. Uber, for example.

>> Expensive.

>> Yeah.

>> Yeah, yeah. It's it's a cost it's cost

component. But like anything else,

you know, tokenization is is going to

get commoditized, it's going to become

cheaper. Um do you remember like, "Oh,

don't print in color," right? You can't

print in color cuz of ink was more

expensive. Nobody really says that

anymore, right? You know, so I I think

it's one of these things that it's like,

you know, I think it's going to get

cheaper.

>> What did I tell you, Carol, when I

started working here 6 years ago? I was

like, "I like working here cuz they

don't count how many pages you print

[laughter] in color."

>> Yeah.

>> As opposed to where I used to work, and

they're like, "Do not print in color."

>> Do not print at all.

>> Yeah, exactly.

>> read off of it. Um yeah. You know, it's

funny when we talk, and I feel like I

mean, we don't know what the time frame

is here, do we?

>> Nope.

>> We really don't. We're taking it day by

day, week by week, month by month in

terms of just kind of watching how this,

you know, evolves. But it what I do find

interesting, and you we mentioned ROI,

like our conversations have evolved a

lot more to talk about that when we're

talking about artificial intelligence.

We weren't doing that necessarily a year

and a half ago.

>> Yeah, so so I think if you look at any

business cycle, right? You've got the

early adopters, you've got the late

adopters, right? It's never a straight

line. It's never like you're early, then

all of a sudden you kind of get through

it's like it's always exponential.

So you start off, there are going to be

some early adopters. The way that the

markets going to identify that is these

are the companies who are going to get

rewarded.

>> So Jim, just the early adopters.

>> Early adopters,

>> Well, I think it's fair to say some of

those are are getting rewarded right

now.

>> Exactly.

>> But apart from those companies, the

front the developers of the frontier

models, the hyperscalers,

um in just the last, you know, 45

seconds we have with you before we take

a break and come back, who else could be

winners?

Where else could you find winners?

>> I think you're going to find it all

across the spectrum. You know, it's not

a question of specific industries, it's

really a question of which companies in

which sectors are adopting these tools

and in unlocking operating leverage.

That's going to happen in health care,

that's going to happen in industry,

that's going to happen in software and

technology, it's going to happen all

across the financial sector. Financials

are pretty efficient, but but but I

would say but even still, financials,

you know, these are all you know,

managed care networks, which are very

cost intensive, very heavy, you know,

you know, workforce intensive. Uh and

the companies that do this right are is

they're going to unlock a lot of

operating leverage and those are cash

flows I want to buy. So I don't think

there's any one sector, one company.

>> Is the president right though? If that

war had continued, would there be an

economic catastrophe for the United

States?

>> Uh yeah, I I think there would have been

a significant slow down. I mean,

ultimately the inventories and the oil

supply shortages would have caught up

and everybody's pretty well versed on

the numbers and

>> But is the challenge now that he said

that out loud, Iran knows they have that

leverage?

>> I I don't think it's news to them. I

mean, I I think they're following the

same flow of information that the rest

of us are and calculating the amount of

barrels of oil that the world needs and

and and things like that and and it was

creating some real, you know, shortages

and some pressures and and I also think

though that what I what Iran also knew

is that the world and you know, China's

a big consumer of oil for example would

have some patience up to a certain point

and then they would start to

Iran would start to feel a lot of

different pressure from their partners

because then it would really become, you

know, a a much bigger issue.

But look, I mean, you know, ultimately I

I do think though we're at a stage where

the

the point of this conflict as far as it

matters to the markets with oil prices,

I think is largely behind us.

I mean, where oil is today or you know,

in the mid-70s whether you're looking at

WTI or Brent which is around 77 at the

moment um

this is way below what I thought it was

going to be. I would have said mid-80s.

I wouldn't have guessed in the 70s. So I

think I think there's a lot to this.

>> Well, I I I think one challenge that

that people have right now when they

they look at where the US and Iran are

in negotiations is that there is this

sort of 60 days to get to some sort of

solution with the the enrichment of

uranium for

any purpose.

>> Yeah, I think it's fair to say.

If you look at historical corollary with

like the JCPOA, you know, that took over

a year to negotiate.

>> Yeah.

>> Yeah, it's going to take time.

