00:00No, it is really unusual, but that's because we have two very important tailwinds.
00:03We have, of course, the AI spending boom.
00:05GDP normally grows at two, and now 1% point of growth is coming because of the AI spending boom,
00:10not only on data centers and energy, but also spending on tokens.
00:14Remember, that also goes into GDP, spending on tools for consumers, spending on tools for corporates.
00:19All that spending combined with the wealth effect also coming out of high stock prices
00:23is all very, very important for growth at the moment.
00:26And combining that with the one big riddle of a bill, which the CBO says will add about 0.9
00:30% to GDP,
00:31we have some really, really important non-sensitive to interest rate tailwinds.
00:36And these tailwinds are really the critical reason why the economy continues to do so well.
00:40Are you modeling out a continued 5% nominal GDP,
00:45which clearly within Barry Eichengreen's financialization benefits the halves?
00:51Absolutely. We expect still growth to be strong.
00:54And what's really unique, as you also just spoke about a minute ago,
00:56is that when interest rates are high, it hurts the interest rate sensitive parts of the economy,
01:01which is housing and autos.
01:03So those two sectors are really not doing well with home builders at very low levels at the moment.
01:08And of course, also the auto sector not doing well either,
01:10because people signing leases have to pay more because interest rates are higher.
01:14Mortgage rates during the pandemic were at 2.7.
01:16Now mortgage rates are basically 7.
01:18It has become very expensive to buy a house.
01:20It's become very expensive to buy a car.
01:22Those sectors are not doing well, but those sectors are relatively small
01:25compared to the tailwind from the AI boom and the tailwind also from the one big bill for bills.
01:29So one sentence that's very important here is that this AI thing better work out
01:33because we still need some very significant tailwinds coming from AI
01:36because it is a very critical reason why the economy does so well.
01:40Tom, you know I love to drive up and down the Jersey Shore on my Vespa,
01:43and I always see these thousands, tens of thousands of homes,
01:46usually on the bays, the river, $2 million homes.
01:49They've got a million-dollar boat behind them.
01:51I'm like, who are these people?
01:53And I've come to find they're small business owners.
01:55And you quote in one of your most recent notes, Torsten, from the new book,
02:00The Everywhere Millionaire, it shows that 400 wealthiest Americans on the annual Forbes list,
02:05they hold about $4 trillion in combined wealth.
02:07Pretty impressive.
02:08While the far larger group of private business owners with at least $10 million in net worth,
02:13they hold, get this, $46.7 trillion of worth.
02:19That is the American economy, isn't it?
02:21Yeah, this is really innovative work by two professors,
02:24Owen Cedar at Princeton and Eric Swig at Chicago.
02:26And what they did was they look at de-identified IRS records
02:30and ask, who are the millionaires in the U.S.?
02:33Because there is this general impression, oh, this is tech, this is Wall Street,
02:37that's where all the money is.
02:38But when you actually look at small business owners across the country,
02:41that's where people with 10 plus million, the vast majority are living.
02:45These are people who own restaurants locally across the country,
02:48people who own hardware stores, people who own car dealerships.
02:51This is actually a very, very substantial amount of wealth in these parts of the country,
02:56exactly where those business owners are located.
02:58So exactly to your point, it is indeed very important work that they have done
03:02to exactly look at where is the wealth.
03:04And that becomes important from a consumer's perspective,
03:06namely where is it also consumption is taking place.
03:09Across America today, good morning in the evening of Europe,
03:12good morning in the very far evening of the Pacific Rim,
03:16Torsten Schlack with his Apollo Global Management.
03:19Torsten, I want you to speak to the moment at hand,
03:23this worry, that worry, that worry.
03:25I'm going to suggest institutions, maybe you've missed it,
03:28or retails, just fear of missing out and on board.
03:31What's the measurement of fear of missing out right now in the institutional community?
03:36Well, I think that the AI story has been driving so much,
03:40not only in the GDP that we just talked about,
03:42but the AI story has also driven so much of returns in the S&P 500 over the last five
03:47years.
03:47So that means if I have my 60-40 portfolio,
03:50my equities are basically 10 biggest stocks, make up 40% of the S&P 500.
03:54That's basically one factor, namely AI.
03:56If I now look at the 40th part of my portfolio, which is fixed income,
04:00hyperscalers are issuing a lot more investment-grade credit debt.
04:03So therefore, in public credit, you also have AI playing a bigger role.
04:06And by the way, if I also have venture capital in my portfolio,
04:09venture capital used to be pharma, biotech, prescription drugs.
