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Bank Of America's Michelle Meyer: Masters in Business (Audio) · Masters in Business

0:02
Speaker 1: Hi, this is Barry Ridhults. She's listening to Masters in
0:05
Speaker 1: Business on Bloomberg Radio. Our full interview and podcast is
0:11
Speaker 1: with Michelle Myers. Uh. She is the deputy economist for
0:16
Speaker 1: North America for Bank America Merrill Lynch. She really is
0:20
Speaker 1: a very interesting person. It's rare these days to find
0:25
Speaker 1: someone who as as accomplished as she is at such
0:30
Speaker 1: a young age. She's in the thirties and she has
0:32
Speaker 1: a role at a what effectively is one of the
0:35
Speaker 1: biggest investment firms in the world. UM. I know her
0:40
Speaker 1: for a few years from mutual friends. I think I
0:42
Speaker 1: might have first met her through Dave Rosenberg and a
0:46
Speaker 1: few other folks who are either economists or researchers. Um.
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Speaker 1: She's actually a delightful person and really really knowledgeable about things.
0:55
Speaker 1: I think she brings a very very fundamental approach to economics.
1:00
Speaker 1: She's a bit of a data wank. Really interesting background.
1:03
Speaker 1: Uh double uh degree Masters and bachelors in four years
1:08
Speaker 1: from Boston University, which is really very very impressive to
1:11
Speaker 1: do that. She is an expert on both the housing market,
1:17
Speaker 1: which she's covered for many years, as well as the
1:20
Speaker 1: labor market, and and those are two UM. Terrific qualifications
1:25
Speaker 1: to have if you're an economist covering the United States
1:28
Speaker 1: UH in the post credit crisis era. Her background is simply,
1:34
Speaker 1: she came out of school and went right to Lehman Brothers.
1:37
Speaker 1: She was there right in the middle of the crisis.
1:41
Speaker 1: I wish we had more time to discuss that with her,
1:43
Speaker 1: but she described it. It was really quite fascinating what
1:47
Speaker 1: it was like to be in the eye of the
1:49
Speaker 1: hurricane during that that collapse. Um stayed on at Barkley's
1:53
Speaker 1: when they took over Lehman Brothers post bankruptcy, and her
1:57
Speaker 1: former boss, Ethan Harris at Lehman Brothers, ended up taking
2:01
Speaker 1: over the lead economist role at Merrill Lynch and ultimately
2:07
Speaker 1: ended up recruiting her to join him at Maryland. So
2:10
Speaker 1: he's been at that position. She's been at that position
2:14
Speaker 1: at Merrill Lynch now for about five years. So, without
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Speaker 1: any further ado, here is my conversation with Michelle Myers
2:22
Speaker 1: of Merrill Lynch. This is Master's in Business with Barry
2:29
Speaker 1: Ridholts on Bloomberg Radio. My guest this week is Michelle Meyer.
2:34
Speaker 1: She is the deputy head of economics for Merrill Lynch
2:38
Speaker 1: for the United States let me give you a little
2:40
Speaker 1: background about Michelle UM Undergraduate Boston University. You did a
2:46
Speaker 1: joint B A M A program, Is that right? I
2:48
Speaker 1: did in four years? Four years so I started taking
2:52
Speaker 1: my graduate coursework my junior year of undergrads. You can
2:55
Speaker 1: imagine how exciting my social life was my junior year
2:58
Speaker 1: and he was a five year program. But that you
3:00
Speaker 1: did it for there you go, So zero social life?
3:03
Speaker 1: Did you? Was it? Twenty four hours a day? Summer
3:06
Speaker 1: is the whole deal? Just now. Luckily I didn't have
3:08
Speaker 1: to have school in the summer because I had a
3:12
Speaker 1: lot of credits heading in, so I would have been
3:13
Speaker 1: able to graduate underground in three years. So so let
3:16
Speaker 1: me give people a little background about who you are
3:18
Speaker 1: and what you do for a living. You're essentially the
3:22
Speaker 1: chief economists for the United States for Merrill Lynch, one
3:26
Speaker 1: of the biggest, if not the biggest, of American Bank
3:30
Speaker 1: of America Merrill Lynch. That's right. I'm still stuck in
3:33
Speaker 1: the two thousand's. I have a pre crisis mindset. You
3:37
Speaker 1: were named to Forbes list of thirty under thirty and Finance.
3:42
Speaker 1: That was a couple of years ago. So now you
3:44
Speaker 1: more recently were named to thirty five under thirty five
3:48
Speaker 1: not too long ago. UM, and you have a really
3:51
Speaker 1: interesting background. You were at Lehman Brothers right throughout the crisis,
3:55
Speaker 1: then that became Barclays, and then for the past five
3:58
Speaker 1: years you've been at Meryl. So let's talk a little
4:01
Speaker 1: bit about about your background. So you have a master's
4:05
Speaker 1: and a b a. In economics. What made you think, well,
4:09
Speaker 1: let's go to Wall Street and work for some of
4:11
Speaker 1: the biggest names, most storied names on the street. Well,
4:14
Speaker 1: who wouldn't want to do that? Um? Lots lots of
4:17
Speaker 1: people think finances a little squishy and they go elsewhere. No,
4:21
Speaker 1: I understand, I understand. You know. Frankly, at the time,
4:24
Speaker 1: I didn't know what I wanted to do. I graduated
4:27
Speaker 1: from graduate school and I actually intended to go straight
4:30
Speaker 1: through for a PhD. I had a wonderful UM advisor
4:35
Speaker 1: UM at school, professor Kevin Lang, who was actually a
4:39
Speaker 1: micro economist focusing on labor markets, and that was my
4:42
Speaker 1: area focus was labor economics, the micro side, not the
4:45
Speaker 1: macro side. So that's really funny because I think of
4:47
Speaker 1: you as a housing and real estate specialty, not so
4:50
Speaker 1: much labor. That's true, and what I do now is
4:53
Speaker 1: much more macro focus. It's markets focused. But what I
4:56
Speaker 1: was studying was was was micro UM and UM I
5:00
Speaker 1: spoke to him and he advised, you know, go into
5:03
Speaker 1: the workforce, figure out what you want to do, figure
5:05
Speaker 1: out what you can do with the skill set UM
5:08
Speaker 1: and then if if it seems appropriate, comeback and pursue
5:11
Speaker 1: a higher degree. But it's not necessarily the right path
5:14
Speaker 1: for everyone. And UM I think oftentimes when you're in school,
5:18
Speaker 1: when you're studying, you get so focused on what that
5:19
Speaker 1: next step is for your education. Sometimes you forgotten what
5:23
Speaker 1: am I actually going to do with this, what should
5:24
Speaker 1: I be doing with and what am I good at?
5:26
Speaker 1: Where are my talents? So UM I took about a
5:29
Speaker 1: year after I graduated UM before entering the industry, and
5:33
Speaker 1: then I applied for jobs at bult bracket Wall Street
5:38
Speaker 1: firms only in their economics department, so not through the
5:41
Speaker 1: typical analyst class. UM I applied to economic consulting firms
5:45
Speaker 1: such as Nara for example, and I was at the end,
5:48
Speaker 1: I was between Nara and Lehman when it came down
5:50
Speaker 1: to it. And then I I also would have loved
5:53
Speaker 1: have gone into policy and one of my regrets is
5:55
Speaker 1: that I actually didn't go to the federalies. Or first,
5:56
Speaker 1: I think that's a great opportunity that I didn't get
5:58
Speaker 1: at the time. Um. But I was lucky enough, fortunate
6:02
Speaker 1: enough to have an offer at Lean Brothers to join
6:04
Speaker 1: as a lateral higher in their economics group. So one
6:07
Speaker 1: thing I knew, one thing I figured out is that
6:09
Speaker 1: I loved economics and I wanted to do something purely
6:12
Speaker 1: in economics. So who were your early mentors at Lehman Brothers. Um,
6:17
Speaker 1: what I'd obviously have to say, my boss. Then who's
6:20
Speaker 1: my boss now? Ethan Harris? Um? He was the chief
6:23
Speaker 1: US economist at Lehman when I joined. And he's wait
6:26
Speaker 1: a second, Ethan's the chief US economist chief economists at
6:30
Speaker 1: Bank America Merrill Lynch right now. He is the he
6:33
Speaker 1: is a co head of global economics. Did you come
6:36
Speaker 1: over from Lehman's Merrow with him as part of a
6:38
Speaker 1: team or is this just coincidence? Um, it's not conscidence.
6:41
Speaker 1: But I did not come. I did not go with him. Um.
6:43
Speaker 1: So I I state at Barkley's. Um. After Lehman went under,
6:47
Speaker 1: and Barkley's took for those people to remember post bankruptcy filing,
6:52
Speaker 1: Barkley's essentially took over all of Lehman Brothers at very
6:56
Speaker 1: advantageous cost. It was great. It was a great deal
6:59
Speaker 1: for Barkley. Yeah, at the time it was hard to
7:01
Speaker 1: see how anything was great. But in retrospect, yes, that's
7:04
Speaker 1: that's that's exactly right. And more about the financial crisis later,
7:08
Speaker 1: because you were right in the hurricanes. Oh, I was um.
7:12
Speaker 1: But I was fortunate enough to move over to Berkley
7:13
Speaker 1: as they stayed there for some time, and then Ethan
7:17
Speaker 1: recruited me back to work with him again at and Merrow,
7:19
Speaker 1: which has been a great, great move for me. So Um.
7:22
Speaker 1: Of course he is clearly one of my mentors. I've
7:24
Speaker 1: learned a lot from him in terms of how to
7:26
Speaker 1: be an economist on Wall Street. And there is a
7:28
Speaker 1: lot to learn because it's one thing to understand economics
7:31
Speaker 1: in theory. It's another thing to understand in terms of
7:34
Speaker 1: what it means for the business and how to be
7:36
Speaker 1: a market economists, and there's two distinct things. Other early
7:39
Speaker 1: mentors I mean, I think the economics team overall I worked.
7:43
Speaker 1: I got to work with Drew Maddie who's now UM
7:45
Speaker 1: economist at a U B. S UM. He was quite
7:48
Speaker 1: influential in my career. He really showed me the ropes.
7:50
Speaker 1: He taught me what it meant to be a trading
7:53
Speaker 1: for economist, how to understand the data, and how to
7:56
Speaker 1: interact with the salesforce. John Shon, who was an economist
8:00
Speaker 1: Leahman at the time. He's now an FX research at
8:02
Speaker 1: Bank America Maryland. Show'm once again a colleague of his,
8:05
Speaker 1: and he also was was was really influential in terms
8:10
Speaker 1: of me understanding, um, what it meant to to to
8:14
Speaker 1: produce quality research notes on Wall Street, but also be
8:18
Speaker 1: shortened to the point. So those are kind of the
8:20
Speaker 1: mentors in terms of strictly economics, but of course there's
8:23
Speaker 1: these these broader, bigger mentors as well in the industry.
8:26
Speaker 1: So what's your favorite We have a minute left in
8:28
Speaker 1: the segment, what what's your favorite part of the job
8:31
Speaker 1: as an economist at a big from m M. You know,
8:35
Speaker 1: I think what's great about me economists on Wall Street
8:38
Speaker 1: is that for me personally, I sit on the trading floor.
8:41
Speaker 1: I get to be in the action. There's so much adrenaline.
8:45
Speaker 1: The day goes by so quickly, so I get to
8:47
Speaker 1: think about the big picture. I get to do research.
