WEBVTT - 25: Americans Are Miserable, and It's Swaying The Election 0:00:09.920 --> 0:00:13.080 Welcome to all blots. I'm Tracy Alloway, Executive editor of 0:00:13.080 --> 0:00:16.520 Bloomberg Markets, and I'm Joe. Why isn't all Managing editor 0:00:16.560 --> 0:00:19.520 of Bloomberg Markets, Joe, there was quite a bit of 0:00:19.520 --> 0:00:22.160 politics that happened in New York last week, right, Yeah, 0:00:22.239 --> 0:00:25.240 it's pretty cool because in the primaries, usually by the 0:00:25.280 --> 0:00:28.320 time the vote comes around to New York, it's usually 0:00:28.360 --> 0:00:30.319 it's pretty settled who's going to be the winner. But 0:00:30.600 --> 0:00:33.480 in both the Democratic and Republican races, we have these 0:00:33.640 --> 0:00:37.160 very unusual races this year, and so suddenly New York 0:00:37.240 --> 0:00:40.400 City was the center of the world. You had politicians 0:00:40.440 --> 0:00:43.360 coming to pander, Ted Cruz going to a matza factory, 0:00:43.479 --> 0:00:47.559 John Kasik eating Italian food up in the Bronx, very 0:00:47.640 --> 0:00:50.680 unusual sites that you don't normally see in an election year. 0:00:50.840 --> 0:00:55.000 So did you vote in the primaries? Um, no comment. 0:00:55.640 --> 0:00:58.800 I didn't. I don't, I don't know. I don't support 0:00:58.800 --> 0:01:02.800 anyone yet. Okay, Well, the reason I ask is not 0:01:02.960 --> 0:01:07.800 to gauge how dedicated you are to the democratic process, 0:01:07.800 --> 0:01:12.360 but actually to try to make a point about markets 0:01:12.520 --> 0:01:15.399 and politics. And again, I know this is one of 0:01:15.440 --> 0:01:19.479 your favorite favorite topics. I absolutely love this topic. I mean, 0:01:19.480 --> 0:01:21.440 I think one of the biggest stories in the world 0:01:21.520 --> 0:01:24.640 right now is this process that we're seeing where parties 0:01:24.680 --> 0:01:26.920 that are deemed to be centrist of one way or 0:01:26.959 --> 0:01:30.680 another across Europe and the US are seeing their support 0:01:30.760 --> 0:01:34.839 collapse and we're seeing these more radical parties gain power. 0:01:34.880 --> 0:01:37.800 And so far there hasn't been anything too dramatic, there's 0:01:37.840 --> 0:01:41.160 been no major default or nobody has left the Eurozone. 0:01:41.520 --> 0:01:44.800 But as the center of gravity moves to the outside, 0:01:44.840 --> 0:01:47.440 I think that's going to have a profound implications on 0:01:47.560 --> 0:01:50.639 things right And there's a line of thinking, a strong 0:01:50.720 --> 0:01:53.520 line of thinking that what's happened in markets over the 0:01:53.560 --> 0:01:56.960 past few years has a direct relation to the rise 0:01:57.120 --> 0:02:00.960 of fringe candidates or more extremist candidate, whatever you want 0:02:00.960 --> 0:02:04.000 to call them. And I'm very excited to talk about 0:02:04.040 --> 0:02:07.200 that today because we're going to have someone on who 0:02:07.320 --> 0:02:11.200 basically talks about the public mood and it's connection with 0:02:11.320 --> 0:02:15.000 markets constantly. Yeah, me too. This is gonna be a 0:02:15.120 --> 0:02:18.160 great conversation. We're gonna be talking with Peter Atwater of 0:02:18.320 --> 0:02:21.640 Financial Insights, who does all kinds of fascinating work looking 0:02:21.680 --> 0:02:25.280 at public polling, looking at when there's public euphoria when 0:02:25.320 --> 0:02:28.200 the public is very depressed, what part of the public 0:02:28.280 --> 0:02:30.839 is depressed and so forth, and what that means for 0:02:30.919 --> 0:02:34.720 financial markets investors. And there's a lot of interesting connections 0:02:34.720 --> 0:02:37.880 and interesting patterns throughout history to be gleaned. All right, 0:02:38.000 --> 0:02:46.080 I'm excited, let's do it. Peter Atwater of Financial Insights, 0:02:46.080 --> 0:02:47.800 thank you very much for joining us. Thank you, Jo 0:02:47.919 --> 0:02:50.760 glad to be here. So your work involves gauging the 0:02:50.880 --> 0:02:54.079 national mood, trying to figure out when people are in euphoria, 0:02:54.200 --> 0:02:58.000 when they're depressed, who's depressed, who's happy? How do you 0:02:58.040 --> 0:02:59.840 do