WEBVTT - Surveillance: BOE Hikes, Forecasts Economic Misery 0:00:05.080 --> 0:00:09.200 Welcome to the Bloombergs Surveillance Podcast. I'm Tom Keene along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrill and Lisa A. Brownwitz Jailey. We bring 0:00:13.080 --> 0:00:17.119 you insight from the best and economics, finance, investment and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.920 dot Com and of course on the Bloomberg terminal. So, 0:00:30.080 --> 0:00:32.199 fifty basis points is the hike for the Bank of 0:00:32.200 --> 0:00:35.960 England standing by John and Rochester g ten Effect strategist 0:00:36.000 --> 0:00:39.800 over Namura Jordan. Your reaction to this decision by the 0:00:39.880 --> 0:00:44.080 Bay a week, Well, John, it's the simple case that 0:00:44.120 --> 0:00:46.320 this wasn't a big surprise from the bank. Think we 0:00:46.320 --> 0:00:48.800 were expecting around fifty basis points. That's what we got 0:00:48.840 --> 0:00:52.440 today conversations with clients as well. Fifty basis points from 0:00:52.440 --> 0:00:54.600 the bank again is probably the last fifty basis points, 0:00:54.960 --> 0:00:57.360 the first and the last since they became independence. Probably 0:00:57.640 --> 0:01:00.320 As for us, the view is that the situation in 0:01:00.360 --> 0:01:04.080 the energy market will decimate the incomes of UK workers, 0:01:04.240 --> 0:01:07.000 the consumer confidences going to continue to fall, consumts going 0:01:07.080 --> 0:01:09.080 to continue slow, and the Bank of Englian is going 0:01:09.120 --> 0:01:12.399 to potentially revive down their inflation forecast. So the last 0:01:12.440 --> 0:01:14.680 rate hike of this cycle is probably going to be November, 0:01:15.000 --> 0:01:17.000 is the view from us, and that means it's very 0:01:17.080 --> 0:01:19.680 unclear to me why today the banking and doing fifty 0:01:19.800 --> 0:01:21.200 is a reason to buy the pattern that if they 0:01:21.200 --> 0:01:24.120 did seventy five, you would have seen selling head higher. 0:01:24.200 --> 0:01:26.720 But John, the problem for markets is we're just not 0:01:26.880 --> 0:01:31.120 used to trading seventies styles stamulation. Tom was mentioning they're 0:01:31.160 --> 0:01:35.680 the thirteen percent inflation really decimating people's ability to spend. 0:01:36.040 --> 0:01:38.880 The Bank of England will reflecting this. They've already put 0:01:38.880 --> 0:01:41.200 in their forecast. Today we saw they think the price 0:01:41.240 --> 0:01:44.840 cap goes three thousand, five hundred in October. That's about right. 0:01:45.120 --> 0:01:47.560 It's going up again in January to three thousand, eight 0:01:47.640 --> 0:01:50.560 hundred pounds per year before the average household. This is 0:01:50.600 --> 0:01:52.800 a massive amount of money coming out the system just 0:01:52.800 --> 0:01:55.360 spent on energy during I think very much different than 0:01:55.400 --> 0:01:57.600 the Fed, where we have all the different Fed presidents, 0:01:57.640 --> 0:02:00.920 including Kansas City, where we'll visit a jective, Paul. We 0:02:01.080 --> 0:02:04.560 perceived the Bank of England as the city and maybe 0:02:04.760 --> 0:02:08.920 London as well. What does thirteen percent inflation Due to 0:02:08.919 --> 0:02:11.840 the Bank of England's relationship with the go to the 0:02:11.880 --> 0:02:16.639 Premier League this weekend, to Liverpool, to Leicester to Newcastle. 0:02:17.120 --> 0:02:20.760 What does the BOE relationship with the inflation the North 0:02:20.880 --> 0:02:25.560 will face. Indeed, you mentioned Tommy, haven't mentioned past Harrods, 0:02:25.600 --> 0:02:27.120 So one day me and John will have to take 0:02:27.160 --> 0:02:30.080 to our hometown north of Birmingham and certain Coldfield it 0:02:30.080 --> 0:02:32.080 will be felt a look in the north. Were seeing 0:02:32.120 --> 0:02:35.240 lots of strikes being held around the UK. I was 0:02:35.240 --> 0:02:38.760 listening to one of the NHS union representatives just earlier 0:02:38.800 --> 0:02:42.519 this weekend. The pay rises they're being offered after inflation 0:02:42.560 --> 0:02:46.880 adjusted roughly ten percent real pay cut is essentially like 0:02:47.000 --> 0:02:49.160 asking workers to do a whole month of the year 0:02:49.400 --> 0:02:52.959 working for free or losing all of their statutory holidays, 0:02:53.000 --> 0:02:54.919 so that the impact would be we're gonna have more 0:02:55.480 --> 0:02:59.280 labor market strikes. This will potentially see wages going so 0:02:59.320 --> 0:03:02.360 it puts the banking in that really strange place that 0:03:02.480 --> 0:03:05.639 they're raising rates. The consumer is being squeezed. That does 0:03:05.720 --> 0:03:08.520 lower their inflation forecast perhaps ahead, but if we do 0:03:08.639 --> 0:03:11.840 get a wage price spiral, this is very nineteen seventies like, 0:03:12.120 --> 0:03:13.600 so they're gonna be keeping an eye on that and 0:03:13.639 --> 0:03:15.160 the way the banking looks at it in the north. 0:03:15.440 --> 0:03:17.639 They used to Bank of England agents summary. We've only 0:03:17.680 --> 0:03:19.360 just got it now, so I'll need to look for 0:03:19.400 --> 0:03:21.680 those details that came out at the same time as 0:03:21.680 --> 0:03:24.240 this meeting. But they do get a holistic picture of 0:03:24.240 --> 0:03:26.320 the rest of the country through the agents and they 0:03:26.320 --> 0:03:28.280 will be seeing this this story that I've just laid 0:03:28.320 --> 0:03:30.359 out playing out around the country. Jordan, I want to 0:03:30.360 --> 0:03:32.440 take a little deeper into your idea that November will 0:03:32.480 --> 0:03:34.360 be the last rate hike, will be the end the 0:03:34.440 --> 0:03:37.360 rate hiking cycle of the Bank of England, raising questions 0:03:37.400 --> 0:03:41.280 about the front loading of monetary policy and monetary tightening 0:03:41.520 --> 0:03:44.040 that has been a big discussion. We have the Bank 0:03:44.040 --> 0:03:46.960 of England warning of a long recession. At what point 0:03:47.280 --> 0:03:50.400 does that pause in rate hikes lead to rate cuts? 0:03:50.600 --> 0:03:54.400 In your view, it could happen quite quickly. The Bank 0:03:54.400 --> 0:03:56.360 of Thing was one of the first major center banks 0:03:56.400 --> 0:03:58.760 to rates rates. They started December last year whilst everyone 0:03:58.800 --> 0:04:01.000 was still talking about transitory in on the crop. So 0:04:01.040 --> 0:04:03.400 when the banking kick things off in December last year 0:04:03.800 --> 0:04:06.240 gives them sort of the ability to end their rate 0:04:06.320 --> 0:04:09.640 hiking cycle earlier than most and also introduce the idea 0:04:09.640 --> 0:04:11.520 of cuts, so we're looking for May cuts from the 0:04:11.520 --> 0:04:14.560 Bank of England. That's sort of timing and why so 0:04:14.680 --> 0:04:16.839 inflation will still be higher than two percent. I actually 0:04:16.880 --> 0:04:19.920 think the risk reward is inflation doesn't fall down to 0:04:20.000 --> 0:04:22.520 two percent as quickly as the markets pricing, but the 0:04:22.520 --> 0:04:25.239 center banks will react to the situation in credit markets. 0:04:25.480 --> 0:04:27.600 If you look at the crossover spread, to look at 0:04:27.600 --> 0:04:29.760 the ECB systemic risk, whatever you want to look at, 0:04:29.960 --> 0:04:32.440 the credit stress in the market is roughly around the 0:04:32.480 --> 0:04:35.640 same levels as the worst moments in the coronavirus panic 0:04:35.680 --> 0:04:39.920 of March. I suspect the energy prices ten times higher 0:04:39.920 --> 0:04:42.839 than they were on average in Germany will knock out 0:04:42.880 --> 0:04:45.760 the business models of many manufacturers. We're gonna see credit 0:04:45.800 --> 0:04:49.480 stress leads to hire defaults, lead to unemployment rising, and 0:04:49.520 --> 0:04:51.920 that's why in Q form Q one the story will 0:04:52.000 --> 0:04:54.760 change for central banks. Even though we'll have high inflation, 0:04:55.160 --> 0:04:58.000 there could be a dobbish moment. Joldan's South Sterling still 0:04:58.040 --> 0:05:01.480 the trade for you. Indeed, I think we've had a 0:05:01.520 --> 0:05:04.839 big move high up to level not very fun for 0:05:04.880 --> 0:05:06.479 me holding a short from about that period, but the 0:05:06.520 --> 0:05:09.200 trend is lower in Starling. It has the same problems 0:05:09.200 --> 0:05:11.520 as Europe when it comes to this energy crisis. It's 0:05:11.520 --> 0:05:14.320 bank central bank has just done fifty basis points. Look 0:05:14.360 --> 0:05:16.919 back to the ECB meeting they did fifty basis points. 