WEBVTT - Surveillance: Golden Era with Zelter 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.480 --> 0:00:12.320 with Jonathan Faroll and Lisa Abramowitz. Join us each day 0:00:12.360 --> 0:00:16.840 for insight from the best and economics, geopolitics, financial investment. 0:00:17.239 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.479 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:30.319 the Bloomberg Terminal and the Bloomberg Business app. It's so 0:00:30.400 --> 0:00:32.400 important and so news. Now we're gonna in set a 0:00:32.479 --> 0:00:34.360 chat and here we're gonna get right to it. Mr 0:00:34.440 --> 0:00:38.479 Zelter Jim's Elter's co president Apollo Asset Management. They're on 0:00:38.520 --> 0:00:40.600 a roll. We all know that. We thank them for 0:00:40.680 --> 0:00:43.640 Torston slock in his wisdom on a daily basis and 0:00:43.720 --> 0:00:45.760 he'll try to keep up with Mr Sluck. Jim's Elter 0:00:45.920 --> 0:00:49.480 joins us. This morning, Jim, there's a fire sale going 0:00:49.560 --> 0:00:51.960 on in Zurich, Switzerland. I believe you guys have a 0:00:52.000 --> 0:00:56.520 nodding acquaintance with it. Described the theft this warning and 0:00:56.640 --> 0:01:03.560 yesterday is Apollo took on assets. I'm a beleaguered Swiss bank. Well, 0:01:03.600 --> 0:01:06.640 good morning mcgogmarrying all of you. Um, you know for 0:01:06.760 --> 0:01:11.080 us that the transaction. Referring to the securitized products business. 0:01:11.640 --> 0:01:15.039 We've thought for years that there is a great theme 0:01:15.120 --> 0:01:19.240 going on, a great evolution of a lot of assets 0:01:19.240 --> 0:01:22.760 that are as strategies that are within the banks are 0:01:22.840 --> 0:01:25.800 moving to the alternative side of the business. And you know, 0:01:26.120 --> 0:01:29.160 SPG is a tremendous is really a finance company of 0:01:29.200 --> 0:01:32.280 finance companies. It's a massive business with a twenty year 0:01:32.319 --> 0:01:36.360 track record and bringing that team on two d plus people, 0:01:36.520 --> 0:01:40.480 three hundred origination platforms underneath it. Uh. It really is 0:01:40.600 --> 0:01:44.960 our objective of fixed income replacement, getting investment grade returns, 0:01:45.480 --> 0:01:48.440 but doing it in a more thoughtful, actually candially a 0:01:48.520 --> 0:01:52.640 less risky manner. So a massive transaction for us. The 0:01:52.680 --> 0:01:54.560 way we're able to do it was very nuanced. We'll 0:01:54.560 --> 0:01:57.440 talk about that in our earnings call today. But we're 0:01:57.520 --> 0:02:00.800 very excited and we we think this whole area of 0:02:00.880 --> 0:02:04.120 private credit and I saw your your past guests, this 0:02:04.200 --> 0:02:06.640 is the golden era for private credit. You know, rates 0:02:06.640 --> 0:02:09.600 have been rising. E commedy is doing pretty well. You 0:02:09.639 --> 0:02:12.280 can get double digit yields, but in this particular and 0:02:12.320 --> 0:02:16.480 the security coaged products business, it's really investment grade risk, 0:02:16.800 --> 0:02:19.720 a tremendous predice. I learned a long time ago, Jim, 0:02:20.000 --> 0:02:22.760 that the heart of this, as you correctly mentioned, as 0:02:22.800 --> 0:02:26.520 you need to retain two hundred and fifty warm bodies. 0:02:26.560 --> 0:02:30.639 As you bring them over, explain the incentive. How you're 0:02:30.680 --> 0:02:35.800 going to incentivize those people to join Apollo well like 0:02:35.800 --> 0:02:37.919 like we've done for for decades time, and when we 0:02:38.200 --> 0:02:41.200 bring them in, we we have an aligned business plan. 0:02:41.800 --> 0:02:44.440 It's not just about growing the assets, but doing it 0:02:44.480 --> 0:02:48.600 in a productive way where credit losses are negligible or 0:02:48.720 --> 0:02:51.960 zero and we're aligned on the trajectory of the business. 