WEBVTT - The US Economy and Trump Administration Policy with Apollo's Torsten Slok 0:00:02.520 --> 0:00:11.879 Bloomberg Audio Studios, podcasts, radio News. This is Masters in 0:00:11.960 --> 0:00:15.480 Business with Barry Ritholts on Bloomberg Radio. 0:00:16.880 --> 0:00:20.960 This week on the podcast, our returning champion, Torston Slock, 0:00:21.560 --> 0:00:26.360 Chief Economists at Apollo. You know, most of the economists 0:00:26.400 --> 0:00:30.200 that you're probably familiar with haven't really had a good 0:00:30.240 --> 0:00:33.160 handle on the state of the economy over the past 0:00:33.159 --> 0:00:40.680 couple of years. They have been expecting recessions, they've expected contractions. 0:00:40.760 --> 0:00:43.720 They kind of missed the search and inflation, they missed 0:00:43.720 --> 0:00:47.479 the collapse in inflation. There aren't a lot of economists 0:00:47.479 --> 0:00:52.080 who got it more right than Torston Slock. Not only 0:00:52.200 --> 0:00:56.080 has he been appropriately bullish about what's going on in 0:00:56.200 --> 0:01:00.880 the economy, why we weren't really in danger of a 0:01:00.920 --> 0:01:05.040 recession anytime over the past couple of years. I disagree 0:01:05.040 --> 0:01:07.679 with his forecast for this year, which is zero percent 0:01:07.760 --> 0:01:10.360 chance of recession. Hey I never put a zero percent 0:01:10.480 --> 0:01:15.440 chance on anything. But still he's communicating how wrong everybody 0:01:15.440 --> 0:01:18.160 else is and how right he's been, and why you 0:01:18.200 --> 0:01:23.000 should be pretty constructive about the state of both employment 0:01:23.319 --> 0:01:28.920 and credit and the stock markets. He has absolutely been 0:01:29.000 --> 0:01:32.440 dead on, and I have to point out what a 0:01:32.600 --> 0:01:37.160 force of nature he is he's got a really fascinating background. 0:01:37.720 --> 0:01:41.520 I m f OECD, Deutsche Bank and now on the 0:01:41.560 --> 0:01:47.800 private by side with a big emphasis on private sector companies. 0:01:49.360 --> 0:01:51.240 I don't know what else to say. I thought this 0:01:51.320 --> 0:01:57.000 conversation was absolutely fascinating. He was just on such a role. 0:01:57.600 --> 0:01:58.960 All I had to do is just kind of give 0:01:59.040 --> 0:02:00.520 him a little nudge and get it out of the way. 0:02:01.040 --> 0:02:05.760 Really an absolutely true to force explanation as to why 0:02:05.840 --> 0:02:08.920 the US and global economy is where it is, where 0:02:08.919 --> 0:02:12.280 it's likely to continue going, and why there are such 0:02:12.440 --> 0:02:16.640 tailwinds for growth in the US and to a lesser 0:02:16.680 --> 0:02:20.160 degree Japan, but why the US is so much better 0:02:20.240 --> 0:02:24.960 situated than Europe or China and most of Asia. I 0:02:25.040 --> 0:02:27.120 found this to be absolutely fascinating, and I think you 0:02:27.160 --> 0:02:31.320 will also with no further ado my discussion with Apollo 0:02:31.360 --> 0:02:33.760 Global Managements Towardsten Slock. 0:02:34.240 --> 0:02:36.880 Thanks so much, Berrian. It's great to be here instead 0:02:36.880 --> 0:02:38.880 of sitting in a boat to fishing in Maine. I 0:02:38.880 --> 0:02:40.440 say you and I have done together before. 0:02:40.480 --> 0:02:44.080 That's right. That's a mouthful of places where you've worked. 0:02:44.560 --> 0:02:47.000 Before we get into your career. I want to start 0:02:47.040 --> 0:02:53.360 with University of Copenhagen and Princeton University. What was the 0:02:53.480 --> 0:02:56.320 career plan? Always economics and finance. 0:02:57.040 --> 0:03:00.519 Well, I grew up in a small time called Ruskilde, 0:03:00.639 --> 0:03:03.080 which is thirty kilometers to the west of Copenhagen. You 0:03:03.080 --> 0:03:05.079 could see I'm so European still that I speak in 0:03:05.160 --> 0:03:10.079 kilometers rather than miles. And I studied economics in university, 0:03:10.360 --> 0:03:12.640 and then when I started doing my PSD, you have 0:03:12.680 --> 0:03:14.639 to go a year abroad, and I spent a year 0:03:14.639 --> 0:03:17.000 in Princeton in the economics department in ninety five ninety 0:03:17.000 --> 0:03:19.760 six when pen Peneke was the chairman of the economics department, 0:03:20.400 --> 0:03:23.360 and then when I finished my degree, I applied for 0:03:23.360 --> 0:03:26.560 a job at the IMF in Washington, DC. And economics 0:03:26.600 --> 0:03:29.840 has basically been the bread and butter of my life, 0:03:30.120 --> 0:03:32.760 at least my adult life, for the last twenty five 0:03:32.840 --> 0:03:33.600 thirty years. 0:03:33.760 --> 0:03:38.760 So how I'm just I've been to Denmark, beautiful country, beautiful. 0:03:39.040 --> 0:03:45.760 Copenhagen is absolutely beautiful. I'm curious how different studying economics 0:03:45.840 --> 0:03:48.920 is in Denmark versus the United States. 0:03:49.200 --> 0:03:53.640 Well, obviously all the super universities are here, so from 0:03:53.680 --> 0:03:59.160 a publishing an academic perspective, it's really good. But it's 0:03:59.240 --> 0:04:02.440 just a little bit different in the sense that it's 0:04:02.760 --> 0:04:07.840 not of course having the same environment, the same seminars, 0:04:07.920 --> 0:04:10.320 and but that matter, the same people of course. 0:04:10.120 --> 0:04:10.960 That are in the US. 0:04:11.480 --> 0:04:15.640 But that being said, Europe still has some really incredible universities, 0:04:15.680 --> 0:04:18.640 including University of Copenhagen. You learn a lot, and as 0:04:18.680 --> 0:04:21.760 you know European style, your degree is not an undergraduate 0:04:21.760 --> 0:04:24.080 degree in four years. It's a master's degree where you 0:04:24.160 --> 0:04:29.359 start out on day one studying economics, theology, humanities, and 0:04:29.440 --> 0:04:31.200 you do that for five years in a row. So 0:04:31.240 --> 0:04:34.040 you end up doing five years relatively specialized in this 0:04:34.080 --> 0:04:37.080 case in economics for me, and I found it just 0:04:37.080 --> 0:04:39.920 that the environment, everything that I experienced that went through there, 0:04:39.960 --> 0:04:41.680 and still have many good friends at the university and 0:04:41.760 --> 0:04:44.080 of course in Copenhagen that I still talk to to 0:04:44.120 --> 0:04:46.600 this day about economics and what's going on in financial 0:04:46.600 --> 0:04:47.200 markets and. 0:04:47.120 --> 0:04:50.080 Make me a little jealous. Do you pay for college 0:04:50.120 --> 0:04:52.320 and graduate school or does the state cover that? 0:04:52.480 --> 0:04:54.440 So it happens to be the case in Denmark that 0:04:54.600 --> 0:04:57.560 tuition is completely free. In fact, you get a stipend 0:04:58.240 --> 0:05:00.760 which is three four thousand a month. 0:05:01.000 --> 0:05:01.240 Wow. 0:05:01.360 --> 0:05:04.040 On top of that, you also so this is as 0:05:04.080 --> 0:05:08.320 a PSD student you also get, of course, I need 0:05:08.320 --> 0:05:11.320 to say this a free healthcare. And of course all 0:05:11.320 --> 0:05:14.279 this is subsidized and ultimately paid for by the Danish 0:05:14.279 --> 0:05:16.760 tax payers. That's why marginal tax rates and then mark 0:05:16.800 --> 0:05:19.320 are fifty five percent, right and not to thirty seven 0:05:19.360 --> 0:05:20.520 percent as it is in the US. 0:05:20.720 --> 0:05:24.120 Right, it's better to be middle class or lower class 0:05:24.320 --> 0:05:27.880 in Denmark. It's better to be wealthy in the United States, 0:05:28.120 --> 0:05:30.360 at least in terms of net dollars in your pocket. 0:05:30.440 --> 0:05:33.560 Everyone has access to healthcare, everyone has access to free education, 0:05:33.760 --> 0:05:35.880 and then you just have to do your homework, which 0:05:35.920 --> 0:05:38.760 is the hard part, and then of course complete your education. 0:05:38.880 --> 0:05:41.160 But it is absolutely a major difference, of course too. 0:05:41.560 --> 0:05:43.359 But you left before you had to pay those fifty 0:05:43.400 --> 0:05:44.240 five percent taxes. 0:05:44.279 --> 0:05:46.640 Well, so I just got my free education and then left. 0:05:46.839 --> 0:05:49.560 So but I am still both a Danish citizen and 0:05:49.560 --> 0:05:52.760 I'm also a US citizen. So I'm trying to get 0:05:52.800 --> 0:05:54.840 the best and make the most of the both world. 0:05:54.960 --> 0:05:58.040 So let's talk about your career. You start out as 0:05:58.080 --> 0:06:02.680 an economist at the IMF right out of school. I know, 0:06:02.760 --> 0:06:06.360 at a certain point at the IMF, you're the guy 0:06:06.400 --> 0:06:10.479 writing the world's economic outlook and you're covering China and 0:06:10.600 --> 0:06:13.280 Hong Kong and other parts of Asia. Do you start 0:06:13.320 --> 0:06:16.240 out right out of school doing the global outlook for 0:06:16.279 --> 0:06:18.320 the IMF? For you have to work your way up 0:06:18.360 --> 0:06:18.520 to that. 0:06:18.680 --> 0:06:20.400 Oh, you absolutely have to work your way up. But 0:06:20.440 --> 0:06:23.600 the IMF has this great philosophy that the young people 0:06:23.640 --> 0:06:26.640 who start in the organization throw them on deep water, 0:06:26.880 --> 0:06:29.719 and in this case that means in IMF language, that 0:06:29.760 --> 0:06:31.919 you need to go on a program country, and a 0:06:32.040 --> 0:06:35.160 program country is a country that only has some IMF 0:06:35.240 --> 0:06:38.320 loan or is drawing on some IMF facility. And in 0:06:38.320 --> 0:06:42.520 my case, I was pulled into working on Mongolia. So 0:06:42.600 --> 0:06:45.440 I went to Ulan Paton in January, where it was 0:06:45.480 --> 0:06:47.120 about as cold as it is here in New York 0:06:47.120 --> 0:06:50.880 City today. And it is quite an experience to come 0:06:50.960 --> 0:06:53.960 to an emerging market when you are just around thirty 0:06:54.000 --> 0:06:56.800 years old, and you certainly sit there with the Central 0:06:56.800 --> 0:06:58.799 Bank governor, you sit down with the Minister of Finance, 0:06:59.200 --> 0:07:01.240 and of course there's whole team. I was the most 0:07:01.279 --> 0:07:03.800 junior person, and you try to think about what are 0:07:03.839 --> 0:07:06.880 the macroeconomic problems for this country, how can we get 0:07:06.880 --> 0:07:09.680 this country back on track? Under what conditions should they 0:07:09.720 --> 0:07:13.160 borrow all those things a very critical part of the 0:07:13.280 --> 0:07:17.000 education you get at the IMF, namely learning to analyze 0:07:17.040 --> 0:07:19.920 and understand an economy from a macroeconomic perspective. 0:07:20.080 --> 0:07:22.840 That sounds like it was an amazing experience. 0:07:23.080 --> 0:07:24.040 It was incredible. 0:07:24.120 --> 0:07:26.880 I had never obviously looked at a thought about Mongolia 0:07:26.960 --> 0:07:30.280 too much before. So the fact that you suddenly are involved, 0:07:30.280 --> 0:07:32.160 and also the whole process at the IMF, which is 0:07:32.280 --> 0:07:35.440 very important. You basically have a country that haves some 0:07:35.520 --> 0:07:38.560 macroeconomic problems, then there is a process of them going 0:07:38.560 --> 0:07:40.880 to the Board of the IMF, and the Executive Board 0:07:40.880 --> 0:07:43.880 of the IMF then has to discuss under what conditions 0:07:44.000 --> 0:07:45.680 do we want to give a loan to this country, 0:07:45.880 --> 0:07:48.080 and that process of giving a loan. In some cases 0:07:48.120 --> 0:07:50.120 the IMF says yes, you can have a loan. In 0:07:50.160 --> 0:07:52.040 other cases, the IMF says no, you cannot have a 0:07:52.040 --> 0:07:54.560 loan because you're not willing or able to meet the 0:07:54.600 --> 0:07:56.640 conditionality that comes. 0:07:56.440 --> 0:07:58.280 With borrowing money from the IMF. 0:07:58.320 --> 0:08:01.600 And often countries come to the IMA when they're not 0:08:01.600 --> 0:08:04.440 not able to borrow in public markets. And that's why 0:08:04.520 --> 0:08:08.000 the IMF plays this special role of having conditionality, having 0:08:08.040 --> 0:08:11.760 conditions associated with borrowing. That means that you can borrow, 0:08:11.800 --> 0:08:15.080 but only if you do these things that the global 0:08:15.080 --> 0:08:17.800 community thinks is a good idea and in some cases 0:08:17.840 --> 0:08:20.600 might be politically challenging, But we do this to try 0:08:20.680 --> 0:08:22.480 to get you out of this problem that you're in 0:08:22.520 --> 0:08:23.040 at the moment. 0:08:23.200 --> 0:08:25.720 So now let's compare and contrast. You go from there, 0:08:25.800 --> 0:08:29.640 the OECD in Paris. What's it like being an economist 0:08:29.640 --> 0:08:30.160 in Paris? 0:08:30.400 --> 0:08:33.800 So the IMF has money and gives a loan to countries, 0:08:33.920 --> 0:08:36.960 whereas the OECD is really just a think tank. It 0:08:37.120 --> 0:08:41.200 used to be really mainly more wealthy countries, meaning developed markets, 0:08:41.240 --> 0:08:44.600 meaning the G seven plus a few others, but now 0:08:44.600 --> 0:08:47.280 it has brought out a bit more to also have Brazil, Chile, 0:08:47.440 --> 0:08:50.560 other countries that you will normally categorize as emerging markets. 0:08:50.559 --> 0:08:54.280 But the OECD basically is an organization in Paris that 0:08:54.480 --> 0:08:58.200 lays out best practice across countries. So as a government, 0:08:58.760 --> 0:09:02.079 you think constantly about what is best practice for healthcare policies, 0:09:02.480 --> 0:09:06.160 for pension policies, for all kinds of other policies when 0:09:06.160 --> 0:09:08.559 it comes to climate change, when it comes to really 0:09:08.600 --> 0:09:11.760 all areas of policy making, and the idea is to 0:09:11.840 --> 0:09:14.840 get together in Paris for the OCD countries to come 0:09:14.920 --> 0:09:17.559 and say, what experiences have you made when you put 0:09:17.600 --> 0:09:20.560 together a pension system? What experiences have we made? And 0:09:20.600 --> 0:09:23.320 the IMF the Rights and Reporting says, these are the 0:09:23.400 --> 0:09:25.559 ways that people have done it that work. And other 0:09:25.760 --> 0:09:28.000 sometimes they say other examples are this is word it. 0:09:27.920 --> 0:09:28.880 Has not worked very well. 0:09:29.040 --> 0:09:31.320 To try for you and me and the US and 0:09:31.320 --> 0:09:33.400 Denmark and all other countries in the world to have 0:09:33.440 --> 0:09:36.280 an example of how should we design our pension system, 0:09:36.480 --> 0:09:39.040 how do we make sure that they're enough retirement savings 0:09:39.160 --> 0:09:41.679 for our population? How has it been done in other countries? 