📬 A postcard from nerd camp

Hey hey, happy Monday.

This newsletter will admittedly look and feel a little different. Like a little life update from your best friend on a summer vacation postcard. I know…who sends postcards these days?!? (I do)

A 7-minute read on why I’ve spent the past few days catching smallmouth bass in Maine (yes, there’s an investing twist in there), and some news I’ve wanted to share with you all for a while.

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I’m writing to you from an Adirondack chair on the deck of a cabin overlooking West Grand Lake in Maine.

It’s 80 degrees and just sunny enough for me to feel the warmth on my propped-up feet. I can smell the pine of the log cabin walls, and I can hear a chorus of birds chirping around me.

An hour ago, I was cruising on the lake with a well-known economic analyst and the chief investment officer of a $30 billion financial advisory firm. We chatted about everything from Federal Reserve power dynamics to top tennis players and UNC football. I caught a smallmouth bass and held it by the lip for a photo, which is a big deal for a city slicker who hasn’t fished in 25 years.

I’m almost tempted to ditch this newsletter and take a quick dip in this shiny, glass-like water, but I want y’all to hear about the fun I’ve been up to. So I’ll keep writing.

Over the past few days, I’ve had the privilege of attending Camp Kotok – an annual meeting of investors, heads of research, economists, money managers and luminaries from many other industries. It’s an invite-only event organized by David Kotok (the founder of Cumberland Advisors) and the Global Interdependence Center in Grand Lake Stream, Maine.

Think of it like summer camp for self-proclaimed nerds. Good food, good wine, good fishing and the best heady conversations about what’s going on in this wild world. Open-floor discussions with prominent experts in the field of economics, investing, military strategy and defense technology. In the past, Camp Kotok has hosted active Fed presidents, members of Congress, well-known journalists and the mayor of Miami.

We adhere to Chatham House Rules at Camp Kotok, meaning that we can share topics and themes that are discussed, but we can’t attach any names to comments, questions, or attendance. This approach allows people to speak their minds without the pressure of public attribution, and it fostered some of the best dialogue I’ve heard in a while.

I want to share some of the most interesting points from nerd camp while they’re fresh in my mind. What the experts couldn’t stop talking about, and why you should care.

The job market is incredibly weird. The U.S. population has stopped growing, and it’s scrambling all of the job market’s most important signals. 

The pool of available workers has decreased for three straight months, the longest streak since 2011. You can blame the immigration crackdown for this, too. Over the past four months, the share of foreign-born employees in the labor force has dropped nearly one percentage point, the biggest drop on record.

Ironically, the optics of this unhealthy situation could be surprisingly good at first. When the labor force isn’t growing, it could take fewer job openings to soak up any increase in unemployed people. There was a lot of chatter about how to read the tea leaves in the job market when lower hiring probably won’t push up the unemployment rate. And the camp crowd seemed divided on whether the job market was in a vulnerable spot, or just reflecting this new era of a stalling labor force.

Gah, I wish we all had more clarity here. Just remember how important the job market is for the stock market’s future, even if you feel comfortably employed today.

Data integrity is a serious issue. There was a lengthy discussion over what should be done after the Trump administration fired the head of the Bureau of Labor Statistics. Sure, imperfect data is one thing, but the threat of manipulated data is now real. BLS supplies the deepest, most important economic data sets in the world, too – including jobs and inflation data for the U.S. Data sets that are used to set social security payments and cost-of-living adjustments. We have to be able to trust them.

Big revisions to May and June data are less sinister than they seem, too. Revisions are a normal part of the data collection process (see Cullen Roche’s excellent explanation here), and you tend to see greater revisions when the economy is digesting huge changes (like oh I don’t know, firing of hundreds of thousands of government workers, or the snip-snap of extreme trade policy).

So what’s the answer here? Well, firing the BLS head ain’t it. That’s like canning the local weatherman for a nasty thunderstorm. Congrats, you shot the messenger.

The tech bros could never. One solution thrown around for BLS woes was working with private companies for better data collection. Interesting thought, but tricky for two reasons. One, because government and private sector entities inherently have different incentives. Government serves the public good, while private businesses prioritize the bottom line. What if the government contracts with a tech company, only for that tech company to pull out halfway through because the costs are overwhelming?

