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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. Okay,

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Speaker 1: this week on our podcast, we have UM one of

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Speaker 1: our first repeat guests. His name is Dave Rosenberg, better

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Speaker 1: known as Rosie. I know him from back in the

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Speaker 1: days when he was Merrill Lynch's chief economist and a

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Speaker 1: raging bear a couple of years early, but ultimately proven

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Speaker 1: to be right. UM. One of the things I found

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Speaker 1: fascinating about Dave is that in um Or or earlier,

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Speaker 1: he flipped to the bullish side after having been somewhat

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Speaker 1: cautious coming out of the UH financial crisis, and people

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Speaker 1: kicked and screamed, Dave the bear, how can you go bullish?

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Speaker 1: And he said, the data proved it, so I have

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Speaker 1: to go bullish. So I've always respected that, Hey, this

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Speaker 1: position is wrong and I can't stay this way. I'm

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Speaker 1: gonna reverse myself. Not a lot of people on Wall

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Speaker 1: Street UM do that very comfortably. The other reason I

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Speaker 1: wanted to bring Dave back was we both presented at

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Speaker 1: a conference this weekend and I saw him on a panel.

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Speaker 1: I mean, we hung out and chatted a bit, but

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Speaker 1: I saw him on a panel with three other people

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Speaker 1: and he hinted at some of his views on the

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Speaker 1: FED and the economy and non farm payrolls and inflation

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Speaker 1: and and what we're looking at in the markets. And

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Speaker 1: it was really just a taste, and I wanted to

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Speaker 1: sit down and have the full meal. For those of

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Speaker 1: you who are interested in economic data, I don't even

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Speaker 1: know how else to describe this. Davi is an idiot

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Speaker 1: savant with data in a way that few economists can.

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Speaker 1: He has an encyclopedic knowledge of how all these different

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Speaker 1: moving parts interact. We didn't really talk about um random dates,

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Speaker 1: but we've had dinner in the past where I said,

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Speaker 1: you know, February two thousand and three, He's like, oh yeah,

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Speaker 1: non farm payroll was a fourteen thousand that month. Not

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Speaker 1: a great month. The guy is a walking encyclopedia and

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Speaker 1: understands how to put it into context and what it

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Speaker 1: means to both the economy and the stock market. If

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Speaker 1: you like economics, if you like that sort of data analysis,

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Speaker 1: I think you're gonna find this to be a fascinating,

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Speaker 1: albeit wonky conversation. Um So, without any further ado, here

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Speaker 1: is my chat with David Rosenberg. This is Masters in

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Speaker 1: Business with Barry Ridholts on Bloomberg Radio. My guest this

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Speaker 1: week David Rosenberg. You might know him from when he

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Speaker 1: was chief economist of Merrill Lynch. He's currently chief market

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Speaker 1: strategist and chief economist at Gluston Chef out of Toronto,

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Speaker 1: New York. Dave, Welcome to Bloomberg. Good to be back, Barry.

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Speaker 1: So let me tell you why I'm having Dave on

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Speaker 1: for a second time. You are one of the few

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Speaker 1: repeat guests. The previous repeat guest was some guy named

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Speaker 1: Arthur Levitt who was chairman of the SEC. But other

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Speaker 1: than him, you're the first repeat guest. I think I

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Speaker 1: think I was your first guest. What you almost two

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Speaker 1: years ago? You were one of, if not the very

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Speaker 1: first guests that we recorded with. We had done a

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Speaker 1: few dry runs and then we brought you in, and

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Speaker 1: I think you were the first guest that we actually

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Speaker 1: recorded and used the podcast of I think I heard

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Speaker 1: you tell somebody, uh, Rosie's my guinea pig. That's right,

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Speaker 1: That's exactly right. So um, let me tell you why

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Speaker 1: I brought you back, Not to be a guinea pig.

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Speaker 1: Dave and I were at a conference this past weekend

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Speaker 1: in Miami, Florida. I gave a presentation on risk. Dave

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Speaker 1: gave a presentation, as he usually does, on the state

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Speaker 1: of the economy, and it's a holistic every data point

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Speaker 1: you could think of put into really interesting context. And

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Speaker 1: when I sat through a panel that Dave was on

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Speaker 1: with four people, my thoughts were, I want to hear

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Speaker 1: more of what Dave has to say about where we

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Speaker 1: are in the state of the economy. Talk about non

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Speaker 1: fund payroll talk about the FED, talk about what this

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Speaker 1: means for investors, interest rates, talk about the economic profession.

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Speaker 1: And I didn't get enough Dave, So I said, Dave,

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Speaker 1: why don't you come on the show this week and

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Speaker 1: we'll spend some time. This is really the most fascinating

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Speaker 1: time to be an economist. Um following last week's non

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Speaker 1: farm payrolls and all the angst, uh storm and drang

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Speaker 1: over the FED, so let's let's have at it. Let's

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Speaker 1: jump right into this. Last week we saw a huge

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Speaker 1: non farm payrolls report, two one new jobs created, unemployment

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Speaker 1: rate effectively cut in half from the financial crisis peak.

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Speaker 1: What does this mean for global economy? What does this

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Speaker 1: mean for the Fed? Let's let's start out simple and

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Speaker 1: say What does this new payroll report mean for the

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Speaker 1: US economy? Well, I think that it needs a little

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Speaker 1: bit of context. Fire away. Well, if you remember, before

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Speaker 1: we got the October payroll number, just over a month ago,

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Speaker 1: we also got the September number, which at that point

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Speaker 1: was putred media age growth, apparently validating the FEDS no

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Speaker 1: move in September. And actually I started hearing people talking

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Speaker 1: about the prospect of a recession. Now let me let

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Speaker 1: me interrupt you right there, because I know I've been

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Speaker 1: reading Breakfast with Dave for a million years. That's Dave's

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Speaker 1: daily Market and Economic When I was writing it for

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Speaker 1: t Rex, you made that's exactly right, the the usual

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Speaker 1: inditia of recession that you track. What do you see

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Speaker 1: along those lines? Okay, well you know we'll well, we'll

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Speaker 1: get to the recession indicators. I mean we can we

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Speaker 1: can debate whether the economy slows down or speeds up

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Speaker 1: next year. I think a recession is probably as close

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Speaker 1: to zero percent odds as anything in this world. Nothing eminent,

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Speaker 1: not seeing any sign, No, not not not at all.

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Speaker 1: But the point I was making when I said about

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Speaker 1: the perspective of the contest next of the October payroll number,

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Speaker 1: which was actually one of the best employment numbers of

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Speaker 1: the cycle. Was you have to take a look at

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Speaker 1: in the context of what we saw in September UH,

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Speaker 1: and the truth is usual somewhere in the middle. I

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Speaker 1: think that the the let's finish the angst after September

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Speaker 1: number was overdone. I think maybe a bit of the

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Speaker 1: euphoria after the October number could be a little overdone.

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Speaker 1: I think that UM, it just validates the view that

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Speaker 1: the U. S economy is doing okay, maybe a little

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Speaker 1: bit better than okay. To me, what really stood out

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Speaker 1: was this UH the view that this combination of a

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Speaker 1: super strong US dollar UH and the weakness that we're

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Speaker 1: seeing in various parts of the world, particularly emerging markets,

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Speaker 1: was going to come back and push the manufacturing sector

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Speaker 1: into a downturn that would then cause a generalized malaise

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Speaker 1: in the economy. Well, the reality is that that view

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Speaker 1: has so far been proven to have been wrong, because

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Speaker 1: we didn't have any manufacturing jobs created last month. And

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Speaker 1: yet somehow, and yet, somehow, an economy that is actually

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Speaker 1: driven in part by construction, you can say, in part

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Speaker 1: by government. Certainly it's a service sector economy outside of manufacturing,

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Speaker 1: still generated, as you said, bury two net new jobs.

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Speaker 1: Then there's been all the narrative. Well, I would say

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Speaker 1: for the past year, UH that the downdraft in oil

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Speaker 1: was a net negative for the US economy, that it

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Speaker 1: was going to destroy the Montanas, the Dakota's Texas, and

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Speaker 1: to spring down the US economy because apparently over a

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Speaker 1: five year period all the jobs that were created was

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Speaker 1: in shale. Well, once again, we had a month where

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Speaker 1: no growth in manufacturing. UH, the resource sector actually had

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Speaker 1: a fractually negative job market performance, and the economy, what

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Speaker 1: do you know, generated two seventy one thousand net new jobs.

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Speaker 1: So I think what's happening is that the fallacy UH,

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Speaker 1: that the strong dollar and the weaker mergy markets we're

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Speaker 1: going to bring the U s economy to its knees.

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Speaker 1: Right now, we're putting the rat in the laboratory. That

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Speaker 1: thesis has been proven wrong. I'm quite actually content with that.

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Speaker 1: And the view that the shale UH contraction was going

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Speaker 1: to create a major domino effect through the economy has

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Speaker 1: been proven wrong as well. So in the last thirty

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Speaker 1: seconds we have in this segment, you you alluded to

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Speaker 1: something earlier, and I want to give you a chance

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Speaker 1: to expound on it. Uh, employment data, it's a fairly

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Speaker 1: noisy series, isn't it. Well, you know, it's interesting. The

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Speaker 1: household survey is certainly volatile. The payroll survey tends to

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Speaker 1: be more stable, which is why the markets have already

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Speaker 1: paid more attention to it. But it has been a

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Speaker 1: little bit more jumpy, which is why always any economists

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Speaker 1: will tell you focus on the three months, six month,

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Speaker 1: even the twelve month. Friend, the data telling you the

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Speaker 1: economy is in decent shape. Full stop. I'm Barry rid Hult.

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Speaker 1: You're listening to Master's Business on Bloomberg Radio. My guests

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Speaker 1: this week David Rosenberg. He is the chief economist and

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Speaker 1: strategist at Gluskin Chef. We were talking earlier about the

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Speaker 1: non farm payrolls data and how sometimes that series can

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Speaker 1: be a little bit noisy, especially the household survey. What

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Speaker 1: does that mean for the Fed? That is quote unquote

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Speaker 1: data driven. I think the Fed has already laid down

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Speaker 1: its cards and even the doves are running for cover.

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Speaker 1: So um, my sense now was that the Fed took

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Speaker 1: a pass in September primarily because of the global turmoil.

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Speaker 1: And uh, why is a cute market. Why is that?

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Speaker 1: Why do we think that emerging market downtown in the

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Speaker 1: Shanghai Index? Why should that impact the Fed? No? No, no,

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Speaker 1: Well it wasn't just the Shanghai Index at that point.

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Speaker 1: I mean you had a situation where credit spreads in

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Speaker 1: the US for widening dramatically. Uh. You had a situation

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Speaker 1: where over half the stock market was down at least

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Speaker 1: from the high. So basically what had happened at that

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Speaker 1: point was we had a major tightening in domestic financial conditions,

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Speaker 1: and so the FED went to the sidelines. You know, look,

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Speaker 1: reality is this. Uh. You know, we tend to get

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Speaker 1: a little myopic in the marketplace. I'm a market participant. Uh.

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Speaker 1: They do have eight meetings a year. So they took

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Speaker 1: a pass um the economy is in fine shape. The

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Speaker 1: bottom line here is the desperate desire by the FIT

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Speaker 1: to move off of zero. That's what it is all about.

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Speaker 1: Move off of zero normalizing. Just as we don't need

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Speaker 1: QUI anymore, they ended que and once again, let's attack

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Speaker 1: the narrative. The narrative was that as soon as they

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Speaker 1: ended QUI, which was October of last year, the economy

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Speaker 1: was going to crumble, go down to it sneeze, they

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Speaker 1: ended QUWI. No such thing happened round And if you

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Speaker 1: go back to and Yellen was telling us what the

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Speaker 1: time lag was between the end of QUEI and the

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Speaker 1: first rate hike, she inadvertly had mentioned six months. Well,

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Speaker 1: my good friend Barry, it's already been more than a year,

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Speaker 1: so you know what, it's high time to move off

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Speaker 1: of zero. And at the same time, when it comes

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Speaker 1: to December sixteenth, and they probably will at this point

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Speaker 1: raise rates. It's what they say that's gonna matter, and

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Speaker 1: they will continue to reaffirm the view that this is

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Speaker 1: not going to be your big brother's, your father's, or

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Speaker 1: your grandfather's tiding cycle. It's going to be truncated. They

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Speaker 1: could easily signal that not that they're one and done,

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Speaker 1: but they're gonna move and then pause an assess so

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Speaker 1: that this is not going to be the fed of old.

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Speaker 1: When it became an exercise of eating potato chips, you

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Speaker 1: just can't stop. At one, two thousand five, two thousand six,

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Speaker 1: two thousand seven. We saw once the tightening cycle began,

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Speaker 1: it was pretty much straight up right into the teeth

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Speaker 1: of a recession. Same thing. This is a very different cycle.

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Speaker 1: Low and slow. Is that the big difference, Barry. You

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Speaker 1: go back to the uh. You know, you go back

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Speaker 1: to look at you did have a big inflation problem

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Speaker 1: that had to be circumvented. You go out to the

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Speaker 1: late ninety nineties, we had a tech bubble that the

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Speaker 1: FED had to get ahead of. Um. You go back

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Speaker 1: to that period, You're quite right to look two thousand

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Speaker 1: and four, they start to raise rates. They went from

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Speaker 1: one percent to five and a quarter in two years.

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Speaker 1: And not the most ardent hawk or bond bear saw

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Speaker 1: that coming. Um. But the FED had a big bubble

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Speaker 1: on its hands. It was the housing incredib bubble. I'm

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Speaker 1: looking around trying to find where the bubble is. There

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Speaker 1: might be little pockets of bubbles here and there, but

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Speaker 1: nothing and certainly no inflation bubble just yet to cause

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Speaker 1: the FAT to have to raise rates at every single meeting.

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Speaker 1: So my sense is that they raise they reaffirmed this

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Speaker 1: notion lore for longer. Uh and um. And we'll take

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Speaker 1: it from there. But what I will say is that

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Speaker 1: comes back to your question about the recession. Recessions have

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Speaker 1: never started after the first rate hike. The recession start

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Speaker 1: after the last rate hike. So if you're worried about

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Speaker 1: the rate hike December six and sure there'll be more volatility.

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Speaker 1: We're gonna stress test liquidity in the bond market, no

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Speaker 1: question about that. You might want to have a little

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Speaker 1: more cash on hand going in next year for optionality purposes.

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Speaker 1: It doesn't mean that it's the end of the cycle.

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Speaker 1: The cycle ends every time after the last rate hike

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Speaker 1: because it's the last rate hike that ultimately brings the

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Speaker 1: economy to its knees. So if that's your view, then

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Speaker 1: you have to believe that the first rate hike is

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Speaker 1: going to be the last rate hike. And I don't

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Speaker 1: believe that for a second. So let's take the other

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Speaker 1: side of the trade. What happens if they don't hike

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Speaker 1: in December. What sort of a signal does that send?

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Speaker 1: What are the implications? Well, if they don't hike, and

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Speaker 1: if they don't hike on December sixteenth, I'm nervous, and

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Speaker 1: I'll tell you why. And it's not because of what

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Speaker 1: happens on December sixteenth. That's that's something happened and the

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Speaker 1: lead up to December sixte that caused them not to

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Speaker 1: raise rates. So basically, the picture you're painting Barry is

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Speaker 1: that U is a repeat of a cosm to go

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Speaker 1: on the sidelines in September, which is that we have

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Speaker 1: once again a major tightening of financial conditions. So stock

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Speaker 1: market correction, widening spreads, or something nefarious is happening because

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Speaker 1: they are right now once again setting the table for us.

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Speaker 1: If they don't follow through, they suffer a credibility problem. Uh.

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Speaker 1: If they don't follow through borrowing a credibility problem, it's

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Speaker 1: because something else happened along the way that if your

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Speaker 1: long risk is not going to make it too happy,

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Speaker 1: it's gonna make people think, what do they know? That?

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Speaker 1: What are they seeing? Then I'm not seeing? Well, no,

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Speaker 1: I don't well, you know. The thing is that that's

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Speaker 1: what people were saying in September. But the reality is

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Speaker 1: that it's not what do they see, We don't know.

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Speaker 1: We know what we know. What is that half the

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Speaker 1: stock market was down and credit spreads are widening inexorably.

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Speaker 1: So the fact is the fact is that some people

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Speaker 1: thought that the febs just going to look through that

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Speaker 1: tightening of financial conditions and still raise rates. But the

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Speaker 1: reality is that they didn't look through that tightening of

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Speaker 1: financial conditions. They weren't sure if things are going to

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Speaker 1: subside or not. Well, they have subsided. Now the prospect

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Speaker 1: of the first rate hike in nine years is on

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Speaker 1: the table if they don't move at this stage. Look,

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Speaker 1: they basically set the bar very low. It's not as

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Speaker 1: if things have to get better. They just don't have

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Speaker 1: to get worse. And they are going to race rates.

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Speaker 1: But if we haven't another going to go, they're going

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Speaker 1: to go to fifty. Because so we're really well, let's

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Speaker 1: look they people are talking they can go in eighth.

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Speaker 1: I mean, we're we're in arrange. Look there's other mechanisms also,

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Speaker 1: what do they do with the U uh, with the

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Speaker 1: interest rate in excess reserves? Uh, you know, we're we're

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Speaker 1: in a whole new realm of healthy operating monetary policy.

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Speaker 1: But my sense is that if we're talking about my

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Speaker 1: view on what it will mean for basis point impact,

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Speaker 1: it's probably going to be twenty five basis points, all right.

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Speaker 1: And we didn't really get to talk about earnings yet.

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Speaker 1: Since the financial crisis lows, we've seen earnings rise over

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Speaker 1: a hundred percent from their bottom and stocks have risen

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Speaker 1: over two You mentioned energy before, what are you looking

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Speaker 1: at in terms of this so called earnings recession driven

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Speaker 1: by energy verry, you have earnings contractions in about half

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Speaker 1: the market, earnings positive and half the market. And it's

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Speaker 1: been a very usyncratic stock specific um sector selection market

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Speaker 1: this year. It's not been a market that you buy

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Speaker 1: the index. The bottom line is at stay away from

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Speaker 1: the areas UH that have excess valuation, that are hits

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Speaker 1: to the foreign economy, that are vulnerable to the US dollar.

