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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. This is Masters in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.

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Speaker 2: This week on the podcast, our returning champion, Torston Slock,

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Speaker 2: Chief Economists at Apollo. You know, most of the economists

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Speaker 2: that you're probably familiar with haven't really had a good

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Speaker 2: handle on the state of the economy over the past

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Speaker 2: couple of years. They have been expecting recessions, they've expected contractions.

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Speaker 2: They kind of missed the search and inflation, they missed

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Speaker 2: the collapse in inflation. There aren't a lot of economists

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Speaker 2: who got it more right than Torston Slock. Not only

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Speaker 2: has he been appropriately bullish about what's going on in

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Speaker 2: the economy, why we weren't really in danger of a

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Speaker 2: recession anytime over the past couple of years. I disagree

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Speaker 2: with his forecast for this year, which is zero percent

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Speaker 2: chance of recession. Hey I never put a zero percent

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Speaker 2: chance on anything. But still he's communicating how wrong everybody

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Speaker 2: else is and how right he's been, and why you

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Speaker 2: should be pretty constructive about the state of both employment

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Speaker 2: and credit and the stock markets. He has absolutely been

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Speaker 2: dead on, and I have to point out what a

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Speaker 2: force of nature he is he's got a really fascinating background.

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Speaker 2: I m f OECD, Deutsche Bank and now on the

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Speaker 2: private by side with a big emphasis on private sector companies.

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Speaker 2: I don't know what else to say. I thought this

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Speaker 2: conversation was absolutely fascinating. He was just on such a role.

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Speaker 2: All I had to do is just kind of give

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Speaker 2: him a little nudge and get it out of the way.

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Speaker 2: Really an absolutely true to force explanation as to why

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Speaker 2: the US and global economy is where it is, where

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Speaker 2: it's likely to continue going, and why there are such

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Speaker 2: tailwinds for growth in the US and to a lesser

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Speaker 2: degree Japan, but why the US is so much better

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Speaker 2: situated than Europe or China and most of Asia. I

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Speaker 2: found this to be absolutely fascinating, and I think you

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Speaker 2: will also with no further ado my discussion with Apollo

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Speaker 2: Global Managements Towardsten Slock.

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Speaker 3: Thanks so much, Berrian. It's great to be here instead

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Speaker 3: of sitting in a boat to fishing in Maine. I

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Speaker 3: say you and I have done together before.

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Speaker 2: That's right. That's a mouthful of places where you've worked.

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Speaker 2: Before we get into your career. I want to start

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Speaker 2: with University of Copenhagen and Princeton University. What was the

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Speaker 2: career plan? Always economics and finance.

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Speaker 3: Well, I grew up in a small time called Ruskilde,

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Speaker 3: which is thirty kilometers to the west of Copenhagen. You

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Speaker 3: could see I'm so European still that I speak in

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Speaker 3: kilometers rather than miles. And I studied economics in university,

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Speaker 3: and then when I started doing my PSD, you have

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Speaker 3: to go a year abroad, and I spent a year

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Speaker 3: in Princeton in the economics department in ninety five ninety

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Speaker 3: six when pen Peneke was the chairman of the economics department,

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Speaker 3: and then when I finished my degree, I applied for

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Speaker 3: a job at the IMF in Washington, DC. And economics

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Speaker 3: has basically been the bread and butter of my life,

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Speaker 3: at least my adult life, for the last twenty five

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Speaker 3: thirty years.

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Speaker 2: So how I'm just I've been to Denmark, beautiful country, beautiful.

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Speaker 2: Copenhagen is absolutely beautiful. I'm curious how different studying economics

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Speaker 2: is in Denmark versus the United States.

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Speaker 3: Well, obviously all the super universities are here, so from

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Speaker 3: a publishing an academic perspective, it's really good. But it's

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Speaker 3: just a little bit different in the sense that it's

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Speaker 3: not of course having the same environment, the same seminars,

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Speaker 3: and but that matter, the same people of course.

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Speaker 4: That are in the US.

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Speaker 3: But that being said, Europe still has some really incredible universities,

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Speaker 3: including University of Copenhagen. You learn a lot, and as

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Speaker 3: you know European style, your degree is not an undergraduate

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Speaker 3: degree in four years. It's a master's degree where you

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Speaker 3: start out on day one studying economics, theology, humanities, and

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Speaker 3: you do that for five years in a row. So

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Speaker 3: you end up doing five years relatively specialized in this

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Speaker 3: case in economics for me, and I found it just

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Speaker 3: that the environment, everything that I experienced that went through there,

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Speaker 3: and still have many good friends at the university and

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Speaker 3: of course in Copenhagen that I still talk to to

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Speaker 3: this day about economics and what's going on in financial

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Speaker 3: markets and.

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Speaker 2: Make me a little jealous. Do you pay for college

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Speaker 2: and graduate school or does the state cover that?

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Speaker 3: So it happens to be the case in Denmark that

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Speaker 3: tuition is completely free. In fact, you get a stipend

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Speaker 3: which is three four thousand a month.

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Speaker 1: Wow.

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Speaker 3: On top of that, you also so this is as

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Speaker 3: a PSD student you also get, of course, I need

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Speaker 3: to say this a free healthcare. And of course all

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Speaker 3: this is subsidized and ultimately paid for by the Danish

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Speaker 3: tax payers. That's why marginal tax rates and then mark

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Speaker 3: are fifty five percent, right and not to thirty seven

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Speaker 3: percent as it is in the US.

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Speaker 2: Right, it's better to be middle class or lower class

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Speaker 2: in Denmark. It's better to be wealthy in the United States,

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Speaker 2: at least in terms of net dollars in your pocket.

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Speaker 3: Everyone has access to healthcare, everyone has access to free education,

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Speaker 3: and then you just have to do your homework, which

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Speaker 3: is the hard part, and then of course complete your education.

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Speaker 4: But it is absolutely a major difference, of course too.

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Speaker 2: But you left before you had to pay those fifty

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Speaker 2: five percent taxes.

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Speaker 3: Well, so I just got my free education and then left.

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Speaker 3: So but I am still both a Danish citizen and

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Speaker 3: I'm also a US citizen. So I'm trying to get

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Speaker 3: the best and make the most of the both world.

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Speaker 2: So let's talk about your career. You start out as

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Speaker 2: an economist at the IMF right out of school. I know,

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Speaker 2: at a certain point at the IMF, you're the guy

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Speaker 2: writing the world's economic outlook and you're covering China and

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Speaker 2: Hong Kong and other parts of Asia. Do you start

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Speaker 2: out right out of school doing the global outlook for

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Speaker 2: the IMF? For you have to work your way up

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Speaker 2: to that.

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Speaker 3: Oh, you absolutely have to work your way up. But

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Speaker 3: the IMF has this great philosophy that the young people

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Speaker 3: who start in the organization throw them on deep water,

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Speaker 3: and in this case that means in IMF language, that

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Speaker 3: you need to go on a program country, and a

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Speaker 3: program country is a country that only has some IMF

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Speaker 3: loan or is drawing on some IMF facility. And in

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Speaker 3: my case, I was pulled into working on Mongolia. So

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Speaker 3: I went to Ulan Paton in January, where it was

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Speaker 3: about as cold as it is here in New York

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Speaker 3: City today. And it is quite an experience to come

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Speaker 3: to an emerging market when you are just around thirty

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Speaker 3: years old, and you certainly sit there with the Central

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Speaker 3: Bank governor, you sit down with the Minister of Finance,

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Speaker 3: and of course there's whole team. I was the most

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Speaker 3: junior person, and you try to think about what are

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Speaker 3: the macroeconomic problems for this country, how can we get

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Speaker 3: this country back on track? Under what conditions should they

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Speaker 3: borrow all those things a very critical part of the

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Speaker 3: education you get at the IMF, namely learning to analyze

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Speaker 3: and understand an economy from a macroeconomic perspective.

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Speaker 2: That sounds like it was an amazing experience.

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Speaker 4: It was incredible.

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Speaker 3: I had never obviously looked at a thought about Mongolia

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Speaker 3: too much before. So the fact that you suddenly are involved,

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Speaker 3: and also the whole process at the IMF, which is

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Speaker 3: very important. You basically have a country that haves some

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Speaker 3: macroeconomic problems, then there is a process of them going

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Speaker 3: to the Board of the IMF, and the Executive Board

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Speaker 3: of the IMF then has to discuss under what conditions

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Speaker 3: do we want to give a loan to this country,

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Speaker 3: and that process of giving a loan. In some cases

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Speaker 3: the IMF says yes, you can have a loan. In

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Speaker 3: other cases, the IMF says no, you cannot have a

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Speaker 3: loan because you're not willing or able to meet the

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Speaker 3: conditionality that comes.

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Speaker 4: With borrowing money from the IMF.

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Speaker 3: And often countries come to the IMA when they're not

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Speaker 3: not able to borrow in public markets. And that's why

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Speaker 3: the IMF plays this special role of having conditionality, having

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Speaker 3: conditions associated with borrowing. That means that you can borrow,

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Speaker 3: but only if you do these things that the global

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Speaker 3: community thinks is a good idea and in some cases

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Speaker 3: might be politically challenging, But we do this to try

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Speaker 3: to get you out of this problem that you're in

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Speaker 3: at the moment.

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Speaker 2: So now let's compare and contrast. You go from there,

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Speaker 2: the OECD in Paris. What's it like being an economist

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Speaker 2: in Paris?

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Speaker 3: So the IMF has money and gives a loan to countries,

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Speaker 3: whereas the OECD is really just a think tank. It

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Speaker 3: used to be really mainly more wealthy countries, meaning developed markets,

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Speaker 3: meaning the G seven plus a few others, but now

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Speaker 3: it has brought out a bit more to also have Brazil, Chile,

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Speaker 3: other countries that you will normally categorize as emerging markets.

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Speaker 3: But the OECD basically is an organization in Paris that

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Speaker 3: lays out best practice across countries. So as a government,

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Speaker 3: you think constantly about what is best practice for healthcare policies,

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Speaker 3: for pension policies, for all kinds of other policies when

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Speaker 3: it comes to climate change, when it comes to really

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Speaker 3: all areas of policy making, and the idea is to

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Speaker 3: get together in Paris for the OCD countries to come

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Speaker 3: and say, what experiences have you made when you put

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Speaker 3: together a pension system? What experiences have we made? And

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Speaker 3: the IMF the Rights and Reporting says, these are the

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Speaker 3: ways that people have done it that work. And other

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Speaker 3: sometimes they say other examples are this is word it.

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Speaker 4: Has not worked very well.

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Speaker 3: To try for you and me and the US and

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Speaker 3: Denmark and all other countries in the world to have

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Speaker 3: an example of how should we design our pension system,

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Speaker 3: how do we make sure that they're enough retirement savings

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Speaker 3: for our population? How has it been done in other countries?

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Speaker 3: So it's really an organization that really is a think tank,

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Speaker 3: but it really is the best practice think tank where

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Speaker 3: you get experiences and you get practices from other countries

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Speaker 3: that then can be used again in the countries that

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Speaker 3: are participating.

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Speaker 2: Huh. Really interesting. So the biggest chunk of your career

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Speaker 2: was that Deutsche Bank. Did you still art in Germany

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Speaker 2: or did you start here in New York?

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Speaker 3: So I started here in New York because some of

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Speaker 3: my former colleagues from the IMF had moved to Deutsche Bank,

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Speaker 3: David Fogustlanta and Pink E Chata and they called and

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Speaker 3: asked if I wanted to come to the US and

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Speaker 3: work here with him, And this was in two thousand

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Speaker 3: and five. It was not our plan. My wonderful wife

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Speaker 3: Julie and I had our first son and his name

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Speaker 3: is Fleming, and it was a two thousand and three

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Speaker 3: and we lived in Paris.

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Speaker 4: We all enjoyed it.

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Speaker 3: We were actually trying to get a bit closer to Copenhagen.

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Speaker 3: But then out of the blue, Binky called and said, hey,

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Speaker 3: would you like to come to New York and work

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Speaker 3: with us? And my experience from the IMF and the OCD,

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Speaker 3: and then this opportunity to be in Deutsche Bank with

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Speaker 3: some friends and colleagues that I had known for many

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Speaker 3: years and who are still my really good friends today

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Speaker 3: of course meant that I said, well, why don't we

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Speaker 3: try this? And Julie was up for it. So we

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Speaker 3: moved on our family from Paris in two thousand and five.

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Speaker 2: So brief digression. I don't know who Binky is personally.

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Speaker 2: I've never met him. I cannot begin to tell you

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Speaker 2: how many people have referenced him as a man enter,

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Speaker 2: as an influence, as this is a person who just

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Speaker 2: had such a big impact in the world of finance.

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Speaker 2: Will get to the mentor questions later. I'm just curious

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Speaker 2: how outsized a personality is Binki.

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Speaker 3: Yeah, so a very important part of your question also

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Speaker 3: here is that it is absolutely critical to remember that

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Speaker 3: inside organizations such as the IMF and the OECD, you

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Speaker 3: establish long term relationships with people that really almost in

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Speaker 3: a lot of cases basically last for almost your whole

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Speaker 3: career or your whole life. So that means you build

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Speaker 3: strong connections with people, you work with them in stressed situations,

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Speaker 3: in less stress situations, in good and bad times. And

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Speaker 3: I had worked with Binkie, not directly under him, and

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Speaker 3: also David Falguslanta, but they were both, of course very

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Speaker 3: important employees at the IMF, and when they decided to

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Speaker 3: move to Teutsche Bank, I decided to say, well, I

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Speaker 3: know these people really will and Binky indeed, even today,

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Speaker 3: as you know, he is still the chief equity strategy

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Speaker 3: at the Deutsche Bank. He has some incredible frameworks and

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Speaker 3: I have learned a lot from him. We'll talk more

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Speaker 3: about this later in terms of you need to have

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Speaker 3: a framework when you talk about things, and he was

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Speaker 3: the first one and still is today. They is telling

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Speaker 3: me you need.

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Speaker 4: To have a framework. What is the framework?

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Speaker 3: Why you are thinking the stock market will go up,

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Speaker 3: or the dollar will go down, or the federal high rates.

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Speaker 3: All these things came from a discussion from Pinkie and

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Speaker 3: David and several others, and who, by the way, also

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Speaker 3: have a PSD in economics because they were the ones

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Speaker 3: who got me into Deutsche Bank starting in two thousand

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Speaker 3: and five.

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Speaker 2: Really interesting, So you spend fifteen years at Deutsche Bank,

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Speaker 2: that's the biggest part of your career. On the cell side,

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Speaker 2: I'm curious, how do you curate a firm view? How

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Speaker 2: do you develop Hey, this is the perspective of Deutsche

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Speaker 2: Bank US, which is a giant entity.

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Speaker 3: Well, as you and I have been talking about for

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Speaker 3: many years, different banks have different strategies. So some banks

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Speaker 3: have a house view, other banks have a house of use.

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Speaker 3: So that means that in this case Doutchr Bank was

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Speaker 3: run in a way and I think that does make

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Speaker 3: sense where there was no strong house shoe every day

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Speaker 3: on everything, because we have to let individuals free in

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Speaker 3: the sense that the different people have different types of

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Speaker 3: expertise in different areas. So at dB we would sit

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Speaker 3: down around the table, think about the Federal Serve or

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Speaker 3: the ECP or the Bank of Japan, and we would

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Speaker 3: then say, okay, whoever was the main person responsible for

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Speaker 3: the central bank, what is your view? Let's discuss do

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Speaker 3: we all agree with this? What are the arguments why

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Speaker 3: this is right? One are the arguments why this is wrong.

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Speaker 4: This gives a healthy debate.

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Speaker 3: This gives a healthy way of saying, we have now

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Speaker 3: turned every stone and we end up where we published

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Speaker 3: the view that Let's say that the FED, for example

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Speaker 3: today we'll talk about this later, will be keeping interest

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Speaker 3: rates on hold. But that discussion, of course, is a

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Speaker 3: very important part of the debate instead of just having well,

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Speaker 3: I am having someone in the organization who says, oh,

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Speaker 3: the FED will not do anything. But everyone else can

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Speaker 3: then sit around and say, oh, I disagree with that view.

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Speaker 3: I think the view should be different. So there is

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Speaker 3: no easy solution to this problem. But it is the

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Speaker 3: case that at Deutsche used to be the situation where

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Speaker 3: we would sit around the table and fight it out

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Speaker 3: and end up with a view on what do we

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Speaker 3: think is the outlook for in this case, the fit

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Speaker 3: ECB or the Bank of Japan or any other central

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Speaker 3: bank or any other market we were looking at.

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Speaker 2: Huh, really really interesting. So you're at a government entity,

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Speaker 2: then you're at a think tank, then you're at a

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Speaker 2: sell side brokerage firm. Then you end up at Apollo,

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Speaker 2: which not only is buyside, but it's more focused on

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Speaker 2: the private markets than the public markets. I'm curious what

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Speaker 2: led you to Apollo and what was that transition like?

