WEBVTT - Surveillance: Recession Call with Rhame 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.840 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.040 --> 0:00:31.280 The charm of Laura Ramas. 0:00:31.360 --> 0:00:34.200 She comes from a foreign exchange background. She's chief US 0:00:34.240 --> 0:00:38.320 economist at FS Investments and follows a data like an animal. 0:00:38.479 --> 0:00:42.479 I love, Laura, how you're looking at real yields. I 0:00:42.680 --> 0:00:44.480 just went in and looked not at the ten year 0:00:45.159 --> 0:00:49.440 the vanilla reel yield, but the inflation adjusted five year yield. 0:00:49.680 --> 0:00:54.880 It is I'm thunderstruck. We're out three standard deviations, We're 0:00:54.880 --> 0:00:58.280 back to two thousand and nine. Are real yields now 0:00:58.400 --> 0:01:01.200 where they have a real effect on the American economy. 0:01:02.280 --> 0:01:05.200 I think we've seen that. We were just talking about autos. 0:01:05.400 --> 0:01:09.000 These are the interest rates sensitive sectors that have been 0:01:09.120 --> 0:01:12.440 impacted by FED hikes. The nominal part of the cycle. 0:01:12.480 --> 0:01:16.280 I think as the FED sort of transitions to the 0:01:16.480 --> 0:01:21.160 end of that, the decline that the edging down of 0:01:21.200 --> 0:01:27.000 inflation has this insidious effect via the real rates channel, 0:01:27.360 --> 0:01:29.560 and I think that's what we're going to continue to 0:01:29.640 --> 0:01:33.600 feel in the housing market, in the auto market. It's 0:01:33.640 --> 0:01:36.080 going to be a weight on consumers. You look at 0:01:36.120 --> 0:01:39.680 the interest rate burden the households are facing. It's not catastrophic, 0:01:39.720 --> 0:01:42.399 but it is a lot higher and hundreds of billions 0:01:42.440 --> 0:01:43.080 of dollars matter. 0:01:43.319 --> 0:01:45.559 What do you think this will do to commercial real estate? 0:01:45.560 --> 0:01:47.840 I mean, I get it, it's not a big part 0:01:47.920 --> 0:01:51.520 of the gdp PI, but it's emotional and your charm 0:01:51.520 --> 0:01:54.640 as you're down in Philadelphia rooting for Bryce and the 0:01:54.680 --> 0:01:57.320 rest of them. You're in Philadelphia, and the answer is 0:01:57.360 --> 0:02:00.559 you don't have that Manhattan stars in your eye. What's 0:02:00.560 --> 0:02:04.600 commercial real estate going to do in Philadelphia or in Phoenix? 0:02:05.480 --> 0:02:09.000 Well, and those are two very different questions because I 0:02:09.000 --> 0:02:14.919 think we've seen geographically regionally a huge dispersion amongst performance. 0:02:15.440 --> 0:02:19.840 We're still very focused on finding the opportunity within a 0:02:19.919 --> 0:02:23.040 sector that's going to have some clear problems, like the 0:02:23.080 --> 0:02:26.560 Center business district, where you know we are also experiencing 0:02:26.600 --> 0:02:29.280 a lower vacancy rate that seems to be settling in 0:02:29.680 --> 0:02:33.160 well lower than pre COVID, but it doesn't mean there 0:02:33.200 --> 0:02:34.720 is an opportunity. That's what you've got to love about 0:02:34.720 --> 0:02:39.760 commercial real estate. There's so many sectors, multifamily, you know, industrial, 0:02:39.840 --> 0:02:44.160 you're even seeing hospitality still doing pretty well again selectively. 0:02:44.320 --> 0:02:46.799 So it's an area where you can really dig in 0:02:47.320 --> 0:02:50.720 and find a lot of opportunity. You know, it's going 0:02:50.760 --> 0:02:53.480 to find a new equilibrium. We're seeing that in housing, 0:02:53.800 --> 0:02:56.920 we're seeing it in commercial real estate. But right now 0:02:57.240 --> 0:02:58.919 you really want to be the bank, you want to 0:02:58.960 --> 0:03:02.040 look towards income. There are ways to invest in commercial 0:03:02.040 --> 0:03:04.440 real estate because it's going to continue to be a 0:03:04.480 --> 0:03:08.760 really important sector for any portfolio to diversify into. 0:03:08.960 --> 0:03:11.880 And Laura, this really speaks to your theme that you 0:03:11.919 --> 0:03:14.640 don't necessarily think that we're going back to the era 0:03:14.840 --> 0:03:17.880 of low rates and low inflation that we were pre pandemic. 