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Speaker 1: The bottom line is that for all the talk of

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Speaker 1: what a bad market it's been this year, in earnings procession,

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Speaker 1: the best performing sector is consumer discretionary over ten percent

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Speaker 1: capital appreciation this year over ten percent earnings growth. Now

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Speaker 1: understand the consumer discretionary might be between ten and of

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Speaker 1: the SMP market cap, but it represents seventy GDP. How

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Speaker 1: bad can things possibly be when consumer cyclicals are seeing

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Speaker 1: ten percent plus earnings growth and ten percent price appreciation

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Speaker 1: all the same year. I'm Barry rid Help. You're listening

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Speaker 1: to Master's Business on Bloomberg Radio. My guests this week

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Speaker 1: David Rosenberg. He is the chief economist and strategist at

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Speaker 1: Gluskin Chef in Toronto, Canada, and pretty much around the world.

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Speaker 1: And previously we were discussing um, the energy contraction, that

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Speaker 1: we've had a huge drop in oil prices. Let's talk

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Speaker 1: a little bit about commodities. Copper cut in half, oil

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Speaker 1: cut in half, a lot of the industrial metals iron

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Speaker 1: zinc doing really poorly now a generation ago. That would

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Speaker 1: be a warning from Dr Copper that a recession is coming.

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Speaker 1: But you're saying there's no sign of a recession on

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Speaker 1: the horizon. What does it mean that the various um

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Speaker 1: commodities are getting gobsmacked like this? Well, you know, I

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Speaker 1: never would have said that copper price alone would have

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Speaker 1: signaled a recession. Every recession has been presaged by one

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Speaker 1: thing and one thing only, which is an inversion of

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Speaker 1: the yield curve full stop. So I'm not so sure

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Speaker 1: that you can look at the price of anything, uh

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Speaker 1: and just say it's demand contraction. Every price is determined

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Speaker 1: by two lines worthy intersect, which is supply and demand.

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Speaker 1: And so it's interesting you talk about oil for example,

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Speaker 1: throughout this say sevent collapse in the old price, global

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Speaker 1: demand has us gone up? Botolines us We're pretty too

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Speaker 1: much oil. The swing producer, that's the saudiast told the

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Speaker 1: Americans a year ago, you're the swing producer. Not US

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Speaker 1: shale America. You are the swing producer. We've given that up.

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Speaker 1: Every single bottom in the old price go back to

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Speaker 1: go to, go to two thousand and two to two

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Speaker 1: thousand and nine, it was always the Saudies leading, oh pack.

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Speaker 1: In fact, you just go back to two thousand and nine,

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Speaker 1: who cut output from ten million to three umbrels a

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Speaker 1: day with the Saudis. The saudiast told the shale guys

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Speaker 1: in the US you are now the swing producer. We're

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Speaker 1: out of that business. And then throughout that and despite that,

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Speaker 1: going into last summer when oil was hitting, it slows

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Speaker 1: and right now we're putting a bottoming process, American producers

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Speaker 1: were still producing five thousand barrels a day more in

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Speaker 1: the summer than they were last November. So um, okay,

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Speaker 1: look and you look at the contango. You look at

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Speaker 1: the inventories, and they could explain contango for the lay

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Speaker 1: person who doesn't understand backwardization or contanging. Well, just looking

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Speaker 1: at you know the fact that the forward curve is

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Speaker 1: possibly steep. So it's telling you in terms of the

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Speaker 1: nutterm pricing that there's still some supply pressure putting some

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Speaker 1: downward impact on the spot price of term you expect

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Speaker 1: longer term. Well, I think that. Look when you're taking

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Speaker 1: a look at the rig count and the types of

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Speaker 1: rigs that are now being shuttered as opposed to the

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Speaker 1: type that we're the inefficial ones being shuttered say six

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Speaker 1: months ago. The fact that drilling and exploration activity is

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Speaker 1: down over the past year in the US by six

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Speaker 1: and never well, every time this happened in the past,

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Speaker 1: oil is put in the bottom. We're just still going

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Speaker 1: to get a v shape recovery. But I think oil

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Speaker 1: is putting in a bottoming formation. It's it's not you know,

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Speaker 1: the next time you get towards sixty. This fracking revolution,

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Speaker 1: the technology is sophisticated that it's not going to take

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Speaker 1: much to really trigger the output. So I think we're

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Speaker 1: in a broad forty to sixty dollar range. I'm not

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Speaker 1: in the view that we're going down to thirty. Barring

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Speaker 1: a global collapse in demand or or a recession near

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Speaker 1: term prices remain week. I think that within a year,

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Speaker 1: I think there will be opportunities. I think there will

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Speaker 1: actually be another run towards sixty. It'll be temporary and

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Speaker 1: it will be a trade. Energy is a trade. Commodities

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Speaker 1: you're a trade, They're not an investment. The twelve year

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Speaker 1: supercycle courtesy of China is reeally yesterday's story. If you're

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Speaker 1: gonna play the next supercycle into China, you're gonna be

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Speaker 1: playing services, okay, because that's where their economy is gravitating

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Speaker 1: to their gravitating away from industrialization, away from exports, towards

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Speaker 1: consumer spending most services. So that's the new supercycle. Internet services,

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Speaker 1: media services, education services, health services, the service sector side

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Speaker 1: of the Chinese economy that apparently people are telling me

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Speaker 1: it's crashing and burning because people just tend to look

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Speaker 1: at commodities and manufacturing diffusion indicries, which gives you a

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Speaker 1: very small app shot. For the first time in China's

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Speaker 1: modern history, service sector accounts for over half of their GDP.

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Speaker 1: The service sector in China. Service sector is now and

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Speaker 1: it's growing um. Consumer spending in China accounted for almost

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Speaker 1: six of the overall growth they generated. This is not

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Speaker 1: the China people you see. People are just they take

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Speaker 1: the latest experience of the extra polading in the future.

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Speaker 1: The new supercycle is consumer spending and consumer spending on services.

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Speaker 1: If I'm not mistaken. We just printed what was it, like,

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Speaker 1: a year of a year retail sales number in China.

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Speaker 1: The US hasn't printed the number like that in in

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Speaker 1: almost three decades, and on somehow China's crashing and burning. Look,

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Speaker 1: China's got they've got they do have leverage problems. Uh,

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Speaker 1: you know they're they're they're still liberalizing. Uh. It is

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Speaker 1: a it's a it's it's a work in pro in

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Speaker 1: in process. But the reality is at as Ali Baba

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Speaker 1: showed you a few weeks ago with their blow at

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Speaker 1: earnings that if you're playing China in the future, it's

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Speaker 1: not the al Coa's and it's not the John and DearS,

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Speaker 1: and it's not the caterpillars, it's who are the global

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Speaker 1: champions that will penetrate. If I would have said to

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Speaker 1: you five years ago, Dave, the Fed's going to take

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Speaker 1: rates to zero and keep them there for five years.

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Speaker 1: We're gonna do three rounds of quantitative easing, and five

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Speaker 1: years from now you're gonna have no inflation and the

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Speaker 1: dollar at multi year highs. What what would you say

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Speaker 1: to that sort of forecast? Well, I would have said

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Speaker 1: that maybe if you wanted to figure that out. You'd

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Speaker 1: read the rogue offf Reinhardt classic, or you would read

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Speaker 1: the work of this time Mackenzie. Well, this time it's different.

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Speaker 1: So the bottom line is that when you go back

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Speaker 1: centuries of of recessions that are not classic inventory cycles

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Speaker 1: but are process credit and an implosion of asset values,

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Speaker 1: this is what happens. If you want to take the

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Speaker 1: most uh I think, you know, dramatic example, go back

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Speaker 1: to the nineteen thirties. Okay, Now, look, we don't have

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Speaker 1: the people living in the land. We didn't have a

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Speaker 1: dusk ball. We actually, um, you know, actually have the

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Speaker 1: deposit insurance, and we have unemployment insurance, we have a

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Speaker 1: social safety net. Um. I'm sure that without all that

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Speaker 1: it would have been practically just as bad. We didn't

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Speaker 1: let every single bank fail. We didn't have a massive

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Speaker 1: run on banks, despite the fact that some institutions were

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Speaker 1: allowed to falter. So the bottom line is that when

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Speaker 1: you take a look at the history of financial crises

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Speaker 1: of this magnitude, Yeah, you drop industrates to zero, you

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Speaker 1: keep there for a long time. Uh and um. The

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Speaker 1: only reason why the central banks, well let's just take

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Speaker 1: the FED as an example, had to do as much

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Speaker 1: as it did was because fiscal policy was so ineffective

428
00:23:38,160 --> 00:23:40,720
Speaker 1: or non existent. It is very little compared to what

429
00:23:40,840 --> 00:23:44,520
Speaker 1: I think some people like your buddy wanted to know,

430
00:23:44,800 --> 00:23:48,400
Speaker 1: very very you know, the sad reality is that our

431
00:23:48,480 --> 00:23:53,640
Speaker 1: politicians created so many roadblocks in the US unnecessarily. Look

432
00:23:53,680 --> 00:23:56,720
Speaker 1: on from Canada. You know, we have socialized healthcare there,

433
00:23:57,040 --> 00:24:01,639
Speaker 1: But to really invoke a complicated healthcare plan because you

434
00:24:01,680 --> 00:24:05,080
Speaker 1: couldn't get it done when Hillary was in the White

435
00:24:05,080 --> 00:24:07,760
Speaker 1: House back in the early nineties. And this wasn't even

436
00:24:07,800 --> 00:24:11,119
Speaker 1: about President Obama. This is more Pelosi and read and

437
00:24:11,119 --> 00:24:13,720
Speaker 1: I'm not going to discuss the social fairness of this,

438
00:24:13,920 --> 00:24:18,080
Speaker 1: but to enact legislation that's so complicated that froze the

439
00:24:18,119 --> 00:24:22,320
Speaker 1: small business sector in time, literally two years after the

440
00:24:22,440 --> 00:24:27,120
Speaker 1: capital markets and the housing market detonated, bad timing that

441
00:24:27,160 --> 00:24:29,760
Speaker 1: delayed the recovery. Then we had to basically swing the

442
00:24:29,800 --> 00:24:33,560
Speaker 1: pendulum the other way. We had libertarians running the Fed.

443
00:24:34,240 --> 00:24:36,920
Speaker 1: Uh that we built the wild West and the financial

444
00:24:36,960 --> 00:24:39,760
Speaker 1: markets and the sheriff left town. So then what do

445
00:24:39,840 --> 00:24:43,560
Speaker 1: we do in this cycle swing the pendulum between Basil three,

446
00:24:44,119 --> 00:24:47,720
Speaker 1: the vocal rule dot frank. So we basically now are

447
00:24:47,800 --> 00:24:53,000
Speaker 1: regulating the banks like utilities, and so every step of

448
00:24:53,000 --> 00:24:55,000
Speaker 1: the way, we haven't even been able to pass a budget.

449
00:24:55,040 --> 00:24:57,760
Speaker 1: The government has about operating on continuing resolutions with every

450
00:24:57,800 --> 00:24:59,560
Speaker 1: few years. What do we have the risk of a

451
00:24:59,560 --> 00:25:03,240
Speaker 1: government's out down and debt default that again causes businesses.

452
00:25:03,560 --> 00:25:06,080
Speaker 1: I'd rather just buy back my stock, thank you very much.

453
00:25:06,119 --> 00:25:08,880
Speaker 1: An issue debt to actually commit capital to an economy

454
00:25:09,119 --> 00:25:12,560
Speaker 1: where there's basically no fiscal visibility. So that's been a

455
00:25:12,560 --> 00:25:15,399
Speaker 1: big part of the problem is that you did not

456
00:25:15,600 --> 00:25:19,879
Speaker 1: have the utopia which would have been fiscal policy. Working

457
00:25:19,880 --> 00:25:23,800
Speaker 1: with Monterey policy. We have Larry Summers, who now has

458
00:25:23,840 --> 00:25:26,280
Speaker 1: been saying for a while they were in secretar stagnation.

459
00:25:26,720 --> 00:25:30,399
Speaker 1: He was the one telling President Obama not mistaken to

460
00:25:30,520 --> 00:25:37,240
Speaker 1: go targeted and timely and transitory with the fiscal response,

461
00:25:37,320 --> 00:25:40,760
Speaker 1: the infrastructure spending that ever went anywhere. The President should

462
00:25:40,760 --> 00:25:43,040
Speaker 1: have gone big. He had a big tail wind behind

463
00:25:43,040 --> 00:25:45,640
Speaker 1: his back. He should have gone really big back then

464
00:25:45,680 --> 00:25:47,760
Speaker 1: towards a real new deal to get the economy moving.

465
00:25:47,960 --> 00:25:50,560
Speaker 1: The fiscal response was tepid, and to put all the

466
00:25:50,640 --> 00:25:54,760
Speaker 1: burden of responsibility on Monterrey policy. You're listening to Masters

467
00:25:54,760 --> 00:25:58,879
Speaker 1: in Business on Bloomberg Radio my guest today Gluskin Chef's

468
00:25:59,320 --> 00:26:02,800
Speaker 1: David rosen Burg. He is their chief economist and market strategist,

469
00:26:03,200 --> 00:26:06,640
Speaker 1: operating out of Toronto and worldwide. You know, every time

470
00:26:06,640 --> 00:26:08,320
Speaker 1: I speak to you, Dave, you're in a different part

471
00:26:08,320 --> 00:26:11,440
Speaker 1: of the world. How many countries are you in a year?

472
00:26:11,480 --> 00:26:14,120
Speaker 1: Your travel less than you used to, but you're still

473
00:26:14,160 --> 00:26:17,760
Speaker 1: all over Europe and elsewhere. Well, I'm actually going with

474
00:26:17,800 --> 00:26:20,560
Speaker 1: our investment team to mccow in Hong Kong at the

475
00:26:20,640 --> 00:26:23,480
Speaker 1: end of the month, but mostly like most of our

476
00:26:23,480 --> 00:26:27,479
Speaker 1: businesses in Canada and the States, so I don't do

477
00:26:27,560 --> 00:26:30,439
Speaker 1: the the European and Asian road shows like I used to.

478
00:26:30,560 --> 00:26:32,720
Speaker 1: But you're back in in the in the US. Uh.

479
00:26:32,880 --> 00:26:34,760
Speaker 1: You know, a good chunk of our business, at least

480
00:26:34,760 --> 00:26:37,000
Speaker 1: ten percent, is in the States and used to when

481
00:26:37,000 --> 00:26:38,960
Speaker 1: you're with Merrill Lynch, you used to be around the

482
00:26:38,960 --> 00:26:42,240
Speaker 1: world pretty regularly. You were quite the globetrotter, my friend.

483
00:26:42,280 --> 00:26:45,359
Speaker 1: I think I was either platinum, gold or silver on

484
00:26:45,520 --> 00:26:47,639
Speaker 1: on six different airlines back when we used to have

485
00:26:47,720 --> 00:26:50,440
Speaker 1: six different airlines. That's right, all right, So let's talk

486
00:26:50,480 --> 00:26:54,320
Speaker 1: a little bit about economics, not the economy, but economics

487
00:26:54,680 --> 00:26:58,919
Speaker 1: and the economics profession and one of the questions that

488
00:26:59,040 --> 00:27:02,120
Speaker 1: came up at the friends we were both at were

489
00:27:02,400 --> 00:27:07,840
Speaker 1: forecasting the economy into the forward year. And I want

490
00:27:07,880 --> 00:27:10,000
Speaker 1: to I don't want to ask you what your forecast is.

491
00:27:10,040 --> 00:27:14,119
Speaker 1: I want to ask you a more philosophical question, which

492
00:27:14,200 --> 00:27:20,800
Speaker 1: is why is forecasting so difficult? What makes thinking about

493
00:27:20,920 --> 00:27:24,440
Speaker 1: and projecting the markets and the economy forward a year

494
00:27:25,119 --> 00:27:32,200
Speaker 1: all but impossible? Well, firstly, there's there's always a certain

495
00:27:32,280 --> 00:27:37,600
Speaker 1: level of uncertainty around your forecast. That's like Yogi Bevera

496
00:27:37,680 --> 00:27:44,320
Speaker 1: famously said, Uh, making forecasts uh is very difficult, especially

497
00:27:44,359 --> 00:27:47,960
Speaker 1: when it comes to predicting the future. So there's always

498
00:27:47,960 --> 00:27:49,760
Speaker 1: a certain level of uncertainty. And I'll get into that

499
00:27:49,800 --> 00:27:51,720
Speaker 1: in a second. I think also we live in a

500
00:27:52,080 --> 00:27:54,800
Speaker 1: in a very fast money world and a world where

501
00:27:55,480 --> 00:27:57,800
Speaker 1: uh you have to pay attention to geopolitics more than

502
00:27:57,800 --> 00:28:01,359
Speaker 1: you used to before. Uh, And it's just um, you know,

503
00:28:01,440 --> 00:28:04,160
Speaker 1: the information gets transmitted much more quickly there. You mean,

504
00:28:04,160 --> 00:28:06,719
Speaker 1: it's incredible that sometimes you get moves that in the

505
00:28:06,720 --> 00:28:10,280
Speaker 1: old days, well you'd get in a year, cannot actually

506
00:28:10,280 --> 00:28:12,879
Speaker 1: happen in like a week now. And and look the

507
00:28:12,960 --> 00:28:15,879
Speaker 1: onset of program trading and all the electronics and that

508
00:28:16,000 --> 00:28:20,119
Speaker 1: go along with that. Let me just say this, um

509
00:28:20,280 --> 00:28:24,960
Speaker 1: if I had to present a forecast today like I

510
00:28:25,040 --> 00:28:26,640
Speaker 1: used to when I was on the south side at

511
00:28:26,680 --> 00:28:29,520
Speaker 1: Meryland before that, Bank of Montrail, Bank of Nova Scotia.

