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00:00Jim Zalto, the president of Apollo Global Management. Jim, good morning.
00:03Good morning, Jonathan.
00:03And happy birthday, sir. It's good to see you.
00:05Thank you very much. I appreciate it. Great day so far.
00:06We won't spend too much time on the Federal Reserve, but I do want your reaction to this journal piece overnight.
00:11Well, I think that the president's already won. It's a great distraction of headlines.
00:16I personally don't think he's going to name anybody too early because right now he's in the catbird seat of blaming without accountability,
00:26which is classic Trump playbook. So I think the fact that we're talking about it is interesting.
00:31It's a great diversion from the reality. I think he does. There's no doubt he wants rates lower.
00:36That's what's part of his plan for many, many years. And that's how he doesn't like to pay debt.
00:40And he likes to pay low coupons on it. But the fact that, you know, I just don't think that if you're Trump right now
00:46and you take his playbook, he'll make this a conversation.
00:50But I don't suspect he's going to do anything premature because he's able to put blame on the current resident of the Fed.
00:58And he likes to be in that position.
01:00In your words, blaming with accountability, without accountability, is there something you think he should be accountable for?
01:06Well, certainly, I think if you think about what's going on in the last three or four months,
01:10the issues of tariffs, it feels like that's a little bit on the sidelines right now.
01:15I know we haven't resolved it, but the marketplace has absorbed the idea of a 10 percent plus or minus tariff,
01:21maybe a little bit higher. But to Trump's benefit and the administration's benefit,
01:26the market has absorbed that and moved on.
01:28The issues about the Middle East and all the challenges of foreign policy,
01:33there was a lot of action last 10 days ago and a week and a half ago.
01:36And now that has been sort of absorbed in the marketplace.
01:40The big elephant in the room is still our deficit issue.
01:43You guys have talked about it quite a bit.
01:46It's obviously the topic of appropriate conversation.
01:50And so I think that is an important topic that still remains.
01:53But, you know, we talked earlier this year about the decline of U.S. exceptionalism.
02:00I think Mark Twain was right, that my death is a bit premature.
02:05And certainly the market has moved on.
02:07So I think the tariffs are a little bit off on the side.
02:10The foreign policy issues are a little bit off the side right now.
02:13The deficit issue is a real issue.
02:16We could talk a little bit about what's going on with the dollar.
02:18I personally think what's going on with the dollar.
02:21I think there was a lot of investors around the globe that invested in U.S. assets,
02:25and they made money both ways, on the currency and on the underlying assets for almost 10 years.
02:31And they turned around and they found themselves really unhedged.
02:33And I think you're going to see some pretty good numbers out of the big banks this quarter
02:37because investors around the globe have been rushing to hedge their dollar exposure.
02:43But I think it's a 10-year catch-up that people just didn't hedge their portfolios in massive scale.
02:50So I don't look at this dollar decline as not – I look at it as more of a technical factor
02:56than a long, long-run impact on the health of the U.S. economy.
02:59There's a lot to unpack there, including the breakout of the hedging profits at some of the big banks,
03:04which we'll all be now looking for.
03:06To build on what John is asking about, is the Fed on the brink – I don't want to say of a policy error,
03:11but of being too late kind of to build on what President Trump is accusing him?
03:14Because you are seeing the weakening in the dollar accompanied by the biggest negativity,
03:20the biggest increase in downside economic surprises that we've seen in a year.
03:25If you look at the Bloomberg page on rates of the G7 economies, other than the U.K.,
03:32we're the outlier in terms of where our 10-year yields are and our yield curve is.
03:37You know, I sit in my seat and I see a variety of inputs that some tell me the economy is slowing down a little bit with consumers.
03:47Some tell me inflation is still a little bit more represented in the economy.
03:53We see inflation around 3%, 3, 3.5%, and I don't think it's obvious that the Fed should be cutting right now.
04:01I think it is a very legitimate question to be asking what's the trajectory of the Fed activity.
04:08And so I don't think it's a slam-dunk decision.
04:11I know the market, the futures would tell you three cuts in the next – the rest of the year, three, 3.5 cuts.
04:17You know, Tors and I are a bit skeptical on that.
04:19We see what's going on, and I think there's maybe one cut.
04:23Your basic question, is the Fed conversation a really important one right now?
04:27It is.
04:29I have a view that rates are going to be a little bit stickier and higher in the U.S. than people think.
04:34We've had that view for quite some time.
04:37But so it is a good question for the administration to have right now.
04:41But I'm not sure that's the primary question for the market.
04:44One of the reasons why people keep asking this question is,
04:47would the Fed be considering cutting for the right reasons or the wrong reasons?
04:50The right reasons being disinflation, which you reject.
04:53But the wrong reasons being because we are seeing a weakening in the labor market,
04:56as we see as the increase in jobless claims.
04:58What's your sense of that based on what you've seen with portfolio companies,
05:02what you've seen with your investments?