8:50
Speaker 1: I keep up with the literature coming out of academia
8:54
Speaker 1: and out of the federal Reserve banks. But I get
8:56
Speaker 1: to apply it immediately and I see how the market
8:59
Speaker 1: reacts to it. So I find that I have the
9:01
Speaker 1: best of both worlds in that respect. Take us through
9:04
Speaker 1: a day in the life for someone who has a
9:07
Speaker 1: job like yours, working at a shop like Meryl. Sure,
9:11
Speaker 1: so it starts early because the market start earlier and
9:14
Speaker 1: there's morning meetings. You have to cover the data. Think
9:17
Speaker 1: about what's going to influence define, define eily. Okay, you're
9:23
Speaker 1: in the office. That's pretty that's pretty good. Yeah, and UM,
9:28
Speaker 1: sit down, try to understand the data it's coming out
9:29
Speaker 1: for the day. Talked to the salesforce, Um, talk to
9:33
Speaker 1: the traders. So do the basic wrap. I have what's
9:36
Speaker 1: called a hoot or it's like a microphone that I
9:39
Speaker 1: go over when the data comes at squawk exactly what
9:43
Speaker 1: they used to call hoot and holl exactly, which really
9:45
Speaker 1: helps because if I was just to stand up and
9:47
Speaker 1: try to shout, it would not at all be affective.
9:50
Speaker 1: Do not have a voice that's going to penetrate allowed
9:53
Speaker 1: room full of traders. No, I don't think I would.
9:56
Speaker 1: I don't the trading floor and Meryl. For people who
9:58
Speaker 1: haven't been downtown, that's a phenomenal space. I remember going
10:03
Speaker 1: there for something fifteen years ago, and I'm sure it's changed.
10:07
Speaker 1: The number. Well, when we've moved, Yeah, we're now we're
10:09
Speaker 1: not midtown. Yeah, but you're right the downtown, You're absolutely right.
10:13
Speaker 1: It's exceptionally large. It's like a football field. Now it's
10:15
Speaker 1: a bit more manageable, and that the way they separate
10:18
Speaker 1: the businesses, you can kind of but it's still used.
10:21
Speaker 1: It's massive. It's it's massive. So you walk in and
10:24
Speaker 1: it's like, wow, how does anybody get anything done here? Yeah,
10:27
Speaker 1: it's but you know, you get you get used to it,
10:29
Speaker 1: and in a certain, a certain extent that that buzz
10:32
Speaker 1: on the training floor makes you more efficient and and
10:36
Speaker 1: and and everybody else around you is picking up two
10:38
Speaker 1: phones and has five screens, so you're doing the same
10:40
Speaker 1: and and it's great. So the morning, I'm very much
10:44
Speaker 1: focused on what's happening in terms of the data flow
10:46
Speaker 1: of the markets, talking to clients, talking to sales and trading.
10:49
Speaker 1: The afternoon things will quiet down a bit more client
10:52
Speaker 1: meetings UM. Some as I'll go to the research floor
10:55
Speaker 1: where it's a bit more quiet and I can write,
10:57
Speaker 1: talk to the rest of the team UM and try
11:00
Speaker 1: get our weekly publication out UM. Every week it's almost
11:02
Speaker 1: like having a homework assignment. You have to write a
11:04
Speaker 1: piece about what's happening in the economy, what's happening in
11:07
Speaker 1: the markets, what our readers might care about. How do
11:09
Speaker 1: you get anything written with all that buzz going on,
11:12
Speaker 1: all that din So I think to a certain extent, again,
11:15
Speaker 1: being on the train floor, being close to the action,
11:18
Speaker 1: you you have a better understanding of what's important and
11:20
Speaker 1: what our clients are talking about and what people want
11:23
Speaker 1: to understand. So you get inspired by sitting on the
11:26
Speaker 1: training floor and in terms of getting out relevant research.
11:29
Speaker 1: But you're right when when you have to read through
11:31
Speaker 1: papers and you have to actually put pen to paper,
11:34
Speaker 1: oftentimes you do need to remove yourself from the floor,
11:36
Speaker 1: which of course I do. I'll either go to a
11:38
Speaker 1: research floor or sometimes I get my best work done
11:41
Speaker 1: at night after I have dinner. It's quiet, from you know,
11:44
Speaker 1: eight o'clock to nine o'clock. I can sit and write
11:47
Speaker 1: and I do right. I find the early morning hours
11:50
Speaker 1: are are just perfect for that. There's no more early
11:52
Speaker 1: morning hours for me. That four thirty is nothing going on.
11:57
Speaker 1: It's great. So so let's talk a little bit. You
12:00
Speaker 1: are only the second woman we've had as a guest.
12:02
Speaker 1: We have Liz and Sonders scheduled for later this spring.
12:05
Speaker 1: I am honored. Well, we've been trying to bring more
12:08
Speaker 1: people who are not white males as as guests, and
12:12
Speaker 1: it's kind of hard to find people at a certain
12:16
Speaker 1: level on Wall Street who aren't part of the old
12:20
Speaker 1: Boys network. So let's first talk about you know, I
12:22
Speaker 1: want to give you a quote from you that was
12:25
Speaker 1: pretty relevant. You said, when an opportunity presents itself that
12:29
Speaker 1: is challenging, uncomfortable, intimidating, or makes you want to hide
12:34
Speaker 1: unto the table, that's just the sort of opportunity you
12:38
Speaker 1: have to take. Yeah, so discuss that. I stand by
12:41
Speaker 1: those words. I think oftentimes, and perhaps it's more so
12:44
Speaker 1: for women than for men, I don't know. I think
12:46
Speaker 1: it spends on the individual, but oftentimes you shy away
12:50
Speaker 1: from opportunities that are intimidating, that scare you, that make
12:53
Speaker 1: your heart sink, But those are oftentimes where you have
12:56
Speaker 1: the best career advancement. So one of the things for
12:59
Speaker 1: for me I was media. When I started getting opportunities
13:03
Speaker 1: to go on on TV, it was actually I was
13:05
Speaker 1: still at Lehman Brothers, so I was fairly new to
13:08
Speaker 1: this industry, was really new to the job, and um,
13:11
Speaker 1: you know, whenever a producer recalled, I would be intimidated.
13:15
Speaker 1: My gosh, maybe maybe the timing won't work out, maybe
13:17
Speaker 1: I don't have to do it, because it was so
13:19
Speaker 1: nerve racking to me. But that I think has certainly
13:22
Speaker 1: been one of the major things I've supported my career
13:26
Speaker 1: is visibility, and it helps me in terms of being
13:29
Speaker 1: able to communicate and being a more effective economist. So
13:33
Speaker 1: let me give you another quote of your own. You
13:35
Speaker 1: once said, the lack of women at the top of
13:38
Speaker 1: the industry is a challenge for women in finance, So
13:42
Speaker 1: explain what you mean by that. Well, I think, particularly
13:44
Speaker 1: for me starting out at Lehman Brothers, UM, I felt
13:49
Speaker 1: that there weren't that many role models. So a lot
13:52
Speaker 1: of the senior management were men um and even kind
13:55
Speaker 1: of most all um and even the mid level, like
13:58
Speaker 1: the higher mid level, where heavily dominated by by men.
14:01
Speaker 1: So it was hard to understand looking ahead, how do
14:05
Speaker 1: you are there? Things are there unknowns? Right? Are there?
14:08
Speaker 1: Things that are ultimately going to make it impossible for
14:10
Speaker 1: me to achieve success here because other women have not
14:13
Speaker 1: succeeded and you don't know. Maybe it's because their number
14:17
Speaker 1: of factors for why that might be. But as a
14:19
Speaker 1: young woman starting out, I think it could be discouraging
14:22
Speaker 1: when you don't see other people that you could relate
14:25
Speaker 1: to that are in senior roles. And one of the
14:27
Speaker 1: things I have to say is a lot has changed
14:29
Speaker 1: over those tres. Literally my next question, what's changed over
14:32
Speaker 1: the best A lot? I mean to me, it's I
14:35
Speaker 1: promise I'm not looking at your sheet. Um. I think
14:38
Speaker 1: there's been much advancement, and maybe it's simply moving from
14:40
Speaker 1: Lehman to b of A. But here at b A,
14:43
Speaker 1: I have a number of senior role models that are women.
14:45
Speaker 1: The head of research, Ethan's boss, Kennice Browning. Um, she's
14:50
Speaker 1: an exceptional's been there for quite a while, right, She's
14:52
Speaker 1: been had a research for at least. We're mutual friends
14:55
Speaker 1: with Dave Rosenberg, who used to be had Ethan's job
14:59
Speaker 1: a few before him, and I think I met her
15:02
Speaker 1: through him. I want to say it's a decade ago.
15:05
Speaker 1: She's been a very senior female on Wall Street for
15:08
Speaker 1: a long long time. Supposed to be a tough cookie too.
15:12
Speaker 1: I think she's incredibly good at her job, and she
15:14
Speaker 1: understands the business, and she understands what it means to
15:16
Speaker 1: be an analyst, and I think she understands how to
15:19
Speaker 1: how to how to get appropriate balance. So seeing her
15:23
Speaker 1: have success has been, UM, really important to me. And
15:26
Speaker 1: it's and and and it's it's also across the cross
15:29
Speaker 1: the business. I can count a number of senior women
15:32
Speaker 1: at Bank of America, Mary Lynch that kind of have
15:35
Speaker 1: done it all and and and and frankly, I now
15:37
Speaker 1: consider myself to be in that camp. Well, you were
15:40
Speaker 1: promoted to managing director at B A m L fairly young? Yes, yeah,
15:46
Speaker 1: And was that process like? Was that was that a surprise?
15:49
Speaker 1: Was that exciting? Um? Well, it wasn't surprised because I
15:51
Speaker 1: had to advocate for myself. You always have to advocate
15:53
Speaker 1: for yourself. It doesn't just happen by accident. Um. But
15:57
Speaker 1: I did that. And UM. One of the things that
16:00
Speaker 1: I realized very quickly is that I had a very
16:02
Speaker 1: large support network. Um Many particularly women stood up and said,
16:08
Speaker 1: you know you, you are very talented and you should
16:12
Speaker 1: and will be successful, and you deserve the recognition of
16:15
Speaker 1: managing directors. So I had a lot of support from
16:17
Speaker 1: women across the business, but also you know, number of
16:20
Speaker 1: obviously men as well and in senior positions, and it
16:23
Speaker 1: was it was a very enlightening process for me. The
16:26
Speaker 1: managing director process, it's a hard process. You have to
16:29
Speaker 1: have a network of supporters and almost like a doctoral dissertation,
16:34
Speaker 1: and before the committee it's very competitive. We were beginning
16:38
Speaker 1: to discuss what it was like being a Lehman Brothers
16:41
Speaker 1: right out of school, but less fast forward a couple
16:44
Speaker 1: of years, you were there right through everything hitting the fan.
16:49
Speaker 1: What was it like in the midst of Lehman Brothers
16:53
Speaker 1: during two thousand and eight there was just a great
16:56
Speaker 1: deal of uncertainty, and that uncertainty ultimately translate to panic.
17:01
Speaker 1: Um we all kind of an idea that there were
17:06
Speaker 1: problems in the housing market, their problems in the financial system.
17:10
Speaker 1: After bear Sterns went under. Let's let's put that into
17:14
Speaker 1: a little context. In oh seven, a fairly leveraged bear
17:17
Speaker 1: Sterns pair of hedge funds that mostly focused on mortgage
17:21
Speaker 1: backed and other credit derivatives blew up, and then bear
17:25
Speaker 1: Sterns got a little wobbly, and then in the spring
17:27
Speaker 1: bear Sterns ended up going down in last minute, taken
17:30
Speaker 1: over by JP Morgan for originally two dollars a year,
17:34
Speaker 1: and then I think it ended up being ten dollars
17:36
Speaker 1: a year. And after Bear went down, everybody said, well,
17:39
Speaker 1: who did looks similar to Bear? And Lehman was the
17:43
Speaker 1: next in size and a lot of similar paper and
17:46
Speaker 1: and swamming a lout of the same waters. But did
17:49
Speaker 1: anyone there really have They did a lot of mortgage
17:51
Speaker 1: backed and a lot of securitized things, but did anyone
17:54
Speaker 1: their day to day did Was there really a sense
17:56
Speaker 1: that the whole shooting match is gonna come tumbling down?
