Moody's Talks - Inside Economics - Economic Threats & Exponential Risk

Episode Date: September 22, 2023

Inside Economics welcomes Rob Fauber, President and CEO of Moody’s Corporation to the podcast.  He discusses his concept of exponential risk and the opportunities and challenges of using AI. Rob shares what it's like to lead a global firm and answers a few get-to-know-you questions from Mark, Cris and Marisa. But before the conversation with Rob, the team discusses how worried they are about various economic threats and their potential impact on the macroeconomic economy. Guest: Rob Fauber, President & CEO of Moody’s CorporationFor more insight into the era of exponential risk, click here.Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight.  Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by my two co-hosts, Marissa D. Natali and Chris D.Reedies. Hi, guys. Hi, Mark. What's going on? It's been busy. It's really early in the morning for me. So not much is going on. Yeah, and just to explain, we are going to have a conversation with Rob Fobber, the CEO of Moody's, and we recorded that earlier. part part part of this and for it all to work out mercer you had to get up at like what three 30 pacific time or 30 oh 430 for yeah oh okay okay what's the problem is the new 730 it's like I always say you look great though for 430s thanks fantastic yeah yeah and we were was it last week were we in

this past week no it was it was a week before last when we were in uh Chicago right We talked about that on a lot. And we're going to be in, Chris and I are going to be in Dallas. Yeah. Next, is it next week, Chris? I believe it is.

Yeah. Yeah. Another conference. And hopefully we see all of you or as many as you would like to come to visit us in Dallas. And you're off to. We're off to. I'm going to Japan for two and a half weeks.

Yeah. That's so cool. Yeah. Very good. Okay. I want to bring in Rob here pretty quickly. But before we go to, we have that conversation.

I thought we could talk a little bit about, we're going to talk about risks. This podcast is about risks broadly, and Rob's going to talk about a panoply of threats that businesses and governments face. We're going to, in this first part, talk about economic risks as, you know, we're economists. And all of a sudden it feels like there's a boatload of risk. You know, I don't know about you, but you got the UAW strike, which is now, you know, more than a week old. kicking in the higher gear. You've got student loan borrowers who need to start repaying on their debt in October in the next

couple weeks. You got this federal government shutdown. It now feels like almost a done deal that was going to be a shutdown. It's just a question of how painful. You got, did you see oil prices? I mean, we're back over 90 bucks a barrel on WT, West Texas Intermediate. I don't know. And then you got the really the thing that came out of nowhere, well, I guess it's not

out of nowhere, it just, but it feels like it's like in our face now is higher mortgage rates or higher long-term interest rates, the 10-year treasury bond. I think yesterday got up to four and a half percent, right? So, you know, that's, let's get into a place where it's going to start dividing. So all those things add up to, you know, maybe some real pain. here and some threat risk to the economy and the expansion, you know, as we move towards the end of the year into 2024. And by the way, I'm sure I can see this, Chris is not in his head.

I'm not happy about it. Yeah. The yield curve, you know, it inverted about a year ago. And the average length of time historically when the curve inverts and you get a recession is one year. So it's just like really can't be happening. Can't be happening. But let's go down each of those quickly and talk a little bit about them and how we're thinking about how they're going to play out and the risk around that.

And maybe I'll start with you, Marissa, around. And this is sort of chronological sort of UAW strike. That's kind of, that's in train. You know, how are things going there and maybe you can just reprise how we're thinking about it and what the risks are. I would say of all the risks that you named. This is the one that I'm the least worried about. We'll see if that's right or wrong, but I'm more worried about those other ones in terms of the impact on the economy. So a week ago, the UAW decided to strike against all three big U.S. automakers, one strike at each plant. So there's about 150,000 UAW members in the U.S. This strike, you know, could have obviously, involved that many people. It didn't. It only involves about a little under 13,000 of those

members combined at those three plants. So it's been going on for a week. The fact that it's 13,000 out of 150,000 members certainly mitigates the economic damage that this would do. But actually, in 45 minutes, the UAW is going to announce that it may expand that strike if it hasn't made significant strides and talks with the with the automakers a few days ago um the canadian auto union struck against uh ford a ford plant in canada and they worked out they have worked out a deal we don't know what that deal looks like they haven't divulged the details of what that entailed but they've made some progress there that doesn't have real bearing so much on the u.s strike um So the bottom line is we have some historical precedent for this. There was a 40-day strike back in 2019. It didn't really have a discernible economic impact, measurable economic impact when you look at things like GDP, right? It certainly crimped supply. I mean, the good news here is that the U.S. automakers have about 70 days of inventory of autos.

So in terms of the price effect on vehicles, both new and used, the strike would probably have to go on for significantly longer than that last strike, 40 days for us to see a real price effect. If it does, the price effect could be significant if we have more plant shutdowns. If the strike is prolonged, if it goes through the end of the year, we could have, you know, five to 10 percent increases in both new and used vehicles as inventory is drawn down. So there's enough inventory to get us through. There is enough strike funds to get the UAW through a prolonged strike, particularly if they do this staggered approach where they start kind of adding one plant after another, right? And they keep expanding it over time. Ultimately, and we've done some scenarios on this, we think if it goes on,

like through the end of the year into the first quarter, we could see maybe one or two tenths off of GDP growth in the fourth quarter. So not a huge economic impact. And I think the risks of that happening are probably pretty low. Like I said, I'm not as worried that it's going to be that extended or that all-encompassing in terms of the number of employees involved. It looks like they're going to do this in a staggered way, which will limit the economic impact. On the other hand, it could drag it out longer. Sorry about that. I was on mute. So just one factual question around the inventory. Where did you get that number, the 70 plus? I thought it was kind of 5960. That's based on Cox Automotive. Yeah. So that's Dallantus, I think has.

Stalantis has that kind of, but not the other thing. Right. So the act. average between the big three is somewhere probably in the 60 range. I think GM has the most inventory. Theirs is like 70. So it varies. Is that, I think it's Delantis, I think. Is it? I know Ford has the leanest inventory of the three. Yeah. Yeah, sorry about that. I know they differ. But they're in that range of like 50 to 70 days of inventory. Yeah. We're all, I remember back to that. AI podcast. I won't go into it in detail, but I got the statistics badly wrong. But I do think, I think it's a 59 or 60 days in total for the big three, I believe, based on Cox Automotive.

But still, that's, to your point, that historically has been deemed to be an appropriate level of inventory. So it's, you know, it does suggest that there's a little bit of room here in terms of what kind of impact it might have on prices, because there are. there is still some ample. Yeah. So they can, you know,

we can get through, right, and get through a month or two, probably with this. Let me ask, you had, you, you,

when you first began, you said, this is the least risk, the risk that you're least worried about. Can I ask, which one are you most worried about? I'm just curious. Um,

probably high oil prices. High oil prices, okay. Yeah. You too, Chris? Absolutely. Yeah, Absolutely. Yeah. Okay. Me too. All right, let's move on. Student loans. That's next up. Well, that's happening. We know for sure that's happening in October. How big a deal is that, Chris? This is the resumption of student loan payments. Yeah, it's certainly a deal. It's probably not a recession-inducing deal, right? So we estimate about 24 million borrowers will go from receiving forbearance to having to start to make a payment come October.