0:03:18.400 --> 0:03:21.120 How much is this the real issue? The threat that 0:03:21.160 --> 0:03:24.720 the disinflation that we're seeing in autos, in housing, in 0:03:24.760 --> 0:03:28.120 some other metrics is a headfake, and when that leads 0:03:28.160 --> 0:03:31.760 to comps year over year in six months, that make 0:03:31.800 --> 0:03:33.440 it easier for inflation to go higher. 0:03:34.520 --> 0:03:37.800 This is exactly the point that I try to draw 0:03:37.880 --> 0:03:43.000 out for people, because housing has been a primary example. Yes, 0:03:43.120 --> 0:03:48.400 cyclical headwinds with interest rates, but structural tailwinds given the 0:03:48.640 --> 0:03:51.880 underbuilding and underinvestment that we've had in this sector for years. 0:03:52.440 --> 0:03:55.840 So as we look ahead, you know, unfortunately a forecast 0:03:56.240 --> 0:03:59.840 is in a recession. Is in my forecast mild re 0:04:00.040 --> 0:04:03.960 session looking ahead into the beginning of next year. But 0:04:04.200 --> 0:04:07.360 it doesn't have to be severe. And the fact that 0:04:07.800 --> 0:04:12.000 interest rates are now going to offer investors two way 0:04:12.120 --> 0:04:16.039 risk is an absolute game changer. We've had forty years 0:04:16.080 --> 0:04:19.880 of you know, with exceptions, but a trend of falling 0:04:19.960 --> 0:04:24.240 interest rates, and it has caused people investors to change 0:04:24.279 --> 0:04:27.479 their behavior over generations and looking ahead, if we get 0:04:27.480 --> 0:04:30.120 this bounce in our star, I think we're seeing it, 0:04:30.880 --> 0:04:34.000 you know, look at the look at the Bloomberg gag. Right, 0:04:34.360 --> 0:04:37.040 it is flat on the year despite a lot of 0:04:37.120 --> 0:04:39.360 up and down. You cannot lock in a price gain 0:04:39.680 --> 0:04:43.240 and you're left relying on income that still is very 0:04:43.279 --> 0:04:45.160 low relative to where inflation is. 0:04:45.560 --> 0:04:47.920 Lara, thank you for your input. Lad run in there 0:04:48.160 --> 0:04:54.920 of FS investments so com protty with a surrounded type 0:04:54.960 --> 0:04:57.120 who doesn't want to talk about this multi Sepput Fundo 0:04:57.200 --> 0:05:00.640 manager take Morkan asset management. Can you understand? 0:05:00.640 --> 0:05:01.680 Amazon comes there? 0:05:01.960 --> 0:05:03.280 And I love Glad as well. 0:05:03.920 --> 0:05:06.880 Great movie, Thank you, thank you, we're recreating it. Let's 0:05:06.880 --> 0:05:09.719 talk about this male kit on Friday we get some earnings. 0:05:09.760 --> 0:05:12.040 We won't talk about your bank specifically, of course, for 0:05:12.080 --> 0:05:15.120 obvious reasons. What do you expecting this earning season from 0:05:15.200 --> 0:05:18.200 the banks? From big Tech and Ken This rally broaden out. 0:05:18.839 --> 0:05:20.880 John, So it's going to look better than it did 0:05:21.080 --> 0:05:23.599 in March. I think there were so many head fakes 0:05:23.880 --> 0:05:26.120 and noise at the end of the first quarter that 0:05:26.160 --> 0:05:28.640 even the Fed got faked out on right. They expected 0:05:28.720 --> 0:05:30.800 us to be in recession by now. There were a 0:05:30.839 --> 0:05:35.279 lot of people saying that by July and September the 0:05:35.279 --> 0:05:38.120 Fed could be easy. And as you said, right, this 0:05:38.200 --> 0:05:40.880 is a year where the narrative changes every single week. 0:05:40.920 --> 0:05:43.760 And that's true, John. We are we have dropped our 0:05:43.760 --> 0:05:49.080 recession probability from forty percent in March to twenty five percent. Now. 0:05:49.160 --> 0:05:52.640 We are pretty highly convicted that we're in the midst 0:05:52.960 --> 0:05:54.599 of a soft landing. So what does a soft landing 0:05:54.600 --> 0:05:57.320 look like? Means that the economy can continue to grow 0:05:57.480 --> 0:05:59.880 and avoid recession, and that's why we dropped our PROPAB. 