WEBVTT - Lots More on Why Neil Dutta Is Sticking With His Recession Call

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. What do you think

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<v Speaker 1>or recession?

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<v Speaker 2>I mean, you had a really good piece thank you

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<v Speaker 2>out this week in the newsletter where you made the

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<v Speaker 2>point and I had made a similar point the day earlier.

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<v Speaker 2>So maybe I'm not being so nice, but like, how

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<v Speaker 2>much of all the market action, all the economic action,

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<v Speaker 2>I guess, was actually dependent on just one guy, Donald Trump,

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<v Speaker 2>and that you know, if he came out and said something,

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<v Speaker 2>he could end the chaos at any moment in time.

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<v Speaker 3>And then on Wednesday he actually came out.

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<v Speaker 2>And did that, and then kind of kind of well,

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<v Speaker 2>your point was, if he does that, we can all

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<v Speaker 2>go back to worrying about like a slowdown in the

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<v Speaker 2>labor market or deep seek threatening AI, which so much

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<v Speaker 2>capital investment in the US actually depends on.

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<v Speaker 1>There's a lot. I did a deadlist.

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<v Speaker 2>I'm both the most popular trader and most successful trader

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<v Speaker 2>at Citadel. That is going viral.

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<v Speaker 3>Uh barges.

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<v Speaker 1>This isn't after school special, except.

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<v Speaker 2>I've decided I'm going to base my entire personality going

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<v Speaker 2>forward on campaigning for a strategic pork reserve in the US.

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<v Speaker 1>Black goals. These are the important question.

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<v Speaker 2>Is it robots taking over the world.

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<v Speaker 1>No, I think that like in a couple of years,

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<v Speaker 1>the AI will do a really good job of making

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<v Speaker 1>the Odd Lots podcast. One day that person will have

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<v Speaker 1>the mandate of Heaven.

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<v Speaker 2>How do I get more popular and successful?

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<v Speaker 1>We do have the Welcome to lots More, where we

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<v Speaker 1>catch up with friends about what's going.

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<v Speaker 2>On right now, because even when Odd Lots is over,

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<v Speaker 2>there's always lots More.

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<v Speaker 1>And we really do have the perfect guest you know

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<v Speaker 1>who had a really good contribution to the Odd Lots

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<v Speaker 1>newsletter February twenty twenty fourth. Basically the market top Neil

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<v Speaker 1>Dunnas's rising risks to the Lake market calling recession risks

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<v Speaker 1>right there and essentially at the market top. We got

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<v Speaker 1>it back on Neil yesterday after Trump walked it back.

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<v Speaker 1>By the way, we're talking to Neildutta of Renaissance Macro.

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<v Speaker 1>Trump walked back some of the tariffs. Goldman pulled it

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<v Speaker 1>to recession call you. We sent out an email right

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<v Speaker 1>away you said, I'm sticking with my recession call. Why

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<v Speaker 1>do you see recession in the cards in twenty twenty five?

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<v Speaker 4>Still, so remember that, you know, for me, it's it's

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<v Speaker 4>not really about an Nber defined recession like that, to

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<v Speaker 4>me is not the name of the game. The name

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<v Speaker 4>of the game is trying to translate an economic view

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<v Speaker 4>into a market call. And even if it's not technically

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<v Speaker 4>a recession, it might as well be because the underlying

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<v Speaker 4>problem for the market is not going away. And that's

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<v Speaker 4>the issue. You know, all the things I mentioned in

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<v Speaker 4>that newsletter, you highlight it in February, that's all here.

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<v Speaker 4>That's still here, right. We still have a situation where

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<v Speaker 4>labor incomes are slowing and the Fed's not budget. We

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<v Speaker 4>still have a situation where mortgage rates are high and

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<v Speaker 4>the housing market is weak, and we still have state

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<v Speaker 4>in local governments cutting back, and we still have a

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<v Speaker 4>pretty high volume on trade. I mean, in terms of tensions.

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<v Speaker 4>Just because we dialed it back a little bit yesterday

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<v Speaker 4>doesn't mean that the tensions are not still high. And

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<v Speaker 4>I think it's what we've basically done is traded. You know,

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<v Speaker 4>you basically spread the distribution of costs. I guess I

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<v Speaker 4>mean away from everyone, just towards China. But that's still

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<v Speaker 4>pretty bad in and of itself. I don't think it

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<v Speaker 4>takes a rocket science to figure it out. You I mean,

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<v Speaker 4>if you're basically trying to break up the relationship with

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<v Speaker 4>US and our third major trading partner. There's no scenario

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<v Speaker 4>or that doesn't create some issues for the marketplace.

