WEBVTT - Neil Dutta on Economic Research 0:00:00.080 --> 0:00:05.960 M. This is Mesters in Business with very Results on 0:00:06.200 --> 0:00:10.440 Bloombird Radio. This week on the podcast, I have an 0:00:10.440 --> 0:00:14.760 extra special guest. Neil Dutta has been doing economic analysis 0:00:14.760 --> 0:00:19.680 and research from a market based perspective for over twenty years. 0:00:20.040 --> 0:00:23.800 He has a fascinating career and has been a whole 0:00:23.880 --> 0:00:27.560 lot more right than wrong than most of his fellow 0:00:27.560 --> 0:00:31.200 economists who cover the street. I found this to be 0:00:31.480 --> 0:00:37.040 just an absolutely fascinating discussion about how to best contextualize 0:00:37.080 --> 0:00:41.000 the world of economic data around you in a way 0:00:41.040 --> 0:00:45.440 that's useful for you as an investor. Very often there's 0:00:45.440 --> 0:00:48.080 a ton of information that comes out and by the 0:00:48.120 --> 0:00:52.000 time it's released, it is fairly meaningless to what the 0:00:52.040 --> 0:00:54.160 market is going to be doing a few months. Hence, 0:00:54.720 --> 0:00:59.080 understanding nuance, understanding that the world isn't binary is the 0:00:59.160 --> 0:01:03.040 challenge for investors, and few do it better than Neil 0:01:03.120 --> 0:01:06.760 does in terms of putting together a global view of 0:01:07.120 --> 0:01:09.600 what's happening in the economy, what's happening around the world, 0:01:09.680 --> 0:01:12.000 what's happening with the Fed, and what's happening with the 0:01:12.040 --> 0:01:15.760 stock market. I found this conversation to be fascinating and 0:01:15.800 --> 0:01:19.240 I think you will also with no further ado ren 0:01:19.400 --> 0:01:23.280 Max Neil Data. So let's start out with a little 0:01:23.280 --> 0:01:27.280 bit about your background. You graduate cum laude from n 0:01:27.400 --> 0:01:31.120 y U with a b a. In economics and policy. 0:01:32.080 --> 0:01:35.720 What was your first job in the economics and finance space? 0:01:36.520 --> 0:01:38.840 So I was actually thinking about being a lawyer. So 0:01:38.880 --> 0:01:41.000 I ended up taking my l S at my senior 0:01:41.080 --> 0:01:43.920 year at n y U, and UM I did okay, 0:01:43.959 --> 0:01:45.920 but I didn't do well enough to go to a 0:01:45.959 --> 0:01:48.400 school that I really wanted to go to, and so 0:01:48.680 --> 0:01:51.280 UM at that point, I was kind of scrambling, and 0:01:51.320 --> 0:01:53.360 I was like, I need to get into the financial 0:01:53.400 --> 0:01:56.200 industry because I'm in New York. I have a passion 0:01:56.240 --> 0:01:58.680 for finance. But it was kind of late, so a 0:01:58.680 --> 0:02:00.800 lot of the investment banking and US have had already 0:02:00.840 --> 0:02:02.600 lined up their gigs. So I ended up getting a 0:02:02.680 --> 0:02:07.760 job at Merrill Lynch as a compensation analyst in human resources. 0:02:07.880 --> 0:02:11.400 Really yes, so that was so UM I did that. 0:02:11.480 --> 0:02:16.440 I started that in two thousand and five after I graduated. UM. 0:02:16.480 --> 0:02:18.760 But one of the good things about being an HR 0:02:18.840 --> 0:02:22.360 Barry is you kind of know where all the jobs 0:02:22.440 --> 0:02:26.880 in the organization are. So fast forward about a year 0:02:27.280 --> 0:02:30.320 and a job had opened up as an economic research 0:02:30.360 --> 0:02:36.320 analyst in Someone's someone you may know David Rosenberg of course. Um, 0:02:36.480 --> 0:02:39.919 so that was actually my first foray into economics, and 0:02:40.200 --> 0:02:44.600 the rest is history. Um, you also worked as an 0:02:44.600 --> 0:02:47.960 analystic Barrens. Tell us a little bit about that. Where 0:02:48.040 --> 0:02:50.600 was that in your career path? Well, that was really 0:02:50.639 --> 0:02:53.280 more of an internship than anything else. But I worked 0:02:53.360 --> 0:02:59.960 with um Gene Epstein, the economics editor at Barns