Ed Hyman on How Investors Should Use Economic Data

This is Master's in Business with Barry rid Holds on Bloomberg Radio.

This week on the podcast, ed Heiman returns to talk about all things economic analysis, what's going on in the world, how he's built an incredible career. Oh my god, forty three times number one ranked in the Institutional Investor Survey in economics. That's just unprecedented, and I'll keep saying, no one will ever beat that that streak. Ed is a

I don't know.

I've been really lucky in my career and I listened to your show all the time, and most people will say that good lucky, and frankly, if they've done a lot, they have to have been lucky. My greatest talent is work. I'm really a hard worker. I know how to work. I like working, and so that's maybe number one.

Wouldn't you say that in fine which is such a competitive field hard work and intelligence, that's just table stakes to get into the game, isn't it.

It is?

But it's table stakes in every game, and it doesn't change much. And they are people I know that work harder than I do, and they do.

Better, well, not better than forty three in a row. I like Peter Lynch's description of what made you successful? I think it was in his book One Up on Wall Street. Ed Heiman is much more practical than most economists. He's more interested in examining railroad cars than Laugher curves. What does that say about what makes you special and different from other economists?

First, I like working, and I've worked to the point that I've found something I really enjoy doing. You know, that's maybe the second most important thing for anybody, for you or me. I have a real interest in helping people, which you know, some people have that interest and some people don't, but I do. And so I met Peter Lynch. Was it fifty years ago or forty years ago? I said, I got to help this guy, and he said, no, thanks.

So let's talk a little bit about the genesis of that practical side. You get your BS and engineering from university to get asses right, so engineers tend to be pragmatic problem solvers, and then you get an MBA from MIT, so you have all of this very pragmatic experience as opposed to getting a PhD in economics, which tends to be a little more abstract and academic. How much of your rankings come from the fact that you have these

You know, if you're hard working and you're trying to do things that people value and my client base, if you will, or institutional investors, I went all the time.

So let's talk a little bit about the early days of your career. When you come out of school nineteen sixty nine to seventy one, you're an economic consultant at Data Resources. What did you do for those guys? That sounds kind of.

Interesting whenever Auto, actually I wanted some coffee, I brought it to him.

So you started as a very junior person.

On the tone, I'm pretty junior, but at that point I had a pretty special knowledge of econometrics. At MIT, they had the first time sharing big mainframe, big mainframe, but you could share the data, share the computer programs. And the first real practical application was the Sage American Airlines ticket system, which is a time sharing where you get your tickets, and.

That eventually became Saber, right Saber.

And so I had done that at MIT, and Auto x Stein, who was a professor in the economics department at Harvard, he started a company that did that exact thing.

They're right down the street from MIT.

Right right there, And I was working for a professor named ed Ko who was a friend of Auto x Stein, and so they were talking and I got the job. So that was a stroke of good luck. Plus I was in the right spot at the right time.

What was the data like back then, I'm thinking of punch cards and very rudimentary computing.

It was before then and actually I did a lot of punch cards. You're too young for this.

When I started college, punch cards and time shares were still a thing, but it was a fading thing and the newfangles technology was coming. You saw it on the horizon.

I just jumped right over that card deck into data resources, where the data was in a computer you shared and have to carry the deck around, and it was a major step forward. Pretty much the same technology as today. We still use the Data Resources system constantly and the data is there. The only thing has changed is there's much more data.

More data, faster, bigger. It just has obviously scaled up a lot since right then.

So it's not just government data now there's a lot of industry data.

Which you guys will talk a little bit about what ISI does in assembling its own data. Let's just continue along your career seventy two, you end up at CJ. Lawrence. Tell us what you did there, What was that work like?

So at Data Resources, I worked with our clients and Otto Eckstein, who is a spectacular human being. He passed away, I think in his fifties, and he went from the cover of Time magazine to not being with us anymore. But he was a phenomenal person and he had this game plan. He would hire people out of school that seemed to be over the ball on the ball right, and they would work for data resources and take care of clients, and then a client would hire them.

And he said that's great, and.

He just locked in as a client. They locked in as a client. So I remember telling him. I think I called him auto. I shouldn't have, but I did. I said otto, I said, I have a job, offer to go to work for one of our clients, c J. Lawrence, And he said, oh, ed, that's great. I kept waiting for the counter. So I remember he took me to lunch at Friendlies.

For a fribble and some fries.

But anyway, so that was how I got to C. J.

Lawrence.

Didn't they end up getting purchased by was it Deutsche Bank?

By Deutsche Bank?