that? How do you gauge the national moods? So 0:03:00.120 --> 0:03:03.320 I look at some objective datas like gallops daily Economic 0:03:03.360 --> 0:03:06.520 Confidence Index that gives me a broad sense. But then 0:03:06.560 --> 0:03:11.320 I look specifically at extremes of wealth to see how 0:03:11.320 --> 0:03:13.800 are they doing. So I'll look at the you know, 0:03:13.880 --> 0:03:17.080 the uber financial elite, and you know, when you see 0:03:17.120 --> 0:03:20.840 somebody like Bill Ackman flipping ninety million dollar condos, that 0:03:20.919 --> 0:03:25.360 says something incredible about the euphoria of the financial elite. 0:03:25.480 --> 0:03:28.239 At the same time, things like you know, the riots 0:03:28.240 --> 0:03:31.960 in Ferguson or in Baltimore are telling me a great 0:03:31.960 --> 0:03:35.000 deal about how the other end of the financial spectrum 0:03:35.080 --> 0:03:38.480 is doing. So it feels like when you're gauging confidence, 0:03:38.520 --> 0:03:41.400 it kind of by necessity still has to have some 0:03:41.480 --> 0:03:44.120 degree of subjectivity in it, right, Yeah, I think the 0:03:44.240 --> 0:03:49.400 qualitative measures are often much more powerful than the quantitative measures. Uh. 0:03:49.560 --> 0:03:54.800 Certainly at extremes in mood, the behaviors are just so 0:03:55.000 --> 0:03:59.440 over the top, either good or bad. But the qualitative 0:03:59.760 --> 0:04:03.640 just plays of how we reflect confidence are you know, 0:04:03.840 --> 0:04:07.360 very often far easier to understand than just a whole 0:04:07.400 --> 0:04:10.480 pile of data. So we're in this election season right now, 0:04:10.520 --> 0:04:13.360 and one of the big storylines is the fact that 0:04:13.400 --> 0:04:17.279 both on the Democratic and Republican sides, there are these 0:04:17.760 --> 0:04:21.080 more radical candidates than what we're used to doing. Quite well, 0:04:21.560 --> 0:04:23.280 we don't know if they'll win yet, but it's this 0:04:23.360 --> 0:04:26.320 phenomenon that everyone's talked about. And what does this tell 0:04:26.320 --> 0:04:28.520 you about the national move Well, what it tells me 0:04:28.640 --> 0:04:34.840 is that, um, on the Republican side, it is very depressed. Um. 0:04:34.880 --> 0:04:38.440 You know, folks like Gallup measure it as being equivalent 0:04:38.480 --> 0:04:43.040 to how everybody felt back in you know, the financial crisis. Um, 0:04:43.160 --> 0:04:47.839 so they're the Republicans are feeling extreme anxiety and stress 0:04:48.520 --> 0:04:52.160 and their needs reflect that, and somebody like Trump and 0:04:52.279 --> 0:04:54.719 we can come back to that. On the Democratic side, 0:04:54.960 --> 0:04:59.840 their mood is better, but it's not nearly as po 0:05:00.000 --> 0:05:05.400 positive I think is the Democratic establishment certainly believed and 0:05:05.440 --> 0:05:09.000 should believe today. Wait, Peter, you're saying on the Republican side, 0:05:09.040 --> 0:05:13.520 there's basically been no improvement in mood or confidence since 0:05:13.680 --> 0:05:17.440 the financial crisis. Why has that happened? I think, you know, 0:05:17.520 --> 0:05:20.680 some of it is a function of, you know, the 0:05:21.440 --> 0:05:24.760 when you are not the incumbent where the you know, 0:05:24.880 --> 0:05:29.640 in office party, your mood naturally is lower than you 0:05:29.680 --> 0:05:31.760 know the other side. And that's you can go back 0:05:31.760 --> 0:05:35.880 and see that. But this distortion suggests that for the 0:05:35.920 --> 0:05:42.760 average Republican jobs, lower gas prices, um, the things that 0:05:42.800 --> 0:05:47.400 you would normally associate with a economic and positive recovery 0:05:47.480 --> 0:05:51.160 are not translating at all into that segment. It sounds 0:05:51.200 --> 0:05:53.880 like it fits. And one of the recent Nobel Prize 0:05:53.880 --> 0:05:58.040 winner and economics Angus Dton, recently came out with research 0:05:58.160 --> 0:06:02.359 pointing out that for or lower class why it's there's 0:06:02.360 --> 0:06:05.479 been this huge surge in the mortality, there's been a surge. 