Latest / Masters in Business / RenMac's Head of Economics Neil Dutta on Recession Indicators

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RenMac's Head of Economics Neil Dutta on Recession Indicators · 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, another extra special guest Neil
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Speaker 2: Dudda with a tour to fource explanation on what a
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Speaker 2: market economist is, how it's their job to take all
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Speaker 2: of the academic and somewhat esoteric economic research and take
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Speaker 2: it from the five yard line into the end zone.
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Speaker 2: Why it's so important to put stuff into context that
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Speaker 2: investors can use or focus on, not just merely the
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Speaker 2: economic data, but what it means for different sectors of
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Speaker 2: the economy, what means for different companies. I always find
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Speaker 2: Neil fascinating to listen to. He has a really great
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Speaker 2: track record forecasting things in a way that is occasionally
1:04
Speaker 2: out of consensus. So when he's talking about inflation in
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Speaker 2: twenty twenty one, or FED hikes in twenty twenty two,
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Speaker 2: or why we weren't going to see a recession in
1:15
Speaker 2: that same year, it's always fascinating to see somebody whose
1:19
Speaker 2: thought processes detailed and interesting and out of consensus, but
1:25
Speaker 2: also right. I thought this conversation was fascinating, and I
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Speaker 2: think you will also with no further ado my conversation
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Speaker 2: with head of an economic research at Renmack Neil Datta.
1:37
Speaker 2: So last time we were here, we talked about a
1:40
Speaker 2: bunch of things that you got right. I know your
1:43
Speaker 2: views have evolved. Will get to some of those, but
1:47
Speaker 2: let's just go over your background a little bit. Bachelor's
1:50
Speaker 2: and economics and political science from New York University. From
1:53
Speaker 2: NYU was the original career plan to go into finance.
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Speaker 3: Uh No, I mean, you know, when you go to college,
2:03
Speaker 3: you have no you don't know that jobs like the
2:06
Speaker 3: one I'm in currently even exist. It's like, you mean
2:10
Speaker 3: to tell me, I get to write about economics and
2:12
Speaker 3: talk all day long and someone will pay me for it,
2:14
Speaker 3: no manual labor. Yeah, And so you know I had
2:19
Speaker 3: no idea. I mean, I knew that I had an
2:21
Speaker 3: interest in economics, I had an interest in political science.
2:26
Speaker 3: The original plan was actually, you know, maybe to go
2:29
Speaker 3: to law school. But I ended up, you know, just
2:33
Speaker 3: not doing as well as I thought I was going
2:36
Speaker 3: to on the l SAT. So my senior year of college,
2:39
Speaker 3: I was kind of scrambling because I didn't want to
2:42
Speaker 3: go to school for another three years, but I wanted
2:46
Speaker 3: to stay in the city, and I was just like,
2:49
Speaker 3: let me just try to get into Merrill Lynch, or
2:51
Speaker 3: it's not at Merrill Lynch. I mean I got into
2:53
Speaker 3: Mary Lynch. But any of the bulge bracket banks in
2:55
Speaker 3: the city, right.
2:56
Speaker 2: All had good back in the day, they all had
2:58
Speaker 2: good training program.
2:59
Speaker 3: Yes, So that was that was the goals to get
3:01
Speaker 3: into one of the analyst programs at the bult Record Bank.
3:04
Speaker 3: So I got into to Merrow Lynch. I actually started
3:08
Speaker 3: off there as a compensation analyst.
3:10
Speaker 2: And meaning studying studying labor, studying salaries and things all.
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Speaker 3: Right, Yeah, I mean a lot of what the job was,
3:19
Speaker 3: in the amount of time that I had done, it was,
3:22
Speaker 3: I mean a lot of it is just benchmarking the
3:25
Speaker 3: employees of the firm to the market to make sure
3:28
Speaker 3: that you're paying people to market.
3:29
Speaker 2: Meaning internally Lynch.
3:32
Speaker 3: Yeah, and managing the year end bonus pools. So that
3:37
Speaker 3: was the whole process in and of itself. But one
3:38
Speaker 3: of the good things about working in HR is that
3:42
Speaker 3: you kind of so I got my foot in the door.
3:44
Speaker 3: I mean I was just happy to have something at
3:45
Speaker 3: that point. I remember I showed my mother my offer letter.
3:49
Speaker 3: I still have it saved from Meryl Lynch where they
3:52
Speaker 3: were paying me fifty thousand dollars with a ten thousand
3:54
Speaker 3: dollars signing bonus. And I showed that to my mom
3:56
Speaker 3: and she was like, why would they be paying you
3:58
Speaker 3: this much money? And I was like, well, oh, we'll
4:01
Speaker 3: find out. Yeah, we'll find out what I'm going to
4:03
Speaker 3: be doing. But the benefit of working in HR in
4:06
Speaker 3: particular is that you kind of know where all the
4:08
Speaker 3: jobs are and where the opening open positions are in
4:11
Speaker 3: the firm. And there was an open position on David
4:15
Speaker 3: Rosenberg's team at you know, at Merrill Lynch, and so
4:20
Speaker 3: then I joined his firm, sorry, his team. That was
4:24
Speaker 3: in early lado six or early two thousand and seven,
4:27
Speaker 3: So you know, right when Rosie was really killing it.
4:30
Speaker 3: I mean, you know, he was like a marketing machine.
4:32
Speaker 3: He was like the guy like number one in II.
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Speaker 3: All these things are happening, you know, I mean, and
4:39
Speaker 3: so it was really exciting to be on his team.
4:41
Speaker 3: So it was really it was like it was like
4:42
Speaker 3: a very quick education. I mean, there was a real
4:45
Speaker 3: education being on his team during that time.
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Speaker 2: To say nothing of what happened over the next few
4:51
Speaker 2: years eight oh nine in the Great Financial crisis was
4:55
Speaker 2: right around the corner.
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Speaker 3: Yeah, I mean I definitely think that, you know, one
4:58
Speaker 3: of the things that I've always has come to believe,
5:01
Speaker 3: now they haven't been in the business for a long time,
5:03
Speaker 3: is that as you know, like our like the financial
5:06
Speaker 3: industry is very cyclical, right, Like everyone knows someone who's
5:09
Speaker 3: been laid off, let go, you know, has gone through
5:15
Speaker 3: spells of just not having a job, right. And I
5:18
Speaker 3: do think it says something about you if you've been
5:20
Speaker 3: able to survive these crises.
5:21
Speaker 2: Yea, the very least. Where was Barons in your career history?
5:25
Speaker 2: You were an analyst at the weekly Dow Jones publication.
5:29
Speaker 3: Yes, that was that was That was more of a
5:32
Speaker 3: When I was in college, I worked for Gene Epstein.
5:36
Speaker 3: Oh really, yes, noted libertarian. You know, kind of gave
5:42
Speaker 3: me my first taste of like a lot of the
5:44
Speaker 3: tools that we use now in in sort of the
5:48
Speaker 3: business economic space, like Haver analytics. I actually got my
5:52
Speaker 3: first taste of that working with Gene at Barons and
5:57
Speaker 3: you know, getting my you know, sort of first sense
5:59
Speaker 3: of you know, trying to analyze data looking at you know,
6:01
Speaker 3: I mean he had he had sort of a weekly
6:03
Speaker 3: column on the economy, but a lot of the interesting
6:06
Speaker 3: pieces that he wrote would happen on you know, days
6:08
Speaker 3: of like the employment report or you know, summarizing the
6:12
Speaker 3: ism data and like what it might mean for the
6:14
Speaker 3: economy and the outlook. So it kind of gave me
6:16
Speaker 3: my first taste of what a business economist, uh would
6:20
Speaker 3: do on a basis.
6:23
Speaker 2: I've noticed you used the phrase market economists, ye, business
6:26
Speaker 2: economists all the time. How does that differ from the
6:31
Speaker 2: traditional economists for lack of the better.
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Speaker 3: Word, Well, I don't have like formal PhD training, So
6:38
Speaker 3: I think you know what, that to me is like
6:41
Speaker 3: an important distinction. You know, you have business economists on
6:45
Speaker 3: the street that have PhDs, but I don't think a
6:48
Speaker 3: PhD is required to be a business economist. And to me,
6:53
Speaker 3: it's like also just a way to respect the academic profession, right,
6:57
Speaker 3: I mean you have people here that are really studying
7:01
Speaker 3: a specific Nietzsche area their entire careers, right, I mean
7:07
Speaker 3: you think about like behavioral economics and like financial economics.
7:12
Speaker 3: I mean they are economists that are just looking at
7:14
Speaker 3: that and they're doing it for decades, right, because that's
7:18
Speaker 3: what they do.
7:18
Speaker 2: And I think a Hyman Minsky looking at the narrow
7:22
Speaker 2: subtopic of stability and instability and economic systems and toiling
7:28
Speaker 2: away for decades until eventually the market hits a tipping
7:32
Speaker 2: point and suddenly all of this research that seems like
7:36
Speaker 2: a quiet backwater, yeah, it becomes front page news.
7:41
Speaker 3: I mean we're like, you know, strategic trade theory. I mean,
7:44
Speaker 3: these are these are all sorts of things that have
7:48
Speaker 3: I think, and you could say maybe in you know,
7:51
Speaker 3: like the academics take you basically to the five yard
7:54
Speaker 3: five yard line, and as a business economists, your job
7:57
Speaker 3: is to kind of run it in for a touchdown
7:59
Speaker 3: and tell, you know, the investor community, like, why is
8:02
Speaker 3: this important to what you're doing right now?
8:05
Speaker 2: That's very interesting script.
8:07
Speaker 3: So so that that's that's sort of the way I
8:09
Speaker 3: kind of view it. I mean, obviously you lean a
8:10
Speaker 3: lot of their work throughout your career. I mean, you know,
8:15
Speaker 3: I mean, this had this had gotten a lot of
8:17
Speaker 3: play earlier in the cycle. But ed Leemer wrote a
8:20
Speaker 3: paper once called housing is the Business Cycle? Right? I mean,
8:23
Speaker 3: and that was you.
8:25
Speaker 2: Know, professor at Harvard or George.
8:28
Speaker 3: I think it was in the University of California if
8:31
Speaker 3: I'm mistaken, But at any rate, I mean, that was
8:33
Speaker 3: a that was a piece of research that had gotten
8:36
Speaker 3: a lot of attention over the years. You know, when
8:39
Speaker 3: when housing was melting down back in twenty twenty two,
8:41
Speaker 3: a lot of people were leaning on that paper again,
8:43
Speaker 3: So it's important. I mean, so to me, it's like,
8:45
Speaker 3: I make that distinction because a I don't have a PhD.
