How is future proof?
It was awesome.
He had to quite the interview with Bill Gross. I was listening to it. I mean it was I feel like everyone's kind of known that he hates good luck.
Yeah, I kind of love it. Like I saw a bunch of people talking about like this crazy old guy. I feel sorry for him, and I was like, I got the sense he's living his best life. He's just like on stage settling old scores because he can like to lose. Yeah, I did think it was funny. He went off on Peter Lynch though, like I've never did you hear that?
Bet?
He like made fun of Peter Lynch too, and it was like, I've never heard anyone take issue with Peter Lynch.
I did a deadlift one two three, Jimmy, okay, uh barges. This isn't after school Special, except.
I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.
Where's the best in posta?
These are the important question? Is that robots taking over the world.
No.
I think that like in a couple of years, the AI will do a really good job of making the odd lots podcast and people today, I don't really need to listen to Joe and Tracy anymore. We do have the perfect beast.
Well, in the meantime, this is lots more an odd Lot spin off, and we do have the perfect guest.
Neil Dutta hanging out with us in studio, Tracy. That was fun out in California, wasn't it?
California is lovely. We should we should live there. No, it was a fun conference. So we were at the future Proof conference in Huntington Beach. I think there were three thousand people there, mostly financial advisors, and uh we did a live interview with Bill.
Gross We Uh, I love going out to southern California. It's always fun when you can create controversy and rivalry between two asset managers bond managers who are like rivals and create drama. We created the drama at the event.
Well, I feel like we didn't actually have to do much to create it. I'm I mean Bill kind of went off on his own.
You do. Is there any reason to own a bond right now?
Yeah? Absolutely? I mean it is fixed income, okay, so I would you could?
You could get that. But Tracy gets that in her Marcus account.
I mean, I just told my parents to buy a bunch of Treasury bills because it's the easiest. Really, yeah, why not? I mean it's just like clipping, uh five percent return a month after month.
And you know, Bill Gross disagrees with you.
Well, I'm not saying rates can't go higher, but if you're not a sophisticated investor, yes, there's probably reasons to own, you know, treasury.
You know, Bill Gross started his career clipping. He told us the story when we interviewed him, and he was hired at Pimpko in nineteen seventy one and that part of his new part of his job was to literally go down to the vault that Pimpko had every I don't know how often he went down there and clip the physical coupons off of paper bonds that they had, and he was that was part of his job, was like, go do that clipping.
Well, he's clearly older than we are.
Well he was also talking about how he used to trade on Quotron machines instead of Bloomberg terminals. So yes, absolutely, but it was a it was a fun interview.
But wait, why not just I'm sorry, I'm hung upbout this. Why not just like okay, yes, I get that you can earn like five percent somewhere, but like you can can't you earn like four percent like basically risk free at this like with no duration or anything like.
Four and a half percent in Marcus and like a, you're right.
And like yeah, just can't cash? Yeah, what's wrong with that?
Well? Five is more than four. And my parents have no need for the money right now, Okay, all right, And I mean they're not trying to trade for the you know, to get you know, to actually make money on the bond itself.
So all right, all right, well let's talk. Okay, we don't know, no one knows your rates are going. So we got an inflation a CPI print this week. You've been saying, Neil for a while that inflation we haven't defeated it yet, that either we have a recession and we don't have a recession that's going to pick backup. Is this the first sign of it? Did we sort of like bottom out on the inflation front?
I mean, some of the progress is definitely stalling. I mean, for me, it's just if you don't believe that there's a recession it's hard to believe that inflation has been resolved. To me, it's really that that's sort of how I think about it. I know others may disagree, but I think demand is still pretty strong and you saw that with retail sales today also.
So wait, isn't the consensus on CPI that it was mostly gas prices because I remember when gas started going up in I guess it would have been July or early August. O Mayor Sharif, who's been on this podcast a number of times now, basically said yeah, and he said, like, this is gonna mean CPI coming in in August at like three point five or three point six percent ended up at three point seven year on year, But it seems like it was someonet expected.
Well. I mean, I think for me, what's interesting about this is that when you look at core goods, right, like things you know, like furniture, and that's actually gone going back up, excluding cars, right. So I think that's interesting because to me, that was sort of the linchpin for a lot of the weaker inflation story. That kind of people hadn't going into the year and that's going away. And I think part of the reason why it's going
away is that supplier delivery times are no longer. I mean it's taking longer for factories to move product out the door. So the supply chain issue isn't improving. And if that's the case, then I think one area of disinflationary pressure is going away. And so I think that there's probably some upside to core goods prices between now and the end of the year. There's also some upside to food prices.