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<v Speaker 2>It is true we've ratcheted down tariffs for countries ex China,

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<v Speaker 2>but as you say, we've basically gone back to what

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<v Speaker 2>we were worried about before, right And the funny thing

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<v Speaker 2>I got to say about that gold a note, and

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<v Speaker 2>it just underscores how quickly things are changing in the

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<v Speaker 2>current environment. You know, they publish that, they published the

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<v Speaker 2>recession call basically an hour before Oh Trump did his

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<v Speaker 2>big Wednesday announcement, and then right after that, like we

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<v Speaker 2>didn't realize that within sixty minutes, they had to come

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<v Speaker 2>out and say, actually, we're rescinding it.

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<v Speaker 1>As Lenin said, there are hours where nothing happens, in

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<v Speaker 1>minutes where days happen, and we've had two minutes you now,

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<v Speaker 1>we're seeing a lot of that right now.

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<v Speaker 2>Do you have like a little book of Lenin quotes

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<v Speaker 2>that you keep with you? Where are you getting those from?

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<v Speaker 1>I also might be mangling the quote a little bit.

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<v Speaker 1>I mean you you should trade tensions are high, but

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<v Speaker 1>tariffs are really high right now. I mean, that's really

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<v Speaker 1>like the core thing. Well, that's the other thing, right, job,

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<v Speaker 1>I mean, it's just tensions, it's reality.

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<v Speaker 4>One hundred percent, and I kind of sympathize with it, right,

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<v Speaker 4>Like it's the uncertainty that he's creating. No, no, No, it's

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<v Speaker 4>also what he's actually doing, and that is going to

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<v Speaker 4>weigh on investment by itself, right, because if you introduce

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<v Speaker 4>tariffs and actually follow through with the tariffs, the uncertainty

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<v Speaker 4>around what you're doing is going down. The reality of

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<v Speaker 4>what you're doing is what businesses will respond to through

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<v Speaker 4>growth expectations, and they'll pull back, right, Because ultimately what

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<v Speaker 4>drives investment is what's happening with growth. If real growth

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<v Speaker 4>is slowing, then it's inevitable that investment spending will follow

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<v Speaker 4>suit because largely what investment responds to is sort of

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<v Speaker 4>an accelerated effect. Right, That's basically the idea that is

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<v Speaker 4>growth picks up, investment tends to rise. More so the

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<v Speaker 4>fact that growth is slowing and expectations around growth are

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<v Speaker 4>coming down, that's ultimately what's going to pull down investment.

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<v Speaker 4>So it's not so much the uncertainty, although that that's

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<v Speaker 4>probably not good. It's also what he's actually doing.

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<v Speaker 2>Wait, just on that note, so you sent an email

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<v Speaker 2>earlier this week where you said the SMP five hundred

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<v Speaker 2>trading like fart coin is probably not a good thing.

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<v Speaker 2>There's a sentence I never thought I would necessarily read

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<v Speaker 2>out loud, But the S and P five hundred trading

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<v Speaker 2>like that? Is that mostly a reflection of the uncertainty

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<v Speaker 2>aspect of all of this or are you implying that

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<v Speaker 2>it's going to feed into things like funding costs and

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<v Speaker 2>the capital investment environment and I guess the wealth effect

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<v Speaker 2>for the US economy as well.

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<v Speaker 4>Yeah, I think so. I mean, I think the stock

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<v Speaker 4>market going down is usually bad, and I think that

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<v Speaker 4>that'll have effects on household psychology for sure. And remember,

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<v Speaker 4>like a lot of the reason why consumer spending ran

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<v Speaker 4>so much more rapidly than real income growth last year

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<v Speaker 4>was because the savings rate was going down. And one

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<v Speaker 4>of the reasons why the savings rate was going down

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<v Speaker 4>was probably because stock prices were going up and that

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<v Speaker 4>was juicing you know, enthusiasm for the high end consumer.

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<v Speaker 2>Yeah, and this is really important. Like, if you think

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<v Speaker 2>that consumer spending was driving a lot of the surprising

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<v Speaker 2>growth in some respects that we've seen recently, then you

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<v Speaker 2>should really focus on what the higher end consumer was doing.

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<v Speaker 2>And most of those higher end consumers have stock portfolios.

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<v Speaker 4>Yeah, I think that's right. And I guess the other

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<v Speaker 4>thing I would say is, you know, there's a whole

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<v Speaker 4>literature I think about, you know, the stock market as

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<v Speaker 4>a passive informant or an active informant. Right, so, is

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<v Speaker 4>there anything about the share price of a company that

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<v Speaker 4>tells the CEO of that company something about their firm

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<v Speaker 4>they don't already know? Usually it's probably not. But if

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<v Speaker 4>you get this sort of macro type environment, which is

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<v Speaker 4>kind of where we are right now, then the stock

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<v Speaker 4>market takes more, takes on more of a role of

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<v Speaker 4>an active informant, and you know, then you kind of

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<v Speaker 4>have business the business community kind of looking for the

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<v Speaker 4>stock market as a aggregator of macro risk. And right now,

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<v Speaker 4>you know, the fact is that stock prices are down

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<v Speaker 4>quite a bit from their February highs, and that's probably

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<v Speaker 4>creating a cautionary mood for most of corporate America.