8:49
Speaker 3: And I'm not doing the same thing. What I'm basically
8:52
Speaker 3: trying to do is look at all the different sort
8:56
Speaker 3: of pieces of economic information that come out and on
8:58
Speaker 3: the US economy. There's always something going on, right, I mean,
9:02
Speaker 3: in terms of data, it's some some of its marketing movements,
9:04
Speaker 3: some of it's not, and try to kind of formulate
9:07
Speaker 3: an economic outlook that is useful for investors. That is
9:10
Speaker 3: not what academics tend to do, right.
9:13
Speaker 2: Sure, for sure. So when you were at Bank America
9:16
Speaker 2: Merrill Lynch, you were doing a weekly note you authored.
9:20
Speaker 2: How did that help carve out your own space and
9:23
Speaker 2: expertise and how did that ultimately lead to your job
9:27
Speaker 2: at Renmack.
9:29
Speaker 3: Well, So, I mean, obviously Merril was was an interesting
9:33
Speaker 3: time because I was sort of coming up the ranks,
9:38
Speaker 3: and you know, by two thousand and nine, Rosie had left,
9:43
Speaker 3: and so it was sort of this weird time where
9:46
Speaker 3: it was like a very important time in the economy
9:49
Speaker 3: because we were just transitioning from recession to expansion. But
9:53
Speaker 3: Merrill's economic team was kind of without a leader, right,
9:56
Speaker 3: so we didn't really have So it was I was
9:58
Speaker 3: able to do a lot at that time just by
10:02
Speaker 3: default because there was no one else really doing it.
10:04
Speaker 3: So I would I would be writing a lot for
10:07
Speaker 3: the you know, especially for the equity market desk.
10:09
Speaker 2: You had to be pretty young back in all.
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Speaker 3: Yeah, I was. I was very young. I might have
10:13
Speaker 3: been like, oh god, I don't know, like not even thirty,
10:16
Speaker 3: so at any rate. So I mean, it's one of
10:22
Speaker 3: these things where you if if it's just you and
10:25
Speaker 3: like a couple of other people, you don't you're doing
10:27
Speaker 3: a lot more than you otherwise would be doing had
10:29
Speaker 3: there been like a chief, a formal chief economist. So
10:33
Speaker 3: I remember the summer of nine vividly because we had,
10:36
Speaker 3: you know, like the team had gotten like a big
10:38
Speaker 3: reputation for being very bearish because obviously because Rosie, because
10:42
Speaker 3: of Rosie, but still bash Yeah, but bye bye by
10:45
Speaker 3: March but bye by the time he had left and
10:48
Speaker 3: by the second quarter of O nine, it was becoming
10:49
Speaker 3: increasingly clear that things were kind of turning around, right,
10:52
Speaker 3: I mean, you know, credit markets had turned. It looked like,
10:56
Speaker 3: you know, housing wasn't getting any worse, right, Inventories had
11:02
Speaker 3: basically been cut to the bone. They couldn't go any lower.
11:04
Speaker 3: And and so we had written a piece basically talking
11:07
Speaker 3: about how, you know, the recession's over like that that's it,
11:12
Speaker 3: And that had gotten a lot of attention from our
11:15
Speaker 3: from our sales desk. But you know that's to me, like,
11:18
Speaker 3: you know, you talk about writing. One of the things
11:21
Speaker 3: that I've noticed, like recently is just it's just ubiquitous, right,
11:26
Speaker 3: Like everyone's writing, Like it's just stack. Yes, it's like
11:31
Speaker 3: come view me on my substack. And like, you know,
11:33
Speaker 3: there's like all this research. But to me, like what's
11:37
Speaker 3: important in the research sales business, because that's ultimately what
11:41
Speaker 3: I'm in, right, It's about knowing when to say something,
11:45
Speaker 3: you know, you know, and there's just a lot of
11:48
Speaker 3: like filler research that comes out.
11:52
Speaker 2: I love the word filler because it's literally all it.
11:55
Speaker 3: Is and the and and there's some important I mean,
11:57
Speaker 3: I do think it's important for clients to kind of
11:59
Speaker 3: see that continuity, but it doesn't have to be some
12:01
Speaker 3: written products. So to me, one of the things I've
12:03
Speaker 3: learned is like when you write something, make sure that
12:07
Speaker 3: it has some depth and it serves a purpose, right,
12:11
Speaker 3: And so.
12:12
Speaker 2: As opposed to just cranking something out daily a weekly.
12:15
Speaker 3: Because it's just it's like that eventually, like you know,
12:19
Speaker 3: that turns into spam, right, I mean from the perspective
12:22
Speaker 3: of your client. So there's there's there's many ways to
12:25
Speaker 3: kind of touch people in terms of accounts like your
12:30
Speaker 3: client base that are paying for your your research and
12:32
Speaker 3: your views and your analysis and that could you know,
12:35
Speaker 3: and some of that's written, some of that could be presentations,
12:38
Speaker 3: some of that could be podcasts, some of that could
12:41
Speaker 3: you know, it could be it's it's that to me
12:43
Speaker 3: is what's important. So you know, writing in the beginning
12:47
Speaker 3: was important. But I think one of the things I
12:48
Speaker 3: learned very early on is that it's important to kind
12:52
Speaker 3: of say something that has meaning. And that's not always
12:55
Speaker 3: going to be the case, right, Like people don't need
12:58
Speaker 3: to hear from me every day, they need to hear
13:00
Speaker 3: for me when my views on something are working out
13:03
Speaker 3: or not.
13:04
Speaker 2: I like to say, nobody really cares about ism or
13:08
Speaker 2: fill in the blank, whatever your least favorite economic data point.
13:11
Speaker 3: Is, right, I mean, and also these days, right like,
13:15
Speaker 3: the market reaction to it is immediate, so you can
13:18
Speaker 3: pretty much tell right away whether the number was good
13:21
Speaker 3: or bad or whatever else. Right, So what do I
13:23
Speaker 3: need to read your analysis for? And so it's you know,
13:25
Speaker 3: you kind of have to pick your spots about when
13:27
Speaker 3: to you know, try to chime in and provide some
13:29
Speaker 3: kind of useful context for these data points.
13:31
Speaker 2: So there's a little bit of a void in two
13:33
Speaker 2: thousand and nine after the head of the economics coverage
13:37
Speaker 2: from Merrill Lynch departs and you somewhat fill that void
13:42
Speaker 2: nine ten eleven. What leads you to join Renmack in
13:46
Speaker 2: twenty twelve.
13:47
Speaker 3: Well, so by the fall of nine we had Ethan
13:53
Speaker 3: Harris Sure from from Lehman joined the you know, he
14:00
Speaker 3: started was named the chief US Economist UH basically uh.
14:04
Speaker 3: And and he obviously he was from a like a
14:08
Speaker 3: like a fixed income shop, I mean, Leman was a
14:10
Speaker 3: huge fixed incomes you know, Ethan was a fed economist,
14:14
Speaker 3: so his passion was really more towards the fixed income markets.
14:18
Speaker 3: And so but obviously Merrill was like a huge, like
14:21
Speaker 3: a legacy equity shop. Yeah, and so I kind of
14:26
Speaker 3: got a lot of my like cut my teeth with
14:28
Speaker 3: the equity salesforce and what I tried to do. And
14:31
Speaker 3: one of the things you do find out in in
14:33
Speaker 3: the research business is that fixed income doesn't pay for research.
14:37
Speaker 3: It's just it's just that's what it is, right. I mean,
14:39
Speaker 3: you look at.
14:40
Speaker 2: Well the margins are smaller the basically what verto Yeah, you.
14:45
Speaker 3: Think about like the biggest names in research sales over
14:49
Speaker 3: the last number of decades. You think about people like
14:54
Speaker 3: Ed Hyman, Nancy Lazar, Right, you think they're writing about
14:59
Speaker 3: like like rates. No, they're writing about like how economics
15:03
Speaker 3: can be tied into a stock market call. And Rosie,
15:07
Speaker 3: to his credit, was great at that. And that's kind
15:09
Speaker 3: of what I tried to do when Ethan was running things,
15:13
Speaker 3: because he didn't really he didn't really do that, you know,
15:17
Speaker 3: and so he kind of let me run with it,
15:20
Speaker 3: and he kind of gave me a lot of latitude
15:22
Speaker 3: to kind of come up with my own ideas and
15:26
Speaker 3: try to tell, you know, an equity salesforce like why
15:31
Speaker 3: is this important for your clients? Like and and because
15:33
Speaker 3: Merrill had so many equity analysts. There there was like
15:36
Speaker 3: a like a wealth of opportunity, right, Like, so let's
15:40
Speaker 3: say we wanted to write a piece on business investment, right, Like,
15:46
Speaker 3: so why is that important for equities? Well, because a
15:49
Speaker 3: lot of EPs comes from cabex. And now you can
15:53
Speaker 3: go talk to your like you can talk to your
15:54
Speaker 3: industrials analysts, you can talk to the machinery analysts and say, like,
15:58
Speaker 3: you know, are you guys bullish or bearish on your names? Like,
16:01
Speaker 3: and if you can come up with a scenario where
16:03
Speaker 3: a macro view can tie into a specific stock sector view,
16:08
Speaker 3: for an equity salesperson, that's a home run, right, And
16:12
Speaker 3: so it just makes their life a lot easier. The
16:14
Speaker 3: worst thing you could do, especially at a bulge bracket firm,
16:17
Speaker 3: right is well, your economist is really really negative. But
16:21
Speaker 3: like you know, this guy is telling me like by caterpillar,
16:24
Speaker 3: like how does that work? Like and like whenever, as
16:27
Speaker 3: a salesperson, like having to deal with that question from
16:29
Speaker 3: a client is annoying, you know what I mean. So
16:32
Speaker 3: whenever you can come up with ways to tie a
16:37
Speaker 3: macroeconomic view into and this goes back to the business economics, right,
16:41
Speaker 3: I mean tie a macro view to a market call.
16:44
Speaker 3: That's a home run, right, No one cares what your
16:48
Speaker 3: GDP growth view is, Like, I mean, you have all
16:50
Speaker 3: these like you go you look at through the Wall
16:51
Speaker 3: Street research and it's like in the back there's like
16:53
Speaker 3: my GDP forecast. You have this big forecast table, and
16:56
Speaker 3: that's kind of what they're talking off of, right, But
16:57
Speaker 3: that's not really why I think people for research. People pay,
17:01
Speaker 3: you know, the people pay for having an economics view
17:05
Speaker 3: that can be aligned with a market's call.
