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Neil Dutta on Economic Research · Masters in Business

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  Speaker 1: M. This is Mesters in Business with very Results on
• 0:06
  Speaker 1: Bloombird Radio. This week on the podcast, I have an
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  Speaker 1: extra special guest. Neil Dutta has been doing economic analysis
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  Speaker 1: and research from a market based perspective for over twenty years.
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  Speaker 1: He has a fascinating career and has been a whole
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  Speaker 1: lot more right than wrong than most of his fellow
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  Speaker 1: economists who cover the street. I found this to be
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  Speaker 1: just an absolutely fascinating discussion about how to best contextualize
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  Speaker 1: the world of economic data around you in a way
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  Speaker 1: that's useful for you as an investor. Very often there's
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  Speaker 1: a ton of information that comes out and by the
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  Speaker 1: time it's released, it is fairly meaningless to what the
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  Speaker 1: market is going to be doing a few months. Hence,
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  Speaker 1: understanding nuance, understanding that the world isn't binary is the
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  Speaker 1: challenge for investors, and few do it better than Neil
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  Speaker 1: does in terms of putting together a global view of
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  Speaker 1: what's happening in the economy, what's happening around the world,
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  Speaker 1: what's happening with the Fed, and what's happening with the
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  Speaker 1: stock market. I found this conversation to be fascinating and
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  Speaker 1: I think you will also with no further ado ren
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  Speaker 1: Max Neil Data. So let's start out with a little
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  Speaker 1: bit about your background. You graduate cum laude from n
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  Speaker 1: y U with a b a. In economics and policy.
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  Speaker 1: What was your first job in the economics and finance space?
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  Speaker 1: So I was actually thinking about being a lawyer. So
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  Speaker 1: I ended up taking my l S at my senior
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  Speaker 1: year at n y U, and UM I did okay,
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  Speaker 1: but I didn't do well enough to go to a
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  Speaker 1: school that I really wanted to go to, and so
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  Speaker 1: UM at that point, I was kind of scrambling, and
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  Speaker 1: I was like, I need to get into the financial
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  Speaker 1: industry because I'm in New York. I have a passion
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  Speaker 1: for finance. But it was kind of late, so a
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  Speaker 1: lot of the investment banking and US have had already
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  Speaker 1: lined up their gigs. So I ended up getting a
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  Speaker 1: job at Merrill Lynch as a compensation analyst in human resources.
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  Speaker 1: Really yes, so that was so UM I did that.
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  Speaker 1: I started that in two thousand and five after I graduated. UM.
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  Speaker 1: But one of the good things about being an HR
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  Speaker 1: Barry is you kind of know where all the jobs
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  Speaker 1: in the organization are. So fast forward about a year
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  Speaker 1: and a job had opened up as an economic research
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  Speaker 1: analyst in Someone's someone you may know David Rosenberg of course. Um,
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  Speaker 1: so that was actually my first foray into economics, and
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  Speaker 1: the rest is history. Um, you also worked as an
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  Speaker 1: analystic Barrens. Tell us a little bit about that. Where
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  Speaker 1: was that in your career path? Well, that was really
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  Speaker 1: more of an internship than anything else. But I worked
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  Speaker 1: with um Gene Epstein, the economics editor at Barns noted, uh, libertary,
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  Speaker 1: are and enthusiast now, but yeah, I mean that was
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  Speaker 1: back when I guess Alan Abelson was running was running
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  Speaker 1: the Up and Down Wall Street column. Now obviously it's Randy,
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  Speaker 1: but Randall fourth sythe yea who was another Gene Dolan,
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  Speaker 1: right Donalin Alan Abelson was must read each week, Randy
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  Speaker 1: forsythe they had a killer lineup, and Gene basically wrote
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  Speaker 1: a weekly economics column. So that was my sort of
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  Speaker 1: first foray into just analysis in terms of economic data. Right,
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  Speaker 1: Like some of the tools that people would use back then,
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  Speaker 1: right hey, r analytics was a big one, and so
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  Speaker 1: Jeane kind of introduced me to that. So when I
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  Speaker 1: was a trader back in the nineties, my Saturday's always
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  Speaker 1: began with a big mug coffee and Barns. And you know,
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  Speaker 1: back before you had everything at your fingertips, it took
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  Speaker 1: a little bit of effort to find things in the
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  Speaker 1: pre Google days, and sitting down with Barns was a
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  Speaker 1: weekly routine, and it felt like it was the publication
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  Speaker 1: that everybody on the street was pouring over every week.
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  Speaker 1: Do you think it's still that way? I think the
• 4:07
  Speaker 1: world has changed radically, clearly. Twitter is the new tape.
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  Speaker 1: I see things on Twitter before I see them on
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  Speaker 1: the terminal, because I could be in the car on
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  Speaker 1: a train or something and something will across Twitter and
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  Speaker 1: I'm sure it's on Bloomberg at the exact same time
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  Speaker 1: because they passed Twitter constantly. But I don't always have
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  Speaker 1: my terminal up and open in my face, certainly not
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  Speaker 1: when I'm driving. I agree. I think that the whole
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  Speaker 1: finn Twitter community is probably the most useful uses Twitter
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  Speaker 1: as a as a sort of social media tool. To
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  Speaker 1: say nothing about how easy it is to find anything online,
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  Speaker 1: not just through Twitter, but Google also is an enormous resource.
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  Speaker 1: The nineties were what thirty years ago, right, very different world.
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  Speaker 1: Three decades two a half anyway, decades have passed you're
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  Speaker 1: not on Twitter. As far as I can tell, I
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  Speaker 1: am on Twitter. Well, we run our company not under
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  Speaker 1: your name, no, not under my name. That's I mean,
• 5:08
  Speaker 1: we sort of run that as a company policy. Um
• 5:11
  Speaker 1: but um yeah, I mean I I tweet. I try
• 5:15
  Speaker 1: to put information out there. What we try to do,
• 5:17
  Speaker 1: of course, is to make sure we're sending it out
• 5:19
  Speaker 1: a little bit later than our clients get because then,
• 5:21
  Speaker 1: you know, I pay for research in the first place,
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  Speaker 1: if you can get it for free on Twitter. But yeah,
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  Speaker 1: I mean, you know we started that account maybe. Yeah,
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  Speaker 1: we've been growing it ever since and we have a
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  Speaker 1: good yeah, we and um yeah. What we try to
• 5:38
  Speaker 1: do is promote our our in house ideas. So let's
• 5:41
  Speaker 1: talk a little bit about what you did at Merrill Lynch.
• 5:44
  Speaker 1: We worked with Rosie, which I'm sure you have lots
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  Speaker 1: of stories from that. What was your role there? What
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  Speaker 1: sort of researching and writing did you do well? So
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  Speaker 1: when I started as an analyst under Rosie, Um, I
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  Speaker 1: was basically a junior economist. I mean a lot of
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  Speaker 1: I mean. One of the great things about Rosie, I mean,
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  Speaker 1: you know, was just he is I think one of
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  Speaker 1: the best examples of what a wall street economist should
• 6:06
  Speaker 1: be like we had this UM weekly piece called the
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  Speaker 1: market Economist, right, And that I think is very important
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  Speaker 1: because he was a markets economist. He wasn't a PhD.
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  Speaker 1: And he didn't think like one either. And what I
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  Speaker 1: think he understood and what he kind of ingrained in me,
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  Speaker 1: you know, very early on, is that this is really
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  Speaker 1: fundamentally if you're a sell side research economist, you are
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  Speaker 1: in the client service business. And that's what Rosie was
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  Speaker 1: really great at UM. I mean, he was always on
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  Speaker 1: the road. I mean, gosh, I don't even remember when
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  Speaker 1: I don't even remember when I saw him UM, because
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  Speaker 1: he was always on the road, particularly in in in
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  Speaker 1: oh seven and oh eight, when UM when it's you know,
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  Speaker 1: I mean it was sort of with with Rosie. It
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  Speaker 1: was kind of wrong wrong and then spectacularly right, right.
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  Speaker 1: And so when he became spectacularly right, you know, he
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  Speaker 1: was he was on the road constantly, and so one
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  Speaker 1: of the things I would do for him was just
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  Speaker 1: kind of feed him ideas, feed him charts that kind
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  Speaker 1: of reinforced his his thesis that he could then go
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  Speaker 1: and present the clients while he was on the road.
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  Speaker 1: So a lot of it was sort of getting in
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  Speaker 1: the weeds on on charts and data. But that's that's
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  Speaker 1: what I would do for him. And then you know,
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  Speaker 1: as I got better at that, he kind of gave
• 7:14
  Speaker 1: me a little bit more freedom in terms of allowing
• 7:17
  Speaker 1: me to write. And obviously, if you work in in
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  Speaker 1: a Belgian bracket like that, you're obviously writing under the
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  Speaker 1: lead analyst, right, So my name would go on the reports,
• 7:24
  Speaker 1: but they would be under his, of course. And he
• 7:26
  Speaker 1: gave me a little bit more freedom as time went on,
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  Speaker 1: and I would end up writing his morning note, which
• 7:30
  Speaker 1: was the widely read you know Rosie Tidbits, remember, I
• 7:33
  Speaker 1: mean you know those now it's Breakfast with Dave. Back then,
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  Speaker 1: it used to be called Rosie's Morning Tidbits. And I
• 7:40
  Speaker 1: think that was a play on because you know, Rosie
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  Speaker 1: was Canadians Canadians and still is um and in my career,
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  Speaker 1: I feel like the Canadian they produce a large number
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  Speaker 1: of economists. I mean, it's it's kind of right, I
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  Speaker 1: mean comedians. And I have no idea, but I think
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  Speaker 1: the tid bits was a play on tim Bits, right,
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  Speaker 1: Tim Horton's sort of their version of dunkin Donuts, I guess,
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  Speaker 1: And so he gave me some freedom in writing that.
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  Speaker 1: For so Rosie actually ends up going back home to Toronto,
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  Speaker 1: I know, oh nine, And so now you're at Meryl
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  Speaker 1: without him writing heard on you. What was it like
• 8:17
  Speaker 1: when you had a little more latitude to go where
• 8:20
  Speaker 1: you wanted? Well, um, it was actually an interesting time because, um,
• 8:25
  Speaker 1: when Rosie left, things were starting to turn around a little.
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  Speaker 1: And I remember I wrote a piece basically, I think
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  Speaker 1: in June two thousand and nine, basically saying that the
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  Speaker 1: recession was over. And at the time it was a
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  Speaker 1: controversial call. Um, but that was when we didn't even
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  Speaker 1: have a head of economics because there was a bit
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  Speaker 1: of a sort of murky you know, let's say six
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  Speaker 1: to nine month period where Rosie had left and it
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  Speaker 1: had been a you know, and and then Ethan Harris
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  Speaker 1: had yet to come in, so we kind of had
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  Speaker 1: a lot of freedom in terms of what we wanted
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  Speaker 1: to do. And um, you know, so I wrote that piece.
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  Speaker 1: It got a lot of attention, I think, But yeah,
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  Speaker 1: I mean it was a good call and I think
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  Speaker 1: it was interesting to say the least, because um, here
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  Speaker 1: you had Rosie, who was a noted market bear at
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  Speaker 1: the time. He never would have put his name on
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  Speaker 1: that piece, right and um, and so in some respects
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  Speaker 1: I was able to and I you know, I mean
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  Speaker 1: we used a lot of the same framework that he
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  Speaker 1: is looking at a lot of the same indicators in
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  Speaker 1: terms of you know, you know, Rosie would talk a
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  Speaker 1: lot about leading indicators, the the e c R I index,
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  Speaker 1: and a lot of them had been turning around. So
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  Speaker 1: we had basically said, look like things are getting better
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  Speaker 1: and it's sort of reinforced, uh, you know, the upturn
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  Speaker 1: in markets. So um and speaking of markets, how often
• 9:34
  Speaker 1: is down fift not a pretty decent entry point for equities? Oh? Sure? Well,
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  Speaker 1: I mean one of my buddies, Sam Row, who you
• 9:43
  Speaker 1: probably know TK t uh and um. He has that
• 9:49
  Speaker 1: you guys know each other. Sam's work is great also, Yeah,
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  Speaker 1: I mean I can't I I think very highly of
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  Speaker 1: him also. And one of the best things that he
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  Speaker 1: says is stock markets usually we go up. That is
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  Speaker 1: a factual statement, not always but most of the most
• 10:04
  Speaker 1: of the time. And um, it's tough being on the
• 10:08
  Speaker 1: low probability side of the street, right, And I think
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  Speaker 1: that sort of set a lot of the kind of
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  Speaker 1: trajectory over the next several years after um I left
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  Speaker 1: Merrill and when I started at rend Mac And just
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  Speaker 1: if you couldn't figure out by eleven that the sky
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  Speaker 1: is not always falling, you'll you'll never figure it out.
• 10:24
  Speaker 1: I mean, because we had so many things happened. We
• 10:28
  Speaker 1: had financial crisis, double depercession fears, right, there was that
• 10:31
  Speaker 1: debt default thing, and then China hard landing that was
• 10:34
  Speaker 1: like this perennial thing, and European sovereign debt crisis and
• 10:37
  Speaker 1: stocks kept going up. And so I feel like, you know,
• 10:40
  Speaker 1: over my career, right, I mean, I've kind of I
• 10:43
  Speaker 1: started working under Rosie, right, um, but I feel like
• 10:48
  Speaker 1: over time I've actually been pigeonholed more as like the
• 10:51
  Speaker 1: more market optimist economic optimists not so let me let
• 10:55
  Speaker 1: me channel my in in a rosy and pushback on
• 10:57
  Speaker 1: your markets always go up. Tell that to someone who
• 11:01
  Speaker 1: bot Japan in or but China you're down in China.
