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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Joe Wisenthal and I'm Tracy. I have to say

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Speaker 1: that at this point maybe in my career, at this

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Speaker 1: stage in the economy, I can't remember a time in

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Speaker 1: which I feel like there are so many, like legitimate,

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Speaker 1: divergent views on the direction of the economy. Like some

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Speaker 1: people will say, like inflation is going to stay high

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Speaker 1: through all of three and the economy isn't gonna slow down.

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Speaker 1: Some people are saying, Okay, we're heading for a recession

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Speaker 1: because the FEDS hight rates and housing is plunging and

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Speaker 1: other things. Oh, where's this is getting stagflation? Because there's

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Speaker 1: in trench, Like there are many very legitimate views in

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Speaker 1: my perception about where things could head from here. It

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Speaker 1: does feel very bifurcated at the moment, like two very

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Speaker 1: extreme paths, like either you get a massive global recession

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Speaker 1: and ensuing deflation, or you have this period of nineteen

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Speaker 1: seventies style hyper inflation, or you have something even worse,

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Speaker 1: which would be stagflation. And you know, people used to

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Speaker 1: talk about the prospect of the soft landing that kind

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Speaker 1: of went away for a while. This idea that the

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Speaker 1: FED could raise rates and quash inflation without necessarily engineering

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Speaker 1: a huge knock to economic growth. It kind of went

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Speaker 1: away for a while, I think when the inflation readings

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Speaker 1: kept coming in higher than expected. But we're recording this

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Speaker 1: on January six, and we just had a really good

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Speaker 1: payrolls report. From the perspective of the soft landing thesis,

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Speaker 1: we had I think unemployment dropping but wages easing a

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Speaker 1: little bit, so we don't have to worry about that

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Speaker 1: wage price spiral that central banks were all scared about.

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Speaker 1: And so now we have a lot of talk again

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Speaker 1: about the possibility of the soft landing. Yeah. I mean

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Speaker 1: the way I've been thinking about it is that until

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Speaker 1: unemployment actually really starts jumping, and it hasn't jumped at all,

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Speaker 1: because we're back down to three point five percent like

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Speaker 1: the historic lows. I think I saw a tweet that actually,

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Speaker 1: if you were like go out to the sixth decimal point,

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Speaker 1: it really is like the lowest and like fifty years now.

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Speaker 1: I don't know I did in fact check it, but

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Speaker 1: you should do a post on it if that's true.

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Speaker 1: This way, this is why we need like each other,

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Speaker 1: like in the office, so that someone's like don't just like,

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Speaker 1: don't just look at the tweet post. But in all

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Speaker 1: seriess is, you know, like until my view is like

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Speaker 1: until unemployment like really starts to rise, like until we

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Speaker 1: really have that like the soft landing scenario like can't

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Speaker 1: be disproven, right because there's always the chance that inflation

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Speaker 1: comes down and employment doesn't go up, Like it's a

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Speaker 1: hope like you know, knock on live we all wanted

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Speaker 1: to happen. But you know, until like unemployment really starts

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Speaker 1: falling apart, that can't be disproven. And then there's the

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Speaker 1: additional layer, which is, let's say, inflation where to come

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Speaker 1: down and get closer to the FEDS goal, but the

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Speaker 1: unemployment rate refuses to budge. Does the FED believe it

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Speaker 1: or does the FED say, know, like, we have to

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Speaker 1: keep hammering. We have to keep hiking rates in order

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Speaker 1: to get unemployment up the only so that we can

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Speaker 1: be confident that this decline and inflation is sustained. I

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Speaker 1: do have to say, like part of me still still

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Speaker 1: feels a little weird when we're talking about the FED

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Speaker 1: explicitly trying to push up unemployment and also like the

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Speaker 1: idea that oh it's good that wages aren't going up

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Speaker 1: in a period of high inflation. We're all kind of poorer.

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Speaker 1: But on the other hand, we don't have un anchored

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Speaker 1: inflation expectations. But setting that aside, the thing I'm getting

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Speaker 1: from this conversation is that we have a lot to

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Speaker 1: talk about. That's right, and we could keep talking because

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Speaker 1: we have plenty of thoughts. But why don't we talk

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Speaker 1: to two guests who we've both had on before that

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Speaker 1: also plenty of thoughts, some of our favorite sort of

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Speaker 1: like big picture, a coom thinkers. A great conversation, I'm

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Speaker 1: hopefully a great conversation to start twenty twenty three destined

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Speaker 1: to be a great conversation. I'm sure. Yes, we're gonna

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Speaker 1: be speaking with connorson a columnist here in Bloomberg Opinion,

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Speaker 1: as well as Neil Dutta, head of Economics Renaissance, macros So,

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Speaker 1: Connor and Neil. Thank you so much for coming back

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Speaker 1: on odd lot. Great to be here. Thank you. I'll

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Speaker 1: start with you, Neil, because you know you're you're you know,

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Speaker 1: I think at some point last summer you're starting to

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Speaker 1: get a little bit more negative on the economy these days.

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Speaker 1: I feel like you're a little bit more optimistic, can

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Speaker 1: we get the soft landing like is this still in

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Speaker 1: the cards? Well, first, thanks for having the the Harold

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Speaker 1: and Kumara find into it on on on your on

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Speaker 1: your podcast. We definitely appreciate it. But you start a competitor,

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Speaker 1: start a competitor. I had to get that in there.

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Speaker 1: But but at any rate, yeah, I mean the news

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Speaker 1: today was good for the soft landing bulls. I don't

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Speaker 1: really see how you can cut it any other way.

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Speaker 1: One of the data points that we like to look

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Speaker 1: at is UH, the index of aggrega weekly perils, right,

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Speaker 1: which is the some product of job of jobs the

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Speaker 1: work week and UH and hourly earnings. And you know,

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Speaker 1: over the last three months that's up, you know, just

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Speaker 1: under four percent at an annual rate. So that's basically

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Speaker 1: your proxy phenomenal growth, right, I mean jobs and hours

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Speaker 1: that's real GDP and wages you can consider is basically

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Speaker 1: your inflation proxy. You put it all together, you're around

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Speaker 1: four percent. That's the kind of number that will make

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Speaker 1: the Fed very happy and I think lead them away

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Speaker 1: from a more aggressive rate tightening campaign at least in

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Speaker 1: the short run. But I think to something that you

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Speaker 1: were getting at earlier, the unemployment rate is three and

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Speaker 1: a half percent. I mean, there was a lot of

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Speaker 1: discussion around this sort of yawning gap between the household

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Speaker 1: measure of employment and the establishment Perill figure. That gap

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Speaker 1: basically narrowed substantially in December, right, And the unemployment rate

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Speaker 1: is three and a half percent, And you know, ultimately

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Speaker 1: it's hard to for me at least to push the

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Speaker 1: kind of immaculate disinflation thesis that much if the unemployment

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Speaker 1: rate is three and a half percent. And you know,

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Speaker 1: ultimately the FED views the labor markets as the conduit

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Speaker 1: to achieve their inflation objectives, and you know, by that standard,

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Speaker 1: they're not really succeeding. And so you know, and remember

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Speaker 1: that the inflation numbers will look a lot better over

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Speaker 1: the next several months, right, I mean, you have gas

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Speaker 1: prices coming down, you hustle utility bills will probably come down,

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Speaker 1: food prices will probably moderate, but aggregate incomes growth, you know,

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Speaker 1: are still okay. And so it just means that you

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Speaker 1: have this pick up and real disposable income. So that

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Speaker 1: to me puts pressure on capacity, right, I mean, real

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Speaker 1: growth takes away you know, resources, real resources and um

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Speaker 1: and ultimately as you put pressure on on physical capacity,

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Speaker 1: whether it's labor or product and resource markets, that will

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Speaker 1: ultimately put pressure up on an inflation. So I hate

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Speaker 1: to say it, but you know, it may well be

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Speaker 1: that the improvement that we see, or or the sort

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Speaker 1: of the soft landing bulls having their day in the sun,

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Speaker 1: maybe that proves transitory. So that that that that's sort

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Speaker 1: of how I'm thinking about it right now. But I

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Speaker 1: definitely think the wind is behind the soft landing bulls

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Speaker 1: is back at the moment. Connor, Yeah, I think right

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Speaker 1: now it's easier to think about what's happening in the

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Speaker 1: economy at the moment and over the next three to

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Speaker 1: six months than to talk about sort of the more

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Speaker 1: abstract does this level of labor market utilization mean this

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Speaker 1: for inflation in that for a session. I think that's

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Speaker 1: a conversation really for the second half of this year

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Speaker 1: and right now, because people came into the year so negative.

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Speaker 1: I think the bigger story is just that real growth

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Speaker 1: was very good and Q three looks like Q four

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Speaker 1: and we're kind of entering with good momentum on that side,

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Speaker 1: and then at the same time we see inflation really

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Speaker 1: rapidly coming off between core goods, which we've seen for

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Speaker 1: several months now, gas prices, which is just phenomenal thing

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Speaker 1: but still matters to the consumers. And then also in

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Speaker 1: the rental market, we're seeing market rents really start to

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Speaker 1: decrease pretty rapidly over the past few months. So the

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Speaker 1: the outlook at the moment is very very good, and

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Speaker 1: we can sort of think about later later, but I

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Speaker 1: think the story for now is just how good things

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Speaker 1: are heading in. So, Neil, you sort of touched on

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Speaker 1: this um, the idea of the FED at some point

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Speaker 1: starting to slow down its rate increases, and we had

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Speaker 1: something else this week again you know, we're recording it.

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Speaker 1: The first week of three, we had the Fed Minutes

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Speaker 1: where the Fed was talking about the difficulty of tightening

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Speaker 1: financial conditions, and financial conditions, you know, relative to the

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Speaker 1: pace and extent of rate increases, you could argue have

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Speaker 1: been relatively loose. So I guess my question is, like,

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Speaker 1: what would be the catalyst for the FEDS starting to

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Speaker 1: take its foot off the pedal if we haven't really

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Speaker 1: seen a big tightening of financial conditions. Well, part of

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Speaker 1: that's implicit in their forecast, right, I mean, to me,

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Speaker 1: I think a lot of this is just optics, right, Tracy.

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Speaker 1: I mean, how there's no denying that financial conditions have

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Speaker 1: actually eased over the last couple of months, even as

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Speaker 1: the FETE has been, um, you know, trying to job

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Speaker 1: bone markets and has been hiking you know, seventy basis

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Speaker 1: points fifty basis points, signaling more to come. But to

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Speaker 1: me it's optics. Yeah, I guess my question is more like,

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Speaker 1: when do they feel comfortable stopping the jaw boning because

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Speaker 1: it is clear that they're talking about, you know, higher

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Speaker 1: rates for longer, and the market isn't necessarily believing them. Well,

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Speaker 1: they're getting there. I mean they're getting there already, but

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Speaker 1: I don't I mean, I don't know that that that

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Speaker 1: it's formulaic. I mean it's sort of like a touch

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Speaker 1: and field type of approach. I mean they go around.