17:08
Speaker 2: So let's talk about that economic view aligned with a
17:12
Speaker 2: couple of market calls. At least we'll look at the
17:15
Speaker 2: twenty twenties, because oh, nine, ten to eleven seems like
17:19
Speaker 2: it's so long ago. Let's fast forward a couple of decades.
17:24
Speaker 2: Late in twenty twenty one. I very vividly remember most
17:29
Speaker 2: economists were fairly sanguine about inflation. FED chair Jerome Palell
17:35
Speaker 2: had said we're gonna let inflation run hot the previous
17:40
Speaker 2: Jackson hole, and you made a very out of consensus call.
17:45
Speaker 2: You had said in late twenty twenty one economists were
17:48
Speaker 2: too sanguine about inflation that the f OMC would have
17:52
Speaker 2: to raise rates, and you said at least four times,
17:56
Speaker 2: and that turned out to be very precient. We started
17:58
Speaker 2: with four seventy five bit raises before we add two
18:02
Speaker 2: at fifty and then a sort of after thought at
18:04
Speaker 2: twenty five. Tell us what you were looking at in
18:06
Speaker 2: twenty twenty one that so many other economists missed.
18:12
Speaker 3: Well, thank you for saying that. I mean, in hindsight,
18:14
Speaker 3: I feel like I wasn't hawkish enough.
18:16
Speaker 2: You know, you were so much more hawkish than the
18:19
Speaker 2: more than the Yeah, I mean, hey, you know, everybody,
18:23
Speaker 2: most people forget sticking the landing. Most people missed the pool.
18:28
Speaker 2: You you managed to at least put give your clients
18:32
Speaker 2: a heads up of FED tightening is about to stop.
18:35
Speaker 3: Yeah, I mean right, I mean I caught the the swing.
18:38
Speaker 3: I mean, I think and then you know, eventually I
18:41
Speaker 3: kind of came around to the idea that they'd have
18:43
Speaker 3: to do a lot more than what was priced. But
18:45
Speaker 3: I think, yeah, I think, thank you for saying that.
18:47
Speaker 3: I did kind of catch that. But you know, to me,
18:51
Speaker 3: it was just like a rapidly accelerating economy. To me,
18:54
Speaker 3: it was so basically the call. I think that the
18:59
Speaker 3: main issue there was. It was one call that you
19:02
Speaker 3: got right that kind of led to everything else. Right,
19:04
Speaker 3: So basically what I saw at the time was a
19:06
Speaker 3: V shape recovery. And so since there was a V
19:08
Speaker 3: shape recovery, that was going to have ramifications for all
19:12
Speaker 3: the other macro calls that people make, like whether that's
19:16
Speaker 3: the fed rates stocks, you know. And so basically what
19:22
Speaker 3: I what I said, was we're gonna have a V
19:25
Speaker 3: shape recovery. You could see it in the data. They
19:27
Speaker 3: basically turned the lights off, turned it on, and threw
19:29
Speaker 3: a bunch of money out the problem.
19:30
Speaker 2: Two dollars solves a lot of headaches.
19:33
Speaker 3: Well, it's sort of you know, they they kind of
19:35
Speaker 3: they fought the last war, right, I mean, they essentially
19:37
Speaker 3: they they diagnosed the problem as a it was basically
19:44
Speaker 3: a supply shock. It was a negative It was a
19:46
Speaker 3: very large negative supply shock that they treated as a
19:49
Speaker 3: big demand shock. And so when you have a demand
19:53
Speaker 3: side stimulus with a you know what is basically a
19:57
Speaker 3: supply shock, be surprised if you.
20:01
Speaker 2: Get like inflation, trillion dollars in money coursing into the
20:06
Speaker 2: system and everybody stuck at home. Guess what they're gonna
20:09
Speaker 2: do with that money?
20:10
Speaker 3: And it's it's not just uh and it wasn't just
20:12
Speaker 3: fed pumping, right, it was. It was a fiscal stimulus,
20:15
Speaker 3: you know. And so so I think it's and and
20:20
Speaker 3: also just like the behavior of of of people at
20:24
Speaker 3: the time. I mean, you know, typically in a bad
20:27
Speaker 3: economic situation, you don't see people going out and like
20:33
Speaker 3: get like taking out mortgage loans. But that's exactly what
20:36
Speaker 3: was happening at the time, right. So you know, housing
20:39
Speaker 3: is like one of these irreversible decisions, so you have
20:41
Speaker 3: to be really confident in things in order to buy one.
20:44
Speaker 3: And so when I started to see people like you know,
20:46
Speaker 3: mortgage purchase apps are like basically v bottoming, like it's
20:50
Speaker 3: just going straight up, like they're signal there. And at
20:54
Speaker 3: the time, like everyone was thinking the bottom was going
20:56
Speaker 3: to fall out, it was the opposite, and it was
20:59
Speaker 3: and and I remember at the time, I mean in
21:02
Speaker 3: April of I think in April of twenty twenty, in
21:04
Speaker 3: the middle of April of twenty twenty, I said, we bottomed,
21:07
Speaker 3: it's over. There was whatever whatever one two week recession
21:10
Speaker 3: that we had, it's over. And I remember I got
21:13
Speaker 3: so much hate. I remember at the time, like you know,
21:16
Speaker 3: you had prominent economists telling like it's going to get
21:19
Speaker 3: a lot worse. Like the bottom still not in but
21:23
Speaker 3: it was just sort of It's one of these things
21:25
Speaker 3: in business economics where it's like up is up right,
21:28
Speaker 3: Like markets care about they don't care about whether things
21:32
Speaker 3: are good or bad. They care about whether things are
21:34
Speaker 3: getting better or worse. And so you know, you can
21:39
Speaker 3: say it's not good, but hey, guess what, Like at
21:43
Speaker 3: the margin, we had more door dash deliveries in the
21:46
Speaker 3: third week of April than we did in the first
21:48
Speaker 3: week of a.
21:48
Speaker 2: Free I don't remember if it was Ned Davis or
21:51
Speaker 2: it might have even been Ed Hyman who had said,
21:55
Speaker 2: don't look for when the economy is great or terrible.
22:01
Speaker 2: Look where when it goes from terrible to bad, Like
22:05
Speaker 2: that's your first sign that you're making a bottom. Hey,
22:08
Speaker 2: this is really not a great economic data point, but
22:11
Speaker 2: it's so much better than it was last month. Maybe
22:14
Speaker 2: things were turning like that approach is when it goes
22:17
Speaker 2: from terrible to fair, you're moving in the right direct.
22:20
Speaker 3: Yeah, and also like the I mean to me, honestly,
22:22
Speaker 3: like looking back on it, that whole period was probably
22:28
Speaker 3: was the easiest call I had to I made. Huh,
22:30
Speaker 3: And it's interesting because it was kind of out of consent.
22:33
Speaker 3: I was out of consensus at the time, but I
22:35
Speaker 3: thought that it was so easy. I mean you had
22:37
Speaker 3: the I mean especially like from a market's perspective, right,
22:40
Speaker 3: I mean.
22:42
Speaker 2: Stops was straight up after that.
22:43
Speaker 3: Well, not only that, are like are we no longer
22:45
Speaker 3: going to have cruise lines? Are we no longer gonna
22:47
Speaker 3: have airlines and hotels? Like it was just so obvious, like, Okay,
22:50
Speaker 3: these are like generational buying opportunities. You better just put
22:53
Speaker 3: everything you have into these names and just ride it
22:56
Speaker 3: out because anyway, I just thought. But to me, I
23:00
Speaker 3: think what I learned there is just you know, it's
23:03
Speaker 3: it's just important to kind of just pick a bunch
23:05
Speaker 3: of like indicators and see like is it getting better
23:09
Speaker 3: or worse? And it was clearly getting better, right, I
23:13
Speaker 3: mean you can't go down after you know you've gone down.
23:16
Speaker 3: I mean in some of these indicators, it's like you
23:18
Speaker 3: can't just keep falling, right, And so there was stability,
23:20
Speaker 3: and by the second week of April, I think it
23:22
Speaker 3: was it was pretty obvious that things were turning around.
23:24
Speaker 3: And also the nature of the policy response, like right,
23:28
Speaker 3: it was huge, biggest GD well not only that, but
23:31
Speaker 3: the way they were doing it right, like the phased
23:33
Speaker 3: in approach. So like, okay, so this week, like ten
23:35
Speaker 3: percent of the economies open, and then next week we're
23:39
Speaker 3: gonna we're gonna take it. We're gonna expand it out
23:41
Speaker 3: to gyms and restaurants, and then we're gonna expand it
23:44
Speaker 3: out to department stores and things like you know, you
23:46
Speaker 3: know what I mean. So like every week they were
23:48
Speaker 3: kind of flipping on a bunch of on switches, right,
23:52
Speaker 3: and so obviously that was gonna keep the economic momentum going.
23:58
Speaker 2: So let's talk about another out of census call you
24:00
Speaker 2: made the following year. Very few economists were calling for
24:05
Speaker 2: no recession in twenty twenty two. Most were pretty bearish,
24:10
Speaker 2: and of course they looked at the FED hikes that
24:12
Speaker 2: they had missed the previous year. You were one of
24:15
Speaker 2: the few people that were saying no recession in twenty
24:18
Speaker 2: twenty two. Was it simply that v recovery and just
24:21
Speaker 2: the robust momentum that was in the economy.
24:24
Speaker 3: Well, I don't know that, I said, I mean, I
24:26
Speaker 3: definitely understood where the recession call was coming from. I
24:29
Speaker 3: think for me, the bigger gap with the consensus was
24:32
Speaker 3: really going into twenty twenty three, and I said, there
24:37
Speaker 3: wasn't going to be a recession. And I think first
24:41
Speaker 3: it's important to understand why people were kind of latching
24:44
Speaker 3: onto the recession call back then. It was basically because
24:47
Speaker 3: the FED told you so, right, I mean, the FED
24:49
Speaker 3: was basically saying, we need a recession to deal with inflation.
24:54
Speaker 3: That's what they were saying. When power like pain will
24:57
Speaker 3: be required, that that's what he means, right, And so.
25:00
Speaker 2: What did Larry Summer come out and say. Summers came
25:03
Speaker 2: out and said ten percent unemployment to fight inflation turned
25:08
Speaker 2: out to be a little uh to nineteen seventies.
