The Compound and Friends - Every Recession Begins With a Slowdown

Episode Date: May 2, 2025

On episode 190 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Neil Dutta of RenMac to discuss: the risk of recession, what's really behind Trump's tariffs, the Fed's next move, the explosion of AI, and much more! This episode is sponsored by Xtrackers by DWS. Learn more at: https://xtrackers.com/ Sign up for The Compound Newsletter and never miss out: thecompoundnews.com/subscribe Instagram: instagram.com/thecompoundnews Twitter: twitter.com/thecompoundnews LinkedIn: linkedin.com/company/the-compound-media/ TikTok: tiktok.com/@thecompoundnews Xtrackers Disclosure: War, terrorism, sanctions, economic uncertainty, trade disputes, public health crises and related geopolitical events have led and, in the future, may lead to significant disruptions in US and world economies and markets, which may lead to increased market volatility and may have significant adverse effects on the fund and its investment. Investing involves risk including loss of principal. Carefully consider the fund's investment objectives, risk factors, charges and expenses before investing. This and other information can be found in the fund's prospectus. at Xtrackers.com. Read it carefully before investing. The brand DWS represents DWS Group GmbH & Co. KGaA and any of its subsidiaries such as DWS Distributors, Inc., which offers investment products, or DWS Investment Management Americas, Inc. and RREEF America L.L.C., which offer advisory services. Xtrackers ETFs ("ETFs") are managed by DBX Advisors LLC (the "Adviser"), and distributed by ALPS Distributors, Inc. (“ALPS”). The Adviser is a subsidiary of DWS Group GmbH & Co. KGaA, and is not affiliated with ALPS. XtrackersTM is a trademark of DWS Group. All other trademarks, servicemarks or registered trademarks are the property of their respective owners. Your use of this site signifies that you accept our Terms & Conditions of Use. Copyright © 2025 DWS Group GmbH & Co. KGaA. All rights reserved. 105495-1 (05/25) DBX006596 (05/26) Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Biden's stock market is up eight days in a row. Oh, that was so good. Not bad. I mean, honestly, he's... I don't even think there's a... It's not even debatable, right? He's genuinely the funniest president we've ever had. Oh, definitely.

James Polk had like a good sense of humor. But... You know, George W. Bush was funny. He was funny. No, he's hilarious. Did you see him? He was... They had the cabinet meeting and he goes,

you know, they're the chief ripper offer. He's calling China the champ. They asked him at the 100 Days event, they asked him what's the biggest mistake he's made so far. He said, you know, that's really the toughest question because I don't think I've made any. It's so far... Stop.

Yeah, 100%. That's what he said. To me, it's incredible. I mean, he's been on... Remember when he rang the bell at the Sock Exchange and he's interviewing Kramer and Kramer's asking him about... He's like, well, you know, I don't want to be in your position. Basically, like, if people hold it against me, if I give them some bad advice, you know all about that, don't you? No. It's just...

Savage. hold it against me if I give him some bad advice. You know all about that, don't you? No. It's just savage. Credit to Jared Dillon, he said something like, he's literally ringing a bell at the top. That was pretty good. Yeah, I mean, he also called the bottom when he did this whole Biden stock market thing. I basically say that when you, any president, when you get into like Q2 after the inauguration, it's kind of yours

I do agree with I do agree with Trump you can't you can't necessarily hold him responsible for like what goes on in February March but then if you make this huge tariff announcement then it's kind of yours because that's what the market yours Well, cuz that's what the markets reacting to now. The market's not reacting to GDP from... Nobody cares about that. I mean, I thought the market was... I didn't think it was a good GDP number. The problem is whose stock market was it from November 2nd until now. Well, he took credit for the gains after the election.

Right. And everyone gave him credit. As he should have. Nobody said in November this rally is because everyone's so excited about Biden. He's the only one that can get away with, it's my stock market when it goes up and it's his when it goes down. I mean, he might be doing that until through the end of the year. Yeah, no, dude, the last 30 days of Biden's administration were super good for the stock market.

Like he was, Biden was destroying it. Thank you, John. Thank you. I think the stock market was insanely excited that Biden was leaving, and that it wasn't Kamala, and that it was Trump. Totally. He does get that rally, even though it's during Biden's time. People bet on tax cuts, deregulation, and tariffs,

but they bet on it in that order. You are looking very fly. Where were you before this? Were you on TV? Fox Business, Charles Payne. Okay. Is that over at Avenue of the Americas? Yeah, it's just up this street. Yeah, yeah.

Sixth Avenue. Cali does that show. I was supposed to have... I've only met him once. He seems like a nice guy. Charles Payne. Yeah, he's a really nice guy. Yeah.

You know, I like, you know. I don't get on CNBC. That's my... What the fuck is that about? I have no idea. I mean, Sarah Eisen did. I knew her from her Bloomberg days. So she finally got me on like a week or two ago.

Wait, you don't know why they won't have you on? Because we do. I'm just kidding. We don't do economists on halftime. So, but... Well, I know I did meet Scott when I was going on with Sarah and Carl that day. I'm trying to say like, it's not like we have five people that are in your lane and not you. We don't, we have like, we're like hardcore stocks.

Scott's more of a, I think, Jeff DeGraff fanboy. You know what else we don't do? We don't do CEO interviews. On halftime? No, almost never. We used to. But you do more than just halftime, don't you? No.

Oh really? It's just halftime, don't you? No. Oh really? It's just halftime. People think it's more than it is. I do two episodes of Halftime Report a week, that's it. Oh, really? It's you and Stephanie that have like the... Yeah. Well Stephanie will pop up on Squawk Box a lot.

I've never been on Squawk. She doesn't like me much these days because I'm more bearish. Oh stop. Nice. Wait, what was your final trick? I'll tell you right now about Stephanie. She doesn't listen to anyone, she doesn't like me much these days because I'm more bearish. Oh, stop. She doesn't. Wait, what was your final trick? I'll tell you right now about Stephanie. She doesn't listen to anyone.

She doesn't give a shit. She works her ass off. She has her opinions and she's not worried about other people. We don't do CEO interviews. I think it's not because they're not informative. It's that they basically read from a press release. Most CEOs, they're very careful. They're rarely going to break news.

Like anything that they say, you kind of already know. And there's a really great perch for that on SquawkBox. That's the show where they do the best. Yeah, like during earnings season, they always have like the top CEOs. So it's like, why repeat that again at 12 o'clock? You know what I mean? So we stay in our lane. learning season, they always have the top CEOs. So it's like, why repeat that again at 12 o'clock? You know what I mean? So we stay in our lane, but people think

that I'm on a lot more than I am. Did Barry give him that Rolex? No, not a Rolex. No, it's not a Breitling. It's a Breitling Super Ocean Heritage. Not a Rolex. It's nice, right? Yes.

I've always liked Breitlings because they're big. It's like the Hulk. Because they're big and I need like a substantial thing. Neil, I have to say your Instagram account, very wholesome. I love it. It's you and your family. I love it. That's it. Yep. It's pictures, it's the kids, it's videos with the wife. You guys are hilarious. There's no macroeconomic commentary? No, none at all, no. It's just a repository for the kids. And memories, basically.

How old are your kids? My oldest is going to be nine this month, and I have twins that'll be seven in October. OK, what sports do they play? My oldest plays soccer. That'll be seven in October. Okay, what sports do they play? My oldest plays soccer. My younger boy, so we have boy-girl twins,

he is not involved in any sports right now, but he does taekwondo and he does... Oh wow. And he's, so in summer camp we got him in wrestling. I mean, he's a firecracker. He's got some aggression. Yeah, and I think it's good for him. And my daughter is a girly girl.

She's a ballet. And there was a summer camp class for like painting your nails. I mean, she would do that too. You'll appreciate this. That sounds like my kid. As parents of young children, I had to reset. I think Kobe got like a Minecraft something or whatever. He had to go to his email account.

I opened an email account for him when he was born. And I hadn't been in there since I opened it up. And I saw all of the things that I used to send him. And for whatever reason, I stopped emailing him in like 2019. So I would email him like videos like this happened on this day. And it was like holy shit. My wife does that. But I haven't, I've done like four or five years.

So I'm going to start. What, was he two years old in 2019? Yeah. So just for- What were you emailing him? So that in 15 years he can- Oh, I see. Yeah. Did he ever look back at it?

He's an eight. Right, but did he ever, has he opened the email other than- He doesn't know what email is. Okay. Yeah, no, he will one day. I got it. Didn't you go somewhere recently? First spring break?

No, we stayed home. I have a puppy. Oh. So we're grounded. Yeah, I'm very much anti-pet. It's a lot. I forgot how much work a puppy was. Yeah.

But we love dogs. There will never be a pet in my house. No. Never. I mean, if it's holding you down, I mean, you know. Never gonna happen. So you have to find someone to- Josh's not a dog guy.

No, I like dogs. No, you don't like dogs. I do. You don't like dogs. I grew up dogs. No, you don't like dogs. I do. I grew up with a dog. You don't like dogs. Don't put that out there. I've seen you around dogs. Don't f***ing put that out there.

