The Emperor's New Economic Model: Decoding the Forces Driving Markets in 2026

Greg Dowling (00:06):  Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance. Today, we are joined by Torsten Slok, partner and Chief Economist at Apollo, and one of the most respected macro voices in global investing. Raised in Denmark and shaped early on by his father, who was also an economist, Torsten went on to study at the University of Copenhagen and Princeton before building a career that spans the IMF, the OECD, Deutsche Bank and now one of the world's leading alternative asset managers. His work is known for its clarity, data-driven rigor and a willingness to challenge traditional economic models. At Apollo, he provides insight across public and private markets, including his widely followed Daily Spark, which distills complex trends into concise, actionable takeaways. Outside of the office, he brings the same competitive energy that once earned him a national medal in table tennis and now fuels his Danish ex-pat soccer team in New York. Torsten, welcome to the FEG Insight Bridge.

Torsten Slok (01:26): Thanks for having me.

Greg Dowling (01:27): Would you please introduce yourself and Apollo?

Torsten Slok (01:30): So I am Torsten Slok. I'm Chief Economist and partner at Apollo Global Management. We are an asset management firm that has more than $900 billion under management. The vast majority of that is in private credit. We also have money in private equity, and we also have money in real assets. And I came to Apollo 5 years ago. Overall, my job, both internally and externally, is to try to predict the future and figure out, what will the Federal Reserve do? What will inflation do? Is AI a bubble? We're about to see the stock market go up a lot or stock market go down a lot. And likewise, are credit spreads widening or tightening, et cetera? So a very broad job that I had with basically the main result being, namely, what is in the future for us in the investing world?

Greg Dowling (02:12): Well, this is perfect because this is early 2026, so we need to know what's going to happen the rest of the year. So we're going to ask you a little bit about all of those items. But I wanted to start out so listeners can learn a little bit more about you because you have an interesting background. First, you grew up in Denmark, and you grew up with a dad who was an economist. How did that kind of influence your career path?

Torsten Slok (02:36): I grew up in Denmark in the 1980s and the 1990s. And at the time, of course, my plan was to stay in Denmark. I would not -- actually not imagine going anywhere. But then when I started studying economics, I basically decided to study a year abroad. Then when I did my PhD in Copenhagen, I studied a year in the US. And after that, I spent some time at the IMF. Then I spent some time at Deutsche Bank, and then I came to Apollo. And why did I go into the economics profession? Well, my dad was -- And this is very Danish. He was on the employer side of negotiating wages between the trade unions and the employer federation. So I grew up my entire life seeing wage negotiations. That backdrop basically gave me an interest in economics and what was going on in the economy. Originally, I started working at the IMF in Washington, DC. Then I worked at the OECD in Paris, which was more government policy. But then, in 2005, one of my managers from the IMF had got a job at the Deutsche Bank, and I came along with him. And then I found out the whole fantastic world of financial markets, where we are constantly, every day, you and I, Greg, and everyone else trying to figure out what will happen in the future. And that basically got me hooked to thinking about and talking about where we are today, namely, what will the future bring and how should I think about what the future will bring?

Greg Dowling (03:51): So let me ask this question. Growing up, having to negotiate payment for chores, what was that like? Talking to your dad about shoveling the walk or doing some housework, did you ever win any of those negotiations?

Torsten Slok (04:03): Well, you remember in Denmark it snows a lot. But I was shoveling snow voluntarily and had a lot of fun with it, throwing snowballs at my friends out on the street when I was a child. So the short answer to that is that my parents happened to have a very liberal attitude and said, "Well, you'll probably figure it out on your own." So there was no money for homework, no money for chores. They actually almost didn't care about whether I did my homework. It was a somewhat unusual time and maybe somewhat symptomatic for Denmark and maybe somewhat symptomatic for Europe. It was just a very different time relative to the time we live in today. But that gave me the freedom to say, hey, this is what I would like to do. And actually, I think this is fun. This is not fun. And here we are today. I truly love what I do. It's so much fun.

Greg Dowling (04:41): So you have these kind of more classic and, I also want to say, very impressive early path to being an economist, right, at the IMF, at the OECD. But you said you made that leap to kind of asset management. What is it like to be an economist at some place like the IMF and then going to Deutsche or Apollo?

