Big changes going through with the Trump administration. How will our investments do in this environment? We don’t know the rules of the game. Modestly slowing economy, unclear regulations, threats of tariffs and war. Consumers are the economy, and how are they doing? 3 million out of 170 million work for the Federal government. What about Federal layoffs? Inflation? Look at the Fed’s Teal book and other numbers (that are not boring). See what the numbers show about what this might mean for you. How to look at the years with the administration ahead of us. What is the outlook for equities? Is this the time to be a little more active or is it “time in the market that matters?” Hint: spoiler alert: the tariffs may not last and their effects may not be long-term.
Our guest is Jack Janasiewicz, portfolio manager at Natixis Investments. For his contact information, reach out to an expert team member.
Welcome to the Expert Network Team Podcast.
Today we continue our conversation with Jack Janasiewicz from Natixis Investment Management. And Jack is going to start today's conversation with the best piece of advice that he could give to one of his clients. So let's begin.
When I do a lot of keynote speaking, they'll always ask at the very end, if you have one thing that you would offer up to our clients here, what would it be?
And I, I sometimes, a lot of times I'll tell them, Turn off your TVs. Turn them off. Turn off your computer in terms of Twitter and whatever else you're paying attention to. That's the best advice I'll give you. I love it. You may have already addressed this, so if you did, I apologize, one of the headlines coming out of somewhere that I saw yesterday, which I find impactful, is, I think it was 19 I'm just, I might pull some of these dates outta the air, but like 1992, the average age of a first time home buyer was 27.
And then you get to 2001, the average age moves up to 31. Now we get to 2024. It was 38... and 2025.... They were expecting it to be 40 for a first time home buyer. And a lot of that has to do with this gap between starting wages. Now, granted. I think anybody at a starting wage, anything should probably not be a first time home buyer because they, and I don't know if you talked to this, but the transitory workforce is actually a good thing.
You want to be mobile for the first stage of your career, probably. So we build this idea of the American dream has to be X, Y, and Z. You get your job, you buy a house. That's not always the best thing. And I learned that the hard way. When I. Started my first job, 9/11 happened and I got ripped and then I've got this house I got to unload in a recessionary market.
But this idea that, wage growth is being totally outpaced by cost of education, cost of housing, in certain contexts. I was interested to hear a comment about rent. But where are we at in reality? I get the cost of eggs is high, milk or whatever, like those things, the commodity things are just are what they are, but.
Like you said, I think the real contributors to inflation, as I understand it, have been healthcare, education and housing, and those typically don't revert, do they? Oh, again, this goes back to the, what we were talking about before, and that inflation is a constant level of increase in prices, as opposed to just the one off.
To your point, reverting prices, yeah, prices aren't going to revert, it's just that they don't go up at that increased rate. But going back to your housing comment, this is interesting because it can filter back into, a lot of the bearish comments that I'll get questions on revolve around a lot of the statistics that are looking at, for example, like defaulted auto loans, credit card balances, that kind of stuff.
And so what I find interesting is when you actually dig into the details on this stuff, And it makes complete sense, right? So what happened during covid, a lot of the kids get, they graduate college and then they basically have a hard time finding a job, but so they finally find a job and they've got a ton of student debt, and because they're trying to make it on their own, they're moving out of the house and trying to rent an apartment.
So think about all those things together, right? You're basically carrying a home or a a student loan. You're probably going to be paying a rent, which we know has been skyrocketing. If you're going to try to drive to your job, you probably needed a car. You couldn't buy a new car because there weren't any to buy.
So then you got forced into the used car market and you had to basically maybe take a loan out because the used car price shot up. Guess what? Your used car loan was probably a floating rate loan and oh, by the way, rates are at 7%. And so you put all these things together and it's no wonder that this cohort that gets squeezed the most because of this inflationary impulse is going to be really the young adult. So think of someone who's right out of college or, under 30. And so when you start to look at the auto loan delinquencies and defaults, what cohort is getting is really pushing up that number.
It's that core we're just talking about, the credit card defaults. Yeah, we've done the credit card defaults tend to not be measured by the balance of the loan. It's the number of cards that are in default. So what happens? Think about a college kid who might open up six different credit cards, but they all have a 250 max balance on it.
So yeah, if I don't make payments on that, yeah, it's a bunch of 250 payments, but. Again, we're not talking about someone who's got a 50, 000 credit card balance defaulting. So a lot of this stuff is somewhat misleading, but it brings me back to the point where who's really getting hurt the most by higher rates.
And it's people who don't own a house who basically have, you can't afford to just go out and buy a car. They have to take a loan out, have to basically live in a in an apartment who are probably paying at some version of a floating rate loan. It's all that cohort, which basically ends up being these, people who are just starting out.
