Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Faroll and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, financial investment.
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Speaker 1: important and so news. Now we're gonna in set a
Speaker 1: chat and here we're gonna get right to it. Mr
Speaker 1: Zelter Jim's Elter's co president Apollo Asset Management. They're on
Speaker 1: a roll. We all know that. We thank them for
Speaker 1: Torston slock in his wisdom on a daily basis and
Speaker 1: he'll try to keep up with Mr Sluck. Jim's Elter
Speaker 1: joins us. This morning, Jim, there's a fire sale going
Speaker 1: on in Zurich, Switzerland. I believe you guys have a
Speaker 1: nodding acquaintance with it. Described the theft this warning and
Speaker 1: yesterday is Apollo took on assets. I'm a beleaguered Swiss bank. Well,
Speaker 1: good morning mcgogmarrying all of you. Um, you know for
Speaker 1: us that the transaction. Referring to the securitized products business.
Speaker 1: We've thought for years that there is a great theme
Speaker 1: going on, a great evolution of a lot of assets
Speaker 1: that are as strategies that are within the banks are
Speaker 1: moving to the alternative side of the business. And you know,
Speaker 1: SPG is a tremendous is really a finance company of
Speaker 1: finance companies. It's a massive business with a twenty year
Speaker 1: track record and bringing that team on two d plus people,
Speaker 1: three hundred origination platforms underneath it. Uh. It really is
Speaker 1: our objective of fixed income replacement, getting investment grade returns,
Speaker 1: but doing it in a more thoughtful, actually candially a
Speaker 1: less risky manner. So a massive transaction for us. The
Speaker 1: way we're able to do it was very nuanced. We'll
Speaker 1: talk about that in our earnings call today. But we're
Speaker 1: very excited and we we think this whole area of
Speaker 1: private credit and I saw your your past guests, this
Speaker 1: is the golden era for private credit. You know, rates
Speaker 1: have been rising. E commedy is doing pretty well. You
Speaker 1: can get double digit yields, but in this particular and
Speaker 1: the security coaged products business, it's really investment grade risk,
Speaker 1: a tremendous predice. I learned a long time ago, Jim,
Speaker 1: that the heart of this, as you correctly mentioned, as
Speaker 1: you need to retain two hundred and fifty warm bodies.
Speaker 1: As you bring them over, explain the incentive. How you're
Speaker 1: going to incentivize those people to join Apollo well like
Speaker 1: like we've done for for decades time, and when we
Speaker 1: bring them in, we we have an aligned business plan.
Speaker 1: It's not just about growing the assets, but doing it
Speaker 1: in a productive way where credit losses are negligible or
Speaker 1: zero and we're aligned on the trajectory of the business.
Speaker 1: We're really aligned on what the investors get. At the
Speaker 1: end of the day, it's all about investor returns, and
Speaker 1: we're we're aligned at making a productive business that it's
Speaker 1: acreed to the shareholders of Apollo. So we do that
Speaker 1: in an aligned basis, which we've done. Um, that's the
Speaker 1: that's the success long term. And I think that you
Speaker 1: know what what this management team who is there, they're
Speaker 1: extremely excited to be part of a business where we
Speaker 1: can offer this type of long term trajectory in terms
Speaker 1: of benefits and compensation, but also in alignment with the
Speaker 1: shareholders at the funds. Alignment of shareholders at Apollo. But
Speaker 1: also the most critical aspect is long term predictable capital,
Speaker 1: so they can go about their business, they can execute
Speaker 1: their business and and grow their business with long term,
Speaker 1: sticky matched assets. That's really the key to success. It's
Speaker 1: no more complicated than that. Jim. You've deployed a lot
Speaker 1: of capital very recently, a lot of capital, and we've
Speaker 1: always seen the correction take place in public markets. There's
Speaker 1: been this bigger conversation about whether we've seen the correction
Speaker 1: take place yet in private markets. I just wonder how
Speaker 1: you think that's going to play out through the next
Speaker 1: twelve months and what that might mean for the volume
Speaker 1: of transactions we can expect from you of the next
Speaker 1: few quarters. Sure, well, you know, for us, you know
Speaker 1: our discipline, our determination, you know the theme we've always
Speaker 1: talked about here is purchase price matters. You know, we're
Speaker 1: we're finally in an environment we're for years folks asked us,
Speaker 1: how are we going to perform in a higher rate environment.