0:05:16.920 --> 0:05:19.960 What did the euro do nothing? Just because central banks 0:05:20.000 --> 0:05:22.560 are doing these bigger rate hikes, not enough to defend 0:05:22.560 --> 0:05:25.920 their currency against what's a big terms of trade shock 0:05:26.240 --> 0:05:29.320 that the pounds should essentially be trading towards one fifteen 0:05:29.360 --> 0:05:32.000 down to one ten just based on terms of trade alone. 0:05:32.120 --> 0:05:34.839 The price of the UK's exports have fallen, was the 0:05:34.839 --> 0:05:37.560 price of UK's imports of skyrocketed. The UK needs a 0:05:37.600 --> 0:05:41.080 weaker currency to help is exchange rate ugly. Jordan, just quickly, 0:05:41.080 --> 0:05:43.640 can you imagine if the Fed forecast the recession like 0:05:43.680 --> 0:05:45.680 this one, the starts in four q and runs through 0:05:45.680 --> 0:05:49.960 the whole of next year. Could you see them emtive forecasting? 0:05:50.360 --> 0:05:52.760 Could you forecasting at the mirror? So I just I 0:05:52.800 --> 0:05:54.720 can see it happening, but they'll be a bit slower 0:05:54.760 --> 0:06:01.960 than us to get that. Let's get right to at 0:06:01.960 --> 0:06:04.279 our conversation of the day on the United Kingdom with 0:06:04.360 --> 0:06:07.760 David blanche Flower, professor of Economics of Dharmouth College. He 0:06:07.880 --> 0:06:09.800 darkened the door at the Bank of England a number 0:06:09.800 --> 0:06:12.320 of years ago. We're thrilled he could join us today. Danny, 0:06:12.360 --> 0:06:15.080 you've gone through the details and you make it very 0:06:15.120 --> 0:06:18.400 clear that A ninety seven in a path to the 0:06:18.440 --> 0:06:23.279 Eisenhower deflation. The inflation panic is overwrought. This is a 0:06:23.320 --> 0:06:28.640 bank signaling a deflation or a substantial disinflation out to 0:06:28.720 --> 0:06:32.680 two thousand twenty four. What should be policy if we 0:06:32.720 --> 0:06:38.480 model a future disinflation? Well, obviously this the story is 0:06:38.520 --> 0:06:42.880 the forecast of a recession six quarters of negative growth 0:06:42.880 --> 0:06:45.320 they're forecasting. But if you go to that, I think 0:06:45.360 --> 0:06:47.960 it's the chart one point four and what you see 0:06:47.960 --> 0:06:52.320 there is that there's a significant risk in four of deflation. 0:06:52.600 --> 0:06:55.200 And that's the famous chart the Bank of England produces 0:06:55.560 --> 0:06:59.599 shows you eight hundred years of inflation, and the one 0:06:59.640 --> 0:07:02.080 thing that stands out from it is the big risk 0:07:02.440 --> 0:07:05.960 when you have high inflation is that you generate deflation. 0:07:06.360 --> 0:07:08.719 And so that's obviously the worry. I mean, the truth 0:07:08.800 --> 0:07:14.440 is Johnny's right there forecasting inflation pretty soon this year, 0:07:14.720 --> 0:07:18.880 but by this thing plummets, and I think the likelihood 0:07:19.000 --> 0:07:22.600 is actually that this forecast is overly optimistic. I think 0:07:22.640 --> 0:07:24.960 the chances are the unemployment rate is going to rise 0:07:25.000 --> 0:07:28.040 by much more. Output is probably I mean it may 0:07:28.080 --> 0:07:31.040 not last for six quarters, but output probably is going 0:07:31.080 --> 0:07:34.400 to be weaker. Um and we're probably going to see 0:07:35.240 --> 0:07:38.440 the bank having to the u turn pretty fast. I mean, 0:07:38.440 --> 0:07:42.400 this is the devastating, terrible forecast. And sorry, last point. 