May 2, 2025 • 34 mins
This week, former Treasury Secretary Lawrence H. Summers and Columbia’s Kathryn Judge discuss the importance and evolution of the Fed's independence. And, how will Trump’s tariffs influence trade in the long run? Plus, Vanguard’s 50th anniversary.
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Speaker 1 (00:12):
This is Wall Street Week. I'm David Weston bringing you
stories of capitalism. This week, trade is at the center
of President Trump's economic policy. We bring you the story
of what he's trying to accomplish and whether he's likely
to succeed. Plus, Vanguard celebrates the fiftieth anniversary of its
first fund. We'll go to its headquarters in Pennsylvania to
(00:33):
hear from CEO Salem Ramji about what he thinks they've
accomplished so far and where they go next. And birth
rates are dropping through much of the world, with governments
at a loss for what to do about them. We
bring you the story of what one Japanese company has
done to ensure it has a workforce for the future.
But first we visit the complicated world of Jay Powell,
(00:56):
caught between a slow economy, stubborn inflation, and who can't
quite decide what he wants to do with the FED chair.
Speaker 2 (01:05):
And inflation is basically down and interest rates came down
despite the fact that I have a FED person who's
not really doing a good job. But I won't say that.
I want to be very nice. I want to be
very nice and respectful to the FED. You're not supposed
to criticize the Fed. You're supposed to let him do
his own thing. But I know much more than he
(01:26):
does about interest rates.
Speaker 1 (01:27):
Believe me, Larry. We have FMC meetings next week. What
do you expect the FED to do.
Speaker 3 (01:35):
I'd be very surprised if they moved interest rates. I
think they'll continue to convey vigilance and a sense of
uncertainty about where the economy is and their determination to
monitor both the cyclical risks and the inflation risks. I
think the FED has to be very careful given all
(01:57):
the political pressures that have been put on it, even
that the tariffs are potentially going to be an important
inflationary impulse in the economy, and also given the substantial
signs that the economy is slowing. If I were at
the FED, I would be trying to have an uneventful
meeting and not produce any substantial reaction in the markets.
(02:22):
And my guess is that that will be their course.
Speaker 1 (02:25):
President Trump seems to have a different view. He thinks
that they should have cut already, that they're behind on
the cut, and there is some slowing in the economy.
We saw the GDP numbers at least for the first
quarter come in light. We saw core PCE actually pretty
modest this week. Is there a growing case for what
President Trump is arguing for.
Speaker 3 (02:45):
I think the economy probably looks softer today than it
did a couple months ago, but I think there are
also some troubling signs of inflation risk going up. I
wouldn't argue with the market's judgment that the full set
of developments in the economy points towards more easing than
(03:10):
look like it would be necessary a month or two ago.
But I think it would have been a grave mistake
to have eased already, and would be a very serious
error to ease at this upcoming meeting. I think the
results would be a lack of confidence in the Fed's
(03:32):
determination on inflation, and that would mean higher interest rates
at the long end, and that would mean higher mortgage
rates and would probably ultimately mean more economic weakness. So
I think the President's advice is really quite misguided, both
(03:53):
as to the substance and as to the appearances. I've
said many times, FED for a president is a fool's game.
The FED doesn't listen, and so short term interest rates
don't go down. The market does listen, and so long
term interest rates go up.
Speaker 1 (04:11):
Talking about short term interest rates, we had church and
sectary vestent this week say that if you look at it,
the short rates are below the federal funds rates right now.
And when the short rates are below the federal fund rates,
that really argues for a cut. Is that a good benchmark?
Speaker 3 (04:27):
I don't think so. The two year interest rate reflects
the expectations of what the future short term rates are
going to be, So all that's really saying is that
the market is expecting that there will be cuts. That's
not the same thing as saying there should be cuts.
(04:49):
So I think it's pretty analytically unsound to reason from
the two year to what the FED should do. And
it's pretty in a appropriate for the Treasury Secretary to
be commenting in that way on the FED. In many ways,
it's actually even worse than the president commenting, because people
(05:14):
understand that presidents are political figures who are called on
to address all issues, whereas they think of Secretary of
the Treasury as sophisticated financial professionals who should know all
about the independence of the FED.
Speaker 1 (05:34):
The independence of the Federal Reserve doesn't depend on the
will of the president alone. Congress set it up that way,
and ultimately the courts may have something to say about it.
Catherine Judge is a professor at Columbia Law School and
has studied how the FED has evolved.
Speaker 4 (05:49):
So it was actually restructured quite significantly in nineteen thirty
five to be significantly more independent. That year matters. Actually
it was right after the Supreme Court decid a major
decision Humphrey's Executor, which made it clear that Congress was
able to create independent agencies. And it was in the
wake of that decision that the Congress really restructured the
(06:11):
FED to its current structor. And it's a complicated structure.
We sell twelve reserve banks across a different country, but
then we have the Board of Governors and they alserve
for fourteen year terms and they can only be removed
for cause, and that really serves as the bedrock of
the Fed's independence.
Speaker 1 (06:28):
There have been times, even more recent history, when the
Federal serve seems to have been really addressing that concerns
the president. Under President Nixon, for example, that certainly happened.
What were the consequences of that and what corrected and what.
Speaker 4 (06:41):
Gave us vulgar Yeah, I mean I think it was
actually what happened with Nixon and Arthur Burns, who was
then the FED chair, that led to the Vulgar era.
And really what we've had subsequent to the Vulgar Era,
which has been a real respect among politicians for FED independence.
And what we saw there is the classic stereotype of
a president who wants a slightly healthier economy and short
(07:02):
run is putting pressure on the FED chair and a
FED chair who felt the need to be somewhat accommodative
to those pressures, and the result was really destabilizing. We
ended up with a period of meaningful stagflations. We had
high rates of inflation, high rates of employment. It was
not healthy for really the economy or for anyone else
within the economy's longer term. And one of the real
(07:23):
challenges and was how does the FED re establish credibility?
How does the FED convince the public, convince markets that
it is going to tighten monetary policy even when it's
facing pressure to be more commodative. And Volga really came in,
took the reins and had that long term objective and
(07:46):
was willing to cause some significant short term economic pain
and to face some meaningful threats in the process, but
he managed to do a remarkable job re establishing the
Fed's credibility.
Speaker 1 (07:58):
Recent presidents inuneral have been reluctant to comment on the
actions petruing a monetary policy of the Fair Reserve. President
Trump has been very explicit to saying, I can say
what I want to say. If I want to comment,
and I'm going to comment in it, can he be
free to I'll say, jawbone the Fair Reserve consistent with
its independence.
Speaker 4 (08:16):
I would say that's part of what we're trying to
figure out right now. The challenge that we're facing with
President Trump is not just that he has an opinion
on interest rates I think is actually legitimate and even
though it's not been done in recent presidency, is not
inappropriate for a president to be able to have a
view the challenges. He's expressing that view while also having
taken the position that he has the authority to fire
(08:38):
Jerome Powell, the current chair of the Federal Reserve, and
while also having removed other commissioners from other agencies that
have explicit four cause removal protection. So it really is
that combination of not only having an opinion, but having
views about his legal authority that are incredibly expansive, that
have the potential to really undermine the credibility, and that
(08:59):
expect that the Federal Reserve will be able to maintain
the independence that it's enjoyed and that has allowed the
economic flurishing that the country has enjoyed for the last
four decades.
