Why the U.S. Economy is Slowing, NOT Crashing (Uncut) 03-26-2025

The US econom is kind of like a super tanker you just can’t turn it on a dime so what is going on um is that we have a Slowdown okay the super tanker is slowing [Music] down welcome to weon in a moment we are going to bring you a fantastic conversation I had with lman autan co-founder of the economic cycle Research Institute he shares what their models are saying about the economy inflation and what investors might be getting wrong first though we’d like you to take a quick minute and check out a poll we

are conducting so that we can find out what’s on your mind and figure out how we can tailor our content to best help you just click on the link in the description below we can’t wait to hear from you hello welcome to wealth on I’m Magie Lake and today I’m joined by lashman auuan co-founder of the economic cycle Research Institute hi it’s great to have you with us good morning very good to be with you so it has been I think fair to say a volatile start to the year and I think many of us are opening those q1

portfolio statements and we’re not really thrilled with what we’re seeing so I’d love for you lman to sort of level set for us and maybe help us separate um the noise from what investors really should be focused on as we you know sort of move into another quarter another part of the year and let’s start with the USC economy because it seems like we’re getting a lot of mixed signals what are you seeing is the US headed toward recession yeah um yeah and we’ve seen a lot of the RW in the in the headlines recently and so uh great

question to kind of get out of the way um so just to be for fun I’m gonna say yes and no I have a feeling you might say that well I I don’t you know I certainly do not want to be I want to be I I’m not sure if this is PC but I want be a one-armed Economist I want to give you the one I don’t want to do on the other hand but the truth is we’re going to have another recession at some point we always do um and the and the and the helpful piece of information is is that going to come soon sooner or later and

from everything I’m looking at uh it doesn’t look to be imminent there there doesn’t look to be anything that is imminent in terms of a recession now let’s just clarify what a recession is It’s when um out put income employment and sales all fall they all have negative growth rates the levels of those different activities are all falling that’s a recession is that going to happen anytime soon doesn’t look like it okay what’s the main reason for it even though all these crazy things are happening well it’s that the the US

economy is kind of like a super tanker you just can’t turn it on a dime it doesn’t spin around like a jet ski right takes this long laborous turn okay so what is going on um is that we have a Slowdown okay the super tanker is slowing down that’s a it’s what we call a growth rate cycle slowdown instead of a business cycle slowdown which is a recession so the growth rate cycle slowdown is what we’re all feeling uh when we look around and we anecdotally see things where we say oh you know the coffee shop line is shorter or something

else happened that I saw that seems like quiet or maybe maybe that means that there’s something well yeah there’s a little bit of slowdown and that’s what’s happening it’s actually something that’s been in the cards for a little while um as the composition of what’s driving the overall economy is Shifting for many years uh it has been the services sector with a little bit of oomph from the construction sector that has been moving the overall economy along and now that that part is is easing a tiny bit while the

manufacturing sector which had been totally on its back not doing very well for a couple of years is now starting to get some traction and and move to the upside and all of those things began shifting um many months ago it’s not something recent I think it’s just becoming we’re becoming more aware of it now uh and then in conjunction with headlines you know you immediately take one thing and Link it right away to the other thing and say aha I know what’s going on but I don’t think it’s that direct of a link at least in the short

term so why is the composition of growth changing what’s what’s causing that shift sort of pulling Services down a little bit pushing manufacturing up yeah well one thing is uh and and the economy is not a market obv viously there’s very different things the real economy is very different than a share price or a interest rate or a commodity price but um in the real economy the services sector in particular where most of us work almost all Americans work in Services of some sort um that had been

punching above its weight in terms of jobs creation for years postco now I know covid is ancient history we don’t want to think about it but what it did was it really messed up or or changed very fast the composition of our labor force put a lot of Demand on Education Health Care and took a whole bunch of people who were working out of the workforce permanently and then we had some immigration stuff that slowed down uh legal immigration so all of that made for a very tight labor market in particular in Services where

boom they had a lot of jobs growth and nobody wanted to fire anyone typically if the economy slows a little bit many uh employers say oh you know I’m going to let somebody go now all they do is they reduce the hours they hang on to you and so-called labor hoarding and you that you might remember that term from a year or two ago that that’s underneath all of this the end result is that the services sector growth in jobs was running almost three decade highs for several years now that’s revving very very hot and all

