1 00:00:05,880 --> 00:00:08,639 Speaker 1: Welcome to the Fear and Greed business Interview. I'm Sean Alma. 2 00:00:08,880 --> 00:00:11,520 Speaker 1: April was a very dramatic month for their politics and 3 00:00:11,600 --> 00:00:15,520 Speaker 1: global markets. Donald Trump's tariff's created shockwaves, and while his 4 00:00:15,640 --> 00:00:18,319 Speaker 1: dance is softened the week since, there is plenty of 5 00:00:18,320 --> 00:00:21,599 Speaker 1: potential for more disruption. Coupled with uncertainty about the outlook 6 00:00:21,600 --> 00:00:24,360 Speaker 1: for the US economy, it means a nervous time for investors. 7 00:00:24,640 --> 00:00:28,200 Speaker 1: My guest today is doctor Alexis Crow, chief economist at 8 00:00:28,200 --> 00:00:32,839 Speaker 1: PwC US, a global economist with a focus on politics 9 00:00:32,840 --> 00:00:35,200 Speaker 1: and long term investing. She's in Australia at the moment 10 00:00:35,240 --> 00:00:38,120 Speaker 1: and she joins us this morning. Alexis, Welcome to Fear 11 00:00:38,120 --> 00:00:38,480 Speaker 1: and Greed. 12 00:00:38,840 --> 00:00:40,200 Speaker 2: Thanks so much for having me, Sean. 13 00:00:40,840 --> 00:00:42,920 Speaker 1: So, how do you describe the last couple of months 14 00:00:42,960 --> 00:00:43,600 Speaker 1: for investors? 15 00:00:44,320 --> 00:00:46,760 Speaker 2: Definitely a lot of fear and maybe not so much greed. 16 00:00:47,240 --> 00:00:52,800 Speaker 2: Oh you know, I would say that there's definitely a 17 00:00:52,960 --> 00:00:57,960 Speaker 2: reordering of the global investing landscape and a recalibration of portfolios. 18 00:00:58,840 --> 00:01:03,560 Speaker 2: The days of putting your money on the SMP bond markets, 19 00:01:03,760 --> 00:01:07,600 Speaker 2: US dollar assets and letting it ride are over, and 20 00:01:07,720 --> 00:01:10,800 Speaker 2: so diversification is really the name of the game we've 21 00:01:10,840 --> 00:01:13,600 Speaker 2: obviously seen. How you know, one of the most prominent 22 00:01:13,640 --> 00:01:16,319 Speaker 2: investors in the United States is sitting on record piles 23 00:01:16,319 --> 00:01:22,319 Speaker 2: of cash. So cash is king diversification into European assets, 24 00:01:22,360 --> 00:01:27,240 Speaker 2: potentially also to China New economy, also Southeast Asia. And 25 00:01:27,400 --> 00:01:32,000 Speaker 2: this recalibration I think is very much underway, although it's 26 00:01:32,040 --> 00:01:35,320 Speaker 2: not necessarily resulting in disorderly trading. 27 00:01:35,680 --> 00:01:37,640 Speaker 1: Okay, So that well known investor, of course is Warren 28 00:01:37,640 --> 00:01:40,360 Speaker 1: Buffet and Berkshire Hathway has got plenty of cash, hundreds 29 00:01:40,400 --> 00:01:44,280 Speaker 1: of billions of dollars. I think, how do investors do that? 30 00:01:44,319 --> 00:01:47,040 Speaker 1: I mean, you mentioned in an orderly way, which is great, 31 00:01:47,640 --> 00:01:50,440 Speaker 1: but I mean in Australia have these massive suber funds 32 00:01:50,440 --> 00:01:53,040 Speaker 1: and they literally have billions of dollars they need to invest. 33 00:01:54,200 --> 00:01:57,280 Speaker 1: How did they think about, for example, the magnificence seven 34 00:01:57,320 --> 00:02:01,240 Speaker 1: tech stocks. They've had such a run. Not to be 35 00:02:01,320 --> 00:02:04,400 Speaker 1: in them, courageous to be in them. How do you 36 00:02:04,440 --> 00:02:05,840 Speaker 1: think about getting out of Wall straight? 