Interviewer (3:46)

How's the US consumer doing with this backdrop here?

Nancy Lazar (3:48)

So the consumer is a little bit in a tug of war. On one hand they obviously consumer confidence is down. We have a daily survey of consumer confidence confidence which is a little nuts but it works and it is down about 15 points. But it's still above where it was during the government shutdown, way above where it was during the COVID low, way above where it was during the GF, during the gfc. So confidence, consumer confidence has gotten hit. But at the same time we monitor your weekly retail sales data and actually they through mid March we're on the stronger side. That is again consumer is driven by more than just gasoline. We have these tax refunds. To be sure some of them are being eaten up by the higher gasoline prices. But the labor market as I mentioned if you look at unemployment claims and I'm seeing more and more commentary on Bloomberg on other news programs that wow, the labor market may not be as weak as I thought. Claims are indeed in a declining trend that's helping the consumer.

Interviewer (4:42)

So how do we think about inflation here? Because we did mention consumers are seeing it at the pump, a big increase and we'll probably see it in other parts of the economy as it higher energy costs flow through to, you know, fertilizers and food and all that type of stuff. How do you think about inflation?

Nancy Lazar (5:00)

So first energy spikes are a tax on the US economy unless the Fed monetizes them as they did during the 1970s.

Interviewer (5:08)

So do that by just cutting rates.

Nancy Lazar (5:10)

Cutting rates, putting liquidity in the economy. You had double digit money growth in the 70s. Very, very. And you had double digit money growth 21, 22, which is why inflation was indeed more sticky. But similar to a year ago when you had the tariffs. Almost a year ago you had the tariffs. Our point then was it was a tax. And you did see one price went up, other prices went down. And so I think you're going to see the same thing today. Energy takes time to flow through to overall GDP, consumer spending. It very quickly impacts the CPI. So the March CPI will be bad, 0.6, 0.7%. But again, it's a tax. I think as you go through the year, you could see other prices go down.

Paul (5:50)

What's the state of American capitalism now? You've done so much thinking about the arc of the larger picture now. How do we incentivize ourselves to better productivity, better prosperity?

Nancy Lazar (6:02)

So I was actually in Europe last week and I have A chart of U.S. productivity relative to Europe and the rest of the world. Yeah, no, it's, it's.

Paul (6:10)

Do we just work longer hours? As I look at Alexis Christophers over there and we, the French have the same productivity we do. They just work less hours.

Nancy Lazar (6:19)

Yeah, they're smarter than we are actually, Actually they don't. But we also invest in technology. I'm just sitting in this beautiful room and again I heard over and over again that Europe is indeed way behind from an investment perspective, from a technological innovation, embracing it, allowing creative destruction, which they don't allow, which we do. And so productivity has been in an accelerating Trend for about 10 years. We're back up to something close to two, two and a half percent. And given all the R and D that's going on right now within corporate America and being incentivized to do more R and D to the tax legislation, we think productivity growth can move up towards 3%. So the state of American capitalism with these capex incentives with deregulation we think is pretty healthy.

Interviewer (7:08)

There's little to no population growth in this country these days. So for this economy to grow, can it grow because of increased productivity? Maybe AI enhancing that.

Nancy Lazar (7:18)

Bingo. I mean, so much I hear from Wall street, oh, the Fed has to cut rates because there's no labor force. Like, wait, potential GDP growth is to has two components. One is labor force growth, population growth, and the other is productivity growth. And they seem to forget about that. And productivity growth is boosting. All you have to do is look at the CBO data, CBO has data on potential GDP growth and it has moved up to about two and a half percent, which I don't hear anybody talking about, which suggests that real interest rates are about right. We don't need cuts in interest rates. Obviously now the community is talking about higher rates. We don't think that either, simply because this is a tax on the economy. Fed policy is not overly aggressive. So at the end of the day, we think rates are about right.

Interviewer (7:59)

So, I mean, again, if you look at the WIRP function on the Bloomberg terminal, the market kind of agrees with you. I mean, you get some people looking for a little bit because I don't

Paul (8:08)

know how to look up that. Help me, Paul, where are we on that? We're looking at no rate, nothing.