we’ve done is that’s come off of the red line and it’s come back down into a more normal growth rate that’s what’s happened okay from three or 4% growth down to like 2% growth something like that so we feel that in the in the job statistics um at the same time or slightly after not exactly at the same time a little a little bit later you have the manufacturing sector start to get some growth and that is really because of the global industrial cycle turning up uh and that’s uh you know to to oversimplify it all of us

around the world none of us really manufactur anything completely on our own we all have a piece of it and either we’re an early stage component or a mid-stage component or a final stage component we all it’s there’s a World’s Factory floor largely and when the global industrial C begins to move it’s reasonably synchronized it’s the only Global cycle that really holds up over time in in what we’ve looked at and we’ve looked at it for decades so we have a global industrial growth cycle upturn uh which the US is participating

in and that that gets that gets us some jobs growth you see a little bit of jobs growth if you look at the last reports you see manufacturing’s adding jobs the the the difficulty is is that most people don’t work in manufacturing most people work in services so in the aggregate level it’s not going to completely offset it’s only going to like it’s only going to mitigate it a little bit um one other thing I’ll toss in here before we uh get it answer more questions is that the manufacturing cycle is a bigger cycle it has bigger

amplitudes in it than Services which is smoother so Services is kind of taking this easing slowdown manufacturing is turning up but it tends to turn up a little sharper and so we could look forward to getting a little more activity than expected out of manufacturing that’s so interesting so there’s a lot to unpack there but I’m going to start from most recent comment you just said the global the the turnup in the in the manufacturing the global manufacturing cycle does that bode well is that a positive indicator for the global

economy it is well yeah now the wind is at your back instead of being in your face right but again it depends uh yeah so the short answer again is yes and then it depends on your local economy so when we look at Global markets um one of the things that is really there’s a global price is uh any any of these industrial Commodities okay so now um does that mean Industrial commod of these prices are going to go up maybe probably but the but the the difficulty is and and what our analysis doesn’t really provide is what’s happening on

the supply side right right so if everything was perfectly static and hadn’t changed and you have a global industrial upturn yeah oil prices are going to have they’re probably going to rise because the demand relatively speaking is going up or some other metals or or or or industrial inputs um but if uh there was say a cartel that could decide when to produce more Supply There Was You Know Suppose there was that yeah then that could that could mess with it a little bit and and it works both ways right you could you

could also have a strike and a mine or something like that and and if they if that combines with more demand boom you really get a move but backing away from any any commodity specific issue the the big shift which I think is ultimately going to manifest in commodity price inflation Glo industrial commodity price inflation is that demand is cycling to the upside and so that helps right it’s and it’s interesting you mentioned inflation I think that’s really important but so if we’re in this sort of uh where at

least the the demand side is a little bit clearer because that’s also been murky right so there have been supply issues and there have been demand issues and that’s caused a lot of price swings and we’ve it’s been hard to kind of chart the course a lot of people talking about the fact that we’ve been in this fog because it’s hard to see both sides of the equation if you’re getting a little Clarity on the demand side of the equation one of the really persistent themes that I’m hearing from people

right now is the end of us exceptionalism right the end of the us as the sort of engine of growth for the economy and that uh positive economic story shifting elsewhere um and of course the KnockOn advice on on that is reduce your exposure to us go all in on inter International markets the story you’re telling sounds a little bit more nuanced to me that yes Global manufacturing is turning up but it’s not like the US is careening into sort of some sort sort of sharp downturn I’d agree yes um and when we

look at the relative strength of now let me put Global industrial growth on hold just for a moment and just talk about overall economic strength say for the US Europe Asia um and then we we’ll talk about China as a separate issue um the US looks pretty good it’s not like we’re horrible uh against Europe or Japan for example um I think we look totally competitive and pretty good on growth but it’s slowing from really really good to pretty good so back in December of 2024 we were calling the US kind of Goldilocks you had um really

good growth and inflation pressures uh while sticky had been shifting a little lower it’s about as good as it gets yeah and you saw the markets price it pretty quick right and then and then here we’ve got well no inflation’s still sticky and um our growth is slowing and so therefore you know now we have to it’s not so exceptional globally meanwhile Europe had been beaten down like crazy right I mean both in terms of talking about its economy and its markets um and while they have a lot of issues