0:02:52.040 --> 0:02:54.320 We're really aligned on what the investors get. At the 0:02:54.400 --> 0:02:57.079 end of the day, it's all about investor returns, and 0:02:57.080 --> 0:03:00.239 we're we're aligned at making a productive business that it's 0:03:00.800 --> 0:03:03.600 acreed to the shareholders of Apollo. So we do that 0:03:03.680 --> 0:03:07.000 in an aligned basis, which we've done. Um, that's the 0:03:07.200 --> 0:03:10.240 that's the success long term. And I think that you 0:03:10.280 --> 0:03:12.440 know what what this management team who is there, they're 0:03:12.520 --> 0:03:15.360 extremely excited to be part of a business where we 0:03:15.480 --> 0:03:19.320 can offer this type of long term trajectory in terms 0:03:19.320 --> 0:03:22.400 of benefits and compensation, but also in alignment with the 0:03:22.440 --> 0:03:26.560 shareholders at the funds. Alignment of shareholders at Apollo. But 0:03:26.680 --> 0:03:31.240 also the most critical aspect is long term predictable capital, 0:03:31.520 --> 0:03:33.840 so they can go about their business, they can execute 0:03:33.880 --> 0:03:37.520 their business and and grow their business with long term, 0:03:37.640 --> 0:03:41.400 sticky matched assets. That's really the key to success. It's 0:03:41.440 --> 0:03:43.880 no more complicated than that. Jim. You've deployed a lot 0:03:43.880 --> 0:03:47.400 of capital very recently, a lot of capital, and we've 0:03:47.400 --> 0:03:49.720 always seen the correction take place in public markets. There's 0:03:49.720 --> 0:03:51.880 been this bigger conversation about whether we've seen the correction 0:03:51.920 --> 0:03:54.720 take place yet in private markets. I just wonder how 0:03:54.800 --> 0:03:56.760 you think that's going to play out through the next 0:03:56.760 --> 0:03:58.520 twelve months and what that might mean for the volume 0:03:58.520 --> 0:04:00.880 of transactions we can expect from you of the next 0:04:00.920 --> 0:04:04.320 few quarters. Sure, well, you know, for us, you know 0:04:04.360 --> 0:04:07.120 our discipline, our determination, you know the theme we've always 0:04:07.120 --> 0:04:09.600 talked about here is purchase price matters. You know, we're 0:04:09.640 --> 0:04:13.120 we're finally in an environment we're for years folks asked us, 0:04:13.120 --> 0:04:15.640 how are we going to perform in a higher rate environment. 0:04:16.120 --> 0:04:18.600 I think the results of the last twelve months show 0:04:18.680 --> 0:04:21.120 us that. You know, for us, this is easily the 0:04:21.160 --> 0:04:24.320 best time to be an investor in new issue vintage credit. 0:04:24.560 --> 0:04:26.359 The best that I've been here, I been here seventeen 0:04:26.400 --> 0:04:29.400 eighteen years. You know, you're getting double digit returns by 0:04:29.480 --> 0:04:32.359 lending at the top of the capital structure, so you know, 0:04:32.520 --> 0:04:36.520 voracious demand and on the portfolio. As you're asking, you know, 0:04:36.600 --> 0:04:39.200 we're we're not seeing I mean, it's certainly a very 0:04:39.240 --> 0:04:41.960 bifurcated economy. I'll let I'll let you ask towards in 0:04:42.000 --> 0:04:45.000 the economics questions. But for us, if we if we 0:04:45.080 --> 0:04:48.479 have followed this discipline of our mantra purchase price matters, 0:04:48.800 --> 0:04:52.880 we're lending to great companies that are you know, well positioned. 0:04:53.000 --> 0:04:56.240 And the reality is it's very difficult to you know, 0:04:56.720 --> 0:04:59.280 put one term on which way the economy is going 0:04:59.320 --> 0:05:01.880 in terms of you know, upside downside with the rates. 0:05:02.160 --> 0:05:05.600 It's very bifurcated. You have many industries that are consumer 0:05:05.680 --> 0:05:09.400 lad you know, the cruise industry, hospitality, entertainment, travel, they're 0:05:09.440 --> 0:05:12.200 doing quite well. Those that are much more hard industry 0:05:12.200 --> 0:05:14.479 are having a little bit more challenging time, you know, 0:05:14.520 --> 0:05:17.520 the autos and such. But for us, there's a lot 0:05:17.520 --> 0:05:21.279 of companies that that need capital. We've expanded our capital 0:05:21.279 --> 0:05:24.599 base not only the size of our capital, but what 0:05:24.720 --> 0:05:26.800 puts us in a unique standing is the breadth of 0:05:26.800 --> 0:05:30.960 our capital. We can offer scale solutions, you