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[Markets] Ken Griffin Says Chicago Violence Like "Afghanistan On A Good Day", Claims Crypto Is "Jihadist" Attack On The Dollar Ken Griffin Says Chicago Violence Like "Afghanistan On A Good Day", Claims Crypto Is "Jihadist" Attack On The Dollar

Move over Jamie Dimon. There's another American billionaire financier who appears to be quietly launching a post-business political career. Or at the very least, one could be forgiven for believing Citadel founder and CEO Ken Griffin's appearance Monday at the Chicago Club of Economics was one long stump speech.

Griffin's hour-plus dialogue, which received extensive coverage from the financial press, comes at an interesting time. On the Internet, "conspiracy theorists" (according to Citadel) have continued to raise questions about possible collusion (or other wrongdoings) between Citadel and Robinhood (and one Robinhood exec in particular) before RH pulled the plug on January's meme stonk mania. Meanwhile, over at the SEC, Gary Gensler has said he's looking into regulating - or possibly eliminating or greatly restricting - the practice of 'Payment for Order Flow", whereby electronic retail brokerages like Robinhood sell their customers' orders to Citadel and other market makers (but primarily Citadel).

Griffin spoke with Bloomberg's Erik Schatzker about a seemingly endless list of topics, offering imminently quotable lines and thoughtful takes on everything from crypto, to political corruption in Illinois and Chicago's slow decline into anarchy, President Biden's policies, the prospect of another Trump presidency, PFOF, crypto, and of course COVID.

The dialogue started with a question on vaccination rates and meandered on from there. Here's a breakdown of what Griffin said by topic.

COVID

When it comes to containing COVID, Griffin believes that the US's battle against the virus was lost right at the beginning. "The country lost this battle in the first attack, when we weren’t willing to do what it took to shut down America, to truly contain Covid-19. And then to get back out of the seat, and we’ve all just paid a catastrophic price as a result."

When it comes to vaccination rates, Griffin believes they have plateaued at an "unacceptably low level".

The Fed

According to Griffing "the Fed's in a really tough box."

The Fed is in "no man's land", Griffin says, and as far as being its chairman, "it is a job I would not be so grateful to have".

He also noted that inflationary pressures in the US are "really unsettling."

What to do? "If i were Chairman Powell, i stay the course that I'm on as unnerving as that is. to see inflation running this hot is really unsettling."

It was at this point that Griffin said something really interesting about the Fed and it's credibility. It's not often that you hear the people who actually run our financial system speak frankly about how it really works. But Griffin essentially said 'the quiet part out loud' when the discussion turned to the Fed's credibility, which we have argued time and again is already in tatters - especially in the aftermath of the pandemic.

"And let's be clear right now we don't have price stability. Inflation is at 5% is the highest number people here have seen in their lifetimes," Griffin said. He added that the Fed's position that these pressures are "transitory" is really just "a big bet".

But regardless of the course of inflation in the future, Griffin said that the more pressing issue is protecting the Fed from being tainted by the same ugly politics that afflict Capitol Hill. The whole point of a central bank is it's supposed to be independent from politics. Whether this is actually true or not, it's the appearance of neutrality that's necessary to maintain global confidence in the dollar.

"We need to maintain the belief in the separation of the Fed from the halls of Washington for the sake of a strong dollar. If you're part of the financial community...you need to push back on that".

Fiscal Stimulus

Griffin slammed the post-COVID stimulus for being to expansive, and claimed all those benefits are still "disincentivizing lower-wage workers".

China

The first question Griffin was asked about China was whether he still opposes a "decoupling" between China and the US. According to Griffin, this "decoupling" is already happening. "I think in important ways we have already decoupled."

But on a day where Biden's Trade Rep Katherine Tai essentially plagiarized President Trump's tough-on-China economic policies during a major speech, Griffin insisted that there will be drawbacks to what the US is doing - including limiting access to semiconductors and software, which has further motivated Beijing to develop their own.

"By restricting Chinese access to semiconductors and American software we have pushed them into a national campaign to eliminate their dependence on the west...imagine a world where there are two totally independent software stacks."

