Moody's Talks - Inside Economics - Assets and Answers

Episode Date: May 24, 2024

Stock prices, house values, and even gold and crypto prices have never been higher.  The team discuss the reasons why, whether it is a bubble, where prices are headed and what it all means for consumers and the broader economy.  They also play the game and take listener questions.  Keep them coming dear listener.Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn . Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics. I'm joined by my two trusty co-host, Marissa Dina Talley, Chris DeReedys. Hi, guys. Good morning, Mark. Hey, Mark. Chris? I'm doing. I'm doing great. I'm doing great. I made my way back to Vero for the weekend. One of my kids wanted to get down here, and so I made my way down. It's summertime in Florida. Let me say. Yeah, is it in the 90s? Easily in the 90s. It's pretty tasty. Yeah.

Is it humid? Muggy? You know, moving in that direction. It doesn't feel, at least to me, that I don't, like a, like I've come down here in August, and in August it's brutally hot and humid. I don't feel that just yet, but, you know, it's definitely hot. If you want summer, come to Florida. It's here.

And you guys are getting ready for the Big Memorial Day weekend? Do you guys have a cookout? Chris, you're going off to Italy or something, aren't you, soon? No, not yet. Not yet. A few weeks, yeah. Okay. I'm just taking it easy, right?

Memorial, no plans. And you, Marissa? Yeah, same here. Just hanging out here. You don't got any boat rides coming up? We don't have a race this weekend because of the holiday, but I have practice. Practice.

Early tomorrow morning and early Monday morning. Yeah. For you. That's great. That's wonderful. You practice in the ocean? In the ocean. That's right. In the ocean. That's right. In the ocean. Not just not in the gym or something. No, it's always in the ocean. Yep. Okay. It's cold, isn't it?

You are? I think that term is relative. I mean, yes, I wouldn't want to stay in the water for an extended period of time, but I did fall in last week. and it was warm here. We had a race up in Santa Barbara last weekend, and it was freezing up there. You know, that's three hours north of me, and it was really ice cold. But down here, it's a little warmer.

It's probably in the mid-60s, high 60s, the water temperature. Oh, okay. Yeah. Kind of sort of like New Jersey in the summertime. Probably. Yeah, something like that. Yeah.

Well, we've got a lot to talk about. I thought we're going to resurrect the Q&A that we're getting from listeners. Listeners have been posing lots of questions, and they've been building up. We haven't done that in a while, so we'll do that a little later in the conversation. We'll play the game, the stats game. I've got a stat or two. And before we do that, though, I thought, you know, the one thing that has kind of gotten on my radar screen that I thought we could talk about is important.

to the economy is asset prices. It feels like when I say asset prices, I mean stock prices and credit spreads in the bond market and even crypto prices are back up, gold prices, housing values. It feels like to me, correct me if I'm wrong, but the only asset market that's seen weakness is in the commercial real estate market, the CRE market. And even there, it feels, you know, it's office price, property prices, multifamily is down. But the other property prices have kind of, at least by our transaction, it felled up pretty well. I thought we could just talk about that, you know, what's going on with asset prices.

Because I do think that's playing an important role in the broader economy. And maybe just to begin the conversation, I'll turn it back to you guys. Have you noticed the same thing? Am I just me? Or doesn't it feel like prices for almost everything, asset prices are up for us? Yeah, absolutely. Yeah, and that is concerning.

If you think about wealth effects, if they were to correct, right, you might assume that consumers would pull back if they suddenly saw the price of their stock portfolios or retirement accounts or the house prices. falling, that certainly could lead to a pullback in spending. So I think it's definitely something to pay attention to. It does seem pretty lofty any way you cut it, any evaluation metric you'd like, right? Well, it's funny, you kind of went right to the negative. I mean, no, no, I said it's right to the positive. I mean, I was going to put out, I think it's up. Yeah.

You're happy the prices are up. Good. That's good. Yeah, but are they sustainable. Are they better up and down? I mean, no. If they're sustainable, yes. Yeah. If it's just a temporary bubble, right? That's not a good thing. Oh, no, hold on. A bubble is a pretty strong word. I mean, you don't actually mean a bubble. You go but I'm saying that's a really, that's a really important, before we get there. I was going to say, I was going to say, look, we got to define terms, you know, there's a difference in my mind between a market that's over. overvalued in a market that is a bubble. Would you concur with that?

Yeah, a bubble is an overvalued market that crashes, right? Okay. All right, no, no. You're right. As long as it doesn't crash, then overvaluation is fine. No, just more fundamentally, you know, it crashes because a bubble is a market that's infected by speculation. where you've got a lot of buyers coming into the market

that, you know, think they're smarter than everybody else. They can go in, buy, sell, get out, make a profit, and no harm, no foul. And you've got a lot of, in the housing market, for example, you have a lot of flippers. Like right now, for example, let's take the housing market, single family housing. That feels overvalued, you know, relative to kind of tried and true measures of valuation. If I look at price relative to income, if I look at price relative to rents, they're very hot.

They're very hot. And you can say, okay, that feels like the market's overvalued. You can explain why prices are high relative to incomes and rents. Yeah, but they feel high, you know, certainly compared to historical norms. But I wouldn't characterize it the single-family housing market as a bubble, would you? No. I think the other. Yeah, go ahead.

I think another piece of this is usually with a bubble, there's a lot of leverage happening. So people are borrowing, right, up to the hill to turn around and buy assets and then get out of them and flip them. So the single family housing market in certain parts of the country may be overvalued, but you don't see the same leverage. You don't see the same borrowing that you saw back in 2005, 2006. And I would argue a lot of that is more fundamental supply and demand rather than just pure speculation. Right. Okay. Well, okay.

So, Chris, just because you brought it up, do you view this as a reasonable distinction between an overvalued asset market in a bubble in an asset market? Sure. To me, it comes down to how this overvaluation gets resolved. I'm not certainly claiming that suggesting that the housing market is going to crash anytime soon, but I'm not expecting, I am expecting some readjustment, right? That overvaluation seems unsustainable. Yeah, but it's, you're too fine by half. Is that a phrase? It should be a phrase, no, it's not a phrase.

Isn't it too cute? Maybe too cute by half. Someone co-pilot that or GPD that. But no, what I mean by that is more fundamentally why you see markets crash and why you characterize that as a bubble is because what that's happening is you're ringing out those speculators, those flippers, those people that are just, you know, moving in and out of the market. And I think Mercer is right. Most often it's with leverage involved with these guys, the speculator borrowing money because that's how they juice up their reverse. terms. So it feels like there's this, there's definitely a distinction between, you can have an overvalued market, but it doesn't necessarily mean it's a bubble per se. No? Correct.

Yeah, I think we're saying the same thing. So I'm, I'm, my, uh, assumption is that the housing market is going to gradually adjust that it's overvalued current. I'm not talking about I'm talking more broadly. I'm not just talking about any market then that it will gradually adjust, right? Okay. versus a bubble is a sudden. Okay, you're saying a telltale sign that it was a bubble is that prices fall very rapidly. They crash, the bubble verse.

