Roger Ferguson engages in an interactive discussion with Duke University Fuqua School of Business students

Good afternoon.

It’s a real pleasure to be here with all of you. And indeed, it’s an honor to be asked to speak at this symposium, which has such a long and important history at Duke. I want to thank the MBA Finance Club for the invitation.

I think it’s wonderful that it’s students who have planned and organized this event. I understand that’s totally in line with the kind of student-led culture you have here at Fuqua. What a fantastic opportunity to develop skills that will serve you well in your business careers.

Today, I’m going to begin by focusing on the topics that your representatives in the MBA Finance Club requested that I cover. These include the debt ceiling debate, the S&P downgrade of the U.S. credit rating, the sovereign debt crisis in Europe, and the differences between the 2008 downturn and the economic troubles we are experiencing today.

These topics show that you and your fellow students are deeply engaged with what is happening in the world today.

They also underscore what a challenging time we’re in.

I will talk about these challenges, particularly the extreme market volatility we’ve seen lately, and the disappointing economic news of recent months. I also want to share with you some real-life examples of how my company, TIAA-CREF, is dealing with these challenges, particularly as they relate to the people we serve.

I hope you won’t mind if I also spend a few minutes giving you some advice as you contemplate your careers as leaders in the business world.

And of course, I look forward to engaging in dialogue with you during the Q&A after my talk.


So to begin, let’s look at the topics you asked me to discuss. I want to address them in tandem, because they are all closely related – particularly in their effects on our economy and markets.

I am sure you are all quite familiar with the details of the debt ceiling debate this summer between Congress and the White House. Unless you spent your summer doing an internship in Antarctica, it was hard to avoid the press coverage of the back-and-forth.

As you know, a last-minute deal was struck that enabled the U.S. to avoid default and what had been framed as economic Armageddon. And just when everybody breathed a sigh of relief, Standard & Poor’s decided to downgrade the U.S. credit rating. This move sent the markets reeling, even as the three other major credit rating agencies maintained our country’s AAA rating.

Since that time, the markets have been as volatile as any period since the financial crisis of 2008-2009. In fact, there was a four-day period in August when the S&P 500 alternately rose, and then declined, by four percent or more each day. That had never happened before in the 83-year history of the index.

Markets have remained volatile for a number of reasons, but certainly chief among the reasons has been concern about the ongoing sovereign debt crisis in Europe. This crisis has its roots in the fall of 2009, when the global financial crisis shined the light on the huge debts in nations like Greece, Portugal, and Ireland. More recently, debt issues in larger economies like Italy and Spain have caused many sleepless nights for investors across the Eurozone.

The crisis has hit Europe’s banks hard, given their heavy investments in government bonds. The fear is that it will spread throughout the entire Eurozone – and to the global financial system.

Just last week, the already troubled European banking sector was shaken when Moody’s downgraded the credit ratings of two of France’s largest banks over concerns about their investments in Greece.

There is a great deal of uncertainty affecting the markets at the moment – and markets hate uncertainty. Investors fear a recession in Europe, which would further dampen growth prospects in the U.S., where our zero job growth and flat retails sales reports last month provided more evidence of economic stagnation.

Given the economic difficulties we face today, the situation we find ourselves may at first glance look similar to where we were in 2008-2009.

But in fact, there is a marked difference between what’s happening now and what happened then.

For one thing, there were some specific macroeconomic issues affecting the situation in 2008. What we saw then was that many American households were quite clearly overextended in terms of the debt they had taken on. When the economy took a nosedive, we began to see the huge wave of foreclosures in the housing market as people were unable to keep up with their mortgage payments.

What’s happening now is, by contrast, all about confidence – or rather, the lack thereof. Investors lack confidence in the U.S. and in our political system. The showdown over raising the debt ceiling made many investors doubt that our political parties will be able to come to agreement on solving the tough problems we face.

There’s a similar lack of confidence that the Europeans can get their act together and move past the debt crisis.

Certainly, there was also a lack of confidence in 2008 – but it was different.

Then, we questioned the very stability of our financial system. We weren’t sure about the financial strength and status of many, if not all, financial institutions. People even wondered whether their money was safe in the bank. We feared another Great Depression.

Today, no one is questioning whether their money is safe in the bank. No one is questioning the stability of the U.S. financial system. The crisis of confidence today is in the political system. People wonder if there is the political will to tackle problems that may be difficult but are certainly not impossible to solve.