Speaker 1: I think the results of the last twelve months show
Speaker 1: us that. You know, for us, this is easily the
Speaker 1: best time to be an investor in new issue vintage credit.
Speaker 1: The best that I've been here, I been here seventeen
Speaker 1: eighteen years. You know, you're getting double digit returns by
Speaker 1: lending at the top of the capital structure, so you know,
Speaker 1: voracious demand and on the portfolio. As you're asking, you know,
Speaker 1: we're we're not seeing I mean, it's certainly a very
Speaker 1: bifurcated economy. I'll let I'll let you ask towards in
Speaker 1: the economics questions. But for us, if we if we
Speaker 1: have followed this discipline of our mantra purchase price matters,
Speaker 1: we're lending to great companies that are you know, well positioned.
Speaker 1: And the reality is it's very difficult to you know,
Speaker 1: put one term on which way the economy is going
Speaker 1: in terms of you know, upside downside with the rates.
Speaker 1: It's very bifurcated. You have many industries that are consumer
Speaker 1: lad you know, the cruise industry, hospitality, entertainment, travel, they're
Speaker 1: doing quite well. Those that are much more hard industry
Speaker 1: are having a little bit more challenging time, you know,
Speaker 1: the autos and such. But for us, there's a lot
Speaker 1: of companies that that need capital. We've expanded our capital
Speaker 1: base not only the size of our capital, but what
Speaker 1: puts us in a unique standing is the breadth of
Speaker 1: our capital. We can offer scale solutions, you know, down
Speaker 1: in the mid single digits, which are very equative to
Speaker 1: our uh you know, spread related earnings of our of
Speaker 1: our retirement services, and that makes a lot of sense
Speaker 1: for us. We're we're really thinking about that incremental return
Speaker 1: for a unit of risk, and for us, it's a
Speaker 1: great time to be in our business. Do you expect
Speaker 1: that we're gonna just miss a default cycle altogether, then,
Speaker 1: you know, I think I think at least it's gonna
Speaker 1: be one where certain industries get hit a bit harder,
Speaker 1: and it's going to be you know, we all talked about,
Speaker 1: you know, our default it's going to go from two
Speaker 1: to three or four percent. They probably will pick up
Speaker 1: higher in two but it's not going to be broad
Speaker 1: based across the high yield sector or the leverage loan sector.
Speaker 1: It's going to be concentrated in four or five industries.
Speaker 1: But I would say that the theme that you're seeing
Speaker 1: in you're in the last two weeks in your show,
Speaker 1: you know, companies are much more focused on returning capital
Speaker 1: the shareholders. You know, we're not in that zero cost
Speaker 1: of capital world anymore. What's going on to the big
Speaker 1: oil majors, what's going on at Disney, what's going on
Speaker 1: a lot of other companies. These companies now are very
Speaker 1: focused on cash flow generation. Uh, And that's what we've
Speaker 1: done for for thirty two years. And you know, it's
Speaker 1: that's that's a playbook that lasts. It's real bust. But
Speaker 1: for us, there will be a certain degree of a
Speaker 1: credit cycle, but it's not going to be broad brush
Speaker 1: across every asset, or at least we're not running our
Speaker 1: business right now with that intention in mind. There was
Speaker 1: a long time when private credit was largely the sphere
Speaker 1: of institutional investors, and then over the past few years
Speaker 1: pre pandemic, mostly there was a real push into the
Speaker 1: individual investor. How much is that still the opportunity versus
Speaker 1: going back and really doubling down on institutions. Well, I
Speaker 1: think they're both growing. I mean, you know, the institutions
Speaker 1: have been in this business for thirty years in terms
Speaker 1: of what they did in private equity and then all
Speaker 1: the other alternatives. And in the last three or four years,
Speaker 1: you know, the global wealth channels around the globe which
Speaker 1: are voracious, the amount of global wealth has been created.
Speaker 1: You know, in the US but in Asia and in
Speaker 1: Europe and India, in Hong Kong and such, there's a
Speaker 1: there's a voracious app appetite for high quality managers that
Speaker 1: have proven themselves in products that makes sense, good education,
Speaker 1: appropriate fees, appropriate liquidity. But we think it's it's a
Speaker 1: you know, a once in a decade opportunity. It's not
Speaker 1: surprising that a handful of firms are very focused on it.
