Bloomberg Talks
00:05:50 · S2, Tim Stenovec, Rick Wurster, Carol Massar
[00:05:50] S2: There was a market on that. [00:05:52] S3: I wake up this morning and I see the news, Kalshi, a $ 40 billion valuation, raising another billion dollars today from a large group of investors, including some financial services firms, interestingly enough. Are you missing the boat on prediction markets? [00:06:04] S1: Well, my point of view on prediction markets is, Things related to financial events that could make sense in your portfolio, we think there's a market for that and a justification to have it in your portfolio, and we pursued that. We're working with the CBOE to make financial-related prediction markets available. I do not think, and I strongly feel, that sports gambling is not an asset class, despite some of these firms that offer it safe. [00:06:29] S2: It's gambling. [00:06:29] S0: They say it's not gambling. [00:06:30] S2: Right? [00:06:32] S0: They push back constantly. [00:06:33] S2: What do you say? [00:06:33] S1: I believe it's 100% gambling, and I have no problem against gambling. People like to go to Vegas, go to Vegas, have a good time. But you need to realize when you do that that you are very likely to lose some money. That is completely different than being an investor. And I just want to make sure people understand the difference, particularly young people who are being marketed to with sports... gambling being an asset class. Listen, go gamble if you want to. Take money you might have gone out to dinner with. [00:07:02] S2: Gamble.
00:07:02 · S2, Rick Wurster, Carol Massar, Tim Stenovec
[00:07:02] S2: Gamble. [00:07:02] S1: But don't mix that with buying stocks that if you're 22 years old when you're 65 are going to be worth a lot more. [00:07:08] S0: Why is that bad? [00:07:09] S3: Prediction markets say there's no difference between betting on the outcome of sports. [00:07:13] S0: Or the markets. [00:07:14] S3: Or betting on the outcome of what Fed chair Kevin Warsh will do at the next meeting. [00:07:19] S1: I think it's factually incorrect to say that sports gambling is the same as being an investor. Nine cents and a dollar on average people lose when they sports gamble. And again, that's fine. You go out to dinner, you leave with less money, you had a nice time with your wife or your friend, you're happy that you spent the money. And people enjoy sports and have a good time with it. If people want to do that, I think it's great. I just want to make sure the young investor in our country doesn't think that sports is an asset class the same way that investing in stocks is, because they are fundamentally different. One has a positive expected return that will benefit you in your financial life and make you wealthy. The other is going to take money out of your pocket. [00:07:57] S0: Do you ever think that these prediction markets are going to grow substantially when it comes to the financial markets and having a role in the financial system?
00:07:57 · Carol Massar, Rick Wurster, S2, Tim Stenovec
[00:07:57] S0: Do you ever think that these prediction markets are going to grow substantially when it comes to the financial markets and having a role in the financial system? [00:08:05] S1: Yeah, I don't know because there's so many ways to participate in markets today and take different positions. I don't know how much that adds. I think it simplifies things and it might be a unique way for younger investors to engage. [00:08:17] S2: Maybe it's easier. [00:08:18] S1: But I think the reason you see 90 plus percent of the volume in sports gambling is because It's got around the sports gambling rules, and it's opened it up nationally and allowed people to do that. [00:08:27] S3: So just last question on this. When do you think we'll see the actual prediction products from you? [00:08:32] S1: Well, we already are in it in a small way. We're beginning with a relationship with CBOE where we have financial contracts on the S & P that are structured as prediction markets. We will launch more in the next year, but they are going to be financially driven. We're going to stay away from sports. Again, I have no problem with sports gambling. [00:08:48] S2: Have at it. Just don't confuse it with investing. [00:08:50] S0: I want to go back to AI and agentic AI. And I know you've had some, I think, thoughts about this in terms of that ability that do we want to be able to open up and let agents basically make decisions on your portfolio or your retirement assets? Do you have a view on that as you guys lean more and more into AI?
