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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Master's in

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Speaker 1: Business with Barry red Holts on Bloomberg Radio.

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Speaker 2: On this week's podcast, I sit down with Lakshman Achuthan.

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Speaker 2: He is the co founder of EKRI, the Economic Cycle

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Speaker 2: Research Institute. I've known Blacksman for I don't know, fifteen years,

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Speaker 2: almost twenty years, and I've always found his take on

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Speaker 2: the world of economics and recessions and inflation and employment

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Speaker 2: just fascinating and unique and different from what everybody else does.

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Speaker 2: It is very specifically data driven, based on a model

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Speaker 2: that was originally co developed by Professor Jeffrey Moore, And

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Speaker 2: I don't know how else to describe it other than

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Speaker 2: you're looking at a data You're looking at leading indicators

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Speaker 2: of different lengths as well as coincidental indicators, and you're

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Speaker 2: trying to figure out when cycles turn. Hey, anybody can

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Speaker 2: predict the trends, just stay with it until it ends,

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Speaker 2: but catching the turns is much more challenging. They've put

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Speaker 2: together a tremendous track record over the past thirty years,

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Speaker 2: better than just about everybody. Nobody's perfect, but they've gotten

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Speaker 2: more of the turns and more of the major cycle

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Speaker 2: turns than anybody else, and that's why their research is

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Speaker 2: read by not just big investment houses and companies, but

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Speaker 2: sovereign banks and governments around the world. I thought this

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Speaker 2: conversation was absolutely fascinating, and I think you will also

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Speaker 2: with no further ado, my discussion with Lakshman at your

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Speaker 2: thon Lasman. Welcome back to Bloomberg.

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Speaker 1: Well, it's wonderful to be back in congratulations on this series.

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Speaker 2: Over all these years, ten years you were in the

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Speaker 2: first year's shows, which I have to be honest, are

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Speaker 2: pretty unlistenable. I go back and listen to them and

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Speaker 2: you could tell them just like a poppy dog caffeine

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Speaker 2: and adrenaline. But thank you so much for coming back,

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Speaker 2: and we'll do this the right way this time. So

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Speaker 2: let's start out with a little bit of your backgrounds.

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Speaker 2: I had already graduated college. In grad school, you were

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Speaker 2: doing some work at Columbia with Geoffrey Moore. Tell us

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Speaker 2: a little bit about the sort of research projects you

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Speaker 2: were doing back in the nineteen nineties.

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Speaker 1: Right, So thank you and pleasure to be here with you,

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Speaker 1: and thanks for the question. I had the good fortune

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Speaker 1: or interesting timing of starting with doctor Moore right when

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Speaker 1: the nineteen ninety ninety one recession was happening. So it's

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Speaker 1: very interesting and what my whole life's work is around

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Speaker 1: business cycles. So this was extremely interesting to see in

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Speaker 1: real time rather than reading it in a history book.

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Speaker 1: And what I found so interesting about his work was

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Speaker 1: it was applied economics and it brought some cohesiveness to

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Speaker 1: the way economies work around the world, free market oriented economies.

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Speaker 1: Because I'd done some earlier traveling around Europe, I saw

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Speaker 1: all these different economies and different currencies, and I wondered,

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Speaker 1: how does this all fit together? And he had kind

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Speaker 1: of a framework for it, the makings of one, which

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Speaker 1: I found very interesting. One key thing we were doing

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Speaker 1: back then was how or if cycles are transmitted internationally.

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Speaker 2: That was a big aspect of what sort of cycles

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Speaker 2: business cycles? How are business cycles transmitted from country to country?

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Speaker 1: Yeah, so if Europe goes into recession, what's the impact

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Speaker 1: on the US or vice versa, and or Japan or

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Speaker 1: these were all the big economies then, and how do

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Speaker 1: they get transmitted? What are the impacts we have? How

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Speaker 1: does it? You know, what cycles are there that we

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Speaker 1: all are participating in around the world, and which ones

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Speaker 1: are slightly more local to specific economy, so that's a

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Speaker 1: big issue.

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Speaker 2: Can we assume trade is a big impact into those

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Speaker 2: as a transmission mechanism or is it more nuanced than that.

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Speaker 2: It's always more nuanced.

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Speaker 1: But trade is a big one. Trade is a big one.

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Speaker 1: Markets are a big one, and a lot of people

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Speaker 1: take their queue from what's going on in the US.

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Speaker 1: So there's an outsized impact of the US market globally,

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Speaker 1: even in local economies around the world. And it's very

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Speaker 1: much in the goods and trades area, where we've all

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Speaker 1: taken little spots in the manufacturing floor, and so we're

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Speaker 1: linked that way, and for better or worse, can impact us.

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Speaker 1: And meanwhile, our domestic economies may be doing something different.

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Speaker 2: So everybody thinks of the dollar as our exorbitant privilege,

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Speaker 2: but you're implying US stock markets are really a giant

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Speaker 2: exorbitant privilege to the US. It is part of what

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Speaker 2: drives the global economy.

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Speaker 1: Yes, and here i'm you know, I work with a

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Speaker 1: lot of different We at Equy work with a lot

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Speaker 1: of different users of our material and so to keep

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Speaker 1: it simple, some are investment managers and some are c

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Speaker 1: suite kind of business managers, and on the investment management side,

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Speaker 1: even if you're an investment manager abroad, you're going to

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Speaker 1: have probably.

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Speaker 2: A decent sized investment in the United States.

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Speaker 1: Market, and that's one of the factors that goes into

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Speaker 1: the big mix. There's also all kinds of other things

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Speaker 1: in the mix, but transmissions of cycles internationally was a

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Speaker 1: key thing, or early on, I think one of the

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Speaker 1: bigger things that's critical today that we were working on

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Speaker 1: then was the relationship of really three major aspects of

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Speaker 1: the economy from a cyclical perspective. Their cycles and growth,

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Speaker 1: which can be in extremes when they contract, can be

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Speaker 1: business cycles, recessions and expansions. There's cycles in employment which

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Speaker 1: are related but distinct. They're actually identifiable in different cycles

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Speaker 1: in employment. And there's a third cycle, a third aspect

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Speaker 1: which is cycles in inflation. And being able to see

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Speaker 1: that just to understand the lay of the land of

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Speaker 1: cycles and free market oriented economies is a huge thing.

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Speaker 1: Just being aware that that's the pool that we're all

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Speaker 1: swimming in is really important forgetting at some of the

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Speaker 1: nuances of what's going on in the economy. So those

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Speaker 1: understanding those three key aspects of the economy and not

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Speaker 1: forcing them, and our process doesn't force them to directly

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Speaker 1: relate to one another, gives us a great deal of

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Speaker 1: flexibility in understanding what's happening growth, employment, and inflation. If

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Speaker 1: you have a handle on those three aspects, you really

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Speaker 1: understand what's going on in the economy. I think you.

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Speaker 1: I think, well, I don't know that really really at

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Speaker 1: the end there's stuff I still don't know, But I

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Speaker 1: think you have a pretty good handle on the nuances,

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Speaker 1: like how can it be that one's going up and

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Speaker 1: the others going down? You know, because you have to

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Speaker 1: tell the story what's happening of what you're seeing. Understanding

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Speaker 1: that these three cycles, which are related but distinct in

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Speaker 1: and of itself, is a big leap forward in that understanding.

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Speaker 2: It was kind of fascinating in twenty twenty two, and

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Speaker 2: to a less degree twenty three watching the kind of

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Speaker 2: prior generation the old school nineteen seventies economists get the growth,

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Speaker 2: employment and inflation picture completely wrong. It seemed like they

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Speaker 2: defaulted back to the nineteen seventy three seventy four cycle

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Speaker 2: and had a hard time. We were talking earlier about

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Speaker 2: the Paul Graham quote all experts or experts in the

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Speaker 2: way the world used to be. But you know, when

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Speaker 2: people come out, probably most famously Laurence Summers, you need

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Speaker 2: to have unemployment to shoot up to ten percent to

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Speaker 2: kill inflation. Turned out that wasn't the case, wasn't.

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Speaker 1: Well, no, it's not the case. And again it's because

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Speaker 1: these cycles, while related, are distinct. There's more inflation cycles

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Speaker 1: than business cycles. For example, probably a little fewer employment

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Speaker 1: cycles that inflation cycles. Those will match up a bit

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Speaker 1: more to business and growth cycles. But even allowing or

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Speaker 1: understanding that these things can go in different directions is critical.

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Speaker 1: Twenty two, twenty three, twenty four. It's very interesting because

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Speaker 1: first let's remember that there was a huge, massive inflation

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Speaker 1: cycle upturn, right it's in twenty twenty.

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Speaker 2: Biggest one we've seen, much bigger than the one the

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Speaker 2: financial process.

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Speaker 1: And one of the things just even forget about forecasting

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Speaker 1: or saying what's going to happen. One of the things

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Speaker 1: that's critical to understand is that inflation is cyclical. I

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Speaker 1: know those are easy words for to say and talk

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Speaker 1: about on this program, but fundamentally a lot of models

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Speaker 1: are not built that way, a lot of policy is

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Speaker 1: not driven that way. In fact, you could still see

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Speaker 1: the antecedents of that today in the markets and the

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Speaker 1: way people are thinking, Hey, inflation's coming down. Yeah, sure,

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Speaker 1: because it went to the moon, and yeah it's coming

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Speaker 1: down from the moon. Okay, so we could agree on that,

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Speaker 1: But does it just keep going down? How do you know?

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Speaker 1: Does it go down and stay flat at your target?

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Speaker 2: Yeah?

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Speaker 1: I don't know where have you seen that happen before?

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Speaker 1: If you study inflation over decades and have a cyclical

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Speaker 1: vantage point on it, what you'll see is that it

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Speaker 1: doesn't go down to some number and hang out. It

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Speaker 1: likes to cycle. It likes to go up, and it

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Speaker 1: likes to go down. And the odds, therefore, in my mind,

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Speaker 1: of it going down and hanging out at some prescribed

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Speaker 1: number are pretty low. And so therefore we look at

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Speaker 1: leading indicators of the inflation cycle. Future inflation gauge is

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Speaker 1: what we call our leading indicator, and it tries to

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Speaker 1: tell us is there going to be a turn? So

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Speaker 1: we watch for that in a very simplified way.

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Speaker 2: That's what we're doing. Cycles. Let's look at the twenty twenties,

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Speaker 2: but within the context of what came before the twenty tens.

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Speaker 2: The FED talked pretty continuously in the prior decade about

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Speaker 2: the challenge of getting inflation up to two percent. We

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Speaker 2: were in a disinflationary environment, sometimes a deflationary environment around

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Speaker 2: a lot of the world. Interest rates had gone negative,

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Speaker 2: and that decade seemed to be our risk is now

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Speaker 2: deflation like Japan. That's what we have to be on guard.

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Speaker 2: Suddenly the decade flips, the pandemic starts. The Cares Act,

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Speaker 2: the first one was the biggest fiscal stimulus since World

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Speaker 2: War two, ten percent of GDP, The whole regime changes,

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Speaker 2: and now we're off in a completely different cycle. Or

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Speaker 2: is that just making it too simple and easy.

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Speaker 1: No, something has changed. I let's agree on that. Something happened.

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Speaker 1: Something happened, Okay, But look, if we're going to talk

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Speaker 1: about the twenty ten's, in a way, what you're dealing

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Speaker 1: with is there was a bit of a freak out

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Speaker 1: after the financial crisis.

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Speaker 2: Right, So we talk about the previous decade for context,

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Speaker 2: you got to look at.

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Speaker 1: The there's a there's a history thing. Yeah, this history thing.

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Speaker 1: So in April of twenty twenty, there was a G

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Speaker 1: twenty meeting in London and the primary concern was depression. Right, Okay,

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Speaker 1: I mean, that's what the main headline was. And so

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Speaker 1: and actually we were beginning our business cycle recovery right

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Speaker 1: around then. It was starting. It was going to start

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Speaker 1: in the summer. But nevertheless, the powers that be were

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Speaker 1: focused on depression and they had it was almost like

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Speaker 1: you don't let any crisis, good crisis, go to waste

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Speaker 1: that quote, right, So here we have of massive stimulus

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Speaker 1: put in in all these different programs, and we go

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Speaker 1: off on this spending spray.

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Speaker 2: And it wasn't just us, right, it was around the world.

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Speaker 1: It was around the world, and in particular in China,

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Speaker 1: where I love the statistic. In three years from eleven

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Speaker 1: twenty eleven to thirteen, they poured more cement in China

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Speaker 1: than the United States did in the entire twentyth century, right,

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Speaker 1: I recall that, which is insane.

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Speaker 2: But that's the fascinating thing about the twenty tens was

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Speaker 2: that while Asia and China in particular were engaging in

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Speaker 2: a massive fiscal spend, there was austerity in the UK,

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Speaker 2: there was week spending in Europe and the US. It

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Speaker 2: was pretty much all monetary, no fiscal.

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Speaker 1: All monetary, no fiscal. So you have the stalemate or

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Speaker 1: whatever logjam in Washington. I agree that you have monetary

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Speaker 1: the lift is being done on the monetary side of policy.

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Speaker 1: But the result of this whole thing, and now I'm

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Speaker 1: I'm painting in broad brushstrokes US inflation services inflation is

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Speaker 1: actually positive for much of the decade. It's really goods disinflation,

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Speaker 1: which is ripping stuff down to which monetary policy is saying, oh,

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Speaker 1: you know, we're gonna somehow combat this with more stimulus

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Speaker 1: or easiness or whatever. And it doesn't really work that way, right, right,

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Speaker 1: but it inflated some things. Right.

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Speaker 2: If low rates weren't the cause of inflation, well, why

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Speaker 2: would you think high rates are going to impact You know,

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Speaker 2: there's got to be some causality in between the solution

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Speaker 2: and the outcome.

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Speaker 1: And so we have this, We have this China price

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Speaker 1: being set. We have the supply chains being optimized for

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Speaker 1: that as opposed to robustness, which came back with a

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Speaker 1: vengeance once things went off the rails with the supply

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Speaker 1: chains when COVID hit. So with I mean, I'm skipping

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Speaker 1: over a lot of this qy kind of stuff that

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Speaker 1: we were really mired.

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Speaker 2: In that quantitative easy We now have the opposite of

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Speaker 2: a quantitative titan.

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Speaker 1: Well, to a degree. We have a little bit of it.

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Speaker 1: We'll see how far it goes. It was very fascinating.

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Speaker 1: I'm sorry, I'm jumping around here. No, it was very

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Speaker 1: It was very fascinating because Japan the other day the

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Speaker 1: Bank of Japan.

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Speaker 2: Raised rates for the first time in seventeen years.

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Speaker 1: Okay, so it's a big deal, right, I mean, it

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Speaker 1: was a minuscule rate rise, But and they're doing this

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Speaker 1: because they have a little bit of inflation, which they

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Speaker 1: haven't seen in a long time, and so they're like, oh, okay,

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Speaker 1: we're going to respond to that, but they actually can't.

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Speaker 1: It's a paper tiger. They can't really raise rates because

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Speaker 1: the country is so indebted that they can't service any

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Speaker 1: higher rate.

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Speaker 2: So they've been the post of child to the argument,

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Speaker 2: who cares about deficits because they've been running deficits for forever,

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Speaker 2: in part because of their demographic problems, rescued in large

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Speaker 2: part because they've been an exporter since the end of

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Speaker 2: World War Two?

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Speaker 1: Yeah, can you just print money and run deficits of

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Speaker 1: very large sizes forever? And to many of us, we

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Speaker 1: would say, well, it doesn't sound like.

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Speaker 2: That could work, But you're pushing it. And yet since

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Speaker 2: I graduated college in the nineteen eighties, all I have

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Speaker 2: heard is if with the US runs big deficits, well

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Speaker 2: that'll be the demise of the dollar. Inflational run am uck,

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Speaker 2: you'll crowd out private capital. No will leend money to

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Speaker 2: Uncle Sam. And all the things that I have been

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Speaker 2: told are the manifestation of deficits. None of them have

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Speaker 2: come true. At a certain point, I think perhaps something

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Speaker 2: goes wrong. But after being wrong for fifty years, it

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Speaker 2: kind of makes me look at the people warning about

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Speaker 2: deficits and saying, I don't know, You've had half a

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Speaker 2: century to get this right, and everything you've said has

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Speaker 2: been false. Why should I listen to you today? Well,

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Speaker 2: this time was serious. Yeah, it's weird.

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Speaker 1: It's a really interesting question. So post GFC, we ran

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Speaker 1: up the debt towards ten trillion, maybe just under ten trillion,

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Speaker 1: and then post COVID we're north of thirty right in

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Speaker 1: the US right, so who knows? I don't know.

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Speaker 2: Could we do sixty?

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Speaker 1: I at this point, I don't know.

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Speaker 2: The thinking is at some point eventually I remember the

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Speaker 2: weight of that. You're old enough to Remever, now I'm

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Speaker 2: sorry I'm.

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Speaker 1: So sorry for the younger listeners. But I got to

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Speaker 1: go back even further to President Clinton's Bill Clinton's first term.

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Speaker 2: When do we balance the budget? Was it the first term?

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Speaker 1: Towards the end it says in the second term he

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Speaker 1: got into surplus. But in the first term he comes in.

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Speaker 1: I think he's got he's got the whole thing, right,

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Speaker 1: he's got the full hand, right, he's got a full house,

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Speaker 1: he's got the Congress and Senate him. And he's in there,

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Speaker 1: and they're going to go to town. They got programs,

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Speaker 1: and the bond market says, no, you don't and raises

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Speaker 1: raise long term rates, and they and Jim Carville very

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Speaker 1: and he comes back. He says, you know, look, I

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Speaker 1: would have I would have wanted to come back as

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Speaker 1: the president, the pope, a four hundred hitter in baseball.