Speaker 1 (09:10):
If we are looking for guardrails, do they come from
laws we like to say, we're a nation of laws,
not of men. Or might they come from bonds? Because
there's been a fair amount of reaction in the bond
market to some of what President Trump has said.
Speaker 4 (09:24):
I was going to say, I have to say I've
personally welcomed all of those reactions, and I think it's
it appropriate for a president to be responsive to understanding
what the market is telling them about the likely impact
and the potential destabilizing impact of policy choices of threats.
That being said, we can't rely on the bond markets alone,
and there's a lot of danger and that having be
(09:45):
too much of an indicator or too much of an
influence coming up.
Speaker 1 (09:49):
Tariffs may be President Trump's favorite word, but much of
the world seems to have problems with it. We examine
what us trade policy can accomplish and what tools are
fit for purpose. That's next on Wall Street Week. You're
listening to Bloomberg Wall Street Week with David Weston from
Bloomberg Radio.
Speaker 5 (10:14):
This is Bloomberg Wall Street Week with David Weston from
Bloomberg Radio.
Speaker 1 (10:20):
This is a story about means and ends. At this point,
we all know the means. President Trump has chosen to
advance his economic agenda.
Speaker 6 (10:28):
Tariff, tariff, tariff.
Speaker 2 (10:30):
I am a tariff man. To me, the most beautiful
word in the dictionary is tariff.
Speaker 1 (10:35):
But if tariffs are the means, it's not always as
clear what ends he hopes to accomplish with them, which
makes it harder to evaluate whether he's winning or losing.
Speaker 2 (10:49):
Tariffs are about making America rich again and making America
great again. And it's happening, and it will happen rather quickly.
Speaker 1 (10:56):
All of us are becoming fluent in the talk of
US trade power, whether we want to or not. But
in the end, what is it that trade policy is
meant to accomplish for the America? The President wants to
make great again.
Speaker 7 (11:09):
So the goal of trade policy I think should be
enhancing economic well being in the United States and internationally,
because you should be able to use trade as part
of an economic strategy that grows an economic pie.
Speaker 1 (11:28):
Susan Schwab served as the US Trade Representative under President
George W. Bush and now teaches international trade at the
University of Maryland School of Public Policy.
Speaker 7 (11:38):
This is not a zero sum exercise where I when
you lose, it should be you grow the economic pie.
It is a policy where you create rules of the
road and then you enforce them rigorously. It is a
policy where you make sure that as you build those rules,
(12:00):
they are rules that Again my opinion and historically our
view of trade, trade barriers are sort of the last result.
You know, free trade, open trade, market based trade is
the norm is what the goal where you'd like to be.
(12:20):
But life is reality is deviations from that norm, and
you want to minimize the trade distorting interventions in the market.
You want to use trade in the most positive sense,
but you also need to be defensive because you don't
want trade distortions to undermine your national security, interests, your
(12:46):
you know, the economic well being of your population. But
you don't want to pretend that trade is the be
all and end all and that it's going to cure everything.
Speaker 1 (12:56):
Free trade has gotten a bad name in some parts
of Washington these and the accusation I think is that
it's actually hurt some workers in some industries, at least
in parts of the country. Is that fair?
Speaker 7 (13:07):
Much as I hate to say it, I don't think
we've ever had free trade. I don't think any country,
no matter how pure they think they are, is actually
a free trader. Trade can impact, can hurt, and has
hurt different communities, different individuals. And the question is how
(13:29):
much of that is quote structural, you know, how much
of that is I'm not sure that Americans ever want
to make labor intensive footwear or labor intensive apparel again.
And how much of that is unfairly traded imports that
(13:50):
have been subsidized, that are selling that are dumped into
the market, that are selling it less than the cost
of production. I'll give you a different example. In the
seventeen nineties, over ninety percent of US of the proportion
of US workers, we're in agriculture today, that's what less
(14:11):
than two percent, less than three percent. Nobody argues that
US agriculture is uncompetitive. US agriculture is a major competitive producer,
but we do it without the same proportion of labor
needed productivity enhancements. Technology has taken over that function.
Speaker 1 (14:33):
And that has been a foundation of President Trump's trade policy,
making America great again by quite literally making stuff in
America again.
Speaker 7 (14:43):
People claim we don't make things anymore. In fact, we
make things all over the country, and manufacturing output in
the United States has continued to go up and up
and up and up, contrary to what a lot of
our politicians say, Republicans and Democrats, by the way, manufacturing
employment has gone down, has been going down since the
nineteen fifties, in part because more automation, more technology, but
(15:09):
also in part if you talk about, for example, the
China shock late nineteen nineties into the twenty ten twenty eleven,
there was no time for structural adjustment, no time for
the workers to adjust, and workers and communities were severely impacted.
Their non market economy model is a bad model, and
(15:31):
they're exporting their economic mistakes, so they have overcapacity and
they're dumping them all over the world.
Speaker 1 (15:37):
China's non market economy maybe a bad model, but it
doesn't look like they're going to move off of it
anytime soon. So in the meantime, what do you do.
With a non market economy as big and as powerful
as China.
Speaker 7 (15:48):
We should be doing a much better job of enforcing
existing rules at the wto running up the score against
them puts us in a much better position to make
the point they are centers right. So that's the first thing.
The second thing is we need to be working with
our trading partners to get them to stop to block,
(16:11):
let's say, block their exports of those dumped and subsidized goods.
Speaker 1 (16:16):
I'm not sure that President Trump seems to be pursuing
a route to getting our trading partners on side thus far.
How could one do that that might be somewhat different
from what we're seeing right now.
Speaker 7 (16:28):
Well, you've got you know, we talk a lot about tariffs,
and it only seems to be in terms of raising them,
and we talk about reciprocity.
Speaker 1 (16:36):
President Trump's tariffs have begun to take effect. Customs duties
jumped sixty percent in April to an all time high
of more than fifteen billion dollars, a number that does
not yet include the universal ten percent tariff introduced on
April second. But Schwab believes reciprocal tariffs aren't a means
to an end.
Speaker 7 (16:56):
The reciprocity thing I don't think works, but I do
think that you can get to yes in trade agreements
where you have more comprehensive and more comprehensive scope. The
key thing I believe is not to have a trade
policy that renders your own production uncompetitive, because ninety five
(17:20):
percent of the world's consumers are outside this border. If
you put up trade barriers against the wrong things like inputs,
because over half of what we import are actually inputs
to our manufacturing, then you're going to make what we
manufacture uncompetitive and we can't export them.
Speaker 1 (17:40):
If the goal is to have competitive industries, can we
have competitive industries without competing, that is to say, by
protecting our industries from competition from abroad.
Speaker 7 (17:52):
I don't think so. Or let's say that the history
of that is would make one doubtful. If you think
about our auto sector. Our auto sector, domestic automakers in
the late seventies early eighties came in for a really
big shock when the Japanese autos arrived on these shores
(18:16):
and our automakers had not been exporters, and they met
their competition on these shores for the first time and
discovered that Americans wanted to buy Japanese autos that had
fewer errors, that had features that their US automakers had
not seen.
