1 00:00:05,120 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:08,480 --> 00:00:12,320 Speaker 1: with Jonathan Faroll and Lisa Abramowitz. Join us each day 3 00:00:12,360 --> 00:00:16,840 Speaker 1: for insight from the best and economics, geopolitics, financial investment. 4 00:00:17,239 --> 00:00:22,079 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,479 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,600 --> 00:00:30,319 Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. It's so 7 00:00:30,400 --> 00:00:32,400 Speaker 1: important and so news. Now we're gonna in set a 8 00:00:32,479 --> 00:00:34,360 Speaker 1: chat and here we're gonna get right to it. Mr 9 00:00:34,440 --> 00:00:38,479 Speaker 1: Zelter Jim's Elter's co president Apollo Asset Management. They're on 10 00:00:38,520 --> 00:00:40,600 Speaker 1: a roll. We all know that. We thank them for 11 00:00:40,680 --> 00:00:43,640 Speaker 1: Torston slock in his wisdom on a daily basis and 12 00:00:43,720 --> 00:00:45,760 Speaker 1: he'll try to keep up with Mr Sluck. Jim's Elter 13 00:00:45,920 --> 00:00:49,480 Speaker 1: joins us. This morning, Jim, there's a fire sale going 14 00:00:49,560 --> 00:00:51,960 Speaker 1: on in Zurich, Switzerland. I believe you guys have a 15 00:00:52,000 --> 00:00:56,520 Speaker 1: nodding acquaintance with it. Described the theft this warning and 16 00:00:56,640 --> 00:01:03,560 Speaker 1: yesterday is Apollo took on assets. I'm a beleaguered Swiss bank. Well, 17 00:01:03,600 --> 00:01:06,640 Speaker 1: good morning mcgogmarrying all of you. Um, you know for 18 00:01:06,760 --> 00:01:11,080 Speaker 1: us that the transaction. Referring to the securitized products business. 19 00:01:11,640 --> 00:01:15,039 Speaker 1: We've thought for years that there is a great theme 20 00:01:15,120 --> 00:01:19,240 Speaker 1: going on, a great evolution of a lot of assets 21 00:01:19,240 --> 00:01:22,760 Speaker 1: that are as strategies that are within the banks are 22 00:01:22,840 --> 00:01:25,800 Speaker 1: moving to the alternative side of the business. And you know, 23 00:01:26,120 --> 00:01:29,160 Speaker 1: SPG is a tremendous is really a finance company of 24 00:01:29,200 --> 00:01:32,280 Speaker 1: finance companies. It's a massive business with a twenty year 25 00:01:32,319 --> 00:01:36,360 Speaker 1: track record and bringing that team on two d plus people, 26 00:01:36,520 --> 00:01:40,480 Speaker 1: three hundred origination platforms underneath it. Uh. It really is 27 00:01:40,600 --> 00:01:44,960 Speaker 1: our objective of fixed income replacement, getting investment grade returns, 28 00:01:45,480 --> 00:01:48,440 Speaker 1: but doing it in a more thoughtful, actually candially a 29 00:01:48,520 --> 00:01:52,640 Speaker 1: less risky manner. So a massive transaction for us. The 30 00:01:52,680 --> 00:01:54,560 Speaker 1: way we're able to do it was very nuanced. We'll 31 00:01:54,560 --> 00:01:57,440 Speaker 1: talk about that in our earnings call today. But we're 32 00:01:57,520 --> 00:02:00,800 Speaker 1: very excited and we we think this whole area of 33 00:02:00,880 --> 00:02:04,120 Speaker 1: private credit and I saw your your past guests, this 34 00:02:04,200 --> 00:02:06,640 Speaker 1: is the golden era for private credit. You know, rates 35 00:02:06,640 --> 00:02:09,600 Speaker 1: have been rising. E commedy is doing pretty well. You 36 00:02:09,639 --> 00:02:12,280 Speaker 1: can get double digit yields, but in this particular and 37 00:02:12,320 --> 00:02:16,480 Speaker 1: the security coaged products business, it's really investment grade risk, 38 00:02:16,800 --> 00:02:19,720 Speaker 1: a tremendous predice. I learned a long time ago, Jim, 39 00:02:20,000 --> 00:02:22,760 Speaker 1: that the heart of this, as you correctly mentioned, as 40 00:02:22,800 --> 00:02:26,520 Speaker 1: you need to retain two hundred and fifty warm bodies. 41 00:02:26,560 --> 00:02:30,639 Speaker 1: As you bring them over, explain the incentive. How you're 42 00:02:30,680 --> 00:02:35,800 Speaker 1: going to incentivize those people to join Apollo well like 43 00:02:35,800 --> 00:02:37,919 Speaker 1: like we've done for for decades time, and when we 44 00:02:38,200 --> 00:02:41,200 Speaker 1: bring them in, we we have an aligned business plan. 45 00:02:41,800 --> 00:02:44,440 Speaker 1: It's not just about growing the assets, but doing it 46 00:02:44,480 --> 00:02:48,600 Speaker 1: in a productive way where credit losses are negligible or 47 00:02:48,720 --> 00:02:51,960 Speaker 1: zero and we're aligned on the trajectory of the business. 48 00:02:52,040 --> 00:02:54,320 Speaker 1: We're really aligned on what the investors get. At the 49 00:02:54,400 --> 00:02:57,079 Speaker 1: end of the day, it's all about investor returns, and 50 00:02:57,080 --> 00:03:00,239 Speaker 1: we're we're aligned at making a productive business that it's 51 00:03:00,800 --> 00:03:03,600 Speaker 1: acreed to the shareholders of Apollo. So we do that 52 00:03:03,680 --> 00:03:07,000 Speaker 1: in an aligned basis, which we've done. Um, that's the 53 00:03:07,200 --> 00:03:10,240 Speaker 1: that's the success long term. And I think that you 54 00:03:10,280 --> 00:03:12,440 Speaker 1: know what what this management team who is there, they're 55 00:03:12,520 --> 00:03:15,360 Speaker 1: extremely excited to be part of a business where we 56 00:03:15,480 --> 00:03:19,320 Speaker 1: can offer this type of long term trajectory in terms 57 00:03:19,320 --> 00:03:22,400 Speaker 1: of benefits and compensation, but also in alignment with the 58 00:03:22,440 --> 00:03:26,560 Speaker 1: shareholders at the funds. Alignment of shareholders at Apollo. But 59 00:03:26,680 --> 00:03:31,240 Speaker 1: also the most critical aspect is long term predictable capital, 60 00:03:31,520 --> 00:03:33,840 Speaker 1: so they can go about their business, they can execute 61 00:03:33,880 --> 00:03:37,520 Speaker 1: their business and and grow their business with long term, 62 00:03:37,640 --> 00:03:41,400 Speaker 1: sticky matched assets. That's really the key to success. It's 63 00:03:41,440 --> 00:03:43,880 Speaker 1: no more complicated than that. Jim. You've deployed a lot 64 00:03:43,880 --> 00:03:47,400 Speaker 1: of capital very recently, a lot of capital, and we've 65 00:03:47,400 --> 00:03:49,720 Speaker 1: always seen the correction take place in public markets. There's 66 00:03:49,720 --> 00:03:51,880 Speaker 1: been this bigger conversation about whether we've seen the correction 67 00:03:51,920 --> 00:03:54,720 Speaker 1: take place yet in private markets. I just wonder how 68 00:03:54,800 --> 00:03:56,760 Speaker 1: you think that's going to play out through the next 69 00:03:56,760 --> 00:03:58,520 Speaker 1: twelve months and what that might mean for the volume 70 00:03:58,520 --> 00:04:00,880 Speaker 1: of transactions we can expect from you of the next 71 00:04:00,920 --> 00:04:04,320 Speaker 1: few quarters. Sure, well, you know, for us, you know 72 00:04:04,360 --> 00:04:07,120 Speaker 1: our discipline, our determination, you know the theme we've always 73 00:04:07,120 --> 00:04:09,600 Speaker 1: talked about here is purchase price matters. You know, we're 74 00:04:09,640 --> 00:04:13,120 Speaker 1: we're finally in an environment we're for years folks asked us, 75 00:04:13,120 --> 00:04:15,640 Speaker 1: how are we going to perform in a higher rate environment. 