WEBVTT - Stanhope Capital CEO Daniel Pinto Talks Global Economic Concerns

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<v Speaker 1>The resilience of the US economy has a pride sum,

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<v Speaker 1>and it comes as the economic and financial gap with

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<v Speaker 1>Europe continues to widen. Now GDP growth and productivity levels

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<v Speaker 1>are now much further ahead in the US, something which

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<v Speaker 1>my next guest says is a once in a generation phenomenon. Well,

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<v Speaker 1>Daniel Pinto is the chairman and chief executive of Stanhope

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<v Speaker 1>Capital and asset management firm. He started in two thousand

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<v Speaker 1>and four with more than forty one billion dollars of

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<v Speaker 1>assets under management. So Daniel, as always thank you so

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<v Speaker 1>much for joining us and welcome back to the pulse.

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<v Speaker 1>When you look at what you're expecting from the Fed,

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<v Speaker 1>I mean it's a little bit of an outlier call.

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<v Speaker 1>You're expecting the Fed to cut quicker than the market

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<v Speaker 1>is pricing. Would they cut because there's a slowdown or

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<v Speaker 1>because of inflation is under control?

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<v Speaker 2>My first comment for Seeinge is that who would have

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<v Speaker 2>said that watching central bankers would have become as exciting

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<v Speaker 2>as watching Gothrilla. We listen to each and every word. Look,

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<v Speaker 2>my sense is that the US economy is slowing down.

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<v Speaker 2>It's still doing okay, but it is slowing down. Let's

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<v Speaker 2>remember that the market was expecting two point five percent

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<v Speaker 2>GDP growth for Q one, it came out at one

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<v Speaker 2>point six percent, So it is slowing down. You have

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<v Speaker 2>pmis coming down, which is a short sign that there

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<v Speaker 2>is a slowdown. You have unemployment picking up a bit,

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<v Speaker 2>still very low, but picking up a bit, and two

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<v Speaker 2>more things which in my view are very important. The

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<v Speaker 2>first one is that saving rates in America have collapsed.

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<v Speaker 2>Post COVID. Americans had plenty of savings and that sustained

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<v Speaker 2>the economy for the last two years. Right now they

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<v Speaker 2>have three point five percent of savings, which is the

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<v Speaker 2>lowest point in the last ten or fifteen years, which

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<v Speaker 2>basically means that you no longer have this buffer in

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<v Speaker 2>the form of the domestic consumer to support economy growth

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<v Speaker 2>in the next few months. And I think the FED

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<v Speaker 2>knows that, and the FED will cut rate in my

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<v Speaker 2>opinion September probably twice.

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<v Speaker 1>So Daniel, we allspoke to Jamie Damond yesterday and he

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<v Speaker 1>was saying, look, it's the market makes it a give up,

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<v Speaker 1>that we have a slowdown, that is a soft landing,

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<v Speaker 1>and that's not given. But is there the worst case

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<v Speaker 1>scenarios that inflation actually stays up and that these indicators

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<v Speaker 1>come down. So what does the FED choose then, and

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<v Speaker 1>what kind of economy are we left with.

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<v Speaker 2>I think the FED will be under pressure for another reason,

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<v Speaker 2>which is that, let's remember that a year ago we

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<v Speaker 2>had a banking crisis in the US. We are not

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<v Speaker 2>hearing anything about it anymore, but you have dozens of

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<v Speaker 2>small regional banks in America that are exposed to real estate,

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<v Speaker 2>writing our loans, and the longer for the higher, for

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<v Speaker 2>longer a phenomenon is having a direct impact on this

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<v Speaker 2>second tier of the banking sector in America, and I

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<v Speaker 2>think that the FED will in addition to the slowdown

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<v Speaker 2>that I described, the FED will very much be aware

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<v Speaker 2>that if they keep raised at this high level, they

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<v Speaker 2>may have another banking crisis on their hands, which obviously

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<v Speaker 2>they would like to avoid.

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<v Speaker 1>There's also a question of why the fact is not

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<v Speaker 1>pushing back against some of the market exuberants that we've seen.

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<v Speaker 1>Do you see this as being problematic.

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<v Speaker 2>I don't think it is problematic. I mean, there is

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<v Speaker 2>some exuberants in the market, but I don't think that

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<v Speaker 2>we are in bubble territory. If you look at stocks

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<v Speaker 2>in America, they are trading on multiples of about twenty times,

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<v Speaker 2>which is higher than the average. But if you streep

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<v Speaker 2>out the technology sector of the Magnificent seven, the valuation

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<v Speaker 2>levels in the US are in line with the average

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<v Speaker 2>of the last twenty five years. You don't have a

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<v Speaker 2>bubble in the equity market in the US.