noted, uh, libertary, 0:03:00.000 --> 0:03:03.600 are and enthusiast now, but yeah, I mean that was 0:03:03.639 --> 0:03:06.600 back when I guess Alan Abelson was running was running 0:03:06.639 --> 0:03:08.880 the Up and Down Wall Street column. Now obviously it's Randy, 0:03:09.000 --> 0:03:12.760 but Randall fourth sythe yea who was another Gene Dolan, 0:03:13.400 --> 0:03:16.760 right Donalin Alan Abelson was must read each week, Randy 0:03:16.800 --> 0:03:20.560 forsythe they had a killer lineup, and Gene basically wrote 0:03:20.639 --> 0:03:23.320 a weekly economics column. So that was my sort of 0:03:23.320 --> 0:03:28.080 first foray into just analysis in terms of economic data. Right, 0:03:28.120 --> 0:03:30.120 Like some of the tools that people would use back then, 0:03:30.200 --> 0:03:32.840 right hey, r analytics was a big one, and so 0:03:33.240 --> 0:03:35.880 Jeane kind of introduced me to that. So when I 0:03:35.960 --> 0:03:40.560 was a trader back in the nineties, my Saturday's always 0:03:40.600 --> 0:03:45.560 began with a big mug coffee and Barns. And you know, 0:03:45.720 --> 0:03:49.400 back before you had everything at your fingertips, it took 0:03:49.400 --> 0:03:52.800 a little bit of effort to find things in the 0:03:52.840 --> 0:03:56.360 pre Google days, and sitting down with Barns was a 0:03:56.480 --> 0:04:01.119 weekly routine, and it felt like it was the publication 0:04:01.160 --> 0:04:04.360 that everybody on the street was pouring over every week. 0:04:05.440 --> 0:04:07.880 Do you think it's still that way? I think the 0:04:07.960 --> 0:04:12.480 world has changed radically, clearly. Twitter is the new tape. 0:04:12.920 --> 0:04:15.440 I see things on Twitter before I see them on 0:04:15.520 --> 0:04:18.240 the terminal, because I could be in the car on 0:04:18.320 --> 0:04:22.360 a train or something and something will across Twitter and 0:04:22.440 --> 0:04:25.479 I'm sure it's on Bloomberg at the exact same time 0:04:25.720 --> 0:04:28.960 because they passed Twitter constantly. But I don't always have 0:04:29.040 --> 0:04:32.000 my terminal up and open in my face, certainly not 0:04:32.040 --> 0:04:33.880 when I'm driving. I agree. I think that the whole 0:04:33.880 --> 0:04:38.880 finn Twitter community is probably the most useful uses Twitter 0:04:38.960 --> 0:04:41.240 as a as a sort of social media tool. To 0:04:41.279 --> 0:04:46.040 say nothing about how easy it is to find anything online, 0:04:46.120 --> 0:04:50.520 not just through Twitter, but Google also is an enormous resource. 0:04:52.360 --> 0:04:57.839 The nineties were what thirty years ago, right, very different world. 0:04:57.920 --> 0:05:01.160 Three decades two a half anyway, decades have passed you're 0:05:01.360 --> 0:05:03.400 not on Twitter. As far as I can tell, I 0:05:03.440 --> 0:05:06.080 am on Twitter. Well, we run our company not under 0:05:06.120 --> 0:05:08.880 your name, no, not under my name. That's I mean, 0:05:08.880 --> 0:05:11.719 we sort of run that as a company policy. Um 0:05:11.760 --> 0:05:14.960 but um yeah, I mean I I tweet. I try 0:05:15.000 --> 0:05:17.200 to put information out there. What we try to do, 0:05:17.240 --> 0:05:19.360 of course, is to make sure we're sending it out 0:05:19.400 --> 0:05:21.440 a little bit later than our clients get because then, 0:05:21.480 --> 0:05:23.159 you know, I pay for research in the first place, 0:05:23.200 --> 0:05:25.479 if you can get it for free on Twitter. But yeah, 0:05:25.520 --> 0:05:30.720 I mean, you know we started that account maybe. Yeah, 0:05:30.760 --> 0:05:35.039 we've been growing it ever since and we have a 0:05:35.040 --> 0:05:38.359 good yeah, we and um yeah. What we try to 0:05:38.360 --> 0:05:41.600 do is promote our our in house ideas. So let's 0:05:41.600 --> 0:05:43.679 talk a little bit about what you did at Merrill Lynch. 