GDP growth negative in Q2, $SHOP layoffs, Alzheimer's fraud, Ginkgo acquires Zymergen & more

The episode opens with mock-roast introductions of each host. The jokes cover spending habits, a hosting style, and one host's supposed obsession with a cats game, and the hosts trade teasing remarks about each other's clothes and mobster-movie looks. It is banter with no analytical content.

The segment starts from the figures as presented: GDP fell 0.9 percent in Q2 after a 1.6 percent fall in Q1, while current-dollar GDP rose 7.8 percent at an annual rate. Home construction was down 14 percent, which is attributed to rising interest rates, and falling inventories subtracted about two percentage points as supply chains eased.

One speaker, responding to the question about year-over-year comparisons, says people fixate on these prints without basic statistics. The Bureau of Economic Analysis series is a percent change from the preceding quarter, so the economy can still grow in level terms and print negative. The speaker argues that eight turbulent quarters, with an e-commerce spike that later settled back to trend, make the steady-state growth rate unknowable for now.

The same speaker says the White House erred by trying to explain away the label through doubt about the definition of recession. In this view it would have been better to explain the statistics and say the country is recovering from a one-time shock over some number of quarters. The speaker points to employment and wages as better indicators, and notes that the Fed raised 75 basis points the day before, stopped giving guidance, and said it would be data dependent.

A speaker addressed as Saks mocks the idea that the definition of recession is now unclear. He recalls the simple rule of two quarters of negative GDP growth and claims that spokespeople muddied it because a Democrat is in the White House, and that media coverage has carried water for the administration. On the hosts' own framing, the headline should be that the Biden recession has begun, and a Republican president would have received the same headline. These are partisan opinions, not established findings.

The speaker then says a recession has started, perhaps shallow, perhaps with a Q3 bounce and a double dip. Unemployment is low at present but labor participation is also low. He blames inflation: nominal growth was a little over 7 percent, but with inflation at 9 percent the economy shrinks in real terms.

Blame is assigned to the Fed chair for reacting too slowly and to the administration for its spending. One speaker says action could have come about nine months earlier, pointing to a first surprise inflation print last summer at 5.1 percent and to break-even and TIPS discussions in May of last year. They dispute the details: one says quantitative easing continued for nine months, while another recalls bond buying stopping in March and tightening having only just begun. All agree the easing should have stopped sooner.

One speaker asks whether Powell and Yellen simply have not lived through high inflation, and mentions reading a biography of Volcker and the severity of what was done in 1981 and 1982. Another says the administration reacted politically, relentlessly using the word transitory for about six months, and that Powell responds to headline risk. The final remarks are that his comments after the 75-point hike were more dovish because he now balances recession risk against inflation risk, and that the administration relabels problems instead of confronting them. These are the hosts' interpretations.

Asked whether the spike over six quarters is all stimulus, a speaker answers that Q2 2020 reflects lockdowns and the rest is some combination of lockdown effects and excess money. Loose financial conditions, they say, distort true supply and demand, and money moved from government into individuals who then took part in public markets, propping up purchasing with seemingly endless free money.

As that money is withdrawn, the speaker says nobody knows the real equilibrium growth rate, since there has been no era without federally introduced spending or quantitative easing since the great financial crisis, about 14 years. In this account bonds, equities and crypto have all been distorted. Asked whether the washout will take six quarters or longer, a speaker answers longer, because dovish comments push long-dated yields down, cheapen borrowing and lift risk assets such as tech, biotech and crypto stocks, which amounts to synthetic easing again.

Continuing the argument, the speaker pictures the money supply as a pipe that the Fed must shrink to close off demand. In this telling, one speech let market participants guess that the worst is over: the Fed would be mostly done by year-end and might even cut in the first half of 2023. The speaker's complaint is that this pushes the problem out another eight quarters, and that the Fed should be definitive and break the back of inflation so the true level of demand shows up.

Another speaker notes that the 75-point hike was followed by a market rally, on the assumption of a couple more hikes, an end in the second half of the year and a return to growth.