The Compound and Friends - Is Neil Dutta Too Hot???

Episode Date: July 12, 2024

On episode 149 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Neil Dutta, Head Economist at Renaissance Macro Research, to discuss: the Federal Reserve, small caps catching a bid, how worried we should be about recession, the economic implications of the presidential election, and much more! This episode is sponsored by Kraneshares. To learn more about their KFA Mount Lucas Managed Futures Index Strategy (ticker KMLM), visit: https://kfafunds.com/kmlm/ Consider the fund’s investment objectives, risks, charges, and expenses, which can be found in the prospectus online at kfafunds.com/kmlm. Read the prospectus carefully before investing. Investing involves risk, including loss of principal. KraneShares are distributed by SEI Investments Distribution Co. and are not affiliated. Sign up for The Compound Newsletter and never miss out! https://www.thecompoundnews.com/subscribe Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ 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. 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

This is Neil Duttaday. No, because everything you've been telling us, like all of a sudden, everyone agrees with all at once. Was that good or bad? No, that's hot. That's hot. Now, now, now you're the guy. Once again, you did that once before.

My favorite email today, subject line, get on with it. Neil's email, the doves have what they need. It is time to cut. Yo, but there's nothing else in the email. That's it. Yeah. Well, I think that's else in the email. That's it. Yeah. Well, I think- So that's a tweet that went to everyone's inbox.

Well, those emails, I mean, it's just meant to get attention. Like for our clients, I'll go into like, here's what the data did, and here's what I thought was interesting. But so how many people are receiving a note like that? What should, you don't have to give me exactly. Those notes, I mean, those are sort of, I mix it up. Like sometimes I'll actually put a link

to my formal research in those notes if I think I'm writing something interesting. But most of the people on that list are media people. Right. So I think it's important to say something sort of with flair and just all caps and... So the media people want to hear from you today, most of all, because they have to explain what's going on on the screen. And there's a lot of weird shit going on today.

Well, yeah, but also I think because I've been very vocal, I think relative to other street economists, about like the feds need to just get on with it. Yeah. It's just like, it's just kind of ridiculous, I think. And, you know, I was watching Bloomberg this morning and I think Jonathan Farrow, he reads something that I wrote and the two of them are just like, well, you know, that would be if they went in July, it would be a panic. And I'm sitting there thinking like, why is that panicking? Yeah, I don't agree with that.

The market already knows the Fed's going to cut. So what, you're telling me if they go, like, two months in advance, it's like a panic? So it's not panicking to do it in July, but using July to set up September and three cuts for the rest of the year, that's fine. To their point, though, the Powell Fed does do the setup meeting.

They do do that. So if they all of a sudden don't, they do this thing where they know they want to move and then they like set everybody up, they change your expectations so that when they do it, there's not an outsized reaction in the market. No, I understand that. But I don't think, I mean, to me, effectively, if he, okay, let's say they don't go in July and they just use July to set up September, but it's essentially a dovish hold at the meeting in July.

Like is there any real difference? A dovish, you like the dovish hold? I just ate too many donuts. All right, guys, let me play you something. That's supposed to be. Oh, you gotta put your things on. Oh, sorry. Well, I shot the Jonathan Farrow, he's a proud, he's a bald, he's a baldy.

That's our guy. That's my balds. Are you listening? That's supposed to be a little bit Democrat territory, but we're leading in Nevada and a waitress came over, beautiful waitress, and I never liked talking about physics because she's beautiful inside. Because you never talk about a person's look ever. You never mentioned the other day day I got very angry,

some man called Chris Christie fat. And I said, sir, and then he said he was a pig. I said, sir, Chris Christie is not a fat pig. Please remember that. He is not a fat pig, please take it back. And the guy's looking at me like, really? No, we have to defend people. You can't't call people fat so I said about nine times he is not a fat pig all right so that's the the that's the former and and next president

and future is he the next president I don't so we're not gonna do a ton of geopolitics please stuff today in my client meetings whenever we start talking about the election I say that's I have one thing. In my client meetings, whenever we start talking about the election, I say that's, I nudge to my salesperson, it's time to wrap up the meeting. You agree with me though that, yeah of course, it's almost obligatory though, somebody has to ask you something.

You agree with me though that like the markets are basically, have fully adjusted to the reality of the next Trump presidency, and they like it and they're good. Yeah, I think the markets, mean it certainly amongst our client base I think it's overwhelming that they think that Trump is gonna be the markets the markets Continuing to do what it's done prior to the debacle on TV. It's not like that. The market has changed course that much I know the next day there was a reaction in the market. Yeah, it's more the same last time you're here actually

Why is this all tweeted this nice chart from Neil Dutta. This is back in January comparing UMich consumer sentiment with incumbent voter share in presidential elections. If inflation keeps fading, you remember this chart? Yes. If inflation keeps fading and stocks go up, which has happened, very easy to imagine the orange dot continue to move up and to the right.

And the orange dot is the incumbent share of two-party votes. That ain't going up and to the right. Speaking of orange, yeah, no, I mean, who knows what'll happen. So you don't have, you don't entertain those conversations. I try not to because I think in the broad scheme of things, I don't add any value.

I mean, everyone has their own political opinion. Yeah. And you know, we all try to game out the political horse. No, I agree, but a reasonable person could say, is there a change to your economic forecast if one party wins Congress or the White House or both? And your response would be maybe, but I... I'd like to see it first, right?

I mean, you are getting this question a lot in the sense that like, okay, why should the Fed cut if Trump is going to win and he just embarks on this massive stimulus program? I mean, to me, that's sort of okay, but you can only fight one thing at a time. Let me give you a real one, though. Tax Cuts and Jobs Act sunsets at the end of 2025 if Trump is not in the White House to

sign it and extend it. That's a huge difference maker, at least for stocks, because you're talking about the corporate tax rate going from 21% back to 28. You're talking about Biden's four times excise tax on buybacks not happening. So like, it's not maybe a huge economic impact, but definitely a stock market impact. No, no, I don't disagree with that. But I think if you're the Fed, you shouldn't try to front run potential political outcomes. I agree with that. You just have to, you know, You just have to kind of respond to the here and now, like what you're sure about. Well, let me ask you this, and let me just say, your arm is looking very swollen today. Yeah, what are you doing? Are you doing a lot of like a lot of...

I'm, Warren, if you're listening, I'm putting a fork, I'm putting my claim. Warm pies. I will not let Warren be the most jacked guy in macro. Warm pies. No, no, I'm putting my claim. I will not let Warren be the most jacked guy in macro. No, no, I'm kidding. So, do you think... I think he still is, but I think you're now in the race. On a brown person adjusted basis, I think I'm getting there. Do you think it's fair to say that?

There's an analogy. Can we hear the workout at least? You asked. Can we hear? What are you doing? I think it's actually... Are you doing deliveries for Amazon? No, it's- Okay. What, don't laugh at him.

Go ahead. Eat steak and eggs. Okay, check. And lift heavy. Okay, waffles also with the steak and eggs? No, eat steak, okay. The president's role within the economy, more or less impactful than a baseball manager?

Oh, I like this question. But like, is that directionally right? Like, yeah, they have influence in certain cases. Well, sure. I mean... But they're not going to win or lose the game, generally speaking. I don't think they make or break the economy because I think there are so many things that are, you know, there's so many moving parts. But you know, if you think about this election, right, if Trump wins, you probably have a unified government.

