Torsten Slok

This transcript was generated automatically (YouTube auto-captions) and then edited for readability: names and obvious mis-hearings corrected, filler words removed, speaker labels added where the speaker is clear. Passages that could not be understood are marked [unclear]; short omitted passages are marked [...]. Timestamps are approximate. The recording is the authoritative version.

Host 00:00:02

Hello and welcome to another episode of Campus To Capital. Today we're joined by an expert in global macroeconomics, Torsten Slok, chief economist at Apollo Global Management. Apollo is one of the world's largest alternative investment managers, overseeing more than 650 billion US in assets across private equity, credit, and real assets. Welcome, Torsten.

Torsten Slok

Thank you. Thanks for having me.

Konstantin Girst

Yeah, welcome Torsten. So nice to have you on. Thank you so much that we get the chance to speak to you. And I mean, looking at your career, you definitely had a kind of I-can-do-it-all career in the world of economics and finance. I mean, you've been on the buy side and sell side, with being at Merrill Lynch and being at Deutsche Bank, now being at Apollo, but then you also had experience at governmental or intergovernmental organizations such as the OECD or the IMF. So I mean, that is a whole lot of experience from a whole lot of different angles and perspectives, and kind of being able to have that angle and edge from all of these viewpoints in the market. How did this diverse experience shape your analytical framework and the understanding of the global economy?

Torsten Slok

That's a very, very... I think first of all, thank you so much for having me. That's a very, very important question, because when you look at your screen or your Bloomberg screen and see financial markets moving, the first thing you

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ask yourself is, what's going on? And to answer that question you need to have a framework in your mind for what is going on. One answer could be, well, I come with a CAPM asset price model, and asset pricing tells me something about what's going on and why prices might be going up and down. But when I then start to think about different screens, if you think about rates markets, equity markets, FX markets, credit market, well, then suddenly you begin to think about all four markets at the same time. What is going on becomes a very different question, because then it's not only about pricing in one market, it's also about: is it consistent, what I'm seeing on one screen, relative to what I'm seeing on another screen?

And normally we see screens moving around consistently. Developments for example are that when for example US stocks go up, the dollar normally also goes up. So that means investors are taking money into US assets and they're buying the stock market and foreigners participate in that, and the dollar is also going higher. It just happens to be the case that at the moment in financial markets we're seeing things that are very unusual, namely that the stock market is going down and interest rates are going up. That's totally against what you would have expected. Normally when the stock market goes down, someone sells their stocks. They then take the proceeds from that and they begin to buy bonds, because bonds is a safer investment. So bond prices should be going up and interest rates should be going down. But that's not what we're seeing.

So the short answer to your question, Konstantin, is that as financial markets, both at the moment as we're going through

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some bit of turbulence, but also normally, move around, it becomes really, really important to have a framework, basically have some understanding of what are the reasons why markets are trading the way they are. And once you have a better understanding of that, then you can begin to say, is this a good time to buy? Is it a good time to sell? What are the things I want to buy? What is relative value within markets? What's relative value between markets? [...] Because then you're not only an expert in investment grade credit or not only expert in euro dollar, you actually also have a good understanding of what's going on across markets. And that's why, it's just difficult conclusion, but that's why following a little bit of all markets just turns out to be so important, because then you can connect the dots between how different markets are trading and why they're trading the way they're trading.

Host

For sure. I mean, I think the financial markets are an industry where, I mean, it's maybe the most important industry in the world where being informed and having a lot of expertise is absolutely crucial in order to even know what's going on, to understand things and, as you said, to be successful. But then looking at what you're doing today as the chief economist at Apollo, could you maybe give our listeners a brief introduction about what your daily tasks and happenings are?

