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1:29This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Torsten Slok, Apollo joins us. Now, we got a three-hour conversation, Torsten. We're going to cram in here. I'm ready. And to me, the absolutely shock, unusual thing is this boom, nominal GDP economy. And in the Fed meeting, pretty much everyone at the Fed says it's just going to keep on going and we're not going to see any decline in real GDP. That's not in the textbooks I studied.

2:09No, it is really unusual. But that's because we have two very important tailwinds. We have, of course, the AI spending boom. GDP normally grows at two. And now one percentage point of growth is coming because of the AI spending boom. not only on data centers and energy, but also spending on tokens. Remember, that also goes into GDP, spending on tools for consumers, spending on tools for corporates. All that spending combined with a wealth effect also coming out of high stock prices is all very, very important for growth at the moment. And combining that with the one big riddle for bill, which the CBO says will add about 0.9 % to GDP, we have some really, really important non-sensitive to interest rate tailwinds.

2:45And these tailwinds are really the critical reason why the economy continues to do so well. Are you modeling out a continued 5 % nominal GDP, which clearly within Barry Eichengreen's financialization benefits the halves? Absolutely. We expect still growth to be strong. And what's really unique, as you also just spoke about a minute ago, is that when interest rates are high, it hurts the interest rate sensitive parts of the economy, which is housing and autos. So those two sectors are really not doing well with home builders at very low levels at the moment. And of course, also the auto sector not doing well either because people signing leases have to pay more because interest rates are higher.

3:23Mortgage rates during the pandemic were at 2.7. Now mortgage rates are basically 7. It has become very expensive to buy a house. It's become very expensive to buy a car. Those sectors are not doing well, but those sectors are relatively small compared to the tailwind from the AI boom and the tailwind also from the one big bill for bills. So one sentence that's very important here is that this AI thing better work out because we still need some very significant tailwinds coming from AI because it is a very critical reason why the economy does so well. Tom, you know, I love to drive up and down the Jersey Shore on my Vespa.

3:52And I always see these thousands, tens of thousands of homes, usually on the bays, the river, two million dollar homes. They got a million dollar boat behind them. I'm like, who are these people? And I've come to find they're small business owners. And you quote in one of your most recent notes, Torsten, from the new book, The Everywhere Millionaire, it shows that 400 wealthiest Americans on the annual Forbes list, they hold about$4 trillion in combined wealth. Pretty impressive. While the far larger group of private business owners with at least$10 million in net worth, they hold, get this,$46.7 trillion of worth.

4:28That is the American economy, isn't it? this is really innovative work by two professors owen cedar at princeton and eric swig at chicago and what they did was they look at de-identified irs records and ask who are the millionaires in the us because there is this general impression oh this is tech this is wall street that's where all the money is but when you actually look at small business owners across the country that's where people with 10 plus million the vast majority are living these are people who own restaurants locally across the country. People who own hardware stores, people who own car dealerships.

5:00This is actually a very, very substantial amount of wealth in these parts of the country, exactly where those business owners are located. So exactly to your point, it is indeed very important work that they have done to exactly look at where is the wealth. And that becomes important from a consumer's perspective, namely, where is it also consumption is taking place. Across America today, good morning in the evening of Europe, good morning in the Very far evening of the Pacific Rim, Torsten Slack with his Apollo Global Management. Torsten, I want you to speak to the moment at hand. This worry, that worry, that worry.

5:35I'm going to suggest institutions maybe have missed it or retails just fear of missing out and on board. What's the measurement of fear of missing out right now in the institutional community? Well, I think that the AI story has been driving so much, not only in the GDP that we just talked about, But the AI story has also driven so much of returns in the S &P 500 over the last five years. So that means if I have my 60-40 portfolio, my equities are basically 10 biggest stocks make up 40 % of the S &P 500. That's basically one factor, namely AI. If I now look at the 40th part of my portfolio, which is fixed income, hyperscalers are issuing a lot more investment grade credit debt.