18:00
Speaker 1: Don't know where people really surprised by that. So I
18:03
Speaker 1: think the initial view was that we were Lehman was
18:06
Speaker 1: different than Bear Sterns, spare Sterns was somewhat unique, and
18:09
Speaker 1: although Lehman had issues a lot of other financial institutions
18:13
Speaker 1: had issues, they were manageable and we'd be able to
18:15
Speaker 1: absorb the losses. UM I would say about a few
18:18
Speaker 1: weeks before the d D, the bankruptcy UM see we're
18:24
Speaker 1: talking of the summer. That's right. By the end of
18:27
Speaker 1: the summer, I think it became pretty clear that there
18:29
Speaker 1: were more severe problems with Lehman, and sitting on the
18:34
Speaker 1: trading floor, we under I saw firsthand what our traders
18:38
Speaker 1: were saying in the salesforce saying people didn't want us,
18:41
Speaker 1: did not want Lehman as a counterparty, so we weren't
18:43
Speaker 1: getting the trading flow. You were seeing serious issues in
18:46
Speaker 1: terms of balance sheet as well. I think traders and
18:48
Speaker 1: salesforce had an understanding that they were bigger issues. But
18:51
Speaker 1: then again the backdrop was, well, who would let Lehman
18:55
Speaker 1: go under? Lehman Brothers they would be a buyer. Bear
18:59
Speaker 1: Stars went under, but their was a buyer, and there
19:01
Speaker 1: was some there was a savior. Um. The likelihood that
19:04
Speaker 1: Lehman would be able to fall into bankruptcy, I think
19:06
Speaker 1: everybody up until last minute thought was a very low probability. UM.
19:10
Speaker 1: It wasn't until that Sunday night, UM when it became
19:14
Speaker 1: clear the Bank of America was buying Maryland, not Lehman Brothers,
19:18
Speaker 1: Which weren't that fight for me in the end, but
19:21
Speaker 1: at the time was absolute panic. It became clear that
19:25
Speaker 1: we were indeed filing for bankruptcy, and I remember looking
19:28
Speaker 1: watching TV and Singer, but you go to Lehman Brothers
19:31
Speaker 1: to try to clear out their desks on the view
19:33
Speaker 1: that maybe we'd be locked out on Monday morning. So,
19:35
Speaker 1: you know, after several glasses of wine, my husband I
19:38
Speaker 1: went over Leman to try to clear my my office
19:41
Speaker 1: and everybody was on the trading floor and it was
19:44
Speaker 1: just it was it was surreal. You know. The one thing,
19:48
Speaker 1: the one little factoid about the Lehman story that I
19:52
Speaker 1: think always surprises people was that Buffett had made a
19:57
Speaker 1: offer that was ultimately rejected by dick Old, and that,
20:01
Speaker 1: compared to what he ultimately ended up doing with Goldman Sachs,
20:04
Speaker 1: was actually more generous offer. But at the time, the
20:08
Speaker 1: assumption was Lehman isn't going away, He's trying to lower
20:11
Speaker 1: ball us and steal the company, and you end up
20:15
Speaker 1: in a situation that uh. I think the fact that
20:18
Speaker 1: Fold never took that offer kind of made it hard
20:22
Speaker 1: for the FED to come in and rescue them. You know,
20:25
Speaker 1: there was rumors that um Paulson wasn't a fan of Folds,
20:29
Speaker 1: and there was a little back and forth between the
20:32
Speaker 1: two of them any truth to that or is that
20:34
Speaker 1: just sort of I wouldn't know. I wouldn't know. I think, um,
20:41
Speaker 1: that's the speculation. And I think that a lot of
20:43
Speaker 1: people a Lehman believed that was the case. People at
20:46
Speaker 1: Lehman Blood Green. I mean, there was a lot of
20:48
Speaker 1: loyalty to right a long time, and you know, yes,
20:55
Speaker 1: there was a there were there were excesses, there were problems,
20:57
Speaker 1: there were a lot of mistakes made, but there were
21:01
Speaker 1: a lot of great people there that were heavily committed
21:04
Speaker 1: to the company, into the into the markets. So I
21:07
Speaker 1: think that it was you know, it was really hard.
21:09
Speaker 1: It was a really hard time for a lot I
21:10
Speaker 1: could I can imagine. How do you know Jack Rivkin
21:13
Speaker 1: very well because he ran Lehman Research back in the
21:19
Speaker 1: eighties and nineties and did a really nice job of it. Yeah,
21:21
Speaker 1: Lehman Research was number one and I i for years
21:25
Speaker 1: it was very Robbie muto Um led research while I
21:29
Speaker 1: was there, and he was incredibly dedicated, diligent. I mean,
21:34
Speaker 1: the content coming out of Lehman Research was exceptional. Right,
21:37
Speaker 1: That's the great tragedy of Lehman collapsing. It. You know,
21:40
Speaker 1: who really cares about Dick full there was another twenty
21:43
Speaker 1: thousand employees were so and a lot of them ended
21:48
Speaker 1: up at Barklay's. Everybody did. That's what Barclay's what they bought,
21:51
Speaker 1: the human capital, and they did well with him. Let's
21:53
Speaker 1: talk a little bit about the current recovery and economic cycle.
21:57
Speaker 1: Where where are we in the economy to die? Yeah,
22:00
Speaker 1: I mean, it seems like this has been a pretty
22:03
Speaker 1: old business cycle. So when you think about the number
22:05
Speaker 1: of years we've theoretically been in recovery, it seems like
22:08
Speaker 1: it's old. But in terms of the progress made, you
22:10
Speaker 1: can still argue that it's fairly young. So when you
22:13
Speaker 1: think about the cyclical sectors of the economy, housing is one,
22:18
Speaker 1: consumer durables as another, capital expenditures another. We're still a
22:22
Speaker 1: level as a share of the economy which are historically
22:25
Speaker 1: low and arguably still close to recessionary territory. So I
22:29
Speaker 1: think it is the case that there's room for growth,
22:31
Speaker 1: there's room for expansion. There's been exceptional monetary policy support.
22:36
Speaker 1: Monetary policy works with long lags um this environment of
22:39
Speaker 1: very low rates and high liquidity ultimately should translate to
22:42
Speaker 1: stronger economic growth. We mentioned earlier, your colleague Dave Rosenberg.
22:46
Speaker 1: He's fond of showing the chart that shows the housing
22:49
Speaker 1: recovery has bought home sales, both new and existing home
22:53
Speaker 1: sales back to the levels where other recessions tend to bottom,
22:57
Speaker 1: Like we're all the way up to the bottom of
22:59
Speaker 1: preview is now. This was obviously a massive housing recession,
23:03
Speaker 1: and that's where a lot of credit was, where a
23:06
Speaker 1: lot of the crisis was centered. But when we talked
23:09
Speaker 1: about housing recovery, why so weak, Why so soft despite
23:14
Speaker 1: such fairy low low mortgage rates. And that's been one
23:17
Speaker 1: of the puzzles. I think the challenge has been that
23:21
Speaker 1: there was a lot of equity lost in the housing market,
23:24
Speaker 1: so people have suffered severe home price declines UM, and
23:29
Speaker 1: that held back some of the churn and the housing market.
23:31
Speaker 1: You had to get back into positive equity UM. We
23:34
Speaker 1: had to deal with an exceptional amount of foreclosures and
23:38
Speaker 1: not quite ten million, but pretty close. Yeah, And that
23:40
Speaker 1: created a lot of distressed inventory in the market that
23:44
Speaker 1: had to clear and and luckily it cleared, and it
23:46
Speaker 1: cleared in part because investors found opportunities in buying out
23:50
Speaker 1: these distressed properties at deep discounts, some of which were
23:52
Speaker 1: converted into rentals um and that's created a floor for
23:56
Speaker 1: home prices. And now home prices have been recovering. They
23:58
Speaker 1: start to turn in early two thousand and twelve, and
24:01
Speaker 1: last year we're up about five percent. We're looking for
24:04
Speaker 1: about three and a half percent appreciation this year. So
24:07
Speaker 1: we've seen progress, but I still think that there's further upside.
24:10
Speaker 1: And really where the upside is it's not so much
24:12
Speaker 1: for home prices, but it's really for construction. I think
24:15
Speaker 1: the level of our housing stock is too low to
24:18
Speaker 1: accommodate the ultimate growth in householformation in the population, and
24:22
Speaker 1: that's been very weak. We've had the story is millennials
24:24
Speaker 1: living in their parents basement, but we're seeing signs now
24:27
Speaker 1: that that's starting to turn. We are the most recent
24:30
Speaker 1: data from the Census Bureau show that at the end
24:32
Speaker 1: of last year there was a notable pickup in householfformation.
24:35
Speaker 1: The data is extremely volatile, so you have to kind
24:38
Speaker 1: of smooth through these quarterly swings. But for last year,
24:41
Speaker 1: by my estimates, we created about eight hundred thousand households
24:46
Speaker 1: normal one one to one to um if you have
24:49
Speaker 1: normal headship rates. I think the good news is that
24:52
Speaker 1: the millennial generation is a large cord the kids that
24:55
Speaker 1: baby boomers, So there's a lot of them. And it
24:57
Speaker 1: is to your point many who have been to laid
25:00
Speaker 1: in entering the economy to a certain extent because of
25:03
Speaker 1: the weakness in this business cycle, because of other challenges
25:06
Speaker 1: related to student debt and as such. But over time,
25:10
Speaker 1: these are going to be people who form households and
25:13
Speaker 1: we need to build to accommodate it. What happens if
25:15
Speaker 1: towards the latter part of this year, and I don't
25:18
Speaker 1: want to guess if it's the summer or the end
25:19
Speaker 1: of the year, maybe what happens to the housing market
25:23
Speaker 1: if we see rates start to I don't even want
25:26
Speaker 1: to say go up. Let's just say normalize, because this
25:29
Speaker 1: is not a normal rate environment. If you could get
25:32
Speaker 1: a thirty year fixed mortgage for three and a half percent,
25:36
Speaker 1: that's pretty insane for what we've experienced for the past
25:40
Speaker 1: forty years. There's nothing normal about this economy right now
25:44
Speaker 1: or about the financial markets. I think there's been a
25:47
Speaker 1: lot of distortions. So yeah, so let's say the Fed
25:50
Speaker 1: starts hiking interest rates. There's liftoff, and there's that step
25:54
Speaker 1: towards as you said, normalization, interest rates rise. I think
25:57
Speaker 1: if it's you know, a reasonable increase is an interest rate,
26:00
Speaker 1: it's a gradual rising percent a year might be a
26:04
Speaker 1: little bit high. But if there's something a little bit
26:06
Speaker 1: less than that, so it's even slower, the fet is
26:08
Speaker 1: really gradual, and it's accompanied by stronger economic growth than
26:11
Speaker 1: I think the housing market can handle it. If you
26:13
Speaker 1: have something akin to the Taper tantrum, which was in
26:16
Speaker 1: summer of two over a hundred basis point move higher
26:20
Speaker 1: in interest rates in a two month time that shocked
26:22
Speaker 1: the housing market, and that was clearly negative. If something
26:25
Speaker 1: like that happened again, it would be a setback for
26:28
Speaker 1: the housing market. What what do you think about the
26:30
Speaker 1: theory that or the thesis have heard some people float
26:33
Speaker 1: that as soon as the FETE starts raising rates, people
26:36
Speaker 1: going to realize, hey, these really once in a generation
26:40
Speaker 1: low rates are going away, and we better buy a
26:42
Speaker 1: house now were we're gonna pay a lot more for
26:44
Speaker 1: a mortgage. You know that there may be some initial
26:48
Speaker 1: um move higher, maybe some generation of activity from that,
26:53
Speaker 1: but I think it's quite temporary. Ultimately, what matters for
26:56
Speaker 1: humbuying is income growth, not only today but also for tomorrow,
27:01
Speaker 1: so expectations that income will remain positive and growing in
27:04
Speaker 1: the years to come, and then affordability mortgage rates. But
27:07
Speaker 1: I think probably the most important factors simply this idea
27:10
Speaker 1: of job security. So the labor market is arguably the
27:13
Speaker 1: most important thing. For housing, Let's put housing aside and
27:15
Speaker 1: talk about some of your other favorite indicators. What do
27:18
Speaker 1: you really like to look at that gives you a
27:20
Speaker 1: sense of here's what's going on in the overall economy,
27:23
Speaker 1: and here's what this means for equity. You're asking economists
27:27
Speaker 1: for their favorite indicators. That's hard. Which child do you like?
