Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast, I have a special guest.
Speaker 1: Her name is Constance Hunter. She is the chief economist
Speaker 1: at accounting and consulting giant KPMG. She's also a fishing buddy.
Speaker 1: I've spent some time with her up in Maine at
Speaker 1: Camp Ko Talk discussing all manner of things. She has
Speaker 1: a really interesting and fascinating career path not the typical economists.
Speaker 1: She started on the bye side as a trader and
Speaker 1: fund manager. Eventually UH did some work managing alternative investments
Speaker 1: before she ended up as chief economist at KPMG. This
Speaker 1: is a really interesting conversation I expect you will find
Speaker 1: in intriguing with no further ado, my conversation with Constance Hunter.
Speaker 1: My guest today is Constance Hunter. She has been chief
Speaker 1: economist at KPMG since previously, she was the Deputy Chief
Speaker 1: Investment Officer for fixed income at ACTA Investment Managers, where
Speaker 1: she joined after fifteen years on the by side, investing
Speaker 1: globally in fixed income equities and foreign exchange. She is
Speaker 1: a member of the New York Association of Business Economics
Speaker 1: and one hundred Women in Finance. She also participates in
Speaker 1: the National Committee for US China Relations, working on track
Speaker 1: to economic dialogues. She earned her master's degree in International
Speaker 1: Affairs at Columbia. Constance Hunter, Welcome to Bloomberg. Berry is
Speaker 1: so good to be here. So Constance, let's talk a
Speaker 1: little bit about your background. How did you find your
Speaker 1: way into finance? So a couple of ways. First, my father,
Speaker 1: uh worked for an investment bank in Philadelphia, and so
Speaker 1: there was investing going on in my family. That's where
Speaker 1: you grew up. I grew up in Philadelphia. And and
Speaker 1: then how did you manage to make your way to Manhattan? Well,
Speaker 1: I went to ny U. But the other influence that
Speaker 1: got me into finance my very good friend father, Dan Bongovanni,
Speaker 1: was an avid reader, and so he was reading a
Speaker 1: book called The Coming Economic War with Japan, and I was,
Speaker 1: I know, this was the early eighties. I was in
Speaker 1: high school. And let me just let me just set
Speaker 1: the scene a little bit. The Japanese are dominating exports,
Speaker 1: They're buying Rockefell Or Center. They're gonna take over America,
Speaker 1: take over America a little bit like China today. But
Speaker 1: we'll get back to that Uh. So, I remember he's
Speaker 1: reading this book the Coming Economic War with Japan, and
Speaker 1: the whole concept of an economic war seemed fascinating to me.
Speaker 1: And I was fourteen or fifteen, and so he ended
Speaker 1: up telling me about the book and I borrowed it.
Speaker 1: I read it. I don't you know how much of
Speaker 1: it went over my head, but it I was hooked.
Speaker 1: I was hooked that I not only on finance, but
Speaker 1: on international finance. You end up at n y U.
Speaker 1: Was there a business or international relations in the undergraduate?
Speaker 1: So I did um Liberal Arts, So I have a
Speaker 1: b a. In economics. Uh, And I felt that was important.
Speaker 1: I wanted to have that broad philosophical grounding that a
Speaker 1: good liberal arts degree gives you, um in being able
Speaker 1: to think and baby being able to understand, uh, sort
Speaker 1: of history of Western thought, reading all of the great books.
Speaker 1: That's I think a good grounding for someone who's going
Speaker 1: to spend their career thinking and so. Um. So that
Speaker 1: was my My undergraduate degree was in economics. And then
Speaker 1: you go to Columbia for a master's in International Relationship
Speaker 1: Master so it's a school of International and Public Affairs.
Speaker 1: So my degree is a Master of International affairs, but
Speaker 1: I focused on economics and international economics, and so I
Speaker 1: had professors like jug desbug Waddy and Armenio Fraga, who
Speaker 1: was a adjunct professor when he was at Soros and
Speaker 1: then later went on to become the head of the
Speaker 1: Central Bank of Brazil, for example. So world famous UM faculty. Yes,
Speaker 1: just to say the very least. So you you come
Speaker 1: out with this international relations graduate degree, how does that
Speaker 1: translate to a career on Wall Street? So interestingly enough,
Speaker 1: I was interviewing at Chase Manhattan Bank, so pre Chemical
Speaker 1: Bank merger. I mean, so you're talking n early late
Speaker 1: ninety three, early Ninet'm interviewing at Chase, and they were
Speaker 1: recruiting for the private bank, and I wasn't terribly interested
Speaker 1: in that. UM. I was also interviewing at a bankers
Speaker 1: Trust if anybody go back in time and remember bankers
Speaker 1: Trust for auto analyst position, so very heavily on economics.
Speaker 1: International affairs is important. There's obviously trade component to that.
Speaker 1: So I'm they're interviewing at the private bank, and I
Speaker 1: see this research piece and it's a daily foreign exchange
Speaker 1: update on what happened overnight and what's going on with
Speaker 1: the currencies, and like it was one sentence, maybe two
Speaker 1: sentences about every single economy and a font that I
Speaker 1: couldn't read today to save my life. And and I
Speaker 1: saw this, and I thought, this is what I want
Speaker 1: to do. I want to do this, And so I
Speaker 1: networked my way to the to the Foreign Exchange Department
Speaker 1: and the person who was responsible for this, and it
Speaker 1: turns out they were hiring and and so that person's
Speaker 1: name is chriss Igo, who was also I worked with
Speaker 1: him at ACCA later in my career, and um, he
Speaker 1: had interviewed PhD economists who would say, well, there's a
Speaker 1: perfect information and there's no foreign exchange markets, or you
Speaker 1: know that you can't make any extra money, why forecast them?
Speaker 1: It's all the information is already in the price. And
Speaker 1: here I was coming in looking at the economics and
Speaker 1: the politics and and how they all interplayed with one
Speaker 1: another packed the foreign exchange market. So it was really
Speaker 1: the perfect first job out of graduate school for me.
Speaker 1: And it's funny that two of us are both sitting
Speaker 1: here holding reading glasses in our hands, and you're talking
Speaker 1: about funds. Let me mix this up a little bit
Speaker 1: with you. McKenzie just came out with a study that
Speaker 1: said by the year almost a million jobs will have
Speaker 1: been replaced by and with technology. What does that tell
Speaker 1: you about what's going on in the labor market these days? Okay,
Speaker 1: so let's put this in a big context. The US
Speaker 1: labor market is how many people, hundred and fifty million
Speaker 1: people and fifty exactly, So this is percentagewise, a small
Speaker 1: percentage of total jobs. It sounds big, right, it's a
Speaker 1: little Austin powers. One million jobs are going to disappear, right,
Speaker 1: But but the reality is, first of all, let's so
Speaker 1: contextualize it in terms of the whole labor market. There's
Speaker 1: two other things that need to be highlighted when thinking
Speaker 1: about this issue, and we're actually working on some search
Speaker 1: on this, which I can tell you about in more detail.
Speaker 1: But the first thing is they don't talk about what
Speaker 1: new jobs are going to be created, and that's a
Speaker 1: really important thing to think about. They also don't talk
Speaker 1: about the areas where labor shortages and pending labor shortages
Speaker 1: intersect with the technology. So let me give you one example.
Speaker 1: As the trucking industry and long haul trucking, it's widely
Speaker 1: anticipated we're going to have self driving trucks. And while
Speaker 1: they aren't necessarily we're not necessarily going to have the
Speaker 1: robotics to do the loading of the truck, the unloading
Speaker 1: of the truck, the bringing of the goods into the
Speaker 1: home or the store. Eventually, who knows. We're making progress
Speaker 1: in robotics, but just the driving part is certainly something
Speaker 1: the and the long haul driving part is something that
Speaker 1: could be automated. Young people don't want to do this job.
Speaker 1: It's a very old industry and and you know, you
Speaker 1: can't be on your little dopamine giving device all day
Speaker 1: when that is your job when you're driving a truck.
Speaker 1: And so if we had a self driving truck, that
Speaker 1: could really help an industry that has had to continue
Speaker 1: to raise wages to get people to even consider working
Speaker 1: in that field. It's not something people want to do anymore.