0:07:42.560 --> 0:07:45.600 I remember in two thousand, an age in August, so 0:07:45.880 --> 0:07:49.200 you know a number of reports ago and the big 0:07:49.240 --> 0:07:51.320 deal then was the UK was in recession and they 0:07:51.320 --> 0:07:54.480 didn't use the word recession. The word recession is all 0:07:54.520 --> 0:07:57.480 over this report. So this is this is devastating. But 0:07:57.520 --> 0:08:00.680 I think the argument the balance of risks is balance. 0:08:00.760 --> 0:08:04.080 Lisa just talked about it. Risks are actually very strongly 0:08:04.160 --> 0:08:06.680 to the downside to this. So so why they actually 0:08:06.760 --> 0:08:09.920 raised rates sort of unclear when you read the thing. Well, Danny, 0:08:10.000 --> 0:08:12.840 let's talk about how original this moment truly is. And 0:08:12.840 --> 0:08:15.480 can you imagine a federal reserve forecasting of recession in 0:08:15.520 --> 0:08:17.600 the way that the Bank having it has done today? 0:08:17.640 --> 0:08:20.560 And why do you think that's the case. Well, I 0:08:20.600 --> 0:08:22.720 think I think that in some ways they are under 0:08:22.800 --> 0:08:26.720 huge political pressure to try and deal with the interest rate, 0:08:27.000 --> 0:08:29.360 with the inflation rates story, I mean, trust came out 0:08:29.400 --> 0:08:31.920 this morning and said the bank should have raised rates 0:08:31.920 --> 0:08:34.600 earlier and we're going to re look at the remits. 0:08:34.640 --> 0:08:37.559 So I think the politics of it are pretty interesting. 0:08:37.640 --> 0:08:40.400 I mean, the fact that the word was meant, the 0:08:40.440 --> 0:08:43.320 word recession is in this report. It's I don't know 0:08:43.360 --> 0:08:47.640 if any other monetary policy report that has that word. 0:08:47.720 --> 0:08:49.400 As I said, go back to the August two thousand, 0:08:49.559 --> 0:08:52.240 they didn't even use the word recession when they were 0:08:52.280 --> 0:08:55.360 in recession. So so obviously some of the questions, you know, 0:08:55.800 --> 0:08:59.079 how how quickly does recession come and how quickly does 0:08:59.120 --> 0:09:01.400 the bad data come? But we've got bad p m 0:09:01.559 --> 0:09:05.880 s this morning, sales of UK cars down. I mean, 0:09:05.920 --> 0:09:08.880 this baby could get bad pretty quickly. And I think, 0:09:08.920 --> 0:09:11.240 as you say, the likelihood of the FED doing this 0:09:11.840 --> 0:09:15.319 is is really pretty different. But I think this is 0:09:15.360 --> 0:09:18.080 pretty unique for the NPC. I've not seen anything like 0:09:18.120 --> 0:09:21.839 this in all my time with them watching. When you're 0:09:21.840 --> 0:09:24.720 talking about the balance of risks and how it's incredibly 0:09:24.760 --> 0:09:27.440 skewed to the downside, how do them respond to Jordan 0:09:27.520 --> 0:09:30.559 Rochester's point about a wage spiral that you're actually starting 0:09:30.600 --> 0:09:33.400 to see in a very real way, and how this 0:09:33.480 --> 0:09:36.560 bank gets ahead of that to curtail that, even if 0:09:36.559 --> 0:09:39.559 it requires some sort of recession or significant downside in 0:09:39.559 --> 0:09:43.079 the near term. Well, we've been talking about non existent 0:09:43.160 --> 0:09:46.760 wage spiral since two thousand and eight, which we haven't seen. 0:09:46.960 --> 0:09:50.360 I mean, we've seen some some attempt to try and 0:09:50.880 --> 0:09:55.400 keep up nominal wage growth, um that we've seen big 0:09:55.440 --> 0:09:58.760 falls in real wages. I think the idea of a 0:09:58.800 --> 0:10:01.520 wage price fire in the United States and in the 0:10:01.600 --> 0:10:04.400 UK is for the birds. I mean, we're seeing settlements 0:10:04.400 --> 0:10:08.440 around four percent, We're seeing public sector workers saying, you know, 0:10:08.520 --> 0:10:11.480 we we need to try and maintain our living standards. 