Surveillance: Soft Landing with Slok

He's chief economist at Apollo Global Management. Far more than that his leadership in economics with Peter Hooper at Deutsche Bank over the years and going over to the dark side. What what was it change like going Deutsche Bank to Apollo? I mean expect on a given Monday when you walked in the door to Apollo from a major bank with your majors sess there, what was that like? Well, my job is to watch the economic data and watch financial markets and with that backroup, that's really the same thing

I do. Well talk about inflation, unemployment and the things that you guys talk about. What's going on? Things getting better? Are they getting worse. Are the central banks going to react differently? The job in is really very similar, very good. How how important is the next inflation data after the festivities we saw yesterday? I think it's very important because what I think is the key issue at the moment

is the sequencing of hitting the fits dual mandate. So what that means that is, yesterday we've got confirmation that we have seen now inflation come down from the peak in June without an increase in the unemployment rate. That's of course telling you that we might actually have a scenario where we could have a soft landing because we

are now seeing inflation begin to come down. Admittedly seven point seven is still very elevated, but at least it's coming down without the fear increasing the infloma rate because the fits dual mandate and Jaypal has been very clear about this, we need to see a softening the labor market, and we have really not seen any meaning softening. So the sequencing happens to be in the right way for markets. Name first, inflation is coming down without even seeing an

increase in the plan. Let's explore that further. So we may have seen peak inflation year over a year where's the bottom out at next year. So obviously there's a very long road. If you compare with what happened in the mid nineteen seventies, it took two years in nineteen seventy four to get inflation back from the peak to

where it was before. So if it also takes two years, then of course we still have very long road ahead of us, and that of course could be associated with all kinds of sharks, including of course not only do your political sharks, but also to commodity prices and other parts of the CPI conplat This is hard to predictive, course, but it is. There's something about the nature, the characteristic of this inflation story that means it will be difficult to go back to the low inflation of the previous

right game. So there's a number of arguments why you could have inflation potentially higher in the long run. First of all, you have, of course demographics and immigration that looks quite different now you had very little immigration during the pandemic, and also the demographics also suggesting that we could have a more permanent upward push on inflation. You also have that deglobalization that if there is less globalization

in the future. That's also going to imply that this stuff that we buy and to installs and that we purchase will of course be more expensive. And finally, technology might not be contributing with as much productivity growth as it has not historically. So that is all arguing for that might be some structural pressures, but it is important that the reason why inflation is high at the moment

it is probably also very importantly for cychnical reasons. So yes, as you're saying, John, we need to get down with inflation towards two. But it is certainly a long road we have ahead of us. Do you aggregate your economic analysis or as you mentioned technology, are we now a polarized America, a polarized Denmark, a polarized world of the technology haves and the technology have not. Well, the main implication of that, of course is what an impact has

on inflation. So of course, one very important debate is when you invest, for example, in renewable energy, that's of course very big debate about is that inflation area disinflasionary because all investment, all capic spending, should be disinflationary. So in that sense, there's some very important differences across the Atlanting Ocean. In terms of what is the investment outlook for the US relative to Euros. Capital deepening dominic customer

missour has been very good. And let's the idea that there's some things going on post pandemic, supply side, demand side and all that. But are we seeing a capital deepening that we're I would say it's invisible almost right now. Well, at least we're seeing very significant capital deepening in the interes transition, and that's of course very important because that's ultimately the goal with that is to lower energy prices,

which also really should be disinflationary for inflation. But it's true that this is certainly a very important team also for the long run outlook for inflation. But I still say that in the near term the inflation outlook is mainly driven by the cyclical drivers of inflation, naming the risk that the US economy is overheating. And that's of course the whole reason why they fed is raising rates and except to try to cool things down, and they

haven't really been very successful at cooling things down. They have cooled down the good sector or the interest rate sensitive components of GDP, but that's only about GDP, the service sector, airlines, packed hotels, restaurants, concerts, spawning events, It's all packed everywhere. The Shouter conversation a big pace of

this as well. You mentioned the sequencing. Can you compare and contrast the sequencing you're talking about in America and what you're saying to what you're also seeing developing Europe because we both sent a different story there. Yeah, very that's very important because in Europe you're actually seeing inflasion is still going up, but economic activity is starting to