If the Democrats win the White House, you probably don't. So I actually think that the first thing is what's going to happen. Right, I don't disagree with that. And I think that's really interesting because... We're not going to spend a ton of time on that, but we will touch on it later. If we don't start the show in the next two seconds, Nicole's going to throw this clip... What do we call that thing? Alright. Nicole, what episode is this?

Alright. Oh my God. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnik, 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 RIDHOLD's Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Crane shares and their KFA Mount Lucas Managed Futures

Index Strategy. The ticker for that is KMLM. All right, listen up. On today's show, we spoke with Neil Dutta about the market's reaction to the CPI report, mostly the stock market's reaction. But if you're considering a strategy to diversify away from the stock market, managed futures are truly uncorrelated. Why? That's because they can go long or short commodities like wheat or sugar, fixed income, whether that's Canadian bonds, Japanese bonds, they can also go long and short global currencies.

So to learn more, visit the link in the show notes. We do this one without Duncan, but Duncan is here in spirit. Yes. All right. Ladies and gentlemen, welcome to the greatest investing podcast in the world. Your host downtown, Josh Brown, with me as always, Michael Batnik. Hello, hello. Nicole is here.

Daniel is here. John is here. Rob is here. I have a special guest in the house. Hunter Hohen is here. And of course, our special guest, Neil Dutta. Neil is a partner and head economist at Renaissance Macro Research with an emphasis on analyzing the U.S. economy, the Federal Reserve, global trends, biceps and triceps,

cross-market investment themes. Prior to Ren Mac, Neil spent seven years at Bank of America Merrill Lynch, where he was a senior economist covering both the United States and Canada. Round of applause for Neil Dutta, ladies and gentlemen. All right, guys, this is, I said this before, this is the literal best timing we possibly could have had to have Neil on the show. Everything that you have been saying the Fed ought to wake up and pay attention to, it seems as though in the last couple of days, everyone

has come around and they now agree. What are we waiting for? Get on with it. Why wouldn't you be cutting rates? With every passing economic data point that surprises to the downside, it becomes more obvious. As you pointed out this morning, now we're starting to hear from corporations, Delta very notably, talking about softness. Like how much more evidence do you need to be able to definitively say the war on inflation is won and now it's time to ponder risks being to the downside? So everyone's starting to now agree with you. Right.

Well, I don't think you can ever be definitive about anything, but we know from what Powell has said that you don't need to be. He's told us many times that he can cut rates with inflation still above 2%. Yeah. So what's the point of waiting? And, you know, to me, it's really just about risk management, right? The Fed, at the end of the day, yes, they have this dual mandate, but at the end of the day, they're a risk management enterprise. And at the end of the... I mean,, for me, like downside risks are rising.

The unemployment rate is up. It's been rising a tenth of a percent every month for the last three months. The last time that happened actually was in 2016. And we remember in 2016, the Fed started the year saying that four hikes were in the ballpark, remember? And then they ended up only going once. So the unemployment rate is up. Whenever the unemployment rate goes up, it should always get the attention of everybody

because unemployment is the risk is always that it's nonlinear. Once it goes up, it tends to keep on going up. You have a lot of this kind of rationalizing, well, it's because participation is up, a lot of people are looking for work, and that could be a good thing. I don't really care. I mean, at the end of the day, there are more people competing for available jobs that puts downward pressure on the wages of those that are working. And now you're seeing it as we saw this morning.

Let's talk about this morning. So the proximate cause for what we opened the conversation with was a June CPI number, which was cooler than expected. It fell 0.1% last month versus May, which is meaningful. The annual inflation rate is now down to 3% even. Economists were looking for the consensus was plus 0.1%. So I guess, what's the right way to phrase that? It surprised the downside by two tenths of a percent on the headline. Yes. Yeah core CPI came in at 3.3 percent annual rate

Which also was lower than the consensus This is building on a lot of other economic data though that we've gotten since May Shelter inflation is important, but we've seen so much confirmation of Things cooling off elsewhere that today They decided this is going to be a major catalyst for small cap stocks for example like all right, right? All right, if we were worried about if we were worried about Rates not coming down. We don't worry about that anymore because they definitely will that's what it looked like when you looked at homebuilders Anything related to mortgage prices, et cetera.

Sure. What was your take as soon as you saw that CPI and then sent six or seven emails out? Well, I was in my office at home and I was sort of like, yes, because I just felt like there was a number like this that was just out there after the first quarter because the last time I was here I was saying, well well maybe the Fed will go in March and obviously I think that was a good call frankly even if it was wrong. But you just knew that there was a

month that was going to come at some point soon where you just had the stars aligned right you see the shelter inflation crack you see goods prices disinflate and you put it all together and you get a.1. Why does the shelter inflation cracking become so meaningful now? Because that's 40% of CPI. And it was the stickiest part. Well, shelter prices, like when a landlord sets your rent, the idea is that they set it with expectations

for future inflation in mind, right? That's why it's considered a sticky price by most economists. So if it's cracked, it's not like it's gonna go from.3 to.8 next month. It'll probably keep printing at.3 or.2 at this point. So that means that you have- Can you talk about that?

These things have a momentum of their own. Correct. Where once they're headed, and this is the scary part, because you can say that about unemployment. Like, it's really rare that unemployment backs off of a 50-year low and ticks up, but then stops on a dime. Historically, it gets worse and worse and worse and then gets really bad. So maybe that's the most interesting thing is that, okay, we're in a good place.

Let's hope we don't soften much more, but nobody has control over that. Yeah, I mean, usually it just means that you have some vulnerability and that there's a shock that comes that you can't foresee. But when you think about, you know, for example, the SOM rule, that's something that's gotten a lot of attention lately.

What is that for people that don't know? That's basically when the three month average on the unemployment rate is half a percentage point above the 12-month low three-month average on the unemployment rate. So whenever that's half a point, you're basically, it's essentially a confirming indicator of a recession. Doesn't, it's essentially, it's got a strong hit rate

for previous recessions. Whether that actually works again remains to be seen. Nicholas and I talked about that. What makes that such an interesting indicator is that most people talk about unemployment data as though it's severely lagging, but that's a way to take recent data and make it almost real time. Yeah. I mean, I think the reason Claudia came up with that indicator, if I'm not mistaken,

is because it's sort of a way to signal to the fiscal authorities, like, maybe you should think about doing something counter-cyclically. But to me, it's just a useful, rough-and-ready indicator, and it just, I think what's important about it is that it shows you that there are nonlinear risks related to unemployment. And so, you know, one of the things that I've been hearing from the Fed is that we have so much time. We can kind of game it out, and we have to worry about our next move.

The truth is, I think, is that you never have as much time as you think. And so I think the fact that the unemployment rate is up, and as you mentioned, it's up like 60 basis points from its low point, that in and of itself should get them to think, well, maybe we need to just recalibrate policy here. Are you surprised that the market doesn't think

that today's data point has an impact on what they're going to do in July? Yesterday, there was a 95% implied probability that they were going to stay in July, and now it's 91. So it came down a little bit, not a lot. Yeah, I mean, I'm surprised a little bit by that. I definitely think the outcome of, I mean, if I was a dove on the FOMC,

I wouldn't get out from the table until you got Powell to basically agree to. What do you mean by that? I heard you say that on TV today. Not get up from the table, like, literally or metaphorically? Metaphorically, I mean, like, the Fed is a consensus-building institution, right? And so you put your cards out on the table

and you go through your discussion, and they're going to be hawks and they're going to be doves. If I was a dove, I would say, look, unemployment's up, it's up more than we think it's going to be up already, and core inflation is now resuming its downward trajectory after a couple of bad months. So it's possible that we could maybe have inflation come in weaker than we think.