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<v Speaker 1>I don't believe so, Daniel. I know. There are some

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<v Speaker 1>charts actually that you look at, which we love showing

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<v Speaker 1>because it gives us a glimpse into kind of what

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<v Speaker 1>kind of template you look at to look at growth

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<v Speaker 1>and valuations. There's a mismatch between the US and Europe.

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<v Speaker 1>I mean, if you're expecting, actually the US to slow

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<v Speaker 1>down significant, not significantly, but enough to pull forward expectations

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<v Speaker 1>of a count where do you see the biggest play

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<v Speaker 1>do you get into European stocks?

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<v Speaker 2>So European stocks cheap at the moment as compared to

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<v Speaker 2>the US. In fact, you are at the point where

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<v Speaker 2>the discount between Europe and the US is at its

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<v Speaker 2>highest in the last probably twenty years. You basically have

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<v Speaker 2>a thirty five percent discount between the valuation of European

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<v Speaker 2>stocks and the valuation of US stocks. It makes certain

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<v Speaker 2>segments of the European equity markets attractive, and it could be,

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<v Speaker 2>and we've seen that in the last few months that

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<v Speaker 2>for a short period of time European equities could outperform

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<v Speaker 2>the US. But for any long term investor, I would

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<v Speaker 2>recommend having the majority of their exposure to US stocks

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<v Speaker 2>for reasons that have to do both with the US

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<v Speaker 2>economy that has decaupled from the European economy and as

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<v Speaker 2>a result as well of market dynamics which are much

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<v Speaker 2>better in the US than in Europe. So short term, yes,

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<v Speaker 2>European equity is attractive. Long term, I think investors should

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<v Speaker 2>keep the vast majority of their equity exposure into the US.

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<v Speaker 1>I mean this, and this is actually the chart of

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<v Speaker 1>the day that we're just showing, one of the charts

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<v Speaker 1>that you're looking at. I mean, does this explain why

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<v Speaker 1>certain companies, I mean we're talking with actually chief executive

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<v Speaker 1>of Total Energy just on Tuesday, but other companies would

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<v Speaker 1>look at a listing in the US and does that

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<v Speaker 1>even make sense for big European companies.

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<v Speaker 2>They would, and it should worry a lot of politicians

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<v Speaker 2>in Europe when you hear Total Energy, which is kind

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<v Speaker 2>of a national champion for France, saying we would like

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<v Speaker 2>to move to list in the US. It is a

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<v Speaker 2>shock when you hear a shell saying the same thing.

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<v Speaker 2>It is a shock. And the reason why they are

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<v Speaker 2>saying that is very simple. The capital markets in the

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<v Speaker 2>US are so much deeper that they get better valuations.

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<v Speaker 2>You cannot blame them for saying, I'm working for my

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<v Speaker 2>shareholders and with shaholders in mind, our interests is to

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<v Speaker 2>list in the US. And the reason why the capital

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<v Speaker 2>markets are so much deeper is that they have a

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<v Speaker 2>pension system the drive savings into the real economy, whereas

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<v Speaker 2>in Europe, in most countries, we have a pension system

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<v Speaker 2>that is still public and is not driving savings into

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<v Speaker 2>the productive economy. And that's a major issue. Just take

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<v Speaker 2>the case of the UK. Twenty five years ago, pension

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<v Speaker 2>funds in the UK were investing forty five percent of

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<v Speaker 2>their portfolios into UK equities. Now it is four percent

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<v Speaker 2>five percent, and that has a massive impact on appetite

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<v Speaker 2>for equities overall and therefore valuations. And that is something

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<v Speaker 2>that the CEOs across the UK and across Europe have

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<v Speaker 2>in mind.

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<v Speaker 1>I mean, what should be the priorities of politicians and

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<v Speaker 1>policy makers in Europe to be more competitive and keep

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<v Speaker 1>the good companies here.

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<v Speaker 2>So most of the savings in Europe are in the

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<v Speaker 2>hands of insurance companies and pension funds, and right now

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<v Speaker 2>this capital is locked up and able to deploy itself

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<v Speaker 2>in private equity, public equities, et cetera. That's a major

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<v Speaker 2>difference with what's going on in the US. And I

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<v Speaker 2>think it is happening not just as valuations, but the

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<v Speaker 2>capacity of these company is to invest, and that's really

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<v Speaker 2>not just in economic issues, a political issue as well.