That's right. Okay, and if it's overvalued, prices could go sideways for a while, in the case of the single payment housing market, incomes and rents could catch up. And that's not a, you wouldn't characterize that as a bubble. That's right. Yeah, okay. All right. All right.

Let's let me now that we're splitting hairs of it. No, no, no. I don't know. I think that's important. That's an important distinction because I'm going to ask that we, are these markets overvalued or are they or are they bubbles? Because that makes a big difference. That makes a big difference in terms of what, how things are going to, as you say,

going to play out both in terms of these markets, but also what it means for the economy, I would think. Right. Sure. Sure. Okay. But that was a, that was a, that was a, a, a, a, a, a, a. Well, you know, good, good tangent, but let's come back. So let me go to Marissa and say, you know, you have you, you observed the same thing, right, that asset prices are high. Is that a, you Christian won't write to the risks that pose. I mean, that kind of gives you a sense of where Chris's mind is, I mean, do you use a good thing or a bad thing?

It's a good thing on the face of it, generally speaking. It's a good thing. I think it's helped to power, consumer spending over the past few years to some extent, particularly on the high end, right? I mean, this is kind of a, I don't want to get into this tangent, but we should talk about how this affects different types of consumers differently because we are talking about stocks, right, where we know that it's mostly high income people that are invested in stocks and then housing, two-thirds of Americans own their home, but there's a, significant share that don't. So it does affect consumers unequally. But overall, I think it's a good thing. We saw when we got the survey was at the survey of consumer finance last year,

we saw that over the course of the pandemic, wealth overall, both housing wealth, stock wealth, was up for all income tiers, right? More people were invested either directly or indirectly in stocks. It lifted both high-income household wealth as well as low-income household wealth. So, I mean, on the face of it, I think it's a good thing. This is helping consumers to feel richer, to feel like they have more money. It's, I think, certainly helped get us through the past three years, which have been difficult with inflation. Okay. So just a few numbers. So the stock market, and I'm speaking from memory, so I won't get these numbers exactly right. But the S&P 500, I think that's sitting at 5,300, 55300.

Is that right? I think that's right. But around there. Yeah, that's within the spitting distance of the all-time high. The whole time high we hit back a week ago or so. So we're, you know, we had a bad day. This is not Friday, May 24th. We had a bad day yesterday in the market.

So we're a little south of that, but pretty close to a record high. Yeah. I go into the bond market. I look at credit spreads in the corporate bond market. That's the difference between the yield on a corporate bonds relative to risk-free 10-year treasury yields. And they're paper thin, you know, meaning they're very, very, the spread is very narrow. The difference is very small.

Therefore, corporate bond investors are pretty sanguine. They're saying, you know, no big, I'm not worried about not getting paid back. therefore you, the issuer of the bond, don't need to pay me as much in interest to compensate for the risk or the perceived risk. You know, I look at crypto. Bitcoin, I think, I may get this number wrong, but it's over $60,000 of Bitcoin. And that's back pretty, that's not a record high, but it's pretty close, I think. Most, yeah.

Pretty close. Gold, I think gold is $2,300 an ounce, something like that. you know, that's pretty high. That's about as, you know, high as it gets, has it's gotten. You know, what else? I mean, housing, right? The single-family housing. We saw a bit of a, you know, a correction back when Fed started jacking up interest rates in 2022. Mortgage rates went from, you know, two and a half percent to what got as high is almost eight at one point. But despite that, single family housing values are at record highs, keep marching higher. Keep marching higher. So what what's going on? What fundamentally is going on? Now, it could be the case that

each of these markets has its own idiosyncratic story, and I'm sure there are some of that. But broadly speaking, what do you think is driving asset prices higher? Mirce, I'll go to you first. Well, I'm a little confused about gold. And I'm wondering if you, you have a... But you don't buy gold? I thought you were a big buyer of gold. I mean, I see all these, this jewelry that you got, you know. No?

Oh, it got the wrong person. But did she see that look she gave me? What jewelry? Yeah, what jewelry? What are you talking about? All right. Well, I mean, gold, you know, gold prices often are kind of counter cyclical to the economy. So I'm wondering why gold is up so much.

Okay, but I asked you the question. Now, that's pretty smart. I know I came back to the question. You like that. Mark, why do you think prices are off? Well, that's one I don't understand. I don't understand. Okay.

What about the ones you do understand? Okay. I mean, the equity markets, I think it's reflective of a solid economy, generally speaking, right? I mean, consumer spending is generally speaking. been very strong, as we just talked about. Now, there may be some cracks appearing at the lower end of consumer spending, but generally speaking, the economy is performing well. It's performing above potential. And so I think it's basically reflective of that. And if you look around the world,

right, this isn't just the U.S. either. I mean, U.S. equity prices are up very strongly. But with the exception of like China, equity prices are up a lot everywhere around the world. And you could argue the U.S. economy is doing, you know, better than Europe on some fronts. But I think it's just reflective of the general economic condition of the global economy on the equity side. On the housing side, as I said, I think that's mostly supply demand fundamentals. And I guess you'd also say, in a corporate bond market. And yeah, I mean, I think that investors are looking across the economic landscape and don't appear to be rattled, right, with the near-term outlook of the economy.

I mean, inflation here and there, every time Jerome Powell opens his mouth or every time we get an inflation report, things may, you know, blip up or down a little bit. But, I mean, generally, I think the sentiment is positive among people. who are in the know and watching the economic data. And what about crypto? I have no idea. I have no idea. Yeah.

I don't understand it. That in gold, I don't understand. Well, really put even a finer point on it. I mean, usually, I'll use the equity market because that's the kind of the cleanest way of thinking about it is the value of a stock is a function of the earnings of the business that, who stock you're buying. So, you know, more profits, higher margins, that all else being equal means you'll pay more for the stock because the company's worth more because it's generating more profits. But it's also interest rates, longer term interest rates.

When interest rates rise, that reduces the present value of that stream of future corporate earnings and makes the value of the asset lower all else being equal. And not only are stock prices at record highs, but this has happened in the context of a pretty dramatic shift in long-term interest rates, right? If you go back two years ago in early 2022, what was the 10-year treasury yield? I mean, I can't quite remember, but in the teeth of the pandemic, it comes down to about 50 basis points. Maybe, you know, right? It was maybe it was 2, 2.5% on the 10-year yield in early 2022. Here we are at 4.5%. That's, let's for sake of argument, say it's up 200 basis points, two percentage points. That's a pretty dramatic move in long-term interest rates.