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Speaker 3: Yeah, so at Deutsche Bank I spent essentially all my

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Speaker 3: time on going to clients with sales. So we would

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Speaker 3: go to Pimco, Blackrock, Brevin Howard, or the hedge funds

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Speaker 3: or the real money managers and we would sit down

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Speaker 3: and talk about what is the outlook for rates, equities, commodities,

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Speaker 3: everything in the macro world that they wanted to discuss.

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Speaker 3: At Apollo, my job is quite different and it has

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Speaker 3: some different elements that I didn't have in my job

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Speaker 3: with Deutsche Bank. So what was the attraction was that

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Speaker 3: after fifteen years of traveling around the world and talking

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Speaker 3: about the macro in client meetings, really anywhere you could

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Speaker 3: go where anyone was interested in the US economic outlook,

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Speaker 3: at Apollo, I spent roughly half of my time still

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Speaker 3: doing that on the fundraising side, But the other half

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Speaker 3: of my time I spent internally talking to deal teams.

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Speaker 3: So a deal team is looking at buying a company.

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Speaker 3: At deal team is looking at giving a loan to

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Speaker 3: a company. This could be in the US, it could

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Speaker 3: be in Europe, it could be in anywhere in the world, Brazil,

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Speaker 3: it could be really any type of financing that we

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Speaker 3: would be studying carefully. And in some of these cases

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Speaker 3: macroeconomics is less important. In other cases, macroeconomics is really important,

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Speaker 3: meaning we begin to discuss what is the outlook for rates,

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Speaker 3: meaning what are their financing costs? What's the outlook for spreads,

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Speaker 3: what's the outlook for even wages? Was the outlook for

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Speaker 3: low income wages, middle income wages, high income wages? What

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Speaker 3: is the outlook for the dollar? And we also have

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Speaker 3: discussions of what is the outlook for politics? So those

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Speaker 3: things are not things that we can control, but then

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Speaker 3: nevertheless turn out to be really important if you want

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Speaker 3: to understand the risks associated with the investment that you're doing.

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Speaker 3: So what attracted me to come to Apollo was I

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Speaker 3: still am doing to a last degree, many of the things. Again,

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Speaker 3: half of my job is traveling around the world talking

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Speaker 3: to people about the macroeconomic outlook, but the internal part

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Speaker 3: of talking to deal teams for that matter, also talking

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Speaker 3: to management about what's going on, what are we seeing,

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Speaker 3: what are we hearing? And we have fifty a liberalist

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Speaker 3: and fifty portfolio companies talking to the CEOs of these

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Speaker 3: portfolio companies. It all gives a very corporate finance addition

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Speaker 3: to my macroeconomic thinking, and that was and continues to

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Speaker 3: be the main significant attraction that I find so exciting

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Speaker 3: about my job naming that is combining the macro world

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Speaker 3: with the corporate finance and the deal team world in

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Speaker 3: private credit and private equity, and then trying to come

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Speaker 3: up with a view what do we think will happen

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Speaker 3: going forward now.

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Speaker 2: At Deutsche Bank, you were a fairly traditional economic publisher.

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Speaker 2: When you move to Apollo, you developed several new platforms,

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Speaker 2: new content platforms. I think everybody who's listening is probably

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Speaker 2: familiar with the Daily Spark, which is sort of your

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Speaker 2: chart of the day, which is always fascinating and niche

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Speaker 2: and chock full of information. But you also put out

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Speaker 2: full research decks and full the traditional economic data series.

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Speaker 2: But then on top of that, is the Apollo Academy

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Speaker 2: tell us a little bit about that.

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Speaker 3: Yeah, So the idea with the Apollo Academy is there

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Speaker 3: are really several different purposes. So first of all, Apollo

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Speaker 3: Academy is really the prime place to go if you

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Speaker 3: want to understand alternatives, because it is often, of course

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Speaker 3: the case that people in financial markets, everyone spends so

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Speaker 3: much time on this and p. Five hundred because this

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Speaker 3: in p. Five hundred is what we all discuss all

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Speaker 3: day long. But if you look at businesses with employment

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Speaker 3: in the US, there are six million firms in the

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Speaker 3: US that have employment.

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Speaker 4: So the fact that we spend time.

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Speaker 3: On five hundred companies out of six million businesses, it

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Speaker 3: just doesn't make too much sense. So that's why private

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Speaker 3: markets and what's going on in private markets, both in

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Speaker 3: private equity and also of course in private credit is

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Speaker 3: a very important part of the US and the global economy.

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Speaker 3: So that's what we try to do in Apollo Academy, namely,

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Speaker 3: have various educational materials, white papers about private credit, white

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Speaker 3: papers about private equity, white papers about AZEPAC finance, white

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Speaker 3: papers about all kinds of aspects of what our private

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Speaker 3: markets today and what we also do on the Apolloacademy

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Speaker 3: dot com home pages. Of course, that we also produce

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Speaker 3: as you just mentioned at Daily spag Email, which is

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Speaker 3: a chart that we produce every day, which is some

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Speaker 3: interesting topic that we're thinking about, and we also try

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Speaker 3: to have by the way, we also have podcasts and

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Speaker 3: we also have videos, but we try to generally have

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Speaker 3: material so that people and the public out there can

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Speaker 3: be informed about what's going on in alternatives and in

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Speaker 3: private markets.

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Speaker 2: At the moment, I just want to talk briefly about

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Speaker 2: the Daily Spark because I'm fascinated both on the subjects

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Speaker 2: that you focus on and the process you use in

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Speaker 2: creating it. Something recently that showed up New York hotel costs.

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Speaker 2: Now that seems so specific. What do new York hotel

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Speaker 2: costs tell us about the broader economy?

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Speaker 3: This is a really good question, and you're not the

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Speaker 3: only one to probably think about that among the listeners.

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Speaker 3: Men for those who do subscribe to the Daily Spark

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Speaker 3: are probably scratching their hits sometimes and saying why are

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Speaker 3: we even talking about this? We also have data sometimes

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Speaker 3: that we look at for how many people are visiting

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Speaker 3: the Statue of Liberty. We also look at how many

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Speaker 3: people go to Broadway shows.

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Speaker 2: I remember seeing that, and you may.

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Speaker 3: And you and I laugh at it sometimes, and you

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Speaker 3: should also laugh at it sometimes and say why.

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Speaker 4: Are we're looking at this?

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Speaker 3: But in fact it is still the case that, if

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Speaker 3: you think about it well, hotel cost important for a

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Speaker 3: number of different reasons, not only from a commercial real

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Speaker 3: estate investing perspective. It's also important to get some understanding

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Speaker 3: of how expensive is it now. The average price for

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Speaker 3: staying at a hotel at the moment in New York

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Speaker 3: City is more than four hundred dollars. That is really expensive.

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Speaker 3: Think about also how much that has gone up, how

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Speaker 3: much of that has gone up after COVID. That has

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Speaker 3: implications for how you think about what is occupancy rates

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Speaker 3: for hotels not only in New York but nationwide. That

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Speaker 3: has implications for how well is the consumer doing. That

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Speaker 3: has implications for tourism. It has just so many ramifications.

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Speaker 3: A lot of these things. Even how many people go

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Speaker 3: to Broadway shows also tells you something about is there

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Speaker 3: a willingness among consumers to spend on discretionary spending something

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Speaker 3: that's a little bit expensive. The average Broadway show ticket

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Speaker 3: cost round one hundred and fifty dollars.

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Speaker 2: But that's a bargain right there.

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Speaker 3: But it could be a lot more expensive than that.

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Speaker 3: And all that to your question is you say, well,

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Speaker 3: why are we looking at this? So without writing a long, long,

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Speaker 3: thirty page paper with thirty footnotes, just a simple chant

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Speaker 3: saying hey, check this out, this is something we're thinking about,

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Speaker 3: you can say, oh, I don't really care about this.

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Speaker 3: Why should I worry about how many people again go

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Speaker 3: to Broadway shows or how many people who go to

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Speaker 3: the Statue of Liberty? Or what is the cost of

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Speaker 3: saying oh, and I at the hotel? But it still

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Speaker 3: is something that at least is one dimension to thinking

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Speaker 3: about a lot of the different things that are going on.

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Speaker 3: And that is the benefit And that's what I'm enjoying

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Speaker 3: so much of producing one every day, because then I

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Speaker 3: I write about something today and tomorrow I can write

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Speaker 3: about something else.

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Speaker 2: And the fact that you do something completely different every day.

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Speaker 2: Someone may say, who cares how many people go to

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Speaker 2: the Statue of Liberty, But when you see ninety different

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Speaker 2: charts over the course of three or four months, it

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Speaker 2: starts to paint a broader picture as to what's going on.

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Speaker 2: All these little niche data points. They add up and

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Speaker 2: it gives you a perspective on the economy that you

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Speaker 2: may not get looking at GDP or unemployment.

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Speaker 3: As when you and I always talk about what is

441
00:21:47,880 --> 00:21:50,600
Speaker 3: the economic outlook? And then you can start in some kona,

442
00:21:50,680 --> 00:21:52,879
Speaker 3: but I still need to paint you a picture and

443
00:21:53,000 --> 00:21:56,800
Speaker 3: mosaic that ultimately has some different pieces, And these charts

444
00:21:56,800 --> 00:21:59,720
Speaker 3: are exactly meant to be different pieces in what is

445
00:21:59,760 --> 00:22:03,159
Speaker 3: goinging on in the economy and more broadly, what is

446
00:22:03,200 --> 00:22:06,000
Speaker 3: it in financial markets that we should be talking about?

447
00:22:06,080 --> 00:22:06,840
Speaker 4: And that's relevant?

448
00:22:06,880 --> 00:22:09,400
Speaker 3: And sometimes some of these pieces in the mosaic may

449
00:22:09,600 --> 00:22:12,879
Speaker 3: look insignificant and not very critical, But in other times

450
00:22:12,920 --> 00:22:15,720
Speaker 3: a chart could simply also be what's the trend in inflation?

451
00:22:16,119 --> 00:22:18,600
Speaker 3: Should we expect invasion to go up? Now that Trump

452
00:22:18,680 --> 00:22:20,760
Speaker 3: has been talking about tariffs, now that we may have

453
00:22:20,760 --> 00:22:23,480
Speaker 3: restrictions of immigration, now that we may lower corporate tax

454
00:22:23,560 --> 00:22:26,119
Speaker 3: rates on domestic manufacturers to fifteen percent? Could that be

455
00:22:26,160 --> 00:22:28,640
Speaker 3: a reason why there might be some lift in some

456
00:22:28,720 --> 00:22:31,600
Speaker 3: of the more important indicators, other than, of course, some

457
00:22:31,640 --> 00:22:33,960
Speaker 3: of the more funny indicators that we've been talking about

458
00:22:34,200 --> 00:22:35,199
Speaker 3: up to this point.

459
00:22:35,280 --> 00:22:39,680
Speaker 2: We were talking earlier at the mosaic of different data

460
00:22:39,680 --> 00:22:44,680
Speaker 2: points that create an economic outlook. Let's talk first about

461
00:22:44,680 --> 00:22:47,200
Speaker 2: the US and then the rest of the world. You've

462
00:22:47,240 --> 00:22:53,119
Speaker 2: described the US economy as quote, firing on all cylinders discuss.

463
00:22:54,040 --> 00:22:57,879
Speaker 3: So the backdrop for where we sit today is, of

464
00:22:57,880 --> 00:22:59,959
Speaker 3: course that GDP growth for the last two and an

465
00:23:00,280 --> 00:23:02,439
Speaker 3: years since the FED began to raise interest rates, has

466
00:23:02,480 --> 00:23:06,159
Speaker 3: been remarkably strong. And this has raised a number of

467
00:23:06,200 --> 00:23:10,159
Speaker 3: important questions in financial markets. Namely, when the Fed raised

468
00:23:10,200 --> 00:23:13,160
Speaker 3: interest rates, I would have expected, and the textbook would

469
00:23:13,160 --> 00:23:15,880
Speaker 3: have expected, that home prices should have been going down.

470
00:23:16,200 --> 00:23:17,360
Speaker 4: That's not what has happened.

471
00:23:17,480 --> 00:23:19,640
Speaker 3: You would have expected that when interst rates go up,

472
00:23:19,840 --> 00:23:21,119
Speaker 3: car sales should go down.

473
00:23:21,280 --> 00:23:22,439
Speaker 4: That is not what has happened.

474
00:23:22,520 --> 00:23:25,160
Speaker 3: And you would also have expected that when interest rates

475
00:23:25,200 --> 00:23:27,879
Speaker 3: go up that cap e spending and business spending by

476
00:23:27,880 --> 00:23:30,439
Speaker 3: businesses should also be slowing down, and that is not

477
00:23:30,520 --> 00:23:33,080
Speaker 3: what has happened. And why is it that the economy

478
00:23:33,119 --> 00:23:35,399
Speaker 3: has continued to be so strong? In other words, what

479
00:23:35,560 --> 00:23:38,560
Speaker 3: happened to long and variable lacks that the Federal Serve

480
00:23:39,040 --> 00:23:41,680
Speaker 3: FMC members have talked about for so long? Why didn't

481
00:23:41,680 --> 00:23:44,359
Speaker 3: the economy slow down when interest rates went up? And

482
00:23:44,400 --> 00:23:46,800
Speaker 3: there are three very important reasons why that didn't happen.

483
00:23:47,240 --> 00:23:50,600
Speaker 3: First of all, we have had a much less interest

484
00:23:50,640 --> 00:23:53,919
Speaker 3: rates sensitive economy this time around than we've had before.

485
00:23:54,240 --> 00:23:57,720
Speaker 3: Most importantly, ninety five percent of mortgages outstanding in the

486
00:23:57,840 --> 00:24:00,840
Speaker 3: US are thirty of fixed rates. That when interest rates

487
00:24:00,880 --> 00:24:03,480
Speaker 3: started going up, that meant that mortgage payments did not

488
00:24:03,640 --> 00:24:06,800
Speaker 3: go up for consumers because consumers had locked in low

489
00:24:06,800 --> 00:24:09,679
Speaker 3: interest rates during the pandemic. And this was also the

490
00:24:09,760 --> 00:24:13,160
Speaker 3: case for corporate debt. Net interest payments as a share

491
00:24:13,160 --> 00:24:15,680
Speaker 3: of operating surplus in the US has been going down

492
00:24:16,000 --> 00:24:18,879
Speaker 3: despite that the FED has been raising interest rates, so

493
00:24:18,960 --> 00:24:21,479
Speaker 3: there was also a list interesst rates sensitivity for corporate

494
00:24:21,600 --> 00:24:25,000
Speaker 3: So taken together, the first argument why is the economy

495
00:24:25,000 --> 00:24:28,680
Speaker 3: still so strong? Because FED hikes simply did not have

496
00:24:28,800 --> 00:24:32,240
Speaker 3: a particularly negative impact on consumers and on firms as

497
00:24:32,240 --> 00:24:35,720
Speaker 3: the textbook would have predicted. Secondly, in the US, we

498
00:24:35,840 --> 00:24:38,320
Speaker 3: also have a data center boom. We have an AI

499
00:24:38,359 --> 00:24:40,400
Speaker 3: and data center boom, unlike what we see in any

500
00:24:40,400 --> 00:24:42,720
Speaker 3: other countries. There's six thousand data centers in the US,

501
00:24:42,960 --> 00:24:46,440
Speaker 3: more than all other country countries combined in the world.

502
00:24:46,640 --> 00:24:49,520
Speaker 3: So data center boom has probably been adding around zero

503
00:24:49,520 --> 00:24:52,200
Speaker 3: point two percent to GDP growth for the last several years.

504
00:24:52,240 --> 00:24:55,120
Speaker 3: And third, and finally, we also have fiscal policy. Even

505
00:24:55,160 --> 00:24:57,919
Speaker 3: before we talk about Trump, Chips Act, the Inflation Doarcs Act,

506
00:24:57,920 --> 00:24:59,080
Speaker 3: the Infrastructure.

507
00:24:58,520 --> 00:24:59,679
Speaker 4: Act have also been important.

508
00:24:59,720 --> 00:25:02,040
Speaker 3: Tale So in summary, and sorry for getting a very

509
00:25:02,040 --> 00:25:04,280
Speaker 3: long answer, but why good ants the economy has been

510
00:25:04,320 --> 00:25:07,320
Speaker 3: so strong. It has to do with less interest rate sensitivity,

511
00:25:07,480 --> 00:25:10,000
Speaker 3: a data center and AI boom, and finally.

512
00:25:09,760 --> 00:25:10,840
Speaker 4: Also fiscal policy.

513
00:25:10,880 --> 00:25:13,000
Speaker 3: And that's the reason why even where we sit today,

514
00:25:13,200 --> 00:25:16,040
Speaker 3: the Atlanta FEDGDP now estimate for Q four is still

515
00:25:16,080 --> 00:25:19,520
Speaker 3: at three percent, well above the CBO's two percent estimate

516
00:25:19,640 --> 00:25:22,040
Speaker 3: for long run GDP growth. And that is the reason

517
00:25:22,040 --> 00:25:23,679
Speaker 3: why there is in P five hundreds have done so

518
00:25:23,720 --> 00:25:25,840
Speaker 3: well the last few years. That's the reason why credit

519
00:25:25,840 --> 00:25:28,679
Speaker 3: spreads on ig high end loans are so tight, because

520
00:25:28,720 --> 00:25:31,760
Speaker 3: we never got that slowdown that everyone worried so much about.

