The US Economy and Trump Administration Policy with Apollo's Torsten Slok
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This is Masters in Business with Barry Ritholtz on Bloomberg Radio. This week on the podcast, our returning champion, Torsten Slocke, chief economist at Apollo. You know, most of the economists that you're probably familiar with haven't really had a good handle on the state of the economy over the past couple of years. They have been expecting recessions. They've expected growth.

contractions. They kind of missed the surge in inflation. They missed the collapse in inflation. There aren't a lot of economists who got it more right than Torsten Schlag. Not only has he been appropriately bullish about what's going on in the economy, why we weren't really in danger of a recession any time over the past couple of years,

I disagree with his forecast for this year, which is 0% chance of recession. Hey, I never put a 0% chance on anything. But still, he's communicating how wrong everybody else is and how right he's been and why you should be pretty constructive about the state of both employment and credit and the stock market. He has absolutely been dead on.

And I have to point out what a force of nature he is. He's got a really fascinating background. IMF, OECD, Deutsche Bank, and now on the private buy side with a big emphasis on private sector companies. I don't know what else to say. I thought this conversation was absolutely amazing.

Fascinating. He was just on such a roll. All I had to do is just kind of give him a little nudge and get out of the way. Really an absolutely tour de force explanation as to why the U.S. and global economy is where it is, where it's likely to continue going, and why there are such tailwinds for growth.

in the U.S. and to a lesser degree, Japan, but why the U.S. is so much better situated than Europe or China and most of Asia. I found this to be absolutely fascinating. And I think you will also, with no further ado, my discussion with Apollo Global Management's Torsten Slocke.

Thanks so much, Barry. And it's great to be here instead of sitting in a boat fishing in Maine, as you and I have done together before. That's right. That's a mouthful of places where you've worked. Before we get into your career, I want to start with University of Copenhagen and Princeton University. Was the career plan always economics and finance? Well, I...

I grew up in a small town called Roskilde, which is 30 kilometers to the west of Copenhagen. You could see I'm so European still that I speak in kilometers rather than miles. Right. And I studied economics in university. And then when I started doing my PhD, you have to go a year abroad. And I spent a year in Princeton in the economics department in 95, 96, when Ben Penanke was the chairman of the economics department.

And then when I finished my degree, I applied for a job at the IMF in Washington, D.C., and economics has basically been the bread and butter of my life, at least my adult life, for the last 25, 30 years. So how—I've been to Denmark, beautiful country, beautiful—Copenhagen is absolutely beautiful. I'm curious how different studying economics is

in Denmark versus the United States? Well, obviously, all the super universities are here. So from a publishing and academic perspective, it's really good, but it's just a little bit different in the sense that it's not, of course, having the same environment, the same seminars, and for that matter, the same people, of course, that are in the U.S.,

But that being said, Europe still has some really incredible universities, including University of Copenhagen. You learn a lot. And as you know, European style, your degree is not an undergraduate degree in four years. It's a master's degree where you start out on day one studying economics, theology, humanities, and you do that for five years in a row. So you end up doing five years relatively specialized, in this case in economics for me.

And I found it just that the environment, everything that I experienced that went through there and still have many good friends at the university and, of course, in Copenhagen that I still talk to to this day about economics and what's going on in financial markets. And make me a little jealous. Do you pay for college and graduate school or does the state cover that? So it happens to be the case in Denmark that tuition is completely free. In fact, you get a stipend, which is $3,000, $4,000 a month.

Wow. On top of that, you also get, so this is as a PhD student, you also get, of course, I need to show you this, free healthcare. And of course, all this is subsidized and ultimately paid for by the Danish taxpayers. That's why marginal tax rates in Denmark are 55% and not 37% as it is in the US. Right. It's better to be middle class or lower class in Denmark. It's better to be wealthy in the United States.

At least in terms of net dollars in your pocket. Everyone has access to healthcare. Everyone has access to free education. And then you just have to do your homework, which is the hard part, and then, of course, complete your education. But it is absolutely a major difference, of course, to what we have in the U.S. But you left before you had to pay those 55% tax rates. Well, so I just got my free education and then left. But I am still both a Danish citizen and I'm also a U.S. citizen. So...

I'm trying to get the best and make the most of both worlds. So let's talk about your career. You start out as an economist at the IMF.

Right out of school, I know at a certain point at the IMF, you were the guy writing the World Economic Outlook and you were covering China and Hong Kong and other parts of Asia. Do you start out right out of school doing the global outlook for the IMF or you have to work your way up to that? No, you absolutely have to work your way up. But the IMF has this great philosophy that young people who start in the organization

throw them on deep water. And in this case, that means in IMF language that you need to go on a program country. And a program country is a country that normally has some IMF loan or is drawing on some IMF facility. And in my case, I was pulled into working on Mongolia.

So I went to Ulaanbaatar in January where it was about as cold as it is here in New York City today. It is quite an experience to come to an emerging market when you are just around 30 years old and you suddenly sit there with the central bank governor, you sit down with the minister of finance.

And of course, there's a whole team. I was the most junior person. And you try to think about what are the macroeconomic problems for this country? How can we get this country back on track? Under what conditions should they borrow? All those things are a very critical part of the education you get at the IMF, namely learning to analyze and understand an economy from a macroeconomic perspective. That sounds like it was an amazing experience.

It was incredible. I had never obviously looked at or thought about Mongolia too much before. So the fact that you suddenly are involved in also the whole process at the IMF, which is very important. You basically have a country that has some macroeconomic problems. Then there is a process of them going to the board of the IMF and the executive board of the IMF then has to discuss under what conditions

do we want to give a loan to this country and that process of giving a loan in some cases the imf says yes you can have a loan in other cases the imf says no you cannot have a loan because you're not willing or able to meet the conditionality that comes with borrowing money from the imf and often countries come to the imf when they're not able to

not able to borrow in public markets. And that's why the IMF plays this special role of having conditionality, having conditions associated with borrowing. That means that you can borrow, but only if you do these things that the global community thinks is a good idea. And in some cases might be politically challenging, but we do this to try to get you out of this problem that you're in at the moment. So now let's compare and contrast. You go from there, the OECD in Paris,

What's it like being an economist in Paris? So the IMF has money and gives a loan to countries, whereas the OECD is really just a think tank. It used to be really mainly more wealthy countries, meaning developed markets, meaning the G7 plus a few others.

But now it has broadened out a bit more to also have Brazil, Chile, other countries that you would normally categorize as emerging markets. But the OECD basically is an organization in Paris that lays out best practice across countries. So as a government organization,

You think constantly about what is best practice for healthcare policies, for pension policies, for all kinds of other policies when it comes to climate change, when it comes to really all areas of policymaking. And the idea is to get together in Paris for the OECD countries to come and say, what experiences have you made when you put together a pension system? What experiences have we made? And the IMF then writes a report and says, these are the ways that people have done it that work.

and other sometimes they say other examples are this is where it has not worked very well so try for you and me and the us and denmark and all other countries in the world to have an example of how should we design our pension system how do we make sure that there are enough free time in savings for our population how has it been done in other countries so it's really an organization that really is a think tank but it really is a best practice think tank where you get experiences and you get practices from other countries that then can be used

again, in the countries that are participating. Really interesting. So the biggest chunk of your career was at Deutsche Bank. Did you start in Germany or did you just start here in New York? So I started here in New York because some of my former colleagues from the IMF had moved to Deutsche Bank, David Fogels Landau and Binky Chatterer.