It’s also easy to boo from the cheap seats of a humongous effort. Each monthly jobs report requires surveying 120,000 businesses and government agencies plus 60,000 households, then calibrating each report to changes in populations and business counts. Replicating this would require solving for all of these angles. It’s a Herculean task that requires thoughtfulness and precision. Right now, the BLS is the best we’ve got.

The Fed is stuck. Poor Jay Powell. The Fed chair and his nerd friends are stuck in an impossible situation. Less reliable data means a murkier outlook for interest rates. Not only that, but the inflation picture is incredibly tricky. There wasn’t much of a consensus on what the Fed would do through the end of this year. Some championed rate cuts, others floated rate hikes.

By the way, with all the Fed chair chaos going on, you should know that 52% of Camp Kotok attendees said in an informal survey that they think Fed governor Christopher Waller will be the next head interest-rate nerd. This is the outcome you want if you’re worried about political meddling in interest rate decisions (or a salve to grossly high mortgage rates). An independent Fed is an effective Fed. Protect our interest-rate superheroes.

China’s leverage is scary. This was the conclusion from a panel about defense technology and national security. China’s ascent to a global power has been impressive, but the chokehold it has on global trade and rare earth materials is increasingly concerning.

In fact, China’s trade surplus exceeded $1 trillion last year. A benefit if you appreciate cheap Barbies and Temu deals, but a weakness when you consider that $1 trillion is going somewhere. Potentially back into Chinese efforts to beef up security and tech at a time when global tensions are rising. What happens if China gains ground on the U.S. and can cut off needed trade and rare earth mineral supplies? Yes, we’ve slapped extreme tariffs on China, but we don’t have the ability to fill those gaps right now. Especially if we keep other manufacturing-heavy countries at a distance.

Remember how many advantages we enjoy from American exceptionalism. We’re a long way from ceding the throne, but this could be a slow turn in the wrong direction.

Robots can’t write research. I had a fascinating chat with another analyst about how useful AI is in research. We both came to the same conclusion – AI can supplement your analysis, but it can’t replace your analysis.

I’ve thought this for a while, but our talk helped me clarify why I feel this way (besides the personal bias of thinking no robot can replace my special skills, of course not!).

There are two main steps to creating research: collecting the data and synthesizing the takeaways. AI can help in basic data collection and coding, but beyond simple asks, it’s best to run the data yourself. No LLM is foolproof – I’ve run images of tables through ChatGPT and Claude to extract data and received a data dump of errors on the other end. Always double-check the output, y’all!

The synthesis, however, is where our humanity shines. The best analysts can connect dots that nobody else can see, including a CEO’s tone on an earnings call or a subtle change in a proprietary indicator that requires deep knowledge in a field to compile and understand. Historical data can be tricky, too. You need to know how to adjust certain data sets to make them comparable across decades. Then, you tell the story, which is a work of art and science. Drawing upon personal experiences and data to reach a rich, well-supported conclusion.

This is true for more industries than just financial research. Learn how to see the world differently (and express your thoughts), and you’ll rise above the robots.

Identify the fixable problems. This isn’t as much of a point as it is an insightful question. On one panel, the moderator asked each speaker to “describe a problem you think is fixable and how you would fix it”. Save that question for your next job interview (or blind date).

Also, while we’re catching up, I need to tell you something.

That good wine at Camp Kotok? I wasn’t enjoying it, unfortunately.

Surprise! I’m pregnant with twins.

Yes, two babies. It’s been a long and challenging summer with lots of nausea and mid-day naps. I even went through a phase of not being able to stare at screens. I neglected my poor spreadsheets for way too long.

Hopefully, I’m past the worst of the morning sickness. I didn’t puke when I held the fish, which feels like the ultimate test for a pregnant woman.

I’m telling you this primarily because I want you to know what’s going on if I have to miss any sends or disappear for a while towards the end of this year. I’ve learned over time that I have to listen to my body, especially in a high-risk pregnancy. The only way out is through.

But in a more financial sense, I’ve thought a lot about how I practice healthy money habits in front of my kids. I shared my money story in June, plus some background on why childhood experiences can shape our perception of money. Now, I’m not just healing for myself. I have two tiny human beings to think about.

At Ritholtz, we get a lot of questions from clients about how to talk about money to their kids. My take? Give all the money talks you want, but what you do and say when your guard is down could matter more than the compounding lessons and cute piggy banks.

Anyway, enjoy these final moments of summer. Back at you soon.

Thanks for reading!

Callie

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