The transcript from this week’s, MiB: Neil Dutta, Economics Chief at Renaissance Macro Research, is below.
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Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Ritholtz on Bloomberg Radio
Barry Ritholtz: This week on the podcast, another extra special guest, Neil Dough, with a tour de force explanation on what a market economist is, how it’s their job to take all of the academic and somewhat esoteric economic research and take it from the far five yard line into the end zone. Why it’s so important to put stuff into context that investors can use to focus on not just merely the economic data, but what it means for different sectors of the economy, what it means for different companies. I always find Neil fascinating to listen to. He has a really great track record forecasting things in a way that is occasionally out of consensus. So when he’s talking about inflation in 2021 or Fed hikes in 2022, or why we weren’t gonna see a recession in that same year, it’s always fascinating to see somebody whose thought process is detailed and interesting and out of consensus, but also, right. I thought this conversation was fascinating and I think you will also, with no further ado, my conversation with head of an economic research at Ren Mac Neil Doda. So last time we were here, we talked about a bunch of things that you got. Right. I know your views have evolved. We’ll get to some of those, but let’s just go over your background a little bit. Bachelor’s in economics and Political Science from New York University from NYU was the original career plan to go into finance.
Neal Dutta: No. I mean, you know, when you go to college, you have no, you don’t know that jobs like the one I’m in currently even exist. Right. It’s like, you mean to tell me I get to write about economics and talk all day long and and someone will pay me for it, you know,
Barry Ritholtz: No manual labor.
00:02:15 [Speaker Changed] Yeah. And so, you know, I had no idea. I mean, I, I knew that I had an interest in economics. I had an interest in political science. The original plan was actually, you know, maybe to go to law school. But I ended up, you know, just not doing as well as I thought I was going to on the lsat. So my senior year of college, I ki I was kind of scrambling ’cause I didn’t want to go to school for another three years, but I wanted to stay in the city and I was just like, let me just try to get into Merrill Lynch or, or it’s not at Merrill Lynch. I mean, I got into Merrill Lynch, but any of the bulge bracket banks in the city Right.
Barry Ritholtz: All had good back in the day. They all had good training programs. Yes.
Neal Dutta: So I, that was, that was the goal is to get into one of the analyst programs at the, at the, at the Bulge record bank. So I got into to Merrill Lynch, I actually started off there as a compensation analyst and
Barry Ritholtz: Meaning studying, studying labor, studying salaries and things like that.
Neal Dutta: Well, right. I mean, yeah. I mean, a lot of what the job was in the amount of time that I had done it was, I mean, a lot of it is just benchmarking the employees of the firm to the market to make sure that you’re paying people to market.
Barry Ritholtz: Meaning internally you were looking at Yes. Internally Merri Lynch. Oh,
Neal Dutta: ] That’s great. And managing the year end bonus pools. So that was a whole process in and of itself. But one of the good things about working in HR is that you kind of, so I got my foot in the door. I mean, I was just happy to have something at that point. I remember my, I showed my mother my offer letter, I still have it saved from Merrill Lynch where they were paying me $50,000 with a $10,000 signing bonus. And I showed that to my mom and she was like, why would they be paying you this much money? And I was like, well, I don’t know.
Barry Ritholtz: We’ll find out
Neal Dutta: Soon. Yeah. We’ll find out what I’m gonna be doing. But the benefit of working in HR in particular is that you kind of know where all the jobs are and where the open po open positions are in the firm. And there was an open position on David Rosenberg’s team at, you know, at Merrill Lynch. And so then I, I joined his firm, sorry, his team that was in early late oh six or early 2007. So, you know, right. When Rosie was really killing it. I mean, you know, he was like a marketing machine. He was like the guy, like number one in ii right. Like, all these things were happening, you know, I mean, and so it was really exciting to be on his team. So it was a really, it was like, it was like a very quick education. I mean, it was a real education being on his team during that time. So Yeah.
Barry Ritholtz: To say nothing of what happened over the next few years, 08, 09 in the great financial crisis was right around the corner.
Neal Dutta: Yeah. I mean, I definitely think that, you know, one, one of the things that I’ve always come to believe now, like having been in the business for a long time, is that as, you know, like our, like the financial industry’s very cyclical, right? Like, everyone knows someone who’s been laid off, let go, you know, has gone through spells of just not having a job. Right. And I do think it says something about you if you’ve been able to survive these crises.
Barry Ritholtz: Kind of make it, yeah. Say the very least. Where was Barron’s in your career history? You were an analyst at the weekly Dow Jones publication. Yes.
Neal Dutta: So that, that was, that was, that was more of a, when I was in college, I, I worked for Gene Epstein.
Barry Ritholtz: Really?
Neal Dutta: Yes. Noted. Libertarian, you know, kind of gave me my first taste of like a lot of the tools that we use now in, in sort of the business economic space, like Haven Analytics. I actually got my first taste of that working with Jean at Barron’s and, you know, getting my, you know, sort of first sense of, you know, trying to analyze data, looking at, you know, I mean he had a, he had sort of a weekly column on the economy, but a lot of the interesting pieces that he wrote would happen on, you know, days of like the employment report or, you know, summarizing the ISM data and like what it might mean for the economy and the outlook. So it kind of gave me my first taste of, of, of what a business economist would do on a day to day basis.
Barry Ritholtz: And you, I’ve noticed you used the phrase market economist Yes. Or business economist all the time. How does that differ from the traditional economist, for lack of a better word?
Neal Dutta: Well, I don’t have like, formal PhD training. So I think, you know, that to me is like an important distinction. You know, you have business economists on the street that have PhDs, but I don’t think a PhD is required to be a business economist. And to me it’s like also just a way to respect the academic profession, right? I mean, you have people here that are really studying a specific niche area their entire careers, right? I mean, you, you think about like behavioral economics and like financial economics. I mean, there are economists that are just looking at that and they’re doing it for decades, right. Because that’s what they do. And
Barry Ritholtz: I think a Hyman Minsky looking at the narrow subtopic of stability and instability in economic systems and toiling away for decades until eventually the market hits a tipping point. And all suddenly all of this research that seems like a quiet backwater is suddenly becomes relevant. Yeah, yeah. Becomes front page news or…
Neal Dutta: Or like, you know, strategic trade theory. I mean, these are, these are all sorts of things that, that have, I think, and you could say maybe, and you know, like the academics take you basically to the five yard. Five yard line, right. And as a business economist, your job is to kind of run it in for a touchdown and tell, you know, the investor community, like why is this important to what you’re doing right now?
Barry Ritholtz: That’s a very interesting descriptor.
Neal Dutta: So, so that, that’s, that’s sort of the way I kind of view it. I mean, obviously you lean on a lot of their work throughout your career. I mean, you know, I mean this had, this had gotten a lot of play earlier in the cycle, but Ed Lemer wrote a paper once called Housing is the Business Cycle. Right?
Barry Ritholtz: Professor at Harvard or Georgetown?
Neal Dutta: Think he was in University of California, if I’m not mistaken. But at any any rate, I mean, that was a piece that was a, a piece of research that had gotten a lot of attention for over the years. You know, when, when housing was melting down back in 2022, a lot of people are leaning on that paper again. So it’s, it’s important. I mean, so to me it’s like, I make that distinction because a, I don’t have a PhD and I’m not doing the same thing. What I’m basically trying to do is look at all the different sort of pieces of economic information that come out. And on the US economy, there’s always something going on, right? I mean, in terms of data, some, some of it’s marketing movement, some of it’s not. And try to kind of formulate an economic outlook that is useful for investors. That is not what academics tend to do. Right. For Sure
Barry Ritholtz: For sure. So when you’re at Bank of America, Merrill Lynch, you were doing a weekly note that you authored. How did that help carve out your own space and expertise and how did that ultimately lead to your job at Ren Mac?