512
00:28:30,320 --> 00:28:33,920
Speaker 1: After six years on the bye side of Glaskon Chef,

513
00:28:34,200 --> 00:28:39,240
Speaker 1: sitting down seven with our portfolio managers, I finally figured

514
00:28:39,280 --> 00:28:40,600
Speaker 1: out I used to. I used to think, you know,

515
00:28:40,600 --> 00:28:43,000
Speaker 1: when you're chief economist to Mary Lynch, you you you

516
00:28:43,040 --> 00:28:45,440
Speaker 1: think that you're like the starting pitch of the New

517
00:28:45,520 --> 00:28:47,600
Speaker 1: York Yankees. You have it all figured it out. I

518
00:28:47,640 --> 00:28:50,440
Speaker 1: realized when I got to Glaskon Chef how much I

519
00:28:50,480 --> 00:28:52,880
Speaker 1: didn't know. And it was a revelation I had in

520
00:28:52,960 --> 00:28:55,479
Speaker 1: my first meeting when I gave a particular forecast and

521
00:28:55,560 --> 00:28:58,880
Speaker 1: the portfolio manager I forget what it was exactly, said so,

522
00:28:58,880 --> 00:29:01,400
Speaker 1: how much conviction do you have in that call? And

523
00:29:01,440 --> 00:29:03,560
Speaker 1: I said what, Well, he said, well, certainly you know

524
00:29:03,640 --> 00:29:08,520
Speaker 1: you don't have it's iron clad. What is your conviction level?

525
00:29:08,520 --> 00:29:10,560
Speaker 1: And then what scenario B, C or D if you're

526
00:29:10,560 --> 00:29:13,160
Speaker 1: gonna be wrong where you're gonna be wrong? So you see,

527
00:29:13,520 --> 00:29:16,640
Speaker 1: if you're managing money for a living, if you are

528
00:29:16,680 --> 00:29:20,160
Speaker 1: an investor, portfolio manager. Your whole world is one job,

529
00:29:20,360 --> 00:29:23,640
Speaker 1: probability curve. And the economist job is not to get

530
00:29:23,720 --> 00:29:29,960
Speaker 1: the base case right. It's to help the investor make

531
00:29:30,120 --> 00:29:33,959
Speaker 1: an informed decision, and that comes down to helping tighten

532
00:29:34,040 --> 00:29:37,280
Speaker 1: in the probability bands. So I will go to a

533
00:29:37,320 --> 00:29:40,320
Speaker 1: meeting today, a glaskon chef where basically I will have

534
00:29:40,360 --> 00:29:43,120
Speaker 1: the same base case forecasts, but I'll say, hey, fellas,

535
00:29:43,520 --> 00:29:46,280
Speaker 1: whereas I used to have eight percent conviction, it's down

536
00:29:46,320 --> 00:29:50,560
Speaker 1: to oh, by the way, scenario B is now D

537
00:29:50,720 --> 00:29:53,880
Speaker 1: and D is now C and and everybody in the

538
00:29:53,960 --> 00:29:57,880
Speaker 1: room will be running down like they'll be sweating writing

539
00:29:57,880 --> 00:30:00,080
Speaker 1: down what I'm saying. And I didn't even change my

540
00:30:00,120 --> 00:30:04,040
Speaker 1: base case scenario. It's all about your conviction level, how

541
00:30:04,080 --> 00:30:07,880
Speaker 1: that changes over time. And if you're wrong, we're you're

542
00:30:07,880 --> 00:30:10,120
Speaker 1: gonna be wrong. What is your what scenario B, C

543
00:30:10,320 --> 00:30:13,040
Speaker 1: or D? Because your forecast And this is what gets

544
00:30:13,040 --> 00:30:16,800
Speaker 1: economists into trouble. You know, you read these spreadsheets, you

545
00:30:16,840 --> 00:30:19,040
Speaker 1: read a daily, read a weekly, a monthly out of

546
00:30:19,040 --> 00:30:23,720
Speaker 1: a classic seuth Side Wall Street economics house, and you think, well,

547
00:30:23,920 --> 00:30:26,880
Speaker 1: that GDP growth in the fourth quarter, that's got to

548
00:30:26,920 --> 00:30:29,080
Speaker 1: be there, iron clad. But you don't get to ask

549
00:30:29,120 --> 00:30:32,200
Speaker 1: them how much confidence do you have in that forecast?

550
00:30:32,360 --> 00:30:36,200
Speaker 1: Or if you're wrong, say you're calling for three, will

551
00:30:36,200 --> 00:30:40,080
Speaker 1: it be too or will it be four? Meaning you're

552
00:30:40,120 --> 00:30:42,600
Speaker 1: you're gonna be wrong because it's hotter or wrong because

553
00:30:42,600 --> 00:30:47,320
Speaker 1: it's colder. You've got the whole life of a portfolio manager.

554
00:30:47,400 --> 00:30:54,000
Speaker 1: Their brain is one giant distribution curve of outcomes, and

555
00:30:54,080 --> 00:30:57,320
Speaker 1: the economist role is not to focus just on the

556
00:30:57,360 --> 00:31:01,240
Speaker 1: base case. It's to focus on the whole range of outcomes.

557
00:31:01,520 --> 00:31:04,120
Speaker 1: Is it a fat tail curve, it is a thin

558
00:31:04,200 --> 00:31:09,720
Speaker 1: tail curve. And actually sometimes just shifting your second your

559
00:31:09,840 --> 00:31:15,280
Speaker 1: well what what what? The next two possibilities are huge

560
00:31:15,440 --> 00:31:17,800
Speaker 1: in terms of what that could mean for portolio management.

561
00:31:18,280 --> 00:31:22,960
Speaker 1: We're discussing fun with Gaussian distribution curves with Dave Rosenberg.

562
00:31:23,320 --> 00:31:27,040
Speaker 1: I love this new or not so new philosophical way

563
00:31:27,080 --> 00:31:32,520
Speaker 1: of looking at the world from a probabilistic perspective. Often wrong,

564
00:31:32,600 --> 00:31:35,320
Speaker 1: seldom in doubt is the expression that comes to mind

565
00:31:35,800 --> 00:31:40,840
Speaker 1: about the people on the sell side who are full

566
00:31:41,040 --> 00:31:43,880
Speaker 1: of conviction, but there is no plan B, there is

567
00:31:43,920 --> 00:31:47,920
Speaker 1: no distribution. Here's my forecast right or wrong? Well, that's

568
00:31:48,080 --> 00:31:50,520
Speaker 1: um and that's what gets economists in the hot water.

569
00:31:50,720 --> 00:31:53,480
Speaker 1: And that's uh, and that's the bad rap in the profession.

570
00:31:53,600 --> 00:31:57,520
Speaker 1: That's why if I had to go back to that, UM,

571
00:31:57,600 --> 00:32:00,960
Speaker 1: I guess profession of publishing forecast us, which thankfully I

572
00:32:00,960 --> 00:32:04,080
Speaker 1: don't have to do anymore, I would do it completely differently.

573
00:32:04,560 --> 00:32:06,640
Speaker 1: I think the one way, how would you how would

574
00:32:06,640 --> 00:32:08,680
Speaker 1: you do it different? Well, as as I said I would,

575
00:32:08,680 --> 00:32:14,680
Speaker 1: I would UM. I would provide scenarios. I'd attached probabilities

576
00:32:14,840 --> 00:32:18,440
Speaker 1: and attached scenarios. What's important once again you talked about

577
00:32:18,440 --> 00:32:21,280
Speaker 1: this Spajan economics. It's actually it should be so elementary

578
00:32:21,320 --> 00:32:24,480
Speaker 1: for economists that actually go through and take statistics, econometrics.

579
00:32:24,520 --> 00:32:27,400
Speaker 1: We all did this in university. Is it's all about

580
00:32:27,440 --> 00:32:33,240
Speaker 1: expected values. It's about across the continuum of possibilities, across

581
00:32:33,720 --> 00:32:38,000
Speaker 1: the distribution curve. What is the reward of being right

582
00:32:38,920 --> 00:32:42,320
Speaker 1: benchmarked against the cost of being wrong spread across that

583
00:32:43,120 --> 00:32:47,120
Speaker 1: um Ultimately, if you're a street economist, and whether it's

584
00:32:47,160 --> 00:32:50,800
Speaker 1: Wall Street, Bay Street, Montgomery Street, House Street, UH, your

585
00:32:50,880 --> 00:32:55,920
Speaker 1: job is basically as the economist to help portfolio managers

586
00:32:56,200 --> 00:32:58,680
Speaker 1: make effective decision making. What I like to say at

587
00:32:58,680 --> 00:33:02,320
Speaker 1: Gluskin Chef is that our portfolio managers are the goalies,

588
00:33:03,080 --> 00:33:06,560
Speaker 1: and I'm the goalie coach. I can't I can't stop

589
00:33:06,600 --> 00:33:09,920
Speaker 1: the puck for them. They actually are the ones that

590
00:33:10,120 --> 00:33:14,120
Speaker 1: wear the goals against average. It's their portfolio. Our job

591
00:33:14,160 --> 00:33:18,920
Speaker 1: as economists, as street economists, UH, in the realm of

592
00:33:19,200 --> 00:33:23,600
Speaker 1: providing cogent and coherent and cohesive investment advice, is to

593
00:33:23,680 --> 00:33:26,760
Speaker 1: help portfolio managers stay out of trouble and to make

594
00:33:26,800 --> 00:33:30,880
Speaker 1: effect of decision making. So if I had a new

595
00:33:30,960 --> 00:33:33,760
Speaker 1: role where I provided forecast UM, they would look like

596
00:33:33,840 --> 00:33:37,320
Speaker 1: probability curves and you wouldn't be wed to one particular view,

597
00:33:37,480 --> 00:33:40,520
Speaker 1: although you would have a base case with a probability

598
00:33:40,560 --> 00:33:42,480
Speaker 1: attached to it. There's something else that's very important to

599
00:33:42,520 --> 00:33:45,800
Speaker 1: my profession, which is this UM. It's admitting when you're wrong.

600
00:33:46,120 --> 00:33:48,200
Speaker 1: I love that I have that as a question. How

601
00:33:48,200 --> 00:33:51,080
Speaker 1: do you, as an economist admit error but you're saying

602
00:33:51,120 --> 00:33:55,000
Speaker 1: you're building that in Speaking of errors, here's an economist

603
00:33:55,000 --> 00:33:58,280
Speaker 1: who's frequently wrong, Richard Yamaron rich pull up a seat

604
00:33:58,320 --> 00:34:01,840
Speaker 1: and join us for a conversation about why most economists

605
00:34:02,160 --> 00:34:05,959
Speaker 1: are so terrible at forecasting UH the markets. They've just

606
00:34:06,080 --> 00:34:10,040
Speaker 1: explained what you do wrong as a professional economist. Well,

607
00:34:10,120 --> 00:34:12,680
Speaker 1: I was actually gonna say, Richie am ron Is is

608
00:34:12,760 --> 00:34:14,759
Speaker 1: about my best friend in the world, and so I

609
00:34:14,800 --> 00:34:17,040
Speaker 1: can't possibly it's a good thing he's here, because I

610
00:34:17,080 --> 00:34:19,160
Speaker 1: would never take a shot at rich behind his back,

611
00:34:19,600 --> 00:34:21,440
Speaker 1: I know, but I was doing it on your behalf.

612
00:34:21,480 --> 00:34:23,839
Speaker 1: I know what you were implying about Rich. I only

613
00:34:23,880 --> 00:34:25,719
Speaker 1: came in because I heard there were free donuts or

614
00:34:25,760 --> 00:34:28,520
Speaker 1: something in that. That's that's exactly, very very ate them all.

615
00:34:29,040 --> 00:34:33,240
Speaker 1: So so we were so we were just discussing looking

616
00:34:33,239 --> 00:34:38,279
Speaker 1: at economics as a probabilistic distribution as a proposed to

617
00:34:38,400 --> 00:34:41,560
Speaker 1: being all right or all wrong, and much of the

618
00:34:41,600 --> 00:34:46,000
Speaker 1: Wall Street universe doesn't take that approach. Um, is this

619
00:34:46,080 --> 00:34:49,920
Speaker 1: a failure of traditional economics or is it just marketing?

620
00:34:50,320 --> 00:34:53,279
Speaker 1: It's marketing, and it's you know, I guess this human

621
00:34:53,360 --> 00:34:57,480
Speaker 1: nature of having to be force fed numbers as opposed

622
00:34:57,480 --> 00:35:00,920
Speaker 1: to a thought process. But here's what's important. Uh As

623
00:35:00,920 --> 00:35:03,080
Speaker 1: I found out working on this on the by side.

624
00:35:03,160 --> 00:35:05,839
Speaker 1: And you know, every cell side firm has an economist.

625
00:35:06,480 --> 00:35:09,040
Speaker 1: Uh not every by side firm has an economist. I'm

626
00:35:09,040 --> 00:35:11,759
Speaker 1: pretty sure that in Canada, Glaskon Chef is probably one

627
00:35:11,760 --> 00:35:16,799
Speaker 1: of the few. It's about scenario building, uh and uh

628
00:35:16,920 --> 00:35:18,640
Speaker 1: and and what happens I think with a lot of

629
00:35:18,640 --> 00:35:21,839
Speaker 1: economists is a certain level of arrogance in your forecast,

630
00:35:22,600 --> 00:35:24,440
Speaker 1: that that is basically the base case, and that's the

631
00:35:24,440 --> 00:35:26,239
Speaker 1: way it's gonna be here. I'll just say this much.

632
00:35:27,360 --> 00:35:34,000
Speaker 1: You cannot marry your forecast, Mary, your partner, don't marry

633
00:35:34,000 --> 00:35:37,480
Speaker 1: your forecast. It will often not love you back. And

634
00:35:37,600 --> 00:35:41,520
Speaker 1: have a plan B. Have an escape clause in case

635
00:35:41,600 --> 00:35:44,400
Speaker 1: you're wrong, and have the discipline to admit that you're wrong.

636
00:35:44,840 --> 00:35:46,960
Speaker 1: And when you admit that you're wrong, because we're human

637
00:35:47,000 --> 00:35:51,800
Speaker 1: beings and we will be wrong. Have the insurance policy

638
00:35:51,840 --> 00:35:54,840
Speaker 1: in place for the portfolio manager. What's that scenario be

639
00:35:55,040 --> 00:35:57,799
Speaker 1: that they can flip into when you are going to

640
00:35:57,840 --> 00:36:00,840
Speaker 1: be wrong. We've been speaking to David Rosenberg. He's the

641
00:36:00,920 --> 00:36:05,239
Speaker 1: chief economist and market strategist for Gluskin Chef. If you

642
00:36:05,239 --> 00:36:07,160
Speaker 1: want to find, by the way, more of his writings,

643
00:36:07,160 --> 00:36:09,560
Speaker 1: you can go to Gluskin chef dot com. Is that right?

644
00:36:09,600 --> 00:36:13,279
Speaker 1: That's the website dot com dot com. It's uh. Go

645
00:36:13,440 --> 00:36:16,680
Speaker 1: to just google Gluskin Chef and you can find the

646
00:36:16,680 --> 00:36:19,400
Speaker 1: website or google Breakfast with Dave which is the daily

647
00:36:19,520 --> 00:36:22,799
Speaker 1: commentary that Dave Rosenberg puts out my staple. If you

648
00:36:22,880 --> 00:36:25,400
Speaker 1: enjoy this conversation, be sure and stick around for the

649
00:36:25,440 --> 00:36:28,200
Speaker 1: podcast extras, where we let our hair down and keep

650
00:36:28,200 --> 00:36:32,319
Speaker 1: the tape rolling. Check out my daily column on Bloomberg

651
00:36:32,440 --> 00:36:36,719
Speaker 1: View dot com or follow me on Twitter at rid Halts.

652
00:36:36,840 --> 00:36:39,360
Speaker 1: I'm Barry Rid Halts. You've been listening to Masters in

653
00:36:39,400 --> 00:36:44,640
Speaker 1: Business on Bloomberg Radio. Okay, welcome back to the podcast.

654
00:36:44,880 --> 00:36:49,200
Speaker 1: My guest today Dave Rosenberg. We have a special special guest,

655
00:36:49,520 --> 00:36:53,080
Speaker 1: rich Yamarone. He's the chief economist at Bloomberg. What's your

656
00:36:53,120 --> 00:36:57,080
Speaker 1: title best looking economists? Best looking economists. That's a low bar.

657
00:36:57,239 --> 00:37:00,560
Speaker 1: That's like smartest bush, low bar. I say that just

658
00:37:00,600 --> 00:37:03,640
Speaker 1: to torture Dave. I know he's a huge gem. It's

659
00:37:03,680 --> 00:37:08,399
Speaker 1: all right, let's do this over again because I'm gonna

660
00:37:08,400 --> 00:37:13,360
Speaker 1: get everybody in trouble with that. Welcome back to the podcast. Uh,

661
00:37:13,719 --> 00:37:16,799
Speaker 1: I'm speaking with Dave Rosenberg. Is my special guest this week.

662
00:37:16,840 --> 00:37:20,160
Speaker 1: My extra special guest just dropping in. One of the

663
00:37:20,160 --> 00:37:24,400
Speaker 1: economists here we keep down in the basement, rich yamar

664
00:37:24,480 --> 00:37:27,640
Speaker 1: And say hello to the people, Yamaron, Hello people, fantastic

665
00:37:28,160 --> 00:37:31,520
Speaker 1: Yammy and Dave are old buddies. They went to uh

666
00:37:31,600 --> 00:37:37,000
Speaker 1: economics grammar school together in um parts unknown, Toronto, Toronto,

667
00:37:37,200 --> 00:37:42,759
Speaker 1: usually usually someplace where wine is pouring. Um. So, the

668
00:37:42,840 --> 00:37:46,520
Speaker 1: funny thing about the conversation about traveling. When you and

669
00:37:46,560 --> 00:37:49,520
Speaker 1: I first met a hundred years ago, you were on

670
00:37:49,560 --> 00:37:52,279
Speaker 1: the road. I want to say two weeks a month,

671
00:37:52,320 --> 00:37:57,000
Speaker 1: maybe three weeks a month, something crazy like that. I'd

672
00:37:57,000 --> 00:38:00,319
Speaker 1: say half the time, a hundred thousand miles a year.