Right? How did that affect your plans going forward? Did you want to go to a big bank or is that what led to the next step in your career?

That was the next step, and that was is.

I So that's ninety one. So you were you were CJ. Lawrence for a good, good while for twenty years as Wow, all right, so you found ISI group with some partners. Tell us a little bit about the plan for launching an independent economics research shop.

So at that point I had a pretty big career. I'd been ranked I back in the seventies, if you can do the math, and I had a to.

Be fair in the beginning, you were only like runner up. And secondly, you really weren't carrying your share of the workload. You were coming in second place. I mean, that's just no.

You have to start somewhere.

Start at number two and up.

And it was easy.

Transition to start my own shop. And I had a group of people and Jim Moltz ran CJ Lawrence and he was and still is like a father to me. So he was very helpful. We all could tell that it probably wasn't the best fit for somebody who liked working for small companies to work for a big bank. I told I told him. He said, okay, would you stay until we find a replacement for you? I said, of course. He came in one day he said that we've got some good news. We found a replacement for you.

Yordini was at Deutsche Bank for a long time until he launched Yordini Research.

Yeah. He's very good.

Really, he lives in the next town for me. We actually go out to dinner. Yeah, yeh, super nice guy. So let's talk a little bit about is I was both a research shop, but you also set up IS a funds management for investors and clients. Two different groups. How did they co exist under the same roof?

It was Okay, It wasn't a great business. Frankly, it's not as strong as your business in the asset management business. I think I got up to maybe did get up to maybe three billion.

Yeah, but your research side of the shop generated that was enough activity to make up for it. Yeah, that was I forget what what you call it the side hustle. Your side hustle was managing institutional right assets. Your real business is having the best perspective of what is happening this moment in the economy. And again, according to II, nobody does that better than you did. How long after you launched II did you get a sense that hey,

Actually, that had happened at CJ.

Lawrence.

You know, by the time I started is I had already gotten a strong following and knew what I was doing in that space, and so I just made a transition. At that point ninety ninety one or recession years and stop market, you know, had a pretty big drop, and I thought, well, this is a bad idea, your own coveny.

It turns out to be the perfect time to start your.

Own Nay, it is a perfect time.

But you know that you learn that a little later, but it is a perfect time. At that point, I thought, well, if it doesn't work out better than what I was doing, right, So I had very low expectations. And then it turns out, you know, the market, if you go from ninety one forward, market just sort of went up and business was good. It was good basically until maybe twenty ten, and since then it's it's been very difficult.

So you've seen changes in the seventies and eighties, right, you had the bull market in the nineties, the financial crisis in the two thousands, the twenty ten seemed totally uneventful other than the fact that you know, there was no yield on the fixed income side. And here we are in twenty twenties, first the pandemic, now the increase in rates. In your long career in Wall Street, is there ever a decade where something isn't blowing up or going crazy? Isn't that just the normal state of affair?

The crazy is always crazy, right, am I am?

I like not overstating that, or I would.

Say, you know, in a research response to you, So, I've been through thirteen FED tightening cycles, right, and everyone has had a financial shocker crisis Cutton, Illinois eighty four, for example, But every single one New York community bank it's just par for the course, might even not even quite par. But I mean, so I would be surprised if we don't have another one. It's part of the tightening cycle.

I think, even if the FED is arguably done tightening, you think there's still more cockroaches coming out. Yeah, fascinating.

But I would also say, trying to put things into a historic perspective that we might enjoy a decade from now. They'll curve still inverted, right, which is a tightening move. And every week the FED shrinks is balance sheet and it's doing about a trillion a year, which is not exactly.

So you're saying, you're saying the financial conditions are tighter presently. Then people seem to realize.

Not just the financial conditions, because the market's up so much and credit spreads are very tight. But I'm saying the FED tightening is probably ongoing. And bank deposits go down every week.

Well, if I get five percent of money market, why I'm going to leave cash in a savings or checking account.

So I think the FED is still in a tightening mode, which is why I think for example, New York Community Bank popped up, and if you are looking for it, which I am every two or three days, there's some story about a problem here or there. It could be a problem with the German banks and commercial real estate, for example.

It's been a little backstory.

Are you seeing this as a systemic issue or just isolated?

I think the FED tightening, and also ECB has been tightening, says all the but I do think that every period has problems, and like you mentioned, the smooth sailing in the twenty tens.

Didn't feel that way at the time.

I remember the.

You're blowing up in Greece right, right, there was a lot.

Of stuff that was that. It seemed pretty bad.