So to your point about really trying. make it right off the bat during COVID era is probably one of the worst times to really do that. So I think a lot of this, a lot of the data is a little bit skewed towards a cohort that is not hugely impactful for the broader economy right now, because they're just not making enough money to generate consumption.
That is what really drives the economy. Yeah, maybe we just continue. This is great. Yeah. So here now, if Carl didn't warn you, I'm the skeptic or the cynic in the group. So I want to introduce variables here warm and fuzzy because I'm also very big on data. But here's the problem. I have sometimes with.
Generational data comparison is at some level, it assumes a constant in culture and the youth of today or the emerging adults of today are not the same as the emerging adults of the eighties nineties, right back then. Not that I'm a coffee drinker, but we didn't have a Starbucks on every corner. We didn't have cell phone bills.
We didn't have streaming subscriptions. Arguably, if I'm to romanticize it, we might have been a little bit more fiscally responsible and therefore could have afforded or settled down differently as well. When I talk about those comparisons of what a 90s first time homebuyer was versus a 2020, it's an unfair comparison at some level because.
The cultural attitudes of the generation have just shifted. Their priorities are different. So are they really all that worse off? Or have they prioritized different expenditures, thus that they're not buying homes until they're 40 because they're not settling down until 10 years later? How much of that can we ascribe to inflation and financial difficulties?
Maybe they're just missing their car payments because they were never taught financial literacy. Like, how do we factor all that into the data we're bringing in to determine What's happening in the economic system. Yeah, that one's a little bit trickier. I think so. I don't really have a good answer for you on that back.
I guess my, my, my point is do it when your analysis and the stuff that you take into account when you figure out what the trend is, how do we normalize for cultural variances? Or do we even try to? Yeah, something that I've never really tried to accommodate for. Okay. Sorry to the, but I think that's, I think that's an important thing to think about because they're different.
And they do have different values and I think maybe they want that, but maybe they also want a whole lot of other things, and certainly you and I are almost the exact same age, my friend, and when we grew up, it was like, latchkey kids, and our parents worked, and we went to work early, too, and we were like, man, we're gonna, Pull ourselves up by the bootstraps.
And then as we got into the working years and certainly now, oh yeah, it's this generation that's going to pay for the boomers. So we've had this little bit of a different approach, right? And we were also born, Vietnam era. And so all this skepticism that you've got towards the government, I think is just imbued in all the people who are, in their fifties.
Yeah. Around there, right? Whatever the generation X is in this generation though seems a little different, right? And the Millennials and the Gen Z's are growing up completely different, right? And I think they have a little maybe they're a little more optimistic or maybe they're just a little bit more realistic Yeah, their expectations, I think are very different than ours were growing up.
So I want to get back to something that perhaps you can address because if cold, but let's look at government and kind of what's going on with those right now. Maybe you guys already address those at all. Government spending. Seems like it should have some impact on some of these things as well.
For cutting billions of dollars out of programs and domestic expenditures, granted, some of this was also going international. If they truly do cut a trillion dollars out of the budget, how do you see that impacting the overall? The overall situation demand supply demand quotient it's just by the idea simply that the government spending is going to be decreasing.
That certainly is going to be a net drag to the overall backdrop. Just simple math, you want to learn on that. And I would also make note that Brookings does a pretty good job. They estimate out of, I think, six quarters. The local and state government spending based on the data they have.
They do a pretty good job. They're actually pretty accurate when you have actually plot actual relative to their forecast. And if you look at state and local government spending, it's basically slightly negative for the next six quarters. So not only are you seeing government spending at the federal level, if Doge is successful with cutting back all that money, that's going to be certainly not growth supported, but you're already getting a hit because state local government spending is dropping as well.
So I think if you look back at For a third quarter of last year the contribution to GDP growth from state and local was, I think maybe 60 basis points which is, that's not, that's not nothing to sneeze about. It's a fairly big number. So that's going to zero. And then if you start lumping on doge, that's going to be a headwind as well.
So again, back to your original point. Government spending both at the federal state and local is not going to be Helping it's going to be a headwind actually for growth but deflationary Or just recessionary or both yeah I think so it'll probably be somewhat of a circular reference because if government spending is going to retard the economy, you're probably going to see consumption and aggregate slowing as well, which would put downward pressure on prices.
The longer term, you probably would see it as a disinflationary impulse working its way through the system. And where I jumped in, you were talking about labor markets and that sort of thing. So assuming that some of these DGE cuts do create. A surplus in the marketplace for labor, and then operating on the free market assumption that I tend to operate on.