Speaker 1: When we did our investor Day sixteen months ago, it
Speaker 1: was one of our three critical priorities or initiatives, along
Speaker 1: with origination and capital solutions. But it's still front and
Speaker 1: center for us. And you know, certainly, I think this
Speaker 1: rate rise actually makes it quite attractive for many folks
Speaker 1: to do uh, to enter this world. And you know,
Speaker 1: we're we're a building, We're building a tremendous resource base
Speaker 1: to be able to really create products, invest appropriately and
Speaker 1: in service clients necessarily. Jim, We'll find a question it's
Speaker 1: Manchester United and once in a decade opportunity. Well, listen,
Speaker 1: I'm more focused on US sports. But the reality is
Speaker 1: there's there's an amazing amount of sports ecosystem financing going
Speaker 1: on and and we expect to be part of that
Speaker 1: going forward. Do you want to elaborate on some of that. Well,
Speaker 1: I just think what you're seeing right now, and you
Speaker 1: know these sports are global. I know you and time
Speaker 1: you have your view on certain teams in the Premier League,
Speaker 1: and I wouldn't even think about getting in the middle
Speaker 1: of the YouTube on that one. Jim's adam of a file, Jim,
Speaker 1: if you ever want to look over there again, we
Speaker 1: can consult we canna. Yeah, you know, I think you know.
Speaker 1: I call Mr Lee you and have Mr Zelter over
Speaker 1: experience will mediate. Yeah, thank you were taking face for
Speaker 1: that too. Investments image to basis points in the sixth
Speaker 1: pack of John Courage. It'll be great, Jim, that was great.
Speaker 1: Jim's out to that of Apollo, one of our most
Speaker 1: popular guests. Everyone leans forward for Ian Shepherdson, Chief economist
Speaker 1: Pantheon Macro, You're brave to go where no one goes,
Speaker 1: which is to actually study inventory dynamics. I would suggest
Speaker 1: it's the most ignored part of a g d P calculation.
Speaker 1: What do you see in the inventory dynamics right now? No,
Speaker 1: I see a downshift, a big downshift, and hence quite
Speaker 1: a good probability of a shockingly low negative g EP
Speaker 1: number for the first quarter and probably for the second
Speaker 1: quarter as well, So quite a sharp reversal at the
Speaker 1: headline level from what we saw at the end of
Speaker 1: last year, and the economy group by nearly three percent,
Speaker 1: But the half of that growth was craziness in the
Speaker 1: imagery data, which is not sustainable, and that actually will reverse.
Speaker 1: So in terms of appearances, markets are going to really
Speaker 1: struggle over the next couple of months. You know, we
Speaker 1: just had a huge payroll print. We're probably going to
Speaker 1: get some big numbers, partly because of the warm weather
Speaker 1: in January for retail sales, home sales, construction, all the
Speaker 1: rest of it. But I also think we're shaping up
Speaker 1: for a negative Q one GDP number. So this is
Speaker 1: going to be very hard to read and very confusing.
Speaker 1: Does a negative Q one GDP meaning n B er recession. No,
Speaker 1: I don't think it does at all. So the NBR
Speaker 1: defines recession in much more broad terms. It's all about
Speaker 1: falling output, falling incomes, falling employment. I don't think we're
Speaker 1: going to get that. The market shorthand for recession, of course,
Speaker 1: is two quarters of falling GDP, and I think it's
Speaker 1: a very good chance that we get that. But but
Speaker 1: my guess is that the US is is quite well
Speaker 1: placed to skirt a formal n b our recession. I
Speaker 1: do think that the state of the private sectors finances
Speaker 1: offer quite a big cushion against what the FED is doing.
Speaker 1: So the FED is hammering away with rates for the
Speaker 1: private sector's death service costs are still very low, the
Speaker 1: balance sheets are pretty strong, savings build up is still
Speaker 1: there for some people anyway, and so there's quite a
Speaker 1: lot of protection against what the FED is doing. And
Speaker 1: I think that pushback means that we can probably skirt
Speaker 1: around recession if we have one. I don't think it
Speaker 1: will be very bad, and I don't think it'd be
Speaker 1: very long. But my base cases we dodge it all together.
