YouSaid · the spoken record

Torsten Slok

lines on the record: 73
first: 2025-01-30
most recent: 2025-01-30
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“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 US, total employment in the S&P 500 companies in very round numbers is about 25 million people and total employment in the US is 160 million people. So it is only in round numbers around 20% of employment in the US economy that is in the S&P 500. That's a very high estimate because S&P also employs people outside the US. So that means that 80% of employment in the US 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?”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 US 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 incredibly in incredible detail and you then turn around and say, okay, those 500 companies are really interesting. But what about the remaining 5.9 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...”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“In a green park and think about okay, 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?”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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. The 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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?”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, of course, there's your book after the bailout. Okay, so now we have, just to make sure for that, to make sure we have that on the record. But I think that broadly speaking, I spent a lot of my time 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 on 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 fixing.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“So I have been reading, and I just finished the two parent privileged by Melissa Kearney. 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 Herd 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 inspiration in terms of how he is”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, my first mentor was my professor in economics in Copenhagen. His name is Nil Tigerson. 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 Fogg-Asslanta also played a very important role. And there was also another actually happened to be a Danish guy. His name is Fleming Larsen. He's now retired, who was also a very important vendor 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, Alan Desair, 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 what are the arguments that we put up on the scale for something happening. There are some arguments why this”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“So 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 really well done.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 Jacal on Peacock, which is basically very, very James Bond-like series about a guy who's going around Europe and doing all kinds of things and what's the name of that? Jacqueline?”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so that's, of course, a lot more complicated and more recent we got a coin both from the president and of course also from Melania. And this is raising, of course, some different questions about 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Obviously, broadly speaking, with policies that America first and make America great again, will probably, from a cyclical perspective, also be giving a boost to 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 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 tailwind 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“This is indeed very complicated from a forecasting perspective. There is no room in my Excel spreadsheet for the US 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”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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%, remember household taxes were lower from 39.6 to 37%. 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%. 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 orphan 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”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 and inflation but maybe also overheating in the labor market if you remove workers and suddenly there are fewer workers left to compete for their 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“So Pew estimates that there are about 11 million illegal immigrants in the US 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 two, three, four percent 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. That also means that if we do get deportations, even if we get restrictions on immigration, that's very meaningful.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly Exactly, because the thing is these are the, I mean, Trump and 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 remains, 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 will tell you that it would involve higher inflation and at the same time downward pressure on GDP.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the Tax Foundation has quantified that if Trump does through 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 US 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, that doesn't mean that we will not get tariffs. It doesn't mean that we will get all.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“By the equal weight, you're not an alternative. So, in that sense, of course here, and I understand what you're saying, and I do know that the returns in the last two years have been coming to a very last 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 this NP400, 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 or 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“100%. I do think that's absolutely correct, but that's why where we're sitting today, if we agree, 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 PE ratio for Tesla is 180. The trailing PE ratio for NVIDIA is like 60. The trailing PE ratio for Amazon is like 45. Remember again, the PE 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Capital of the Preservations do 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 7 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“At least on the shilocyclically 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 this and P500 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 seven and the top 10 biggest dogs in 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 $100 fresh dollars and put into this and p500 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 Rust 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”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 Schiller cyclically adjusted PE ratio. And this Schiller 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 this in P500 relative to a 10-year moving average of earnings? And the answer to that is that the Schiller cyclically adjusted PE 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 PE ratio for the S&P 500 is 16 over the last 50 years. So still cyclically adjusted so-called CAPE ratio at 37 is and 38 and approaching 40 is indeed a very...”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 Lenefit 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 to elevated inflation. That's the starting point for where we sit today.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 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”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 and 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 US doing good and everyone else doing poorly.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so there are some very important aspects of this, namely the US 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 rest of the world. You always talk about in 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 US really doesn't depend to the same degree on others the way that others depend on the US. 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 U.S. continues to do well.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 Fanny 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 than 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 a 30-year fixed. And that is simply not the case basically in any other OECD country. And that means the US has this unique feature that central bank or Fed policy simply has less of an impact. It's simply less potent relative to what you see, especially”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 US is good, Europe is good. If the US 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 US 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 UK, in France, Australia, Canada, take the Bank of England, when interest rates go up.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 waste negotiations and that is keeping inflation rates more elevated especially in services inflation in Europe relative to what we're having in the US.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“The hitwinds to China. We also have some hitwinds there for 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 Germany 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 wage negotiations and bargaining being delayed, we still to this day have wage negotiations that are a function of what 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so one important answer to that is that Europe is unfortunately not in a particularly good situation relative to the US. 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 their 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”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 the 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 VICO scores, namely that if you are a 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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, 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%, then 9 is to two. 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 continue 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 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 A4MC 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...”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 freed, 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”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 ChipSAC 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 as 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”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 and autos, in many other sectors, because during the pandemic, we were simply not able to produce enough of what 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”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Countries combined in the world. So data center boom has probably been adding around 0.2% through GDP growth for the last several years. And third and finally, we also have fiscal policy. Even before we talk about Trump's Act, the Inflation Direction Act, the Infrastructure Act, have also been important tailwinds. So in summary, and sorry for giving a very long answer, but why is it a good answer? The economy has been so strong. It has to do with less interest rate sensitivity at 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 that is the reason why the S&P 500s have done so well the last few years. That's the reason why credit spreads on IG higher than 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...”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“Much less interest rate sensitive economy this time around than we have had before. Most importantly, 95% of mortgages outstanding in the US are third-year fixed rate. 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.”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source
“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 when interest rates go up, that cappes 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...”
2025-01-30 · Masters in Business · The US Economy and Trump Administration Policy with Apollo's Torsten Slok · IDENTIFIED FROM THE TRANSCRIPT · source