I think, Joe, I have a pet theory that a lot of the strong consumption is just down to like economic nihilism where people are just like, screw it, I don't need to save any more. That's you're just going to spend everything, go out, go to restaurants.
Right, there's really if that's true, that's really bad because isn't that like the sort of like classic precursor to hyperinflation, like people just go out and the like, oh, I have a little cash, so I can like go out and buy TVs like I seem to recall like reading stories about that before, like episodes of like Russian hyperinflation. I hope you're wrong. I hope that's not what all this concern.
I think there's a natural limit to how many TVs you can actually go out and buy. But I do think the like psychological impulse behind a lot of the spending hasn't necessarily been appreciated by a lot of economists. Let's put it that way, Neil, didn't you write something about savings.
Yeah, I mean I think that to me, there's nothing inherently wrong with the savings right where it is. I mean, it's certainly lower than it was a few months ago. But if you think about, you know, the period from let's say the early nineteen eighties through two thousand and seven, I mean, there was a fairly notable inverse relationship between your assets relative to your income and savings.
Right, So when assets go up in value, the savings grow.
Downtown, which makes sense, right, because people are looking at rising wealth as sort of a low risk form of income and so you know, you feel better about things, you don't need to save as much. The financial crisis period kind of up ended that, right, So we went through a you know, nearly decade long period where the savings rate rose. By the time we got I mean, even before the pandemic, I think the savings rate was like eight or nine percent, right, and so there's no
reason for that to happen again. And I think that's something that's not well appreciated by people.
And again talk about this little more so. All right, I just pulled up the chart on the terminal, and I hadn't really looked at this chart in law.
So we had been wait, what's the tickers?
How PID sps? It was personal disas at least the savings rate is a percentage of disposable income. That's the start, that's measure looking. So I hadn't realized January twenty twenty we were at nine point one on that Today were at three point five percent. So we go back. What does that tell you that nine point one that we had pre.
COVID there was sort of a maybe more caution, okay, maybe balance sheet repair. It could have just also been fluky. You know, we had maybe a couple of months a week of consumer spending and we you know, before of the pandemic. But at any rate, I mean to me, I think the bigger stories that the trend and the savings right over that entire period was a function of continued household balance sheet adjustment.
All right, So right now, going back to the present, tent. What's your what's the FED going to do the next few meetings? Pause and pause in September?
Right, Yeah, I don't think they're going to do anything at least until December if they do anything.
So nothing in November and then maybe a hike in de maybe.
Yeah. I mean, I think part of me feels now increasingly that they'll just keep pushing back on cuts because well, I mean that that could be considered like a de facto tightening and if the market expects cuts next year and I think is still right, well, pushing back the cuts, it's basically pushing back against the other they're cutting, So they just keep an extended on hold policy, like you know.
The thing is at this point, I feel like if they're I mean, because we're talking right, and now you saw the journal article like fine tuning, they're using these these words, right, so if you're going to hike, like
what's the point of hiking once more? Right, So, if you're gonna hike, it has to be at least a few you know, like I mean, I mean, it's very rare to see the FED do like an abort like yeah, mission right, I mean, maybe in the mid nineties that happened, right, They hiked and then they kind of just left it there and they never did anything again, and then the next move was cuts it after the lt TCM thing.
So that's sort of how I'm thinking about it. But I think the risk to them doing this is it's happening at potentially a time of cyclical momentum in the economy, and that to me is what kind of kind of concerns me.
You mentioned that there are these maybe that the momentum on disinflation has stalled. So like big picture, and look, there's always gonna be month to month noise, but big picture, if you just sort of zoom out, it still looks like various measures CPI, PPI, PCE, quit rates, things like that. It's still basically seems like lines are trending down.
But what are you doing technical analysis? Economic? I mean, it's just.
I'm just saying, like, no, no, what I'm more saying, it's like it's just like zoom ountain look big picture, Like yes, like I get things month to month that we could say like oh like stripbout gasoline, et cetera, it still looks like most lines, especially you know, I know, like one of the theses of like persistent inflation is going to be the wage growth and the labor market's still robust. But even that's like, don't you.
Find it amazing that the folks that were like that are now talking about the quits rate as this sort of magic like and at wage inflation indicator. During the twenty tens, they were the ones that were propping up the prime age employment rate as the as the best measure for wages, and that number is actually still going up because the labor markets are in fact still tightening.