6:12So therefore, in public credit, you also have AI playing a bigger role. And by the way, if I also have venture capital in my portfolio, venture capital used to be pharma, biotech, prescription drugs. Now, 87 % of venture capital is also AI. So across the board for investors in retail, households, institutions, summer and wealth funds, the conversation I'm having everywhere is the same. Namely, there's one thing that we have learned in finance in the last 10, 15 years. It's factor investing. Namely, you should not be exposed to just one factor. and we're waking up now in 2026 and we are basically all of us overexposed to AI in particular in the 60-40 or the broader household portfolio.

6:50And that means that if we need to change anything is rebalancing away from just being exposed to where that thing. So yes, AI has done a lot of incredible things. There's also still a lot of questions around the speed with which it's being deployed and it's beginning to show up in returns. But the bottom line is, as I said earlier, this AI thing better work out because it is now not only about what's going on in GDP, but it's also driven return so substantially because it's had such a high concentration in portfolios given what you just said i'm screaming here oh my god i have to diversify my portfolio how would i do that what are the ways to diversify it so simple non-ai yeah okay so what's not a i well let's try to think commodities i think absolutely the challenges in the middle east argue for risk still to the upside for other prices so commodities oil refineries is one way of looking at it.

7:40Of course, other ways of looking at this is really to think more about growth versus value, because a lot of the AI is obviously growth, but value is, of course, investing in companies that actually have earnings. So that's growth in private credit, in private equity. That's growth, of course, also abroad. And all those things, of course, are absolute diversifiers away from AI. Inaudible with Torsten Slack, which we can do with his experience of his continental Europe. So the headline came out here today, France-German spread hit 100 beeps, which is just a milestone. It's like that 10 ,000 as well.

8:14The tension into the autumn of a fractured Germany with a Saxony vote, with Paris and France basically turned upside down from what I can tell. When you're talking to Apollo management and Apollo clients, What is it of the political stability forward you see in Europe? Well, I was just in Europe two weeks ago, and obviously the German election did get a lot of attention. And the issue also for us in financial markets is that this also, of course, is beginning to have some impacts, maybe even who the next ECB president might be, who the next chief economist at the ECB might be. So even from a policymaking perspective, there are some very important decisions that need to be made in terms of how does Europe deal with China?

8:59How do they deal with the fact that they have fiscal problems, especially in France? And these are very challenging times. And of course, that's why the answer to your question is they do not have clear answers to these issues yet. And that's what we in markets either have to make our guesses on or just watch this as this unfolds. You're hardwired, glass half full. It's one of your charms coming out of Europe, which is mostly a glass half empty continent. I want you to explain to the gloom crew what they're getting wrong right now. Once again, Paul, wouldn't you agree with me? It's been gloom, gloom, gloom.

9:31And I'm 2 % from high SPX. Talk to the gloom crew right now. So the boom case for Europe, despite all the headwinds that we're talking about here, politically is challenging. And of course, also the challenging things we have with government debt. The one thing that they do have going for them is in particular defense spending and infrastructure spending. So governments across the continent are spending a significant amount of money on boosting their economies. So now this becomes a discussion around, well, there's some private sector issues that are still doing actually okay. But it's very clear that a lot of the growth that's coming over the next several years is because of the increase in defense spending and because of the increase in infrastructure spending.

10:10So that's the boom that we should be anticipating, namely that Europe should still be doing well. Are they doing anything on AI? The answer is not much. Not much. And let's just talk about it this way. the U.S. is the AI producer, and the rest of the world, including the U.S., is the AI adopter. And that becomes important because you may be the producer, especially if the models become commoditized, but really it's about who is most smart at having, in our language, Tom, capital and labor work together. Because if capital and labor work together, you also therefore get more productivity gains and total factor productivity.

10:43This is classic Jean-Claude Truchet talking about the diffusion of productivity in Europe. He said to me once with his French accent, Tom, it's not America. Ters to slough. Thank you. Stay with us. More from Bloomberg Surveillance coming up after this.

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11:58You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App, or watch us live on YouTube. Joining us from the Paris Bank, BNP Paribas, right now. And of course, her mission is a U.S. study, is Megan Robson, head of U.S. credit strategy. And I have to go by responsibility to what you're seeing at your main bank with the tensions of France. Moments ago, Caroline Conan just emailed me. The French-German spread hit the hugely emotional full one percentage point difference called 100 basis points.