37 00:02:06,440 --> 00:02:08,919 Speaker 2: I think it's not necessarily getting out of Wall Street, 38 00:02:09,120 --> 00:02:15,880 Speaker 2: it's just the almost blind enthusiasm and heavy concentration. As 39 00:02:15,880 --> 00:02:18,680 Speaker 2: you mentioned, you know only a few a handful of 40 00:02:18,760 --> 00:02:22,959 Speaker 2: tech stocks, and as we know, you know, certain announcements 41 00:02:23,000 --> 00:02:25,920 Speaker 2: related to Moore's law in the tech industry have even 42 00:02:26,000 --> 00:02:29,120 Speaker 2: moved equity markets, and some of those stocks dramatically shifting. 43 00:02:29,880 --> 00:02:32,280 Speaker 2: So the way I think Sean people are looking at 44 00:02:32,320 --> 00:02:35,720 Speaker 2: it is, particularly for these institutional investors, is to say, okay, 45 00:02:35,840 --> 00:02:38,360 Speaker 2: I had thirty percent of my portfolio sitting in the 46 00:02:38,440 --> 00:02:42,480 Speaker 2: US across asset classes. I'm not necessarily going to renew 47 00:02:42,480 --> 00:02:45,799 Speaker 2: commitments or increase commitments, and I may reduce that by 48 00:02:45,840 --> 00:02:49,359 Speaker 2: ten percent over a certain horizon. And that's I think 49 00:02:49,400 --> 00:02:52,480 Speaker 2: what we're starting to see is I'm not necessarily going 50 00:02:52,520 --> 00:02:54,639 Speaker 2: to renew the by the dip is not my play, 51 00:02:55,200 --> 00:02:58,080 Speaker 2: and over time I'm going to start to shift and 52 00:02:58,120 --> 00:03:00,720 Speaker 2: recalibrate my portfolio slightly. 53 00:03:01,600 --> 00:03:04,800 Speaker 1: You mentioned diversification as well in your first comments there. 54 00:03:05,040 --> 00:03:09,440 Speaker 1: So where abound I mean a cash obviously in equities 55 00:03:09,440 --> 00:03:15,440 Speaker 1: and fixed income bonds corporates? What about those alternatives? How 56 00:03:15,440 --> 00:03:17,480 Speaker 1: do you play the alternatives market at the moment. 57 00:03:18,080 --> 00:03:21,880 Speaker 2: It's interesting too, because again going back to when the 58 00:03:22,040 --> 00:03:26,000 Speaker 2: sixty forty portfolio allocation was created back in nineteen sixty six, 59 00:03:26,840 --> 00:03:30,359 Speaker 2: nobody was thinking about alternatives. Alternatives didn't really exist, and 60 00:03:31,120 --> 00:03:34,480 Speaker 2: I think now what when we speak to some CIOs, 61 00:03:34,520 --> 00:03:39,480 Speaker 2: it's okay, I've got to be maybe forty twenty and 62 00:03:39,520 --> 00:03:42,240 Speaker 2: then in ever increasing I need at least twenty percent 63 00:03:42,280 --> 00:03:45,360 Speaker 2: of my portfolio and aults. So I think the real 64 00:03:45,480 --> 00:03:48,920 Speaker 2: estate and infrastructure landscape so interesting here sitting in the 65 00:03:49,000 --> 00:03:52,880 Speaker 2: Asia Pacific region, you have some of the most phenomenal 66 00:03:52,960 --> 00:03:57,040 Speaker 2: fun performance in the infrastructure asset class sitting here and 67 00:03:57,080 --> 00:04:00,760 Speaker 2: that's something obviously the super funds know. Well. What's interesting 68 00:04:00,840 --> 00:04:03,600 Speaker 2: also there is you've got other groups I'm thinking of 69 00:04:03,720 --> 00:04:07,560 Speaker 2: one French entity and then you've got several others that 70 00:04:07,600 --> 00:04:12,880 Speaker 2: are starting to offer more retail investors access to infrastructure investments, 71 00:04:12,960 --> 00:04:15,840 Speaker 2: which is fantastic again for those holding you know, a 72 00:04:15,880 --> 00:04:19,719 Speaker 2: superannuation as well. In the real estate landscape too, I 73 00:04:19,760 --> 00:04:22,880 Speaker 2: think what we've seen is there's something to note is 74 00:04:23,279 --> 00:04:26,960 Speaker 