0:09:41.880 --> 0:09:44.760 So it's really an organization that really is a think tank, 0:09:44.840 --> 0:09:47.160 but it really is the best practice think tank where 0:09:47.200 --> 0:09:50.600 you get experiences and you get practices from other countries 0:09:50.640 --> 0:09:53.720 that then can be used again in the countries that 0:09:53.760 --> 0:09:54.520 are participating. 0:09:54.600 --> 0:09:57.720 Huh. Really interesting. So the biggest chunk of your career 0:09:57.960 --> 0:10:01.559 was that Deutsche Bank. Did you still art in Germany 0:10:01.640 --> 0:10:03.000 or did you start here in New York? 0:10:03.200 --> 0:10:05.920 So I started here in New York because some of 0:10:05.960 --> 0:10:08.880 my former colleagues from the IMF had moved to Deutsche Bank, 0:10:09.000 --> 0:10:12.160 David Fogustlanta and Pink E Chata and they called and 0:10:12.200 --> 0:10:14.160 asked if I wanted to come to the US and 0:10:14.360 --> 0:10:16.080 work here with him, And this was in two thousand 0:10:16.080 --> 0:10:19.360 and five. It was not our plan. My wonderful wife 0:10:19.440 --> 0:10:22.120 Julie and I had our first son and his name 0:10:22.160 --> 0:10:24.240 is Fleming, and it was a two thousand and three 0:10:24.320 --> 0:10:25.200 and we lived in Paris. 0:10:25.200 --> 0:10:25.880 We all enjoyed it. 0:10:25.880 --> 0:10:28.080 We were actually trying to get a bit closer to Copenhagen. 0:10:28.320 --> 0:10:30.640 But then out of the blue, Binky called and said, hey, 0:10:30.760 --> 0:10:32.240 would you like to come to New York and work 0:10:32.280 --> 0:10:35.000 with us? And my experience from the IMF and the OCD, 0:10:35.559 --> 0:10:38.160 and then this opportunity to be in Deutsche Bank with 0:10:38.200 --> 0:10:40.560 some friends and colleagues that I had known for many 0:10:40.600 --> 0:10:43.000 years and who are still my really good friends today 0:10:43.320 --> 0:10:45.000 of course meant that I said, well, why don't we 0:10:45.040 --> 0:10:47.959 try this? And Julie was up for it. So we 0:10:48.000 --> 0:10:50.240 moved on our family from Paris in two thousand and five. 0:10:50.480 --> 0:10:53.800 So brief digression. I don't know who Binky is personally. 0:10:53.880 --> 0:10:56.840 I've never met him. I cannot begin to tell you 0:10:56.960 --> 0:11:00.360 how many people have referenced him as a man enter, 0:11:00.400 --> 0:11:03.280 as an influence, as this is a person who just 0:11:03.360 --> 0:11:06.520 had such a big impact in the world of finance. 0:11:06.920 --> 0:11:10.319 Will get to the mentor questions later. I'm just curious 0:11:10.400 --> 0:11:13.240 how outsized a personality is Binki. 0:11:13.400 --> 0:11:16.160 Yeah, so a very important part of your question also 0:11:16.200 --> 0:11:19.080 here is that it is absolutely critical to remember that 0:11:19.200 --> 0:11:23.080 inside organizations such as the IMF and the OECD, you 0:11:23.720 --> 0:11:27.520 establish long term relationships with people that really almost in 0:11:28.120 --> 0:11:30.520 a lot of cases basically last for almost your whole 0:11:30.520 --> 0:11:33.640 career or your whole life. So that means you build 0:11:33.679 --> 0:11:37.920 strong connections with people, you work with them in stressed situations, 0:11:37.920 --> 0:11:40.840 in less stress situations, in good and bad times. And 0:11:40.880 --> 0:11:44.680 I had worked with Binkie, not directly under him, and 0:11:44.720 --> 0:11:48.199 also David Falguslanta, but they were both, of course very 0:11:48.240 --> 0:11:52.280 important employees at the IMF, and when they decided to 0:11:52.320 --> 0:11:54.520 move to Teutsche Bank, I decided to say, well, I 0:11:54.559 --> 0:11:57.840 know these people really will and Binky indeed, even today, 0:11:58.040 --> 0:11:59.960 as you know, he is still the chief equity strategy 0:12:00.280 --> 0:12:04.120 at the Deutsche Bank. He has some incredible frameworks and 0:12:04.160 --> 0:12:05.679 I have learned a lot from him. We'll talk more 0:12:05.679 --> 0:12:07.600 about this later in terms of you need to have 0:12:07.640 --> 0:12:09.800 a framework when you talk about things, and he was 0:12:09.840 --> 0:12:11.880 the first one and still is today. They is telling 0:12:11.880 --> 0:12:12.360 me you need. 0:12:12.280 --> 0:12:13.880 To have a framework. What is the framework? 0:12:13.920 --> 0:12:15.840 Why you are thinking the stock market will go up, 0:12:15.920 --> 0:12:17.920 or the dollar will go down, or the federal high rates. 0:12:18.160 --> 0:12:21.480 All these things came from a discussion from Pinkie and 0:12:21.559 --> 0:12:23.880 David and several others, and who, by the way, also 0:12:23.920 --> 0:12:26.560 have a PSD in economics because they were the ones 0:12:26.640 --> 0:12:29.360 who got me into Deutsche Bank starting in two thousand 0:12:29.360 --> 0:12:29.640 and five. 0:12:30.160 --> 0:12:33.439 Really interesting, So you spend fifteen years at Deutsche Bank, 0:12:34.600 --> 0:12:37.560 that's the biggest part of your career. On the cell side, 0:12:38.040 --> 0:12:41.640 I'm curious, how do you curate a firm view? How 0:12:41.679 --> 0:12:46.120 do you develop Hey, this is the perspective of Deutsche 0:12:46.160 --> 0:12:48.440 Bank US, which is a giant entity. 0:12:48.720 --> 0:12:50.600 Well, as you and I have been talking about for 0:12:50.640 --> 0:12:54.160 many years, different banks have different strategies. So some banks 0:12:54.160 --> 0:12:57.720 have a house view, other banks have a house of use. 0:12:58.760 --> 0:13:01.600 So that means that in this case Doutchr Bank was 0:13:02.080 --> 0:13:04.280 run in a way and I think that does make 0:13:04.360 --> 0:13:07.600 sense where there was no strong house shoe every day 0:13:07.640 --> 0:13:12.520 on everything, because we have to let individuals free in 0:13:12.559 --> 0:13:15.480 the sense that the different people have different types of 0:13:15.520 --> 0:13:19.920 expertise in different areas. So at dB we would sit 0:13:19.960 --> 0:13:22.640 down around the table, think about the Federal Serve or 0:13:22.640 --> 0:13:24.960 the ECP or the Bank of Japan, and we would 0:13:25.000 --> 0:13:28.520 then say, okay, whoever was the main person responsible for 0:13:28.679 --> 0:13:31.880 the central bank, what is your view? Let's discuss do 0:13:31.920 --> 0:13:33.640 we all agree with this? What are the arguments why 0:13:33.640 --> 0:13:35.480 this is right? One are the arguments why this is wrong. 0:13:35.920 --> 0:13:37.440 This gives a healthy debate. 0:13:37.559 --> 0:13:39.400 This gives a healthy way of saying, we have now 0:13:39.440 --> 0:13:42.319 turned every stone and we end up where we published 0:13:42.360 --> 0:13:44.600 the view that Let's say that the FED, for example 0:13:44.640 --> 0:13:47.280 today we'll talk about this later, will be keeping interest 0:13:47.360 --> 0:13:50.640 rates on hold. But that discussion, of course, is a 0:13:50.760 --> 0:13:53.720 very important part of the debate instead of just having well, 0:13:54.000 --> 0:13:56.360 I am having someone in the organization who says, oh, 0:13:56.400 --> 0:13:58.360 the FED will not do anything. But everyone else can 0:13:58.400 --> 0:14:00.560 then sit around and say, oh, I disagree with that view. 0:14:00.720 --> 0:14:02.800 I think the view should be different. So there is 0:14:02.840 --> 0:14:05.480 no easy solution to this problem. But it is the 0:14:05.520 --> 0:14:09.000 case that at Deutsche used to be the situation where 0:14:09.000 --> 0:14:11.440 we would sit around the table and fight it out 0:14:11.480 --> 0:14:13.200 and end up with a view on what do we 0:14:13.280 --> 0:14:15.600 think is the outlook for in this case, the fit 0:14:15.679 --> 0:14:17.840 ECB or the Bank of Japan or any other central 0:14:17.840 --> 0:14:19.440 bank or any other market we were looking at. 0:14:19.600 --> 0:14:23.240 Huh, really really interesting. So you're at a government entity, 0:14:23.280 --> 0:14:25.040 then you're at a think tank, then you're at a 0:14:25.080 --> 0:14:28.600 sell side brokerage firm. Then you end up at Apollo, 0:14:29.280 --> 0:14:32.840 which not only is buyside, but it's more focused on 0:14:32.880 --> 0:14:36.080 the private markets than the public markets. I'm curious what 0:14:36.280 --> 0:14:39.280 led you to Apollo and what was that transition like? 0:14:39.440 --> 0:14:42.640 Yeah, so at Deutsche Bank I spent essentially all my 0:14:42.800 --> 0:14:47.320 time on going to clients with sales. So we would 0:14:47.400 --> 0:14:50.760 go to Pimco, Blackrock, Brevin Howard, or the hedge funds 0:14:50.800 --> 0:14:52.800 or the real money managers and we would sit down 0:14:52.840 --> 0:14:57.400 and talk about what is the outlook for rates, equities, commodities, 0:14:57.680 --> 0:15:01.040 everything in the macro world that they wanted to discuss. 0:15:01.640 --> 0:15:05.480 At Apollo, my job is quite different and it has 0:15:05.560 --> 0:15:08.480 some different elements that I didn't have in my job 0:15:08.520 --> 0:15:11.280 with Deutsche Bank. So what was the attraction was that 0:15:11.360 --> 0:15:14.760 after fifteen years of traveling around the world and talking 0:15:14.800 --> 0:15:19.920 about the macro in client meetings, really anywhere you could 0:15:19.920 --> 0:15:22.400 go where anyone was interested in the US economic outlook, 0:15:22.680 --> 0:15:25.240 at Apollo, I spent roughly half of my time still 0:15:25.280 --> 0:15:28.000 doing that on the fundraising side, But the other half 0:15:28.000 --> 0:15:30.720 of my time I spent internally talking to deal teams. 0:15:31.280 --> 0:15:34.280 So a deal team is looking at buying a company. 0:15:34.360 --> 0:15:36.360 At deal team is looking at giving a loan to 0:15:36.400 --> 0:15:38.560 a company. This could be in the US, it could 0:15:38.560 --> 0:15:41.080 be in Europe, it could be in anywhere in the world, Brazil, 0:15:41.280 --> 0:15:45.000 it could be really any type of financing that we 0:15:45.040 --> 0:15:48.640 would be studying carefully. And in some of these cases 0:15:48.800 --> 0:15:53.640 macroeconomics is less important. In other cases, macroeconomics is really important, 0:15:53.680 --> 0:15:56.200 meaning we begin to discuss what is the outlook for rates, 0:15:56.400 --> 0:15:58.960 meaning what are their financing costs? What's the outlook for spreads, 0:15:59.240 --> 0:16:01.880 what's the outlook for even wages? Was the outlook for 0:16:02.000 --> 0:16:04.440 low income wages, middle income wages, high income wages? What 0:16:04.560 --> 0:16:06.560 is the outlook for the dollar? And we also have 0:16:06.680 --> 0:16:10.000 discussions of what is the outlook for politics? So those 0:16:10.000 --> 0:16:12.400 things are not things that we can control, but then 0:16:12.480 --> 0:16:14.720 nevertheless turn out to be really important if you want 0:16:14.720 --> 0:16:18.080 to understand the risks associated with the investment that you're doing. 0:16:18.200 --> 0:16:21.000 So what attracted me to come to Apollo was I 0:16:21.040 --> 0:16:24.280 still am doing to a last degree, many of the things. Again, 0:16:24.280 --> 0:16:26.680 half of my job is traveling around the world talking 0:16:26.720 --> 0:16:30.160 to people about the macroeconomic outlook, but the internal part 0:16:30.280 --> 0:16:33.120 of talking to deal teams for that matter, also talking 0:16:33.160 --> 0:16:36.160 to management about what's going on, what are we seeing, 0:16:36.240 --> 0:16:38.280 what are we hearing? And we have fifty a liberalist 0:16:38.360 --> 0:16:41.000 and fifty portfolio companies talking to the CEOs of these 0:16:41.000 --> 0:16:45.480 portfolio companies. It all gives a very corporate finance addition 0:16:45.720 --> 0:16:48.960 to my macroeconomic thinking, and that was and continues to 0:16:49.000 --> 0:16:52.520 be the main significant attraction that I find so exciting 0:16:52.560 --> 0:16:55.400 about my job naming that is combining the macro world 0:16:55.640 --> 0:16:57.600 with the corporate finance and the deal team world in 0:16:57.640 --> 0:16:59.840 private credit and private equity, and then trying to come 0:16:59.880 --> 0:17:01.800 up with a view what do we think will happen 0:17:01.840 --> 0:17:02.920 going forward now. 0:17:03.000 --> 0:17:07.680 At Deutsche Bank, you were a fairly traditional economic publisher. 0:17:08.040 --> 0:17:11.720 When you move to Apollo, you developed several new platforms, 0:17:11.760 --> 0:17:16.159 new content platforms. I think everybody who's listening is probably 0:17:16.240 --> 0:17:19.200 familiar with the Daily Spark, which is sort of your 0:17:19.359 --> 0:17:22.920 chart of the day, which is always fascinating and niche 0:17:22.960 --> 0:17:26.080 and chock full of information. But you also put out 0:17:26.960 --> 0:17:32.480 full research decks and full the traditional economic data series. 0:17:32.520 --> 0:17:35.600 But then on top of that, is the Apollo Academy 0:17:35.680 --> 0:17:36.800 tell us a little bit about that. 0:17:36.920 --> 0:17:40.679 Yeah, So the idea with the Apollo Academy is there 0:17:40.720 --> 0:17:44.520 are really several different purposes. So first of all, Apollo 0:17:44.560 --> 0:17:47.879 Academy is really the prime place to go if you 0:17:47.960 --> 0:17:51.840 want to understand alternatives, because it is often, of course 0:17:51.880 --> 0:17:54.479 the case that people in financial markets, everyone spends so 0:17:54.560 --> 0:17:56.760 much time on this and p. Five hundred because this 0:17:56.840 --> 0:17:58.840 in p. Five hundred is what we all discuss all 0:17:58.920 --> 0:18:02.520 day long. But if you look at businesses with employment 0:18:02.560 --> 0:18:05.080 in the US, there are six million firms in the 0:18:05.160 --> 0:18:06.480 US that have employment. 0:18:06.720 --> 0:18:08.200 So the fact that we spend time. 0:18:08.040 --> 0:18:11.199 On five hundred companies out of six million businesses, it 0:18:11.320 --> 0:18:13.760 just doesn't make too much sense. So that's why private 0:18:13.800 --> 0:18:16.040 markets and what's going on in private markets, both in 0:18:16.080 --> 0:18:19.439 private equity and also of course in private credit is 0:18:19.480 --> 0:18:23.000 a very important part of the US and the global economy. 