The Big Picture

Transcript: Ellen Zenter, Chief Economic Strategist at Morgan Stanley

 

 

 

The transcript from this week’s, MiB: Ellen Zenter, Chief Economic Strategist at Morgan Stanley, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, SpotifyYouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

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This is Masters in Business with Barry Ritholtz on Bloomberg Radio

00:00:16 [Speaker Changed] This week on the podcast, what can I say? Tour to force conversation about all things economic with Ellen Zentner. She’s been at Morgan Stanley for just about a decade now, better part of a decade. Her, she was Chief Economist. She has morphed into the Chief economic strategist and global head of thematic and macro investing for Morgan Stanley Wealth Management. The firm runs something crazy number like $7 trillion. She’s also a member of the Firm’s Global Investment Committee. She’s won every accolade and economic award you can as a Wall Street economist. And her, her interest just ranges far and wide. We talk about everything from tariffs to fed independence to data integrity at the BLS. She’s just a very thoughtful, insightful economist who spends a lot of time thinking about how can I fashion this information in a way that will be useful for my clients, many of whom are investors. And now in her new role at, at Morgan Stanley Wealth Management, she becomes the client. She’s helping to run that big pile of money. I, I thought this conversation was absolutely fascinating, and I think you will also, with no further ado, my discussion with Morgan Stanley’s. Ellen Zentner.

00:01:47 [Speaker Changed] Hi Barry. Thanks for having me. I’m, I’m really glad that you got my title correct and without losing your breath ’cause it’s a long one.

00:01:54 [Speaker Changed] Well, you know, AI helped me assemble that, and I know that’s a theme of yours, so, we’ll, we’ll get that to that a little later. It’s been, it’s been a while since we had you on the last time you were here, it was the first Trump administration. We’re gonna talk about a lot of policy issues. But before we get there, I just wanna talk a little bit about your background. ’cause it’s so interesting and not what we think of as the typical path to Wall Street. You get a bachelor’s and an MBA from the University of Colorado. What was the original career plan?

00:02:28 [Speaker Changed] What were you thinking? Yeah, bachelor’s and master’s from, from Denver, university of Colorado at Denver, which I think surprises people even more. Yeah. So I had, I had gotten a late start as I would put it with university after high school. I was partying, having a great time gap year. It was, well, it turned out to be an unplanned gap year. And you know, in the state of Texas, there’s a lot of room. You don’t need to live at home and, or, well, at least back then, you didn’t need to live at home in order to afford Right. You know, you could afford to live on your own. So I remember turning 18 and my mother looked at her watch and basically said, why are you still here? And so I moved out with my friends and was just having a great time. And so by the time I decided to get serious and said, Hey, you know, I want to, I wanna go somewhere else for university. I was starting university when my friends were graduating. And so I wanted a commuter campus and University of Colorado. Denver was just a phenomenal place to be with an amazing economics department.

00:03:34 [Speaker Changed] So Texas girl up in Denver had to be a, a climate shock to you.

00:03:40 [Speaker Changed] It was, it was a little strange. So we had registered sight unseen. My parents and I, we drove up the 15 hour drive from Austin, Texas to Denver. The first 12 hours are in the state of Texas. And then you finally get out of the state. That’s

00:03:55 [Speaker Changed] Crazy.

00:03:56 [Speaker Changed] And that’s, that’s starting in the middle of

00:03:57 [Speaker Changed] The state. Wait, so New York to co I’m sorry, Texas to Colorado.

00:04:02 [Speaker Changed] Austin to Denver.

00:04:03 [Speaker Changed] Austin to Denver. 15 hours, 80% of which are still in the state

00:04:08 [Speaker Changed] Of state are still in the state of Texas. That’s, you go through one tiny corner called Raton Pass. That’s where my Texas comes out. Raton Pass right there where Colorado and New Mexico and Texas come together and you just slip right through into Colorado. And so we registered sight on scene. My mother woke me up, I was sleeping in the backseat of the car, and she said, Ellen, look. And I woke up and I looked outta the window and I saw the mountains and I was like, mama, I’m home. I had never seen mountains before.

00:04:39 [Speaker Changed] Had you seen snow before?

00:04:41 [Speaker Changed] I had seen snow in Austin once every six years on average it snowed. Right. And so we made a snowman with a lot of rocks and sticks in it, right. And leaves. But it was a snowman. But my mother had spent summers in Boulder. So my grandfather taught, both my grandparents taught at University of Texas. My grandmother got her PhD from Cornell in the early thirties. My grandfather got his PhD from Columbia here in New York. They were both teaching at the University of Texas. He founded the physical education department at the University of Texas. And, and so here was a legacy. My mother grew up spending summers living in the dorm in Boulder because he would teach summers at University of Colorado in Boulder. And so she always talked about the mountains and it just, when I decided to leave Texas for school, I said, that’s where I wanna go is the mountains. Even though I had no idea exactly what I was saying.

00:05:36 [Speaker Changed] But you ended up not leaving Texas permanently? No. After you get your MBA revenue estimating division at the Texas State Controller’s office, working with some guy named George W. Bush. Tell us Yeah, yeah. Tell us a little bit about this

00:05:51 [Speaker Changed] Guy that used to be the governor of the state of Texas, you know, and, but no, that was great. So I, I got my master’s degree in economics and said, well, what do I do now? And so, made sense to go back home to Austin. Now, at that time for economists, your option was to work for the state, or you could work for emco, which is University of Texas investment arm. Like there’s not a lot of areas for economists then. Now there’s a, a thriving investment community, hedge funds, you name it. But then you worked for the state. And so it was a great way to start. Texas legislature is a binal legislature. It’s only in session in odd years. So I, I think I worked really, really hard for five months every other year. And it was a wonder wonderful way to start. What do you

00:06:38 [Speaker Changed] Do? The start rest of

00:06:38 [Speaker Changed] The time? The rest of the time, let’s see. Hmm. In the late nineties, there was this thing called day trading with no restrictions at a firm. You just sort of like, have fun and be like, oh, I I made a few thousand dollars today day trading. No, it was, it was sort of a, let’s, let’s put it this way. It was a wonderful way to start where I could really dive deep into topics such as studying the fairness of the tax system in the state of Texas doing economic development studies. We were a part of the study that helped attract the, the first Toyota Tundra plant to the state of Texas in San Antonio. And working for Tamara Plat, who was just so important in, in steering my career. She was the chief economist for the state of Texas at the time, PhD from University of Pennsylvania. You mentioned the Lawrence R. Klein Award. It was such an honor to receive that twice because Tamara had studied under Lawrence Klein at University of Pennsylvania. And so it was just being thrown into a macro role was such a huge determinant of my entire career. And studying things like household behavior in the state of Texas, which gave me my love for the consumer and household behavior, which has lasted my, my whole career. So I lasted there for about five years and then started looking for something in New York. And, and

00:08:02 [Speaker Changed] Consumer and household behavior lasted your whole career to good effect and good result because as we’ve seen over the past 50 years, the US consumer is what drives the entire economy. So being an expert in that space, I can’t imagine that hurt your, either your career, it hasn’t hurt or your economic forecast.

00:08:21 [Speaker Changed] And I’ve propelled many an economist off of the back of bringing them onto my team and saying, here you go. Here’s a huge consumer platform. Learn it and run it. And they have gone on to do amazing things. One of them still with me at Morgan Stanley, Paula Campbell Roberts, one of my shining, shining achievements in my career is seeing her career at KK KKR flourish.

00:08:45 [Speaker Changed] Huh. That’s really interesting. So how do you go from the revenue estimating division in the Texas government to Bank of Tokyo Mitsubishi on Wall Street? That seems like a big jump.

00:08:57 [Speaker Changed] It is a big jump. So part of it was that I felt state government was not where I wanted to be for the long run. There’s something about something in my DNA as it is with many people in finance that attracts me to just a fast moving environment. I needed something that was much more dynamic

00:09:19 [Speaker Changed] And, and not closed every other year. Yeah.

00:09:22 [Speaker Changed] Not closed every other year. Although I do sometimes long for the boring days of working at the state. So I knew that I needed to go to either a DC or Chicago or a New York. I wasn’t quite sure where. And, and so while I was job searching, which back then involved looking in the newspapers Right. Or which is gonna sound, I mean, people are just gonna gonna be like

00:09:49 [Speaker Changed] Printing out resumes and mailing them

00:09:51 [Speaker Changed] Out and mailing them Yeah. In an envelope. So many of them. Right. But also, you know, I have a, a long rich history now with the National Association for Business Economics and their jobs board, which was extremely antiquated then. Well, it didn’t seem antiquated back then. People would be appalled at that jobs board now. But I actually found my job at, at, at Bank of Tokyo Mitsubishi through the NAB Jobs board, which is still econ jobs.org. And, and so I think of NAB as being my, a partner in my career since I joined NAB in the late nineties. Long story short, I get this great job at Bank of Tokyo Mitsubishi, the, as the senior economist there. I basically was a one man band, which was great because I had to wear every hat as economists for smaller institutions or with smaller research arms have to do.

00:10:53 And what’s so interesting about my time there, and I was there for eight years, is that during that time, the financial crisis hit. And I felt so lucky to be at a Japanese firm at that time because we had not taken part in mortgage backed security investing. We had already gone through the, a financial crisis of our own that had lasted a long time. Japanese firms were sitting on a pile of cash. And it was at that time that the ceremonial check was walked across Broadway to purchase 20% of Morgan Stanley to keep Morgan Stanley afloat

00:11:31 [Speaker Changed] From Bank of Mitsubishi.

00:11:34 [Speaker Changed] From from MUFG. Right. Of which the check is written from Bank of Tokyo Mitsubishi. Huh. So that happened, and, and it, what was interesting was when I eventually ended up at Morgan Stanley to hear what it was like from my colleagues from the other side on a Friday being told, you know, go home and we’ll let you know on Sunday if you still have a job, if the doors are gonna be open, and then being told on Sunday that you can go back to work. And the fear that they felt versus I didn’t, I didn’t feel total job security because I, for the first time I was seeing economics teams just on the whole just being cut. And you had never seen that before. The economists are sort of, you know, we’re kind of, we’ve got decent job security compared to the rest in finance. But, sorry, this is when I could make a joke about certain news that came out after

00:12:27 [Speaker Changed] Feel free, but No,

00:12:28 [Speaker Changed] I shouldn’t. But, but anyhow,

00:12:31 [Speaker Changed] What, what I really so vividly remember, similar to you, I was in an institution that through a combination of dumb luck and what have you, was on the right side of that. So while the street was freaking out, I didn’t feel personally the same job and security or pressure that everybody else did. But I had maintained an email list of, I dunno, 10 or 15,000 readers. And, and most of the addresses were, you know, ms.com, ml.com, whatever the various institutional, and you know, you would occasionally have somebody leave a position and you would have a bounce back rate each week of two, three emails. But oh 8, 0 9, I was seeing like 300, 400, 500 emails a week come back. This is no longer a valid email address@gs.com. Yeah. Or whatever. It happened.

00:13:32 [Speaker Changed] It was, it was really alarming.

00:13:33 [Speaker Changed] It, it very like, that was nothing I’ve ever experienced. Even 2000, which seemed like it was a disaster. Didn’t compare to this. Yeah.

00:13:43 [Speaker Changed] Yeah.

00:13:43 [Speaker Changed] So

00:13:44 [Speaker Changed] Never experienced anything like it. And so, and, and you know, I I, I really think that that’s when LinkedIn took off because I had signed up for LinkedIn at the time, but didn’t use it. I’m still not a huge fan of social media. I know that’s terrible to say. How can anybody be successful without,

00:14:01 [Speaker Changed] What

00:14:01 [Speaker Changed] Do you using social media?

00:14:03 [Speaker Changed] I’m gonna tell you, I think that was a formally minority position, like an outlier position. And now I think the consensus has built that, the algorithm is awful. It, it manipulates us towards outrage. You look at the rising levels of depression amongst teenagers, it’s really tracks the rise of smartphones and social media. So yeah. I don’t think it’s as bad a thing to say in 2025.