0:06:05.480 --> 0:06:06.960 I don't know if it's a huge surge, but there's 0:06:06.960 --> 0:06:10.120 been a rise in the mortality rates despite the fact 0:06:10.200 --> 0:06:15.280 that generally mortality rates are trending down. Suicide alcoholism is rising. 0:06:15.800 --> 0:06:19.719 And though the Republican Party it's ah there, you know, 0:06:19.760 --> 0:06:22.279 there's people think of the wealthy and the powerful, but 0:06:22.320 --> 0:06:26.760 there is also this rural white base and it sounds like, um, 0:06:26.839 --> 0:06:28.839 that fits in very well with what you're saying. Yeah, 0:06:28.839 --> 0:06:31.200 and I and I think that those are expressions of 0:06:31.279 --> 0:06:35.760 mood that you clearly can see correlated to confidence. But 0:06:35.800 --> 0:06:38.120 I think for the Republicans, I mean, it's not just 0:06:38.200 --> 0:06:46.400 a man session that the the less educated uh certainly manufacturing. Uh. 0:06:46.839 --> 0:06:51.839 Their behavior is very reflective of extreme weak confidence. And 0:06:51.880 --> 0:06:55.960 I think you're really seeing it manifest in this very 0:06:56.000 --> 0:06:59.160 blatant xenophobia. You know you touched on it just then. 0:06:59.240 --> 0:07:01.960 Can someone expl into me how the Republican Party can 0:07:02.040 --> 0:07:06.400 simultaneously be the party of big business and to a 0:07:06.440 --> 0:07:11.120 certain extent a corporate elite, and also represent the interests 0:07:11.200 --> 0:07:17.280 of less educated, not as wealthy white people. I've never 0:07:17.360 --> 0:07:20.240 understood that. I've been out of US politics for the 0:07:20.280 --> 0:07:23.600 majority of my life, so I might just be missing something. Well, 0:07:23.600 --> 0:07:27.080 I would say, increasingly it can't, and you're seeing the 0:07:27.880 --> 0:07:34.200 very high end Republican establishment uh increasingly abdicate or vacate 0:07:34.760 --> 0:07:37.240 the party. I mean, the Koch brothers have announced that 0:07:37.240 --> 0:07:41.400 they're pulling back from their uh anticipated plans in Cleveland, 0:07:41.880 --> 0:07:45.160 and I think they're now quite fearful that the party 0:07:45.240 --> 0:07:49.560 has been usurped taken over by folks that are no 0:07:49.600 --> 0:07:53.840 longer familiar with them as Republicans. I think that for 0:07:54.000 --> 0:07:57.960 the longest time, you could have put what today is 0:07:58.080 --> 0:08:02.000 now a very bifurcated Republican already under one umbrella that 0:08:02.440 --> 0:08:06.360 you know, endorsed, you know, less government, uh, certainly more 0:08:06.360 --> 0:08:11.200 conservative social values. What you're seeing is, I think a 0:08:11.840 --> 0:08:16.920 split between a traditional Republican party and a much more 0:08:16.920 --> 0:08:21.760 authoritarian Republican party, and that in manifesting and Trump. So 0:08:22.040 --> 0:08:25.800 this is the current political situation. What's a good historical 0:08:25.960 --> 0:08:28.080 and analog to where we are right now? I mean 0:08:28.360 --> 0:08:30.840 when you look at you look at patterns over time 0:08:30.960 --> 0:08:34.880 of societal behavior. So what's something that we can point 0:08:34.920 --> 0:08:38.200 to in the past that say, okay, this this is familiar. Well, 0:08:38.240 --> 0:08:41.040 I think you can look clearly at the late nineteen sixties. 0:08:41.440 --> 0:08:45.560 I think the parallels to George Wallace, are you certainly 0:08:46.160 --> 0:08:50.760 appropriate and very consistent with what we're seeing today in 0:08:50.920 --> 0:08:53.040 the form of Donald Trump. And I would expect that 0:08:53.120 --> 0:08:56.439 the the convention is going to look like something out 0:08:56.480 --> 0:09:00.000 of the nineteen sixties. Uh, you can go back even 0:09:00.120 --> 0:09:03.240 further into the the era of the Great Depression to 0:09:03.360 --> 0:09:09.080 see similarly positioned authoritarian candidates coming to the four You know, 0:09:09.240 --> 0:09:12.920 I'm conscious that we haven't mentioned the Democrats that much 0:09:12.960 --> 0:09:15.839 just yet. You say, the mood on the Democratic side 0:09:15.880 --> 0:09:18.800 is certainly better than the Republicans, but it's not that 0:09:18.920 --> 0:09:23.120 great either, which might be one reason we've seen Bernie 0:09:23.120 --> 0:09:26.880 Sanders do better than a lot of people initially expected. 