I've always been a quits rate fan anyway, No, I always have been.
But but I what if the quits rates going down because people are getting paid more in the jobs that they have. Is it more or less likely that someone at at UPS is going to quit their job after striking a deal, after the union struck a deal with the company? Is more Is it going to be more or less likely that for GM, you know, the folks that make jeep vehicles, Are they going to be more or less likely to quit their job and in the next couple of in the next couple of months. So
I wonder a little bit about that. I mean so, but to me, isn't it it's a confidence game, right, I mean ultimately, and I think that's how policy works too. I mean, this is something that Waller was talking about, is expectations. Right, Businesses, I hate to tell you, no longer think there's going to be a recession. And if they think that, then they're going to be more likely to post job openings, They're going to be more likely to higher so hiring rates and opening rates probably pick up,
and that probably means stronger employment. And so yes, I agree with you that that there has been improvement in a lot of these metrics that you're pointing to, right, I mean the quids. But if you had to ask me, are these measures going to be higher or lower than they are right now? I would say higher? And to me that's I mean, we'll keep the FED awake. I think.
Well, the other thing that's happening is, you know, you mentioned the UAW strike and we are getting like close to that. It's sort of like triggering and I guess I guess from a production perspective, it feels like we could get into another situation where supply chains start to be affected, which could also maybe start to impact inflation.
It's a negative supply shock. Right. I mean that's one of the way. I mean, I don't think we're anything close to the seventies obviously, but one of the ways that happened was basically you had these sort of persistent supply shocks you had. I mean, it was just bad luck, I mean, on top of bad policy.
Neil, I posted in our discord, I think you've hung out in there a couple of depths, right, I posted in their discord. Have any questions for Neil? And from JG fifty three? Does rising long bond yields? Like how far can that go? And at what point does that like really start to impair acid valuations in another area? I think we're pretty I mean four and three quarters were sort of hitting the ceiling, and I think the market's kind.
Of figuring it out, but I think we're close. Our market strategist Jeff to Graph, you know, he runs this thing called a yield impact model, but basically he looks at the probability that a certain level of interest rate starts to negatively affect the stock market, and you know, it gets worse the higher, you know, after four and a half percent, So we're right there. To me, when
I think about equities this year. Right, the easy money I think has largely been made because the big upturn for stocks was basically pricing out the recession probability, right and now. Right, So if you think about the market as kind of or the economy as sort of like a four potential scenarios, right, you can have your your deflationary bus which is sort of the classic recession. You can have stackflation, you can have soft lending, you can
an inflationary boom. Right. What you have the most or what I have the most conviction on, is that we won't have recession. Right. So now I think the markets have kind of come to that view, and so you have to if you're thinking about probabilities. Okay, so then my odds of a negative you know, growth scenario have come down. So where do you allocate this now? I mean,
is it stats off landing? Is it inflationary boom? And I think the markets are kind of gyrating back and forth between those two scenarios.
Where do you land on that?
I think we're in an inflationary boom?
Tracy, Can I say, I you know what, I think people should pay a little more attention to than they are. No, No, it's not a controversial one. Actually, the unemployment rate, it ticked up to three three point eight percent last month, and a lot of people sort of dismissed it based on, oh, it had to do with more people in the labor force. But on the other hand, like it is the highest now since February twenty twenty two, so it's like the
highest in over a year and a half. Like this way, I go back to some of these labor market indicators, and they're not terrible clearly, and we're still adding jobs and initial clean but like you know, Neil said job openings down, quit rates, I think maybe I said it down. Unemployment rate up to three point eight percent, Like it seems like something is happening.
Sure, But to Neil's point, if we have entered a period where it seems like recession is firmly off the table, then it feels like that gets reversed pretty quick, especially given that a lot of companies were already kind of focused on being caught flat footed in an expansionary scenario.
We've talked about this, right, Yeah, Like a lot of the survey data they're talking about like, well, we want to hold onto people or we want to hire additional people because we're worried about after the recession, yeah, and expanding our capabilities, and then the recession never materialized, and so it feels like there's more upside than downside of the Yeah.
I love reading the comments like on like the Dallas FED manufacturing report or some of the ism, and that has been a thing that pops up, which is that basically, either managers don't believe that a recession is coming, or they see a recession as an opportunity to gain market share from their competitors or gain employees from their competitors, in which case, if everyone has that mentality, it's hard to see how you get a recession.