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Speaker 1: I mean Bullard is talking about how okay, we're getting

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Speaker 1: close to the end. I mean, he he was a hockey,

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Speaker 1: had some comments this week that would rent a little

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Speaker 1: bit more devish Lee. But we don't know, you know,

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Speaker 1: sort of x Anti, you know what the right and

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Speaker 1: level for the for the fet funds, right should be

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Speaker 1: to cool the economy. I mean it could be multi

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Speaker 1: vers I mean, it could be you know, different rates

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Speaker 1: at different points and time. I mean, this is not

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Speaker 1: I mean to me, this is more like this is

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Speaker 1: not an exact science, honestly, and I just think that

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Speaker 1: you are going to get much softer inflation between now

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Speaker 1: and the March off MC meeting. And for me, the

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Speaker 1: tension is think about what the Fed did in December, right,

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Speaker 1: I mean they raised their their inflation forecast and they

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Speaker 1: marked down their growth forecast. So the bar for them

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Speaker 1: has been changed in a way that you know, right,

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Speaker 1: I mean, you're being very polite, but yeah, you could be.

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Speaker 1: You could easily come back in March and they'll be

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Speaker 1: revising down their inflation forecast potentially considerably, and they're gonna

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Speaker 1: what say that they're going to accelerate the pace of

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Speaker 1: rate hikes at that point. That to me is a

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Speaker 1: little bit difficult to see. So so that that's sort

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Speaker 1: of where I'm at. Go ahead, Connor to Niel's point

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Speaker 1: right now, you've been pretty critical of this that like, Okay,

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Speaker 1: the way the FED is talking is we're seeing an

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Speaker 1: economy with accelerating and fflation and weakening growth, and yet

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Speaker 1: the actual data seems to be the exact opposite. We

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Speaker 1: seem to have pretty solid growth in the second half

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Speaker 1: of first quarter and declining inflation, Like, what's your take here,

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Speaker 1: what's going on? I think what's going on is that?

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Speaker 1: And you know, you two had on Neil cash Carey

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Speaker 1: if Minneapolis fed and maybe August, and he was saying

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Speaker 1: how he was unhappy with the stock market rallying, and

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Speaker 1: they sort of felt like their messaging wasn't being understood

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Speaker 1: by the market, and so at that point they really

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Speaker 1: changed their messaging to focus on a higher unemployment rate

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Speaker 1: and kind of this whatever this, whatever it takes, determination

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Speaker 1: to rate and inflation. Markets got the message, and by

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Speaker 1: September October they were probably in the place where they

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Speaker 1: wanted to be in terms of what the market was pricing,

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Speaker 1: the level of financial conditions that they wanted to see.

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Speaker 1: And to be fair, at that point, inflation was running

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Speaker 1: really hot and growth was slowing, And the data has

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Speaker 1: changed a lot over the past three months, where to

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Speaker 1: your point, inflation now looks like it's coming off pretty rapidly.

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Speaker 1: Growth has picked up, but they want financial conditions to

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Speaker 1: stay in this place until to have more confidence on

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Speaker 1: where things are going. So they're kind of sticking with

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Speaker 1: this matches that is really out of sync with what's

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Speaker 1: happened in the economy. But since markets are by and

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Speaker 1: large not running away from them, they're kind of okay

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Speaker 1: with it. But it's going to become increasingly out of data.

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Speaker 1: Is you know, you look at the unemployment rate at

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Speaker 1: three and a half percent at the start of three

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Speaker 1: they forecasted at going to four point seven percent at

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Speaker 1: the end of this year. That not only would certainly

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Speaker 1: not be a soft landing, it's just wildly out of

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Speaker 1: sync with what we're seeing in the data. So it's

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Speaker 1: they're just really not in a place that's in sync

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Speaker 1: with what's happening in the economy. Ground Neil, I want

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Speaker 1: to go back to something you said in your first answer,

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Speaker 1: because I've I've you know, I don't troll on Twitter,

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Speaker 1: but I do sometimes joke very very convincing laugh there.

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Speaker 1: But you know that that um, falling gas prices are

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Speaker 1: bad for inflation because falling gas prices mean more money

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Speaker 1: and consumer pockets. More money and consumer pockets mean more

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Speaker 1: spending power. More spending power means higher prices. But you

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Speaker 1: kind of said that in your first answer. You're like, look,

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Speaker 1: real real wage growth with this decline in inflation is

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Speaker 1: picking up. That makes it hard to get any is

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Speaker 1: sort of like any kind of landing. So is there

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Speaker 1: something where like falling gas prices and field their categories

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Speaker 1: is not actually good news for inflation. Well, I think

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Speaker 1: it moves things in place, right, I mean, you're talking

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Speaker 1: about relative price shifting, right, So if if the labor

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Speaker 1: markets are study and people see, I mean, it's like saying,

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Speaker 1: I mean, do you think a tax cut is inflationary?

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Speaker 1: I mean, I think most macro models will probably say yes. Right,

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Speaker 1: So I think that the fact that the fact that

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Speaker 1: gasoline prices are declining, all that does is is shift

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Speaker 1: consumer purchasing power to other areas of their you know,

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Speaker 1: goods and services basket, and that drives out the prices

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Speaker 1: for those good and services. I don't think it has

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Speaker 1: an overall impact on on inflation. But again, I mean

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Speaker 1: the reason I think the FED looks at it through

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Speaker 1: the conduit of the labor markets is this identity, right,

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Speaker 1: I mean, as so much of economics is identity, whether

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Speaker 1: you're talking about corporate profits or in this case, inflation,

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Speaker 1: and for them, compensation equals inflation plus productivity. Powell has

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Speaker 1: basically talked about that equation multiple times over the last year.

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Speaker 1: And if the labor markets are tight and unemployment is

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Speaker 1: three and a half percent, that's going to keep compensation

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Speaker 1: growth steady. And we're not particularly in a strong productivity

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Speaker 1: environment right now. I mean, productivity is notoriously hard to forecast,

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Speaker 1: but it's not particularly strong. So that leaves a lot

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Speaker 1: of pressure on inflation, and I think that's one of

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Speaker 1: the reasons why the FED is looking at the labor

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Speaker 1: markets so strongly. And by the way, a lot of

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Speaker 1: the improvement and inflation that we're talking about right now

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Speaker 1: has almost nothing to do with the FED, right I

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Speaker 1: mean that that that that's that's part of the issue.

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Speaker 1: I mean, use car prices, supply chain, and provement. You know,

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Speaker 1: it's not like people put their rent on on the

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Speaker 1: credit card, so so you know, the slowing and rental

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Speaker 1: inflation has almost nothing to do with what's going on

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Speaker 1: with the labor market or tightening credit or anything like that.

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Speaker 1: I mean, it's just sort of it's happening kind of

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Speaker 1: independently I think of what the FED is doing. So

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Speaker 1: to me, the Feed's got some explaining to do. It

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Speaker 1: wasn't Tracy. Wasn't there some term we were using, like

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Speaker 1: one about inflation coming down for reasons other than monetary policy. Well, okay,

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Speaker 1: this is my new This is my new conspiracy theory

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Speaker 1: about financial conditions, which is, I believe the Fed thinks

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Speaker 1: still thinks inflation is transitory and is actually comfortable with

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Speaker 1: financial conditions not actually tightening that much because they think

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Speaker 1: the things that are making prices go up are the

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Speaker 1: transitory supply chain stuff, and so it's just, you know,

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Speaker 1: talk your way out of the period of adjustment without

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Speaker 1: actually tightening too much that would cause a recession. That's

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Speaker 1: my new conspiracy theory. Okay, there's silence, so I guess

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Speaker 1: no one else agrees with me. Okay, well, Connor, you know,

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Speaker 1: we talked a little bit, I think, in private about productivity,

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Speaker 1: and you have seen companies come out and talk about

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Speaker 1: the difficulty of replacing the older workforce that left during

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Speaker 1: the pandemic, and we are having basically this productivity adjustment.

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Speaker 1: How are you viewing that component of it, because, as

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Speaker 1: Neil just mentioned, you know, it is a tough thing

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Speaker 1: to forecast, and so far all we seem to have

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Speaker 1: is anecdotes about what companies are doing here well. We

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Speaker 1: know that labor market turnover has declined over the past

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Speaker 1: six months at least, and companies say they're better staff

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Speaker 1: they say they're in a better place. I think supply

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Speaker 1: chains getting better is maybe it's kind of squishy, but

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Speaker 1: helps with the margin things like being able to turn

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Speaker 1: your capital faster because you're getting shipments more quickly and

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Speaker 1: can sell them more quickly, so you're not waiting a

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Speaker 1: long time for orders. But I think the challenge with

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Speaker 1: productivity is to Neil's point, there's this very standard model

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Speaker 1: of real economic growth is ours work plus productivity. But

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Speaker 1: a lot of what's happening with real eccuon onic growth

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Speaker 1: that we saw, what we're seeing right now doesn't really

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Speaker 1: fit into that framework very well. And for instance, you

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Speaker 1: look take the rental market, where we added four plus

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Speaker 1: million jobs in two but actually new leases on rentals

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Speaker 1: was negative in two for the first time since two

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Speaker 1: thousand nine because we unwound some of the excess household

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Speaker 1: formation we got during the pandemic. As a result, rents

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Speaker 1: are falling and shelter is a huge part that goes

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Speaker 1: into inflation, so inflation could come off very very rapidly

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Speaker 1: for sort of reasons unrelated to sort of standard business productivity,

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Speaker 1: just due to sort of households deciding not to get

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Speaker 1: new leases, maybe fund roommates again. And as I don't

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Speaker 1: know if that's like if if people decide to get

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Speaker 1: a roommate, is that productivity growth? Not really, but it

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Speaker 1: also frees up capacity for other people. So I think

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Speaker 1: this sort of standard way of thinking about productivity isn't

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Speaker 1: very helpful at the moment. So basically Powell needs to

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Speaker 1: go out and say, get a roommate, folks, if you

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Speaker 1: you we we can do this the hard way you

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Speaker 1: lose more people lose their jobs, or the less hard way,

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Speaker 1: like get a room that does So I haven't thought

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Speaker 1: about it before, but like if two people share a

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Speaker 1: space versus one, that is a kind of productivity growth,

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Speaker 1: isn't it. Yeah. And the scenario that's really weird for three,

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Speaker 1: which I think is possible, is we know that sort

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Speaker 1: of that core goods inflation is negative right now, So

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Speaker 1: let's say that's zero in three, and then you tended

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Speaker 1: to be pretty low heading into the pandemic, and then

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Speaker 1: we know rent growth is negative. At the moment, it

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Speaker 1: was about negative three percent annualized in Q four two,

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Speaker 1: what if the shelter component of CPI is is flat

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Speaker 1: in and this is not assuming any job losses, just

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Speaker 1: sort of due to these weird effects going on right now,

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Speaker 1: and then that sort of core services x shelter component

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Speaker 1: even caught five percent because maybe wage growth is still hot.

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Speaker 1: That gets you to a core CPI number below two percent.

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Speaker 1: So you could have a soft landing with sub two

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Speaker 1: percent core inflation in a in a good growth environment.

