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Jens Nordvig

lines on the record: 87
first: 2023-05-11
most recent: 2023-05-11
sittings or episodes: 1
sources: podcast

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“Yeah, good old stuff. Then we had a period from 2009 to 2013 where we had QE, people call the QE infinity. Fed balance sheet M0 was expanding, dollar was going down. And it was sort of tied to all this experimental monetary policy in the US is going to undermine the dollar, right? And then that stopped in 2014 when global growth collapsed, China had issues, Fed started to talk about raising rates and so forth. Dollar had a big rally. We've actually had a big rally. Really big rally from 2014 to 2022. Really big. The level of the dollar is very strong. Like if you just think about”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Like the first thing I would say is I've been doing macro analysis, currency analysis since 2000. That's when I started doing it at Goldman. And I've been through three phases in my career of like talk about the dollar's reserve currency status being really in question, right? So there was a period from 2005 to 2008 when the dollar was weakening very rapidly. Global growth was very strong. There was this focus on the United States always has a big current account deficit. Eventually the dollar is going to collapse and it's starting to happen, right?”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, like think about it last year, right? So we kind of had extremely bearish trends up until October last year, right? People got very worried about global growth, very worried about European growth. Credit spreads were widening dramatically since then, right? And then a number of those pressures on growth kind of eased. And we had a release and the Chinese reopening came on top, right? So that's been very important to market. Question is how long it's going to last, right? Because that was the story of Q1. Now we're not in Q1 anymore. So getting more tricky now on global growth on this.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Right, okay. So people were expecting a global recession somewhat mild, somewhat severe, and global growth surprise to the upside for the first quarter of 2023, fourth quarter of 2022. And as such, the dollar weakened.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“That's just a sort of statistical finding. We can discuss why that is, but statistically and from a trading perspective, that's how it generally plays out.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“So when we crunch the numbers, We will generally reach the conclusion that in relation to dull dynamics, it's the global growth variable as opposed to differentials in growth that is most important.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Been very important to do dynamics and then the systemic tension that in those banking tension, it was not systemic banking tension yet. And that has been important as well.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“It's going to give you very significantly improved understanding of those periods in which the dollar diverged from the signal from interest rates, right? And that can be both in the periods in which interest rates go down when the dollar does well, such as 2019, or it could be the mirror image of that in some periods. So that's something that's been important this year, right? We've had two sources of global growth surprises. We've had the reopening process in China that did support growth for a period of time. We can discuss where it is now, but certainly early in the year it was extremely bullish. We could see it in the capital flows as well. Growth in Europe has also generally been revised up because the energy crisis element has been pushed in the background as energy prices have come down.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think so certainly hard to analyze markets with one variable, right? So that's why the Fed variable doesn't work alone. The second variable is not going to give you all the conclusion, but the second variable I'm going to mention now helps a lot. If you have a global growls variable in your framework,”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“People are not being rewarded to go into dollar assets as much because forward dollar interest rates are lower. So other emerging markets currencies happen. So it's sort of its textbook, even though the textbook doesn't normally happen, right?”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Right. So, Jens, what sort of you're taught in macro 101 in school is that currencies trade off of interest rate differentials. So if the Federal Reserve raises a ton and the rest of the world, central banks don't, the dollar will appreciate. Likewise, if the Fed pivots or cuts rates and the rest of the world doesn't do anything, the dollar will weaken. But as you know, in the real world over the past 20 years, typically when the Fed pivots or cuts rates, typically that's something when the world is going through a financial period of stress, such as 2008, March 2020. So actually sometimes the dollar rallies extremely hard alongside the interest rate differentials going the way of the non-US dollar currencies. But this time, it's kind of going the way that I learned in school, right? Of the Fed's about to pivot. It's probably done its last hike. It could be one more. Who knows? And so.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Get a dollar shortage like we had in 2008 that took the dollar higher, even though it was kind of a homegrown problem in the US, right? And the clear conclusion to that is that we've not had any dollar shortage. We've not had any signs of stress in global dollar provision. And that's the reason why the euro has moved from 106 to 110. So really, if we think about this, it's an unusual peer of tension that has not had the sort of typical systemic element to it, even though it comes from the banks. And that explains a lot of the assets you're talking about U.S. equities, emerging market assets, where the euro is. So that's key to everything here.