2: we've seen again a democratization of the asset class. So 75 00:04:27,520 --> 00:04:30,680 Speaker 2: you know, we've seen that classically through rets, but more 76 00:04:30,720 --> 00:04:33,640 Speaker 2: and more some of the largest asset managers in real 77 00:04:33,760 --> 00:04:37,599 Speaker 2: estate starting to open their own wealth management portfolio boutiques 78 00:04:37,920 --> 00:04:40,240 Speaker 2: to be able to draw on more retail investors and 79 00:04:40,279 --> 00:04:44,600 Speaker 2: family office investors. But there's definitely when we think about 80 00:04:44,600 --> 00:04:47,480 Speaker 2: real estate, we think about private equity. Something also to 81 00:04:47,520 --> 00:04:50,440 Speaker 2: mention on the asset price landscape, particularly in the US, 82 00:04:50,520 --> 00:04:54,880 Speaker 2: where asset prices remain very, very high, we've not really 83 00:04:54,920 --> 00:04:59,320 Speaker 2: seen any meaningful correction. You saw mark to market losses, 84 00:04:59,800 --> 00:05:02,560 Speaker 2: for example in Germany already in the property market that 85 00:05:02,640 --> 00:05:05,359 Speaker 2: bottom has been hit. But in the United States we 86 00:05:05,440 --> 00:05:09,080 Speaker 2: haven't necessarily seen a dramatic repricing of some real assets. 87 00:05:09,120 --> 00:05:11,440 Speaker 2: And so that's something that I think has some of 88 00:05:11,480 --> 00:05:15,240 Speaker 2: the most sophisticated investors holding pause and steady. 89 00:05:15,880 --> 00:05:18,600 Speaker 1: Private credit we hear so much about that at the moment. 90 00:05:18,920 --> 00:05:21,080 Speaker 1: How do you think about private credit. 91 00:05:22,160 --> 00:05:24,440 Speaker 2: I think it's a risk. I think it's a risk 92 00:05:24,600 --> 00:05:29,120 Speaker 2: that is not necessarily being captured very well by certain regulators. 93 00:05:29,920 --> 00:05:33,360 Speaker 2: The private credit market in the United States has been 94 00:05:33,400 --> 00:05:36,240 Speaker 2: growing at twenty percent per anim It's also been growing 95 00:05:36,279 --> 00:05:38,479 Speaker 2: twenty percent per anum for the last five years. In 96 00:05:38,560 --> 00:05:41,960 Speaker 2: Europe only a slender part of the Asia Pacific total 97 00:05:42,120 --> 00:05:46,719 Speaker 2: credit landscape only point three percent according to HKMA. But 98 00:05:46,880 --> 00:05:49,520 Speaker 2: in the United States, I think about that run up. 99 00:05:49,920 --> 00:05:52,200 Speaker 2: It actually happened when we were in a very low 100 00:05:52,320 --> 00:05:55,760 Speaker 2: rate environment. So as you go on with later vintages, 101 00:05:55,960 --> 00:05:58,880 Speaker 2: there is a potential that you've seen a deterioration of 102 00:05:58,920 --> 00:06:03,320 Speaker 2: underwriting quality Covenant Light or cop Light. And also, Sean, 103 00:06:03,360 --> 00:06:06,799 Speaker 2: what I would say here is there's been an overwhelming 104 00:06:07,000 --> 00:06:11,480 Speaker 2: supply created to meet the demand and again increasing retail 105 00:06:11,520 --> 00:06:14,359 Speaker 2: participation in the space. So I think this trend of 106 00:06:14,400 --> 00:06:17,480 Speaker 2: retail participation, combined with where we are in the interest 107 00:06:17,560 --> 00:06:21,160 Speaker 2: rate environment, is a potential recipe for disaster. 108 00:06:21,680 --> 00:06:30,800 Speaker 1: Okay, Alexis, we'll be back in a moment. My guest 109 00:06:30,839 --> 00:06:35,240 Speaker 1: this morning is doctor Alexis Crow, chief economist at PWCUS. 