The Compound and Friends - How Neil Dutta Predicted "No Landing"

Episode Date: January 26, 2024

On episode 127 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Neil Dutta to discuss: the resiliency of the US economy, the Fed's next move, the housing market, politics and the market, when sell side research is most useful, and much more! Thanks to Kraneshares for sponsoring this episode. Learn more about the Kraneshares firm outlook for 2024 at: https://kraneshares.com/ Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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. Wealthcast Media, 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

Dude, I'm f***ing running on fumes. We just got back from Vegas. Oh, nice. Where'd you stay? Cosmo. Oh, yeah. Like, like, 12, like I'm saying, we got back like 12 hours ago. Thank you.

Like, seriously. No, literally. Like, seriously. Literally. Was there a conference there, or? There was a conference for, like, WealthTech. Oh, cool. So it was mostly, some advisors were mostly, like, technology companies.

Wow. All right, so Neil. All of our vendors. So, uh, I know you're, you're not, like, a huge individual stock guy. Tell me this doesn't sound like a classic mistake. The CEO of PayPal goes on CNBC last week. He says, we're going to rock your world. We're going to shock you with our innovations this year.

And this is a stock that's already down 80% from the tie. So he says that, which is crazy. He's a rookie CEO. He was never the CEO before of anything. And then today is the day. Wait, hold on, but hold on. You're missing something. The stock moved bigly. Oh, well, sure. The stock went from 58 to 68. So then today is the day they unveil seven things. I'm not even saying they're bad things. They're just not like rocking anyone's world. The stock immediately gives back seven of those eight points in one shot. Like gap lower.

How do I convince him to stop talking about points? I can't convince him to talk percentages. I don't know what the percentages is. I don't know in my head what the percentages is. A point is a point is a point. Yeah, so here's what they rolled out. It looks like it was all price. Tell me if any of this sounds world-shaking to you.

PayPal checkout experience enhancements. To accelerate. They're going to do fingerprints. Apparently it's 2017. Dude, are you trying to get me pinched? I own the stock. Relax. So do I.

Fastlane by PayPal aims to get faster and smarter checkout. Smart receipts. Does that sound exciting? Advanced offers. That sounds like Groupon. So when you buy something, other merchants are going to be able to market to you over their platform. Revamp of the PayPal app, just in case anyone's still buying things on eBay. Venmo business profile.

A new platform for small, mid-sized businesses to grow via features like a subscribe button. Like that's literally what they did today. Six things. And I don't know. All right, guess what? I'm like still surprised. How could somebody that's the CEO of a $65 billion company— He's a brand new CEO.

Where'd he come from? You never overpromise. You never promise anything. He came from Intuit. But he wasn't running Intuit. promise. You never promise anything. He came from into it. But he wasn't running into it. Anyway, the stock still looks fine. Relax. I wonder what DeGraff would say about this. Technically, it looks okay.

I said, why are you talking about a stock that's in an 80% drawdown? I'll be sure to ask him. DeGraff would say, why are you talking about a falling knife like PayPal? Alright, no opinions? You don't want to get on the bad side of PayPal right now? Well, we have an analyst that covers PayPal, and he's been quite optimistic on the stock, so I don't know.

Boom! I don't want to. Oh, you say. From what price? Oh, I don't know. Who knows? All right. We're so excited to have you here.

We've been doing a deep dive into the mind of Neil Dutta. Oh, goodness. And it's all going to come out today. We went deep into the mind. Did Jeff tell you he had fun on the show? Oh, yeah. Yeah. Okay. Yeah. I'm a big fan. Thank you. Thank you. Jeff was awesome. How are we doing, guys?

We have a full house today? Everyone's back? Yeah. Everyone's here. It's been a while. Nicole, get my good side. I guess that's true. If you could find it. Duncan, it feels back? We feel back? Yeah, we're back. We're so that's true. If you could find it. Duncan, it feels back? We feel back? Yeah, we're back.

We're so back. Nicole? Yeah. We're back. Are we back? We had a lot of travelers. These guys were running a skeleton crew the last couple of weeks. How do you like Y charts?

I love Y charts. Yeah? Okay. All the time. That's your primary tool for like? I have Y charts open. Actually, you caught me at a right time. The screen, the Y chart screen, I'm on all the time.

Now, in fairness, they're an advertiser of ours. However, in all sort of fairness, I've been using them forever. Okay. Before they started advertising with you. I'd say concurrent. There's very little that Y charts can't do. So I get my stock data, my economic data. It's all there.

I have my list, my charts. And it's very user-friendly. Incredibly. Yeah. First of all, we saw Sean two days ago. Shout out to Sean. I can't think of a lot of things that you can't do on YCharts, honestly. So if you're going to have one thing open all the time, that's like the thing.

There's some like heavy technical stuff that they don't do, but you're an economist. Yeah. Yeah, you wouldn't. I'm saying like tech. I mean like stock. You wouldn't miss the stuff they can't do. I mean stock technicals. Who cares?

Yeah. So what did you think about the report this morning? It was good. You weren't surprised. No. How do they do that? How are we printing three-point anything on GDP still? What are the ingredients that make that possible relative to where consensus is ramen no seriously consensus

was 2.3 so most of the upward move was in uh the upside surprise was in trade and inventories which are really tough to forecast so um that that was i mean most of the folks going into that report were looking for a bigger inventory drawdown. We didn't really get it. But is that, I guess it could be interpreted as bullish or bearish. I think it's bullish because companies are stocking up to sell. They need to reinvest in inventories because they've been unsustainably drawn down. And then the trade stuff, we had a narrow trade deficit.

But even if you strip that out, private demand was fine. You know how GDP gets revised three times? How many times does it get revised on average? Well, I mean, you get three cuts on one quarter. Okay, what within GDP tends to get revised the most? Like which component is the most subject to second? Inventories and trade. Why?

Well, I mean, there's a lot of source data that comes out, and those data tend to be lagged. So you're making some estimations on, like, we didn't get the December data until after the Q4 number is out. So there's a bit of that. Okay. So does that make it, like, way less useful for someone like yourself than it ordinarily would be?

I think if you're going to look at one statistic within the GDP number, way less useful for someone like yourself than it ordinarily would be? I think if you're going to look at one statistic within the GDP number, every time it comes out, just look at private domestic demand. So look at GDP net of inventories, trade, and the government. And if that number, and it was fine in the fourth quarter, that tends to do a better job of telling you where things are going than the GDP number itself. So I mean, it's not like it's all useless information. I mean, I think whenever the number itself. So, I mean, it's not like it's all useless information. I mean, I think whenever the number comes in good, bears will always be like, well, you know, that was last quarter. But there's actually some interesting forward-looking information within the report, and it's important

to pay attention to that. You could still look at Trent. Let's get John in here. Let's start the show. Yeah. Let's put a pin on this. We'll take the pin out in 30 seconds. Let's go.

Let's do it. All right. Hey, John. What show is it? Oh, my God. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.

Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Hey, Michael. Hey, Josh. It's 2024. I can't believe it. hey michael hey josh it's 2024 and most people when you ask them about the outlook for this year they're probably thinking in terms of alphabet apple amazon everything that's been working over the last couple of years some people are thinking about other markets like outside the box yeah so crane share is a really good example of that they just put out their carbon outlook report their managed futures outlook report, the China outlook report.

And this is the kind of stuff that people typically don't pay attention to until after it's already made someone else a lot of money. So I would send people to Crane Share right now, take a look at the new outlooks they've put out, take a look at some things that are a little bit off the beaten path. And you never know whether or not you might be looking at something way before the crowd has figured put out. Take a look at some things that are a little bit off the beaten path and you never know whether or not you might be looking at something way before the crowd has figured it out. It's like we're entering a new era for global markets. I have always said that. It's unlikely that the future

will look exactly like the past. I think most people are now anchored to large cap tech and I get that. But what if next year looks very different? This year looks very different than last year. What if it does? What if it does? What if it does? Craneshares.com.