0:05:44.000 --> 0:05:45.960 We worked with Rosie, which I'm sure you have lots 0:05:46.000 --> 0:05:48.839 of stories from that. What was your role there? What 0:05:48.960 --> 0:05:51.200 sort of researching and writing did you do well? So 0:05:51.279 --> 0:05:54.800 when I started as an analyst under Rosie, Um, I 0:05:54.880 --> 0:05:57.000 was basically a junior economist. I mean a lot of 0:05:57.040 --> 0:05:59.200 I mean. One of the great things about Rosie, I mean, 0:05:59.440 --> 0:06:02.880 you know, was just he is I think one of 0:06:02.920 --> 0:06:06.080 the best examples of what a wall street economist should 0:06:06.080 --> 0:06:09.359 be like we had this UM weekly piece called the 0:06:09.400 --> 0:06:11.919 market Economist, right, And that I think is very important 0:06:11.920 --> 0:06:14.960 because he was a markets economist. He wasn't a PhD. 0:06:15.760 --> 0:06:18.320 And he didn't think like one either. And what I 0:06:18.320 --> 0:06:20.920 think he understood and what he kind of ingrained in me, 0:06:21.680 --> 0:06:23.919 you know, very early on, is that this is really 0:06:24.000 --> 0:06:26.600 fundamentally if you're a sell side research economist, you are 0:06:26.720 --> 0:06:30.520 in the client service business. And that's what Rosie was 0:06:30.560 --> 0:06:32.880 really great at UM. I mean, he was always on 0:06:32.880 --> 0:06:34.640 the road. I mean, gosh, I don't even remember when 0:06:34.640 --> 0:06:37.640 I don't even remember when I saw him UM, because 0:06:37.640 --> 0:06:39.960 he was always on the road, particularly in in in 0:06:40.000 --> 0:06:43.120 oh seven and oh eight, when UM when it's you know, 0:06:43.160 --> 0:06:45.400 I mean it was sort of with with Rosie. It 0:06:45.440 --> 0:06:49.160 was kind of wrong wrong and then spectacularly right, right. 0:06:49.200 --> 0:06:52.480 And so when he became spectacularly right, you know, he 0:06:52.520 --> 0:06:55.160 was he was on the road constantly, and so one 0:06:55.160 --> 0:06:56.479 of the things I would do for him was just 0:06:56.680 --> 0:06:59.960 kind of feed him ideas, feed him charts that kind 0:07:00.040 --> 0:07:03.120 of reinforced his his thesis that he could then go 0:07:03.160 --> 0:07:05.080 and present the clients while he was on the road. 0:07:05.200 --> 0:07:07.599 So a lot of it was sort of getting in 0:07:07.600 --> 0:07:10.640 the weeds on on charts and data. But that's that's 0:07:10.680 --> 0:07:12.120 what I would do for him. And then you know, 0:07:12.320 --> 0:07:14.560 as I got better at that, he kind of gave 0:07:14.560 --> 0:07:17.160 me a little bit more freedom in terms of allowing 0:07:17.200 --> 0:07:19.920 me to write. And obviously, if you work in in 0:07:19.920 --> 0:07:22.120 a Belgian bracket like that, you're obviously writing under the 0:07:22.160 --> 0:07:24.280 lead analyst, right, So my name would go on the reports, 0:07:24.280 --> 0:07:26.200 but they would be under his, of course. And he 0:07:26.240 --> 0:07:28.080 gave me a little bit more freedom as time went on, 0:07:28.120 --> 0:07:30.320 and I would end up writing his morning note, which 0:07:30.360 --> 0:07:33.200 was the widely read you know Rosie Tidbits, remember, I 0:07:33.200 --> 0:07:37.640 mean you know those now it's Breakfast with Dave. Back then, 0:07:37.720 --> 0:07:40.480 it used to be called Rosie's Morning Tidbits. And I 0:07:40.520 --> 0:07:42.520 think that was a play on because you know, Rosie 0:07:42.560 --> 0:07:47.320 was Canadians Canadians and still is um and in my career, 0:07:47.440 --> 0:07:53.120 I feel like the Canadian they produce a large number 0:07:53.120 --> 0:07:55.360 of economists. I mean, it's it's kind of right, I 0:07:55.400 --> 0:07:59.640 mean comedians. And I have no idea, but I think 0:07:59.640 --> 0:08:01.600 the tid bits was a play on tim Bits, right, 0:08:01.640 --> 0:08:04.400 Tim Horton's sort of their version of dunkin Donuts, I guess, 0:08:04.400 --> 0:08:06.760 And so he gave me some freedom in writing that. 0:08:06.800 --> 0:08:10.240 For so Rosie actually ends up going back home to Toronto, 0:08:10.840 --> 0:08:13.600 I know, oh nine, And so now you're at Meryl 0:08:14.040 --> 0:08:17.520 without him writing heard on you. What was it like 0:08:17.600 --> 0:08:20.760 when you had a little more latitude to go where 0:08:20.800 --> 0:08:25.400 you wanted? Well, um, it was actually an interesting time because, um, 0:08:25.440 --> 0:08:28.640 when Rosie left, things were starting to turn around a little. 