Speaker 1: And that we're talking about right there. It's a it's
Speaker 1: a profession that has two and a half million people.
Speaker 1: So there's there's a match that that's happening in some
Speaker 1: cases where the disappearing of these jobs is a good thing.
Speaker 1: The second thing that they don't talk about, um is
Speaker 1: the number of new jobs that could appear. So someone's
Speaker 1: got a design and build all those robotics. Well, and
Speaker 1: interestingly enough, right now there are more people being employed
Speaker 1: in in artificial intelligence and um robotics than than people
Speaker 1: that are being than jobs that are being destroyed. Now,
Speaker 1: I'm not saying that's going to go on forever, but
Speaker 1: if we look back historically too, when we had guilt,
Speaker 1: when artisans produced things where it took one guy a
Speaker 1: month to produce let's say an ax, right, and he
Speaker 1: produced all parts of that acts. Then we moved away
Speaker 1: from artisans and we had factories and you had one
Speaker 1: producing the handle and one guy producing the top part
Speaker 1: of the metal part of the acts. And then you
Speaker 1: had then you had multiple people working in this factory
Speaker 1: and you could produce. You could have fifteen people producing
Speaker 1: a hundred axes in a month. Right. That's a representative example.
Speaker 1: Those aren't the exact numbers, but the point being that
Speaker 1: you create actually created more jobs because the thing that
Speaker 1: you're producing became less expensive. But you created new types
Speaker 1: of jobs. So the idea of a clerical worker that
Speaker 1: didn't exist, right, You that that role of clerical worker.
Speaker 1: People to do the accounting, people to do hr management,
Speaker 1: people to do building management, all that kind of stuff
Speaker 1: evolved after we had corporate structure, which we couldn't have
Speaker 1: until we had specialized jobs. So my suspicion is that
Speaker 1: we will have new jobs that evolve as a result
Speaker 1: of the technology that we're building. Now, let's jump right
Speaker 1: into where we are in the modern economy. On the
Speaker 1: perspective of a big accounting and consulting firm, they split
Speaker 1: the two pieces into different groups. Is that right? So
Speaker 1: we have some regulatory requirements that create Chinese walls, and
Speaker 1: we there are a long list of advisory services that
Speaker 1: we cannot offer to our audit clients. Um. But this
Speaker 1: is a great business model because it diversifies our business.
Speaker 1: We have audit and tax um, and then we have
Speaker 1: our entire advisory business, which is very diverse. So we
Speaker 1: do things like data and analytics, we do things. We
Speaker 1: have an entire business called people and change, which when
Speaker 1: you think about what is happening in the labor force
Speaker 1: and the way technology is impacting firms and how they're
Speaker 1: managing for that, how they're retraining their workers. Um, that's
Speaker 1: a that's a huge practice for us. For example, so
Speaker 1: you of course risk compliance, all that other stuff that
Speaker 1: traditionally expect someone like KPMG to do so. You originally
Speaker 1: were on the buy side, You were in an investor
Speaker 1: in fixed income and alternative investments. How has that colored
Speaker 1: how you see, uh, the world of economics, whether it's
Speaker 1: for an audit slash consulting firm or anyone else. What
Speaker 1: does coming from the buy side due to your economic perspective? Well,
Speaker 1: for me, I think it's critical to my edge and
Speaker 1: and that is that I've spent most of my career
Speaker 1: using economics to make investment decisions and put money on
Speaker 1: the line. So that sort of classic UH saying I'd
Speaker 1: love to find a one handed economist. Right on the
Speaker 1: other hand, um and and certainly that that discipline I
Speaker 1: think is very important. And I think the other thing
Speaker 1: that it really um and that's sort of a chicken
Speaker 1: and egg thing. I noticed this about myself when I
Speaker 1: was at Chase. I noticed that I had an ability
Speaker 1: to do pattern recognition and see when there might be
Speaker 1: opportunities in the market as a result of either shifting
Speaker 1: market data or shifting economic data and matching those two
Speaker 1: together and doing analysis on them. So because I had
Speaker 1: this ability to see inflection points, it pushed me from
Speaker 1: the cell side at chase into the by side, and
Speaker 1: while I was at on the Bye side, that's really
Speaker 1: where I had my edge. And coming back into doing
Speaker 1: applied economics or business economics, I think when I go
Speaker 1: speak with either the leaders of our firm, our clients,
Speaker 1: when I write research, it's all oriented towards what is
Speaker 1: the inflection point we need to be paying attention to
Speaker 1: and how do you make money off of this inflection point.
Speaker 1: So let's address that precise topic. Where are we in
Speaker 1: the economic cycle today and where do you see the
Speaker 1: next inflection point coming, both in terms of sectors or chronology. Yeah,
Speaker 1: so we're in the happy part of the cycle, We're
Speaker 1: in the we're in the end of the cycle probably,
Speaker 1: Although with that said, I firmly believe UH expansions don't
Speaker 1: die of old age, right, they need to bump into something.
Speaker 1: And so we have had consecutive months and this consecutive
Speaker 1: is really important, consecutive months of jobs growth. If you
Speaker 1: look back over previous recoveries, that is a streak that
Speaker 1: is seventy longer than the previous record. So even though
Speaker 1: people aren't necessarily happy about the jobs mix that we
Speaker 1: have in the economy right now, that is still an
Speaker 1: unprecedented statistic, and it is allowed consumers to really feel
Speaker 1: very confident. We see that in the consumer confidence data.
Speaker 1: The consumer has been the backbone of the recovery. We
Speaker 1: haven't had as much investment, for example, as in previous recoveries,
Speaker 1: and so it's it's helping us sort of continue that
Speaker 1: consumption boom. But it's well founded. Household balance sheets are
Speaker 1: fairly healthy, right, we haven't um In fact, because of
Speaker 1: the crisis, we actually had a bit of a line
Speaker 1: in in debt for households, mostly in the in the
Speaker 1: housing sector. But it's allowed us to have sort of
Speaker 1: a balanced recovery for the most part. And so in
Speaker 1: terms of inflection points, at some point, I know people
Speaker 1: have been watching and waiting for this. I expect we're
Speaker 1: going to see some wage increases and we're seeing significant
Speaker 1: shortages in a very important sector and that is the
Speaker 1: construction sector. So the Associated General Contractors does a survey
Speaker 1: and there are a number of categories where over seventy
Speaker 1: of their respondents say they cannot find qualified workers and
Speaker 1: that they have to go ahead and raise wages. How
Speaker 1: much of that is related to the fact that during
Speaker 1: the financial crisis and during the housing collapse, a huge
Speaker 1: number of immigrants who were actually contractors, builders, electricians, plumbers, etcetera.
Speaker 1: All went home, went back to Mexico or wherever because
Speaker 1: the jobs weren't here. And so you created this void.
Speaker 1: The economy created this void in that segment of the
Speaker 1: labor force. So we lost about a million and a
Speaker 1: half construction jobs, and some of them were filled by immigrants,
Speaker 1: some of them were filled by native born individuals, and
Speaker 1: a lot of people started to do new things. They
Speaker 1: had to pivot to new careers, and they haven't been
Speaker 1: drawn back into the construction sector. Um. Another thing that
Speaker 1: we had during the housing boom is we had people
Speaker 1: forego higher education and just leave high school and go
Speaker 1: start doing construction because it was a career where you
Speaker 1: could make a fair amount of money towards the end
Speaker 1: of the boom. And and so those people, a lot
Speaker 1: of them went back to university after the crisis and
Speaker 1: then retooled themselves. If we get frothy enough again, if
Speaker 1: the if the price of labor goes up enough, you
Speaker 1: will draw people into that sector. The issue, of course,
Speaker 1: is that they won't have the skills, right, So some
Speaker 1: of these some of these jobs are our medium skilled
Speaker 1: jobs that you need to learn how to do a
Speaker 1: specialty where whether we're talking about electricians, plumbers, um carpenters,
Speaker 1: so you you can't just walk into that job. Now
Speaker 1: that we're ten years past the financial crisis, are things
Speaker 1: beginning to normalize in the world of economics, Yes, in
Speaker 1: a way, there's still a big mystery. So even though
Speaker 1: I expect some of the labor shortage data that we're seeing,
Speaker 1: whether it's National Federation of Independent Business or this associated
Speaker 1: General Contractors, some of this labor shortage I expect to
Speaker 1: eventually translate into wage increases. But I'll tell you, the
Speaker 1: FETE has been waiting for this for a long time.