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<v Speaker 1>I'm a big fan of the stocks matter, a hypothesis

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<v Speaker 1>I've been bringing the drum. Stocks matter, don't, don't just

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<v Speaker 1>dismiss the stock market is this thing that US Wall

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<v Speaker 1>Street elites which we are are obsessed with, they actually

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<v Speaker 1>matter in this family. I do not believe in Wall

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<v Speaker 1>Street versus Main Street. I only believe in one constant,

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<v Speaker 1>contiguous street that connects all roads in America.

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<v Speaker 2>Neil. Wait, Wait, isn't that Neil's saying that? You know,

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<v Speaker 2>people say that the stock market it's not the economy,

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<v Speaker 2>but it's not not.

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<v Speaker 1>The Where did you get that, Neil? Where'd you get that?

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<v Speaker 2>Oh, we're going to settle this, Neil.

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<v Speaker 4>I got it from Joe Wisenthal.

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<v Speaker 3>Yeah, right, Okay.

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<v Speaker 1>Most painful thing is Tracy has to acknowledge I get

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<v Speaker 1>some credit for something.

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<v Speaker 3>It's a good quote.

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<v Speaker 1>Thank you.

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<v Speaker 3>That's why I thought Neil had it.

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<v Speaker 1>Outside of elder care, do you do you feel confident

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<v Speaker 1>that there is a single major sector of the US

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<v Speaker 1>economy right now that's adding headcount in elder care and healthcare?

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<v Speaker 4>Not really, No, I mean most of the growth in

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<v Speaker 4>employment has been in sort of what what you would

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<v Speaker 4>call like acyclical industries like private education and healthcare. You know,

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<v Speaker 4>when you look at the more cyclically sensitive areas of

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<v Speaker 4>the job market. I mean that's clearly slowing down. You

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<v Speaker 4>look at residential construction employment, I mean that's actually down

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<v Speaker 4>against last year, you know, I mean service sector.

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<v Speaker 2>I mean.

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<v Speaker 4>The other thing, of course, is that if the tar

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<v Speaker 4>as the tariffs come on, that's likely to push up

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<v Speaker 4>goods prices. Right, given the fact that the labor markets

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<v Speaker 4>are slowing down to the extent that people have to

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<v Speaker 4>allocate more of their household budgets towards goods, that'll leave

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<v Speaker 4>less left over for everything else, which means they'll ultimately

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<v Speaker 4>have to start cutting back on services consumption, and that'll

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<v Speaker 4>drive down the prices for services. So that to me

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<v Speaker 4>is a bigger concern because obviously service sector employment is

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<v Speaker 4>huge in the US. Yes, that's where most of the

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<v Speaker 4>meat is, so you know, leader in hospitality, you know,

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<v Speaker 4>things like that. I mean that's going to come under pressure.

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<v Speaker 4>I would think, yea as the quarters go on.

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<v Speaker 2>We are recording this on Thursday, April tenth, and we

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<v Speaker 2>did just see CPI actually come in lower than expected.

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<v Speaker 2>But everyone's talking about imminent tariffs impact. And I guess

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<v Speaker 2>my question on inflation is like a lot of people

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<v Speaker 2>seem to be debating between well, most people agree the

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<v Speaker 2>teriffs will immediately push up prices. The big question is

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<v Speaker 2>at what point will enough demand destruction actually kick in

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<v Speaker 2>to reduce demand for consumer goods and potentially lower prices.

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<v Speaker 2>But it's really interesting that you're saying that, you know,

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<v Speaker 2>we could have the impact feed into services, and then

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<v Speaker 2>if you get higher unemployment that would certainly add to

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<v Speaker 2>the demand destruction dynamic.

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<v Speaker 4>The Fed's policy at the moment is to be behind

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<v Speaker 4>the curve proceed accordingly. That's all I can tell you.

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<v Speaker 4>I mean, they're basically telling you that they're waiting for

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<v Speaker 4>growth conditions to deteriorate before they cut. That's all that

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<v Speaker 4>really matters. They're not changing the nomenal anchor just yet.

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<v Speaker 4>I mean, so that basically tells you that their solution

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<v Speaker 4>to the inflationary consequences of tariffs is disinflation.

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<v Speaker 1>As of right now, naszak down six percent. There's that

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<v Speaker 1>big green candle we got yesterday rapidly melting s and

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<v Speaker 1>P five hundred down five point two four percent. US

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<v Speaker 1>tenure yields up on the date. Not a cocktail. You

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<v Speaker 1>want to see what if?

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<v Speaker 2>What if this just keeps going for the next four years.

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<v Speaker 1>It might be.

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<v Speaker 2>Lots more is produced by Carmen Rodriguez and Dashel Bennett,

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<v Speaker 2>with help from Moses Ondom and kel Brooks.

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<v Speaker 1>Our sound engineer is Blake Maples. Sage Buman is the

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<v Speaker 1>head of Bloomberg Podcasts.

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