0:08:28.760 --> 0:08:31.560 And I remember I wrote a piece basically, I think 0:08:31.560 --> 0:08:34.360 in June two thousand and nine, basically saying that the 0:08:34.400 --> 0:08:36.520 recession was over. And at the time it was a 0:08:36.559 --> 0:08:40.200 controversial call. Um, but that was when we didn't even 0:08:40.240 --> 0:08:45.400 have a head of economics because there was a bit 0:08:45.400 --> 0:08:48.080 of a sort of murky you know, let's say six 0:08:48.200 --> 0:08:50.080 to nine month period where Rosie had left and it 0:08:50.120 --> 0:08:52.000 had been a you know, and and then Ethan Harris 0:08:52.000 --> 0:08:54.160 had yet to come in, so we kind of had 0:08:54.160 --> 0:08:55.800 a lot of freedom in terms of what we wanted 0:08:55.800 --> 0:08:58.080 to do. And um, you know, so I wrote that piece. 0:08:58.160 --> 0:09:01.000 It got a lot of attention, I think, But yeah, 0:09:01.040 --> 0:09:02.600 I mean it was a good call and I think 0:09:02.600 --> 0:09:05.240 it was interesting to say the least, because um, here 0:09:05.240 --> 0:09:08.480 you had Rosie, who was a noted market bear at 0:09:08.480 --> 0:09:11.040 the time. He never would have put his name on 0:09:11.080 --> 0:09:14.640 that piece, right and um, and so in some respects 0:09:14.640 --> 0:09:16.160 I was able to and I you know, I mean 0:09:16.360 --> 0:09:18.200 we used a lot of the same framework that he 0:09:18.320 --> 0:09:20.160 is looking at a lot of the same indicators in 0:09:20.240 --> 0:09:22.480 terms of you know, you know, Rosie would talk a 0:09:22.520 --> 0:09:25.080 lot about leading indicators, the the e c R I index, 0:09:25.080 --> 0:09:26.600 and a lot of them had been turning around. So 0:09:26.640 --> 0:09:29.320 we had basically said, look like things are getting better 0:09:29.400 --> 0:09:31.800 and it's sort of reinforced, uh, you know, the upturn 0:09:31.840 --> 0:09:34.800 in markets. So um and speaking of markets, how often 0:09:34.920 --> 0:09:41.440 is down fift not a pretty decent entry point for equities? Oh? Sure? Well, 0:09:41.440 --> 0:09:43.680 I mean one of my buddies, Sam Row, who you 0:09:43.720 --> 0:09:49.439 probably know TK t uh and um. He has that 0:09:49.600 --> 0:09:52.160 you guys know each other. Sam's work is great also, Yeah, 0:09:52.240 --> 0:09:55.280 I mean I can't I I think very highly of 0:09:55.360 --> 0:09:58.080 him also. And one of the best things that he 0:09:58.120 --> 0:10:01.200 says is stock markets usually we go up. That is 0:10:01.240 --> 0:10:04.960 a factual statement, not always but most of the most 0:10:04.960 --> 0:10:08.280 of the time. And um, it's tough being on the 0:10:08.360 --> 0:10:11.080 low probability side of the street, right, And I think 0:10:11.080 --> 0:10:12.640 that sort of set a lot of the kind of 0:10:12.679 --> 0:10:16.160 trajectory over the next several years after um I left 0:10:16.640 --> 0:10:18.720 Merrill and when I started at rend Mac And just 0:10:19.000 --> 0:10:22.040 if you couldn't figure out by eleven that the sky 0:10:22.160 --> 0:10:24.920 is not always falling, you'll you'll never figure it out. 0:10:24.960 --> 0:10:28.400 I mean, because we had so many things happened. We 0:10:28.440 --> 0:10:31.200 had financial crisis, double depercession fears, right, there was that 0:10:31.240 --> 0:10:34.040 debt default thing, and then China hard landing that was 0:10:34.080 --> 0:10:37.160 like this perennial thing, and European sovereign debt crisis and 0:10:37.960 --> 0:10:40.880 stocks kept going up. And so I feel like, you know, 0:10:40.920 --> 0:10:43.840 over my career, right, I mean, I've kind of I 0:10:43.880 --> 0:10:48.679 started working under Rosie, right, um, but I feel like 0:10:48.720 --> 0:10:51.040 over time I've actually been pigeonholed more as like the 0:10:51.200 --> 0:10:55.079 more market optimist economic optimists not so let me let 0:10:55.080 --> 0:10:57.440 me channel my in in a rosy and pushback on 0:10:57.520 --> 0:11:01.200 your markets always go up. Tell that to someone who 0:11:01.280 --> 0:11:07.760 bot Japan in or but China you're down in China. 