Speaker 1: We have all been waiting for this for a long time,
Speaker 1: and there is some slack in the labor market still
Speaker 1: that that is um confusing. And I'll tell you why.
Speaker 1: Most people that have been out of the labor force
Speaker 1: for a period of time, they're not setting wages right,
Speaker 1: they're not the most desirable people to hire. They've had
Speaker 1: skills atrophy. They come back in generally if they come
Speaker 1: back in at a lower rage, and it's not We've
Speaker 1: had a pickup in the participation rate, but not to
Speaker 1: the point where you would really expect this portion of
Speaker 1: the labor force to be influencing wages, and so it
Speaker 1: is perplexing to me, it is perplexing to the Fed.
Speaker 1: Um Janet Yellen has called the lack of inflation and mystery.
Speaker 1: So we have normalized in some ways, but in this
Speaker 1: aspect of prices and whether um and and specifically related
Speaker 1: to wages we have we don't seem to have normalized.
Speaker 1: Although maybe we're all just misunderstanding the slack that's out there,
Speaker 1: or perhaps want a tipping point of higher wages, which
Speaker 1: I think in certain sectors is an absolute given. You've
Speaker 1: had a number of pretty high profile jobs in the
Speaker 1: world of finance. Does this tell us anything about women
Speaker 1: in finance? We know women have been let me man
Speaker 1: explain to you women in finance. We have very interested
Speaker 1: in what you have to say. Well, we know that
Speaker 1: women have not been promoted. There aren't as many women
Speaker 1: on the board level, at the sea level, uh, managing assets, etcetera.
Speaker 1: It's it's uh disproportionately a boys club, although there are
Speaker 1: signs that that's starting to change. Tell us a little
Speaker 1: bit about your career path and what it was like
Speaker 1: being a woman in a world where these were, for
Speaker 1: a long time traditionally male jobs. Well, I would say
Speaker 1: that I'm still in a very male dominated industry in general.
Speaker 1: Now at KPMG, we have a goal of having of
Speaker 1: our partners be women. And we're at twenty five now,
Speaker 1: so compared to Wall Street, that is definitely a better environment.
Speaker 1: And our CEO is a woman. We oh, Lynn Duddy
Speaker 1: is a woman. She's fabulous. She happens to be a woman.
Speaker 1: She's fabulous CEO and um. And so we've made a
Speaker 1: concerted effort. And the reason that's important, and the reason
Speaker 1: I think that it's taken so long in places like
Speaker 1: Wall Street that are male dominated, is that there's an
Speaker 1: natural in group bias, right, so we tend to hire
Speaker 1: people who look like us and who who act like
Speaker 1: us and I share the same interests and and so
Speaker 1: it's it's understandable, and it pervades everything. It pervades the
Speaker 1: recruiting practices. It also pervades what when you look at
Speaker 1: young women and they look out, well, what do I
Speaker 1: want to be when I grew up? Now, I was
Speaker 1: lucky I had My father was in finance, so he
Speaker 1: never had a bias that I shouldn't be in finance.
Speaker 1: In fact, he probably had a bias that I should
Speaker 1: be in finance, right, So so that I think gave
Speaker 1: me um an edge and uh and a unique perspective
Speaker 1: and approach that I never thought it was d that
Speaker 1: I would be in finance or that I would be
Speaker 1: very successful in finance. Michelle Myers, who's one of the
Speaker 1: senior economists at Merrill Lynch, specifically said at in the
Speaker 1: current environment, there are now women who are role models,
Speaker 1: whether it's real Seabird or Lizzie and Sanders at Schwab
Speaker 1: or there's a whole run of different absolutely women you
Speaker 1: can name, but go back at generation there really weren't
Speaker 1: a whole lot of role models for women who wanted
Speaker 1: to go to Wall Street. Well, let's focus on this
Speaker 1: because this issue of role models is really important and
Speaker 1: it's one of the things that's going to propel more women,
Speaker 1: and it's one of the reasons where you need a
Speaker 1: certain critical mass because if you were just the token woman,
Speaker 1: you don't get really from a firm perspective, you don't
Speaker 1: get necessarily all of the diversifying effects and all of
Speaker 1: the beneficial effects of having a more diverse perspective in
Speaker 1: your workplace. But once you hit a critical mass, let's
Speaker 1: say it's you start to have a very different um
Speaker 1: type of conversation around certain things. Your marketing appeals to
Speaker 1: a broader segment of the purchasing population. Uh, you just um,
Speaker 1: you tend to have less fraud. They are all sorts
Speaker 1: of definite advantages to having a greater mix of men
Speaker 1: and women in an organization. So since you've joined the
Speaker 1: world of finance, what improvements have been made towards achieving
Speaker 1: a better balance of males to females um in the workplace. So,
Speaker 1: certainly in the field of business economics now is different
Speaker 1: in academic economics. I was very fortunate to join the
Speaker 1: National Association for Business Economics as a young economist, and
Speaker 1: NAVE as it's called for short, has always had women
Speaker 1: leaders within the organization. So we had women presidents of NAVE,
Speaker 1: people like Maureen Haver who founded Haver Analytics, Diane Swank
Speaker 1: when she was the chief economist at Mazzaro. Uh, Ellen
Speaker 1: Hughes Cromwick who used to be the chief economy missed
Speaker 1: it Ford. Uh you know I could, I could list
Speaker 1: more right, and so that I saw these women who
Speaker 1: were chief economists as role models and that, and I
Speaker 1: saw women attending our meetings. Um, now when I have
Speaker 1: I have a young woman on my team who you
Speaker 1: who I brought into I said, you have to start
Speaker 1: at name. Young, You're going to learn so much it
Speaker 1: will be great. And to me, coming from Wall Street,
Speaker 1: I thought, well, Name is great because we probably have
Speaker 1: in the membership about women and in leadership probably about women.
Speaker 1: So people on the board of Name, people who are
Speaker 1: presidents of Name. And she's like, no, it's so she
Speaker 1: sees all men, whereas I see, Oh, my gosh, that's
Speaker 1: so much improvement because my frame of reference. So this
Speaker 1: makes me excited for a couple of reasons. One, I
Speaker 1: got to see progress too. It's obviously not yet and
Speaker 1: the next generation is going to make that happen. The
Speaker 1: fact that it's women, they look at its oh, this
Speaker 1: isn't remotely what it Maybe it's thirty five, but still
Speaker 1: compared with twenty years ago, it's miles ahead. And the
Speaker 1: fact that it's looked at as oh, they're not getting
Speaker 1: this done is pretty that's pretty amazing. So we now
Speaker 1: have men who are feminists and and mainstream men people
Speaker 1: like Justin Trudeau, who's the Prime Minister of Canada. Right,
Speaker 1: and now I've heard I've heard more and more men
Speaker 1: say I'm a feminist. And and the thing is is
Speaker 1: that it takes both men and women to make this happen.
Speaker 1: It takes us working together. This isn't just a woman's cause.
Speaker 1: And it's not even just a men of men who
Speaker 1: are fathers of daughters cause. Right. It benefits everybody. And
Speaker 1: so the more men that can get out there and say, yeah,
Speaker 1: I'm also a feminist, it benefits them. It benefits them financially,
Speaker 1: it benefits them socially, and we're starting to see that
Speaker 1: more and more. Let me ask you a question that
Speaker 1: will give the compliance people at KPMG a heart attack,
Speaker 1: since you you brought up Trudeau in Canada. I am
Speaker 1: absolutely fascinated by the concept that Canada will become the
Speaker 1: first G seven country that's going to completely legalize marijuana.