0:10:11.679 --> 0:10:14.920 The chance that any of this is driven by workers 0:10:14.960 --> 0:10:20.000 there demanding and getting higher wage increases, I see absolutely 0:10:20.120 --> 0:10:22.080 none of that. None of it in the United States, 0:10:22.240 --> 0:10:24.320 none of it in Europe, none of it in the UK. 0:10:24.720 --> 0:10:28.760 We're talking about inflation and workers asking for four percent 0:10:28.840 --> 0:10:32.080 pay raises. This is not none of this is driven 0:10:32.120 --> 0:10:34.960 by by wages. So I think that whole argument is 0:10:35.000 --> 0:10:37.920 just nonsense. Danny. A lot of people are saying that 0:10:38.080 --> 0:10:40.080 right now this is the Bank of England front loading 0:10:40.160 --> 0:10:42.439 rate hikes, that they're going to start cutting rates or 0:10:42.440 --> 0:10:44.560 at least pausing the rate hikes later. This year than 0:10:44.600 --> 0:10:47.000 cutting next year, And that seems to be this belief 0:10:47.040 --> 0:10:48.680 with the Fed as well, that yes, there are some 0:10:48.679 --> 0:10:51.800 pretty significant rate hikes, but it is a front loading 0:10:51.840 --> 0:10:54.400 to try to get ahead of the inflationary push. Why 0:10:54.440 --> 0:10:56.520 do you think that's a bad idea to see what 0:10:56.559 --> 0:10:59.000 you can do now and then wait and then see 0:10:59.000 --> 0:11:02.520 how it, however, trickles out. Lisa, that's I mean, it's 0:11:02.559 --> 0:11:04.840 a great point, but I mean I always had the 0:11:04.920 --> 0:11:07.480 view that you say, and what we need to do 0:11:07.559 --> 0:11:11.200 is get rates up to dry and cut them later 0:11:11.320 --> 0:11:14.840 from the recession that you've caused. So obviously that seems 0:11:14.920 --> 0:11:17.360 like a problem. I mean, the bigger issue in some 0:11:17.440 --> 0:11:20.240 sense least is that, yes, you've now got rates up. 0:11:20.320 --> 0:11:23.000 You know we're talking to globally around two or something 0:11:23.120 --> 0:11:26.800 less in the Euro Area. The problem actually is, I 0:11:26.880 --> 0:11:29.520 think back to two thousand and eight you could we 0:11:29.559 --> 0:11:33.960 could cut from five five percent of a half or zero. 0:11:34.400 --> 0:11:38.439 The room for the central Bank to cut is limited. Um, 0:11:38.480 --> 0:11:40.679 it's going to fall on fiscal authorities. Look in the 0:11:40.760 --> 0:11:43.839 UK there's there's basically no Prime minister, there's no chancel 0:11:43.880 --> 0:11:46.520 of the exchequer. People are talking about the plans that 0:11:46.520 --> 0:11:49.040 they might have but that but the pressure is going 0:11:49.080 --> 0:11:51.640 to come on a new chancellor and a new Prime 0:11:51.640 --> 0:11:55.040 minister pretty down quickly, and the markets are going to 0:11:55.160 --> 0:11:57.240 speak and they're going to say whether they whether they 0:11:57.240 --> 0:11:59.120 think this is appropriate or not. I mean, we don't 0:11:59.160 --> 0:12:01.959 even know who the channel that would be in September 0:12:01.960 --> 0:12:04.200 when these bad data come in. So I agree with you, 0:12:04.640 --> 0:12:08.040 but it looks to me that you front load, you flunk, 0:12:08.160 --> 0:12:12.560 your front load interest rate rises for the recession that 0:12:12.600 --> 0:12:15.000 you worsened by doing it. So I think there was 0:12:15.080 --> 0:12:19.200 a significant argument today to actually sit pat and wait, 0:12:19.280 --> 0:12:21.640 because it's unclear that these rate rises are going to 0:12:21.720 --> 0:12:25.840 do anything to bring inflation down being caused by global 0:12:25.840 --> 0:12:28.040 oil prices. What it? What it? How is these interest 0:12:28.120 --> 0:12:30.800 rates actually gonna do anything other than tank the economy? 0:12:30.880 --> 0:12:33.040 How do they actually bring prices down? And Baby is 0:12:33.040 --> 0:12:35.880 already admitted that basically it can't. So I think there 0:12:35.960 --> 0:12:38.760 was a strong argument to sit weight and watch. But 0:12:38.800 --> 0:12:42.439 the political argument was a very strong one because the 0:12:43.280 --> 0:12:45.640 Trust was threatening the remit of the banks and it 0:12:45.720 --> 0:12:48.320 should have raised rates earlier. Well, I'm not surprised you 0:12:48.320 --> 0:12:50.000 said that at the end there, Danny, that's for sure. 0:12:50.160 --> 0:12:57.360 Danny plans fright. Danny always good to catch up. But 0:12:57.559 --> 0:12:59.760 we've gotten here is earnings, but nobody cares because when 0:12:59.800 --> 0:13:02.920 you do a transaction of this import and symbolism to 0:13:03.000 --> 0:13:06.640 Wall Street and frankly a recovering world from the pandemic. 