0:06:00.600 --> 0:06:03.400 The second pieces employment stay strong, and I think that's 0:06:03.440 --> 0:06:05.520 been the signal all along, Like there have been people 0:06:05.520 --> 0:06:07.000 like we're going in assession, we're going to over session. 0:06:07.200 --> 0:06:10.440 You need this labor market to crack, and that has 0:06:10.800 --> 0:06:13.279 has been very, very resilient overtime. And then the third 0:06:13.279 --> 0:06:16.400 piece is the easing has to get has to get 0:06:16.440 --> 0:06:18.480 pushed out, and that I think was one of the 0:06:18.520 --> 0:06:21.600 biggest misses this year was that there was so much 0:06:21.600 --> 0:06:23.320 easing priced into the back half of the year that 0:06:23.400 --> 0:06:25.440 had to go along with the crisis. You had to 0:06:25.440 --> 0:06:28.200 be long a crisis if you believed in an easing 0:06:28.200 --> 0:06:30.320 in the back half of this year. Now the deflation 0:06:30.839 --> 0:06:34.160 trajectory flattens out, that's certainly the case, which is why 0:06:34.200 --> 0:06:36.680 the easiest being priced out. You heard Mary Daily last night, 0:06:36.720 --> 0:06:39.080 two more hikes. I think that's appropriate. They're probably going 0:06:39.120 --> 0:06:41.320 to do one more hike than they're comfortable with because 0:06:41.360 --> 0:06:44.080 we're nowhere near our target of two percent core inflation. 0:06:44.279 --> 0:06:45.840 But it is an awesome time to be a multi 0:06:45.880 --> 0:06:48.479 asset investor. We were up ten percent in the first 0:06:48.520 --> 0:06:50.360 six months of this year in a balance fund nobody's 0:06:50.400 --> 0:06:53.080 talking about that, every tingting about Nvidia. I think the 0:06:53.120 --> 0:06:55.760 balance fund up ten percent is really exciting as well, 0:06:55.800 --> 0:06:58.440 and certainly more than that three month T bill that's 0:06:58.440 --> 0:07:01.720 at five percent. That's been my all year, and there's 0:07:01.760 --> 0:07:02.480 way too many people. 0:07:02.560 --> 0:07:04.640 I love your research, the concision of it. At the 0:07:04.680 --> 0:07:06.479 end you say, do this, do this, do this. But 0:07:06.520 --> 0:07:09.160 the phil camp for early idea here is you got 0:07:09.200 --> 0:07:11.040 to be in the market, Yes you got. I want 0:07:11.080 --> 0:07:13.520 you to talk right now to people who are scared stiff. 0:07:13.760 --> 0:07:16.360 What's the level of fear out in the street, because 0:07:16.360 --> 0:07:18.119 don't you have to go up with a wall worry? 0:07:18.640 --> 0:07:18.920 Yeah? 0:07:18.960 --> 0:07:21.320 So, and we've heard it all year. We've heard debt 0:07:21.360 --> 0:07:23.520 ceiling for a regional bank crisis. It was a foregone 0:07:23.520 --> 0:07:25.440 conclusion that there was gonna be a recession this year. 0:07:25.560 --> 0:07:27.840 Tom And I'm not talking people to get out of 0:07:27.880 --> 0:07:30.120 cash and go into equities. That's not what I'm saying. 0:07:30.560 --> 0:07:32.880 I'm saying when you're making a bet on a balanced, 0:07:32.880 --> 0:07:36.240 diversified portfolio, which by the way, has worked over so 0:07:36.440 --> 0:07:39.840 many years, you're not making a bet on stocks or bonds. 0:07:40.000 --> 0:07:42.760 You're making a bet on the relationship between those two 0:07:42.800 --> 0:07:48.240 asset classes, which was absolutely like inverted last year. Last 0:07:48.280 --> 0:07:50.560 year was the first year since nineteen seventy four that 0:07:50.600 --> 0:07:53.120 both stocks and bonds went down in the same year. 0:07:53.560 --> 0:07:55.480 And I came on this show and told you, you 0:07:55.480 --> 0:07:57.680 know what, we have the best forecasted return for the 0:07:57.720 --> 0:08:00.760 sixty forty that we've had since two thousand and ten 0:08:01.200 --> 0:08:03.840 coming into this year. So, Tom, those are the folks. 