But despite that, stock prices are at record highs, at record highs. You know, housing values. I told you the fixed mortgage rate was going to go from, what was it, Chris, sub three, you know, back in the pandemic to high as eight. We're now down to seven percent on the 30-year fix. They said, hey, Chris, what does that mean for house prices? You wouldn't have said they're going to be higher. I heard you wouldn't have said to the other than we are. So not only our valuation is high, but this high in the context of these higher interest rates, which suggests all else being equal that we see lower prices. One other quick point. There is one asset market where there has been a correction, right? Commercial real estate, right? We have seen office property prices

and multifamily in particular come down. I think according to our repeat sales, index, they're down about 20, 25% from the peak, which was back at the start of 2022 when rates were very low. So we have seen that market correct to some degree, but we've not seen anywhere else. So let me turn to you, Chris. What's going on? Why are prices so high? So I think you generally have this risk on environment, right? Lots of people have accepted or believe that recession risk is extremely low and that time is going to continue to power forward and grow. And so I think that explains certainly part of it, people piling in and not terribly worried

about the downside, right? That would explain the corporate bonds, explain the equity markets. But at the same time, the surveys also indicate that there is some kind of lingering fear about long-term inflation, that we won't get inflation back in its bottle. And I think that explains the gold and the crypto as well. So I think that's the- Having it both ways. You're eating your cake and having it. No, what is it? Yeah. I am. I don't know that it's, but I think there's a mix or some mix. So this market is saying no, no inflation is going in. And rich you're going to decline in. This market says, oh, no, I got to worry about inflation. I think there's some hedging going on. And I think

there are also some different participants out there. There are some people that are extremely worried about inflation right there. And they're piling into the gold and the crypto. That's how I see it. Now, it doesn't have to be all 100%, black and white, but I think that can explain some of the movements here. So they're maybe positive, bullish about AI and bullish about, you know, a lot of equities. They're still confident that the economy is going to continue to grow, but they've got this lingering feeling that inflation is going to be harder to lick and there's some risk

that it doesn't go back down any time soon so they want that goal or that crypto if they believe crypto. Okay, so you're saying just so I understand, you're saying these asset markets are to

significant degree independent of each other, that they are being driven by different types of investors with very different perspectives on the way

the world is in the economy is headed. The reason why gold and crypto are up is because people think inflation's a problem

and then you're saying stocks and corporate credit is up because people don't think the economy is inflation. Yeah. Certainly

you know, yeah. Just as you mentioned, we're not seeing the historical relationships between interest rates and massive prices that we've seen in the past. So my only rationalization is, oh, it must be some, there must be a more complicated view of the world. Or there must be segmentation that there's certain consumers, certain businesses, worried about or seeing opportunities in different areas. And that's driving prices up all across the board. Right. Well, or a variation on the theme, you know, which feels, at least in my own mind, a little bit more palatable because it's hard to mind around that these markets are hard, hardly, that these markets are segmented to the degree that there's not arbitrage between them. It could be the case. Maybe this is what you're saying, but just in my own words, what you're saying is, okay, I think the economy's fine. It's reasonably good. Corporate. earnings are strong, cash flow is good, business is locked in the previously low rates so their

interest coverage isn't becoming an issue. I'm going to buy stocks and corporate credit. But I got this kind of reasonably fat tail over here where I'm not overly confident. I'm not quite sure that my forecast is exactly right. Therefore, I'm going to kind of hedge in just buy a little protection over here to guard against the possibility that I'm wrong about the good inflation story and the good economy. Therefore, let me buy a little bit of crypto. And by the way, it's kind of like poker anyway. You know, it's, you know, zero. Okay, I'll lose that money, maybe, but I could get a big gain and gold kind of the sort of the same thing, that, you know, it's kind of a hedge. Is that another way of thinking about what you're saying? Yeah, it's essentially.

I think we're. Okay. Interesting. Another way to phrase it is that traders are so confused across the board, or people in general are so confused across the board, not sure what's going to happen. They're just investing in everything. Right. To your point, they're just diversifying across the board. Right. In every asset class. and to your point, win some, lose some. Right. But the general direction should be upward. I don't know what's going to pay off,

whether inflation is going to come in faster or move more slowly. I'm at least hedged across the board to deal with that. Here's the other thing that I thought might be going on is all that excess saving built up during pandemic. And that's a global phenomenon, right? And in fact, it's only really been in the United States that high-income households that saved a lot have been drawing down that saving. You go to the rest of the world, at least the last time I looked. And it's the UK, clearly the Chinese,

the Chinese consumer is not spending. They're nervous. They're investing. And they can't go into housing anymore. They don't want to go buy a house in real estate. You know, go to the UK, go to Canada, you know, the excess saving is pretty ample. And so you're a high income, high net worth household, say the top third of the income distribution. And that money's been sitting in your checking account, you go, well, okay, that's okay, because I'm now getting a higher return on that cash. But, you know, maybe I'll go invest in other things. And then you're all over the play. Everything is lifted. All asset prices are lifted. Right. Right. So what do you think of that idea? Mercedy, what do you?

Yeah, I mean, I've done it. Yeah. Done it. Yeah, I think. Oh, well, talks about that, Mercer. Let's learn more about it. Well, I don't want to get into the details, Mark. That's your investing strategy, Mercer.

Well, you're willing to tell us about your rowing. You're not going to tell us about your stock portfolio? No, I'm just saying, you know, I had some cash. And so I gave it to my broker guys. Could you think a boss for that cash? I'm just asking. Was there what? Was that because you have a nice boss that, you know.

Yes, a very generous boss and a wonderful company to work for. That's right. Yeah, I agree with that. And I actually think Chris's explanation that there's just there's just money going into everything to cover all the bases makes a lot of sense to me. And there's a lot, there's been a lot of money out there, as you say, with excess saving during the pandemic. So people that have cash sitting around, not the low end of the income spectrum, right? Because that's been spent and that was largely eaten away probably by inflation over the past four years. But at the upper mid and the low income goes, they account for much of the saving anyway, right?

Even in typical times, right? Right. I mean, it's 75% or 80% is with upper income households. So yeah, I think if those people had money sitting around, at a certain point, why have it sitting in a checking account earning nothing when you could invest in a stock market that is up strongly over the past several years? So that makes a lot of sense to me. I guess here's the other thing. I'm stretching a little bit, but you can't, no one's really investing in housing, right? Because it's not like I'm going to go, I'm locked in.

I've got the fixed mortgage rate. I'm not going to go get another home, a bigger home at a 7% mortgage rate, which is where we are today. So because people are kind of locked into their home, that's like an avenue where they've used their cash savings in the past. And the house prices are high for other reasons, just going back to the lock-in and the lack of supply in the new market. So because you're locked in and you can't transact, you won't transact, you got extra cash sitting there. What do you know, right? Yeah, I do think there's been a lot of renovation going on, though, which is helping to contribute to raising the value of homes that people are in.

But it's not like, at least not yet, probably if I'm wrong, of course, you look at that data, but renovation is okay, but it's not booming. Right. Yeah. It's kind of typical. Wasn't it booming? Okay, but maybe not now, but a few years ago? No, but I'm talking right now.