Speaker 1: I'm fascinating. I don't smoke weed. I mean it's not
Speaker 1: I'm you know, not a college kid anymore. But I'm
Speaker 1: fascinated from an economic perspective what that's going to do
Speaker 1: to a country in terms of taxing, it taking money
Speaker 1: away from the black market and saving countless amounts of
Speaker 1: money that's currently spent incarcerating people for you know, simple
Speaker 1: marijuana expenses. What is the potential economic impact of of
Speaker 1: something like that? There? And then the harder question is,
Speaker 1: and what does that due to the United States? So
Speaker 1: Canada produces actually a lot of marijuana over one of theirs,
Speaker 1: one of their bigger crops. I did not know that,
Speaker 1: and uh, and so it'll be it'll be very interesting.
Speaker 1: Now there is a lot of data which suggests that
Speaker 1: if you smoke or I guess now you can eat
Speaker 1: marijuana and under the age of certainly, it really is
Speaker 1: very very bad for you, sod for brain development, brain
Speaker 1: for a different precisely. So unless they can manage that
Speaker 1: part of it, which I think will be challenging. They
Speaker 1: do a pretty good job with that with alcohol and
Speaker 1: with cigarettes, certainly with twenty one. You know, you're not
Speaker 1: keeping weed away from kids today regardless. So and they
Speaker 1: have to be smarter about labeling gummy bears so it
Speaker 1: doesn't look like candy and that sort of stuff. I mean, see,
Speaker 1: when we look at Colorado and Seattle and California, they've
Speaker 1: all done a pretty mediocre job. It's kind of Hey,
Speaker 1: it's a case of first impression. They eventually figured out
Speaker 1: if you make the stuff look like candy and leaving around,
Speaker 1: guess what kids are gonna eat it? But you know,
Speaker 1: they've kind of a learned that lesson. Assuming Canada addresses
Speaker 1: that part of it and handles it well, um, then
Speaker 1: it's it's like you said that the benefit is twofold, right,
Speaker 1: And I don't know the size of the market in
Speaker 1: Canada or their incarceration rate for this sort of thing,
Speaker 1: but you get rid of the cost of incarcerating, so
Speaker 1: then we have more people in your labor force, right,
Speaker 1: So that's always a good thing when we have these
Speaker 1: population declines. And then you also have the economic benefit
Speaker 1: of this industry. And if we based it on the
Speaker 1: rest of the sin industry, right, it's pretty large. Let's
Speaker 1: talk a little bit about the state of the economy today,
Speaker 1: and there are so many different things we could go over.
Speaker 1: I have to start with the issue of the Federal
Speaker 1: reserve tightening normalizing first, what should we call what the
Speaker 1: Federal Reserve is doing? Well, they're definitely raising rates, so
Speaker 1: they're tightening. Okay, they're selling assets off of their balance sheet.
Speaker 1: Are they selling them or they letting them just roll
Speaker 1: off when there My understanding is they're doing both. That is,
Speaker 1: in effect a tightening. Now there's a debate about this, right,
Speaker 1: is it the stock of the Fed's balance sheets that
Speaker 1: is the size of the balance sheet or is it
Speaker 1: the flow that is the change? And generally speaking, the
Speaker 1: Fed thinks it's the stock. Wall Street thinks it's the flow.
Speaker 1: The Fed might end up being right, or I think
Speaker 1: the Fed is being proven correct because we look at
Speaker 1: ten yere yields and they're much lower than they were,
Speaker 1: for example, but that's due to a confluence. Are you
Speaker 1: surprised that Wall Street looks at the flow as opposed
Speaker 1: to the balance sheet. That's how the street gets paid,
Speaker 1: so of course that's what matters to them. There is
Speaker 1: a little classic confirmation bias. So what about the idea
Speaker 1: of the Fed isn't so much tightening as we're still
Speaker 1: at very accommodative rates and they're just getting off their
Speaker 1: emergency footing. This is really normalization. So I went back
Speaker 1: and looked at real tenure yields. Right over the last
Speaker 1: four decades, average is about two. Absolutly, there's wide variations,
Speaker 1: but the average is about two. Real real adjusted for inflation.
Speaker 1: Right ten year yields we are now almost zero, so
Speaker 1: still very kind, We are very it's by that metric
Speaker 1: we are still pretty accommodated emergency funding. There'n't really no
Speaker 1: other way to describe that. By the way, I find
Speaker 1: myself having to always define real because some people anytime
Speaker 1: I mentioned real, I always want the audience to hear
Speaker 1: after inflation, after inflation adjusted. Let's talk about the yield curve. Historically,
Speaker 1: an inverted yield curve was a sign of an impending
Speaker 1: and recession, not immediately, but a year or two later.
Speaker 1: And a lot of people are all up in arms
Speaker 1: over the flattening yield curve as the FED is tightening.
Speaker 1: What what do you think about what's taking place in
Speaker 1: that part of the curve. So a few things. One is,
Speaker 1: we may very well be a year and a half
Speaker 1: away from the next recession. Uh that is, that is
Speaker 1: very possible. But you also have to look at what's
Speaker 1: going on globally in terms of central bank balance sheets.
Speaker 1: So if we look globally right now, we have fourteen
Speaker 1: trillion dollars of central bank balance sheets. Now the feed
Speaker 1: is about four and a half um four point three
Speaker 1: I think to be exact and trillion. And so we
Speaker 1: have the Bank of Japan and the e c B,
Speaker 1: both with significant balance sheets. So just to put this
Speaker 1: in context, the FEEDS balance sheet is of the U
Speaker 1: S economy. The ECB balance sheet is thirty eight percent
Speaker 1: of the of the European economy, the EU economy or
Speaker 1: I'm sorry that the Monetary Union, right, And Japan's by
Speaker 1: balance sheet is ninety one per cent of GDP at
Speaker 1: the Bank of Japan's balance sheet. So these are very
Speaker 1: very significant amounts of capital, and they're influencing bond markets
Speaker 1: all over the world, but especially the tenure yield. So
Speaker 1: let's let's talk about that. You have the United States,
Speaker 1: which really seemed to get hit by the financial crisis
Speaker 1: first and then it spread globally um, and you also
Speaker 1: have the United States is the first to really aggressively
Speaker 1: respond to the financial crisis, and then Japan and then Europe.
Speaker 1: Is how unusual is it to have the three major
Speaker 1: economic centers um of the world plus China all sort
Speaker 1: of out of phase with each other in terms of economic,
Speaker 1: fiscal and especially monetary policy. Well, yes, it's both the
Speaker 1: monetary and the fiscal I think that's really important because
Speaker 1: Europe did fiscal tightening after the Great Recession Sterity right
Speaker 1: into the teeth of of collapse turns out not an
Speaker 1: especially great UH policy. Well, that and then the ECB
Speaker 1: raised rates prematurely, if you recall, and and that coincided
Speaker 1: with the Greek crisis and sort of spilled over into
Speaker 1: widening bonnields in Italy and Spain, Portugal, Ireland. UH. Now,
Speaker 1: a lot of these economies have come out the other
Speaker 1: side right or they're they're on the upswing. So really,
Speaker 1: since Draggy did his whatever it takes speech, and since
Speaker 1: they really started growing the balance sheet, you've seen consecutive
Speaker 1: months of jobs growth, You've seen consumption, you've seen bank
Speaker 1: lending expand. I mean to get to negative rates to
Speaker 1: do it, but you still saw the bank lending expand.