Torsten Slok (05:01): Well, this is a really, really good and important question because at the IMF and the OECD and the Fed and the ECB, you basically have a lot more time. And you will be asked, if you're a junior or mid-level or even senior economist, to go away for like a month or 2 or maybe 3 months and write a report about a certain topic. Go and find out what happened with the basis trade. Go out and find out what is the impact of tariffs. Go away for a few months and find out what are the upward pressures on inflation, and should we expect that to continue? So that basically means that there's a lot more time in OECD, IMF, Fed, ECB, and there's a lot more resources. Remember, the Federal Reserve has 1,000 PST economists. The IMF also has 1,000 economists, and there is therefore an expert on literally any area of the economy that you can imagine. So the fun thing about that is that you really have time to dive down into some deep area and spend some time understanding, for example, tariffs. Why have tariffs not had a bigger impact or why have they had a bigger impact or what has the impact been? The big advantage of that, of course, is that you learn a lot because you really get a lot of skills and knowledge built both about how these institutions work, but also that you learn a lot in terms of, how do I think about when suddenly a new policy comes around, when suddenly a new president gets elected and says, "I would like to restrict immigration"? Well, then I already know and I have a lot of different friends who I can call on and ask, well, what are the implications? What's the ladies thinking on? What are the consequences if a politician gets elected in some country, not only the US, but also Germany, Denmark, elsewhere, and they say, "We would like to now have some restrictions on immigration"? And, of course, this brings around immediately some thoughts around, well, what does, for example, the restrictions on immigration mean? Well, that means something for less labor supply. It means probably also some higher wage growth in the sectors where unauthorized immigrants are working, which for the US is hotels, restaurants, agriculture and construction. But it probably also means less demand for housing. So the whole list of bullet points and the thought process around, how do I think about what I see on my Bloomberg screen, how do I think about what I see on CNBC, it just becomes very handy and helpful to have a framework, to have some idea about the literature in this area. What have people in academia been writing about or people at the IMF and OECD and Fed and ECB in working papers been writing about when it comes to these different topics that come our way? So the big advantage and the big skill that you learn in these institutions is that you really build up a framework for thinking about and talking about things. And this comes down to something even as mundane as, for example, the Fed just decided to buy 40 billion in T-Bills. Is that QE? Is that not QE? How do we think about that? What are the consequence of this? Is this enough? Why did they pick 40 billion, not 30, not 50 or more or less? What are the consequences of the actions that are being taken? So the more you have readily available in your mind the frameworks and the reasons why these things are happening, the easier it is to understand and clock what happens into the broader view of, do I think the S&P 500 will go up or do I think rates are going to go down? So the short answer is that it is a much more slow-moving place to sit in such government institutions. At the same time, therefore it is very specialized, what you do, which is very different to what you and I do today here, Greg, namely that we have to have a view on all kinds of things where there may not be a framework or where that it might not be easy to come up with an answer to, what is the consequence of this thing that I'm looking at or this policy change, or what is the outflow for data centers and AI at the moment? So the bottom line here is that it's just two very different worlds. But the benefit and the beauty, if you will, of the government world is that it gives you time and it gives you a lot of thoughts and thought process around a lot of different things that are time consuming to really think deep about. But at the same time, in the much more fast-moving chair that you and I sit in today, we need to translate this into quickly having an idea about. So it is, am I buying or am I selling?

Greg Dowling (08:42): It sounds like a great training area, right? You learn all these things because, in the investment world, you have to move very quickly. You don't care about a working paper explaining inflation in the '70s. You're like, okay, what does that actually mean for me today? I wanted to pull on that string a little bit, too, because you've said you felt like some classical economic models may be outdated or at least kind of inferred to that. So maybe you can expand. What are some of the classical economics that need to be adapted to the modern world?

