0:02

From the host that brought you to coding.

Westworld and Westworld the re capitals comes the ringer, Prestige TV podcast on West world, I’m doing Robinson.

I’m Danny Heifetz and I’m David Shoemaker, welcome to West Road.

Season 4 in the prestige TV podcast feed where we’re going to break down every episode of Westworld season.

0:20

For every Monday, the day after the show comes out on the prestige TV podcast feed.

Where are we?

Get your podcast but get them on Spotify.

I feel like the theme of this podcast recently has been that everything is going off the rails.

In fact, scratch that I know that the theme of this podcast recently has been that everything is going off the rails.

0:40

Because I think I literally said that in one of the last few episodes I was like, well, everything is really going off the rails, inflation oil prices are travel cancellations, the Supreme Court for God’s sake and I know it can sometimes feel like everything is bad, but the truth is, I really don’t like feeling like this, I’m a genuinely.

1:00

The person I’m a sunny person, I don’t like people who are irrationally optimistic, I don’t want to stare at bad news and say, oh this is good for us but I think that like so much of the news industry, I can be captured by my own negativity Instinct my own negativity bias.

1:18

So you know, take something like the economy, my prior.

And I think the theme of many the last few episodes on this podcast.

About the economy has been that the odds of a recession are nervously.

Hi, But when I feel myself becoming a bit ideological, when I can feel and narrative calcifying around my commentary, it’s always worth asking what if I’m wrong.

1:44

What if I’m wrong, what if my predisposition to see things in a dark light is actually making it harder for me to see the truth.

The fact that some real-time data, lots of real-time data isn’t nearly as pessimistic as most of the headlines.

2:02

So what I want to execute in this episode is a bit of a turn or are you turn a zag?

As we say, I want to take seriously the possibility that this economy is not nearly as bad as most people think that if you look at the real, Time inflation data jobs data, corporate earnings calls, the Leisure economy, which is white hot.

2:20

There are surprisingly compellingly optimistic green shoots everywhere.

Today’s guest is Connor sin.

Connor is the founder of Peachtree Creek Investments, and an economic columnist for Bloomberg.

2:37

Connor is also one of the people I talked to most about the economy in the world.

I have never met him IRL, Connor lives in Atlanta.

I live in d.c., in fact, this interview might be the first time we’ve ever spoken to each other which is either a weird only in the 21st century thing or maybe some kind of Throwback 19th century pen pal situation.

2:59

Anyway, this guy gets it.

He is just without a doubt.

One of the sharpest economic analysts that I know and he has been for the last few weeks, even as I’ve been listing toward gloom and doom pumping out, economic, stats and Analysis about how this economy might not be nearly as troubled as the headlines.

3:21

So, I decided that we should listen to him.

As always, send your comments, your questions concerns to plain English at Spotify.com.

I’m Derek Thompson.

This is plain English.

3:56

Connor sin.

Welcome to the podcast.

Thanks for having me.

Derek it is great to talk to you.

I was just saying in the open that you’re among the few people who I talked to, who consistently online about the state of the world.

I think we’ve probably exchanged thousands of messages on Twitter and Gchat, but we’ve never met in real.

4:14

If we’ve never spoken over the phone.

So this is not a replacement for that.

I’m still buying you a beer.

Next time, I’m in the Atlanta area but this will do for now, I think it’s safe to say that you and I are generally pretty similar when it comes to our outlook on economic news and Analysis.

4:29

We’re both data-driven.

But we also aren’t like full step brain like we leave a remainder for Vibes and narratives and feelings and JuJu and all that.

I think the main difference between us is like, I’m a little bit more of a short-term.

Term catastrophist and you’ve always been a little bit more of an optimist before we keep going.

4:49

Do you think that’s a fair way to distinguish our philosophies or have I gotten us wrong right off the bat?

No, I think.

That’s right.

And we often talk about similar things, focus on some more ideas.

So it’s sort of, I’m always kind of, you know, curious about what you’re up to and probably vice versa a little bit.

Yeah, it’s interesting.

I think we, we have a lot of overlap.

5:05

And then our meeting, our differences are meaningful and instructive.

So that’s exactly what we’re doing in this episode.

The theme of this episode is that I’ve done a bit of a catastrophe.

On the show recently and I want to see the good news in the world but I want to see that good news with Clarity and with empiricism.

So you and I emailed back and forth and came up with five.

5:24

Big picture reasons to be optimistic about the state of the economy.