Now you have labor that businesses look to put to you. It would be a lag certainly, but how. How do you perceive the blood essentially that's created in the workforce impacting growth in the private sector and how does that impact some of your projections and analysis? Yeah, I haven't looked at it.
So to me, I don't think you're going to start to see a ton of layoffs from those. You probably just would see cutbacks on the back of that from a fiscal impulse side. Yeah, I think it all extends until September anyway, like they're cutting the jobs now, but they're not actually hitting the market until September.
Yeah. Okay. So those are really two different things. So we can go back and talk about what you're talking about, which is basically the I don't know, I forget what they called it, but basically if you want to take your early retirement buyout package, you can do that. Yeah. I ran through the numbers earlier, but when I did the the calculation for that, I basically assumed 200, 000 people were going to take it, right?
I think the last number I saw, 70, 000, we're going to accept it. And another 200, 000 were, I forget the term they used for it, but it was like, you're on pro I think probationary was the number or the term they were using, but it made it sound like you were junior enough that. You just weren't like getting a long-term contract, so you'd be the first person to go, so to speak.
So if you add the 200,000 with the 70, you get up to 270. But the point is, if you assume 200,000 go I had looked up, the average worker in DC makes about a hundred thousand. So a hundred thousand dollars times 200,000. You do the math. And then if you're talking about, we consume from a personal consumption expenditure side about $20 trillion I think you're looking at two tenths of 1%.
So it's a rounding error on the total consumption side. Now that number also assumes nobody spends a dime. So you're going to get unemployment benefits. I'm assuming in there, you're going to get that, the package out. So you're going to still be spending. So again, I'm assuming you don't spend anything.
And then I also assume that. You don't get a job after the September or October one comes around, which is that's probably not gonna happen either, right? And so that's what they're planning on is that the economy will create jobs where it will create almost an immediate transition for some of these folks granted.
D. C. Hasn't had a recession since 1929. So maybe they're due for one. But yeah, I just think he's number, 270, 000 It's too small to impact, the unemployment rate would maybe move up one tenth to two tenths of a percent if again, all those people just don't get a job. Again, I just, I don't think it's big enough to have a massive impact.
Maybe the D. C. area takes a hit, but, again, I just don't see it as a big enough deal. Where are we at on unemployment rate right now? 4. 1, I believe. Now you're making a little bit. Is that a reliable number? I wiped down everything because I didn't want to kill our our viewers here. Is that a reliable number, do you think?
That's always something, again, cynic, skeptic. Are we seeing the real unemployment number, or is that a political product? I again, it depends on how you want to measure it. If you want U3, U6, but Listen, we spend a lot of time trying to figure this stuff out. And I think if this was really a made up number, there's so many people in this world that make money off of forecasting, inflation, unemployment, payrolls, that sort of stuff, that there would be these huge gaps in the data relative to what the government's publishing.
And there'd be like a lot of red flags going up. So there'd be whistleblowers as well. I think that listen, trying to estimate some of the stuff is not easy. And I know people love to say the numbers are made up. Look at the revisions. Yeah, it's not easy to count all these people.
And as the data is, they get more granular data, which happens to come at about a three month lag. That's when they go back and revise it. But because they don't want to do with such a lag, they're opening themselves up, making them subject to revisions. I think in general, when you look at the big picture numbers here, I think they do a pretty good job of trying to estimate where stuff is.
So I'm still of the opinion that this is on the up and up. It's as good of a number as we got, right? At least it's consistent across all of it. How critical is that to your overall perspective in terms of the greater economic? So when it's great. It's introduced with a lot of trumpeting and fanfare going back to your, don't pay so much attention to what comes out of D.C. because, as we saw last year, when it looked good at one on one day and bad on the other, it was like a big deal when it was good. It was no big deal when it was bad. So who, who do you listen to? But how big of an impact or concern should the average American be when they see these unemployment numbers?
What numbers should they be paying attention to when they see numbers coming out? Yeah, the easiest one is that I would always point to because you get it on a weekly basis is just like a jobless claims, right? That's unless you literally are lying, you're going to go down the unemployment office, file the paperwork and they just count it up and send it in.
And I think that's you're going to be early indicator with jobless claims start to move higher. You're going to start to see people are filing on, for unemployment that tells you something. And right now we're not, it's moved up a little bit. We keep talking about the labor market is softening, but big difference between softening and tanking.
And we're just not seeing the level of people filing for unemployment benefits that are even remotely giving us a, Oh, we're, we should start to be really worried. And ultimately the only number that matters is your own job or the people in your family might have to support, this is one of these economies where.
