YouSaid · the spoken record

Jonny Mathews

lines on the record: 100
first: 2024-09-05
most recent: 2024-09-05
sittings or episodes: 1
sources: podcast

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“That the actual employment components have been anything like a reliable indicator of job growth, but when you read the comments, you know, a lot of the comments, the S&P global PMIs and in the ISM surveys, they're still having difficulty finding labor.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Challenge you gray on Christmas layoff announcements, the worn notices, all this stuff is these are all forward-looking indicators and they're signaling a low level of layoffs. Weekly initial jobless claims of 230 something thousand is very, very low. I mean, for the labor market to start falling apart, I'd expect those to be north of 300,000. We're nowhere near that and we're not trending towards that at the moment. And those are quite, you know, they're almost a real-time indicator of the health of the labor market. And then, of course, you know, and I'll say it's, you know, it's not massively reliable indicator. If you look at the NFIB Small Business survey, the plans to hire ticked up a few months ago and stated this somewhat higher level kind of suggests that there is still demand. And when you read the comments in the ISM reports,”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“I think, in all honesty, if it goes above, you know, if it goes above 4.4%, then as far as I'm concerned, then something has changed. But that's to happen. I would have expected to see. More of a pickup in the pace of continuing claims. You know, they rose, but then they steadied off. And part of that was this summer increase in initial jobless claims. Those are declining now, and all the other indicators of layoffs are still quite low. Like, you know, like I said, the jolts layoffs and discharges, the challenger.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“The trend that we've had and the extremely low level of layoffs. It's, you know, I don't look, I could be wrong. I could end up with egg on my face in three days time, but I don't see it falling apart just like that.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“I've just recently gone short of 10 years, but this will really, really depend on this Friday's payroll print. Nobody possibly can be brilliant at forecasting this. You know, every month there's about 6 million people employed and 5.8 million people leave their job, either voluntarily or because they're fired or whatever. And that difference, that 200,000 is what makes up the increase in non-fund payrolls. You know, there's two very big numbers and the difference between the two is the employment growth. And then we have the unemployment rate from a completely separate survey. You know, there's a lot of moving parts. I just don't see why it is that the labor market should completely fall apart based on consumption growth, based on corporate profit growth, and based on”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“As fast as they could, and now we're in a situation where they're teeing up the rate cuts. It's very nobody is great at forecasting inflation, but I just suspect that I suspect, I don't know for sure, I suspect we won't be getting back down to 2% over the next, you know, certainly six months and probably not in the next year. But we'll have to wait and see.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Those are very, very slow moving components. But look, nobody is a genius forecasting inflation. But I just feel like what we had in the period after the financial crisis with ultra-low rates of inflation and fed funds rates, that was a real anomaly. And the Fed and every other central bank were really scared about deflation taking hold. And we're doing everything they could to get inflation higher. I mean, you know, four years ago at Jackson Hole, Powell was talking about this average inflation targeting, you know, this was the latest thing, you know, they were going to do because inflation just, they just couldn't get inflation high enough. Well, now, you know, it's that's all changed now. Two years ago, they wanted to raise rates.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Of course, of course, so that will help. But you know, we've been waiting for that to happen for a long time, as you say. And of course, there's other things that will eventually... Slow down like car insurance prices and other things that have been very, very sticky. You know, the car insurance gets set, car insurance prices get set annually. And so whatever happens in any one month only has a small impact on the year-over-year rate. So we're still living with kind of 18%, 20% year-over-year rates of car insurance inflation.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Well, it lagged. It lagged a long way on the way up. You know, if you look at a chart of CPI measure of rents and the Zillow measure of rents index both of them to 100 at say the start of 2020 and the Zillow measure of rents just went through the roof. The CPI measure, which has never really caught it up. And now the two are normalizing. So I think the Zillow measure is growing at about three and a half percent year on year. And has kind of settled at that pace. The CPI measure, well, the monthly rents and owners equivalent rents, I think, you know, it's about 0.4% a month. That could well slow down from here and probably will a little bit.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“What about shelter CPI owner equivalence rent and rent, which is something like over 30% of CPI, which is quite lagging. And many people expect it to continue to go down because it for a long time has lagged spot rental prices. I mean, people have been talking about this for literally two years.