I love dogs, but my wife doesn't want another thing to clean up after. This is Josh around... No, I love dogs. Don't... Stop. I think I like the idea of dogs. Well, I mean, I'm more of a cat person myself. That explains a lot.

Yeah, my wife and I, years ago when we were first dating, married, we had a Sphinx cat. Oh wow. Very sophisticated. Do those even like you though? They love you. They do? Yeah. Really? They're like very dog-like in that sense, but less maintenance obviously. Gotcha.

Alright, let's get this shit started in the words of the great Roddy Mund. Let's go. Gotcha. All right. Let's get this shit started in the words of the great Roddy Mund. Let's go. All right. Three claps. Component friends, episode 190. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor.

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in the securities discussed in this podcast. Ladies and gentlemen, welcome to America's favorite investing podcast. My name is Downtown Josh Brown for First Time Listeners. This is the show where we talk about what happened this week, what should happen next week. We look at markets, we look at the economy, stocks, bonds, interest rates, the Federal Reserve and all sorts of other stuff. I'm so excited to let you know that Michael Batnick and I are joined by a friend of the show. He's been on the show a couple of times.

I think one of the most popular guests, Neil Dutta, is the partner and head economist at Renaissance Macro Research with an emphasis on analyzing the U.S. economy, the Federal Reserve, global trends, and Cross Market Investment Themes. Prior to Ren Mac, Neil spent seven years at Bank of America, Merrill Lynch. There he was a senior economist covering both the United States and Canada. Neil Dotto, welcome back to the show. Thank you guys. Always a pleasure.

All right. We're so excited to have you back. This is a perfect time. Not that every time isn't a perfect time, but this is truly a perfect excited to have you back. This is a perfect time. Not that every time isn't a perfect time, but this is truly a perfect time to have you here. I heard you tell Paul Krugman that you are a business economist. And it was really important to you,

the way I remember it, it was really important to you to make that distinction. I think Paul Krugman would not call himself a business economist. So what do you mean by that? Well, I mean, I'm not a formally trained economist. I didn't, I mean, I got a bachelor's degree in economics. I did master's coursework in economics,

but I don't consider myself an academic economist. I mean, you know, these guys- That's the distinction, academic versus business? Well, yeah, well, I think that, you know, they spend years in that, you know, they spend years in school, you know, focusing on one area of, you know, the subject, right? I mean, you know, financial economics, in Paul Krugman's case, trade economics, right? I mean, so...

And, you know, as a business economist, you very much lean on a lot of the work they've done, but I almost think of it like, these guys spend their entire lives. PhDs. PhDs to basically take the football to like, the 10 yard line, and then as a business economist, you sort of take their work, tell investors why you think it may or may not be relevant

for what's going on right now, and then you are the one that gets to run it in for a touchdown. So for me, like, that's sort of how I view it. But yeah, I mean, a business economist in my mind is someone that tries to use the economic data that's released, and as everyone knows, there's a bevy of economic information that comes out every day, and then try to formulate some kind of economic call that is useful for a market

Yeah, I took it that way. I think he did too. I thought that was interesting though because it's one thing to publish papers and that's important because You know you have a theory you test the theory. Why does this do this? Why does this do that? But then you need somebody that comes along and says okay given A B and C, here's what we do with that information. And so I think that's how you see yourself. Yeah, I mean, and it's also like a respect.

Like to me, it's like an academic economist, they are probably much better at math than I am, right? I mean, they're probably much better at like MATLAB and e-views than I am. I mean, they're doing very hardcore work and they're spending their entire time doing that. Frankly, like a lot of people on the street, business economists like me, we're doing a lot of other things. And so I think to me, it's like a respect level.

I mean, they're breaking ground and coming up with like totally new applications for the science. So I think to me that's why I try to make the distinction that, we say head of economics at RenMac, chief economist. I mean those are titles that people throw around. That's really a legacy issue. A lot of the academic economists don't necessarily care, at least day to day, about the stock market,

how it impacts the economy, the circular reference and nature of those two interchanging. So let's talk about the stock market. Well, I wanted to ask you how did it feel being interviewed by a Nobel laureate? That's kind of what I wanted to get from that. That's pretty cool. It was very, I mean, I was very nervous. I mean, but it was, you know, look, I mean, when someone like that even, I mean, he said

he read some things I've written. I mean, that is huge for someone like me. Yeah, it's really cool Okay, I also am a Nobel laureate. So in what not in economics I I live on the block that Paul Krugman grew up on did you know that? Yeah, that's actually a true story I told him that we we met Paul at Barry's birthday party and he grew up in our town Oh, wow, and the house that he was the nicest guy when he when I when I mean, it's Barry's birthday party and he grew up in our town. Oh wow. And the house that he grew up in. I mean he was the nicest guy when I, I mean, it's sort of interesting because his like,

I mean I've read his columns for years when he was at the Times and it's so cutting the way he writes, like it's visceral. He's a firebrand as a columnist but not in real life. No, he's the nicest guy in real life. So, sorry I stepped on your sidebar. So sorry, so sorry. So, but not in real life. No, he's the nicest guy in real life. So. Sorry I stepped on your side there. So sorry, so sorry. So it's a bull market.

Okay, I mean. Listen, the stock market is, I'm not, this is not a forecast. The stock market is behaving like we're in a bull market. We're up for eight consecutive days, pretty rare. Luke Kawa tweeted yesterday, in the midst of this, on the sixth up day in a row, we had the biggest intraday loss that was erased for the S&P 500 since the bottom in October, 2022.

I spoke to Luke about that actually. So the stock market is looking past a lot of negative news that is surely to come. So please, Neil, explain to us what the F is going on in the stock market? Well, I don't trust little tidbits from Canadians. And so. Oh, shout out to Luke Howell. We're not going to bury anybody today. Go on. No, no.

Yeah, look, I mean, it's, Wyzenthal makes this point about how, well, I guess it was all priced in, right? And we're basically back to the obliteration day. We took it all back. Equity market. I mean, you know, look, to me, as I said before, I mean, it's about using an economic call and trying to tie that into some kind of a market call.

So is the economy better today than it was a month ago? Are the prospects for the forward economy better today than they were a month ago? Are the prospects for the forward economy better today than they were a month ago? No, I mean, I don't believe so, because I think fundamentally this is an economy that's slowing, and remember, the stock market's been doing great for a long time. That hasn't stopped the economy from still slowing down.

And so I think there's a distinction here between financial market conditions and real economy sort of financial conditions, right? Like so when you see things like, you know, lower tier credits, delinquencies going up, car repossessions going up, things of that nature. And obviously, even in the GDP data that was released earlier this week, there was a massive boom in information processing equipment and software. Now that

could be AI related, that could be companies pulling forward some activity because of tariffs, but it's undeniable that technology is a huge driver for growth right now. And not surprisingly, also a big driver for what's going on on the equity markets. You floated three possible explanations for the rally in the stock market over the last week. This morning, I'll read them to you. And then I want to hear which of these you believe in the most, if you had to pick. One, perhaps the bond market understands that the real economy is not in the same place as the technology sector.

Financial market conditions being loose hasn't helped keep the economy from slowing over the last year to begin with. Two, perhaps the equity market sees President Trump caving on the trade war, this is mine, or backing off to some degree, but it seems harder for him to capitulate if stocks are up at these levels in the first place. Meaning markets rallying for eight days, they must love my trade policies. Okay, got it. Three, credit spreads have not really moved on the run up in stocks over the last week.

Finally, I feel like the economy is... Oh, this is the fourth. Finally, I feel like the economy is innocent until proven guilty. There was a big clearing event earlier this month and bets on recession in years prior have never materialized. Saying it's a little bit of that, like I'm not going to get fooled again by the new recession because none of the other ones ever happened but then I also think and Michael and I argued a little bit about this on Tuesday stock market thinks the trade war is basically over that's that's

what I what I'm getting what do you think I mean I think it's some combination of the first thing this trade policy uncertainty this is Josh is Josh's point and I think there's a lot of truth in that. It's crashing. The trade policy uncertainty is crashing. So peak uncertainty is obviously behind us. There's obviously still uncertainty, but we're not peak uncertainty. Well, I think it's about what he's actually doing, right? I mean, the uncertainty is going down, but the actual... what's actually happening is sticking around, right?

I mean, the effective tariff rate, we have a baseline of 10%. We still have effectively, I mean, what Secretary Besson talked about as a trade embargo with one of our largest trading partners. I mean, that's still there. And, you know, recent news on sanctioning Iranian oil. Right? I mean, that's basically a shot at China. I mean, a lot of this stuff is just beyond my pay grade, like the geopolitical stuff.

I mean, when they just, you know, you saw Besson talking about the Ukraine deal, right, that they just signed. And he's like, no one that funded the Russian war effort is going to be able to take part in this reconstruction money. That's aimed at China, Iran, and North Korea, right? So, you know, look, I mean, I don't think, I think it's about what's, I don't think it's about the uncertainty.

The uncertainty may be peaking, but it's what's actually happening. And that is a significant tax shock to the US economy. Here's my take on the market. We've got a few things going on. Sentiment is washed out. Horrendous. So there is a, we have been climbing the wall of worry.

