Neil Dutta on Economic Research

economists who cover the street. I found this to be just an absolutely fascinating discussion about how to best contextualize the world of economic data around you in a way that's useful for you as an investor. Very often there's a ton of information that comes out and by the time it's released, it is fairly meaningless to what the

market is going to be doing a few months. Hence, understanding nuance, understanding that the world isn't binary is the challenge for investors, and few do it better than Neil does in terms of putting together a global view of what's happening in the economy, what's happening around the world, what's happening with the Fed, and what's happening with the stock market. I found this conversation to be fascinating and I think you will also with no further ado ren

Max Neil Data. So let's start out with a little bit about your background. You graduate cum laude from n y U with a b a. In economics and policy. What was your first job in the economics and finance space?

So I was actually thinking about being a lawyer. So I ended up taking my l S at my senior year at n y U, and UM I did okay, but I didn't do well enough to go to a school that I really wanted to go to, and so UM at that point, I was kind of scrambling, and I was like, I need to get into the financial industry because I'm in New York. I have a passion for finance. But it was kind of late, so a lot of the investment banking and US have had already

lined up their gigs. So I ended up getting a job at Merrill Lynch as a compensation analyst in human resources. Really yes, so that was so UM I did that. I started that in two thousand and five after I graduated. UM. But one of the good things about being an HR Barry is you kind of know where all the jobs in the organization are. So fast forward about a year and a job had opened up as an economic research

analyst in Someone's someone you may know David Rosenberg of course. Um, so that was actually my first foray into economics, and the rest is history. Um, you also worked as an analystic Barrens. Tell us a little bit about that. Where was that in your career path? Well, that was really

more of an internship than anything else. But I worked with um Gene Epstein, the economics editor at Barns noted, uh, libertary, are and enthusiast now, but yeah, I mean that was back when I guess Alan Abelson was running was running the Up and Down Wall Street column. Now obviously it's Randy, but Randall fourth sythe yea who was another Gene Dolan, right Donalin Alan Abelson was must read each week, Randy forsythe they had a killer lineup, and Gene basically wrote

a weekly economics column. So that was my sort of first foray into just analysis in terms of economic data. Right, Like some of the tools that people would use back then, right hey, r analytics was a big one, and so Jeane kind of introduced me to that. So when I was a trader back in the nineties, my Saturday's always

began with a big mug coffee and Barns. And you know, back before you had everything at your fingertips, it took a little bit of effort to find things in the pre Google days, and sitting down with Barns was a weekly routine, and it felt like it was the publication that everybody on the street was pouring over every week. Do you think it's still that way? I think the world has changed radically, clearly. Twitter is the new tape.

I see things on Twitter before I see them on the terminal, because I could be in the car on a train or something and something will across Twitter and I'm sure it's on Bloomberg at the exact same time because they passed Twitter constantly. But I don't always have my terminal up and open in my face, certainly not when I'm driving. I agree. I think that the whole finn Twitter community is probably the most useful uses Twitter

as a as a sort of social media tool. To say nothing about how easy it is to find anything online, not just through Twitter, but Google also is an enormous resource. The nineties were what thirty years ago, right, very different world. Three decades two a half anyway, decades have passed you're not on Twitter. As far as I can tell, I am on Twitter. Well, we run our company not under your name, no, not under my name. That's I mean, we sort of run that as a company policy. Um

but um yeah, I mean I I tweet. I try to put information out there. What we try to do, of course, is to make sure we're sending it out a little bit later than our clients get because then, you know, I pay for research in the first place, if you can get it for free on Twitter. But yeah, I mean, you know we started that account maybe. Yeah, we've been growing it ever since and we have a good yeah, we and um yeah. What we try to

do is promote our our in house ideas. So let's talk a little bit about what you did at Merrill Lynch. We worked with Rosie, which I'm sure you have lots of stories from that. What was your role there? What sort of researching and writing did you do well? So when I started as an analyst under Rosie, Um, I was basically a junior economist. I mean a lot of

I mean. One of the great things about Rosie, I mean, you know, was just he is I think one of the best examples of what a wall street economist should be like we had this UM weekly piece called the market Economist, right, And that I think is very important because he was a markets economist. He wasn't a PhD.

And he didn't think like one either. And what I think he understood and what he kind of ingrained in me, you know, very early on, is that this is really fundamentally if you're a sell side research economist, you are in the client service business. And that's what Rosie was really great at UM. I mean, he was always on

the road. I mean, gosh, I don't even remember when I don't even remember when I saw him UM, because he was always on the road, particularly in in in oh seven and oh eight, when UM when it's you know, I mean it was sort of with with Rosie. It was kind of wrong wrong and then spectacularly right, right.

And so when he became spectacularly right, you know, he was he was on the road constantly, and so one of the things I would do for him was just kind of feed him ideas, feed him charts that kind of reinforced his his thesis that he could then go and present the clients while he was on the road. So a lot of it was sort of getting in the weeds on on charts and data. But that's that's

what I would do for him. And then you know, as I got better at that, he kind of gave me a little bit more freedom in terms of allowing me to write. And obviously, if you work in in a Belgian bracket like that, you're obviously writing under the lead analyst, right, So my name would go on the reports,

but they would be under his, of course. And he gave me a little bit more freedom as time went on, and I would end up writing his morning note, which was the widely read you know Rosie Tidbits, remember, I mean you know those now it's Breakfast with Dave. Back then, it used to be called Rosie's Morning Tidbits. And I think that was a play on because you know, Rosie was Canadians Canadians and still is um and in my career, I feel like the Canadian they produce a large number

of economists. I mean, it's it's kind of right, I mean comedians. And I have no idea, but I think the tid bits was a play on tim Bits, right, Tim Horton's sort of their version of dunkin Donuts, I guess, And so he gave me some freedom in writing that. For so Rosie actually ends up going back home to Toronto, I know, oh nine, And so now you're at Meryl without him writing heard on you. What was it like when you had a little more latitude to go where

you wanted? Well, um, it was actually an interesting time because, um, when Rosie left, things were starting to turn around a little. And I remember I wrote a piece basically, I think in June two thousand and nine, basically saying that the recession was over. And at the time it was a

controversial call. Um, but that was when we didn't even have a head of economics because there was a bit of a sort of murky you know, let's say six to nine month period where Rosie had left and it had been a you know, and and then Ethan Harris had yet to come in, so we kind of had a lot of freedom in terms of what we wanted to do. And um, you know, so I wrote that piece.

It got a lot of attention, I think, But yeah, I mean it was a good call and I think it was interesting to say the least, because um, here you had Rosie, who was a noted market bear at

the time. He never would have put his name on that piece, right and um, and so in some respects I was able to and I you know, I mean we used a lot of the same framework that he is looking at a lot of the same indicators in terms of you know, you know, Rosie would talk a lot about leading indicators, the the e c R I index, and a lot of them had been turning around. So we had basically said, look like things are getting better and it's sort of reinforced, uh, you know, the upturn

in markets. So um and speaking of markets, how often is down fift not a pretty decent entry point for equities? Oh? Sure? Well, I mean one of my buddies, Sam Row, who you probably know TK t uh and um. He has that you guys know each other. Sam's work is great also, Yeah, I mean I can't I I think very highly of him also. And one of the best things that he says is stock markets usually we go up. That is a factual statement, not always but most of the most

of the time. And um, it's tough being on the low probability side of the street, right, And I think that sort of set a lot of the kind of trajectory over the next several years after um I left Merrill and when I started at rend Mac And just if you couldn't figure out by eleven that the sky is not always falling, you'll you'll never figure it out.

