1 00:00:00,080 --> 00:00:05,960 Speaker 1: M. This is Mesters in Business with very Results on 2 00:00:06,200 --> 00:00:10,440 Speaker 1: Bloombird Radio. This week on the podcast, I have an 3 00:00:10,440 --> 00:00:14,760 Speaker 1: extra special guest. Neil Dutta has been doing economic analysis 4 00:00:14,760 --> 00:00:19,680 Speaker 1: and research from a market based perspective for over twenty years. 5 00:00:20,040 --> 00:00:23,800 Speaker 1: He has a fascinating career and has been a whole 6 00:00:23,880 --> 00:00:27,560 Speaker 1: lot more right than wrong than most of his fellow 7 00:00:27,560 --> 00:00:31,200 Speaker 1: economists who cover the street. I found this to be 8 00:00:31,480 --> 00:00:37,040 Speaker 1: just an absolutely fascinating discussion about how to best contextualize 9 00:00:37,080 --> 00:00:41,000 Speaker 1: the world of economic data around you in a way 10 00:00:41,040 --> 00:00:45,440 Speaker 1: that's useful for you as an investor. Very often there's 11 00:00:45,440 --> 00:00:48,080 Speaker 1: a ton of information that comes out and by the 12 00:00:48,120 --> 00:00:52,000 Speaker 1: time it's released, it is fairly meaningless to what the 13 00:00:52,040 --> 00:00:54,160 Speaker 1: market is going to be doing a few months. Hence, 14 00:00:54,720 --> 00:00:59,080 Speaker 1: understanding nuance, understanding that the world isn't binary is the 15 00:00:59,160 --> 00:01:03,040 Speaker 1: challenge for investors, and few do it better than Neil 16 00:01:03,120 --> 00:01:06,760 Speaker 1: does in terms of putting together a global view of 17 00:01:07,120 --> 00:01:09,600 Speaker 1: what's happening in the economy, what's happening around the world, 18 00:01:09,680 --> 00:01:12,000 Speaker 1: what's happening with the Fed, and what's happening with the 19 00:01:12,040 --> 00:01:15,760 Speaker 1: stock market. I found this conversation to be fascinating and 20 00:01:15,800 --> 00:01:19,240 Speaker 1: I think you will also with no further ado ren 21 00:01:19,400 --> 00:01:23,280 Speaker 1: Max Neil Data. So let's start out with a little 22 00:01:23,280 --> 00:01:27,280 Speaker 1: bit about your background. You graduate cum laude from n 23 00:01:27,400 --> 00:01:31,120 Speaker 1: y U with a b a. In economics and policy. 24 00:01:32,080 --> 00:01:35,720 Speaker 1: What was your first job in the economics and finance space? 25 00:01:36,520 --> 00:01:38,840 Speaker 1: So I was actually thinking about being a lawyer. So 26 00:01:38,880 --> 00:01:41,000 Speaker 1: I ended up taking my l S at my senior 27 00:01:41,080 --> 00:01:43,920 Speaker 1: year at n y U, and UM I did okay, 28 00:01:43,959 --> 00:01:45,920 Speaker 1: but I didn't do well enough to go to a 29 00:01:45,959 --> 00:01:48,400 Speaker 1: school that I really wanted to go to, and so 30 00:01:48,680 --> 00:01:51,280 Speaker 1: UM at that point, I was kind of scrambling, and 31 00:01:51,320 --> 00:01:53,360 Speaker 1: I was like, I need to get into the financial 32 00:01:53,400 --> 00:01:56,200 Speaker 1: industry because I'm in New York. I have a passion 33 00:01:56,240 --> 00:01:58,680 Speaker 1: for finance. But it was kind of late, so a 34 00:01:58,680 --> 00:02:00,800 Speaker 1: lot of the investment banking and US have had already 35 00:02:00,840 --> 00:02:02,600 Speaker 1: lined up their gigs. So I ended up getting a 36 00:02:02,680 --> 00:02:07,760 Speaker 1: job at Merrill Lynch as a compensation analyst in human resources. 37 00:02:07,880 --> 00:02:11,400 Speaker 1: Really yes, so that was so UM I did that. 38 00:02:11,480 --> 00:02:16,440 Speaker 1: I started that in two thousand and five after I graduated. UM. 39 00:02:16,480 --> 00:02:18,760 Speaker 1: But one of the good things about being an HR 40 00:02:18,840 --> 00:02:22,360 Speaker 1: Barry is you kind of know where all the jobs 41 00:02:22,440 --> 00:02:26,880 Speaker 1: in the organization are. So fast forward about a year 42 00:02:27,280 --> 00:02:30,320 Speaker 1: and a job had opened up as an economic research 43 00:02:30,360 --> 00:02:36,320 Speaker 1: analyst in Someone's someone you may know David Rosenberg of course. Um, 44 00:02:36,480 --> 00:02:39,919 Speaker 1: so that was actually my first foray into economics, and 45 00:02:40,200 --> 00:02:44,600 Speaker 1: the rest is history. Um, you also worked as an 46 00:02:44,600 --> 00:02:47,960 Speaker 1: analystic Barrens. Tell us a little bit about that. Where 47 00:02:48,040 --> 00:02:50,600 Speaker 1: was that in your career path? Well, that was really 48 00:02:50,639 --> 00:02:53,280 Speaker 1: more of an internship than anything else. But I worked 49 00:02:53,360 --> 00:02:59,960 Speaker 1: with um Gene Epstein, the economics editor at Barns noted, uh, libertary, 50 00:03:00,000 --> 00:03:03,600 Speaker 1: are and enthusiast now, but yeah, I mean that was 51 00:03:03,639 --> 00:03:06,600 Speaker 1: back when I guess Alan Abelson was running was running 52 00:03:06,639 --> 00:03:08,880 Speaker 1: the Up and Down Wall Street column. Now obviously it's Randy, 53 00:03:09,000 --> 00:03:12,760 Speaker 1: but Randall fourth sythe yea who was another Gene Dolan, 54 00:03:13,400 --> 00:03:16,760 Speaker 1: right Donalin Alan Abelson was must read each week, Randy 55 00:03:16,800 --> 00:03:20,560 Speaker 1: forsythe they had a killer lineup, and Gene basically wrote 56 00:03:20,639 --> 00:03:23,320 Speaker 1: a weekly economics column. So that was my sort of 57 00:03:23,320 --> 00:03:28,080 Speaker 1: first foray into just analysis in terms of economic data. Right, 58 00:03:28,120 --> 00:03:30,120 Speaker 1: Like some of the tools that people would use back then, 59 00:03:30,200 --> 00:03:32,840 Speaker 1: right hey, r analytics was a big one, and so 60 00:03:33,240 --> 00:03:35,880 Speaker 1: Jeane kind of introduced me to that. So when I 61 00:03:35,960 --> 00:03:40,560 Speaker 1: was a trader back in the nineties, my Saturday's always 62 00:03:40,600 --> 00:03:45,560 Speaker 1: began with a big mug coffee and Barns. And you know, 63 00:03:45,720 --> 00:03:49,400 Speaker 1: back before you had everything at your fingertips, it took 64 00:03:49,400 --> 00:03:52,800 Speaker 1: a little bit of effort to find things in the 65 00:03:52,840 --> 00:03:56,360 Speaker 1: pre Google days, and sitting down with Barns was a 66 00:03:56,480 --> 00:04:01,119 Speaker 1: weekly routine, and it felt like it was the publication 67 00:04:01,160 --> 00:04:04,360 Speaker 1: that everybody on the street was pouring over every week. 68 00:04:05,440 --> 00:04:07,880 Speaker 1: Do you think it's still that way? I think the 69 00:04:07,960 --> 00:04:12,480 Speaker 1: world has changed radically, clearly. Twitter is the new tape. 70 00:04:12,920 --> 00:04:15,440 Speaker 1: I see things on Twitter before I see them on 71 00:04:15,520 --> 00:04:18,240 Speaker 1: the terminal, because I could be in the car on 72 00:04:18,320 --> 00:04:22,360 Speaker 1: a train or something and something will across Twitter and 73 00:04:22,440 --> 00:04:25,479 Speaker 1: I'm sure it's on Bloomberg at the exact same time 74 00:04:25,720 --> 00:04:28,960 Speaker 1: because they passed Twitter constantly. But I don't always have 75 00:04:29,040 --> 00:04:32,000 Speaker 1: my terminal up and open in my face, certainly not 76 00:04:32,040 --> 00:04:33,880 Speaker 1: when I'm driving. I agree. I think that the whole 77 00:04:33,880 --> 00:04:38,880 Speaker 1: finn Twitter community is probably the most useful uses Twitter 78 00:04:38,960 --> 00:04:41,240 Speaker 1: as a as a sort of social media tool. To 79 00:04:41,279 --> 00:04:46,040 Speaker 1: say nothing about how easy it is to find anything online, 80 00:04:46,120 --> 00:04:50,520 Speaker 1: not just through Twitter, but Google also is an enormous resource. 81 00:04:52,360 --> 00:04:57,839 Speaker 1: The nineties were what thirty years ago, right, very different world. 82 00:04:57,920 --> 00:05:01,160 Speaker 1: Three decades two a half anyway, decades have passed you're 83 00:05:01,360 --> 00:05:03,400 Speaker 1: not on Twitter. As far as I can tell, I 84 00:05:03,440 --> 00:05:06,080 Speaker 1: am on Twitter. Well, we run our company not under 85 00:05:06,120 --> 00:05:08,880 Speaker 1: your name, no, not under my name. That's I mean, 86 00:05:08,880 --> 00:05:11,719 Speaker 1: we sort of run that as a company policy. Um 87 00:05:11,760 --> 00:05:14,960 Speaker 1: but um yeah, I mean I I tweet. I try 88 00:05:15,000 --> 00:05:17,200 Speaker 1: to put information out there. What we try to do, 89 00:05:17,240 --> 00:05:19,360 Speaker 1: of course, is to make sure we're sending it out 90 00:05:19,400 --> 00:05:21,440 Speaker 1: a little bit later than our clients get because then, 91 00:05:21,480 --> 00:05:23,159 Speaker 1: you know, I pay for research in the first place, 92 00:05:23,200 --> 00:05:25,479 Speaker 1: if you can get it for free on Twitter. But yeah, 93 00:05:25,520 --> 00:05:30,720 Speaker 1: I mean, you know we started that account maybe. Yeah, 94 00:05:30,760 --> 00:05:35,039 Speaker 1: we've been growing it ever since and we have a 95 00:05:35,040 --> 00:05:38,359 Speaker 1: good yeah, we and um yeah. What we try to 96 00:05:38,360 --> 00:05:41,600 Speaker 1: do is promote our our in house ideas. So let's 97 00:05:41,600 --> 00:05:43,679 Speaker 1: talk a little bit about what you did at Merrill Lynch. 98 00:05:44,000 --> 00:05:45,960 Speaker 1: We worked with Rosie, which I'm sure you have lots 99 00:05:46,000 --> 00:05:48,839 Speaker 1: of stories from that. What was your role there? What 100 00:05:48,960 --> 00:05:51,200 Speaker 1: sort of researching and writing did you do well? So 101 00:05:51,279 --> 00:05:54,800 Speaker 1: when I started as an analyst under Rosie, Um, I 102 00:05:54,880 --> 00:05:57,000 Speaker 1: was basically a junior economist. I mean a lot of 103 00:05:57,040 --> 00:05:59,200 Speaker 1: I mean. One of the great things about Rosie, I mean, 104 00:05:59,440 --> 00:06:02,880 Speaker 1: you know, was just he is I think one of 105 00:06:02,920 --> 00:06:06,080 Speaker 1: the best examples of what a wall street economist should 106 00:06:06,080 --> 00:06:09,359 Speaker 1: be like we had this UM weekly piece called the 107 00:06:09,400 --> 00:06:11,919 Speaker 1: market Economist, right, And that I think is very important 108 00:06:11,920 --> 00:06:14,960 Speaker 1: because he was a markets economist. He wasn't a PhD. 109 00:06:15,760 --> 00:06:18,320 Speaker 1: And he didn't think like one either. And what I 110 00:06:18,320 --> 00:06:20,920 Speaker 1: think he understood and what he kind of ingrained in me, 111 00:06:21,680 --> 00:06:23,919 Speaker 1: you know, very early on, is that this is really 112 00:06:24,000 --> 00:06:26,600 Speaker 1: fundamentally if you're a sell side research economist, you are 113 00:06:26,720 --> 00:06:30,520 Speaker 1: in the client service business. And that's what Rosie was 114 00:06:30,560 --> 00:06:32,880 Speaker 1: really great at UM. I mean, he was always on 115 00:06:32,880 --> 00:06:34,640 Speaker 1: the road. I mean, gosh, I don't even remember when 116 00:06:34,640 --> 00:06:37,640 Speaker 1: I don't even remember when I saw him UM, because 117 00:06:37,640 --> 00:06:39,960 Speaker 1: he was always on the road, particularly in in in 118 00:06:40,000 --> 00:06:43,120 Speaker 1: oh seven and oh eight, when UM when it's you know, 119 00:06:43,160 --> 00:06:45,400 Speaker 1: I mean it was sort of with with Rosie. It 120 00:06:45,440 --> 00:06:49,160 Speaker 1: was kind of wrong wrong and then spectacularly right, right. 121 00:06:49,200 --> 00:06:52,480 Speaker 1: And so when he became spectacularly right, you know, he 122 00:06:52,520 --> 00:06:55,160 Speaker 1: was he was on the road constantly, and so one 123 00:06:55,160 --> 00:06:56,479 Speaker 1: of the things I would do for him was just 124 00:06:56,680 --> 00:06:59,960 Speaker 1: kind of feed him ideas, feed him charts that kind 125 00:07:00,040 --> 00:07:03,120 Speaker 1: of reinforced his his thesis that he could then go 126 00:07:03,160 --> 00:07:05,080 Speaker 1: and present the clients while he was on the road. 127 00:07:05,200 --> 00:07:07,599 Speaker 1: So a lot of it was sort of getting in 128 00:07:07,600 --> 00:07:10,640 Speaker 1: the weeds on on charts and data. But that's that's 129 00:07:10,680 --> 00:07:12,120 Speaker 1: what I would do for him. And then you know, 130 00:07:12,320 --> 00:07:14,560 Speaker 1: as I got better at that, he kind of gave 131 00:07:14,560 --> 00:07:17,160 Speaker 1: me a little bit more freedom in terms of allowing 132 00:07:17,200 --> 00:07:19,920 Speaker 1: me to write. And obviously, if you work in in 133 00:07:19,920 --> 00:07:22,120 Speaker 1: a Belgian bracket like that, you're obviously writing under the 134 00:07:22,160 --> 00:07:24,280 Speaker 1: lead analyst, right, So my name would go on the reports, 135 00:07:24,280 --> 00:07:26,200 Speaker 1: but they would be under his, of course. And he 136 00:07:26,240 --> 00:07:28,080 Speaker 1: gave me a little bit more freedom as time went on, 137 00:07:28,120 --> 00:07:30,320 Speaker 1: and I would end up writing his morning note, which 138 00:07:30,360 --> 00:07:33,200 Speaker 1: was the widely read you know Rosie Tidbits, remember, I 139 00:07:33,200 --> 00:07:37,640 Speaker 1: mean you know those now it's Breakfast with Dave. Back then, 140 00:07:37,720 --> 00:07:40,480 Speaker 1: it used to be called Rosie's Morning Tidbits. And I 141 00:07:40,520 --> 00:07:42,520 Speaker 1: think that was a play on because you know, Rosie 142 00:07:42,560 --> 00:07:47,320 Speaker 1: was Canadians Canadians and still is um and in my career, 143 00:07:47,440 --> 00:07:53,120 Speaker 1: I feel like the Canadian they produce a large number 144 00:07:53,120 --> 00:07:55,360 Speaker 1: of economists. I mean, it's it's kind of right, I 145 00:07:55,400 --> 00:07:59,640 Speaker 1: mean comedians. And I have no idea, but I think 146 00:07:59,640 --> 00:08:01,600 Speaker 1: the tid bits was a play on tim Bits, right, 147 00:08:01,640 --> 00:08:04,400 Speaker 1: Tim Horton's sort of their version of dunkin Donuts, I guess, 148 00:08:04,400 --> 00:08:06,760 Speaker 1: And so he gave me some freedom in writing that. 149 00:08:06,800 --> 00:08:10,240 Speaker 1: For so Rosie actually ends up going back home to Toronto, 150 00:08:10,840 --> 00:08:13,600 Speaker 1: I know, oh nine, And so now you're at Meryl 151 00:08:14,040 --> 00:08:17,520 Speaker 1: without him writing heard on you. What was it like 152 00:08:17,600 --> 00:08:20,760 Speaker 1: when you had a little more latitude to go where 153 00:08:20,800 --> 00:08:25,400 Speaker 1: you wanted? Well, um, it was actually an interesting time because, um, 154 00:08:25,440 --> 00:08:28,640 Speaker 1: when Rosie left, things were starting to turn around a little. 155 00:08:28,760 --> 00:08:31,560 Speaker 1: And I remember I wrote a piece basically, I think 156 00:08:31,560 --> 00:08:34,360 Speaker 1: in June two thousand and nine, basically saying that the 157 00:08:34,400 --> 00:08:36,520 Speaker 1: recession was over. And at the time it was a 158 00:08:36,559 --> 00:08:40,200 Speaker 1: controversial call. Um, but that was when we didn't even 159 00:08:40,240 --> 00:08:45,400 Speaker 1: have a head of economics because there was a bit 160 00:08:45,400 --> 00:08:48,080 Speaker 1: of a sort of murky you know, let's say six 161 00:08:48,200 --> 00:08:50,080 Speaker 1: to nine month period where Rosie had left and it 162 00:08:50,120 --> 00:08:52,000 Speaker 1: had been a you know, and and then Ethan Harris 163 00:08:52,000 --> 00:08:54,160 Speaker 1: had yet to come in, so we kind of had 164 00:08:54,160 --> 00:08:55,800 Speaker 1: a lot of freedom in terms of what we wanted 165 00:08:55,800 --> 00:08:58,080 Speaker 1: to do. And um, you know, so I wrote that piece. 