Lots More on Why Neil Dutta Is Sticking With His Recession Call

On Wednesday, President Trump put a 90-day pause on reciprocal tariffs for every country except China. The market, which had been in a state of deep panic, surged massively on the announcement. But then on Thursday, stocks sold off hard again as people woke up to the reality of massive tariffs on China and the new baseline tariffs on everyone else. Plus, even before all this tariff drama, there were plenty of reasons to be anxious about the US economy. On this episode of Lots More, we speak with Neil Dutta of Renaissance Macro Research. He explains all the moving parts and why he's sticking with his call for a downturn this year. Mentioned on the show:Neil Dutta Sees Rising Risks to the Labor MarketEverything You Need to Know About the Basis Trade Spooking Markets Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

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• 1:41Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 1:46Joe Weisenthal?

  What do you think, recession or no recession?

• 1:49Tracy Alloway?

  I mean, you had a really good piece.

• 1:52Joe Weisenthal?

  Thank you.

• 1:53Tracy Alloway?

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

• 2:20Joe Weisenthal?

  Kind of.

• 2:20Tracy Alloway?

  Kind of.

• 2:21Joe Weisenthal?

  Well, now, so look.

• 2:23Tracy Alloway?

  Your point was,

• 2:24Joe Weisenthal?

  Yeah.

• 2:25Tracy Alloway?

  if he does that, we can all go back to worrying about like a slowdown in the labor market, or deep-seak threatening AI, which so much capital investment in the US actually depends on.

• 2:37Joe Weisenthal?

  There's a lot.

• 2:40Joe Weisenthal?

  I did a deadlift.

• 2:41Tracy Alloway?

  I am both the most popular trader and most successful trader at Citadel.

• 2:46Joe Weisenthal?

  Fed is going viral.

• 2:47Tracy Alloway?

  Uh, barges.

• 2:48Joe Weisenthal?

  This is an after-school special, except.

• 2:50Tracy Alloway?

  I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

• 2:56Joe Weisenthal?

  Black gold.

• 2:57Tracy Alloway?

  These are the important questions. Is it robots taking over the world?

• 3:00Joe Weisenthal?

  No, I think that like, in a couple of years, the AI will do a really good job of making the Odd Lots podcast. One day, that person will have the mandate of heaven.

• 3:09Tracy Alloway?

  How do I get more popular and successful?

• 3:12Joe Weisenthal?

  We do have The perfect guest. Welcome to Lots More, where we catch up with friends about what's going on right now.

• 3:19Tracy Alloway?

  Because even when Odd Lots is over, there's always lots more.

• 3:23Joe Weisenthal?

  And we really do have the perfect guest.

• 3:29Joe Weisenthal?

  You know who had a really good contribution to the Odd Lots newsletter? February 2024, basically, the market topped. Neil Dutta sees rising risks to the labor market, calling recession risks right there and essentially at the market top. We got him back on. Neil, yesterday, after Trump walked him back, by the way, we're talking to Neil Dutta of Renaissance Macro, Trump walked back some of the tariffs. Goldman pulled its recession call. You sent out an email right away. You said, I'm sticking with my recession call. Why do you see recession in the cards in 2025 still?

• 4:00Speaker 04

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

• 4:27Speaker 04

  And that's the issue. You know, all the things I mentioned in that newsletter you you highlighted in February, that's all here. That's still here, right? We still have a situation where labor incomes are slowing and the Fed's not budging. We still have a situation where mortgage rates are high and the housing market is weak. And we still have state and local governments cutting back. And we still have a pretty high volume on trade. I mean, in terms of tensions, just because we dialed it back a little bit yesterday doesn't mean that the tensions are not still high. And I think it's what we've basically done is traded, you know, you basically spread the distribution of costs, I guess, I mean,

• 5:10Speaker 04

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

• 5:27Tracy Alloway?

  It is true, we've ratcheted down tariffs for countries ex China, but as you say, we've basically gone back to what we were worried about before, right? And the funny thing I got to say about that Goldman note, and it just underscores how quickly things are changing in the current environment. You know, they published that, they published the recession call basically an hour before Trump did his big Wednesday announcement. And then right after that, like within 60 minutes, they had to come out and say, actually, we're rescinding it.