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Speaker 1: I wouldn't say that's the new normal or anything, but

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Speaker 1: just that's what the data could show based on all

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Speaker 1: these weird dynamics happening at the moment. Neil, I think

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Speaker 1: it's it's totally plausible. The question is what does that

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Speaker 1: mean for right? You know, look like, let's say everyone

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Speaker 1: decides to get a roommate, right, and you had this

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Speaker 1: big burst of household formation that drove up shelter prices,

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Speaker 1: and now people decide to get a roommate and that

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Speaker 1: you know, we can shustle formation, and now shelter costs

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Speaker 1: go down. You're still love with this idea around the

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Speaker 1: labor market, right, I mean, for whatever reason, Okay, the

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Speaker 1: FED views the labor market as the conduit for achieving

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Speaker 1: their inflation objectives. That is the principal issue right now.

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Speaker 1: Powell keeps talking about pain and rebalancing the labor market.

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Speaker 1: If that is what the FETE is trying to achieve,

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Speaker 1: they're not doing it. Okay, they're not doing it. And

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Speaker 1: that's why I think maybe where Connor and I disagree

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Speaker 1: a little bit is what does that mean for the

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Speaker 1: interest rate outlook in the back half of the year.

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Speaker 1: And let's just keep in mind, right, I mean, and

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Speaker 1: so there is a good reason. I mean, I think

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Speaker 1: there's a pretty you can make a pretty compelling argument

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Speaker 1: that growth is likely to accelerate over the next several months. Okay,

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Speaker 1: because of the loosening of financial conditions that we've seen

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Speaker 1: over the over the last few months. Right, so you

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Speaker 1: get a positive impulse from from housing. Maybe government spending

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Speaker 1: is a bit better. We talked about real incomes and

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Speaker 1: what that could mean for consumption. So if you have

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Speaker 1: real growth above trend again for the next quarter or two,

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Speaker 1: what do you think that's gonna mean for the labor markets.

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Speaker 1: It's gonna mean continue tightening, which in turn means what

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Speaker 1: potentially higher wage inflation, which in turn will push prices

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Speaker 1: up and I mean to me, that's that's really the issue.

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Speaker 1: And this is all happening at a time when the

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Speaker 1: FED is increasingly not just doves but hawks like Bullard

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Speaker 1: that they're a little bit more comfortable with the way

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Speaker 1: things stand and that they're going to back off to

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Speaker 1: So if you know, and Connors talked about this as well,

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Speaker 1: of the extent that twenty two was about them hiking

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Speaker 1: aggressively into a slowdown, what does it mean that they

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Speaker 1: may be pausing into an acceleration. And I think he's

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Speaker 1: right that sort of I can that the data is

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Speaker 1: sometimes I don't want to say it lies, but it's

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Speaker 1: sort of not really telling the whole picture because of

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Speaker 1: lags between various factors. And so again I can get

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Speaker 1: to this the story where right now we have real

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Speaker 1: deflation because of all these things freight prices, gasoline prices,

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Speaker 1: core goods shelter, while employment growth continues to grow higher

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Speaker 1: and income growth continues to grow higher. That's not a

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Speaker 1: sustainable long term scenario. It's not like we've discovered the singularity,

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Speaker 1: but it's just the way the data is shaking out.

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Speaker 1: But yeah, on the other side of this, we might

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Speaker 1: have a labor market with three and a half percent unemployment,

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Speaker 1: good balance sheets, and a lot of consumers and businesses

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Speaker 1: that have been hunkered down waiting for recession and then

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Speaker 1: they're ready to hit the ghost which again and that

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Speaker 1: could be a very boom inflationary on the other side

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Speaker 1: of this if we don't figure out where policy should

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Speaker 1: be and and sort things out on that side. So,

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Speaker 1: speaking of reliable data, one of the big debates in

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Speaker 1: two was the surveys versus the hard data, and the

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Speaker 1: idea that if you looked at a lot of survey measures,

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Speaker 1: survey based measures, people seem miserable, like on the verge

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Speaker 1: of a massive recession, but if you looked at the

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Speaker 1: hard data, it was very much still coming in strong.

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Speaker 1: Can you talk a little bit more about how you're

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Speaker 1: thinking of that discrepancy going into three, because you know,

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Speaker 1: as Neil has pointed out, there does seem to be

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Speaker 1: an improvement in terms of consumers ability to spend just

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Speaker 1: by virtue of gas prices going down. And we know

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Speaker 1: that gas prices, I mean, if you look at some

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Speaker 1: of the survey data, like there is a lot that

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Speaker 1: just tracks one for one with gas prices. So how

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Speaker 1: are you thinking about the whole you know, I tried

431
00:22:44,640 --> 00:22:46,800
Speaker 1: to ask this question without actually saying the word, but

432
00:22:46,880 --> 00:22:50,600
Speaker 1: the whole vibe session idea. Yeah, I think and demand

433
00:22:51,040 --> 00:22:54,359
Speaker 1: in terms of consumers spending money remains very resilient. But

434
00:22:54,440 --> 00:22:56,760
Speaker 1: I think because of all these sort of bulup effects

435
00:22:56,760 --> 00:22:59,480
Speaker 1: and fed procession fears, that's led to the soft data

436
00:22:59,520 --> 00:23:01,480
Speaker 1: being being pretty weak or at least a lot weaker

437
00:23:01,480 --> 00:23:02,760
Speaker 1: than the hard data. And I think a good way

438
00:23:02,760 --> 00:23:06,520
Speaker 1: to think about it is Nike, where they have said

439
00:23:06,520 --> 00:23:08,879
Speaker 1: that they had this big sort of boom and inventory.

440
00:23:09,040 --> 00:23:11,800
Speaker 1: Part of it is because that inventory they ordered in

441
00:23:11,800 --> 00:23:14,560
Speaker 1: the spring didn't show up until late past season because

442
00:23:14,600 --> 00:23:17,119
Speaker 1: of supply chain lags. And then because supply chains have

443
00:23:17,119 --> 00:23:19,920
Speaker 1: gotten so much better, they got their holiday season inventory

444
00:23:20,000 --> 00:23:22,760
Speaker 1: earlier than they expected. So they kind of had inventory

445
00:23:22,800 --> 00:23:25,000
Speaker 1: coming in at the wrong time on both sides and

446
00:23:25,040 --> 00:23:27,200
Speaker 1: they have to work through that. And so while they're

447
00:23:27,200 --> 00:23:31,040
Speaker 1: working through that, consumer spending is steady. But because supply

448
00:23:31,119 --> 00:23:32,960
Speaker 1: chains are better now, maybe instead of having to order

449
00:23:33,040 --> 00:23:34,920
Speaker 1: shoes three months in advance, they can order it six

450
00:23:34,920 --> 00:23:37,040
Speaker 1: weeks in advance. That's a one or two month lag

451
00:23:37,040 --> 00:23:39,240
Speaker 1: where they're not doing orders. So if you're a factory

452
00:23:39,240 --> 00:23:41,240
Speaker 1: in China. You're saying, I'm not getting any orders, but

453
00:23:41,240 --> 00:23:43,600
Speaker 1: it just because they have to sell through their inventory.

454
00:23:43,880 --> 00:23:46,760
Speaker 1: The supply chains are now better. But then things are fine,

455
00:23:47,240 --> 00:23:50,080
Speaker 1: say by March, and so that's sort of this sort

456
00:23:50,080 --> 00:23:52,120
Speaker 1: of the real way in which the soft data is accurate.

457
00:23:52,520 --> 00:23:53,960
Speaker 1: And then just if the fence telling you they need

458
00:23:54,000 --> 00:23:55,960
Speaker 1: to raise unemployment and we're gonna have a recession or

459
00:23:55,960 --> 00:23:58,320
Speaker 1: people believe that that's going to change the way that

460
00:23:58,359 --> 00:24:00,680
Speaker 1: you think about the economy as well. So I trust

461
00:24:00,680 --> 00:24:02,760
Speaker 1: the hard data more. But I understand why this off data.

462
00:24:02,880 --> 00:24:23,040
Speaker 1: We can wait, all right, I want to you know,

463
00:24:23,119 --> 00:24:25,280
Speaker 1: we actually haven't done an episode. I think we're doing

464
00:24:25,280 --> 00:24:29,080
Speaker 1: an episode soon, specifically on rent prices. It's one of

465
00:24:29,080 --> 00:24:32,520
Speaker 1: these topics that we've should have hit sooner. But I know, Connor,

466
00:24:32,720 --> 00:24:36,399
Speaker 1: you've done a lot of like work and studying of this,

467
00:24:36,680 --> 00:24:39,119
Speaker 1: and so we do have these measures from some of

468
00:24:39,119 --> 00:24:42,359
Speaker 1: these private companies like Apartment List or Zillo or some

469
00:24:42,400 --> 00:24:44,520
Speaker 1: of the others, and it looks like rents coming down.

470
00:24:44,560 --> 00:24:47,560
Speaker 1: We had that episode last year with Omaris Reef talked

471
00:24:47,560 --> 00:24:49,919
Speaker 1: about the gap between these measured rents versus what's in

472
00:24:49,920 --> 00:24:52,679
Speaker 1: the government data. But I guess the simple question for

473
00:24:52,760 --> 00:24:55,480
Speaker 1: me as a New Yorker who rents, is my rent

474
00:24:55,480 --> 00:24:59,639
Speaker 1: going to come down? Yes? Really, rent is gonna be

475
00:25:00,080 --> 00:25:02,320
Speaker 1: rent growth is going to be negative. Ine that to

476
00:25:02,359 --> 00:25:05,280
Speaker 1: me is like the big undappreciated story. What's help come?

477
00:25:05,359 --> 00:25:07,639
Speaker 1: What's going on? Like? Well, how come? So sort of

478
00:25:07,640 --> 00:25:10,119
Speaker 1: a few things. First is that you had this excess

479
00:25:10,160 --> 00:25:13,840
Speaker 1: household formation in which finally started unwinding over the past

480
00:25:13,920 --> 00:25:16,240
Speaker 1: six months. You can sort of think about as a

481
00:25:16,359 --> 00:25:18,920
Speaker 1: bulop effect and renting, but just because people sign year

482
00:25:18,960 --> 00:25:21,000
Speaker 1: long leases, there's just a much bigger lag there than

483
00:25:21,040 --> 00:25:24,119
Speaker 1: maybe buying shoes, which can sort of happen a lot sooner.