Speaker 1 (18:33):
Fit to add, it's not just Schwab citing the example
of the Japanese automakers of the nineteen nineties.
Speaker 8 (18:46):
One thing would be to say, we're just not letting
anything come into the United States, and that would mean
that as of like the nineteen nineties, we would have
lost the benefits of all these things that were discovered
in Japan about just in time, manufacturer and statistical quality control,
higher quality vehicles.
Speaker 1 (19:03):
Remember Paul Romer is a Nobel laureate and former World
Bank Chief Economist.
Speaker 8 (19:08):
What we did then was instead of saying, Okay, we're
just cutting off any connection with Japan, We'll live with
our cars the way we are, we said, you can
take what you know, but you have to set up
auto plants and hire workers here in the United States.
So the ideas about how to make new quality cars
come in they can be used to compete with the
existing firms.
Speaker 1 (19:29):
Roamer now leads the newly formed Center for the Economics
of Ideas at Boston College.
Speaker 8 (19:35):
My whole work has all been about ideas versus objects.
So I started playing with well, what if we had
restrictions on flows of objects but didn't restrict the flows
of ideas.
Speaker 1 (19:47):
So what would happen? Take the solar industry, for example.
Speaker 8 (19:51):
Those solar panels have gotten much cheaper because of the
subsidies provided by the Chinese government to increase output, and
so quote they control that indo, but they've made solar
electricity way cheaper all around the world. But then the
question is how do we respond. I think it's a
bad policy to try and protect like an industry or
(20:11):
a firm with a tariff barrier, But it's okay if
some government wants to subsidize something, and if they're subsidizing
solar panels so aggressively that we don't even want to
get in that game, fine, we can go do batteries
or you know, stationary batteries, electrical system sized batteries, or
you know one hundred other things. But the point of
(20:35):
this distinction of ideas and objects is that new ideas
fly by wire, cheaper solar panels, those new ideas are
really valuable, and we should have governments subsidizing them. We
shouldn't be so worried about trying to punish the other
guys for doing what we would really like to be
able to do.
Speaker 1 (20:52):
But do you tell China, fine, subsidize your solar panels,
but come make some of them on shore.
Speaker 8 (20:57):
That's what I'd say, Yeah, exactly, So we could invite
in all of that kind of expertise, but say, realistically,
to people in the United States, there'll be jobs for you,
Like the people you knew in Flint. There will be
a there'll be a future for you. Now, now let
me step back and say, I'm trying to describe a
policy we could evaluate. It's got some costs, it's got
(21:19):
some benefits. Not everybody is going to agree that this
is the best one. But what's missing at the moment
is nobody's even said what's the policy, So we didn't
even know how to total up the costs and benefits.
Speaker 1 (21:32):
President Trump argues his tariffs will make America richer, but
which parts of America. Romer says, a sound trade policy
is one that benefits all Americans.
Speaker 8 (21:42):
I think a good way to think about this is
we want the average income like GDP per capita, to grow,
but we also want to share that relatively evenly, at
least in the sense that everybody can expect some growth
along with growth for the nation. We've always known as economists,
the downside of free trade, even though it's good at
(22:03):
raising average income, is that it can widen income and equality.
And we always said, well, don't worry about it. There's
ways to redistribute the games, so everybody's a winner. But
redistributing the games is not that easy, and we haven't
done it.
Speaker 1 (22:17):
The answer, according to Romer, lies not just in tariffs
and balance sheets, but in the exchange of ideas.
Speaker 8 (22:24):
If BYD says we're happy to make our cars in
the United States when we sell them in the United States,
will you let us come in and use what we
know and make and sell cars to the United States.
If they say yes, then then I think it's probably
going to be an okay policy. If they say no,
then we're kind of back in that move towards autarchy,
and I'd be worried about where that goes.
Speaker 9 (22:48):
Up next.
Speaker 1 (22:48):
Vanguard is celebrating the fiftieth anniversary of its first fund.
Its CEO takes us through how it got to where
it is and what comes next.
Speaker 5 (22:58):
You're listening to Bloomberg Walls with David Weston from Bloomberg Radio.
You're listening to Bloomberg Wall Street Week with David Weston
from Bloomberg Radio.
Speaker 1 (23:15):
This is a story about going with the flow whenever,
the pluses and minuses of trying to beat the market
when it's reasonably stable at a time when it's swinging wildly,
risk is out and safety is in. That's the philosophy
that gave rise to passive investing a half century ago.
Katie Greifeld brings us the story of Vanguard marking the
fiftieth anniversary of its creating the first fund as it's
(23:37):
ridden the wave rather than trying to beat it.
Speaker 8 (23:42):
I don't want anything, but sometimes you have to take
beneicit to fix Uping.
Speaker 6 (23:47):
Market centered a period of extreme volatility at the beginning
of last month after President Trump announced expansive tariffs on
allies and adversaries alike. In the two days that followed
the so called Liberation Day on April second, the S
and P one hundred fell by over ten percent By
the end of the following week. That amounted to ten
trillion dollars in losses globally, but there were bright spots
(24:08):
among them ETFs. The week after the announcement ETFs saw
net inflows of more than thirty five billion dollars.
Speaker 10 (24:17):
We had about four of our five highest trade days
in our history in the past six or eight weeks.
In every case, clients were buying rather than selling, and
in each of those cases, they were going back to
these original principles of diversification, staying aligned with your goals,
(24:37):
and investing for the long term.
Speaker 6 (24:39):
Salima MG is the CEO of Vanguard, which has been
battle testing its approach to investing for half a century.
Speaker 10 (24:45):
So some of it just comes from kind of our
client's behaviors and as you said, whether we're attracting clients
who like what we stand for. In many cases it's
they're exposed to individual securities and they're seeing the risk
and volatility in owning individual names, and they're looking for
(25:07):
a much more diversified set of exposures. But the biggest
part of client's portfolios are often individual securities, and so
there's a lot of money coming in from clients who
want more diversification than they might get from owning individual
stocks and comments.
Speaker 6 (25:22):
In the fifty years since Jack Bogel founded the company,
Vanguard has seen six recessions in the US, including the
dot com bubble, the GFC, and more recently the COVID
nineteen recession.
Speaker 9 (25:33):
Let me give a shout out to Vanguard. They created
indexing for the individual investor.
Speaker 6 (25:39):
David Booth has been part of the evolution of indexing
since day one. He was around for the early days,
working with pioneer Eugene Fama.
Speaker 9 (25:48):
We were all kind of friendly and worked with each
other to the point that the group I worked on
in Wills Fargo, which was one of the first, came
out one of the first passive fund first index funds.
Jack had created the framework for providing indexing to individuals.
Speaker 6 (26:05):
Bogel was the legendary founder of Vanguard who went against
what was then the investing grain.
Speaker 11 (26:11):
How to decide in the funds is a little bit difficult,
I'd say, taking the most important part perhaps the equity
fund selection. I think a beginning investor in particular should
go for sort of middle of the road funds, like
fairly conservative growth and income funds or growth funds, and
even suggested by your remarks at the outset, maybe a
little seasoning of index funds wouldn't be so bad.
Speaker 8 (26:34):
Describe you as in industry states when you said when Bogel.