0:09:27.520 --> 0:09:30.240 It's not just that he's done better, it's that he's 0:09:30.280 --> 0:09:33.520 still considered to be viable. I mean, if you were 0:09:33.559 --> 0:09:36.520 to look strictly at the objective data of super delicates 0:09:36.600 --> 0:09:41.080 and popular vote, there would be no question that Hillary 0:09:41.160 --> 0:09:45.439 should be the candidate. Everyone from the media to their 0:09:45.520 --> 0:09:49.640 polsters to the population should be telling Bernie Sanders it's 0:09:49.640 --> 0:09:52.319 time to stop. And you're not seeing that at all. 0:09:52.920 --> 0:09:56.640 And that's I think a reflection of the vulnerability that 0:09:56.640 --> 0:10:00.160 that Hillary Clinton has to falling mood. And you know, 0:10:00.200 --> 0:10:03.680 I was sharing this morning, just how much mood has 0:10:03.760 --> 0:10:07.760 fallen uh in the last couple of weeks, and that's 0:10:08.480 --> 0:10:13.400 really to Sanders benefit. So let's talk about how this 0:10:13.559 --> 0:10:17.040 all effect all effects financial markets because we sit here 0:10:17.440 --> 0:10:19.720 vice versa. Right, Yeah, how it goes back and forth 0:10:19.760 --> 0:10:23.439 because we sit here with the mood seemingly glum everywhere 0:10:23.559 --> 0:10:27.360 gallops numbers of confidence not going in the right direction. 0:10:27.800 --> 0:10:31.640 Yet at the same time, the SNP five is very 0:10:31.679 --> 0:10:35.720 close to its all time highs A how can that be? 0:10:36.120 --> 0:10:38.960 And be does something have to give here? Can we 0:10:39.040 --> 0:10:40.920 predict that the national mood will go up if the 0:10:40.960 --> 0:10:44.520 economy keeps improving? Or does your work tell you to 0:10:44.600 --> 0:10:47.520 be wary of the market here? So how does the 0:10:47.640 --> 0:10:52.079 market go up and mood not? Uh? If you measure 0:10:52.640 --> 0:10:56.280 markets on nominal terms, as you know the wealthy do 0:10:56.400 --> 0:10:59.160 they certainly feel it in nominal terms? There's been no 0:10:59.280 --> 0:11:02.840 question that this is a state of euphoria. And you know, 0:11:02.880 --> 0:11:07.480 you look at billionaires row on Street. That's certainly reflecting 0:11:07.760 --> 0:11:10.200 what the markets are saying. So this is the idea 0:11:10.320 --> 0:11:13.000 that the wealthy have been the ones who have benefited 0:11:13.040 --> 0:11:16.520 the most from the market rally over the past few years. Yes, 0:11:16.559 --> 0:11:22.640 I think that that unknowingly, certainly not deliberately, the focus 0:11:22.720 --> 0:11:26.000 that the FED put on asset values has manifested in 0:11:26.040 --> 0:11:30.000 an extraordinary generation of wealth for the wealthy. They were 0:11:30.040 --> 0:11:33.080 in in two thousand and nine, they've stayed in, you know, 0:11:33.440 --> 0:11:36.560 gone all in, and if you look at the average 0:11:36.559 --> 0:11:39.760 American they were not in, and they are even less 0:11:39.760 --> 0:11:42.880 in today than they were. Some of the statistics on 0:11:43.280 --> 0:11:50.160 American investment in aggregate suggests that, you know, the consumer 0:11:50.240 --> 0:11:54.400 having been burned in housing, exited everything. Can this just 0:11:54.480 --> 0:12:00.280 be solved by full employment and rising wages or is 0:12:00.320 --> 0:12:05.320 there something deeper that the traditional economic statistics can't or 0:12:05.400 --> 0:12:10.040 traditional economic measures can't pick up? Well? I think that 0:12:10.559 --> 0:12:13.160 if if it could have been fixed by employment, it 0:12:13.240 --> 0:12:15.319 would have been at this point. You know that the 0:12:15.400 --> 0:12:20.200 figures on initial jobless claims unemployment levels would suggest that 0:12:20.240 --> 0:12:23.960 consumer confidence should be far higher than it is today, 0:12:24.120 --> 0:12:31.160 so that hasn't translated. I think wage inflation would have 0:12:31.320 --> 0:12:36.320 helped the consumer in this case, uh, particularly just in 0:12:36.440 --> 0:12:40.600 terms of making ends meet their Their obligations, especially in healthcare, 0:12:40.640 --> 0:12:44.680 have gone up significantly during this recovery, their wages have 0:12:44.760 --> 0:12:48.120 not kept track with that. Similarly, in things like higher education. 