I like to think of big sell-side
Macroeconomists as saying well the car is running so it must be fine
Well, they're just looking at the headlines
If you look underneath the hood
There's leaks here and tubes breaking there and you know the engines about to break down and your transmissions about to fall out
So at the beginning of the year quill intelligence came out with its three big predictions for the year one of them
Was that Germany would go into recession?
It looks like we're just about there the other was that the tenure note would get down to two percent people
Thought we were absolutely nuts. And the third one was that despite all of this. We saw the dollar
strengthening and
We're standing by all three of those calls for the remainder of the year despite the fact that our targets have largely been met
mainly because if you look outside of the United States
There's every reason to believe that the United States will continue to be the most attractive horse in the glue factory as my old boss
Richard Fisher used to say so on a relative basis, you know, we've got talks about the european central bank
relaunching stimulus
I think that Japan would certainly follow them
Australia's in a cutting move after an expansion that's lasted almost 30 years because China's slowing to the extent that it that it has
So if if negative rates are going to be getting more negative
then there will be a
Flocking to the the ten-year Treasury at the same time that we know that there's there aren't enough dollars out there
there's simply a dearth of
Dollars a dearth of dollar funding which is going to have investors continued to clamor to get their hands on greenbacks
so a lot of these things run cross-current to one another but the overarching I
Haven't bought gold in years but a few months ago. I finally stepped back in and said
We're not going to be decoupling forever. Mmm
Everybody on bubble vision who says that the United States can indefinitely d couple from the rest of the world
I'm like, I've heard that somewhere like a decade ago, and it didn't work out too
Well then and I think that that's why we've seen gold pushing six-year highs here
so let's unpack that that's a lot in terms of the US economy because I mean that's
where the rubber hits the road in terms of what you're talking about and you have a
Bevy of stats that you look at that
You know traditional macro economists aren't getting into the weeds into these places. Tell me what are the things that are the most
Salient for you in terms of where we are
I mean are we actually on the cusp of recession that I think that the US economy is definitely sliding into recession
And you mentioned where the rubber hits the road. I like to think of big sell-side
Macroeconomists as saying well the car is running so it must be fine
Well, they're just looking at the headlines if you look underneath the hood
Yeah, there's leaks here and tubes breaking there and you know
the engine's about to break down and your transmissions about to fall out and
We if you look at things like the cast Freight index
You know when they were down month-over-month?
For three months in a row and then four months in a row and then five minutes in a row
they held the line saying this could just be a slow down like the industrials recession of
2015 8 2016 we could be coming out of it. But once they hit that sixth consecutive month of year-over-year
declines in and we are a
Nation of consumers we are what we buy and if there are fewer trucks
Delivering whatever Jeff Bezos is selling us then that is a sign that a consumption that economy is slowing
So after that sixth consecutive month cast came out and used the word
Contraction that they see a contraction in the third or fourth quarter of this year and I can't disagree with their assessment
given the fact that even even the labor market has started to show some signs of
serious weakening tell me about the labor market in particular because one of the things that I find interesting is the concept of
revisions that is is is that
Two things on that one is the real-time revisions that we see
Oh, by the way, the last two months we revised them down
But also then the benchmark revisions that we have now, so in some senses
We're not really seeing the actual numbers that we will see
Once all the data come into play and you know to your point about benchmarks
I think we needed a particular attention because for a few years there we could just ignore them because they were being revised upwards
But that hasn't been the case in recent years
I wouldn't expect that to be the case in the latest batch that we're expecting and
On top of that one of the first things that they teach you at the Federal Reserve, is that lags matter?
Which we know they do and the tightening that was that was unleashed that ended in December
It's still percolating its way through the economy and in various forms, but also that backwards revision
Really tell us what inflection points are right that June non-farm payroll headline it was fine
but we had what the Fed considers to be a moment of truth three consecutive months of
downward revisions to the prior months that tends to tell you that the unemployment rate is heading up and that we've seen
Kind of peak labor growth. If you start to see these backward revisions in real time. We're not waiting a year for the benchmark
We're seeing them in real time right now three consecutive months running. Yes
So let's think about this the ten-year Treasury in that context because I mean what you're talking about is a slowdown in
You know in growth in the United States and potentially a recession coming on to that
so
What does that mean in terms of your macro thesis of the Treasury from here because we're already near the 2% level that you talked
About earlier. Do you see that going even lower because we spoke to Gary Schilling
He's talking about 1% I'm good friends with Gary and I read some of his work
But if you think about what some of the prior lows have been in this cycle
165 if we're actually going into recession and we've bounced off these lows before when it was just kind of a dress rehearsal
Oh, it's just a earnings recession. We're gonna be fine. We're gonna come out of it. Not once but twice
and again
The major differentiating factor between those earnings recessions and now is that we have residential construction
That is going down
11.2% rate the latest read over the prior year. That was a huge
Tailwind during the industrials recession of 15 and 16
We don't have that as an offset and that tells me that there's no reason in the world if a larger
Proportion of the US economy is slowing that we wouldn't break through that 165 and keep going back towards 1%
Especially again given what's happening off our shores, right?
So, you know
Actually, I wanted to pivot to other things in the US economy when you said off our shores tell me about that
I mean what is actually happening you were talking about the second and third largest economies Germany and China what's happening there?
Well, they're exporting powerhouses and there's a symbiotic relationship between the two of them
So you and I were speaking before about the fact that you can't urbanize an entire country twice. So
China's kind of checked that box. They won't be able to pull the entire world economy out if you look at worldwide car sales in
2008-2009 it looks like just a little blip and then off we went to the races that was largely a reflection of Chinese strength
That was also seen in
Germany
exporting millions and millions of cars
I mean BMW Mercedes Volkswagen these massive brands rely on on
China as an export market and that is simply not there and we're beginning to see a trickle-down effect
we're seeing things like the beginnings of rising unemployment in Germany and Germans are beginning to talk about
Fiscal relief and spending more. They're the most prudent people in the world
they do not want to take debt on but they know that their economy is going to be needing it and
soon and that there's no way to turn away from
The fact that the bulk of their auto manufacturing is the internal combustion engine
When their main consumer China has changed over to electric vehicles. So these are structural moves that we're seeing here and
There's no reason to believe that
Given the amount of investment that's been made by these companies in the United States think of BMW in the south
Think of the south carolina presence of so many of these companies
kentucky a lot of it used to just be kind of detroit and the midwest but foreign especially German
Manufacturers presence in the United States has been a huge benefit to the entire manufacturing sector
That's going away. Not not disappearing, but it's definitely
Decreasing at a time that we're seeing
Retail sales retail car sales in the United States also on
The decline for the first six months of the year
Everything's being flattered by fleet sales, but don't buy that don't buy it
When when Fiat Chrysler comes out and says we had a great month
By the way, one in four of every cars, we sold was fleet. That is not a reflection of a strong US consumer
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