And they called and asked if I wanted to come to the U.S. and work here with them. And this was in 2005. It was not our plan. My wonderful wife, Julie, and I had our first son, and his name is Flemming. And it was 2003, and we lived in Paris. We all enjoyed it. We were actually trying to get a bit closer to Copenhagen. But then out of the blue, Binky called and said, hey, would you like to come to New York and work with us?

my experience from the IMF and the OECD and then this opportunity to be in Deutsche Bank with some friends and colleagues that I had known for many years and who are still my really good friends today of course meant that I said well why don't we try this and Julie was up for it so we moved our family over here from Paris in 2005. So brief digression I don't know who Binky is personally I've never met him

I cannot begin to tell you how many people have referenced him as a mentor, as an influence, as this is a person who just had such a big impact in the world of finance. We'll get to the mentor questions later. I'm just curious how outsized a personality is Binky. Yeah, so a very important part of your question also here is that it is absolutely critical to remember that inside organizations such as the IMF and the OECD,

You establish long-term relationships with people that really almost, in a lot of cases, basically last for almost your whole career or your whole life. So that means you build strong connections with people. You work with them in stress situations, in less stress situations, in good and bad times. And I had worked with Binky, not directly under him, and also David Fogges-Landau, but they were both, of course, very important people

employees at the IMF and when they decided to move to Deutsche Bank I decided to say well I know these people really well and Binky indeed even today as you know he is still the chief equity strategist at Deutsche Bank he has some incredible frameworks and I have learned a lot from him we'll talk more about this later in terms of you need to have a framework when you talk about things

and he was the first one and still is today is telling me you need to have a framework. What is the framework? Why you are thinking the stock market will go up or the dollar will go down or the Fed will hike rates. All these things came from a discussion from Pinky and David and several others and who, by the way, also have a PhD in economics.

Because they were the ones who got me into Deutsche Bank starting in 2005. Really interesting. So you spent 15 years at Deutsche Bank. That's the biggest part of your career on the sell side. I'm curious, how do you curate a firm view? How do you develop, hey, this is the perspective of...

Deutsche Bank US, which is a giant entity. Well, as you and I have been talking about for many years, different banks have different strategies. So some banks have a house view. Other banks have a house of views. So that means that in this case, Deutsche Bank was run in a way, and I think that does make sense, where there was no strong house view every day on everything.

because we have to let individuals free in the sense that the different people have different types of expertise in different areas. So at DB, we would sit down around the table, think about the Federal Reserve or the ECB or the Bank of Japan, and we would then say, okay,

whoever was the main person responsible for the central bank, what is your view? Let's discuss, do we all agree with this? What are the arguments why this is right? What are the arguments why this is wrong? This gives a healthy debate. This gives a healthy way of saying we have now turned every stone and we end up where we publish the view that let's say that the Fed, for example, today, we'll talk about this later, will be keeping interest rates on hold.

But that discussion, of course, is a very important part of the debate instead of just having, well, I am having someone in the organization who says, oh, the Fed will not do anything, but everyone else can then sit around and say, oh, I disagree with that view. I think the view should be different. So there is no easy solution to this problem, but it is the case that

At Deutsche, it used to be the situation where we would sit around the table and fight it out and end up with a view on what do we think is the outlook for, in this case, the Fed, the ECB, or the Bank of Japan, or any other central bank, or any other market we were looking at. Really interesting. So you're at a government entity, then you're at a think tank, then you're at a sell-side brokerage firm, then you end up at Apollo, which not only is buy-side, but it's more focused on the private markets than the public markets.

I'm curious what led you to Apollo and what was that transition like? Yeah, so at Deutsche Bank, I spent essentially all my time on going to clients with sales. So we would go to PIMCO, BlackRock, Brevin Howard, all the hedge funds, all the real money managers, and we would sit down and talk about what is the outlook for rates, equities, commodities, everything in the macro world that they wanted to discuss.

At Apollo, my job is quite different and it has some different elements that I didn't

have in my job with Deutsche Bank. So what was the attraction was that after 15 years of traveling around the world and talking about macro and client meetings, really anywhere you could go where anyone was interested in the US economic outlook. At Apollo, I spent roughly half of my time still doing that on the fundraising side. But the other half of my time I spent internally talking to deal teams.

So a deal team is looking at buying a company, a deal team is looking at giving a loan to a company. This could be in the US, it could be in Europe, it could be anywhere in the world, Brazil. It could be really any type of financing that we would be studying carefully. And in some of these cases, macroeconomics is less important.

In other cases, macroeconomics is really important, meaning we begin to discuss what is the outlook for rates, meaning what are the financing costs? What's the outlook for spreads? What's the outlook for even wages? What's the outlook for low income wages, middle income wages, high income wages? What is the outlook for the dollar? And we also have discussions of what is the outlook for politics?

So those things are not things that we can control, but they nevertheless turn out to be really important if you want to understand the risks associated with the investment that you're doing. So what attracted me to come to Apollo was I still am doing to a last degree many of the things. Again, half of my job is traveling around the world, talking to people about the macroeconomic outlook, but the internal part of talking to deal teams and

for that matter, also talking to management about what's going on, what are we seeing, what are we hearing. And we have 50, a little bit less than 50 portfolio companies talking to the CEOs of these portfolio companies. It all gives a very corporate finance perspective

addition to my macroeconomic thinking and that was and continues to be the main significant attraction that I find so exciting about my job namely that is combining the macro world with the corporate finance and the deal team world in private credit and private equity and then trying to come up with a view what do we think will happen going forward. Now at Deutsche Bank you were a fairly traditional economic publisher. When you moved to Apollo you developed several new platforms, new content platforms

I think everybody who's listening is probably familiar with the Daily Spark, which is sort of your chart of the day, which is always fascinating and niche and chock full of information. But you also put out full research decks and full the traditional economic charts.

data series, but then on top of that is the Apollo Academy. Tell us a little bit about that. Yeah, so the idea with the Apollo Academy is there are really several different purposes. So first of all, Apollo Academy is really the prime place to go if you want to understand alternatives.

because it is often, of course, the case that people in financial markets, everyone spends so much time on the S&P 500, because the S&P 500 is what we all discuss all day long. But if you look at businesses with employment in the U.S., there are 6 million firms...

the us that have employment so the fact that we spend time on 500 companies out of 6 million businesses it just doesn't make too much sense so that's why private markets and what's going on in private markets both in private equity and also and of course in private credit is a very important part of the us and the global economy so that's what we try to do in apollo academy namely have various

educational materials, white papers about private credit, white papers about private equity, white papers about asset-backed finance, white papers about all kinds of aspects of what are private markets today. And what we also do on the ApolloAcademy.com homepage is, of course, that we also produce, as you just mentioned, a daily Spark email, which is a chart that we produce every day, which is some interesting topic that we are thinking about. And we also try to have...

