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Moody's Analytics Chief Economist Mark Zandi on the US Economy · Masters in Business

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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Masters in
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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
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Speaker 2: This week on the podcast Wow. What a fascinating conversation
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Speaker 2: with a really interesting, intelligent guy. Mark Zandy has been
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Speaker 2: the chief economist of Moody's Analytics for twenty years. He
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Speaker 2: co founded a regional analytics shop in the nineties, coming
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Speaker 2: out of both Wharton and University of Pennsylvania, where he
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Speaker 2: got his undergraduate and graduate degrees in economics. He buys
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Speaker 2: economy dot com in the late nineties and builds out that.
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Speaker 2: Really a fascinating career, unique insight. You know, we live
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Speaker 2: in a highly polarized partisan world, whether it's the FED,
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Speaker 2: in flash, in labor, bls, the economy. I love speaking
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Speaker 2: to somebody who was an advisor to both the Mcking
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Speaker 2: campaign and the Obama White House. He just looks at
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Speaker 2: the world through a set of lenses that are data driven,
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Speaker 2: model driven and tries to provide the best analysis as
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Speaker 2: to what's going on, where and why. I thought this
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Speaker 2: conversation was great, and I think you will also with
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Speaker 2: no further ado. Moody Analytics Chief Economist Mark Zandy. Let's
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Speaker 2: just start with your background. You get a bachelor's from Wharton,
1:40
Speaker 2: a doctorate in economics from the University of Pennsylvania. What
1:44
Speaker 2: was the original career plan.
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Speaker 3: I had no career.
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Speaker 2: Plan, none, none, Never thought about going into markets economics,
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Speaker 2: like a PhD in economics. Were you thinking academia or
1:56
Speaker 2: I definitely.
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Speaker 3: Knew not academia. My father was professor at Penn. We
2:00
Speaker 3: all went to Penn because discounted tuition at that time,
2:04
Speaker 3: which is a long time you're going to tell me
2:05
Speaker 3: it was free. It was free, wow, tax free, Wow,
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Speaker 3: tax free? And you know I have four siblings. Wow.
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Speaker 3: In fact, he actually he was a pretty smart guy.
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Speaker 3: He bought a redstone at forty second in Spruce, you know,
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Speaker 3: just off campus, and we all lived in that in
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Speaker 3: that redstone.
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Speaker 2: Amazing.
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Speaker 3: Yeah, all right.
2:23
Speaker 2: You come out of college in grad school with a
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Speaker 2: deep background in economics. What inspired you to explore a
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Speaker 2: career in economics.
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Speaker 3: Well, my work was very empirical, and my thesis advisor
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Speaker 3: was the guy named Larry Klein. He was a novel laureate. Yes,
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Speaker 3: he got it as a result of all the work
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Speaker 3: he did building macro models us macro models, and I
2:46
Speaker 3: needed to make money when I was in school, so
2:48
Speaker 3: I work part time. His firm is called Wharton Econometrics.
2:51
Speaker 3: You know, after the Wharton School were called.
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Speaker 2: On a sec the school let him set up a
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Speaker 2: program called Wharton Economy at the company, a separate company
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Speaker 2: apart from the school, That's what I'm asking.
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Speaker 3: Yeah, yeah, I don't know. I'm sure there was some
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Speaker 3: kind of financial arrangement. He must have paid some kind
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Speaker 3: of royalty or something to that, but I'm not sure.
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Speaker 2: You know, but I don't think you could get away
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Speaker 2: with even paying royalties today. You couldn't set up Mit
3:14
Speaker 2: Economics or a Stanford Econometrics.
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Speaker 3: No you don't think so. Yeah.
3:18
Speaker 2: I mean, if you do certain research and you get
3:21
Speaker 2: a patent, they get a piece of it. But setting
3:24
Speaker 2: up like there is such a branding focus these days.
3:29
Speaker 2: I can't imagine a big school would let you do.
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Speaker 3: Do that unless you played a really big royal try soon.
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Speaker 3: But yeah, But anyway, so that was a firm, a business,
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Speaker 3: economic forecasting business, and so I learned the business as
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Speaker 3: a graduate student, you know, working there to earn money.
3:45
Speaker 3: And I also use their main at that time as
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Speaker 3: a mainframe, and everyone was on There was.
3:49
Speaker 2: No pc is it's still the punch cards.
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Speaker 3: Punch cards for portray. Yeah. Yeah, you wanted to change
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Speaker 3: the federal funds rate by twenty five BIPs. You punch
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Speaker 3: a card, you have a act of cards. You would
4:00
Speaker 3: take it down to some guy who put it into
4:03
Speaker 3: the main retake twelve hours and if you messed up,
4:06
Speaker 3: if you hit the wrong you know button, then you
4:09
Speaker 3: had to wait another twelve hours to get the answer. Well,
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Speaker 3: how how much was a quarter point increase in the
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Speaker 3: funds rate going to do damage to the economy? That
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Speaker 3: kind of thing.
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Speaker 2: What was what was your doctoral thesis on?
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Speaker 3: It was a regional economics. Uh, it was examining a
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Speaker 3: fancy word factor flow, so labor capital and the movement
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Speaker 3: between regions and the country. And that was the basis
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Speaker 3: for the firm I started in nineteen ninety called Regional
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Speaker 3: Financial Associates because at that time, so you.
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Speaker 2: Started your own firm right pretty much right out of school.
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Speaker 3: Let's try out of school.
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Speaker 2: Wow.
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Speaker 3: Yeah, with my brother and my best friend. My best
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Speaker 3: friend was also working he was in the graduate program
4:44
Speaker 3: at Penn and we were working at Wharton together. We
4:47
Speaker 3: could see there was a lot of problems, you know,
4:50
Speaker 3: with the way it was being run, and it was
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Speaker 3: mainframe oriented and PC was just coming out, so we
4:54
Speaker 3: were able to use the PC to do the things
4:56
Speaker 3: that we needed to do. I remember in grad school
4:59
Speaker 3: using this poke Macclassic in nineteen eighty eight. Mac really
5:03
Speaker 3: and the technology was just, oh look how advanced this was.
5:06
Speaker 3: Bearskins and stone knives, That's what it reminds. Well, we
5:09
Speaker 3: bought ibms at the time, So you launched this.
5:13
Speaker 2: When does economy dot com come along to regional economics
5:19
Speaker 2: almost a decade later, late nineties.
5:22
Speaker 3: Yeah, the internet boom really took off. What ninety eight,
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Speaker 3: ninety nine, two thousand.
5:26
Speaker 2: Yeah, like two years after the irrational of zuberant speech
5:30
Speaker 2: is when it really became irrationally ninety six ninety six,
5:34
Speaker 2: late ninety six Greenspan speech.
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Speaker 3: In fact, we bought the url economy dot com. This
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Speaker 3: guy from Quest, he was an executive at Request. Sure,
5:44
Speaker 3: of course, one of the baby bells went out of
5:46
Speaker 3: at and T a hitquarter in Denver, I believe, yeah, Colorado, Colorado, right,
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Speaker 3: and he made it. He squatted on all these names.
5:53
Speaker 3: In fact, when we were negotiating the price for that
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Speaker 3: buying Economy dot com, he was on a yacht somewhere
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Speaker 3: in the Pacific. It made so much money on the squad.
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Speaker 2: So what did you end up paying for Economy dot
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Speaker 2: Com at the time.
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Speaker 3: It's a lot of money. Two hundred fifty k Yeah.
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Speaker 2: That is a and you one hundred exit eventually.
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Speaker 3: Yeah, it certainly was a good investment, to.
6:13
Speaker 2: Say the very least. Yeah, I know your thesis advisor
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Speaker 2: was you mentioned Lawrence Klein and Nobel Laureate. Was he
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Speaker 2: an advisor to the firm when you were when you're
6:23
Speaker 2: first building that out? Uh?
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Speaker 3: No, I thought that he was older at that point. Uh,
6:27
Speaker 3: and he was. Actually we were competitor now right to Wharton.
6:31
Speaker 3: Oh what an econometric? Yeah, I don't thought it. I
6:33
Speaker 3: mean we weren't really you do her a bunch of
6:35
Speaker 3: guys right right, Yeah, and we got the Economy dot com.
6:38
Speaker 3: I'm making this up, but we might have had forty
6:40
Speaker 3: fifty employees something like that.
6:42
Speaker 2: Oh really, So, so what was it like building out
6:45
Speaker 2: what essentially became a dot com in the late nineties?
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Speaker 3: Oh it was a lot. It was so much fun.
6:51
Speaker 3: I mean I've been a startup, I've been a small
6:54
Speaker 3: business guy, and I have been part of now obviously
6:56
Speaker 3: part of the movie is a large multinational. So I've
6:58
Speaker 3: seen business from a lot of different angles. And I'll
7:00
Speaker 3: have to tell you maybe because I was just young.
7:02
Speaker 3: I mean, I loved being a startup. It was just
7:04
Speaker 3: it's a lot of fun, especially if it's working. Yeah,
7:07
Speaker 3: I can imagine. And we got lucky. You know, the
7:10
Speaker 3: interstate banking happened, so all these banks needed to think
7:12
Speaker 3: about their footprint outside of their state, so they needed
7:17
Speaker 3: the data and information that we were playing. So if
7:20
Speaker 3: I were a bank in Connecticut and I was thinking
7:23
Speaker 3: about moving into Massachusetts, I now needed to understand the
7:27
Speaker 3: Massachusetts economy and we would help. You know, Sewman Bank
7:30
Speaker 3: wasnt Connecticut Bank. That wasn't our first clients back.
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Speaker 2: In the day. So how you built this out in
7:37
Speaker 2: the late nineties. You survived at dot com implosion because
7:41
Speaker 2: although you were technically at dot com, you weren't a
7:44
Speaker 2: frivolous clicks and eyeballs sort of company. It was a
7:48
Speaker 2: real company with real clients and real revenue. Kind of
7:51
Speaker 2: set you apart from pets dot com to the world.
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Speaker 3: We were an economic forecasting for masquerading as a dot
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Speaker 3: com right because we you know, as at that time,
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Speaker 3: dot com your evaluations are a lot higher. And sure,
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Speaker 3: of course it was. Practically speaking, we set up economy
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Speaker 3: dot com, right, that was our When you came to
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Speaker 3: our site, you came to economy dot com. So it
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Speaker 3: was a way to advertise where you go to get
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Speaker 3: our information.
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Speaker 2: And today you go to economy dot com and it
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Speaker 2: forwarded you to Moody's.
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Speaker 3: It does.
8:20
Speaker 2: How did the relationship with Moodies come? About? Five six
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Speaker 2: years later?
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Speaker 3: The CEO of Moody's Analytics was this fellow Mark Almada,
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Speaker 3: great guy. He was a Philly, Philly guy, and he
8:32
Speaker 3: and I worked together at warn't Econometrics was Philly based
8:36
Speaker 3: because of Klein, and he was a data guy. He
8:39
Speaker 3: was in a cube next to me. I was in
8:42
Speaker 3: this young economists working on models and data and forecasting.
