Latest / Masters in Business / Growth, Employment and Inflation Cycles With Lakshman Achuthan

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Growth, Employment and Inflation Cycles With Lakshman Achuthan · Masters in Business

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Master's in
• 0:11
  Speaker 1: Business with Barry red Holts on Bloomberg Radio.
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  Speaker 2: On this week's podcast, I sit down with Lakshman Achuthan.
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  Speaker 2: He is the co founder of EKRI, the Economic Cycle
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  Speaker 2: Research Institute. I've known Blacksman for I don't know, fifteen years,
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  Speaker 2: almost twenty years, and I've always found his take on
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  Speaker 2: the world of economics and recessions and inflation and employment
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  Speaker 2: just fascinating and unique and different from what everybody else does.
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  Speaker 2: It is very specifically data driven, based on a model
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  Speaker 2: that was originally co developed by Professor Jeffrey Moore, And
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  Speaker 2: I don't know how else to describe it other than
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  Speaker 2: you're looking at a data You're looking at leading indicators
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  Speaker 2: of different lengths as well as coincidental indicators, and you're
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  Speaker 2: trying to figure out when cycles turn. Hey, anybody can
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  Speaker 2: predict the trends, just stay with it until it ends,
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  Speaker 2: but catching the turns is much more challenging. They've put
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  Speaker 2: together a tremendous track record over the past thirty years,
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  Speaker 2: better than just about everybody. Nobody's perfect, but they've gotten
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  Speaker 2: more of the turns and more of the major cycle
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  Speaker 2: turns than anybody else, and that's why their research is
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  Speaker 2: read by not just big investment houses and companies, but
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  Speaker 2: sovereign banks and governments around the world. I thought this
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  Speaker 2: conversation was absolutely fascinating, and I think you will also
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  Speaker 2: with no further ado, my discussion with Lakshman at your
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  Speaker 2: thon Lasman. Welcome back to Bloomberg.
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  Speaker 1: Well, it's wonderful to be back in congratulations on this series.
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  Speaker 2: Over all these years, ten years you were in the
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  Speaker 2: first year's shows, which I have to be honest, are
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  Speaker 2: pretty unlistenable. I go back and listen to them and
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  Speaker 2: you could tell them just like a poppy dog caffeine
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  Speaker 2: and adrenaline. But thank you so much for coming back,
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  Speaker 2: and we'll do this the right way this time. So
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  Speaker 2: let's start out with a little bit of your backgrounds.
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  Speaker 2: I had already graduated college. In grad school, you were
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  Speaker 2: doing some work at Columbia with Geoffrey Moore. Tell us
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  Speaker 2: a little bit about the sort of research projects you
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  Speaker 2: were doing back in the nineteen nineties.
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  Speaker 1: Right, So thank you and pleasure to be here with you,
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  Speaker 1: and thanks for the question. I had the good fortune
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  Speaker 1: or interesting timing of starting with doctor Moore right when
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  Speaker 1: the nineteen ninety ninety one recession was happening. So it's
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  Speaker 1: very interesting and what my whole life's work is around
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  Speaker 1: business cycles. So this was extremely interesting to see in
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  Speaker 1: real time rather than reading it in a history book.
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  Speaker 1: And what I found so interesting about his work was
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  Speaker 1: it was applied economics and it brought some cohesiveness to
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  Speaker 1: the way economies work around the world, free market oriented economies.
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  Speaker 1: Because I'd done some earlier traveling around Europe, I saw
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  Speaker 1: all these different economies and different currencies, and I wondered,
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  Speaker 1: how does this all fit together? And he had kind
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  Speaker 1: of a framework for it, the makings of one, which
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  Speaker 1: I found very interesting. One key thing we were doing
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  Speaker 1: back then was how or if cycles are transmitted internationally.
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  Speaker 2: That was a big aspect of what sort of cycles
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  Speaker 2: business cycles? How are business cycles transmitted from country to country?
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  Speaker 1: Yeah, so if Europe goes into recession, what's the impact
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  Speaker 1: on the US or vice versa, and or Japan or
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  Speaker 1: these were all the big economies then, and how do
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  Speaker 1: they get transmitted? What are the impacts we have? How
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  Speaker 1: does it? You know, what cycles are there that we
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  Speaker 1: all are participating in around the world, and which ones
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  Speaker 1: are slightly more local to specific economy, so that's a
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  Speaker 1: big issue.
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  Speaker 2: Can we assume trade is a big impact into those
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  Speaker 2: as a transmission mechanism or is it more nuanced than that.
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  Speaker 2: It's always more nuanced.
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  Speaker 1: But trade is a big one. Trade is a big one.
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  Speaker 1: Markets are a big one, and a lot of people
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  Speaker 1: take their queue from what's going on in the US.
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  Speaker 1: So there's an outsized impact of the US market globally,
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  Speaker 1: even in local economies around the world. And it's very
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  Speaker 1: much in the goods and trades area, where we've all
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  Speaker 1: taken little spots in the manufacturing floor, and so we're
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  Speaker 1: linked that way, and for better or worse, can impact us.
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  Speaker 1: And meanwhile, our domestic economies may be doing something different.
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  Speaker 2: So everybody thinks of the dollar as our exorbitant privilege,
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  Speaker 2: but you're implying US stock markets are really a giant
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  Speaker 2: exorbitant privilege to the US. It is part of what
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  Speaker 2: drives the global economy.
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  Speaker 1: Yes, and here i'm you know, I work with a
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  Speaker 1: lot of different We at Equy work with a lot
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  Speaker 1: of different users of our material and so to keep
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  Speaker 1: it simple, some are investment managers and some are c
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  Speaker 1: suite kind of business managers, and on the investment management side,
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  Speaker 1: even if you're an investment manager abroad, you're going to
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  Speaker 1: have probably.
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  Speaker 2: A decent sized investment in the United States.
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  Speaker 1: Market, and that's one of the factors that goes into
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  Speaker 1: the big mix. There's also all kinds of other things
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  Speaker 1: in the mix, but transmissions of cycles internationally was a
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  Speaker 1: key thing, or early on, I think one of the
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  Speaker 1: bigger things that's critical today that we were working on
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  Speaker 1: then was the relationship of really three major aspects of
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  Speaker 1: the economy from a cyclical perspective. Their cycles and growth,
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  Speaker 1: which can be in extremes when they contract, can be
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  Speaker 1: business cycles, recessions and expansions. There's cycles in employment which
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  Speaker 1: are related but distinct. They're actually identifiable in different cycles
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  Speaker 1: in employment. And there's a third cycle, a third aspect
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  Speaker 1: which is cycles in inflation. And being able to see
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  Speaker 1: that just to understand the lay of the land of
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  Speaker 1: cycles and free market oriented economies is a huge thing.
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  Speaker 1: Just being aware that that's the pool that we're all
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  Speaker 1: swimming in is really important forgetting at some of the
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  Speaker 1: nuances of what's going on in the economy. So those
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  Speaker 1: understanding those three key aspects of the economy and not
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  Speaker 1: forcing them, and our process doesn't force them to directly
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  Speaker 1: relate to one another, gives us a great deal of
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  Speaker 1: flexibility in understanding what's happening growth, employment, and inflation. If
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  Speaker 1: you have a handle on those three aspects, you really
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  Speaker 1: understand what's going on in the economy. I think you.
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  Speaker 1: I think, well, I don't know that really really at
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  Speaker 1: the end there's stuff I still don't know, But I
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  Speaker 1: think you have a pretty good handle on the nuances,
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  Speaker 1: like how can it be that one's going up and
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  Speaker 1: the others going down? You know, because you have to
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  Speaker 1: tell the story what's happening of what you're seeing. Understanding
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  Speaker 1: that these three cycles, which are related but distinct in
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  Speaker 1: and of itself, is a big leap forward in that understanding.
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  Speaker 2: It was kind of fascinating in twenty twenty two, and
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  Speaker 2: to a less degree twenty three watching the kind of
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  Speaker 2: prior generation the old school nineteen seventies economists get the growth,
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  Speaker 2: employment and inflation picture completely wrong. It seemed like they
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  Speaker 2: defaulted back to the nineteen seventy three seventy four cycle
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  Speaker 2: and had a hard time. We were talking earlier about
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  Speaker 2: the Paul Graham quote all experts or experts in the
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  Speaker 2: way the world used to be. But you know, when
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  Speaker 2: people come out, probably most famously Laurence Summers, you need
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  Speaker 2: to have unemployment to shoot up to ten percent to
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  Speaker 2: kill inflation. Turned out that wasn't the case, wasn't.
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  Speaker 1: Well, no, it's not the case. And again it's because
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  Speaker 1: these cycles, while related, are distinct. There's more inflation cycles
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  Speaker 1: than business cycles. For example, probably a little fewer employment
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  Speaker 1: cycles that inflation cycles. Those will match up a bit
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  Speaker 1: more to business and growth cycles. But even allowing or
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  Speaker 1: understanding that these things can go in different directions is critical.
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  Speaker 1: Twenty two, twenty three, twenty four. It's very interesting because
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  Speaker 1: first let's remember that there was a huge, massive inflation
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  Speaker 1: cycle upturn, right it's in twenty twenty.
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  Speaker 2: Biggest one we've seen, much bigger than the one the
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  Speaker 2: financial process.
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  Speaker 1: And one of the things just even forget about forecasting
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  Speaker 1: or saying what's going to happen. One of the things
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  Speaker 1: that's critical to understand is that inflation is cyclical. I
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  Speaker 1: know those are easy words for to say and talk
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  Speaker 1: about on this program, but fundamentally a lot of models
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  Speaker 1: are not built that way, a lot of policy is
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  Speaker 1: not driven that way. In fact, you could still see
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  Speaker 1: the antecedents of that today in the markets and the
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  Speaker 1: way people are thinking, Hey, inflation's coming down. Yeah, sure,
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  Speaker 1: because it went to the moon, and yeah it's coming
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  Speaker 1: down from the moon. Okay, so we could agree on that,
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  Speaker 1: But does it just keep going down? How do you know?
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  Speaker 1: Does it go down and stay flat at your target?
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  Speaker 2: Yeah?
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  Speaker 1: I don't know where have you seen that happen before?
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  Speaker 1: If you study inflation over decades and have a cyclical
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  Speaker 1: vantage point on it, what you'll see is that it
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  Speaker 1: doesn't go down to some number and hang out. It
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  Speaker 1: likes to cycle. It likes to go up, and it
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  Speaker 1: likes to go down. And the odds, therefore, in my mind,
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  Speaker 1: of it going down and hanging out at some prescribed
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  Speaker 1: number are pretty low. And so therefore we look at
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  Speaker 1: leading indicators of the inflation cycle. Future inflation gauge is
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  Speaker 1: what we call our leading indicator, and it tries to
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  Speaker 1: tell us is there going to be a turn? So
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  Speaker 1: we watch for that in a very simplified way.
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  Speaker 2: That's what we're doing. Cycles. Let's look at the twenty twenties,
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  Speaker 2: but within the context of what came before the twenty tens.
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  Speaker 2: The FED talked pretty continuously in the prior decade about
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  Speaker 2: the challenge of getting inflation up to two percent. We
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  Speaker 2: were in a disinflationary environment, sometimes a deflationary environment around
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  Speaker 2: a lot of the world. Interest rates had gone negative,
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  Speaker 2: and that decade seemed to be our risk is now
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  Speaker 2: deflation like Japan. That's what we have to be on guard.
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  Speaker 2: Suddenly the decade flips, the pandemic starts. The Cares Act,
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  Speaker 2: the first one was the biggest fiscal stimulus since World
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  Speaker 2: War two, ten percent of GDP, The whole regime changes,
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  Speaker 2: and now we're off in a completely different cycle. Or
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  Speaker 2: is that just making it too simple and easy.
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  Speaker 1: No, something has changed. I let's agree on that. Something happened.
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  Speaker 1: Something happened, Okay, But look, if we're going to talk
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  Speaker 1: about the twenty ten's, in a way, what you're dealing
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  Speaker 1: with is there was a bit of a freak out
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  Speaker 1: after the financial crisis.
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  Speaker 2: Right, So we talk about the previous decade for context,
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  Speaker 2: you got to look at.
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  Speaker 1: The there's a there's a history thing. Yeah, this history thing.
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  Speaker 1: So in April of twenty twenty, there was a G
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  Speaker 1: twenty meeting in London and the primary concern was depression. Right, Okay,
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  Speaker 1: I mean, that's what the main headline was. And so
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  Speaker 1: and actually we were beginning our business cycle recovery right
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  Speaker 1: around then. It was starting. It was going to start
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  Speaker 1: in the summer. But nevertheless, the powers that be were
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  Speaker 1: focused on depression and they had it was almost like
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  Speaker 1: you don't let any crisis, good crisis, go to waste
• 11:57
  Speaker 1: that quote, right, So here we have of massive stimulus
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  Speaker 1: put in in all these different programs, and we go
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  Speaker 1: off on this spending spray.
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  Speaker 2: And it wasn't just us, right, it was around the world.
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  Speaker 1: It was around the world, and in particular in China,
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  Speaker 1: where I love the statistic. In three years from eleven
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  Speaker 1: twenty eleven to thirteen, they poured more cement in China
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  Speaker 1: than the United States did in the entire twentyth century, right,
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  Speaker 1: I recall that, which is insane.
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  Speaker 2: But that's the fascinating thing about the twenty tens was
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  Speaker 2: that while Asia and China in particular were engaging in
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  Speaker 2: a massive fiscal spend, there was austerity in the UK,
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  Speaker 2: there was week spending in Europe and the US. It
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  Speaker 2: was pretty much all monetary, no fiscal.
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  Speaker 1: All monetary, no fiscal. So you have the stalemate or
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  Speaker 1: whatever logjam in Washington. I agree that you have monetary
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  Speaker 1: the lift is being done on the monetary side of policy.