Torsten Slok

Yep. So as you just mentioned,

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I came from the sell side, with Deutsche Bank for 15 years. The job there is straightforward. On the sell side, you go as a research analyst, and I was a research analyst, or the chief economist at the end. And we went of course to see clients, talk about investing, talk about the macroeconomic backdrop. What will the Federal Reserve do? What will the ECB do? And what is the input to that discussion, where the main inputs of that is of course what's happening with inflation, what's happening with unemployment. And of course, what's the input to those variables are of course what's happening partly politically, but what's happening also with the business cycle, what's happening in the global economy that may push inflation up, what's happening that may push inflation down. And ultimately that brings you to a discussion around, well, what does that then mean from a macro perspective, which is what I've been doing. What does it mean for interest rates? What does it mean for currencies? What does it mean for the stock market? And what does it mean for credit markets?

So that job on the sell side is quite, quote unquote, simple, in the sense that you go and talk to clients about macro, or if you are an equity analyst, you go and talk to clients about specific companies that you cover. When I joined Apollo, now 5 years ago, I still spend roughly half of my time on that, but I also spend another half of my time internally talking to deal teams about what's going on. What is the macroeconomic backdrop for what we're seeing? How does that inform us for thinking about individual businesses? And sometimes the macroeconomic backdrop plays a small role in investment decisions and other times the macroeconomic backdrop plays a big

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role. And given what we've been through for the last 5 years, with inflation first going up and now coming down, and now as we speak significant turbulence because of the trade war, then of course those things become important to discuss. What is not only the economic outlook, but what is also the policy outlook, and what is also the consequences of the different policies that are being implemented, and also whether they might go away and whether they continue. And that creates just a lot of macro overlays to what you could call corporate finance decisions and corporate finance discussions around whether I should be buying new companies.

So the conclusion to your question is, the half of my job that is external is broadly speaking talking about macroeconomics with clients and the media, and the other half of my job that's internal is talking to deal teams, talking to people who have grown up in corporate finance and are looking at models for revenues for companies. What will revenues look like? What will expenditures or costs look like? And then have some discussion around what are the macroeconomic forces that are moving revenues around, what are the macroeconomic forces that are moving costs around. And of course with tariffs being implemented, of course the cost side is going to be impacted. So you try to figure out what are the implications of that, and on the revenue side you may also begin to see some implications. So the macroeconomic overlay is essentially an additional test of making the right decisions when it comes to individual businesses and companies that we are doing on the private

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equity side and the companies that we're investing in on the private credit side.

Host

Yeah, thank you for the insights. And now we want to talk about something that's probably in between those two parts of your job. Because prior to the podcast, we took a look at your economic outlook for 2025, where you described the US economy as sort of firing on all cylinders, with strong GDP growth and resilient labor markets, but despite lingering inflationary pressures and elevated real rates. What structural factors are underpinning this resilience? And also, setting this into a current context, will the imposed tariffs impact this resilience?

Torsten Slok

Yeah. So this is of course very, very important. So if we just back up for a second, for a long, long time it has been the case that the US economy was and is much more resilient, and I do believe that the US economy is more dynamic than the European economy. What does that mean? It basically means three things. It means that in the US, if you for example look at labor markets and product markets, there is just more competition. And more competition means that is easier to fire and hire in the US than it is in Europe. In France, it's difficult to fire and hire workers. In Germany, it's difficult to fire and hire workers. In Denmark, it's actually relatively easy. So, Denmark is an exception with flexicurity. But, broadly speaking, the labor market is more flexible in the US. And that makes it easier

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for businesses to fire and hire workers and therefore to turn around, both to the upside and to the downside. And that makes the US economy more dynamic and generally speaking more resilient. Secondly, goods markets, meaning things that I buy in stores, and also for that matter services, generally is also more competitive in the US at the broadest level. This is also making the US economy more dynamic, just like we have on the labor market. And finally, raising money and capital raising and financial markets are also more developed and bigger in the US than they are in Europe. So that's also making the US more resilient and more dynamic than Europe and, for that matter, any other country in the world.