05:03Is that valid?
05:04Yes.
05:04I think long-term, you can't argue with the long-term deflationary impact of technology and AI.
05:13That is out there.
05:15Now, whether that's 6, 12, 18, 24 months,
05:18there's a massive deflationary impact from that activity.
05:22I just don't think it's on the center of the plate right now in the markets.
05:26It's out there.
05:28And I think that you're fighting with short-term still supply interruptions,
05:34hiring interruptions, and some short-term challenges that are inflationary
05:38versus a long-term backdrop of deflationary trends because of AI around the globe.
05:45I think that's sort of the center of conversation.
05:47When I'm back here in 2026 and 2027, I think rates will probably be a bit lower because of the technology impact.
05:56But I think in the next six to nine months, I don't think rates are going to be dramatically lower.
06:01If you'd taken six months off and came back to work and looked where the market was,
06:04I don't think you'd have a clue what I think had happened here.
06:06Equity's close to all-time highs.
06:08Credit spreads are very tight.
06:09It's not a market that's screaming out for rate cuts.
06:11From your standpoint at Apollo, when you look at valuation, underwriting,
06:16any red flags getting your attention at all at the moment?
06:20You know, the economy is amazingly resilient in the U.S.
06:23When I was here three or four months ago, there was concern hand-wringing about the trajectory of the economy.
06:29There was hand-wringing about non-U.S. investors, global investors investing in the U.S.
06:34I've been all around the world the last 12 weeks.
06:37American exceptionalism is front and center or back.
06:39You talk about where valuations are and levels of equities and rates, they're back.
06:47Global investors want to invest in the U.S.
06:50They made a lot of noise.
06:51They thought they were going to diversify themselves away,
06:54and they realized the breadth and depth and the strength of the U.S. economy
06:58and the scale of what they need to invest.
07:01And the U.S. is the primary place to invest.
07:05It still is.
07:06So, you know, insurance, I was in Europe a few weeks ago.
07:08I was with your folks.
07:09I want to talk about that.
07:10Amazing things going on in Germany right now.
07:12The reality is public markets are the narrative, but private capital drives the economy.
07:18And we're seeing it.
07:19We've been amazingly active.
07:21ED&F last week, Automatica, what's going on in a variety of financing.
07:26So it's been a very, very busy time, but I'm not seeing any red flags going off.
07:31And I really, I want to make sure we talk today about this concern about the private capital,
07:36private credit bubble versus just an economic cycle.
07:40We're due for a credit cycle, but that does not mean it's a bubble.
07:44And private capital is playing a bigger and bigger role.
07:47Look what we did last week for ED&F in the U.K. and Germany.
07:50Four and a half billion dollars sterling, private capital financing, long duration debt
07:55to finish out their nuclear power plant build.
07:57Really, really important that we're playing that role.
08:00We'll sit in Europe.
08:01Let's just stay there off the back of your travels.
08:03So you mentioned ED&F, big sterling transaction.
08:05Yeah.
08:05Also a big target from you and the team to invest, what is it, 100 billion in Germany over the
08:09next decade or so?
08:10Yeah.
08:10If you're leadership in Germany right now, your goal is to get a 4 trillion economy to
08:14a 6 trillion economy.
08:15And you are, I was with the administration.
08:18You can talk to MERS.
08:20You know, they really are embracing the role of private capital along with government spending
08:25over the next five or 10 years.
08:26They've been so dependent on the banking system in Europe for such a long time.
08:31Can they get away from that?
08:32Because I feel like I've been talking about this for more than a decade.
08:34Well, I think the evidence is here.
08:36If you look at the last 24 months and what's going on with the leading Italian banks, look
08:40what's going on with HSBC.
08:42You know, look what's going on with Barclays and Deutsche Bank.
08:44They're operating in a much different capital regime with a focus on shareholder value, with
08:51a focus on ROE.
08:52And they're really, you know, not taking all the policy lending on their balance sheet like
08:58they had in the past.
08:59So they're actually operating the right way.
09:01What you didn't really see before is the government really embracing in Germany, in France, in the
09:08UK, they want private capital to be part of the solution because they know the government
09:13balance sheets cannot do all that's needed in terms of the massive capex of transmission
09:19line, of transportation, of AI, of data centers.
09:23They know they're behind.
09:24So if anything, this administration in the U.S., the memo they sent out about what's
09:30going on in the U.S. and Europe stepping forward, European leadership has taken notice.
09:36Let there be no doubt.
09:37I go to Europe three, four times a year.
09:40I've never been so embraced as we were three weeks ago in Germany and France about the role
09:46of private capital in this build out.
09:47How much is that driven by this U.S. administration?
09:50A lot.
09:51I mean, it's clear that they know that the European leadership has, even if you look this
09:58morning, about how they're stepping up on defense spending with NATO.
10:02So I think, you know, when I think about the globe right now, again, tariffs are a little
10:07bit off on the sidelines.
