RenMac Off-Script: Live From The Edge

RenMac Offscript originated as a weekly internal research meeting designed to summarize and discuss what happened in Washington, the markets, and the economic data over the past week. It was always intended to be and remains a free-flowing conversation with no discernible objective other than to extract the wisdom and opinion of our analysts and their expertise. This is a conversation among colleagues.

Individual circumstances are unique and nuanced. Do not mistake these conversations for investment advice because it's not. Here we go. All right. Welcome to Red Mac Offscript, where we openly discuss markets, economics, policy, history, and life. We are coming to you with a live audience from the Betsy Hotel in Miami Beach, Florida. At the conclusion... Thank God.

Go ahead. Keep going. At the conclusion of our Red Mac Edge 2026 Investor Forum, it is Friday, January 16th, 2020. And I'm Steve Dutton. I'm Jeff DeGraff. I'm Neil Dutta. Well, congrats, guys. We made it. This is our group. This is our group. Thank you, everybody, for showing up. Lovely. Early at 9 o'clock on a Friday. That's impressive. We had a great lineup of speakers. We had an energy panel. We had a housing panel. We had the Secretary of the Treasury.

uh scott besant uh gave a little speech so we have some takeaways for the uh the crowd today we'll get some questions coming from the folks that are here as well but let's kick it off if we could i was just gonna say the speaker record was 23 f-bombs I don't even think anybody got close with even one after him. I think the best part was when the secretary made fun of you about not wearing a tie. Thank you very much. Thank you, Scott. Appreciate it.

Mr. Secretary, sorry. So let's get on with the data this week, Neil. We had some positive data, retail sales, manufacturing, some other bits, claims look better. Yeah, I mean, so I would just say that... the data is better but you know to the point that um you know we were getting on our economics panel there's a lot of incongruencies with with the data right so

You know, as an example, we had a better New York Empire and Philly Fed. But when you look at the Beige Book, which was also released this week, and that's basically through the first week of January. you know, what do you see? You actually see both the New York Fed and the Philly Fed saying that manufacturing activity in both of those Fed districts were down.

You know, I mean, I don't know. I think it's, you know, these numbers kind of ebb and they flow. You know, you look at retail sales, the print for the latest month better than expected, prior months revised down. When you take a look at the totality, like retail sales ex-gasoline, I think it's up only about 3%, 3.1% against last year, and this is a nominal data point.

That's not actually consistent with like booming economic growth, right? So, you know, I think we're sort of stuck in the same place. I mean, clearly the economy is not collapsing, thank God, but I don't think it's really accelerating much either. And I think that's important because the markets and the consensus are prime for acceleration. And so, you know, I mean, to me, it really just comes back to housing and labor.

And, you know, both of those things are not flashing green at the moment. Well, you had the panel, as you mentioned, with two of your old bosses, Ethan Harris, right? David Rosenberg. Yeah, the funniest thing about that actually was Ethan. Big inflation hawk, and yet he produces his research for free. On Substack or LinkedIn, right? So it was kind of funny listening to him going around the crowd, you know, and sort of, oh yeah, you can get my research on LinkedIn and follow my blog.

And he's like, and the cost is zero. And yet here he is talking about how the Fed's not hawkish enough, effectively. I mean, it's kind of amusing to me. uh but yeah i mean look it was an interesting panel um you know having to kind of moderate those two uh personalities was uh tougher than i thought But yeah, I mean, look, it's one of these interesting things where I actually find myself for the first time in a long time, you know, like more in agreement with Rosie.

You know, and as I say, I mean, the reason why we're so sanguine on the inflation outlook, really, it's three things. Again, I mean, it's, you know, the three main conduits for inflation is labor. housing, and energy. And I think that's important. And look, we covered all those topics during our conference, but with respect to labor, Outside of the employees of RenMac, there's not much wage inflation going on, right? Very little inside RenMac.

And so that's number one. I mean, we got the Atlanta Fed wage tracker this week, and it was a dud, so another slowing in wage inflation. So there's really not much inflationary pressure. We heard from our housing panel that rents are continuing to deflate across the country. That's important because rental inflation is a big part of the overall consumer goods and services basket. And, you know, we kicked off the conference with Rick Dearborn basically talking to us about energy dominance.

That basically means, look, we're going to keep net gas prices low. We're going to keep oil prices low. That's what I take from that. So if those are the three conduits for inflation, it's really hard to see how you get the kind of inflation that the Fed is so concerned about. You know, I mean, I feel. Look, just because no one sees something doesn't isn't a reason not to see it yourself. Right. And so I think. OK, I mean, the Fed only sees itself cutting once this year. That's great.

I mean, one of the things that Besson used to talk about a lot, Secretary Besson used to talk about a lot with us when he was a client was betting against the Fed's dot plot is always a very good bet. And, you know, the fact that they only see one cut. OK, I mean, I see four. But you're seeing, you know, a consumer that maybe isn't that good.

or inflation or wages are coming down or growth is slowing, yet the consumer discretionary stocks are doing a lot better. Jeff? Yeah, they are. Home builders turned bullish in our work probably six weeks ago. I was not super confident in that call, but we made it. And you're seeing an improvement in some of the specialty retail, like the Lowe's of the world. You're seeing it in the building products, which I think is more interesting.

the, you know, builder-first sources of the world, etc. So, you know, it's still a mixed bag in consumer discretionary. Hotels are improving. Restaurants are more overbought and downtrends than anything else. But, you know, look, I think... I think for what you want to see, I think we're seeing enough out of that. I thought the most interesting take, and maybe just because it confirms our bias and the work that we've done, was exactly to Neil's point about inflation.