27:31
Speaker 1: I only have one child, that that's an easy question.
27:34
Speaker 1: You're gonna end up having more than one kid, and
27:36
Speaker 1: you're they're all going to ask you who do you like?
27:38
Speaker 1: That have to lie to them and say I like you. So, so,
27:43
Speaker 1: what is your favorite favorite indicator? Or let me rephrase it,
27:46
Speaker 1: what do you think is the most interesting or perhaps
27:49
Speaker 1: underrated indicator? Obviously, the jobs report every month is going
27:52
Speaker 1: to get a lot of attention, and it is important
27:54
Speaker 1: and you have to smooth through it, but we have
27:56
Speaker 1: to look at it. It's it's relevant. I think retail
27:58
Speaker 1: sales is an important indicator consumers makes up sevent GDP
28:02
Speaker 1: and the consumer is faring I think is really an
28:06
Speaker 1: important part of the overall story. It gives a sense
28:09
Speaker 1: of what kind of future investment we might need, what
28:12
Speaker 1: what kind of hiring are we actually seeing with the
28:14
Speaker 1: quality of hiring. And what's been somewhat interesting to me
28:16
Speaker 1: recently is the past three months consumer spending a retail
28:19
Speaker 1: sales have been soft despite the dropping gasoline prices, this
28:23
Speaker 1: despite the increase in income. Why do you think that is?
28:27
Speaker 1: It's a puzzle. It could partly be that they're simply
28:30
Speaker 1: a lag between the drop and gasoline prices and spending.
28:33
Speaker 1: Consumers have to believe that it's a persistent drop in
28:35
Speaker 1: gasoline prices and maybe can someum consumers are also saving
28:39
Speaker 1: for bigger ticket items. So although when we see auto
28:43
Speaker 1: sales other than this past month, which I think we
28:46
Speaker 1: can all, I don't. I hate blaming stuff on the weather,
28:49
Speaker 1: but it's been so good awful that I'm willing to
28:52
Speaker 1: give them the benefits now. But we're still had a
28:54
Speaker 1: sixteen million annual run rate. Those are huge numbers for automs,
28:59
Speaker 1: but also in autos, unlike housing, you've had financing come
29:02
Speaker 1: back and you've had financing come back pretty aggressively. So
29:05
Speaker 1: the ability to get leveraged, the ability to spend again
29:07
Speaker 1: for autos, which is something that I appreciated. You've seen, uh,
29:11
Speaker 1: you know, a nice acceleration, and I actually think there's
29:14
Speaker 1: sort of repside for auto sales. Really yeah, house information
29:17
Speaker 1: is not even picked up yet, so we're seeing this
29:20
Speaker 1: increase in autos even before you get the rebounded house information.
29:24
Speaker 1: The gain of house information should also generate an increase
29:27
Speaker 1: in demand for autos that's coming. So let's talk about
29:30
Speaker 1: other durable goods. Um, we've seen it, seen this uptick
29:35
Speaker 1: in autos, and you mentioned the credit situation, but we
29:37
Speaker 1: haven't seen a giant uptick endurable goods, of which automobile
29:41
Speaker 1: is just one. So what is it related to home sales?
29:45
Speaker 1: Why are we not seeing washer dryers? You would think
29:48
Speaker 1: people who can't move, all right, I'm stuck here. I
29:51
Speaker 1: don't have a lot of equity in my house. I'm
29:52
Speaker 1: not anywhere. Let's redo the kitchen or something to that effect.
29:56
Speaker 1: Why have we not seen durable goods really tick up?
29:59
Speaker 1: The way auto to have financing is one aspect, you know,
30:02
Speaker 1: it's it's it's not as easy to get financing for
30:05
Speaker 1: some of these other types of durable goods like appliances
30:07
Speaker 1: and such. You can put you can take out a
30:09
Speaker 1: you know, a revolving line on your credit card, but
30:11
Speaker 1: the standards there are a little bit stricter than it
30:13
Speaker 1: has been for autos. That's probably one a factor. I think.
30:15
Speaker 1: The other one is that for for housing, yes, home
30:18
Speaker 1: prices have recovered, but you still have a number of
30:21
Speaker 1: homeowners that are either in you know, near negative equity
30:25
Speaker 1: or kind of flat And it's also very hard to
30:28
Speaker 1: extract money out of your house right now for these
30:31
Speaker 1: types of renovation projects. So the ability to get to
30:33
Speaker 1: do a cash out refinancing or the ability to get
30:35
Speaker 1: a home equity line of credit, there's are much more
30:37
Speaker 1: restricted than they had been in prior cycles. Well, as
30:40
Speaker 1: we saw leading into the financial crisis, that framework reference
30:44
Speaker 1: it was the easiest thing in the world. Now it's
30:47
Speaker 1: not so much. It's the exact opposite. So if you
30:49
Speaker 1: can't withdraw money from your house to renovate, you have
30:53
Speaker 1: to have and it's hard to borrow. You have to
30:55
Speaker 1: have cash upfront, and a lot of households are still
30:58
Speaker 1: fairly budget constructed, not to get too personal about this,
31:01
Speaker 1: but I tell the story all the time. So we
31:03
Speaker 1: just moved in September. I recall doing a refinance and
31:07
Speaker 1: I want to say oh six or oh seven, where
31:09
Speaker 1: the guy literally pulled up to our driveway, flung the
31:12
Speaker 1: door open, left the car running, came in with papers
31:15
Speaker 1: and apologized, Hey, I have a clothing to go to
31:17
Speaker 1: im late, sign here here, initial here, and gave us
31:20
Speaker 1: a check and he ran out the door. My wife
31:22
Speaker 1: and I looked at each other like, did that really happen?
31:25
Speaker 1: We're sitting here with the thirty check and our our
31:27
Speaker 1: mortgage payments are five hundred dollars less a month, and
31:30
Speaker 1: this guy was a ghost, was in and out. Now,
31:33
Speaker 1: we just moved in September. It was the most insane
31:36
Speaker 1: set of experiences. That was no stone left. It was
31:41
Speaker 1: as opposite as anything you can imagine. I'm wondering how
31:46
Speaker 1: significant that is relative to what we're seeing in housing,
31:50
Speaker 1: what we're seeing endurable goods, and we're not seeing that
31:53
Speaker 1: in autos. And maybe that's why. Yeah, I think listen.
31:56
Speaker 1: Credit is the it's a fuel for the anomic engine.
32:00
Speaker 1: And if credit is tight, which it is now for
32:03
Speaker 1: our mortgages, it will limit the pace of activity. Um,
32:07
Speaker 1: and you have seen the pendulum swing to the extreme
32:10
Speaker 1: from a very easy market to one that's quite tight. Um.
32:13
Speaker 1: And maybe it has been a you know, excessive move,
32:16
Speaker 1: but there were a lot of changes that had to
32:18
Speaker 1: be made and UM, that process has been painful. We've
32:21
Speaker 1: been speaking with Michelle Meyer. She is the deputy chief
32:24
Speaker 1: economist for North America for Bank America Merrill Lynch. If
32:28
Speaker 1: you've enjoyed this conversation, be shure in here the rest
32:31
Speaker 1: of it. You can find that podcast either at Apple
32:34
Speaker 1: iTunes or on Bloomberg dot com. Check out my Twitter
32:39
Speaker 1: feed at rid Holts or my daily column on Bloomberg
32:43
Speaker 1: View dot com. I'm Barry Ridhults. You're listening to Masters
32:46
Speaker 1: in Business on Bloomberg Radio. Hi, welcome back to the show.
32:55
Speaker 1: This is our podcast portion, which you know already because
32:59
Speaker 1: if you're hearing this, you're not listening to the radio.
33:01
Speaker 1: You're listening either to an MP three or Apple iTunes
33:05
Speaker 1: or SoundCloud or something like that. My guest today is
33:08
Speaker 1: Michelle Myers. I know Michelle god I think I first
33:11
Speaker 1: met you with Dave Rosenberg so many many years ago,
33:15
Speaker 1: and you've come to some of the um. You know,
33:18
Speaker 1: Scarsdale Equities started something many decades ago if you read
33:23
Speaker 1: the book The Money Game by Adam Smith. Not that
33:27
Speaker 1: Adam Smith, it's just the nom de PLUMEA. They talked
33:30
Speaker 1: about these idea lunches and I got fortunate enough to
33:33
Speaker 1: be invited to one some years ago, and I said,
33:36
Speaker 1: these are great, but I got work to do during
33:38
Speaker 1: the day. Why don't we make these idea dinners. And
33:41
Speaker 1: they said, no, we we're gonna stick with lunches. So
33:44
Speaker 1: we started doing our own sort of dinners. And you've
33:46
Speaker 1: come to a few of these. I think one of
33:49
Speaker 1: the questions I have for you, um, was who were
33:52
Speaker 1: some of your economist heroes you'd like to meet? And
33:56
Speaker 1: you finally managed to meet um Paul Krugman at one
34:00
Speaker 1: of these dinners. Yeah, he is one of the economist seers.
34:03
Speaker 1: I just find him to be exceptionally smart, which is
34:09
Speaker 1: not a bold statement given that he is a noble
34:12
Speaker 1: not giving him out to it pretty much that that's
34:16
Speaker 1: one of the qualifications, not stupid, not stupid. So clearly
34:21
Speaker 1: he's an incredibly smart economist. But he is really passionate too,
34:25
Speaker 1: And whether or not you agree with his political stance.
34:28
Speaker 1: I think his his passion and his ability to lay
34:30
Speaker 1: out a concise, interesting argument is is fascinating. So I
34:36
Speaker 1: read him regularly. I really enjoy his blog. The page
34:39
Speaker 1: that So he's a Monday Friday UM writer for the
34:43
Speaker 1: New York Times, but then he has a blog and
34:45
Speaker 1: then is conscious of a liberal is blocked. But that
34:48
Speaker 1: real estate that he owns on Mondays and Fridays. Some
34:53
Speaker 1: people have called that the most influential commentary quote unquote
34:58
Speaker 1: real estate in the world old of publishing. That that
35:01
Speaker 1: is an amazing page. He says things that and he
35:05
Speaker 1: says in a way that other people won't say, and
35:09
Speaker 1: and and and sometimes he's sometimes he's wrong, but a
35:11
Speaker 1: lot of time he is right. And he's saying things
35:13
Speaker 1: that other people are thinking but they're not willing to
35:15
Speaker 1: put on paper. I've disagreed with him a couple of times.
35:17
Speaker 1: He and I disagree about securitization. You know, he doesn't
35:20
Speaker 1: like it. I say, well, if you have garbage in,
35:22
Speaker 1: garbage out, um, but as long as you're not feeding
35:26
Speaker 1: bad sausage into bad meat into the machine, you're not
35:29
Speaker 1: going to get bad sausage. And what we did during
35:32
Speaker 1: the crisis is all those bad mortgages went in and
35:35
Speaker 1: guess what came out the end. So it's it's not
35:37
Speaker 1: the machinery, it's it's it's the food stuff you're you're
35:40
Speaker 1: putting in. What what other rockstar economists impress you? Oh? Um,
35:48
Speaker 1: rock star? What is the rock star? Well? Krugman is one.