slow down. In fact, if you look at your Bloomberg screency it will see, of course contentious expects that both Europe and German in particular will be in a recession next year. So the conclusion is, of course that if you have a very different situation in Europe where it's just going to take a little bit longer before you begin to see inflation come down, then it becomes a debate about, well, is it the case that inflation is going to stay higher for longer in the US or

in the U Area and stacks flation in Europe base case. Now, at least today it looks like Europe is facing a lot more head winds than the US, because Europe unfortunately is facing inflasion that's a higher levels. There are some very important issues about that. The composition of inflation in Europe consists more of energy, about two thirds of inflation in Europe's energy and only a third in the US.

So if energy prices once we get to the other side of February two thousand twenty three, once we get to US out of Russia's invasion of Ukraine, the twelve month window will begin to no longer take into account the big spike that we had an enterprise effects can That's exactly when you begin to see European inflation potentially

coming down a lot harder. So that's why the rate space as of a lot of debate of course about bonds attractive at these levels if European inflation is potentially coming down very very quickly once we get into the second quarter of next year. So are you, in summary an optimistic tone for Apollo management? Are you telling them that transactions can be a benefit now? Are you telling them to build cash, to use cash, to keep cash.

Whether the way I look at it is that in March of two thousand twenty the window of opportunity in my view was only open for about two weeks, the window of opportunity were doing things. At the moment, it is probably more like two years, maybe even three. In other words, there's a lot of distress. How you markets, I sent shut down? Capital Markets, I sent you to shut down. And that's where private equa in private capital, of course is playing a very very important role as stabilizer,

stepping in and doing things. Where's the paint? It's the question we've been asking around this table and the price that we're gonna pay for and to basis points of tiening in eight months, is it really just the move on SMPT, moving on ASTAC. Well, unless you know the debate about all his long and variable lacks. I mean, it's still not clear to me personally what the exactly that means. But at this point you still say, okay, well,

where are these long and variable legs? We are now well, depending on how you look at it, but we're at least six nine months into these long and variable lects and we really really haven't seen much impact yet. So absolutely the pain he really here is that if inflation does not come down, the FED will have to go and potentially go a lot more. Do you follow Denmark football? Oh? Absolutely I have. I should have warned my red shirt. It's a great story. I mean, this guy, Christian Ericson

had a heart attack. He's come back and Denmark has whipped France a number of times and one of maybe the most exciting pairing. Such a classy player, and he's one of the best players on team, and he plays so well today. I love him. He's great. I mean, it's just, folks, this is really something. This guy John and I'm not exaggerating. He literally almost died on the field, not at all, that's not an exaggeration. Came very close, and it's great to see him back on the field.

And they're in the bracket with France, who they've already shown they can beat. I mean, it's just that's the one game teach you've got on this. I'm working. I'm working, folks. I've got my cliff notes out. I've been discussing just how much things are going to shut down in Europe on a trading flows and how much market volume is going to roll over going into Christmas. Well, Denmark is being friends on a Saturday. There's a Thanksgiving Saturday and

Williamsburg watching with all my buddies. Is that what you're gonna do. It's a special bar for Denmark. We're going to get serveret toss and this was awesome. Thank you, sir Torsten Slock. They have a polite management. Let's go back to December eighteen. One of the greatest calls in equity market strategy the modern times Benjamin Laidler of HSBC to shut up the bottoms in. He absolutely nailed it

with E Toro Today and their global market strategists. He has published this morning the bottom is in, then, Laidler, is this like Christmas Eve of two thousand eighteen. Yeah, it is. I do think the bottoms in um for a lot of reasons. I think earning to hang in there. I think that sentiments very poor, evaluations are low. We've got wild cards like China improving, and now crucially the inflations fever is sort of beginning to break and that's

giving some visibility on the top of the cycle. That's not enough to get us off on the next boat market, but it's absolutely enough to tell us that the bottom is in. So I think that's a similarity. With the difference is that then it was a v shaped recovery. This I think it's going to be more like a you. But this is absolutely the necessary first step. And you know, we learned a lot of things yesterday. One of them was you've got to be in it to win it, um,