25:11
Speaker 3: Ish, Well, well, sure, I mean it was. And what
25:14
Speaker 3: was the other thirty percent chance of stagflation? Thirty percent
25:16
Speaker 3: chance of this thirty I don't know whatever, But I
25:20
Speaker 3: think part of the reason, I mean, this is part
25:22
Speaker 3: of the way these models work, Right, if you have
25:24
Speaker 3: a period of inflation, the model's going to assume that
25:26
Speaker 3: you need recession in order to kind of get it
25:29
Speaker 3: back to target. Right. So I think it's at some
25:31
Speaker 3: level like one of the driving one of the reasons
25:36
Speaker 3: driving the recession views on the street back in twenty
25:39
Speaker 3: twenty two was because the FED was basically telling you
25:41
Speaker 3: that's what they thought they needed to get inflation down. Now,
25:44
Speaker 3: by the end of twenty twenty two, I think it
25:46
Speaker 3: was becoming increasingly clear to me that we weren't going
25:49
Speaker 3: to have a recession. And again I kind of put
25:52
Speaker 3: on my business economics hat, right, Like, So, if you
25:55
Speaker 3: go back to that period, we had the Russian invasion
25:58
Speaker 3: of Ukraine that sent energy prices through the roof. By
26:01
Speaker 3: the end of the year, gas prices had basically round tripped,
26:05
Speaker 3: and the labor markets were strong. So we were going
26:07
Speaker 3: into twenty twenty three with upward momentum and real incomes. Okay,
26:11
Speaker 3: so that's good, that's just support consumer spending. Next, despite
26:16
Speaker 3: massive FED hikes, like the FED was going seventy five
26:19
Speaker 3: BIPs a meeting by the end of the year, what
26:22
Speaker 3: was going on with home building stocks? They were actually
26:25
Speaker 3: turning around. Right. Homebuilder sentiment was getting better. Right, builders
26:28
Speaker 3: were in a much better balance sheet position. They were
26:32
Speaker 3: able to buy their buyers down in terms of mortgage
26:35
Speaker 3: rate buy downs.
26:35
Speaker 2: Right, so had massive shortage of single family home exactly.
26:39
Speaker 3: So, so housing was doing well despite hikes. You had
26:44
Speaker 3: governments spending a lot of money, Like state and local
26:46
Speaker 3: governments were flushed with cash, right, they got all this
26:49
Speaker 3: COVID money, So you had government spending, and then everyone
26:53
Speaker 3: was prime for recession, right. I mean, if it's what
26:56
Speaker 3: it's like, this expectations, you know element of it, If
27:00
Speaker 3: you know, one of the ways I think recession happens
27:02
Speaker 3: is through surprise. If people think, you know, things are
27:06
Speaker 3: going to be okay, and then they're not, then that
27:08
Speaker 3: prompts the clearing out of inventories and investment and so forth.
27:10
Speaker 3: And then but if if the opposite it's true, then
27:13
Speaker 3: then that'll happen. Right, So if everyone is prime for
27:15
Speaker 3: recession and it doesn't happen, then there's going to be
27:18
Speaker 3: a period where you have to kind of gear up
27:19
Speaker 3: and invest in inventories and hiring and so forth. And
27:24
Speaker 3: so based on those four factors, to me, it was like,
27:27
Speaker 3: by the end of twenty twenty two, it's like, yeah,
27:29
Speaker 3: we're not going to have a recession. Real incomes are
27:31
Speaker 3: growing too rapidly in order for that to happen, and
27:33
Speaker 3: the housing market's doing well. Like if you can get
27:36
Speaker 3: that right, if housing is working in the US and
27:39
Speaker 3: labor markets and real incomes are growing you're not getting
27:42
Speaker 3: a recession, so you know, and so to me it
27:46
Speaker 3: was like a really easy market call because a lot
27:48
Speaker 3: of the weakness in the market was just predicated on
27:50
Speaker 3: recession risk, and so to like this, the more obvious
27:53
Speaker 3: it became that that wasn't the case. It was, you know,
27:57
Speaker 3: to me, it was very clear that you know that
28:00
Speaker 3: equities we're strong by.
28:03
Speaker 2: So you've talked a little bit about the Street predicting
28:08
Speaker 2: four to six rate cuts this year. They've been predicting
28:11
Speaker 2: that pretty much since twenty twenty two and have consistently
28:14
Speaker 2: been way too dubvish. What do you think the Street
28:18
Speaker 2: has been missing over the past, you know, two or
28:21
Speaker 2: three years.
28:23
Speaker 3: Well, I mean, I think the main story over the
28:25
Speaker 3: last two years, and you know, I'm a little bit
28:29
Speaker 3: more cautious now, but I do think the main story
28:31
Speaker 3: of the last couple of years has just been how
28:33
Speaker 3: resilient the US economy is. And you know, that's basically
28:39
Speaker 3: been the main stories that We've had very very strong
28:41
Speaker 3: income growth. You know, we've had obviously a lot of
28:46
Speaker 3: state and local government spending, a lot of federal spending,
28:49
Speaker 3: but the main story I think has been, you know,
28:52
Speaker 3: very strong growth and real incomes, which has been supporting
28:54
Speaker 3: household consumption. And if you get the consumer right in
28:57
Speaker 3: the US, pretty much everything else will fall into place.
29:00
Speaker 2: So when we look out at the world today, we've
29:03
Speaker 2: seen a lot of volatility in policy. I hate the
29:08
Speaker 2: word uncertainty, but at least a lack of clarity, which
29:12
Speaker 2: seems to be affecting people's long term travel plans, corporate
29:17
Speaker 2: capex plans. How significant is all of the back and
29:22
Speaker 2: forth on various policy issues out of the White House
29:27
Speaker 2: impacting your analysis?
29:30
Speaker 3: Well, I do think that when uncertainty is high, it
29:35
Speaker 3: just makes sense to kind of double down and look
29:37
Speaker 3: at the data as it's coming in, right. I mean,
29:39
Speaker 3: it's what you shouldn't try to make a big sweeping
29:42
Speaker 3: forecast if the uncertainty is high, but you should kind
29:45
Speaker 3: of think about what's just look at what's happening in
29:47
Speaker 3: front of you. And that's kind of what I've been
29:50
Speaker 3: trying to do. And you know, when I look at
29:53
Speaker 3: what's happening right now, I mean I don't get a
29:56
Speaker 3: lot of optimism. I mean have it looks like the
30:00
Speaker 3: labor markets are continuing to cool.
30:01
Speaker 2: Off, still positive, but certainly at much lower levels than
30:05
Speaker 2: we saw two three years ago.
30:07
Speaker 3: I mean, I think, to me, momentum matters. Right, we
30:09
Speaker 3: talk about better or worse, right, I mean, the labor
30:12
Speaker 3: markets are clearly getting worse. And you know, is it
30:15
Speaker 3: is it nonlinear? No, it's not. But you know, you know,
30:18
Speaker 3: one of the points that I've been making this year
30:20
Speaker 3: is that all recessions begin with a slowdown. Not all
30:24
Speaker 3: slowdowns and in recession, but we know that all recessions
30:27
Speaker 3: start with a slowdown. And it's pretty clear that the
30:29
Speaker 3: labor markets are slowing down. You have a very narrow
30:33
Speaker 3: kind of breath of industries adding employee jobs. A lot
30:38
Speaker 3: of it is in kind of acyclical industries like education
30:41
Speaker 3: and health, so sort of the cyclical areas of labor
30:43
Speaker 3: market are slowing down. You're seeing weakness in like white
30:46
Speaker 3: collar professional services, recruiting intensities low. So the labor markets
30:52
Speaker 3: I think are To me, that's been my big my
30:55
Speaker 3: big theme for this year is that it's it's far
30:57
Speaker 3: more concerning. And then the consensus seems to appreciate, and
31:02
Speaker 3: I think also for the Fed. I mean, they keep
31:05
Speaker 3: talking about how the labor market is solid and and
31:10
Speaker 3: what they're I mean, to me, that's basically a very
31:12
Speaker 3: like surface level analysis, like they're looking at, Okay, the
31:14
Speaker 3: unemployment rate is four point one percent, and therefore the
31:17
Speaker 3: labor markets are solid. But I think you can make
31:19
Speaker 3: a very strong case that the that the unemployment rate
31:22
Speaker 3: of four point one percent is really overstating the degree
31:25
Speaker 3: of health in the in the job market. Right, Like,
31:27
Speaker 3: when the unemployment rate is four point one percent, you
31:29
Speaker 3: typically don't see like the hiring rate as low as
31:33
Speaker 3: it is, you don't see the quits rate as low
31:35
Speaker 3: as it is, you don't see consumer confidence in the
31:37
Speaker 3: job market as bad as it is. You don't see
31:41
Speaker 3: you know, even wage growth is slowing down, right, So if.
31:43
Speaker 2: But it's still it's slowing down from a pretty high level.
31:46
Speaker 2: Where what is wage growth now about four percent?
31:48
Speaker 3: Is that? Well, it's actually slownging a bit more than that,
31:51
Speaker 3: I mean, it's it's running. If you look at over
31:52
Speaker 3: the last three months or so, it's around you know,
31:54
Speaker 3: three three and a half percent. But huh, but if
31:58
Speaker 3: if that, but again, like if the labor markets were
32:01
Speaker 3: tight or tightening, then you wouldn't expect to see wage
32:05
Speaker 3: growth continuing to slow down and you have ongoing increases
32:10
Speaker 3: in like the number of discouraged workers. Right, you have
32:13
Speaker 3: a lot of people exiting the workforce're going straight from
32:16
Speaker 3: unemployment out of the labor force. I mean, these are
32:18
Speaker 3: not things that happen in a healthier, solid job market.
32:22
Speaker 2: How much of this is driven by the past five
32:25
Speaker 2: whacky years, including the pandemic and a giant decrease in
32:31
Speaker 2: people working, the recovery in people returning, plus the entire
32:35
Speaker 2: fiscal stimulus making its way through the system. It's not
32:39
Speaker 2: like twenty twenty five is just one in a series
32:42
Speaker 2: of normal years. It's one in a series of very
32:46
Speaker 2: unusual situations, including what five hundred and twenty five basis
32:50
Speaker 2: points of FED hikes in eighteen months or so. So
32:55
Speaker 2: how do you contextualize this slow down as the pig
32:59
Speaker 2: works way through the python?