Neal Dutta: Well, so, I mean, obviously Merrill was, was an interesting time because I was sort of coming up the ranks and, you know, by 2009, Rosie had left. And so it was sort of this weird time where it was like a very important time in the economy. ’cause we were just transitioning from recession to expansion and, but Merrill’s economic team was kind of without a leader, right? So we didn’t really have, so it was, I was able to do a lot at that time, just by default because there was no one else really doing it. So I would, I would be writing a lot for the, you know, specifically for the equity market desk.
Barry Ritholtz: You had to be pretty young back in Omar.
Neal Dutta: Yeah, I was, I was very young. I might have been like, oh God, I don’t know. Like, not even 30. Right? Wow. So, at any rate, so I mean, it’s one of these things where you, if you, if it’s just you and, and like a couple of other people, you don’t, you’re doing a lot more than you otherwise would be doing. Had there been like a chief, a formal chief economist, so I remember the summer of, of oh nine vividly because we had, you know, like the, the team had gotten like a big reputation for being very bearish because obviously because Rosie, because of Rosie, but…
Barry Ritholtz: Still Bearish. Yeah.
00:10:44 [Speaker Changed] But by, but by March. But by, by the time he had left, and by the second quarter of oh nine, it was becoming increasingly clear that things were kind of turning around, right? I mean, you know, credit markets had turned, it looked like, you know, housing wasn’t getting any worse, right? Inventories had basically been cut to the bone. They couldn’t go any lower. And, and so we had written a piece basically talking about how, you know, the recession’s over. Like that’s, that’s it. And that had gotten a lot of attention from our, from our sales desk. But I, you know, that’s, to me, like, you know, you talk about writing, one of the things that I’ve noticed like recently is just, it’s just ubiquitous, right? Like everyone’s writing, like, it’s just, you know,
Barry Ritholtz: Peak substack.
00:11:29 [Speaker Changed] Yes. It’s like, come view me on my substack and like, you know, there’s like all this research, but to me, like what’s important in the research sales business, because that’s ultimately what I’m in. It’s about knowing when to say something, you know? Right. You know, and there’s just a lot of like filler research that comes out. I
Barry Ritholtz: Love the word filler ’cause it’s literally all it is
00:11:55 [Speaker Changed] And, and, and there is some important, I mean, I do think it’s important for clients to kind of see that continuity, but it doesn’t have to be some written product. So to me, one of the things I’ve learned is like when you write something, make sure that it has some depth and it serves a purpose. Right. And so,
Barry Ritholtz: As opposed to just cranking something out daily, a weekly Yeah. For a deadline. ’cause people
Neal Dutta: Just, it’s like that eventually, like, you know, that turns into spam, right? I mean, from the perspective of your client. So there’s, there’s, there’s many ways to kind of touch people in terms of accounts like your, your client base that are paying for your, your research and your views and your analysis. And that could, you know, and some of that’s written, some of that could be presentations, some of that could be podcasts, some of that, you know, it could be, it’s, it’s, that to me is what’s important. So, you know, writing in the beginning was important, but I think one of the things I learned very early on is that it’s important to kind of say something that has meaning and that’s not always going to be the case, right? Like, people don’t need to hear from me every day. They need to hear from me when my views on something are working out or not. Right.
Barry Ritholtz: I like to say nobody really cares about ISM or, or fill in the blank, whatever your least favorite. Yeah. I mean, economic data point
Neal Dutta: Is, right. I mean, and also these days, right? Like the, the, the market reaction to it is immediate. So you can pretty much tell right away whether the number was good or bad or whatever else, right? Right. So what do I need to read your analysis for? And so it’s, you know, you kind of have to pick your spots about when to, you know, try to chime in and provide some kind of useful context for these data points.
Barry Ritholtz: There’s a little bit of a void in 2009 after the head of the economics coverage from Merrill Lynch to departs. And you, you somewhat fill that void. 9, 10, 11. What lead you to join Ren Mac in 2012? Well,
Neal Dutta: So by the fall of oh nine, we had Ethan Harris Oh, sure. From, from Lehman joined the, you know, he started, he was named the chief US Economist, basically. And, and he obviously he was from a, like a, like a fixed income shop. I mean, Lehman was a huge fixed income shop. You know, Ethan was a fed economist, so his passion was really more towards the, the fixed income markets. And so, but obviously Merrill was like a huge, like a legacy equity shop, equity shop. Sure. Yeah. And so I kind of got a lot of my, like cut my teeth with the equity sales force and I, what I tried to do, and one of the things you do find out in, in the research business is that fixed income doesn’t pay for research. It’s just, it’s just, that’s what it is, right? I mean, you look at, well,
Barry Ritholtz: The margins are smaller. The, the basically, what is it, the five to one ratio?
Neal Dutta: Yeah. You think about like the, the biggest names in research sales over the last number of decades. You think about people like Ed Hyman,
Barry Ritholtz: ISI, Nancy Lazar, right?
Neal Dutta: You think they’re writing about like, like rates? No, they’re writing about like how economics can be tied into a stock market call. And, and Rosie to his credit, was great at that. And that’s kind of what I tried to do when Ethan was running things because he didn’t really, he didn’t really do that, you know, and so he kind of let me run with it and he, he kind of gave me a lot of latitude to kind of come up with my own ideas and try to tell, you know, an equity Salesforce, like why is this important for your clients? Like, and, and because Merrill had so many equity analysts there, there was like a, like a wealth of opportunity, right? Like, so let’s say we wanted to write a piece on business investment, right? Like, so why is that important for equities?
Well, because a lot of EPS comes from CapEx. And now you can go talk to your, like you can talk to your industrial analyst, you can talk to the machinery analyst and say like, you know, are you guys bullish or bearish on your names? Like, and, and if you can come up with a scenario where a macro view can tie into a specific stock sector view for an, for an equity sales person, that’s a home run, right? And so it just makes their life a lot easier. The worst thing you could do, especially at a bulge bracket firm, right, is, well, your economist is really, really negative, but like, you know, this guy is telling me like, buy caterpillar. Like how does that work? Like, and like whenever as a sales person, like having to deal with that question from a client is annoying. You know what I mean?
So, so whenever you can come up with ways to tie a macro economic view into, and this goes back to the business economics, right? I mean, tie a macro view to a market call that’s a home run, right? No one cares what your GDP growth view is like. I mean, you have all these, like, you go, you look through the Wall Street research and it’s like in the back, there’s like my GDP forecast, you have this big forecast table, and that’s kind of what they’re talking off of, right? But that’s not really why I think people pay for research. People pay, you know, the people pay for having an economics view that can be aligned with a markets call. So
00:17:08 [Speaker Changed] Let’s talk about that economic view aligned with a couple of market calls, at least. We’ll look at the 2020s, ’cause oh 9, 10, 11 seems like it’s so long ago. Let, let’s fast forward a couple of decades late in 2021, I very vividly remember most economists were fairly sanguine about inflation fed chair Jerome Powell had said, we’re gonna let inflation run hot the previous Jackson hole. And you made a very out of consensus call. You had said in late 2021, economists were too sanguine about inflation, that the FOMC would have to raise rates. And you said at least four times. And that turned out to be very prescient. We started with 4 75 bit raises before we had two at 50, and then a sort of afterthought at 25. Tell us what you were looking at in 2021 that so many other economists missed.