• 5:58Joe Weisenthal?

  As Lenin said, there are hours where nothing happens and minutes where days happen. And we've had two minute, you know, we're seeing a lot of that right now.

• 6:07Tracy Alloway?

  Do you have like a little book of Lenin quotes that you keep with you? Where are you getting those from?

• 6:12Joe Weisenthal?

  I also might be mangling the quote a little bit. I mean, Neil, you said trade tensions are high, but tariffs are really high right now. I mean, that's really like the core thing.

• 6:21Speaker 04

  Well, that's the other thing, right, Joe? I mean,

• 6:22Joe Weisenthal?

  It's not just tensions, it's reality.

• 6:24Speaker 04

  100%. And I kind of sympathize with it, right? Like, it's the uncertainty that he's creating. No, no, no, it's also what he's actually doing. And that is going to weigh on investment by itself, right? Because if you introduce tariffs and you actually follow through with the tariffs, the uncertainty around what you're doing is going down. The reality of what you're doing is what businesses will respond to through growth expectations and they'll pull back, right? Because ultimately, what drives investment is what's happening with growth. If real growth is slowing, then it's inevitable that investment spending will follow suit because largely what investment responds to is sort of an accelerator effect, right? That's basically the idea that as growth picks up, investment tends to rise more.

• 7:08Speaker 04

  So the fact that growth is slowing and expectations around growth are coming down, that's ultimately what's going to pull down investment. So it's not so much the uncertainty, although that's probably not good. It's also what he's actually doing.

• 7:20Tracy Alloway?

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

• 7:51Speaker 04

  Yeah, I think so. I mean, I think the stock market going down is usually bad. And I think that'll have, that'll have effects on household psychology for sure. And remember, like a lot of the, a lot of the reason why consumer spending ran so much more rapidly than real income growth last year was because the savings rate was going down. And one of the reasons why the savings rate was going down was probably because stock prices were going up and that was juicing the enthusiasm for the high end consumer.

• 8:18Tracy Alloway?

  Yeah, I think this is really important. Like if you think that consumer spending was driving a lot of the surprising growth in some respects that we've seen recently, then you should really focus on what the higher end consumer was doing. And most of those higher end consumers have stock portfolios.

• 8:37Speaker 04

  Yeah, I think that's right. And I guess the other thing I would say is, you know, there's a whole literature, I think, about, you know, the stock market as a passive informant or an active informant, right? So is there anything about the share price of a company that tells the CEO of that company something about their firm they don't already know? Usually it's probably not, but if you get this sort of Macro type environment, which is kind of where we are right now, then the stock market takes more, takes on more of a role of an active informant. And, you know, then you kind of have business, the business community, kind of looking to the stock market as a aggregator of macro risk. And right now, you know, the fact is, is that stock prices are down quite a bit from their

• 9:22Speaker 04

  February highs. And that's probably creating a cautionary mood for most of corporate America.

• 9:29Joe Weisenthal?

  I'm a big fan of the stocks matter hypothesis. I've been banging the drum, stocks matter. Don't, don't just dismiss the stock market as this thing that us Wall Street elites, which we are, are obsessed with. They actually matter. In this family, I do not believe in Wall Street versus Main Street. I only believe in one constant, contiguous street that connects all roads in America. Neil.

• 9:51Tracy Alloway?

  Wait, wait, isn't that Neil saying the, you know, people say that the stock market is not the economy, but it's not not the economy?

• 9:59Joe Weisenthal?

  Neil, where did you get that? Neil, where'd you get that?

• 10:01Tracy Alloway?

  Oh, we're going to settle this.

• 10:02Joe Weisenthal?

  Neil.

• 10:03Speaker 04

  I got it from Joe Weisenthal.

• 10:04Joe Weisenthal?

  Yeah, all right.

• 10:05Tracy Alloway?

  Oh, okay.

• 10:06Joe Weisenthal?

  I know, most painful thing is Tracy has to acknowledge, I get some credit for something.

• 10:10Tracy Alloway?

  It's a good quote.

• 10:11Joe Weisenthal?

  Thank you.

• 10:12Tracy Alloway?

  That's why I thought Neil had it.

• 10:28Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 10:44Speaker 05

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service insocial clients.