By the way, we also have podcast and we also have videos, but we try to generally have material so that people and the public out there can be informed about what's going on in alternatives and in private markets at the moment. I just want to talk briefly about the Daily Spark because I'm fascinated by...

both on the subjects that you focus on and the process you use in creating it. Something recently that showed up, New York hotel costs. Now that seems so specific. What do New York hotel costs tell us about the broader economy? This is a really good question and you are not the only one to probably think about that among the listeners. For those who do subscribe to The Daily Spark are probably scratching their heads sometimes and saying, why are we even talking about this?

We also have data sometimes that we look at for how many people are visiting the Statue of Liberty. We also look at how many people go to Broadway shows. I remember seeing that. And you and I laugh at it sometimes, and you should also laugh at it sometimes and say, why are we looking at this? But in fact, it is still the case that if you think about it,

Well, hotel costs are important for a number of different reasons, not only from a commercial estate investing perspective, but it's also important to get some understanding of how expensive is it now? The average price for staying in a hotel at the moment in New York City is more than $400.

That is really expensive. Think about also how much that has gone up, how much of that has gone up after COVID. That has implications for how you think about what is occupancy rates for hotels, not only in New York, but nationwide. That has implications for how well is the consumer doing. That has implications for tourism. It has just so many ramifications, a lot of these things. Even how many people go to Broadway shows also tells you something about, is there a willingness among consumers to spend on discretionary spending, something that's a little bit expensive, the average Broadway show ticket cost, etc.,

around $150. And that's a bargain right there, $1.50. It could be a lot more expensive than that. And all that to your question is you say, well, why are we looking at this? So without writing a long, long 30-page paper with 30 footnotes, just a simple chart saying, hey, check this out. This is something we are thinking about. You can say,

oh, I don't really care about this. Why should I worry about how many people again go to Broadway shows or how many people go to the Statue of Liberty or what is the cost of staying overnight at a hotel? But it still is something that at least is one dimension to thinking about a lot of different things that are going on. And that is the

benefit. And that's what I'm enjoying so much of producing one every day, because then I write about something today and tomorrow I can write about something else. And the fact that you do something completely different every day, someone may say, who cares how many people go to the Statue of Liberty? But when you see 90 different charts over the course of three or four months, you're

it starts to paint a broader picture as to what's going on. All these little niche data points, they add up and it gives you a perspective on the economy that you may not get looking at GDP or unemployment. As when you and I always talk about what is the economic outlook and then you can start in some corner, but I still need to paint you a picture, a mosaic picture

that ultimately has some different pieces. And these charts are exactly meant to be different pieces in what is going on in the economy and more broadly, what is it in financial markets that we should be talking about and that's relevant. And sometimes some of these pieces in the mosaic may look different

insignificant and not very critical. But in other times, a chart could simply also be what's the trend in inflation? Should we expect inflation to go up now that Trump has been talking about tariffs, now that we may have restrictions on immigration, now that we may lower corporate tax rates on domestic manufacturers to 15%? Could that be a reason why there might be some lift in some of the more important indicators other than, of course, some of the more funny indicators that we've been talking about up to this point?

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mosaic of different data points that create an economic outlook. Let's talk first about the U.S. and then the rest of the world. You've described the U.S. economy as, quote, firing on all cylinders. Discuss. So the backdrop for where we sit today is, of course, that GDP growth for the last two and a half years since the Fed began to raise interest rates has been remarkably strong.

And this has raised a number of important questions in financial markets, namely when the Fed raised interest rates, I would have expected and the textbook would have expected that home prices should have been going down. That's not what has happened. You would have expected that when interest rates go up, car sales should go down. That is not what has happened. And you would also have expected that

that when interest rates go up, that capex spending and business spending by businesses should also be slowing down. And that is not what has happened. And why is it that the economy has continued to be so strong? In other words, what happened to long and variable lags that the Federal Reserve FOMC members have talked about for so long? Why didn't the economy slow down when interest rates went up? And there are three very important reasons why that didn't happen.

First of all, we have had a much less interest rate sensitive economy this time around than we've had before. Most importantly, 95% of mortgages outstanding in the US are 30 a fixed rate. And that means that when interest rates started going up, that meant that mortgage payments did not go up for consumers because consumers had locked in low interest rates during the pandemic. And this was also the case for corporate debt, net interest payments,

as a share of operating surplus in the US has been going down despite that the Fed has been raising interest rates. So there was also less interest rate sensitivity for corporates. So taken together, the first argument, why is the economy still so strong? Because Fed hikes simply did not have

a particularly negative impact on consumers and on firms as the textbook would have predicted. Secondly, in the US, we also have a data center boom. We have an AI and data center boom unlike what we see in any other countries. There's 6,000 data centers in the US more than all other countries combined in the world. So data center boom has probably been adding around 0.2% to GDP growth for the last several years.

And third and finally, we also have fiscal policy. Even before we talk about Trump, CHIPS Act, the Inflation Induction Act, the Infrastructure Act have also been important tailwinds. So in summary, and sorry for giving a very long answer, but why is it the economy has been so strong? It has to do with less interest rate sensitivity, a data center, an AI boom, and finally also fiscal policy. And that's the reason why even where we sit today, the Atlanta Fed GDP now estimate for Q4 is still at 3%, well above the CBO's 2% estimate for long-run GDP growth and 3%.

That is the reason why the S&P 500 has done so well the last few years. That's the reason why credit spreads on IG Highland loans are so tight, because we never got that slowdown that everyone worried so much about. And now we can then start talking about if we add Trump policies on top of this starting point, then you can begin to worry about that maybe there's a rate of acceleration, both in inflation and in GDP in 2025, as a result of the starting point being just so strong at the moment.

So there's a couple of things you didn't mention in contributing to the strength of the U.S. economy, as well as some price support. And I want to throw those at you. So you didn't mention the massive fiscal spend during the pandemic of CARES Act 1 and 2 under President Trump and CARES Act 3 under President Biden. Those were enormous. Is that pig through the python? Are we still feeling the effect of that?

yeah so those were also very important reasons why specifically the savings rate went up a lot in the household sector so excess savings you and i have been emailing these charts back and forth excess savings were really high exactly because of those fiscal policies giving a lot of money to households and as households were running down those excess savings

this was also a very important tailwind to the outlook. So I do agree that those things have also played a very critical role in why the economic data has continued to be so strong. Even the last non-farm payrolls number we got was, of course, also very strong. And also, again, telling you that there are some tailwinds and that pick through the python has played a critical role in keeping the economy strong for a much longer period than what your economics textbook would have predicted. So there's so many different questions I want to throw at you from that.