So with that backdrop, the US of course came into this year very resilient, and we did say actually in the beginning of the year that the probability of recession in the US in 2025 was zero. So a lot of people said, well, is it ever zero? But we had a very strong view that the US economy was in great shape. And after the election, of course, Trump in 2016 did three things: lower taxes, more deregulation, he also did more energy production, which also were tailwinds that were likely to come to the growth outlook in 2025. Now of course, with tariffs and the trade war and the turbulence we're seeing in financial markets at the moment, of course the likelihood of a recession has increased significantly. So that's why now, and I know to your great question, it's only literally a few months ago, but now we have the view that there's 50% chance, or 50/50, whether we get a recession this year, simply because it all now becomes a question of what is the duration of this shock. So

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far, we're now a few weeks into the trade war. It's created a lot of turbulence, of course, in rates markets, in equity markets, in credit markets, and in FX markets. But the conclusion now is that if this shock continues and if these policies stay in place, then, in particular if these policies stay in place as they are for the next four years, there is a significant risk that this will begin to have a negative impact on the economy.

For example, a lot of things that are sold in the US are coming from abroad. Just for example, surveys of sellers on Amazon show that 71% of sellers on Amazon, they source their goods from China. So that means that consumer goods we buy, t-shirts, shirts, ties, toys, other things come from China. Of course, 145% tariff means that that's going to be more expensive and comes with a risk that there will be less sales of that. Another important statistic is that of all imports from China, 40% goes as intermediate goods into production in other companies in the US. So that means that if 60% of imports from China are for consumption, meaning our shoes and shirts and ties is coming from China, that becomes more expensive. But another 40% of imports from China go to production in the US, which also will mean that intermediate goods rising in price means that other goods in production in the US will also rise in price.

So the short answer to your question is, we've gone from being quite optimistic on the US economic outlook. We still think fundamentally the US is a great and dynamic economy, so many OECD studies show that, but we are a bit worried cyclically about if the duration of this shock from

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the trade war continues to persist, then it could have some downside consequences for the economy. And finally, let's not forget, it's not only about quantifying the impact of the trade war. Uncertainties in the outlook is also retaliation. We don't know how the rest of the world will retaliate as we speak. We don't know if other countries are even coming to sit down at the bargaining table with Trump. So that's why retaliation could also have a negative impact. We also have consumer confidence is quite weak. Data from University of Michigan shows consumer confidence today is at the lowest level in decades, lower than what it was in 2008 during the financial crisis. We also have corporate confidence is also weak. Surveys of capex spending among corporates from the Federal Reserve districts show that there's much less optimism about capex spending. You have same surveys for NFIB and the Roundtable also showing capex planning have also been coming down.

Finally, two last things that also weighing on the outlook. Let's not forget we have a negative wealth effect. The stock market as we speak is down $6 trillion. That means that anyone who owns equities may be holding back on buying a new car, holding back on buying a new washer and dryer, holding back on buying a new iPhone. And finally, also let's not forget DOGE is laying off workers in the government, and that's of course also putting upward pressure on unemployment. So sorry, that's a very long answer to your question, but if I look at this list of things, namely tariffs is negative for the outlook, retaliation is a negative risk to the outlook, consumer confidence is a negative risk to the outlook, corporate confidence is a negative risk to the outlook, and the negative wealth effect from the stock market declining is a negative risk, and finally DOGE laying off workers is also

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a negative risk. So in summary, we do worry about the downside risk to the economy over the coming quarters as a result of these headwinds.

Host

I think it's certainly troubling times, right?

Torsten Slok

It is. I mean, let's not forget that the nature of this shock is very different. The nature of this shock is primarily a policy change. So this happens everywhere around the world. Politicians get elected, come in and want to change things. Sometimes that becomes so serious that it does create recessions. Other times things are reversed or they are changed in different directions where it does not generate a recession. It's just a very different shock to the economy, namely trade war in this case, relative to, for example, in 2020 the shock was a healthcare crisis with COVID. In 2008 the shock was a banking crisis.

So a lot of things going into thinking about how long time will this last, and how bad will it get, and what should I do as an investor, really also is about leaning back and asking, what is the nature of why is it that the economy is slowing down as we speak, and how long time might that last? And that becomes very different if the shock is a virus, where we didn't know how long time it would take before we got a vaccine, or if this shock is Lehman Brothers going under, which required a lot of cleaning in the banking sector, in the household sector and in the housing sector. And that cleanup took quite some time in 2008, '09 and '10 before we got out of this. But at the moment, we simply have a trade war crisis that potentially is going to continue for quite some time, or potentially could

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be relieved over the next several weeks if the administration decides to take some of the tariffs down. We just don't know that. That becomes very important. But that is important also as a, back to your first question, the framework of thinking about how long time is this going to take, and should I be buying the S&P 500 today or should I not.