I guess what I'm saying is, okay, I'm a high income house. I got all this cash. Typically in the past, I put a fair share of that into my home. I'd go be buying a bigger home. I'd be saving for a down payment. And now I may not be doing that because I'm locked in. Again, I said I'm stretching, but maybe I'm locked. So that is less.

investing in single family housing is less or a second vacation home. Right. Yeah. No possible way I'm going to do that now. Five years ago, I would have done it. And by the way, I probably did a lot of that back in 21 and 22. And in fact, there was a lot of, you know, second vacation homes that were transacted. Not now.

So that's cut. You just took that off the table. And now I'm saying, okay, now where's the cash going to go? Stocks, you know, bonds. now I'm going to take my chance at crypto, you know. Gold, I think, has got its own dynamic going on. You know, I think that each one of these markets has its own idiosyncratic story. So like gold, for example, I do think a lot of it's related to what's going on in China,

but it also could be central banks that are changed going from dollars into gold or other currency into gold, because they're just a little uncomfortable with, you know, what the U.S. did with regard to Russian reserves. They just froze them when Russian data, the U.S. froze Russian assets. I think it was 400 billion. So if you're sitting there, you're China or your, you know, whomever, Iran, and you've got dollar reserves, you may say, maybe I should put that in gold because they can't take my gold. You know, they can take my dollars, but they can't take my goal. I don't know. That may be one other things that's going on. So, Chris, any other reasons you can think of that might be driving this phenomenon,

this dynamic? I was going to say, I think the geopolitical dimension that you're talking about, I think that does affect that the gold and the crypto markets more, right? So to your point, there's some different dynamics in each one of these. Right. Okay. All right. Well, okay, so now here we are. Asset prices are high. And just to strike that point home, and again, I'm making up the number, maybe you can chat GPT it or co-pilot or something.

But I think the average household net worth for American households has increased by $350,000 since the pandemic, since four years ago. This is based on the, the, financial account data from the Federal Reserve. Think about that for a second. Now, that's not a median. So you got some folks that have seen massive increases in their wealth, and that's going to bias up or push up the average relative to the median, median in the middle of distribution. But nonetheless, $350,000. That's a lot of wealth. It's stock wealth, it's housing wealth. It's pretty amazing. And, you know, it has generated wealth effects. But let me ask this. Okay, here we are. Do you think what I'm trying to figure out a good way of phrase it.

How much at risk are we that we're going to see these asset prices burst, that, you know, fact, they are bubbles, or we're going to see, you know, very weak pricing, you know, for an extended period? Or should we not be worried about that? What do you think, Chris? I would think weak pricing, going forward. Weak pricing. Yeah, that the valuations are quite rich. If we look at the stock market, kind of price for perfection, right,

when you think about future earnings, you do have, you know, you have a lot of reasons to be optimistic. AI is very promising. Seems like it'll deliver a lot of returns, but we've already pushed up those prices of the chip companies, of the software companies, up to really high levels.

My expectation is there's going to need a little bit of a pause here to grow into these valuations. Going to need to see the earnings to really take the stock market up to a new level. I don't see crashing, though, either. To your point, I think there's a pretty solid base here. Where else are you going to go, right, is the factor. So, yeah, I would think the most logical would be sideways. movement. And that's true across the board for the other assets as well. And that, in fact, is our forecast, right? I mean, if you look at our S&P 500 forecast,

I think it's between 5,500, for the next two, three years, four years, something like that. Housing values, same deal, right? Basically, basically flat, maybe in a very low single digit. But bond market, you know, we have yields flat, no real change there for the foreseeable future. Of course, we don't really, except for Chris, forecast crypto. But I thought you're not buying crypto. I thought you were like a big crypto investor. Someone told me that. Oh, that's fake news, Mark.

Maybe you got that off with Chad GPT. but attach GPT. We are expecting some continued weakening in CRE prices. Yes. Oh, that's a good point. That's a good point. But even there. But we're kind of near the bottom, right?

I mean, even with office, not much more to go. I think so. Yeah. Office, I think. I'd see another like that. We're down 25% right from the peak on a market value basis. On the valuated basis, yeah. Yeah.

So what do you think? In our forecast, we're another 5% or so. I talked to those guys and they're saying 50% and it's a lot of pessimism. CRE. Who's those things? CRE investors. Oh, oh, oh, oh, really? Yeah.

But again, I think it's, I think they may be looking at certain markets. I think certainly that could be the case. But overall, I think there's more room. I don't see any upside any type soon. I am not saying. I think to Mercer's point, we're probably closer to the bottom, probably tread water here for a while. Yeah.

Oh, you know what? I just thought of another asset whose prices have been declining. You want to guess who that, what that is? Coco prices. Coco? Yeah. Are they falling? They went way up and now they're coming way back down.

It's not way back down somewhat. Oh. No, that's not it. That's not it. That wasn't what I was thinking. but oh yeah yeah vehicle prices right that's an asset yep it is yeah it has it you don't think so chris i mean yeah it's a depreciating asset but yeah depreciating asset okay yeah okay okay that's good point um uh what in mercy you're in the same camp basically we go sideways

here yeah i think there's certain segments that might run into trouble over the course of the next few years is the economy slows, but I think overall, I don't see a big crash coming unless there's a severe recession, which we're not forecasting. And I think on the housing front, I just think that the supply is too constrained to cause massive declines in house prices.

I just think that's putting a floor under the value of homes in many places. Right. What about the, put yourself into my shoes. You know, I'm this old guy. And, you know, I'm not like you young guys where you can have long-term horizons. You can look through any kind of decline in price. If they go down, no big deal, because they'll be up in the future. You know, if history is any guy in the economy continues to perform, which it will.

but if you're older, if you're a boomer, and I'm a boomer firmly in the boomer camp, and it got a lot of boomers ahead of me that have retired already, what do you think? I mean, do you think they should be holding on to their stock portfolios? You ask him for a friend? I'm asking for a friend. Friend would like to know. What would you do? Well, first, Mark, of course, you're the picture of perfect health.

you do have a lot of rise and you need to die for the future so you should be continuing in stocks right well diversify portfolio let me put it this way suppose you had and this is just for a friend 60% of your portfolio for example for example no no I'll stop I'll stop you get my drift though yeah yeah my mom asked me this all the time and what do you tell it I say just trust Brad to diversify your portfolio. That's your financial planner? Yeah. Yeah.

Okay. Great name for financial planner. Okay. All right. I didn't expect you to answer that question. Okay. All right. So let's take the,

this to its, you know, ultimate conclusion, this conversation. Suppose, you know, asset prices do fall, you know, do correct. And if you look at the equity market, you look at the single family housing market, you know, feels like, you know, prices are a good 20% overvalued, you know, something like that relative to tried and true measures of valuation in these markets. Suppose we went down 20%, all else being equal.

And let's say it's not necessarily because of something going on in the economy. It's just that to Chris's point, we go from this risk on. environment to all of a sudden we're now in a risk off environment for whatever reason because it's hard to pinpoint why we got into this risk-on environment let's say whatever that is went away and now we're in a risk-off environment people sell we're down 20% something on that over magnitude what do you think big deal no big deal 20% down in housing I think is a huge deal that's a huge deal that's a good point well I was going to see I was thinking equity but you're Right. Okay. But yeah. So equity, no, it's a deal, but I don't know that it's a huge deal.