521
00:25:31,920 --> 00:25:33,840
Speaker 3: And now we can then start talking about if we

522
00:25:33,880 --> 00:25:36,760
Speaker 3: add Trump policies on top of this starting point, then

523
00:25:36,920 --> 00:25:39,119
Speaker 3: you can begin to worry about that maybe there's a

524
00:25:39,240 --> 00:25:43,360
Speaker 3: ray acceleration both in inflation and in GDP in twenty

525
00:25:43,440 --> 00:25:45,840
Speaker 3: twenty five as a result of the starting point being

526
00:25:46,040 --> 00:25:47,679
Speaker 3: just so strong at the moment.

527
00:25:47,840 --> 00:25:50,680
Speaker 2: So there's a couple of things you didn't mention in

528
00:25:50,840 --> 00:25:54,520
Speaker 2: contributing to the strength of the US economy, as well

529
00:25:54,520 --> 00:25:57,280
Speaker 2: as some price support, and I want to throw those

530
00:25:57,320 --> 00:26:01,000
Speaker 2: at you. So you didn't mention the mass of fiscal

531
00:26:01,040 --> 00:26:04,680
Speaker 2: spends during the pandemic of CARES Act one and two

532
00:26:04,760 --> 00:26:07,560
Speaker 2: under President Trump and KARS Act three under President Biden.

533
00:26:08,359 --> 00:26:11,240
Speaker 2: Those were enormous. Is that pig through the python and

534
00:26:11,240 --> 00:26:12,560
Speaker 2: we're still feeling the effect of that.

535
00:26:12,960 --> 00:26:16,439
Speaker 3: So those were also very important reasons why, specifically the

536
00:26:16,560 --> 00:26:18,920
Speaker 3: savings rate went up a lot in the household sext

537
00:26:19,000 --> 00:26:21,600
Speaker 3: or so excess savings you and I have been emailing

538
00:26:21,640 --> 00:26:24,879
Speaker 3: these charts back and forth. Excess savings were really high

539
00:26:24,960 --> 00:26:27,840
Speaker 3: exactly because of those fiscal policies giving a lot of

540
00:26:27,840 --> 00:26:30,960
Speaker 3: money to households, and as households were running down those

541
00:26:31,040 --> 00:26:33,800
Speaker 3: excess savings, this was also a very important tail wind

542
00:26:33,960 --> 00:26:36,200
Speaker 3: to the outlook. So I do agree that those things

543
00:26:36,240 --> 00:26:38,800
Speaker 3: have also played a very critical role in why the

544
00:26:38,800 --> 00:26:40,920
Speaker 3: economic data has continued to be so strong. Even the

545
00:26:41,000 --> 00:26:43,280
Speaker 3: last non fum payrolls number we got was of course

546
00:26:43,320 --> 00:26:46,160
Speaker 3: also very strong. And also again telling you that there

547
00:26:46,160 --> 00:26:49,200
Speaker 3: are some tailwinds, and that pick through the python has

548
00:26:49,240 --> 00:26:52,200
Speaker 3: played at a critical role in keeping the economy strong

549
00:26:52,440 --> 00:26:55,640
Speaker 3: for a much longer period than what your economics textbook

550
00:26:55,640 --> 00:26:56,320
Speaker 3: would have predicted.

551
00:26:56,560 --> 00:26:58,800
Speaker 2: So there's there's so many different questions I want to

552
00:26:58,800 --> 00:27:03,520
Speaker 2: throw at you from that. You mentioned cars, you mentioned labor,

553
00:27:03,520 --> 00:27:08,720
Speaker 2: and you mentioned houses. All three of those sectors have

554
00:27:08,840 --> 00:27:11,560
Speaker 2: a short fall of supply. We stop making cars for

555
00:27:11,560 --> 00:27:14,920
Speaker 2: a couple of years during the pandemic, So now we've

556
00:27:15,000 --> 00:27:18,159
Speaker 2: ramped up enough new car production still means we have

557
00:27:18,200 --> 00:27:22,119
Speaker 2: a short fall of pre owned cars. Housing we underbuilt

558
00:27:22,160 --> 00:27:25,240
Speaker 2: for a decade, there just doesn't and the number of

559
00:27:25,280 --> 00:27:29,240
Speaker 2: homes for sale close to record lows, and it feels

560
00:27:29,480 --> 00:27:32,640
Speaker 2: like the labor pool is as tight as it's ever

561
00:27:32,680 --> 00:27:37,160
Speaker 2: been in our lifetimes. How significant are these supply issues

562
00:27:37,600 --> 00:27:40,720
Speaker 2: to both growth and pricing?

563
00:27:41,000 --> 00:27:42,400
Speaker 4: They are very important.

564
00:27:42,520 --> 00:27:44,520
Speaker 3: And there is this as you and I also have

565
00:27:44,560 --> 00:27:47,400
Speaker 3: talked about before this academic debate about what's inflation high

566
00:27:47,440 --> 00:27:49,919
Speaker 3: because of supply or was it high because of demand?

567
00:27:50,160 --> 00:27:52,760
Speaker 3: But exactly as you are outlining, it's a much more

568
00:27:52,800 --> 00:27:56,440
Speaker 3: complicated situation where you both have supply constraints for housing

569
00:27:56,760 --> 00:27:59,560
Speaker 3: for labor across the board. In autos in many other

570
00:27:59,600 --> 00:28:02,520
Speaker 3: sexes because during the pandemic we were simply not able

571
00:28:02,560 --> 00:28:06,000
Speaker 3: to produce enough of what was needed for the economy

572
00:28:06,119 --> 00:28:08,600
Speaker 3: to go at full capacity. So therefore we did have

573
00:28:08,640 --> 00:28:10,679
Speaker 3: a decline in supply and at the same time we

574
00:28:10,720 --> 00:28:13,800
Speaker 3: had a significant increase in demand, including from the fiscal

575
00:28:13,880 --> 00:28:16,880
Speaker 3: policies that you just mentioned, and those things together were

576
00:28:16,920 --> 00:28:19,480
Speaker 3: a very important reason why inflation went up. So now

577
00:28:19,480 --> 00:28:22,440
Speaker 3: you're asking, looking into twenty twenty five, are these things

578
00:28:22,480 --> 00:28:24,720
Speaker 3: still here? I would say they are still here to

579
00:28:24,760 --> 00:28:27,000
Speaker 3: a very significant degree. And even before we've talked about

580
00:28:27,040 --> 00:28:30,040
Speaker 3: Trump policies and tariffs and restrictions in immigration and lower

581
00:28:30,040 --> 00:28:33,920
Speaker 3: corporate taxes, all these things are still pointing in my view,

582
00:28:34,080 --> 00:28:36,359
Speaker 3: to a situation where we are not out of the

583
00:28:36,359 --> 00:28:39,320
Speaker 3: woods on inflation. The risk is that inflation could begin

584
00:28:39,400 --> 00:28:41,600
Speaker 3: to see some lift simply because the fate is now

585
00:28:41,600 --> 00:28:44,800
Speaker 3: cutting and we still have tailwinds from fiscal policy AI

586
00:28:44,920 --> 00:28:47,680
Speaker 3: data under spending. We also have tailwinds from energy transition,

587
00:28:47,800 --> 00:28:49,720
Speaker 3: and by the way, what we haven't talked about either,

588
00:28:49,760 --> 00:28:52,440
Speaker 3: we also have tailwinds from defense spending, and we also,

589
00:28:52,480 --> 00:28:55,160
Speaker 3: of course have tailwinds from fiscal policy. The chipsacked the

590
00:28:55,160 --> 00:28:58,239
Speaker 3: Inflation Douction Act, the Infrastructure Act, and taken together, all

591
00:28:58,320 --> 00:29:01,080
Speaker 3: these things do point to your question, namely that there

592
00:29:01,120 --> 00:29:03,959
Speaker 3: is still a chance that we might see infasion go up,

593
00:29:04,000 --> 00:29:07,080
Speaker 3: and therefore we might see the Fed potentially race interest

594
00:29:07,120 --> 00:29:08,440
Speaker 3: rates in twenty twenty five.

595
00:29:08,720 --> 00:29:11,520
Speaker 2: So you've been very constructive on the economy for the

596
00:29:11,520 --> 00:29:16,480
Speaker 2: past two years. A lot of economists were expecting a

597
00:29:16,520 --> 00:29:20,760
Speaker 2: recession in twenty two, twenty three, twenty four. They haven't

598
00:29:21,120 --> 00:29:25,280
Speaker 2: gotten the recession they've been expecting. Why do you think

599
00:29:25,320 --> 00:29:28,480
Speaker 2: the consensus was so wrong? Is it just that's what

600
00:29:28,520 --> 00:29:30,480
Speaker 2: the textbook said exactly.

601
00:29:30,600 --> 00:29:32,360
Speaker 3: I think we've been waiting for Godou for a long

602
00:29:32,400 --> 00:29:34,960
Speaker 3: time and Godau basically has not arrived, and I don't

603
00:29:34,960 --> 00:29:37,280
Speaker 3: think he will arrive, at least not in twenty twenty five,

604
00:29:37,720 --> 00:29:40,959
Speaker 3: because I think everyone took that textbook out exactly as

605
00:29:41,000 --> 00:29:43,960
Speaker 3: you just said, Barry, and said, wow, when the Fed

606
00:29:44,040 --> 00:29:47,360
Speaker 3: racist interest rates, then the probabidias of recession goes up.

607
00:29:47,600 --> 00:29:48,640
Speaker 4: You actually see that on.

608
00:29:48,600 --> 00:29:51,640
Speaker 3: Your Bloomberg screen if you type ECFC go and look

609
00:29:51,640 --> 00:29:53,160
Speaker 3: in the opper right hand corner, you can see that

610
00:29:53,200 --> 00:29:56,160
Speaker 3: the probabidias of recession immediately when the Fed began to

611
00:29:56,240 --> 00:29:58,480
Speaker 3: race interest rates in March of twenty twenty two, the

612
00:29:58,560 --> 00:30:02,360
Speaker 3: contentus began to lift high, yeah, significantly the probability of recession.

613
00:30:02,560 --> 00:30:06,360
Speaker 3: And it was telling you that all the economies on

614
00:30:06,400 --> 00:30:09,280
Speaker 3: the street who were looking at what is the implication

615
00:30:09,400 --> 00:30:11,640
Speaker 3: if the Fed racist interest rates, they were saying, it

616
00:30:11,720 --> 00:30:14,800
Speaker 3: will absolutely be a recession. And what in my view

617
00:30:15,360 --> 00:30:18,040
Speaker 3: was at least it's clear today and was the reason

618
00:30:18,120 --> 00:30:20,960
Speaker 3: why we didn't get it was because we all underestimated

619
00:30:20,960 --> 00:30:24,640
Speaker 3: fiscal policy. We're underestimated the excess savings, meaning the money

620
00:30:24,680 --> 00:30:27,080
Speaker 3: that you just mentioned came into people's bank accounts, and

621
00:30:27,120 --> 00:30:31,080
Speaker 3: we also under estimated the interest rate insensitivity of the

622
00:30:31,200 --> 00:30:34,400
Speaker 3: Data center boom, and also the interest rate insensitivity of

623
00:30:34,600 --> 00:30:38,280
Speaker 3: energy transition, and also the interest rate insensitivity of the

624
00:30:38,280 --> 00:30:40,960
Speaker 3: fiscal policy from the CHIPSAC and the inflation arcid Act,

625
00:30:41,040 --> 00:30:44,480
Speaker 3: and those tailwinds have just kept the economy a lot stronger.

626
00:30:44,640 --> 00:30:47,360
Speaker 3: So people under estimated that it was not just about

627
00:30:47,600 --> 00:30:50,320
Speaker 3: interest rates going up. That were tailwinds that kept the

628
00:30:50,360 --> 00:30:53,720
Speaker 3: economy afloat and a lot stronger than what really almost

629
00:30:53,720 --> 00:30:54,560
Speaker 3: everyone expected.

630
00:30:54,760 --> 00:30:58,600
Speaker 2: So in twenty twenty four, the Fed finally talking about

631
00:30:58,640 --> 00:31:03,160
Speaker 2: waiting for GOODO finally began cutting interest rates. You're one

632
00:31:03,200 --> 00:31:05,520
Speaker 2: of the few economists who came out and said, Hey,

633
00:31:05,600 --> 00:31:08,120
Speaker 2: the US economy is strong enough, we really don't need

634
00:31:08,240 --> 00:31:10,000
Speaker 2: rake cuts. Explain your thinking.

635
00:31:10,120 --> 00:31:12,080
Speaker 3: Yeah, so we said, and we were wrong in the

636
00:31:12,120 --> 00:31:14,440
Speaker 3: beginning of last year that the Fed would not cut rates.

637
00:31:14,440 --> 00:31:16,719
Speaker 3: In twenty twenty four, they did cut rates now one

638
00:31:16,760 --> 00:31:17,719
Speaker 3: hundred basis points.

639
00:31:18,280 --> 00:31:19,520
Speaker 4: It is still being debated.

640
00:31:19,720 --> 00:31:22,080
Speaker 3: I know this sounds very academic, whether that was actually

641
00:31:22,080 --> 00:31:24,240
Speaker 3: a good idea or not, but it is clear that

642
00:31:24,280 --> 00:31:26,680
Speaker 3: the Fed did end up cutting interest rates, with the

643
00:31:26,760 --> 00:31:30,160
Speaker 3: main argument that inflation in June of twenty twenty two

644
00:31:30,200 --> 00:31:32,800
Speaker 3: was nine percent, and it had come down to around

645
00:31:32,880 --> 00:31:36,800
Speaker 3: three percent, So the Fed concluded three year is closer

646
00:31:36,840 --> 00:31:39,800
Speaker 3: to our target of two So this allows us to

647
00:31:39,920 --> 00:31:42,320
Speaker 3: begin to cut interest rates. The problem is where we

648
00:31:42,360 --> 00:31:44,320
Speaker 3: sit right now here. Of course, at the beginning of

649
00:31:44,320 --> 00:31:47,280
Speaker 3: twenty twenty five, that will. In the last few months,

650
00:31:47,280 --> 00:31:51,920
Speaker 3: inflation has proven more sticky, the median CPI measure from

651
00:31:51,920 --> 00:31:55,560
Speaker 3: the Cleveland Fed, the TRIMP Mean, the various measures of

652
00:31:55,600 --> 00:31:58,720
Speaker 3: acyclical inflation, and of course also various measures from the

653
00:31:59,040 --> 00:32:01,840
Speaker 3: inflation from the New York Fed that also looks at

654
00:32:01,840 --> 00:32:05,240
Speaker 3: trends in underlying the uIP measure us saying that inflation

655
00:32:05,320 --> 00:32:07,840
Speaker 3: is beginning to move more sideways and some indicators begin

656
00:32:07,960 --> 00:32:08,480
Speaker 3: to move up.

657
00:32:08,720 --> 00:32:09,640
Speaker 4: So again, even.

658
00:32:09,480 --> 00:32:12,360
Speaker 3: Before we have spoken about Trump policy is potentially giving

659
00:32:12,360 --> 00:32:15,040
Speaker 3: a lift to even as if it's modest lift to inflation,

660
00:32:15,240 --> 00:32:17,920
Speaker 3: the problem is that inflation today is three and three

661
00:32:18,000 --> 00:32:20,240
Speaker 3: is not two. And if I started three and I

662
00:32:20,280 --> 00:32:22,480
Speaker 3: begin to add a risk of a strong economy, and

663
00:32:22,520 --> 00:32:25,320
Speaker 3: I add a risk of both terriffs and restrictions and immigration,

664
00:32:25,600 --> 00:32:27,520
Speaker 3: the risk is not that inflation goes down to two,

665
00:32:27,760 --> 00:32:29,880
Speaker 3: but the risk is that three begins to become higher.

666
00:32:30,000 --> 00:32:32,720
Speaker 3: So that's why we still are in the camp of

667
00:32:32,800 --> 00:32:36,720
Speaker 3: thinking that, well, maybe we are still a little bit

668
00:32:36,920 --> 00:32:40,400
Speaker 3: early in declaring victory over this issue. On hey, inflation

669
00:32:40,520 --> 00:32:43,200
Speaker 3: is no longer a problem, because maybe inflation could come

670
00:32:43,240 --> 00:32:45,520
Speaker 3: back in twenty twenty five and we just don't quite

671
00:32:45,600 --> 00:32:47,960
Speaker 3: yet have it completely under control. And that's what AFMC

672
00:32:48,080 --> 00:32:51,000
Speaker 3: members have been saying in speeches, namely that well, maybe

673
00:32:51,000 --> 00:32:52,760
Speaker 3: we need to go a little bit more slowly, and

674
00:32:52,800 --> 00:32:55,200
Speaker 3: maybe we should even just take a pause and take

675
00:32:55,240 --> 00:32:57,880
Speaker 3: a break and see, well how long time it will

676
00:32:57,880 --> 00:33:00,120
Speaker 3: it take before inflation begins to show more signs of

677
00:33:00,200 --> 00:33:02,000
Speaker 3: it actually continuously moving low.