00:14:33 [Speaker Changed] Maybe not anymore. Yeah. But,

00:14:34 [Speaker Changed] But in 2015, you people would’ve looked at you like, what do you mean you don’t like social?

00:14:38 [Speaker Changed] What do you mean? Yeah. So

00:14:39 [Speaker Changed] Now I think, I think the verdict is in already. Yeah.

00:14:41 [Speaker Changed] Well I think, and I think for 2008, you know, in finance, oftentimes the jobs we have, when your time is up, you’re ripped outta your seat. Yeah. And

00:14:50 [Speaker Changed] With the box and a security guard escorting you to the door.

00:14:53 [Speaker Changed] Yeah. Because you have access to sensitive information. Right? Like it’s, that’s, that’s how for most of us in finance, that’s how your departure is gonna look one day. Right. And, and so if you had joined LinkedIn, it was the way that you didn’t lose all those contacts. Contacts. Yeah. And so I really think that’s where, and certainly that’s where I was like, Hmm, okay, maybe I should keep up with people through LinkedIn, but I’ll, but I’ll tell you that I, that I have learned how to train those algorithms. So with Instagram, which I have since, since dropped all together, but when I was on Instagram, I got so tired of being marketed to as a 50 plus year old woman. It was every single ad was the best mascara for insert, you know, or it was the, the, the best insert, you know, blank for women over 50. So it was the best mascara for women over 50, the best shampoo for women over 50, the best whatever. And it would always somehow show this beautiful woman that happened to be over 50, wait

00:15:53 [Speaker Changed] Till you’re over 60 and just go through your spam folder and see the sort of stuff that they market to you.

00:16:00 [Speaker Changed] Yeah. It’s a little insulting. But what I did was, I saw an ad one time for dog food. Now I don’t have any pets. So I clicked on that ad and it started showing me dog food ads. Right. So I, I stopped purchasing things ’cause this was the problem. I’m an impulse buyer, so I would purchase things on Instagram. And so, but then Instagram started, it got my number, it knew what I was doing. And so then I thought, okay, I need to click on the dog food ad and now poke around in that site a little bit. And then, okay, I need to poke around the site a bit and then add something to my cart and then just abandon it. And so for a while I was able to train. If I just did that a couple times, then for 30 days I would get dog ads. And I easily could continue to enjoy Instagram without buying a thing.

00:16:45 [Speaker Changed] One of the things that has made Facebook so valuable is its ability to create not just targeted ads to you and your demographics. All right? You’re a woman, over 50 you’s, two blunts. They can also track your browsing history. They can link it to your zip code. They know how your, your town and county voted in the last election. They know your credit score and your purchase history. Yeah. So you could really find, you know, the old joke in advertising is half of advertising dollars are wasted. We just don’t know which, which half as you bring in more and more technology to this, we’re starting to figure out exactly how to not waste any dollars. Which is why some of the ads you get are kind of spooky and creepy. Like, Hey, is my phone listening to me? No. Well, whether it is or not, your browsing just is so revealing of, of

00:17:43 [Speaker Changed] Who you are. Yeah. And it’s true. But, and if you think about it, if we tie that back to the old days of just having to send out surveys for data and such, you know, as an economist, I want as much data as possible. I want it to measure everything you could possibly, you know, look at sideways. And I appreciate having that detailed data. My husband used to get irritated because again, back in the old days when someone might actually call to do a survey, I would be the one that would give them the time of day and answer the survey. Because I knew that as a practicing economist, I would really appreciate having that, that detail instead. Now, because it’s, it’s being done by algorithms and machines and there’s not a personal call behind it, we’re sort of alarmed that someone is getting that much information. But it’s also because a good deal of it’s not used to make the government more data more accurate. Right. It’s used to make a company more profitable by selling to you. So it is a bit different. But, you know, if the government could employ those techniques and give me that kind of detailed data on our population, I would use it all day long.

00:18:53 [Speaker Changed] Coming up we continue our conversation with Ellen Zentner, chief economic Strategist and global head of thematic and macro investing at Morgan Stanley, discussing thematic investing and her macro work at Morgan Stanley. I’m Barry Ritholtz, your listening to Masters in Business on Bloomberg Radio. Ellen Zentner is my extra special guest. She’s Chief economic Strategist and Global head of Thematic and macro investing for Morgan Stanley Wealth Management. Overall, the firm manages over $7 trillion. Let’s talk a little bit about your role at Morgan Stanley. What brought you there from previously you were at Nomura and Bank of Tokyo Mitsubishi. What brought you to Morgan Stanley?

00:19:48 [Speaker Changed] Vincent Reinhardt.

00:19:49 [Speaker Changed] Oh really? Yeah. Crazy of Reinhart Roff fame

00:19:52 [Speaker Changed] Of, of Reinhardt and Roff fame. Well, Reinhardt Reinhardt and Roff. So the Reinhardt and Roff mostly is Carmen Reinhart. And, but yeah, Vincent called me up one day and said, would you like to come work for me? And I could

00:20:07 [Speaker Changed] Not. Had you known him previous?

00:20:08 [Speaker Changed] I of course, I knew him previously. I was an economist, you know, who doesn’t,

00:20:12 [Speaker Changed] I mean, you knew of him, but did you know him? Per I

00:20:14 [Speaker Changed] Knew of him. I did not know him on a personal basis. Right. And it was an absolute surprise to get that call. And I couldn’t go there fast enough. Huh. So it wasn’t just the Morgan Stanley name, which is wonderful to go to a place where just the name alone gives you a certain amount of gravitas. I was the same economist. I was previously doing the same work and the same methodologies, employing the same tools, but suddenly it was like, oh, she’s at Morgan Stanley. So just changing the name to such a well-respected firm meant all the difference in, in my career. But to specifically be able to go and learn from an economist who sat at the, at the right hand of Alan Greenspan for so many years, you know, being a Fed watcher and being able to then work for the quintessential Fed watcher and sort of plug the holes in my knowledge, it was just an opportunity. I, I couldn’t pass up.

00:21:18 [Speaker Changed] What, what, what was the role? You, you obviously didn’t start as chief economist.

00:21:21 [Speaker Changed] I started as his senior economist. Oh really?

00:21:24 [Speaker Changed] And then how much longer was it before you were elevated to Chief Economist? Oh

00:21:28 [Speaker Changed] Gosh. About a year and a half. So Vincent and I were able to overlap for about a year and a half before I took the Chief Economist role. You may or may not know that, that he and Carmen reside in Boston. And so being able to work full-time from Boston continue to support Carmen in her role at Harvard. And also a, a role that fits him so perfectly well as the chief economist, the financial chief economist at BNY Mellon is, is just the perfect place to be. So I am very thankful for the time that we were able to spend together overlapping there at Morgan Stanley. And so in 2015, I then became the, the Chief US Economist.

00:22:12 [Speaker Changed] So on the Morgan Stanley website is a little bio of you. And in it you described 2016 as a very significant, and for you personally career defining year. Why is that?

00:22:25 [Speaker Changed] I like to think back of periods in my career when my limits were tested. And it might be the financial crisis, it might be some other recession, it might have been COVID I, but certainly 2016 we had a presidential election year and my limits were absolutely tested both physically and mentally. So I had gone to DC the morning of the election. I had already voted in early, early voting. I had left on a 6:00 AM flight, which means I had to get up at four in the morning and went to DC for meetings. Then I flew on to New Orleans to prep for a conference and, and decided that I would go to the gym as I love to do when I’m at the hotel. And then, you know, buckle down and get ready to watch the fun election results come in. And watching the election results come in and then answering client questions at the same time.

00:23:31 And then seeing all of that unfold in a way that was surprising to many people where the cycle kicked off where, okay, wait, I thought I was gonna go to the gym. Okay, not going to the gym, gym. Wait, I need to order some sort of dinner to the room. Okay, I can’t eat. Then it was, then it was, oh gosh, Asia is awake, gotta get on calls with Asia. Then it was, oh boy, Europe’s waking up, gotta get on calls with Europe, calls with my colleagues, calls with these clients, calls, calls, calls, calls, calls at 11:00 AM in the morning, which was now more than 24 hours later, after I had gotten up, I decided that maybe I should at least try to close my eyes for a little bit. I closed my eyes, couldn’t fall asleep. I had to go downstairs at the hotel to deliver an economic outlook to what had then become a standing room only event.

00:24:27 Because look what’s just happened, let’s hear from the Economist. And we had just put out, put out, we had just put out our year ahead outlooks because those come out in November. And so I was there standing at the front of the room and I just left my PowerPoint presentation on the front page, the holding screen as a holding screen and said, let’s go ask me whatever questions you have. I’m not gonna have all the answers, but let’s talk. And I don’t even remember what I said. The time flew by. I then went back to the airport, tried to get on an earlier flight to go back, was still delayed, finally got back at 11:00 PM at night to New York. I could not fall asleep still either on the flight or when I got home. And ultimately finally I just gave up sleeping, went into the office and 42 hours I went without sleeping.

00:25:27 [Speaker Changed] So at a certain point your cognitive functioning just starts to fall off a cliff. Yeah. But that was real. I similarly have a vivid recollection of just shock from so many people. Questions that had to be really exciting.

00:25:41 [Speaker Changed] Yeah. So was it, and see you say exciting. Now I live off of that stuff, right? Because

00:25:45 [Speaker Changed] It did. Oh, you’re an adrenaline junkie. I could I

00:25:47 [Speaker Changed] Adrenaline you’re tested, your limits are tested. And what a great story to tell. I was also on the trading floor at 1:00 AM when Brexit happened. I had gone to sleep at 11, set the alarm for midnight, the alarm went off. I know that my husband immediately checked the phone. I heard him say, oh shh. And I was like, what? What? And I was like, oh my God, I had to get in the shower and get to the trading floor by 1:00 AM

00:26:15 [Speaker Changed] I just read this morning. Nobody talks about Brexit anymore. I just read a data point that shocked me, which was the GDP of Italy just passed the GDP of the UK mind blown. And there are a lot of reasons, but clearly Brexit has to be a significant part of that.

00:26:36 [Speaker Changed] Yeah, yeah. Giant

00:26:37 [Speaker Changed] Part

00:26:37 [Speaker Changed] Of that. It’s like thank thank you UK for bringing some business back to us because here’s a country that is dying. Their birth rates are non-existent. Right. Their population has been shrinking. So how can GDP be growing? There’s no fundamental basis for it. So it must be some sort of tectonic shift like Brexit pre

00:26:56 [Speaker Changed] Pretty, pretty fascinating. There’s so much stuff. I don’t wanna just get stuck in 2016. Let, let’s, let’s go forward. Let’s look forward, one of the things you wrote about was the Coming Youth Boom economy. And when we look at Gen Z born between 97 and 2012, they and Gen Y are gonna dominate the US economy really in the next 10 years or so, they’ll yield higher consumption. You wrote wages and housing demand stimulating GDP growth. This was a few years ago. Do you still hold to

00:27:34 [Speaker Changed] That was in 2019. Yeah.

00:27:35 [Speaker Changed] So the youth boom, is this still coming? Yeah.

00:27:38 [Speaker Changed] So we’re, we’re here, we’re in it and we were at the cusp of it then Millennials were already starting to outnumber baby boomers. That’s right. And then you’ve got Gen Z coming up behind them at that time that were just as large. So when you combine the two, and that’s what we mean by the youth boom, you’ve got a, a demographic that is larger than any in our country’s past and sets us apart on the global stage because our major trading partners are across G 10. Nobody has those demographics now. Our birth rates have been falling. And that is a problem. And that’s a problem that by the way, lights a fire under the need for AI as well. But, but our birth rates are higher than our major trading partners. And so comparatively speaking that, that is something that’s very important. That drives the backdrop.