8:45
Speaker 3: He was a data person and so we knew each
8:48
Speaker 3: other quite well. And he went on to Moody's at
8:51
Speaker 3: that time was the rating agency and he did extraordinarily well.
8:55
Speaker 3: Became the CEO of Moody's Analytics when they formed the
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Speaker 3: Moody's Analytics and he just knocked on the door and said, hey,
9:02
Speaker 3: are you interested in selling? And the answer was no,
9:06
Speaker 3: because we had no idea what it was worth, just serendipity.
9:09
Speaker 3: Fitch knocked on the door at roughly the same time,
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Speaker 3: within a week or two. I don't I can't connect
9:14
Speaker 3: the dots. No, it's nothing like a bidding, Yeah, exactly.
9:18
Speaker 3: So we were able to get a price right, and
9:21
Speaker 3: I do remember him saying to me, Hey, Mark, what
9:24
Speaker 3: price would it take for us to end this this
9:27
Speaker 3: negotiation to this day, I gave. I gave him a price.
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Speaker 3: He said, he took it right away and I got.
9:33
Speaker 2: Two years too little. Well, if you google it, it
9:36
Speaker 2: says twenty seven million dollars. But I have no idea
9:38
Speaker 2: how I get that. Is everything that I find through
9:43
Speaker 2: AI and search, I always seems to have a little
9:45
Speaker 2: asterisk with it. You know, you don't know what's especially
9:48
Speaker 2: private stuff like that. So Moody's Analytics is a division
9:52
Speaker 2: of Moody's, the big rating company. It's it's a group within,
9:57
Speaker 2: is that right.
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Speaker 3: Yeah, it's there's Moody's, the rating agency, and then Moody's Analytics.
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Speaker 3: More recently they've been we've been moving together, but it's
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Speaker 3: still I'm still in the entitique Moody's Analytics.
10:10
Speaker 2: So what was it like going from a startup to
10:13
Speaker 2: a large multinational Entitalia.
10:15
Speaker 3: Was great because we were allowed to remain independent in
10:19
Speaker 3: every respect except for some of the back office kind
10:22
Speaker 3: of things that legal age.
10:24
Speaker 2: No one wants to do anyway.
10:25
Speaker 3: Yeah, sales, and that's the key reason why we sold
10:29
Speaker 3: was because we were mostly US and we were trying
10:31
Speaker 3: to go global and that's hard. It's very expensive. We
10:34
Speaker 3: set up an office in London and Sydney and it
10:36
Speaker 3: was difficult. And they have a giant client base with
10:39
Speaker 3: other everywhere clients all over the world.
10:41
Speaker 2: That has to be a huge benefit to a small startup.
10:46
Speaker 2: It allows you to really supersized.
10:48
Speaker 3: In a salesforce all over the world. Right, And you
10:50
Speaker 3: know Moody's respected institution, but overseas it's highly respected if
10:55
Speaker 3: you go into many emerging markets, right, rating debt sovereign
10:58
Speaker 3: debt is really really critical, and so when a Moody's
11:01
Speaker 3: or an SMP says something, it really does move markets.
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Speaker 3: And so it helped us raise our credibilities. We had
11:08
Speaker 3: no credibility overseas and this allowed us to gain some
11:11
Speaker 3: credibility right away.
11:13
Speaker 2: Speaking about gaining credibility, in two thousand and five, you
11:17
Speaker 2: wrote a piece where are the regulators. The runaway housing
11:21
Speaker 2: market needs tougher regulatory oversight. Very prescient analysis warning about, hey,
11:29
Speaker 2: you can't just give mortgages to people regardless of their
11:32
Speaker 2: ability to actually service that debt. What drove that analysis.
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Speaker 2: That was really the first time I became aware of
11:41
Speaker 2: you as an economist.
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Speaker 3: Yeah, I remember that piece. I'm a macro guy, but
11:45
Speaker 3: my area of expertise is housing and housing finance. I
11:49
Speaker 3: was watching the housing and mortgage finance markets very carefully
11:52
Speaker 3: at the time.
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Speaker 2: Which a lot of wool Street didn't really seem to
11:54
Speaker 2: be paying much attention to. No, No, my mom was
11:57
Speaker 2: a real estate agent. That's the only reason why I
11:59
Speaker 2: was paying attention to this space. And that's probably how
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Speaker 2: I found you because we were having regularly so interesting
12:07
Speaker 2: And it's a regional financial associates banks, regions, you know,
12:11
Speaker 2: obviously it's real estate and housing are kind of top
12:13
Speaker 2: of them, totally right. They write a lot of mortgages,
12:15
Speaker 2: they make heelock loans and other things against it, and
12:19
Speaker 2: they were losing market share to these unregulated non bank lenders,
12:24
Speaker 2: a private label securities market market.
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Speaker 3: And of course, and the regulators were my clients. So
12:29
Speaker 3: the FDI see for many, many years was my largest
12:33
Speaker 3: client by far and away. Wow. Yeah, So I you know,
12:36
Speaker 3: I was looking at this space from the prism of housing,
12:39
Speaker 3: housing finance and also from a regulatory perspective, and I
12:41
Speaker 3: could see this was, you know, problem.
12:43
Speaker 2: Something was totally totally off foot.
12:46
Speaker 3: I did have one, I've had. I had a number
12:48
Speaker 3: of periods of doubt in that and that lead up
12:50
Speaker 3: to the crisis. One was the FED under Greenspan asked
12:54
Speaker 3: me to come in and brief them on housing because
12:56
Speaker 3: I was a housing guy. I give this talk, uh,
13:00
Speaker 3: and it was pretty dark and at the end of
13:04
Speaker 3: it saying that we're gonna have a problem. I didn't
13:07
Speaker 3: think we're gonna have a problem to the degree we
13:09
Speaker 3: had the problem, but I knew there was a problem coming.
13:11
Speaker 3: That was the message of the talk. And when I finished,
13:14
Speaker 3: I didn't get a single question from one FED member,
13:16
Speaker 3: really not one.
13:17
Speaker 2: So there was this just a pro se discussion or silence.
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Speaker 3: I was totally confused by the whole thing. Even green
13:27
Speaker 3: there was guy ed Gramlik, who was of course remember
13:30
Speaker 3: him kind.
13:31
Speaker 2: Of He was very much so he was in the
13:34
Speaker 2: camp of, hey, you know, you have to be able
13:37
Speaker 2: to the history of finance is not based on the
13:42
Speaker 2: secure tire's ability to sell their product. It's based on
13:46
Speaker 2: the barrow's ability to service the loan. If you take
13:48
Speaker 2: that step out, you're asking for trouble.
13:51
Speaker 3: Yeah.
13:51
Speaker 2: So Gramlak very famously was the fly in the ointment
13:55
Speaker 2: and also very right passed away before everything blew up.
13:59
Speaker 3: Yeah that's right, that's but even he didn't say anything.
14:01
Speaker 3: So I walk out that meeting and I'm going, maybe
14:04
Speaker 3: I have this over wrong. So points in time I
14:08
Speaker 3: had my doubt, but it became clear.
14:10
Speaker 2: So so after the crisis in eight oh nine, or
14:15
Speaker 2: eventually post financial crisis, you become an informal policy advisor
14:20
Speaker 2: to the Obama administration. Tell us how that came about,
14:25
Speaker 2: outside non partisan economic advisor.
14:28
Speaker 3: Well, that was the time when the administration trying to
14:31
Speaker 3: figure out how do I respond? Obama administration just the
14:34
Speaker 3: crisis had occurred September eight, he was in office by
14:38
Speaker 3: January of nine. They used that period to try to
14:42
Speaker 3: figure out, how do I respond to this mess? What
14:45
Speaker 3: do I do? You know, both from becoming a fiscal
14:47
Speaker 3: policy perspective, from a regulatory perspective, from all angles, and
14:51
Speaker 3: I had done a lot of work on estimating so
14:54
Speaker 3: called multipliers of different policies. So if you do this,
14:57
Speaker 3: you know, what is the impact on the economy. If
14:59
Speaker 3: you do that, what is the impact on the economy.
15:02
Speaker 3: Now that's widespread, that kind of work. Lots of people
15:05
Speaker 3: do that work, do it much better than I do.
15:07
Speaker 3: But at the time, there were just really wasn't anyone
15:10
Speaker 3: looking at it that way and trying to estimate those multipliers.
15:13
Speaker 3: So they used those multipliers and trying to design the
15:17
Speaker 3: response the stimulus so called stimulus package that they put
15:20
Speaker 3: in place in January twenty in two.
15:23
Speaker 2: Thousand, arguably knowing near large enough to drive a recovery
15:28
Speaker 2: in the economy quickly.
15:30
Speaker 3: Well, yeah, and I think that's the lesson that the
15:33
Speaker 3: Biden administration took coming out of the pandemic.
15:35
Speaker 2: Right, even the Trump administration, the first CARES Act, the
15:38
Speaker 2: first two CARES Acts were under President Trump.
15:40
Speaker 3: Right, Biden gets into office March of twenty twenty one,
15:44
Speaker 3: twenty twenty one, he passes the American Recovery Act two
15:48
Speaker 3: trillion dollars, and you know, obviously it was very large.
15:51
Speaker 3: A lot of criticism, mean, Larry Summers was all over it,
15:53
Speaker 3: thinking it's too large. But I think the Biden administration
15:57
Speaker 3: was looking back at the Bomb administration and saying, hey, look,
16:00
Speaker 3: the bombministration was we will come up with this package
16:02
Speaker 3: and if we need more, we'll get it. They never
16:04
Speaker 3: got it. So the economy struggled for ten years after
16:07
Speaker 3: the financial crisis, and so the bidendministration saw that and said, hey,
16:10
Speaker 3: we probably go for a bigger bite of the apple
16:12
Speaker 3: because we may not get another bite, and therefore let's
16:15
Speaker 3: go for a bigger package, right, And.
16:16
Speaker 2: That was over the next ten years, and that came
16:19
Speaker 2: into the environment where the first Cares Act under President
16:24
Speaker 2: Trump was the largest fiscal stimulus since World War Two,
16:29
Speaker 2: at least as a percentage of GDP. Then there was
16:32
Speaker 2: the Cares Act two under Trump, and then a whole bunch.
16:35
Speaker 3: Of I think got Cares Act three, and then you
16:37
Speaker 3: come in with Biden.
16:37
Speaker 2: So Tears Act three was Biden, which was short term
16:41
Speaker 2: and drop. But most of the other legislation under Biden
16:45
Speaker 2: was was over ten the Infrastructure Bill, the Inflation Reduction Act,
16:50
Speaker 2: those are all ten year legislation. So it feels very
16:54
Speaker 2: much like the twenty tens was the era of monetary stimulus,
16:59
Speaker 2: and the twenty twenties seems to be the era of
17:01
Speaker 2: fiscal sit No.