If you have a job, things are great. If you don't, it sucks because it's really hard to find them now. Like the people that are unemployed, the duration of unemployment is widening out. So that does tell you that the labor market is softening, right? So that's part of it. You look at job openings, those are dropping.
So there's certainly plenty of ancillary data that shows that things are slowing. But back to your point, the people that have a job are pretty good. Cause we're not really seeing a ton of layoffs, at least right now. So it's good if you have one, if you don't, it sucks. It's really a very bipolar job market right now.
And when you say softening, that's relative to the current state. What's the baseline? What is a good reference point for a healthy job market? And I'll give you some context here. My wife was in HR in charge of hiring back in 1997 for a financial services firm for a call center. And She's basically just had to hire anybody who could fog a mirror.
Like as long as you didn't have a financial crime, you could have other crimes. She's that's cool. Just come. If you can show up tomorrow, we'll put you to work because it was like two point something percent. If you remember back from the late nineties, that was not good. It was a great time to be employed.
You had all kinds of leverage as an employee, but not a great time. I think it was extraordinarily low unemployment. By the norm. So what is a good mean or like the answer to that? I don't think it's just one number. I think you got to look at the sort of the big picture backdrop, right? Are we seeing is growth stabilizing at a decent level?
Is our wages growing at a pace? That's not too slow or too fast. You put all these things together and I don't tell you the health of the labor market. And are we too good, too bad? And that spills into the growth backdrop. So I, it's hard to just say, Hey, at, at 3. 9 that's where we should be on the unemployment rate.
There's a lot of other things going on there. So I think it's the mosaic of, are we at an equilibrium level that basically shows a consistent job at each month, it's not too high, not too low, our wages leveling out where we're still growing, but at least above the rate of inflation so that you don't feel like you're falling behind on it from a real perspective.
All these things together, I think, is what gives you that equilibrium that says, Hey, this is a good spot right now. And again, there's, it's a moving, they're moving targets here. So it's hard to pick one thing. Thanks, Jack. I appreciate that perspective because certainly it's been our experience that we've lived through.
All of us on this call have lived through multiple periods of time where it's been completely different. And it feels that way. I often get that question from clients. This is new. This is different. We've never had this happen before and probably always be said. It feels like that. It's a little bit of a Rorschach test, isn't it?
Like you see what you want to see. And especially in the social media world where you just, whatever you start searching for, you get more of it. And so you can go down a rabbit hole and not even realize it and think everybody sees the same thing. So I'm going to ask on this end, a question that I got from a client recently, is America okay?
Here's a good way to contextualize How some people might ask this question. I'm not trying to insinuate anything and whoever asked the question We stopped paying attention party to be honest with you Yeah, we stopped paying attention to the Michigan survey because when you if you actually look in the details the Michigan survey will give you the responses based on political affiliation and it's funny because when Biden was in office You know all of the sort of optimism came from the democrats, you know Do you see the job market better in five years from now?
Do you see the stock market? It was Democrats up, Republicans straight down. It was literally the exact opposite mirror image. Then as soon as Trump gets in, guess what? Flips. Republicans are all positive and Democrats are all negative. But the killer here, this is the one that blows me away.
They ask in there What are your inflation expectations out one year and five years? And they give you bins to pick from, and I, they, I think it's every 3%. So it's like zero to three, three to six or so. I don't know, something like that. But we I added up all the people that responded for 10 or more.
And in the five year and out 30% of the respondents said inflation in 10 year, in five years would be over 10%. And I'm thinking to myself. How do you, how can you come to an inflation rate of 10%? So just again, this is how 30% of the respondents said that. That's a huge number. So again, that would be huge.
The politic. You got the political motivations as to who's good and who's bad. You've got people who have this just crazy idea of what potential inflation looks like. So when someone asks the question of, is America good or bad, or the outlook for it. It's from it's to me, it's it's where you're sitting is what you see thing.
And, I'll be honest with you. I spent 15 years at a hedge fund and we did emerging markets. So I've been almost 70 countries around the world. When people want to complain about what's going on here in the United States, I will tell them I've been to some places that you will never want to go to.
And regardless of how much people want to complain about what's going on here, this is still the best time country in the world. There you go. Said, my friend. Give you the closing thoughts here. So just leading in by tying in that misperception, perhaps a misperception of where inflation, 10 percent inflation, as you note, is like a huge number.