110 00:06:35,760 --> 00:06:39,840 Speaker 1: What about this region? What's interesting? So as a global investor, 111 00:06:40,800 --> 00:06:46,400 Speaker 1: what would they be interested in Australia, New Zealand, near Asia, 112 00:06:46,720 --> 00:06:47,920 Speaker 1: those sorts of economies. 113 00:06:48,480 --> 00:06:50,560 Speaker 2: I just want to speak to the Asia Pacific region 114 00:06:50,600 --> 00:06:53,160 Speaker 2: as a whole, so to include Australia. And it's interesting. 115 00:06:53,200 --> 00:06:56,680 Speaker 2: It's the IMF put out there Spring World Economic Outlook 116 00:06:56,720 --> 00:07:02,440 Speaker 2: in April and it downgraded the United States and the 117 00:07:02,480 --> 00:07:04,760 Speaker 2: rest of the world kind of moves on right, And 118 00:07:04,880 --> 00:07:07,839 Speaker 2: so I do believe that the largest economy in this 119 00:07:07,920 --> 00:07:11,760 Speaker 2: part of the world, China, is exceptionally well positioned to 120 00:07:11,800 --> 00:07:15,560 Speaker 2: be able to navigate any kind of uncertainty surrounding trade 121 00:07:15,600 --> 00:07:19,840 Speaker 2: tensions from the United States, and therefore I don't necessarily 122 00:07:19,880 --> 00:07:24,600 Speaker 2: see any massive softer demand outlook for China, which of 123 00:07:24,640 --> 00:07:29,280 Speaker 2: course would impact Australia. We saw record imports of oil 124 00:07:29,880 --> 00:07:33,800 Speaker 2: in China leading up to the Liberation Day trade announcement, 125 00:07:33,960 --> 00:07:37,600 Speaker 2: and so clearly the government is focused on continuing to 126 00:07:37,720 --> 00:07:41,920 Speaker 2: use manufacturing to stimulate the economy as well as driving consumption. 127 00:07:42,280 --> 00:07:46,160 Speaker 2: And so you know, we've seen concerted efforts by central 128 00:07:46,200 --> 00:07:49,920 Speaker 2: bankers and finance ministers from OCIEN to promote inter Asian 129 00:07:50,000 --> 00:07:52,840 Speaker 2: trade because OCIEN of course trades more with the rest 130 00:07:52,880 --> 00:07:55,840 Speaker 2: of the world than it does within itself, and so 131 00:07:55,920 --> 00:07:57,920 Speaker 2: some of these commitments I think we'll just have a 132 00:07:57,960 --> 00:08:01,400 Speaker 2: positive knock on effect for Australia. Another theme here is 133 00:08:01,440 --> 00:08:05,120 Speaker 2: not just geographical. It's also to do with the energy landscape, 134 00:08:05,680 --> 00:08:09,880 Speaker 2: and thinking about Australia's natural resource wealth is going to 135 00:08:09,920 --> 00:08:12,200 Speaker 2: be very very important because we're living in a world 136 00:08:12,200 --> 00:08:16,440 Speaker 2: of energy addition, not necessarily energy transition, so as we 137 00:08:16,520 --> 00:08:19,160 Speaker 2: need more energy sources, I think Australia is in pole 138 00:08:19,200 --> 00:08:21,239 Speaker 2: position to be able to cater to this demand. 139 00:08:21,680 --> 00:08:25,360 Speaker 1: Okay, and you're talking about renewables in that instance, I. 140 00:08:25,320 --> 00:08:28,120 Speaker 2: Think renewables, not gas and rare earths. 141 00:08:27,960 --> 00:08:32,400 Speaker 1: I can looking forward, what are the big risks? I mean, 142 00:08:32,440 --> 00:08:35,960 Speaker 1: how much of a risk is the Trump administration. I 143 00:08:36,000 --> 00:08:39,360 Speaker 1: think those outside the US see it very differently to 144 00:08:39,480 --> 00:08:44,960 Speaker 1: those inside the US. I'm just interested from your take, Alexis, 145 00:08:45,000 --> 00:08:48,560 Speaker 1: because you work out of New York. How much it 146 00:08:48,760 --> 00:08:49,680 Speaker 1: is Trump a risk? 147 00:08:50,880 --> 00:08:55,000 