Hello, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg led across asset reporter with Bloomberg. This week on the show Well life comes out you fast, sometimes not too long ago, this week's guests was one of the economists arguing for a so called no landing in the economy. In other words, the FED would be able to vanquish the inflation problem and the economy would be able to keep humming along. Then in the blink of an eye, Silicon Valley Bank failed, becoming the second biggest bank failure in US history, and the whole outlook changed. Now he's in the camp that believes we'll see a hard landing. In other words, the US economy won't be able to avoid a recession. We'll get into exactly what this prominent economist sees coming and why his look changed so quickly, But they'll do first. I have to ask, are you a fan of March madness? No? I only watch football. You want so you're not doing the brackets? No, I know we have a Bloomberg terminal brackets. I haven't even looked at it. You're the best person to do the brackets though then, because why because of all the tallies, ton European ples, all that you could just take the lower number in each one. People like me who've seen, like you know, ten of these teams play are our opinions are completely polluted by the ten games we saw this year. I can't even name ten teams. Just pick the lower number, Seed. I'm curious you do that all the way time. Let's do it. Do I win anything, I'll give you a dollar deal which is enough to buy the UK operations of spdety Oh my god, no, I would need like a dollar thirty years. I don't know what it's trading. I made that up. But I do want to bring our guest, and I'm so happy to have him. It's Torsten Slock, chief economists at Apollo Global Management. Torsten, thank you so much for coming in and joining us on the podcast. Well, thanks for having me. So maybe we can start with what Mike was just talking about. Because you write daily notes, they're extremely prominent on Wall Street, I would say, I know on Bloomberg TV everybody was talking about your note from this week where you were talking about when the facts change, my view changes so can we just take this as can you talk about that view changing as a way to explain what exactly happened over the last couple of days and why your view has changed. Yeah. So, as Mike was saying, up until here this weekend, the situation was very clear that the FED had been raising rates because inflation was too high. As a result of that, the interest rate sensitive components of GDP had responded, meaning housing had started to slow down. The auto sector has started to slowdown because they were sensitive and they are sensitive to interest rates going up. And durable goods more broadly, meaning everything you buy, furniture, washers, dry us, everything that requires financing was responding by slowing down. And the problem for the Fed was that those components of GDP that are interest rates, sins it's only make up twenty percent of the economy. The eighty percent of the economy that services was actually still doing fine. So people were still traveling on airplanes, still going to restaurants, still staying at hotels, going to theme parks, concerts, spawning events across the board. The consumer services sector was still doing really well. So the debate up until recently was that, well, why is the economy not slowing down When the Fed is raising rates, why is it that the consumer is still doing so well? And a very important answer that was that, well, there was still a lot of savings left across the income distribution. That households still had plenty of savings left after the pandemic, either because they saved it because they didn't travel and go to restaurants during the pandemic, or because they had received transfers from the government, or simply because that they didn't spend as much money as their income. Over the last several quarters and up until recently, the debate was why is this economy not slowing down? And that's what we call that what you want, but that's what we have called the no landing. The economy was just not slowing down, and that was the reason why inflation continued to be in the range of five six seven percent. That's why the Fed had to raise rates. And if I on my Bloomberg screen type t a YL and look at the tailor rule, which would tell you what should the FED funds rate be as a function of on employment and inflation, it would say that the Fed funds rate should be as high as nine or ten percent. So up until recently, everything was fine. The economy was doing well. The FIT was gradually trying to slow things down. They weren't succeeding as much as they would like, but it was just humming nicely forward. What happened, of course, here with Silicon Valley Bank was that suddenly out of the blue, at least for financial markets, really nobody and I think that's safe to say at this point had seen this coming. And as a result of that, suddenly we all had to go back to our drawing boards and think about, okay, but what is the importance of the regional banks. What is the importance of the banking sector in terms of credit extension? And we look at the data from the FED, you will see that roughly a third of assets in the US banking sector are in the small banks. And here a small bank is defined as bank number twenty six to eight thousand, at large bank is number one to twenty five, ranked by assets. So that means