678
00:33:02,000 --> 00:33:05,200
Speaker 2: One. Well, in the last presser, it's pretty clear Jerome

679
00:33:05,240 --> 00:33:08,000
Speaker 2: Powell wants to take a break. But it raises the

680
00:33:08,120 --> 00:33:10,480
Speaker 2: question if all this is true about the strength of

681
00:33:10,520 --> 00:33:14,840
Speaker 2: the US economy. And I completely agree with you. I've

682
00:33:14,880 --> 00:33:17,840
Speaker 2: been trying to figure out what is their thinking why

683
00:33:19,280 --> 00:33:21,480
Speaker 2: would they cut? And I kind of came up with

684
00:33:21,480 --> 00:33:23,760
Speaker 2: two theories, and I want to bounce them off you.

685
00:33:24,680 --> 00:33:27,960
Speaker 2: One is, the bottom half of the economy really is

686
00:33:28,000 --> 00:33:31,680
Speaker 2: feeling the effects of higher credit, whether it's credit cards,

687
00:33:32,360 --> 00:33:36,680
Speaker 2: automobile loans, to say nothing of new mortgage rates. And

688
00:33:36,720 --> 00:33:40,120
Speaker 2: then second, related to mortgage rates, so many people have

689
00:33:40,280 --> 00:33:44,080
Speaker 2: locked in low rates. It's almost a set of golden

690
00:33:44,120 --> 00:33:48,360
Speaker 2: handcuffs and they're stuck to that house that they can't

691
00:33:48,560 --> 00:33:53,160
Speaker 2: move out of because the financing costs of a newer house,

692
00:33:53,240 --> 00:33:55,920
Speaker 2: a larger house, or wherever they want to move is

693
00:33:56,080 --> 00:33:58,720
Speaker 2: just so much greater than where they are. All the

694
00:33:58,800 --> 00:34:03,000
Speaker 2: supply is frozen place remotely close or what do you think?

695
00:34:03,320 --> 00:34:06,760
Speaker 3: So the argument that the Fed or their firmc laid

696
00:34:06,760 --> 00:34:09,560
Speaker 3: out for why they were cutting interest rates was simply

697
00:34:09,560 --> 00:34:12,920
Speaker 3: that inflation had come down and their goal at their

698
00:34:12,920 --> 00:34:16,080
Speaker 3: federal reserve is the dual meant they're given by Congress, namely,

699
00:34:16,120 --> 00:34:18,400
Speaker 3: they need to have inflation at two percent and they

700
00:34:18,440 --> 00:34:20,800
Speaker 3: need to have full employment. And given inflation was closer

701
00:34:20,840 --> 00:34:23,920
Speaker 3: to two percent, three percent is closer to two than

702
00:34:24,040 --> 00:34:26,880
Speaker 3: nine is to two. They were saying, we can begin.

703
00:34:26,640 --> 00:34:27,600
Speaker 4: To cut interest rates.

704
00:34:27,680 --> 00:34:30,360
Speaker 3: But it's absolutely clear what you're saying that It was

705
00:34:30,520 --> 00:34:32,839
Speaker 3: definitely the case and continue to be the case that

706
00:34:33,320 --> 00:34:36,880
Speaker 3: who is it that is impacted when interest rates are high?

707
00:34:37,080 --> 00:34:40,080
Speaker 3: It is people and balanteed with a lot of debt.

708
00:34:40,239 --> 00:34:41,640
Speaker 4: That is both the case.

709
00:34:41,520 --> 00:34:44,359
Speaker 3: In credit, meaning for firms, but that is also the

710
00:34:44,400 --> 00:34:47,080
Speaker 3: case for households. Households that have a lot of debt

711
00:34:47,360 --> 00:34:50,239
Speaker 3: are more vulnerable when interest rates are high. And who

712
00:34:50,320 --> 00:34:52,360
Speaker 3: are the households, as you were just saying, who have

713
00:34:52,480 --> 00:34:55,879
Speaker 3: more debt? That is by definition young households, because when

714
00:34:55,880 --> 00:34:58,319
Speaker 3: you're young, you have more debt on your credit card,

715
00:34:58,440 --> 00:35:01,120
Speaker 3: on your auto loan, on your student, on your mortgage.

716
00:35:01,239 --> 00:35:03,680
Speaker 3: So if interest rates are higher for longer, it by

717
00:35:03,719 --> 00:35:08,440
Speaker 3: definition has a more negative impact on lower income and

718
00:35:08,680 --> 00:35:11,800
Speaker 3: younger households because when you're young, you're generally also lower income.

719
00:35:12,000 --> 00:35:15,799
Speaker 3: So it is the reality, it's not very comfortable for

720
00:35:15,880 --> 00:35:17,480
Speaker 3: the FED to talk about it this way, but it

721
00:35:17,560 --> 00:35:22,319
Speaker 3: is real reality that FED policy has distributional consequences. It

722
00:35:22,400 --> 00:35:25,200
Speaker 3: hurts those who have debt and it helps those who

723
00:35:25,280 --> 00:35:29,320
Speaker 3: have assets. And that's exactly the distribution across the income distribution,

724
00:35:29,400 --> 00:35:32,560
Speaker 3: across h across fight coss course, namely that if you

725
00:35:32,600 --> 00:35:36,080
Speaker 3: are a low income, low fight call and younger household

726
00:35:36,360 --> 00:35:39,680
Speaker 3: you have been hit harder by interest rates being higher.

727
00:35:39,719 --> 00:35:41,839
Speaker 4: So that's why when interest rates started to go.

728
00:35:41,840 --> 00:35:44,520
Speaker 3: Down, that would likely not that this was the goal,

729
00:35:44,800 --> 00:35:48,000
Speaker 3: but that would likely then be helping these households that

730
00:35:48,239 --> 00:35:51,319
Speaker 3: have been harder hit and more negatively impacted by high

731
00:35:51,440 --> 00:35:52,160
Speaker 3: interest rates.

732
00:35:52,400 --> 00:35:54,840
Speaker 2: So we look at the inflation rate in the United

733
00:35:54,880 --> 00:35:58,960
Speaker 2: States hanging around two and a half percent, little under three. Well,

734
00:35:59,000 --> 00:36:01,080
Speaker 2: it depends on what you're looking at CPI or CORE

735
00:36:01,520 --> 00:36:04,879
Speaker 2: or PCE or whatever. But you look around the rest

736
00:36:04,880 --> 00:36:07,239
Speaker 2: of the world x US, it's like four and a

737
00:36:07,280 --> 00:36:10,759
Speaker 2: half percent. Why does the rest of the world have

738
00:36:11,040 --> 00:36:14,200
Speaker 2: so much higher of an inflation rate than we do

739
00:36:14,280 --> 00:36:15,160
Speaker 2: here in the United States.

740
00:36:15,239 --> 00:36:17,800
Speaker 3: Yeah, So one important answer to that is that Europe

741
00:36:18,080 --> 00:36:21,560
Speaker 3: is unfortunately not in a particularly good situation relative to

742
00:36:21,640 --> 00:36:25,120
Speaker 3: the US. Europe is having the challenge that China is

743
00:36:25,160 --> 00:36:27,680
Speaker 3: slowing down. Remember, China is slowing down for three reasons.

744
00:36:27,680 --> 00:36:30,920
Speaker 3: Slowing down because of demographic problems. Remember, the workforce in

745
00:36:31,000 --> 00:36:33,439
Speaker 3: China is about a billion people, and the United Nations

746
00:36:33,520 --> 00:36:35,399
Speaker 3: is forecasting that over the next ten years that will

747
00:36:35,400 --> 00:36:38,200
Speaker 3: shrink from a billion to nine hundred million. That means

748
00:36:38,200 --> 00:36:40,520
Speaker 3: that we are removing one hundred million people in the

749
00:36:40,600 --> 00:36:44,200
Speaker 3: Chinese workforce over the next decade, meaning one hundred million people.

750
00:36:44,280 --> 00:36:47,880
Speaker 3: Few are working in the service sector, in the manufacturing sector,

751
00:36:48,000 --> 00:36:50,600
Speaker 3: one hundred million people. Few are paying taxes, one hundred

752
00:36:50,640 --> 00:36:53,960
Speaker 3: million people. Few are demanding housing and at different housing needs.

753
00:36:54,160 --> 00:36:58,640
Speaker 3: All those things a Japanese style hit wind to Chinese growth. Overall,

754
00:36:58,840 --> 00:37:02,200
Speaker 3: China is also having at deflating housing bubble. Existing home

755
00:37:02,200 --> 00:37:04,439
Speaker 3: prices are falling nine percent, new home prices are falling

756
00:37:04,480 --> 00:37:06,880
Speaker 3: six percent. And finally, China is also engaged in a

757
00:37:06,960 --> 00:37:09,480
Speaker 3: trade war not only with US, but also with Europe.

758
00:37:09,640 --> 00:37:12,600
Speaker 3: So because of the headwinds to China, we also have

759
00:37:12,640 --> 00:37:15,520
Speaker 3: some headwinds therefore to Germany in particular, but Europe, because

760
00:37:15,560 --> 00:37:18,480
Speaker 3: Europe produces a lot of theirs simply line in China

761
00:37:18,520 --> 00:37:21,080
Speaker 3: and if we don't have that demand from China for

762
00:37:21,160 --> 00:37:24,279
Speaker 3: assembly lines and for manufacturing goods and for capital in

763
00:37:24,280 --> 00:37:24,960
Speaker 3: sensitive goods.

764
00:37:25,040 --> 00:37:26,680
Speaker 4: That means that Europe is also in trouble.

765
00:37:26,880 --> 00:37:29,759
Speaker 3: So the problem which you asked about is Germany, and

766
00:37:29,840 --> 00:37:32,520
Speaker 3: therefore the European economy is not in a good place either.

767
00:37:32,920 --> 00:37:35,360
Speaker 3: And the channels now is that the service sector inflation

768
00:37:35,840 --> 00:37:39,120
Speaker 3: in Europe is driven a lot by wage inflation because

769
00:37:39,160 --> 00:37:42,000
Speaker 3: a lot of wages are basically directly spilling over the

770
00:37:42,000 --> 00:37:44,560
Speaker 3: service sector and therefore that's how it's measured when you

771
00:37:44,600 --> 00:37:47,840
Speaker 3: measure inflation in services. And the concusion is because of

772
00:37:47,880 --> 00:37:52,000
Speaker 3: trade unions and while wage negotiations and bargaining is being delayed,

773
00:37:52,360 --> 00:37:54,840
Speaker 3: we still to this day have wage negotiations that i

774
00:37:54,920 --> 00:37:57,840
Speaker 3: function of what we're in what inflation numbers for the

775
00:37:57,960 --> 00:38:00,880
Speaker 3: last several years, and looking back, inflation was high. So

776
00:38:01,000 --> 00:38:03,839
Speaker 3: that's why with the delay, wage inflation is also high.

777
00:38:03,840 --> 00:38:06,120
Speaker 3: And therefore with the delay, service x inflation.

778
00:38:06,040 --> 00:38:06,719
Speaker 4: Is also high.

779
00:38:06,960 --> 00:38:10,360
Speaker 3: So it's just because of some institutional reasons. Europe just

780
00:38:10,440 --> 00:38:13,880
Speaker 3: has a different wage and price dynamic because of this

781
00:38:14,000 --> 00:38:17,920
Speaker 3: delay in wate negotiations, and that is keeping inflation rates

782
00:38:17,960 --> 00:38:21,279
Speaker 3: more elevated, especially in services. Inflation in Europe right to

783
00:38:21,560 --> 00:38:23,120
Speaker 3: what we're having in the US now.

784
00:38:23,160 --> 00:38:26,080
Speaker 2: I know, the thirty year fixed MORTGAGEES is, you know,

785
00:38:26,160 --> 00:38:29,399
Speaker 2: beloved here in the US most of Europe, it's it's

786
00:38:29,440 --> 00:38:33,000
Speaker 2: a variable inflation. It's a variable rate. How does that

787
00:38:33,080 --> 00:38:36,960
Speaker 2: variable rate impact inflation in Europe? And how significant is

788
00:38:36,960 --> 00:38:40,160
Speaker 2: that to their overall equivalent of CPI.

789
00:38:40,280 --> 00:38:41,960
Speaker 4: Yeah, and this is really really important.

790
00:38:42,000 --> 00:38:44,239
Speaker 3: I mean, as we spoke about earlier, I started my

791
00:38:44,400 --> 00:38:46,200
Speaker 3: lovely career at the IMF and there s a D.

792
00:38:46,320 --> 00:38:47,600
Speaker 3: And at the IMF and there was a D. Your

793
00:38:47,680 --> 00:38:50,200
Speaker 3: job is actually quite simple. If the US is good,

794
00:38:50,480 --> 00:38:53,040
Speaker 3: Europe is good. If the US is bad, Europe is bad.

795
00:38:53,360 --> 00:38:55,759
Speaker 3: But this is not the case today. And exactly what

796
00:38:55,760 --> 00:38:58,360
Speaker 3: you're saying is a very important reason, namely that the

797
00:38:58,520 --> 00:39:01,960
Speaker 3: interest rates sensitivity of the US economy is a lot

798
00:39:02,040 --> 00:39:05,160
Speaker 3: lower simply because people have locked in interest rates. Whereas

799
00:39:05,200 --> 00:39:08,280
Speaker 3: think about literally, as you mentioned all other OECD countries

800
00:39:08,320 --> 00:39:11,879
Speaker 3: in the UK, in France, Australia, Canada, take the Bank

801
00:39:11,880 --> 00:39:15,239
Speaker 3: of England. When interest rates go up, mortgage payments for

802
00:39:15,320 --> 00:39:19,240
Speaker 3: households go up immediately. So that means that monetary policy

803
00:39:19,320 --> 00:39:23,080
Speaker 3: has a much more immediate negative impact on the European

804
00:39:23,120 --> 00:39:25,360
Speaker 3: and in this case the UK economy than it does

805
00:39:25,480 --> 00:39:28,840
Speaker 3: in the US, simply because exactly the mortgage market is

806
00:39:28,920 --> 00:39:31,680
Speaker 3: much more a function of short term interistrates than long

807
00:39:31,760 --> 00:39:32,360
Speaker 3: term insterstrates.

808
00:39:32,400 --> 00:39:33,279
Speaker 4: And why is that the case.

809
00:39:33,600 --> 00:39:35,560
Speaker 3: That's the case because in the US, and you wrote

810
00:39:35,560 --> 00:39:38,000
Speaker 3: a book about this many years ago, we have decided

811
00:39:38,040 --> 00:39:40,279
Speaker 3: that for Fanny and Freddy, for you to get a

812
00:39:40,360 --> 00:39:43,440
Speaker 3: conventional mortgage, you must show up at their doorstep with

813
00:39:43,560 --> 00:39:46,040
Speaker 3: a thirty year fixed rate mortgage. You cannot show up

814
00:39:46,080 --> 00:39:48,480
Speaker 3: with any other mortgage. Then the government will not guarantee it.

815
00:39:48,600 --> 00:39:50,640
Speaker 3: If you show up with that, they will guarantee it.

816
00:39:50,719 --> 00:39:53,239
Speaker 3: So that means that the mortgage market is ninety five

817
00:39:53,239 --> 00:39:55,360
Speaker 3: percent of mortgage are standing at thirty year fixed and

818
00:39:55,400 --> 00:39:57,919
Speaker 3: that is simply not the case basically in any other

819
00:39:58,120 --> 00:40:01,040
Speaker 3: OECD country. And that means the US this unique feature

820
00:40:01,400 --> 00:40:05,239
Speaker 3: that Central Bank of fit policy simply has less of

821
00:40:05,280 --> 00:40:08,320
Speaker 3: an impact. It's simply less potent relative to what you see,

822
00:40:08,520 --> 00:40:11,759
Speaker 3: especially in Europe, but also again UK, Australia, Canada and

823
00:40:11,840 --> 00:40:13,160
Speaker 3: the rest of their West countries.

824
00:40:13,440 --> 00:40:16,200
Speaker 2: You also drop the data point that I have to

825
00:40:16,320 --> 00:40:21,160
Speaker 2: follow up the billion to nine hundred million shift in

826
00:40:21,840 --> 00:40:27,359
Speaker 2: workers over the next decade. Essentially you're saying China is

827
00:40:27,440 --> 00:40:32,080
Speaker 2: losing a million workers a month for the next decade.

828
00:40:31,560 --> 00:40:35,839
Speaker 2: Imagine if nine non farm payroll came out each month

829
00:40:35,880 --> 00:40:38,360
Speaker 2: and it was negative eight hundred and fifty thousand people.

830
00:40:38,840 --> 00:40:41,240
Speaker 2: That's just an astonishing data point.