So all the evidence is pointing beyond a reasonable doubt. And then, you know, maybe, right, exactly. And then I would say, if you don't want to cut this month, you need to go out there at the press conference after we're done talking and make a strong signal that a cut's coming. So let me ask you this on the signal. If the market expects them or if he signals in July that they're gonna cut in September, is the market, is the functioning of the economy going to front run that? In other words, like is what they do in September, will that have

an impact immediately or is it going to not happen until it trickles through beyond September? Like how fast will we feel that rate cut? I mean, I think if the Fed comes out at the end of the July meeting and for example, you know, right now they have in their statement modest progress on inflation. Let's say they say it's substantial. I think that would be good for equities, good for fixed income.

Just hearing that word. So the two year term's like rock. Hearing the word substantial progress. Yeah. Because that's like, oh, they're cutting. I mean, they may not be cutting. I mean, that would be a compromise. Okay, you don't want to cut,

but you need to say something that makes it more obvious that the inflation situation has know situation is improved more So the market doesn't wait, right? Like the market will front run whatever the stuff The two-year is dropping a lot. We went from four six today down to four or five That's a pretty good move and rate sensitive stocks Like these are having a massive impact in the stock market as much as the bond market So today there was a massive rotation. I don't know why Out of growth stocks.

So I guess I do know why, because obviously small caps are massively covered by higher rates, they're borrowing costs. Daniel, turn it on please. So if you look at, usually these stocks move in the same direction. We're looking at small caps versus small cap growth. Hold up, hold up.

Nope, next one. Anyway, it's a historic day. Small cap value, or small cap stocks are like 3.5% today Anyway, it's a historic day. Small cap value or small cap stocks are like 3.5% today. There it is. And the S&P is down 80 basis points or whatever it is down now. So really an outlier day, both in terms of this

and then looking at the Mag-7 or the S&P X Mag-7, I guess. Daniel, next chart please. The S&P 493 is up 1.4% today on top of the S&P 500, which is the biggest gap going back to say 2018. So this morning, the S&P 500 was negative, but 400 S&P stocks were up. Well, we had the flip side of that a couple weeks ago. Yeah.

I mean, so it's OK. It's a big day. So this has never happened before, where you have the equal weight index of the S&P up 1% and the S&P market cap weighted down 1% has never happened now. It's probably not gonna happen today because the S&P is down 75 80 basis points, but Massive massive massive rotation out of large and into small so Neil I think I think the meaning of this and and probably a lot of your clients like the The question that arises out of this is,

so obviously what happened today is severely counter trend, could it have legs? And you're probably in a better position to answer that than anyone else if you're paying attention to what you think the Fed might do and what you think the Fed might say. Because this thing is clearly not being driven by any change in fundamentals,

it's being driven by a change in sentiment. If they re-rate, small caps are selling a 13 times earnings. The S&P is 20. If they decide they're going to re-rate the Russell up to 15 times, that's a ton of alpha for people that are trying to allocate assets. Like if they're trailing the S&P and you give them the sense

that the small cap thing could keep going, they're going to load the boat. Yeah, well, I think so it's interesting, right? Because I remember earlier we were talking about the 1995 analog. And if you recall, in the late 90s, small cap stocks didn't actually do well. And we did have like recalibration of monetary policy, right? But if the call is small caps will do well, provided the economy is growing and the Fed is cutting a little bit, then that trade ought to have legs because I could see

a scenario where the Fed is probably cutting over the next three to four quarters. Well, also the rubber band between mega and small has been stretched so far to the downside that any upward relief you could see a spring shot. So one of my favorite stats earlier in the year is like, let's say 85%, 90% of S&P 500 debt is long-term fixed. With the Russell, I think it's like 60% floating, maybe even more.

So they're much more levered to interest rates. Short-term borrowing costs. The net interest expense of giant companies went down during the hiking cycle because all the cash in the balance sheet was off because they already gorged on debt in 21 and 22. So they were good. They were not impacted at all by the hiking cycle. Small cap stocks got destroyed. Sure. So this could have legs. The other implication is the leading stocks today were all home builders or most leading stocks,

which of course makes perfect sense because if mortgage rates come down, you could get a new housing cycle. That also has huge implications for the people you talk to because I can't think of anything else in our economy that's as meaningful to consumers as whether or not we're in a housing cycle. So if we're going to see mortgage rates with a six handle again, and people will not just buy new homes,

but they'll start buying existing homes again, and they'll start selling their houses, that could work wonders for a lot of areas like retail and renovation and building products. Well, that's the interesting thing is, you know, you mentioned home builders, and I mean, I accept that obviously builders are having a really good day today, but builders did so well with

rates going up. Yeah. Why? I mean, what makes people think it'll keep doing well as rates go down for the reasons you say, right? I mean, demand will go up, but you'll also get more inventories that the builders have to deal with in the resale market. So maybe they lose.

I mean, right now, I think builders have about 30% of the outstanding single family inventory. And normally, that's like 10% to 15%. So it's like 2% to 3% X normal. Here's the biggest winner in the S&P 500 today. Well, three of the top five are the home builders, Tol, Lenore, and Pulte.

The biggest winner is a company called Builders First Source. Here's what they do. They're a manufacturer and supplier of building materials. The company offers structural and related building products such as factory built roof and floor trusses. What's a floor truss? Wall panels, stairs, vinyl windows, etc. Shit to make houses. Do they do mud rooms? They better do mud rooms.

So there must have been a lot of short interest in that one in particular. Perhaps but either way, the knee jerk reaction is bullish for anything rate sensitive. Yeah, I mean I I have this weird view where I guess I think it could actually end up being more bullish for real estate brokers than home builders. Well, the real estate brokers and the mortgage brokers, many of whom are friends of mine,

they're saying last year was the worst year they have ever had in their careers. There'll be a tidal wave of refis if rates come down. Right, exactly. So that's why I say, home building stocks might be doing well today. But ultimately, if there's more resale inventory that's unlocked because sellers are going

to feel better about putting their home off for sale because rates have come down, that could mean that home builders lose a little bit of share. No one's interested. What you're saying might be 100% right, but it's almost irrelevant in the short term. Because it's just like rates down by home builders. No, no, I get that.

It's an algorithm. So all right. Same thing with utilities, right? Totally, yeah. So I want to go back to get on with it. All right, so now the CPI came out, the home building stocks went nuts. We saw what the reaction was.

People sold large cap tech. I don't think they sold large cap tech because there's like some negative. It's just it's an ATM machine. If you have if you have 300% gains in Apple and you want to go play a different game you sell a little Apple. I mean I don't think it's anything more than that. But now the attention of the market turns to the timing of the next cut. Is it July? Is it September? I think it's July. You think they're going to use July. You next cut. Is it July? Is it September? I think it's July. You think they're going to use July. You think they should go in July,

but they'll use it to set up September. If he says he's data dependent, he should f***ing cut rates. I don't disagree. Okay, but you're saying they probably won't, even if they should. Oh, you were the one who just said they want to set up meeting and...

Yeah, no, I know. I just don't think they should. I think they should say, we're data dependent. The data tells us that this is what we're supposed to be doing. Right. But they're not data dependent. Well, I think, yeah, I mean, I think it's a close call.

I mean, I definitely, 90% chance that they don't cut. Allow me to quote you to you. Today's employment report ordered firm up expectations of a September rate cut Economic conditions are cooling and that makes the trade-offs different for the Fed Ultimately, the unemployment rate is rising and that's what goes into the summary of economic projections We're ahead of the Fed's SEP estimate September summer of economic summary that okay several months ahead of schedule Powell should use July to set up a September cut.