Well, I want to ask Neil about something else you've been writing about, which is the potential for a FED policy error. And I've really only seen two people talking about this, and you're coming at it from polar opposite side. So I've seen Victor Schwetz talk about the Fed's gonna hike into a recession and there's going to be an error in that form. But you're talking about they're gonna basically pause while inflation is still booming, and that's going to be an error.
Yeah, I mean where's the evidence that they're hiking into a slowdown? They're pausing right now. I mean, no one's talking about them. I mean, so that's I mean, it's just wrong. It's just that is not correct. I mean we've had some version of that argument for so many quarters. Now I feel like, oh, they're hiking into a slowdown. I mean that that was something that people are saying late in twenty twenty two, right, I mean, I think I believe so. To me, we're making very I mean,
job growth is slong. But I mean if you think about like potential, what is potential, what is break you? And it's around like what like one hundred thousand maybe a little bit more, and we're still still well above that. I mean, household employment is still reasonably strong. I mean that's been running like over two hundred thousand in the
last few months. I saw something in the journal where one commentator was saying, oh, you know, this is like the classic FED where they're putting too much weight on lagging indicators, and now they're setting policy to lagging indicators like inflation. But they are paying a lot of attention to inflation and a lot of attention to the labor market. But that's exactly why that's wrong, is because they are lagging indicators. Yeah they have slow, that doesn't mean they will slow.
Yeah. So for listeners, for listeners that don't know. One of the great things about following Neil and being on his distribution list is that he's not afraid to criticize the people who have been calling for a recession for like basically the past twelve months.
Who's your Jeff good Luck? Yeah?
Do you want to take a shot.
At I don't like to name names with my peers on Wall Street. I always if I've worked them, I always try to prop them up or very speak highly of them. But I don't need to say anything. I mean, everyone knows who they are. I mean, they come on your program, they come on this chat, they come on Bloomberg TV, and they talk very confidently about recession. And you know, and I've talked to Joe about this many times offline, but there is a cottage industry that is
just doom and gloom, right. I mean, think about the people that were like talking about the weekly Red Book sales index over the last like six months, because it's been going down and down and down, and now it's starting to pick back up. I mean, where are those people now? It's you know, it's one of our I'm sure Joe knows. I'm Sam Row. He has this great point.
It's like, we went out to dinner with Sam Row in California. We went to we got a great prim and Sam ordered a smoked Old Fashion and they like it was a very fancy looking cocktail. Very good for Instagram anyway, sorry, keep going.
His Instagram is great, by the way, Yes, yeah she does.
He does a great job of sifting through all the tiktoks so that I don't have to join that platform.
But so, for example, like with Walmart, right, like, he'll make this joke about, you know, Walmart's sales are up, so the bears say that that's bad because consumers are being stretched, but Walmart sales are now down, and then the bear say that's really really bad because that means the consumer can't even for the stuff that's on sale at Walmart. Or the credit card one is one of
my favorites. It's like, oh, people are cutting back on their credit card spend because and that's bad for consumption. Or now they're spending too much on credit cards and they're stretching themselves into oblivion. So it's just you can't win with some people. And frankly, there is a cottage industry of newsletter subscription writers that make their money selling this sort of thing.
We got to be careful because we also have a newsletter. We don't sell it. It's free. It's free. But my favorite instance of this is everyone who is talking about how the inverted yield curve was going was predicting recession
right within the next twelve months or something. We've now had it for months and months and months on end, so all those people have now flipped from the yield curve is a sign of impending recession to the inverted yield curve causes recession, which is a fun little transition.
By the way, Tracy our producer's money, you're wrong. Actually you have to be a Bloomberg dot com paid subscriber to get the Odd Lots newsletter. So we are kind of in the business, you know you having worked now both on the a major bank on the cell side, now for Renaissance macro, why is there a demand from customers for the sort of like doom and gloom bongers, Like, why do people want that? In your view, because they couldn't.
All these guys didn't make a career if there weren't an audience, if there weren't a customer base for it.
I mean, the human mind is conditioned to believe that people that pitch a negative story or somehow like the nostradamis. I mean, I have a My view on things is that it usually works out. That's that and and and I think that makes me. I think that makes some people just think that I'm an idiot, right because I just think I mean it's like, oh, you're like a dope, right, you know, but things have a tendency of working out, like society heels people figure it out. Like that's what
we do. I mean, we we have a relatively open society and things things work out.
Isn't the sam Rose line and the long run stocks go up?