0:11:07.800 --> 0:11:11.200 I think you're still down in Japan. It's decades later. 0:11:11.800 --> 0:11:14.080 What do you mean markets always go up? Well, US 0:11:14.160 --> 0:11:17.079 equity markets usually go up. That's and and we're very 0:11:17.160 --> 0:11:21.280 much US focused here. UM. I don't disagree with you, 0:11:21.320 --> 0:11:24.720 by the way, but those are the objections that sure, 0:11:24.760 --> 0:11:27.400 I mean, well always come up there. If anything, they're 0:11:27.440 --> 0:11:29.640 the exceptions that proved the rule. Well, Japan is an 0:11:29.640 --> 0:11:34.000 interesting example because, um, of course, after the financial crisis, 0:11:34.400 --> 0:11:38.120 that was a very prominent example of what the U 0:11:38.200 --> 0:11:41.120 S could turn into. We're going the way of Japan. Um. 0:11:41.120 --> 0:11:44.160 But I think in many respects, because that example existed, 0:11:44.240 --> 0:11:46.400 that's why we in fact didn't end up that way. 0:11:46.440 --> 0:11:48.800 We had we we sort of cleared out our banking system, 0:11:48.880 --> 0:11:53.040 we recapitalized our banks very rapidly compared to Japan. Obviously 0:11:53.040 --> 0:11:55.520 Bernanke is a student of what happened. Then it's as 0:11:55.559 --> 0:11:58.400 if we learn from other people's exactly and think about, 0:11:58.440 --> 0:12:00.720 I mean, what was notable about at a sort of 0:12:00.760 --> 0:12:07.120 post financial crisis recovery was just how steady it was, um, 0:12:07.160 --> 0:12:09.640 you know, sort of month in, month out, continued declines 0:12:09.640 --> 0:12:12.679 in the unemployment rate. And you know, if you go 0:12:12.760 --> 0:12:14.760 back to some of the literature around you know, the 0:12:14.760 --> 0:12:18.040 Swedish banking crisis, sort of the Nordic banking crisis, it 0:12:18.160 --> 0:12:20.400 was sort of you know, six seven years he cleared 0:12:20.400 --> 0:12:24.080 out the excess and things start to pick up, and 0:12:24.160 --> 0:12:27.840 that's pretty much what happened right. I mean, the household 0:12:27.880 --> 0:12:32.000 de leveraging was basically over and the economy was gaining 0:12:32.000 --> 0:12:34.120 a lot of momentum. So how did you end up 0:12:34.160 --> 0:12:37.760 at Wren Mack? Uh? You were at Merrill? Tell us 0:12:38.120 --> 0:12:41.920 how you found your way there? So um So, as 0:12:41.920 --> 0:12:44.280 I mentioned, Rosie had had left to think that it 0:12:44.360 --> 0:12:46.040 was really in March of two thousand nine is a 0:12:46.080 --> 0:12:50.480 classic bottom exactly contrary, it was, he left at his peak, 0:12:50.600 --> 0:12:53.600 and I think in September of that year, Bank of 0:12:53.600 --> 0:12:57.160 American Merrill Lynch at that point hired Ethan Harris, who 0:12:57.200 --> 0:13:00.000 I think he was. He was a Lehman Barclays UM 0:13:00.120 --> 0:13:04.800 and so I worked with him for until And you know, 0:13:05.120 --> 0:13:08.400 Lehman was a huge sort of fixed income shop and 0:13:08.400 --> 0:13:12.720 and that's where Ethan's focus really was UM and and 0:13:12.760 --> 0:13:16.520 obviously you know Meryl was more of an equity shop UM. 0:13:16.559 --> 0:13:20.160 And so one of the things that Ethan um gave 0:13:20.160 --> 0:13:22.640 me a lot of latitude to do was just kind 0:13:22.679 --> 0:13:25.440 of service the equity salesforce at Mery Lynch because a 0:13:25.440 --> 0:13:27.920 lot of his focus was really I think more on 