I mean, because we had so many things happened. We had financial crisis, double depercession fears, right, there was that debt default thing, and then China hard landing that was like this perennial thing, and European sovereign debt crisis and

stocks kept going up. And so I feel like, you know, over my career, right, I mean, I've kind of I started working under Rosie, right, um, but I feel like over time I've actually been pigeonholed more as like the more market optimist economic optimists not so let me let me channel my in in a rosy and pushback on your markets always go up. Tell that to someone who bot Japan in or but China you're down in China. I think you're still down in Japan. It's decades later.

What do you mean markets always go up? Well, US equity markets usually go up. That's and and we're very much US focused here. UM. I don't disagree with you, by the way, but those are the objections that sure, I mean, well always come up there. If anything, they're the exceptions that proved the rule. Well, Japan is an interesting example because, um, of course, after the financial crisis, that was a very prominent example of what the U

S could turn into. We're going the way of Japan. Um. But I think in many respects, because that example existed, that's why we in fact didn't end up that way. We had we we sort of cleared out our banking system, we recapitalized our banks very rapidly compared to Japan. Obviously

Bernanke is a student of what happened. Then it's as if we learn from other people's exactly and think about, I mean, what was notable about at a sort of post financial crisis recovery was just how steady it was, um, you know, sort of month in, month out, continued declines

in the unemployment rate. And you know, if you go back to some of the literature around you know, the Swedish banking crisis, sort of the Nordic banking crisis, it was sort of you know, six seven years he cleared out the excess and things start to pick up, and that's pretty much what happened right. I mean, the household de leveraging was basically over and the economy was gaining a lot of momentum. So how did you end up at Wren Mack? Uh? You were at Merrill? Tell us

how you found your way there? So um So, as I mentioned, Rosie had had left to think that it was really in March of two thousand nine is a classic bottom exactly contrary, it was, he left at his peak, and I think in September of that year, Bank of American Merrill Lynch at that point hired Ethan Harris, who

I think he was. He was a Lehman Barclays UM and so I worked with him for until And you know, Lehman was a huge sort of fixed income shop and and that's where Ethan's focus really was UM and and obviously you know Meryl was more of an equity shop UM. And so one of the things that Ethan um gave me a lot of latitude to do was just kind of service the equity salesforce at Mery Lynch because a lot of his focus was really I think more on

the fixed income side, more on the fed UM. So you know, I I had a lot of UM sort of opportunity because it was kind of this runway that I just had, and and and what I would do is try my best to kind of, you know, remember what the equity salesforce loved about Rosie and try to apply that in my own way. So one of the things that I think that Rosie did really well is just kind of take the economics calls and make them useful for an equity market investment. Right, So if you

think inventories are done clearing out, what does that mean? Well, should be good for manufacturing. Now let me call I mean, and you have all these analysts that are covering all these companies, So why don't you go pick up the phone and talk to them and see what they say?

And then for an equity salesforce, that is a great thing because when you have your macro guy talking to your analyst, you can you pitch that to your clients, like, Okay, my my macro economist is telling me that inventories are have bottomed out. And here's what I don't know, John Inch, who was I think the industrials analyst at the time. Here's what he's saying about Caterpillar and Deer and so on and so forth. And whenever you have that, it makes a very good morning call, and you can it

makes a very good marketing tool. So I would try to do that a lot. And as I did more of that, I would be asked by the salesforce on the equity side at Meryl to kind of can you come on the road to me? Can you come out to California and talk to so and so? Can you Texas and so forth? And so I would do a lot of marketing for equity accounts at Meryl Um And I was really only like a like a VP at

the time. I was a pretty junior level person, and so that got me going, and then I got approached by Wren Mack and now I've been doing it for them for this last decade. It's funny you mentioned, um what the institutional sales guys like. Who was institutional sales in Marrow for a long time. He is not public, so I can't drop his name. But my favorite thing that he said about taking Rosie on these road trips,

they called him a wind up toy. Doesn't matter who the institutional client is, you would give him like an eight second tea. Up. Oh, this is an endowment. They focus on this they're interested in this aspect. They turned the key and wind him up, push him in, and Rosie would just be a fire hose of NonStop data, context information. Uncle, whatever you want. Yeah, you get the order, just leave me alone. No, Yeah, I mean for me,

it was a great education. I think those first you know, seven or eight years at MARYL because I had Rosie. I was fortunate enough to work with two greats. I mean, I think Ethan Harris is is one of the best. I mean, he had a great call this year. I mean in the last year. I mean he was the first one to basically say, you know what, the Fed's gonna go every meeting, and at the time he said it was pretty radical. Yeah, you had a pretty good call also the end of last year. In fact, I

recall I think it was on surveillance, Bloomberg surveillance. You came on and said, oh, the Fed's gonna raise at least four times. That was a very out of consensus call. Is We'll talk a little bit about that a little later, but you were very much pushing against the consensus that

it's all good. Well, so, I mean I think again, um, you had one of the best things that Ethan Harris actually ever told me was in this business, it's about picking, like weighing probabilities and then picking your battles with the consensus wisely. Like I'm not the kind of person that's just going to be contrarian for the sake of being so like that to me doesn't really make it. Listen, the market is the crowd exactly the right most of the time, and so you have to just pick your

battles wisely. And I think in that case, I mean, four was conservative. I mean, in hindsight that was I mean, at the time it sounded sort of radical, but in hindsight it was it was obviously not enough. Um. But so I think that to me, um kind of I thinks at the sort of stage for me at ed rend McK and I think it was very helpful to sort of come up onto those two guys. Really interesting. So we were talking earlier about your December twenty one call.

You thought the FED would raise at least four times. Let's look at what happened. Four basis increases to fifty point increases one basis point increase. Why was everybody so sanguine? Why did we all miss the fact that the FED was suddenly gonna you know, slam on the brakes. Well, I think you just have to go back to the initial reopening of the economy, right, um. And in hindsight, we basically had a V shape recovery, a couple of

trillion dollars of fiscal stimulus. We help, we threw a lot of money at the problem on top of that, right, I mean a lot of them. I mean we turned the lights off, we turned it back on. You had a V had a V shape recovery plus all the stimulus, plus you know, paycheck protection. I mean, when we had that first employment number, that sort of knocked the lights out.

Everyone was kind of surprised because we're all kidding off the initial claims data, right and um, and so we had seen that, you know, maybe these companies were hiring people back pretty quickly. I remember at the time the Atlanta Fed GDP now cast with something like minus fIF GDP, which obviously is a horrific extracoration. But that's why I think a lot of people were surprised that at how robust.

And at the time, remember very I mean, there was a legit debate going on, are we gonna have an L shape recovery, right, are we going to have a U shape recovery? And I think a lot of the issues around the FED trajectory was just a function of that, and we Bay sickly had a V shaped recovery and that warranted a very aggressive response from the FIT, although we'll talk a little later about how belated that response was. They they clearly could have started tightening earlier at a

slower pace. But let's put it in and that I want to talk about your call where you said there's going to be at least four increases. Tell us a little bit about your process. What are you looking at that leads you to say, Hey, the consensus is way too sanguine. They're missing this. The FED is really going to step up here. So I think the first thing to do in this business is you want to make sure you have the now cast right right, forget the forecast.