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  Speaker 1: I think you're still down in Japan. It's decades later.
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  Speaker 1: What do you mean markets always go up? Well, US
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  Speaker 1: equity markets usually go up. That's and and we're very
• 11:17
  Speaker 1: much US focused here. UM. I don't disagree with you,
• 11:21
  Speaker 1: by the way, but those are the objections that sure,
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  Speaker 1: I mean, well always come up there. If anything, they're
• 11:27
  Speaker 1: the exceptions that proved the rule. Well, Japan is an
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  Speaker 1: interesting example because, um, of course, after the financial crisis,
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  Speaker 1: that was a very prominent example of what the U
• 11:38
  Speaker 1: S could turn into. We're going the way of Japan. Um.
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  Speaker 1: But I think in many respects, because that example existed,
• 11:44
  Speaker 1: that's why we in fact didn't end up that way.
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  Speaker 1: We had we we sort of cleared out our banking system,
• 11:48
  Speaker 1: we recapitalized our banks very rapidly compared to Japan. Obviously
• 11:53
  Speaker 1: Bernanke is a student of what happened. Then it's as
• 11:55
  Speaker 1: if we learn from other people's exactly and think about,
• 11:58
  Speaker 1: I mean, what was notable about at a sort of
• 12:00
  Speaker 1: post financial crisis recovery was just how steady it was, um,
• 12:07
  Speaker 1: you know, sort of month in, month out, continued declines
• 12:09
  Speaker 1: in the unemployment rate. And you know, if you go
• 12:12
  Speaker 1: back to some of the literature around you know, the
• 12:14
  Speaker 1: Swedish banking crisis, sort of the Nordic banking crisis, it
• 12:18
  Speaker 1: was sort of you know, six seven years he cleared
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  Speaker 1: out the excess and things start to pick up, and
• 12:24
  Speaker 1: that's pretty much what happened right. I mean, the household
• 12:27
  Speaker 1: de leveraging was basically over and the economy was gaining
• 12:32
  Speaker 1: a lot of momentum. So how did you end up
• 12:34
  Speaker 1: at Wren Mack? Uh? You were at Merrill? Tell us
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  Speaker 1: how you found your way there? So um So, as
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  Speaker 1: I mentioned, Rosie had had left to think that it
• 12:44
  Speaker 1: was really in March of two thousand nine is a
• 12:46
  Speaker 1: classic bottom exactly contrary, it was, he left at his peak,
• 12:50
  Speaker 1: and I think in September of that year, Bank of
• 12:53
  Speaker 1: American Merrill Lynch at that point hired Ethan Harris, who
• 12:57
  Speaker 1: I think he was. He was a Lehman Barclays UM
• 13:00
  Speaker 1: and so I worked with him for until And you know,
• 13:05
  Speaker 1: Lehman was a huge sort of fixed income shop and
• 13:08
  Speaker 1: and that's where Ethan's focus really was UM and and
• 13:12
  Speaker 1: obviously you know Meryl was more of an equity shop UM.
• 13:16
  Speaker 1: And so one of the things that Ethan um gave
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  Speaker 1: me a lot of latitude to do was just kind
• 13:22
  Speaker 1: of service the equity salesforce at Mery Lynch because a
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  Speaker 1: lot of his focus was really I think more on
• 13:27
  Speaker 1: the fixed income side, more on the fed UM. So
• 13:31
  Speaker 1: you know, I I had a lot of UM sort
• 13:33
  Speaker 1: of opportunity because it was kind of this runway that
• 13:36
  Speaker 1: I just had, and and and what I would do
• 13:38
  Speaker 1: is try my best to kind of, you know, remember
• 13:42
  Speaker 1: what the equity salesforce loved about Rosie and try to
• 13:45
  Speaker 1: apply that in my own way. So one of the
• 13:46
  Speaker 1: things that I think that Rosie did really well is
• 13:50
  Speaker 1: just kind of take the economics calls and make them
• 13:53
  Speaker 1: useful for an equity market investment. Right, So if you
• 13:57
  Speaker 1: think inventories are done clearing out, what does that mean? Well,
• 14:00
  Speaker 1: should be good for manufacturing. Now let me call I mean,
• 14:02
  Speaker 1: and you have all these analysts that are covering all
• 14:04
  Speaker 1: these companies, So why don't you go pick up the
• 14:06
  Speaker 1: phone and talk to them and see what they say?
• 14:07
  Speaker 1: And then for an equity salesforce, that is a great
• 14:10
  Speaker 1: thing because when you have your macro guy talking to
• 14:13
  Speaker 1: your analyst, you can you pitch that to your clients, like, Okay,
• 14:17
  Speaker 1: my my macro economist is telling me that inventories are
• 14:21
  Speaker 1: have bottomed out. And here's what I don't know, John Inch,
• 14:26
  Speaker 1: who was I think the industrials analyst at the time.
• 14:28
  Speaker 1: Here's what he's saying about Caterpillar and Deer and so
• 14:31
  Speaker 1: on and so forth. And whenever you have that, it
• 14:33
  Speaker 1: makes a very good morning call, and you can it
• 14:36
  Speaker 1: makes a very good marketing tool. So I would try
• 14:38
  Speaker 1: to do that a lot. And as I did more
• 14:40
  Speaker 1: of that, I would be asked by the salesforce on
• 14:43
  Speaker 1: the equity side at Meryl to kind of can you
• 14:46
  Speaker 1: come on the road to me? Can you come out
• 14:47
  Speaker 1: to California and talk to so and so? Can you
• 14:49
  Speaker 1: Texas and so forth? And so I would do a
• 14:51
  Speaker 1: lot of marketing for equity accounts at Meryl Um And
• 14:54
  Speaker 1: I was really only like a like a VP at
• 14:56
  Speaker 1: the time. I was a pretty junior level person, and
• 14:59
  Speaker 1: so that got me going, and then I got approached
• 15:03
  Speaker 1: by Wren Mack and now I've been doing it for
• 15:06
  Speaker 1: them for this last decade. It's funny you mentioned, um
• 15:10
  Speaker 1: what the institutional sales guys like. Who was institutional sales
• 15:15
  Speaker 1: in Marrow for a long time. He is not public,
• 15:18
  Speaker 1: so I can't drop his name. But my favorite thing
• 15:21
  Speaker 1: that he said about taking Rosie on these road trips,
• 15:25
  Speaker 1: they called him a wind up toy. Doesn't matter who
• 15:28
  Speaker 1: the institutional client is, you would give him like an
• 15:31
  Speaker 1: eight second tea. Up. Oh, this is an endowment. They
• 15:34
  Speaker 1: focus on this they're interested in this aspect. They turned
• 15:38
  Speaker 1: the key and wind him up, push him in, and
• 15:41
  Speaker 1: Rosie would just be a fire hose of NonStop data,
• 15:45
  Speaker 1: context information. Uncle, whatever you want. Yeah, you get the order,
• 15:50
  Speaker 1: just leave me alone. No, Yeah, I mean for me,
• 15:52
  Speaker 1: it was a great education. I think those first you know,
• 15:55
  Speaker 1: seven or eight years at MARYL because I had Rosie.
• 15:57
  Speaker 1: I was fortunate enough to work with two greats. I mean,
• 16:00
  Speaker 1: I think Ethan Harris is is one of the best.
• 16:03
  Speaker 1: I mean, he had a great call this year. I
• 16:04
  Speaker 1: mean in the last year. I mean he was the
• 16:06
  Speaker 1: first one to basically say, you know what, the Fed's
• 16:08
  Speaker 1: gonna go every meeting, and at the time he said
• 16:10
  Speaker 1: it was pretty radical. Yeah, you had a pretty good
• 16:12
  Speaker 1: call also the end of last year. In fact, I
• 16:15
  Speaker 1: recall I think it was on surveillance, Bloomberg surveillance. You
• 16:18
  Speaker 1: came on and said, oh, the Fed's gonna raise at
• 16:20
  Speaker 1: least four times. That was a very out of consensus call.
• 16:24
  Speaker 1: Is We'll talk a little bit about that a little later,
• 16:27
  Speaker 1: but you were very much pushing against the consensus that
• 16:32
  Speaker 1: it's all good. Well, so, I mean I think again, um,
• 16:35
  Speaker 1: you had one of the best things that Ethan Harris
• 16:38
  Speaker 1: actually ever told me was in this business, it's about picking,
• 16:43
  Speaker 1: like weighing probabilities and then picking your battles with the
• 16:46
  Speaker 1: consensus wisely. Like I'm not the kind of person that's
• 16:49
  Speaker 1: just going to be contrarian for the sake of being
• 16:52
  Speaker 1: so like that to me doesn't really make it. Listen,
• 16:54
  Speaker 1: the market is the crowd exactly the right most of
• 16:57
  Speaker 1: the time, and so you have to just pick your
• 16:59
  Speaker 1: battles wisely. And I think in that case, I mean,
• 17:04
  Speaker 1: four was conservative. I mean, in hindsight that was I mean,
• 17:07
  Speaker 1: at the time it sounded sort of radical, but in
• 17:09
  Speaker 1: hindsight it was it was obviously not enough. Um. But
• 17:13
  Speaker 1: so I think that to me, um kind of I
• 17:16
  Speaker 1: thinks at the sort of stage for me at ed
• 17:17
  Speaker 1: rend McK and I think it was very helpful to
• 17:19
  Speaker 1: sort of come up onto those two guys. Really interesting.
• 17:23
  Speaker 1: So we were talking earlier about your December twenty one call.
• 17:27
  Speaker 1: You thought the FED would raise at least four times.
• 17:30
  Speaker 1: Let's look at what happened. Four basis increases to fifty
• 17:36
  Speaker 1: point increases one basis point increase. Why was everybody so sanguine?
• 17:44
  Speaker 1: Why did we all miss the fact that the FED
• 17:47
  Speaker 1: was suddenly gonna you know, slam on the brakes. Well,
• 17:51
  Speaker 1: I think you just have to go back to the
• 17:52
  Speaker 1: initial reopening of the economy, right, um. And in hindsight,
• 17:58
  Speaker 1: we basically had a V shape recovery, a couple of
• 18:01
  Speaker 1: trillion dollars of fiscal stimulus. We help, we threw a
• 18:04
  Speaker 1: lot of money at the problem on top of that, right,
• 18:07
  Speaker 1: I mean a lot of them. I mean we turned
• 18:09
  Speaker 1: the lights off, we turned it back on. You had
• 18:11
  Speaker 1: a V had a V shape recovery plus all the stimulus,
• 18:14
  Speaker 1: plus you know, paycheck protection. I mean, when we had
• 18:17
  Speaker 1: that first employment number, that sort of knocked the lights out.
• 18:19
  Speaker 1: Everyone was kind of surprised because we're all kidding off
• 18:21
  Speaker 1: the initial claims data, right and um, and so we
• 18:24
  Speaker 1: had seen that, you know, maybe these companies were hiring
• 18:27
  Speaker 1: people back pretty quickly. I remember at the time the
• 18:30
  Speaker 1: Atlanta Fed GDP now cast with something like minus fIF GDP,
• 18:37
  Speaker 1: which obviously is a horrific extracoration. But that's why I
• 18:41
  Speaker 1: think a lot of people were surprised that at how robust.
• 18:44
  Speaker 1: And at the time, remember very I mean, there was
• 18:46
  Speaker 1: a legit debate going on, are we gonna have an
• 18:49
  Speaker 1: L shape recovery, right, are we going to have a
• 18:51
  Speaker 1: U shape recovery? And I think a lot of the
• 18:54
  Speaker 1: issues around the FED trajectory was just a function of that,
• 18:59
  Speaker 1: and we Bay sickly had a V shaped recovery and
• 19:01
  Speaker 1: that warranted a very aggressive response from the FIT, although
• 19:04
  Speaker 1: we'll talk a little later about how belated that response was.
• 19:08
  Speaker 1: They they clearly could have started tightening earlier at a
• 19:14
  Speaker 1: slower pace. But let's put it in and that I
• 19:16
  Speaker 1: want to talk about your call where you said there's
• 19:18
  Speaker 1: going to be at least four increases. Tell us a
• 19:21
  Speaker 1: little bit about your process. What are you looking at
• 19:24
  Speaker 1: that leads you to say, Hey, the consensus is way
• 19:28
  Speaker 1: too sanguine. They're missing this. The FED is really going
• 19:31
  Speaker 1: to step up here. So I think the first thing
• 19:33
  Speaker 1: to do in this business is you want to make
• 19:36
  Speaker 1: sure you have the now cast right right, forget the forecast.
• 19:40
  Speaker 1: Let's just figure out what's going on right now and
• 19:43
  Speaker 1: what's been happening. And at the time, what did we know.
• 19:46
  Speaker 1: Inflation was coming in a little bit firmer, a lot firm,
• 19:49
  Speaker 1: and unemployment was falling more rapidly than people thought. So
• 19:52
  Speaker 1: what do you expect the FIT to do at that point. Uh.