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“A lot of the linkages, a lot of the cross-acid linkages run through the big money center systemically important banks. So if those banks are not impacted, and we talked about JPMorgan already, if those banks are not impacted, if they can continue to operate and provide leverage as they used to, then there's a lot of the contagion effects that do not come into play. That, I think, has been absolutely crucial. We can talk about that in the context of the euro as well, right? So I have this thing where I know literally where the euro traded every day. So we can go back to March 15 is when the credit Swiss bad news came out, right? And the euro started to trade down, right? So what you wanted to think about there was, okay, are we going to have tension in the banking system to a degree where we might”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I would go even beyond what you're saying, like the one asset globally that typically is hypersensitive to this type of tension is like emerging market assets. Like emerging markets really can't handle when there's like tension in a major market banking system. We saw that in 2008. We saw that in 2011 in Europe, right? And then you look at how... EM has performed, like Ian has performed very well. So China is a bit of a special story, right? Because the reopening momentum is kind of like petering out a bit. But if you look at EM broadly, EM has traded very well. We have some EM currencies that are at the highs, a bunch of them actually. So everything is a bit unusual here. So that's kind of what makes it fun. The explanation, I think, is relatively simple. And a lot of the”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Correct. Right. So those were banks that were, yeah, two of them had in the region 200 billion assets, right? Not small banks. And we have another six, seven banks in the US that have assets of that size that if you sort of say, okay, three plus six times 200. We talk about a lot of bank assets that are really in play here. So that's what we're watching. If there's a couple of small institutions that need to be helped out in some form, rescued, bailed in, bailed out, that's a little bit different. But if it's that whole group of regional banks that are really impacted, then they can get more serious.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, exactly. So it's a weird kind of intermediate type of tension we have where it's unclear if the Fed should really respond to that third dimension like the acute financial instability because it's like a very centered instability around these specific institutions. So I think one thing that we are looking at very closely is, okay, if we literally look at all the different regional banks, like what part of that spectrum is impacted. So we have three of the big ones that are out already, right?”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, like we, yeah, exactly. So we have a weird situation, right, with severe tensions around specific banks. But if we sort of look at, okay, financial conditions overall. Really, not moving that much. Like the equity market is not having a bad year, right? Even credit spreads relatively stable, you have to kind of kind of dig in. If you dig into the different credit indices, even like... Bank credit indices overall are also not terrible, but that's because like the big banks have a huge weight in those indices. If you go down and look at, okay, what does some of the bigger regional banks MTB and so forth have to pay. They have to pay up to get bond funding now, right? So there is some stress there. So it used to trade like IG now, trades like high yield and like bank debt is not really supposed to trade like high yield.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, yeah, so yeah, so the takeover, bailout, bail in depends on who you talk about. If you're a bondholder in First Republic, it was a bail-in, right? You lost all your money pretty much. So it really depends on where in your capital structure you are. But after that, right, it looked like, oh, now things are going to look better. And then the next three days, the regional bank index was down 15% or something like that. And we had a couple of the smaller regional banks like PacWest Alliance and so forth that look very shaky just from a stock market perspective. What is weird about this is that normally when you have banking tensions, it immediately becomes a macro issue, right? Here it is impacting the short rate pricing, right? Because it feels like a very serious issue, but I'll let you know.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“The third dimension has to do with more kind of acute financial instability, right? So we have a weird situation where we have tension in the banking system. And even last week, we had the rescue of First Republic, right? Or whatever you want to call it, people like to use different words. Let's just call it rescue.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Five and a quarter would be on the table, right? But there are other dimensions in play now. So the second dimension is a credit dimension, which is the one we talked about a fair bit already, right? So the regional banks are highly likely to lend less than they otherwise would have been. That drag maybe 1% of GDP in terms of missing credit could have a significant impact on the economy, not from one week to the other. It's not like a sudden stop, but it's going to be over time start to add up, especially if there's pressure on other parts of credit as well, rage going up everywhere. So that's the credit dimension. That's the one they refer to really since the March meeting, right, where Powell said we almost done, right?”