Tell them the compound sent you. Hey, everybody. Exciting news. Ritholtz Wealth Management is coming to Naples, Florida. We opened an office on the beautiful west coast of Florida and we're going to be coming and speaking with clients, with prospective clients. If you are in the area or adjacent, whether that's Fort Myers or Tampa or anywhere on the

West Coast of Florida, and you want to get in touch, we're going to be down there the week of March 4th. It's going to be a lot of fun. If you want to learn a little bit about how we manage money, what we do with clients, if you have questions about the economy, about the market, we want to hear your questions. We want to meet you. We want to talk to you about the things that are on your mind. Reach out to us at info at Ritholtz Wealth. We're looking forward to seeing you in Naples, Florida.

Number 127. I'm still amazed every time I hear the number. The number just goes up every week. Every time. We've just goes up every week. Every time. We've done 127 of these shows. Today, you are in for a very special treat, ladies and gentlemen. I know I say that a lot, but I really mean it. We are going to learn from, in my opinion,

one of the finest economists on Wall Street, someone who has been extremely prescient in recent years uh someone who is devilishly handsome from long island like almost like all the lights green all the boxes are checked all the lights are green ladies and gentlemen mr neil dutta neil welcome to the show thank you guys i really appreciate it we wrote an official intro for you are you ready i'm gonna make eye contact with you while I read it. It's going to be super normal. Neil is the partner and head economist at Renaissance Macro Research with an emphasis on analyzing the U.S. economy, Federal Reserve, global trends, and cross-market investment themes.

Prior to Ren Mac, Neil spent seven years at Bank of America Merrill Lynch. He was a senior economist covering both the United States and Canada. And you are active on social. I was surprised. You're like mixing it up with people. I try my best. I mean, that's the new form of communicating. That's part of the job now, right?

Absolutely. Neil, who runs your social media account? Because Ren Mac, you guys have a lot of different disciplines. Obviously, you're not doing the technical stuff. Jeff is, and you have Annalise, so who takes care of all that? Me and Jeff. Okay. So you decide what makes the feed for the brand.

Yeah. And we all have our own LinkedIn accounts. Okay. Yeah. I mean, we have one like composite Ren Mac account. We don't have our own personal Ren Mac account. Okay. How much of Jeff's work influences your thinking and vice versa? Is there any overlap

or is it really siloed out? Well, unlike other research shops, we don't make it a point to agree on everything. So if he's bearish on the markets and I'm bullish on the economy, that's fine. It's more of a challenge

for our sales team. So let me set this up for you. Okay. So last year... Let's tell people who Jeff is, though. So Jeff DeGraff is a legendary technical analyst, one of the co-founders or founder of Run My Hubes, been on the show and he's just the man. Last year, you were coming into 2023,

you were, as far as I could tell, the only economist that did not predict a recession. In fact, you saw the economy getting stronger. However, you thought that the stock market might be actually vulnerable because then the Fed would have to tighten or keep its higher for longer. Am I summarizing that a little bit right? That's right. Okay. So we'll obviously dive deeper into what you saw there. So you were sort of with a bearish tilt on the stock market itself, and you're an economist. But Jeff is probably saying stocks are going up. Stocks look good. Well, I think that was an interesting time. I mean, I made that call, I think, in the fall of 2022. You know, the equity market, in my view, I mean, look, I think about fundamentals largely.

Jeff has a technical bent. But for me, the stock market's basically actual and projected earnings and risk-free rates. The stock market was the smart money last year, or in 2022. I think, I usually think the stock market is the smart money. You do? I'll go on. Oh, I think that's just something that people have picked up over the years. I mean, the bond market's always right. Mr. Bond is like the smartest person.

No, it's not. Wait, say more. Well, I mean, a lot of that comes from an old Samuel Swin sort of quip about how the stock market's predicted nine of the last five recessions. But in reality, the stock market has predicted five of the last five Fed pivots. Yeah. So, you know, the bond market has a habit of pricing and tightening cycles too soon. Once the tightening cycle starts, the bond market has a habit of pricing in the end of the tightening cycle before it actually ends.

And so all it really does is just create a lot of short-term kind of trading opportunities in the front end. But I think the stock markets, to me, that is the principal way that most people understand the economy. Like Lester Holt's not going around quoting you like what the 10-year yield is trading at at 630. No, Dow Jones, Dow Jones. Neil, so you have a view on the market and it's 2023 and we see $6 trillion piled up in money market funds and we see like record, I don't know the best way to phrase this, record pessimism in the form of equity allocations being at multi-cycle lows and just people are not in and you're kind of on the

bullish side. So then all of a sudden the market starts going against the consensus and it's like working. Do people then say, you know what, we should talk more to Neil and we should talk less to the guy in Canada that works for the gold fund. Like, do people like you better when the market's on your side, in your role? I've always been curious about what that's like. Well, I think clients of Renmec, they're not, I don't think they pay us for our calls per se.

What they're paying you for, I think, is, you know, even RAs like yourself. I mean, they're paying you for your thought process, right? Like, what you don't want to be is a person, and there's a cottage industry of people that are like this, that has a conclusion first and then works back to the conclusion. I detest those people. But I think the best way to do it is just to lay out a logical sequence of events that gets you to a market call. And economics on its own is useless. What's useful is using that economics view and translating it into a market call. So for example,

you mentioned that I was cautious on the equity markets. But once I started seeing that, look, I mean, everyone is positioned for recession, there was going to be some upward momentum in equities as that recession call got priced out. Right? Like, so it's, you know, if the economy is growing, even if you have strong inflation, that's still an environment where stocks could work. So I want to read your quote because, again, credit to you. This was November 2022 when this article you read I'm about to quote. But I just want to just

double click. Oh, I've punched myself in the face on what Josh asked you. When are clients more likely to want Neil versus Jeff? I would guess that they want Jeff in a bear market. And I don't know if they would want you more in a bull market or bear, but is it fair that they want the technicals in a bear market? Like when are clients more likely to get you on the phone? I mean, I think our clients always want to get you on the phone? I mean, I think our clients always want to get us on the phone. You know, that's my thinking because they're always trying to understand

what the thought process is. I mean, it is true that if I've had a, you know, it does feel like, I mean, you've been doing a great job of like making my ego really go up today. But if, you know, I have felt as an analyst, like I'm on a heater at a craps table, right? Like, you know, everyone was so, and that's not going to happen forever. I mean,

I will be wrong about many things going forward and that's fine. It's not just that you've been right. Cause there are times when you've probably been right. And a lot of other people have too. There was almost no one willing to accept the premise in early 23 that we weren't on the verge of a recession. No, no, I think that's fair. So you were singularly right. Well, thank you. But I do think that I would agree that being right helps.

If I'm going to see clients in Chicago, the meetings are more subscribed by the PMs and analysts there once I'm there. It doesn't mean that, you know, people don't take the meeting otherwise, but- But you're- It's like you have a hit song out. You're not a guy- Who's fulfilled. You're not a knee-jerk contrarian.

There was something that you were seeing in the data that led you to conclude that the economy was going to be okay. So again, this is November 2022. The market had just bottomed, even though nobody thought it bottomed. Everybody was bearish except for Neil Dutta. You wrote a headline for Business Insider, the latest terrible news for the stock market. The economy is booming again. I'll just read one quote and then we can riff on that. Despite the near constant proclamations that the US has been teetering on the precipice of a recession all year. The real surprise is just how resilient it has been. And there are even signs it'll get stronger from here. So do you think that people

were bearish, understandably so, because the Fed was telling you that they were purposefully trying to slow the economy down? What were you seeing in the data that gave you the confidence to say that the economy is actually, not only is it not slowing down, it's re-accelerating. Well, I think, yeah, I mean, going into that year, I was thinking that there was, I mean, people are talking about hard landing, soft landing. I mean, I said no landing. And the reason I said- Was that you? Did you coin that? No landing? Yes. I think so. I think so. I mean, I said no landing. I mean, Nick Tamros put it in the Wall Street Journal. So- Okay. So you did it. But the reason I said no landing. I mean, Nick Temrose put it in the Wall Street Journal. So you did it.