Going into the end of 2024, it was like, everyone's in. You need the wall of worry going into the end of 2024. It was like Everyone's in you need a wall of worry to climb absent. Then everyone's on the same side of the boat We're not so we now have that to climb Joe Weisenthal tweeted big tech and big banks have totally raised their losses in April 2nd Where there's basically been no recovery isn't stuff like trucking or energy. So it's not just one market It is an index of all sorts of different companies. And if you look at what is driving the market, at least the cap would index, technology names, they are on absolute fire. So Microsoft just reported, this is from Alex Morris, Microsoft cloud run rate revenue is up to $170 billion. The trailing five-year CAGR is 26% per year.

This shit is incredible, and you're seeing this in Meta and Google, and these are the names that are most representative of what's going on when people talk about the stock market. They have the, right, so in other words, what's happening with them is more important than some of the industrial stuff that these are smaller market cap companies.

They don't have the same push and pull. So I said if there was an index, and actually we say it, John chart nine please, if there was an index for like Main Street, it would be down 40% like for the real economy. If you look at the performance of large cap versus small cap, this is indicative, I think, of the real economy. Because Microsoft and Google will be able to absorb whatever comes, whatever uncertainty happens, they're going to be fine. Small cap stocks, obviously smaller businesses, are going to be in deep shit. The Chamber of Commerce, which represents small businesses all over the country,

wrote a letter to the White House today, open letter, so everyone could see it. The Chamber of Commerce, which represents small businesses all over the country, wrote a letter to the White House today, open letter, so everyone could see it. They're not suing the White House like some of the farmers are and some other groups, but they're basically saying like, okay, so large cap tech has all these loopholes. We're not going to have tariffs on technology products, consumer electronics, iPhones. Those are all exempt. Great. NVIDIA's chips, exempt.

So it's like all of the things that matter to the stock market are exempt from the tariffs. The Chamber of Commerce is like, what are you going to say to millions and millions and millions of small businesses? So here's a question. Can you have a recession for small business but publicly traded large cap stocks just levitate, like none of that is going on. It seems like such a huge discount.

I think it's, I mean, it might be possible for some period of time. Periodically. Yeah, but I think fundamentally, I mean, if you're in a recession, that's going to take the overall market down because people are going to be risk averse and they're going to sell and raise cash.

Okay. That's sort of my view. But the earnings aren't coming in. Yeah, the earnings, that's what I was going to be risk-averse and they're going to sell and raise cash. That's sort of my view. But the earnings aren't coming in. Yeah, the earnings. That's what I was going to say. So the problem is you have these incredible earnings. Now, granted, these are for Q1 before their tariffs. But what if the things that Microsoft and Netflix and Spotify and Apple sell, the services they sell, are the last thing people cancel. Because that's how these stocks are trading. Well, I mean, I

just saw, to me I think about what's the link between the stock market and the real economy, right? And there's multiple ways you can kind of go with that, right? Like, so there's the first is the idea that the stock market's basically an active informant, right? I mean, that's sort of, again, this is a good conversation because the academic literature is like, this is a whole literature about the stock market financial accelerator model of the economy. And so basically, when times are uncertain, the stock market might take on more of like

a macro aggregator role. Companies look at the stock market for are things looking up or down kind of. And other times it's like a passive informant, right? So the idea is that there's nothing about the share price of Apple that's telling Tim Cook something about that firm that he doesn't already know. And so we're kind of going back and forth between the two. But ultimately, I think if stock prices are going down for a lot of these smaller companies, that's raising their equity cost of financing and it's going to make it more

challenging for them to borrow. And, you know, ultimately, that's going to mean that they're going to be cutting back. And that's I guess this is what I'm asking you. And that's going to hurt the economy. In prior eras and to this day, when there were worries about the real economy, like the mainstream, not the stock market, the mainstream economy, people who invest in stocks for a living and have to be fully invested at all times, they buy something. They buy utilities.

And the reason why they buy, and phone companies, the reason they do that is because they're defensive companies. And they know as bad as the economy might get, people aren't cutting off their electricity. So that's why, okay, what if the new utilities are things like cloud computing and things like the services that Apple sells and Netflix. What if those are defensive? The way that consumers look at those services, I'll get rid of everything before I turn off my cell phone. They're utilities with 60% margins. Right.

So that, so what I'm saying is what if this is a defensive rally being led by tech? We think tech is growth, but in reality, these are among the most consumer defensive companies and services in the world. But tech is... You're right. Fair? Fair. Fair end.

Microsoft, which has been in the shitter for the last, I don't know, nine months has gone sideways to nowhere, is rallying today because it had explosive earnings growth. But to your point, how do we disentangle the stock market and the economy, in many ways it is the same thing. We're talking about the same thing. So for example, Delta, all the airlines are cut in half as they should be. Airline travel is slowing down. You see it in the data.

You hear it in the earnings calls. OK, so Delta is not saying we're not going to invest on Google or Meta because our stock price is down 50%. They're saying Google or Meta because our stock price is down 50% they're saying wait a minute our stock price is down 50% because our earnings are going to get hit and also we're going to pull back on advertising because of this so it's hard to untangle except that they don't in reality what they do is they cancel all other forms of advertising and they double down on

the duopoly of Meta and Google so So that's probably right true. And here's why. Because it's the most reliable. So when when things are flush and people are spending more on advertising they'll spread the budget around. They'll do podcasts, they'll do TV, more money at the ballpark, more money on the PGA events on TV. When things get tougher. That's to your point, that's the last thing to get cut. Yeah, he's right. The last thing to get cut is the Facebook budget.

You can't afford to. If you have a marketing budget, even if I tell you as the CFO, your marketing budget is down 25%, you're going to say, well, I know for sure that Instagram ads work. So I guess on the trajectory that we're on, why doesn't that ultimately get taken out? What do you mean get taken out?

Because I don't think anyone thinks we're having a depression. So a recession... Even a mild recession wouldn't do the job. Dude, there's multiple tranches here. You know why even a mild recession wouldn't do the job? Because there's still too much inefficient advertising and marketing money being spent away from the duopoly. There are magazine ads being sold right now. So I still think even in a recession, advertising revenue on those platforms holds up better. Amazon's a really great example. They have the third largest advertising business in the world.

Almost nobody thinks of them this way, but it's true. If you're a third party seller, and you're worried about a recession, what's the one line item you can't cut? The ads you buy on Amazon to sell your product. That's like literally the most effective advertising you do. What you can cut is the stupid influencer that you have putting makeup on on their social media accounts. So I think that defensive quality of the the

Mag-7 is underappreciated reason why those stocks are actually being bought before and after their earnings reports. I think there's just a comfort level that nobody's going to stop spending there. You have seen some defensive movement in the equity market. I mean, right, like consumer state companies outperforming consumer discretionary. You mentioned like some defensive movement in the equity market, like consumer-stakeholder companies outperforming consumer discretionary. You mentioned some of these logistic companies getting worse. Yeah, healthcare has been hanging in there. That's defensive. Right. So, you know, it's...

Listen, I don't think we're saying that a recession is bullish for stocks. I think that what we're trying to say is we're just trying to make sense of the rally. Because we know the economy is slowing and it's probably not going to accelerate. I'm kind of saying that. I think we're just trying to make sense of the rally. Right? Because we know the economy is slowing. And it's probably not going to accelerate. And yet, the market has rebounded. So I think we're just trying to make sense of how. Yeah, I mean, I think that's also that.

It's also, you know, Treasury Secretary Besson's on the tapes more telling everyone that deals are coming. True. And that's, I mean, that goes back to your point about trade uncertainty going down, right? So if people have more clarity around that, then that's another reason to be, you know, getting back into the game. So I don't think it's all just tech.

I mean, that's been a big driver of what's happened more recently, like in the last couple of days. They said there's a trade deal with a huge country, but we have to wait till tribal council to find out who it is. They won't like literally that's how they're bringing. I mean, there's a there's a I mean, I think we have a reasonably can say with a reasonable degree of confidence that it's going to be like some it's either India or Japan. That's probably who it will be.

Let me ask you a question fast forward six months. There will be tariffs, right? Yes. Okay. So yeah, I don't think he's backing off. I guess I mean, I think that so there will so consumer prices will be higher. Okay. So... Yeah, I don't think he's backing off. So I guess, I mean, I think that... So there will... So consumer prices will be higher, right?