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Speaker 1: But actually, now you want to be a bond the

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Speaker 1: bond market. It's the most powerful thing.

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Speaker 2: I want to be reincordinated as the bond Madler. It's

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Speaker 2: such a great.

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Speaker 1: So do the vangilantes come back. We'll see. I don't know.

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Speaker 2: It's really quite a fascinating story. I'm not necessarily a

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Speaker 2: member of either the fiscal hawks or the m MTS.

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Speaker 2: I think both extremes in any circumstance, raised questions. But

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Speaker 2: I have a hard point getting past all the forecasts

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Speaker 2: about here are the terrible things that are going to

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Speaker 2: happen from the eighties. Yeah, and if nothing happens in

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Speaker 2: forty years, well kind of it makes me say, all right,

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Speaker 2: we have to break this down to first principles and

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Speaker 2: figure out why are deficits problematic? How do the negativities

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Speaker 2: manifest themselves? And how can we check if we're right

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Speaker 2: or wrong? What's the line in the sand that says, uh,

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Speaker 2: we got this right or we got this wrong.

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Speaker 1: You have a lot of different levers being pulled, with

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Speaker 1: a lot of different frameworks on how the economy runs

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Speaker 1: and works. Now, to our great benefit, we're in a

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Speaker 1: in economies for the most part, that are dominated by

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Speaker 1: free market oriented activity, which has inherent in it a

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Speaker 1: very Darwinian type of regulation. This is that I'm talking about, Like,

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Speaker 1: why do economies accelerate and decelerate? You know, so before

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Speaker 1: we had policymakers, before you had the FED, you still

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Speaker 1: had cycles. Okay, it's not like cycles are new, and

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Speaker 1: it's not like cycles didn't turn up and down without

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Speaker 1: policy intervention.

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Speaker 2: They did.

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Speaker 1: So there is a mechanism under there that is kind

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Speaker 1: of optimizing or penalizing decision making. And when we look

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Speaker 1: at forecasts that are made, right, what you're really doing,

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Speaker 1: I think it's not so much. Hey, I think it's

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Speaker 1: going to be one and it said it was I

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Speaker 1: right or wrong? Right, that's I don't think. I think

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Speaker 1: that's kind of a fool's game. It's managing risks. What

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Speaker 1: is the risk that things are going to go the

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Speaker 1: other way than what everybody's thinking. Because as a decision maker,

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Speaker 1: it's easy enough to go with the crowd. You know,

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Speaker 1: it probably feels less risky everybody else is doing it whatever.

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Speaker 1: The interesting and tough thing is when you deviate from

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Speaker 1: the crowd.

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Speaker 2: Right, When you deviate from the crowd, this career risk

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Speaker 2: when you're wrong with the crowd. All right, I was wrong,

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Speaker 2: but so is everybody else correct?

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Speaker 1: And so but now let's take this to an economy

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Speaker 1: or a business, so it's policy or private business decision making.

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Speaker 1: I think for an economy theory, you want this to

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Speaker 1: be healthy, strong, growing, improving quality of life, which probably

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Speaker 1: means not crazy inflation, but decent growth. Which is going

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Speaker 1: to be related to productivity growth on some level. And

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Speaker 1: so how do you achieve all of that? Well, one

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Speaker 1: way to move towards that is to smooth out the

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Speaker 1: cycle a bit. Okay, Booms and busts are very.

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Speaker 2: Very freaky, right. They disruptive, They scare you right.

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Speaker 1: On the one hand, you're like, the sky is falling,

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Speaker 1: I got a baton down the hatches. That's that's very

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Speaker 1: expensive and disruptive. On the other hand, when you're in

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Speaker 1: a boom, you start taking pretty crazy risks, right because

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Speaker 1: you say I'm going to the fear of missing out

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Speaker 1: kicks in and you start to really overextend yourself.

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Speaker 2: And by the way, we saw that at the end

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Speaker 2: of the nineteen nineties, the eighty two to two thousand cycle.

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Speaker 2: We certainly saw that in a different asset class in

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Speaker 2: the two thousands with houses and mortgages. And then the

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Speaker 2: question is are we seeing that today when we look

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Speaker 2: around at tech and AI and things that we think

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Speaker 2: are going to change the future. Have we gotten into

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Speaker 2: that fomo things are out of hand?

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Speaker 1: Face? I think so, because let me just tell you

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Speaker 1: the story of our indicators over the last couple of years.

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Speaker 1: Because that sets steady answers this question in a way.

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Speaker 1: So the indicators, first off, they shoot up in twenty twenty, right,

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Speaker 1: so we see the short and nasty short recession we

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Speaker 1: were writing about, right, and so we get that correct,

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Speaker 1: and there's a lot of hand ringing that we all

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Speaker 1: felt later in twenty twenty and twenty one.

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Speaker 2: I'm not denying.

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Speaker 1: Any of that. The indicators don't feel any of that, right,

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Speaker 1: They're just we're moving to the upside, and so they're

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Speaker 1: directionally giving us this upside tilt in the way that

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Speaker 1: we're looking.

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Speaker 2: At risk separate from the way people experience it, which

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Speaker 2: is after any sort of break or crash or even

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Speaker 2: short reception, there's that PTSD that follows. In fact, we

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Speaker 2: were talking earlier about the GFC in eight oh nine,

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Speaker 2: I have a vivid recollection as talking to people in

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Speaker 2: twenty ten, twenty twelve, as late as twenty fifteen, still

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Speaker 2: talking about I'm still waiting for the other and shoot

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Speaker 2: a drop.

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Speaker 1: It manifested even I think, you know, maybe in order

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Speaker 1: of magnitude or post COVID from what you just described.

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Speaker 2: People did not believe the rally off of the March life.

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Speaker 1: So two big things happen one preceded COVID. I'm just

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Speaker 1: talking numbers here. It's not nothing else but legal migration

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Speaker 1: kind of round to a halt during the Trump administration.

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Speaker 1: That runs about a million people a year. So over

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Speaker 1: the course of four years.

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Speaker 2: We're not talking Mexican border. We're talking about legal immigrants

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Speaker 2: with a green card and the right to work.

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Speaker 1: It's about so you lose on the order of four

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Speaker 1: million people out of the workforce. I mean, look, we

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Speaker 1: have a big workfurse, but it's noticeable number, right, And

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Speaker 1: then you have COVID, and regardless of the shutdowns in

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Speaker 1: this and that a lot of people didn't come back

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Speaker 1: to the workforce. You lose another serious hunks.

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Speaker 2: So a million people all I'm describing.

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Speaker 1: Look, I am i am very empathetic to the human

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Speaker 1: cost here, but I'm just saying from an economic counting

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Speaker 1: the people who are in the workforce point of view,

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Speaker 1: you have a huge constriction of the labor supply. At

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Speaker 1: the same time that PTSD and the impulse that we

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Speaker 1: have as a country or people community is that we

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Speaker 1: want to help, we want to do something. So the

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Speaker 1: amount of dollar support given to the economy post COVID

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Speaker 1: is just mind boggling. Okay, you know Senator Everett Dirkson

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Speaker 1: used to quip about a billion here, a billion there.

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Speaker 1: Now we're talking real money. We're talking trillions right here,

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Speaker 1: trillions there. I think it's on the order back of

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Speaker 1: the napkin. I think it's on the order of about

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Speaker 1: seven trillion dollars dumped on the economy when you have

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Speaker 1: a constrained labor supply by a serious amount.

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Speaker 2: By the way, to put some flesh on those bones.

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Speaker 2: Karres Act one was two trillion dollars, which, by the way,

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Speaker 2: was under President Trump. The Kars Act two wasn't quite

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Speaker 2: as large. I want to say, it was about eight

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Speaker 2: hundred billion. Yes, stimmy checks. All of these things also

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Speaker 2: under Trump. And the fascinating thing about those that hit

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Speaker 2: the economy immediately wasn't spread out. Then President Biden comes in.

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Speaker 2: Kars Act three was another trillion, then spread out over

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Speaker 2: the next decade, the Infrastructure Act, the Inflation Reduction Act,

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Speaker 2: Semiconductor and Chips Act, Ships and Science and then there

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Speaker 2: was one other. But those were all those four things

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Speaker 2: were spread out over a decade. So they're still hill winds.

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Speaker 1: They're actually still hitting now. I mean when we look

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Speaker 1: at one of the Now I'm going to get in

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Speaker 1: the weeds for two seconds. One of the cycles, because

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Speaker 1: we look at many cycles on growth. So one of

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Speaker 1: the cycles we look at which we can see and

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Speaker 1: track is non residential construction in the United States, and

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Speaker 1: so that's cycling down. The leading indicators are collapsing. The

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Speaker 1: actual coincident indicator is turning down, and it just does.

434
00:25:43,920 --> 00:25:47,159
Speaker 1: The coincident index, which is the target, just does a

435
00:25:47,200 --> 00:25:52,000
Speaker 1: hockey stick in August twenty two, because I understand that

436
00:25:52,240 --> 00:25:55,600
Speaker 1: these fiscal infrastructure accidents and Chips acts are going to

437
00:25:55,680 --> 00:26:00,240
Speaker 1: come out over time, but private sector also jumps on that. Right,

438
00:26:00,280 --> 00:26:01,679
Speaker 1: They're like, we're going to get in on this, and

439
00:26:01,720 --> 00:26:03,720
Speaker 1: we want we want to we want to have access

440
00:26:03,720 --> 00:26:05,639
Speaker 1: to this, so we'll put in some you put in

441
00:26:05,720 --> 00:26:09,240
Speaker 1: some All of that starts back in the fall of

442
00:26:10,280 --> 00:26:14,600
Speaker 1: twenty two. You see a cyclical impulse, which is to

443
00:26:14,680 --> 00:26:18,160
Speaker 1: the downside. I mean, look, leading indicators of the economy

444
00:26:18,240 --> 00:26:21,160
Speaker 1: turned down hard and twenty two into twenty three, they

445
00:26:21,359 --> 00:26:25,000
Speaker 1: were completely consistent with an outright recession.

446
00:26:25,080 --> 00:26:27,480
Speaker 2: You had, Oh yet rates go up five hundred and

447
00:26:27,520 --> 00:26:28,000
Speaker 2: twenty five.

448
00:26:27,920 --> 00:26:30,840
Speaker 1: Base even before the rate hike though, oh really, before

449
00:26:30,880 --> 00:26:31,440
Speaker 1: the rate hike.

450
00:26:31,520 --> 00:26:34,520
Speaker 2: Yes, so from it again, and let's call it March

451
00:26:34,560 --> 00:26:36,120
Speaker 2: twenty twenty two, something like that.

452
00:26:36,200 --> 00:26:39,240
Speaker 1: So before that you're seeing the indicators already, Wan, but

453
00:26:39,400 --> 00:26:39,879
Speaker 1: you had.

454
00:26:39,720 --> 00:26:43,200
Speaker 2: A lot of jaw boning. There were expectations that rates

455
00:26:43,200 --> 00:26:46,080
Speaker 2: wouldn't go up. Yeah, people, some people believed that. Some

456
00:26:46,119 --> 00:26:49,960
Speaker 2: people didn't. The market clearly anticipated it. They were a

457
00:26:50,000 --> 00:26:52,200
Speaker 2: little late on the rates up. The market was late

458
00:26:52,240 --> 00:26:54,520
Speaker 2: on the rates up compared to the leading indicators of inflation.

459
00:26:54,640 --> 00:26:57,560
Speaker 2: They were, they were leading indicators of inflation, went up

460
00:26:58,359 --> 00:26:59,480
Speaker 2: end of summer into the.

461
00:26:59,359 --> 00:27:02,399
Speaker 1: Fall, and the markets started in twenty one. Yeah, and

462
00:27:02,480 --> 00:27:04,879
Speaker 1: markets started to move later and towards the end of

463
00:27:04,880 --> 00:27:05,280
Speaker 1: twenty one.

464
00:27:05,359 --> 00:27:09,000
Speaker 2: That's right, that's right. And then twenty two bad year

465
00:27:09,040 --> 00:27:10,280
Speaker 2: for both stocks and bonds.

466
00:27:10,920 --> 00:27:15,040
Speaker 1: That's putting it mildly. That has a nasty year for bonds,

467
00:27:15,080 --> 00:27:16,120
Speaker 1: But okay.

468
00:27:16,359 --> 00:27:19,480
Speaker 2: Unusual by the way that you had stocks and bonds

469
00:27:19,720 --> 00:27:22,480
Speaker 2: both down double digits. I don't think we say that

470
00:27:22,560 --> 00:27:25,080
Speaker 2: for forty years. Eighty one eighty two was the last

471
00:27:25,080 --> 00:27:25,600
Speaker 2: time we saw that.

472
00:27:25,680 --> 00:27:28,400
Speaker 1: Yeah, that's not that's not your typical thing. It's hard

473
00:27:28,440 --> 00:27:32,560
Speaker 1: to run a system with that as a likelihood. And

474
00:27:32,600 --> 00:27:34,360
Speaker 1: I think that's why a lot of people got tagged

475
00:27:34,359 --> 00:27:39,560
Speaker 1: then understandably, But the point is, when you have that

476
00:27:39,720 --> 00:27:43,400
Speaker 1: much foam on the runway, that's a lot of phone.

477
00:27:43,440 --> 00:27:45,840
Speaker 1: Because we didn't even talk about the Central Bank earlier

478
00:27:45,880 --> 00:27:48,080
Speaker 1: on for the you know, before they started to tighten,

479
00:27:48,119 --> 00:27:52,439
Speaker 1: they were very very comminative. So when you have that

480
00:27:52,520 --> 00:27:55,760
Speaker 1: much foam on the runway, it was very different than

481
00:27:55,760 --> 00:27:57,880
Speaker 1: what we saw in other economies.

482
00:27:57,440 --> 00:27:58,119
Speaker 2: Around the world.

483
00:27:58,320 --> 00:28:01,280
Speaker 1: And so you you saw GDP actually contract for a

484
00:28:01,320 --> 00:28:03,760
Speaker 1: couple of quarters and twenty two, but jobs did not

485
00:28:03,800 --> 00:28:06,520
Speaker 1: go negative. In order to have a recession, you need

486
00:28:06,560 --> 00:28:11,840
Speaker 1: to see output and employment going negative along with sales

487
00:28:11,880 --> 00:28:15,719
Speaker 1: and income, and so those conditions did not present themselves.

488
00:28:15,760 --> 00:28:17,760
Speaker 1: There's been a tug of war, I think, going on

489
00:28:18,160 --> 00:28:22,320
Speaker 1: for much of twenty three between cyclical impulses to the

490
00:28:22,320 --> 00:28:27,240
Speaker 1: downsign and foam on the runway pushing to the upside.

491
00:28:27,960 --> 00:28:32,000
Speaker 2: Saying, combine with what you were hinting at earlier, which

492
00:28:32,080 --> 00:28:37,440
Speaker 2: is a labor force that's arguably four to six million bodies.

493
00:28:37,080 --> 00:28:42,040
Speaker 1: Short, bodies short, and so you would have employers literally

494
00:28:42,080 --> 00:28:45,200
Speaker 1: if you could walk and talk, you got hired. And

495
00:28:45,320 --> 00:28:47,560
Speaker 1: now I think people are a bit more picky.

496
00:28:47,880 --> 00:28:52,200
Speaker 2: Although you still hear some companies talk about labor warehousing. Yeah,

497
00:28:52,240 --> 00:28:55,840
Speaker 2: because if they have growth, right, labor hoarding and labor warehousing.

498
00:28:55,840 --> 00:29:00,320
Speaker 2: If you're expecting growth, you don't know if you're gonna

499
00:29:00,320 --> 00:29:01,840
Speaker 2: be able to have the bodies to execute it. You

500
00:29:01,960 --> 00:29:03,160
Speaker 2: hire sooner rather than later.

501
00:29:03,240 --> 00:29:06,200
Speaker 1: And hiring and firing is very disruptive for a business.

502
00:29:06,240 --> 00:29:08,400
Speaker 1: So if they could, if they could see over the

503
00:29:08,480 --> 00:29:11,239
Speaker 1: valley and hang on to people, they try to do that.

504
00:29:11,320 --> 00:29:15,360
Speaker 1: So you see when you look inside of the different

505
00:29:15,440 --> 00:29:20,560
Speaker 1: levers that employers can pull, work week temphires, part time

506
00:29:20,640 --> 00:29:23,720
Speaker 1: versus full time, all these different things that employers can do,

507
00:29:24,280 --> 00:29:26,720
Speaker 1: a lot of them are marginally you know, they're moving down.

508
00:29:26,800 --> 00:29:30,600
Speaker 1: They have been moving down, but they've fallen short about

509
00:29:30,640 --> 00:29:34,760
Speaker 1: right firing because, as you say, if things firm, I

510
00:29:34,800 --> 00:29:37,960
Speaker 1: don't want to be scrambling to find someone to work.

511
00:29:38,000 --> 00:29:40,400
Speaker 1: And there was a little bit of a line here.

512
00:29:40,440 --> 00:29:43,880
Speaker 1: The big businesses were able to hire people. There was

513
00:29:43,920 --> 00:29:46,520
Speaker 1: a smaller businesses that had a really, really tough time

514
00:29:46,800 --> 00:29:50,280
Speaker 1: and they have PTSD today where they're very reticent to

515
00:29:50,400 --> 00:29:54,840
Speaker 1: let people go. Again, you've got slower jobs growth, but

516
00:29:55,280 --> 00:29:58,360
Speaker 1: positive jobs growth. So in the tug of war between

517
00:29:58,440 --> 00:30:01,880
Speaker 1: the cyclical impulse down and the foam on the runway.