Speaker 1: And that's helped give the European economies legs. But like
Speaker 1: you said, they're not synchronized with and the fiscal and
Speaker 1: the fiscal austerity has waned right there, so they've they've
Speaker 1: moved through that. So I would say there maybe two
Speaker 1: or three years behind us in terms of the business
Speaker 1: coal um if you look at Japan, how but in
Speaker 1: terms of the monetary cycle, how far are they behind
Speaker 1: the US that is sort of coming off, I would
Speaker 1: say I would say about two years behind, maybe eighteen
Speaker 1: eighteen months to two years. Well, Japan is its own
Speaker 1: special case, and it's its own special case because it's
Speaker 1: demographics are so much worse. Right, so they they're working
Speaker 1: age population began to decline in which was right about
Speaker 1: the time their debt bubble burst. What was the peak
Speaker 1: in the of the nine I think it was nine,
Speaker 1: and so it took a little while for the debt
Speaker 1: bubble to fully burst. And then they of course have longevity,
Speaker 1: so people living in retirement for longer. So that's a
Speaker 1: drag fiscally, uh, and it's also disinflationary or deflationary. That
Speaker 1: damn healthy lifestyle and low red meat diet that's right,
Speaker 1: is causing that that issue and almost zero immigration where
Speaker 1: very immigration, fairly uniform society and culture. But even with
Speaker 1: that said, is the year the European the Europe's working
Speaker 1: age population started to decline, and our working age population
Speaker 1: is merely growing at a slower rate. So we're growing
Speaker 1: at zero point three percent a year. And it's problem yes, absolutely,
Speaker 1: but it's problematic but it's definitely better than if it
Speaker 1: was outright declining like you have in Japan. So that
Speaker 1: in Japan is now declining at a rate of zero
Speaker 1: point three percent per year, and that puts Japan in
Speaker 1: a very very special case. And something that and and
Speaker 1: and their debt to GDP ratio is a hud. Nobody
Speaker 1: else is even close. Nobody else is even close. But
Speaker 1: I'll tell you something that they're doing. So if you
Speaker 1: look at the debt held by the public versus the
Speaker 1: debt held by the central bank, because they have been
Speaker 1: purchasing so much of the debt, the debt held by
Speaker 1: the public has gone down to of debt to GDP. Yes,
Speaker 1: And and I'm glad we introduced the concept of real
Speaker 1: versus nominal before because if you look at their nominal
Speaker 1: growth rate, it is about two basis points above their
Speaker 1: ten uere yield, and that is allowing them to obtain
Speaker 1: greater and greater fiscal health. So they're using this negative
Speaker 1: rate policy and this extreme balance sheet example again balance
Speaker 1: sheet expansion again to their GDP. Right, they're using this
Speaker 1: to uh refinance their government debt effectively at a much
Speaker 1: lower rate well negative rates negative So imagine your corporation
Speaker 1: and you're overindebted and you can't default, but over time
Speaker 1: you can refinance your debt with negative rates, meaning you
Speaker 1: get paid for your debt basically, which is which is shocking.
Speaker 1: You know, you hinted at something I want to expand
Speaker 1: on because it's so fascinating when when we talk about
Speaker 1: the declining labor for US, we really have to discuss
Speaker 1: the falling um fertility rates and the falling um I
Speaker 1: forgot the replacement percentage what it's called, just the declining
Speaker 1: birth rates effectively in Japan, in Europe, and up until recently,
Speaker 1: the United States was marginally positive. I think we just
Speaker 1: slipped negative also in terms of our birth replacement rate
Speaker 1: replacement rate of new birth versus deaths. The US population
Speaker 1: is becoming fairly stable, and it's outright shrinking in Europe
Speaker 1: and Japan. What does this mean for the economy ten
Speaker 1: years since? Yeah, so it's very challenging. And let's not
Speaker 1: forget China's working age populations started to decline this year
Speaker 1: right now, how much of that has to do with
Speaker 1: the one child at the child right so, they haven't
Speaker 1: been at replacement rate for decades now. And even though
Speaker 1: that rule has been overturned. People are not rushing to
Speaker 1: have more than one child. It's not it's not like
Speaker 1: the minute that was overturned. In the next year you
Speaker 1: saw a whole bunch of two and three child families.
Speaker 1: Right now. That may change, and they may may need
Speaker 1: to do things and create incentives for that, but that
Speaker 1: it's it's not going to change overnight. Um and so.
Speaker 1: And then we have South Korea. They're working age population
Speaker 1: started to decline. So this is a phenomenon in a
Speaker 1: lot of a lot of different places. So it's starting
Speaker 1: to impact emerging markets more in Asia, more in Asia
Speaker 1: x X India than in Latin America or Africa. Because
Speaker 1: I've thought of this as a developed world issue, not
Speaker 1: an emerging markets issue. Are you saying that this is
Speaker 1: even spilling fast forward fifteen years and it's going to
Speaker 1: be Look at Mexico. Their birth rates are declining. It's
Speaker 1: one of the reasons we have. There are two reasons
Speaker 1: we have fewer Mexican immigrants into the U. S M.
Speaker 1: Why the flow is actually been the other direction first
Speaker 1: of the wall, and then what's the what's the other reason.
Speaker 1: So as their birth rates have declined, they've needed more
Speaker 1: labor in their own economy. Right, So there's just a
Speaker 1: few were people that come here are going up their
Speaker 1: and their wages have been going up a little bit
Speaker 1: more so. So not the wall, and we actually have flow.
Speaker 1: The flow has actually gone the other direction for several years.
Speaker 1: But that's an aside since the financial crisis, since the
Speaker 1: and which which loops back into when we were talking
Speaker 1: about housing earlier. Right. So anyway, we are digressing massively here.
Speaker 1: So let me get us back on track. Something about
Speaker 1: the yield curve. I think we started with, yes, and
Speaker 1: and so this these disinflationary or deflationary pressures are also
Speaker 1: distorting the shape of the yeld curve. So you have
Speaker 1: you have a completely new demographic phenomenon that aside from
Speaker 1: a brief period uh during the Great Depression when we
Speaker 1: had a declining working age population for a little blip
Speaker 1: of time about seven years UM, we have never had
Speaker 1: before and we've never and and while we have that,
Speaker 1: we did not have the longevity that we're having now. Right.
Speaker 1: So the combination of these two things disinflationary um disinflationary
Speaker 1: meaning you're not seeing inflation go up and the rate
Speaker 1: of inflation is going down correct, not not outright deflationary,
Speaker 1: just five four two inflation or one and a half
Speaker 1: percent these days, right, correct? So what does that tell
Speaker 1: us that the future economy looks like? If if you
Speaker 1: if you had a draw a conclusion from the disinflation
Speaker 1: in the system, is that informing us of anything? So
Speaker 1: a few things to say about that. One is that
Speaker 1: I'm going to introduce the concept of potential GDP. So
Speaker 1: in its simplest form, potential GDP is the sum of
Speaker 1: the growth rate of the working age population plus the
Speaker 1: growth rate of productivity. And historically, if we look back
Speaker 1: fifty years, we had average working age population growth of
Speaker 1: one point six percent, average productivity growth of one point eight. Quickly,
Speaker 1: that gets us to a three point six percent potential GDP.
Speaker 1: We now have a working age population growth rate of
Speaker 1: zero point three and until recently, productivity during the recovery
Speaker 1: was averaging zero point eight, so that's a one point
Speaker 1: one potential GDP. Now productivity is picked up to one
Speaker 1: point five, so that gets us up to about a
Speaker 1: one point eight percent potential GDP, which is the growth
Speaker 1: rate that you can grow without inducing inflation in the economy.
Speaker 1: It's that mythical beast equilibrium. Let me ask you a
Speaker 1: question about productivity, because this is an ongoing UM question
Speaker 1: that I keep wrestling with, and every time I have
Speaker 1: an economist in front of me, I feel obligated to
Speaker 1: ask the question. In the real world, we are all
Speaker 1: experiencing a massive amount of personal productivity gains software the
Speaker 1: ability to walk around with with a powerful computer in
Speaker 1: my pocket. That's ten x what the what the astronauts
Speaker 1: took to the moon. UM is in a amazing productivity enhancer.
Speaker 1: And I'm not being on Facebook, so I don't get
Speaker 1: the productivity killing aspect of it, although I guess Twitter
Speaker 1: substitutes for that. But in the office, what we're capable
Speaker 1: of doing in terms of communicating with clients and doing
Speaker 1: screen shares to say, show them different charts and documents
Speaker 1: and this and that, it feels like we're doing so
Speaker 1: much more with a handful of people versus a hundred
Speaker 1: people that was required a few years ago. It makes
Speaker 1: me ask the question, do we have a productivity problem
Speaker 1: or do we have a problem in measuring productivity? It
Speaker 1: depends on the industry. So in finance, you're in an
Speaker 1: industry whereas there's been huge measured productivity gains, all right,
Speaker 1: So what you're saying makes sense. It's what's shown in
Speaker 1: the data, and it is true for other financial services firms.