Ned Davis talked about inflation and the trajectory and unemployment. I think that number that he had with the correlation coefficient for... I can't remember finding jobs or some leading indicator suggested that unemployment would get to a little over 5% this year. But the real takeaway for me was about inflation and the...

cooling of inflation in his indicators, which is similar. I don't know what he's using, so they're not the same indicators. Same thing that we're seeing in our market cycle clock, but also the importance of inflation and how...

People, particularly Wall Street, loves to focus on the growth data. And Neil and I joke about it all the time. There's almost like this cottage industry of PMI hustlers that are out there. And it's... almost useless like it's almost useless we're going to get lit up on that for for saying it but it's fine because the the statistics show that it's almost useless the inflation data is far better at making a call for equities right so if that trajectory is right from

what the panel's saying, how Neil's thinking about it, what Ned Davis is seeing, what we're seeing. I mean, maybe there's a problem there because it's a consensus, but I think it's like an internal consensus, not a broad consensus. That should be a good backdrop for equity. So that also plays into... the consumer discretionary right so i would say right now our call on consumer discretionary is a little like looking around a corner like we don't see it completely yet we're pretty sure

that when we look around that corner it's you know it's going to be there but we would expect consumer discretionary to improve and we know in this zone of the market cycle clock this actually is the dominant zone for consumer discretionary is is where we are here so

We'll see. And I think what's important, as Ned pointed out, and you've talked about, it's not the level of inflation, it's the direction. He did say that. It was 100%. Yeah. Did you see me jumping up and down in my chair? Yes, I did.

Like, yeah, Ned, go Ned, go Ned. Directionally, whether it's a positive, negative. Nobody cares about the level. The number doesn't matter. It's better or worse, not good or bad. So when we look at housing then, because housing is the key, we've talked about this a lot on this pod. Steve, we talked a little bit about housing and housing policy with the housing panel. Your thoughts on what the government can do to sort of help here?

I think one of the takeaways that I saw on the housing panel was that there are a lot of levers that they could pull, but they're not really going to amount to much. And so I think that was sort of the discouraging thing. You might be trying to do more on demand. I think you have fewer.

dials with supply. We saw sort of a through line there. I think you could with respect to housing as well as, you know, look at some of the things that they've done with respect to credit card caps. I mean, there's a tension between affordability.

and availability and if you go too far sometimes we think these policy prescriptions on affordability that may begin to bite you when it comes to availability for some of these things i think that's something they have to wrestle with i think just looking back to some of the speaker highlights you know i remember

Starting with Rick Dearborn, I guess, on the energy policy side, you know, going back to this affordability message, everything sort of in the context of this being a midterm year. That tends to be the worst year for equities in terms of the presidential election cycle. So it's up to the Trump administration.

to try to do things to sort of go against history here. And I think that's sort of where Rick was going with respect to some of the energy policies and some attention here potentially for utilities. It's gonna be hard for them to raise prices on consumers in an election year.

So is there going to be a lot of pressure from the administration to prevent them from doing that? I think that goes back to some of the housing affordability initiatives we heard Jeb talk about. And then we had Secretary Besant optimistic on the growth. I think some of the economic panel was talking about. can you pull that forward from maybe next year?

to this year because most voters are probably going to make up their mind about the economy and how they feel about it by July. So I think there were some maybe disagreements as to how maybe durable that growth would be.

what the returns might be from some of this capex you're trying to incentivize. You know, are you really going to realize that? But I think that's sort of the thing to watch for this year. You know, can the administration buck history with respect to the midterms? Well, you know, we have this debate about... housing and rates all the time but you know we have this this panel on housing and the big debate at least what we saw on stage was is there an oversupply of housing or is there a shortage

Yeah, I mean, it's a debate. I mean, I come down on it basically, you know, unsold inventory that's finished is going higher. That's typically not what you would see if there's a big national housing shortage. We're talking about rental disinflation and prices potentially going down. Does that sound like a shortage to you? If there's a national housing shortage, why are we talking about...

real home price declines this year. Why are we talking about rental disinflation this year? So I think this is like a classic example of like Washington totally misreading the, misdiagnosing the problem. I mean, it wouldn't be the first time it's happened, right? It's also regional, too, right? I mean, clearly it's tighter in other areas and looser in different regions. Yeah, yeah, I mean, like the market in the Midwest, the Northeast is tight. But, like, how do you...

pull levers on that. I mean, you know, if you're if you're working in D.C., I mean, that's, you know, then you have to ask, like, what is, you know, Mikey Sherrill and like Kathy Hochul going to do in New York, New Jersey? And, you know. uh, Trump's, uh, Trump's, Trump's best friend, uh, JB Pritzker in Illinois. Like what is he going to do to, um, um, to, to, to move the dial over there? So I, I think that, um,

You know, I mean, that's sort of how I see it. We wouldn't be talking about national price declines and rental declines if there was a genuine national nationwide housing shortage. And clearly, I mean, prices are declining in the places where home builders make the houses. And that, to me, is what's interesting. So, Jeff, as you look at the market, are we sort of getting back to this frothy, you know, you've got Bitcoin now going back up, you've got...

