Gray and Griffin on the Possibility of a Recession

The most predicted recession in all time is the one that we're predicting is going to happen, but it hasn't happened yet. Are we going to have a recession soon so there'll be people who predicted it can be seen as right? Well, I would say the good news I'd say on the economy is we definitely are seeing the inflation coming down, which is helpful. We see it in our portfolio in labor costs, the increases there coming down, shelter costs not increasing nearly the same rate. Also, to your point, there's been incredible resilience. Those are the two positive things out there. I think the challenge is when you raise the cost of capital as dramatically as we have, up to 5.5% in the US, 4% in many other places around the world, now the long end of the curve has also gone up. That's a real weight for consumers and for businesses to borrow at 8%. It works its way through the system. I think we will see a slowdown. We've begun to see hiring at our companies be much more subdued. I don't see this as a sort of cliff, but a sequential decline, but to your point, do I think we'll see an increase in unemployment, slower rates of GDP growth? Yes, but we do not have anything like the imbalances of 08, 09. The conventional wisdom in Washington, which many people say is almost always wrong, but the conventional wisdom in Washington, Ken, is that the Fed is done raising rates for the time being. Do you agree with that or do you think the Fed might still raise rates? The wild card we don't know is the inflationary consequences of deglobalization. One of the huge benefits that both Jonathan and I have had in our careers, in our lifetimes, the peace dividend. Remember when I started my business, it was the end of the Cold War. The second dynamic has been globalization, which has been an incredibly deflationary force for the entire 30 years that I've been in business. We don't know what a world looks like that involves deglobalization. How much does that increase inflation just systemically around the world? What does that mean in terms of monetary policy around the world? That's a giant wild card. For choice, I definitely agree with Jonathan. We're seeing inflation come down right now. What we don't know is where does it land in this world of supply chains that are being radically changed around the world. With respect to the recession, our best view is sometime mid-next year, we're likely to see a slowdown in the back of these higher real rates. It's taking a bite out of the economy, in particular the private sector. The counterfactual to this is the US government is on a profligate spending spree. We're going to run a deficit this year of about $2 trillion in the United States. That's pulling forward consumption into the here and now at the expense of future generations. Ken, your firm has invested a fair bit in China, and I think yours has as well. Ken, are you investing more in China? Are you worried about China's growth? How do you assess China right now as a place in which to invest? I think big picture. You could have been an investor in the United States at almost any point over the last hundred years, had solely a domestic investment portfolio, and have done extraordinarily well. The world's changed. There's much more innovation outside of the United States relative to 50 years ago. This morning I was with one of the prominent Chinese business leaders. The management teams in China are extraordinarily capable. They produce extremely competitive products in the global stage. They lead in many areas that are important to the world, solar, EVs. These are really important competitive advantages that exist in China. Companies, great management teams, great products. If you're a global investor, you've got to be watching and investing here in China. John, in your current position, I assume you deal with regulators and administrators all the time. Do you find that an uplifting experience to go talk to them about convincing them about your point of view of things, or not so uplifting? I'm only going to say positive things about those experiences. Okay, so you like that part of your job. And I'm going to make sure all my future meetings are with him then. We can go together to Washington if these are your experiences.