You mentioned cars, you mentioned labor, and you mentioned houses. All three of those sectors have a shortfall of supply. We stopped making cars for a couple of years during the pandemic, so now we've ramped up enough new car production. Still means we have a shortfall of pre-owned cars.

we underbuilt for a decade. There just doesn't. And the number of homes for sale, close to record lows. And it feels like the labor pool is as tight as it's ever been in our lifetimes. How significant are these supply issues to both growth and pricing? They are very important and

There is this, as you and I also have talked about before, this academic debate about was inflation high because of supply or was it high because of demand? But exactly as you are outlining, it's a much more complicated situation where you both have supply constraints for housing, for labor, across the board in autos, in many other sectors, because during the pandemic, we were simply not able to produce enough of what we need.

was needed for the economy to go at full capacity. So therefore we did have a decline in supply and at the same time we had a significant increase in demand, including from the fiscal policies that you just mentioned. And those things together were a very important reason why inflation went up. So now you are asking, looking into 2025, are these things still here?

I would say they are still here to a very significant degree. And even before we've talked about Trump policies and tariffs and restrictions on immigration and lower corporate taxes, all these things are still pointing, in my view, to a situation where we are not out of the woods on inflation. The risk is that inflation could begin to see some lift

simply because the Fed is now cutting, and we still have tailwinds from fiscal policy, AI data center spending. We also have tailwinds from energy transition. And by the way, what we haven't talked about either, we also have tailwinds from defense spending. And we also, of course, have tailwinds from fiscal policy, the CHIPS Act, the Inflation Reduction Act, the Infrastructure Act. And taken together, all these things do point to your question, namely that there is still a chance that we might see inflation go up, and therefore we might see the Fed potentially collapse.

raise interest rates in 2025. So you've been very constructive on the economy for the past two years. A lot of economists were expecting a recession in 22, 23, 24. They haven't gotten the recession they've been expecting.

Why do you think the consensus was so wrong? Is it just that's what the textbook said? Exactly. I think we've been waiting for Godot for a long time, and Godot basically has not arrived, and I don't think he will arrive, at least not in 2025, because I think everyone took that textbook out exactly as you just said, Barry, and said...

Wow, when the Fed raises interest rates, then the probability of recession goes up. You actually see that on your Bloomberg screen. If you type ECFC go and look in the upper right-hand corner, you can see that the probability of recession immediately when the Fed began to raise interest rates in March of 2022, the consensus began to lift higher significantly the probability of recession. And it was telling you that all the economists...

on the street who were looking at what is the implication if the Fed raises interest rates, they were saying it will absolutely be a recession. And what, in my view, was...

at least it's clear today and was the reason why we didn't get it was because we all underestimated fiscal policy. We underestimated the excess savings, meaning the money that you just mentioned came into people's bank accounts. And we also underestimated the interest rate insensitivity of the data center boom and also the interest rate insensitivity of energy transition and also the interest rate insensitivity of the fiscal policy from the TIPS Act and the Inflation Auction Act. And those tailwinds

have just kept the economy a lot stronger. So people underestimated that it was not just about interest rates going up. There were tailwinds that kept the economy afloat and a lot stronger than what really almost everyone expected. So in 2024, the Fed finally, talking about waiting for Godot, finally began cutting interest rates.

You're one of the few economists who came out and said, hey, the U.S. economy is strong enough. We really don't need rate cuts. Explain your thinking. Yeah, so we said, and we were wrong in the beginning of last year, that the Fed would not cut rates in 2024. They did cut rates now, 100 basis points. It is still being debated. I know this sounds very academic, whether that was actually a good idea or not.

But it is clear that the Fed did end up cutting interest rates with the main argument that inflation in June of 2022 was 9% and it had come down to around 3%. So the Fed concluded three is closer to our target of two. So this allows us to begin to cut interest rates. The problem is where we sit right now here, of course, at the beginning of 2025, that, well, in the last few months, inflation has proven more sticky.

The median CPI measure from the Cleveland Fed, the trim mean, the various measures of acyclical inflation, and of course also various measures from the inflation from the New York Fed that also looks at trends in underlying the UIP measure, are saying that inflation is beginning to move more sideways and some indicators are actually beginning to move up. So again, even before we have spoken about Trump policies potentially decreasing,

giving a lift to, even as if it's modest lift to inflation. The problem is that inflation today is three and three is not two. And if I start at three and I begin to add a risk of a strong economy and I add a risk of both tariffs and restrictions on immigration, the risk is not that inflation goes down to two, but the risk is that three begins to become higher. So that's why we still are in the camp of thinking that, well, maybe we are still a little bit

early in declaring victory over this issue on, hey, inflation is no longer a problem because maybe inflation could come back in 2025 and we just don't quite yet have it completely under control. And that's what FOMC members have been saying in speeches, namely that, well, maybe we need to go a little bit more slowly and maybe we should even just take a pause and take a break and see, well, how long time will it take before inflation begins to show more signs of it actually

continuously moving lower. Well, in the last presser, it's pretty clear Jerome Powell wants to take a break. But it raises the question, if all this is true about the strength of the U.S. economy, and I completely agree with you,

I've been trying to figure out what is their thinking. Why would they cut? And I kind of came up with two theories, and I want to bounce them off you. One is the bottom half of the economy really is feeling the effects of higher credit, whether it's credit cards...

automobile loans, say nothing of new mortgage rates. And then second, related to mortgage rates, so many people have locked in low rates. It's almost a set of golden handcuffs and they're stuck to that house that they can't move out of because the financing costs of a newer house, a larger house or wherever they want to move is just so much greater than where they are. All the supply is frozen in place.

remotely close or what do you think? Yeah, so the argument that the Fed or the FOMC laid out for why they were cutting interest rates was simply that inflation had come down and their goal at the Federal Reserve is the dual mandate given by Congress, namely they need to have inflation at 2% and they need to have full employment. And given inflation was closer to 2%,

3% is closer to 2 than 9 is to 2, they were saying we can begin to cut interest rates. But it's absolutely clear what you're saying that it was definitely the case and continues to be the case that who is it that is impacted when interest rates are high? It is people and balance sheets with a lot of debt. That is both the case in credit, meaning for firms, but that is also the case for households.

Households that have a lot of debt are more vulnerable when interest rates are high. And who are the households, as you were just saying, who have more debt? That is by definition young households because when you're young, you have more debt on your credit card, on your auto loan, on your student loan, on your mortgage. So if interest rates are higher for longer, it by definition has a more negative impact

on lower income and younger households because when you're young you're generally also lower income so it is the reality it's not very comfortable for the fed to talk about it this way but it is with reality that fed policy has distributional consequences it hurts those who have debt and it helps those who have assets

And that's exactly the distribution across the income distribution, across age, across FICO scores, namely that if you are low income, low FICO and younger household, you have been hit harder by interest rates being higher. So that's why when interest rates started to go down, that would likely not that this was the goal, but that would likely then be helping these households that have been harder hit higher.

and more negatively impacted by high interest rates. So we look at the inflation rate in the United States hanging around 2.5%, a little under 3%, well, it depends on whether you're looking at CPI or Core or PCE or whatever. But you look around the rest of the world, ex-US,

It's like 4.5%. Why does the rest of the world have so much higher of an inflation rate than we do here in the United States? Yeah, so one important answer to that is that Europe is unfortunately not in a particularly good situation relative to the U.S.,

Europe is having the challenge that China is slowing down. Remember, China is slowing down for three reasons, slowing down because of demographic problems. Remember, the workforce in China is about a billion people, and the United Nations is forecasting that over the next 10 years, that will shrink from a billion to 900 million. That means that we are removing 100 million people in the Chinese workforce over the next decade, meaning 100 million people fewer working in the service sector, in the manufacturing sector, 100 million people fewer paying taxes.