• 19:55
  Speaker 1: And oh, by the way, um they're behind right, So um,
• 20:00
  Speaker 1: aren't they always? I mean you could you can make
• 20:02
  Speaker 1: that argument. Um, but you know, in this case, they
• 20:06
  Speaker 1: were kind of very much keying off of labor market
• 20:10
  Speaker 1: dynamics for the reaction function, and the unemployment was falling
• 20:14
  Speaker 1: very very rapidly, and so that's what started it. And um,
• 20:17
  Speaker 1: that's the area you're looking at that Hey, this is
• 20:19
  Speaker 1: a red flag. Everybody is way too sanguine about c
• 20:24
  Speaker 1: P I. I think the thing that really got it
• 20:27
  Speaker 1: for me was what was going on in the housing market, right.
• 20:30
  Speaker 1: I mean, if you have this sort of pandemic event
• 20:33
  Speaker 1: and people go out and what's the thing that pops
• 20:35
  Speaker 1: first is residential investment and home sales. That to me
• 20:40
  Speaker 1: is a huge, uh you know issue, totally opposite from
• 20:44
  Speaker 1: the last crisis because and what do we know about housing?
• 20:47
  Speaker 1: It is the it's like an irreversible decision, right, I mean,
• 20:50
  Speaker 1: once you buy a home, you can't just go out
• 20:52
  Speaker 1: and be like, oh, don't want to do that again.
• 20:54
  Speaker 1: I mean you can't return it. So you have to
• 20:56
  Speaker 1: be very very sure about the macro environment before you
• 20:59
  Speaker 1: make a down payment on a home. So the fact
• 21:01
  Speaker 1: that people are willing to do that I think kind
• 21:03
  Speaker 1: of led me to believe. Okay, if housing is historically
• 21:08
  Speaker 1: a good leading indicator for the economy and that's what's
• 21:10
  Speaker 1: really surging right now, what does that mean for everything else? Um?
• 21:14
  Speaker 1: And obviously if you're going to buy a home, you
• 21:17
  Speaker 1: have to fill it with stuff, and we had a
• 21:19
  Speaker 1: huge boom in stuff, and that to me is what
• 21:22
  Speaker 1: is what did it? Um? So you know to me
• 21:24
  Speaker 1: that the v shape recovery and the good side of
• 21:26
  Speaker 1: the economy I think was an important development. And so
• 21:29
  Speaker 1: let me ask you will drill down a little bit
• 21:31
  Speaker 1: into the specifics. There are all these sort of binary
• 21:35
  Speaker 1: debates around inflation. Is it goods or is its services?
• 21:40
  Speaker 1: Is it fiscal stimulus or is it monetary um? Is
• 21:43
  Speaker 1: this demand driven or is this supply constraint driven? What
• 21:47
  Speaker 1: are the factors? How do you take those pairs of
• 21:51
  Speaker 1: contradictory positions and reconcile them? What do you think about
• 21:55
  Speaker 1: those choices? And it obviously can be a little bit
• 21:58
  Speaker 1: of everything. It's not just one thing. Well, this business
• 22:00
  Speaker 1: is always nuance. Nuance never gets enough attention. But that's
• 22:03
  Speaker 1: usually where the answer is. I mean, on inflation, Is
• 22:07
  Speaker 1: it supply driven? Of course it is. Is it demand driven? Yes,
• 22:10
  Speaker 1: it is. I mean that's both. Um, Well, if supply
• 22:14
  Speaker 1: could answer demand, we wouldn't have inflation exactly got to
• 22:16
  Speaker 1: be a little bit. It's gotta be a little bit
• 22:18
  Speaker 1: of both. Um. I guess in terms of where we
• 22:20
  Speaker 1: stand right now, Um, you know, clearly there's a lot
• 22:23
  Speaker 1: of improvement on the supply chain side. We're seeing delivery
• 22:27
  Speaker 1: times come down, shipping containers are back to prepension. Um.
• 22:31
  Speaker 1: You know, obviously we know that motor vehicle assemblies are
• 22:35
  Speaker 1: picking up some steam here, but demand is still very
• 22:40
  Speaker 1: very strong. I mean, um, if you look at something
• 22:45
  Speaker 1: like real consumer spending of goods relative to its pre
• 22:50
  Speaker 1: pandemic trend, I mean there's been no big sort of
• 22:53
  Speaker 1: collapse to trend. I mean it's sort of working itself
• 22:55
  Speaker 1: out through time, right. I mean that we had that
• 22:58
  Speaker 1: big spike and we haven't come back down from it.
• 23:01
  Speaker 1: We've just plateaued with a slight up until the December
• 23:06
  Speaker 1: consumer spending, it looked like the upward bias was going
• 23:09
  Speaker 1: on forever. Yeah, and that probably overstates things, right. I
• 23:12
  Speaker 1: mean we know that looking forward, auto sales will probably
• 23:15
  Speaker 1: be running better than thirteen and a half millions are
• 23:18
  Speaker 1: over the next several months. Um, we already see several months,
• 23:22
  Speaker 1: next several years because there's no used cars to be
• 23:25
  Speaker 1: had because they were so little exactly new cars. And
• 23:30
  Speaker 1: then and now on top of this, look at home
• 23:33
  Speaker 1: building stocks over the last on fire. Yeah, what does
• 23:37
  Speaker 1: that tell you? I mean a lot of these growth
• 23:39
  Speaker 1: pessimists that we're talking about housing is the leading indicator. Well,
• 23:42
  Speaker 1: where are they now? I mean, housing is starting to
• 23:44
  Speaker 1: revive And what do you think that means for durables?
• 23:46
  Speaker 1: We'll keep in mind you mentioned how things lagged post
• 23:50
  Speaker 1: financial crisis. We underbuilt single family homes for what almost
• 23:55
  Speaker 1: a decade, and now suddenly there's been massive household formation
• 24:00
  Speaker 1: pre and during the pandemic. What are we short? A
• 24:03
  Speaker 1: million houses? Two million houses? It's a giant not yeah. Yeah,
• 24:07
  Speaker 1: if you assume like a normalized vacancigrate, it's probably a
• 24:09
  Speaker 1: little over a million units, right. Uh. And you're also
• 24:13
  Speaker 1: in a very strong demographic patch for housing, right, I
• 24:16
  Speaker 1: mean people are you know, we're sort of in our
• 24:18
  Speaker 1: prime marriage years as a country, and so so that
• 24:21
  Speaker 1: that helps as well. I mean, one of the interesting
• 24:22
  Speaker 1: developments out of the pandemic is just we have a
• 24:26
  Speaker 1: little a bit of a mini baby boom going on, right,
• 24:29
  Speaker 1: And so what does that mean? So people are not
• 24:31
  Speaker 1: only gonna buy a home for that zoom room, now
• 24:33
  Speaker 1: they're buying a home for that nursery. And I think
• 24:35
  Speaker 1: people figure it out. I Mean, one of the things
• 24:37
  Speaker 1: I think people will be surprised to see is just
• 24:40
  Speaker 1: look at what the incremental drop in rates will do
• 24:42
  Speaker 1: for housing activity. Right, I mean, so people got locked
• 24:45
  Speaker 1: out when rates went from six to seven. Now they're
• 24:47
  Speaker 1: coming back down to six. But four month loads about six.
• 24:52
  Speaker 1: Things like mortgage demand pick up and even in the sixes, right,
• 24:56
  Speaker 1: exactly right, I mean that's double what it was a year.
• 24:59
  Speaker 1: And and the thing is that it never got as
• 25:00
  Speaker 1: low as it did in fourteen despite seven percent mortgage rates. Right,
• 25:04
  Speaker 1: So what does that tell you about underlying demand? So
• 25:06
  Speaker 1: I think to me, that's an interesting kind of development here.
• 25:09
  Speaker 1: And um, obviously if you have a pick up in housing,
• 25:13
  Speaker 1: that's going to provide um, you know, some tailwind two
• 25:16
  Speaker 1: things like householdurable goods, furniture, carpets, appliances, stuff like that.
• 25:23
  Speaker 1: So we're in a sort of weird zone where Jerome
• 25:27
  Speaker 1: pal and the FED is telling us, hey, we're not
• 25:30
  Speaker 1: done raising rates, and when we are done, we're keeping
• 25:33
  Speaker 1: them up here for a while. Markets seem to disagree
• 25:36
  Speaker 1: with that. How do you think about this, you know,
• 25:39
  Speaker 1: tug of war between what the markets believe about rates
• 25:43
  Speaker 1: and what the FED is saying about rates. Well, one
• 25:45
  Speaker 1: of the it's a it's a great question, um. I mean,
• 25:49
  Speaker 1: as you know that there's this sort of thing that
• 25:51
  Speaker 1: goes around Wall Street where the equity guys are the
• 25:53
  Speaker 1: dumb guys and the bond guys are the smart guys. Right,
• 25:55
  Speaker 1: I don't believe that there certainly are elements of truth
• 26:00
  Speaker 1: to that, because the bond guys tend not to blow
• 26:04
  Speaker 1: up the way some equity guys have. Maybe that's a
• 26:09
  Speaker 1: bad example, but I think that's what colors people's perspective. Well,
• 26:13
  Speaker 1: I mean, there was the great, the great Samuelson quote
• 26:15
  Speaker 1: that we all know of, right, like the stock markets,
• 26:17
  Speaker 1: you know, predicted nine to the last five recessions, right,
• 26:19
  Speaker 1: But in reality, the stock market has probably predicted four
• 26:24
  Speaker 1: of the last five FED pivots, Right. So I mean,
• 26:27
  Speaker 1: how bad can the stock market be? How dumb can
• 26:29
  Speaker 1: that money be? If that's what's driving a lot of
• 26:31
  Speaker 1: the Fed's reaction function at times. And if you think
• 26:33
  Speaker 1: the bond market is smarter than the stock market, well,
• 26:36
  Speaker 1: what's the inverted yield curve telling you that the Fed's
• 26:39
  Speaker 1: gonna end up doing well? It means that they're gonna
• 26:41
  Speaker 1: push the economy into recession. I mean, I guess, I guess.
• 26:43
  Speaker 1: The one thing I would say about the bond market
• 26:45
  Speaker 1: is that the bond market has the habit of pricing
• 26:47
  Speaker 1: and tightening cycles way before they actually start, right, So
• 26:52
  Speaker 1: there's always these sort of opportunities in the front end
• 26:54
  Speaker 1: of the yield curve early on in an economic cycle,
• 26:57
  Speaker 1: and they tend to price in the end of the
• 26:59
  Speaker 1: tightening cycle after for its start too soon. Once the
• 27:01
  Speaker 1: cycle starts, the bond market tends to price in the
• 27:03
  Speaker 1: end too soon. And I think this is probably another
• 27:07
  Speaker 1: one of those times, because um, I don't think the
• 27:11
  Speaker 1: FED is going to cut and one of the reasons
• 27:13
  Speaker 1: why is because there's just too much economic momentum behind,
• 27:17
  Speaker 1: you know, behind the U S economy. So you were
• 27:19
  Speaker 1: talking the other day on TV about landings, hard landing,
• 27:24
  Speaker 1: soft landing. If there's no landing, tell us what you
• 27:27
  Speaker 1: mean about that in terms of what are the stock
• 27:31
  Speaker 1: and bond markets pricing in and what are your views
• 27:33
  Speaker 1: on the economy for the rest of Well, I definitely
• 27:37
  Speaker 1: think the odds of a no landing scenario are going up.
• 27:40
  Speaker 1: What what is a no landing scenario but no recession? Yeah,
• 27:43
  Speaker 1: growth at potential, if not a little better. I mean, um,
• 27:48
  Speaker 1: I guess for me, it's you know, what's the mechanism
• 27:50
  Speaker 1: for the recession? Right? I mean, you're the argument now
• 27:53
  Speaker 1: is what China's reopening and Europe is looking a little better,
• 27:56
  Speaker 1: and the U s economy is going into recession. I mean,
• 27:58
  Speaker 1: in my experience, the causality never goes that way. It
• 28:00
  Speaker 1: goes from the US to the rest of the world.
• 28:02
  Speaker 1: Not The rest of the argument is the FED over titans.
• 28:04
  Speaker 1: They kill real estate, that can kill consumer spending, and
• 28:08
  Speaker 1: that tips us into a month. So it's like it's
• 28:10
  Speaker 1: the Milton Friedman like long and variable lag argument, you know,
• 28:14
  Speaker 1: Milton Freedom. I mean that may or may not be
• 28:16
  Speaker 1: all that accurate. I don't think it is that the
• 28:18
  Speaker 1: FED has been talking about. If you look at some
• 28:20
  Speaker 1: of the Federal Reserve research papers, they're saying, hey, maybe
• 28:24
  Speaker 1: FED activities work with a shorter leg. Then we've been
• 28:27
  Speaker 1: let to believe. I mean yeah, I mean back in
• 28:29
  Speaker 1: the eighties, I mean, research analyists would figure out what
• 28:31
  Speaker 1: the Fed did three weeks ago, right, based on what
• 28:33
  Speaker 1: was going on the money markets. Now it's they tell
• 28:36
  Speaker 1: you what they're going to do in the markets price
• 28:37
  Speaker 1: in instantaneously. Um. But I think the growth impulse from
• 28:42
  Speaker 1: financial markets is already flipping positive. So how could it?
• 28:46
  Speaker 1: I mean the funny thing about this long and variable
• 28:49
  Speaker 1: lag argument if it's an eighteen month lag, So what
• 28:52
  Speaker 1: was happening eighteen months ago? The economy was ripping and
• 28:55
  Speaker 1: the Fed was reiterating it's low low, lower lower for
• 28:58
  Speaker 1: longer approach, so that its Monterrey policy was really really easing.