00:18:12 [Speaker Changed] Well, thank you for saying that at the, I mean, in hindsight, I feel like I I wasn’t hawkish enough. You know, you
00:18:17 [Speaker Changed] Were, you were so much more hawkish than the average
00:18:19 [Speaker Changed] Economists. I was hawkish than the Yeah, I mean that,
00:18:21 [Speaker Changed] That, hey, you know, you everybody, most people forget sticking the landing. Most people miss the pool. You, you managed to at least put, give your clients a heads up. A fed tightening is about to stop. Yeah.
00:18:35 [Speaker Changed] I mean, I, right. I mean, I, I caught the, the swing. I mean, I, I think, and then, you know, eventually I kind of came around to the idea that they’d have to do a lot more than what was priced. But I, I think, yeah, I think thank you for saying that. I, I did kind of catch that. But you know, to me it was just like a rapidly accelerating economy to me. It, it was, so basically the call, I think that it, the main issue there was, it was one call that you got, right? That kind of led to everything else, right? So basically what I saw at the time was a v-shape recovery. And so since there was a v-shaped recovery that was going to have ramifications for all the other macro calls that people make, like whether that’s the fed rates, stocks, you know, and so basically what I, what I said was, we’re gonna have a V-shape recovery. You could see it in the data. They basically turned the lights off, turned it on, and threw a bunch of money at the problem, right?
00:19:30 [Speaker Changed] So yeah, $2 trillion Yeah. Solves a lot of headaches. Well,
00:19:33 [Speaker Changed] It, it’s sort of, you know, they, they kind of, they fought the last war, right? I mean, they essentially, they, they diagnosed the problem as a, it was basically a supply shock. It was a negative, it was a very large negative supply shock that they treated as a big demand shock. And so when you have a demand side stimulus with a, you know, what is basically a supply shock, don’t be surprised if you get like, inflation. Inflation, right? And so
00:20:03 [Speaker Changed] $2 trillion in, in money coursing into the system and everybody’s stuck at home, guess what they’re gonna do with that
00:20:09 [Speaker Changed] Money? And it’s, it’s not just, and it wasn’t just fed pumping, right? It was, it was a fiscal Yeah. Stimulus, you know? And so, so I, I think it’s, and, and also just like the behavior of of, of people at the time, I mean, you know, typically in a, in a bad economic situation, you don’t see people going out and like get, like taking out mortgage loans, but that’s exactly what was happening at the time, right? So, you know, housing is like one of these irreversible decisions, so you have to be really confident in things in order to buy one. And so when I started to see people like, you know, mortgage purchase apps are like basically v bottoming, like it’s just going straight up. Like there’s signal there. And at the time, like everyone was thinking the bottom was gonna fall out. It
00:20:58 [Speaker Changed] Was the opposite. The
00:20:58 [Speaker Changed] Bottom was in. And it was, and, and I remember at the time, I mean, in April of, I think in April of 2020, in the middle of April of 2020, I said, we bottomed, it’s over there. Whatever, whatever, one, two week recession that we had, it’s over. And I remember I got so much hate, I remember at the time, like, you know, you had prominent economists telling like, it’s gonna get a lot worse. Like, the bottom’s still not in, but it was just sort of, it’s one of these things in, in business economics where it’s like up is up, right? Like markets care about, they don’t care about whether things are good or bad. They care about whether things are getting better or worse. And so, you know, you can say it’s not good, but hey, guess what? Like at the margin, we had more DoorDash deliveries in the third week of April than we did in the first week
00:21:48 [Speaker Changed] Of April. I don’t remember if it was Ned Davis, or it might’ve even been Ed Hyman who had said, don’t look for when the economy is, is great or terrible. Look where, when it goes from terrible to bad, like that’s your first sign that you’re making a bottom, Hey, this is really not a great economic data point, but it’s so much better than it was last month. Maybe things are turning, like that approach is when it goes from terrible to fair, you’re, you’re moving in the right direction.
00:22:20 [Speaker Changed] Yeah. And also like the, I I mean, to me honestly, like looking back on it, that whole period was probably was the easiest call I had to I made. Huh. And, and, and it’s interesting because it was kind of outta consen, it was out of consensus at the time. But I thought that it was so easy. I mean, you had the, I mean, especially like from a market’s perspective, right? I mean,
00:22:42 [Speaker Changed] Stocks were straight up after the march. Well, not only
00:22:44 [Speaker Changed] That, are we like, are we no longer gonna have cruise lines? Are we no longer gonna have airlines and hotels? Like, it was just so obvious, like, okay, these are like generational buying opportunities. You better just put everything you have into these names and just ride it out. Because anyway, I, I just thought, but to me, I think what I learned there is just, you know, it’s, it’s just important to kind of just pick a bunch of like indicators and see like, is it getting better or worse? And it was get, it was clearly getting better, right? I mean, at, you can’t go down at after, you know, you’ve gone down, I mean, in some of these indicators, it’s like you can’t just keep falling, right? And so there was stability and by the second week of April I think it was, it was pretty obvious that things were turning around. And also the nature of the policy response, like right, it was
00:23:28 [Speaker Changed] Huge. Biggest GD
00:23:29 [Speaker Changed] Well, not, not only that, but the way they were doing it, right? Like the phased in approach to like, okay, so this week like 10% of the economy’s open, and then next week we’re gonna, we’re gonna take it, we’re gonna expand it out to gyms and restaurants, and then we’re gonna expand it out to department stores and things like, you know what I mean? You know what I mean? So like every week they were kind of flipping on a bunch of, on, on, on switches, right? And so obviously that was gonna keep, keep the economic momentum going.
00:23:58 [Speaker Changed] So let’s talk about another out of consensus call you made the following year, very few economists were calling for no recession in 2022. Most were pretty bearish. And of course, they looked at the fed hikes that they had missed the previous year. You were one of the few people that were saying no recession in 2022. Was it simply that v recovery and just the robust momentum that was in the economy?
00:24:24 [Speaker Changed] Well, I don’t know that I said, I mean, I, I definitely understood where the recession call was coming from. I think for me, the bigger gap with the consensus was really going into 2023. And I had said there wasn’t gonna be a recession. And I think first it’s important to understand why people were kind of latching onto the recession call back then. It was basically because the Fed told you so, right? I mean, the Fed was basically saying, we need a recession to deal with inflation. That’s what they were saying. When, when Powell like pain will be required that that’s what he means. Right? And so
00:25:00 [Speaker Changed] What did Larry Summer come out and say Summers came out and said 10% unemployment to, to fight inflation turned out to be a little two 1970s ish.
00:25:11 [Speaker Changed] Well, well, sure. I mean, what was, and what was the other 30% chance of stagflation, 30% chance of this 30? I don’t know, whatever. But I think part of the reason, I mean this is part of the way these models work, right? If you have a period of inflation, the, the model’s going to assume that you need recession in order to kind of get it back to target, right? So I think at, at some level, like one of the rea one of the driving, one of the reasons driving the, the recession views on the street back in 2022 was, was because the fed was basically telling you that’s what they thought they needed to get inflation down. Now by the end of 2022, I think it was becoming increasingly clear to me that we weren’t going to have a recession. And again, I kind of put on my business economics hat, right?