• 10:53Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merrick of Ripple says.

• 11:01Speaker 06

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 11:20Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 11:30Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Millions of Americans are taking peptides, short strings of amino acids that can act as biological signals for cells. Peptides like insulin can occur naturally in the body, or they can be synthetically introduced to induce a biological process, as happens with semaglutide, the active ingredient in Ozempic. Now Bloomberg's Anika Inampudi reports peptides may be exploring their next frontier: the brain. People are taking peptides for mental clarity and cognitive benefits, as alternatives to psychiatric medications, and to gain a competitive edge or stave off the effects of aging. Both insulin and semaglutide are approved by the U.S. Food and Drug Administration. Because importing or selling

• 12:15Speaker 01

  unapproved peptides for human use is not legal in the U.S., many people turn to online forums for guidance and overseas vendors with questionable credentials to obtain them. Unapproved peptides, which are marketed as research chemicals, have been circulating on what's become a billion-dollar gray market amid the rise of do-it-yourself medicine, as people increasingly turn to social media or artificial intelligence for medical help. Doctors warn against self-experimentation and advise talking to providers before trying any new therapies. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 12:53Joe Weisenthal?

  Outside of elder care, do you feel confident that there is a single major sector of the U.S. economy right now that's adding headcount? Elder care and healthcare?

• 13:05Speaker 04

  Not really, no. I mean, most of the growth in employment has been in sort of what you would call like acyclical industries, like private education and healthcare. You know, when you look at the more cyclically sensitive areas of the job market, I mean, that's clearly slowing down. You look at residential construction employment, I mean, that's actually down against last year. You know, I mean, service sector, I mean, the other thing, of course, is that if the tariff, when, as the tariffs come on, that's likely to push up goods prices, right? Given the fact that the labor markets are...

• 13:42Speaker 04

  Slowing down to the extent that people have to allocate more of their household budgets towards goods, that'll leave less left over for everything else, which means they'll ultimately have to start cutting back on services consumption. And that'll drive down the prices for services. So that to me is a bigger concern because obviously service sector employment is huge in the US. That's where most of the meat is. So, you know, leisure and hospitality, you know, things like that. I mean, that's going to come under pressure, I would think.

• 14:10Tracy Alloway?

  Yeah.

• 14:11Speaker 04

  Yeah, as the quarters go on.

• 14:13Tracy Alloway?

  We are recording this on Thursday, April 10th, and we did just see CPI actually come in lower than expected, but everyone's talking about imminent tariffs impact. And I guess my question on inflation is like, a lot of people seem to be debating between, well, most people agree the tariffs will immediately push up prices. The big question is, at what point will enough demand destruction actually kick in to reduce demand for consumer goods and potentially lower prices? But it's really interesting that you're saying that, you know, we could have the impact feed into services and then if you get higher unemployment, that would certainly add to the demand destruction dynamic.

• 14:58Speaker 04

  The Fed's policy at the moment is to be behind the curve, proceed accordingly. That's all I can tell you. I mean, they're basically telling you that they're waiting for growth conditions to deteriorate before they cut. That's all that really matters. They're not changing the nominal anchor just yet. I mean, so that that basically tells you that their solution to the inflationary consequences of tariffs is disinflation.

• 15:24Joe Weisenthal?

  As of right now, Nasdaq down 6%. That big green candle we got yesterday, rapidly melting, S and P 500 down 5.24%. US 10-year yields up on the day, not a cocktail you want to see.

• 15:40Tracy Alloway?

  What if, um, what if this just keeps going for the next four years?

• 15:45Joe Weisenthal?

  It might be.

• 15:50Tracy Alloway?

  Lots More is produced by Carmen Rodriguez and Dashal Bennett with help from Moses Ondom and Kale Brooks.

• 15:55Joe Weisenthal?

  Our sound engineer is Blake Maples. Sage Baum is the head of Bloomberg Podcasts.

• 16:00Tracy Alloway?

  Please rate, review, and subscribe to Odd Lots and Lots More on your favorite podcast platforms.

• 16:06Joe Weisenthal?

  And remember that Bloomberg subscribers can listen to all of our podcasts ad-free by connecting through Apple Podcasts. Thanks for listening.

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