100 million people fewer demanding housing and different housing needs. All those things are a Japanese style headwind to Chinese growth overall. China is also having a deflating housing bubble. Existing home prices are falling 9%. New home prices are falling 6%. And finally, China is also engaged in a trade war, not only with US, but also with Europe. So because of the headwinds to China, we also have some headwinds, therefore, to Germany in particular, but Europe.

because Europe produces a lot of the assembly line in China. And if we don't have that demand from China for assembly lines and for manufacturing goods and for capital-intensive goods, that means that Europe is also in trouble. So the problem which you asked about is...

and therefore the European economy is not in a good place either. And the challenge now is that the service sector inflation in Europe is driven a lot by wage inflation because a lot of wages are basically directly spilling over in the service sector and therefore that's how it's measured when you measure inflation in services. And the conclusion is because of trade unions and wages

wage negotiations and bargaining being delayed, we still to this day have wage negotiations that are a function of what were inflation numbers for the last several years. And looking back, inflation was high. So that's why with a delay, wage inflation is also high. And therefore with a delay, service sector inflation is also high. So it's just because of some institutional reasons, Europe just has a different wage and price dynamic

because of this delay in wage negotiations. And that is keeping inflation rates more elevated, especially in services inflation in Europe relative to what we're having in the US. - Now I know the 30 year fixed mortgage is beloved here in the US. Most of Europe, it's a variable rate

How does that variable rate impact inflation in Europe? And how significant is that to their overall equivalent of CPI? Yeah, and this is really, really important. I mean, as we spoke about earlier, I started my lovely career at the IMF and the OECD. And at the IMF and the OECD, your job is actually quite simple. If the U.S. is good, Europe is good. If the U.S. is bad, Europe is bad. But this is not the case today.

And exactly what you're saying is a very important reason, namely that the interest rate sensitivity of the U.S. economy is a lot lower simply because people have locked in interest rates. Whereas think about literally, as you mentioned, all other OECD countries in the U.K., in France, Australia, Canada, take the Bank of England, when interest rates go up,

mortgage payments for households go up immediately. So that means that monetary policy has a much more immediate negative impact on the European, and in this case, the UK economy than it does in the US, simply because exactly the mortgage market is much more a function of short-term interest rates than long-term interest rates. And why is that the case? That's the case because in the US, and you wrote a book about this many years ago, we have decided that for Fannie and Freddie, for you to get a conventional mortgage,

you must show up at their doorstep with a 30-year fixed rate mortgage. You cannot show up with any other mortgage, then the government will not guarantee it. If you show up with that, they will guarantee it. So that means that the mortgage market is 95% of mortgages outstanding are 30-year fixed. And that is simply not the case basically in any other OECD country. And that means the U.S. has this unique feature that central bank or Fed policy simply has established

less of an impact. It's simply less potent relative to what you see, especially in Europe, but also again, UK, Australia, Canada, and the rest of the OECD countries. You also dropped a data point that I have to follow up

the billion to 900 million shift in workers over the next decade, essentially you're saying China is losing a million workers a month for the next decade. Imagine if non-farm payroll came out each month and it was negative 850,000 people.

That's just an astonishing data point. And that is exactly because of the one-child policy that, of course, is beginning to catch up with the Chinese economy. So if you think about the consequences of the one-child policy, it is, of course, that if you have a smaller population, the population will begin to shrink. And the consequence, of course, is that you will get really what I would describe as Japanese-style headwinds from a demographic perspective, similar to what we have seen in Japan now for many decades. So we have a soft China...

Although Japan seems to be getting out of its own way and doing pretty well. Yes. Europe is kind of struggling. The rest of the emerging market world seems to be doing okay outside of hotspots where there are problems. How do you get to a 2.3% GDP in the U.S. given all that hype?

challenging data points around the rest of the world. Yeah, so there are some very important aspects of this. The U.S. is actually, and I know this sounds a little bit academic, but the U.S. is actually the only economy in the world that's a closed economy. And what I mean by that is that that's an economy that does not depend too much on the

on the rest of the world. You always talk about in the literature, in economics, about the small open economy. So Denmark is a small open economy. Australia is a small open economy. Canada is actually also a small open economy because they depend on others. But the U.S. really doesn't depend to the same degree on others the way that others depend on the U.S.,

And why is that important here? That's very important because if we take the three reasons we talked about earlier, why the US is doing so well, less interest rate sensitivity, we have an AI and data center boom, we have strong fiscal policies. These are all things that we simply don't have in other countries. Instead, we have some significant headwinds to growth in other countries. So that means that at the

aggregate level, the US continues to do well for some very idiosyncratic tailwinds and Europe and the rest of the world is not doing well from actually some different idiosyncratic headwinds. And now finally for markets, why is this important? Because if you think about it for the S&P 500, suddenly this becomes relevant what's going on in the rest of the world because the S&P 500 is not the US GDP.

40% of revenue in the S&P 500 comes from abroad. So if Apple sells fewer iPhones in Canada, in Europe, in Australia, that will have implications for Apple's earnings. Likewise, S&P 500 companies that sell things abroad, if the rest of the world is bad, that could be one way that this could begin to have negative consequences for the S&P 500. That's not my baseline forecast, but I am getting more and more worried about this divergence with the U.S. doing good and everyone else doing poorly. The consequence of that...

could be that that could ultimately show up in earnings because the S&P 500 is to a very significant degree, again, 40% of revenue in the S&P 500 comes from abroad. And if abroad is not doing well, then the revenues from abroad will also begin to have a negative impact on earnings for S&P. Last international question before we jump to the new Trump administration.

It's kind of fascinating. Japan couldn't get out of its own way for decades. Their market had peaked in 1989, took almost 30 years to set new highs, more than 30 years.

Why did Japan suddenly start performing not just the stock market, but their economy? Suddenly it looks like Japan is number two to the US and everybody else is a distant third. Yeah, there are three reasons why Japan is doing so well at the moment. Number one is that the exchange rate has depreciated a lot.

And Japan is an exporting economy. It is, again, a small open economy that is definitely experiencing a tailwind to economic growth from exports moving higher simply because of the depreciation in the exchange rate. The second reason is also that in Japan, there's actually been some quite fundamental changes in governance. There have been some quite fundamental changes in the policy setup in terms of governance.

how at least the government talks about corporates and how they talk about finance. There is an increased willingness in Japan to give more support to basically people coming and buying companies, lending to companies. So that's why private equity, private credit has been busy in Japan, simply because it's been getting a lot of policy support from politicians that want to change the governance

in Japanese companies. And third and finally, Japan is actually also, and this might sound a little bit peculiar, but they're actually benefiting from some of the problems in China now that suddenly Japan is becoming, of course, still a big manufacturing nation, but also now a place where more investment is taking place now that there have been these renewed worries about the outlook for China. So the short answer to your question is,

The exchange rate is supporting the Japanese economic outlook. Changes in governance and changes in corporate finance and the political support for activist investors has also been supportive for the Japanese outlook and for Japanese financial markets. And finally, Japan has also been benefiting for geopolitical reasons for the tailwinds coming because of some of the challenges that we're seeing in China at the moment. Really, really fascinating.