You know, Russell, too, making a 52-week relative high. He's like risk back on. I mean, small cap's up 7% this year. Yeah, risk is on for sure, but not, I don't think, to the point of being dangerous yet. I mean, that's hard to imagine. I would say there's a little bit of... parabolic move in the small cap names. Look, Bitcoin is out of the woods yet, right? Crypto still is bouncing in a downtrend. So I think it's premature to

you know, to call the bottom of Bitcoin and crypto. We'll see. What do you mean by crypto? Not Zcash. Everything other than Zcash. That was a defining highlight for me. He was so disappointed. He had the names out there. Here are the four cryptos. And you can just see me. I saw Neil in the back of the room. He's like waiting for him to say Zcash.

And she said something I've never heard of before, and he's just like deflated. He's like, oh, whatever. He turned to me and said, I'm going to ask a question to Kathy Wood. Watch this. I'm going to ask her about Zcash. I'm like, I don't think the graph's going to pick on you. i did see her for drinks after yeah and i was like i really enjoyed your comments on on crypto and then i said what do you think about zcash and she says

Privacy coin, love it. The fact that she knew what it was, was, you know, that's a win for me. Well, I mean, it was like, kind of like, you know, you're inside the... The cabal, right? Like, yeah, you had to knock the secret knock to get in to be able to say Zcash. Well, we spent a lot of time talking about Bitcoin. We spent a lot of time talking about gold, right? And silver. That was a big topic of a conversation around the table. It was.

I don't know if there was a takeaway on any of them. Other than it's... I asked Secretary Besson about, you know, I asked him to put on his hedge fund manager hat, right? And what is the move in gold telling you? He certainly seemed to be of the opinion that it was more about the fiscal irresponsibility and lack of growth in places like Europe and maybe the big...

experiment in Japan, right, which I would agree with. But the dollar is not rallying either. Right now, the good news is the long end of the curve is not blowing out. You know, we have fiscal sustainability questions out there, but certainly doesn't seem to be rearing its ugly head here.

um but but actually that's one of the things that makes me more bullish on gold even though it is parabolic here and it's in what we'd call bubble territory in terms of returns um is nobody seems to be putting their finger on a consensus for why it's going up, right? I mean, I think there's a lot of, like, maybe it's this, maybe it's that, but there's probably four or five views as to what that is. It's not...

everybody's coming together, right? And you pick up the phone on Sunday night to talk to your mother and she's like, hey, gold's going up because, right? And you're like, okay, now we know, right? But that's not happening. So, you know, I think there's...

Again, I do think it's parabolic. I think it's dangerous right here, certainly for fresh money. I wouldn't be a buyer. But I do think there's this kind of unknown about what is really happening there that I actually look at as being more bullish than not.

we'll be buyers of oversold conditions in a pretty serious way. But that's not where we are today. Right. But you'll be mindful of that as it goes up. Yes. Right. You might not know it, but RenMAC has a free newsletter where we provide many of the charts we're discussing on today's pod.

Go to the link in the show notes and subscribe. It's quick, free, and insightful. Now back to the show. Steve, what's going on around the world? I saw we had some... What isn't going on around the world? We had some deal this morning about semiconductors. Is that right? With Taiwan?

TSMC agreed to, I think it was $165 billion of additional investment in their Arizona facilities. And that's important because it had been reported earlier in the week that that's probably a precursor to an eventual trade deal with Taiwan. So again, sort of fix a large... a theme where countries can sort of, I think the term was buy down their rates. If you increase your commitment to invest in the U.S., Trump will reduce your tariffs.

ties into the geopolitical element because that's not going to be received well in China by President Xi Jinping. We've seen a lot of, you know, I would say

attempts here by the Trump administration to get leverage with China. We're looking at potentially an oil embargo when you think about it. Where was China getting their oil from? They were getting it from Venezuela. They're getting it from Iran. We have the secondary sanctions targeting Iran this week. We're all familiar with what's going on there.

with Venezuela, not to get too parabolic. But remember, oil embargo is what triggered the U.S. getting into World War II with Japan. So I wouldn't dismiss it. You talk all you want about Chinese EVs, but you're not using electric warships and planes for your military means. Again, I don't think it's likely, but you do have to just wonder directionally where we're headed. And I think it's just going to put more tensions around this fragile trade truce that Trump and she reached ahead of Trump's.

visit to Beijing in April, is that still going to happen? You know, if we start seeing this sort of escalation in activities on both sides, that could get called off. And I think markets right now are probably not priced for that. We had a historian as one of our guests this week, Scott Nelson. Scott Reynolds Nelson, right? Yeah. Talking about- Professor. Professor. Sorry, Scott.