0:12:48.600 --> 0:12:51.680 So the cost of what they need has gone up 0:12:51.760 --> 0:12:57.840 substantially and their wages haven't gone up. You're you're seeing 0:12:57.880 --> 0:13:02.440 I think tension, real tension manifesting between owners of capital 0:13:03.120 --> 0:13:08.920 and employees of capital, and that it's almost as if 0:13:08.960 --> 0:13:13.800 the American employee is a union member in in trying 0:13:13.800 --> 0:13:17.480 to negotiate higher wages and as just today, very unsuccessful 0:13:17.480 --> 0:13:20.360 in that. Okay, wait, I have the flip side of 0:13:20.440 --> 0:13:24.440 Joe's question. What if you focused on something bad happening 0:13:24.520 --> 0:13:27.480 as a way to boost general confidence. So what if, 0:13:27.480 --> 0:13:31.160 for instance, we had a big bear market in financial 0:13:31.200 --> 0:13:33.920 assets and that took some of the air out of 0:13:33.920 --> 0:13:39.480 the financial elites tires? Would people feel better relatively speaking? 0:13:39.679 --> 0:13:42.079 Or would that be bad overall? No? I think they 0:13:42.200 --> 0:13:46.760 shouldn't experience. For the consumer, average consumer, I think they 0:13:46.800 --> 0:13:49.880 would be UM. I don't know that their confidence would 0:13:49.880 --> 0:13:55.560 be boosted, but their anger might subside. Lesson might lesson? Uh, 0:13:55.880 --> 0:14:00.680 you know that? And I think one of the consequences, Tracy, 0:14:00.840 --> 0:14:05.160 is that you won't see Congress stepping in to bail 0:14:05.200 --> 0:14:08.400 out the financial elite should things start to go down 0:14:09.200 --> 0:14:13.720 versus two thousand and nine, that the public outcry isn't 0:14:13.840 --> 0:14:16.960 isn't going to be there? Um, you know, going back 0:14:17.000 --> 0:14:21.480 to history lessons, what was the period have we ever 0:14:21.520 --> 0:14:25.080 seen the reverse where the mood was really starting to 0:14:25.280 --> 0:14:28.280 rise in the public and there were tangible signs of it, 0:14:28.480 --> 0:14:31.080 but financial markets hadn't caught up and say, oh, this 0:14:31.160 --> 0:14:36.760 is very bullish. It's a great question. Um, I have 0:14:36.960 --> 0:14:39.960 to I can't think of a time when that would 0:14:39.960 --> 0:14:44.440 have that correlation, that association. What about just a general 0:14:44.520 --> 0:14:47.640 time of euphoria? What's that leg and what caused that? 0:14:47.840 --> 0:14:52.720 So general time of euphoria looks like where the entire 0:14:53.240 --> 0:14:56.520 spectrum of wealth from the low end to the high 0:14:56.640 --> 0:15:00.800 end is feeling enthusiastic. You could say have said the 0:15:00.840 --> 0:15:05.240 same thing about nineteen sixty six, so you know, the 0:15:05.240 --> 0:15:08.960 the end of the Camelot era, where you know, again 0:15:09.200 --> 0:15:13.320 all of America feels united. There's a there's a common 0:15:13.360 --> 0:15:16.600 sense of what is normal, and I think that's one 0:15:16.640 --> 0:15:20.320 of the telltale signs of extreme high confidences. There's a 0:15:20.440 --> 0:15:23.760 there is a clear black and white as to who 0:15:23.880 --> 0:15:26.480 we are, what we look like, what we stand for. 0:15:26.800 --> 0:15:29.720 So unity as a nation is kind of is not 0:15:29.840 --> 0:15:32.560 the norm, and it's almost scary when we're too comfortable 0:15:32.600 --> 0:15:35.000 and who we all are? Yeah, we go from you know, 0:15:35.080 --> 0:15:39.760 from being all of one thing to being very scattered 0:15:40.120 --> 0:15:43.720 and then reform. All right, Peter Atwater. We can talk 0:15:43.760 --> 0:15:45.680 about this for hours, I think, but we're going to 0:15:45.800 --> 0:15:48.400 have to cut it short. Thank you, Peter, Thank you 0:15:48.520 --> 0:15:58.640 very much. Thanks Jeff, Thanks crazy stuff. You know, Joe, 0:15:58.840 --> 0:16:03.640 there's one his historic method for gauging the public mood 0:16:03.680 --> 0:16:06.680 when it comes to economics and markets. Do you know 0:16:06.720 --> 0:16:09.960 what it is? Yes? I do. That was I'm supposed 