Right, you look at a stock chart, it's a little misleading. Oh we started down here and we ended up here. Must have been great, always climbing the wall. Worried. Right, it seems like you're much less focused on the here and now than predictions. So let's talk a little bit about forecasts. How do you use them or not? How do they fit into your research products?

Well, you have to do forecast. Maybe forecasting is impossible, it's certainly difficult, but you have to do it because in order to make money, you have to have some sense about where things are going. And the difficult thing is to know when to hold it, know when to fold it. So that's like a mosaic you put together and you come up with a view that's based on

I want to talk about the thing that first caught my eye with the work that you do, starting with your survey of people in the real economy of businesses and sectors. Rather than just rely on economic data that comes out of the government or earnings, tell us about the surveys you created when you first started doing the sort of work you do.

Early on, there was a business called Johns in red book. Don't write it down, but they surveyed retailers and.

That was like a weekly thing.

Right, It sound like a really good idea. I took that idea and took it to the limit. So now we survey about thirty industries, maybe three hundred companies in each industry, three hundred companies overall, thirty industries like retail for example, or autos, trucking companies, you name it. We do wine and spirit, hoostsalers. Right, we have a survey we do at the end of the year of Christmas

So you're getting like a real time snapshot of what's happening, not just across the economy, but within very specific subsectors.

I'm sort of a contrarian at heart, is I don't trust government data.

Right.

It's also very difficult. How do you measure GDP two weeks or three weeks after the quarter ends, or retail sales eight days after the month ends?

Too much data to assemble.

If you think about it across the whole country and plumb it's the same way. How can you possibly Well.

That's why they do three of them, the early release, the update, and then the final across three. It takes them three months to do GDP. But even that's difficult. So then on the other side, you're a practical person. If you meet somebody, say that runs a business, and you say house business, they'll always tell you with actually vivid detail, real granularity because they live it twenty four to seven. So if you can get a group of those, say a dozen, you have a pretty good leg up

So if they participate with us, I send them our research.

So they get it for free, and that's not an inexpensive product. So in their space, they get to see what their competitors.

Are saying, if not all of them bite, that's one incentive. The second incentive is they get to see the result. Trucking survey we do comes to mind. I think we have a dozen truckers, and boy, there really aren't any more than that country. They're only probably five big trucking companies. But we get a dozen trucking companies.

They all want to see what the other truckers are saying.

Yeah, and so you can imagine if you're in a business that has some homogeneity to it and you see the survey and it drops sharply, you say we're doing great. Or if your business drops sharply the other and the survey doesn't, you got hey, guys, we're doing something wrong here. Sometimes you do things and after a while you conclude it's not the best idea, so.

You retired if it's not working, and you move on to the next.

But this just keeps working.

Year after year. So let me tell you, say, three other.

Thing week after week.

Right, you know, anytime we talk about economic data, I love the George Box quote. All models are wrong, but some are useful. It's an incredibly insightful insight into statistics and modeling. You obviously pick that up forty three years ago because you said, I don't want anything to do

So I don't think I've invented a single thing in my life.

I give you credit for inventing that because before you I've never seen marked up shorts.

Well, so that way, so let me explain.

So on the company surveys, there was just one group that did a survey of retailers, which turns out what that was our first survey we did. It just worked out. But I really told the idea from this other group. I was working in this business and still in at CJ. Lawrence and the sales team, which is an important part of the way you operate. You have to generate ideas for them and get them to believe in you. They were taking my work and marking it up, meaning literally

Amazing thing is when you look you can look at a million stock charts. But if you or whatever, but if you look at a chart and there's in a sharpie and bold script, it goes to it, you can't help but see it, and it it changes how you perceive that chart. It shows you what's important, it shows you what to focus on, but it it just draws you right into it. Was that a purposeful strategy or was this just something you were doing to show the

But then you know if I'm working and that works for those guys, that approably works for other people like Peter Lynch.

Right, So I think of you not as a pure economist, but as somebody who is both a business cycle expert and who has watched market cycles over the decades and has become an expert in market cycles. Is that a fair description to make?

So if you do what I do well, you have to be market focused. You have to listen to the markets, You have to respect the markets, You have to learn from the markets. I look at the markets all the time on Bloomberg, but I mean I'm a junkie, probably look at the markets three or four times an hour. Right, And just as I'm sure you do frankly, and you let it sink in, you say, does that fit with my picture I have in my head about what should be happening.