518
00:30:02,480 --> 00:30:05,920
Speaker 1: We're staying out of recession so far. Now. Meanwhile, we

519
00:30:05,960 --> 00:30:10,560
Speaker 1: talked about the different cycles. Meanwhile, the inflation cycle downturn

520
00:30:11,360 --> 00:30:14,280
Speaker 1: which has been going on and is projected to continue

521
00:30:14,280 --> 00:30:16,840
Speaker 1: and get towards two percent and hang out there. That's

522
00:30:16,880 --> 00:30:22,360
Speaker 1: not cooperating, right, That has stalled out our future. Inflation.

523
00:30:22,400 --> 00:30:25,400
Speaker 1: Gage are leading indicator of inflation has come down and

524
00:30:25,440 --> 00:30:28,560
Speaker 1: it's gone sideways for almost a year, stops going down.

525
00:30:29,000 --> 00:30:33,040
Speaker 1: So very consistent with this headline kind of statement of

526
00:30:33,240 --> 00:30:36,360
Speaker 1: sticky inflation without getting in the weeds of what's what

527
00:30:36,480 --> 00:30:42,280
Speaker 1: in there. Overall inflation is not reducing the way it's

528
00:30:42,320 --> 00:30:46,320
Speaker 1: supposed to do, and that could be a problem. I

529
00:30:46,360 --> 00:30:47,920
Speaker 1: think that's going to be a problem this year.

530
00:30:48,000 --> 00:30:50,920
Speaker 2: So let me challenge or push back on that a

531
00:30:50,960 --> 00:30:55,320
Speaker 2: little bit. In the twenty tens, we couldn't get inflation

532
00:30:55,760 --> 00:31:01,880
Speaker 2: up to two thousand. We had a very punk post

533
00:31:01,960 --> 00:31:05,800
Speaker 2: crisis recovery, which, by the way, is not a typical

534
00:31:05,920 --> 00:31:12,160
Speaker 2: following of financial crisis. You tend to have a weakish recovery.

535
00:31:12,360 --> 00:31:18,400
Speaker 2: Combine that with mostly monetary hardly any fiscal stimulus following

536
00:31:18,400 --> 00:31:23,000
Speaker 2: the financial crisis, so that's the original framework that we

537
00:31:23,120 --> 00:31:27,880
Speaker 2: came into this with. And then Roger Ferguson, the former

538
00:31:28,040 --> 00:31:33,640
Speaker 2: Vice Chairman of the Federal Reserve, had this delightful column

539
00:31:33,680 --> 00:31:36,280
Speaker 2: he wrote, maybe it was foreign affairs. I don't remember

540
00:31:36,280 --> 00:31:40,840
Speaker 2: where I saw it. The two percent target is hilariously

541
00:31:41,760 --> 00:31:45,440
Speaker 2: made up, and it traces its roots to a live

542
00:31:45,560 --> 00:31:50,160
Speaker 2: television show that it was either Australia or New Zealand's

543
00:31:50,200 --> 00:31:53,080
Speaker 2: you had a banker at that right and kind of

544
00:31:53,120 --> 00:31:56,120
Speaker 2: just spitballed it. And that was in the nineteen eighties.

545
00:31:56,160 --> 00:31:59,880
Speaker 2: And why we still stuck with two percent as a target,

546
00:32:00,600 --> 00:32:05,800
Speaker 2: especially when we're in an era of big fiscal stimulus. Well,

547
00:32:07,320 --> 00:32:09,400
Speaker 2: it's well it is kookie.

548
00:32:09,400 --> 00:32:12,920
Speaker 1: Look I want to step back for a second, because

549
00:32:13,000 --> 00:32:18,600
Speaker 1: this is the product of a model driven mindset. Yes

550
00:32:19,600 --> 00:32:23,080
Speaker 1: that if you add this to that and tweak this,

551
00:32:23,280 --> 00:32:25,680
Speaker 1: that we get some number at the end. And a

552
00:32:25,840 --> 00:32:29,240
Speaker 1: lot of forecasting and model driven and the way people

553
00:32:29,240 --> 00:32:32,240
Speaker 1: think about the world is based on econometric modeling right now.

554
00:32:33,120 --> 00:32:39,000
Speaker 1: Econometric modeling is a very useful tool of It can

555
00:32:39,160 --> 00:32:41,880
Speaker 1: help frame like what are we looking at outside our window?

556
00:32:41,920 --> 00:32:47,760
Speaker 1: But one of its particular weaknesses, probably the biggest, weakness

557
00:32:47,880 --> 00:32:51,040
Speaker 1: is it can't handle a turning point. Right, Okay, Now,

558
00:32:51,440 --> 00:32:55,640
Speaker 1: if you live in an environment that has upswings and

559
00:32:55,720 --> 00:33:00,320
Speaker 1: down swings and your framework can't handle turning points, you

560
00:33:00,360 --> 00:33:03,120
Speaker 1: shouldn't be surprised that this thing goes awry every once

561
00:33:03,120 --> 00:33:06,760
Speaker 1: in a while. And so right now, right so, all

562
00:33:06,800 --> 00:33:09,800
Speaker 1: I do is turning points. All Eckri does is turning points.

563
00:33:09,840 --> 00:33:12,840
Speaker 1: So my mentor, Jeffrey Moore was the father of leading indicators.

564
00:33:12,920 --> 00:33:17,800
Speaker 1: His mentor Wesley Mitchell identified what a business cycle was

565
00:33:19,000 --> 00:33:22,080
Speaker 1: over a century ago. And so we don't think in

566
00:33:22,120 --> 00:33:28,600
Speaker 1: model terms. We're thinking in directional change terms. And today

567
00:33:28,680 --> 00:33:30,840
Speaker 1: if the model is saying we should go to two

568
00:33:30,840 --> 00:33:33,840
Speaker 1: percent and hang out there, and the leading indicators of

569
00:33:33,840 --> 00:33:37,840
Speaker 1: inflation are saying, yeah, it's not going down a lot,

570
00:33:37,960 --> 00:33:42,040
Speaker 1: and that risk of an upturn is growing every day,

571
00:33:42,480 --> 00:33:46,120
Speaker 1: the cyclical upturn. I'm not making a big pronouncement about

572
00:33:46,440 --> 00:33:50,640
Speaker 1: the amount of debt out there, or is China exporting

573
00:33:50,640 --> 00:33:54,240
Speaker 1: disinflation again or anything. I'm just saying that cyclically, these

574
00:33:54,280 --> 00:33:59,320
Speaker 1: forward looking drivers of inflation collectively stopped falling a year

575
00:33:59,360 --> 00:34:02,960
Speaker 1: ago and are starting to edge up. What gives me

576
00:34:03,960 --> 00:34:07,080
Speaker 1: some anxiety, that doesn't give me anxiety. What gives me

577
00:34:07,120 --> 00:34:10,080
Speaker 1: anxiety is that we look at this around the world,

578
00:34:10,200 --> 00:34:12,560
Speaker 1: not just the US. So when we look around the

579
00:34:12,560 --> 00:34:15,800
Speaker 1: world at inflation cycles in Europe and Asia, emerging markets,

580
00:34:15,880 --> 00:34:19,839
Speaker 1: major emerging markets, we see that in this century they've

581
00:34:19,880 --> 00:34:25,240
Speaker 1: been largely synchronized and lo and behold all the leading

582
00:34:25,280 --> 00:34:29,439
Speaker 1: indicators of inflation. The future inflation gauges abroad are moving

583
00:34:29,520 --> 00:34:34,920
Speaker 1: up sharply, so that we have an international inflation cycle

584
00:34:35,000 --> 00:34:38,640
Speaker 1: upturn taking shape. What are the odds that the US

585
00:34:38,719 --> 00:34:41,719
Speaker 1: is going to set this out? I'm not so sure

586
00:34:41,719 --> 00:34:44,000
Speaker 1: about that, So I'm watching the future inflation gage very

587
00:34:44,080 --> 00:34:44,640
Speaker 1: very closely.

588
00:34:45,000 --> 00:34:48,640
Speaker 2: So I really liked the framework of let's look at

589
00:34:48,719 --> 00:34:55,200
Speaker 2: three distinct but interrelated cycles growth, employment, and inflation. I

590
00:34:55,480 --> 00:35:01,120
Speaker 2: also have a very vivid recollection of our first interview.

591
00:35:01,360 --> 00:35:04,279
Speaker 2: You said something that just stayed with me with a

592
00:35:04,520 --> 00:35:08,800
Speaker 2: for a long time, which is, recessions just don't happen

593
00:35:09,440 --> 00:35:13,839
Speaker 2: when the economy is robust and sturdy. The economy can

594
00:35:13,960 --> 00:35:17,440
Speaker 2: a robust economy can take a hit and kind of

595
00:35:17,600 --> 00:35:21,160
Speaker 2: catch its footing and keep going. But if you have

596
00:35:21,200 --> 00:35:25,759
Speaker 2: an economy that's weak, that has some structural problems, and

597
00:35:25,840 --> 00:35:29,480
Speaker 2: there is an economic shock, those are the sort of

598
00:35:29,960 --> 00:35:33,160
Speaker 2: setups that create recessions, am I.

599
00:35:34,160 --> 00:35:36,680
Speaker 1: We talked about the window of vulnerability is what we

600
00:35:36,719 --> 00:35:41,839
Speaker 1: talked about. And so again the basic structure of how

601
00:35:41,880 --> 00:35:44,960
Speaker 1: we look at the economy is it's a free market

602
00:35:45,000 --> 00:35:48,800
Speaker 1: oriented economy. This is a condition we see in market

603
00:35:48,840 --> 00:35:53,040
Speaker 1: oriented economies and they have an upswing and a down swing.

604
00:35:53,440 --> 00:35:55,279
Speaker 1: And we see this in the United States, and we

605
00:35:55,320 --> 00:35:58,440
Speaker 1: see this around the world wherever free markets present themselves

606
00:35:59,160 --> 00:36:04,200
Speaker 1: and sessions occur during the downswing, during the slow down,

607
00:36:04,239 --> 00:36:06,520
Speaker 1: when the economy is slowing down. And now I'm talking

608
00:36:06,560 --> 00:36:10,600
Speaker 1: about a growth rate cycle slow down, so you're decelerating.

609
00:36:10,680 --> 00:36:13,920
Speaker 2: Let's say you're expanding but at a slower.

610
00:36:13,640 --> 00:36:16,200
Speaker 1: Yeah, you go from three to two to one percent

611
00:36:16,280 --> 00:36:17,880
Speaker 1: growth something like that. So you're going to growth rate

612
00:36:17,920 --> 00:36:23,000
Speaker 1: cycle slow down. Now, if a shock hits you when

613
00:36:23,080 --> 00:36:26,400
Speaker 1: you're in a slowdown and the forward looking drivers of

614
00:36:26,440 --> 00:36:31,360
Speaker 1: the economy haven't turned up yet, now that's the recipe

615
00:36:31,400 --> 00:36:35,040
Speaker 1: for recession. That's how you're vulnerable. You're vulnerable. So we

616
00:36:35,120 --> 00:36:39,080
Speaker 1: can have an example of that. Would have been my

617
00:36:39,200 --> 00:36:42,120
Speaker 1: first recession in real time with doctor Moore was in

618
00:36:42,200 --> 00:36:46,319
Speaker 1: nineteen ninety and the leading indicators had turned down most

619
00:36:46,360 --> 00:36:50,160
Speaker 1: of the Wall Street and the professional forecasting class thought

620
00:36:50,280 --> 00:36:54,680
Speaker 1: that we had dodged economic risk at this point. But

621
00:36:54,760 --> 00:36:58,200
Speaker 1: the forward looking leading indicators were turning down. The economy

622
00:36:58,239 --> 00:37:01,280
Speaker 1: started to slow a little bit, and then Saddam Hussein

623
00:37:01,360 --> 00:37:06,200
Speaker 1: invaded Kuwait and you had okay spike and oil prices.

624
00:37:06,440 --> 00:37:10,400
Speaker 1: So that's the shock, and that contribute together in the

625
00:37:10,400 --> 00:37:12,000
Speaker 1: FED was a little tight, and so that was the

626
00:37:12,239 --> 00:37:15,799
Speaker 1: those combination of events boom, we get a recession. We

627
00:37:15,840 --> 00:37:21,440
Speaker 1: could see other moments where pretty big things happened, but

628
00:37:21,520 --> 00:37:25,799
Speaker 1: you didn't have a recession. In two thousand and five,

629
00:37:25,840 --> 00:37:28,440
Speaker 1: I guess it was Katrina shut down, about shut down,

630
00:37:28,440 --> 00:37:30,880
Speaker 1: about a quarter of the country. No recession. It was

631
00:37:30,880 --> 00:37:33,960
Speaker 1: a big hurricane. You had nineteen eighty seven crash, took

632
00:37:33,960 --> 00:37:36,520
Speaker 1: out a quarter of the market, of the equity market.

633
00:37:36,600 --> 00:37:38,800
Speaker 1: You didn't have a You didn't have a recession. World

634
00:37:38,800 --> 00:37:41,680
Speaker 1: War two, the attack on Pearl Harbor, pretty big shock,

635
00:37:42,239 --> 00:37:45,680
Speaker 1: didn't cause a recession. Huh okay. So there are these

636
00:37:45,719 --> 00:37:49,400
Speaker 1: moments where what you would think would or could be

637
00:37:49,560 --> 00:37:54,120
Speaker 1: recessionary shocks are not recessionary because of which way you're

638
00:37:54,200 --> 00:37:57,160
Speaker 1: trending in the business cycle or in the economic cycle,

639
00:37:57,560 --> 00:38:00,840
Speaker 1: and then others that seem like, eh, okay, that's negative,

640
00:38:00,880 --> 00:38:04,040
Speaker 1: but it wasn't really that big. But it turns out

641
00:38:04,160 --> 00:38:07,359
Speaker 1: to be timed right at that moment of weakness. That's

642
00:38:07,360 --> 00:38:08,280
Speaker 1: how you get recessions.

643
00:38:08,280 --> 00:38:10,799
Speaker 2: So lest we were talking about last decade, you had

644
00:38:10,840 --> 00:38:15,120
Speaker 2: a couple of periods throughout the twenty tens, most recently

645
00:38:15,560 --> 00:38:19,240
Speaker 2: twenty nineteen. Heading into twenty twenty, a number of people

646
00:38:19,280 --> 00:38:22,640
Speaker 2: were starting to warn about, hey, we're decelerating, we could

647
00:38:22,640 --> 00:38:26,960
Speaker 2: see a recession. I want to say mid mid decade,

648
00:38:27,000 --> 00:38:30,040
Speaker 2: twenty fifteen, twenty sixteen, same sort of thing, a little

649
00:38:30,040 --> 00:38:32,480
Speaker 2: bit to slow down, and then twenty eleven there was

650
00:38:32,520 --> 00:38:36,320
Speaker 2: a pretty robust consensus that we're going back into recession.

651
00:38:36,680 --> 00:38:39,440
Speaker 2: So when I look at that that decade, and yet

652
00:38:40,239 --> 00:38:43,640
Speaker 2: we went the entire decade without a recession, what is

653
00:38:43,719 --> 00:38:49,560
Speaker 2: it that allows those instances to avoid becoming what you

654
00:38:49,719 --> 00:38:54,960
Speaker 2: taught me persistent, pervasive, announce and pronounced.

655
00:38:54,400 --> 00:38:56,720
Speaker 1: Are declines in the indicator the three p's.

656
00:38:56,840 --> 00:38:59,400
Speaker 2: It's not just a little dip, it's not just a sector.

657
00:38:59,880 --> 00:39:02,040
Speaker 2: It's big and broad and less.

658
00:39:02,080 --> 00:39:04,000
Speaker 1: So there's a lot of evidence. So what I would

659
00:39:04,040 --> 00:39:06,640
Speaker 1: say is in twenty eleven twelve, we had a pronounced,

660
00:39:06,640 --> 00:39:10,560
Speaker 1: pervasive and persistent decline in the forward looking leading indicators. Okay,

661
00:39:11,160 --> 00:39:15,719
Speaker 1: and you had weakness in the coincident indicators. You had

662
00:39:16,040 --> 00:39:20,000
Speaker 1: a six month period with the weakest GDP outside of

663
00:39:20,040 --> 00:39:23,399
Speaker 1: recession in the past half a century. That happened, right,

664
00:39:23,480 --> 00:39:26,720
Speaker 1: and that happens in twenty eleven into twenty twelve.

665
00:39:27,560 --> 00:39:31,080
Speaker 2: Now, in retrospect, why wasn't that a recession?

666
00:39:32,080 --> 00:39:37,919
Speaker 1: Right? There wasn't a shock. We didn't have a shock there.

667
00:39:38,040 --> 00:39:40,319
Speaker 1: And one of the things that stood out when we

668
00:39:40,360 --> 00:39:44,719
Speaker 1: did the post mortem of that period was that it

669
00:39:44,840 --> 00:39:50,480
Speaker 1: was the most stable period of oil prices ever since

670
00:39:50,800 --> 00:39:54,320
Speaker 1: oil prices were fixed in the seventies. Okay, there was

671
00:39:54,360 --> 00:39:57,200
Speaker 1: a moment of price fixing under Nix. Okay, So since

672
00:39:57,239 --> 00:40:00,239
Speaker 1: then we'd never seen the stability in oil prices as

673
00:40:00,239 --> 00:40:04,279
Speaker 1: we saw during that little window when we had vulnerability.