that there's a long tale of banks. Some of them are fairly big, but the further you get out, of course, the smaller they get. And the key question for markets today is how important are the small banks that are now facing issues with deposits, facing issues with funding costs, facing issues with what that might mean for their credit books, and also facing issues with what does that mean if we now also have to do stress test as some of these smaller banks. So the short answer to your question is that this episode with the Silicon Valley Bank that we have seen here more recently, markets are doing what they're doing, and there's a lot of things going on, But what is really the major issue here in my view, is that we just don't know now what is the behavioral change in terms of lending willingness in the regional banks. And given the regional banks make up thirty percent of assets and roughly forty percent of all lending, that means that the banking sector has such a significant share of banks that are now really at the moment thinking about what's going on. And the risk that is that the slowdown that was already on the way because of the fit raising rates might now come faster simply because of this banking situation. So that's why I changed my view from saying no landing, no landing, everything is fine, so now saying, well, wait a minute, there is a risk now that things could slow down faster because we just need to see over the coming weeks and months ahead, what is the response going to be in terms of lending from this fairly significant part of the banking sector that is now going through this to evidence we are seeing, Mike, is this where I add my disclaimer? Yes, I have a mortgage depending with First Republic, so I'm in the midst of this. What a great timing on pecking a mortgage at the top tech that pretty well? Huh the bank? Did you lock in the interest rate? Yes? But you know they answer every single time I call yeah to my banker, Kyle Towrsted. You know, I think there's such a unique element to this, if you want to call it a crisis, in that typically when you're worried about the banking system and the quality of their assets, you think about the credit quality, you know, financial crisis. Yes, it was a drop in the valuation of securities, but it was a result of deteriorating credit quality among mortgage borrowers. This is so different right now. I mean, we haven't really seen any deterioration in credit worthiness yet, so will it play out in a similar fashion as far as curtailing the supply of credit or is there a reason to think it'll be different, And you know, just to tag one more question on the end of that, is it possible we still have another shooter drop with the deterioration of credit quality going forward. Absolutely. So. I started my career the IMF in the nineteen nineties, and the first thing you learned, literally in the first day it is that a banking crisis and a banking run normally happens exactly as you're saying, Mike, because the credit laws on the banks books. We saw that in two thousand and eight subprime mortgages created credit losses. We saw that for Northern Rock, we saw there for even Brothers, we saw the Forbear Sturns. If you go back to the nineteen nineties, you saw that on the savings and loan crisis there were conversive rely state losses and these were very liquid losses. This couldn't just be sold very quickly. That is exactly as you're pointing out, very very different. We have basically never had a banking crisis in a strong economy. And the irony of this situation is that it is actually the most liquid acid Navy treasuries that turned out to be the problem. So that's why if you do have now that let's say ten year rates now they've been going down quite a bit more recently, let's say that they go down to say two and a half or even two percent, that will be helping incredibly on the bank's balance sheet because it is the liquid side of the balance sheets that have at least in this episode, been the main problem in terms of what the issues are. So that's why to your last point, exactly, the fear is that if we now have not only the lacked effects of the fat hiking rates already slowing the economy, We've already seen various indicators, as I mentioned in particularly interest rates sensors, the indicators beginning to slow down. But if you now have a magnified effect that the slowdown might come a bit faster, then of course we do ultimately also need to look at what does that mean for credit lasses, for everything that banks have on their penancies. It's such a unique phenomenon, it really is. You know, who would have ever thought the treasuries would be the riskiest thing. It is so unusual. Normally is the liquid stuff that gets the attention, but it just shows the complication of this issue here that in this situation now where it is treasuries and all this health your maturity and available for sale, there's a lot of fine details on that, but the bottom line still is the same that the bottom line was that because interest rates went up, this created some problems for certain banks. Yeah, and so what everybody in the market is saying, they were waiting for the moment that the Fed broke something, and now something has broken. So I'm wondering how you are recalculating what you're expecting from the Fed. Everybody is talking about this because obviously they're going to be meeting in a couple of days. What