76 00:04:16,120 --> 00:04:18,600 Speaker 1: I think the results of the last twelve months show 77 00:04:18,680 --> 00:04:21,120 Speaker 1: us that. You know, for us, this is easily the 78 00:04:21,160 --> 00:04:24,320 Speaker 1: best time to be an investor in new issue vintage credit. 79 00:04:24,560 --> 00:04:26,359 Speaker 1: The best that I've been here, I been here seventeen 80 00:04:26,400 --> 00:04:29,400 Speaker 1: eighteen years. You know, you're getting double digit returns by 81 00:04:29,480 --> 00:04:32,359 Speaker 1: lending at the top of the capital structure, so you know, 82 00:04:32,520 --> 00:04:36,520 Speaker 1: voracious demand and on the portfolio. As you're asking, you know, 83 00:04:36,600 --> 00:04:39,200 Speaker 1: we're we're not seeing I mean, it's certainly a very 84 00:04:39,240 --> 00:04:41,960 Speaker 1: bifurcated economy. I'll let I'll let you ask towards in 85 00:04:42,000 --> 00:04:45,000 Speaker 1: the economics questions. But for us, if we if we 86 00:04:45,080 --> 00:04:48,479 Speaker 1: have followed this discipline of our mantra purchase price matters, 87 00:04:48,800 --> 00:04:52,880 Speaker 1: we're lending to great companies that are you know, well positioned. 88 00:04:53,000 --> 00:04:56,240 Speaker 1: And the reality is it's very difficult to you know, 89 00:04:56,720 --> 00:04:59,280 Speaker 1: put one term on which way the economy is going 90 00:04:59,320 --> 00:05:01,880 Speaker 1: in terms of you know, upside downside with the rates. 91 00:05:02,160 --> 00:05:05,600 Speaker 1: It's very bifurcated. You have many industries that are consumer 92 00:05:05,680 --> 00:05:09,400 Speaker 1: lad you know, the cruise industry, hospitality, entertainment, travel, they're 93 00:05:09,440 --> 00:05:12,200 Speaker 1: doing quite well. Those that are much more hard industry 94 00:05:12,200 --> 00:05:14,479 Speaker 1: are having a little bit more challenging time, you know, 95 00:05:14,520 --> 00:05:17,520 Speaker 1: the autos and such. But for us, there's a lot 96 00:05:17,520 --> 00:05:21,279 Speaker 1: of companies that that need capital. We've expanded our capital 97 00:05:21,279 --> 00:05:24,599 Speaker 1: base not only the size of our capital, but what 98 00:05:24,720 --> 00:05:26,800 Speaker 1: puts us in a unique standing is the breadth of 99 00:05:26,800 --> 00:05:30,960 Speaker 1: our capital. We can offer scale solutions, you know, down 100 00:05:30,960 --> 00:05:33,640 Speaker 1: in the mid single digits, which are very equative to 101 00:05:33,720 --> 00:05:36,880 Speaker 1: our uh you know, spread related earnings of our of 102 00:05:36,920 --> 00:05:39,799 Speaker 1: our retirement services, and that makes a lot of sense 103 00:05:39,839 --> 00:05:42,880 Speaker 1: for us. We're we're really thinking about that incremental return 104 00:05:43,320 --> 00:05:45,479 Speaker 1: for a unit of risk, and for us, it's a 105 00:05:45,480 --> 00:05:47,800 Speaker 1: great time to be in our business. Do you expect 106 00:05:47,800 --> 00:05:49,920 Speaker 1: that we're gonna just miss a default cycle altogether, then, 107 00:05:50,920 --> 00:05:52,520 Speaker 1: you know, I think I think at least it's gonna 108 00:05:52,560 --> 00:05:56,000 Speaker 1: be one where certain industries get hit a bit harder, 109 00:05:56,400 --> 00:05:58,360 Speaker 1: and it's going to be you know, we all talked about, 110 00:05:58,400 --> 00:05:59,760 Speaker 1: you know, our default it's going to go from two 111 00:05:59,839 --> 00:06:02,720 Speaker 1: to three or four percent. They probably will pick up 112 00:06:02,800 --> 00:06:06,200 Speaker 1: higher in two but it's not going to be broad 113 00:06:06,200 --> 00:06:09,800 Speaker 1: based across the high yield sector or the leverage loan sector. 114 00:06:10,000 --> 00:06:12,480 Speaker 1: It's going to be concentrated in four or five industries. 115 00:06:12,880 --> 00:06:14,960 Speaker 1: But I would say that the theme that you're seeing 116 00:06:15,000 --> 00:06:17,120 Speaker 1: in you're in the last two weeks in your show, 117 00:06:17,520 --> 00:06:20,520 Speaker 1: you know, companies are much more focused on returning capital 118 00:06:20,839 --> 00:06:23,160 Speaker 1: the shareholders. You know, we're not in that zero cost 119 00:06:23,200 --> 00:06:25,960 Speaker 1: of capital world anymore. What's going on to the big 120 00:06:26,000 --> 00:06:28,240 Speaker 1: oil majors, what's going on at Disney, what's going on 121 00:06:28,240 --> 00:06:30,920 Speaker 1: a lot of other companies. These companies now are very 122 00:06:30,920 --> 00:06:34,159 Speaker 1: focused on cash flow generation. Uh, And that's what we've 123 00:06:34,160 --> 00:06:36,160 Speaker 1: done for for thirty two years. And you know, it's 124 00:06:36,200 --> 00:06:38,880 Speaker 1: that's that's a playbook that lasts. It's real bust. But 125 00:06:39,040 --> 00:06:41,440 Speaker 1: for us, there will be a certain degree of a 126 00:06:41,440 --> 00:06:44,080 Speaker 1: credit cycle, but it's not going to be broad brush 127 00:06:44,120 --> 00:06:46,680 Speaker 1: across every asset, or at least we're not running our 128 00:06:46,720 --> 00:06:49,280 Speaker 1: business right now with that intention in mind. There was 129 00:06:49,320 --> 00:06:52,200 Speaker 1: a long time when private credit was largely the sphere 130 00:06:52,200 --> 00:06:55,080 Speaker 1: of institutional investors, and then over the past few years 131 00:06:55,120 --> 00:06:58,440 Speaker 1: pre pandemic, mostly there was a real push into the 132 00:06:58,520 --> 00:07:03,159 Speaker 1: individual investor. How much is that still the opportunity versus 133 00:07:03,200 --> 00:07:07,440 Speaker 1: going back and really doubling down on institutions. Well, I 134 00:07:07,440 --> 00:07:09,680 Speaker 1: think they're both growing. I mean, you know, the institutions 135 00:07:09,680 --> 00:07:11,720 Speaker 1: have been in this business for thirty years in terms 136 00:07:11,760 --> 00:07:13,640 Speaker 1: of what they did in private equity and then all 137 00:07:13,680 --> 00:07:16,960 Speaker 1: the other alternatives. And in the last three or four years, 138 00:07:17,120 --> 00:07:19,320 Speaker 1: you know, the global wealth channels around the globe which 139 00:07:19,360 --> 00:07:22,280 Speaker 1: are voracious, the amount of global wealth has been created. 