So you're not saying he should cut in July. You just said it's close. I think it's a close call, yeah. So what in the inflation? The inflation numbers, I mean, one of the things I said after that is that if the inflation print comes in like 0.1 on core, then they should think about it pretty.

Is there anything inside of the inflation readings that has you worried that you think it's close? Because headline, everything, ex shelter, it's all pointing in the same direction. Is there anything that's super sticky that you're like, the job is not quite done yet? No. So why is it close?

Reasons? I don't know. I mean, it's sort of like... You had... You had... Michael, you wouldn't understand. Yeah. What's the market saying probability wise? I just told you. It went from 95% yesterday down to 91% now.

It's saying September still. Sorry, I think part of it is you had Alicia Levine on a couple weeks ago I think. Yeah, shout out to Alicia. She's a client of Ren Mac. And one of the things that she was saying with you guys is that, um, you know, it's just cause of this, like 1970s boogie man, like we don't want to get out in front. I mean, you still have people, like if they cut today,

that means that like inflation is going to like perk back up right away and it's going to make, it's going to be a huge mistake and all this. So, but not impossible. That's, I mean, it's pretty close to impossible. You can't soften financial conditions with a 25 basis point rate. But financial conditions are already super soft. Are they? If they're so, if financial conditions are that loose, why is the unemployment rate going

up? Yeah, Mike. Why is core inflation still slowing? All right, so some of the indicators. What's the line chart that shows, is it the financial conditions index? Isn't that pretty loose? But last time you were on here, you said the ISM is total bullshit. Is that bullshit too?

The financial conditions index? Because it's mostly the stock market. Well, I don't know that it's bullshit, but I think that we might be measuring it in the wrong way. I mean, is it... What's more important for the economy? Is it the S&P 500 or is it the Russell 2000? Right? So it's just things like that, right? Let me do you a favor. S&P 500. Really?

Yeah, my opinion. Well, I mean... The Russell 2000 matters to the economy? I think more people's experiences of the economy matched 2000. Because they're not Apple. I mean if you're saying what's a bigger influence or what's a better indicator? If you're a firm, well right, but if you're a firm and your stock price hasn't gone up, then a loan officer is not going to necessarily look at you and say, like, you have a lot

of collateral against which to borrow or anything like that. So it may not mean as much for you. So it's a question of, like, when you think about the stock market, the stock market can be a, like, sort of, like, this is like the sort of, what do you call it, the academic research, like, it's a passive informant, right? Is there anything the equity markets tell us or the equities tell us about the company that the CEO of that company doesn't already know? Is there anything about Apple's share price?

Yeah. Right. So there's that aspect of it. There's also the aspect of it as like a macro aggregator, right? Like, so if the stock market's going up, that means that things are great. But what if you have a situation where it's the individual, that means that things are great. But what if you have a situation where it's the individual stock that matters? And so does that, I mean, so is that the information content?

What else is in financial conditions? Is the credit spreads in there? The dollar. The dollar. Yields. Okay, so but it sounds like it's not a big part of what you do. Well, a lot of these financial conditions indicators are driven primarily by the performance of the S&P 500.

And all I'm saying is, is that the only thing that matters? No. So you think economic conditions, you think the Fed funds rate is too restrictive right now? I don't think that. I know that. Hmm. Let's look at the labor force chart. Daniel, June NFP. The unemployment rate is now 4.1%. We learned, I guess, last week. And what's interesting here is, of course, it's still historically low. And we talked about the SOM rule and, I guess, the rate of change on claims and all these things that you could look at. But just at a glance, my issue here, I guess what

concerns me is, it just historically, it never seems to stop at a healthy place. It seems like it has to go bad now. And I don't know what bad it even is anymore. Is it four and a half percent? Is it five percent? Like at what point does the economy break? What's the headline unemployment rate that I need to really be wary of? I mean, I think a couple more tenths would, it's hard to know. I mean, that's a really difficult question. But there is a point of no return. I mean, there's a point when there's a non-linear risk

that kicks in and that's, you know, that sort of, you know, it's like the snowball going down the hill. At four or five, I'll tell you right now, at four or five, Rob is getting whacked. Well, I mean, I guess that's, I mean, historically, the unemployment, I mean, you see it in that chart, right? The unemployment rate never just goes up

half a percentage point. If it goes up half a percentage point. No, that's my point. It trends, which is what I was asking you before. Like, this is one of those things where it doesn't like go up a little and stop on a dime. Yes, but so what I would say about this is that it is a little bit unusual in terms of the nature

of the increase in the unemployment rate that we've seen. Like so far, you haven't seen a big increase in permanent job losers, right? Like most of the increases like new entrants, re-entrants, so the composition of the unemployed population is actually okay. So there are things to think about. All I'm saying with the rate cutting call is,

to me it's like crazy not to say, the risks have shifted. That's what this is about. Last year there was no doubt, there was no debate. Inflation was the big year, there was no doubt. There was no debate. Like inflation was the big risk. So keep it up. So here's you last week. This is not a close call.

The unemployment rate is climbing and payroll growth is slowing. Conditions in the labor market are cooling off. The tradeoffs for the Fed have shifted. If they don't cut this month, they ought to make a strong signal that the cut is coming in September. So there you have it. So July 25th is the next Fed meeting. Do I have that right?

I think it's July 31st. I was close. Yeah, like that chart, right? I mean, it's not so much that the unemployment rate is going up, although that is important. It's that the rate of employment growth has clearly slowed. I mean, there have been significant downward revisions, right? I mean, people think the Establishment Survey is good at sort of the job count. And so I think that's notable.

Continuing claims as well? Sure. But I put it to you this way. Last year, the economy grew 3%, and the unemployment rate still rose 2 tenths of 1%. This year, it looks like the economy's barely growing at 2%. So what do you think is going to happen with the unemployment rate? It's got to go higher.

Yes. It would be crazy if it didn't. Exactly. And so if I'm the Fed, I'm thinking, if the unemployment rate is still going higher, then I should be thinking about recalibrating policy. Okay, so let's assume they meet at the end of July, they set up September.

What do they do at Jackson Hole? What are these speeches going to be about? Are they victory laps? Does Lagarde fly into this? It's kind of interesting because, it's kind of interesting. I thought the topic had to do with the efficacy of monetary policy. So it's one of the right because remember that there was a big debate earlier in the

year. It's like they've hiked like 500 bases. Doesn't work anymore. How come the economy, right? It's one of these like contrarian indicators like they start talking about. What if the Fed can't affect the economy anymore? Right. And now all of a sudden it's like,

well, maybe we did too much. So I think that- It's like edibles. I don't feel anything. Right, and then all of a sudden it hits you. Take two more, take two more. Should work. Yeah.

Okay, so you think they fly to Wyoming and they use that moment to remind each other and whoever's listening, this shit actually still really works? they use that moment to remind each other and whoever's listening, this shit actually still really works. Well, I think they could do that. And to the extent that they're concerned about, you know, creating sort of an undo easing of financial conditions,

they can talk about higher neutral rates. They can talk about, we're going to move meeting by meeting, right? Like, so essentially if neutral is higher, then they can't be cutting aggressively or they can't cut to like, you know. So can we talk about higher neutral rate and terminal rate and you know, a lot of people don't have that much time

in the market. And so the expectation is, oh, rates, they go higher and then they go back to zero. Because that's what we've had to do the last couple of cycles. There's a world where the Fed takes rates down to 4% and stops because that's all they needed to do. Correct.