0:18:23.200 --> 0:18:26.040 So that's what we try to do in Apollo Academy, namely, 0:18:26.119 --> 0:18:31.320 have various educational materials, white papers about private credit, white 0:18:31.320 --> 0:18:34.920 papers about private equity, white papers about AZEPAC finance, white 0:18:34.960 --> 0:18:38.639 papers about all kinds of aspects of what our private 0:18:38.680 --> 0:18:42.200 markets today and what we also do on the Apolloacademy 0:18:42.200 --> 0:18:44.200 dot com home pages. Of course, that we also produce 0:18:44.240 --> 0:18:46.679 as you just mentioned at Daily spag Email, which is 0:18:46.680 --> 0:18:48.879 a chart that we produce every day, which is some 0:18:49.000 --> 0:18:51.720 interesting topic that we're thinking about, and we also try 0:18:51.840 --> 0:18:53.879 to have by the way, we also have podcasts and 0:18:53.880 --> 0:18:55.960 we also have videos, but we try to generally have 0:18:56.080 --> 0:19:00.239 material so that people and the public out there can 0:19:00.280 --> 0:19:02.919 be informed about what's going on in alternatives and in 0:19:02.920 --> 0:19:03.520 private markets. 0:19:03.560 --> 0:19:06.159 At the moment, I just want to talk briefly about 0:19:06.200 --> 0:19:11.040 the Daily Spark because I'm fascinated both on the subjects 0:19:11.080 --> 0:19:14.239 that you focus on and the process you use in 0:19:14.320 --> 0:19:18.679 creating it. Something recently that showed up New York hotel costs. 0:19:19.000 --> 0:19:23.040 Now that seems so specific. What do new York hotel 0:19:23.080 --> 0:19:25.200 costs tell us about the broader economy? 0:19:26.000 --> 0:19:27.879 This is a really good question, and you're not the 0:19:27.920 --> 0:19:30.440 only one to probably think about that among the listeners. 0:19:30.480 --> 0:19:32.520 Men for those who do subscribe to the Daily Spark 0:19:32.560 --> 0:19:34.520 are probably scratching their hits sometimes and saying why are 0:19:34.480 --> 0:19:37.680 we even talking about this? We also have data sometimes 0:19:37.680 --> 0:19:39.520 that we look at for how many people are visiting 0:19:39.520 --> 0:19:41.919 the Statue of Liberty. We also look at how many 0:19:41.960 --> 0:19:43.160 people go to Broadway shows. 0:19:43.200 --> 0:19:45.160 I remember seeing that, and you may. 0:19:45.119 --> 0:19:46.919 And you and I laugh at it sometimes, and you 0:19:46.920 --> 0:19:49.240 should also laugh at it sometimes and say why. 0:19:49.000 --> 0:19:49.760 Are we're looking at this? 0:19:50.080 --> 0:19:52.880 But in fact it is still the case that, if 0:19:52.920 --> 0:19:55.600 you think about it well, hotel cost important for a 0:19:55.680 --> 0:19:57.879 number of different reasons, not only from a commercial real 0:19:58.000 --> 0:20:01.640 estate investing perspective. It's also important to get some understanding 0:20:01.640 --> 0:20:04.399 of how expensive is it now. The average price for 0:20:04.440 --> 0:20:06.360 staying at a hotel at the moment in New York 0:20:06.400 --> 0:20:10.040 City is more than four hundred dollars. That is really expensive. 0:20:10.320 --> 0:20:12.520 Think about also how much that has gone up, how 0:20:12.560 --> 0:20:14.640 much of that has gone up after COVID. That has 0:20:14.640 --> 0:20:17.360 implications for how you think about what is occupancy rates 0:20:17.359 --> 0:20:19.600 for hotels not only in New York but nationwide. That 0:20:19.640 --> 0:20:21.879 has implications for how well is the consumer doing. That 0:20:21.920 --> 0:20:25.680 has implications for tourism. It has just so many ramifications. 0:20:25.720 --> 0:20:27.720 A lot of these things. Even how many people go 0:20:27.720 --> 0:20:30.560 to Broadway shows also tells you something about is there 0:20:30.560 --> 0:20:34.320 a willingness among consumers to spend on discretionary spending something 0:20:34.359 --> 0:20:36.679 that's a little bit expensive. The average Broadway show ticket 0:20:36.720 --> 0:20:39.280 cost round one hundred and fifty dollars. 0:20:39.480 --> 0:20:40.680 But that's a bargain right there. 0:20:40.720 --> 0:20:42.560 But it could be a lot more expensive than that. 0:20:42.760 --> 0:20:45.280 And all that to your question is you say, well, 0:20:45.280 --> 0:20:48.760 why are we looking at this? So without writing a long, long, 0:20:48.960 --> 0:20:52.160 thirty page paper with thirty footnotes, just a simple chant 0:20:52.200 --> 0:20:54.919 saying hey, check this out, this is something we're thinking about, 0:20:55.240 --> 0:20:57.600 you can say, oh, I don't really care about this. 0:20:57.840 --> 0:21:00.679 Why should I worry about how many people again go 0:21:00.760 --> 0:21:03.600 to Broadway shows or how many people who go to 0:21:03.600 --> 0:21:05.159 the Statue of Liberty? Or what is the cost of 0:21:05.200 --> 0:21:07.080 saying oh, and I at the hotel? But it still 0:21:07.160 --> 0:21:09.920 is something that at least is one dimension to thinking 0:21:09.920 --> 0:21:11.600 about a lot of the different things that are going on. 0:21:11.640 --> 0:21:13.879 And that is the benefit And that's what I'm enjoying 0:21:13.880 --> 0:21:16.399 so much of producing one every day, because then I 0:21:16.400 --> 0:21:18.720 I write about something today and tomorrow I can write 0:21:18.720 --> 0:21:19.560 about something else. 0:21:19.840 --> 0:21:22.680 And the fact that you do something completely different every day. 0:21:23.160 --> 0:21:25.480 Someone may say, who cares how many people go to 0:21:25.520 --> 0:21:30.080 the Statue of Liberty, But when you see ninety different 0:21:30.200 --> 0:21:32.919 charts over the course of three or four months, it 0:21:33.080 --> 0:21:35.840 starts to paint a broader picture as to what's going on. 0:21:36.440 --> 0:21:40.240 All these little niche data points. They add up and 0:21:40.280 --> 0:21:43.280 it gives you a perspective on the economy that you 0:21:43.359 --> 0:21:46.280 may not get looking at GDP or unemployment. 0:21:45.920 --> 0:21:47.879 As when you and I always talk about what is 0:21:47.880 --> 0:21:50.600 the economic outlook? And then you can start in some kona, 0:21:50.680 --> 0:21:52.879 but I still need to paint you a picture and 0:21:53.000 --> 0:21:56.800 mosaic that ultimately has some different pieces, And these charts 0:21:56.800 --> 0:21:59.720 are exactly meant to be different pieces in what is 0:21:59.760 --> 0:22:03.159 goinging on in the economy and more broadly, what is 0:22:03.200 --> 0:22:06.000 it in financial markets that we should be talking about? 0:22:06.080 --> 0:22:06.840 And that's relevant? 0:22:06.880 --> 0:22:09.400 And sometimes some of these pieces in the mosaic may 0:22:09.600 --> 0:22:12.879 look insignificant and not very critical, But in other times 0:22:12.920 --> 0:22:15.720 a chart could simply also be what's the trend in inflation? 0:22:16.119 --> 0:22:18.600 Should we expect invasion to go up? Now that Trump 0:22:18.680 --> 0:22:20.760 has been talking about tariffs, now that we may have 0:22:20.760 --> 0:22:23.480 restrictions of immigration, now that we may lower corporate tax 0:22:23.560 --> 0:22:26.119 rates on domestic manufacturers to fifteen percent? Could that be 0:22:26.160 --> 0:22:28.640 a reason why there might be some lift in some 0:22:28.720 --> 0:22:31.600 of the more important indicators, other than, of course, some 0:22:31.640 --> 0:22:33.960 of the more funny indicators that we've been talking about 0:22:34.200 --> 0:22:35.199 up to this point. 0:22:35.280 --> 0:22:39.680 We were talking earlier at the mosaic of different data 0:22:39.680 --> 0:22:44.680 points that create an economic outlook. Let's talk first about 0:22:44.680 --> 0:22:47.200 the US and then the rest of the world. You've 0:22:47.240 --> 0:22:53.119 described the US economy as quote, firing on all cylinders discuss. 0:22:54.040 --> 0:22:57.879 So the backdrop for where we sit today is, of 0:22:57.880 --> 0:22:59.959 course that GDP growth for the last two and an 0:23:00.280 --> 0:23:02.439 years since the FED began to raise interest rates, has 0:23:02.480 --> 0:23:06.159 been remarkably strong. And this has raised a number of 0:23:06.200 --> 0:23:10.159 important questions in financial markets. Namely, when the Fed raised 0:23:10.200 --> 0:23:13.160 interest rates, I would have expected, and the textbook would 0:23:13.160 --> 0:23:15.880 have expected, that home prices should have been going down. 0:23:16.200 --> 0:23:17.360 That's not what has happened. 0:23:17.480 --> 0:23:19.640 You would have expected that when interst rates go up, 0:23:19.840 --> 0:23:21.119 car sales should go down. 0:23:21.280 --> 0:23:22.439 That is not what has happened. 0:23:22.520 --> 0:23:25.160 And you would also have expected that when interest rates 0:23:25.200 --> 0:23:27.879 go up that cap e spending and business spending by 0:23:27.880 --> 0:23:30.439 businesses should also be slowing down, and that is not 0:23:30.520 --> 0:23:33.080 what has happened. And why is it that the economy 0:23:33.119 --> 0:23:35.399 has continued to be so strong? In other words, what 0:23:35.560 --> 0:23:38.560 happened to long and variable lacks that the Federal Serve 0:23:39.040 --> 0:23:41.680 FMC members have talked about for so long? Why didn't 0:23:41.680 --> 0:23:44.359 the economy slow down when interest rates went up? And 0:23:44.400 --> 0:23:46.800 there are three very important reasons why that didn't happen. 0:23:47.240 --> 0:23:50.600 First of all, we have had a much less interest 0:23:50.640 --> 0:23:53.919 rates sensitive economy this time around than we've had before. 0:23:54.240 --> 0:23:57.720 Most importantly, ninety five percent of mortgages outstanding in the 0:23:57.840 --> 0:24:00.840 US are thirty of fixed rates. That when interest rates 0:24:00.880 --> 0:24:03.480 started going up, that meant that mortgage payments did not 0:24:03.640 --> 0:24:06.800 go up for consumers because consumers had locked in low 0:24:06.800 --> 0:24:09.679 interest rates during the pandemic. And this was also the 0:24:09.760 --> 0:24:13.160 case for corporate debt. Net interest payments as a share 0:24:13.160 --> 0:24:15.680 of operating surplus in the US has been going down 0:24:16.000 --> 0:24:18.879 despite that the FED has been raising interest rates, so 0:24:18.960 --> 0:24:21.479 there was also a list interesst rates sensitivity for corporate 0:24:21.600 --> 0:24:25.000 So taken together, the first argument why is the economy 0:24:25.000 --> 0:24:28.680 still so strong? Because FED hikes simply did not have 0:24:28.800 --> 0:24:32.240 a particularly negative impact on consumers and on firms as 0:24:32.240 --> 0:24:35.720 the textbook would have predicted. Secondly, in the US, we 0:24:35.840 --> 0:24:38.320 also have a data center boom. We have an AI 0:24:38.359 --> 0:24:40.400 and data center boom, unlike what we see in any 0:24:40.400 --> 0:24:42.720 other countries. There's six thousand data centers in the US, 0:24:42.960 --> 0:24:46.440 more than all other country countries combined in the world. 0:24:46.640 --> 0:24:49.520 So data center boom has probably been adding around zero 0:24:49.520 --> 0:24:52.200 point two percent to GDP growth for the last several years. 0:24:52.240 --> 0:24:55.120 And third, and finally, we also have fiscal policy. Even 0:24:55.160 --> 0:24:57.919 before we talk about Trump, Chips Act, the Inflation Doarcs Act, 0:24:57.920 --> 0:24:59.080 the Infrastructure. 0:24:58.520 --> 0:24:59.679 Act have also been important. 0:24:59.720 --> 0:25:02.040 Tale So in summary, and sorry for getting a very 0:25:02.040 --> 0:25:04.280 long answer, but why good ants the economy has been 0:25:04.320 --> 0:25:07.320 so strong. It has to do with less interest rate sensitivity, 0:25:07.480 --> 0:25:10.000 a data center and AI boom, and finally. 0:25:09.760 --> 0:25:10.840 Also fiscal policy. 0:25:10.880 --> 0:25:13.000 And that's the reason why even where we sit today, 0:25:13.200 --> 0:25:16.040 the Atlanta FEDGDP now estimate for Q four is still 0:25:16.080 --> 0:25:19.520 at three percent, well above the CBO's two percent estimate 0:25:19.640 --> 0:25:22.040 for long run GDP growth. And that is the reason 0:25:22.040 --> 0:25:23.679 why there is in P five hundreds have done so 0:25:23.720 --> 0:25:25.840 well the last few years. That's the reason why credit 0:25:25.840 --> 0:25:28.679 spreads on ig high end loans are so tight, because 0:25:28.720 --> 0:25:31.760 we never got that slowdown that everyone worried so much about. 0:25:31.920 --> 0:25:33.840 And now we can then start talking about if we 0:25:33.880 --> 0:25:36.760 add Trump policies on top of this starting point, then 0:25:36.920 --> 0:25:39.119 you can begin to worry about that maybe there's a 0:25:39.240 --> 0:25:43.360 ray acceleration both in inflation and in GDP in twenty 0:25:43.440 --> 0:25:45.840 twenty five as a result of the starting point being 0:25:46.040 --> 0:25:47.679 just so strong at the moment. 0:25:47.840 --> 0:25:50.680 So there's a couple of things you didn't mention in 0:25:50.840 --> 0:25:54.520 contributing to the strength of the US economy, as well 0:25:54.520 --> 0:25:57.280 as some price support, and I want to throw those 0:25:57.320 --> 0:26:01.000 at you. So you didn't mention the mass of fiscal 0:26:01.040 --> 0:26:04.680 spends during the pandemic of CARES Act one and two 0:26:04.760 --> 0:26:07.560 under President Trump and KARS Act three under President Biden. 0:26:08.359 --> 0:26:11.240 Those were enormous. Is that pig through the python and 0:26:11.240 --> 0:26:12.560 we're still feeling the effect of that. 0:26:12.960 --> 0:26:16.439 So those were also very important reasons why, specifically the 0:26:16.560 --> 0:26:18.920 savings rate went up a lot in the household sext 0:26:19.000 --> 0:26:21.600 or so excess savings you and I have been emailing 0:26:21.640 --> 0:26:24.879 these charts back and forth. Excess savings were really high 0:26:24.960 --> 0:26:27.840 exactly because of those fiscal policies giving a lot of 0:26:27.840 --> 0:26:30.960 money to households, and as households were running down those 0:26:31.040 --> 0:26:33.800 excess savings, this was also a very important tail wind 0:26:33.960 --> 0:26:36.200 to the outlook. So I do agree that those things 0:26:36.240 --> 0:26:38.800 have also played a very critical role in why the 0:26:38.800 --> 0:26:40.920 economic data has continued to be so strong. Even the 0:26:41.000 --> 0:26:43.280 last non fum payrolls number we got was of course 0:26:43.320 --> 0:26:46.160 also very strong. And also again telling you that there 0:26:46.160 --> 0:26:49.200 are some tailwinds, and that pick through the python has 0:26:49.240 --> 0:26:52.200 played at a critical role in keeping the economy strong 0:26:52.440 --> 0:26:55.640 for a much longer period than what your economics textbook 0:26:55.640 --> 0:26:56.320 would have predicted. 