Speaker 1: What does that mean in terms of how quickly inflation
Speaker 1: will disinflate? So this is a gazillion dollar question. Can
Speaker 1: we get the sustained disinflation that we need without a recession?
Speaker 1: And I think there's some very encouraging signs there. So,
Speaker 1: in particular, the downshifting wage growth over the last year
Speaker 1: and a half since that crazy peak in the summer
Speaker 1: of twenty one when it was over six percent, very
Speaker 1: scary FED was very worried about age price spiral at
Speaker 1: that point, but you know, Vice chair Brand had said
Speaker 1: a couple of weeks ago she doesn't see a wage
Speaker 1: price spiral, and the e c I data last week,
Speaker 1: I think pretty much confirmed that story. Wage growth now
Speaker 1: is hovering just around four, which is still on the
Speaker 1: high side, but it's coming down without unemployment going up
Speaker 1: because participation is gradually creeping higher. The labor market is normalizing.
Speaker 1: And if we can see in the next couple of
Speaker 1: quarters at wage growth gets down a little bit below four,
Speaker 1: then we're back into a sustainable place without having to
Speaker 1: break the economy to get there. But this is still
Speaker 1: kind of speculative to some extent. The trend is in
Speaker 1: the right direction, but we haven't quite got to the
Speaker 1: destination that we need to be at just yet. This
Speaker 1: sounds great, and a lot of people buy into it.
Speaker 1: A lot of people have bought risk assets in the
Speaker 1: heels of justice call and then use car prices went up,
Speaker 1: and I pointed this very small sector because it highlights
Speaker 1: the good disinflation that is not linear, This idea that
Speaker 1: because of the lag effects perhaps from the supply that
Speaker 1: was not out there during the years of the pandemic,
Speaker 1: there isn't the same number of vehicles to get resold,
Speaker 1: and suddenly those bag effects are no longer beneficial to
Speaker 1: the disinflationary narrative. How important is it to watch the
Speaker 1: reinflation of certain good sectors that really were the basis
Speaker 1: of this trend altogether? Yeah, so so good. Following goods
Speaker 1: inflation has been a big driver of the improvement that
Speaker 1: we've seen, and car prices have been quite a big
Speaker 1: part of that. We saw an enormous jump in new
Speaker 1: vehicle sales in January. They were up nearly eighteen percent
Speaker 1: in one month, and I think that's probably an indication
Speaker 1: that we saw a strong number for for used vehicle
Speaker 1: sales as well. We don't have that data yet, and
Speaker 1: that's probably what pulled prices are because I don't think
Speaker 1: any dealers were expecting to see sales rise by eighteen percent,
Speaker 1: so I think they got short of inventory. They had
Speaker 1: to go to the auctions to find inventory, and so
Speaker 1: prices spiked. I'm really hopeful that this is a one
Speaker 1: time thing, but it is going to hit the CPIM
Speaker 1: and we know we're gonna get some lumpy numbers and
Speaker 1: for those people at the FED and the markets who
Speaker 1: will want to seize on those numbers. Yeah, the next
Speaker 1: couple of months could be quite tricky, but I do
Speaker 1: think the ultimately margin compression for car dealers is going
Speaker 1: to all those prices down quite a long way. But
Speaker 1: not every month. It just it just doesn't work like that.
Speaker 1: You know, I I want you to take your wonderful pantheon
Speaker 1: ability in Asia and a reopening of China. I want
Speaker 1: you to drag it over to an estimate of the
Speaker 1: resilience of the American economy. The bears are in retreat
Speaker 1: right now, Equities up today, Pepsicola would bang up earnings, etcetera, etcetera.
Speaker 1: Do you have a glass half full on the American
Speaker 1: economic experiment? And is it because of the China reopening?
Speaker 1: The China reopening is helpful for sure. I mean it's
Speaker 1: especially going to be helpful for US manufacturing because essentially
Speaker 1: what happens in Chinese manufacturing today has a meaningful impact
Speaker 1: on what happens in the US manufacturing two to three
Speaker 1: months down the line. That there's a pretty clear line
Speaker 1: between the two. So we're feeling quite excited now about
Speaker 1: China for the spring. You know, the COVID wave is
Speaker 1: less disruptive than we than we feared it would be,
Speaker 1: and the rebound and some of the services pretty strong already.
Speaker 1: That is going to transmit through to those US numbers.