And the variables that might cause, bring that world about might have nothing to do with the Fed. There might be other things going on like, I don't know, robots taking jobs where the employees are too expensive, or GLP-1s bringing about a new renaissance of people who were formerly fat, now back at work. There's so many things happening in the economy. But let's say we get to that world. Is it conceivable to you that we could have a higher terminal rate than we've had after the prior two cycles?

Because the last two times they had to go to zero and stay there. Well, let's just talk about the dynamics of the economy as they currently are versus how they were in those previous episodes. Right? I mean, in 2001, we had essentially a corporate balance sheet recession, and we had a significant asset deflation with the busting of the equity market bubble. And obviously in 2007, 2008, we had a household balance sheet recession and a significant asset deflation on the asset that most people own, which is a home.

We don't have anything like that. Right now we have a situation where people have more equity in their house than they have had at any point in the last, I don't know, three decades or so. And obviously we don't have a broad asset deflation. I mean, we're talking about how equity prices are still high. So it just, it feels like it's orders of magnitude different than either of those episodes. So at a minimum, you shouldn't be expecting like a return to ZERP and like, you know, poor favor. What we do have now though, is a commercial real estate crisis that doesn't quite act like a crisis, because everybody's trying to buy the dip already. But these loans are continuing to go bad. These properties are continuing to

be become more and more worthless as time goes on. Like, that's a that's a thing that maybe we didn't have in 2001, but it's a negative thing that exists now. And there isn't a real life impact on banks as a result of that. They are on the hook for most of those loans. Yeah. And I mean, Powell did mention that, you know, this is something that can be with us for years. Presumably, if they do cut a little bit, it alleviates some of the stresses in there. But I think, if they do cut a little bit, it alleviates some of the stresses in there. But I think, you know, from the person-

It's not big enough, it sounds like, to you, to constitute something that would compare it to those other episodes. No, no. Okay, that's good. I mean, to me, you need to see it in the household sector for it to really be concerning, and we don't see that. So I think, based on first principles,

you have to kind of assume that you're not gonna go back to Zerb, or you're not gonna go back to this kind of alphabet soup of like asset purchase programs that the Fed was doing in the financial crisis. And then, you know, to your point, like thinking about like what's out there, I mean, I guess the way I come down on it is, do you think the 2010s were normal or abnormal? Abnormal. Right.

So then what's normal? Normal is probably real rates. Normal is when I was in my 18s and 20s. That's everyone's normal though. Right, I mean, so I would just say that to me, the low interest rates of that era were sort of like, you needed to kind of clean up bank and household balance sheets, and now we're probably gravitating back

to something closer to normal, which is maybe 2% real interest rates. I don't know if it's that high but it's certainly not zero. Do you think that a recession is coming anytime soon? Obviously I'm asking you to predict the future which is part of your job but I won't hold it to it if you're wrong. And can you give us the date? No, based on where we are today.

Based on where we are today, no I I don't think a recession is coming. Because I think the markets are rightly anticipating that the Fed is going to step in before nonlinear risks kick in. So do you look at the current situation now as an analog for any other period of time? Is that helpful? Is that instructive at all for you? Because I asked you about the 90s comparison, but do you think that there's any value in saying, like, this looks like the 50s or this looks like the 80s?

Or is that just like a parlor game and not really a very... No, I think some... I mean, like we talked about CRE. Like, maybe you can liken that to the savings and loan crisis. I mean, you had so many banks blowing up, thrift banks blowing up in the 80s that didn't keep... I mean, the economy was still reasonably healthy during that time, right? So in terms of the Fed cycle,

I think the most obvious analog is probably, you know, the mid 90s episode, right? You had a very strong hiking cycle in 1994, and then you had a modest easing of policy in 1995. I mean, the Fed sort of walked some of the hikes back. And then they basically left the funds rate unchanged for several years right up until the LTCM blow up. If this is, dude, if this is gonna end up being like 1995 to 1998, everyone will be very happy. We'll sign up. I'll take it.

Yeah, I think the thing to look at right now, I mean, particularly after the first cut is just to see how the long end behaves, right? If the long end is not following the front end down. That's good. Yes, it means that the economy is okay. The economic surprise index does not look great. Does this worry you or what do people need to know? What might be in here that's sort of a little bit misleading? Economic data never misses.

Economists miss economic data. Mmm. Right. I've said that before a bit about earnings. Companies don't miss earnings. The analysts who cover the companies miss earnings. So people are showing this chart and saying, the Economic Surprise Index hasn't been this

low since, I don't know, 10 years almost. And you say, well, that's because economists have been so wrong. It doesn't mean that things are that bad. I mean, you had to remember that last year everyone was calling for recession. It didn't happen. And then you went into this year where people were still kind of calling for it and they adjusted their estimates. Too far up.

Yeah. I mean, I don't know where it settles out, but it doesn't necessarily bother. Doesn't this oscillate? We go from like... Yeah, the lower it goes, the more likely it goes up. Yeah, right. The lower it goes, then it's like, well, people start to now price in their expectations so low that it starts to surprise the upside.

Yeah, it recalibrates. And vice versa. So you took a flamethrower last time you were on to the ISM manufacturing index. Right. So you want to apologize? No, you've been proven more right, because it keeps looking bad.

It's been below 50 for how long now? What a stupid indicator that is. What's interesting is that actual manufacturing production has been OK during this time that it's been below 50. Look, I mean, it's always about thought process, right? I mean, that to me is a very useful way to spot, you know, if you're a portfolio manager, if you're, you know, in a seat like yours where you're investing like high net worth, whatever, I mean, whatever. What you want to look for is not someone who's got like the hot indicator or say like, look at

this, like hot indicator I found. Did you see that ISM? Yeah, yeah. It's what you want to find is someone that has like a logical train of thought I mean that's a very interesting useful way to like separate the good people from the bad. Oh so when you hear somebody talking about something that you already know is not important that's a that's a signal to you that you don't need to spend any more time talking to them. Yeah. Okay I love that. What are some other things like ISM?

Because I'm looking to eliminate some people from my life. You feel me? You have a lot of people that, the one that's going around a lot now is like the state level SOM rules. State level SOM rules, so unemployment, but each state. Each state. Okay, I mean, first of all,

the INDEG, that rule was never created for the state-level data, so why are you using it that way? It's just like, it's just another one of these things where it's like, look, it could be really bad. I mean, a lot of the stuff that we see, that I come across, it's just people... Hold on, have any states have a SOM rule triggered? Yeah, I'm sure California's had it. Like, the layoffs are such that... Yeah, California. I'm sure California's had it. Like the layoffs are such that if you were just,

I mean California, if it were a standalone country, it would be number eight in the world on GDP. It's not total, if somebody starts talking about Rhode Island, it's different. But then you have to think about composition of the industries that are in California. I mean it's just. What, porn?

But I think the important thing is that it's about trying to use these tools for what they were meant to be used for. And I think that's what's important. So what would you say to somebody who says, well, how could the Fed possibly cut with the stock market on an all time high? I don't know. Why don't you go ask them in 1995?

It's happened many times. I mean, that's the other thing. It's like people think that this is one of the things that I'm sort of talking about more now is that this idea that monetary policy is like this on and other thing. It's like people think that, this is one of the things that I'm sort of talking about more now is that this idea that monetary policy is like this on and off switch. It's not, it's a dimming switch. I mean, that's how my friend Sam Rowe put it actually. Shout out to Sam.