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“The Fed has kind of three dimensions of analysis that it has to go through. It has the traditional economic dimension, right? Growth, inflation, that stuff. That's the kind of stuff that was pushing them in the direction of getting incrementally more hawkish before the Silicon Valley Bank shock. So if it was just that, clearly more than...”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“So you said you think it's likely that the Federal Reserve is done right now, the rates are at 5.25% on the high end. What do you think the odds are that they stay that high and also say, you know, the market's now pricing a 16% chance of another hike in June, but they're also pricing in a rapid series of cuts so much so that they're projecting 25 or excuse me, 50 or 75 basis points until the end of the year. Do you think that those cuts that are priced in make sense given the macro environment?”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so you can think about it from a money supply angle and you get a conclusion like you're implying, right? You can think about it from interest rate angle as well, right? Like the loan that is provided 7% is going to be a bit different from the loan that is provided at 15%. And the quantity of those loans is not going to be the same either, right? You think about a borrower that has to pay 15%. Clearly, they're going to borrow as little as they can, right? So it's going to be a different environment. And yeah, the notion that we can just fill the gap from these regional banks that have provided a very significant part of the US bank credit and overall credit and economy with other players, that seems to be a bit heroic to me.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“When you say dots, you're talking about the dot plot, which is part of the Federal Reserve's SEP summary of economic projections, which they release every other FOMC meeting. Interesting you point, you say that non-banks can fill the gap if their bank lending falls because banks create money from thin air. There's a money multiplier effect, whereas if Apollo or another sort of shadow bank makes loans, they're making those loans with money that actually exists. They're not sort of creating it from nothing. Is that kind of a loan from a shadow bank less of a boost to the economy than a loan from a bank?”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“There, Ben, that, but we don't know how big the shock is. Could be that there's now an argument to actually lower the Dutch, right? But we just, it's going to be very hard for the Fed to, oh, we're going to lower the Dutch because our forecast for the regional banks is such and such because they have very little specific data where they can see it yet. That's going to only feed into their forecast once they have more specifics. And yeah, I think next one to two months is going to be crucial. And also just because there's lags in the process, like there's a lot of the loans that have been extended in the last couple weeks that were probably debated. Like before the Silicon Valley bank shocks, there's some lacks associated with that too.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Half a percent of GDP, it's certainly more than one or two hikes, right? So if we're going to summarize where we are, what the central case is with the Fed right, so it seems extremely prudent for them to be on hold for a little bit. When they received information before the Silicon Valley Bank shock about where the economy was, that was generally going in a kind of hawkish direction, right? Inflation surprising upside, labor market was very strong, right? So before the Silicon Valley bank shock, there was a plan to raise the dots, right? They were planning to raise the dot. They abandoned that plan because it was not appropriate given the new shock they were facing, right? So in a way, you have a situation where they were playing to kind of raise the dots, lift them, right?”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“And there's probably going to be some of those players that will be aggressive and going to expand their loan book. But don't forget they lend a totally different terms, right? So a loan from Paolo Blackstone might be 12%, whereas we've been used to getting loans from regional banks, 7%, right? So it's going to be a different type of credit. We can also think about, oh, okay, is Jeffy Morgan? Are the big banks going to really step in and fill the gap, right? But it doesn't feel like they have any great appetite to be aggressive on lending. So I think the gaps that are going to be appearing are not going to be so easy to fill. And that's going to have an impact on the economy, right? So I'm just going to say a scenario, right? If the drag from less lending from regional banks is in the region, say half a percent of GDP doesn't sound like such a big number, but what amount of monetary tightening is equivalent to”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“We can pencil or write down a scenario where the regional banks are able to achieve their lending objectives that are already cautious, but we have to recognize that there's probably downside risk to that because are they all going to be able to make the loans that they really want to? They all want to make loans into certain safe sectors now and not into the other sectors, right? So at the aggregate level, they can't all make the same loans. So it's probably going to be downside there. I think we're going to have significant slowing of regional bank credit in the next couple of months. We have not seen it in the data yet. I didn't expect it to be visible quickly in the data because of the drawing on lines we're talking about.