674
00:40:04,520 --> 00:40:07,120
Speaker 1: And I think, I mean, I'm not looking, I'm not

675
00:40:07,160 --> 00:40:10,399
Speaker 1: an oil supply expert, but fracking was coming on. And

676
00:40:10,480 --> 00:40:13,799
Speaker 1: so when you would have like the Arab spring or

677
00:40:13,840 --> 00:40:15,640
Speaker 1: Egypt was shut down or something was shut down, and

678
00:40:15,680 --> 00:40:18,799
Speaker 1: you'd have the supply shock boom, you had fracking comes

679
00:40:18,800 --> 00:40:21,000
Speaker 1: step right in and be like we're here we've got

680
00:40:21,080 --> 00:40:26,040
Speaker 1: the supply and your prices were just rock steady. So

681
00:40:26,080 --> 00:40:31,840
Speaker 1: that's twenty eleven, twelve, in the mid two thousand's, twenty tens,

682
00:40:32,120 --> 00:40:36,520
Speaker 1: twenty ten, So sorry, the fourteen fifteen sixteen we absolutely

683
00:40:36,640 --> 00:40:40,080
Speaker 1: nailed that because we weren't calling for a US recession then.

684
00:40:40,480 --> 00:40:43,600
Speaker 1: But what we did see, and I alluded to this

685
00:40:43,840 --> 00:40:47,240
Speaker 1: in the earlier segment, was about the global industrial town

686
00:40:47,280 --> 00:40:50,720
Speaker 1: turnt which impacted the US, and.

687
00:40:50,600 --> 00:40:52,200
Speaker 2: How much of that was China, how much of that

688
00:40:52,320 --> 00:40:53,720
Speaker 2: was Europe and or elsewhere?

689
00:40:53,800 --> 00:40:56,279
Speaker 1: It was everybody in that one, it was everybody. It

690
00:40:56,400 --> 00:41:01,760
Speaker 1: was China, Europe, and the United States, other emerging markets

691
00:41:01,880 --> 00:41:07,359
Speaker 1: all felt this global industrial growth down swing so much

692
00:41:07,400 --> 00:41:12,960
Speaker 1: so that the US had a manufacturing sector downturn that

693
00:41:13,080 --> 00:41:16,840
Speaker 1: was pretty sharp. And anybody in that business would have

694
00:41:17,000 --> 00:41:19,640
Speaker 1: called it a recession for them, right, they would have.

695
00:41:19,719 --> 00:41:21,719
Speaker 1: That's how they would have felt. Now, the overall economy

696
00:41:22,000 --> 00:41:23,879
Speaker 1: never went into recession. We didn't call on there.

697
00:41:24,200 --> 00:41:28,359
Speaker 2: Fourth quarter of twenty eighteen market down twenty percent, and

698
00:41:28,400 --> 00:41:33,520
Speaker 2: then twenty nineteen following that sort of a recovery, but

699
00:41:33,600 --> 00:41:34,480
Speaker 2: people were still a.

700
00:41:34,480 --> 00:41:38,600
Speaker 1: Little stay on twenty eighteen for a second because everybody

701
00:41:38,640 --> 00:41:43,480
Speaker 1: was so young then right, we were pre COVID, including

702
00:41:43,560 --> 00:41:46,360
Speaker 1: Jerome Powell. Okay, And so he goes out and talks

703
00:41:46,400 --> 00:41:48,560
Speaker 1: to I think it was Judy Woodruff or something and

704
00:41:48,600 --> 00:41:51,279
Speaker 1: starts talking about our star and how it's we're far

705
00:41:51,360 --> 00:41:53,760
Speaker 1: away from our star and he's hiking and all this stuff,

706
00:41:53,800 --> 00:41:58,840
Speaker 1: and meanwhile, the future inflation gage has turned straight down. Huh,

707
00:41:59,080 --> 00:42:03,280
Speaker 1: it is already turned down, right, So inflation not a problem.

708
00:42:03,600 --> 00:42:06,720
Speaker 1: But this is what's keeping him up at night enough

709
00:42:06,840 --> 00:42:09,920
Speaker 1: so that he freaks out the equity market and you

710
00:42:10,000 --> 00:42:14,359
Speaker 1: get a nasty December that sets you up for the

711
00:42:14,760 --> 00:42:17,719
Speaker 1: Powell pivot in January, where he's just like, oh, yeah,

712
00:42:17,719 --> 00:42:19,839
Speaker 1: screw this, I'm going to go the other way and

713
00:42:20,160 --> 00:42:22,040
Speaker 1: says I'm going to go on a listening tour and

714
00:42:22,239 --> 00:42:23,680
Speaker 1: try to figure out what went wrong.

715
00:42:24,120 --> 00:42:26,759
Speaker 2: And he you know, I'm not going to say more

716
00:42:26,800 --> 00:42:30,400
Speaker 2: about that. So let me stop you there, because you're

717
00:42:30,440 --> 00:42:33,520
Speaker 2: pointing to a couple of really fascinating things I want

718
00:42:33,520 --> 00:42:36,440
Speaker 2: to talk about, and I'm taking notes. I'm writing energy,

719
00:42:37,000 --> 00:42:40,919
Speaker 2: I'm writing FOMC, I'm runing houses. Let's start with energy. Yeah,

720
00:42:41,160 --> 00:42:46,840
Speaker 2: So today we simultaneously have these two conflicting challenges. On

721
00:42:46,880 --> 00:42:50,840
Speaker 2: the one hand a launch of Iranian missiles at Israel.

722
00:42:50,960 --> 00:42:54,880
Speaker 2: Israel ninety nine percent of them were knocked out. Oil

723
00:42:54,920 --> 00:42:58,719
Speaker 2: prices ticked up, but they didn't go crazy. At the

724
00:42:58,760 --> 00:43:02,600
Speaker 2: same time, I just was looking at a chart. Was

725
00:43:02,640 --> 00:43:04,960
Speaker 2: it Torsten Slock? I'm trying to remember who sent it?

726
00:43:05,440 --> 00:43:09,080
Speaker 2: The US is now the world's largest producer of oil,

727
00:43:09,480 --> 00:43:12,719
Speaker 2: more than Russia, more than Saudi Arabia, more than any

728
00:43:12,760 --> 00:43:15,839
Speaker 2: other country in the world. So when we look at

729
00:43:15,880 --> 00:43:20,000
Speaker 2: the challenges to energy as a shock, how do you

730
00:43:20,120 --> 00:43:24,359
Speaker 2: contextualize geopolitical turmoil? By the way, I didn't even get

731
00:43:24,400 --> 00:43:29,319
Speaker 2: to Russia invading Ukraine. How do you balance all of

732
00:43:29,360 --> 00:43:30,760
Speaker 2: these SoCs cards.

733
00:43:30,880 --> 00:43:36,240
Speaker 1: So in our forward looking data, so I'm not talking

734
00:43:36,239 --> 00:43:39,200
Speaker 1: about what's actually happening, but what are the risks of

735
00:43:39,239 --> 00:43:42,920
Speaker 1: a turn in the drivers of the economy. We're looking

736
00:43:43,000 --> 00:43:46,320
Speaker 1: at hard data from the government. We're looking at market data,

737
00:43:46,400 --> 00:43:48,960
Speaker 1: so just what do we price something of barrel oil at,

738
00:43:49,000 --> 00:43:52,439
Speaker 1: for example, or something interest rates? And then soft data

739
00:43:52,480 --> 00:43:56,920
Speaker 1: survey data, and these are our sources of ingredients. In

740
00:43:56,960 --> 00:44:02,440
Speaker 1: a way or consider to give us a hint about

741
00:44:02,520 --> 00:44:07,120
Speaker 1: what are the key drivers of activity. We're separate cycles

742
00:44:07,160 --> 00:44:11,239
Speaker 1: like inflation doing We're looking at it very much from

743
00:44:11,239 --> 00:44:15,440
Speaker 1: the demand side of things. Okay, so if there's a

744
00:44:15,520 --> 00:44:20,480
Speaker 1: supply constraint or all of a sudden the supply gets flush,

745
00:44:20,880 --> 00:44:23,040
Speaker 1: then the demand is interacting with the supply to give

746
00:44:23,120 --> 00:44:25,839
Speaker 1: us kind of where we are in the world. So

747
00:44:26,960 --> 00:44:29,280
Speaker 1: one of the things that we've been talking about since

748
00:44:29,520 --> 00:44:32,520
Speaker 1: last year is that this year we're going to see

749
00:44:32,600 --> 00:44:37,080
Speaker 1: a global industrial upturn, a bona fide cyclical global industrial.

750
00:44:36,800 --> 00:44:40,120
Speaker 2: Upturn, just straight up demand for more manufactured.

751
00:44:39,440 --> 00:44:43,520
Speaker 1: Goods around the world. And this is not country specific,

752
00:44:43,600 --> 00:44:46,880
Speaker 1: it's not specific to somebody's policy or anything. It's the

753
00:44:46,880 --> 00:44:51,280
Speaker 1: way the global industrial cycle works. That's cycling, that's bottoming

754
00:44:51,680 --> 00:44:55,120
Speaker 1: and cycling up. And so you've seen this begin to

755
00:44:55,239 --> 00:45:00,319
Speaker 1: manifest in some very short leading indicators, very short leading

756
00:45:00,320 --> 00:45:04,280
Speaker 1: indicators of global industrial activity, which would be industrial commodity

757
00:45:04,320 --> 00:45:08,920
Speaker 1: price inflation in PMIS, and in some of the export

758
00:45:09,000 --> 00:45:12,800
Speaker 1: data that you'll see out of different countries, and those

759
00:45:12,800 --> 00:45:17,000
Speaker 1: are all starting to gear. Because the movement in the

760
00:45:17,040 --> 00:45:22,640
Speaker 1: forward data has been pronounced pervasive and persistent, this ought

761
00:45:22,719 --> 00:45:25,120
Speaker 1: to keep going for a couple of quarters.

762
00:45:25,400 --> 00:45:28,600
Speaker 2: So in other words, when you look out at at

763
00:45:28,719 --> 00:45:32,640
Speaker 2: least the manufacturing sector, you're not seeing a global recession

764
00:45:32,960 --> 00:45:35,719
Speaker 2: in that space. No, No, which makes it harder for

765
00:45:35,760 --> 00:45:37,040
Speaker 2: that to be a global recession.

766
00:45:37,080 --> 00:45:41,400
Speaker 1: I imagine it certainly is the backdrop on which we're all operating.

767
00:45:41,480 --> 00:45:44,439
Speaker 1: Let's say, in the US specific tug of war that's

768
00:45:44,480 --> 00:45:48,840
Speaker 1: been going on around window of vulnerability to shunks. The

769
00:45:48,880 --> 00:45:52,080
Speaker 1: window's been kind of pushed down because of all that

770
00:45:52,120 --> 00:45:55,160
Speaker 1: foam on the runway. And now with a global industrial

771
00:45:55,280 --> 00:45:59,200
Speaker 1: upturn happening, it gives some relief to our manufacturing sector.

772
00:45:59,320 --> 00:46:01,960
Speaker 2: Which will get to be able to gear a little bit.

773
00:46:01,800 --> 00:46:06,240
Speaker 1: More, and that gives a bid on energy prices, notwithstanding

774
00:46:06,280 --> 00:46:10,440
Speaker 1: what happens to supply. You know, supply is other people

775
00:46:10,440 --> 00:46:12,960
Speaker 1: are experts on supply. I mean, we've been doing fracking

776
00:46:13,000 --> 00:46:14,920
Speaker 1: for a long time. It's it's it's brought us to

777
00:46:14,960 --> 00:46:18,920
Speaker 1: become the world's biggest producer of oil. I don't know

778
00:46:18,960 --> 00:46:21,400
Speaker 1: how long we can do that. You know, maybe that

779
00:46:21,440 --> 00:46:24,080
Speaker 1: peaks out. I'm not sure, but it's not weeks, it's

780
00:46:24,160 --> 00:46:26,520
Speaker 1: but it's not weeks, it's year, right exactly.

781
00:46:26,680 --> 00:46:30,960
Speaker 2: So then the second related question is, you know you

782
00:46:31,120 --> 00:46:35,560
Speaker 2: mentioned the palpivot in twenty nineteen. I am getting the

783
00:46:35,719 --> 00:46:40,320
Speaker 2: sense from reading and listening to the chairman that they're

784
00:46:40,440 --> 00:46:47,680
Speaker 2: aware of the problem child in inflation is housing. They've

785
00:46:47,800 --> 00:46:52,000
Speaker 2: locked a bunch of people in who have mortgages five percent,

786
00:46:52,040 --> 00:46:55,200
Speaker 2: four percent, three percent. They can't put those houses up

787
00:46:55,239 --> 00:46:58,160
Speaker 2: for sale coast, They're new financing is going to be

788
00:46:58,200 --> 00:47:02,480
Speaker 2: too pricey. Add to that the fact that following the

789
00:47:02,520 --> 00:47:07,440
Speaker 2: financial crisis, the United States wildly underbuilt single family homes

790
00:47:07,440 --> 00:47:11,759
Speaker 2: for a decade. And you have a recipe for sustain

791
00:47:11,880 --> 00:47:17,880
Speaker 2: rental prices, sustain home prices and limited supply, how would

792
00:47:17,920 --> 00:47:23,480
Speaker 2: you imagine the economy is going to respond to what

793
00:47:23,560 --> 00:47:26,160
Speaker 2: limited choices Pal has in front of him.

794
00:47:26,760 --> 00:47:30,120
Speaker 1: Look, job owning is half of the game here, and

795
00:47:30,200 --> 00:47:33,680
Speaker 1: so the whole time there's been this job owning about like, Okay,

796
00:47:34,239 --> 00:47:37,120
Speaker 1: you know, they missed the boat on the inflation upturn,

797
00:47:37,200 --> 00:47:39,360
Speaker 1: so they had to make up for that. A stitch

798
00:47:39,400 --> 00:47:42,040
Speaker 1: in time saves nine. They had to make nine stitches, right,

799
00:47:42,120 --> 00:47:44,680
Speaker 1: So they put in the nine stitches. And then now

800
00:47:44,680 --> 00:47:46,400
Speaker 1: they're caught up and they're like, okay, now we'll go

801
00:47:46,400 --> 00:47:48,920
Speaker 1: the other way. We're going to do that, and the

802
00:47:48,960 --> 00:47:51,000
Speaker 1: market gets out over at skis right the way he

803
00:47:51,040 --> 00:47:53,440
Speaker 1: talked in December, I think they got six rate hikes

804
00:47:53,480 --> 00:47:54,160
Speaker 1: priced it right.

805
00:47:54,400 --> 00:47:57,200
Speaker 2: Wait, so let's just look at this calendar. Yeah, so

806
00:47:57,800 --> 00:48:00,719
Speaker 2: cares Act in twenty twenty and then the Act two

807
00:48:00,800 --> 00:48:06,000
Speaker 2: and three and twenty and twenty one. Inflation spikes, passes

808
00:48:06,040 --> 00:48:10,319
Speaker 2: the two percent upside target March twenty twenty one. By

809
00:48:10,360 --> 00:48:14,239
Speaker 2: March twenty twenty two, it's seven eight percent, and the

810
00:48:14,239 --> 00:48:18,920
Speaker 2: Fed starts hiking. Ironically, by June twenty twenty two, inflation

811
00:48:19,000 --> 00:48:23,279
Speaker 2: peaks at nine percent starts coming down in part to increases,

812
00:48:23,320 --> 00:48:27,320
Speaker 2: in part to draw boning. By June twenty twenty three,

813
00:48:28,000 --> 00:48:32,160
Speaker 2: the Fed has done five hundred and twenty five basis

814
00:48:32,239 --> 00:48:36,560
Speaker 2: points and hikes and kinda says we're pretty good for

815
00:48:36,600 --> 00:48:41,080
Speaker 2: a while. That's nine months, almost a year ago. Whatever

816
00:48:41,200 --> 00:48:44,160
Speaker 2: the long and variable lag of inflation is is probably

817
00:48:44,719 --> 00:48:48,239
Speaker 2: that rate increases have probably been felt in the economy.

818
00:48:48,840 --> 00:48:53,000
Speaker 2: Now it seems that he's not gonna do six cuts,

819
00:48:53,320 --> 00:48:56,680
Speaker 2: but two or three certainly felt like they were all.