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  Speaker 1: But the result of this whole thing, and now I'm
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  Speaker 1: I'm painting in broad brushstrokes US inflation services inflation is
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  Speaker 1: actually positive for much of the decade. It's really goods disinflation,
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  Speaker 1: which is ripping stuff down to which monetary policy is saying, oh,
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  Speaker 1: you know, we're gonna somehow combat this with more stimulus
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  Speaker 1: or easiness or whatever. And it doesn't really work that way, right, right,
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  Speaker 1: but it inflated some things. Right.
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  Speaker 2: If low rates weren't the cause of inflation, well, why
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  Speaker 2: would you think high rates are going to impact You know,
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  Speaker 2: there's got to be some causality in between the solution
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  Speaker 2: and the outcome.
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  Speaker 1: And so we have this, We have this China price
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  Speaker 1: being set. We have the supply chains being optimized for
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  Speaker 1: that as opposed to robustness, which came back with a
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  Speaker 1: vengeance once things went off the rails with the supply
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  Speaker 1: chains when COVID hit. So with I mean, I'm skipping
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  Speaker 1: over a lot of this qy kind of stuff that
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  Speaker 1: we were really mired.
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  Speaker 2: In that quantitative easy We now have the opposite of
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  Speaker 2: a quantitative titan.
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  Speaker 1: Well, to a degree. We have a little bit of it.
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  Speaker 1: We'll see how far it goes. It was very fascinating.
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  Speaker 1: I'm sorry, I'm jumping around here. No, it was very
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  Speaker 1: It was very fascinating because Japan the other day the
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  Speaker 1: Bank of Japan.
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  Speaker 2: Raised rates for the first time in seventeen years.
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  Speaker 1: Okay, so it's a big deal, right, I mean, it
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  Speaker 1: was a minuscule rate rise, But and they're doing this
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  Speaker 1: because they have a little bit of inflation, which they
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  Speaker 1: haven't seen in a long time, and so they're like, oh, okay,
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  Speaker 1: we're going to respond to that, but they actually can't.
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  Speaker 1: It's a paper tiger. They can't really raise rates because
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  Speaker 1: the country is so indebted that they can't service any
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  Speaker 1: higher rate.
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  Speaker 2: So they've been the post of child to the argument,
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  Speaker 2: who cares about deficits because they've been running deficits for forever,
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  Speaker 2: in part because of their demographic problems, rescued in large
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  Speaker 2: part because they've been an exporter since the end of
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  Speaker 2: World War Two?
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  Speaker 1: Yeah, can you just print money and run deficits of
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  Speaker 1: very large sizes forever? And to many of us, we
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  Speaker 1: would say, well, it doesn't sound like.
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  Speaker 2: That could work, But you're pushing it. And yet since
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  Speaker 2: I graduated college in the nineteen eighties, all I have
• 15:31
  Speaker 2: heard is if with the US runs big deficits, well
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  Speaker 2: that'll be the demise of the dollar. Inflational run am uck,
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  Speaker 2: you'll crowd out private capital. No will leend money to
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  Speaker 2: Uncle Sam. And all the things that I have been
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  Speaker 2: told are the manifestation of deficits. None of them have
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  Speaker 2: come true. At a certain point, I think perhaps something
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  Speaker 2: goes wrong. But after being wrong for fifty years, it
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  Speaker 2: kind of makes me look at the people warning about
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  Speaker 2: deficits and saying, I don't know, You've had half a
• 16:05
  Speaker 2: century to get this right, and everything you've said has
• 16:08
  Speaker 2: been false. Why should I listen to you today? Well,
• 16:11
  Speaker 2: this time was serious. Yeah, it's weird.
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  Speaker 1: It's a really interesting question. So post GFC, we ran
• 16:19
  Speaker 1: up the debt towards ten trillion, maybe just under ten trillion,
• 16:24
  Speaker 1: and then post COVID we're north of thirty right in
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  Speaker 1: the US right, so who knows? I don't know.
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  Speaker 2: Could we do sixty?
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  Speaker 1: I at this point, I don't know.
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  Speaker 2: The thinking is at some point eventually I remember the
• 16:38
  Speaker 2: weight of that. You're old enough to Remever, now I'm
• 16:40
  Speaker 2: sorry I'm.
• 16:41
  Speaker 1: So sorry for the younger listeners. But I got to
• 16:43
  Speaker 1: go back even further to President Clinton's Bill Clinton's first term.
• 16:48
  Speaker 2: When do we balance the budget? Was it the first term?
• 16:51
  Speaker 1: Towards the end it says in the second term he
• 16:54
  Speaker 1: got into surplus. But in the first term he comes in.
• 16:58
  Speaker 1: I think he's got he's got the whole thing, right,
• 16:59
  Speaker 1: he's got the full hand, right, he's got a full house,
• 17:02
  Speaker 1: he's got the Congress and Senate him. And he's in there,
• 17:06
  Speaker 1: and they're going to go to town. They got programs,
• 17:08
  Speaker 1: and the bond market says, no, you don't and raises
• 17:11
  Speaker 1: raise long term rates, and they and Jim Carville very
• 17:16
  Speaker 1: and he comes back. He says, you know, look, I
• 17:18
  Speaker 1: would have I would have wanted to come back as
• 17:20
  Speaker 1: the president, the pope, a four hundred hitter in baseball.
• 17:24
  Speaker 1: But actually, now you want to be a bond the
• 17:26
  Speaker 1: bond market. It's the most powerful thing.
• 17:28
  Speaker 2: I want to be reincordinated as the bond Madler. It's
• 17:31
  Speaker 2: such a great.
• 17:31
  Speaker 1: So do the vangilantes come back. We'll see. I don't know.
• 17:35
  Speaker 2: It's really quite a fascinating story. I'm not necessarily a
• 17:39
  Speaker 2: member of either the fiscal hawks or the m MTS.
• 17:45
  Speaker 2: I think both extremes in any circumstance, raised questions. But
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  Speaker 2: I have a hard point getting past all the forecasts
• 17:56
  Speaker 2: about here are the terrible things that are going to
• 17:58
  Speaker 2: happen from the eighties. Yeah, and if nothing happens in
• 18:02
  Speaker 2: forty years, well kind of it makes me say, all right,
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  Speaker 2: we have to break this down to first principles and
• 18:09
  Speaker 2: figure out why are deficits problematic? How do the negativities
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  Speaker 2: manifest themselves? And how can we check if we're right
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  Speaker 2: or wrong? What's the line in the sand that says, uh,
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  Speaker 2: we got this right or we got this wrong.
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  Speaker 1: You have a lot of different levers being pulled, with
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  Speaker 1: a lot of different frameworks on how the economy runs
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  Speaker 1: and works. Now, to our great benefit, we're in a
• 18:39
  Speaker 1: in economies for the most part, that are dominated by
• 18:42
  Speaker 1: free market oriented activity, which has inherent in it a
• 18:48
  Speaker 1: very Darwinian type of regulation. This is that I'm talking about, Like,
• 18:53
  Speaker 1: why do economies accelerate and decelerate? You know, so before
• 18:56
  Speaker 1: we had policymakers, before you had the FED, you still
• 18:59
  Speaker 1: had cycles. Okay, it's not like cycles are new, and
• 19:02
  Speaker 1: it's not like cycles didn't turn up and down without
• 19:05
  Speaker 1: policy intervention.
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  Speaker 2: They did.
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  Speaker 1: So there is a mechanism under there that is kind
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  Speaker 1: of optimizing or penalizing decision making. And when we look
• 19:18
  Speaker 1: at forecasts that are made, right, what you're really doing,
• 19:23
  Speaker 1: I think it's not so much. Hey, I think it's
• 19:25
  Speaker 1: going to be one and it said it was I
• 19:27
  Speaker 1: right or wrong? Right, that's I don't think. I think
• 19:29
  Speaker 1: that's kind of a fool's game. It's managing risks. What
• 19:33
  Speaker 1: is the risk that things are going to go the
• 19:36
  Speaker 1: other way than what everybody's thinking. Because as a decision maker,
• 19:40
  Speaker 1: it's easy enough to go with the crowd. You know,
• 19:42
  Speaker 1: it probably feels less risky everybody else is doing it whatever.
• 19:47
  Speaker 1: The interesting and tough thing is when you deviate from
• 19:50
  Speaker 1: the crowd.
• 19:51
  Speaker 2: Right, When you deviate from the crowd, this career risk
• 19:55
  Speaker 2: when you're wrong with the crowd. All right, I was wrong,
• 19:58
  Speaker 2: but so is everybody else correct?
• 20:00
  Speaker 1: And so but now let's take this to an economy
• 20:04
  Speaker 1: or a business, so it's policy or private business decision making.
• 20:09
  Speaker 1: I think for an economy theory, you want this to
• 20:12
  Speaker 1: be healthy, strong, growing, improving quality of life, which probably
• 20:19
  Speaker 1: means not crazy inflation, but decent growth. Which is going
• 20:24
  Speaker 1: to be related to productivity growth on some level. And
• 20:27
  Speaker 1: so how do you achieve all of that? Well, one
• 20:31
  Speaker 1: way to move towards that is to smooth out the
• 20:35
  Speaker 1: cycle a bit. Okay, Booms and busts are very.
• 20:40
  Speaker 2: Very freaky, right. They disruptive, They scare you right.
• 20:44
  Speaker 1: On the one hand, you're like, the sky is falling,
• 20:46
  Speaker 1: I got a baton down the hatches. That's that's very
• 20:48
  Speaker 1: expensive and disruptive. On the other hand, when you're in
• 20:51
  Speaker 1: a boom, you start taking pretty crazy risks, right because
• 20:56
  Speaker 1: you say I'm going to the fear of missing out
• 20:58
  Speaker 1: kicks in and you start to really overextend yourself.
• 21:02
  Speaker 2: And by the way, we saw that at the end
• 21:06
  Speaker 2: of the nineteen nineties, the eighty two to two thousand cycle.
• 21:10
  Speaker 2: We certainly saw that in a different asset class in
• 21:15
  Speaker 2: the two thousands with houses and mortgages. And then the
• 21:19
  Speaker 2: question is are we seeing that today when we look
• 21:22
  Speaker 2: around at tech and AI and things that we think
• 21:26
  Speaker 2: are going to change the future. Have we gotten into
• 21:29
  Speaker 2: that fomo things are out of hand?
• 21:31
  Speaker 1: Face? I think so, because let me just tell you
• 21:34
  Speaker 1: the story of our indicators over the last couple of years.
• 21:36
  Speaker 1: Because that sets steady answers this question in a way.
• 21:39
  Speaker 1: So the indicators, first off, they shoot up in twenty twenty, right,
• 21:46
  Speaker 1: so we see the short and nasty short recession we
• 21:49
  Speaker 1: were writing about, right, and so we get that correct,
• 21:52
  Speaker 1: and there's a lot of hand ringing that we all
• 21:55
  Speaker 1: felt later in twenty twenty and twenty one.
• 21:59
  Speaker 2: I'm not denying.
• 22:00
  Speaker 1: Any of that. The indicators don't feel any of that, right,
• 22:02
  Speaker 1: They're just we're moving to the upside, and so they're
• 22:06
  Speaker 1: directionally giving us this upside tilt in the way that
• 22:10
  Speaker 1: we're looking.
• 22:11
  Speaker 2: At risk separate from the way people experience it, which
• 22:15
  Speaker 2: is after any sort of break or crash or even
• 22:20
  Speaker 2: short reception, there's that PTSD that follows. In fact, we
• 22:25
  Speaker 2: were talking earlier about the GFC in eight oh nine,
• 22:30
  Speaker 2: I have a vivid recollection as talking to people in
• 22:33
  Speaker 2: twenty ten, twenty twelve, as late as twenty fifteen, still
• 22:37
  Speaker 2: talking about I'm still waiting for the other and shoot
• 22:40
  Speaker 2: a drop.
• 22:41
  Speaker 1: It manifested even I think, you know, maybe in order
• 22:44
  Speaker 1: of magnitude or post COVID from what you just described.
• 22:48
  Speaker 2: People did not believe the rally off of the March life.
• 22:51
  Speaker 1: So two big things happen one preceded COVID. I'm just
• 22:55
  Speaker 1: talking numbers here. It's not nothing else but legal migration
• 23:01
  Speaker 1: kind of round to a halt during the Trump administration.
• 23:04
  Speaker 1: That runs about a million people a year. So over
• 23:07
  Speaker 1: the course of four years.
• 23:08
  Speaker 2: We're not talking Mexican border. We're talking about legal immigrants
• 23:12
  Speaker 2: with a green card and the right to work.
• 23:14
  Speaker 1: It's about so you lose on the order of four
• 23:16
  Speaker 1: million people out of the workforce. I mean, look, we
• 23:18
  Speaker 1: have a big workfurse, but it's noticeable number, right, And
• 23:21
  Speaker 1: then you have COVID, and regardless of the shutdowns in
• 23:25
  Speaker 1: this and that a lot of people didn't come back
• 23:27
  Speaker 1: to the workforce. You lose another serious hunks.
• 23:30
  Speaker 2: So a million people all I'm describing.
• 23:32
  Speaker 1: Look, I am i am very empathetic to the human
• 23:38
  Speaker 1: cost here, but I'm just saying from an economic counting
• 23:41
  Speaker 1: the people who are in the workforce point of view,
• 23:45
  Speaker 1: you have a huge constriction of the labor supply. At
• 23:49
  Speaker 1: the same time that PTSD and the impulse that we
• 23:53
  Speaker 1: have as a country or people community is that we
• 23:59
  Speaker 1: want to help, we want to do something. So the
• 24:03
  Speaker 1: amount of dollar support given to the economy post COVID
• 24:08
  Speaker 1: is just mind boggling. Okay, you know Senator Everett Dirkson
• 24:13
  Speaker 1: used to quip about a billion here, a billion there.