0:08:03.640 --> 0:08:04.160 That I'm after. 0:08:04.400 --> 0:08:06.680 They're sitting there in the three month tea bill. It's 0:08:06.720 --> 0:08:09.240 like the best hedge fund out there right at five 0:08:09.280 --> 0:08:12.520 plus percent, and they're saying, I'm safe here. Well, you 0:08:12.520 --> 0:08:14.040 know what, if the balance funds up ten percent in 0:08:14.120 --> 0:08:16.840 six months, their opportunity costs just went up. 0:08:17.000 --> 0:08:20.880 That said, you talked about the soft landing probability, which 0:08:20.920 --> 0:08:25.200 changes a bit. On disinflation, Yes, ongoing. We've seen disinflation 0:08:25.240 --> 0:08:27.720 with used car prices going down, as John mentioned, We've 0:08:27.760 --> 0:08:30.800 seen disinflation in some of the rental prices. We've seen 0:08:30.800 --> 0:08:34.520 disinflation even even from the smallest small business survey if 0:08:34.559 --> 0:08:37.920 you look out that starts to change later in the year. 0:08:38.120 --> 0:08:40.800 Is the disinflation that we're seeing a head fake? And 0:08:40.840 --> 0:08:43.400 could that be a real potential risk list? 0:08:43.400 --> 0:08:46.719 So that's our biggest risk to our forecast if disinflation 0:08:46.880 --> 0:08:49.880 starts to trend higher towards the end of the year. 0:08:50.000 --> 0:08:53.240 So you know, when this base effect of June rolls 0:08:53.280 --> 0:08:55.800 off and we get this this move in, you know, 0:08:55.840 --> 0:08:58.679 on tomorrow's CPI number, the risk is and I think 0:08:58.760 --> 0:09:01.360 this is why that the base case has to be 0:09:01.440 --> 0:09:05.200 for central bankers to talk extremely hawkishly. They cannot afford 0:09:05.280 --> 0:09:08.240 to let the ten year treasury move lower and rate. 0:09:08.440 --> 0:09:11.280 Why because that controls the housing market, and if the 0:09:11.320 --> 0:09:14.040 housing market and the owner's equivalent rent part of this 0:09:14.559 --> 0:09:17.000 shows firmness towards the end of this year, you know, 0:09:17.080 --> 0:09:19.560 that's a scenario where you could have equities going down 0:09:19.800 --> 0:09:21.959 and bonds going down, not to the same extent of 0:09:22.040 --> 0:09:24.800 last year. Last year was a historical event, but that's 0:09:24.800 --> 0:09:27.640 probably our biggest risk, that that disinflationary curve starts to 0:09:27.679 --> 0:09:32.000 trend higher and instead of sticky inflation, accelerating inflation happens, 0:09:32.040 --> 0:09:33.160 and that would be our biggest risk. 0:09:33.200 --> 0:09:34.240 Now that's not our base case. 0:09:34.400 --> 0:09:37.000 We're not investing for that, but that is probably more 0:09:37.040 --> 0:09:39.400 of a risk than the US falling into recession by 0:09:39.440 --> 0:09:39.640 the end. 0:09:39.800 --> 0:09:43.040 What are you invested for three percent inflation? A return 0:09:43.120 --> 0:09:44.959 to two. Do you see anything compatible with a return 0:09:45.000 --> 0:09:45.720 to two right now? 0:09:46.679 --> 0:09:49.920 No, So we don't have enough of a growth kind 0:09:49.920 --> 0:09:55.120 of deterioration story, John, that would speed up a disinflationary 0:09:55.200 --> 0:09:57.600 back to two percent before the end of next year. 0:09:57.720 --> 0:09:59.840 Now that doesn't mean that you can invest in this 0:10:00.040 --> 0:10:02.400 market as long as the disinflationary process can you start. 0:10:02.559 --> 0:10:04.560 If it's flat, it's okay. Maybe you don't get the 0:10:04.600 --> 0:10:07.360 return in bonds, but maybe you start to get that 0:10:07.520 --> 0:10:09.640 breath story in what I call the S and P 0:10:09.760 --> 0:10:13.160 four ninety, which is everyone else to be able to 0:10:13.160 --> 0:10:15.000 to keep the market calls. 