Lots More on Why Neil Dutta Is Sticking With His Recession Call
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Bloomberg Audio Studios. Podcasts, radio, news. What do you think, recession or no recession? I mean, you had a really good piece out this week in the newsletter where you made the point that

And I had made a similar point the day earlier, so maybe I'm not being so nice, but like how much of all the market action, all the economic action, I guess, was actually dependent on just one guy, Donald Trump. And that, you know, if he came out and said something, he could end the chaos at any moment in time. And then on Wednesday, he actually came out and did that. And then kind of, kind of.

Well, your point was, if he does that, we can all go back to worrying about a slowdown in the labor market or deep-seek threatening AI, which so much capital investment in the U.S. actually depends on. There's a lot.

I did a deadlift. I'm both the most popular trader and most successful trader at Citadel. Fed has gone viral. 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 U.S. Black gold. These are the important questions. 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 Odd Lots podcast. One day that person will have the mandate of heaven. How do I get more popular and successful? We do have the perfect guest. Welcome to Lots More, where we catch up with friends about what's going on right now. Because even when Odd Lots is over, there's always lots more. And we really do have the perfect guest.

You know who had a really good contribution to the Outlaws newsletter? February 2024th.

basically the market top. Neil Dutta sees rising risks to the labor market, calling recession risks right there and essentially at the market top. We got him back on. Neil, yesterday after Trump walked him back, by the way, we're talking to Neil Dutta of Renaissance Macro, Trump walked back some of the tariffs. Goldman pulled its recession call. You sent out an email right away. You said, I'm sticking with my recession call. Why do you see recession in the cards in 2025 still? So remember that, you know, for me, it's not really about

an NBER-defined recession. That, to me, is not the name of the game. The name of the game is trying to translate an economic view into a market call. And even if it's not technically a recession, it might as well be because the underlying problem for the market is not going away.

And that's the issue. You know, all the things I mentioned in that newsletter, you highlighted in February. That's all here. That's still here. Right. We still have a situation where labor incomes are slowing and the Fed's not budging. We still have a situation where mortgage rates are high and the housing market is weak and we still have state and local governments cutting back.

And we still have a pretty high volume on trade. I mean, in terms of tensions, just because we dialed it back a little bit yesterday doesn't mean that the tensions are not still high. And I think it's

What we've basically done is traded, you know, you basically spread the distribution of costs, I guess, I mean, away from everyone just towards China, but that's still pretty bad in and of itself. I don't think it takes a rocket science to figure it out, Joe. I mean, if you're basically trying to break up the relationship with us and our third major trading partner, there's no scenario where that doesn't create some issues for the marketplace.

It is true we've ratcheted down tariffs for countries ex-China. But as you say, we've basically gone back to what we were worried about before, right? And the funny thing I got to say about that Goldman note, and it just underscores how quickly things are changing in the current environment. You know, they published that. They published the recession call basically an hour before Trump did his big Wednesday announcement. And then right after that,

I didn't realize that. Within 60 minutes, they had to come out and say, actually, we're rescinding it. As Lennon said, there are hours where nothing happens and minutes where days happen. And we've had two minutes, you know, we're seeing a lot of that right now.

Do you have like a little book of Lennon quotes that you keep with you? Where are you getting those from? I also might be mangling the quote a little bit. I mean, Neil, you said trade tensions are high, but tariffs are really high right now. I mean, that's really like the core thing. Well, that's the other thing, right, Joe? It's not just tensions, it's reality. A hundred percent. And I kind of sympathize with it, right? Like it's the uncertainty that he's creating. No, no, no. It's also what he's actually doing. Yeah.

And that is going to weigh on investment by itself, right? Because if you introduce tariffs and you actually follow through with the tariffs, the uncertainty around what you're doing is going down. The reality of what you're doing is what businesses will respond to.

through growth expectations and they'll pull back, right? Because ultimately what drives investment is what's happening with growth. If real growth is slowing, then it's inevitable that investment spending will follow suit because largely what investment responds to is sort of an accelerator effect, right? That's basically the idea that is

growth picks up, investment tends to rise more. So the fact that growth is slowing and expectations around growth are coming down, that's ultimately what's going to pull down investment. So it's not so much the uncertainty, although that's probably not good. It's also what he's actually doing. Wait, just on that note. So you...

sent an email earlier this week where you said the S&P 500 trading like fart coin is probably not a good thing. There's a sentence I never thought I would necessarily read out loud, but the S&P 500 trading like that, is that mostly a reflection of the uncertainty aspect of all of this? Or are you implying that it's going to feed into things like funding costs and the capital investment environment and I guess the wealth effect for the U.S. economy as well?