• 29:02
  Speaker 1: So are we still dealing with the easing of eighteen
• 29:04
  Speaker 1: months ago? It's ridiculous. So no, I mean, even if
• 29:08
  Speaker 1: you go back a year, you had inflation ticking with
• 29:11
  Speaker 1: what was it, March cp I went through the two
• 29:16
  Speaker 1: percent target rates, So real rates for cratering, right, I mean,
• 29:20
  Speaker 1: so the long the lags are not long and variable,
• 29:22
  Speaker 1: and they're short and predictable. And you're seeing that already, right.
• 29:25
  Speaker 1: I mean, as an example, we we just talked about
• 29:28
  Speaker 1: how interest rates have been moderating. What have we also seen.
• 29:31
  Speaker 1: We've seen mortgage purchase applications pick up, We've seen homebuilding
• 29:33
  Speaker 1: stocks do better, We've seen builder sentiment pick up. It's
• 29:37
  Speaker 1: it's instantaneous. So um, and it's the same thing. I
• 29:40
  Speaker 1: think you can make that argument with the dollar, right,
• 29:42
  Speaker 1: I mean everyone's kind of up in arms about Oh
• 29:44
  Speaker 1: the I s N manufacturing p m I is below fifty. Yeah,
• 29:47
  Speaker 1: and the dollars off ten percent from where it was
• 29:49
  Speaker 1: in September. What do you think that does for factories?
• 29:52
  Speaker 1: Obviously a juice's export doesn't hurt him. Right. Uh, you're
• 29:55
  Speaker 1: talking last year about in about king dollar and how
• 30:00
  Speaker 1: how strong it was. How do you contextualize a moving
• 30:03
  Speaker 1: the like a twenty year moving the dollar like that?
• 30:06
  Speaker 1: What does that mean in terms of inflation and economic growth? Well? Um,
• 30:12
  Speaker 1: more recently, obviously, the dollar decline is I think an
• 30:15
  Speaker 1: unambiguous positive for US growth because it's going to juice
• 30:19
  Speaker 1: exports particularly have manufactured goods. Um. But a lot of
• 30:24
  Speaker 1: the rally and the dollars say from too, you know,
• 30:29
  Speaker 1: up until recently, I mean a lot of that was
• 30:31
  Speaker 1: just growth differential, right, I mean, think about why the
• 30:33
  Speaker 1: dollar moves the dollar moves really for I think it
• 30:36
  Speaker 1: could say two reasons. It's basically growth differentials and policy differential.
• 30:40
  Speaker 1: Wait a second, I have to interrupt you, because all
• 30:42
  Speaker 1: I heard during the was queue and zurp, We're going
• 30:46
  Speaker 1: to kill the dollar financial pression. The dollar is done
• 30:50
  Speaker 1: light a bonfire. They're no good, They're worthless. And I
• 30:53
  Speaker 1: recall having that thrown at me over and over again.
• 30:57
  Speaker 1: It couldn't possibly have been more wrong. No, I'm mean,
• 31:00
  Speaker 1: this is I mean, you know that doom cells on
• 31:04
  Speaker 1: Wall Street, there is a steady diet of this is
• 31:08
  Speaker 1: my fourth doom cycle, And yeah, I mean, but to
• 31:11
  Speaker 1: me it's it's actually kind of it's kind of shocking,
• 31:14
  Speaker 1: like how how enamored people get with these doom and
• 31:17
  Speaker 1: gloom sort of ideas because they don't pay at all.
• 31:21
  Speaker 1: I mean, like, I like, it's one of these things
• 31:23
  Speaker 1: where one of the things I've learned is that the
• 31:25
  Speaker 1: negative case always gets sounds a little bit more intellectual,
• 31:29
  Speaker 1: people give it a little bit more attention. And but
• 31:32
  Speaker 1: one of the things that I've learned is that in
• 31:34
  Speaker 1: this business, people that get one call right tend to
• 31:39
  Speaker 1: be wrong about most everything else. And I think this
• 31:42
  Speaker 1: is you know, I mean so as an example, like
• 31:46
  Speaker 1: like the goldbugs, and I mean it's it's the same
• 31:48
  Speaker 1: sort of thing, you know, And um and I think
• 31:50
  Speaker 1: that you can make that argument with the dollar. The dollar,
• 31:53
  Speaker 1: I mean, there's no alternative right to the to the U. S. Dollar.
• 31:56
  Speaker 1: It's still the reserve currency because we have the most liquid,
• 31:59
  Speaker 1: the deepest capital markets in the world. Right so, and
• 32:01
  Speaker 1: nobody trusts China, nobody trust Jipsan, Europe, where else youre
• 32:05
  Speaker 1: going to go? And until that changes, you can't you
• 32:07
  Speaker 1: can't really make that argument. And so so for me,
• 32:10
  Speaker 1: it's why does the dollar move. The dollar basically moves
• 32:14
  Speaker 1: because of policy and growth differentials, and so in the
• 32:19
  Speaker 1: reason the dollar was doing so well is because the
• 32:22
  Speaker 1: US economic growth was a lot better than Europe, it
• 32:25
  Speaker 1: was a lot better than Asia. I mean, we were
• 32:27
  Speaker 1: talking about our China hard landing like literally every year
• 32:30
  Speaker 1: following the financial following, right, so, China reflated and basically
• 32:35
  Speaker 1: every year after that it was hard landing risk in China. Um. So,
• 32:39
  Speaker 1: I think that's why the dollar moved. And right now
• 32:41
  Speaker 1: what's going on is the dollar is I think losing
• 32:46
  Speaker 1: steam because people are getting a little bit more optimistic
• 32:50
  Speaker 1: about what's going on globally. So, in other words, after
• 32:53
  Speaker 1: a really strong pandemic recovery here in the US, the
• 32:57
  Speaker 1: rest of the world is finally beginning to ca uch
• 33:00
  Speaker 1: up with us. And that's before we talk about the
• 33:03
  Speaker 1: end of zero COVID policy in China and them them exactly. So,
• 33:07
  Speaker 1: so you sound like an economic optimist looking out the
• 33:11
  Speaker 1: next couple of years. Well, I'm certainly an economic optimist
• 33:15
  Speaker 1: relative to the consensus um and I think the consensus
• 33:20
  Speaker 1: is way off sides, as I think the FED is
• 33:21
  Speaker 1: way off sides right now, and meaning what so they're
• 33:24
  Speaker 1: too cautious, So the consensus is too cautious. Do you
• 33:27
  Speaker 1: think the FED is in the process of overtightening here? No,
• 33:31
  Speaker 1: I mean I'm of the view that they probably I
• 33:33
  Speaker 1: think the FED will probably step back soon. I mean,
• 33:36
  Speaker 1: they're basically telling you that they get rates up to
• 33:38
  Speaker 1: something a little over five percent and stop. The question
• 33:40
  Speaker 1: from my mind is whether they're stopping too soon. Really,
• 33:43
  Speaker 1: I do think that I think that you can make
• 33:45
  Speaker 1: that argument because I just feel like financial conditions are
• 33:49
  Speaker 1: easing too much. They didn't really they shot their shot,
• 33:52
  Speaker 1: and at the same time, fiscal policy tightened last year.
• 33:55
  Speaker 1: Last year two and despite all that, the unemployment right
• 34:00
  Speaker 1: finished the year at dot dot dot three point five percent.
• 34:02
  Speaker 1: So let's talk about that. We we referenced earlier that
• 34:05
  Speaker 1: there was a shortage of single family homes in the
• 34:08
  Speaker 1: United States. Let's talk about labor. Immigration has been on
• 34:12
  Speaker 1: a downward trend long before Trump. My friends, who blame Trump,
• 34:17
  Speaker 1: it started taking down way before him. He might have
• 34:20
  Speaker 1: spoke a lot about it. I don't see the Biden
• 34:23
  Speaker 1: administration moving off of the Trump policies limiting legal immigration.
• 34:28
  Speaker 1: You have a lot of early retirements, you have a
• 34:30
  Speaker 1: lot of disability. We lost I don't know to fifty
• 34:34
  Speaker 1: thousand workers due to COVID to say nothing about the
• 34:38
  Speaker 1: people affected, and I've seen estimates from five million to
• 34:41
  Speaker 1: fifteen million people who are affected by long COVID. We
• 34:45
  Speaker 1: have a massive shortfall of workers. How are you going
• 34:50
  Speaker 1: to get unemployment to tick up or wages too slow
• 34:54
  Speaker 1: under those circumstances short of causing that hard landing we've
• 34:59
  Speaker 1: been talking about. Well, yeah, I mean you can have
• 35:01
  Speaker 1: some of that addressed through policy, right, Um, are we
• 35:05
  Speaker 1: as anyone addressing that? No? No, I mean no that
• 35:08
  Speaker 1: that I don't I mean, you can maybe see. I
• 35:11
  Speaker 1: mean I think part of the issue though, is think
• 35:13
  Speaker 1: about who's filling some of that vacuum, right, I mean
• 35:15
  Speaker 1: you you are seeing participation rates rising for those age
• 35:20
  Speaker 1: sixty four years old, not prime age workers, but younger people,
• 35:24
  Speaker 1: and a lot of them are coming in. Now, what
• 35:27
  Speaker 1: does that mean? You're basically you talked about retirements. You
• 35:32
  Speaker 1: have a lot of inexperienced workers coming in. What does
• 35:35
  Speaker 1: that mean? Those aren't the most productive people. So experienced
• 35:38
  Speaker 1: people are leaving, inexperienced workers are coming in. That's not
• 35:41
  Speaker 1: necessarily the best dynamic for for product for labor productivity, right,
• 35:45
  Speaker 1: I mean, it's gonna take some time for those workers
• 35:46
  Speaker 1: to kind of get up to snuff, right, But that
• 35:49
  Speaker 1: is inflationary from the fetes perspective. Remember, um, the sort
• 35:52
  Speaker 1: of equation that Powell always references is compensation growth equals
• 35:58
  Speaker 1: inflation plus productivity. That is sort of a identity that
• 36:02
  Speaker 1: they use in macro and what's wrong what's wrong with that?
• 36:08
  Speaker 1: It's not about what's wrong with it or not. I mean,
• 36:10
  Speaker 1: I'm a business economist. I don't have an opinion. For me,
• 36:13
  Speaker 1: it's what are they telling me? You know what I mean?
• 36:15
  Speaker 1: For whatever reason, the Fed views the labor markets as
• 36:19
  Speaker 1: the conduit. And if compensation growth is running right now,
• 36:24
  Speaker 1: let's say it's five and productivity is one one and
• 36:29
  Speaker 1: a half, you're basically talking about an inflation environment of
• 36:32
  Speaker 1: three and a half percent ish, which is not terrible
• 36:36
  Speaker 1: from their mind. And remember the one time you had
• 36:38
  Speaker 1: a soft landing in the US content, right, So this
• 36:40
  Speaker 1: is one of the things. I do think we have
• 36:42
  Speaker 1: an increasing odds of a soft landing right now, but
• 36:45
  Speaker 1: that doesn't mean the odds are increasing permanently, right um,
• 36:49
  Speaker 1: think about when we had a soft landing that The
• 36:51
  Speaker 1: example that most people will remember is the nineties. So
• 36:54
  Speaker 1: what happened during that time. First of all, we don't
• 36:56
  Speaker 1: have a formalized inflation target of two and number two
• 37:00
  Speaker 1: what was it called that green Span? Now he got
• 37:02
  Speaker 1: the productivity call right at the time. I mean, Janet
• 37:05
  Speaker 1: Yellen was telling him you gotta keep hiking, like, look
• 37:08
  Speaker 1: at how low the unemployment rate was getting. But what
• 37:10
  Speaker 1: green Span came around and said was, well, look, productivity
• 37:13
  Speaker 1: is taking off. We probably don't need to be hiking
• 37:16
  Speaker 1: as aggressively. So let's talk about that productivity number now.
• 37:19
  Speaker 1: Because I have my entire career been perplexed by these
• 37:25
  Speaker 1: very what's the old joke from UM was it? Professor
• 37:29
  Speaker 1: Solo and m I t uh. Productivity numbers are showing
• 37:33
  Speaker 1: up everywhere, but in the statistics, and as someone who's
• 37:36
  Speaker 1: a white collar worker who can operate remote, I feel
• 37:40
  Speaker 1: like every year my productivity is up. Now, if you're
• 37:45
  Speaker 1: working in a factory or if you're delivering mail or
• 37:48
  Speaker 1: something elsewhere, technology isn't helping you that much. You're probably
• 37:53
  Speaker 1: not seeing those sort of technology gains. Am I just
• 37:56
  Speaker 1: seeing the world through my narrow perspective? Or is a
• 38:00
  Speaker 1: data missing a lot of productivity games? I don't know
• 38:04
  Speaker 1: that the data is really missing that much. I mean,
• 38:05
  Speaker 1: productivity has been weak even in the areas where it's
• 38:08
  Speaker 1: very easy to measure it, like manufacturing, So that to
• 38:10
  Speaker 1: me is is something that's important to point out. UM.