Torsten Slok (09:11): Well, I think that one thing which has really been so important for 2025, if you had taken the textbook out in April when the trade war began, you and I would immediately have concluded, wow, this is a major shock to the economy. And this is going to create a fairly sharp slowdown, especially if tariffs had stayed at the levels where they were announced on April the 2nd. So, from that perspective, the textbook and the economic models, including the models that the Federal Reserve had themselves, Jay Powell said that, throughout last summer, that the expectation was that there would be a recession in the US. So now the question is, why didn't we get that recession? Well, a very important reason for that is two things, namely maybe we actually had not appreciated enough that the magnitude of the shock coming from the trade war was actually ending up being much milder than what was originally announced on April the 2nd. In other words, the actual level of tariffs that was originally announced on April the 2nd ended up being dramatically higher than where we actually are today. So that's one way of saying, if the shock to the economy is actually smaller, well, then you should also expect to see the effect be smaller. The second thing that I think most of us also in the economic profession also underestimated is that in the background, while the trade war was raging, there was a dramatic boom in AI. And that dramatic boom in AI meant that no matter what the Fed funds rate was doing, there was a significant appetite among investors to invest in data centers, to invest in associated energy. And because of that, the Fed funds rate was not dragging down AI investments the way that the Fed fund rate would normally drag down CapEx investments because AI investments are not funded by interest rates, at least not initially. It was funded more by equity prices going up. So that meant that only today, now, hyperscalers and the AI and the Meta and Amazon, of course, and Oracle are issuing a lot more debt, so that's why the capital structure is changing for AI companies. But the bottom line to your question is that I think when we all looked at the trade war, literally the Federal Reserve, consensus, me, ended up concluding this is going to have some very negative consequences. But that textbook actually turned out to be not the right textbook to take out because, first of all, the shock ended up being a lot smaller. So that's just what it is. And the second thing is that there was an enormous tailwind coming from AI that we all just underestimated. And this becomes really important looking into 2026, namely, is that tailwind continuing? If that tailwind continues, then growth will likely continue to be really strong, especially, of course, on the CapEx side of the economy. But GDP in the US, 70 percent of GDP is consumer spending and 15 percent is CapEx, meaning business spending. So therefore, what happens in CapEx spending by businesses is important. But what's also important is when the stock market goes up, consumer spending has also been supported as a result of the AI tailwind. So the answer to your question is, maybe I'm wrong when I say that the textbooks are not correct, but maybe what the nuance in your question here really is that I'm saying maybe I just looked at the wrong textbook when the trade war happened. And I'm not the only one. This is what the consensus did. This is what the Fed were doing. And we just all underestimated the resilience of the economy coming because of the AI boom and the associated build-out also of energy.

Greg Dowling (12:18): Well, let's talk about AI because I have some questions about that, right? And maybe it's the layering on the same kind of nuance to these questions. We all know when you talked about it, there is this CapEx boom, and it should continue in this year and maybe even on to '27 and others. It just takes time to build things, to get energy connections. Is this going to be a jobless economic expansion with AI, which would be different? Because usually what we say, when there's lots of growth, there will be employment. There will also be inflation. And so, if you took out that wrong textbook, you might have come with different conclusions. So how does AI impact economics as you look out into this year?

Torsten Slok (13:01): This is really important. Despite that we just together here questioned the economic textbook, but let me take the textbook out for one second here again. And let's look at, if you do AI well, and it ends up increasing my and your productivity and productivity in the economy more broadly, that would directly lead to less inflation. The reason for that is that if I become more productive, if you become more productive, if companies in the economy become more productive, well, then we can produce more. And if we can produce more, of course, that also means that we'll have fewer constraints in the economy and therefore less inflationary pressure. So the immediate answer to your question is that if AI works out and if it does generate dramatic productivity gains, it will absolutely put downward pressure on inflation. So let's now ask the question, is that happening today? And the answer so far is no. There is not much evidence at this point that AI is spectacularly growing productivity. Productivity growth in the aggregate has basically been flat for the last several years, and there's not any sign that it's about to accelerate anytime in the near term. Yes, I do understand. And you and I talk about this also, that there is a lot of issues around. We could certainly hear about the use cases, where we could begin to see more productive workers. Large language models are replacing people who pick up the phone, telemarketers, customer service. We're also hearing anecdotes, of course, a lot about large language models and agents making people more productive in the knowledge economy, in financial services, in a number of different areas in the industrial space. Also, some processes are getting improved also by AI. But the bottom line is, all this is so far is a collection of anecdotes. So that's why the outlook for 2026 depends tremendously on whether you think the growth we have seen in the Magnificent Seven in earnings will begin to spread to growth in earnings in the S&P 493. Because earnings in the S&P 493, earnings expectations since the beginning of 2025 basically have been lowered relative to where they were in the beginning of 2025. But in 2026, if we begin to see an acceleration in earnings in the S&P 493, then it will, of course, begin to have the dramatic impacts on productivity and the dramatic impacts on the economy that some people are talking about. But the bottom line to your question, where we sit right now is, it's very clear, as we also know from the equity market for the last several years, 40 percent of the S&P 500 is the 10 biggest stocks, and that is the AI story. And now is the time, for 2026, to figure out, is the AI story going to spread from the Magnificent Seven to actually also show up in earnings improvement for the S&P 493? And that is the number one question when we look into next year because if we do not begin to see earnings and ROI grow as a result of AI, then a lot of the investments that have been made, including, of course, in data centers and elsewhere, might begin to slow down as we go through 2026. So that's why the short answer to your question is that this issue of, what is the outlook for AI, and will AI succeed or not, is absolutely number one, the biggest upside and downside risk in 2026.