Yeah, that's right. The Fed can be nimble, they can adjust, and that's what good policy should be about. It took them two years to get their rate, to get all of these rate hikes to actually get in core inflation down to where it's even like acceptable. So we think one rate cut and and we're going back to 9% CPI. It's embarrassing the way some people talk. It's also the Fed believes they're running a really restrictive policy. One rate cut

means they're just running somewhat of a less restrictive policy. But still restrictive. Yes. policy. One rate cut means they're just running somewhat of a less restrictive policy. But still restrictive. Yes. Right. How about this? Warren Pies has a chart showing S&P 500 initial Fed cuts following a pause and how far it was from an all-time high. And going back to 1971, this is six of the last nine times the S&P was either, was within 10% of an all-time high. To your point, Neil, in 95 it was at an all-time high.

In 07 it was 2% from an all-time high. In 2019 it was 1.5% from an all-time high. So it's not uncommon at all for them to cut at or near all-time highs. It's almost as though the stock market is not at all referenced in their dual mandate. Well, I guess the thing is, is that the Fed, monetary policy can't permanently control asset prices. I mean, that's something that we all kind of understand, right, because if it was that,

remember back in the 2010s, you had these charts about like, here's the Fed's balance sheet and here's the stock market, see? And it was like, well, if that's the story, then the Fed's ability to expand their balance sheet is theoretically infinite. So then you should never ever sell stocks, right? So, yeah, I mean, I think financial conditions, the financial markets are not permanently controlled by the Fed. And if financial conditions are loosening, but inflation slowing and unemployment's up a little bit,

the Fed shouldn't care that that's happening. They need to focus on what's happening in the real economy. So this chart from Torson Slak is number of months from the last Fed hike to the start of a recession. And in 2008 it was 18 months, in 2001 it took 10 months, 1990 took 17 months. Again, this is from the last hike to the start of the recession. We're now at 12 months. Right. But...

So, hold on. So the last hike in 2023 was a full year ago. So... Okay. And I guess a year ago, it wasn't can they pull off a soft landing? It was when's the recession coming? I know you weren't saying that, but a lot of people were. Maybe it's already here, or maybe it was a rolling recession. It happens on the land, just wait. Yeah.

Did we land? Did they land the plane? I mean, I... It's... What do you mean by that? I mean, they did it. Well, take a look. So there's this idea where as soon as the Fed cuts rates for the first time, it's like turning over an hourglass, and it's only a matter of X amount of time

before you're in recession. So if you look at the last three instances, on his chart at least, that's how people would say, we're getting them long in the tooth. That would be, I don't believe in that stuff either, but if you could debunk that. Debunk it. Debunk it. Well I would say that, you know., but if you could debunk that. Debunk it. Debunk it.

Well, I would say that. There's no hourglass is my point. Well, this is an economy that, some things might be long in the tooth, like these indicators, but there's lots of other variables that go into it than just time, right? I mean, so in 2008,

credit markets were blowing up in 2007, right? Is that happening now? So it's about more than just how many months have passed since the Fed stopped hiking. It's also about what's been happening with the markets and the economy in the interim period. And to me, this is nothing like any of those episodes. I mean, by August of 2007,

there was credit market blowups. I mean, the housing market was in a deep, deep recession. Right now- You need more than just the number of months to elapse before you can say anything like that. I mean, this is just sloppy analysis. Like it's like- It's lazy.

I mean, to me it's like, who cares? Like, great. It just doesn't matter. Like now we have a Fed that engages in more forward guidance, right? So they're talking to the markets constantly, and the markets are recalibrating their policy. To your point, it's a press release every time they either make a move or don't make a move.

There's a press conference. There's a press release. 45 minutes. It's just a different thing. So comparing it to like, it's just, I don't know. All right, so that doesn't matter. The time, here's what matters, consumer spending. It's 2 thirds different thing. So comparing it to like, it's just, I don't. All right, so that doesn't matter. The time, here's what matters, consumer spending. It's two-thirds of the economy.

How do you think about the state of the US consumer right now? I think the consumer is slowing somewhat because income growth is moderating and that's been a big driver for why consumption has been strong in the first place. But I would hardly say it's a disaster. I mean, I think- When you say income growth is slowing, there still is income growth.

Absolutely. Yeah. If you take the- Less people are getting raises than were getting them two years ago. That's true. And the magnitude of the raises is smaller? Correct. But at the same time, inflation is lower, right?

So to me, the way I think about consumer spending is basically, I mean, you could call it like a Keynesian consumption function in the sense that- That's what I usually call it. Whatever people make, that's what gets spent in the macro economy. So let's talk about what people are making. If I take the sum of jobs multiplied by the work week, multiplied by hourly earnings, that number is running

at about, I think, four and a half to five percent. Okay? Now let's say that inflation is around two and a half. So you're talking about roughly a two percent consumption environment. Not great. It's not great. It's not terrible. Yes.

It's not recession. I mean, it's okay. But given everything that we've been through and we're still getting that sort of growth, I think anybody would have signed up for that. Yeah, I mean, we have... To me, what's exciting right now isn't so much the economic momentum. It's the momentum under inflation. And, you know, I don't...

What do you mean by that? What's the momentum under inflation? Well, meaning that inflation is going to continue to come down. Oh, so the disinflationary momentum is more exciting than the economic growth? Right. I mean, for me, like going into the year, it was basically, you know, the consensus is, you know, kind of off sides on GDP growth. I mean, people are now finally come around to the growth story, but the consensus is way more off sides on inflation. I want to ask you about the yield curve inversion,

whether or not you think we're witnessing the start of an un-inversion, how important? So just like we showed you the number of months till recession after the first cut, this is another one of those things where like it works until it doesn't. We've had an inverted yield curve in the fall of 2019, and then COVID caused the recession

that the yield curve people might have said, well, it was going to come either way, at least COVID sped the whole thing up. We'll never know. This time we've had an inversion. Is it a record? Is it a record length of time to be inverted? I think so, Neil, is it?

You were no better than me. I mean, it looks like it based on that chart. Okay, so you prepared for the show. So you don't, but you, this is not a big one for you. This is another one of the, I remember you saying indicator macro. This is, I mean this is a big one for a lot of people. Doesn't seem terribly important to you. Well it's important in this, I mean I just think that people interpret it the wrong way because I think what what the yield curve is telling you is that the Fed's cutting soon. That's what the yield curve is telling you is that the Fed's cutting soon. That's what the yield curve is telling you.

Now, typically when the Fed is cutting, you're in recession. Then you have to ask yourself, can there be periods where the Fed is cutting and you're not in recession? It's a timer, hopefully, God willing. Yeah, so there you go. So there can be time, right?

So to me, the yield curve is more of a Fed policy signal more so than an economic signal. Matter of fact, the next chart for this from Jim Bianco's work, it is a record. We've been inverted since for 557 days. We have this as a table. Yeah, 557 days. So it's been a minute.

And what's the second longest? 522 and 780. OK, so if this stays inverted for the next three years arguably, it wouldn't be that important because you don't really think it's a signal of anything other than the Fed needs to do something. Yeah I mean I think it would imply that the Fed, I mean I think the curve probably will, I mean you probably continue to see some bull steepening of the curve going forward right?? I mean, the markets are based off of momentum, right? So even if the Fed is going three or four times,

I have a sense that the markets will probably price in like seven or eight cuts. And a bull steepening is when the short end is falling faster. Correct, yeah. You shared this morning the news from Delta, and this is a Bloomberg article. Delta Airlines expects profit this quarter

to fall short of Wall Street's expectations as Heavy competition in the domestic market drives ticket prices. So basically Basically, this is like one of those things where it's not an economic indicator, but it's an anecdote confirming What you think is happening with the economy and And I can give you tons of these, because that's what many big companies. Well, you're seeing a lot of the consumer packaged goods companies trying to prioritize volume now over price.