• 38:13
  Speaker 1: But you know, think about capital spent? I mean, right,
• 38:16
  Speaker 1: so capital deepening is what what drives productivity, and that's
• 38:19
  Speaker 1: basically capex relative to labor hours, and that hasn't been
• 38:23
  Speaker 1: particularly strong either. So what's the I mean, I get
• 38:26
  Speaker 1: that there there are interesting things going on, but I
• 38:30
  Speaker 1: don't know that that's necessarily going to drive significant gains
• 38:33
  Speaker 1: and productivity. Um. And of as I mentioned, labor quality
• 38:36
  Speaker 1: is a lot is a lot worse now than it
• 38:38
  Speaker 1: had been before. So I think it's it's it's a
• 38:40
  Speaker 1: bit more for me, it's a little bit more challenging
• 38:42
  Speaker 1: to accept the idea that productivity is going to save
• 38:44
  Speaker 1: you from from the inflation. Um. So let's talk about
• 38:47
  Speaker 1: that inflation. You know, for at least for the median
• 38:52
  Speaker 1: wage owner and below, prior to the pandemic, their wage
• 38:57
  Speaker 1: is lagged everything. They lagged in inflation. Leg the stock
• 39:01
  Speaker 1: market lagged, corporate profits, it legged c suite compensation. So
• 39:05
  Speaker 1: it seems like suddenly the bottom half of the economic
• 39:09
  Speaker 1: strata is seeing wage increases and the FED is like, hey, hey, hey,
• 39:13
  Speaker 1: slow down a little bit. What's that about. I mean,
• 39:16
  Speaker 1: it's it's a nasty little secret. I mean well, I mean, um,
• 39:21
  Speaker 1: it was a giant New York Times piece a couple
• 39:24
  Speaker 1: of Sundays ago in the magazine section talking about who
• 39:27
  Speaker 1: is the FED increases falling the hardest on They view
• 39:32
  Speaker 1: the labor markets as the conduit to achieve their inflation goals.
• 39:36
  Speaker 1: We can debate whether that's right or wrong. I mean,
• 39:39
  Speaker 1: I'm not an academic economist, but that's what they're telling us.
• 39:42
  Speaker 1: And so if that's the case, then unemployment is one
• 39:48
  Speaker 1: way they're going to achieve the goal of getting inflation
• 39:52
  Speaker 1: back to two percent in a sustainable way. Seems like
• 39:55
  Speaker 1: a twenty twenty century central bank confronted with the twenty
• 39:59
  Speaker 1: century b I mean, it may well be, but I
• 40:02
  Speaker 1: think look, I mean, right now, the labor markets are
• 40:07
  Speaker 1: still very very tight, and there's still an inflationary impulse
• 40:11
  Speaker 1: from the labor markets. And yeah, look, I mean I
• 40:15
  Speaker 1: think that this is also, in some respects, maybe a
• 40:19
  Speaker 1: tell on our society. I mean, what do you think
• 40:21
  Speaker 1: most people would prefer, right, I mean, would you prefer
• 40:23
  Speaker 1: five percent unemployment and two percent inflation or three percent
• 40:28
  Speaker 1: unemployment and four percent inflation. It depends if you're the
• 40:31
  Speaker 1: guy that's unemployed or not. I mean, if I'm unemployed,
• 40:34
  Speaker 1: I don't really care what the hell inflation is. I
• 40:35
  Speaker 1: got no income. Yeah. Well, I mean it's one of
• 40:38
  Speaker 1: the reasons why I think Reagan became president and Sanders
• 40:41
  Speaker 1: never will, right, I mean the fact, I mean, because
• 40:43
  Speaker 1: I think it's it's much easier I think, to form
• 40:46
  Speaker 1: a political coalition around inflation then around unemployment, because it's
• 40:52
  Speaker 1: always Oh, it's like, oh, no, I gotta pay for that,
• 40:54
  Speaker 1: you know what I mean, Like, that's how right, because
• 40:57
  Speaker 1: the baseline expectation, like your social contract in America, I think,
• 41:01
  Speaker 1: is oh you gotta like to me, it's like, yeah,
• 41:03
  Speaker 1: I got a job, great, good for you. Everyone has one,
• 41:06
  Speaker 1: you know, whereas oh, the prices for these things are
• 41:09
  Speaker 1: going up like six that's weird. Right. So that's why
• 41:13
  Speaker 1: I think politically it's much easier for politicians to address
• 41:17
  Speaker 1: that than than unemployment prior to the I mean, right,
• 41:22
  Speaker 1: I mean, think about think about this, right, I mean, well,
• 41:24
  Speaker 1: the two thousands use a giant spike inflation, arguably caused
• 41:28
  Speaker 1: by the FED taking rates too low and keeping them
• 41:30
  Speaker 1: there too long. Um, I mean yeah, core inflation during
• 41:33
  Speaker 1: the two thousand was running a little bit, I mean
• 41:35
  Speaker 1: I think around two and a half percent, but spiked up,
• 41:38
  Speaker 1: you know in right into the crisis in oh eight,
• 41:40
  Speaker 1: the bottom was falling out from the economy and Pete.
• 41:44
  Speaker 1: I mean we were having you know, we had like
• 41:46
  Speaker 1: five or six months of job losses. Even as gas
• 41:48
  Speaker 1: prices are oil We're people talking about let's go and like, um,
• 41:54
  Speaker 1: you know, stop gap the banks and like even though
• 41:57
  Speaker 1: no they weren't right because you know, it was like, oh, well,
• 42:02
  Speaker 1: what had more public support suspending the gas tax or
• 42:04
  Speaker 1: bailing out the banking industry. At that time, absolutely there
• 42:08
  Speaker 1: was very little support for bailing out the banks, and
• 42:12
  Speaker 1: in fact, there was the whole Tea party came about
• 42:16
  Speaker 1: when you attempted to bail out the homeowners. There was
• 42:19
  Speaker 1: a lot of political crosscurrents during that. So I think
• 42:23
  Speaker 1: that to me is is sort of this interesting kind
• 42:25
  Speaker 1: of dynamic, is that it's just it's a lot easier
• 42:28
  Speaker 1: um politically, I think, to fight inflation. Really interesting. So
• 42:33
  Speaker 1: we've been talking a little bit about what the consensus
• 42:35
  Speaker 1: is and what the Fed's gonna do. Um, all these
• 42:39
  Speaker 1: rapid increases in rates we've seen. You've said you question
• 42:44
  Speaker 1: whether or not the FIT has a coherent strategy. Explain that, well,
• 42:50
  Speaker 1: I mean they're kind of playing catch up, right. I mean,
• 42:53
  Speaker 1: I think based on their behavior over the last twelve months,
• 42:56
  Speaker 1: it's pretty clear that they should have started sooner, although
• 43:00
  Speaker 1: wise they wouldn't have been so aggressive in the first
• 43:01
  Speaker 1: So let's put let's put some flesh on that. The
• 43:03
  Speaker 1: CPI goes through two in March one. By the end
• 43:09
  Speaker 1: of the year, CPI is what seven percent something like that,
• 43:12
  Speaker 1: And in March the Fed first starts raising rates. They're
• 43:17
  Speaker 1: like a year behind the curve. Well, I mean they
• 43:21
  Speaker 1: very much were anchored to I mean there's a recency
• 43:23
  Speaker 1: bias in in policy and policymaking. Um. You know, in
• 43:27
  Speaker 1: the same way that fiscal policy makers were criticized for
• 43:31
  Speaker 1: not doing enough during the financial crisis, you could make
• 43:34
  Speaker 1: the argument that fiscal policy makers overreacted during the pandemic crisis.
• 43:38
  Speaker 1: So what we have. We had two trillion in the
• 43:40
  Speaker 1: first CARES Act, we had another trillion in the second
• 43:43
  Speaker 1: CARES Act. Then the new administration comes in, there's another
• 43:46
  Speaker 1: trillion in the third CARES Act. Then there's the Inflation
• 43:49
  Speaker 1: Reduction Act, and there's the um Infrastructure Bill. That's a
• 43:53
  Speaker 1: lot of fiscal stimulus, isn't it. Yeah. And remember back
• 43:57
  Speaker 1: when um, you know, Trump ran and they the whole
• 44:00
  Speaker 1: t c j A. What was the big Yeah, what
• 44:03
  Speaker 1: was the big discussion? Then monetary offset? Remember that monetary offset,
• 44:07
  Speaker 1: Like the Fed needs to come in and counteract the
• 44:08
  Speaker 1: fiscal stimulus. Well, think about it this time. There's a
• 44:12
  Speaker 1: lot of fiscal stimulus that needs to be contracted, particularly
• 44:14
  Speaker 1: when people are still sitting on trillion dollars of pandemic savings.
• 44:20
  Speaker 1: So how much of that can be accomplished with quantitative tightening, unwinding,
• 44:25
  Speaker 1: quantitative easing, and how much of that has to be
• 44:28
  Speaker 1: purely rate driven? I think it's very driven, because I
• 44:32
  Speaker 1: don't I don't know that quantitative tightening has that much
• 44:34
  Speaker 1: of an effect on really because people were warning, oh,
• 44:37
  Speaker 1: you don't understand what a head headwind QUEI has been
• 44:40
  Speaker 1: a tail winds. Not only is that gone, now you
• 44:42
  Speaker 1: have the head wind of of QT. Just you wait,
• 44:45
  Speaker 1: that was the last doomsayer. I think QUEE was basically
• 44:49
  Speaker 1: a way for the FED to tell the the markets
• 44:52
  Speaker 1: that it really meant business about keeping rates low for
• 44:54
  Speaker 1: a long time. And you know, to me, let's say
• 44:58
  Speaker 1: the FED came out and stopped QT because they want
• 45:00
  Speaker 1: to maintain like an ample level of reserves. Does that
• 45:03
  Speaker 1: tell you anything about what interests are gonna do. No,
• 45:05
  Speaker 1: the Fed can raise rates whenever they want, So that
• 45:07
  Speaker 1: that to me is I don't think it's it's really
• 45:09
  Speaker 1: the same thing, um And so yeah, I don't know.
• 45:13
  Speaker 1: I mean, yeah, there's always these sort of there's this
• 45:16
  Speaker 1: like knee jerk kind of desire I think in markets
• 45:19
  Speaker 1: to like explain things that as simplistically as possible. And
• 45:24
  Speaker 1: so it's like, oh, like, here's this overlay chart if
• 45:26
  Speaker 1: the Feds QWI and the stock market, and that's why
• 45:29
  Speaker 1: the stock it's going up, And it's just you suggest
• 45:32
  Speaker 1: it's absolutely binary, that it's more nuanced, to use your
• 45:36
  Speaker 1: earlier phrase. I mean, to me, it's just a ridiculous
• 45:38
  Speaker 1: thing because if you take that to its logical conclusion,
• 45:41
  Speaker 1: the FETE has an infinite ability to expand its balance
• 45:45
  Speaker 1: So that means that there should the stock market should
• 45:47
  Speaker 1: never ever go down, if that's what you'd right, I mean,
• 45:50
  Speaker 1: so if you think about it logically, take it to
• 45:52
  Speaker 1: its end conclusion, does the Central Bank have Is there
• 45:55
  Speaker 1: any constraint on the Fed in terms of printing money
• 45:58
  Speaker 1: doing QWI? There is none, really, I means it's political,
• 46:01
  Speaker 1: but you know, theoretically there's none. And so if if
• 46:04
  Speaker 1: the balance sheet is all that drives the stock market,
• 46:06
  Speaker 1: then the stock market should never go down. You have
• 46:09
  Speaker 1: to think about it that way. And so to me,
• 46:12
  Speaker 1: you know, the stock markets driven by earnings and by
• 46:15
  Speaker 1: fundamentals and and sentiment and sentiment, and you know the
• 46:20
  Speaker 1: FED can play a role and sort of back talking
• 46:22
  Speaker 1: sentiment a short run. But the FED can't permanently increase
• 46:25
  Speaker 1: the level of asset values. So there's been a lot
• 46:28
  Speaker 1: of discussions about when PAL is going to pivot. Are
• 46:33
  Speaker 1: you saying we're over emphasizing that? Is the market sussing
• 46:36
  Speaker 1: that out early enough? How much should investors be paying
• 46:40
  Speaker 1: attention to each and every utterance from j Pale and
• 46:45
  Speaker 1: his bands of merry central bankers. Well, I think it's
• 46:48
  Speaker 1: important to follow the data. And um, Ultimately, if the
• 46:52
  Speaker 1: FET is saying that it's data dependent, then the data
• 46:55
  Speaker 1: will drive their views on policy. Um. You know, I
• 46:58
  Speaker 1: must admit right now, it does feel that the it
• 47:00
  Speaker 1: is kind of moving a little bit away from that
• 47:01
  Speaker 1: because it seems like they just want to get rates
• 47:05
  Speaker 1: just about five and regardless and wait and see, regardless
• 47:08
  Speaker 1: of whatever happens. Let me throw some data you. It
• 47:12
  Speaker 1: looks like inflation peaked mid year last year. Certainly on
• 47:16
  Speaker 1: the good side, we talked about let's energy, lumber, shipping containers,
• 47:22
  Speaker 1: used cars, even rolexes are rolling over in price. So
• 47:27
  Speaker 1: that's or depending on what year you're looking at, that's
• 47:32
  Speaker 1: of inflation problem. What about services? We continue to see
• 47:38
  Speaker 1: at least owner's equivalent rent portion of cp I appear elevated.