00:28:25 Now economists love demographics. Demographics make the world go round and demographics, you know, it, it’s when you, when you look at any point in time, how well did the Census Bureau get demographic projections pretty well. ’cause it turns out we sort of all age kind of along the same track. And what we know from detailed government data is we know how we tend to move through the world and spend and behave at certain age ranges. Right? So you as an economist, you can just let your demographic cohorts age through those, those buckets and know kind of how the spending shifts are gonna take place. When are participation rates in the labor force going to peak? When do we hit peak earning years and peak working years and therefore first time home buying years, et cetera, et cetera. So you mentioned housing as being one of our key calls then in 2019. Well, that was only accelerated during COVID for sure. It wasn’t, it it, there were many themes that were accelerated during COVID and housing is one of those in terms of, of the incredible demand. I mean, we are going to be underbuilding housing for a decade.

00:29:42 [Speaker Changed] We, we have been under building housing really since the financial

00:29:45 [Speaker Changed] Crisis. We estimate we will have an 18 million unit shortfall that we need to make

00:29:51 [Speaker Changed] Up for. That’s a, that’s a giant number because the, it’s giant because we’ve been talking about four to 5 million currently. And that comes from the National Association of Realtors and the Association of Home Builders. So there’s a little asterisk, Hey, is this an objective

00:30:05 [Speaker Changed] Number? But think about that’s currently. And then you grow that over time. You pair it with affordability, you pair it with the, the fact that our surveys do show that millennials and Gen Z by far still want to live in single family homes. Sure. They may not all be able to afford single family. And so single family renting will be in high demand. We’re gonna need to build those units. Home builders are gonna have to respond by building smaller, less expensive homes. We think modular housing we’ll have a, a big role to play as well. And then you start to think about all the different ways we need to build homes as well that shortfall in order to ensure all those homes, we’re gonna have to think about climate friendly building materials, more re climate resistance, building materials, all the different ways that we can appease the insurance companies so that we can actually build in the, in the areas and, and make up for those shortfalls. So I think housing is certainly from a thematic perspective, something that can it, it’s a great example to me ’cause it’s something where this is a longer run structural theme, but it can fall out of favorite times cyclically because it is very interest rate sensitive Right now, housing is not in a great place in the us. Affordability is terrible. And it’s not just an interest rate problem. More of the home price is made up from regulatory impacts than anything else.

00:31:31 [Speaker Changed] How, how much of this is a lack of supply? I know I’ve, Jonathan Miller and folks like that have been riding supplies running 20 to 30% of what it normally is and how much of it is a little bit of nimby once people buy a home, they don’t wanna see all the pretty scenery get knocked over and new houses put up over there. What, what’s the solution to this?

00:31:54 [Speaker Changed] Well, I think the NIMBY really is a, is a symptom of, or a side effect of the reg regulation, or sorry, that the NIMBY not in my backyard leads to, is part of what leads to the heavy handed regulation regulation, right? Right. Yeah. And heavy handed regulation by far is a key contributor to the cost of overall housing. Then you add the cost of labor in a sector which has had a shortage of labor since 2008. And we only started to make up for that shortfall during the, what I call the immigration period where we were bringing in millions of immigrants a year in 20 22, 20 23 and part of 2024 only to see that reversal now put labor pressures on that sector again, and then tariffs on materials that go into construction. So it’s just, it’s cost upon cost upon cost that home builders are having to deal with that help drive the affordability issues for the home buyers as well.

00:33:02 [Speaker Changed] Huh. Real, really intriguing. So obviously thematic investing is a big part of, of your job. Is there any other theme bigger than artificial intelligence today?

00:33:14 [Speaker Changed] I’m gonna say a probably not, but artificial intelligence, it’s a very broad, it’s very broad. And so I would gear it more toward AI tech and diffusion, which has been a key pillar, thematic pillar for Morgan Stanley. But here’s why it seems like my answer is just so easy and, and almost like not well thought out, almost flippant in a way, AI is a generalized technology, so it flows through everything. So whether you’re thinking about a multipolar world theme, which importantly includes defense, we had gone long global defense back in January and it was based on the fact that you’ve got your Palantir of, of the world and, and open ais of the world of, you know, working with the go US government to modernize defense for tech and ai. And so if you think about, you know, four themes, say longevity, AI tech and diffusion multipolar world and the energy of everything, AI threads through all of that, it threads through all of it. So when I think about say, conviction weighting those themes, your highest conviction weight is gonna be on the AI tech and diffusion because it does thread through everything.

00:34:39 [Speaker Changed] So what’s more important, the magnificent seven or the magnificent 4 93 that are gonna benefit from ai?

00:34:47 [Speaker Changed] Well, I think there it’s very difficult to not have those big, big tech names, let’s say in a multi thematic portfolio or if you’re trying to, to take advantage of an AI theme because they, they are big players in the space. I mean, as soon as someone in this country moves into contracts with the US government, you’ve got an incredible amount of funding. Look at someone like a Elon Musk who is a creature of the government. Sure. I mean, how much of his wealth comes from government contracts? Tesla,

00:35:17 [Speaker Changed] SpaceX,

00:35:18 [Speaker Changed] All of ’em. Exactly. And so when, when these other players are wrapped up in government contracts and the government has put its priority in winning this seeming two horse race on AI against China, you would probably be ill advised to bet against that. It doesn’t mean that AI tech and diffusion is just the mag seven. So of course in my role I can’t talk about specific companies and you don’t wanna ever take specific company advice from an economist, I’ll just say, but, but you’ve got very interesting players all the way down to mid cap and small cap all the way down to Russell 3000 that are important in an AI tech and diffusion space, meaning

00:36:01 [Speaker Changed] They become more efficient, productive, profitable by deploy, sort of like what we saw post internet

00:36:08 [Speaker Changed] Bust. And, and they, and they become part of the fabric of that generalized technology that all companies end up using as AI diffuses across the economy.

00:36:18 [Speaker Changed] Ma makes plenty of sense to me. What other big themes are you paying close attention to?

00:36:25 [Speaker Changed] Some big themes. And again, it’s, it’s hard for me to get away of some sort of flavor of ai. So as an economist, I’m gonna go back to demographics every time, what are the incentives for adopting ai? Right? Incentives for adopting are, you’ve got to replace labor shortfalls. That’s a huge incentive. And so if you are a country with falling birth rates, and you can make up for that in several different ways. One is your existing population, you can put in policies to boost labor force participation. So have a more full participation from your current population. You can be sure that you are not just have an open immigration system. And I, I don’t mean just opening your borders to indiscriminate flows, but, but an open immigration system, a traditional open immigration system where you have a, a sound process for integrating immigrants into the labor market. Something the US has been very good at, something Europe is not very good at. Or you can replace that labor with AI and robotics. There’s your incentive, there’s your incentive for countries like China, like Japan, maybe not like India right now, but India’s demographics are not good. Really when you look further out a decade from now, 15, 20 years from now,

00:37:49 [Speaker Changed] You know, it’s funny, you keep talking about demographics isn’t the trend throughout history that as a country becomes first less poor and then wealthier, the birth rates just drop. People don’t want nine kids

00:38:03 [Speaker Changed] More affluent countries. It is a natural way of things. Countries that are able to, let me just say roll with that right? And, and boost productivity by making fuller use of your existing labor pool are those that still continue along that path of fluency. The US has not just higher birth rates than our major trading partners, we’ve got higher rates of productivity. It’s part of what us exceptionalism is built upon is that not only have we kept birth rates higher, which population growth and specifically growth in your labor force goes into the, the potential growth in your economy, those calculations. But we’re also making those more productive. And it’s part of the, our secret sauce of success. You know, when I talk about US exceptionalism, I’m not even referring to markets, financial markets, I’m talking about the, the US having a more flexible labor market where we have higher rates of productivity, very important that we continue to hang on to independent monetary policy, that we have stable currency. But that comparative advantage lies in your labor force and how far you can push it. And the US is just really good at that.

00:39:18 [Speaker Changed] So let me ask you a thematic question only, it’s gonna be a negative. What’s the one economic myth you hear more than others? What, what question bubbles up from clients, from, from brokers and advisors, from people within that you wish would just go away?

00:39:35 [Speaker Changed] Maybe this gets too, too nuanced because economists love nothing more than getting nuanced. But it’s like the, the, you got the chicken and the egg backwards, right? Right. So it’s that the markets are pricing in that the Fed is gonna do something at its next meeting and therefore the Fed has to do that, that the

00:39:56 [Speaker Changed] Market market, but the markets have fed been so wrong about that for so long.

00:39:59 [Speaker Changed] Well, I think the markets over time have had a very difficult, so there’s another one. Don’t fight the Fed. Right? How many times did we say don’t fight the Fed and markets fight the Fed and they lose. But, but the, that the markets lead the, the Fed. Now the Fed makes low frequency decisions in a high frequency world, the market is very high frequency.

00:40:18 [Speaker Changed] So that’s a great way to describe that.

00:40:19 [Speaker Changed] Yeah. And so the, the fact of the matter is the market can, can respond on a dime when the data comes out, when financial conditions change, the Fed can’t. The Fed has to look at it, it has to deliberate it, it has to gain a consensus and then it moves much of the time the market doesn’t have it wrong. The market read the labor report, the most recent labor report and said that’s not good. And guess what? The Fed also thinks that’s not good. Great, you’re on the same page. But the market was able to price it in well ahead of the Fed actually delivering in September. So I do believe that the Fed is going to cut 25 basis points in September. Now this is with my hat on as the chief economic strategist of Morgan Stanley Wealth Management. There are others in the firm that also have views, views on the Fed.

00:41:05 But you’ve asked me and the beauty of this podcast that I get to give my views and you’re only talking to me here. So I do think though that our focus on September, it can probably be best spent elsewhere in that the first cut is going to be the easiest because as Chair Powell said, modestly restrictive, do you need to be modestly restrictive when job growth has slowed the slowed this sharply. If you don’t need to be modestly restrictive, just make an adjustment. They’re not making any decisions about what happens after that. So the fact that, you know, do they or don’t they cut in September and by the way, 50 basis points, that’s a hard no for me. Right? ’cause I knew, I could tell, I could tell the question was on your lips, it was about

00:41:47 [Speaker Changed] A hundred basis points. Somewhat. President’s

00:41:50 [Speaker Changed] Definitely, definitely even harder. No. Right. But I do believe that once you have made that cut, it’s a little harder to justify if the data don’t keep coming in in the same fashion to say why that one adjustment was perfect, but not another. So I think, I think where I would rather debate is how far do they need to go? And this is where I do disagree with some powers that b, that the Fed is going to need to cut a lot. I think we’re gonna have a good economy next year. I think productivity is gonna be picking up even more. I think there are parts of the one big beautiful bill with the investment incentives that are in it, which are going to help put a floor under the economy and, and, and we’re not gonna have an environment where the fed’s gonna need to cut 150, 200 basis points

00:42:35 [Speaker Changed] To, to be fair, stocks are at all time highs. Real estate is at all time highs. Revenue and profits are at or near all time highs. It doesn’t seem to be an economy begging for rate cuts, even as we’re starting to see a slowdown in some consumer spending and some hiring. But how much of that is,

00:42:55 [Speaker Changed] But that justifies lower rates. Right? Doesn’t tell you you need to cut drastically. That’s right. So do you want a good economy or do you want the fed to cut drastically?

00:43:02 [Speaker Changed] Well, we know what the president wants. Yeah. What the, what the economy needs and what the market wants. They may be something slightly different.

00:43:10 [Speaker Changed] Yeah. And if the Fed is watching it and objectively doing its job, then we will end up in the right place.

00:43:17 [Speaker Changed] Coming up we continue our conversation with Ellen Zentner, chief economic strategist for Morgan Stanley discussing the state of today’s economy in light of tariffs and trade policy. I’m Barry Riol, you’re listening to Masters in Business on Bloomberg Radio. I’m Barry Riol. You are listening to Masters in Business on Bloomberg Radio. My extra special guest is Ellen Zentner. She is chief economic strategist and global head of thematic and macro investing for Morgan Stanley. The firm runs over $7 trillion. So you’ve written about tariff and trade policy. My question for you is how disruptive or destabilizing is this to either the US or global economy?