12:41the tension in France right now. Is the central bank activity here, is all the upset of U.S. politically, is it expanding out across other nations? What do you see at BNP Paribas? Yeah, at BNP, we're definitely seeing the phenomenon of higher term premium, higher yields. Worldwide. Worldwide. I think in the U.S., Gunit Dhingra has really nailed the call on higher U.S. 10-year Treasury this year, and he sees even risks that we could go higher. I think what's, for credit, what's been really fascinating is so far, we haven't seen a big impact to spread. Spreads have suggested it really well. On your coverage of the Fed earlier this week, I thought it was fascinating.

13:23You're highlighting the real yield rise. Normally, this rise in real yields really starts to weigh on credit. So far, we haven't seen that, but I think we're getting to levels where another 25, 50 basis points could start to hurt the market. I got to do this, folks. I don't do this every show, but I got to do it like once a month. We're doing this because Alexis is back with Greek desserts. Megan, it's real simple, folks. Let me explain it. There's a yield, and then there's the yield compared to the full faith and credit foundation. That's called a spread. And the bottom line is yields have moved up, prices moved down, the inverse relationship.

13:59But the difference in yields between Megan Robson's world and full faith in credit debt really haven't moved. That's what we say when we say spreads haven't moved. Megan, you guys have changed your view at B &P Paribas. You're no longer bullish on credit. What changed? We're no bullish, no longer bullish. What changed is bond abundance in corporate bond markets. So, you know, if you look at 2025, we were in this environment where investors were competing to find bonds that they could buy. That's really started to change this year with the AI build out. We have a number of different, you know, the hyperscalers, but also other sectors borrowing to fund capital expenditures.

14:42And we think this is just the beginning. So looking ahead, we think the supply continues and that it starts to raise the floor on spreads. and will be a source of volatility looking ahead. So the underlying credit quality, is credit quality still out there? How do you guys think about the credit quality of, maybe some of these new issues seem to be like super high credit rated things. Yes, so I think our change in view is based more on the technicals, the supply dynamic. If you look at fundamentals, to your point, earnings growth, double digits for investment grade borrowers. And even though broadly you've seen them continue to borrow, this leverage metric, which the market focuses on how much debt do issuers have compared to their earnings, has actually moved down because earnings is so strong.

15:32In terms of the hyperscalers that you mentioned, some of them are higher quality. We also have two large ones that are triple B, triple B rated. So that means they're at just right on the cusp of being between IG and potentially high yield. So I think those two are more interesting to watch in terms of credit perspective. What'd you make from our Federal Reserve this week here? The 25 basis points, I guess, was expected by the marketplace. Any rhetoric that kind of got your attention? Yeah, I think it was, you know, like a lack of forward guidance, of course. But he did stay firm on inflation for us.

16:06We're still expecting two more hikes, one in December and then one in January. I think for the numbers that we've run for credit, we think that you'd need to see five hikes before credit really started to struggle. So our view has been that we're not restrictive yet. This is starting to get us closer to that level. But with GDP growth, nominal GDP north of 6%, we think that the market can absorb another few hikes. This is the problem. We don't have enough time. Paul, can you fix this? She trains everything. Can we move Foo out and you and I go to 12 noon? Yeah, we can do that. I mean, folks, I got eight ways to go with Megan Robinson.

16:48I'm going to do an audible here. I had something else in my head, and I got to go to nominal GDP. The heritage of BNP Paribas is to absolutely nail a more restrictive real GDP and really focus on what the nominal does. You're saying nominal will stay elevated, and we're still going to have a 5 % plus animal spirit in America? That's our forecast for now. I think we do see a lot of signs of resilience in the economy. And just think about what higher rates, you know, higher rates has done so far. Of course, it's impacted housing, but there's other sectors that are still really thriving. So I think just the impact of higher rates over time to the economy broadly has lessened.