I mean, we were there in the pandemic, right? We were flirting with that bare market territory, and then it turned around. So. First, we got five trillion in stimulus. Shrugged off. Of course, we got five trillion in stimulus at that point, though, Mercer. That is true. Yeah. And in a zero federal fund rate. Yeah. So I'm not sure. But you're saying, though, you know, if equity prices go from 5,500 to 4,000, S&P goes from 5500 to 4,000, it ain't great. It depends on why that happens. Exactly.

Yeah. Right. But assuming it's more benign and it's not, we're headed to recession, you're saying, I think we can digest that. It's not, you know, it'll slow things down for sure, but we can digest it. I think so. I think even a lot of homeowners could digest a 20% decline in the value of their homes. Yeah.

Right. Because I think house, correct me if I'm wrong, I think house prices are up 45% from the pandemic, right? Yeah. So take away half of it. Take away half the gain and divide by four. You're up 5% per annum. Yeah. I think it's a psychological.

Okay. Yeah. And that goes back to the wealth effect, right? And that goes back to just people's perception of the strength of the economy, too. So it could have a knock-on effect that is more negative than that would suggest. But on paper, I think a 20% decline in real estate values for most homeowners would not be that big of a deal. Yeah, the other thing that makes me feel a little more comfortable with that, even with that scenario. And again, I'm not saying it's great, but it's not existential with the economy is,

again, 10-year treasury yields went from 50 basis point at the low. They got as high as, 5%, I believe. Yeah, 5%. They were kissing 5% back late last year. And yet the economy kind of digested that or seemingly digested that, right? That's a massive correction in bond yields, right? And bond prices, right? So despite that, we kind of digested it and we moved on. Does that fair, do you think that kind of? Yeah, I mean, I think a feature. of this economy is just the resilience to higher interest rates has been remarkable all across the board. Right. Right.

Okay. All right. Okay. Anything else on this topic on the asset prices? When I asked chat GPT about to check your network statistic, it came up with you. Your quote. Oh, your quotes. Zandi says.

So it was a circular exercise. It's got to be right. It's got to be right. That's so funny. That's hilarious. Okay. All right, well, let's play the game, unless anyone's got anything else on that topic.

You know, anything else, top of mind there? No? Okay. I don't think so. Let's play the game, the stats game. We just put forward a statistic. The rest of the group tries to figure that out through clues and deductive reasoning and questions.

And the best stat is one that's not so easy. We get it immediately. One that's not so hard. We never get it. and if it's apropos to the topic at hand or recent stat that's all the better. Marissel, you're up. What's your stat? Okay.

I have two related. 118 percent and 12.8. Something that came out this week? It is calculated every day. Is that the growth in the stock market? Over a period of time, two periods of time? Yes, the 118%. From the bottom in the pandemic?

Is that right? It's over the past five years. Five. Over the past five years. So the S&P 500 is up 118% over the past five years. Wow, I didn't know that. So it's more than doubled. Yes.

Wow. I didn't register. Before the pandemic, if you go to 2019 or something. Yeah. Yep. Ooh. That's pretty impressive. Mm-hmm.

And up 28% just. in the past year. Wow. And what's the 12%? Do you know what the first year? Not percent, 12.8. Is that over the past year? Year to date? It is as of yesterday. Compared to what? It's value as of yesterday. Oh, we're still playing the game. Yeah. Yeah. And okay, that's not a percentage then. It's just it's not a percent. No. Oh. It's related. It's related to the first statistic. Oh, but it's not an percent increase in the end. No. Okay.

But it's related to the stock market. That's right. 12.8 percent. No, not percent. Is it a valuation? I got percent on the line. 12. Some valuation metric?

What, Chris? Is it some valuation? It's not PE, but price to earnings, but it's something else like that. Something else. It's a ratio. It's not a ratio? No. No, not a ratio.

Not a ratio. It's not a ratio. Does it have any units? Yeah, is it a unit? Yeah, but it's complicated. Yeah, but it's complicated. That should give you a hint. Oh my gosh.

And it's stock market related. It is stock, yes. Okay. Is it related to- I swear to God, it's related to the stock market? Is it related to like S&P 500? Yes, it is. Okay.

So something was regarded to the S&P 500, 12.8% of something. So it's not a share. That's a percent. I'm just going to tell you. Tell me, what is it? What is it? It's the VIX. Oh, the VIX.

Oh, the VIX. Yes. Index. It's an index. Okay, you want to explain? It is an index, yeah. So this is an index that's calculated by the CBOE every day, and it measures the the 30-day-ahead volatility in the S&P 500.

So when this index is, and it's a very complicated calculation, which is why it's hard to talk about units in this. When it's low, it usually is low when stock prices are rising, and it usually rises when stock prices are falling. It's kind of a measure of the angst or the, you know, discomfort, the worry out there that the stock market will be volatile. It is now at a period where it's kind of at its lowest level in four years. It's hanging out at this extremely low level. So not only do we have stock prices rising very quickly

over the past five years, but the sort of expectation is that there isn't much worry out there about the volatility in stock prices. Can I say when no one's worried, I'm worried? Yeah, right. I agree. This does not compute, right? Well, here's the other thing. Everyone says, I'm worried, oh, geopolitical this, the world's falling apart, climate risk, you know, everyone can come up with a long list of things that the election, you know, so forth and so on. But yet it does, you know, people are still taking risks.

No problem. It's just so bizarre. It's so, I'm so pessimistic that everything sucks. You know, it's terrible out. I don't know if I should use that word, but everything's terrible out there, this vibe session thing.

And yet there's like no angst, zero angst. It's, it's real. But they're buying gold, right? There's some angst. There's something, yeah, someone's buying gold. Someone's buying gold and crypto. in crypto. So it's just, it's hard to square these things, right? Again, going back to your point, though, maybe it's, I'm, I, my investments are like centered on stocks and bonds and like

in housing like they always are, but to cover my tail risk that something goes down the drain, I'm going to go out here and buy these other assets to cover, cover my, it's good, it's an insurance policy. I'm basically paying an insurance premium. Yeah, you know, I'll loot my, I'm more likely to lose it, but if the world goes to hell, it pays off and helps cushion the blow. That's what I'm this barbell strategy. Yeah. Yeah, I'm effectively buying insurance. Yeah.

Okay. All right. Well, that was a good one. Yeah. So I didn't realize that. I knew the VIX was low, but it's that low. Wow. Okay.

Very good. Okay, Chris, you're up. All right. Two numbers. 3.6. and 9.1. Percentage use? Oh, you want the units.

Months. Months? Months. Oh, this guy goes back to homes. Inventory of new homes and existing homes. You got it. Yeah. Yeah.