00:25:53 Like, so if you go back to that period, we had the Russian invasion of Ukraine that sent energy prices through the roof. By the end of the year, gas prices had basically round tripped and the labor markets were strong. So we were going into 2023 with upward momentum and real incomes. Okay? So that’s good. That’s just support consumer spending next, despite massive fed hikes, like the Fed was going 75 bips a, a meeting by the end of the year, what was going on with home building stocks? They were actually turning around right home builder sentiment was getting better, right? Builders were in a much better balance sheet position. They were able to buy their buyers down in terms of mortgage rate buy downs, right? So housing
00:26:36 [Speaker Changed] And massive shortage of single family homes.
00:26:38 [Speaker Changed] Exactly. So, so housing was doing well despite hikes. You had governments spending a lot of money, like state and local governments were flushed with cash, right? They got all this COVID money. So you had government spending and then everyone was prime for recession, right? I mean, if it’s one, it’s like this expectations, you know, element of it. If, if, you know, one of the ways I think recession happens is through surprise. If people think, you know, things are gonna be okay and then they’re not, then that prompts a clearing out of inventories and investment and so forth. And then it, but if, if the opposite’s true, then, then that’ll happen, right? So if everyone is primed for recession and it doesn’t happen, then there’s gonna be a period where you have to kind of gear up and, and invest in inventories and, and hiring and so forth.
00:27:23 And, and so based on those four factors, to me it was like by the end of 2022, it’s like, yeah, we’re not gonna have a recession. Real incomes are growing too rapidly in order for that to happen. And the housing market’s doing well. Like if, if you can get that right, if, if housing is working in the US and labor markets and real incomes are growing, you’re not getting a recession. So, you know, and so to me it was like a really easy market call because a lot of the weakness in the market was just predicated on recession risk. And so to like this, the more obvious it became that that wasn’t the case. It was, you know, to me it was very clear that, you know, that, that equities were, were strong by
00:28:01 [Speaker Changed] Coming up. We continue our conversation with Neil dda, head of economic research at Ren Mac, discussing why investors are underestimating the possibility of a recession in the second half of 2025. I’m Barry Ritholtz, you are listening to Masters in Business on Bloomberg Radio. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Neil Duda. He heads the economic research team at Ren Mac, a widely regarded, highly regarded macro research firm. So, so you’ve talked a little bit about the street predicting four to six rate cuts this year. They’ve been predicting that pretty much since 2022 and have consistently been way too dovish. What do you think the street has been missing over the past, you know, two or three years?
00:28:56 [Speaker Changed] Well, I mean, I think the, the main story over the last two years and, you know, I am a little bit more cautious now, but I do think the main story over the last couple of years has just been how resilient the US economy is. And you know, that’s basically been the main story is that we’ve had very, very strong income growth. You know, we’ve had obviously a lot of state and local government spending, a lot of federal spending, but the main story I think has been, you know, very strong growth in real incomes, which has been supporting household consumption. And if you get the consumer right in the US, pretty much everything else will fall into place.
00:29:33 [Speaker Changed] So when we look out at the world today, we’ve seen a lot of volatility in, in policy a i, I hate the word uncertainty, but at least a lack of clarity, which seems to be affecting people’s long-term travel plans, corporate CapEx plans. How significant is all of the back and forth on various policy issues out of the White House impacting your analysis?
00:30:03 [Speaker Changed] Well, I do think that when uncertainty is high, it just makes sense to kind of double down and look at the data as it’s coming in, right? I mean, it’s what, you shouldn’t try to make a big sweeping forecast if the uncertainty is, is high, but you should kind of think about what’s, like, just look at what’s happening in front of you. And, and that’s kind of what I’ve been trying to do. And you know, when I look at what’s happening right now, I mean, I don’t get a lot of optimism. I mean, you have, it looks like the labor markets are continuing to cool off,
00:30:35 [Speaker Changed] Still positive, but certainly at much lower levels than we saw two, three years ago.
00:30:40 [Speaker Changed] Well, I mean, I, I think to me, momentum matters, right? We talk about better or worse, right? I mean, the labor markets are clearly getting worse and, you know, is it, is it nonlinear? No, it’s not. But you know, you know, one of the points that I’ve been making this year is that all recessions begin with a slowdown. Not all slowdowns end in recession, but all we know that all recessions start with a slowdown and it’s pretty clear that the labor markets are slowing down. You have a very narrow kind of breadth of industries adding employ jobs. A lot of it is in kind of a cyclical industries like education and health. So sort of the cyclical areas of the labor market are slowing down. You’re seeing weakness in like white collar professional services. Recruiting intensity is low. So the, the labor markets, I think are, to me, that’s been my big, my big theme for this year is that it’s, it’s far more concerning then, then the consensus seems to appreciate.
00:31:35 And I think also for the fed, I mean, they keep talking about how the labor market is solid and, and what they’re, I mean, to me that’s basically a very like surface level analysis. Like they’re looking at, okay, the unemployment rate is 4.1% and therefore the labor markets are solid. But I think you can make a very strong case that the la that the unemployment rate of 4.1% is really overstating the degree of health in the, in the job market, right? Like when the unemployment rate is 4.1%, you typically don’t see like the hiring rate as low as it is, you don’t see the quits rate as low. It is as it is, you don’t see consumer confidence in the job market. As bad as it is, you don’t see, you know, even wage growth is slowing down, right? So if, if,
00:32:16 [Speaker Changed] But it’s still, it’s slowing down from a pretty high level where, where, what is wage growth now? About 4%. Is that about
00:32:22 [Speaker Changed] Right? Well, it’s actually slowing a bit more than that. I mean, it’s, it’s running, if you look at over the last three months or so, it’s around, you know, it three, 3.5%. But, but if, if, if that, but again, like if the labor markets were tight or tightening, then you wouldn’t expect to see wage growth continuing to slow down. And you have ongoing increases in like the number of discouraged workers, right? You have a lot of people exiting the workforce, the going straight from unemployment to outta the labor force. I mean, these are not things that happen in a healthy or solid job market. How
00:32:55 [Speaker Changed] Much of this is driven by the past five wacky years, including the pandemic and a giant decrease in, in people working the recovery and people returning plus the entire fiscal stimulus making its way through the system. It’s not like 2025 is just one in a series of normal years. It’s one in a series of very unusual situations, including what, 525 basis points of fed hikes in 18 months or so. So how do you contextualize this slowdown as the pig works its way through the python on,
00:33:35 [Speaker Changed] I mean, so this is sort of the argument that like the whole thing was just one giant like bull whip and we’ve kind of, you know, now we’re just, we’re still normalizing from all of it, you know, I think to me it’s, that’s possible, but it, it’s just, again, like the sectors that are slowing down are, are not the ones you wanna see slow down, right? I mean, you know, you’re at a point now where it looks like housing market conditions are continuing to deteriorate, right? Like prices are slowing, they’re slowing in the, in the markets where builders make homes, that’s gonna probably lead to job losses in the construction industry.
00:34:12 [Speaker Changed] They’re not getting any help from the Fed in terms of rates, at least no time soon. Well,
00:34:16 [Speaker Changed] No, right? I mean, to the extent that the housing market is working, it’s basically because the highest sellers are capitulating, right? I mean, they’re, they’re listing homes for market, they’re willing to take price concessions that’s pushing up transaction volumes to some extent, right? So that’s, that’s, that’s been okay. I mean, you see, you have a little bit more elasticity coming into the housing market, you know, but the fact that the labor markets are cooling down, what does that mean primarily that’s gonna weigh on consumer spending and, and that, and that kind of sets in motion like a below trend growth outlook.