structurally um they do have a old very big industrial base it’s they’ve been making things for a long time in some countries they’re particularly good industrialists um they’re having to retool for the new economy and so on and so forth Germany but France is a big Industrial Place Italy’s a big industrial place and um they’re going to benefit from a global industrial upturn and so if you’re a value investor those those that are left you know they’re going to go hunting and start looking for stuff and and I think you

see some of that happening now there’s there’s another Nuance I I said put China on the side for a moment I want to bring it back um our our initial call of a global industrial upturns from LA from the end of last year um and this is again a super tanker stuff it takes a minute for it to turn so it’s not like it’s over none of this is over we’re in the midst of this so as the global industrial upturn is is getting a grip it starts actually without China which is remarkable because China is about a

third of global manufacturing capacity yeah right um but it but it begins without it um and China structurally now I’m looking at it over what are their intentions over many years they don’t want to be a manufacturing floor anymore they did that they policy is to really shift away from that to domestic consumption and services um but uh you know Beggars can’t be choosers right when you’re in a lot of trouble and they have a lot of trouble they’ve got a housing issue and some other issues with thatt that they’re dealing with um they

may have to go back to what works whether they it’s a policy or not and so if Global industrial growth is going up Chinese exports are going to participate they’re going to start to get dragged into it they have been dragged into it now you have China joining the global industrial upturn which I think makes the case a bit stronger is all I would say I don’t want to make it to you know but I think that to me it’s it’s the final piece of a puzzle there which comes in so it’s interesting if China does does join in does that change the

inflation scenario for you because there was a time when China exported a lot of deflation to the rest of the world you know it sort of you know kept prices down what how are you thinking maybe let’s take a step back before you answer the China influence how are you thinking about in the inflationary environment so if we’ve got a a global economy that’s sort of going to get some lift from manufacturing and China is just beginning to participate in that what does that mean for the inflationary outlook for the world economy and then

we’ll talk about some specific challenges that countries might face right um there’s a lot in there I’m just thinking because I know like how to separate it all out we the FED just said let me let me let me be more specific the FED just said inflation’s transitory again and everyone was kind of like did they really use that word again because we know what happened last time they talked about that so I think there’s a lot of skepticism and I’m hearing people ask certainly people who write in ask

all the time are we in a stagflationary environment are we going back to the 70s are we going to have this sort of persistently High inflation which we know caused a lot of angst for a lot of people and voters they just do not want these high prices so there’s a lot of I think skepticism and fear that we’re in in this inflationary environment and and uh policy makers are not addressing it yeah I think that’s um probably healthy to feel that way and to be a little skeptical and to be questioning a poli

makers and uh both the fed and and Washington um before I even get into it look everybody I think is trying their best right I just want to say that to begin with whatever they think is the best thing to do now when you look at Cycles like I just have to step I take one more step back before I get into this when you look at Cycles there’s Cycles in growth and there’s Cycles in inflation those are two different things they do not equate together that’s a huge difference in the way that erri looks at the world uh compared to Wall

Street for example which are using very nice very good models that extrapolate things and literally link inflation and growth together in the algorithms now we do not do that what we do is we believe that it’s pretty complicated the market economy and a part of the reason it’s pretty complicated is because we’re all involved uh all human beings which are very driven by fear and greed basically uh we’re not that rational at the end I mean maybe ultimately but we have a lot of knee-jerk reactions and

um as a result very hard to model in an algorithm so rather we observe that growth and inflation are cyclical there are certain patterns that present themselves at the cycle turns not necessarily in between so our approach of looking at it is very different than a model Builders and when we’re looking at those patterns to recognize at the Peaks and the troughs in a cycle of growth or separately inflation we have these leading indexes and so now I’m going to now I’m getting to what is this future inflation gauge

the future inflation gauge is an indicator that we use for decades now to forecast turning points in the inflation cycle um it came into prominence uh and we have them for 11 countries around the world plus a couple of Emerging Markets so we have a pretty good Global picture on on the direction of inflation for the major markets but let’s stick with the US to keep it simple this indicator came into um I guess on people’s radar screen because Greenspan was a student of my mentor Jeffrey Moore and in the 1990s in