Host

Yeah. So what I can sense from that is that there certainly is some uncertainty in the markets. And being able to navigate in the uncertainty is very important. So in the Bloomberg article, How to Solve the Sherlock Holmes Mystery of the Economy, you're lauded for your data-centric approach, particularly your focus on the reduced sensitivity of the US economy to interest hikes, which then led you to accurately predict continued economic growth when many anticipated a recession. So we were wondering if you could maybe share some lessons with our audience, how young economists can draw something from your approach to data analysis and economic modeling in navigating complex economic landscapes.

Torsten Slok

Yeah. So this is a very important question, because often people come to the banking sector and financial services and they do, and this was also how I entered financial services. I was slightly older when I joined in my first job. But the conclusion is, if you come straight out of school, the best advice I have is to really be curious. And I know it sounds

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like a cliche, but be a lifelong learner. Be open to understanding other areas. Let's say you do leveraged finance, or let's say you do rates trading, or let's say you do, whatever, equity sales. Yes, it's extremely important to understand what you're doing yourself. But it is absolutely also critical for being successful, in my view, that you also have some understanding of what are others doing in the organization. And that does require a lot of homework and a lot of hard work in terms of figuring out not only how are financial services set up, what are the different silos inside different organizations, but also trying to understand how these silos move together with what's going on outside, namely in this case trade war, or what's going on outside when we have other developments, say again with the financial crisis 2008 or COVID coming along.

So that really is the challenge, is that you suddenly sometimes get sucked in just to one area and then you become a super expert in that. But then when you're asked about other parts of your organization or other parts of financial markets, and, oh, I don't follow that, that's not what I should be looking at. And in some cases you might get hit if you don't follow other financial markets. So it's just very work intensive to say you need to follow and understand everything. But I do think that the more curious you are, the more you want to learn and understand what's going on, in particular in the organization you work in, the more successful you will be, because in that case you will be able to get a good understanding of what am I doing relative to what are other people in my organization

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doing.

Host

Definitely. I mean, I could not agree more. I think just like you need to have some general curiosity in order to, I mean, know what's going on, and also to make life interesting, right? And I mean, you are very big on saturating the curiosity of a lot of people that are interested in the financial world or they want to stay up to date with current affairs. I mean, I don't know if it's still active, but I know that you used to have a podcast, and I mean obviously you also have your newsletter, which is called The Daily Spark, presented by Apollo. So to all our listeners, if you haven't done so already, please go and look up Torsten's newsletter. And in that sense I would like to know, where did this interest or passion come from for you, next to working in financial services, to also educate others about what's going on within them?

Torsten Slok

Yeah. So when I joined Bank of America in two [unclear], I was like 32, 33 years old. I had first thought that my career should be in government services. I worked at the IMF. I worked at the OECD in Paris. And then only in 2005 I came to Deutsche Bank. So at that time I was 35. And I mean, my life was not planned to be financial services. It just happened to be that I like the fast pace, and it is a lot of work, and it is very intense, but at the same time it's very stimulating to try to figure out what's

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going on and what will the future bring. Essentially, as a forecaster, you're trying to come up with a forecast, a prediction of where is the economy going and what does that therefore mean for financial markets. So to your good question here, I think a very important backdrop is that, and it sounds like I stumbled into this, it was not a coincidence that I came into this world, but it was simply the case, and therefore a lot of people have different views than I have, or may have the same, but I'm just saying I came from the IMF and the OECD. And no one needs to go to the IMF and the OECD first, but I just came from backgrounds where you are paid to sit and have a job and go and write a report, and you come out after 6 months and say, now I have the answer to something really, really difficult. And then you say, okay, now you're the expert in this little area that you investigated.