So I do think investors need to be in this market. Ben, What is the character or the human behavior of those loaded in cash? There's a lot of cash out there right now. I have prospectives portfolios of five percent four percent, who are in seven percent cash, et cetera. How all cash respond? Yeah, tough to criticize that. I mean, there's been a historic year for the failure of diversification. You know, basically nothing's worked apart from cash. So I'm sympathetic. But

we're going into the end of the year. Historically the best seasonality of the year. You can pour cold water on that, you know many times, but like, don't think you can this year, after such a historically bad year across all asset classes, there was so much cash on the sidelines and looking forward to a less bad three I think those are the ingredients for Christmas continuing to come early. And then there were some curious moves yesterday

as well. A lot of people picking on say a company called Carvana, which operates an online platform for bank used cars running more than on a CPI print, the show to use car prices absolutely plunging. So Ben, can you help me understand the moves that I should get on the train with and the ones I should avoid. Yeah, I think that's a reflection of evaluation relief, blower bond yields, and just you know, to my just how aggressively underweight

a lot of people are. So you know, when you get the biggest bank to your back, where do you get the most leaveries of stuff that collapse the most? Were evaluations are being under the most pressure. That's why you saw some relief from yesterday. That doesn't mean you should chase it. I still think, you know, this is a market where you want to be invested, but you want to be reasonably defensive. It's gonna be two steps forward,

one step back. I mean, we may have seen the peak for inflation, but I do think it's going to be a it's going to be a bump pieces on march down. Um, so you know, staying those defensives and as we get some more validation that inflation just continues to come down and we get to the top of that red cycle and begin to look to sort of cuts later in twenty three, you just keep adding risk, and risk is probably bigger tech in traditional rate dentatives

like like real estate. I'm not convinced by um the sort of disruptive tech names you know at this point, even though that's what led the rally yesterday. Let's talk about leadership. You touched on it. You're calling the Santa rally two weeks before Thanksgiving, Christmas has come early. Let's build on that the tech names that you do want to own then, and where you're starting to be encouraged by some of the work that's being done by the

c suite. We've seen cuts at places like Meta. We saw a report from the Journal yesterday that Amazon was getting in on the cuss cunning act as well. Where do you want to be? Where do you want to avoid? So I think it's a bit of a barber as

I say, right now, those traditionals are value names. I think they continue to the continue to do well right both on the defensive and sort of healthcare names, but also some of these sort of depressed um some of these depressed banks but I think looking forward, I think next year is gonna be very different to this year. This year was all about um, massive evaluation, de ratings and earning holding reasonably firm. I think next year is

the opposite. I think onlying is gonna come under more pressure and you're gonna get some and you're gonna get some evaluation relief. I think that's a much better environment for for big tech with these dominant market shows, these big margins. He's strong cash for portress balance sheet and evaluations that will already come down a long way. So Ben find a question. Then you're calling for ray cuts

in twenty three, what's behind that call? Right cuts in the end of twenty three, I think just think markets are going to start discounting that you know, reasonably early. I think every inflation lead indicated, there's not a single inflation lead indicator. There's not meaningful office hides at this point across housing, labor markets, car prices, inflation expectation to community prices. I think that's going to continue to move

in our direction through through three. That's gonna take a lot of the pressure off the bread um, and we may get that. I think the question is do we get how quickly do we get those rate cuts. I think we're looking for an extended pause as long as inflation numbers keep drifting down. I think the market is going to start discounting cuts later in three reasonly early.

A better week for Ben later of et Ben. Thank you sir as always, this is a joy and we did not set ourselves up with a massive market move to have in the studios. Also, Lignos Global had of Foreign Exchange Strategy at the Royal Bank of Canada RBC. She attends from Europe, where she is definitive and the linkage of ECB dynamics with the foreign exchange market. Let's start right there, because I've been I've had a real

dearth of euro analysis. What is your call and euro given the last twenty four hours play, so it's a really interesting moment and actually slightly painful for me because I went long You're a dollar a couple of weeks ago, got stopped on a little move lower and now pretty neutral and watching this rally. But I think yesterday's cp I actually gave a lot of people a green light

to do something they wanted to do already. For me, what was striking was listening to our head of spot in Europe and a head of spot in North America ahead of the number, talking about what they were going to do. I've got to say, the difference in opinion between Europe and the US is incredible. Shaped it. People in Europe really think we're near the end, right, and they've been waiting to play that, and this CPI was