How do you separate the intra day noise from stuff that really matters? Because I started on a trading desk, so I was staring at the screen all day, and I have to force myself. You're looking at the market four times an hour. I'm forcing myself to look at the market less and less. I don't want to look at it constantly because it just makes me want to get in there and start trading.

Each of us finds their own voice.

I know.

For me, being aware of what the markets are doing is part of my sauce. And so when I'm dealing with investors, obviously they're consumed by what's happening in the markets, right, And so it's not a foreign language to me at all. I think it helps me understand what I should be doing for a practical approach to what's happening. And I view myself as a business analyst.

A business anist.

So when I say business cycle, that that's significant. Right on a business cycle, you're part of the business cycle. Or the financial markets. I remember early on in my career, I'd met a guy and then they had an article about him in the Wall Street Journal. The market was doing something and he said, it's just too much money and irresponsible hands. I thought to myself, this guy's a loser, and how did his career work out? Not well, too much money in irresponsible hands or the state of the

Yeah? Not useful.

I want to share a quote from your Lions who puts this up online and someone asked him about Ed Heyman and he responded ed, Heyman sticks to his core mission of providing high quality and independent research. He helps portfolio managers make sense of the world. He sorts through the reams of economic data and government surveys to provide an objective and independent assessment. That's that's the high praise from a client. Does that sound like the goals that you're aiming for?

Is that is that from my wife? Or well?

No, that was from a client who actually answered a question about you.

That is high, high praise, and obviously that's what I want to do. I also part of My job is to connect the dots, to look at one hundred different observations and find the three that have an important message. And sometimes I get I get the right three, and some I don't. It's something that people can understand, and when it doesn't work out, then I move on to another perspective.

Huh, really interesting. So let's talk a little bit about the state of the economy today, and let's start with where's our recession in twenty two? I just kept hearing there's a recession coming in twenty three. Here comes a recession. What do you make of the economist's consensus? That seems to have been pretty wrong for I don't know, eight ten quarters in a row.

I'm a student of history.

The last cycle, for example, it took eighteen months, but when the yokur inverted to when the recession started in two thousand and eight, eighteen months. During a good part of that, the S and P went up twenty percent right and peaked eight weeks before the great recession hit. You don't know it's happened until it happens.

As a student of history, you know it's not when the yield curve inverts, it's when it begins to uninvert that bad things start to happen.

But that takes a long time, and you can see once you get that perspective, you can see real estate projects they get started and it takes probably eighteen months for them to finish up. That's just one example of why it takes so long. It takes a while for increase in interest rates to actually get into the system because people first they're living off low interest rates. It takes a while for people to get a seven percent

That was the subprime is contained. I remember it was just contained contains the planet Earth. Once you the rest of the solar system was fine.

But boy, you mentioned rein Hard and rogue Off. Sure, they wrote a piece in early eight how silly it was that people had concluded it was different this time. But that's what had happened, and so we're in that phase now. I think the recession might not start for another six months. In life. There's a certain combination of being confident and being humble. You know, you have to be humble, but you have to have a certain amount of self confidence that you know what's happening. So I

That's a reversal from a year ago.

Everyone expected recession.

So I want to talk about inflation. But before I get to that, obviously the Federal Reserve has a big impact on the economy. They raised what are we five hundred and twenty five basis points in eighteen months. You got to go back to Paul Volker to see a rate hike that radical and that quickly if the higher for longer argument wins out and the Fed does not cut rates from here, and some people are now talking about raising rates from here, that sounds like that's a

Is a fair The economy is booming.

It is booming. It's booming, I mean, but you're yet you're saying into this year we could see a recession.

Right, It looks okay until it's not it's the leg it's the lag latter part of seven. Even though housing was imploding, right, the economy was okay, and I mentioned the SMP had a big rally and people were saying, well, it's different as time, et cetera. At the same time, I don't want to get too crazy about things. I don't want to make a fool of myself, right, and so I'm just saying it's coming, and confident or hopeful. It's the confident that when it starts to hit, I

So if we see, as some people are talking about June or maybe even May, rate cuts, don't assume you're not going to get rate cuts in an election year. There have been rate changes every presidential election going back forty years, just about if the Fed cuts rates in May, cuts rates in June, cuts rates in July or September, can we avoid a recession in twenty four or twenty five?

Might avoid it anyway, But monetary policy works with long legs, the.

Long invariable lang is so hard to get away from, right And guess, although you see it in real estate first, it seems that seems to be whether the rubber meets the road or do you see other sectors get hit before that?