33:02
Speaker 3: I mean, so this is sort of the argument that,
33:04
Speaker 3: like the whole thing was just one giant like bull whip,
33:06
Speaker 3: and we've kind of, you know, now we're just we're
33:08
Speaker 3: still normalizing from all of it. You know, I think
33:12
Speaker 3: to me, it's that's possible. But it's just again, like
33:17
Speaker 3: the sectors that are slowing down are not the ones
33:20
Speaker 3: you want to see slow down, right, I mean, you
33:23
Speaker 3: know you're at a point now where it looks like
33:26
Speaker 3: housing market conditions are continuing to deteriorate, right, Like prices
33:29
Speaker 3: are slowing. They're slowing in the in the markets where
33:32
Speaker 3: builders make homes. That's going to probably lead to job
33:37
Speaker 3: losses in the construction industry.
33:39
Speaker 2: They're not getting any help from the FED in terms
33:41
Speaker 2: of rates at least no time sting.
33:43
Speaker 3: Well, no, right, I mean to the extent that the
33:45
Speaker 3: housing market is working, it's basically because the sellers are capitulating, right,
33:51
Speaker 3: I mean, they're they're listing homes for market, they're willing
33:53
Speaker 3: to take price concessions. That's pushing up transaction volumes to
33:56
Speaker 3: some extent, right, So that's that's that's been okay. I mean,
33:59
Speaker 3: you see, you have a little bit more elasticity coming
34:01
Speaker 3: into the housing market, you know. But the fact that
34:05
Speaker 3: the labor markets are cooling down, what does that mean?
34:08
Speaker 3: Primarily that's going to weigh on consumer spending and that
34:14
Speaker 3: kind of sets in motion like a below trend growth outlook.
34:17
Speaker 2: So let me ask you what I think is one
34:20
Speaker 2: of the most perplexing issues. Consumer spending pretty close to
34:24
Speaker 2: record highs right now, and at the same time, consumer
34:27
Speaker 2: sentiment pretty much still in the dumper off the lows
34:30
Speaker 2: but still historically low. How do we reconcile the robust
34:36
Speaker 2: spending with the terrible sentiment are one of those indicators
34:40
Speaker 2: one of those measures broken?
34:43
Speaker 3: Well, I don't know that. So this is like the
34:46
Speaker 3: vibe session kind of story.
34:48
Speaker 2: And I definitely are you a vibe session person or no?
34:54
Speaker 3: No, I mean I think consumer sentiment. To me, what's
34:58
Speaker 3: really interesting about what's happened with consumer sentiment is how
35:02
Speaker 3: the link between consumer sentiment and labor market views basically
35:07
Speaker 3: completely detached following twenty twenty one twenty two, right, I
35:13
Speaker 3: mean once inflation started going So for most of my career,
35:19
Speaker 3: if you basically got like the labor market view, right
35:22
Speaker 3: you pay you more or less, would get the consumer
35:24
Speaker 3: sentiment number, right, you know what I mean, like no more,
35:27
Speaker 3: no more, right, I mean. So it's just it's one
35:29
Speaker 3: of these things where when you ask someone like how
35:35
Speaker 3: do you rate the economy, It'll be like something like
35:38
Speaker 3: it will be a very low number. How do you
35:39
Speaker 3: rate the labor market? It'll be a very strong number.
35:41
Speaker 3: That's very perplexing, But it's just it just it demonstrates
35:44
Speaker 3: that people don't look at the economy solely through the
35:47
Speaker 3: prism of the job market.
35:48
Speaker 2: What else is kind of fascinating is if you ask
35:51
Speaker 2: people how do you rate the economy and they're like, mah,
35:54
Speaker 2: how do you rate your personal economy? Oh, I'm doing fine.
35:58
Speaker 2: It's like, how do you think of Congress?
35:59
Speaker 3: Oh?
35:59
Speaker 2: Congress, this is terrible? What about your congressman? Oh, he's great?
36:02
Speaker 3: Totally.
36:03
Speaker 2: So all of this brings me back to the question
36:07
Speaker 2: is sentiment broken? When we look at the Michigan consumer
36:10
Speaker 2: sentiment worse than the pandemic, worse than the GFC, worse
36:15
Speaker 2: than nine to eleven in the dot com implosion, worse
36:18
Speaker 2: than the eighty seven crash, it kind of makes me
36:21
Speaker 2: stop and think, are all of us missing how terrible
36:24
Speaker 2: things are? Or is just this methodology of asking people
36:29
Speaker 2: in twenty twenty five what they think just doesn't work anymore.
36:33
Speaker 3: Well, the methodology for the umish number in particular, did change.
36:35
Speaker 3: I think they moved online. But so I just saw
36:38
Speaker 3: to me, it's like, consumer sentiment is basically a function
36:41
Speaker 3: of what stocks are doing, what inflation's doing, and what
36:45
Speaker 3: jobs are doing. And if you think about it that way,
36:50
Speaker 3: the drop in consumer sentiment made a lot of sense
36:53
Speaker 3: because inflation went really through the roof, right, and so
36:57
Speaker 3: that's why sentiment went down. Since then, you've some stability
37:00
Speaker 3: and inflation, and you know now that the stock markets
37:06
Speaker 3: back to all time highs. Essentially you've seen some recovery
37:10
Speaker 3: and consumer sentiment not surprisingly. But what I'm what I've
37:15
Speaker 3: been focusing on, it's, you know, there's this big debate about,
37:19
Speaker 3: you know, how useful survey measures of economic data are,
37:23
Speaker 3: like consumer sentiment is m versus like hard economic data
37:29
Speaker 3: like manufacturing production, jobs growth. So to me, I think
37:33
Speaker 3: the bigger question for people in my field is like
37:35
Speaker 3: how much do you want to weigh survey measures of
37:39
Speaker 3: economic data in your process? And to me, there is
37:43
Speaker 3: still useful information in these surveys, right, Like, so when
37:45
Speaker 3: you when you look at the conference board data, for example,
37:48
Speaker 3: it's another consumer confidence number. If you look at like
37:50
Speaker 3: the labor differential, So what are consumers telling you about
37:53
Speaker 3: how how plentiful jobs are? How are jobs hard to
37:56
Speaker 3: get or are they plentiful? That number still does a
38:00
Speaker 3: reasonably good job telling you or informing you about like
38:07
Speaker 3: tightness in the job market. Right, So if I mean,
38:10
Speaker 3: and if consumers are telling you that things are a
38:11
Speaker 3: little bit more slack. You should probably believe them. So
38:16
Speaker 3: to me, it's about looking at which pieces of survey
38:19
Speaker 3: data are important and which ones aren't. Even in you know,
38:22
Speaker 3: regional manufacturing data. Right, you get asked, they ask the
38:25
Speaker 3: purchasing managers about their capex intentions. Again, it's another indicator.
38:29
Speaker 3: It does a reasonably good job like mirroring the broad
38:32
Speaker 3: ups and downs in business investment like cor durable goods.
38:35
Speaker 2: So I think the purchasing manager seems to be that
38:40
Speaker 2: survey seems to be a little less out of sync
38:43
Speaker 2: with spending than consumer sentiment is with either labor or
38:48
Speaker 2: consumer spending. Fair statement.
38:50
Speaker 3: Yeah, I mean the consumer sentiment number doesn't look like
38:53
Speaker 3: consumer spending. I mean that. But that's that, that is true.
38:59
Speaker 3: That is true. They're elements within the consumer sentiment stuff.
39:01
Speaker 3: That kind of makes sense. But you know, broadly speaking,
39:05
Speaker 3: you're right, consumer sentiment is dramatically understating how much consumers
39:09
Speaker 3: have been spending. That's true.
39:12
Speaker 2: So, so we're talking about all these different US data series.
39:17
Speaker 2: How do you incorporate global macro trends and global economic
39:20
Speaker 2: data into your models.
39:24
Speaker 3: I'm gonna be honest with you. I don't spend a
39:26
Speaker 3: lot of time focusing on the rest of the world.
39:28
Speaker 3: Really that's probably to my own, to my own, I mean,
39:32
Speaker 3: especially for.
39:33
Speaker 2: These days with Europe outperforming the US and emerging markets
39:36
Speaker 2: doing well after underperforming the US for fifteen years.
39:40
Speaker 3: Yeah, I mean what's interesting is that you look at
39:43
Speaker 3: you know, it's right, I mean that that has been notable,
39:46
Speaker 3: Like they're the outperformance of the euro You don't really
39:48
Speaker 3: see much outperformance and growth dynamics, so it kind of
39:53
Speaker 3: tells you, like, you know, like sentiment in these towards
39:58
Speaker 3: Europe has been so depressed, so like it's been like
40:00
Speaker 3: some incremental improvements, some incremental narrowing and growth differentials, and
40:03
Speaker 3: everyone's thinking that, like Europe is off to the races,
40:06
Speaker 3: But I don't really see that in the data that
40:07
Speaker 3: we look at. I mean, if you look at purchasing
40:09
Speaker 3: managers surveys, for example, in Germany, I mean they're still
40:12
Speaker 3: well below I mean they're still below fifty. I mean
40:14
Speaker 3: German manufacturing, French manufacturing have been in the kind of
40:17
Speaker 3: dumps for for a while.
40:18
Speaker 2: And Germany is in the middle of economic contraction, right.
40:22
Speaker 3: Yeah, I mean it's you know, there's been a lot
40:24
Speaker 3: of it seems like a lot of like hopium based
40:27
Speaker 3: on like defense spending and fiscal reflation and so forth.
40:31
Speaker 2: Huh, really really interesting. Let's talk a little bit about
40:36
Speaker 2: the possibility of a recession in twenty five or twenty six.
40:42
Speaker 2: What do you think is the most significant macroeconomic risk
40:46
Speaker 2: facing the United States right now?
40:50
Speaker 3: Well, I mean, obviously the one that's getting the most
40:53
Speaker 3: attention is a radic trade policy, But I don't think
40:58
Speaker 3: that by itself is what's going to cause a recession.
41:01
Speaker 3: I think it's primarily like monetary policies too tight. You
41:05
Speaker 3: have essentially you have nominal GDP slowing, and the Fed
41:10
Speaker 3: funds rate is not doing anything. It's basically flat at
41:13
Speaker 3: four and a half percent. So to me, that represents
41:16
Speaker 3: a passive tightening of monetary policy, and that will continue
41:19
Speaker 3: to build pressure on the economy, particularly on the labor market.
41:22
Speaker 3: So you know, kind of go down the list, right.