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So we were talking about the state of the global economy. Now we have a brand new president. Let's start out just discussing how lucky this guy is to inherit power.

For the second time, an economy that, to use your words, is firing on all cylinders. Yeah, the economy is actually in great shape today. We have an unemployment rate of 4.1%. GDP growth has, for the last several quarters, been around 3%. And that's also what the Atlanta Fed GDP estimate now is for the fourth quarter. So the starting point is...

a fairly strong economy. The only little macroeconomic thing you can worry about is what we have talked about, namely inflation is still a little bit too high, around 3% on CPI when it comes to both core and headline. And that's, of course, the challenge here, namely an already strong economy and a little bit too elevated inflation. That's the starting point for where we sit today. So I want to talk about taxes and regulation and tariffs. But before we get there,

I know President Trump focuses on the stock market to a lesser degree the bond market. How do you think about valuations for both equities and fixed income here in the beginning of 2025? Well, there are various ways of looking at that. But one simple way of looking at that is to go back and look at the Shiller cyclically adjusted policy.

PE ratio and this Shiller cyclically adjusted PE ratio is basically, as you know too well, a complicated way of saying, let's try to take the business cycle out of earnings by taking a 10-year average of earnings for the last 10 years and ask the question, where is the stock market? Where is the S&P 500 relative to a 10-year moving average of earnings?

And the answer to that is that the Shiller cyclically adjusted P-E ratio, which is an attempt to try to correct the stock market valuations for the business cycle, is currently at a very elevated 37. That means, remember, in the long run, the P-E ratio for the S&P 500 is 16 over the last 50 years. So Shiller cyclically adjusted so-called CAPE ratio at 37.

37 is and 38 and approaching 40 is indeed a very, very elevated level of valuation. So let me ask you two questions about that. First...

We're not that far apart in age. For most of our careers, CAPE has been elevated almost the entire time. If you were not in equities because of an elevated CAPE, well, you missed a hell of a move. It just happens to be the case that with the Trump presidency, this is the highest level of CAPE at the start of any presidency going back in the last 50 years. So that means that we are starting at an extremely elevated level of valuations today.

at least on the Shiller cyclically adjusted level. So let's now turn to other things that are going on in the stock market. As you know much better than me, 40% of the S&P 500 is the top 10 stocks. You also know that most of the returns have been coming from really the Nvidia having great performance. And we also know very well that, of course, if you have such a high concentration of the Magnificent 7 and the top 10 biggest stocks,

your index this goes completely against page one in my finance textbook page one in my finance textbook says you must diversify and if you take a hundred fresh dollars and put into the s p 500 today you are not diversified you are basically betting on nvidia still having good earnings and i love sitting there on a wednesday afternoon looking at whether nvidia earnings were good or were bad and i love the adrenaline rush that comes with investing in nvidia and a lot of other magnificent seven stocks

But the conclusion still is the same that, well, if I'm saving money for the long run and I'm trying to do capital preservations, do I want to expose myself to the risk that I will basically be putting all my money on red, namely on Nvidia and for that matter, Tesla and the other names?

that are in the Magnificent Seven still doing well. That could be that they will do well. There are also some arguments why they will not do well, but they are certainly very expensive. And that's an argument, in my view, for definitely being more diversified rather than just having exposure in the S&P 500, mainly to those major names that have gotten so much attention. So could we make that same argument for a long time? It was Intel, and then it was Cisco, and it seems like every decade you have this concentration at the top

But since the S&P 500 is market cap weighted, and at one point in time, 25 years ago, Cisco was the biggest stock in the S&P 500 and the NASDAQ 100, doesn't it sort of automatically adjust as the company shrinks? You own less of it in the index and it –

I don't know if self-correcting is the right word, but it seems that you buy the whole basket, you'll have the NVIDIAs along with a whole lot of other dogs. 100%. I do think that's absolutely correct, but that's why where we're sitting today, if we agree and...

And listeners don't have to agree with this. But let's say that at least some people think that the Magnificent Seven are very, very expensive. The trailing P.E. ratio for Tesla is 180. The trailing P.E. ratio for Nvidia is like 60. The trailing P.E. ratio for Amazon is like 45. Remember, again, the P.E. ratio has historically on average in the last 50 years been 16%.

So if it is the case that these companies are expensive, I think that a more intelligent approach, in my opinion, would be to say, we're probably going to see some of these companies actually begin to fade and other companies begin to come in. It's a hard issue to pick which ones it is, but maybe at least in this situation, let's agree that maybe it may be a better strategy at least to buy the S&P 493 because at least I'm not exposed.

to those seven stocks that are so expensive. - But by the equal weight, and that way you're not overexposed. - By the equal weight, it's another alternative. Yeah, so in that sense, I of course hear and understand what you're saying, and I do know that the returns in the last two years have been coming to a very large degree from those specific stocks. But all I'm saying is that if we all agree that this is the case, why not take the consequence and then alternatively, if you have to be in public equities, you could buy the S&P 400,

which is a way to have exposure not to the small cap companies. Remember in the Russell 2000, 40% of companies have no earnings. So if interest rates are higher for longer and you have no earnings, that means that your coverage ratios are low. That means, of course, that therefore you're going to struggle more if interest rates are indeed higher for longer. So I don't like large cap because I think they're so expensive. I don't like small cap because I think they have no earnings.

That's why I think value stocks are companies in the middle, both in public and private space. But in this case, if you have to be in public, S&P 400 will be probably doing, at least in my reading, a better job relative to the other parts of the spectrum. So we're here during Inauguration Week. Let's talk a little bit about the new administration. We can't go anywhere without starting with tariffs, right?

How do you feel our trading partners are going to respond to Trump's tariffs? Is he serious about this? Is this a negotiating tactic? How do you put this into your intellectual framework? So the tax foundation has quantified that if Trump does do 60% on China, 25% on Canada, 25% on Mexico, and 10% on Europe, we will get...

an overall level of tariffs that will go up to 18%, which is the same level that we had in the 1930s when we had trade wars and the economy was not doing very well. So if you do have a complete all-in on all fronts when it comes to tariffs, then of course

we should begin to worry about that if everything we buy, you and me, in stores goes up, quote-unquote, by 60%, because now there's 60% tariffs on China, then a good guess is that that means that sales by stores in the U.S. is going to go down. And if sales start to go down, that means that GDP will also be at risk of going down. So that's why tariffs, of course, comes by definition with a stagflationary risk that you raise prices and you lower sales. So with that in mind,

doesn't mean that we will not get tariffs. It doesn't mean that we will get all-in tariffs. No one really knows exactly how much we will get, but we do know that a very important aspect of this is that we also don't know how the retaliation will be exactly as you're highlighting from other countries. So that's why tariffs overall and

We didn't get any executive orders on tariffs other than saying that we will investigate it here. But we didn't get any executive orders on tariffs on day one. So we'll see how far we go and what will happen. But at this point, it's very clear that if tariffs are imposed, it is something that the textbook would tell you that it would involve higher inflation and at the same time downward pressure on GDP.