are your expectations. Yeah, So I would say very important consideration here, of course, is that we've if you look back in the history books, it is of course important to consider is this just like Orange County in the early nineteen nineties. Is this like LTCM in ninety eight. Is this essentially the same as the LDI crisis in a just different form, where this is something that will come and go and we'll basically be back on track very quickly. The main problem with this, and this was the main reason why I changed my view, is that this is for the banking sector, and the banking sector just happens to play a really really important role in the Orange County LCCM. Even the LDI in the UK it was still the case that this caused some ripple effects, but it was not as essential for economic growth as the banking sector is. So the challenge today, of course, looking to the FIT meeting is that there are some risks of course for the FIT to financial stapidity. And it is very clear that up until if we had spoken about this like a week ago, then I would have said they're going to go fifty. Nothing to discuss, no landing, everything full steam ahead. The FIT needs to cool things down. But today it is certainly the case that the top priority, which we thought until the reason it was all inflation, has been replaced and put into the backseat of the car. Now the top priority is financial stability. And when the top priority is financial stability, then of course the FIT needs to be absolutely sure that the financial system is stable, when financial markets are calm, and that therefore that credit is flowing to consumers, to corporates, to residential rey state, commercial rey state, with the idea that if that is not the case, then you are at risk of having obviously a much harder landing. So that's why financial stability being the top risk would lead me to the conclusion that they can always raise rates later if this does turn out to be like Orange County and l TWCM. But at the moment, the biggest risk going into this meeting is certainly that financial stability needs to be a financial system needs to be stable for them to feel comfortable before they can begin to even think about raising rates. Again. It's interesting you keep hearing hard landing. It sounds like me on the ski slope in Vermont, you know, But I'd love to see that, which is I will say it can be a painful thing. Or maybe it's me when I'm playing Saga and PF five out in Brooklyn rouge pot where the cement underneath. But let's put some numbers on that, you know, because we are starting from such an extremely low base in the unemployment rate. The last jobs report was still very strong. I forget, what three hundred thousand was a two hundred fifty thousand jobs, three hundred eleven, three hundred eleven, good memory, What does a hard landing look like as far as unemployment in GDP. Yeah, this is really important because again, if we already were set up for this situation where they FIT trying to slow the economy down, and the FIT would raise raised twenty five basis points, they would look around and say, how is the data responding? They would go another twenty five basis points. Of course, they did a little bit more earlier, but they've been going more slowly and they have been thinking about going more slowly in that situation. It's a more controlled slowdown. Even in that scenario, Remember, there was a big discussion can they FIT actually achieve as off landing and a lot of people are saying no, they cannot because you cannot micromanaged the economy. So we already had that debate even before this situation now in the banking sector. But now think about if you add on to that, what's going on in the banking sector. The risk in the banking secttion now is that if banks now are beginning to tighten credit conditions simply because the need to reorganize and repair their balance sheets, then you can suddainly have the consequence that if we go out to a bank and say I would like to borrow some money for a car, and it's a bank says no, you can't do that. And if a lot of banks say that at the same time, you are running the risk of what the IMF where he always has been, that you will have a sudden stop in the economy. So we have suddenly gone from saying what you could say the sort of the textbook computable equilibrium model in the fat world of saying, oh, let's just gradually trying to slow things down, and now we're suddenly facing a situation. Well, maybe it's not just a gradual slow grind lower on GDP. Maybe the risk now is that you suddenly will have a sudden stop on people's ability to borrow for cars, to borrow, to buy a house to borrow, to your credit card to borrow, and consumer loans. Even operates who want to build a new factory also might have challenges if the credit condition is really tightened from one day to the other. So what we need to wait for now, and what's really important is that for the next weeks and months, we need to find out how severe is the credit contraction in the banking sector, because might to their question, that will determine how quickly the on Incloyer rate can go up under the old system, meaning a week ago, with the FED basically stepping on the brakes, there were scenarios where that could happen in a gradual and smooth way and we could have a soft landing, even though there was a lot of debate about that. But now if you add on the layer here that the risk is