35:52
Speaker 1: Who else is a rock star economist? Um? I would say,
35:57
Speaker 1: I don't know if people still think this of Ryan
35:59
Speaker 1: Hart and rogue office rock star economists. And then we
36:02
Speaker 1: have guys like um Neurio Rubini, who I think maybe
36:07
Speaker 1: uh peaked a few years ago, but was highly holly
36:11
Speaker 1: regarded by a little a little too much. UM. The
36:15
Speaker 1: person who proceeded Dave Rosenberg was Gary Schilling, who's still
36:20
Speaker 1: publishing on a regular basis, and another one who says
36:24
Speaker 1: kind of outrageous things that have turned out to be
36:27
Speaker 1: more right than wrong. He's been pounding the table about hey,
36:30
Speaker 1: the ten years going to have a one handle on
36:33
Speaker 1: it before you can imagine? Why are the rock stars negative? Um,
36:38
Speaker 1: let's say Justin Wolfer's up and coming. Probably not. I
36:41
Speaker 1: wouldn't describe him as a as a negative. His wife
36:45
Speaker 1: I think UM ended up on was it the c
36:48
Speaker 1: e A or where did where did she end up going? Um, well,
36:53
Speaker 1: let's not use the term rock star. What other economists
36:56
Speaker 1: do you find influential or especially admire? Reinhardt and rogue
37:02
Speaker 1: Off I think was particularly influential in this cycle because
37:06
Speaker 1: what they their work was around how do economies cope
37:12
Speaker 1: and how do they deal with financial crisis and balance
37:15
Speaker 1: sheet recessions? So their work I think really rang true
37:19
Speaker 1: and mattered a great deal um this time around. So
37:22
Speaker 1: there are a lot of lessons learned from there. People
37:24
Speaker 1: obsess about the Excel error. But but if you go
37:28
Speaker 1: back and look at and I'm getting the dates right,
37:31
Speaker 1: I want to say January two eight they had a
37:34
Speaker 1: paper called looking at five Financial Crises January o eight,
37:39
Speaker 1: But forget Lehman before Bear Starns, and that they basically said, hey,
37:44
Speaker 1: the typical financial crisis see stock markets cut in half
37:48
Speaker 1: and real estate drop thirty and it looks like we're
37:52
Speaker 1: heading into that sort of a credit crisis that could
37:54
Speaker 1: result in that nobody really paid attend. I happen to
37:57
Speaker 1: see that paper and said, wow, this is astonishingly data driven,
38:02
Speaker 1: and that basically paper became the basis of years of
38:06
Speaker 1: financial following this. This Time Is Different was their book,
38:09
Speaker 1: but which is a difficult book to get through. But um,
38:12
Speaker 1: here's another rock star. Colomists and Robert Schiller. Love Schiller,
38:16
Speaker 1: absolutely had Schiller. We had him in here a few
38:20
Speaker 1: months ago. The nicest guy in the world and just
38:24
Speaker 1: so insightful and so he's just delightful. Have you ever
38:28
Speaker 1: had a chance to work with him in any I've
38:30
Speaker 1: met him as well. Um So I got to shake
38:33
Speaker 1: his hand and talked to him a bit and another
38:35
Speaker 1: Nobel laureate. Yeah, um and he his clearly rational exuberance.
38:41
Speaker 1: Um that went a long way. And he's had great
38:43
Speaker 1: calls both on the stock market around the tech bus
38:46
Speaker 1: and the housing market around the housing bust. Um. But
38:48
Speaker 1: his analysis is way of thinking. Um, I think it
38:52
Speaker 1: it's you know, it's extraordinarily high quality and it's it's
38:57
Speaker 1: it's very interesting. Um So, yeah, that he would be
39:00
Speaker 1: high up on my list. So let me shift gears
39:03
Speaker 1: a little bit on you. What do you think the
39:05
Speaker 1: role of the economist is on Wall Street? What is
39:09
Speaker 1: the role of the economists on Wall Street? That's a
39:11
Speaker 1: great question, um So, I think the way I interpret
39:15
Speaker 1: the role is that you're supposed to be a source
39:17
Speaker 1: of information to the salesforce, to our traders, so internally
39:22
Speaker 1: but also externally to our clients. So that means analyzing
39:27
Speaker 1: the high frequency data as it comes in. What is
39:29
Speaker 1: our expectation for the data, where is it relative to consensus,
39:33
Speaker 1: what can go wrong? How do we interpret it once
39:35
Speaker 1: it comes out? Where are the special factors? So have
39:38
Speaker 1: real time, fast analysis on the high frequency data, but
39:42
Speaker 1: then also be able to paint a picture for the
39:45
Speaker 1: economic account for the economy in the medium term, and
39:48
Speaker 1: some of the risks seem into the longer term. So
39:50
Speaker 1: you have to be able to remove yourself from the
39:52
Speaker 1: day to day volatility and the data and in the
39:55
Speaker 1: day to day volatility in the markets and say what
39:58
Speaker 1: are we really learn ing? What what do we really
40:01
Speaker 1: know about the economy, and what is our baseline forecasts?
40:04
Speaker 1: And there were the risks around that forecast because I
40:07
Speaker 1: think when you're in the markets and you're in front
40:09
Speaker 1: of a screen day after day, it's really hard not
40:12
Speaker 1: to get influenced by what the market is telling us
40:14
Speaker 1: today in terms of what will mean for tomorrow. Timing
40:17
Speaker 1: and understanding identifying turning points is very hard to do.
40:21
Speaker 1: But to the extent that we can help with that.
40:23
Speaker 1: As an economist, I think that's that's an important part.
40:26
Speaker 1: So you raise a really interesting issue, is the relationship
40:29
Speaker 1: of markets to the economy. How fast do the markets
40:34
Speaker 1: turn before we start seeing it in the economic data,
40:38
Speaker 1: either up off the lows or down off the off
40:41
Speaker 1: the highs. What's the lag like and why why is
40:45
Speaker 1: it such a sizeable time period? Yeah, I mean, I think, um,
40:50
Speaker 1: so anything with the markets. That's for equity markets. Um,
40:54
Speaker 1: they're capturing the health of the major corporations in the country.
40:59
Speaker 1: So um, if investors are starting to see problems in
41:04
Speaker 1: these corporations, revenue, earnings misses, things that are essentially suggesting, hey,
41:10
Speaker 1: this economy isn't anyone all cylinders anymore. That's going to
41:13
Speaker 1: show up in the market before we'll see it in
41:16
Speaker 1: the economic data. Yeah, to a certain extent. Now, of course,
41:19
Speaker 1: how companies are doing a not just a function of
41:21
Speaker 1: their revenues and their sales. It's so so a function
41:23
Speaker 1: of just their profitability, so their cost cutting. So you
41:26
Speaker 1: can have situations where you have really high corporate profits
41:30
Speaker 1: like in this ycle. For a period of time it
41:31
Speaker 1: was a profits recovery because of the excessive cost cutting,
41:35
Speaker 1: but you weren't really seeing underlying economic growth. So there's disconnects. Um.
41:40
Speaker 1: But because the fact that the equity markets are capturing
41:42
Speaker 1: large corporations, it's going to be indicative of what the
41:44
Speaker 1: economy is saying. And then I think in terms of
41:47
Speaker 1: the fixed income markets, in terms of relay treasuries move um,
41:52
Speaker 1: that's very much driven by expectations for Fed policy. And
41:56
Speaker 1: one of the interesting observations today is that the market
42:00
Speaker 1: is pricing in an extraordinarily low path of the terminal
42:04
Speaker 1: Fed funds rates. So they're saying that the Fed, yeah,
42:07
Speaker 1: they may start hiking interest rates before the end of
42:09
Speaker 1: the year, but they're not going to accomplish that much.
42:11
Speaker 1: They're not going to get very far. Um. Oh god,
42:16
Speaker 1: that would be dismal. But no, you know, maybe a
42:18
Speaker 1: terminal rate two and a half percent or so. But
42:21
Speaker 1: think about two and a half percent Fed funds right
42:23
Speaker 1: historically very low, very sominating, incredibly low. It's incredible comedy.
42:27
Speaker 1: So if all the FED is able to achieve is
42:28
Speaker 1: to get the Fed funds right up to two and
42:29
Speaker 1: a half percent, then it means that there's something much
42:33
Speaker 1: weaker about the economy, and that the economy can't handle
42:35
Speaker 1: higher interest rates, and that's what the market is telling us.
42:37
Speaker 1: The FED is not saying that. If you look at
42:39
Speaker 1: what the FED is projecting in their Summary of Economic projections,
42:43
Speaker 1: they say they can get interest rates to three and
42:45
Speaker 1: a half or three and a quarter, but but over
42:49
Speaker 1: gradual long period of time. Not okay, so that's two years.
42:54
Speaker 1: So let's let's take the counter argument that we have
42:58
Speaker 1: a distortion in interest rates because of QUEI and the
43:03
Speaker 1: purchase of bonds. And when you look at quality a
43:07
Speaker 1: rated sovereign debt, there really isn't all that much of it.
43:11
Speaker 1: I know, we talked about deficits and all these other things,
43:15
Speaker 1: but when you look around the world, how much high
43:19
Speaker 1: quality sovereign paper is there? And keep in mind, we
43:21
Speaker 1: have this huge demographic that's aging, whose portfolios are becoming
43:26
Speaker 1: more and more bonds heavy. They're big buyers of this.
43:29
Speaker 1: We have lots of foundations. Is a tremor. I don't
43:32
Speaker 1: have to tell you this tremendous amount of wealth around
43:35
Speaker 1: the world. Very often that's a fairly conservative portfolio fifty
43:40
Speaker 1: fifty or sixty forty, not as heavy equities as you
43:45
Speaker 1: might be typical of a twentysomething. Is it possible that
43:49
Speaker 1: what we're seeing is a shortage of quality sovereign paper, Well,
43:54
Speaker 1: it seems to be. UM certainly one of the themes
43:57
Speaker 1: of last year's everybody was expecting the tenure to head higher.
44:01
Speaker 1: We can get to above three percent. That was very
44:04
Speaker 1: much the consensus view. In the exact opposite have happened.
44:07
Speaker 1: We got to a one handle briefly, um so. And
44:11
Speaker 1: I think one of the factors that we have probably
44:14
Speaker 1: was underappreciated is what you just said, that there was
44:17
Speaker 1: a search um for yields and for quality assets, and
44:22
Speaker 1: with so much UM liquidity from central banks, it forced
44:26
Speaker 1: investors to, you know, move into U s treasuries because
44:31
Speaker 1: if you think about the yield and US treasuries versus
44:33
Speaker 1: let's say, German bonds, it's more attractive to buy US treasuries.
44:38
Speaker 1: And and you know, does anyone really think the US
44:41
Speaker 1: is going to default on its treasuries to the point
44:44
Speaker 1: that it were worth a point in a quarter more
44:46
Speaker 1: than than the German bonds or the Swiss bonds it's
44:50
Speaker 1: or or the Japanese bonds. It's really quite an astonishing disparity.
44:55
Speaker 1: There is there is and um That's why when you
44:57
Speaker 1: think about going back to this idea of the markets distorted,
45:01
Speaker 1: and how do you really understand the signal coming out
45:04
Speaker 1: of the markets. There's a question about that because we've
45:07
Speaker 1: never had such accommodative monetary policy, not just from the
45:12
Speaker 1: Federal Reserve but globally. So let's talk a little bit
45:14
Speaker 1: about Quei and Zurup and monetary policy here in the
45:19
Speaker 1: US with the Federal Reserve and the e c B
45:22
Speaker 1: in Europe and the Bank of Japan. What is the
45:26
Speaker 1: impact of all this monetary policy trying to stimulate the
45:30
Speaker 1: economy um in light of somewhat missing fiscal stimulus. Certainly
45:38
Speaker 1: in Europe, their austerity is there's been no fiscal stimulus.