And just to clarify, that plus 60%, that's not your forecast as to what's going to happen. That's, hey, if what we're discussing gets put into place, this is the worst case scenario. Exactly. Because the thing is, Trump on the campaign trail talked about this in many different ways. But if this were to be implemented...

at 60% towards China. Think about it. Everything you buy, your iPhone, your T-shirt, your clothing, toys for your kids, everything would go up in theory by 60%. And that's, of course, something that would have implications both for prices of those things, but also for the sales of those things. What about the restrictions on immigration, both legal and illegal? So Pew estimates that there are about 11 million illegal immigrants in the U.S., and roughly half of them probably have a job. So that's around 6 million.

Total employment in the US is about 160 million. So if there's 160 million people in the US in total that have a job and 6 million of these are illegal immigrants, that means if you remove millions of people through deportations, you will remove like 2, 3, 4% of the workforce.

And Pew and others, American Immigration Council, they find that where do illegal immigrants work? They work in three sectors, agriculture, construction, and restaurants or services. So the consequence of this, it's up to 14% of workers in agriculture and construction who are illegal immigrants. And if this is the case, then of course means that you will likely see wage inflation in construction, wage inflation in agriculture, and wage inflation in restaurants. So that also means that if we do get deportations,

Even if we get restrictions on immigration, that's very meaningful, in particular because the starting point is a very strong economy. The consequence is that I will begin to worry again about not only overheating in inflation, but maybe also overheating in the labor market if you remove workers and suddenly there are fewer workers left

to compete for the available jobs. And that could exactly be why you're beginning to see in the jolts that job openings are actually beginning to move higher, because it could be that there's already some issues around what is the labor market going to look like if we are going down a road where we may see deportations

or some very significant restrictions on immigration. - All right, so those first two are the negative policies. Let's talk about potentially positive policies like corporate tax cuts and deregulation. How do you see that impacting the economy and the markets? - Yeah, so if we rewind just for a second and think back to 2017,

where the corporate tax rates were lower from 35 to 21 percent. I remember household taxes were lower from 39.6 to 37 percent. In 2017, we saw both household taxes came down and corporate taxes came down. And now Trump has talked about lowering corporate taxes on domestic manufacturers in addition to from 21, but all the way down to 15 percent. That means that manufacturers will now see, if this happens, of course, a tailwind to production.

Just as a footnote, as you and I, of course, also talk about often, manufacturing is actually only about 10% of GDP and 10% of employment. So it's a little bit special that a sector that's only 10% of the economy continues to get so much attention. But nevertheless, the definition of Make America Great

again, is probably that manufacturing should come back. And if that's the case, even though it only makes up 10% of GDP, lowering corporate taxes for domestic manufacturers would indeed also be something that's positive. So that policy alone would be a lift to inflation and also a lift to GDP. And on deregulation,

Of course, we don't know quite exactly what deregulation is going to look like if it's for financial services, if it's for energy, if it's for transportation. It remains to be seen what area it will be in. But broadly speaking, of course, deregulation would also be releasing animal spirits. It would also be boosting GDP growth. And it would actually, ultimately, deregulation normally would be putting downward pressure on inflation, at least in the longer run. So those policies, exactly as you're saying, Barry, would certainly be tailwinds, in particular to GDP growth.

So you've discussed policy uncertainty as a potential concern because we have no idea what the tariffs are going to look like, what the deregulation is going to look like. At least there's some specificity with manufacturing corporate tax rates and exactly where the president wants those to go.

How do you deal with the variability of, hey, we have no idea what this looks like. How do you build a model with so many unknowns built into it? This is indeed very complicated from a forecasting perspective. There is no room in my Excel spreadsheet for the U.S. economic outlook to stuff in uncertainty.

I can have, and I do have, various small Mickey Mouse models where VIX and the move index and volatility measures are included, but they are not a central part of the overall outlook simply because, as you're saying, we just don't know exactly how to quantify that risk. But that being said...

It is still the case that if there is uncertainty, that does obviously have implications for business planning, for household planning. If you don't know what's coming, if you don't know exactly what the nature of policies is going to look like, then, of course, it does bring some elevated levels of risk that people may be holding back with doing things they otherwise would have done simply because of the uncertainty of...

Everything from immigration policies, tax policies, tariffs, and all the other things that we have talked about. So that's why policy uncertainty is something that is holding back investment and spending decisions by households and by firms. So we talked earlier about CapEx. How significant are administration policies today?

to corporate America spending and investing and building out what is likely to be the next generation of economic drivers. Well, I think that there are two dimensions to that issue, namely, first of all, we already have in place a number of important tailwinds to CapEx and business spending, namely, AFCs.

AI and data center boom. It doesn't matter what the Fed funds rate is doing. We will have an AI and data center boom no matter what interest rates are doing because everyone wants to invest and should be investing in AI. Secondly, we probably also have energy transition because energy is needed to power the data centers. I also think strongly this is getting financing, including from us at Apollo, long-term investments.

in energy transition, long-term investments in data centers, because these long-term investments are simply needed and this is something that needs to be done. We will also have a structural table, also from property defense,

Defense spending has been going up. The rest of the world is also spending more on defense. Again, that is also something that is humming in the background, supporting growth overall. Now, specifically to different policies, obviously with deregulation, obviously with tax cuts, obviously, broadly speaking, with policies that are America first and make America great again, will probably, from a cyclical perspective, also be giving a boost to defense.

capex spending domestically. One way of saying the cyclical part of the outlook is really that the animal spirits that have been released after Trump was elected now that companies have at least the view seems to be that there's a more business friendly environment and for that reason more business spending will be taking place is from a cyclical perspective adding to the other structural things that I just listed. So that's a reason to be actually quite bullish overall on the capex and business spending outlook.

So you mentioned defense. You mentioned energy. What about technology and what about crypto seems to have found a whole new tailwind with the most recent election? Yeah, so that's, of course, a lot more complicated. And more recently, we got a coin both from the president and, of course, also from Melania. And this is raising, of course, some different questions about it.

the crypto world more generally. But I will say that the technology and blockchain and investment in AI and investment, generally speaking, in getting more productive and doing things more productively and efficiently is certainly something that is here to stay. And I think that that, broadly speaking, is also a tailwind to the overall outlook. Really fascinating.

I only have you for a couple more minutes. Let's jump to our favorite questions that I get to ask all of my guests. It's great having that baseline of what everybody else has said. But let's just start really simply. What's keeping you entertained these days? What are you watching or listening to? So one of my favorite podcasts, of course, is Masters in Business. Stop. Enough. Okay. But that's true.

