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How is future proof?
It was awesome.
You had to quite the interview with Bill Gross, I was listening to it.
I mean, I feel like everyone's kind of known that he hates good luck.
Yeah.
I kind of love it. I saw a bunch of people talking about this crazy old guy.
I feel sorry for him and I was like, I get the sense he's living his best life.
He's just on stage, settling old scores because he can go far.
He has nothing to lose.
Yeah, I did think it was funny.
He went off on Peter Lynch, though.
I've never, did you hear that, Bill?
No.
He made fun of Peter Lynch, too.
And it was like, I've never heard anyone take issue with Peter Lynch.
I did a deadlift.
One, two, three.
Yeah, Jimmy.
Okay, go.
What's your name?
Dominique.
Barges.
This is an after-school special, except.
I've decided I'm going to base my entire personality going forward
on campaigning for a strategic pork reserve in the US.
Where's the best split in Boston?
He's the important question.
Is it robots taking over the world?
No, I think that like, in a couple of years,
the AI will do a really good job of making the outlawed's podcast.
And people say, I don't really need to listen to Joe and Tracy anymore.
We do have the perfect guest.
Well, in the meantime, this is lots more.
I know, a lot has been off.
And we do have the perfect guest.
Neil Dutta hanging out with us in studio.
Tracy, that was fun out in California, wasn't it?
California's lovely.
We should live there.
No, it was a fun conference.
So we were at the future-proof conference in Huntington Beach.
I think there were 3,000 people there,
mostly financial advisors.
And we did a live interview with Bill Gross.
We, I love going out to Southern California.
It's always fun when you can create controversy
and rivalry between two asset managers,
bond managers who are like rivals and create drama.
We created the drama at the event.
Well, I feel like we didn't actually have to do much to create it.
I mean, Bill kind of went off on his own.
Neil Dutta, is there any reason to own a bond right now?
Yeah, absolutely.
I mean, it is fixed income.
Okay.
So you could get that, but Tracy gets that in her Marcus account.
I mean, I just told my parents to buy a bunch of treasury bills
because it's easy.
Really?
Yeah, why not?
I mean, it's just like clipping a 5% return month after month.
And, you know, Bill Gross disagrees with you.
Well, I'm not saying rates can't go higher,
but if you're not a sophisticated investor,
yes, there's probably a reason to own, you know, treasury.
You know, Bill Gross started his career clipping.
He told us the story when we interviewed him
that he was hired at PIMCO in 1971
and that part of his new, part of his job
was to literally go down to the vault that PIMCO had every,
I don't know how often he went down there
and clipped the physical coupons off of paper bonds that they had.
And he, that was part of his job was like go do that clipping.
Well, he's clearly older than we are.
Well, he was also talking about how he used to trade
on Quotron machines instead of Bloomberg terminals.
So, yes, absolutely.
But it was a fun interview.
But wait, why not just...
I'm sorry, I'm hung up on this.
Why not just like...
Okay, yes, I get that you can earn like 5% somewhere,
but like you can't earn like 4%,
like basically risk-free with no duration or anything.
Like...
4.5% in markets.
And like, you're right.
Yeah, just candy.
Cash, yeah.
What's wrong with that?
Well, 5 is more than 4.
And my parents have no need for the money right now.
Okay. All right.
And I mean, they're not trying to trade for the, you know,
to get, you know, to actually make money on the bond itself.
So...
All right.
All right, well, let's talk.
Okay, we don't know on those or rates are going.
So, we got an inflation, a CPI print this week.
You've been saying you'll for a while that inflation...
We haven't defeated it yet,
that either we have a recession
and we don't have a recession, it's going to pick back up.
Is this the first sign of it?
Did we sort of like bottom out on the inflation front?
I mean, some of the progress is definitely stalling.
I mean, for me, it's just...
If you don't believe that there's a recession,
it's hard to believe that inflation has been resolved.
To me, it's really that.
That's sort of how I think about it.
I know others may disagree,
but I think demand is still pretty strong.
And you saw that with retail sales today also.
So...
Isn't the consensus on CPI that it was mostly gas prices?