But the reason I said that was because think about why people were so cautious in the first place. The first was you had the Russian invasion of Ukraine that sent food and energy prices through the roof. So that was a huge shock. Temporarily. That was a huge shock to household incomes. And the Fed was hawked up. We're not actively considering 75 basis point moves. A week later, we're going 70. They did four of them. Right.

So that's the time to be really cautious historically is when the Fed is super hawked up and there's a spike in commodity prices that's weighing on household incomes. Now, by the end of the year, it was obvious that that was no longer the case. I mean the fact is is that gas prices by the end of the year basically round-tripped. So that was, in other words, inflation was slowing more rapidly than what was happening in the labor markets. And that represented— You can almost even say it was transitory? Too far. Yeah, I think, I mean, to me it's about core.

I mean, that's a whole ideological thing I don't even want to get into. No, I'm with you. But I would just say that gas prices fell. They were basically – they ended the year where they started, believe it or not. And so the labor markets were still fine. So in other words, inflation was falling more than the labor markets were slowing. If somebody came to you and said, you're the treasury secretary of the United States. So ostensibly, you're like sort of responsible for the economy, right?

The president points to you when things are going badly or well. Sure. Okay. I give you the choice. I am, I'm a Zeus. I say to you, you get to pick what are the variables? Wouldn't you say, give me 3% GDP, give me falling inflation, give me full employment. That's literally where we are or where we have been.

Like you couldn't have asked for, I hate, I don't use Goldilocks as a term. It is. But it is like that. If those were the three variables, you could pull the lever. You could say any number for GDP. You could say any number for unemployment and you could say any number for unemployment, and you could say any direction for inflation. Those are the three things you would select out of all of the things that you could choose from. And that's where we are. And to me, that's crazy. But it doesn't seem like that's so crazy to you. Well, I know. I mean,

it's surprising. I mean, it's not like I was optimistic the entire year. I mean, it changed as we got towards the end of the year. In the middle of 2022, I was quite cautious because the Fed was basically telling me they wanted to send the economy into a tailspin to get inflation under control. And once it was clear, I mean, it was becoming increasingly clear by the end of the year that they didn't necessarily need to do that. And then. So that's the thing. Do they get lucky or are they smarter than we think? It's probably both.

They get lucky. So here's the thing. People make up their mind. Understandably so. If the Fed funds goes from zero to five, cost of capital goes up. Yeah, it makes sense

to turn cautious or if not, bearish. They made up their mind. The data didn't confirm and they didn't change their mind. So mental flexibility, credit to you, it's hard.

Especially when you go on record. Changing your mind is difficult. Well, I mean, but yeah, the thing is that it's when the Fed funds rate is going, it's when overnight Fed funds is higher than the rate of nominal GDP. That's the time to get really, really cautious. And believe it or not, that never really happened. So that to me was a big tell also. So today, what percentage, I'm sorry,

what percentage of the people who sit in your seat at different firms around the country, what percentage do you think don't like the Fed, don't like the fact that there is a central bank and therefore root for them to fail and therefore have their commentary colored by this idea that there's no way 12 people in Washington, D.C. can save the economy. I do not want to name names, but there is a cottage industry of people that hate the central bank. Is it 10%? It's a lot. They're very active on social media.

I know you guys see it too. Well, they're barely employed, so we'll understand that. Well, I think—I mean, it's also, to me, they are doing a really big disservice because you think about the kind of people that they're pitching their subs to. Yeah. To me, it's a little bit – They're not – most of it is not aimed at institutional. No, but the thing is they're not influencing anybody.

They're talking to the people that want that message anyway. Yeah. And there's so much demand for that sort of propaganda. Well, I think it's like cocktail party conversation. for that sort of propaganda? Well, I think it's like cocktail party conversation. But, you know, I think that, you know, part of it is if you couldn't come out of the financial crisis, particularly by 2010, 2011, and trying to just understand

that, you know what, things can sometimes just work out. Yeah. You'll never get it. Neil, the people that were bearish in 2011 about the double dip or whatever, it's 2024 and they're still bearish. Well, a lot of people that were, that call the financial crisis or say that they've made their call on the financial crisis,

they've been trading on that for the last 15 years. I know it's so long ago. There's a guy putting out a book and not to name names. He's like, he thinks I'm in on his joke with him. He's like, he's like, yeah, the book's going to come out. I'm really excited about it. He's like, knock on wood, we get a little market volatility in Q1. Know what I mean? I'm like, f*** you. I don't know what you mean. I don't want to be part of your parlor trick where there's a VIX spike to 25,

and then you start doing interviews about how your book called it. Like, I don't want to be in your world, sir. Enough of that talk. Okay, so today, the U.S. economy grew at a blistering. This is a headline from somebody. Blistering 3.3% pace in Q4 while inflation pulled back. I mean, this is, you know, you don't want to say the G word, but if this is not the soft land, the Goldilocks scenario,

what else do you call this? I call it a strong U.S. economy. That's it. Duncan, we're going to name the episode, Neil Dutta Confirms. Goldilocks. Goldilocks in place. Sees no risk for the rest of the year.

Well, there are risks, but right now there don't seem to be many. All right, so Neil, I want to ask you about some of the economic indicators that seemingly have been broken by COVID, and there's a lot of them. And I guess we could start with leading economic indicators. John, throw this chart on, please.

The wild disconnect between the year-over-year change in leading economic indicators, which have been negative for I don't know how many months in a row, versus the change in real GDP. Can you talk to what's going on? What's under the hood here that people aren't picking up on? I've got to tell you. Wait a minute. hood here that people aren't picking up on. I've got to tell you. Wait a minute. Like in 08-09, this leading economic indicator thing got way too negative.

Or maybe the Fed bailed us out at the perfect time in March. Or they suspended the accounting rules or whatever those stories. This time is just like completely disconnected. Well, so can I – I mean anytime – this is going to sound bad, but I'm going to say it. We want you to say it. I hear – I'm not a big fan of indicator macro, right? I mean, that's like, oh, look at this LEI.

It's never before have we escaped recession with the LEI this low for this long. Why aren't you a fan of that? Like, what about it puts you off? Well, I mean, first, I think it's like, I mean, whenever I hear ISM, LEI, M2, my first thought is, okay, I mean, this sounds, okay, boomer. Like, these are just like, like youM, LEI, M2, my first thought is, okay, boomer. These are just like you mentioned the LEI. So let's talk about that a little bit. Do people even know that that indicator is actually revised after a recession?

So actually in the front of a recession, it tends to waffle. Wait, what? Yeah, that number. So the conference board took that data point, I believe, from the Commerce Department. Okay. Okay. And it's not like the components in that number are the same from cycle to cycle. So after each cycle, there are new components.

Some of the components that are there are reweighted, refitted, and then voila. Well, that's cheating. Bingo. But more importantly, let's talk about what's happened more recently, right? Like the leading economic index, it's very manufacturing sensitive. Like things like the manufacturing work week are in there. Things like consumer durable goods are in there. Hold on. So if you're like, oh, the Boston Celtics have never gone to the second round and not won game seven. It's like, okay, but it's all different players. Right. Okay, so they're taking new components,

putting them into it, and people are using this on a backward-looking basis to say, this is how things react. Yes, that is part of it. But I would just say that, again, we had a very unusual recovery and recession. We shut the economy down. People were shut in.

They bought a lot of stuff. If you buy a lot of stuff, that's going to juice the manufacturing sector. That'll show up in LEI disproportionately. There's no evidence. There's nothing in there about services. So as you have goods coming down and people spending more on experiences going out- It's not in LEI? No. So this is ISM manufacturing PMI, another indicator that people point to. Economic activity in the manufacturing sector contracted in December for the 14th consecutive month. So people that are looking at this, just talk a little bit more.

What are they getting wrong? Well, manufacturing activity didn't actually contract for the 14th consecutive month. 300 purchasing managers think that manufacturing activity. It's a survey. I saw a comment from the CEO of Fastenal talking about how the PMI was below 50 for 14 months, and he was making a point about, well, in our business, that's really tough. If that's what you're getting your analysis from, that's a problem. Manufacturing production last year, December of 2023 versus December of 2022, actually rose modestly, like 5%. No.