Yeah, you want to explain? Yeah, absolutely. So we got this data came out this week. All right, we had numbers on existing home sales, new home sales. the month supply is what we're talking about here. So how many months, how much inventory do we have and how long would it run out at the current sales rate? So for the existing home sales, it's 3.6 months, which is, it's up over the last year or so, up over the last couple months. So it's moving in that direction in terms of a more sustainable market, but it's still low by historical standard.

So it's still indicative of a very tight market. and we've never had house price declines when the month supply is less than six. So, you know, see it's pretty solid that we won't see significant national home price declines anytime soon. But on the new home sales side, it's a different story. 9.1 months of supply is actually high. Historically, that's been closer to 5, 6 months. So that's indicating that we do have some additional buildup in inventories there. So that's, to my mind, a reason why we won't see prices skyrocket from here either.

There is more inventory coming online. We are taking off some of that edge in terms of the imbalance. And so forecasting prices to kind of move flat here. You know, what I quite understand is if you look at the new home price, the median new home price and the median existing price, they're about the same, just about 400K. Yeah, yeah, there's still some differential, but not, I mean, usually or typically it had been like a 30% difference between the two new homes being much more expensive. Yeah, I think it goes to just that very tight inventory on the existing home side. And the fact that the builders do have a little bit more flexibility when it comes to pricing or even what they choose to build. But if I'm a buyer, why didn't I just go right to the new home market?

Why, you know, I mean, because there's more inventory. Prices are no higher, you know, because the builders are giving me an interest rate buy down. Is it just because there are a lot of new home developments that I live here and I can't find? Yeah, I mean, as we've continued, I mean, the land is getting further and further here. It's harder to find. So, yeah, if you want to live in a new home, it's great, but you may be living pretty far from where you are now. town or where you want to, where you want to be. Yeah.

I mean, my home could be in Brimmore, Pennsylvania, right side of Philly. There's very, there's no new home building going in Brimmore, PA. You got to go out to Exton, PA. Exactly. Now you've got to even go to Coatsville, right? Coteville, which is 20 miles due west. Right. Keeps moving out.

So I think that's the, that's what's going on. That's the rationale. Interesting. That's interesting. Because, yeah, maybe you said this, but new home sales feel like they're, they've kind of held up pretty well, right? I mean, they Yeah, there was some decline this month.

But not a lot of that. But not. Around 600, 650K, annualized new home sales. It got higher than that when interest rates were very low in the teeth at the pandemic and remote were, but not much higher. That's right. Consistent basis. Okay.

Yeah. So still pretty healthy, I would say. Yeah. Okay. Okay. That was a good one. While we're on the topic, because these are always interesting statistics, do you know what share of existing sales are going to cash buyers?

Oh, I didn't check recently. I think it was around a third, 30, 35 percent, something like that. Okay. And who first Simon buyers? I think the first Simon buyer was like a third. I think it's around that as well. It's around that as well. Which is very low historically, right?

It's not as low as you. Not that as low as you think it would be in this market, right? Yeah. Which is interesting, right? Cash buyer. Is that high? That's high. That's high.

Yeah. Right. Well, we also have one of our colleagues, Shandor, which are sent around some data, he puts together regularly on the share of sales, home sales that are investors and flippers. Did you want to mention that, Chris, at all? Because I thought that was pretty interesting.

Yeah, some interesting trends going on there. Flip flips overall are still relatively low, but you do have some flipping activity in certain states. Weird states. What's that? Weird. I mean, Stacey wouldn't have thought. Yeah, exactly. I think the top of this was West Virginia.

Yeah. You know. Yeah. I attribute and I think Louisiana was in there. Alabama. Alabama. Yeah. So the story I tell myself is, well, these are lower cost areas that still have, perhaps they have.

lower cost labor as well. And if you're flipping, you need to renovate. Right. Maybe that's the, you know, to preserve your margin, maybe that's the issue. Right. Why these areas continue to attract flippers, but. Well, the other thing I found fascinating was that the share of home sales going to investors is very high.

Yeah. I mean, by historical standards, I think it's 17, 18, 18 percent of sales. Now, the level is low because overall sales are way down, but as a share of the sales the investor is still very active so so still out there buying yeah that is interesting maybe that goes to your you know uh excess savings what i'm going to do maybe they're still because i think a lot of these investor sales are still mom and pop i don't think these are large corporations yeah right yeah what do i do with my money that might be one of the destinations for that right extra cat okay i got a statistic it's hard

It's related to the topic at hand. It's not hard for Marissa. I don't know. I might have to help out of here a little bit. Maybe not. Maybe not. Maybe not. Maybe not.

6.4%. 6.4%. Is it an economic statistic that was released this week? Or? Yeah, it was released this week. It was. It was released this week. Yep.

It's related to assets. It's related to. to one of the stock market. Not the stock market. Housing market. Not the housing market. I can go through each one. Is it?

Is it? It's related to the CRE market. Oh, is it the CNBS delinquency rate? Exactly. But for which property type? Office. Office. Very good.

Excellent. You're right, Chris. You got it. All right. Little help needed. Little help. Yeah, that's okay. That was a pretty difficult one. So the delinquency rate on office properties sitting in commercial mortgage-backed security. So you take an office property, you can bundle it, but I think most cases there are single mortgages that the investors turn into a commercial mortgage-backed security. That delinquency rate is jumping. It's 6.4%. If you go back to 20, 22, before interest rates increased, it was 2.5%, something like that. And it's moving up very

rapidly. If you look at commercial mortgage-backed security delinquency rates on other property types, no problem, nothing. They're not rising. They're low. Retail, industrial is rock bottom. Interestingly, even multifamily, it's low and it hasn't risen any meaningful degree. You know, it's up a month, it's down the month, not as significant increase, which I look at this and I go, okay, if this, if the worst of it is that the office market, you know, and we all know the office market's a basket case. But, but, you know, if that's the worst of it, really? Okay, no big, you know, these, these, you know, things are holding up pretty well. That was my takeaway. No. Okay. Yeah. Yeah. Yeah. I agree. I don't think it, you know, the certainly the do-loop scenario talk has died down. died way down. Right.

This is going to, it's just going to take time to resolve a lot of these properties. Some of this, some of these CRE properties, we don't know how they'll be resolved, right? They may need to be knocked down. Yeah, like those properties, you know, that property might be torn down. Yeah. Okay. Let's, we've got some time, a few more minutes. Let's turn to listener questions.

And I know, Marissa, you've been co-elating the cues. You want to just fire away. and we've Chris, none of them have heard, except for you've heard the question, so we haven't really prepared anything, but I'm sure we have the answers.

If we thought, then we're going to blame it on it first. Sounds good. Provide an answer one way to the other. Yeah, one way to the other. Okay, I'm just going to jump into it. So we have a couple related to the housing market. This is an interesting one that I haven't thought about,

but this. listener would like to know how Airbnb's and short-term rental properties are affecting the housing market. So if a home is sold and then it's converted to be used to short-term rental, how is that tracked in the housing data? How big is that in terms of a piece of the housing market? What effect does the reduction in the supply have on the housing market? And, And then kind of same thing for second and third homes, like vacation homes, or how does that affect the housing market and the supply in the market? Yeah, good question. Chris, you want to take a crack at it?