0:13:07.040 --> 0:13:08.880 It is good to talk to Jim's alter he's co 0:13:08.960 --> 0:13:12.240 president Apollo Asset Management, and yeah, and earnings, but I'm 0:13:12.240 --> 0:13:17.160 gonna go beyond earnings, Jim to your new transaction acquiring 0:13:17.200 --> 0:13:21.160 the leasing efforts of the largest fleet of seven forties 0:13:21.160 --> 0:13:24.800 sevens in the world. This is a cargo business, mostly 0:13:25.280 --> 0:13:28.680 of Atlas Air. How do you dive into such a 0:13:28.720 --> 0:13:34.360 troubled industry? Is covid Asia moving cargo? And say the 0:13:34.400 --> 0:13:39.319 opportunity is now well, good morning, thanks for having me on. 0:13:39.840 --> 0:13:42.400 You know that's a that's a classic Apollo transaction. We 0:13:42.679 --> 0:13:45.520 know the industry well, we've been around it for decades. 0:13:45.600 --> 0:13:49.120 We've successfully navigated it. No pun intended in terms of 0:13:49.200 --> 0:13:52.400 variety of other investments in the space um and it's 0:13:52.400 --> 0:13:55.880 a classic opportunity for us to use our great industry skills, 0:13:55.920 --> 0:13:59.319 are our great capital formation skills, uh and do something 0:13:59.320 --> 0:14:01.480 we think has got a lot of fundamental value where 0:14:01.800 --> 0:14:04.520 purchase price manners. So uh, you know, a lot to 0:14:04.520 --> 0:14:07.960 talk about a pile today. That's one transaction, um, But 0:14:08.400 --> 0:14:10.000 very very happy with what we've done in the in 0:14:10.000 --> 0:14:12.640 that situation, let's talk about the inflow is thirty six billion, 0:14:12.760 --> 0:14:15.240 I think thirteen billion after quarter end in a first 0:14:15.240 --> 0:14:17.520 close your next flagship p fun Just kinda through some 0:14:17.559 --> 0:14:19.720 of these numbers, Jimmys. You look at the opportunities in 0:14:19.760 --> 0:14:21.600 front of you. Where aren't they? What can you do 0:14:21.600 --> 0:14:25.120 that the banks can't do that you're excited about. Well, listen, 0:14:25.160 --> 0:14:27.680 as you said, Johnan, it's a very foggy environment out there, 0:14:27.720 --> 0:14:30.440 a lot a lot of dispersion on views on where 0:14:30.520 --> 0:14:32.800 rates and other things are going. And that's when we 0:14:32.880 --> 0:14:35.280 do well. You know, record record f R re Ford 0:14:35.360 --> 0:14:39.160 for the quarter, record s R E. You know, capital formation, deployment, 0:14:39.200 --> 0:14:42.240 origination strong um. You know, for us, it was a 0:14:42.240 --> 0:14:45.160 great quarter in terms of you know, investor dialogue. As 0:14:45.200 --> 0:14:48.040 you said, thirty six billion in the quarter. We closed 0:14:48.080 --> 0:14:51.560 thirteen billion on on our new flagship funten um. And 0:14:51.640 --> 0:14:53.680 for us, you know, we we are this is the 0:14:53.800 --> 0:14:56.480 kind of markets that we thrive. When others are a 0:14:56.480 --> 0:14:59.920 bit paralyzed or markets are closed, we bring our our 0:15:00.160 --> 0:15:04.720 flexible capital or permanent capital or ingenuity uh to transactions. 0:15:04.720 --> 0:15:07.080 And you know, I know you mentioned the the Atlas era, 0:15:07.160 --> 0:15:10.240 but for us New Fortress Energy was a great transaction 0:15:10.280 --> 0:15:14.320 Air France, you know in No Fortress Energy. Basically they 0:15:14.360 --> 0:15:16.040 we've been to this company for a couple of years. 