820
00:48:56,680 --> 00:48:58,560
Speaker 1: That take, so that he went from six to two

821
00:48:58,680 --> 00:49:01,880
Speaker 1: or three, and then now we're taking the under on

822
00:49:01,960 --> 00:49:05,120
Speaker 1: that right on that rate, I think that's where it's

823
00:49:05,160 --> 00:49:08,880
Speaker 1: it seems to be headed, which is again consistent with

824
00:49:08,920 --> 00:49:12,200
Speaker 1: the future inflation gauge not falling anymore, right, And when

825
00:49:12,200 --> 00:49:16,160
Speaker 1: it's been going sideways, anybody who's borrowing money is feeling

826
00:49:16,400 --> 00:49:19,359
Speaker 1: the pressure of the higher rates. Right. So you're you're

827
00:49:19,400 --> 00:49:23,719
Speaker 1: especially Uncle Sam, Uncle Sam. You've got delinquencies rising from

828
00:49:23,800 --> 00:49:26,239
Speaker 1: lower rates. You've got bankruptcy, she got all those kind

829
00:49:26,280 --> 00:49:30,440
Speaker 1: of things happening. Problematic Again, Yeah, the levels are pretty low,

830
00:49:31,239 --> 00:49:34,600
Speaker 1: but the direction, the direction is clear, right, they're moving

831
00:49:34,640 --> 00:49:37,399
Speaker 1: to the upside. One of the bigger issues out there

832
00:49:37,440 --> 00:49:39,800
Speaker 1: is probably all that commercial real estate stuff that's financing,

833
00:49:39,800 --> 00:49:42,560
Speaker 1: and where are those walls of financing out there, and

834
00:49:42,600 --> 00:49:44,480
Speaker 1: when do they have to refinance them? And so the

835
00:49:44,520 --> 00:49:48,160
Speaker 1: hope is very much that rates come down before those

836
00:49:48,320 --> 00:49:51,960
Speaker 1: loans come home to roost. The problem is the inflation

837
00:49:52,080 --> 00:49:55,279
Speaker 1: cycle may be firming if, for example, commodity and price

838
00:49:55,320 --> 00:49:58,480
Speaker 1: inflation has a bid from the demand side. Forget, I

839
00:49:58,480 --> 00:50:00,800
Speaker 1: don't I'm not talking about the supply side, the supply

840
00:50:00,840 --> 00:50:05,920
Speaker 1: if supply gets constrained even more so so far, I

841
00:50:05,960 --> 00:50:09,040
Speaker 1: don't think we've had that disinflation from China that we

842
00:50:09,200 --> 00:50:13,479
Speaker 1: enjoyed in the previous decade. Maybe that'll come back, maybe

843
00:50:13,520 --> 00:50:16,560
Speaker 1: it won't. There's there's some talks of tariffs for example,

844
00:50:16,640 --> 00:50:18,640
Speaker 1: and then things like that. Right, so this is a

845
00:50:18,760 --> 00:50:22,359
Speaker 1: very fluid thing in terms of global trade. That all

846
00:50:22,400 --> 00:50:25,040
Speaker 1: those all those supply chains which used to be just

847
00:50:25,120 --> 00:50:28,440
Speaker 1: in time, they've been hardened to become just in case.

848
00:50:29,000 --> 00:50:30,680
Speaker 1: And that's expensive just.

849
00:50:30,560 --> 00:50:32,120
Speaker 2: In time to just in case.

850
00:50:32,560 --> 00:50:34,560
Speaker 1: That's a big makes a lot of sense. So that's

851
00:50:34,680 --> 00:50:37,239
Speaker 1: and that there's a cost when you start to do that.

852
00:50:37,280 --> 00:50:39,239
Speaker 1: There's a cost all of a sudden. Now there's a

853
00:50:39,280 --> 00:50:43,279
Speaker 1: cost for holding inventories. Right, last decade you could it

854
00:50:43,320 --> 00:50:44,280
Speaker 1: was zero financing.

855
00:50:44,280 --> 00:50:46,080
Speaker 2: Now this decade you got to finance, You got to

856
00:50:46,080 --> 00:50:48,440
Speaker 2: put in a warehouse, you have to have shippers standing by.

857
00:50:48,600 --> 00:50:51,600
Speaker 1: All that costs money. And then the PTSD on the

858
00:50:51,640 --> 00:50:55,840
Speaker 1: difficulty of hiring people doesn't have employers firing people. So

859
00:50:56,000 --> 00:50:59,560
Speaker 1: wages which let's say Atlanta Fed has a wage tracker,

860
00:50:59,600 --> 00:51:01,560
Speaker 1: it was a had a north of a six handle

861
00:51:02,360 --> 00:51:04,279
Speaker 1: a year ago. Now it's down, but it's down to

862
00:51:04,560 --> 00:51:08,920
Speaker 1: like just above five percent increase in wages. Now that's

863
00:51:09,480 --> 00:51:12,480
Speaker 1: a real number. Like that's that's not zero, right, that's

864
00:51:12,520 --> 00:51:17,800
Speaker 1: a real number. And this will start to squeeze on margins.

865
00:51:17,880 --> 00:51:20,759
Speaker 1: And we touched very quickly on AI and the hope

866
00:51:20,800 --> 00:51:23,719
Speaker 1: around AI, and we're as hopeful as anyone else that

867
00:51:23,760 --> 00:51:27,840
Speaker 1: it's going to boost overall productivity, but it could cost.

868
00:51:28,040 --> 00:51:32,160
Speaker 2: Right, Like every time there's a new technology comes along,

869
00:51:32,480 --> 00:51:34,520
Speaker 2: the ludites come out and they say, this is the

870
00:51:34,640 --> 00:51:37,560
Speaker 2: end of the workforce. And for the most part, it's

871
00:51:37,560 --> 00:51:40,600
Speaker 2: been pretty easy to dismiss that sort of fatalism. It

872
00:51:40,800 --> 00:51:43,640
Speaker 2: almost feels as if AI is the first time where

873
00:51:43,680 --> 00:51:46,759
Speaker 2: you have to be, hey, let's not be quite so

874
00:51:46,920 --> 00:51:51,400
Speaker 2: dismissive this time. You could see how and we all

875
00:51:51,480 --> 00:51:54,200
Speaker 2: kind of laugh at Siri is terrible, and even Alexa

876
00:51:54,760 --> 00:51:58,400
Speaker 2: is awful, but you could see that, hey, it's not

877
00:51:58,440 --> 00:52:01,759
Speaker 2: going to be a century before this is usable. It's

878
00:52:01,800 --> 00:52:05,359
Speaker 2: going to be months and years, not decades.

879
00:52:05,000 --> 00:52:09,319
Speaker 1: Right, But will it happen fast enough to offset the

880
00:52:09,760 --> 00:52:13,000
Speaker 1: inflation cycle upturn that's looking like it's showing up in

881
00:52:13,040 --> 00:52:18,600
Speaker 1: twenty twenty four. Probably not idea, My guess is probably

882
00:52:18,640 --> 00:52:21,440
Speaker 1: not there, although I think we can. We can probably

883
00:52:21,480 --> 00:52:25,959
Speaker 1: adapt reasonably fast. You know, after COVID, the remote work

884
00:52:26,120 --> 00:52:29,080
Speaker 1: kind of stuck, right, you people adapted to that pretty quickly.

885
00:52:29,320 --> 00:52:32,759
Speaker 2: It's funny because you know, everybody blames COVID. All this

886
00:52:32,840 --> 00:52:37,440
Speaker 2: technology has existed for a decade before my office was

887
00:52:37,480 --> 00:52:42,319
Speaker 2: doing remote work remote offices in the twenty tens, what

888
00:52:42,560 --> 00:52:47,160
Speaker 2: change was Society suddenly recognized, Wait, why are we going

889
00:52:47,239 --> 00:52:50,520
Speaker 2: to a building nine to five Monday to Friday to

890
00:52:50,600 --> 00:52:52,319
Speaker 2: sit there and do stuff I can do in my

891
00:52:52,360 --> 00:52:54,799
Speaker 2: pajamas at home. I don't understand. It's a social there's

892
00:52:54,800 --> 00:52:57,200
Speaker 2: a social component to it that we do is mentoring

893
00:52:57,320 --> 00:53:00,279
Speaker 2: this collaborative work. There are a lot of reasons, but

894
00:53:00,400 --> 00:53:03,200
Speaker 2: it's not nine to five, five days a week. And

895
00:53:03,680 --> 00:53:09,040
Speaker 2: what you mentioned with commercial real estate kind of fascinating

896
00:53:09,040 --> 00:53:12,160
Speaker 2: that that is a slow motion train wreck because these

897
00:53:12,160 --> 00:53:15,279
Speaker 2: are ten and twenty year leases. They come up a

898
00:53:15,320 --> 00:53:19,239
Speaker 2: little bit every year, so it gives the Fed and

899
00:53:19,320 --> 00:53:24,480
Speaker 2: the regulator's time to manage that, which comes back to hey,

900
00:53:24,920 --> 00:53:32,160
Speaker 2: I understand why Jerome Pwell is concerned about reducing rates.

901
00:53:33,120 --> 00:53:36,880
Speaker 2: If low rates didn't cause inflation, again, are high rates

902
00:53:37,520 --> 00:53:41,360
Speaker 2: reducing inflation? I would argue, not only your high rates

903
00:53:41,480 --> 00:53:45,760
Speaker 2: keeping rental prices up and limiting supply in real estate,

904
00:53:46,320 --> 00:53:48,600
Speaker 2: but now you have to deal with commercial real estate

905
00:53:48,719 --> 00:53:52,400
Speaker 2: and the federal deficit. Like there is a good case

906
00:53:52,480 --> 00:53:55,520
Speaker 2: for him to take rates from five and a quarter

907
00:53:55,560 --> 00:53:57,880
Speaker 2: to four and a half and say, let's see what

908
00:53:58,040 --> 00:53:59,880
Speaker 2: happens if we leave them here?

909
00:54:00,200 --> 00:54:03,200
Speaker 1: Right? Is that wishful thinking on my I think I

910
00:54:03,200 --> 00:54:06,680
Speaker 1: think that you know, that's a that sounds plausible. It

911
00:54:06,760 --> 00:54:09,799
Speaker 1: sounds like everybody has pain but can kind of manage it,

912
00:54:10,080 --> 00:54:14,399
Speaker 1: which is probably the course that seems reasonable.

913
00:54:14,800 --> 00:54:16,680
Speaker 2: And it's still at a level if there's a recession,

914
00:54:16,800 --> 00:54:18,680
Speaker 2: they could they have some room.

915
00:54:19,080 --> 00:54:21,960
Speaker 1: So this, this, all, this all seems reasonable, except that

916
00:54:22,000 --> 00:54:25,280
Speaker 1: there's a cycle. Right, the cycle has it's like, doesn't

917
00:54:25,360 --> 00:54:29,200
Speaker 1: care about that plan. Right, it's doing what it does.

918
00:54:29,600 --> 00:54:32,640
Speaker 1: And the inflation cycle doesn't go down to a number

919
00:54:32,680 --> 00:54:36,319
Speaker 1: and hang out until you're ready. Okay, it it does

920
00:54:36,400 --> 00:54:40,759
Speaker 1: what it does. And and so right now, internationally, look

921
00:54:40,760 --> 00:54:42,800
Speaker 1: we have a global industrial upturn.

922
00:54:43,120 --> 00:54:45,760
Speaker 2: So that's got a bit on your industrial.

923
00:54:45,320 --> 00:54:49,520
Speaker 1: Materials prices, sensitive industrial materials prices, energy metals and these things.

924
00:54:49,960 --> 00:54:54,040
Speaker 1: Then you have recessions have kind of run their course.

925
00:54:54,080 --> 00:54:57,120
Speaker 1: There's been in Europe you've had a few recessions. China

926
00:54:57,360 --> 00:55:00,840
Speaker 1: you've had a few recessions. Uh So these recessions have

927
00:55:00,960 --> 00:55:06,040
Speaker 1: been happening Taiwan, New Zealand, Russia, Japan flirted with recessions,

928
00:55:06,080 --> 00:55:10,480
Speaker 1: Sweden and Austria, Germany, UK and Germany. They well, so

929
00:55:10,520 --> 00:55:12,560
Speaker 1: technically I don't know if they went in because of

930
00:55:12,600 --> 00:55:15,640
Speaker 1: the employment. The employment didn't contract there. They got the

931
00:55:15,640 --> 00:55:19,560
Speaker 1: negative GDPs, but they didn't get the negative employment quite

932
00:55:19,600 --> 00:55:19,960
Speaker 1: the same.

933
00:55:20,000 --> 00:55:22,239
Speaker 2: So then let me ask you an employment question here.

934
00:55:22,280 --> 00:55:25,399
Speaker 2: If the US is pick a number, If we were

935
00:55:25,520 --> 00:55:29,319
Speaker 2: four million immigrants short, we lost a million to two

936
00:55:29,360 --> 00:55:33,120
Speaker 2: million people to COVID. So whatever the number is, there's

937
00:55:33,360 --> 00:55:37,480
Speaker 2: a few million people missing from our labor pool. Is

938
00:55:37,520 --> 00:55:40,920
Speaker 2: that true? In Europe and in the Far East.

939
00:55:41,080 --> 00:55:44,480
Speaker 1: To a degree they didn't have the same issues, but

940
00:55:44,560 --> 00:55:48,120
Speaker 1: to a degree it's tighter. I mean, clearly Japan has

941
00:55:48,440 --> 00:55:51,719
Speaker 1: look demographically, there's a whole nother structural demographic discussion we

942
00:55:51,760 --> 00:55:54,720
Speaker 1: can have where there's a hunk of people who got old,

943
00:55:54,880 --> 00:55:58,400
Speaker 1: all right, and then there's not as much younger people happen.

944
00:56:00,080 --> 00:56:04,120
Speaker 2: Pan has its own specific demographic challenge. Then when we

945
00:56:04,160 --> 00:56:08,719
Speaker 2: look at China, the one child policy is coming home

946
00:56:08,760 --> 00:56:13,480
Speaker 2: to roost. They have an enormous shortfall generationally speaking, huge.

947
00:56:13,960 --> 00:56:17,040
Speaker 1: Not easy to solve, and it's where robots and AI

948
00:56:17,200 --> 00:56:19,280
Speaker 1: and these kind of things have to pick up the slack.

949
00:56:20,040 --> 00:56:25,960
Speaker 1: And probably the only significant place in the world that

950
00:56:26,440 --> 00:56:29,400
Speaker 1: has a lot of people being born. I guess India

951
00:56:29,440 --> 00:56:32,440
Speaker 1: to a degree, and then Africa. These are the regions

952
00:56:32,440 --> 00:56:34,360
Speaker 1: of the world where the populations are growing.

953
00:56:34,760 --> 00:56:36,760
Speaker 2: South America also, but not as much.

954
00:56:36,719 --> 00:56:40,239
Speaker 1: Not quite as much. Right, So growth, which we all

955
00:56:40,280 --> 00:56:45,640
Speaker 1: want is really broken down to population growth. When I

956
00:56:45,640 --> 00:56:47,080
Speaker 1: say growth in the I'm talking about growth in.

957
00:56:47,040 --> 00:56:48,200
Speaker 2: The economic growth.

958
00:56:48,280 --> 00:56:53,240
Speaker 1: Economic growth is populate your workforce growth plus your productivity growth.

959
00:56:53,640 --> 00:56:58,080
Speaker 1: Productivity growth, by the way, is really bad. It's really,

960
00:56:58,120 --> 00:57:00,880
Speaker 1: really really bad and has been and it's kind of

961
00:57:00,920 --> 00:57:04,120
Speaker 1: deteriorating for decades, and.

962
00:57:04,360 --> 00:57:07,600
Speaker 2: Which is just so stunning to me and I imagine

963
00:57:07,640 --> 00:57:12,359
Speaker 2: you also because the work that we do, technology has

964
00:57:12,400 --> 00:57:15,560
Speaker 2: been nothing but a boon, allowing us to accomplish more

965
00:57:16,120 --> 00:57:19,440
Speaker 2: with less. But that's I've figured out, or if I

966
00:57:19,440 --> 00:57:23,480
Speaker 2: had beaten into me over the years. Yeah, you're doing

967
00:57:23,600 --> 00:57:26,840
Speaker 2: certain type of work that benefits from this, but not

968
00:57:26,960 --> 00:57:31,840
Speaker 2: everybody gets the benefit of faster internet and quicker computers.

969
00:57:31,920 --> 00:57:34,640
Speaker 1: Information technology jobs have benefited quite a bit, and the

970
00:57:34,680 --> 00:57:38,720
Speaker 1: productivity is shot up, But our economy is not simply that, right,

971
00:57:38,760 --> 00:57:41,600
Speaker 1: It's much bigger, and there's a lot of hands on

972
00:57:41,760 --> 00:57:44,160
Speaker 1: stuff that happens in our economy and we all experience

973
00:57:44,200 --> 00:57:48,880
Speaker 1: it when we go about our day, and that overall

974
00:57:49,160 --> 00:57:55,200
Speaker 1: workforce productivity growth has basically been suffering. Now what happened

975
00:57:55,280 --> 00:57:59,560
Speaker 1: is around COVID and in the aftermath of COVID, you

976
00:57:59,720 --> 00:58:03,560
Speaker 1: had a gargantuan plunge.

977
00:58:03,480 --> 00:58:04,640
Speaker 2: In productivity growth.

978
00:58:04,920 --> 00:58:07,040
Speaker 1: So it's it's stared stepping down over decades and it

979
00:58:07,160 --> 00:58:08,920
Speaker 1: just absolutely plunges.

980
00:58:09,320 --> 00:58:14,000
Speaker 2: Really then it rebounds because I recalled the initial part

981
00:58:14,280 --> 00:58:17,280
Speaker 2: of when we were in lockdown and work from home.

982
00:58:17,720 --> 00:58:21,880
Speaker 2: There were all these reports that were surprisingly and again.

983
00:58:22,040 --> 00:58:25,240
Speaker 1: Because because the hours work went down and output stayed up.

984
00:58:25,560 --> 00:58:27,960
Speaker 2: Productivity and that was people who were who had the

985
00:58:27,960 --> 00:58:31,520
Speaker 2: ability to work from home. But if you were not

986
00:58:31,680 --> 00:58:34,320
Speaker 2: working from home, if you were not able to just

987
00:58:34,360 --> 00:58:37,120
Speaker 2: log into your office from your computer, I have to

988
00:58:37,160 --> 00:58:38,400
Speaker 2: imagine that productivity.

989
00:58:38,480 --> 00:58:41,440
Speaker 1: Yeah, so some stuff like if you were if you

990
00:58:41,520 --> 00:58:43,680
Speaker 1: were doing hands on work, you just had to stop working,

991
00:58:43,760 --> 00:58:47,280
Speaker 1: right people were furloughed, and so that that output just collapsed.

992
00:58:47,720 --> 00:58:51,960
Speaker 1: Now as we open up, we've seen a big spike

993
00:58:52,040 --> 00:58:55,080
Speaker 1: and you get like positive two or three percent productivity growth.

