WEBVTT - Growth, Employment and Inflation Cycles With Lakshman Achuthan 0:00:02.440 --> 0:00:11.160 Bloomberg Audio Studios, Podcasts, radio news. This is Master's in 0:00:11.240 --> 0:00:15.240 Business with Barry red Holts on Bloomberg Radio. 0:00:16.040 --> 0:00:20.320 On this week's podcast, I sit down with Lakshman Achuthan. 0:00:20.840 --> 0:00:25.160 He is the co founder of EKRI, the Economic Cycle 0:00:25.239 --> 0:00:30.040 Research Institute. I've known Blacksman for I don't know, fifteen years, 0:00:30.080 --> 0:00:33.599 almost twenty years, and I've always found his take on 0:00:33.640 --> 0:00:38.840 the world of economics and recessions and inflation and employment 0:00:39.640 --> 0:00:44.840 just fascinating and unique and different from what everybody else does. 0:00:45.400 --> 0:00:50.680 It is very specifically data driven, based on a model 0:00:50.760 --> 0:00:55.800 that was originally co developed by Professor Jeffrey Moore, And 0:00:56.400 --> 0:00:58.480 I don't know how else to describe it other than 0:00:59.200 --> 0:01:03.040 you're looking at a data You're looking at leading indicators 0:01:03.080 --> 0:01:06.759 of different lengths as well as coincidental indicators, and you're 0:01:06.959 --> 0:01:11.800 trying to figure out when cycles turn. Hey, anybody can 0:01:11.840 --> 0:01:14.920 predict the trends, just stay with it until it ends, 0:01:15.400 --> 0:01:18.880 but catching the turns is much more challenging. They've put 0:01:18.920 --> 0:01:22.399 together a tremendous track record over the past thirty years, 0:01:22.480 --> 0:01:26.320 better than just about everybody. Nobody's perfect, but they've gotten 0:01:26.360 --> 0:01:29.280 more of the turns and more of the major cycle 0:01:29.319 --> 0:01:33.760 turns than anybody else, and that's why their research is 0:01:33.880 --> 0:01:38.760 read by not just big investment houses and companies, but 0:01:39.080 --> 0:01:42.200 sovereign banks and governments around the world. I thought this 0:01:42.240 --> 0:01:46.520 conversation was absolutely fascinating, and I think you will also 0:01:47.080 --> 0:01:51.360 with no further ado, my discussion with Lakshman at your 0:01:51.400 --> 0:01:55.000 thon Lasman. Welcome back to Bloomberg. 0:01:55.080 --> 0:01:59.640 Well, it's wonderful to be back in congratulations on this series. 0:01:59.680 --> 0:02:02.640 Over all these years, ten years you were in the 0:02:02.760 --> 0:02:06.680 first year's shows, which I have to be honest, are 0:02:06.680 --> 0:02:09.760 pretty unlistenable. I go back and listen to them and 0:02:09.840 --> 0:02:13.040 you could tell them just like a poppy dog caffeine 0:02:13.040 --> 0:02:15.440 and adrenaline. But thank you so much for coming back, 0:02:15.480 --> 0:02:18.160 and we'll do this the right way this time. So 0:02:18.280 --> 0:02:20.680 let's start out with a little bit of your backgrounds. 0:02:21.040 --> 0:02:24.079 I had already graduated college. In grad school, you were 0:02:24.120 --> 0:02:27.680 doing some work at Columbia with Geoffrey Moore. Tell us 0:02:27.720 --> 0:02:30.400 a little bit about the sort of research projects you 0:02:30.440 --> 0:02:33.200 were doing back in the nineteen nineties. 0:02:33.000 --> 0:02:35.400 Right, So thank you and pleasure to be here with you, 0:02:35.680 --> 0:02:38.840 and thanks for the question. I had the good fortune 0:02:39.360 --> 0:02:42.839 or interesting timing of starting with doctor Moore right when 0:02:42.880 --> 0:02:47.440 the nineteen ninety ninety one recession was happening. So it's 0:02:47.639 --> 0:02:50.720 very interesting and what my whole life's work is around 0:02:50.720 --> 0:02:54.000 business cycles. So this was extremely interesting to see in 0:02:54.080 --> 0:02:57.760 real time rather than reading it in a history book. 0:02:58.240 --> 0:03:02.200 And what I found so interesting about his work was 0:03:02.240 --> 0:03:07.720 it was applied economics and it brought some cohesiveness to 0:03:09.040 --> 0:03:12.679 the way economies work around the world, free market oriented economies. 