Eric Basmajian on ABC Radio

Aaron Sanchez, KMET-AM, ABC Radio, host "The Morning Show"

Eric Basmajian on ABC Radio

Aaron Sanchez, KMET-AM, ABC Radio

It’s The Morning Show here on ABC News Radio, KMUT 1490 AM. Joining me in our live TV audience over there at KBVB TV 33, Facebook Live, Periscope TV, LinkedIn Live, YouTube Live and now Roku Live. Yes, just download our app. It’s KBVB TV.  We’ve got Eric Basmajian who has done quite a lot in the field of economics. Good morning, welcome to the show, Eric.

Eric Basmajian, EPB Macro Research, Seeking Alpha

Good morning. Thanks for having me.

Aaron Sanchez, KMET-AM, ABC Radio

I understand there’s a lot of news in the financial sector and you’re tasked with the ability to keep your finger on the pulse more than most. What is your daily routine to stay on track of all this? Does news matter? Does it matter what’s going on in the world based on these indicators?

Eric Basmajian, APB Macro Research, Seeking Alpha

Eric Basmajian, EPB Macro Research, Seeking Alpha

Eric Basmajian, EPB Macro Research, Seeking Alpha

What I do is I create baskets of indicators that take a composite of many different things. This morning for example, we had a durable good new orders report that many people rush to analyze. Was the report good or bad? But that’s just one component to an index. Let’s say I’m trying to track the industrial part of the economy rather than just looking at the durable goods report, I’ll look at five or six different reports and aggregate them into one index so every morning I can wake up and look at where the indexes are moving in aggregate. That way I could filter a large volume of data pretty quickly.

Aaron Sanchez, KMET-AM, ABC Radio

I understand in 2019 we had a pretty good year when it came to financial markets. Is that going to continue based on what you’ve seen?

Eric Basmajian, EPB Macro Research, Seeking Alpha

We have to separate the economy from the stock market because those two, although they seem correlated, don’t often move in the same direction. And something that we’ve been writing about a lot of on the Seeking Alpha platform is that the economy added 2.1 million jobs in 2019 which is great because it’s tough for the economy to have a recession if it continues to add jobs. On the flip side, however, 2.1 million jobs is actually the slowest pace of job creation since 2011. On that same point in 2018 in Q2 GDP was about 3.2%. That’s slowed to about 2.2% so in terms of the economy, the growth rate is okay, but the direction of growth is starting to move in the wrong direction. Now that didn’t stop the stock market from having a great year but as we continue into 2020 we have to watch the direction of growth because if it continues to slip below 2% that’s when the stock market may start to have some re-emerging fears of recession that we saw in late 2018.

Aaron Sanchez, KMET-AM, ABC Radio

Very interesting and I could imagine a lot of people in their portfolio, at least this last decade, most of the trend was bullish. Do you feel that that will continue based on the indicators you’re seeing now?

Eric Basmajian, EPB Macro Research, Seeking Alpha

That’s definitely been the trend the past 10 years. There’s been three or four hiccups in the stock market that all have coincided with these periods of slowing growth. When, growth moves from 3% to 2% every time we get a quick hiccup in the stock market. That hasn’t turned into a recession. So the stock market ends up rebounding on the prospects of better growth ahead. So as we look ahead in 2020 the indicators are still showing weak growth but it’s not showing that a recession is imminent. So, unless there’s an imminent recession the stock market tends to muddle along. So without a recession imminent in Q1 here I wouldn’t expect to see poor performance out of the stock market just yet.

Aaron Sanchez, KMET-AM, ABC Radio

Well, when it comes to inflation, boy, we felt it all over and you have to sometimes remind people. People are, “How come I’m paying more?” And you remind them, well, there’s an inflation every single year. Is this inflation, are we going to be concerned about it in 2020 and moving forward? And more importantly, what about interest rates? Will they be going up? Will they be going down? What can we expect to see around the corner?

Eric Basmajian, EPB Macro Research, Seeking Alpha

Right. So inflation is a tricky topic because the inflation that people feel is a lot different than the inflation that gets reported in the economic data. And continuing on that topic, there’s consumer inflation, things like medical care that we feel in our daily budget. But then there’s also producer inflation. The raw inputs that manufacturers feel. So the medical care inflation we have to put to one side. The really cyclical inflation is the producer inflation that manufacturers feel. That was actually declining throughout 2019 but as we move into 2020 that’s actually going to start to improve again. So we’re going to see a little bit of commodity price inflation again in 2020. It’s unlikely to be enough to get the fed to raise rates so my expectations that even though we’re going to have a little bit more commodity inflation in 2020, the fed’s still probably going to be on hold and we’ll get an update from them on Wednesday.

Aaron Sanchez, KMET-AM, ABC Radio

Now, Eric, you started your career over there at Morgan Stanley and since then you’ve been able to really go that next level. I understand you are the founder and editor of EPB Macro Research, which is the number one economics platform on Seeking Alpha. For those wondering how they can get inside your head other than taking you to lunch and maybe paying for a really expensive steak dinner, which by the way, I got a good place. It’s in Las Vegas and when we’re there I can totally take you there. You’re going to love it. But for the rest of us where can we go?

Eric Basmajian, EPB Macro Research, Seeking Alpha

Most of my work is available on the Seeking Alpha platform. That’s seekingalpha.com. I write two to three times per week there for free so anyone can just go on, make an account on Seeking Alpha totally free and check out some of the work. I also have a premium service that I host on Seeking Alpha that shares a portfolio of ideas as well as some more in depth analysis. Everything can be found on that Seeking Alpha platform.

Aaron Sanchez, KMET-AM, ABC Radio

I understand you have a science background, especially with computer programming. Is that correct?

Eric Basmajian, EPB Macro Research, Seeking Alpha

I went to school for economics but after Morgan Stanley I went to work at a quantitative hedge fund that had more of an algorithmic type strategy. So I learned computer programming there, my background, however is in economics.

Aaron Sanchez, KMET-AM, ABC Radio

Pretty cool to be able to marry those two together. Last question of the day. How do you expect things to turn out when it comes to the election? Is that going to make a significant change in the stock market, or are there things that you’re waiting to happen in order to say, “Okay, I’m going to go here versus over here”?

Eric Basmajian, EPB Macro Research, Seeking Alpha

Again, we have to separate the economic impact from the stock market impact. Things that could impact the stock market for example, would be a corporate tax cut or if perhaps a Democrat gets elected increasing the corporate tax rates. Those things can dramatically impact the stock market. And we saw that a little bit with president Trump’s tax cut. In terms of the economy however, in Q4 the economy is going to be reported at about 2.2% better than a year ago. Ironically, that’s exactly the same average that we’ve had over the past 10 years. So despite a total change in administration and policy the actual economy on the ground is growing at almost exactly the same pace despite what we may hear. We’ll have to see which policies are more favored after the election. If we get more tax cuts that could be beneficial for the stock market. Some tax increases probably wouldn’t be looked at too favorably. But the actual boots on the ground economy is unlikely to be impacted greatly by which party is in office.

Aaron Sanchez, KMET-AM, ABC Radio

Well Eric, I could tell already, you can take my money and go ahead and manage it for me because you got some great ideas and obviously some very good indicators. Thank you for spending time with us. Again, for those that want more information, where do they go?

Eric Basmajian, EPB Macro Research, Seeking Alpha

Seekingalpha.com and you can just type EPB Macro Research into the search bar to find all my recent work.

Aaron Sanchez, KMET-AM, ABC Radio

All right, Eric, thank you very much for joining us here on The Morning Show.

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