Let's just figure out what's going on right now and what's been happening. And at the time, what did we know. Inflation was coming in a little bit firmer, a lot firm, and unemployment was falling more rapidly than people thought. So what do you expect the FIT to do at that point. Uh. And oh, by the way, um they're behind right, So um, aren't they always? I mean you could you can make

that argument. Um, but you know, in this case, they were kind of very much keying off of labor market dynamics for the reaction function, and the unemployment was falling very very rapidly, and so that's what started it. And um, that's the area you're looking at that Hey, this is a red flag. Everybody is way too sanguine about c P I. I think the thing that really got it for me was what was going on in the housing market, right.

I mean, if you have this sort of pandemic event and people go out and what's the thing that pops first is residential investment and home sales. That to me is a huge, uh you know issue, totally opposite from the last crisis because and what do we know about housing? It is the it's like an irreversible decision, right, I mean, once you buy a home, you can't just go out and be like, oh, don't want to do that again.

I mean you can't return it. So you have to be very very sure about the macro environment before you make a down payment on a home. So the fact that people are willing to do that I think kind of led me to believe. Okay, if housing is historically a good leading indicator for the economy and that's what's really surging right now, what does that mean for everything else? Um?

And obviously if you're going to buy a home, you have to fill it with stuff, and we had a huge boom in stuff, and that to me is what is what did it? Um? So you know to me that the v shape recovery and the good side of the economy I think was an important development. And so let me ask you will drill down a little bit into the specifics. There are all these sort of binary debates around inflation. Is it goods or is its services? Is it fiscal stimulus or is it monetary um? Is

this demand driven or is this supply constraint driven? What are the factors? How do you take those pairs of contradictory positions and reconcile them? What do you think about those choices? And it obviously can be a little bit of everything. It's not just one thing. Well, this business is always nuance. Nuance never gets enough attention. But that's usually where the answer is. I mean, on inflation, Is it supply driven? Of course it is. Is it demand driven? Yes,

it is. I mean that's both. Um, Well, if supply could answer demand, we wouldn't have inflation exactly got to be a little bit. It's gotta be a little bit of both. Um. I guess in terms of where we stand right now, Um, you know, clearly there's a lot of improvement on the supply chain side. We're seeing delivery times come down, shipping containers are back to prepension. Um. You know, obviously we know that motor vehicle assemblies are picking up some steam here, but demand is still very

very strong. I mean, um, if you look at something like real consumer spending of goods relative to its pre pandemic trend, I mean there's been no big sort of collapse to trend. I mean it's sort of working itself out through time, right. I mean that we had that big spike and we haven't come back down from it. We've just plateaued with a slight up until the December consumer spending, it looked like the upward bias was going

on forever. Yeah, and that probably overstates things, right. I mean we know that looking forward, auto sales will probably be running better than thirteen and a half millions are over the next several months. Um, we already see several months, next several years because there's no used cars to be had because they were so little exactly new cars. And then and now on top of this, look at home building stocks over the last on fire. Yeah, what does that tell you? I mean a lot of these growth

pessimists that we're talking about housing is the leading indicator. Well, where are they now? I mean, housing is starting to revive And what do you think that means for durables? We'll keep in mind you mentioned how things lagged post financial crisis. We underbuilt single family homes for what almost a decade, and now suddenly there's been massive household formation pre and during the pandemic. What are we short? A

million houses? Two million houses? It's a giant not yeah. Yeah, if you assume like a normalized vacancigrate, it's probably a little over a million units, right. Uh. And you're also in a very strong demographic patch for housing, right, I mean people are you know, we're sort of in our prime marriage years as a country, and so so that that helps as well. I mean, one of the interesting developments out of the pandemic is just we have a little a bit of a mini baby boom going on, right,

And so what does that mean? So people are not only gonna buy a home for that zoom room, now they're buying a home for that nursery. And I think people figure it out. I Mean, one of the things I think people will be surprised to see is just look at what the incremental drop in rates will do for housing activity. Right, I mean, so people got locked out when rates went from six to seven. Now they're coming back down to six. But four month loads about six.

Things like mortgage demand pick up and even in the sixes, right, exactly right, I mean that's double what it was a year. And and the thing is that it never got as low as it did in fourteen despite seven percent mortgage rates. Right, So what does that tell you about underlying demand? So I think to me, that's an interesting kind of development here.

And um, obviously if you have a pick up in housing, that's going to provide um, you know, some tailwind two things like householdurable goods, furniture, carpets, appliances, stuff like that. So we're in a sort of weird zone where Jerome pal and the FED is telling us, hey, we're not done raising rates, and when we are done, we're keeping them up here for a while. Markets seem to disagree with that. How do you think about this, you know, tug of war between what the markets believe about rates

and what the FED is saying about rates. Well, one of the it's a it's a great question, um. I mean, as you know that there's this sort of thing that goes around Wall Street where the equity guys are the dumb guys and the bond guys are the smart guys. Right, I don't believe that there certainly are elements of truth to that, because the bond guys tend not to blow up the way some equity guys have. Maybe that's a

bad example, but I think that's what colors people's perspective. Well, I mean, there was the great, the great Samuelson quote that we all know of, right, like the stock markets, you know, predicted nine to the last five recessions, right, But in reality, the stock market has probably predicted four of the last five FED pivots, Right. So I mean, how bad can the stock market be? How dumb can that money be? If that's what's driving a lot of

the Fed's reaction function at times. And if you think the bond market is smarter than the stock market, well, what's the inverted yield curve telling you that the Fed's gonna end up doing well? It means that they're gonna push the economy into recession. I mean, I guess, I guess.

The one thing I would say about the bond market is that the bond market has the habit of pricing and tightening cycles way before they actually start, right, So there's always these sort of opportunities in the front end of the yield curve early on in an economic cycle, and they tend to price in the end of the tightening cycle after for its start too soon. Once the cycle starts, the bond market tends to price in the

end too soon. And I think this is probably another one of those times, because um, I don't think the FED is going to cut and one of the reasons why is because there's just too much economic momentum behind, you know, behind the U S economy. So you were talking the other day on TV about landings, hard landing,

soft landing. If there's no landing, tell us what you mean about that in terms of what are the stock and bond markets pricing in and what are your views on the economy for the rest of Well, I definitely think the odds of a no landing scenario are going up. What what is a no landing scenario but no recession? Yeah, growth at potential, if not a little better. I mean, um, I guess for me, it's you know, what's the mechanism

for the recession? Right? I mean, you're the argument now is what China's reopening and Europe is looking a little better, and the U s economy is going into recession. I mean, in my experience, the causality never goes that way. It goes from the US to the rest of the world. Not The rest of the argument is the FED over titans. They kill real estate, that can kill consumer spending, and that tips us into a month. So it's like it's the Milton Friedman like long and variable lag argument, you know,

Milton Freedom. I mean that may or may not be all that accurate. I don't think it is that the FED has been talking about. If you look at some of the Federal Reserve research papers, they're saying, hey, maybe FED activities work with a shorter leg. Then we've been let to believe. I mean yeah, I mean back in the eighties, I mean, research analyists would figure out what the Fed did three weeks ago, right, based on what

was going on the money markets. Now it's they tell you what they're going to do in the markets price in instantaneously. Um. But I think the growth impulse from financial markets is already flipping positive. So how could it? I mean the funny thing about this long and variable lag argument if it's an eighteen month lag, So what

was happening eighteen months ago? The economy was ripping and the Fed was reiterating it's low low, lower lower for longer approach, so that its Monterrey policy was really really easing. So are we still dealing with the easing of eighteen

months ago? It's ridiculous. So no, I mean, even if you go back a year, you had inflation ticking with what was it, March cp I went through the two percent target rates, So real rates for cratering, right, I mean, so the long the lags are not long and variable, and they're short and predictable. And you're seeing that already, right. I mean, as an example, we we just talked about how interest rates have been moderating. What have we also seen.