Well, wait, why are you able to determine that and everyone else is looking at this bullshit? Do they not have the same data sources? Well, no, no, no. The industrial production data are released, I think, around the middle of each month for the prior month. And that's from the Federal Reserve Board. It's not...

The ISM is a useful, rough, and ready indicator. Obviously, Alan Greenspan loved it back in his time. But it's not a substitute for hard economic data. So you think the people answering this question are the same numbskulls that were answering the sentiment data and showing why? Well, all they're asked, Michael, is just are things going up, down or sideways relative to the last month? And you can't – I mean you'll be surprised. How many people do you see putting up charts of the ISM manufacturing versus year over year manufacturing production, but that's actually not what it's measuring. It's measuring growth in relation to the last month.

But if you pull the chart up again, you can see that it dipped below 50 many times during the 90s. So they're asking, so they're asking people who work in the industrial economy, how are things going this month versus last month? Correct. Not how are things going this month versus this month last year? Yes. Okay. And the people reading the chart are reading it like it's an annual growth up or down.

Well, year over year, yeah. Year over year. But as I say, actual manufacturing production did not in fact contract in 2020. So when you say, okay, Boomer, so you're pointing out like there was a moment where Alan Greenspan was fixated on ISM. Therefore, if you were a 25-year-old economist

working on a Wall Street desk, and today you're 65, but you're still stuck with what was relevant in your day. It's an outdated toolkit in my view. I think it's an outdated toolkit. None of those indicators are a substitute for how you think about how you should a proper thought process if you're doing your job properly your thoughts should lead those data points what do you say wait what do you say to the person though who says i could change my indicators every three years

to stay current but all i'm doing is moving the goalposts like what are the things that always matter to me the biggest risk to the economyposts. What are the things that always matter? To me, the biggest risk to the economy are when excesses in the real economy start translating into excesses in the financial markets. That's when you have big problems. That's not what we have right now. Right now, we have inventory still paired to the bone. We've had basically, essentially, a very sluggish business investment over the last year, particularly in equipment. essentially a very sluggish business investment over the last year, particularly in equipment. Obviously, housing is not doing great.

I mean, resale inventories are very low. You've seen some activity for builders. But where's the excess? I'll tell you. $2.6 trillion in private equity dry powder. The excess in money market funds. People running businesses being chased down the hallway by private equity. That's an excess, a clear excess. They've discovered wealth management.

I can tell you that. Demand for GPUs and AI technology. There's got to be some excess there. It might not all be excess. But that's not enough to, I think, change the overall story for the macroeconomist. Okay. Neil, where'd you learn economics? Well, I graduate, so I don't consider myself an academic economist. So I almost kind of clamp up a little bit when people call me an economist. I consider myself a business economist,

like more applied. Because real economists, they have PhDs, they've done great work. I'm a business economist. You're not writing white papers. No, but I mean, you do use some of the stuff that they, I mean, look, you have these PhDs that have spent their entire careers looking at one particular area. In many respects, I mean, as a business economist, they've done a lot of the work for you. You just have to take some of the stuff they've done. You know, it's like anything, right? Copy from one, it's plagiarism. Copy from two, it's sell-side research. Fine. But so how'd you become a business economist? Well, so I graduated from NYU in 2005. And I took a job at Merrill Lynch, and I didn't even start off in research. I started off

in human resources as a compensation analyst because it was so late. I was thinking I was going to go to law school. It didn't really pan out for me. So I was like, I just need to get into some bulge bracket firm. This is 05? Yeah. Just in time. Thank God, yes. Just in time. Yes, I am so, so glad. If you were applying for that job two years later, that job didn't exist. Okay, so you got in the door. Yeah, I got in the door.

So who's the chief economist when you start? Is it Rich Bernstein or? No, it was David Rosenberg. Okay. So I was an HR analyst basically for a year. And the good thing about being in HR is that you kind of know where all the job openings are. And so there was an opening on David Rosenberg's team as an analyst. You had inside information on this role.

And so I applied and I got the job. It was easy enough. You just go from one cost center to another. Okay. And anyway, I started working with him. And obviously, that was an exciting time to be working because, you know, Rosie, he called it. He nailed the crash. He called it. And so being on his team was, you know, I was lucky to be there.

And then, you know, he sort of left he left right as the market bottomed, basically, in early 2009. And then I worked with Ethan Harris. And it was a good, it was, for me, it was a good learning experience. So I have a lot of practical experience, not a lot of academic experience. But, you know, Rosie was like a marketing machine. He was always on the phone. Breakfast with Dave, the newsletter. Oh, sure. I mean, all of that. Back then, it was called Rosie's Morning Tidbits. Breakfast with Dave is the first thing that I started reading from sell-side. Like 2010, I started reading it.

Yeah. I mean, that note, he's had that morning note forever. But he was a marketing machine. And that kind of showed me one aspect of what a sell-side research economist should do. And then Ethan Harris, he came to Merrill. He was from Lehman. It was a big fixed income shop. And Ethan has a doctorate, and he's more of a- I read all his stuff. He is not a marketing machine. Here's the facts. He's more of a— I read all his stuff. He is not a marketing machine. Here's the facts.

Yeah, he's a very good economist. Yeah, I agree. In my view, he's probably one of the best. Yeah. And he's very good about— He's not going on Dancing with the Stars. No. He's not sitting with Maria Bartiromo.

But he's a sober, serious analyst of the economic. And, you know, I mean, one of the things that he taught me was just this business is about picking your spots, like, you know, weighing probabilities and then choosing your battles. What does that mean? Like deciding. Don't always be out of consensus. Right. I mean, so it's like that. That's that's important. I mean, you can't just be contrarian for the sake of being contrarian.

Return to the boy who cried wolf eventually. Right, exactly. Nobody takes you seriously. You'll get a lot of headlines for doing that, and then you'll also have to apologize a lot. Right. I mean, in many cases, the people doing it are usually negative, and in an up market, like, who cares? Yeah. So, all right, let's get back to business.

So one of the things that I don't think anybody could have predicted, maybe you did, was that the consumer just wasn't impacted. At least their behavior wasn't impacted by rising prices. If you look at retail sales, and I know this is nominal, but John, chart on please. It's just wild to me that this relentless rise, they ate all of the price increases and they just didn't stop spending. We say the number, retail sales- So what was it on trend before, before the pandemic retail sales seem to have bottomed, uh, in the, in the heat of the pandemic at sub 400 billion, which was obviously abnormal, but then is now way above trend. It it's at 615 billion is, I mean, these are huge, huge numbers above trend. Like, it doesn't seem sustainable.

A person that knows nothing looking at this chart, it almost looks like the whole world has changed. Do you read it that way? Well, I think it's sustainable in some respect because you have continued economic growth and continued nominal income growth. So that should support continued gains. Trajectory, I mean, not the absolute level.

Like it can't really rise the way that it's been rising for much longer. Well, I mean, what you see is a level shift up initially. Yeah. And then a more stable pace of growth thereafter. We consolidated, breaking out again. I mean, it's not going back to the trend before the pandemic. So to me, this is very simple. People are not going to change their spending habits

unless they lose their jobs. Would you agree? Yes. The boomer, the person wearing the boomer economist hat would say, this is a function of money supply. Money supply is contracting, will contract further, and therefore that retail sales number will be trending lower. But the money supply number, that's like a choose your own adventure indicator, right? There are times when money supply goes up because of reasons of safety. There are times when money supply goes

up because of reasons of like additional liquidity into the economy, right? Like one of the reasons why M2 is up is because people have a lot of checkable deposits. So it's, I mean, to me, I think if you just look at what's happening with bank lending, with consumer appetite for durables, I mean, it's okay. I mean, I don't think that, I'm not particularly concerned. Is retail sales or consumer sentiment

a coincident indicator in your mind? Or is it something that contains something useful about the future? I think consumer spending is a useful forward indicator because consumers tend to be forward-looking in their spending behavior. If you think that you're about to lose your job, you're not going to go out and spend money. Okay. So your former employer, Bank of America, Carl Cantanita, tweeted this.