average payment is around $300 a month, so that works out to approximately $7 billion a month or $85, $86 billion annualized, right? So it's significant, but there are some reasons to believe that it won't be, that the impact on the economy won't be at that level, right? You do have income-based repayment programs that more students are taking advantage of, or borrowers are taking advantage of. So that would reduce their monthly obligation to something that's a little bit more affordable and allow them to continue spending in other ways, supporting the economy. You do have a delay in any delinquencies being reported to the credit bureaus for a year. So that also reduces the immediate cost, if you will, of a borrower not making a payment on their student loan. So that

also buys us some time here. So the impact could be lessened. And then the other thing I would note is that you do have a lot of borrowers who are prepared to make payments, right? They're certainly higher income, soon loan borrowers who completed their degree. They knew this day was coming. They've been either saving up in order to make these payments or they've adjusted their spending appropriately that they'll be able to make the payments without really missing a beat. So from that perspective, you know, I see that the impact could be something closer to, say, $60 billion a year all in. that's about two-tenths of GDP. So that's not inconsequential, but again, alone, given the positive factors in the economy,

it's probably not enough to push us into recession. So clearly something to watch out for. And if you're a business that caters to this student borrower population, if you're a lender or you sell goods and services really into that demographic, obviously it's going to have much more of a bite. But if we're thinking about the macroeconomic consequences, is fairly low on the list, I would say. Okay, so UAW strike under, I guess, it's hard to handicap the scenarios,

but under the scenario where it kind of lasts through October, much of the, ultimately much of the production is just, is disrupted. That would be a couple tenths of a percent, something like that, I think. And then you're saying student loans, a couple tenths of a percent. Okay. So we'll do this for each of these. risks and see what it adds up to. Yeah, I think that's the issue once you add them up. Yeah. Well, I'll take the next one and that's the government shutdown. That, you know, that feels like it's happening.

I think pretty high probability. And of course, that goes to the fact that the federal fiscal year ends at September. The new one starts October 1. And the government lawmakers, the president, Congress have got to sign a piece of legislation continuing to fund the government to keep it open. Right now, there's not, there is no legislation. So unless something happens here, the government's going to shut down on October 1. We've been here before many times, you know, and historically what happens is people get upset. You know, federal government employees don't get paid or at least those that furloughed, you know, kind of the non-essential workers, contractors to the federal government, they don't get paid, that ultimately creates all kinds of problems.

The longer it drags on, the more things don't get done that need to get done, you know, things that matter, like, you know, your homeowner want to close on a loan, but you can't get flood insurance and therefore you can't close, or parks, or the one that often put forward is parks close. you need a permit from the FDA to certify that, you know, the plant meets code and therefore the plant can't open. You know, I go on and on and on and the longer this drags on, the more of the disruption and the more of the economic impact.

But historically, within a couple, three weeks, people really get upset and say, what the heck are you doing? And somebody gets blamed politically. And the group that gets blamed ultimately says, okay, this doesn't make political sense. I'm going to back down. And they're, they come, the lawmakers come to the terms. They pass some kind of continuing a resolution or budget and government reopens and we move far. Not too much.

There's very little damage. I think the rule of thumb we have, the historic heuristic is every week the government shut down. It's about a tenth of a percent. So in our kind of baseline worldview, we have. the government shutting down for maybe two weeks, you know, something like that. And then that'll cost the economy a couple tens of a percent. But having said all of that, a boatload of risk around that, right? Because this Congress feels particularly the House and feels particularly

dysfunctional. You know, one thing I will say is I've seen a lot of government shutdowns and, you know, talking to people and the shutdowns, everyone seemed to have kind of a clear path. to how this was going to ultimately get resolved. This time, not so much. You know, there's the views here all over the place, and that just makes me worried that, you know, there is no vision to getting this done. So it could drag on for a while longer than we anticipate,

and that's the risk. So let's say, let's call it another two-tenths of a percent. So two-tenths on the UAW, two-tenths on the student loans, two-tenths on the government shutdown. So another risk. Can I throw out another risk of a government shutdown? What's that, Chris? Another risk of a government shutdown that I think is kind of under the wire is government

data will stop as well. That could complicate the fed's actions, right, if they're not getting the inflation and employment data. And it also could, even if they make a decision, it could also complicate financial markets. Investors are going to be in the dark in terms of, well, what is the, what is the that doing here? Are they raised? Why are they not raising? Why are they raised? So I think there's even more risk from a monetary policy standpoint, potentially. That's a great point. I mean, you're saying like the employment, we rely very heavily law, policymakers, the Fed investors rely very heavily on really

two key reports. One is the payroll employment report that comes out the first Friday of every month. And then the CPI Consumer Price Index report that comes out mid-month. And if the government shut down, the Bureau of Labor Statistics, the agency that puts the data together closes, right? Because they're deemed to be non-essential. That data does not get, is not provided. It's not provided in the marketplace. So that's, you're flying, you're already flying pretty blind, given the fog of the data, but that means you're completely blind.

Yeah, good point. Okay, next up, how about this run-up and interest rates, Chris? How big a deal? Yeah, another deal, right? So 10 year, you mentioned the 10-year treasury up at 4.5. The spread between 30-year mortgages and 10 years is still up in lofty levels, 300 basis points plus. So we're looking at mortgage rates of 7.5% today.

Oh, is that right? They're up to 7.5. Yeah. I think within, I think 7.48 was the last number I saw there. But yeah, very, very elevated, right? I don't know that it makes existing home buyers or homeowners even more locked in. They're already locked in. If you have an interest rate of 3%, 4%, you weren't going to move or certainly weren't going to refinance when rates were at 7%.

7.5% just makes it even more unlikely. So this is a housing market that's going to continue to remain under pressure. There won't be much existing home inventory going on the market. Home buyers are feeling the pinch, right? Seven and a half does bite more and more to particularly first-time homebuyer. So it's certainly going to have a cooling effect or chilling effect on the housing market. One saving grace, perhaps, is that you still have a lot of inventory that is under construction today. So that will continue.

So you get some more supply coming online in incoming quarters or months. So maybe it's not an immediate collaboration. if you will, or impact, but this is going to continue to grind on the housing market if the higher interest rates persist for an extended period of time. Yeah, I was looking at what has driven this increase in rates. And kind of the way we think about it is you can decompose the 10-year yield into inflation expectations, the real short-term interest rate, which is, you know, what's the Fed going to do?

And then finally, the so-called term premium, that's the premium bond investors require to buy a long-term bond versus short-term bond to account for the potential risk. And in the, since of May, if go back to early May, the 10-year yield was, I'm making this up, but it's roughly right, three and a half percent. We're now at four and a half. We're up 100 basis points, a full percentage point. And of that 50 basis points, half a half percentage point is due to the term premium. And I think that's a catch-all for lots of stuff that could be because of concerns about the fiscal situation and bond, you know, treasury bond issuance could be due to, you know, increasing concerns about higher inflation, inflation volatility. you know, lots of different things that could be going on there. The term premium is still weirdly still zero, even with the increase, it's still zero.