know, down 0:05:30.960 --> 0:05:33.640 in the mid single digits, which are very equative to 0:05:33.720 --> 0:05:36.880 our uh you know, spread related earnings of our of 0:05:36.920 --> 0:05:39.799 our retirement services, and that makes a lot of sense 0:05:39.839 --> 0:05:42.880 for us. We're we're really thinking about that incremental return 0:05:43.320 --> 0:05:45.479 for a unit of risk, and for us, it's a 0:05:45.480 --> 0:05:47.800 great time to be in our business. Do you expect 0:05:47.800 --> 0:05:49.920 that we're gonna just miss a default cycle altogether, then, 0:05:50.920 --> 0:05:52.520 you know, I think I think at least it's gonna 0:05:52.560 --> 0:05:56.000 be one where certain industries get hit a bit harder, 0:05:56.400 --> 0:05:58.360 and it's going to be you know, we all talked about, 0:05:58.400 --> 0:05:59.760 you know, our default it's going to go from two 0:05:59.839 --> 0:06:02.720 to three or four percent. They probably will pick up 0:06:02.800 --> 0:06:06.200 higher in two but it's not going to be broad 0:06:06.200 --> 0:06:09.800 based across the high yield sector or the leverage loan sector. 0:06:10.000 --> 0:06:12.480 It's going to be concentrated in four or five industries. 0:06:12.880 --> 0:06:14.960 But I would say that the theme that you're seeing 0:06:15.000 --> 0:06:17.120 in you're in the last two weeks in your show, 0:06:17.520 --> 0:06:20.520 you know, companies are much more focused on returning capital 0:06:20.839 --> 0:06:23.160 the shareholders. You know, we're not in that zero cost 0:06:23.200 --> 0:06:25.960 of capital world anymore. What's going on to the big 0:06:26.000 --> 0:06:28.240 oil majors, what's going on at Disney, what's going on 0:06:28.240 --> 0:06:30.920 a lot of other companies. These companies now are very 0:06:30.920 --> 0:06:34.159 focused on cash flow generation. Uh, And that's what we've 0:06:34.160 --> 0:06:36.160 done for for thirty two years. And you know, it's 0:06:36.200 --> 0:06:38.880 that's that's a playbook that lasts. It's real bust. But 0:06:39.040 --> 0:06:41.440 for us, there will be a certain degree of a 0:06:41.440 --> 0:06:44.080 credit cycle, but it's not going to be broad brush 0:06:44.120 --> 0:06:46.680 across every asset, or at least we're not running our 0:06:46.720 --> 0:06:49.280 business right now with that intention in mind. There was 0:06:49.320 --> 0:06:52.200 a long time when private credit was largely the sphere 0:06:52.200 --> 0:06:55.080 of institutional investors, and then over the past few years 0:06:55.120 --> 0:06:58.440 pre pandemic, mostly there was a real push into the 0:06:58.520 --> 0:07:03.159 individual investor. How much is that still the opportunity versus 0:07:03.200 --> 0:07:07.440 going back and really doubling down on institutions. Well, I 0:07:07.440 --> 0:07:09.680 think they're both growing. I mean, you know, the institutions 0:07:09.680 --> 0:07:11.720 have been in this business for thirty years in terms 0:07:11.760 --> 0:07:13.640 of what they did in private equity and then all 0:07:13.680 --> 0:07:16.960 the other alternatives. And in the last three or four years, 0:07:17.120 --> 0:07:19.320 you know, the global wealth channels around the globe which 0:07:19.360 --> 0:07:22.280 are voracious, the amount of global wealth has been created. 0:07:22.360 --> 0:07:24.360 You know, in the US but in Asia and in 0:07:24.400 --> 0:07:27.720 Europe and India, in Hong Kong and such, there's a 0:07:28.080 --> 0:07:33.360 there's a voracious app appetite for high quality managers that 0:07:33.400 --> 0:07:37.360 have proven themselves in products that makes sense, good education, 0:07:37.840 --> 0:07:42.600 appropriate fees, appropriate liquidity. But we think it's it's a 0:07:42.640 --> 0:07:45.280 you know, a once in a decade opportunity. It's not 0:07:45.360 --> 0:07:48.040 surprising that a handful of firms are very focused on it. 0:07:48.560 --> 0:07:51.520 When we did our investor Day sixteen months ago, it 0:07:51.680 --> 0:07:55.520 was one of our three critical priorities or initiatives, along 0:07:55.520 --> 0:07:59.560 with origination and capital solutions. But it's still front and 0:07:59.560 --> 