0:26:56.560 --> 0:26:58.800 So there's there's so many different questions I want to 0:26:58.800 --> 0:27:03.520 throw at you from that. You mentioned cars, you mentioned labor, 0:27:03.520 --> 0:27:08.720 and you mentioned houses. All three of those sectors have 0:27:08.840 --> 0:27:11.560 a short fall of supply. We stop making cars for 0:27:11.560 --> 0:27:14.920 a couple of years during the pandemic, So now we've 0:27:15.000 --> 0:27:18.159 ramped up enough new car production still means we have 0:27:18.200 --> 0:27:22.119 a short fall of pre owned cars. Housing we underbuilt 0:27:22.160 --> 0:27:25.240 for a decade, there just doesn't and the number of 0:27:25.280 --> 0:27:29.240 homes for sale close to record lows, and it feels 0:27:29.480 --> 0:27:32.640 like the labor pool is as tight as it's ever 0:27:32.680 --> 0:27:37.160 been in our lifetimes. How significant are these supply issues 0:27:37.600 --> 0:27:40.720 to both growth and pricing? 0:27:41.000 --> 0:27:42.400 They are very important. 0:27:42.520 --> 0:27:44.520 And there is this as you and I also have 0:27:44.560 --> 0:27:47.400 talked about before this academic debate about what's inflation high 0:27:47.440 --> 0:27:49.919 because of supply or was it high because of demand? 0:27:50.160 --> 0:27:52.760 But exactly as you are outlining, it's a much more 0:27:52.800 --> 0:27:56.440 complicated situation where you both have supply constraints for housing 0:27:56.760 --> 0:27:59.560 for labor across the board. In autos in many other 0:27:59.600 --> 0:28:02.520 sexes because during the pandemic we were simply not able 0:28:02.560 --> 0:28:06.000 to produce enough of what was needed for the economy 0:28:06.119 --> 0:28:08.600 to go at full capacity. So therefore we did have 0:28:08.640 --> 0:28:10.679 a decline in supply and at the same time we 0:28:10.720 --> 0:28:13.800 had a significant increase in demand, including from the fiscal 0:28:13.880 --> 0:28:16.880 policies that you just mentioned, and those things together were 0:28:16.920 --> 0:28:19.480 a very important reason why inflation went up. So now 0:28:19.480 --> 0:28:22.440 you're asking, looking into twenty twenty five, are these things 0:28:22.480 --> 0:28:24.720 still here? I would say they are still here to 0:28:24.760 --> 0:28:27.000 a very significant degree. And even before we've talked about 0:28:27.040 --> 0:28:30.040 Trump policies and tariffs and restrictions in immigration and lower 0:28:30.040 --> 0:28:33.920 corporate taxes, all these things are still pointing in my view, 0:28:34.080 --> 0:28:36.359 to a situation where we are not out of the 0:28:36.359 --> 0:28:39.320 woods on inflation. The risk is that inflation could begin 0:28:39.400 --> 0:28:41.600 to see some lift simply because the fate is now 0:28:41.600 --> 0:28:44.800 cutting and we still have tailwinds from fiscal policy AI 0:28:44.920 --> 0:28:47.680 data under spending. We also have tailwinds from energy transition, 0:28:47.800 --> 0:28:49.720 and by the way, what we haven't talked about either, 0:28:49.760 --> 0:28:52.440 we also have tailwinds from defense spending, and we also, 0:28:52.480 --> 0:28:55.160 of course have tailwinds from fiscal policy. The chipsacked the 0:28:55.160 --> 0:28:58.239 Inflation Douction Act, the Infrastructure Act, and taken together, all 0:28:58.320 --> 0:29:01.080 these things do point to your question, namely that there 0:29:01.120 --> 0:29:03.959 is still a chance that we might see infasion go up, 0:29:04.000 --> 0:29:07.080 and therefore we might see the Fed potentially race interest 0:29:07.120 --> 0:29:08.440 rates in twenty twenty five. 0:29:08.720 --> 0:29:11.520 So you've been very constructive on the economy for the 0:29:11.520 --> 0:29:16.480 past two years. A lot of economists were expecting a 0:29:16.520 --> 0:29:20.760 recession in twenty two, twenty three, twenty four. They haven't 0:29:21.120 --> 0:29:25.280 gotten the recession they've been expecting. Why do you think 0:29:25.320 --> 0:29:28.480 the consensus was so wrong? Is it just that's what 0:29:28.520 --> 0:29:30.480 the textbook said exactly. 0:29:30.600 --> 0:29:32.360 I think we've been waiting for Godou for a long 0:29:32.400 --> 0:29:34.960 time and Godau basically has not arrived, and I don't 0:29:34.960 --> 0:29:37.280 think he will arrive, at least not in twenty twenty five, 0:29:37.720 --> 0:29:40.959 because I think everyone took that textbook out exactly as 0:29:41.000 --> 0:29:43.960 you just said, Barry, and said, wow, when the Fed 0:29:44.040 --> 0:29:47.360 racist interest rates, then the probabidias of recession goes up. 0:29:47.600 --> 0:29:48.640 You actually see that on. 0:29:48.600 --> 0:29:51.640 Your Bloomberg screen if you type ECFC go and look 0:29:51.640 --> 0:29:53.160 in the opper right hand corner, you can see that 0:29:53.200 --> 0:29:56.160 the probabidias of recession immediately when the Fed began to 0:29:56.240 --> 0:29:58.480 race interest rates in March of twenty twenty two, the 0:29:58.560 --> 0:30:02.360 contentus began to lift high, yeah, significantly the probability of recession. 0:30:02.560 --> 0:30:06.360 And it was telling you that all the economies on 0:30:06.400 --> 0:30:09.280 the street who were looking at what is the implication 0:30:09.400 --> 0:30:11.640 if the Fed racist interest rates, they were saying, it 0:30:11.720 --> 0:30:14.800 will absolutely be a recession. And what in my view 0:30:15.360 --> 0:30:18.040 was at least it's clear today and was the reason 0:30:18.120 --> 0:30:20.960 why we didn't get it was because we all underestimated 0:30:20.960 --> 0:30:24.640 fiscal policy. We're underestimated the excess savings, meaning the money 0:30:24.680 --> 0:30:27.080 that you just mentioned came into people's bank accounts, and 0:30:27.120 --> 0:30:31.080 we also under estimated the interest rate insensitivity of the 0:30:31.200 --> 0:30:34.400 Data center boom, and also the interest rate insensitivity of 0:30:34.600 --> 0:30:38.280 energy transition, and also the interest rate insensitivity of the 0:30:38.280 --> 0:30:40.960 fiscal policy from the CHIPSAC and the inflation arcid Act, 0:30:41.040 --> 0:30:44.480 and those tailwinds have just kept the economy a lot stronger. 0:30:44.640 --> 0:30:47.360 So people under estimated that it was not just about 0:30:47.600 --> 0:30:50.320 interest rates going up. That were tailwinds that kept the 0:30:50.360 --> 0:30:53.720 economy afloat and a lot stronger than what really almost 0:30:53.720 --> 0:30:54.560 everyone expected. 0:30:54.760 --> 0:30:58.600 So in twenty twenty four, the Fed finally talking about 0:30:58.640 --> 0:31:03.160 waiting for GOODO finally began cutting interest rates. You're one 0:31:03.200 --> 0:31:05.520 of the few economists who came out and said, Hey, 0:31:05.600 --> 0:31:08.120 the US economy is strong enough, we really don't need 0:31:08.240 --> 0:31:10.000 rake cuts. Explain your thinking. 0:31:10.120 --> 0:31:12.080 Yeah, so we said, and we were wrong in the 0:31:12.120 --> 0:31:14.440 beginning of last year that the Fed would not cut rates. 0:31:14.440 --> 0:31:16.719 In twenty twenty four, they did cut rates now one 0:31:16.760 --> 0:31:17.719 hundred basis points. 0:31:18.280 --> 0:31:19.520 It is still being debated. 0:31:19.720 --> 0:31:22.080 I know this sounds very academic, whether that was actually 0:31:22.080 --> 0:31:24.240 a good idea or not, but it is clear that 0:31:24.280 --> 0:31:26.680 the Fed did end up cutting interest rates, with the 0:31:26.760 --> 0:31:30.160 main argument that inflation in June of twenty twenty two 0:31:30.200 --> 0:31:32.800 was nine percent, and it had come down to around 0:31:32.880 --> 0:31:36.800 three percent, So the Fed concluded three year is closer 0:31:36.840 --> 0:31:39.800 to our target of two So this allows us to 0:31:39.920 --> 0:31:42.320 begin to cut interest rates. The problem is where we 0:31:42.360 --> 0:31:44.320 sit right now here. Of course, at the beginning of 0:31:44.320 --> 0:31:47.280 twenty twenty five, that will. In the last few months, 0:31:47.280 --> 0:31:51.920 inflation has proven more sticky, the median CPI measure from 0:31:51.920 --> 0:31:55.560 the Cleveland Fed, the TRIMP Mean, the various measures of 0:31:55.600 --> 0:31:58.720 acyclical inflation, and of course also various measures from the 0:31:59.040 --> 0:32:01.840 inflation from the New York Fed that also looks at 0:32:01.840 --> 0:32:05.240 trends in underlying the uIP measure us saying that inflation 0:32:05.320 --> 0:32:07.840 is beginning to move more sideways and some indicators begin 0:32:07.960 --> 0:32:08.480 to move up. 0:32:08.720 --> 0:32:09.640 So again, even. 0:32:09.480 --> 0:32:12.360 Before we have spoken about Trump policy is potentially giving 0:32:12.360 --> 0:32:15.040 a lift to even as if it's modest lift to inflation, 0:32:15.240 --> 0:32:17.920 the problem is that inflation today is three and three 0:32:18.000 --> 0:32:20.240 is not two. And if I started three and I 0:32:20.280 --> 0:32:22.480 begin to add a risk of a strong economy, and 0:32:22.520 --> 0:32:25.320 I add a risk of both terriffs and restrictions and immigration, 0:32:25.600 --> 0:32:27.520 the risk is not that inflation goes down to two, 0:32:27.760 --> 0:32:29.880 but the risk is that three begins to become higher. 0:32:30.000 --> 0:32:32.720 So that's why we still are in the camp of 0:32:32.800 --> 0:32:36.720 thinking that, well, maybe we are still a little bit 0:32:36.920 --> 0:32:40.400 early in declaring victory over this issue. On hey, inflation 0:32:40.520 --> 0:32:43.200 is no longer a problem, because maybe inflation could come 0:32:43.240 --> 0:32:45.520 back in twenty twenty five and we just don't quite 0:32:45.600 --> 0:32:47.960 yet have it completely under control. And that's what AFMC 0:32:48.080 --> 0:32:51.000 members have been saying in speeches, namely that well, maybe 0:32:51.000 --> 0:32:52.760 we need to go a little bit more slowly, and 0:32:52.800 --> 0:32:55.200 maybe we should even just take a pause and take 0:32:55.240 --> 0:32:57.880 a break and see, well how long time it will 0:32:57.880 --> 0:33:00.120 it take before inflation begins to show more signs of 0:33:00.200 --> 0:33:02.000 it actually continuously moving low. 0:33:02.000 --> 0:33:05.200 One. Well, in the last presser, it's pretty clear Jerome 0:33:05.240 --> 0:33:08.000 Powell wants to take a break. But it raises the 0:33:08.120 --> 0:33:10.480 question if all this is true about the strength of 0:33:10.520 --> 0:33:14.840 the US economy. And I completely agree with you. I've 0:33:14.880 --> 0:33:17.840 been trying to figure out what is their thinking why 0:33:19.280 --> 0:33:21.480 would they cut? And I kind of came up with 0:33:21.480 --> 0:33:23.760 two theories, and I want to bounce them off you. 0:33:24.680 --> 0:33:27.960 One is, the bottom half of the economy really is 0:33:28.000 --> 0:33:31.680 feeling the effects of higher credit, whether it's credit cards, 0:33:32.360 --> 0:33:36.680 automobile loans, to say nothing of new mortgage rates. And 0:33:36.720 --> 0:33:40.120 then second, related to mortgage rates, so many people have 0:33:40.280 --> 0:33:44.080 locked in low rates. It's almost a set of golden 0:33:44.120 --> 0:33:48.360 handcuffs and they're stuck to that house that they can't 0:33:48.560 --> 0:33:53.160 move out of because the financing costs of a newer house, 0:33:53.240 --> 0:33:55.920 a larger house, or wherever they want to move is 0:33:56.080 --> 0:33:58.720 just so much greater than where they are. All the 0:33:58.800 --> 0:34:03.000 supply is frozen place remotely close or what do you think? 0:34:03.320 --> 0:34:06.760 So the argument that the Fed or their firmc laid 0:34:06.760 --> 0:34:09.560 out for why they were cutting interest rates was simply 0:34:09.560 --> 0:34:12.920 that inflation had come down and their goal at their 0:34:12.920 --> 0:34:16.080 federal reserve is the dual meant they're given by Congress, namely, 0:34:16.120 --> 0:34:18.400 they need to have inflation at two percent and they 0:34:18.440 --> 0:34:20.800 need to have full employment. And given inflation was closer 0:34:20.840 --> 0:34:23.920 to two percent, three percent is closer to two than 0:34:24.040 --> 0:34:26.880 nine is to two. They were saying, we can begin. 0:34:26.640 --> 0:34:27.600 To cut interest rates. 0:34:27.680 --> 0:34:30.360 But it's absolutely clear what you're saying that It was 0:34:30.520 --> 0:34:32.839 definitely the case and continue to be the case that 0:34:33.320 --> 0:34:36.880 who is it that is impacted when interest rates are high? 0:34:37.080 --> 0:34:40.080 It is people and balanteed with a lot of debt. 0:34:40.239 --> 0:34:41.640 That is both the case. 0:34:41.520 --> 0:34:44.359 In credit, meaning for firms, but that is also the 0:34:44.400 --> 0:34:47.080 case for households. Households that have a lot of debt 0:34:47.360 --> 0:34:50.239 are more vulnerable when interest rates are high. And who 0:34:50.320 --> 0:34:52.360 are the households, as you were just saying, who have 0:34:52.480 --> 0:34:55.879 more debt? That is by definition young households, because when 0:34:55.880 --> 0:34:58.319 you're young, you have more debt on your credit card, 0:34:58.440 --> 0:35:01.120 on your auto loan, on your student, on your mortgage. 0:35:01.239 --> 0:35:03.680 So if interest rates are higher for longer, it by 0:35:03.719 --> 0:35:08.440 definition has a more negative impact on lower income and 0:35:08.680 --> 0:35:11.800 younger households because when you're young, you're generally also lower income. 0:35:12.000 --> 0:35:15.799 So it is the reality, it's not very comfortable for 0:35:15.880 --> 0:35:17.480 the FED to talk about it this way, but it 0:35:17.560 --> 0:35:22.319 is real reality that FED policy has distributional consequences. It 0:35:22.400 --> 0:35:25.200 hurts those who have debt and it helps those who 0:35:25.280 --> 0:35:29.320 have assets. And that's exactly the distribution across the income distribution, 0:35:29.400 --> 0:35:32.560 across h across fight coss course, namely that if you 0:35:32.600 --> 0:35:36.080 are a low income, low fight call and younger household 0:35:36.360 --> 0:35:39.680 you have been hit harder by interest rates being higher. 0:35:39.719 --> 0:35:41.839 So that's why when interest rates started to go. 0:35:41.840 --> 0:35:44.520 Down, that would likely not that this was the goal, 0:35:44.800 --> 0:35:48.000 but that would likely then be helping these households that 0:35:48.239 --> 0:35:51.319 have been harder hit and more negatively impacted by high 0:35:51.440 --> 0:35:52.160 interest rates. 