Speaker 6 (26:36):
Appeared on Wall Street Week with Lewis Rukaiser. In the
early nineties, Vanguard had around one hundred billion dollars in
assets under management. Today it's grown to more than ten
trillion dollars, and through the growth, Bogel's philosophy remains, well,
you have a really interesting job because you know, you
have to thread saying true to the roots that Jack
Bogel laid down fifty years ago, but also positioning Vanguard
(26:58):
for the future, and you know, future proofing Vanguard.
Speaker 3 (27:01):
Yeah.
Speaker 10 (27:01):
I think first is understanding our history and understanding our culture.
And I've also benefited that First Bogel wrote a lot,
and so not just in his books, but in all
the historical archives and speeches and in the memos, and that,
like you, it.
Speaker 6 (27:16):
Was a culte machine. One of Bogel's famous sayings tells
the story of passive investing. Don't look for the needle
in the haystack, just by the haystack. It's a philosophy
so popular it generated an online following of passive investors
known as Bogel Heads.
Speaker 10 (27:31):
One of the interesting things is Vanguard's always changed, like
we've maintained our sense of consistency around our purpose. Well,
whether you can think about our moves into advice, or
moves into ETFs, or moves into you know, if you
go back into the nineties, or moves into retirement, these
were all changes in the business model. But so it's
I sort of look at what I'm here to do
(27:53):
is to continue that tradition and that kind of duality
between staying true to the purpose and also changing things
as we need to change and adapt based on our
client needs.
Speaker 6 (28:03):
Buying that haystack today looks a little different than it
did during Bogles days, but Vanguard makes no apology for
sticking to its tried and true approach to indexing that
avoids the trends of the day. You could start to
have to really think about how do you stay ture
the roots. Well, also, you know, giving clients what they want,
because those clients, specifically in advice and wealth management, I
(28:24):
could imagine them requesting private assets, which I know that
Vanguard is pursuing. But I could also see them asking
for bitcoin and crypto, which famously Vanguard isn't too hot on.
So I wonder how you're thinking about those sort of
potential run ins.
Speaker 10 (28:41):
We're not going to be everything to everybody, and that's
okay with us. That's been true for kind of the
history of the firm. But where we see opportunities to
partner with others, including in things like private markets, and
we think it's good for clients' long term portfolios, we'll
absolutely do it.
Speaker 6 (28:57):
So it sounds like that's a no. Like if you know,
a client came to you and said, you know, I
really want to add bitcoin, or I really like the
looks of this leverage single stock UTF, it sounds like
that's not something that's not a road that Vanguard is
going to go down.
Speaker 10 (29:10):
Yeah, We're always going to be focused on what we
think is a good way to build long term wealth
and that is suited to the client's individual needs. And
so that may mean saying no or saying that we
don't think that particular product in that particular offering is
right for the client. And you know, we may not
(29:30):
get caught up in the in the latest fad, but
we're dependable for the long term.
Speaker 9 (29:36):
Your comparative advantage is not going home at night and
trying to think of the next big winner. Your comparative
advantage is going home figuring out here's my circumstance. You know,
I just decided to retire, or I won the lottery,
or whatever the changes are, How does that impact the
way I want to invest? That makes a lot of
sense to spend the rest of your time playing with
(29:57):
the kids, you know. It's it's a that's kind of
a side benefit of all of this. You can come
up with sensible investment solutions that have a great chance
of winning over the long haul without getting just emotionally
fixated on it.
Speaker 6 (30:14):
Vanguard is known for making diversification easier for investors through indexing,
but also making it cheap. In February, it announced its
two thousandth and largest ever fee reduction, cutting its average
asset weighted expense ratio to just seven basis points. That
compares to the industry average of forty four basis points.
Speaker 10 (30:31):
We're always investing back into technology and into capabilities that
enhance our economies of scale. It's true in our investment team,
it's true across the firm because there are lots of
advances as you can imagine, that are just making investing
kind of easier, making it more efficient, and we need
(30:52):
to be at the forefront of that. Back in February,
we announced kind of record fee reductions, but it was
the two thousandth time we done that, right, So it
was a very vanguard kind of oriented thing. And when
we think about kind of the future, we just see
so many opportunities to extend the Vanguard effect, whether it's
in fixed income, whether it's in things like cash, whether
(31:15):
it's in things like advice.
Speaker 6 (31:17):
Its competitors have been forced to keep up with the
race to the bottom in the fewer or to find
other ways to differentiate themselves.
Speaker 9 (31:23):
It's one thing to say, look, I have slightly higher fees,
that it only works if you're What really counts is
what your return is. And we now have forty three
years of performance that's showing that this kind of approach
can work.
Speaker 6 (31:39):
Over its fifty years, Vanguard has changed investment management, but
it has also evolved to meet investors appetite for new
products and services. In mid April, Blackstone came out and
said that you know, it teamed up with you and
Wellington to build investment accommodations with stocks, bonds, and alts,
which is interesting. Private markets have been the talk of
the town for months yet now, and it seems like
(32:01):
every issuer is trying to figure out how to incorporate
that into their strategies. Why go that direction?
Speaker 10 (32:07):
Well going the partnership route was well a very vanguard
thing to do. The first Vanguard funds fifty years ago
were managed by Wellington, and it's actually Gene Hines over
at Wellington, the CEO. She came with this idea around
could we partner with another firm that does private markets
as well as Wellington does fundamental equities as well as
(32:28):
we do things like index and active fixed income. And
this idea of going the partnership route was, as I said,
something that we've done for fifty years now. We have
plenty of other active equity managers. Wellington is our longest
standing and largest, but when we started to think about
how do we branch into private assets on behalf of
(32:49):
our clients, it was really that Wellington came up with
the kind of the idea in the proposal, and that
was really the beginnings of I think what you've.
Speaker 6 (32:59):
Heard about ETFs are meant to diversify risk and make
investing safer for retail investors, but indexing might be creating
another kind of risk.
Speaker 9 (33:07):
It's got the point now with ETFs that they've kind
of created this giant investment casino. You know, here's how
you can place your debts. You know, you've got all
these industry and you can put some money over here
in time. Because the question often comes up as well,
if everybody indexes, I won't markets become inefficient? And so
now people instead of picking stocks, they place the debts
(33:30):
on industes. I mean, I hope you know, and I
think that's unfortunate because now you're back in with the
same suit that you're in before, which is in order
to in order to beat the market, you've got to
pick the right industries at the right time.
Speaker 6 (33:43):
The growth in ETFs has brought with it competition for
mainstays like Vanguard. Which competitor do you think about the
most and why is it black Rock?
Speaker 9 (33:53):
Uh?
Speaker 10 (33:53):
The competitor I think about the most is friction. The
biggest impediment I think to clients achieving the of investment
success that we would hope for is that investing is
still too complicated and there are ways that we're always
looking for to how do you make it easier, How
do you make it easier to open an account, to
(34:14):
fund an account?
Speaker 6 (34:16):
Ten years from now, when it's Vanguard's sixtieth anniversary, and
we're sitting here again, what do you want to have accomplished?
Speaker 10 (34:22):
Vanguard plays a really unique role in the investment community
because of our client ownership, because of our focus on
giving people a fair deal, and I certainly don't want
that to change in ten years. I don't want that
to change in twenty years, or thirty years or well
into the future.