We've seen mortgage purchase applications pick up, We've seen homebuilding stocks do better, We've seen builder sentiment pick up. It's it's instantaneous. So um, and it's the same thing. I think you can make that argument with the dollar, right, I mean everyone's kind of up in arms about Oh the I s N manufacturing p m I is below fifty. Yeah, and the dollars off ten percent from where it was in September. What do you think that does for factories?

Obviously a juice's export doesn't hurt him. Right. Uh, you're talking last year about in about king dollar and how how strong it was. How do you contextualize a moving the like a twenty year moving the dollar like that? What does that mean in terms of inflation and economic growth? Well? Um, more recently, obviously, the dollar decline is I think an unambiguous positive for US growth because it's going to juice

exports particularly have manufactured goods. Um. But a lot of the rally and the dollars say from too, you know, up until recently, I mean a lot of that was just growth differential, right, I mean, think about why the dollar moves the dollar moves really for I think it could say two reasons. It's basically growth differentials and policy differential. Wait a second, I have to interrupt you, because all I heard during the was queue and zurp, We're going

to kill the dollar financial pression. The dollar is done light a bonfire. They're no good, They're worthless. And I recall having that thrown at me over and over again.

It couldn't possibly have been more wrong. No, I'm mean, this is I mean, you know that doom cells on Wall Street, there is a steady diet of this is my fourth doom cycle, And yeah, I mean, but to me it's it's actually kind of it's kind of shocking, like how how enamored people get with these doom and gloom sort of ideas because they don't pay at all.

I mean, like, I like, it's one of these things where one of the things I've learned is that the negative case always gets sounds a little bit more intellectual, people give it a little bit more attention. And but one of the things that I've learned is that in this business, people that get one call right tend to

be wrong about most everything else. And I think this is you know, I mean so as an example, like like the goldbugs, and I mean it's it's the same sort of thing, you know, And um and I think that you can make that argument with the dollar. The dollar, I mean, there's no alternative right to the to the U. S. Dollar. It's still the reserve currency because we have the most liquid,

the deepest capital markets in the world. Right so, and nobody trusts China, nobody trust Jipsan, Europe, where else youre going to go? And until that changes, you can't you can't really make that argument. And so so for me, it's why does the dollar move. The dollar basically moves because of policy and growth differentials, and so in the reason the dollar was doing so well is because the US economic growth was a lot better than Europe, it

was a lot better than Asia. I mean, we were talking about our China hard landing like literally every year following the financial following, right, so, China reflated and basically every year after that it was hard landing risk in China. Um. So, I think that's why the dollar moved. And right now what's going on is the dollar is I think losing steam because people are getting a little bit more optimistic

about what's going on globally. So, in other words, after a really strong pandemic recovery here in the US, the rest of the world is finally beginning to ca uch up with us. And that's before we talk about the end of zero COVID policy in China and them them exactly. So, so you sound like an economic optimist looking out the

next couple of years. Well, I'm certainly an economic optimist relative to the consensus um and I think the consensus is way off sides, as I think the FED is way off sides right now, and meaning what so they're too cautious, So the consensus is too cautious. Do you think the FED is in the process of overtightening here? No, I mean I'm of the view that they probably I think the FED will probably step back soon. I mean, they're basically telling you that they get rates up to

something a little over five percent and stop. The question from my mind is whether they're stopping too soon. Really, I do think that I think that you can make that argument because I just feel like financial conditions are easing too much. They didn't really they shot their shot, and at the same time, fiscal policy tightened last year. Last year two and despite all that, the unemployment right finished the year at dot dot dot three point five percent.

So let's talk about that. We we referenced earlier that there was a shortage of single family homes in the United States. Let's talk about labor. Immigration has been on a downward trend long before Trump. My friends, who blame Trump, it started taking down way before him. He might have spoke a lot about it. I don't see the Biden administration moving off of the Trump policies limiting legal immigration. You have a lot of early retirements, you have a

lot of disability. We lost I don't know to fifty thousand workers due to COVID to say nothing about the people affected, and I've seen estimates from five million to fifteen million people who are affected by long COVID. We have a massive shortfall of workers. How are you going to get unemployment to tick up or wages too slow under those circumstances short of causing that hard landing we've

been talking about. Well, yeah, I mean you can have some of that addressed through policy, right, Um, are we as anyone addressing that? No? No, I mean no that that I don't I mean, you can maybe see. I mean I think part of the issue though, is think about who's filling some of that vacuum, right, I mean you you are seeing participation rates rising for those age sixty four years old, not prime age workers, but younger people, and a lot of them are coming in. Now, what

does that mean? You're basically you talked about retirements. You have a lot of inexperienced workers coming in. What does that mean? Those aren't the most productive people. So experienced people are leaving, inexperienced workers are coming in. That's not necessarily the best dynamic for for product for labor productivity, right, I mean, it's gonna take some time for those workers to kind of get up to snuff, right, But that

is inflationary from the fetes perspective. Remember, um, the sort of equation that Powell always references is compensation growth equals inflation plus productivity. That is sort of a identity that they use in macro and what's wrong what's wrong with that? It's not about what's wrong with it or not. I mean, I'm a business economist. I don't have an opinion. For me, it's what are they telling me? You know what I mean? For whatever reason, the Fed views the labor markets as

the conduit. And if compensation growth is running right now, let's say it's five and productivity is one one and a half, you're basically talking about an inflation environment of three and a half percent ish, which is not terrible from their mind. And remember the one time you had a soft landing in the US content, right, So this

is one of the things. I do think we have an increasing odds of a soft landing right now, but that doesn't mean the odds are increasing permanently, right um, think about when we had a soft landing that The example that most people will remember is the nineties. So what happened during that time. First of all, we don't have a formalized inflation target of two and number two what was it called that green Span? Now he got

the productivity call right at the time. I mean, Janet Yellen was telling him you gotta keep hiking, like, look at how low the unemployment rate was getting. But what green Span came around and said was, well, look, productivity is taking off. We probably don't need to be hiking as aggressively. So let's talk about that productivity number now. Because I have my entire career been perplexed by these very what's the old joke from UM was it? Professor