00:34:50 [Speaker Changed] So, so let me ask you what I think is one of the most perplexing issues consumer spending pretty close to record highs right now. And at the same time, consumer sentiment pretty much still in the dumper off the lows, but still historically low. How do we reconcile the robust spending with the terrible sentiment? Are, are one of those indicators, one of those measures broken?
00:35:16 [Speaker Changed] Well, I don’t know that, so this is like the vibe session kind of story and I definitely Are
00:35:24 [Speaker Changed] You a vibe session person or No,
00:35:27 [Speaker Changed] No, I mean, I think consumer sentiment, to me, what’s really interesting about what’s happened with consumer sentiment is how the link between consumer sentiment and labor market views basically completely detached, right? Following 20 21, 20 22, right? I mean, once inflation started going, so for most of my career, if you basically got like the labor market view, right? You pay you more or less would get the consumer sentiment number right? You know what I mean? Like, so but no more, no more, right? I mean, so it’s just, it’s one of these things where pe when you ask someone like how do you rate the economy? It’ll be like something like it’ll be a very low number. How do you rate the labor market? It’ll be a very strong number and that’s very perplexing. But it’s just, it just, it demonstrates that people don’t look at the economy solely through the prism of the job market.
00:36:21 [Speaker Changed] What what else is kind of fascinating is if you ask people how do you rate the economy and they’re like, meh, how do you rate your personal economy? Oh, I’m doing fine. It’s like, how do you think a congress, oh congress is terrible. What about your congressman? Oh, he’s great. Totally. What, so, so all of this brings me back to the question is sentiment broken? When we look at the Michigan consumer sentiment worse than the pandemic, worse than the gfc, worse than nine 11, and the.com implosion worse than the 87 crash, it kind of makes me stop and think, are all of us missing how terrible things are? Or is just this methodology of asking people in 2025 what they think just doesn’t work anymore? Well,
00:37:06 [Speaker Changed] The methodology for the USH number in particular did change. I think they moved online, but I, so I, I just saw, to me it’s like consumer sentiment is basically a function of what stocks are doing, what inflation’s doing and what jobs are doing. And if you think about it that way, the drop in consumer sentiment made a lot of sense because inflation went really through the roof, right? And so that’s why sentiment went down. Since then, you’ve seen some stability in inflation and you know, now that the stock market’s back to all time highs, essentially, you’ve seen some recovery in consumer sentiment, not surprisingly, but what I’m, what I’ve been focusing on, it’s, you know, there’s this big debate about, you know, how useful survey measures of economic data are, like consumer sentiment ISM versus like hard economic data like manufacturing, production, jobs growth. So to me, I think the bigger question for people in my field is like, how much do you want to weigh survey measures of economic data in your process?
00:38:15 And to me, there is still useful information in these surveys, right? Like, so when you, when you look at the conference board data, for example, it’s another consumer confidence number if you look at like the labor differential. So what are consumers telling you about how, how plentiful jobs are, how are jobs hard to get? Or are they plentiful? That number still does a reasonably good job telling you or informing you about like tightness in the job market, right? So if, if cons, I mean, and if consumers are telling you that things are a little bit more slack, you should probably believe them. So to me it’s about looking at which pieces of survey data are important and which ones aren’t even in, you know, regional manufacturing data, right? You, you get asked, they, they ask the purchasing managers about their CapEx intentions. Again, it’s another indicator it does a reasonably good job like mirroring the broad ups and downs in business investment like core durable goods. So I think
00:39:10 [Speaker Changed] The purchasing manager seems to be, that survey seems to be a little less out of sync with spending than consumer sentiment is with either labor or consumer spending. Fair statement.
00:39:23 [Speaker Changed] Yeah, I mean the consumer sentiment number doesn’t look like consumer spending. I mean, and that, but that’s, that that is true. That is true. There are elements within the consumer sentiment stuff that kind of makes sense. But you know, broadly speaking, you’re right, consumer sentiment is dramatically understating how much consumers have been spending. That’s true. So,
00:39:45 [Speaker Changed] So we’re talking about all these different US data series. How do you incorporate global macro trends and global economic data into your models?
00:39:57 [Speaker Changed] I’m gonna be honest with you, I don’t spend a lot of time focusing on the rest of the world really. That’s probably to my own, to my own.
00:40:05 [Speaker Changed] I mean, especially these days with Europe outperforming the US and emerging markets doing well after underperforming the US for 15 years. Yeah,
00:40:14 [Speaker Changed] I mean, what’s interesting is that you look at, you know, it’s right, I mean that that has been notable, like the, the outperformance of the Euro, you don’t really see much outperformance and growth dynamics. So it kind of tells you like, you know, like sentiment in these towards Europe has been so depressed, right? So like there’s been like some incremental improvements, some incremental narrowing in growth differentials and everyone’s thinking that like Europe is off to the races. But I don’t really see that in the data that we look at. I mean, if you look at purchasing managers surveys, for example, in Germany, I mean they’re still well below, I mean they’re still below 50. I mean German manufacturing, French manufacturing have been in the kind of dumps for, for a
00:40:51 [Speaker Changed] While now. And Germany is in the middle of economic contraction, right?
00:40:55 [Speaker Changed] Yeah, I mean it’s, you know, there’s been a lot of, it seems like a lot of like hopium based on like defense spending and fiscal reflation and so forth,
00:41:04 [Speaker Changed] Huh? Really, really interesting. Coming up, we continue our conversation with Neil dda, head of the economic research team at Renaissance Macro Research, discussing what might drive a recession in 2025. I’m Barry Alz, you’re listening to Masters in Business on Bloomberg Radio. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest is Neil Duda, he’s the head of economic research at Ren Mac. Let’s talk a little bit about the possibility of a recession in 25 or 26. What do you think is the most significant macroeconomic risk facing the United States right now?
00:41:52 [Speaker Changed] Well, I mean obviously the one that’s getting the most attention is erratic trade policy, but I don’t think that by itself is what’s going to cause a recession. I think it’s primarily like monetary policy is too tight. You have, you essentially, you have nominal GDP slowing and the Fed funds rate is not doing anything. It’s basically flat at 4.5%. So to me that represents a, a passive tightening of monetary policy and that’ll continue to build pressure on the economy, particularly on the labor market. So, you know, you kind of go down the list, right? I do think that the left tail risk of the distribution has gone, has gone up. You know, number one, I mean, labor markets are cooling and income growth is slowing. That’s probably going to weigh on consumer spending. That was true even before tariffs came into force.
00:42:46 If you look at housing, residential investment is probably slowing because home prices are now declining, particularly in the places where the builders are making the homes, right? Which is like the South Florida, Texas, Arizona, that’s weighing on construction activity. If you look at business investment, it’s probably welcome that they just passed this tax law and that gives some certainty around the tax outlook. But at the same time, you know, some of that effect is going to be blunted by, by what’s going on with trade. So you haven’t really seen much in terms of yeah, outside of ai business investment’s been quite sluggish,
00:43:35 [Speaker Changed] So it sounds like,
00:43:36 [Speaker Changed] And then you have state and local governments cutting back, right? So it’s just sort of, it’s a very unstable kind of equilibrium in my opinion. And I do think that, you know, if as consumer spending is slowing, that creates risks for the US economy.
00:43:55 [Speaker Changed] So is your base case that a recession in second half of 2025 or sometime in 26 likely probable possible?