Speaker 2: Great question. So I would say that you've got two 148 00:08:55,080 --> 00:08:59,720 Speaker 2: schools of thought. One is that we've had peak Trump 149 00:09:00,400 --> 00:09:03,160 Speaker 2: and that some of the policy shifts that we've witnessed 150 00:09:04,080 --> 00:09:06,640 Speaker 2: what we've topped out and we've leveled out and things 151 00:09:06,679 --> 00:09:10,239 Speaker 2: will start to calm down. And then you've got team structural, 152 00:09:10,440 --> 00:09:13,000 Speaker 2: which is that some of the policy shifts that have 153 00:09:13,040 --> 00:09:19,160 Speaker 2: happened on the domestic institutions have given investors pause about 154 00:09:19,320 --> 00:09:21,920 Speaker 2: the trajectory of the US economy, and that these are 155 00:09:22,120 --> 00:09:26,480 Speaker 2: potentially longer term structural shifts that are happening that undermine 156 00:09:26,559 --> 00:09:30,000 Speaker 2: the attraction and the lure of holding US assets over time. 157 00:09:31,160 --> 00:09:34,600 Speaker 2: So I've spoken to investors from different parts of the 158 00:09:34,640 --> 00:09:36,960 Speaker 2: world who are either in one camp or the other. 159 00:09:37,920 --> 00:09:40,960 Speaker 2: I don't think there are very many in between. And 160 00:09:41,600 --> 00:09:44,520 Speaker 2: so the risks that I would pause it go far 161 00:09:44,559 --> 00:09:49,320 Speaker 2: beyond the trade policy, and they go more into the 162 00:09:49,400 --> 00:09:53,400 Speaker 2: rigor of institutional change that's happened on the domestic landscape 163 00:09:53,720 --> 00:09:56,960 Speaker 2: and the potential knockout effects for long term growth, and 164 00:09:57,000 --> 00:09:59,440 Speaker 2: of course the ability to push up the deficit, which 165 00:09:59,440 --> 00:10:03,080 Speaker 2: is what we've seen with the credit downgrade happening last Friday. 166 00:10:03,920 --> 00:10:08,160 Speaker 2: And so those would be my longer term concerns. That's 167 00:10:08,200 --> 00:10:11,800 Speaker 2: on the investibility of the United States. I would also 168 00:10:11,880 --> 00:10:16,040 Speaker 2: say that there's we're witnessing wider shifts happening in the 169 00:10:16,080 --> 00:10:20,839 Speaker 2: geopolitical landscape when it comes to alliances, and potentially this 170 00:10:21,840 --> 00:10:26,000 Speaker 2: America walking away from the globalization that it largely created 171 00:10:26,040 --> 00:10:31,679 Speaker 2: and supported, has potential ramifications again for its position in alliances, 172 00:10:31,800 --> 00:10:34,360 Speaker 2: not only with Europe, but of course looking to this 173 00:10:34,440 --> 00:10:35,160 Speaker 2: part of the world. 174 00:10:36,000 --> 00:10:41,880 Speaker 1: What about the change in the rules of governance. So 175 00:10:41,920 --> 00:10:45,880 Speaker 1: I'm talking Trump versus j Powell from the FED. I'm 176 00:10:45,920 --> 00:10:49,280 Speaker 1: talking about the criticism of the judiciary system. We haven't 177 00:10:49,320 --> 00:10:52,920 Speaker 1: really seen Trump for the Supreme Court yet, but obviously 178 00:10:52,960 --> 00:10:55,840 Speaker 1: that's the fear that we get to that point. Is 179 00:10:55,880 --> 00:10:58,160 Speaker 1: that a real worry or is that just the manner 180 00:10:58,240 --> 00:11:01,400 Speaker 1: of the man in a sense, And when it really 181 00:11:01,440 --> 00:11:03,480 Speaker 1: comes down to it, he's going to follow the constitution 182 00:11:03,559 --> 00:11:05,480 Speaker 1: and the law and do what's right. 