140 00:07:22,360 --> 00:07:24,360 Speaker 1: You know, in the US but in Asia and in 141 00:07:24,400 --> 00:07:27,720 Speaker 1: Europe and India, in Hong Kong and such, there's a 142 00:07:28,080 --> 00:07:33,360 Speaker 1: there's a voracious app appetite for high quality managers that 143 00:07:33,400 --> 00:07:37,360 Speaker 1: have proven themselves in products that makes sense, good education, 144 00:07:37,840 --> 00:07:42,600 Speaker 1: appropriate fees, appropriate liquidity. But we think it's it's a 145 00:07:42,640 --> 00:07:45,280 Speaker 1: you know, a once in a decade opportunity. It's not 146 00:07:45,360 --> 00:07:48,040 Speaker 1: surprising that a handful of firms are very focused on it. 147 00:07:48,560 --> 00:07:51,520 Speaker 1: When we did our investor Day sixteen months ago, it 148 00:07:51,680 --> 00:07:55,520 Speaker 1: was one of our three critical priorities or initiatives, along 149 00:07:55,520 --> 00:07:59,560 Speaker 1: with origination and capital solutions. But it's still front and 150 00:07:59,560 --> 00:08:02,600 Speaker 1: center for us. And you know, certainly, I think this 151 00:08:02,800 --> 00:08:07,040 Speaker 1: rate rise actually makes it quite attractive for many folks 152 00:08:07,040 --> 00:08:09,640 Speaker 1: to do uh, to enter this world. And you know, 153 00:08:09,640 --> 00:08:13,080 Speaker 1: we're we're a building, We're building a tremendous resource base 154 00:08:13,200 --> 00:08:17,960 Speaker 1: to be able to really create products, invest appropriately and 155 00:08:18,080 --> 00:08:21,360 Speaker 1: in service clients necessarily. Jim, We'll find a question it's 156 00:08:21,360 --> 00:08:25,760 Speaker 1: Manchester United and once in a decade opportunity. Well, listen, 157 00:08:25,800 --> 00:08:29,160 Speaker 1: I'm more focused on US sports. But the reality is 158 00:08:29,200 --> 00:08:32,720 Speaker 1: there's there's an amazing amount of sports ecosystem financing going 159 00:08:32,760 --> 00:08:34,640 Speaker 1: on and and we expect to be part of that 160 00:08:34,679 --> 00:08:38,000 Speaker 1: going forward. Do you want to elaborate on some of that. Well, 161 00:08:38,040 --> 00:08:39,920 Speaker 1: I just think what you're seeing right now, and you 162 00:08:40,000 --> 00:08:43,120 Speaker 1: know these sports are global. I know you and time 163 00:08:43,120 --> 00:08:45,840 Speaker 1: you have your view on certain teams in the Premier League, 164 00:08:45,840 --> 00:08:47,720 Speaker 1: and I wouldn't even think about getting in the middle 165 00:08:47,720 --> 00:08:51,280 Speaker 1: of the YouTube on that one. Jim's adam of a file, Jim, 166 00:08:51,320 --> 00:08:53,360 Speaker 1: if you ever want to look over there again, we 167 00:08:53,400 --> 00:08:58,840 Speaker 1: can consult we canna. Yeah, you know, I think you know. 168 00:08:58,880 --> 00:09:01,280 Speaker 1: I call Mr Lee you and have Mr Zelter over 169 00:09:03,440 --> 00:09:08,440 Speaker 1: experience will mediate. Yeah, thank you were taking face for 170 00:09:08,440 --> 00:09:14,079 Speaker 1: that too. Investments image to basis points in the sixth 171 00:09:14,080 --> 00:09:16,480 Speaker 1: pack of John Courage. It'll be great, Jim, that was great. 172 00:09:16,520 --> 00:09:29,320 Speaker 1: Jim's out to that of Apollo, one of our most 173 00:09:29,320 --> 00:09:32,920 Speaker 1: popular guests. Everyone leans forward for Ian Shepherdson, Chief economist 174 00:09:32,960 --> 00:09:36,760 Speaker 1: Pantheon Macro, You're brave to go where no one goes, 175 00:09:37,280 --> 00:09:41,880 Speaker 1: which is to actually study inventory dynamics. I would suggest 176 00:09:41,920 --> 00:09:45,880 Speaker 1: it's the most ignored part of a g d P calculation. 177 00:09:46,400 --> 00:09:52,920 Speaker 1: What do you see in the inventory dynamics right now? No, 178 00:09:53,080 --> 00:09:55,920 Speaker 1: I see a downshift, a big downshift, and hence quite 179 00:09:56,240 --> 00:10:00,160 Speaker 1: a good probability of a shockingly low negative g EP 180 00:10:00,320 --> 00:10:02,040 Speaker 1: number for the first quarter and probably for the second 181 00:10:02,080 --> 00:10:04,880 Speaker 1: quarter as well, So quite a sharp reversal at the 182 00:10:04,920 --> 00:10:06,439 Speaker 1: headline level from what we saw at the end of 183 00:10:06,520 --> 00:10:09,280 Speaker 1: last year, and the economy group by nearly three percent, 184 00:10:09,480 --> 00:10:11,760 Speaker 1: But the half of that growth was craziness in the 185 00:10:11,760 --> 00:10:15,400 Speaker 1: imagery data, which is not sustainable, and that actually will reverse. 186 00:10:15,520 --> 00:10:18,800 Speaker 1: So in terms of appearances, markets are going to really 187 00:10:18,800 --> 00:10:20,360 Speaker 1: struggle over the next couple of months. You know, we 188 00:10:20,440 --> 00:10:22,760 Speaker 1: just had a huge payroll print. We're probably going to 189 00:10:22,840 --> 00:10:25,520 Speaker 1: get some big numbers, partly because of the warm weather 190 00:10:25,520 --> 00:10:28,240 Speaker 1: in January for retail sales, home sales, construction, all the 191 00:10:28,280 --> 00:10:31,000 Speaker 1: rest of it. But I also think we're shaping up 192 00:10:31,000 --> 00:10:33,240 Speaker 1: for a negative Q one GDP number. So this is 193 00:10:33,240 --> 00:10:35,400 Speaker 1: going to be very hard to read and very confusing. 194 00:10:35,679 --> 00:10:44,240 Speaker 1: Does a negative Q one GDP meaning n B er recession. No, 195 00:10:44,440 --> 00:10:46,560 Speaker 1: I don't think it does at all. So the NBR 196 00:10:46,640 --> 00:10:49,280 Speaker 1: defines recession in much more broad terms. It's all about 197 00:10:49,320 --> 00:10:52,560 Speaker 1: falling output, falling incomes, falling employment. I don't think we're 198 00:10:52,600 --> 00:10:55,120 Speaker 1: going to get that. The market shorthand for recession, of course, 199 00:10:55,200 --> 00:10:57,600 Speaker 1: is two quarters of falling GDP, and I think it's 200 00:10:57,640 --> 00:10:59,320 Speaker 1: a very good chance that we get that. But but 201 00:10:59,440 --> 00:11:01,880 Speaker 1: my guess is that the US is is quite well 202 00:11:01,920 --> 00:11:05,679 Speaker 1: placed to skirt a formal n b our recession. I 203 00:11:05,720 --> 00:11:08,160 Speaker 1: do think that the state of the private sectors finances 204 00:11:08,200 --> 00:11:11,120 Speaker 1: offer quite a big cushion against what the FED is doing. 205 00:11:11,120 --> 00:11:13,360 Speaker 1: So the FED is hammering away with rates for the 206 00:11:13,400 --> 00:11:16,000 Speaker 1: private sector's death service costs are still very low, the 207 00:11:16,120 --> 00:11:19,199 Speaker 1: balance sheets are pretty strong, savings build up is still 208 00:11:19,240 --> 00:11:21,559 Speaker 1: there for some people anyway, and so there's quite a 209 00:11:21,600 --> 00:11:23,320 Speaker 1: lot of protection against what the FED is doing. And 210 00:11:23,360 --> 00:11:27,080 Speaker 1: I think that pushback means that we can probably skirt 211 00:11:27,120 --> 00:11:29,559 Speaker 1: around recession if we have one. I don't think it 212 00:11:29,600 --> 00:11:31,240 Speaker 1: will be very bad, and I don't think it'd be 213 00:11:31,320 --> 00:11:33,880 Speaker 1: very long. But my base cases we dodge it all together. 