0:35:52.400 --> 0:35:54.840 So we look at the inflation rate in the United 0:35:54.880 --> 0:35:58.960 States hanging around two and a half percent, little under three. Well, 0:35:59.000 --> 0:36:01.080 it depends on what you're looking at CPI or CORE 0:36:01.520 --> 0:36:04.879 or PCE or whatever. But you look around the rest 0:36:04.880 --> 0:36:07.239 of the world x US, it's like four and a 0:36:07.280 --> 0:36:10.759 half percent. Why does the rest of the world have 0:36:11.040 --> 0:36:14.200 so much higher of an inflation rate than we do 0:36:14.280 --> 0:36:15.160 here in the United States. 0:36:15.239 --> 0:36:17.800 Yeah, So one important answer to that is that Europe 0:36:18.080 --> 0:36:21.560 is unfortunately not in a particularly good situation relative to 0:36:21.640 --> 0:36:25.120 the US. Europe is having the challenge that China is 0:36:25.160 --> 0:36:27.680 slowing down. Remember, China is slowing down for three reasons. 0:36:27.680 --> 0:36:30.920 Slowing down because of demographic problems. Remember, the workforce in 0:36:31.000 --> 0:36:33.439 China is about a billion people, and the United Nations 0:36:33.520 --> 0:36:35.399 is forecasting that over the next ten years that will 0:36:35.400 --> 0:36:38.200 shrink from a billion to nine hundred million. That means 0:36:38.200 --> 0:36:40.520 that we are removing one hundred million people in the 0:36:40.600 --> 0:36:44.200 Chinese workforce over the next decade, meaning one hundred million people. 0:36:44.280 --> 0:36:47.880 Few are working in the service sector, in the manufacturing sector, 0:36:48.000 --> 0:36:50.600 one hundred million people. Few are paying taxes, one hundred 0:36:50.640 --> 0:36:53.960 million people. Few are demanding housing and at different housing needs. 0:36:54.160 --> 0:36:58.640 All those things a Japanese style hit wind to Chinese growth. Overall, 0:36:58.840 --> 0:37:02.200 China is also having at deflating housing bubble. Existing home 0:37:02.200 --> 0:37:04.439 prices are falling nine percent, new home prices are falling 0:37:04.480 --> 0:37:06.880 six percent. And finally, China is also engaged in a 0:37:06.960 --> 0:37:09.480 trade war not only with US, but also with Europe. 0:37:09.640 --> 0:37:12.600 So because of the headwinds to China, we also have 0:37:12.640 --> 0:37:15.520 some headwinds therefore to Germany in particular, but Europe, because 0:37:15.560 --> 0:37:18.480 Europe produces a lot of theirs simply line in China 0:37:18.520 --> 0:37:21.080 and if we don't have that demand from China for 0:37:21.160 --> 0:37:24.279 assembly lines and for manufacturing goods and for capital in 0:37:24.280 --> 0:37:24.960 sensitive goods. 0:37:25.040 --> 0:37:26.680 That means that Europe is also in trouble. 0:37:26.880 --> 0:37:29.759 So the problem which you asked about is Germany, and 0:37:29.840 --> 0:37:32.520 therefore the European economy is not in a good place either. 0:37:32.920 --> 0:37:35.360 And the channels now is that the service sector inflation 0:37:35.840 --> 0:37:39.120 in Europe is driven a lot by wage inflation because 0:37:39.160 --> 0:37:42.000 a lot of wages are basically directly spilling over the 0:37:42.000 --> 0:37:44.560 service sector and therefore that's how it's measured when you 0:37:44.600 --> 0:37:47.840 measure inflation in services. And the concusion is because of 0:37:47.880 --> 0:37:52.000 trade unions and while wage negotiations and bargaining is being delayed, 0:37:52.360 --> 0:37:54.840 we still to this day have wage negotiations that i 0:37:54.920 --> 0:37:57.840 function of what we're in what inflation numbers for the 0:37:57.960 --> 0:38:00.880 last several years, and looking back, inflation was high. So 0:38:01.000 --> 0:38:03.839 that's why with the delay, wage inflation is also high. 0:38:03.840 --> 0:38:06.120 And therefore with the delay, service x inflation. 0:38:06.040 --> 0:38:06.719 Is also high. 0:38:06.960 --> 0:38:10.360 So it's just because of some institutional reasons. Europe just 0:38:10.440 --> 0:38:13.880 has a different wage and price dynamic because of this 0:38:14.000 --> 0:38:17.920 delay in wate negotiations, and that is keeping inflation rates 0:38:17.960 --> 0:38:21.279 more elevated, especially in services. Inflation in Europe right to 0:38:21.560 --> 0:38:23.120 what we're having in the US now. 0:38:23.160 --> 0:38:26.080 I know, the thirty year fixed MORTGAGEES is, you know, 0:38:26.160 --> 0:38:29.399 beloved here in the US most of Europe, it's it's 0:38:29.440 --> 0:38:33.000 a variable inflation. It's a variable rate. How does that 0:38:33.080 --> 0:38:36.960 variable rate impact inflation in Europe? And how significant is 0:38:36.960 --> 0:38:40.160 that to their overall equivalent of CPI. 0:38:40.280 --> 0:38:41.960 Yeah, and this is really really important. 0:38:42.000 --> 0:38:44.239 I mean, as we spoke about earlier, I started my 0:38:44.400 --> 0:38:46.200 lovely career at the IMF and there s a D. 0:38:46.320 --> 0:38:47.600 And at the IMF and there was a D. Your 0:38:47.680 --> 0:38:50.200 job is actually quite simple. If the US is good, 0:38:50.480 --> 0:38:53.040 Europe is good. If the US is bad, Europe is bad. 0:38:53.360 --> 0:38:55.759 But this is not the case today. And exactly what 0:38:55.760 --> 0:38:58.360 you're saying is a very important reason, namely that the 0:38:58.520 --> 0:39:01.960 interest rates sensitivity of the US economy is a lot 0:39:02.040 --> 0:39:05.160 lower simply because people have locked in interest rates. Whereas 0:39:05.200 --> 0:39:08.280 think about literally, as you mentioned all other OECD countries 0:39:08.320 --> 0:39:11.879 in the UK, in France, Australia, Canada, take the Bank 0:39:11.880 --> 0:39:15.239 of England. When interest rates go up, mortgage payments for 0:39:15.320 --> 0:39:19.240 households go up immediately. So that means that monetary policy 0:39:19.320 --> 0:39:23.080 has a much more immediate negative impact on the European 0:39:23.120 --> 0:39:25.360 and in this case the UK economy than it does 0:39:25.480 --> 0:39:28.840 in the US, simply because exactly the mortgage market is 0:39:28.920 --> 0:39:31.680 much more a function of short term interistrates than long 0:39:31.760 --> 0:39:32.360 term insterstrates. 0:39:32.400 --> 0:39:33.279 And why is that the case. 0:39:33.600 --> 0:39:35.560 That's the case because in the US, and you wrote 0:39:35.560 --> 0:39:38.000 a book about this many years ago, we have decided 0:39:38.040 --> 0:39:40.279 that for Fanny and Freddy, for you to get a 0:39:40.360 --> 0:39:43.440 conventional mortgage, you must show up at their doorstep with 0:39:43.560 --> 0:39:46.040 a thirty year fixed rate mortgage. You cannot show up 0:39:46.080 --> 0:39:48.480 with any other mortgage. Then the government will not guarantee it. 0:39:48.600 --> 0:39:50.640 If you show up with that, they will guarantee it. 0:39:50.719 --> 0:39:53.239 So that means that the mortgage market is ninety five 0:39:53.239 --> 0:39:55.360 percent of mortgage are standing at thirty year fixed and 0:39:55.400 --> 0:39:57.919 that is simply not the case basically in any other 0:39:58.120 --> 0:40:01.040 OECD country. And that means the US this unique feature 0:40:01.400 --> 0:40:05.239 that Central Bank of fit policy simply has less of 0:40:05.280 --> 0:40:08.320 an impact. It's simply less potent relative to what you see, 0:40:08.520 --> 0:40:11.759 especially in Europe, but also again UK, Australia, Canada and 0:40:11.840 --> 0:40:13.160 the rest of their West countries. 0:40:13.440 --> 0:40:16.200 You also drop the data point that I have to 0:40:16.320 --> 0:40:21.160 follow up the billion to nine hundred million shift in 0:40:21.840 --> 0:40:27.359 workers over the next decade. Essentially you're saying China is 0:40:27.440 --> 0:40:32.080 losing a million workers a month for the next decade. 0:40:31.560 --> 0:40:35.839 Imagine if nine non farm payroll came out each month 0:40:35.880 --> 0:40:38.360 and it was negative eight hundred and fifty thousand people. 0:40:38.840 --> 0:40:41.240 That's just an astonishing data point. 0:40:41.280 --> 0:40:43.600 And that is exactly because of the one child policy 0:40:43.719 --> 0:40:45.680 that of course is beginning to catch up with the 0:40:45.760 --> 0:40:49.279 Chinese economy. So if you think about the consequences of 0:40:49.560 --> 0:40:51.640 the one child policy, is of course that if you 0:40:51.719 --> 0:40:54.600 have a small a population, the population will begin to shrink, 0:40:54.719 --> 0:40:56.520 and the consequence, of course is that that you will 0:40:56.560 --> 0:40:59.359 get really what I would describe as Japanese style hit 0:40:59.400 --> 0:41:02.520 wins from a demographic perspective, similar to what we have 0:41:02.560 --> 0:41:04.520 seen in Japan now for many decades. 0:41:04.880 --> 0:41:09.400 So we have a soft China, although Japan seems to 0:41:09.440 --> 0:41:13.240 be getting out of its own way and doing pretty well. Yes, 0:41:13.560 --> 0:41:17.080 Europe is kind of struggling. The rest of the emerging 0:41:17.200 --> 0:41:21.239 market world seems to be doing okay outside of hotspots 0:41:22.000 --> 0:41:25.440 where there are problems. How do you get to a 0:41:25.680 --> 0:41:29.399 two point three percent GDP in the US given all 0:41:29.400 --> 0:41:33.080 that challenging data points around the rest of the world. 0:41:33.160 --> 0:41:35.040 Yes, so there are some very important aspects of this 0:41:35.120 --> 0:41:37.400 name in the US is actually, and I know this 0:41:37.480 --> 0:41:40.120 sounds a little bit academic, but the US is actually 0:41:40.200 --> 0:41:43.400 the only economy in the world that's a close economy. 0:41:43.480 --> 0:41:45.120 And what I mean by that is that that's an 0:41:45.120 --> 0:41:47.560 economy that does not depend too much on the rest 0:41:47.560 --> 0:41:50.600 of the world. You always talk about in the literature 0:41:51.000 --> 0:41:54.000 in economics about the small open economy. So Denmark is 0:41:54.040 --> 0:41:56.920 a small open economy, Australia is a small open economy. 0:41:57.040 --> 0:41:59.759 Canada is actually also a small open economy because they 0:42:00.000 --> 0:42:02.719 depend on others. But the US really doesn't depend to 0:42:02.760 --> 0:42:04.520 the same degree on others the West the way that 0:42:04.560 --> 0:42:07.240 others depend on the US. And why is that important here? 0:42:07.360 --> 0:42:09.600 That's very important because if we take the three reasons 0:42:09.600 --> 0:42:11.800 we talked about earlier why the US is doing so well, 0:42:12.000 --> 0:42:14.680 less interest rates sensitivity, we have an AI and data 0:42:14.680 --> 0:42:17.600 center boom, we have strong fiscal policies. These are all 0:42:17.680 --> 0:42:20.880 things that we simply don't have in other countries. Instead, 0:42:21.080 --> 0:42:24.520 we have some significant headwinds to growth in other countries. 0:42:24.520 --> 0:42:27.080 So that means that at the aggregate level, the US 0:42:27.120 --> 0:42:31.520 continues to do well for some very idiosyncratic tailwinds and Europe, 0:42:31.800 --> 0:42:33.720 and the rest of the world is not doing well 0:42:33.840 --> 0:42:37.800 from actually some different idiosyncratic headwinds. And now finally for markets. 0:42:37.800 --> 0:42:39.960 Why is this important Because if you think about it, 0:42:39.960 --> 0:42:42.760 for this in p. Five hundred, suddenly this becomes relevant 0:42:42.760 --> 0:42:44.120 what's going on in the rest of the world because 0:42:44.160 --> 0:42:47.320 this inp. Five one hundred is not the USGDP forty 0:42:47.320 --> 0:42:49.840 percent of revenue and the SNP five hundred comes from abroad. 0:42:49.960 --> 0:42:53.600 So if Apple sells fewer iPhones in Canada, in Europe, 0:42:53.800 --> 0:42:57.600 in Australia, that will have vacations for Apple's earnings. Likewise, 0:42:57.760 --> 0:43:00.680 SMP five hundred companies that sell things up broad if 0:43:00.719 --> 0:43:02.759 the rest of the world is bad, that could be 0:43:02.880 --> 0:43:05.480 one way that this could begin to have negative consequences 0:43:05.520 --> 0:43:06.200 for this and P. 0:43:06.280 --> 0:43:06.920 Five hundred. 0:43:07.160 --> 0:43:10.000 That's not my baseline forecast, but I am getting more 0:43:10.000 --> 0:43:12.799 and more word about this divergence with the US doing 0:43:12.800 --> 0:43:15.719 good and everyone else doing poorly. The consequence of that 0:43:15.760 --> 0:43:18.120 could be that that could ultimately show up in earnings 0:43:18.200 --> 0:43:20.759 because this in p. Five hundred is to a very 0:43:20.800 --> 0:43:24.160 significant degree. Again, forty percent of revenue in this INP. 0:43:24.239 --> 0:43:27.359 Five hundred comes from abroad, and abroad is not doing well. 0:43:27.520 --> 0:43:29.960 Then the revenues from abroad will also begin to have 0:43:30.000 --> 0:43:32.280 a negative impact on earnings for SMP. 0:43:32.800 --> 0:43:36.600 Last international question before we jump to the new Trump administration. 0:43:38.239 --> 0:43:41.480 It's kind of fascinating Japan couldn't get out of its 0:43:41.480 --> 0:43:45.320 own way for decades. Their market had peaked in nineteen 0:43:45.360 --> 0:43:49.359 eighty nine, took almost thirty years to set new highs, 0:43:49.440 --> 0:43:56.000 more than thirty years. Why did Japan suddenly start performing 0:43:56.160 --> 0:43:59.600 not just the stock market but their economy. Suddenly it 0:43:59.640 --> 0:44:03.160 looks like Japan is number two to the US and 0:44:03.200 --> 0:44:04.760 everybody else's distant third. 0:44:04.880 --> 0:44:07.319 Yeah, there are three reasons why Japan is doing so 0:44:07.360 --> 0:44:09.400 well at the moment. Number one is that the exchange 0:44:09.480 --> 0:44:13.279 rate has depreciated a lot, and Japan is an exporting economy. 0:44:13.400 --> 0:44:17.200 It is again a small, open economy that is definitely 0:44:17.239 --> 0:44:20.920 experiencing a tailwind to economic growth from exports moving higher 0:44:21.000 --> 0:44:24.160 simply because of the depreciation in the exchange rate. The 0:44:24.239 --> 0:44:27.759 second reason is also that in Japan there's actually been 0:44:27.800 --> 0:44:31.200 some quite fundamental changes in governance. There have been some 0:44:31.280 --> 0:44:35.200 quite fundamental changes in the policies set up in terms 0:44:35.320 --> 0:44:38.719 of how at least the government talks about corporates and 0:44:38.760 --> 0:44:42.600 how they talk about finance. There is an increased willingness 0:44:42.920 --> 0:44:48.360 in Japan to give more support to basically people coming 0:44:48.400 --> 0:44:52.440 and buying companies, lending to companies. So that's why private equity, 0:44:52.480 --> 0:44:55.239 private credit has been busy in Japan, simply because it's 0:44:55.239 --> 0:44:58.120 been getting a lot of policy support from politicians that 0:44:58.200 --> 0:45:01.719 want to change the governance in Japanese companies. And third 0:45:01.719 --> 0:45:05.040 and finally, Japan is actually also and this might sound 0:45:05.080 --> 0:45:07.560 a little bit peculiar, but they're actually benefiting from some 0:45:07.600 --> 0:45:11.960 of the problems in China now that suddenly Japan is becoming, 0:45:12.120 --> 0:45:15.440 of course still a big manufacturing nation, but also now 0:45:15.480 --> 0:45:18.080 a place where more investment is taking place now that 0:45:18.120 --> 0:45:21.000 there have been these renewed worries about the outlook for China. 