the middle of the90s there was a really weird fed moment uh where they uh hiked rates in early 994 caught everybody off sides and a bunch of stuff blew up it was a preemptive move on inflation so now this relates to Powell and transitory okay so here you have Greenspan and this is Greenspan Circa 1990s I am not ascribing this to Greenspan in other decades okay but Greenspan Circa 1990s was um preemptive 94 he hiked in 95 he eased and that is suspiciously around a very long expansion and some good growth without a lot of

inflation okay and there’s been a lot of stories written about that but I know that that happened right and he linked it to this future inflation gauge greens span did now the directional move on uh the Fig now so I’m I’ve just given you some credibility for the Fig but now I want to talk about what what’s it saying today the thing came down um really hard um in in uh 23 into 24 and then flattened out like a pancake it’s kind of weird I just have to tell you I’ve been watching this thing my entire professional life it doesn’t

really come down and go flat it doesn’t happen there’s a lot of stuff going on that is pushing it to the upside and pushing it back down and and so what the Fig has done is it’s been in this flat range now for and dare I say sticky I’m so sorry but we’ve been saying this for a long time it’s been in this flat range for well over a year uh at the end of last year it started to ease and then now it’s popped back up so what we we were hopeful that it was starting to to ease into a more um persistent

Goldilocks but things happened and now now it’s moving up part of what’s uh uh helping the Fig up is some commodity price inflation um but it has exposure to all kinds of bottlenecks in the system it has exposure to exchange rate stuff and credit stuff and and these are all key drivers of the inflation cycle uh and the mix of them is telling us um that I I couldn’t say what poell said that it’s transitory based on the thick so let me let me kind of tie those two together there um it’s I don’t want to predict the

predictors I’m I’m trying as best as I can to kind of um share with you the story of the predictors and it it started to get a little softer and now it’s popped back up it’s staying sticky um and and I don’t know exactly where it’s going to go from here I have suspicions but I don’t know that’s problematic for folks who believe that or in the FED uh the Market’s pricing in fed easing so that that’s a problem if you want want interest rates to go lower Scott bense talked about wanting them lower yeah this is H you know we’ve seen

this movie before you go back a little over a year and um I think the market went to six or seven Cuts in 2024 didn’t happen right so um uh and It Go works the other way by the way the Fed was hiking in 2018 and the Fig was not going up and we were like yeah they’re not that does doesn’t look good and and the market fell 20% in December 2018 and they backed off you had the famous the first Powell pivot so I do think the FED is trying to do the best it can but if you I I don’t want to bore everybody with this but if you dig into

what they actually say and what they say they’re going to do they do these whole studies on how are we forecasting inflation they did one a couple of years ago and they concluded we’re not even try yeah okay we’re going to give up now that’s a problem if the environment you live in is cyclical if you think about it your engineers on the call here you don’t even have to be an engineer just think about it for a second you have a cycle it’s going up and down let’s say in inflation in the economy you could see

watch them both and your job is to um as the FED is some it’s like stable growth and inflation right they have two mandates so let’s not let jobs tank and let’s not let inflation go crazy either way up or down and if your tool is primarily interest rates that work with a long and variable lag you can’t wait until the cycle moves and then say oh now I’m going to do something because that means if something’s accelerating to the upside and then you stomp on the brakes you’re going to get these jerky moves which is

more amplitude in your cycle instead of less amplitude in your cycle so I I find it kind of yeah I I don’t know what the right word is it’s it’s um I I think they can do better in in anticipating inflation yeah well it sounds like they they need to do better because otherwise they’re going to create volatility when they’re when they’re trying to to damp it down is that is the is is the bond market uh so the fed you know maybe needs to do a better job do you think the Bond Market’s been adequately pricing that I

mentioned that they’re pricing in fed eings but you haven’t seen you’ve seen those yields staying above 4% keep backing back up toward 5% at moments again because they they they seem to be sniffing out something about inflation and being skeptical that it’s going to go down do you feel like the bond market seems adequately priced or or at least Right theme for inflation for now yeah it’s it’s your mix of growth and inflation which is going to hit the long end and uh I think it’s adequately I mean I wouldn’t have too much of an