>> But does that mean but the difference is

we have all these US assets and service

members in the region and they're kind

of just there as the threat of a cudgel,

right?

>> Yeah, and and I think that there's going

to be some withdrawal of that like over

I think that's part of the 60-day

agreement that that there has to be some

withdrawal of of of troops from the

region. Um I think what's different this

time is that there are consequences for

I Iran. Whereas like the JCPOA and

everything else was like, "Listen, we

want you to have this agreement. We've

come to this agreement. It's taken us a

year. This is what we want you to do.

And if you don't do it, we'll just keep

asking nicely."

This time I think, you know, what what

Trump has introduced in this is is that

there is the there's the carrot and then

there's the stick, right? There there

are consequences to this.

And that, I think, is is is a

differentiating factor, at least for me,

in terms of well, volatility in markets.

I mean, we are going to go through

periods where, oh, well, this happened,

this somebody fired on this person, this

one, you know, and is the straits going

to be closed? And oh, I'm counting the

ships, I counted five less. And you're

going to get these headlines. This isn't

going away. This is going to create

volatility in the markets. But overall,

on average, where the flow is, I think

that the flow is going to be a lot

better. And it's really about uh

denuclearizing Iran. I think this was

his ultimate goal and demilitarizing

them to the point where they can't exert

that kind of influence that that they

had in the past. Is it regime change?

No. It's probably a regime evolution. Um

but we'll see um you know, how that all

plays out, but it's not over yet.

>> Right. And Jim, to that point, uh

President Trump said, just after market

closed, if Iran doesn't behave, I will

do what I need to do. So, right. We're

going to just have to kind of live with

this. Um what do you think is the most

important market conversation we should

be having right now?

>> So, I I I think it's inflation. Um I

mean, if we just look at what happened

last week, right? We had some Fed

governors go from zero rate hikes to two

plus rate hikes, right? So, it makes me

wonder, are they seeing something that

we're not seeing? I'm a little concerned

about that. Now, maybe they're

overreacting, who knows. Um

but you know, if if they're right and if

we do have very sticky, stubborn

inflation above 3% for a period of time,

that's not going to be good um for the

financial markets at all. So, the the I

think what the belief is is that what

we're seeing for inflation today is it's

not so much at the core, it's primarily

at the headline. It's going to be it's

not going to be long-lasting. It's going

to It's going to filter through.

Um but if that turns out not to be the

case,

then you're going to get higher interest

rates, and that's going to slow the

markets down, and the markets are not

really anticipating that.

>> It may be a good segue to talk portfolio

positioning because you and the team uh

over at Morgan Stanley Investment

Management, you like the US.

>> Yeah.

>> You like Japan.

>> Yeah.

>> You're underweight Europe.

>> Yeah, I I I think that Europe is just

going to have more headwinds in terms of

uh

trying number one to

figure out what their

reindustrialization plans are. I mean,

Germany's been struggling for the last

several years in terms of growth. Their

manufacturing is their autos. They're

trying to figure out how to handle China

with exports and imports.

Um energy prices are just uh you know,

are just going to be stickier in in

Europe. They don't have the energy

security or the source of energy that

the US has. So, I I think the costs and

also higher inflation in Europe. Like,

the US can handle 3% inflation, right?

It did it in the '90s, and you know, you

know, the US economy is geared to do

that.

Europe is much more of a rigid economy

that's based on more fixed incomes and

fixed costs. When you get an exogenous

shock of higher inflation, it really

cuts into profits. So, like their

ability to grow and also from a

political standpoint, what that does uh

to people and how they vote and and

everything else can really start to blow

back on on industry. So, it's not that

we're abandoning Europe. We like Europe.

It's just that if I had to choose, I

would choose the US and Japan over

Europe. So, in a portfolio, it's a

zero-sum game. If I'm overweight

something, I've got to be underweight

something else. So, I choose to be

underweight Europe.

>> Can't go. I still have more questions.

>> We got to get Jim back.

>> Um this is amazing.

>> Thank you. It's great to be here with

you both.

>> Thank you. Really uh timely and great to

get your view on on Alan Greenspan and

then just kind of broaden it out. Thank

you so much.

>> Thank you.

>> Really appreciate it. Jim Caron, he's

chief investment officer of portfolio

solutions at Morgan Stanley Investment

Management, joining us right here in

studio.

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