0:45:21.080 --> 0:45:23.280 So the short answer to your question is the exchange 0:45:23.320 --> 0:45:26.880 rate is supporting the Japanese economic outlook, changes in governance 0:45:26.920 --> 0:45:30.080 and changes in corporate finance, and the political support for 0:45:30.600 --> 0:45:34.560 activist investors has also been supportive for the Japanese outlook 0:45:34.600 --> 0:45:37.520 and for Japanese financial markets. And finally, Japan has also 0:45:37.520 --> 0:45:41.400 been benefiting for geopolitical reasons for the tailwinds coming because 0:45:41.400 --> 0:45:43.959 of some of the challenges that we're seeing in China 0:45:44.000 --> 0:45:44.480 at the moment. 0:45:44.560 --> 0:45:48.480 Huh, really really fascinating. So we were talking about the 0:45:48.680 --> 0:45:53.359 state of the global economy. Now we have a brand 0:45:53.440 --> 0:45:58.160 new president. Let's start out just discussing how lucky this 0:45:58.239 --> 0:46:03.560 guy is to inherit for the second time. An economy that, 0:46:04.000 --> 0:46:06.719 to use your words, is firing on all cylinders. 0:46:07.000 --> 0:46:09.960 Yeah, the economy is actually in great shape today. We 0:46:10.040 --> 0:46:12.000 have an U employment rate of four point one percent. 0:46:12.440 --> 0:46:15.239 GDP growth has for the last several quarters been around 0:46:15.280 --> 0:46:18.360 three percent, and that's also what their linefit GDPs the 0:46:18.400 --> 0:46:21.120 mid now is for the fourth quarter. So the starting 0:46:21.160 --> 0:46:25.319 point is a fairly strong economy. The only little macroeconomic 0:46:25.360 --> 0:46:27.239 thing you can worry about is what we have talked about. 0:46:27.320 --> 0:46:30.040 Name the inflation is still a little bit too high 0:46:30.280 --> 0:46:33.120 around three percent on CPI when it comes to both 0:46:33.200 --> 0:46:35.799 core and headline. And that's of course the challenge here 0:46:35.840 --> 0:46:38.480 name me and already strong economy and a little bit 0:46:38.560 --> 0:46:41.160 too elevated inflation. That's the starting point for where we 0:46:41.160 --> 0:46:41.680 sit today. 0:46:42.040 --> 0:46:45.520 So I want to talk about taxes and regulation and tariffs. 0:46:45.600 --> 0:46:50.319 But before we get there, I know President Trump focuses 0:46:50.760 --> 0:46:53.160 on the stock market to a lesser degree, the bond 0:46:53.200 --> 0:46:57.080 market how do you think about valuations for both equities 0:46:57.080 --> 0:47:00.760 and fixed income here in the beginning of twenty five. 0:47:00.840 --> 0:47:03.359 Well, if you there are various ways of looking at that, 0:47:03.480 --> 0:47:05.640 but one simple way of looking at that is to 0:47:05.680 --> 0:47:09.280 go back and look at the Shiller cyclically adjusted PE ratio. 0:47:09.440 --> 0:47:13.080 And this Shiller cyclically adjusted PE ratio is basically, as 0:47:13.080 --> 0:47:15.879 you know too well, a complicated way of saying, let's 0:47:15.920 --> 0:47:18.879 try to take the business cycle out of earnings by 0:47:18.920 --> 0:47:21.359 taking a ten year average of earnings for the last 0:47:21.400 --> 0:47:24.399 ten years and ask the question, where is the stock 0:47:24.440 --> 0:47:27.279 market whereas there in p. Five hundred relative to a 0:47:27.400 --> 0:47:29.960 ten year moving average of earnings, And the answer to 0:47:30.000 --> 0:47:33.520 that is that the Schiller cyclically adjusted PE ratio, which 0:47:33.560 --> 0:47:36.400 is an attempt to try to correct the stock market 0:47:36.480 --> 0:47:39.560 valuations for the business cycle, is currently at a very 0:47:39.640 --> 0:47:41.120 elevated thirty seven. 0:47:41.280 --> 0:47:43.560 That means rember in the long run. The PE ratio 0:47:43.640 --> 0:47:44.040 for this in P. 0:47:44.120 --> 0:47:47.000 Five hundred is sixteen over the last fifty years. So 0:47:47.760 --> 0:47:52.400 Schiller cyclically adjusted so called CAPE ratio at thirty seven 0:47:52.760 --> 0:47:55.360 is and thirty eight and approaching forty is indeed a 0:47:55.560 --> 0:47:58.080 very very elevated level of valuation. 0:47:58.280 --> 0:48:01.040 So so let me ask you two questions about that. First, 0:48:01.719 --> 0:48:04.640 we're not that far apart in age. For most of 0:48:04.680 --> 0:48:09.480 our careers, CAPE has been elevated almost the entire time. 0:48:09.960 --> 0:48:12.640 If you were not inequities because of an elevated CAPE, 0:48:12.960 --> 0:48:14.439 well you missed the hell of a move. 0:48:15.120 --> 0:48:16.920 It just happens to be the case that with the 0:48:16.960 --> 0:48:19.680 Trump presidency, this is the highest level of CAPE at 0:48:19.680 --> 0:48:22.920 the start of any presidency going back in the last 0:48:23.040 --> 0:48:23.600 fifty years. 0:48:23.680 --> 0:48:25.080 Huh So that means. 0:48:24.800 --> 0:48:27.920 That we are starting at an extremely elevated level of valuations, 0:48:28.520 --> 0:48:31.080 at least on the Shillos syclically adjusted level. So let's 0:48:31.080 --> 0:48:32.960 now turn to other things that are going on in 0:48:32.960 --> 0:48:34.880 the stock market. As you know much better than me, 0:48:35.280 --> 0:48:37.560 forty percent of this and P. Five hundred is the 0:48:37.600 --> 0:48:39.799 top ten stocks. You also know that most of the 0:48:39.840 --> 0:48:43.480 returns have been coming from really the Nvidia having great performance. 0:48:43.640 --> 0:48:46.880 And we also know very well that, of course, if 0:48:47.080 --> 0:48:50.359 you have such a high concentration of the Magnificent seven 0:48:50.360 --> 0:48:52.759 and the top ten biggest stocks in your index, this 0:48:52.880 --> 0:48:56.080 goes completely against Page one in my finance textbook. Page 0:48:56.080 --> 0:48:59.120 one in my finance textbook says you must diversify, and 0:48:59.160 --> 0:49:01.520 if you take a hundred fresh dollars and put into 0:49:01.560 --> 0:49:01.880 this in p. 0:49:01.960 --> 0:49:02.480 Five hundred. 0:49:02.480 --> 0:49:05.800 Today, you're not diversified. You are basically betting on in 0:49:05.920 --> 0:49:08.600 Vidia still having good earnings. And I love sitting there 0:49:08.600 --> 0:49:11.240 on a Wednesday afternoon looking at whether in video earnings 0:49:11.280 --> 0:49:13.040 where good or we're bad, and I love the adrenaline 0:49:13.120 --> 0:49:15.480 russ that comes with investing in Nvidia and a lot 0:49:15.520 --> 0:49:17.240 of other Magnificent seven stocks. 0:49:17.320 --> 0:49:18.520 But the conclusion still is the. 0:49:18.520 --> 0:49:22.520 Same that, well, if I'm saving money for the long 0:49:22.600 --> 0:49:25.080 run and I'm trying to do capital preservations, do you 0:49:25.160 --> 0:49:27.719 want to expose myself to the risk that I will 0:49:27.719 --> 0:49:30.000 basically be putting all my money on red, namely on 0:49:30.239 --> 0:49:32.160 in Vidia and for that matter, Tesla and the other 0:49:32.239 --> 0:49:35.279 names that I am in the Magnificent seven still doing well. 0:49:35.520 --> 0:49:37.080 That could be that they will do well. There are 0:49:37.080 --> 0:49:38.759 also some arguments why they will not do well. But 0:49:38.800 --> 0:49:41.360 they're certainly very expensive, and that's an argument in my 0:49:41.480 --> 0:49:45.120 view for definitely being more diversified rather than just having 0:49:45.320 --> 0:49:47.799 exposure in this and p. Five one hundred mainly to 0:49:48.000 --> 0:49:50.160 those major names that have gotten so much attention. 0:49:50.560 --> 0:49:54.399 So could we make that same argument? For a long time, 0:49:54.440 --> 0:49:57.360 it was Intel, and then it was Cisco, and it 0:49:57.400 --> 0:50:00.640 seems like every decade you have this Concer tradtion at 0:50:00.680 --> 0:50:04.000 the top. But since the SMB five hundred is market 0:50:04.000 --> 0:50:06.600 cap way it did when and at one point in 0:50:06.640 --> 0:50:10.359 time twenty five years ago, Cisco was the biggest stock 0:50:10.440 --> 0:50:12.880 in the SMB five hundred and the Nasdaq one hundred, 0:50:13.400 --> 0:50:17.480 doesn't it sort of automatically adjust as the company shrinks, 0:50:17.719 --> 0:50:20.200 you own less of it in the index, and it 0:50:20.840 --> 0:50:23.200 I don't know if self correcting is the right word, 0:50:23.280 --> 0:50:26.240 but it seems that you buy the whole basket, you'll 0:50:26.239 --> 0:50:29.040 have the NVIDIAs along with a whole lot of other dogs. 0:50:28.760 --> 0:50:31.160 One hundred percent. I do think that's absolutely correct. But 0:50:31.200 --> 0:50:34.359 that's why where we're sitting today. If we agree, and 0:50:34.840 --> 0:50:36.640 listeners don't have to agree with this, but let's say 0:50:36.680 --> 0:50:39.120 that at least some people think that the Magnificent seven 0:50:39.160 --> 0:50:42.560 are very, very expensive. The trailing PE ratio for Tesla 0:50:42.880 --> 0:50:45.600 is one hundred and eighty. The trailing PE ratio for 0:50:45.719 --> 0:50:48.480 Nvidia is like sixty. The trailing PE ratio for Amazon 0:50:48.560 --> 0:50:51.600 is like forty five. Remember again, the PE ratio has historically, 0:50:51.640 --> 0:50:54.080 on average in the last fifty years been sixteen. So 0:50:54.640 --> 0:50:56.520 if it is the case that these companies are expensive, 0:50:56.560 --> 0:50:59.320 I think that a more intelligent approach, in my opinion, 0:50:59.400 --> 0:51:01.680 would be to say, we're probably going to see some 0:51:01.760 --> 0:51:04.280 of these companies actually begin to fade and other companies 0:51:04.280 --> 0:51:06.879 begin to come in. It's a hard issue to pick 0:51:06.880 --> 0:51:09.760 which ones it is. But maybe at least in this situation, 0:51:09.840 --> 0:51:12.080 let's agree that maybe it may be a better strategy 0:51:12.239 --> 0:51:13.920 at least to buy the s and P. Four hundred 0:51:13.920 --> 0:51:16.360 and ninety three, because that at least I'm not exposed 0:51:16.480 --> 0:51:18.600 to those seven stocks are so expensive. 0:51:18.840 --> 0:51:22.280 But by the equal way, and by the equal way way. 0:51:22.120 --> 0:51:23.200 You're not alternative. 0:51:23.320 --> 0:51:25.360 Yeah, So in that sense, I of course here and 0:51:25.400 --> 0:51:27.040 I understand what you're saying, and I do know that 0:51:27.040 --> 0:51:29.080 the returns in the last two years have been coming 0:51:29.080 --> 0:51:31.960 to a very last degree from those specific stocks. But 0:51:32.040 --> 0:51:34.080 all I'm saying is that if we all agree that 0:51:34.120 --> 0:51:36.560 this is the case, why not take the consequence and 0:51:36.560 --> 0:51:38.400 then alternatives you can if you have to be in 0:51:38.400 --> 0:51:40.640 public equities, you could buy this in p. Four hundred, 0:51:40.880 --> 0:51:42.640 which is a way to have exposure, not to the 0:51:42.840 --> 0:51:44.960 small cap companies. Remember, in the rust of two thousand, 0:51:45.239 --> 0:51:47.719 forty percent of companies have no earnings. So if interest 0:51:47.800 --> 0:51:49.880 rates are higher for longer and you have no earnings, 0:51:49.920 --> 0:51:52.239 that means that your coverage ratios are low. That means, 0:51:52.239 --> 0:51:54.399 of course that therefore you're going to struck more if 0:51:54.440 --> 0:51:56.520 interest rates are indeed higher for longer. So I don't 0:51:56.560 --> 0:51:58.920 like large cap because I think that's so expensive. I 0:51:58.960 --> 0:52:01.160 don't like small cap because I think they have no earnings. 0:52:01.320 --> 0:52:04.640 That's why I think value stocks of companies in the middle, 0:52:04.719 --> 0:52:07.080 both in properting and private space. But in this case, 0:52:07.080 --> 0:52:08.920 if you have to be in public SMP four hundred 0:52:09.200 --> 0:52:12.959 will be probably doing at least my reading a better 0:52:13.080 --> 0:52:15.880 job relative to the other parts of the spectrum. 0:52:15.960 --> 0:52:18.680 So we hear during an inauguration week, let's talk a 0:52:18.719 --> 0:52:24.920 little bit about the new administration, probably the we can't 0:52:24.920 --> 0:52:28.800 go anywhere without starting with tariffs. How do you feel 0:52:28.920 --> 0:52:33.919 our trading partners are going to respond to Trump's tariffs? 0:52:33.400 --> 0:52:37.120 Is he serious about this? Is this a negotiating tactic? 0:52:37.560 --> 0:52:40.360 How do you put this into your intellectual framework? 0:52:40.560 --> 0:52:43.839 So the Tax Foundation has quantified that if Trump does 0:52:43.920 --> 0:52:47.040 through sixty percent on China, twenty five percent on Canada, 0:52:47.080 --> 0:52:49.960 twenty five percent of Mexico, and ten percent on Europe, 0:52:50.120 --> 0:52:52.600 we will get an overall level of tariffs that will 0:52:52.600 --> 0:52:55.359 go up to eighteen percent, which is the same level 0:52:55.360 --> 0:52:57.440 that we had in the nineteen thirties when we had 0:52:57.440 --> 0:52:59.680 trade walls and the economy was not doing very well. 0:52:59.840 --> 0:53:02.520 So if you do have a complete all. 0:53:02.320 --> 0:53:04.879 In on all fronts when it comes to tariffs, then 0:53:05.320 --> 0:53:07.640 of course we should begin to worry about that. If 0:53:07.719 --> 0:53:10.640 everything we buy you and me in stores goes up 0:53:10.719 --> 0:53:13.480 quote unquote buy sixty percent because now there's sixty percent 0:53:13.480 --> 0:53:16.319 tariffs on China, then a good guess is that that 0:53:16.400 --> 0:53:18.480 means that sales by stores in US is going to 0:53:18.520 --> 0:53:20.640 go down. And if sales start to go down, that 0:53:20.680 --> 0:53:22.919 means that GDP will also be at risk of going down. 0:53:23.160 --> 0:53:26.160 So that's why tariffs of course comes by definition with 0:53:26.239 --> 0:53:30.040 a stackflationary risk that you raise prices and your lower sales. 