0:15:16.160 --> 0:15:19.560 We've been a financing partner. They put their liquid lergy 0:15:19.720 --> 0:15:23.800 products vehicles into a in j V. We provided the equity, 0:15:23.840 --> 0:15:27.120 but the bank market was shut. Typically most folks would 0:15:27.160 --> 0:15:30.880 have to put their pencil down. We we really marshaled 0:15:30.880 --> 0:15:34.280 our resources and raised the billion four financing to have 0:15:34.320 --> 0:15:37.440 a successful transaction. So for us, these are the markets 0:15:37.480 --> 0:15:41.840 we thrive, uh, you know, firms doing extraordinary and hitting 0:15:41.880 --> 0:15:45.120 on all cylinders. Jim, you said that the markets are closed, 0:15:45.120 --> 0:15:47.480 and they were for the most part until last month 0:15:47.640 --> 0:15:50.200 where they reopened with a vengeance and you saw everybody 0:15:50.200 --> 0:15:52.800 fled back to the market, money pile into even the 0:15:52.800 --> 0:15:56.240 most speculative debt people basically sounding the all clear sign. 0:15:56.480 --> 0:15:58.040 What do you make of that and how do you 0:15:58.040 --> 0:16:01.160 sort of adjust your view? And perhaps in May when 0:16:01.160 --> 0:16:03.240 you said that recession was one third to two thirds 0:16:03.280 --> 0:16:05.440 of your base case and you were talking about not 0:16:05.600 --> 0:16:09.560 taking that durational liquidity risk. Yeah, I think you've got 0:16:09.640 --> 0:16:13.080 to differentiate between a rally and credit and the markets 0:16:13.120 --> 0:16:18.040 being open. The reality is, it's been well publicized that, uh, 0:16:18.120 --> 0:16:20.800 you know, a lot of financing commitments have been hung 0:16:20.840 --> 0:16:23.440 if you will, nowhere near what they were in oh A, 0:16:23.600 --> 0:16:27.440 probably eighty billion plus on minus versus the four But 0:16:27.600 --> 0:16:32.160 new financing commitments are very challenging to secure today. We're 0:16:32.200 --> 0:16:35.720 a leader in private credit. We extend credit, we borrow 0:16:35.800 --> 0:16:39.240 in those markets as well. But the reality is the markets, 0:16:39.240 --> 0:16:43.960 the I G markets open, but the lower quality high 0:16:43.960 --> 0:16:47.600 your markets still very few transactions are getting done. Very 0:16:47.680 --> 0:16:52.040 few new commitments are being made on buyouts. So it's 0:16:52.040 --> 0:16:54.880 it's not as clear as you said. Again, please don't 0:16:54.920 --> 0:16:59.720 differentiate a railly and credit versus really an open, thriving 0:17:00.200 --> 0:17:02.040 financing market. And Jim, can I ask you what you 0:17:02.040 --> 0:17:04.160 think of that rallying credit though a hundred and forty 0:17:04.200 --> 0:17:06.160 basis points of spread tight and they on high yield 0:17:06.200 --> 0:17:08.680 in the last month alone, we've got just lining up 0:17:08.680 --> 0:17:11.800 calling that wishful thinking. What do you call it? Well, 0:17:11.920 --> 0:17:14.359 it's interesting we we we typically when when when spreads 0:17:14.359 --> 0:17:16.800 go to six hundred, we usually have to buy signal 0:17:16.840 --> 0:17:19.639 for us. Historically, they were there for just a couple 0:17:19.640 --> 0:17:22.119 of a short period of time. As you said, they 0:17:22.240 --> 0:17:25.639 rally dramatically. It feels like the rally. You know, I 0:17:25.880 --> 0:17:28.439 would say they're on the richer side of fair value 0:17:28.480 --> 0:17:31.040 than they are the attractive side of fair value. But 0:17:31.119 --> 0:17:34.320 I think it's interesting to contrast that to the private 0:17:34.320 --> 0:17:36.640 markets right now. You can you know, a year ago 0:17:37.280 --> 0:17:40.119 high old indexes were in the mid four's, maybe touching five. 0:17:40.680 --> 0:17:44.320 You can issue a be part of a senior club 0:17:44.359 --> 0:17:47.520 in private credit right now with spreads you know a 0:17:47.600 --> 0:17:50.240 lot of so for plus six fifty, which is basically 0:17:50.280 --> 0:17:53.320 almost touching nine and a half ten percent high quality, 0:17:53.400 --> 0:17:58.040 first lean position, top of the capital structure, thirty forty LTV. 0:17:58.480 --> 0:18:01.239 So that's an interesting market, and we're open. We've been 0:18:01.280 --> 0:18:04.399 active h at Apollo and at mid cap. The the 0:18:04.560 --> 0:18:08.320 generic on the run high your market not particularly interesting, 0:18:08.800 --> 0:18:11.640 and I suspect you're right, um, you know, at least 0:18:11.640 --> 0:18:13.960 I mentioned I was of the view that you know, 0:18:14.240 --> 0:18:16.840 a recession was in the cards in twenty three. We 0:18:16.880 --> 0:18:19.239 still believe it will be. I don't think it's going 0:18:19.280 --> 0:18:22.520 to be a deep historical recession. Um, As we all 0:18:22.560 --> 0:18:24.680 know the numbers right now, you're having you know, negative 0:18:24.720 --> 0:18:29.560 GDP numbers with four thousand uh a new employment per month. 