How A Post-Keynesian Economist Sees The Markets Right Now

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal, and unfortunately, Tracy Alloway.

My co-host is off this week, so I'm of course extremely sad about that, but I'm very excited about my guest today, and so it kind of makes up for Tracy being gone.

He's a previous guest on an earlier Odd Lots episode. Today, I'm going to be speaking with Srinivas Thiruvadanthai. He is the Director of Research at the Jerome Levy Forecasting Center. Fascinating person to talk to about all kinds of things, economics and markets and global macro. He's a fascinating voice on Twitter, knows so much about everything, and I just am very excited about having a wide-ranging discussion about the economy, about the unique approach that he brings to analyzing it and applications of that to markets. And I'm just very much looking forward to talking to Srinivas. Thank you very much for joining us.

Srinivas Thiruvadanthai (1:18)

Oh, thank you, Joe, for the very kind introduction.

Joe Weisenthal (1:21)

Yeah, no, I'm not being sarcastic or facetious or anything like that. You really are one of my favorite people to talk to and to follow your work.

Tell me just before we get started, for people not familiar with the Jerome Levy Forecasting Center or your background, I mentioned that I think you do bring a sort of unique perspective to the analysis of markets and economics. But what is sort of the main base that you operate from ideologically?

Srinivas Thiruvadanthai (1:49)

Yeah, so we use what's called the profits perspective, which basically comes from the idea that for the capitalist economy, profits are central, they are what motivates businesses to hire and to invest.

And so how do we look at, how do we forecast where profits are in the aggregate where they are going? Because they're central to the direction of the economy.

Joe Weisenthal (2:15)

Why is this unusual? Because I think if you were to say, oh, the capitalist system is all about where the profit is, I think a lot of people would hear that and say, well, yeah, of course, that's capitalism, that makes total sense. And so what is it that makes that a unique approach at all?

Srinivas Thiruvadanthai (2:32)

But most of the time, you're absolutely right. But most of the time, if you look at people forecasting the economy, they are looking at it from a real economy perspective where they are trying to forecast consumption plus investment plus government spending plus net exports.

And they are looking at aggregate output gap and things like that. You rarely ever see profits being in the aggregate sense. The people who are interested in profits and earnings are the macro strategists and the top-down strategists and the bottom-up people, of course, who are putting up profits from company perspective and then adding it up. But you rarely ever see people talking about forecasting earnings in the aggregate and what that means.

Joe Weisenthal (3:13)

Right. So you get company analysts and of course, they're very focused on earnings and earnings per share and growth.

And then you get macro strategists who, as you say, talk about interest rates and the output gap, the Fed and trade and all this stuff. But what you don't get is people looking at it from a big picture perspective, looking at those overall profit flows is what you're saying.

Srinivas Thiruvadanthai (3:36)

Absolutely.

Joe Weisenthal (3:37)

Got it. And tell me about your background. I mean, you have a PhD in economics. One thing I find interesting about following your stuff is I feel like there's a lot of people who have trouble bridging economics to markets. So you have theoreticians and you have people who talk about the sort of economics and the abstract, but they tend not to be, or you often don't think of them as necessarily applying that to the study of markets and to actually make trades and investments.

Tell us about how you, your background and how you bridge that, those two practices.

Srinivas Thiruvadanthai (4:13)

So before I came to, came to do my PhD, I actually worked in banking in India. And it was actually not a conventional bank. Back then, India had what is called industrial credit bank. So it was more geared towards financing long-term project loans.

And it so happened I joined when India embarked on one of its major liberalization programs in 1991 That was the start of my career. So it was a huge deal. When I came in, there was enormous turmoil and also enormous excitement.

So I could see from ground up in a way that banking, finance, balance sheets, those things are very, very central to how the economy operates. And it's very different from the theoretical models of economists. But there is obviously something to learn from the theoretical models of economics as well. So I was able to bridge that gap.