45:42
Speaker 1: They finally started some of that in Japan, and I've
45:45
Speaker 1: seen somewhat of a reaction, and in the US we
45:47
Speaker 1: haven't really seen a whole whole lot of compared to
45:51
Speaker 1: pass cycles, this seems to be a fairly muted fiscal response,
45:55
Speaker 1: but an unusually robust monetary response. Yeah, I mean, I think,
46:00
Speaker 1: you know, it seems like the crisis was a long
46:02
Speaker 1: time ago at this point, and it was, but the
46:05
Speaker 1: initial um response after the crisis was extraordinary. On the
46:11
Speaker 1: fiscal side as well. Let me think about the a
46:14
Speaker 1: r A. The American Recovering Investment Act was a massive
46:16
Speaker 1: amount of eight hundred billion dollars, two thirds of which
46:20
Speaker 1: were temporary tax cuts and extension of of unemployment insurance.
46:24
Speaker 1: Not quite a trillion dollars your he wanted three. Yeah,
46:31
Speaker 1: he criticizes that it wasn't enough, it wasn't enough stimulus,
46:35
Speaker 1: and maybe it maybe it wasn't, but who knows what
46:37
Speaker 1: the counter factual was, but it was it was a
46:41
Speaker 1: you know, an aggressive response to an extraordinary recession, certainly
46:46
Speaker 1: more aggressive than we saw in Europe. They went the
46:48
Speaker 1: opposite direction. Here's your counterfactual is here's what happens. That's
46:52
Speaker 1: a counterfactual to the other way. Here's what happens. If
46:55
Speaker 1: we don't put a trillion dollars worth of stimulus in,
46:58
Speaker 1: you end up with a five year long recession. Like yeah.
47:01
Speaker 1: So now the question is, and this is a question
47:04
Speaker 1: always for policy makers, and this is where I think, again,
47:06
Speaker 1: going back to Krugman's arguments, there's a lot of pushback,
47:09
Speaker 1: which is, policymakers are designed to smooth the business cycle,
47:14
Speaker 1: and certainly a federal reserve is you're not supposed to
47:16
Speaker 1: allow the economy to overheating it all out. Now, suppose
47:18
Speaker 1: allowed the economy to uh to to fall into two
47:21
Speaker 1: deeper recessions, so you smooth the cycle. But the question
47:25
Speaker 1: is what is what is what is the best approach?
47:29
Speaker 1: Is it better to just not have a policy response,
47:32
Speaker 1: to have a very deep recession, but allow for there
47:34
Speaker 1: to be natural clearing and then you have a very
47:38
Speaker 1: rapid and robust recovery after a period of severe pain. Um.
47:42
Speaker 1: And that's where there's a debate between free market views
47:46
Speaker 1: versus those that have more Keynesian and believe that there
47:50
Speaker 1: should be a policy response. And I think broadly speaking,
47:54
Speaker 1: the Kinesian views have one out in this scenario in
47:57
Speaker 1: this way, um. But history will tell us after the
48:01
Speaker 1: fact which was really right. The other issue we run
48:04
Speaker 1: into when trying to look at that natural experiment between
48:07
Speaker 1: the US and Europe is that the electorate only tolerates
48:11
Speaker 1: so much pain, and so in a lot of these
48:14
Speaker 1: countries in Europe where you had austerity as the order
48:17
Speaker 1: of the day, they've been tossed out. I look what's
48:20
Speaker 1: going on in Greece. Hey, we've had enough. We're not
48:23
Speaker 1: going to take this anymore, and we're gonna elect a
48:25
Speaker 1: new group of people who are going to try something
48:27
Speaker 1: else because austerity doesn't seem to be working too well
48:30
Speaker 1: over there. You're right, and so that's what you think about.
48:32
Speaker 1: What about social unrest, it's a problem. And now understand
48:37
Speaker 1: in France when they threatened to cut vacations from sixteen
48:40
Speaker 1: to fifteen weeks, they're rioting in the streets. The US
48:45
Speaker 1: we tend to be a little more tolerant of that,
48:47
Speaker 1: where where I think philosophically we haven't wrapped our heads
48:51
Speaker 1: around as much of the safety net here as they
48:55
Speaker 1: they're used to in in Europe. I think there are
48:58
Speaker 1: a lot of reasons for that philosophical difference. But at
49:01
Speaker 1: a certain point it looked like the US um electorate
49:05
Speaker 1: was going to get angry, and then it just kind
49:07
Speaker 1: of faded away. It dissipated. We have a much shorter
49:11
Speaker 1: attention span, apparently on this side of the Atlantic than
49:14
Speaker 1: than they do. I also think the economy just came back.
49:17
Speaker 1: It came back. I mean, think about the unemployment rate
49:20
Speaker 1: fell sharply. Um it cures a lot. If you have
49:25
Speaker 1: stronger economic growth, people have jobs, feel a lot better
49:29
Speaker 1: about what's happening in policy. They're not marching on d
49:32
Speaker 1: C when when the unemployment rate drops in half. Yeah,
49:36
Speaker 1: not to the same extent, that's for sure. So so
49:38
Speaker 1: now let me ask you, UM, let's let's shift away
49:41
Speaker 1: from from the crisis, and let's shift away from um
49:46
Speaker 1: the austerity argument. Um, what's the big problem with forecasting
49:51
Speaker 1: and economists. It's one of the biggest criticisms we see
49:55
Speaker 1: is g economists makes these forecasts and they're always wrong.
49:59
Speaker 1: What the wrong? Well, someone somebody randomly is going to
50:03
Speaker 1: be right. But why the obsession with predictions from you know,
50:07
Speaker 1: it's funny you say when you described your job, almost
50:11
Speaker 1: nothing you said is And now I'm gonna tell clients
50:14
Speaker 1: here's where I think payroll is going to be in
50:17
Speaker 1: a month, and here's where the dad was going to be.
50:18
Speaker 1: And I do that. I don't forecast the market, but
50:21
Speaker 1: I do forecasts the economy, and I always, I always
50:25
Speaker 1: try to represent both sides of the argument by saying,
50:28
Speaker 1: you know, here's my baseline view, but here's what can
50:31
Speaker 1: go right, and here's what can go wrong relative to
50:33
Speaker 1: that view. But when you ask that question, I always
50:35
Speaker 1: think back to this conversation I had with my grandfather
50:38
Speaker 1: who I who I adored um when I first started
50:42
Speaker 1: in the industry, and he said, break guy. He said,
50:45
Speaker 1: I don't understand. You all look at the same data.
50:49
Speaker 1: You all have the same information. Why are there so
50:51
Speaker 1: many different forecasts out there? And I was like, you're right,
50:56
Speaker 1: But it's the way you interpret the data, and there's
50:59
Speaker 1: a lot of judgment that goes into it, and people
51:01
Speaker 1: have their own leanings in their own biases. So forecasting is,
51:06
Speaker 1: um it's a science, but you know, it's also an
51:10
Speaker 1: art to say. To say the least, I'm I'm guilty
51:15
Speaker 1: of criticizing economists for playing that game. I wish more
51:18
Speaker 1: of them would say, look, I'd rather analyze and explain
51:22
Speaker 1: what's going on than project A number of history tells
51:26
Speaker 1: us we're not really good at that. As a group,
51:29
Speaker 1: we're not especially good at that. Fair fair criticism or not.
51:33
Speaker 1: Um No, I mean I think it's fair in the
51:37
Speaker 1: sense that there is this tendency to use what happened
51:40
Speaker 1: in the past to explain the future. So it's very
51:44
Speaker 1: hard to understand turning points. It's always darkest before the dawn, right,
51:48
Speaker 1: So it's it's very hard to say that you're ever
51:50
Speaker 1: gonna be able to get out of whatever the cycle.
51:52
Speaker 1: So when we're in a recession, we're never going to
51:53
Speaker 1: gather recession. Yeah. And when we're an expansion, you always
51:58
Speaker 1: come up with a reason why the good times will
52:00
Speaker 1: just continue. And for those that have bold calls, um,
52:05
Speaker 1: you said Nori Overbeini, for example, of making a bold
52:07
Speaker 1: call that you know during the the good times that
52:11
Speaker 1: they're going to end, and they're going to end badly.
52:13
Speaker 1: At some point, you're going to be right with that call,
52:15
Speaker 1: and he was, but trying to time, yeah, and that's
52:19
Speaker 1: hard and it's hard to do um. And there's always
52:21
Speaker 1: this tendency also to return to some sort of steady state,
52:25
Speaker 1: some sort of equilibrium, because you don't know what kind
52:28
Speaker 1: of shocks are going to hit the economy. So I
52:31
Speaker 1: don't want to keep going back to Krugman, but he
52:33
Speaker 1: did a whole analysis on fresh water versus salt water economists,
52:38
Speaker 1: and there was a lot of self flagellation about the
52:42
Speaker 1: profession having not seen the crisis coming beforehand. It well,
52:48
Speaker 1: and even in the early stages of it. Kind of
52:51
Speaker 1: underestimating geesus is bad and it's going to get a
52:54
Speaker 1: whole lot worse. Where where do you come out on
52:57
Speaker 1: that sort of you know, deep self analysis of profession
53:01
Speaker 1: of economics. Yeah, I mean, listen, it's it's again. It's
53:05
Speaker 1: not perfect. I think we you know, you do what
53:07
Speaker 1: you can with the data you have and with your judgment.
53:09
Speaker 1: But you're right, a lot of people missed it. They
53:12
Speaker 1: missed the crisis. Um. I remember even sitting at at
53:16
Speaker 1: Lehman Brothers. We had we were working on this piece
53:18
Speaker 1: on the housing market, and I was working with our
53:20
Speaker 1: mortgage strategy team looking at um the vintages of mortgages,
53:27
Speaker 1: so taking um the you know, assuming different default paths,
53:32
Speaker 1: paths for mortgages that have been originated given their credit history,
53:37
Speaker 1: so assuming their credit history was the likelihood of default.
53:39
Speaker 1: And at the time we came up with exceptionally large
53:42
Speaker 1: numbers for foreclosure. But we had a conversation saying, oh, well,
53:45
Speaker 1: here are the reasons it's not going to happen, because
53:47
Speaker 1: that was the view that yeah, you can kind of
53:50
Speaker 1: smell that there were issues, and um, you can have
53:54
Speaker 1: some problems, but it wouldn't be outright disaster. A lot
53:58
Speaker 1: of people like to say they were there was froth
54:00
Speaker 1: in the housing market, not a bubble. So you look
54:04
Speaker 1: back and you think, oh my gosh, how did I
54:06
Speaker 1: ever think that? Look at home prices, reultsi's income, look
54:09
Speaker 1: at um, you know all the signs, but cost of
54:12
Speaker 1: rental versus close to like several in real time. I
54:16
Speaker 1: think it's hard to put that that exceptional scenario. It's
54:21
Speaker 1: hard to pencil in that exceptional scenario. And it's always
54:23
Speaker 1: hard to imagine the extraordinary circumstances versus the ordinary. UM.