Speaker 1 (34:38):
That does it for us here at Wall Street Week,
I'm David Weston. Join us next week for more stories
of capitalism.
This is Wall Street Week. I'm David Weston bringing you
stories of capitalism. This week, trade is at the center
of President Trump's economic policy. We bring you the story
of what he's trying to accomplish and whether he's likely
to succeed. Plus, Vanguard celebrates the fiftieth anniversary of its
first fund. We'll go to its headquarters in Pennsylvania to
(00:33):
hear from CEO Salem Ramji about what he thinks they've
accomplished so far and where they go next. And birth
rates are dropping through much of the world, with governments
at a loss for what to do about them. We
bring you the story of what one Japanese company has
done to ensure it has a workforce for the future.
But first we visit the complicated world of Jay Powell,
(00:56):
caught between a slow economy, stubborn inflation, and who can't
quite decide what he wants to do with the FED chair.
Speaker 2 (01:05):
And inflation is basically down and interest rates came down
despite the fact that I have a FED person who's
not really doing a good job. But I won't say that.
I want to be very nice. I want to be
very nice and respectful to the FED. You're not supposed
to criticize the Fed. You're supposed to let him do
his own thing. But I know much more than he
(01:26):
does about interest rates.
Speaker 1 (01:27):
Believe me, Larry. We have FMC meetings next week. What
do you expect the FED to do.
Speaker 3 (01:35):
I'd be very surprised if they moved interest rates. I
think they'll continue to convey vigilance and a sense of
uncertainty about where the economy is and their determination to
monitor both the cyclical risks and the inflation risks. I
think the FED has to be very careful given all
(01:57):
the political pressures that have been put on it, even
that the tariffs are potentially going to be an important
inflationary impulse in the economy, and also given the substantial
signs that the economy is slowing. If I were at
the FED, I would be trying to have an uneventful
meeting and not produce any substantial reaction in the markets.
(02:22):
And my guess is that that will be their course.
Speaker 1 (02:25):
President Trump seems to have a different view. He thinks
that they should have cut already, that they're behind on
the cut, and there is some slowing in the economy.
We saw the GDP numbers at least for the first
quarter come in light. We saw core PCE actually pretty
modest this week. Is there a growing case for what
President Trump is arguing for.
Speaker 3 (02:45):
I think the economy probably looks softer today than it
did a couple months ago, but I think there are
also some troubling signs of inflation risk going up. I
wouldn't argue with the market's judgment that the full set
of developments in the economy points towards more easing than
(03:10):
look like it would be necessary a month or two ago.
But I think it would have been a grave mistake
to have eased already, and would be a very serious
error to ease at this upcoming meeting. I think the
results would be a lack of confidence in the Fed's
(03:32):
determination on inflation, and that would mean higher interest rates
at the long end, and that would mean higher mortgage
rates and would probably ultimately mean more economic weakness. So
I think the President's advice is really quite misguided, both
(03:53):
as to the substance and as to the appearances. I've
said many times, FED for a president is a fool's game.
The FED doesn't listen, and so short term interest rates
don't go down. The market does listen, and so long
term interest rates go up.
Speaker 1 (04:11):
Talking about short term interest rates, we had church and
sectary vestent this week say that if you look at it,
the short rates are below the federal funds rates right now.
And when the short rates are below the federal fund rates,
that really argues for a cut. Is that a good benchmark?
Speaker 3 (04:27):
I don't think so. The two year interest rate reflects
the expectations of what the future short term rates are
going to be, So all that's really saying is that
the market is expecting that there will be cuts. That's
not the same thing as saying there should be cuts.
(04:49):
So I think it's pretty analytically unsound to reason from
the two year to what the FED should do. And
it's pretty in a appropriate for the Treasury Secretary to
be commenting in that way on the FED. In many ways,
it's actually even worse than the president commenting, because people
(05:14):
understand that presidents are political figures who are called on
to address all issues, whereas they think of Secretary of
the Treasury as sophisticated financial professionals who should know all
about the independence of the FED.
Speaker 1 (05:34):
The independence of the Federal Reserve doesn't depend on the
will of the president alone. Congress set it up that way,
and ultimately the courts may have something to say about it.
Catherine Judge is a professor at Columbia Law School and
has studied how the FED has evolved.
Speaker 4 (05:49):
So it was actually restructured quite significantly in nineteen thirty
five to be significantly more independent. That year matters. Actually
it was right after the Supreme Court decid a major
decision Humphrey's Executor, which made it clear that Congress was
able to create independent agencies. And it was in the
wake of that decision that the Congress really restructured the
(06:11):
FED to its current structor. And it's a complicated structure.
We sell twelve reserve banks across a different country, but
then we have the Board of Governors and they alserve
for fourteen year terms and they can only be removed
for cause, and that really serves as the bedrock of
the Fed's independence.
Speaker 1 (06:28):
There have been times, even more recent history, when the
Federal serve seems to have been really addressing that concerns
the president. Under President Nixon, for example, that certainly happened.
What were the consequences of that and what corrected and what.
Speaker 4 (06:41):
Gave us vulgar Yeah, I mean I think it was
actually what happened with Nixon and Arthur Burns, who was
then the FED chair, that led to the Vulgar era.
And really what we've had subsequent to the Vulgar Era,
which has been a real respect among politicians for FED independence.
And what we saw there is the classic stereotype of
a president who wants a slightly healthier economy and short
(07:02):
run is putting pressure on the FED chair and a
FED chair who felt the need to be somewhat accommodative
to those pressures, and the result was really destabilizing. We
ended up with a period of meaningful stagflations. We had
high rates of inflation, high rates of employment. It was
not healthy for really the economy or for anyone else
within the economy's longer term. And one of the real
(07:23):
challenges and was how does the FED re establish credibility?
How does the FED convince the public, convince markets that
it is going to tighten monetary policy even when it's
facing pressure to be more commodative. And Volga really came in,
took the reins and had that long term objective and
(07:46):
was willing to cause some significant short term economic pain
and to face some meaningful threats in the process, but
he managed to do a remarkable job re establishing the
Fed's credibility.
Speaker 1 (07:58):
Recent presidents inuneral have been reluctant to comment on the
actions petruing a monetary policy of the Fair Reserve. President
Trump has been very explicit to saying, I can say
what I want to say. If I want to comment,
and I'm going to comment in it, can he be
free to I'll say, jawbone the Fair Reserve consistent with
its independence.
Speaker 4 (08:16):
I would say that's part of what we're trying to
figure out right now. The challenge that we're facing with
President Trump is not just that he has an opinion
on interest rates I think is actually legitimate and even
though it's not been done in recent presidency, is not
inappropriate for a president to be able to have a
view the challenges. He's expressing that view while also having
taken the position that he has the authority to fire
(08:38):
Jerome Powell, the current chair of the Federal Reserve, and
while also having removed other commissioners from other agencies that
have explicit four cause removal protection. So it really is
that combination of not only having an opinion, but having
views about his legal authority that are incredibly expansive, that
have the potential to really undermine the credibility, and that
(08:59):
expect that the Federal Reserve will be able to maintain
the independence that it's enjoyed and that has allowed the
economic flurishing that the country has enjoyed for the last
four decades.