Solo and m I t uh. Productivity numbers are showing up everywhere, but in the statistics, and as someone who's a white collar worker who can operate remote, I feel like every year my productivity is up. Now, if you're working in a factory or if you're delivering mail or something elsewhere, technology isn't helping you that much. You're probably not seeing those sort of technology gains. Am I just seeing the world through my narrow perspective? Or is a

data missing a lot of productivity games? I don't know that the data is really missing that much. I mean, productivity has been weak even in the areas where it's very easy to measure it, like manufacturing, So that to me is is something that's important to point out. UM. But you know, think about capital spent? I mean, right, so capital deepening is what what drives productivity, and that's basically capex relative to labor hours, and that hasn't been

particularly strong either. So what's the I mean, I get that there there are interesting things going on, but I don't know that that's necessarily going to drive significant gains and productivity. Um. And of as I mentioned, labor quality is a lot is a lot worse now than it had been before. So I think it's it's it's a bit more for me, it's a little bit more challenging to accept the idea that productivity is going to save you from from the inflation. Um. So let's talk about

that inflation. You know, for at least for the median wage owner and below, prior to the pandemic, their wage is lagged everything. They lagged in inflation. Leg the stock market lagged, corporate profits, it legged c suite compensation. So it seems like suddenly the bottom half of the economic strata is seeing wage increases and the FED is like, hey, hey, hey, slow down a little bit. What's that about. I mean,

it's it's a nasty little secret. I mean well, I mean, um, it was a giant New York Times piece a couple of Sundays ago in the magazine section talking about who is the FED increases falling the hardest on They view the labor markets as the conduit to achieve their inflation goals. We can debate whether that's right or wrong. I mean, I'm not an academic economist, but that's what they're telling us.

And so if that's the case, then unemployment is one way they're going to achieve the goal of getting inflation back to two percent in a sustainable way. Seems like a twenty twenty century central bank confronted with the twenty century b I mean, it may well be, but I think look, I mean, right now, the labor markets are still very very tight, and there's still an inflationary impulse from the labor markets. And yeah, look, I mean I think that this is also, in some respects, maybe a

tell on our society. I mean, what do you think most people would prefer, right, I mean, would you prefer five percent unemployment and two percent inflation or three percent unemployment and four percent inflation. It depends if you're the guy that's unemployed or not. I mean, if I'm unemployed, I don't really care what the hell inflation is. I

got no income. Yeah. Well, I mean it's one of the reasons why I think Reagan became president and Sanders never will, right, I mean the fact, I mean, because I think it's it's much easier I think, to form a political coalition around inflation then around unemployment, because it's always Oh, it's like, oh, no, I gotta pay for that, you know what I mean, Like, that's how right, because the baseline expectation, like your social contract in America, I think,

is oh you gotta like to me, it's like, yeah, I got a job, great, good for you. Everyone has one, you know, whereas oh, the prices for these things are going up like six that's weird. Right. So that's why I think politically it's much easier for politicians to address that than than unemployment prior to the I mean, right, I mean, think about think about this, right, I mean, well, the two thousands use a giant spike inflation, arguably caused by the FED taking rates too low and keeping them

there too long. Um, I mean yeah, core inflation during the two thousand was running a little bit, I mean I think around two and a half percent, but spiked up, you know in right into the crisis in oh eight, the bottom was falling out from the economy and Pete. I mean we were having you know, we had like

five or six months of job losses. Even as gas prices are oil We're people talking about let's go and like, um, you know, stop gap the banks and like even though no they weren't right because you know, it was like, oh, well, what had more public support suspending the gas tax or bailing out the banking industry. At that time, absolutely there was very little support for bailing out the banks, and in fact, there was the whole Tea party came about

when you attempted to bail out the homeowners. There was a lot of political crosscurrents during that. So I think that to me is is sort of this interesting kind of dynamic, is that it's just it's a lot easier um politically, I think, to fight inflation. Really interesting. So we've been talking a little bit about what the consensus is and what the Fed's gonna do. Um, all these rapid increases in rates we've seen. You've said you question

whether or not the FIT has a coherent strategy. Explain that, well, I mean they're kind of playing catch up, right. I mean, I think based on their behavior over the last twelve months, it's pretty clear that they should have started sooner, although wise they wouldn't have been so aggressive in the first So let's put let's put some flesh on that. The CPI goes through two in March one. By the end of the year, CPI is what seven percent something like that,

And in March the Fed first starts raising rates. They're like a year behind the curve. Well, I mean they very much were anchored to I mean there's a recency bias in in policy and policymaking. Um. You know, in the same way that fiscal policy makers were criticized for not doing enough during the financial crisis, you could make the argument that fiscal policy makers overreacted during the pandemic crisis.

So what we have. We had two trillion in the first CARES Act, we had another trillion in the second CARES Act. Then the new administration comes in, there's another trillion in the third CARES Act. Then there's the Inflation Reduction Act, and there's the um Infrastructure Bill. That's a lot of fiscal stimulus, isn't it. Yeah. And remember back when um, you know, Trump ran and they the whole t c j A. What was the big Yeah, what

was the big discussion? Then monetary offset? Remember that monetary offset, Like the Fed needs to come in and counteract the fiscal stimulus. Well, think about it this time. There's a lot of fiscal stimulus that needs to be contracted, particularly when people are still sitting on trillion dollars of pandemic savings. So how much of that can be accomplished with quantitative tightening, unwinding, quantitative easing, and how much of that has to be

purely rate driven? I think it's very driven, because I don't I don't know that quantitative tightening has that much of an effect on really because people were warning, oh, you don't understand what a head headwind QUEI has been a tail winds. Not only is that gone, now you have the head wind of of QT. Just you wait, that was the last doomsayer. I think QUEE was basically a way for the FED to tell the the markets that it really meant business about keeping rates low for

a long time. And you know, to me, let's say the FED came out and stopped QT because they want to maintain like an ample level of reserves. Does that tell you anything about what interests are gonna do. No, the Fed can raise rates whenever they want, So that that to me is I don't think it's it's really the same thing, um And so yeah, I don't know. I mean, yeah, there's always these sort of there's this like knee jerk kind of desire I think in markets

to like explain things that as simplistically as possible. And so it's like, oh, like, here's this overlay chart if the Feds QWI and the stock market, and that's why the stock it's going up, And it's just you suggest it's absolutely binary, that it's more nuanced, to use your

earlier phrase. I mean, to me, it's just a ridiculous thing because if you take that to its logical conclusion, the FETE has an infinite ability to expand its balance So that means that there should the stock market should never ever go down, if that's what you'd right, I mean, so if you think about it logically, take it to its end conclusion, does the Central Bank have Is there any constraint on the Fed in terms of printing money doing QWI? There is none, really, I means it's political,

but you know, theoretically there's none. And so if if the balance sheet is all that drives the stock market, then the stock market should never go down. You have to think about it that way. And so to me, you know, the stock markets driven by earnings and by fundamentals and and sentiment and sentiment, and you know the FED can play a role and sort of back talking sentiment a short run. But the FED can't permanently increase the level of asset values. So there's been a lot

of discussions about when PAL is going to pivot. Are you saying we're over emphasizing that? Is the market sussing that out early enough? How much should investors be paying attention to each and every utterance from j Pale and his bands of merry central bankers. Well, I think it's important to follow the data. And um, Ultimately, if the FET is saying that it's data dependent, then the data