that the banks might at the same time all begin to say we just need to slow down our lending. Then that comes with the risk of a sudden stop in consumption, in caps and in hiring, and therefore the risk that the unecloyner rate in the worst case, could start to move higher recye quickly. So what is with hindsight in mind, what's the answer? Like did the FED raise too much too fast? Or did the FED have good oversight of SVB or the other banks? Like what is the all the above? Maybe? So the challenge, of course for the FAT is that they really only have one two lamely interest rates. I mean, if you really think about it more broadly, of course they have three tools. They have interest rates, they have forward guidance, and they have the balance sheet. But I view that from their chairs, I mean, what else could they have done, there was a pandemic they needed the economis you come back. Then it came back much faster, and then we got a lot of inflation, and then they said, okay, but then we need to cool letdown. And then they've been basically trying to cool inflasion down. And here we are now we are at risk that that cooling inflation down something broke, as you said, and that resulted then in the risk that we might now have a fastest slowdown. So it gets to the old saying that Milton Friedman said that you go into your shower and you turn it on, and it doesn't get hard immediately, and you wait, and then suddenly it gets really hard, and then you turn it down, and then you wait and then it gets really cooled. So for the fat the risk really here is that they have just been really trying to manage as good as they can, but they are I mean, it has been really, of course a challenge for them to figure out exactly how much and how little. And this new situation that has just appeared with the banking stake and the risk again because the regional banks are so important in the US economy that suddenly now if they are beginning to hold back on credit, then it could just have very severe consequences. Proud Rutgers grad By the way, did you know that. I just realized that a couple of weeks ago reading Alan Blunder's book. Yeah, you don't hear of many Rutgers economists, but he's probatics the most prominent. But you know twurst In famously, and you hear this all the time from Chair Pow and other FED officials. Is the long and variable lag in the effect of monetary policy. In other words, you know where they raising rates for more than a year there and everything seemed fine and then bam, we get we get hit by this. You know, surprise problem with with the banks? Does it? Do you think that works on the way down with rates too? In other words, even if the FED word to pivot immediately and either pause or start cutting rates, is it sort of that's not going to stop what's coming? You know what I mean? Yeah? The problem with that, of course is that now funding costs have also gone up. The FRIA, yes spread has been widening. You have also seen the i G bank spread also starting to widen. I mean that the funding cost of banks have increased, not only because of the FIT fund rate going up, but simply because the spread on top of that has also been going up. So that means that if it's that spread is now so high that it has become very expensive for banks to fund themselves. If the FIT did cut rates tomorrow, then that would be helpful in terms of lowering the funding cost for banks. But the answer to your question is that when you suddenly have a significant increase in the cost of capital at the viry highest level across the economy, then the real answer to do that for the FIT to solve that problem is just to lower interest rates. But the problem is, as you know that, you put that up on the scale. On the one hand, hey wait a minute, inflation is six percent. They can't blower, we should actually raise interest rates. On the other side of the scale, you have an apple ower here and an orange o here. You say, well, we put the orange over here because now we should be actually lowering interest rates to improve financial stability. And it really becomes a real challenge for them to suddenly change their views from saying now it was all inflation, inflation, inflation for so long, so now suddenly say, well, now it's financial stability and now it's not too much inflation. And that's really the challenge in terms of the decision for their FOEMC that they have ahead of them, name need, what are they going to do in response to this when inflation is still so high. Yeah, I've heard described as you know, the FED has two fires to put out in one bucket of water, and presumably great description. They're going to be focused on that inflation fire primarily so they but the problem, of course is that if they start ignoring their financial stability fire, then the risk of course could also the flames could come up quite substantially on that front. So so it is really a challenge. But let's see where the financial system is in a few weeks. But for now, I would go into this FMC meeting if I were in the FMC and say, okay, you know what, it is absolutely okay to take a pall and we can always just high rates, and we can even high rates fifty if things reduce stabilize. But let's now watch and see how the economy, most importantly, how regional bank credit is doing over the coming weeks and months ahead. The other thing I've heard quite a bit from people I talked to is that the FED had wanted