Yeah, it's a great question. We've thought about this a lot. I think the most direct answer is that these properties are hard to track in the data, right? It's not always clear when the conversion occurs, sometimes, you know, and things get really complicated. Right. Someone may have a seasonal home, a vacation home that they use, right? And traditionally, before a Airbnb came on the line, it was just vacant the other months of the year. They're still doing that. They're still going to use it, but they're also renting it out in the off season and in the time that they're not there. So how do you classify that property now? Is it still a vacation home or is it now an investor home? Right. So that's where the classification becomes. becomes difficult. So there's no real one great source I would say that that provides a very clear pacification across the board. You kind of have to piece this all together. The impact certainly varies. Nationally, I don't see that the Airbnb is large enough to really move the needle here.

And again, if it's the case that most of these properties are these vacation homes that are also being rented out, it doesn't really affect the available supply for people who want to rent or own full-time around the year. So I don't see this as a kind of a national issue that really pollutes the numbers. But if you get into certain markets, definitely it does. If you're looking at those more vacation areas or areas where tourists go like in New York City, then certainly there can be some impacts here. And we always have to have that in the back of our mind. I think the more interesting question now is that you do have some legislation or some rules going into effect in terms of Airbnb, right? You have cities kind of pushing back on these short-term rentals.

And so that could have a positive effect in terms of opening up some potential supply. You know, some Airbnb investors have to divest. But again, I don't see this as really being sufficiently large to move the needles, even in those markets to a, to a large degree, right? So I think the, the statistics we have are probably still okay to get the general sense, but certainly if you were looking at a very micro-level, these properties could have some impact in terms of what your assessment is in terms of available supply.

Supposed the missing theory, the housing vacancy surveyed from census should pick up the move for homeownership to for rent, I would think. but I guess that might test the balance of that data. Yeah, I think it does. It depends when they're running the survey. Again, if you knock on the door and the owner is there for their vacation period, they would classify it as, oh, this is a seasonal property. Right.

Right. But if you knock on the door and the Airbnb person is there, but that's different. Classify that as a rental at that point. Yeah. It gets blurry. Okay. Okay, good question.

You want to, was there another one, another housing-related one, Marissa? It's housing adjacent. So this is kind of what we were talking about earlier. We're in a period where the economy has been very resilient to higher interest rates. And a big part of that is the mortgage lock in effect. where most homeowners have very low mortgage rates. It's kind of frozen the housing market for all intents and purposes.

So this person wants to know, it seems like the monetary policy framework we have is not sufficient to describe what's going on now or maybe to react to what's going on now. Do you think that the Fed should be thinking about monetary policy differently, given the sort of resilience of the economy to higher interest rates? Or is there any, are there any other tools or anything else they should be doing to influence the course of the

economy? Yeah. Given that it's not really reacting as they probably thought it would to higher interest rates. Right, right. Good question. I think the policy framework does account for this, Not in a satisfactory way because there is no satisfactory way. It's the so-called, what is the so-called equilibrium rate? What's the R-Star? What rate is consistent with monetary policy, interest rates, is not restraining or supporting economic growth. And before all the, before the pandemic,

I think the Fed would have put it at two and a half percent. You can kind of glean that from their economic. economic projections they put out every quarter, they have to put a forecast and they have a long-term forecast for the federal funds rate target, and it was consistently two and a half percent. I guess, I don't know when that happened exactly. I don't know if that happened right before the pandemic or sometime early on in the pandemic, but that had been kind of the conventional wisdom, two and a half percent. If I had the funds rate at two and a half percent, that was consistent with policy neither supporting nor restraining growth.

I do think now the widespread consensus is, although that's not shown up yet in the Fed's projections, summary of economic projections, it's the equilibrium rate, the R-star is a lot higher because the economy is more rate and sensitive. Partly because households have locked in and they're not seeing their mortgage payments rise, unlike in the rest of the world where mortgage duration is a lot lower.

And people in the Scandinavian countries, for example, have seen their mortgage rates jump, UK, Canada. And that's putting downward pressure on, you know, consumer spending in those economies. That's not happened here. Same with corporate businesses. Businesses also have done a really good, non-financial corpse, done a really good job. And there's other reasons that are more idiosyncratic. That's pretty osyncratic, but even more idiosyncratic to the period that have made

the economy feel less very sensitive. So, for example, the shortage of homes, the affordable housing shortage, you know, that's unique to this period, but that's helping to keep construction high. If I go look at the amount of homes being built, single and multifamily, it's pretty close to a record high, you know, and typically in recession, when you jack up interest rate, or typically when you jack up interest rates, construction comes down and that contributes to significantly to a weaker economy and even recession. But that didn't happen. That's the not happened at all this go around because of that kind of idiosyncratic feature of the housing market. Vehicles, same deal. You know, we, the vehicle production collapsed, got some kind of pent-up

demand, and I never really saw, you know, that vehicle production collapsed during the pandemic. But when the Fed jacked up interest rates, that had no, it had very low impact on underlying demand, and it certainly didn't cause sales to fall further. They kind of held their own. because of the deosyncratic nature of what happened during the pandemic to the vehicle market. So I can go on, but, you know, the point is that the more rate insensitive, and that's implied in the equilibrium rate. But here's the, and I'll just end the soliloquy, we don't know what the equilibrium rate is. it's an empirical question. It's a guess, and it's a matter of debate. Therefore, it's very unsatisfying, you know, kind of framework because, you know, we don't really know where it's a matter

of trial and error. And that's one of the reasons, you know, the Fed's reluctant to lower interest rates now because they don't know exactly how high is the equilibrium rate. Is it, is it three? Is it three and a half? Is it four? Is it four and a half? You can make a case for all of the above. therefore, you know, maybe that 5.5% federal funds rate target where we are today isn't all that restrictive. It's not that high. And therefore, I don't want to cut until I have a better sense of that if I'm a Fed official. So, you know, the framework accounts for it. It just doesn't account for it in a way that is, you know, particularly satisfying because it's very difficult to measure. First, anything you want to add? Or Mercer, anything you want to add to that? No.

My thought was that the answer to the question that the Fed's tools are still fairly blunt and limited, right? So I think we're asking too much of the Fed in terms like the housing market. There is this issue where they keep rates high that restricts, it keeps credit costly, restricts potentially the additional supply that could come online, keeps rents high, right? So that goes to inflation and it kind of defeats the purpose. But is that a Fed problem? I don't see it. I mean, that's more on the rest of the government, right?