You know, I'll look for wherever it is. But real estate right now, the commercial real estate space, there's a story probably every two or three days about some problem here or there. So that problem hadn't gone away. It just takes a while for it to work itself out. Ninety eight with a recession coming up a couple of years later, one you had LTCM, which long term what is it?

Long term capital management?

And I'm not even sure I knew what it was at the time at the time before it hit, Actually I knew pretty well what it was.

But you had no idea they were hunting one hundred to one leverage.

No, apparently they didn't either. But anyway, you know, that you know, darn near blew up the global financial system right out of the blue.

An early warning shot, right, if only anyone who paid attention, maybe eight or nine might not have happened.

And then you had the Asia crisis in the same year, and then you had Russia. And these are not things that you would.

Have thought of.

First off, if asked what could be a problem in ninety eight.

Ninety was the was the tie Boy crisis ninety seven?

And I think, yeah, maybe maybe not?

I said Russia, which al ended up blowing up LTCM in ninety eight. Also, right, So you had two major events and two considerative views. Well right, right, And the market continued going higher until the commy hit in a recession. So I'm just sort of pushing ahead. Commedy's doing fine.

Now. I don't think I'm adding a lot of value on this topic, but I'm just waiting to see, you know, if we actually get into our recession. In the meantime, inflation is coming down, So.

Let's talk about inflation, because I feel like lots of economists got that wrong. Also, And when you look at I'm trying to figure out a polite way to say this, when you look at the well known economists who came of age during the inflationary nineteen seventies. I'm thinking of like Larry Summers, former Treasury secretary. They see inflation as structural. They see it very similar in nineteen seventies, and I get the sense that the transitory nature and granted transitory

You tell me very I don't know.

I mean, I'm playing pop psychologists and say, well, if you were a seventies era economist, well, you're just going back to your roots and not looking at the supply shide shock and supply chains and all these pandemic related issues that unwound more organically than I think people expected.

So in the seventies, I'm at MIT and they have a debate posted on the bulletin board between Milton Friedman and Paul Samuelson. Right, not sure who they are, but I'll go and they're probably twenty kids in the room.

That's unbelievable.

I was blown away because they both were incredible intellects.

Samuelson eventually wins the Nobel Prize.

Right, Freeman doesn't do badly either, another giant absolutely anyway. So I really got into his logic, and he became in the seventies a very major figure.

One hundred percent inflation is and always will be a monetary phenomena.

And then he had, you know, extreme views on capitalism, which are not popular now at this point, he's not woke, sort of Larry Summers of the world, who I think is brilliant. They've sort of pushed away from that, but I haven't.

And well, I bet you've pushed away on some of the stuff. I was always surprised that sort of the free market absolute stuff like we don't need an FDA. If baby formula kills a baby, well then well then they'll change the formula or they'll go out of business. I mean, I think that.

Was that's a little extreme.

I understand what he was saying intellectually, but I think the way it came across just did not resonant with even with a lot of economists, but no doubt one of the most influential economists of the past century. Right.

And so in the seventies, the money supply would accelerate, maybe ten to fifteen percent, and then inflation would accelerate. And it happened three times. And by the third time, Freeman was a major figure on Wall Street. When the mighty supply numbers would come out on Thursday afternoon trading floors, which I was on a trading floor waiting for the numbers, they would erupt up thirty billion, only up two billion or whatever I mean it was. It was something else,

Commodity traders love to say the cure for high prices is high crisis, right. I mean I heard that my whole uh, my whole career. So so let's talk a little bit about you as as watching money supply. I again, I tell the young guys in my office. You know, back in the day, the Fed didn't announce the change in rate polo. See, they certainly didn't hold a press conference. You found out about changes and interest rates when the bond market told you interest rates are Now this tell

Well, I've always watched the money supply, and the FED can operate through interest rates, or through the money supply, or through Joe boning the markets, which they do. Now you can see them saying we're not going to cut rates. So they are going to cut rates. So that's been a familiar territory for me for fifty years.

Really.

In the early part, Volker said he liked to keep his cards close to his vest, and he had a big vest, so tall Paul Tall, full and so that was that, and then the German Central Bank. I'm going to better that, I'm going to give the market a fake out. I'm going to indicate I'm not going to do this, and then I'll do it, because you get more bang for your buck if you really surprise the markets.

Speeches, transcripts, q and as. I mean, it's such a different world than the nineteen seventies or eighties. Does that make it easier to track what they're doing? Or is it harder because now everybody sees the same story at once.

It doesn't strike me as any particularly harder. Or the question is what's the impact. So, for example, you mentioned the BEG increasing interest rates five hundred and twenty five basis points, you correctly point out in addition to that, the FED has shrunk the balance sheet a trallion dollars.