Even though inflation came in and almost 9 percent last month, even though stocks have crashed.

Even though interest rates are rising faster than they have in a long time.

Even though, even though through all that fog, I gather that you think the conventional wisdom has turned to gloomy me about this economy.

5:45

So before we get into all the details, can you give me a thesis statement like a big beautiful Christmas tree on which to hang all these data points.

What’s the big picture reason why your outlook right now is sunnier than the prevailing wisdom?

I think it starts with the fact that the prevailing wisdom has gotten so - that the bar to exceed that is so low.

6:06

So, last week, the stock market, the S&P 500 was down over 20 percent for the year.

And or I guess since the hives like November.

And if you think about the two recessions that everybody’s worried about the one in 2001, which was the.com, bust.

And then 2008 with the housing financial crisis.

6:23

By the time, the stock market was down over 20%, we were already in recession that was March of 2001 and the summer of 2008.

And so for me, I feel like if we’re just not in a recession right now we’re going into one this month then it’s better than the consensus, right.

It’s kind of like when the S&P 500 dropped by 20% that is historically a five-alarm fire.

6:44

Sir, it means either your house is burning now or the burning is about to begin imminently.

And therefore, we ought to direct our Focus to real-time data.

We should pay super close attention to the most on time and high-frequency reports about the US economy.

But when you look at the real time data, when you look at the most on time and high frequency reports, you’re not seeing a fire.

7:06

You’re not seeing the imminence of a fire now.

Look, maybe you’re wrong.

Maybe the market is, right?

Maybe the market knows that a Growth tech stocks were total BS and that’s why we had a correct like this.

Maybe a lot of value is never coming back.

Maybe the market knows we’re getting a recession in late 2003 or something 24.

7:26

But again bear markets like this are a fire alarm and when you look around you’re not seeing those flames, right?

And I think in general it’s wise to be thinking about 6 to 12 months, risks, things like that.

But right now again when the market is pricing so much negativity, I think a real-time data matters more than typically It does, and if you see things like, we can go into the details, but I just don’t see that imminent reception in the data right now, right?

7:51

All right, so let’s go through all of the things that you’re looking at and I’m just going to alley-oop you for every Point here.

So Point number one is inflation right now.

Obviously, inflation is the biggest problem facing the economy.

The Federal Reserve is jacking up, interest rates to destroy demand to help bring down inflation, but the biggest driver of headline inflation.

8:11

Isn’t something the FED has power over its energy prices.

It’s commodity prices.

It’s shipping prices Supply chains.

Tell me what you’re seeing on shipping rates and commodities that is mildly optimistic.

It’s really ironic that we’ve had these very high court inflation prints over the or headline, inflation prints, over the past few months.

8:31

But all over the sort of real-time data that you might want to look at for where is inflation.

Going over the next six to 12 months?

I would argue are coming down and so that’s sort of started with used car prices, which were a big driver of inflation for last year.

The beginning of this year, those are really flat lined over the past few months, and that’s because production is picked up pricing is come pricing.

8:50

Got so high that it sort of destroyed Demand on its own.

So that’s one area.

The second is retailers from everyone from Amazon to Walmart to Target said that there was a big shift in demand from Goods to services around March, or April.

And as a result, they were overstocked and over over employed.

And so, we’re gonna start to see discounts show up and retailers and things like that.

9:09

And then just last week in the market, we saw Commodities really get crushed, and that’s in part due to the reception.

If the people have but everything from oil to Natural Gas, to Copper to wheat soybeans to Corn everything and on the Commodities front is now coming down.

And so to me, there’s just a preponderance of evidence that inflation is going low over the next several months.

9:28

Why are the commodity prices dropping?

I understand the target Gap stuff, right?

Like they saw demand for durable goods.

They stockpiled a bunch of clothes and whatnot.

Now people are shifting their spending towards Services.

I get the thing about used cars and I think that microchip supplies are probably going to come back to normal in the second half of this year.

9:48

Why are commodity prices falling for oil and copper and Tin?

That seems like a really important factor here because if all those prices start to come down headline inflation, absolutely has to recede.

So explain that for me, I would say there are two main arguments for why that would be the first is that if people are worried about a recession, now that it’s hard to think that commodity prices are going to keep going up because you’re going to see that decline in global demand.

10:14

And so Commodities are going to come off.

And we did see that in the middle of 2008 right before the financial crisis, really got bad where Oil got up to almost $150 a barrel and then it really crashed in the bathtub back half of the year.