166 00:08:58,160 --> 00:09:01,000 Speaker 1: It got a lot of attention, I think, But yeah, 167 00:09:01,040 --> 00:09:02,600 Speaker 1: I mean it was a good call and I think 168 00:09:02,600 --> 00:09:05,240 Speaker 1: it was interesting to say the least, because um, here 169 00:09:05,240 --> 00:09:08,480 Speaker 1: you had Rosie, who was a noted market bear at 170 00:09:08,480 --> 00:09:11,040 Speaker 1: the time. He never would have put his name on 171 00:09:11,080 --> 00:09:14,640 Speaker 1: that piece, right and um, and so in some respects 172 00:09:14,640 --> 00:09:16,160 Speaker 1: I was able to and I you know, I mean 173 00:09:16,360 --> 00:09:18,200 Speaker 1: we used a lot of the same framework that he 174 00:09:18,320 --> 00:09:20,160 Speaker 1: is looking at a lot of the same indicators in 175 00:09:20,240 --> 00:09:22,480 Speaker 1: terms of you know, you know, Rosie would talk a 176 00:09:22,520 --> 00:09:25,080 Speaker 1: lot about leading indicators, the the e c R I index, 177 00:09:25,080 --> 00:09:26,600 Speaker 1: and a lot of them had been turning around. So 178 00:09:26,640 --> 00:09:29,320 Speaker 1: we had basically said, look like things are getting better 179 00:09:29,400 --> 00:09:31,800 Speaker 1: and it's sort of reinforced, uh, you know, the upturn 180 00:09:31,840 --> 00:09:34,800 Speaker 1: in markets. So um and speaking of markets, how often 181 00:09:34,920 --> 00:09:41,440 Speaker 1: is down fift not a pretty decent entry point for equities? Oh? Sure? Well, 182 00:09:41,440 --> 00:09:43,680 Speaker 1: I mean one of my buddies, Sam Row, who you 183 00:09:43,720 --> 00:09:49,439 Speaker 1: probably know TK t uh and um. He has that 184 00:09:49,600 --> 00:09:52,160 Speaker 1: you guys know each other. Sam's work is great also, Yeah, 185 00:09:52,240 --> 00:09:55,280 Speaker 1: I mean I can't I I think very highly of 186 00:09:55,360 --> 00:09:58,080 Speaker 1: him also. And one of the best things that he 187 00:09:58,120 --> 00:10:01,200 Speaker 1: says is stock markets usually we go up. That is 188 00:10:01,240 --> 00:10:04,960 Speaker 1: a factual statement, not always but most of the most 189 00:10:04,960 --> 00:10:08,280 Speaker 1: of the time. And um, it's tough being on the 190 00:10:08,360 --> 00:10:11,080 Speaker 1: low probability side of the street, right, And I think 191 00:10:11,080 --> 00:10:12,640 Speaker 1: that sort of set a lot of the kind of 192 00:10:12,679 --> 00:10:16,160 Speaker 1: trajectory over the next several years after um I left 193 00:10:16,640 --> 00:10:18,720 Speaker 1: Merrill and when I started at rend Mac And just 194 00:10:19,000 --> 00:10:22,040 Speaker 1: if you couldn't figure out by eleven that the sky 195 00:10:22,160 --> 00:10:24,920 Speaker 1: is not always falling, you'll you'll never figure it out. 196 00:10:24,960 --> 00:10:28,400 Speaker 1: I mean, because we had so many things happened. We 197 00:10:28,440 --> 00:10:31,200 Speaker 1: had financial crisis, double depercession fears, right, there was that 198 00:10:31,240 --> 00:10:34,040 Speaker 1: debt default thing, and then China hard landing that was 199 00:10:34,080 --> 00:10:37,160 Speaker 1: like this perennial thing, and European sovereign debt crisis and 200 00:10:37,960 --> 00:10:40,880 Speaker 1: stocks kept going up. And so I feel like, you know, 201 00:10:40,920 --> 00:10:43,840 Speaker 1: over my career, right, I mean, I've kind of I 202 00:10:43,880 --> 00:10:48,679 Speaker 1: started working under Rosie, right, um, but I feel like 203 00:10:48,720 --> 00:10:51,040 Speaker 1: over time I've actually been pigeonholed more as like the 204 00:10:51,200 --> 00:10:55,079 Speaker 1: more market optimist economic optimists not so let me let 205 00:10:55,080 --> 00:10:57,440 Speaker 1: me channel my in in a rosy and pushback on 206 00:10:57,520 --> 00:11:01,200 Speaker 1: your markets always go up. Tell that to someone who 207 00:11:01,280 --> 00:11:07,760 Speaker 1: bot Japan in or but China you're down in China. 208 00:11:07,800 --> 00:11:11,200 Speaker 1: I think you're still down in Japan. It's decades later. 209 00:11:11,800 --> 00:11:14,080 Speaker 1: What do you mean markets always go up? Well, US 210 00:11:14,160 --> 00:11:17,079 Speaker 1: equity markets usually go up. That's and and we're very 211 00:11:17,160 --> 00:11:21,280 Speaker 1: much US focused here. UM. I don't disagree with you, 212 00:11:21,320 --> 00:11:24,720 Speaker 1: by the way, but those are the objections that sure, 213 00:11:24,760 --> 00:11:27,400 Speaker 1: I mean, well always come up there. If anything, they're 214 00:11:27,440 --> 00:11:29,640 Speaker 1: the exceptions that proved the rule. Well, Japan is an 215 00:11:29,640 --> 00:11:34,000 Speaker 1: interesting example because, um, of course, after the financial crisis, 216 00:11:34,400 --> 00:11:38,120 Speaker 1: that was a very prominent example of what the U 217 00:11:38,200 --> 00:11:41,120 Speaker 1: S could turn into. We're going the way of Japan. Um. 218 00:11:41,120 --> 00:11:44,160 Speaker 1: But I think in many respects, because that example existed, 219 00:11:44,240 --> 00:11:46,400 Speaker 1: that's why we in fact didn't end up that way. 220 00:11:46,440 --> 00:11:48,800 Speaker 1: We had we we sort of cleared out our banking system, 221 00:11:48,880 --> 00:11:53,040 Speaker 1: we recapitalized our banks very rapidly compared to Japan. Obviously 222 00:11:53,040 --> 00:11:55,520 Speaker 1: Bernanke is a student of what happened. Then it's as 223 00:11:55,559 --> 00:11:58,400 Speaker 1: if we learn from other people's exactly and think about, 224 00:11:58,440 --> 00:12:00,720 Speaker 1: I mean, what was notable about at a sort of 225 00:12:00,760 --> 00:12:07,120 Speaker 1: post financial crisis recovery was just how steady it was, um, 226 00:12:07,160 --> 00:12:09,640 Speaker 1: you know, sort of month in, month out, continued declines 227 00:12:09,640 --> 00:12:12,679 Speaker 1: in the unemployment rate. And you know, if you go 228 00:12:12,760 --> 00:12:14,760 Speaker 1: back to some of the literature around you know, the 229 00:12:14,760 --> 00:12:18,040 Speaker 1: Swedish banking crisis, sort of the Nordic banking crisis, it 230 00:12:18,160 --> 00:12:20,400 Speaker 1: was sort of you know, six seven years he cleared 231 00:12:20,400 --> 00:12:24,080 Speaker 1: out the excess and things start to pick up, and 232 00:12:24,160 --> 00:12:27,840 Speaker 1: that's pretty much what happened right. I mean, the household 233 00:12:27,880 --> 00:12:32,000 Speaker 1: de leveraging was basically over and the economy was gaining 234 00:12:32,000 --> 00:12:34,120 Speaker 1: a lot of momentum. So how did you end up 235 00:12:34,160 --> 00:12:37,760 Speaker 1: at Wren Mack? Uh? You were at Merrill? Tell us 236 00:12:38,120 --> 00:12:41,920 Speaker 1: how you found your way there? So um So, as 237 00:12:41,920 --> 00:12:44,280 Speaker 1: I mentioned, Rosie had had left to think that it 238 00:12:44,360 --> 00:12:46,040 Speaker 1: was really in March of two thousand nine is a 239 00:12:46,080 --> 00:12:50,480 Speaker 1: classic bottom exactly contrary, it was, he left at his peak, 240 00:12:50,600 --> 00:12:53,600 Speaker 1: and I think in September of that year, Bank of 241 00:12:53,600 --> 00:12:57,160 Speaker 1: American Merrill Lynch at that point hired Ethan Harris, who 242 00:12:57,200 --> 00:13:00,000 Speaker 1: I think he was. He was a Lehman Barclays UM 243 00:13:00,120 --> 00:13:04,800 Speaker 1: and so I worked with him for until And you know, 244 00:13:05,120 --> 00:13:08,400 Speaker 1: Lehman was a huge sort of fixed income shop and 245 00:13:08,400 --> 00:13:12,720 Speaker 1: and that's where Ethan's focus really was UM and and 246 00:13:12,760 --> 00:13:16,520 Speaker 1: obviously you know Meryl was more of an equity shop UM. 247 00:13:16,559 --> 00:13:20,160 Speaker 1: And so one of the things that Ethan um gave 248 00:13:20,160 --> 00:13:22,640 Speaker 1: me a lot of latitude to do was just kind 249 00:13:22,679 --> 00:13:25,440 Speaker 1: of service the equity salesforce at Mery Lynch because a 250 00:13:25,440 --> 00:13:27,920 Speaker 1: lot of his focus was really I think more on 251 00:13:27,960 --> 00:13:31,320 Speaker 1: the fixed income side, more on the fed UM. So 252 00:13:31,760 --> 00:13:33,800 Speaker 1: you know, I I had a lot of UM sort 253 00:13:33,840 --> 00:13:36,800 Speaker 1: of opportunity because it was kind of this runway that 254 00:13:36,840 --> 00:13:38,880 Speaker 1: I just had, and and and what I would do 255 00:13:38,960 --> 00:13:41,960 Speaker 1: is try my best to kind of, you know, remember 256 00:13:42,000 --> 00:13:45,120 Speaker 1: what the equity salesforce loved about Rosie and try to 257 00:13:45,160 --> 00:13:46,960 Speaker 1: apply that in my own way. So one of the 258 00:13:46,960 --> 00:13:50,560 Speaker 1: things that I think that Rosie did really well is 259 00:13:50,640 --> 00:13:53,880 Speaker 1: just kind of take the economics calls and make them 260 00:13:53,960 --> 00:13:57,280 Speaker 1: useful for an equity market investment. Right, So if you 261 00:13:57,280 --> 00:14:00,000 Speaker 1: think inventories are done clearing out, what does that mean? Well, 262 00:14:00,080 --> 00:14:02,280 Speaker 1: should be good for manufacturing. Now let me call I mean, 263 00:14:02,280 --> 00:14:04,280 Speaker 1: and you have all these analysts that are covering all 264 00:14:04,280 --> 00:14:06,000 Speaker 1: these companies, So why don't you go pick up the 265 00:14:06,000 --> 00:14:07,560 Speaker 1: phone and talk to them and see what they say? 266 00:14:07,600 --> 00:14:10,720 Speaker 1: And then for an equity salesforce, that is a great 267 00:14:10,760 --> 00:14:13,679 Speaker 1: thing because when you have your macro guy talking to 268 00:14:13,840 --> 00:14:17,839 Speaker 1: your analyst, you can you pitch that to your clients, like, Okay, 269 00:14:17,840 --> 00:14:21,200 Speaker 1: my my macro economist is telling me that inventories are 270 00:14:21,320 --> 00:14:26,360 Speaker 1: have bottomed out. And here's what I don't know, John Inch, 271 00:14:26,400 --> 00:14:28,440 Speaker 1: who was I think the industrials analyst at the time. 272 00:14:28,480 --> 00:14:31,160 Speaker 1: Here's what he's saying about Caterpillar and Deer and so 273 00:14:31,240 --> 00:14:33,840 Speaker 1: on and so forth. And whenever you have that, it 274 00:14:33,880 --> 00:14:36,600 Speaker 1: makes a very good morning call, and you can it 275 00:14:36,600 --> 00:14:38,440 Speaker 1: makes a very good marketing tool. So I would try 276 00:14:38,480 --> 00:14:40,360 Speaker 1: to do that a lot. And as I did more 277 00:14:40,400 --> 00:14:43,120 Speaker 1: of that, I would be asked by the salesforce on 278 00:14:43,160 --> 00:14:46,080 Speaker 1: the equity side at Meryl to kind of can you 279 00:14:46,120 --> 00:14:47,400 Speaker 1: come on the road to me? Can you come out 280 00:14:47,440 --> 00:14:49,160 Speaker 1: to California and talk to so and so? Can you 281 00:14:49,400 --> 00:14:51,320 Speaker 1: Texas and so forth? And so I would do a 282 00:14:51,360 --> 00:14:54,640 Speaker 1: lot of marketing for equity accounts at Meryl Um And 283 00:14:54,680 --> 00:14:56,640 Speaker 1: I was really only like a like a VP at 284 00:14:56,640 --> 00:14:58,800 Speaker 1: the time. I was a pretty junior level person, and 285 00:14:59,320 --> 00:15:03,080 Speaker 1: so that got me going, and then I got approached 286 00:15:03,120 --> 00:15:06,520 Speaker 1: by Wren Mack and now I've been doing it for 287 00:15:06,560 --> 00:15:10,800 Speaker 1: them for this last decade. It's funny you mentioned, um 288 00:15:10,840 --> 00:15:15,880 Speaker 1: what the institutional sales guys like. Who was institutional sales 289 00:15:15,920 --> 00:15:18,560 Speaker 1: in Marrow for a long time. He is not public, 290 00:15:18,560 --> 00:15:21,800 Speaker 1: so I can't drop his name. But my favorite thing 291 00:15:21,880 --> 00:15:25,000 Speaker 1: that he said about taking Rosie on these road trips, 292 00:15:25,480 --> 00:15:28,360 Speaker 1: they called him a wind up toy. Doesn't matter who 293 00:15:28,400 --> 00:15:31,520 Speaker 1: the institutional client is, you would give him like an 294 00:15:31,560 --> 00:15:34,840 Speaker 1: eight second tea. Up. Oh, this is an endowment. They 295 00:15:34,840 --> 00:15:38,640 Speaker 1: focus on this they're interested in this aspect. They turned 296 00:15:38,680 --> 00:15:41,440 Speaker 1: the key and wind him up, push him in, and 297 00:15:41,720 --> 00:15:45,640 Speaker 1: Rosie would just be a fire hose of NonStop data, 298 00:15:45,720 --> 00:15:50,880 Speaker 1: context information. Uncle, whatever you want. Yeah, you get the order, 299 00:15:50,960 --> 00:15:52,760 Speaker 1: just leave me alone. No, Yeah, I mean for me, 300 00:15:52,800 --> 00:15:55,120 Speaker 1: it was a great education. I think those first you know, 301 00:15:55,160 --> 00:15:57,560 Speaker 1: seven or eight years at MARYL because I had Rosie. 302 00:15:57,600 --> 00:16:00,240 Speaker 1: I was fortunate enough to work with two greats. I mean, 303 00:16:00,280 --> 00:16:02,800 Speaker 1: I think Ethan Harris is is one of the best. 304 00:16:03,080 --> 00:16:04,680 Speaker 1: I mean, he had a great call this year. I 305 00:16:04,680 --> 00:16:06,360 Speaker 1: mean in the last year. I mean he was the 306 00:16:06,400 --> 00:16:08,360 Speaker 1: first one to basically say, you know what, the Fed's 307 00:16:08,360 --> 00:16:10,040 Speaker 1: gonna go every meeting, and at the time he said 308 00:16:10,080 --> 00:16:12,600 Speaker 1: it was pretty radical. Yeah, you had a pretty good 309 00:16:12,600 --> 00:16:15,200 Speaker 1: call also the end of last year. In fact, I 310 00:16:15,200 --> 00:16:18,560 Speaker 1: recall I think it was on surveillance, Bloomberg surveillance. You 311 00:16:18,600 --> 00:16:20,640 Speaker 1: came on and said, oh, the Fed's gonna raise at 312 00:16:20,720 --> 00:16:24,520 Speaker 1: least four times. That was a very out of consensus call. 313 00:16:24,600 --> 00:16:27,360 Speaker 1: Is We'll talk a little bit about that a little later, 314 00:16:27,880 --> 00:16:31,920 Speaker 1: but you were very much pushing against the consensus that 315 00:16:32,320 --> 00:16:35,800 Speaker 1: it's all good. Well, so, I mean I think again, um, 316 00:16:35,960 --> 00:16:38,400 Speaker 1: you had one of the best things that Ethan Harris 317 00:16:38,440 --> 00:16:43,160 Speaker 1: actually ever told me was in this business, it's about picking, 318 00:16:43,440 --> 00:16:46,760 Speaker 1: like weighing probabilities and then picking your battles with the 319 00:16:46,800 --> 00:16:49,280 Speaker 1: consensus wisely. Like I'm not the kind of person that's 320 00:16:49,320 --> 00:16:52,040 Speaker 1: just going to be contrarian for the sake of being 321 00:16:52,080 --> 00:16:54,080 Speaker 1: so like that to me doesn't really make it. Listen, 322 00:16:54,120 --> 00:16:57,200 Speaker 1: the market is the crowd exactly the right most of 323 00:16:57,200 --> 00:16:59,560 Speaker 1: the time, and so you have to just pick your 324 00:16:59,560 --> 00:17:04,320 Speaker 1: battles wisely. And I think in that case, I mean, 325 00:17:04,359 --> 00:17:07,240 Speaker 1: four was conservative. I mean, in hindsight that was I mean, 326 00:17:07,280 --> 00:17:09,840 Speaker 1: at the time it sounded sort of radical, but in 327 00:17:09,880 --> 00:17:13,240 Speaker 1: hindsight it was it was obviously not enough. Um. But 328 00:17:13,320 --> 00:17:16,000 Speaker 1: so I think that to me, um kind of I 329 00:17:16,040 --> 00:17:17,600 Speaker 1: thinks at the sort of stage for me at ed 330 00:17:17,640 --> 00:17:19,399 Speaker 1: rend McK and I think it was very helpful to 331 00:17:19,440 --> 00:17:22,960 Speaker 1: sort of come up onto those two guys. Really interesting. 332 00:17:23,520 --> 00:17:27,280 Speaker 1: So we were talking earlier about your December twenty one call. 333 00:17:27,840 --> 00:17:30,280 Speaker 1: You thought the FED would raise at least four times. 334 00:17:30,359 --> 00:17:35,600 Speaker 1: Let's look at what happened. Four basis increases to fifty 335 00:17:36,080 --> 00:17:43,919 Speaker 1: point increases one basis point increase. Why was everybody so sanguine? 336 00:17:44,160 --> 00:17:47,280 Speaker 1: Why did we all miss the fact that the FED 337 00:17:47,680 --> 00:17:51,360 Speaker 1: was suddenly gonna you know, slam on the brakes. Well, 338 00:17:51,400 --> 00:17:52,959 Speaker 1: I think you just have to go back to the 339 00:17:52,960 --> 00:17:57,600 Speaker 1: initial reopening of the economy, right, um. And in hindsight, 340 00:17:58,840 --> 00:18:01,600 Speaker 1: we basically had a V shape recovery, a couple of 341 00:18:01,640 --> 00:18:04,800 Speaker 1: trillion dollars of fiscal stimulus. We help, we threw a 342 00:18:04,840 --> 00:18:07,720 Speaker 1: lot of money at the problem on top of that, right, 343 00:18:07,760 --> 00:18:09,640 Speaker 1: I mean a lot of them. I mean we turned 344 00:18:09,640 --> 00:18:11,159 Speaker 1: the lights off, we turned it back on. You had 345 00:18:11,160 --> 00:18:14,000 Speaker 1: a V had a V shape recovery plus all the stimulus, 346 00:18:14,880 --> 00:18:17,520 Speaker 1: plus you know, paycheck protection. I mean, when we had 347 00:18:17,520 --> 00:18:19,679 Speaker 1: that first employment number, that sort of knocked the lights out. 348 00:18:19,800 --> 00:18:21,639 Speaker 1: Everyone was kind of surprised because we're all kidding off 349 00:18:21,640 --> 00:18:24,639 Speaker 1: the initial claims data, right and um, and so we 350 00:18:24,880 --> 00:18:27,439 Speaker 1: had seen that, you know, maybe these companies were hiring 351 00:18:27,440 --> 00:18:30,840 Speaker 1: people back pretty quickly. I remember at the time the 352 00:18:30,880 --> 00:18:36,960 Speaker 1: Atlanta Fed GDP now cast with something like minus fIF GDP, 353 00:18:37,119 --> 00:18:41,639 Speaker 1: which obviously is a horrific extracoration. But that's why I 354 00:18:41,720 --> 00:18:44,280 Speaker 1: think a lot of people were surprised that at how robust. 