994
00:58:55,360 --> 00:58:59,240
Speaker 1: And it happens around the same time that we see

995
00:58:59,280 --> 00:59:03,560
Speaker 1: all of the story worries around generative AI. So in

996
00:59:03,640 --> 00:59:08,040
Speaker 1: our simple human brains were like, oh, generative AI gave

997
00:59:08,120 --> 00:59:11,720
Speaker 1: us this productivity thing, which is not true. Right. What

998
00:59:11,800 --> 00:59:14,680
Speaker 1: really happened is you had a snapback in productivity growth

999
00:59:14,720 --> 00:59:18,360
Speaker 1: from horrible numbers which were not real numbers. They were

1000
00:59:18,480 --> 00:59:24,280
Speaker 1: around the whole recession in COVID debacle. Now is that

1001
00:59:24,400 --> 00:59:27,840
Speaker 1: kind of productivity growth sustainable? It's the only way out

1002
00:59:27,880 --> 00:59:32,280
Speaker 1: of this inflation conundrum that the FED is stuck with.

1003
00:59:32,800 --> 00:59:36,840
Speaker 2: So currently you're saying productivity growth is the only way out.

1004
00:59:36,920 --> 00:59:38,959
Speaker 1: At the moment, right, I mean, how are you going

1005
00:59:39,000 --> 00:59:43,040
Speaker 1: to pay someone five percent more but not have high inflation?

1006
00:59:44,120 --> 00:59:46,520
Speaker 1: For example? Right, you need productivity growth.

1007
00:59:46,400 --> 00:59:48,360
Speaker 2: Well, you got to go back a stead. You need

1008
00:59:48,400 --> 00:59:53,120
Speaker 2: more employees, you need more houses, you need more semiconductors

1009
00:59:53,120 --> 00:59:56,400
Speaker 2: to put into cars. A lot of the inflation that

1010
00:59:56,440 --> 01:00:00,720
Speaker 2: we've seen over and above the giant fish stimulus has

1011
01:00:00,960 --> 01:00:04,880
Speaker 2: just been these shortages that kind of we're lurking and

1012
01:00:05,240 --> 01:00:06,960
Speaker 2: we really didn't pay attention to them.

1013
01:00:06,960 --> 01:00:10,560
Speaker 1: Again, you're back to just in time versus just in case.

1014
01:00:10,800 --> 01:00:14,240
Speaker 1: And so now if a trade route gets pinched, if

1015
01:00:14,280 --> 01:00:18,520
Speaker 1: a bridge goes down, if somebody threatens a factory somewhere,

1016
01:00:18,560 --> 01:00:21,320
Speaker 1: or a factory gets messed up, boom, the ripples up

1017
01:00:21,360 --> 01:00:25,080
Speaker 1: the supply chain. So there's probably a new structural floor

1018
01:00:25,920 --> 01:00:29,080
Speaker 1: on inflation. By the way, it's probably.

1019
01:00:28,600 --> 01:00:31,240
Speaker 2: Not as much as its earlier.

1020
01:00:31,400 --> 01:00:35,000
Speaker 1: That structural floor is probably a little bit higher because

1021
01:00:35,040 --> 01:00:37,440
Speaker 1: of the more robustness that we're gonna want in our.

1022
01:00:37,440 --> 01:00:39,320
Speaker 2: Are you talking three three and a half four?

1023
01:00:39,520 --> 01:00:39,880
Speaker 1: I don't know.

1024
01:00:39,880 --> 01:00:41,400
Speaker 2: It's just higher, but it.

1025
01:00:41,400 --> 01:00:43,000
Speaker 1: Ain't one and a half two percents. No, it ain't

1026
01:00:43,000 --> 01:00:44,840
Speaker 1: one and a half two percent. The other thing though,

1027
01:00:45,400 --> 01:00:48,800
Speaker 1: You know, history doesn't repeat, but it rhymes, right. The

1028
01:00:48,840 --> 01:00:53,560
Speaker 1: seventies inflation stuff is interesting, not that anything that's happening

1029
01:00:53,600 --> 01:00:56,840
Speaker 1: now is what happened then. But early on in that

1030
01:00:56,880 --> 01:01:00,600
Speaker 1: inflationary era, people weren't that pissed it inflame. They were

1031
01:01:00,960 --> 01:01:04,560
Speaker 1: more excited about the growth. It was that each time

1032
01:01:04,680 --> 01:01:08,800
Speaker 1: inflation cycled down, it didn't get down as far as

1033
01:01:08,800 --> 01:01:13,200
Speaker 1: it did before, so that you had higher lows in

1034
01:01:13,240 --> 01:01:17,840
Speaker 1: the inflation cycle. And at the end of this decade

1035
01:01:17,960 --> 01:01:21,040
Speaker 1: or so, where inflation went from below three percent to

1036
01:01:21,160 --> 01:01:22,960
Speaker 1: above thirteen percent.

1037
01:01:22,880 --> 01:01:23,680
Speaker 2: It was cycling.

1038
01:01:24,440 --> 01:01:26,480
Speaker 1: The average was seven. It was really.

1039
01:01:26,280 --> 01:01:28,200
Speaker 2: High in nineteen seventies.

1040
01:01:27,800 --> 01:01:29,800
Speaker 1: For the seventies, for that decade roughly right, But.

1041
01:01:29,800 --> 01:01:32,320
Speaker 2: It's such a different decade compared completely different.

1042
01:01:32,360 --> 01:01:39,120
Speaker 1: But I'm saying psychologically interacting as consumers with prices when

1043
01:01:39,840 --> 01:01:43,480
Speaker 1: the lows, when inflation turns down, but it doesn't get

1044
01:01:43,520 --> 01:01:47,400
Speaker 1: low enough, it stops at a higher rate. That starts

1045
01:01:47,400 --> 01:01:48,560
Speaker 1: to get pretty annoying, and.

1046
01:01:48,520 --> 01:01:51,520
Speaker 2: People start talking about it as a structural component.

1047
01:01:51,600 --> 01:01:54,120
Speaker 1: They start talking about it. Look, Burns was the FED

1048
01:01:54,200 --> 01:01:56,440
Speaker 1: chairman in the early part of the seventies and Volker

1049
01:01:56,640 --> 01:01:58,680
Speaker 1: was the FED chairman in the end and towards into

1050
01:01:58,720 --> 01:02:02,440
Speaker 1: the eighties. And Burns gets a bad rap because he

1051
01:02:02,520 --> 01:02:06,320
Speaker 1: was at the beginning of this inflation era. But understand

1052
01:02:06,640 --> 01:02:11,959
Speaker 1: that the environment was not at all open to him

1053
01:02:12,040 --> 01:02:15,400
Speaker 1: controlling inflation. It was very much like what are you doing?

1054
01:02:15,720 --> 01:02:18,960
Speaker 1: Don't raise rates? Are you crazy? And then it's only

1055
01:02:19,000 --> 01:02:22,400
Speaker 1: towards the end of the era when Volker kind of

1056
01:02:22,640 --> 01:02:26,840
Speaker 1: had some cover to be as aggressive as he was

1057
01:02:27,360 --> 01:02:30,040
Speaker 1: in fighting inflation, and he was very aggressive. Huh.

1058
01:02:30,160 --> 01:02:34,600
Speaker 2: Quite interesting. So let's talk a little bit about predicting

1059
01:02:35,280 --> 01:02:38,880
Speaker 2: business cycles, and I want to talk about your leading

1060
01:02:39,040 --> 01:02:43,360
Speaker 2: and your coincidental indicators. Let's start with the l eis

1061
01:02:44,040 --> 01:02:47,680
Speaker 2: what goes into that and how useful are they in

1062
01:02:47,760 --> 01:02:50,280
Speaker 2: letting you know when, hey, a turn is coming?

1063
01:02:50,560 --> 01:02:56,320
Speaker 1: Right? So the leading economic indicators are very useful in

1064
01:02:56,640 --> 01:03:00,520
Speaker 1: managing risk because they're telling you what is the risk

1065
01:03:00,600 --> 01:03:04,240
Speaker 1: that whatever's going on now is going to change direction

1066
01:03:05,480 --> 01:03:08,440
Speaker 1: and go the other way? Right? So you can have

1067
01:03:08,480 --> 01:03:10,800
Speaker 1: your general plan. Hey, I've got my plan for business

1068
01:03:10,800 --> 01:03:14,440
Speaker 1: this year and you're running it. But if these indicators

1069
01:03:14,480 --> 01:03:19,040
Speaker 1: turn up noticeably or turned down noticeably, then you ought

1070
01:03:19,080 --> 01:03:23,360
Speaker 1: to start making contingency plans, being ready and thinking about

1071
01:03:23,400 --> 01:03:26,760
Speaker 1: what would I do if things accelerated or what would

1072
01:03:26,760 --> 01:03:30,840
Speaker 1: I do if things decelerated? Am I ready for that play?

1073
01:03:30,880 --> 01:03:34,040
Speaker 1: Am I ready to run that plays? As an investor

1074
01:03:34,560 --> 01:03:38,760
Speaker 1: or a business manager. That's the purpose of the leading indicators. Now,

1075
01:03:39,120 --> 01:03:43,520
Speaker 1: inside of those, while ultimately they're proprietary, inside of them

1076
01:03:43,720 --> 01:03:47,479
Speaker 1: are data from the government. There's hard data, so they're

1077
01:03:47,520 --> 01:03:49,640
Speaker 1: counting things. That's what we mean by hard data. There's

1078
01:03:49,640 --> 01:03:52,360
Speaker 1: soft data, which is when someone does a survey, Hey,

1079
01:03:52,400 --> 01:03:53,800
Speaker 1: how are you doing? What do you feel like you're doing?

1080
01:03:53,880 --> 01:03:55,640
Speaker 1: Are you going to buy a refrigerator? Right? They ask

1081
01:03:55,720 --> 01:03:59,040
Speaker 1: you these questions and hopefully you can see through some

1082
01:03:59,080 --> 01:04:01,680
Speaker 1: of the biases in there. And then there's the actual price,

1083
01:04:01,960 --> 01:04:03,640
Speaker 1: Like you know, how much does a bar of gold

1084
01:04:03,680 --> 01:04:05,640
Speaker 1: go for? How much does the thing of oil go for?

1085
01:04:05,760 --> 01:04:08,160
Speaker 1: How much does the lumber go for? How much does

1086
01:04:08,240 --> 01:04:10,440
Speaker 1: the house go for? These are all just prices at

1087
01:04:10,440 --> 01:04:15,240
Speaker 1: their stocks. What are the stock prices? Spreads in different things.

1088
01:04:15,280 --> 01:04:20,760
Speaker 1: So these are all different measures that reveal how the

1089
01:04:21,080 --> 01:04:25,200
Speaker 1: drivers of the business cycle are acting in concert.

1090
01:04:25,560 --> 01:04:29,800
Speaker 2: So what's different from the leis to the coincidental indicator.

1091
01:04:29,840 --> 01:04:32,880
Speaker 1: Okay, so the coincident indicators don't try to anticipate anything.

1092
01:04:33,080 --> 01:04:35,320
Speaker 1: They're just like, what's going on outside your window? So

1093
01:04:35,800 --> 01:04:38,760
Speaker 1: how much output? How much stuff are we making, either

1094
01:04:38,960 --> 01:04:42,600
Speaker 1: physical stuff or services or houses and things? How many

1095
01:04:42,640 --> 01:04:46,800
Speaker 1: people are working? What is the aggregate sales? Like, what's

1096
01:04:46,840 --> 01:04:51,880
Speaker 1: the value of everything that we're selling? And another related

1097
01:04:51,880 --> 01:04:54,280
Speaker 1: point is what's the income? What are we gaining? It's

1098
01:04:54,280 --> 01:04:56,240
Speaker 1: the other side of the sales right in a way.

1099
01:04:56,560 --> 01:05:01,160
Speaker 1: So those four indicators are the coincident. They tell you

1100
01:05:01,240 --> 01:05:04,120
Speaker 1: exactly how things are outside your window. The fact that

1101
01:05:04,160 --> 01:05:09,280
Speaker 1: there's a cycle means that collectively those four indicators rise

1102
01:05:09,480 --> 01:05:14,320
Speaker 1: together and fall together at the turning points. And when

1103
01:05:14,360 --> 01:05:17,360
Speaker 1: they do that, they tend to keep doing it for

1104
01:05:17,440 --> 01:05:18,840
Speaker 1: at least a couple of quarters.

1105
01:05:19,000 --> 01:05:21,920
Speaker 2: Some persistency. Persistency. It's pervasive.

1106
01:05:22,000 --> 01:05:26,640
Speaker 1: You can't hide, it's persistent, you can't wish it away.

1107
01:05:26,720 --> 01:05:29,760
Speaker 1: It's going to keep happening, and it's pronounced. It's going

1108
01:05:29,840 --> 01:05:32,040
Speaker 1: to be big enough that it leaves a mark either

1109
01:05:32,120 --> 01:05:33,160
Speaker 1: to the upside of the down.

1110
01:05:33,320 --> 01:05:36,760
Speaker 2: So coincidental will go up and down in real time.

1111
01:05:36,880 --> 01:05:39,760
Speaker 2: They're not giving you a heads up. How much of

1112
01:05:39,800 --> 01:05:42,680
Speaker 2: a lead do you get from the l eis versus.

1113
01:05:42,560 --> 01:05:45,320
Speaker 1: Oh and by the way, coincidental, Just to be annoying here,

1114
01:05:45,560 --> 01:05:48,160
Speaker 1: it's actually slightly lagging, which would.

1115
01:05:47,960 --> 01:05:50,760
Speaker 2: Make which would make sense when we get government data

1116
01:05:50,760 --> 01:05:54,240
Speaker 2: about employment. It's telling you about last month or GDP

1117
01:05:54,480 --> 01:05:57,160
Speaker 2: last quarter, So of course there's always going to be

1118
01:05:57,160 --> 01:05:59,200
Speaker 2: a little bit of a lag. We have some stuff

1119
01:05:59,200 --> 01:06:00,320
Speaker 2: that's a little quicker.

1120
01:06:00,240 --> 01:06:03,720
Speaker 1: And roughly speaking, the US will come out with the

1121
01:06:03,800 --> 01:06:06,280
Speaker 1: data a little faster than some of the other countries.

1122
01:06:06,760 --> 01:06:08,680
Speaker 1: But yeah, that's the coincident data.

1123
01:06:08,760 --> 01:06:11,760
Speaker 2: Now, the lead time is this is probably one.

1124
01:06:11,720 --> 01:06:15,600
Speaker 1: Of the bigger advancements since where most people think leading

1125
01:06:15,600 --> 01:06:20,440
Speaker 1: indicator technology lives is that the lead times are different.

1126
01:06:20,920 --> 01:06:23,120
Speaker 1: We have what I would call kind of a standard

1127
01:06:23,200 --> 01:06:25,320
Speaker 1: leading indicator might lead by a quarter or two.

1128
01:06:26,080 --> 01:06:26,840
Speaker 2: That's a long lead.

1129
01:06:26,960 --> 01:06:30,120
Speaker 1: Three six months, pretty good, pretty decently. That's kroin of

1130
01:06:30,120 --> 01:06:31,880
Speaker 1: a standard one. A short leader might lead by a

1131
01:06:31,960 --> 01:06:35,280
Speaker 1: quarter to two or three months, and a long leader

1132
01:06:35,320 --> 01:06:38,240
Speaker 1: can push it to three or four quarters. From a

1133
01:06:38,800 --> 01:06:42,720
Speaker 1: process point of view, we would look to the long

1134
01:06:42,840 --> 01:06:47,280
Speaker 1: leader for the first heads up that a turn might

1135
01:06:47,360 --> 01:06:50,160
Speaker 1: be taking place, and it leads by three or four quarters.

1136
01:06:50,800 --> 01:06:54,520
Speaker 1: So this gives us a prior view to watch the

1137
01:06:54,600 --> 01:06:58,880
Speaker 1: leading indicators. And then if we see the leading indicators

1138
01:06:59,240 --> 01:07:01,840
Speaker 1: following what the long leaders did, then we're looking for

1139
01:07:01,920 --> 01:07:05,560
Speaker 1: it in the short leading indicators, and then finally, sequentially

1140
01:07:05,640 --> 01:07:09,320
Speaker 1: in the coincident data. I have to say, the headlines

1141
01:07:09,360 --> 01:07:14,400
Speaker 1: and the market tone and the market narrative lives very

1142
01:07:14,480 --> 01:07:17,760
Speaker 1: much between the coincident and very short leading indicators.

1143
01:07:17,920 --> 01:07:22,080
Speaker 2: Right, they change it on a dime. I love. Just

1144
01:07:22,120 --> 01:07:25,760
Speaker 2: the past twelve months have been markets are going up

1145
01:07:25,800 --> 01:07:28,880
Speaker 2: because the Fed's going to cut, markets are going up

1146
01:07:29,160 --> 01:07:32,320
Speaker 2: because inflation is coming down. Okay, maybe the FED isn't

1147
01:07:32,320 --> 01:07:34,760
Speaker 2: going to cut, but it's a magnificent seven, all right.

1148
01:07:34,760 --> 01:07:37,800
Speaker 2: Maybe it's not the magnificent seven, maybe it's AI and

1149
01:07:37,880 --> 01:07:42,680
Speaker 2: the story, right, it's always an after the fact explanation.

1150
01:07:42,840 --> 01:07:44,000
Speaker 2: That looks silly and hart.

1151
01:07:43,920 --> 01:07:46,120
Speaker 1: So what's very interesting? Right? So I've been doing this

1152
01:07:46,200 --> 01:07:49,880
Speaker 1: now again, I'm sorry, I'm in my late fifties. I

1153
01:07:49,880 --> 01:07:52,240
Speaker 1: feel old, but but I'm like, wait a minute, I've

1154
01:07:52,240 --> 01:07:53,479
Speaker 1: been doing this since nineteen ninety.