484
00:25:24,600 --> 00:25:26,920
Speaker 1: The second is that there's a lot of supply growth

485
00:25:27,000 --> 00:25:30,680
Speaker 1: in the pipeline. We currently have twice as many apartments

486
00:25:30,720 --> 00:25:32,399
Speaker 1: under construction as we did at the peak in two

487
00:25:32,400 --> 00:25:34,879
Speaker 1: thousand and six on the onset of the housing bust,

488
00:25:35,560 --> 00:25:39,399
Speaker 1: and that's because I think there's some extent we've been

489
00:25:39,400 --> 00:25:41,959
Speaker 1: building apartments for a decade now to kept sort of

490
00:25:41,960 --> 00:25:44,600
Speaker 1: meet millennial demand, and there's just been the secular belief

491
00:25:44,640 --> 00:25:47,280
Speaker 1: in the rental story. And then you have that huge

492
00:25:47,280 --> 00:25:51,000
Speaker 1: surge in household formation in which, just like e commerce companies,

493
00:25:51,040 --> 00:25:52,879
Speaker 1: they leaned into this. This is a new normal for

494
00:25:52,920 --> 00:25:56,960
Speaker 1: rental demand, and so builders built a meet that and

495
00:25:57,000 --> 00:25:59,320
Speaker 1: they just they haven't been scarred by a bus the

496
00:25:59,359 --> 00:26:02,680
Speaker 1: way that single on the builders were in two thousand eight,

497
00:26:02,720 --> 00:26:04,879
Speaker 1: people got foreclosed upon, they had to go into renting,

498
00:26:05,359 --> 00:26:08,040
Speaker 1: millennials unting the labor force. We're renting instead of owning.

499
00:26:08,080 --> 00:26:10,160
Speaker 1: So the apartment market that never really skipped a beat.

500
00:26:10,680 --> 00:26:12,120
Speaker 1: But this is sort of a big reckoning, I think

501
00:26:12,119 --> 00:26:14,639
Speaker 1: for the rental market because millennials now are looking to

502
00:26:14,640 --> 00:26:16,679
Speaker 1: buy rather than rents, so you don't really have that

503
00:26:16,720 --> 00:26:19,840
Speaker 1: secular growth in renting versus buying, and then you have

504
00:26:19,880 --> 00:26:22,679
Speaker 1: this rapidly rising vacancy right and a lot of supply

505
00:26:22,720 --> 00:26:25,920
Speaker 1: on the pipeline. I would just point out that if

506
00:26:26,000 --> 00:26:29,560
Speaker 1: we're talking about a secular increase in home ownership, homeowners

507
00:26:29,600 --> 00:26:32,760
Speaker 1: tend to spend multiples of what renters do, not on

508
00:26:32,960 --> 00:26:38,480
Speaker 1: not on things just inside the home, but dining out, travels,

509
00:26:39,000 --> 00:26:41,359
Speaker 1: you know, leisure, that sort of thing. What does that

510
00:26:41,400 --> 00:26:45,119
Speaker 1: mean for inflation at the end of the day, all

511
00:26:44,680 --> 00:26:47,320
Speaker 1: all all we're doing here is just pointing out, Okay,

512
00:26:47,359 --> 00:26:49,920
Speaker 1: look at this area, look at that area. This price

513
00:26:50,000 --> 00:26:55,439
Speaker 1: is going down, but you're talking about still a growing pie,

514
00:26:56,119 --> 00:26:59,439
Speaker 1: right ultimately, and I think that's the principal issue, right.

515
00:26:59,480 --> 00:27:02,119
Speaker 1: I Mean, everything we're talking about in terms of the

516
00:27:02,160 --> 00:27:05,720
Speaker 1: improvement and inflation is primarily looking at it through the

517
00:27:05,760 --> 00:27:08,520
Speaker 1: rens of relative shifts and prices. Okay, so shelter prices

518
00:27:08,560 --> 00:27:10,520
Speaker 1: will come down. I mean, Connor is probably going to

519
00:27:10,600 --> 00:27:12,639
Speaker 1: be right about that based on what we're seeing with

520
00:27:12,680 --> 00:27:15,399
Speaker 1: new lease growth. Connor is probably going to be right

521
00:27:15,400 --> 00:27:18,560
Speaker 1: about used car prices and and the things related to

522
00:27:18,600 --> 00:27:22,679
Speaker 1: the improvement in the supply chain. But ultimately that's just

523
00:27:22,720 --> 00:27:25,959
Speaker 1: the relative shift in prices. A good way to think

524
00:27:26,000 --> 00:27:28,080
Speaker 1: about this is what happened with gasoline prices in the

525
00:27:28,080 --> 00:27:31,040
Speaker 1: mid twenty tents, where because we finally had that sort

526
00:27:31,040 --> 00:27:35,119
Speaker 1: of access from production relative to demand, gasol prices and

527
00:27:35,160 --> 00:27:38,480
Speaker 1: oil prices plunge globally and for a while that led to,

528
00:27:39,080 --> 00:27:41,520
Speaker 1: you know, we're sening sentiment for manufacturing. There was a

529
00:27:41,520 --> 00:27:43,280
Speaker 1: bust in investment on that side. But if you're a

530
00:27:43,359 --> 00:27:45,840
Speaker 1: U S consumer that was a big boon boon to

531
00:27:45,920 --> 00:27:48,000
Speaker 1: you because you've got cheaper gas and we're seeing that

532
00:27:48,040 --> 00:27:50,760
Speaker 1: in like almost everything on the good side, and maybe

533
00:27:50,800 --> 00:27:53,720
Speaker 1: the rent slide as well, so that can lead you

534
00:27:53,760 --> 00:27:56,119
Speaker 1: to think that inflation is getting better. You have some

535
00:27:56,160 --> 00:27:58,960
Speaker 1: downturns and surveys if you actually produce some of these things.

536
00:27:58,960 --> 00:28:01,879
Speaker 1: But if you're consumer, you're just getting a huge burst

537
00:28:02,040 --> 00:28:04,520
Speaker 1: in your purchasing power because everything's getting cheaper. Of course,

538
00:28:04,560 --> 00:28:09,160
Speaker 1: CPI during that period actually rose, it accelerated in terms

539
00:28:09,160 --> 00:28:11,520
Speaker 1: of rates of growth rates. And so if you look

540
00:28:11,600 --> 00:28:13,760
Speaker 1: at the long history of just food and energy cp

541
00:28:13,760 --> 00:28:17,320
Speaker 1: I versus course cp I, the contemporarious correlation between those

542
00:28:17,359 --> 00:28:20,800
Speaker 1: two series is basically close to zero because it goes

543
00:28:20,840 --> 00:28:23,480
Speaker 1: to the point that Connor was making, which is, you

544
00:28:23,480 --> 00:28:26,000
Speaker 1: know you're all you're doing is talking about relative price shifting.

545
00:28:26,040 --> 00:28:29,320
Speaker 1: That that's again, I mean, I don't make a judgment, Joe,

546
00:28:29,320 --> 00:28:30,959
Speaker 1: as you know, like you always talk about how you're

547
00:28:30,960 --> 00:28:36,800
Speaker 1: a journalist, you never I'm no one here has any

548
00:28:36,840 --> 00:28:39,960
Speaker 1: opinions and judgments or forecast and I'm the and I'm

549
00:28:39,960 --> 00:28:42,280
Speaker 1: the I'm the same way Joe. As a business economist,

550
00:28:42,440 --> 00:28:44,560
Speaker 1: I don't know whether it's right or wrong to look

551
00:28:44,600 --> 00:28:47,400
Speaker 1: through look at it, look at look at inflation through

552
00:28:47,440 --> 00:28:49,720
Speaker 1: the prism of the labor markets. All I can tell

553
00:28:49,760 --> 00:28:52,480
Speaker 1: you is that's what the fettest thinking, and that's and

554
00:28:52,560 --> 00:28:56,040
Speaker 1: that's that that's what drives our calls on the economy

555
00:28:56,080 --> 00:28:58,520
Speaker 1: and markets and stuff. You can Actually, I just want

556
00:28:58,560 --> 00:29:00,680
Speaker 1: to press on this point because I think you're absolutely right,

557
00:29:00,720 --> 00:29:03,040
Speaker 1: and it's something that we heard from Tim Dewey as

558
00:29:03,080 --> 00:29:06,080
Speaker 1: well on a recent episode. But like, why do you

559
00:29:06,160 --> 00:29:08,360
Speaker 1: think that is You don't have to appine on whether

560
00:29:08,400 --> 00:29:10,600
Speaker 1: it's right or wrong, but why do you think they've

561
00:29:10,640 --> 00:29:15,760
Speaker 1: taken that, you know, tact Because sort of a ironclad

562
00:29:15,880 --> 00:29:21,520
Speaker 1: rule in macroeconomics is that compensation equals inflation plus productivity,

563
00:29:23,080 --> 00:29:27,080
Speaker 1: So compensation growth is what drives the inflation outlook. So,

564
00:29:27,280 --> 00:29:29,400
Speaker 1: I mean, remember one of the reasons why we had

565
00:29:29,400 --> 00:29:32,160
Speaker 1: the soft landing in the nineties was because green Span

566
00:29:32,320 --> 00:29:35,720
Speaker 1: nailed the productivity call right. When when was that? I

567
00:29:35,800 --> 00:29:37,960
Speaker 1: mean remember at the time, actually, if you go back

568
00:29:37,960 --> 00:29:40,600
Speaker 1: to the transcripts during that era, you know, Yelling was

569
00:29:40,640 --> 00:29:43,600
Speaker 1: basically saying that Greenspan may have been making a mistake,

570
00:29:44,280 --> 00:29:47,280
Speaker 1: right and and and Greenspan got that call right, Maybe

571
00:29:47,360 --> 00:29:52,520
Speaker 1: Joe one benefit of not having the PhD. But but

572
00:29:52,520 --> 00:29:55,200
Speaker 1: but but I think I think that that's that's something

573
00:29:55,240 --> 00:29:56,920
Speaker 1: we need to keep in the back of their mind right.

574
00:29:56,920 --> 00:30:00,240
Speaker 1: I mean, so we didn't have a formalized inflation should

575
00:30:00,240 --> 00:30:03,080
Speaker 1: target of two back then, and we had a rapid

576
00:30:03,080 --> 00:30:07,640
Speaker 1: increase in productivity, and so that helps you achieve the

577
00:30:07,680 --> 00:30:10,320
Speaker 1: soft landing. Are we going to see that again? I mean,

578
00:30:10,440 --> 00:30:13,080
Speaker 1: we obviously have their form they've they've they've said that

579
00:30:13,120 --> 00:30:15,040
Speaker 1: they have an inflation target of two percent. I mean,

580
00:30:15,040 --> 00:30:17,760
Speaker 1: pal sort of hinted at maybe a longer term project

581
00:30:17,840 --> 00:30:20,959
Speaker 1: to look at that. I mean maybe that was you know, um,

582
00:30:21,760 --> 00:30:24,600
Speaker 1: a slip of the tongue, but but it really it

583
00:30:24,600 --> 00:30:27,120
Speaker 1: comes to, I mean productivity. I mean, why why should

584
00:30:27,120 --> 00:30:30,320
Speaker 1: productivity be a lot stronger now? I'm I'm I mean

585
00:30:30,400 --> 00:30:33,240
Speaker 1: with younger people in the workforce, there's more churn in

586
00:30:33,240 --> 00:30:35,640
Speaker 1: the labor markets. You know, you have a lot of

587
00:30:35,680 --> 00:30:40,920
Speaker 1: the experienced workers leaving. So what's the case for stronger productivity?