214 00:11:34,360 --> 00:11:36,920 Speaker 1: What does that mean in terms of how quickly inflation 215 00:11:37,120 --> 00:11:43,559 Speaker 1: will disinflate? So this is a gazillion dollar question. Can 216 00:11:43,600 --> 00:11:46,920 Speaker 1: we get the sustained disinflation that we need without a recession? 217 00:11:46,920 --> 00:11:49,120 Speaker 1: And I think there's some very encouraging signs there. So, 218 00:11:49,520 --> 00:11:53,200 Speaker 1: in particular, the downshifting wage growth over the last year 219 00:11:53,240 --> 00:11:55,720 Speaker 1: and a half since that crazy peak in the summer 220 00:11:55,720 --> 00:11:57,880 Speaker 1: of twenty one when it was over six percent, very 221 00:11:57,880 --> 00:12:00,920 Speaker 1: scary FED was very worried about age price spiral at 222 00:12:00,920 --> 00:12:02,880 Speaker 1: that point, but you know, Vice chair Brand had said 223 00:12:03,040 --> 00:12:04,920 Speaker 1: a couple of weeks ago she doesn't see a wage 224 00:12:04,920 --> 00:12:07,160 Speaker 1: price spiral, and the e c I data last week, 225 00:12:07,200 --> 00:12:10,240 Speaker 1: I think pretty much confirmed that story. Wage growth now 226 00:12:10,360 --> 00:12:12,720 Speaker 1: is hovering just around four, which is still on the 227 00:12:12,800 --> 00:12:15,960 Speaker 1: high side, but it's coming down without unemployment going up 228 00:12:16,280 --> 00:12:20,280 Speaker 1: because participation is gradually creeping higher. The labor market is normalizing. 229 00:12:20,520 --> 00:12:22,240 Speaker 1: And if we can see in the next couple of 230 00:12:22,320 --> 00:12:24,760 Speaker 1: quarters at wage growth gets down a little bit below four, 231 00:12:25,080 --> 00:12:27,800 Speaker 1: then we're back into a sustainable place without having to 232 00:12:27,800 --> 00:12:30,280 Speaker 1: break the economy to get there. But this is still 233 00:12:30,360 --> 00:12:32,839 Speaker 1: kind of speculative to some extent. The trend is in 234 00:12:32,880 --> 00:12:35,040 Speaker 1: the right direction, but we haven't quite got to the 235 00:12:35,080 --> 00:12:37,600 Speaker 1: destination that we need to be at just yet. This 236 00:12:37,640 --> 00:12:39,400 Speaker 1: sounds great, and a lot of people buy into it. 237 00:12:39,480 --> 00:12:41,160 Speaker 1: A lot of people have bought risk assets in the 238 00:12:41,200 --> 00:12:45,400 Speaker 1: heels of justice call and then use car prices went up, 239 00:12:45,600 --> 00:12:48,440 Speaker 1: and I pointed this very small sector because it highlights 240 00:12:48,440 --> 00:12:51,240 Speaker 1: the good disinflation that is not linear, This idea that 241 00:12:51,520 --> 00:12:53,920 Speaker 1: because of the lag effects perhaps from the supply that 242 00:12:54,040 --> 00:12:56,200 Speaker 1: was not out there during the years of the pandemic, 243 00:12:56,520 --> 00:12:58,920 Speaker 1: there isn't the same number of vehicles to get resold, 244 00:12:59,000 --> 00:13:01,839 Speaker 1: and suddenly those bag effects are no longer beneficial to 245 00:13:01,880 --> 00:13:05,320 Speaker 1: the disinflationary narrative. How important is it to watch the 246 00:13:05,400 --> 00:13:09,240 Speaker 1: reinflation of certain good sectors that really were the basis 247 00:13:09,360 --> 00:13:14,840 Speaker 1: of this trend altogether? Yeah, so so good. Following goods 248 00:13:14,840 --> 00:13:16,680 Speaker 1: inflation has been a big driver of the improvement that 249 00:13:16,720 --> 00:13:20,040 Speaker 1: we've seen, and car prices have been quite a big 250 00:13:20,040 --> 00:13:23,800 Speaker 1: part of that. We saw an enormous jump in new 251 00:13:23,920 --> 00:13:26,360 Speaker 1: vehicle sales in January. They were up nearly eighteen percent 252 00:13:26,480 --> 00:13:29,360 Speaker 1: in one month, and I think that's probably an indication 253 00:13:29,400 --> 00:13:31,680 Speaker 1: that we saw a strong number for for used vehicle 254 00:13:31,720 --> 00:13:33,560 Speaker 1: sales as well. We don't have that data yet, and 255 00:13:33,600 --> 00:13:35,840 Speaker 1: that's probably what pulled prices are because I don't think 256 00:13:35,840 --> 00:13:38,559 Speaker 1: any dealers were expecting to see sales rise by eighteen percent, 257 00:13:38,640 --> 00:13:40,640 Speaker 1: so I think they got short of inventory. They had 258 00:13:40,679 --> 00:13:42,439 Speaker 1: to go to the auctions to find inventory, and so 259 00:13:42,640 --> 00:13:45,240 Speaker 1: prices spiked. I'm really hopeful that this is a one 260 00:13:45,240 --> 00:13:47,160 Speaker 1: time thing, but it is going to hit the CPIM 261 00:13:47,240 --> 00:13:49,560 Speaker 1: and we know we're gonna get some lumpy numbers and 262 00:13:49,960 --> 00:13:52,000 Speaker 1: for those people at the FED and the markets who 263 00:13:52,040 --> 00:13:54,280 Speaker 1: will want to seize on those numbers. Yeah, the next 264 00:13:54,280 --> 00:13:56,280 Speaker 1: couple of months could be quite tricky, but I do 265 00:13:56,360 --> 00:13:59,840 Speaker 1: think the ultimately margin compression for car dealers is going 266 00:13:59,880 --> 00:14:02,000 Speaker 1: to all those prices down quite a long way. But 267 00:14:02,160 --> 00:14:04,200 Speaker 1: not every month. It just it just doesn't work like that. 268 00:14:04,520 --> 00:14:06,640 Speaker 1: You know, I I want you to take your wonderful pantheon 269 00:14:06,720 --> 00:14:09,560 Speaker 1: ability in Asia and a reopening of China. I want 270 00:14:09,559 --> 00:14:11,480 Speaker 1: you to drag it over to an estimate of the 271 00:14:11,559 --> 00:14:15,199 Speaker 1: resilience of the American economy. The bears are in retreat 272 00:14:15,320 --> 00:14:20,480 Speaker 1: right now, Equities up today, Pepsicola would bang up earnings, etcetera, etcetera. 273 00:14:21,040 --> 00:14:23,480 Speaker 1: Do you have a glass half full on the American 274 00:14:23,520 --> 00:14:27,440 Speaker 1: economic experiment? And is it because of the China reopening? 275 00:14:30,600 --> 00:14:32,920 Speaker 1: The China reopening is helpful for sure. I mean it's 276 00:14:33,000 --> 00:14:35,920 Speaker 1: especially going to be helpful for US manufacturing because essentially 277 00:14:36,200 --> 00:14:40,000 Speaker 1: what happens in Chinese manufacturing today has a meaningful impact 278 00:14:40,000 --> 00:14:42,120 Speaker 1: on what happens in the US manufacturing two to three 279 00:14:42,120 --> 00:14:44,480 Speaker 1: months down the line. That there's a pretty clear line 280 00:14:44,520 --> 00:14:47,520 Speaker 1: between the two. So we're feeling quite excited now about 281 00:14:47,600 --> 00:14:50,000 Speaker 1: China for the spring. You know, the COVID wave is 282 00:14:50,080 --> 00:14:52,400 Speaker 1: less disruptive than we than we feared it would be, 283 00:14:52,480 --> 00:14:55,000 Speaker 1: and the rebound and some of the services pretty strong already. 