kind of hanging over them. I think even if we'd had an inline number, we would have seen people selling US d Is that because the news has been better in Europe relative to expectations? What is it not at all? I think people are just so itching to see the end of this fed hiking cycle. And maybe there's just more doom and gloom. Maybe there's just more pessimism about the state of the U. S economy than I think

you feel here right here in New York City. But it's the difference in opinion between Europe and the US at the moment I think is the biggest I've ever seen. You mentioned earlier you were stopped out, which is jargoning for some people. You set up a trade, you believe in stronger euro it comes back you have to you're forced out of your trade essentially, and you're on the sidelines. How much of the market is on the sidelines for

this week dollar moment exactly? I think there'll be a lot of people in that position, and heading into your end, people who have had an incredibly strong performance on the back of being long dollars are now scrambling thinking okay, do I take it off? I had a lot of

conviction in this trade. A lot of people I spoke to earlier in the week were convinced we go higher in three and I think there's a lot of fomo in the market right now, people whether in the equity market on trying to get how does formal express itself

in for an exchange? I think our viewers and listeners like, really, what our lunch is longer in London when that happens, you know, more than anything, it's the fact that effects is so liquid, you can put on big positions quickly, and I think it might be an easier way for a lot of people to reposition their portfolios. Hence we've seen this interesting when you did that at Clarages a couple of years ago, you were lunch of Clarages, you

put on a sterling trade. How would you reset this morning. So, look, the trade I've been looking at, which I actually really like, is across long euro sterling, so buying the euros selling the pound. Not because I'm from the UK and just very gloomy about our prospects, but I think you've kind of got to strip the dollar out of the equation. And at the moment we still have another CPI print

before the December FOMC. We had a bit of a head fake earlier this year August September cp I. So I've got to be honest, it's a great move if you caught it, and had I been in two weeks ago, I would be writing it now today. I think it's a little harder to buy euro dollar at these levels. I like longer a stuff. So is there a positioning stories that fundamentals on the euro side? He said, it wasn't just pessimism on the sterling side. What is it?

So what I find really interesting is all the investors I speak to, nobody is actually positive on the Euro. People might be bullish euro dollar kers, they're barish on the US dollar, but nobody is positive on the urine. It's not that I think cyclically Europe is looking great a lot of people worry about three and the winter there how we're going to get through with gas inventories. What I think is really interesting is European investors potentially

repatriating money back home. And if we start to see that in size, you could get a lot of euro buying from that domestic shift in assets. Where's the e M trade right now? Where's the opportunity for a number of big figures profit in the e M. Well, you touched on crewed earlier, Tom, and I think we're seeing some really interesting mops and commodity markets and the wait, wait, wait, wait stop. What she's saying there, folks, is she has Heleima Croft to help her out here. Link Elsa and

Helma together and the Helenma Croft oil trade. What do you do in foreign exchange? Exactly? So we really like the Mexican pace. I have liked it all year. Still think that has a bit further to run. Brazil's tricky at the moment, given the finance minister from the World Cup. I mean, Brazil's are real uncertainty in the World Cup, John Roll, Let's do the World Cup right now. The

heartbeat of foreign exchange worldwide. City of London. What on earth is going to happen to volumes in London in a couple of weeks off the cliff, you know, heading into Christmas it always gets a little bit quieter. Imagine how much worse it's going to get. Well, we'll have to wait and see. T K Nuts Dollar Mexico twenty I remember when it was a parameter for American politics nineteen point four three. How many big figures can you

make your strong Mexico? Well, I think what's interesting about Mexico is really the carry that you pick up, and I think that's why a lot of people have bought it. It's not so much the spot move, but it's the fact that you get that very mustive really guild, particularly if we're now pricing in lower yields for the US. I know you've been traveling, but we'd be thrilled to have Yan Dooha for her World Cup covers. I think it is all over it as well. Helma's Oh, here's

a Lina calling right now. Lona Kavassin is down't yeah, you know, we could do an RBC obviously. That is the same with Tina Fordham, founder and geopolitical strategist Fordham global foresight with some serious abilities, including support of the University of Cambridge foreign policy effort. Why is she on it? It's real simple. Tina Fordham wrote a blistering op ed in the Financial Times about the future of America. Tina, you do say, use parenthetically from a removed distance, the