17:02
Speaker 3: I hadn't thought of it that way, Barry, but that's
17:04
Speaker 3: a really good way of putting it. Yeah, exactly. I
17:06
Speaker 3: mean the Fed had to work really hard back in
17:08
Speaker 3: the twenty tens because they weren't getting any support from
17:10
Speaker 3: fiscal policy. That was government shut downs, that's right, treasury
17:14
Speaker 3: debt limit battles. Fiscal policy was contractionary, and so the
17:17
Speaker 3: Fed had to step in and provide a lot of support. Right.
17:20
Speaker 2: Congress did not. You know, they seem to have forgotten
17:23
Speaker 2: everything we had learned from Keynes, and they remembered it
17:28
Speaker 2: in twenty twenty. It's kind of amazing because I recall
17:32
Speaker 2: being at a dinner with a number of people, including
17:36
Speaker 2: some Nobel laureates in economics, and when I said, oh,
17:40
Speaker 2: I think they're trying to cause a recession, Congress, they are.
17:43
Speaker 2: They know how this works. They're just, you know, they
17:46
Speaker 2: they want to submarine this administration. It was very much
17:51
Speaker 2: poo pooed by the people there, and then eventually it's like, oh,
17:55
Speaker 2: this has become much more partisan. And I wasn't making
17:58
Speaker 2: a partisan argument. It was just an observation, Hey, we
18:01
Speaker 2: know how this works. We've done giant fiscal stimulus, whether
18:04
Speaker 2: it's tax cuts or spending. We know what the impact
18:07
Speaker 2: is refusing to do it. I can't come up with
18:10
Speaker 2: a better explanation other than we want to tank the ecounomy.
18:13
Speaker 3: Well, they get this guy out. The explanation of face
18:15
Speaker 3: value was, of course, step is just in debt, right,
18:18
Speaker 3: we want to rein that in.
18:19
Speaker 2: Right, except for giant tax cuts and big spending. Other
18:23
Speaker 2: than that, you know, it's everybody is a deficit hawk
18:27
Speaker 2: when they don't control the White House, and it doesn't
18:31
Speaker 2: matter if you're Republican or a Democrat, your guy loses.
18:34
Speaker 2: Suddenly the debt matters. And it's been going on my
18:36
Speaker 2: entire adult life. It's so transparently political.
18:41
Speaker 3: Or where we are on the deficit and debt.
18:43
Speaker 2: Sure, so I want to ask about your relationship with
18:46
Speaker 2: John McCain because I find this both fascinating and hilarious.
18:51
Speaker 3: Yeah, well, perhaps it equally is interesting. My friend Kevin Hassett,
18:57
Speaker 3: uh huh, asked me to come help out the McCain campaign.
19:00
Speaker 3: You know now, Kevin is the head of the National
19:02
Speaker 3: Economic Council and Donald Trump. He was at AI, the
19:04
Speaker 3: American Enterprise Institute at the time.
19:06
Speaker 2: And name consistently floated for potential figure roles.
19:11
Speaker 3: Yeah, and this is well before Obama came on the scene.
19:14
Speaker 3: I didn't know prison Obama at all, and I knew
19:18
Speaker 3: McCain and I admired him mostly around foreign policy, that's
19:23
Speaker 3: obviously where his expertise was. But I also felt like
19:27
Speaker 3: they needed real help. The campaign needed real help on economics,
19:31
Speaker 3: and I was the guy who took all the incoming
19:35
Speaker 3: information about the economy and translating that into what does
19:37
Speaker 3: it mean for the economic activity and what how should
19:40
Speaker 3: we the campaign respond to that. Well, I wasn't paid,
19:42
Speaker 3: I wasn't officially part of the campaign, but that's the
19:45
Speaker 3: kind of support I provided. But you know, obviously when
19:49
Speaker 3: the crisis hit, Senator McCain, that wasn't his strong suit.
19:53
Speaker 3: Right again, he was foreign policy, he wasn't economics. He
19:56
Speaker 3: kind of struggled across the finish line and never really great.
20:00
Speaker 3: I can recall briefing the campaign saying, we got a
20:03
Speaker 3: real problem here, this is a this is gonna be
20:05
Speaker 3: a mess, And there was complete kind of another's not
20:09
Speaker 3: being will be okay, And so there was a little
20:11
Speaker 3: bit of tension at the end of that campaign.
20:13
Speaker 2: It feels like he just encountered some unfortunate timing because
20:19
Speaker 2: between the war in Iraq and the crisis, I think
20:24
Speaker 2: the Bush administration had made any mainstream Republican unelectable in
20:29
Speaker 2: two thousand and eight, and the Democrats put up a
20:33
Speaker 2: charismatic guy. I don't think McCain would have been anything
20:37
Speaker 2: but a really good president and in any other year,
20:41
Speaker 2: a really strong candidate. Kind of shocking the way this
20:44
Speaker 2: plays out. But you're often painted as this, Oh, that's
20:48
Speaker 2: Andy is a lib like he was an advisor to
20:52
Speaker 2: both McCain and Obama. That's more of someone trying to
20:55
Speaker 2: serve as country, not a partisan.
20:58
Speaker 3: I have always provided advice when asked from both sides
21:01
Speaker 3: of the aisle, so you know, sometimes more from the
21:04
Speaker 3: D side, at times more from the R side, but
21:07
Speaker 3: I've done both. Clearly, the political center of gravity has
21:11
Speaker 3: shifted here and McCain, even McCain, I'm not sure where
21:14
Speaker 3: that kind of lines up in the political spectrum. But yeah,
21:17
Speaker 3: I've always been nonpartisan. It tried my very best to
21:21
Speaker 3: be non person and even now it's tough to talk
21:24
Speaker 3: about the economy as an economist in the given all
21:27
Speaker 3: of the things that are going on with economic policy,
21:29
Speaker 3: tariffs and immigration and doge. Generally, when I address the group,
21:33
Speaker 3: I start saying, you know, I know I'm going to
21:35
Speaker 3: sound political. I don't mean to be political. I'm doing
21:38
Speaker 3: my very best not to be political, so please forgive me.
21:41
Speaker 3: And that generally people take that in and you know,
21:43
Speaker 3: forgive me if I overstep in some way in their mind.
21:46
Speaker 2: It's tough to be an honest criticizer of policy without people.
21:52
Speaker 2: It's kind of a lazy accusation to say, Jacques ces
21:56
Speaker 2: this is partisan. Well, no, we could. We talk about tariffs.
22:02
Speaker 2: We tried them in nineteen thirty, didn't work out great.
22:04
Speaker 2: Why do we think it's gonna work out well this time?
22:07
Speaker 2: That's not partisan, that's just that's the factual situation.
22:11
Speaker 3: Right.
22:11
Speaker 2: If you want to make an argument for why a
22:14
Speaker 2: consumption tax on consumers of imported goods is an efficient,
22:20
Speaker 2: effective way to either lower the deficit or raise capital
22:24
Speaker 2: or realign global trade, have at it. But understand there's
22:28
Speaker 2: a body of history that informs us what happened the
22:32
Speaker 2: last time.
22:33
Speaker 3: Totally. It's so interesting because on almost every issue economists debate,
22:37
Speaker 3: and the debate is reasonable, right.
22:39
Speaker 2: Economists, reasonable people can disagree.
22:42
Speaker 3: Yeah, And economists think about the second, third, fourth, fifth
22:45
Speaker 3: order effects of these things and how they platter of time.
22:48
Speaker 3: So it's very not at all unusual to have these knockout,
22:52
Speaker 3: dragged down fights between economists over issues. But on tariffs,
22:57
Speaker 3: broad based tariffs, it's not much of a right.
23:01
Speaker 2: Is a pretty big consensus. Hey, the world is in
23:03
Speaker 2: flat we chink Saturday.
23:05
Speaker 3: So I feel like I'm on pretty sound ground when
23:08
Speaker 3: I say I'm not a fan of these broad based turves.
23:12
Speaker 2: The phrase that always comes up with me on these
23:15
Speaker 2: sort of things, these accusations of partisanship, is the Overton window.
23:20
Speaker 2: You could be middle of the road, or you know,
23:22
Speaker 2: maybe center left or center right, but when the entire
23:25
Speaker 2: framework shifts far to one way or another, it suddenly
23:29
Speaker 2: looks like you're an outlier, even though you were kind
23:32
Speaker 2: of centrist but kind of how I feel right, the
23:35
Speaker 2: wings have expanded, and suddenly what seems like it's pretty
23:40
Speaker 2: middle of the road isn't any any longer. Coming up,
23:44
Speaker 2: we continue our conversation with Mark Zandy, chief economist of
23:48
Speaker 2: Moody's Analytics, discussing what the firm is focusing on in
23:53
Speaker 2: the twenty twenties I'm Buried Richults. You're listening to Masters
23:57
Speaker 2: in Business on Bloomberg Radio. I'm Barry Ridults. You're listening
24:08
Speaker 2: to Masters in Business on Bloomberg Radio. My extra special
24:11
Speaker 2: guest this week was Mark Zandy. He's the chief economist
24:14
Speaker 2: of Moody's Analytics. Previously, he co founded economy dot com
24:19
Speaker 2: and hosts the Inside Economics podcast.
24:23
Speaker 3: I bet you say that to all the economists.
24:24
Speaker 2: Everybody is my extra special guest. I get grief about
24:27
Speaker 2: it because once I painted myself into that corner. Hey,
24:32
Speaker 2: my ordinary guest is this bomb. Let's talk about your
24:36
Speaker 2: Moody's experience. We talked earlier about, you know, your warnings
24:41
Speaker 2: on housing and home financing and what ended up happening
24:45
Speaker 2: with subprime securitization. Moody's was one of the biggest rating agencies.
24:52
Speaker 2: I criticized them in Bailout Nation. Tell us what it
24:56
Speaker 2: was like when you join the firm and O five
24:59
Speaker 2: in you're wagging a finger about these sort of things.
25:02
Speaker 2: Did you get any sort of pushback? What what was
25:04
Speaker 2: it like stepping into a firm that indirectly was a
25:10
Speaker 2: focus of some of your analytical critiques.
25:12
Speaker 3: Yeah, I got to push back.
25:13
Speaker 2: You did I did.
25:14
Speaker 3: Yeah, I mean I wrote a paper on the subprime
25:18
Speaker 3: mortgage space and did everything but say, you know, these
25:21
Speaker 3: securities should be downgraded, house price declines, credit risk defaults, foreclosure.
25:27
Speaker 3: These are the losses. But I didn't take it with
25:29
Speaker 3: the next step and say, okay, what does this mean
25:31
Speaker 3: for ratings? But I wrote that paper and it went
25:34
Speaker 3: to the CEO, a great guy in the CEO's.
25:38
Speaker 2: CEO of analytics, or the CEO of Moody's Moodies full
25:41
Speaker 2: and full Moodies, right, and.
25:43
Speaker 3: This, of course I just had sold my company to them,
25:45
Speaker 3: so this is all brand new. He didn't who is
25:48
Speaker 3: this guy? What's what's he doing?