Interviewer (8:13)

Yeah, I mean, kind of just that as she goes, I guess we have this policy.

Nancy Lazar (8:17)

It is, we had that call before the oil shot, before the war, because again, we have fiscal policy which is stimulative to growth to the tune about one and a half percent of gdp. And it's again, it's the right stimulus, it's tax incentive, it's capex incentives. Second, the Fed has already cut rates 175 basis points. They're below nominal GDP growth. And then, and then third, banks are easing lending standards and so there is liquidity in the economy.

Interviewer (8:43)

What do you think about this whole. I think. How do you put that into context? Because, you know, prior to this war, that was it for the market. It was all AI it's all we talked about. How do you think about it in terms of how big is it going to be for this economy?

Nancy Lazar (8:56)

So, as Tom often reminds viewers, I've been in the business a long time and I started in the 19. In the 1980s when there were computers.

Interviewer (9:05)

Yes.

Paul (9:05)

Remember the first Hewlett Packard calculator?

Nancy Lazar (9:07)

Oh, yeah, yeah.

Paul (9:08)

Only the rich kids had it.

Nancy Lazar (9:09)

That was in the 70s.

Paul (9:11)

Okay.

Nancy Lazar (9:11)

In the 80s.

Paul (9:13)

Excuse me.

Nancy Lazar (9:14)

I remember that too. In high school, in the, in the 80s, we went from a typewriter in a terminal to a computer. And it was IBM at the time. And that was very, very disruptive. I accountants, etc. All of a sudden you could do things very quickly on computers. And the productivity that created for the firm I worked at, C.J. lawrence, was tremendous. It did, it did make a huge difference. And over the past 45 years, every, every level of technological innovation has gotten smarter and smarter and more and more productive. And I'm excited about AI as far as, again, we're making these leaps and bounds. In other, other Countries we should mention worldwide.

Paul (9:50)

It was Hyman Lazarus. It was like a thing, you know, it was like Red Sox pitching. There were two pitchers. So. And then you go on to Ed Yardeni. Does Nancy Lazar believe in Yardeni's bond vigilantes? Is this a market that's going to tell the President what to do?

Nancy Lazar (10:06)

I do believe in the bond market vigilante. Big, big, big, big time. And I don't believe that the Fed's going to do financial market repression. And, and yeah, I think, I think the bond market bond yields have moved up some. I think that's quite frankly not the right call. I don't think inflation is, is a problem. I don't think the Fed has to raise rates. But at the margin are these higher yields a little bit of a, of a signal to, to, to Washington to be careful?

Interviewer (10:31)

What is your biggest concern about this economy these days?

Nancy Lazar (10:34)

Well, it has to be in the uncertainty about what's going on in the middle, in the Middle East. That is my, to be sure, my

Interviewer (10:41)

single sense that companies are holding back either like on capital spending or M and A or.

Nancy Lazar (10:46)

I don't see it. I don't either. I mean we just got these manufacturing surveys for the march from the regional Fed districts and their capex components are like moonshots. And I think again, it takes a step back that there's incentives to do Capex and companies are doing it.

Paul (11:01)

Are they, are you concerned about the way that the Mag 7, the data centers and all are doing to Capex or can they just do it like we learned in school, take it out of a bond investment and instead of using all cash, go to the bond market, get cash and build this out?

Nancy Lazar (11:18)

Well, that's classic.

Paul (11:19)

We built the railroads.

Nancy Lazar (11:20)

True. And that's classic. And there is also incentives that these companies can write off with the one big beautiful act, they can write off all of their investment software, R and D. They can't write off the box of the data center itself, but everything they put in it they can and then they can borrow. But that's classic business cycle stuff.

Paul (11:42)

Have you ever been pessimistic?

Nancy Lazar (11:44)

Oh yeah, I was too pessimistic in 23, quite frankly. I missed some of the stuff that I've just talked about.

Paul (11:53)

My answer was no. Nancy Lazar, thank you, thank you. Thank you so much for coming in this morning. I just can't say enough about her effort, folks. She's a Piper Sandler.

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