“I had a chance to sit down with Tommy Chong of ‘Cheech & Chong.'”
With these words, Andrew Zatlin, founder and CEO of “Moneyball Economics” was off and running.
In a wide-ranging interview, Zatlin spoke with Benzinga about everything from marijuanaconsumption of the future to the leading economic indicators baked into gambling, alcohol and prostitution.
Toking Green Mountain Style
According to Zatlin, how people will consume marijuana once it is legal everywhere – something he believes is inevitable – is going to become a huge business opportunity.
Zatlin said he told Chong, “I think we’re going to go down the path of having a Keurig Green Mountain dispenser type of experience, where people don’t want a bag of pot in their car. What it’s going to be is a little flavored capsule.
“Hey, I’m gonna do two puffs and I’m done,” Zatlin said. “Once that happens, as we saw with prohibition, the dollars are going to be unleashed.”
Related Link: Marijuana: What A Difference Two Decades Makes
Economists As Mainstream Thinkers
Zatlin’s economic vision reflects his aversion to traditional Wall Street economic thinking.
“Economists tend to be mainstream thinkers,” Zatlin said. “Your PhD topic had to be blessed by mainstream economists, because who gives you your PhD grant? Typically the IMF or the Feds.
“You get this group think going on,” he said. “Any institution is challenged getting net new information into the mainstream. It’s hard to get a career path into Wall Street as an economist unless you basically buy into the group think.”
Parting Company With Group Think
This is where Zatlin travels his version of “The Road Not Taken.”
“This gives me an opportunity to explore alternative data sets,” he noted. “If I can prove they are better, guess what? It gives my clients the edge.
“My approach,” he said, “is a bottom up approach. Rather than say I want to prove a point and I want to find the data that proves that point, I ask where am I? What do I spend my money on?”
Why Wall Street Is Wrong
Zatlin’s philosophy found its roots in personal experience.
“Lost a fortune in the downturn,” he said. “I listened too closely to the Federal Reserve, Goldman Sachs and the Wall Street guys. They were flat out wrong. Just wronger than wrong.”
This caused him, he said, to ask, “How come we got all these data points that suddenly went sideways?”
Unreliable Benchmarks
While exploring those standard data points and methodology Zatlin had a revelation.
“You’re talking about data points that are 60 to 70 years old,” he said. “Most of the top benchmarks we use today to reference the economy are unreliable.”
By way of example, Zatlin discussed one data point, Durable Capital Goods Non-Defense (Ex- Transportation).
The Role Of Information Technology
Zatlin explained that half of that capital goods number is information technology (IT), and IT spending has gone through a major structural change over the past five years.
Essentially, IT has moved to the cloud. Instead of buying equipment, companies are renting it.
“It’s like any utility now,” Zatlin said. “Plug in, use what you need when you need it and move on.”
CAPEX To OPEX
The resulting reduction for IT spending is, Zatlin explained, a shift of that cost from a capital expenditure to an operational expenditure.
“Unfortunately,” he said, “this holy metric only measures CAPEX. In fact, if business is spending less on IT but getting to the same place that’s great for Wall Street.
“In addition, you’ve got these new nexus points in the economy like Facebook, eBay, Twitter and LinkedIn. What we buy, how we buy are all different, and it’s not really being measured.”
Beating Consensus
By simply harvesting different types of data, Zatlin said he was beating consensus 70 percent of the time.
“How?” he asked himself. “Looking at raw data. Not looking at what I was told happened two months ago.”
Instead, Zatlin noted, he began tracking labor statistics, for example, by looking at hiring at a company level.
Related Link: Consumer Spending Not Hurting Retail ETFs
Vice Is Nice
This led to a discussion of other different types of raw data, including what Zatlin called his “Vice Index.”
Zatlin’s “Vice Index” measures what he says is the “leading edge” of luxury spending.
Check back soon for the second part of Benzinga’s interview with economist Andrew Zatlin to learn how gambling, alcohol and prostitution can predict consumer spending months in advance.
At the time of this writing, Jim Probasco had no position in any mentioned securities.