So that may suggest it could go even higher. But, you know, and then 40 basis points or almost 50 basis points is real short-term interest rate. So I think that goes to the Fed's decision. This recent bump up and more recently is the increase, the increase. realizing realization that the Fed, even though they may not raise rates much more, but they're not cutting rates anytime soon. And when they do cut, it's going to be much less aggressive than I think investors thought. And so that's getting embedded in long-term rates with a higher real short-term rate. The inflation expectations, interesting enough,

that's really very modest, not really playing a role here. So the Fed has accomplished what it wants to do there in keeping inflation expectations tethered. But this is something to watch. And four and a half percent. So what do you think if it stays between four and four and a half percent, which is our kind of our baseline view here, I guess that would be okay. It's not going to change our forecast. It doesn't subtract from growth in the fourth quarter. If it goes much about four and a half, though, that's when it starts to do some damage. That's right. That's right. We got some, so it's, right, if we're talking about the GDP impact, it's on construction, right? So we saw that housing starts actually fell, but permits are up. Right. So there's, that was, that was weird. That was multifamily, wasn't it? Yeah. So, but I, I view that as, there's certainly some volatility here. Yeah. Builders have a hedge or an option, if you will. They will, they will build if the conditions permit it. So, but I don't see that as an immediate, uh, impact, right? Yeah. Yeah. Okay, let's move on to the last one. The one that worries the, the three of us the most is the higher oil prices. They've risen, you know, we're now, as I mentioned, you know, we're now, as I

mentioned earlier, 90, 95 bucks a barrel, West Texas or Brent, that would be consistent with, I think, $4, a little over $4 a gallon for a regular unleaded. Just for context, I think we got down, you know, we were closer to three at one point, not too long ago. And the high was five back in June of 2022 in the wake of the Russian invasion of Ukraine and the sanctions on Russian oil. So in our baseline here is that we're at, this is the peak of, we're at the peak in terms of price. We're not going higher here. And at least, you know, it can happen in a day or two, but not any consistent way. The logic being that, you know, the price is now being largely set by decisions or by Saudi Arabia around their production.

And they've been cutting back production in an effort to get prices up. And they want prices, they definitely want prices to be higher than 80 bucks a barrel, that 80 bucks. that 80 bucks is kind of key for them. That generates enough revenue for them to cover their fiscal needs. They've got pretty significant fiscal needs and to kind of finance the investment they want to make in their transition to away from fossil fuels, trying to figure out different ways to drive economic growth in their country. You know, my thinking has been that they don't want it much above 90 because if you go much above 90, then you get demand destruction. You know, it hurts near-term demand. People have to pull back on using oil, gas and jet fuel and everything else.

And the longer run, you know, if you stay above 90 for any length of time, that just incensed a quicker transition over to green energy and away from fossil fuel. I feel less strongly. I feel very strongly about the floor. I feel less strongly about the ceiling. I'm not sure the Saudis would have too much trouble of oil, got the $100 for a while. I mean, that would be, you know, tremendous windfall. So I'm not sure about that.

But I will say there is now a lot of excess global capacity to produce because of these cutbacks. You know, the Saudis have three million plus in excess capacity. The UAE, the United Arab Emirates, they've got a fair amount of excess capacity. And they're actually investing very aggressively and expanding out their productive capacity. You got capacity. sitting in Iran, you know, sitting there a couple, potentially a couple million barrels a day. So that feels like that should put kind of a ceiling on price because if price gets too high, I think we will see some of that oil come into the marketplace. But nonetheless,

you know, a lot of risk around that. And if prices jump to $100 a barrel plus gas here in the U.S. goes to, you know, $4.25, $450, or certainly if we get back to $5, I don't know. This feels like it's going to be hard to bear. You see the strategic patrol on the reserve being tapped? I don't think they can. I think they tapped it back a year ago because prices have been too high for them to really refill it. I also think there's some physical issues with regard to refilling. I mean, it's apparently not straightforward just to refill it.

You've got to do some maintenance and things. Yeah. Yeah, I heard this from someone in the industry. So I don't know that it, you know, even if you wanted to fill it, it would be straight forward to fill it. You know, there's got to be some work done here to make sure that you can refill it. But nonetheless, that's not going to help here. So I'm worried about that. Yeah, that's number one on my list.

YouTube, Marissa. Yeah, I mean, one thing, you know, we're talking about these things as if they're risks, but all these things are actually happening to some degree. So I guess when we're talking about the risk, we're talking about the length of time, all these things go on, without not the student loan one, right? But like the UAW strike, a government shutdown.

I mean, the UAW strike is here. Government shutdown is all but here. High interest rates are here. High oil prices are here. So it's just a matter, and these things are all happening at the same time. So it's just a matter of how severe do they, get, right? I mean, we've baked these things into our baseline to some degree. So it's just a matter of,

is it going to be worse than what we're expecting? Yeah, no, that's exactly right. We've got a narrative as to how this is going to play out, but a lot of uncertainty around that. Okay, well, so you kind of add that all up. It feels like, you know, half a point, at least, at least almost a point on GDP in the fourth quarter. if everything sticks to our script. And, you know, our forecast is for about a percent of GDP. So it's, you know, it's possible. I mean, Q3, no problem.

GDP growth is going to come in. Right now it's tracking based on data 4%. Our forecast, when it's all said, done is for 3, which is, you know, strong growth. But you could get a zero, negative. You could even get a negative print potentially under, you know, some reasonable scenario. So I don't know. It doesn't feel like we're certainly can't declare victory here. Please don't. The recession. No. No. That's so. Okay. Let me just quickly, let's end this part of the conversation

because I want to bring Rob back, bring Rob into the conversation. Probably recession in the next year, starting in the next year, NBER, National Bureau of Economic Research defined recession. Marissa, where are you? 35%. Is that where you were, where you've been? It's up a little bit. I think I was at 30. 30. Okay. 35%. You, Chris? 45. That's where you were, right? 45? Yeah, pretty much.

Yeah, I saw you hesitate there. You were thinking, maybe I should go back to 50, but you're going to stay 45. Well, the labor market, you know. Yeah. It's not quite strong with you. All right. I'm at 30. 30 percent. No change. Okay. Okay, very good. And let's bring Rob Fobber, CEO of Moody's into the conversation. Hey, Rob. Hey, Mark. Good to be with you today. Yeah, you know, you're a busy guy. So are you.

Oh. But, you know, I've been wanting to get you on this podcast for a long time. Can you believe that we've been doing this two and a half years? Hard to believe. Yeah, it's incredible. I really enjoy listening to it, actually. Oh, really? You're a listener.

You're one of those nerdy guys that listen, huh? Yeah, but I don't do that well in the numbers game. Well, we'll find out because your comms team volunteered you to play the the stats game. So we're playing at some point along the way. I was afraid of that. Yeah, I'm sure you're great. I'm sure you're great. But I appreciate you coming on. Hey, you know, we've known each other. I was just thinking about this, almost 20 years. Yeah. Yeah. You, you, I remember, you led the, I think this is right. You led the team that purchased economy.com, the firm that, my brother, Carl, who's still with Moody's, my best friend, Paul Getman and myself started back in

1990. You kind of led the way on that, didn't you? Yeah. I mean, it was the first acquisition that I did after I joined the company. And Mark, you know, it's wonderful to kind of look back on that. You know, thinking all those years ago and, you know, as we brought Moody's economy.com into the Moody's family and now just to kind of step back and think about the integration of all of the content and expertise from what was economy.com and having you and your brother's still here at the company, it's, uh, it really is a wonderful success story, I think. No, I have, I have a, uh, a memory of that time. I want to just get your take on it. So, uh, you knocked on our door. You know, we were a small consulting firm. I think we had probably

50, no, actually we probably had 75, 80 people at the time. And we weren't thinking of selling the company. And I knew Mark Almeida. Paul knew Mark Alameda. He was the former CEO of Moody's Analytics. And he knocked on the door. He said, hey, you know, I'm going to be in town. I'd like to stop by and say hello.

I said, great, fine. So we started having this conversation. And quickly, I'm trying to figure out what, something's going on. What's going on here? What's going on here? And he finally came out and said, you know, we're kind of interested in purchasing your firm, which was great. Obviously, that made us feel fantastic. Yeah.