So that would mean that they'd have to lower prices, right? So yeah, look, I mean, you know, it's interesting, because obviously people are throwing out these charts of like the TSA numbers are really hot, like it's three million, we're screening more passengers ever before yeah, but What did the guy from Delta actually say that they built out capacity too much, which is why they have to cut price Yeah, it was it. I listened to the call. I own I own Delta. It did not sound that bearish to me

No, no, it just means that they're recalibrating their ticket prices It's not a disaster, but you know ultimately prices are a function of supply and demand right and so if you have too much supply Then you have to you have to adjust your prices down And I think the reason why I mentioned airfares in particular is because this the airfare number goes into the core services ex-housing Right airfares are considered part of services And so that's been something that the Fed has been keeping an eye on over the last several months. On the consumer package good, there was one quarter, I don't know, a year or two ago where Pepsi the top line was up 11% and unit volume was flat. And they just got away with it as long as they could have. And now they're on the other side of that.

And they're not the only company that's eating shit. Well, consumers are more resistant to taking on price hikes. Yes, they did it. It's like, you can't keep doing that. You did it eight quarters in a row. What does that tell you about consumer inflation expectations? It means it's coming down. So at some level, consumer and household inflation expectations are sort of a signal for how willing

consumers are going to be to absorb higher prices from firms. So to the extent that consumer inflation, to the extent that people are showing resistance to higher prices, it means that their inflation expectations must be relatively well anchored. Well anchored is important because that's one of those things that actually does front run the actual inflation. Yes. Consumer expectations does actually have some predictive power about where real economy

inflation will end up. Right. Okay. And right now you're saying those expectations have been coming down in lockstep with what's happening? Yeah. And I would suspect that people feel better about inflation over the summer. I mean, gas prices have stabilized.

Used cars down, new cars down, rents down. What's left for people to still be crying about? I mean, even recreation services are down. I'll tell you one thing. My wife got a state F fajita yesterday, $37. We used DoorDash. It was $50, and I said, are you out of your mind? Wait, stop.

How much? I swear to God. For one? A steak fajita. From where? I'm a bastard, I'm not allowed. Frida's in Seaford. What?

It's a hole in the wall. You couldn't just go get it for her? I was preparing for the show. Maybe the inflation is in your selfishness. Go in to get in the car, get her a pizza. I fired up my barbecue, I threw a hot dog on there. I said, I'm out. You showed them. No, but it's food. Food still sucks. Hey, I want you to debunk a couple of more things for us. Do you think that there's any truth to this idea that like the Fed actually is constrained

by the political calendar? No. Okay, you don't believe in this. Even though this week, Powell was in Congress, and I think three or four people in Congress yelled at him, you better not start cutting weights ahead of the election, blah, blah, blah. He hasn't spoken to Biden since December 2022. Did you see that? So, I mean, it's just sort of, I think it's- What's he gonna talk about? It's so- Here's the deal. I just find it just so ridiculous.

I mean, let's say that the Fed didn't cut, okay? Because they were worried about the- It's insane. Political calendar. Yeah. So then, whatever's happening in the economy keeps happening, right? So that means unemployment continues to slowly leak higher.

You're sort of then running the risk that it becomes non-linear. Inflation continues to slow, so you're basically passively tightening by real rates going up. Then Trump gets elected and then you go 50 on the first volley. Right. Like how is that not political? That's even more political. 100%. So to me, you might as well just tune that out

and do what you think is right. Because here's why this is important. There's a September meeting. There's also an, is there an October meeting? There's a November meeting. It's right around the election. Right before the election. But I feel like at the rate we're going, right?

I mean, it's like, can you imagine what the news flow is going to be like that week? It's like- No one will even notice if they cut. Exactly. President Trump challenged Kamala Harris to a golf match to like, settle the score. And in other news, Jerome Powell cut rates by 25 basis points. It's kind of like...

It'll be way crazier. It'll be the election was rigged before it even happens. And we're assuming both of them are still the people running. Yeah. I mean, yeah, who knows? But I just think that there'll be so much going on that week. And if they've already cut in September, they could probably... That's why I say I think the risk of three cuts this year... So that's why I was asking you, you said three cuts is not out of the question and nobody believes that. Everyone's saying...

I mean, the markets are priced for three right now by January. So is it really that crazy to call for it for this year? No, I guess it's not. But I'm glad to hear that from you, that you don't think that that calendar, political calendar thing is a real restraint. I think once the Fed starts going the path dependency, like if the election is at this time, I don't think that matters as much. What did we learn from the era of negative rates on sovereign bonds?

So we had like this four year period, I think, ish, where like literally German bonds and like debt all over the world. I think Switzerland, Japan, certainly, you just had negative yielding debt became the new normal, where people would buy the bonds of the country they lived in or someone else's country and effectively pay them interest just to like hold onto the money. Look how fast that reversed in this new world that we're in and look how much better those stock markets are now. All of these, so why do we think low rates are good

if all of those now reverse from negative to positive and their stock markets are all on fire? Why would anyone theoretically want rates to go that low ever again? Well, Milton Friedman. Good guy. Well, I mean, it depends on your political persuasion, I guess. But he did say something I think that was pretty interesting. He said that low interest rates are a sign that money is tight.

And high interest rates are a sign that money has been easing. Say more. Well, I mean, what do low interest rates reflect? Lack of confidence. Lack of confidence, difficulty to get credit. Lack of demand for credit. Exactly. So, I mean, it's a sign that money's tight.

And when interest rates are higher, it's a sign of strong nominal GDP. Access to credit is more plentiful because the economy is strong, because unemployment is probably lower during that period. So I think it's a pretty revealing thing. So low interest rates are a sign that money has been tight, and rising interest rates are a sign that money has been easing. So my understanding was there was just no interest in anyone borrowing money in those countries in enough in a suitable quantity that there would be demand for I mean

It went on for a really long time. Yeah, and they also had I mean It took a while for the ecb to get on the right side of the eight ball, right? You know, you had this sort of weird thing where they even hiked in 2008 Because I remember that because of what happened with energy prices. So you know, those things had, I think, over time, like negative effects on the European economy, which probably led to some of the, you know, the situation they found themselves in with respect to their... You think we'll ever see negative bonds, trillions of dollars worth of negative bonds again?

I don't because I think that was a unique circumstance related to what happened in the financial crisis and in the aftermath of it. And usually, I mean, we should hope nothing like that happens. You usually go through one of those in your lifetime, right? So let's hope it doesn't happen again. Okay. I like that. I think that's a good place to stop before we get into favorites.

But first, I just wanted to tell you, you are like the hottest economist on the street right now. You're almost too hot right now. You're almost too hot. I told people that you were coming on today and they were like, oh, dude, how'd you get him? I'm like, no, I know him. No, but that's the way you are.

You're like at that level. I appreciate that. Hopefully I can keep the momentum going. Well, so like, how do you now think about what you're how do you now think about do you want to say less now? Cuz you just won. No, I would just say Jeff. Are you listening? They just said I'm the hottest economist on the street Shout to everyone at Red Mac Eric You got a sick crew over there guys. They're like family. We've been Yeah, I just had my 12 year anniversary

at that firm, so. You guys are killing it. Thank you. For real. We're so impressed with everything that you do. We always end this show with favorites. I know you're aware of that. Looks like you got a couple for us.