0:16:09.960 --> 0:16:12.800 to say, should only because I sent you the schedule 0:16:12.880 --> 0:16:14.600 for this. That was supposed to be a set up 0:16:14.640 --> 0:16:16.640 to what you're going. What is it, Tracy? What's the 0:16:16.680 --> 0:16:19.240 tried and true measure? Thank you for playing along. That 0:16:19.240 --> 0:16:22.800 would be the misery index. That's right. This is people 0:16:22.920 --> 0:16:27.520 have used this index for years, across decades, across countries, 0:16:27.840 --> 0:16:31.240 and it's super simple. All you do is you add 0:16:31.240 --> 0:16:35.000 the unemployment rate to the rate of inflation, and the 0:16:35.080 --> 0:16:37.960 higher it is, presumably the more miserable the country, and 0:16:38.000 --> 0:16:40.560 the lower it is, the happier. Um. So, if you 0:16:40.600 --> 0:16:44.320 have ten percent unemployment and ten percent inflation, then your 0:16:44.320 --> 0:16:47.840 misery index is twenty and everyone's miserable. That's exactly right. 0:16:47.960 --> 0:16:51.080 I'm impressed. Um. So it's about as simple as again. 0:16:51.480 --> 0:16:53.960 But there is a problem with the misery index now 0:16:54.000 --> 0:16:56.680 because even though we have all these presidential candidates who 0:16:56.680 --> 0:17:00.160 are saying that Americans are more upset than ever, are 0:17:00.160 --> 0:17:04.120 more angry than ever, the misery index doesn't actually show that. 0:17:04.480 --> 0:17:06.960 So we're going to talk about that. We're going to 0:17:07.080 --> 0:17:11.320 bring in Carl RICKA Donna, who's Bloomberg's chief US economist, 0:17:11.440 --> 0:17:14.040 and he is going to give us a rundown of 0:17:14.359 --> 0:17:17.560 why the misery index doesn't say Americans are more miserable 0:17:17.680 --> 0:17:33.080 right now, Uh, Carl Donna, chief US economist of Bloomberg Intelligence, 0:17:33.119 --> 0:17:35.680 Thank you very much for joining us, my pleasure. So 0:17:36.240 --> 0:17:39.160 the misery index, is it something that you look at, 0:17:39.240 --> 0:17:42.080 is it's something that you feel is a useful gauge 0:17:42.280 --> 0:17:45.560 for the public for how the economy is doing well. 0:17:45.640 --> 0:17:50.360 It it's kind of an informal economic indicator, so as 0:17:50.359 --> 0:17:54.280 we think about let's say monetary policy or you know, 0:17:54.600 --> 0:17:58.359 growth forecasts or interest rate developments, it's a little crude 0:17:58.400 --> 0:18:03.720 for those purposes. However, the misery index is a phenomenal 0:18:04.320 --> 0:18:08.520 predictor of election outcomes in presidential election years, and we 0:18:08.560 --> 0:18:11.640 can go all the way back to nineteen sixty four, 0:18:12.160 --> 0:18:19.000 and this index has an accuracy rate of presidential elections. 0:18:19.160 --> 0:18:23.960 And one of the exceptions is the Carter victory over 0:18:24.040 --> 0:18:27.840 Ford and seventy six, which was arguably a referendum on Watergate. 0:18:28.400 --> 0:18:30.760 So if we strip out that exception, then the success 0:18:30.880 --> 0:18:34.640 rate is actually well. Carl tell us how the index 0:18:34.960 --> 0:18:38.400 used to be used in presidential elections because people used 0:18:38.400 --> 0:18:40.680 to use it as like a campaign tool. Basically, it 0:18:40.800 --> 0:18:44.639 was definitely a campaign tool, especially in the nineteen eighty 0:18:45.240 --> 0:18:48.639 Reagan Carter election when in his closing remarks of the 0:18:48.640 --> 0:18:52.480 presidential debate, Ronald Reagan asked the audience, UH, and and 0:18:52.680 --> 0:18:56.440 voters to ask themselves, are you better off now than 0:18:56.480 --> 0:18:59.840 four years ago? And he's specifically referred to employment, can 0:19:00.000 --> 0:19:03.520 scans and inflation. So this was a hot topic, uh 0:19:03.520 --> 0:19:06.959 in let's say the nineteen sixties and especially the nineteen seventies, 0:19:07.160 --> 0:19:10.880 an era that was plagued by stag inflation i e. 0:19:11.320 --> 0:19:16.320 Rising unemployment or elevated unemployment and a fairly high inflation 0:19:16.400 --> 0:19:20.280 rate as well. So when those economic issues are pressing concerns, 0:19:20.880 --> 0:19:25.639 voters tend to act based on what's