831
00:40:41,280 --> 00:40:43,600
Speaker 3: And that is exactly because of the one child policy

832
00:40:43,719 --> 00:40:45,680
Speaker 3: that of course is beginning to catch up with the

833
00:40:45,760 --> 00:40:49,279
Speaker 3: Chinese economy. So if you think about the consequences of

834
00:40:49,560 --> 00:40:51,640
Speaker 3: the one child policy, is of course that if you

835
00:40:51,719 --> 00:40:54,600
Speaker 3: have a small a population, the population will begin to shrink,

836
00:40:54,719 --> 00:40:56,520
Speaker 3: and the consequence, of course is that that you will

837
00:40:56,560 --> 00:40:59,359
Speaker 3: get really what I would describe as Japanese style hit

838
00:40:59,400 --> 00:41:02,520
Speaker 3: wins from a demographic perspective, similar to what we have

839
00:41:02,560 --> 00:41:04,520
Speaker 3: seen in Japan now for many decades.

840
00:41:04,880 --> 00:41:09,400
Speaker 2: So we have a soft China, although Japan seems to

841
00:41:09,440 --> 00:41:13,240
Speaker 2: be getting out of its own way and doing pretty well. Yes,

842
00:41:13,560 --> 00:41:17,080
Speaker 2: Europe is kind of struggling. The rest of the emerging

843
00:41:17,200 --> 00:41:21,239
Speaker 2: market world seems to be doing okay outside of hotspots

844
00:41:22,000 --> 00:41:25,440
Speaker 2: where there are problems. How do you get to a

845
00:41:25,680 --> 00:41:29,399
Speaker 2: two point three percent GDP in the US given all

846
00:41:29,400 --> 00:41:33,080
Speaker 2: that challenging data points around the rest of the world.

847
00:41:33,160 --> 00:41:35,040
Speaker 3: Yes, so there are some very important aspects of this

848
00:41:35,120 --> 00:41:37,400
Speaker 3: name in the US is actually, and I know this

849
00:41:37,480 --> 00:41:40,120
Speaker 3: sounds a little bit academic, but the US is actually

850
00:41:40,200 --> 00:41:43,400
Speaker 3: the only economy in the world that's a close economy.

851
00:41:43,480 --> 00:41:45,120
Speaker 3: And what I mean by that is that that's an

852
00:41:45,120 --> 00:41:47,560
Speaker 3: economy that does not depend too much on the rest

853
00:41:47,560 --> 00:41:50,600
Speaker 3: of the world. You always talk about in the literature

854
00:41:51,000 --> 00:41:54,000
Speaker 3: in economics about the small open economy. So Denmark is

855
00:41:54,040 --> 00:41:56,920
Speaker 3: a small open economy, Australia is a small open economy.

856
00:41:57,040 --> 00:41:59,759
Speaker 3: Canada is actually also a small open economy because they

857
00:42:00,000 --> 00:42:02,719
Speaker 3: depend on others. But the US really doesn't depend to

858
00:42:02,760 --> 00:42:04,520
Speaker 3: the same degree on others the West the way that

859
00:42:04,560 --> 00:42:07,240
Speaker 3: others depend on the US. And why is that important here?

860
00:42:07,360 --> 00:42:09,600
Speaker 3: That's very important because if we take the three reasons

861
00:42:09,600 --> 00:42:11,800
Speaker 3: we talked about earlier why the US is doing so well,

862
00:42:12,000 --> 00:42:14,680
Speaker 3: less interest rates sensitivity, we have an AI and data

863
00:42:14,680 --> 00:42:17,600
Speaker 3: center boom, we have strong fiscal policies. These are all

864
00:42:17,680 --> 00:42:20,880
Speaker 3: things that we simply don't have in other countries. Instead,

865
00:42:21,080 --> 00:42:24,520
Speaker 3: we have some significant headwinds to growth in other countries.

866
00:42:24,520 --> 00:42:27,080
Speaker 3: So that means that at the aggregate level, the US

867
00:42:27,120 --> 00:42:31,520
Speaker 3: continues to do well for some very idiosyncratic tailwinds and Europe,

868
00:42:31,800 --> 00:42:33,720
Speaker 3: and the rest of the world is not doing well

869
00:42:33,840 --> 00:42:37,800
Speaker 3: from actually some different idiosyncratic headwinds. And now finally for markets.

870
00:42:37,800 --> 00:42:39,960
Speaker 3: Why is this important Because if you think about it,

871
00:42:39,960 --> 00:42:42,760
Speaker 3: for this in p. Five hundred, suddenly this becomes relevant

872
00:42:42,760 --> 00:42:44,120
Speaker 3: what's going on in the rest of the world because

873
00:42:44,160 --> 00:42:47,320
Speaker 3: this inp. Five one hundred is not the USGDP forty

874
00:42:47,320 --> 00:42:49,840
Speaker 3: percent of revenue and the SNP five hundred comes from abroad.

875
00:42:49,960 --> 00:42:53,600
Speaker 3: So if Apple sells fewer iPhones in Canada, in Europe,

876
00:42:53,800 --> 00:42:57,600
Speaker 3: in Australia, that will have vacations for Apple's earnings. Likewise,

877
00:42:57,760 --> 00:43:00,680
Speaker 3: SMP five hundred companies that sell things up broad if

878
00:43:00,719 --> 00:43:02,759
Speaker 3: the rest of the world is bad, that could be

879
00:43:02,880 --> 00:43:05,480
Speaker 3: one way that this could begin to have negative consequences

880
00:43:05,520 --> 00:43:06,200
Speaker 3: for this and P.

881
00:43:06,280 --> 00:43:06,920
Speaker 4: Five hundred.

882
00:43:07,160 --> 00:43:10,000
Speaker 3: That's not my baseline forecast, but I am getting more

883
00:43:10,000 --> 00:43:12,799
Speaker 3: and more word about this divergence with the US doing

884
00:43:12,800 --> 00:43:15,719
Speaker 3: good and everyone else doing poorly. The consequence of that

885
00:43:15,760 --> 00:43:18,120
Speaker 3: could be that that could ultimately show up in earnings

886
00:43:18,200 --> 00:43:20,759
Speaker 3: because this in p. Five hundred is to a very

887
00:43:20,800 --> 00:43:24,160
Speaker 3: significant degree. Again, forty percent of revenue in this INP.

888
00:43:24,239 --> 00:43:27,359
Speaker 3: Five hundred comes from abroad, and abroad is not doing well.

889
00:43:27,520 --> 00:43:29,960
Speaker 3: Then the revenues from abroad will also begin to have

890
00:43:30,000 --> 00:43:32,280
Speaker 3: a negative impact on earnings for SMP.

891
00:43:32,800 --> 00:43:36,600
Speaker 2: Last international question before we jump to the new Trump administration.

892
00:43:38,239 --> 00:43:41,480
Speaker 2: It's kind of fascinating Japan couldn't get out of its

893
00:43:41,480 --> 00:43:45,320
Speaker 2: own way for decades. Their market had peaked in nineteen

894
00:43:45,360 --> 00:43:49,359
Speaker 2: eighty nine, took almost thirty years to set new highs,

895
00:43:49,440 --> 00:43:56,000
Speaker 2: more than thirty years. Why did Japan suddenly start performing

896
00:43:56,160 --> 00:43:59,600
Speaker 2: not just the stock market but their economy. Suddenly it

897
00:43:59,640 --> 00:44:03,160
Speaker 2: looks like Japan is number two to the US and

898
00:44:03,200 --> 00:44:04,760
Speaker 2: everybody else's distant third.

899
00:44:04,880 --> 00:44:07,319
Speaker 3: Yeah, there are three reasons why Japan is doing so

900
00:44:07,360 --> 00:44:09,400
Speaker 3: well at the moment. Number one is that the exchange

901
00:44:09,480 --> 00:44:13,279
Speaker 3: rate has depreciated a lot, and Japan is an exporting economy.

902
00:44:13,400 --> 00:44:17,200
Speaker 3: It is again a small, open economy that is definitely

903
00:44:17,239 --> 00:44:20,920
Speaker 3: experiencing a tailwind to economic growth from exports moving higher

904
00:44:21,000 --> 00:44:24,160
Speaker 3: simply because of the depreciation in the exchange rate. The

905
00:44:24,239 --> 00:44:27,759
Speaker 3: second reason is also that in Japan there's actually been

906
00:44:27,800 --> 00:44:31,200
Speaker 3: some quite fundamental changes in governance. There have been some

907
00:44:31,280 --> 00:44:35,200
Speaker 3: quite fundamental changes in the policies set up in terms

908
00:44:35,320 --> 00:44:38,719
Speaker 3: of how at least the government talks about corporates and

909
00:44:38,760 --> 00:44:42,600
Speaker 3: how they talk about finance. There is an increased willingness

910
00:44:42,920 --> 00:44:48,360
Speaker 3: in Japan to give more support to basically people coming

911
00:44:48,400 --> 00:44:52,440
Speaker 3: and buying companies, lending to companies. So that's why private equity,

912
00:44:52,480 --> 00:44:55,239
Speaker 3: private credit has been busy in Japan, simply because it's

913
00:44:55,239 --> 00:44:58,120
Speaker 3: been getting a lot of policy support from politicians that

914
00:44:58,200 --> 00:45:01,719
Speaker 3: want to change the governance in Japanese companies. And third

915
00:45:01,719 --> 00:45:05,040
Speaker 3: and finally, Japan is actually also and this might sound

916
00:45:05,080 --> 00:45:07,560
Speaker 3: a little bit peculiar, but they're actually benefiting from some

917
00:45:07,600 --> 00:45:11,960
Speaker 3: of the problems in China now that suddenly Japan is becoming,

918
00:45:12,120 --> 00:45:15,440
Speaker 3: of course still a big manufacturing nation, but also now

919
00:45:15,480 --> 00:45:18,080
Speaker 3: a place where more investment is taking place now that

920
00:45:18,120 --> 00:45:21,000
Speaker 3: there have been these renewed worries about the outlook for China.

921
00:45:21,080 --> 00:45:23,280
Speaker 3: So the short answer to your question is the exchange

922
00:45:23,320 --> 00:45:26,880
Speaker 3: rate is supporting the Japanese economic outlook, changes in governance

923
00:45:26,920 --> 00:45:30,080
Speaker 3: and changes in corporate finance, and the political support for

924
00:45:30,600 --> 00:45:34,560
Speaker 3: activist investors has also been supportive for the Japanese outlook

925
00:45:34,600 --> 00:45:37,520
Speaker 3: and for Japanese financial markets. And finally, Japan has also

926
00:45:37,520 --> 00:45:41,400
Speaker 3: been benefiting for geopolitical reasons for the tailwinds coming because

927
00:45:41,400 --> 00:45:43,959
Speaker 3: of some of the challenges that we're seeing in China

928
00:45:44,000 --> 00:45:44,480
Speaker 3: at the moment.

929
00:45:44,560 --> 00:45:48,480
Speaker 2: Huh, really really fascinating. So we were talking about the

930
00:45:48,680 --> 00:45:53,359
Speaker 2: state of the global economy. Now we have a brand

931
00:45:53,440 --> 00:45:58,160
Speaker 2: new president. Let's start out just discussing how lucky this

932
00:45:58,239 --> 00:46:03,560
Speaker 2: guy is to inherit for the second time. An economy that,

933
00:46:04,000 --> 00:46:06,719
Speaker 2: to use your words, is firing on all cylinders.

934
00:46:07,000 --> 00:46:09,960
Speaker 3: Yeah, the economy is actually in great shape today. We

935
00:46:10,040 --> 00:46:12,000
Speaker 3: have an U employment rate of four point one percent.

936
00:46:12,440 --> 00:46:15,239
Speaker 3: GDP growth has for the last several quarters been around

937
00:46:15,280 --> 00:46:18,360
Speaker 3: three percent, and that's also what their linefit GDPs the

938
00:46:18,400 --> 00:46:21,120
Speaker 3: mid now is for the fourth quarter. So the starting

939
00:46:21,160 --> 00:46:25,319
Speaker 3: point is a fairly strong economy. The only little macroeconomic

940
00:46:25,360 --> 00:46:27,239
Speaker 3: thing you can worry about is what we have talked about.

941
00:46:27,320 --> 00:46:30,040
Speaker 3: Name the inflation is still a little bit too high

942
00:46:30,280 --> 00:46:33,120
Speaker 3: around three percent on CPI when it comes to both

943
00:46:33,200 --> 00:46:35,799
Speaker 3: core and headline. And that's of course the challenge here

944
00:46:35,840 --> 00:46:38,480
Speaker 3: name me and already strong economy and a little bit

945
00:46:38,560 --> 00:46:41,160
Speaker 3: too elevated inflation. That's the starting point for where we

946
00:46:41,160 --> 00:46:41,680
Speaker 3: sit today.

947
00:46:42,040 --> 00:46:45,520
Speaker 2: So I want to talk about taxes and regulation and tariffs.

948
00:46:45,600 --> 00:46:50,319
Speaker 2: But before we get there, I know President Trump focuses

949
00:46:50,760 --> 00:46:53,160
Speaker 2: on the stock market to a lesser degree, the bond

950
00:46:53,200 --> 00:46:57,080
Speaker 2: market how do you think about valuations for both equities

951
00:46:57,080 --> 00:47:00,760
Speaker 2: and fixed income here in the beginning of twenty five.

952
00:47:00,840 --> 00:47:03,359
Speaker 3: Well, if you there are various ways of looking at that,

953
00:47:03,480 --> 00:47:05,640
Speaker 3: but one simple way of looking at that is to

954
00:47:05,680 --> 00:47:09,280
Speaker 3: go back and look at the Shiller cyclically adjusted PE ratio.

955
00:47:09,440 --> 00:47:13,080
Speaker 3: And this Shiller cyclically adjusted PE ratio is basically, as

956
00:47:13,080 --> 00:47:15,879
Speaker 3: you know too well, a complicated way of saying, let's

957
00:47:15,920 --> 00:47:18,879
Speaker 3: try to take the business cycle out of earnings by

958
00:47:18,920 --> 00:47:21,359
Speaker 3: taking a ten year average of earnings for the last

959
00:47:21,400 --> 00:47:24,399
Speaker 3: ten years and ask the question, where is the stock

960
00:47:24,440 --> 00:47:27,279
Speaker 3: market whereas there in p. Five hundred relative to a

961
00:47:27,400 --> 00:47:29,960
Speaker 3: ten year moving average of earnings, And the answer to

962
00:47:30,000 --> 00:47:33,520
Speaker 3: that is that the Schiller cyclically adjusted PE ratio, which

963
00:47:33,560 --> 00:47:36,400
Speaker 3: is an attempt to try to correct the stock market

964
00:47:36,480 --> 00:47:39,560
Speaker 3: valuations for the business cycle, is currently at a very

965
00:47:39,640 --> 00:47:41,120
Speaker 3: elevated thirty seven.

966
00:47:41,280 --> 00:47:43,560
Speaker 4: That means rember in the long run. The PE ratio

967
00:47:43,640 --> 00:47:44,040
Speaker 4: for this in P.

968
00:47:44,120 --> 00:47:47,000
Speaker 3: Five hundred is sixteen over the last fifty years. So

969
00:47:47,760 --> 00:47:52,400
Speaker 3: Schiller cyclically adjusted so called CAPE ratio at thirty seven

970
00:47:52,760 --> 00:47:55,360
Speaker 3: is and thirty eight and approaching forty is indeed a

971
00:47:55,560 --> 00:47:58,080
Speaker 3: very very elevated level of valuation.

972
00:47:58,280 --> 00:48:01,040
Speaker 2: So so let me ask you two questions about that. First,

973
00:48:01,719 --> 00:48:04,640
Speaker 2: we're not that far apart in age. For most of

974
00:48:04,680 --> 00:48:09,480
Speaker 2: our careers, CAPE has been elevated almost the entire time.

975
00:48:09,960 --> 00:48:12,640
Speaker 2: If you were not inequities because of an elevated CAPE,

976
00:48:12,960 --> 00:48:14,439
Speaker 2: well you missed the hell of a move.

977
00:48:15,120 --> 00:48:16,920
Speaker 3: It just happens to be the case that with the

978
00:48:16,960 --> 00:48:19,680
Speaker 3: Trump presidency, this is the highest level of CAPE at

979
00:48:19,680 --> 00:48:22,920
Speaker 3: the start of any presidency going back in the last

980
00:48:23,040 --> 00:48:23,600
Speaker 3: fifty years.

981
00:48:23,680 --> 00:48:25,080
Speaker 4: Huh So that means.

982
00:48:24,800 --> 00:48:27,920
Speaker 3: That we are starting at an extremely elevated level of valuations,

983
00:48:28,520 --> 00:48:31,080
Speaker 3: at least on the Shillos syclically adjusted level. So let's

984
00:48:31,080 --> 00:48:32,960
Speaker 3: now turn to other things that are going on in

985
00:48:32,960 --> 00:48:34,880
Speaker 3: the stock market. As you know much better than me,

986
00:48:35,280 --> 00:48:37,560
Speaker 3: forty percent of this and P. Five hundred is the

987
00:48:37,600 --> 00:48:39,799
Speaker 3: top ten stocks. You also know that most of the

988
00:48:39,840 --> 00:48:43,480
Speaker 3: returns have been coming from really the Nvidia having great performance.