17:34And as a result, we think GDP growth can still plug along here. You say in your notes, in leveraged finance, you favor loans over high yield. What's the difference between a leveraged loan and a high yield bond? Sweetie with the academics on Friday. In the leveraged finance market, we, you know, lower rated issuers, so double B and below. High yield is fixed rate bonds. And so in leveraged loans, it's floating rate. It tends to be secured. And so in an environment now where you have the risk, rates could go even higher. If you own a high yield bond, your price will go down. It'll eat into your total return.

18:12Leveraged loans are floating rates. So as the Fed hikes rates, you'll see your carry or your coupon increase with that. And so we tend to see inflows into the loan market in periods when rates are rising. We think that's happening right now. Loans is also very interesting. It has an elevated software exposure. And it's one of the few markets where it's still pricing in a lot of AI disruption. Are you seeing that from the borrowers? We're not seeing fundamental evidence that software earnings have started to slow from all of this new AI. And so we think it's a slow motion theme. When you were at Brown, did you have the privilege of studying with Jordi Ghali?

18:55I did not. Okay, he's like giant with Clarida. This is Richard Clarida, Paul, on dynamic stochastic general equilibrium theory. And the word stochastic, folks, is fancy Brown University talk for shocks. Should our listeners and viewers be overemphasizing a study of shocks, or do we just go with this boom economy that we've got? I think that we have to watch the interest rate, continue to watch the interest rate market. Although rates have risen materially this year, if we were to see a sharp rise, one with velocity and rates volatility, you know, amounting more to a shock, I think that that could cause some indigestion.

19:35But if we go gradual, we're OK out to three rate hikes. I think that's right. Yeah, I think we we can manage. You know, if you look at an interest coverage for investment grade companies, it's 10 times right now. So you have 10 times your earnings to your interest costs. So three, you know, three base, three rate hikes is something those issuers will be able to absorb.

20:00You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. This is hugely well-timed for all sorts of reasons. Everybody's back to school. Alexis Crowe is with PwC. I'm sorry, PricewaterhouseCoopers. Cooper's in library and get over it. And she joins us now, partner and chief economist. But also thinker, what's it like to pick up a piece of chalk up at Sloan at MIT with a Nobel Laureate looking over your shoulder? A little intimidating, right?

20:36There's nobody like Simon Johnson in the classroom. I'll tell you that much, really. And I've seen some greats in my time and there's nobody like him. He has a clarity of thought. How does he bring his world-class economics over to your world of entrepreneurship? Well, he makes it really accessible for the students. So was very honored to be able to kind of kick off the macro context in which some of the students will be doing their case studies in emerging markets and also in Europe. As you say, he actually still uses chalk, and that's pretty remarkable, requesting students not to use their laptops.

21:12So it's, you know, they're really learning. They're learning. And to me, the fundamental thing, and you're on the cusp of this from St. Andrews down to the London schools, is new world, old world. We allow innovation to fail and markets to clear, classic phrase folks, is in a Schumpeterian way. They don't do that. How does Europe, Paul, you mentioned this today with Torsten Slott. How does Europe become more Anglo-American against the embedded old world culture? Interesting. I mean, I think a part of that is hierarchical, right? And moving from horizontal to hierarchical, right? One world was Catholic and very hierarchical.

21:50The other world was Anglo-Saxon. See how she does that. She's so damn British. She blames it on the Reformation. Look at that. Spoken like a true Catholic. Exactly. So, I mean, we were talking to Torsen Slok earlier today. It's like, you talk about the European market and it trades at a bigger discount because it doesn't have a technology weight. So you could argue, boy, they missed technology over the last 30, 40 years. Now you've got this revolutionary change in technology, AI. I don't see any difference. I think it's all driven out of the US and China. Where's Europe as it relates to AI? Are they just going to be net takers of AI?

22:25And if so, are they OK with that? Well, hang on. Let's look at the equity markets because it's interesting, right? Equity market performance in Europe has historically been financials and pharma. Yep. Pretty one-sided, to be honest. Now you've had energy gains since the Iran conflict. And still industrial production. So hefty trade surplus. Hey, guess what? We don't have that in the U.S., despite all the efforts to the contrary. So I would say that some of the infrastructure spend related to the defense and aerospace industrial complex will be quite interesting to witness in Europe. I also, by the way, think that there's an ambivalence.