The lack of confidence in political will is causing weaker consumer, investor, and business confidence. It’s reduced the momentum in the economy and delayed recovery in the housing market and banking sector. Consumer and business spending is down. These factors help explain why markets are so volatile.

If you need evidence that people don’t trust government right now, look no further than the results of a poll recently released by Gallup. The federal government came in dead last when Americans were asked to rate 25 business and industry sectors.

Although the federal government had been near the bottom of the list in previous years, this was the first time it hit bottom – and it had to knock the oil and gas industry out of last place to get there.
Interestingly, the top 5 most highly rated sectors in this poll all related to computers and food – which I guess should not be surprising given how we Americans like to spend our time.
So investors have little confidence in governments. The U.S. economy is growing well below its potential. The housing market remains weak. Unemployment remains high. Not a very pretty picture. TIAA-CREF does expect to see some modest increases in economic growth later this year, but we believe that markets will remain volatile, and the economic recovery will remain slow.

Let me now share with you how this economic picture plays out at the level of day-to-day client service in an organization like mine, which has nearly $470 billion in assets under managementiii and serves 3.7 million individuals and 15,000 institutions.

What we’ve found is that there is a strong inverse relationship between the S&P index and the volume of phone calls we receive in our call centers. So on any given day, if there is, say, a 6 percent decline in the S&P, we can expect a 10 and a half percent increase in call volume.

We get more calls at times like these because clients are nervous about their savings. Some wonder if they should just pull everything out of the market.

What we tell them is that our long experience has confirmed, time and again, that the most important response in times like these is to keep a long-term view. If they have an investment strategy in place, and their portfolio reflects their risk tolerance and is appropriately diversified, then they should take the long-term view and stay the course. We tell them to tune out the noise.

Another thing we emphasize is that market timing – jumping in and out of the market in an attempt to cut losses – is a losing strategy. Markets are unpredictable. Inevitably, most investors end up buying and selling at the wrong times, producing much worse performance than if they had simply stayed put.

We learned that lesson well in the bear market of 2008-2009. Those who sold locked in their losses, while those who stayed the course were able to recoup most of their losses over time.

This is what we tell our investors, but it’s a good perspective for you to keep it in mind as well. As a business leader, you will need to have a long-term outlook. You can’t allow yourself to be swayed by the headlines.

You must keep your eye on the big picture and have a keen understanding of history. At TIAA-CREF, we feel like we’ve seen it all: the Great Depression, two world wars, periods of recession and inflation, and other financial crises like the dot com bust.

We have weathered it all. And so have our nation’s economic and financial systems. We will weather this latest challenge as well.

It may take a while before we see much improvement in our overall economy. But we do see a few encouraging signs lately. It’s good – and about time – that our national conversation has turned to the subject of jobs. The economy added no new jobs in August, and our unemployment rate stands at 9.1% overall.

Now as I quote that statistic, I want to very quickly qualify it for the people in this room, since some of you may be worrying about your job prospects in this kind of economic environment.

When you break down the unemployment statistics by education level, it should give you some degree of comfort.

The unemployment rate for people with master’s degrees is less than HALF of the overall rate, or 4%.

By contrast, the unemployment rate for people who have less than a high school diploma is 14.3%. It’s just one more example of how education drives opportunity in America.

So kudos to all of you for doing the right thing at this difficult time. You are investing in your human capital. And that helps to set you up for success down the road.

The fact that you are making this investment at a place like Fuqua, with its global outlook, is all the more important. That’s because few things will be as important to your future success in business as having a global outlook.

Of course, the knowledge you are gaining in your courses in finance, statistics, accounting, economics, marketing – and all the rest – is vitally important. That goes without saying.

But the choicest opportunities – and the greatest success – will go to those who make a global outlook part of their DNA from the very beginning of their business careers.

Michael Spence, the Nobel Laureate and current NYU professor – and my former thesis adviser – has just published a book that reinforces why a global outlook is so important.

It’s called “The Next Convergence: The Future of Economic Growth in a Multispeed World,” and it has some fantastic insights about how globalization is reshaping the world. If you haven’t read it yet, I highly recommend you do.

Dr. Spence describes how dramatically the world has changed since the post-World War II era.