355 00:18:44,480 --> 00:18:46,399 Speaker 1: And at the time, remember very I mean, there was 356 00:18:46,440 --> 00:18:49,240 Speaker 1: a legit debate going on, are we gonna have an 357 00:18:49,359 --> 00:18:51,480 Speaker 1: L shape recovery, right, are we going to have a 358 00:18:51,560 --> 00:18:54,720 Speaker 1: U shape recovery? And I think a lot of the 359 00:18:54,800 --> 00:18:58,960 Speaker 1: issues around the FED trajectory was just a function of that, 360 00:18:59,119 --> 00:19:01,560 Speaker 1: and we Bay sickly had a V shaped recovery and 361 00:19:01,600 --> 00:19:04,480 Speaker 1: that warranted a very aggressive response from the FIT, although 362 00:19:04,760 --> 00:19:08,600 Speaker 1: we'll talk a little later about how belated that response was. 363 00:19:08,680 --> 00:19:14,000 Speaker 1: They they clearly could have started tightening earlier at a 364 00:19:14,040 --> 00:19:16,399 Speaker 1: slower pace. But let's put it in and that I 365 00:19:16,440 --> 00:19:18,880 Speaker 1: want to talk about your call where you said there's 366 00:19:18,880 --> 00:19:21,200 Speaker 1: going to be at least four increases. Tell us a 367 00:19:21,240 --> 00:19:24,040 Speaker 1: little bit about your process. What are you looking at 368 00:19:24,480 --> 00:19:27,960 Speaker 1: that leads you to say, Hey, the consensus is way 369 00:19:28,000 --> 00:19:31,359 Speaker 1: too sanguine. They're missing this. The FED is really going 370 00:19:31,440 --> 00:19:33,800 Speaker 1: to step up here. So I think the first thing 371 00:19:33,880 --> 00:19:36,040 Speaker 1: to do in this business is you want to make 372 00:19:36,080 --> 00:19:40,040 Speaker 1: sure you have the now cast right right, forget the forecast. 373 00:19:40,960 --> 00:19:43,040 Speaker 1: Let's just figure out what's going on right now and 374 00:19:43,080 --> 00:19:45,600 Speaker 1: what's been happening. And at the time, what did we know. 375 00:19:46,240 --> 00:19:48,640 Speaker 1: Inflation was coming in a little bit firmer, a lot firm, 376 00:19:49,080 --> 00:19:52,879 Speaker 1: and unemployment was falling more rapidly than people thought. So 377 00:19:52,960 --> 00:19:55,680 Speaker 1: what do you expect the FIT to do at that point. Uh. 378 00:19:55,680 --> 00:20:00,240 Speaker 1: And oh, by the way, um they're behind right, So um, 379 00:20:00,520 --> 00:20:02,679 Speaker 1: aren't they always? I mean you could you can make 380 00:20:02,720 --> 00:20:06,080 Speaker 1: that argument. Um, but you know, in this case, they 381 00:20:06,080 --> 00:20:09,920 Speaker 1: were kind of very much keying off of labor market 382 00:20:10,000 --> 00:20:13,960 Speaker 1: dynamics for the reaction function, and the unemployment was falling 383 00:20:14,080 --> 00:20:17,280 Speaker 1: very very rapidly, and so that's what started it. And um, 384 00:20:17,320 --> 00:20:19,919 Speaker 1: that's the area you're looking at that Hey, this is 385 00:20:19,920 --> 00:20:24,040 Speaker 1: a red flag. Everybody is way too sanguine about c 386 00:20:24,200 --> 00:20:27,240 Speaker 1: P I. I think the thing that really got it 387 00:20:27,280 --> 00:20:30,200 Speaker 1: for me was what was going on in the housing market, right. 388 00:20:30,200 --> 00:20:32,800 Speaker 1: I mean, if you have this sort of pandemic event 389 00:20:33,400 --> 00:20:35,879 Speaker 1: and people go out and what's the thing that pops 390 00:20:35,960 --> 00:20:40,479 Speaker 1: first is residential investment and home sales. That to me 391 00:20:40,600 --> 00:20:44,280 Speaker 1: is a huge, uh you know issue, totally opposite from 392 00:20:44,280 --> 00:20:47,639 Speaker 1: the last crisis because and what do we know about housing? 393 00:20:47,720 --> 00:20:50,879 Speaker 1: It is the it's like an irreversible decision, right, I mean, 394 00:20:50,920 --> 00:20:52,800 Speaker 1: once you buy a home, you can't just go out 395 00:20:52,800 --> 00:20:54,399 Speaker 1: and be like, oh, don't want to do that again. 396 00:20:54,880 --> 00:20:56,679 Speaker 1: I mean you can't return it. So you have to 397 00:20:56,720 --> 00:20:59,480 Speaker 1: be very very sure about the macro environment before you 398 00:20:59,520 --> 00:21:01,400 Speaker 1: make a down payment on a home. So the fact 399 00:21:01,440 --> 00:21:03,920 Speaker 1: that people are willing to do that I think kind 400 00:21:03,920 --> 00:21:08,040 Speaker 1: of led me to believe. Okay, if housing is historically 401 00:21:08,040 --> 00:21:10,359 Speaker 1: a good leading indicator for the economy and that's what's 402 00:21:10,400 --> 00:21:14,920 Speaker 1: really surging right now, what does that mean for everything else? Um? 403 00:21:14,960 --> 00:21:17,800 Speaker 1: And obviously if you're going to buy a home, you 404 00:21:17,840 --> 00:21:19,760 Speaker 1: have to fill it with stuff, and we had a 405 00:21:19,840 --> 00:21:22,760 Speaker 1: huge boom in stuff, and that to me is what 406 00:21:22,880 --> 00:21:24,639 Speaker 1: is what did it? Um? So you know to me 407 00:21:24,720 --> 00:21:26,639 Speaker 1: that the v shape recovery and the good side of 408 00:21:26,680 --> 00:21:29,439 Speaker 1: the economy I think was an important development. And so 409 00:21:29,520 --> 00:21:31,639 Speaker 1: let me ask you will drill down a little bit 410 00:21:31,680 --> 00:21:35,000 Speaker 1: into the specifics. There are all these sort of binary 411 00:21:35,080 --> 00:21:39,520 Speaker 1: debates around inflation. Is it goods or is its services? 412 00:21:40,000 --> 00:21:43,520 Speaker 1: Is it fiscal stimulus or is it monetary um? Is 413 00:21:43,560 --> 00:21:47,520 Speaker 1: this demand driven or is this supply constraint driven? What 414 00:21:47,600 --> 00:21:50,919 Speaker 1: are the factors? How do you take those pairs of 415 00:21:51,000 --> 00:21:54,919 Speaker 1: contradictory positions and reconcile them? What do you think about 416 00:21:55,320 --> 00:21:58,200 Speaker 1: those choices? And it obviously can be a little bit 417 00:21:58,200 --> 00:22:00,760 Speaker 1: of everything. It's not just one thing. Well, this business 418 00:22:00,840 --> 00:22:03,520 Speaker 1: is always nuance. Nuance never gets enough attention. But that's 419 00:22:03,600 --> 00:22:07,320 Speaker 1: usually where the answer is. I mean, on inflation, Is 420 00:22:07,359 --> 00:22:10,880 Speaker 1: it supply driven? Of course it is. Is it demand driven? Yes, 421 00:22:10,920 --> 00:22:13,760 Speaker 1: it is. I mean that's both. Um, Well, if supply 422 00:22:14,000 --> 00:22:16,840 Speaker 1: could answer demand, we wouldn't have inflation exactly got to 423 00:22:16,840 --> 00:22:18,199 Speaker 1: be a little bit. It's gotta be a little bit 424 00:22:18,240 --> 00:22:20,439 Speaker 1: of both. Um. I guess in terms of where we 425 00:22:20,600 --> 00:22:23,879 Speaker 1: stand right now, Um, you know, clearly there's a lot 426 00:22:23,920 --> 00:22:27,160 Speaker 1: of improvement on the supply chain side. We're seeing delivery 427 00:22:27,160 --> 00:22:31,440 Speaker 1: times come down, shipping containers are back to prepension. Um. 428 00:22:31,800 --> 00:22:35,080 Speaker 1: You know, obviously we know that motor vehicle assemblies are 429 00:22:35,600 --> 00:22:40,520 Speaker 1: picking up some steam here, but demand is still very 430 00:22:40,640 --> 00:22:45,879 Speaker 1: very strong. I mean, um, if you look at something 431 00:22:45,920 --> 00:22:49,959 Speaker 1: like real consumer spending of goods relative to its pre 432 00:22:50,080 --> 00:22:53,679 Speaker 1: pandemic trend, I mean there's been no big sort of 433 00:22:53,680 --> 00:22:55,840 Speaker 1: collapse to trend. I mean it's sort of working itself 434 00:22:55,880 --> 00:22:57,960 Speaker 1: out through time, right. I mean that we had that 435 00:22:58,000 --> 00:23:01,199 Speaker 1: big spike and we haven't come back down from it. 436 00:23:01,440 --> 00:23:05,320 Speaker 1: We've just plateaued with a slight up until the December 437 00:23:06,680 --> 00:23:09,760 Speaker 1: consumer spending, it looked like the upward bias was going 438 00:23:09,800 --> 00:23:12,639 Speaker 1: on forever. Yeah, and that probably overstates things, right. I 439 00:23:12,640 --> 00:23:15,719 Speaker 1: mean we know that looking forward, auto sales will probably 440 00:23:15,800 --> 00:23:18,080 Speaker 1: be running better than thirteen and a half millions are 441 00:23:18,200 --> 00:23:22,639 Speaker 1: over the next several months. Um, we already see several months, 442 00:23:22,720 --> 00:23:25,639 Speaker 1: next several years because there's no used cars to be 443 00:23:25,680 --> 00:23:30,399 Speaker 1: had because they were so little exactly new cars. And 444 00:23:30,440 --> 00:23:33,520 Speaker 1: then and now on top of this, look at home 445 00:23:33,560 --> 00:23:37,479 Speaker 1: building stocks over the last on fire. Yeah, what does 446 00:23:37,520 --> 00:23:39,080 Speaker 1: that tell you? I mean a lot of these growth 447 00:23:39,119 --> 00:23:42,159 Speaker 1: pessimists that we're talking about housing is the leading indicator. Well, 448 00:23:42,160 --> 00:23:44,119 Speaker 1: where are they now? I mean, housing is starting to 449 00:23:44,160 --> 00:23:46,600 Speaker 1: revive And what do you think that means for durables? 450 00:23:46,680 --> 00:23:50,639 Speaker 1: We'll keep in mind you mentioned how things lagged post 451 00:23:50,640 --> 00:23:55,760 Speaker 1: financial crisis. We underbuilt single family homes for what almost 452 00:23:55,760 --> 00:23:59,520 Speaker 1: a decade, and now suddenly there's been massive household formation 453 00:24:00,160 --> 00:24:03,159 Speaker 1: pre and during the pandemic. What are we short? A 454 00:24:03,200 --> 00:24:07,360 Speaker 1: million houses? Two million houses? It's a giant not yeah. Yeah, 455 00:24:07,400 --> 00:24:09,879 Speaker 1: if you assume like a normalized vacancigrate, it's probably a 456 00:24:09,920 --> 00:24:13,280 Speaker 1: little over a million units, right. Uh. And you're also 457 00:24:13,359 --> 00:24:16,119 Speaker 1: in a very strong demographic patch for housing, right, I 458 00:24:16,119 --> 00:24:18,320 Speaker 1: mean people are you know, we're sort of in our 459 00:24:18,320 --> 00:24:21,119 Speaker 1: prime marriage years as a country, and so so that 460 00:24:21,119 --> 00:24:22,880 Speaker 1: that helps as well. I mean, one of the interesting 461 00:24:22,920 --> 00:24:26,399 Speaker 1: developments out of the pandemic is just we have a 462 00:24:26,400 --> 00:24:29,000 Speaker 1: little a bit of a mini baby boom going on, right, 463 00:24:29,040 --> 00:24:31,240 Speaker 1: And so what does that mean? So people are not 464 00:24:31,280 --> 00:24:33,720 Speaker 1: only gonna buy a home for that zoom room, now 465 00:24:33,720 --> 00:24:35,920 Speaker 1: they're buying a home for that nursery. And I think 466 00:24:35,960 --> 00:24:37,680 Speaker 1: people figure it out. I Mean, one of the things 467 00:24:37,720 --> 00:24:40,119 Speaker 1: I think people will be surprised to see is just 468 00:24:40,160 --> 00:24:42,399 Speaker 1: look at what the incremental drop in rates will do 469 00:24:42,480 --> 00:24:45,800 Speaker 1: for housing activity. Right, I mean, so people got locked 470 00:24:45,840 --> 00:24:47,760 Speaker 1: out when rates went from six to seven. Now they're 471 00:24:47,800 --> 00:24:50,560 Speaker 1: coming back down to six. But four month loads about six. 472 00:24:52,119 --> 00:24:56,280 Speaker 1: Things like mortgage demand pick up and even in the sixes, right, 473 00:24:56,359 --> 00:24:58,640 Speaker 1: exactly right, I mean that's double what it was a year. 474 00:24:59,160 --> 00:25:00,879 Speaker 1: And and the thing is that it never got as 475 00:25:00,920 --> 00:25:04,359 Speaker 1: low as it did in fourteen despite seven percent mortgage rates. Right, 476 00:25:04,400 --> 00:25:06,479 Speaker 1: So what does that tell you about underlying demand? So 477 00:25:06,680 --> 00:25:09,240 Speaker 1: I think to me, that's an interesting kind of development here. 478 00:25:09,320 --> 00:25:12,000 Speaker 1: And um, obviously if you have a pick up in housing, 479 00:25:13,160 --> 00:25:16,840 Speaker 1: that's going to provide um, you know, some tailwind two 480 00:25:16,840 --> 00:25:22,320 Speaker 1: things like householdurable goods, furniture, carpets, appliances, stuff like that. 481 00:25:23,160 --> 00:25:27,600 Speaker 1: So we're in a sort of weird zone where Jerome 482 00:25:27,720 --> 00:25:30,119 Speaker 1: pal and the FED is telling us, hey, we're not 483 00:25:30,160 --> 00:25:33,000 Speaker 1: done raising rates, and when we are done, we're keeping 484 00:25:33,000 --> 00:25:36,440 Speaker 1: them up here for a while. Markets seem to disagree 485 00:25:36,440 --> 00:25:39,679 Speaker 1: with that. How do you think about this, you know, 486 00:25:39,880 --> 00:25:43,400 Speaker 1: tug of war between what the markets believe about rates 487 00:25:43,400 --> 00:25:45,400 Speaker 1: and what the FED is saying about rates. Well, one 488 00:25:45,400 --> 00:25:48,960 Speaker 1: of the it's a it's a great question, um. I mean, 489 00:25:49,000 --> 00:25:51,240 Speaker 1: as you know that there's this sort of thing that 490 00:25:51,320 --> 00:25:53,359 Speaker 1: goes around Wall Street where the equity guys are the 491 00:25:53,440 --> 00:25:55,640 Speaker 1: dumb guys and the bond guys are the smart guys. Right, 492 00:25:55,960 --> 00:26:00,399 Speaker 1: I don't believe that there certainly are elements of truth 493 00:26:00,960 --> 00:26:04,760 Speaker 1: to that, because the bond guys tend not to blow 494 00:26:04,880 --> 00:26:09,199 Speaker 1: up the way some equity guys have. Maybe that's a 495 00:26:09,240 --> 00:26:13,399 Speaker 1: bad example, but I think that's what colors people's perspective. Well, 496 00:26:13,440 --> 00:26:15,359 Speaker 1: I mean, there was the great, the great Samuelson quote 497 00:26:15,359 --> 00:26:17,160 Speaker 1: that we all know of, right, like the stock markets, 498 00:26:17,240 --> 00:26:19,640 Speaker 1: you know, predicted nine to the last five recessions, right, 499 00:26:19,680 --> 00:26:24,600 Speaker 1: But in reality, the stock market has probably predicted four 500 00:26:24,640 --> 00:26:27,680 Speaker 1: of the last five FED pivots, Right. So I mean, 501 00:26:27,720 --> 00:26:29,679 Speaker 1: how bad can the stock market be? How dumb can 502 00:26:29,720 --> 00:26:31,399 Speaker 1: that money be? If that's what's driving a lot of 503 00:26:31,440 --> 00:26:33,560 Speaker 1: the Fed's reaction function at times. And if you think 504 00:26:33,600 --> 00:26:35,960 Speaker 1: the bond market is smarter than the stock market, well, 505 00:26:36,359 --> 00:26:38,960 Speaker 1: what's the inverted yield curve telling you that the Fed's 506 00:26:39,000 --> 00:26:41,920 Speaker 1: gonna end up doing well? It means that they're gonna 507 00:26:41,920 --> 00:26:43,840 Speaker 1: push the economy into recession. I mean, I guess, I guess. 508 00:26:43,880 --> 00:26:45,600 Speaker 1: The one thing I would say about the bond market 509 00:26:45,600 --> 00:26:47,720 Speaker 1: is that the bond market has the habit of pricing 510 00:26:47,720 --> 00:26:52,320 Speaker 1: and tightening cycles way before they actually start, right, So 511 00:26:52,359 --> 00:26:54,399 Speaker 1: there's always these sort of opportunities in the front end 512 00:26:54,400 --> 00:26:57,119 Speaker 1: of the yield curve early on in an economic cycle, 513 00:26:57,560 --> 00:26:59,080 Speaker 1: and they tend to price in the end of the 514 00:26:59,119 --> 00:27:01,840 Speaker 1: tightening cycle after for its start too soon. Once the 515 00:27:01,840 --> 00:27:03,800 Speaker 1: cycle starts, the bond market tends to price in the 516 00:27:03,880 --> 00:27:07,359 Speaker 1: end too soon. And I think this is probably another 517 00:27:07,400 --> 00:27:11,359 Speaker 1: one of those times, because um, I don't think the 518 00:27:11,359 --> 00:27:13,400 Speaker 1: FED is going to cut and one of the reasons 519 00:27:13,400 --> 00:27:16,399 Speaker 1: why is because there's just too much economic momentum behind, 520 00:27:17,080 --> 00:27:19,480 Speaker 1: you know, behind the U S economy. So you were 521 00:27:19,520 --> 00:27:24,200 Speaker 1: talking the other day on TV about landings, hard landing, 522 00:27:24,280 --> 00:27:27,800 Speaker 1: soft landing. If there's no landing, tell us what you 523 00:27:27,840 --> 00:27:31,240 Speaker 1: mean about that in terms of what are the stock 524 00:27:31,280 --> 00:27:33,920 Speaker 1: and bond markets pricing in and what are your views 525 00:27:33,960 --> 00:27:37,200 Speaker 1: on the economy for the rest of Well, I definitely 526 00:27:37,280 --> 00:27:39,840 Speaker 1: think the odds of a no landing scenario are going up. 527 00:27:40,040 --> 00:27:43,640 Speaker 1: What what is a no landing scenario but no recession? Yeah, 528 00:27:43,720 --> 00:27:48,359 Speaker 1: growth at potential, if not a little better. I mean, um, 529 00:27:48,400 --> 00:27:50,760 Speaker 1: I guess for me, it's you know, what's the mechanism 530 00:27:50,800 --> 00:27:53,560 Speaker 1: for the recession? Right? I mean, you're the argument now 531 00:27:53,640 --> 00:27:56,280 Speaker 1: is what China's reopening and Europe is looking a little better, 532 00:27:56,280 --> 00:27:58,520 Speaker 1: and the U s economy is going into recession. I mean, 533 00:27:58,520 --> 00:28:00,919 Speaker 1: in my experience, the causality never goes that way. It 534 00:28:00,920 --> 00:28:02,440 Speaker 1: goes from the US to the rest of the world. 535 00:28:02,480 --> 00:28:04,840 Speaker 1: Not The rest of the argument is the FED over titans. 