284 00:14:55,200 --> 00:14:57,400 Speaker 1: That is going to transmit through to those US numbers. 285 00:14:57,400 --> 00:15:00,480 Speaker 1: So what looks right now like a pretty nasty squeeze 286 00:15:00,480 --> 00:15:03,240 Speaker 1: on US manufacturing, Probably it's going to be easing somewhat 287 00:15:03,720 --> 00:15:05,800 Speaker 1: by the spring, so we're very happy to see it. 288 00:15:05,840 --> 00:15:08,400 Speaker 1: But of course, you know, manufacturing is only what nine 289 00:15:08,400 --> 00:15:11,280 Speaker 1: percent of pay rolls and eleven of GDP. It's not 290 00:15:11,320 --> 00:15:13,720 Speaker 1: a game changer, but it's certainly helpful at the margin, 291 00:15:13,800 --> 00:15:15,960 Speaker 1: and it is part of the story why we don't 292 00:15:16,000 --> 00:15:19,160 Speaker 1: have in our base case forecast a US recession. Had 293 00:15:19,280 --> 00:15:21,000 Speaker 1: China stayed in the whole, you know, that would have 294 00:15:21,040 --> 00:15:23,840 Speaker 1: been more of a problem. So at the margin it's helpful. 295 00:15:24,240 --> 00:15:27,800 Speaker 1: Of course, at the moment, Chinese inflation PPI inflation is 296 00:15:27,800 --> 00:15:30,760 Speaker 1: still negative. It's like almost minus three percent, and a 297 00:15:30,880 --> 00:15:32,880 Speaker 1: year and a half ago it was plus eleven. So 298 00:15:33,240 --> 00:15:36,640 Speaker 1: that's helpful as well because that's working through gradually into 299 00:15:36,720 --> 00:15:40,440 Speaker 1: disinflation pressure in the US, coupled with the domestic margin 300 00:15:40,520 --> 00:15:43,320 Speaker 1: compression that we're seeing in retail, So those two things 301 00:15:43,320 --> 00:15:45,760 Speaker 1: together it's quite a nice story. You know, still got 302 00:15:45,760 --> 00:15:48,280 Speaker 1: falling prices in China, but we've got stronger growth as well. 303 00:15:48,320 --> 00:15:50,960 Speaker 1: So it's the right combination, and we know we hope 304 00:15:50,960 --> 00:15:52,680 Speaker 1: it persists. It's it's kind of our base case that 305 00:15:52,680 --> 00:15:54,480 Speaker 1: we're gonna We're gonna keep that for a while. Let's 306 00:15:54,480 --> 00:16:01,880 Speaker 1: get to the important question. I should Men City get relegated? Well, 307 00:16:01,960 --> 00:16:07,880 Speaker 1: if they cheated, they should, absolutely, very seriously. I think 308 00:16:07,920 --> 00:16:09,960 Speaker 1: he was thinking about new cast has decided that he 309 00:16:10,000 --> 00:16:15,840 Speaker 1: answered that question five days ago. Well, you know it 310 00:16:15,880 --> 00:16:17,560 Speaker 1: would put us up one place, will put us more 311 00:16:17,560 --> 00:16:20,520 Speaker 1: firmly in the Champions League. Shot Champions League positions worth 312 00:16:20,560 --> 00:16:24,320 Speaker 1: something unpleasant to happen to them. So yeah, I wouldn't mind. 313 00:16:24,480 --> 00:16:26,760 Speaker 1: There we go, and we got there, and Chefferson of 314 00:16:26,800 --> 00:16:29,400 Speaker 1: Pantheon Macrow, we can only saying thank you as always 315 00:16:33,440 --> 00:16:35,440 Speaker 1: on the American economy, and I look till he joins 316 00:16:35,480 --> 00:16:39,280 Speaker 1: his chief economist Wilmington's trust look tilly the state of 317 00:16:39,320 --> 00:16:43,160 Speaker 1: the American labor economy. It's a jumble to me, claims 318 00:16:43,240 --> 00:16:47,240 Speaker 1: odd jolts odd, everything odd. What do you and Wilmington's 319 00:16:47,240 --> 00:16:52,160 Speaker 1: trusts make of our job economy? Yeah, it's obviously an 320 00:16:52,160 --> 00:16:55,480 Speaker 1: incredibly tight labor market. As Mike was just saying, the 321 00:16:55,520 --> 00:16:57,800 Speaker 1: low level of claims really sinks up with what we 322 00:16:57,840 --> 00:17:01,280 Speaker 1: saw with job growth in the month of January. Are Interestingly, 323 00:17:01,320 --> 00:17:04,320 Speaker 1: if you look at the non seasonally adjusted numbers, you 324 00:17:04,400 --> 00:17:07,359 Speaker 1: usually get two point eight or three million lost jobs 325 00:17:07,359 --> 00:17:10,760 Speaker 1: in January. Uh, this time around, this past January, you 326 00:17:10,760 --> 00:17:13,440 Speaker 1: get a loss of two point five million jobs. Of course, 327 00:17:13,480 --> 00:17:16,760 Speaker 1: the seasonal adjustment pushes that higher. And what we really 328 00:17:16,760 --> 00:17:20,240 Speaker 1: see is in this tight labor market, employers are holding 329 00:17:20,280 --> 00:17:22,600 Speaker 1: onto their employees. We know how challenging it is to 330 00:17:22,680 --> 00:17:25,159 Speaker 1: hire people, so it's really more of a story of 331 00:17:25,200 --> 00:17:27,680 Speaker 1: wanting to hold onto people. That's the story behind the 332 00:17:27,720 --> 00:17:30,720 Speaker 1: strong jobs number for January, and we're also seeing that 333 00:17:30,760 --> 00:17:34,080 Speaker 1: with the claims this morning. We think that, you know, 334 00:17:34,119 --> 00:17:36,680 Speaker 1: the job growth obviously is very strong, but it's more 335 00:17:36,720 --> 00:17:39,960 Speaker 1: about the differential you just referred to. The jolts jumped 336 00:17:40,000 --> 00:17:41,480 Speaker 1: up on a one month basis. It looks a little 337 00:17:41,520 --> 00:17:43,400 Speaker 1: bit fishy. Before that it had come down more than 338 00:17:43,400 --> 00:17:45,880 Speaker 1: ten percent, But it's really the mismatch that's gonna matter 339 00:17:45,920 --> 00:17:49,560 Speaker 1: more than total job growth. Tom is wage growth gonna cooperate. 340 00:17:49,640 --> 00:17:55,359 Speaker 1: So Lisa can see her immaculate disinflation. Well, we've already 341 00:17:55,400 --> 00:17:57,840 Speaker 1: seen I hear people talk about is it possible to 342 00:17:57,840 --> 00:18:02,240 Speaker 1: have this immaculate Uh you disinflation. Uh, It's easy to 343 00:18:02,240 --> 00:18:04,600 Speaker 1: point out that we've already had it for three months, right, 344 00:18:04,640 --> 00:18:06,560 Speaker 1: We've got this is not just a one off. You've 345 00:18:06,600 --> 00:18:09,920 Speaker 1: got three months of much slower inflation while you still 346 00:18:09,960 --> 00:18:13,040 Speaker 1: have the strong wages in the tight labor market. We 347 00:18:13,119 --> 00:18:14,919 Speaker 1: think that it's going to get much more challenging when 348 00:18:15,000 --> 00:18:16,879 Speaker 1: you get to the middle of this year and beyond, 349 00:18:17,400 --> 00:18:20,280 Speaker 1: because the labor shortages are going to persist. We also 350 00:18:20,359 --> 00:18:24,760 Speaker 1: see supply chain challenges, and then also the energy transition 351 00:18:24,840 --> 00:18:26,919 Speaker 1: is going to keep some upward pressure on inflation, so 352 00:18:26,960 --> 00:18:29,120 Speaker 1: we expected to keep coming down in the near term. 353 00:18:29,680 --> 00:18:33,480 Speaker 1: We're encouraged that average earily earnings actually we're pretty mild 354 00:18:33,480 --> 00:18:35,840 Speaker 1: with the zero point three pc increase, and if you 355 00:18:35,880 --> 00:18:39,160 Speaker 1: look at production and supervisory workers, the slowdown in wage 356 00:18:39,160 --> 00:18:41,760 Speaker 1: growth from last year into this year is even more encouraging. 