to tighten financial conditions for the past year, and that this period what's happening now with the banking sector has tightened them almost more than a twenty five basis point high. I'm wondering if you've been thinking, Yeah, if I into my Bloomberg screen look at the Bloomberg Financial Conditions Index as a power user, I didn't know about the tail one for listeners for around where the Taylor role is simply trying to figure out what the FED funds rates should be based on inflation and the unemployment rate and only that and nothing else and so and of course financial conditions to your great question, if you look at where they are ever is ways, the FED also has Saint Louis FED has a measure, Chicago Feed has a measure, so as Kansas it also has a measure. Everyone has a measure of financial coditions. But the bloom Bag one, which is real time. Which is why I like that the most, is that throughout the day you can actually see where a financial coditions. Right now, it has certainly tightened, but we are nowhere remotely close to where we were in twenty twenty, and we are definitely far far away from where we were in two thousand and eight. So yes, it's good that financial conditions have tightened in terms of slowing inflasion down, but it's happening in some sense too quickly, because it's beginning to raise the risk of financial stapidity. So yes, financial conditions, you want to tighten that to slow inflasion down. But the problem is if that comes with the risk of financial stapidity, then of course it becomes a quite different matter. You know, you mentioned the spreads as far as bank funding costs go, and I think the sort of center of that story right now is obviously Credit Swiss. They've had a bad week. I mean, this has been a bank that's surely been the focus of a lot of concern for a while now, but this week, first, you know, they came out and said, look, we had material weakness and our reporting for the last couple of years. Their auditor, PwC gave an adverse opinion. They delay their their annual report because of back and forth with the SEC. But really what is causing the acute problem is the chair of the Saudi National Bank, their biggest shareholder, came out and said we can't buy any more stock for various reasons, but really spooking the market. So how do you see the credit swist playing out? No, and and and the situation is evolving as we speak here. I view this in the broader context of that there's just a lot of uncertainty and instability in the system. And if you are both the easyp and you fed, and you look at this, the conclusion would be to say, okay, but we got to have some resolution and some stability to whatever these challenges are at the moment. So I absolutely agree that there are certainly a lot of challenges for markets, and we I mean as as as we move forward, we will see how it's resolved. But it is clear that this continues to be a broader risk to the macroeconomic outlook. If you have financial stability with the intensity that we have at the moment, why does it matter for US investors if it's happening in Europe. Yeah. So the very important answers that, of course, is that the global financial system is just highly integrated. There's some final nuances that the Chinese banks and Russian banks are somewhat separated from the European and US banks, but across US and Europe. You have so many big US banks operating in Europe, you have so many big European banks operating in the US, that the counterparty issues issues about everything that has to do with lending and borrowing, and ultimately trust will be very important in this regard. So that's why the global financial system is just so integrated and so interlinked in so many different ways that the trust and confidence in each other is just absolutely critical. So Twurston, you know, we obviously have a lot of individual investors and some professional money managers I hope anyway listening to the show, what share sort of two minute advice to them on how to approach the rest of the year. So one short answer to the current situation is due buy duration. In other words, if you think that short rates have peaked, and you think that the fate is not going to raise rates more, and if you worried about some slowdown potentially coming, the first answer to that is that you should then begin to worry about well, maybe long rates are going to go down. So that means that make sure that you are protected with your risky ass to say this and P. Five hundred, you high yield your loans and lower rate of credit against the potentiality risk of a slowdown. Investment great credit and high safe credit assets will still do well if there is a recession. Have historically done that. So that's another way to quote unquote hide if there is a slowdown. But the textbook would tell you that if there is a risk of a slowdown coming, then you should be in the safest places, which in this situation would be up in quality and long in duration, so ig and treasuries ten years, five years, thirty years, thirty years, any depending on. As long as you can get well and as long as it's liquid, and you want to make sure that you're ready for if there is any quick resolution to any of these things, then you could be prepared then to jump into this and p. Five hundred and nastag again. But the issue here is that nobody really knows the duration of how long time this turbulence is going to persist. I feel