Speaker 1: This is something that is puzzling everybody because we can't
Speaker 1: change the birth rate, so we're only going to get
Speaker 1: saved by increasing productivity. Although some Nordic countries are actually
Speaker 1: running p s a s to encourage people to go
Speaker 1: on vacation in the South of France and leave their
Speaker 1: birth control at home. I mean they're literally television commercials
Speaker 1: for that. I don't see that happening here. That said,
Speaker 1: but that's still a long term prospect, right, You're still
Speaker 1: it's twenty one years until you see benefit from that,
Speaker 1: maybe twenty six given the current education rates. So it's
Speaker 1: not an immediate solution, right. We need to do something
Speaker 1: in the intervening years. And the only savior then is productivity.
Speaker 1: Because so many people are focusing on this. One of
Speaker 1: the things that the o e c D did was
Speaker 1: they did a study on the diffusion of technology throughout firms.
Speaker 1: So it may be Barry that you guys are really
Speaker 1: advanced and early adopters of technology, no doubt about that.
Speaker 1: So so, but the diffusion is important. So they looked
Speaker 1: at the productivity at the firm level, so not at
Speaker 1: the economy wide level, at the firm level of the
Speaker 1: frontier firm, so that the top five percent versus everybody else.
Speaker 1: And if you look at these graphs, it's really alarming.
Speaker 1: The gap is really really wide, and it's wider in
Speaker 1: services than it is in manufacturing. Yes, and and and
Speaker 1: the question is will we get to a point where
Speaker 1: this gap closes, like what is the cause of this
Speaker 1: lack of diffusion? And and is there a tipping point
Speaker 1: where we can start to see wider diffusion, meaning that
Speaker 1: a handful of firms are especially productive and the rest
Speaker 1: of the economic force um or firms and businesses are
Speaker 1: lagging in products are really not reaping the rewards of
Speaker 1: the technological advances we've had over the last fifteen years.
Speaker 1: There is a have and have not way of structuring.
Speaker 1: We're looking at just about every aspect of our economy.
Speaker 1: It is so bifurcated, and that duality exists in so
Speaker 1: many places. It's fascinating. I had never heard of the
Speaker 1: this diffusion between productivity, but I guess it makes some
Speaker 1: sense because you would think the early adapters of technology
Speaker 1: and other productivity hanswers would see not only a gain,
Speaker 1: but a giant differential against their competitors who aren't adopting
Speaker 1: the newest technology. We're actually studying this at KPMG, so
Speaker 1: we're taking the O A C D work and we're
Speaker 1: expanding it and and building a knowledge database of a
Speaker 1: multitude of different firms across different countries, across different sectors
Speaker 1: and um hopefully we'll have some research out on that
Speaker 1: in the next six to nine months. We have been
Speaker 1: speaking with Constance Hunter. She is the chief economist at KPMG.
Speaker 1: If you enjoy this conversation, be sure and check out
Speaker 1: our podcast extras, where we keep the tape rolling and
Speaker 1: continue to discuss all things economic. You can find that
Speaker 1: at iTunes, overcast, SoundCloud, Bloomberg, or wherever final podcasts are sold.
Speaker 1: We love your comments, feedback and suggestions right to us
Speaker 1: at m IB podcast at Bloomberg dot net. Be sure
Speaker 1: and check out my daily column. It's on Bloomberg View
Speaker 1: dot com. You could follow me on Twitter at rid Halts.
Speaker 1: I'm Barry rid Halts. You're listening to Masters in Business
Speaker 1: on Bloomberg Radio. Welcome to the podcast, Constance. Thank you
Speaker 1: so much for doing this. I have been looking forward
Speaker 1: to this for a while. I give economists a lot
Speaker 1: of grief for for both making terrible predictions or or
Speaker 1: predictions that turn out not to be accurate, and for
Speaker 1: the most part, missing the financial crisis, which we talked
Speaker 1: about earlier. You're not big into making a lot of predictions.
Speaker 1: I don't really. I see you more as analyzing the
Speaker 1: situation than doing the usual Wall Street forecast. So I
Speaker 1: have to ask why our economists so bad at making
Speaker 1: forecasts and and how did they miss the financial crisis? Well,
Speaker 1: and you probably also know that I didn't miss the
Speaker 1: financial crisis, so I was short a lot of things,
Speaker 1: uh that went down, which is always fun, which was
Speaker 1: it's it's actually nerve wracking to be honest with you,
Speaker 1: and people give you so much grief for it. Totally.
Speaker 1: I remember when I first started shorting ubs and oh,
Speaker 1: they have this activist investor in there. You don't know
Speaker 1: what you're doing. It's gonna go up, bah blah blah blah.
Speaker 1: And you know you're constantly second guessing yourself, more so
Speaker 1: on a short than along right, because the nature of
Speaker 1: things is to go up for the most part. Over
Speaker 1: the long term, and everybody that works at a company,
Speaker 1: their entire goal is to make everything go up there
Speaker 1: there there. They make new plan every year, they're they're
Speaker 1: incentivizing their employees, they're cutting costs, like every single company
Speaker 1: is focus done that as well, and so that is
Speaker 1: the nature of things. So it's very nerve racking to
Speaker 1: be short. But nevertheless, that and the theoretical infinite losses
Speaker 1: kind of hangs over your head a little bit that
Speaker 1: in the theoretical infinite losses or the actual infinite losses
Speaker 1: that can occur, people of you know, what's that? What's
Speaker 1: that famous Keynes expression? The market can remain irrational a
Speaker 1: lot longer than you can remain solvent. So so in
Speaker 1: answering your question, I think it is because of several things. First, models,
Speaker 1: I've been working on shocking my model to give it
Speaker 1: a recession because I think that we're going to see
Speaker 1: some labor shortages, that those labor shortages are going to
Speaker 1: cause wage increases, that those wage increases are going to
Speaker 1: push up inflation, that that increase in inflation, increase in
Speaker 1: prices will reduce demand. That reduction in demand will help
Speaker 1: spur us into the next recession. Plus as wages go up,
Speaker 1: as there are shortages, we're going to get to a
Speaker 1: point I would imagine where you can't find someone at
Speaker 1: any price, and so you want to expand your business,
Speaker 1: but you just can't at any price. Well, there's some
Speaker 1: professions where we just for example, let's all this technology,
Speaker 1: you can't find data scientists at any place. There's a
Speaker 1: handful of them, there's an handful of programmers there. They're
Speaker 1: really top notch. And so everybody is competing in this
Speaker 1: space for the same talent. And it's a very new
Speaker 1: set of skills. So isn't that just temporary? Aren't we
Speaker 1: going to see more people come in from Indian China
Speaker 1: and more graduate degrees and people moving into the space
Speaker 1: just because it's so lucrative. Sure, but that doesn't mean
Speaker 1: that we're going to see shortages of that labor over
Speaker 1: the next couple of years. Right. It takes time for
Speaker 1: those people to get trained and for people to move
Speaker 1: into a professional Yeah, six years, a decade something like that.
Speaker 1: So the first thing is that what I had to
Speaker 1: do to shock this model because it just kind of
Speaker 1: bump it ump, goes along on trend and and it
Speaker 1: would never forecast a recession unless you made it forecast recession, right,
Speaker 1: So you have to look for tipping points. So there
Speaker 1: were there were three things that allowed me to call
Speaker 1: the financial crisis. And I didn't call it as big
Speaker 1: as it ended up being, right because that was just large.
Speaker 1: But I've done this my whole career, the same with
Speaker 1: Russia crisis, right. So so the thing that allowed me
Speaker 1: to call the financial crisis was I was looking at
Speaker 1: mortgage equity withdrawal and g Well, not only was it giant,
Speaker 1: but if you look historically, it used to be a
Speaker 1: random walk around a hundred and fifty billion a quarter,
Speaker 1: and we go up, we'd go down. Basically a random walk.
Speaker 1: You couldn't there's no way to predict it. It It was
Speaker 1: a modest number that practically in the US fifteen trillion
Speaker 1: dollar economy is a rounding era. But also its pattern
Speaker 1: was was some some quarters were up, somewhere down. It
Speaker 1: was a random walk. It wasn't like it was a
Speaker 1: hundred and fifty billion every quarter got withdrawn. It was
Speaker 1: up and down. Wasn't on trend the way it became right,
Speaker 1: So we started withdrawing more and withdrawing more and withdrawing
Speaker 1: more to the point where we had withdrawn three and
Speaker 1: a half trillion dollars and you could just see that
Speaker 1: this there's no way it could keep going. There's just
Speaker 1: no It made no sense. It made absolutely no sense.