41:26
Speaker 3: I do think that their left tail risk of the
41:28
Speaker 3: distribution has gone up, you know number one. I mean,
41:34
Speaker 3: labor markets are cooling and income growth is slowing. That's
41:37
Speaker 3: probably going to weigh on consumer spending. That was true
41:41
Speaker 3: even before tariffs came into force. If you look at housing,
41:48
Speaker 3: residential investment is probably slowing because home prices are now declining,
41:54
Speaker 3: particularly in the places where the builders are making the
41:57
Speaker 3: homes right, which is like the South Florida Tech Arizona.
42:01
Speaker 3: That's weighing on construction activity. If you look at business investment,
42:10
Speaker 3: it's probably welcome that they just passed this tax law
42:14
Speaker 3: and that gives some certainty around the tax outlook. But
42:17
Speaker 3: at the same time, you know, some of that effect
42:22
Speaker 3: is going to be blunted by what's going on with trades.
42:26
Speaker 3: So you haven't really seen much in terms of Yeah,
42:29
Speaker 3: outside of AI, business investment has been quite sluggish. So
42:35
Speaker 3: I stay in local governments cutting back right, So it's
42:39
Speaker 3: just sort of it's a very unstable kind of equilibrium
42:43
Speaker 3: in my opinion. And I do think that, you know,
42:47
Speaker 3: if as consumer spending is slowing, that creates risks for
42:52
Speaker 3: the US economy.
42:54
Speaker 2: So is your base case that recession in second half
42:58
Speaker 2: of twenty twenty five sometime in twenty six likely probable?
43:03
Speaker 3: I have it on the board. I mean, I definitely
43:05
Speaker 3: think that our recession is more likely than not. And specifically,
43:12
Speaker 3: I think you'll see a period of you know, a
43:14
Speaker 3: quarter or two where you get a series of negative
43:17
Speaker 3: employment reports, and and I think that'll push up the
43:23
Speaker 3: unemployment rate and probably bring in the FED to tart
43:26
Speaker 3: more aggressively.
43:27
Speaker 2: So unemployment rate ticks up to four and a half
43:30
Speaker 2: five percent. Where do you see this going five and
43:32
Speaker 2: a quarter.
43:32
Speaker 3: I don't know it goes up that high, but I
43:34
Speaker 3: can easily see it getting it close to four to
43:36
Speaker 3: five percent at some point over the next twelve months.
43:38
Speaker 2: Sure, and that forces the FED to So let's talk
43:42
Speaker 2: about the FED for a second. You know, once the
43:46
Speaker 2: first Cares Act, which was what two trillion dollars ten
43:50
Speaker 2: percent of GDP, the biggest fiscal stimulus since World War Two.
43:54
Speaker 2: Once that was passed, it seemed like the FED was
43:57
Speaker 2: increasingly behind the curve. Inflation start to tick up in
44:01
Speaker 2: twenty but really take off in twenty one, and they
44:05
Speaker 2: kind of sat on their hands until when did the
44:08
Speaker 2: cycle start? March or April of twenty twenty two, And
44:13
Speaker 2: by then by June it was inflation peaked and started
44:16
Speaker 2: heading down. And so it seems like they were late
44:19
Speaker 2: to recognize inflation, they were late to tighten. Now it
44:23
Speaker 2: seems like they're late to start cutting. At least in
44:27
Speaker 2: your assessment, is the FED just a big, slow, ponderous institution,
44:32
Speaker 2: and they're always going to be behind the.
44:34
Speaker 3: Count like Trump too late.
44:36
Speaker 2: Now, by the way, you're the first person ever accused
44:39
Speaker 2: me of that. But to be fair, hold aside the
44:45
Speaker 2: beef between Trump and Powell. For my entire professional career
44:50
Speaker 2: in finance, it has felt like the FED is always
44:53
Speaker 2: late to the party. Yeah, I mean, I think they're
44:59
Speaker 2: just conservative and slow, and they would rather be late
45:03
Speaker 2: than mistaken.
45:04
Speaker 3: I think is affect you know, I mean, you know
45:06
Speaker 3: there are times when they're I mean, even by Powells
45:11
Speaker 3: on admission, like last year he said that when they
45:13
Speaker 3: went fifty in September that even that was a little
45:16
Speaker 3: bit late. So yeah, I mean, you know, it's a
45:19
Speaker 3: consensus building institution. You have to kind of corral your
45:23
Speaker 3: your colleagues to your view and so that that to
45:26
Speaker 3: me might be one reason why it's a little bit slow.
45:31
Speaker 3: But as I say, I mean.
45:36
Speaker 2: So we've talked a little bit about, or you brought
45:40
Speaker 2: up how much uncertainty there seems to be around the
45:44
Speaker 2: tariff policy, especially on again off again. What are the
45:51
Speaker 2: risks from the tariff policy? Could this be a factor
45:55
Speaker 2: in the recession, what other knock on effects do you
45:58
Speaker 2: see from from this new pop.
46:00
Speaker 3: I think the main effect is that it freezes business
46:02
Speaker 3: investment in place, right. I mean that to me is
46:04
Speaker 3: the big story.
46:04
Speaker 2: Nobody wants to commit hundreds of millions of billions of
46:07
Speaker 2: dollars till they know what the polomy.
46:09
Speaker 3: Trading relationships will be with all these other countries. Sometimes
46:12
Speaker 3: you're announcing terrorists with countries we may already have trading agreement.
46:16
Speaker 2: South Korea we have twenty twelve.
46:18
Speaker 3: Korea is a good example.
46:20
Speaker 2: Sort of bizarre we don't we have?
46:22
Speaker 3: So yeah, I mean, and you know, look like this,
46:25
Speaker 3: this to me is like it's the return of like
46:27
Speaker 3: the Trump collar strategy, right. I mean one of the
46:29
Speaker 3: things that we thought very early on was that you know,
46:35
Speaker 3: essentially he's going to be testing the market, right, I
46:37
Speaker 3: mean if the market gets you know, it's it's sort
46:42
Speaker 3: of bounded in a way, right, a strong stock market,
46:46
Speaker 3: maybe he pushes the trade dial up a little bit.
46:49
Speaker 3: Then if the market sells off, maybe he'll back off. Right.
46:52
Speaker 3: So it's it's sort of he's trying to find an
46:54
Speaker 3: equilibrium for himself that he's comfortable with. And you know
46:59
Speaker 3: that to me for businesses, right, Like to me, It's
47:04
Speaker 3: as simple as part of his stick is chaos, and
47:09
Speaker 3: the business community doesn't like uncertainty. So that's a fundamental tension.
47:15
Speaker 3: But I think so that's going to weigh on investment spending.
47:17
Speaker 3: But I think in the background, you still have this
47:19
Speaker 3: kind of slow bleeding in the job market. You have
47:21
Speaker 3: this ongoing cooling and consumer spending. You have this slow
47:26
Speaker 3: sort of bleeding out bleeding out in the housing market
47:29
Speaker 3: that's weighing on construction. So and you have you know,
47:33
Speaker 3: state in local governments cutting back, so you just don't
47:36
Speaker 3: have as many drivers for growth, and ultimately that becomes
47:40
Speaker 3: a problem.
47:41
Speaker 2: So what is going to finally push the FED into
47:45
Speaker 2: beginning cutting rates? What do you think is the most
47:48
Speaker 2: important data series they're looking at. I really don't imagine
47:52
Speaker 2: anyone cares whether inflation is two or two in a quarter.
47:56
Speaker 2: But if we see, as you mentioned, a negative payrolls print,
48:01
Speaker 2: that has to get their attention, doesn't it. Yeah, I
48:04
Speaker 2: would think, so what else might get their attention and
48:07
Speaker 2: start a new rate cycle?
48:09
Speaker 3: To me, the most important thing is seeing what happens
48:11
Speaker 3: with you know, essentially labor markets slack, right, I mean,
48:15
Speaker 3: if if wage growth continues to slow, down, then the
48:21
Speaker 3: ability for households to essentially absorb tariffs is non existent,
48:28
Speaker 3: which makes it very difficult to see where you get
48:30
Speaker 3: inflation from. So right now they've been kind of making
48:33
Speaker 3: this point that the labor markets are not a source
48:36
Speaker 3: of inflationary pressure. If you get further slack in the
48:39
Speaker 3: labor market at this point, like at that point, maybe
48:41
Speaker 3: inflate the labor markets become a source of disinflationary pressure.
48:45
Speaker 3: And so I think that's something they have to keep
48:46
Speaker 3: an eye on.
48:47
Speaker 2: What else might capture the Fed's attention and say, hey,
48:51
Speaker 2: we're really behind the curve. How what what do you
48:54
Speaker 2: look at in the housing market, Is it just new
48:57
Speaker 2: home starts or what?
48:59
Speaker 3: Prices are slowing right? I mean not to me, so it's.
49:01
Speaker 2: But they're still they're not negative and most especially in
49:04
Speaker 2: the coasts, in in the big cities and in in.
49:08
Speaker 3: Well, prices aren't negative in the northeast. But if you
49:10
Speaker 3: look at like California, like Inland County, Florida, also prices
49:13
Speaker 3: are down. They're they're contracting outright, and in places like Texas, Florida, Inland, California, Arizona.
49:20
Speaker 2: But they've experienced giant booms over the past five years
49:23
Speaker 2: they have.
49:23
Speaker 3: But at the same I mean, I would just that
49:25
Speaker 3: that's true. But to me, again, it's about what's happening
49:27
Speaker 3: at the margin. At the margin, prices are contracting and
49:30
Speaker 3: that matters, and that matters, and inventories arising, and you know,
49:37
Speaker 3: to me, that's the main asset on the most households
49:40
Speaker 3: balance sheet. And if you look at home prices, I
49:42
Speaker 3: mean there is an important link between home prices and
49:44
Speaker 3: actual price inflation, right, I mean you can just look
49:47
Speaker 3: at the data. You know, the the cities across the
49:50
Speaker 3: country that are experiencing the most home price deflation are
49:54
Speaker 3: also the places where you don't see much consumer price inflation.
49:57
Speaker 3: So I think that's notable.
49:59
Speaker 2: So when one of your more recent research pieces you
50:02
Speaker 2: talked about the importance of the US dollar, Why is
50:06
Speaker 2: this such a huge factor on a macro level? What
50:10
Speaker 2: do we down ten percent year to date in the dollar?
50:13
Speaker 2: How significant is the dollar to the rest of the economy.