What do you want to tell the audience? What are you into these days? Well, I just finished a Netflix show, Owning Manhattan. OK. What is that? It's like a real estate show. We must be on different algorithms. Looking at Manhattan real estate, I'll never be able to buy.

But the coolest thing I did, I mean, well, I saw the Kevin Hart Act My Age special. So that was pretty good. You saw it live? Yes, in Newark. Oh, nice. So that was pretty good. You saw it live? Yes, in Newark. Oh, nice. So that was a lot of fun. And I basically went, I mean,

so I did a Peloton ride in the studio. And Lil Jon was there. Oh, really? Yeah, it was pretty cool. It was like a concert while you're riding your bike. Was he hilarious? I mean, it was like a cute little thing they did. They started handing out like little shots of water

and stuff like that. It was funny. The funniest was actually, he was, I guess, repping his meditation brand or something, and he did a meditation class, and I was just like, it was hysterical to listen to him like, breathe in, breathe out. It was very funny. Lil Jon's hilarious. I think people probably were expecting him to just have

these sporadic outbursts because of Dave Chappelle. Right. Chappelle. Very cool. Michael, do you have any favorites for us today? I do. I have two. And they're basically the same show.

One is Hard Knocks. Did you guys watch Hard Knocks? They had the Giants this year. The Giants this year. So in the second episode, they showed you the quarterbacks at the combine. And it was just a really cool behind-the-scenes look they showed you the calls with

Josh and the GM of the Giants and Saquon like really pretty sick. They were trying to hold on to him No, no, no, no, no, and they showed they showed us absolutely ripping off the GM of the Panthers on camera He was probably not too thrilled about that. So I'm enjoying that very much. And then also there's a new show on Netflix called Receiver. And last year they followed Kirk Cousins, Marcus Mariota, and who was it? Who was it? I can't remember.

Put Mahomes. Quarterback. Oh yeah, Mahomes. Yeah. So this year they're doing Justin Jefferson, Devante Adams, Amon Ross St. Brown, George Kittle, and Debo, and it's great. How many games do you think the Giants will win next season?

Six. Four. No, we're not going to be that bad. Six. Okay. We're not going to be four. We're not going to be the worst team in the league. We'll be bottom, bottom.

What's the biggest variable Daniel Jones can play or not? Our line, our offensive line, as always. And Danny, it's not going to be a good season. But, be that as it may, I love the behind the scenes look. I think it's so cool. Growing up, we didn't have this, like access to athletes. There's no podcast. Why is this Hard Knocks is different

from the other ones that they've done? Usually it's training camp. This is in season. You're going to hate this, but I'm a Giants fan like you. But I actually had my son, my eight yearyear-old, watch the Tom Brady retirement speech. Like that whole part where he's like, this is how you make it, like it's about like the hard work and the work ethic.

I was like, yes, he's Satan, but you know, I mean, this is a one, I mean. Do you think that Giants fans hate Brady as much as let's say, Bills and Jets fans? Well, we're Yankees fans, so we hate New England. Yeah, same thing. No, there's like a general level of hate, but we, we're Yankees fans, so we hate New England. Yeah, same thing. No, there's like a general level of hate,

but we beat Brady. I mean, we had his number, yeah, that's true. So I don't know if Giants fans hate Brady the way that maybe Jets fans might. No, no, no. I did have a thought yesterday, I was like, could we win nine games? Could we win eight games?

I don't know. Hope Springs Eternal. And that's the best thing about the NFL. Like, there's so much turnover year to year. And you never know, crazier things have happened. I like that. I'm definitely going to check that out. You a music guy?

Jeff is. Not really. I mean, we have different definitions of what constitutes music. Who, you and Jeff? OK. Is Jeff a Steely Dan guy? No, Jeff's a country guy.

Why? What do you listen to? Your hip hop guy? More. More. I'm everything. I listen to everything. I went to Alanis Morissette last night. How was that? She was great. She's like 50 years old. That was in Jones Beach? F*** yeah it was.

Best concert venue on the East Coast. And you know who opened for her? Who? Joan Jett, 65 years old. Oh wow. She's before your time. Her big hits were in the early 80s. Okay.

It was cool. She looks exactly like my wife's mother. It was really cool to see somebody that's been around that long, just like totally own the entire amphitheater. So I thought it was pretty cool. I wanted to bring a new album, came out last weekend.

This is Zach Brian, The Great American Bar Scene. It's a huge album. And in the last six months, I think he became like one of the top three musicians in America. That was quick. He sold out Barclays, like how many nights in a row? Yeah, dude, he is, he is now-

He's going to get a banner like Jay-Z. He's gigantic. Like he's in the league with Luke Combs and Chris Stapleton and maybe Morgan Wallin. I don't know anyone else in that league. And the other one I wanted to tell you guys, I started playing golf, which Michael's going to get... That's a f***ing guy.

Michael's going to get really sick of. I played a really sick country club called Sea Wayne Club in Five Towns. I know you know Long Island. So I played terribly, but I wanted to give a shout out to Garrett who took me there. This guy's the best golfer maybe in the world. He was like driving the green. I think he shot like a 65. I can't believe you're dropping Garrett's name on the show. I used to work at Seawing.

Well, Garrett's a listener. I know, I know. I used to valet park at Seawing. Country club. Josh Goffs, I valet park. No tips. They don't let the members tip. I attempt a dollar once. Anyway, that episode for me of golfing at this really incredible club and just being terrible. By the way, shout out to Garrett for all your patience. It forced me to go take lessons and I took my first lesson this week. And the guy goes, I could fix you in five minutes.

So, all right, what do we do with the other 25 minutes I paid you for? He's like, well, then I'm going to watch you not really listen to what I just told you. So anyway, I really appreciated playing on a beautiful course and understand, as a reminder, here's why you want to get good. Because you want to spend more mornings and afternoons at places like this. You golf? No, but I drink transfusions.

What's that? That's a drink that you drink when you're playing golf. What's a transfusion? It's like, think of it as vodka, grape juice, and ginger ale. It's fantastic. Oh, okay. I'm not drinking that shit. It's so good.

Just have it once. Where were you drinking it if not on the golf course? I had it on the golf course. We were in Cancun with a bunch of buddies and family. Cancun on the golf course. Drinking transfusions. It's ball market. Ladies and gentlemen, we want you to follow Neil.

Neil is on LinkedIn. He is LinkedIn.com slash Dada dash Neil. But Twitter is where Ren Mac is really putting most of their stuff, right? That's right. Okay, and it's at Ren Mac LLC. You bet. Anywhere else to follow you? Any physical locations you'll be at

if people want to come say hello? No? No? No. Okay, no book signing, stuff like that? Nothing like that, not yet. Are you going to do a book? I mean, you told me that last time I was here. I got to start thinking about it.

What are you waiting for? I have a publisher for you. Okay. All right. Ladies and gentlemen, thanks to Neil Dutta. Thanks so much, Daniel, John, Rob, Nicole, CharKid, Matt, Sean, great job working on the show all week. Graham, huge thanks to Graham.

I got you, I know. I got you, huge thanks to Graham. And hey everybody, if you like the show, please make sure to leave us a rating and review and we'll talk to you next time. Alright, take us out. Did you have a good show? I liked it. Yeah?

I hope you guys do. Your music, did you like contact the media to come up with it? What? You got a good show? I like it. I hope you guys do. Your music... did you like contact me? Did you get a come up with it? What? Your music.