When it comes to the technology arms race, Griffin warned, the US is bound to lose. "They graduate about twice as many graduates as we do half of them have stem degrees. They're producing about 5x more talented engineers per annum. The belief that we will be technologically dominant...is naive."

Once China surpasses American tech, "not only will they use it in the biggest market in the world which is their own market...but they'll push it to all their trading partners, the Brazils of the world..."

Ultimately, "I can imagine a world where we have been divided...and I don't like thinking about that outcome. I can picture a world in 30 to 40 years where, in some sense we have divided the world up between east to west technologically,” Griffin said.

TSMC

Could Beijing's lust for better semis technology accelerate their takeover of Taiwan? The tiny rogue territory has somehow emerged as a global leader in chip technology and production thanks to TSMC.

"They don't have the entire solution, they still buy equipment from around the world, but talk about a powerhouse...and going back to my point earlier, China views Taiwan as part of China, there's no way they will be technologically important against American in the next 20 years. They will get there eventually."

The Rust Belt

That's not to say there haven't been drawbacks to the US engagement with Beijing, and according to Griffin is the fact that China's advances in manufacturing and the state support allowing their companies to be more competitive helped contribute to the hollowing out of thousands of American factory towns. In retrospect, this was a necessary sacrifice to entice the Chinese to embrace first capitalism, and then democracy.

But increasingly it looks like the CCP has no intention to ever loosen its monopoly on power, meaning all those sacrifices were for nothing.

"To have the most populous country in the world becoming increasingly capitalistic our belief was that them becoming capitalist would inevitably lead to them becoming a democracy. when we wrote the rules of rht road for them, we did it with the objective of making that happen."

"The challenge that we underestimated is how devastating this was going to be for small towns that had its only factory shut down. It wasn't how it was going to impact NYC, Chicago or LA but how it was going to impact a small town in upstate New York. That was a terrible policy miscalculation not done in bad faith...but we didn't have the trainin or relocation strategies to help people get back on their feet."

Competition

Griffin believes America is facing an identity crisis, and needs to get back to its "core values." And a big part of that is embracing "competition". Enough of this 'everybody gets a trophy' bs.

"We need to get back to our core values if we're going to win. What does that mean? Children need to be taught the virtue of earned success. It can't be that every time a race is won, there's two gold medal winners. and earned success is so important to the psychological success of our country. When people know they've done a job well..." there's a sense of pride.

The reason why 1 in 10 Americans is severely depressed is that "when life revolves around your instagram and facebook account not how well you do on the sports field, how well you do in class...you've lost your way in life."

"We need to teach our children math and science and how to write and how to compete and how to enjoy success....because we need these children to lead this country in 20 years."

Griffin also complained that the scientists who developed the COVID jabs weren't properly venereated.

"Why haven't we brought the scientists from Pfizer and Moderna to the White House to recognize them for the accomplishment of developing a vaccine in a year. These people are the heroes of our lifetime..."

"There are no people who are children are looking up to to say 'I wanna be like her'" Griffin said.

Teachers Unions

One of the biggest causes of the decay in the quality of public education, according to Griffin, are the teachers unions. He relayed how former Chicago mayor Rahm Emmanuel went to bat for the schools against the unions...and lost. That's why Chicago has one of the shortest school years, and shortest school days, in the country.

"Our mayor went to bat to change that and got batted over the head by the teacher's union," he said.

Biden Agenda

Moving on to the subject of Biden's economic agenda, which is presently the subject of a Democratic civil war in Washington, Griffin said there was plenty in the bill he liked, but also plenty he opposed, starting with the price tag.

"Let's just say thank God for Sen. Manchin," Griffin said.

Debt Ceiling

Griffin believes the responsibility for raising the debt ceiling lies with the Dems...whether or not that means falling back on reconciliation to bypass a GOP filibuster, or not.

"We've played this game of chicken before...I hope somebody blinks before they go over the cliff. I do believe the Democrats have a responsibility....to push this forward."

Payment for Order Flow

Finally, the big one. Are hidden costs imposed by Citadel and other market makers via payment for order flow (PFOF) helping to line Griffin's pockets at the expense of retail traders? Of course not, he insisted. In fact, if you took away PFOF, Citadel would be just fine..."from the 100,000 feet view" at least, Griffin said. Even though the practice has been a major driver of profits at his firm, Griffin tried to frame PFOF as a nuisance cost, suggesting he would rather not have to "pay" for order flow at all.