04:13Now, 87% of venture capital is also AI.
04:16So across the board for investors in retail, households, institutions,
04:21summer and wealth funds, the conversation I'm having everywhere is the same.
04:24Namely, there's one thing that we have learned in finance in the last 10, 15 years.
04:28It's factor investing.
04:29Namely, you should not be exposed to just one factor.
04:32And we are waking up now in 2026,
04:34and we are basically all of us overexposed to AI,
04:37in particular in the 60-40 or the broader household portfolio.
04:41And that means that if we need to change anything,
04:44it's rebalancing away from just being exposed to that thing.
04:47So yes, AI has done a lot of incredible things.
04:50There's also still a lot of questions around the speed with which it's being deployed,
04:53and it's beginning to show up in returns.
04:55But the bottom line is, as I said earlier,
04:57this AI thing better work out because it is now not only about what's going on in GDP,
05:01but it's also driven returns so substantially
05:03because it's had such a high concentration in portfolios.
05:07Given what you just said, I'm screaming here,
05:09oh my God, I have to diversify my portfolio.
05:12How would I do that?
05:13What are the ways to diversify away from AI?
05:15The answer is simple.
05:16Non-AI.
05:17Yeah.
05:18How do I do that?
05:18Okay, so what's non-AI?
05:19Well, let's try to think holistically.
05:21I'm buying commodities, I think.
05:21I'm buying pork belly.
05:23Absolutely.
05:24The challenges in the Middle East argue for risks still to the upside for other prices.
05:27So commodities, oil, refineries is one way of looking at it.
05:30Of course, other ways of looking at this is really to think more about growth versus value
05:34because a lot of the AI is obviously growth.
05:37But value is, of course, investing in companies that actually have earnings.
05:40So that's growth in private credit, in private equity.
05:44That's growth, of course, also in broad.
05:46And all those things, of course, are absolute diversifiers away from AI.
05:50Inaudible with Torsten Slack, which we can do with his experience of his continental Europe.
05:55So the headline came out here today, France-German spread hit 100 beeps, which is a milestone.
06:02It's like that 10,000 as well.
06:04The tension into the autumn of a fractured Germany with a Saxony vote, with Paris and France basically turned upside
06:14down from what I can tell.
06:16When you're talking to Apollo management and Apollo clients, what is it of the political stability forward you see in
06:24Europe?
06:24Well, I was just in Europe two weeks ago, and obviously the German election did get a lot of attention.
06:30And the issue also for us in financial markets is that this also, of course, is beginning to have some
06:36impacts,
06:36maybe even who the next ECB president might be, who the next chief economist that the ECB might be.
06:41So even from a policymaking perspective, there are some very important decisions that need to be made in terms of
06:46how does Europe deal with China?
06:49How do they deal with the fact that they have fiscal problems, especially in France?
06:53And these are very challenging times.
06:55And, of course, that's why the answer to your question is they do not have clear answers to these issues
07:00yet.
07:00And that's what we in markets either have to make our guesses on or just watch this as this unfolds.
07:06You're hardwired, glass half full.
07:08It's one of your charms coming out of Europe, which is mostly a glass half empty continent.
07:14I want you to explain to the gloom crew what they're getting wrong right now.
07:18Once again, Paul, wouldn't you agree with me?
07:20It's been gloom, gloom, gloom, and, you know, I'm 2% from high SPX.
07:25Talk to the gloom crew right now.
07:27So the boom case for Europe, despite all the headwinds that we're talking about here politically, is challenging.
07:33And, of course, also the challenging things we have with government debt.
07:36The one thing that they do have going for them is, in particular, defense spending and infrastructure spending.
07:42So governments across the continent are spending a significant amount of money on boosting their economies.
07:47So now this becomes a discussion around, well, there's some private sector issues that are still doing actually okay.
07:53But it's very clear that a lot of the growth that's coming over the next several years is because of
07:57the increase in defense spending and because of the increase in infrastructure spending.
08:01So that's the boom that we should be anticipating, namely that Europe should still be doing well.
08:06Are they doing anything on AI?
08:08The answer is not much.
08:10Not much.
08:11And let's just talk about it this way.
08:12The U.S. is the AI producer.
08:14Yep.
08:14And the rest of the world, including the U.S., is the AI adopter.
08:18And that becomes important because you may be the producer, especially if the models become commoditized.
08:22But really it's about who is most smart at having, in our language, Tom, capital and labor work together.
08:28Because if capital and labor work together, you also therefore get more productivity gains and total factors.
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