issue with it I have spent years waiting for Bon Market vigilan needes to show back up and they and they don’t so I’m not going to hold my breath here uh maybe they will now um but I I will continue to watch the Fig if the Fig made a sharp move up then I would expect some real fireworks works but that has not happened yet um and and so but there’s some vulnerabilities if if for any reason the dollar got a lot weaker or if uh commodity price inflation started to move or um if the economy didn’t weaken

as much as people expect which is kind of our call uh those are all things that are a little tighter but I don’t want to predict the predictors like I know these things I’m watching these Cycles in growth but I want to wait and see what the Fig says I do not want to predict the predictors yeah I don’t think I know more it’s important for for people listening to be aware of that though because you know there are a lot of people that maybe don’t have Hedges on for inflation in their portfolio are that are exposed in

a way that if we do see growth and inflation running hotter and higher they’re kind of not ready for that because they’ve been positioning for something that where we’re in a falling rate environment yeah and I think it’s part of it might even just be she bordered you’ve been sticky for so long you want to make a bet one way or the other but I think the correct call at the moment is more sticky um and and the I think the G the the more solid kind of game Cher for 2025 is global industrial growth upt

that seems to be the thing that’s the clearest in our indicators and no imminent recession that can change we check in in six months that I could be saying something different if the leading indicators deteriorate uh on growth um but you the the the key thing is is this murkiness I agree I don’t know what’s going to happen with geopolitics I don’t have a particular Insight with that and I think we’re all suffering from that um and so what I’m doing is sticking with the tried and true indicators look these

indicators to be clear some of them have been around over a century I mean they’ve been running real time since uh the 50s or 60s 1950s or 60s um but they we can have do an out of samp I mean an ins sample but not fitted look all the way back to the early 1900s which is important because some of that predates the FED let’s say the Fed was out of it or something um you had depressions you had panics you had all kinds of weird stuff you had all that crazy tariff stuff happened it’s all in there you had big

shocks right so like Pearl Harbor or um some some bank failure or um the 87 crash um and and how do the indicators perform through some of those sh admittedly shocking moments so here we have a 10% decline 10% something decline I don’t know exactly what it is it’s in that neighborhood and what does that mean well um I could tell you that during growth rate cycle slowdowns um especially in the QT kind of era post GFC um 10% Corrections are concentrated during those growth rate cycle slowdowns they they tend to not persist

too much and now I’m going back many years because there’s a reaction function of some sort that comes out of either Washington or the fed and and while it was a little more subtle this time I think there was an adjustment with the QT stuff in the last meeting right and and so that’s a little reminiscent of what they was do happening big time post GFC yeah so it’s interesting you it I think that’s a a really important point to bring up because it kind of feels right now like you know it always feels like this is

totally different and Chuck the models right out the window um so it’s it’s interesting to sort of understand that there is this sort of you know decades long bulk of data that that we should pay attention to um instead of just getting whipsawed by the news right that’s what we sort of started out talking about but how do you if you’re thinking about these models these Long View models and the super tanker of an economy that takes a while to change how do you think about the huge political moves that happening how do you make

sense of that and and you know do how do you figure out what their impact is because even though we’ve seen maybe tariffs in the past and we’ve seen geopolitical uncertainty in the past I mean the pace of what’s coming out of Washington is incredible right now and kind of unprecedented the nature of executive order is unprecedented um the fact that people are talking about maybe this is a changing world’s order where we’re going from move away from globalization to a multi-polar world that seems like it

would be very different than what we’ve been in since the 50s how how do you take all of the in the moment things that are happening and figure out how to make sense of it based on your modeling so first I I I agree those the these seismic changes may be happening and and and perhaps we’re we’re switching into a new regime of sorts globally in terms of the economy and how it’s it’s organized um that the impact of that or the pace of that change or or what it means in the next quarter or two makes its way into the leading

indexes so the the the inputs that go into the leading indexes are hard data market data and soft data and so those very we spent a lot of time figuring out how to what to watch and then how to put it together so that we’re getting a clean signal that’s a lot of research that we do and if sentiment tanks or if something happens with real economy or something happens with markets that’s going to impact real data that’s going to impact the real economy then that’s going to filter in and impact uh our leading

indexes and have us we believe um usually looking the right way in terms of Direction I I’d say a secondary issue is magnitude it’s not the strength of the indicators it’s more the direction of which way to look and and and in a in in a world like you were just describing where there’s it’s not an America uh Centric kind of global economy but it’s a there’s a multi-region kind of global economy to my ear um that sounds like the the these cycle changes and differences are going to become more prominent not less