Speaker 1: So what looks right now like a pretty nasty squeeze
Speaker 1: on US manufacturing, Probably it's going to be easing somewhat
Speaker 1: by the spring, so we're very happy to see it.
Speaker 1: But of course, you know, manufacturing is only what nine
Speaker 1: percent of pay rolls and eleven of GDP. It's not
Speaker 1: a game changer, but it's certainly helpful at the margin,
Speaker 1: and it is part of the story why we don't
Speaker 1: have in our base case forecast a US recession. Had
Speaker 1: China stayed in the whole, you know, that would have
Speaker 1: been more of a problem. So at the margin it's helpful.
Speaker 1: Of course, at the moment, Chinese inflation PPI inflation is
Speaker 1: still negative. It's like almost minus three percent, and a
Speaker 1: year and a half ago it was plus eleven. So
Speaker 1: that's helpful as well because that's working through gradually into
Speaker 1: disinflation pressure in the US, coupled with the domestic margin
Speaker 1: compression that we're seeing in retail, So those two things
Speaker 1: together it's quite a nice story. You know, still got
Speaker 1: falling prices in China, but we've got stronger growth as well.
Speaker 1: So it's the right combination, and we know we hope
Speaker 1: it persists. It's it's kind of our base case that
Speaker 1: we're gonna We're gonna keep that for a while. Let's
Speaker 1: get to the important question. I should Men City get relegated? Well,
Speaker 1: if they cheated, they should, absolutely, very seriously. I think
Speaker 1: he was thinking about new cast has decided that he
Speaker 1: answered that question five days ago. Well, you know it
Speaker 1: would put us up one place, will put us more
Speaker 1: firmly in the Champions League. Shot Champions League positions worth
Speaker 1: something unpleasant to happen to them. So yeah, I wouldn't mind.
Speaker 1: There we go, and we got there, and Chefferson of
Speaker 1: Pantheon Macrow, we can only saying thank you as always
Speaker 1: on the American economy, and I look till he joins
Speaker 1: his chief economist Wilmington's trust look tilly the state of
Speaker 1: the American labor economy. It's a jumble to me, claims
Speaker 1: odd jolts odd, everything odd. What do you and Wilmington's
Speaker 1: trusts make of our job economy? Yeah, it's obviously an
Speaker 1: incredibly tight labor market. As Mike was just saying, the
Speaker 1: low level of claims really sinks up with what we
Speaker 1: saw with job growth in the month of January. Are Interestingly,
Speaker 1: if you look at the non seasonally adjusted numbers, you
Speaker 1: usually get two point eight or three million lost jobs
Speaker 1: in January. Uh, this time around, this past January, you
Speaker 1: get a loss of two point five million jobs. Of course,
Speaker 1: the seasonal adjustment pushes that higher. And what we really
Speaker 1: see is in this tight labor market, employers are holding
Speaker 1: onto their employees. We know how challenging it is to
Speaker 1: hire people, so it's really more of a story of
Speaker 1: wanting to hold onto people. That's the story behind the
Speaker 1: strong jobs number for January, and we're also seeing that
Speaker 1: with the claims this morning. We think that, you know,
Speaker 1: the job growth obviously is very strong, but it's more
Speaker 1: about the differential you just referred to. The jolts jumped
Speaker 1: up on a one month basis. It looks a little
Speaker 1: bit fishy. Before that it had come down more than
Speaker 1: ten percent, But it's really the mismatch that's gonna matter
Speaker 1: more than total job growth. Tom is wage growth gonna cooperate.
Speaker 1: So Lisa can see her immaculate disinflation. Well, we've already
Speaker 1: seen I hear people talk about is it possible to
Speaker 1: have this immaculate Uh you disinflation. Uh, It's easy to
Speaker 1: point out that we've already had it for three months, right,
Speaker 1: We've got this is not just a one off. You've
Speaker 1: got three months of much slower inflation while you still
Speaker 1: have the strong wages in the tight labor market. We
Speaker 1: think that it's going to get much more challenging when
Speaker 1: you get to the middle of this year and beyond,
Speaker 1: because the labor shortages are going to persist. We also
Speaker 1: see supply chain challenges, and then also the energy transition
Speaker 1: is going to keep some upward pressure on inflation, so
Speaker 1: we expected to keep coming down in the near term.