989
00:48:43,640 --> 00:48:46,880
Speaker 3: And we also know very well that, of course, if

990
00:48:47,080 --> 00:48:50,359
Speaker 3: you have such a high concentration of the Magnificent seven

991
00:48:50,360 --> 00:48:52,759
Speaker 3: and the top ten biggest stocks in your index, this

992
00:48:52,880 --> 00:48:56,080
Speaker 3: goes completely against Page one in my finance textbook. Page

993
00:48:56,080 --> 00:48:59,120
Speaker 3: one in my finance textbook says you must diversify, and

994
00:48:59,160 --> 00:49:01,520
Speaker 3: if you take a hundred fresh dollars and put into

995
00:49:01,560 --> 00:49:01,880
Speaker 3: this in p.

996
00:49:01,960 --> 00:49:02,480
Speaker 4: Five hundred.

997
00:49:02,480 --> 00:49:05,800
Speaker 3: Today, you're not diversified. You are basically betting on in

998
00:49:05,920 --> 00:49:08,600
Speaker 3: Vidia still having good earnings. And I love sitting there

999
00:49:08,600 --> 00:49:11,240
Speaker 3: on a Wednesday afternoon looking at whether in video earnings

1000
00:49:11,280 --> 00:49:13,040
Speaker 3: where good or we're bad, and I love the adrenaline

1001
00:49:13,120 --> 00:49:15,480
Speaker 3: russ that comes with investing in Nvidia and a lot

1002
00:49:15,520 --> 00:49:17,240
Speaker 3: of other Magnificent seven stocks.

1003
00:49:17,320 --> 00:49:18,520
Speaker 4: But the conclusion still is the.

1004
00:49:18,520 --> 00:49:22,520
Speaker 3: Same that, well, if I'm saving money for the long

1005
00:49:22,600 --> 00:49:25,080
Speaker 3: run and I'm trying to do capital preservations, do you

1006
00:49:25,160 --> 00:49:27,719
Speaker 3: want to expose myself to the risk that I will

1007
00:49:27,719 --> 00:49:30,000
Speaker 3: basically be putting all my money on red, namely on

1008
00:49:30,239 --> 00:49:32,160
Speaker 3: in Vidia and for that matter, Tesla and the other

1009
00:49:32,239 --> 00:49:35,279
Speaker 3: names that I am in the Magnificent seven still doing well.

1010
00:49:35,520 --> 00:49:37,080
Speaker 3: That could be that they will do well. There are

1011
00:49:37,080 --> 00:49:38,759
Speaker 3: also some arguments why they will not do well. But

1012
00:49:38,800 --> 00:49:41,360
Speaker 3: they're certainly very expensive, and that's an argument in my

1013
00:49:41,480 --> 00:49:45,120
Speaker 3: view for definitely being more diversified rather than just having

1014
00:49:45,320 --> 00:49:47,799
Speaker 3: exposure in this and p. Five one hundred mainly to

1015
00:49:48,000 --> 00:49:50,160
Speaker 3: those major names that have gotten so much attention.

1016
00:49:50,560 --> 00:49:54,399
Speaker 2: So could we make that same argument? For a long time,

1017
00:49:54,440 --> 00:49:57,360
Speaker 2: it was Intel, and then it was Cisco, and it

1018
00:49:57,400 --> 00:50:00,640
Speaker 2: seems like every decade you have this Concer tradtion at

1019
00:50:00,680 --> 00:50:04,000
Speaker 2: the top. But since the SMB five hundred is market

1020
00:50:04,000 --> 00:50:06,600
Speaker 2: cap way it did when and at one point in

1021
00:50:06,640 --> 00:50:10,359
Speaker 2: time twenty five years ago, Cisco was the biggest stock

1022
00:50:10,440 --> 00:50:12,880
Speaker 2: in the SMB five hundred and the Nasdaq one hundred,

1023
00:50:13,400 --> 00:50:17,480
Speaker 2: doesn't it sort of automatically adjust as the company shrinks,

1024
00:50:17,719 --> 00:50:20,200
Speaker 2: you own less of it in the index, and it

1025
00:50:20,840 --> 00:50:23,200
Speaker 2: I don't know if self correcting is the right word,

1026
00:50:23,280 --> 00:50:26,240
Speaker 2: but it seems that you buy the whole basket, you'll

1027
00:50:26,239 --> 00:50:29,040
Speaker 2: have the NVIDIAs along with a whole lot of other dogs.

1028
00:50:28,760 --> 00:50:31,160
Speaker 3: One hundred percent. I do think that's absolutely correct. But

1029
00:50:31,200 --> 00:50:34,359
Speaker 3: that's why where we're sitting today. If we agree, and

1030
00:50:34,840 --> 00:50:36,640
Speaker 3: listeners don't have to agree with this, but let's say

1031
00:50:36,680 --> 00:50:39,120
Speaker 3: that at least some people think that the Magnificent seven

1032
00:50:39,160 --> 00:50:42,560
Speaker 3: are very, very expensive. The trailing PE ratio for Tesla

1033
00:50:42,880 --> 00:50:45,600
Speaker 3: is one hundred and eighty. The trailing PE ratio for

1034
00:50:45,719 --> 00:50:48,480
Speaker 3: Nvidia is like sixty. The trailing PE ratio for Amazon

1035
00:50:48,560 --> 00:50:51,600
Speaker 3: is like forty five. Remember again, the PE ratio has historically,

1036
00:50:51,640 --> 00:50:54,080
Speaker 3: on average in the last fifty years been sixteen. So

1037
00:50:54,640 --> 00:50:56,520
Speaker 3: if it is the case that these companies are expensive,

1038
00:50:56,560 --> 00:50:59,320
Speaker 3: I think that a more intelligent approach, in my opinion,

1039
00:50:59,400 --> 00:51:01,680
Speaker 3: would be to say, we're probably going to see some

1040
00:51:01,760 --> 00:51:04,280
Speaker 3: of these companies actually begin to fade and other companies

1041
00:51:04,280 --> 00:51:06,879
Speaker 3: begin to come in. It's a hard issue to pick

1042
00:51:06,880 --> 00:51:09,760
Speaker 3: which ones it is. But maybe at least in this situation,

1043
00:51:09,840 --> 00:51:12,080
Speaker 3: let's agree that maybe it may be a better strategy

1044
00:51:12,239 --> 00:51:13,920
Speaker 3: at least to buy the s and P. Four hundred

1045
00:51:13,920 --> 00:51:16,360
Speaker 3: and ninety three, because that at least I'm not exposed

1046
00:51:16,480 --> 00:51:18,600
Speaker 3: to those seven stocks are so expensive.

1047
00:51:18,840 --> 00:51:22,280
Speaker 2: But by the equal way, and by the equal way way.

1048
00:51:22,120 --> 00:51:23,200
Speaker 4: You're not alternative.

1049
00:51:23,320 --> 00:51:25,360
Speaker 3: Yeah, So in that sense, I of course here and

1050
00:51:25,400 --> 00:51:27,040
Speaker 3: I understand what you're saying, and I do know that

1051
00:51:27,040 --> 00:51:29,080
Speaker 3: the returns in the last two years have been coming

1052
00:51:29,080 --> 00:51:31,960
Speaker 3: to a very last degree from those specific stocks. But

1053
00:51:32,040 --> 00:51:34,080
Speaker 3: all I'm saying is that if we all agree that

1054
00:51:34,120 --> 00:51:36,560
Speaker 3: this is the case, why not take the consequence and

1055
00:51:36,560 --> 00:51:38,400
Speaker 3: then alternatives you can if you have to be in

1056
00:51:38,400 --> 00:51:40,640
Speaker 3: public equities, you could buy this in p. Four hundred,

1057
00:51:40,880 --> 00:51:42,640
Speaker 3: which is a way to have exposure, not to the

1058
00:51:42,840 --> 00:51:44,960
Speaker 3: small cap companies. Remember, in the rust of two thousand,

1059
00:51:45,239 --> 00:51:47,719
Speaker 3: forty percent of companies have no earnings. So if interest

1060
00:51:47,800 --> 00:51:49,880
Speaker 3: rates are higher for longer and you have no earnings,

1061
00:51:49,920 --> 00:51:52,239
Speaker 3: that means that your coverage ratios are low. That means,

1062
00:51:52,239 --> 00:51:54,399
Speaker 3: of course that therefore you're going to struck more if

1063
00:51:54,440 --> 00:51:56,520
Speaker 3: interest rates are indeed higher for longer. So I don't

1064
00:51:56,560 --> 00:51:58,920
Speaker 3: like large cap because I think that's so expensive. I

1065
00:51:58,960 --> 00:52:01,160
Speaker 3: don't like small cap because I think they have no earnings.

1066
00:52:01,320 --> 00:52:04,640
Speaker 3: That's why I think value stocks of companies in the middle,

1067
00:52:04,719 --> 00:52:07,080
Speaker 3: both in properting and private space. But in this case,

1068
00:52:07,080 --> 00:52:08,920
Speaker 3: if you have to be in public SMP four hundred

1069
00:52:09,200 --> 00:52:12,959
Speaker 3: will be probably doing at least my reading a better

1070
00:52:13,080 --> 00:52:15,880
Speaker 3: job relative to the other parts of the spectrum.

1071
00:52:15,960 --> 00:52:18,680
Speaker 2: So we hear during an inauguration week, let's talk a

1072
00:52:18,719 --> 00:52:24,920
Speaker 2: little bit about the new administration, probably the we can't

1073
00:52:24,920 --> 00:52:28,800
Speaker 2: go anywhere without starting with tariffs. How do you feel

1074
00:52:28,920 --> 00:52:33,919
Speaker 2: our trading partners are going to respond to Trump's tariffs?

1075
00:52:33,400 --> 00:52:37,120
Speaker 2: Is he serious about this? Is this a negotiating tactic?

1076
00:52:37,560 --> 00:52:40,360
Speaker 2: How do you put this into your intellectual framework?

1077
00:52:40,560 --> 00:52:43,839
Speaker 3: So the Tax Foundation has quantified that if Trump does

1078
00:52:43,920 --> 00:52:47,040
Speaker 3: through sixty percent on China, twenty five percent on Canada,

1079
00:52:47,080 --> 00:52:49,960
Speaker 3: twenty five percent of Mexico, and ten percent on Europe,

1080
00:52:50,120 --> 00:52:52,600
Speaker 3: we will get an overall level of tariffs that will

1081
00:52:52,600 --> 00:52:55,359
Speaker 3: go up to eighteen percent, which is the same level

1082
00:52:55,360 --> 00:52:57,440
Speaker 3: that we had in the nineteen thirties when we had

1083
00:52:57,440 --> 00:52:59,680
Speaker 3: trade walls and the economy was not doing very well.

1084
00:52:59,840 --> 00:53:02,520
Speaker 4: So if you do have a complete all.

1085
00:53:02,320 --> 00:53:04,879
Speaker 3: In on all fronts when it comes to tariffs, then

1086
00:53:05,320 --> 00:53:07,640
Speaker 3: of course we should begin to worry about that. If

1087
00:53:07,719 --> 00:53:10,640
Speaker 3: everything we buy you and me in stores goes up

1088
00:53:10,719 --> 00:53:13,480
Speaker 3: quote unquote buy sixty percent because now there's sixty percent

1089
00:53:13,480 --> 00:53:16,319
Speaker 3: tariffs on China, then a good guess is that that

1090
00:53:16,400 --> 00:53:18,480
Speaker 3: means that sales by stores in US is going to

1091
00:53:18,520 --> 00:53:20,640
Speaker 3: go down. And if sales start to go down, that

1092
00:53:20,680 --> 00:53:22,919
Speaker 3: means that GDP will also be at risk of going down.

1093
00:53:23,160 --> 00:53:26,160
Speaker 3: So that's why tariffs of course comes by definition with

1094
00:53:26,239 --> 00:53:30,040
Speaker 3: a stackflationary risk that you raise prices and your lower sales.

1095
00:53:30,400 --> 00:53:33,160
Speaker 3: So with that in mind, that doesn't mean that we

1096
00:53:33,200 --> 00:53:35,200
Speaker 3: will not get tariffs. It doesn't mean that we will

1097
00:53:35,200 --> 00:53:37,680
Speaker 3: get all in tariffs. No one really knows exactly how

1098
00:53:37,760 --> 00:53:40,440
Speaker 3: much we will get, but we do know that A

1099
00:53:40,560 --> 00:53:42,680
Speaker 3: very important aspect of this is that we also don't

1100
00:53:42,719 --> 00:53:45,680
Speaker 3: know how the retaliation will be exactly as you're highlighting

1101
00:53:45,760 --> 00:53:46,640
Speaker 3: from other countries.

1102
00:53:46,800 --> 00:53:50,240
Speaker 4: So that's why tariffs overall and remains. We didn't get.

1103
00:53:50,040 --> 00:53:53,759
Speaker 3: Any executive orders on tariffs other than saying that we

1104
00:53:53,800 --> 00:53:56,600
Speaker 3: will investigate it here. But we didn't get any executive

1105
00:53:56,640 --> 00:53:58,879
Speaker 3: orders on tariffs on day one. So we'll see how

1106
00:53:58,960 --> 00:54:01,280
Speaker 3: far we go and what will happen. But at this point,

1107
00:54:01,560 --> 00:54:04,160
Speaker 3: it's very clear that if tariff's I imposed, it is

1108
00:54:04,160 --> 00:54:06,239
Speaker 3: something that the textbook would tell you that we would

1109
00:54:06,280 --> 00:54:09,280
Speaker 3: involve high invasion and at the same time downward pressure

1110
00:54:09,280 --> 00:54:09,680
Speaker 3: on GDP.

1111
00:54:10,000 --> 00:54:13,759
Speaker 2: And just to clarify that plus sixty percent, that's not

1112
00:54:13,880 --> 00:54:17,279
Speaker 2: your forecast as to what's going to happen. That's hey,

1113
00:54:17,480 --> 00:54:20,600
Speaker 2: if what we're discussing gets put into place, exactly, this

1114
00:54:20,640 --> 00:54:21,360
Speaker 2: is the worst case.

1115
00:54:21,200 --> 00:54:23,919
Speaker 3: Scenario exactly because the thing is these are the I mean,

1116
00:54:24,000 --> 00:54:26,120
Speaker 3: Trump on the campaign trail talked about this in many

1117
00:54:26,120 --> 00:54:29,080
Speaker 3: different ways. But if this were to be implemented at

1118
00:54:29,120 --> 00:54:32,479
Speaker 3: sixty percent towards China, think about it. Everything you buy,

1119
00:54:32,680 --> 00:54:35,640
Speaker 3: your iPhone, your T shirt, your clothing, toys for your kids,

1120
00:54:35,680 --> 00:54:38,319
Speaker 3: everything would go up in theory by sixty percent. And

1121
00:54:38,360 --> 00:54:40,719
Speaker 3: that's of course something that would have implications both for

1122
00:54:40,800 --> 00:54:43,279
Speaker 3: prices of those things but also for the sales of

1123
00:54:43,320 --> 00:54:43,840
Speaker 3: those things.

1124
00:54:43,960 --> 00:54:48,719
Speaker 2: What about the restrictions on immigration, both legal and illegal.

1125
00:54:48,880 --> 00:54:51,520
Speaker 3: So Pew estimates that there are about eleven million illegal

1126
00:54:51,560 --> 00:54:54,160
Speaker 3: immigrants in the US, and roughly half of them probably

1127
00:54:54,200 --> 00:54:56,960
Speaker 3: have a job, so that's around six million. Total employment

1128
00:54:57,000 --> 00:54:58,920
Speaker 3: in the US is about one hundred and sixty million.

1129
00:54:59,360 --> 00:55:00,919
Speaker 3: So if there's a hu nred and sixty million people

1130
00:55:00,920 --> 00:55:02,680
Speaker 3: in the US in total that have a job and

1131
00:55:02,800 --> 00:55:06,000
Speaker 3: six million of these are illegal immigrants, that means if

1132
00:55:06,000 --> 00:55:09,919
Speaker 3: you remove millions of people with through deportations, you will

1133
00:55:09,920 --> 00:55:13,040
Speaker 3: remove like two three four percent of the workforce. And

1134
00:55:13,280 --> 00:55:16,919
Speaker 3: Pew and others American Immigration Council, they find that where

1135
00:55:16,920 --> 00:55:20,880
Speaker 3: do illegal immigrants work, They work in three sectors agriculture, construction,

1136
00:55:21,200 --> 00:55:24,360
Speaker 3: and restaurants or services. So the consequence of this is

1137
00:55:24,440 --> 00:55:27,480
Speaker 3: up to fourteen percent of workers in agriculture and construction

1138
00:55:27,719 --> 00:55:29,960
Speaker 3: who are illegal immigrants. And if this is the case,

1139
00:55:30,239 --> 00:55:32,720
Speaker 3: then of course means that you will likely see wage

1140
00:55:32,719 --> 00:55:36,720
Speaker 3: inflation in construction, wage inflation in agriculture, and wage inflation

1141
00:55:36,760 --> 00:55:39,120
Speaker 3: in restaurants. So that also means that if we do

1142
00:55:39,280 --> 00:55:42,680
Speaker 3: get deportations, even if we get restrictions and immigration, that's

1143
00:55:42,760 --> 00:55:45,920
Speaker 3: very meaningful in particular because the starting point is a

1144
00:55:46,000 --> 00:55:48,719
Speaker 3: very strong economy. The consequence is that I will begin

1145
00:55:48,760 --> 00:55:52,080
Speaker 3: to worry again about not only overheating and inflation, but

1146
00:55:52,120 --> 00:55:54,920
Speaker 3: maybe also overheating in the label market. If you remove

1147
00:55:54,920 --> 00:55:57,880
Speaker 3: workers and suddenly there are fewer workers left to compete

1148
00:55:58,000 --> 00:56:00,560
Speaker 3: for their available jobs, and that could exact be why

1149
00:56:00,600 --> 00:56:03,080
Speaker 3: you begin to see in the jolts that job openings

1150
00:56:03,160 --> 00:56:05,799
Speaker 3: actually begin to move higher, because it could be that

1151
00:56:05,840 --> 00:56:09,279
Speaker 3: there's already some issues around what is the labelmar going

1152
00:56:09,320 --> 00:56:11,359
Speaker 3: to look like if we are going down a road

1153
00:56:11,400 --> 00:56:14,719
Speaker 3: where we may see deportations or some very significant restrictions

1154
00:56:14,719 --> 00:56:15,280
Speaker 3: on immigration.