World War I, World War II, he went back and, you know. Monkey suits. Monkey jackets. He actually referred to World War Zero. Now you're talking about World War III, so that makes me a little nervous. It has to be one eventually. I thought one of the more interesting points that he made about bubbles, and kind of go back and look, and it's very true, is they always start with a commodity. There's something that gets inflated. So when there's oil...

You know, it was housing in 2007. And I wonder a little bit, is it silicone? You know, is that the commodity here that's going to end up being, because it has to support debt, it has to support. You know, people think it's a it's a one directional trade. And so they use it as a store of value and then they overuse as a store of value. And then it comes apart. I don't think we're anywhere near any of that right here. But, you know, it always starts with a commodity.

I would just go back to the commodity theme. I mean, that's sort of what we heard the first night is this desire to make not only the U.S., but the American region more or less. the world's largest supplier of oil. You get a lot of geopolitical benefit from doing that. And again, is the rest of the world, i.e. China, going to be comfortable with moving to get the U.S. to have that large influence over there? I'm not sure. Something to watch. And is Iran too far?

East for us to be concerned about, meaning for, I mean, our sphere is now the Western hemisphere, right? No, I mean, you're going to be concerned with Iran. Look, Trump's concerned is sort of a theme, whether it's Iran, Venezuela, operations in Nigeria, they're all big oil producers. I mean, that's definitely top of mind. So I think with Iran, you have to question whether or not we're even a position. militarily to

conduct an operation right now, given we have a lot of forces in focus with Venezuela, even the coordination with Israel, have they been able to sort of resupply after the June events? That might have been one of the reasons why Prime Minister Netanyahu was sort of calling on Trump to maybe hold off on a large-scale military invasion right now but you know you could read that with hey maybe Trump's

not likely to pursue it or maybe just a prolonged period of uncertainty. But if you get to a point where Iran, they have some choke points too with the Strait of Hormuz. So that'd be something to watch if we start to go down that path. I guess I'm more optimistic that maybe Trump can...

pull one of the diplomatic leverage there and not want to get too committed given the focus on venezuela right now but we've talked you know a lot about political uncertainty and why that's good for for the markets right i mean jeff that's one of the you know

things that we watch you've got that chart that you run in your weekly survival guide and elsewhere talking about that you've got sentiment now uh as part of the mix over the next you know couple months too where do you we have breath widening out right Yeah, breadth is okay. It's not spectacular. 20-day highs are not signaling for us. I mean, they're moving in the right direction, but they're not showing momentum. Look, I think from a political uncertainty standpoint, there's enough...

question marks out there to, you know, to keep dry powder on the sideline, which is a good, which is a good thing. You know, I've said it before on this pod and, you know, with clients. If you make an investment decision based on a political observation, you're making a mistake. And I don't care what way it is, you're making a mistake. Because at best, it's neutral.

more likely than not, it's contrarian. So, you know, whatever your gut tells you, and I understand, I mean, it's not easy to do. The only reason I know Not to do it because I've done this long enough. But it's very easy to say, oh, this policy, therefore that for the market. And I would think just the opposite of that.

Anyway, I don't concern myself with that. I would just say, I mean, we all know it. It's obvious. We have no interest in Iran whatsoever other than the oil, right? We have no interest in Venezuela whatsoever. other than the oil, right? I mean, if this were happening anywhere else, they didn't have oil. I'm sure it is happening, right? We're just not even paying attention to it, right? So it's pretty obvious how that...

playing out. What about the mommies? I was just going to add one caveat. I would say the minerals are also of interest now with Venezuela as well. We're trying to get more access, reduce our dependency, but yeah, I get your largest point. They don't have oil, they have other things.

Right. So folks that come to our Red Mac lunches, we do these surveys at lunch, try to get some sort of anonymous consensus around the table where the markets are. One of the things that popped up yesterday when we did this at our conference was the Fed chair. who's going to be the next Fed chair. And Hassert still was the leading candidate, right? Almost to a three to one margin, I believe. Those were the results. We'll see how it would be a less desirable pick or I guess.

To assume that position, if Jerome Powell's going to remain there, you might not have as much flexibility. I don't know. I mean, more questions. I'm sure Neil has some thoughts. I have thoughts. No way. Yeah, this... That's a fancy sweater, by the way. Thank you, Steve. You don't need to tell everyone in the room that I'm the best dressed. And we got vineyard vines in Miami over here. I don't know what Jeff's wife put him in today.

Redneck merch hat. Come on, look at that thing. Thanks for not wearing Carhartt today, I guess. So, yeah, I mean, Look, I think there was a Wall Street Journal article released today by our friend Nick Timros. Who was on this pod. Yes, he was. And I would just say... Hassett's bearing the brunt of the sort of like political toady, right, for Trump. And so to the extent that Senate Republicans seem to have grown a spine, that in my view makes Hassett's likelihood go down.

Warsh is kind of in a bunker kind of like escaping a lot of the fire And so I think that makes his chances go up at the margin now it's no secret that i don't like kevin warsh okay um you know and it's interesting that um that trump would pick him because

His entire career he's been hawkish. It's not so much about being hawkish It's it's more for me like if you're gonna be in a position any position like Treasury secretary or Fed chair It's okay to be wrong about things, but if you're always wrong in the same direction, then that's a problem.

to the extent that warsh is wrong he's always oh it's like oh he overestimated inflation he's too hawkish like it's always because he's too hawkish and is that someone that djt wants um you know there was chatter uh during the transition in 2024 about how Warsh might be treasury secretary en route to Fed chair. I think that's also interesting. So, you know, I mean, this sort of footsie with Kevin Warsh has been ongoing. I don't really understand the appeal. You know, I think...