Speaker 1: We're encouraged that average earily earnings actually we're pretty mild
Speaker 1: with the zero point three pc increase, and if you
Speaker 1: look at production and supervisory workers, the slowdown in wage
Speaker 1: growth from last year into this year is even more encouraging.
Speaker 1: So if you do get some noisiness, but you do
Speaker 1: get this sense of disinflation just based on the year
Speaker 1: over year composition of the way that the data is
Speaker 1: drawn up, how do you then get confidence? How do
Speaker 1: you give confidence that there's going to be a stickier
Speaker 1: inflation later in the year when all anecdotal evidence is
Speaker 1: speaking to the other. Yeah, well, we think that it's
Speaker 1: going to be keep coming down on a year of
Speaker 1: your basis. As you point out, you've got those base effects.
Speaker 1: We just don't think it's ever going to really come
Speaker 1: back down to what we saw between the global financial
Speaker 1: crisis and the COVID pandemic. We've got higher inflation on
Speaker 1: a trend basis now between two and a half and
Speaker 1: three and a half percent on a multi year basis
Speaker 1: going out, it could dip pretty low in the middle
Speaker 1: of this year. We know what's going on with shelter,
Speaker 1: and even if we just see the shelter numbers flat line,
Speaker 1: that would imply some very low inflation numbers. Willington Trust
Speaker 1: were much more focused on nine and twelve and twenty
Speaker 1: four months out, and those higher inflation numbers are going
Speaker 1: to keep rates higher and actually offer some some opportunities
Speaker 1: for investors. So it's not a whole lot of confidence,
Speaker 1: Lisa about what the month of a month or even
Speaker 1: to the middle of this year. Has a lot more
Speaker 1: to do with that longer term trajectory we see those challenges,
Speaker 1: we also think they're navigatable, well navigatable, which really space
Speaker 1: to the Torsten slock. No landing kind of scenario at
Speaker 1: a time when a lot of people are pushing out
Speaker 1: potentially even for years, any type of recession. Are you
Speaker 1: among those? Yeah, it could go out or it could
Speaker 1: happen this year. You know, we've got basically a fifty
Speaker 1: fifty chance we think of a soft landing versus of
Speaker 1: mild recession. It's going to come back to employers. We
Speaker 1: know that employers are dealing with higher borrowing costs, a
Speaker 1: little bit of softening in demand. If they keep hiring,
Speaker 1: then you know you've got as consumers, you've got job growth,
Speaker 1: you've got wage growth, and that will keep the economy's
Speaker 1: head above water. In the middle of this year. If
Speaker 1: companies get spooked and those higher borrowing costs hit their
Speaker 1: capex and their hiring decisions, well that's gonna lead to recession.
Speaker 1: I actually think it's gonna have a lot more to
Speaker 1: do with the lagged defects and all of the hikes
Speaker 1: that were last year. Much more important than whether the
Speaker 1: FED stops at five or five point one. You know,
Speaker 1: of one or two more types here, hikes here, and there.
Speaker 1: Businesses are reevaluating those those CAPEX decisions. Now, look, you
Speaker 1: earned your stripes at the Philadelphia said, which is one
Speaker 1: of the most interesting research capabilities, given the terrain, given
Speaker 1: the geography as well, and to me, it really hearkens
Speaker 1: back to the study of the core American economy, which
Speaker 1: I'm gonna call domestic final sales. When you take out
Speaker 1: the foreign dynamics, the inventory dynamics, and you just look
Speaker 1: at this thing, domestic final sales. Is it half full
Speaker 1: or half empty. We've definitely seen the slowdown, and that's
Speaker 1: our preferred measure. It's a little bit like looking like
Speaker 1: core cp I, right, you strip out the international we
Speaker 1: actually go with private final sales to strip about the
Speaker 1: government as well. And what we've seen there is an
Speaker 1: appreciable slowdown in the economy. I mean, it was just
Speaker 1: barely positive for the most recent GDP report, I think
Speaker 1: zero point two per cent. And what we see there
Speaker 1: is a natural slowdown that was going to happen anyway
Speaker 1: from COVID, but it's also the impacts of the federal
Speaker 1: reserves policy. We know that residential investment has been hit
Speaker 1: very hard, and that's exactly what they're trying to do
Speaker 1: is to engineer that slowdown in the economy. And Pal
Speaker 1: referred to this just the other day, the final sales numbers,
Speaker 1: because what we do see is that slowdown that should
Speaker 1: help to bring in fish and down and of course
Speaker 1: we need just wait to see which way that breaks. Tilly,
Speaker 1: thank you so much. With Wilming to us, this is
Speaker 1: a joy. Right now, we're gonna go down memory lane.