0:53:30.400 --> 0:53:33.160 So with that in mind, that doesn't mean that we 0:53:33.200 --> 0:53:35.200 will not get tariffs. It doesn't mean that we will 0:53:35.200 --> 0:53:37.680 get all in tariffs. No one really knows exactly how 0:53:37.760 --> 0:53:40.440 much we will get, but we do know that A 0:53:40.560 --> 0:53:42.680 very important aspect of this is that we also don't 0:53:42.719 --> 0:53:45.680 know how the retaliation will be exactly as you're highlighting 0:53:45.760 --> 0:53:46.640 from other countries. 0:53:46.800 --> 0:53:50.240 So that's why tariffs overall and remains. We didn't get. 0:53:50.040 --> 0:53:53.759 Any executive orders on tariffs other than saying that we 0:53:53.800 --> 0:53:56.600 will investigate it here. But we didn't get any executive 0:53:56.640 --> 0:53:58.879 orders on tariffs on day one. So we'll see how 0:53:58.960 --> 0:54:01.280 far we go and what will happen. But at this point, 0:54:01.560 --> 0:54:04.160 it's very clear that if tariff's I imposed, it is 0:54:04.160 --> 0:54:06.239 something that the textbook would tell you that we would 0:54:06.280 --> 0:54:09.280 involve high invasion and at the same time downward pressure 0:54:09.280 --> 0:54:09.680 on GDP. 0:54:10.000 --> 0:54:13.759 And just to clarify that plus sixty percent, that's not 0:54:13.880 --> 0:54:17.279 your forecast as to what's going to happen. That's hey, 0:54:17.480 --> 0:54:20.600 if what we're discussing gets put into place, exactly, this 0:54:20.640 --> 0:54:21.360 is the worst case. 0:54:21.200 --> 0:54:23.919 Scenario exactly because the thing is these are the I mean, 0:54:24.000 --> 0:54:26.120 Trump on the campaign trail talked about this in many 0:54:26.120 --> 0:54:29.080 different ways. But if this were to be implemented at 0:54:29.120 --> 0:54:32.479 sixty percent towards China, think about it. Everything you buy, 0:54:32.680 --> 0:54:35.640 your iPhone, your T shirt, your clothing, toys for your kids, 0:54:35.680 --> 0:54:38.319 everything would go up in theory by sixty percent. And 0:54:38.360 --> 0:54:40.719 that's of course something that would have implications both for 0:54:40.800 --> 0:54:43.279 prices of those things but also for the sales of 0:54:43.320 --> 0:54:43.840 those things. 0:54:43.960 --> 0:54:48.719 What about the restrictions on immigration, both legal and illegal. 0:54:48.880 --> 0:54:51.520 So Pew estimates that there are about eleven million illegal 0:54:51.560 --> 0:54:54.160 immigrants in the US, and roughly half of them probably 0:54:54.200 --> 0:54:56.960 have a job, so that's around six million. Total employment 0:54:57.000 --> 0:54:58.920 in the US is about one hundred and sixty million. 0:54:59.360 --> 0:55:00.919 So if there's a hu nred and sixty million people 0:55:00.920 --> 0:55:02.680 in the US in total that have a job and 0:55:02.800 --> 0:55:06.000 six million of these are illegal immigrants, that means if 0:55:06.000 --> 0:55:09.919 you remove millions of people with through deportations, you will 0:55:09.920 --> 0:55:13.040 remove like two three four percent of the workforce. And 0:55:13.280 --> 0:55:16.919 Pew and others American Immigration Council, they find that where 0:55:16.920 --> 0:55:20.880 do illegal immigrants work, They work in three sectors agriculture, construction, 0:55:21.200 --> 0:55:24.360 and restaurants or services. So the consequence of this is 0:55:24.440 --> 0:55:27.480 up to fourteen percent of workers in agriculture and construction 0:55:27.719 --> 0:55:29.960 who are illegal immigrants. And if this is the case, 0:55:30.239 --> 0:55:32.720 then of course means that you will likely see wage 0:55:32.719 --> 0:55:36.720 inflation in construction, wage inflation in agriculture, and wage inflation 0:55:36.760 --> 0:55:39.120 in restaurants. So that also means that if we do 0:55:39.280 --> 0:55:42.680 get deportations, even if we get restrictions and immigration, that's 0:55:42.760 --> 0:55:45.920 very meaningful in particular because the starting point is a 0:55:46.000 --> 0:55:48.719 very strong economy. The consequence is that I will begin 0:55:48.760 --> 0:55:52.080 to worry again about not only overheating and inflation, but 0:55:52.120 --> 0:55:54.920 maybe also overheating in the label market. If you remove 0:55:54.920 --> 0:55:57.880 workers and suddenly there are fewer workers left to compete 0:55:58.000 --> 0:56:00.560 for their available jobs, and that could exact be why 0:56:00.600 --> 0:56:03.080 you begin to see in the jolts that job openings 0:56:03.160 --> 0:56:05.799 actually begin to move higher, because it could be that 0:56:05.840 --> 0:56:09.279 there's already some issues around what is the labelmar going 0:56:09.320 --> 0:56:11.359 to look like if we are going down a road 0:56:11.400 --> 0:56:14.719 where we may see deportations or some very significant restrictions 0:56:14.719 --> 0:56:15.280 on immigration. 0:56:15.400 --> 0:56:18.080 All right, so those first two are the negative policies. 0:56:18.160 --> 0:56:23.200 Let's talk about potentially positive policies like corporate tax cuts 0:56:23.200 --> 0:56:26.360 and deregulation. How do you see that impacting the economy 0:56:26.360 --> 0:56:26.960 in the markets? 0:56:27.000 --> 0:56:29.239 Yes, So if we rewind just for a second and 0:56:29.280 --> 0:56:32.480 think back to twenty seventeen, where the corporate tax rates 0:56:32.480 --> 0:56:34.880 were lowered from thirty five to twenty one percent, and 0:56:34.920 --> 0:56:37.480 remember household taxes were lower from thirty nine point six 0:56:37.520 --> 0:56:40.479 to thirty seven percent. In twenty seventeen, we saw both 0:56:40.480 --> 0:56:43.600 household taxes came down and corporate taxes came down. And 0:56:43.640 --> 0:56:46.280 now Trump has talked about lowering corporate taxes and domestic 0:56:46.320 --> 0:56:49.480 manufacturers in addition to from twenty one but all the 0:56:49.520 --> 0:56:53.080 way down to fifteen percent. That means that manufacturers will 0:56:53.120 --> 0:56:56.360 now see if this happens, of course, a tailwind to production. 0:56:57.040 --> 0:56:59.000 Just as a footnote, as you and I of course 0:56:59.000 --> 0:57:01.560 also talk about often, manufacturing is actually only about ten 0:57:01.600 --> 0:57:04.319 percent of GDP and ten percent of employment, So it's 0:57:04.360 --> 0:57:06.480 a little bit special that a sexer that's only ten 0:57:06.480 --> 0:57:08.960 percent of the economy continues to get so much attention. 0:57:09.280 --> 0:57:12.920 But nevertheless, the definition of make America great again is 0:57:12.920 --> 0:57:15.800 probably that manufacturing should come back. And if that's the case, 0:57:15.840 --> 0:57:17.720 even though it only makes up ten percent of GDP, 0:57:18.160 --> 0:57:22.120 lowering corporate taxes for domestic manufacturers would indeed also be 0:57:22.160 --> 0:57:25.440 something that's positive, So that policy alone would be a 0:57:25.480 --> 0:57:28.840 lift to inflation and also a lift to GDP. And 0:57:28.880 --> 0:57:32.800 on deregulation, of course, we don't know quite exactly what 0:57:32.920 --> 0:57:36.360 deregulation is going to look like. If it's for financial services, 0:57:36.400 --> 0:57:39.840 if it's for energy, if it's for transportation, we remain 0:57:39.920 --> 0:57:41.800 to be seen what area it will be in. But 0:57:41.960 --> 0:57:46.160 broadly speaking, of course, deregulation would also be releasing animal spirits. 0:57:46.280 --> 0:57:48.840 It would also be boosting GDP growth, and it would 0:57:48.920 --> 0:57:52.680 actually also deregulation normally would be putting downward pressure on inflation, 0:57:52.840 --> 0:57:55.520 at least in the longer run. So those policies exactly 0:57:55.520 --> 0:57:58.520 as you're saying, Barry, would certainly be tailwinds a particulars 0:57:58.600 --> 0:57:59.360 GDP growth. 0:58:00.000 --> 0:58:06.640 We've discussed policy uncertainty as a potential concern because we 0:58:06.720 --> 0:58:08.920 have no idea what the taraffy going look like, what 0:58:08.960 --> 0:58:13.240 the deregulations will look like. At least there's some specificity 0:58:13.760 --> 0:58:19.320 with manufacturing corporate tax rates and exactly where the president 0:58:19.440 --> 0:58:22.680 wants those to go. How do you deal with the 0:58:22.760 --> 0:58:25.880 variability of Hey, we have no idea what this looks like. 0:58:26.320 --> 0:58:29.960 How do you build a model with so many unknowns 0:58:30.360 --> 0:58:31.120 built into it? 0:58:31.600 --> 0:58:34.560 This is indeed very complicated from a forecasting perspective. There 0:58:34.640 --> 0:58:37.480 is no room in my Excel spreadsheet for the US 0:58:37.520 --> 0:58:40.680 economic outlook to stuff in uncertainty. I can have, and 0:58:40.760 --> 0:58:43.960 I do have, various small mickey mouse models where vix 0:58:44.080 --> 0:58:47.200 and the move indicts and volatility measures are included, but 0:58:47.240 --> 0:58:49.760 they are not a central part of the O world outlook, 0:58:49.800 --> 0:58:52.640 simply because as you're saying, we just don't know exactly 0:58:52.680 --> 0:58:55.880 how to quantify that risk. But that being said, it 0:58:55.920 --> 0:58:59.200 is still the case that if there is uncertainty, that 0:58:59.280 --> 0:59:03.120 does all obviously have implications for business planning, for household planning. 0:59:03.360 --> 0:59:05.360 If you don't know what's coming, if you don't know 0:59:05.440 --> 0:59:07.800 exactly what the nature of policies is going to look like, 0:59:08.080 --> 0:59:11.000 then of course it does bring some elevated levels of 0:59:11.080 --> 0:59:13.680 risk that people may be holding back with doing things 0:59:13.880 --> 0:59:16.760 the otherwise would have done simply because of the uncertainty 0:59:16.960 --> 0:59:21.840 of everything from immigration policies, tax policies, tariffs, and all 0:59:21.880 --> 0:59:24.000 the other things that we have talked about. So that's 0:59:24.040 --> 0:59:28.320 why policy uncertainty is something that is holding back investment 0:59:28.440 --> 0:59:30.920 and spending decisions by households and by firms. 0:59:31.160 --> 0:59:35.800 So we talked earlier about CAPEX how significant our administration 0:59:36.240 --> 0:59:42.000 policies to corporate America spending and investing and building out 0:59:42.280 --> 0:59:45.800 what is likely to be the next generation of economic drivers. 0:59:45.880 --> 0:59:48.959 Well, I think that there are two dimensions to that issue. Namely, 0:59:49.000 --> 0:59:51.600 first of all, we already have in place a number 0:59:51.600 --> 0:59:55.120 of important tailwinds to CAPEX and business spending, namely AI 0:59:55.200 --> 0:59:57.800 and data center boom. It doesn't matter what their fitfunds 0:59:57.840 --> 1:00:00.000 rate is doing, we will have an AI and data 1:00:00.080 --> 1:00:02.800 center boom no matter what interest rates are doing, because 1:00:02.880 --> 1:00:07.000 everyone wants to invest and should be investing in AI. Secondly, 1:00:07.120 --> 1:00:10.200 we probably also have energy transition because energy is needed 1:00:10.320 --> 1:00:13.160 to power the data centers. I also think strongly this 1:00:13.240 --> 1:00:16.439 is getting financing, including from US at Apollo, long term 1:00:16.440 --> 1:00:19.760 investments in energy transition, long term investments in data centers, 1:00:19.840 --> 1:00:22.520 because these long term investments are simply needed and this 1:00:22.600 --> 1:00:24.280 is something that needs to be done. We will also 1:00:24.360 --> 1:00:26.560 have a structural and tale went also from probably defense. 1:00:27.040 --> 1:00:29.200 Defense spending has been going up. The rest of the 1:00:29.240 --> 1:00:31.640 world is also spending more on defense. Again, that is 1:00:31.640 --> 1:00:35.480 also something that is humming in the background supporting growth overall. 1:00:35.720 --> 1:00:40.280 Now specifically to different policies obviously with deregulation, obviously with 1:00:40.400 --> 1:00:44.160 tax cuts, obviously broadly speaking, with policies that are America 1:00:44.200 --> 1:00:47.080 first and make America great again, will probably from a 1:00:47.080 --> 1:00:52.280 cyclical perspective, also be giving a boost to cap expending domestically. 1:00:52.560 --> 1:00:55.200 One way of saying the cyclical part of the outlook 1:00:55.280 --> 1:00:58.520 is really that the animal spirits that have been released 1:00:58.840 --> 1:01:02.720 after Trump was elected, now that companies have at least 1:01:02.720 --> 1:01:04.800 a view seems to be that there's a more business 1:01:04.800 --> 1:01:07.800 friendly environment and for that reason, more business spending will 1:01:07.800 --> 1:01:10.600 be taking place, is from a cyclic perspective, adding to 1:01:10.640 --> 1:01:12.400 the other structural things that I just listed. 1:01:12.600 --> 1:01:13.120 So that's a. 1:01:13.080 --> 1:01:16.480 Reason to be actually quite bullish overall on the KAPIS 1:01:16.560 --> 1:01:17.960 and business spending outlook. 1:01:18.360 --> 1:01:23.960 So you mentioned defense, you mentioned energy, what about technology, 1:01:24.040 --> 1:01:27.680 and what about crypto? Seems to have found a whole 1:01:27.720 --> 1:01:30.880 new tailwind with the most recent election. 1:01:31.040 --> 1:01:34.400 Yeah, so that's of course a lot more complicated and 1:01:34.720 --> 1:01:37.120 more reason we got a coin both from the President 1:01:37.360 --> 1:01:40.320 and of course also from Millennia, and this is raising, 1:01:40.360 --> 1:01:44.400 of course some different questions about the crypto world more generally. 1:01:44.720 --> 1:01:47.720 But I will say that the technology and blockchain and 1:01:47.800 --> 1:01:52.120 investment in AI and investment generally speaking and getting more 1:01:52.160 --> 1:01:55.720 productive and doing things more productively and efficiently is certainly 1:01:55.720 --> 1:01:57.840 something that is here to stay. And I think that that, 1:01:57.960 --> 1:02:01.240 broadly speaking, is also a tail in two the overall outlook. 