Greg Dowling (16:04): I agree, the big question about productivity and does that flow into earnings. And I guess my question then is more on productivity because I hear this question all the time. People will be like, hey, there's all these productivity gains, but they're just not showing up in the numbers. And formulaically, productivity is pretty easy, right? It's output divided by labor. Are economists getting that wrong, or is it just really we haven't had any productivity gains here for a while?

Torsten Slok (16:29): Oh, that's right, Greg, because this is exactly the issue that, on the one hand, if we begin to think about the next four quarters here in 2026, let's say that AI is not able to deliver all that productivity gains and all that earnings expectations that are priced in at the moment. Well, that would be a really bad scenario because then obviously the main winner in the S&P 500 for the last several years is going to absolutely roll over. Because people are going to say, well, we are just not able to deliver the dramatic earnings that people are expecting to the Magnificent Seven at the moment. On the one hand, if AI fails, then it will not be good for the Magnificent Seven, and it will generally not be good for the economy because data center spending, of course, will slow down. And also, at the same time, consumer spending will likely also begin to slow down because of the wealth effects now reversing. But think about also the other scenario. Let's say that AI is spectacularly successful, and the unemployment rate as we go through 2026 really begins to go up. Let's say the unemployment rate, which today is at 4.6, let's say that that rises to, in the most extreme, 6 or 7 or 8. Okay, if the unemployment rate is 7 or 8, well, then, of course, a lot of people will be losing their jobs. But this is actually also a very, excuse me, bad scenario for those companies that are getting disrupted. So, in that sense, it's a fairly narrow path that we're walking down because, on the one hand, if this does not work out, we will have some problems. But if this widely succeeds, we will have a lot of disruption in a lot of different companies that therefore will also be seeing significant declines in the price of their stocks and, for that matter, spread-widening of their debt in the credit world. So the consequence of this is that if AI really succeeds, we also need to now begin to think about, well, what does that mean? Which companies is it that are then going to get disrupted? And one set of companies that are getting a lot of attention is software because software companies, of course, are now at risk of being disrupted by AI. And by the way, software companies are also at risk because, if interest rates and inflation is higher for longer, that also means that software would have to pay debt-servicing costs that are higher for longer. But the bottom line to your question, it is therefore exciting to talk about 2026 because, if AI fails or if AI succeeds, actually, in both scenarios, we will see some pretty dramatic changes to financial markets.

Greg Dowling (18:32): That's a bit scary, especially on the extremes, where you have to be very concerned. You said earlier, pointing out the obvious, is that GDP is driven by consumer. It's 70 percent of our GDP here in the US. A lot of people talk about the K-shaped economy. I always feel like it's more descriptive to say a sideways V. I don't know why people don't call it The Sideways V, but people call it the K-shaped economy.

Torsten Slok (18:55): Oh, right.

Greg Dowling (18:56): What does that mean in '26? I mean, does AI, to your point, impact that higher-end consumer more than the lower end?