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“No, but so we did a conference call with a specialist in regional banks, like somebody who follows the regional banks day and night and speak to the CFOs and the CEO. So those companies, right? To again, triangulate the data, right? We have our macro data that we look at, but it's nice to also get some micro data point to see another angle. the regional banks have a goal Slowing their credit growth. Like it's not something that is happening just by accident because their deposits are vulnerable and so forth. It's something they want to do. They want to be cautious about environment. So really what we're looking at is a situation where”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Little bit will go up more, right? But outright going down is highly unusual. But it'll be strange if we don't have weakening lending growth. And I think the problem for the Fed is that they have to make decisions now, right? And the data is only going to start to be clear in the next one to two months. So from that perspective, I think it will make a heck of a lot of sense for the Fed to be on hold until they have more of that information and to see how this shock is really transpiring. And because of the effects I've described, they just don't have any clean data yet.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“In the next month or so, we'll get the real verdict as to, okay, we are beyond that people drawing on their lines. Is there actually going to be a slowing? And it would be very strange if there's not a slowing given the pressure that is on the regional banks, right? And in terms of our estimates, the sort of credit impulse that they would like to call like the change in credit extension, it could be in the region 1% of GDP. And then you can think about, okay, how much of a drag on the real economy is that going to be? Probably multiply as a little bit less than one. But you can certainly get under reasonable assumptions a big drag on the economy, right? So the Fed is in a tricky spot because they can't see these effects. These effects are hard to model. We don't have many examples in history where it happens, right? If you go back and look at bank deposits, it's not so often that they go down, like bank deposits normally go up. It's a matter where they go.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“And the ironic situation up until this point is that it's not particularly clear that there's a drop off in the lending yet. So in a way, that's not particularly unusual. Like if you go back and analyze big shocks like the 2008 shock or even the March 2020 COVID shock, it is often the case that initially in a shock to the system you actually have bank borrowers that draw on their credit lines for precautionary reasons or because they really need the cash. They draw on those lines, right? And that can actually boost the lending in the short term. So I don't think that effect would have been as dramatic in this shock as it would have been in the COVID shock where like businesses were out of really running out of cash and they had to draw on those lines. But there certainly could have been some of it. So I think.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so let's give you the conclusions, right? So what we've seen is that we came from a period where loan growth in the US was very robust and it was actually interesting that the loan growth was driven to a significant degree by the smaller banks. Like it was not JPMorgan and Bank of American City and so forth that was really lending aggressively. It was actually the regional banks that were picking up a decent amount of this new lending. And that was the case certainly up until Q3 and then in Q4 things started to change. So what we're seeing this year is that we've had a slowing tendency, right? And then we're analyzing obviously what is happening around the Silicon Valley Bank shock.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“We have to be very careful when you analyze this data. We've seen this in social media, right? Like right after the Silicon Valley Bank shock, it was very popular to analyze the weekly Fed data, right? And people looked at the loans. And the loans looked like for a week or two like they were collapsing. But that data was distorted by some institutions that have been reallocated the data, right? So you have to be very careful.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Just to get into banks, I mean, where is the money going? I know the total amount of deposits is going down. Some of that is because of quantitative tightening. How much of it is actual deposits leaving the small banks that actually need the money as opposed to large banks who are letting the deposits leave because they want to retain profitability?”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“Every day, right? But that's data that nobody would have cared about last year. So it changes all the time what data is the most important.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT
“So when we launched Exxon to Data in 2016, there was a huge amount of focus on capital flight from China. They had like a bounce of payments, many crises, or it felt like maybe more than many crises when it was happening. So tracking that capital flows was perhaps the most important thing. And we developed very good model for essentially having a real-time feel for Chinese currency intervention. So that was an example of capital flows being very important. And we have like a very elaborate infrastructure that tries to capture literally all the big flows in the world. An example from the last couple of months would be we've had the regional banking crisis, right? In the US, so exactly what's happening with all the capital flows associated with the banks have been super important, right? So we have daily data on what is coming out of the past, it's coming into money market funds. And we look at that closely.”
2023-05-11 · Forward Guidance · Why The U.S. Dollar Could Fall Even In A Recession | Jens Nordvig · IDENTIFIED FROM THE TRANSCRIPT