will drive their views on policy. Um. You know, I must admit right now, it does feel that the it is kind of moving a little bit away from that because it seems like they just want to get rates just about five and regardless and wait and see, regardless of whatever happens. Let me throw some data you. It looks like inflation peaked mid year last year. Certainly on the good side, we talked about let's energy, lumber, shipping containers,

used cars, even rolexes are rolling over in price. So that's or depending on what year you're looking at, that's of inflation problem. What about services? We continue to see at least owner's equivalent rent portion of cp I appear elevated. What are we to make of that? Is the FED looking at the data or are they looking in the

wrong place? Well, I mean Powell kind of splice the inflation data into three parts, right, And you talked about core goods inflation, which is I think what you're getting at, which is it's it's deflating. Right. So those are your cars, your furniture appliances, right. Um. Then you have housing rental inflation, which has been quite strong, um, but is also likely

to decelerate quite a bit. I mean. One of the reasons why inflation has historically been a lagging indicator is because shelter, which is a big component of inflation, is a lagging indicator of in and of itself, right, and it tends to lag home prices um. And home prices have been moderating, and we know that new lease growth has also been moderating quite a bit. So I think it's inevitable that housing rental inflation, and as it's measured in the CPI data, will will come down. That's a

key phrase, as it's measured. There have been both from places like the Cleveland FED and Zillo rents. There have been a couple of new ways of looking at rental inflation that make it appear the BLS model is really on a long lag. When you look at Zillo rent they appear to be plumbering. And when you look at a paper I think it was the Cleveland Fed that tried to look at repeat rents as opposed to the whole world of rents. They're showing that rents not only

have stopped going up but are now rapidly. But that's also been well known. I mean, that's been a a I think a well known feature of the inflation statistics. Right, So this idea that, oh, this is such a lagging indicator like that, No, that's a lot of people just saying that they want the Fed to back off, and they're using that to justify I'm talking my book. So that let me ask you this question, because Bernanki was saying inflation is a lagging indicator, right, So inflation is

a lagging indication, right. So Bernanki made that point back in two thousands, right around the time he said sub prime was contained. Well it was after that, but he was right about the inflation being a lagging indicator. Because he was using that to justify and a more aggressive

monetary policy easing. And the Hawks wanted to go because they were making the point that, look, inflation is still high, well, inflation is lagging indicators, so interesting, and so it's it's sort of the same, it's sort of the same thing

that's happening now kind of in reverse. And but you're suggesting that the Fed is ignoring all of this softening inflation data because for whatever reason, j Pal wants to get to five and a quarter that And also I don't think they view inflation the same way as the markets do. Right. The markets are very very good at kind of telling you about what's happening with goods inflation, right, so we know what commodities are doing at any moment. Right.

The markets don't have a great way of telling you how much your barber is going to charge you for

your haircut or or yeah, or you're dry cleaner. And also it's about the overall inflation process, right, I mean, so the stuff that you're talking about, like, let's say we had this burst of household formation and that's what drove this spectacular increase in rents during the you know, during and immediately after the pandemic, and now it's just becoming too onerous on people, and they've all decided, you

know what, I'm going to go find a roommate. I've been dating somebody, I'm going to go move in with them. What have you just done for yourself? You've reduced household formation, But what have you done for yourself, assuming you haven't lost your Now, what do you go out and do with the money you spend it on? And what does that due to the prices of the goods and services upon which you spend the money depends on what you're spending it on. Is it these things you wouldn't have

purchased anyway? Or I don't know, but that's the way the FETs thinking about it. So you see, I mean, compensation equals inflation plus productives. So all you're talking about is relative price shifts. If wage inflation is still running at four and a half five percent, it's going to be difficult like that. I mean, I hate to say it like this. It just means the disinflation that you're

going to see this year is also transitory. And that's the thing, and that's the thing that the FAT I think has to wrestle with is that they haven't really to me, they haven't told us a good kind of framing around this idea of in proving composition of growth. Right, real GDP growth is probably accelerating as inflation is coming off. What does that mean, right? I mean because ultimately, if real growth is getting better, that means you're putting pressure

on physical capacity, physical resources. Right. Your real growth is what drives more employment. Real growth is what drives more production. You know, that means capacitization goes up, and that is what pushes prices up. So I think that's kind of the thing that they have to wrestle with, which is why I say it's difficult for the markets to get

the cuts that they are currently pricing. If I'm right about the economy, if real growth is holding up and we're growing above potential, then even if price inflation is moderating, it's still going to be difficult for the FED to cut in that environment. So let me push back on all that, and let me give you my narrative has to where the consensus might be right and where the FED is wrong. And it's two parts, and I'll make it really short. The first part is, hey, We've been

in a deflation stionary environment for the past three decades. Globalization, technology, automation, productivity, all these factors have been deflationary for a long time. The pandemic was a unique one off, right, and heading into the pandemic, we are sixty percent services goods. Suddenly we invert that, where services sixty goods. When everyone's stuck at home, they're not going to hotels and f flying, they're not going to movies, they're building, buying, doing all

this stuff just in time. Supply chain can't deal with it. Prices spike on top of a decade long shortfall of home construction, and during the pandemic, whoever could afford to buy a second house or a third house did without selling a house. So all this whatever little supply there was that gets sucked up, and once that normalizes, inflation should return to normal. However, following that's part A, Part B is the FED doubles and then some mortgage rates.

Everybody who's looking to buy a starter home or uh, you know, a a you know, a sub one million dollar home, A lot of those folks are now priced out of that market and would be buyers or renters and Paradoxically, rising FOMC rates means higher mortgage rates, which pours people into the rental market, making inflation higher. The FED, if they want to stop inflation, should stop raising rates and allow those renters to become home buyers. Where is

that thesis wrong? Well, I think on the globalization side, I mean, we probably have a little bit more of a home bias now. I mean, if there's one bipartisan thing that's that's come about um from Trump to Biden, it's this this sort of um having learned the justin I mean we had, right, I mean, we had the flattening out of the global supply chain, and now the global supply chain is actually narrowing. We want to make it, you know, more resistant to global shocks, and so I

think that that's probably inflationary. I mean, final assembly is probably leaking out of the lowest cost destiny and we'll have a big inventory build. But once that's done, that's transitory also, isn't it. Well, I mean it just again it goes back to this idea of what's driving inflation over the longer run, and ultimately to me, it's about labor market dynamics. And you know, I mean we had a period of disinflation. It wasn't like but I'm inflation

was sort of stable in the twenty times. I mean, Bernanke famously said, if inflation is the benchmark, I have the best inflation record of any chairman, because it's basically been two percent the entire time I've been I've been. So he actually hit it right on the head. So you know, so it wasn't like inflation was getting even

slower during the financial crisis. And so now, um, by the way, I think it's hilarious that a massive financial crisis leading to an inability for inflation get any traction and he wants to take credit for But but I think about now do GDP and wages over that same decade. Yeah, I mean, it wasn't until the very end of that decade had that real way just started to look a

bit better. But again, it's one of these interesting things very where if you look at like consumer confidence, it was very very it got very good after like so once you started, particularly when gasoline prices started, when we had the windfall from the positive supply shock and energy. But um, you know I do think that, yeah, I mean, there there's more, Um, we haven't really invested much in in mining cap x um. If you have an incremental

pickup in global demand that could sort of royal energy markets. Um, that's a risk. That's an inflationary risk we talked about. I mentioned productivity. Productivity hasn't been a strong You have experienced workers that are that are now leaving the workforce. That means that the quality of your workforce isn't It's going to take time to get that back up. So I think there are interesting arguments on both sides of this debate, but you know, for the short run, I

think it's really just about the labor markets. And the FED keeps saying that they think things are out of balance, and so that means that they're going to have to bring it back into balance. So the consensus is either no recession or a mild recession, and the FED stops raising and by the end of the year their cutting rates. You're saying, you think the consensus should listen to what Jerome pal is telling them, because you think he's going to do exactly what he says he's going to do. Yeah,