0:10:14.960 --> 0:10:16.040 Like twenty seven. 0:10:16.920 --> 0:10:21.040 You know I'm looking here, John, headline inflation four percent 0:10:21.160 --> 0:10:25.080 prior plunging to three point one percent survey. 0:10:25.120 --> 0:10:27.280 I don't think enough has been made about tomorrow. 0:10:27.880 --> 0:10:30.280 You get a headline inflation number, what if there comes 0:10:30.280 --> 0:10:31.920 into two point nine percent. 0:10:32.720 --> 0:10:34.640 That makes it out stunning. 0:10:35.400 --> 0:10:38.200 But they know that they know that last June's number 0:10:38.760 --> 0:10:40.840 was one point two percent, and that's rolling off. So 0:10:40.880 --> 0:10:42.640 if you get a high point one or a low 0:10:42.679 --> 0:10:45.160 point two, that's a base effect. That's not going to 0:10:45.240 --> 0:10:48.400 make them say let's wave a victory flag on inflation. 0:10:48.520 --> 0:10:50.120 And I think that's that's that's the real sick. 0:10:50.120 --> 0:10:52.000 I'm trying to make a six sign in brama. Got 0:10:52.120 --> 0:10:55.880 to take tomorrow morning work. Thanks okam party that JP 0:10:56.000 --> 0:10:57.439 Morgan Ascent Management. 0:11:07.880 --> 0:11:10.400 Top of the Google search message right now as Shakira 0:11:10.480 --> 0:11:13.160 and Sir Lewis Hamilton. There's got a lot of a 0:11:13.240 --> 0:11:16.760 lot of Google love coming off of the Formula one race. 0:11:16.840 --> 0:11:20.439 Right behind them and a Google search is Claudia Sam. 0:11:20.720 --> 0:11:24.439 She is an economist, a former FED economist and founder 0:11:24.480 --> 0:11:27.480 of Sam Consulting, and she has been out there and 0:11:27.640 --> 0:11:32.439 visible over the measurement of recession. We're thrilled that doctor 0:11:32.520 --> 0:11:36.479 Sam could join us this morning. Claudia, you mentioned California. 0:11:37.080 --> 0:11:40.960 It's ginormous, It's as big as the German economy, and 0:11:41.160 --> 0:11:45.440 all of a sudden, California's unemployment rate goes from three 0:11:45.520 --> 0:11:49.800 point eight percent up to four point five percent. Should 0:11:49.800 --> 0:11:52.760 we follow and be aware of California? 0:11:54.600 --> 0:11:57.720 So we should be watching every state, every labor market 0:11:57.760 --> 0:12:01.040 that we can remember. The FED is set for the 0:12:01.240 --> 0:12:04.200 national economy right so we can't expect the FED to 0:12:04.200 --> 0:12:07.760 get too excited about what's happening in California because right 0:12:07.840 --> 0:12:10.400 now we have to just this could be there are 0:12:10.440 --> 0:12:12.840 a lot of tech layoffs. There were big disruptions in 0:12:12.840 --> 0:12:15.480 the Bay Area. So what we're seeing in California could 0:12:15.559 --> 0:12:19.480 be unique to California, or I could mean that we're 0:12:19.480 --> 0:12:21.160 headed to slowing overall. 0:12:21.600 --> 0:12:22.800 What do you see in your data? 0:12:22.840 --> 0:12:25.680 I know, mid month you get a massive redo here, 0:12:26.200 --> 0:12:28.360 you'll have that out in ten days whatever, But what 0:12:28.400 --> 0:12:29.280 do you see right now? 0:12:29.400 --> 0:12:30.200 Let's get out in front. 0:12:30.240 --> 0:12:32.080 I need to make some news this morning, Claudia. 0:12:32.679 --> 0:12:35.280 Yeah, Well, the economy, the labor market is in a 0:12:35.400 --> 0:12:39.560 great place for people. So because they've been the workers 0:12:39.559 --> 0:12:41.280 have had the upper hand. When I look at the 0:12:41.320 --> 0:12:43.320 wage data, which I think a lot of people were, 0:12:43.679 --> 0:12:46.120 you know, wringing their hands over yesterday, it's like, how 0:12:46.160 --> 0:12:48.360 do you think you're going to get workers back into 0:12:48.400 --> 0:12:50.719 the labor market and deal with labor shorages if you 0:12:50.760 --> 0:12:53.160 don't pay them more like this is econ one oh one. 0:12:53.679 --> 0:12:56.960 So to me, seeing that we're still adding jobs, it's 0:12:57.040 --> 0:13:00.960 really good. So people find a way to turn it 0:13:01.000 --> 0:13:03.559 into really bad. But I won't do that, Claudia. 