536 00:28:04,880 --> 00:28:08,040 Speaker 1: They kill real estate, that can kill consumer spending, and 537 00:28:08,119 --> 00:28:10,240 Speaker 1: that tips us into a month. So it's like it's 538 00:28:10,280 --> 00:28:13,720 Speaker 1: the Milton Friedman like long and variable lag argument, you know, 539 00:28:14,040 --> 00:28:16,080 Speaker 1: Milton Freedom. I mean that may or may not be 540 00:28:16,200 --> 00:28:18,399 Speaker 1: all that accurate. I don't think it is that the 541 00:28:18,480 --> 00:28:20,520 Speaker 1: FED has been talking about. If you look at some 542 00:28:20,560 --> 00:28:24,240 Speaker 1: of the Federal Reserve research papers, they're saying, hey, maybe 543 00:28:24,440 --> 00:28:27,280 Speaker 1: FED activities work with a shorter leg. Then we've been 544 00:28:27,359 --> 00:28:29,439 Speaker 1: let to believe. I mean yeah, I mean back in 545 00:28:29,480 --> 00:28:31,800 Speaker 1: the eighties, I mean, research analyists would figure out what 546 00:28:31,800 --> 00:28:33,760 Speaker 1: the Fed did three weeks ago, right, based on what 547 00:28:33,840 --> 00:28:36,120 Speaker 1: was going on the money markets. Now it's they tell 548 00:28:36,160 --> 00:28:37,680 Speaker 1: you what they're going to do in the markets price 549 00:28:37,840 --> 00:28:42,840 Speaker 1: in instantaneously. Um. But I think the growth impulse from 550 00:28:42,840 --> 00:28:46,600 Speaker 1: financial markets is already flipping positive. So how could it? 551 00:28:46,680 --> 00:28:49,320 Speaker 1: I mean the funny thing about this long and variable 552 00:28:49,400 --> 00:28:52,240 Speaker 1: lag argument if it's an eighteen month lag, So what 553 00:28:52,400 --> 00:28:55,120 Speaker 1: was happening eighteen months ago? The economy was ripping and 554 00:28:55,120 --> 00:28:58,800 Speaker 1: the Fed was reiterating it's low low, lower lower for 555 00:28:58,880 --> 00:29:02,400 Speaker 1: longer approach, so that its Monterrey policy was really really easing. 556 00:29:02,600 --> 00:29:04,760 Speaker 1: So are we still dealing with the easing of eighteen 557 00:29:04,760 --> 00:29:08,520 Speaker 1: months ago? It's ridiculous. So no, I mean, even if 558 00:29:08,520 --> 00:29:11,400 Speaker 1: you go back a year, you had inflation ticking with 559 00:29:11,840 --> 00:29:16,320 Speaker 1: what was it, March cp I went through the two 560 00:29:16,320 --> 00:29:20,360 Speaker 1: percent target rates, So real rates for cratering, right, I mean, 561 00:29:20,400 --> 00:29:22,840 Speaker 1: so the long the lags are not long and variable, 562 00:29:22,840 --> 00:29:25,719 Speaker 1: and they're short and predictable. And you're seeing that already, right. 563 00:29:25,760 --> 00:29:28,560 Speaker 1: I mean, as an example, we we just talked about 564 00:29:28,560 --> 00:29:30,960 Speaker 1: how interest rates have been moderating. What have we also seen. 565 00:29:31,080 --> 00:29:33,880 Speaker 1: We've seen mortgage purchase applications pick up, We've seen homebuilding 566 00:29:33,920 --> 00:29:37,160 Speaker 1: stocks do better, We've seen builder sentiment pick up. It's 567 00:29:37,200 --> 00:29:40,120 Speaker 1: it's instantaneous. So um, and it's the same thing. I 568 00:29:40,160 --> 00:29:42,400 Speaker 1: think you can make that argument with the dollar, right, 569 00:29:42,440 --> 00:29:44,400 Speaker 1: I mean everyone's kind of up in arms about Oh 570 00:29:44,440 --> 00:29:47,400 Speaker 1: the I s N manufacturing p m I is below fifty. Yeah, 571 00:29:47,480 --> 00:29:49,400 Speaker 1: and the dollars off ten percent from where it was 572 00:29:49,440 --> 00:29:52,000 Speaker 1: in September. What do you think that does for factories? 573 00:29:52,280 --> 00:29:55,640 Speaker 1: Obviously a juice's export doesn't hurt him. Right. Uh, you're 574 00:29:55,680 --> 00:29:59,840 Speaker 1: talking last year about in about king dollar and how 575 00:30:00,040 --> 00:30:03,560 Speaker 1: how strong it was. How do you contextualize a moving 576 00:30:03,600 --> 00:30:06,000 Speaker 1: the like a twenty year moving the dollar like that? 577 00:30:06,360 --> 00:30:11,800 Speaker 1: What does that mean in terms of inflation and economic growth? Well? Um, 578 00:30:12,000 --> 00:30:15,440 Speaker 1: more recently, obviously, the dollar decline is I think an 579 00:30:15,480 --> 00:30:19,040 Speaker 1: unambiguous positive for US growth because it's going to juice 580 00:30:19,040 --> 00:30:24,840 Speaker 1: exports particularly have manufactured goods. Um. But a lot of 581 00:30:24,840 --> 00:30:29,200 Speaker 1: the rally and the dollars say from too, you know, 582 00:30:29,560 --> 00:30:31,400 Speaker 1: up until recently, I mean a lot of that was 583 00:30:31,440 --> 00:30:33,320 Speaker 1: just growth differential, right, I mean, think about why the 584 00:30:33,360 --> 00:30:36,320 Speaker 1: dollar moves the dollar moves really for I think it 585 00:30:36,320 --> 00:30:40,640 Speaker 1: could say two reasons. It's basically growth differentials and policy differential. 586 00:30:40,720 --> 00:30:42,560 Speaker 1: Wait a second, I have to interrupt you, because all 587 00:30:42,600 --> 00:30:46,520 Speaker 1: I heard during the was queue and zurp, We're going 588 00:30:46,560 --> 00:30:50,080 Speaker 1: to kill the dollar financial pression. The dollar is done 589 00:30:50,760 --> 00:30:53,640 Speaker 1: light a bonfire. They're no good, They're worthless. And I 590 00:30:53,680 --> 00:30:57,200 Speaker 1: recall having that thrown at me over and over again. 591 00:30:57,240 --> 00:31:00,160 Speaker 1: It couldn't possibly have been more wrong. No, I'm mean, 592 00:31:00,200 --> 00:31:04,880 Speaker 1: this is I mean, you know that doom cells on 593 00:31:04,920 --> 00:31:08,800 Speaker 1: Wall Street, there is a steady diet of this is 594 00:31:08,840 --> 00:31:11,240 Speaker 1: my fourth doom cycle, And yeah, I mean, but to 595 00:31:11,280 --> 00:31:14,880 Speaker 1: me it's it's actually kind of it's kind of shocking, 596 00:31:14,960 --> 00:31:17,760 Speaker 1: like how how enamored people get with these doom and 597 00:31:17,840 --> 00:31:21,640 Speaker 1: gloom sort of ideas because they don't pay at all. 598 00:31:21,720 --> 00:31:23,880 Speaker 1: I mean, like, I like, it's one of these things 599 00:31:23,880 --> 00:31:25,480 Speaker 1: where one of the things I've learned is that the 600 00:31:25,520 --> 00:31:29,120 Speaker 1: negative case always gets sounds a little bit more intellectual, 601 00:31:29,200 --> 00:31:32,080 Speaker 1: people give it a little bit more attention. And but 602 00:31:32,200 --> 00:31:34,120 Speaker 1: one of the things that I've learned is that in 603 00:31:34,160 --> 00:31:39,000 Speaker 1: this business, people that get one call right tend to 604 00:31:39,040 --> 00:31:42,440 Speaker 1: be wrong about most everything else. And I think this 605 00:31:42,480 --> 00:31:46,240 Speaker 1: is you know, I mean so as an example, like 606 00:31:46,240 --> 00:31:48,520 Speaker 1: like the goldbugs, and I mean it's it's the same 607 00:31:48,560 --> 00:31:50,960 Speaker 1: sort of thing, you know, And um and I think 608 00:31:50,960 --> 00:31:53,520 Speaker 1: that you can make that argument with the dollar. The dollar, 609 00:31:53,720 --> 00:31:56,360 Speaker 1: I mean, there's no alternative right to the to the U. S. Dollar. 610 00:31:56,400 --> 00:31:59,160 Speaker 1: It's still the reserve currency because we have the most liquid, 611 00:31:59,160 --> 00:32:01,760 Speaker 1: the deepest capital markets in the world. Right so, and 612 00:32:01,800 --> 00:32:05,520 Speaker 1: nobody trusts China, nobody trust Jipsan, Europe, where else youre 613 00:32:05,560 --> 00:32:07,760 Speaker 1: going to go? And until that changes, you can't you 614 00:32:07,760 --> 00:32:10,240 Speaker 1: can't really make that argument. And so so for me, 615 00:32:10,520 --> 00:32:13,880 Speaker 1: it's why does the dollar move. The dollar basically moves 616 00:32:14,000 --> 00:32:17,520 Speaker 1: because of policy and growth differentials, and so in the 617 00:32:19,040 --> 00:32:22,000 Speaker 1: reason the dollar was doing so well is because the 618 00:32:22,160 --> 00:32:25,520 Speaker 1: US economic growth was a lot better than Europe, it 619 00:32:25,640 --> 00:32:27,520 Speaker 1: was a lot better than Asia. I mean, we were 620 00:32:27,560 --> 00:32:30,560 Speaker 1: talking about our China hard landing like literally every year 621 00:32:30,800 --> 00:32:35,560 Speaker 1: following the financial following, right, so, China reflated and basically 622 00:32:35,640 --> 00:32:39,560 Speaker 1: every year after that it was hard landing risk in China. Um. So, 623 00:32:39,680 --> 00:32:41,760 Speaker 1: I think that's why the dollar moved. And right now 624 00:32:41,880 --> 00:32:46,320 Speaker 1: what's going on is the dollar is I think losing 625 00:32:46,360 --> 00:32:50,320 Speaker 1: steam because people are getting a little bit more optimistic 626 00:32:50,320 --> 00:32:53,200 Speaker 1: about what's going on globally. So, in other words, after 627 00:32:53,520 --> 00:32:57,920 Speaker 1: a really strong pandemic recovery here in the US, the 628 00:32:57,960 --> 00:33:00,160 Speaker 1: rest of the world is finally beginning to ca uch 629 00:33:00,240 --> 00:33:02,920 Speaker 1: up with us. And that's before we talk about the 630 00:33:03,000 --> 00:33:07,440 Speaker 1: end of zero COVID policy in China and them them exactly. So, 631 00:33:07,440 --> 00:33:11,880 Speaker 1: so you sound like an economic optimist looking out the 632 00:33:11,880 --> 00:33:15,600 Speaker 1: next couple of years. Well, I'm certainly an economic optimist 633 00:33:15,640 --> 00:33:20,040 Speaker 1: relative to the consensus um and I think the consensus 634 00:33:20,080 --> 00:33:21,880 Speaker 1: is way off sides, as I think the FED is 635 00:33:21,880 --> 00:33:24,120 Speaker 1: way off sides right now, and meaning what so they're 636 00:33:24,120 --> 00:33:27,080 Speaker 1: too cautious, So the consensus is too cautious. Do you 637 00:33:27,080 --> 00:33:30,840 Speaker 1: think the FED is in the process of overtightening here? No, 638 00:33:31,000 --> 00:33:33,040 Speaker 1: I mean I'm of the view that they probably I 639 00:33:33,040 --> 00:33:36,000 Speaker 1: think the FED will probably step back soon. I mean, 640 00:33:36,000 --> 00:33:37,960 Speaker 1: they're basically telling you that they get rates up to 641 00:33:38,000 --> 00:33:40,240 Speaker 1: something a little over five percent and stop. The question 642 00:33:40,320 --> 00:33:43,400 Speaker 1: from my mind is whether they're stopping too soon. Really, 643 00:33:43,680 --> 00:33:45,240 Speaker 1: I do think that I think that you can make 644 00:33:45,280 --> 00:33:49,280 Speaker 1: that argument because I just feel like financial conditions are 645 00:33:49,280 --> 00:33:51,760 Speaker 1: easing too much. They didn't really they shot their shot, 646 00:33:52,280 --> 00:33:55,760 Speaker 1: and at the same time, fiscal policy tightened last year. 647 00:33:55,840 --> 00:33:59,959 Speaker 1: Last year two and despite all that, the unemployment right 648 00:34:00,040 --> 00:34:02,760 Speaker 1: finished the year at dot dot dot three point five percent. 649 00:34:02,920 --> 00:34:05,600 Speaker 1: So let's talk about that. We we referenced earlier that 650 00:34:05,680 --> 00:34:08,040 Speaker 1: there was a shortage of single family homes in the 651 00:34:08,080 --> 00:34:12,759 Speaker 1: United States. Let's talk about labor. Immigration has been on 652 00:34:12,800 --> 00:34:17,000 Speaker 1: a downward trend long before Trump. My friends, who blame Trump, 653 00:34:17,719 --> 00:34:20,840 Speaker 1: it started taking down way before him. He might have 654 00:34:20,880 --> 00:34:23,080 Speaker 1: spoke a lot about it. I don't see the Biden 655 00:34:23,080 --> 00:34:27,960 Speaker 1: administration moving off of the Trump policies limiting legal immigration. 656 00:34:28,520 --> 00:34:30,799 Speaker 1: You have a lot of early retirements, you have a 657 00:34:30,800 --> 00:34:33,920 Speaker 1: lot of disability. We lost I don't know to fifty 658 00:34:34,560 --> 00:34:38,080 Speaker 1: thousand workers due to COVID to say nothing about the 659 00:34:38,120 --> 00:34:41,400 Speaker 1: people affected, and I've seen estimates from five million to 660 00:34:41,520 --> 00:34:45,840 Speaker 1: fifteen million people who are affected by long COVID. We 661 00:34:45,960 --> 00:34:50,200 Speaker 1: have a massive shortfall of workers. How are you going 662 00:34:50,239 --> 00:34:53,960 Speaker 1: to get unemployment to tick up or wages too slow 663 00:34:54,600 --> 00:34:59,040 Speaker 1: under those circumstances short of causing that hard landing we've 664 00:34:59,040 --> 00:35:01,879 Speaker 1: been talking about. Well, yeah, I mean you can have 665 00:35:01,920 --> 00:35:05,480 Speaker 1: some of that addressed through policy, right, Um, are we 666 00:35:05,520 --> 00:35:08,839 Speaker 1: as anyone addressing that? No? No, I mean no that 667 00:35:08,840 --> 00:35:11,600 Speaker 1: that I don't I mean, you can maybe see. I 668 00:35:11,640 --> 00:35:13,239 Speaker 1: mean I think part of the issue though, is think 669 00:35:13,280 --> 00:35:15,799 Speaker 1: about who's filling some of that vacuum, right, I mean 670 00:35:15,840 --> 00:35:20,600 Speaker 1: you you are seeing participation rates rising for those age 671 00:35:20,640 --> 00:35:24,240 Speaker 1: sixty four years old, not prime age workers, but younger people, 672 00:35:24,600 --> 00:35:27,600 Speaker 1: and a lot of them are coming in. Now, what 673 00:35:27,640 --> 00:35:31,920 Speaker 1: does that mean? You're basically you talked about retirements. You 674 00:35:32,000 --> 00:35:35,359 Speaker 1: have a lot of inexperienced workers coming in. What does 675 00:35:35,400 --> 00:35:38,120 Speaker 1: that mean? Those aren't the most productive people. So experienced 676 00:35:38,120 --> 00:35:41,560 Speaker 1: people are leaving, inexperienced workers are coming in. That's not 677 00:35:41,600 --> 00:35:45,080 Speaker 1: necessarily the best dynamic for for product for labor productivity, right, 678 00:35:45,080 --> 00:35:46,800 Speaker 1: I mean, it's gonna take some time for those workers 679 00:35:46,840 --> 00:35:49,120 Speaker 1: to kind of get up to snuff, right, But that 680 00:35:49,320 --> 00:35:52,839 Speaker 1: is inflationary from the fetes perspective. Remember, um, the sort 681 00:35:52,840 --> 00:35:58,560 Speaker 1: of equation that Powell always references is compensation growth equals 682 00:35:58,560 --> 00:36:02,480 Speaker 1: inflation plus productivity. That is sort of a identity that 683 00:36:02,560 --> 00:36:06,680 Speaker 1: they use in macro and what's wrong what's wrong with that? 684 00:36:08,640 --> 00:36:10,799 Speaker 1: It's not about what's wrong with it or not. I mean, 685 00:36:10,960 --> 00:36:13,440 Speaker 1: I'm a business economist. I don't have an opinion. For me, 686 00:36:13,480 --> 00:36:15,439 Speaker 1: it's what are they telling me? You know what I mean? 687 00:36:15,880 --> 00:36:19,120 Speaker 1: For whatever reason, the Fed views the labor markets as 688 00:36:19,160 --> 00:36:24,120 Speaker 1: the conduit. And if compensation growth is running right now, 689 00:36:24,160 --> 00:36:29,160 Speaker 1: let's say it's five and productivity is one one and 690 00:36:29,160 --> 00:36:32,040 Speaker 1: a half, you're basically talking about an inflation environment of 691 00:36:32,080 --> 00:36:35,400 Speaker 1: three and a half percent ish, which is not terrible 692 00:36:36,440 --> 00:36:38,640 Speaker 1: from their mind. And remember the one time you had 693 00:36:38,680 --> 00:36:40,719 Speaker 1: a soft landing in the US content, right, So this 694 00:36:40,800 --> 00:36:42,480 Speaker 1: is one of the things. I do think we have 695 00:36:42,600 --> 00:36:45,080 Speaker 1: an increasing odds of a soft landing right now, but 696 00:36:45,200 --> 00:36:47,839 Speaker 1: that doesn't mean the odds are increasing permanently, right um, 697 00:36:49,800 --> 00:36:51,680 Speaker 1: think about when we had a soft landing that The 698 00:36:51,920 --> 00:36:54,759 Speaker 1: example that most people will remember is the nineties. So 699 00:36:54,880 --> 00:36:56,560 Speaker 1: what happened during that time. First of all, we don't 700 00:36:56,560 --> 00:36:59,640 Speaker 1: have a formalized inflation target of two and number two 701 00:37:00,080 --> 00:37:02,480 Speaker 1: what was it called that green Span? Now he got 702 00:37:02,520 --> 00:37:05,600 Speaker 1: the productivity call right at the time. I mean, Janet 703 00:37:05,640 --> 00:37:08,799 Speaker 1: Yellen was telling him you gotta keep hiking, like, look 704 00:37:08,840 --> 00:37:10,600 Speaker 1: at how low the unemployment rate was getting. But what 705 00:37:10,680 --> 00:37:13,000 Speaker 1: green Span came around and said was, well, look, productivity 706 00:37:13,080 --> 00:37:16,200 Speaker 1: is taking off. We probably don't need to be hiking 707 00:37:16,200 --> 00:37:19,239 Speaker 1: as aggressively. So let's talk about that productivity number now. 708 00:37:19,320 --> 00:37:25,520 Speaker 1: Because I have my entire career been perplexed by these 709 00:37:25,800 --> 00:37:29,360 Speaker 1: very what's the old joke from UM was it? Professor 710 00:37:29,440 --> 00:37:32,920 Speaker 1: Solo and m I t uh. Productivity numbers are showing 711 00:37:33,040 --> 00:37:36,360 Speaker 1: up everywhere, but in the statistics, and as someone who's 712 00:37:36,400 --> 00:37:40,280 Speaker 1: a white collar worker who can operate remote, I feel 713 00:37:40,360 --> 00:37:45,040 Speaker 1: like every year my productivity is up. Now, if you're 714 00:37:45,040 --> 00:37:47,759 Speaker 1: working in a factory or if you're delivering mail or 715 00:37:48,360 --> 00:37:53,280 Speaker 1: something elsewhere, technology isn't helping you that much. You're probably 716 00:37:53,360 --> 00:37:56,320 Speaker 1: not seeing those sort of technology gains. Am I just 717 00:37:56,400 --> 00:38:00,080 Speaker 1: seeing the world through my narrow perspective? Or is a 718 00:38:00,200 --> 00:38:03,880 Speaker 1: data missing a lot of productivity games? I don't know 719 00:38:04,000 --> 00:38:05,640 Speaker 1: that the data is really missing that much. I mean, 720 00:38:05,719 --> 00:38:08,120 Speaker 1: productivity has been weak even in the areas where it's 721 00:38:08,239 --> 00:38:10,600 Speaker 1: very easy to measure it, like manufacturing, So that to 722 00:38:10,719 --> 00:38:13,080 Speaker 1: me is is something that's important to point out. UM. 723 00:38:13,239 --> 00:38:16,520 Speaker 1: But you know, think about capital spent? I mean, right, 724 00:38:16,560 --> 00:38:19,759 Speaker 1: so capital deepening is what what drives productivity, and that's 725 00:38:19,840 --> 00:38:23,400 Speaker 1: basically capex relative to labor hours, and that hasn't been 726 00:38:23,440 --> 00:38:26,160 Speaker 1: particularly strong either. So what's the I mean, I get 727 00:38:26,239 --> 00:38:30,279 Speaker 1: that there there are interesting things going on, but I 728 00:38:30,360 --> 00:38:33,040 Speaker 1: don't know that that's necessarily going to drive significant gains 729 00:38:33,040 --> 00:38:36,240 Speaker 1: and productivity. Um. And of as I mentioned, labor quality 730 00:38:36,280 --> 00:38:37,960 Speaker 1: is a lot is a lot worse now than it 731 00:38:38,000 --> 00:38:40,440 Speaker 1: had been before. So I think it's it's it's a 732 00:38:40,520 --> 00:38:42,360 Speaker 1: bit more for me, it's a little bit more challenging 733 00:38:42,400 --> 00:38:44,319 Speaker 1: to accept the idea that productivity is going to save 734 00:38:44,400 --> 00:38:47,840 Speaker 1: you from from the inflation. Um. So let's talk about 735 00:38:47,880 --> 00:38:51,880 Speaker 1: that inflation. You know, for at least for the median 736 00:38:52,400 --> 00:38:57,040 Speaker 1: wage owner and below, prior to the pandemic, their wage 737 00:38:57,120 --> 00:39:01,160 Speaker 1: is lagged everything. They lagged in inflation. Leg the stock 738 00:39:01,239 --> 00:39:05,640 Speaker 1: market lagged, corporate profits, it legged c suite compensation. So 739 00:39:05,800 --> 00:39:09,280 Speaker 1: it seems like suddenly the bottom half of the economic 740 00:39:09,360 --> 00:39:13,040 Speaker 1: strata is seeing wage increases and the FED is like, hey, hey, hey, 741 00:39:13,160 --> 00:39:16,880 Speaker 1: slow down a little bit. What's that about. I mean, 742 00:39:16,960 --> 00:39:21,560 Speaker 1: it's it's a nasty little secret. I mean well, I mean, um, 743 00:39:21,680 --> 00:39:24,040 Speaker 1: it was a giant New York Times piece a couple 744 00:39:24,080 --> 00:39:27,480 Speaker 1: of Sundays ago in the magazine section talking about who 745 00:39:27,680 --> 00:39:31,759 Speaker 1: is the FED increases falling the hardest on They view 746 00:39:32,080 --> 00:39:35,760 Speaker 1: the labor markets as the conduit to achieve their inflation goals. 747 00:39:36,760 --> 00:39:39,279 Speaker 1: We can debate whether that's right or wrong. I mean, 748 00:39:39,360 --> 00:39:42,239 Speaker 1: I'm not an academic economist, but that's what they're telling us. 749 00:39:42,800 --> 00:39:48,799 Speaker 1: And so if that's the case, then unemployment is one 750 00:39:48,840 --> 00:39:52,680 Speaker 1: way they're going to achieve the goal of getting inflation 751 00:39:52,719 --> 00:39:55,120 Speaker 1: back to two percent in a sustainable way. Seems like 752 00:39:55,280 --> 00:39:59,160 Speaker 1: a twenty twenty century central bank confronted with the twenty 753 00:39:59,440 --> 00:40:02,400 Speaker 1: century b I mean, it may well be, but I 754 00:40:02,800 --> 00:40:07,120 Speaker 1: think look, I mean, right now, the labor markets are 755 00:40:07,120 --> 00:40:11,840 Speaker 1: still very very tight, and there's still an inflationary impulse 756 00:40:11,880 --> 00:40:15,200 Speaker 1: from the labor markets. And yeah, look, I mean I 757 00:40:15,280 --> 00:40:17,920 Speaker 1: think that this is also, in some respects, maybe a 758 00:40:19,200 --> 00:40:21,040 Speaker 1: tell on our society. I mean, what do you think 759 00:40:21,080 --> 00:40:23,400 Speaker 1: most people would prefer, right, I mean, would you prefer 760 00:40:23,560 --> 00:40:27,520 Speaker 1: five percent unemployment and two percent inflation or three percent 761 00:40:28,200 --> 00:40:31,160 Speaker 1: unemployment and four percent inflation. It depends if you're the 762 00:40:31,239 --> 00:40:34,080 Speaker 1: guy that's unemployed or not. I mean, if I'm unemployed, 763 00:40:34,080 --> 00:40:35,800 Speaker 1: I don't really care what the hell inflation is. I 764 00:40:35,880 --> 00:40:38,239 Speaker 1: got no income. Yeah. Well, I mean it's one of 765 00:40:38,280 --> 00:40:40,920 Speaker 1: the reasons why I think Reagan became president and Sanders 766 00:40:41,000 --> 00:40:43,280 Speaker 1: never will, right, I mean the fact, I mean, because 767 00:40:43,320 --> 00:40:46,000 Speaker 1: I think it's it's much easier I think, to form 768 00:40:46,080 --> 00:40:52,080 Speaker 1: a political coalition around inflation then around unemployment, because it's 769 00:40:52,120 --> 00:40:53,920 Speaker 1: always Oh, it's like, oh, no, I gotta pay for that, 770 00:40:54,560 --> 00:40:56,520 Speaker 1: you know what I mean, Like, that's how right, because 771 00:40:57,320 --> 00:41:01,279 Speaker 1: the baseline expectation, like your social contract in America, I think, 772 00:41:01,800 --> 00:41:03,839 Speaker 1: is oh you gotta like to me, it's like, yeah, 773 00:41:03,880 --> 00:41:06,239 Speaker 1: I got a job, great, good for you. Everyone has one, 774 00:41:06,520 --> 00:41:09,120 Speaker 1: you know, whereas oh, the prices for these things are 775 00:41:09,160 --> 00:41:13,160 Speaker 1: going up like six that's weird. Right. So that's why 776 00:41:13,200 --> 00:41:17,240 Speaker 1: I think politically it's much easier for politicians to address 777 00:41:17,360 --> 00:41:21,920 Speaker 1: that than than unemployment prior to the I mean, right, 778 00:41:22,160 --> 00:41:24,120 Speaker 1: I mean, think about think about this, right, I mean, well, 779 00:41:24,160 --> 00:41:28,360 Speaker 1: the two thousands use a giant spike inflation, arguably caused 780 00:41:28,400 --> 00:41:30,480 Speaker 1: by the FED taking rates too low and keeping them 781 00:41:30,520 --> 00:41:33,480 Speaker 1: there too long. Um, I mean yeah, core inflation during 782 00:41:33,480 --> 00:41:35,000 Speaker 1: the two thousand was running a little bit, I mean 783 00:41:35,040 --> 00:41:38,160 Speaker 1: I think around two and a half percent, but spiked up, 784 00:41:38,440 --> 00:41:40,680 Speaker 1: you know in right into the crisis in oh eight, 785 00:41:40,840 --> 00:41:44,080 Speaker 1: the bottom was falling out from the economy and Pete. 786 00:41:44,120 --> 00:41:45,920 Speaker 1: I mean we were having you know, we had like 787 00:41:46,080 --> 00:41:48,799 Speaker 1: five or six months of job losses. Even as gas 788 00:41:48,840 --> 00:41:53,600 Speaker 1: prices are oil We're people talking about let's go and like, um, 789 00:41:54,800 --> 00:41:57,200 Speaker 1: you know, stop gap the banks and like even though 790 00:41:57,400 --> 00:42:01,440 Speaker 1: no they weren't right because you know, it was like, oh, well, 791 00:42:02,280 --> 00:42:04,719 Speaker 1: what had more public support suspending the gas tax or 792 00:42:04,719 --> 00:42:08,799 Speaker 1: bailing out the banking industry. At that time, absolutely there 793 00:42:08,880 --> 00:42:12,480 Speaker 1: was very little support for bailing out the banks, and 794 00:42:12,640 --> 00:42:15,680 Speaker 1: in fact, there was the whole Tea party came about 795 00:42:16,160 --> 00:42:19,400 Speaker 1: when you attempted to bail out the homeowners. There was 796 00:42:19,480 --> 00:42:23,080 Speaker 1: a lot of political crosscurrents during that. So I think 797 00:42:23,160 --> 00:42:25,400 Speaker 1: that to me is is sort of this interesting kind 798 00:42:25,440 --> 00:42:27,920 Speaker 1: of dynamic, is that it's just it's a lot easier 799 00:42:28,239 --> 00:42:33,000 Speaker 1: um politically, I think, to fight inflation. Really interesting. So 800 00:42:33,320 --> 00:42:35,759 Speaker 1: we've been talking a little bit about what the consensus 801 00:42:35,960 --> 00:42:39,759 Speaker 1: is and what the Fed's gonna do. Um, all these 802 00:42:39,880 --> 00:42:44,760 Speaker 1: rapid increases in rates we've seen. You've said you question 803 00:42:44,880 --> 00:42:50,640 Speaker 1: whether or not the FIT has a coherent strategy. Explain that, well, 804 00:42:50,680 --> 00:42:53,120 Speaker 1: I mean they're kind of playing catch up, right. I mean, 805 00:42:53,280 --> 00:42:56,800 Speaker 1: I think based on their behavior over the last twelve months, 806 00:42:56,920 --> 00:42:59,959 Speaker 1: it's pretty clear that they should have started sooner, although 807 00:43:00,000 --> 00:43:01,640 Speaker 1: wise they wouldn't have been so aggressive in the first 808 00:43:01,640 --> 00:43:03,560 Speaker 1: So let's put let's put some flesh on that. The 809 00:43:03,800 --> 00:43:08,960 Speaker 1: CPI goes through two in March one. By the end 810 00:43:09,000 --> 00:43:12,279 Speaker 1: of the year, CPI is what seven percent something like that, 811 00:43:12,719 --> 00:43:17,439 Speaker 1: And in March the Fed first starts raising rates. They're 812 00:43:17,520 --> 00:43:21,000 Speaker 1: like a year behind the curve. Well, I mean they 813 00:43:21,160 --> 00:43:23,520 Speaker 1: very much were anchored to I mean there's a recency 814 00:43:23,600 --> 00:43:27,440 Speaker 1: bias in in policy and policymaking. Um. You know, in 815 00:43:27,520 --> 00:43:30,759 Speaker 1: the same way that fiscal policy makers were criticized for 816 00:43:31,040 --> 00:43:34,640 Speaker 1: not doing enough during the financial crisis, you could make 817 00:43:34,680 --> 00:43:38,440 Speaker 1: the argument that fiscal policy makers overreacted during the pandemic crisis. 818 00:43:38,880 --> 00:43:40,680 Speaker 1: So what we have. We had two trillion in the 819 00:43:40,719 --> 00:43:43,560 Speaker 1: first CARES Act, we had another trillion in the second 820 00:43:43,640 --> 00:43:46,680 Speaker 1: CARES Act. Then the new administration comes in, there's another 821 00:43:46,760 --> 00:43:49,600 Speaker 1: trillion in the third CARES Act. Then there's the Inflation 822 00:43:49,680 --> 00:43:53,360 Speaker 1: Reduction Act, and there's the um Infrastructure Bill. That's a 823 00:43:53,440 --> 00:43:57,080 Speaker 1: lot of fiscal stimulus, isn't it. Yeah. And remember back 824 00:43:57,280 --> 00:44:00,359 Speaker 1: when um, you know, Trump ran and they the whole 825 00:44:00,400 --> 00:44:03,160 Speaker 1: t c j A. What was the big Yeah, what 826 00:44:03,320 --> 00:44:07,240 Speaker 1: was the big discussion? Then monetary offset? Remember that monetary offset, 827 00:44:07,280 --> 00:44:08,920 Speaker 1: Like the Fed needs to come in and counteract the 828 00:44:08,960 --> 00:44:12,000 Speaker 1: fiscal stimulus. Well, think about it this time. There's a 829 00:44:12,000 --> 00:44:14,799 Speaker 1: lot of fiscal stimulus that needs to be contracted, particularly 830 00:44:14,840 --> 00:44:19,960 Speaker 1: when people are still sitting on trillion dollars of pandemic savings. 831 00:44:20,120 --> 00:44:24,719 Speaker 1: So how much of that can be accomplished with quantitative tightening, unwinding, 832 00:44:25,080 --> 00:44:27,759 Speaker 1: quantitative easing, and how much of that has to be 833 00:44:28,080 --> 00:44:32,040 Speaker 1: purely rate driven? I think it's very driven, because I 834 00:44:32,160 --> 00:44:34,160 Speaker 1: don't I don't know that quantitative tightening has that much 835 00:44:34,200 --> 00:44:36,920 Speaker 1: of an effect on really because people were warning, oh, 836 00:44:37,040 --> 00:44:40,080 Speaker 1: you don't understand what a head headwind QUEI has been 837 00:44:40,120 --> 00:44:42,279 Speaker 1: a tail winds. Not only is that gone, now you 838 00:44:42,320 --> 00:44:45,200 Speaker 1: have the head wind of of QT. Just you wait, 839 00:44:45,480 --> 00:44:49,120 Speaker 1: that was the last doomsayer. I think QUEE was basically 840 00:44:49,200 --> 00:44:52,120 Speaker 1: a way for the FED to tell the the markets 841 00:44:52,160 --> 00:44:54,400 Speaker 1: that it really meant business about keeping rates low for 842 00:44:54,480 --> 00:44:58,120 Speaker 1: a long time. And you know, to me, let's say 843 00:44:58,160 --> 00:45:00,319 Speaker 1: the FED came out and stopped QT because they want 844 00:45:00,360 --> 00:45:03,000 Speaker 1: to maintain like an ample level of reserves. Does that 845 00:45:03,080 --> 00:45:05,040 Speaker 1: tell you anything about what interests are gonna do. No, 846 00:45:05,239 --> 00:45:06,920 Speaker 1: the Fed can raise rates whenever they want, So that 847 00:45:07,120 --> 00:45:09,879 Speaker 1: that to me is I don't think it's it's really 848 00:45:09,920 --> 00:45:13,520 Speaker 1: the same thing, um And so yeah, I don't know. 849 00:45:13,520 --> 00:45:16,600 Speaker 1: I mean, yeah, there's always these sort of there's this 850 00:45:16,719 --> 00:45:19,680 Speaker 1: like knee jerk kind of desire I think in markets 851 00:45:19,719 --> 00:45:24,279 Speaker 1: to like explain things that as simplistically as possible. And 852 00:45:24,360 --> 00:45:26,759 Speaker 1: so it's like, oh, like, here's this overlay chart if 853 00:45:26,800 --> 00:45:29,480 Speaker 1: the Feds QWI and the stock market, and that's why 854 00:45:29,760 --> 00:45:32,520 Speaker 1: the stock it's going up, And it's just you suggest 855 00:45:32,600 --> 00:45:36,359 Speaker 1: it's absolutely binary, that it's more nuanced, to use your 856 00:45:36,440 --> 00:45:38,800 Speaker 1: earlier phrase. I mean, to me, it's just a ridiculous 857 00:45:38,880 --> 00:45:41,640 Speaker 1: thing because if you take that to its logical conclusion, 858 00:45:41,680 --> 00:45:44,480 Speaker 1: the FETE has an infinite ability to expand its balance 859 00:45:45,360 --> 00:45:47,239 Speaker 1: So that means that there should the stock market should 860 00:45:47,280 --> 00:45:49,920 Speaker 1: never ever go down, if that's what you'd right, I mean, 861 00:45:50,000 --> 00:45:52,360 Speaker 1: so if you think about it logically, take it to 862 00:45:52,480 --> 00:45:55,440 Speaker 1: its end conclusion, does the Central Bank have Is there 863 00:45:55,440 --> 00:45:58,280 Speaker 1: any constraint on the Fed in terms of printing money 864 00:45:58,480 --> 00:46:01,120 Speaker 1: doing QWI? There is none, really, I means it's political, 865 00:46:01,239 --> 00:46:04,359 Speaker 1: but you know, theoretically there's none. And so if if 866 00:46:04,440 --> 00:46:06,880 Speaker 1: the balance sheet is all that drives the stock market, 867 00:46:06,960 --> 00:46:09,840 Speaker 1: then the stock market should never go down. You have 868 00:46:09,920 --> 00:46:12,000 Speaker 1: to think about it that way. And so to me, 869 00:46:12,320 --> 00:46:14,719 Speaker 1: you know, the stock markets driven by earnings and by 870 00:46:15,719 --> 00:46:20,320 Speaker 1: fundamentals and and sentiment and sentiment, and you know the 871 00:46:20,400 --> 00:46:22,360 Speaker 1: FED can play a role and sort of back talking 872 00:46:22,440 --> 00:46:25,120 Speaker 1: sentiment a short run. But the FED can't permanently increase 873 00:46:25,640 --> 00:46:28,600 Speaker 1: the level of asset values. So there's been a lot 874 00:46:28,680 --> 00:46:33,120 Speaker 1: of discussions about when PAL is going to pivot. Are 875 00:46:33,160 --> 00:46:36,280 Speaker 1: you saying we're over emphasizing that? Is the market sussing 876 00:46:36,360 --> 00:46:40,719 Speaker 1: that out early enough? How much should investors be paying 877 00:46:40,760 --> 00:46:45,520 Speaker 1: attention to each and every utterance from j Pale and 878 00:46:45,719 --> 00:46:48,719 Speaker 1: his bands of merry central bankers. Well, I think it's 879 00:46:48,760 --> 00:46:52,680 Speaker 1: important to follow the data. And um, Ultimately, if the 880 00:46:52,760 --> 00:46:55,040 Speaker 1: FET is saying that it's data dependent, then the data 881 00:46:55,080 --> 00:46:58,160 Speaker 1: will drive their views on policy. Um. You know, I 882 00:46:58,239 --> 00:47:00,040 Speaker 1: must admit right now, it does feel that the it 883 00:47:00,160 --> 00:47:01,759 Speaker 1: is kind of moving a little bit away from that 884 00:47:01,920 --> 00:47:05,000 Speaker 1: because it seems like they just want to get rates 885 00:47:05,360 --> 00:47:08,760 Speaker 1: just about five and regardless and wait and see, regardless 886 00:47:08,760 --> 00:47:12,279 Speaker 1: of whatever happens. Let me throw some data you. It 887 00:47:12,400 --> 00:47:16,600 Speaker 1: looks like inflation peaked mid year last year. Certainly on 888 00:47:16,760 --> 00:47:22,359 Speaker 1: the good side, we talked about let's energy, lumber, shipping containers, 889 00:47:22,520 --> 00:47:26,960 Speaker 1: used cars, even rolexes are rolling over in price. So 890 00:47:27,360 --> 00:47:31,919 Speaker 1: that's or depending on what year you're looking at, that's 891 00:47:32,760 --> 00:47:37,560 Speaker 1: of inflation problem. What about services? We continue to see 892 00:47:38,360 --> 00:47:44,359 Speaker 1: at least owner's equivalent rent portion of cp I appear elevated. 