0:08:02.600 center for us. And you know, certainly, I think this 0:08:02.800 --> 0:08:07.040 rate rise actually makes it quite attractive for many folks 0:08:07.040 --> 0:08:09.640 to do uh, to enter this world. And you know, 0:08:09.640 --> 0:08:13.080 we're we're a building, We're building a tremendous resource base 0:08:13.200 --> 0:08:17.960 to be able to really create products, invest appropriately and 0:08:18.080 --> 0:08:21.360 in service clients necessarily. Jim, We'll find a question it's 0:08:21.360 --> 0:08:25.760 Manchester United and once in a decade opportunity. Well, listen, 0:08:25.800 --> 0:08:29.160 I'm more focused on US sports. But the reality is 0:08:29.200 --> 0:08:32.720 there's there's an amazing amount of sports ecosystem financing going 0:08:32.760 --> 0:08:34.640 on and and we expect to be part of that 0:08:34.679 --> 0:08:38.000 going forward. Do you want to elaborate on some of that. Well, 0:08:38.040 --> 0:08:39.920 I just think what you're seeing right now, and you 0:08:40.000 --> 0:08:43.120 know these sports are global. I know you and time 0:08:43.120 --> 0:08:45.840 you have your view on certain teams in the Premier League, 0:08:45.840 --> 0:08:47.720 and I wouldn't even think about getting in the middle 0:08:47.720 --> 0:08:51.280 of the YouTube on that one. Jim's adam of a file, Jim, 0:08:51.320 --> 0:08:53.360 if you ever want to look over there again, we 0:08:53.400 --> 0:08:58.840 can consult we canna. Yeah, you know, I think you know. 0:08:58.880 --> 0:09:01.280 I call Mr Lee you and have Mr Zelter over 0:09:03.440 --> 0:09:08.440 experience will mediate. Yeah, thank you were taking face for 0:09:08.440 --> 0:09:14.079 that too. Investments image to basis points in the sixth 0:09:14.080 --> 0:09:16.480 pack of John Courage. It'll be great, Jim, that was great. 0:09:16.520 --> 0:09:29.320 Jim's out to that of Apollo, one of our most 0:09:29.320 --> 0:09:32.920 popular guests. Everyone leans forward for Ian Shepherdson, Chief economist 0:09:32.960 --> 0:09:36.760 Pantheon Macro, You're brave to go where no one goes, 0:09:37.280 --> 0:09:41.880 which is to actually study inventory dynamics. I would suggest 0:09:41.920 --> 0:09:45.880 it's the most ignored part of a g d P calculation. 0:09:46.400 --> 0:09:52.920 What do you see in the inventory dynamics right now? No, 0:09:53.080 --> 0:09:55.920 I see a downshift, a big downshift, and hence quite 0:09:56.240 --> 0:10:00.160 a good probability of a shockingly low negative g EP 0:10:00.320 --> 0:10:02.040 number for the first quarter and probably for the second 0:10:02.080 --> 0:10:04.880 quarter as well, So quite a sharp reversal at the 0:10:04.920 --> 0:10:06.439 headline level from what we saw at the end of 0:10:06.520 --> 0:10:09.280 last year, and the economy group by nearly three percent, 0:10:09.480 --> 0:10:11.760 But the half of that growth was craziness in the 0:10:11.760 --> 0:10:15.400 imagery data, which is not sustainable, and that actually will reverse. 0:10:15.520 --> 0:10:18.800 So in terms of appearances, markets are going to really 0:10:18.800 --> 0:10:20.360 struggle over the next couple of months. You know, we 0:10:20.440 --> 0:10:22.760 just had a huge payroll print. We're probably going to 0:10:22.840 --> 0:10:25.520 get some big numbers, partly because of the warm weather 0:10:25.520 --> 0:10:28.240 in January for retail sales, home sales, construction, all the 0:10:28.280 --> 0:10:31.000 rest of it. But I also think we're shaping up 0:10:31.000 --> 0:10:33.240 for a negative Q one GDP number. So this is 0:10:33.240 --> 0:10:35.400 going to be very hard to read and very confusing. 0:10:35.679 --> 0:10:44.240 Does a negative Q one GDP meaning n B er recession. No, 0:10:44.440 --> 0:10:46.560 I don't think it does at all. So the NBR 0:10:46.640 --> 0:10:49.280 defines recession in much more broad terms. It's all about 0:10:49.320 --> 0:10:52.560 falling output, falling incomes, falling employment. I don't think we're 0:10:52.600 --> 0:10:55.120 going to get that. The market shorthand for recession, of course, 0:10:55.200 --> 0:10:57.600 is two quarters of falling GDP, and I think it's 0:10:57.640 --> 0:10:59.320 a very good chance that we get that. But but 0:10:59.440 --> 0:11:01.880 my guess is that the US is is quite well 0:11:01.920 --> 0:11:05.679 placed to skirt a formal n b our recession. I 0:11:05.720 --> 0:11:08.160 do think that the state of the private sectors finances 0:11:08.200 --> 0:11:11.120 offer quite a big cushion against what the FED is doing. 