673
00:38:00,800 --> 00:38:04,320
Speaker 1: Uh that's uh that you know that could be the

674
00:38:04,400 --> 00:38:08,640
Speaker 1: under Really yeah, it was a look at that job

675
00:38:10,040 --> 00:38:19,000
Speaker 1: between equities, fixed income, derivatives, commodities, middle markets, Uh, the

676
00:38:19,000 --> 00:38:24,280
Speaker 1: the private client. There were so many constituents to serve. Uh,

677
00:38:24,320 --> 00:38:28,040
Speaker 1: that was crazy. Plus, don't forget very my my wife

678
00:38:28,120 --> 00:38:32,520
Speaker 1: and kids were back in Toronto, so I was I

679
00:38:32,640 --> 00:38:36,279
Speaker 1: was freely available to market seven So and with that, look,

680
00:38:36,280 --> 00:38:41,000
Speaker 1: it was a global firm travel You travel like the globe. Well,

681
00:38:41,080 --> 00:38:45,440
Speaker 1: look it was um you know, uh, no guts, no glory.

682
00:38:45,960 --> 00:38:48,239
Speaker 1: So let me ask you a question similar to what

683
00:38:48,320 --> 00:38:51,440
Speaker 1: I asked our friend Michelle Meyer, who's now a senior

684
00:38:51,440 --> 00:38:55,680
Speaker 1: economist at Merrill Lynch and she's phenomenal, rising star, phenomenal,

685
00:38:55,760 --> 00:38:59,080
Speaker 1: not not rising star. She's a star. So what is

686
00:38:59,120 --> 00:39:02,400
Speaker 1: a day in the lie if of a chief economist

687
00:39:02,440 --> 00:39:06,120
Speaker 1: at a place like Merrill Lynch with fifteen or twenty

688
00:39:06,120 --> 00:39:10,239
Speaker 1: thousand advisors and a trillion dollars in assets under management?

689
00:39:10,760 --> 00:39:15,520
Speaker 1: What time did your day start? Back then? Well, my

690
00:39:15,640 --> 00:39:19,880
Speaker 1: day probably um is as an outlier, because because I

691
00:39:19,920 --> 00:39:23,960
Speaker 1: did the daily which back then was called Morning Market Memo,

692
00:39:24,480 --> 00:39:32,200
Speaker 1: although internally it was called Rosie's Tidbits. Uh, my day started, um,

693
00:39:32,440 --> 00:39:34,640
Speaker 1: I got up at four in the morning. Four in

694
00:39:34,680 --> 00:39:37,239
Speaker 1: the morning, morning, four in the morning. Yeah, well, any

695
00:39:37,280 --> 00:39:39,279
Speaker 1: time you getting up today, if it depends what I

696
00:39:39,280 --> 00:39:41,200
Speaker 1: was doing the night before. But now you're up. I

697
00:39:41,200 --> 00:39:43,239
Speaker 1: think you're up about three because I get breakfast with

698
00:39:43,320 --> 00:39:45,840
Speaker 1: Dave and it looks like it's a couple of hours

699
00:39:45,840 --> 00:39:49,680
Speaker 1: of work. And I get that at you know, before noon. Well,

700
00:39:49,719 --> 00:39:52,680
Speaker 1: I get up at h I get up at four thirty.

701
00:39:52,760 --> 00:39:54,879
Speaker 1: But I've always been well, firstly, I'm not a very

702
00:39:54,880 --> 00:39:58,719
Speaker 1: good sleeper. Uh am, I as I get maybe that's

703
00:39:58,800 --> 00:40:04,279
Speaker 1: t M I uh and uh, well, as only you

704
00:40:04,320 --> 00:40:08,880
Speaker 1: would know. And uh and and I've always been I've

705
00:40:08,880 --> 00:40:11,080
Speaker 1: always been I've always been worried that way. As as

706
00:40:11,080 --> 00:40:14,319
Speaker 1: a as a morning person. Same here, use a long clock,

707
00:40:14,400 --> 00:40:16,680
Speaker 1: you just wake up. You know. It's a you know,

708
00:40:17,000 --> 00:40:20,600
Speaker 1: I have a real passion for this business. And look,

709
00:40:20,640 --> 00:40:23,000
Speaker 1: you asked before about what's all the best change, But

710
00:40:23,040 --> 00:40:26,920
Speaker 1: it's really the markets don't sleep, and so therefore I

711
00:40:26,960 --> 00:40:30,680
Speaker 1: have trouble sleeping, so I get up early. And um,

712
00:40:30,719 --> 00:40:33,279
Speaker 1: I've got a lot of stamina and on a lot

713
00:40:33,320 --> 00:40:36,480
Speaker 1: of engines. So the reality is that, um, you know,

714
00:40:36,560 --> 00:40:39,720
Speaker 1: it's not just about look your your work ethic, uh

715
00:40:40,040 --> 00:40:42,279
Speaker 1: has to be there. I guess you have to have

716
00:40:42,320 --> 00:40:44,640
Speaker 1: a reasonable level of intelligence. You have to read a

717
00:40:44,680 --> 00:40:47,879
Speaker 1: lot because it's important to be informed. Some people think

718
00:40:47,960 --> 00:40:50,440
Speaker 1: that you're smart when all you really do is you

719
00:40:50,520 --> 00:40:52,560
Speaker 1: read eight newspapers and you know what's going on around

720
00:40:52,680 --> 00:40:57,000
Speaker 1: the world. Being informed, though, is important part um of

721
00:40:57,040 --> 00:41:00,239
Speaker 1: what I do. And then it's a uh, I'm matter

722
00:41:00,400 --> 00:41:04,720
Speaker 1: of um of serving all your constituents. Look at Glasgow Chef,

723
00:41:05,160 --> 00:41:09,640
Speaker 1: my most important client, or our portfolio managers. I sit

724
00:41:09,800 --> 00:41:11,480
Speaker 1: right out there with them. I don't have to travel

725
00:41:11,520 --> 00:41:13,879
Speaker 1: around the world to see portfolio managers. I sit next

726
00:41:13,920 --> 00:41:17,360
Speaker 1: to ours, and I say the most important client because

727
00:41:17,520 --> 00:41:19,400
Speaker 1: they're the ones that drive the performance of the firm.

728
00:41:19,680 --> 00:41:21,920
Speaker 1: And then of course I see the clients of our firm,

729
00:41:22,040 --> 00:41:27,359
Speaker 1: which are are wealthy families in North America at Merrill Lynch,

730
00:41:27,680 --> 00:41:31,360
Speaker 1: I mean a million different constitutions all over the world.

731
00:41:31,400 --> 00:41:33,919
Speaker 1: Oh yeah, it was just look, the most important time,

732
00:41:34,000 --> 00:41:38,640
Speaker 1: the most important, the most important challenge for me. You know, Look,

733
00:41:38,680 --> 00:41:40,520
Speaker 1: you had to manage up. You have to manage down.

734
00:41:40,560 --> 00:41:42,000
Speaker 1: I had a big team. I had a team in

735
00:41:42,040 --> 00:41:44,920
Speaker 1: Toronto and a team in New York. Um, how do

736
00:41:45,000 --> 00:41:48,000
Speaker 1: you manage up? But the well, how do you manage up?

737
00:41:48,080 --> 00:41:50,760
Speaker 1: Is you have to make I I had multiple bosses

738
00:41:51,560 --> 00:41:54,960
Speaker 1: at the well, I don't know do we do we

739
00:41:55,000 --> 00:41:58,200
Speaker 1: have all night? Because well, the donuts are gone. So

740
00:41:58,200 --> 00:42:00,799
Speaker 1: so let's let's let's about who you have who Look

741
00:42:00,880 --> 00:42:02,480
Speaker 1: they were they were they were. Look, you had to

742
00:42:02,520 --> 00:42:04,719
Speaker 1: make the head of research happy and they had a

743
00:42:04,800 --> 00:42:08,759
Speaker 1: research also had their constituents, which uh, you know, they

744
00:42:08,800 --> 00:42:12,400
Speaker 1: had equity analysts reporting into them. You had had a

745
00:42:12,440 --> 00:42:14,920
Speaker 1: fixed income head of equities, you know, So you had

746
00:42:14,960 --> 00:42:16,920
Speaker 1: the head of research and then you had all the producers.

747
00:42:17,400 --> 00:42:19,319
Speaker 1: So look, you had to balance a lot of things.

748
00:42:19,400 --> 00:42:22,399
Speaker 1: You also had the CEO of Merrill Lynch back when

749
00:42:22,400 --> 00:42:25,680
Speaker 1: they were a standalone entity. I recall the days when

750
00:42:25,719 --> 00:42:31,359
Speaker 1: you would get called into. Um, I'm trying to think

751
00:42:31,360 --> 00:42:35,280
Speaker 1: of which Ceo O'Neill you would get called into, Dave,

752
00:42:35,360 --> 00:42:40,080
Speaker 1: what's this nonsense about this or that? What were those days? Look,

753
00:42:40,400 --> 00:42:43,600
Speaker 1: I'll tell you this much okay, Um, Look, I was

754
00:42:43,680 --> 00:42:46,480
Speaker 1: not a threat to Stan O'Neill, uh you know, And

755
00:42:46,520 --> 00:42:50,000
Speaker 1: it's all been written about. But Stan O'Neill and the

756
00:42:50,040 --> 00:42:53,239
Speaker 1: time I was there at the time was that he

757
00:42:53,360 --> 00:42:57,400
Speaker 1: was there treated me with the utmost of respect. And

758
00:42:57,440 --> 00:42:59,400
Speaker 1: I'll tell you that I was probably in his office

759
00:42:59,440 --> 00:43:03,680
Speaker 1: once a month, and uh we got along famously. Well. Um,

760
00:43:03,719 --> 00:43:07,279
Speaker 1: you know, so we're going into a realm that you know,

761
00:43:07,320 --> 00:43:10,279
Speaker 1: where there's the narrative and there's the reality. Uh Stan

762
00:43:10,360 --> 00:43:12,840
Speaker 1: and I got along very well, you know, after he

763
00:43:12,960 --> 00:43:15,759
Speaker 1: left a short period with John Thane, and we got

764
00:43:15,760 --> 00:43:18,680
Speaker 1: along well. But I look, I knew Stan O'Neill very well.

765
00:43:18,719 --> 00:43:21,480
Speaker 1: And look when he was making money for the firm,

766
00:43:21,600 --> 00:43:23,359
Speaker 1: and of course he was taking a lot of risk,

767
00:43:24,040 --> 00:43:27,239
Speaker 1: but people would kiss the ring in his finger everybody

768
00:43:27,280 --> 00:43:29,520
Speaker 1: loves and so well that's what I mean. And then

769
00:43:29,600 --> 00:43:32,640
Speaker 1: and then, uh, I've seen it all. But I'll tell

770
00:43:32,680 --> 00:43:38,920
Speaker 1: you this, uh Stan um brilliant man. Uh and uh

771
00:43:39,120 --> 00:43:41,520
Speaker 1: you can say in quotes, well why did he not

772
00:43:41,600 --> 00:43:46,440
Speaker 1: listen to Rosie? And uh, look it's all behind us now.

773
00:43:46,480 --> 00:43:49,560
Speaker 1: But the reality is that when you want to at

774
00:43:49,640 --> 00:43:52,920
Speaker 1: Merrill Lynch, uh start to compete with the Goldman Sachs

775
00:43:53,040 --> 00:43:55,239
Speaker 1: on R O e s and r oays and half

776
00:43:55,320 --> 00:43:57,960
Speaker 1: your business as a thunderbring herd which is a stable

777
00:43:58,920 --> 00:44:02,640
Speaker 1: uh you know o pe business. Um, you got to

778
00:44:02,680 --> 00:44:04,400
Speaker 1: dial up a lot of risk. But I'll tell you

779
00:44:04,440 --> 00:44:07,120
Speaker 1: this much, and I'll say it for the record. My

780
00:44:07,200 --> 00:44:12,480
Speaker 1: relationship with Stan O'Neill was phenomenal, uh. And he treated

781
00:44:12,520 --> 00:44:15,360
Speaker 1: me with respect. Whether he agreed with me, and purely

782
00:44:15,400 --> 00:44:17,600
Speaker 1: he disagreed with my view, we were in position for

783
00:44:17,719 --> 00:44:21,240
Speaker 1: my view. That's a different matter because people could also

784
00:44:21,280 --> 00:44:23,480
Speaker 1: say that I was wrong and I was way early

785
00:44:23,560 --> 00:44:27,040
Speaker 1: on the call, but stand every step of the way

786
00:44:27,160 --> 00:44:30,040
Speaker 1: treated me without most respect. Coming up next week, we

787
00:44:30,080 --> 00:44:32,799
Speaker 1: interviewed Stan O'Neill and find the real story about the

788
00:44:32,840 --> 00:44:37,400
Speaker 1: relationship with Dave and stand on Masters in Business. Actually,

789
00:44:37,440 --> 00:44:39,600
Speaker 1: I would love to get Stan O'Neill in here. That

790
00:44:39,600 --> 00:44:43,919
Speaker 1: would be a fascinating conversation because he was really talk

791
00:44:44,000 --> 00:44:47,440
Speaker 1: about the middle of the vortex when everything was hitting.

792
00:44:47,520 --> 00:44:51,680
Speaker 1: That would be quite insane. No, Dave, I'm kidding, but

793
00:44:52,120 --> 00:44:54,600
Speaker 1: that would be just unbelievable. To get him in here.

794
00:44:54,600 --> 00:44:56,080
Speaker 1: I tried to get in touch with him. Actually, don't

795
00:44:56,920 --> 00:44:59,399
Speaker 1: you know who I would love to speak to one

796
00:44:59,440 --> 00:45:03,160
Speaker 1: of your men tours in one of my favorite old Bob.

797
00:45:03,200 --> 00:45:05,160
Speaker 1: I was gonna say Richard Dmaron. But since you brought

798
00:45:05,239 --> 00:45:09,080
Speaker 1: up Bob Farrell, let's talk about one of our favorite analysts.

799
00:45:09,080 --> 00:45:11,000
Speaker 1: One of the mentors that you had at Meryl, a

800
00:45:11,000 --> 00:45:15,360
Speaker 1: gentleman named Bob Farrell who put out first time everyone

801
00:45:15,440 --> 00:45:19,080
Speaker 1: writing you actually put it wrote it up, Bob Farrell's

802
00:45:19,160 --> 00:45:22,480
Speaker 1: ten Rules for the Market. I thought that was one

803
00:45:22,480 --> 00:45:26,400
Speaker 1: of the most insightful pieces of here's how to be

804
00:45:26,440 --> 00:45:31,360
Speaker 1: a better trader, manager, investor I've ever seen. What was

805
00:45:31,400 --> 00:45:33,839
Speaker 1: it like working with Farrell? Well, you know, we had

806
00:45:33,880 --> 00:45:37,080
Speaker 1: a just a short stint working together because he was

807
00:45:37,360 --> 00:45:39,440
Speaker 1: in the limelight of his career when I started at

808
00:45:39,480 --> 00:45:43,600
Speaker 1: Meryll Canada back in the late nineties. He used to

809
00:45:43,640 --> 00:45:47,719
Speaker 1: write this report Bob did called Theme and Profile Investing,

810
00:45:48,960 --> 00:45:53,600
Speaker 1: which was um like, truly am like, I would say, apparticly,

811
00:45:53,600 --> 00:45:57,759
Speaker 1: a bible, heartbreaking work of Stack. But but he he

812
00:45:58,239 --> 00:46:02,720
Speaker 1: years ago at decades Go, had written about Bob Farrell's

813
00:46:02,760 --> 00:46:05,400
Speaker 1: ten market rules to remember, which are the ten commandments.

814
00:46:05,920 --> 00:46:08,000
Speaker 1: I've had to stay at a trouble uh. And that's

815
00:46:08,040 --> 00:46:11,040
Speaker 1: what's important in the investing business, is that sometimes most

816
00:46:11,040 --> 00:46:12,640
Speaker 1: of the time, Bury, it's what you don't own in

817
00:46:12,680 --> 00:46:15,640
Speaker 1: the portfolio as much as what you do own in

818
00:46:15,680 --> 00:46:19,600
Speaker 1: the portfolio. Bob Farrell, I would there were three mentors

819
00:46:19,640 --> 00:46:22,360
Speaker 1: that I had in my thirty year career. One of

820
00:46:22,400 --> 00:46:25,520
Speaker 1: them was Warren Justin At, the chief economist at the

821
00:46:25,560 --> 00:46:27,840
Speaker 1: bank in Nova Scotia. He's about to retire in February.

822
00:46:27,880 --> 00:46:31,760
Speaker 1: He brought me on base freedom in n Don Cox,

823
00:46:31,840 --> 00:46:36,320
Speaker 1: who was the chief strategist at at Harris Investment Management,

824
00:46:36,440 --> 00:46:39,400
Speaker 1: which was part of the Bank of Montreal family firms

825
00:46:39,400 --> 00:46:41,839
Speaker 1: out of Chicago. He runs his own consulting firm now

826
00:46:42,360 --> 00:46:45,000
Speaker 1: and is keyed up to be a future guest on

827
00:46:45,040 --> 00:46:48,040
Speaker 1: the show. And um and and and and I would

828
00:46:48,040 --> 00:46:50,799
Speaker 1: say that there's he he might be, But the only

829
00:46:50,840 --> 00:46:54,280
Speaker 1: genius I truly do well. I say Don is a genius.

830
00:46:54,480 --> 00:46:59,719
Speaker 1: What about Yamaron? Yamaron is um a genius divided by

831
00:47:00,040 --> 00:47:03,919
Speaker 1: ten uh and um and and Bob. Bob Ferrell had

832
00:47:03,960 --> 00:47:07,120
Speaker 1: a profound influence in my career. We actually twice a year,

833
00:47:07,760 --> 00:47:10,759
Speaker 1: UH we co host an investor lunch here in New York.