893 00:47:44,800 --> 00:47:47,040 Speaker 1: What are we to make of that? Is the FED 894 00:47:47,160 --> 00:47:49,560 Speaker 1: looking at the data or are they looking in the 895 00:47:49,600 --> 00:47:53,360 Speaker 1: wrong place? Well, I mean Powell kind of splice the 896 00:47:53,400 --> 00:47:56,319 Speaker 1: inflation data into three parts, right, And you talked about 897 00:47:56,360 --> 00:47:58,640 Speaker 1: core goods inflation, which is I think what you're getting at, 898 00:47:58,719 --> 00:48:01,280 Speaker 1: which is it's it's deflating. Right. So those are your cars, 899 00:48:01,440 --> 00:48:07,120 Speaker 1: your furniture appliances, right. Um. Then you have housing rental inflation, 900 00:48:07,719 --> 00:48:12,960 Speaker 1: which has been quite strong, um, but is also likely 901 00:48:13,040 --> 00:48:15,640 Speaker 1: to decelerate quite a bit. I mean. One of the 902 00:48:15,640 --> 00:48:18,400 Speaker 1: reasons why inflation has historically been a lagging indicator is 903 00:48:18,440 --> 00:48:22,040 Speaker 1: because shelter, which is a big component of inflation, is 904 00:48:22,080 --> 00:48:24,680 Speaker 1: a lagging indicator of in and of itself, right, and 905 00:48:25,239 --> 00:48:29,120 Speaker 1: it tends to lag home prices um. And home prices 906 00:48:29,160 --> 00:48:31,279 Speaker 1: have been moderating, and we know that new lease growth 907 00:48:31,320 --> 00:48:34,279 Speaker 1: has also been moderating quite a bit. So I think 908 00:48:34,360 --> 00:48:37,760 Speaker 1: it's inevitable that housing rental inflation, and as it's measured 909 00:48:37,800 --> 00:48:40,200 Speaker 1: in the CPI data, will will come down. That's a 910 00:48:40,280 --> 00:48:44,000 Speaker 1: key phrase, as it's measured. There have been both from 911 00:48:44,239 --> 00:48:48,400 Speaker 1: places like the Cleveland FED and Zillo rents. There have 912 00:48:48,480 --> 00:48:51,560 Speaker 1: been a couple of new ways of looking at rental 913 00:48:51,840 --> 00:48:56,880 Speaker 1: inflation that make it appear the BLS model is really 914 00:48:57,200 --> 00:48:59,919 Speaker 1: on a long lag. When you look at Zillo rent 915 00:49:00,120 --> 00:49:03,080 Speaker 1: they appear to be plumbering. And when you look at 916 00:49:03,080 --> 00:49:05,880 Speaker 1: a paper I think it was the Cleveland Fed that 917 00:49:06,200 --> 00:49:10,040 Speaker 1: tried to look at repeat rents as opposed to the 918 00:49:10,120 --> 00:49:14,279 Speaker 1: whole world of rents. They're showing that rents not only 919 00:49:14,320 --> 00:49:17,319 Speaker 1: have stopped going up but are now rapidly. But that's 920 00:49:17,320 --> 00:49:18,920 Speaker 1: also been well known. I mean, that's been a a 921 00:49:19,160 --> 00:49:22,680 Speaker 1: I think a well known feature of the inflation statistics. Right, 922 00:49:22,719 --> 00:49:25,240 Speaker 1: So this idea that, oh, this is such a lagging 923 00:49:25,239 --> 00:49:27,600 Speaker 1: indicator like that, No, that's a lot of people just 924 00:49:27,719 --> 00:49:29,480 Speaker 1: saying that they want the Fed to back off, and 925 00:49:29,840 --> 00:49:33,600 Speaker 1: they're using that to justify I'm talking my book. So 926 00:49:33,760 --> 00:49:36,800 Speaker 1: that let me ask you this question, because Bernanki was 927 00:49:36,840 --> 00:49:40,320 Speaker 1: saying inflation is a lagging indicator, right, So inflation is 928 00:49:40,320 --> 00:49:43,160 Speaker 1: a lagging indication, right. So Bernanki made that point back 929 00:49:43,239 --> 00:49:45,600 Speaker 1: in two thousands, right around the time he said sub 930 00:49:45,640 --> 00:49:47,719 Speaker 1: prime was contained. Well it was after that, but he 931 00:49:47,840 --> 00:49:50,680 Speaker 1: was right about the inflation being a lagging indicator. Because 932 00:49:50,760 --> 00:49:53,360 Speaker 1: he was using that to justify and a more aggressive 933 00:49:53,400 --> 00:49:56,640 Speaker 1: monetary policy easing. And the Hawks wanted to go because 934 00:49:56,680 --> 00:49:59,160 Speaker 1: they were making the point that, look, inflation is still high, well, 935 00:49:59,200 --> 00:50:02,719 Speaker 1: inflation is lagging indicators, so interesting, and so it's it's 936 00:50:02,719 --> 00:50:04,120 Speaker 1: sort of the same, it's sort of the same thing 937 00:50:04,160 --> 00:50:07,080 Speaker 1: that's happening now kind of in reverse. And but you're 938 00:50:07,120 --> 00:50:10,360 Speaker 1: suggesting that the Fed is ignoring all of this softening 939 00:50:10,440 --> 00:50:15,040 Speaker 1: inflation data because for whatever reason, j Pal wants to 940 00:50:15,080 --> 00:50:17,560 Speaker 1: get to five and a quarter that And also I 941 00:50:17,640 --> 00:50:20,080 Speaker 1: don't think they view inflation the same way as the 942 00:50:20,239 --> 00:50:23,520 Speaker 1: markets do. Right. The markets are very very good at 943 00:50:23,600 --> 00:50:26,880 Speaker 1: kind of telling you about what's happening with goods inflation, right, 944 00:50:26,920 --> 00:50:30,680 Speaker 1: so we know what commodities are doing at any moment. Right. 945 00:50:32,160 --> 00:50:34,239 Speaker 1: The markets don't have a great way of telling you 946 00:50:34,320 --> 00:50:35,800 Speaker 1: how much your barber is going to charge you for 947 00:50:35,880 --> 00:50:40,480 Speaker 1: your haircut or or yeah, or you're dry cleaner. And 948 00:50:40,680 --> 00:50:45,880 Speaker 1: also it's about the overall inflation process, right, I mean, 949 00:50:45,960 --> 00:50:48,600 Speaker 1: so the stuff that you're talking about, like, let's say 950 00:50:49,719 --> 00:50:52,160 Speaker 1: we had this burst of household formation and that's what 951 00:50:52,320 --> 00:50:55,360 Speaker 1: drove this spectacular increase in rents during the you know, 952 00:50:55,520 --> 00:50:58,640 Speaker 1: during and immediately after the pandemic, and now it's just 953 00:50:58,760 --> 00:51:02,320 Speaker 1: becoming too onerous on people, and they've all decided, you 954 00:51:02,400 --> 00:51:04,759 Speaker 1: know what, I'm going to go find a roommate. I've 955 00:51:04,800 --> 00:51:06,719 Speaker 1: been dating somebody, I'm going to go move in with them. 956 00:51:07,520 --> 00:51:10,760 Speaker 1: What have you just done for yourself? You've reduced household formation, 957 00:51:10,960 --> 00:51:13,239 Speaker 1: But what have you done for yourself, assuming you haven't 958 00:51:13,320 --> 00:51:15,960 Speaker 1: lost your Now, what do you go out and do 959 00:51:16,040 --> 00:51:18,399 Speaker 1: with the money you spend it on? And what does 960 00:51:18,440 --> 00:51:20,760 Speaker 1: that due to the prices of the goods and services 961 00:51:20,880 --> 00:51:23,279 Speaker 1: upon which you spend the money depends on what you're 962 00:51:23,280 --> 00:51:25,120 Speaker 1: spending it on. Is it these things you wouldn't have 963 00:51:25,160 --> 00:51:28,399 Speaker 1: purchased anyway? Or I don't know, but that's the way 964 00:51:28,480 --> 00:51:30,400 Speaker 1: the FETs thinking about it. So you see, I mean, 965 00:51:30,480 --> 00:51:33,640 Speaker 1: compensation equals inflation plus productives. So all you're talking about 966 00:51:33,840 --> 00:51:37,200 Speaker 1: is relative price shifts. If wage inflation is still running 967 00:51:37,239 --> 00:51:40,239 Speaker 1: at four and a half five percent, it's going to 968 00:51:40,320 --> 00:51:42,680 Speaker 1: be difficult like that. I mean, I hate to say 969 00:51:42,719 --> 00:51:45,120 Speaker 1: it like this. It just means the disinflation that you're 970 00:51:45,120 --> 00:51:49,239 Speaker 1: going to see this year is also transitory. And that's 971 00:51:49,280 --> 00:51:51,120 Speaker 1: the thing, and that's the thing that the FAT I 972 00:51:51,160 --> 00:51:53,279 Speaker 1: think has to wrestle with is that they haven't really 973 00:51:53,400 --> 00:51:56,640 Speaker 1: to me, they haven't told us a good kind of 974 00:51:56,840 --> 00:52:01,839 Speaker 1: framing around this idea of in proving composition of growth. Right, 975 00:52:01,960 --> 00:52:05,560 Speaker 1: real GDP growth is probably accelerating as inflation is coming off. 976 00:52:06,520 --> 00:52:09,200 Speaker 1: What does that mean, right? I mean because ultimately, if 977 00:52:09,239 --> 00:52:11,960 Speaker 1: real growth is getting better, that means you're putting pressure 978 00:52:12,040 --> 00:52:15,680 Speaker 1: on physical capacity, physical resources. Right. Your real growth is 979 00:52:15,719 --> 00:52:18,360 Speaker 1: what drives more employment. Real growth is what drives more production. 980 00:52:18,800 --> 00:52:21,759 Speaker 1: You know, that means capacitization goes up, and that is 981 00:52:21,800 --> 00:52:24,920 Speaker 1: what pushes prices up. So I think that's kind of 982 00:52:24,960 --> 00:52:26,360 Speaker 1: the thing that they have to wrestle with, which is 983 00:52:26,400 --> 00:52:29,520 Speaker 1: why I say it's difficult for the markets to get 984 00:52:29,640 --> 00:52:33,960 Speaker 1: the cuts that they are currently pricing. If I'm right 985 00:52:34,000 --> 00:52:37,000 Speaker 1: about the economy, if real growth is holding up and 986 00:52:37,080 --> 00:52:42,480 Speaker 1: we're growing above potential, then even if price inflation is moderating, 987 00:52:42,560 --> 00:52:44,320 Speaker 1: it's still going to be difficult for the FED to 988 00:52:44,360 --> 00:52:46,320 Speaker 1: cut in that environment. So let me push back on 989 00:52:46,440 --> 00:52:49,000 Speaker 1: all that, and let me give you my narrative has 990 00:52:49,040 --> 00:52:54,040 Speaker 1: to where the consensus might be right and where the 991 00:52:54,080 --> 00:52:56,440 Speaker 1: FED is wrong. And it's two parts, and I'll make 992 00:52:56,480 --> 00:52:59,200 Speaker 1: it really short. The first part is, hey, We've been 993 00:52:59,239 --> 00:53:07,560 Speaker 1: in a deflation stionary environment for the past three decades. Globalization, technology, automation, productivity, 994 00:53:07,960 --> 00:53:11,399 Speaker 1: all these factors have been deflationary for a long time. 995 00:53:12,040 --> 00:53:15,480 Speaker 1: The pandemic was a unique one off, right, and heading 996 00:53:15,480 --> 00:53:20,400 Speaker 1: into the pandemic, we are sixty percent services goods. Suddenly 997 00:53:20,480 --> 00:53:24,840 Speaker 1: we invert that, where services sixty goods. When everyone's stuck 998 00:53:24,880 --> 00:53:26,920 Speaker 1: at home, they're not going to hotels and f flying, 999 00:53:27,239 --> 00:53:30,640 Speaker 1: they're not going to movies, they're building, buying, doing all 1000 00:53:30,680 --> 00:53:33,640 Speaker 1: this stuff just in time. Supply chain can't deal with it. 1001 00:53:33,800 --> 00:53:39,239 Speaker 1: Prices spike on top of a decade long shortfall of 1002 00:53:39,320 --> 00:53:42,400 Speaker 1: home construction, and during the pandemic, whoever could afford to 1003 00:53:42,480 --> 00:53:45,000 Speaker 1: buy a second house or a third house did without 1004 00:53:45,080 --> 00:53:48,000 Speaker 1: selling a house. So all this whatever little supply there 1005 00:53:48,080 --> 00:53:51,320 Speaker 1: was that gets sucked up, and once that normalizes, inflation 1006 00:53:51,400 --> 00:53:56,399 Speaker 1: should return to normal. However, following that's part A, Part 1007 00:53:56,440 --> 00:54:00,480 Speaker 1: B is the FED doubles and then some mortgage rates. 1008 00:54:01,080 --> 00:54:04,440 Speaker 1: Everybody who's looking to buy a starter home or uh, 1009 00:54:04,960 --> 00:54:07,600 Speaker 1: you know, a a you know, a sub one million 1010 00:54:07,680 --> 00:54:10,480 Speaker 1: dollar home, A lot of those folks are now priced 1011 00:54:10,480 --> 00:54:13,440 Speaker 1: out of that market and would be buyers or renters 1012 00:54:13,680 --> 00:54:18,520 Speaker 1: and Paradoxically, rising FOMC rates means higher mortgage rates, which 1013 00:54:18,680 --> 00:54:23,440 Speaker 1: pours people into the rental market, making inflation higher. The FED, 1014 00:54:23,640 --> 00:54:26,680 Speaker 1: if they want to stop inflation, should stop raising rates 1015 00:54:26,840 --> 00:54:30,759 Speaker 1: and allow those renters to become home buyers. Where is 1016 00:54:30,800 --> 00:54:34,279 Speaker 1: that thesis wrong? Well, I think on the globalization side, 1017 00:54:34,320 --> 00:54:36,279 Speaker 1: I mean, we probably have a little bit more of 1018 00:54:36,320 --> 00:54:38,839 Speaker 1: a home bias now. I mean, if there's one bipartisan 1019 00:54:38,920 --> 00:54:42,160 Speaker 1: thing that's that's come about um from Trump to Biden, 1020 00:54:42,280 --> 00:54:45,400 Speaker 1: it's this this sort of um having learned the justin 1021 00:54:45,600 --> 00:54:47,360 Speaker 1: I mean we had, right, I mean, we had the 1022 00:54:47,400 --> 00:54:49,520 Speaker 1: flattening out of the global supply chain, and now the 1023 00:54:49,560 --> 00:54:52,239 Speaker 1: global supply chain is actually narrowing. We want to make it, 1024 00:54:52,560 --> 00:54:55,680 Speaker 1: you know, more resistant to global shocks, and so I 1025 00:54:55,800 --> 00:54:59,800 Speaker 1: think that that's probably inflationary. I mean, final assembly is 1026 00:55:00,000 --> 00:55:02,839 Speaker 1: probably leaking out of the lowest cost destiny and we'll 1027 00:55:02,880 --> 00:55:05,520 Speaker 1: have a big inventory build. But once that's done, that's 1028 00:55:05,560 --> 00:55:08,279 Speaker 1: transitory also, isn't it. Well, I mean it just again 1029 00:55:08,320 --> 00:55:12,600 Speaker 1: it goes back to this idea of what's driving inflation 1030 00:55:12,680 --> 00:55:16,600 Speaker 1: over the longer run, and ultimately to me, it's about 1031 00:55:16,719 --> 00:55:20,880 Speaker 1: labor market dynamics. And you know, I mean we had 1032 00:55:20,920 --> 00:55:24,040 Speaker 1: a period of disinflation. It wasn't like but I'm inflation 1033 00:55:24,200 --> 00:55:26,000 Speaker 1: was sort of stable in the twenty times. I mean, 1034 00:55:26,360 --> 00:55:29,920 Speaker 1: Bernanke famously said, if inflation is the benchmark, I have 1035 00:55:30,040 --> 00:55:32,440 Speaker 1: the best inflation record of any chairman, because it's basically 1036 00:55:32,520 --> 00:55:34,480 Speaker 1: been two percent the entire time I've been I've been. 1037 00:55:34,600 --> 00:55:36,440 Speaker 1: So he actually hit it right on the head. So 1038 00:55:37,080 --> 00:55:39,480 Speaker 1: you know, so it wasn't like inflation was getting even 1039 00:55:39,600 --> 00:55:43,480 Speaker 1: slower during the financial crisis. And so now, um, by 1040 00:55:43,520 --> 00:55:47,160 Speaker 1: the way, I think it's hilarious that a massive financial 1041 00:55:47,239 --> 00:55:51,080 Speaker 1: crisis leading to an inability for inflation get any traction 1042 00:55:51,440 --> 00:55:53,960 Speaker 1: and he wants to take credit for But but I 1043 00:55:54,040 --> 00:55:58,319 Speaker 1: think about now do GDP and wages over that same decade. Yeah, 1044 00:55:58,360 --> 00:55:59,840 Speaker 1: I mean, it wasn't until the very end of that 1045 00:56:00,000 --> 00:56:01,840 Speaker 1: decade had that real way just started to look a 1046 00:56:01,880 --> 00:56:04,040 Speaker 1: bit better. But again, it's one of these interesting things 1047 00:56:04,160 --> 00:56:07,239 Speaker 1: very where if you look at like consumer confidence, it 1048 00:56:07,400 --> 00:56:10,440 Speaker 1: was very very it got very good after like so 1049 00:56:10,560 --> 00:56:13,560 Speaker 1: once you started, particularly when gasoline prices started, when we 1050 00:56:13,640 --> 00:56:15,840 Speaker 1: had the windfall from the positive supply shock and energy. 1051 00:56:15,960 --> 00:56:19,520 Speaker 1: But um, you know I do think that, yeah, I mean, 1052 00:56:19,560 --> 00:56:22,680 Speaker 1: there there's more, Um, we haven't really invested much in 1053 00:56:22,840 --> 00:56:26,160 Speaker 1: in mining cap x um. If you have an incremental 1054 00:56:26,200 --> 00:56:29,960 Speaker 1: pickup in global demand that could sort of royal energy markets. Um, 1055 00:56:30,080 --> 00:56:32,399 Speaker 1: that's a risk. That's an inflationary risk we talked about. 1056 00:56:32,440 --> 00:56:35,880 Speaker 1: I mentioned productivity. Productivity hasn't been a strong You have 1057 00:56:36,000 --> 00:56:38,480 Speaker 1: experienced workers that are that are now leaving the workforce. 