• 24:15
  Speaker 1: Now we're talking real money. We're talking trillions right here,
• 24:19
  Speaker 1: trillions there. I think it's on the order back of
• 24:22
  Speaker 1: the napkin. I think it's on the order of about
• 24:24
  Speaker 1: seven trillion dollars dumped on the economy when you have
• 24:30
  Speaker 1: a constrained labor supply by a serious amount.
• 24:34
  Speaker 2: By the way, to put some flesh on those bones.
• 24:37
  Speaker 2: Karres Act one was two trillion dollars, which, by the way,
• 24:41
  Speaker 2: was under President Trump. The Kars Act two wasn't quite
• 24:45
  Speaker 2: as large. I want to say, it was about eight
• 24:46
  Speaker 2: hundred billion. Yes, stimmy checks. All of these things also
• 24:50
  Speaker 2: under Trump. And the fascinating thing about those that hit
• 24:54
  Speaker 2: the economy immediately wasn't spread out. Then President Biden comes in.
• 24:58
  Speaker 2: Kars Act three was another trillion, then spread out over
• 25:02
  Speaker 2: the next decade, the Infrastructure Act, the Inflation Reduction Act,
• 25:07
  Speaker 2: Semiconductor and Chips Act, Ships and Science and then there
• 25:10
  Speaker 2: was one other. But those were all those four things
• 25:14
  Speaker 2: were spread out over a decade. So they're still hill winds.
• 25:19
  Speaker 1: They're actually still hitting now. I mean when we look
• 25:21
  Speaker 1: at one of the Now I'm going to get in
• 25:23
  Speaker 1: the weeds for two seconds. One of the cycles, because
• 25:25
  Speaker 1: we look at many cycles on growth. So one of
• 25:27
  Speaker 1: the cycles we look at which we can see and
• 25:31
  Speaker 1: track is non residential construction in the United States, and
• 25:36
  Speaker 1: so that's cycling down. The leading indicators are collapsing. The
• 25:40
  Speaker 1: actual coincident indicator is turning down, and it just does.
• 25:43
  Speaker 1: The coincident index, which is the target, just does a
• 25:47
  Speaker 1: hockey stick in August twenty two, because I understand that
• 25:52
  Speaker 1: these fiscal infrastructure accidents and Chips acts are going to
• 25:55
  Speaker 1: come out over time, but private sector also jumps on that. Right,
• 26:00
  Speaker 1: They're like, we're going to get in on this, and
• 26:01
  Speaker 1: we want we want to we want to have access
• 26:03
  Speaker 1: to this, so we'll put in some you put in
• 26:05
  Speaker 1: some All of that starts back in the fall of
• 26:10
  Speaker 1: twenty two. You see a cyclical impulse, which is to
• 26:14
  Speaker 1: the downside. I mean, look, leading indicators of the economy
• 26:18
  Speaker 1: turned down hard and twenty two into twenty three, they
• 26:21
  Speaker 1: were completely consistent with an outright recession.
• 26:25
  Speaker 2: You had, Oh yet rates go up five hundred and
• 26:27
  Speaker 2: twenty five.
• 26:27
  Speaker 1: Base even before the rate hike though, oh really, before
• 26:30
  Speaker 1: the rate hike.
• 26:31
  Speaker 2: Yes, so from it again, and let's call it March
• 26:34
  Speaker 2: twenty twenty two, something like that.
• 26:36
  Speaker 1: So before that you're seeing the indicators already, Wan, but
• 26:39
  Speaker 1: you had.
• 26:39
  Speaker 2: A lot of jaw boning. There were expectations that rates
• 26:43
  Speaker 2: wouldn't go up. Yeah, people, some people believed that. Some
• 26:46
  Speaker 2: people didn't. The market clearly anticipated it. They were a
• 26:50
  Speaker 2: little late on the rates up. The market was late
• 26:52
  Speaker 2: on the rates up compared to the leading indicators of inflation.
• 26:54
  Speaker 2: They were, they were leading indicators of inflation, went up
• 26:58
  Speaker 2: end of summer into the.
• 26:59
  Speaker 1: Fall, and the markets started in twenty one. Yeah, and
• 27:02
  Speaker 1: markets started to move later and towards the end of
• 27:04
  Speaker 1: twenty one.
• 27:05
  Speaker 2: That's right, that's right. And then twenty two bad year
• 27:09
  Speaker 2: for both stocks and bonds.
• 27:10
  Speaker 1: That's putting it mildly. That has a nasty year for bonds,
• 27:15
  Speaker 1: But okay.
• 27:16
  Speaker 2: Unusual by the way that you had stocks and bonds
• 27:19
  Speaker 2: both down double digits. I don't think we say that
• 27:22
  Speaker 2: for forty years. Eighty one eighty two was the last
• 27:25
  Speaker 2: time we saw that.
• 27:25
  Speaker 1: Yeah, that's not that's not your typical thing. It's hard
• 27:28
  Speaker 1: to run a system with that as a likelihood. And
• 27:32
  Speaker 1: I think that's why a lot of people got tagged
• 27:34
  Speaker 1: then understandably, But the point is, when you have that
• 27:39
  Speaker 1: much foam on the runway, that's a lot of phone.
• 27:43
  Speaker 1: Because we didn't even talk about the Central Bank earlier
• 27:45
  Speaker 1: on for the you know, before they started to tighten,
• 27:48
  Speaker 1: they were very very comminative. So when you have that
• 27:52
  Speaker 1: much foam on the runway, it was very different than
• 27:55
  Speaker 1: what we saw in other economies.
• 27:57
  Speaker 2: Around the world.
• 27:58
  Speaker 1: And so you you saw GDP actually contract for a
• 28:01
  Speaker 1: couple of quarters and twenty two, but jobs did not
• 28:03
  Speaker 1: go negative. In order to have a recession, you need
• 28:06
  Speaker 1: to see output and employment going negative along with sales
• 28:11
  Speaker 1: and income, and so those conditions did not present themselves.
• 28:15
  Speaker 1: There's been a tug of war, I think, going on
• 28:18
  Speaker 1: for much of twenty three between cyclical impulses to the
• 28:22
  Speaker 1: downsign and foam on the runway pushing to the upside.
• 28:27
  Speaker 2: Saying, combine with what you were hinting at earlier, which
• 28:32
  Speaker 2: is a labor force that's arguably four to six million bodies.
• 28:37
  Speaker 1: Short, bodies short, and so you would have employers literally
• 28:42
  Speaker 1: if you could walk and talk, you got hired. And
• 28:45
  Speaker 1: now I think people are a bit more picky.
• 28:47
  Speaker 2: Although you still hear some companies talk about labor warehousing. Yeah,
• 28:52
  Speaker 2: because if they have growth, right, labor hoarding and labor warehousing.
• 28:55
  Speaker 2: If you're expecting growth, you don't know if you're gonna
• 29:00
  Speaker 2: be able to have the bodies to execute it. You
• 29:01
  Speaker 2: hire sooner rather than later.
• 29:03
  Speaker 1: And hiring and firing is very disruptive for a business.
• 29:06
  Speaker 1: So if they could, if they could see over the
• 29:08
  Speaker 1: valley and hang on to people, they try to do that.
• 29:11
  Speaker 1: So you see when you look inside of the different
• 29:15
  Speaker 1: levers that employers can pull, work week temphires, part time
• 29:20
  Speaker 1: versus full time, all these different things that employers can do,
• 29:24
  Speaker 1: a lot of them are marginally you know, they're moving down.
• 29:26
  Speaker 1: They have been moving down, but they've fallen short about
• 29:30
  Speaker 1: right firing because, as you say, if things firm, I
• 29:34
  Speaker 1: don't want to be scrambling to find someone to work.
• 29:38
  Speaker 1: And there was a little bit of a line here.
• 29:40
  Speaker 1: The big businesses were able to hire people. There was
• 29:43
  Speaker 1: a smaller businesses that had a really, really tough time
• 29:46
  Speaker 1: and they have PTSD today where they're very reticent to
• 29:50
  Speaker 1: let people go. Again, you've got slower jobs growth, but
• 29:55
  Speaker 1: positive jobs growth. So in the tug of war between
• 29:58
  Speaker 1: the cyclical impulse down and the foam on the runway.
• 30:02
  Speaker 1: We're staying out of recession so far. Now. Meanwhile, we
• 30:05
  Speaker 1: talked about the different cycles. Meanwhile, the inflation cycle downturn
• 30:11
  Speaker 1: which has been going on and is projected to continue
• 30:14
  Speaker 1: and get towards two percent and hang out there. That's
• 30:16
  Speaker 1: not cooperating, right, That has stalled out our future. Inflation.
• 30:22
  Speaker 1: Gage are leading indicator of inflation has come down and
• 30:25
  Speaker 1: it's gone sideways for almost a year, stops going down.
• 30:29
  Speaker 1: So very consistent with this headline kind of statement of
• 30:33
  Speaker 1: sticky inflation without getting in the weeds of what's what
• 30:36
  Speaker 1: in there. Overall inflation is not reducing the way it's
• 30:42
  Speaker 1: supposed to do, and that could be a problem. I
• 30:46
  Speaker 1: think that's going to be a problem this year.
• 30:48
  Speaker 2: So let me challenge or push back on that a
• 30:50
  Speaker 2: little bit. In the twenty tens, we couldn't get inflation
• 30:55
  Speaker 2: up to two thousand. We had a very punk post
• 31:01
  Speaker 2: crisis recovery, which, by the way, is not a typical
• 31:05
  Speaker 2: following of financial crisis. You tend to have a weakish recovery.
• 31:12
  Speaker 2: Combine that with mostly monetary hardly any fiscal stimulus following
• 31:18
  Speaker 2: the financial crisis, so that's the original framework that we
• 31:23
  Speaker 2: came into this with. And then Roger Ferguson, the former
• 31:28
  Speaker 2: Vice Chairman of the Federal Reserve, had this delightful column
• 31:33
  Speaker 2: he wrote, maybe it was foreign affairs. I don't remember
• 31:36
  Speaker 2: where I saw it. The two percent target is hilariously
• 31:41
  Speaker 2: made up, and it traces its roots to a live
• 31:45
  Speaker 2: television show that it was either Australia or New Zealand's
• 31:50
  Speaker 2: you had a banker at that right and kind of
• 31:53
  Speaker 2: just spitballed it. And that was in the nineteen eighties.
• 31:56
  Speaker 2: And why we still stuck with two percent as a target,
• 32:00
  Speaker 2: especially when we're in an era of big fiscal stimulus. Well,
• 32:07
  Speaker 2: it's well it is kookie.
• 32:09
  Speaker 1: Look I want to step back for a second, because
• 32:13
  Speaker 1: this is the product of a model driven mindset. Yes
• 32:19
  Speaker 1: that if you add this to that and tweak this,
• 32:23
  Speaker 1: that we get some number at the end. And a
• 32:25
  Speaker 1: lot of forecasting and model driven and the way people
• 32:29
  Speaker 1: think about the world is based on econometric modeling right now.
• 32:33
  Speaker 1: Econometric modeling is a very useful tool of It can
• 32:39
  Speaker 1: help frame like what are we looking at outside our window?
• 32:41
  Speaker 1: But one of its particular weaknesses, probably the biggest, weakness
• 32:47
  Speaker 1: is it can't handle a turning point. Right, Okay, Now,
• 32:51
  Speaker 1: if you live in an environment that has upswings and
• 32:55
  Speaker 1: down swings and your framework can't handle turning points, you
• 33:00
  Speaker 1: shouldn't be surprised that this thing goes awry every once
• 33:03
  Speaker 1: in a while. And so right now, right so, all
• 33:06
  Speaker 1: I do is turning points. All Eckri does is turning points.
• 33:09
  Speaker 1: So my mentor, Jeffrey Moore was the father of leading indicators.
• 33:12
  Speaker 1: His mentor Wesley Mitchell identified what a business cycle was
• 33:19
  Speaker 1: over a century ago. And so we don't think in
• 33:22
  Speaker 1: model terms. We're thinking in directional change terms. And today
• 33:28
  Speaker 1: if the model is saying we should go to two
• 33:30
  Speaker 1: percent and hang out there, and the leading indicators of
• 33:33
  Speaker 1: inflation are saying, yeah, it's not going down a lot,
• 33:37
  Speaker 1: and that risk of an upturn is growing every day,
• 33:42
  Speaker 1: the cyclical upturn. I'm not making a big pronouncement about
• 33:46
  Speaker 1: the amount of debt out there, or is China exporting
• 33:50
  Speaker 1: disinflation again or anything. I'm just saying that cyclically, these
• 33:54
  Speaker 1: forward looking drivers of inflation collectively stopped falling a year
• 33:59
  Speaker 1: ago and are starting to edge up. What gives me
• 34:03
  Speaker 1: some anxiety, that doesn't give me anxiety. What gives me
• 34:07
  Speaker 1: anxiety is that we look at this around the world,
• 34:10
  Speaker 1: not just the US. So when we look around the
• 34:12
  Speaker 1: world at inflation cycles in Europe and Asia, emerging markets,
• 34:15
  Speaker 1: major emerging markets, we see that in this century they've
• 34:19
  Speaker 1: been largely synchronized and lo and behold all the leading
• 34:25
  Speaker 1: indicators of inflation. The future inflation gauges abroad are moving
• 34:29
  Speaker 1: up sharply, so that we have an international inflation cycle
• 34:35
  Speaker 1: upturn taking shape. What are the odds that the US
• 34:38
  Speaker 1: is going to set this out? I'm not so sure
• 34:41
  Speaker 1: about that, So I'm watching the future inflation gage very
• 34:44
  Speaker 1: very closely.