I know you're up to more than 500 episodes. I can't believe it. It's 10 years ago since I sat with you here last time. I know. When I first began, I had...

Dark hair. I actually had hair. So I think that I was perhaps one of your first customers here in the studio. But I do also listen to, we have actually our own view from Apollo podcast, but I also watch one series that I've been watching is the Jackal on Peacock, which is basically a very, very James Bond-like series about a guy who's going around Europe and doing all kinds of things.

What's the name of that? The Jackal? The Jackal? Jackal or Chagall? The Jackal. How are you pronouncing it? Here comes my Danish accent. Like the spy novel, The Jackal? Exactly. Oh, really? I'm trying to remember who wrote that. This was originally a movie in France in the 1970s.

But this is something that's playing now on Peacock. And I have been watching, this is like, I think it's eight episodes. And he's traveling around Europe. It's really fascinating. It's actually, it's really well done. We mentioned Binky earlier. Tell us about your mentors who helped shape your career. Well, my first mentor was my professor in economics in Copenhagen. His name is Nils Tikkesson. He just turned 90.

and I celebrated his birthday here in December. But he was the one that really put me on track to thinking about economics. I did my PhD with him and he sent me that year to Princeton and he was the one who got me going first. And then when I joined the IMF, Binky was there. There were also several others. David Fogers-Landau also played a very important role. And there was also another, actually happened to be a Danish guy. His name is Flemming Larsen. He's now retired, who was also a very important mentor for me.

And then when I came to the OECD, I worked very closely together with a gentleman called Vincent Cohen, who's actually still there also, and also another colleague, Alain Desers, who's also still there. So they have all been teaching me various ways of how do you think about things, the importance of a framework, the importance of why

What are the arguments that we put up on the scale for something happening? There are some arguments why the stock market may be going up. There are some arguments why the stock market may be going down. Let's try to have a systematic approach to how it is that we talk about things. So that's been very influential. And finally, on Wall Street or in Deutsche Bank, and of course also here at Apollo, everyone around me and living in the private sector and the commercial world, and of course, very importantly also here, thinking about investing in private assets,

not least my current CEO, Mark Rowan, and the inspiration in terms of how he is really, in my view, a genius changing the financial system and moving things in the direction that's the future of finance is playing a very important impact and playing a very important role and having an important impact on my thinking also today. Really, really fascinating. Let's talk about books. What are some of your favorites? What are you reading right now? So I have

been reading and I just finished The Two Parent Privileged by Melissa Kearney and

And that has to do with this, of course, unique discussion around what does it mean to have two parents? What does it mean to have one parent? What are the differences from a sociological perspective for different types of organizing yourself as a family? This has been, it was very interesting and quite eye-opening when you think about a lot of different things going on in society today. Give us one other. What's one of your all-time favorites? Well...

well of course there's your book after the bailout okay so now we have that's just to make sure for that to make sure we have that on the record uh but i think that broadly speaking i spend a lot of my time as just getting back to square the circle here in terms of what we spoke about earlier i do spend a lot of my time reading the economist reading newspapers try to come up with ideas for daily sparks i try to think about questions i get from clients questions i get internally

Can we get data with this? I asked my team, which several of them are sitting in India, "Hey, can you overnight come up with a chart on this and that? Can we find data for how many people go to Broadway shows? Can we find data for all kinds of things that I would normally try to say, well, we can't really find any data for this, but let's try to dig a little bit deeper and see if there is any data that can help us." So I do also spend a lot of my time on Twitter, social media, reading newspapers,

watching Bloomberg shows and figuring out what are we talking about, what data do we have? Is this conversation correct or are there actually ways where we should take this conversation in a different direction because there are other dimensions that are more important. Really fascinating. Our final two questions: What sort of advice would you give to a recent college grad interested in a career in either economics or finance?

Well, I think this is, of course, a very important question, but I would say read The Economist, watch Bloomberg Surveillance, listen to podcasts like Masters in Business.

Try to do the homework that is really, really hard. And we have all been through this process. You will feel that it's quote unquote not rewarded, but you will learn more and more. You will get to know and understand more and more. And in particular, given how the world is moving with private markets becoming more and more important, try to understand and get a good understanding on what is private equity, what is private credit, what is the evolution in private markets, how is that relative to public markets,

try to get a broader view on what does finance mean and where is finance going and that can really only be done by reading your textbooks trying to stay up to date on recent developments textbooks in some cases are a little bit behind but really trying to listen and try to think hard about and lean back in your chair go for a long walk in a green park and think about okay

what is it that I have just learned? What is it that I've just been told? And how does that fit in with my view of what is overall the outlook for financial markets? And how should I think about how the financial system hangs together? Really, really interesting. And our final question.

What do you know about the world of investing today you wish you knew 30 years ago or so when you were first getting started? Well, this is something that's very important and close to my heart because what I had not appreciated until recently is the very important part that private markets play.

So there are 6 million businesses in the U.S. with employment. So that's a complicated way of saying there are 6 million businesses that have workers working inside those businesses. And why is that important? Because we spend so much time on the S&P 500 and we study these companies in incredible detail. And you then turn around and say, okay, those 500 companies are really interesting. But what about the remaining 500?

0.9 million companies that are not in the S&P 500. How do they get financing? Who owns them? How do they get financing for expanding if they want to build a new factory? How do they get financing if they want to hire more workers? How do they get financing if they want to expand in another country? And private markets and the role of private markets...

I wish that I earlier on in my macroeconomic career had spent some more time thinking much more deeper around what is it that's going on in everything else than in the S&P 500. Because remember, of total employment in the U.S.,

Total employment in the S&P 500 companies in very round numbers is about 25 million people. And total employment in the U.S. is 160 million people. So it is only in round numbers around 20% of employment in the U.S. economy that is in the S&P 500. That's a very high estimate because S&P also employs people outside the U.S. So that means that 80% of employment in the U.S.

is outside the S&P 500. What do these people do? How do we measure them? And what businesses do they work in? And do they have the financing? Can they get the financing? How do they get growth so that the economy can grow also outside the S&P 500? - Torsten, this has been absolutely fascinating. I really appreciate how generous you've been with your time. We have been speaking with Torsten Slack. He is the chief economist and partner at Apollo Global Management.

Thank you.

How not to invest. The ideas, numbers, and behavior that destroy wealth. How not to invest at your favorite bookstores. March 18th. I would be remiss if I did not thank the crack staff that helps us put these conversations together each week. Sarah Livesey is my audio engineer.

Anna Luke is my producer. Sean Russo is my researcher. Sage Bauman is the head of podcasts at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

I think a

A lot of people think that you're supposed to be going to therapy once you're like having panic attacks every day. But before you get to that point, I think once you start even noticing that you feel a little bit off and you can't maintain this harmony that you once had in relationships, that could be a sign that maybe you want to go talk to somebody.

There's always a benefit in talking to someone because we can all benefit from improved insight about ourselves and who we are and how we behave with other people. So if you're human, that's like a good indicator that you could benefit from talking to somebody. Find out if therapy is right for you. Visit BetterHelp.com today. That's BetterHelp.com.

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