Speaker 1: The resilience of the US economy has a pride sum,
Speaker 1: and it comes as the economic and financial gap with
Speaker 1: Europe continues to widen. Now GDP growth and productivity levels
Speaker 1: are now much further ahead in the US, something which
Speaker 1: my next guest says is a once in a generation phenomenon. Well,
Speaker 1: Daniel Pinto is the chairman and chief executive of Stanhope
Speaker 1: Capital and asset management firm. He started in two thousand
Speaker 1: and four with more than forty one billion dollars of
Speaker 1: assets under management. So Daniel, as always thank you so
Speaker 1: much for joining us and welcome back to the pulse.
Speaker 1: When you look at what you're expecting from the Fed,
Speaker 1: I mean it's a little bit of an outlier call.
Speaker 1: You're expecting the Fed to cut quicker than the market
Speaker 1: is pricing. Would they cut because there's a slowdown or
Speaker 1: because of inflation is under control?
Speaker 2: My first comment for Seeinge is that who would have
Speaker 2: said that watching central bankers would have become as exciting
Speaker 2: as watching Gothrilla. We listen to each and every word. Look,
Speaker 2: my sense is that the US economy is slowing down.
Speaker 2: It's still doing okay, but it is slowing down. Let's
Speaker 2: remember that the market was expecting two point five percent
Speaker 2: GDP growth for Q one, it came out at one
Speaker 2: point six percent, So it is slowing down. You have
Speaker 2: pmis coming down, which is a short sign that there
Speaker 2: is a slowdown. You have unemployment picking up a bit,
Speaker 2: still very low, but picking up a bit, and two
Speaker 2: more things which in my view are very important. The
Speaker 2: first one is that saving rates in America have collapsed.
Speaker 2: Post COVID. Americans had plenty of savings and that sustained
Speaker 2: the economy for the last two years. Right now they
Speaker 2: have three point five percent of savings, which is the
Speaker 2: lowest point in the last ten or fifteen years, which
Speaker 2: basically means that you no longer have this buffer in
Speaker 2: the form of the domestic consumer to support economy growth
Speaker 2: in the next few months. And I think the FED
Speaker 2: knows that, and the FED will cut rate in my
Speaker 2: opinion September probably twice.
Speaker 1: So Daniel, we allspoke to Jamie Damond yesterday and he
Speaker 1: was saying, look, it's the market makes it a give up,
Speaker 1: that we have a slowdown, that is a soft landing,
Speaker 1: and that's not given. But is there the worst case
Speaker 1: scenarios that inflation actually stays up and that these indicators
Speaker 1: come down. So what does the FED choose then, and
Speaker 1: what kind of economy are we left with.
Speaker 2: I think the FED will be under pressure for another reason,
Speaker 2: which is that, let's remember that a year ago we
Speaker 2: had a banking crisis in the US. We are not
Speaker 2: hearing anything about it anymore, but you have dozens of
Speaker 2: small regional banks in America that are exposed to real estate,
Speaker 2: writing our loans, and the longer for the higher, for
Speaker 2: longer a phenomenon is having a direct impact on this
Speaker 2: second tier of the banking sector in America, and I
Speaker 2: think that the FED will in addition to the slowdown
Speaker 2: that I described, the FED will very much be aware
Speaker 2: that if they keep raised at this high level, they
Speaker 2: may have another banking crisis on their hands, which obviously
Speaker 2: they would like to avoid.
Speaker 1: There's also a question of why the fact is not
Speaker 1: pushing back against some of the market exuberants that we've seen.
Speaker 1: Do you see this as being problematic.
Speaker 2: I don't think it is problematic. I mean, there is
Speaker 2: some exuberants in the market, but I don't think that
Speaker 2: we are in bubble territory. If you look at stocks
Speaker 2: in America, they are trading on multiples of about twenty times,
Speaker 2: which is higher than the average. But if you streep
Speaker 2: out the technology sector of the Magnificent seven, the valuation
Speaker 2: levels in the US are in line with the average
Speaker 2: of the last twenty five years. You don't have a
Speaker 2: bubble in the equity market in the US.