0:11:11.120 --> 0:11:13.360 So the FED is hammering away with rates for the 0:11:13.400 --> 0:11:16.000 private sector's death service costs are still very low, the 0:11:16.120 --> 0:11:19.199 balance sheets are pretty strong, savings build up is still 0:11:19.240 --> 0:11:21.559 there for some people anyway, and so there's quite a 0:11:21.600 --> 0:11:23.320 lot of protection against what the FED is doing. And 0:11:23.360 --> 0:11:27.080 I think that pushback means that we can probably skirt 0:11:27.120 --> 0:11:29.559 around recession if we have one. I don't think it 0:11:29.600 --> 0:11:31.240 will be very bad, and I don't think it'd be 0:11:31.320 --> 0:11:33.880 very long. But my base cases we dodge it all together. 0:11:34.360 --> 0:11:36.920 What does that mean in terms of how quickly inflation 0:11:37.120 --> 0:11:43.559 will disinflate? So this is a gazillion dollar question. Can 0:11:43.600 --> 0:11:46.920 we get the sustained disinflation that we need without a recession? 0:11:46.920 --> 0:11:49.120 And I think there's some very encouraging signs there. So, 0:11:49.520 --> 0:11:53.200 in particular, the downshifting wage growth over the last year 0:11:53.240 --> 0:11:55.720 and a half since that crazy peak in the summer 0:11:55.720 --> 0:11:57.880 of twenty one when it was over six percent, very 0:11:57.880 --> 0:12:00.920 scary FED was very worried about age price spiral at 0:12:00.920 --> 0:12:02.880 that point, but you know, Vice chair Brand had said 0:12:03.040 --> 0:12:04.920 a couple of weeks ago she doesn't see a wage 0:12:04.920 --> 0:12:07.160 price spiral, and the e c I data last week, 0:12:07.200 --> 0:12:10.240 I think pretty much confirmed that story. Wage growth now 0:12:10.360 --> 0:12:12.720 is hovering just around four, which is still on the 0:12:12.800 --> 0:12:15.960 high side, but it's coming down without unemployment going up 0:12:16.280 --> 0:12:20.280 because participation is gradually creeping higher. The labor market is normalizing. 0:12:20.520 --> 0:12:22.240 And if we can see in the next couple of 0:12:22.320 --> 0:12:24.760 quarters at wage growth gets down a little bit below four, 0:12:25.080 --> 0:12:27.800 then we're back into a sustainable place without having to 0:12:27.800 --> 0:12:30.280 break the economy to get there. But this is still 0:12:30.360 --> 0:12:32.839 kind of speculative to some extent. The trend is in 0:12:32.880 --> 0:12:35.040 the right direction, but we haven't quite got to the 0:12:35.080 --> 0:12:37.600 destination that we need to be at just yet. This 0:12:37.640 --> 0:12:39.400 sounds great, and a lot of people buy into it. 0:12:39.480 --> 0:12:41.160 A lot of people have bought risk assets in the 0:12:41.200 --> 0:12:45.400 heels of justice call and then use car prices went up, 0:12:45.600 --> 0:12:48.440 and I pointed this very small sector because it highlights 0:12:48.440 --> 0:12:51.240 the good disinflation that is not linear, This idea that 0:12:51.520 --> 0:12:53.920 because of the lag effects perhaps from the supply that 0:12:54.040 --> 0:12:56.200 was not out there during the years of the pandemic, 0:12:56.520 --> 0:12:58.920 there isn't the same number of vehicles to get resold, 0:12:59.000 --> 0:13:01.839 and suddenly those bag effects are no longer beneficial to 0:13:01.880 --> 0:13:05.320 the disinflationary narrative. How important is it to watch the 0:13:05.400 --> 0:13:09.240 reinflation of certain good sectors that really were the basis 0:13:09.360 --> 0:13:14.840 of this trend altogether? Yeah, so so good. Following goods 0:13:14.840 --> 0:13:16.680 inflation has been a big driver of the improvement that 0:13:16.720 --> 0:13:20.040 we've seen, and car prices have been quite a big 0:13:20.040 --> 0:13:23.800 part of that. We saw an enormous jump in new 0:13:23.920 --> 0:13:26.360 vehicle sales in January. They were up nearly eighteen percent 0:13:26.480 --> 0:13:29.360 in one month, and I think that's probably an indication 0:13:29.400 --> 0:13:31.680 that we saw a strong number for for used vehicle 0:13:31.720 --> 0:13:33.560 sales as well. We don't have that data yet, and 0:13:33.600 --> 0:13:35.840 that's probably what pulled prices are because I don't think 0:13:35.840 --> 0:13:38.559 any dealers were expecting to see sales rise by eighteen percent, 0:13:38.640 --> 0:13:40.640 so I think they got short of inventory. They had 0:13:40.679 --> 0:13:42.439 to go to the auctions to find inventory, and so 0:13:42.640 --> 0:13:45.240 prices spiked. I'm really hopeful that this is a one 0:13:45.240 --> 0:13:47.160 time thing, but it is going to hit the CPIM 0:13:47.240 --> 0:13:49.560 and we know we're gonna get some lumpy numbers and 0:13:49.960 --> 0:13:52.000 for those people at the FED and the markets who 0:13:52.040 --> 0:13:54.280 will want to seize on those numbers. Yeah, the next 0:13:54.280 --> 0:13:56.280 couple of months could be quite tricky, but I do 0:13:56.360 --> 0:13:59.840 think the ultimately margin compression for car dealers is going 0:13:59.880 --> 0:14:02.000 to all those prices down quite a long way. But 0:14:02.160 --> 0:14:04.200 not every month. It just it just doesn't work like that. 0:14:04.520 --> 0:14:06.640 You know, I I want you to take your wonderful pantheon 0:14:06.720 --> 0:14:09.560 ability in Asia and a reopening of China. I want 0:14:09.559 --> 0:14:11.480 you to drag it over to an estimate of the 0:14:11.559 --> 0:14:15.199 resilience of the American economy. The bears are in retreat 0:14:15.320 --> 0:14:20.480 right now, Equities up today, Pepsicola would bang up earnings, etcetera, etcetera. 0:14:21.040 --> 0:14:23.480 Do you have a glass half full on the American 0:14:23.520 --> 0:14:27.440 economic experiment? And is it because of the China reopening? 0:14:30.600 --> 0:14:32.920 The China reopening is helpful for sure. I mean it's 0:14:33.000 --> 0:14:35.920 especially going to be helpful for US manufacturing because essentially 0:14:36.200 --> 0:14:40.000 what happens in Chinese manufacturing today has a meaningful impact 0:14:40.000 --> 0:14:42.120 on what happens in the US manufacturing two to three 0:14:42.120 --> 0:14:44.480 months down the line. That there's a pretty clear line 0:14:44.520 --> 0:14:47.520 between the two. So we're feeling quite excited now about 0:14:47.600 --> 0:14:50.000 China for the spring. You know, the COVID wave is 0:14:50.080 --> 0:14:52.400 less disruptive than we than we feared it would be, 0:14:52.480 --> 0:14:55.000 and the rebound and some of the services pretty strong already. 0:14:55.200 --> 0:14:57.400 That is going to transmit through to those US numbers. 0:14:57.400 --> 0:15:00.480 So what looks right now like a pretty nasty squeeze 0:15:00.480 --> 0:15:03.240 on US manufacturing, Probably it's going to be easing somewhat 0:15:03.720 --> 0:15:05.800 by the spring, so we're very happy to see it. 0:15:05.840 --> 0:15:08.400 But of course, you know, manufacturing is only what nine 0:15:08.400 --> 0:15:11.280 percent of pay rolls and eleven of GDP. It's not 0:15:11.320 --> 0:15:13.720 a game changer, but it's certainly helpful at the margin, 0:15:13.800 --> 0:15:15.960 and it is part of the story why we don't 0:15:16.000 --> 0:15:19.160 have in our base case forecast a US recession. Had 0:15:19.280 --> 0:15:21.000 China stayed in the whole, you know, that would have 0:15:21.040 --> 0:15:23.840 been more of a problem. So at the margin it's helpful. 