588
00:30:41,240 --> 00:30:44,000
Speaker 1: Has capital spending been booming relative to hours worked? Have

589
00:30:44,040 --> 00:30:47,000
Speaker 1: we seen a lot of capital deepening? We haven't, really,

590
00:30:47,520 --> 00:30:49,200
Speaker 1: you know, I think I think so that that that

591
00:30:49,280 --> 00:30:51,840
Speaker 1: productivity call is a lot harder to make. I think.

592
00:30:52,440 --> 00:30:55,960
Speaker 1: So we've talked about okay, headline inflation, gasoline prices coming down,

593
00:30:56,040 --> 00:30:58,520
Speaker 1: we talked about rent and all that, but you know,

594
00:30:58,600 --> 00:31:01,520
Speaker 1: in the last FED press comp and Powell made a

595
00:31:01,600 --> 00:31:04,200
Speaker 1: point and it's interesting too because, like you know, it

596
00:31:04,240 --> 00:31:07,160
Speaker 1: feels like the area within inflation that the FED pays

597
00:31:07,200 --> 00:31:10,920
Speaker 1: attention to is always shifting. Earlier in two, they're really

598
00:31:10,960 --> 00:31:15,760
Speaker 1: big on headline inflation because headline inflation informed expectations, and

599
00:31:15,960 --> 00:31:18,320
Speaker 1: no one really talks about that anymore. But now the

600
00:31:18,360 --> 00:31:23,360
Speaker 1: big thing is the non shelter component of core PC

601
00:31:24,680 --> 00:31:27,360
Speaker 1: is like still hot, so okay, even if rent comes down,

602
00:31:27,440 --> 00:31:29,960
Speaker 1: even if gasoline prices come down, etcetera. Well, the real

603
00:31:30,040 --> 00:31:33,960
Speaker 1: signal is from this non shelter component of CORPC. Neil,

604
00:31:34,040 --> 00:31:37,040
Speaker 1: what is that that? What else? What are the big

605
00:31:37,080 --> 00:31:41,200
Speaker 1: things in that basket? And why? You know, how do

606
00:31:41,320 --> 00:31:43,480
Speaker 1: wagers really like drive those numbers? Like can you talk

607
00:31:43,520 --> 00:31:46,120
Speaker 1: a little bit about how we should understand this part

608
00:31:46,160 --> 00:31:49,120
Speaker 1: of PC that seems to have become so central. Well,

609
00:31:49,120 --> 00:31:52,360
Speaker 1: you're talking about personal care services as an example, so

610
00:31:52,480 --> 00:31:55,880
Speaker 1: going to the laundry, Matt, the barber. I think, recreational

611
00:31:56,120 --> 00:32:00,040
Speaker 1: recreation services, right, sporting events, things of that nature, And

612
00:32:00,240 --> 00:32:03,800
Speaker 1: the reason they're focused on it is because that's an

613
00:32:03,800 --> 00:32:07,320
Speaker 1: important challeel channel for how the labor markets affect inflation. Right.

614
00:32:07,360 --> 00:32:10,000
Speaker 1: I mean, inflation is multivariate, right. There are lots of

615
00:32:10,040 --> 00:32:13,560
Speaker 1: things that drive inflation, and labor markets are one part

616
00:32:13,560 --> 00:32:16,520
Speaker 1: of that. And labor markets show principally in that you

617
00:32:16,560 --> 00:32:19,440
Speaker 1: know that X shelter services area. So that's why PAL

618
00:32:19,600 --> 00:32:22,360
Speaker 1: is focusing on it. But I do sympathize with you

619
00:32:22,440 --> 00:32:25,360
Speaker 1: that they have They look at different things at different

620
00:32:25,360 --> 00:32:29,360
Speaker 1: points in time, right, and remember nothing stops them from

621
00:32:29,400 --> 00:32:31,840
Speaker 1: doing that this time. Right. I mean, if if global

622
00:32:31,880 --> 00:32:34,880
Speaker 1: growth picks up and oil prices start to pick up,

623
00:32:34,880 --> 00:32:36,120
Speaker 1: and I know you've had a lot of people on

624
00:32:36,160 --> 00:32:38,640
Speaker 1: your show talking about the lack of investment in the

625
00:32:39,520 --> 00:32:43,600
Speaker 1: mining capital cap X, what does that mean for oil prices?

626
00:32:43,840 --> 00:32:45,560
Speaker 1: The FED can be right back where they were in

627
00:32:45,640 --> 00:32:49,040
Speaker 1: June and July talking about well, gas prices are back up.

628
00:32:49,080 --> 00:32:51,520
Speaker 1: Short run inflation expectations are high, and that could mean

629
00:32:51,560 --> 00:32:54,440
Speaker 1: something for wage to inflation. Yeah. Where I would sort

630
00:32:54,440 --> 00:32:56,360
Speaker 1: of split the difference here is I think that to

631
00:32:56,440 --> 00:32:58,240
Speaker 1: the extent that I'm right about the inflation data in

632
00:32:58,920 --> 00:33:01,800
Speaker 1: three and four very technical reasons, it comes in very

633
00:33:01,880 --> 00:33:04,520
Speaker 1: very low. If the unemployment rates still three and a percent,

634
00:33:04,680 --> 00:33:06,720
Speaker 1: that might not make them hawkish, but it certainly won't

635
00:33:06,800 --> 00:33:09,160
Speaker 1: lead them to cut. So I think to get rate cuts,

636
00:33:09,160 --> 00:33:11,520
Speaker 1: you're probably gonna need to see at least for normalization

637
00:33:11,520 --> 00:33:13,360
Speaker 1: in the labor market data, because just be they're not

638
00:33:13,360 --> 00:33:15,760
Speaker 1: going to trust that at three and a percent unemployment

639
00:33:15,800 --> 00:33:20,560
Speaker 1: rate is consistent with two percent inflation. So, speaking of services,

640
00:33:20,880 --> 00:33:23,320
Speaker 1: we just had another headline again we're recording this on

641
00:33:23,400 --> 00:33:26,160
Speaker 1: January six. We just had the I s M Services

642
00:33:26,200 --> 00:33:29,280
Speaker 1: p M I coming in a lot lower than expected,

643
00:33:29,400 --> 00:33:31,640
Speaker 1: kind of weird at forty nine point six versus an

644
00:33:31,720 --> 00:33:34,160
Speaker 1: estimate for fifty five. And then earlier in the week

645
00:33:34,200 --> 00:33:38,680
Speaker 1: we also had a slightly lower I s M manufacturing headline.

646
00:33:39,080 --> 00:33:40,960
Speaker 1: Can can we talk a little bit more about the

647
00:33:41,000 --> 00:33:44,600
Speaker 1: manufacturing outlook, because there are a lot of questions about

648
00:33:44,640 --> 00:33:46,240
Speaker 1: like how much you can read into the p M

649
00:33:46,280 --> 00:33:49,240
Speaker 1: I S. But Connor also made the point about inventories

650
00:33:49,400 --> 00:33:51,840
Speaker 1: and how much of a role they have potentially played

651
00:33:51,880 --> 00:33:54,719
Speaker 1: in two. So can we just talk more about what

652
00:33:54,760 --> 00:33:57,520
Speaker 1: you're seeing there. Maybe let's start with Connor. Yeah, my

653
00:33:57,640 --> 00:34:01,200
Speaker 1: view on the manufacturing side is that the weakness we're

654
00:34:01,200 --> 00:34:04,960
Speaker 1: seeing it's more about inventory corrections and improvement in supply chains,

655
00:34:05,240 --> 00:34:08,800
Speaker 1: meaning that there's less pressure on producer or I guess

656
00:34:09,000 --> 00:34:12,040
Speaker 1: the consumers have manufactured goods to order things in time,

657
00:34:12,640 --> 00:34:15,080
Speaker 1: rather than a big investment downturn. And so I think

658
00:34:15,080 --> 00:34:17,760
Speaker 1: that a big investment downturn is when you see job losses,

659
00:34:17,760 --> 00:34:20,640
Speaker 1: and that's sort of more your classic procession scenario, whereas

660
00:34:21,000 --> 00:34:22,920
Speaker 1: to me, this is really more of a bull whip

661
00:34:23,000 --> 00:34:25,600
Speaker 1: supply chain inventory story that will be cleared out by

662
00:34:25,600 --> 00:34:29,600
Speaker 1: the end of the first quarter. Neil, Yeah, so Neil

663
00:34:29,719 --> 00:34:35,640
Speaker 1: is a huge fan of taking the manufacturing report right.

664
00:34:35,719 --> 00:34:39,520
Speaker 1: I mean, those are those that follow my work know

665
00:34:39,880 --> 00:34:43,440
Speaker 1: that I think that the I S M is um

666
00:34:43,480 --> 00:34:46,360
Speaker 1: you know, a useful rough and ready indicator, but not

667
00:34:46,480 --> 00:34:49,400
Speaker 1: a good substitute for hard data. I mean, as an example,

668
00:34:49,480 --> 00:34:51,799
Speaker 1: what's what's a better sign of confidence the fact that

669
00:34:51,800 --> 00:34:54,359
Speaker 1: three hundred purchasing managers you know, are feeling a little

670
00:34:54,360 --> 00:34:58,000
Speaker 1: bit more grumpy about their their industry or the fact

671
00:34:58,040 --> 00:35:01,359
Speaker 1: that or the fact that hundreds of thou of establishments

672
00:35:01,400 --> 00:35:03,759
Speaker 1: that were just surveyed by the Bereau of Labor Statistics

673
00:35:03,760 --> 00:35:06,760
Speaker 1: are adding manufacturing jobs. I'll let you be the judge.

674
00:35:07,200 --> 00:35:10,759
Speaker 1: Obviously it's the latter, which is why in the long

675
00:35:10,880 --> 00:35:12,759
Speaker 1: history of the I S M it tends to give

676
00:35:12,760 --> 00:35:16,120
Speaker 1: out a very large number of false signals, and it

677
00:35:16,160 --> 00:35:19,279
Speaker 1: tends to be as early and signaling a bottom as

678
00:35:19,320 --> 00:35:21,600
Speaker 1: it is latent signaling a peak. Right. I mean it's

679
00:35:21,640 --> 00:35:24,400
Speaker 1: not a particularly good timing tool either for the economy. Right.