very strongly that it will not be forever. It may be over even in a few weeks. In the best case, it could be oh in a few days. But given that this uncertainty is still here and we still need some resolution to a number of the things that we have spoken about here, then for now, it will probably take some time. It's like the VIX and thinking about the memory of a lot of the things in financial markets is like thirty days. So you probably need I would say three four weeks at least where things are ratively come before you can get come out of the bushes and see what's going on again. Yeah, Well, and the whiplash in rates this year on the shirt and this week on the shirt, and that two year yield up I don't know what down fifty sixty basis points one day just last week that Powell was saying, we'll be hiking a lot more. Yeah, I've lost track of how many sigma events that I know. But that's the volatility is just the stomach joining here. I mean, it's eye popping what we're seeing. The moving decks relative to VIX. VIX has also gone up, but the moving decks, which is implied VALL for rates has also gone up quite significantly because there's just a lot of and this is of course from options, so this is real money that people are betting on saying either rates are going to go up, people are willing to pay for that and other people are willing to say no, no, rates are actually going to go down. So that dispersion of use, which is basically what implied all is the dispersion of use is really really wide when you have these elevated levels of and that makes complete sense. Different people are doing different things and buying protection against different scenarios because the outcome and the outlook is just so foggy. But I feel like a big chunk of the macro hedge fund community must have been caught on the wrong foot, you know, very much a short position in the short end, according to the CFTC data. A painful week. I mean, is how do you see this week affecting the hedge fund world? Is it? Does it add to the worries about risk aversion going forward? Yeah, because the hits fund macro trade going into this weekend was no landing. Everything is fine. Inflation is high, we got a high rates. It's slow and gradual. If it will go maybe twenty five, maybe fifty, and then twenty five and then ultimately the economy will begin to slow down. But most people were probably thinking in the macro hits fund community, well, you know what, we probably have another three to six months before I need to worry about that. So for now I'm still bidding on rates higher and boom out of the loo this weekend. We now have, of course, a very significant decline in rates over the last few trading sessions here, and the consequence of that, of course, is that a lot of people were just squeezed out of the short positions that they had in fixed income. So back to what you were just talking about with the move and the VIX, Katie Greifeld and I actually were looking at this this week. The spread between the move index and the VIX on Tuesday was the widest since two nine, And what we were thinking about is just the pessimism that's been inherent to the bond market for weeks now, whereas maybe on the stock market side you had even on Monday, I think we were down point one five percent, which considering what we're talking about, is sort of it's impressive, I would say, But then we had that spread actually narrow a bit, where it does feel like the stock market side is also starting to take things much more seriously. I'm just wondering what is it the like, what was it that Because in the stock market, people are known to be optimists, right, Yeah, and you have been told for the last fifteen years to buy on dips. Yes, exactly so. And you're seeing in the retail flows. We've also seen him in the last several training sessions that a lot of the buyers are just easyf buyers, many retail because hey, stocks went down, that's always a good opportunity to go up. But but you're absolutely right, a very there was some very important things going on inside the SNP five hundred, A rotation of course, away from regional banks and up towards other sectors that of course have been particularly cyclicals and financials that have been doing better, a meaning at at the bigger financial names. But but the short answer to what you're saying is absolutely if you think about the VIX and the moving the meaning implied volatility in fixed income and implied volatility in equities, you would think that the story that's being told in the stock market is the same as the story that's being told in the race market. So you would think that a shark hits the economy, in this case inflation, and certainly out of the blue. This is only something that's a worry for race markets. It's not a worry the stock market. I mean, why was it that the movie index has been so elevated now for actually several years relative to the VIX just saying, oh, inflation, that's not for us, that's just for those people over then bonds. So this divergence and inconsistency, you can't tell different stories and different markets. We're living in the same economy, the same financial market. So either the stock market is wrong and needs to be a lot lower, and bond markets are right that things are actually pretty bad and there should be a lot more valency, is your vice versa. Maybe the bond market is wrong and maybe inflation will be coming down quickly