We're restricting the supply of housing. So there's that piece of it. And then we're also making some choices, right? I was thinking, as you were speaking, Mark, I was thinking back to Greenspan's call to arms speech, right? Yeah, right. And we're kind of encouraging adjustable rate mortgages in part because that certainly would make the Fed's life a bit easier,

the transmission mechanism of interest rates would be much more direct as we have in other countries. So, you know, we're making some trade-offs as a country as well. We could adopt more of an adjustable-rate mortgage market, right, and that would allow for that transmission mechanism to be more fluid, but it has other costs to it, right? So there's some trade-offs there as well that do restrict the Fed policy, but I would argue it's by choice, right? We're actually been straining or tying one hand behind the back of the Fed to some extent when it comes to setting the appropriate policy. Boy, was that bad timing for that speech?

Yeah. That set off the two-year subprime exploding arm set off the financial crisis. Man, that was really bad timing. Yeah. Okay. One more question or do you have another one, Marissa? Yeah, yeah, yeah. We'll see how we'll see how quickly.

Okay. We'll call it a podcast. Okay, this is sort of an interesting question. I'm curious to know how you guys are going to answer this, because I'm not sure how I would. In a soft landing scenario, right, key data points will moderate and then they'll stabilize at a more sustainable level. In a hard landing, they'll moderate and fail to stabilize.

They'll just sort of collapse. But as an economist, when you watch the data, how do you know if you're going into a soft land? or a recession? Yeah. Do you know? Do you know ahead of time? Well, this goes back to the podcast we recorded a few weeks ago, on the couch, right?

You know, you're on the couch. Right. Chris is on the couch because you're nervous that to use the metaphor, the planes coming in for a landing, definitely feels like it could land on the tarmac without a problem, ergo a soft landing. But, you know, gust of wind could come along. You know, the pilot could cough, you know, or maybe the plane's coming in a little faster than we think. The instrumentation that we're using to gauge it is broken a little bit and or, you know, misguided. Alty.

Flare hit the instrument and, you know, we're, we don't quite understand the speed at which we're coming in. And boom, you crash. So it's a great question because you don't really know for sure. You don't know because, you know, there's a lot of moving parts here with a lot of variables. So I think that's the first part. That's the first part. That's the answer to the first part of the question. Chris, do you have anything you want to add there?

No, I'd agree with you there, right? That the you may not know soon enough to do anything about it, right? By the time you figure out, oh, it's not a soft landing or maybe, you know, it's too late. But we do have some instruments, some economic variables that I look at to gauge whether we're going to slam into the tarmac crash landing or we're going to land soft landing. So we always talk about unemployment insurance claims, UI claims. Now, that instrument doesn't give you a lot of advanced warning. Right. warning, warning, warning.

You could be going in, you know, and you've got a month or two before, you know, it actually shows up in the data. But the UI claims they're pretty sensitive. I mean, they send off red flares. You know, you're within, if you're going to come into the tarmac card, and nothing. I don't see anything there. I like the conference board survey of consumer confidence. That's a much better measure of sentiment than the University of Michigan survey, which I think is, you know, badly biased. by, you know, political overlays. You don't see that in the conference board survey. And, you know,

that's a key window into consumers, what consumers are actually doing. And right now that's pretty consistent with its long run average, so no sign of them packing in. And that gives you more warning. That gives you three, six months, you know, a warning. I also look at going back to credit spreads, you know, I look at the high yield, corporate yield relative to the 10-year-year-old. That's a very, because it's high yield debt, and it's below investment grade, these are companies that are more on the financial edge, and they start having trouble making their payments

or their investors think they're going to have trouble making, trouble have trouble making their payments, and yield starts to rise, and the spread starts to widen. That's kind of another tell that we're going to crash land. We're not going to soft land. So there are things to look at, and of course the equity market.

I mean, there's the stock market, you know, the stock market has predicted, you know, nine of the last five recessions, but, you know, So it can go down and nothing happens, but as we were discussing earlier, but I don't think it's ever been a case where we've had a recession in the equity market not go down in advance of the recession. So, you know, watch that carefully as well. I mean, investors aren't going to hold on to the bitter end. They're going to start bailing before it actually, you know, shows up in the economic data.

So, you know, all the things I, all those instruments that I look at and they're all a little fuzzy, you got to wipe off the, you know, the, you know, the, you know, the, you know, the, the, the, the, the. fog and you got to, you know, hit the panel every once in a while to make it work. But, you know, those are reasonably good kind of instruments, economic indicators to watch to gauge whether you're going to soft land or hard one. Would you add any other instruments, the variables to that, Marissa, Chris? Anything else you kind of look at to gauge whether we're soft landing or hard landing? I mean, an ounce of humility, right? An ounce of humility.

you know yeah that if you've been right like me it's very hard to be humble i'm just i know i know that's what i'm here for mercy do you have any other than those no yeah i'm a little less into the consumer confidence thing i think than you are um because i just i think even the conference board has been sort of biased to some degree over the past few years. Yeah. Oh. Yeah.

And I think it's fairly backward looking. So I don't, people are reacting to, you know, news of what happened over the past month. I mean, there are, there are questions, I guess, about inflation expectations. Yeah, no. The way you use that. plans. Yeah, you don't use it looking month a month. If it starts falling dramatically for two to three months in a row, that's the tell. So if it's like bouncing up and down and all around, you know, I wouldn't pay any attention to that. But if it's going down, then, then, you know,

it's definitive, if it's definitively gone south, that's, that gives you good, good advance warning. On that note, by the way, did you hear about this survey came out this week? It's like a, or the Guardian Newspare they were asking people about... I saw that on the daily show. What was it? Yeah, maybe I saw it there. I don't know where. But they were asking people out there, well,

their perceptions of the economy today. It was some ridiculous number. Like over 50% said, we're in recession currently. You know, well. Yeah, like something like... Unemployment is at a record high when it's at a, you know, multi-decade low.

It was just completely opposite of the reality. Yeah, they should bifurcate that by what media they're listening to, right? Well, I think it's who actually answers a survey to Marissa's point. Who's actually picking up the phone, who's actually responding. Yeah, that's a good point. Who has time and during the date? Yeah, if you're pissed off, you will answer the phone and say, I'm pissed off.

But otherwise, yeah. Anyway, to Maris's point, that, I don't know. I also am a little leery of these competent surveys as well. All I know is that maybe it's biased lower, which means that if it's falling a lot, I mean. Directionally. Directionally, yeah. But okay, fair enough. Fair enough.

I'm not, I wouldn't argue with you too much. I'm skeptical of all these surveys as well, except polls and sentiment surveys as well. When was last time you answered a survey? I got a, I got the household, the Census Bureau Pulse survey during the pandemic. Yeah. Yeah. And I answered it. Yes.

Was that it all online. It was all. Yes. And in fact, I think they texted me or something. I think it came through my phone too. Oh, interesting. Oh, that's right. They do do that.

Yeah. Yeah. Yeah. Chris of you answer surveys? Yeah. There was a survey of college graduates. Is that census BLS? It was a government survey.

I remember that at some point. Yeah. Yeah, interesting. Okay, I think we should call it quits. That was good. And this day lead up the weekend. And I hope you guys, again, have a great weekend. And we'll be back at it a week from now.

So talk to you guys soon. And dear listener, thanks for your attention. and we'll call it a podcast. Take care, everyone.