00:44:05 [Speaker Changed] Yeah, I have it on the board. I mean, I, I definitely think that a recession is, is more likely than not. And specifically I think you’ll see a, a period of, you know, a quarter or two where you get a series of negative employment reports and, and I think that’ll push up the unemployment rate and probably bring in the Fed to cut more aggressively.
00:44:28 [Speaker Changed] So unemployment rate ticks up to four and half, 5%. Where do you see this going? Five and a quarter.
00:44:34 [Speaker Changed] I don’t know, it goes up that high, but I can easily see it getting at close to four to 5% at some point over the next 12 months. You sure?
00:44:39 [Speaker Changed] And that forces the Fed to, so, so let’s talk about the Fed for a second. You know, once the first CARES act, which was what, $2 trillion, 10% of GDP, the biggest fiscal stimulus since World War ii, once that was passed, it seemed like the Fed was increasingly behind the curve. We saw inflation start to tick up in 20, but really take off in 21 and they kind of sat on their hands until, when did the cycle start? March or April of 2022. That’s right. And by then, by June it was inflation peaked and started heading down. And so it seems like they were late to recognize inflation, they were late to tighten. Now it seems like they’re late to start cutting, at least in, in your assessment, is the Fed just a big slow ponderous institution and they’re always gonna be behind the cars?
00:45:35 [Speaker Changed] Sound like Trump too late,
00:45:37 [Speaker Changed] Too late Powell, by the way, you’re the first person to ever accuse me of that. Yeah, but to be fair, hold aside the, the beef between Trump and Powell for my entire professional career in finance, it has felt like the Fed is always late to the party.
00:45:57 [Speaker Changed] Yeah, I mean, I think
00:46:00 [Speaker Changed] They’re just conservative and slow and they would rather be late than mistaken, I think is a fair word.
00:46:06 [Speaker Changed] Well, you know, I mean, you know, there are times when they’re, I mean, even by Powell’s own admission, like last year he said that when they won 50 in September, that even that was a little bit late. So yeah, I mean there, you know, it’s a consensus building institution. You have to kind of corral your, your colleagues to your view. And so that, that to me might be one reason why it’s a little bit slow. But as I say, I mean,
00:46:37 [Speaker Changed] So we, we’ve talked a little bit about, or you, you brought up how on much uncertainty there seems to be around the tariff policy, Este especially on, again, off again, what are the risks from the tariff policy? Could this be a factor in the recession? What other knock on effects do you see from, from this new policy?
00:47:01 [Speaker Changed] Well, I think the main effect is that it freezes business investment in place, right? I mean that to me is the big story.
00:47:05 [Speaker Changed] Nobody wants to commit hundreds of millions of billions of dollars till they know what the policies are,
00:47:10 [Speaker Changed] What trading relationships will be with all these other countries. Sometimes you’re announcing tariffs with countries we may already have trading agreements
00:47:17 [Speaker Changed] Look like South Korea, we have 2012, that’s
00:47:19 [Speaker Changed] Korea. Korea’s a good example.
00:47:21 [Speaker Changed] Sort of bizarre. We don’t, we have a,
00:47:23 [Speaker Changed] So yeah, I mean, and you know, look like this, this to me is like, it’s the return of like the Trump collar strategy, right? I mean, one of the things that we thought very early on was that, you know, essentially he’s gonna be testing the market, right? I mean, if the market gets, you know, it’s, it’s sort of bounded in a way, right? A strong stock market. Maybe he pushes the, the trade dial up a little bit then if the market sells off, maybe he’ll back off, right? So it’s, it’s sort of, he’s trying to find an equilibrium for himself that he’s comfortable with. And you know, that to me, for businesses, right? Like to me it’s as simple as part of his shtick is chaos and the business community doesn’t like uncertainty. So that’s a fundamental test tension. But I think, so that’s gonna weigh on investment spending. But I think in the background, you still have this kind of slow bleeding in the job market. You have this ongoing cooling and consumer spending, you have this slow sort of bleeding off, bleeding out in the housing market that’s weighing on construction. So, and, and you have, you know, state and local governments cutting back. So you just don’t have as many drivers for growth and ultimately that becomes a problem.
00:48:42 [Speaker Changed] So what is gonna finally push the Fed into beginning cutting rates? What do you think is the most important data series they’re looking at? I really don’t imagine anyone cares whether inflation is two or two and a quarter, but if we see, as you mentioned, a negative non-farm payrolls print that has to get their attention, doesn’t it?
00:49:04 [Speaker Changed] Yeah, I would think so.
00:49:06 [Speaker Changed] Yeah. What else might get their attention and start a new rate cutting
00:49:09 [Speaker Changed] Cycle? Well, to me, to me the most important thing is seeing what happens with, you know, essentially labor market slack, right? I mean, if if wage growth continues to slow down, then the ability for households to essentially absorb tariffs is non-existent, which makes it very difficult to see where you get inflation from. So right now they’ve been kind of making this point that the labor markets are not a source of inflationary pressure. If you get further slack in the labor market at this point, like at that point maybe infl, the labor market’s become a source of disinflationary pressure. And so I think that’s something they have to keep an eye on.
00:49:48 [Speaker Changed] What else might capture the fed’s attention and say, Hey, we’re really behind the curve. How, how, what, what do you look at in the housing market? Is it just new home starts or, well,
00:50:00 [Speaker Changed] Prices are slowing, right? I mean that to me. So it’s
00:50:03 [Speaker Changed] Interesting, but they’re still, they’re not negative and mo especially in the coasts in, in the big cities and in, in, well
00:50:10 [Speaker Changed] Prices aren’t negative in the northeast, but if you look at like California, like inland California, Florida
00:50:13 [Speaker Changed] Also
00:50:14 [Speaker Changed] Prices are down. They’re, they’re contracting outright in places like Texas, Florida, inland, California, Arizona. But
00:50:21 [Speaker Changed] They’ve experienced giant booms over the past five years. They
00:50:24 [Speaker Changed] Have, but at the same, I mean, I would just, that that’s true. But to me, again, it’s about what’s happening at the margin, at the margin prices are contracting and
00:50:32 [Speaker Changed] That matters
00:50:32 [Speaker Changed] And that matters and inventory are rising and you know, to me that’s the main asset on the most households balance sheet. And if you look at home prices, I mean, there is an important link between home prices and actual price inflation, right? I mean, you can just look at the data, you know, the, the, the, the, the cities across the country that are experiencing the most home price deflation are also the places where you don’t see much consumer price inflation. So I think that’s notable.
00:51:00 [Speaker Changed] So in one of your more recent research pieces, you talked about the importance of the US dollar. Why is this such a huge factor on a macro level? What are we down 10% year to date in the dollar? How, how significant is the dollar to the rest of the economy? And let me know if I’m, if I get, if I’m talking, if you didn’t say that, I’m, I I have so much stuff in my head, I can’t keep it all
00:51:28 [Speaker Changed] Straight. Well, I mean the dollar is important. You know, typically when you have a weaker dollar, right? I mean, you should assume that you get some upward pressure on core inflation. I think what’s notable about what’s happened with the dollar is that it kind of went the other way in terms of what people thought, right? Remember the, the big line, the line was that, you know, we’re gonna put these tariffs on, A lot of the shock is gonna be neutralized because the dollar’s gonna get stronger didn’t actually happen. Oops. Yeah, right. Well, I mean it did for a day ma mainly against em, but most of the weakness in the dollar actually was against G 10 fx. So, but at any rate, yeah, I mean,
00:52:09 [Speaker Changed] So what’s the significant of the dollar to the h the economic cycle to things like foreigners buying US homes. It’s a big driver in, in a lot of cities. How, how significant is the dollar to either a recession call inflation or, or real estate?