Torsten Slok (19:04): Absolutely. So the K-shaped economy is exactly the idea that the consumer side, there's a number of factors that have been supporting the upper leg of the K, meaning higher-income households. Number one, of course, we have seen significant increase in wealth gains. We've seen, first of all, increase in stock prices. Stock prices are, to a large degree, mainly held by the higher half of the income distribution. That's, of course, supporting therefore consumption for higher-income households. We've also seen home prices go up. So the home ownership rate is about 65 percent, so that does help more people. But mainly, we have seen increase in home prices, of course, for very -- more expensive or the high end of the income distribution, which is also helpful for consumer spending. And finally, what is also helpful for the high end of consumer spending is that when interest rates are higher for longer -- Remember, the Federal Reserve started raising interest rates in 2022. And the payments you get today in private credit, the payments you get today in public credit, in mortgages, in consumer ABS, is basically very elevated because interest rates are elevated. So that means that the cash flow you get in private credit, the cash flow you get in fixed income is basically at the highest level it's been in decades. And that is also benefiting those who own fixed income, which generally also tends to be, of course, households that are in the middle and upper income parts of the income distribution. So those are the forces that have been supporting the upper leg of the K in the K-shaped economy that continue to support high-income consumer spending. At the lower end of the K, we've had some headwinds. The number one headwind has been that the Federal Reserve began to raise interest rates in 2022. When interest rates go up, those who have the most debt unfortunately get hit the hardest. And those who have the most debt are households at the bottom or in the middle of the income distribution. So that means that debt-servicing costs went up, especially debt-servicing costs for low-income households on their auto loans, on credit cards. And more recently, you've also seen that when it comes to student loans. Student loan payments restarted in May of this year. And the main holders of student loans are middle-income households, and now they need to pay back their student loans starting in 2025. And that's, of course, a consequence of the bottom line, namely that now it's not only the lower end of the K that's getting impacted by headwinds. Now, the middle part of the K is also impacted by headwinds because now middle-income households also have to pay back their student loans, which there was a moratorium. They didn't have to pay back their student loan for 5 years from March of 2020 to April of 2025. So the short answer to your question is, it just happens to be the case that there have been some tailwinds to the upper leg of the K that have been helping high-income consumers, and there have been some -- unfortunately some headwinds to the lower end of the K that have been hurting the low end of consumers. And looking into this year, 2026, of course the risk continues to be, but we will continue to see a move in that path, where the high-income households will continue to do well, and low-income households continue to face these headwinds.

Greg Dowling (21:49): So as we sit here in early 2026, we came out of the end of 2025, and we had the government shutdown and we had lack of data. Has any of that sort of impacted your ability to kind of know where we are in early '26? How is that weighing on your views? And where do you think we are for 2026 as a starting point?

Torsten Slok (22:11): So the big picture really is that last year, in 2025, we had a lot of worries, as we talked about, about the trade war and trade war uncertainty and tariffs going up. There were also some other smaller headwinds to the economy coming from immigration restrictions. Let's not forget that in 2022, '23, '24, net immigration into the US was about 3 million people. And the Congressional Budget Office is estimating that here in 2026 and '27, that will now drop to around 500,000 people. So a fairly dramatic drop from 3 million people coming into the country net every year to now only around 500,000 every year. This is, of course, slowing down job growth. So this has also been a milder headwind relative to the headwind coming from the trade war. And lastly, student loan payments restarting in last year, in 2025, was also a headwind. So those headwinds, of course, still are somewhat against us and lowering growth, especially, of course, for people who have student loans. But the good news when we look ahead to the outlook for this year, in 2026, is that growth is actually likely to accelerate. That is the consensus expectation. That is the Fed's expectation. That is our expectation. And why is growth going to accelerate? The number one reason is because of the One Big, Beautiful Bill. The One Big, Beautiful Bill is going, according to the Congressional Budget Office, to lift GDP growth this year, in 2026, up 0.9 percent. Remember, GDP growth in the US is only 2 percent. And now the CBO is saying that roughly half of that alone is going to come from helps to the consumer from the One Big, Beautiful Bill, help to companies from the One Big, Beautiful Bill. And then lastly, other things that are also helpful as we look through 2026 is that there's also a tailwind from the dollar having gone down, and there's also a tailwind from oil prices and gas prices. Gas prices now, for filling up your car, of course, on average nationwide per gallon is now less than $3. That's a fairly significant improvement that frees up money for consumers to spend on other items. So the short answer to your question, Greg, is, we came from an economy that in 2025 was facing headwinds to now an economy in 2026 that's facing tailwinds. And therefore, we expect growth and the economy and, for that matter, also inflation to gradually move higher as we move through 2026.

Greg Dowling (24:15): And that's that kind of balancing act between productivity and growth, right? If you have growth and productivity, maybe you don't see it as much as an inflationary force. If you don't see it, you see all this CapEx spending and no productivity, we probably have inflation. Is that fair to say?