The emerging economies have become the main engines of global growth. Economic power is shifting to them, and away from the developed world.

Consequently, the gulf between people in the advanced economies and the emerging economies is steadily shrinking.

Hundreds of millions of people have been lifted out of poverty in recent decades. As a result, living standards and wealth have begun to converge across the globe. The typical Indian consumer is starting to look a lot more like the typical American consumer.

Consider these statistics from a recent special issue of Time magazineii :

  • In Brazil, per capita GDP more than doubled between 2000 and 2008.
  • In China, the number of Internet users rose from 22 million to 420 million between 2000 and 2010.
  • And in Russia, the number of Bentleys sold rose by 100% – from zero to 103 – between 2000 and 2009.

The convergence Dr. Spence highlights stands in stark contrast to the old status quo.

From the time of the Industrial Revolution in 1750 to about 1950, the average income of people in developed nations rose 20 times over – but only about 15% of the world’s population benefited from that growth. The vast majority of global citizens were left out.

The pattern then was one of divergence – of growth, wealth, and living standards.

In the decades since 1950, growth has spread to the rest of the world.

Thirteen countries, including China, have grown by more than 7 percent a year for 25 years or more.

We’ve seen the Asian Miracle, with countries like Singapore, South Korea and Taiwan enjoying the most sustained economic boom in modern history.

The Miracle changed the game for people in East Asia. As recently as 1981, the region had one of the world’s highest poverty rates – 80% of people lived on incomes of less than $1.25 a day. By 2005, just 18% lived in such dire poverty.

We’ve also seen the rise of the BRIC countries – Brazil, Russia, India and China – as engines of growth. And now the BRIC designation may be giving way to the broader CIVITS – which stands for China, India, Vietnam, Indonesia, Turkey, and South Africa. These are the countries that some have identified as the “hotspots” for growth through the coming decade.

Dr. Spence predicts that by 2050, 75 percent or more of the world’s population will live in, quote-unquote, advanced countries.

Just think about the implications of these trends for businesses. And for your careers, wherever you end up.

The sea-change Dr. Spence describes has happened very quickly.

The framework for understanding the world, at least in an economic sense, used to be North/South, developed/less developed, and rich/poor.

Certainly that framework applied back when I was studying developmental economics.

By the time I arrived at the Federal Reserve in 1997, it was clear that things were changing rapidly.

One of the big challenges we faced at the time was the Asian financial crisis.

The crisis began in Thailand with the collapse of the Thai baht. But it quickly spread throughout Southeast Asia and Japan, leaving in its wake slumping currencies, devalued stock markets, and a great rise in private debt. There were fears of an international economic meltdown.

At the time, that series of events was considered remarkable. Who could have imagined that a crisis that began with the currency of a small Southeastern Asian nation could threaten global markets?

The Fed saw the need for new international standards, and we began working with our partners around the world to modernize bank capital regimes.

Today, of course, the interconnectedness of the global financial system is a given. And we’ve seen too well – and too painfully – the global ripple effects when one or more parts of the system falters.

Beyond the financial world, we are seeing convergence in other areas as well.

Consider what’s happening in terms of demographics – particularly around the issue of aging.

In the United States, for example, aging is a front-and-center issue now, because this is the year that the 80 million Baby Boomers began turning 65.

Longevity is increasing dramatically. Americans age 85 and above are already the fastest-growing segment of the population.

The Center for Strategic and International Studies points out that for most of human history, people aged 65 and over were never more than about 2 or 3 percent of the population. That began to change about a century ago. Today, in the developed world, the 65-plus crowd is 15 percent of the population, and will rise to 25 percent by 2030.

But aging is not just a developed-nation phenomenon.

Countries like China, South Korea, and Mexico, which not so long ago struggled to even feed their people, are now facing some decidedly rich-world problems. They are expected to catch up to the developed world by the middle of this century in terms of what’s called the old-age dependency ratio – a measure of the number of elderly people as a share of working-age adults.

Global aging presents a host of challenges. These include a mounting fiscal burden for governments around pensions and health care benefits – witness the turmoil here in the U.S. about Social Security and Medicare at the national level and about public worker pensions at the state and local levels.

Other challenges that may arise include labor shortages, immigration pressures, threats to financial stability, and social and cultural conflicts.