• 34:45
  Speaker 2: So I really liked the framework of let's look at
• 34:48
  Speaker 2: three distinct but interrelated cycles growth, employment, and inflation. I
• 34:55
  Speaker 2: also have a very vivid recollection of our first interview.
• 35:01
  Speaker 2: You said something that just stayed with me with a
• 35:04
  Speaker 2: for a long time, which is, recessions just don't happen
• 35:09
  Speaker 2: when the economy is robust and sturdy. The economy can
• 35:13
  Speaker 2: a robust economy can take a hit and kind of
• 35:17
  Speaker 2: catch its footing and keep going. But if you have
• 35:21
  Speaker 2: an economy that's weak, that has some structural problems, and
• 35:25
  Speaker 2: there is an economic shock, those are the sort of
• 35:29
  Speaker 2: setups that create recessions, am I.
• 35:34
  Speaker 1: We talked about the window of vulnerability is what we
• 35:36
  Speaker 1: talked about. And so again the basic structure of how
• 35:41
  Speaker 1: we look at the economy is it's a free market
• 35:45
  Speaker 1: oriented economy. This is a condition we see in market
• 35:48
  Speaker 1: oriented economies and they have an upswing and a down swing.
• 35:53
  Speaker 1: And we see this in the United States, and we
• 35:55
  Speaker 1: see this around the world wherever free markets present themselves
• 35:59
  Speaker 1: and sessions occur during the downswing, during the slow down,
• 36:04
  Speaker 1: when the economy is slowing down. And now I'm talking
• 36:06
  Speaker 1: about a growth rate cycle slow down, so you're decelerating.
• 36:10
  Speaker 2: Let's say you're expanding but at a slower.
• 36:13
  Speaker 1: Yeah, you go from three to two to one percent
• 36:16
  Speaker 1: growth something like that. So you're going to growth rate
• 36:17
  Speaker 1: cycle slow down. Now, if a shock hits you when
• 36:23
  Speaker 1: you're in a slowdown and the forward looking drivers of
• 36:26
  Speaker 1: the economy haven't turned up yet, now that's the recipe
• 36:31
  Speaker 1: for recession. That's how you're vulnerable. You're vulnerable. So we
• 36:35
  Speaker 1: can have an example of that. Would have been my
• 36:39
  Speaker 1: first recession in real time with doctor Moore was in
• 36:42
  Speaker 1: nineteen ninety and the leading indicators had turned down most
• 36:46
  Speaker 1: of the Wall Street and the professional forecasting class thought
• 36:50
  Speaker 1: that we had dodged economic risk at this point. But
• 36:54
  Speaker 1: the forward looking leading indicators were turning down. The economy
• 36:58
  Speaker 1: started to slow a little bit, and then Saddam Hussein
• 37:01
  Speaker 1: invaded Kuwait and you had okay spike and oil prices.
• 37:06
  Speaker 1: So that's the shock, and that contribute together in the
• 37:10
  Speaker 1: FED was a little tight, and so that was the
• 37:12
  Speaker 1: those combination of events boom, we get a recession. We
• 37:15
  Speaker 1: could see other moments where pretty big things happened, but
• 37:21
  Speaker 1: you didn't have a recession. In two thousand and five,
• 37:25
  Speaker 1: I guess it was Katrina shut down, about shut down,
• 37:28
  Speaker 1: about a quarter of the country. No recession. It was
• 37:30
  Speaker 1: a big hurricane. You had nineteen eighty seven crash, took
• 37:33
  Speaker 1: out a quarter of the market, of the equity market.
• 37:36
  Speaker 1: You didn't have a You didn't have a recession. World
• 37:38
  Speaker 1: War two, the attack on Pearl Harbor, pretty big shock,
• 37:42
  Speaker 1: didn't cause a recession. Huh okay. So there are these
• 37:45
  Speaker 1: moments where what you would think would or could be
• 37:49
  Speaker 1: recessionary shocks are not recessionary because of which way you're
• 37:54
  Speaker 1: trending in the business cycle or in the economic cycle,
• 37:57
  Speaker 1: and then others that seem like, eh, okay, that's negative,
• 38:00
  Speaker 1: but it wasn't really that big. But it turns out
• 38:04
  Speaker 1: to be timed right at that moment of weakness. That's
• 38:07
  Speaker 1: how you get recessions.
• 38:08
  Speaker 2: So lest we were talking about last decade, you had
• 38:10
  Speaker 2: a couple of periods throughout the twenty tens, most recently
• 38:15
  Speaker 2: twenty nineteen. Heading into twenty twenty, a number of people
• 38:19
  Speaker 2: were starting to warn about, hey, we're decelerating, we could
• 38:22
  Speaker 2: see a recession. I want to say mid mid decade,
• 38:27
  Speaker 2: twenty fifteen, twenty sixteen, same sort of thing, a little
• 38:30
  Speaker 2: bit to slow down, and then twenty eleven there was
• 38:32
  Speaker 2: a pretty robust consensus that we're going back into recession.
• 38:36
  Speaker 2: So when I look at that that decade, and yet
• 38:40
  Speaker 2: we went the entire decade without a recession, what is
• 38:43
  Speaker 2: it that allows those instances to avoid becoming what you
• 38:49
  Speaker 2: taught me persistent, pervasive, announce and pronounced.
• 38:54
  Speaker 1: Are declines in the indicator the three p's.
• 38:56
  Speaker 2: It's not just a little dip, it's not just a sector.
• 38:59
  Speaker 2: It's big and broad and less.
• 39:02
  Speaker 1: So there's a lot of evidence. So what I would
• 39:04
  Speaker 1: say is in twenty eleven twelve, we had a pronounced,
• 39:06
  Speaker 1: pervasive and persistent decline in the forward looking leading indicators. Okay,
• 39:11
  Speaker 1: and you had weakness in the coincident indicators. You had
• 39:16
  Speaker 1: a six month period with the weakest GDP outside of
• 39:20
  Speaker 1: recession in the past half a century. That happened, right,
• 39:23
  Speaker 1: and that happens in twenty eleven into twenty twelve.
• 39:27
  Speaker 2: Now, in retrospect, why wasn't that a recession?
• 39:32
  Speaker 1: Right? There wasn't a shock. We didn't have a shock there.
• 39:38
  Speaker 1: And one of the things that stood out when we
• 39:40
  Speaker 1: did the post mortem of that period was that it
• 39:44
  Speaker 1: was the most stable period of oil prices ever since
• 39:50
  Speaker 1: oil prices were fixed in the seventies. Okay, there was
• 39:54
  Speaker 1: a moment of price fixing under Nix. Okay, So since
• 39:57
  Speaker 1: then we'd never seen the stability in oil prices as
• 40:00
  Speaker 1: we saw during that little window when we had vulnerability.
• 40:04
  Speaker 1: And I think, I mean, I'm not looking, I'm not
• 40:07
  Speaker 1: an oil supply expert, but fracking was coming on. And
• 40:10
  Speaker 1: so when you would have like the Arab spring or
• 40:13
  Speaker 1: Egypt was shut down or something was shut down, and
• 40:15
  Speaker 1: you'd have the supply shock boom, you had fracking comes
• 40:18
  Speaker 1: step right in and be like we're here we've got
• 40:21
  Speaker 1: the supply and your prices were just rock steady. So
• 40:26
  Speaker 1: that's twenty eleven, twelve, in the mid two thousand's, twenty tens,
• 40:32
  Speaker 1: twenty ten, So sorry, the fourteen fifteen sixteen we absolutely
• 40:36
  Speaker 1: nailed that because we weren't calling for a US recession then.
• 40:40
  Speaker 1: But what we did see, and I alluded to this
• 40:43
  Speaker 1: in the earlier segment, was about the global industrial town
• 40:47
  Speaker 1: turnt which impacted the US, and.
• 40:50
  Speaker 2: How much of that was China, how much of that
• 40:52
  Speaker 2: was Europe and or elsewhere?
• 40:53
  Speaker 1: It was everybody in that one, it was everybody. It
• 40:56
  Speaker 1: was China, Europe, and the United States, other emerging markets
• 41:01
  Speaker 1: all felt this global industrial growth down swing so much
• 41:07
  Speaker 1: so that the US had a manufacturing sector downturn that
• 41:13
  Speaker 1: was pretty sharp. And anybody in that business would have
• 41:17
  Speaker 1: called it a recession for them, right, they would have.
• 41:19
  Speaker 1: That's how they would have felt. Now, the overall economy
• 41:22
  Speaker 1: never went into recession. We didn't call on there.
• 41:24
  Speaker 2: Fourth quarter of twenty eighteen market down twenty percent, and
• 41:28
  Speaker 2: then twenty nineteen following that sort of a recovery, but
• 41:33
  Speaker 2: people were still a.
• 41:34
  Speaker 1: Little stay on twenty eighteen for a second because everybody
• 41:38
  Speaker 1: was so young then right, we were pre COVID, including
• 41:43
  Speaker 1: Jerome Powell. Okay, And so he goes out and talks
• 41:46
  Speaker 1: to I think it was Judy Woodruff or something and
• 41:48
  Speaker 1: starts talking about our star and how it's we're far
• 41:51
  Speaker 1: away from our star and he's hiking and all this stuff,
• 41:53
  Speaker 1: and meanwhile, the future inflation gage has turned straight down. Huh,
• 41:59
  Speaker 1: it is already turned down, right, So inflation not a problem.
• 42:03
  Speaker 1: But this is what's keeping him up at night enough
• 42:06
  Speaker 1: so that he freaks out the equity market and you
• 42:10
  Speaker 1: get a nasty December that sets you up for the
• 42:14
  Speaker 1: Powell pivot in January, where he's just like, oh, yeah,
• 42:17
  Speaker 1: screw this, I'm going to go the other way and
• 42:20
  Speaker 1: says I'm going to go on a listening tour and
• 42:22
  Speaker 1: try to figure out what went wrong.
• 42:24
  Speaker 2: And he you know, I'm not going to say more
• 42:26
  Speaker 2: about that. So let me stop you there, because you're
• 42:30
  Speaker 2: pointing to a couple of really fascinating things I want
• 42:33
  Speaker 2: to talk about, and I'm taking notes. I'm writing energy,
• 42:37
  Speaker 2: I'm writing FOMC, I'm runing houses. Let's start with energy. Yeah,
• 42:41
  Speaker 2: So today we simultaneously have these two conflicting challenges. On
• 42:46
  Speaker 2: the one hand a launch of Iranian missiles at Israel.
• 42:50
  Speaker 2: Israel ninety nine percent of them were knocked out. Oil
• 42:54
  Speaker 2: prices ticked up, but they didn't go crazy. At the
• 42:58
  Speaker 2: same time, I just was looking at a chart. Was
• 43:02
  Speaker 2: it Torsten Slock? I'm trying to remember who sent it?
• 43:05
  Speaker 2: The US is now the world's largest producer of oil,
• 43:09
  Speaker 2: more than Russia, more than Saudi Arabia, more than any
• 43:12
  Speaker 2: other country in the world. So when we look at
• 43:15
  Speaker 2: the challenges to energy as a shock, how do you
• 43:20
  Speaker 2: contextualize geopolitical turmoil? By the way, I didn't even get
• 43:24
  Speaker 2: to Russia invading Ukraine. How do you balance all of
• 43:29
  Speaker 2: these SoCs cards.
• 43:30
  Speaker 1: So in our forward looking data, so I'm not talking
• 43:36
  Speaker 1: about what's actually happening, but what are the risks of
• 43:39
  Speaker 1: a turn in the drivers of the economy. We're looking
• 43:43
  Speaker 1: at hard data from the government. We're looking at market data,
• 43:46
  Speaker 1: so just what do we price something of barrel oil at,
• 43:49
  Speaker 1: for example, or something interest rates? And then soft data
• 43:52
  Speaker 1: survey data, and these are our sources of ingredients. In
• 43:56
  Speaker 1: a way or consider to give us a hint about
• 44:02
  Speaker 1: what are the key drivers of activity. We're separate cycles
• 44:07
  Speaker 1: like inflation doing We're looking at it very much from
• 44:11
  Speaker 1: the demand side of things. Okay, so if there's a
• 44:15
  Speaker 1: supply constraint or all of a sudden the supply gets flush,
• 44:20
  Speaker 1: then the demand is interacting with the supply to give
• 44:23
  Speaker 1: us kind of where we are in the world. So
• 44:26
  Speaker 1: one of the things that we've been talking about since
• 44:29
  Speaker 1: last year is that this year we're going to see
• 44:32
  Speaker 1: a global industrial upturn, a bona fide cyclical global industrial.
• 44:36
  Speaker 2: Upturn, just straight up demand for more manufactured.
• 44:39
  Speaker 1: Goods around the world. And this is not country specific,
• 44:43
  Speaker 1: it's not specific to somebody's policy or anything. It's the
• 44:46
  Speaker 1: way the global industrial cycle works. That's cycling, that's bottoming
• 44:51
  Speaker 1: and cycling up. And so you've seen this begin to
• 44:55
  Speaker 1: manifest in some very short leading indicators, very short leading
• 45:00
  Speaker 1: indicators of global industrial activity, which would be industrial commodity
• 45:04
  Speaker 1: price inflation in PMIS, and in some of the export
• 45:09
  Speaker 1: data that you'll see out of different countries, and those
• 45:12
  Speaker 1: are all starting to gear. Because the movement in the
• 45:17
  Speaker 1: forward data has been pronounced pervasive and persistent, this ought
• 45:22
  Speaker 1: to keep going for a couple of quarters.