22:57There's a cultural ambivalence toward some of these general purpose technologies in Europe and whether or not these are going to benefit citizens overall. Right. Yeah, there's a lot of people just in the past couple of weeks within the industry itself questioning those things. Step back here. What we have is just looking at the Bloomberg Terminal, higher rates globally, higher energy costs globally, still strong economic growth. When you put those all together, what's your call for the next six, 12 months here economic wise? So here in the U.S., we definitely have this interesting conflagration of record high levels of debt issuance, major changes in the composition of ownership in the bond market and shifts there, deregulation in the traditional banking sector, deepening relationship between the traditional banks and hedge funds.

23:46So there's a lot in the cocktail mix here in the U.S. Of course, we still have that number one engine of growth being driven by AI and the CapEx related to that. Now, here we are in a different interest rate environment where, of course, that will put pressure on some corporate borrowers. And you look at this share of debt that's being used to fund some of these hyperscaler plays and some of the data center plays. And that's dramatically increased in the last year as well. I mean, I hate ways to go here. Let me stay on my theme of a buoyant nominal GDP. Again, I mentioned Christopher Lowe, FHN, talking about a roaring economy.

24:21Alexis Crowe, with all of your sources at PwC, I mean, you're hugely wired in to the zeitgeist. Are people slipping into this sustained nominal GDP with execution confidence, or are they worried about the litany of things you just said? They're worried about an unwinding of the AI trade. That's definitely on the table. And particularly if you look at spending as a percentage of GDP in contrast with previous dot com bubbles, Fed data show that spending on software, spending on hardware is consistent with where we were with past boons. But that spending on data centers. Did you hear that in the Fed meeting and all the fancy Ph.D.

24:59economics? I didn't hear it. In the June minutes, so June meeting minutes that were released in July, you did see some of the committee members concerned that spending on AI was contributing to very strong demand and inflation here in the U.S. and spilling over from the AI sector into other related sectors as well. Boy, you just today, you, Torsten Slock, a couple other folks have kind of called this out. I'm starting to get a little nervous here about the AI impact on the economy, on corporate earnings, on therefore the stock market valuation. Consumption. Consumption. Thank you. How could this end badly, do you think?

25:41Is that a material risk out there? I would say part of it, again, I'm going to come back to the data center pieces. Are we developing things that will be kit for the future and equipment for the future? I'm not entirely sure. given Moore's law. So I think that's certainly one piece. You've obviously also seen the political risk against this and potential for a snapback there as well. I mentioned this earlier. I thought Steve Eisman, of course, we all know him and love him. He's been ill recently, but it's wonderful to see him yesterday with Carl Keatney over at the Death Star. Carl asked him some great questions just simply about the lack of moats.

26:19This is like Simon Johnson talk. You know, you talk moats, Paul, when you go up to MIT. Do you detect a moat around all this new AI stuff? I don't see it. I don't see it. I don't see it. How does that clear? I mean, at some point, we have to, you know, on a Hayekian basis, Friedrich Hayek, we have to clear that market. There will be losers. How do you see that playing out? Well, it's interesting. We've chatted about this in the past, but Governor Bailey at the Bank of England has said he sees a scenario where you could have a bubble bursting, but companies continuing to use AI and to invest in AI.

26:55And I think to enhance productivity increases. And so I think you could see those two actually unfolding and coming out together. Alexis, thank you so much. Really, really appreciate it. Just hugely timely. Alexis Crowe, working with PwC and also with Simon Johnson, the Massachusetts Institute. Stay with us. More from Bloomberg Surveillance coming up after this.

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29:05You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Okay, so there's this going on in New York, that going on in New York. Paul, we need to be industrial. Okay. We need to go to Brooklyn in a brick building. Everybody's earnest. They wear Japanese blue jeans that cost like$400 a piece. Exactly. Dana Telsey joins us on the oddest story in New York this year. Hermes is like putting big money into industrial. Oh, so cool. Craft gin and tonic cocktails.