0:13:03.640 --> 0:13:06.000 I love your note where he said it's not hard 0:13:06.040 --> 0:13:10.760 to find an angry macroeconomist. Macroeconomist at this point everyone's 0:13:10.760 --> 0:13:13.560 made mistakes, and everyone's trying to figure out how to 0:13:13.600 --> 0:13:16.320 carve out a niche for themselves to explain what just happened. 0:13:16.760 --> 0:13:20.920 How do you understand the dissonance between everyone's expectations of 0:13:20.960 --> 0:13:23.760 where the economy was headed and what actually has happened. 0:13:25.000 --> 0:13:28.080 Well, as I started there, every macroeconomist has missed something 0:13:28.120 --> 0:13:31.120 this time, right, and they're very different things that we've missed. 0:13:32.240 --> 0:13:36.200 So and really, people get kind of not happy when 0:13:36.280 --> 0:13:38.959 they're making calls and they're not getting it. They sometimes 0:13:39.000 --> 0:13:41.160 get even less happy when they look around and see 0:13:41.160 --> 0:13:44.560 people who've made big mistakes all over the news. So 0:13:45.360 --> 0:13:47.440 I think that's where you know I pointed out in 0:13:47.559 --> 0:13:51.959 this piece you're referencing on Bidenomics, is that you know, 0:13:52.000 --> 0:13:53.640 like you got to take it with a grain of salt, 0:13:53.720 --> 0:13:55.800 always what your advisors come to you with. And I 0:13:55.840 --> 0:13:58.640 think right now, unless they're bringing a lot of nuance, 0:13:58.800 --> 0:14:00.920 it could do more damage than good. 0:14:01.240 --> 0:14:03.200 But what are we misunderstanding just to the point of 0:14:03.200 --> 0:14:05.760 the making mistakes, and we've all made plenty of them, 0:14:05.840 --> 0:14:10.240 but what are we misunderstanding about pandemic economics as Tom 0:14:10.280 --> 0:14:13.160 would call it, or where we are in the recovery, 0:14:13.280 --> 0:14:16.240 or where we are in the distortions, whether it's California 0:14:16.280 --> 0:14:19.920 people moving away from there or the Northeast, or even 0:14:20.000 --> 0:14:25.080 people's propensity to switch jobs shift locations, spend more than 0:14:25.120 --> 0:14:27.920 they otherwise would to capitalize an experience that they were 0:14:27.920 --> 0:14:29.400 denied during twenty twenty. 0:14:30.400 --> 0:14:32.720 Right, So I think it's all in there. The economy 0:14:32.760 --> 0:14:34.720 is upside down and backwards, and we need to be 0:14:34.800 --> 0:14:37.520 aware that every data release you get could be leading 0:14:37.600 --> 0:14:40.480 us astray because it's not clear yet are we doing 0:14:40.480 --> 0:14:44.440 the rebalancing or are we going down? And we'll know 0:14:44.640 --> 0:14:46.800 more about that in a few months. In terms of 0:14:47.200 --> 0:14:50.760 you know what went wrong, I certainly was expected that 0:14:51.040 --> 0:14:54.520 the economy, the supply would come back online more quickly 0:14:54.560 --> 0:14:57.600 than it did. And I think on the other side, 0:14:57.640 --> 0:15:03.720 we see this disinflation right now without unemployment rising, which 0:15:03.760 --> 0:15:06.560 is a huge puzzle to macroeconomists that would use models 0:15:06.600 --> 0:15:10.200 like the Phillips curve. So you know, we'll keep going 0:15:10.240 --> 0:15:12.560 at it. And that's where as analysts, if we dig 0:15:12.600 --> 0:15:14.480 deep in the data, that's kind of where we should 0:15:14.720 --> 0:15:17.040 stay in terms of grounding our analysis. 