• 45:25
  Speaker 2: So in other words, when you look out at at
• 45:28
  Speaker 2: least the manufacturing sector, you're not seeing a global recession
• 45:32
  Speaker 2: in that space. No, No, which makes it harder for
• 45:35
  Speaker 2: that to be a global recession.
• 45:37
  Speaker 1: I imagine it certainly is the backdrop on which we're all operating.
• 45:41
  Speaker 1: Let's say, in the US specific tug of war that's
• 45:44
  Speaker 1: been going on around window of vulnerability to shunks. The
• 45:48
  Speaker 1: window's been kind of pushed down because of all that
• 45:52
  Speaker 1: foam on the runway. And now with a global industrial
• 45:55
  Speaker 1: upturn happening, it gives some relief to our manufacturing sector.
• 45:59
  Speaker 2: Which will get to be able to gear a little bit.
• 46:01
  Speaker 1: More, and that gives a bid on energy prices, notwithstanding
• 46:06
  Speaker 1: what happens to supply. You know, supply is other people
• 46:10
  Speaker 1: are experts on supply. I mean, we've been doing fracking
• 46:13
  Speaker 1: for a long time. It's it's it's brought us to
• 46:14
  Speaker 1: become the world's biggest producer of oil. I don't know
• 46:18
  Speaker 1: how long we can do that. You know, maybe that
• 46:21
  Speaker 1: peaks out. I'm not sure, but it's not weeks, it's
• 46:24
  Speaker 1: but it's not weeks, it's year, right exactly.
• 46:26
  Speaker 2: So then the second related question is, you know you
• 46:31
  Speaker 2: mentioned the palpivot in twenty nineteen. I am getting the
• 46:35
  Speaker 2: sense from reading and listening to the chairman that they're
• 46:40
  Speaker 2: aware of the problem child in inflation is housing. They've
• 46:47
  Speaker 2: locked a bunch of people in who have mortgages five percent,
• 46:52
  Speaker 2: four percent, three percent. They can't put those houses up
• 46:55
  Speaker 2: for sale coast, They're new financing is going to be
• 46:58
  Speaker 2: too pricey. Add to that the fact that following the
• 47:02
  Speaker 2: financial crisis, the United States wildly underbuilt single family homes
• 47:07
  Speaker 2: for a decade. And you have a recipe for sustain
• 47:11
  Speaker 2: rental prices, sustain home prices and limited supply, how would
• 47:17
  Speaker 2: you imagine the economy is going to respond to what
• 47:23
  Speaker 2: limited choices Pal has in front of him.
• 47:26
  Speaker 1: Look, job owning is half of the game here, and
• 47:30
  Speaker 1: so the whole time there's been this job owning about like, Okay,
• 47:34
  Speaker 1: you know, they missed the boat on the inflation upturn,
• 47:37
  Speaker 1: so they had to make up for that. A stitch
• 47:39
  Speaker 1: in time saves nine. They had to make nine stitches, right,
• 47:42
  Speaker 1: So they put in the nine stitches. And then now
• 47:44
  Speaker 1: they're caught up and they're like, okay, now we'll go
• 47:46
  Speaker 1: the other way. We're going to do that, and the
• 47:48
  Speaker 1: market gets out over at skis right the way he
• 47:51
  Speaker 1: talked in December, I think they got six rate hikes
• 47:53
  Speaker 1: priced it right.
• 47:54
  Speaker 2: Wait, so let's just look at this calendar. Yeah, so
• 47:57
  Speaker 2: cares Act in twenty twenty and then the Act two
• 48:00
  Speaker 2: and three and twenty and twenty one. Inflation spikes, passes
• 48:06
  Speaker 2: the two percent upside target March twenty twenty one. By
• 48:10
  Speaker 2: March twenty twenty two, it's seven eight percent, and the
• 48:14
  Speaker 2: Fed starts hiking. Ironically, by June twenty twenty two, inflation
• 48:19
  Speaker 2: peaks at nine percent starts coming down in part to increases,
• 48:23
  Speaker 2: in part to draw boning. By June twenty twenty three,
• 48:28
  Speaker 2: the Fed has done five hundred and twenty five basis
• 48:32
  Speaker 2: points and hikes and kinda says we're pretty good for
• 48:36
  Speaker 2: a while. That's nine months, almost a year ago. Whatever
• 48:41
  Speaker 2: the long and variable lag of inflation is is probably
• 48:44
  Speaker 2: that rate increases have probably been felt in the economy.
• 48:48
  Speaker 2: Now it seems that he's not gonna do six cuts,
• 48:53
  Speaker 2: but two or three certainly felt like they were all.
• 48:56
  Speaker 1: That take, so that he went from six to two
• 48:58
  Speaker 1: or three, and then now we're taking the under on
• 49:01
  Speaker 1: that right on that rate, I think that's where it's
• 49:05
  Speaker 1: it seems to be headed, which is again consistent with
• 49:08
  Speaker 1: the future inflation gauge not falling anymore, right, And when
• 49:12
  Speaker 1: it's been going sideways, anybody who's borrowing money is feeling
• 49:16
  Speaker 1: the pressure of the higher rates. Right. So you're you're
• 49:19
  Speaker 1: especially Uncle Sam, Uncle Sam. You've got delinquencies rising from
• 49:23
  Speaker 1: lower rates. You've got bankruptcy, she got all those kind
• 49:26
  Speaker 1: of things happening. Problematic Again, Yeah, the levels are pretty low,
• 49:31
  Speaker 1: but the direction, the direction is clear, right, they're moving
• 49:34
  Speaker 1: to the upside. One of the bigger issues out there
• 49:37
  Speaker 1: is probably all that commercial real estate stuff that's financing,
• 49:39
  Speaker 1: and where are those walls of financing out there, and
• 49:42
  Speaker 1: when do they have to refinance them? And so the
• 49:44
  Speaker 1: hope is very much that rates come down before those
• 49:48
  Speaker 1: loans come home to roost. The problem is the inflation
• 49:52
  Speaker 1: cycle may be firming if, for example, commodity and price
• 49:55
  Speaker 1: inflation has a bid from the demand side. Forget, I
• 49:58
  Speaker 1: don't I'm not talking about the supply side, the supply
• 50:00
  Speaker 1: if supply gets constrained even more so so far, I
• 50:05
  Speaker 1: don't think we've had that disinflation from China that we
• 50:09
  Speaker 1: enjoyed in the previous decade. Maybe that'll come back, maybe
• 50:13
  Speaker 1: it won't. There's there's some talks of tariffs for example,
• 50:16
  Speaker 1: and then things like that. Right, so this is a
• 50:18
  Speaker 1: very fluid thing in terms of global trade. That all
• 50:22
  Speaker 1: those all those supply chains which used to be just
• 50:25
  Speaker 1: in time, they've been hardened to become just in case.
• 50:29
  Speaker 1: And that's expensive just.
• 50:30
  Speaker 2: In time to just in case.
• 50:32
  Speaker 1: That's a big makes a lot of sense. So that's
• 50:34
  Speaker 1: and that there's a cost when you start to do that.
• 50:37
  Speaker 1: There's a cost all of a sudden. Now there's a
• 50:39
  Speaker 1: cost for holding inventories. Right, last decade you could it
• 50:43
  Speaker 1: was zero financing.
• 50:44
  Speaker 2: Now this decade you got to finance, You got to
• 50:46
  Speaker 2: put in a warehouse, you have to have shippers standing by.
• 50:48
  Speaker 1: All that costs money. And then the PTSD on the
• 50:51
  Speaker 1: difficulty of hiring people doesn't have employers firing people. So
• 50:56
  Speaker 1: wages which let's say Atlanta Fed has a wage tracker,
• 50:59
  Speaker 1: it was a had a north of a six handle
• 51:02
  Speaker 1: a year ago. Now it's down, but it's down to
• 51:04
  Speaker 1: like just above five percent increase in wages. Now that's
• 51:09
  Speaker 1: a real number. Like that's that's not zero, right, that's
• 51:12
  Speaker 1: a real number. And this will start to squeeze on margins.
• 51:17
  Speaker 1: And we touched very quickly on AI and the hope
• 51:20
  Speaker 1: around AI, and we're as hopeful as anyone else that
• 51:23
  Speaker 1: it's going to boost overall productivity, but it could cost.
• 51:28
  Speaker 2: Right, Like every time there's a new technology comes along,
• 51:32
  Speaker 2: the ludites come out and they say, this is the
• 51:34
  Speaker 2: end of the workforce. And for the most part, it's
• 51:37
  Speaker 2: been pretty easy to dismiss that sort of fatalism. It
• 51:40
  Speaker 2: almost feels as if AI is the first time where
• 51:43
  Speaker 2: you have to be, hey, let's not be quite so
• 51:46
  Speaker 2: dismissive this time. You could see how and we all
• 51:51
  Speaker 2: kind of laugh at Siri is terrible, and even Alexa
• 51:54
  Speaker 2: is awful, but you could see that, hey, it's not
• 51:58
  Speaker 2: going to be a century before this is usable. It's
• 52:01
  Speaker 2: going to be months and years, not decades.
• 52:05
  Speaker 1: Right, But will it happen fast enough to offset the
• 52:09
  Speaker 1: inflation cycle upturn that's looking like it's showing up in
• 52:13
  Speaker 1: twenty twenty four. Probably not idea, My guess is probably
• 52:18
  Speaker 1: not there, although I think we can. We can probably
• 52:21
  Speaker 1: adapt reasonably fast. You know, after COVID, the remote work
• 52:26
  Speaker 1: kind of stuck, right, you people adapted to that pretty quickly.
• 52:29
  Speaker 2: It's funny because you know, everybody blames COVID. All this
• 52:32
  Speaker 2: technology has existed for a decade before my office was
• 52:37
  Speaker 2: doing remote work remote offices in the twenty tens, what
• 52:42
  Speaker 2: change was Society suddenly recognized, Wait, why are we going
• 52:47
  Speaker 2: to a building nine to five Monday to Friday to
• 52:50
  Speaker 2: sit there and do stuff I can do in my
• 52:52
  Speaker 2: pajamas at home. I don't understand. It's a social there's
• 52:54
  Speaker 2: a social component to it that we do is mentoring
• 52:57
  Speaker 2: this collaborative work. There are a lot of reasons, but
• 53:00
  Speaker 2: it's not nine to five, five days a week. And
• 53:03
  Speaker 2: what you mentioned with commercial real estate kind of fascinating
• 53:09
  Speaker 2: that that is a slow motion train wreck because these
• 53:12
  Speaker 2: are ten and twenty year leases. They come up a
• 53:15
  Speaker 2: little bit every year, so it gives the Fed and
• 53:19
  Speaker 2: the regulator's time to manage that, which comes back to hey,
• 53:24
  Speaker 2: I understand why Jerome Pwell is concerned about reducing rates.
• 53:33
  Speaker 2: If low rates didn't cause inflation, again, are high rates
• 53:37
  Speaker 2: reducing inflation? I would argue, not only your high rates
• 53:41
  Speaker 2: keeping rental prices up and limiting supply in real estate,
• 53:46
  Speaker 2: but now you have to deal with commercial real estate
• 53:48
  Speaker 2: and the federal deficit. Like there is a good case
• 53:52
  Speaker 2: for him to take rates from five and a quarter
• 53:55
  Speaker 2: to four and a half and say, let's see what
• 53:58
  Speaker 2: happens if we leave them here?
• 54:00
  Speaker 1: Right? Is that wishful thinking on my I think I
• 54:03
  Speaker 1: think that you know, that's a that sounds plausible. It
• 54:06
  Speaker 1: sounds like everybody has pain but can kind of manage it,
• 54:10
  Speaker 1: which is probably the course that seems reasonable.
• 54:14
  Speaker 2: And it's still at a level if there's a recession,
• 54:16
  Speaker 2: they could they have some room.
• 54:19
  Speaker 1: So this, this, all, this all seems reasonable, except that
• 54:22
  Speaker 1: there's a cycle. Right, the cycle has it's like, doesn't
• 54:25
  Speaker 1: care about that plan. Right, it's doing what it does.
• 54:29
  Speaker 1: And the inflation cycle doesn't go down to a number
• 54:32
  Speaker 1: and hang out until you're ready. Okay, it it does
• 54:36
  Speaker 1: what it does. And and so right now, internationally, look
• 54:40
  Speaker 1: we have a global industrial upturn.
• 54:43
  Speaker 2: So that's got a bit on your industrial.
• 54:45
  Speaker 1: Materials prices, sensitive industrial materials prices, energy metals and these things.
• 54:49
  Speaker 1: Then you have recessions have kind of run their course.
• 54:54
  Speaker 1: There's been in Europe you've had a few recessions. China
• 54:57
  Speaker 1: you've had a few recessions. Uh So these recessions have
• 55:00
  Speaker 1: been happening Taiwan, New Zealand, Russia, Japan flirted with recessions,
• 55:06
  Speaker 1: Sweden and Austria, Germany, UK and Germany. They well, so
• 55:10
  Speaker 1: technically I don't know if they went in because of
• 55:12
  Speaker 1: the employment. The employment didn't contract there. They got the
• 55:15
  Speaker 1: negative GDPs, but they didn't get the negative employment quite
• 55:19
  Speaker 1: the same.
• 55:20
  Speaker 2: So then let me ask you an employment question here.
• 55:22
  Speaker 2: If the US is pick a number, If we were
• 55:25
  Speaker 2: four million immigrants short, we lost a million to two
• 55:29
  Speaker 2: million people to COVID. So whatever the number is, there's
• 55:33
  Speaker 2: a few million people missing from our labor pool. Is
• 55:37
  Speaker 2: that true? In Europe and in the Far East.
• 55:41
  Speaker 1: To a degree they didn't have the same issues, but
• 55:44
  Speaker 1: to a degree it's tighter. I mean, clearly Japan has
• 55:48
  Speaker 1: look demographically, there's a whole nother structural demographic discussion we
• 55:51
  Speaker 1: can have where there's a hunk of people who got old,
• 55:54
  Speaker 1: all right, and then there's not as much younger people happen.