I mean the consensus right now is recession. That is the consensus. If you look at the soft landing or hard landing. It's not even about soft landing. It's a recession. I mean, the consensus is overwhelmingly in a way I've never I mean, I think if you surveyed, it's like six recession of the if not more. Usually, when the consensus is that overwhelming for the recession, you're already in one, right,

and we're not. So I recall deep into two thousand and eight, there was still an argument as to whether or not when we were in recession, when it started six eight months earlier, and right in the middle of that, people were still arguing, well, well, I remember one analyst famously thinking that the FED was going to be hike in the back half of two thousand and eight. Um. Right, key feature, key distinction though of that period was that we were seeing job loss month in and month out

over this first time. We're not seeing that now, and I think that is an important sort of you know, and you can talk about, oh, employment is coincident, or it's lagging, or at the end of the day, initial claims are low. That's a leading indicator. And um but to me, again, it's not about the data as it's coming and tell me why it keeps going right, that's what's right. I mean, so, can we get a recession

with employment markets this strong, this tight? You can? But I don't think the feed is going to give you that right away. I mean, it's going to take a little bit more time to play out. But more importantly, it's about the mechanism, like how do you get the recession? Like what is the mechan like, for example, is there a massive financial shock that gets companies? So the thing that I've been explorer is that one of one of the ways you get recession, in my view, is through

an element of surprise. Right, So companies sort of think things are gonna be okay and then something falls out of bed, and that means that they have to cut their hiring plans, adjust their capex budgets, clear out their inventories. But what if we've been doing that for the last six to nine months already, and now there's a risk with inflation falling. Gas prices have come down. No one's talking about that anymore. Natural gas prices are down, which

means you're gonna see lower utility bills. Food prices are coming down, which means you'll see lower grocery bills. What does that mean? That is a tale and for real disposable income, So that should buoy demand. Now, if companies are all on this side of the fence and they think household demand is going to slow down and then the opposite happens, what does that mean? That creates a risk where you have this situation where the companies are

having to catch up to the end consumer. You can have an inflation echo and a restarted real growth will pick up as a result. And I think that's the risk that I'm more likely to highlight now, and I think that's something the consensus not really positioned for. And I think that that's becoming the more increasingly the more likely outcome, because we've been talking about a recession for

the last three quarters and it just hasn't happened. So the question is is the bad news in stock prices already or is the good news already in stock prices? How do you contextualize that? I think the bad news is in the price It is already in there. Well, I mean Google earnings recession. Everyone's talking about, Oh that's the next thing. Oh it's you know this, This move in stocks is all about rates and the next you to drop his earnings recession. How do you get an

earnings recession if nominal growth is running at five? Has anyone mentioned about the dollar, like the dollars off ten percent? Doesn't that have a mechanical effect on corporate earnings for the multinationals at trade on the SMP five? And I guess the other thing is in a weird way, like interest rates coming down and people betting on the Fed to kind of back off juice is the housing market.

Because you see home buildings stocks at a fifty two week kid Now some recession like call me when rates are going down and building stocks are going down, because that would be a big problem, right, But that's not what's happening today. You know how many how many? I mean you've been around long after know like this sort of cottage industry of nonsense on the street about oh, the i s M is below fifty, the Fed's got to come in and do something. How's that been working

out for the industrial stocks? Call industrials have been outperforming. Caterpillar is another stock that's doing really well. So I don't see it. I mean again, I think, I mean the earnings recession call is is purely driven by like you know, look the I ms below fifty. I draw you over your chart of earnings, and it looks like

it lines up. So that's the earnings recession. But if you peel back the onion a little bit and you think about where's growth coming in, where is inflation, you're still talking about a five percent ish nominal growth environment. That is not consistent with earnings recession. In my view, Let's talk a little bit about what's going on with earnings. We have people like Elon Musk and Jamie Diamond screaming we're gonna have a recession for what six months? Now?

Are you seeing a recession anywhere in any of the corporate earnings data? You mentioned home builders, you mentioned manufacturers. Where is this recession showing up? The recession is showing up in the f R B US model, and that's pretty much it. So I have a friend who says to me, we're not going to get a contemporaneous recession. It's going to be a rolling series of sector by sector recessions. Oh, energy did well, now energy is depressed,

and then this sector is doing well. Manufacturer was depressed last year and now it's doing well. Can you get a rolling sector by sector recession or is that just then that wouldn't be a recession. Okay, so what do we see for earnings then? Well, I'm not a stock market strategist, but what I will tell you is that when you think of corporate profits, right, I mean, it's largely based on an identity, right, I mean it's it's basically revenue, right, less unit labor and unit non labor costs.

And so when you think about it through that lens, I think revenues will reign steady because nominal growth is holding up UM, So even though inflation is moderating, you'll see real economic growth pickup. I think unit labor costs will moderate somewhat UM as a labor markets kind of normalized. I mean, we won't see as many people quitting and

that should take some of the pressure off. And we see unit non labor costs coming down because supply chains are using, commodity prices are easing, and so that should be a reasonably healthy backdrop for corporate profits. The question is is what is it you know for the markets? Is if the FED is not cutting, that means that rates will be higher, and all aso equal, higher rates are not good for stocks. So when we talk about

margins last year, they hit all time high. Companies seem to have no difficulty passing along input cost increases to consumers and and some companies managed to pass along phantom increases and managed to to see their margins widen. Um, what are we thinking about overall margins in the face of five and a quarter fed rates. Well, you'd expect margins to come down somewhat. I mean, obviously they're very,

very high, um. But that also means that companies are are probably more likely to spend some money, right, So that's um that that's sort of the way and companies spending money that also helps corporate earnings, right, So it's

about why the margins are coming down. A margin decline that's driven by companies spending more on capex employment is very different than a margin decline that's driven by UM for productivity weakness, right, because in the in the former case, there's an opportunity for companies to offset some of the hit to their bottom line with a stronger top line. So, Um, that's sort of the way I'm thinking about. So you mentioned earlier sentiment. Generally, consumer sentiment has been not just bad,

but like below financial crisis bad. It doesn't make a whole lot of sense to me. I'm curious as to your thoughts given everything else you've said that's been so constructed. It goes back to a discussion we're having earlier about what you know, what's easier to form a political coalition around employment or you've never seen this much of a gap between attitudes about the jobs market and overall consumer

sentiment ever. Right, If you look at the Conference Board data, which is you know, widely followed consumer sentiment number, um, it's very weak. But if you look at the labor differential, which is basically consumer attitudes about jobs, it's rarely been this high. It's basically where it was right before the pandemic in the nine late nineties, when the labor markets are very very strong. So I think that speaks to this inflation dynamic. Um, But what do we know about inflation, Barry?