So if we really are going to have a recession High commodity prices doesn’t make a lot of sense and the second is just with the way that a lot of investors have strategies.

10:32

One is sort of trend following in nature, and this year Commodities have been the only thing that have consistently gone up in price and we finally saw them start to sell off.

And so, a lot of investors for a long Commodities, just decided to sell them all the same.

Same time thinking, maybe this uptrend is broken and this trend following strategy isn’t going to work anymore.

10:48

So if all this is true, if there are reasons why core inflation is going to come down as demand softens a little bit.

And there’s reason why headline inflation is going to come down, if commodity prices soften a little bit.

Do you think the FED is making a mistake by escalating its interest rate hikes?

11:05

Because the fed’s decision making process at least as explained in the last meeting, made it sound like they had to try even harder to Bring the pain but you’re saying look maybe that much pain isn’t necessarily required if a lot of inputs into headline inflation going to come down.

11:23

Anyway, is that right?

I think in normal times the FED can be focused on the nitty-gritty of details and components of inflation and why things are happening the way they are.

But right now, the entire world is focused on inflation, ordinary Americans care about gas prices and home, prices, and rent prices.

11:38

And so does the public in general and DC politicians are just mad and they’re mad in part because nobody expected this in place.

Soon happen or most people did not.

And they’re looking to the FED to fix it.

And so the FED even though they’re politically independent, they’re politically influenced.

And right now, I think it’s just too hard when headline inflation is 89 percent for them, to say to stay the course, when that’s what they said last year and it turned out not to be the case, if you’re going to make a prediction.

12:01

Would you predict that inflation either has peaked or that?

The next one or two prints will be the peak of headline inflation.

I do.

And that’s because again, commodity prices have come down so we’re unlikely to See that big jump in gas prices over the next couple months and also a big sneaky driver of inflation over the past few months has been airfares.

12:21

They’ve gone up around 40 to 50% as people have shifted their spending from Goods to services but it’s unlikely that’s going to continue.

And so is airfares maybe flatten out or even decline a little bit that last sort of pandemic related surgeon inflation should taper off.

Yeah and I think that airfares is you know it’s June and no matter what happens next month will be July.

12:39

The next month will be August and then after that you have the end of summer travel.

So just Like the mere passage of time is very likely to bring down airfares as we move from the hottest, three months of travel to a less-hot quarter of travel.

All right.

I so I’m I think that’s a really, really good case that as scary as this economic moment is it’s very likely that we’re at the top of inflation mountain or very very near it.

13:03

And as a result there’s lots of reasons why the big hairy monster of the economy might begin to soften in the near future.

I want to move on from inflation to the second thing that we want to talk about here.

Which Jobs a lot of news stories about layoffs and rescinded job offers in the news.

13:18

It’s all over Bloomberg.

It’s all over the Wall Street Journal front page, but they are very concentrated in Tech, and specifically growth tech companies.

If you look at the overall labor market, it’s still incredibly strong.

So give me the meat here.

13:34

What does the labor market look like to you?

So I was in the two reports that I’ve been focused on because they cannot weekly.

So it’s maybe the most real time data we can get on the state of the pulse of the Enemy are jobless claims those come out every Thursday and initial jobless claims report the number of new filings for unemployment every week and that has picked up somewhat, but it was that such record low levels.

13:54

That a mild rise is not really cause for concern and the more optimistic one is continuing claims, which is the number of people continuing to file for unemployment every week and that’s still basically at historic lows and so until that were to pick up, it’s hard to say that unemployment is getting worse and you could argue that the labor market strength is just continuing on the way, it was really up until the spring.

14:14

And then also indeed the job website, puts out a weekly tracker of number of job postings.

And this has become something.

The FED has been very focused on as they think about an imbalance labor market and they look at the number of total postings.

And then also just the number of postings this week to sort of you can isolate over the stale postings.

14:32

That maybe don’t mean anything and those have come off a little bit but they’re still very strong.

And so we really just don’t have any significant evidence that at the macro level.

We’re seeing that kind of weakness and the job market yet.

So this is not pushed back.

It’s more of just a response.

You said, the FED isn’t necessarily politically motivated, but they’re politically inspired or politically affected.

14:51

The feds going to keep raising rates.

They say that.

Their next increase is going to be 0.5. 4.75% demand is going to be destroyed.