And the more time that I spent initially on trying to get a framework for understanding what is it that's going on, the more I use that today in conversations with clients and discussions internally when we talk about what's going on, and why are different institutions like the Federal Reserve, the ECB, financial markets, what's the difference even between [unclear], and understanding how these things have evolved and continue to move is just... And then of course in my world, well, here at Apollo, what's going on in private markets. There's just a lot of different homework to do in different areas, and I just found all this fascinating and exciting. So that's why I've just come to love what I do so much, because it's just such an

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interesting discussion to have every day.

But I will say, maybe as a footnote here to young listeners, I may regret what I'm saying now, but it is very important to not just only sit and do homework. You need to get out there and talk to other people where you have a job. Talk to friends in other industries. Talk to friends that work in the same industry as you, but in other parts of your same world, to listen and understand. So in very, very broad language, it's important to go out and have a beer once in a while and talk to someone and say, "Hey, what are you hearing? What are you seeing?" And try to connect some dots. Otherwise, you get too... This is like doing your homework when you study for exams. I'm sure a lot of you listeners will appreciate this. You're just going completely overwhelmed by, oh my god, I have all these exams and all this stuff that I need to do, and then after that I go out and have a beer and enjoy other friends and other things. But it's important to have a good mix of making sure that you don't just get sucked into, again, the silo or specific corner of the world that you live in, but you actually try to look at that corner of the world you live in from different angles and different perspectives, and connect the dots of what you do with dots of everything else that's happening as good as you can.

Host

Yeah, I mean that's great advice. Thank you very much. So to our listeners, don't get stuck in an echo chamber. Remain broadly informed. Right. And I mean, on that note of your newsletter, you just said that earlier as well, but yesterday, to quote you, you said that consumer confidence is weaker than during the 2008 financial crisis. And I

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think this investor uncertainty is kind of this Damocles sword hanging above the market right now. And I mean, we can see also Apollo shared some insights about this, that the S&P 500's put volumes are nearing record highs. And how does this heightened demand for hedging influence your approach to capital allocation and risk management?

Torsten Slok

Yes, this is very important, because normally we take our economics textbook out and we say, oh, let's focus on inflation, let's focus on unemployment. But at the moment, I mean, it is just not enough to just focus on inflation and unemployment, because there are some things going on that of course have created all this turbulence that ultimately will impact inflation and unemployment. So another way of saying that is that I think of financial markets as a lineup of dominoes. And for us in financial markets, it's about figuring out what is the first domino that I should be looking at, or what are the dominoes that might begin to trouble, that could put upward pressure on inflation. For example, at the moment we have the trade war. Most estimates suggest that inflation over the next 6 months, under the current set of tariffs, will push inflation up by 1%. Most estimates suggest that GDP will go down by 1%. So that means that the move now is the trade war has created the first domino brick that's pushing upward pressure on inflation and downward pressure on GDP.

So if you allow me to share my screen here, I can show you one way of thinking about that, is that if you do have a situation

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where you suddenly see upward pressure on inflation and downside pressure on GDP, then of course what becomes important is to think about the investment implications of that. So this chart here, this is embarrassingly simple, but what I have on the y-axis is inflation and on the x-axis is GDP. And the lines that are crossing through here is the dual mandate from the Federal Reserve. Remember, the Federal Reserve has the mandate from Congress that inflation should be 2%, and, very generally speaking, GDP should be 2%. So where are we at the moment? Well, when you have a trade war and inflation is higher and GDP is lower, you end up in this stagflation camp. And of course in this stagflation camp the risk is that GDP is of course going to weigh on earnings, and therefore S&P might be going down, and interest rates might be going up because inflation is high.

We were for many years, of course, after COVID, we had the problem of being in overheating, where S&P was going up and interest rates were going up because we had too high inflation and we also had high GDP. Of course in the other quadrants here, recession and goldilocks, that's just not where we are right now. But the challenge in the current environment is that if we are in a stagflation environment, then there are just some risks to risky assets, in this case S&P 500, that there could be some more downside coming, and there's also some risk that interest rates could be moving higher. So in summary, we take the inputs from thinking about all the turbulence that's happening and ultimately ask the question, what does that mean for GDP or unemployment, and what does it mean for inflation?