25:51
Speaker 2: Sandy, Andy, that's the back of the alphabet. We never
25:53
Speaker 2: get to this stuff.
25:55
Speaker 3: And he goes, why is he talking about subprime mortgage?
25:57
Speaker 3: What does that have to do about the economy? And
25:59
Speaker 3: at the time that was a reasonable question. The best
26:02
Speaker 3: thing that ever happened. BERNANKI gave a speech called contained
26:05
Speaker 3: subprime Mortgage, right, and remembering that speech and he said,
26:09
Speaker 3: don't worry, this is not a problem. But because he
26:12
Speaker 3: wrote that speech, I could gave you. I said, look,
26:15
Speaker 3: this is why I'm talking about it. Right.
26:17
Speaker 2: The head of the FED is talking about it. What
26:21
Speaker 2: was he vice chair or just a governor back then,
26:23
Speaker 2: or was that as chairman?
26:24
Speaker 3: He was chair? I think at the time he was,
26:25
Speaker 3: he was definitely chair. To the CEO's credit, he said, okay,
26:30
Speaker 3: you know, you publish it and it's the best thing
26:32
Speaker 3: that ever happened. Well, one of the things best things
26:35
Speaker 3: that happened to mood is because when the financial inquiry commissioned,
26:38
Speaker 3: remember the Finish f C.
26:39
Speaker 2: I sa absolutely they and that I have that book.
26:42
Speaker 2: It's like this thick sitting on a show.
26:44
Speaker 3: Oh yeah, yeah, yeah, I was. I was testified. I
26:47
Speaker 3: was the first panel panels, and of course the CEO
26:52
Speaker 3: was a later panel with Warren Buffett. Warren Buffett was
26:55
Speaker 3: the is a shareholder in movies. I think he still
26:58
Speaker 3: is a big shareholder. The law makers were questioning them,
27:01
Speaker 3: and the CEO could say, hey, look here's here's a study.
27:06
Speaker 2: Can I tell you something a little self awareness?
27:10
Speaker 3: So that yeah, I've been there for twenty years. I
27:11
Speaker 3: love Moodies. But that really helped a lot, right in
27:16
Speaker 3: every respect. That helped my credibility, helped the companies, yeah, help.
27:20
Speaker 3: The companies established a set of ground rules that I'm
27:24
Speaker 3: able to write about, think about talk about anything that
27:29
Speaker 3: I think is important about the economy. All that was
27:31
Speaker 3: established in that point now that that's getting tested at
27:34
Speaker 3: different points in time as we move along here. But
27:37
Speaker 3: and we're in a trying time now. But that was very,
27:39
Speaker 3: very important to my successful stay at Moodies for twenty years.
27:43
Speaker 2: I wish I could remember who wrote a criticism in
27:47
Speaker 2: response to the Bernanke speech about subprime, because the line
27:53
Speaker 2: was subprime is contained and the response it could have
27:56
Speaker 2: been Allen Abelson and Barons, it could have been James Grant,
28:00
Speaker 2: could have been Josh rosin Atrailing, but it was Yes,
28:03
Speaker 2: subprime is contained to planet Earth. The rest of the
28:07
Speaker 2: Solar System is safe. And it was one of those
28:09
Speaker 2: lines where damn, I wish I wrote that I might
28:13
Speaker 2: have been able Sin or Grant.
28:15
Speaker 3: But it sounds like a Jim Grant, right, it very
28:17
Speaker 3: much does.
28:18
Speaker 2: It's sort of dry.
28:19
Speaker 3: Still writing, I think, so, yeah, you know, we'll kind
28:22
Speaker 3: of lost track.
28:23
Speaker 2: Yeah, it happens, especially in this era of sub stack,
28:26
Speaker 2: where right your inbox is just overflowed with kind with stuff.
28:31
Speaker 2: So you got some pushback, but they cleared it. I
28:35
Speaker 2: got to ask, what was your experience. Like at Moody's
28:38
Speaker 2: during the Great Financial Crisis, it had to be twenty
28:41
Speaker 2: four to seven work plus terrifying everything.
28:46
Speaker 3: Oh, it was an amazing scary I can remember a
28:51
Speaker 3: few scary, real scary moments in my mind. You know,
28:54
Speaker 3: when I got a call from a CEO of a
28:58
Speaker 3: major retailer saying that, you know, if we don't do something,
29:01
Speaker 3: he's gonna not be able to make payroll, you know,
29:04
Speaker 3: on and I'm saying, I'm thinking to myself, he's telling
29:06
Speaker 3: me this, we got a real problem.
29:09
Speaker 2: Well he wants you to tell Yeah.
29:11
Speaker 3: That's what it wants exactly what it was. That was
29:13
Speaker 3: exactly what it was, didn't the.
29:15
Speaker 2: Bush administration I remember, was Hank Paulsen or BERNANKI have
29:20
Speaker 2: conversations maybe it was the CEO of Ford or GM. Hey,
29:25
Speaker 2: we have money, but our credit facility is frozen. We
29:28
Speaker 2: can't get our money to make payroll.
29:30
Speaker 3: Right. Well, there was so many things going on. Remember
29:32
Speaker 3: this commercial paper market was had frozen and yeah, completely frozen,
29:36
Speaker 3: and of course that's key to making payroll for a
29:39
Speaker 3: lot of these companies.
29:40
Speaker 2: I have a buddy who was on a derivatives trading
29:43
Speaker 2: desk and he always pushes back when I use the
29:46
Speaker 2: word frozen. He's like, hey, I don't know what you're
29:49
Speaker 2: talking about. We were trading billions of dollars a day
29:52
Speaker 2: in paper. It was just discounted thirty forty, so there
29:56
Speaker 2: was liquidity, but there was a haircut involved well, and also.
29:59
Speaker 3: Just find out was it thirty or was it fifty
30:02
Speaker 3: or was it seventy?
30:02
Speaker 2: You don't know.
30:03
Speaker 3: Yeah, you don't know.
30:04
Speaker 2: You don't know. That. That led to the line there's
30:07
Speaker 2: no such thing as toxic paper, only toxic price.
30:10
Speaker 3: There you go.
30:11
Speaker 2: So yeah, absolutely, so that experience had to be just
30:15
Speaker 2: mind blowing.
30:16
Speaker 3: Well also from coming just a purely academic perspective for
30:19
Speaker 3: an economist, I mean, this was just an incredible time.
30:23
Speaker 3: One once every century you see something like this, and
30:27
Speaker 3: there's so much that you're learning while you're doing. And
30:31
Speaker 3: it was not only just economics, it was also political economy.
30:34
Speaker 3: You know, how what should lawmakers do and how should
30:38
Speaker 3: they do it? And all the moving parts there. So
30:42
Speaker 3: it was a very amazing time. And that's when I
30:46
Speaker 3: wrote that first book. Was it's not a great book, Barry,
30:49
Speaker 3: and there is. I really did write a chapter, chapter
30:53
Speaker 3: seven on the rating agencies but I did not put
30:55
Speaker 3: it in because I was part of the rating agency
30:56
Speaker 3: and no one would believe me. Anyway.
30:58
Speaker 2: Now you've been there twenty years. The financial crisis is
31:03
Speaker 2: more than fifteen years in the rear window. Tell us
31:07
Speaker 2: a little bit about what Moody's Analytics is doing here
31:11
Speaker 2: and now.
31:13
Speaker 3: We're very simple business. My part of Moody's is a
31:15
Speaker 3: very simple business. We produce economic forecasts in scenarios.
31:20
Speaker 2: Yeah, but that's not really a simple thing to do.
31:23
Speaker 2: There's a lot of inputs and a lot of moving.
31:25
Speaker 3: Parts there is, But the actual business itself is very simple.
31:32
Speaker 3: And one of the things that has been kind of
31:35
Speaker 3: a tailwind to our work has been the regulatory environment.
31:39
Speaker 3: Right the financial intitutions all over the globe need to
31:42
Speaker 3: do stress tests, kept for capital planning. It's even now
31:47
Speaker 3: embedded in the Loan Loss provisioning of CECIL here in
31:51
Speaker 3: the US as an accounting framework that requires forward looking projections,
31:56
Speaker 3: IFRS nine overseas, climate stress testing, all those things require
32:02
Speaker 3: a very disciplined, comprehensive approach to economic forecasting, and so
32:07
Speaker 3: that's really been key to the key to the business
32:10
Speaker 3: here over the last ten fifteen years.
32:12
Speaker 2: So that's kind of interesting your clients. Are they necessarily
32:16
Speaker 2: Wall Street investing firms? Are they government institutions or non
32:22
Speaker 2: governmental agencies?
32:24
Speaker 3: Above above?
32:25
Speaker 2: When when I think of climate stress testing, I just
32:29
Speaker 2: was involved in the silly debate about climate change, and
32:33
Speaker 2: my answer is, hey, my opinion is relevant. Go talk
32:37
Speaker 2: to an insurer if climate changes as a hoax. Great point,
32:41
Speaker 2: and what are your experiences doing climate stress tests for you?
32:46
Speaker 2: Look how hard it is to get insurance in places
32:48
Speaker 2: like Florida. Like how significant is something like that to
32:52
Speaker 2: the sort of research you would sell to a private
32:56
Speaker 2: actity like insurance?
32:57
Speaker 3: It's critical. So house prices go look at house prices
33:01
Speaker 3: in Florida. We're talking about the West coast of Florida.
33:04
Speaker 3: They're falling, and they're falling because homeowner's insurance costs are
33:08
Speaker 3: rising because of the cost of hurricanes and other storm damage.
33:14
Speaker 3: So the insurers take that all in they raise homeowners
33:17
Speaker 3: insurance and that depresses demand and price, and of course
33:20
Speaker 3: that has all kinds of implications for mortgage credit risk
33:22
Speaker 3: if you're an mortgage insure, if you're in the mortgage
33:25
Speaker 3: business any kind of respect. So that's a great example
33:29
Speaker 3: of where you know, the kind of economic forecasting is
33:33
Speaker 3: really critical to what's going on in real life, in
33:36
Speaker 3: particular with the climate. It's real, it's happening, there's damage,
33:40
Speaker 3: and insurers are trying to figure that out, and they're
33:42
Speaker 3: not building that into their premiums, and it's having a
33:45
Speaker 3: real impact. Right now, it's more concentrated in places like
33:50
Speaker 3: Florida and Texas and California, but it's going to become
33:53
Speaker 3: more of a problem in other parts of the country,
33:55
Speaker 3: you know, pretty quickly.
33:56
Speaker 2: Huh to say the very least. We've seen fires in California,
34:01
Speaker 2: We've seen flooding in the mid Atlantic states.
34:04
Speaker 3: Tell me get there's a good factoid for you, or
34:08
Speaker 3: I'll ask you. I ask you guess which state has
34:11
Speaker 3: the highest home owners insurance costs in the country.
34:13
Speaker 2: So the two that come to mind immediately of Florida
34:17
Speaker 2: and California. But the question makes me think it wonder,
34:21
Speaker 2: are we talking about places like Texas or the.