Speaker 1: Which was that long ago and far away with a
Speaker 1: guy named David mel Pass who's got a job in
Speaker 1: Washington right now holding up a bank. There was it,
Speaker 1: bear Sterns, absolutely definitive emerging market coverage. There was something
Speaker 1: about it in the air in the pixie dust, and
Speaker 1: Catherine Rooney Vera was part of that. She's chief market strategists,
Speaker 1: had a global macro research at Bolt of Capital. I've
Speaker 1: got to go back to emmy show and David mal
Speaker 1: passing all of it. What was it like is bear
Speaker 1: Sterns literally, in my my opinion, invented em coverage on
Speaker 1: Wall Street. Thank you for that kind introduction, Tom and
Speaker 1: bear Stearns was fun. It was a great place to work,
Speaker 1: and really I miss it. Um but Ian was a
Speaker 1: strong point, David mal past John riding Emmy shadow. As
Speaker 1: you mentioned some of the heavy hitters. UM. I was
Speaker 1: an emerging market fixed income research and so enjoyed that time. Yes,
Speaker 1: but you know it was it was a different battle,
Speaker 1: but then it was e M. Connected to the center
Speaker 1: is Bill Rhodes would say, the central banker to the
Speaker 1: world is Jerome Powell right now, the central banker to
Speaker 1: Emmy Shios, Latin America or the Pacific rim what's the
Speaker 1: power of our our central bank leader? Now? Well, emerging
Speaker 1: markets are do very poorly in UM a federal reserve
Speaker 1: hiking cycle with the dollar appreciating in value. So that's
Speaker 1: why we saw emerging markets get devastated last year. And
Speaker 1: I think Tom and Lisa that that's why we've seen
Speaker 1: emerging markets be the new Darling um year to date.
Speaker 1: It was one of the worst performers in two and
Speaker 1: it's one of the top performers this year, precisely because
Speaker 1: it seems the Fed is, uh, maybe it's gonna stop
Speaker 1: pretty soon. UM. I still think it's a bit early
Speaker 1: to jump into that trade. I think that the momentum
Speaker 1: could would carry us higher for the next month or so. UM,
Speaker 1: But the FED could do more and more than the
Speaker 1: market is currently anticipating, as as your guests have had.
Speaker 1: Nauseam mentioned um, but but but there's a certain euphoria
Speaker 1: I think right now in for the riskiest paper and
Speaker 1: for the mean reversion trade euphoria. Can you build on that?
Speaker 1: What is driving the euphoria other than just you know,
Speaker 1: I guess positioning squeeze. Yeah. I was talking with your
Speaker 1: previous guests in the green room winning in and she
Speaker 1: called it. Everyone's jazzed about the China reopening trade and
Speaker 1: that's fantastic for emerging markets. China is a very important
Speaker 1: trade partner for Latin America and it's very important as
Speaker 1: well for Asia ex China. Right, so, as China reopens
Speaker 1: um the surrounding areas Malaysia, Thailand, those areas are going
Speaker 1: to get a bounce in tourism, and Latin America is
Speaker 1: also going to benefits. So I think there's that aspect.