But here's the interesting thing. Yeah, I don't know if you knew this, but like three days later, Fitch, you know, Fitch is the other rating, one of the other rating agencies, knocked on the door also and said we wanted to buy your company. Do you remember this? Do you think we made that? You were probably thinking I made that up. You might not have disclosed that to me. Oh, is that right? Is that right?

I don't know. Oh, no, really. I don't remember that at all. You know, I guess I would say, Mark, I mean, that's the way we try to do the deals, though, right? Is you try to do them, you develop a relationship with people, you find things that you think makes sense for your company. And then you go out and you talk to those management teams.

And we do everything we can to stay out of these auctions. That's a very difficult way to buy any asset, right? you end up paying, you know, the highest price. So it's interesting that they were there. It was, and I'm not making that up. I'm not, you know, they knocked on our door. So it was really a weird. And to be frank, Rob, I'm not sure we would have sold without Fitch there because we had no idea what our company was worth.

We had literally no idea. Right. It was, yeah. So, you know, it's interesting, Mark, because that also says that, you know, know, companies were waking up to the important, the increasing importance of this, you know, economic content. You know, as we were thinking about building out our solutions and our offerings, we, you know, the thesis was that we were going to take that content and thread it through, you know, a number of our solutions. And ultimately, Mark, obviously, that's what we've done.

And that's been great for, you know, the economics business has been great for Moody's. Hey, I got another question for you. I got lots of questions for you. Yeah. I got some for you, too. I bet you do. I bet you do. So 20 years, do I get a gift after 20 years? Does, like, someone, like, call me up and say, zoom me up and say, you get a gift? I will call you, Mark. Okay. That's, that's a, I'm glad you've mentioned this. I'm going to put a tickler on my calendar after this. I was just angling for that. Well, thank you for that. Well, you know, the 20 years have been great. And it's hard to believe we've been part of Moody's longer than we were our own company because we started in 1990 and we

Oh wow. Yeah. Yeah. We were purchased by you, by Moody's in 2005. And it's been, you know, it's been really, you know, obviously fantastic, you know, great, great experience. But, you know, your career, and I know you want to talk about a lot of things, and we're going to.

You know, we're going to talk about artificial intelligence, AI, you know, that's obviously a really important topic. This concept of exponential risk. We're going to talk about that. But before we kind of dive into that, I just want to get a better sense of, you know, your path to becoming CEO. It's just incredible to watch, you know, your success. And maybe you can just give us a sense of your career and, you know, fundamentally, I'd like to know what the secret sauce is. How does one become CEO of a large multinational corporation?

And by the way, I've got a theory on that. I've got, you know, I always have theories. And I'll try my theory out on you, but I want to hear what you have. Did we start with your theory or should we? No, no, no, no. I want to hear out. Well, I guess successful acquisitions must be part of the formula. Yeah, okay.

So, you know, look, I joined in 05, and we had only been a public company for about five years, right? We spun off from Dun & Bradstreet, and I came in to run our corporate development team. And so this was basically focused on the growth of our businesses. you know, mostly through mergers and acquisitions. And so, you know, we started with economy.com. We made several other acquisitions. And at some point, I think it was 0708, we said, hey, look, we've got a critical mass of these data analytics software businesses. And it makes sense for us to set up another division of the company.

So up until then, you might remember. I mean, when we acquired economy.com, there was really just the rating agency. And we realized that there was a lot of demand for all of this content. And we had a very strong customer base with investors. And so that's when we established the analytics business. And as you said, Mark Almeda ran that. I partnered with him. And he grew that business.

And now, interestingly, Mark, that business, this past year, the analytics business was just more than half of the revenues of the company. Oh, I didn't know that. Oh, wow. that is a milestone for sure. Think about that growth. It's actually 12%. Well, there's a number for you.

I should have used this number. I've wasted it. 12% compound annual growth rate of revenues since the establishment of Moody's analytics. Wow. That is amazing. So, look, I had the great fortune of being involved in all of that. And that gave me a great opportunity to really focus.

on the strategy and the growth of the company through a number of acquisitions and partnering with our business people. Then our former CEO, Ray McDaniel, gave me a call and said, hey, would you like to come over to the rating agency? And I moved over and ran what you would think of as the sales and product team. And I did that for three years. That was also a great seat because do the separation, you know, the Chinese wall that exists between analysts and and sales in the rating agency, I got a chance to focus on the business aspect of ratings. And so I did that for a few years.

Then I ran the ratings business. So I had six, seven years of, you know, in the rating business. It's one of the world's great businesses, wonderful business. So I had a really nice mix. I was very fortunate, you know, of being in the early days of Moody's analytics and then working in the rating agency and the business side of the rating agency. I think that just, it gave me a very good experience set and perspective that, you know, I think, you know, positioned me for this job. Yeah, in fact, I'm a hard press to think of anyone else who's had the kind of the breadth of your experience, right?

I mean, that's pretty amazing, both on the analytics side and on the rating agency side. Yeah, I've been fortunate. Now, I'm not going to let you off the hook. Yeah. So what's the theory? Oh, yeah. This is the theory. And I have a limited sample, admittedly.

I mean, I know a fair number of CEOs, but I don't know a lot of CEOs. But, and this goes against TV stereotypes. But I find CEOs, and this really applies to you, they're just nice people. You know, they're just genuinely nice people. Because it makes sense. You can't be elevated over time through all kinds. kinds of different challenges unless you can work with people and people like you. Yeah, they have to like you. And you're just, you're just a nice guy, you know. So I think that's, that's, it seems a little

weird when you, if you watch Succession, you know, that's not, that doesn't describe the CEO running that company, but, or maybe, you know, some modern day similar CEO types, but that's been my experience. The other, the other thing, the other element to it is you're, you're very, you're very, nice, but you got an edge. You know, you're willing to make, you know, some, you've got to make some tough choices and some tough decisions because stuff happens and you've got to, you know, pivot and you're able to do that. And that's not easy to do either. So that's my theory. Yeah. Okay. Well, I appreciate that. I thought there's going to be some, some study that you were going to be cited. No, no, that's, I would say to that, Mark, that, you know, times have changed, right?

And I think our employees and colleagues want people that are authentic as leaders. And that's not just me, but the leadership of the firm. They want people that are empathetic and, you know, just given everything we've all gone through the last few years, I think empathy, you know, starting in the CEO's suite, you know, the C-suite is a really important, you know, attribute for leaders of today. You know, Mark, I think we've even talked about it in town halls about how important empathy is. Yeah. And I know the listener out there is thinking I'm just sucking up to the CEO. And you know what? Yeah.

Yeah, maybe you are. Maybe I am. Maybe I am. No, no. I honestly believe it. Hey, I promise we're going to move on. But I want to bring Chris and Marissa back into the conversation. And maybe because I had an opportunity to, you know, ask you a question.

Marissa, maybe I'll turn to you. Do you have any questions for you? questions for Rob, anything that's been really bugging you that you'd like to ask? Oh, boy. As opposed to not your, how much you're getting paid? That's probably not appropriate. Yeah, I'm not going to ask that. It's like that offline.

This video can be edited for content after the fact. I have a couple of questions. So, I mean, I do think it's fascinating your career trajectory and having seen all different facets of the business. what as a CEO, I imagine it's an extremely constantly stressful job. What worries you over like, if you think about the next five years, you know, and you think about the business and the competitive landscape, what are you most worried about and what are you the most excited about?