0:03:12.680 --> 0:03:15.560 Because I'd done some earlier traveling around Europe, I saw 0:03:15.600 --> 0:03:19.680 all these different economies and different currencies, and I wondered, 0:03:19.720 --> 0:03:22.919 how does this all fit together? And he had kind 0:03:22.919 --> 0:03:26.280 of a framework for it, the makings of one, which 0:03:26.320 --> 0:03:29.040 I found very interesting. One key thing we were doing 0:03:29.080 --> 0:03:34.839 back then was how or if cycles are transmitted internationally. 0:03:35.320 --> 0:03:38.600 That was a big aspect of what sort of cycles 0:03:38.920 --> 0:03:42.600 business cycles? How are business cycles transmitted from country to country? 0:03:42.680 --> 0:03:45.640 Yeah, so if Europe goes into recession, what's the impact 0:03:45.720 --> 0:03:49.040 on the US or vice versa, and or Japan or 0:03:49.280 --> 0:03:51.920 these were all the big economies then, and how do 0:03:52.000 --> 0:03:54.600 they get transmitted? What are the impacts we have? How 0:03:54.600 --> 0:03:57.840 does it? You know, what cycles are there that we 0:03:57.960 --> 0:04:00.839 all are participating in around the world, and which ones 0:04:00.840 --> 0:04:05.520 are slightly more local to specific economy, so that's a 0:04:05.600 --> 0:04:06.280 big issue. 0:04:06.360 --> 0:04:09.160 Can we assume trade is a big impact into those 0:04:09.720 --> 0:04:13.400 as a transmission mechanism or is it more nuanced than that. 0:04:13.720 --> 0:04:15.040 It's always more nuanced. 0:04:15.600 --> 0:04:17.760 But trade is a big one. Trade is a big one. 0:04:18.040 --> 0:04:19.719 Markets are a big one, and a lot of people 0:04:19.800 --> 0:04:21.760 take their queue from what's going on in the US. 0:04:22.160 --> 0:04:25.520 So there's an outsized impact of the US market globally, 0:04:26.000 --> 0:04:29.480 even in local economies around the world. And it's very 0:04:29.520 --> 0:04:32.360 much in the goods and trades area, where we've all 0:04:32.480 --> 0:04:35.839 taken little spots in the manufacturing floor, and so we're 0:04:35.920 --> 0:04:39.720 linked that way, and for better or worse, can impact us. 0:04:39.800 --> 0:04:42.680 And meanwhile, our domestic economies may be doing something different. 0:04:43.200 --> 0:04:47.640 So everybody thinks of the dollar as our exorbitant privilege, 0:04:47.720 --> 0:04:52.960 but you're implying US stock markets are really a giant 0:04:53.200 --> 0:04:56.720 exorbitant privilege to the US. It is part of what 0:04:56.920 --> 0:04:58.440 drives the global economy. 0:04:59.400 --> 0:05:02.000 Yes, and here i'm you know, I work with a 0:05:02.000 --> 0:05:04.080 lot of different We at Equy work with a lot 0:05:04.120 --> 0:05:08.360 of different users of our material and so to keep 0:05:08.400 --> 0:05:12.159 it simple, some are investment managers and some are c 0:05:12.279 --> 0:05:16.560 suite kind of business managers, and on the investment management side, 0:05:17.000 --> 0:05:19.280 even if you're an investment manager abroad, you're going to 0:05:19.360 --> 0:05:21.080 have probably. 0:05:21.000 --> 0:05:23.400 A decent sized investment in the United States. 0:05:23.200 --> 0:05:26.680 Market, and that's one of the factors that goes into 0:05:27.279 --> 0:05:30.560 the big mix. There's also all kinds of other things 0:05:30.600 --> 0:05:34.080 in the mix, but transmissions of cycles internationally was a 0:05:34.160 --> 0:05:36.320 key thing, or early on, I think one of the 0:05:36.320 --> 0:05:39.599 bigger things that's critical today that we were working on 0:05:39.680 --> 0:05:44.960 then was the relationship of really three major aspects of 0:05:45.000 --> 0:05:48.440 the economy from a cyclical perspective. Their cycles and growth, 0:05:49.320 --> 0:05:52.160 which can be in extremes when they contract, can be 0:05:52.600 --> 0:05:59.080 business cycles, recessions and expansions. There's cycles in employment which 0:05:59.080 --> 0:06:05.279 are related but distinct. They're actually identifiable in different cycles 0:06:05.320 --> 0:06:07.800 in employment. And there's a third cycle, a third aspect 0:06:07.839 --> 0:06:13.200 which is cycles in inflation. And being able to see 0:06:13.240 --> 0:06:16.840 that just to understand the lay of the land of 0:06:16.960 --> 0:06:20.720 cycles and free market oriented economies is a huge thing. 