At least in the things that people buy frequently, there's improvement. I mean, gas prices finished last year lower than where they started that, which is an amazing Statuste. You think we aren't hearing enough, um, And then we know that natural gas prices have come down somewhat. That will with a lag bleed into household utility bills UM, and then grocery bills will probably come down because agricultural commodities have come in somewhat. So UM, all of that should provide

some tail into UM to consumer sentiment. And you know, look, the stock markets are up about what three or four percent so far this year. UM, that should help as well. So you know, to me, if you think about what drives consumer sentiment, its wealth, employment, inflation, and UM. All three of those suggest consumer sentiment should be pretty strong. But it really is below what you would expect given

the states. Well, I mean, well, it's because people are kidding off the level of prices in some respects, not the rate of change. So I would say that the rate of change in consuming consumer confidence should be getting better over the next several months. Let's jump to my favorite questions that I asked all of our guests, starting with the question that I really should retire my pandemic question. Tell us what you've been streaming on Netflix or Amazon or what have you? So my wife and I always

we try to watch the same shows. UM, so we've been watching The Crown so good, such a good show. Um, I think there's one more season coming still. Yeah, I mean the last season was great, so we we we Um Handmaids Tell is another one that we watch. Um, she got me into this show called from Scratch. From scratch, Yeah, it's what Zoe Saldanna sounds like. It's a tear jerker. I mean, but it's. But you know, it took me a little bit to get into it. But I did

get into it, more for her than for myself. But you know, it was it was, it was well worth it. I we need to start White Lotus. We haven't done that yet. I watched the season. I haven't gotten enthusiastic about the second season yet, which a lot of people really liked. Um. Have you seen any of the Kaleidoscope? It's kind of interesting. I haven't. What's it about? Um? So the twist is you can watch it in any

order you like, except for the last episode. It's a Highst sort of film, and you don't know who is the mole, who's cheating on who, And it's told in a very asynchronous way, where two weeks before the Highst, six years before the heist, week after the hist It's like each episode just plops you down in this random time zone as opposed to telling the story chronologically, so it kind of unfolds in a really and it's a fabulous cast. It's really great. Uh, I got look into it. Yeah.

It dropped on Netflix a while ago and a number of people recommended it. It's fun. There's a couple of moments where you're like, don't do that, like you ever watching, Like don't go in the house. It's like that, and you're like, please don't make that mistake. And then certain things like that. There's a funny little thing that happens with a watch where like why would you make that mistake that? Um, later on it's like, oh, maybe not such a mistake. Maybe just just like all sorts of

really interesting things. It's it's not The Crown, which was just spectacular, but it's interesting. And as I'm moving away from Lockdown, I find myself I don't need episodes of anything. It's it's limited to I think eight episodes done, which is sort of like, um, the Queen's Gambit. It's like, all right, I could get in and get out of this and not be Uh. That's another one that we saw. Yeah, that was a lot of fun tell us a little bit about your mentors. You mentioned Rosenberg and Ethan. Who

else have been your mentors? Um, I mean those are the two big ones, and I think those are two great ones to have. Drew Madis would be another one. Um, he's I think the head of investment strategy at meant Life if I'm mistaken, and um, you know he and I worked together at Morrow for a period of time, So he would be someone else that I would, uh that I would lead on quite a bit for you know,

just advice and not only economics, but just life. Him he's got three kids, just like I do, so it's uh there, No, he doesn't, and his kids are a lot older than mine. But but so he's someone that I would consider a mentor, not only from my career, but for life as well. Tell us about some of your favorite books and what are you reading right now?

So I have a confession, I don't really read books. Um. I do read a lot of articles on Bloomberg and opinion columns and Wall Street research, but I'm not a big book Lee Cooperman says the same thing. He's like, I read all day long. I can't remember the last time I picked up a buck Um, I'm not. I'm not a big book person. Definitely a challenge. Our final two questions, what sort of advice would give to a recent college grad who is interested in a career in

either economics finance research. What would you advise them? So my advice would be just get your foot in the door, because that's what I did, right. I mean, when I was in college, I had no idea that there were jobs like this. Oh, there are jobs that where you just talk about macro and the economy all day long and people pay you for that. I mean, it's it's great.

You would never think about it, And I think, Um, if if I'm giving someone advice, I would say, started a large institution, because I get that I'm at a smaller one now. But when you're at a large one, there's they have so many different departments and so many different asset classes and so many different types of constituents that they serve, right, and you can kind of see every nook and cranny of what goes on in the financial market space and financial services space. Um, and then

you can find your passion and UM. So I would say, get your foot in in the door of one of these big firms. And our final question, what do you know about the world of macro and economic research and marketing economics today that you wish you knew twenty plus years or so ago when you were first getting started. Well, I wish I had known back then that you know, a lot of these indicators that people put their um faith in are just really bogus. I mean I didn't,

I mean I can't. I had someone at me today on Twitter about that's not what M three suggests. I'm like, I thought we stopped reports. I mean, there's you know, I you know, there used to be a time when I thought someone overlaying a chart of manufacturing production in the I s M was like, Wow, you really found something really interesting there. Now I realized it's nonsense, you know,

And so what else are nonsensible indicators? Um? Well, I think to me, the the I s M is the one that I harp on the most because there's a cottage industry of people that just drive their entire asset allocation process off of it. Really shocking and there's nothing, there's nothing those three purchasing managers that are surveyed by I s M no about the world that you don't, right, and so, um, I think that that's an indicator I

don't like, Um, I think you know, look what. To me, in this business, it's about taking a holistic approach to data, right. It's not about finding the one indicator, right, I mean, Oh, look at this weekly leading index, it leads everything else. Well, no, it's just an amalgam of like all these like financial market variables. So why do I need that, you know? I mean so, um, if it was that simple, there

wouldn't be you know, there is. I mean, you don't have to believe like an efficient market theory to know that if it was just one thing, there wouldn't be all these people analyzing the same thing, right. So um, it's it's just to me, it's about taking a holistic approach to data, looking at all the indicators and also remembering that what ultimately leads data is your narrative. You know, people don't realize that, but if your narrative is right,

the leading indicators will lag your narrative. Do you see what I mean? And I think that's to me, in other words, contextualize the story so you know where it's going to go exactly. To me, it's about the process, right, I mean Why should I s M being below fifty now? I mean I should be negative about things three months from now. If all these other things I see happening, like China reopening Europe or whatever. You can apply that throughout all the different kinds of cycle. It's not the

data itself is not what's important. It's about getting your thought process and your outlook correct, and then if you're right about that, then the data will follow suit. Really fascinating. Thank you, Neil for being so generous with your time. We have been speaking with Renaissance Macro Research is Neil Datta, who runs all of the economic research at the shop.

If you enjoy this conversation, we'll be sure and check out any of our previous five hundred or so such discussions that we you've had over the past eight years nine years. You can find those on iTunes, Spotify, YouTube, wherever you feed your podcast fix. Check out my daily reads at Ridaltz dot com. Follow me on Twitter at rit Halts. Follow all of the Bloomberg podcasts on Twitter at podcasts. I would be remiss if I did not thank the crack team that helps put these conversations together

each week. Justin Milner is my audio engineer. Attica val Bron is my project manager. Sean Russo is my head of research. Paris Wold is my producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.