and maybe we will have a soft landing. That's absolutely not my baseline scenario at this point, and in that case, stocks should be higher. So that's another way of saying that, yes, it's absolutely the case, and I totally agree with what you're saying that equities have been surprisingly resilient in the phase of this inflation shock. Because remember, if we just step back and say, what was it upon, So the reason that the FETE was trying to achieve, the FETE was trying to slow down growth. The FETE was trying to slow down consumer spending, slowdown hiring, slowdown capex spending. In other words, the fate was trying slow down earnings. And if I'm told that the Fed is trying to slow down the e in the PE ratio, I should also worry about that. Maybe that probably means that equities should be going down. But equities have remained incredibly resilient, and the VIX has just been basically saying, oh, this whole issue about slowdown coming. That's probably because equity investors probably mainly care about the last earning season and the next earning season. But if I'm a bund investor, I don't have the luxury of only caring about the last earning season and the next earning seas iused to think about what will happen in two years, five years, and even ten years. So that means the bund investors have said, well, where they fed racist rates, earnings will slow down, But equity investors have looked at the latest earning season is it But it's not slowing down, So why are you so worried? So that's why it was the case of that we were waiting for the lack of monetary policy to eventually slow things down, an equity investors said, but it's not happening, So why I use a word in bund markets? So that's why there was indeed, as you pointed out in your story with Katie, that there is indeed a very inconsistency between what the bond market on the moving deck side and broadly speaking on the level of rates was saying relative to what we were seeing in markets. Well, you know, the other big major story of last year was that that traditional inverse bond stock correlation broke down, and you know, both fell together and worst year for sixty forty and absolutely anyone's lifetime, I mean is and you also pointed out, well, you know, if we do have this risk off rallying bonds, that does take some of the pressure off of the banks who are long duration. Are we stuck with that correlation stock bond correlation that we've seen over the last year. Where is there a chance that you know, this risk off could get so extreme that it kind of returns to the normal correlation. Yeah, that's really important. So absolutely sixty forty didn't do will. Obviously when you both had that, bond prices went down and stock prices went down, so now today. Of course, up to a week ago, I would also have said sixty forty will continue or not do well. The problem for sixty forty today is that now we have a fairly significant issue about will maybe stocks at risk of really going down because they haven't adjusted to what we just spoke about, named that there might actually be a snowdown coming, not only because of the FED hiking rates, but there might also be a snowdown coming because of credit conditions tightening. So the risk to the sixty fourty portfolio is that you may be winning something maybe if rates go lower, but the stock part of your portfolio is just going again hammered if we do have a recession. So that's another way of saying that at this point, as much as sixty forty is the easy thing to do, and then go and play golf or batmanton or whatever you do for two years and you come back and say, hey, how is it going. The risk of course now is that if you are too overweight in some of those more risky assets that tend to underperform when there's a recession, so that's again lower ready credit, and that's of course equities, then you run the risk of course, ultimately that your portfolio will take a hit. So why not just step away from the sixty fourty and say I can actually do some stock picking and credit selection with the idea of it there is a risk of a recession coming. Maybe I should just not be in the stock market. Maybe I should just think more about upping quality and credit and maybe of course also in duration in bonds. Yeah, Twursten slock of Apollo. Such a treat to get your your views at this crazy time in markets. We really appreciate it. We can't quite let you go just yet, Vildonna, because we're gonna play craziest thing I saw in markets this week, and there's there's a lot to choose from so many. If you had done this last week, I had nothing to say last week. I struggled last week, and then this week I have the first Republic chart up the two year yield, the ten year yield that the like crazy charts. The financial conditions chart is like when VLA is looking at yields, you know it's things are something's going so yeah, but he shout out to Mario D'Angelo for putting out that HSBC buying Silicon Valley Bank, for one pound, one pound. I think that is I think he wins the week for craziest thing. But let's hear what you get. So I am really trying to not think about the Bankings actor as much, which has been impossible. But there's a Bloomberg story which also actually is very sad. It says, if you make one hundred thousand dollars living in New York City, it feels like you're making thirty six thousand dollars because of taxes and the high cost of living thirty six thousand. So