357 00:18:42,520 --> 00:18:44,879 Speaker 1: So if you do get some noisiness, but you do 358 00:18:45,000 --> 00:18:47,440 Speaker 1: get this sense of disinflation just based on the year 359 00:18:47,440 --> 00:18:50,760 Speaker 1: over year composition of the way that the data is 360 00:18:51,440 --> 00:18:53,760 Speaker 1: drawn up, how do you then get confidence? How do 361 00:18:53,800 --> 00:18:56,680 Speaker 1: you give confidence that there's going to be a stickier 362 00:18:56,720 --> 00:19:00,280 Speaker 1: inflation later in the year when all anecdotal evidence is 363 00:19:00,320 --> 00:19:03,760 Speaker 1: speaking to the other. Yeah, well, we think that it's 364 00:19:03,800 --> 00:19:05,240 Speaker 1: going to be keep coming down on a year of 365 00:19:05,280 --> 00:19:07,880 Speaker 1: your basis. As you point out, you've got those base effects. 366 00:19:07,880 --> 00:19:09,440 Speaker 1: We just don't think it's ever going to really come 367 00:19:09,440 --> 00:19:11,800 Speaker 1: back down to what we saw between the global financial 368 00:19:11,840 --> 00:19:15,199 Speaker 1: crisis and the COVID pandemic. We've got higher inflation on 369 00:19:15,240 --> 00:19:17,320 Speaker 1: a trend basis now between two and a half and 370 00:19:17,359 --> 00:19:19,400 Speaker 1: three and a half percent on a multi year basis 371 00:19:19,400 --> 00:19:22,000 Speaker 1: going out, it could dip pretty low in the middle 372 00:19:22,040 --> 00:19:23,960 Speaker 1: of this year. We know what's going on with shelter, 373 00:19:24,480 --> 00:19:26,560 Speaker 1: and even if we just see the shelter numbers flat line, 374 00:19:26,600 --> 00:19:30,080 Speaker 1: that would imply some very low inflation numbers. Willington Trust 375 00:19:30,119 --> 00:19:32,600 Speaker 1: were much more focused on nine and twelve and twenty 376 00:19:32,600 --> 00:19:35,320 Speaker 1: four months out, and those higher inflation numbers are going 377 00:19:35,359 --> 00:19:38,160 Speaker 1: to keep rates higher and actually offer some some opportunities 378 00:19:38,160 --> 00:19:40,520 Speaker 1: for investors. So it's not a whole lot of confidence, 379 00:19:40,560 --> 00:19:42,360 Speaker 1: Lisa about what the month of a month or even 380 00:19:42,400 --> 00:19:44,080 Speaker 1: to the middle of this year. Has a lot more 381 00:19:44,080 --> 00:19:46,960 Speaker 1: to do with that longer term trajectory we see those challenges, 382 00:19:47,200 --> 00:19:50,359 Speaker 1: we also think they're navigatable, well navigatable, which really space 383 00:19:50,480 --> 00:19:53,679 Speaker 1: to the Torsten slock. No landing kind of scenario at 384 00:19:53,680 --> 00:19:55,399 Speaker 1: a time when a lot of people are pushing out 385 00:19:55,960 --> 00:19:58,679 Speaker 1: potentially even for years, any type of recession. Are you 386 00:19:58,720 --> 00:20:02,720 Speaker 1: among those? Yeah, it could go out or it could 387 00:20:02,800 --> 00:20:05,119 Speaker 1: happen this year. You know, we've got basically a fifty 388 00:20:05,119 --> 00:20:07,320 Speaker 1: fifty chance we think of a soft landing versus of 389 00:20:07,400 --> 00:20:10,080 Speaker 1: mild recession. It's going to come back to employers. We 390 00:20:10,080 --> 00:20:12,760 Speaker 1: know that employers are dealing with higher borrowing costs, a 391 00:20:12,800 --> 00:20:15,359 Speaker 1: little bit of softening in demand. If they keep hiring, 392 00:20:15,720 --> 00:20:18,440 Speaker 1: then you know you've got as consumers, you've got job growth, 393 00:20:18,480 --> 00:20:20,960 Speaker 1: you've got wage growth, and that will keep the economy's 394 00:20:20,960 --> 00:20:23,520 Speaker 1: head above water. In the middle of this year. If 395 00:20:23,520 --> 00:20:26,119 Speaker 1: companies get spooked and those higher borrowing costs hit their 396 00:20:26,119 --> 00:20:29,119 Speaker 1: capex and their hiring decisions, well that's gonna lead to recession. 397 00:20:29,400 --> 00:20:31,040 Speaker 1: I actually think it's gonna have a lot more to 398 00:20:31,080 --> 00:20:33,240 Speaker 1: do with the lagged defects and all of the hikes 399 00:20:33,280 --> 00:20:36,000 Speaker 1: that were last year. Much more important than whether the 400 00:20:36,000 --> 00:20:38,159 Speaker 1: FED stops at five or five point one. You know, 401 00:20:38,200 --> 00:20:40,240 Speaker 1: of one or two more types here, hikes here, and there. 402 00:20:40,720 --> 00:20:44,480 Speaker 1: Businesses are reevaluating those those CAPEX decisions. Now, look, you 403 00:20:44,880 --> 00:20:47,600 Speaker 1: earned your stripes at the Philadelphia said, which is one 404 00:20:47,640 --> 00:20:51,359 Speaker 1: of the most interesting research capabilities, given the terrain, given 405 00:20:51,400 --> 00:20:54,760 Speaker 1: the geography as well, and to me, it really hearkens 406 00:20:54,800 --> 00:20:58,520 Speaker 1: back to the study of the core American economy, which 407 00:20:58,560 --> 00:21:02,400 Speaker 1: I'm gonna call domestic final sales. When you take out 408 00:21:02,440 --> 00:21:06,320 Speaker 1: the foreign dynamics, the inventory dynamics, and you just look 409 00:21:06,359 --> 00:21:11,000 Speaker 1: at this thing, domestic final sales. Is it half full 410 00:21:11,240 --> 00:21:15,600 Speaker 1: or half empty. We've definitely seen the slowdown, and that's 411 00:21:15,600 --> 00:21:17,800 Speaker 1: our preferred measure. It's a little bit like looking like 412 00:21:17,920 --> 00:21:20,040 Speaker 1: core cp I, right, you strip out the international we 413 00:21:20,040 --> 00:21:23,159 Speaker 1: actually go with private final sales to strip about the 414 00:21:23,160 --> 00:21:25,040 Speaker 1: government as well. And what we've seen there is an 415 00:21:25,080 --> 00:21:28,199 Speaker 1: appreciable slowdown in the economy. I mean, it was just 416 00:21:28,280 --> 00:21:31,480 Speaker 1: barely positive for the most recent GDP report, I think 417 00:21:31,560 --> 00:21:34,080 Speaker 1: zero point two per cent. And what we see there 418 00:21:34,480 --> 00:21:36,760 Speaker 1: is a natural slowdown that was going to happen anyway 419 00:21:36,760 --> 00:21:39,520 Speaker 1: from COVID, but it's also the impacts of the federal 420 00:21:39,560 --> 00:21:42,560 Speaker 1: reserves policy. We know that residential investment has been hit 421 00:21:42,680 --> 00:21:45,000 Speaker 1: very hard, and that's exactly what they're trying to do 422 00:21:45,119 --> 00:21:47,760 Speaker 1: is to engineer that slowdown in the economy. And Pal 423 00:21:47,880 --> 