00:44:09 [Speaker Changed] So we’ve certainly seen disruption in confidence. Markets don’t like opaqueness, they like certainty. They, and we could see that early on in the volatility of wow January hit and it was tariffs, tariffs, tariffs. And the market clearly was caught off sides. Policy makers were were caught off sides. Economists were caught off sides. And so then you kick off the flurry of activity. What does this mean when the world order is being reset? And it can mean a whole host of things. It’s one reason why all economists, all forecasters have to take a very big slice of humble pie and take a big bite out of that because the uncertainty bans of any kind of forecast you put out are gonna be highly uncertain. There’s no way to know the impacts of tariffs truly until well after the fact. And that’s because tariffs fall here, there and everywhere.

00:45:06 You’re gonna have some degree of manufacturers in the countries that we import from eating the cost. You’re gonna have importers along the way, eating the cost, wholesalers, eating the cost, businesses that sell final goods, eating the cost and consumers having to eat some of that as well. The forecasting comes in where, okay, how much of each, what percentage of each. I think one thing that I’ve observed is businesses have been sitting on a good deal more cushion in terms of cash and free cash flow than I think anybody had suspected that they would be. And

00:45:42 [Speaker Changed] So meaning they have the ability to eat some of

00:45:44 [Speaker Changed] That, the ability to eat some of it. I do think that even after Chinese manufacturers surprised us in 2019 to the degree that they were willing to eat the costs, I think they’ve been able to continue to absorb it. I think ultimately for economists, because economists by and large are wearing a lot of egg on our face for getting it wrong, for sounding the alarm. But companies were sounding the alarm too. We’re taking our cues from what the surveys are saying, what we’re hearing directly from companies that I’m gonna pass on these prices to consumers. I am not going to eat this. But then how much of that are companies talking their own book as well to,

00:46:23 [Speaker Changed] To be fair, it’s the middle of August. Liberation day was early April. We had a 90 day pause. We really haven’t felt the full impact on tariffs. And we probably won’t until the fir fourth quarter or first quarter next year. So is it a little early to say, Hey, no harm, no foul?

00:46:43 [Speaker Changed] No, I think it’s definitely too early to say no harm, no foul. And I don’t think anyone, even the administration is saying there won’t be some bit of bearing the brunt of that among consumers, among businesses in the US. I think it’s just that you’ve got one faction saying that it’s gonna be a lot less of an impact than some other factions. And no one really knows. So wait, wait, let’s all be humble about it.

00:47:07 [Speaker Changed] No one knows. But there seems to be a bit of a consensus that tariffs are a consumption tax. It’s like a VAT tax on us households and businesses. Is that overstating the threat or is that, is that

00:47:22 [Speaker Changed] Accurate? No, that’s exactly how it works. To the extent that they, that companies eat it on the margin or pass it on to households and households eat it and paying higher prices, that is exactly how it works. I mean that is the economic theory of it. That is sound. It’s the degree to which the costs are absorbed and by what players along the import channel. That is the, that is the unknown factor. And I can tell you that you know, what the president is doing or has been doing is changing global trade in a way that typically would play out over a decade or so in a very short period of time. And so that’s led to a tremendous amount of uncertainty. And like you said, this may be something where the full tariff impacts aren’t felt until the fourth quarter or fourth first quarter of next year.

00:48:15 And if that is the case, we’ll deal with it when it comes and Chair Powell and the Fed will be there to act very nimbly around that I am confident of. But has there been unfair trade practices? Absolutely. Do we need to renegotiate trade contracts? Absolutely. I was at the state of Texas during nafta. NAFTA was not renegotiated until it became the U-S-M-C-A under Trump’s first term. Why the global economy is so dynamic, how could a trade agreement put together in the nineties still be relevant in 20 17, 20 18, 20 19? It makes no sense. Hmm. So absolutely we need to be revisiting trade like alongside a dynamic global economy. It’s on

00:49:03 [Speaker Changed] A more regular basis.

00:49:04 [Speaker Changed] On a more regular basis. We are just doing this over a short period of time and that’s created a good deal of, of disruption and uncertainty and volatility in guesswork, if you will, among the economics community. So,

00:49:17 [Speaker Changed] So let’s talk about that guesswork. There’s gonna be some of these tariffs showing up as on the household level. Is that a headwind for consumption? Same question about businesses. If they have to eat some of the tariffs that’s gonna affect profitability. There’s no free lunch is there?

00:49:35 [Speaker Changed] No, there’s never a free lunch. So we are seeing consumer spending slow. Now it’s slowing for several reasons. One, we’ve had a reversal of immigration in the US that is no small number of people bodies consume. And so if you’ve got fewer bodies, they’re consuming less.

00:49:56 [Speaker Changed] And I wanna say we, we have had a negative net new population this year for the first time I think in US history. Is that, is that accurate?

00:50:06 [Speaker Changed] Yeah, it’s, I mean we’ve slowed to a trickle in population growth at times, but it is highly unusual, highly unusual. You’ve got less bodies in the US so you’re consuming less now. Those bodies contributed to low income consumption. You’ve also got low income consumers in general in the US that when prices for goods go up from tariffs or for whatever reason, they’re going to consume less. So consumer spending has been slowing. Now why hasn’t it slowed even more so than it has when population growth has been negative from a reversal in immigration because the top end consumers are still spending, so the top income quintile in the US represents 45% of all consumer spending. If you take just the top two income quintiles, that’s more than 60% of all consumer spending. Wow. And so we want what we want and whether you say maybe that’s still an artifact of COVID, we were all taught we’re gonna die tomorrow. So spend it, if you got it,

00:51:11 [Speaker Changed] It’s five years later

00:51:12 [Speaker Changed] Or it’s just this tremendous, tremendous increase in real estate wealth and tremendous increase in financial wealth. And even though our marginal propensity to consume out of that wealth is smaller for upper income households, the growth in wealth is just enormous. And so when they’re spending, it tends to mask weakness at the low end. But there are some risks along the horizon. Student borrowers have to start paying that back. I don’t think that we’re outta the woods and that because the economy is growing at half the pace it was last year we’re just fine. I think we can grow even more slowly before it gets better.

00:51:49 [Speaker Changed] So let’s talk about two issues that are policy concerns that you’ve raised. One is economic data integrity. We’re recording this a few days after Trump fired the head of the BLS. What sort of concerns does this raise in terms of protection of data integrity?

00:52:10 [Speaker Changed] So data integrity cuts both ways. So prior to that very high profile firing of the BLS commissioner, the concern on among the economics community for quite some time has been that data integrity has been slipping. And the way we look measure that is we look at survey response rates. And especially because the labor market report is the end all, be all number one data point in the US that we follow, the response rates had been slipping. And now why is that? Well, there are myriad reasons. One is that we have frequent government shutdowns. And so when the lights aren’t on and no one’s there to police the survey and call you the business and say, Hey, it’s really important that you respond and you don’t get that call as a business, it starts to instill in you this sense of maybe this survey isn’t so important, maybe I don’t need to answer that.

00:53:10 And so what we’ve seen is after those episodes, you tend to have a slippage in response rates that you never quite get back. Another issue is, we talked about the youth boom. I don’t see a lot of youthful people jumping up and down to work for the government. Maybe that’s because the systems are antiquated. I wonder because you’ve got older generations at the government that are having to teach an antiquated programming language to younger generations coming in programming LA languages that don’t exist anywhere else. And so how does that instill excitement among young people to come in and work for the government? We have also had a systematic underfunding of data agencies for quite some time as well. How can you overhaul your systems without the proper funding? And so it’s something that the, the nay of the national Associate for Business Economics has really followed this closely.

00:54:12 We have a statistics committee that meets with all the heads of the statistical agencies and the statistical agencies have a very strong outreach program to economists in academia, in government and in the private sector to say, here are methodologies, how can we do it better? And so we’re constantly searching for ways to improve. And honestly, to their credit, half the time the private sector economists are like crickets. How can we do it better? Oh, you don’t like the way we measure housing? Tell us how we can do it better. Cricket. Cricket. No, I just like to say I don’t like the way you do it. I mean I, but, but we’re not really offering a lot of sound solutions. We’re a massive economy. It’s not easy to measure the data. But one thing that we do well historically is we measure data well and we have the best, most robust data sets out of any other country we compare ourselves to. But it has been slipping. So very fair. What I will advocate for is funding the data agencies and encouraging them to overhaul their systems.

00:55:14 [Speaker Changed] So let’s talk a little bit about the Federal Reserve independence. How much risk is there that the Fed could get politicized?

00:55:22 [Speaker Changed] So we have to take the risk seriously. And I understand why folks might be concerned that we could be headed for a time when there’s collusion between the White House and the Fed because we’ve been there before. So you could understand the concern. And that was a very different time between Arthur Burns and the Nixon White House. But it was a very real time. And then it led to the hyperinflation and those of us of a certain age, we don’t want to live through

00:55:52 [Speaker Changed] 1970s inflation. That was a ugly decade economically.

00:55:56 [Speaker Changed] That was an ugly decade. And I tell those harrowing tales to my team of waiting in line for gasoline with my mother. You know, because it was rationed or we couldn’t get gasoline on a, on a Sunday.

00:56:10 [Speaker Changed] I remember I had a lawn mowing business and I would show up with my little red gas tank can and they would say, do you have an odd number license plate or an even number license plate? And my answer was always, I’m 12, I don’t have a license plate, I just need a gallon of gas so I can mow Mrs. McCarthy’s lawn down the street. Yeah, they

00:56:30 [Speaker Changed] Would always do. I can’t believe they had the nerve to ask a 12-year-old that

00:56:32 [Speaker Changed] Oh no, you show up

00:56:33 [Speaker Changed] Literally. But it shows you why should you a 12-year-old get priority for someone that needs to commute to work.

00:56:38 [Speaker Changed] But apparently, but, but

00:56:39 [Speaker Changed] My parents bought a house at 18% mortgage interest in 1980,

00:56:44 [Speaker Changed] 18%.

00:56:44 [Speaker Changed] And that was normal because if you didn’t buy it that day, it was more expensive the next day. Right. That’s what strikes fear in the hearts of monetary policy makers, because that is inflation expectations. The price was gonna be more expensive tomorrow, so you better buy it today.

00:57:00 [Speaker Changed] Structural inflation expectations lead to consumer behavior that helps to drive prices

00:57:05 [Speaker Changed] Higher. Yes. And it starts off that, that sort of vicious cycle. And so this is at the heart of why you need independent monetary policymaking. Because if the market believes that the Fed might keep rates easier than the economy would otherwise dictate, then is that going to again lead to something like runaway inflation? Is it gonna lead to stagnation? And that’s why every time there’s some headline where the, the Feds independents may be threatened, you see term premium increase at the long end of the yield curve. You see the stagnation playbook go, go into effect among investors. And you know, going back to us exceptionalism, independent monetary policymaking is a pillar of us exceptionalism.

00:57:57 [Speaker Changed] Hmm. Really, really interesting. There have been a bunch of names floated for Fed Chair other than Scott Bessant who who has said he is not interested and I think is probably the most thoughtful person that I’ve heard names I’ve heard thrown out any of those names make you remotely comfortable or what? What do you think about some of these trial balloons that keep getting tossed around?

00:58:23 [Speaker Changed] Yep. So I think so I agree with you. I like the, the steady hand and careful thinking that comes from Treasury Secretary Besson. It would actually, in policy circles be a demotion to send the Treasury Secretary to become chair of the the FOMC.

00:58:43 [Speaker Changed] Believe it or not. That’s a demotion.

00:58:44 [Speaker Changed] We think of it. So in markets, I often hear this from investors is wait, but the chair of the Fed is the most powerful person in the world, but from in policy circles, it is a lesser position than Treasury Secretary.