54:31
Speaker 1: Oh that's funny. So when you when you're looking at UM,
54:34
Speaker 1: when you're looking at different when you're looking at different
54:37
Speaker 1: scenarios and trying to figure out exactly what's going to
54:41
Speaker 1: blow up and what's not going to blow up, it's
54:45
Speaker 1: much easier to say, well, this is a little crazy
54:47
Speaker 1: and they'll settle down. Then to say, hey, the world's
54:50
Speaker 1: gonna come to an end. This is going to be
54:51
Speaker 1: an abyss. Yeah, of course, of course, it's a much
54:53
Speaker 1: easier view to communicate UM. And I think we've learned
54:57
Speaker 1: from the crisis though, because you look back at what occurred,
55:01
Speaker 1: and I think that we have to realize that, you know,
55:04
Speaker 1: disaster can strike again at some point. So I think
55:06
Speaker 1: there are lessons learned for the average person. For forecasters,
55:11
Speaker 1: but um, you know, there's this tendency to forecast some
55:18
Speaker 1: sort of return to equilibrium which may or may not
55:20
Speaker 1: take place soon or rather than later. So what changes
55:23
Speaker 1: would you like to see take place in the profession
55:26
Speaker 1: of economics as practiced on Wall Street. I think it'd
55:31
Speaker 1: be very helpful to have at all times some sort
55:34
Speaker 1: of modal distribution. So you have to find that best.
55:40
Speaker 1: So you give a forecast, You have to give a forecast.
55:43
Speaker 1: Here's where I see GDP growth, Here's where I see jobs,
55:46
Speaker 1: Here's where I see the fed um. But what's my
55:48
Speaker 1: distribution of risks? Where's the risks around that forecast? Are
55:52
Speaker 1: they leaning to the down side to the upside um?
55:55
Speaker 1: I think that would go a long way in terms
55:57
Speaker 1: of communicating the views and helping market participants. And and
56:00
Speaker 1: I do that. I think we all do it to
56:02
Speaker 1: a certain extent, but maybe to formalize it would be helpful.
56:05
Speaker 1: So in other words, it's not just the number, but
56:08
Speaker 1: the context and the potential upside and downside to the Yeah,
56:12
Speaker 1: so rather than saying our view is for three percent growth,
56:15
Speaker 1: you say our view is the economy will realize three
56:17
Speaker 1: percent growth, but the risks are that there's a higher
56:21
Speaker 1: probability of a two percent than four percent. So now
56:23
Speaker 1: let's you know, we skipped over the capex question. Let's
56:26
Speaker 1: let's let's address that. Um. We've seen the uptick endurable
56:32
Speaker 1: goods at least and how in h automobiles, but not
56:35
Speaker 1: in other goods. And we've seen kind of soft retail
56:39
Speaker 1: spending elsewhere. But the big question is we're not seeing
56:44
Speaker 1: the sort of capex spending on the corporate side that
56:48
Speaker 1: you would expect this far into a recovery. Why not?
56:53
Speaker 1: And when are we gonna see some real corporate capital
56:56
Speaker 1: expenditures that perhaps might be good for both UM, the
57:02
Speaker 1: economy and corporations long term returns. Yeah. So, I think
57:08
Speaker 1: part of the challenge has been that there's a lot
57:10
Speaker 1: of uncertainty about this business cycle. This has been the
57:14
Speaker 1: recovery effits since starts. So that has made many corporations
57:19
Speaker 1: hesitant in terms of doing these bigger, bigger ticket item investments. UM.
57:23
Speaker 1: But the large, large corporations Bardley speaking, should be prepared
57:26
Speaker 1: to do so. If you look at the health of
57:28
Speaker 1: their balance sheets, look at their ability to refinance dead
57:31
Speaker 1: at low levels, UM, they're very sound and and and
57:35
Speaker 1: and should be ready to go in terms of investments.
57:37
Speaker 1: So I hope that it's just a matter of time.
57:39
Speaker 1: Smaller companies have struggled a bit more in the past
57:42
Speaker 1: several years. I haven't had the same access to credit. Um.
57:47
Speaker 1: It's a big it's a big driver, and not only
57:50
Speaker 1: small businesses, but maybe even more importantly, it's new business formation.
57:53
Speaker 1: New business formation is absolutely critical to getting investment to
57:58
Speaker 1: pick up and to get hiring to pick up. And
58:01
Speaker 1: it's been a challenge for new businesses to form in
58:04
Speaker 1: this environment. It's been slower than average. Yes, why do
58:07
Speaker 1: you think that is? Well, I think you know one
58:10
Speaker 1: of the issues, and yes, I focus on housing, so
58:13
Speaker 1: maybe I'm always inclined to go back to it. But
58:14
Speaker 1: I do think part of it links into housing and
58:17
Speaker 1: to the equity issue. A lot of times small new
58:20
Speaker 1: businesses are formed by with drawing money out of your home.
58:24
Speaker 1: It's a it's a personal loan. Yeah, so you you
58:29
Speaker 1: you finance it, you yourself, and you put a lot
58:32
Speaker 1: of your own capital um out front to form a
58:35
Speaker 1: new business. And with difficulty getting home home equity lines
58:39
Speaker 1: of credit, and with a period of negative equity and
58:41
Speaker 1: low equity that's probably made it a bit difficult for
58:44
Speaker 1: some businesses to form. I think maybe one of the
58:47
Speaker 1: other issues is just how a lot of industries has changed.
58:50
Speaker 1: So think about retail. Think about how much the market
58:53
Speaker 1: has changed in just the past ten years. UM we
58:56
Speaker 1: went from an environment where it was very common to
58:59
Speaker 1: go to the walls and two brows and to shop
59:03
Speaker 1: in person, to one where technology has made it so
59:06
Speaker 1: easy to just take out your smartphone or take out
59:08
Speaker 1: your iPhone and click on an app and buy exactly
59:11
Speaker 1: what you need for overnight chipping free, which is amazing.
59:16
Speaker 1: It's amazing. I buy an exurbant amount of stuff on
59:21
Speaker 1: Amazon Prime, especially having a baby at home. You need
59:24
Speaker 1: a lot of things, and you need it quickly, and
59:26
Speaker 1: I don't have to go the store to get it.
59:28
Speaker 1: It's I have. I first became an Amazon client when
59:32
Speaker 1: my college roommate gave me a birthday gift certificate. I
59:36
Speaker 1: want to say, or something like that, and I've kicking
59:43
Speaker 1: and screaming. Finally gave Amazon Prime a try. Because the
59:48
Speaker 1: issue is always what's the big deal. I'll throw something
59:51
Speaker 1: in my um cart and all right, I'll get something else.
59:55
Speaker 1: And you used to be twenty five dollars now it's
59:57
Speaker 1: thirty five some. And what I found with Amazon Prime,
1:00:02
Speaker 1: which is kind of funny, I'll do the thirty day
1:00:06
Speaker 1: why not? And I find that you're shopping style just
1:00:10
Speaker 1: it's like click, one click, you don't even think about
1:00:13
Speaker 1: it anymore, whatever you want, and and their two days shipping.
1:00:18
Speaker 1: I don't want to say often, but surprisingly is there
1:00:22
Speaker 1: the next day. Like if I order something early on
1:00:25
Speaker 1: a Monday morning, it's in the mail, I get it
1:00:28
Speaker 1: at Tuesday. If you order it Sunday night, it's not
1:00:32
Speaker 1: showing up until Tuesday Wednesday. But so it's amazing, how
1:00:36
Speaker 1: it You know? There was a disc I I had
1:00:39
Speaker 1: lent to somebody and someone said, oh, it was a
1:00:42
Speaker 1: Mark Knopfler privateering, which is I'm a huge Dire Straits
1:00:46
Speaker 1: fan and Mark Nof was his fabulous guitarist, and a
1:00:49
Speaker 1: buddy call to say he's poppy chewed up the disk
1:00:52
Speaker 1: and he really I had no problem. We were literally
1:00:54
Speaker 1: on the phone having a conversation and by the time
1:00:57
Speaker 1: the conversation finished, he says, you know, don't worry, I'll
1:01:00
Speaker 1: they'll get you another one. I go too late already
1:01:02
Speaker 1: ordered like we it was like privateering into the thing
1:01:07
Speaker 1: done like it's it's so easy and instantaneous, it's astonishing.
1:01:13
Speaker 1: So what does that mean for you? You've mentioned retail?
1:01:16
Speaker 1: What does this mean for that? We have hundreds of
1:01:19
Speaker 1: millions of square feet of retail malls and shopping and
1:01:25
Speaker 1: do we have too big a footprints for retail? Is
1:01:28
Speaker 1: that something that's gonna really contract based on what's going
1:01:31
Speaker 1: on with technology? Well, I mean I think we're we're
1:01:34
Speaker 1: consuming differently as as we just talked about, which means
1:01:36
Speaker 1: you don't need as much brick and mortar, and maybe
1:01:39
Speaker 1: you need more warehousing, maybe you need more distribution, distribution
1:01:43
Speaker 1: and strones exactly. But technologly you can't can't avoid technology
1:01:50
Speaker 1: and you have to embrace technology and and it creates
1:01:52
Speaker 1: winners but also creates losers. Are millennials going to the
1:01:56
Speaker 1: mall the way the baby boom generation would go sports
1:01:59
Speaker 1: shopping or retail therapy as some people called it? Is this?
1:02:03
Speaker 1: Is this that different from the early from the previous
1:02:06
Speaker 1: I mean, I don't know, it seems to be. I
1:02:09
Speaker 1: think the other issue is that there's been people staying
1:02:12
Speaker 1: close to city centers, uh for for longer. Um, So
1:02:17
Speaker 1: if you're living in an urban area then you don't
1:02:19
Speaker 1: have as much access to the mall, and um, what
1:02:24
Speaker 1: do you have access to everything else? You have access
1:02:26
Speaker 1: to everything else, which is at seven Um. But yeah,
1:02:30
Speaker 1: I think you do shop a bit differently. For I
1:02:33
Speaker 1: mean for me, I live in the city. We have
1:02:34
Speaker 1: you know, a doorman, you you can you can blow
1:02:38
Speaker 1: out everyone online. It ships there, sit you don't. Yeah,
1:02:42
Speaker 1: it's just the convenience is exceptional. So um. When I
1:02:45
Speaker 1: lived in Manhattan, we would have people visit me, visit
1:02:48
Speaker 1: us in the apartment. My favorite thing was to show
1:02:50
Speaker 1: them two stacks of menus. This giant stack are the
1:02:54
Speaker 1: restaurants that will deliver to us. This smaller stack, these
1:02:57
Speaker 1: are the restaurants that will deliver twenty four hours a day.
1:03:00
Speaker 1: It was. It was crazy. And when you move out
1:03:03
Speaker 1: of the city, that's the first thing you miss is Wait,
1:03:06
Speaker 1: I could get parogi dropped off at my door at
1:03:08
Speaker 1: two in the morning. That's amazing. It will be a
1:03:10
Speaker 1: shock to our system at some point. We're trying to
1:03:13
Speaker 1: hold out. The trade off is you just end up
1:03:15
Speaker 1: with immense amounts of closet space, like to a My
1:03:19
Speaker 1: first apartment was a four squift with studio on seventeen
1:03:23
Speaker 1: and third that literally if you the joke was if
1:03:26
Speaker 1: you wanted to change your mind, you had to step
1:03:27
Speaker 1: out into the all way, so you know, enough room. Um,
1:03:31
Speaker 1: but then now you you end up in the bourbs,
1:03:34
Speaker 1: and it's just it's a whole different. It's a series
1:03:37
Speaker 1: of trade offs that I loved being able to life.
1:03:41
Speaker 1: I guess it really, I guess it really is. So
1:03:43
Speaker 1: let me ask you about another trade off, um, which
1:03:46
Speaker 1: a mutual friend asked me to ask you, Um, what
1:03:51
Speaker 1: research of yours are you especially proud of and and
1:03:55
Speaker 1: whether or not you nailed the call or a particularly
1:03:58
Speaker 1: contrary call you had made. What what sort of piece
1:04:02
Speaker 1: of research? Really? Can you look back and say that
1:04:05
Speaker 1: was a really great piece of thinking called the bottom
1:04:08
Speaker 1: and home prices which we were right on, which was great. Um,
1:04:12
Speaker 1: So March two thousand and twelve put out a piece
1:04:16
Speaker 1: sing home prices are bottoming now, and they did and
1:04:20
Speaker 1: the recovery started. So we nailed that call. Um, you
1:04:23
Speaker 1: get a lot of pushback from that, got a lot
1:04:25
Speaker 1: of pushback from it. Um, Yeah, home prices are not
1:04:28
Speaker 1: going to rise. I haven't fallen enough. Why would they
1:04:30
Speaker 1: be stabilizing in this environment. Um, what's your answer to that?