00:21:50,960 Speaker 1: referred to this just the other day, the final sales numbers, 424 00:21:51,040 --> 00:21:53,720 Speaker 1: because what we do see is that slowdown that should 425 00:21:53,720 --> 00:21:55,760 Speaker 1: help to bring in fish and down and of course 426 00:21:55,800 --> 00:21:58,160 Speaker 1: we need just wait to see which way that breaks. Tilly, 427 00:21:58,240 --> 00:22:11,119 Speaker 1: thank you so much. With Wilming to us, this is 428 00:22:11,160 --> 00:22:14,280 Speaker 1: a joy. Right now, we're gonna go down memory lane. 429 00:22:14,600 --> 00:22:17,199 Speaker 1: Which was that long ago and far away with a 430 00:22:17,200 --> 00:22:19,879 Speaker 1: guy named David mel Pass who's got a job in 431 00:22:19,920 --> 00:22:23,199 Speaker 1: Washington right now holding up a bank. There was it, 432 00:22:23,320 --> 00:22:28,879 Speaker 1: bear Sterns, absolutely definitive emerging market coverage. There was something 433 00:22:28,920 --> 00:22:31,800 Speaker 1: about it in the air in the pixie dust, and 434 00:22:31,920 --> 00:22:36,040 Speaker 1: Catherine Rooney Vera was part of that. She's chief market strategists, 435 00:22:36,320 --> 00:22:39,760 Speaker 1: had a global macro research at Bolt of Capital. I've 436 00:22:39,760 --> 00:22:41,920 Speaker 1: got to go back to emmy show and David mal 437 00:22:42,000 --> 00:22:45,359 Speaker 1: passing all of it. What was it like is bear 438 00:22:45,440 --> 00:22:50,439 Speaker 1: Sterns literally, in my my opinion, invented em coverage on 439 00:22:50,520 --> 00:22:53,199 Speaker 1: Wall Street. Thank you for that kind introduction, Tom and 440 00:22:53,280 --> 00:22:55,879 Speaker 1: bear Stearns was fun. It was a great place to work, 441 00:22:56,200 --> 00:22:58,760 Speaker 1: and really I miss it. Um but Ian was a 442 00:22:58,840 --> 00:23:01,679 Speaker 1: strong point, David mal past John riding Emmy shadow. As 443 00:23:01,720 --> 00:23:04,359 Speaker 1: you mentioned some of the heavy hitters. UM. I was 444 00:23:04,400 --> 00:23:07,960 Speaker 1: an emerging market fixed income research and so enjoyed that time. Yes, 445 00:23:08,080 --> 00:23:10,159 Speaker 1: but you know it was it was a different battle, 446 00:23:10,200 --> 00:23:13,040 Speaker 1: but then it was e M. Connected to the center 447 00:23:13,240 --> 00:23:15,760 Speaker 1: is Bill Rhodes would say, the central banker to the 448 00:23:15,760 --> 00:23:19,119 Speaker 1: world is Jerome Powell right now, the central banker to 449 00:23:19,200 --> 00:23:22,840 Speaker 1: Emmy Shios, Latin America or the Pacific rim what's the 450 00:23:22,920 --> 00:23:26,560 Speaker 1: power of our our central bank leader? Now? Well, emerging 451 00:23:26,600 --> 00:23:31,399 Speaker 1: markets are do very poorly in UM a federal reserve 452 00:23:31,480 --> 00:23:35,200 Speaker 1: hiking cycle with the dollar appreciating in value. So that's 453 00:23:35,200 --> 00:23:38,359 Speaker 1: why we saw emerging markets get devastated last year. And 454 00:23:38,400 --> 00:23:41,040 Speaker 1: I think Tom and Lisa that that's why we've seen 455 00:23:41,040 --> 00:23:44,440 Speaker 1: emerging markets be the new Darling um year to date. 456 00:23:44,680 --> 00:23:47,439 Speaker 1: It was one of the worst performers in two and 457 00:23:47,440 --> 00:23:50,560 Speaker 1: it's one of the top performers this year, precisely because 458 00:23:50,920 --> 00:23:54,240 Speaker 1: it seems the Fed is, uh, maybe it's gonna stop 459 00:23:54,240 --> 00:23:56,760 Speaker 1: pretty soon. UM. I still think it's a bit early 460 00:23:56,800 --> 00:23:59,680 Speaker 1: to jump into that trade. I think that the momentum 461 00:23:59,760 --> 00:24:03,760 Speaker 1: could would carry us higher for the next month or so. UM, 462 00:24:03,800 --> 00:24:06,119 Speaker 1: But the FED could do more and more than the 463 00:24:06,119 --> 00:24:08,639 Speaker 1: market is currently anticipating, as as your guests have had. 464 00:24:08,720 --> 00:24:12,720 Speaker 1: Nauseam mentioned um, but but but there's a certain euphoria 465 00:24:12,920 --> 00:24:16,680 Speaker 1: I think right now in for the riskiest paper and 466 00:24:16,800 --> 00:24:20,040 Speaker 1: for the mean reversion trade euphoria. Can you build on that? 467 00:24:20,480 --> 00:24:23,479 Speaker 1: What is driving the euphoria other than just you know, 468 00:24:24,200 --> 00:24:27,080 Speaker 1: I guess positioning squeeze. Yeah. I was talking with your 469 00:24:27,080 --> 00:24:28,840 Speaker 1: previous guests in the green room winning in and she 470 00:24:28,960 --> 00:24:32,159 Speaker 1: called it. Everyone's jazzed about the China reopening trade and 471 00:24:32,160 --> 00:24:36,399 Speaker 1: that's fantastic for emerging markets. China is a very important 472 00:24:37,000 --> 00:24:39,879 Speaker 1: trade partner for Latin America and it's very important as 473 00:24:39,880 --> 00:24:44,160 Speaker 1: well for Asia ex China. Right, so, as China reopens 474 00:24:44,640 --> 00:24:48,399 Speaker 1: um the surrounding areas Malaysia, Thailand, those areas are going 475 00:24:48,400 --> 00:24:50,960 Speaker 1: to get a bounce in tourism, and Latin America is 476 00:24:51,000 --> 00:24:52,960 Speaker 1: also going to benefits. So I think there's that aspect. 477 00:24:53,280 --> 00:24:57,959 Speaker 1: A weakening dollar is very favorable for emerging markets. Economic 478 00:24:58,000 --> 00:25:01,520 Speaker 1: growth this year is going to be stellar in emerging 479 00:25:01,560 --> 00:25:04,919 Speaker 1: markets India more than six percent growth. China is going 480 00:25:04,960 --> 00:25:07,439 Speaker 1: to lead the growth um and that's going to be 481 00:25:07,520 --> 00:25:10,240 Speaker 1: positive versus the developed markets were here in the US, 482 00:25:10,320 --> 00:25:12,800 Speaker 1: in my view, we're going to be flat at best. Well, 483 00:25:12,800 --> 00:25:14,359 Speaker 1: but so do you think that just to sort of 484 00:25:14,800 --> 00:25:17,560 Speaker 1: put something concrete around this, do you think that right 485 00:25:17,600 --> 00:25:20,240 Speaker 1: now that China reopening has been fully priced and even 486 00:25:20,320 --> 00:25:23,320 Speaker 1: overpriced when it comes to how it's been represented in 487 00:25:23,359 --> 00:25:26,800 Speaker 1: emerging markets? Just risk your assets in general? Yes, And 488 00:25:26,840 --> 00:25:30,159 Speaker 1: I think that before I recommend going long on a 489 00:25:30,160 --> 00:25:33,919 Speaker 1: sustainable fashion to institutional or even retail investors, we do 490 00:25:33,960 --> 00:25:36,639 Speaker 1: have to see a pullback correction and risk assets. I 491 00:25:36,680 --> 00:25:40,600 Speaker 1: think US recession is not person particularly in the equity markets, 492 00:25:40,600 --> 00:25:43,359 Speaker 1: and we have not seen difficulties with financing. There's a 493 00:25:43,400 --> 00:25:46,680 Speaker 1: lot of names in the emerging space as well as 494 