50:19
Speaker 2: And let me know if i'm if I get if
50:21
Speaker 2: I'm talking, If you didn't say that, I have so
50:25
Speaker 2: much stuff in my head I can't keep it all straight.
50:27
Speaker 3: Well, I mean, the dollar is important. You know, typically
50:32
Speaker 3: when you have a weeker dollar, right, I mean you
50:36
Speaker 3: should assume that you get some upward pressure on core inflation.
50:40
Speaker 3: I think what's notable about what's happened with the dollar
50:42
Speaker 3: is that it kind of went the other way in
50:44
Speaker 3: terms of what people thought. Right, Remember the big line.
50:47
Speaker 3: The line was that you know, we're gonna put these
50:49
Speaker 3: tariffs on a lot of the shock is going to
50:51
Speaker 3: be neutralized because the dollar is going to get stronger.
50:54
Speaker 3: Didn't actually happen. Yeah, Well, I mean it did for
50:57
Speaker 3: a day, mainly against EM but most of the weakness
51:01
Speaker 3: and the dollar actually was against G ten FX. So
51:05
Speaker 3: but at any rate, yeah, I mean, so.
51:08
Speaker 2: It's the significant of the dollar to the economic cycle.
51:12
Speaker 2: The things like foreigners buying US homes is a big
51:17
Speaker 2: driver in a lot of cities. How significant is a
51:21
Speaker 2: dollar to either a recession, coal inflation, or real estate?
51:27
Speaker 3: Well, so, I mean I think it depends how I mean,
51:30
Speaker 3: So it's interesting how you how you're framing this question.
51:32
Speaker 3: I mean, I think in remember, in macro like, everything
51:36
Speaker 3: is correlated, right, so if if the dollar, to me,
51:40
Speaker 3: it's really about why the dollar's moving the way it is.
51:43
Speaker 3: So if we were actually if I let's say I'm right,
51:45
Speaker 3: and we go into recession, I would assume the dollar
51:47
Speaker 3: to be strengthening in that environment, right, because it's a
51:50
Speaker 3: safety play, right, So if the US economy's weakening, then
51:54
Speaker 3: you know, people are going to seek out safety, and
51:56
Speaker 3: that should push the dollar value up.
51:59
Speaker 2: You mentioned in April that it was potentially your worst
52:02
Speaker 2: case scenario, and in that month, after the big trade
52:07
Speaker 2: policy TAFF policy announcement on April second, we saw bond's weekend,
52:13
Speaker 2: we saw stocks weekend, we saw the dollar week in sort.
52:16
Speaker 3: Of he'll sell America trade. But if you if you
52:18
Speaker 3: go back to that though, right, Barry, I mean, if
52:20
Speaker 3: you look at the number of times where that combination
52:25
Speaker 3: of things happened, I mean you could probably count on
52:28
Speaker 3: one hand, right how many days that happened. So it
52:31
Speaker 3: was like it was one of these things where the
52:34
Speaker 3: narrative kind of got way out in front of what
52:36
Speaker 3: was actually happening. And now here we sit a couple
52:40
Speaker 3: of months later, and we're talking about US equities at
52:43
Speaker 3: all time highs, and you know, so, I mean I
52:45
Speaker 3: think it, you know, maybe part of it is maybe
52:48
Speaker 3: there's a little bit more enthusiasm around what's going on
52:51
Speaker 3: in Europe, right. I mean Europe is taking steps to
52:53
Speaker 3: reflate their economy. That's good for the euro you know,
52:57
Speaker 3: you have at the margin, like people are a little
53:00
Speaker 3: bit more optimistic about emerging markets. Emerging market currencies have
53:03
Speaker 3: been doing better, so you know, there's this train of
53:09
Speaker 3: thought that, like the dollars, is purely a function of
53:12
Speaker 3: like the the Trump more on risk premium. But that,
53:16
Speaker 3: to me, does I don't think that goes That might
53:20
Speaker 3: be some of it, but I don't think that's nearly
53:22
Speaker 3: all of it.
53:23
Speaker 2: That is, I've heard taco. I can't say I've heard
53:26
Speaker 2: more on risk premia before. That's a new phrase. Don't
53:30
Speaker 2: send your hate mail to me. Let me throw a
53:34
Speaker 2: curveball question at you before we get to our favorite questions.
53:38
Speaker 2: What do you think investors are not talking about but
53:41
Speaker 2: perhaps should be And it could be any topic, assets, geography, policy,
53:46
Speaker 2: What data point is getting overlooked but is important and
53:51
Speaker 2: people should be paying attention to.
53:52
Speaker 3: Well. I think what's interesting is this sort of the
53:55
Speaker 3: Trump Apprentice show with the fed chair. I think that's
53:58
Speaker 3: becoming I mean Scott right, I mean there's this there's
54:02
Speaker 3: this whole talk about shadow feed chair. But if you
54:05
Speaker 3: get into a situation where by Trump doing what he's doing,
54:13
Speaker 3: do you actually get him naming a chairman in name
54:18
Speaker 3: only because Kevin yeah or no? But basically, in other words,
54:22
Speaker 3: what I'm saying is these guys are trying to get
54:24
Speaker 3: this done early, essentially to kind of create a condition
54:29
Speaker 3: for some sort of shadow fed shair right with.
54:31
Speaker 2: No authority, no power, no ability to rates.
54:34
Speaker 3: Well that but also maybe someone that's But then if
54:37
Speaker 3: this person ends up becoming the chair, does he actually
54:40
Speaker 3: become a chair in name only? Because Powell is still
54:43
Speaker 3: sticking around?
54:45
Speaker 1: Right?
54:45
Speaker 3: I mean that that to me is what's interesting.
54:47
Speaker 2: Is when does Powell's term end?
54:49
Speaker 3: Well, his term is chair ends next May, but his
54:51
Speaker 3: term as a governor doesn't end for another two years
54:54
Speaker 3: after that. Oh really, So that to me is something
54:57
Speaker 3: that you know, that's a pretty uh, that's a card
55:02
Speaker 3: he can play, right, And the way they go they're
55:05
Speaker 3: going about this, you know you talk about you know,
55:09
Speaker 3: we talk about like Supreme Court justices and like litmus
55:12
Speaker 3: tests when you name right, like there's they have a
55:14
Speaker 3: litmus test for judges. Trump is creating a litmus test
55:18
Speaker 3: in a way for FED, for monetary policy officials, right.
55:20
Speaker 3: He wants someone that's going to cut.
55:22
Speaker 2: Rates, someone who's not going to be independent exactly.
55:25
Speaker 3: And so if so, I do think that this desire
55:30
Speaker 3: to have this kind of like big show like the
55:34
Speaker 3: Apprentice Monetary Policy edition and this sort of like you know,
55:40
Speaker 3: shadow fed chair, you know, trying to kind of undercut
55:44
Speaker 3: Powell before he's done with this term, that could potentially
55:49
Speaker 3: backfire in them because it would just mean that it's
55:52
Speaker 3: possible that if they put in it, if they actually
55:54
Speaker 3: get whoever they want across the finish line, once they're there,
55:58
Speaker 3: they're actually quite they're very weak chair because Powell decides
56:01
Speaker 3: to stick around.
56:03
Speaker 2: That's really quite fascinating. I haven't heard anybody talk about that.
56:06
Speaker 2: So that is very much an under the radar answer.
56:10
Speaker 2: So let's let's in our last few minutes, let's talk
56:12
Speaker 2: about our five favorite questions. We ask all of our guests,
56:17
Speaker 2: starting with tell us what you're streaming these days? What
56:19
Speaker 2: are you listening to? We're watching?
56:22
Speaker 3: M hmm, what am I watching? I just finished The
56:24
Speaker 3: Handmaid's Tale? Oh really that they had their last.
56:29
Speaker 2: Did it hold up through all these seasons?
56:32
Speaker 3: I thought? I thought the last season was actually pretty good,
56:35
Speaker 3: So I I like that. I just watched Netflix The
56:39
Speaker 3: Poop Cruise. That was pretty fun.
56:40
Speaker 2: Oh really, that's people stuck on the boat in the
56:43
Speaker 2: beginning of Yeah, it was a good like it's such
56:45
Speaker 2: a horrible title.
56:46
Speaker 3: It was a quick it was a quick documentary. But
56:48
Speaker 3: I but I kind of enjoyed it. And yeah, those
56:52
Speaker 3: are those are the two things that are tests that
56:54
Speaker 3: are top of mind for me.
56:55
Speaker 2: Those are those are very eclectic, little similar. I walked
57:01
Speaker 2: in on my wife watching The Gilded Age, and somehow
57:04
Speaker 2: I got sucked into this. And it's really quite fascinating
57:08
Speaker 2: because all the issues that we argue about today, wealth
57:12
Speaker 2: inequality and new money versus all money and economic strata
57:17
Speaker 2: and economic mobility, themes of the Gilded Age one hundred
57:23
Speaker 2: and fifty years ago. It's amazing that everything's changed and
57:26
Speaker 2: nothing's changed, right, It's kind of kind of fascinating. Let's
57:29
Speaker 2: talk about mentors. Who were some of your early mentors
57:32
Speaker 2: who helped shape your career.
57:35
Speaker 3: You know, it's interesting. I mean I think about that.
57:40
Speaker 3: I mean, I remember you asked me this question the
57:41
Speaker 3: last time I was on and I probably said, you know,
57:45
Speaker 3: Ethan Harris, right, I think I'd put Drumatis in that
57:48
Speaker 3: category of mentor. But I'm also at the point now
57:52
Speaker 3: I feel like in my career where the people that
57:54
Speaker 3: I idolized early on are now actually like my rivals, right,
57:57
Speaker 3: they're my competitors in some respects, right, I mean we
58:00
Speaker 3: talk about Rosie. I mean, he and I are both
58:01
Speaker 3: in the research business, you know, I mean, so it's
58:04
Speaker 3: sort of it's interesting.
58:07
Speaker 2: If you're bearish the same year he's bearish, or at
58:11
Speaker 2: least the same quarter. That's an unusual alignment because for
58:16
Speaker 2: as long as that might be true right now, because
58:18
Speaker 2: for fifteen years you've been fairly yeah, fairly constructive, and
58:24
Speaker 2: you can't say the same of Rosie. This could be
58:27
Speaker 2: the first time, second half twenty twenty five.
58:29
Speaker 3: We're aligned, right, But you know that just means.
58:32
Speaker 2: You've shifted because he's been sort of.