Hassett is smart enough to know that it's important to kind of build consensus within the Fed as an institution to kind of get and affect the policy outcome that you want. I think he understands that you need to have allies within the board and on the Fed. I mean, does Warsh understand that? I mean, the only thing... Look, the Fed is the best thing on that guy's resume. And the only thing that he's done since he left the Fed is bash the Fed. And so for Trump...

who is someone who values loyalty, is that something that you want? So I think it's interesting. I don't understand the fascination with Kevin Warsh. Do you think it's a decoy? I don't know. I asked that because obviously Treasury Secretary Besant yesterday, we asked him the question on what is, you know, what is the defining characteristic of the next Fed chair? And he said open mindedness.

And I think to your point, what you're saying right now is that is not Kevin Warsh. Well, it's not in terms of I mean, look, unless unless unless he's open minded, but his results. Yeah, I mean, I think I think his open mindedness to the extent that it's coming is because, you know, Trump. is prying it open with his bare hands and um and that look i mean you have to ask yourself like what did kevin warship if he gets the job like what is he agreeing to in order to get it because

It would certainly be a disconnect from what he said publicly about Fed policy. And look, I mean, you know, I don't know. I mean, I have tremendous respect for Scott. But, you know, that that gain of function op ed that he wrote in The Wall Street Journal. That's right out of the Kevin Warsh playbook. So it's interesting when you talk about like open-mindedness. You know, in my view, it's really about like the Fed job. I kind of agree with Greenspan.

which is, it's a forecasting job. The main part of the job is deciding whether rates go up, down, or sideways. And that means you have to have some sort of ability to read the tea leaves in the economy. And Kevin Warsh sucks at that. So, well, you know who probably excels at that the best? Rick Reader. Rick Reader and Christopher Waller. Waller too, right. I mean, if you had to name one public official that's gotten macro calls right over the last number of years.

Waller's at the top of the list. I would just add from a confirmation, because people do have to be confirmed by the Senate. If it becomes an issue of Fed independence, that would be another, I think, feather in the cap for Waller. If that's sort of where you've seen some pushback from Republican senators given.

some of the earlier reports that the DOJ was looking into maybe potential criminal charges against Fed Chair Jerome Powell, if we're going to talk about maybe next week the Supreme Court case with respect to Lisa Cook, if the confirmation... process becomes sort of this proxy vote over Fed Independence, I think that's going to make it more attractive. I mean, Waller II's credit has pushed back against some of the

nuttier things that the Fed has done, like on climate change, like these sorts of things. I mean, he has said like He has kind of struck the right notes. I mean, let's not forget that this was someone that was appointed by Donald Trump. And let's also not forget that a lot of Republican senators are already on record for having voted for him, which makes it more likely that he would be confirmed because the only thing that...

really jeopardizes that is, you know, how do you have to explain why I voted for this guy before, now I'm not voting for him again. Remember John Kerry's famous flip-flop. I voted for the Iraq war before I voted against it. That didn't play out well. Politicians are very sensitive to when they have to change a vote. So let's talk about that elephant in the room then about, you know, Jerome Powell and, you know, the civil case.

right it's not it's it's criminal case sorry i mean what does that do either for the fed independence the people coming in does that push out you know the look there are news reports about how treasury secretary besin was very unhappy with the way that all went down and um You know, look, I mean, I would just say that whatever you thought the odds were of Jerome Powell sticking around beyond May, you have to revise those higher. Like, you know, I mean, it seems to be in good health.

seems to care about the Fed as an institution. And his term as governor doesn't end until sometime in 2028. So I think the odds are high that he sticks. I mean, I don't think he wants to, but... You know, I think those, I mean, if he feels like he has to, he will. But a Fed chair has to get consensus around that room, right? He has to build a coalition. That's recent.

Yeah, but somebody coming in who's a lackey for the Trump administration, it's going to be very difficult. Myron hasn't had much success either. Has Governor Myron been able to actually get the Fed to do 50 basis point cuts? No. Exactly. And what is he talking about now? He's basically saying, well, I know they're not going to do anything for the next several meetings, but I'm going to dissent for 25 anyway. Like it's like at this point, I mean, this is one of the things which is.

uh which is a point that waller made is if you kind of go in on a kamikaze mission right it's just and you're just going in guns blazing i'm gonna do 50 50 50 people are just going to ignore you at that point because it's almost like your vote is predetermined you're not actually putting significant thought into it right like so you know one way to have done it would have been maybe you just i mean right like if myron came in and voted for 25 out the gate

By doing that, that could have been a sign of good faith. And then maybe you can push for 50 if the data were to turn. My point is, I think that if you, you know, whatever your odds were that PAL is going to stay on goes up. And I think. whatever your odds are that there's going to be, you know, more cuts next year has to go down because whoever gets installed is going to, you know, be a Myron like, right. They're going to come in and they're going to have these biases and, you know.