They said, Recently, the word vibe session has been a hot topic, all credit to Carlos Scanlon. That's me, not them. Referring to a period of strong economic data, but lackluster consumer sentiment. We think that term may have run its course. We look for consumer sentiment to continue to improve this year.

John, Niels, chart on, please. So this consumer sentiment, which was seemingly broken all of last year, the economy was fine. People thought it was going to shit. This is just inflation, no? Yeah, I think – I mean, I agree with B of A that it's rest in peace vibe session. But I don't like that term because it's not just vibes.

I mean, people did feel worse. Because of higher prices. Absolutely, right? But if you wanted to forecast U of M consumer sentiment, you could basically take three indicators, claims, gas prices, and equity markets. You can use those three things to more or less get you close to what the number is going to be. We know that even though labor markets have been tight, the stock market up until recently has been quite sluggish, and gas prices up until recently were quite elevated.

There's an element of this also that's demographic. Like who responds? Well, so we know the surveys being responded to by older people. But in terms of the vibes, there was like a black mood on the part of people on social media like all year, like young people, super pessimistic, probably because they were the first people fired at Meta and all these companies that were like getting fit. So there was a lot of that going on. And then there's the political stuff, like the political polarization has to feed into sentiment in some way. That is true. But I still think that,

you know, one of the things I've always learned is up is up. It's going up. It's a good thing. And so, you know, my suspicion is that it'll keep going up. Let's talk about the labor market. So this is definitely going in the right direction. I'm talking about wage growth tracker. This is from the Atlanta Fed. John, chart on, please. So overall, just overall wage growth, real wage growth was actually negative for quite a while, but that's turned positive, which is great. But even better, remember in 20, of course you remember, in 2021 specifically, the biggest story in the labor market was, John, next chart, the best way to get a raise was to get a new job. This was a lot of cause for concern for the wage spiral that never came to fruition. This was a lot of cause for concern for the wage spiral that never came to fruition.

This went all the way up, but it's not quite come all the way back down. But this is certainly, the Fed's got to be happy about this. This is like tied in with jolts. And it was like everyone was quitting and getting an instant raise. Well, and I think one of the things

that I've noticed recently is that, you know, obviously fewer people are quitting their jobs relative to a year ago, and that's taking some of the pressure off of wages. But that's also lifting productivity. It's hard to establish labor productivity if everyone's quitting their jobs every six months in search of a new one. So the fact that people are kind of staying put, that's helping labor productivity, which in turn takes pressure off of inflation. So for example, in the fourth quarter, we had GDP growth of around 3%. And that quarter, total hours worked in the economy didn't even grow 1%. So you're talking about labor productivity growth of a little over 2%.

Where do you think that's coming from? Well, as I just say, I think part of it is people just staying put in their jobs. If you're attached to your job longer, you're going to get more productive in that seat the longer you— Claims seem to be plateauing right now. I shouldn't say plateauing because that means they're about to spike. But they seem to be like 200,000, like on a rolling basis. Like every month, so 202, 204, 198. That's good.

Like that's kind of where— Yeah, I mean you see all sorts of like analysis showing like, well, you know, the take-up rate isn't as high as it normally would be. What's good. Like, that's kind of where you- Yeah. I mean, you see all sorts of like analysis showing like, well, you know, the take-up rate isn't as high as it normally would be. What's that? Is people like splitting hairs, you mean? Yeah, yeah. People like, I mean, oh, well, you know, it's fewer people are eligible, therefore it doesn't mean as much. And I'm just, you know, again, it goes back to like rule number one of business economics, up is up, down is down. If jobless claims are low,

that's good. If they're claims are low, that's good. If they're going up, that's not good. Okay, so right now they seem, but they seem to be like kind of pinned. Yeah, the layoff rate is low. I mean, even, I mean, we have seen a lot of layoff announcements over the last several weeks, but believe it or not,

you saw a lot of layoff announcements this time last year too. So they're all in the same two industries. They're all in media and tech. That's it. Yeah, it's hard to know, right. It's hard to know ex ante, whether that's the start of something more onerous or just a seasonal thing. I was going to say to you, like, Home Depot is not announcing mass layoffs.

Trucking companies are not announcing. Yeah, it's been contained. I mean, trucking companies are signaling more growth ahead, I think. Right. So it's Sports Illustrated, which is really noticeable, anecdotal. Everyone knows the brand. Everyone's sad about it. That doesn't translate into the unemployment rate. It's tech, media,otal. Everyone knows the brand. Everyone's sad about it. That doesn't translate into the unemployment rate.

It's tech, media, and startups that were overfunded. Yeah. So where do you think the Fed is today in relation to the economy and rates? So if you look at the CME target rate probabilities for the March 2020 meeting, just a month ago, there was a 75% implied probability that they were going to cut. And now that's all the way down to 40%. So the market is suggesting that the Fed is going to actually stay put in March. Obviously,

the stock market has discounted rate cuts, for sure. This I think. Where do you think the Fed is today? So I think right now, a lot of them, I mean, in my view, I think people are kind of conflating the timing of the first rate cut with how many cuts the Fed ends up doing. And I think those are two separate conversations. My own view, and I know that it's not the consensus, I do think the Fed will go in March. I think they'll go in March because I think inflation is cooling a lot more rapidly than they think. Core inflation has already been below 2%

for the last six months. You see rents are now coming down pretty fast? Demand for rent is coming down fast? Sure, rents are moderating. That was the big one, right? That was the stickiest one. Absolutely. And then we've seen a lot of multifamily completions

come on this year. Okay. And I think've seen a lot of multifamily completions come on this year. Okay. And I think inflation expectations are also cooling because people are paying less for gas. And I think they're also not paying as much for food. Neil, in a world without the stock market, maybe a cut would be a no-brainer. But doesn't the Fed also have to balance the idea that, okay, we should cut, but if we do, does the NASDAQ go directly to 50,000? Like, is that part of their thinking or should it be? I think at this point it should not be. I think that was, I think part of that is fighting the last war because it's, you're concerned about

the stock market being too strong. As a wealth effect generator. Yeah. But when inflation is really strong, right? Like, so they were really worried about financial conditions when, you know, inflation was like running 3x their target. But so to me, think about it as a triangle, right? You have unemployment, like the labor market. You have inflation.

And you have financial market conditions. I think they can basically say that the labor markets are rebalanced for all the reasons we just talked about. Inflation has been weak. That's just in the data. So why should they care if the stock market goes up?

Because they don't want to. Can I answer? And I'm not saying I know anything. This is what the answer would be to you. The Greek chorus would chime in at this point and say, because they don't want to undo all of the progress that's been made and open the floodgates to a repeat of late 70s. And that's the boogeyman. Yeah, but a rally in the

stock market is not going to keep inflation current with mortgage rates falling and renewed demand for housing, which we're seeing again, I don't think rents will turn around that quickly. Inflation by its nature is a very, very slow moving process outside commodities. If the Fed lowers rates, the IPO window opens, the stock market goes nuts, housing activity booms, you can get another reacceleration of the economy real quick with an overheating. But let me ask you this. Well, wait a minute. Do you agree with that or no? I don't think it'll happen as quickly as you're saying. But I think what you're talking about, I don't necessarily disagree with you, but I don't think that keeps the Fed from cutting.

It just keeps the Fed from cutting a lot. But let me ask you this. Has there ever been a scenario where the stock market is at an all-time high, GDP is growing, retail spending is high, the labor market is relatively tight, and the Fed cuts? Has that ever happened before? Why would they cut? I mean, 95, 96, you had a recalibration of policy and the stock markets did reasonably well. Lagarde just confirmed the first cut is this summer. She's being more explicit, I guess, on the timing than our Fed. I mean, that serves as confirmation that they're probably not going to move disparately from each other. Well, I think the ECB probably needs to cut a lot more than the Fed will have to.