0:13:27.960 --> 0:13:31.320 the fixed income side, more on the fed UM. So 0:13:31.760 --> 0:13:33.800 you know, I I had a lot of UM sort 0:13:33.840 --> 0:13:36.800 of opportunity because it was kind of this runway that 0:13:36.840 --> 0:13:38.880 I just had, and and and what I would do 0:13:38.960 --> 0:13:41.960 is try my best to kind of, you know, remember 0:13:42.000 --> 0:13:45.120 what the equity salesforce loved about Rosie and try to 0:13:45.160 --> 0:13:46.960 apply that in my own way. So one of the 0:13:46.960 --> 0:13:50.560 things that I think that Rosie did really well is 0:13:50.640 --> 0:13:53.880 just kind of take the economics calls and make them 0:13:53.960 --> 0:13:57.280 useful for an equity market investment. Right, So if you 0:13:57.280 --> 0:14:00.000 think inventories are done clearing out, what does that mean? Well, 0:14:00.080 --> 0:14:02.280 should be good for manufacturing. Now let me call I mean, 0:14:02.280 --> 0:14:04.280 and you have all these analysts that are covering all 0:14:04.280 --> 0:14:06.000 these companies, So why don't you go pick up the 0:14:06.000 --> 0:14:07.560 phone and talk to them and see what they say? 0:14:07.600 --> 0:14:10.720 And then for an equity salesforce, that is a great 0:14:10.760 --> 0:14:13.679 thing because when you have your macro guy talking to 0:14:13.840 --> 0:14:17.839 your analyst, you can you pitch that to your clients, like, Okay, 0:14:17.840 --> 0:14:21.200 my my macro economist is telling me that inventories are 0:14:21.320 --> 0:14:26.360 have bottomed out. And here's what I don't know, John Inch, 0:14:26.400 --> 0:14:28.440 who was I think the industrials analyst at the time. 0:14:28.480 --> 0:14:31.160 Here's what he's saying about Caterpillar and Deer and so 0:14:31.240 --> 0:14:33.840 on and so forth. And whenever you have that, it 0:14:33.880 --> 0:14:36.600 makes a very good morning call, and you can it 0:14:36.600 --> 0:14:38.440 makes a very good marketing tool. So I would try 0:14:38.480 --> 0:14:40.360 to do that a lot. And as I did more 0:14:40.400 --> 0:14:43.120 of that, I would be asked by the salesforce on 0:14:43.160 --> 0:14:46.080 the equity side at Meryl to kind of can you 0:14:46.120 --> 0:14:47.400 come on the road to me? Can you come out 0:14:47.440 --> 0:14:49.160 to California and talk to so and so? Can you 0:14:49.400 --> 0:14:51.320 Texas and so forth? And so I would do a 0:14:51.360 --> 0:14:54.640 lot of marketing for equity accounts at Meryl Um And 0:14:54.680 --> 0:14:56.640 I was really only like a like a VP at 0:14:56.640 --> 0:14:58.800 the time. I was a pretty junior level person, and 0:14:59.320 --> 0:15:03.080 so that got me going, and then I got approached 0:15:03.120 --> 0:15:06.520 by Wren Mack and now I've been doing it for 0:15:06.560 --> 0:15:10.800 them for this last decade. It's funny you mentioned, um 0:15:10.840 --> 0:15:15.880 what the institutional sales guys like. Who was institutional sales 0:15:15.920 --> 0:15:18.560 in Marrow for a long time. He is not public, 0:15:18.560 --> 0:15:21.800 so I can't drop his name. But my favorite thing 0:15:21.880 --> 0:15:25.000 that he said about taking Rosie on these road trips, 0:15:25.480 --> 0:15:28.360 they called him a wind up toy. Doesn't matter who 0:15:28.400 --> 0:15:31.520 the institutional client is, you would give him like an 0:15:31.560 --> 0:15:34.840 eight second tea. Up. Oh, this is an endowment. They 0:15:34.840 --> 0:15:38.640 focus on this they're interested in this aspect. They turned 0:15:38.680 --> 0:15:41.440 the key and wind him up, push him in, and 0:15:41.720 --> 0:15:45.640 Rosie would just be a fire hose of NonStop data, 0:15:45.720 --> 0:15:50.880 context information. Uncle, whatever you want. Yeah, you get the order, 0:15:50.960 --> 0:15:52.760 just leave me alone. No, Yeah, I mean for me, 0:15:52.800 --> 0:15:55.120 it was a great education. I think those first you know, 0:15:55.160 --> 0:15:57.560 seven or eight years at MARYL because I had Rosie. 