00:58:58 [Speaker Changed] That’s very interesting. So it’s a longer tenure, especially if we look at recent administrations. It’s not like someone becomes a treasury secretary and they’re there for all four years. They seem to turn over pretty rapidly.

00:59:12 [Speaker Changed] That can be the case, right? That

00:59:14 [Speaker Changed] Can be the case.

00:59:15 [Speaker Changed] Case. Not always.

00:59:16 [Speaker Changed] We’ve had back to back six year terms for Powell. That’s a pretty

00:59:21 [Speaker Changed] Yeah. Robust

00:59:22 [Speaker Changed] Tenure. Four year terms. Yeah,

00:59:22 [Speaker Changed] Four year terms. Four year terms. But yeah, and there tends to be a lot of longevity with fed chairs because they also don’t change typically with administrations and so, and political parties, they tend to span political parties. So, look, there are a lot of, you know, I, I obviously am gonna have some personal favorites of mine that have been thrown out there, but unfortunately I’m not gonna give you those names. But, but there,

00:59:49 [Speaker Changed] Well, just tell me who you really don’t like.

00:59:51 [Speaker Changed] There is, yes, yes. I’ll do the opposite. No, but there, there, there plenty of names in there that have been tossed around as possibilities that would make fine FOMC chairs. I think what you’re going to see is with each of those names as they float to the top, the markets will have their say on whether that is a candidate that would be believed to be a mouthpiece of President Trump or not.

01:00:17 [Speaker Changed] When I look at various cabinet members, defense, intelligence, health and welfare, and most recently, now BLS can’t say these are the best and the brightest. It’s not Camelot under Kennedy. And you could kind of under John F. Kennedy in, in 1960, you could kind of get away with that in certain cabinet positions. Am I wrong in saying markets won’t tolerate someone like an RFK Junior and all of his anti- vaccination attitudes at, at a place like NIH or CDC with a Fed chair, I is the bar higher for the chairman of the Federal Reserve than other specific cabinet positions? Well,

01:01:12 [Speaker Changed] I think piggybacking on, you know, sort of your exact examples there, who directly has a hand in influencing financial markets? That is the Fed chair, that is the FOMC, collectively, not just the Fed chair, but the FOMC as a collective body. And that’s why the markets will always be most sensitive to who is the chair of the Fed.

01:01:36 [Speaker Changed] So I want to ask a question about policy, not politics, but very often when we talk about, you know, anytime something comes up like taco, whatever, it, it seems to get overly politicized. But the one descriptor I heard that’s kind of fascinating is that there isn’t a Trump put, there’s a Trump collar. And what that means is when markets are near all time highs, he’s someone emboldened and can be very aggressive in doing things like firing the BLS Commissioner when the market sells off and, and suddenly we’re 10, 15, almost 20% off the highs. Hey, we’re gonna put a pause on tariffs for 90 days. There. There’s a little bit of a, a flaw there. And hence the, the phrase Trump collar. I, I know we only have six or eight months worth of recent data. How important do you believe market prices are to this president and this administration?

01:02:35 [Speaker Changed] So in the first administration, you know, we, we were like, okay, we’ve got his number, we’ve got his number. He takes the stock market as the single best indicator of his approval rating, right? And so if the stock market pukes, if it’s a huge sell off, he’s gonna listen. And so we, we went into this second Trump term with the markets assuming, aha, yes, all we have to do is speak and we’ll speak volumes with a sell off and he will change his tune. Well, that is not what happened. That’s not what happened because the markets did puke when it became apparent that he was gonna be very aggressive on a trade policy in his second term, the market puke and the president stayed the course.

01:03:21 [Speaker Changed] So someone asked me my opinion as to what I think trade policy is gonna look like going forward, given how frequently we’ve seen flip flops and back and forth and extensions and what I answered. And I’m curious as to your perspective on this. Tell me the last person who whispers in President Trump’s ear before a decision is made. And that’ll tell me where the market will go. If it’s Treasury Secretary Scott Besson is the last person to speak to him, I think the markets would be pretty steady and on a gradual move higher if it happens to be someone like Pina Navarro, well buckle up. We’re in for a bumpy ride. Fair, fair way to describe the, the policymaking in, in DC

01:04:10 [Speaker Changed] I think so. I mean, basically what you’re getting at in a roundabout way is just who do the markets trust? Who do the markets trust? And I think you’ve had Treasury Secretary Bessant that had an active role in that hair raising time between April 2nd and April 9th meeting with Chair Powell helping to persuade the president to sort of back off at, at that time, adding to that hair raising moment by threatening to fire Powell. Like the markets have come to know besant as a calm and steady voice. And

01:04:43 [Speaker Changed] So I think steady is the word that always seems to pop into my head. Steady

01:04:47 [Speaker Changed] Equals certainty equals surety equals the opposite of volatility. And so, you know, the markets will speak volumes as to who they believe they can trust.

01:04:58 [Speaker Changed] Coming up, we continue our conversation with Ellen Zentner, chief economic strategist for Morgan Stanley. I’m Barry Riol. You’re listening to Masters in Business on Bloomberg Radio. All right. So I only have you for a limited amount of time. Let’s jump to our favorite questions, starting with who are your mentors who helped shape your career?

01:05:27 [Speaker Changed] Well, Tamara Plough. So I might have mentioned I worked for her at the state of Texas. She was a very influential chief economist at the state of Texas. And that was my, she was my first Barry, you always remember your first. So she was the first chief economist that I worked for and, and has followed my career for the, the next 25 years. She’s followed my career. I think my first foray, foray into investment banking. My chief economist was David Wrestler at Nomura Securities. He was a 26 year veteran chief economist at, at 26 year veteran of Nomura Securities. And he’s now playing golf 24 7 in the south. But he, because it was my first foray into investment banking, into the high frequency world, trading as a trading desk economist, he was very influential there. And I still hear from him all the time when he sees me in the media or he hears of some forecasting award or something like that. Like he’s still the proud papa today. And so those were two big early mentors of mine that helped shape my career.

01:06:44 [Speaker Changed] That that’s great. Before we get to books, and you actually brought a few books I did trying prepared, I want, I wanna ask about streaming. What are you listening to or watching? What’s, what’s keeping you entertained?

01:06:56 [Speaker Changed] I really developed a love for streaming. Same. I didn’t watch TV before.

01:07:00 [Speaker Changed] Very similar COVID.

01:07:02 [Speaker Changed] I, the TV was never on in our apartment. And so with C-O-I-D-I really, my, my eyes were open. And so I really love documentaries. The one that I’m watching right now is on Billy Joel. I,

01:07:17 [Speaker Changed] I’m literally just wrapping up the first we stopped just before the stranger.

01:07:22 [Speaker Changed] Yeah. So they must have made it for 50 somethings in this world. Right, right. So

01:07:27 [Speaker Changed] There you go. Well, if you grew up in the sixties, seventies, eighties, Billy, especially in New York or Long Island Yeah, Billy Joel was everywhere.

01:07:35 [Speaker Changed] Yeah. Which I’m of an age that, that I know him in real time, but I, I’m from the south, so I didn’t know all of these things. So my, so my, my streaming habits are extremely polarized and polarizing probably. So it’s anywhere from documentary. So I can expand my knowledge and expand my mind to the most base streaming reality shows like Love Island. And I am not kidding you, if anyone wants to say, wow, she really is a real person, it’s the fact that I can enjoy Love Island and then in the next, you know, hour I can enjoy a documentary on Billy Joel.

01:08:18 [Speaker Changed] So you have a couple of books here. Let’s talk about books. What are, what are you reading now? I have a couple books. What are some of your favorites books?

01:08:24 [Speaker Changed] Yeah, I have a couple books. So when I, when I first, as you mentioned, I was on almost exactly eight years ago, and I talked about Jon os Sarah’s book, A piece of the action, how the Middle Class became the Money Class. Still one of my favorite books on the rise of Consumer Credit in the US and in our love hate relationship with

01:08:41 [Speaker Changed] It. But it’s been that, that analysis of how the middle class suddenly gained entry to homes, mortgages, cars, and lots of consumer discretionary goods. Huge boom for middle class America. Right?

01:08:57 [Speaker Changed] Yeah. Incredible. It, it really is still an incredible book. And every economist of mine that I have cover the consumer and study household behavior, they have to, they have to read it. So I brought in today Kurt Vonnegut’s Player Piano

01:09:11 [Speaker Changed] Can’t Go Wrong With Vag.

01:09:12 [Speaker Changed] And so I have not read this book, but I’ll tell you that what I’m showing you if the listeners could see is a handwritten note from a colleague after watching a webcast of mine. How many people get handwritten notes? Still not many, right?

01:09:27 [Speaker Changed] And, but they catch your attention. And

01:09:29 [Speaker Changed] The, the webcast was me and Adam Jonas. And Adam Jonas is the, they, he was always referred to as the Tesla guy. He’s probably the quintessential thought leader at Morgan Stanley. He’s just got a celebrity following and he is leading the charge on robotics and humanoids. And so after that webcast, I was sent this because this book written in the 1950s covered rise of the corporation and replacement of the state, the ruthless efficiency of capitalism in dealing with labor, the overpowering of the worker by AI and automation. That’s all in this book from the 1950s,

01:10:13 [Speaker Changed] 75 years ago. Amazing.

01:10:15 [Speaker Changed] 75 years ago. The other book I brought in, so again, just like my streaming habits, eclectic is called the Bluegrass Conspiracy, an Inside Story of Power, greed, drugs, and Murder. This is the backstory to Cocaine Bear the movie. Oh. Which is one of my favorite movies.

01:10:32 [Speaker Changed] I haven’t seen it ’cause it sounds so,

01:10:35 [Speaker Changed] Oh crazy. Come on. Yeah. I

01:10:38 [Speaker Changed] Mean, it just sounds like a wildly fictionalized account of a highly unlikely event. Yeah. How’s the book?

01:10:46 [Speaker Changed] The, the book? I am just starting and I cannot wait to get through it because the movie, the, the only thing that the movie that really happened that was in the movie was that there was a dead bear found in a national park with a belly full of cocaine. That is the only thing in the movie

01:11:04 [Speaker Changed] That was accurate.

01:11:05 [Speaker Changed] That was accurate. That actually is in the book. But there’s a whole backstory here and I cannot wait to read it. It comes highly recommended. So you can see that my taste in books runs the gambit as well, just like my, my streaming.

01:11:19 [Speaker Changed] So, so if you haven’t read Player Piano yet, have you read Other Vonnegut? Have you read Kat’s Cradle or Slaughterhouse? I

01:11:27 [Speaker Changed] Have not read any Vette.

01:11:28 [Speaker Changed] All right. So everybody should read Slaughterhouse Five. And if you’re at all remotely interested in, in science and technology run amuck, Kat’s Cradle is his version of that. He, what makes him so fascinating is he finds these incredible concepts and just so simply explains them in such a compelling and entertaining fashion.

01:11:55 [Speaker Changed] But isn’t it also scary how books can be written that long ago? And then here we are. So talking about humanoids and robotics, because another, I have to say piggybacking off of this idea of robotics and humanoids 2013, have you seen the movie Robot and Frank?

01:12:12 [Speaker Changed] No.

01:12:13 [Speaker Changed] Robot and Frank, Frank Ella was in it. Susan Sarandon, Peter sars guard. James Marsden. Liv Tyler.

01:12:22 [Speaker Changed] Great. Wow. That’s some cast new movie.

01:12:24 [Speaker Changed] It is. So talk about when we think about Thematics, longevity is a thematic AI tech and diffusion is a thematic in terms of, of thematic investing. Robot. And Frank is about a, a senior gentleman that, that his, he wants to age in place and to help him do that, his family buys him a home companion robot to help him.