prominent um and one of the things one of the big insights um from cycle research is that free market oriented economies um have inherent Cycles so that even applies say to China which is has a lot of Central Command but but the majority of the activity they’re open enough on to the global economy that they are having Cycles um for India when we were doing the work with India decades ago um before the 1990s you didn’t see the types of cycles that we’re we use to make decisions you saw a whole it was very messy but as the economy

became liberalized the sequences came into in into alignment in away and so we could at least make the directional changes so I don’t know I certainly do not know everything I just know that directionally speaking there’s not a recessionary trapo right in front of us we’re slowing down uh inflation’s going to stay sticky um compared to the rest of the world we’re not horrible uh we’re just slowing from being very very good and there may come a time when the current type of um uncertainty with the

headlines becomes recessionary it’s just not today if the cycle indicators the the way that you get a recession is that the cycle indicators cycle down hard enough enough that the way we describe it a window of vulnerability opens up on the economy within which bad stuff can be exceptionally painful when when the window of vulnerability is closed you could have a whole storm going on and the economy can cruise through it and so the the change in effect is when these forward-looking drivers if they move down strong enough that a

window of vulnerability opens up the same thing that happened six months ago that wasn’t recessionary could be recessionary now again this is going into the academics of Academia forecasting of recessions but a lot of times they’ll end up on oh the recession was caused by a shock okay and and if you think back about recessions you know there’s a story about a shock that was there that was associated with the recession actually there shocks are happening all the time it’s just which are the recessionary shocks and and the

way that you can see when a shock is going to be recessionary is when the window of vulnerability opens up that’s a fantastic way to look at it because we can visualize that and I think we all can feel that too you just get a little bit yourself right you get a little more uneasy you’re not sure about your job you feel like like you want to be a little more conservative because you feel vulnerable to something happening and then of course Murphy’s Law usually when is when something happens do you so

do you don’t see it does not feel like the US is in a in a vulnerable the economy is in one of those vulnerable States right now not not today not while we’re talking um is there anywhere in the world that looks vulnerable I wouldn’t no I wouldn’t call out anybody I think I think it’s more it feels more like troughing stuff than peing stuff um for the time being uh and that you know I mean I’m not a politician but maybe hey when everything’s going great is when you do the weird stuff I I you know and because you can

get away with it I I don’t know I would suggest that they have a plan I don’t know I don’t know would suggest like a lot of I always I always laugh because it’s like yes you’re right but is that is that what’s happening anywhere I’m not really sure because it seems it seems kind of reactionary in a lot of places in the world you know it does it does I mean I’m trying to TI I know the audience is very interested in the markets and I would just say that during growth rate cycle slowdowns you can have

Corrections It’s Not Unusual it doesn’t mean there’s a recession um empirically when we look over growth rate cycle slowdown since the GFC going back to to 0709 they’ve been short they haven’t persisted and and and in retrospect you might say oh there was a policy reaction you know there’s a lot of liquidity there was a lot of something that happened to help it out um so we didn’t see them persist before GFC during a growth rate cycle slowdown you would see the correction persist a while even though it wasn’t a

bare Market markets are typically associated with recession I think you raised an interesting question which people are asking is that you know have we create are we in a situation where whether it’s a politician or a monetary Authority that we are not allowed to have recessions or they’re unpalatable or you know they cost you your job and so they’ll do whatever even if it doesn’t seem fiscally wise to prevent any kind of recession does it feel like we’re in a world where there are no such things

as recessions anymore well no I I my whole work is that that’s not going to happen we’re going to still have recessions and and I’m not saying that I’m saying that based on the US and international markets us for over a hundred and something years and international markets for at least 60 years looking at the market oriented economy so based on that experience I was say no we’re still going to have recessions um but what is interesting what caught my ear when you were saying that is that it’s s after the