They went from quantitative easing to quantitative tightening, meaning they're no longer buying bonds, are now selling.

Bonds big time.

And so a general rule of thumb that Bernanke's talked about Bill Dudley that was the chairman of the New York Fed. Is that a trayon dollars is in the neighborhood of one hundred basis points on the fund rate.

In other words, buying or selling a trillion dollars worth of bonds is the equivalent of one hundred bases A percentage higher, a percentage lower, and rates.

Right, So I think the fund rate is about six and a half percent because it's five and a half and they've shrunk the balance sheet by a tray in.

So historically six and a half percent is pretty average if you go back fifty years. But if you go back to two thousand, six and a half percent cent really high, right.

And there's some rates like consumer credit card rates are up to twenty one percent or twenty two.

Which seems a bit stiff.

It's prohibitive. And I think used car rates are fifteen or sixteen. I mean, there are some rates mortgage mortgage rates are up to seven percent, so there are some rates that are high. But then there's also the mystical about the mind supply, you know, how does that impact And then they also mystical about the Yelkur you know, when it's inverted as a negative signal, it basically tells you that the fund rate is high because it's higher

You have to be patience. Speaking of transparent Jerome Powell shows up on sixty Minutes for a long Q and A. First, did you get to see him on idea? What was your thoughts on how he described the economy, the state of the world rates, What was your takeaway? Seems like a pretty impressive guy.

I agree.

He's very easy on the eyes. He's easy to listen to it.

He looks like a central doesn't he.

That maybe one of the reasons that he got appointed.

Straight from central casting. I mean, yeah, but very very thoughtful and reassuring in a lot of ways.

So the only thing that I disagree with him on is he presents the case that the economy is doing this now. Therefore it means that mantre policy is either tight or loose, And I said, no, that doesn't work that way. You have to wait a year and a half to find out. And that's what makes it so difficult to do Mantrey policy because what you do today is like turning a tanker takes I don't know, ten miles or so to turn it, and it takes a year and a half from martre policy.

So when was the last tightening was July twenty twenty three, So we're still we're still six months away from feeling the effect of what they six months, probably longer than that, where till the end of twenty twenty four we haven't fully felt the impact of the last hikes correct and the heel curve inverted in late twenty two, so we're about fourteen or fifteen months. What's the average eighteen is from inversion to recess to recession eighteen months. That's a long time.

And this, you know, Milston Freeman, I'm saying the Obviously he was very smart and he didn't say they're long lags. He said they're long and variable lags. And sometimes I get a little trigger, like I mentioned I think I think I mentioned eighteen months five times too, like I said.

But he would tell you it's six to thirty six months, not eighteen months, right.

And so I mean it could last longer than eighteen months, which would take you and then you have the election coming up, right, and at this point, there's really nothing that fit can do to influence the economy, you know, during November of this year.

So someone else recently commented, I'm glad you brought that up. So you have a number of So he had the Cares Act one, two, and three, and each of them, the first two under Trump, the third one under Biden. Each of them just a ton of fiscal stimulus into the economy all at once. A lot of the recent legislation, so the Infrastructure Bill, Semiconductor Bill, the Inflation Reduction Bill, all three of these are like ten year legislations that they have a lot of discretion as to how that

I don't think so, And I would be surprised if there's not some of that going on little thumb on the scale, and the same probably is true.

For energy prices.

Really well, if you can you know influence, You know our friends in Saudi Arabia or the Middle East.

You got a warrant between Russian and Ukraine, you got a hot war in the Middle East. It's kind of amazing that oil prices aren't ninety two dollars.

It is unless you look at the fact that the money supply growth has gone from thirty percent down to minus two, right. And I'd also say in a practical way, because I find the money supply story it gets old after a few months, eighteen months, people say forget off.

Already, like you're gonna miss the end. It's like leaven before the ninth ending of the game. You don't know what's gonna happen.

But I think you know, China is a major factor in this, and China's economy is still pretty soft. We survey twenty one companies that have sales in China, and that survey this past week was thirty one. I mean way below forty five, way below forty five. That percession our survey is forty nine. And it's only been this low thirty one for a few weeks during the pandemic. Really in China. Wow, So that's one measure before you move on.

To the next measure. Let's stay with China. This is the second largest economy in the world. It's the industrial heartland of the global economy. If they're deep in a recession, like I know, we used to say the US catches a cold and the whole world gets pneumonia. But has that changed over the past fifty years. If China is deep in a recession, are they dragging the rest of the world down with them? Or are they a reflection of a slowing Europe and a soft South America and Africa.