Torsten Slok (24:30): That's exactly right. And this is exactly to that point, Greg, why the FOMC at the moment is having this very, very heated discussion we saw throughout 2025 and also here going into 2026. Significant debate among the FOMC members exactly about what you're saying, namely, are we going to have an economy where inflation is just going to come down and we can therefore cut interest rates a lot more? Or is there a risk that this might not be creating all these productivity gains? And as a result of that, we will begin to see inflation go up again because growth is going up again. And if that's the case, the Fed will have to hike. So this is why some FOMC members have been out there saying, "Well, no, we have much more room to cut." And other FOMC members sitting out there be saying, "No, no." And most noteworthy, we saw in the December FOMC meeting Jeff Smith, from the Kansas City Fed, say, "No, I don't think we should be cutting rates." Very strong opinion, very strong dissent, of course, and that's of course clear, that that debate, especially now that we're going to change the Fed chair in May of this year, that will begin to open up all these discussions around, okay, but what will the next Fed chair then do? Will the next Fed chair believe that the AI boom is going to lower inflation? Or is the next Fed chair coming in and saying, "You know what? Let's just wait and see," and we cannot cut interest rates before we actually begin to see the evidence of that happening. So this debate about what's happening with inflation in 2026 is absolutely critical for what the Fed is going to do. At the moment, the Fed themselves are only pricing in the dot plot, one cut. What that means for you and me and what it means for us in investing is that interest rates are going to stay higher for longer. Yield levels in fixed income are going to remain attractive as we go through 2026 because you can cut some coupons at a very nice level of yield, including in private credit, but also, of course, in public fixed income, where the levels of yields will just be a lot higher because the Fed will still continue to keep interest rates elevated in order to make 100 percent sure that inflation is actually coming down to the Fed's 2 percent target.

Greg Dowling (26:13): At least in the beginning of the year in the US, this should be a party, right? You have got rates coming down, probably. We can argue on how many cuts. You have a lot of CapEx. You're going to have more tax refunds. You have got the World Cup in the United States this summer, and it overlaps with our 250th anniversary. So lots of spending here in the US, we'll see if that spending is used wisely. We'll see, but it should be a pretty good starting point for the US. At the IMF, one of your areas of coverage was China. What does 2026 look like for China?

Torsten Slok (26:51): China unfortunately has three headwinds against them at the moment. Number one is, they still continue to have a very bad demographic situation. The one-child policy in the 1970s means that today, we're now getting to the other side of that, where the population is actually shrinking in China. This is very important because this brings a lot of the same effects that we have seen in Japan for the last several decades. When the population begins to shrink and the population gets older, it becomes more difficult to get economic growth. So the first challenge for China as we enter 2026 and continues to be a challenge over the next several years is that growth is just going to come down. Because we simply have a workforce that, according to the United Nations today, that's about a billion people in the Chinese workforce, that is going to shrink over the next 10 years to 900 million. In other words, much fewer people who have jobs, much fewer people in the population. That means less housing demand. That means less growth in consumer spending in aggregate. All those things are unfortunately, as we have seen again in Japan, a fairly substantial headwind to the Chinese economy these years. The second thing that's a challenge for the Chinese economy is that we also have a housing bubble that has been bursting. You have seen new home prices in China go down. Existing home prices in China have been going down. That creates a lot of the similar effects that we saw in the US in 2008. When home prices are falling, consumers begin to react differently. You also have some problems in the financial system. So that's why falling home prices and a housing bubble that is deflating is also another headwind to the economy at the moment. And last, but not least, China, unfortunately, is, of course, engaged also now in trade war with China and also to some degree with Europe. And that is also facing a headwind because China continues to produce a lot of goods that used to be sold in the US and then for a while were sold in Europe instead. But now the Europeans are also beginning to put the gates up and say, well, you know what? If you are dumping these goods on us, then you know what? That's also not helpful for the European economy. So that's why China has now oriented itself more towards the rest of Asia and emerging markets to sell their goods. So that's why the headwind also for China is that it doesn't seem like this is changing anytime soon, that the geopolitical tensions are also a headwind therefore to trade and exports for the Chinese economy. So, in a nutshell, we are a bit worried that the headwinds to the Chinese economy will continue to be intense as we go through 2026.