0:15:57.600 --> 0:16:00.240 I was fortunate enough to work with two greats. I mean, 0:16:00.280 --> 0:16:02.800 I think Ethan Harris is is one of the best. 0:16:03.080 --> 0:16:04.680 I mean, he had a great call this year. I 0:16:04.680 --> 0:16:06.360 mean in the last year. I mean he was the 0:16:06.400 --> 0:16:08.360 first one to basically say, you know what, the Fed's 0:16:08.360 --> 0:16:10.040 gonna go every meeting, and at the time he said 0:16:10.080 --> 0:16:12.600 it was pretty radical. Yeah, you had a pretty good 0:16:12.600 --> 0:16:15.200 call also the end of last year. In fact, I 0:16:15.200 --> 0:16:18.560 recall I think it was on surveillance, Bloomberg surveillance. You 0:16:18.600 --> 0:16:20.640 came on and said, oh, the Fed's gonna raise at 0:16:20.720 --> 0:16:24.520 least four times. That was a very out of consensus call. 0:16:24.600 --> 0:16:27.360 Is We'll talk a little bit about that a little later, 0:16:27.880 --> 0:16:31.920 but you were very much pushing against the consensus that 0:16:32.320 --> 0:16:35.800 it's all good. Well, so, I mean I think again, um, 0:16:35.960 --> 0:16:38.400 you had one of the best things that Ethan Harris 0:16:38.440 --> 0:16:43.160 actually ever told me was in this business, it's about picking, 0:16:43.440 --> 0:16:46.760 like weighing probabilities and then picking your battles with the 0:16:46.800 --> 0:16:49.280 consensus wisely. Like I'm not the kind of person that's 0:16:49.320 --> 0:16:52.040 just going to be contrarian for the sake of being 0:16:52.080 --> 0:16:54.080 so like that to me doesn't really make it. Listen, 0:16:54.120 --> 0:16:57.200 the market is the crowd exactly the right most of 0:16:57.200 --> 0:16:59.560 the time, and so you have to just pick your 0:16:59.560 --> 0:17:04.320 battles wisely. And I think in that case, I mean, 0:17:04.359 --> 0:17:07.240 four was conservative. I mean, in hindsight that was I mean, 0:17:07.280 --> 0:17:09.840 at the time it sounded sort of radical, but in 0:17:09.880 --> 0:17:13.240 hindsight it was it was obviously not enough. Um. But 0:17:13.320 --> 0:17:16.000 so I think that to me, um kind of I 0:17:16.040 --> 0:17:17.600 thinks at the sort of stage for me at ed 0:17:17.640 --> 0:17:19.399 rend McK and I think it was very helpful to 0:17:19.440 --> 0:17:22.960 sort of come up onto those two guys. Really interesting. 0:17:23.520 --> 0:17:27.280 So we were talking earlier about your December twenty one call. 0:17:27.840 --> 0:17:30.280 You thought the FED would raise at least four times. 0:17:30.359 --> 0:17:35.600 Let's look at what happened. Four basis increases to fifty 0:17:36.080 --> 0:17:43.919 point increases one basis point increase. Why was everybody so sanguine? 0:17:44.160 --> 0:17:47.280 Why did we all miss the fact that the FED 0:17:47.680 --> 0:17:51.360 was suddenly gonna you know, slam on the brakes. Well, 0:17:51.400 --> 0:17:52.959 I think you just have to go back to the 0:17:52.960 --> 0:17:57.600 initial reopening of the economy, right, um. And in hindsight, 0:17:58.840 --> 0:18:01.600 we basically had a V shape recovery, a couple of 0:18:01.640 --> 0:18:04.800 trillion dollars of fiscal stimulus. We help, we threw a 0:18:04.840 --> 0:18:07.720 lot of money at the problem on top of that, right, 0:18:07.760 --> 0:18:09.640 I mean a lot of them. I mean we turned 0:18:09.640 --> 0:18:11.159 the lights off, we turned it back on. You had 0:18:11.160 --> 0:18:14.000 a V had a V shape recovery plus all the stimulus, 0:18:14.880 --> 0:18:17.520 plus you know, paycheck protection. I mean, when we had 0:18:17.520 --> 0:18:19.679 that first employment number, that sort of knocked the lights out. 0:18:19.800 --> 0:18:21.639 Everyone was kind of surprised because we're all kidding off 0:18:21.640 --> 0:18:24.639 the initial claims data, right and um, and so we 0:18:24.880 --> 0:18:27.439 had seen that, you know, maybe these companies were hiring 0:18:27.440 --> 0:18:30.840 people back pretty quickly. I remember at the time the 0:18:30.880 --> 0:18:36.960 Atlanta Fed GDP now cast with something like minus fIF GDP, 0:18:37.119 --> 0:18:41.639 which obviously is a horrific extracoration. But that's why I 0:18:41.720 --> 0:18:44.280 think a lot of people were surprised that at how robust. 