Yeah, Marissa, actually, the answer is going to be two sides of the same. coin. So I'm going to start with most excited. There's just a tremendous amount of opportunity for us because of what we do and because of the world around us and what customers need, you know, to navigate the world of today. So I'm really excited about the capabilities that we have built out and we've spent about $8 billion over the last five years, $8 billion. to build out capabilities well beyond credit to help our customers. So that's really exciting. The flip side to it, actually one thing that does worry me is prioritization.

You know, there are a lot of things that we can do. And I actually see you nodding your heads a little bit. At the end of the day, you can't do it all. And it really is important to think about how we out. allocate and just ruthlessly prioritize. I know that's a phrase we use of the firm. Your time and effort, your expense dollars, and your capital dollars. And, you know, that's something I think we really got to get right.

You know, you got this asset called the economics unit. Just saying, in the privatization of, yeah. Don't forget us. We were at the beginning there, Rob. Yeah. Sorry, Marissa, I interject. Do you want to ask something else? Yeah. Can I ask a more like personal, lighthearted question? You can ask anything you want. He can tell you I'm not answering it, but go ahead. Actually, Joe told me that if I got up at 430 to do this podcast, that I could ask you anything.

Joe, Joe, so everybody knows is on the comms team. And if you're not in a large multinational, comms means communication teams, the communication team. In fact, Rob, I think that's why we haven't been able to get you on. Joe's been nervous about Zan. what he's going to say. I think that's what's going on. Rightly so. He's an anxious mess right now. I was, so I was reading your bio on Mint,

and it says you're an avid hiker and outdoorsman and traveler. And I was wondering, A, do you actually get to do any of that stuff when you're CEO? And B, what's the last, like, great personal trip you took and were able to enjoy? Yeah. I do get to do that stuff, Marissa. And I think this is really important that we all take time to recharge. In fact, I just sent a note this morning to my team because one of my executive team members is on vacation for the week. And I ask my team to take him off of CCs and to not do the one-to-one meetings within this week and just everybody to make sure we give him a chance to take a vacation.

and CEOs need breaks too. And I think it's important for a few reasons. I mean, one, it's just good for me to be able to recharge, but two, it's a very important signal to the rest of the firm, right? We don't have a workaholic on top of the firm. You know, I'm a father. I'm a husband. I've got different roles that I play.

I want to be a present parent. And you're right. I love to run and bike and hike. And I actually find that when I'm out on a trail or I'm, you know, riding 25 miles on the bike, that's a great time to think. And so I actually think it's really, really valuable time. You know, and so I want to make sure that, you know, I do it and set the example for the rest of the firm. In fact, I don't know what this says about me. One of the most, the highest engagements I've ever gotten on a LinkedIn post was when I posted that I was going on vacation.

People seem to be thrilled. To answer your, the second part, I took a wonderful trip with my family. I have a wife and two kids. And we went hiking in the dolomites, you know, from hot to hut. It was just incredible. Good. Well, I'm glad to hear that because I'm about to leave for two and a half week vacation, Mark, FYI.

I understand. Are you, you off to Japan? Are you going to? I am, yeah. Yeah, yeah. Good for you. I'm headed in that direction in a few weeks. too, but you're on vacation.

Yeah, I'm on vacation. I'm going to leave you alone. Hey, we got to get down to business, but Chris, I want to give you an opportunity, too, to Pepper Rob here. Any questions? Sure, sure. So now that I know about the Dolomites, I would definitely go down that route. That's one of my favorite places on Earth as well.

But the question I have is really in the other direction that Marissa was looking at, which was looking more short term. Moody's is 114 years old, right? what do you see Moody's becoming over the next 114 years? I think over the last 114, essentially been doing the same, roughly the same thing, rating businesses. Do you see that continuing or pivoting? What's your vision for the long term?

Yeah, so the rating business is the, it's the endowment, it's the foundation, and I'd say the rating business is more relevant than ever to the market, you know, our views. And so we've been building on that. And I, you know, we use this phrase, Chris, calling ourselves kind of an integrated risk assessment business. And people have been asking, you know, what does that really mean? I mean, you know, I think we're going to get into it a little bit when we talk about exponential risk. But we're moving from a firm that focuses on credit risk to focus that has a multifaceted view of risk to help our customers. And so we've built out these capabilities.

The analytics business is now more than half of the business. And I think you're going to see that trend. continue. That's where there's a lot of growth opportunity for our firm. So that's how I tend to think about it. There's just a huge customer need to help, you know, help our customers, you know, with this multifaceted view of risk. So, so Chris is used to long-term forecasting, you know, with this climate risk analysis we do. We now, you know, believe it or not, we forecast out to 2100. 2100. Yeah. Yeah. Those are probably pretty accurate forecasts.

I'll let you know. I'll let you know. Chris, I have a hard time forecasting issuance one year ahead. Oh, there's nothing harder than that. Believe me, I've tried. That's like, forget about it. Well, that's a good segue into the conversation. And the way I kind of in my simplistic worldview of Moody's is historically, in times past,

we were about credit risk. You know, we would provide the data, the tools, the analysis, the analytics to investors to allow them to make judgments around the risk that a company that or a government that issues a bond would default on that bond. Yeah. And that kind of drove the train for, well, really up to when you bought us back, you know, right, almost 20 years ago. And since then you, the acquisitions that,

that have occurred have been around expanding out the portfolio of risks that we are able to help folks grapple with. And there's a gazillion risks. And that gets to this vision you have that you've now dubbed exponential risk. Let me say, let me ask, did I get that roughly right? and maybe can just dive in there and give us a better sense of what you mean by exponential risk. Yeah, you did get it roughly right. You know, Mark, I always like to kind of start with a customer lens. You know, and if you think about our customers, they're most of the world's largest banks, insurance companies, corporations, government, you know, agencies.

And you think about the world that they're dealing with, right? There's all sorts of different kinds of risks that they're having now to deal with. And also an understanding that a lot of these risks are very interconnected, right, that they can have not, because the world is so interconnected, they can have knock on impacts. You know, it can have a domino effect. We've certainly seen that. And so, you know, again, think about what organizations are dealing with. It's not just financial stability and creditworthiness. It's, you know, you want to understand the reputational profile, ESG, carbon transition, physical impacts of fiscal risk related to climate change, data security, cybersecurity, security, financial crime, all of these things.

You know, companies are having to manage. And so really a common theme with our customers is wanting to have more of a 360-degree view of who they're doing business with, right? who am I lending to? Who am I investing in? Who are my customers and who are my suppliers? And there's also a desire to understand how these risks then interconnect and what the knock-on impacts of these risks can be. And I think COVID was kind of the ultimate example of that. you know, if you think about, you know, what went on. It obviously impacted every person, every country, every company, every industry. It impacted U.S. Sino relations. There were, was massive fiscal and monetary stimulus that led to inflation, interest rates, you know,

stress. So, I mean, you just think about all the knock on impacts from one virus. You know, there was another example the other day that just recently I thought was pretty interesting where a Chlorox had a cyber attack. And suddenly the concern becomes, well, you know, could that's as we're entering flu season and potentially an uptick in COVID cases and what happens when a Chlorox plants get, you know, taken down. So that's the kind of thing that companies are dealing with. And that's why, as you said, Mark, we've built out all of our capabilities around this. And I'll give you one other example, I think, is interesting. I was talking to the head of digital transformation at this big European bank.

And they said, at the time that we make a loan, we have to answer three questions. Can we do business with this company? Do we want to do business with this company? And will they pay me back? And Moody's, you've helped us with the third for a long time. We need help with all three at the time we make the decision and for the life of that loan. So is it you're thinking that the risks that businesses and governments face are greater today than they have been in times past? Or more they feed on each other to a greater degree than in times past?