Consumer prices, yes. So that's all else equal, not a positive for the economy. I guess the big question mark is, ultimately, what happens to the labor market? Because as long as we have jobs, we will absorb higher prices. We will not stop spending. Well that's... no, I don't necessarily agree with that. I mean, right now people have jobs, but total wages and salaries are slowing quite meaningfully. I mean, if you look at just the data through March,

private sector wages and salaries, so that's everything, right? That's jobs, hours, and hourly earnings. That's up less than 3% over the last year. Whenever you have a situation where the Fed funds rates running higher than that number, it's usually not good. I mean, good things typically don't happen. It's basically a sign that the household sector

is becoming more budget constrained, and the Fed's basically saying, okay, we're not doing anything about that just yet. Well, you are starting to see that in certain areas. So McDonald's this morning, for example, they said that their breakfast is softening a lot, and Carl Kentania tweeted like, well, that's probably the first thing to go. That's probably the first leading indicator of jobless, of job losses is ultimately

people saying, not people saying, people that are not employed are not getting the McDonald's breakfast. So maybe we will start to see that. We go to chart four. This is from your blast today. What are we looking at here? So the white line is basically rate cuts being priced for this year. And the orange line is just the equity futures. So that's a very pronounced divergence. We're reacting immediately to this idea of rate cuts when you see them zigzag to that extent. I mean, if stagflation is lower stocks and higher rates and recession is lower stocks and lower rates,

the market's basically telling you that we're back to soft landing cuts. Right. That's the implication here is. In my opinion, yes. The implication here is you're gonna get your rate cuts and stocks are front running it by rallying. Yeah.

Okay. Do you think that they should be cutting in May? I do because I have a more negative view on the labor market. I think the big story that people have missed is that the economy was actually a lot weaker than people thought going into the year. Say more about that. Well, I mean, it's I think the prevailing sort of narrative was that, you know, Trump is inheriting this awesome economy.

It's like gangbusters growth and we have all I mean, it was a deeply imbalanced economy. I mean, the housing market was frozen. Still is. Labor markets were sluggish, right? I mean, quits rates were at lows, hiring rates, recruiting intensity were at lows, job openings were declining, so the labor markets were frozen. State and local governments were projected,

no matter what was going to happen this year, to spend less money because they basically have exhausted their pandemic relief money, but they behaved as if that pandemic relief money was going to be permanent. So there was going to be a decline in state and local government spending and investment no matter what was going to happen this year. So I think it was inevitable the economy was going to slow down.

And I think that's evidenced by the fact that total income growth is slowing through March. So it's really hard to say that that's a function of tariffs and liberation day when it's a March data point. What do you think the Fed would have been doing absent the trade war? Cutting. Already? Yeah, I think May would probably be baked.

Do you think we would have had a cut already, a March cut? I think they probably would have used the March meeting to- To telegraph May. To TF, yeah. Okay, and now we're not going to have a March cut? I think they probably would have used the March meeting to- To telegraph May. To TF, yeah. Okay, and now we're not gonna have a May cut? No, I mean, I think, look, I've been very open about this. I mean, I thought it was very unfortunate

that in November, Powell basically came out and said, look, it was like the day after the election, we don't prejudge, we don't predetermine, we don't make any judgments about policy. And then literally in December, he's like, well, actually, we do. And they basically took out an insurance policy against- By not cutting, they took out an insurance policy.

Well, I mean, it's really about the distribution of the risks that they adopted in December. Like Trump hadn't even come into office and they basically all said that the risk to inflation were skewed to the risk to inflation were skewed to the upside because they were very concerned about all the things that so they were prejudging what he was going to do. Nobody thinks they're going to cut in May. I do. No, no, no. I'm just saying the market probabilities it's like 95% for no cut. If he doesn't cut in May, it's going to be an explosive moment in Washington, DC. Besant was on TV saying the the two-year is telling you you need to cut. Like, this is not, Besant is not a treasury secretary

that does not understand markets. That ISM number today, there's three straight months of contraction in manufacturing, like, I think he's going to cut, and I think the reason he's going to cut is to show that he's not a slave to the bond market and the expectations Like it's it's gonna come off as though he cut because Trump made him But I'm just I'm just telling you I think he knows that he has to cut and he's just gonna do it

Well, if the next jobs numbers, I mean and this is recording this on a Thursday So if the if tomorrow if the next jobs number comes out like a dud, then those probabilities may shift. I still don't think it'll be enough to save the May pricing, but... It's 95%. Yeah, yeah. Like... Yeah, to me it's a... I don't think they'll go.

I think June is definitely... June's up to 55% for a go. Here's the thing though. But I think the Treasury Secretary is totally spot on. I mean, basically that's a sign that policy is too tight. The two year. So do I. And the Fed does follow the two year.

And I think there's going to be a cut and it's going to surprise people. But then I think people are going to, like two hours later, realize the Fed doesn't cause inflation or fix it. So it doesn't matter. If the Fed cuts because financial conditions are too tight relative to the economy, people shouldn't interpret that as, oh, the Fed's going to make prices higher.

The Fed has no power to make prices higher. The tariffs are making prices higher. No one's going to blame the Fed for this inflation. They should cut. Well, that's true. That doesn't mean that they don't. No one? Well, okay. One should cut. Well, that's true. That doesn't mean that they don't. No one? Well, okay. One person will.

The Fed controls the, I mean, don't go saying that in the Eccles building, Josh. I mean, if you tell someone at the Fed, a monetary policymaker, that you don't control inflation, they might bite your head off. They cut it for 10 years. They were trying to stoke inflation and they couldn't. They zero percentage rates, they put the foot on the gas and held it down. And then they did quantitative easing three rounds. They could not stoke inflation. I would say by the same logic, if they cut interest rates by 25 basis points, it doesn't change anything. Inflation will be determined by the tariffs period, full stop. If the tariffs go away, then prices will ease, and if the tariffs stay on, prices are going

higher. The Fed could fiddle. Well, the prices for the—I mean, I think it's about the nominal anchor, right? So if you put a tariff on, right, on something, the price for that good will go up. But there's no evidence that the federal government is accommodating that, right? Like, it's not like government spending is going up, so the nominal anchor isn't really changing. So that means household budgets, if the price for TVs go up, you'll have to spend more on TV, you'll have less left over to spend elsewhere, and that's going to drive down the prices for those... Which destroys demand, which leads to disinflation therefore power should cut

Yeah, ultimately. Yes, I agree. I agree. But he I mean again. He was very clear about The sequencing here Powell was right. I mean he basically said look we're coming off a period of very high inflation I think that means we should worry about inflation expectations and because tariffs represent a supply shock and we've been going through multiple supply shocks due to COVID, we should be a little bit more cognizant of that. And also the scale of what we're talking about here goes beyond anything Trump did in his first term. So I agree with you that I think ultimately the Fed will cut and I think they are a little bit behind. Can we go back to the first term? He in 2018,

we were in a hiking cycle during the trade war. And the idea was we better hike rates to get ahead of these higher prices that the tariffs were going to cause. What the tariffs ended up doing was causing demand destruction and uncertainty. And when he said in the fall, I'm nowhere near neutral on policy weights, meaning that was what killed the market actually. It's the same thing now. This idea that I'm not going to cut

because I don't want to exacerbate higher prices or expectations, I guess in this case, it's the same thing. You ain't going to have to worry about that. These tariffs stay on for six months. The economy is going to have tons of demand destruction. Because nobody can afford to pay these prices. I mean, so do you think, I mean, do you think that they actually come off the tariffs?

Like you think he capitulates on the 10% baseline tariffs? Yes, without ever saying that he's doing so. It's a, no, no, no. It's Swiss cheese at this point. It's cutouts, carve-outs, loopholes, exceptions for almost everyone. I mean, we are collecting money on tariffs. I mean, if you look at like the daily data, I mean, tariff, excise, taxes, customs, duties,

those are all going up now. It would be unusual. And I hear just- I don't think he capitulates because if he does and he actually rolls back the 10%, I mean, that's it, he's a lame duck. He rolls back the auto tariffs. Is that not the same as capitulation, basically? Isn't

that what this is all about? Can't sell our cars in Europe, can't sell our cars in Japan? I don't know what it's about, honestly. I mean, it's, you know, we're trying to reshore domestic manufacturing and now we're talking about how much rice and soil we're going to sell the Japanese. Right. But if you say, all right, if you roll back the auto tariffs, then what is the trade war about? It's just the ta... Soybeans? Well, the trade war is about something that he fundamentally wants to do,

which is tariffs. Like that's like a 10% universal... Tariffs for the sake of tariffs. Yes. Yeah. I mean, the fact... Look, everyone's sort of saying, well, there's so much confusion because you're doing this...

Fentanyl... It's escalate to de-escalate. Pay for tax cuts. I mean, and they're doing this as it's escalate to de-escalate. It's a revenue. I mean, and they're trying to say it's both. It's very simple. He's saying we buy so much from you. Why don't you buy any of our stuff?

Isn't it that simple? Well, I think- In his mind? Depending on the market. Yeah, I think it goes beyond that. I also think that this is fundamentally like what he believes. And so he's basically saying, if you want entry into our market, you have to pay 10%. I bet you if he just said that, he could say I won the trade war. But that's not where

we are. We're at 150% tax. But I think that ultimately, I guess my view on it is you have a 10% baseline, and these negotiations are basically going to be used as a pretense to just continue to delay the reciprocal tariffs that he announced on April 2nd. So I think we're still stuck with 10%. Well, let me ask you this. Has there ever been a time in history

where inflation expectations were going vertical and the Fed was cutting. It would be very unusual. Now this is a very unusual period of time. I mean, you had a period in 2008 where global demand was still very strong. The US economy was getting worse at the time. The dollar was cratering. Oil was rousing.