0:06:21.360 --> 0:06:25.320 Just being aware that that's the pool that we're all 0:06:25.360 --> 0:06:29.120 swimming in is really important forgetting at some of the 0:06:29.200 --> 0:06:32.080 nuances of what's going on in the economy. So those 0:06:32.480 --> 0:06:36.120 understanding those three key aspects of the economy and not 0:06:36.360 --> 0:06:41.000 forcing them, and our process doesn't force them to directly 0:06:41.040 --> 0:06:43.640 relate to one another, gives us a great deal of 0:06:43.680 --> 0:06:48.280 flexibility in understanding what's happening growth, employment, and inflation. If 0:06:48.320 --> 0:06:51.120 you have a handle on those three aspects, you really 0:06:51.320 --> 0:06:54.000 understand what's going on in the economy. I think you. 0:06:54.320 --> 0:06:57.040 I think, well, I don't know that really really at 0:06:57.080 --> 0:06:59.159 the end there's stuff I still don't know, But I 0:06:59.160 --> 0:07:01.360 think you have a pretty good handle on the nuances, 0:07:01.400 --> 0:07:04.520 like how can it be that one's going up and 0:07:04.560 --> 0:07:07.880 the others going down? You know, because you have to 0:07:07.920 --> 0:07:11.480 tell the story what's happening of what you're seeing. Understanding 0:07:11.480 --> 0:07:16.880 that these three cycles, which are related but distinct in 0:07:16.920 --> 0:07:20.000 and of itself, is a big leap forward in that understanding. 0:07:20.480 --> 0:07:24.000 It was kind of fascinating in twenty twenty two, and 0:07:24.160 --> 0:07:27.960 to a less degree twenty three watching the kind of 0:07:28.440 --> 0:07:35.760 prior generation the old school nineteen seventies economists get the growth, 0:07:35.800 --> 0:07:40.120 employment and inflation picture completely wrong. It seemed like they 0:07:40.240 --> 0:07:45.800 defaulted back to the nineteen seventy three seventy four cycle 0:07:46.400 --> 0:07:49.400 and had a hard time. We were talking earlier about 0:07:49.800 --> 0:07:52.440 the Paul Graham quote all experts or experts in the 0:07:52.440 --> 0:07:55.520 way the world used to be. But you know, when 0:07:55.600 --> 0:08:00.600 people come out, probably most famously Laurence Summers, you need 0:08:00.640 --> 0:08:03.360 to have unemployment to shoot up to ten percent to 0:08:03.480 --> 0:08:07.280 kill inflation. Turned out that wasn't the case, wasn't. 0:08:08.040 --> 0:08:10.680 Well, no, it's not the case. And again it's because 0:08:10.760 --> 0:08:15.000 these cycles, while related, are distinct. There's more inflation cycles 0:08:15.040 --> 0:08:19.160 than business cycles. For example, probably a little fewer employment 0:08:19.200 --> 0:08:22.400 cycles that inflation cycles. Those will match up a bit 0:08:22.440 --> 0:08:26.640 more to business and growth cycles. But even allowing or 0:08:26.720 --> 0:08:30.720 understanding that these things can go in different directions is critical. 0:08:30.760 --> 0:08:34.760 Twenty two, twenty three, twenty four. It's very interesting because 0:08:35.800 --> 0:08:41.080 first let's remember that there was a huge, massive inflation 0:08:41.120 --> 0:08:44.920 cycle upturn, right it's in twenty twenty. 0:08:44.720 --> 0:08:47.760 Biggest one we've seen, much bigger than the one the 0:08:47.800 --> 0:08:48.720 financial process. 