The resilience of the US economy has a pride sum, and it comes as the economic and financial gap with Europe continues to widen. Now GDP growth and productivity levels are now much further ahead in the US, something which my next guest says is a once in a generation phenomenon. Well, Daniel Pinto is the chairman and chief executive of Stanhope Capital and asset management firm. He started in two thousand and four with more than forty one billion dollars of
assets under management. So Daniel, as always thank you so much for joining us and welcome back to the pulse. When you look at what you're expecting from the Fed, I mean it's a little bit of an outlier call. You're expecting the Fed to cut quicker than the market is pricing. Would they cut because there's a slowdown or because of inflation is under control?
My first comment for Seeinge is that who would have said that watching central bankers would have become as exciting as watching Gothrilla. We listen to each and every word. Look, my sense is that the US economy is slowing down. It's still doing okay, but it is slowing down. Let's remember that the market was expecting two point five percent GDP growth for Q one, it came out at one point six percent, So it is slowing down. You have pmis coming down, which is a short sign that there
is a slowdown. You have unemployment picking up a bit, still very low, but picking up a bit, and two more things which in my view are very important. The first one is that saving rates in America have collapsed. Post COVID. Americans had plenty of savings and that sustained
the economy for the last two years. Right now they have three point five percent of savings, which is the lowest point in the last ten or fifteen years, which basically means that you no longer have this buffer in the form of the domestic consumer to support economy growth in the next few months. And I think the FED knows that, and the FED will cut rate in my opinion September probably twice.
So Daniel, we allspoke to Jamie Damond yesterday and he was saying, look, it's the market makes it a give up, that we have a slowdown, that is a soft landing, and that's not given. But is there the worst case scenarios that inflation actually stays up and that these indicators come down. So what does the FED choose then, and what kind of economy are we left with.
I think the FED will be under pressure for another reason, which is that, let's remember that a year ago we
had a banking crisis in the US. We are not hearing anything about it anymore, but you have dozens of small regional banks in America that are exposed to real estate, writing our loans, and the longer for the higher, for longer a phenomenon is having a direct impact on this second tier of the banking sector in America, and I think that the FED will in addition to the slowdown that I described, the FED will very much be aware that if they keep raised at this high level, they
may have another banking crisis on their hands, which obviously they would like to avoid.
There's also a question of why the fact is not pushing back against some of the market exuberants that we've seen. Do you see this as being problematic.
I don't think it is problematic. I mean, there is some exuberants in the market, but I don't think that we are in bubble territory. If you look at stocks in America, they are trading on multiples of about twenty times, which is higher than the average. But if you streep out the technology sector of the Magnificent seven, the valuation levels in the US are in line with the average of the last twenty five years. You don't have a bubble in the equity market in the US.
I don't believe so, Daniel. I know. There are some charts actually that you look at, which we love showing because it gives us a glimpse into kind of what kind of template you look at to look at growth and valuations. There's a mismatch between the US and Europe. I mean, if you're expecting, actually the US to slow down significant, not significantly, but enough to pull forward expectations of a count where do you see the biggest play do you get into European stocks?
So European stocks cheap at the moment as compared to the US. In fact, you are at the point where the discount between Europe and the US is at its highest in the last probably twenty years. You basically have a thirty five percent discount between the valuation of European
stocks and the valuation of US stocks. It makes certain segments of the European equity markets attractive, and it could be, and we've seen that in the last few months that for a short period of time European equities could outperform the US. But for any long term investor, I would recommend having the majority of their exposure to US stocks for reasons that have to do both with the US economy that has decaupled from the European economy and as a result as well of market dynamics which are much
better in the US than in Europe. So short term, yes, European equity is attractive. Long term, I think investors should keep the vast majority of their equity exposure into the US.
I mean this, and this is actually the chart of the day that we're just showing, one of the charts that you're looking at. I mean, does this explain why certain companies, I mean we're talking with actually chief executive of Total Energy just on Tuesday, but other companies would look at a listing in the US and does that even make sense for big European companies.