We know that destroyed, demand destroys jobs and the FED itself is predicting, not one year of rising joblessness, not two years of rising joblessness but three years of rising unemployment.

15:10

And that is something that has never happened outside of the Do you think the FED just isn’t reading the real-time economic data accurately?

Or do you think that they really are going to continue to raise rates even as we enter a period that is basically the equivalent of a labor market driven recession?

15:31

I think what they needed to do and one of the FED Governor spoke about this a few weeks ago is that they think the unemployment rate needs to rise somewhat to get inflation back to where it needs to be and they’re hopeful that it can get there with people coming back into the labor force.

Force.

And if you getting jobs and then maybe some people who are currently employed losing their jobs and it Nets out to net job growth but more unemployed people the same time and that’s sort of a miraculous soft landing and that’s what’s reflected in their forecasts but the truth is they have a model.

15:58

I have a model, no one really knows what’s going to happen and I think so much of it is going to be driven by what’s the course for inflation.

Over the next three to six months, which will then dictate their interest rate increases and policy which will in in Implement influence everything else.

A huge input into inflation is obviously housings that takes us to number three.

16:16

When I do housing research, I try to include all the veggies in the omelet.

I’m looking at housing starts.

I’m looking at mortgage rates, originations inventory, what?

I’m not very good at looking at is comments by Chief Executives on earning calls within the Housing Industry, or to be more accurate.

16:31

I’m only good at following your tweets about what home builders are saying.

And you’ve been following this very closely, I think this is a really interesting sort of real-time data source to look at, At our home, builders saying about their own outlooks about the housing market, what are you seeing in the home?

16:49

Building industry?

Why do they seem weirdly bullish right now?

So we sought to homebuilders report earnings last week, and that’s when our, and Katie home, and they are two of the largest in the country and heading into that report, Home, Building stocks had sold off around 20% over the prior few weeks.

17:04

As that inflation reported, got the FED much more likely to increase rate more than the market thought.

So people really brace for the worst and what they said was That basically because they were so production, constrained and inventory, constrained heading into this Rising rates.

Maybe, demand sort of was in 5th gear, but Supply the production response was in second or third year.

17:25

And so now that demand has come down somewhat production and demand are actually more imbalanced than people think.

And so they still think that they can sell the homes that they can produce.

And that might be not be the case months from now, if unemployment picks up or as production picks up and they have more to sell but at least for the summer, it seems like where do weird spot where six percent mortgage rates or kind of crushing the existing homework it but the new Home Market is doing okay.

17:48

Just because we were so production and Supply constraint heading into this, right?

I’ve talked about on this show and previous episodes.

We’ve done about the housing market.

The really key thing to look at is inventory because when inventory is low, then the market is going to be hot hot hot.

18:03

And right now it’s actually three different kinds of inventory that are really important to look at.

So you can look at the inventory of completed homes.

That’s new.

It’s for sale and that is just off a record-low just off the record low of 32 thousand in 2001.

18:19

But what’s really, really weird about this housing market is that you have a large number of homes that are under construction, but not finished.

And that’s because the house it the the construction process started.

But it was really, really difficult to get these materials.

18:36

They were either scarce or just way too expensive or both and as a result you have like all these homes.

That have been started, but aren’t finished, and therefore can’t be sold.

And right now, if you go back to the first thing that you said about commodity prices coming down if those prices come down then, pray that it’s more affordable to finish all these homes that they’ve started, but haven’t been able to finish.

18:56

So is that a huge part of this picture as well?

That all these homes that were started.

But they couldn’t finish those homes.

Be completed as those homes.

Come online inventory will increase and that will naturally either allow home prices to flatten or even come down a little bit.

19:12

And when our spoke to that on their call last week, where people were asking them about their cost inflation, and if they were worried about home prices, flattening out, but costs continue to rise and what that would need for profit margins.

Miss that all the cost increases.

That happened this quarter were on the labor side.

On the material side, they saw no cost increases and so even though home prices are really going up anymore because their costs are going up as much either they can maintain the profitability.

19:33

They had when everything was going nuts.

And so this time he actually seems like a good thing over.

All right.

I mean it’s a good thing because every day is to make it simple like What we had in housing is what we’ve been having in like every other industry, whether it’s air travel or the oil markets, you have we had demand for houses dramatically out running Supply, like especially in places like Los Angeles or you know Washington, d.c.

19:56

Boise Denver, but I’m trying to like perfectly understand the sort of Connor’s send scenario.