Oil was surging because of global demand, I guess. And inflation expectations were rising. And, you know, I mean, there was a period there that summer where the Fed was like, I don't know if we should be cutting, but that was, I think, in hindsight. You're up there hiking. Yeah, in hindsight, that was a mistake. If Josh is right and they do a surprise cut in May, what happens to the market? What do you guys think?

I think the market is probably, if it doesn't rally, then what we're going to say is the market anticipated the rate cut. Yeah. Yeah, I mean, I would assume that if the Fed does a surprise rate cut in May, then the likelihood is that all those companies that you're saying are still underperforming, like the non-tech company.

A catch up. So we're going to get April non-farm pay rolls by the time people are listening to this. Don't worry, I heard it's good. If that's an incredibly strong report, then forget everything I just said. Yeah. Because I don't think. Well, you may find out sooner.

I mean, it's like maybe at like 7.45 a.m. we get a true social post, looking forward to the jobs number. I wouldn't be surprised. I wouldn't be surprised. I wouldn't be surprised. Did you want to do the sentiment chart? No, we did that already. We did that already.

Alright, what do you want to go? Let's talk about the economy. So we got GDP reading yesterday. Not great. There's a weird asterisk in that though. The GDP reading, right? What's that? It was like something with an import calculation.

So Liz Ann Saunders tweeted, net exports subtracted nearly five percentage points from the first quarter in GDP, most in history, John chart 12 please. Neil, explain this to us, what are we looking at here? And if this is not meaningful, we could blow past it. I mean, there was a threat of tariffs that pushed up imports, which cut GDP. So, you know, I mean, that was a threat of tariffs that pushed up imports, which cut GDP. So you know, I mean, that's all that is.

Alright, so exports net of imports is why you would get... You had a front running of the tariffs, so imports surged. Now ultimately imports have to go somewhere, so they went into investment, they went into inventories. So that's basically what happened. So what was your read of the quarter? My read of the quarter was that consumer spending is growing below the rate of, is basically slowing down. That to me is the most important thing. Income growth and consumption growth is moderating. And the big story in

my opinion is that over the last year, consumption has been growing almost twice the pace of disposable income. You have about 3% consumer spending growth and 1.5% consumption. So everything that's going on right now, in my view, would augure for a higher saving rate or at best, maybe the savings rate is stable. But people see home prices are slowing. The stock market is volatile. Like these are, these are reasons for people to be a little bit more cautious or they have a little bit higher precautionary savings.

There's an explosion in home in unsold home inventory in Florida now. Yes, exactly. Probably a leading indicator for something. Um, you have people that basically have been running a race to spend as much as they can go on as many vacations as they can and To your point there they're still sort of on the stimulus high But they don't have the money, but they're still spending at the same price and and they can't you can't keep doing it Unless the economy all of a sudden speeds up and people start making enough so as a yeah

So exactly that's exactly right. And so if the savings rate is stable, then at best you're going to be looking at like one and a half percent consumption. So if you assume everything else is more or less zero, maybe you get a little bit from AI like CapEx, but you're basically talking about like one to one and a half percent growth at best. And if that's the case, that's not a situation that's below

potential so that's going to be a situation where the unemployment rate tends to go up I think it all done be a end up being weaker than that for what it's worth but it just tells you that the the best case scenario is still pretty soft. So let's talk about this we have the Conference Board of Consumer Confidence and every metric of consumer confidence is rolling over. JohnChart14, just not great. Heather Long tweeted, this is stunning. 44% of Americans now believe they will be worse off financially in a year, mainly due to tariffs. We've never seen anything like this before, not even during the Great Recession or the Stakeflation era.

It's hard to imagine that this doesn't impact how people spend. Maybe we shouldn't buy the TV. Maybe we shouldn't take the fourth vacation. Maybe we shouldn't do whatever. How does that ultimately not happen? How does it not happen? How do you get out of it? Once it rolls to this degree? Put that last chart back up prior to this one. Like is it possible that we look back on this as being noise? How? How do you escape this? That's crazy.

I mean I think it's going to be some combination of capitulation on the trade war and rate cuts that would ultimately get you out of that. But even then, I mean once the confidence genie is out of the bottle, it's really hard to put it back in. It takes time. And probably re-acceleration in the job market. That could be something. Well, that's going in the wrong direction now. So we got Challenger, Gray, we got continuing claims are at a multi-year high. What was your read on today's precursor to tomorrow's jobs report? The labor markets are all slowing down.

Everything we see suggests that the labor markets are slowing down. All pointing in the are all slowing down. I mean, everything we see suggests that the labor markets are slowing down. All pointing in the same direction. Yeah, I mean, you mentioned the challenger data. It's not a data point I normally pay much attention to, but what's interesting about that is why there are job cuts. It's the firm saying that it's because of economic conditions. I mean, a month ago it was because of Doge,

and now it's because of economic conditions, corporate restructuring. I mean, if everyone's restructuring at the time, at the same time, that becomes a macro issue. Continuing claims, I mean, continuing claims are rising. It's 2 million people. Correct. That's a high number. Well, it means that unemployment's going up.

Yeah. Continuing claims, how do you... Continuing claims is initial claims, how many weeks elapsed before somebody that is an initial claim becomes a continuing claim? Well, if you're filing and for, like, you have your, I mean, basically you have six months on continuing before those are exhausted. I mean, it depends on the state.

No, but how soon after you go from an initial claim to a continuing claim? Oh, it's immediate. I mean, it's a week later, yeah. So, you file for your initial unemployment claim and you're counted in the data of continuing claims immediately. Yeah, basically a week later. Okay. Is one more important to you than the other for your process to understand what's going on? I think continuing claims are... I think continuing...

Well, I mean, if you're waiting for initial claims to go up, then you're waiting too long, because that's like basically... I agree with you. It's like a credit spread. I mean, it's episodic when it goes up. So that's like in a measure of layoffs. And if layoffs are rising in a material way, that means the feds waited too long and you have basically non-linear risk. But continuing claims is people sitting on unemployment insurance for months and not getting rehired.

Continuing claims tell you about how difficult it is for someone to find a job. And this is something I talked about with Paul Krugman is it's the bathtub model of unemployment, right? Like, so you can kind of forecast what the level of water will be in a bathtub based on how much water is going in and how much water is being drained out. And what we can say about unemployment is that, you know, the good news is that layoffs aren't going up. So that means that the water is not flowing into the tub any more quickly.

But what we do know for sure is that it's taking a lot longer to drain that water out. So it's taking a lot longer for unemployed people to find work. And over time, that ultimately means what? The level of water, or in this case, the level of unemployment will go up over time. And that's kind of where we are right now. It's a sequence of things, like picture a corporation. So they were hoarding labor for a while,

like we're not going to let anyone go because we don't know if we could hire them back. Nobody's worried about that anymore. And then all of a sudden it's like, no more lunches, no more coffee, no more trips, cut the travel. They don't lay people off until they absolutely have decided we're in layoff mode.

Okay, so that part takes a really long time, to your point, but like, I think we're at the point now where not just Fortune 500, but every business in America has enough uncertainty where maybe they're not firing all their staff, but they're not hiring. That's why it's harder to get hired right now than it's been in years. Yeah, and the margins, I mean,

tariffs represent a margin squeeze ultimately. Tariffs increase costs. Who ends up, you know, I mean, it's an open question about how much they raise consumer prices, but they increase costs. Who ends up, you know, I mean, it's an open question about how much they raise consumer prices, but they increase cost. And I think, frankly, one reason why consumers are still holding up, right, I mean, you see like these, you know,

Visa saying consumption's fine, like everyone's saying consumption's fine. They're still working. Not only that, but they haven't actually felt the effects of tariffs because a lot of these companies think that the president's going to back off. Yeah. And so they think that it's temporary in nature. So they're willing with margins being very elevated, they're willing to eat the cost.

I have my skepts, as I said, I think that some of the tariffs are going to stick. So ultimately, this is a margin squeeze that they're going to have to deal with. And ultimately, I think that's going to mean weaker investment, hiring and some firing as well. What's so like, does that show up in a month or in three, like if you had to guess, like when does that become obvious to everyone that it's here? I think it could be as soon as May. Yeah.

Where would we see that? I mean I would look at manufacturing employment, construction, I mean things that are very affected by the tariffs. This idea that if we do go into a recession, whether like a tactical one or not, the economy slows down. People say, well, the consumer has never had a better balance sheet. Corporations have never had a better balance sheet. Therefore, the recession should be moderate.

We can weather through. Recessions suck. What's your take on that? We're going into a recession in really good shape. Yeah, I mean, I think that's a reason for it to be mild. I mean, we don't have deep imbalances in our economy. I mean, it's not like you had a massive capex boom like you did in the late 90s. I mean, that might just be getting started, quite frankly.

Housing is not stretched. I mean, if you look at residential investment relative to GDP, it doesn't appear to be out of whack. So I think all of these are good reasons to expect the recession to be relatively mild. But I also think that the recovery will probably be quite slow because to me it's a confidence issue. I mean, I think in some respects, like what are we talking about here? A lot of these deals that we're talking about, are they really deals or are they IOUs?