834
00:47:10,760 --> 00:47:13,239
Speaker 1: One's coming up in mid December. He's still a going

835
00:47:13,280 --> 00:47:16,880
Speaker 1: concern um and UH and putting out research and then

836
00:47:17,000 --> 00:47:20,319
Speaker 1: doing work and UH a sound of mind. The last

837
00:47:20,320 --> 00:47:22,120
Speaker 1: time I spoke to him, as he's been at any

838
00:47:22,160 --> 00:47:26,319
Speaker 1: time since I've known him. Uh. He is a true legend. UH.

839
00:47:26,640 --> 00:47:33,000
Speaker 1: The operative word is discipline. He is a disciplined UH strategist.

840
00:47:33,520 --> 00:47:38,080
Speaker 1: And UH doesn't get him passioned. Um. He basically UH

841
00:47:38,280 --> 00:47:43,759
Speaker 1: lets the markets and the charts and the patterns, UM

842
00:47:43,880 --> 00:47:47,960
Speaker 1: do the dictating. He's a he's a rare breed. And UM,

843
00:47:48,000 --> 00:47:51,200
Speaker 1: I've learned a great deal from him. I would love

844
00:47:51,360 --> 00:47:58,160
Speaker 1: love love travel. I would love love love Dave. Cute

845
00:47:58,160 --> 00:48:00,440
Speaker 1: girl goes by that's got your name on it. I

846
00:48:00,480 --> 00:48:02,920
Speaker 1: can't believe you're gonna make a face with that. I

847
00:48:03,000 --> 00:48:07,680
Speaker 1: would love love love to get Bob farrellon here. He's

848
00:48:07,680 --> 00:48:11,000
Speaker 1: one of these guys that doesn't do media, doesn't speak

849
00:48:11,040 --> 00:48:15,200
Speaker 1: to the press, just cranks out with a relentless standing.

850
00:48:15,239 --> 00:48:21,160
Speaker 1: This over half a century intelligent, common sense market wisdom,

851
00:48:21,200 --> 00:48:24,759
Speaker 1: and there are so few people like that. Well, I

852
00:48:24,800 --> 00:48:27,320
Speaker 1: think what makes them even more special is the fact

853
00:48:27,360 --> 00:48:31,200
Speaker 1: that he does not make himself available to the to

854
00:48:31,280 --> 00:48:34,640
Speaker 1: the press. So maybe that adds a little to the mystery. Uh,

855
00:48:34,960 --> 00:48:40,279
Speaker 1: but um, it also makes his um, his material that

856
00:48:40,400 --> 00:48:44,760
Speaker 1: much more exclusive and therefore that much more important. He's

857
00:48:44,800 --> 00:48:47,800
Speaker 1: a fascinating guy. And I know in December during lunch

858
00:48:47,800 --> 00:48:50,160
Speaker 1: you'll you'll put in a good word for us. I'll

859
00:48:50,160 --> 00:48:54,840
Speaker 1: bring good doggy back. So we've discussed your early mentors.

860
00:48:54,880 --> 00:48:59,319
Speaker 1: We've discussed um, the three people who are who are

861
00:48:59,320 --> 00:49:03,040
Speaker 1: most influence unchil, and we've talked a bit um about

862
00:49:03,080 --> 00:49:06,800
Speaker 1: a day in the life of of a economist at Meryl,

863
00:49:06,920 --> 00:49:10,799
Speaker 1: managing up, managing down. Um, how do you like the

864
00:49:11,000 --> 00:49:14,600
Speaker 1: transition to the by side? And for lay people who

865
00:49:14,600 --> 00:49:17,160
Speaker 1: may not know the difference, the sales side is a

866
00:49:17,160 --> 00:49:22,200
Speaker 1: tendency to be transactional, commission driven. You're selling something to

867
00:49:22,360 --> 00:49:25,439
Speaker 1: a willing buyer, as opposed to the by side, where

868
00:49:25,440 --> 00:49:28,520
Speaker 1: people give you assets to manage and you go out

869
00:49:28,520 --> 00:49:31,960
Speaker 1: and buy on their behalf. So mutual funds, hedge funds,

870
00:49:32,560 --> 00:49:36,920
Speaker 1: r A s are by side, broker dealers, transactional business

871
00:49:36,680 --> 00:49:40,480
Speaker 1: are our sales sides. How did you find that transition?

872
00:49:41,640 --> 00:49:45,600
Speaker 1: What was that like? Well, I've been in the financial

873
00:49:45,640 --> 00:49:50,040
Speaker 1: business now for twenty eight years. I've been a Gluscon

874
00:49:50,160 --> 00:49:53,879
Speaker 1: chef for six. I would say that I've learned more

875
00:49:53,960 --> 00:49:56,239
Speaker 1: in the past six years of Glusk and chef as

876
00:49:56,320 --> 00:49:59,239
Speaker 1: as you said a bye side strategist and economist. I've

877
00:49:59,280 --> 00:50:01,360
Speaker 1: learned more in the past six years in the previous

878
00:50:01,400 --> 00:50:09,840
Speaker 1: twenty two combined, because I figured out how to produce

879
00:50:09,960 --> 00:50:18,200
Speaker 1: and communicate a forecast that's meaningful for somebody who manages

880
00:50:18,280 --> 00:50:20,200
Speaker 1: money for a living. And I want to let me

881
00:50:20,200 --> 00:50:22,480
Speaker 1: stop you right there. I want to reiterate what Dave

882
00:50:22,600 --> 00:50:26,520
Speaker 1: said before about this because A it was so refreshing

883
00:50:26,560 --> 00:50:30,120
Speaker 1: and be it was so important when you're and correct

884
00:50:30,120 --> 00:50:33,040
Speaker 1: me if I if I sum this up incorrectly, you're

885
00:50:33,040 --> 00:50:37,200
Speaker 1: doing beautifully so far. When you're an economist on the

886
00:50:37,239 --> 00:50:41,279
Speaker 1: sales side, you make a forecast. Your forecast is out there.

887
00:50:41,480 --> 00:50:44,239
Speaker 1: It's right or wrong, and if you get it wrong,

888
00:50:44,280 --> 00:50:47,120
Speaker 1: so what. If you get it right, so what? It

889
00:50:47,200 --> 00:50:50,920
Speaker 1: doesn't matter when you're advising people on the buy side.

890
00:50:51,840 --> 00:50:55,160
Speaker 1: It's not a black and white win or lose forecast.

891
00:50:55,760 --> 00:50:58,759
Speaker 1: It's a probability matrix with all sorts of shades of gray.

892
00:50:59,320 --> 00:51:04,480
Speaker 1: Here's my highest probability forecast, along with my this degree

893
00:51:04,520 --> 00:51:08,840
Speaker 1: of conviction. If I'm wrong, here's how I'm likely to

894
00:51:08,840 --> 00:51:11,800
Speaker 1: be wrong. And here's here's the next most likely scenario.

895
00:51:11,960 --> 00:51:15,279
Speaker 1: Here's plans C. Here's Plan D that's very different than

896
00:51:16,760 --> 00:51:19,120
Speaker 1: g d. P is gonna be three point two and

897
00:51:19,200 --> 00:51:22,000
Speaker 1: the Dow is going to be at eighteen two. You're

898
00:51:22,080 --> 00:51:25,440
Speaker 1: either dead right or dead wrong, and it's meaningless to

899
00:51:25,440 --> 00:51:29,399
Speaker 1: to an investor. Is that a fair summation? Okay? Um, yeah,

900
00:51:29,560 --> 00:51:32,360
Speaker 1: you you you're like the guy co guy over my shoulders.

901
00:51:32,400 --> 00:51:35,760
Speaker 1: So um you said that. Well, let me just add

902
00:51:35,840 --> 00:51:40,239
Speaker 1: this that in my previous you know, incarnation, I went

903
00:51:40,280 --> 00:51:43,440
Speaker 1: around the world talking to other portfolio managers at other firms,

904
00:51:43,840 --> 00:51:48,000
Speaker 1: and uh and invariably, because you're a human being, you're

905
00:51:48,000 --> 00:51:51,000
Speaker 1: going to be wrong. And I've had my share of

906
00:51:51,080 --> 00:51:54,719
Speaker 1: bad calls. When you work at a small firm and

907
00:51:54,760 --> 00:51:56,759
Speaker 1: we manage eight and a half billion dollars, we're not

908
00:51:56,960 --> 00:52:01,840
Speaker 1: Mery Lynch, Mary Lynch. You see you've got a call wrong. Um,

909
00:52:01,880 --> 00:52:05,640
Speaker 1: it really just hurt your pride when you get a

910
00:52:05,640 --> 00:52:11,360
Speaker 1: call wrong at a small firm where your clients are families. Uh,

911
00:52:11,400 --> 00:52:14,719
Speaker 1: and those are relationships that become personal. I developed some

912
00:52:14,800 --> 00:52:17,720
Speaker 1: close relationships when I was at Meryl with other portfolio managers.

913
00:52:17,719 --> 00:52:20,560
Speaker 1: Of course, they're managing money for other people, so you're

914
00:52:20,600 --> 00:52:24,640
Speaker 1: like two or three or four, you're just you're really

915
00:52:24,719 --> 00:52:30,080
Speaker 1: separated when you're actually firstly, UH, Commandment Number one O

916
00:52:30,080 --> 00:52:32,719
Speaker 1: Glaskin chef is that we own the same funds that

917
00:52:32,719 --> 00:52:35,120
Speaker 1: our clients owned, so we eat what we kill. We're

918
00:52:35,120 --> 00:52:37,839
Speaker 1: invested alongside our clients. So when I make a bad call,

919
00:52:38,640 --> 00:52:41,200
Speaker 1: I feel it on my own portfolio, but not just that.

920
00:52:41,800 --> 00:52:44,520
Speaker 1: It actually hurts more when you see the impact I

921
00:52:44,560 --> 00:52:47,480
Speaker 1: could have on your client's portfolio, because invariably it becomes

922
00:52:47,480 --> 00:52:52,879
Speaker 1: a personal relationship. Um, most of our clients are UM

923
00:52:53,040 --> 00:52:57,320
Speaker 1: high net worth. When I was at Meryl or before

924
00:52:57,360 --> 00:53:00,279
Speaker 1: that at the Bank of Montreal, I would spend most

925
00:53:00,280 --> 00:53:03,719
Speaker 1: of my time with institutional portfolio managers, and if I

926
00:53:03,719 --> 00:53:06,040
Speaker 1: ever saw high net worth clients or what they call

927
00:53:06,160 --> 00:53:08,520
Speaker 1: private clients retail clients, it would be a thousand of

928
00:53:08,520 --> 00:53:11,360
Speaker 1: them herded into a ballroom of a hotel and I

929
00:53:11,400 --> 00:53:14,000
Speaker 1: would go up and do my dog and pony show. Today,

930
00:53:14,160 --> 00:53:16,919
Speaker 1: you actually sit right across from them, face to face,

931
00:53:17,080 --> 00:53:20,320
Speaker 1: and these relationships have become personal. So when you're asking

932
00:53:20,320 --> 00:53:26,080
Speaker 1: about what the primary differences at a personal level, it's

933
00:53:26,080 --> 00:53:29,320
Speaker 1: exactly that. It's that when I get a call wrong,

934
00:53:30,400 --> 00:53:32,759
Speaker 1: I feel a little lot more. Uh. Look, when you

935
00:53:32,800 --> 00:53:35,880
Speaker 1: get these big institutions losing a client, it's rounding herror.

936
00:53:36,080 --> 00:53:39,959
Speaker 1: When we actually lose a client, you'd be amazed at

937
00:53:40,239 --> 00:53:45,000
Speaker 1: m at the uh, at the analysis that goes on afterwards,

938
00:53:45,000 --> 00:53:48,600
Speaker 1: assessing where is it that we went wrong and how

939
00:53:48,760 --> 00:53:52,520
Speaker 1: will we make the effort to not make that mistake again.

940
00:53:52,600 --> 00:53:54,719
Speaker 1: So the bottom line is that today when I make

941
00:53:54,920 --> 00:53:58,680
Speaker 1: an error, I take it more personally and I feel

942
00:53:58,719 --> 00:54:00,600
Speaker 1: it more than I did when I was a sell

943
00:54:00,680 --> 00:54:04,120
Speaker 1: side economist. That's really fascinating. You know. We had an

944
00:54:04,160 --> 00:54:08,000
Speaker 1: interesting conversation in the office today in my office today

945
00:54:08,080 --> 00:54:11,919
Speaker 1: about something very similar to what you're talking about, which

946
00:54:12,000 --> 00:54:16,680
Speaker 1: is the ministers without portfolio The people who are not

947
00:54:17,040 --> 00:54:21,879
Speaker 1: managing assets are directly working with portfolio managers, and they're

948
00:54:21,920 --> 00:54:26,400
Speaker 1: free to say as whatever outrageous thing they want to say.

949
00:54:26,600 --> 00:54:28,440
Speaker 1: I won't mention him by name on the air, but

950
00:54:28,520 --> 00:54:32,799
Speaker 1: there he's in my slide deck and someone keeps forecasting

951
00:54:32,800 --> 00:54:35,719
Speaker 1: a seven like crash. He's forecasted every year for the

952
00:54:35,760 --> 00:54:39,200
Speaker 1: past five years. Last year he felt felt the need

953
00:54:39,239 --> 00:54:41,720
Speaker 1: to step it up a notch and he said, even

954
00:54:41,760 --> 00:54:45,520
Speaker 1: worse than a seven like crash. And you could say that,

955
00:54:46,600 --> 00:54:50,360
Speaker 1: you could say that when you're not managing money, you

956
00:54:50,360 --> 00:54:53,040
Speaker 1: could be out of the market for five years when

957
00:54:53,040 --> 00:54:56,080
Speaker 1: you're not managing money, But when you're actually dealing with

958
00:54:56,200 --> 00:55:01,080
Speaker 1: families and pms or managing the money yourself, you can't

959
00:55:01,080 --> 00:55:04,160
Speaker 1: be in cash for five years. You can't be stone

960
00:55:04,160 --> 00:55:07,319
Speaker 1: throwers like that. You have to be a participant. And

961
00:55:07,360 --> 00:55:11,400
Speaker 1: if I'm hearing what you're saying correctly, being that close

962
00:55:11,719 --> 00:55:16,000
Speaker 1: to the ultimate person whose money is at risk changes

963
00:55:16,040 --> 00:55:20,360
Speaker 1: the way you view the world, changes the way you operate. Well,

964
00:55:20,400 --> 00:55:23,520
Speaker 1: you know, just uh, you know, maybe round out the discussion.

965
00:55:23,960 --> 00:55:28,960
Speaker 1: What's different that Gluskin chef for me regarding our clients

966
00:55:29,400 --> 00:55:34,600
Speaker 1: is that, um, it's more personal than it used to be.

967
00:55:35,480 --> 00:55:38,280
Speaker 1: And what does that do to impact your thought process,

968
00:55:38,320 --> 00:55:42,239
Speaker 1: impact how you look at, uh, the economy in the market. Well, look,

969
00:55:42,280 --> 00:55:47,040
Speaker 1: I always I always like to believe that that I

970
00:55:47,080 --> 00:55:49,319
Speaker 1: was on my game, but at this level, at a

971
00:55:49,360 --> 00:55:53,840
Speaker 1: personal level, when the clients actually are either family members

972
00:55:53,920 --> 00:55:59,359
Speaker 1: or friends, or they become friends who developed these personal relationships. Um,

973
00:55:59,400 --> 00:56:02,160
Speaker 1: it means that I have to sharpen my focus that

974
00:56:02,239 --> 00:56:04,840
Speaker 1: much more, all right, So let's sharpen your focus a

975
00:56:04,840 --> 00:56:08,240
Speaker 1: little bit and talk about some specific things. We didn't

976
00:56:08,239 --> 00:56:12,080
Speaker 1: get to in the broadcast portion. So we didn't get

977
00:56:12,120 --> 00:56:15,120
Speaker 1: to talk about the housing market, which is a key

978
00:56:15,200 --> 00:56:18,360
Speaker 1: part of what's going on. What do you see in

979
00:56:18,400 --> 00:56:24,480
Speaker 1: the housing market in the US and North America and globally? Okay, US,

980
00:56:24,560 --> 00:56:29,239
Speaker 1: North America, globally, well, you know, I guess that, um talk.

981
00:56:29,360 --> 00:56:31,960
Speaker 1: I'm not gonna talk about the Mexican housing market because frankly,

982
00:56:32,239 --> 00:56:34,840
Speaker 1: it has no bearing on how we invest. A Gluskin chef,

983
00:56:35,640 --> 00:56:37,800
Speaker 1: the US housing market looks very interesting to me, and

984
00:56:37,840 --> 00:56:40,399
Speaker 1: notw withstanding the fact that mortgage rates are backing up

985
00:56:40,440 --> 00:56:44,720
Speaker 1: courtesy of the Bontom market adjusting to the FED beginning

986
00:56:44,760 --> 00:56:48,879
Speaker 1: it's tightening phase, it's still very historically low, right, very

987
00:56:48,920 --> 00:56:52,040
Speaker 1: historically cheap. Well, you know that's uh. I love the narrative,

988
00:56:52,120 --> 00:56:55,600
Speaker 1: but you know, markets and the economy operate at the margins,

989
00:56:55,640 --> 00:56:57,640
Speaker 1: So it's the change that matters, not the level, and

990
00:56:57,719 --> 00:57:02,600
Speaker 1: not compared to some historical average But what's interesting is

991
00:57:02,640 --> 00:57:07,040
Speaker 1: that employment in the key UH first time home buying

992
00:57:07,280 --> 00:57:10,839
Speaker 1: cohort is running about thirty faster than is the rest

993
00:57:10,880 --> 00:57:14,040
Speaker 1: of population. So these boomerangs that have been sitting in

994
00:57:14,080 --> 00:57:18,360
Speaker 1: the basement at mon pause watching repeats of breaking bad

995
00:57:18,400 --> 00:57:21,000
Speaker 1: are now going out and um and getting into the

996
00:57:21,040 --> 00:57:24,080
Speaker 1: housing market. The interesting situation we have right now is

997
00:57:24,120 --> 00:57:27,080
Speaker 1: that the trend in household formation that also information is

998
00:57:27,160 --> 00:57:30,400
Speaker 1: running towards one and a half million units. Housing starts

999
00:57:30,440 --> 00:57:33,400
Speaker 1: are running at one point two UM. You have housing

1000
00:57:33,440 --> 00:57:36,800
Speaker 1: inventories roughly five months supply, very well balanced market. So

1001
00:57:36,960 --> 00:57:39,800
Speaker 1: I don't think that the home builders which have of

1002
00:57:39,840 --> 00:57:42,000
Speaker 1: course we've got those great numbers from Poulty and d R.