Is something changed in terms of the risk environment that we're all operating in? I think so. I mean, think about cybercrime. You know, there's been an exponential increase in cyber attacks over the last decade. You know, actors have become much, much more sophisticated. And so, you know, you think about the nature of the attacks, Mark, right? It used to be, there'd be a breach of some database. There'd be a leak of some information, right?

Think about today. There are attacks on physical infrastructure that are having, you know, remember, the colonial uh colonial uh colonial gas oil pipeline right remember you know that was a cyber yeah yeah those those risks are the other day there was a hospital that actually shut down due to a cyber attack they have closed permanently um i'd say that right they actually they had closed down because they closed permanently they could never get back up and running and they were already under some financial duress and they closed permanently so you know the same

is true for financial crime, right? If you think about what's going on and think about the environment we're in now with needing to do sanctions enforcement, much different than it was a decade ago, right? I mean, Russia, Ukraine changed the game in that regard. So, and then I would say also, Mark, you know, think about for consumer companies and customer preference and the importance of understanding your labor practices. I mean, those things can really impact your brand if you get it wrong, right? So you find out that you're manufacturing shoes, you know, at a place that's using forced labor, you may find there's a customer boycott, which has been enabled by the rise of social media. You know, so I do think there's been an, I think there has been an increase in these things.

And also, I think regulators are now saying, well, now we want to focus on how organizations are managing those risks. So you've seen the SEC focus on disclosures around cyber attacks. And you've seen, you're very familiar with this, you know, bank regulators wanting to understand, you know, the impact of climate change on bank lending portfolios, right? So there's the regulatory drivers for companies to need to understand these risks. And again, I know the work you all are doing around climate adjusted probabilities of default and stress testing and so on. I guess the other aspect of this is we're just a more globalized. economy, right? And so the risks come at you from all over. Moody's, we know that because we're everywhere on the planet. And so the problems can come from anywhere. I mean, I remember, you know,

we write analysis, the economics team writes analysis for different economies around the world. And we're, we try to be very fact-based, database, model-based, you know, it's very quantitatively driven a lot of the analysis. And we have a very involved editing process, but, but nonetheless, we wrote a piece about, I can't remember exactly what it was about, but it was about India and Indian elections. And the Indian government got really upset by this. And even Modi, I think, said something about it and got dragged Moody's in. So it can come from anywhere at any time. And you're going, what? Are that really? You know, so you got to, you know, I think that's the point that, you know.

Mark, I mean, think about if we had a severe earthquake in Taiwan. Yeah. Think about the global now, the global implications of that around semiconductors and, you know, it's, it's. Yeah. Let me ask you this. There's a whole panoply of threats, risks, you know, from credit risk, you mentioned cyber, you mentioned supply chains, you mentioned sanctions, you mentioned. I mentioned reputational risk, regulatory risk.

Is there, in your thinking, a risk that is underappreciated that, you know, businesses face that, you know, is actually more serious than people think or have focused on? That may be an unfair question. I'm just curious if you, if anything kind of strikes you as like underappreciated as a threat. Yeah, I, maybe I'm going to. turn that question just a little. I'll tell you one place where we're seeing more and more interest starting to pick up. And this is something that we had thought would be the case a few years ago, but it is around understanding the physical risk relating to climate change and severe weather. And companies really wanting to understand that.

And Mark, I think one place that that's particularly industry, interesting is as the banking industry, wants to understand that. Because if you think about forever, that has, weather risk has just been insured by the global insurance industry. But now banks are finally waking up to the fact that, hey, I may be underwriting a loan that's secured by, you know, a 10-year loan that's secured by a piece of real estate. And that, you know, what if that piece of real estate is in the hills of California? and it's got a one-year insurance policy. And so I need to understand the physical risk relating to weather and potentially climate change over some period of time,

the life without loan, make sure I priced that risk appropriately. And it was interesting, I had this discussion a few years ago with a group of banks at one of our conferences, actually. You may have been there, actually, out in Arizona. Oh, yeah. Yeah, the banking. And, you know, people are looking at me like, you know, that's not really a risk for us because all of this stuff is insured.

I said, well, for now it is. Yeah, great point. And it seems, you're absolutely right. That seems to come on the scene incredibly rapidly. Like, it wasn't even in the conversation a couple, three years ago. And now it's like, it really matters, you know, if you live in Florida or California in particular. Oh, here's, I got a question for you. Yeah.

And this is only because I watched Chris give a. a talk at one of our conferences last week. Guess which state has the highest homeowners insurance premiums in the country? Merced, you can't answer that question either. You were at the conference. Oh, you don't remember. I remember what state had the lowest. Ah, yeah.

Homeowner's insurance. Right. Go ahead. Tell us who's lowest. Hawaii. Hawaii. Which is very counterintuitive, right? Wow.

Yeah. Yeah. Yeah. Yeah. Not anymore, probably. Yeah. Unfortunately. Unfortunately.

Nebraska has the highest. Yeah. Oklahoma. Oh, is it Oklahoma? Oklahoma. Nebraska's number two. I need to pay closer attention to your city. You were in the right area.

I was in the right ball. They were both in red on the chart. Because of tornadoes and severe convective storms. Correct. Yeah. They have some flooding in the east too. Don't hold me to this stat because I don't know I have this. correct. I thought something like 70% of the losses this year in the United States have been

due to severe convective storms. Really? And tornadoes, yeah. So not hurricanes. Yeah. That's right. Yeah. So, you know, this, we're all in on this because, you know, regional, our regional economic work really, and we do a lot of work for the real estate industry. And, you know, they're clued in on this as an issue. And so we're spending a lot of time on it. And of And of course, Moody's purchased RMS, right, the big insurance analytics firm. That's why we did it, right? Is we want to have world-class weather and climate modeling capabilities and thread that through all of our solutions in the ways that the customers need it.

Right. Well, let's move on. We're going to get to AI shortly, but let's play the game, this statistics game. I'm really curious to see how this goes. I'm nervous, a little bit nervous. You're nervous. I'm nervous. You're nervous. And just to remind the listener, the stats game is we each come up with a stat.

The rest of the group tries to figure that out through clues and questions to Dr. reasoning. The best stat is one that's not so easy that we get it immediately, one that's not so hard that we never get it. And one that's apropos to the conversation would be a plus. And Rob, you're the guest, but tradition always has it. We begin with Marissa. Marissa, what's your staff?

You're not giving this to Rob just because he's... No, no. I'm not letting him form up, letting him get, you know, getting, you know, in the groove. Okay. My stat is 14.45%. Is it an economic statistic that came out this week? Yeah.

Is it related to the financial obligations ratio? It is the financial obligation. That is impressive. See how that's, hey, Rob. Okay, no, Rob, that's got to be. It's a high bar. Yeah, it's got to be impressive. That's very impressive.

Oh, there you go. There you go. He's sucking up. He's up to me now. You want to explain, Marissa? Sure. So this is a measure of household debt and other financials. obligations like the amount of income, the share of a household income that goes to debt payments,

car leases, rents, if they're not a homeowner. So it represents the, you know, the sort of the stress or the debt burden of a household. This fell in the second quarter kind of unexpectedly. And it's the lowest it's been since the end of 2021. And if you look back at the whole series, it's extremely low. It's still near an all-time low. The data go back to 1980. So this kind of goes to a lot of what we've been talking about recently about why the economy's been so strong, why it hasn't fallen into a recession yet. And one of the reasons why we think it will not is that even despite the higher interest rate environment, there has been a pullback in demand for lending for some categories of borrowing for consumers. And households look really solid in terms of their financial situation. So just the fact that it's still falling through the first half of this year, I think, you know, despite that we're at in a high interest rate environment and likely not moving from that for a while, it's pretty remarkable.