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And if the answer is there's upside risk to inflation, downside risk to GDP, well, then we go to this simple chart here, and of course a lot of other simple frameworks, and think about, okay, but that then has some unfortunate negative consequences for the outlook for the S&P and also for the outlook for interest rates.

Julius Ambrosius

Yeah. Now watching this from a retail investor's perspective, because the next question we prepared is actually kind of funny. When Konsti and I sat down a few weeks ago to brainstorm what we want to include in the podcast, the question initially started with the potential for tariffs and so on and so forth, which sounded timely back then. But ever since, you know, Liberation Day, the pace of development has been wild and it's honestly pretty tough to keep up with the news cycle. So we had to update the question a little bit. So trade policies have always played a significant role in shaping investment landscapes. But looking ahead to the end of 2025, how do you see tariffs and broader trade dynamics influencing investment strategies?

Torsten Slok

Yeah. So that's why the very, very hard part about that question is that this becomes a prediction about what do you think will happen on the tariff front for the next several days or weeks or months ahead. And that's a very, very difficult thing to predict. I will say that

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of course the frequency with which tariffs have been changing just in the last week is quite significant. So my baseline guess and my baseline assumption is that there will be some tariffs in place, and therefore there will be some negative impacts, as we spoke a bit about earlier, in terms of both consumers in the US having to pay higher prices and ultimately of course also on intermediate purchases by companies. But the magnitude of that is very difficult to predict at this point. If we do assume that the April 9, which is the latest set of tariffs we have, are staying in place, then estimates from the Yale Budget Lab, from the Peterson Institute, from the Tax Foundation do show that that is going to have a meaningful negative impact on GDP and a meaningful positive impact on inflation.

So this is exactly a case where the first domino brick, namely figuring out what will happen to tariffs, turns out to be so extremely important. But if you are a hedge fund or an investor and you get that part right, then you will of course be very successful. But that is why the challenge is exactly to figure out what is the answer and what is therefore the guess you're having as an investor, in terms of whether this is going to be short-lasting or whether this is going to be a long-lasting shock. So that gets back to what I spoke about earlier. If this is a short shock and this goes away tomorrow, we will not have a recession. But if it is a long-lasting shock that will last, say, the next three and a half years, then we will likely have a recession. It all depends on the magnitude of the shock and the other things I ran through, namely corporate confidence,

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consumer confidence, the negative wealth effect, retaliation, and again how many layoffs will come from DOGE. So the combination of everything together still make us more worried about the downside risk. But to your question, it is a matter of figuring out how long time are tariffs going to stay in place and at what level.

Host

Yeah, I mean that makes a lot of sense. So maybe shifting a bit to a different topic. In the US the average 401k balance is at around $130,000, the last time I checked. Yet more than half of those assets are already allocated to public equities, often concentrated in the S&P 500. So we were wondering, what risks does this pose for retirees, and how could broader access to private market strategies help address them?

Torsten Slok

Yeah. So very important question, because think about the following. Many people in their 401ks in the US... So just to be sure for all listeners here, 401k is, if you have a job in the US, your retirement savings is basically an individual 401k retirement account that you put some money in, and in most cases your employer also puts some money in. The numbers are normally, it could be 4, 6, 8%. You contribute something, your employer contributes something, and your 401k then grows over time. For every month or every two weeks, depending on how you're paid, where a little bit of money goes in, you end up growing your

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retirement savings. So that makes sense. This is a way of course to save for retirement. But what is so unique to your question about retirement savings in the US is that savings in a 401k of course is something that I will only need in 30, 40 years when I retire. But hold on, why am I holding liquid daily assets in my 401k, such as S&P 500? I don't need to sell the S&P 500 every day in my 401k. If I retire only in 30 years' time, why don't I begin to invest in other assets, including private assets or other things that have less liquidity but have potentially the prospects of giving a higher return, or at least over time. That may or may not be the case going forward. Of course, history is not a guidance for future returns, but just to say that there's not much flexibility, generally speaking, in 401ks in the way that they're constructed. So that's why of course there's debate and evolution at the moment in that area in terms of what are the things people can invest in.