1003
00:57:42,040 --> 00:57:44,840
Speaker 1: Horden in the past forty eight hours. But the homebuilders

1004
00:57:44,840 --> 00:57:48,240
Speaker 1: are corrected fairly hard in the past several weeks. My

1005
00:57:48,360 --> 00:57:51,120
Speaker 1: senses that are they're not priced for the prospect the

1006
00:57:51,120 --> 00:57:54,600
Speaker 1: next two years of seeing residential construction rise as much

1007
00:57:54,600 --> 00:57:58,200
Speaker 1: as story in cana is a little different. Um. You know,

1008
00:57:58,320 --> 00:58:00,960
Speaker 1: housing is a share of us GDP is at a

1009
00:58:00,960 --> 00:58:04,080
Speaker 1: low level from historical proportion in Canada. You cannot possibly

1010
00:58:04,080 --> 00:58:07,440
Speaker 1: be more over housed than you are today. The story

1011
00:58:07,480 --> 00:58:10,760
Speaker 1: in the United States is one of domestic demand, consumer spending,

1012
00:58:10,800 --> 00:58:13,520
Speaker 1: capital spending, commercial construction, which by the way, is in

1013
00:58:13,520 --> 00:58:17,040
Speaker 1: an uptrend, and housing. In Canada, it's going to be

1014
00:58:17,120 --> 00:58:19,560
Speaker 1: less about housing and it's going to be more about

1015
00:58:20,360 --> 00:58:23,160
Speaker 1: the strength in US domestic demand. Don't forget Canada ships

1016
00:58:23,800 --> 00:58:28,240
Speaker 1: its GDP at the US and a competitively supercharged currency

1017
00:58:28,640 --> 00:58:31,680
Speaker 1: helping out the beleaguered manufacturing sector and exports. That would

1018
00:58:31,680 --> 00:58:34,440
Speaker 1: be the story. In Canada, You're still getting a huge

1019
00:58:34,520 --> 00:58:38,720
Speaker 1: influx of overseas buyers of real estate. I'm using Vancouver

1020
00:58:39,240 --> 00:58:42,840
Speaker 1: as an example. But is that is that Canadian my friend,

1021
00:58:42,920 --> 00:58:47,800
Speaker 1: my friend, my friend, Canadian dollar is at a discount

1022
00:58:47,840 --> 00:58:52,560
Speaker 1: of the US Canada. Canada has this giant for sale

1023
00:58:52,600 --> 00:58:55,120
Speaker 1: sign right in front of it. But Canadian, you know

1024
00:58:55,160 --> 00:58:58,760
Speaker 1: the from our perspective, Canada never had the same housing

1025
00:58:58,840 --> 00:59:02,080
Speaker 1: crash that the US had. It it kept going and going.

1026
00:59:02,160 --> 00:59:06,840
Speaker 1: Canadian home prices are fairly yet you says yeah, around,

1027
00:59:07,120 --> 00:59:11,880
Speaker 1: Canadian home prices are are fairly aggressively priced, especially in

1028
00:59:11,920 --> 00:59:16,040
Speaker 1: the in the really attractive cities. You asked about US investors,

1029
00:59:16,200 --> 00:59:18,840
Speaker 1: so you're talking about what they look like in US dollars,

1030
00:59:19,480 --> 00:59:22,800
Speaker 1: not Canadian dollars. No, No, What I'm asking is our

1031
00:59:22,920 --> 00:59:26,960
Speaker 1: overseas buyers snapping up, still snapping up all of these

1032
00:59:27,320 --> 00:59:30,200
Speaker 1: Most of the most of the buying in Vancouver is

1033
00:59:30,240 --> 00:59:32,840
Speaker 1: coming out of China. Yes, and yes, you are getting

1034
00:59:33,200 --> 00:59:37,680
Speaker 1: US buying into Canada. Canada. Is c h E A

1035
00:59:37,800 --> 00:59:41,920
Speaker 1: P for a US based investor. Very interesting, Yameron, you

1036
00:59:41,960 --> 00:59:45,080
Speaker 1: were jumping out of your chair. You disagree with Dave's

1037
00:59:45,080 --> 00:59:48,560
Speaker 1: Taklan housing. I've disagreed with Dave, and I've been wrong

1038
00:59:48,600 --> 00:59:53,920
Speaker 1: on that part for a good number of of those arguments,

1039
00:59:54,720 --> 00:59:59,320
Speaker 1: um for for well over a decade. But you know,

1040
00:59:59,400 --> 01:00:01,320
Speaker 1: I see the house is a little different. You know

1041
01:00:01,560 --> 01:00:05,320
Speaker 1: all those right now? Multi unit around a panel again, Dave,

1042
01:00:05,400 --> 01:00:09,400
Speaker 1: and multi units are are are soaring because people cannot

1043
01:00:09,400 --> 01:00:11,800
Speaker 1: afford to buy a home. Rentals way up. So the

1044
01:00:11,840 --> 01:00:14,600
Speaker 1: Boomerang kids leaving their parents basement. Are they first time

1045
01:00:14,640 --> 01:00:18,520
Speaker 1: homebuyers or are they renters? They're renting and rental rental

1046
01:00:19,720 --> 01:00:23,800
Speaker 1: units of five or more construction of new construction of

1047
01:00:23,840 --> 01:00:26,720
Speaker 1: five or more unity family are the highest since nineteen

1048
01:00:26,800 --> 01:00:31,040
Speaker 1: eighties six compared to something that if you break, if

1049
01:00:31,080 --> 01:00:32,960
Speaker 1: you pull out of that housing start number you pull

1050
01:00:33,000 --> 01:00:36,080
Speaker 1: out the single family units very different I won't even

1051
01:00:36,080 --> 01:00:38,640
Speaker 1: ask him about copper oil coast. Will all want to

1052
01:00:38,640 --> 01:00:40,840
Speaker 1: commit suicide after it? Well, like I'll say this much

1053
01:00:40,880 --> 01:00:43,600
Speaker 1: the the you know, we talked. A world doesn't revolve around.

1054
01:00:43,720 --> 01:00:47,320
Speaker 1: We talked around, We talked. We talked about Bob Ferrell

1055
01:00:47,440 --> 01:00:51,360
Speaker 1: Rule number one was everything reverts to the mean at

1056
01:00:51,400 --> 01:00:55,600
Speaker 1: least ratios, and usually that means that you break through

1057
01:00:55,600 --> 01:00:57,720
Speaker 1: the mean in both directions. When we got up to

1058
01:00:57,720 --> 01:01:01,800
Speaker 1: almost a home ownership rate back at the peaks, that

1059
01:01:01,880 --> 01:01:04,160
Speaker 1: was one extreme. Now we've gotten to the other extreme.

1060
01:01:04,200 --> 01:01:06,840
Speaker 1: We're pretty well at historic lows in the home ownership rate.

1061
01:01:06,960 --> 01:01:09,320
Speaker 1: And I'm not Yes, i am really not in the business.

1062
01:01:09,360 --> 01:01:12,400
Speaker 1: I've never made it a business to take the most

1063
01:01:12,400 --> 01:01:16,280
Speaker 1: recent experience and superimposed it into the future. My sense

1064
01:01:16,400 --> 01:01:19,920
Speaker 1: is that quite right. UM, rental construction has been very strong.

1065
01:01:20,160 --> 01:01:23,080
Speaker 1: It's been the rental demand that's been the big story.

1066
01:01:23,960 --> 01:01:27,600
Speaker 1: But UM, we have very tight apartment vacancy rates. Rents.

1067
01:01:27,920 --> 01:01:30,240
Speaker 1: One of the reasons why core service inflation is as

1068
01:01:30,280 --> 01:01:32,560
Speaker 1: strong as it's been is because of rents. So the

1069
01:01:32,640 --> 01:01:35,480
Speaker 1: rent home price ratio is altered in a certain respect.

1070
01:01:35,880 --> 01:01:38,480
Speaker 1: We are starting to get income growth, and I'm making

1071
01:01:38,520 --> 01:01:42,640
Speaker 1: this point that the key first time home buyer category,

1072
01:01:42,760 --> 01:01:45,880
Speaker 1: twenty five to thirty four year olds. Their growth of

1073
01:01:45,960 --> 01:01:49,480
Speaker 1: employment in the past year is running thirty, not thirteen,

1074
01:01:50,640 --> 01:01:53,360
Speaker 1: faster than it is for the rest of the population. Now,

1075
01:01:53,400 --> 01:01:56,040
Speaker 1: there are lags involved, but with a lag they will

1076
01:01:56,040 --> 01:02:00,880
Speaker 1: for themselves into homeowner household units and I think that

1077
01:02:01,000 --> 01:02:02,680
Speaker 1: is going to be the next leg of the housing market. Now.

1078
01:02:02,720 --> 01:02:05,760
Speaker 1: I want to give you props about that, because not

1079
01:02:05,840 --> 01:02:09,720
Speaker 1: this summer, the previous summer, you, in a presentation at

1080
01:02:09,720 --> 01:02:14,400
Speaker 1: Camp Coo Talk up in Maine, talked about the building

1081
01:02:14,800 --> 01:02:20,959
Speaker 1: demand for for employees and the future wage push which

1082
01:02:21,160 --> 01:02:24,040
Speaker 1: was a couple of quarters away and year of a

1083
01:02:24,120 --> 01:02:26,640
Speaker 1: year we see up two point five percent in US wages.

1084
01:02:27,120 --> 01:02:30,600
Speaker 1: You talked about that before anybody else was speaking about it,

1085
01:02:30,960 --> 01:02:33,720
Speaker 1: and you got it right. You said, it's inevitable that

1086
01:02:33,800 --> 01:02:35,960
Speaker 1: we're going to start to see wage pressures. You can

1087
01:02:36,080 --> 01:02:39,760
Speaker 1: have this sort of GDP activity and this title labor

1088
01:02:39,800 --> 01:02:43,560
Speaker 1: market without seeing that sort of shift that plays into

1089
01:02:43,600 --> 01:02:46,960
Speaker 1: that first time home buyers. What does that going forward

1090
01:02:47,040 --> 01:02:50,240
Speaker 1: for the economy. Well, look, it's a uh, it's a

1091
01:02:50,240 --> 01:02:52,840
Speaker 1: bit of a double let sword because for the equity

1092
01:02:52,880 --> 01:02:55,440
Speaker 1: market will have to get used to living with with

1093
01:02:55,440 --> 01:02:58,240
Speaker 1: with probably lower profit margins, doesn't mean that the market's

1094
01:02:58,280 --> 01:03:01,600
Speaker 1: going down, but that will be like straint um because

1095
01:03:01,600 --> 01:03:03,720
Speaker 1: there's only two sources of income in the economy. The

1096
01:03:03,760 --> 01:03:07,920
Speaker 1: government doesn't create income taxes it, but there's corporate income

1097
01:03:07,960 --> 01:03:10,560
Speaker 1: and then there's labor income. Labor income is picking up

1098
01:03:10,600 --> 01:03:13,000
Speaker 1: across almost every measure. This is actually a debate. If

1099
01:03:13,000 --> 01:03:15,880
Speaker 1: you remember a camp Co talk with me and Philippa Donne,

1100
01:03:16,240 --> 01:03:19,040
Speaker 1: who absolutely love and I think she is the resident

1101
01:03:19,120 --> 01:03:23,880
Speaker 1: labor that's right, you know. And um, what I'll say

1102
01:03:24,080 --> 01:03:27,480
Speaker 1: is what I was focusing on back then was this

1103
01:03:27,880 --> 01:03:31,800
Speaker 1: one are Keen statistic called a quit rate that we

1104
01:03:31,840 --> 01:03:34,360
Speaker 1: know that only green Span I've looked at repeatedly, like

1105
01:03:34,640 --> 01:03:36,880
Speaker 1: twenty three years ago, which is the percentage of the

1106
01:03:36,960 --> 01:03:40,480
Speaker 1: unemployed that are quitting their jobs voluntarily in search of

1107
01:03:40,520 --> 01:03:44,040
Speaker 1: greener pastures elsewhere. It's basically what I call the take

1108
01:03:44,120 --> 01:03:47,720
Speaker 1: this job in shove it index, and it's a reflection

1109
01:03:47,720 --> 01:03:53,000
Speaker 1: to some extent of worker uh insecurity or alternatively worker confidence.

1110
01:03:53,040 --> 01:03:58,760
Speaker 1: You see, everybody focuses, everybody focuses on the on the

1111
01:03:58,840 --> 01:04:02,520
Speaker 1: unemployment rate, the classic measures of tightness in the labor market.

1112
01:04:02,520 --> 01:04:04,680
Speaker 1: Everybody's always saying, well, the unemployment rate has gone from

1113
01:04:04,760 --> 01:04:07,760
Speaker 1: ten percent to five percent. No matter what measure you

1114
01:04:07,800 --> 01:04:10,600
Speaker 1: want to use, they've all come down rather significantly, even

1115
01:04:10,640 --> 01:04:13,800
Speaker 1: the broader measures. And yet up until recently, there hasn't

1116
01:04:13,880 --> 01:04:17,800
Speaker 1: been a big wage response because what these classic measures

1117
01:04:17,880 --> 01:04:24,920
Speaker 1: of resource um uh, utilization capacity and labor market they

1118
01:04:25,000 --> 01:04:28,360
Speaker 1: don't show is how comfortable you are going to your

1119
01:04:28,400 --> 01:04:33,200
Speaker 1: boss asking for a race. It doesn't measure insecurity. What's

1120
01:04:33,240 --> 01:04:35,400
Speaker 1: happening is at this quit rate, and it went up

1121
01:04:35,440 --> 01:04:37,520
Speaker 1: again in the last month, which correct me if I'm wrong.

1122
01:04:37,560 --> 01:04:40,320
Speaker 1: I think it's almost a ten percent, the quit rates rising.

1123
01:04:40,640 --> 01:04:42,479
Speaker 1: And when I was having that debate a year ago,

1124
01:04:42,640 --> 01:04:45,960
Speaker 1: I was saying, the quit raids rising, that actually is

1125
01:04:46,200 --> 01:04:50,120
Speaker 1: the best leading indicator for wages. But you see the question, well,

1126
01:04:50,160 --> 01:04:53,400
Speaker 1: the question, like everything else, is always the lags, and

1127
01:04:53,440 --> 01:04:57,800
Speaker 1: how long does it take for the information that the

1128
01:04:57,920 --> 01:05:04,520
Speaker 1: working class has um better prospects uh than they actually think.

1129
01:05:04,560 --> 01:05:07,120
Speaker 1: You see that the labor market is not like commodities,

1130
01:05:07,440 --> 01:05:10,480
Speaker 1: and it's not like stocks or bonds. You're talking about people,

1131
01:05:11,400 --> 01:05:14,760
Speaker 1: and so at what point do people start to realize that, hey,

1132
01:05:15,160 --> 01:05:18,160
Speaker 1: my market for labor is actually tighter. I actually have

1133
01:05:18,280 --> 01:05:20,200
Speaker 1: the confidence now to go to my boss and ask

1134
01:05:20,240 --> 01:05:23,200
Speaker 1: for a raise. So the quit rate is actually a

1135
01:05:23,280 --> 01:05:26,640
Speaker 1: great When you plot the quit rate against wage growth,

1136
01:05:27,360 --> 01:05:30,400
Speaker 1: you might aso plot income and consumption, but the legs

1137
01:05:30,440 --> 01:05:34,240
Speaker 1: were longer this time around, so we are actually now

1138
01:05:34,360 --> 01:05:38,720
Speaker 1: starting to see more discernible science. Look bottom line, look

1139
01:05:38,760 --> 01:05:40,640
Speaker 1: at the n f I B index that just came out,

1140
01:05:40,680 --> 01:05:43,320
Speaker 1: the Small Business Index, and you've got that the net

1141
01:05:43,440 --> 01:05:46,760
Speaker 1: share of companies saying they're going to raise compensation in

1142
01:05:46,800 --> 01:05:49,120
Speaker 1: the next six months at its highest level for the cycle.

1143
01:05:49,640 --> 01:05:52,880
Speaker 1: So one of the metrics that I used to track

1144
01:05:53,200 --> 01:05:57,240
Speaker 1: UM was the Jolts Index. It's the job opening, labor

1145
01:05:57,440 --> 01:06:03,280
Speaker 1: turnover whatever of A and UM. How how parallel is

1146
01:06:03,320 --> 01:06:05,960
Speaker 1: that to UM? You take this job in shoving in

1147
01:06:06,000 --> 01:06:12,560
Speaker 1: depth in terms of what we're seeing, uh, employee confidence,

1148
01:06:13,320 --> 01:06:17,280
Speaker 1: availability of better jobs, wage wage pressures. Well, how do

1149
01:06:17,320 --> 01:06:22,200
Speaker 1: you contentionalize that looks? So for example, you said before

1150
01:06:22,320 --> 01:06:27,280
Speaker 1: that we quotes created a net two and seventy one jobs,

1151
01:06:28,200 --> 01:06:31,560
Speaker 1: uh say, in the month of October. What's missing in

1152
01:06:31,560 --> 01:06:37,040
Speaker 1: that comment is that we destroyed millions of jobs and

1153
01:06:37,080 --> 01:06:40,280
Speaker 1: we created millions of jobs, and then that number was

1154
01:06:40,320 --> 01:06:43,320
Speaker 1: to seventy one so what you're missing is the churning

1155
01:06:43,760 --> 01:06:47,880
Speaker 1: that goes below the surface of that headline number. So

1156
01:06:47,920 --> 01:06:50,800
Speaker 1: the Jolts number is valuable because it tells you what

1157
01:06:50,920 --> 01:06:53,080
Speaker 1: that churning. Well, it looks like how many people are

1158
01:06:53,120 --> 01:06:57,320
Speaker 1: actually quitting their jobs, how many people are getting fired

1159
01:06:57,360 --> 01:07:01,600
Speaker 1: from their jobs, how many people are getting hired. So

1160
01:07:01,760 --> 01:07:05,120
Speaker 1: it gives you, UM, you know that the churning. So

1161
01:07:05,160 --> 01:07:08,400
Speaker 1: we know, for example, that through the Jolts numbers that

1162
01:07:08,560 --> 01:07:11,080
Speaker 1: most of the improvement in labor market this cycle did

1163
01:07:11,080 --> 01:07:13,840
Speaker 1: not come from new hires as much as it came

1164
01:07:13,840 --> 01:07:17,640
Speaker 1: from a lack of firing. Uh. Companies have begun to

1165
01:07:17,720 --> 01:07:20,600
Speaker 1: hoard labor. The firing rate is extremely low, by the way,

1166
01:07:20,680 --> 01:07:24,880
Speaker 1: corroborted by what we're seeing in the job is claimed numbers. UH.