So I’m putting together all these dominoes and tell me what you think.

I get this picture on, you’re saying that material costs are coming down, which means that home completions will increase and as That happens while mortgage rates rise, they’ll be more Supply, but weekend, short term demand, that means Rising inventory.

20:19

That means that prices will stabilize or even start falling in some markets.

That means to housing component.

By the way of inflation will start to come down.

And then maybe, as core inflation returns to normal, the FED will stop having to suffocate aggregate demand with interest rate hikes.

And all of that means, hooray, hooray, no recession or at least a very teeny tiny micro recession.

20:40

Did I get those dominoes right?

I think so.

So, and right now, we’re one, spooked about six percent mortgage rates, but to the extent that inflation comes down and the FED can back off a little bit.

Maybe by the beginning of next year were back closer to 5 and so you can start to pick things up again and not as crazy as it’s been the first half of this year.

20:56

But a more sustainable growth pace and it’s important to say that like 5% 6% mortgage interest rates that sucks from the perspective of like you know someone who bought a house in 2019, but historically it’s a pretty normal rate, right?

Like we’ve had prolonged expansions including I believe the Is when mortgage interest rates, were basically there, even a little bit higher, right?

21:16

And obviously the concern is that we’ve seen now surging mortgage rates and surging what home prices, which is negative in impacted affordability but if incomes continue to rise and then rates back off a little bit, you can start to rebalance things from.

We’ve gone from blazing hot to sort of ice-cold and maybe we get to Goldilocks by the end of this year.

21:37

So, just to review everything that you said reasons to be optimistic, include the fact that commodity prices are likely to come down, which is going to pull down hopefully headline inflation.

That’s number one, number two, despite everything that’s happening in the economy.

The labor market is still really, really hot.

21:52

You have near record lows and jobless claims near record lows in unemployment job postings on sites like indeed and that’s affecting the housing market.

At least the number one, the inflation component houses are easier to finish That means you have more supply of houses, coming online more Supply slightly.

22:11

We can demand means the housing component of inflation.

Might also decline on number 4.

What I want to talk about here is like a little bit more complicated, it’s what I’ve referred to in previous episodes as the everything is terrible, but I’m fine phenomenon and I first noticed the everything is terrible, but I’m fine phenomenon in a survey that the Federal Reserve did of consumers where they basically found, the consumers were totally miserable.

22:37

Bleah gloomy about the state of the economy just record low rates about the entire economy.

But when you ask people about their own personal finances, they were more optimistic than ever, the survey was done in 2021 just before the worst part of this current inflationary bout.

22:53

It’s also the case that company leaders CEOs have this exact seem to have this exact same.

Everything is terrible but personally, I’m fine attitude.

There is a JPMorgan survey that just came out on Monday today when we’re talking, CEO economic optimism Falls to record low.

23:10

That was the headline.

Just 19 percent of CEOs say, they’re optimistic about the economy, but if you ask them about their own company and their own industry, 73 percent of CEOs anticipate Rising sales, 71 percent of CEOs, are optimistic about their own firm more than half of CEOs, feel upbeat about their entire industry.

23:29

This is again, more everything is terrible, but I’m fine Vibes and I think this is just so interesting.

I’m not exactly sure.

How it cashes out an economic wide level, but it’s a really interesting thing to look at.

Are there other companies Connor, you’re looking at that are doing surprisingly?

23:45

Well, given the total economic conditions that were seeing, I mean, I think you can look at the banks, which they came out with their annual stress test last week in the bank’s all past.

So they can survive a ten percent unemployment sort of you know, significant inflation or recession type environment and they’re probably going out today that they’ll be tens of billions of dollars and BuyBacks and dividends again.

24:04

So there’s really no risk in the banking system like we’ve had For FedEx is a you know giant shipper and they came out last week and gave earnings guidance.

That was better than consensus and they said you know we see the same thing in the stock market that you do, but we still see the volume and we think we’re going to grow and we’re just gonna keep watching it and I think everyone’s so stock market Centric and they see well if the market says this, this is what’s going to happen.

24:26

Get they don’t see it in their own numbers and that’s really a big disconnect everyone’s wrestling with right now.

Yeah I think that’s exactly right.

I mean again to your first point a stock market Fall like this, a 20 percent Sent decline has historically meant that we are in, or nearly in a recession, which means we need to be looking, really, really hard at the real-time data.