Why? Their economy is very, very sluggish. Yeah. Let's talk about housing. So you shared a chart with us that shows builder sentiment against new home sales. Describe this odd situation that we're looking at. Well, it's interesting. Home building stocks have generally been on a tear over the last- Amazing year, last year. And it's kind of interesting because obviously rates are quite elevated. It's a supply story.

Well, there's no competition in the resale market and builders are in the business of selling homes and that's what they're doing. And so, yeah, my own view is that, I mean, you should see new home sales rise for a few more months. But I do think if the Fed starts cutting and mortgage rates come down and the curve is a bit steeper than it is now, you should see mortgage spreads compress. And that could unlock a lot of inventory in the resale market. People might feel a little bit better about putting their home up for sale.

But it's not going to offset demand. No, I don't think so. I think demand will be there, but builders will be facing more competition. Do you think we have to just permanently get accustomed to a world where housing inventory ricochets between one month and three months

and this is just what it is now? It's like a different world for housing? I mean, we're chronically underbuilt. So yeah, I mean, I think it's going to be? I mean, we're chronically underbuilt, so yeah. I mean, I think it's going to be. I mean, inventory is going to be a persistent problem. Logan Motoshami said we're short six million homes that we should have because of the lingering effects of the crisis, something like that.

Seems like a really big number. I don't know if that's the number. I think that's on the high side. So maybe he said three, and I just made that up. But we are in an excess sort of units for demanded. I was talking to somebody the other day and she said that she was really eager to buy a home now before rates start to come down because she's afraid, probably rightfully so, that there's just going to be a flood of buyers lining up. I mean, we've seen it multiple times in the last year. If you get a modest decline in mortgage

rates, you see a big pickup in purchase demand. You saw that last week, right? Yeah. And you saw it. And also this time last year. Okay. All right. Rent. We just spoke about that, but John, chart on please. Rent is coming down dramatically. This is objectively good news. No? I think falling inflation, given where it's been, is good news. Yes. Do you think it's possible, or of course, I don't think it's possible, how likely in your estimation is it that if we were to get a recession in 2024, that it's going to be from the delayed impacts of higher, tighter costs of capital? Or do you think it's going to be something that we don't see coming? I think it's going to be something you don't see coming. I don't really buy much into the long and variable lag story. I think the lags are actually short

and quite predictable. And you see that with how people behave with respect to housing, right? I mean, rates come in a little bit and the activity starts up right away. So if rates were going to impact people's spending and the labor market, it probably would have happened. Right. Well, there's two aspects to the long and variable. I mean, no one can quite quantify it. Like sometimes the lags are six months, sometimes they're 18 months. I mean, I just don't think that that's how it works empirically.

And then people also think it's kind of nonlinear, right? Like, so the economy absorbs it for 18 months and then all of a sudden it just stops absorbing it. Well, the question is the transmission mechanism. If your story is that the consumer will react to higher rates, then you have to demonstrate that the consumer is dependent on short-term rates on a regular basis. And post-COVID, of course, they weren't. If your story is that rates are going to trigger layoffs,

which will then in turn affect consumer spending. And so that's the lag. You get fired, six weeks notice, then you're out of a job, then you're looking for a job and you're not spending. And so that's the lag. You get fired, six weeks notice, then you're out of a job, then you're looking for a job and you're not spending. But we didn't have either of those things. We had a consumer who was just fine in terms of liquidity, number one. And then number two, nobody got fired. So it's not even a lag. It's a non-impact, which is amazing. But I think what we're getting at is that the economy, if you look at like bank loan and leases relative to nominal GDP, it's basically been flat, believe it or not, since 2016. So that means that at the margin, this is more of an income-based economy than a credit-based economy. So if the Fed's tightening credit, they're not actually having as much of an effect on the economy.

That would be a super powerful Fed if they actually could reach into your W-2 and adjust you down. Well, that's, if you want to actually get in, I mean, inflation- You can stop inflation dead in its tracks. Well, that's, I mean, one of the things I've said in client meetings is that if you really wanted to get,

I mean, this is when inflation was a much worse problem than it is right now. But if you really wanted to get inflation under control- Taxes? The government would go in and claw back all the money that they gave people during the pandemic. Yeah, that would do it.

That would never happen. You would also have a simultaneous civil war, which I think is disinflationary. That would be very politically popular. Speaking of which, Wises Thal tweeted this chart from you, Neil. He said, Nice chart from Neil Dutta

comparing you, Mish, consumer sentiment with incumbent vote share in presidential elections. We happen to have one of these coming up. If inflation keeps fading and stocks go up, very easy to imagine the orange dot continuing to move up into the right. So for the audience who's just listening, can you describe the chart that you made? Yeah, the chart is very straightforward. It's just University of Michigan consumer sentiment plotted against the incumbent share of the two-party vote. So all I'm looking at is Democrats and Republicans.

So, you know, for example, in 92, you had a big independent candidate that got a lot of share votes. We're kind of ignoring that. Yeah, we're ignoring that. Throw that out. Exactly. That's what the data is. I mean, it's statistically significant, obviously. Because it's such an outlier, right?

But what is it saying? It's saying that if consumer sentiment keeps going up, it's going to help the incumbent. So the polls are not bearing that out. It's incredible to me. Well, I mean, yeah, I'm not a political analyst. But, yeah, I mean, everyone I talk to thinks that Trump is going to win. Correct. You know what's different this time?

I'm a little skeptical of that outcome. You know what's different this time? The people who thought Trump was going to win in 2016 kept it hidden. That's why, although the polls were wrong, this time it's different. The people that think Trump is going to win not want him to win. Just the people that think he's going to win. They just say it. They're not –

There's no silent majority. Right. Right. So I don't know if there's going to be that much of a shock this time. I'm not a political analyst either, obviously. obviously. But one thing that's striking to me from our lifetime, George Bush

literally beat Saddam Hussein in war, not in pickleball, but like literally in 11 days, beat the shit out of this guy. Very little loss of life for US soldiers.

90% approval rating. 90% approval rating. And he loses the election to Clinton literally because of like – He raised taxes. Raised taxes and they had a little mini blip of a recession in 91. Like savings and loan – like so minor. You can't even see it on a chart if you look back now.

But that was enough for that entire victory, Operation Desert Storm, to just completely not matter. So that's how powerful. Well, momentum matters. I mean, momentum does matter. So the timing was a factor. Absolutely. Well, also, unemployment was going up during that period in 92. But even think about Reagan, right, in 84.

He had a sweeping landslide victory. But if you look at median household income, the famous quote of, are you better off now than you were four years ago? Believe it or not, median household income wasn't that much higher in 1984 in real terms. But the fives were. Absolutely. And also 1980 was just bad. Right, right. So that momentum is what matters. And all I'm pointing out is that, look, if the stock market keeps doing generally what it's doing, if gas prices remain low, if inflation continues to moderate, people will feel a bit better in the fall.

You might have to adjust your chart for the fact that it's an 86-year-old running against an 82-year-old. So you're out of consensus there, you think. Like you think most people right now on Wall Street think that they're penciling in Trump. Absolutely. Yes. In my client meetings, it's pretty overwhelming consensus. I have an optimistic take on that. This might be the first election we've ever had. It's two lame ducks running against each other. Like you pretty much know

if Trump gets in, he'll start strong his first 100 days. He'll do a lot of like fun stuff. And then the lawsuits will start and the investigations. And that'll be like a lame duck presidency. That's lame duck from day one. And Biden is literally a lame duck. Also, also, this is like a rare setup. It's a, it's a rare setup where you have a president, they have their four-year term, then they're away for four years, then they come back and they're facing another lame duck. So if you are of the belief that Wall Street wants less activity, not more out of either of these guys, it's probably what you're going to get. Maybe. I mean, the other way of what I was thinking.