0:15:17.320 --> 0:15:19.680 Claudia, what I love about when you come on is 0:15:19.720 --> 0:15:22.120 my brain gets going and I'm doing research I usually 0:15:22.200 --> 0:15:23.960 have never done, Like, I've never done. 0:15:23.800 --> 0:15:24.400 This, folks. 0:15:24.880 --> 0:15:28.720 Out of the percent of GDP of America, and there's 0:15:28.760 --> 0:15:32.320 like twenty three states or so with under one percent 0:15:32.520 --> 0:15:35.640 of America's GDP, they're tiny. You know, we know the 0:15:35.720 --> 0:15:43.320 names Texas and California make up twenty three percent of 0:15:43.400 --> 0:15:48.680 American GDP. Do people like you focus more on those 0:15:48.760 --> 0:15:51.600 big states or do you aggregate everything together? 0:15:52.960 --> 0:15:55.040 Frankly, there hasn't been a lot of work, say at 0:15:55.080 --> 0:15:59.640 the FED on regional effects. They have experts in the 0:15:59.640 --> 0:16:01.920 building who are not economists, and yet they don't play 0:16:02.120 --> 0:16:05.280 an integral role. I think, you know, we need to 0:16:05.320 --> 0:16:07.680 pay attention to states because they could be the canary 0:16:07.680 --> 0:16:09.440 in the coal mine, Like if we could get ahead 0:16:09.440 --> 0:16:11.600 of this even a little bit, if we get a recession, 0:16:12.080 --> 0:16:16.120 that's important. I will say states like Texas and particularly Florida, 0:16:16.560 --> 0:16:20.240 like they have more than recovered their losses and employment. 0:16:20.360 --> 0:16:22.360 So it's you want to look at the states, but 0:16:22.440 --> 0:16:24.480 that's not going to be the place you stop with 0:16:24.560 --> 0:16:25.320 the analysis. 0:16:25.600 --> 0:16:27.880 Where do you look with the analysis? What do you 0:16:27.920 --> 0:16:30.520 look at with the analysis? Is you try to measure 0:16:30.920 --> 0:16:32.400 a sum like recession? 0:16:33.640 --> 0:16:35.920 Yeah, I had no idea this was going to become 0:16:36.000 --> 0:16:38.840 such a thing, because you know, I've developed this Sam 0:16:38.920 --> 0:16:41.640 rule in order to start up fiscal policy send out 0:16:41.680 --> 0:16:43.560 the checks. But you know people want to use it 0:16:43.600 --> 0:16:46.320 as an indicator. That's fine. But the Sam rule is 0:16:46.360 --> 0:16:49.120 not a forecast tool, right that does It does not 0:16:49.280 --> 0:16:51.880 tell us about where we're going. It tells us about 0:16:51.920 --> 0:16:54.680 where we are. So but knowing early in a recession 0:16:54.720 --> 0:16:57.240 that we're in one, that's that's helpful to know. 0:16:57.800 --> 0:17:00.600 We're speaking with Claudias Sam of some consulting who is 0:17:00.600 --> 0:17:04.520 famed for her some rule with respect to employment. We're 0:17:04.560 --> 0:17:08.600 about twenty four hours away from CPI in the United States, 0:17:08.640 --> 0:17:11.320 the headline is supposed to drop from four percent to 0:17:11.480 --> 0:17:14.520 three point one percent year over year. That is the 0:17:14.560 --> 0:17:17.960 headline figure core less so to five percent from five 0:17:18.040 --> 0:17:20.560 point three percent. Claudia, what are the big concerns that 0:17:20.600 --> 0:17:22.600 we've been hearing about from a lot of our guests 0:17:22.600 --> 0:17:26.199 this morning? Is a head fake when it comes to 0:17:26.359 --> 0:17:29.439 disinflation in the US and the pace of it. We 0:17:29.480 --> 0:17:31.920 have seen used car prices come down, we have seen 0:17:32.000 --> 0:17:35.359 rents come down. We have seen some certain peripheral areas 0:17:35.400 --> 0:17:39.280 of the economy show signs of disinflating. Is it enough 0:17:39.440 --> 0:17:42.480 and is it showing signs of consistency to bring us 0:17:42.560 --> 0:17:44.520 where we need the FED where the FED would like 0:17:44.600 --> 0:17:45.000 us to go. 0:17:46.040 --> 0:17:48.360 We're still in a place of a lot of uncertainty, 0:17:48.400 --> 0:17:52.600 and the FED leans much more on the you know, 0:17:52.680 --> 0:17:57.600 the the using unemployment