00:00So I think it's really interesting actually because what the stock market means to us has
00:03changed over the years. You know I heard Sarah say a minute ago that the stock market is increasingly
00:07concentrated and I think that's true. I think if you look at the signal that you can take from the
00:13stock market from a macro perspective it is clearly weakened. It is much less representative of the
00:17economy than it has been. Part of that is you know natural. The stock market is a market of stocks
00:23rather than a macro asset. It has idiosyncratic stories in it but part of it is that as it has
00:28become increasingly concentrated it's telling us a story that may not be representative of the
00:33economy as a whole. And certainly the impact of the stock market I think is to increase dispersion
00:38within the economy. Members of the investor class, people who are listening to this program, people
00:43who are invested in the stock market are not experiencing a cost of living crisis. The stock
00:47market has beaten inflation, has beaten the cost of living by multiple multiple multiples. It's
00:54everyone else who is suffering for the through the the cost of living crisis. We you know we may not
00:59like higher prices but the stock market is telling us that for the wealthy there is no cost of living
01:04crisis. 3.8 percent headline CPI year over year. Consensus was 3.7. It was 3.3 last period last
01:13month.
01:13What do you make of it? So here's how what I think of it. One of my favorite metrics to
01:17measure the
01:17health of the U.S. consumer is if you multiply the number of people working times the average hour number
01:22of hours that they work every week times average hourly earnings. You get a proxy for the household
01:27paycheck. How many people are working? How much are they working? How much are they getting paid?
01:31You know what the growth rate of that is for the last 12 months? 3.8 percent. Exactly the same
01:36as the
01:36CPI. So that tells you for the last year in aggregate the American household is treading water. The rate of
01:42gain in their aggregate income is zero. Right now two months ago before the inflation spike it was
01:48positive 1.3 percent. They were doing okay. Now we're at zero. And if we go any further down this
01:54path where inflation goes up further which I think is likely you're going to have to draw down savings.
01:59You're going to have to borrow. You're going to have to sell something in order to keep your
02:02consumption going. This is to me the best metric to track the health of the aggregate U.S. consumer.
02:08So what are you going to be looking for next year? Some folks are saying you also got to pay
02:12attention what's happening at the PPI because there's higher energy costs. It's going to get into the cost
02:16of production and that's another thing that might flow down to the consumer. What are you going to
02:21be looking for? Look again like everyone else I think we're watching oil prices right. I mean
02:25oil prices are going to filter through. Gasoline prices are up. You know I talked about dispersion
02:29within the economy. The goods that are true essentials that people at the lower end of the
02:33income distribution spend more on are the ones that are going up most. So that 3.8 percent
02:38conceals within it some dispersion because not everyone faces the same inflation. The wealthy have
02:43lower inflation because a lower percentage of what they consume is is food and energy. So
02:47you know I put a statistic on that. It depends on how you want to break down the quintiles but
02:53I think
02:53it's entirely reasonable to think that the lower income consumer is facing inflation that is not
02:583.8 percent but is closer to five six seven percent. Okay. Because what they're buying are the goods that
03:04have gone up more. Others have come in and said the same thing but nobody said it like Eric Winograd.
03:10I mean how what what is the political history that you see into an election of an inflation rate
03:20that is let's be charitable and say about four and a half percent. For politicians there's no other
03:26issue right. That tends to be correct right. When prices are going up you know we go back to the
03:32Bill Clinton years for the olds old enough to remember right. Well what did he run it. It's the economy
03:36stupid and the way that people perceive the economy is what they have to pay. It is going to dominate
03:41the electoral cycle. How that plays out remains to be seen but I would expect and I've spent large
03:46parts of my career studying emerging markets. I would expect to see some sort of fiscal support
03:51coming from the government whether that is you know in extreme cases you get price controls.
03:56President Trump was talking about repealing the federal gas tax like you try to do something here
04:01and the net impact is to increase the deficit again. Can we do an eight-hour show today Paul?
04:06Yeah I got to keep going. Let me sneak this in and Paul's going to jump on me here. Eric
04:11Winograd I
04:12mean as simple as I can the president's talking about doing something with beef importing beef or
04:16whatever to bring the price down. If tariffs failed in the big unexpected surprise into the election
04:24a la McKinley 1901 I think it was weeks before he's assassinated the basic idea that the president's
04:31going to back off on tariffs. Is that something we should think about? I doubt it but that's a
04:38political read not an economic one and the reason I say that is because the the president this president
04:43does not tend to publicly back down from very much of anything right. His general way of doing
04:49business is to double down not to back down. I think it would be difficult for him to admit that
04:54his signature policy is a failure. That said he does seem to be comfortable carving out exceptions and
04:59and working other ways around it. I would suggest that beef maybe isn't the first place you should
05:03go that that's not maybe the the key aspect for for most households. But again that sort of policy is
05:10very much in play. I think it is more likely that he'll try to do something around gas prices or
05:16to go back to an idea that they talked about last year which were tariff dividend checks right. If
05:21you don't know what to cut the price on you just send people money. So all I don't have a
05:26view on
05:26which of those come into play but a big part of our view for this year has been that some
05:31part of
05:31them will. I mean Paul I'm sorry 3.8 is a tip point for me mentally. Yeah I mean if
05:37you get a four
05:38handle that's going to be also for a lot of people. How about the other side of the fed's mandate
05:42here
05:43the labor market what do you what's your takeaway these days? So the good news is that the labor
05:46market appears to have stabilized and even picked up a little bit early this year. It appears from
05:51the data that there's been a slowdown in the momentum around deportations and the labor force has
05:55grown a little bit at least the foreign-born labor force has grown. Hiring has picked up so
06:00we're seeing both labor demand and supply go up. 4.3 percent for unemployment is an outcome that I think
06:05that the fed would be happy with. There's nothing in the labor market data that suggests they need to do
06:11anything on rates in either direction. If you go back to last year with the labor market weakening
06:15as it appeared to be there was a good case to be made that you should cut rates. The fed
06:19in the
06:19end didn't do that and they look to have been correct in that because the labor market has stabilized.
06:24I wanted to get Jonathan Spence in here on the trip to China. Unfortunately he's died. That's a joke
06:29folks. Jonathan Spence is definitive across the 20th century on China. So instead we have Eric Winograd here
06:35who will do a good job. You are truly expert on the Pacific Rim. What is the president when he
06:42lands,
06:43gets in the car? I've literally been in the room in Beijing where Kissinger and Nixon met the prime
06:49minister, member of the hotel, red leather chairs. When he sits in that red leather chair, what's it
06:54going to be like? So I was actually in Asia just a couple of weeks ago and I think that
06:59the perception
07:00there is you know that the U.S. is in a lot of respect shooting itself in the foot and
07:05that as a
07:06result of the way things are playing out here, the policy choices that we are making, we are weakening
07:10our own. The fabric of our society is weakening. Our economy is more vulnerable. Inflation is rising.
07:17We're worried about the labor market at the same time. I think that the Chinese are probably reasonably
07:22content with that state of affairs and are just trying to stay out of the way. You know the the
07:27Chinese
07:28government, Premier Xi, have been relatively quiet publicly about everything that's going on.
07:34You know I expect them to sort of sit back and there are certainly issues where they will press
07:40President Trump. They are not happy that the president is proposing arms sales to Taiwan which
07:45China raises a core interest. So there are points of contention but I think that the the premier is
07:50probably relatively content to allow things to play out and to try not to make some try not to make
07:56big waves or headlines.
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