24:45

And once again, over and over and over again, the most fine-tuned real-time data seems to indicate that things are not nearly as bad as they would have to be, if we were in or very close to a recession, last thing I want to ask you about is the Leisure economy.

25:01

The Leisure consumer is just on fire right now.

I mean TSA pass-throughs which basically just means number of Total air Travelers in America.

I think just hit an all-time record last weekend.

Is that right?

Did I see you?

Tweet about that?

I think I’m pandemic ERA record had epic ERA record.

Okay, so where are we at 20 1920 18 levels or were just like almost very close, right?

25:21

A few percent and it’s got Kai’s explained on the podcast that we put out last Friday.

What’s a little bit janky about that, is that Leisure Travelers are probably at an all-time high, but business travel is down 30%, some International Travelers, a little bit little bit down.

So if you’re just He’s looking at the number of Americans that want to travel within the US for vacation.

25:41

That’s probably an all-time record.

You also have seen, and I’ve seen from your own Twitter feed that hotels are doing very well in terms of both, occupancy, rates and pricing.

Talk to me a little bit about how you see the Leisure economy.

What you’re most bullish on there and why it matters at for the bigger picture that the Leisure economy is doing so hot.

26:01

So I think there are two parts of it.

The first is that shift from Goods to Services spending that we saw in the spring that we talked about already and It’s only been a few months and so that good spending boom lasted for almost two years and so I think this Leisure boom could last for quite a while and it’ll probably cool off in the fall season at season wise but I think people still a pent-up demand to go to Europe to have weddings to do all those travel that they didn’t get to do for a few years and then I think structurally you know you’ve had an episode to know about remote work and work from home because people now have the ability to do three-day weekends and work remotely.

26:32

I think there’s just gonna be a structural increase in Leisure Travel demand as people can work.

Anywhere.

And so I think just even after this, maybe Goods to Services rebalancing, pandemic are rebalancing shakes out.

I think you’ll see more leisure travel and say 2024.

Then you had in 2019 you said so much there that I find.

26:49

So interesting he reminds me I had a conversation with the CEO of Airbnb, Brian chesky for the Atlantic and he basically told me that he’s seeing ways in which people are totally revolutionising, their use of Airbnb because this once very Stark line between work and Leisure, Has now been utterly obliterated to 28 percent, or 20 percent of the nights booked on Airbnb.

27:14

Now, are for 28 days or longer half.

The stays are for a weaker longer, the fastest-growing days of the week for travel or now Mondays and Tuesdays.

I think that’s a sign of the fact that more people are using Airbnb to create sort of working weekends.

27:29

These kind of weird work caissons.

He also said that people are now searching more for Wi-Fi in their searches and Airbnb is just This to me.

And as you just said that work and Leisure now are insinuated together.

That work is leaking into Leisure and Leisure is leaking into work.

27:45

I’m just so fascinated by that phenomenon.

I want you to go one cut deeper on the effect of remote work on downtown areas.

You’ve pointed out.

Lots of people have pointed out that there’s been this trade in value.

We’re downtown commercial real estate is losing value, and it’s giving that value up to Suburban, especially near suburban.

28:06

But also Serban residential real estate and that is reflecting the Pat.

The fact that people are moving out of offices and staying in their homes.

How do you think this is going to change downtown economies in the future?

I think we’re going to see downtown struggle for a few years and it’s, there’s a developer friend of mine who is looking to do redevelopments and ask them about various properties, in metro Atlanta.

28:29

And with a few of them, he said, it’s not dead enough yet and it’s hard to do a Redevelopment when something’s kind of limping around, but still paying the bills, still paying the rent.

And you really need things to bottom out where someone can just wipe the Slate clean, get it out of a bargain and sort of Start Anew.

And so I think in downtown’s, you need to see they’re not dead enough yet to really redevelop them.

28:47

The maybe there’s an apartment, there is an office building here.

There, you can make an apartment, but to really reimagine, what maybe Midtown, Manhattan or Market Street in San Francisco.

Looks like I think is going to take awhile, whereas suburbs, just have all this momentum right now and it cost pressures are a huge issue and land availability, Billy’s a huge, huge issue, but I just think if I’m a developer, I want to focus on where the with Thomas and for the next two years, that’s where it’s going to be.

29:10

Yeah, I think there’s a lot of zombies in downtown Commercial Business districts for sure.

So let me, let me try to play the.

I mean this whole episode has been basically a what if I’m wrong exercise.