0:08:48.880 --> 0:08:51.839 And one of the things just even forget about forecasting 0:08:51.960 --> 0:08:54.079 or saying what's going to happen. One of the things 0:08:54.120 --> 0:08:58.320 that's critical to understand is that inflation is cyclical. I 0:08:58.400 --> 0:09:00.880 know those are easy words for to say and talk 0:09:00.960 --> 0:09:06.120 about on this program, but fundamentally a lot of models 0:09:06.160 --> 0:09:08.600 are not built that way, a lot of policy is 0:09:08.600 --> 0:09:12.800 not driven that way. In fact, you could still see 0:09:12.800 --> 0:09:16.160 the antecedents of that today in the markets and the 0:09:16.160 --> 0:09:19.200 way people are thinking, Hey, inflation's coming down. Yeah, sure, 0:09:19.240 --> 0:09:22.000 because it went to the moon, and yeah it's coming 0:09:22.040 --> 0:09:24.920 down from the moon. Okay, so we could agree on that, 0:09:25.360 --> 0:09:29.080 But does it just keep going down? How do you know? 0:09:29.600 --> 0:09:32.160 Does it go down and stay flat at your target? 0:09:32.480 --> 0:09:32.720 Yeah? 0:09:33.120 --> 0:09:35.200 I don't know where have you seen that happen before? 0:09:35.720 --> 0:09:40.839 If you study inflation over decades and have a cyclical 0:09:40.960 --> 0:09:45.000 vantage point on it, what you'll see is that it 0:09:45.080 --> 0:09:47.560 doesn't go down to some number and hang out. It 0:09:47.679 --> 0:09:50.040 likes to cycle. It likes to go up, and it 0:09:50.160 --> 0:09:54.000 likes to go down. And the odds, therefore, in my mind, 0:09:54.240 --> 0:09:56.800 of it going down and hanging out at some prescribed 0:09:56.880 --> 0:09:59.920 number are pretty low. And so therefore we look at 0:10:00.280 --> 0:10:04.240 leading indicators of the inflation cycle. Future inflation gauge is 0:10:04.280 --> 0:10:07.720 what we call our leading indicator, and it tries to 0:10:07.720 --> 0:10:09.360 tell us is there going to be a turn? So 0:10:09.400 --> 0:10:11.559 we watch for that in a very simplified way. 0:10:11.559 --> 0:10:16.280 That's what we're doing. Cycles. Let's look at the twenty twenties, 0:10:16.679 --> 0:10:19.880 but within the context of what came before the twenty tens. 0:10:21.000 --> 0:10:26.640 The FED talked pretty continuously in the prior decade about 0:10:27.080 --> 0:10:32.240 the challenge of getting inflation up to two percent. We 0:10:32.240 --> 0:10:37.079 were in a disinflationary environment, sometimes a deflationary environment around 0:10:37.120 --> 0:10:40.280 a lot of the world. Interest rates had gone negative, 0:10:41.080 --> 0:10:45.040 and that decade seemed to be our risk is now 0:10:45.160 --> 0:10:47.800 deflation like Japan. That's what we have to be on guard. 0:10:48.440 --> 0:10:54.400 Suddenly the decade flips, the pandemic starts. The Cares Act, 0:10:54.480 --> 0:10:59.320 the first one was the biggest fiscal stimulus since World 0:10:59.320 --> 0:11:03.800 War two, ten percent of GDP, The whole regime changes, 0:11:03.840 --> 0:11:06.440 and now we're off in a completely different cycle. Or 0:11:06.480 --> 0:11:08.640 is that just making it too simple and easy. 0:11:09.480 --> 0:11:13.440 No, something has changed. I let's agree on that. Something happened. 0:11:14.520 --> 0:11:17.400 Something happened, Okay, But look, if we're going to talk 0:11:17.400 --> 0:11:21.560 about the twenty ten's, in a way, what you're dealing 0:11:21.600 --> 0:11:23.560 with is there was a bit of a freak out 0:11:23.640 --> 0:11:25.040 after the financial crisis. 0:11:25.120 --> 0:11:28.960 Right, So we talk about the previous decade for context, 0:11:28.960 --> 0:11:29.680 you got to look at. 0:11:29.559 --> 0:11:32.760 The there's a there's a history thing. Yeah, this history thing. 0:11:32.800 --> 0:11:34.960 So in April of twenty twenty, there was a G 0:11:35.080 --> 0:11:40.960 twenty meeting in London and the primary concern was depression. Right, Okay, 0:11:41.000 --> 0:11:43.640 I mean, that's what the main headline was. And so 0:11:43.760 --> 0:11:47.160 and actually we were beginning our business cycle recovery right 0:11:47.160 --> 0:11:48.840 around then. It was starting. It was going to start 0:11:48.880 --> 0:11:51.480 in the summer. But nevertheless, the powers that be were 0:11:51.480 --> 0:11:54.520 focused on depression and they had it was almost like 0:11:54.559 --> 0:11:57.600 you don't let any crisis, good crisis, go to waste 0:11:57.720 --> 0:12:02.160 that quote, right, So here we have of massive stimulus 0:12:02.600 --> 0:12:06.439 put in in all these different programs, and we go 0:12:06.480 --> 0:12:07.920 off on this spending spray. 