But it is absolutely correct that the vast majority of people probably just take their money and put it into a 401k in the S&P 500 and then have that grow over time. And again, certainly everyone who constructs a portfolio should absolutely consult their financial advisor and think hard about what they are investing in. But it's clear that having it only in the S&P of course comes with the risk that it both can go up and down, and again it comes with this specific feature that it's all daily

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liquid. And that's of course very unique.

Konstantin Girst

I think it's very interesting. I mean, it's going to be exciting to see how this is going to change, and maybe if there's going to be private market investments within the 401k at some point, because I mean also especially in Europe right now we are definitely seeing a trend where private markets are more and more opening up for ordinary retail investors. But now, after talking about the market for a while, I think I would like to actually speak to you about your education. [...] And I think if there's one thing that Denmark and the US have in common is that there is a lot of opportunities for students to pick up during their studies. And I mean, talking about the necessity for a general curiosity earlier, there's just a bunch of things to do. [...] [...] [...] [...] Like, everybody's super engaged with anything. And so maybe reflecting back on your education, and also kind of enjoying this in two different countries, what were the most important lessons and experiences for you outside of the lecture hall during your time at university?

Torsten Slok

Yeah. No. I mean, Copenhagen is a wonderful city to study in, and there are many things to do, including go out and exactly have a beer and have fun. And it is very important that it's not just a

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campus in Copenhagen, because CBS and University of Copenhagen is basically the middle of a city where you can go out and do other things. And that of course gives other opportunities to do other things, including have a job on the side, part-time, as you're saying. So I would say, broadly speaking, keeping an open mind, being curious about what is going on, and reading The Economist every week, and reading, if you can, Financial Times and Wall Street Journal. If you do that every day for a period, you will be totally on top of the topics and what's going on and what people are saying and thinking about. I don't really think, there is no mystery to this. It really is just about doing, quote unquote, your homework. And if you already live and breathe financial markets and the global economy, then this will all come naturally.

[...] You say, "Well, I'm reading this and I get, quote unquote, nothing out of it," or "I'm looking at this or I'm watching Bloomberg and CNBC and I get, quote unquote, nothing out of it." But that's just the way it is. And when you come out in a job, you will not be rewarded every day with someone coming in and say, "Oh, you're doing fantastic." This is just life as it is, as usual, that sometimes you just have to put in the hours and the growth mindset and the grit that's required to just continue plowing ahead. And then when you accumulate more and more knowledge and information about what's going on, then it will become more and more natural

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to use that in your job and in what you're doing. So I would say, I know it sounds again very, very simple, but keep an open mind and be curious about what's going on in the world, and I'm sure everyone on this call or listening here will be wildly successful.

Host

Well, you know, sometimes simplicity works, right? And talking about being informed in this super rapid paced environment that we are in today, especially in the financial markets and in the world of the economy. I mean, a trend that we were looking at is, also because this is interesting for me because I'm very interested in art and this plays a part in this as well, but direct lending and asset-backed finance are regions within the industry that are definitely growing. And if any young people on our podcast right now listening are interested in working in this field, is there maybe an angle that they should look into, maybe a certain skill they should develop or a certain book they should read, in order to be informed and have a kind of good foundation for this industry?

Torsten Slok

Yeah, so I did economics. I have a PhD in economics. And that is of course very different from corporate finance. Over time I have found it to be less different, but it's different skill set. It's different things you learn in school when you go down those two different paths. Although it is actually converging, in my view, more and more. But the answer to your question is, I would spend some time on understanding leveraged finance, and, as you say, asset-backed finance and direct lending, and

00:36:06

for that matter the alternatives world more broadly, because there's just so much innovation that has happened. So that would involve, and I know this also might sound very simple, looking at YouTube videos, partly individual videos that explain what different parts of finance are, in the way that is conducted today. But I think also, very importantly, listen to conferences. If someone from the leveraged finance world or someone from the corporate finance world or the alternatives world, including from Apollo, speaks at a conference, listen to what are people talking about. And despite that this is my job today, I listen to a lot of conferences and hear what's being said, and sometimes I have to watch this twice or three times to make sure that I pick up exactly what this person is saying, what is he or she saying about what trends are going on in the industry.