29:48Brooklyn. Really? Williamsburg. Their store is opening there. Very popular. Very popular. You see proof of evidence that Mrs. Gura, I mean, just as one. Yep. OK. Stacey Vanek's coming up. And another one. And, you know, Max. And I mean, these kind of people are walking into Hermes? Yes, they are. You look at the neighborhoods where they're going, they're going where the customer is aware of their brand name, and they're buying there. You see evidence that this will be a success. They did a pop-up thing to test it. They did the pop-up to test it. But if you test it and it did well, that's why you're opening a permanent store.

30:23Pop-ups are the entryway to a permanent store if you get the revenues you thought you got. Why is luxury flat-ons back right now? They're all cratering right now. Why? particularly French luxury. Couple things. Number one, Europe consumer is very challenged lately. You're not getting tourists. You're not getting the Chinese traveling. More Chinese are spending on some of their own local brands. And the region that's the strongest is North America. As these companies report sales and the next grouping of sales will come out in October, it's all about North America where the strength is. And it's in their own stores.

30:57Because you You think some of these new stores that have opened, you've had the Dior flagships that have opened in the past year, the newer med store that's open. There's more to come. Tom, I've been told by one of our team that Dana got off a red eye this morning to come to our show. She's just rocking. Dana. I mean, it's a golf stream, but that's different. Dana, somebody of yours, you don't take red eyes anymore. Of course I do. So I was going to say, I'm going to call your boss and straighten them out. But you're the boss. Exactly. So what's going on? Basically, I look at it as there's productivity in being able to take a red eye because then you're here for the day.

31:29I'm going to go nuts here. Okay, can I editorialize here quickly? I just took out Rockstar Service United, Scott Kirby, thanks so much. All new design business, this. I didn't fit the chair. Dana's 4 '11". She can take the red eye and sleep every minute of the way. I put it in my 1990 contract, no more red eyes. Dana, what's the number one theme for you and your clients these days in the world of retail? We've got higher interest rates, but we've also got a higher stock market. There's that wealth effect. What's the theme that you were talking about? A couple things. Number one, I think legacy modernizing.

32:02Brand names that have been tired and old are reinventing themselves. You look at a gap, which did 10 % comps for the past two quarters. You look at Ross Stores, which has been double digit comping. You take a look at Victoria's Secret. it. Second thing, many of the CEOs and CFOs we've spoken with over the past two weeks after earnings, a lot of them spoke at conferences. As you go through what they're talking about, what is a word that's coming in with many of them? The word acceleration. And acceleration is coming in because of some with sales trends, like a Victoria's Secret and even an Estee Lauder.

32:34Some with traffic gains, whether it's a FIGS or whether it's a Kroger. Some with customer gains. You look at Ulta, which has 47 million loyalty members, some with an acceleration in the rate of new store openings, like with Reformation, and some with transformation acceleration. Look at Macy's, walk across the street to Bloomingdale's and see all the new brands they have, and some with companies like G3, which just bought Marc Jacobs from LVMH. A lot going, always a lot going on in your world. The bottom of the K-shaped economy, how does that impact your research coverage and how do you look at that?

33:11A couple things. I think, frankly, look what Jamie Dimon said a couple weeks ago. Where there isn't a case-shaped economy, even the lower end, they're definitely more discerning because whether it's higher gas prices, food prices, but everyone is looking for something new or a little bit different. So you take a look, for example, at beauty, which has been being put in the off-pricers. They're buying it. Look at Five Below. Have you heard of these squishy dumplings? No. What's a squishy dumpling? Squishy dumplings is the hottest toy out there. People are waiting online for it. There's going to be some treasure hunts for squishy dumplings.

33:45I'm Googling squishy dumplings. Yes. Tommy, you heard of it? Yeah. No, I haven't. Joe Feldman. Come on. Joe Feldman emails in and says, give me some time. Home Depot. Yep. Single digit return since COVID. Is there like a strategic model at these iconic big box Joe Feldman names to get it going? Or are they just resigned to single digit performance? What's going to get them going and what's going to turn the spigot? Basically, a return of housing. Anything where you see a housing pickup, the acceleration of Home Depot will be there. Just like the acceleration of Lowe's. And frankly, you look at a Williams-Sonoma.