"Let us hope that we maintain the status quo. brokerage firms have a duty to secure the best price for their customers. That's the premise on which we compete that's the premise on which we win."

Ultimately, losing PFoF would be "a huge loss" for traders who enjoy the lowest commissions in history right now (nothing), Griffin claimed, while adding that "let us hope that in Washington, they maintain the status quo."

Whatever the SEC decides regarding PFoF, "all i want to know are the rules of the road...If i have to drive on the left I'll drive on the left...just tell me to drive."

Crypto

While Griffin is certainly amused by crypto, he wishes all this energy could be channeled toward something that doesn't also inadvertently undermine the American financial system. Instead, Griffin sees crypto-mania as a "jihadist call"...

...to attack and undermine the dollar.

"I wish all this passion directed at crypto was redirected at making American stronger," adding that backing bitcoin over the dollar was a "Jihadist call".

He also made a crack about how terribly energy inefficient bitcoin is, repeating a longstanding criticism.

While he certainly has ethical objections to crypto, Griffin says he would absolutely let Citadel to get involved in the market if it's ever regulated.

"If it were regulated, I would trade it because..it would be good to have a Tier 1 firm making prices."

Chicago

Griffin saved most of his anger for Gov. Pritzker and other Illinois elected officials. He started with a story of a conversation between him and Pritzker where Griffin claimed the governor refused to send in the National Guard to quell violence in the city because of the political optics. Since the last time Griffin spoke at the Economic Club in 2013, the City has gotten even worse.

"Since the last time I spoke in 2013, 25,000 of my fellow Chicagoans have been shot. It is a disgrace that our governor will not insert himself into the challenge of addressing crime in our city. It won't look good to have men and women on corners on Michigan Avenue with assault weapons...well, if it would save the life of one child, I don't care. We need to try and start to take the state back inch by inch from people who put their politics first and the people second."

On the subject of police, Griffin said: "We need our police officers to know that they are respected and welcomed as Americans."

In fact, Griffin says Citadel has already started to dial back its presence in Chicago because of the safety issue before sharing an amusing crack about Chicago being more dangerous than Afghanistan.

"We aren't as much in Chicago. It's becoming ever more difficult to have this as our global headquarters, a city that has so much violence. I mean Chicago is like Afghanistan on a good day. They tried to car jack the security detail that sits outside my apartment. It just shows you how deep crime runs in this city. There is nowhere you can feel safe walking home at 2130 at night. And it's really hard to recruit people to Chicago. When they read the headlines, theey know the facts. 20 years ago, this was a great place to raise a family...I could say that and be genuine...I can't give that speech today."

As for New York City, Griffin warned that many of the same things he has seen in Chicago are starting to take place in New York City.

Griffin added that Citadel's next big expansion will be office space in Miami, and that the company's time of remaining headquarter in Chicago will be measured in "years not decades".

The Sun Belt

Moving on from the Chicago discussion, Griffin believes that across the US, coastal blue states with high taxes will start to lose their economic edge to the Sun Belt, which has more business-friendly regulations.

"Conditions are Better across the sun belt states, less regulation less taxes a workforce that's generally of the ethos of 'I'm here to earn it'. Northern cities still have a considerable advantage...those schools anchor our great northern cities. the south doesn't have that yet writ large. But as universities in the south continue to get better, you're going to see the balance of power shift from the north to the south as the ease of doing business in the south trumps the ease of hiring top employees in the north."

Trump

Finally, the big one.

When it comes to President Trump, Griffin admits his economic policies were "pretty damn good."

However, when asked about the prospect of another campaign in 2020, he said that "it's time for America to move on. The 4 years under president trump were so divisive it was not constructive for the country."

He also said he was "appalled" by Trump's willingness to play identity politics.

* * *

Griffin's speech before the Chicago Club  the first major public appearance by Griffin since the "GameStopped" hearings back in Feb.

Tyler Durden Mon, 10/04/2021 - 17:20
Published:10/4/2021 4:30:08 PM
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