phrase civil war. But what you say is this could be a take no prisoners Congress. What do you mean that a Republican Congress will be take no prisoners? Well, that's me trying to be diplomatic, tom Um. But in in this blistering as you called it, op ed piece for the FT Alphabel, what I really wanted to do was um poke a little bit at um, particularly u S investors complacency about a divided Congress being kind of

reflexively a good thing. We had Elon Musk coming out and saying that, and people resorting to what I consider some pretty sloppy shortcuts in our thinking when the Republic as we know it really faces some serious pressures. Now, my peace came out the day of the mid terms, and since then, um, the less qualified contingent, shall we say, they called this candidate quality in fact in the in the parlance um didn't perform very well, and I think a lot of the those with fire in their bellies

have been somewhat chastened. But we still have a number of underlying indicators in the US support for political violence, you know, the polarization that we've all just sort of got used to that are alarming. But I think that there were some real reasons for optimism coming out to the Air Against the political Air Against led by Tim Keene. As it were a two party system, we have learned in the last couple of days that were a four party system of extremists and two moderate parties. You agree

with that that it's a four party America. Well, our structure is built for a two party system, but within each of those parties we have contingents UM which may come into any kind of agreement on anything extremely difficult on the so called Maga Republicans UM didn't do as well as hoped, but they're still hugely influential. And I suppose what I'm thinking about the most right now, because it's that time of year when we have to do the the year ahead outlook is who's going to run America?

And from where I sit here in London and in Europe. What does that mean for the for the future of the international system? Um, Trump there is less likely to be to return to the White House. I can tell you that people here really breathed a sigh of relief. But the race is wide open, um, and that you know that that is a new variable, I suppose one that we hadn't really got our heads around. Let's turn to the G twenty and talk about the international story

the president with some renewed confidence. Some people might say, after this week, how do you think that's going to play out next week? Well, Biden is entitled I think to have a bit of swagger in his step. I know that's an unfashionable thing to say, but you know, I'm all about providing an analytical framework. Um. You know, the president's party normally gets hammered in mid terms, and

Democrats performed better than anybody thought. Um. Personally, I'm not excited about the fact that we have such an elderly leadership. I think a gerontocracy for a country that's still quite young is worrying. But when Biden goes to to the G twenty, Um, you know Putin is going to to

be there by by a zoom. I think that's remarkable, a remarkable change from a few months ago when we were talking about, you know, with genuine concern whether UM Beijing's announcement in February of a friendship without limits with Russia was going to be a major change to the weights in the international system. UM China is not UM using any of its global political capital to help Russia. Russia finds itself marginalized, and we can when we look

at these kind of big macro dynamic mixed UM. India also has you know, not hesitated to be critical to use its vote at the u N and Saudi which had aligned with Russia, or at least that's how it was perceived at OPEC, UM seems to be trying to

to kind of adjust there. So you know, we're looking at a shift in the planetary weights in the global solar system and a much more marginalized role for for Russia, which has been a spoiler UM really since since the collapse of the Soviet Union, since Putin came to power in two thousand. Briefly, if you can, we understand now it's been confirmed a meeting between the President of the United States and the Chinese leader on Monday ahead of the G twenty. We often talk about deliverables. Are there

any gun into this? I don't think we should expect deliverables. Um, this is a time, you know, I've just talked about some of the tensions in the relationship. Biden goes not as as somebody who you know was um defeated in mid terms, but as someone who I think intends to to run again. Um. He has cloud and the U S and China on climate and particularly it was an area of cooperation. So I think they're gonna want to find a bottom to you know, this relationship, you know,

find a floor, uh, and move on from there. China is not happy about the US cramping its style on on tech, but I think, you know, there's the US has stood its ground in a way that commands more respect on the world stage, particularly after the fiasco, the withdrawal in Afghanistan, right, that was a huge blow. Tina. Thank you, Tina Affordham Global Foresight. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from

seven to ten Ami Eastern. I'm Bloomberg Radio and I'm Bloomberg Television. Each day from six to nine AM for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course, on the terminal. I'm Tom Keene, and this is Bloomberg.