183 00:11:06,240 --> 00:11:10,600 Speaker 2: As one former central bank governor wisely pointed out, it's 184 00:11:10,640 --> 00:11:14,960 Speaker 2: not necessarily the independence of the central bank that is 185 00:11:15,000 --> 00:11:18,240 Speaker 2: the concern. It's how markets perceive the independence of the 186 00:11:18,280 --> 00:11:24,320 Speaker 2: central bank. So therefore, I would say that where markets 187 00:11:24,400 --> 00:11:27,600 Speaker 2: are when j. Powell stands down in May twenty twenty 188 00:11:27,640 --> 00:11:30,400 Speaker 2: six is going to be an interesting one. So is 189 00:11:30,679 --> 00:11:35,239 Speaker 2: the US economy performing well and therefore would markets potentially 190 00:11:35,280 --> 00:11:38,960 Speaker 2: shrug off any kind of loss of independence of the FED. 191 00:11:39,760 --> 00:11:43,840 Speaker 2: That's a question mark. My sense is that markets are 192 00:11:43,880 --> 00:11:48,000 Speaker 2: being too complacent and that we are in a potential 193 00:11:48,120 --> 00:11:52,000 Speaker 2: environment of stagflation in the United States. If we think 194 00:11:52,040 --> 00:11:55,280 Speaker 2: about the outlook for inflation, many are hopeful in that 195 00:11:55,320 --> 00:11:59,760 Speaker 2: first team, you know, transitory. Many are hopeful that a 196 00:12:00,000 --> 00:12:03,280 Speaker 2: potential ten percent universal tariff would result in a one off, 197 00:12:03,559 --> 00:12:07,640 Speaker 2: knock on impact on pricing. Nevertheless, we think about the 198 00:12:07,720 --> 00:12:11,160 Speaker 2: exposure of the US housing market to lumber from Canada, 199 00:12:11,640 --> 00:12:14,440 Speaker 2: the impact of steel and aluminium tariffs which are sticking 200 00:12:15,000 --> 00:12:17,800 Speaker 2: on the housing market, which is already in a crisis 201 00:12:17,800 --> 00:12:21,280 Speaker 2: of affordability in the United States, and we recognize the 202 00:12:21,280 --> 00:12:23,839 Speaker 2: fact that one third of CPI in the US is 203 00:12:24,160 --> 00:12:27,120 Speaker 2: covered by shelter costs. I do think we're in for 204 00:12:27,200 --> 00:12:32,320 Speaker 2: a stickier inflation, inflationary environment and amidst the uncertainty, slower growth. 205 00:12:32,360 --> 00:12:35,760 Speaker 2: So to come back to your question, I don't necessarily 206 00:12:35,800 --> 00:12:39,040 Speaker 2: think that investors would view a loss of independence at 207 00:12:39,040 --> 00:12:43,080 Speaker 2: the FED with particularly sanguinized On the second, on the 208 00:12:43,080 --> 00:12:48,400 Speaker 2: domestic political front, I do think that I'm continuously speaking 209 00:12:48,440 --> 00:12:50,839 Speaker 2: with investors who are concerned about the loss of rule 210 00:12:50,880 --> 00:12:51,240 Speaker 2: of law. 211 00:12:52,160 --> 00:12:53,679 Speaker 1: It's a good place to leave it. Lexis, thank you 212 00:12:53,800 --> 00:12:55,120 Speaker 1: very much for talking to Fearing great. 213 00:12:55,360 --> 00:12:55,720 Speaker 2: Thank you. 214 00:12:56,280 --> 00:13:00,360 Speaker 1: That was doctor Alexis Crowd, chief economist at PWCUS. This 215 00:13:00,440 --> 00:13:02,560 Speaker 1: is the Fear and Greed Business Interview. Remember this is 216 00:13:02,600 --> 00:13:05,199 Speaker 1: general information only, and you should always seek professional advice 217 00:13:05,240 --> 00:13:08,400 Speaker 1: before making investment decisions. Join us every morning for the 218 00:13:08,440 --> 00:13:10,800 Speaker 1: full episode of Fear and Greed, daily business news for 219 00:13:10,920 --> 00:13:13,920 Speaker 1: people who make their own decisions. I'm Chanail Money. Enjoy 220 00:13:13,960 --> 00:13:15,679 Speaker 1: your day.