1155
00:56:15,400 --> 00:56:18,080
Speaker 2: All right, so those first two are the negative policies.

1156
00:56:18,160 --> 00:56:23,200
Speaker 2: Let's talk about potentially positive policies like corporate tax cuts

1157
00:56:23,200 --> 00:56:26,360
Speaker 2: and deregulation. How do you see that impacting the economy

1158
00:56:26,360 --> 00:56:26,960
Speaker 2: in the markets?

1159
00:56:27,000 --> 00:56:29,239
Speaker 3: Yes, So if we rewind just for a second and

1160
00:56:29,280 --> 00:56:32,480
Speaker 3: think back to twenty seventeen, where the corporate tax rates

1161
00:56:32,480 --> 00:56:34,880
Speaker 3: were lowered from thirty five to twenty one percent, and

1162
00:56:34,920 --> 00:56:37,480
Speaker 3: remember household taxes were lower from thirty nine point six

1163
00:56:37,520 --> 00:56:40,479
Speaker 3: to thirty seven percent. In twenty seventeen, we saw both

1164
00:56:40,480 --> 00:56:43,600
Speaker 3: household taxes came down and corporate taxes came down. And

1165
00:56:43,640 --> 00:56:46,280
Speaker 3: now Trump has talked about lowering corporate taxes and domestic

1166
00:56:46,320 --> 00:56:49,480
Speaker 3: manufacturers in addition to from twenty one but all the

1167
00:56:49,520 --> 00:56:53,080
Speaker 3: way down to fifteen percent. That means that manufacturers will

1168
00:56:53,120 --> 00:56:56,360
Speaker 3: now see if this happens, of course, a tailwind to production.

1169
00:56:57,040 --> 00:56:59,000
Speaker 3: Just as a footnote, as you and I of course

1170
00:56:59,000 --> 00:57:01,560
Speaker 3: also talk about often, manufacturing is actually only about ten

1171
00:57:01,600 --> 00:57:04,319
Speaker 3: percent of GDP and ten percent of employment, So it's

1172
00:57:04,360 --> 00:57:06,480
Speaker 3: a little bit special that a sexer that's only ten

1173
00:57:06,480 --> 00:57:08,960
Speaker 3: percent of the economy continues to get so much attention.

1174
00:57:09,280 --> 00:57:12,920
Speaker 3: But nevertheless, the definition of make America great again is

1175
00:57:12,920 --> 00:57:15,800
Speaker 3: probably that manufacturing should come back. And if that's the case,

1176
00:57:15,840 --> 00:57:17,720
Speaker 3: even though it only makes up ten percent of GDP,

1177
00:57:18,160 --> 00:57:22,120
Speaker 3: lowering corporate taxes for domestic manufacturers would indeed also be

1178
00:57:22,160 --> 00:57:25,440
Speaker 3: something that's positive, So that policy alone would be a

1179
00:57:25,480 --> 00:57:28,840
Speaker 3: lift to inflation and also a lift to GDP. And

1180
00:57:28,880 --> 00:57:32,800
Speaker 3: on deregulation, of course, we don't know quite exactly what

1181
00:57:32,920 --> 00:57:36,360
Speaker 3: deregulation is going to look like. If it's for financial services,

1182
00:57:36,400 --> 00:57:39,840
Speaker 3: if it's for energy, if it's for transportation, we remain

1183
00:57:39,920 --> 00:57:41,800
Speaker 3: to be seen what area it will be in. But

1184
00:57:41,960 --> 00:57:46,160
Speaker 3: broadly speaking, of course, deregulation would also be releasing animal spirits.

1185
00:57:46,280 --> 00:57:48,840
Speaker 3: It would also be boosting GDP growth, and it would

1186
00:57:48,920 --> 00:57:52,680
Speaker 3: actually also deregulation normally would be putting downward pressure on inflation,

1187
00:57:52,840 --> 00:57:55,520
Speaker 3: at least in the longer run. So those policies exactly

1188
00:57:55,520 --> 00:57:58,520
Speaker 3: as you're saying, Barry, would certainly be tailwinds a particulars

1189
00:57:58,600 --> 00:57:59,360
Speaker 3: GDP growth.

1190
00:58:00,000 --> 00:58:06,640
Speaker 2: We've discussed policy uncertainty as a potential concern because we

1191
00:58:06,720 --> 00:58:08,920
Speaker 2: have no idea what the taraffy going look like, what

1192
00:58:08,960 --> 00:58:13,240
Speaker 2: the deregulations will look like. At least there's some specificity

1193
00:58:13,760 --> 00:58:19,320
Speaker 2: with manufacturing corporate tax rates and exactly where the president

1194
00:58:19,440 --> 00:58:22,680
Speaker 2: wants those to go. How do you deal with the

1195
00:58:22,760 --> 00:58:25,880
Speaker 2: variability of Hey, we have no idea what this looks like.

1196
00:58:26,320 --> 00:58:29,960
Speaker 2: How do you build a model with so many unknowns

1197
00:58:30,360 --> 00:58:31,120
Speaker 2: built into it?

1198
00:58:31,600 --> 00:58:34,560
Speaker 3: This is indeed very complicated from a forecasting perspective. There

1199
00:58:34,640 --> 00:58:37,480
Speaker 3: is no room in my Excel spreadsheet for the US

1200
00:58:37,520 --> 00:58:40,680
Speaker 3: economic outlook to stuff in uncertainty. I can have, and

1201
00:58:40,760 --> 00:58:43,960
Speaker 3: I do have, various small mickey mouse models where vix

1202
00:58:44,080 --> 00:58:47,200
Speaker 3: and the move indicts and volatility measures are included, but

1203
00:58:47,240 --> 00:58:49,760
Speaker 3: they are not a central part of the O world outlook,

1204
00:58:49,800 --> 00:58:52,640
Speaker 3: simply because as you're saying, we just don't know exactly

1205
00:58:52,680 --> 00:58:55,880
Speaker 3: how to quantify that risk. But that being said, it

1206
00:58:55,920 --> 00:58:59,200
Speaker 3: is still the case that if there is uncertainty, that

1207
00:58:59,280 --> 00:59:03,120
Speaker 3: does all obviously have implications for business planning, for household planning.

1208
00:59:03,360 --> 00:59:05,360
Speaker 3: If you don't know what's coming, if you don't know

1209
00:59:05,440 --> 00:59:07,800
Speaker 3: exactly what the nature of policies is going to look like,

1210
00:59:08,080 --> 00:59:11,000
Speaker 3: then of course it does bring some elevated levels of

1211
00:59:11,080 --> 00:59:13,680
Speaker 3: risk that people may be holding back with doing things

1212
00:59:13,880 --> 00:59:16,760
Speaker 3: the otherwise would have done simply because of the uncertainty

1213
00:59:16,960 --> 00:59:21,840
Speaker 3: of everything from immigration policies, tax policies, tariffs, and all

1214
00:59:21,880 --> 00:59:24,000
Speaker 3: the other things that we have talked about. So that's

1215
00:59:24,040 --> 00:59:28,320
Speaker 3: why policy uncertainty is something that is holding back investment

1216
00:59:28,440 --> 00:59:30,920
Speaker 3: and spending decisions by households and by firms.

1217
00:59:31,160 --> 00:59:35,800
Speaker 2: So we talked earlier about CAPEX how significant our administration

1218
00:59:36,240 --> 00:59:42,000
Speaker 2: policies to corporate America spending and investing and building out

1219
00:59:42,280 --> 00:59:45,800
Speaker 2: what is likely to be the next generation of economic drivers.

1220
00:59:45,880 --> 00:59:48,959
Speaker 3: Well, I think that there are two dimensions to that issue. Namely,

1221
00:59:49,000 --> 00:59:51,600
Speaker 3: first of all, we already have in place a number

1222
00:59:51,600 --> 00:59:55,120
Speaker 3: of important tailwinds to CAPEX and business spending, namely AI

1223
00:59:55,200 --> 00:59:57,800
Speaker 3: and data center boom. It doesn't matter what their fitfunds

1224
00:59:57,840 --> 01:00:00,000
Speaker 3: rate is doing, we will have an AI and data

1225
01:00:00,080 --> 01:00:02,800
Speaker 3: center boom no matter what interest rates are doing, because

1226
01:00:02,880 --> 01:00:07,000
Speaker 3: everyone wants to invest and should be investing in AI. Secondly,

1227
01:00:07,120 --> 01:00:10,200
Speaker 3: we probably also have energy transition because energy is needed

1228
01:00:10,320 --> 01:00:13,160
Speaker 3: to power the data centers. I also think strongly this

1229
01:00:13,240 --> 01:00:16,439
Speaker 3: is getting financing, including from US at Apollo, long term

1230
01:00:16,440 --> 01:00:19,760
Speaker 3: investments in energy transition, long term investments in data centers,

1231
01:00:19,840 --> 01:00:22,520
Speaker 3: because these long term investments are simply needed and this

1232
01:00:22,600 --> 01:00:24,280
Speaker 3: is something that needs to be done. We will also

1233
01:00:24,360 --> 01:00:26,560
Speaker 3: have a structural and tale went also from probably defense.

1234
01:00:27,040 --> 01:00:29,200
Speaker 3: Defense spending has been going up. The rest of the

1235
01:00:29,240 --> 01:00:31,640
Speaker 3: world is also spending more on defense. Again, that is

1236
01:00:31,640 --> 01:00:35,480
Speaker 3: also something that is humming in the background supporting growth overall.

1237
01:00:35,720 --> 01:00:40,280
Speaker 3: Now specifically to different policies obviously with deregulation, obviously with

1238
01:00:40,400 --> 01:00:44,160
Speaker 3: tax cuts, obviously broadly speaking, with policies that are America

1239
01:00:44,200 --> 01:00:47,080
Speaker 3: first and make America great again, will probably from a

1240
01:00:47,080 --> 01:00:52,280
Speaker 3: cyclical perspective, also be giving a boost to cap expending domestically.

1241
01:00:52,560 --> 01:00:55,200
Speaker 3: One way of saying the cyclical part of the outlook

1242
01:00:55,280 --> 01:00:58,520
Speaker 3: is really that the animal spirits that have been released

1243
01:00:58,840 --> 01:01:02,720
Speaker 3: after Trump was elected, now that companies have at least

1244
01:01:02,720 --> 01:01:04,800
Speaker 3: a view seems to be that there's a more business

1245
01:01:04,800 --> 01:01:07,800
Speaker 3: friendly environment and for that reason, more business spending will

1246
01:01:07,800 --> 01:01:10,600
Speaker 3: be taking place, is from a cyclic perspective, adding to

1247
01:01:10,640 --> 01:01:12,400
Speaker 3: the other structural things that I just listed.

1248
01:01:12,600 --> 01:01:13,120
Speaker 4: So that's a.

1249
01:01:13,080 --> 01:01:16,480
Speaker 3: Reason to be actually quite bullish overall on the KAPIS

1250
01:01:16,560 --> 01:01:17,960
Speaker 3: and business spending outlook.

1251
01:01:18,360 --> 01:01:23,960
Speaker 2: So you mentioned defense, you mentioned energy, what about technology,

1252
01:01:24,040 --> 01:01:27,680
Speaker 2: and what about crypto? Seems to have found a whole

1253
01:01:27,720 --> 01:01:30,880
Speaker 2: new tailwind with the most recent election.

1254
01:01:31,040 --> 01:01:34,400
Speaker 3: Yeah, so that's of course a lot more complicated and

1255
01:01:34,720 --> 01:01:37,120
Speaker 3: more reason we got a coin both from the President

1256
01:01:37,360 --> 01:01:40,320
Speaker 3: and of course also from Millennia, and this is raising,

1257
01:01:40,360 --> 01:01:44,400
Speaker 3: of course some different questions about the crypto world more generally.

1258
01:01:44,720 --> 01:01:47,720
Speaker 3: But I will say that the technology and blockchain and

1259
01:01:47,800 --> 01:01:52,120
Speaker 3: investment in AI and investment generally speaking and getting more

1260
01:01:52,160 --> 01:01:55,720
Speaker 3: productive and doing things more productively and efficiently is certainly

1261
01:01:55,720 --> 01:01:57,840
Speaker 3: something that is here to stay. And I think that that,

1262
01:01:57,960 --> 01:02:01,240
Speaker 3: broadly speaking, is also a tail in two the overall outlook.

1263
01:02:01,480 --> 01:02:05,200
Speaker 2: Huh, really fascinating. I only have you for a couple

1264
01:02:05,280 --> 01:02:08,600
Speaker 2: more minutes. Let's jump to our favorite questions that I

1265
01:02:08,600 --> 01:02:11,439
Speaker 2: get to ask all of my guests. It's great having

1266
01:02:11,520 --> 01:02:14,520
Speaker 2: that baseline of what everybody else has said, but let's

1267
01:02:14,560 --> 01:02:17,840
Speaker 2: just start really simply, what's keeping you entertaining these days?

1268
01:02:17,840 --> 01:02:19,400
Speaker 2: What are you watching or listening to?

1269
01:02:19,760 --> 01:02:23,560
Speaker 3: So one of my favorite podcasts, of course, is Master's

1270
01:02:23,560 --> 01:02:26,800
Speaker 3: in Business. Stop enough, Okay, but that's true. I know

1271
01:02:26,880 --> 01:02:28,640
Speaker 3: you ought to more than five hundred episodes. I can't

1272
01:02:28,640 --> 01:02:30,480
Speaker 3: believe it's ten years ago since I said with you

1273
01:02:30,480 --> 01:02:31,040
Speaker 3: here last time.

1274
01:02:31,080 --> 01:02:34,240
Speaker 2: I know when I first began, I had dark hair.

1275
01:02:34,720 --> 01:02:37,320
Speaker 3: Yeah, well I actually had hair, so I take that

1276
01:02:37,360 --> 01:02:39,680
Speaker 3: I was perhaps one of your first customers here in

1277
01:02:39,680 --> 01:02:43,520
Speaker 3: the studio. But I do so listen to we have

1278
01:02:43,560 --> 01:02:46,320
Speaker 3: actually our own review from Apollo podcast. But I also watched.

1279
01:02:46,360 --> 01:02:49,480
Speaker 3: One series that I've been watching is The Jacal on Peacock,

1280
01:02:49,920 --> 01:02:54,160
Speaker 3: which is basically very very James Bond like the series

1281
01:02:54,240 --> 01:02:57,760
Speaker 3: about a guy who's going around Europe and doing all

1282
01:02:57,840 --> 01:03:00,800
Speaker 3: kinds of things and and what's.

1283
01:03:00,640 --> 01:03:05,400
Speaker 2: The name of that Jackal the chaquelle Jackal or Jackal?

1284
01:03:05,720 --> 01:03:09,440
Speaker 2: How are you pronouncing life like the spy novel The

1285
01:03:09,560 --> 01:03:12,720
Speaker 2: Jackal exactly? Oh really, I'm trying to remember who wrote that.

1286
01:03:13,280 --> 01:03:15,720
Speaker 3: So there was This was originally a movie in France

1287
01:03:15,760 --> 01:03:18,680
Speaker 3: in the nineteen seventies. But this is something that's playing

1288
01:03:18,720 --> 01:03:21,080
Speaker 3: now on Peacock and I've been watching this is like

1289
01:03:21,240 --> 01:03:23,840
Speaker 3: I think it's eight episodes and he's traveling around Europe.

1290
01:03:23,840 --> 01:03:26,440
Speaker 3: It's really fascinating. It's actually it's really well done.

1291
01:03:26,680 --> 01:03:30,120
Speaker 2: We mentioned Binky earlier. Tell us about your mentors who

1292
01:03:30,240 --> 01:03:31,640
Speaker 2: helped shape your career.

1293
01:03:31,800 --> 01:03:35,240
Speaker 3: Well, my first mentor was my professor and economics in Copenhagen.