GFC all of a sudden a recession which is a feature it’s not a bug okay this is a feature of a free market oriented economy it’s it’s literally you need them okay uh after the GFC the policy conclusion seemed to be that a recession was Armageddon and that this was somehow a bug that you had to get rid of and I think that’s a real fundamental kind of question to be thought through um because uh while there’s a lot of collateral damage round recessions and I do not wish that on anyone in the system

we have um the excesses that are just not healthy for an economy to grow on a sustained basis get kind of pruned during recession uh and it sets you up for for healthier growth and by healthier growth you know you could say um stuff that you know gets into the middle class or or or lower wage earners as well I mean you could look at it that way um these boom busts that we had so we used to have jungle variety recessions right and now we’ve had Garden variety recessions for most of our experience and then we ran into

the GFC and we were like oh my God that’s so horrible how could that happen we’re never going to have one again well that’s actually just not the way it works right I mean it we we’ve we used to have these jungle variety recessions they were actually pretty normal um and as we moved away from an industrial economy to a service oriented economy and nondiscretionary services it got smoother as we there’s a lot of automatic stabilizers that went in so it used to be when you lost your job you didn’t have any money now I’m not saying

unemployment insurance is a lot to live on but it’s something it’s not zero right so these types of stabilizers take off the lows um but then here we are we’ve you know we’ve taken on a lot of debt yeah uh uh post GFC in the view that recessions are Armageddon and all of that debt tight it kind of limits us now and and why am I thinking of AI and all of the VC money chasing AI when you’re talking about these sort of Boom you know when you take away the recession and you’re you’re not sort of forcing some

discipline on Capital do you worry that it feeds is that what feeds something like a bubble and I’m not suggesting AI is but this is the question haunting everyone is you know are we in the beginning of a bursting of a bubble because there’s no consequence to that yeah that’s I mean that was certainly a feature in the.com bubble um there was uh the so-called green span put after 87 there was this feeling that um you could get out over your skis and you wouldn’t you would be too big to fail you’d get bailed out and

we’ve all seen those stories right and and the feeding at the you know the government does something special for some Little slice of the business and um that is a slippery slope uh because it’s that relationship between risk and return you need the risk part to really allocate properly uh and and if you remove the risk then you know you could be a little bit more flippant in how you allocate uh your your Capital um so that I think that is probably a uh something to think about how are you thinking about AI from

a productivity point of view because productivity is the miracle right it’s the non-inflationary you know the miracle that helps you get non-inflationary growth um but we kind of you know we’re at the beginning of this are are you plugging that into your models how are you thinking about productivity well uh we think about it a lot for all the reasons you just mentioned um and it does work its way it is it is captured by our leading indexes the problem is it’s really hard to measure um and it it’s extremely hard to

forecast I don’t even know if productivity growth is forecastable we can know Pine about it and say isn’t it obvious that I could do this thing with chat GPT and I could do whatever and I’m I’m faster or I could do a machine learning and it’ll optimize something okay and that may in fact even make you and me and listeners more productive I’m not saying it doesn’t right but but does it make the US Workforce or the global Workforce RIT large more productive that’s unclear um and and and it it certainly doesn’t do it

quickly um one of the things I would point out is that um for something like Services very hard to measure productivity manufacturing a little easier because you can kind of count things and it’s you know I mean we’re pretty productive we produce a hell of a lot with a lot less people um construction we’re not productive at all it’s like negative it’s really bad and that’s a decent sector of the economy yeah why is that do you do we know why that that is lagging so much because presumably it would have access

to some of the same tools that yeah do we know why productivity is so poor in I don’t think we really know again productivity is a tough one you could say there’s capital investment which we don’t do a great amount of okay so we we’re horrible at capital investment all our stuff is pretty old yeah um relatively speaking I mean we’re a young country but it’s still 100 years really that’s a really good candidate for the uh then there’s education you know because you you you need the workforce for for using some of

these new um information tools has to be educated to do so um then there’s uh I’m sorry but I got to go back to covid um it was a big deal what happened uh with the jobs Market yeah and um you took I’m not a construction guy I’ve watched construction guys some of my friends are Construction guys but I just want to say I’m not a but um but you you could see there’s a huge difference between somebody who’s 50 and who’s been building and has a wealth of experience in someone who’s young yeah we we lost a pipeline of a

lot of critical workers and you get this huge hunk of serious knowledge that you’re like yeah I’m this is not worth it to me I am checking out and and the young guys are coming in and you know to make a choice to be a construction worker in today’s economy not a tip there’s a lot of people who go in different directions I’m going to build an app I’m going to do this and that right and and and so I don’t know exactly what’s going on I think there’s something in the the the training of the workforce something and then there’s of