0:12:08.200 --> 0:12:10.439 And it wasn't just us, right, it was around the world. 0:12:10.480 --> 0:12:13.040 It was around the world, and in particular in China, 0:12:13.640 --> 0:12:16.960 where I love the statistic. In three years from eleven 0:12:17.000 --> 0:12:20.960 twenty eleven to thirteen, they poured more cement in China 0:12:21.080 --> 0:12:24.920 than the United States did in the entire twentyth century, right, 0:12:25.120 --> 0:12:26.559 I recall that, which is insane. 0:12:26.760 --> 0:12:31.160 But that's the fascinating thing about the twenty tens was 0:12:31.240 --> 0:12:36.160 that while Asia and China in particular were engaging in 0:12:36.240 --> 0:12:40.160 a massive fiscal spend, there was austerity in the UK, 0:12:40.600 --> 0:12:43.959 there was week spending in Europe and the US. It 0:12:44.040 --> 0:12:46.720 was pretty much all monetary, no fiscal. 0:12:46.360 --> 0:12:48.920 All monetary, no fiscal. So you have the stalemate or 0:12:48.920 --> 0:12:52.480 whatever logjam in Washington. I agree that you have monetary 0:12:52.600 --> 0:12:56.600 the lift is being done on the monetary side of policy. 0:12:56.440 --> 0:13:00.920 But the result of this whole thing, and now I'm 0:13:01.000 --> 0:13:06.280 I'm painting in broad brushstrokes US inflation services inflation is 0:13:06.280 --> 0:13:11.520 actually positive for much of the decade. It's really goods disinflation, 0:13:11.840 --> 0:13:17.680 which is ripping stuff down to which monetary policy is saying, oh, 0:13:17.800 --> 0:13:21.800 you know, we're gonna somehow combat this with more stimulus 0:13:21.880 --> 0:13:26.280 or easiness or whatever. And it doesn't really work that way, right, right, 0:13:26.720 --> 0:13:28.719 but it inflated some things. Right. 0:13:29.120 --> 0:13:32.719 If low rates weren't the cause of inflation, well, why 0:13:32.760 --> 0:13:35.480 would you think high rates are going to impact You know, 0:13:35.520 --> 0:13:39.079 there's got to be some causality in between the solution 0:13:39.200 --> 0:13:39.800 and the outcome. 0:13:39.880 --> 0:13:42.880 And so we have this, We have this China price 0:13:42.920 --> 0:13:46.440 being set. We have the supply chains being optimized for 0:13:47.080 --> 0:13:50.559 that as opposed to robustness, which came back with a 0:13:50.679 --> 0:13:53.680 vengeance once things went off the rails with the supply 0:13:53.760 --> 0:13:59.679 chains when COVID hit. So with I mean, I'm skipping 0:13:59.720 --> 0:14:02.520 over a lot of this qy kind of stuff that 0:14:02.559 --> 0:14:04.439 we were really mired. 0:14:04.120 --> 0:14:08.240 In that quantitative easy We now have the opposite of 0:14:08.280 --> 0:14:09.240 a quantitative titan. 0:14:09.480 --> 0:14:12.520 Well, to a degree. We have a little bit of it. 0:14:12.840 --> 0:14:15.080 We'll see how far it goes. It was very fascinating. 0:14:15.440 --> 0:14:17.679 I'm sorry, I'm jumping around here. No, it was very 0:14:18.040 --> 0:14:20.480 It was very fascinating because Japan the other day the 0:14:20.480 --> 0:14:21.440 Bank of Japan. 0:14:21.320 --> 0:14:24.640 Raised rates for the first time in seventeen years. 0:14:25.240 --> 0:14:27.360 Okay, so it's a big deal, right, I mean, it 0:14:27.400 --> 0:14:31.680 was a minuscule rate rise, But and they're doing this 0:14:31.760 --> 0:14:35.400 because they have a little bit of inflation, which they 0:14:35.400 --> 0:14:39.000 haven't seen in a long time, and so they're like, oh, okay, 0:14:39.000 --> 0:14:41.840 we're going to respond to that, but they actually can't. 0:14:41.960 --> 0:14:45.440 It's a paper tiger. They can't really raise rates because 0:14:45.520 --> 0:14:50.240 the country is so indebted that they can't service any 0:14:50.480 --> 0:14:51.160 higher