0:15:24.240 --> 0:15:27.800 Of course, at the moment, Chinese inflation PPI inflation is 0:15:27.800 --> 0:15:30.760 still negative. It's like almost minus three percent, and a 0:15:30.880 --> 0:15:32.880 year and a half ago it was plus eleven. So 0:15:33.240 --> 0:15:36.640 that's helpful as well because that's working through gradually into 0:15:36.720 --> 0:15:40.440 disinflation pressure in the US, coupled with the domestic margin 0:15:40.520 --> 0:15:43.320 compression that we're seeing in retail, So those two things 0:15:43.320 --> 0:15:45.760 together it's quite a nice story. You know, still got 0:15:45.760 --> 0:15:48.280 falling prices in China, but we've got stronger growth as well. 0:15:48.320 --> 0:15:50.960 So it's the right combination, and we know we hope 0:15:50.960 --> 0:15:52.680 it persists. It's it's kind of our base case that 0:15:52.680 --> 0:15:54.480 we're gonna We're gonna keep that for a while. Let's 0:15:54.480 --> 0:16:01.880 get to the important question. I should Men City get relegated? Well, 0:16:01.960 --> 0:16:07.880 if they cheated, they should, absolutely, very seriously. I think 0:16:07.920 --> 0:16:09.960 he was thinking about new cast has decided that he 0:16:10.000 --> 0:16:15.840 answered that question five days ago. Well, you know it 0:16:15.880 --> 0:16:17.560 would put us up one place, will put us more 0:16:17.560 --> 0:16:20.520 firmly in the Champions League. Shot Champions League positions worth 0:16:20.560 --> 0:16:24.320 something unpleasant to happen to them. So yeah, I wouldn't mind. 0:16:24.480 --> 0:16:26.760 There we go, and we got there, and Chefferson of 0:16:26.800 --> 0:16:29.400 Pantheon Macrow, we can only saying thank you as always 0:16:33.440 --> 0:16:35.440 on the American economy, and I look till he joins 0:16:35.480 --> 0:16:39.280 his chief economist Wilmington's trust look tilly the state of 0:16:39.320 --> 0:16:43.160 the American labor economy. It's a jumble to me, claims 0:16:43.240 --> 0:16:47.240 odd jolts odd, everything odd. What do you and Wilmington's 0:16:47.240 --> 0:16:52.160 trusts make of our job economy? Yeah, it's obviously an 0:16:52.160 --> 0:16:55.480 incredibly tight labor market. As Mike was just saying, the 0:16:55.520 --> 0:16:57.800 low level of claims really sinks up with what we 0:16:57.840 --> 0:17:01.280 saw with job growth in the month of January. Are Interestingly, 0:17:01.320 --> 0:17:04.320 if you look at the non seasonally adjusted numbers, you 0:17:04.400 --> 0:17:07.359 usually get two point eight or three million lost jobs 0:17:07.359 --> 0:17:10.760 in January. Uh, this time around, this past January, you 0:17:10.760 --> 0:17:13.440 get a loss of two point five million jobs. Of course, 0:17:13.480 --> 0:17:16.760 the seasonal adjustment pushes that higher. And what we really 0:17:16.760 --> 0:17:20.240 see is in this tight labor market, employers are holding 0:17:20.280 --> 0:17:22.600 onto their employees. We know how challenging it is to 0:17:22.680 --> 0:17:25.159 hire people, so it's really more of a story of 0:17:25.200 --> 0:17:27.680 wanting to hold onto people. That's the story behind the 0:17:27.720 --> 0:17:30.720 strong jobs number for January, and we're also seeing that 0:17:30.760 --> 0:17:34.080 with the claims this morning. We think that, you know, 0:17:34.119 --> 0:17:36.680 the job growth obviously is very strong, but it's more 0:17:36.720 --> 0:17:39.960 about the differential you just referred to. The jolts jumped 0:17:40.000 --> 0:17:41.480 up on a one month basis. It looks a little 0:17:41.520 --> 0:17:43.400 bit fishy. Before that it had come down more than 0:17:43.400 --> 0:17:45.880 ten percent, But it's really the mismatch that's gonna matter 0:17:45.920 --> 0:17:49.560 more than total job growth. Tom is wage growth gonna cooperate. 0:17:49.640 --> 0:17:55.359 So Lisa can see her immaculate disinflation. Well, we've already 0:17:55.400 --> 0:17:57.840 seen I hear people talk about is it possible to 0:17:57.840 --> 0:18:02.240 have this immaculate Uh you disinflation. Uh, It's easy to 0:18:02.240 --> 0:18:04.600 point out that we've already had it for three months, right, 0:18:04.640 --> 0:18:06.560 We've got this is not just a one off. You've 0:18:06.600 --> 0:18:09.920 got three months of much slower inflation while you still 0:18:09.960 --> 0:18:13.040 have the strong wages in the tight labor market. We 0:18:13.119 --> 0:18:14.919 think that it's going to get much more challenging when 0:18:15.000 --> 0:18:16.879 you get to the middle of this year and beyond, 0:18:17.400 --> 0:18:20.280 because the labor shortages are going to persist. We also 0:18:20.359 --> 0:18:24.760 see supply chain challenges, and then also the energy transition 0:18:24.840 --> 0:18:26.919 is going to keep some upward pressure on inflation, so 0:18:26.960 --> 0:18:29.120 we expected to keep coming down in the near term. 0:18:29.680 --> 0:18:33.480 We're encouraged that average earily earnings actually we're pretty mild 0:18:33.480 --> 0:18:35.840 with the zero point three pc increase, and if you 0:18:35.880 --> 0:18:39.160 look at production and supervisory workers, the slowdown in wage 0:18:39.160 --> 0:18:41.760 growth from last year into this year is even more encouraging. 