00:08:50 · Carol Massar, Rick Wurster, S2, Tim Stenovec
[00:08:50] S0: I want to go back to AI and agentic AI. And I know you've had some, I think, thoughts about this in terms of that ability that do we want to be able to open up and let agents basically make decisions on your portfolio or your retirement assets? Do you have a view on that as you guys lean more and more into AI? [00:09:09] S1: I think at the moment, I think very few people want to do that, number one. And number two, we're not going to allow it on our platform. There's too much risk for the client. [00:09:16] S2: Ever. [00:09:17] S1: I'm not going to commit to ever. Things can change. But as we sit here today, I think it's too much risk for the client to bear and too much risk for us to bear. Now, interestingly, we are blocking traffic from agents that are unauthorized. But here's an interesting thing. We track how many times we have to block a client. We've got 49 million client accounts. I get a weekly report with the weekly hits. It's like 30 times that news was blocked, 40 times that cloud was blocked. Clients are not yet willing to give their passwords to these agents to go take activity on their behalf? [00:09:48] S2: I'm not ready. I'm not ready. [00:09:49] S3: I don't think I ever will be ready. I mean, it's sort of the most sacred thing that somebody can do is part with their money and to make that decision themselves. But maybe I'm just old-fashioned. [00:09:58] S2: I don't know.
00:09:58 · S2, Rick Wurster, Carol Massar
[00:09:58] S2: I don't know. [00:09:59] S1: Well, you look at examples like Hugging Face, and there's been others where agents maybe do things that they weren't intended to do. And by the way, I'm very pro-AI. I think AI is terrific, and it's going to help us in lots of ways. But the idea that you might expose all your money or give your password and credentials to an AI agent, that's That makes me very nervous and certainly makes us nervous that our clients would do that, which is why we don't allow it. But we will create safe ways in because we know clients want to use large language models. We've got two ways for clients to engage with us and use their large language models. but in a very safe and secure way. [00:10:33] S0: So, Rick, I've got to say, every morning I think I feel like Tim and I get up separately. But we are a little stressed. Sorry, a little joke, a little levity. No, but we talk about, sorry, large family, you know, crazy stuff. [00:10:47] S2: The wars. [00:10:48] S0: Sorry, now I'm going to do a hard term. Midterms. There's just AI. There's just so much coming at investors right now. And I know you and John Beattie, right, did a keynote earlier, and you guys were kind of talking about the outlook. How do you see the outlook right now? [00:11:03] S1: Well, the markets are strong. The economy is strong. And that's a good place to be. Employment's good. [00:11:08] S0: Why does it always feel so bad, though?
00:11:08 · Carol Massar, Rick Wurster, Tim Stenovec, S2
[00:11:08] S0: Why does it always feel so bad, though? [00:11:10] S1: Well, there's always things to be concerned about. And the market doesn't love uncertainty. And the midterms create uncertainty. But we'll get past that soon. And if you look at the past midterms, 19 of the last 19 midterms, after we've got through them, the market's gone up. So maybe we'll make it 20 in a row. But, yes, there's been uncertainty. But I think what's kept the markets continuing to go... is that the economy's strong, you're seeing incredible productivity growth, this birth of AI that's driving a lot of incredible level of investment, certainly level of investments I've never seen in my career. So fundamentally, there's a lot of great things happening. [00:11:45] S0: What's one risk that you keep on your mind? [00:11:49] S1: I think to me the biggest risk is inflation because the way inflation could hurt the markets is if bond yields continue to go up, there's a lot of debt in the world. And so that debt becomes more expensive. The discount rate on equities becomes higher. And so I think inflation is something to watch. [00:12:08] S0: Yeah, and it seems to be a little bit persistent, right? Thank you so much. [00:12:12] S1: Thanks for having me on. I always love coming on and seeing you too. I always have a great time. [00:12:16] S3: We have fun with you too. [00:12:17] S2: Thanks, Rick. It's always good to see you. Thank you. [00:12:19] S0: Rick Wurster, of course, President and CEO of Charles Schwab Corporation.