34:25
Speaker 3: Carolinas, Nebraska?
34:27
Speaker 2: Nobrat because the tornadoes.
34:29
Speaker 3: Well, yeah, and convection convective storms, the the the the
34:34
Speaker 3: big thunderstorms that come along and they drop a lot
34:37
Speaker 3: of that. Hell the hell does tremendous damage.
34:40
Speaker 2: Yeah, yeah, you know, we just had a mild storm
34:44
Speaker 2: and this little brand smashes the windshield of the truck
34:48
Speaker 2: and I'm waiting three weeks to replace it. And when
34:52
Speaker 2: I ask the we have glass coverage, and I asked
34:54
Speaker 2: the insure about this, They're like, you have no idea
34:57
Speaker 2: how backed up everything is. And they're a delays in
35:00
Speaker 2: getting dumb things like windshields. So all that stuff, plus
35:06
Speaker 2: all the pandemic shortage of automobiles and things like that,
35:10
Speaker 2: that's driven automobile insurance up. I never would have guessed Nebraska.
35:15
Speaker 3: That's an amazing isn't that interesting? And and and also.
35:17
Speaker 2: Who's number two or three? I'm curious who's right behind them?
35:20
Speaker 3: Like we're up there, they're up. They're definitely top ten. Yeah,
35:24
Speaker 3: top ten. The state that had the lowest, and this
35:27
Speaker 3: is I'm sure going to change when we get more
35:28
Speaker 3: up to dated is Hawaii. But well you just had
35:31
Speaker 3: the fires, right fire, so that's going to change. But
35:34
Speaker 3: that that had been the case. But the other thing
35:37
Speaker 3: is overseas climate is a real issue. Just go to Indonesia.
35:41
Speaker 3: The Central Bank is you know, a client, and they
35:45
Speaker 3: they're doing a lot of climate assessment because Jakarta is
35:49
Speaker 3: increasingly underwater, right, So.
35:51
Speaker 2: Literally not you don't mean negative cash flow, you mean.
35:55
Speaker 3: Literally inner seawater is sea levels rising and there's there's
35:59
Speaker 3: there's doing real damage and so you have to consider that.
36:01
Speaker 3: So here in the US, it's an issue overseas is
36:04
Speaker 3: becoming in some parts of the world existential, you know.
36:08
Speaker 2: The I'm trying to remember if this was Wired or
36:11
Speaker 2: the Atlantic, But there was a big piece a year
36:13
Speaker 2: or two ago about Miami and the flooding risk from Miami.
36:18
Speaker 2: And this is very surprising. It's not the seas coming
36:23
Speaker 2: over the land. It's that so much of South Florida
36:28
Speaker 2: is built on the sort of limestone base which is
36:31
Speaker 2: very poorous to water. And so the flooding is not
36:35
Speaker 2: storm surging over the coastline, it's water bubbling up from right.
36:41
Speaker 2: It's like a crazy I never you know, there's so
36:44
Speaker 2: many random factors that if it's not your space, Wow,
36:48
Speaker 2: Like I never would have guessed Nebraska and I never
36:51
Speaker 2: would have guessed southern Florida.
36:53
Speaker 3: The sinkholes, right, that's why the sinkoles are real problem
36:55
Speaker 3: because where in Florida, no kid, Yeah, because the bubbling
36:58
Speaker 3: up it undermines the ground.
37:02
Speaker 2: That's that's unbelievable. Coming up, we continue our conversation with
37:06
Speaker 2: Mark Zandi, chief economist at Moody's, discussing the state of
37:11
Speaker 2: the economy today. I'm Barry Hults. You're listening to Masters
37:15
Speaker 2: Business on Bloomberg Radio. I'm Barry Ridults. You're listening to
37:28
Speaker 2: Masters in Business on Bloomberg Radio. My better than average
37:33
Speaker 2: guests this week is Mark Sandy. He's a chief economist
37:37
Speaker 2: of Moody's and hosts it. Hosts My Extra Special Guests
37:42
Speaker 2: and called me out on it. So you know Cone
37:45
Speaker 2: O'Brien's podcast. He makes everybody say their name, and I
37:52
Speaker 2: feel blank to be Conan O'Brien's friend, and it's kind
37:57
Speaker 2: of a funny throw it to the guests.
37:59
Speaker 3: To fill that in.
38:01
Speaker 2: And I forgot her name. She was on Shrinking Jessica
38:04
Speaker 2: and former Daily Show. She said, I feel pressured to
38:07
Speaker 2: say anything about being cornered, so I kind of painted
38:11
Speaker 2: myself into the corner. Maybe I'm going to have it,
38:14
Speaker 2: get a great job getting out of it. Maybe the
38:16
Speaker 2: guests say, what sort of a guest do you this week?
38:20
Speaker 2: So let's talk about the state of the US economy today.
38:24
Speaker 2: How do you assess where we are what indicators are
38:28
Speaker 2: most concerning to you, and then we'll drill down more specifically.
38:33
Speaker 3: The economy struggling. I think it's on the precipice of recession.
38:37
Speaker 2: Precipice of recession. Yeah, what does that mean? Does that
38:40
Speaker 2: mean fifty to fifty chance this year? Because we've had
38:45
Speaker 2: economists forecasting recession pretty much since twenty twenty two.
38:48
Speaker 3: To me, me, I haven't been.
38:51
Speaker 2: So this is a change. You're now starting to get
38:53
Speaker 2: more cautious as nervous I've been, and you've been robust.
38:57
Speaker 2: You've seen this as a robust economy the past few
38:59
Speaker 2: years I have. So the switch is significant. It is
39:05
Speaker 2: so what what is driving?
39:07
Speaker 3: I have to be humble because what ails the economy
39:10
Speaker 3: is pretty obvious. It's economic policy, and it can change quickly. Therefore,
39:15
Speaker 3: you have to be humble here because policy can change
39:19
Speaker 3: and we may not the economy may find its footing
39:23
Speaker 3: as a resultantly avoid recession. So there's a lot of
39:26
Speaker 3: I hate using the word, but it's the only word
39:27
Speaker 3: I can think of. It's uncertainty. I mean there is
39:29
Speaker 3: a lot of that in economic pecast.
39:31
Speaker 2: I steer clear of the U word. And and what
39:34
Speaker 2: do you say, lack of clarity like that, because I
39:38
Speaker 2: think it's I think it's not as pregnant as I
39:41
Speaker 2: like that. So lack of pity, but no doubt about that.
39:44
Speaker 2: We've seen CFOs talk about withholding capex spending and even
39:49
Speaker 2: families postponing trips to Disneylands, and the.
39:54
Speaker 3: Data say it so GDP growth the value of all
39:56
Speaker 3: the things we produce that was barely one percent in
39:59
Speaker 3: the first half of the year. Consumer spending has gone
40:02
Speaker 3: nowhere all year long. Manufacturings in recession, constructions in recession.
40:07
Speaker 3: Transportation distribution is in recession.
40:09
Speaker 2: Not You're not saying this is growth rate is slowing.
40:13
Speaker 2: You're saying this is in the red, in the red.
40:16
Speaker 2: Manufacturing construction. Why is construction in the red. There's such
40:20
Speaker 2: a demand for housing.
40:22
Speaker 3: Home building is weakening very rapidly.
40:25
Speaker 2: Really is that a function of high rates and mortgages
40:29
Speaker 2: or is that a function of, Hey, we can't find
40:31
Speaker 2: people to build these houses, to say nothing of we're
40:34
Speaker 2: going to home depot and deporting the guys looking for work.
40:37
Speaker 3: It's affordability. People can't afford the news.
40:38
Speaker 2: That's all it is.
40:40
Speaker 3: And the builders have done an admirable job trying with incentives,
40:44
Speaker 3: interest rate buydowns to keep the market going and maintaining
40:47
Speaker 3: construction levels. But that's over that. They're not able to.
40:50
Speaker 2: Do it, no buying down.
40:53
Speaker 3: So now we're seeing single family home building come down
40:57
Speaker 3: for the first time. Multi family has been coming down
40:59
Speaker 3: for for at least a year, right because it got overbuilt.
41:02
Speaker 3: All these luxury towers going up in New York.
41:04
Speaker 2: And tom Beach.
41:05
Speaker 3: Vacancy rates are too high, rents are too weak. Uh.
41:09
Speaker 3: The commercial uh, non residential site is also very weak.
41:13
Speaker 3: The only strength is data centers. Really yeah, and that
41:16
Speaker 3: that even with that, if you look at overall construction spending,
41:20
Speaker 3: it's like over was it two trillion dollars? It's declining.
41:22
Speaker 2: So I was on the impression that medical facilities, warehouses,
41:28
Speaker 2: things like that were still fairly robust. You're telling me
41:31
Speaker 2: that's not a.
41:34
Speaker 3: Yeah, yeah there, you know. Healthcare is fine. Uh, data centers, booming,
41:40
Speaker 3: offices are up way down. Multi families down. Residential uh,
41:43
Speaker 3: single families way down. So you add it all up,
41:46
Speaker 3: and now public construction is starting to roll over, right
41:48
Speaker 3: because you had that big lift because of the infrastructure
41:51
Speaker 3: legislation that was passed a few years ago.
41:53
Speaker 2: Still, but it's still on some of it is still on.
41:55
Speaker 3: High, but you know that the it's now rolling over.
41:58
Speaker 3: It's a high level of spending, but you've now asked
42:00
Speaker 3: the peak and spending it is not starting to come in,
42:02
Speaker 3: and we're not going to see any more infrastructure spending
42:04
Speaker 3: on the public side for quite something. Really, I don't
42:07
Speaker 3: think I.
42:07
Speaker 2: Thought that would continue on for a couple of years.
42:09
Speaker 2: Wasn't that like a five or thing.
42:11
Speaker 3: It's an elevated level. Oh and then growth is the
42:15
Speaker 3: change in and you've passed the peak. It's coming now start.
42:19
Speaker 2: So you've talked about everything. We haven't gotten to the job,
42:22
Speaker 2: by the way. That's that's my next question. Tell us
42:25
Speaker 2: about the labor market.
42:26
Speaker 3: It's consistent with the economy is struggling. The job numbers
42:31
Speaker 3: are showing very little job growth in recent months, and
42:33
Speaker 3: I would not be surprised in the next few months,
42:36
Speaker 3: assuming we get the data from the real labor statistics.
42:38
Speaker 3: We can kind of talk about that. Assuming we actually
42:41
Speaker 3: get the data, we could actually see some and that
42:44
Speaker 3: would not be surprised if we saw some negative numbers,
42:46
Speaker 3: you know, actual declines and employment.
42:48
Speaker 2: So Jim Bianco said something the other day that really
42:52
Speaker 2: kind of surprised me. First time in US history. We
42:55
Speaker 2: are actually seeing negative population growth, not not caused by
42:59
Speaker 2: a war anything, but immigrants aren't coming to the country
43:04
Speaker 2: and people are being deported, and by the end of
43:07
Speaker 2: twenty twenty five we may have a lower total population
43:11
Speaker 2: number than we had at the end of twenty twenty four.