1058 00:56:38,560 --> 00:56:40,920 Speaker 1: That means that the quality of your workforce isn't It's 1059 00:56:40,960 --> 00:56:42,880 Speaker 1: going to take time to get that back up. So 1060 00:56:42,960 --> 00:56:44,920 Speaker 1: I think there are interesting arguments on both sides of 1061 00:56:45,000 --> 00:56:48,680 Speaker 1: this debate, but you know, for the short run, I 1062 00:56:48,760 --> 00:56:50,960 Speaker 1: think it's really just about the labor markets. And the 1063 00:56:51,000 --> 00:56:53,280 Speaker 1: FED keeps saying that they think things are out of balance, 1064 00:56:53,360 --> 00:56:54,759 Speaker 1: and so that means that they're going to have to 1065 00:56:55,120 --> 00:57:00,239 Speaker 1: bring it back into balance. So the consensus is either 1066 00:57:00,360 --> 00:57:04,480 Speaker 1: no recession or a mild recession, and the FED stops 1067 00:57:04,600 --> 00:57:07,120 Speaker 1: raising and by the end of the year their cutting rates. 1068 00:57:07,719 --> 00:57:11,640 Speaker 1: You're saying, you think the consensus should listen to what 1069 00:57:12,160 --> 00:57:15,560 Speaker 1: Jerome pal is telling them, because you think he's going 1070 00:57:15,600 --> 00:57:19,200 Speaker 1: to do exactly what he says he's going to do. Yeah, 1071 00:57:19,240 --> 00:57:22,440 Speaker 1: I mean the consensus right now is recession. That is 1072 00:57:22,520 --> 00:57:25,000 Speaker 1: the consensus. If you look at the soft landing or 1073 00:57:25,040 --> 00:57:27,840 Speaker 1: hard landing. It's not even about soft landing. It's a recession. 1074 00:57:27,880 --> 00:57:30,960 Speaker 1: I mean, the consensus is overwhelmingly in a way I've 1075 00:57:31,040 --> 00:57:34,080 Speaker 1: never I mean, I think if you surveyed, it's like 1076 00:57:34,160 --> 00:57:38,760 Speaker 1: six recession of the if not more. Usually, when the 1077 00:57:38,800 --> 00:57:42,960 Speaker 1: consensus is that overwhelming for the recession, you're already in one, right, 1078 00:57:43,160 --> 00:57:46,960 Speaker 1: and we're not. So I recall deep into two thousand 1079 00:57:47,000 --> 00:57:49,240 Speaker 1: and eight, there was still an argument as to whether 1080 00:57:49,320 --> 00:57:51,880 Speaker 1: or not when we were in recession, when it started 1081 00:57:52,120 --> 00:57:54,680 Speaker 1: six eight months earlier, and right in the middle of that, 1082 00:57:54,760 --> 00:57:57,840 Speaker 1: people were still arguing, well, well, I remember one analyst 1083 00:57:58,040 --> 00:57:59,919 Speaker 1: famously thinking that the FED was going to be hike 1084 00:58:00,040 --> 00:58:03,760 Speaker 1: in the back half of two thousand and eight. Um. Right, 1085 00:58:04,320 --> 00:58:06,800 Speaker 1: key feature, key distinction though of that period was that 1086 00:58:07,720 --> 00:58:10,040 Speaker 1: we were seeing job loss month in and month out 1087 00:58:10,080 --> 00:58:12,960 Speaker 1: over this first time. We're not seeing that now, and 1088 00:58:13,040 --> 00:58:15,440 Speaker 1: I think that is an important sort of you know, 1089 00:58:15,640 --> 00:58:19,600 Speaker 1: and you can talk about, oh, employment is coincident, or 1090 00:58:19,720 --> 00:58:22,920 Speaker 1: it's lagging, or at the end of the day, initial 1091 00:58:22,960 --> 00:58:26,280 Speaker 1: claims are low. That's a leading indicator. And um but 1092 00:58:26,400 --> 00:58:28,680 Speaker 1: to me, again, it's not about the data as it's 1093 00:58:28,720 --> 00:58:32,040 Speaker 1: coming and tell me why it keeps going right, that's 1094 00:58:32,240 --> 00:58:35,080 Speaker 1: what's right. I mean, so, can we get a recession 1095 00:58:35,240 --> 00:58:41,320 Speaker 1: with employment markets this strong, this tight? You can? But 1096 00:58:41,480 --> 00:58:43,320 Speaker 1: I don't think the feed is going to give you 1097 00:58:43,440 --> 00:58:45,000 Speaker 1: that right away. I mean, it's going to take a 1098 00:58:45,040 --> 00:58:47,160 Speaker 1: little bit more time to play out. But more importantly, 1099 00:58:47,440 --> 00:58:50,000 Speaker 1: it's about the mechanism, like how do you get the recession? 1100 00:58:50,120 --> 00:58:52,160 Speaker 1: Like what is the mechan like, for example, is there 1101 00:58:52,160 --> 00:58:55,880 Speaker 1: a massive financial shock that gets companies? So the thing 1102 00:58:55,960 --> 00:58:57,360 Speaker 1: that I've been explorer is that one of one of 1103 00:58:57,400 --> 00:58:59,480 Speaker 1: the ways you get recession, in my view, is through 1104 00:58:59,520 --> 00:59:03,120 Speaker 1: an element of surprise. Right, So companies sort of think 1105 00:59:03,200 --> 00:59:05,320 Speaker 1: things are gonna be okay and then something falls out 1106 00:59:05,320 --> 00:59:06,880 Speaker 1: of bed, and that means that they have to cut 1107 00:59:06,960 --> 00:59:11,040 Speaker 1: their hiring plans, adjust their capex budgets, clear out their inventories. 1108 00:59:11,440 --> 00:59:13,919 Speaker 1: But what if we've been doing that for the last 1109 00:59:13,960 --> 00:59:17,640 Speaker 1: six to nine months already, and now there's a risk 1110 00:59:17,760 --> 00:59:21,240 Speaker 1: with inflation falling. Gas prices have come down. No one's 1111 00:59:21,280 --> 00:59:24,040 Speaker 1: talking about that anymore. Natural gas prices are down, which 1112 00:59:24,040 --> 00:59:26,920 Speaker 1: means you're gonna see lower utility bills. Food prices are 1113 00:59:26,960 --> 00:59:29,080 Speaker 1: coming down, which means you'll see lower grocery bills. What 1114 00:59:29,120 --> 00:59:31,080 Speaker 1: does that mean? That is a tale and for real 1115 00:59:31,160 --> 00:59:36,040 Speaker 1: disposable income, So that should buoy demand. Now, if companies 1116 00:59:36,040 --> 00:59:37,640 Speaker 1: are all on this side of the fence and they 1117 00:59:37,680 --> 00:59:40,040 Speaker 1: think household demand is going to slow down and then 1118 00:59:40,080 --> 00:59:43,360 Speaker 1: the opposite happens, what does that mean? That creates a 1119 00:59:43,440 --> 00:59:46,880 Speaker 1: risk where you have this situation where the companies are 1120 00:59:46,920 --> 00:59:48,960 Speaker 1: having to catch up to the end consumer. You can 1121 00:59:49,040 --> 00:59:52,800 Speaker 1: have an inflation echo and a restarted real growth will 1122 00:59:52,840 --> 00:59:55,240 Speaker 1: pick up as a result. And I think that's the 1123 00:59:55,440 --> 00:59:58,520 Speaker 1: risk that I'm more likely to highlight now, and I 1124 00:59:58,560 --> 01:00:01,080 Speaker 1: think that's something the consensus not really positioned for. And 1125 01:00:01,160 --> 01:00:03,320 Speaker 1: I think that that's becoming the more increasingly the more 1126 01:00:03,400 --> 01:00:08,480 Speaker 1: likely outcome, because we've been talking about a recession for 1127 01:00:08,600 --> 01:00:12,160 Speaker 1: the last three quarters and it just hasn't happened. So 1128 01:00:12,320 --> 01:00:16,680 Speaker 1: the question is is the bad news in stock prices 1129 01:00:16,760 --> 01:00:20,800 Speaker 1: already or is the good news already in stock prices? 1130 01:00:20,840 --> 01:00:23,200 Speaker 1: How do you contextualize that? I think the bad news 1131 01:00:23,240 --> 01:00:25,640 Speaker 1: is in the price It is already in there. Well, 1132 01:00:25,720 --> 01:00:29,480 Speaker 1: I mean Google earnings recession. Everyone's talking about, Oh that's 1133 01:00:29,520 --> 01:00:33,680 Speaker 1: the next thing. Oh it's you know this, This move 1134 01:00:33,720 --> 01:00:35,440 Speaker 1: in stocks is all about rates and the next you 1135 01:00:35,640 --> 01:00:37,720 Speaker 1: to drop his earnings recession. How do you get an 1136 01:00:37,720 --> 01:00:41,000 Speaker 1: earnings recession if nominal growth is running at five? Has 1137 01:00:41,000 --> 01:00:43,840 Speaker 1: anyone mentioned about the dollar, like the dollars off ten percent? 1138 01:00:43,920 --> 01:00:46,680 Speaker 1: Doesn't that have a mechanical effect on corporate earnings for 1139 01:00:46,720 --> 01:00:49,720 Speaker 1: the multinationals at trade on the SMP five? And I 1140 01:00:49,800 --> 01:00:52,760 Speaker 1: guess the other thing is in a weird way, like 1141 01:00:52,960 --> 01:00:56,320 Speaker 1: interest rates coming down and people betting on the Fed 1142 01:00:56,400 --> 01:00:59,439 Speaker 1: to kind of back off juice is the housing market. 1143 01:00:59,480 --> 01:01:01,720 Speaker 1: Because you see home buildings stocks at a fifty two 1144 01:01:01,720 --> 01:01:06,240 Speaker 1: week kid Now some recession like call me when rates 1145 01:01:06,280 --> 01:01:08,479 Speaker 1: are going down and building stocks are going down, because 1146 01:01:08,520 --> 01:01:10,600 Speaker 1: that would be a big problem, right, But that's not 1147 01:01:10,680 --> 01:01:13,000 Speaker 1: what's happening today. You know how many how many? I 1148 01:01:13,040 --> 01:01:15,320 Speaker 1: mean you've been around long after know like this sort 1149 01:01:15,360 --> 01:01:18,560 Speaker 1: of cottage industry of nonsense on the street about oh, 1150 01:01:18,640 --> 01:01:20,440 Speaker 1: the i s M is below fifty, the Fed's got 1151 01:01:20,520 --> 01:01:22,600 Speaker 1: to come in and do something. How's that been working 1152 01:01:22,640 --> 01:01:26,000 Speaker 1: out for the industrial stocks? Call industrials have been outperforming. 1153 01:01:26,040 --> 01:01:30,200 Speaker 1: Caterpillar is another stock that's doing really well. So I 1154 01:01:30,280 --> 01:01:32,520 Speaker 1: don't see it. I mean again, I think, I mean 1155 01:01:32,800 --> 01:01:36,040 Speaker 1: the earnings recession call is is purely driven by like 1156 01:01:36,800 --> 01:01:38,800 Speaker 1: you know, look the I ms below fifty. I draw 1157 01:01:38,920 --> 01:01:40,720 Speaker 1: you over your chart of earnings, and it looks like 1158 01:01:40,800 --> 01:01:44,200 Speaker 1: it lines up. So that's the earnings recession. But if 1159 01:01:44,240 --> 01:01:46,480 Speaker 1: you peel back the onion a little bit and you 1160 01:01:46,600 --> 01:01:51,000 Speaker 1: think about where's growth coming in, where is inflation, you're 1161 01:01:51,000 --> 01:01:54,800 Speaker 1: still talking about a five percent ish nominal growth environment. 1162 01:01:55,000 --> 01:01:57,480 Speaker 1: That is not consistent with earnings recession. In my view, 1163 01:01:57,680 --> 01:02:01,000 Speaker 1: Let's talk a little bit about what's going on with earnings. 1164 01:02:01,200 --> 01:02:04,560 Speaker 1: We have people like Elon Musk and Jamie Diamond screaming 1165 01:02:04,680 --> 01:02:07,280 Speaker 1: we're gonna have a recession for what six months? Now? 1166 01:02:07,840 --> 01:02:10,480 Speaker 1: Are you seeing a recession anywhere in any of the 1167 01:02:10,560 --> 01:02:14,680 Speaker 1: corporate earnings data? You mentioned home builders, you mentioned manufacturers. 1168 01:02:15,240 --> 01:02:17,800 Speaker 1: Where is this recession showing up? The recession is showing 1169 01:02:17,880 --> 01:02:20,640 Speaker 1: up in the f R B US model, and that's 1170 01:02:20,640 --> 01:02:23,320 Speaker 1: pretty much it. So I have a friend who says 1171 01:02:23,400 --> 01:02:27,640 Speaker 1: to me, we're not going to get a contemporaneous recession. 1172 01:02:28,040 --> 01:02:30,360 Speaker 1: It's going to be a rolling series of sector by 1173 01:02:30,400 --> 01:02:34,200 Speaker 1: sector recessions. Oh, energy did well, now energy is depressed, 1174 01:02:34,560 --> 01:02:38,160 Speaker 1: and then this sector is doing well. Manufacturer was depressed 1175 01:02:38,200 --> 01:02:41,040 Speaker 1: last year and now it's doing well. Can you get 1176 01:02:41,080 --> 01:02:43,920 Speaker 1: a rolling sector by sector recession or is that just 1177 01:02:44,440 --> 01:02:47,720 Speaker 1: then that wouldn't be a recession. Okay, so what do 1178 01:02:47,800 --> 01:02:52,680 Speaker 1: we see for earnings then? Well, I'm not a stock 1179 01:02:52,760 --> 01:02:55,000 Speaker 1: market strategist, but what I will tell you is that 1180 01:02:55,520 --> 01:02:58,640 Speaker 1: when you think of corporate profits, right, I mean, it's 1181 01:02:58,720 --> 01:03:02,200 Speaker 1: largely based on an identity, right, I mean it's it's 1182 01:03:02,240 --> 01:03:07,800 Speaker 1: basically revenue, right, less unit labor and unit non labor costs. 1183 01:03:08,400 --> 01:03:11,520 Speaker 1: And so when you think about it through that lens, 1184 01:03:11,800 --> 01:03:14,560 Speaker 1: I think revenues will reign steady because nominal growth is 1185 01:03:14,880 --> 01:03:18,600 Speaker 1: holding up UM, So even though inflation is moderating, you'll 1186 01:03:18,600 --> 01:03:22,400 Speaker 1: see real economic growth pickup. I think unit labor costs 1187 01:03:22,440 --> 01:03:27,600 Speaker 1: will moderate somewhat UM as a labor markets kind of normalized. 1188 01:03:27,600 --> 01:03:29,440 Speaker 1: I mean, we won't see as many people quitting and 1189 01:03:29,520 --> 01:03:31,080 Speaker 1: that should take some of the pressure off. And we 1190 01:03:31,120 --> 01:03:36,400 Speaker 1: see unit non labor costs coming down because supply chains 1191 01:03:36,440 --> 01:03:40,280 Speaker 1: are using, commodity prices are easing, and so that should 1192 01:03:40,320 --> 01:03:43,400 Speaker 1: be a reasonably healthy backdrop for corporate profits. The question 1193 01:03:43,600 --> 01:03:46,440 Speaker 1: is is what is it you know for the markets? 1194 01:03:46,600 --> 01:03:52,480 Speaker 1: Is if the FED is not cutting, that means that 1195 01:03:52,640 --> 01:03:55,040 Speaker 1: rates will be higher, and all aso equal, higher rates 1196 01:03:55,200 --> 01:03:57,520 Speaker 1: are not good for stocks. So when we talk about 1197 01:03:57,680 --> 01:04:01,320 Speaker 1: margins last year, they hit all time high. Companies seem 1198 01:04:01,400 --> 01:04:06,080 Speaker 1: to have no difficulty passing along input cost increases to 1199 01:04:06,200 --> 01:04:10,640 Speaker 1: consumers and and some companies managed to pass along phantom 1200 01:04:10,720 --> 01:04:14,560 Speaker 1: increases and managed to to see their margins widen. Um, 1201 01:04:15,320 --> 01:04:18,280 Speaker 1: what are we thinking about overall margins in the face 1202 01:04:18,400 --> 01:04:22,280 Speaker 1: of five and a quarter fed rates. Well, you'd expect 1203 01:04:22,360 --> 01:04:24,600 Speaker 1: margins to come down somewhat. I mean, obviously they're very, 1204 01:04:24,720 --> 01:04:27,520 Speaker 1: very high, um. But that also means that companies are 1205 01:04:27,680 --> 01:04:30,240 Speaker 1: are probably more likely to spend some money, right, So 1206 01:04:30,480 --> 01:04:34,000 Speaker 1: that's um that that's sort of the way and companies 1207 01:04:34,040 --> 01:04:37,160 Speaker 1: spending money that also helps corporate earnings, right, So it's 1208 01:04:37,160 --> 01:04:40,640 Speaker 1: about why the margins are coming down. A margin decline 1209 01:04:40,720 --> 01:04:44,720 Speaker 1: that's driven by companies spending more on capex employment is 1210 01:04:44,880 --> 01:04:48,320 Speaker 1: very different than a margin decline that's driven by UM 1211 01:04:49,760 --> 01:04:52,840 Speaker 1: for productivity weakness, right, because in the in the former case, 1212 01:04:52,960 --> 01:04:55,240 Speaker 1: there's an opportunity for companies to offset some of the 1213 01:04:55,280 --> 01:04:58,520 Speaker 1: hit to their bottom line with a stronger top line. So, Um, 1214 01:04:58,720 --> 01:05:01,360 Speaker 1: that's sort of the way I'm thinking about. So you 1215 01:05:01,440 --> 01:05:06,800 Speaker 1: mentioned earlier sentiment. Generally, consumer sentiment has been not just bad, 1216 01:05:06,960 --> 01:05:10,120 Speaker 1: but like below financial crisis bad. It doesn't make a 1217 01:05:10,160 --> 01:05:11,920 Speaker 1: whole lot of sense to me. I'm curious as to 1218 01:05:12,000 --> 01:05:15,680 Speaker 1: your thoughts given everything else you've said that's been so constructed. 1219 01:05:15,720 --> 01:05:18,320 Speaker 1: It goes back to a discussion we're having earlier about 1220 01:05:18,400 --> 01:05:21,040 Speaker 1: what you know, what's easier to form a political coalition 1221 01:05:21,080 --> 01:05:23,960 Speaker 1: around employment or you've never seen this much of a 1222 01:05:24,080 --> 01:05:29,240 Speaker 1: gap between attitudes about the jobs market and overall consumer 1223 01:05:29,320 --> 01:05:32,080 Speaker 1: sentiment ever. Right, If you look at the Conference Board data, 1224 01:05:32,160 --> 01:05:35,120 Speaker 1: which is you know, widely followed consumer sentiment number, um, 1225 01:05:36,880 --> 01:05:40,320 Speaker 1: it's very weak. But if you look at the labor differential, 1226 01:05:40,400 --> 01:05:43,840 Speaker 1: which is basically consumer attitudes about jobs, it's rarely been 1227 01:05:43,920 --> 01:05:46,760 Speaker 1: this high. It's basically where it was right before the 1228 01:05:46,840 --> 01:05:49,800 Speaker 1: pandemic in the nine late nineties, when the labor markets 1229 01:05:49,840 --> 01:05:52,280 Speaker 1: are very very strong. So I think that speaks to 1230 01:05:52,360 --> 01:05:56,280 Speaker 1: this inflation dynamic. Um, But what do we know about inflation, Barry? 