01:12:48 [Speaker Changed] Which, which is really not decades away

01:12:51 [Speaker Changed] At this point. No, we’re not that far off from that in Japan. They’re already testing it. So this was in 2013. The, the, the kicker though is that it just so happens that Frank was a petty thief in his prior life. He’s now going through early dementia. He was a petty thief and he co-ops the robot to help him. That’s the fun part of the movie. But, but Robot and Frank 2013,

01:13:15 [Speaker Changed] A great movie. I’m absolutely check that out. Our last two questions. What sort of advice would you give a recent college grad interest in the career in economics, finance investing? What would your advice be to them?

01:13:28 [Speaker Changed] I would say for them to find any and everyone they can think of that works in that field already, the best is to, to, if you can, not to cold call, but to try to find some sort of connection, whether it’s your wealth advisor and see who your wealth advisor, I get contacted by our wealth advisors that say, Hey, my client has a son who this, do you mind if I put you in touch with them? Find some way. And when you start to have conversations with people that are already working in areas where you think you want to work, never leave that conversation without getting two more names from them of people they think you should contact. And can they make that opening for you so that you always have another conversation to be had.

01:14:10 [Speaker Changed] Each call always asks for two more names. Yeah, that’s, that’s great advice for someone right outta college. And our final question, what do you know about the world of economics investing, thematic investing, macro economy today that might have been helpful 25 or so years ago, really when you were first starting out?

01:14:31 [Speaker Changed] I think if I were to know that models are not the end all be all, I would’ve started using anecdotal evidence a lot earlier. Huh. I am a very big believer in anecdotal evidence, and I’ve been criticized for that in my career. It’s not statistically sound. I like to use my one man data sample, which is my husband when I, when I study behavior. And, and I just, it’s a great way to connect to people, connect to your audience, get a message across. And I’m a big believer in using anecdotal evidence when thinking about how to adjust your forecast subjectively. And so I, I wish I had have started using that in my career even earlier.

01:15:16 [Speaker Changed] Ellen, this has been absolutely a pleasure. It’s been way too long since we had you in here. We have been speaking with Ellen Zentner. She’s Chief economic strategist and global head of Thematic and macro investing for Morgan Stanley Wealth Management. They manage over $7 trillion in total assets. If you enjoy this conversation, well be sure and check out any of the 547 we’ve done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you find your favorite podcast. And be sure and check out my new book, how Not to Invest the ideas, numbers, and behaviors that destroy wealth and how to avoid them, how not to invest at your favorite bookstore. I would be remiss if I didn’t thank the crack team that helps put these conversations together each week. Peter Nico is my audio engineer. Anna Luke is my producer. Sean Russo is my researcher. Sage Bauman is the head of podcast at Bloomberg. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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Crosscurrents

 

 

One of the challenges that comes from analyzing markets and the economy is just how much “gray” there is. Most data points exist along a noisy continuum, subject to future revisions. The meanderings above or below the trend may be just noise, or the start of something more ominous. Key reversals occur rarely and are difficult to spot in real time.

Add to this the fact that markets are far less correlated to the economy than most people believe. We impose our desire for order and clear causation, which leads us to imagine we understand the present with far greater clarity than our history suggests (to say nothing of the future).

The past few months exemplify this:

Consumer sentiment is janky, yet consumer spending remains robust. The labor market is less tight than before, but wages have increased, even as unemployment stays low. Inflation has fallen, but is starting to perk back up. Housing is still messy, with little inventory and high mortgage rates. Corporate profits are at record highs, and expectations are for continued growth.

 

Tariffs are the wild card.

So far, companies have absorbed most of the tariffs but are expected to start passing those costs on to consumers. Tariffs are a consumption tax, and at least so far, they have only had a mild effect on spending. But it’s still early, and the Trump 2.0 tariff regime is likely to create modest headwinds for future consumer spending.

Then, there is the V.O.S. Selections, Inc. v. Trump, which I discussed in July. I remain surprised at how little coverage this case has received, considering its potential to overturn ALL of the 2.0 tariffs. If that were to occur, it would be a bullish surprise. (We will discuss this more in the future if necessary).

Last, there are the underlying technicals of the market: There seems to be endless liquidity, and markets have shaken off every bit of bad news. (I am more interested in the reaction to the news than the news itself).

How much are these crosscurrents – consumer spending, labor, rate cuts, inflation, housing, tariff policy, etc. – already reflected in stock prices? Considering that we are currently trading at all-time highs, the assumption is that the markets are already discounting a lot of the bad news.

Historically, secular bull markets can run much longer, further, and higher than most observers expect. The long bull runs of 1982-2000 and 1946-1966 are prime examples. This secular bull run began in March 2013, when just about every market broke out over its prior trading range. At 12 years old, it could still have a goodly number of years left to run. The giant Covid-19 fiscal stimulus continues to be a tailwind, even if it was a major source of inflation from 2020 to 2023. I have no idea how that “reset” affects market longevity, but I suspect it is a significant factor.

So far, markets have climbed the wall of worry in 2025. The open question is how much prices have incorporated big upside or downside surprises.

Consider the thrust chart up top (table below).

When we see days like these, where 90% of the volume on the NYSE is higher, and 90% of all stocks are in the green, it tends to be bullish for the next 12 months of gains. The last 90/90 day was April 9th of this year, when we had a 90-day pause on Tariffs. The S&P 500 is up 29.8% since then; the Nasdaq 100 has gained 37.5%.

Since 1982, we have seen one negative, one flattish, and 12 positive sets of returns over the 12 months that followed a 90/90 day. It’s not a guarantee, but it suggests favorable odds for remaining constructive.

 

 

See Also:
Will US inflation data support investor hopes of a rate cut? (Financial Times, August 24, 2025)

How Long Can This Uncanny Stock Market Prosper? (New York Times, August 22, 2025)

Cars, coffee and clothing are poised to get pricier with new tariffs (Washington Post, August 8 2025)

What’s the bottom line? (Sam Ro, Aug 17, 2025)

 

Previously:
Might Tariffs Get “Overturned”? (July 31, 2025)

The Muted Impact of Tariffs on Inflation So Far (July 17, 2025)

Are Tariffs a New US VAT Tax? (March 31, 2025)

NFP Disappoint; Revisions Worse (August 1, 2025)

The Magnificent 493 (August 12, 2025)

All Time Highs Are Bullish (June 26, 2025)

A Spectacularly Underappreciated 15 Years (April 28, 2025)

7 Increasing Probabilities of Error (February 24, 2025)

What Is Driving Inflation? (July 29, 2025)

 

 

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10 Monday AM Reads

My back-to-work morning train WFH reads:

Powell Is Giving the Market What It Wants, Not What It Needs: By any measure, the markets are partying hearty, with stocks hitting records, corporate credit spreads at quarter-century lows, plus myriad signs of speculative fervor. Those include margin debt topping $1 trillion for the first time, the revival of initial public offerings (most of which have experienced big opening-day price pops), record options activity, and even the revival of special purpose acquisition companies (SPACs), or blank-check companies for the next big thing. Those are hardly the circumstances suggesting the need for easier money. (Barron’s)

Mortgage Amounts Relative To Housing Values Are Lowest Since Elvis. Housing narrative has shifted from sellers’ strength to buyers’ weakness; Home Equity has surged due to rising prices;  Distressed Real Estate remains a rounding error. (Housing Notes)

Trade Deal Could Give Japanese Cars a Leg Up in U.S. Market: President Trump’s 15 percent tariff on cars from Japan has angered U.S. automakers, which make cars in Canada and Mexico subject to 25 percent tariffs. (New York Times)

Big Pharma Has a New Vision for Selling Drugs. It’s Going to the Mattresses. Amid pressure from the White House, U.S. drug companies are experimenting with direct-to-consumer sales models that cut out the middlemen. (Barron’s)

Big Tech’s A.I. Data Centers Are Driving Up Electricity Bills for Everyone: Electricity rates for individuals and small businesses could rise sharply as Amazon, Google, Microsoft and other technology companies build data centers and expand into the energy business. (New York Times) see also AI Boom Reshapes Power Landscape as Data Centers Drive Historic Demand Growth: “The energy narrative in 2024 shifted from focusing on the urgency of the energy transition to the urgency of energy security,” (Power)

We’ve Reached the Sad Cracker Barrel Stage of Cultural Evolution: Hey, I love American traditions as much as the next bumpkin. But Cracker Barrel isn’t a tradition by any stretch of the imagination. The company was founded on September 19, 1969. That’s exactly one month after the end of Woodstock. (The Honest Broker)

Steve Wozniak on fighting internet scams. Wozniak was the inventor, Jobs was the master salesman; and when Wozniak created the Apple II, Jobs had something new to sell: the first personal computer to display color. “That was the machine that really made personal computers go, because it was so fun,” Wozniak said. “So many breakthroughs in there that are just so far out-of-the-box.” (CBS News)

A New Discovery Might Have Just Rewritten Human History: Long before modern supply chains, ancient hominins were moving stone across long distances, potentially reshaping what we know about our evolutionary roots. (404)

How Gavin Newsom trolled his way to the top of social media: Inside the MAGA-parodying strategy that has rocketed the California governor to algorithmic dominance — while annoying leading Republicans. (Politico) see also MAGA World Is So Close to Getting It: Gavin Newsom’s parodies are riling people up—and they don’t quite seem to understand why. (The Atlantic)

How Your Phone Gets the Weather:  The more weather observations meteorologists can rely on, the more precise their forecasts will be. Here’s what goes into an accurate forecast. (New York Times)

Be sure to check out our Masters in Business this week with Ellen Zentner, Chief Economic Strategist and Global Head of Thematic and Macro Investing for Morgan Stanley Wealth Management. The firm manages over $7 trillion in assets.

Foreign Investors Aren’t Following The Dollar-Is-Bad Script

Source: Yardeni Research

 

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10 Sunday Reads

Avert your eyes! My Sunday morning look at incompetency, corruption and policy failures:

• The umpire who picked a side: John Roberts and the death of rule of law in America: The chief justice of the US has painted himself as a modern institutionalist over the past 20 years. Experts say he’s emboldening Trump’s drive toward authoritarianism  (The Guardian)

Private Equity Is Headed for Your 401(k). The Industry Is Celebrating. Should You? The Trump administration is taking the handcuffs off the private-market industry. The outcome for retirement savers will be complicated. (Barron’s) see also The Ivy League Keeps Failing This Basic Investing Test: Elite universities are again stuck with illiquid assets just when they badly need cash. (WSJ)

Firing BLS Director Over Weak Jobs Report Is ‘Banana Republic’ Behavior: If a Democratic president tried to so directly politicize an independent agency, Republicans would be screaming about the coming tyranny. (Reason)

How The Internet Died: Dissecting a tragedy of the commons: “The Internet feels empty and devoid of people. It is also devoid of content. Compared to the Internet of say 2007 (and beyond) the Internet of today is entirely sterile. There is nowhere to go and nothing to do, see, read or experience anymore… Yes, the Internet may seem gigantic, but it’s like a hot air balloon with nothing inside.” (What We Lost)

The Playbook Used to ‘Prove’ Vaccines Cause Autism. In the scientific community, Mr. Geier is infamous for the deeply flawed studies he conducted with his father, Mark Geier, claiming that vaccines cause autism. Researchers have long called attention to the serious methodological and ethical defects in their work.  (New York Times)

America Is Abandoning One of the Greatest Medical Breakthroughs: The Department of Health and Human Services recently announced it would wind down 22 mRNA vaccine development projects under the Biomedical Advanced Research and Development Authority, or BARDA, halting nearly $500 million in investments. This decision undercuts one of the most significant medical advances in decades, technology that could protect millions more people from the threats ahead. (New York Times)

Russia is quietly churning out fake content posing as US news: A pro-Russian propaganda group is taking advantage of high-profile news events to spread disinformation — and they’re spoofing reputable news outlets to do it. (Politico)

American Nazis: The Aryan Freedom Network is riding high in Trump era: With Donald Trump’s return to power, a neo-Nazi group buoyed by his rhetoric is expanding its reach and changing the face of white extremism in America. Its leaders: a Texas couple, both born to Ku Klux Klan leaders. (Reuterssee also Inside the ‘Whites Only’ Community in Arkansas: Members have espoused racist and antisemitic views and repeatedly praised Adolf Hitler and the Nazi party. They’ve raised hundreds of thousands of dollars, and their movement is growing. (Wired)

Trump wants NASA to burn a crucial satellite to cinders, killing research into climate change: By any reasonable metric, NASA’s Orbiting Carbon Observatory has been a spectacular success. Originally designed to support a two-year pilot project, it has been operating continuously in space for more than 10 years and could continue doing so for three decades more. The data it produces “are of exceptionally high quality,” NASA stated in a 2023 review, when it labeled the project “the flagship mission for space-borne measurements” of the greenhouse gas carbon dioxide. (Los Angeles Times)

How Fast Should Your 12-Year-Old Throw? It’s a paradox that parents of talented kids face. Their children could become really good at something they love. They could also get hurt. (New York Times)

Be sure to check out our Masters in Business this week with Ellen Zentner, Chief Economic Strategist and Global Head of Thematic and Macro Investing for Morgan Stanley Wealth Management. The firm manages over $7 trillion in assets.