43:14
Speaker 2: What does that mean for the labor market?
43:16
Speaker 3: Yeah, I mean at the end of the day, if
43:18
Speaker 3: you're a full employment and we're closed four point two
43:21
Speaker 3: percent of employment rate, the only way you can generate
43:24
Speaker 3: a job is if you've got someone to fill the job.
43:26
Speaker 3: Right you need a labor you need someone who's working.
43:29
Speaker 3: So if the labor force isn't growing and right now
43:32
Speaker 3: it's just flat, it really has Actually if you look, well.
43:35
Speaker 2: You could have job openings, but just they're unfilled data.
43:39
Speaker 3: That's right, But it's not a job until you fill it.
43:42
Speaker 3: So you could actually and right now labor force is
43:45
Speaker 3: declining if you believe the data, believe the precision of
43:49
Speaker 3: the data. But the level of the labor force in July,
43:53
Speaker 3: the last STATA point is higher, is lower than it
43:55
Speaker 3: was back in January, and so that would suggest that
43:59
Speaker 3: it's going to be very difficul for the economy to
44:01
Speaker 3: generate jobs, and it's very possible we start getting job
44:05
Speaker 3: lost and just negative numbers.
44:06
Speaker 2: So what are you What odds are you putting on
44:09
Speaker 2: a recession? And we'll talk about inflation and tafts in
44:12
Speaker 2: a moment, but what odds are you putting on a
44:14
Speaker 2: recession in Q four twenty twenty five or Q one
44:17
Speaker 2: twenty twenty six.
44:19
Speaker 3: I think our baseline outlook, my baseline outlook has no recession,
44:24
Speaker 3: just a weak economy. We kind of struggled the way through.
44:27
Speaker 2: Like a sub one percent GDP and a slight.
44:30
Speaker 3: One percent it's actually one percent on the nose year
44:32
Speaker 3: over year through Q four of this year, Q one
44:34
Speaker 3: of next, which is historically below the economy's potential. No
44:38
Speaker 3: job growth.
44:39
Speaker 2: Zero, like a zero bls print every.
44:42
Speaker 3: I think i've average monthly job growth in sub one
44:45
Speaker 3: hundred Oh wait, wait, like twenty five k? Really twenty
44:49
Speaker 3: five k something like that?
44:50
Speaker 2: That that's a you know what's shocking about this sort
44:55
Speaker 2: of discussion is regardless of who you voted for, what
45:00
Speaker 2: your political affiliation is, there's no debate. The first quarter
45:06
Speaker 2: twenty twenty five was a very robust economy, with markets
45:11
Speaker 2: hitting old time highs, and here we are eight months later.
45:15
Speaker 2: Revenue is high, profits are high, Expectations of forward growth
45:21
Speaker 2: in the stock market is high. I know. The old
45:24
Speaker 2: joke is stock markets have predicted none of the last
45:27
Speaker 2: four recessions. But what are all time highs? And this
45:32
Speaker 2: ongoing enthusiasm for growing corporate profits. What is that saying
45:37
Speaker 2: about the accounty?
45:38
Speaker 3: Yeah, and that's the one reason why I don't have
45:40
Speaker 3: a recession. In the baseline, the equity market is held up.
45:43
Speaker 3: Although obviously a big part of what's going on the
45:46
Speaker 3: equity market is related to AI, and that has nothing
45:48
Speaker 3: to do with the business cycle.
45:50
Speaker 2: It's AI, and half of the S and P five
45:52
Speaker 2: hundred revenues are overseas, so it may not be reflected
45:55
Speaker 2: exactly its growth.
45:56
Speaker 3: And also, you got tax cuts, right, so if you
45:58
Speaker 3: just assume stimulus, they have pe constant pe multiple. If
46:02
Speaker 3: you raise after tax learnings, you should get a higher price.
46:05
Speaker 3: So if you if you abstract from those things that
46:08
Speaker 3: are independent of the economic cycle, the stock market at
46:11
Speaker 3: best is flat from where it's the beginning of the year,
46:14
Speaker 3: and that that's the economy. It's flat, it's gone nowhere.
46:17
Speaker 2: Now the economy is flat, But I mean the stock
46:19
Speaker 2: market can still elevate off a flat economy with tax cuts,
46:23
Speaker 2: AI spending exactly.
46:25
Speaker 3: Internet, And that's my sense of what's happening. So what's
46:28
Speaker 3: going on in the equity market is actually, I think
46:32
Speaker 3: consistent with what we're observing in the economy. Now. If
46:35
Speaker 3: the stock market starts to head south written large, and
46:38
Speaker 3: we see non AI part of the market starting to
46:41
Speaker 3: go south here, I think that's the strong signal that
46:45
Speaker 3: we're going in that we're going into it. And the
46:48
Speaker 3: equity market is not only important as a signal, but
46:51
Speaker 3: increasingly it drives economic activity because the bulk of spending
46:56
Speaker 3: in the economy today is done by folks in the
46:59
Speaker 3: top part of the income in well.
47:00
Speaker 2: Top twenty percent is half of top spending.
47:02
Speaker 3: By our calculations, the top ten percent account for oh
47:06
Speaker 3: say you're right, stop twenty percent account for fifty percent
47:09
Speaker 3: of the spell.
47:09
Speaker 2: Right, And the top ten percent is most of that.
47:11
Speaker 3: And most of that, and the top five percent is
47:13
Speaker 3: most most of that.
47:15
Speaker 2: So very not a well distributed consumer spend. It's it's
47:22
Speaker 2: high end, high end and luxury goods, which you know,
47:28
Speaker 2: that's top two percent like that that that Skew is
47:33
Speaker 2: very The good news is if you go buy a
47:36
Speaker 2: private jet, you can depreciate all of it in year one.
47:40
Speaker 2: Of the uh's to the new tax bill, but that
47:46
Speaker 2: sort of stuff. So I remember when Bush did his
47:50
Speaker 2: accelerated depreciation, which I want to say it was depending
47:53
Speaker 2: on the item, it was three to seven years instead
47:56
Speaker 2: of ten to twenty years. Being able to depreciate these
48:00
Speaker 2: luxury goods, maybe that's a.
48:02
Speaker 3: Factor and end there. Yeah, and that should also help
48:06
Speaker 3: the construction markets too, right, because.
48:08
Speaker 2: You would think, right state, it's a little different. So
48:13
Speaker 2: I don't know if you could depreciate all of your
48:15
Speaker 2: build out in year one, but I'm gonna guess it's
48:18
Speaker 2: not a twenty year depreciation schedule. You probably can do it.
48:22
Speaker 2: I should really ask one of my tax guys what
48:25
Speaker 2: the depreciation schedule is for new construction, because you would
48:30
Speaker 2: think that would encourage more building, and we desperately need
48:33
Speaker 2: more single family.
48:35
Speaker 3: Homes and maybe the way out of recession. Not only
48:38
Speaker 3: it's really get more fiscal support, right, and we will
48:42
Speaker 3: likely get another reconciliation. A piece of BBB, the big
48:45
Speaker 3: beauty Rail was reconciliation. They'll take another. They have another
48:48
Speaker 3: shot at that on the other side of the fiscal year.
48:51
Speaker 2: October.
48:52
Speaker 3: Yeah, that's when the new fiscal year begins. And so
48:54
Speaker 3: they could come up with more stimulus. Right, you've heard
48:57
Speaker 3: talk of a stimulus check. You know, I'll pay for
49:00
Speaker 3: the We'll take the tariff revenue, and I'll rebate some
49:03
Speaker 3: of that back to Americans in the form of a check.
49:05
Speaker 3: And that would that that would be stimulus for sure. Uh,
49:09
Speaker 3: and that would.
49:10
Speaker 2: Listen to work. The last Trump indmustration, he wrote a
49:12
Speaker 2: check and when people were stuck at home, and you know,
49:17
Speaker 2: I try and be nonpartisan when I look at those
49:20
Speaker 2: sort of things. It turns out Keynes was onto something
49:24
Speaker 2: a century ago, wasn't he.
49:25
Speaker 3: Well, particularly if the economy's not at full employment. If
49:28
Speaker 3: you're if you're flat on your back like you were
49:30
Speaker 3: in the pandemic or financial crisis, you provide stimulus. Then
49:33
Speaker 3: you don't get the crowding out, you don't get the
49:35
Speaker 3: higher interest rates, you don't get the inflation, but you
49:37
Speaker 3: get the growth. So we're now we're now closer to
49:40
Speaker 3: full employment. So that's a bit of a more dangerous
49:42
Speaker 3: game because if you overstimulate and your full employment, you're
49:46
Speaker 3: gonna get the inflation. Already, inflation is an issue given
49:48
Speaker 3: the tariffs and the immigration policy.
49:49
Speaker 2: So let's talk about tariffs before we get to inflation.
49:54
Speaker 2: What's your perspective of the impact of both the policy
49:58
Speaker 2: and the way it's been in implemented.
50:00
Speaker 3: Well, I'm not a fan of broad based tariffs. I mean,
50:03
Speaker 3: strategic tariff's no problem. I can kind of get that,
50:06
Speaker 3: but broad based tariffs. So you know, we've been there,
50:08
Speaker 3: We've done that. You mentioned the nineteen thirties. In fact,
50:11
Speaker 3: you can go back one hundred years before that under
50:14
Speaker 3: Andrew Jackson, and we tried broad based traffs and it
50:17
Speaker 3: didn't work out so well. It takes about one hundred
50:18
Speaker 3: years for us to forget the mistake and do it again.
50:21
Speaker 3: So I don't think this is going to end well,
50:25
Speaker 3: it raises inflation by definition, and then we'll see more
50:29
Speaker 3: of those past those prices pass through to consumers over
50:32
Speaker 3: the next six to twelve months. As the time passes
50:34
Speaker 3: here and it lowers growth, it pushes the economy towards stackflation.
50:38
Speaker 3: And the immigration policy highly restrictive immigration policy, and I
50:42
Speaker 3: get the need for addressing the southern border.
50:46
Speaker 2: We're talking about legal immigration, not illegal exactly.
50:49
Speaker 3: It's very restrictive, and that reinforces the higher inflation and
50:54
Speaker 3: the weaker growth. So you've got two policies that are
50:57
Speaker 3: very substantive working together to raise inflation. We can economic activity.
51:02
Speaker 2: So reducing legal immigration contributes to higher inflation.
51:06
Speaker 3: Explain that you're in the very go back to the
51:09
Speaker 3: labor force, tight labor market, gotcha less bodies, highting, a
51:13
Speaker 3: lot of businesses ag We know that restaurants, construction, leisure, hospitality,
51:20
Speaker 3: elder care, childcare, all those things, and it will presumably
51:24
Speaker 3: will raise costs labor costs, you'll wages rise and add
51:28
Speaker 3: to inflationary pressures.