happening in their pocketbook. Okay, 0:19:25.640 --> 0:19:28.280 but now if I look up the misery index, which 0:19:28.400 --> 0:19:31.119 is on the terminal, right, the Bloomberg terminal. Uh, it 0:19:31.280 --> 0:19:34.520 actually doesn't look that high, certainly relative to where it 0:19:34.600 --> 0:19:36.600 was in the seventies and eighties. And I guess that's 0:19:36.640 --> 0:19:39.439 probably a function of inflation. But does that mean that 0:19:39.600 --> 0:19:43.320 it's totally irrelevant in the current campaign. It's not irrelevant 0:19:43.400 --> 0:19:49.119 because it continues to be a good predictor of election outcomes. 0:19:49.359 --> 0:19:53.000 It's called every election, with the last exception being the 0:19:54.560 --> 0:19:59.120 victory of Clinton over Georgia Georgia H. W. Bush. So 0:19:59.240 --> 0:20:02.560 it's still mad if households are feeling better or worse 0:20:02.600 --> 0:20:06.200 about economic conditions, whether it was the high inflation and 0:20:06.280 --> 0:20:09.159 high unemployment of the seventies or even in current the 0:20:09.200 --> 0:20:13.920 current environment where things are at much more redesirable levels, 0:20:14.560 --> 0:20:17.520 it still matters. If voters sense that the economy is 0:20:17.520 --> 0:20:20.359 moving in the right direction, then they tend to reward 0:20:20.440 --> 0:20:23.560 the incumbent party. If they sense that the economy is 0:20:23.880 --> 0:20:27.600 falling apart, Uh, then they tend to quote unquote vote 0:20:27.640 --> 0:20:30.159 the bums out. And the great example of this was 0:20:30.480 --> 0:20:33.840 Obama's victory in two thousand and eight, the stock market 0:20:33.880 --> 0:20:37.199 was crumbling, unemployment was backing up, and uh, you know, 0:20:37.240 --> 0:20:40.440 the economy was in in a bad situation, and voters 0:20:40.720 --> 0:20:43.240 opted for change. All right, I have a few problems 0:20:43.480 --> 0:20:47.600 with this whole thing, just a few. So the Fed 0:20:47.720 --> 0:20:50.720 would like to see inflation higher. So then does Janet 0:20:50.760 --> 0:20:54.000 Yellen want to see the U s economy more miserable? Well, 0:20:54.160 --> 0:20:57.960 she wants inflation to be only slightly higher. So the 0:20:58.400 --> 0:21:00.720 risk here there has been a lot of hand ringing 0:21:01.080 --> 0:21:06.280 in recent years about too low inflation constantly. Absolutely, you 0:21:06.640 --> 0:21:08.840 can't keep winning and going in lower and lower and 0:21:08.880 --> 0:21:12.560 lower inflation, because then you end up in deflation. Uh. 0:21:12.560 --> 0:21:15.440 And there's a whole other set of problems that arise 0:21:16.000 --> 0:21:18.840 because of that. And we can look no further than Japan, 0:21:19.320 --> 0:21:22.480 uh to see some of those consequences. So Janet Yellen 0:21:22.520 --> 0:21:25.080 doesn't want us to be much more miserable, but she 0:21:25.080 --> 0:21:28.919 would like a little bit more inflation, because actually that 0:21:28.960 --> 0:21:32.040 won't make us miserable. That helps to pay off your 0:21:32.080 --> 0:21:36.600 mortgage or your car loan by inflating that dead away. 0:21:36.640 --> 0:21:41.280 If prices are falling, then there's very little and it's 0:21:41.280 --> 0:21:44.280 harder for you to pay off those outstanding debts. But 0:21:44.400 --> 0:21:47.640 also you're happy keeping your money in the mattress instead 0:21:47.680 --> 0:21:50.800 of putting it into risk your investments, which are the 0:21:51.240 --> 0:21:54.120 basically the lifeblood the economy. All right, and so here's 0:21:54.160 --> 0:21:57.200 my other issues. So you mentioned the Carter forward and 0:21:57.240 --> 0:22:00.359 the Reagan year election. That was a period character arise 0:22:00.480 --> 0:22:04.720 by stagflation where we had very weak growth, high unemployment, 0:22:04.760 --> 0:22:09.080 and inflation. But economists and I don't like to talk 0:22:09.119 --> 0:22:12.640 about this thing called the Phillips curve, which insinuates that 0:22:12.720 --> 0:22:16.880 there's this that inflation and unemployment are kind of these 0:22:16.920 --> 0:22:19.679 opposite forces and that tip and that right, there's a 0:22:19.760 --> 0:22:23.480 strong negative correlation, and yeah, there's this negative correlation. And 0:22:23.520 --> 0:22:26.720 so I'm wondering, did the misery index really just sort 0:22:26.720 --> 0:22:29.680 of makes sense as a thing during the stag inflation 0:22:29.760 --> 0:22:32.119 era where we got both at the same time, but 0:22:32.240 --> 0:22:35.800 that every time else, it's just not a very meaningful thing. 