1:04:34
Speaker 1: What did you say to people that you had, Um,
1:04:37
Speaker 1: you had a buyer that Um, you had a seller
1:04:41
Speaker 1: who was highly motivated and you had a buyer who
1:04:45
Speaker 1: was also very Obviously they were able to find that
1:04:47
Speaker 1: market clearing price. Um, which meant a lot of pain.
1:04:50
Speaker 1: But that's been found, and we're now at a situation
1:04:53
Speaker 1: where inventory is low. We were looking at twelve months
1:04:57
Speaker 1: to what five months of and it went pretty fat.
1:05:00
Speaker 1: So it seemed like we were kind of primed for, um,
1:05:03
Speaker 1: some stabilization and home prices. Now, did we call for
1:05:05
Speaker 1: ten percent appreciation two thousand thirteen, No, we were looking
1:05:09
Speaker 1: for something a bit lower, but for two thousand twelve,
1:05:11
Speaker 1: just timing that turn, we were right, and um, we're
1:05:14
Speaker 1: in front of the game. And I remember I went
1:05:15
Speaker 1: on Bloomberg Surveillance and on Tom King's show the day
1:05:18
Speaker 1: we published that note. You know, I look back at
1:05:21
Speaker 1: that and you know, taught me a big, big deal
1:05:23
Speaker 1: out of it, rightfully, So you know, home prices bought.
1:05:26
Speaker 1: I mean, Michelle Meyer calls the Bob and home prices
1:05:28
Speaker 1: and I remember feeling so uncomfortable about them. I was like,
1:05:31
Speaker 1: oh my gosh, what if we're wrong, and I tried
1:05:34
Speaker 1: to pull back a bit um and he, knowing Tom,
1:05:38
Speaker 1: he won't let you. He won't let you, And he
1:05:40
Speaker 1: still remembers it, and now he's still references that. So
1:05:43
Speaker 1: I feel really proud about that. So now let me
1:05:45
Speaker 1: ask you the contrary of that, what what sort of
1:05:47
Speaker 1: research piece do you wish you could take back that
1:05:50
Speaker 1: you never hit the published button on? Uh? I would
1:05:53
Speaker 1: say it was a piece on labor force participation. Let's
1:05:57
Speaker 1: say two thousand eleven or so. Now, for those listeners
1:06:01
Speaker 1: who aren't as wonky as as the rest of them,
1:06:05
Speaker 1: how many people are actively in the labor force, meaning
1:06:09
Speaker 1: a person who is of employment age. But besides, I'm
1:06:15
Speaker 1: not working, I'm not looking for work. I'm just I'm
1:06:18
Speaker 1: complete withdrawing for the labor be for uce. Either I'm
1:06:20
Speaker 1: going back to school or I'm dropping um adelaide force
1:06:24
Speaker 1: to raise a child or something. But I'm not an
1:06:27
Speaker 1: active participant in the labor force. That peaked in the
1:06:30
Speaker 1: late nineties, didn't it? Um? It did so right before
1:06:34
Speaker 1: the two thousand one recession. Participation rate peaked and it's
1:06:37
Speaker 1: been on. It was not like a gradual downward shift.
1:06:40
Speaker 1: Had some some cyclicality around the two thousand one recession,
1:06:43
Speaker 1: but then when this recession hit it it felt like
1:06:46
Speaker 1: it just collapsed. In my view at the time was
1:06:49
Speaker 1: it fell too fast and that there's room for cyclico
1:06:51
Speaker 1: advancement and we'd be able to see a rebound the participation, right,
1:06:54
Speaker 1: I don't think I appreciate enough how much demographics were
1:06:56
Speaker 1: playing a role. UM. So we wrote a piece, you know,
1:06:59
Speaker 1: let the lay before to be with you, arguing that
1:07:01
Speaker 1: the participation ary was going to pick up and that
1:07:03
Speaker 1: would that's a clever title, yeah you have. That's one
1:07:06
Speaker 1: thing that Wall Street economists you have to have good titles. UM.
1:07:10
Speaker 1: And arguing the participation rate would would pick up. It
1:07:13
Speaker 1: creates some stickiness the unemployment rate and it was not
1:07:16
Speaker 1: the right call. And in fact, the part that was
1:07:18
Speaker 1: around two that's eleven now. Hasn't it begun to stabilize.
1:07:22
Speaker 1: It didn't really stabilize until last year, so they was
1:07:24
Speaker 1: further downside and the unemployment rate fell faster than what
1:07:27
Speaker 1: we were predicting. UM. And the odd odd notation of
1:07:32
Speaker 1: the labor force participation rate is as you have more
1:07:35
Speaker 1: people coming back into the labor for us looking for work,
1:07:38
Speaker 1: you'll actually end up seeing and improving economy raises unemployment
1:07:43
Speaker 1: rate described that. I know a lot of people are
1:07:46
Speaker 1: perplexed by that. So the participation rate matters because it
1:07:51
Speaker 1: tells you how many people are out there looking. So
1:07:54
Speaker 1: even if you have um you know, a stronger economy,
1:07:57
Speaker 1: if that healthier job growth encourages people to come back
1:08:00
Speaker 1: in the labor force, it makes it appear as though
1:08:02
Speaker 1: the unemployment rate is actually more elevated than it is. UM. Now,
1:08:06
Speaker 1: if the participation rey falls, if your people are looking
1:08:09
Speaker 1: for work, uh, and of those looking for work, some
1:08:12
Speaker 1: of which are unemployed looking for work, obviously the unemployment
1:08:15
Speaker 1: rate has downside biased. So it's not just and I
1:08:19
Speaker 1: think I talked around it a little bit, but the
1:08:22
Speaker 1: clear answer is that the unemployment rate is not just
1:08:25
Speaker 1: influenced by the number of unemployed workers. It's influenced by
1:08:28
Speaker 1: the number of people looking for a job. So you
1:08:30
Speaker 1: can sometimes perversely have a rising unemployment rate because the
1:08:34
Speaker 1: economy the job market is actually getting It's more it's
1:08:37
Speaker 1: it's hard to see it actually rise when the economy
1:08:39
Speaker 1: is improving, but it's more that it's sticky. HM. So
1:08:43
Speaker 1: last last question, because I know you have to get
1:08:46
Speaker 1: out of here and it's already late in the day.
1:08:48
Speaker 1: This so much fun. What is what is your So
1:08:51
Speaker 1: let's talk about what is your what's your favorite part
1:08:53
Speaker 1: of the job, and um, what changes do you see
1:08:57
Speaker 1: coming for the role of economists on Wall Street. That's
1:09:01
Speaker 1: that's a tricky one. Um. Favorite part of the job,
1:09:05
Speaker 1: I think, um, the amount of adrenaline I have while
1:09:10
Speaker 1: doing the job. So it's it's it's fast paced, it's fun,
1:09:14
Speaker 1: it's constant. Um, you're in demand. People want to talk
1:09:18
Speaker 1: to they want to understand what you're thinking. Um. And
1:09:21
Speaker 1: that's that's that's really that's that that pumps you up.
1:09:25
Speaker 1: So I'm excited to go to work. I feel, um,
1:09:28
Speaker 1: I feel alive. I'm in the office. It's it's great,
1:09:30
Speaker 1: no matter how tired I might be. So being on
1:09:33
Speaker 1: the training floor, being involved in the markets, and being
1:09:36
Speaker 1: able to have conversations with exceptionally smart people is is wonderful. Um.
1:09:42
Speaker 1: So I love that. I love that about the job. Um.
1:09:44
Speaker 1: I've really enjoyed the media aspect too. I like public speaking.
1:09:48
Speaker 1: I like I enjoy being on TV. I enjoy being
1:09:51
Speaker 1: on the radio. I enjoy being able to communicate my
1:09:53
Speaker 1: views to the public and and hearing the feedback that's
1:09:56
Speaker 1: really fun. You know, not everybody agrees and I and
1:09:58
Speaker 1: and I'm okay with that, And I want to hear
1:10:00
Speaker 1: where there's a difference of views, and I like the debate.
1:10:02
Speaker 1: I think it's I think it's healthy, and I think
1:10:04
Speaker 1: it's exciting. Um. Where is the industry going for economists
1:10:07
Speaker 1: on Wall Street? Well, I think you could argue that
1:10:09
Speaker 1: in general, the industry has shrunk, and so clearly opportunities
1:10:16
Speaker 1: for economist on Wall Street sunk as well. UM. I
1:10:19
Speaker 1: think one of the big questions that it is thinking
1:10:22
Speaker 1: is how do you know, how do you monetize research?
1:10:24
Speaker 1: Research is extremely important? Um, but if you're in a
1:10:29
Speaker 1: cost cutting environment, Um, you know, how do you how
1:10:32
Speaker 1: do you how do you make it as valuable as
1:10:35
Speaker 1: you can? So I think we always have to keep
1:10:36
Speaker 1: that in mind. Keep that in mind is that at
1:10:39
Speaker 1: the end of the day, if you're a Welshire economists,
1:10:40
Speaker 1: do you have to produce something that's going to be
1:10:43
Speaker 1: important and going to be relevant for your clients? Um,
1:10:48
Speaker 1: both internal and external clients that they're willing to pay something,
1:10:52
Speaker 1: willing to pay something for Michelle. This has been an
1:10:54
Speaker 1: absolute delight we've been speaking to Michelle Meyer. She is
1:10:59
Speaker 1: the chief economist of Worldwide Bank America. Mery Lynch, as
1:11:05
Speaker 1: the show goes on to get so, what is your
1:11:07
Speaker 1: exact title? Deputy Deputy head of US Economics. Okay, and
1:11:12
Speaker 1: you worked directly with Ethan Harris, who's the chief? Who
1:11:15
Speaker 1: is the chief? He's the co head of Global Economics.
1:11:19
Speaker 1: The Developed Economics team reports into him. And if somebody, now,
1:11:22
Speaker 1: most of your stuff is behind a firewall, if someone
1:11:25
Speaker 1: wanted to find your work, how would they how would
1:11:28
Speaker 1: they find it? Well? Bank America is a very large organization.
1:11:31
Speaker 1: So the good news is that a lot of people
1:11:33
Speaker 1: do bank with us or have some exposure to to
1:11:35
Speaker 1: Bank America. And if you do, UM, you can't get
1:11:38
Speaker 1: access to our research on the I get stuff from
1:11:41
Speaker 1: you guys every day in UM and through Bloomberg and
1:11:46
Speaker 1: through you know, other types of blogs like yourself you
1:11:50
Speaker 1: can get you can get information, So it's out there.
1:11:53
Speaker 1: We've been speaking with Michelle Meyer of Bank America. Merrill Lynch.
1:11:58
Speaker 1: If you've enjoyed this podcast, UM, look an inch higher
1:12:02
Speaker 1: or an inch lower on iTunes and you'll see all
1:12:04
Speaker 1: the rest of our podcasts. We're up to thirty something
1:12:08
Speaker 1: almost forty podcasts. Be sure and check out my daily
1:12:12
Speaker 1: column on Bloomberg View dot com or my blog at
1:12:16
Speaker 1: rid Halts dot com. You can follow me at rid Halts.
1:12:19
Speaker 1: I'm Barry Ridholts. You've been listening to Masters in Business
1:12:23
Speaker 1: on Bloomberg Radio. You're listening to Masters in Business with
1:12:27
Speaker 1: Barry rid Holts on Bloomberg Radio.