Yeah? Well, I've I came around to your review several years ago because I remember people often say like, oh, Hope, isn't a strategy, Like that's a thing. I kind of think it's the only strategy because once, no, I really believe this's like once you sort of have like a crystal clear idea of how a crisis is going to
resolve itself, is probably priced in. So like, for example, you know, if you wait until like after the Carezac pass and everything else already, like you were like way off the bottom on stocks if you waited until Mario drag us omt speech for the Eurozone crisis already like the market bottom, like if you wait for so in the meantime, like the only like bed is.
Like, yeah, they'll probably work it out, I think. So. I mean, that doesn't mean that there aren't periods where things can be going awry, and it's important to point that out. But what I don't like, and I think this is what a lot of these doomers do, is that they start with the conclusion first and then they work backwards, and I hate that. What you need to do is taking a stute sort of observation of all
the data and then lead yourself to a conclusion. Right, So that's how I think about it, and that's that's that's how we try to do our work.
Okay, So you're you're optimistic sort of sunny guy. That being said, so we are recording this on Thursday. We don't know tonight there might be a strike at the UAW suppose it's possible that we wake up tomorrow morning when people are listening to this and a strike is on. We don't know, Unfortunately, it's just the timing of how
recording works. But Goldman put out a note this week and they said there's three sort of risks right now and that everybody knows about, right the UAW strike, student loan payment reset, and government shutdown.
Are those concern you at all? Are they like enough to move the dial? I think that those are largely priced. I mean the student loan repayment thing, may I mean part of that might be already happening. I mean it looks like if you look at the daily daily treasury data, I mean, there has been an influx of money into the into the government's coffers from student loans a little bit ahead of schedule. So maybe we frontloaded some of
that drag. I don't know. I mean, I've been through so many government shutdowns now it's never seemed to matter. The market tends to look through it. It's going to be really annoying though, if they do stretch that into October, because then I won't get the September jobs number potentially, and that would be that would.
Oh wait, we wouldn't get a jobs report in a government shutdown.
Yeah, you don't get them.
Oh man, what are.
We going to do? What are we going to do on the front?
Are we going to do the first Friday? Then I guess I could sleep in.
I'm in the UAW strike. It's one of these things where kind of like the shutdown right where you actually have to kind of go over the cliff to get to the RESUK. You have to show them that you actually mean. But I think you know as I mean, we have very little. I mean, the inventory situation in the car market has improved somewhat, but it's still well below like if you look at day supply for cars and trucks, still well below where it was before the pandemic.
So that to me probably argues for a more rapid resolution to this. Then appreciate it. But yeah, I think that they probably strike, but that the pressure will start building pretty quickly over the week to come to some kind of an agreement.
Wait, what would concern you, like if you had to put on your doom and Gloomer hat if you started a newsletter today, what would be the big risk?
Well, I just said it. I mean I think that. I mean, we've been talking about it, which is that inflations day stick here for longer and that's going to I mean, right, So yes, I'm optimistic, But at the same time, an optimistic economic outlook right now isn't necessarily a good one for markets. So that's kind of distinction you want to talk about. I also wonder a little bit about manufacturing competitiveness, right, I mean, if you look at manufat actoring productivity in the US, it's been very,
very sluggish for the last several years. And this is now happening at a time when we are pushing up this pushing up compensation costs across a number of industries to the extent that we're not as cost competitive. That could really be challenging because remember, Joe, I mean, in the twenty tens, it was all about the US manufacturing and industrial renaissance, right, And well, I don't remember that.
I thought that's the story now that like now is like the actual like domestic manufacturing investment.
I mean, back then, it was about the dollar has lost so much of its value from two thousand and two to two thousand and eight, our unit, our labor costs, were right sized, and now it seems to be going the other way. We have a strong dollar, we have you know, unit labor costs have been rising relatively quickly in the manufacturing sector because productivity has been so sluggish.
So that's that's something that's longer term. I mean, I don't think it changes any cyclical momentum story, but it's something to keep an eye on.
Can I end this with a sort of personal statement? Is that is that Okay, you look at you, you work out this summer, you look fit.
Oh, thank you, Joe. I appreciate it. I have lost weight at the old fashioned way. I would call it the Indian way, which is just fasting. Really, my people, we fasted our way to independence, and I'm doing it to a better bummy.
In my day, we call this dieting.
Yeah, anyway, it's working out. No need for simplic care.
One thing I learned from Joe is that guys just want to be asked if they've been working out. That's like all they desire from life.
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