Yeah, I think so. I mean, I think the stock market going down is usually bad. And I think that'll have effects on household psychology for sure. And remember, a lot of the reason why consumer spending ran so much more rapidly than real income growth last year was because the

The savings rate was going down. And one of the reasons why the savings rate was going down was probably because stock prices were going up and that was juicing enthusiasm for the high-end consumer. Yeah, I think this is really important. Like if you think that consumer spending was driving a lot of the surprising growth in some respects that we've seen recently, then you should really focus on what the higher-end consumer was doing. And most of those higher-end consumers have stock portfolios.

Yeah, I think that's right. And I guess the other thing I would say is, you know, there's a whole literature, I think, about, you know, the stock market as a passive informant or an active informant, right? So is there anything about the share price of a company that tells the CEO of that company something about their firm they don't already know? Usually it's probably not. But if you get this sort of

macro type environment, which is kind of where we are right now, then the stock market takes more takes on more of a role of an active informant. And, you know, then you kind of have business, the business community kind of looking to the stock market as a aggregator of macro risk. And right now, you know, the fact is, is that stock prices are down quite a bit from their February highs. And

And that's probably creating a cautionary mood for most of corporate America. I'm a big fan of the stocks matter hypothesis. I've been banging the drum. Stocks matter. Don't just dismiss the stock market as this thing that us Wall Street elites, which we are,

are obsessed with. They actually matter. In this family, I do not believe in Wall Street versus Main Street. I only believe in one constant, contiguous street that connects all roads in America. Neil. Wait, wait, wait. Isn't that Neil saying that, you know, people say that the stock market is not the economy, but it's not not the economy? Neil, where did you get that? Neil, where'd you get that? Oh, we're going to settle this. Neil.

I got it from Joe Weisenthal. Yeah, all right. Oh, okay. Most painful thing is Tracy has to acknowledge I get some credit for something. It's a good quote. Thank you. That's why I thought Neil had it.

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Outside of elder care, do you feel confident that there is a single major sector of the U.S. economy right now that's adding headcount in elder care and health care? Not really, no. I mean, most of the growth in employment has been in sort of what you would call like acyclical industries like private education and health care. You know, when you look at the more cyclically sensitive areas of the job market, I mean, that's clearly slowing down.

You look at residential construction employment. I mean, that's actually down against last year. You know, I mean, service sector. I mean, the other thing, of course, is that if the tariff, as the tariffs come on, that's likely to push up goods prices, right? Given the fact that the labor markets are

slowing down to the extent that people have to allocate more of their household budgets towards goods, that'll leave less leftover for everything else, which means they'll ultimately have to start cutting back on services consumption. And that'll drive down the prices for services.

So that to me is a bigger concern because obviously service sector employment is huge in the U.S. That's where most of the meat is. So, you know, leisure and hospitality, you know, things like that. I mean, that's going to come under pressure, I would think. Yeah. As the quarters go on. We are recording this on Thursday, April 10th, and we did just see CPI actually come in lower than expected. But...

everyone's talking about imminent tariffs impact. And I guess my question on inflation is like a lot of people seem to be debating between, well, most people agree the tariffs will immediately push up prices. The big question is at what point will enough demand destruction actually kick in to reduce demand for consumer goods and

potentially lower prices. But it's really interesting that you're saying that, you know, we could have the impact feed into services. And then if you get higher unemployment, that would certainly add to the demand destruction dynamic. The Fed's policy at the moment is to be behind the curve, proceed accordingly. That's all I can tell you. I mean, they're basically telling you that they're waiting for growth conditions to deteriorate

before they cut. That's all that really matters. They're not changing the nominal anchor just yet. I mean, so that basically tells you that their solution to the inflationary consequences of tariffs is disinflation. MIKE GREEN: As of right now, NASDAQ down 6%. That big green candle we got yesterday,

rapidly melting, S&P 500 down 5.2%, 4% U.S. tenure yields up on the day. Not a cocktail you want to see. What if this just keeps going for the next four years? It might be.

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KPMG makes the difference by creating value, like developing strategic insights that help drive M&A success or embedding AI solutions into your business to sustain competitive advantage. KPMG, make the difference. Learn more at www.kpmg.us slash insights.