00:52:28 [Speaker Changed] Well, so I mean, I, I think it, it depends how, I mean, so it’s interesting how you, how you’re framing this question. I mean, I think in, and remember in macro, like everything is correlated, right? So if, if the dollar, to me it’s really about why the dollar’s moving the way it is. So if we were actually, if I, let’s say I’m right and we go into recession, I would assume the dollar to be strengthening in that environment, right? Because it’s a safety play, right? So if the US economy’s weakening, then you know, people are going to seek out safety and that should push the dollar value up.
00:53:00 [Speaker Changed] You mentioned in April that it was potentially a worst case scenario. And in that month after the big trade policy tariff policy announcement on April 2nd, we saw bonds weaken. We saw stocks weaken and we saw the dollar weaken, right?
00:53:17 [Speaker Changed] This is the wholesale America trade. But if you, if you go back to that though, right, Barry, I mean you, if you look at the number of times where that combination of things happened, I mean, you could probably count on one hand, right? How many days that happened. So it was like, it was one of these things where the narrative kind of got way out in front of what was actually happening. And, and now here we sit and a, a couple of months later and we’re talking about US equities at all time highs. And, you know, so I mean, I think it, you know, maybe part of it is maybe there’s a little bit more enthusiasm around what’s going on in Europe, right? I mean, Europe is taking steps to reflate their economy. That’s good for the euro, you know, that you have at the margin. Like people are a little bit more optimistic about emerging markets emerging market currencies have been doing better. So, you know, there, there’s, there’s this train of thought that like the dollars is purely a function of like the, the, the Trump moron risk premium. Right? But that, but that to me, it doesn’t, I don’t think that goes, that might be some of it, but I don’t think that’s nearly all of it.
00:54:24 [Speaker Changed] That is, is I’ve heard Taco, I can’t say I’ve heard more on risk premium before. That’s, that’s a new phrase. Don’t send your hate mail to me. Let me throw a curve ball question at you before we get to our favorite questions. What do you think investors are not talking about, but perhaps should be? And it could be any topic, assets, geography, policy, what data point is getting overlooked but is important and people should be paying attention to? Well, I
00:54:53 [Speaker Changed] Think what’s interesting is this sort of the Trump Apprentice show, what the Fed chair, I think that’s becoming, I mean, you
00:55:00 [Speaker Changed] Mean Scott Cent and there’s a lot
00:55:02 [Speaker Changed] Of, right. I mean there’s this, there’s this whole talk about shadow Fed Chair, right? What if you get into a situation where by Trump doing what he’s doing, do you actually get him naming a chairman in name only because
00:55:20 [Speaker Changed] Like Kevin Hassett? Yeah.
00:55:22 [Speaker Changed] Or no, but basically, in other words, what I’m saying is these guys are trying to get this done early, essentially to kind of create a condition for some sort of shadow FET chair, right? With
00:55:32 [Speaker Changed] No authority, no power, no ability to move rates,
00:55:35 [Speaker Changed] But, well, no, well, that, but also maybe someone that’s, but then if this person ends up becoming the chair, does he actually become a, a chair in name only because Powell is still sticking around. Right? I mean, that, that to me is what’s interesting is when
00:55:48 [Speaker Changed] Does Powell’s term end, well,
00:55:50 [Speaker Changed] His term as chair ends next May, but his term as a governor doesn’t end for another two years after that. Oh,
00:55:56 [Speaker Changed] Really?
00:55:57 [Speaker Changed] So that to me is something that, you know, that’s a pretty, that’s a card he can play. Right? And the way they go, they’re going about this, you know, you talk about, you know, we talk about like Supreme Court justices and like litmus tests when you name, right? Like there’s, they have a litmus test for judges. Trump is creating a litmus test in a way for fed, for, for monetary policy officials. Right? He wants someone that’s gonna cut rates
00:56:23 [Speaker Changed] Someone who’s not gonna be independent
00:56:25 [Speaker Changed] Ex. Exactly. And so if, so, I do think that this desire to have this kind of like big show, like the Apprentice monetary policy edition and this sort of like, you know, shadow Fed chair, you know, trying to kind of undercut Powell before he is done with this term, that could potentially backfire in them because it, it would just mean that may, it’s possible that if they put in a, if they actually get whoever they want across the finish line, once they’re there, they’re actually a quite, they’re a very weak chair because Powell decides to stick around.
00:57:04 [Speaker Changed] That’s really quite fascinating. I haven’t heard anybody talk about that. So that is very much an under the radar answer. So let, let’s, in our last few minutes, let’s talk about our five favorite questions. We ask all of our guests starting with tell us what you’re streaming these days. What are you listening to or watching?
00:57:23 [Speaker Changed] Mm. What am I watching? I just finished The Handmaid’s Tale. Oh,
00:57:27 [Speaker Changed] Really?
00:57:27 [Speaker Changed] That they had their last,
00:57:30 [Speaker Changed] Did it hold up through all these seasons? I
00:57:33 [Speaker Changed] Thought, I thought the last season was actually pretty good. So I, I like that. I just watched Netflix, the poop cruise. That was pretty fun. Oh
00:57:42 [Speaker Changed] Really? Yeah. That’s people stuck on the boat in the beginning of the
00:57:44 [Speaker Changed] Pandemic. Yeah, that was a, it was a good, like,
00:57:46 [Speaker Changed] It’s such a horrible title.
00:57:47 [Speaker Changed] It was, it was a quick, it was a quick documentary, but I, but I kind of enjoyed it. And yeah, those are, those are the two things that are sort, were top of mind for me.
00:57:56 [Speaker Changed] Those are, those are very eclectic. Not at all similar. My, my, I walked in on my wife watching the Gilded Age and somehow I got sucked into this. And it’s really quite fascinating ’cause all the issues that we argue about today, wealth inequality and, and new money versus old money and economic strata and, and economic mobility themes of the, the gilded Age 150 years ago. It’s amazing that everything’s changed and nothing’s changed. Right. It’s kind of, kind of fascinating. Let’s talk about mentors. Who were some of your early mentors who helped shape your career?
00:58:36 [Speaker Changed] You know, it’s interesting. I mean, I, I think about, I mean, I remember you asked me this question the last time I was on, and I, I, I probably said, you know, Ethan Harris, right? I think I’d put Drew Madison that category of mentor. But I’m also at the point now, I feel like in my career where the people that I idolized early on are now actually like my rivals, right? They’re my competitors in some respects, right? I mean, you talk about Rosie. I mean, he and I are both in the research business, you know? Right. I mean, so it’s sort of, it’s interesting if
00:59:08 [Speaker Changed] You are bearish the same year he’s bearish or at least the same quarter, that’s an unusual alignment. ’cause for as long as I can,
00:59:18 [Speaker Changed] That might be true right now to, because
00:59:20 [Speaker Changed] For for 15 years you’ve been fairly
00:59:22 [Speaker Changed] Bull bullish. Yeah,
00:59:23 [Speaker Changed] Yeah. Fairly constructive. And you can’t say the same of Rosie. This could be the first time, second half, 20, 25 we’re
00:59:30 [Speaker Changed] Aligned. Right.