One question is why are they slowing? And another question is what's the implication of them slowing. The first part is more complicated why they're slowing. But the property market in China apparently is a real mess giant and going to stay that way for a long time decades.

Right when you say a long time, this isn't fifth And this is like a deep structural problem they created by ourselves.

I'm seventy eight, so let's not talk in decades, you.

Know what, not your lifetime, maybe not my lifetime. I only have. You know, you only have a decade or so on me. I'm not. I don't know if I'm ever going to see a robust real estate market in my lifetime in China.

Yeah, well, you know, I'm not a big fan of long term forecasting. But anyway, it's pretty tough in China now. And you know, one of the other things I do is I talk to clients relentlessly, and when I get to talk to somebody who's just back from China, I really grow them. And what I'm hearing now is that the locals in China are not optimistic. They're pretty down in the dumps. Animal spirits are pretty somber, which you're

And she turned around and say, all right, here's a whole new plan and we're gonna the US just did a giant fiscal stimulus or three, We're going to do one also.

So I'm a team player, and I love working with people, working with our clients, and I love working with our research team and our research team, if I may sure them on the back is the number one team on the street is now the second year in a row. We have a really good research team and we have an analyst, a research team that covers China, Neo Wang. He's Chinese. He knows what he's talking about. So far, they haven't done anything dramatic. Say, she has not done something.

Europe is weak.

So we do a survey of twenty eight companies in Europe and that survey is thirty five. Also is almost as soft as China, almost as soft ast China, not as it's soft, and they have problems, you know themselves, And so you have hindsight is.

Great, but always twenty twenty.

But now you know, sitting here with you, we're trying to look through the fog, and we talked about China. Looks like China's second biggest economy in the world is not doing well, not strong. And then Europe is not strong either, and no one is. There's no particular physical stimulus there, central bank there, the ECB, they're still tight, not as tight as the Fed, but they're still tight.

So the last question I'm going to ask you about the state of the economy today or in the near future. What else should we be paying attention to if we want to see the signs that either the US is sliding into a recession or accelerating out of it and is going to avoid a recession. What are the most important signposts investors should be looking at.

So I watched our company surveys the most closely. Now, your viewers or listeners, they don't have that, but so that's that influences me the most. And right now they're they're okay, they're not great, but you know, they're definitely not recession. Secondly, the best government data are the weekly unemployment claims, and they are strong as garlic. I mean, I get a headache.

We've had a short you know, we have not had enough. It's so funny when we looked at inflation. We didn't have enough chips for cars, we hadn't enough houses. We underbuilt houses for a decade, and we don't have enough workers. We don't have enough labor. This has very much been a lack of supply driving inflation. And how do you get above three and a half four percent unemployment if there aren't enough bodies?

So that to wig in the economy. But it's I think you put your finger on it perfectly. We've had an unusual lack of supply at the same time we've had an unusual increase in monetary and physical stimulus. It's like it created a great economy but also created a real bad inflation problem.

And a number of people warned about the inflation. I remember Professor Jeremy Siegel saying we've never had this much fiscal stimulus without a huge inflation spike, and people looked at him. In like twenty twenty one, like he had two heads and he turned out to be yeah right, all right, So enough of the US and global economy before I get to my favorite questions. I have to throw a curve ball at you. The International Tennis Hall

So I love tennis.

I picked up the game less than ten years ago and fell in love with it. Also, it's wonderful. I'm a lousy player. I've been playing, I guess since I was about twenty years old, and I know how to play tennis. I've been trying to play golf recently, and I can see that I don't know how to play golf, but tennis, and I love tennis, right, And so years back, a friend of mine was on the board of the Tennis Hall of Fame, and so I got on and I was on there for maybe a decade. But I'm

I don't stream at all, not really. You know, I'm a big consumer of business news anything. You know, I'd be embarrassed to tell you how much time I spend listening to Bloomberg.

Right, it's a real treasure.

Well, it's geared towards you and your clients. It's not a coincidence that that's the target market institutional investors.

So I'm all over that. I read probably a dozen newspapers a day, and the amount of news coming out.

Is just it's a fire hose.

It's a fire hose, and frankly, it made my job much much more difficult because it's so hard to add value. I mean, it's very difficult to add value, and so I'm always intently aware of that that I have to pick and choose what I try and put in front of people because it's just redundant.

Is that why you said the twenty tens were such a challenging decade running a research shop because of the just massive amounts of well news coming out.