1167
01:07:24,920 --> 01:07:28,040
Speaker 1: What I always like to look at UM was always

1168
01:07:28,120 --> 01:07:33,600
Speaker 1: the UH the the the the number of of people

1169
01:07:33,760 --> 01:07:40,960
Speaker 1: that UM that are unemployed, UH normalized by the number

1170
01:07:40,960 --> 01:07:43,320
Speaker 1: of new hires. And I was telling me, actually that

1171
01:07:43,480 --> 01:07:45,600
Speaker 1: taking out all the other noise and adjusting for the

1172
01:07:45,640 --> 01:07:50,840
Speaker 1: labor force, that the labor market was tightening significantly. The

1173
01:07:50,960 --> 01:07:53,960
Speaker 1: question all along was which nobody, I mean people? And actually,

1174
01:07:54,000 --> 01:07:56,000
Speaker 1: if you take a look at the title of my

1175
01:07:56,480 --> 01:07:59,680
Speaker 1: of my employment report last week was, uh, you know,

1176
01:08:00,400 --> 01:08:04,840
Speaker 1: the Phillips curve comes back from the grave, maybe appropos

1177
01:08:04,880 --> 01:08:08,560
Speaker 1: because of Halloween that people were throwing out the Phillips

1178
01:08:08,600 --> 01:08:11,600
Speaker 1: curve as a as a as something you can hang

1179
01:08:11,600 --> 01:08:16,160
Speaker 1: your hat on. All that separated the tightening of labor,

1180
01:08:16,160 --> 01:08:19,479
Speaker 1: more conditions to the wage rate or the lags, and

1181
01:08:19,840 --> 01:08:24,439
Speaker 1: and basically, uh, the level of worker in security that

1182
01:08:24,479 --> 01:08:28,280
Speaker 1: existed through most of the cycle. We seem to be shedding, Uh,

1183
01:08:28,400 --> 01:08:31,960
Speaker 1: those fears. The proletariat seems to be a little more

1184
01:08:32,000 --> 01:08:35,400
Speaker 1: emboldened right now, and so wages are now with a

1185
01:08:35,479 --> 01:08:39,360
Speaker 1: longer legs, starting to respond. So you alluded to, but

1186
01:08:39,479 --> 01:08:43,320
Speaker 1: we didn't talk about the change in the labor force

1187
01:08:43,360 --> 01:08:47,000
Speaker 1: participation rate. Is that a secular factor that we've been

1188
01:08:47,000 --> 01:08:50,800
Speaker 1: losing people for demographic and global trade reasons or is

1189
01:08:50,840 --> 01:08:53,840
Speaker 1: there something more significant thing now? There's Look, there's two things.

1190
01:08:53,840 --> 01:08:57,400
Speaker 1: There's the first of the boomers turn sixty two thousand eleven,

1191
01:08:57,400 --> 01:08:59,760
Speaker 1: and that's going to be reality for decades, and so

1192
01:08:59,800 --> 01:09:03,240
Speaker 1: the the demographic element to it. Second, early we've created,

1193
01:09:03,280 --> 01:09:08,760
Speaker 1: through municipal, state, federal benefits, um a whole myriad of

1194
01:09:08,840 --> 01:09:12,720
Speaker 1: incentives for people to leave the labor force um where

1195
01:09:12,760 --> 01:09:16,040
Speaker 1: you get paid very well not to work? How well

1196
01:09:16,080 --> 01:09:17,880
Speaker 1: do you get paid not to work? I mean, it

1197
01:09:18,200 --> 01:09:20,479
Speaker 1: is some money there, but it's not like earning a

1198
01:09:20,520 --> 01:09:25,000
Speaker 1: real living. Can you really live comfortably on on disability?

1199
01:09:25,160 --> 01:09:26,799
Speaker 1: And if you add up, if you add up everything,

1200
01:09:26,840 --> 01:09:30,280
Speaker 1: I think that the Cato Institute did a report. All right,

1201
01:09:30,439 --> 01:09:33,360
Speaker 1: so that's strike one, but keep going. But but there's

1202
01:09:33,360 --> 01:09:37,320
Speaker 1: be another, uh scholarly research showing that the incentive systems,

1203
01:09:37,320 --> 01:09:40,799
Speaker 1: whether it's not just disability, but Medicare benefits and childcare

1204
01:09:40,840 --> 01:09:43,639
Speaker 1: benefits and look, you go back to work these days, Barry,

1205
01:09:43,800 --> 01:09:46,559
Speaker 1: and you give up a lot of benefits and some

1206
01:09:46,600 --> 01:09:49,160
Speaker 1: of the numbers I've seen or as high as forty dollars,

1207
01:09:49,160 --> 01:09:51,040
Speaker 1: like you've really got a bit up the wages to

1208
01:09:51,120 --> 01:09:52,960
Speaker 1: get people to come back in the labor market. And

1209
01:09:52,960 --> 01:09:54,920
Speaker 1: that's why it doesn't happen. Now, maybe you'll start to

1210
01:09:54,960 --> 01:09:57,400
Speaker 1: get maybe if the wage rate starts to come back,

1211
01:09:57,479 --> 01:10:00,559
Speaker 1: which it looks like it's happening, the participation rates starts

1212
01:10:00,560 --> 01:10:03,360
Speaker 1: to be a comeback, and the unemployermate stops going down.

1213
01:10:03,439 --> 01:10:06,559
Speaker 1: I think that's a reasonable premise um. But there's no

1214
01:10:06,680 --> 01:10:09,439
Speaker 1: question and whether you agree with the kido in student

1215
01:10:09,520 --> 01:10:11,439
Speaker 1: or not. They did show that. I think in thirty

1216
01:10:11,479 --> 01:10:16,520
Speaker 1: eight states you make more by tapping all the benefits

1217
01:10:17,040 --> 01:10:20,840
Speaker 1: at all levels of government then you do as a

1218
01:10:20,920 --> 01:10:25,080
Speaker 1: starting salary as an admit assistant thirty eight states. So look,

1219
01:10:25,080 --> 01:10:26,479
Speaker 1: you can say the kid and stut they have a

1220
01:10:26,479 --> 01:10:29,240
Speaker 1: certain extra grind um. But you know, unless you did

1221
01:10:29,840 --> 01:10:32,040
Speaker 1: I certainly implied it. You implied it. But unless you've

1222
01:10:32,040 --> 01:10:34,439
Speaker 1: done your own research, you know it's But but there's

1223
01:10:34,479 --> 01:10:38,320
Speaker 1: been other um, there's been other analysis done that's come

1224
01:10:38,360 --> 01:10:42,840
Speaker 1: to similar conclusions that you could really cry if you're

1225
01:10:42,840 --> 01:10:46,280
Speaker 1: on full disability, you can really crank up. Don't forget,

1226
01:10:46,439 --> 01:10:49,160
Speaker 1: don't forget. In two thousands and thirteen we had a

1227
01:10:49,160 --> 01:10:53,120
Speaker 1: fairly certificly increase in tax rates on income. The reality

1228
01:10:53,200 --> 01:10:55,160
Speaker 1: is a space economics. The more you at tax, the

1229
01:10:55,200 --> 01:10:58,240
Speaker 1: less supply you'll get your tax work, you'll get less work.

1230
01:10:58,840 --> 01:11:02,000
Speaker 1: So there's a marginal jersey is you know you're telling

1231
01:11:02,000 --> 01:11:04,360
Speaker 1: me someone's not going to take a starting job because

1232
01:11:04,439 --> 01:11:08,479
Speaker 1: they're they're Capital gains tax went up to from fifteen.

1233
01:11:08,560 --> 01:11:12,760
Speaker 1: That's a calf gains tax. The marginal increase just like

1234
01:11:12,800 --> 01:11:15,840
Speaker 1: the marginal decrease. Is someone going to say, well, you know,

1235
01:11:15,880 --> 01:11:17,840
Speaker 1: I used to be taxed at thirty six, but now

1236
01:11:17,880 --> 01:11:19,960
Speaker 1: it's thirty eight. I'm not going to start a new job.

1237
01:11:20,400 --> 01:11:26,439
Speaker 1: I've always thought that behavioral aspect of it was wildly overstated. So, Barry,

1238
01:11:26,479 --> 01:11:30,040
Speaker 1: you asked the question and you answered it yourself. So

1239
01:11:30,240 --> 01:11:32,439
Speaker 1: what what's your just Well, I'm trying to give you

1240
01:11:32,439 --> 01:11:34,840
Speaker 1: an answer, but you're answering it yourself. The answer is

1241
01:11:34,880 --> 01:11:39,759
Speaker 1: that it's mostly structural, largely demographic, largely related to uh,

1242
01:11:39,800 --> 01:11:41,479
Speaker 1: you know, look at if you don't like my answer,

1243
01:11:41,520 --> 01:11:43,840
Speaker 1: get Larry lindsay On here. We gave a presentation at

1244
01:11:43,880 --> 01:11:47,000
Speaker 1: this I saw his presentation two years ago. Get Peter

1245
01:11:47,040 --> 01:11:50,439
Speaker 1: book for On here and get Larry lindsay So again

1246
01:11:50,479 --> 01:11:53,120
Speaker 1: him to show you the press. Peter, well, yeah, I

1247
01:11:53,120 --> 01:11:58,200
Speaker 1: mean you were making faces, So well, hold on. You

1248
01:11:58,200 --> 01:12:01,559
Speaker 1: can't conduct an interview by cutting the person you're asking. Okay,

1249
01:12:01,600 --> 01:12:04,880
Speaker 1: I think that's where you're wrong. Said okay, well you

1250
01:12:04,920 --> 01:12:06,760
Speaker 1: as well. At first you asked a question, then you

1251
01:12:06,800 --> 01:12:09,800
Speaker 1: answered to yourself. So it's a good thing. It's a

1252
01:12:09,800 --> 01:12:13,080
Speaker 1: good thing we're friends. The answer is that it's mostly structural.

1253
01:12:13,280 --> 01:12:17,360
Speaker 1: They're mostly mostly changes and if you actually take a

1254
01:12:17,360 --> 01:12:19,200
Speaker 1: look at at the and actually the beauty of the

1255
01:12:19,240 --> 01:12:22,080
Speaker 1: household survey is it does show you the discouraged workers,

1256
01:12:22,640 --> 01:12:25,040
Speaker 1: and they've been going down. So it's not the number

1257
01:12:25,120 --> 01:12:28,240
Speaker 1: of discouraged workers has been going down. Didn't I just

1258
01:12:28,280 --> 01:12:30,639
Speaker 1: say that. I'm repeating it for people who didn't understand.

1259
01:12:30,960 --> 01:12:33,559
Speaker 1: So let's let's talk about you six, because we haven't

1260
01:12:33,600 --> 01:12:37,559
Speaker 1: gotten there. Last report under ten percent for the first

1261
01:12:37,600 --> 01:12:42,120
Speaker 1: time in who knows how long, how long? Oh? Nine,

1262
01:12:42,240 --> 01:12:45,639
Speaker 1: that's a huge drop because people have been screaming about, well,

1263
01:12:45,680 --> 01:12:47,880
Speaker 1: you know, there's still a lot of people who want

1264
01:12:47,920 --> 01:12:51,000
Speaker 1: to work, but they're discouraged under ten percent nine points something.

1265
01:12:51,160 --> 01:12:53,839
Speaker 1: Look look look at the at the at the narrower measures,

1266
01:12:53,880 --> 01:12:55,240
Speaker 1: like the U one and you two is down to

1267
01:12:55,320 --> 01:12:59,640
Speaker 1: two and a berry. We can slice this and dice this.

1268
01:12:59,760 --> 01:13:04,000
Speaker 1: I'm billion ways. The labor market is tight and it's tightening.

1269
01:13:04,479 --> 01:13:07,360
Speaker 1: And the only thing that's separated the tightening to wage

1270
01:13:07,360 --> 01:13:11,000
Speaker 1: growth was the level of worker insecurity, which is measured

1271
01:13:11,040 --> 01:13:15,200
Speaker 1: by the quit right, which is going up. So workers

1272
01:13:15,200 --> 01:13:19,080
Speaker 1: are starting to feel emboldened. If you go to the

1273
01:13:19,080 --> 01:13:22,760
Speaker 1: Conference Board Consumer Confidence Survey and you see the percentage

1274
01:13:22,760 --> 01:13:25,240
Speaker 1: of people expecting their income to go up in the

1275
01:13:25,280 --> 01:13:28,479
Speaker 1: next year. That ratio is going up. If you go

1276
01:13:28,560 --> 01:13:30,880
Speaker 1: to the National Federation have been a business to their

1277
01:13:30,960 --> 01:13:34,639
Speaker 1: survey showing companies willingness to start to pay people more money,

1278
01:13:35,240 --> 01:13:39,720
Speaker 1: that ratio is going up. So the stars are aligning

1279
01:13:40,240 --> 01:13:42,600
Speaker 1: that in the coming year, wage growth is going to

1280
01:13:42,640 --> 01:13:45,439
Speaker 1: be accelerating. The question really is going to be by

1281
01:13:45,439 --> 01:13:49,160
Speaker 1: how much? So what does that mean for future inflation?

1282
01:13:49,600 --> 01:13:53,160
Speaker 1: Is the Fed behind the curve? Are they endangered twelve

1283
01:13:53,160 --> 01:13:56,240
Speaker 1: months from now of not recognizing this? Tell me what

1284
01:13:56,320 --> 01:13:59,000
Speaker 1: this wage pressure is gonna mean one year from now. Well,

1285
01:13:59,120 --> 01:14:06,920
Speaker 1: I never believed that that wages lead inflation. Um. My

1286
01:14:07,080 --> 01:14:09,880
Speaker 1: sense is that there's going to be offsetting forces from

1287
01:14:09,880 --> 01:14:12,920
Speaker 1: the lagged impact of the strong dollar. The weakness and

1288
01:14:13,000 --> 01:14:17,400
Speaker 1: commodity prices is going to ensure that of the CPI

1289
01:14:17,600 --> 01:14:21,479
Speaker 1: that is goods oriented will remain very low or maybe

1290
01:14:21,479 --> 01:14:24,200
Speaker 1: in mild deflation. I think we will continue to see

1291
01:14:24,200 --> 01:14:28,000
Speaker 1: service sector inflation. My sense is that you know, inflation

1292
01:14:28,040 --> 01:14:30,800
Speaker 1: is zero right now. A year from now, I think

1293
01:14:30,800 --> 01:14:33,280
Speaker 1: it'll be one and a half to two percent. Is

1294
01:14:33,320 --> 01:14:37,720
Speaker 1: that behind that's increase? My friend? We don't have to

1295
01:14:37,680 --> 01:14:39,840
Speaker 1: two percent? Is like nirvana. I mean, don't forget there's

1296
01:14:39,880 --> 01:14:42,000
Speaker 1: the FED wants it to two, and there's some on

1297
01:14:42,040 --> 01:14:45,280
Speaker 1: the left side of the equation that wanted towards three. Well,

1298
01:14:45,280 --> 01:14:46,880
Speaker 1: I'm not looking at the level. I'm looking at the

1299
01:14:46,920 --> 01:14:48,960
Speaker 1: marginal change. Well, don't forget that. A lot of the

1300
01:14:48,960 --> 01:14:51,519
Speaker 1: reason why we're zero is because of commodity prices. Unless

1301
01:14:51,520 --> 01:14:53,720
Speaker 1: you think oil's gonna go down another fifty from here,

1302
01:14:53,720 --> 01:14:55,920
Speaker 1: we're not gonna get that out of thrust. I think

1303
01:14:55,920 --> 01:14:57,960
Speaker 1: oil is gonna be stuck in a arrange between forty

1304
01:14:57,960 --> 01:14:59,800
Speaker 1: and six. So then what happens that is that in

1305
01:15:00,000 --> 01:15:03,120
Speaker 1: and the dollar impact will dissipate over time. Goods inflation

1306
01:15:03,120 --> 01:15:05,320
Speaker 1: will no longer be minus for it will be zero.

1307
01:15:06,240 --> 01:15:09,599
Speaker 1: Core server sector inflation probably gets up towards three percent.

1308
01:15:09,680 --> 01:15:11,519
Speaker 1: Put in the Martini shaker and it comes out to

1309
01:15:11,640 --> 01:15:15,080
Speaker 1: roughly one and a half two percent underlying inflation. And

1310
01:15:15,240 --> 01:15:17,400
Speaker 1: uh yeah, I guess if you're long duration bonds, you're

1311
01:15:17,400 --> 01:15:19,519
Speaker 1: not gonna like to hear that story. But it actually

1312
01:15:19,560 --> 01:15:21,840
Speaker 1: isn't a bad overall story for the economy. You're telling

1313
01:15:21,840 --> 01:15:26,680
Speaker 1: a goldilocks scenario of full employment, rising wages, low inflation. Well,

1314
01:15:26,720 --> 01:15:29,639
Speaker 1: I don't like Goldilocks because the story also had three bears.