Yeah, I was surprised. And Rob, that's an example of exponential risk, I think. I mean, that goes to household credit risk. But it also highlights the difficulty in assessing risk because that statistic is kind of down the middle of the district. right? And you got to look at the tails of the distribution because there's a, you know, a boatload of folks at the low end of the district, low income that are, obviously that financial obligation ratio doesn't really express the kind of financial pressure they're under, right? Marissa. Yeah. And I think some other statistics that we saw kind of highlight what you're saying

this week. We were looking at savings rates across different cuts of demographics. And we see that, you know, this one and a half trillion of excess saving that's out there, like 70% of it is with households that are high income, people that are over 55 years old, right? So younger households, lower income households really don't have that much saving left. It really is concentrated. So when you dig into the details, it's important to dig into the details. Yeah. And the, you know, the student loan borrowers are going to start repaying. And we'll see how, you know, there's an example of, you know, an event that can have all kinds of knock-on effects, right? So we'll see how that plays out.

Rob, you want to go next? Okay. You're up. All right. 23. Ooh, 23. Is it related to the economy? It's related to something we've talked about on this podcast.

On this podcast, 23. 23. Is it related to a climate event? It is. Oh, a climate event. 23 hurricanes in the last year? Getting closer. Tornadoes.

In the last year. It's been in the last year. So you've narrowed it. You got the right time period. But not hurricanes. Is it some kind of physical risk? It is. Yeah.

Globally. Or in the U.S. U.S.? U.S. U. 23. What's? Should we just start naming different wildfires?

Yeah. Is it, if it's not hurricanes. It's not tornadoes. Named storms? No. Flooding events. Weather events. Okay.

Above a certain threshold. Oh, that makes sense. That makes sense. Like over a certain dollar amount of damage. Yes. Yeah, yeah, yeah. So 23 weather events this year. in the U.S. over a billion. A billion dollars. A billion dollars. Yeah. So the 23 is a record.

Yeah. Not surprising, right? The 23 is a record, but the absolute dollar amount of damage is not a record. In fact, 2017 was the biggest year. So so far this year, it's something like about $60 billion from these weather events, these 23 weather events. And in 2017, it was about $385 billion. If you remember, it was Harvey, it was Maria, it was Armagh. He had three huge, really impactful hurricanes. Yeah, that's a really good one. That's a really good statistic.

Did you have another one? I think Joe is sent you another one. No? This is all I got out. You're tapped out. Totally tapped out. That was a good one, though. That was a really, very, very good one.

Chris, you want to go? Sure. 1.66 million. Is it an economic statistic that came out this week? It is. It is. Housing related? Nope.

Is it UI related? Unemployment insurance related? It is. Come on. Now you got it. Huh. 1.66 million. It's not continuing claims.

It is indeed. Oh, okay. Rob. Rob, I'm just saying. somebody using a co-pilot well we've out you know we thought marissa was doing that at one point actually yeah

because marcia's like she's like really good at this game she is really good at the yes but you know co-pilot doesn't have like the most recent information so it really wouldn't help that out right you pointed that out yeah you want to explain Chris, why did you pick that? Yeah, $1.66 million is the lowest level in continuing unemployment insurance claims since January.

So they had spike to $1.85 million in April. And seeing the level come down is indicating that this remains a very strong labor market. The folks who are getting layoff, even though they're relatively few, given the initial unemployment insurance claims, they're getting jobs fairly quickly. So we're keeping this level down. And this is consistent with the narrative, the slow session, soft landing narrative, where perhaps the number of job openings declines, but the layoffs remains quite low. So this is a positive sign along with the financial information that Marissa cited there. Hey, Rob, I've got a, there's a theory that want to just test it out on you from your perspective, that businesses in general are very reluctant to layoff workers.

because the labor market's been very tight, you know, for quite some time. Pre-pandemic, it was very tight. During the pandemic, obviously excruciatingly tight because of the pandemic. Post-pandemic tight. And businesses are looking forward, and they're saying, you know, the demographic trends, you know, aging out of, you know, my generation, weaker immigration, are going to keep labor markets tight. And therefore, they know that their number one business problem, not always, but. but kind of through the thick and thin is finding work,

talented workers and retaining those workers. And as such, they really don't want to lay off. They'll do other things, though, you know, they'll hire a little less aggressively. It might slow down,

filling those unfilled positions. They might cut back hours, you know, if you're in a manufacturing or construction. You can't, hard to do that in the Moody's, but a construction manufacturing firm, you know,

might use less temp help. And that's one reason why we're not seeing layoffs and one reason to be optimistic that we won't suffer a recession because it's hard to see recession without layoffs. What do you think of that theory? Does that resonate with you? Or is that, how do you think about that? I tend to think about, Mark, you mentioned the importance of attracting and retaining. I mean, it's certain talent the way I think about it. there are certain job families that are in particularly intense demand, at least from where we sit,

we're in kind of the knowledge worker economy, which is different than, you know, retail or manufacturing. So I can't quite speak to that. But what we do see is really intense demand for certain job families, you know, not surprisingly, you know, software engineering, but but also things like, you know, compliance and audit and, you know, those kinds of, those kinds of jobs. And so they're, you know, despite, it's interesting, despite the fact that we've seen turnover come down at, you know, at the company, there's still, you know, I think we still think of it as a very, very competitive labor market and putting a premium on retaining, you know, that talent.

Yeah, it's a theory that's hard to prove one way or the other, right? But it's kind of a narrative that's out there that people are using. Okay, do you want me to give a statistic or are we getting long in the tooth here? Should we move on? Because I do want to spend a few minutes on AI. Do you have a few more minutes, Rob, or should we, do you want another stat or do you want to one more? You all can dazzle me with your deductive reasoning. I got a I've got a hard one.

That will be. And it pertains to the first part of the conversation where we talked about the kind of the immediate risks to the economy. And you remember student loan payments and UAW strike and so forth and so on. So here's the stat. And I'll help you out if you can't get it. But 22. That's very close to mine. I know.

That's why I was. I was a lot nervous. I'm nervous about that. You had my stat. Did it come out this week? No, it's a kind of a historical stat. Kind of sort of like Rob's stat. Is it a time measure?

No. It's the number of times this has happened, 22 times over history. The number of times the government has shut down? Ding, ding, ding, ding, ding, ding. Wow. Okay. Yeah, yeah.

Like, ding, ding, ding. That is great. I told you, Rob. She's like, she's amazing. She's amazing. There's no way she could have typed that in to barred or something to get. Hands are up here.

Hands up. Yeah. Yeah. The government has shut down 22 times since the 70s when the current budget process was put into place. And do you want to, Marissa, take a stab at how many times? Oh. Well, I'm going to stop right there. I had another step, but I think I got it wrong.

I was thinking to myself, I can't be right. But yeah, 22 times. That's hard to believe. And, you know, here we might be on our 23rd time. And obviously, a real, very significant threat to the, you know, the economy here in the near term. Hopefully, they figure this out. Okay, let's move forward. Let's talk about AI, Rob.

You know, it's this thing that's, we actually had Martin, this fellow Martin Fleming on last week. I don't know if you caught that. He's a, I thought he was great. it was two weeks ago. We had a moment. Yeah, a couple weeks ago. We had UAW last week. He was a former chief economist IBM.