They would, and it should worry a lot of politicians in Europe when you hear Total Energy, which is kind of a national champion for France, saying we would like to move to list in the US. It is a shock when you hear a shell saying the same thing. It is a shock. And the reason why they are saying that is very simple. The capital markets in the US are so much deeper that they get better valuations.
You cannot blame them for saying, I'm working for my shareholders and with shaholders in mind, our interests is to list in the US. And the reason why the capital markets are so much deeper is that they have a pension system the drive savings into the real economy, whereas in Europe, in most countries, we have a pension system that is still public and is not driving savings into the productive economy. And that's a major issue. Just take
the case of the UK. Twenty five years ago, pension funds in the UK were investing forty five percent of their portfolios into UK equities. Now it is four percent five percent, and that has a massive impact on appetite for equities overall and therefore valuations. And that is something that the CEOs across the UK and across Europe have in mind.
I mean, what should be the priorities of politicians and policy makers in Europe to be more competitive and keep the good companies here.
So most of the savings in Europe are in the hands of insurance companies and pension funds, and right now this capital is locked up and able to deploy itself in private equity, public equities, et cetera. That's a major difference with what's going on in the US. And I think it is happening not just as valuations, but the capacity of these company is to invest, and that's really not just in economic issues, a political issue as well. So I think the priority for politicians right now should
be to address this very issue. Make sure that insurance companies have more leeway to invest in you know, private equity and public equity. Make sure that pension funds are not just focused on investing in bonds which are not necessarily helping the economy at large, but investing more in smaller n kepped companies and in large companies. That should be the priority.
Yeah, it's not easy because it goes really to the heart of risk taking. But talk to me a little bit about what you're seeing the pipeline. Are there more IPOs or is there more mina deal? Is it waking up?
So clearly after eighteen months two years of a pretty much just stand still in the IPO market, sleeping bin absolutely and private equity funds not doing much. Frankly, what you see now is private equally funds being very keen to deploy more and sellers more open to selling. So you'll see deal flow picking up, which is great news. The IPO market is slowly opening up, more in the US than in Europe. I was supposed to see that the Chinese company Shine is contemplating doing an IPO in
London as opposed to the US. It's a good sign, but sadly we have to do notted on deal and we need to do much much more to make London more attractive. But clearly the trend is going in the right direction in terms of IPOs and deals.
I mean, does it make a difference who comes into power in terms of businesses right now or.
Do you see both parties in the UK?
In the UK pretty much in the middle.
I think the two sides want to reform London and the city in general. The question is, well, they've been talking about it for a while, not much has happened. The question is that any new government, probably from Labor, would actually implement the reforms that are absolutely necessary. I hope they will if they seem to be more market friendly than people expected. Let's see what do.
You do with gold right now? So it's a play against everything, but it's also I guess, you know, there's movements maybe from other countries to such treasures and by.
Gold, So there is something structural happening in the gold market. But beyond the gold market, in trade in general and currencies in general. You've seen the price of gold going up dramatically over the last I would say twelve months as a result of central banks buying more and more gold. And the biggest buyers of gold have been probably the Chinese.
And the reason why they are buying more gold is that they don't want to be in the position of the Russian Central Bank, which given what was going on in Ukraine, ended up being sanctioned and ended up having their reserves frozen by the US. The Chinese have trillions of reserves. The last thing they want is to, you know, here one morning that the Federal Reserve decided to block this money, so they buy more and more gold. The Indian Central Bank is doing the same and that is
what's sustaining the gold market. Beyond that, I think we should read behind, you know, the rise of gold, an increasing riek of currency walls, and an increasing rieks of trade wars. Tariffs, that would be my biggest concern for the next twelve eighteen months. You had President Biden announcing last week very high tariffs on electric vehicles, hundred percent tariffs, tariffs on microschips made in China, and then you heard Trump basically saying we one hundred percent is not enough,
it should be two hundred percent. So that rhetoric is giving you the direction of travel. Direction of travel is more and more trade tension and trade time and tariffs are a very very bad thing for everyone. We should be very careful about.
That and possibly inflationary. Daniel, thank you so much as always for joining. Is Staniel Pinto there the Chairman and chief executive of Stanhope Capital