Speaker 1: And then if you look at the demographics, that made
Speaker 1: no sense either, because you could see that the working
Speaker 1: age population started to decline in two thousand, so you
Speaker 1: could see it's shifting demographic demand if you were looking
Speaker 1: for it, right. But you have to be open and
Speaker 1: searching for the things that are going to be inflection points,
Speaker 1: and then you have to have the conviction to shock
Speaker 1: your model, in other words, come up with some set
Speaker 1: of exogenius or or maybe normal economic shifts that tip
Speaker 1: an economy into a recession or or or into a
Speaker 1: big growth period as well. Um So, so I think
Speaker 1: you have to be willing to look for those things
Speaker 1: and and and understand inflection points. But that is not
Speaker 1: the way most people study economics necessarily. And I'm fortunate
Speaker 1: that I have this pattern recognition skill combined with a
Speaker 1: lifetime of investing that has honed that skill. So the
Speaker 1: other question I didn't get to that I have to
Speaker 1: ask you about we really haven't touched upon China And
Speaker 1: let's talk a little bit about China for a moment.
Speaker 1: What do you see going on in China? Is it
Speaker 1: a growth area? Is it a risk? Does China become
Speaker 1: the biggest economy by far? Just extrapolating trends out for forever.
Speaker 1: What is the role of China in the modern economy?
Speaker 1: So China is a big economy. It's the same size
Speaker 1: as the US. Obviously, their population is much larger, so
Speaker 1: their per capita GDP is smaller. So they're big, but
Speaker 1: they're not rich, right, They're not first world economy. Obviously
Speaker 1: the coast are rich. You've multiple because it's so large,
Speaker 1: you have many different China's. But if we just think
Speaker 1: about that for a second, their sheer size um makes
Speaker 1: them an amazing market. And if we think about it
Speaker 1: in the context of what's happening with artificial intelligence and
Speaker 1: data and analytics, you have huge amounts of data there um,
Speaker 1: which is an interesting, uh situation given our modern focus
Speaker 1: on platform companies and and um the network effect. Right,
Speaker 1: So you have that sort of on steroids in China,
Speaker 1: and it's interesting to watch. However, like any economy, imbalances
Speaker 1: developed and China is still a command economy. It is not.
Speaker 1: Let's not mistake it for a market economy. It has
Speaker 1: some features of a market economy, but it has many
Speaker 1: more features of a command economy. They're essentially planned communist
Speaker 1: regime that seems to dabble in capitalism precisely. Okay, So
Speaker 1: I just had to touch upon that because I know
Speaker 1: it's it's such a fascinating area. So I think China
Speaker 1: is gonna see some bumps in the road that are
Speaker 1: going to surprise people over the next two to three years.
Speaker 1: Do those bumps in the road have the potential to
Speaker 1: tip any major economies into a recession? Yeah, I think
Speaker 1: they might. And and so if you look back right,
Speaker 1: we were at three percent almost on the tenure if
Speaker 1: you use the p m I index, uh, seventy nine
Speaker 1: percent of the world was growing. And if you look
Speaker 1: at what happened in China, China's demand shifted downward. And
Speaker 1: so what I look at I look at a hole
Speaker 1: host and we saw that across commodities especially well especially
Speaker 1: and so if you look at China's imports and you
Speaker 1: use the O E C D data, and this is
Speaker 1: important because they get the real the real number, not
Speaker 1: the nominal number. Because obviously for commodities there's a huge
Speaker 1: fluctuation in nominal price changes. And they compile the data
Speaker 1: using all of China's trading partners, so they don't rely
Speaker 1: on the Chinese data collection. And this is important because
Speaker 1: we all know that there are some question marks around
Speaker 1: China's data collection. They make Bernie made off look like
Speaker 1: he was actually using real numbers. That that's what you
Speaker 1: can't say, but I can set you. I cannot say that.
Speaker 1: So in any case, um, what we saw was a
Speaker 1: big year, your year over year decline in imports and
Speaker 1: this impacted all of the commodity producers Australia, Russia, South Africa, Brazil,
Speaker 1: you name it. And we felt only six of the
Speaker 1: pm I reporting countries experiencing growth. So let's in the
Speaker 1: last and so we had a massive impact, I guess.
Speaker 1: So when to answer your question, it could have a
Speaker 1: very significant impact on global liquidity and global demand. All right,
Speaker 1: So now in our remaining minutes, let's jump to our
Speaker 1: favorite questions. Tell us about the most important thing people
Speaker 1: don't know about your background. So this is a tough
Speaker 1: question to answer to, Mary, I know, I like, I mean,
Speaker 1: one question is you know genos or Pats, I can
Speaker 1: ask you that, but give us okay, So that could
Speaker 1: be and with not without okay. So that's if you
Speaker 1: know about Philadelphia, about your people email what that was
Speaker 1: she talking? You can google there's an NPR story about this,
Speaker 1: with or without, and Pats got it. So I think
Speaker 1: people don't know because it's been some time has passed
Speaker 1: that I used to invest in the former Soviet Union.
Speaker 1: I have traveled all over the former Soviet Union. I've
Speaker 1: been a mile underground in the nickel mine. Really, yeah,
Speaker 1: you know, I look at the Soviet Union as an
Speaker 1: organized crime family with a standing army attached? Is that
Speaker 1: is that an exaggeration? Or well, back when I was there,
Speaker 1: it was in the hopeful days of glassnost Prestoika, right, um,
Speaker 1: Yeltson was was president. He was he was trying to reform.
Speaker 1: Now was there some corruption, Yes, there were? They're oligarchs
Speaker 1: most definitely. Are you surprised that the way Russia has
Speaker 1: changed to Underputin? Not really? You know when he first came, so,
Speaker 1: yelts In hand picked him, which is interesting, that's yeah.
Speaker 1: And and and Putin came into power and let Yelson
Speaker 1: live and just as well, you know, pre Gorbachev, this
Speaker 1: was not the way of Soviet power transition or Russian
Speaker 1: power transition. So he was a drunk old man at
Speaker 1: that point though, wasn't It was pretty harmless, um, but
Speaker 1: you could tell that it was a very different approach,
Speaker 1: a very very different approach. And remember they had they
Speaker 1: were just coming off the default and devaluation, right oil
Speaker 1: was it about twenty barrel, So we had to do
Speaker 1: something to get the economy going and to do things
Speaker 1: and and coming off of that crisis, and what happened
Speaker 1: in his first decade in power really improved people's lives.
Speaker 1: So the loyalty that he has among Russians who remember
Speaker 1: that time period is very very high. Some people have
Speaker 1: said that he is actually the wealthiest man in the
Speaker 1: world than he's worth three. I have heard that from
Speaker 1: a lot of reliable sources. Really, so it's not number two.
Speaker 1: That's fascinating. Early mentors. Tell us about some of your
Speaker 1: early mentors. So I think my earliest mentor was probably
Speaker 1: my father, who uh had me calculate saber metrics and baseball. Yeah,
Speaker 1: learned That's how I learned statistics. And he he would
Speaker 1: he would This is back when people would read the
Speaker 1: Wall Street Journal and look at all the stock metrics
Speaker 1: on the back of the back pages of the journal.
Speaker 1: So he taught me what a pe was and dividends
Speaker 1: pre money ball, pre money ball. This is the seventies,
Speaker 1: so you were literally doing this with baseball stats or
Speaker 1: with baseball stats, with baseball stats, NI six Philadelphia Phillies
Speaker 1: World Series, rally fingers. That's right that I'm old enough
Speaker 1: to remember. That's that is impressive. You're gonna have more
Speaker 1: googling and more more questions that mustash. Who could forget that?
Speaker 1: Must um? And then I had really amazing professors like Columbia.