Greg Dowling (29:09): You're absolutely right. As we ended 2025, lots of chatter from Europe saying, our warehouses are full. We have too many Chinese products. What does that say for Europe? So maybe we can just kind of swing from China over to Europe. Also a demographic problem, but some spending. So what does Europe look like?

Torsten Slok (29:28): Yeah, this is important. So Europe also has a growth outlook that is not particularly great. But what Europe has going for it is exactly as you're saying, namely there is some spending coming. Especially the Germans decided to say, we would like to spend 500 billion euros in infrastructure, and we would like to spend unlimited on defense. Unlimited, that's a lot of money. So that means that the issue now is, what is the path and the trajectory for these decisions? There's a lot of complaints. I was just in Europe actually last week. There's a lot of complaints when you are in Europe and talk to people about, oh, it's going so slowly and things are not moving as quickly as we would like. And that's certainly correct. These decisions were made by the German government in February of 2025. That's why here, in 2026, we still haven't quite seen the major beneficial effects of this on GDP. But I am still very optimistic that we will see this because the political commitment to get this done is very, very strong. So that's why, in my view, the global industrial renaissance continues to be a major theme, where countries, not only in the US, but also in Europe, are now beginning to say, we need to produce more defense domestically. We need to produce more pharmaceuticals domestically. We need to produce more strategic goods, such as semiconductors, chips, manufacturing rare earths domestically. All that global industrial renaissance now means that we no longer see governments in Europe and the US relying on China as a source of production, but we will instead see now the build-out of now that capacity in Europe, in the US. And therefore, the global industrial renaissance continues to be a major theme for investors going into 2026 because this theme is not going to change. There will continue to be a desire and interest and strong willingness politically in Europe to spend money on defense infrastructure and on the other things I mentioned, simply with the idea that we now got to construct and build this ourselves, now that we cannot rely on the rest of the world no longer.

Greg Dowling (31:22): You've talked a little bit about or mentioned private credit and said it very -- at the very front end. Apollo is one of the behemoths in private credit, private equity, too, but probably one of the largest now in the private credit space. These industries, people have been doing this for a long time. But as a true industry, it didn't really exist 20 years ago, 30 years ago. Even 10 years ago, they probably weren't even recognizable as they are today. What has that had an impact on in terms of the economy, the asset management industries? If you could quickly kind of say, "Hey, what does this mean? What does this mean that we have so much in private equity and private credit?"

Torsten Slok (32:00): One important impact is that it's giving more opportunities for financings for companies that need to borrow. And I know this sounds very simple, but if you and I had a company, we have an idea. We would like to build a new factory. We can go to the local bank and we can say, "We'd like to build a factory. Can you help us give us? Give us a loan." But if the bank says, "I don't want to do that," for whatever reason, then we could turn around and go back again to our office and say, "Okay, what do we do now?" Well, we can then also decide to go to the public bond market. We can issue an IG or high-yield bond, and then we can use that. And we take the proceeds, and we can then invest that in our factory. But we may also say, "Well, that's a good idea, and maybe we can do that." But the challenge with that is that then suddenly your debt is held by thousands of bondholders, and you will just now suddenly become much more sensitive to the ups and downs of what the market is doing every day. But instead, you can go and borrow the money from a private lender. And a private lender could give you the benefit of, for example, already being an expert in the area that we want to build our business in. It could also be that we would like to now get this loan without being therefore sensitive to the ups and downs of what happens in financial markets every day. So I view private credit as simply just another source of financing that really, truly is competing with the other existing sources of financing. So, in that sense, private credit has grown because there was a demand from companies for financing in different ways.

Greg Dowling (33:20): Now, I cheated on that one because I remember a post that you made in the Daily Spark in 2025 about this. And the Daily Spark is awesome. It's a part of a lot of people's daily routine. How do you decide what goes in there? It's daily. There's a lot, right? How do you decide that? And then how do people sign up for that?