• 56:00
  Speaker 2: Pan has its own specific demographic challenge. Then when we
• 56:04
  Speaker 2: look at China, the one child policy is coming home
• 56:08
  Speaker 2: to roost. They have an enormous shortfall generationally speaking, huge.
• 56:13
  Speaker 1: Not easy to solve, and it's where robots and AI
• 56:17
  Speaker 1: and these kind of things have to pick up the slack.
• 56:20
  Speaker 1: And probably the only significant place in the world that
• 56:26
  Speaker 1: has a lot of people being born. I guess India
• 56:29
  Speaker 1: to a degree, and then Africa. These are the regions
• 56:32
  Speaker 1: of the world where the populations are growing.
• 56:34
  Speaker 2: South America also, but not as much.
• 56:36
  Speaker 1: Not quite as much. Right, So growth, which we all
• 56:40
  Speaker 1: want is really broken down to population growth. When I
• 56:45
  Speaker 1: say growth in the I'm talking about growth in.
• 56:47
  Speaker 2: The economic growth.
• 56:48
  Speaker 1: Economic growth is populate your workforce growth plus your productivity growth.
• 56:53
  Speaker 1: Productivity growth, by the way, is really bad. It's really,
• 56:58
  Speaker 1: really really bad and has been and it's kind of
• 57:00
  Speaker 1: deteriorating for decades, and.
• 57:04
  Speaker 2: Which is just so stunning to me and I imagine
• 57:07
  Speaker 2: you also because the work that we do, technology has
• 57:12
  Speaker 2: been nothing but a boon, allowing us to accomplish more
• 57:16
  Speaker 2: with less. But that's I've figured out, or if I
• 57:19
  Speaker 2: had beaten into me over the years. Yeah, you're doing
• 57:23
  Speaker 2: certain type of work that benefits from this, but not
• 57:26
  Speaker 2: everybody gets the benefit of faster internet and quicker computers.
• 57:31
  Speaker 1: Information technology jobs have benefited quite a bit, and the
• 57:34
  Speaker 1: productivity is shot up, But our economy is not simply that, right,
• 57:38
  Speaker 1: It's much bigger, and there's a lot of hands on
• 57:41
  Speaker 1: stuff that happens in our economy and we all experience
• 57:44
  Speaker 1: it when we go about our day, and that overall
• 57:49
  Speaker 1: workforce productivity growth has basically been suffering. Now what happened
• 57:55
  Speaker 1: is around COVID and in the aftermath of COVID, you
• 57:59
  Speaker 1: had a gargantuan plunge.
• 58:03
  Speaker 2: In productivity growth.
• 58:04
  Speaker 1: So it's it's stared stepping down over decades and it
• 58:07
  Speaker 1: just absolutely plunges.
• 58:09
  Speaker 2: Really then it rebounds because I recalled the initial part
• 58:14
  Speaker 2: of when we were in lockdown and work from home.
• 58:17
  Speaker 2: There were all these reports that were surprisingly and again.
• 58:22
  Speaker 1: Because because the hours work went down and output stayed up.
• 58:25
  Speaker 2: Productivity and that was people who were who had the
• 58:27
  Speaker 2: ability to work from home. But if you were not
• 58:31
  Speaker 2: working from home, if you were not able to just
• 58:34
  Speaker 2: log into your office from your computer, I have to
• 58:37
  Speaker 2: imagine that productivity.
• 58:38
  Speaker 1: Yeah, so some stuff like if you were if you
• 58:41
  Speaker 1: were doing hands on work, you just had to stop working,
• 58:43
  Speaker 1: right people were furloughed, and so that that output just collapsed.
• 58:47
  Speaker 1: Now as we open up, we've seen a big spike
• 58:52
  Speaker 1: and you get like positive two or three percent productivity growth.
• 58:55
  Speaker 1: And it happens around the same time that we see
• 58:59
  Speaker 1: all of the story worries around generative AI. So in
• 59:03
  Speaker 1: our simple human brains were like, oh, generative AI gave
• 59:08
  Speaker 1: us this productivity thing, which is not true. Right. What
• 59:11
  Speaker 1: really happened is you had a snapback in productivity growth
• 59:14
  Speaker 1: from horrible numbers which were not real numbers. They were
• 59:18
  Speaker 1: around the whole recession in COVID debacle. Now is that
• 59:24
  Speaker 1: kind of productivity growth sustainable? It's the only way out
• 59:27
  Speaker 1: of this inflation conundrum that the FED is stuck with.
• 59:32
  Speaker 2: So currently you're saying productivity growth is the only way out.
• 59:36
  Speaker 1: At the moment, right, I mean, how are you going
• 59:39
  Speaker 1: to pay someone five percent more but not have high inflation?
• 59:44
  Speaker 1: For example? Right, you need productivity growth.
• 59:46
  Speaker 2: Well, you got to go back a stead. You need
• 59:48
  Speaker 2: more employees, you need more houses, you need more semiconductors
• 59:53
  Speaker 2: to put into cars. A lot of the inflation that
• 59:56
  Speaker 2: we've seen over and above the giant fish stimulus has
• 1:00:00
  Speaker 2: just been these shortages that kind of we're lurking and
• 1:00:05
  Speaker 2: we really didn't pay attention to them.
• 1:00:06
  Speaker 1: Again, you're back to just in time versus just in case.
• 1:00:10
  Speaker 1: And so now if a trade route gets pinched, if
• 1:00:14
  Speaker 1: a bridge goes down, if somebody threatens a factory somewhere,
• 1:00:18
  Speaker 1: or a factory gets messed up, boom, the ripples up
• 1:00:21
  Speaker 1: the supply chain. So there's probably a new structural floor
• 1:00:25
  Speaker 1: on inflation. By the way, it's probably.
• 1:00:28
  Speaker 2: Not as much as its earlier.
• 1:00:31
  Speaker 1: That structural floor is probably a little bit higher because
• 1:00:35
  Speaker 1: of the more robustness that we're gonna want in our.
• 1:00:37
  Speaker 2: Are you talking three three and a half four?
• 1:00:39
  Speaker 1: I don't know.
• 1:00:39
  Speaker 2: It's just higher, but it.
• 1:00:41
  Speaker 1: Ain't one and a half two percents. No, it ain't
• 1:00:43
  Speaker 1: one and a half two percent. The other thing though,
• 1:00:45
  Speaker 1: You know, history doesn't repeat, but it rhymes, right. The
• 1:00:48
  Speaker 1: seventies inflation stuff is interesting, not that anything that's happening
• 1:00:53
  Speaker 1: now is what happened then. But early on in that
• 1:00:56
  Speaker 1: inflationary era, people weren't that pissed it inflame. They were
• 1:01:00
  Speaker 1: more excited about the growth. It was that each time
• 1:01:04
  Speaker 1: inflation cycled down, it didn't get down as far as
• 1:01:08
  Speaker 1: it did before, so that you had higher lows in
• 1:01:13
  Speaker 1: the inflation cycle. And at the end of this decade
• 1:01:17
  Speaker 1: or so, where inflation went from below three percent to
• 1:01:21
  Speaker 1: above thirteen percent.
• 1:01:22
  Speaker 2: It was cycling.
• 1:01:24
  Speaker 1: The average was seven. It was really.
• 1:01:26
  Speaker 2: High in nineteen seventies.
• 1:01:27
  Speaker 1: For the seventies, for that decade roughly right, But.
• 1:01:29
  Speaker 2: It's such a different decade compared completely different.
• 1:01:32
  Speaker 1: But I'm saying psychologically interacting as consumers with prices when
• 1:01:39
  Speaker 1: the lows, when inflation turns down, but it doesn't get
• 1:01:43
  Speaker 1: low enough, it stops at a higher rate. That starts
• 1:01:47
  Speaker 1: to get pretty annoying, and.
• 1:01:48
  Speaker 2: People start talking about it as a structural component.
• 1:01:51
  Speaker 1: They start talking about it. Look, Burns was the FED
• 1:01:54
  Speaker 1: chairman in the early part of the seventies and Volker
• 1:01:56
  Speaker 1: was the FED chairman in the end and towards into
• 1:01:58
  Speaker 1: the eighties. And Burns gets a bad rap because he
• 1:02:02
  Speaker 1: was at the beginning of this inflation era. But understand
• 1:02:06
  Speaker 1: that the environment was not at all open to him
• 1:02:12
  Speaker 1: controlling inflation. It was very much like what are you doing?
• 1:02:15
  Speaker 1: Don't raise rates? Are you crazy? And then it's only
• 1:02:19
  Speaker 1: towards the end of the era when Volker kind of
• 1:02:22
  Speaker 1: had some cover to be as aggressive as he was
• 1:02:27
  Speaker 1: in fighting inflation, and he was very aggressive. Huh.
• 1:02:30
  Speaker 2: Quite interesting. So let's talk a little bit about predicting
• 1:02:35
  Speaker 2: business cycles, and I want to talk about your leading
• 1:02:39
  Speaker 2: and your coincidental indicators. Let's start with the l eis
• 1:02:44
  Speaker 2: what goes into that and how useful are they in
• 1:02:47
  Speaker 2: letting you know when, hey, a turn is coming?
• 1:02:50
  Speaker 1: Right? So the leading economic indicators are very useful in
• 1:02:56
  Speaker 1: managing risk because they're telling you what is the risk
• 1:03:00
  Speaker 1: that whatever's going on now is going to change direction
• 1:03:05
  Speaker 1: and go the other way? Right? So you can have
• 1:03:08
  Speaker 1: your general plan. Hey, I've got my plan for business
• 1:03:10
  Speaker 1: this year and you're running it. But if these indicators
• 1:03:14
  Speaker 1: turn up noticeably or turned down noticeably, then you ought
• 1:03:19
  Speaker 1: to start making contingency plans, being ready and thinking about
• 1:03:23
  Speaker 1: what would I do if things accelerated or what would
• 1:03:26
  Speaker 1: I do if things decelerated? Am I ready for that play?
• 1:03:30
  Speaker 1: Am I ready to run that plays? As an investor
• 1:03:34
  Speaker 1: or a business manager. That's the purpose of the leading indicators. Now,
• 1:03:39
  Speaker 1: inside of those, while ultimately they're proprietary, inside of them
• 1:03:43
  Speaker 1: are data from the government. There's hard data, so they're
• 1:03:47
  Speaker 1: counting things. That's what we mean by hard data. There's
• 1:03:49
  Speaker 1: soft data, which is when someone does a survey, Hey,
• 1:03:52
  Speaker 1: how are you doing? What do you feel like you're doing?
• 1:03:53
  Speaker 1: Are you going to buy a refrigerator? Right? They ask
• 1:03:55
  Speaker 1: you these questions and hopefully you can see through some
• 1:03:59
  Speaker 1: of the biases in there. And then there's the actual price,
• 1:04:01
  Speaker 1: Like you know, how much does a bar of gold
• 1:04:03
  Speaker 1: go for? How much does the thing of oil go for?
• 1:04:05
  Speaker 1: How much does the lumber go for? How much does
• 1:04:08
  Speaker 1: the house go for? These are all just prices at
• 1:04:10
  Speaker 1: their stocks. What are the stock prices? Spreads in different things.
• 1:04:15
  Speaker 1: So these are all different measures that reveal how the
• 1:04:21
  Speaker 1: drivers of the business cycle are acting in concert.
• 1:04:25
  Speaker 2: So what's different from the leis to the coincidental indicator.
• 1:04:29
  Speaker 1: Okay, so the coincident indicators don't try to anticipate anything.
• 1:04:33
  Speaker 1: They're just like, what's going on outside your window? So
• 1:04:35
  Speaker 1: how much output? How much stuff are we making, either
• 1:04:38
  Speaker 1: physical stuff or services or houses and things? How many
• 1:04:42
  Speaker 1: people are working? What is the aggregate sales? Like, what's
• 1:04:46
  Speaker 1: the value of everything that we're selling? And another related
• 1:04:51
  Speaker 1: point is what's the income? What are we gaining? It's
• 1:04:54
  Speaker 1: the other side of the sales right in a way.
• 1:04:56
  Speaker 1: So those four indicators are the coincident. They tell you
• 1:05:01
  Speaker 1: exactly how things are outside your window. The fact that
• 1:05:04
  Speaker 1: there's a cycle means that collectively those four indicators rise
• 1:05:09
  Speaker 1: together and fall together at the turning points. And when
• 1:05:14
  Speaker 1: they do that, they tend to keep doing it for
• 1:05:17
  Speaker 1: at least a couple of quarters.
• 1:05:19
  Speaker 2: Some persistency. Persistency. It's pervasive.
• 1:05:22
  Speaker 1: You can't hide, it's persistent, you can't wish it away.
• 1:05:26
  Speaker 1: It's going to keep happening, and it's pronounced. It's going
• 1:05:29
  Speaker 1: to be big enough that it leaves a mark either
• 1:05:32
  Speaker 1: to the upside of the down.
• 1:05:33
  Speaker 2: So coincidental will go up and down in real time.
• 1:05:36
  Speaker 2: They're not giving you a heads up. How much of
• 1:05:39
  Speaker 2: a lead do you get from the l eis versus.
• 1:05:42
  Speaker 1: Oh and by the way, coincidental, Just to be annoying here,
• 1:05:45
  Speaker 1: it's actually slightly lagging, which would.
• 1:05:47
  Speaker 2: Make which would make sense when we get government data
• 1:05:50
  Speaker 2: about employment. It's telling you about last month or GDP
• 1:05:54
  Speaker 2: last quarter, So of course there's always going to be
• 1:05:57
  Speaker 2: a little bit of a lag. We have some stuff
• 1:05:59
  Speaker 2: that's a little quicker.