Because I remember when gas started going up in...
I guess I would have been July or early August,
Omer Sharif, who's been on this podcast a number of times now,
basically said, yeah, and he said,
like this is going to mean CPI coming in in August at like 3.5 or 3.6 percent,
ended up at 3.7 year on year,
but it seems like it was someone expected.
Well, I mean, I think for me,
what's interesting about this is that when you look at core goods,
like things like furniture,
and that's actually going back up, excluding cars.
Right? So I think that's interesting,
because to me, that was sort of the linchpin
for a lot of the weaker inflation story
that kind of people had going into the year,
and that's going away.
And I think part of the reason why it's going away
is that supplier delivery times are no longer...
I mean, it's taking longer for factories
to move product out the door.
So the supply chain issue isn't improving,
and if that's the case,
then I think one area of disinflationary pressure is going away.
And so I think that there's probably some upside to core goods prices
between now and the end of the year.
There's also some upside to food prices, I think.
Joe, I have a pet theory that a lot of the strong consumption is just down to,
like, economic nihilism,
where people are just like,
screw it. I don't need to save anymore.
I mean, I'm just going to spend everything.
Go out, go to restaurants.
I mean, yeah.
That's really, if that's true, that's really bad,
because isn't that like the sort of like classic precursor to hyperinflation?
Like, people just go out and they're like,
oh, I have a little cash.
So I'm going to like go out and buy TVs.
Like, I seem to recall like reading stories about that before,
like, episodes of like Russian hyperinflation.
I hope you're wrong.
I hope that's not what all this can say.
I think there's a natural limit to how many TVs you can actually go out and buy.
But I do think the like,
psychological impulse behind a lot of the spending
hasn't necessarily been appreciated by a lot of economists.
Let's put it that way.
Neil, didn't you write something about savings?
Yeah, I mean, I think that to me, there's nothing inherently wrong
with the savings rate, where it is.
I mean, it's certainly lower than it was a few months ago.
But if you think about, you know, the period from, let's say,
the early 1980s through 2007,
I mean, there was a fairly notable inverse relationship
between your assets relative to your income and savings, right?
So when assets go up in value,
the savings rate goes down.
Which makes sense, right?
Because people are looking at rising wealth
as sort of a low-risk form of income.
And so, you know, you feel better about things.
You don't need to save as much.
The financial crisis period kind of upended that, right?
So we went through a, you know, nearly decade-long period
where the savings rate rose.
By the time we got, I mean, even before the pandemic,
I think the savings rate was like eight or nine percent, right?
And so there's no reason for that to happen again.
And I think that's something that's not well appreciated by people.
And again, talk about this a little more.
So I just pulled up the chart on the terminal.
And I hadn't really looked at this chart in a while.
So we had been...
Wait, what's the ticker, Joe?
Um, PID, SPS.
Oh, I see.
Personal to space, at least the savings rate
is a percentage of disposable income.
That's the start.
That's the measure you're looking at.
So I hadn't realized January 2020,
we were at 9.1 on that.
Right.
Today we're at 3.5%.
So we go back.
What does that tell you that 9.1 that we had pre-COVID?
There was sort of maybe more caution.
Okay.
Maybe balance sheet repair.
Hmm.
It could have just also been fluky.
You know, we had maybe a couple of months
a week or consumer spending.
And we, you know, before the pandemic.
But at any rate, I mean, to me,
I think the bigger story is that the trend
and the savings rate over that entire period
was a function of continued household balance sheet adjustment.
All right.
So right now, going back to the present tense,
what's your...
What's the Fed going to do the next few meetings?
Pause in, pause in September, right?
Yeah.
I don't think they're going to do anything.
I at least until December, if they do anything.
So nothing in November, and then maybe a hike in December.
Maybe.
Yeah.
I mean, I think part of me feels now increasingly
that they'll just keep pushing back on cuts.
Well, I mean, that, that could be considered
like a de facto tightening.
I mean, if the market expects cuts next year,
and I think the market's still...
We're pushing back to cuts, I seriously.
Yeah, yeah.