I say to you again: think about the implications of these kinds of trends for the world’s businesses – and for your future careers.

As leaders of companies, you will be exposed to these forces, whether directly or indirectly.

This has been true at TIAA-CREF, even though we are essentially a domestic organization with a domestic focus.

Many of you may not be fully familiar with TIAA-CREF. So let me give you a short introduction.

We were founded by the steel baron and great philanthropist Andrew Carnegie.

After joining the board at Cornell University in 1890, he was appalled to find out how poorly professors were paid – and how so many of them became destitute when they retired.

He thought teaching was one of the most noble professions of all, so he wanted to help teachers retire and live out their lives with dignity and financial security.

He founded a pension system for professors that eventually became TIAA, which stands for Teachers Insurance and Annuity Association.

And by the way, Social Security didn’t exist yet, so we were quite the pioneer in helping people achieve financial security in retirement.

The other side of our organization – CREF – was born in 1952, a time when high inflation was eating away at the buying power of income from the TIAA fixed-rate account.

So we created CREF – which stands for College Retirement Equities Fund – the world’s first-ever variable annuity. The idea was to help ordinary investors tap the growth of the stock market and achieve a more secure retirement.

Today, we are the leading retirement organization for Americans who work in the nonprofit world – at colleges and universities, as well as at research, healthcare, and cultural institutions.iv

We now offer a whole range of financial services beyond just retirement.

As a domestic company serving mainly American non-profit institutions, you might think we’d be immune from the global forces reshaping the business world.

But we are not in any sense shielded from those winds.

For one thing, our institutional clients are becoming more global themselves. They are moving operations overseas, which means we must rethink how to best serve them.

Duke is a perfect example of this trend. Soon, the university will have a campus in China to complements its presence in places like St. Petersburg and New Delhi.

We have partnered with Duke since 1925. Naturally, we intend to keep evolving our own business in step with the evolving needs of Duke and the other institutions going global. That’s what good businesses do.

Perhaps a more obvious way TIAA-CREF takes a global outlook is in our investments area.

We were pioneers here too. In the 1970s, we were one of the first companies to use an extensive portfolio of international stocks as part of our investment strategy.

Today, as one of the world’s top institutional investors, we invest in more than 8,000 companies worldwide.

We at TIAA-CREF certainly must have a global outlook. And you will too, whatever route you take on your career path.

Given the diversity of your class and the collaborative nature of Fuqua, you have a perfect opportunity to learn from one another.

As someone who has 2 graduate degrees himself, I have the utmost respect for the position you have put yourself in by pursuing an MBA at Duke.

Your focus should be to build your human capital in the strongest and fullest way possible, so that you can go out into the world and deploy it in the most useful – and of course personally rewarding – way possible.

The world desperately needs more good business leaders.

But I urge you to see your time here as more than just a finite period of learning.

If you want to be truly successful, you will see your life as a continuous education – and you will commit to being a lifelong learner.

Our world is being reshaped by globalization, technology, demography, economic challenges – and a host of other forces. They will continue to upend our assumptions, leading us down new paths.

If you see yourself as a lifelong learner, you will feel confident about your ability to handle the changes that will inevitably come your way.

You will know that you have the potential to continuously grow and evolve your human capital to align with the new realities, whatever they may be.

So best of luck to all of you, as you launch into this new academic year. Take full advantage of all the wonderful resources available to you here, and prepare yourself in the strongest way possible to be ready to take on the challenges of leadership in the business world.

Thank you again for having me today, and I look forward to our discussion.

iBureau of Labor Statistics

iiTime, December 6, 2010

iiiTotal Assets Under Management are $469 billion as of 6/30/11

ivLIMRA Not-for-Profit Market Survey, second-quarter 2011 results. Based on a survey of 30 companies and TIAA-CREF estimated market segment assets. Ranking does not reflect investment performance.

Past performance is not indicative of future results. The views described above may change in response to changing economic and market conditions. The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons.

Diversification is a technique to help reduce risk. There is no absolute guarantee that diversification will protect against a loss of income.

TIAA-CREF products may be subject to market and other risk factors. See the applicable product literature, or visit for details.

TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association (TIAA) and College Retirement Equities Fund (CREF), New York, NY.

© 2011 Teachers Insurance and Annuity Association-College Retirement Equities Fund, New York, NY. 10017


© 2014 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017