 

What is the US poverty rate?

Source: USA Facts

 

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10 Weekend Reads

The weekend is here! Pour yourself a mug of Colombia Tolima Los Brasiles Peaberry Organic coffee, grab a seat outside, and get ready for our longer-form weekend reads:

Monetary Policy and the Fed’s Framework Review Chair Jerome H. Powell: “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy,” an economic symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. (Board of Governors of the Federal Reserve System)

Taylor Sheridan’s Extreme Productivity: The prolific mind behind “Sicario” and “Yellowstone” only started his writing career at 40. The realest deadlines (a young family, a $350m ranch) have pushed him to grind at an unbelievable pace. (SatPost by Trung Phan)

Lisa Su Runs AMD—and Is Out for Nvidia’s Blood: While everyone else has been talking about Nvidia’s GPUs, Lisa Su has discreetly turned AMD into a chipmaking phenom. And as the US-China tech war rages, she’s at the center of it all. (Wired)

Brain Food: Alzheimer’s breakthroughs of mice and men, the stranger-than-fiction phenomenon of comb jelly intelligence, RIP Dobby, and three recommendations. (The Garden of the Forking Paths)

How America Got Its Baby Back, Baby Back, Baby Back: Chili’s was once a relic of the ’90s. Then it blew past its competitors—and conquered casual American dining. In its Texas test kitchen, I saw how. (Slate)

The West is bored to death: Our nihilistic politics are a product of the crushing ennui and spiritual vacancy of modern life. (New Statesman)

• The heir’s property: one man’s journey to reclaim family land in the American South: An in-depth look at the issue of land passed down through generations, told through the lens of one man’s struggle to retain land purchased a century ago by his great-grandfather, who was born into slavery during the Confederacy. (USA Today)

The Democratic Party Faces a Voter Registration Crisis: The party is bleeding support beyond the ballot box, a new analysis shows. (New York Times) see also How the Democrats Became the Party That Brings Pencils to a Knife Fight: Will the battle over Texas’ gerrymandering lead to a new era for the party? (New York Times)

Getting to the Moon or Mars? Musk and Bezos Tackle Space Travel’s Refueling Problem: Spacecraft that could fuel up in orbit would be less weighted down at liftoff and fly deeper into space. (Wall Street Journal)

50 Years After ‘Born to Run,’ We Took a Trip to Springsteen Country: Few albums capture a time and place the way Bruce Springsteen’s ‘Born to Run’ evokes 1970s New Jersey. A pair of superfans hit the road to see how much of that world remains. (Wall Street Journal)

Be sure to check out our Masters in Business this week with Ellen Zentner, Chief Economic Strategist and Global Head of Thematic and Macro Investing for Morgan Stanley Wealth Management. The firm manages over $7 trillion in assets.


Consumer spending is under downward pressure from slowing job growth, student loan payments restarting and deportations lowering the number of consumers


Source: Apollo

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MiB: Ellen Zenter, Chief Economic Strategist at Morgan Stanley

 

 

This week, I speak with Ellen Zentner, Chief Economic Strategist and Global Head of Thematic and Macro Investing for Morgan Stanley Wealth Management and a member of the Firm’s Global Investment Committee. She and her team are responsible for generating event-driven and forward-looking secular thematic insights, identifying how they can contribute to individual- and institutional-investor portfolios, and guiding stakeholders and internal teams to support the firm’s investment strategies.

Previously, Zentner worked at Bank of Tokyo-Mitsubishi UFJ Ltd., and Nomura Securities International. She began her career working as a Senior Economist for the Texas State government under then Governor George W. Bush.

We discuss everything from tariffs to Fed independence to data integrity at the BLS.

A list of her favorite books is here; A transcript of our conversation is available here Tuesday.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, SpotifyYouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Heather Boushey, previously a member of the Council of Economic Advisers under President Biden, and chief economist to the president’s Invest in America cabinet. She is currently a senior research fellow at the Reimagining the Economy Project at the Harvard Kennedy School.

 

 

Favorite Books

 

Books Barry Mentioned

 

 

 

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10 Friday AM Reads

My end-of-week morning train WFH reads:

The United States Is Southern Now: From booming metros to culture-defining exports, the South has quietly become a demographic powerhouse and a battleground for the country’s identity. (Businessweek)

The Trillion-Dollar AI Bubble Nobody Sees Coming: A single Chinese startup just proved that the emperor has no clothes in Silicon Valley’s AI king… (Technobezz) see also Are we in an AI bubble that’s getting ready to pop? The promised AI revolution isn’t here yet. But it’s a smart bet that productivity gains will follow. (Washington Post)

American Businesses in ‘Survival Mode’ as Trump Tariffs Pile Up: A 90-day pause on additional tariffs on China offers no relief to American companies already facing extraordinarily high import taxes imposed by President Trump. (New York Times)

How Quantum Computing Could Upend Bitcoin: Hackers stand to gain “a superpower.” Will the crypto industry be ready? (Barron’s)

Gamblers Now Bet on AI Models Like Racehorses: Prediction platforms are turning the AI arms race into a high-stakes game. (Wall Street Journal)

Our 10 essential summer podcasts: Today’s political, economic, and social landscape is especially complex. Keeping up with the constant stream of news can be tricky, especially in summer. That’s why we’ve put together a selection – by no means exhaustive – of podcasts, covering economics, finance, and beyond. Each offers valuable insights that help make sense of the present – and perhaps imagine the future. Here are 10 podcasts our team recommends. (Moneyfarm)

How Pickleball Explains American Culture: In 2019, pickleball was half as popular as badminton. Last year, it was more popular than baseball. What does its rise tell us about fads, fitness, and culture? (Derek Thompson)

I witnessed Operation Warp Speed. Trump’s refusal to defend it is baffling. The president deserves an NIH director who champions science rather than dangerous nonsense. (Washington Post)

19 Facts Worth Knowing About George Orwell: “George Orwell” isn’t George Orwell’s real name. That would be Eric Arthur Blair. He took on the pen name in 1933, when he published his first full-length book, “Down and Out in Paris and London.” (Behavioral Scientist)

Steve Buscemi Is Glad He Took That Leap: Born on the unluckiest of days, the 67-year-old has built an enviable roster of affable malcontents. With his debut on Season 2 of “Wednesday,” he adds to his legend. (New York Times)

Be sure to check out our Masters in Business next week with Ellen Zentner, Chief Economic Strategist and Global Head of Thematic and Macro Investing for Morgan Stanley Wealth Management. The firm manages over $7 trillion in assets.

 

Why Has Consumer Spending Remained So Resilient? Evidence from Credit Card Data

Source: Federal Reserve Bank of Boston

 

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At the Money: Buying Your Own Jet

 

 

At The Money: What Does it Take to Buy Your Own Jet? (August 20, 2025)

Have you ever wondered what it was like to own your own private plane? It may not be as out of reach as you imagine. Sure, some people spend $50 million or more, but there is a plane for nearly every budget.

Full transcript below.

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About this week’s guest:

Preston Holland is the founder of Prestige Aircraft Finance and hosts a weekly Private Aviation Podcast, “The VIP Seat.” He writes the newsletter “Private Jet Insider,” providing advice and strategies to help clients navigate private aviation.

For more info, see:

Professional Bio

LinkedIn

Twitter

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Find all of the previous At the Money episodes here, and in the MiB feed on Apple PodcastsYouTubeSpotify, and Bloomberg. And find the entire musical playlist of all the songs I have used on At the Money on Spotify

 

 

 

TRANSCRIPT:

 

Intro: I wish that I could fly Into the sky So very high Just like a dragonfly I’d fly above the trees Over the seas In all degrees To anywhere I please Oh, I want to get away…

Have you ever wondered what it was like to own your own private plane? It may not be as outta reach as you imagine. Sure. Some people spend $50 million or more, but there’s a plane for nearly every budget.

Let’s speak with Preston Holland. He’s the founder of Prestige Aircraft Finance. He also hosts a weekly private aviation podcast called the VIP seat and his author of the newsletter, Private Jet Insider, which provides advice and strategies to help clients navigate private aviation.

Barry Ritholtz: Let’s just keep it simple. Do I need to be a billionaire to own my own plane?

Preston Holland: You don’t need to be a billionaire and actually most of my clients are not billionaires.

In order to own an aircraft one that you’re gonna sit in the back. You’re going to have flown professionally for you, typically, what I’m seeing is a net worth of somewhere between a $100-$200 million as kind of the starting point. And so not only is net worth something to consider, but also what does this do for my tax strategy and tax planning? How am I going to use bonus depreciation to my benefit? There’s a lot of other things that come with this and what, how much cash flow does my business spin off?

But generally speaking, when we’re thinking about that, it’s, it’s really in the $100-200 million mark before you’re starting to buy something like a light jet or maybe a mid-size jet.

Barry Ritholtz:  There are a handful of watches you can buy in a handful of very specific sports cars that sell for more on the secondary market than MSRP. My assumption with Jets is that there’s depreciation in the used market, not appreciation. Is that a factor here, or do most of these jets go through the normal straight-line depreciation process, like a boat as the hours add up?

Preston Holland: The answer is generally yes to that. Let me add two caveats. One is COVID – and if you watch the valuation of aircraft between 2018, 2019, and 2021 – they appreciated significantly. There’s a lot of people that were selling their airplanes in 2021 for what they bought or more than what they bought. In 2018, 2019. General market trends definitely matters in this scenario.

But generally speaking, over a lifetime, there is a real depreciation factor you sell for less than what you bought it for.  And the only nuance to that is in a few make and models and in a very short period of time, post-delivery.

Right now, if you look at the overall ecosystem, I can think of off the top of my head three models in which that’s happening, and they’re driven by a few kind of different forces.

One is the Phenom 300. The Phenom 300 is an excellent light aircraft, and it is loved by charter operators. It’s loved by owners, and the contract price that you bought it for two years ago while you waited in line, oftentimes you can take possession of it and you flip it immediately and actually get a premium above and beyond. That market specifically, it’s happening a lot.

The Prater 500 and the Prater 600, which are also a rare product are experiencing similar but not quite as dramatic to that.

The Pilatus PC 12 market has experienced that over the last couple of years. The wait list for a Pilatus PC 12 is five years. Wow. If you wanted to buy a brand new PC 12 right now, and you got in line, you’d be waiting five years, and so for the first couple of years, you may be able to fly it for a little bit and then get out of it a little higher than what you have.

Barry Ritholtz: I imagine the range of private aircraft is very different from what I see in luxury automobiles. The sizes vary a lot. How many people they can carry, how far they can fly, how fast they can go. How broad are the ranges of private planes, and how big is the price range from small regional planes to cross-Atlantic type of jets?

Preston Holland: Let me start with the ratio of size to range. ’cause those two things actually play with each other.