Speaker 1 (09:10):
If we are looking for guardrails, do they come from
laws we like to say, we're a nation of laws,
not of men. Or might they come from bonds? Because
there's been a fair amount of reaction in the bond
market to some of what President Trump has said.
Speaker 4 (09:24):
I was going to say, I have to say I've
personally welcomed all of those reactions, and I think it's
it appropriate for a president to be responsive to understanding
what the market is telling them about the likely impact
and the potential destabilizing impact of policy choices of threats.
That being said, we can't rely on the bond markets alone,
and there's a lot of danger and that having be
(09:45):
too much of an indicator or too much of an
influence coming up.
Speaker 1 (09:49):
Tariffs may be President Trump's favorite word, but much of
the world seems to have problems with it. We examine
what us trade policy can accomplish and what tools are
fit for purpose. That's next on Wall Street Week. You're
listening to Bloomberg Wall Street Week with David Weston from
Bloomberg Radio.
Speaker 5 (10:14):
This is Bloomberg Wall Street Week with David Weston from
Bloomberg Radio.
Speaker 1 (10:20):
This is a story about means and ends. At this point,
we all know the means. President Trump has chosen to
advance his economic agenda.
Speaker 6 (10:28):
Tariff, tariff, tariff.
Speaker 2 (10:30):
I am a tariff man. To me, the most beautiful
word in the dictionary is tariff.
Speaker 1 (10:35):
But if tariffs are the means, it's not always as
clear what ends he hopes to accomplish with them, which
makes it harder to evaluate whether he's winning or losing.
Speaker 2 (10:49):
Tariffs are about making America rich again and making America
great again. And it's happening, and it will happen rather quickly.
Speaker 1 (10:56):
All of us are becoming fluent in the talk of
US trade power, whether we want to or not. But
in the end, what is it that trade policy is
meant to accomplish for the America? The President wants to
make great again.
Speaker 7 (11:09):
So the goal of trade policy I think should be
enhancing economic well being in the United States and internationally,
because you should be able to use trade as part
of an economic strategy that grows an economic pie.
Speaker 1 (11:28):
Susan Schwab served as the US Trade Representative under President
George W. Bush and now teaches international trade at the
University of Maryland School of Public Policy.
Speaker 7 (11:38):
This is not a zero sum exercise where I when
you lose, it should be you grow the economic pie.
It is a policy where you create rules of the
road and then you enforce them rigorously. It is a
policy where you make sure that as you build those rules,
(12:00):
they are rules that Again my opinion and historically our
view of trade, trade barriers are sort of the last result.
You know, free trade, open trade, market based trade is
the norm is what the goal where you'd like to be.
(12:20):
But life is reality is deviations from that norm, and
you want to minimize the trade distorting interventions in the market.
You want to use trade in the most positive sense,
but you also need to be defensive because you don't
want trade distortions to undermine your national security, interests, your
(12:46):
you know, the economic well being of your population. But
you don't want to pretend that trade is the be
all and end all and that it's going to cure everything.
Speaker 1 (12:56):
Free trade has gotten a bad name in some parts
of Washington these and the accusation I think is that
it's actually hurt some workers in some industries, at least
in parts of the country. Is that fair?
Speaker 7 (13:07):
Much as I hate to say it, I don't think
we've ever had free trade. I don't think any country,
no matter how pure they think they are, is actually
a free trader. Trade can impact, can hurt, and has
hurt different communities, different individuals. And the question is how
(13:29):
much of that is quote structural, you know, how much
of that is I'm not sure that Americans ever want
to make labor intensive footwear or labor intensive apparel again.
And how much of that is unfairly traded imports that
(13:50):
have been subsidized, that are selling that are dumped into
the market, that are selling it less than the cost
of production. I'll give you a different example. In the
seventeen nineties, over ninety percent of US of the proportion
of US workers, we're in agriculture today, that's what less
(14:11):
than two percent, less than three percent. Nobody argues that
US agriculture is uncompetitive. US agriculture is a major competitive producer,
but we do it without the same proportion of labor
needed productivity enhancements. Technology has taken over that function.
Speaker 1 (14:33):
And that has been a foundation of President Trump's trade policy,
making America great again by quite literally making stuff in
America again.
Speaker 7 (14:43):
People claim we don't make things anymore. In fact, we
make things all over the country, and manufacturing output in
the United States has continued to go up and up
and up and up, contrary to what a lot of
our politicians say, Republicans and Democrats, by the way, manufacturing
employment has gone down, has been going down since the
nineteen fifties, in part because more automation, more technology, but
(15:09):
also in part if you talk about, for example, the
China shock late nineteen nineties into the twenty ten twenty eleven,
there was no time for structural adjustment, no time for
the workers to adjust, and workers and communities were severely impacted.
Their non market economy model is a bad model, and
(15:31):
they're exporting their economic mistakes, so they have overcapacity and
they're dumping them all over the world.
Speaker 1 (15:37):
China's non market economy maybe a bad model, but it
doesn't look like they're going to move off of it
anytime soon. So in the meantime, what do you do.
With a non market economy as big and as powerful
as China.
Speaker 7 (15:48):
We should be doing a much better job of enforcing
existing rules at the wto running up the score against
them puts us in a much better position to make
the point they are centers right. So that's the first thing.
The second thing is we need to be working with
our trading partners to get them to stop to block,
(16:11):
let's say, block their exports of those dumped and subsidized goods.
Speaker 1 (16:16):
I'm not sure that President Trump seems to be pursuing
a route to getting our trading partners on side thus far.
How could one do that that might be somewhat different
from what we're seeing right now.
Speaker 7 (16:28):
Well, you've got you know, we talk a lot about tariffs,
and it only seems to be in terms of raising them,
and we talk about reciprocity.
Speaker 1 (16:36):
President Trump's tariffs have begun to take effect. Customs duties
jumped sixty percent in April to an all time high
of more than fifteen billion dollars, a number that does
not yet include the universal ten percent tariff introduced on
April second. But Schwab believes reciprocal tariffs aren't a means
to an end.
Speaker 7 (16:56):
The reciprocity thing I don't think works, but I do
think that you can get to yes in trade agreements
where you have more comprehensive and more comprehensive scope. The
key thing I believe is not to have a trade
policy that renders your own production uncompetitive, because ninety five
(17:20):
percent of the world's consumers are outside this border. If
you put up trade barriers against the wrong things like inputs,
because over half of what we import are actually inputs
to our manufacturing, then you're going to make what we
manufacture uncompetitive and we can't export them.
Speaker 1 (17:40):
If the goal is to have competitive industries, can we
have competitive industries without competing, that is to say, by
protecting our industries from competition from abroad.
Speaker 7 (17:52):
I don't think so. Or let's say that the history
of that is would make one doubtful. If you think
about our auto sector. Our auto sector, domestic automakers in
the late seventies early eighties came in for a really
big shock when the Japanese autos arrived on these shores
(18:16):
and our automakers had not been exporters, and they met
their competition on these shores for the first time and
discovered that Americans wanted to buy Japanese autos that had
fewer errors, that had features that their US automakers had
not seen.
Speaker 1 (18:33):
Fit to add, it's not just Schwab citing the example
of the Japanese automakers of the nineteen nineties.