51:29
Speaker 2: So we keep hearing from the FED that their data
51:33
Speaker 2: dependent things are ambiguous. There's no clear, necessarily clear path
51:39
Speaker 2: to a future policy. Is that a reasonable response given
51:44
Speaker 2: everything that's been going on, Because it seems odd to say,
51:49
Speaker 2: on the one hand, we're at risk of recession. On
51:51
Speaker 2: the other hand, there's a chance of increased inflation. Sounds
51:55
Speaker 2: a lot like seventies era stagflation.
51:58
Speaker 3: It is stagflation.
51:59
Speaker 2: What is that mean for where rates could go over
52:02
Speaker 2: the next couple of meetings. It seems like a twenty
52:06
Speaker 2: five bip cut is sort of locked into September, right,
52:10
Speaker 2: and I don't know how much of that is. Hey,
52:12
Speaker 2: let's just throw a virgin in the volcano and make
52:15
Speaker 2: the make the president happy. But there are credible reasons
52:20
Speaker 2: in both directions. This isn't like one sided debate.
52:24
Speaker 3: I think their decision to stay on hold was the
52:27
Speaker 3: right decision because they don't know what do I respond
52:30
Speaker 3: to the inflation that I know is coming or the
52:32
Speaker 3: weaker growth that is in train. I just and I
52:36
Speaker 3: don't know where the policies are. I don't I have
52:38
Speaker 3: no sense of where the tariffs are going to land
52:40
Speaker 3: when they're going to land there. I don't know what's
52:41
Speaker 3: going on with immigration policy. So let's just sit on
52:44
Speaker 3: our hands and just let this thing unfold a little
52:46
Speaker 3: bit before we can move on policy. Businesses are done
52:49
Speaker 3: roughly the same thing. They're saying. I don't really know.
52:52
Speaker 3: Therefore it's not I'm going to cut, but it means
52:55
Speaker 3: I'm not going to expand I'm going to sit on
52:56
Speaker 3: my hands, And that's why the economy has gone sideways
52:59
Speaker 3: here since the beginning of the year. But here we
53:01
Speaker 3: are now, and if you're at the FED, and I
53:03
Speaker 3: think there are kind of their weights on their goals
53:07
Speaker 3: are shifting. They're putting more weight on the economy than
53:11
Speaker 3: on inflation. They're thinking is inflation because of the terriffs
53:14
Speaker 3: will be more one off. They won't be persistent, which
53:17
Speaker 3: I think is a reasonable thing to think. But we'll
53:19
Speaker 3: have to see. But we know the economy's weakening, particularly
53:22
Speaker 3: the job numbers, and I and I again going back
53:25
Speaker 3: to we're going to get some negative numbers here, and
53:27
Speaker 3: I think that's what they want to avoid, particularly in
53:29
Speaker 3: the context of the political environment, because there's a lot
53:32
Speaker 3: of stuff coming out of Washington about reevaluating the FEDS,
53:37
Speaker 3: the the Reserve active of nineteen thirteen. They're independence and
53:41
Speaker 3: if you're at the FED and you're seeing that, the
53:43
Speaker 3: last thing you want to do is go into recession
53:45
Speaker 3: and get blamed for the recession in the context of
53:48
Speaker 3: all those kind of that political overlay.
53:50
Speaker 2: To say the very least. So we haven't really talked
53:54
Speaker 2: about integrity of data, but since you alluded to it earlier,
53:57
Speaker 2: let's bring it up. You know, I'm a big fan
54:00
Speaker 2: of George Box. All models were wrong, but some are useful,
54:04
Speaker 2: and so my experience over the past I don't know,
54:08
Speaker 2: fifteen years, whenever I have a question about how something
54:11
Speaker 2: is put together in either a BA or BLS data point,
54:16
Speaker 2: I just pick up the phone and call them, and
54:18
Speaker 2: they eventually rout you to the person. Oh, here's the
54:21
Speaker 2: person who developed the birth death model, or here's the
54:25
Speaker 2: person in charge of survey data. They couldn't be more forthcoming, transparent,
54:32
Speaker 2: and helpful. And I'm kind of surprised at some of
54:36
Speaker 2: the crazy stuff I hear from people. I just heard
54:40
Speaker 2: a bunch of stuff about the MIT billion price project,
54:45
Speaker 2: which ended up getting picked up by somebody, and they
54:48
Speaker 2: were talking about how great that is, and I'm like, hey,
54:50
Speaker 2: when you track this against CPI, they're almost identical. So
54:55
Speaker 2: they're both different models. One is a little more skewed
54:59
Speaker 2: to the waiting of how consumers spend money, the other
55:02
Speaker 2: is just scraping all these data points, but they end
55:05
Speaker 2: up in the same place. How do you think about
55:08
Speaker 2: the integrity of data from the BLS right now?
55:12
Speaker 3: I think it's I think it's fine. There's problems, particularly
55:17
Speaker 3: with survey responses, but everyone but.
55:19
Speaker 2: That's true everywhere. Look at University of Michigan, sentiment data
55:22
Speaker 2: has been plumbting for ten and the answer to that
55:24
Speaker 2: isn't cut budgets.
55:26
Speaker 3: It isn't to cut staff, it is to put more
55:29
Speaker 3: resource into to help try to figure out how to
55:31
Speaker 3: improve those response rates. But even in employment data, the
55:34
Speaker 3: payroll employment day that we're focused on, the response rates
55:37
Speaker 3: by the third month is the first month of response
55:39
Speaker 3: rates sixty five I'm making this up, but roughly speaking, sixty.
55:42
Speaker 2: Five, which is below what it used to be.
55:45
Speaker 3: It's down from where it was. By the third it's
55:47
Speaker 3: ninety ninety five percent. So it's still a very very
55:49
Speaker 3: good survey. But we all as a result of the
55:54
Speaker 3: low response rates. We always get revisions to the data.
55:58
Speaker 3: In more typical times, when the economy moving in a
56:00
Speaker 3: straight line, those revisions are small. When you're at an
56:03
Speaker 3: inflection point or a turning point, like I've been arguing
56:06
Speaker 3: we are, you get these big revisions. In fact, there's
56:08
Speaker 3: information in the revisions. It's not a bug, it's a feature.
56:12
Speaker 3: It's saying, hey, the economy's weakening, and so the response
56:16
Speaker 3: rates the responses were getting after after the first month
56:18
Speaker 3: or weaker than the ones we got in the first month,
56:20
Speaker 3: and therefore we're revising down the data. That's signaling as
56:24
Speaker 3: a strong tell that the economy is struggling and potentially
56:27
Speaker 3: at a turning point.
56:29
Speaker 2: So you're saying the July non farm payroll, and I
56:32
Speaker 2: don't want to put words into your mouth. We had
56:34
Speaker 2: a July non farm payroll that was pretty punk that
56:37
Speaker 2: came out the first week in August, but the revisions
56:40
Speaker 2: were substantial for the prior two months. This isn't just
56:44
Speaker 2: a noisy data series or somehow partisan wrangling. This is
56:50
Speaker 2: a warning shot across the bow. Hey, the economy is
56:54
Speaker 2: starting to transition into a weaker state. Exact pay attention
56:58
Speaker 2: is that effects the point?
56:59
Speaker 3: That's the point. It's not that the data is any
57:03
Speaker 3: worse than it has been historically. There's anything the fary
57:05
Speaker 3: is going on. It's that is the nature of the data,
57:09
Speaker 3: and it's telling us something. There's real information there, and
57:13
Speaker 3: so I, you know, I do. The thing I worry
57:15
Speaker 3: about the most is if there's a decision to not
57:18
Speaker 3: release the data as timely as it's being released today.
57:20
Speaker 3: The employment numbers that we've been talking about are the
57:23
Speaker 3: most timely day to get released the Friday of the first.
57:25
Speaker 2: Oh the quarterly nonsense that came out, that just.
57:27
Speaker 3: Seems, yeah, that really makes me nervous.
57:29
Speaker 2: That's I think Wall Street would have a hissy fit.
57:32
Speaker 2: You do if that happen?
57:33
Speaker 3: Yeah?
57:34
Speaker 2: The you know what people talk about the Powell put.
57:41
Speaker 2: I prefer the expression the Trump collar when when the
57:45
Speaker 2: market's near all time highs, he's embolden and rolls out stuff.
57:49
Speaker 2: When the market's now fifteen to twenty percent, that's a floor.
57:52
Speaker 2: All right, we'll pause this for ninety days because rightly
57:56
Speaker 2: or wrongly, and I think there's more to this, then
58:00
Speaker 2: we give President Trump credit for But when the stock
58:04
Speaker 2: market is doing well, he takes that as his report card,
58:07
Speaker 2: and when the stock market is doing poorly, it makes
58:09
Speaker 2: him unhappy, and his bias is towards doing something anything.
58:14
Speaker 2: What do we have to do to get the stock
58:15
Speaker 2: market back on track? He doesn't care about polls. He
58:19
Speaker 2: cares about one poll, and that's the Dow Jones Industrial
58:23
Speaker 2: Average or the NASDUK or the SMP.
58:26
Speaker 3: Kind of focuses his attention. It's a nice way of
58:28
Speaker 3: putting the Trump caller.
58:30
Speaker 2: So I don't want to make you late for lunch.
58:34
Speaker 2: I have one more question before we get to our
58:36
Speaker 2: speed round our favorite questions, and it's a curveball question,
58:41
Speaker 2: which is what are investors and economists not talking about
58:47
Speaker 2: but perhaps they should be. What what do you think
58:50
Speaker 2: is an important topic? And I don't care policy assets, geographies,
58:54
Speaker 2: what's getting overlooked?
58:55
Speaker 3: But shouldn't I say, FED independence, Not that people aren't
59:00
Speaker 3: talking about it, but they're not focused on it like
59:02
Speaker 3: they should be focused on it. I think this is
59:04
Speaker 3: a real, potentially a real significant problem, and the independence
59:10
Speaker 3: of the FED is critical to a well functioning market
59:14
Speaker 3: economy like our own. We know that from our own history.
59:17
Speaker 3: You can see what happened back in the seventies and eighties,
59:20
Speaker 3: and or looking overseas, and we need to preserve that independence.
59:24
Speaker 3: And it's not only about the actual independence, it's the
59:26
Speaker 3: perception of independence that's really critical. And it just doesn't
59:30
Speaker 3: feel like to me. You follow markets more closely than
59:33
Speaker 3: I do, maybe have a different view, but I just
59:35
Speaker 3: don't get this sentence that markets are focused on this
59:37
Speaker 3: like they should be at this point in time. Huh.
59:40
Speaker 2: Pretty interesting? Take all right, let's jump to our speed round. Okay,
59:44
Speaker 2: feel free to bang through these as quickly as you want.
59:46
Speaker 2: We'll get you to lunch on time. Starting with who
59:49
Speaker 2: your mentors, who helped shape your career?
59:52
Speaker 3: Well, I mentioned doctor Klein in the Nobel Laureate. He
59:55
Speaker 3: clearly was a key person in my professional life. My father, uh,
1:00:02
Speaker 3: professor of engineering at Penn by the way, he will
1:00:05
Speaker 3: he'll claim he was the first to use neural nets
1:00:08
Speaker 3: back in the day for the studies he was doing.