You have light jets, which are usually really good for regional travel, so this is for people who are flying from Atlanta to Charleston. There are people flying from New York to Chicago, right? Not terribly far as the crow flies. Um, those light jets, you know, are not necessarily gonna do cross-country type activities, but they’re gonna be really good for that.

When you’re thinking about how much am I going to spend, there’s also a very wide range.

I would say, just to give you a really broad range — you’re kind of get in price for a jet, and this is, you’re talking pretty old, pretty small, it is gonna be around 1 million to $2 million.

The top end of the market is gonna be what Jeff Bezos just took delivery of which is a G700 at $75 million sticker, and it’s everything in between.

Barry Ritholtz: What are the other costs and responsibilities beyond the purchase price? What do people who purchase a plane need to think about and budget for?

Preston Holland: So the framework to think about this is the difference between fixed costs and variable costs. In the same way, if you’re gonna draw the boat analogy, whether you boat one day a year, or 365 days a year, there’s a certain set of costs. That are constant and you’re gonna have to pay them whether you use it a lot or you don’t use it.

We refer to those as fixed costs, right? So whenever you see somebody say, what’s the fixed cost of this airplane? That is typically crew expense. That is your pilot expense, that is your training expense ‘cause your pilots have to be trained in the aircraft. There’s aircraft management, which is you’re paying a company, a third party company to basically it’s a property manager for your jet. (That is the best comparison. It’s not a one for one comparison, but it’s pretty close).

The hangar cost, so very, you’re in New York. I’m sorry to break it to you, but hangar costs in your neck of the woods is very expensive, but hangar costs, you gotta pay it whether you’re, whether you’re flying the airplane or not; your insurance cost is gonna be a percentage of full value, liability, value, things like that.

And then there’s some other miscellaneous fees, there’s subscriptions, there’s NAV-aides, there’s things like that that fixed costs will range. In the kind of light jet world, 400 to $500,000 a year, and then when you get up into the large aircraft, you may have fixed costs north of a million dollars. If you have to have multiple captains for your aircraft, you’re flying a lot. Things like that.

Barry Ritholtz: What are the variable costs like?

Preston Holland: When you talk about variable costs, you touched on an important fact, which is the fuel.

There is Jet A Fuel, which is much more expensive than what you put into your car, and there are ways to mitigate that. You can get fuel contracts to get you a discount, but it kind of is what it is. You actually pay a lot of six, $7 a gallon, something like that, somewhere in there. Depends on what part of the country.

Barry Ritholtz: It can be as low as five and a half. It can be as high as eight and a half, like five and a half. I’ll put it into my cars. I mean, I’m, I’m okay with that. People don’t realize when you’re flying a jet, even regionally, you’re burning through hundreds of gallons, if not thousands of gallons of fuel. What is the hourly fuel cost for A mid-size jet?
Preston Holland: I actually, I have a tool, uh, that a friend of mine built is called AVI Cost. And, I use that to do all of my calculations. So the citation XLS, which burns 227 gallons per hour, you have the CJ four, which burns 198 gallons per hour. The Challenger 300, which burns 200. 80 gallons per hour.

Once you start getting up into your large aircraft, let’s say your Global 5,000, which is an aircraft that can easily do New York to London, it can do New York to Paris. Uh, you’re burning 490 gallons of fuel per hour. So it ranges significantly on how much fuel you’re burning.

There’s also in the fuel burn, it’s not a one-to-one, you’re not gonna save a lot of money, but if you’re going faster and burning more fuel, like there’s a coefficient there, sure there’s some math to do. But for instance, right, if we assume $6 and 25 cents per hour, the global 5,000 is burning $3,000 of fuel per hour. Where, where do we wanna travel?

Barry Ritholtz: New York, to LA.

Preston Holland: We’re gonna leave out of Teterboro Airport because we are not gonna deal with the Port Authority and we’re gonna go to John Wayne, which is SNA. Yep. ’cause we’re also not gonna deal with LAX. We’re gonna take four people with us.

We are gonna fly the global 5,000. It is 2100 miles nautical miles. It’s gonna take us 4 hours and 40 minutes approximately in the global 5,000. And we are going to have $7,000 of variable cost per hour. Our total trip variable cost is gonna be $38,281 to go from New York to la.

Barry Ritholtz: We’re talking about fuel costs. We haven’t talked about maintenance costs. If you’re flying a hundred hours a year and you have a jet, what can you expect in, in maintenance expenses, assuming nothing goes wrong?

Preston Holland: A lot of times maintenance is actually calculated on an hourly basis, so you’re buying into a program. There is not a direct correlation to this in the real world.

The closest it would be is to an insurance product, but you’re paying on a consumption basis. So let’s say I am signed up for a maintenance program, a maintenance platform. One of them is called JSSI (Jet Services Solutions Inc.) They have a 100% coverage for my engines. That’s going to amortize my overhaul costs, which can be a couple of million bucks.

That has to happen every 2,500 or 5,000 hours. It’s gonna amortize it on a per hour basis, so I pay per hour, I pay to the service, and then they pay my chunky maintenance bills. Those engine programs vary. Pretty significantly, depending on how much coverage.

You can also put coverage on the parts on the aircraft program called Pro Parts, where you’re paying an hourly cost and then they’re basically, they’re taking the other side of the bet that you’re gonna have less maintenance and you’re taking the front side of the bet that says, I’m gonna have a lot of maintenance and they’re gonna pay for it.

Barry Ritholtz:  Or just that I wanna have a fixed set of costs and don’t have to worry about the possible surprises and are willing to pay a little more upfront.

Preston Holland: Exactly, You’re, you’re willing to pay kind of stretched out over time as opposed to large chunks. So instead of paying your $2 million overhauls, you’re gonna pay, you know, let’s say a thousand, $2,000 per hour.

So generally speaking, if you were to amortize your maintenance expense over your hourly, which is typically how everybody calculates this on the global 5,000 that we’re talking about, is gonna be around $4,100 per hour.

Barry Ritholtz: Let talk a few minutes about jets. If you wanna go cross the Atlantic. What size jet are we talking about?

Preston Holland: Yeah, you’re gonna have to go into the large cabin range. You’re gonna be looking at. The Gulfstream G 450 to unlock kind of London. I think it’s gonna be on the fringe for Paris. The G 550 gets it with no problem. The Gulfstream G six 50, the Bombardier Global 5,000, 6,000, 6,500. (There’s a lot of numbers) and so that you, you’re really gonna have to get into that large cabin to comfortably get nonstop from New York to Paris.

And that’s gonna, you know, possibly have a flight attendant. It’s gonna have at least two pilots. You’re gonna have. At least one nice size restroom, maybe a small restroom in the front. Uh, so that’s really getting up into your larger cabin aircraft, but that’s really how you’re gonna be able to get transcontinental.

Barry Ritholtz: I recall a few years ago there was a commercial pilot shortage. I have a buddy who I grew up with who flies Detroit to South Korea, and he was telling me they just can’t find enough pilots. Does that same shortage of qualified pilots exist in private aviation as well?

Preston Holland: The pilot situation in in private and business aviation has undergone some similar pressures to what it has in commercial aviation.

The price has gone up. The, the price of pilots has gone up. The price of training has gone up. Just everything associated with the pilot has gone up. When you look at kind of the shortage, you have to remember that every pilot has to go through what’s called a type rating. And every pilot has to go through what’s called recurrent training.

So if you are qualified to fly the Gulfstream G six 50, you have gone through the initial training, the initial type training, and you keep that current because you have a client that is, you know, kind of running through, flying that aircraft.

And then you have one of his buddies that calls and says, Can you come fly my Global 5,000? You would have to go through the initial type training and do the recurrent training, right? Every pilot can only fly so many types of aircraft. And so as you look at kind of the quote unquote pilot shortage, which there’s a lot of debate in the industry whether it even exists or not. If you look at that, you have to look at type ratings.

Now, when you’re looking at buying an aircraft, one thing that I advise clients to do a lot of times is follow the big dogs. Okay? You’ve got the big dogs, which is Net Jets. They’re the largest Flex Jet, which is second largest Vista Jet, which is pretty large.  (There are a lot of the other operators)

If you follow their make model, kind of their fleet composition, they train so many pilots. I mean, to put into perspective for those that follow publicly traded companies.  Berkshire Hathaway owns NetJets and Flight Safety. They just reported an up quarter 8% revenue growth. NetJets owns its own training facility. That’s how much, that’s how many slots that they were buying in the training facility. So they will actually leak out pilots for people that are like, you know what, I don’t want to do the seven days on seven days off thing. So, you know, Phenom 300 pilots relatively easy to come by.

Barry Ritholtz: So someone’s thinking about buying a private jet and they’re saying to themselves, gee, this sounds like a lot of responsibility and a lot of costs, and maybe it’s a little out of their budget. How significant is fractional ownership to the experience of owning your own jet?

Preston Holland: So fractional is similar, um, but it sometimes from time to time will feel a bit more like chartering than owning your own aircraft. Now, every fractional contract has slightly different language in their contracts of what’s called callout hours.

I’m gonna come to New York. You and I are gonna go for a sushi dinner in la. I know this great spot. We’re gonna go out there if we wanted to leave in two hours. We are not guaranteed availability on a fractional if we wanna leave in 12 hours. So let’s say we wanna leave tomorrow morning, guaranteed availability, and sometimes they will be able to swing something through and actually get you there when you own an airplane.

It is waiting for you at the hangar, and you determine how close your pilots have to be so that if you wanna leave in 20 minutes, you can do so. Right? And so that is the biggest difference in the experience. The other piece is the hassle that comes with hiring pilots and managing stuff.

I have a lot of billionaire clients and billionaire friends. That say, look, I don’t wanna mess with this. I just want the easy button. Fractional is the easy button. Like at the end of the day, you’re paying somebody to deal with all the headache and you show up and you get on the airplane and you go, you’re not having to say, ah, well I, I’ve got pilot turnover. It really is the easy button, which is where that fills in the market. Not only can you save kind of on your gross cost, but even if you’re flying where it makes sense to fly private, you’re negating a lot of that stress.

Barry Ritholtz: So our last question, someone reaches out to you and says, Hey Preston, I’m thinking about buying my first plane. What sort of advice do you give to that person?

Preston Holland: Assemble a good transaction team. That is the number one thing that you have to do. Your transaction team typically looks like person number one is your broker. They’re gonna be your quarterback. It’s not dissimilar to buying a commercial property. They’re gonna find the aircraft, they’re gonna manage the process.

They’re gonna do all of your pre-buy inspections, everything like that. Two, your attorney is probably pretty good in house. They know nothing about FAA law. You need to get an aviation specific attorney. In the grand scheme of things, it’s gonna be similar pricing to any other specialized attorney, but it’s gonna make sure you, your in-house attorney is gonna pull their hair out, try to figure out how to do this, where the attorney aviation attorney’s gonna be easy. Third aviation tax consultant of some sort. A few different firms that specialize in aviation tax. Your CPA probably knows how to run your books and make sure that everything’s good. They don’t understand the concept of “truth in leasing” and subleases and “leasing between all of the known entities” and how do you not get flagged by the FAA to illegally charter? So get a tax consultant just to makes your life easier.

And the last one is a financier. So that’s what my firm does. If you’re paying cash, we’re not necessarily in the equation, but if you’re, if you’re gonna finance your aircraft. You may call your bank and they may do it for you. They may not some of the larger banks don’t necessarily want to do older aircraft or smaller aircraft, and so then you’re kind of left wondering, what am I gonna do? How am I gonna finance this?

We basically run an RFP process for you and make sure that we can kind of drive your rate down, stretch out your amortization, drive your down payment down, whatever your goals are. We work with family offices, CFOs to make sure that the proper leverage amount at the right cost is put on the aircraft for whatever your goals are.

Barry Ritholtz:  Hey, you could save money with fractional ownership or with jet memberships, but for some people, the only way to go is by owning their own private aircraft.

I’m Barry Ritholtz, and you are listening to Bloomberg’s At the Money.

Outro: I want to get away I want to get away I want to get away I want to get away Yeah

 

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