They've got to get consensus around the table. Yeah, you get a lot of split votes. Yeah, a lot of split votes. If you get a Hassett and he's going in there asking for cuts, it could be really interesting where he's... uh in front of the podium talking about a decision that he himself might have been in the minority and like they they he voted for a cut but they held pat right okay

Well, let's get to the the mailbag. Hopefully we'll get Harry Chen to get his thoughts inserted here. But in the in his absence, I'm going to read off the oh, Harry, how are you? Good. All right, you want to read it? Very good. I'll repeat it to everybody. You can't hear it. So go ahead, Harry. Okay, today we have a question come from Jeffrey Klonowski. His question is...

on a scale of 1 to 10. How institutionally ineffective is the Federal Reserve now that DJT has unequivocally forced the political dimension of f omc decision making thank you very much thank you very much harry i'll remind everybody if you submit those questions on our social media platforms we'll get you a nice trucker hat not the hat that jeff's wearing Did we not pick the best one, but the longest one there? There was dead silence for everybody in this room. A little awkward there.

It comes from Jeffrey Klonoski. On a scale of 1 to 10, how institutionally ineffective is the Federal Reserve now that Donald Trump has unequivocally forced the political dimension of FOMC decision-making? I don't know. I think that the Fed still has a lot of credibility because it's not about Trump, right? I mean, the Senate Republicans basically backstopped the Fed. So in other words, like Powell's been a creature of D.C. for a long time.

What we saw happen over the last weekend is basically Jerome Powell calling favors from the Senate Republicans. And not only favors from Senate Republicans, favors from other central banks. I mean, I don't know that it was necessary for them to come in and...

uh insert themselves in a u.s political situation or hopeful probably yeah probably i mean it's it's you're sort of like it's poking the bear in a way i mean uh with trump i mean if a bunch of academics are telling him are are lining up in one direction he's probably going to you know um batten down the hatches and kind of uh dig his heels and even more so i don't i don't know that what what the global central banks did was helpful but clearly domestically

you know, between Tom Tillis, Lisa Murkowski, these sort of moderate Republicans, you know, Jerome Powell called in favors. And, you know, he's built up those relationships. And that's why this is so critical. You know, does the Fed not have credibility with the markets? Is it a sort of pliant puppet of Donald Trump? I think the answer still is very much no.

And, you know, well, you have to look at what's going on with breakeven rates and and and longer term interest rates. And it's I don't really question the Fed's credibility here, I think. You know, it's one of these things. I mean, like the threats to the Fed's independence, it's a lot like looking for UFOs, right? Lots of sightings, some non-confirmed. So that's sort of how I see it.

Well, thank you, Jeffrey. We'll get a hat out to you from Miami, so you can wear that for the upcoming spring season. Let's go around the horn, talk about what we're watching this week. Sure. Well, I guess I'll go first. Wednesday is going to be a big day. Remember, we have a holiday on Monday.

President Trump's going to be giving an address at Davos. And it was something that Treasury Secretary Besant mentioned in his remarks to us earlier this week. And it's interesting for a few reasons. But one is that, you know, both what... Secretary Besson said what the administration's been previewing is we're going to get more affordability proposals. Now it's interesting that you would use an in-person

audience of global elites to make a speech that sounds catered more towards a domestic audience of persuadable midterm voters. But that's what Trump is going to do. I think the other thing that. Treasury Secretary Besant mentioned is that there will be some geopolitical remarks in there as well. And that look for this, you know.

clear distinction that America first doesn't necessarily mean America alone. And maybe that's sort of an olive branch to others to maybe work with the administration, maybe a positive sign directionally for trade. The other thing to sticking with Fed independence is Wednesday, the Supreme Court will hear the oral argument

regarding President Trump's ability to fire Lisa Cook, Fed Governor, Biden appointee for a cause. Just a reminder, the Federal Reserve Act says that the president can dismiss governors. for cause. It doesn't define what cause is. I think that's probably more important threat to fed independence rather than the criminal charges should the court suggest that they're open to

President Trump's interpretation. I don't think they will be. I think they'll be added attention to it, given the events we've talked about with respect to Jerome Powell. But again, if investors sort of read into some of the justices questioning that they may be siding with the trump administration i think that would be more of the threat there so those are the two big things that i'm going to watch next week okay neil

So I think we have some GDP data coming out next week. I'll also be paying attention to the core PC deflator. That'll be released. You know, inflation probably comes in 0.3, could round up to 0.4. I think that's already in the market. It's tough to get a good read on the data right now because of the government shutdown, so it's really difficult to know how much of this is just sort of like give back from previous months. data collection and quality issues.