00:59:31 [Speaker Changed] But, but you know, that just means you’ve shifted. ’cause he’s been sort
00:59:34 [Speaker Changed] Of, but, so now it’s more about like, not so much mentors, but like, who am I, who am I talking to, to kind of help me work through my process as like an analyst and Yeah, I mean, some names that come to mind, like Connor Sin your Bloomberg, Bloomberg opinion colleague. I, I I, I like talking to him about, about the economic outlook. We sort of think about and come at, come at things the same way. Luke Kawa is another one I like. So these are sort of like, you know, I guess you could call ’em like geriatric millennials like myself, like we sort of another one,
01:00:12 [Speaker Changed] Geriatric millennials. Again, another phrase I’ve never heard before.
01:00:15 [Speaker Changed] Scana Amarna is another one. I mean, he’s sort of in like more of like the public policy space, but I mean, I’m kind of glad he doesn’t do it. But he, he’d make a great business economist himself. But I mean, these are people that I just like talk to, to kind of stress test my own views. And I think that’s, at this point in my career, like that’s what I need more than, than mentors is, is sort of smart people that will help me, you know, kind of think through an outlook and stress test
01:00:43 [Speaker Changed] Sharpen your focus.
01:00:44 [Speaker Changed] Yeah. Or, or just like, where, where are you wrong? Like, like why, what are you, what are you missing?
01:00:50 [Speaker Changed] That’s interesting.
01:00:51 [Speaker Changed] So, so that, that’s sort of how I think about it. Now
01:00:54 [Speaker Changed] Let’s, let’s talk about books. What are some of your favorites? What are you reading currently?
01:00:59 [Speaker Changed] You know, I don’t read books. I’m not a book reader.
01:01:01 [Speaker Changed] We talked about this last
01:01:02 [Speaker Changed] Time. We did. I’m an, I I read the news, right? I read, I can tell you who are the people that I like reading, you know, in, in journalism. Give us some names like Nick TIMOs, wall Street Journal. Sure. Love reading his stuff.
01:01:18 [Speaker Changed] Well Fed Whisperer these days too.
01:01:20 [Speaker Changed] Well, I mean, it’s not just that, but he has like a very, like, you know, I mean he’s a, he, he thinks about things very thoughtfully too. And he, and he, he, you know, he does a little data watching himself. So I, I kind of like reading what he has to say. Jonathan Levin, Bloomberg opinion. So, you know, those are the, your colleague Josh Brown, I read his stuff. So he’s a
01:01:44 [Speaker Changed] Very thoughtful writer. Yeah.
01:01:47 [Speaker Changed] So to me it’s really, it’s really, I I, you know, I, I don’t have time to read books because I’m too busy like reading, you know, read, reading the news, reading opinion pieces. The most interesting fed paper that I came across recently is just, you know, we talked a little bit about Ed Lemer before, but the Fed recently published a paper just looking at the housing channel of, of consumer spending, right? Like, so they were basically making a fairly obvious point that if housing transactions or new home sales are down, like that’s gonna have effects on housing related consumer spending. And that’s something that we should be thinking about
01:02:20 [Speaker Changed] Durable goods. Exactly. Straight across the board. Yeah, absolutely. Housing has always been a big driver of the economy. What’s been so shocking about this economy is we’ve seen home transactions drop significantly just ’cause there’s no supply. But the economy has been so resilient. It’s really been kind of fascinating watching that happen.
01:02:40 [Speaker Changed] Yeah, I mean, it’s interesting. I mean, so again, like housing is one of the reasons why I’m cautious on the economic outlook. And, you know, I think what’s different about this time with respect to housing versus, you know, early 2022, is that now units under construction are coming down. You’re in a situation where starts are running below completions, which means that units under, I mean, essentially units under construction will have to keep falling. And and that’s not what you had last time. Right. Back then, units under construction were going up. Hmm. Really. So, so to me that construction piece of it is different this time versus last time.
01:03:23 [Speaker Changed] Our final two questions. What sort of advice would you give to a recent grad interested in a career in either economics or investing?
01:03:33 [Speaker Changed] I mean, to me it’s just get a foot in the door, you know, figure out the details later. You know, it is sort of, it never works out the way you think, but you just have to put yourself in a position where you have the best chance of succeeding. And, and that to me is the most, is the best advice I can give someone. So in my case, that manifested itself and get your foot in the door at a bulge bracket firm.
01:03:55 [Speaker Changed] I mean, you literally were working in HR before you moved into a hundred
01:03:59 [Speaker Changed] Percent. Yeah. It doesn’t like, to me it’s about, again, it’s about putting in yourself in a position where you can succeed and esp, esp and I think that that’s definitely true. I mean, for me, it’s a number of ways that happened, right? I went to NYU, I went to NYU because I knew that if I stayed in New York, I’d probably have a better chance at things than if I left. And, and it’s just, you know, I mean, NYU you know, it’s not like the best school. It’s not like Princeton or Harvard, but still
01:04:27 [Speaker Changed] A pretty good school. It’s a
01:04:28 [Speaker Changed] Pretty good school. And it’s like
01:04:29 [Speaker Changed] The business Stern is a great business
01:04:30 [Speaker Changed] School. Yeah. And if you’re in New York, you’re going to, they’re recruiters are gonna come after you if you went to NYU. Right? Right. It’s just that simple. And so you,
01:04:38 [Speaker Changed] You just need the a hundred KA year.
01:04:40 [Speaker Changed] Well, yeah, I mean, it wasn’t that much when I was going, but, but I, my advice would just be you have to put yourself in a position to succeed and just let the chips fall, fall where they may. I mean, that, that to me is, you know, and if that means taking a job that may be not the best job, but it’s at a firm that you have a lot of, you know, respect for or it’s a good firm, good brand name. Take it.
01:05:02 [Speaker Changed] Our final question, what do you know about the world of investing today? You wish you knew 20, 25 years ago when you were first starting out?
01:05:13 [Speaker Changed] That’s a tough one. I mean, I think my favorite thing, I mean, to me, what’s important is, and just trying to relay this back to my seat, is it’s important to understand the time horizon of the person that you’re talking to and you’re providing analysis for. Because a lot of people live in the short run, but if you’re a sort of a typical investor, you can, you can tune out a lot of the stuff that we’re talking about, to be perfectly honest, because to quote my friend Sam Rowe, stocks usually just go up. And so, you know, it’s sort of, you see all this analysis that comes out on the street, like, you know, after the ISM goes to 40%, like to 40, you know, usually the stock market’s higher six months later and 12 months later. Well, yeah, obviously because the stock
01:05:57 [Speaker Changed] Market, but that’s a default set. Yeah. It’s a, depending on the decade you’re looking at, it’s three outta four or four outta five
01:06:03 [Speaker Changed] Years. Yeah. So to me, it, it’s sort of, yeah. I would tell myself back then, like, don’t worry so much about making big market calls. Just give people your thought process
01:06:15 [Speaker Changed] Really,
01:06:15 Really interesting. Neil, thank you for being so generous with your time. We have been speaking with Neil dda, head of Economic Research at Ren Mac. If you enjoy this conversation, well check out any of the 550 we’ve done over the past 11 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcast. And be sure and check out my new book, how Not to Invest the Bad Ideas, numbers, and Behavior that Destroys Wealth, and how to avoid them, how not to invest at your favorite bookseller. Right now, I would be remiss if it, I did not Thank the crack team who helps me put these conversations together each week. My audio engineer is Peter Nico. Anna Luke is my producer, Sean Russo is my researcher. I’m Barry Ltz. You’ve been listening to Masters in Business on Bloomberg Radio.
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