I mean, are they just deals to just have extended negotiations? And doing trade deals is not easy. It's like a win if you can get one of those over the finish line. And what's interesting to me is the administration talks about the phase one China deal and how Biden didn't enforce it. Well, you're about to go embark on hundreds of phase one deals. So if you're a company,

like why do you think any of that stuff sticks? And so I just think, so there's this confidence shock that's happened, which is completely, I mean, one of the things I said early on with the president is that he didn't have a lot of levers to pull because the truth in my opinion is that Biden went to the fiscal well one too many times

and is like very much limiting their ability to do things. So really- Inflation Reduction Act, CHIPS Act, what else? Infrastructure. Infrastructure, yeah. So that basically meant like the one thing that he could do is just sort of- Tax the world.

No, like just keep the animal spirits going, right? Just make people think, like, look, we're going to get this tax reform done. We're going to do deregulation. These things are all coming down the pike. And that's where the optimism initially came. But what did he start with? He started with the most growth unfriendly part of his agenda first. And I think that he's in it for the long haul.

Like I think fundamentally this is what he believes. And that's why I don't really think that we should expect some kind of capitulation. And remember, this isn't the end. I mean, Section 232 tariffs are coming. That just requires a period of like studying it. But you're going to get Section 232 on pharma, semiconductors. What does that mean? These are national security tariffs.

So because they really want to make sure that we're manufacturing this stuff here. Yeah. Section 232 on pharma, semiconductors. What does that mean? These are national security tariffs. So, because they really want to make sure that we're manufacturing this stuff here. Yeah. I agree, that's the part that's not going to change. And you can debate the merits of that, but look, I mean, this is what he got elected to do. And so he's doing it. So I just, and I think it's a period of transition for a corporate America and that uncertainty is going to be problematic to navigate and it's I kind of liken it a little bit to like the 01 to 03 period right like that was

a mild recession but back then it man it was just like confident shock after shock right it was 9-11 it was corporate scandals we had like accounting reform right and then we had like the run up to the Iraq war. And it took like so much to get things going, right? You needed gobs of tax cuts and like a 1% fed funds rate. And unfortunately right now, we don't have the fiscal space really to deliver that. One thing about the tariffs is that

the money being collected is supposed to offset this extension of the Tax Cuts and Jobs Act, which they're going to try to get done before the end of this year, have to get done before the end of this year. So if you get rid of the tariffs, well, that was one of the sources that was going to pay to keep the tax cut. So I don't even know that you want to see the end of all the tariffs, even if it ends up being a higher cost and you're a corporation. Yeah, I mean, also, but I just, I mean, I would just say that the way they're going about this, like carve outs and, you know, specific items are tariffed at different rates

and so forth. That makes enforcement very challenging, right? So it's a fairly inefficient way of raising money, which is why, I mean, to me, it's, look, if you, believing in tariffs is sort of like the price of entry to ride down the escalator with DJT, right? And so, I mean, I always said, like, look, if we're going to do this, the best thing to do is just start at a baseline of 10% and then go on a bilateral basis against specific countries.

I mean, I saw like a senator from Nebraska talking about, like, oh, he's totally right to do this. This is after the Liberation Day announcement. He's totally right to do this. The Brazilians are killing us on ethanol. It's like, okay, so why don't you do it like price is right? Brazil, you're up next. And let's talk about ethanol.

And then just go to, I mean, you could have done this in a way that probably wouldn't have created so much market anxiety. I meant to ask you to speak about the market. What's Jeff's take on the stock market these days? So he said that it's, I mean, he's been saying bear market rally. So have I.

Oh, interesting. He's been saying bear market rally. So it's actually, I think, very good for our client base because we don't have a mandate at RenMac to everyone has to have the same view. Yeah, you could disagree. Yeah, yeah. But I think it's helpful really for our client base because we don't have a mandate at RenMac to everyone has to have the same view. Yeah, you could disagree. Yeah, yeah.

But I think it's helpful really for our sales force when I'm basically saying, look, I think things are slowing. I wouldn't really be chasing this rally. And he seems to be saying similar things. What's this trends in consumption chart? Is that worth? We could skip it. I wanted to talk about this.

I really like this chart from Torsten Slak, which shows US corporate revenue exposure versus US exports to China. So okay, we only export a hundred forty four billion dollars to China Not a lot obviously a huge imbalance there. However Look at the S&P 500 revenue from China. It's 1.1 trillion dollars It goes against what you just said though earlier, right? Well, I mean Because you know it's in this case the stock market should actually be performing worse because of the tariffs But that's not what's happening stock markets generally been going up. I guess my point or Torsten's point I think in this chart that is so stark It's like yes

If you are just looking at the difference between what we buy from China, what they buy from us directly, sure there's an imbalance. But oh my god, look at our companies and how much revenue they're doing in China. Starbucks, Apple, all of these companies that have huge amounts of revenue. Nvidia, Disney, this is right. This is the thing that the anti-tariff people have been saying from day one. It's like, yeah, of course, we buy a lot of plastic shit from China and sell it in Walmart and it's junk and we don't want to make that here. To say nothing of the dollars and the bonds that they're buying.

But we sell financial services all over the world. We sell software, we sell intellectual property, we sell things that have 50% profit margins all over the world. That's what's at risk. The stock market doesn't believe it. Like the participants in the stock market don't believe that that's really at risk, I guess, would be the only guess that I could make at why we're... They don't think it's at risk. That goes back to the thing we talked about earlier,

about why is there the disconnect between the stock market and the fixed income market, is that basically you're saying that they'll pull back on the trade war. If we roll and make new lows later in the year, this will have appeared to be the dumbest rally we maybe have ever seen. What, the last eight days? Yes.

Yeah. Well, I think one risk, frankly, I mean, if it's, you know, we're talking about the tech sector. I mean, as I've said, like, I think if I'm thinking about it in a macro kind of, I think it's basically the, you know, investors betting on deals, right?

Like whenever Scott's out there talking about deals, like things are coming, we're going to rack up these, I mean, the market goes up. And that's part of what it is. I wonder whether when we get that first deal announced as a framework, does the market sell off on that news? Well, given that we've rallied so hard, probably. But I am of the posture generally,

I don't think the market's dumb. So if I disagree with the market, I generally defer to the market. Right. Isn't there room to say the market's not dumb? And every time we've been in this cataclysmic Situation where the S&P is down 15 20 percent, which is where we just were right in early April It's been a head fake and so the market is smart and they bought that they bought that dip aggressively

But there will be one time where they buy that dip aggressively and it's the wrong move I think given where we came from, you're right. Given that the S&P was up 20% in 23, up 20% in 24, and that the S&P is down 4% this year, it doesn't make sense. There's another dynamic I want to talk about. Wall Street strategists have completely thrown in the towel on this year. The retail is going the opposite direction. So let me read this to you. Deutsche Bank, coming into this year, had the second highest S&P target for 2025.

This is, I think, Monday. Deutsche Bank's Binke Chata, one of Wall Street's biggest bulls entering 2025, is going back on his optimistic views on US equities. The bank's chief US equity and global strategist cut his year-end S&P 500 target to $6150 from $7000. That's a pretty big cut guys. The new forecast signals an advance of just 4.6% from where the benchmark began the year. The old target was for 19% upside. Again, Chadha had what?

The S&P's at $5600. That is not, I mean, yeah, 7000 is ludicrous at this point. You better be cutting. Okay, but I'm just making the point. Chadda had the second highest target, following only Oppenheimer's John Stoltzfuss, who also cut his year-end target to 5950 from 7100. So the two guys above 7000 are now in the with a five handle on their target these are really big Cuts, I'm not saying they shouldn't have Here's the chart So this shows you where they started the year and this shows you where they are now This is Goldman Bank of America Evercore ISI RBC JP Morgan your Danny Oppenheimer Barclays

Be BMO Deutsch now, they're all in the fives, Barclays, Beemo, Deutsch. Now they're all in the fives and low sixes. All right, so we're at 5,600. To me, this is not bearish enough. But let me make the counterpoint to that. So while Wall Street's throwing in the towel in this year, here's what retail investors are doing. Emma Wu, a global quantitative and derivative strategist at JP Morgan, sent in a note to clients late

Wednesday, retail stock buying boomed last month even as Wall Street pros worried about recession. Retail traders, I mean this is a crazy divergence, retail traders net bought $40 billion in April, surpassing March and setting a new record for the largest monthly inflow. Historically, retail investors bought aggressively daily imbalances exceeding $4 billion on both April 3rd as the day after Liberation Day when the market experienced its first 5% drawdown since 2020 and April 9th which saw the largest one-day gains since 2008. They bought down, they bought up.

They bought every day a record-setting amount of stock. So I don't know that we could say the market's smart or stupid because the market participants are going in opposite directions. One will be right. Retail will be vindicated or the strategists will be vindicated. But it's very clear they disagree. Your thoughts? Or we just sort of chop around and go nowhere.

No, but one's going to be, oh, fine. In that scenario, then, nobody looks like they were, quote unquote, right. We're going to have another movie about it like Dumb Money. Yeah. Who's right, who's right, who's wrong. I mean, I think, you know, look. Sorry, Robinhood, 77% jump in year over year transaction based revenue. They just reported this week.