Speaker 8 (18:46):
One thing would be to say, we're just not letting
anything come into the United States, and that would mean
that as of like the nineteen nineties, we would have
lost the benefits of all these things that were discovered
in Japan about just in time, manufacturer and statistical quality control,
higher quality vehicles.
Speaker 1 (19:03):
Remember Paul Romer is a Nobel laureate and former World
Bank Chief Economist.
Speaker 8 (19:08):
What we did then was instead of saying, Okay, we're
just cutting off any connection with Japan, We'll live with
our cars the way we are, we said, you can
take what you know, but you have to set up
auto plants and hire workers here in the United States.
So the ideas about how to make new quality cars
come in they can be used to compete with the
existing firms.
Speaker 1 (19:29):
Roamer now leads the newly formed Center for the Economics
of Ideas at Boston College.
Speaker 8 (19:35):
My whole work has all been about ideas versus objects.
So I started playing with well, what if we had
restrictions on flows of objects but didn't restrict the flows
of ideas.
Speaker 1 (19:47):
So what would happen? Take the solar industry, for example.
Speaker 8 (19:51):
Those solar panels have gotten much cheaper because of the
subsidies provided by the Chinese government to increase output, and
so quote they control that indo, but they've made solar
electricity way cheaper all around the world. But then the
question is how do we respond. I think it's a
bad policy to try and protect like an industry or
(20:11):
a firm with a tariff barrier, But it's okay if
some government wants to subsidize something, and if they're subsidizing
solar panels so aggressively that we don't even want to
get in that game, fine, we can go do batteries
or you know, stationary batteries, electrical system sized batteries, or
you know one hundred other things. But the point of
(20:35):
this distinction of ideas and objects is that new ideas
fly by wire, cheaper solar panels, those new ideas are
really valuable, and we should have governments subsidizing them. We
shouldn't be so worried about trying to punish the other
guys for doing what we would really like to be
able to do.
Speaker 1 (20:52):
But do you tell China, fine, subsidize your solar panels,
but come make some of them on shore.
Speaker 8 (20:57):
That's what I'd say, Yeah, exactly, So we could invite
in all of that kind of expertise, but say, realistically,
to people in the United States, there'll be jobs for you,
Like the people you knew in Flint. There will be
a there'll be a future for you. Now, now let
me step back and say, I'm trying to describe a
policy we could evaluate. It's got some costs, it's got
(21:19):
some benefits. Not everybody is going to agree that this
is the best one. But what's missing at the moment
is nobody's even said what's the policy, So we didn't
even know how to total up the costs and benefits.
Speaker 1 (21:32):
President Trump argues his tariffs will make America richer, but
which parts of America. Romer says, a sound trade policy
is one that benefits all Americans.
Speaker 8 (21:42):
I think a good way to think about this is
we want the average income like GDP per capita, to grow,
but we also want to share that relatively evenly, at
least in the sense that everybody can expect some growth
along with growth for the nation. We've always known as economists,
the downside of free trade, even though it's good at
(22:03):
raising average income, is that it can widen income and equality.
And we always said, well, don't worry about it. There's
ways to redistribute the games, so everybody's a winner. But
redistributing the games is not that easy, and we haven't
done it.
Speaker 1 (22:17):
The answer, according to Romer, lies not just in tariffs
and balance sheets, but in the exchange of ideas.
Speaker 8 (22:24):
If BYD says we're happy to make our cars in
the United States when we sell them in the United States,
will you let us come in and use what we
know and make and sell cars to the United States.
If they say yes, then then I think it's probably
going to be an okay policy. If they say no,
then we're kind of back in that move towards autarchy,
and I'd be worried about where that goes.
Speaker 9 (22:48):
Up next.
Speaker 1 (22:48):
Vanguard is celebrating the fiftieth anniversary of its first fund.
Its CEO takes us through how it got to where
it is and what comes next.
Speaker 5 (22:58):
You're listening to Bloomberg Walls with David Weston from Bloomberg Radio.
You're listening to Bloomberg Wall Street Week with David Weston
from Bloomberg Radio.
Speaker 1 (23:15):
This is a story about going with the flow whenever,
the pluses and minuses of trying to beat the market
when it's reasonably stable at a time when it's swinging wildly,
risk is out and safety is in. That's the philosophy
that gave rise to passive investing a half century ago.
Katie Greifeld brings us the story of Vanguard marking the
fiftieth anniversary of its creating the first fund as it's
(23:37):
ridden the wave rather than trying to beat it.
Speaker 8 (23:42):
I don't want anything, but sometimes you have to take
beneicit to fix Uping.
Speaker 6 (23:47):
Market centered a period of extreme volatility at the beginning
of last month after President Trump announced expansive tariffs on
allies and adversaries alike. In the two days that followed
the so called Liberation Day on April second, the S
and P one hundred fell by over ten percent By
the end of the following week. That amounted to ten
trillion dollars in losses globally, but there were bright spots
(24:08):
among them ETFs. The week after the announcement ETFs saw
net inflows of more than thirty five billion dollars.
Speaker 10 (24:17):
We had about four of our five highest trade days
in our history in the past six or eight weeks.
In every case, clients were buying rather than selling, and
in each of those cases, they were going back to
these original principles of diversification, staying aligned with your goals,
(24:37):
and investing for the long term.
Speaker 6 (24:39):
Salima MG is the CEO of Vanguard, which has been
battle testing its approach to investing for half a century.
Speaker 10 (24:45):
So some of it just comes from kind of our
client's behaviors and as you said, whether we're attracting clients
who like what we stand for. In many cases it's
they're exposed to individual securities and they're seeing the risk
and volatility in owning individual names, and they're looking for
(25:07):
a much more diversified set of exposures. But the biggest
part of client's portfolios are often individual securities, and so
there's a lot of money coming in from clients who
want more diversification than they might get from owning individual
stocks and comments.
Speaker 6 (25:22):
In the fifty years since Jack Bogel founded the company,
Vanguard has seen six recessions in the US, including the
dot com bubble, the GFC, and more recently the COVID
nineteen recession.
Speaker 9 (25:33):
Let me give a shout out to Vanguard. They created
indexing for the individual investor.
Speaker 6 (25:39):
David Booth has been part of the evolution of indexing
since day one. He was around for the early days,
working with pioneer Eugene Fama.
Speaker 9 (25:48):
We were all kind of friendly and worked with each
other to the point that the group I worked on
in Wills Fargo, which was one of the first, came
out one of the first passive fund first index funds.
Jack had created the framework for providing indexing to individuals.
Speaker 6 (26:05):
Bogel was the legendary founder of Vanguard who went against
what was then the investing grain.
Speaker 11 (26:11):
How to decide in the funds is a little bit difficult,
I'd say, taking the most important part perhaps the equity
fund selection. I think a beginning investor in particular should
go for sort of middle of the road funds, like
fairly conservative growth and income funds or growth funds, and
even suggested by your remarks at the outset, maybe a
little seasoning of index funds wouldn't be so bad.
Speaker 8 (26:34):
Describe you as in industry states when you said when Bogel.