• 47:44
  Speaker 1: What are we to make of that? Is the FED
• 47:47
  Speaker 1: looking at the data or are they looking in the
• 47:49
  Speaker 1: wrong place? Well, I mean Powell kind of splice the
• 47:53
  Speaker 1: inflation data into three parts, right, And you talked about
• 47:56
  Speaker 1: core goods inflation, which is I think what you're getting at,
• 47:58
  Speaker 1: which is it's it's deflating. Right. So those are your cars,
• 48:01
  Speaker 1: your furniture appliances, right. Um. Then you have housing rental inflation,
• 48:07
  Speaker 1: which has been quite strong, um, but is also likely
• 48:13
  Speaker 1: to decelerate quite a bit. I mean. One of the
• 48:15
  Speaker 1: reasons why inflation has historically been a lagging indicator is
• 48:18
  Speaker 1: because shelter, which is a big component of inflation, is
• 48:22
  Speaker 1: a lagging indicator of in and of itself, right, and
• 48:25
  Speaker 1: it tends to lag home prices um. And home prices
• 48:29
  Speaker 1: have been moderating, and we know that new lease growth
• 48:31
  Speaker 1: has also been moderating quite a bit. So I think
• 48:34
  Speaker 1: it's inevitable that housing rental inflation, and as it's measured
• 48:37
  Speaker 1: in the CPI data, will will come down. That's a
• 48:40
  Speaker 1: key phrase, as it's measured. There have been both from
• 48:44
  Speaker 1: places like the Cleveland FED and Zillo rents. There have
• 48:48
  Speaker 1: been a couple of new ways of looking at rental
• 48:51
  Speaker 1: inflation that make it appear the BLS model is really
• 48:57
  Speaker 1: on a long lag. When you look at Zillo rent
• 49:00
  Speaker 1: they appear to be plumbering. And when you look at
• 49:03
  Speaker 1: a paper I think it was the Cleveland Fed that
• 49:06
  Speaker 1: tried to look at repeat rents as opposed to the
• 49:10
  Speaker 1: whole world of rents. They're showing that rents not only
• 49:14
  Speaker 1: have stopped going up but are now rapidly. But that's
• 49:17
  Speaker 1: also been well known. I mean, that's been a a
• 49:19
  Speaker 1: I think a well known feature of the inflation statistics. Right,
• 49:22
  Speaker 1: So this idea that, oh, this is such a lagging
• 49:25
  Speaker 1: indicator like that, No, that's a lot of people just
• 49:27
  Speaker 1: saying that they want the Fed to back off, and
• 49:29
  Speaker 1: they're using that to justify I'm talking my book. So
• 49:33
  Speaker 1: that let me ask you this question, because Bernanki was
• 49:36
  Speaker 1: saying inflation is a lagging indicator, right, So inflation is
• 49:40
  Speaker 1: a lagging indication, right. So Bernanki made that point back
• 49:43
  Speaker 1: in two thousands, right around the time he said sub
• 49:45
  Speaker 1: prime was contained. Well it was after that, but he
• 49:47
  Speaker 1: was right about the inflation being a lagging indicator. Because
• 49:50
  Speaker 1: he was using that to justify and a more aggressive
• 49:53
  Speaker 1: monetary policy easing. And the Hawks wanted to go because
• 49:56
  Speaker 1: they were making the point that, look, inflation is still high, well,
• 49:59
  Speaker 1: inflation is lagging indicators, so interesting, and so it's it's
• 50:02
  Speaker 1: sort of the same, it's sort of the same thing
• 50:04
  Speaker 1: that's happening now kind of in reverse. And but you're
• 50:07
  Speaker 1: suggesting that the Fed is ignoring all of this softening
• 50:10
  Speaker 1: inflation data because for whatever reason, j Pal wants to
• 50:15
  Speaker 1: get to five and a quarter that And also I
• 50:17
  Speaker 1: don't think they view inflation the same way as the
• 50:20
  Speaker 1: markets do. Right. The markets are very very good at
• 50:23
  Speaker 1: kind of telling you about what's happening with goods inflation, right,
• 50:26
  Speaker 1: so we know what commodities are doing at any moment. Right.
• 50:32
  Speaker 1: The markets don't have a great way of telling you
• 50:34
  Speaker 1: how much your barber is going to charge you for
• 50:35
  Speaker 1: your haircut or or yeah, or you're dry cleaner. And
• 50:40
  Speaker 1: also it's about the overall inflation process, right, I mean,
• 50:45
  Speaker 1: so the stuff that you're talking about, like, let's say
• 50:49
  Speaker 1: we had this burst of household formation and that's what
• 50:52
  Speaker 1: drove this spectacular increase in rents during the you know,
• 50:55
  Speaker 1: during and immediately after the pandemic, and now it's just
• 50:58
  Speaker 1: becoming too onerous on people, and they've all decided, you
• 51:02
  Speaker 1: know what, I'm going to go find a roommate. I've
• 51:04
  Speaker 1: been dating somebody, I'm going to go move in with them.
• 51:07
  Speaker 1: What have you just done for yourself? You've reduced household formation,
• 51:10
  Speaker 1: But what have you done for yourself, assuming you haven't
• 51:13
  Speaker 1: lost your Now, what do you go out and do
• 51:16
  Speaker 1: with the money you spend it on? And what does
• 51:18
  Speaker 1: that due to the prices of the goods and services
• 51:20
  Speaker 1: upon which you spend the money depends on what you're
• 51:23
  Speaker 1: spending it on. Is it these things you wouldn't have
• 51:25
  Speaker 1: purchased anyway? Or I don't know, but that's the way
• 51:28
  Speaker 1: the FETs thinking about it. So you see, I mean,
• 51:30
  Speaker 1: compensation equals inflation plus productives. So all you're talking about
• 51:33
  Speaker 1: is relative price shifts. If wage inflation is still running
• 51:37
  Speaker 1: at four and a half five percent, it's going to
• 51:40
  Speaker 1: be difficult like that. I mean, I hate to say
• 51:42
  Speaker 1: it like this. It just means the disinflation that you're
• 51:45
  Speaker 1: going to see this year is also transitory. And that's
• 51:49
  Speaker 1: the thing, and that's the thing that the FAT I
• 51:51
  Speaker 1: think has to wrestle with is that they haven't really
• 51:53
  Speaker 1: to me, they haven't told us a good kind of
• 51:56
  Speaker 1: framing around this idea of in proving composition of growth. Right,
• 52:01
  Speaker 1: real GDP growth is probably accelerating as inflation is coming off.
• 52:06
  Speaker 1: What does that mean, right? I mean because ultimately, if
• 52:09
  Speaker 1: real growth is getting better, that means you're putting pressure
• 52:12
  Speaker 1: on physical capacity, physical resources. Right. Your real growth is
• 52:15
  Speaker 1: what drives more employment. Real growth is what drives more production.
• 52:18
  Speaker 1: You know, that means capacitization goes up, and that is
• 52:21
  Speaker 1: what pushes prices up. So I think that's kind of
• 52:24
  Speaker 1: the thing that they have to wrestle with, which is
• 52:26
  Speaker 1: why I say it's difficult for the markets to get
• 52:29
  Speaker 1: the cuts that they are currently pricing. If I'm right
• 52:34
  Speaker 1: about the economy, if real growth is holding up and
• 52:37
  Speaker 1: we're growing above potential, then even if price inflation is moderating,
• 52:42
  Speaker 1: it's still going to be difficult for the FED to
• 52:44
  Speaker 1: cut in that environment. So let me push back on
• 52:46
  Speaker 1: all that, and let me give you my narrative has
• 52:49
  Speaker 1: to where the consensus might be right and where the
• 52:54
  Speaker 1: FED is wrong. And it's two parts, and I'll make
• 52:56
  Speaker 1: it really short. The first part is, hey, We've been
• 52:59
  Speaker 1: in a deflation stionary environment for the past three decades. Globalization, technology, automation, productivity,
• 53:07
  Speaker 1: all these factors have been deflationary for a long time.
• 53:12
  Speaker 1: The pandemic was a unique one off, right, and heading
• 53:15
  Speaker 1: into the pandemic, we are sixty percent services goods. Suddenly
• 53:20
  Speaker 1: we invert that, where services sixty goods. When everyone's stuck
• 53:24
  Speaker 1: at home, they're not going to hotels and f flying,
• 53:27
  Speaker 1: they're not going to movies, they're building, buying, doing all
• 53:30
  Speaker 1: this stuff just in time. Supply chain can't deal with it.
• 53:33
  Speaker 1: Prices spike on top of a decade long shortfall of
• 53:39
  Speaker 1: home construction, and during the pandemic, whoever could afford to
• 53:42
  Speaker 1: buy a second house or a third house did without
• 53:45
  Speaker 1: selling a house. So all this whatever little supply there
• 53:48
  Speaker 1: was that gets sucked up, and once that normalizes, inflation
• 53:51
  Speaker 1: should return to normal. However, following that's part A, Part
• 53:56
  Speaker 1: B is the FED doubles and then some mortgage rates.
• 54:01
  Speaker 1: Everybody who's looking to buy a starter home or uh,
• 54:04
  Speaker 1: you know, a a you know, a sub one million
• 54:07
  Speaker 1: dollar home, A lot of those folks are now priced
• 54:10
  Speaker 1: out of that market and would be buyers or renters
• 54:13
  Speaker 1: and Paradoxically, rising FOMC rates means higher mortgage rates, which
• 54:18
  Speaker 1: pours people into the rental market, making inflation higher. The FED,
• 54:23
  Speaker 1: if they want to stop inflation, should stop raising rates
• 54:26
  Speaker 1: and allow those renters to become home buyers. Where is
• 54:30
  Speaker 1: that thesis wrong? Well, I think on the globalization side,
• 54:34
  Speaker 1: I mean, we probably have a little bit more of
• 54:36
  Speaker 1: a home bias now. I mean, if there's one bipartisan
• 54:38
  Speaker 1: thing that's that's come about um from Trump to Biden,
• 54:42
  Speaker 1: it's this this sort of um having learned the justin
• 54:45
  Speaker 1: I mean we had, right, I mean, we had the
• 54:47
  Speaker 1: flattening out of the global supply chain, and now the
• 54:49
  Speaker 1: global supply chain is actually narrowing. We want to make it,
• 54:52
  Speaker 1: you know, more resistant to global shocks, and so I
• 54:55
  Speaker 1: think that that's probably inflationary. I mean, final assembly is
• 55:00
  Speaker 1: probably leaking out of the lowest cost destiny and we'll
• 55:02
  Speaker 1: have a big inventory build. But once that's done, that's
• 55:05
  Speaker 1: transitory also, isn't it. Well, I mean it just again
• 55:08
  Speaker 1: it goes back to this idea of what's driving inflation
• 55:12
  Speaker 1: over the longer run, and ultimately to me, it's about
• 55:16
  Speaker 1: labor market dynamics. And you know, I mean we had
• 55:20
  Speaker 1: a period of disinflation. It wasn't like but I'm inflation
• 55:24
  Speaker 1: was sort of stable in the twenty times. I mean,
• 55:26
  Speaker 1: Bernanke famously said, if inflation is the benchmark, I have
• 55:30
  Speaker 1: the best inflation record of any chairman, because it's basically
• 55:32
  Speaker 1: been two percent the entire time I've been I've been.
• 55:34
  Speaker 1: So he actually hit it right on the head. So
• 55:37
  Speaker 1: you know, so it wasn't like inflation was getting even
• 55:39
  Speaker 1: slower during the financial crisis. And so now, um, by
• 55:43
  Speaker 1: the way, I think it's hilarious that a massive financial
• 55:47
  Speaker 1: crisis leading to an inability for inflation get any traction
• 55:51
  Speaker 1: and he wants to take credit for But but I
• 55:54
  Speaker 1: think about now do GDP and wages over that same decade. Yeah,
• 55:58
  Speaker 1: I mean, it wasn't until the very end of that
• 56:00
  Speaker 1: decade had that real way just started to look a
• 56:01
  Speaker 1: bit better. But again, it's one of these interesting things
• 56:04
  Speaker 1: very where if you look at like consumer confidence, it
• 56:07
  Speaker 1: was very very it got very good after like so
• 56:10
  Speaker 1: once you started, particularly when gasoline prices started, when we
• 56:13
  Speaker 1: had the windfall from the positive supply shock and energy.
• 56:15
  Speaker 1: But um, you know I do think that, yeah, I mean,
• 56:19
  Speaker 1: there there's more, Um, we haven't really invested much in
• 56:22
  Speaker 1: in mining cap x um. If you have an incremental
• 56:26
  Speaker 1: pickup in global demand that could sort of royal energy markets. Um,
• 56:30
  Speaker 1: that's a risk. That's an inflationary risk we talked about.
• 56:32
  Speaker 1: I mentioned productivity. Productivity hasn't been a strong You have
• 56:36
  Speaker 1: experienced workers that are that are now leaving the workforce.
• 56:38
  Speaker 1: That means that the quality of your workforce isn't It's
• 56:40
  Speaker 1: going to take time to get that back up. So
• 56:42
  Speaker 1: I think there are interesting arguments on both sides of
• 56:45
  Speaker 1: this debate, but you know, for the short run, I
• 56:48
  Speaker 1: think it's really just about the labor markets. And the
• 56:51
  Speaker 1: FED keeps saying that they think things are out of balance,
• 56:53
  Speaker 1: and so that means that they're going to have to
• 56:55
  Speaker 1: bring it back into balance. So the consensus is either
• 57:00
  Speaker 1: no recession or a mild recession, and the FED stops
• 57:04
  Speaker 1: raising and by the end of the year their cutting rates.
• 57:07
  Speaker 1: You're saying, you think the consensus should listen to what
• 57:12
  Speaker 1: Jerome pal is telling them, because you think he's going
• 57:15
  Speaker 1: to do exactly what he says he's going to do. Yeah,
• 57:19
  Speaker 1: I mean the consensus right now is recession. That is
• 57:22
  Speaker 1: the consensus. If you look at the soft landing or
• 57:25
  Speaker 1: hard landing. It's not even about soft landing. It's a recession.