• 1:06:00
  Speaker 1: And roughly speaking, the US will come out with the
• 1:06:03
  Speaker 1: data a little faster than some of the other countries.
• 1:06:06
  Speaker 1: But yeah, that's the coincident data.
• 1:06:08
  Speaker 2: Now, the lead time is this is probably one.
• 1:06:11
  Speaker 1: Of the bigger advancements since where most people think leading
• 1:06:15
  Speaker 1: indicator technology lives is that the lead times are different.
• 1:06:20
  Speaker 1: We have what I would call kind of a standard
• 1:06:23
  Speaker 1: leading indicator might lead by a quarter or two.
• 1:06:26
  Speaker 2: That's a long lead.
• 1:06:26
  Speaker 1: Three six months, pretty good, pretty decently. That's kroin of
• 1:06:30
  Speaker 1: a standard one. A short leader might lead by a
• 1:06:31
  Speaker 1: quarter to two or three months, and a long leader
• 1:06:35
  Speaker 1: can push it to three or four quarters. From a
• 1:06:38
  Speaker 1: process point of view, we would look to the long
• 1:06:42
  Speaker 1: leader for the first heads up that a turn might
• 1:06:47
  Speaker 1: be taking place, and it leads by three or four quarters.
• 1:06:50
  Speaker 1: So this gives us a prior view to watch the
• 1:06:54
  Speaker 1: leading indicators. And then if we see the leading indicators
• 1:06:59
  Speaker 1: following what the long leaders did, then we're looking for
• 1:07:01
  Speaker 1: it in the short leading indicators, and then finally, sequentially
• 1:07:05
  Speaker 1: in the coincident data. I have to say, the headlines
• 1:07:09
  Speaker 1: and the market tone and the market narrative lives very
• 1:07:14
  Speaker 1: much between the coincident and very short leading indicators.
• 1:07:17
  Speaker 2: Right, they change it on a dime. I love. Just
• 1:07:22
  Speaker 2: the past twelve months have been markets are going up
• 1:07:25
  Speaker 2: because the Fed's going to cut, markets are going up
• 1:07:29
  Speaker 2: because inflation is coming down. Okay, maybe the FED isn't
• 1:07:32
  Speaker 2: going to cut, but it's a magnificent seven, all right.
• 1:07:34
  Speaker 2: Maybe it's not the magnificent seven, maybe it's AI and
• 1:07:37
  Speaker 2: the story, right, it's always an after the fact explanation.
• 1:07:42
  Speaker 2: That looks silly and hart.
• 1:07:43
  Speaker 1: So what's very interesting? Right? So I've been doing this
• 1:07:46
  Speaker 1: now again, I'm sorry, I'm in my late fifties. I
• 1:07:49
  Speaker 1: feel old, but but I'm like, wait a minute, I've
• 1:07:52
  Speaker 1: been doing this since nineteen ninety.
• 1:07:53
  Speaker 2: Real time, we prefer the term experienced and wizened.
• 1:07:58
  Speaker 1: Wizzened. Yeah, yeah, definitely wizen. The pattern I see, right
• 1:08:03
  Speaker 1: is that sequential stuff with our leading indicators long leader
• 1:08:06
  Speaker 1: only coincidence. So I'm tracking that. That's my world. I
• 1:08:11
  Speaker 1: won't live in that. Uh. And there's one hundred indexes
• 1:08:14
  Speaker 1: I'm watching for the US and around the world in growth,
• 1:08:18
  Speaker 1: the different sectors of growth, inflation, and employment. What I'll
• 1:08:21
  Speaker 1: see though, is that our indicators will turn and to
• 1:08:26
  Speaker 1: the extent they diverge from the consensus narrative. And that's
• 1:08:31
  Speaker 1: a funny thing, the consensus narrative, right, because we all
• 1:08:34
  Speaker 1: have our own consensus or whatever. But I you know,
• 1:08:37
  Speaker 1: market prices kind of give us some beat on that,
• 1:08:40
  Speaker 1: and you can get some algamation of what all the
• 1:08:44
  Speaker 1: smart people are saying, and you get some sense of
• 1:08:46
  Speaker 1: what the narrative is or what the FED saying or whatever.
• 1:08:49
  Speaker 1: And when the cyclical story from these objective leading indicators,
• 1:08:55
  Speaker 1: which they don't care about the narrative. When they diverge
• 1:08:59
  Speaker 1: from the narrative and a gap opens up, that's interesting.
• 1:09:04
  Speaker 1: That's where the really interesting stuff lives. Because if there
• 1:09:09
  Speaker 1: is a cyclical turn and these indicators are I don't
• 1:09:11
  Speaker 1: know anything better to get these cyclical turns, the risk
• 1:09:15
  Speaker 1: of a cyclical turn to watch it. If these cyclical
• 1:09:18
  Speaker 1: indicators are correct, and that divergence has to be resolved,
• 1:09:21
  Speaker 1: it has to be resolved in some way or another
• 1:09:23
  Speaker 1: by the narrative moving toward the indicators. And so it's
• 1:09:27
  Speaker 1: I don't know exactly how the narrative's going to catch up.
• 1:09:30
  Speaker 1: Maybe it's gonna say housing did it. Maybe it's gonna say.
• 1:09:34
  Speaker 2: You know, but at least did it. It doesn't matter.
• 1:09:37
  Speaker 2: By hook or by crook.
• 1:09:38
  Speaker 1: By the end of twenty twenty four, you're gonna see
• 1:09:41
  Speaker 1: ooh there's some demand for commodities. Who saw that coming
• 1:09:45
  Speaker 1: and global industrial or manufacturing emergence, whatever the story is.
• 1:09:49
  Speaker 1: And then oh, inflation didn't go down as far as
• 1:09:53
  Speaker 1: we thought. All these banks around the world are banking
• 1:09:55
  Speaker 1: on cutting ECB. Everybody risk of people are talkingalking about cutting.
• 1:10:01
  Speaker 2: So let's talk about those four long, leading, short, and coincidental.
• 1:10:07
  Speaker 2: We're recording this. It's the second quarter of twenty twenty four. Yeah,
• 1:10:11
  Speaker 2: markets had a pretty robust rally to start the year,
• 1:10:14
  Speaker 2: giving up some some of those gains. As the narrative,
• 1:10:20
  Speaker 2: First it was vibe session. Then it's six cuts. Now
• 1:10:23
  Speaker 2: it's three cuts, maybe two cuts, maybe one cut, maybe none.
• 1:10:28
  Speaker 2: What are you seeing across long, leading, short, and coincidental
• 1:10:33
  Speaker 2: indicators today.
• 1:10:34
  Speaker 1: For the cycle on growth? I'd say, by and large,
• 1:10:38
  Speaker 1: if I squint, they're firming, meaning doing okay, they're doing better.
• 1:10:43
  Speaker 1: This tug of war that has been going on between
• 1:10:47
  Speaker 1: earlier cyclical impulse to the downside and all that stimulus
• 1:10:52
  Speaker 1: that went out the flood of and continues to go
• 1:10:54
  Speaker 1: the foam on the runway, we may be seeing the
• 1:10:56
  Speaker 1: window of vulnerability starting to edge shut.
• 1:10:59
  Speaker 2: You sound much less recessionary. Correct, Then I recall hearing
• 1:11:05
  Speaker 2: from you correct a couple of quarters ago.
• 1:11:08
  Speaker 1: Correct?
• 1:11:08
  Speaker 2: You were, You were hearing correctly. And yet the same time,
• 1:11:12
  Speaker 2: I'm not hearing a whole lot of optimism that we're
• 1:11:15
  Speaker 2: going to see inflation full much below where it is.
• 1:11:18
  Speaker 1: I see, so the immaculate disinflation was the pipe dream, Right,
• 1:11:22
  Speaker 1: that's the one where it just doesn't seem to work
• 1:11:24
  Speaker 1: that way. Look, I've been trying all my life to
• 1:11:26
  Speaker 1: have my cake and eat it too. It doesn't work
• 1:11:28
  Speaker 1: that way. It doesn't exactly work that way.
• 1:11:31
  Speaker 2: So that's what flip side of the strong economy is
• 1:11:34
  Speaker 2: careful inflationary impulse, Careful what you wish. By the way,
• 1:11:38
  Speaker 2: I've had people say to me, imagine how great things
• 1:11:41
  Speaker 2: would be if oil was thirty dollars, and my answer
• 1:11:43
  Speaker 2: is always no, you'd be in a depression if oil
• 1:11:45
  Speaker 2: was thirty dollars. Careful what you want, it's it's how
• 1:11:48
  Speaker 2: you get there.
• 1:11:49
  Speaker 1: So I mean oversimplifying. You could pick a recession and
• 1:11:53
  Speaker 1: sqush inflation that way eventually.
• 1:11:56
  Speaker 2: And send unemployment up to five six and do all
• 1:11:59
  Speaker 2: of that you can. Nobody wants that.
• 1:12:00
  Speaker 1: Nobody wants that. So we're trying to thread the needle. Right,
• 1:12:03
  Speaker 1: there's I think it's an open question on threading the
• 1:12:05
  Speaker 1: needle by spending over seven trillion dollars, that's an apology
• 1:12:10
  Speaker 1: question that the people can debate. You know, you know,
• 1:12:12
  Speaker 1: reasonable people get to be.
• 1:12:13
  Speaker 2: So let's stick with threading the needle. Or as most
• 1:12:16
  Speaker 2: people describe it a soft landing. Yeah, what is this
• 1:12:20
  Speaker 2: soft landing? And what was it?
• 1:12:22
  Speaker 1: Okay, So here if people can imagine those coincident data,
• 1:12:26
  Speaker 1: you put them together into an index. It has a
• 1:12:29
  Speaker 1: growth rate if output, employment, income, in sales. It's cycled
• 1:12:34
  Speaker 1: down very hard into twenty two into twenty three. I've
• 1:12:38
  Speaker 1: seen the picture. It's a sharp decline and then it
• 1:12:41
  Speaker 1: kind of levels out at around two percent. It gets
• 1:12:45
  Speaker 1: pretty weak back in twenty two when GDP goes negative
• 1:12:48
  Speaker 1: for a couple of quarters, but employment keeps it from
• 1:12:51
  Speaker 1: going negative, and so we've been bouncing along. Now. I
• 1:12:54
  Speaker 1: think that that can start to firm a little bit.
• 1:12:57
  Speaker 1: If it does that, it starts to move to the upside.
• 1:13:00
  Speaker 1: You have a soft landing. You had a cyclical downturn
• 1:13:03
  Speaker 1: in growth without a contraction, without it going negative in
• 1:13:09
  Speaker 1: overall growth. And again I'm talking GDP, employment, income, and
• 1:13:13
  Speaker 1: sales collectively. There's no one statistic like GDP which is
• 1:13:18
  Speaker 1: going to define recession, and that would be a soft landing. Okay,
• 1:13:23
  Speaker 1: But everything I'm talking about is in cyclical terms. I'm
• 1:13:26
  Speaker 1: looking out a few quarters. I have not said there
• 1:13:29
  Speaker 1: can't be a recession over a year from now, right,
• 1:13:33
  Speaker 1: there could be. And one of the things that I'm
• 1:13:36
  Speaker 1: watching for that's not in the play that everybody is
• 1:13:40
  Speaker 1: waiting to see, is inflation possibly turning up before it's
• 1:13:47
  Speaker 1: supposed to.
• 1:13:48
  Speaker 2: Let me ask you the question that sums all of
• 1:13:51
  Speaker 2: this up. You get a phone call from the White House, Lashman,
• 1:13:56
  Speaker 2: we have some questions for you about the next six
• 1:13:59
  Speaker 2: months before the election. What's going to happen between now
• 1:14:05
  Speaker 2: and November with unemployment, with inflation in the economy, and
• 1:14:09
  Speaker 2: what should we do about it? How do you answer
• 1:14:13
  Speaker 2: the White House who's throwing that curveball at you?
• 1:14:17
  Speaker 1: Well, let me take the first part. What's going to
• 1:14:19
  Speaker 1: happen the indicators. I could just tell you what they're
• 1:14:22
  Speaker 1: telling right.
• 1:14:23
  Speaker 2: Growth is going to firm, and I think it's going.
• 1:14:25
  Speaker 1: To be industrial based. It will be the first thing
• 1:14:28
  Speaker 1: that you see we are going to see. I think
• 1:14:33
  Speaker 1: employment kind of hang in there.
• 1:14:36
  Speaker 2: You're still under four percent unemployment.
• 1:14:38
  Speaker 1: Because it's cos active because of growth affirming and the PTSD.
• 1:14:42
  Speaker 1: Every all the employers have in trying to hire people,
• 1:14:45
  Speaker 1: they're very reticent to fire. You might see shorter work weeks.
• 1:14:50
  Speaker 1: You're going to see weakness and temp hiring.
• 1:14:53
  Speaker 2: Enough tick in part time.
• 1:14:54
  Speaker 1: You see the uptick in part time you'll see all
• 1:14:56
  Speaker 1: those levers being pulled. But I don't think you see
• 1:14:58
  Speaker 1: the firing.
• 1:14:59
  Speaker 2: Which is part of recession.
• 1:15:00
  Speaker 1: Right now. On inflation, I think you have to really
• 1:15:04
  Speaker 1: think about it firming and not going down. And so
• 1:15:09
  Speaker 1: that's the fly in the ointment. And you know, an
• 1:15:13
  Speaker 1: inflation cycle upturn is an inflation cycle upturn. It's not
• 1:15:15
  Speaker 1: that you can necessarily do anything about it.
• 1:15:18
  Speaker 2: It is what it is. It's gonna happen. You can
• 1:15:21
  Speaker 2: pound your chest about it if it works out, and
• 1:15:24
  Speaker 2: try and change the subject.