rate. 0:14:51.400 --> 0:14:55.920 So they've been the post of child to the argument, 0:14:55.960 --> 0:15:01.080 who cares about deficits because they've been running deficits for forever, 0:15:02.080 --> 0:15:06.880 in part because of their demographic problems, rescued in large 0:15:06.880 --> 0:15:09.840 part because they've been an exporter since the end of 0:15:09.880 --> 0:15:10.440 World War Two? 0:15:10.640 --> 0:15:15.320 Yeah, can you just print money and run deficits of 0:15:15.520 --> 0:15:19.560 very large sizes forever? And to many of us, we 0:15:19.600 --> 0:15:21.920 would say, well, it doesn't sound like. 0:15:22.880 --> 0:15:26.920 That could work, But you're pushing it. And yet since 0:15:27.040 --> 0:15:31.720 I graduated college in the nineteen eighties, all I have 0:15:31.920 --> 0:15:36.120 heard is if with the US runs big deficits, well 0:15:36.160 --> 0:15:39.240 that'll be the demise of the dollar. Inflational run am uck, 0:15:39.680 --> 0:15:42.920 you'll crowd out private capital. No will leend money to 0:15:43.000 --> 0:15:45.920 Uncle Sam. And all the things that I have been 0:15:46.080 --> 0:15:50.480 told are the manifestation of deficits. None of them have 0:15:50.560 --> 0:15:54.760 come true. At a certain point, I think perhaps something 0:15:54.800 --> 0:15:59.040 goes wrong. But after being wrong for fifty years, it 0:15:59.240 --> 0:16:02.720 kind of makes me look at the people warning about 0:16:02.720 --> 0:16:05.880 deficits and saying, I don't know, You've had half a 0:16:05.920 --> 0:16:08.640 century to get this right, and everything you've said has 0:16:08.680 --> 0:16:11.560 been false. Why should I listen to you today? Well, 0:16:11.560 --> 0:16:14.000 this time was serious. Yeah, it's weird. 0:16:14.320 --> 0:16:19.720 It's a really interesting question. So post GFC, we ran 0:16:19.800 --> 0:16:24.080 up the debt towards ten trillion, maybe just under ten trillion, 0:16:24.200 --> 0:16:27.680 and then post COVID we're north of thirty right in 0:16:27.720 --> 0:16:31.160 the US right, so who knows? I don't know. 0:16:31.200 --> 0:16:32.040 Could we do sixty? 0:16:33.160 --> 0:16:34.320 I at this point, I don't know. 0:16:34.400 --> 0:16:38.120 The thinking is at some point eventually I remember the 0:16:38.200 --> 0:16:40.760 weight of that. You're old enough to Remever, now I'm 0:16:40.760 --> 0:16:41.480 sorry I'm. 0:16:41.320 --> 0:16:43.400 So sorry for the younger listeners. But I got to 0:16:43.440 --> 0:16:47.960 go back even further to President Clinton's Bill Clinton's first term. 0:16:48.520 --> 0:16:51.280 When do we balance the budget? Was it the first term? 0:16:51.880 --> 0:16:53.960 Towards the end it says in the second term he 0:16:54.520 --> 0:16:57.320 got into surplus. But in the first term he comes in. 0:16:58.160 --> 0:16:59.840 I think he's got he's got the whole thing, right, 0:16:59.880 --> 0:17:02.480 he's got the full hand, right, he's got a full house, 0:17:02.480 --> 0:17:04.960 he's got the Congress and Senate him. And he's in there, 0:17:06.200 --> 0:17:08.480 and they're going to go to town. They got programs, 0:17:08.720 --> 0:17:11.440 and the bond market says, no, you don't and raises 0:17:11.720 --> 0:17:16.280 raise long term rates, and they and Jim Carville very 0:17:16.840 --> 0:17:18.399 and he comes back. He says, you know, look, I 0:17:18.400 --> 0:17:20.200 would have I would have wanted to come back as 0:17:20.280 --> 0:17:24.280 the president, the pope, a four hundred hitter in baseball. 0:17:24.560 --> 0:17:26.600 But actually, now you want to be a bond the 0:17:26.640 --> 0:17:28.240 bond market. It's the most powerful thing. 0:17:28.280 --> 0:17:31.119 I want to be reincordinated as the bond Madler. It's 0:17:31.160 --> 0:17:31.920 such a great. 