680
00:35:24,400 --> 00:35:25,840
Speaker 1: So if you go to the nineties, I mean you

681
00:35:25,840 --> 00:35:29,919
Speaker 1: had multiple, multiple times that it fell below fifty and

682
00:35:30,800 --> 00:35:33,440
Speaker 1: if you look at the data, I mean, manufacturing production

683
00:35:33,520 --> 00:35:38,120
Speaker 1: during that time was steady. After the financial crisis, same story, right,

684
00:35:38,239 --> 00:35:40,919
Speaker 1: And that's what's going on now, right, I mean what

685
00:35:41,040 --> 00:35:45,240
Speaker 1: matters for manufacturing the I s M or the fact

686
00:35:45,239 --> 00:35:47,640
Speaker 1: that Boeing is going to build a bunch of planes

687
00:35:48,360 --> 00:35:50,919
Speaker 1: for a while. They have a huge pipeline of orders

688
00:35:50,920 --> 00:35:53,040
Speaker 1: that they need to work through. The same holds for

689
00:35:53,160 --> 00:35:57,799
Speaker 1: motor vehicle assemblies. You're talking about autos an aircraft that's

690
00:35:57,800 --> 00:36:02,920
Speaker 1: about fifteen ten to fifteen of US manufacturing production on

691
00:36:02,960 --> 00:36:06,239
Speaker 1: its own. Forget the downstream effects. I mean, obviously, when

692
00:36:06,280 --> 00:36:08,440
Speaker 1: those two industries are clicking, it's going to create a

693
00:36:08,440 --> 00:36:11,680
Speaker 1: windfall for other areas in the in the manufacturing sort

694
00:36:11,680 --> 00:36:14,000
Speaker 1: of value chain. Right. I think that matters a lot

695
00:36:14,000 --> 00:36:16,160
Speaker 1: more than I s M. It's an it's an oscillator,

696
00:36:16,280 --> 00:36:19,600
Speaker 1: you know, and for and for market participants. How has

697
00:36:19,800 --> 00:36:23,400
Speaker 1: using the I s M been useful for you in

698
00:36:23,480 --> 00:36:25,960
Speaker 1: making a market call? Just pull up a chart of

699
00:36:26,000 --> 00:36:29,239
Speaker 1: industrial stocks over the last few months. They've been beating them.

700
00:36:29,239 --> 00:36:33,279
Speaker 1: They've been outperforming the market. So you know, there's this

701
00:36:33,320 --> 00:36:35,680
Speaker 1: cottage industry in Wall Street, you know, looking at the

702
00:36:35,680 --> 00:36:38,279
Speaker 1: I s M as a timing tool, and and so

703
00:36:38,360 --> 00:36:41,080
Speaker 1: on and so forth, and really it's just I think

704
00:36:41,080 --> 00:36:44,239
Speaker 1: it's it's it's a waste, and I think it's better

705
00:36:44,239 --> 00:36:46,600
Speaker 1: to focus on the actual data. And you mentioned the

706
00:36:46,600 --> 00:36:49,080
Speaker 1: services number, Tracy. I mean again, there's there's there's a

707
00:36:49,080 --> 00:36:52,680
Speaker 1: great example. I mean, look at look at dining reservations,

708
00:36:52,719 --> 00:36:57,120
Speaker 1: look at look at flights, look at people's appetite to

709
00:36:57,160 --> 00:36:59,520
Speaker 1: go out and do things. Look at Avatar, you know,

710
00:36:59,840 --> 00:37:03,000
Speaker 1: be be out top gun Maverick, Right, I mean, don't

711
00:37:03,000 --> 00:37:04,799
Speaker 1: don't don't talk to me about the is M S

712
00:37:06,640 --> 00:37:09,359
Speaker 1: you know. So, so this is exactly why I wanted

713
00:37:09,400 --> 00:37:11,719
Speaker 1: to talk to you about I s M. But I

714
00:37:11,760 --> 00:37:14,640
Speaker 1: do think I do think you sort of raise a

715
00:37:14,640 --> 00:37:18,000
Speaker 1: good point. They're about, like it overshooting and undershooting, like

716
00:37:18,120 --> 00:37:20,839
Speaker 1: key turning points, because I think maybe that's what we're

717
00:37:20,880 --> 00:37:22,880
Speaker 1: seeing in a lot of the survey data, which is

718
00:37:22,920 --> 00:37:26,480
Speaker 1: like surveys just are not that good when when you

719
00:37:26,560 --> 00:37:30,200
Speaker 1: have cycles that are like twisting and turning and extremely

720
00:37:30,239 --> 00:37:33,760
Speaker 1: fast as this one has been, like maybe they're extra

721
00:37:33,920 --> 00:37:37,240
Speaker 1: unreliable in these periods of time. Well, right, it's a diffusion.

722
00:37:37,360 --> 00:37:38,919
Speaker 1: I mean, so let's let's put it this way. Let's

723
00:37:38,920 --> 00:37:42,560
Speaker 1: say in January GDP growth is seven percent and in

724
00:37:42,640 --> 00:37:45,680
Speaker 1: February GDP growth is seven percent. What does the I

725
00:37:45,840 --> 00:37:49,919
Speaker 1: s M do? It goes to fifty? Is that bad?

726
00:37:50,600 --> 00:37:52,239
Speaker 1: I mean by the people that by by the I

727
00:37:52,440 --> 00:37:55,440
Speaker 1: s M Celtics that are all over the market, Um,

728
00:37:55,480 --> 00:37:58,239
Speaker 1: maybe it is, But I think for a thinking person, no,

729
00:37:58,360 --> 00:38:02,200
Speaker 1: it's fine. So so I I think, I mean, you

730
00:38:02,239 --> 00:38:04,719
Speaker 1: have to understand like how these indicators are constructed. All

731
00:38:04,760 --> 00:38:08,320
Speaker 1: they're asking you is are things going up? Down or sideways?

732
00:38:08,360 --> 00:38:09,960
Speaker 1: And and the one thing I'll point out to people

733
00:38:10,400 --> 00:38:12,760
Speaker 1: is if you take a look at the global manufacturing

734
00:38:12,800 --> 00:38:15,279
Speaker 1: p M I S formerly known as market, you know,

735
00:38:15,360 --> 00:38:19,200
Speaker 1: I look at about thirty five of them, and if

736
00:38:19,200 --> 00:38:22,440
Speaker 1: you look at new orders only, you know maybe a

737
00:38:22,480 --> 00:38:27,480
Speaker 1: fifth of them are in expansion territory. And that's happened.

738
00:38:27,560 --> 00:38:29,759
Speaker 1: Maybe you know, maybe a handful of times in the

739
00:38:29,800 --> 00:38:33,640
Speaker 1: last twenty or thirty years, like LTCM, the tech wreck, obviously,

740
00:38:33,680 --> 00:38:36,000
Speaker 1: the financial crisis, and then the European debt crisis. So

741
00:38:36,040 --> 00:38:38,120
Speaker 1: you can count the number of times on one hand

742
00:38:38,480 --> 00:38:41,439
Speaker 1: where you've seen that happen, and in each time, what's

743
00:38:41,440 --> 00:38:44,360
Speaker 1: gone on, what's happened next? It turns up. So it

744
00:38:44,400 --> 00:38:47,920
Speaker 1: goes back to this idea that it's a momentum barometer, right,

745
00:38:47,960 --> 00:38:49,799
Speaker 1: I mean, so the moment it's not like the thing

746
00:38:49,800 --> 00:38:51,600
Speaker 1: goes to a hundred or and doesn't go to a zero.

747
00:38:51,680 --> 00:38:53,640
Speaker 1: So you know, the lower goes, the more bullish you

748
00:38:53,640 --> 00:38:56,920
Speaker 1: should give. In the spirit of explaining the data, we

749
00:38:56,960 --> 00:38:59,080
Speaker 1: had an e comedy where nominal growth slowed from about

750
00:38:59,120 --> 00:39:01,640
Speaker 1: twelve percent the end of one to more like six

751
00:39:01,680 --> 00:39:04,359
Speaker 1: percent at the end of two, and then you had

752
00:39:04,440 --> 00:39:07,440
Speaker 1: multiple cyclical sectors that went into contraction for sort of

753
00:39:07,480 --> 00:39:09,680
Speaker 1: bullip related reasons, and then housing due to the FED.

754
00:39:10,360 --> 00:39:12,480
Speaker 1: So I think that the nominal level of growth has

755
00:39:12,680 --> 00:39:14,680
Speaker 1: arguably stabilized at this point, and then some of those

756
00:39:14,680 --> 00:39:17,839
Speaker 1: industries that were in contraction for much of two could

757
00:39:17,840 --> 00:39:21,480
Speaker 1: actually inflect higher in three, and again that could get

758
00:39:21,560 --> 00:39:24,280
Speaker 1: lead to acceleration and growth when the FED is expecting

759
00:39:24,440 --> 00:39:28,040
Speaker 1: a deceleration. Well, Connor, speaking of manufacturing and where there's

760
00:39:28,080 --> 00:39:32,880
Speaker 1: potential growth, we recently got the awards auto sales. I

761
00:39:32,880 --> 00:39:35,680
Speaker 1: think in December, GM had a good month, Toyota had

762
00:39:35,719 --> 00:39:38,359
Speaker 1: a good month. We had thirteen point three million annualized

763
00:39:38,520 --> 00:39:41,320
Speaker 1: rate of new car sales. But they're still well below

764
00:39:41,520 --> 00:39:44,680
Speaker 1: like where we were regularly printing pre pandemic, which was

765
00:39:44,800 --> 00:39:48,759
Speaker 1: like more in the seventeen million annualized rate. So is

766
00:39:48,800 --> 00:39:50,680
Speaker 1: there still like a big like what's going on with

767
00:39:50,719 --> 00:39:52,480
Speaker 1: cards and chips and all that. Is there still an

768
00:39:52,480 --> 00:39:55,359
Speaker 1: opportunity for the big automakers to kick up production into

769
00:39:55,400 --> 00:39:58,040
Speaker 1: a higher gear here? Yeah, I think everyone expects that

770
00:39:58,120 --> 00:40:01,200
Speaker 1: number to go up in just because again it was

771
00:40:01,280 --> 00:40:03,880
Speaker 1: our sort of lower than we would expect to supply

772
00:40:03,920 --> 00:40:06,040
Speaker 1: chain reasons. We probably missed out on six to seven

773
00:40:06,120 --> 00:40:08,880
Speaker 1: million vehicle sales over the past few years due to

774
00:40:08,960 --> 00:40:12,839
Speaker 1: supply issues. Productions going to pick up, and automakers will

775
00:40:12,840 --> 00:40:15,000
Speaker 1: cut prices that they have to, but if they produce cars,

776
00:40:15,040 --> 00:40:17,440
Speaker 1: they're gonna sell cars. And then there also could just

777
00:40:17,480 --> 00:40:21,000
Speaker 1: be sort of a weird dynamic where electric vehicle demand

778
00:40:21,080 --> 00:40:24,520
Speaker 1: and production is picking up, sort of demand for conventional

779
00:40:24,880 --> 00:40:28,160
Speaker 1: gasoline powered vehicles is going down, and maybe you're thinking, well,

780
00:40:28,360 --> 00:40:30,560
Speaker 1: the e v I one isn't available yet, so I'm

781
00:40:30,560 --> 00:40:32,080
Speaker 1: just gonna wait for a little while longer. But I'm

782
00:40:32,080 --> 00:40:34,719
Speaker 1: not going to buy a gasoline vehicle in the meantime.