He's at the Productivity Institute and, you know, really provide a lot of insight. It actually made me feel better about AI. But, you know, that has come on the scene very, and listen to my thinking very quickly and is very aggressively. Do you think, do you think this is a game-changing kind of technology? Or is it, you know, there's other technologies that come on and kind of moved on, like, I think, a blockchain. Not that there isn't real applications for blockchain and that that's a big, that's an important technology, it is. But it's not this game, it doesn't feel like anymore, this game-changing thing. Do you think AI is game-changing?

I do. You do. Yeah. Because? First of all, one of my developers said the new language of coding is English. So think about that. It's a tool that everyone is able to use, right? You don't have to be a computer programmer to be able to get enormous value out of, you know, large language models and using these chat, you know, GPT models. And Mark, you know, we, we deployed it to all of our employees at the company in a safe, secure environment. And it's been incredible to see the innovation that it has

unleashed. And for a business like ours, you know, let's go back to the conversation we had about all these different risks, right? To be able to query our, you know, our data, our models, our research on demand, and to be able to get insights across credit and climate, for instance, right? Today, you know, those are, we, we have credit research on our website. We have, you know, climate models in our RMS, you know, workflow software, but we're going to be able to allow customers, we have query all of that together, to be able to bring those insights together. So, this idea that we were talking about, you know, this multifaceted view of risk, I think generative AI is a game changer in terms of enabling that and then delivering it back in a

simple natural language user interface. So for us, I think, and our customers, I do think it's a game changer. In fact, that's why we partnered with Microsoft earlier this year, because we thought that part of what we wanted to do was to really revolutionize the way that research is consumed, you know, by the investment community. You know, economists kind of look at AI through the prism of what it means for the productivity of the workforce, right? And one thought, there's a lot of debate about this, and it's a really important debate, you know, from a macroeconomic perspective.

You know, if it significantly raises productivity growth, you know, that has all kinds of implications, about the size of the labor force, about income and wealth and fiscal. I mean, I can go on and on and on. One kind of debate or argument or concern is that AI ultimately will be very productivity enhancing. It will make us all better at what we do, meaningfully better. But getting from here to there, it could be actually hurting productivity. Because you've got to make big investments, right? As you say, it's data. You got to invest in data. You got to invest in people, right? You got to find the right people to be able to implement it. You got to invest in the computing power because this all rests on the ability to operate at a very high pace.

And all of that may impede productivity growth before it actually kicks in. No? Yeah. I don't know if it's competing productivity growth. I mean, of the economists, but I mean, I look at some of the other big technology cycles. I mean, okay, so when the internet came out, people had to make investments and had to, you know, had to convert to digital business models. And so there was a period of transition. And then when the iPhone came out and people had to move to making everything mobile. So yes, there's a, I don't know about the productivity aspect, but certainly there's going to be

a period of investment. And you're right. The same is true here for the exact reasons. that you, you know, that you talked about. I guess, and maybe I'll flip this back to you. I mean, you know, one thing that's on my mind is just the very rapid pace of the introduction of this technology and the application of this technology, you know, as we've seen it before.

As you go through technology cycles, you have new jobs created and then you have other jobs that are made obsolete. And it just feels like this is going to happen even faster than another technology cycles. I mean, you think about, we weren't even really talking about, I mean, this wasn't a podcast topic in January, I'm sure, right? Yeah, right. So, I mean, how do you think about that? Because that feels like, you know, kind of a bigger societal, you know, an economic issue. Yeah, I, my sense is, and you pick the internet, I think it's a great analog. I think, you know, we all saw the internet. We saw the potential immediately go, oh, this is a game-changing thing. You weren't quite sure how, but, you know, you knew this was

going to change the way we did, we lived in the way we worked. And it took a time, it took time before it really kind of kicked into gear. And the other thing is it, it's one difficulty the internet of incorporating the internet into business practices was, you know, you had to change the way you organize yourself within a company. And that takes time and energy and can, you know, be counterproductive, at least initially. I mean, because you're all trying to figure it out and how to organize yourself. And that it was ultimately when new businesses form and they optimized around the internet that, you know, things really took off. Yeah. You know, that they didn't have the legacy of the former whatever structure.

They could de novo say, this is the way we're doing it. And, you know, as a result, they had enormous. And that's when you got new products and, you know, really game-changing things that you couldn't imagine before, you know, that's when they really started to happen. And that's kind of the analog, I think, here, that I'm thinking about here, that it's, going to take a little bit of time to figure it out. and for new businesses to form and to optimize around it. But having said that, it feels like it could be kind of a cliff event.

You know, like, for example, we're working to try to figure out how to improve the analysis we do with AI. And it's not easy. You know, and we've been trying for a while. Even before chat GPT, we've been, you know, you know this better than I. I mean, all throughout the company, but in the economics world, we were, we contracted with the open AI. well before Open AI was a, you know, a common, you know, in the common parlance. And it's, it's not easy. But I have this sense that once you kind of figure it out, boom, you know, then things

changed really quickly, dramatic. Like, when I say quickly, like within a few weeks, things change, you know, dramatically. And I, so there might be more of a cliff event here than I'm anticipating. But that's kind of the, I think the Internet's a really good analog to, you know, And I think most economists are using that as their analog for trying to assess, you know, how this is going to play out. Let me ask you one other question, though, and I ask this, Martin Fleming, you know, you hear all these dark voices, you know, like Sam Altman, the founder of Open AI or Elon Musk, and there's many others. do you worry about that about the kind of the dark side here and how we are how we're going to set up governance around this and make sure that it doesn't you know it's not a problem you know

probably again like I would worry about it with the internet yeah right and um you know it's early days and I think part of the challenge here is this as you said feels like it's moving even faster to me um you know this is one of the most widely adopted applications in history, right? So it's in everybody's hands. And I think that does, and look, people are going to use the technology for bad, and they, they, as they always do, right? I mean, you see what's going on with cyber criminals and all of that. So this will be no different. There will be people that will figure out how to do bad things with this. I think it's incumbent on the policymaking community and business to figure out, you know, what are the principles and frameworks for responsible use?

That's something we're giving real thought to, Mark. And, you know, look, we have a, you know this because you certified to it every year. We have a business code of conduct. So we're already hard at work on thinking about what does a code of conduct look like that's applied to AI, you know, thinking about the purpose of these tools, the accountability, the transparency, the security, you know, all of those kinds of things. I think we've got to make sure that businesses and policymakers are focused on this. And I would say, you know, to get this right, you've got to have a framework that, because this is ultimately going to get regulated, right? But you've got to have a framework that still allows innovation because there's tremendous potential, but at the

same time, you know, mitigates the, you know, kind of negative uses of the technology. right well i know we i said i thought there's going to be 45 minutes this is we're on an hour now i really appreciate it though i can go we can go on and on but i know you're you're going to catch a plane to i'm not sure where you're going but i'm sure hopefully uh undisclosed location mark undisclosed black site there you go there you go but uh i want to thank you for taking the time and really appreciate everything you know you do uh so thank you Yeah. Well, thank you for having me. And Marissa and Chris, it was great to be with you. And I assure you, I am very wowed by your prowess with the numbers gained. That was a big takeaway from me. There's no way chat GPT bar is going to replace that. I assure you.

We got the best in the business. Best in the business. Shameless plug. Yeah. Shaveless. Thanks, Rob. Yeah. Thank you. Thank you. Well, with that, dear listener, we're going to call this a podcast. talk to you next week. Take care now.