0:17:31.760 --> 0:17:34.840 So do the vangilantes come back. We'll see. I don't know. 0:17:35.520 --> 0:17:39.600 It's really quite a fascinating story. I'm not necessarily a 0:17:39.640 --> 0:17:44.920 member of either the fiscal hawks or the m MTS. 0:17:45.600 --> 0:17:50.840 I think both extremes in any circumstance, raised questions. But 0:17:50.920 --> 0:17:56.800 I have a hard point getting past all the forecasts 0:17:56.840 --> 0:17:58.520 about here are the terrible things that are going to 0:17:58.560 --> 0:18:02.320 happen from the eighties. Yeah, and if nothing happens in 0:18:02.359 --> 0:18:06.880 forty years, well kind of it makes me say, all right, 0:18:06.920 --> 0:18:09.879 we have to break this down to first principles and 0:18:09.960 --> 0:18:15.040 figure out why are deficits problematic? How do the negativities 0:18:15.560 --> 0:18:19.080 manifest themselves? And how can we check if we're right 0:18:19.200 --> 0:18:21.920 or wrong? What's the line in the sand that says, uh, 0:18:21.960 --> 0:18:23.840 we got this right or we got this wrong. 0:18:25.160 --> 0:18:28.760 You have a lot of different levers being pulled, with 0:18:28.880 --> 0:18:33.159 a lot of different frameworks on how the economy runs 0:18:33.160 --> 0:18:38.639 and works. Now, to our great benefit, we're in a 0:18:39.520 --> 0:18:42.840 in economies for the most part, that are dominated by 0:18:42.880 --> 0:18:48.000 free market oriented activity, which has inherent in it a 0:18:48.160 --> 0:18:52.919 very Darwinian type of regulation. This is that I'm talking about, Like, 0:18:53.040 --> 0:18:56.639 why do economies accelerate and decelerate? You know, so before 0:18:56.680 --> 0:18:59.120 we had policymakers, before you had the FED, you still 0:18:59.160 --> 0:19:02.719 had cycles. Okay, it's not like cycles are new, and 0:19:02.760 --> 0:19:05.440 it's not like cycles didn't turn up and down without 0:19:05.520 --> 0:19:06.440 policy intervention. 0:19:06.520 --> 0:19:07.280 They did. 0:19:08.160 --> 0:19:12.000 So there is a mechanism under there that is kind 0:19:12.040 --> 0:19:18.760 of optimizing or penalizing decision making. And when we look 0:19:18.800 --> 0:19:23.280 at forecasts that are made, right, what you're really doing, 0:19:23.960 --> 0:19:25.760 I think it's not so much. Hey, I think it's 0:19:25.760 --> 0:19:27.080 going to be one and it said it was I 0:19:27.160 --> 0:19:29.840 right or wrong? Right, that's I don't think. I think 0:19:29.840 --> 0:19:33.280 that's kind of a fool's game. It's managing risks. What 0:19:33.440 --> 0:19:36.080 is the risk that things are going to go the 0:19:36.080 --> 0:19:40.000 other way than what everybody's thinking. Because as a decision maker, 0:19:40.200 --> 0:19:42.119 it's easy enough to go with the crowd. You know, 0:19:42.960 --> 0:19:47.120 it probably feels less risky everybody else is doing it whatever. 0:19:47.440 --> 0:19:50.640 The interesting and tough thing is when you deviate from 0:19:50.640 --> 0:19:51.080 the crowd. 0:19:51.720 --> 0:19:54.880 Right, When you deviate from the crowd, this career risk 0:19:55.520 --> 0:19:58.080 when you're wrong with the crowd. All right, I was wrong, 0:19:58.080 --> 0:19:59.720 but so is everybody else correct? 0:20:00.080 --> 0:20:03.880 And so but now let's take this to an economy 0:20:04.040 --> 0:20:08.840 or a business, so it's policy or private business decision making. 0:20:09.880 --> 0:20:12.760 I think for an economy theory, you want this to 0:20:12.800 --> 0:20:19.080 be healthy, strong, growing, improving quality of life, which probably 0:20:19.119 --> 0:20:24.399 means not crazy inflation, but decent growth. Which is going 0:20:24.440 --> 0:20:27.800 to be related to productivity growth on some level. And 0:20:27.880 --> 0:20:31.880 so how do you achieve all of that? Well, one 0:20:31.920 --> 0:20:35.720 way to move towards that is to smooth out the 0:20:35.800 --> 0:20:40.160 cycle a bit. Okay, Booms and busts are very. 0:20:40.119 --> 0:20:44.320 Very freaky, right. They disruptive, They scare you right. 