783
00:40:34,800 --> 00:40:37,080
Speaker 1: So it just they're sort of pent up demand for

784
00:40:37,160 --> 00:40:40,440
Speaker 1: e v s, which would explain overall level of sluggish

785
00:40:40,440 --> 00:40:43,080
Speaker 1: sales well until that picks up. So I know we've

786
00:40:43,120 --> 00:40:46,359
Speaker 1: been quite us focused in this conversation so far. But

787
00:40:46,760 --> 00:40:50,440
Speaker 1: the other big thing for the global economy in three

788
00:40:50,480 --> 00:40:52,680
Speaker 1: it would seem to be, is what's going on in

789
00:40:52,760 --> 00:40:55,880
Speaker 1: China with the reopening and also more recently a lot

790
00:40:55,920 --> 00:41:00,279
Speaker 1: of policymakers seemingly rolling back some of the restriction and

791
00:41:00,360 --> 00:41:03,759
Speaker 1: crackdowns that they had on certain sectors like technology and

792
00:41:03,800 --> 00:41:06,760
Speaker 1: real estate. And also, you know, you have some early

793
00:41:06,840 --> 00:41:11,000
Speaker 1: signs of them potentially opening the floodgates of credit again

794
00:41:11,080 --> 00:41:13,960
Speaker 1: and trying to boost economic growth at a time when

795
00:41:14,080 --> 00:41:17,719
Speaker 1: a lot of the population is quite frustrated. How are

796
00:41:17,760 --> 00:41:20,040
Speaker 1: you viewing that, Because on the one hand, it would

797
00:41:20,040 --> 00:41:24,200
Speaker 1: seem that China explicitly trying to boost consumption might be

798
00:41:24,280 --> 00:41:27,879
Speaker 1: another inflationary impulse for the year. On the other hand,

799
00:41:27,960 --> 00:41:30,320
Speaker 1: you know, maybe it's a good thing for the world economy.

800
00:41:30,360 --> 00:41:32,960
Speaker 1: If China is really focused on growth, maybe we get

801
00:41:33,000 --> 00:41:35,480
Speaker 1: something like a repeat of what happened post two thousand

802
00:41:35,560 --> 00:41:38,480
Speaker 1: eight with the financial crisis, when China really kind of

803
00:41:38,520 --> 00:41:42,000
Speaker 1: came to the global economies rescue. But what are you

804
00:41:42,040 --> 00:41:45,239
Speaker 1: thinking about China at the moment? Well, Tracy, I mean,

805
00:41:45,239 --> 00:41:47,000
Speaker 1: as you know, I do focus more on the U s.

806
00:41:47,040 --> 00:41:48,960
Speaker 1: But what what I what I will tell you is

807
00:41:49,000 --> 00:41:52,640
Speaker 1: that you talked about the vibe session before. Well, in

808
00:41:52,680 --> 00:41:56,120
Speaker 1: some respects, I think the FX markets are very viby,

809
00:41:56,400 --> 00:41:58,879
Speaker 1: you know they they it's it's how how people. It's

810
00:41:58,920 --> 00:42:02,279
Speaker 1: like basically a beta play. And if China is reflating,

811
00:42:02,520 --> 00:42:04,719
Speaker 1: which I think it is, I mean that if you

812
00:42:04,719 --> 00:42:07,880
Speaker 1: look at you know, the Hang Sang the Chinese equity markets,

813
00:42:08,200 --> 00:42:11,680
Speaker 1: you know I was reading that. You know, obviously transit

814
00:42:11,760 --> 00:42:14,680
Speaker 1: uses up, so things are getting back to normal. I mean,

815
00:42:14,680 --> 00:42:17,040
Speaker 1: it's gonna look bumpy. Reopenings always do, as we know,

816
00:42:17,360 --> 00:42:19,600
Speaker 1: but demand is likely to pick up. That's introducing an

817
00:42:19,640 --> 00:42:23,359
Speaker 1: incremental source of demand to the global economy that I

818
00:42:23,400 --> 00:42:26,120
Speaker 1: think will put downward pressure on the dollar. And I

819
00:42:26,160 --> 00:42:28,520
Speaker 1: think that that's important. Obviously, because the dollar has a

820
00:42:28,640 --> 00:42:31,680
Speaker 1: very mechanical impact in inflation dynamics, right, I mean, the

821
00:42:31,719 --> 00:42:34,759
Speaker 1: FEDS workhorse model of the economy assumes that every ten

822
00:42:34,840 --> 00:42:38,040
Speaker 1: percent drop in the dollar pushes up core inflation by

823
00:42:38,080 --> 00:42:40,239
Speaker 1: about two to three tenths of a percentage point a

824
00:42:40,320 --> 00:42:43,640
Speaker 1: year later. So that's the first point. The second point

825
00:42:43,719 --> 00:42:45,759
Speaker 1: is I think that the improvement in China is going

826
00:42:45,760 --> 00:42:48,040
Speaker 1: to mean a lot for Europe. And that's because Europe

827
00:42:48,120 --> 00:42:51,000
Speaker 1: is a very large, open economy that trades a lot,

828
00:42:51,400 --> 00:42:55,840
Speaker 1: and if China is improving, it's almost certain that Europe

829
00:42:55,880 --> 00:42:58,000
Speaker 1: is going to look better next year too, right, So

830
00:42:58,320 --> 00:43:00,480
Speaker 1: it's sort of I mean, you're talking about the same coin,

831
00:43:00,520 --> 00:43:03,600
Speaker 1: two sides of the same coin. Europe and China are

832
00:43:03,640 --> 00:43:06,160
Speaker 1: are are in some respects tied at the hip through trade.

833
00:43:06,920 --> 00:43:09,720
Speaker 1: And if you have those two economies looking a little

834
00:43:09,760 --> 00:43:13,840
Speaker 1: better next year, I think that's going to put downward

835
00:43:13,840 --> 00:43:16,319
Speaker 1: pressure on the broad broad dollar exchange rate. At the

836
00:43:16,360 --> 00:43:20,120
Speaker 1: same time, China has been you know, a mess in

837
00:43:20,120 --> 00:43:23,440
Speaker 1: two as we all know. But during two, what do

838
00:43:23,560 --> 00:43:26,239
Speaker 1: we also see the rest of the Asia E M

839
00:43:26,280 --> 00:43:30,480
Speaker 1: complex looked okay, right, it looked okay. I mean look

840
00:43:30,480 --> 00:43:34,000
Speaker 1: at India. I mean India activity was was doing reasonably well.

841
00:43:34,480 --> 00:43:36,319
Speaker 1: Parts of em Asia looked better. I mean a lot

842
00:43:36,320 --> 00:43:38,400
Speaker 1: of a lot of the final assembly frankly has already

843
00:43:38,440 --> 00:43:40,120
Speaker 1: leaked out of China, but you know a lot of

844
00:43:40,160 --> 00:43:42,920
Speaker 1: the other Asian economies that are around China did okay.

845
00:43:43,280 --> 00:43:46,919
Speaker 1: The same goes for Japan. So you know the fact

846
00:43:47,000 --> 00:43:52,640
Speaker 1: that China is now participating, I think it just elevates

847
00:43:52,680 --> 00:43:54,799
Speaker 1: all these sort of economies around it, right, sort of

848
00:43:54,800 --> 00:43:57,759
Speaker 1: a gravity model of activity. So I think it's I

849
00:43:57,960 --> 00:43:59,960
Speaker 1: think what you're talking about, really, I mean, just bring

850
00:44:00,000 --> 00:44:02,120
Speaker 1: can get back to the US. I think it's a

851
00:44:02,120 --> 00:44:04,759
Speaker 1: dollar negative and you know, just I know we wanted

852
00:44:04,760 --> 00:44:07,760
Speaker 1: to put a pin on the manufacturing discussion, but obviously

853
00:44:07,840 --> 00:44:11,640
Speaker 1: if the dollar's weakening, that's gonna push up you know,

854
00:44:11,719 --> 00:44:15,280
Speaker 1: the the exports of of manufactured goods close to wrapping

855
00:44:15,320 --> 00:44:17,279
Speaker 1: up here. But connor any other thoughts either from the

856
00:44:17,320 --> 00:44:21,280
Speaker 1: international thing or just sort of other dynamics looking into

857
00:44:21,920 --> 00:44:25,400
Speaker 1: three that that are on your mind. I think just

858
00:44:25,480 --> 00:44:28,200
Speaker 1: the real question is that everyone is wondering about is

859
00:44:28,200 --> 00:44:30,200
Speaker 1: are we and have a recession? And so I think

860
00:44:30,239 --> 00:44:31,839
Speaker 1: for me, it's sort of you try to think about

861
00:44:31,840 --> 00:44:34,279
Speaker 1: all the components that could lead to recession. So it's

862
00:44:34,480 --> 00:44:40,160
Speaker 1: global manufacturing, housing, consumption, financial conditions, and it's just hard

863
00:44:40,200 --> 00:44:42,520
Speaker 1: to point to any one thing that's out of balance

864
00:44:42,520 --> 00:44:45,279
Speaker 1: and likely to be a lot worse three than it

865
00:44:45,280 --> 00:44:48,359
Speaker 1: was in two. And if you can't identify anything at

866
00:44:48,400 --> 00:44:50,080
Speaker 1: that level, then maybe you should be a little more

867
00:44:50,520 --> 00:44:52,759
Speaker 1: uncertain about how bad things are going to get. And

868
00:44:52,880 --> 00:44:54,560
Speaker 1: you know, as we've talked about on this podcast, it's

869
00:44:54,640 --> 00:44:57,120
Speaker 1: much easier to identify areas where things could pick up,

870
00:44:57,120 --> 00:44:59,359
Speaker 1: at least for the next six months. Connor and Neil,

871
00:44:59,520 --> 00:45:01,919
Speaker 1: thank you so much for joining us in my mind

872
00:45:01,960 --> 00:45:03,839
Speaker 1: that lived up to the hype. I learned a lot

873
00:45:03,960 --> 00:45:06,799
Speaker 1: and plenty of things to think about going out through

874
00:45:06,800 --> 00:45:08,680
Speaker 1: the year. So thank you both for coming back on

875
00:45:08,719 --> 00:45:13,640
Speaker 1: odd lots. Thank you, Harold and Kumar. Thanks Joe and Tracy.