Oh, or we just tear each other apart and, you know, it's the end of the world. It seems to me that it's probably if Trump wins, you're probably more likely to have like unified Republican government. Whereas if Biden wins, you're probably more likely to have like unified Republican government. Whereas if Biden wins, the Republicans have a pretty favorable map in the Senate this year. So that could be

a more divided situation. But if Trump were to win, you have unified Republican government. Anytime you have unified government in the first year, you're going to get

a lot more action than normal. You're going to get something. But what is the thing? It's not another tax cut. They're not even talking about it. Why not? It hasn't stopped them before. It's an Ethereum ETF.

I mean, so I do wonder a little bit about, I mean, people talk about, what do you think the tail risk should be? Is there some kind of exogenous shock? Well, what if you get a unified government, they come in, they start promising, and no one comes in promising to cut spending or raise taxes. Well, here's one thing.

The FTC will be gutted. Every one of these tech mergers that you can think of is back on the table. Sure. Tech, media, telecom, anyone can buy anyone. So that's probable. Right. Tax cut, I don't really hear a lot about the prospect of a tax cut, but I would imagine it's Republicans. Well, the Republicans want to make the TCJA permanent. When is that sunset? I think at the end of this year. Neil, I would imagine that Jeff DeGraff doesn't care about politics in far as when he's looking at charts, he doesn't care about the White House or Congress or anything like that. But, and I would agree, politics and the stock market, this is a deadly cocktail. They should be separated, heavily separated.

But it does impact the economy. Like, policy can impact the economy. Absolutely. But we front-run it. What do you mean we front-run it? They passed the Tax Cut and Jobs Act at the end of 2017. The S&P went up 30%. No, no, that's my point.

I'm saying— We front-ran the whole thing. Then it happened. Then 2018, the market was flat. But Neil's not analyzing the stock market. Neil's a business economist. So you have to- I'll let Neil tell us what he's doing. So go on. Well, I definitely agree that, I mean, if you go back to 2017, every time it looked like they were getting closer to making a deal on the tax cut plan, the stock market went up. And if it looked

like they were getting away from a deal, then the stock market went down. So there was a lot of this sort of headline trading around what was going on in DC. So it absolutely does matter. What I think people waste too much time with is just these sort of every election season, you have this litany of stuff coming out from the sell side. Like, here's my Democratic stock basket. Here's my Republican stock basket. But you get why they do that. It's fun. Well, I think it's a waste of time for their customers. Yeah, sure. But you get on CNBC.

You get in Barron's. It's part of the— Maybe you should tell the producer at CNBC not to put those people on. Get on your soapbox. Let's talk about sell-side research. And be very personal. Oh, no. I can't do that.

It's just— What about it? I mean, I've been on the sell-side my entire career. No, so generally't do that. It's just, we're just working out. What about it? I mean, I've been on the sell side my entire career. So generally speaking, just kidding, but generally speaking, what's the issue with sell side research today? Because a lot has changed. I think one of the historic complaints

about sell side research is that everyone's bulled up and everyone's trying to promote the banking business. That does not seem to be the state of sell-side research today. I feel like people have been more bearish than bullish, but maybe I have that wrong. Well, I think there's also a lot of independent sell-side research that's come up, right? So I think that's a big part of it too. And so in many cases, those people that are on the sell side, they don't even have banking relationships.

Right, it doesn't matter at all. Yeah, none of that stuff matters for them. They don't go on these roadshows and things like that. They're just putting out research. And so I definitely think that it's been more democratized. Like anybody with a laptop and a bunch of emails can start sending stuff out. And you have Substack and whatever else, and people can do all that. And so I think there's been some benefits to that.

It's very noisy. I mean, you have lost a little bit of the gatekeeping as a result. Was the gatekeeping good? Should there be more gatekeeping now? Or should best ideas win and let it be really messy? Let it be messy. I'm more of that frame. But again, that's perfectly not Frank.

That's at my own personal cost, right? Because the more you democratize that, I mean, if you look at what the street pays for research now, it's substantially lower than it was 5, 10, 15 years ago. But it's also being paid for differently. Sure. It used to be paid for in the form of soft dollar or trading revenue or – You still have some of that for sure. Some, but to your point, there are a lot of people that don't have a trading desk

attached to their operation selling subscriptions to research. Right. And you're also branching out. It's not just institutional. You're doing more private wealth management. Do you read other people's stuff or do you try not to

just so it doesn't infect your own thinking? Like what's your attitude toward like sharing ideas with other people in your seat? I like it because I think that makes you a better analyst. Like you want to hear what the other side has to say. Okay. Do you still read like Rosie and the people that you came up with? Well, I mean I will sometimes read Rosie. I don't always read him.

I like Jan Hatsias. I think his work is very, very, very interesting. But I do read competitor research for sure. Before we let you get out of here, what are you most interested in? What outcome are you most excited to see about 2024? What are you looking forward to? I'm looking forward to a continuation of what we have been seeing, which is stocks keep going up.

Do you think that, do you think as an economist, do you think that arguments about valuation really just come down to whether or not there's enough economic growth to justify continuing to remain at these levels? Or do you think that that's just a totally disassociated thing that people shouldn't conflate at all? Like the state

of the economy relative to what price multiple people are willing to pay for the S&P? I mean, I haven't found the valuation to be a particularly useful tool to tell you about what's going on with equity markets. So I don't pay much attention to it. I think, you know, but when I look at it, you know, take, I mean, it looks like valuation is, you know, the market's less valued today than it was in 2022 when we were making highs. Right. So what do you think is the biggest risk to stop the stock market continuing

on its current course this year? Is it that things get too good, forcing the Fed into an about face, or is it something that we're not thinking of? I think the most obvious one is that. Is that you basically have inflation reheating more quickly than people expect. And as a result, the Fed will have to step back in and take-

So it's not the scariest risk. It's the one that you think is the most likely. If you had to like force rank all the things that could go wrong, that's the one that you think is the highest probability. Yes. I think Michael's on the same page. I'm also a business economist.

And there's also obviously, you know, people are watching what's going on with the Red Sea. Does that translate into inflation more quickly? Unknown, unknown. Yeah, that's something else. And, you know, I'm sure by the end of, once Labor Day is over, we'll all be talking about the election. What's the best part of your job?

What do you get the most satisfaction of on a regular basis? Being right. Okay, it's important. Because I don't stick my neck out often. But when I do, and it was the right thing to do, that is gratifying. I'm not going to lie. Okay, so right now the right thing to do, that is gratifying. I'm not going to lie. Okay.

So right now the consensus seems to have come a little bit closer to your side? Yeah. If the Fed ends up cutting in March, I'll be doing tap dances all over the place. Because that could extend the bull market basically. Well, sure. And people were kind of – at the end of last year, I was like, yeah, they're definitely going in March. And everyone was kind of coming in the market. And now it's like, oh, it's 40%.

The odds have come down. But again, I just – if the inflation data come in a week over the next couple of weeks, then I think March might be back on the table. So if they go in March, I'll be a happy clown. As you might imagine, we have a lot of listeners who are young and would kill to be in your seat. They would love to have like – they would love to work on the puzzle every day and talk to institutions and smart people and learn about the economy. What's your cell phone number? How do they call you? How do they get in touch with you?

What would you tell people that maybe they're in the HR department at Bank of America right now, or maybe they're like the third guy on the totem pole at a hedge fund? Like what advice would you give that component of our audience who wants to someday be where you are? Well, I just think it takes time. I mean, if you're... Yeah, we don't like that answer. What else? What's the faster answer? No, seriously, like what would you tell people to get into the habit of doing? Or what would you tell people is the right path? If you have a good idea that no one else is talking about, get the evidence to back that idea up,

and then make your pitch. If you're doing that, you'll stand out and be right and get recognized. Okay. Did you have fun on the show today? I it all right the crowd's going wild we loved having you here thanks for having me i want we're going to do favorites before we let you get out of here but i just want to congratulate you on your profile is up you you've been right you've helped people navigate this market you've been constructive it's an awesome time for you. I appreciate that. We're about to hit a brick wall, as you know.

No, it lasts for however long it lasts, but I hope you're having fun. Are you going to do a book? How are you going to parlay this? Because now is the time. You don't want to- I don't, I mean, I would love to hear how you think I should parlay it.