34:22That's where you're going to see it. What you are seeing, though, is when you think about home, look at companies like HomeGoods, which frankly have lower prices. It's more soft home with whether it's pillows and towels. But they've been comping very nicely. Because just like people are refreshing their wardrobes and clothing, they're refreshing their wardrobes and home. It's been six years now since COVID. Dana Telsey with us. Telsey Advisory Group. Can't say enough about her worker. Visceral feel for retail from the world of luxury right on down to Telsey Advisory Group's great big box at work as well.

34:56Paul Sweeney across America with Dana Telsey. I'm going down the squishy dumpling rabbit hole as we speak here. Dana, for years, more than a decade, we've been talking to people like you and other folks in the retail space about kind of right-sizing the department store footprint in this country. And that meant shutting stores. Where are we in that process now? Shutting stores, for the most part, you're pretty much done on shutting stores. When you look at commercial real estate, you're seeing some of the biggest returns lately on malls. And what you're seeing is that companies have reset their number of boxes like Macy's did.

35:31Now they have these reimagined stores. Right. And you're seeing Gen Z teenagers like going to stores. They like going with their friends. They like trying on together. That's original. It's a destination and there's traffic. Yeah. Okay, I've got to work up the script. I don't even know if you're up to speed on the story. Federer's company, what's it called? On Shoes. Yep. They're getting French superstar Mbappé and Thierry Henry on to do football, to do soccer shoes. Nike actually trades down as well. Tell us about the shoe wars right now. I think of Alex Iala, the Filipino. I think she's got to deal with Nike, but they're just basically throwing money around.

36:12Well, one of the things you see is everyone wants to emulate who these big stars are. So you're getting more, oh yes, more partnerships and collaborations. Christina, our analyst on on, she's going to visit them next week. They're doing a big investor day. Yeah, I heard that. And Adidas is also. And then next month, two months in November, Nike is doing a big investment day, too. So all the companies are going to reset their algorithms and talk about what does the future growth look like? I mean, I look at this from Air Jordan and, you know, that great movie. I mean, what's Jalen Brunson's shoe deal worth?

36:48Yeah, exactly. And it's the sneaker business. I mean, it is so competitive today. I'm looking at Nike. The stock's down 40 percent this year. I mean, what do you do? What are they getting wrong? Well, basically, one of the things they're doing now is it is resetting. So they have wholesale partnerships like with Dick's Sporting Goods. It's new product that they're introducing, not just the same functionalities like they had in the past. And I think they're doing more and new and different advertising. I think they're going to hear more about that at the investor day. But did you hear the other thing that happened yesterday with Nike?

37:21This was a pivot, blending luxury and Nike. Alexander Arnaud went on the board of Nike Really? How do you know where I want to go? She's like, we're wired in together So I'm doing AI here And it's a stud and a suit I can't afford And he's wearing white shoes They may be Mephisto, they may be Nike, whatever Dana Telsey on grown men in fancy dark suits Wearing white sneakers, discuss It's a trend, it is a trend It's comfortable. Why is on so popular? Because you can wear them with suits. So I can wear a pair of white Federer Ons and get away with it? Yes. David Weston, I've seen do that occasionally.

38:06And if David Weston gets pulled off. That's a nice look. He wears the same suits they wear like in James Bond. I know, I know. I don't see Tom Keene with the sneakers. With the bow tie? If he's comfortable. If he's comfortable. Okay, we want to keep talking. I've got to finally do an update on what Dana Telsey here owns, which is the corner of 57th Street and 5th Avenue. The four corners, Tiffany, the Louis Vuitton luggage thing, Van Cleef is over on the other corner, and I think it's Bulgari. Which is the most interesting story for you forward? Oh, my God. Well, I think the LV and the Tiffany.