Because a lot of the initial inflation release that was put out after the shutdown was really backloaded, right? Like, so it kind of captured like the Black Friday period, right? So, you know, prices tend to be more depressed during that time. So are we getting like an outsized increase as a result now?

you know sequentially so that that's something i'll be keeping an eye on i'll also be watching initial claims uh continuing claims i mean we kind of it's still the sort of same story where initial claims remain really really low but continuing claims are somewhat more elevated that elevated than think given how low initial claims are so that sort of speaks to the the weak rate of hiring not so much an elevated rate of firing so that's what we will be

watching steve we go back to you for a second is there a risk that the fed which i didn't realize the fed doesn't get their budget from congress they can do they they're on their own island is there a risk that that's going to eventually change I'd be surprised if that's the case. I mean, you're asking taxpayers to fund this. I mean, right now, you know, while there's an attractive solution from Congress, this is one way to give them oversight.

agree that the Fed does need some oversight. That said, do I want to pay for it? Maybe I don't agree that much. So I'd be surprised if we end up having to fit the building. But will Congress be prohibited from trading their own stocks? I doubt they ever will pass that. I know this bill is moving in the House. I haven't heard anything in terms of receptivity there in the Senate. So I would be surprised if something...

does move, I suspect it'll be largely symbolic with very little teeth. I'd heard last night that since this has really gotten into the public conversation, stock trading has actually gone up. Right. There were probably a lot of members that, hey, I didn't realize we can make money here. I mean, draw your own conclusions about the... Hey, this is a great idea. A lot more people running for Congress. The quality of people that we were, yeah, we've elected here. But no, I...

I'd be surprised if they actually do it. But, you know, I'd like to hope that I'm wrong because I think We've talked about it with the Fed, just this erosion of trust in our government leaders. I think that would go a long way to maybe addressing that. But again, I hope I'm wrong, but I wouldn't bet on it. Jeff, what are you watching?

I took three things away from the conference. The first, I think the best nickname I heard was Big Handsome. I'm not going to attribute it to anybody. It was none of the four of us on this panel, I assure you. I wish I had a cool nickname like that. The other was, it was a 66% of the respondents of the survey thought Miami would beat IU on Monday.

that's exactly the opposite of the betting lines not that i've been watching but i'm just saying like it's a little different than what what's out there And then we had Kathy Wood, right? And I've known Kathy a long time. She's a fantastic human being. We had her on the podcast about four or five years ago. She is chronically optimistic. There's no doubt about it. But look, I'd rather be a chronic opt.

optimist than pessimist. I thought the most interesting part was her take on healthcare. And, you know, obviously she's coming at it from a fundamental side, and I'll give you a little inside baseball of my career, which is... You know, we hear a lot of information. We talk to a lot of people. We hear a lot of good ideas. I hear a lot of good ideas that are downtrends, you know, charts that look like this. And I just, you know, I file it as good idea, but terrible chart.

She's giving us good ideas that are not great charts. Right. So life science tools, some of these biotech names. I mean, again, as she says, consider the source. Right. I mean, she's she is always optimistic, but.

There are a lot of good charts that are aligning with her fundamental futurist thinking, right? And I think there's something to be said for that. Now, she thinks GDP will run somewhere close to 6% going forward. I think that's sustainable. That's going to be... tough right but it gives you a sense as to her optimism around robotics and genomics and massive deflation etc so we'll see what happens but what i would say right here is that intersection of

of narrative, of stories, of optimism is actually intersecting with the charts in healthcare. And I think that's a huge opportunity. And keep in mind, I mean, these names have been dogs. for five years. Right. So this isn't like, you know, welcome to the party. This is like this. This is just starting. Right. So I think there's a lot of opportunities in that space. And she was also very bullish on employment.

Right. So any technology advances, productivity gains, you know, they don't replace, they replace some people, but by and large, their employment gains. Well, she was talking about in her own firm. Right. So they are, you know, I'm not getting away state secrets here. They are employing AI. And you would think, and I think she thought, that it would help to reduce costs and make things more efficient and obviously require fewer people to get more work done.

quite the opposite right she's actually needs more people to help to i mean it's almost like the productivity is so big it's overflowing and you gotta put the fruit back in the basket because it's you know keeps falling out so um we'll see but it was um you know certainly i took away a more optimistic view on the impact of ai that i think some of the dystopian

thoughts that are up it was a great optimistic way to uh to end the conference for sure i want to do one thing though before we end i've got a bunch of folks here if anybody wants to ask a question from the uh from the audience I got a little mic that can come over and give it to you. If anybody wants to ask the panel anything. Oh, there we go. I got one. Following up on what you just said, Jeff and Neil and Steve.

Do you believe that AI is going to usher in a period of improving productivity growth in the United States? I guess I'll take that. I would just say that if you look at... the long history of like the US kind of economic data, real GDP per capita has basically been trending at like a little bit around 2%.

around a little over two percent annually so i think it's an open question whether ai is just sort of the next technology that just keeps us on that path it's sort of like this immovable force i mean there have been periods where we've kind of gone above it but it's hard to sustain it. And, you know, I mean, I hope so, but right now it doesn't really have...

the hallmarks of a productivity boom the way most people think about a productivity boom, right? So number one, we're talking about the productivity boom. as we're entering an inflection in the adoption of said technology. That is not usual, right? Remember, believe it or not, like in the 90s, the strongest growth in productivity came after the...

the NASDAQ bubble burst, not before. So that's the first thing I would say. The second thing is, there's this sort of pervasive view on the street about worker displacement. But think about it. If workers are becoming more productive, companies should be wanting more of those productive workers. Is that happening? It's not. Labor demand is actually quite weak. And in the whole purpose of investment, business investment.

productivity. It's to raise living standards. That's why we are concerned about it. So you should expect to see real wage growth rise alongside strengthening productivity.