• 57:27
  Speaker 1: I mean, the consensus is overwhelmingly in a way I've
• 57:31
  Speaker 1: never I mean, I think if you surveyed, it's like
• 57:34
  Speaker 1: six recession of the if not more. Usually, when the
• 57:38
  Speaker 1: consensus is that overwhelming for the recession, you're already in one, right,
• 57:43
  Speaker 1: and we're not. So I recall deep into two thousand
• 57:47
  Speaker 1: and eight, there was still an argument as to whether
• 57:49
  Speaker 1: or not when we were in recession, when it started
• 57:52
  Speaker 1: six eight months earlier, and right in the middle of that,
• 57:54
  Speaker 1: people were still arguing, well, well, I remember one analyst
• 57:58
  Speaker 1: famously thinking that the FED was going to be hike
• 58:00
  Speaker 1: in the back half of two thousand and eight. Um. Right,
• 58:04
  Speaker 1: key feature, key distinction though of that period was that
• 58:07
  Speaker 1: we were seeing job loss month in and month out
• 58:10
  Speaker 1: over this first time. We're not seeing that now, and
• 58:13
  Speaker 1: I think that is an important sort of you know,
• 58:15
  Speaker 1: and you can talk about, oh, employment is coincident, or
• 58:19
  Speaker 1: it's lagging, or at the end of the day, initial
• 58:22
  Speaker 1: claims are low. That's a leading indicator. And um but
• 58:26
  Speaker 1: to me, again, it's not about the data as it's
• 58:28
  Speaker 1: coming and tell me why it keeps going right, that's
• 58:32
  Speaker 1: what's right. I mean, so, can we get a recession
• 58:35
  Speaker 1: with employment markets this strong, this tight? You can? But
• 58:41
  Speaker 1: I don't think the feed is going to give you
• 58:43
  Speaker 1: that right away. I mean, it's going to take a
• 58:45
  Speaker 1: little bit more time to play out. But more importantly,
• 58:47
  Speaker 1: it's about the mechanism, like how do you get the recession?
• 58:50
  Speaker 1: Like what is the mechan like, for example, is there
• 58:52
  Speaker 1: a massive financial shock that gets companies? So the thing
• 58:55
  Speaker 1: that I've been explorer is that one of one of
• 58:57
  Speaker 1: the ways you get recession, in my view, is through
• 58:59
  Speaker 1: an element of surprise. Right, So companies sort of think
• 59:03
  Speaker 1: things are gonna be okay and then something falls out
• 59:05
  Speaker 1: of bed, and that means that they have to cut
• 59:06
  Speaker 1: their hiring plans, adjust their capex budgets, clear out their inventories.
• 59:11
  Speaker 1: But what if we've been doing that for the last
• 59:13
  Speaker 1: six to nine months already, and now there's a risk
• 59:17
  Speaker 1: with inflation falling. Gas prices have come down. No one's
• 59:21
  Speaker 1: talking about that anymore. Natural gas prices are down, which
• 59:24
  Speaker 1: means you're gonna see lower utility bills. Food prices are
• 59:26
  Speaker 1: coming down, which means you'll see lower grocery bills. What
• 59:29
  Speaker 1: does that mean? That is a tale and for real
• 59:31
  Speaker 1: disposable income, So that should buoy demand. Now, if companies
• 59:36
  Speaker 1: are all on this side of the fence and they
• 59:37
  Speaker 1: think household demand is going to slow down and then
• 59:40
  Speaker 1: the opposite happens, what does that mean? That creates a
• 59:43
  Speaker 1: risk where you have this situation where the companies are
• 59:46
  Speaker 1: having to catch up to the end consumer. You can
• 59:49
  Speaker 1: have an inflation echo and a restarted real growth will
• 59:52
  Speaker 1: pick up as a result. And I think that's the
• 59:55
  Speaker 1: risk that I'm more likely to highlight now, and I
• 59:58
  Speaker 1: think that's something the consensus not really positioned for. And
• 1:00:01
  Speaker 1: I think that that's becoming the more increasingly the more
• 1:00:03
  Speaker 1: likely outcome, because we've been talking about a recession for
• 1:00:08
  Speaker 1: the last three quarters and it just hasn't happened. So
• 1:00:12
  Speaker 1: the question is is the bad news in stock prices
• 1:00:16
  Speaker 1: already or is the good news already in stock prices?
• 1:00:20
  Speaker 1: How do you contextualize that? I think the bad news
• 1:00:23
  Speaker 1: is in the price It is already in there. Well,
• 1:00:25
  Speaker 1: I mean Google earnings recession. Everyone's talking about, Oh that's
• 1:00:29
  Speaker 1: the next thing. Oh it's you know this, This move
• 1:00:33
  Speaker 1: in stocks is all about rates and the next you
• 1:00:35
  Speaker 1: to drop his earnings recession. How do you get an
• 1:00:37
  Speaker 1: earnings recession if nominal growth is running at five? Has
• 1:00:41
  Speaker 1: anyone mentioned about the dollar, like the dollars off ten percent?
• 1:00:43
  Speaker 1: Doesn't that have a mechanical effect on corporate earnings for
• 1:00:46
  Speaker 1: the multinationals at trade on the SMP five? And I
• 1:00:49
  Speaker 1: guess the other thing is in a weird way, like
• 1:00:52
  Speaker 1: interest rates coming down and people betting on the Fed
• 1:00:56
  Speaker 1: to kind of back off juice is the housing market.
• 1:00:59
  Speaker 1: Because you see home buildings stocks at a fifty two
• 1:01:01
  Speaker 1: week kid Now some recession like call me when rates
• 1:01:06
  Speaker 1: are going down and building stocks are going down, because
• 1:01:08
  Speaker 1: that would be a big problem, right, But that's not
• 1:01:10
  Speaker 1: what's happening today. You know how many how many? I
• 1:01:13
  Speaker 1: mean you've been around long after know like this sort
• 1:01:15
  Speaker 1: of cottage industry of nonsense on the street about oh,
• 1:01:18
  Speaker 1: the i s M is below fifty, the Fed's got
• 1:01:20
  Speaker 1: to come in and do something. How's that been working
• 1:01:22
  Speaker 1: out for the industrial stocks? Call industrials have been outperforming.
• 1:01:26
  Speaker 1: Caterpillar is another stock that's doing really well. So I
• 1:01:30
  Speaker 1: don't see it. I mean again, I think, I mean
• 1:01:32
  Speaker 1: the earnings recession call is is purely driven by like
• 1:01:36
  Speaker 1: you know, look the I ms below fifty. I draw
• 1:01:38
  Speaker 1: you over your chart of earnings, and it looks like
• 1:01:40
  Speaker 1: it lines up. So that's the earnings recession. But if
• 1:01:44
  Speaker 1: you peel back the onion a little bit and you
• 1:01:46
  Speaker 1: think about where's growth coming in, where is inflation, you're
• 1:01:51
  Speaker 1: still talking about a five percent ish nominal growth environment.
• 1:01:55
  Speaker 1: That is not consistent with earnings recession. In my view,
• 1:01:57
  Speaker 1: Let's talk a little bit about what's going on with earnings.
• 1:02:01
  Speaker 1: We have people like Elon Musk and Jamie Diamond screaming
• 1:02:04
  Speaker 1: we're gonna have a recession for what six months? Now?
• 1:02:07
  Speaker 1: Are you seeing a recession anywhere in any of the
• 1:02:10
  Speaker 1: corporate earnings data? You mentioned home builders, you mentioned manufacturers.
• 1:02:15
  Speaker 1: Where is this recession showing up? The recession is showing
• 1:02:17
  Speaker 1: up in the f R B US model, and that's
• 1:02:20
  Speaker 1: pretty much it. So I have a friend who says
• 1:02:23
  Speaker 1: to me, we're not going to get a contemporaneous recession.
• 1:02:28
  Speaker 1: It's going to be a rolling series of sector by
• 1:02:30
  Speaker 1: sector recessions. Oh, energy did well, now energy is depressed,
• 1:02:34
  Speaker 1: and then this sector is doing well. Manufacturer was depressed
• 1:02:38
  Speaker 1: last year and now it's doing well. Can you get
• 1:02:41
  Speaker 1: a rolling sector by sector recession or is that just
• 1:02:44
  Speaker 1: then that wouldn't be a recession. Okay, so what do
• 1:02:47
  Speaker 1: we see for earnings then? Well, I'm not a stock
• 1:02:52
  Speaker 1: market strategist, but what I will tell you is that
• 1:02:55
  Speaker 1: when you think of corporate profits, right, I mean, it's
• 1:02:58
  Speaker 1: largely based on an identity, right, I mean it's it's
• 1:03:02
  Speaker 1: basically revenue, right, less unit labor and unit non labor costs.
• 1:03:08
  Speaker 1: And so when you think about it through that lens,
• 1:03:11
  Speaker 1: I think revenues will reign steady because nominal growth is
• 1:03:14
  Speaker 1: holding up UM, So even though inflation is moderating, you'll
• 1:03:18
  Speaker 1: see real economic growth pickup. I think unit labor costs
• 1:03:22
  Speaker 1: will moderate somewhat UM as a labor markets kind of normalized.
• 1:03:27
  Speaker 1: I mean, we won't see as many people quitting and
• 1:03:29
  Speaker 1: that should take some of the pressure off. And we
• 1:03:31
  Speaker 1: see unit non labor costs coming down because supply chains
• 1:03:36
  Speaker 1: are using, commodity prices are easing, and so that should
• 1:03:40
  Speaker 1: be a reasonably healthy backdrop for corporate profits. The question
• 1:03:43
  Speaker 1: is is what is it you know for the markets?
• 1:03:46
  Speaker 1: Is if the FED is not cutting, that means that
• 1:03:52
  Speaker 1: rates will be higher, and all aso equal, higher rates
• 1:03:55
  Speaker 1: are not good for stocks. So when we talk about
• 1:03:57
  Speaker 1: margins last year, they hit all time high. Companies seem
• 1:04:01
  Speaker 1: to have no difficulty passing along input cost increases to
• 1:04:06
  Speaker 1: consumers and and some companies managed to pass along phantom
• 1:04:10
  Speaker 1: increases and managed to to see their margins widen. Um,
• 1:04:15
  Speaker 1: what are we thinking about overall margins in the face
• 1:04:18
  Speaker 1: of five and a quarter fed rates. Well, you'd expect
• 1:04:22
  Speaker 1: margins to come down somewhat. I mean, obviously they're very,
• 1:04:24
  Speaker 1: very high, um. But that also means that companies are
• 1:04:27
  Speaker 1: are probably more likely to spend some money, right, So
• 1:04:30
  Speaker 1: that's um that that's sort of the way and companies
• 1:04:34
  Speaker 1: spending money that also helps corporate earnings, right, So it's
• 1:04:37
  Speaker 1: about why the margins are coming down. A margin decline
• 1:04:40
  Speaker 1: that's driven by companies spending more on capex employment is
• 1:04:44
  Speaker 1: very different than a margin decline that's driven by UM
• 1:04:49
  Speaker 1: for productivity weakness, right, because in the in the former case,
• 1:04:52
  Speaker 1: there's an opportunity for companies to offset some of the
• 1:04:55
  Speaker 1: hit to their bottom line with a stronger top line. So, Um,
• 1:04:58
  Speaker 1: that's sort of the way I'm thinking about. So you
• 1:05:01
  Speaker 1: mentioned earlier sentiment. Generally, consumer sentiment has been not just bad,
• 1:05:06
  Speaker 1: but like below financial crisis bad. It doesn't make a
• 1:05:10
  Speaker 1: whole lot of sense to me. I'm curious as to
• 1:05:12
  Speaker 1: your thoughts given everything else you've said that's been so constructed.
• 1:05:15
  Speaker 1: It goes back to a discussion we're having earlier about
• 1:05:18
  Speaker 1: what you know, what's easier to form a political coalition
• 1:05:21
  Speaker 1: around employment or you've never seen this much of a
• 1:05:24
  Speaker 1: gap between attitudes about the jobs market and overall consumer
• 1:05:29
  Speaker 1: sentiment ever. Right, If you look at the Conference Board data,
• 1:05:32
  Speaker 1: which is you know, widely followed consumer sentiment number, um,
• 1:05:36
  Speaker 1: it's very weak. But if you look at the labor differential,
• 1:05:40
  Speaker 1: which is basically consumer attitudes about jobs, it's rarely been
• 1:05:43
  Speaker 1: this high. It's basically where it was right before the
• 1:05:46
  Speaker 1: pandemic in the nine late nineties, when the labor markets
• 1:05:49
  Speaker 1: are very very strong. So I think that speaks to
• 1:05:52
  Speaker 1: this inflation dynamic. Um, But what do we know about inflation, Barry?
• 1:05:57
  Speaker 1: At least in the things that people buy frequently, there's improvement.
• 1:06:02
  Speaker 1: I mean, gas prices finished last year lower than where
• 1:06:06
  Speaker 1: they started that, which is an amazing Statuste. You think
• 1:06:09
  Speaker 1: we aren't hearing enough, um, And then we know that
• 1:06:13
  Speaker 1: natural gas prices have come down somewhat. That will with
• 1:06:15
  Speaker 1: a lag bleed into household utility bills UM, and then
• 1:06:19
  Speaker 1: grocery bills will probably come down because agricultural commodities have
• 1:06:22
  Speaker 1: come in somewhat. So UM, all of that should provide
• 1:06:26
  Speaker 1: some tail into UM to consumer sentiment. And you know, look,
• 1:06:30
  Speaker 1: the stock markets are up about what three or four
• 1:06:32
  Speaker 1: percent so far this year. UM, that should help as well.