They're pushing back against the idea that they're cutting.
So they just keep extended on hold policy.
Like, you know, the thing is, at this point,
I feel like if they're...
I mean, because we're talking right and out,
and you saw the journal article, like fine-tuning.
They're using these words, right?
So if you're going to hike,
like, what's the point of hiking once more?
Right? So if you're going to hike,
it has to be at least a few.
You know, like, I mean, it's very rare to see the Fed do like an abort.
Like, yeah, mission, right?
I mean, maybe in the mid-90s, that happened,
right? They hiked, and then they kind of just left it there,
and they never did anything again.
And then the next move was cuts after the LTCM thing.
So that's sort of how I'm thinking about it.
But I think the risk to them doing this is...
It's happening at potentially a time of cyclical momentum in the economy.
And that, to me, is what kind of...
kind of concerns me.
You mentioned that there are these...
maybe that the momentum on disinflation has stalled.
Yes.
But like, big picture...
And look, there's always going to be month-to-month noise.
But big picture, if you just sort of zoom out,
it still looks like various measures, CPI,
PPI, PCE,
quit rates, things like that.
It still basically seems like lines are trending down.
But...
What are you doing?
Doing technical analysis?
No, I'm just saying like, no, no, no, I'm...
What I'm more saying is like, it's just like,
zoom out and look big picture.
Like, yes, like I get things going down.
Things happen month-to-month that we couldn't say,
oh, like, strip out gasoline, etc.
It still looks like most lines.
Especially, you know, I know like one of the
theses of like persistent inflation is going to be that
wage growth and the labor market still robust.
But even that's like...
Don't you find it amazing that the folks that we're like...
that are now talking about the quits rate as this sort of magic
like wage inflation indicator.
During the 2010s,
they were the ones that were propping up the
prime age employment rate as the...
as the best measure for wages.
And that number is actually still going up
because the labor markets are in fact still tightening.
I've always been a quits rate fan anyway.
No, I always have been.
But what if the quits rates going down
because people are getting paid more in the jobs that they have?
Is it more or less likely that someone at UPS
is going to quit their job after striking a deal
after the union struck a deal with the company?
Is it more... is it going to be more or less likely
that for GM, you know, the folks that make cheap
vehicles, are they going to be more or less likely to quit their job
and in the next couple of...
in the next couple of months?
So I wonder a little bit about that.
I mean, so...
But to me, isn't it... it's a confidence game, right?
I mean, ultimately...
and I think that's how policy works too.
I mean, this is something that Waller was talking about.
It's just expectations, right?
Businesses, I hate to tell you,
no longer think there's going to be a recession.
And if they think that,
then they're going to be more likely to post job openings.
They're going to be more likely to hire,
so hiring rates and opening rates probably pick up.
And that probably means stronger employment.
And so...
Yes, I agree with you that there has been improvement
in a lot of these metrics that you're pointing to, right?
I mean, the quits...
But if you had to ask me,
are these measures going to be higher or lower
than they are right now?
I would say higher.
And to me, that's...
I mean, we'll keep the Fed awake, I think.
Well, the other thing that's happening is, you know,
you mentioned the UAW strike,
and we are getting, like, close to that,
sort of, like, triggering.
And I guess from a production perspective,
it feels like we could get into another situation
where supply chains start to be affected,
which could also maybe start to impact inflation.
It's a negative supply shock, right?
I mean, that's one of the way...
I mean, I don't think we're anything close to the 70s, obviously.
But one of the ways that happened was, basically,
you had these sort of persistent supply shocks.
You had... I mean, there's this bad luck.
I mean, on top of bad policy.
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Neil, I posted in our Discord.
I think you've hung out in there a couple of times.
Yeah, absolutely.
I posted in their Discord.
Anyone have any questions for Neil?
From JG53,
rising long bond yields, how far can that go?
And at what point does that really start to impair
asset valuations?
I think we're pretty, I mean, we're four and three quarters.
We're sort of hitting the ceiling here.
We're probably there.
I'm adding a market's kind of figuring it out,
but I think we're close.
Our market strategist, Jeff DeGraph,
he runs this thing called a yield impact model.