• 1:15:25
  Speaker 1: If it doesn't, I think you get in front of
• 1:15:26
  Speaker 1: it and you try to frame it right. So the
• 1:15:28
  Speaker 1: whole thing is about the jaw boning and the narrative.
• 1:15:30
  Speaker 1: And if you were the opposition, you're gonna harp on
• 1:15:33
  Speaker 1: that every single day. And if you're an incumbent, you're
• 1:15:37
  Speaker 1: gonna say, yeah, but look at all this other stuff
• 1:15:39
  Speaker 1: that's going well, where the economy's growing.
• 1:15:42
  Speaker 2: Huh, really really interesting? All right, I only have you
• 1:15:45
  Speaker 2: for another ten minutes, so let's jump to our favorite
• 1:15:47
  Speaker 2: questions that we ask all of our guests, starting with, Hey,
• 1:15:51
  Speaker 2: what are you streaming? What are you watching or listening?
• 1:15:54
  Speaker 2: These days on Netflix or podcasts or whatever.
• 1:16:00
  Speaker 1: This is all entertainment for the most part.
• 1:16:01
  Speaker 2: That's fine.
• 1:16:02
  Speaker 1: Owl House, really, do you know Owl House? No, I
• 1:16:06
  Speaker 1: don't think you would. I'm joking, Barry. It's it's this
• 1:16:10
  Speaker 1: is a show. It's a fantasy show for the kids.
• 1:16:14
  Speaker 1: About it.
• 1:16:14
  Speaker 2: I know, I've seen the It's.
• 1:16:17
  Speaker 1: A lot of fun. It's a great it's really well
• 1:16:19
  Speaker 1: written and nice storytelling in a group of a group
• 1:16:22
  Speaker 1: of kids.
• 1:16:22
  Speaker 2: You're older, now, you know.
• 1:16:24
  Speaker 1: No, I got a nine and I have nine and
• 1:16:26
  Speaker 1: twelve and sixteen, and I try to keep them young. Okay,
• 1:16:29
  Speaker 1: it's best I can. They're going to get older no matter.
• 1:16:31
  Speaker 2: What I get about about six year old.
• 1:16:35
  Speaker 1: And so ol House and troll Hunter, those are nice
• 1:16:37
  Speaker 1: kids shows. I was impressed with how Apple handled Foundation
• 1:16:44
  Speaker 1: in the Foundation.
• 1:16:45
  Speaker 2: Of the books, and I watched the first season. I
• 1:16:47
  Speaker 2: haven't gotten into the second season yet.
• 1:16:49
  Speaker 1: They did a reasonable job. I mean, look, there's no
• 1:16:51
  Speaker 1: way you can tell the story that kind of story.
• 1:16:53
  Speaker 1: It's like Dune. Also, it's very hard to tell the
• 1:16:55
  Speaker 1: story or three body problem that you were talking about.
• 1:16:58
  Speaker 2: Which which, by the way, they did a really good
• 1:17:01
  Speaker 2: job in the first season.
• 1:17:02
  Speaker 1: Because they're so expansive these stories, how do you put
• 1:17:04
  Speaker 1: it to film? I enjoyed that. The one that disturbs me.
• 1:17:08
  Speaker 2: But for some reason I watch it from time to time.
• 1:17:10
  Speaker 1: Is Black Mirror, Yeah, which is every once in a
• 1:17:14
  Speaker 1: while when I'm like, can I take something shocking, I'll
• 1:17:16
  Speaker 1: watch that and then I don't watch it for a
• 1:17:19
  Speaker 1: moment because it's very disturbing. But but I've been liking
• 1:17:22
  Speaker 1: all of those. I mean, there's so much good stuff,
• 1:17:25
  Speaker 1: and some of the.
• 1:17:27
  Speaker 2: There's too much good stuff. My wife and I have
• 1:17:29
  Speaker 2: been saying, all right, let's wrap up. We're finishing up
• 1:17:33
  Speaker 2: Curb and it's like, after we're done with this, I
• 1:17:35
  Speaker 2: want to cut out TV a few days.
• 1:17:38
  Speaker 1: Without without getting political. Something that I rewatched it with
• 1:17:41
  Speaker 1: my sixteen year old was Gandhi really yeah, and it
• 1:17:45
  Speaker 1: held up really really well. The movie it's it's it's
• 1:17:49
  Speaker 1: three hours something long, but it's so interesting to see
• 1:17:54
  Speaker 1: how you know, to remember the history, and then to
• 1:17:57
  Speaker 1: see how the politics get in and things.
• 1:18:00
  Speaker 2: There's been a few shows like The Bodyguard and The
• 1:18:03
  Speaker 2: Diplomat that are to say nothing of the Crown, that
• 1:18:08
  Speaker 2: are of an era and they're just so informative and
• 1:18:12
  Speaker 2: fascinating especially I don't really think of myself as an anglophile,
• 1:18:17
  Speaker 2: but the Crown was just one of those things where
• 1:18:19
  Speaker 2: you fall into a whole nother world. And Gandhi, I
• 1:18:22
  Speaker 2: would imagine, is the same.
• 1:18:23
  Speaker 1: Ghandhi is amazing and you're seeing it from the other
• 1:18:25
  Speaker 1: side of the table, right, So it's fascinating and I
• 1:18:28
  Speaker 1: enjoyed watching that. But I mean, there's so much stuff
• 1:18:31
  Speaker 1: to watch.
• 1:18:31
  Speaker 2: Sure, let's talk about your mentors who helped shape your career.
• 1:18:35
  Speaker 1: I don't want to leave anyone out.
• 1:18:37
  Speaker 2: There are so many people. Well, obviously doctor Moore is huge,
• 1:18:43
  Speaker 2: who really.
• 1:18:44
  Speaker 1: Was the pinnacle of my mentors, I would say others
• 1:18:47
  Speaker 1: some teachers. Shout out to my teachers. I met with
• 1:18:51
  Speaker 1: Sam Lockwood, who taught me fourth and fifth grade last summer,
• 1:18:55
  Speaker 1: and that was really nice to see him, and he
• 1:18:57
  Speaker 1: was just he loved letting me be curious. And then
• 1:19:02
  Speaker 1: as I got into college and into cycles, I had
• 1:19:06
  Speaker 1: a professor at Roxton College in the UK, doctor Baldwin,
• 1:19:10
  Speaker 1: who taught me a lot about politics and the civil service,
• 1:19:14
  Speaker 1: the power of the civil service, which I know which
• 1:19:17
  Speaker 1: I now have come to appreciate, or the deep the
• 1:19:20
  Speaker 1: deep states, the deep state, But I don't think it
• 1:19:22
  Speaker 1: was so nefarious, but yes it was.
• 1:19:24
  Speaker 2: It was definitely that they're powerful.
• 1:19:25
  Speaker 1: Uh, Doctor Loreene Harris who introduced me to doctor Moore,
• 1:19:29
  Speaker 1: to Jeffrey Moore, and then also my father in law
• 1:19:33
  Speaker 1: who came from a different angle, more from a financial
• 1:19:36
  Speaker 1: investing angle, but very interested in economics and psychology, always.
• 1:19:41
  Speaker 2: In the markets, which was which was very important. Let's
• 1:19:44
  Speaker 2: look about books. What are some of your favorite and
• 1:19:46
  Speaker 2: what are you reading right now?
• 1:19:48
  Speaker 1: I'm a sci fi buff, right, Okay, So I like
• 1:19:51
  Speaker 1: the Culture Series.
• 1:19:53
  Speaker 2: It took Ian M.
• 1:19:55
  Speaker 1: Banks.
• 1:19:56
  Speaker 2: Okay, and uh, it's it's a two.
• 1:19:59
  Speaker 1: Thousand in the future. It's very philosophical, but it's excellent.
• 1:20:03
  Speaker 1: It's like space opera stuff. It's if you like Dune
• 1:20:05
  Speaker 1: and those kind of cools, you'll love Ian Banks and
• 1:20:09
  Speaker 1: the and the Culture Series. And I'm reading The Player
• 1:20:11
  Speaker 1: of Games. It's a fun one.
• 1:20:13
  Speaker 2: The Player of Games.
• 1:20:14
  Speaker 1: Player of Games?
• 1:20:15
  Speaker 2: Yeah, who wrote that?
• 1:20:17
  Speaker 1: Ians Banks? Yeah, it's a series of things on a
• 1:20:21
  Speaker 1: more practical sense in terms of thinking. There's an old
• 1:20:26
  Speaker 1: favorite that I go back to, which is called Deep
• 1:20:28
  Speaker 1: Work by cal Newport.
• 1:20:29
  Speaker 2: I recall that book. Yeah, very very good.
• 1:20:33
  Speaker 1: I'm showing my age, but Outlive by Peter Atia on longevity.
• 1:20:38
  Speaker 2: Yeah, on longevity.
• 1:20:39
  Speaker 1: Looking, I'm looking for the name of a book as
• 1:20:42
  Speaker 1: we speak, and then for fun my wife does. She's
• 1:20:45
  Speaker 1: a graphic novelist, Tracy White, and so I dig through
• 1:20:48
  Speaker 1: her library and find things. And there's one that I love,
• 1:20:51
  Speaker 1: which is it's very dated, but it kind of does
• 1:20:56
  Speaker 1: well today. It's called trans Metropolitan by Warren Ellis. It's
• 1:21:00
  Speaker 1: a graphic novel and it's about a journalist, Spider Jerusalem,
• 1:21:04
  Speaker 1: and he's this funny, funny character who's trying to speak
• 1:21:07
  Speaker 1: truth to power and all that. But a great graphic novel.
• 1:21:11
  Speaker 1: I'm reading this with my son. He's twelve.
• 1:21:13
  Speaker 2: Be Useful by Arnold Schwarzenegger. Oh really looks kind of interesting.
• 1:21:18
  Speaker 1: That's pretty interesting, and it's, you know, whatever, whatever you
• 1:21:20
  Speaker 1: think about individuals, the message that he's got in that
• 1:21:25
  Speaker 1: book is a positive one.
• 1:21:27
  Speaker 2: There is a book I'm looking for the title of
• 1:21:31
  Speaker 2: that is a series of related but disconnected short stories
• 1:21:36
  Speaker 2: and the name of the book is Intergalactic Refrigerator repair
• 1:21:41
  Speaker 2: Man Seldom Carry Cash. And let me recommend that that's
• 1:21:45
  Speaker 2: been my almost sounds like Doug. It's got a touch
• 1:21:50
  Speaker 2: of that it's not quite as absurd, but it's got
• 1:21:53
  Speaker 2: just a flavor of mixed in with harder science. I
• 1:21:58
  Speaker 2: look it up an element of of that goofballness. Our
• 1:22:02
  Speaker 2: final two questions, and by the way, that's a really
• 1:22:05
  Speaker 2: good list of books you have. Our final two questions,
• 1:22:08
  Speaker 2: What sort of advice would you give to a recent
• 1:22:11
  Speaker 2: college grad interested in studying either market cycles or investing,
• 1:22:16
  Speaker 2: or any sort of economic research.
• 1:22:19
  Speaker 1: This goes for any kind of pursuit, let alone economic
• 1:22:23
  Speaker 1: or financial research. Be sure that you truly enjoy the work.
• 1:22:28
  Speaker 1: That'll make it easy easier to be successful, because you're
• 1:22:31
  Speaker 1: going to have to persist. Right, none of this is easy.
• 1:22:35
  Speaker 1: You're going to have to persist. It doesn't just fall
• 1:22:37
  Speaker 1: in your lap. And so if you enjoy it, you
• 1:22:41
  Speaker 1: can keep doing it. That's my main advice.
• 1:22:43
  Speaker 2: And our final question. What do you know about the
• 1:22:46
  Speaker 2: world of cycles, economy, investing research today you wish you
• 1:22:53
  Speaker 2: knew back in the early nineteen nineties when you were
• 1:22:56
  Speaker 2: first getting started.
• 1:22:58
  Speaker 1: Well, I think the overarching concept is you don't know
• 1:23:04
  Speaker 1: what you don't know, and that's the thing that can
• 1:23:07
  Speaker 1: hurt you. Probably the thing that has surprised me the
• 1:23:11
  Speaker 1: most is the sheer size and extent of deficit spending.
• 1:23:20
  Speaker 1: When you take a look at what happened in the
• 1:23:22
  Speaker 1: twenty tens post GFC, and then you take a look
• 1:23:25
  Speaker 1: at what's happened post COVID. We're not in Kansas anymore.
• 1:23:31
  Speaker 1: We're somewhere new. It's different for the US in many
• 1:23:35
  Speaker 1: ways because we are the world's superpower and we are
• 1:23:41
  Speaker 1: the biggest market. So it's not the same as if
• 1:23:44
  Speaker 1: Japan did it or someone else did it. So I
• 1:23:48
  Speaker 1: don't want to underestimate the ability for US to do
• 1:23:51
  Speaker 1: deficit spending.
• 1:23:52
  Speaker 2: Really quite fascinating. Thank you Lachman for being so generous
• 1:23:56
  Speaker 2: with your time. We have been speaking with Lashman. You
• 1:24:00
  Speaker 2: than co founder of the Economic Cycle Research Institute and
• 1:24:04
  Speaker 2: author of Beating the Business Cycle. If you enjoy this conversation,
• 1:24:09
  Speaker 2: check out any of the previous five hundred discussions we've
• 1:24:13
  Speaker 2: had over the past nine and a half years. You
• 1:24:16
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• 1:24:21
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• 1:24:26
  Speaker 2: the Money, short ten minute conversations with experts about issues
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• 1:24:39
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• 1:24:43
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• 1:24:45
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• 1:24:50
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• 1:25:00
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