0:18:42.520 --> 0:18:44.879 So if you do get some noisiness, but you do 0:18:45.000 --> 0:18:47.440 get this sense of disinflation just based on the year 0:18:47.440 --> 0:18:50.760 over year composition of the way that the data is 0:18:51.440 --> 0:18:53.760 drawn up, how do you then get confidence? How do 0:18:53.800 --> 0:18:56.680 you give confidence that there's going to be a stickier 0:18:56.720 --> 0:19:00.280 inflation later in the year when all anecdotal evidence is 0:19:00.320 --> 0:19:03.760 speaking to the other. Yeah, well, we think that it's 0:19:03.800 --> 0:19:05.240 going to be keep coming down on a year of 0:19:05.280 --> 0:19:07.880 your basis. As you point out, you've got those base effects. 0:19:07.880 --> 0:19:09.440 We just don't think it's ever going to really come 0:19:09.440 --> 0:19:11.800 back down to what we saw between the global financial 0:19:11.840 --> 0:19:15.199 crisis and the COVID pandemic. We've got higher inflation on 0:19:15.240 --> 0:19:17.320 a trend basis now between two and a half and 0:19:17.359 --> 0:19:19.400 three and a half percent on a multi year basis 0:19:19.400 --> 0:19:22.000 going out, it could dip pretty low in the middle 0:19:22.040 --> 0:19:23.960 of this year. We know what's going on with shelter, 0:19:24.480 --> 0:19:26.560 and even if we just see the shelter numbers flat line, 0:19:26.600 --> 0:19:30.080 that would imply some very low inflation numbers. Willington Trust 0:19:30.119 --> 0:19:32.600 were much more focused on nine and twelve and twenty 0:19:32.600 --> 0:19:35.320 four months out, and those higher inflation numbers are going 0:19:35.359 --> 0:19:38.160 to keep rates higher and actually offer some some opportunities 0:19:38.160 --> 0:19:40.520 for investors. So it's not a whole lot of confidence, 0:19:40.560 --> 0:19:42.360 Lisa about what the month of a month or even 0:19:42.400 --> 0:19:44.080 to the middle of this year. Has a lot more 0:19:44.080 --> 0:19:46.960 to do with that longer term trajectory we see those challenges, 0:19:47.200 --> 0:19:50.359 we also think they're navigatable, well navigatable, which really space 0:19:50.480 --> 0:19:53.679 to the Torsten slock. No landing kind of scenario at 0:19:53.680 --> 0:19:55.399 a time when a lot of people are pushing out 0:19:55.960 --> 0:19:58.679 potentially even for years, any type of recession. Are you 0:19:58.720 --> 0:20:02.720 among those? Yeah, it could go out or it could 0:20:02.800 --> 0:20:05.119 happen this year. You know, we've got basically a fifty 0:20:05.119 --> 0:20:07.320 fifty chance we think of a soft landing versus of 0:20:07.400 --> 0:20:10.080 mild recession. It's going to come back to employers. We 0:20:10.080 --> 0:20:12.760 know that employers are dealing with higher borrowing costs, a 0:20:12.800 --> 0:20:15.359 little bit of softening in demand. If they keep hiring, 0:20:15.720 --> 0:20:18.440 then you know you've got as consumers, you've got job growth, 0:20:18.480 --> 0:20:20.960 you've got wage growth, and that will keep the economy's 0:20:20.960 --> 0:20:23.520 head above water. In the middle of this year. If 0:20:23.520 --> 0:20:26.119 companies get spooked and those higher borrowing costs hit their 0:20:26.119 --> 0:20:29.119 capex and their hiring decisions, well that's gonna lead to recession. 0:20:29.400 --> 0:20:31.040 I actually think it's gonna have a lot more to 0:20:31.080 --> 0:20:33.240 do with the lagged defects and all of the hikes 0:20:33.280 --> 0:20:36.000 that were last year. Much more important than whether the 0:20:36.000 --> 0:20:38.159 FED stops at five or five point one. You know, 0:20:38.200 --> 0:20:40.240