But basically, he looks at the probability
that a certain level of interest rate starts to negatively affect the stock market.
It gets worse the higher, you know,
after four and a half percent.
So we're right there.
To me, when I think about equities this year, right?
The easy money, I think, has largely been made,
because the big upturn for stocks
was basically pricing out the recession probability.
And now, if you think about the market as kind of,
or the economy as sort of like a four potential scenarios,
you can have your deflationary boss,
which is sort of the classic recession.
You can have stackflation,
you can have soft lending,
you can have an inflationary boom.
What you have the most,
or what I have the most conviction on
is that we won't have recession, right?
So now, I think the markets have kind of come to that view.
And so you have to,
if you're thinking about probabilities, okay,
so then my odds of a negative growth scenario have come down.
So where do you allocate this now?
I mean, is it staff soft landing?
Is it inflationary boom?
And I think the markets are kind of
gyrating back and forth between those two scenarios.
Where do you land on that?
I think we're in an inflationary boom.
Tracy, can I say?
I, you know what I think people should pay
a little more attention to than they are.
No, no, it's not a, it's not a controversial one, actually.
The unemployment rate, it ticked up to 3.8% last month.
And a lot of people sort of dismissed it
based on how it had to do with more people in the labor force.
But on the other hand, like it is the highest now
since February, 2022.
So it's like the highest and over a year and a half.
Like this way, I go back to some of these labor market indicators
and they're not terrible clearly.
And we're still adding jobs and initial clean and low.
But like, you know, as Neil said,
job openings, down, quit rates.
I think maybe I said that down.
Unemployment rate up to 3.8%.
Like it seems like something is happening.
Sure, but to Neil's point,
if we have entered a period where it seems like recession
is firmly off the table,
then it feels like that gets reversed pretty quick.
Especially given that a lot of companies
were already kind of focused on being caught flat-footed
in an expansionary scenario.
We've talked about this, right?
Like a lot of the survey data,
they're talking about like,
well, we want to hold on to people
or we want to hire additional people
because we're worried about
after the recession and expanding our capabilities.
And then the recession never materialized.
And so it feels like there's more upside
than downside at this point.
Yeah, I love reading the comments
like on like the Dallas Fed manufacturing report
or some of the ISM.
And that has been a thing that pops up,
which is that basically either managers
don't believe that a recession is coming
or they see a recession
as an opportunity to gain market share
from their competitors or gain employees
from their competitors,
in which case if everyone has that mentality,
it's hard to see how you get a recession.
Wait, I want to ask Neil
about something else you've been writing about,
which is the potential for a Fed policy error.
And I've really only seen two people talking about this.
And you're coming at it from polar opposite sides.
So I've seen Victor Schwetz talk about
the Fed's going to hike into a recession
and there's going to be an error in that form.
But you're talking about they're going to basically pause
while inflation is still booming
and that's going to be an error.
Yeah, I mean, where's the evidence
that they're hiking into a slowdown?
They're pausing, right?
And I mean, no one's talking about them.
I mean, so that's, I mean, it's just wrong.
It's just that is not correct.
I mean, we've had some version of that argument
for so many quarters now.
I feel like oh, they're hiking into a slowdown.
I mean, that was something that people were saying
late in 2022, right?
I mean, I think I believe.
So to me, we're making very, I mean,
job growth is slowing.
But if you think about like potential,
what is potential?
What is breaking?
And it's around like what, like 100,000?
Maybe a little bit more.
And we're still well above that.
I mean, household employment is still reasonably strong.
I mean, that's been running like over 200,000
the last few months.
I saw something in the journal
where one commentator was saying,
oh, you know, this is like the classic Fed
where they're putting too much weight on lagging indicators.
And now they're setting policy to lagging indicators
like inflation.
And but that's they are paying a lot of attention
to inflation and a lot of attention to the labor market.
But that's exactly why that's wrong
is because they are lagging indicators.
They have slow.
That doesn't mean they will slow.
Yeah.