It's not that really for that one thing in twenty ten that was the peak of this of my business, and the dynamic has been active to passive. Active managers use my work and use my firm's work.

So is that shrinks a little bit. It's gonna that much less demand from that side.

It's now fifty to fifty, fifty percent active, fifty percent passive in.

Etf some mutual funds, but not overall in the toet equity.

Markets total equity markets, really fifty to fifty.

That's a big number. I keep reading so much low, like twenty five and thirty.

Well, anyway, whatever it is, right, it takes. But you know it's always taking, you know, audience away from and trading volumes away, and then the sense for share of and trading sure has come down. John, So it's a much more difficult business than it was. Let's talk about mentors who helped shape your career. It's a good question, Barry, because I think for anybody a big part of their success depends on this working out in a positive way.

Usually influential in going and.

He's also extremely hard working. I remember he would come back from a trip to Europe and he would have written a whole paper. I thought, my on vacation, No on business coming back a business trip from Europe. He was always working and he was just a fine person. And I know, whatever positive attributes I have, I picked up a lot from him. And then I went to work for C. J. Lawrence and Jim Olt ran that firm.

But that seemed to have worked out. I seemed to work worked out. Okay, let's talk about books. What are some of your favorites? What have you read recently?

Is a book called Truck and it's a It's a fiction. I haven't read a fiction, I don't know thirty years.

I know the feeling and I read it.

It was It just was delightful and I learned a lot from it, and it made me think a lot of it's written about the depression and going up to it and after that, and it's made me think differently about the Depression than I did before. And now I read my buddy Ed Yordini's trying to make out like we're headed to a new roaring twenties period. But that's a good read. Recently, Chip Wars.

Is a mush read, fascinating book.

Fascinating book, you know, brings up you know, you think about Taiwan and China, Taiwan and China, Taiwan and China, and you know what could happen there. Henry Kissinger has a book out about leaders. It's actually all the leaders he worked with, and it's.

A interesting read.

But you know the ones that have been most influential in a long term for anybody in this business. Reminiscence of a stock Operator. Sure by what the Jesse livermore right? I mean, you have to read that. Hopefully you read it when you're young.

It's amazing how fresh it still is today. You would think it's dated, but it's not.

So Those are some of the books I've been trafficking in but I read. One thing I've found is that people that do well read a lot.

No doubt about that. Our final two questions, what sort of advice would you give to a recent college grad who is interested in a career in either investing or economic research.

The most important advice I can give people is to work hard. Boy, that sounds superficial, but I'm sure that is. You know, everybody you can think about, that's the common denominator. So for a young person, they just have to work hard at finding their voice, finding their path.

I was lucky.

I found it easily. You know, I can see some young people don't find it easily. So that's you got to work hard. And first you got to work hard finding your path. And then once you find it that it's easy. Frankly, I think you found your path and.

That just meanwhile, but I eventually got here.

You got it right.

And now in terms of this business being the best business, yeah, you know as well as I do. It's an enormously interesting field. And I get up in the morning, I sort of jump out of bed. The first thing I do is I start reading my Bloomberg to see what.

Happened that's really fabulous. Let's jump to our final question. What do you know about the world of investing today that you wish you knew back in nineteen seventy when you were first getting started fifty years ago?

You know, this is one I've gotten before, and I think about it, nothing comes to mind. I'm surely yeah, I'm sure.

Nothing would have helped you out that you know today. Gee, if only I knew fifty years ago that I shouldn't do this.

Well, you know you can do that. You say, you know what you know? I should have you know got.

I mean by Amazon at the IP right, I mean what what? What knowledge do you have now? What wisdom have you acquired? Hey? That would have been useful?

Well, nothing comes to mind. Maybe I'm just brain dead.

No, that's fascinating because what you're really saying is it's the it's the road, not the destination. It's what you learned along the way and when you learned it.

What I think is a better question now, maybe for me, but maybe for even a young person, is if you go out a decade from now and you want to look back at your life, what do you want to see? That's an open slate. You can make that happen.

And that's a question you can think about at any point in your your.

Pre litional and so right now that's what I think about the most, and nothing just jumps out at me. I knew I was going to enjoy doing this with you.

Well, I always enjoy chatting with you. It's always a delight.

So may people do it in another decade.

I'm not going to wait another decade. We'll do it sooner than that. Thanks Ed for being so generous with your time. We have been speaking with Ed Hyman. He is the chairman and co founder of ISI Evicor. If you enjoy this conversation, well check out any of the five hundred we've done over the past ten years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you