• 1:06:36
  Speaker 1: So you know, to me, if you think about what
• 1:06:39
  Speaker 1: drives consumer sentiment, its wealth, employment, inflation, and UM. All
• 1:06:48
  Speaker 1: three of those suggest consumer sentiment should be pretty strong.
• 1:06:51
  Speaker 1: But it really is below what you would expect given
• 1:06:54
  Speaker 1: the states. Well, I mean, well, it's because people are
• 1:06:57
  Speaker 1: kidding off the level of prices in some respects, not
• 1:06:59
  Speaker 1: the rate of change. So I would say that the
• 1:07:00
  Speaker 1: rate of change in consuming consumer confidence should be getting
• 1:07:03
  Speaker 1: better over the next several months. Let's jump to my
• 1:07:06
  Speaker 1: favorite questions that I asked all of our guests, starting
• 1:07:10
  Speaker 1: with the question that I really should retire my pandemic question.
• 1:07:14
  Speaker 1: Tell us what you've been streaming on Netflix or Amazon
• 1:07:17
  Speaker 1: or what have you? So my wife and I always
• 1:07:20
  Speaker 1: we try to watch the same shows. UM, so we've
• 1:07:23
  Speaker 1: been watching The Crown so good, such a good show. Um,
• 1:07:28
  Speaker 1: I think there's one more season coming still. Yeah, I
• 1:07:31
  Speaker 1: mean the last season was great, so we we we
• 1:07:34
  Speaker 1: Um Handmaids Tell is another one that we watch. Um,
• 1:07:40
  Speaker 1: she got me into this show called from Scratch. From scratch, Yeah,
• 1:07:44
  Speaker 1: it's what Zoe Saldanna sounds like. It's a tear jerker.
• 1:07:48
  Speaker 1: I mean, but it's. But you know, it took me
• 1:07:50
  Speaker 1: a little bit to get into it. But I did
• 1:07:51
  Speaker 1: get into it, more for her than for myself. But
• 1:07:54
  Speaker 1: you know, it was it was, it was well worth it.
• 1:07:56
  Speaker 1: I we need to start White Lotus. We haven't done
• 1:07:58
  Speaker 1: that yet. I watched the season. I haven't gotten enthusiastic
• 1:08:02
  Speaker 1: about the second season yet, which a lot of people
• 1:08:04
  Speaker 1: really liked. Um. Have you seen any of the Kaleidoscope?
• 1:08:08
  Speaker 1: It's kind of interesting. I haven't. What's it about? Um?
• 1:08:11
  Speaker 1: So the twist is you can watch it in any
• 1:08:15
  Speaker 1: order you like, except for the last episode. It's a
• 1:08:18
  Speaker 1: Highst sort of film, and you don't know who is
• 1:08:22
  Speaker 1: the mole, who's cheating on who, And it's told in
• 1:08:27
  Speaker 1: a very asynchronous way, where two weeks before the Highst,
• 1:08:32
  Speaker 1: six years before the heist, week after the hist It's
• 1:08:35
  Speaker 1: like each episode just plops you down in this random
• 1:08:39
  Speaker 1: time zone as opposed to telling the story chronologically, so
• 1:08:43
  Speaker 1: it kind of unfolds in a really and it's a
• 1:08:46
  Speaker 1: fabulous cast. It's really great. Uh, I got look into it. Yeah.
• 1:08:49
  Speaker 1: It dropped on Netflix a while ago and a number
• 1:08:53
  Speaker 1: of people recommended it. It's fun. There's a couple of
• 1:08:55
  Speaker 1: moments where you're like, don't do that, like you ever watching,
• 1:08:59
  Speaker 1: Like don't go in the house. It's like that, and
• 1:09:02
  Speaker 1: you're like, please don't make that mistake. And then certain
• 1:09:05
  Speaker 1: things like that. There's a funny little thing that happens
• 1:09:08
  Speaker 1: with a watch where like why would you make that
• 1:09:11
  Speaker 1: mistake that? Um, later on it's like, oh, maybe not
• 1:09:14
  Speaker 1: such a mistake. Maybe just just like all sorts of
• 1:09:17
  Speaker 1: really interesting things. It's it's not The Crown, which was
• 1:09:21
  Speaker 1: just spectacular, but it's interesting. And as I'm moving away
• 1:09:26
  Speaker 1: from Lockdown, I find myself I don't need episodes of anything.
• 1:09:31
  Speaker 1: It's it's limited to I think eight episodes done, which
• 1:09:35
  Speaker 1: is sort of like, um, the Queen's Gambit. It's like,
• 1:09:38
  Speaker 1: all right, I could get in and get out of
• 1:09:40
  Speaker 1: this and not be Uh. That's another one that we saw. Yeah,
• 1:09:42
  Speaker 1: that was a lot of fun tell us a little
• 1:09:44
  Speaker 1: bit about your mentors. You mentioned Rosenberg and Ethan. Who
• 1:09:48
  Speaker 1: else have been your mentors? Um, I mean those are
• 1:09:51
  Speaker 1: the two big ones, and I think those are two
• 1:09:52
  Speaker 1: great ones to have. Drew Madis would be another one. Um,
• 1:09:57
  Speaker 1: he's I think the head of investment strategy at meant
• 1:09:59
  Speaker 1: Life if I'm mistaken, and um, you know he and
• 1:10:01
  Speaker 1: I worked together at Morrow for a period of time,
• 1:10:03
  Speaker 1: So he would be someone else that I would, uh
• 1:10:06
  Speaker 1: that I would lead on quite a bit for you know,
• 1:10:09
  Speaker 1: just advice and not only economics, but just life. Him
• 1:10:13
  Speaker 1: he's got three kids, just like I do, so it's
• 1:10:15
  Speaker 1: uh there, No, he doesn't, and his kids are a
• 1:10:19
  Speaker 1: lot older than mine. But but so he's someone that
• 1:10:22
  Speaker 1: I would consider a mentor, not only from my career,
• 1:10:24
  Speaker 1: but for life as well. Tell us about some of
• 1:10:28
  Speaker 1: your favorite books and what are you reading right now?
• 1:10:32
  Speaker 1: So I have a confession, I don't really read books. Um.
• 1:10:36
  Speaker 1: I do read a lot of articles on Bloomberg and
• 1:10:44
  Speaker 1: opinion columns and Wall Street research, but I'm not a
• 1:10:47
  Speaker 1: big book Lee Cooperman says the same thing. He's like,
• 1:10:49
  Speaker 1: I read all day long. I can't remember the last
• 1:10:52
  Speaker 1: time I picked up a buck Um, I'm not. I'm
• 1:10:54
  Speaker 1: not a big book person. Definitely a challenge. Our final
• 1:10:57
  Speaker 1: two questions, what sort of advice would give to a
• 1:11:00
  Speaker 1: recent college grad who is interested in a career in
• 1:11:04
  Speaker 1: either economics finance research. What would you advise them? So
• 1:11:10
  Speaker 1: my advice would be just get your foot in the door,
• 1:11:13
  Speaker 1: because that's what I did, right. I mean, when I
• 1:11:16
  Speaker 1: was in college, I had no idea that there were
• 1:11:18
  Speaker 1: jobs like this. Oh, there are jobs that where you
• 1:11:21
  Speaker 1: just talk about macro and the economy all day long
• 1:11:23
  Speaker 1: and people pay you for that. I mean, it's it's great.
• 1:11:27
  Speaker 1: You would never think about it, And I think, Um,
• 1:11:30
  Speaker 1: if if I'm giving someone advice, I would say, started
• 1:11:33
  Speaker 1: a large institution, because I get that I'm at a
• 1:11:36
  Speaker 1: smaller one now. But when you're at a large one,
• 1:11:40
  Speaker 1: there's they have so many different departments and so many
• 1:11:42
  Speaker 1: different asset classes and so many different types of constituents
• 1:11:45
  Speaker 1: that they serve, right, and you can kind of see
• 1:11:49
  Speaker 1: every nook and cranny of what goes on in the
• 1:11:50
  Speaker 1: financial market space and financial services space. Um, and then
• 1:11:54
  Speaker 1: you can find your passion and UM. So I would say,
• 1:11:57
  Speaker 1: get your foot in in the door of one of
• 1:11:59
  Speaker 1: these big firms. And our final question, what do you
• 1:12:02
  Speaker 1: know about the world of macro and economic research and
• 1:12:06
  Speaker 1: marketing economics today that you wish you knew twenty plus
• 1:12:11
  Speaker 1: years or so ago when you were first getting started. Well,
• 1:12:14
  Speaker 1: I wish I had known back then that you know,
• 1:12:16
  Speaker 1: a lot of these indicators that people put their um
• 1:12:20
  Speaker 1: faith in are just really bogus. I mean I didn't,
• 1:12:23
  Speaker 1: I mean I can't. I had someone at me today
• 1:12:27
  Speaker 1: on Twitter about that's not what M three suggests. I'm like,
• 1:12:30
  Speaker 1: I thought we stopped reports. I mean, there's you know,
• 1:12:33
  Speaker 1: I you know, there used to be a time when
• 1:12:36
  Speaker 1: I thought someone overlaying a chart of manufacturing production in
• 1:12:38
  Speaker 1: the I s M was like, Wow, you really found
• 1:12:41
  Speaker 1: something really interesting there. Now I realized it's nonsense, you know,
• 1:12:45
  Speaker 1: And so what else are nonsensible indicators? Um? Well, I
• 1:12:51
  Speaker 1: think to me, the the I s M is the
• 1:12:53
  Speaker 1: one that I harp on the most because there's a
• 1:12:54
  Speaker 1: cottage industry of people that just drive their entire asset
• 1:12:58
  Speaker 1: allocation process off of it. Really shocking and there's nothing,
• 1:13:03
  Speaker 1: there's nothing those three purchasing managers that are surveyed by
• 1:13:06
  Speaker 1: I s M no about the world that you don't, right,
• 1:13:10
  Speaker 1: and so, um, I think that that's an indicator I
• 1:13:12
  Speaker 1: don't like, Um, I think you know, look what. To me,
• 1:13:16
  Speaker 1: in this business, it's about taking a holistic approach to data, right.
• 1:13:22
  Speaker 1: It's not about finding the one indicator, right, I mean, Oh,
• 1:13:26
  Speaker 1: look at this weekly leading index, it leads everything else. Well, no,
• 1:13:30
  Speaker 1: it's just an amalgam of like all these like financial
• 1:13:32
  Speaker 1: market variables. So why do I need that, you know?
• 1:13:34
  Speaker 1: I mean so, um, if it was that simple, there
• 1:13:38
  Speaker 1: wouldn't be you know, there is. I mean, you don't
• 1:13:40
  Speaker 1: have to believe like an efficient market theory to know
• 1:13:43
  Speaker 1: that if it was just one thing, there wouldn't be
• 1:13:45
  Speaker 1: all these people analyzing the same thing, right. So um,
• 1:13:48
  Speaker 1: it's it's just to me, it's about taking a holistic
• 1:13:51
  Speaker 1: approach to data, looking at all the indicators and also
• 1:13:55
  Speaker 1: remembering that what ultimately leads data is your narrative. You know,
• 1:13:59
  Speaker 1: people don't realize that, but if your narrative is right,
• 1:14:02
  Speaker 1: the leading indicators will lag your narrative. Do you see
• 1:14:05
  Speaker 1: what I mean? And I think that's to me, in
• 1:14:08
  Speaker 1: other words, contextualize the story so you know where it's
• 1:14:11
  Speaker 1: going to go exactly. To me, it's about the process, right,
• 1:14:14
  Speaker 1: I mean Why should I s M being below fifty now?
• 1:14:19
  Speaker 1: I mean I should be negative about things three months
• 1:14:22
  Speaker 1: from now. If all these other things I see happening,
• 1:14:24
  Speaker 1: like China reopening Europe or whatever. You can apply that
• 1:14:27
  Speaker 1: throughout all the different kinds of cycle. It's not the
• 1:14:30
  Speaker 1: data itself is not what's important. It's about getting your
• 1:14:34
  Speaker 1: thought process and your outlook correct, and then if you're
• 1:14:37
  Speaker 1: right about that, then the data will follow suit. Really fascinating.
• 1:14:41
  Speaker 1: Thank you, Neil for being so generous with your time.
• 1:14:44
  Speaker 1: We have been speaking with Renaissance Macro Research is Neil Datta,
• 1:14:48
  Speaker 1: who runs all of the economic research at the shop.
• 1:14:52
  Speaker 1: If you enjoy this conversation, we'll be sure and check
• 1:14:55
  Speaker 1: out any of our previous five hundred or so such
• 1:14:58
  Speaker 1: discussions that we you've had over the past eight years
• 1:15:02
  Speaker 1: nine years. You can find those on iTunes, Spotify, YouTube,
• 1:15:06
  Speaker 1: wherever you feed your podcast fix. Check out my daily
• 1:15:10
  Speaker 1: reads at Ridaltz dot com. Follow me on Twitter at
• 1:15:13
  Speaker 1: rit Halts. Follow all of the Bloomberg podcasts on Twitter
• 1:15:17
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• 1:15:21
  Speaker 1: thank the crack team that helps put these conversations together
• 1:15:24
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• 1:15:28
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• 1:15:32
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• 1:15:37
  Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.