Speaker 1: So we had a class that was taught by two
Speaker 1: gentlemen who were at George Soros running money for George
Speaker 1: at the time. And so it was Armenio Fraga and
Speaker 1: Robert Johnston. Robert Johnson is now with i NET Institute
Speaker 1: for New Economic Thinking, and Armenia Fraga went on to
Speaker 1: be the head of Brazil's Central Bank and then has
Speaker 1: started a fund called Cavilla. I think, um it's been
Speaker 1: around for for a decade or more. So these were
Speaker 1: two people who really it was a little confirmation bias
Speaker 1: on my part, but they really solidified this idea that
Speaker 1: you need to read widely on a lot of different subjects.
Speaker 1: You need to be a student of history, you need
Speaker 1: to be a student of people. You need to understand
Speaker 1: as many different financial crises as you possibly can. So
Speaker 1: this was right after the UH Nordic banking crisis, right,
Speaker 1: so we were delving into what was the cause of
Speaker 1: that Nordic banking crisis? Um, so it was it was
Speaker 1: those were two really just um big, big thinkers who
Speaker 1: had a very strong influence on the way I practice
Speaker 1: economics and the way I invest. So I've interviewed almost
Speaker 1: a hundred seventy people here. I can't tell you how
Speaker 1: often the issue of being well rounded, being well read
Speaker 1: comes up over and over and over again from people.
Speaker 1: Uh and if you read what Charlie Munger and Warren
Speaker 1: Buffett and Howard Marks has said this, and Cliff Astnes
Speaker 1: has said this, and Bill McNab a vanguard, its time
Speaker 1: and time and time again people say, if you were
Speaker 1: not well rounded, well read, if you're just focused in
Speaker 1: a tiny niche within finance, you won't be able to
Speaker 1: do that job well because you need to be outside
Speaker 1: of that specialty in order to develop skills and that specialty,
Speaker 1: which lead me to everybody's favorite question, tell us about
Speaker 1: some of your favorite books and what you're reading now. Okay,
Speaker 1: So I am actually rereading a book that was my
Speaker 1: mother's book called The Worldly Philosophers, which is yes, it's
Speaker 1: a great book about all of the sort of foremost
Speaker 1: economists that are the basis of economic theory. Right. So
Speaker 1: Adam Smith keenes Um, I think that he has a
Speaker 1: chapter on Veblen. Uh. Yeah, yeah, it's a it's a
Speaker 1: great it's a great book. And then uh, I love
Speaker 1: reading biographies, and I love reading autobiographies of the few
Speaker 1: great ones around. Oh, there are many great ones. So
Speaker 1: one of one of my favorite biographies that I read
Speaker 1: a long time ago was called West with the Night
Speaker 1: by Beryl West. West with the Night. It's by Beryl
Speaker 1: Markham and she was a female pilot in East Africa
Speaker 1: in the thirties and she made money taking people on
Speaker 1: hunting trips. Yeah, it's a great it's a great book.
Speaker 1: And um. One of the things that she talked about
Speaker 1: in the book was how the elephants would know that
Speaker 1: the planes were coming and then it meant that they
Speaker 1: were going to be shot and they would literally take.
Speaker 1: She talks about how the the largest female elephant would
Speaker 1: often hide with her head in a tree, so you
Speaker 1: couldn't see if it was a male or female. You
Speaker 1: couldn't see the tusks, while the hole rest of the herd,
Speaker 1: including the bull, would go off away from where the
Speaker 1: plane was. And then when they were far enough away,
Speaker 1: the female elephant would bring her head out, and they
Speaker 1: would be circling above, kind of waiting and waiting, and
Speaker 1: it turns out it was the female and not the bull.
Speaker 1: And then they would they want the bull with the tust,
Speaker 1: and now they had lost the herd. And so this
Speaker 1: this intelligence that these animals possessed, and just the way
Speaker 1: she tells the story, and and so I just think again,
Speaker 1: to go back to your point of being well rounded
Speaker 1: and the different ways that people think creatively in the
Speaker 1: different life experiences and things you can learn, it's just endless.
Speaker 1: Any other modern any modern biographies you're looking at or read.
Speaker 1: I have a giant stack of things I'm dying my
Speaker 1: reading list I can I purchase at a much greater
Speaker 1: rate than I could possibly ever read. I call that
Speaker 1: the bought to read ratio. I actually one one. I
Speaker 1: actually went back and made a list of everything I
Speaker 1: purchased in the previous year and then how much I read.
Speaker 1: And you end up with like a three to one ratio.
Speaker 1: For every three books you bought this year, you've probably
Speaker 1: read one. Well, I'm definitely a ten to one. So
Speaker 1: I'm definitely because every year, so twice a year I
Speaker 1: do here's my favorite books for the winter. Here in
Speaker 1: my summer books and in the fall. I said, you
Speaker 1: know what, let me just go to my bookshelf and
Speaker 1: pick ten books that I want read that I haven't
Speaker 1: read that are sitting there and it's embarrassing. It's like,
Speaker 1: how have I not read this? So I have It's
Speaker 1: a first all problem, though, Barry, it's a good first
Speaker 1: of all problem. It's a very good first I have
Speaker 1: a so I'll give you. I'm going to a reference.
Speaker 1: So I have, I have Grant, I have Springsteen, and
Speaker 1: I have Galileo on my bookshelf. Oh, I want to
Speaker 1: read Springsteen's biography. Let me get to my last two questions,
Speaker 1: my favorite two questions that I have to ask you
Speaker 1: because you and I keep digressing. Um, So a millennial
Speaker 1: comes to you when they say they want they're thinking
Speaker 1: of a career in finance or a recent college graduate.
Speaker 1: What sort of advice would you give them? Okay, so
Speaker 1: you need to have rapacious curiosity, rapacious curiosity, and you
Speaker 1: need to indulge your curiosity. You need to read, you
Speaker 1: need to learn, You need to really enjoy finding out
Speaker 1: about the world. It helps if you are doing something
Speaker 1: you are infinitely curious about. Right. If you're not is
Speaker 1: about it, you're not going to be engaged. You're not
Speaker 1: gonna love it. And and you can't only do what
Speaker 1: you love. Every job has has parts that are that
Speaker 1: are annoying or tedious, so you need to do those two.
Speaker 1: You need to do what I call play the scales. Right,
Speaker 1: so it doesn't matter to play the scale, to learn
Speaker 1: the basics and practice the basics over and over and
Speaker 1: over again. So UM, I still go and make my
Speaker 1: own graphs sometimes well not by hand, no, in havior analytics.
Speaker 1: But I still go in and and immerse myself in
Speaker 1: the data, do my own uh EViews calculations, just because
Speaker 1: it keeps your you keep your your fingers in the dirt,
Speaker 1: so to speak. Um, And then I would say, get
Speaker 1: in before the boss and leave after the boss, all right,
Speaker 1: And the last question that our favorite question. What is
Speaker 1: it that you know about economics and investing today that
Speaker 1: you wish you knew twenty years ago when you started?
Speaker 1: Everything is the knowing, just the amount of knowledge you have,
Speaker 1: and how that becomes cumulative. It's it's so valuable, and
Speaker 1: and knowing the history, just having it your fingertips, having experienced,
Speaker 1: you know, having experienced crisis. So what I experienced the
Speaker 1: Russia crisis and as we were approaching the dot com crisis,
Speaker 1: and that was raising reins. I said, you know what,
Speaker 1: I think I've seen this movie before. I think I
Speaker 1: know how this is probably going to end right. And
Speaker 1: so every every experience becomes cumulative and it helps you
Speaker 1: if you let it. We have been speaking with Constance Hunter.
Speaker 1: She is the chief economist at KPMG. If you enjoy
Speaker 1: this conversation, look up an Inch or Down an Inch
Speaker 1: on Apple iTunes and you could see any of the
Speaker 1: other hundred and seventy five such podcasts we have recorded previously.
Speaker 1: We love your comments, feedback and suggestions right to us
Speaker 1: at m IB podcast at Bloomberg dot net. I would
Speaker 1: be remiss if I did not thank my crack staff
Speaker 1: that helps to put this together. Taylor Riggs is our booker,
Speaker 1: Medina Parwana is our recording producer. Michael Batnick is our
Speaker 1: head of research, and Attica Valbron is our business director.
Speaker 1: I'm Barry Ritolts. You've been listening to Masters in Business
Speaker 1: on Bloomberg Radio.