But there's, I mean, people are conditioned over the last number of years to buy the dip. Yes. Oh, really? Wall Street's nervous? Here's another 50 grand. There's a, I mean, it reminds me a lot of like the, like the 2016, like when the Fed started hiking, it's like a big thing was like, well, no one's actually lived through a hiking cycle.

Oh my God, they wouldn't stop. The media would not stop. And it's like sort of similar in this sense is that a lot of equity investors haven't really seen a meaningful drawdown in the market. Or actual stagflation. Yeah. They haven't seen it, they're not afraid of it.

That goes back to, I mean, like that's why I said, like none of these answers are in my mind like... I mean it's like... Is it because... It's like innocent until proven guilty. Like the economy is innocent until proven guilty. Like maybe that's the case for these retail investors. It's like, yeah, you guys have been telling me like... Things are going to be falling apart for years.

You said it in 2022 and 2023 it was going to be... Right. So that... So I agree with that. So that's why the market is quote unquote smart because they're saying this is the 10th recession in the last 10 years. None of the other nine have happened. I'm buying. So that makes them smart. But one of these times it'll be the wrong time. Exactly. What's a more entertaining outcome for you? Three months from now, the strategists are chasing the stock market again, and they all have to raise their targets after they cut them 19% in the hole. Or the market's down three months from now and the retail capitulation starts. What's a more interesting outcome of this?

I'm not saying which will happen. What do you think would be more interesting? Not that you root for anybody to lose money or be wrong. Yeah, I mean, I think it's the potential for things to get worse. That to me is sort of more interesting because we haven't really seen that. I don't think retail capitulates.

Wall Street will look really smart if there's another drop of the magnitude of April later this year. Yeah. All these guys who cut their targets, they won't look smart, but they'll look better than they would look in the other direction. I think I agree with Michael. Most of these estimates are just marking to market your forecast. They're not actually bullish or bearish. It's like one of these things where like price you don't have a choice but to

Like you can't leave it 20% you can't leave a target. Yes It's like you're at that point your compliance department's calling you up. Can you please you know? Idea that investors will stop maybe the dip buying slows down in fact yes if we roll over to new lows They will be certainly less excited about excited about putting new money to work. But they're not going to puke their Google or Amazon or whatever they just bought a month ago. They're going to hold on. They're going to say it'll come back.

So I think what it would take for retail investors to capitulate is not the depth of a sell-off. I think it's the length of a bear market. Everyone has their limit. I think it's, I ask you. Was there any selling in equities when we had in 2022? Right. Very low. No. All that in mutual funds.

NASDAQ stocks. ETFs took in money. Because they always do. Structurally they always do because of retirement investing. It's almost automated. I asked you for this chart earlier today. We looked at this period after the dot com boom turned into a bust. You referenced that period into 2003. There were 10 distinct 5% rallies while the S&P fell 52% from peak to trough. The trough was like at the end of O2.

Is that a great chart? Brutal. That will wear you out. You see the light blue, high lit portions, those are 5% or more rallies, and each one of them failed and led to lower levels. I'm not saying that the rally we've just experienced is that. I'm saying it very well could be.

And people are not even thinking that that's possible. They can't imagine it. But so that stops the buying. It won't make people puke, I think. We'll say. People are not even thinking that that's possible. They can't imagine it. But so that stops the buying. It won't make people puke. I think. We'll say. And listen, obviously, certain people will.

But I'm saying, in aggregate, if you're looking for the retail, Vandetraat does a lot of great services on this. They track retail buying and selling. I think you will see buying dry up if we continue to roll, but I don't think they're going to start to hemorrhage their stocks. Yeah, I mean, I think to me, it's like you always want to be invested. It's really about whether you want to put new money into the market or not. I agree with that.

And I think, you know, I mean, my view is that you'd be less likely to put new money into the market. Well, guess what? I bought the Panic three weeks ago. I will be less enthusiastic about putting more money into the next one. So will everybody else. Right. The first panic is the easiest one to buy. Yeah, of course. The fourth panic, it's like I'm not doing that again.

That's not fun anymore. What is the question that you're getting most from institutions or hedge funds right now about the situation? I mean I'm getting a lot of questions on policy, not really the economic data. I feel like... On Fed policy. Yeah, I mean, and also fiscal, frankly.

Like, you know, what do you think about what the administration's doing? You know, I had this thing about how whenever Scott Besson talks, it's good, and whenever Howard Mutt makes a good one. Yeah, that was a great chart. We showed that last week. You know, and so I've been getting questions on that. I mean, I feel like, you know, on the economic outlook, it's...

I was cautious going into the year and I feel like the consensus is starting to... has more or less caught up with that. Yeah. And I think right now it's kind of this, you know, again, like people are asking, what's the data point that's going to make it, like give you that aha moment? Well, you're not a data point guy. Yeah, I mean, I think it's really tough because it's not like things are collapsing, right? So the market collapsed, I guess you could say.

Like you had a very big, and people are expecting sort of instant gratification in the... Yeah, like now that the stock market crashed, show me the bad economic data. It's not there. I don't think it works that way. I think this is, it could have happened, I mean, but I think to the extent that they've sort of moderated their tone on the trade issue to some extent, that's like sort of

reduced the risk of like a non-linear type of event in the economy. So I think it's kind of... I mean, tariffs don't really mean sudden stop. It's not like COVID. It's not like a credit event. It's not sudden stop. It's painful and it could be a process more so than anything else. Do you have a viewpoint on what final GDP for this year is going to be like sub 2% growth?

I think that's bad. I mean, I think it'll be close to mean, I think it'll be close to zero. You think it'll be close to zero? Yeah. Is that kind of what everyone thinks now? I mean, I think people still think that there'll be positive growth. I mean, I don't think people think the labor markets

are going to fall out of bed. Wall Street still thinks like 9% to 12% growth for earnings. Yeah, I mean, so to me, that's going to be very challenging in a nominal growth environment. That's right. If you have tariffs, like whatever goes into P is going to be very challenging in a nominal growth environment. If you have tariffs, whatever goes into P is going to be coming out of Q, right? Price times quantity. And nominal growth is very sluggish.

So how are you going to get 10% earnings with nominal growth running 3%? Yeah. When the next Fed meeting happens, what do you think the stock market would prefer? Would they prefer no cut because things aren't really getting that bad but a dovish tone from the Fed kind of telegraphing like, all right but we're definitely doing cuts this year? Or do you think they just want the cut? Like what would be better for like the mentality of the stock market? Because there is a school of thought and there is some data when the cuts start, it's actually not great for stocks.

The anticipation of the cut is better than the cut itself because the cut might mean something's not going well. Well, I think if the Fed is cutting in May, that probably means that things are going to get worse between now and then. Which is why I don't think that they'll cutting in May, that probably means that things are going to get worse between now and then, which is why I don't think that they'll cut in May. I do think, so I mean, I think what I think the downside risk for the market is if you have some kind of like hawkish hold where he basically says like, look, we're not doing anything right now.

And we're thinking inflation is surging. And that's why we can't do anything. I think what the markets would prefer is that, you know, something like we're monitoring the economy closely. Okay, so this jobs number is a big deal. I know we joke around about every jobs number is the most important ever. This one's kind of important. Yeah, I mean, we're right because we've seen a fairly significant, like one of the ways

you catch a recession in real time is you have to look for what Greenspan called data discontinuities. If you have a bunch of 200,000 on NFP, non-farm payrolls, and then all of a sudden you get a 25. That to me is like, oh, that's interesting. Maybe that means something bad's happening. You know what didn't work very well? Speaking of discontinuities, the SOM rule was triggered.

I don't know what they were on on SOM rule watch, but that was something with like the shorter term versus the longer term unemployment rate. Yeah, I mean, that could have also been like a function of like labor force dynamics and so forth. I mean, you know, but as I say, I mean, it's, you have data discontinuities already

in all of the survey data, right? Like, you know, consumer confidence wasn't great, but it wasn't like awful either. I mean, it was kind of bobbing around and then it just- It fell off a cliff. And then it fell. You look at capital spending intentions across the regional manufacturing service,

sort of same thing, right? It just collapsed. Yeah. So that's, so you have discontinuities already in some of the data. Obviously the NFP number is the one of the highest quality. So that's the sort of thing that we can keep. Last thing, how's this for a scenario?

The real economy falls apart like the physical economy. But so long as three companies reaffirm their AI spending capex for this year, the stock market's just whatever. It's fine. That sort of seems like what's going on right now. They're hanging on to every word from Microsoft, Amazon, Meta. Will you keep spending on AI? They're like, yes.

The NASDAQ rally's 400 points. I mean, we know how tech booms go, right? I mean there's an adoption period and you are seeing that in the data, right? Like more companies are adopting AI and that's going up, but ultimately you hit a saturation point which then undercuts the rationale to continue investing. And that overhang could be very painful.