0:18:29.880 --> 0:18:32.520 So it's not your follows recession by any means. It's 0:18:32.520 --> 0:18:35.760 a different kind of environment um. But you know, from 0:18:35.760 --> 0:18:39.679 our perspective, if you have the ability to navigate, it 0:18:39.880 --> 0:18:43.040 is quite interesting. As many are on pause, Jim, I 0:18:43.080 --> 0:18:44.879 got twenty seconds to squeeze this in. This is the 0:18:44.960 --> 0:18:47.840 question where the person behind your camera starts wiping a handset. 0:18:47.880 --> 0:18:50.800 Don't answer it. You were considering how being needle Musk 0:18:50.960 --> 0:18:53.920 finance that Twitter bit, given how it's falling apart, Has 0:18:53.920 --> 0:18:55.480 that left a bit of taste in your mouth around 0:18:55.480 --> 0:18:58.040 doing business with him potentially in the future. Just yes 0:18:58.119 --> 0:19:01.200 or no your thoughts on it. We're we're a big 0:19:01.200 --> 0:19:04.280 player in the bubble financing markets. We we financed lots 0:19:04.280 --> 0:19:07.240 of folks, were very thoughtful about what we do uh 0:19:07.240 --> 0:19:09.080 and we got a long term craft record to prove 0:19:09.119 --> 0:19:16.639 that out. We begin our jobs coverage now we do 0:19:16.720 --> 0:19:18.960 it with our great Michael McKee, And then we moved 0:19:18.960 --> 0:19:22.520 to Thomas Porcelli. Tom Porcelli's chief you US economists at 0:19:22.640 --> 0:19:25.480 RBC Capital Markets, and first came to my attention with 0:19:25.720 --> 0:19:30.520 absolutely brilliant study of the wage dynamics of the United 0:19:30.560 --> 0:19:33.359 States of America. Tom Porcelli, good morning. I want to 0:19:33.400 --> 0:19:36.000 talk to you about what we just heard from Professor 0:19:36.040 --> 0:19:39.639 Blanche Flower Dartmouth, where he said, basically, a linkage of 0:19:39.640 --> 0:19:44.959 these tumultuous times indue wage growth is unfounded. Give us 0:19:45.000 --> 0:19:49.359 your update on America's wage growth in this nine percent 0:19:49.480 --> 0:19:55.080 inflation we're facing. I completely agree with his assessment. I 0:19:55.840 --> 0:19:59.280 think the people that are comparing today to the seventies 0:19:59.359 --> 0:20:02.280 slash eight ease, I think that they're doing us a disservice. 0:20:02.840 --> 0:20:04.680 I think that this probably has much more in common 0:20:04.720 --> 0:20:07.359 with the forties than it does the seventies. UM. I 0:20:07.359 --> 0:20:09.800 don't think that this is some wage price spiral that 0:20:09.800 --> 0:20:13.520 that the FED is is trying to or can impact. 0:20:14.000 --> 0:20:17.600 UM And I think that those that effort will will 0:20:17.720 --> 0:20:20.439 bear very little fruit. UM. I think the FED is 0:20:20.880 --> 0:20:25.000 hiking pretty aggressively into an economy that's very clearly slowing down. UM. 0:20:25.040 --> 0:20:27.680 I don't I don't know how that ends well. UM 0:20:27.840 --> 0:20:31.040 And I think, you know, if if their thought process 0:20:31.160 --> 0:20:33.639 is what we've got to really tamp down on on 0:20:33.680 --> 0:20:36.720 wage pressures, I don't know more you want to tamp 0:20:36.760 --> 0:20:39.720 down on those I mean in negative terms, excuse me, 0:20:39.720 --> 0:20:43.120 in real terms, they're deeply in negative territory. I mean, 0:20:43.160 --> 0:20:45.640 I I always like sort of marvel at the idea 0:20:45.720 --> 0:20:48.399 that I think very few people appreciate that disposable personal 0:20:48.400 --> 0:20:52.440 income nominally UM in nominal terms from the beginning of 0:20:52.440 --> 0:20:56.040 the year to today is really up only modestly nominal. 0:20:56.560 --> 0:20:59.520 But in real terms you're deeply in negative. So that 0:20:59.520 --> 0:21:01.640 that whole I d I think is UM is sort 0:21:01.680 --> 0:21:03.320 of foolish. And and I would say one last thing 0:21:03.359 --> 0:21:06.119