58:34
Speaker 3: But so now it's more about like not so much mentors,
58:37
Speaker 3: but like who am I Who am I talking to
58:39
Speaker 3: to kind of help me work through my process as
58:42
Speaker 3: like an analyst and yeah, I mean some names that
58:46
Speaker 3: come to mind, like connorson your Blueberg Blueberg opinion colleague.
58:50
Speaker 3: I like talking to him about about the economic outlook.
58:54
Speaker 3: We sort of think about and come out come at
58:55
Speaker 3: things the same way. Luke Kawa is another one. I like,
59:02
Speaker 3: so these are sort of like, you know, I guess
59:05
Speaker 3: you could call them like geriatric millennials, like myself, like
59:08
Speaker 3: we sort of another periatric millennials.
59:12
Speaker 2: Again, another phrase I've never heard before.
59:14
Speaker 3: Scanda im or not is another one. I mean, he's
59:16
Speaker 3: sort of in like more of like the public policy space.
59:19
Speaker 3: But I mean I'm kind of glad he doesn't do it,
59:22
Speaker 3: but he he'd make a great business economist himself. But
59:26
Speaker 3: I mean, these are people that I just like talk
59:28
Speaker 3: to to kind of stress test my own views. And
59:30
Speaker 3: I think that's at this point in my career, Like
59:33
Speaker 3: that's what I need more than than mentors, is sort
59:36
Speaker 3: of smart people that will help me, you know, kind
59:39
Speaker 3: of think through an outlook and stress test. Yeah, or
59:44
Speaker 3: just like where are you wrong? Like like why what
59:47
Speaker 3: are you? What are you missing?
59:49
Speaker 2: That's interesting.
59:50
Speaker 3: So that that's sort of how I think about it.
59:52
Speaker 2: Now, let's let's talk about books. What are some of
59:54
Speaker 2: your favorites? What are you reading currently?
59:57
Speaker 3: You know, I don't read books.
59:59
Speaker 2: I'm a book reads.
1:00:01
Speaker 3: We did I read the news? I read. I can
1:00:06
Speaker 3: tell you who are the people that I like reading?
1:00:11
Speaker 3: You know, in journalism like Nick timros Wall Street love
1:00:16
Speaker 3: reading his stuff.
1:00:17
Speaker 2: Fed Whisper these days too.
1:00:19
Speaker 3: Well. I mean it's not just that, but he has
1:00:21
Speaker 3: like a very like you know, I mean he's he
1:00:23
Speaker 3: thinks about things very thoughtfully too, and he and he
1:00:26
Speaker 3: you know, he does a little data watching himself, so
1:00:28
Speaker 3: I kind of like reading what he has to say.
1:00:33
Speaker 3: Jonathan Levin Bloomberg Opinion. So you know those are the
1:00:39
Speaker 3: your colleague, Josh Brown. I read his stuff, so.
1:00:42
Speaker 2: He's a very thoughtful writer.
1:00:46
Speaker 3: So to me, it's really it's really I I you know,
1:00:49
Speaker 3: I don't have time to read books because I'm too
1:00:51
Speaker 3: busy like reading, uh you know, read reading the news,
1:00:56
Speaker 3: reading opinion pieces. The most interesting FED paper that I
1:00:59
Speaker 3: came across recently is just you know, we talked a
1:01:03
Speaker 3: little bit about ed Leamer before, but the FED recently
1:01:05
Speaker 3: published a paper just looking at the housing channel of
1:01:08
Speaker 3: consumer spending, right like, so they were basically making a
1:01:10
Speaker 3: fairly obvious point that if housing transactions or new home
1:01:14
Speaker 3: sales are down, like, that's going to have effects on
1:01:16
Speaker 3: housing related consumer spending. And that's something that we should
1:01:19
Speaker 3: be thinking of.
1:01:19
Speaker 2: Glurable goods Gross Board.
1:01:21
Speaker 3: Yeah.
1:01:22
Speaker 2: Absolutely, housing has always been a big driver of the economy.
1:01:26
Speaker 2: What's been so shocking about this economy is we've seen
1:01:30
Speaker 2: home transactions drop significantly just because there's no supply, but
1:01:35
Speaker 2: the economy has been so resilient. It's really been kind
1:01:38
Speaker 2: of fascinating watching that happen.
1:01:39
Speaker 3: Yeah, I mean it's interesting. I mean so again, like
1:01:41
Speaker 3: housing is one of the reasons why I'm cautious on
1:01:43
Speaker 3: the economic outlook. And you know, I think what's different
1:01:46
Speaker 3: about this time with respect to housing versus you know,
1:01:49
Speaker 3: early twenty twenty two, is that now units under construction
1:01:54
Speaker 3: are coming down. You're in a situation where starts are
1:01:57
Speaker 3: running below completions, which means that units under I mean
1:02:01
Speaker 3: essentially units under construction will have to keep falling. And
1:02:06
Speaker 3: that's not what you had last time. Right back then,
1:02:13
Speaker 3: units under construction were going up. So to me, that
1:02:17
Speaker 3: construction piece of it is different this time versus last time.
1:02:22
Speaker 2: Our final two questions, what sort of advice would you
1:02:25
Speaker 2: give to a recent grad interested in a career in
1:02:28
Speaker 2: either economics or investing.
1:02:32
Speaker 3: I mean, to me, it's just get a foot in
1:02:34
Speaker 3: the door, you know, figure out the details later. You know,
1:02:37
Speaker 3: it's sort of it never works out. The way you think,
1:02:42
Speaker 3: But you just have to put yourself in a position
1:02:44
Speaker 3: where you have the best chance of succeeding. And that,
1:02:46
Speaker 3: to me is the most is the best advice I
1:02:48
Speaker 3: can give someone. So in my case, that manifested itself
1:02:51
Speaker 3: and get your foot in the door at a bulge
1:02:53
Speaker 3: record from.
1:02:54
Speaker 2: I mean you literally were working in HR before you
1:02:57
Speaker 2: moved into.
1:02:58
Speaker 3: Yeah, it doesn't like to me, it's about again, it's
1:03:01
Speaker 3: about putting in yourself in a position where you can succeed.
1:03:04
Speaker 3: And and I think that that's definitely true. I mean
1:03:06
Speaker 3: for me, it's a number of ways that happened. Right,
1:03:08
Speaker 3: I went to n YU. I went to n YU
1:03:11
Speaker 3: because I knew that if I stayed in New York
1:03:13
Speaker 3: I'd probably have a better chance at things than if
1:03:16
Speaker 3: I left. And and it's just you know, I mean NYU.
1:03:23
Speaker 3: You know, it's not like the best school. It's not
1:03:24
Speaker 3: like Princeton or Harvard, but.
1:03:26
Speaker 2: Pretty good school.
1:03:26
Speaker 3: It's a pretty good school, and it's a business stern.
1:03:29
Speaker 3: And if you're in New York, you're gonna there recruiters
1:03:33
Speaker 3: are gonna come after you. If he went to n YU, right, right,
1:03:35
Speaker 3: It's just that simple.
1:03:36
Speaker 2: And you just need one hundred k Ye.
1:03:39
Speaker 3: Well yeah, I mean it wasn't that much when I
1:03:41
Speaker 3: was going. But but my advice would just be you
1:03:45
Speaker 3: have to put yourself in a position to succeed and
1:03:47
Speaker 3: just let the chips fall where they may. I mean
1:03:49
Speaker 3: that that to me is you know, and if that
1:03:50
Speaker 3: means taking a job that maybe not the best job,
1:03:54
Speaker 3: but it's at a firm that you have a lot
1:03:56
Speaker 3: of you know, respect for, or it's a good firm,
1:03:58
Speaker 3: good brand name.
1:03:59
Speaker 2: To make it our final question, what do you know
1:04:02
Speaker 2: about the world of investing today you wish you knew
1:04:05
Speaker 2: twenty twenty five years ago when you were first starting out.
1:04:11
Speaker 3: Ah, that's a tough one. I mean, I think my
1:04:17
Speaker 3: favorite thing, I mean, to me, what's important is and
1:04:19
Speaker 3: just trying to relay this back to my seat, is
1:04:22
Speaker 3: it's important to understand the time horizon of the person
1:04:25
Speaker 3: that you're talking to and you're providing analysis for because
1:04:27
Speaker 3: a lot of people live in the short run. But
1:04:31
Speaker 3: if you're sort of a typical investor, you can you
1:04:35
Speaker 3: can tune out a lot of the stuff that we're
1:04:36
Speaker 3: talking about, to be perfectly honest, because to quote my
1:04:39
Speaker 3: friend Sam row Stock, to usually just go up and
1:04:42
Speaker 3: so you know, it's sort of you see all this
1:04:46
Speaker 3: analysis that comes out on the street, like after the
1:04:48
Speaker 3: ism goes to forty to forty, you know, usually the
1:04:51
Speaker 3: stock markets higher six months later and twelve months later.
1:04:54
Speaker 3: We'll yeah, obviously because the.
1:04:55
Speaker 2: Stuff that's defaults depending on the decade. Looking at it's
1:05:00
Speaker 2: three out of four or four out of five.
1:05:02
Speaker 3: Yeah, So to me, it's sort of yeah. I would
1:05:06
Speaker 3: tell myself back then, like, don't worry so much about
1:05:09
Speaker 3: making big market calls. Just give people your thought process.
1:05:14
Speaker 2: Really really interesting. Neil, thank you for being so generous
1:05:18
Speaker 2: with your time. We have been speaking with Neil Dutta,
1:05:21
Speaker 2: head of economic research at Renmac. If you enjoy this conversation,
1:05:26
Speaker 2: well check out any of the five hundred and fifty
1:05:28
Speaker 2: we've done over the past eleven years. You can find
1:05:32
Speaker 2: those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your
1:05:37
Speaker 2: favorite podcast. And be sure and check out my new
1:05:40
Speaker 2: book How Not to Invest The Bad ideas, numbers and
1:05:44
Speaker 2: behavior that destroys wealth and how to avoid them How
1:05:48
Speaker 2: Not to Invest at your favorite bookseller right now. I
1:05:52
Speaker 2: would be remiss if it I did not thank the
1:05:54
Speaker 2: crack team who helps me put these conversations together each week.
1:05:59
Speaker 2: My audio engineer is Peter Nicolino. Anna Luke is my producer.
1:06:04
Speaker 2: Jean Russo is my researcher. I'm Barry Ruscholtz. You've been
1:06:08
Speaker 2: listening to Masters in Business on Bloomberg Radio.