1:00:13
Speaker 3: But I'd say those two folks are those two two
1:00:16
Speaker 3: men were the key to my to my professional development.
1:00:20
Speaker 2: Let's talk about books. What are some of your favorites?
1:00:22
Speaker 3: What are you reading? Sounds hackney now, but you know, Barry,
1:00:25
Speaker 3: I like, I just love Alexander Hamilton by Charnow. I mean,
1:00:29
Speaker 3: I that was well.
1:00:31
Speaker 2: Because the book doesn't have any wrapping in it, people
1:00:34
Speaker 2: should be aware if they go get this book, it's
1:00:37
Speaker 2: a deep historical dive. It's not an entertaining bunch of
1:00:41
Speaker 2: show tunes.
1:00:42
Speaker 3: Oh yes, that's for sure. But it's very entertaining, at
1:00:46
Speaker 3: least from a nerdy kind of perspective.
1:00:48
Speaker 2: Charn now has a new book coming out this fall,
1:00:50
Speaker 2: does any or did it come out?
1:00:51
Speaker 3: Well, I've got the I'm reading one on Washington.
1:00:54
Speaker 2: Is that is that?
1:00:55
Speaker 3: I think that's his latest? Yeah? I think so.
1:00:58
Speaker 2: He is an amazing writer.
1:01:00
Speaker 3: And uh and I like that period in economic history,
1:01:05
Speaker 3: to say the very least, and then I don't. I
1:01:09
Speaker 3: don't normally read self help books, but I like this
1:01:13
Speaker 3: book Outlive. I know everyone else has read it by
1:01:15
Speaker 3: oh sure, four years ago. So now I'm hanging.
1:01:17
Speaker 2: Is it worth reading? It's oh, Mark Twain is his name,
1:01:21
Speaker 2: Mark Twain. That's right, it's a it's a tomb. It's
1:01:25
Speaker 2: sitting on my nightstand gathering dust because it's so so intimidating,
1:01:30
Speaker 2: deep deep research. Outlive.
1:01:34
Speaker 3: Oh yeah, So it's an easy book. It's summer book
1:01:37
Speaker 3: right when you're on the beach. It's a how do
1:01:42
Speaker 3: you live your life well? Long run, and it's a
1:01:45
Speaker 3: lot of it's just intuitive. It's not non intuitive. But
1:01:48
Speaker 3: there's some things in there that I found useful in
1:01:50
Speaker 3: terms of the tests you should take. And I love
1:01:52
Speaker 3: the the hanging. You big part of of the work
1:01:58
Speaker 3: is around the strip grip strength, and so one of
1:02:03
Speaker 3: the ways you improve your grip strength is by just
1:02:05
Speaker 3: literally hanging from go try it. Okay, it's I've been
1:02:09
Speaker 3: you know.
1:02:10
Speaker 2: He says chin ups or pull ups, you just have
1:02:12
Speaker 2: to hang.
1:02:13
Speaker 3: You think this is easy, and he says, men, if
1:02:15
Speaker 3: men can do it for two minutes, that's great. Women
1:02:17
Speaker 3: one minute I'll tell you. I can't get. I literally
1:02:20
Speaker 3: can I get.
1:02:21
Speaker 2: I can't imagine. I can't. I'm not going to do
1:02:24
Speaker 2: ten pull ups, but I would be surprised if I
1:02:27
Speaker 2: couldn't hang for right for two minutes.
1:02:30
Speaker 3: But yeah, I try, try try.
1:02:32
Speaker 2: Actually, that's that's that's interesting.
1:02:34
Speaker 1: All right.
1:02:35
Speaker 2: So we're talking about books. What about streaming? What do
1:02:37
Speaker 2: you watch?
1:02:39
Speaker 3: My wife and I watch something every night, usually half
1:02:41
Speaker 3: hour to an hour.
1:02:42
Speaker 2: And we're the same. It's a post pandemic. Yeah, because
1:02:46
Speaker 2: when you were stuck at home, you couldn't go out,
1:02:48
Speaker 2: didn't we all.
1:02:49
Speaker 3: I'm annoyed with all these streaming services, like like like,
1:02:53
Speaker 3: come on, hit me a break.
1:02:54
Speaker 2: I mean, so, so what what are you streaming these days?
1:02:57
Speaker 1: Well?
1:02:57
Speaker 3: I got you? Got any suggestions?
1:02:59
Speaker 2: Yes, yes I do, I have plenty.
1:03:01
Speaker 3: I just finished disclaimer? Did you say watch one? Okay?
1:03:04
Speaker 2: I love a good suggestion disclaimer.
1:03:06
Speaker 3: Yeah, it's Kevin Klein and Cape Blanchett. Oh no kidding,
1:03:12
Speaker 3: it's short six seven.
1:03:13
Speaker 2: I love those. We watched Apartment Q, which was a
1:03:16
Speaker 2: limited series, is good, really interesting.
1:03:19
Speaker 3: Actually I watched that that was very good. This is
1:03:21
Speaker 3: one I liked a lot. It's the ending is the
1:03:24
Speaker 3: acting is great. Yeah, the ending is a little contrived.
1:03:27
Speaker 3: They need to do two more episodes or something.
1:03:29
Speaker 2: I'll give you three interesting things. We've been watching My Wife.
1:03:33
Speaker 2: My wife got me sucked into Killing Eve, which is
1:03:36
Speaker 2: an espionage thriller. We just it's four seasons. We just
1:03:40
Speaker 2: started the second season, everybody, and it is great. It's
1:03:44
Speaker 2: a little, it's a little, you know, some of it is.
1:03:46
Speaker 2: It's not terribly gory. People get killed. It's assassin and yeah,
1:03:52
Speaker 2: you know, I don't like the police procedurals where they
1:03:57
Speaker 2: show you all the when it's too realistic. Yeah, like
1:04:00
Speaker 2: we tried to watch the pit. My wife is like,
1:04:02
Speaker 2: I'm out, all right, I get that. So so Killing
1:04:05
Speaker 2: Eve has been really interesting. And you know what's fascinating
1:04:10
Speaker 2: about the Gilded Age is it's four stories old money,
1:04:17
Speaker 2: new money, the staff in both of these houses across
1:04:21
Speaker 2: the street, and then the old money secretary who is
1:04:25
Speaker 2: a black woman, and then her whole family and that storyline.
1:04:30
Speaker 2: But what's amazing is all the issues. It's one hundred
1:04:34
Speaker 2: and fifty years ago. Today it's wealth inequality, it's status,
1:04:39
Speaker 2: it's economic mobility, and it's tribal and it's so fascinating
1:04:46
Speaker 2: the guilded Age really interesting. I didn't want to watch it.
1:04:50
Speaker 2: To me, Dountain kind of looked like another soap opera,
1:04:55
Speaker 2: but amazing cast. You get sucked into it. That's on HBO,
1:04:58
Speaker 2: and so so said, so if a well department Q
1:05:06
Speaker 2: was the limited. If you like the uh, if you
1:05:10
Speaker 2: like the f spionage sort of thing, that one kind
1:05:15
Speaker 2: of unfolds really slowly and deliberately. But Killing Eve is
1:05:22
Speaker 2: much It's much faster and crazier and more interesting. And
1:05:27
Speaker 2: it it's mostly takes place in Europe, which makes it
1:05:31
Speaker 2: you know, it's I six, I won all sorts of
1:05:35
Speaker 2: awards this like I got she sort of ready, and
1:05:39
Speaker 2: when she was she I walk in and and like,
1:05:42
Speaker 2: what's this? She's like, just watch ten minutes of the
1:05:45
Speaker 2: first episode, all right, And we started watching it and
1:05:49
Speaker 2: sucked right in.
1:05:50
Speaker 3: Oh that sounds good. I definitely watch that.
1:05:52
Speaker 2: It's four seasons we need, that's right. So it gives
1:05:54
Speaker 2: you plenty and you can bang out to a night
1:05:57
Speaker 2: very very comfortably. Our final two questions, what sort of
1:06:01
Speaker 2: advice would you give a recent college grad interested in
1:06:05
Speaker 2: a career in economics and finance?
1:06:08
Speaker 3: Just show up, show up, just show up.
1:06:10
Speaker 2: Do the work, show up, show up.
1:06:13
Speaker 3: I guess the other thing I'd say is I tell
1:06:16
Speaker 3: my kids this. Every point of contact matters, every relationship,
1:06:23
Speaker 3: every phone call, every email, every team's meeting, because things
1:06:29
Speaker 3: come around. You know, you meet somebody in one way,
1:06:34
Speaker 3: they'll come back ten years from now, and if you
1:06:39
Speaker 3: did the right thing, if you were attentive to their
1:06:44
Speaker 3: needs and interests, that'll benefit you in the long run.
1:06:46
Speaker 3: It's not easy to do, it takes energy, but every
1:06:50
Speaker 3: point of contact matters. Huh.
1:06:51
Speaker 2: Really interesting And our final question, what do you know
1:06:54
Speaker 2: about the world of economics today? You wish you knew
1:06:58
Speaker 2: way back in the nineteen nineties when you first starting.
1:07:00
Speaker 3: Out, Well, I didn't. I thought everything could go back
1:07:05
Speaker 3: to your point about box and models. I thought everything
1:07:08
Speaker 3: could be solved with the model. It's like, you, guys,
1:07:12
Speaker 3: come on, this is just arithmetic, you know, mathematics. We could,
1:07:16
Speaker 3: we should be able to do this now, you know,
1:07:19
Speaker 3: the world is a very messy place.
1:07:22
Speaker 2: Really, really good stuff. Mark, Thank you for being so
1:07:24
Speaker 2: generous with your time. We have been speaking with Mark Zandy.
1:07:28
Speaker 2: He is the chief economist of Moody's Analytics. If you
1:07:33
Speaker 2: enjoyed this conversation, check out any of the five hundred
1:07:37
Speaker 2: and fifty previous discussions we've had over the past eleven years.
1:07:42
Speaker 2: You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever
1:07:48
Speaker 2: you find your favorite podcast. And be sure and check
1:07:51
Speaker 2: out my new book, How Not to Invest The ideas, numbers,
1:07:55
Speaker 2: and behaviors that destroys wealth and how to avoid them
1:08:00
Speaker 2: How Not to Invest at your favorite bookstore. Now, I
1:08:04
Speaker 2: would be remiss if I did not thank the Crack
1:08:06
Speaker 2: team that helps put these conversations together each week. Meredith
1:08:11
Speaker 2: Frank is my audio engineer. Alexis Noriega and Anna Luke
1:08:16
Speaker 2: are my producers. Sean Russo is my researcher. Sage Bauman
1:08:21
Speaker 2: is the head of podcasts at Bloomberg.
1:08:24
Speaker 3: I'm Barry Rittolfs.
1:08:26
Speaker 2: You're listening to Masters in Business on Bloomberg Radio.