So for listeners, for listeners that don't know,
one of the great things about following Neil
and paying on his distribution list
is that he's not afraid to criticize
the people who have been calling for a recession
for like basically the past 12 months.
Who's your Jeff Goodlock?
Yeah.
Do you want to take a shot at?
I don't like to name names.
I own with my peers on Wall Street,
I always, if I've worked them,
I always try to prop them up or speak highly of them.
But I don't need to say anything.
I mean, everyone knows who they are.
I mean, they come on your program.
They come on Bloomberg TV
and they talk very confidently about recession.
And I've talked to Joe about this many times offline,
but there is a cottage industry
that is just doom and gloom.
Right, I mean, think about the people
that we're like talking about
the weekly red book sales index over the last like six months
because it's been going down and down and down.
And now it's starting to pick back up.
I mean, where are those people now?
You know, it's one of our,
and I'm sure Joe knows, I'm Sam Rowe.
He has this great point.
It's like, we went out to dinner with Sam Rowe
in California.
We went to, we got a great primary of them.
Yeah, it was good.
And Sam ordered a smoked old fashioned
and the, like, it was a very fancy looking cocktail.
Very good for Instagram.
Anyway, sorry, keep going.
His Instagram is great, by the way.
Yes.
Follow Sam Rowe.
He does a great job of sifting through all the TikToks
so that I don't have to join that platform.
But it's a, for example, like with Walmart, right?
Like he'll make this joke about, you know,
Walmart sales are up.
So the bear say that that's bad
because consumers are being stretched.
But Walmart sales are now down.
And then the bear say that's really, really bad
because that means the consumer can't even afford
the stuff that's on sale at Walmart.
Or the credit card one is one of my favorites.
It's like, oh, people are cutting back
on their credit card spend because,
and that's bad for consumption.
Or now they're spending too much on credit cards
and they're stretching themselves into oblivion.
So it's just, you can't win with some people.
And frankly, there is a cottage industry
of newsletter subscription writers
that make their money selling this sort of thing.
We gotta be careful because we also have a newsletter.
We don't sell it.
No, that's true.
It's free, it's free.
But my favorite instance of this is everyone
who was talking about how the inverted yield curve
was going, was predicting recession, right?
Within the next 12 months or something.
We've now had it for months and months and months on end.
So all those people have now flipped
from the yield curve is a sign of impending recession
to the inverted yield curve causes recession,
which is a fun little transition.
By the way, Tracy, our producers are reminded you're wrong.
Actually, you have to be a Bloomberg.com paid subscriber
to get the AdLots newsletter.
So we are kind of in the business.
You know, you're having work now both on the major bank
on the sell side now for Renaissance macro.
Why is there demand from customers
for the sort of like doom and gloom mongers?
Like why do people want that in your view?
Because they couldn't, all these guys couldn't make a career
if there weren't an audience,
if there weren't a customer base for it.
I mean, the human mind is conditioned to believe
that people that pitch a negative story
or somehow like the nocturnum is like,
I mean, I have a, my view on things is that it usually works out.
That's that, and I think that makes me,
I think that makes some people just think that I'm an idiot.
Because I just think, I mean, it's like,
oh, you're like a dope bee, like, you know,
but things have a tendency of working out.
Like society heals, people figure it out.
Like that's what we do.
I mean, we have a relatively open society.
Things work out.
Is it in the Sam Rose line
and the long run of stocks go up?
Yeah.
Well, I came around to your review several years ago
because I remember people often say like,
oh, hope isn't a strategy.
Like that's a thing.
I kind of think it's the only strategy
because once, no, I really believe that's like,
once you sort of have like a crystal clear idea
of how a crisis is going to resolve itself,
is probably priced in.
So like for example, you know,
if you waited until like, after the CARES Act pass
and everything else already, like,
you were like way off the bottom on stocks.
If you waited until Mario Draghi's OMT speech
for the Eurozone crisis,
already like the market bottom.
Like if you wait for, so in the meantime,
like the only like bed is like,
yeah, they'll probably work it out.
I think so.
I mean, that doesn't mean that there aren't periods
where things can be going awry
and it's important to point that out,
but what I don't like,
and I think this is what a lot of these tumors do,
is that they start with the conclusion first
and then they work backwards.