00:25:46,680 --> 00:25:49,920 Speaker 1: in high yield that have not had those financing difficulties 495 00:25:49,920 --> 00:25:52,560 Speaker 1: that I do expect to come to the four as 496 00:25:52,600 --> 00:25:56,080 Speaker 1: we feel the repercussions and the ramifications of five hundred 497 00:25:56,200 --> 00:25:58,440 Speaker 1: basis points and tightening in more than a year. Two 498 00:25:58,440 --> 00:26:00,920 Speaker 1: things right now very important. You sturing at the University 499 00:26:00,920 --> 00:26:03,280 Speaker 1: of Miami, and you're gonna tell them we just had 500 00:26:03,320 --> 00:26:05,960 Speaker 1: a new depth of inversion on the two tents spread 501 00:26:06,400 --> 00:26:09,400 Speaker 1: negative eighty five point to nine eight points. Three month 502 00:26:09,480 --> 00:26:11,760 Speaker 1: thirty is at one oh seven. It's not through to 503 00:26:11,840 --> 00:26:14,240 Speaker 1: new depth yet, but there's the van else. But what 504 00:26:14,359 --> 00:26:18,920 Speaker 1: is the signal of new deep deep deep substantial inversion. Yeah, 505 00:26:18,920 --> 00:26:21,320 Speaker 1: it's been really fun to being a professor at UM 506 00:26:21,320 --> 00:26:25,720 Speaker 1: teaching global economics, especially Tom, in this time of in 507 00:26:26,080 --> 00:26:30,040 Speaker 1: our lifetimes. Um. Look, I'll go back to emerging markets again. 508 00:26:30,280 --> 00:26:34,320 Speaker 1: They did their homework. Brazil increased rates one thousand, more 509 00:26:34,320 --> 00:26:37,239 Speaker 1: than one thousand basis points last year alone. UM. So 510 00:26:37,280 --> 00:26:39,600 Speaker 1: I think that's part of the euphoria, you know, plowing 511 00:26:39,640 --> 00:26:43,760 Speaker 1: into these countries, these names, these geographies, these assad classes, um, 512 00:26:43,880 --> 00:26:46,960 Speaker 1: that are very juicy and yield. Okay, I've got to 513 00:26:47,000 --> 00:26:50,679 Speaker 1: ask Lisa. Lisa asked for me as well. Both of 514 00:26:50,760 --> 00:26:53,080 Speaker 1: us tried to price a condo in Miami the other 515 00:26:53,160 --> 00:26:55,960 Speaker 1: day and fell off our chair. Can you you're you're 516 00:26:56,080 --> 00:26:59,680 Speaker 1: living it, You're living the Star Boom. I'm a beneficiary 517 00:26:59,720 --> 00:27:03,400 Speaker 1: of your beneficiary. Okay, give us give all of our 518 00:27:03,440 --> 00:27:09,479 Speaker 1: listeners and viewers worldwide a snapshot into the sustainability of 519 00:27:09,520 --> 00:27:12,480 Speaker 1: the Florida Boom. Can it continue? The good news is 520 00:27:12,520 --> 00:27:16,240 Speaker 1: that we have diversity both in UM, you know, the 521 00:27:16,240 --> 00:27:19,639 Speaker 1: the diaspora from New York, New Jersey and from Latin America. 522 00:27:19,720 --> 00:27:21,879 Speaker 1: So all those people are coming. So it's not just 523 00:27:22,040 --> 00:27:24,199 Speaker 1: the New Yorkers that certainly have bit up. Not just 524 00:27:24,280 --> 00:27:28,360 Speaker 1: my house price Tom which has jumped significantly in value, um, 525 00:27:28,400 --> 00:27:30,320 Speaker 1: but also the wait list to get into schools. It's 526 00:27:30,400 --> 00:27:32,480 Speaker 1: very difficult now it's to um to get into the 527 00:27:32,480 --> 00:27:35,240 Speaker 1: private schools because of this influx. I think it is diverse. 528 00:27:35,320 --> 00:27:38,560 Speaker 1: I think the mayor and the and the politicians that 529 00:27:38,640 --> 00:27:41,840 Speaker 1: have done a fantastic job of enticing capital, and it's 530 00:27:41,880 --> 00:27:44,879 Speaker 1: diverse in nature. So I don't envy you looking at 531 00:27:45,080 --> 00:27:48,320 Speaker 1: real estate in Miami. Um, I'm one of the New 532 00:27:48,359 --> 00:27:54,399 Speaker 1: Yorkers that moved down. But thankfully there's grass coming up 533 00:27:54,400 --> 00:27:59,080 Speaker 1: through the driveway. Basically the most the most interesting thing 534 00:27:59,119 --> 00:28:02,160 Speaker 1: that you said in a know, not Florida real estate. 535 00:28:02,240 --> 00:28:05,120 Speaker 1: I'm still looking at the two tents spread, which shows 536 00:28:05,119 --> 00:28:07,360 Speaker 1: you how much of you know a nerd or whatever 537 00:28:07,359 --> 00:28:11,520 Speaker 1: you wanna call me. But I'm watching right now. Equities 538 00:28:11,680 --> 00:28:15,399 Speaker 1: rally continue to extend the rally, even though people pile 539 00:28:15,560 --> 00:28:19,000 Speaker 1: into ten year treasuries at a time when they're expecting 540 00:28:19,040 --> 00:28:23,359 Speaker 1: more rate hikes. This doesn't add up. Do you understand this, Catherine? No, 541 00:28:23,480 --> 00:28:25,520 Speaker 1: And I think Victoria Fernandez said it very well. It 542 00:28:25,600 --> 00:28:27,880 Speaker 1: doesn't add up, and so that's why I like tea bills. 543 00:28:27,880 --> 00:28:29,600 Speaker 1: I've been saying this for an extended period of time. 544 00:28:29,640 --> 00:28:31,600 Speaker 1: In fact here on Bloomberg a couple of months ago, 545 00:28:31,880 --> 00:28:34,200 Speaker 1: four point seven percent three months, six month tea bills. 546 00:28:34,200 --> 00:28:36,040 Speaker 1: It makes sense to me. I think it's a strong 547 00:28:36,119 --> 00:28:38,480 Speaker 1: it's a good idea to be in cash and cash equivalents. 548 00:28:38,880 --> 00:28:40,960 Speaker 1: Some of my top picks in the equity space last 549 00:28:41,040 --> 00:28:45,959 Speaker 1: year I continue to like. Which are staples underperformed this year, UM, utility, energies, 550 00:28:46,000 --> 00:28:48,440 Speaker 1: and healthcare in the equity space, and I think we 551 00:28:48,520 --> 00:28:52,800 Speaker 1: do need to remain defensive under the expectation that this 552 00:28:52,960 --> 00:28:56,240 Speaker 1: can't continue. Right. We can't have record low unemployment in 553 00:28:56,280 --> 00:29:01,000 Speaker 1: fifty three years, UM productivity really kind of dis molt um, 554 00:29:01,040 --> 00:29:04,520 Speaker 1: and labor costs still still rising. With the Fed getting 555 00:29:04,520 --> 00:29:07,360 Speaker 1: to its two percent inflation target, we're gonna see Thank 556 00:29:07,400 --> 00:29:11,960 Speaker 1: you so much, Cassaroney, very Capital Markets. Joining from Miami. 557 00:29:12,240 --> 00:29:16,160 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and 558 00:29:16,200 --> 00:29:20,400 Speaker 1: anywhere else you get your podcasts. Listen live every weekday 559 00:29:20,680 --> 00:29:24,160 Speaker 1: starting at seven am Eastern. I'm Bloomberg Dot com, the 560 00:29:24,280 --> 00:29:28,240 Speaker 1: I Heart Radio app tune In, and the Bloomberg Business app. 561 00:29:28,720 --> 00:29:32,400 Speaker 1: You can watch us live. I'm Bloomberg Television and always 562 00:29:32,760 --> 00:29:36,640 Speaker 1: on the Bloomberg Terminal. Thanks for listening. I'm Tom Keane, 563 00:29:36,840 --> 00:29:38,600 Speaker 1: and this is Bloomberg