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<v Speaker 2>So I think the priority for politicians right now should

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<v Speaker 2>be to address this very issue. Make sure that insurance

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<v Speaker 2>companies have more leeway to invest in you know, private

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<v Speaker 2>equity and public equity. Make sure that pension funds are

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<v Speaker 2>not just focused on investing in bonds which are not

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<v Speaker 2>necessarily helping the economy at large, but investing more in

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<v Speaker 2>smaller n kepped companies and in large companies. That should

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<v Speaker 2>be the priority.

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<v Speaker 1>Yeah, it's not easy because it goes really to the

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<v Speaker 1>heart of risk taking. But talk to me a little

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<v Speaker 1>bit about what you're seeing the pipeline. Are there more

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<v Speaker 1>IPOs or is there more mina deal? Is it waking up?

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<v Speaker 2>So clearly after eighteen months two years of a pretty

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<v Speaker 2>much just stand still in the IPO market, sleeping bin

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<v Speaker 2>absolutely and private equity funds not doing much. Frankly, what

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<v Speaker 2>you see now is private equally funds being very keen

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<v Speaker 2>to deploy more and sellers more open to selling. So

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<v Speaker 2>you'll see deal flow picking up, which is great news.

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<v Speaker 2>The IPO market is slowly opening up, more in the

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<v Speaker 2>US than in Europe. I was supposed to see that

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<v Speaker 2>the Chinese company Shine is contemplating doing an IPO in

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<v Speaker 2>London as opposed to the US. It's a good sign,

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<v Speaker 2>but sadly we have to do notted on deal and

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<v Speaker 2>we need to do much much more to make London

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<v Speaker 2>more attractive. But clearly the trend is going in the

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<v Speaker 2>right direction in terms of IPOs and deals.

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<v Speaker 1>I mean, does it make a difference who comes into

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<v Speaker 1>power in terms of businesses right now or.

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<v Speaker 2>Do you see both parties in the UK?

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<v Speaker 1>In the UK pretty much in the middle.

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<v Speaker 2>I think the two sides want to reform London and

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<v Speaker 2>the city in general. The question is, well, they've been

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<v Speaker 2>talking about it for a while, not much has happened.

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<v Speaker 2>The question is that any new government, probably from Labor,

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<v Speaker 2>would actually implement the reforms that are absolutely necessary. I

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<v Speaker 2>hope they will if they seem to be more market

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<v Speaker 2>friendly than people expected. Let's see what do.

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<v Speaker 1>You do with gold right now? So it's a play

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<v Speaker 1>against everything, but it's also I guess, you know, there's

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<v Speaker 1>movements maybe from other countries to such treasures and by.

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<v Speaker 2>Gold, So there is something structural happening in the gold market.

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<v Speaker 2>But beyond the gold market, in trade in general and

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<v Speaker 2>currencies in general. You've seen the price of gold going

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<v Speaker 2>up dramatically over the last I would say twelve months

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<v Speaker 2>as a result of central banks buying more and more gold.

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<v Speaker 2>And the biggest buyers of gold have been probably the Chinese.

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<v Speaker 2>And the reason why they are buying more gold is

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<v Speaker 2>that they don't want to be in the position of

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<v Speaker 2>the Russian Central Bank, which given what was going on

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<v Speaker 2>in Ukraine, ended up being sanctioned and ended up having

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<v Speaker 2>their reserves frozen by the US. The Chinese have trillions

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<v Speaker 2>of reserves. The last thing they want is to, you know,

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<v Speaker 2>here one morning that the Federal Reserve decided to block

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<v Speaker 2>this money, so they buy more and more gold. The

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<v Speaker 2>Indian Central Bank is doing the same and that is

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<v Speaker 2>what's sustaining the gold market. Beyond that, I think we

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<v Speaker 2>should read behind, you know, the rise of gold, an

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<v Speaker 2>increasing riek of currency walls, and an increasing rieks of

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<v Speaker 2>trade wars. Tariffs, that would be my biggest concern for

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<v Speaker 2>the next twelve eighteen months. You had President Biden announcing

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<v Speaker 2>last week very high tariffs on electric vehicles, hundred percent tariffs,

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<v Speaker 2>tariffs on microschips made in China, and then you heard

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<v Speaker 2>Trump basically saying we one hundred percent is not enough,

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<v Speaker 2>it should be two hundred percent. So that rhetoric is

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<v Speaker 2>giving you the direction of travel. Direction of travel is

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<v Speaker 2>more and more trade tension and trade time and tariffs

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<v Speaker 2>are a very very bad thing for everyone. We should

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<v Speaker 2>be very careful about.

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<v Speaker 1>That and possibly inflationary. Daniel, thank you so much as

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<v Speaker 1>always for joining. Is Staniel Pinto there the Chairman and

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<v Speaker 1>chief executive of Stanhope Capital