Speaker 1: I don't believe so, Daniel. I know. There are some
Speaker 1: charts actually that you look at, which we love showing
Speaker 1: because it gives us a glimpse into kind of what
Speaker 1: kind of template you look at to look at growth
Speaker 1: and valuations. There's a mismatch between the US and Europe.
Speaker 1: I mean, if you're expecting, actually the US to slow
Speaker 1: down significant, not significantly, but enough to pull forward expectations
Speaker 1: of a count where do you see the biggest play
Speaker 1: do you get into European stocks?
Speaker 2: So European stocks cheap at the moment as compared to
Speaker 2: the US. In fact, you are at the point where
Speaker 2: the discount between Europe and the US is at its
Speaker 2: highest in the last probably twenty years. You basically have
Speaker 2: a thirty five percent discount between the valuation of European
Speaker 2: stocks and the valuation of US stocks. It makes certain
Speaker 2: segments of the European equity markets attractive, and it could be,
Speaker 2: and we've seen that in the last few months that
Speaker 2: for a short period of time European equities could outperform
Speaker 2: the US. But for any long term investor, I would
Speaker 2: recommend having the majority of their exposure to US stocks
Speaker 2: for reasons that have to do both with the US
Speaker 2: economy that has decaupled from the European economy and as
Speaker 2: a result as well of market dynamics which are much
Speaker 2: better in the US than in Europe. So short term, yes,
Speaker 2: European equity is attractive. Long term, I think investors should
Speaker 2: keep the vast majority of their equity exposure into the US.
Speaker 1: I mean this, and this is actually the chart of
Speaker 1: the day that we're just showing, one of the charts
Speaker 1: that you're looking at. I mean, does this explain why
Speaker 1: certain companies, I mean we're talking with actually chief executive
Speaker 1: of Total Energy just on Tuesday, but other companies would
Speaker 1: look at a listing in the US and does that
Speaker 1: even make sense for big European companies.
Speaker 2: They would, and it should worry a lot of politicians
Speaker 2: in Europe when you hear Total Energy, which is kind
Speaker 2: of a national champion for France, saying we would like
Speaker 2: to move to list in the US. It is a
Speaker 2: shock when you hear a shell saying the same thing.
Speaker 2: It is a shock. And the reason why they are
Speaker 2: saying that is very simple. The capital markets in the
Speaker 2: US are so much deeper that they get better valuations.
Speaker 2: You cannot blame them for saying, I'm working for my
Speaker 2: shareholders and with shaholders in mind, our interests is to
Speaker 2: list in the US. And the reason why the capital
Speaker 2: markets are so much deeper is that they have a
Speaker 2: pension system the drive savings into the real economy, whereas
Speaker 2: in Europe, in most countries, we have a pension system
Speaker 2: that is still public and is not driving savings into
Speaker 2: the productive economy. And that's a major issue. Just take
Speaker 2: the case of the UK. Twenty five years ago, pension
Speaker 2: funds in the UK were investing forty five percent of
Speaker 2: their portfolios into UK equities. Now it is four percent
Speaker 2: five percent, and that has a massive impact on appetite
Speaker 2: for equities overall and therefore valuations. And that is something
Speaker 2: that the CEOs across the UK and across Europe have
Speaker 2: in mind.
Speaker 1: I mean, what should be the priorities of politicians and
Speaker 1: policy makers in Europe to be more competitive and keep
Speaker 1: the good companies here.
Speaker 2: So most of the savings in Europe are in the
Speaker 2: hands of insurance companies and pension funds, and right now
Speaker 2: this capital is locked up and able to deploy itself
Speaker 2: in private equity, public equities, et cetera. That's a major
Speaker 2: difference with what's going on in the US. And I
Speaker 2: think it is happening not just as valuations, but the
Speaker 2: capacity of these company is to invest, and that's really
Speaker 2: not just in economic issues, a political issue as well.