Year after year, that would be a lot. Where do people, what, either what number, where do people go to get the most accurate picture of what is truly going on? What's a reliable source? For what's truly going on where in terms of growth, stability, inflation, the things that are going to matter to the kitchen table issues in terms of yeah, so going back to Bill Clinton and the yeah, my, my answer to this and maybe this isn't the answer you're looking for, because it's not something like the common Joe is going to do, but just pay attention to what companies are saying, right? And this is partly back to the mosaic you were asking me about earlier. I spend a lot of time, thank God we have a copilot here, but I'll take the earnings transcripts, dump them into copilot and just have each one summarized.
And I group them together. So we'll talk about, I'll put all the banks together and then I'll say, what are they saying about the, what are they saying about inflation? What are they saying about the consumer? And you're getting basically commentary from CEOs and these are the guys in the front line, right?
And they're making business decisions. And so if you want to have a fact checker there with the companies are telling you one thing and you're not seeing that manifest in the data, something's up. And I think what I'm hearing from the fourth quarter transcripts that just came out. I think there's still a little bit of hesitation because of the uncertainty with the geopolitical headlines, but in general, the consumers are still in pretty good shape and companies are still pretty optimistic.
That to me right there says it all, right? We're, that means the economy is probably in good shape, at least for the next couple of quarters. And you say that's not a place everyone would go because then I got to go get the, earnings reports and dump them into the, so there's not an aggregator that does that kind of service or?
There is, I haven't found it. I'm the guy who's aggregating it on our side. Okay. There's a business opportunity for some of our listeners who say. I have a friend who was a banking and thrift analyst back during the 2000 to 2007 period, and that seemed to be the type of thing he was doing was aggregating all that data and basically saying to people, look we got a problem here and no one was listening to him.
But, yeah. Only a few people and they became billionaires overnight. So it would've been harder. Would've been harder back then. I think you're onto something there and Jack, thank you again. You just brought in a lot of great perspective and made it real with some of the stats. And I a hundred percent agree with that idea of an aggregator of what the corporations and what their leadership is saying because they're the ones whose money is on the line.
They're the ones who are going to actually determine the economy. It's not going to be the economy determining their business. The businesses are going to figure out ways to be profitable in and of themselves. And we're both business owners. The invisible hand. Yeah, there you go. There you go.
Jack, if you had one last piece of advice for for our business owner clients and listeners what would that be to put this this dramatic beginning to 2025 in perspective? Yeah, don't lose sight of the big picture stuff. We can get lost in a lot of the granular short term stuff.
But again, I think taking a step back and looking at big picture stuff, things are still pretty good. They are very good. I feel that you feel that I feel that they're too good in some respects. That feels good I could use a little softening. It's getting a little warm over here jack. It's good I don't know if you can tell over the zoom call here, but We're having a little bromance the two of us.
We're both double layered. Yeah, I like it and yours has got the logo I'm triple layered, actually. Holy cow. It's not, I was like, it's in the back. You got it. We got coach prime. Is that what we got back there? Yeah. I'm gonna see you grad go buffs. All right. Go Buffs. Go Buffs. Nate's a Utah guy. I'm a running Ute.
Yeah, he's a Ute, but we love him anyway. You guys get to the games or? Oh yeah, absolutely. And it's been so much fun. And my kids go there, they chose this school. So it's been really easy to be a been a real easy to be a CU Buff fan lately. Until they played BYU, which you don't like either. I've been taking a lot of heat from my kids because all my kids go to BYU and I just get no love.
I basically say, I'm glad myself. BYU, watch out for the NCAA tournament. They're cranking it up a notch at the right time. They could be scared. That's what I heard last night from them, how great it was to be going to a winning team. On the Iowa State one? Yeah, I saw that. Yeah. Yeah. But I tell them back, I'm just glad my substandard degree was able to create a comfortable enough lifestyle to send you to such an elite university.
Yeah, and they're they're pretty smart kids. They probably had a little during the winning years I took my fair share of shots, so it's okay. Turnarounds fair. It wasn't long ago. It wasn't long ago. They were good. Hey, we got a soft spot in our heart for Danny Ainge though.
Hey, yeah, I'm he's beginning. I'm a Jazz guy too. And i'm losing a little bit of faith in his style of purge and rebuild because He's not seeing the coherence to his plan We're going to be like 2029 before we're looking at any sort of competitiveness. We got a lot of great picks, but they're all going to be like 13 years old.
So I don't know. We'll see. We'll see. I got spoiled with Stockton and Malone. I admit it. Yeah, there you go. Thank you for joining us today. I hope you enjoyed the discussion and the information we shared. We hope you enjoy the information contained in today's podcast and find it useful. We hope you'll join us again next time as we explore new areas of interest to our listeners or current issues we believe are If you enjoyed this podcast, please subscribe so you are notified when future episodes are released and also share it with a friend that you think would benefit.
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