1294
01:03:35,320 --> 01:03:38,080
Speaker 3: His name is Neil Tigison. He just turned ninety and

1295
01:03:38,200 --> 01:03:41,200
Speaker 3: I celebrated his birthday here in December. But he was

1296
01:03:41,240 --> 01:03:43,760
Speaker 3: the one that really put me on track to thinking

1297
01:03:43,800 --> 01:03:46,240
Speaker 3: about economics. I did my PSD with him and he

1298
01:03:46,320 --> 01:03:49,120
Speaker 3: sent me that year to Princeton and he was the

1299
01:03:49,120 --> 01:03:50,920
Speaker 3: one who got me going first. And then when I

1300
01:03:51,000 --> 01:03:55,160
Speaker 3: joined the IMF, Binkie was there. There were also several others.

1301
01:03:55,240 --> 01:03:58,000
Speaker 3: David Ferguslanda also played a very important role, and there

1302
01:03:58,040 --> 01:04:00,120
Speaker 3: was also another actually happened to be Danish guy. His

1303
01:04:00,160 --> 01:04:02,680
Speaker 3: name is Fleming Larsen, he's now retired, who was also

1304
01:04:02,680 --> 01:04:05,360
Speaker 3: a very important vintor for me. And then when I

1305
01:04:05,400 --> 01:04:08,240
Speaker 3: came to the WCD, I worked very closely together with

1306
01:04:08,400 --> 01:04:11,000
Speaker 3: the gentleman called Vincent Cohen who's actually still there also,

1307
01:04:11,800 --> 01:04:14,360
Speaker 3: and also another colleague elan Is Sayers, who's also still there.

1308
01:04:14,640 --> 01:04:17,800
Speaker 3: So they have all been teaching me various ways of

1309
01:04:17,960 --> 01:04:20,640
Speaker 3: how do you think about things, the importance of a framework,

1310
01:04:20,920 --> 01:04:23,920
Speaker 3: the importance of what are the arguments that we put

1311
01:04:24,000 --> 01:04:26,080
Speaker 3: up on the scale for something happening. There are some

1312
01:04:26,160 --> 01:04:28,080
Speaker 3: arguments why this stock market may be going up, there's

1313
01:04:28,120 --> 01:04:30,000
Speaker 3: some arguments why this stock market may be going down.

1314
01:04:30,120 --> 01:04:32,800
Speaker 3: Let's try to have a systematic approach to how it

1315
01:04:32,840 --> 01:04:35,320
Speaker 3: is that we talk about things. So that's been very influential,

1316
01:04:35,400 --> 01:04:39,120
Speaker 3: and finally on Wall Street, on in Deutsche Bank, and

1317
01:04:39,160 --> 01:04:42,840
Speaker 3: of course also had Apollo everyone around me and living

1318
01:04:43,000 --> 01:04:45,640
Speaker 3: in the private sector, on the commercial world, and of

1319
01:04:45,680 --> 01:04:49,320
Speaker 3: course very importantly also here thinking about investing in private assets,

1320
01:04:50,320 --> 01:04:53,840
Speaker 3: not least my current CEO, Mark Rowan, and the inspiration

1321
01:04:53,920 --> 01:04:56,480
Speaker 3: in terms of how he is really in my view,

1322
01:04:56,480 --> 01:05:00,600
Speaker 3: a genius changing the financial system and moving things in

1323
01:05:00,600 --> 01:05:03,680
Speaker 3: in the direction that's the future of finance is playing

1324
01:05:03,680 --> 01:05:05,760
Speaker 3: a very important impact. I'm playing a very important roland

1325
01:05:05,880 --> 01:05:08,000
Speaker 3: having a important impact on my thinking also.

1326
01:05:07,880 --> 01:05:11,360
Speaker 2: Today, Yeah, really really fascinating. Let's talk about books. What

1327
01:05:11,400 --> 01:05:13,520
Speaker 2: are some of your favorites? What are you reading right now?

1328
01:05:13,640 --> 01:05:15,440
Speaker 4: So I have been reading.

1329
01:05:15,480 --> 01:05:18,920
Speaker 3: And I just finished The Two Parent Privileged by Melissa Kearney,

1330
01:05:19,560 --> 01:05:21,800
Speaker 3: and that has to do with this, of course, a

1331
01:05:22,080 --> 01:05:26,200
Speaker 3: unique discussion around what does it mean to have two parents,

1332
01:05:26,240 --> 01:05:28,640
Speaker 3: what does it mean to have one parent? What are

1333
01:05:28,720 --> 01:05:34,240
Speaker 3: the differences from a sociological perspective for different types of

1334
01:05:34,440 --> 01:05:38,000
Speaker 3: organizing yourself as a family. This has been It's very

1335
01:05:38,000 --> 01:05:42,120
Speaker 3: interesting and quite eye opening when you think about a

1336
01:05:42,120 --> 01:05:44,120
Speaker 3: lot of different things going on in society today.

1337
01:05:44,720 --> 01:05:47,280
Speaker 2: Give us one other, what's one of your all time favorites?

1338
01:05:47,400 --> 01:05:51,520
Speaker 3: Well, well, of course there's your book after the dailoud. Okay,

1339
01:05:51,560 --> 01:05:53,400
Speaker 3: so now we have just too big sure for that,

1340
01:05:53,440 --> 01:05:55,800
Speaker 3: to make sure we have that on the record. But

1341
01:05:55,960 --> 01:05:58,160
Speaker 3: I think that broadly speaking, I spend a lot of

1342
01:05:58,160 --> 01:06:01,160
Speaker 3: my time as just getting back to square the circle

1343
01:06:01,160 --> 01:06:02,920
Speaker 3: here in terms of what we spoke about earlier.

1344
01:06:03,000 --> 01:06:03,960
Speaker 4: I do spend a lot.

1345
01:06:03,800 --> 01:06:07,640
Speaker 3: Of my time reading the economists, reading newspapers, try to

1346
01:06:07,640 --> 01:06:10,160
Speaker 3: come up with ideas for daily sparks. I try to

1347
01:06:10,200 --> 01:06:13,320
Speaker 3: think about questions I get from clients, questions I get internally.

1348
01:06:14,040 --> 01:06:15,080
Speaker 4: Can we get data with this?

1349
01:06:15,240 --> 01:06:17,919
Speaker 3: I ask my team, which several of them are sitting

1350
01:06:17,960 --> 01:06:20,080
Speaker 3: in India, hey can you over And I come up

1351
01:06:20,080 --> 01:06:22,080
Speaker 3: with a chat on this on that. Can we find

1352
01:06:22,160 --> 01:06:24,160
Speaker 3: data for how many people go to Broadway shows? Can

1353
01:06:24,200 --> 01:06:26,960
Speaker 3: we find data for all kinds of things that I

1354
01:06:27,160 --> 01:06:30,560
Speaker 3: would normally try to say, Well, we can't really find

1355
01:06:30,560 --> 01:06:32,480
Speaker 3: any data for this, but let's try to dig a

1356
01:06:32,480 --> 01:06:34,320
Speaker 3: little bit deep and see if there is any data

1357
01:06:34,480 --> 01:06:36,320
Speaker 3: that can help us. So I do also spend a

1358
01:06:36,360 --> 01:06:39,800
Speaker 3: lot of my time on Twitter social media, reading newspapers,

1359
01:06:40,360 --> 01:06:43,560
Speaker 3: watching Bloomberg shows, and figuring out what are we talking about?

1360
01:06:43,600 --> 01:06:44,400
Speaker 4: What data do we have?

1361
01:06:45,520 --> 01:06:48,040
Speaker 3: Is this conversation correct or are there actually ways where

1362
01:06:48,040 --> 01:06:50,520
Speaker 3: we should take this conversation in a different direction because

1363
01:06:50,520 --> 01:06:52,080
Speaker 3: there are other dimensions that are more important.

1364
01:06:52,160 --> 01:06:56,160
Speaker 2: Huh, really really fascinating. Our final two questions, what sort

1365
01:06:56,200 --> 01:06:58,800
Speaker 2: of advice would you give to a recent college grad

1366
01:06:59,480 --> 01:07:02,520
Speaker 2: interesting career in either economics or finance.

1367
01:07:03,520 --> 01:07:07,080
Speaker 3: Well, I think this is of course a very important question,

1368
01:07:07,120 --> 01:07:11,360
Speaker 3: but I would say read The Economist, watch Bloomberg, Surveillance,

1369
01:07:11,520 --> 01:07:15,120
Speaker 3: listen to podcasts like Masters and Business. Try to do

1370
01:07:15,200 --> 01:07:18,200
Speaker 3: the homework that is really really hard, and we have

1371
01:07:18,280 --> 01:07:20,800
Speaker 3: all been through this process. You will feel that it's

1372
01:07:20,880 --> 01:07:24,520
Speaker 3: quote unquote not rewarded, but you will learn more and more.

1373
01:07:24,720 --> 01:07:26,920
Speaker 3: You will get to know and understand more and more,

1374
01:07:27,000 --> 01:07:29,680
Speaker 3: and in particular, given how the world is moving with

1375
01:07:30,080 --> 01:07:33,560
Speaker 3: private markets becoming more and more important, try to understand

1376
01:07:33,600 --> 01:07:35,960
Speaker 3: and get a good understanding on what is private equity,

1377
01:07:36,000 --> 01:07:39,360
Speaker 3: what is private credit, what is the evolution in private markets?

1378
01:07:39,480 --> 01:07:42,160
Speaker 3: How is that relative to public markets? Try to get

1379
01:07:42,280 --> 01:07:46,160
Speaker 3: a broader view on what does finance mean and where

1380
01:07:46,200 --> 01:07:48,680
Speaker 3: is finance going? And that can really only be done

1381
01:07:48,720 --> 01:07:51,360
Speaker 3: by reading your textbooks, trying to stay up to date

1382
01:07:51,400 --> 01:07:54,360
Speaker 3: on recent developments. Textbooks in some cases are a little bit behind,

1383
01:07:54,640 --> 01:07:56,760
Speaker 3: but really trying to listen and try to think hard

1384
01:07:56,760 --> 01:07:58,280
Speaker 3: about and lean back in your check go for a

1385
01:07:58,280 --> 01:08:01,000
Speaker 3: long walk in a green park and think about, Okay,

1386
01:08:01,400 --> 01:08:03,480
Speaker 3: what is it that I have just learned, What is

1387
01:08:03,480 --> 01:08:04,560
Speaker 3: it that I've just been told?

1388
01:08:04,880 --> 01:08:05,920
Speaker 4: And how does that fit.

1389
01:08:05,800 --> 01:08:09,560
Speaker 3: In with my view of what is overall the outlook

1390
01:08:09,600 --> 01:08:12,040
Speaker 3: for financial markets? And how should I think about how

1391
01:08:12,080 --> 01:08:13,400
Speaker 3: the financial system hangs together?

1392
01:08:13,520 --> 01:08:17,120
Speaker 2: Huh really really interesting? And our final question, what do

1393
01:08:17,120 --> 01:08:20,160
Speaker 2: you know about the world of investing today? You wish

1394
01:08:20,240 --> 01:08:22,599
Speaker 2: you knew thirty years ago or so when you were

1395
01:08:22,640 --> 01:08:23,599
Speaker 2: first getting started.

1396
01:08:23,760 --> 01:08:26,439
Speaker 3: Well, this is something that's very important and close to

1397
01:08:26,520 --> 01:08:29,960
Speaker 3: my heart because what I had not appreciated until recently,

1398
01:08:30,520 --> 01:08:34,200
Speaker 3: is the very important part that private markets play. So

1399
01:08:34,400 --> 01:08:38,600
Speaker 3: there are six million businesses in the US with employment.

1400
01:08:38,840 --> 01:08:41,360
Speaker 3: So that's a complicated way of saying there are six

1401
01:08:41,400 --> 01:08:45,280
Speaker 3: million businesses that have workers working inside those businesses? And

1402
01:08:45,320 --> 01:08:48,439
Speaker 3: why is that important? Because we spend so much time

1403
01:08:48,560 --> 01:08:50,799
Speaker 3: on the s and P. Five hundred and we starty

1404
01:08:50,880 --> 01:08:54,960
Speaker 3: these companies incredibly in incredible detail, and you then turn

1405
01:08:55,000 --> 01:08:57,439
Speaker 3: around and say, Okay, those five hundred companies are really interesting,

1406
01:08:57,600 --> 01:09:00,599
Speaker 3: but what about the remaining five point zero nine million

1407
01:09:00,720 --> 01:09:01,840
Speaker 3: companies that are not in this?

1408
01:09:02,000 --> 01:09:04,519
Speaker 4: In p. Five hundred? How do they get financing? Who

1409
01:09:04,560 --> 01:09:05,120
Speaker 4: owns them?

1410
01:09:05,479 --> 01:09:08,040
Speaker 3: How do they get financing for expanding if they want

1411
01:09:08,080 --> 01:09:10,320
Speaker 3: to build a new factory, how do they get financing

1412
01:09:10,360 --> 01:09:12,160
Speaker 3: if they want to hire more workers, how do they

1413
01:09:12,160 --> 01:09:14,360
Speaker 3: get financing if they want to expand in another country?

1414
01:09:14,680 --> 01:09:17,800
Speaker 3: And private markets and the role of private markets. I

1415
01:09:17,920 --> 01:09:21,120
Speaker 3: wish that I, earlier on in my macroeconomic career had

1416
01:09:21,120 --> 01:09:24,800
Speaker 3: spent some more time thinking much more deeper around what

1417
01:09:25,080 --> 01:09:28,200
Speaker 3: is it that's going on in everything else than in

1418
01:09:28,240 --> 01:09:31,439
Speaker 3: the SMP five hundred, Because remember of total employment in

1419
01:09:31,439 --> 01:09:33,840
Speaker 3: the US, total employment in this in P. Five hundred,

1420
01:09:33,880 --> 01:09:36,679
Speaker 3: companies in very round numbers is about twenty five million people,

1421
01:09:36,960 --> 01:09:38,720
Speaker 3: and total employment in the US is one hundred and

1422
01:09:38,760 --> 01:09:41,439
Speaker 3: sixty million people, so it is only in round numbers

1423
01:09:41,479 --> 01:09:44,360
Speaker 3: around twenty percent of employment in the US economy that

1424
01:09:44,439 --> 01:09:46,360
Speaker 3: is in this in p. Five hundred, that's a very

1425
01:09:46,439 --> 01:09:49,280
Speaker 3: high estimate because SMP also employs people outside the US,

1426
01:09:49,360 --> 01:09:51,200
Speaker 3: so that means that eighty percent of employment in the

1427
01:09:51,280 --> 01:09:52,320
Speaker 3: US is outside there.

1428
01:09:52,360 --> 01:09:52,519
Speaker 1: In p.

1429
01:09:52,640 --> 01:09:54,880
Speaker 3: Five hundred, what do these people do? How do we

1430
01:09:54,960 --> 01:09:57,439
Speaker 3: measure them? And what businesses do they work in? And

1431
01:09:57,479 --> 01:09:59,680
Speaker 3: do they have the financing? Can they get the financing?

1432
01:10:00,000 --> 01:10:02,640
Speaker 3: How do they get growth so that the economy can

1433
01:10:02,680 --> 01:10:04,720
Speaker 3: growth also outside this and p.

1434
01:10:04,840 --> 01:10:09,559
Speaker 2: Five hundred, Torston, this has been absolutely fascinating. I really

1435
01:10:09,600 --> 01:10:12,559
Speaker 2: appreciate how generous you've been with your time. We have

1436
01:10:12,680 --> 01:10:16,600
Speaker 2: been speaking with Torston Slock. He is the chief economist

1437
01:10:16,640 --> 01:10:22,120
Speaker 2: and partner at Apollo Global Management. If you enjoy this conversation, well,

1438
01:10:22,160 --> 01:10:24,559
Speaker 2: be sure and check out any of the previous five

1439
01:10:24,640 --> 01:10:27,880
Speaker 2: hundred and thirty we've done over the past ten and

1440
01:10:27,880 --> 01:10:33,880
Speaker 2: a half years. You can find those at Bloomberg, iTunes, Spotify, YouTube,

1441
01:10:34,240 --> 01:10:37,680
Speaker 2: wherever you find your favorite podcasts, And be sure and

1442
01:10:37,760 --> 01:10:41,200
Speaker 2: check out my new book coming March eighteenth, How Not

1443
01:10:41,360 --> 01:10:45,880
Speaker 2: to Invest The ideas, numbers, and behavior that destroy wealth.

1444
01:10:46,240 --> 01:10:50,120
Speaker 2: How Not to Invest at your favorite bookstores March eighteenth.

1445
01:10:50,680 --> 01:10:52,479
Speaker 2: I would be remiss if I did not thank the

1446
01:10:52,520 --> 01:10:56,920
Speaker 2: Crack staff that helps us put these conversations together each week.

1447
01:10:57,320 --> 01:11:01,800
Speaker 2: Sarah Livesey is my audio engineer. Anna Luke is my producer.

1448
01:11:02,360 --> 01:11:06,320
Speaker 2: Jean Russo is my researcher. Sage Bauman is the head

1449
01:11:06,360 --> 01:11:10,719
Speaker 2: of podcasts at Bloomberg. I'm Barry Rittoltz. You've been listening

1450
01:11:10,760 --> 01:11:13,759
Speaker 2: to Masters in Business on Bloomberg Radio.