Speaker 2: So I think the priority for politicians right now should
Speaker 2: be to address this very issue. Make sure that insurance
Speaker 2: companies have more leeway to invest in you know, private
Speaker 2: equity and public equity. Make sure that pension funds are
Speaker 2: not just focused on investing in bonds which are not
Speaker 2: necessarily helping the economy at large, but investing more in
Speaker 2: smaller n kepped companies and in large companies. That should
Speaker 2: be the priority.
Speaker 1: Yeah, it's not easy because it goes really to the
Speaker 1: heart of risk taking. But talk to me a little
Speaker 1: bit about what you're seeing the pipeline. Are there more
Speaker 1: IPOs or is there more mina deal? Is it waking up?
Speaker 2: So clearly after eighteen months two years of a pretty
Speaker 2: much just stand still in the IPO market, sleeping bin
Speaker 2: absolutely and private equity funds not doing much. Frankly, what
Speaker 2: you see now is private equally funds being very keen
Speaker 2: to deploy more and sellers more open to selling. So
Speaker 2: you'll see deal flow picking up, which is great news.
Speaker 2: The IPO market is slowly opening up, more in the
Speaker 2: US than in Europe. I was supposed to see that
Speaker 2: the Chinese company Shine is contemplating doing an IPO in
Speaker 2: London as opposed to the US. It's a good sign,
Speaker 2: but sadly we have to do notted on deal and
Speaker 2: we need to do much much more to make London
Speaker 2: more attractive. But clearly the trend is going in the
Speaker 2: right direction in terms of IPOs and deals.
Speaker 1: I mean, does it make a difference who comes into
Speaker 1: power in terms of businesses right now or.
Speaker 2: Do you see both parties in the UK?
Speaker 1: In the UK pretty much in the middle.
Speaker 2: I think the two sides want to reform London and
Speaker 2: the city in general. The question is, well, they've been
Speaker 2: talking about it for a while, not much has happened.
Speaker 2: The question is that any new government, probably from Labor,
Speaker 2: would actually implement the reforms that are absolutely necessary. I
Speaker 2: hope they will if they seem to be more market
Speaker 2: friendly than people expected. Let's see what do.
Speaker 1: You do with gold right now? So it's a play
Speaker 1: against everything, but it's also I guess, you know, there's
Speaker 1: movements maybe from other countries to such treasures and by.
Speaker 2: Gold, So there is something structural happening in the gold market.
Speaker 2: But beyond the gold market, in trade in general and
Speaker 2: currencies in general. You've seen the price of gold going
Speaker 2: up dramatically over the last I would say twelve months
Speaker 2: as a result of central banks buying more and more gold.
Speaker 2: And the biggest buyers of gold have been probably the Chinese.
Speaker 2: And the reason why they are buying more gold is
Speaker 2: that they don't want to be in the position of
Speaker 2: the Russian Central Bank, which given what was going on
Speaker 2: in Ukraine, ended up being sanctioned and ended up having
Speaker 2: their reserves frozen by the US. The Chinese have trillions
Speaker 2: of reserves. The last thing they want is to, you know,
Speaker 2: here one morning that the Federal Reserve decided to block
Speaker 2: this money, so they buy more and more gold. The
Speaker 2: Indian Central Bank is doing the same and that is
Speaker 2: what's sustaining the gold market. Beyond that, I think we
Speaker 2: should read behind, you know, the rise of gold, an
Speaker 2: increasing riek of currency walls, and an increasing rieks of
Speaker 2: trade wars. Tariffs, that would be my biggest concern for
Speaker 2: the next twelve eighteen months. You had President Biden announcing
Speaker 2: last week very high tariffs on electric vehicles, hundred percent tariffs,
Speaker 2: tariffs on microschips made in China, and then you heard
Speaker 2: Trump basically saying we one hundred percent is not enough,
Speaker 2: it should be two hundred percent. So that rhetoric is
Speaker 2: giving you the direction of travel. Direction of travel is
Speaker 2: more and more trade tension and trade time and tariffs
Speaker 2: are a very very bad thing for everyone. We should
Speaker 2: be very careful about.
Speaker 1: That and possibly inflationary. Daniel, thank you so much as
Speaker 1: always for joining. Is Staniel Pinto there the Chairman and
Speaker 1: chief executive of Stanhope Capital