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Service prices inflation has declined a little bit, but nowhere near as much as the Fed might have hoped. So I think you've got a core kind of base level of inflation that's not going to go away anytime soon. And I think if the Fed cuts rates and somehow provide some stimulus to the economy so that demand picks up, I don't see any reason why inflation should carry on falling.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Is a possibility, of course. I can't deny that, but the way I see it, that's quite an unlikely scenario. I think we've had... As far as goods inflation deflation is concerned, I think we're nearing the limit of that. Used car prices did a moonshot and then went into free fall. But that's coming to an end. You know, the last two months, the Mannheim auction prices, you know, this is a good leading indicator of the price that you're going to see in the CPI report. I think the Mannheim index of used car prices went up half a percent in August, I think, and two and a half percent in July, something like that. You know, the declines in the CPI measure of used car prices are coming to an end. Energy prices, you know, they're all over the place, but they've been a drag on headline inflation up until recently. Of course, services prices are the sticky part.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Yes. So it's not a, you know, you have utter conviction that this is always going to, if the position is going to get against you, you're going to cut it. And anyone making a similar trade, I think, should follow the same practice. I guess what about the scenario where inflation falls and the economy hangs in there, which I imagine would be incredibly bullish for stocks. But even in that scenario where you're right that there's no recession and that the economy's fine, what if the Federal Reserve still cuts by what's priced in? Are you thinking about that possibility? In other words, what has happened over the past year and a half where inflation has dropped like a rock and the economy has hung in there will continue.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“And that will look pretty extreme at the time, but when it comes to cutting a position, it's never bothered me. Years ago, I've got to tell you, years ago. I was at Brevan Howard, and I used to have to sit with investors, you know, sit around a long conference in a table and we have investors doing their due diligence. They come and ask some questions. And I'd sit there and answer and so on. And one of the guys said, what is it that makes you a good trader? And I said my response was I'm very good at losing money. You know, you can imagine the pencils dropped, there's silence in the room. And I explained. Very good at cutting positions when they go wrong. You know, when it goes wrong, I'm out and I do nothing and I just leave it for a while. And that, I think, is just a prerequisite.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Most of the time, I try to protect the position with options. If I'm short treasury is, I'll buy out the money cools, I'll sell some downside puts, which would take me out the position Also, I think quite often when things start to go wrong, you need to get out the trade. You need to know that you're wrong and not dive back in again. Or, you know, I'm not one of these traders that can say, okay, I've got that wrong. It's all going to hell. I'm going to go the other way. I just get out the trade and do nothing for a while, reassess and maybe re-enter the trade late, you know, at some future date. But I find the best way is just, you know, take it on the chin and move on. Just have a clear book and wait for a new opportunity. It never happens instantaneously. If we have a really weak labor market report this Friday, sure, Treasuries will rally. I mean, you know, maybe the 10-year drops 10, 15 basis points in yield.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“How do you, as a trader, prepare for if you're wrong, interest rates are going to collapse so you do not want to be short them? If you're shorting something at, let's just say you're shorting it at 97. You want to buy it back at 96. But, you know, if there's a giant recession, it will go to 99 or something. 99, of course, being 1% in terms of interest rates. But because the return profile I would suspect maybe you disagree is nonlinear. And, you know, the Fed is not going to be hiking rates further. They might cut less than what is priced in, in which that trade shorting bonds makes money shorting so far, shorting fixed income makes money. But there's a chance that the Fed could cut a lot if things get quite nasty. And as you say, in a Doomloop scenario, the Fed is going to be cutting way more than 200 basis points probably.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Don't think that's going to happen, but if it does household income continues to slow and households pull back on their consumption and corporate earnings go down, you know, then you're into that doom loop that becomes quite difficult to arrest.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“And then came all the way back. I got out of that trade once the market was pricing something like 82 basis points of cuts for this year. That was in May, I think, April or May, out of that trade. But now, you know, now the opportunity has arisen again. The sofa futures between now and the end of this year are pricing in almost 100 basis points. and a further 100 basis points for next year. I do think that's where the opportunities are in fixed income. I don't think we're going to have rate cuts that fast. And whatever rate cuts we do get, Don't think the 10 year treasury yield is going down much further now. I've shorted that, but I've got a reasonably tight stop because I could well be wrong. I could well be wrong on this. If I'm wrong and the labor market continues to slow, then of course things could get ugly.