Speaker 1: A weakening dollar is very favorable for emerging markets. Economic
Speaker 1: growth this year is going to be stellar in emerging
Speaker 1: markets India more than six percent growth. China is going
Speaker 1: to lead the growth um and that's going to be
Speaker 1: positive versus the developed markets were here in the US,
Speaker 1: in my view, we're going to be flat at best. Well,
Speaker 1: but so do you think that just to sort of
Speaker 1: put something concrete around this, do you think that right
Speaker 1: now that China reopening has been fully priced and even
Speaker 1: overpriced when it comes to how it's been represented in
Speaker 1: emerging markets? Just risk your assets in general? Yes, And
Speaker 1: I think that before I recommend going long on a
Speaker 1: sustainable fashion to institutional or even retail investors, we do
Speaker 1: have to see a pullback correction and risk assets. I
Speaker 1: think US recession is not person particularly in the equity markets,
Speaker 1: and we have not seen difficulties with financing. There's a
Speaker 1: lot of names in the emerging space as well as
Speaker 1: in high yield that have not had those financing difficulties
Speaker 1: that I do expect to come to the four as
Speaker 1: we feel the repercussions and the ramifications of five hundred
Speaker 1: basis points and tightening in more than a year. Two
Speaker 1: things right now very important. You sturing at the University
Speaker 1: of Miami, and you're gonna tell them we just had
Speaker 1: a new depth of inversion on the two tents spread
Speaker 1: negative eighty five point to nine eight points. Three month
Speaker 1: thirty is at one oh seven. It's not through to
Speaker 1: new depth yet, but there's the van else. But what
Speaker 1: is the signal of new deep deep deep substantial inversion. Yeah,
Speaker 1: it's been really fun to being a professor at UM
Speaker 1: teaching global economics, especially Tom, in this time of in
Speaker 1: our lifetimes. Um. Look, I'll go back to emerging markets again.
Speaker 1: They did their homework. Brazil increased rates one thousand, more
Speaker 1: than one thousand basis points last year alone. UM. So
Speaker 1: I think that's part of the euphoria, you know, plowing
Speaker 1: into these countries, these names, these geographies, these assad classes, um,
Speaker 1: that are very juicy and yield. Okay, I've got to
Speaker 1: ask Lisa. Lisa asked for me as well. Both of
Speaker 1: us tried to price a condo in Miami the other
Speaker 1: day and fell off our chair. Can you you're you're
Speaker 1: living it, You're living the Star Boom. I'm a beneficiary
Speaker 1: of your beneficiary. Okay, give us give all of our
Speaker 1: listeners and viewers worldwide a snapshot into the sustainability of
Speaker 1: the Florida Boom. Can it continue? The good news is
Speaker 1: that we have diversity both in UM, you know, the
Speaker 1: the diaspora from New York, New Jersey and from Latin America.
Speaker 1: So all those people are coming. So it's not just
Speaker 1: the New Yorkers that certainly have bit up. Not just
Speaker 1: my house price Tom which has jumped significantly in value, um,
Speaker 1: but also the wait list to get into schools. It's
Speaker 1: very difficult now it's to um to get into the
Speaker 1: private schools because of this influx. I think it is diverse.
Speaker 1: I think the mayor and the and the politicians that
Speaker 1: have done a fantastic job of enticing capital, and it's
Speaker 1: diverse in nature. So I don't envy you looking at
Speaker 1: real estate in Miami. Um, I'm one of the New
Speaker 1: Yorkers that moved down. But thankfully there's grass coming up
Speaker 1: through the driveway. Basically the most the most interesting thing
Speaker 1: that you said in a know, not Florida real estate.
Speaker 1: I'm still looking at the two tents spread, which shows
Speaker 1: you how much of you know a nerd or whatever
Speaker 1: you wanna call me. But I'm watching right now. Equities
Speaker 1: rally continue to extend the rally, even though people pile
Speaker 1: into ten year treasuries at a time when they're expecting
Speaker 1: more rate hikes. This doesn't add up. Do you understand this, Catherine? No,
Speaker 1: And I think Victoria Fernandez said it very well. It
Speaker 1: doesn't add up, and so that's why I like tea bills.
Speaker 1: I've been saying this for an extended period of time.
Speaker 1: In fact here on Bloomberg a couple of months ago,
Speaker 1: four point seven percent three months, six month tea bills.
Speaker 1: It makes sense to me. I think it's a strong
Speaker 1: it's a good idea to be in cash and cash equivalents.
Speaker 1: Some of my top picks in the equity space last
Speaker 1: year I continue to like. Which are staples underperformed this year, UM, utility, energies,
Speaker 1: and healthcare in the equity space, and I think we
Speaker 1: do need to remain defensive under the expectation that this
Speaker 1: can't continue. Right. We can't have record low unemployment in
Speaker 1: fifty three years, UM productivity really kind of dis molt um,
Speaker 1: and labor costs still still rising. With the Fed getting
Speaker 1: to its two percent inflation target, we're gonna see Thank
Speaker 1: you so much, Cassaroney, very Capital Markets. Joining from Miami.
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