876
00:45:14,120 --> 00:45:16,480
Speaker 1: Thank you. We need a nickname. I was just gonna

877
00:45:16,480 --> 00:45:18,960
Speaker 1: say the same thing. We need like our own like

878
00:45:19,480 --> 00:45:39,440
Speaker 1: we need our own parents by those take care of Okay,

879
00:45:39,560 --> 00:45:44,080
Speaker 1: So my big takeaway is that if Avatar is out

880
00:45:44,160 --> 00:45:48,719
Speaker 1: grossing um top Gun Maverick, then I'm not going to

881
00:45:48,800 --> 00:45:51,640
Speaker 1: pay attention to the I s M. Then rents are

882
00:45:51,680 --> 00:45:53,920
Speaker 1: going down as well. I don't care about rents. I

883
00:45:53,960 --> 00:45:56,040
Speaker 1: don't care about gas, I don't care about the I

884
00:45:56,360 --> 00:45:58,239
Speaker 1: M I don't care about the dollar. It's like, how

885
00:45:58,280 --> 00:46:00,879
Speaker 1: well is Avatar doing That's going to inform my view

886
00:46:00,880 --> 00:46:03,680
Speaker 1: of the economy? Well, I think, I mean, I know

887
00:46:03,760 --> 00:46:08,880
Speaker 1: you mentioned that you tweeted ironically, possibly trolling Lee about

888
00:46:09,000 --> 00:46:11,399
Speaker 1: gas prices and the consumer, But this is a point

889
00:46:11,440 --> 00:46:15,440
Speaker 1: I made somewhat more seriously, not in gas prices, but

890
00:46:15,960 --> 00:46:18,239
Speaker 1: in one of our newsletters, which is just like, I

891
00:46:18,280 --> 00:46:22,879
Speaker 1: actually think like, over the past year, forecasting inflation has

892
00:46:22,920 --> 00:46:25,120
Speaker 1: been difficult, but I actually think like we're kind of

893
00:46:25,239 --> 00:46:28,960
Speaker 1: entering the hard part now because all the parts are

894
00:46:29,080 --> 00:46:34,040
Speaker 1: like so in motion in potentially different directions, it's going

895
00:46:34,080 --> 00:46:36,920
Speaker 1: to get like pretty difficult. And then the other thing

896
00:46:37,000 --> 00:46:39,600
Speaker 1: I would say, there's there are so many takeaways from

897
00:46:39,640 --> 00:46:42,520
Speaker 1: that conversation. One thing that struck me was Connor talking

898
00:46:42,560 --> 00:46:46,480
Speaker 1: about the inventory build up in two and the idea

899
00:46:46,640 --> 00:46:49,480
Speaker 1: of that feeding into some of the surveys, because quite frankly,

900
00:46:49,520 --> 00:46:51,879
Speaker 1: that was something that we heard in a recent conversation

901
00:46:52,280 --> 00:46:54,960
Speaker 1: with Ryan Peterson at Flex Sports as well, this idea

902
00:46:55,040 --> 00:46:59,200
Speaker 1: that well everyone was over ordering because transport times were

903
00:46:59,280 --> 00:47:03,359
Speaker 1: so crazy. See and then once transport time started normalizing,

904
00:47:03,440 --> 00:47:05,719
Speaker 1: they realized they had all this stuff and they had

905
00:47:05,760 --> 00:47:09,560
Speaker 1: to start working through those stockpiles. And now as some

906
00:47:09,640 --> 00:47:11,840
Speaker 1: of that starts to revert, as some of the shipping

907
00:47:11,840 --> 00:47:16,160
Speaker 1: times start to normalize, maybe we see some improvement there.

908
00:47:16,400 --> 00:47:18,560
Speaker 1: You knew, what I thought was a really interesting point

909
00:47:18,760 --> 00:47:21,560
Speaker 1: in the conversation that I want to that we we

910
00:47:21,680 --> 00:47:24,760
Speaker 1: really need to talk about like rents and multi family

911
00:47:25,120 --> 00:47:27,160
Speaker 1: because I know and I know we have I think

912
00:47:27,160 --> 00:47:28,839
Speaker 1: we have an episode coming up soon. But I had

913
00:47:28,920 --> 00:47:31,920
Speaker 1: not thought about this point that Connor made, which is

914
00:47:31,960 --> 00:47:36,400
Speaker 1: that for the for the multi family builders, the builders

915
00:47:36,560 --> 00:47:40,319
Speaker 1: of you know, apartment complexes, etcetera, they never had that

916
00:47:40,480 --> 00:47:43,239
Speaker 1: scarring the same way the single family homes did. It

917
00:47:43,320 --> 00:47:46,200
Speaker 1: was just like there's been this huge secular bowl market

918
00:47:46,280 --> 00:47:49,399
Speaker 1: in demand for multi family. They didn't have that big

919
00:47:49,440 --> 00:47:52,360
Speaker 1: bust the same way, quite the same way. After like

920
00:47:52,360 --> 00:47:55,560
Speaker 1: two thousand, two thousand nine, everything always seems to line up.

921
00:47:55,560 --> 00:47:59,279
Speaker 1: Everyone's moving to the cities, young people don't want homes, etcetera.

922
00:47:59,680 --> 00:48:01,440
Speaker 1: And it's this idea, it's like, oh, could we have

923
00:48:01,520 --> 00:48:05,320
Speaker 1: like you know, like a Minsky moment basically floor multi

924
00:48:05,360 --> 00:48:08,720
Speaker 1: family where just when everyone thinks you cannot lose building

925
00:48:08,760 --> 00:48:11,960
Speaker 1: more apartments. Could this lead to like a real like reversal.

926
00:48:12,480 --> 00:48:15,839
Speaker 1: It's like a really interesting sort of both short short

927
00:48:15,920 --> 00:48:18,120
Speaker 1: term question because it affects what rents are going to do,

928
00:48:18,200 --> 00:48:20,520
Speaker 1: but also like pretty long term question because like, what

929
00:48:20,640 --> 00:48:23,440
Speaker 1: if there were a bust in this sector, Well, maybe

930
00:48:24,239 --> 00:48:26,680
Speaker 1: I don't know, maybe we would get No, we wouldn't. Um.

931
00:48:26,719 --> 00:48:29,120
Speaker 1: I was just thinking, like, I guess we'd get a

932
00:48:29,160 --> 00:48:32,680
Speaker 1: big decline in productivity as well, because everyone would be

933
00:48:32,719 --> 00:48:35,440
Speaker 1: able to afford moving out from their roommates and getting

934
00:48:35,480 --> 00:48:39,040
Speaker 1: their own apartments. Right, it would be bad. It'd be bad.

935
00:48:40,520 --> 00:48:43,280
Speaker 1: I hadn't even thought about that, right, So it's like, okay,

936
00:48:43,360 --> 00:48:46,080
Speaker 1: thank you, we're all we all roommates again, saving money. Oh,

937
00:48:46,200 --> 00:48:49,200
Speaker 1: rent prices come down, move back out. It's but this also,

938
00:48:49,280 --> 00:48:53,239
Speaker 1: you know, this sort of general equilibrium style thinking which

939
00:48:53,280 --> 00:48:55,439
Speaker 1: Neil talked about a lot, which is that a lot

940
00:48:55,520 --> 00:48:58,799
Speaker 1: of what we've discussed, these sort of relative changes and

941
00:48:58,880 --> 00:49:02,160
Speaker 1: more money and people's pockets because one thing going down

942
00:49:02,239 --> 00:49:04,480
Speaker 1: means more spending elsewhere, and if that is sort of

943
00:49:04,480 --> 00:49:07,680
Speaker 1: a useful framework. But this is the moving parts thing, right,

944
00:49:07,880 --> 00:49:11,480
Speaker 1: Like it's so difficult to predict at the moment, I

945
00:49:11,480 --> 00:49:14,279
Speaker 1: feel like because like one thing happens, and because so

946
00:49:14,320 --> 00:49:17,120
Speaker 1: many of these moves have been extreme, which we talked

947
00:49:17,120 --> 00:49:19,320
Speaker 1: about in relation to a lot of the survey data,

948
00:49:19,440 --> 00:49:22,680
Speaker 1: their diffusion indexes, so they tend to overshoot and undershoot

949
00:49:23,239 --> 00:49:26,160
Speaker 1: because everything has been so extreme and in such a

950
00:49:26,239 --> 00:49:29,040
Speaker 1: compressed time frame, it just feels like a lot of

951
00:49:29,440 --> 00:49:33,920
Speaker 1: our traditional forecasting models are terrible at dealing with totally.

952
00:49:34,120 --> 00:49:37,000
Speaker 1: And you know, and again the theme all of last

953
00:49:37,080 --> 00:49:40,280
Speaker 1: year is like you know, and you you've written about

954
00:49:40,280 --> 00:49:43,120
Speaker 1: this recently that like, well, you know, people talk about

955
00:49:43,160 --> 00:49:45,560
Speaker 1: the seventies or whatever, what if it's the Spanish flu

956
00:49:45,840 --> 00:49:49,600
Speaker 1: and something, and all these like cycles that look like

957
00:49:49,600 --> 00:49:52,080
Speaker 1: business cycles but aren't really cycles because it's just part

958
00:49:52,080 --> 00:49:54,960
Speaker 1: of normalization. I think it's gonna it'll be an interesting year.

959
00:49:55,000 --> 00:49:57,359
Speaker 1: We'll have plenty to talk about. I think we've come

960
00:49:57,360 --> 00:50:00,239
Speaker 1: full circle to the beginning of this conversation, which is like,

961
00:50:00,280 --> 00:50:03,880
Speaker 1: there are some extreme possibilities and opinions out there, and

962
00:50:04,040 --> 00:50:07,520
Speaker 1: it's very difficult to choose directions and paths at the moment.

963
00:50:07,640 --> 00:50:10,480
Speaker 1: So on that note, shall we leave it there, Let's

964
00:50:10,520 --> 00:50:13,239
Speaker 1: leave it there. Okay, this has been another episode of

965
00:50:13,280 --> 00:50:16,040
Speaker 1: the All Thoughts podcast. I'm Tracy Alloway. You can follow

966
00:50:16,080 --> 00:50:19,239
Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Isn't All.

967
00:50:19,280 --> 00:50:22,400
Speaker 1: You can follow me on Twitter at the Stalwart. Follow

968
00:50:22,440 --> 00:50:26,960
Speaker 1: our guests on Twitter. Connorson He's at Connorson. Neil Dudda,

969
00:50:27,160 --> 00:50:29,920
Speaker 1: I think he doesn't. He doesn't actually have an account,

970
00:50:29,920 --> 00:50:35,000
Speaker 1: but at RELLC well at Ren mack llc is his firm,

971
00:50:35,040 --> 00:50:38,240
Speaker 1: and I have a sneaking suspicion he's doing all the tweets.

972
00:50:38,280 --> 00:50:40,160
Speaker 1: I'm like, you can read them. It's like, yeah, that's

973
00:50:40,160 --> 00:50:42,239
Speaker 1: a Neil tweet, even though it's his firm. So check

974
00:50:42,280 --> 00:50:45,799
Speaker 1: out rend can actually imagine it in Neil's totally, they're

975
00:50:45,840 --> 00:50:50,200
Speaker 1: all in Neil's voice. You can tell Ren mac llc.

976
00:50:50,440 --> 00:50:54,280
Speaker 1: Follow our producer Carmen Rodriguez at Carmen Arman and Dash

977
00:50:54,320 --> 00:50:57,799
Speaker 1: Bennett at dashbod and check out all of our podcasts

978
00:50:57,800 --> 00:51:01,719
Speaker 1: at Bloomberg under the handle at podcast ESTs and for

979
00:51:01,800 --> 00:51:04,520
Speaker 1: more odd Lots content, go to bloomberg dot com slash

980
00:51:04,640 --> 00:51:07,759
Speaker 1: odd Lots, where we post transcripts of all the episodes.

981
00:51:08,200 --> 00:51:10,799
Speaker 1: Blog that we have a weekly newsletter that comes out

982
00:51:10,800 --> 00:51:13,800
Speaker 1: every Friday. Go there and subscribe thanks for listening,