Speaker 6 (26:36):
Appeared on Wall Street Week with Lewis Rukaiser. In the
early nineties, Vanguard had around one hundred billion dollars in
assets under management. Today it's grown to more than ten
trillion dollars, and through the growth, Bogel's philosophy remains, well,
you have a really interesting job because you know, you
have to thread saying true to the roots that Jack
Bogel laid down fifty years ago, but also positioning Vanguard
(26:58):
for the future, and you know, future proofing Vanguard.
Speaker 3 (27:01):
Yeah.
Speaker 10 (27:01):
I think first is understanding our history and understanding our culture.
And I've also benefited that First Bogel wrote a lot,
and so not just in his books, but in all
the historical archives and speeches and in the memos, and that,
like you, it.
Speaker 6 (27:16):
Was a culte machine. One of Bogel's famous sayings tells
the story of passive investing. Don't look for the needle
in the haystack, just by the haystack. It's a philosophy
so popular it generated an online following of passive investors
known as Bogel Heads.
Speaker 10 (27:31):
One of the interesting things is Vanguard's always changed, like
we've maintained our sense of consistency around our purpose. Well,
whether you can think about our moves into advice, or
moves into ETFs, or moves into you know, if you
go back into the nineties, or moves into retirement, these
were all changes in the business model. But so it's
I sort of look at what I'm here to do
(27:53):
is to continue that tradition and that kind of duality
between staying true to the purpose and also changing things
as we need to change and adapt based on our
client needs.
Speaker 6 (28:03):
Buying that haystack today looks a little different than it
did during Bogles days, but Vanguard makes no apology for
sticking to its tried and true approach to indexing that
avoids the trends of the day. You could start to
have to really think about how do you stay ture
the roots. Well, also, you know, giving clients what they want,
because those clients, specifically in advice and wealth management, I
(28:24):
could imagine them requesting private assets, which I know that
Vanguard is pursuing. But I could also see them asking
for bitcoin and crypto, which famously Vanguard isn't too hot on.
So I wonder how you're thinking about those sort of
potential run ins.
Speaker 10 (28:41):
We're not going to be everything to everybody, and that's
okay with us. That's been true for kind of the
history of the firm. But where we see opportunities to
partner with others, including in things like private markets, and
we think it's good for clients' long term portfolios, we'll
absolutely do it.
Speaker 6 (28:57):
So it sounds like that's a no. Like if you know,
a client came to you and said, you know, I
really want to add bitcoin, or I really like the
looks of this leverage single stock UTF, it sounds like
that's not something that's not a road that Vanguard is
going to go down.
Speaker 10 (29:10):
Yeah, We're always going to be focused on what we
think is a good way to build long term wealth
and that is suited to the client's individual needs. And
so that may mean saying no or saying that we
don't think that particular product in that particular offering is
right for the client. And you know, we may not
(29:30):
get caught up in the in the latest fad, but
we're dependable for the long term.
Speaker 9 (29:36):
Your comparative advantage is not going home at night and
trying to think of the next big winner. Your comparative
advantage is going home figuring out here's my circumstance. You know,
I just decided to retire, or I won the lottery,
or whatever the changes are, How does that impact the
way I want to invest? That makes a lot of
sense to spend the rest of your time playing with
(29:57):
the kids, you know. It's it's a that's kind of
a side benefit of all of this. You can come
up with sensible investment solutions that have a great chance
of winning over the long haul without getting just emotionally
fixated on it.
Speaker 6 (30:14):
Vanguard is known for making diversification easier for investors through indexing,
but also making it cheap. In February, it announced its
two thousandth and largest ever fee reduction, cutting its average
asset weighted expense ratio to just seven basis points. That
compares to the industry average of forty four basis points.
Speaker 10 (30:31):
We're always investing back into technology and into capabilities that
enhance our economies of scale. It's true in our investment team,
it's true across the firm because there are lots of
advances as you can imagine, that are just making investing
kind of easier, making it more efficient, and we need
(30:52):
to be at the forefront of that. Back in February,
we announced kind of record fee reductions, but it was
the two thousandth time we done that, right, So it
was a very vanguard kind of oriented thing. And when
we think about kind of the future, we just see
so many opportunities to extend the Vanguard effect, whether it's
in fixed income, whether it's in things like cash, whether
(31:15):
it's in things like advice.
Speaker 6 (31:17):
Its competitors have been forced to keep up with the
race to the bottom in the fewer or to find
other ways to differentiate themselves.
Speaker 9 (31:23):
It's one thing to say, look, I have slightly higher fees,
that it only works if you're What really counts is
what your return is. And we now have forty three
years of performance that's showing that this kind of approach
can work.
Speaker 6 (31:39):
Over its fifty years, Vanguard has changed investment management, but
it has also evolved to meet investors appetite for new
products and services. In mid April, Blackstone came out and
said that you know, it teamed up with you and
Wellington to build investment accommodations with stocks, bonds, and alts,
which is interesting. Private markets have been the talk of
the town for months yet now, and it seems like
(32:01):
every issuer is trying to figure out how to incorporate
that into their strategies. Why go that direction?
Speaker 10 (32:07):
Well going the partnership route was well a very vanguard
thing to do. The first Vanguard funds fifty years ago
were managed by Wellington, and it's actually Gene Hines over
at Wellington, the CEO. She came with this idea around
could we partner with another firm that does private markets
as well as Wellington does fundamental equities as well as
(32:28):
we do things like index and active fixed income. And
this idea of going the partnership route was, as I said,
something that we've done for fifty years now. We have
plenty of other active equity managers. Wellington is our longest
standing and largest, but when we started to think about
how do we branch into private assets on behalf of
(32:49):
our clients, it was really that Wellington came up with
the kind of the idea in the proposal, and that
was really the beginnings of I think what you've.
Speaker 6 (32:59):
Heard about ETFs are meant to diversify risk and make
investing safer for retail investors, but indexing might be creating
another kind of risk.
Speaker 9 (33:07):
It's got the point now with ETFs that they've kind
of created this giant investment casino. You know, here's how
you can place your debts. You know, you've got all
these industry and you can put some money over here
in time. Because the question often comes up as well,
if everybody indexes, I won't markets become inefficient? And so
now people instead of picking stocks, they place the debts
(33:30):
on industes. I mean, I hope you know, and I
think that's unfortunate because now you're back in with the
same suit that you're in before, which is in order
to in order to beat the market, you've got to
pick the right industries at the right time.
Speaker 6 (33:43):
The growth in ETFs has brought with it competition for
mainstays like Vanguard. Which competitor do you think about the
most and why is it black Rock?
Speaker 9 (33:53):
Uh?
Speaker 10 (33:53):
The competitor I think about the most is friction. The
biggest impediment I think to clients achieving the of investment
success that we would hope for is that investing is
still too complicated and there are ways that we're always
looking for to how do you make it easier, How
do you make it easier to open an account, to
(34:14):
fund an account?
Speaker 6 (34:16):
Ten years from now, when it's Vanguard's sixtieth anniversary, and
we're sitting here again, what do you want to have accomplished?
Speaker 10 (34:22):
Vanguard plays a really unique role in the investment community
because of our client ownership, because of our focus on
giving people a fair deal, and I certainly don't want
that to change in ten years. I don't want that
to change in twenty years, or thirty years or well
into the future.
Speaker 1 (34:38):
That does it for us here at Wall Street Week,
I'm David Weston. Join us next week for more stories
of capitalism.
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