I Derek am wrong about my slightly gloomy take on the near future the economy.

29:25

But let me just quickly flip it around and try to imagine if like Jason Furman were like sitting next to me what he would say, why isn’t a plausible scenario here that the downtown Downturn that we’re seeing in commodities.

Prices is actually really short-lived that a lot of Commodities investors are very quickly going to realize that the thesis of our episode is correct that we’re not actually in or nearly in a recession.

29:49

So commodity prices go back up headline inflation stays really high.

Maybe not eight to nine percent but 76 percent for a while.

The FED keeps having to jack up interest rates and enough aggregate demand is destroyed that we are pushed ever so slightly into not. 2008, recession, not a 1980, 1981 recession.

30:11

But, you know, like a 2000, 2001 recession, a brief downturn, that’s the result of weak Global markets week trade weekend, aggregate demand, and persistently High inflation, that just requires High interest rates to resolve.

Why isn’t that?

30:26

Still the most probable outcome here I would say it.

Because the reason that I was focused on inflation last year, was this income growth for households with so strong?

And that was just not just As checks but also just job growth was booming, and sort of personal income growth for workers was 10 to 12 percent per year.

30:43

Whereas pre-pandemic, it was more like 5%.

It was just way, way way too hot to be consistent with 2% inflation and we’ve seen that a particularly over the past few months.

Really come in.

And now we’re at more like a seven percent pace.

So, you know, 7 verses 5 pre-pandemic, we’re getting closer and it is because that is percent paste in what 7% a sort of personal income growth.

31:01

Okay yeah.

So so workers, you know, if you get say 3% job growth and 4% Wage growth that adds up to seven.

And so to the extent that we see further slowing labor market, which I think we should assume we’ll see some slowing because in part the FED wants it too slow, we get back to 56 percent.

31:18

And all of a sudden income growth, this was workable, pre-prepared demux.

The, why wouldn’t it be workable now?

And even though you still have a lot of pass through issues to work through, with all these rent increases going for the system and oil increased going through the system over time.

I think that gets you back to our pretty reasonable inflation.

31:35

Paste, even if it’s not quite two percent, Aunt is a question.

I’ve asked lots of guests and none of them have had a great answer because I’m not sure there’s a great answer.

So the expectations here, Connor are very low but you know, the body ministration calls you tomorrow, Janet Yellen calls.

You and says, what should our strategy be for the final leg of mid-trib campaigning here?

31:58

What can we possibly say or do say or do about this economy?

That will at least The projected losses in November or possibly allow us to eke out some sort of tie with Republicans in the midterms, I would say it’s all about gas prices, and even though I would say in the aggregate, for the US economy, gas prices aren’t that big, a deal for the political economy.

32:21

And right now, when the FED is focused on Headline inflation and not core inflation, it’s become the whole ball game.

So I was think of a scenario where if oil were to go back to 80 bucks.

Then headline, inflation backs off the FED backs off, and it’s almost like a stock market boom on It’s because you can wipe away all of these concerns simultaneously.

32:40

So having it a, whatever it takes mentality about oil production, refining, gas prices.

That’s what I would do.

I truly agree and obviously listeners to this podcast, will know that.

I agree, because we just did an episode of this kinda about his everything, the above strategy to increase oil capacity.

32:57

What are you looking for in the next week?

Make us smarter about reading the news for the next week.

What are some key statistics and data points that you think are going?

Tell us quite a bit about the state or future near future of the economy.

So we’ll everyone’s focused on the headline and CPI of report that we got earlier this month, the, in theory, the report that the fed by the way, is the in that, by the way, is the inflation report.

33:19

Yes, EPA, go ahead, is the feds preferred measure of inflation.

Is the core pce report, which really rolls off the tongue, and that comes out later this week.

And there’s been a gap between the CPI report and the PC report which is really wonky.

And the reasons don’t really matter.

But in theory, the CPC report, We get this week should be lower.

33:38

So the feds preferred measure inflation should be much better than the one that everyone’s worried about right now.

And in that report, we also get personal income and personal spending data for May and that will be a good test to see if income growth continues to slow, spending growth continues to slow and these sort of macro stats that lead us to a belief that inflation should slow our bearing out or not.

33:59

All right, we will look for the pce very, very soon.

Connor send.

Thank you so very much thanks for having me Dirk Thank you very much for listening.

Plain English is produced by Devon man.

See, if you have a comment, a concern, a question, an idea for a future show.

34:15

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