1315
01:15:31,120 --> 01:15:33,560
Speaker 1: I'm one of them. That's right, he's still one of

1316
01:15:33,600 --> 01:15:36,840
Speaker 1: the bears. Are still in here, all right? We touched

1317
01:15:36,840 --> 01:15:41,719
Speaker 1: on housing, we touched on inflation. Um During the panel

1318
01:15:42,080 --> 01:15:47,400
Speaker 1: discussion in UH in Miami, you described what you thought

1319
01:15:47,520 --> 01:15:50,799
Speaker 1: was going on at the Federal Reserve in great detail,

1320
01:15:51,400 --> 01:15:54,840
Speaker 1: but with a very abbreviated answer because there were four

1321
01:15:54,880 --> 01:15:58,360
Speaker 1: people on the panel. I want to delve back into that.

1322
01:15:58,760 --> 01:16:02,519
Speaker 1: Let's talk a little bit about Janet yelling and what's

1323
01:16:02,560 --> 01:16:07,439
Speaker 1: going on at the FED and what's the thought process here.

1324
01:16:07,479 --> 01:16:10,120
Speaker 1: I know we briefly touched on it, but you gave

1325
01:16:10,160 --> 01:16:13,240
Speaker 1: an answer as to what you see over the next

1326
01:16:13,240 --> 01:16:18,080
Speaker 1: twelve months? Is it? Is it every third meeting? Tell

1327
01:16:18,120 --> 01:16:21,360
Speaker 1: me what you see happening, uh, over the next twelve months.

1328
01:16:21,360 --> 01:16:24,600
Speaker 1: As soon we get a quarter point increase December? What

1329
01:16:24,680 --> 01:16:30,160
Speaker 1: does look like from the data dependent FEDS perspective? My

1330
01:16:30,280 --> 01:16:36,320
Speaker 1: sense is that, uh, they'll probably skip every other meeting.

1331
01:16:36,600 --> 01:16:40,880
Speaker 1: Like in other words, could I see them going a

1332
01:16:41,000 --> 01:16:44,040
Speaker 1: hundred basis points next year? Once a quarter? In other words,

1333
01:16:44,200 --> 01:16:46,920
Speaker 1: I could see that, and and then I you know,

1334
01:16:47,120 --> 01:16:49,439
Speaker 1: and and then little we'll see what happens going forward.

1335
01:16:49,479 --> 01:16:51,920
Speaker 1: You what you're asking about being behind the curve, It's

1336
01:16:52,640 --> 01:16:57,040
Speaker 1: always answer that question through the rear view mirror, and

1337
01:16:58,040 --> 01:17:00,960
Speaker 1: I would say that, um, you know they the tips,

1338
01:17:01,000 --> 01:17:05,120
Speaker 1: break even levels will give you some indication. The steepness

1339
01:17:05,160 --> 01:17:07,919
Speaker 1: of the yield curve will give you some indication. Commandity

1340
01:17:08,000 --> 01:17:11,479
Speaker 1: prices will give you some indication. The dollar will give

1341
01:17:11,479 --> 01:17:14,040
Speaker 1: you some indication. A whole range of variables will tell

1342
01:17:14,080 --> 01:17:17,000
Speaker 1: you if the FED is behind the curve. Classically, if

1343
01:17:17,000 --> 01:17:19,080
Speaker 1: you go through a bare steepen or of the Yelk curve,

1344
01:17:19,520 --> 01:17:21,519
Speaker 1: that would be a classic sign of the Feds behind

1345
01:17:21,520 --> 01:17:23,840
Speaker 1: the curve and we're not there. What do you think

1346
01:17:23,880 --> 01:17:28,439
Speaker 1: is the most hated sector of the market these days? Oh,

1347
01:17:28,479 --> 01:17:31,160
Speaker 1: the most hated sector of the market, Well, I would

1348
01:17:31,160 --> 01:17:35,120
Speaker 1: say that the part of the world that is most

1349
01:17:35,120 --> 01:17:38,040
Speaker 1: out of favor right now is my beloved country, Canada.

1350
01:17:38,560 --> 01:17:42,840
Speaker 1: I've never seen the Canadian banks with such a huge

1351
01:17:42,880 --> 01:17:45,519
Speaker 1: short position by the US hedge funds. I've never seen.

1352
01:17:45,960 --> 01:17:48,240
Speaker 1: I can't pick up a newspaper and not hear about

1353
01:17:49,320 --> 01:17:54,600
Speaker 1: how energy will drag Canada into a pernicious and perennial recession,

1354
01:17:54,680 --> 01:17:58,799
Speaker 1: how housing is dramatically overvalued and destined for a collapse. Um,

1355
01:17:58,840 --> 01:18:01,960
Speaker 1: I would say that the last time I remember the

1356
01:18:02,120 --> 01:18:04,880
Speaker 1: view on Canada and I think it's way overdone by

1357
01:18:04,880 --> 01:18:08,559
Speaker 1: the way. Um, the last time I had the view

1358
01:18:08,560 --> 01:18:10,200
Speaker 1: in Canada was this negative. I think you have to

1359
01:18:10,240 --> 01:18:12,360
Speaker 1: go back to the early to mid nineties when Canada

1360
01:18:12,439 --> 01:18:15,519
Speaker 1: was truly a fiscal basket case. We almost had a

1361
01:18:15,520 --> 01:18:18,760
Speaker 1: failed auction in and of course we had the Quebec refredum,

1362
01:18:18,800 --> 01:18:22,040
Speaker 1: so we had the political uncertainty. Um. But Canada right

1363
01:18:22,080 --> 01:18:27,040
Speaker 1: now standalone. Um, if you're a value investor looking for

1364
01:18:27,080 --> 01:18:31,320
Speaker 1: a turnaround situation, Canada looks very good to me right now.

1365
01:18:31,840 --> 01:18:35,519
Speaker 1: You like Canada here and you think that's a it's

1366
01:18:35,560 --> 01:18:40,760
Speaker 1: a investment. I say that it is a You know,

1367
01:18:41,479 --> 01:18:50,200
Speaker 1: if I love the baritone Homediveland that is Richie Amarone

1368
01:18:50,479 --> 01:18:55,240
Speaker 1: on vocals. I think Canada, I think Canada is a

1369
01:18:56,640 --> 01:19:03,080
Speaker 1: is going to be by definition an upside surprise. Yes.

1370
01:19:03,280 --> 01:19:07,599
Speaker 1: So that that assumes that no major disruption. Oil firms

1371
01:19:07,680 --> 01:19:11,400
Speaker 1: continues to uh, you know what the key Once again,

1372
01:19:11,600 --> 01:19:15,400
Speaker 1: as I said, before, you know, the Saudis told the

1373
01:19:15,400 --> 01:19:18,080
Speaker 1: shale guys in the US, you are the swing producer.

1374
01:19:18,360 --> 01:19:21,560
Speaker 1: When I see exploration and drilling activity down six in

1375
01:19:21,600 --> 01:19:24,280
Speaker 1: the US your vie and again, well, and there's lags.

1376
01:19:24,439 --> 01:19:27,240
Speaker 1: People may be surprised that a year from now we're

1377
01:19:27,280 --> 01:19:30,760
Speaker 1: more in a fifty sixty dollar range can and dollar

1378
01:19:30,800 --> 01:19:33,640
Speaker 1: will responding kind Uh, there'll be a lagged impact on

1379
01:19:33,680 --> 01:19:37,479
Speaker 1: all these concerns on energy credits, regarding the Canadian banks. Um,

1380
01:19:37,720 --> 01:19:42,040
Speaker 1: and don't forget that, you know, this new Liberal government. Uh,

1381
01:19:42,040 --> 01:19:46,760
Speaker 1: that's question, that's right justin Trudeau, but not about him,

1382
01:19:46,760 --> 01:19:49,479
Speaker 1: but what his economics team and the choice of Bill

1383
01:19:49,560 --> 01:19:53,800
Speaker 1: Murnau as finance minister, which well, I know it's not

1384
01:19:53,880 --> 01:19:57,720
Speaker 1: surprising it very Americans. It's a surprise. Well, you know,

1385
01:19:57,880 --> 01:19:59,640
Speaker 1: I don't even know if Americans even knew who he was.

1386
01:20:00,240 --> 01:20:02,800
Speaker 1: Most most Americans, most Americans don't even know what the

1387
01:20:02,800 --> 01:20:07,720
Speaker 1: auto was. The capital so it's Toronto. So you're you

1388
01:20:08,360 --> 01:20:11,000
Speaker 1: because when we first were talking about Trudeau getting elected,

1389
01:20:11,040 --> 01:20:13,800
Speaker 1: I know you were not enthralled with that. But this

1390
01:20:13,840 --> 01:20:17,840
Speaker 1: seems fairly constructive that uh you like the finance Well, look,

1391
01:20:17,840 --> 01:20:20,439
Speaker 1: I'm not going to disclose publicly how I voted it,

1392
01:20:20,479 --> 01:20:22,639
Speaker 1: but I will say that out of the three parties,

1393
01:20:23,200 --> 01:20:25,799
Speaker 1: out of the three parties, the Liberals did have the

1394
01:20:25,840 --> 01:20:29,680
Speaker 1: most pro growth fiscal plan. Really, that's kind of surprising. Well,

1395
01:20:29,680 --> 01:20:32,120
Speaker 1: I thought you read my daily. I do read your daily.

1396
01:20:32,120 --> 01:20:36,320
Speaker 1: It's a blur after after ten years of it. It's

1397
01:20:36,400 --> 01:20:38,160
Speaker 1: kind of a So it takes some of the pressure

1398
01:20:38,200 --> 01:20:40,559
Speaker 1: off the bank. Not only do I read your daily,

1399
01:20:40,760 --> 01:20:44,360
Speaker 1: but let me remind you that I republished your entire

1400
01:20:44,400 --> 01:20:47,960
Speaker 1: analysis of the Canadian election on the Big Picture because

1401
01:20:48,000 --> 01:20:50,880
Speaker 1: I thought it was so strong. Do you recall that conversation.

1402
01:20:51,000 --> 01:20:55,479
Speaker 1: That's why we're moving this conversation into let's discuss the

1403
01:20:55,520 --> 01:20:58,960
Speaker 1: minister appointment. I am forever indebted. I think that he's

1404
01:20:58,960 --> 01:21:02,920
Speaker 1: appointed a strong economics team. It's one of these situations

1405
01:21:02,960 --> 01:21:06,120
Speaker 1: where I think that you know, look, the Liberals got

1406
01:21:06,120 --> 01:21:12,120
Speaker 1: elected in on almost a socialist manifesto which never saw

1407
01:21:12,120 --> 01:21:14,839
Speaker 1: the light of day. You couldn't have sold the story

1408
01:21:15,080 --> 01:21:18,000
Speaker 1: that Jean Cratchin and Paul Martin would have been the

1409
01:21:18,040 --> 01:21:20,400
Speaker 1: fiscal dragon slayers. That would have they would have been

1410
01:21:20,400 --> 01:21:25,960
Speaker 1: the duo that made Canada the poster child for fiscal integrity.

1411
01:21:26,040 --> 01:21:28,799
Speaker 1: So what I will say is that Canada, the federal

1412
01:21:28,840 --> 01:21:31,920
Speaker 1: government has a thirty one debt to GDP ratio the

1413
01:21:32,080 --> 01:21:34,639
Speaker 1: media and the media O. E. C. D is eight percent.

1414
01:21:35,320 --> 01:21:37,880
Speaker 1: They're really running on a platform of roughly five billion

1415
01:21:37,920 --> 01:21:40,320
Speaker 1: dollar deficits annually for the next four years. I actually

1416
01:21:40,360 --> 01:21:42,760
Speaker 1: put on my report they should be running twenty five

1417
01:21:42,800 --> 01:21:45,280
Speaker 1: billion dollar deficits. And they could do that and not

1418
01:21:45,479 --> 01:21:48,760
Speaker 1: even spin the dial on the debt. This is like

1419
01:21:48,880 --> 01:21:50,920
Speaker 1: I would saying before. This is what I was saying before.

1420
01:21:51,080 --> 01:21:53,960
Speaker 1: We've had a detonation in the energy capital stock. It's

1421
01:21:54,000 --> 01:21:57,479
Speaker 1: thrown Alberta into a terrible recession. And this is where

1422
01:21:57,600 --> 01:22:00,400
Speaker 1: public sector infrastructure spending is really in a pack of

1423
01:22:00,479 --> 01:22:02,760
Speaker 1: powerful punch. They should actually do more. It's what I

1424
01:22:02,920 --> 01:22:05,080
Speaker 1: told Barack Obama he should have done. Of course, you

1425
01:22:05,160 --> 01:22:07,640
Speaker 1: know back in two thousand nine. Um let me let

1426
01:22:07,680 --> 01:22:14,960
Speaker 1: me get that for you. That that actually, um so

1427
01:22:15,080 --> 01:22:18,760
Speaker 1: your deep Akinsian when it comes to it, Well, what

1428
01:22:18,800 --> 01:22:20,800
Speaker 1: does that mean about being a Kinsian that during a

1429
01:22:20,840 --> 01:22:23,840
Speaker 1: recession the government steps into make up the shortfall and

1430
01:22:23,880 --> 01:22:25,760
Speaker 1: grow and call it Kansian or you can call it

1431
01:22:25,880 --> 01:22:29,800
Speaker 1: this common sense. I don't disagree with you either. Look,

1432
01:22:29,840 --> 01:22:31,760
Speaker 1: I am not Look I'll tell you right now, I

1433
01:22:32,120 --> 01:22:35,120
Speaker 1: am not a tea party advocate. I am not a libertarian.

1434
01:22:35,200 --> 01:22:38,120
Speaker 1: I am a right I'm a conservative. I'm a John

1435
01:22:38,200 --> 01:22:42,840
Speaker 1: Cask type of conservative. Uh, you could say liberal and

1436
01:22:42,960 --> 01:22:46,800
Speaker 1: social issues and conservative and economic issues. But it's foolhardy

1437
01:22:47,000 --> 01:22:50,680
Speaker 1: and actually dangerous policy to think that you're going to

1438
01:22:50,800 --> 01:22:56,400
Speaker 1: run the same fiscal stature throughout the business cycle, irrespective

1439
01:22:56,439 --> 01:22:58,960
Speaker 1: of the negative shocks that come our way. How can

1440
01:22:59,040 --> 01:23:02,760
Speaker 1: you not respond your job? Okay, this is not that

1441
01:23:03,880 --> 01:23:09,960
Speaker 1: responded well, it did respond, It didn't respond, It didn't

1442
01:23:10,000 --> 01:23:12,560
Speaker 1: respond enough. Look, this is Monday morning quarterbacking, and I

1443
01:23:12,600 --> 01:23:14,640
Speaker 1: would say to the federal government Ottawa, don't make the

1444
01:23:14,680 --> 01:23:17,840
Speaker 1: same mistake. We have had a huge negative shock to

1445
01:23:17,880 --> 01:23:21,439
Speaker 1: the economy from the energy sector, and Canada is look

1446
01:23:21,479 --> 01:23:25,240
Speaker 1: when it's not maybe it's uh, not quite right of center,

1447
01:23:25,280 --> 01:23:27,759
Speaker 1: it's maybe just a debt center. Under the Harper government,

1448
01:23:28,080 --> 01:23:31,320
Speaker 1: it was more right a center that has been historically um.

1449
01:23:31,520 --> 01:23:35,879
Speaker 1: But there is a public private partnership in Canada and Canada,

1450
01:23:36,000 --> 01:23:41,080
Speaker 1: the Canadian government has tremendous capacity to borrow money at

1451
01:23:41,160 --> 01:23:45,200
Speaker 1: historically low interest rates, and not for programs spending or welfare,

1452
01:23:45,680 --> 01:23:49,800
Speaker 1: but for productivity enhancing UH, infrastructure spending, which will have

1453
01:23:49,840 --> 01:23:52,840
Speaker 1: a long term payback if it's successful in terms of

1454
01:23:52,880 --> 01:23:55,600
Speaker 1: boosting the long term growth potential of the country. You

1455
01:23:55,600 --> 01:23:57,280
Speaker 1: will get on the right side of the Laugher curve

1456
01:23:57,360 --> 01:23:59,639
Speaker 1: and actually end up garnering more revenues down the road.

1457
01:24:00,840 --> 01:24:04,479
Speaker 1: All right, we've been speaking with Dave Rosenberg. He is

1458
01:24:04,600 --> 01:24:10,240
Speaker 1: the chief economist and market strategist at Gluskin Chef in Toronto, Canada.

1459
01:24:10,760 --> 01:24:13,479
Speaker 1: If you enjoy these conversations to be showing, look Up

1460
01:24:13,479 --> 01:24:16,160
Speaker 1: an Inch or Down an Inch on iTunes and you'll

1461
01:24:16,160 --> 01:24:19,920
Speaker 1: see all of our previous chats with various notable folks.

1462
01:24:20,400 --> 01:24:23,600
Speaker 1: Be sure and check out my daily column on Bloomberg

1463
01:24:23,680 --> 01:24:27,520
Speaker 1: View dot com. Check out my blog on at Ridholts

1464
01:24:27,600 --> 01:24:30,840
Speaker 1: dot com. Follow me on Twitter at Ridholts. Dave, you're

1465
01:24:30,840 --> 01:24:34,080
Speaker 1: gonna start tweeting. I know you just occasionally have someone

1466
01:24:34,080 --> 01:24:36,120
Speaker 1: in your office. It looks like tweets something out for you.

1467
01:24:36,479 --> 01:24:39,720
Speaker 1: But why don't we get you on Twitter? Uh? Well,

1468
01:24:39,840 --> 01:24:43,120
Speaker 1: once again, you just have to, uh get on the

1469
01:24:43,160 --> 01:24:47,200
Speaker 1: Gluskins Chef website and uh it's all there for the

1470
01:24:47,320 --> 01:24:51,160
Speaker 1: viewing there it is. I want to thank my engineer, Reggie,

1471
01:24:51,280 --> 01:24:55,120
Speaker 1: my producer, Charlie Vohmer, my head of research, Michael bat Nick.

1472
01:24:55,760 --> 01:24:58,799
Speaker 1: I'm Barry Ridhults. You've been listening to masters in Business

1473
01:24:59,000 --> 01:25:00,280
Speaker 1: on Bloomberg Rate. Yeah.