But following what trends are going on, following what direct lending and, in the broader world, follow what private credit is and what private equity is, because even that is evolving, is actually a very, very important thing to do. Because then when you go and do have your interview with someone in the private credit or private equity world, then you will know and understand what's going on, and you will understand the language, and you will be able to talk about the things that they are doing. [...]

00:37:36

[...] And understanding that and how that's evolving over time is, in my view, a very important skill to have, especially in this current environment. Other than that, in my old world of economics, of course you need to understand what is the dual mandate for the Federal Reserve, you need to understand what is the goal of the ECB, and you absolutely also need to understand who are the people who are the heads of the Fed and the heads of the ECB. And once you've done that, you also need to understand what is the broader issue, in particular in Europe, about the difference in fiscal policy around Europe. Why is it so important that Germany decided to spend 500 billion on infrastructure and unlimited on defense? Why is this viewed in financial markets as a very, very important decision in the last several decades?

So try to put into a broader framework not only the skills, the art of doing and the craft of doing corporate finance, but also try to plug it into the macroeconomic things that we are doing. I may or may not make it sound very simple, and it is not simple at all. It is a lot of work. But just for the conclusion, to say that, do the work of figuring out at least the specific craft of giving financings to companies. That's at least a very important first premise for a good discussion with a future employer, for anyone who's listening here.

Host

Yeah. So for all the listeners out there, we hope that the podcast today is maybe the foundation for your financial literacy, or tuning your financial

00:39:06

literacy. So to maybe round up the very interesting conversation we had today, one last question. So considering the array of risks that we also identified today for the stock market, including potential inflation acceleration, geopolitical challenges and trade war, what strategies would you recommend for, let's say, emerging asset managers to effectively navigate such uncertainties?

Torsten Slok

Yeah. So there's of course various ways to approach that, but I would say two things. Of course the near-term issue is to take your pie chart out, that you're managing, your equities, your credit, your rates, and ask the question: am I exposed to any risk if this continues, and how can I then buy protection against downside risks? How can I protect my capital as well as I can, by trying to buy options in different forms on equities? The simplest way to just buy put options and bet that you're protecting against downside risk to your equities, if you think that there's more downside risk to equities. So I would say first is of course, and this is of course what people are doing, trying to think about your existing portfolio and to protect that as well as you can against the turbulence potentially continuing.

On the other side of that, of course, it's also important to have then a longer horizon and ask the question, okay, what if I think three, five years out, what things are then cheap today? What are the thematic investments I could do, including of course in

00:40:36

private markets, but also thematic investments when it comes to energy transition, to data centers, to climate? What are the opportunities that might actually now be the interesting things to put money into, that have a longer horizon, that therefore also would be themes, things that you could invest in, which is outside the fire, the managing the near-term fire problems that you might have in your portfolio. So I would say have a short-term perspective on managing the portfolio you already have, and having a long-term perspective and saying what are the opportunities that look cheaper now if I think about the trends that are likely to continue once this storm passes and once the turbulence is over.

Host

Great. Yeah, I think thank you for that insight again. And what sums this up quite well is, I mean, I was at the JP Morgan headquarters here in Manhattan this week, and we talked about the consumer uncertainty that all their private bank clients are facing right now. And then they also said, well, if they're really worried, we also just tell them, at the end it's about time in the market and not timing the market. And I think that kind of correlates to what you were saying. And well, thank you so much, Torsten. I think we had a very good... I think we both enjoyed having a more technical session for once as well. I mean, that was new, that was very interesting. And yeah, I think our listeners will be very, very happy with those unique and smart insights you shared with us. So thank you very much.

Torsten Slok

Thank you. Thank you for having me. Bye-bye now.

Host

Yes. Bye. And yeah, to all the listeners, tune in in two weeks. We'll be back, and

00:42:06

if you're bored until then, we have some more episodes to spark your general curiosity. Check them out as well, and give us a rating on the streaming platform you're listening on, and check us out on social media, and then see you in 2 weeks.