0:22:36.040 --> 0:22:38.600 If there's going to be this Phillips curve framework where 0:22:38.640 --> 0:22:40.919 they move in the opposite direction, maybe we need a 0:22:41.000 --> 0:22:45.120 misery index adjusted for the new normal, right. I don't 0:22:45.119 --> 0:22:48.560 think we do, because it worked in the stagflationary period 0:22:48.640 --> 0:22:52.119 because people were really miserable, But It also works in 0:22:52.240 --> 0:22:56.160 periods where there was not great UH stagflation, for instance, 0:22:56.240 --> 0:23:01.640 Reagan's re election in four UH, the eighty eight election, UH, 0:23:02.240 --> 0:23:06.520 the early two thousands. So it certainly was a hot 0:23:06.600 --> 0:23:10.320 button issue in the late sixties and the seventies, but 0:23:10.440 --> 0:23:12.640 it's also worked another period. So it's not just the 0:23:12.680 --> 0:23:17.240 outright level of misery. UH, it's really the change matters. 0:23:17.400 --> 0:23:19.760 So if you have really bad economic conditions and they 0:23:19.760 --> 0:23:23.520 get a little better, you're still arguably pretty miserable, but 0:23:23.600 --> 0:23:26.160 things are heading in the right direction by looters reward 0:23:26.160 --> 0:23:28.480 the incumbent party. I'm looking on the terminal right now, 0:23:28.520 --> 0:23:31.240 and the misery index has ticked up just a little bit. 0:23:31.280 --> 0:23:33.760 It's so very low by historical standards right now, so 0:23:33.880 --> 0:23:35.760 you know that might be something to worry about. It 0:23:36.000 --> 0:23:40.520 just ever so slight. And what's important here is we 0:23:40.560 --> 0:23:43.040 have to look at moving averages. So for my analysis, 0:23:43.119 --> 0:23:45.800 I look at a six month moving average, because what's 0:23:45.840 --> 0:23:49.879 happening in the latest economic developments sometimes takes a while 0:23:50.480 --> 0:23:53.639 to actually be processed by main street UH, and so 0:23:53.680 --> 0:23:56.639 if we look at the broader moving averages, then we 0:23:56.720 --> 0:23:59.639 tend to eliminate some of that noise and UH you know. 0:23:59.680 --> 0:24:02.480 So that makes the wiggle room and the important thing 0:24:02.480 --> 0:24:05.119 here as we look at the outlook, so where we 0:24:05.160 --> 0:24:08.760 are now versus where we'll likely be on November eight, 0:24:08.880 --> 0:24:12.080 election day. UH. The unemployment rate, Let's look at that first. 0:24:12.080 --> 0:24:15.520 Where at five percent? Now? The unemployment rate has been 0:24:15.560 --> 0:24:19.800 steadily grinding lower for the last five to six years, 0:24:20.000 --> 0:24:22.840 at a pace of about one percent per year, so 0:24:23.600 --> 0:24:26.760 it's been moving sideways a little bit lately. But the 0:24:26.760 --> 0:24:29.879 Fed and most private sector forecasters are looking for it 0:24:29.880 --> 0:24:32.400 to move lower by about thirty basis points. That puts 0:24:32.440 --> 0:24:35.880 it at four point seven percent by year end. UH, 0:24:35.880 --> 0:24:39.920 and private sector forecasters and the FED expect core inflation 0:24:40.000 --> 0:24:43.160 to be about thirty basis points higher. So if those 0:24:43.200 --> 0:24:47.680 forecast pan out, you basically have an unchanged misery index 0:24:47.760 --> 0:24:50.879 over the next six months or so. However, UH, the 0:24:50.880 --> 0:24:54.000 index has been in a broader down trend since the 0:24:54.080 --> 0:24:56.480 end of the financial crisis, so it does tell you 0:24:56.680 --> 0:25:01.440 households are are less miserable, so not so much misery, 0:25:01.520 --> 0:25:05.159 but not entirely happy either. Carl Rickadonna, thank you so 0:25:05.200 --> 0:25:07.400 much for joining us, and I just want to say 0:25:07.440 --> 0:25:10.000 I'm on the terminal. The misery index is not just 0:25:10.080 --> 0:25:12.240