And I hate that.
What you need to do is
take in a stewed sort of observation of all the data
and then lead yourself to a conclusion, right?
So that's how I think about it.
And that's how we try to do our work.
Okay, so you're an optimistic sort of sunny guy.
That being said, so we are recording this on Thursday.
We don't know tonight there might be a strike
at the UAW, it's possible that we wake up tomorrow morning
when people are listening to this and a strike.
It's on, we don't know unfortunately.
It's just the timing of how recording worked.
But Goldman put out a note this week
and they said there's three sort of risks right now
and that everybody knows about.
Right, the UAW strike, student loan payment reset
and government shutdown.
Are those concerned you at all?
Are they like enough to move the dial?
I think that those are largely priced in.
I mean, the student loan repayment thing may,
I mean, part of that might be already happening.
I mean, it looks like if you look at the daily treasury data,
I mean, there has been an influx of money
into the, into the government's coffers from student loans
a little bit ahead of schedule.
So maybe we front loaded some of that drag.
I don't know.
I mean, I've been through so many government shutdowns now.
It's never a seem to matter.
The market tends to look through it.
It's gonna be really annoying though
if they do stretch that into October
because then I won't get the September jobs number
potentially and that would be, that would be okay.
Oh, wait, we wouldn't get a jobs report
in a government shutdown.
Yeah, you don't get them.
Oh, man, what do we get to do?
What do we get to do on the first?
What do we get to do on the first Friday that month?
I guess I can sleep in.
I mean, the UAW strike, it's one of these things
where it's kind of like the shutdown, right?
Where you actually have to kind of go over the cliff
to get to the, you have to show them
that you actually mean, but I think, you know, as,
I mean, we have very little, I mean,
the inventory situation in the car market
has improved somewhat, but it's still well below.
Like if you look at day supply for cars and trucks,
it's still well below where it was before the pandemic.
So that to me probably argues for a more rapid resolution
to this than appreciated, but yeah,
I think that they probably strike,
but that the pressure will start building pretty quickly
over the week to come to some kind of an agreement.
Wait, what would concern you?
Like if you had to put on your doom and gloomer hat,
if you started a newsletter today,
what would be the big risk?
Well, I just said it.
I mean, I think that, I mean, we've been talking about it,
which is that inflation stay stickier for longer,
and that's gonna, I mean, right, so yes, I'm optimistic,
but at the same time, an optimistic economic outlook right now
isn't necessarily a good one for markets.
So that's kind of distinction you want to talk about.
I also wonder a little bit about manufacturing competitiveness,
right?
I mean, if you look at manufacturing productivity in the US,
it's been very, very sluggish for the last several years.
And this is now happening at a time when we are pushing up,
pushing up compensation costs across a number of industries.
To the extent that we're not as cost competitive,
that could really be challenging, because remember Joe,
I mean, in the 2010s, it was all about the US manufacturing
and industrial renaissance, right?
Well, I don't remember that.
I thought that that's the story now.
That like now is like the actual domestic manufacturing
investment.
I mean, back then it was about the dollar
who has lost so much of its value from 2002 to 2008.
Our labor costs were right-sized,
and now it seems to be going the other way.
We have a strong dollar.
We have, you know, unit labor costs have been rising
relatively quickly in the manufacturing sector,
because productivity's been so sluggish.
So that's something that's longer term,
I don't think it changes any cyclical momentum story,
but it's something to keep an eye on.
Can I end this with a sort of personal statement?
Is that okay?
Go for it.
You look, you work out this somewhere?
You look fit.
Oh, thank you, Joe.
I appreciate it.
I have lost weight the old-fashioned way.
I would call it the Indian way, which is just fasting.
Really?
Everett, trust me, loves it.
My people, trust me, we fasted our way to independence,
and I'm doing it to a better bottom.
In my day, we call this dieting.
Yeah.
Anyway, it's working out.
No need for a simple care.
One thing I learned from Joe is that guys just
want to be asked if they've been working out.
That's like all they desire from life.
This is true.
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