0:18:44.480 --> 0:18:46.399 And at the time, remember very I mean, there was 0:18:46.440 --> 0:18:49.240 a legit debate going on, are we gonna have an 0:18:49.359 --> 0:18:51.480 L shape recovery, right, are we going to have a 0:18:51.560 --> 0:18:54.720 U shape recovery? And I think a lot of the 0:18:54.800 --> 0:18:58.960 issues around the FED trajectory was just a function of that, 0:18:59.119 --> 0:19:01.560 and we Bay sickly had a V shaped recovery and 0:19:01.600 --> 0:19:04.480 that warranted a very aggressive response from the FIT, although 0:19:04.760 --> 0:19:08.600 we'll talk a little later about how belated that response was. 0:19:08.680 --> 0:19:14.000 They they clearly could have started tightening earlier at a 0:19:14.040 --> 0:19:16.399 slower pace. But let's put it in and that I 0:19:16.440 --> 0:19:18.880 want to talk about your call where you said there's 0:19:18.880 --> 0:19:21.200 going to be at least four increases. Tell us a 0:19:21.240 --> 0:19:24.040 little bit about your process. What are you looking at 0:19:24.480 --> 0:19:27.960 that leads you to say, Hey, the consensus is way 0:19:28.000 --> 0:19:31.359 too sanguine. They're missing this. The FED is really going 0:19:31.440 --> 0:19:33.800 to step up here. So I think the first thing 0:19:33.880 --> 0:19:36.040 to do in this business is you want to make 0:19:36.080 --> 0:19:40.040 sure you have the now cast right right, forget the forecast. 0:19:40.960 --> 0:19:43.040 Let's just figure out what's going on right now and 0:19:43.080 --> 0:19:45.600 what's been happening. And at the time, what did we know. 0:19:46.240 --> 0:19:48.640 Inflation was coming in a little bit firmer, a lot firm, 0:19:49.080 --> 0:19:52.879 and unemployment was falling more rapidly than people thought. So 0:19:52.960 --> 0:19:55.680 what do you expect the FIT to do at that point. Uh. 0:19:55.680 --> 0:20:00.240 And oh, by the way, um they're behind right, So um, 0:20:00.520 --> 0:20:02.679 aren't they always? I mean you could you can make 0:20:02.720 --> 0:20:06.080 that argument. Um, but you know, in this case, they 0:20:06.080 --> 0:20:09.920 were kind of very much keying off of labor market 0:20:10.000 --> 0:20:13.960 dynamics for the reaction function, and the unemployment was falling 0:20:14.080 --> 0:20:17.280 very very rapidly, and so that's what started it. And um, 0:20:17.320 --> 0:20:19.919 that's the area you're looking at that Hey, this is 0:20:19.920 --> 0:20:24.040 a red flag. Everybody is way too sanguine about c 0:20:24.200 --> 0:20:27.240 P I. I think the thing that really got it 0:20:27.280 --> 0:20:30.200 for me was what was going on in the housing market, right. 0:20:30.200 --> 0:20:32.800 I mean, if you have this sort of pandemic event 0:20:33.400 --> 0:20:35.879 and people go out and what's the thing that pops 0:20:35.960 --> 0:20:40.479 first is residential investment and home sales. That to me 0:20:40.600 --> 0:20:44.280 is a huge, uh you know issue, totally opposite from 0:20:44.280 --> 0:20:47.639 the last crisis because and what do we know about housing? 0:20:47.720 --> 0:20:50.879 It is the it's like an irreversible decision, right, I mean, 0:20:50.920 --> 0:20:52.800 once you buy a home, you can't just go out 0:20:52.800 --> 0:20:54.399 and be like, oh, don't want to do that again. 0:20:54.880 --> 0:20:56.679 I mean you can't return it. So you have to 0:20:56.720 --> 0:20:59.480 be very very sure about the macro environment before you 0:20:59.520 --> 0:21:01.400 make a down payment on a home. So the fact 0:21:01.440 --> 0:21:03.920 that people are willing to do that I think kind 0:21:03.920 --> 0:21:08.040 of led me to believe. Okay, if housing is historically 0:21:08.040 --> 0:21:10.359