course and I must say this there’s regulation um uh while I’m not inherently against regulation it could all of these things can are you know are probably good in moderation yeah right and so so all of those things are in there yeah and I don’t know exactly which one you could pick I think I think it’s probably a combination of all of them it makes sense and by the way Whenever there is a very big problem there’s a very fantastic business opportunity so anybody who’s leaning into AI there’s there’s the sector that

you want to disrupt I think that for young people that might be 100% yeah that’s really that’s super interesting so um lman as as we close out first of all I think it’s really important at the beginning that you made it distinction between the real economy and the markets because there are two different things and I think we’ve all been feeling you know when I said it’s been volatile we feel bad we’re opening our portfolio part of that feeling is based on what’s happening in the markets as opposed to

the real economy do you worry that um volatility in the markets can become something that impacts the real economy how should we think about that or should we try to separate out when we’re think it totally it totally can the longer this goes on I think it again I don’t want to predict the predictors but I could imagine it Weighing on the leading indexes because the uncertainty means um that you may hold off on a capital investment which we probably need uh that you that you um so so you’re hesitant to take a bigger bet

that where where you might see an opportunity and um You probably buy a little more insurance which is that’s costly it’s costly so these are less productive kind of things over time now again a super tanker doesn’t change on a dime doesn’t turn direction on a dime but if you if you keep uncertainty and you hold back on investment for extended period of time I I could certainly imagine it Weighing on the leading indexes but I would my process is to be as objective as I can be and to wait to see it in the leading

indexes and and let me just say that that might my general experience I’ve been doing this since 1990 is that yeah the the market rarely gets ahead of you and even if it does a little bit in the big picture doesn’t matter uh in terms of decision- making and i’ much rather have some conviction in the way in the direction I’m looking that makes a lot of sense which is why we’re separating out some of the noise that might come from the markets keep keep your eye a little bit on the fundamentals we’ve had a lot of we’ve

had a lot of um momentum momentum trading you know is is really in the driver seat now and I asked somebody about you know the fundamentals is said well that that’s fine that’s a fundamental story but right now it’s really hard to fight momentum again like when we’re when we’re looking at the markets you know what is your advice to people um as they’re trying to figure out do I jump on the train or should I be fix it fixed on the economic fundamentals and not lose sight of that what’s the relationship between those

two things look I’m built more towards the economic fundamentals the direction so I’d say no recession but I I have to allow for Corrections so I can have exposure there but with that knowledge um inflation’s sticky so I need an inflation hedge okay I’m not going to give up on that and I’m glad I have it uh it has served us me well right and and then finally um This Global industrial growth thing yeah I’m happy to play along on that uh that feels pretty good it gives me something to do when you because sometimes you want to

do something you’ve had this inflation sticky the whole time you’re like okay I got that you’ve got a little bit of exposure because there’s no recession but you have to be wary of Corrections so what else am I going to do Where can I get my where can I go along and get some more fun and and that may be in the global industrial growth upturn that’s where I would look I love that and tariffs should we be concerned about which story Chang every day yeah look April 2’s a big day these are always I

you know it seems to be we just have to be resigned that you’re going to just have more and more of these headlines I I so therefore I I tend myself to look more at the actions than the words um so I want to see what actually happens and look tariffs came on in 18 and you had currency adjustments and so we’re having some currency I think currencies are interesting you know that’s how devaluation and some people think that’s that’s a policy objective yeah yeah so then your inflation Hedges can help you

there if they’re right if they’re the right ones I mean not for nothing gold is up right so uh so you can you can you you I think currencies will be interesting this year that’s another interesting spot in here because it can it can nullify in certain cases tariffs as it did in 2018 um I’m C I’m certain the Administration has learned from that so they’re going to try to to navigate around that as best they can so we’ll see you know there there’s been talk of a maralago Accord what does that mean is

it real isn’t it real I don’t know right we got to watch right and you know currencies is not something that everyone watches like that that no you know that’s that’s going to have to be something we insert into our framework I think I I really think so and going back to what you said if we’re going from America defines the global economy to different regions make up the economy boom now we’re back in currency land lman this was so fantastic so wonderful to catch up with you and sort of get our

feet firmly planted back in the fundamentals thank you it was a pleasure thanks so much much by