10:08They're part of the conversation.
10:10It's a question of how much, not if or when.
10:13And I do think they feel like there's a responsibility that they have for their citizens because when you
10:18look at the last 15 years and where the U.S. has grown versus Europe growth, it's startling.
10:24You know, when I got out of college a few decades ago, it was all about Japan.
10:29Japan was going to take over the world.
10:30It was all about Germany, industrial, taking over the world.
10:33That did not come to play.
10:35And I know they have a lot of catching up to do.
10:37And I just think it's a very, very popular.
10:39Now, you know, if you watch, if you listen, if you read the draggy letter and what he put
10:44forth 18 months ago now, if they followed all 156 pages in great detail, it would be a
10:52watershed economic opportunity.
10:54And I think parts of that will come forth.
10:57But they're already making moves on securitization, other activities.
11:01And to Jonathan's point, the European banks are a bit behind the U.S. in terms of the
11:07fundamental focus on ROE and shareholder return and capital efficiency.
11:13But I think they're, I don't want to say they're catching up, but they're getting in line,
11:16clearly.
11:17And equity investors have taken notice.
11:19You've talked about macro paralysis in the past.
11:22I don't see any sign of paralysis when I look at, say, high yield issuance, when I look
11:26at activity.
11:27Do you see paralysis at all?
11:29I don't.
11:29And back to this last topic, I mean, as you point out, at least pointed out, the two big
11:35topics that they need to really deal with right now is the tariffs on July 9th and the
11:39big, beautiful bill.
11:40But we're not talking about that this morning.
11:41We're talking about a Fed chairman in nine months.
11:45And I look at everything through what this president has been in the past.
11:49As a real estate developer, it's all about location, location, location.
11:53The Fed pick will be about loyalty, loyalty, loyalty.
11:56Let's not get confused.
11:57There isn't paralysis in the market.
12:01As I mentioned before, the public markets are the narrative.
12:04The private capital is really the driver of the economy.
12:06A lot of activity going on in the U.S. on refinancing, in Europe, on the global industrial
12:13renaissance.
12:14So we are on pace to have our busiest quarter in origination we've had in a number of years,
12:21a tremendous amount of activity across our equity platform, our infrastructure platform,
12:26our credit platform.
12:27So I do think there was a lot of hand-wringing, as I said, six, eight, six or three, four months ago.
12:33And I think that's now on the sidelines, maybe not on the narrative, but certainly on activity.
12:37Is that activity in lieu of some of the deals activity that we were expecting?
12:41Was it sort of expected to be the deals and the IPOs and the big boom for the banks?
12:45And instead, it's Apollo coming in and doing a lot of financing deals in the back?
12:49Well, I think beginning of the year, people projected that the busiest folks on Wall Street
12:54would have been the ECM equity capital markets teams and the M&A teams.
12:59And while they've both been busy, the busiest folks have been the rate hedging and derivatives teams
13:05because of what's gone on in the dollar and concern about tariffs and such.
13:09But it's an interesting backdrop.
13:11Even listening to your program this morning, the fundamental economy is doing fine.
13:16It's doing well, maybe not to the growth expectations that people had earlier this year,
13:20and will come out somewhere around a 2% growth with about 3% inflation.
13:25But whether it was NVIDIA, whether it was Micron, a lot of CapEx still going.
13:30A lot of companies in the AI space raising tremendous amounts of capital at high valuations
13:36with a long list of investors coming in.
13:39And the activity, as I said earlier, what's going on in Europe right now about that industrial renaissance,
13:44it's still going on.
13:46So, again, I think there's the headlines, and then there's the reality of the underlying economy
13:50and the role of private capital, which is a much, much bigger, longer-term story.
13:55How do you think you're going to decipher the reality versus the headlines when it comes to New York City?
14:00You have a huge company here in New York,
14:01and a lot of people are concerned about a democratic socialist becoming the mayor of the city.
14:05You know, it's probably one of the most complicated jobs in the world on the political stage
14:09in terms of bringing a variety of the five boroughs together, the business, the community, the unions,
14:17all the folks that make New York the special place it is.
14:21As I've mentioned before, three out of every hundred college graduates a year come to New York in the U.S.
14:26It's still the magnet of talent and ambition.
14:29So when you see somebody that, on the surface, does not appear to have a long resume of leadership
14:38and making tough decisions, really concerning.
14:41And I think that we'll see now, just winning the primary while in the past it might have been the litmus test
14:47for being the mayor, I think there's still a long time coming until November.
14:51Build out the office in Florida.
14:52Is that what you're hearing?
14:53That's a good answer.
14:55It was the most diplomatic response ever.
14:57We are a New York company.
15:01There we go.
15:02We are determined to be here.
15:04I'm determined to be here.
15:05Our leadership's determined to be here.
15:07We have people in the office five days a week.
15:10He's running.
15:11You know, it's...
15:12No, I'm not running for mayor.
15:13It's on the gym.
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