1:02:01.480 --> 1:02:05.200 Huh, really fascinating. I only have you for a couple 1:02:05.280 --> 1:02:08.600 more minutes. Let's jump to our favorite questions that I 1:02:08.600 --> 1:02:11.439 get to ask all of my guests. It's great having 1:02:11.520 --> 1:02:14.520 that baseline of what everybody else has said, but let's 1:02:14.560 --> 1:02:17.840 just start really simply, what's keeping you entertaining these days? 1:02:17.840 --> 1:02:19.400 What are you watching or listening to? 1:02:19.760 --> 1:02:23.560 So one of my favorite podcasts, of course, is Master's 1:02:23.560 --> 1:02:26.800 in Business. Stop enough, Okay, but that's true. I know 1:02:26.880 --> 1:02:28.640 you ought to more than five hundred episodes. I can't 1:02:28.640 --> 1:02:30.480 believe it's ten years ago since I said with you 1:02:30.480 --> 1:02:31.040 here last time. 1:02:31.080 --> 1:02:34.240 I know when I first began, I had dark hair. 1:02:34.720 --> 1:02:37.320 Yeah, well I actually had hair, so I take that 1:02:37.360 --> 1:02:39.680 I was perhaps one of your first customers here in 1:02:39.680 --> 1:02:43.520 the studio. But I do so listen to we have 1:02:43.560 --> 1:02:46.320 actually our own review from Apollo podcast. But I also watched. 1:02:46.360 --> 1:02:49.480 One series that I've been watching is The Jacal on Peacock, 1:02:49.920 --> 1:02:54.160 which is basically very very James Bond like the series 1:02:54.240 --> 1:02:57.760 about a guy who's going around Europe and doing all 1:02:57.840 --> 1:03:00.800 kinds of things and and what's. 1:03:00.640 --> 1:03:05.400 The name of that Jackal the chaquelle Jackal or Jackal? 1:03:05.720 --> 1:03:09.440 How are you pronouncing life like the spy novel The 1:03:09.560 --> 1:03:12.720 Jackal exactly? Oh really, I'm trying to remember who wrote that. 1:03:13.280 --> 1:03:15.720 So there was This was originally a movie in France 1:03:15.760 --> 1:03:18.680 in the nineteen seventies. But this is something that's playing 1:03:18.720 --> 1:03:21.080 now on Peacock and I've been watching this is like 1:03:21.240 --> 1:03:23.840 I think it's eight episodes and he's traveling around Europe. 1:03:23.840 --> 1:03:26.440 It's really fascinating. It's actually it's really well done. 1:03:26.680 --> 1:03:30.120 We mentioned Binky earlier. Tell us about your mentors who 1:03:30.240 --> 1:03:31.640 helped shape your career. 1:03:31.800 --> 1:03:35.240 Well, my first mentor was my professor and economics in Copenhagen. 1:03:35.320 --> 1:03:38.080 His name is Neil Tigison. He just turned ninety and 1:03:38.200 --> 1:03:41.200 I celebrated his birthday here in December. But he was 1:03:41.240 --> 1:03:43.760 the one that really put me on track to thinking 1:03:43.800 --> 1:03:46.240 about economics. I did my PSD with him and he 1:03:46.320 --> 1:03:49.120 sent me that year to Princeton and he was the 1:03:49.120 --> 1:03:50.920 one who got me going first. And then when I 1:03:51.000 --> 1:03:55.160 joined the IMF, Binkie was there. There were also several others. 1:03:55.240 --> 1:03:58.000 David Ferguslanda also played a very important role, and there 1:03:58.040 --> 1:04:00.120 was also another actually happened to be Danish guy. His 1:04:00.160 --> 1:04:02.680 name is Fleming Larsen, he's now retired, who was also 1:04:02.680 --> 1:04:05.360 a very important vintor for me. And then when I 1:04:05.400 --> 1:04:08.240 came to the WCD, I worked very closely together with 1:04:08.400 --> 1:04:11.000 the gentleman called Vincent Cohen who's actually still there also, 1:04:11.800 --> 1:04:14.360 and also another colleague elan Is Sayers, who's also still there. 1:04:14.640 --> 1:04:17.800 So they have all been teaching me various ways of 1:04:17.960 --> 1:04:20.640 how do you think about things, the importance of a framework, 1:04:20.920 --> 1:04:23.920 the importance of what are the arguments that we put 1:04:24.000 --> 1:04:26.080 up on the scale for something happening. There are some 1:04:26.160 --> 1:04:28.080 arguments why this stock market may be going up, there's 1:04:28.120 --> 1:04:30.000 some arguments why this stock market may be going down. 1:04:30.120 --> 1:04:32.800 Let's try to have a systematic approach to how it 1:04:32.840 --> 1:04:35.320 is that we talk about things. So that's been very influential, 1:04:35.400 --> 1:04:39.120 and finally on Wall Street, on in Deutsche Bank, and 1:04:39.160 --> 1:04:42.840 of course also had Apollo everyone around me and living 1:04:43.000 --> 1:04:45.640 in the private sector, on the commercial world, and of 1:04:45.680 --> 1:04:49.320 course very importantly also here thinking about investing in private assets, 1:04:50.320 --> 1:04:53.840 not least my current CEO, Mark Rowan, and the inspiration 1:04:53.920 --> 1:04:56.480 in terms of how he is really in my view, 1:04:56.480 --> 1:05:00.600 a genius changing the financial system and moving things in 1:05:00.600 --> 1:05:03.680 in the direction that's the future of finance is playing 1:05:03.680 --> 1:05:05.760 a very important impact. I'm playing a very important roland 1:05:05.880 --> 1:05:08.000 having a important impact on my thinking also. 1:05:07.880 --> 1:05:11.360 Today, Yeah, really really fascinating. Let's talk about books. What 1:05:11.400 --> 1:05:13.520 are some of your favorites? What are you reading right now? 1:05:13.640 --> 1:05:15.440 So I have been reading. 1:05:15.480 --> 1:05:18.920 And I just finished The Two Parent Privileged by Melissa Kearney, 1:05:19.560 --> 1:05:21.800 and that has to do with this, of course, a 1:05:22.080 --> 1:05:26.200 unique discussion around what does it mean to have two parents, 1:05:26.240 --> 1:05:28.640 what does it mean to have one parent? What are 1:05:28.720 --> 1:05:34.240 the differences from a sociological perspective for different types of 1:05:34.440 --> 1:05:38.000 organizing yourself as a family. This has been It's very 1:05:38.000 --> 1:05:42.120 interesting and quite eye opening when you think about a 1:05:42.120 --> 1:05:44.120 lot of different things going on in society today. 1:05:44.720 --> 1:05:47.280 Give us one other, what's one of your all time favorites? 1:05:47.400 --> 1:05:51.520 Well, well, of course there's your book after the dailoud. Okay, 1:05:51.560 --> 1:05:53.400 so now we have just too big sure for that, 1:05:53.440 --> 1:05:55.800 to make sure we have that on the record. But 1:05:55.960 --> 1:05:58.160 I think that broadly speaking, I spend a lot of 1:05:58.160 --> 1:06:01.160 my time as just getting back to square the circle 1:06:01.160 --> 1:06:02.920 here in terms of what we spoke about earlier. 1:06:03.000 --> 1:06:03.960 I do spend a lot. 1:06:03.800 --> 1:06:07.640 Of my time reading the economists, reading newspapers, try to 1:06:07.640 --> 1:06:10.160 come up with ideas for daily sparks. I try to 1:06:10.200 --> 1:06:13.320 think about questions I get from clients, questions I get internally. 1:06:14.040 --> 1:06:15.080 Can we get data with this? 1:06:15.240 --> 1:06:17.919 I ask my team, which several of them are sitting 1:06:17.960 --> 1:06:20.080 in India, hey can you over And I come up 1:06:20.080 --> 1:06:22.080 with a chat on this on that. Can we find 1:06:22.160 --> 1:06:24.160 data for how many people go to Broadway shows? Can 1:06:24.200 --> 1:06:26.960 we find data for all kinds of things that I 1:06:27.160 --> 1:06:30.560 would normally try to say, Well, we can't really find 1:06:30.560 --> 1:06:32.480 any data for this, but let's try to dig a 1:06:32.480 --> 1:06:34.320 little bit deep and see if there is any data 1:06:34.480 --> 1:06:36.320 that can help us. So I do also spend a 1:06:36.360 --> 1:06:39.800 lot of my time on Twitter social media, reading newspapers, 1:06:40.360 --> 1:06:43.560 watching Bloomberg shows, and figuring out what are we talking about? 1:06:43.600 --> 1:06:44.400 What data do we have? 1:06:45.520 --> 1:06:48.040 Is this conversation correct or are there actually ways where 1:06:48.040 --> 1:06:50.520 we should take this conversation in a different direction because 1:06:50.520 --> 1:06:52.080 there are other dimensions that are more important. 1:06:52.160 --> 1:06:56.160 Huh, really really fascinating. Our final two questions, what sort 1:06:56.200 --> 1:06:58.800 of advice would you give to a recent college grad 1:06:59.480 --> 1:07:02.520 interesting career in either economics or finance. 1:07:03.520 --> 1:07:07.080 Well, I think this is of course a very important question, 1:07:07.120 --> 1:07:11.360 but I would say read The Economist, watch Bloomberg, Surveillance, 1:07:11.520 --> 1:07:15.120 listen to podcasts like Masters and Business. Try to do 1:07:15.200 --> 1:07:18.200 the homework that is really really hard, and we have 1:07:18.280 --> 1:07:20.800 all been through this process. You will feel that it's 1:07:20.880 --> 1:07:24.520 quote unquote not rewarded, but you will learn more and more. 1:07:24.720 --> 1:07:26.920 You will get to know and understand more and more, 1:07:27.000 --> 1:07:29.680 and in particular, given how the world is moving with 1:07:30.080 --> 1:07:33.560 private markets becoming more and more important, try to understand 1:07:33.600 --> 1:07:35.960 and get a good understanding on what is private equity, 1:07:36.000 --> 1:07:39.360 what is private credit, what is the evolution in private markets? 1:07:39.480 --> 1:07:42.160 How is that relative to public markets? Try to get 1:07:42.280 --> 1:07:46.160 a broader view on what does finance mean and where 1:07:46.200 --> 1:07:48.680 is finance going? And that can really only be done 1:07:48.720 --> 1:07:51.360 by reading your textbooks, trying to stay up to date 1:07:51.400 --> 1:07:54.360 on recent developments. Textbooks in some cases are a little bit behind, 1:07:54.640 --> 1:07:56.760 but really trying to listen and try to think hard 1:07:56.760 --> 1:07:58.280 about and lean back in your check go for a 1:07:58.280 --> 1:08:01.000 long walk in a green park and think about, Okay, 1:08:01.400 --> 1:08:03.480 what is it that I have just learned, What is 1:08:03.480 --> 1:08:04.560 it that I've just been told? 1:08:04.880 --> 1:08:05.920 And how does that fit. 1:08:05.800 --> 1:08:09.560 In with my view of what is overall the outlook 1:08:09.600 --> 1:08:12.040 for financial markets? And how should I think about how 1:08:12.080 --> 1:08:13.400 the financial system hangs together? 1:08:13.520 --> 1:08:17.120 Huh really really interesting? And our final question, what do 1:08:17.120 --> 1:08:20.160 you know about the world of investing today? You wish 1:08:20.240 --> 1:08:22.599 you knew thirty years ago or so when you were 1:08:22.640 --> 1:08:23.599 first getting started. 1:08:23.760 --> 1:08:26.439 Well, this is something that's very important and close to 1:08:26.520 --> 1:08:29.960 my heart because what I had not appreciated until recently, 1:08:30.520 --> 1:08:34.200 is the very important part that private markets play. So 1:08:34.400 --> 1:08:38.600 there are six million businesses in the US with employment. 1:08:38.840 --> 1:08:41.360 So that's a complicated way of saying there are six 1:08:41.400 --> 1:08:45.280 million businesses that have workers working inside those businesses? And 1:08:45.320 --> 1:08:48.439 why is that important? Because we spend so much time 1:08:48.560 --> 1:08:50.799 on the s and P. Five hundred and we starty 1:08:50.880 --> 1:08:54.960 these companies incredibly in incredible detail, and you then turn 1:08:55.000 --> 1:08:57.439 around and say, Okay, those five hundred companies are really interesting, 1:08:57.600 --> 1:09:00.599 but what about the remaining five point zero nine million 1:09:00.720 --> 1:09:01.840 companies that are not in this? 1:09:02.000 --> 1:09:04.519 In p. Five hundred? How do they get financing? Who 1:09:04.560 --> 1:09:05.120 owns them? 1:09:05.479 --> 1:09:08.040 How do they get financing for expanding if they want 1:09:08.080 --> 1:09:10.320 to build a new factory, how do they get financing 1:09:10.360 --> 1:09:12.160 if they want to hire more workers, how do they 1:09:12.160 --> 1:09:14.360 get financing if they want to expand in another country? 1:09:14.680 --> 1:09:17.800 And private markets and the role of private markets. I 1:09:17.920 --> 1:09:21.120 wish that I, earlier on in my macroeconomic career had 1:09:21.120 --> 1:09:24.800 spent some more time thinking much more deeper around what 1:09:25.080 --> 1:09:28.200 is it that's going on in everything else than in 1:09:28.240 --> 1:09:31.439 the SMP five hundred, Because remember of total employment in 1:09:31.439 --> 1:09:33.840 the US, total employment in this in P. Five hundred, 1:09:33.880 --> 1:09:36.679 companies in very round numbers is about twenty five million people, 1:09:36.960 --> 1:09:38.720 and total employment in the US is one hundred and 1:09:38.760 --> 1:09:41.439 sixty million people, so it is only in round numbers 1:09:41.479 --> 1:09:44.360 around twenty percent of employment in the US economy that 1:09:44.439 --> 1:09:46.360 is in this in p. Five hundred, that's a very 1:09:46.439 --> 1:09:49.280 high estimate because SMP also employs people outside the US, 1:09:49.360 --> 1:09:51.200 so that means that eighty percent of employment in the 1:09:51.280 --> 1:09:52.320 US is outside there. 1:09:52.360 --> 1:09:52.519 In p. 1:09:52.640 --> 1:09:54.880 Five hundred, what do these people do? How do we 1:09:54.960 --> 1:09:57.439 measure them? And what businesses do they work in? And 1:09:57.479 --> 1:09:59.680 do they have the financing? Can they get the financing? 1:10:00.000 --> 1:10:02.640 How do they get growth so that the economy can 1:10:02.680 --> 1:10:04.720 growth also outside this and p. 1:10:04.840 --> 1:10:09.559 Five hundred, Torston, this has been absolutely fascinating. I really 1:10:09.600 --> 1:10:12.559 appreciate how generous you've been with your time. We have 1:10:12.680 --> 1:10:16.600 been speaking with Torston Slock. He is the chief economist 1:10:16.640 --> 1:10:22.120 and partner at Apollo Global Management. If you enjoy this conversation, well, 1:10:22.160 --> 1:10:24.559 be sure and check out any of the previous five 1:10:24.640 --> 1:10:27.880 hundred and thirty we've done over the past ten and 1:10:27.880 --> 1:10:33.880 a half years. You can find those at Bloomberg, iTunes, Spotify, YouTube, 1:10:34.240 --> 1:10:37.680 wherever you find your favorite podcasts, And be sure and 1:10:37.760 --> 1:10:41.200 check out my new book coming March eighteenth, How Not 1:10:41.360 --> 1:10:45.880 to Invest The ideas, numbers, and behavior that destroy wealth. 1:10:46.240 --> 1:10:50.120 How Not to Invest at your favorite bookstores March eighteenth. 1:10:50.680 --> 1:10:52.479 I would be remiss if I did not thank the 1:10:52.520 --> 1:10:56.920 Crack staff that helps us put these conversations together each week. 1:10:57.320 --> 1:11:01.800 Sarah Livesey is my audio engineer. Anna Luke is my producer. 1:11:02.360 --> 1:11:06.320 Jean Russo is my researcher. Sage Bauman is the head 1:11:06.360 --> 1:11:10.719 of podcasts at Bloomberg. I'm Barry Rittoltz. You've been listening 1:11:10.760 --> 1:11:13.759 to Masters in Business on Bloomberg Radio.