Morgan Stanley's Jim Caron Talks Fed, Greenspan, Investment Trends

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio News.

**Carol Massar** (0:07)
Jim 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 Business Week Daily. He's joining us for the rest of the show. Jim, it's good to see you. Welcome back.

**Jim Caron** (0:22)
Thank you. It's great to see both of you.

**Carol Massar** (0:23)
And thanks for taking the time this afternoon. We obviously weren't planning on starting with Alan Greenspan and 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 in an intelligent way that will suffice.

**Tim Stenovec** (0:43)
I did what's right on it with two other people. That was dangerous. That was when I was really young.

**Carol Massar** (0:48)
But we do want to start with Alan Greenspan and the legacy because early in your career, he was the Fed chair you knew. He was it.

**Jim Caron** (0:56)
He was a legend.
If we 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. For most people, 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 the starting point of my career. He was 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. But he also did a bunch of different things. He changed things at the Fed in the sense that he made it a lot more transparent, if I could say those words.
The way the Fed operated, and we take this for granted today, that you find out on Wednesday at two o'clock what the Fed's decision was, and we all go to work. Prior to Greenspan, it was Volcker. And what happened at about 415, 410 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 all it is.

**Tim Stenovec** (2:31)
Is it too much though? Like would some say it's gone too far?

**Jim Caron** (2:35)
So there's been iterations, like there's pre Greenspan and then there's post Greenspan, right? So what happened in the 19 years subsequent from 2006, say, to 2026, 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 in the financial crisis. He had to do enhanced communications and things of that nature.
I think that what, is it too much today in terms of communication? I'm going to say that it is a bit, because what the Fed is trying to do is they're trying to telegraph and televised 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. So, the way I think about Kevin Warsh.

**Tim Stenovec** (3:33)
So, we're being managed?

**Jim Caron** (3:34)
Well, I mean, the way I think about Kevin Warsh, if I'm going to put him in this period of time from 1987 to 2026, I'm going to say that what Warsh is trying to do is bring us back to the period that was pre-Ben Bernanke, so it was Greenspan in the 1990s. So, very similar economic setup, too. Big capex cycle, big productivity boom that we're going through.
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, because Volcker and everybody else just looked at money supply, M1, M2, they were very, very much, that's what they did.
Greenspan was the 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 all of these various things. The things that we think of today is very common, 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.