1231 01:05:57,240 --> 01:06:02,120 Speaker 1: At least in the things that people buy frequently, there's improvement. 1232 01:06:02,320 --> 01:06:06,680 Speaker 1: I mean, gas prices finished last year lower than where 1233 01:06:06,720 --> 01:06:09,240 Speaker 1: they started that, which is an amazing Statuste. You think 1234 01:06:09,400 --> 01:06:12,920 Speaker 1: we aren't hearing enough, um, And then we know that 1235 01:06:13,080 --> 01:06:15,600 Speaker 1: natural gas prices have come down somewhat. That will with 1236 01:06:15,680 --> 01:06:19,360 Speaker 1: a lag bleed into household utility bills UM, and then 1237 01:06:19,400 --> 01:06:22,280 Speaker 1: grocery bills will probably come down because agricultural commodities have 1238 01:06:22,360 --> 01:06:26,720 Speaker 1: come in somewhat. So UM, all of that should provide 1239 01:06:26,760 --> 01:06:30,400 Speaker 1: some tail into UM to consumer sentiment. And you know, look, 1240 01:06:30,480 --> 01:06:32,520 Speaker 1: the stock markets are up about what three or four 1241 01:06:32,560 --> 01:06:35,880 Speaker 1: percent so far this year. UM, that should help as well. 1242 01:06:36,040 --> 01:06:38,880 Speaker 1: So you know, to me, if you think about what 1243 01:06:39,160 --> 01:06:48,000 Speaker 1: drives consumer sentiment, its wealth, employment, inflation, and UM. All 1244 01:06:48,120 --> 01:06:51,200 Speaker 1: three of those suggest consumer sentiment should be pretty strong. 1245 01:06:51,840 --> 01:06:54,760 Speaker 1: But it really is below what you would expect given 1246 01:06:54,840 --> 01:06:56,960 Speaker 1: the states. Well, I mean, well, it's because people are 1247 01:06:57,040 --> 01:06:59,200 Speaker 1: kidding off the level of prices in some respects, not 1248 01:06:59,240 --> 01:07:00,560 Speaker 1: the rate of change. So I would say that the 1249 01:07:00,640 --> 01:07:03,840 Speaker 1: rate of change in consuming consumer confidence should be getting 1250 01:07:03,880 --> 01:07:06,480 Speaker 1: better over the next several months. Let's jump to my 1251 01:07:06,600 --> 01:07:10,160 Speaker 1: favorite questions that I asked all of our guests, starting 1252 01:07:10,240 --> 01:07:13,880 Speaker 1: with the question that I really should retire my pandemic question. 1253 01:07:14,000 --> 01:07:17,200 Speaker 1: Tell us what you've been streaming on Netflix or Amazon 1254 01:07:17,440 --> 01:07:20,120 Speaker 1: or what have you? So my wife and I always 1255 01:07:20,600 --> 01:07:23,919 Speaker 1: we try to watch the same shows. UM, so we've 1256 01:07:23,960 --> 01:07:28,080 Speaker 1: been watching The Crown so good, such a good show. Um, 1257 01:07:28,720 --> 01:07:31,600 Speaker 1: I think there's one more season coming still. Yeah, I 1258 01:07:31,680 --> 01:07:33,880 Speaker 1: mean the last season was great, so we we we 1259 01:07:34,400 --> 01:07:37,960 Speaker 1: Um Handmaids Tell is another one that we watch. Um, 1260 01:07:40,240 --> 01:07:44,040 Speaker 1: she got me into this show called from Scratch. From scratch, Yeah, 1261 01:07:44,040 --> 01:07:47,760 Speaker 1: it's what Zoe Saldanna sounds like. It's a tear jerker. 1262 01:07:48,120 --> 01:07:50,280 Speaker 1: I mean, but it's. But you know, it took me 1263 01:07:50,280 --> 01:07:51,560 Speaker 1: a little bit to get into it. But I did 1264 01:07:51,640 --> 01:07:54,120 Speaker 1: get into it, more for her than for myself. But 1265 01:07:54,320 --> 01:07:56,320 Speaker 1: you know, it was it was, it was well worth it. 1266 01:07:56,400 --> 01:07:58,240 Speaker 1: I we need to start White Lotus. We haven't done 1267 01:07:58,280 --> 01:08:02,400 Speaker 1: that yet. I watched the season. I haven't gotten enthusiastic 1268 01:08:02,440 --> 01:08:04,439 Speaker 1: about the second season yet, which a lot of people 1269 01:08:04,520 --> 01:08:08,160 Speaker 1: really liked. Um. Have you seen any of the Kaleidoscope? 1270 01:08:08,160 --> 01:08:11,120 Speaker 1: It's kind of interesting. I haven't. What's it about? Um? 1271 01:08:11,760 --> 01:08:14,919 Speaker 1: So the twist is you can watch it in any 1272 01:08:15,080 --> 01:08:18,600 Speaker 1: order you like, except for the last episode. It's a 1273 01:08:18,720 --> 01:08:22,519 Speaker 1: Highst sort of film, and you don't know who is 1274 01:08:22,800 --> 01:08:26,920 Speaker 1: the mole, who's cheating on who, And it's told in 1275 01:08:27,040 --> 01:08:32,080 Speaker 1: a very asynchronous way, where two weeks before the Highst, 1276 01:08:32,120 --> 01:08:35,320 Speaker 1: six years before the heist, week after the hist It's 1277 01:08:35,520 --> 01:08:38,879 Speaker 1: like each episode just plops you down in this random 1278 01:08:39,080 --> 01:08:43,240 Speaker 1: time zone as opposed to telling the story chronologically, so 1279 01:08:43,439 --> 01:08:45,600 Speaker 1: it kind of unfolds in a really and it's a 1280 01:08:46,120 --> 01:08:49,559 Speaker 1: fabulous cast. It's really great. Uh, I got look into it. Yeah. 1281 01:08:49,680 --> 01:08:53,160 Speaker 1: It dropped on Netflix a while ago and a number 1282 01:08:53,160 --> 01:08:55,479 Speaker 1: of people recommended it. It's fun. There's a couple of 1283 01:08:55,560 --> 01:08:59,000 Speaker 1: moments where you're like, don't do that, like you ever watching, 1284 01:08:59,240 --> 01:09:02,479 Speaker 1: Like don't go in the house. It's like that, and 1285 01:09:02,600 --> 01:09:05,519 Speaker 1: you're like, please don't make that mistake. And then certain 1286 01:09:05,640 --> 01:09:08,679 Speaker 1: things like that. There's a funny little thing that happens 1287 01:09:08,760 --> 01:09:11,080 Speaker 1: with a watch where like why would you make that 1288 01:09:11,240 --> 01:09:14,720 Speaker 1: mistake that? Um, later on it's like, oh, maybe not 1289 01:09:14,880 --> 01:09:17,600 Speaker 1: such a mistake. Maybe just just like all sorts of 1290 01:09:17,680 --> 01:09:21,320 Speaker 1: really interesting things. It's it's not The Crown, which was 1291 01:09:21,520 --> 01:09:26,559 Speaker 1: just spectacular, but it's interesting. And as I'm moving away 1292 01:09:26,720 --> 01:09:31,559 Speaker 1: from Lockdown, I find myself I don't need episodes of anything. 1293 01:09:31,840 --> 01:09:35,120 Speaker 1: It's it's limited to I think eight episodes done, which 1294 01:09:35,280 --> 01:09:38,560 Speaker 1: is sort of like, um, the Queen's Gambit. It's like, 1295 01:09:38,640 --> 01:09:40,000 Speaker 1: all right, I could get in and get out of 1296 01:09:40,040 --> 01:09:42,920 Speaker 1: this and not be Uh. That's another one that we saw. Yeah, 1297 01:09:42,960 --> 01:09:44,760 Speaker 1: that was a lot of fun tell us a little 1298 01:09:44,800 --> 01:09:47,960 Speaker 1: bit about your mentors. You mentioned Rosenberg and Ethan. Who 1299 01:09:48,000 --> 01:09:51,000 Speaker 1: else have been your mentors? Um, I mean those are 1300 01:09:51,000 --> 01:09:52,840 Speaker 1: the two big ones, and I think those are two 1301 01:09:52,880 --> 01:09:56,720 Speaker 1: great ones to have. Drew Madis would be another one. Um, 1302 01:09:57,120 --> 01:09:59,200 Speaker 1: he's I think the head of investment strategy at meant 1303 01:09:59,280 --> 01:10:01,640 Speaker 1: Life if I'm mistaken, and um, you know he and 1304 01:10:01,720 --> 01:10:03,559 Speaker 1: I worked together at Morrow for a period of time, 1305 01:10:03,640 --> 01:10:06,280 Speaker 1: So he would be someone else that I would, uh 1306 01:10:06,479 --> 01:10:08,880 Speaker 1: that I would lead on quite a bit for you know, 1307 01:10:09,040 --> 01:10:13,080 Speaker 1: just advice and not only economics, but just life. Him 1308 01:10:13,080 --> 01:10:15,080 Speaker 1: he's got three kids, just like I do, so it's 1309 01:10:15,240 --> 01:10:18,960 Speaker 1: uh there, No, he doesn't, and his kids are a 1310 01:10:19,000 --> 01:10:22,760 Speaker 1: lot older than mine. But but so he's someone that 1311 01:10:22,800 --> 01:10:24,840 Speaker 1: I would consider a mentor, not only from my career, 1312 01:10:24,920 --> 01:10:28,000 Speaker 1: but for life as well. Tell us about some of 1313 01:10:28,080 --> 01:10:30,200 Speaker 1: your favorite books and what are you reading right now? 1314 01:10:32,120 --> 01:10:36,519 Speaker 1: So I have a confession, I don't really read books. Um. 1315 01:10:36,720 --> 01:10:43,080 Speaker 1: I do read a lot of articles on Bloomberg and 1316 01:10:44,040 --> 01:10:47,120 Speaker 1: opinion columns and Wall Street research, but I'm not a 1317 01:10:47,160 --> 01:10:49,760 Speaker 1: big book Lee Cooperman says the same thing. He's like, 1318 01:10:49,840 --> 01:10:52,040 Speaker 1: I read all day long. I can't remember the last 1319 01:10:52,080 --> 01:10:54,800 Speaker 1: time I picked up a buck Um, I'm not. I'm 1320 01:10:54,800 --> 01:10:57,679 Speaker 1: not a big book person. Definitely a challenge. Our final 1321 01:10:57,760 --> 01:11:00,600 Speaker 1: two questions, what sort of advice would give to a 1322 01:11:00,720 --> 01:11:04,439 Speaker 1: recent college grad who is interested in a career in 1323 01:11:04,520 --> 01:11:09,840 Speaker 1: either economics finance research. What would you advise them? So 1324 01:11:10,000 --> 01:11:13,400 Speaker 1: my advice would be just get your foot in the door, 1325 01:11:13,760 --> 01:11:16,000 Speaker 1: because that's what I did, right. I mean, when I 1326 01:11:16,120 --> 01:11:18,599 Speaker 1: was in college, I had no idea that there were 1327 01:11:18,720 --> 01:11:21,320 Speaker 1: jobs like this. Oh, there are jobs that where you 1328 01:11:21,400 --> 01:11:23,840 Speaker 1: just talk about macro and the economy all day long 1329 01:11:23,920 --> 01:11:27,200 Speaker 1: and people pay you for that. I mean, it's it's great. 1330 01:11:27,280 --> 01:11:29,400 Speaker 1: You would never think about it, And I think, Um, 1331 01:11:30,000 --> 01:11:33,160 Speaker 1: if if I'm giving someone advice, I would say, started 1332 01:11:33,240 --> 01:11:36,640 Speaker 1: a large institution, because I get that I'm at a 1333 01:11:36,720 --> 01:11:39,280 Speaker 1: smaller one now. But when you're at a large one, 1334 01:11:40,080 --> 01:11:42,720 Speaker 1: there's they have so many different departments and so many 1335 01:11:42,760 --> 01:11:45,640 Speaker 1: different asset classes and so many different types of constituents 1336 01:11:45,680 --> 01:11:48,320 Speaker 1: that they serve, right, and you can kind of see 1337 01:11:49,080 --> 01:11:50,880 Speaker 1: every nook and cranny of what goes on in the 1338 01:11:50,920 --> 01:11:54,640 Speaker 1: financial market space and financial services space. Um, and then 1339 01:11:54,680 --> 01:11:57,400 Speaker 1: you can find your passion and UM. So I would say, 1340 01:11:57,800 --> 01:11:59,320 Speaker 1: get your foot in in the door of one of 1341 01:11:59,360 --> 01:12:02,640 Speaker 1: these big firms. And our final question, what do you 1342 01:12:02,720 --> 01:12:06,400 Speaker 1: know about the world of macro and economic research and 1343 01:12:06,640 --> 01:12:11,000 Speaker 1: marketing economics today that you wish you knew twenty plus 1344 01:12:11,120 --> 01:12:14,360 Speaker 1: years or so ago when you were first getting started. Well, 1345 01:12:14,400 --> 01:12:16,680 Speaker 1: I wish I had known back then that you know, 1346 01:12:16,960 --> 01:12:19,479 Speaker 1: a lot of these indicators that people put their um 1347 01:12:20,160 --> 01:12:23,840 Speaker 1: faith in are just really bogus. I mean I didn't, 1348 01:12:23,840 --> 01:12:26,840 Speaker 1: I mean I can't. I had someone at me today 1349 01:12:27,040 --> 01:12:30,120 Speaker 1: on Twitter about that's not what M three suggests. I'm like, 1350 01:12:30,240 --> 01:12:32,040 Speaker 1: I thought we stopped reports. I mean, there's you know, 1351 01:12:33,640 --> 01:12:36,000 Speaker 1: I you know, there used to be a time when 1352 01:12:36,040 --> 01:12:38,760 Speaker 1: I thought someone overlaying a chart of manufacturing production in 1353 01:12:38,800 --> 01:12:41,840 Speaker 1: the I s M was like, Wow, you really found 1354 01:12:41,880 --> 01:12:45,400 Speaker 1: something really interesting there. Now I realized it's nonsense, you know, 1355 01:12:45,640 --> 01:12:50,519 Speaker 1: And so what else are nonsensible indicators? Um? Well, I 1356 01:12:51,000 --> 01:12:53,080 Speaker 1: think to me, the the I s M is the 1357 01:12:53,120 --> 01:12:54,800 Speaker 1: one that I harp on the most because there's a 1358 01:12:54,840 --> 01:12:58,400 Speaker 1: cottage industry of people that just drive their entire asset 1359 01:12:58,439 --> 01:13:02,400 Speaker 1: allocation process off of it. Really shocking and there's nothing, 1360 01:13:03,040 --> 01:13:05,960 Speaker 1: there's nothing those three purchasing managers that are surveyed by 1361 01:13:06,640 --> 01:13:10,000 Speaker 1: I s M no about the world that you don't, right, 1362 01:13:10,120 --> 01:13:12,880 Speaker 1: and so, um, I think that that's an indicator I 1363 01:13:12,960 --> 01:13:16,600 Speaker 1: don't like, Um, I think you know, look what. To me, 1364 01:13:16,800 --> 01:13:21,920 Speaker 1: in this business, it's about taking a holistic approach to data, right. 1365 01:13:22,040 --> 01:13:25,960 Speaker 1: It's not about finding the one indicator, right, I mean, Oh, 1366 01:13:26,080 --> 01:13:30,519 Speaker 1: look at this weekly leading index, it leads everything else. Well, no, 1367 01:13:30,640 --> 01:13:32,639 Speaker 1: it's just an amalgam of like all these like financial 1368 01:13:32,680 --> 01:13:34,439 Speaker 1: market variables. So why do I need that, you know? 1369 01:13:34,560 --> 01:13:38,360 Speaker 1: I mean so, um, if it was that simple, there 1370 01:13:38,400 --> 01:13:40,720 Speaker 1: wouldn't be you know, there is. I mean, you don't 1371 01:13:40,760 --> 01:13:42,920 Speaker 1: have to believe like an efficient market theory to know 1372 01:13:43,120 --> 01:13:45,640 Speaker 1: that if it was just one thing, there wouldn't be 1373 01:13:45,680 --> 01:13:48,640 Speaker 1: all these people analyzing the same thing, right. So um, 1374 01:13:48,760 --> 01:13:51,280 Speaker 1: it's it's just to me, it's about taking a holistic 1375 01:13:51,320 --> 01:13:55,000 Speaker 1: approach to data, looking at all the indicators and also 1376 01:13:55,080 --> 01:13:59,720 Speaker 1: remembering that what ultimately leads data is your narrative. You know, 1377 01:13:59,760 --> 01:14:02,320 Speaker 1: people don't realize that, but if your narrative is right, 1378 01:14:02,960 --> 01:14:05,880 Speaker 1: the leading indicators will lag your narrative. Do you see 1379 01:14:05,920 --> 01:14:08,280 Speaker 1: what I mean? And I think that's to me, in 1380 01:14:08,320 --> 01:14:11,439 Speaker 1: other words, contextualize the story so you know where it's 1381 01:14:11,439 --> 01:14:14,160 Speaker 1: going to go exactly. To me, it's about the process, right, 1382 01:14:14,200 --> 01:14:18,400 Speaker 1: I mean Why should I s M being below fifty now? 1383 01:14:19,120 --> 01:14:22,479 Speaker 1: I mean I should be negative about things three months 1384 01:14:22,520 --> 01:14:24,799 Speaker 1: from now. If all these other things I see happening, 1385 01:14:24,880 --> 01:14:27,640 Speaker 1: like China reopening Europe or whatever. You can apply that 1386 01:14:27,760 --> 01:14:29,960 Speaker 1: throughout all the different kinds of cycle. It's not the 1387 01:14:30,120 --> 01:14:34,040 Speaker 1: data itself is not what's important. It's about getting your 1388 01:14:34,920 --> 01:14:37,519 Speaker 1: thought process and your outlook correct, and then if you're 1389 01:14:37,600 --> 01:14:40,840 Speaker 1: right about that, then the data will follow suit. Really fascinating. 1390 01:14:41,720 --> 01:14:43,960 Speaker 1: Thank you, Neil for being so generous with your time. 1391 01:14:44,200 --> 01:14:48,639 Speaker 1: We have been speaking with Renaissance Macro Research is Neil Datta, 1392 01:14:48,920 --> 01:14:52,280 Speaker 1: who runs all of the economic research at the shop. 1393 01:14:52,800 --> 01:14:55,240 Speaker 1: If you enjoy this conversation, we'll be sure and check 1394 01:14:55,280 --> 01:14:58,599 Speaker 1: out any of our previous five hundred or so such 1395 01:14:58,720 --> 01:15:02,719 Speaker 1: discussions that we you've had over the past eight years 1396 01:15:02,880 --> 01:15:06,799 Speaker 1: nine years. You can find those on iTunes, Spotify, YouTube, 1397 01:15:06,880 --> 01:15:10,439 Speaker 1: wherever you feed your podcast fix. Check out my daily 1398 01:15:10,560 --> 01:15:13,760 Speaker 1: reads at Ridaltz dot com. Follow me on Twitter at 1399 01:15:13,920 --> 01:15:17,400 Speaker 1: rit Halts. Follow all of the Bloomberg podcasts on Twitter 1400 01:15:17,960 --> 01:15:21,000 Speaker 1: at podcasts. I would be remiss if I did not 1401 01:15:21,120 --> 01:15:24,639 Speaker 1: thank the crack team that helps put these conversations together 1402 01:15:24,800 --> 01:15:28,840 Speaker 1: each week. Justin Milner is my audio engineer. Attica val 1403 01:15:28,880 --> 01:15:32,200 Speaker 1: Bron is my project manager. Sean Russo is my head 1404 01:15:32,240 --> 01:15:36,960 Speaker 1: of research. Paris Wold is my producer. I'm Barry Ritholtz. 1405 01:15:37,280 --> 01:15:40,719 Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.