38:45I mean, look what Tiffany's doing with the restaurants. They have the Blue Box Cafe. LV, what that's going to look like. Amazing. And frankly, though, you look at all the pictures that are being taken of those trunks of LV. It's the most Instagrammable place in Manhattan. The most coolest thing. I mean, I don't even know how they play tennis in this stuff. This linkage Tiffany necklace that everyone, trust me, that bill wants one. I mean, he wants the one with the spikes, the linkage Tiffany thing. They mint money on there, right? They do. They mint and they're out of stock. That's the other thing also.

39:19Back order, Tom.

39:49So they provide to really mega companies. In fact, they're who I yell at when I call in. In fact, they literally are the ones that you yell at because on the medical side and health side, they, I think, provide benefits to you at Bloomberg. I recently joined them to basically run the 401k business. Great. Because they also provide wealth services. You have a brilliant note with all of your decades of experience. In the old days, folks, grandpa got the defined benefit check. And then we did this 401k defined contribution. You have a note whispering that we're trying to be more defined benefitly now.

40:21Are we walking away from the freedom of a 401k? No, I don't think so. I think what we're doing is we're trying to take over time probably the best of both worlds. Right. So the idea of a defined contribution plan, people have the autonomy and the ability to invest as they like. But we're also recognizing that as individuals are moving into retirement, the idea of being able to manage your money in retirement is quite complicated. In fact, I think it was Bill Sharp, a Nobel laureate, who said that the hardest, nastiest financial problem to solve is the one for individuals trying to draw down money in retirement.

40:58And so I think there's an acknowledgement in the industry that we need to probably try to do a little bit better at trying to take maybe some of the aspects from defined benefit and meld those to some degree with defined contribution. And that's what we're starting to see, for example, within defined contribution programs. We now are seeing that insurance or annuities are being attached to a target date fund, which is the most popular type of investment strategy that individuals have. And the idea is that that would provide them with some lifetime income once they enter retirement. So that's one approach.

41:32You could also, there's the defined benefit side themselves are slowly starting to get back in the mix a little bit, not necessarily with the defined benefit plan that your mother or father had, but some modification. We saw this with IBM a couple of years ago. They started to bring back their defined benefit plan and basically were using the assets that they were going to use to contribute from a matching perspective. Instead of matching the individual, they're taking that and they're putting it into a defined benefit account for an individual that over time. Fascinating. Pardon? Fascinating.

42:07Yeah. Yeah. So, I mean, that's very early days. But the broader point here is that we're seeing a confluence of activity between the two types of areas. As the U.S. population ages, more and more people are going into that retirement scenario where their days are contributing or essentially over. but now it's how to take it out. What are the most basic recommendations do you have? Is it get a budget and then we'll align your account with that budget? How do you? Sure, sure. So start with kind of a fundamental point, which is you're solving a different problem when people move into withdrawing their assets versus accumulating their assets, right?

42:45And so the idea of using, for example, a probability-based approach, Monte Carlo assumptions, capital market assumptions, Our view is that we should be looking at it more from an outcome perspective. When you enter retirement, you're less thinking about, am I going to get a XYZ return on the S &P 500 versus I want$6 ,000 a month spent? So the idea is how do we create investment strategies as well as using insurance to some degree to deliver those types of outcomes? Standard folks, there's cliche stereotype. Man 45, woman 42, a couple. joint life expectancy, one will live to 85%, 75%. One will live to 90%, 47%.

43:34One will live to 95%, 20%. To me, there's no other issue in your mathematics. Right. And that gets to, by far, the most unique and important risk when people enter retirement, which is longevity risk. Right. And quite frankly, today, the primary way to solve that is through an annuity. And the most efficient way to get that protection is through something called a deferred income annuity, which basically just protects against the longevity element. So, for example, when an individual, they could buy it when they're 65, but when they're 85, it kicks in. And then it would provide them income from 85 until when they...

44:15What's the yield on that if they buy it at 65, 85, just roughly? Well, it's going to depend right on what the markets are. Okay, so where are we now? Are they going to make 6 % per year? Probably somewhere around 6%, maybe a little bit less because of expenses and so forth. But somewhere in that range. Bruce Wolfe, tell a short visit. We've got to do it again. This is the Bloomberg Surveillance Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app.

44:48You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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