it's the worst for any major city, thirty six thousand from one hundred thousand. And you still want to buy in New York City. Oh my gosh, don't make me feel worse. That sounds about right. Thirty six thousand for one hundred thousand in New York. It's you know, well, it's funny, you know, with the federal tax rate being uniform across the country, when you have an issue like that, you know it is it is a different standard of living. But I'll tell you the craziest thing I saw this is a Wall Street Journal story I believe is there ahead you know, the kind of fun story they put on the front page. Speb's collapse brought a niche industry back into focus. Financial disaster swag sellers have cashed in on svb's infamy to make money on all sorts of company merchandise that they may have once neglected. So you know the stuff when you go to a conference and you get like the freebe handouts, it's all that stuff. So on eBay there was listenings for an SVB branded blanket for twenty six dollars, a purse hook for twelve to fifty. I don't know what a purse a purse hook that's a weird charge, and a cheeseboard for two hundred dollars. I don't know why the cheeseboard is the most expensive. You're not going to make us guess prices. No, I feel like they're up for sale on eBay, so we don't really have the proper price discovery. But I will say, uh, it's a pretty good story. You read it if you haven't yet. Um. And it's also inspired sort of fake schwag from the banks, like Silicon Valley Bank Risk Management Department T shirts or selling very well. Well, remember they were all those FTX t shirts that had to be thrown out in the garbage. Well, right, and they while they they might have November, they might have, you know, their bankruptcy administer maybe should have kept on to them because they probably saw pretty well. They quote one woman who bought in ugly Christmas sweater that read FTX Risk Management Department twenty How much paper? They don't say, I don't know ugly Christmas sweater though, but that's pretty good. I like that one. Firstal Now about you, what's what's the craziest thing you saw this? Well, I would just follow up on what we just talked about. I mean, the incredible thing is that we have inflation at six percent and we're sitting talking about how shop will the slowdown be. The fact that we have high inflation and we're debating will this be a hard landing or if we're really lucky, will it be a soft landing. It's just incredible. I mean, normally we have had for a long, long long time inflation just at two percent. So the fact that we have this incredibly complicated macro backdrop of inflation being high while the economy is now poised to slow down, I think that's pretty crazy. It really is. I think unlike any other set up by any of us have ever experienced. Well, and that's why they, as we just spoke about the if I'm see meeting here of us is just a real challenge, I mean, because how do you deal in an environment where inflation is normally something that you would worr about. It is the number one thing, and that's what you said for the last eighteen months, this is our top priority. And now suddenly you're having a meeting where you're saying, well, by the way, now there's something else that's our top priority in financial stability. So for us in markets, it's about figuring out how long time is this financial stability issue going to be such an issue that's at such a level that the FIT will worry about and the DCB will worry about it. Is this just again a few days a week or maybe two, or is this something that's going to be long and lasting? At some point we will go back to more calm and quite frankly, more boring environment. And we can can't wait to get to that. I can't wait, yea. And the timing for us to happen in the nobit that's quiet period before the meeting is so they can communicate about it, and that's of course also the challenge. But it is really, it is really, it's it's really difficult for them because these challenges are really significant when you have things moving. That's back to your story, Lanna, hear about that the moving dick telling us balet cities is just pretty high in so many different ways, and that's what, of course is creating this complicated environment. It really is a credit selects sent a stock bigger's environment where you need to say, I can't just buy the index and needs will be much more careful with what I do given the risks that I'm seeing right right, I think I vis j Pal, maybe i'd call out sick next week. You think, yeah, you can get away with that. That That would probably cause a bigger problem. Anyway. I think that is all the time we're able to steal from you today. Torsten Slock, Chief Economists of Apollo Global Management. So great to catch up with you and hear your thoughts. Thank you for your time and hope we can talk again soon. Oh absolutely, thanks for having me, Thank you, thank you. Well, goes up. We'll be back next week. Until then, you can find us on the Bloomberg terminal website and app, or wherever you get your podcasts. We'd love it if you took the time to rate and review the show so more listeners can find us. And you can find us on Twitter follow me at Baldonna Hirich. Mike Reagan is at Reaganonymous. You can also follow Bloomer Podcasts at podcasts. What Goes Up is produced by Stacy Wong and our head of podcasts is Sage Bowman. Thanks for listening and we'll see you next week.