Torsten Slok (33:42): You Google. You could just type Apollo Daily Spark, and it will bring you to the homepage. And what we do in the Daily Spark every day is that we send out, at 7 a.m., in the morning, Eastern Time, chart, basically one sentence describing that chart. This is the Daily Spark literally trying to tell you, this is what we're thinking about here at Apollo. This can be everything from something in public markets, in private markets, economic data. We have covered a lot of different areas. And the idea is to keep you abreast with, what are we thinking about at Apollo, and what's on my mind and what's going on on my desk. And in some cases, some people tell me -- Just you and I had a conversation, Greg. So this is the answer to your question. Where do the ideas come from? You ask me a question, or you tell me, or you send me something and say, "Hey, Torsten, did you see this?" Or I ask you a question and say, "Hey, have you looked at this? What's your thought on that?" And our conversation, then suddenly I say, "Well, maybe we should have a daily chart about this issue." And then, in some cases I don't know the answer. I just say, "Hey, here, have a look at this. I'm thinking about this." And then you get together with me, can think about it, or you could say, "Well, I have some thoughts about why this is important or not important." But the idea is really to every day keep you informed about, what are we thinking about at Apollo? What is the process that we are going through? How do we think about things that are happening, everything from the trade war to AI? It's a broad range of things, to inflation. The short answer is that it really comes as a result of the conversations that you and I have and the discussions that we have here internally about what's going on in financial markets and therefore sharing that with you and sharing our investment process with the whole world and saying, hey, have a look at what we're thinking about at the moment.

Greg Dowling (35:13): Love it. It is great. So if any listeners out there have interest, go there, sign up. Hey, we're going to go to the lightning round here, just a few kind of fun questions here to finish up. People love to argue about the economy, and everybody has an opinion on the economy. Some people don't always love economics, like the study of economics. I think good books that you would recommend for someone that kind of loves the economy, but doesn't love formulas.

Torsten Slok (35:41): I would say that the best recommendation, despite that I have a lovely PhD in economics and I can write down a lot of Greek letters, for anyone who's interested, you know what? The best thing is just really to read "The Economist" every week. I'm sorry. But that gives you a really, really good idea about, what are people talking about? What are the topics? They cover the areas relatively deep. They do have opinions, where I disagree, and you may disagree, and we can start discussing what they're saying. But it gives you an incredible insight into, what are the topics that I need to be thinking about in financial markets?

Greg Dowling (36:13): Outside of economics, what do you do for fun?

Torsten Slok (36:16): Yeah, that's a good, great question. So I play soccer once a week here in Brooklyn Bridge Park in New York, every Tuesday. We're pretty hopeless. We play to win in a tournament, but it's a lot of fun. We have about 15 people on the team. So there's nine against nine because the Pier 5 in Brooklyn Bridge, it used to be where the ships were coming in and offloading a lot of goods for New Yorkers. Now it's been turned into a big park that is now instead, of course, being used for recreational purposes. So the bottom line is, I go once a week when I'm not traveling. Unfortunately, sometimes I'm not able to come to every game. But we go and play, and it's a lot of fun. Our team is having a good time. We always use an excuse then for going out and having a beer when the season is over. So we just had a holiday party last week, and it's just great to hang out and spend some time on something else than inflation, unemployment and private markets.

Greg Dowling (37:00): I don't know this answer, but is Denmark in the World Cup? Do they qualify?

Torsten Slok (37:03): The answer to that is that unfortunately it looked pretty good for a while. Now we have to play in the playoffs against two teams, and then hopefully we will qualify. But the answer is, we're not quite there yet. But obviously we should have a decision on that in the next few weeks. But that's a very, very important question you're asking there.

Greg Dowling (37:20): And then finally, what is one fun fact that nobody knows about you?

Torsten Slok (37:25): Well, maybe one fun fact is that I used to play table tennis, once got a bronze medal in doubles in table tennis. This was in the 1980s. I have not had a paddle in my hand literally for decades. This was something that I did, and it was very competitive at the time. But this was -- And it was very weird. Who plays table tennis? But that's because Denmark is a cold place. So there, most sports are indoors. So that's why, when you're a child, you're not running around and playing American football a lot. And no one literally plays lacrosse in Denmark. So that's why. It was all indoor sports, badminton and table tennis and stuff like that. So I was having fun with that when I was in my teenage years.

Greg Dowling (37:59): I love it. All right. So not only the super economist, but a super athlete, Torsten Slok. So you heard it here first. Torsten, thank you so much. And we really appreciate all of this, especially early in '26, to get a sense of where the economy is going.

Torsten Slok (38:14): Thanks so much for having me, Greg. Fantastic.

Greg Dowling (38:17): If you are interested in more information on FEG, check out our website at www.feg.com. And don't forget to subscribe to our communications so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client. Therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.