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