So this again goes back to the idea that if the economy's only firing on one cylinder right now, and then there's an overhang later, it just creates a very soggy recovery on the back end of this, even after the Fed's cut. So speaking of AI CapEx, Meta, to Josh's point, like they upped it, their guidance. As you guys were talking, Amazon reported. So I'm on the quarter app, and I just, it gave me a suggestion to ask the chat bot. And the suggestion was how does AWS growth compare to Pyrus because that is a huge driver of Amazon stock price.

And in three seconds, not three seconds, it's called 30 seconds, I got Amazon up 17%, AWS up 17% year over year. That was the number. Azure up 33% year over year. Google Cloud up 17% year over year. That was the number. Azure up 33% year over year. Google Cloud up 28% year over year. So Amazon is down 4% in the after hours, primarily because of their AWS report. And it's sort of a tangent side point, but the AI stuff is just wild.

I don't know about you, but for me personally, I have been using it way more. Even in the last three weeks. What do you use it for? AI. Stuff like this. Okay. Okay.

I think we're all using it. I use it for cartoons. Say more. You create cartoons? Yeah. I mean, that's what we use AI for. So I think people are using it and don't even realize they're using it at this point. That's where we are.

It's so built into so many of the products at at Microsoft and um and alphabet It's just it's a huge part of our lives already And we don't even know it the deliberate use of AI Probably not as prevalent as I thought it would have been like people going to chat you betis my biggest fear I think that's off the charts, but like Apple's Apple's AI rollout at this point, I think it's safe to say, was just an absolute debacle. Like, they don't have it in China. The app here, they launched in two phases. So when you got the new iPhone 16, like the AI was

indistinguishable from regular Siri. So like Apple didn't really get going on AI to the extent that I thought they would have. And as a result, like we're using AI when we search for something and Google gives us a result up top before the blue links. It's an AI result. Nobody's like blown away by it. It's just like, oh that's how Google search looks now. So, I don't know. Facebook, so Zuckerberg yesterday on the call was saying that the AI agents are getting so good that advertising will be a bigger percentage of GDP going forward. And if he's right, and there is reason to suspect that he might be right, it makes sense why these stocks are behaving the way that they are. They can continue to take share, expand their earnings in a shitty economy.

So it's just, I mean, to me, the interesting thing about this is that this just shows like, kind of like the evolution of how an economy goes, right? Like the bigger, right? Like you start off on the farm, then you go into the factory, and now we're kind of going to the upper heights of like the knowledge economy and like, just, you know, putting everything on a computer. Like the... Everything is computer. I mean, Azure, Microsoft's cloud doing 26% compounded for the last five years.

At these numbers, there's no comp. But it just shows you that we're at this knowledge-based economy, and yet the political economy we're trying to get back into the factory. Yeah, well, right. They want to reverse it. It's very difficult to like, right? These are like big sweeping secular changes that are really hard to shift with policy. I just want to point out though, we're whistling past the graveyard with like big misses, McDonald's, UPS.

No, I agree. Ten years ago, we would not have ignored the commentary from these CEOs and had a plus 2% day in the S&P. It would never have happened. And that's how big these AI issues are. They're so much bigger and more important to the stock market than the companies that we used to think of as bellwethers. I don't even...

Remember Caterpillar? Yeah. They would seize on a report from Alcoa, because it was the first earnings report. Caterpillar, UPS, FedEx. What those companies said was the tone for the stock market for a week. By the way, this is Alcoa, and if you look at a chart of any materials, they look like ass. Materials are breaking down. To me, it's actually quite...

It makes me a little nervous because it just, it's a, I mean it's a very imbalanced economy and it's a very, I mean, seems like a very imbalanced stock market. So I was joking around, like as long as those three companies affirm their AI CapEx, none of this other shit matters. It's like half joking because it's half real. That's what's going on right now. We're not going to solve this today.

Do you have fun on the show? I always have fun with you guys. Absolutely. So I think the best way I could kind of encapsulate your thinking right now is we're going to have a slowdown. The question is for how long and the severity. Well, I would just say that all slowdowns, not all slowdowns end in recession. All recessions start with a slowdown. And I tend to think that the markets might be

under appreciating the risk of recession at the moment. I think that's fair to say Michael and I both agree with that. All right, we always end the show asking people what they're most looking forward to. Neil, you have Nick's stuff in here. Did you know Michael's a Nick's fan? I couldn't tell. You know what? I am looking forward to this series being over.

This is... I'm not having fun. And it's not just because we're not performing. I mean, even if we win, we're going to lose in five. In five games. It's going to be debacle. So I'm thinking about going to Boston either on Monday or Wednesday just because I want to be in the building, but I kind of don't want to be humiliated. And they kind of might not be there.

We're going to lose... Well, there's that. But we're going to lose by 29 points. Do I really want to go to Boston for that? I don't know. No you do not. Can I help you? Wait for the MSG game. They'll probably lose that one too. Do not go to Boston. Do not go to Boston. What do you think the odds are? And if they blow the Celtics off the court, you could be mad at them. That's not going to happen. Tibbito? This is it for him. I want him gone. I'm not mad at him. I love him gonna happen. Tibbido? I... This is it for him. I want him gone.

I'm not mad at him. I love him. I thank him for his service. He has taken his team as far as he possibly could. Thank you so much. We need a new coach. We need one of these sexy new coaches like a JJ Radek. We need like somebody in their 30s.

Like a poster? Yeah. We need somebody that... We need an offensive minded coach. We need Tai Liu. I know he's not available. But like we need somebody that can run this offense because we are not maximizing our capability at all.

Last year, the sum was greater than the parts and this year it's the opposite. We have too much talent to be playing this way. It's really upsetting. One of the problems with only playing seven guys the entire season and putting 35 minutes on all of them, when you get into the playoffs and you don't have a bench that can score, well what do you want from these guys? They barely had to play, other than injuries. So you basically, you need Brunson and Cat to combine for 70 points to win these games. It's really, really hard for that to happen

and you have no plan B. I went to the game on Sunday in Detroit, shout to my friend Jason Rasnick. That place. He's talking a lot of shit to me in the DMs. Yeah, I bet. So I want to say one thing about Detroit. They love basketball.

Yeah. Like that arena goes to 12. And we happen to have pulled out the victory by like one point. One point. One point. There might have been a foul. They didn't call the foul. We won the game.

We squeaked by. But that place was just lit the entire game they really love their team in a way that I don't I don't think like I've been to a bunch of NBA arenas not necessarily in the playoffs but like I just feel like Detroit's a special basketball. Was it Malice in the Palace? Yeah that well that was a different place that was Auburn. Right. This was Little Caesars. The coolest thing about Detroit,

all three teams play next door to each other. So, Ford Field for the Lions is next door to Comerica, and across the street is Little Caesars for the Red Wings and the Pistons. That is awesome. And then they have like a million sports bars and they have like outdoor parties going. Like it's an amazing sports town. And apparently there were a lot of people who would go to a Tigers game and a Pistons game in the same day.

It's amazing. Jeff is a big... No, he's from Michigan. He's a Red Wings guy, right? Well, yeah, he's a... And also a big Lions fan. Lions fan. OK. Anyway, shout to Detroit. Thanks Jason.

Met Jared Goff. He was front row at the game. Okay. Sitting next to Jason. Who else was there? Chris Webber was there. Ben Wallace and Jalen Rose. Yeah, they don't talk to each other.

But like all the Detroit celebrities were out. I found that kind of cool. It was a very cool scene. What are you looking forward to? We talked to each other. But like all the Detroit celebrities were out. I found that kind of cool. It was a very cool scene. What are you looking forward to? I told you, this series is being over. What are you looking forward to? You have Knicks too.

Well, I mean, I'm hoping, I'm looking forward to them closing out the series tonight. I think we're going to win tonight. It's not going to happen. Well, Jude, relax. All right, you think? In Detroit? I do, but I'm not like super confident.

They barely escaped alive on Sunday. I think we're going to win, but I'm not like super confident. They barely escaped alive on Sunday. I think we're gonna win, but I'm not betting on it. All right. I'm looking forward to dinner. We're going to the corner store tonight. You ready for this? I love it. All right. Whose joint is this? This is Mark Burnbaum who is the owner of Catch and Catch LA. Oh, we've been there. I took you to Catch LA. That was hilarious. This place is the shit. They have the French dip, like the roast beef. Yes, I've had it. It's good. The steak is good. Also, they have this, you know, Girl Scout cookies. They have like a Samoa sundae. Yeah. Which is fantastic. It's going to be great. I'm looking forward to dinner. All right. That's it from us. Great job. Thank

you so much to the team. John and Duncan in the room right now. You guys crushed it this week. We did a lot of great stuff. Neil, where can people follow you? Where do they get your stuff? They go to renmac.com. You can go to renmacaccess.com. Renmacaccess.com.

Sign up for a trial of our work. You can always find me on LinkedIn. Who are your customers? Is it mostly institutions or individuals as well? Well, we're trying to do both, but we have a multitude of institutional type accounts, long short equity, pension funds, multi-asset strategies, and RIAs as well. You guys go to renmacaccess.com if you want to learn more from Neil and the entire team at Renmac whom we are huge fans of.

We love all your stuff. Neil, thank you so much for doing the show today. Thank you. And alright guys, that's it from us. We'll talk to you next week.