1155
01:07:53,520 --> 01:07:58,160
Speaker 2: Real time, we prefer the term experienced and wizened.

1156
01:07:58,480 --> 01:08:02,800
Speaker 1: Wizzened. Yeah, yeah, definitely wizen. The pattern I see, right

1157
01:08:03,520 --> 01:08:06,640
Speaker 1: is that sequential stuff with our leading indicators long leader

1158
01:08:06,760 --> 01:08:11,440
Speaker 1: only coincidence. So I'm tracking that. That's my world. I

1159
01:08:11,440 --> 01:08:14,600
Speaker 1: won't live in that. Uh. And there's one hundred indexes

1160
01:08:14,640 --> 01:08:18,120
Speaker 1: I'm watching for the US and around the world in growth,

1161
01:08:18,160 --> 01:08:21,160
Speaker 1: the different sectors of growth, inflation, and employment. What I'll

1162
01:08:21,200 --> 01:08:26,680
Speaker 1: see though, is that our indicators will turn and to

1163
01:08:26,720 --> 01:08:31,599
Speaker 1: the extent they diverge from the consensus narrative. And that's

1164
01:08:31,640 --> 01:08:34,519
Speaker 1: a funny thing, the consensus narrative, right, because we all

1165
01:08:34,560 --> 01:08:37,160
Speaker 1: have our own consensus or whatever. But I you know,

1166
01:08:37,240 --> 01:08:40,080
Speaker 1: market prices kind of give us some beat on that,

1167
01:08:40,560 --> 01:08:44,000
Speaker 1: and you can get some algamation of what all the

1168
01:08:44,000 --> 01:08:46,240
Speaker 1: smart people are saying, and you get some sense of

1169
01:08:46,240 --> 01:08:48,599
Speaker 1: what the narrative is or what the FED saying or whatever.

1170
01:08:49,280 --> 01:08:55,040
Speaker 1: And when the cyclical story from these objective leading indicators,

1171
01:08:55,320 --> 01:08:59,520
Speaker 1: which they don't care about the narrative. When they diverge

1172
01:08:59,800 --> 01:09:03,760
Speaker 1: from the narrative and a gap opens up, that's interesting.

1173
01:09:04,520 --> 01:09:09,200
Speaker 1: That's where the really interesting stuff lives. Because if there

1174
01:09:09,280 --> 01:09:11,760
Speaker 1: is a cyclical turn and these indicators are I don't

1175
01:09:11,800 --> 01:09:15,000
Speaker 1: know anything better to get these cyclical turns, the risk

1176
01:09:15,040 --> 01:09:18,040
Speaker 1: of a cyclical turn to watch it. If these cyclical

1177
01:09:18,040 --> 01:09:21,000
Speaker 1: indicators are correct, and that divergence has to be resolved,

1178
01:09:21,000 --> 01:09:23,800
Speaker 1: it has to be resolved in some way or another

1179
01:09:23,880 --> 01:09:27,519
Speaker 1: by the narrative moving toward the indicators. And so it's

1180
01:09:27,680 --> 01:09:30,280
Speaker 1: I don't know exactly how the narrative's going to catch up.

1181
01:09:30,479 --> 01:09:33,599
Speaker 1: Maybe it's gonna say housing did it. Maybe it's gonna say.

1182
01:09:34,280 --> 01:09:36,719
Speaker 2: You know, but at least did it. It doesn't matter.

1183
01:09:37,320 --> 01:09:38,360
Speaker 2: By hook or by crook.

1184
01:09:38,400 --> 01:09:41,080
Speaker 1: By the end of twenty twenty four, you're gonna see

1185
01:09:41,120 --> 01:09:44,639
Speaker 1: ooh there's some demand for commodities. Who saw that coming

1186
01:09:45,000 --> 01:09:49,240
Speaker 1: and global industrial or manufacturing emergence, whatever the story is.

1187
01:09:49,840 --> 01:09:53,320
Speaker 1: And then oh, inflation didn't go down as far as

1188
01:09:53,320 --> 01:09:55,839
Speaker 1: we thought. All these banks around the world are banking

1189
01:09:55,880 --> 01:10:01,000
Speaker 1: on cutting ECB. Everybody risk of people are talkingalking about cutting.

1190
01:10:01,120 --> 01:10:07,200
Speaker 2: So let's talk about those four long, leading, short, and coincidental.

1191
01:10:07,720 --> 01:10:11,120
Speaker 2: We're recording this. It's the second quarter of twenty twenty four. Yeah,

1192
01:10:11,439 --> 01:10:14,120
Speaker 2: markets had a pretty robust rally to start the year,

1193
01:10:14,640 --> 01:10:19,600
Speaker 2: giving up some some of those gains. As the narrative,

1194
01:10:20,200 --> 01:10:23,920
Speaker 2: First it was vibe session. Then it's six cuts. Now

1195
01:10:23,960 --> 01:10:27,639
Speaker 2: it's three cuts, maybe two cuts, maybe one cut, maybe none.

1196
01:10:28,000 --> 01:10:33,000
Speaker 2: What are you seeing across long, leading, short, and coincidental

1197
01:10:33,000 --> 01:10:34,280
Speaker 2: indicators today.

1198
01:10:34,200 --> 01:10:38,240
Speaker 1: For the cycle on growth? I'd say, by and large,

1199
01:10:38,280 --> 01:10:43,360
Speaker 1: if I squint, they're firming, meaning doing okay, they're doing better.

1200
01:10:43,400 --> 01:10:46,599
Speaker 1: This tug of war that has been going on between

1201
01:10:47,080 --> 01:10:52,080
Speaker 1: earlier cyclical impulse to the downside and all that stimulus

1202
01:10:52,080 --> 01:10:54,559
Speaker 1: that went out the flood of and continues to go

1203
01:10:54,720 --> 01:10:56,960
Speaker 1: the foam on the runway, we may be seeing the

1204
01:10:56,960 --> 01:10:59,639
Speaker 1: window of vulnerability starting to edge shut.

1205
01:10:59,800 --> 01:11:05,200
Speaker 2: You sound much less recessionary. Correct, Then I recall hearing

1206
01:11:05,240 --> 01:11:07,960
Speaker 2: from you correct a couple of quarters ago.

1207
01:11:08,120 --> 01:11:08,439
Speaker 1: Correct?

1208
01:11:08,560 --> 01:11:11,639
Speaker 2: You were, You were hearing correctly. And yet the same time,

1209
01:11:12,080 --> 01:11:15,559
Speaker 2: I'm not hearing a whole lot of optimism that we're

1210
01:11:15,600 --> 01:11:18,160
Speaker 2: going to see inflation full much below where it is.

1211
01:11:18,400 --> 01:11:22,240
Speaker 1: I see, so the immaculate disinflation was the pipe dream, Right,

1212
01:11:22,520 --> 01:11:24,920
Speaker 1: that's the one where it just doesn't seem to work

1213
01:11:24,960 --> 01:11:26,760
Speaker 1: that way. Look, I've been trying all my life to

1214
01:11:26,760 --> 01:11:28,439
Speaker 1: have my cake and eat it too. It doesn't work

1215
01:11:28,479 --> 01:11:30,759
Speaker 1: that way. It doesn't exactly work that way.

1216
01:11:31,000 --> 01:11:34,200
Speaker 2: So that's what flip side of the strong economy is

1217
01:11:34,640 --> 01:11:38,200
Speaker 2: careful inflationary impulse, Careful what you wish. By the way,

1218
01:11:38,640 --> 01:11:41,360
Speaker 2: I've had people say to me, imagine how great things

1219
01:11:41,400 --> 01:11:43,400
Speaker 2: would be if oil was thirty dollars, and my answer

1220
01:11:43,439 --> 01:11:45,639
Speaker 2: is always no, you'd be in a depression if oil

1221
01:11:45,760 --> 01:11:48,840
Speaker 2: was thirty dollars. Careful what you want, it's it's how

1222
01:11:48,880 --> 01:11:49,439
Speaker 2: you get there.

1223
01:11:49,800 --> 01:11:53,640
Speaker 1: So I mean oversimplifying. You could pick a recession and

1224
01:11:53,880 --> 01:11:57,160
Speaker 1: sqush inflation that way eventually.

1225
01:11:56,640 --> 01:11:59,320
Speaker 2: And send unemployment up to five six and do all

1226
01:11:59,320 --> 01:12:00,760
Speaker 2: of that you can. Nobody wants that.

1227
01:12:00,880 --> 01:12:03,240
Speaker 1: Nobody wants that. So we're trying to thread the needle. Right,

1228
01:12:03,760 --> 01:12:05,840
Speaker 1: there's I think it's an open question on threading the

1229
01:12:05,840 --> 01:12:09,960
Speaker 1: needle by spending over seven trillion dollars, that's an apology

1230
01:12:10,080 --> 01:12:12,680
Speaker 1: question that the people can debate. You know, you know,

1231
01:12:12,720 --> 01:12:13,720
Speaker 1: reasonable people get to be.

1232
01:12:13,960 --> 01:12:16,679
Speaker 2: So let's stick with threading the needle. Or as most

1233
01:12:16,680 --> 01:12:20,479
Speaker 2: people describe it a soft landing. Yeah, what is this

1234
01:12:20,600 --> 01:12:22,280
Speaker 2: soft landing? And what was it?

1235
01:12:22,320 --> 01:12:26,320
Speaker 1: Okay, So here if people can imagine those coincident data,

1236
01:12:26,560 --> 01:12:29,000
Speaker 1: you put them together into an index. It has a

1237
01:12:29,040 --> 01:12:34,120
Speaker 1: growth rate if output, employment, income, in sales. It's cycled

1238
01:12:34,120 --> 01:12:38,120
Speaker 1: down very hard into twenty two into twenty three. I've

1239
01:12:38,120 --> 01:12:41,840
Speaker 1: seen the picture. It's a sharp decline and then it

1240
01:12:41,920 --> 01:12:45,160
Speaker 1: kind of levels out at around two percent. It gets

1241
01:12:45,240 --> 01:12:48,080
Speaker 1: pretty weak back in twenty two when GDP goes negative

1242
01:12:48,080 --> 01:12:51,360
Speaker 1: for a couple of quarters, but employment keeps it from

1243
01:12:51,400 --> 01:12:54,080
Speaker 1: going negative, and so we've been bouncing along. Now. I

1244
01:12:54,120 --> 01:12:57,000
Speaker 1: think that that can start to firm a little bit.

1245
01:12:57,960 --> 01:13:00,240
Speaker 1: If it does that, it starts to move to the upside.

1246
01:13:00,360 --> 01:13:03,919
Speaker 1: You have a soft landing. You had a cyclical downturn

1247
01:13:03,960 --> 01:13:09,000
Speaker 1: in growth without a contraction, without it going negative in

1248
01:13:09,160 --> 01:13:13,840
Speaker 1: overall growth. And again I'm talking GDP, employment, income, and

1249
01:13:13,880 --> 01:13:18,720
Speaker 1: sales collectively. There's no one statistic like GDP which is

1250
01:13:18,720 --> 01:13:23,080
Speaker 1: going to define recession, and that would be a soft landing. Okay,

1251
01:13:23,400 --> 01:13:26,639
Speaker 1: But everything I'm talking about is in cyclical terms. I'm

1252
01:13:26,640 --> 01:13:29,880
Speaker 1: looking out a few quarters. I have not said there

1253
01:13:29,880 --> 01:13:32,400
Speaker 1: can't be a recession over a year from now, right,

1254
01:13:33,000 --> 01:13:36,479
Speaker 1: there could be. And one of the things that I'm

1255
01:13:36,560 --> 01:13:40,920
Speaker 1: watching for that's not in the play that everybody is

1256
01:13:40,960 --> 01:13:47,680
Speaker 1: waiting to see, is inflation possibly turning up before it's

1257
01:13:47,720 --> 01:13:48,200
Speaker 1: supposed to.

1258
01:13:48,520 --> 01:13:51,680
Speaker 2: Let me ask you the question that sums all of

1259
01:13:51,720 --> 01:13:55,679
Speaker 2: this up. You get a phone call from the White House, Lashman,

1260
01:13:56,320 --> 01:13:59,519
Speaker 2: we have some questions for you about the next six

1261
01:13:59,600 --> 01:14:04,599
Speaker 2: months before the election. What's going to happen between now

1262
01:14:05,120 --> 01:14:09,920
Speaker 2: and November with unemployment, with inflation in the economy, and

1263
01:14:09,960 --> 01:14:12,679
Speaker 2: what should we do about it? How do you answer

1264
01:14:13,320 --> 01:14:17,160
Speaker 2: the White House who's throwing that curveball at you?

1265
01:14:17,240 --> 01:14:19,640
Speaker 1: Well, let me take the first part. What's going to

1266
01:14:19,720 --> 01:14:22,000
Speaker 1: happen the indicators. I could just tell you what they're

1267
01:14:22,000 --> 01:14:22,599
Speaker 1: telling right.

1268
01:14:23,000 --> 01:14:25,760
Speaker 2: Growth is going to firm, and I think it's going.

1269
01:14:25,720 --> 01:14:28,880
Speaker 1: To be industrial based. It will be the first thing

1270
01:14:28,880 --> 01:14:33,160
Speaker 1: that you see we are going to see. I think

1271
01:14:33,320 --> 01:14:35,400
Speaker 1: employment kind of hang in there.

1272
01:14:36,760 --> 01:14:39,240
Speaker 2: You're still under four percent unemployment.

1273
01:14:38,640 --> 01:14:42,640
Speaker 1: Because it's cos active because of growth affirming and the PTSD.

1274
01:14:42,920 --> 01:14:45,599
Speaker 1: Every all the employers have in trying to hire people,

1275
01:14:45,600 --> 01:14:50,000
Speaker 1: they're very reticent to fire. You might see shorter work weeks.

1276
01:14:50,040 --> 01:14:52,920
Speaker 1: You're going to see weakness and temp hiring.

1277
01:14:53,040 --> 01:14:54,360
Speaker 2: Enough tick in part time.

1278
01:14:54,280 --> 01:14:56,080
Speaker 1: You see the uptick in part time you'll see all

1279
01:14:56,120 --> 01:14:58,880
Speaker 1: those levers being pulled. But I don't think you see

1280
01:14:58,920 --> 01:14:59,720
Speaker 1: the firing.

1281
01:14:59,360 --> 01:15:00,559
Speaker 2: Which is part of recession.

1282
01:15:00,640 --> 01:15:04,759
Speaker 1: Right now. On inflation, I think you have to really

1283
01:15:04,880 --> 01:15:09,639
Speaker 1: think about it firming and not going down. And so

1284
01:15:09,800 --> 01:15:13,479
Speaker 1: that's the fly in the ointment. And you know, an

1285
01:15:13,479 --> 01:15:15,920
Speaker 1: inflation cycle upturn is an inflation cycle upturn. It's not

1286
01:15:15,960 --> 01:15:18,400
Speaker 1: that you can necessarily do anything about it.

1287
01:15:18,120 --> 01:15:21,240
Speaker 2: It is what it is. It's gonna happen. You can

1288
01:15:21,280 --> 01:15:23,519
Speaker 2: pound your chest about it if it works out, and

1289
01:15:24,120 --> 01:15:25,240
Speaker 2: try and change the subject.

1290
01:15:25,280 --> 01:15:26,840
Speaker 1: If it doesn't, I think you get in front of

1291
01:15:26,840 --> 01:15:28,160
Speaker 1: it and you try to frame it right. So the

1292
01:15:28,200 --> 01:15:30,320
Speaker 1: whole thing is about the jaw boning and the narrative.

1293
01:15:30,400 --> 01:15:33,360
Speaker 1: And if you were the opposition, you're gonna harp on

1294
01:15:33,439 --> 01:15:37,599
Speaker 1: that every single day. And if you're an incumbent, you're

1295
01:15:37,600 --> 01:15:39,880
Speaker 1: gonna say, yeah, but look at all this other stuff

1296
01:15:39,880 --> 01:15:42,200
Speaker 1: that's going well, where the economy's growing.

1297
01:15:42,439 --> 01:15:44,840
Speaker 2: Huh, really really interesting? All right, I only have you

1298
01:15:45,320 --> 01:15:47,719
Speaker 2: for another ten minutes, so let's jump to our favorite

1299
01:15:47,800 --> 01:15:51,880
Speaker 2: questions that we ask all of our guests, starting with, Hey,

1300
01:15:51,960 --> 01:15:53,960
Speaker 2: what are you streaming? What are you watching or listening?

1301
01:15:54,040 --> 01:15:58,120
Speaker 2: These days on Netflix or podcasts or whatever.

1302
01:16:00,080 --> 01:16:01,760
Speaker 1: This is all entertainment for the most part.

1303
01:16:01,800 --> 01:16:02,280
Speaker 2: That's fine.

1304
01:16:02,640 --> 01:16:06,080
Speaker 1: Owl House, really, do you know Owl House? No, I

1305
01:16:06,080 --> 01:16:10,080
Speaker 1: don't think you would. I'm joking, Barry. It's it's this

1306
01:16:10,240 --> 01:16:13,839
Speaker 1: is a show. It's a fantasy show for the kids.

1307
01:16:14,160 --> 01:16:14,479
Speaker 1: About it.

1308
01:16:14,560 --> 01:16:17,759
Speaker 2: I know, I've seen the It's.

1309
01:16:17,640 --> 01:16:19,519
Speaker 1: A lot of fun. It's a great it's really well

1310
01:16:19,520 --> 01:16:22,320
Speaker 1: written and nice storytelling in a group of a group

1311
01:16:22,360 --> 01:16:22,679
Speaker 1: of kids.