I mean, doing stuff like this is, you know, it gives me a lot of satisfaction. I've got a three-point plan for you. But- You have to do a, listen to me, you have to, you've got a three-point plan for you. Listen to me. You don't even have to write it. We'll get AI to write it. You have to do a book right now. Now is the moment.

I mean, yeah, I don't know. I feel like the pandemic has been a period where it's kind of made or broken a lot of people in our business. I mean, you had people thinking that things were just going to fall off of a cliff of people in our business. I mean, you had people thinking that things were just going to fall off of a cliff in the spring of 2020, and it didn't. And I remember in the middle of April 2020 basically saying, no, it's bottomed. It's bottomed. This is it. Like, things are, I mean, up is up.

I just kept going back to that. Up is up. Well, it's a small group. Belsky's in that group, Tom Lee. Right, but I think, again, I mean, I do think that there is an element of people that are just always negative. And, you know, the bearish case, I mean, my friend Joe Weisenthal makes this point all the time. The bear case always sounds smarter, but that's not necessary. makes this point all the time. The bear case always sounds smarter, but that's not necessary.

I mean, to me, I think for investors, it's my, I mean, I don't know if this is right or wrong, but I think it's much more important to be invested all the time than to always protect against your downside. If that's all you're doing, then you're going to miss more opportunities. I love that you said that. I answer this question in various forms all the time, like how to hedge. Well, just don't, the portion of the money that you need, don't invest it. That's the hedge. And then the rest, hey, you're at risk. You could change the type of risk,

but you're still at risk. You're invested. The bearish inclination, it's self-interest. I think there's a much larger audience of potential clients that will pay you to protect their downside. It's very simple. Nobody needs you to tell them that everything's okay.

Yeah, maybe. But I mean, it's a cynical view of the world, but it's true. If I tell you over time, GDP grows over time, incomes rise over time, the S&P 500 is up three out of four years. Then why do I need you? Then tell me something else. A lot of times the real value is being out of consensus and bearish. Like that's like, yeah, but the opportunities for that, I mean, in many cases, when you do that, you're wrong, wrong, wrong, and then spectacularly right. And

then, I mean, and then you do the book. Well, that's the thing. What I don't want to, what, what, you know, we talked about earlier in the program about how these, a lot of these folks are right about one thing in 2008. Well, I mean, there's actually research on this. People that have been right about one big thing are usually wrong about most everything else. That's a really good point. And then the other thing is,

they're walking around with a hammer and everything around them looks like a nail. It's always the next Lehman. I'd rather be right about a lot of little things. There you go. I love that. Well, thank you so much for doing this. We always end the show with something called favorites,

where we give the audience something that we're reading, listening to, watching, like really anything. So I'd love for you to go first. What should our audience know about that you're into? Well, my wife took the kids to my mother-in-law's over the weekend. Oh, shit. I like where this is going. Turn the lights down. Well, no. I mean, I finally had an opportunity to actually watch a movie because normally

what my wife and I watch is just trash TV. How old are your kids? My oldest is seven and I have twins, boy and girl, that are five. What's trash TV? Like Love is Blind? Love is Blind. Thank you. Real Housewives. Because you can't get deeply into anything. Well, I mean, it's just like I could be on my phone looking at the markets, look up,

it's just two women yelling at each other. It's great TV. Yeah. But when she took the kids and I watched Dumb Money. All right. Which I really like. And I finally got around to watching The Case Against Boeing on Netflix, which I thought was fascinating.

I didn't see that. Because Scott Kirby, who is the CEO of United Airlines he came out I think in the last week and he's like well what do you think went wrong at Boeing and he was like well it's when they merged with McDonnell Douglas that's when everything went to hell and that was literally the thesis of this

documentary industry insider confirming so I thought that was really interesting what did you think about Dumb Money? I loved it. It was a great... It was fun, right? It was a fun movie, yeah. Do you think it accurately captured the period? I do. I kind of feel like they did a pretty good job. No, I... Yeah,

it was good. I thought Seth Rogen was hysterical in it. As Plotkin? Yeah. Okay. It was good. Alright. Michael, what do you got for us? Jared Dillian has a new book. It's called No Worries, How to Live a Stress-Free Life. And I'm early, but it's, Jared's a great writer.

He is definitely a unique voice. He says what's on his mind and I am a fan. Jared is the author of Daily Dirt Nap, which is a pretty big newsletter and he's been at it for a long time. All right, very cool. I re-watched Band of Brothers, and I was telling Michael about how good it was last night. They made this thing in 2001, and I was

like a kid. With Mel Gibson? No, it was an HBO miniseries. It was a 10-part miniseries. It's everyone. It's like Spielberg and Tom Hanks producing, and the cast is absurd, and Damian Lewis really became a star

prior to Billions from Band of Brothers. Anyway, I rewatched it because I don't think... You were the star of that show. I was the star of that show. I don't think that I really got it the first time I watched it, so I went back and rewatched it, and you know where I'm at in my life right now? As everyone here?

Am I the oldest person in the room? I'll thank God you're up. All right. I'm just doing quality from now. I'm 46, turning 47 next month. I like the novelty of new things also, but still. Watch Bone Tomahawk.

I'm running out of, I feel like I don't have unlimited time anymore. So I just want to watch and read the absolute best that there is. I don't want the third best. Money out of time. Chill out. That's how I feel, though. You will watch the third best horror movie on Netflix.

Ninth. The ninth best. Right. I will only watch, like, is this amazing? Is it a masterpiece? Okay, I have time for it. That's just where I'm at. It's a little bit of a mental shift.

I love it. So I don't know. I don't know if'm at. It's a little bit of a mental shift. I love it. So I don't know. I don't know if that's helpful to anyone. I'm still a junk guy. Duncan, Band of Brothers? Actually, never saw it. You missed out on it? It's on my list.

Pretty incredible. You would love it. I'll check it out. So, all right. Hey, guys, I want to thank you so much for listening to the show. Hey, everybody. Hey, everybody. Special thanks to Neil Dutta.

Neil, we want people to follow you who haven't really been aware of you yet. So I know that your fans know you're on Twitter. How else can people find your stuff? LinkedIn? LinkedIn. You can always look for me up on LinkedIn. You can go to at RedMac LLC.

That's your Twitter. And any plans to go any further on social or just keep it to LinkedIn and Twitter? Keep it to LinkedIn your Twitter. That's your Twitter. Okay. And any plans to like go any further on social or just keep it to LinkedIn and Twitter? Stay the course? Keep it to LinkedIn and Twitter. All right. That's what I would do. That's the way to go.

Did you want to hear the last two things that I was going to pitch you to do after the book? Sure. Okay. Do the book. Sex tape. No sex tape. I mean, I wouldn't stop you. Do the book.

Listen to me. Start getting into the habit. When you're writing, when you're writing, just do a quick social media video. I see the videos that you guys are doing and they're great. I mean like 30 seconds. Hey, it's Neil. Today I wrote about blank. If you want to hear more of my thoughts on this, check out my LinkedIn and just start dropping those on your channel.

Okay. And then the third thing I think you should do is be really aggressive about the people who got the economy wrong. LinkedIn and just start dropping those on your channel. Okay. Okay. And then the third thing I think you should do is be really aggressive about the people who got the economy wrong. Like I think a feud, a little feud, not with somebody that you really care about, but just like mix it up a little bit. Like just get it. You need a nemesis. Everyone needs a nemesis.

Well, there are plenty of foils out there. Absolutely. All right, dude, you're the man. Thank you. We're so thrilled to have had you on the show. Thank you so much. Guys, everyone follow Neil Dutta. Thanks so much for listening. Make sure to leave us a rating and review. They go a long way.

We really appreciate them. Great job this week. John, Duncan, Rob, Nicole, Sean, Daniel. Big, big team effort. You guys really crushed it as usual, so thank you so much. And everybody else, we'll see you next week. All right.

So that was the warmup. I wanted to get a sense of like, what this is going to be like. Um, you want to start recording?