versus inflation. So that's more of 0:17:57.680 --> 0:18:00.280 like a rule of thumb, and we're so far off that, 0:18:00.680 --> 0:18:02.920 right We're back to the days of before the recession 0:18:02.920 --> 0:18:06.600 when unemployment was so low and yet inflation didn't pick up, 0:18:06.600 --> 0:18:09.440 and it's like, what is going on? So I think, 0:18:09.560 --> 0:18:12.480 you know, we've carried that uncertainty about how those relationships 0:18:12.520 --> 0:18:15.880 work into the present and that's partly why I think 0:18:15.920 --> 0:18:18.239 we come out of this with some reason. From the 0:18:18.280 --> 0:18:19.720 macro profession. 0:18:20.560 --> 0:18:23.959 Right now, I'm also watching specific sectors, whether it's autos 0:18:24.200 --> 0:18:27.280 and the idea of prices going down for use cars. 0:18:27.600 --> 0:18:30.320 I'm looking at the housing market, the mystery of why 0:18:30.359 --> 0:18:33.400 housing prices having cracked at a time when mortgage rates 0:18:33.400 --> 0:18:36.840 are the highest going back since two thousand and sixteen, 0:18:36.880 --> 0:18:39.679 I believe at the earliest, actually further than that, I 0:18:39.720 --> 0:18:43.040 think it was more than that decades. Claudia, what sector 0:18:43.119 --> 0:18:46.040 are you looking at for a tea leaf in order 0:18:46.119 --> 0:18:48.560 to project where we are headed with inflation? 0:18:50.520 --> 0:18:54.719 Well, I think you listen to the news cycle and 0:18:54.760 --> 0:18:57.400 you hear things like I had not planned on last 0:18:57.400 --> 0:19:00.280 week doing state dependent p SOM rules, right, but I 0:19:00.760 --> 0:19:03.840 did so. In terms of industry, it's like you go 0:19:03.920 --> 0:19:05.919 after where the story is. You know, you look in 0:19:05.960 --> 0:19:09.840 the it the tech and see it like what does 0:19:09.880 --> 0:19:12.200 that look like? And actually some of it. There's some 0:19:12.280 --> 0:19:14.399 places where we had really a lot of trouble bringing 0:19:14.440 --> 0:19:17.879 workers in, like Staton local government. They're like one of 0:19:17.920 --> 0:19:20.320 the big additions right now. So again that looks like 0:19:20.359 --> 0:19:23.600 rebalancing to me. But like you said, you're going to 0:19:23.760 --> 0:19:27.600 pick up and follow any sector that is right still 0:19:27.680 --> 0:19:28.520 higher inflation. 0:19:28.800 --> 0:19:31.480 Claudia, I just had a nightmare. I was thinking about 0:19:31.480 --> 0:19:34.520 you as a FED president or a FED governor. We 0:19:34.560 --> 0:19:37.560 want can you see Claudia at the Echoles building around 0:19:37.600 --> 0:19:38.040 the table. 0:19:39.359 --> 0:19:41.719 I think she's take close to that. 0:19:42.760 --> 0:19:44.640 Michelle Smith will get her a Starbucks. 0:19:44.960 --> 0:19:48.960 Claudia. The character of the descent right now at the FED, I. 0:19:48.920 --> 0:19:50.760 Mean we know that if you were there there would 0:19:50.760 --> 0:19:54.720 be a visible psalm descent, no question about it. What's 0:19:54.760 --> 0:19:59.440 the nature the character of our non descent descent at 0:19:59.440 --> 0:19:59.840 the FED. 0:20:00.960 --> 0:20:03.280 So I think it's really unfortunate that you have like 0:20:03.359 --> 0:20:05.520 straight line votes and then you get to see a 0:20:05.520 --> 0:20:09.439 summary of economic projections that there's clearly disagreement, right, Like, 0:20:09.480 --> 0:20:13.919 I don't know why they are shy about saying that. 0:20:14.320 --> 0:20:16.720 You know, there's a lot of moving pieces here and 0:20:16.760 --> 0:20:18.679 we there ought to be somebody and some of these 0:20:18.680 --> 0:20:22.639 people have been openly for a pause, right and then 0:20:22.680 --> 0:20:26.720 there's been some openly Fed officials openly for going forward. 0:20:26.880 --> 0:20:28.480 How do you get a pause out of that? You 0:20:28.480 --> 0:20:31.199