We're not seeing that. So if you look at productivity growth over the last few quarters, it's been quite strong, admittedly, but real compensation growth over the last few quarters has basically been flat. So that's... very unusual so remember I mean economics is largely about identities right like profits equal revenues less costs and another one is compensation growth equals inflation and productivity and that's

Right now, we don't really see that. Productivity is not translating into growth in real compensation. And I think that's... That's a problem. So, you know, it could well be that we get the productivity later and maybe a lot of the productivity that we're seeing right now is kind of just maybe revised away. You know, the GDP growth isn't as strong. I mean, that would be my guess.

um no time you're sitting next to the my high priestess of ai right there and she'll tell you i think she's probably wasted more time not wasted herself but ai like giving us bad results for the amount of input at this point. We are very optimistic about it, but we're very frustrated at the same time. So I remain very optimistic that it's going to be a home run.

But it's just not dialed in yet. So is that a 2028 issue? Jill certainly hopes show. But we'll see. She hopes it's a 2026 issue. But I mean, I'm sure you've used it. We've done some. amazing things it's just very hard to do the amazing things consistently right like the one-off amazing things are great but the i want this the same way every single time has just not really played out for us yet so we're figuring it out but um

I'm hopeful. And Jeff, this is Tom O'Halloran, by the way, Lord Abbott. Tom, thank you for that. That question. You mentioned Kathy Wood, and it reminded me that Kathy Wood was on our Legends podcast. Tom O'Halloran was on our Legends podcast from... A couple of years ago, we had a bunch of folks down here at the conference. Legends everywhere. Legends everywhere. And this is number 350 for this podcast, by the way.

Pat yourselves on the back. That's a lot of years of doing this podcast. So for people who are just coming on board to listen to to what we do here, we've been doing it for a long time. I haven't been doing it for a long time. That's a good number for you to step down. Yeah, that's right. I'm a little worried about.

this production. If you're listening to this production, I made it for another week. But if you're not, then just the people here know that we did it. So that's any other questions from the crew out here? Oh, got another one. My first question, Steve, I want to see if I can borrow your vest for deer season next year. My next question is, Jeff, you talked, you used the term risk on and you talked about the market broadening out.

More of a move in small caps here. How do you think factors play into that in terms of beta, momentum, low quality? What's your expectation for that this year? Where do they stand today? And do you think that's a necessary ingredient or could we get back to more of a... idiosyncratic type of market where it's really focused more on earnings growth company specific news etc yeah so is it is it idiosyncratic look i i think there's philosophically

Obviously, you don't want to change your discipline just because of a factor. But if we're risk on the best way to think about it, just just to, you know, what I call career longevity, right, is momentum. And that doesn't mean you buy the 99th percentile momentum names, but things are in the top third, right? Because whether that ends up being beta, whether it ends up being growth, whether it ends up being some factor that maybe we haven't isolated yet.

momentum will capture that and tease it out. I think one of the things that makes me more optimistic about 2026, at least right here, is the performance of financials, right? We just went through an earnings season. They didn't respond that great on the first day, but whatever weakness there was, they came back pretty strong and pretty robustly, right? That's a pretty good sign.

But you're right. You know, Russell, too, is I mean, getting a little uncomfortable in the in the parabolic move. But let's also keep in mind, and I know that you internalize this. That has not been a great index for years, right? So the breakout, I don't want to fade the breakout because it's a little parabolic here because I think it's on the cusp of a big move that's much bigger.

If it's pure risk on, it is likely going to be beta. It's going to be momentum and it's probably going to be low quality. Right. So that's what we'll watch for. You can use balance sheet on that. Usually high levered names do better. So we'll watch that. None of those factors, at least just, you know, kind of thinking about those charts in my mind here, are in a position where I would say, hey, these are so extreme that I think they're dangerous.

We'll look for things that are in the 90th percentile in terms of those factors or maybe the 10th percentile to say, hey, it's been a good run. Let's think about taking some of that risk off of these factors. And I'd say, John, nothing is there right now that that suggests that. We have to be concerned about that.

Thanks, John Slavik from Loomisales. Thank you, John, for coming down here this week. So why don't we wrap it there? It's almost getting to be 10 o'clock. I know guys got to catch flights and whatnot. But I want to thank everybody for joining us today. I want to thank you guys for putting this conference together. It was a great one. Hopefully we'll see you. everybody back maybe this year, maybe next year at this place. 2027? 2027. Seems like a long way off. It does. We got a wait list already.

gathered up on social media. So put that in there. Clients, you can email sales. We'll be happy to get you on a list once we figure out where we're going to do it and what the format's going to be. But I think this year was a great success. So I'm glad that we had all you folks come join us down for this.

Thank you, everybody. You all made it very worthwhile and a success. So thank you for coming. That's right. So enjoy the long weekend. We'll be back doing this next week from our normal locations. But until then, I'm Steve Duttonoff. I'm Jeff DeGraff. I'm Neil Detta. And I'm Steve Paffer. Thanks everybody. Have a great week.