1312
01:16:22,720 --> 01:16:23,600
Speaker 2: You're older, now, you know.

1313
01:16:24,560 --> 01:16:26,720
Speaker 1: No, I got a nine and I have nine and

1314
01:16:26,800 --> 01:16:29,240
Speaker 1: twelve and sixteen, and I try to keep them young. Okay,

1315
01:16:29,320 --> 01:16:31,679
Speaker 1: it's best I can. They're going to get older no matter.

1316
01:16:31,479 --> 01:16:34,200
Speaker 2: What I get about about six year old.

1317
01:16:35,200 --> 01:16:37,320
Speaker 1: And so ol House and troll Hunter, those are nice

1318
01:16:37,400 --> 01:16:43,240
Speaker 1: kids shows. I was impressed with how Apple handled Foundation

1319
01:16:44,479 --> 01:16:45,560
Speaker 1: in the Foundation.

1320
01:16:45,320 --> 01:16:47,800
Speaker 2: Of the books, and I watched the first season. I

1321
01:16:47,840 --> 01:16:49,479
Speaker 2: haven't gotten into the second season yet.

1322
01:16:49,720 --> 01:16:51,800
Speaker 1: They did a reasonable job. I mean, look, there's no

1323
01:16:51,880 --> 01:16:53,759
Speaker 1: way you can tell the story that kind of story.

1324
01:16:53,760 --> 01:16:55,880
Speaker 1: It's like Dune. Also, it's very hard to tell the

1325
01:16:55,920 --> 01:16:59,120
Speaker 1: story or three body problem that you were talking about.

1326
01:16:58,680 --> 01:17:00,920
Speaker 2: Which which, by the way, they did a really good

1327
01:17:01,000 --> 01:17:02,240
Speaker 2: job in the first season.

1328
01:17:02,040 --> 01:17:04,559
Speaker 1: Because they're so expansive these stories, how do you put

1329
01:17:04,560 --> 01:17:08,000
Speaker 1: it to film? I enjoyed that. The one that disturbs me.

1330
01:17:08,520 --> 01:17:10,960
Speaker 2: But for some reason I watch it from time to time.

1331
01:17:10,920 --> 01:17:14,439
Speaker 1: Is Black Mirror, Yeah, which is every once in a

1332
01:17:14,439 --> 01:17:16,880
Speaker 1: while when I'm like, can I take something shocking, I'll

1333
01:17:16,920 --> 01:17:19,600
Speaker 1: watch that and then I don't watch it for a

1334
01:17:19,640 --> 01:17:22,840
Speaker 1: moment because it's very disturbing. But but I've been liking

1335
01:17:22,880 --> 01:17:25,080
Speaker 1: all of those. I mean, there's so much good stuff,

1336
01:17:25,560 --> 01:17:28,720
Speaker 1: and some of the.

1337
01:17:27,400 --> 01:17:29,360
Speaker 2: There's too much good stuff. My wife and I have

1338
01:17:29,439 --> 01:17:32,760
Speaker 2: been saying, all right, let's wrap up. We're finishing up

1339
01:17:33,040 --> 01:17:35,760
Speaker 2: Curb and it's like, after we're done with this, I

1340
01:17:35,800 --> 01:17:37,960
Speaker 2: want to cut out TV a few days.

1341
01:17:38,000 --> 01:17:41,280
Speaker 1: Without without getting political. Something that I rewatched it with

1342
01:17:41,320 --> 01:17:44,920
Speaker 1: my sixteen year old was Gandhi really yeah, and it

1343
01:17:45,000 --> 01:17:49,200
Speaker 1: held up really really well. The movie it's it's it's

1344
01:17:49,240 --> 01:17:53,879
Speaker 1: three hours something long, but it's so interesting to see

1345
01:17:54,040 --> 01:17:57,439
Speaker 1: how you know, to remember the history, and then to

1346
01:17:57,560 --> 01:18:00,400
Speaker 1: see how the politics get in and things.

1347
01:18:00,600 --> 01:18:03,680
Speaker 2: There's been a few shows like The Bodyguard and The

1348
01:18:03,720 --> 01:18:08,559
Speaker 2: Diplomat that are to say nothing of the Crown, that

1349
01:18:08,600 --> 01:18:12,080
Speaker 2: are of an era and they're just so informative and

1350
01:18:12,280 --> 01:18:16,520
Speaker 2: fascinating especially I don't really think of myself as an anglophile,

1351
01:18:17,160 --> 01:18:19,240
Speaker 2: but the Crown was just one of those things where

1352
01:18:19,280 --> 01:18:22,120
Speaker 2: you fall into a whole nother world. And Gandhi, I

1353
01:18:22,160 --> 01:18:23,320
Speaker 2: would imagine, is the same.

1354
01:18:23,640 --> 01:18:25,240
Speaker 1: Ghandhi is amazing and you're seeing it from the other

1355
01:18:25,280 --> 01:18:28,559
Speaker 1: side of the table, right, So it's fascinating and I

1356
01:18:28,640 --> 01:18:31,000
Speaker 1: enjoyed watching that. But I mean, there's so much stuff

1357
01:18:31,000 --> 01:18:31,360
Speaker 1: to watch.

1358
01:18:31,439 --> 01:18:34,840
Speaker 2: Sure, let's talk about your mentors who helped shape your career.

1359
01:18:35,960 --> 01:18:37,160
Speaker 1: I don't want to leave anyone out.

1360
01:18:37,560 --> 01:18:42,360
Speaker 2: There are so many people. Well, obviously doctor Moore is huge,

1361
01:18:43,280 --> 01:18:44,720
Speaker 2: who really.

1362
01:18:44,520 --> 01:18:47,280
Speaker 1: Was the pinnacle of my mentors, I would say others

1363
01:18:47,960 --> 01:18:51,519
Speaker 1: some teachers. Shout out to my teachers. I met with

1364
01:18:51,640 --> 01:18:55,400
Speaker 1: Sam Lockwood, who taught me fourth and fifth grade last summer,

1365
01:18:55,439 --> 01:18:57,559
Speaker 1: and that was really nice to see him, and he

1366
01:18:57,680 --> 01:19:01,679
Speaker 1: was just he loved letting me be curious. And then

1367
01:19:02,000 --> 01:19:05,800
Speaker 1: as I got into college and into cycles, I had

1368
01:19:06,120 --> 01:19:10,000
Speaker 1: a professor at Roxton College in the UK, doctor Baldwin,

1369
01:19:10,600 --> 01:19:14,320
Speaker 1: who taught me a lot about politics and the civil service,

1370
01:19:14,400 --> 01:19:17,280
Speaker 1: the power of the civil service, which I know which

1371
01:19:17,360 --> 01:19:20,080
Speaker 1: I now have come to appreciate, or the deep the

1372
01:19:20,120 --> 01:19:22,120
Speaker 1: deep states, the deep state, But I don't think it

1373
01:19:22,120 --> 01:19:24,040
Speaker 1: was so nefarious, but yes it was.

1374
01:19:24,160 --> 01:19:25,639
Speaker 2: It was definitely that they're powerful.

1375
01:19:25,840 --> 01:19:29,519
Speaker 1: Uh, Doctor Loreene Harris who introduced me to doctor Moore,

1376
01:19:29,560 --> 01:19:33,519
Speaker 1: to Jeffrey Moore, and then also my father in law

1377
01:19:33,560 --> 01:19:36,560
Speaker 1: who came from a different angle, more from a financial

1378
01:19:36,880 --> 01:19:42,080
Speaker 1: investing angle, but very interested in economics and psychology, always.

1379
01:19:41,800 --> 01:19:44,360
Speaker 2: In the markets, which was which was very important. Let's

1380
01:19:44,360 --> 01:19:46,479
Speaker 2: look about books. What are some of your favorite and

1381
01:19:46,520 --> 01:19:48,160
Speaker 2: what are you reading right now?

1382
01:19:48,640 --> 01:19:51,160
Speaker 1: I'm a sci fi buff, right, Okay, So I like

1383
01:19:51,240 --> 01:19:52,280
Speaker 1: the Culture Series.

1384
01:19:53,360 --> 01:19:55,880
Speaker 2: It took Ian M.

1385
01:19:55,920 --> 01:19:56,360
Speaker 1: Banks.

1386
01:19:56,600 --> 01:19:59,719
Speaker 2: Okay, and uh, it's it's a two.

1387
01:19:59,600 --> 01:20:03,080
Speaker 1: Thousand in the future. It's very philosophical, but it's excellent.

1388
01:20:03,160 --> 01:20:05,960
Speaker 1: It's like space opera stuff. It's if you like Dune

1389
01:20:05,960 --> 01:20:09,040
Speaker 1: and those kind of cools, you'll love Ian Banks and

1390
01:20:09,080 --> 01:20:11,439
Speaker 1: the and the Culture Series. And I'm reading The Player

1391
01:20:11,479 --> 01:20:12,639
Speaker 1: of Games. It's a fun one.

1392
01:20:13,160 --> 01:20:14,360
Speaker 2: The Player of Games.

1393
01:20:14,439 --> 01:20:15,240
Speaker 1: Player of Games?

1394
01:20:15,320 --> 01:20:17,080
Speaker 2: Yeah, who wrote that?

1395
01:20:17,200 --> 01:20:21,040
Speaker 1: Ians Banks? Yeah, it's a series of things on a

1396
01:20:21,080 --> 01:20:26,040
Speaker 1: more practical sense in terms of thinking. There's an old

1397
01:20:26,080 --> 01:20:28,200
Speaker 1: favorite that I go back to, which is called Deep

1398
01:20:28,240 --> 01:20:29,799
Speaker 1: Work by cal Newport.

1399
01:20:29,920 --> 01:20:32,719
Speaker 2: I recall that book. Yeah, very very good.

1400
01:20:33,280 --> 01:20:38,240
Speaker 1: I'm showing my age, but Outlive by Peter Atia on longevity.

1401
01:20:38,320 --> 01:20:39,400
Speaker 2: Yeah, on longevity.

1402
01:20:39,800 --> 01:20:41,960
Speaker 1: Looking, I'm looking for the name of a book as

1403
01:20:42,000 --> 01:20:45,800
Speaker 1: we speak, and then for fun my wife does. She's

1404
01:20:45,800 --> 01:20:48,920
Speaker 1: a graphic novelist, Tracy White, and so I dig through

1405
01:20:48,920 --> 01:20:51,599
Speaker 1: her library and find things. And there's one that I love,

1406
01:20:51,800 --> 01:20:56,000
Speaker 1: which is it's very dated, but it kind of does

1407
01:20:56,080 --> 01:21:00,000
Speaker 1: well today. It's called trans Metropolitan by Warren Ellis. It's

1408
01:21:00,040 --> 01:21:04,160
Speaker 1: a graphic novel and it's about a journalist, Spider Jerusalem,

1409
01:21:04,439 --> 01:21:07,920
Speaker 1: and he's this funny, funny character who's trying to speak

1410
01:21:07,960 --> 01:21:10,920
Speaker 1: truth to power and all that. But a great graphic novel.

1411
01:21:11,200 --> 01:21:12,960
Speaker 1: I'm reading this with my son. He's twelve.

1412
01:21:13,320 --> 01:21:18,360
Speaker 2: Be Useful by Arnold Schwarzenegger. Oh really looks kind of interesting.

1413
01:21:18,439 --> 01:21:20,760
Speaker 1: That's pretty interesting, and it's, you know, whatever, whatever you

1414
01:21:20,800 --> 01:21:25,680
Speaker 1: think about individuals, the message that he's got in that

1415
01:21:25,720 --> 01:21:27,280
Speaker 1: book is a positive one.

1416
01:21:27,840 --> 01:21:29,920
Speaker 2: There is a book I'm looking for the title of

1417
01:21:31,200 --> 01:21:36,000
Speaker 2: that is a series of related but disconnected short stories

1418
01:21:36,880 --> 01:21:41,040
Speaker 2: and the name of the book is Intergalactic Refrigerator repair

1419
01:21:41,120 --> 01:21:45,680
Speaker 2: Man Seldom Carry Cash. And let me recommend that that's

1420
01:21:45,720 --> 01:21:50,320
Speaker 2: been my almost sounds like Doug. It's got a touch

1421
01:21:50,640 --> 01:21:53,759
Speaker 2: of that it's not quite as absurd, but it's got

1422
01:21:53,800 --> 01:21:58,360
Speaker 2: just a flavor of mixed in with harder science. I

1423
01:21:58,479 --> 01:22:02,120
Speaker 2: look it up an element of of that goofballness. Our

1424
01:22:02,160 --> 01:22:05,200
Speaker 2: final two questions, and by the way, that's a really

1425
01:22:05,240 --> 01:22:08,439
Speaker 2: good list of books you have. Our final two questions,

1426
01:22:08,840 --> 01:22:11,240
Speaker 2: What sort of advice would you give to a recent

1427
01:22:11,280 --> 01:22:16,720
Speaker 2: college grad interested in studying either market cycles or investing,

1428
01:22:16,840 --> 01:22:19,360
Speaker 2: or any sort of economic research.

1429
01:22:19,720 --> 01:22:23,320
Speaker 1: This goes for any kind of pursuit, let alone economic

1430
01:22:23,400 --> 01:22:27,759
Speaker 1: or financial research. Be sure that you truly enjoy the work.

1431
01:22:28,320 --> 01:22:31,720
Speaker 1: That'll make it easy easier to be successful, because you're

1432
01:22:31,720 --> 01:22:34,719
Speaker 1: going to have to persist. Right, none of this is easy.

1433
01:22:35,040 --> 01:22:37,639
Speaker 1: You're going to have to persist. It doesn't just fall

1434
01:22:37,640 --> 01:22:41,320
Speaker 1: in your lap. And so if you enjoy it, you

1435
01:22:41,360 --> 01:22:43,840
Speaker 1: can keep doing it. That's my main advice.

1436
01:22:43,800 --> 01:22:46,160
Speaker 2: And our final question. What do you know about the

1437
01:22:46,200 --> 01:22:53,120
Speaker 2: world of cycles, economy, investing research today you wish you

1438
01:22:53,400 --> 01:22:56,599
Speaker 2: knew back in the early nineteen nineties when you were

1439
01:22:56,600 --> 01:22:57,839
Speaker 2: first getting started.

1440
01:22:58,320 --> 01:23:02,920
Speaker 1: Well, I think the overarching concept is you don't know

1441
01:23:04,000 --> 01:23:07,400
Speaker 1: what you don't know, and that's the thing that can

1442
01:23:07,520 --> 01:23:11,519
Speaker 1: hurt you. Probably the thing that has surprised me the

1443
01:23:11,680 --> 01:23:19,920
Speaker 1: most is the sheer size and extent of deficit spending.

1444
01:23:20,240 --> 01:23:22,120
Speaker 1: When you take a look at what happened in the

1445
01:23:22,280 --> 01:23:25,559
Speaker 1: twenty tens post GFC, and then you take a look

1446
01:23:25,600 --> 01:23:30,400
Speaker 1: at what's happened post COVID. We're not in Kansas anymore.

1447
01:23:31,200 --> 01:23:35,040
Speaker 1: We're somewhere new. It's different for the US in many

1448
01:23:35,080 --> 01:23:41,240
Speaker 1: ways because we are the world's superpower and we are

1449
01:23:41,400 --> 01:23:44,160
Speaker 1: the biggest market. So it's not the same as if

1450
01:23:44,920 --> 01:23:47,560
Speaker 1: Japan did it or someone else did it. So I

1451
01:23:48,080 --> 01:23:51,320
Speaker 1: don't want to underestimate the ability for US to do

1452
01:23:51,439 --> 01:23:52,320
Speaker 1: deficit spending.

1453
01:23:52,880 --> 01:23:56,439
Speaker 2: Really quite fascinating. Thank you Lachman for being so generous

1454
01:23:56,439 --> 01:24:00,160
Speaker 2: with your time. We have been speaking with Lashman. You

1455
01:24:00,240 --> 01:24:04,320
Speaker 2: than co founder of the Economic Cycle Research Institute and

1456
01:24:04,479 --> 01:24:09,200
Speaker 2: author of Beating the Business Cycle. If you enjoy this conversation,

1457
01:24:09,800 --> 01:24:13,400
Speaker 2: check out any of the previous five hundred discussions we've

1458
01:24:13,400 --> 01:24:16,599
Speaker 2: had over the past nine and a half years. You

1459
01:24:16,640 --> 01:24:21,640
Speaker 2: can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you

1460
01:24:21,720 --> 01:24:26,000
Speaker 2: find your favorite podcast. Check out my new podcast at

1461
01:24:26,040 --> 01:24:30,719
Speaker 2: the Money, short ten minute conversations with experts about issues

1462
01:24:30,760 --> 01:24:34,840
Speaker 2: that affect your money, earning it, spending it, and most importantly,

1463
01:24:35,439 --> 01:24:39,080
Speaker 2: investing it. At the Money, wherever you find your favorite

1464
01:24:39,120 --> 01:24:43,760
Speaker 2: podcasts and in the Master's and business feed I would

1465
01:24:43,800 --> 01:24:45,840
Speaker 2: be remiss if I did not thank the Crack team

1466
01:24:45,840 --> 01:24:50,640
Speaker 2: that helps put these conversations together each week. Juantares is

1467
01:24:50,680 --> 01:24:55,400
Speaker 2: my audio engineer. Attikavalbrun is my project manager. Anna Luke

1468
01:24:55,640 --> 01:25:00,400
Speaker 2: is my producer. Sean Russo is my researcher. I'm Barry

1469
01:25:00,520 --> 01:25:04,840
Speaker 2: results you've been listening to Masters in Business on Bloomberg

1470
01:25:04,960 --> 01:25:05,280
Speaker 2: Radio