0:20:44.720 --> 0:20:46.800 On the one hand, you're like, the sky is falling, 0:20:46.840 --> 0:20:48.920 I got a baton down the hatches. That's that's very 0:20:48.960 --> 0:20:51.560 expensive and disruptive. On the other hand, when you're in 0:20:51.600 --> 0:20:56.280 a boom, you start taking pretty crazy risks, right because 0:20:56.320 --> 0:20:58.240 you say I'm going to the fear of missing out 0:20:58.359 --> 0:21:01.560 kicks in and you start to really overextend yourself. 0:21:02.480 --> 0:21:05.760 And by the way, we saw that at the end 0:21:06.000 --> 0:21:09.600 of the nineteen nineties, the eighty two to two thousand cycle. 0:21:10.280 --> 0:21:15.239 We certainly saw that in a different asset class in 0:21:15.280 --> 0:21:18.840 the two thousands with houses and mortgages. And then the 0:21:19.000 --> 0:21:22.680 question is are we seeing that today when we look 0:21:22.720 --> 0:21:26.080 around at tech and AI and things that we think 0:21:26.119 --> 0:21:29.480 are going to change the future. Have we gotten into 0:21:29.520 --> 0:21:31.240 that fomo things are out of hand? 0:21:31.280 --> 0:21:34.399 Face? I think so, because let me just tell you 0:21:34.440 --> 0:21:36.600 the story of our indicators over the last couple of years. 0:21:36.640 --> 0:21:39.120 Because that sets steady answers this question in a way. 0:21:39.840 --> 0:21:46.000 So the indicators, first off, they shoot up in twenty twenty, right, 0:21:46.080 --> 0:21:49.840 so we see the short and nasty short recession we 0:21:49.840 --> 0:21:52.359 were writing about, right, and so we get that correct, 0:21:52.359 --> 0:21:55.640 and there's a lot of hand ringing that we all 0:21:55.680 --> 0:21:59.200 felt later in twenty twenty and twenty one. 0:21:59.200 --> 0:22:00.359 I'm not denying. 0:22:00.080 --> 0:22:02.640 Any of that. The indicators don't feel any of that, right, 0:22:02.640 --> 0:22:06.040 They're just we're moving to the upside, and so they're 0:22:06.160 --> 0:22:10.399 directionally giving us this upside tilt in the way that 0:22:10.480 --> 0:22:11.600 we're looking. 0:22:11.280 --> 0:22:15.720 At risk separate from the way people experience it, which 0:22:15.800 --> 0:22:20.359 is after any sort of break or crash or even 0:22:20.520 --> 0:22:25.959 short reception, there's that PTSD that follows. In fact, we 0:22:25.960 --> 0:22:29.040 were talking earlier about the GFC in eight oh nine, 0:22:30.000 --> 0:22:33.560 I have a vivid recollection as talking to people in 0:22:33.600 --> 0:22:37.359 twenty ten, twenty twelve, as late as twenty fifteen, still 0:22:37.359 --> 0:22:40.480 talking about I'm still waiting for the other and shoot 0:22:40.480 --> 0:22:41.120 a drop. 0:22:41.000 --> 0:22:44.280 It manifested even I think, you know, maybe in order 0:22:44.320 --> 0:22:48.160 of magnitude or post COVID from what you just described. 0:22:48.040 --> 0:22:51.240 People did not believe the rally off of the March life. 0:22:51.440 --> 0:22:55.240 So two big things happen one preceded COVID. I'm just 0:22:55.320 --> 0:23:00.520 talking numbers here. It's not nothing else but legal migration 0:23:01.320 --> 0:23:04.439 kind of round to a halt during the Trump administration. 0:23:04.520 --> 0:23:07.160 That runs about a million people a year. So over 0:23:07.200 --> 0:23:08.320 the course of four years. 0:23:08.200 --> 0:23:12.040 We're not talking Mexican border. We're talking about legal immigrants 0:23:12.640 --> 0:23:14.480 with a green card and the right to work. 0:23:14.600 --> 0:23:16.840 It's about so you lose on the order of four 0:23:16.840 --> 0:23:18.600 million people out of the workforce. I mean, look, we 0:23:18.640 --> 0:23:21.399 have a big workfurse, but it's noticeable number, right, And 0:23:21.440 --> 0:23:25.159 then you have COVID, and regardless of the shutdowns in 0:23:25.200 --> 0:23:27.359 this and that a lot of people didn't come back 0:23:27.400 --> 0:23:30.080 to the workforce. You lose another serious hunks. 0:23:30.119 --> 0:23:32.120 So a million people all I'm describing. 0:23:32.520 --> 0:23:37.479 Look, I am i am very empathetic to the human 0:23:38.200 --> 0:23:41.320 cost here, but I'm just saying from an economic counting 0:23:41.320 --> 0:23:44.000