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Well, it's just I bought some calls to protect some calls and sold some out the money puts to protect the position and I got taken out and then I tried to re-enter it again and got stopped out and then gave up with it. But soon after that interview, I started going short of sofa, deck deck 24 sofa futures when the market had priced in something like about five and a half, 25 basis point cuts for this year. That was back in November. And that trade went a bit offside. I mean, the market priced in almost seven by January.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Long end of the treasury curve vulnerable in terms of yields going up. And yeah, so you were short bonds in 2022 that obviously worked phenomenally well until when we did our interview in November 2023. That probably was the peak in yield. So as so often happens, I have someone on who's been right for a year and my interview with them actually marks the end of that trade. So when did you close your bond short and when are you going to be shorting bonds again?”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“I mean, that's pretty extreme. That is really extreme. And the low point on the Fed funds rate is down just over 3% in, I think, early 2026 for the Fed to cut that rapidly. I think something would have to be seriously wrong with the economy. And I don't see that. And then when it comes to the treasury market, you know, I think if the Fed does cut that fast, the economy will pick up quite quickly. I don't think inflation has completely been slain. I've said this for a long time. The Fed is not going to sacrifice the labor market on the altar of its 2% target. You know, 3% is good enough. They're not going to admit that, you know, as far as they're concerned, they finish with inflation. Now they've got to focus on the labour market. Know, they may well cut the Fed funds rate reasonably quickly.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Right, yeah, people are employing undocumented Know what we can say is that, you know, if you look at consumer spending, how much they're spending, you know, they must have been, you know, in aggregate, income must have been pretty strong for people to be earning what they're earning and spending the way they're spending. You know, it doesn't quite add up. And maybe the consumption figures are a better real-time guide to the strength of employment. I'm not one of these people that likes to say, oh, well, you know, obviously there's all errors in these statistics. You know, there'll be other revisions. You know, it's like I said when I came when we started this, it does concern me. The slowdown in demand for jobs, that does concern me. That does concern me. But when I look at where the markets are now, where the Fed funds or the sofa futures are pricing something like 200 basis points of cuts over the next year.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Thing will carry on over the following few years. Maybe that's the cause of it. We don't know yet. We also don't know the profile of those revisions, the monthly profile. I think we get to know we're not even going to get to know those till January, I think. They'll go back and revise each month's payroll print in a way. And it's a terrible situation to be in. We are a little bit in the dark about how severe this revision really is. Goldman put out a piece a week or two ago saying the true revision is probably more like minus 300,000. And I can't remember their reasons, something to do with it.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Not giving the money back that I made by being short fixed income at the time. Let me say that first of all. But yeah, of course, you know, these revisions, you know, that happen every year, I think in 2022 the revision was 400 and something thousand. No one gave nobody cared about that. Last year, I think it was minus 300 something thousand. This year, of course, it's a huge big number, a downward revision. But these revisions are subject to revision. So this isn't the final number. And it does seem suspiciously large. It's like, okay, you know, you could say maybe the birth death model got things wrong because the pandemic kind of, we had a surge of new businesses starting after the pandemic and the BLS adjusted the seasonal factors and the birth death model and assumes that kind of.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“On the household sector or the corporate sector because everyone had termed out the debt. Now, you know, you could say the same thing applies in reverse. So, you know, there'll be less effective when they start cutting. And that is true. But I think one of the other things that we've learned over the last four years is that fiscal policy done right, it can be extremely effective. You know, the politics have changed. It's not It seems like fiscal policy is the way out of really bad situations. And it did prove very effective during the pandemic.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and I think if you actually, and I'm sure I made this point last time I was on the show, if you look at households and corporates, the household debt financing ratio, in other words, the cost of the biggest part of household debt is the mortgage. And the average mortgage rate of all the outstanding mortgages is something like 3.8%. So in aggregate, the cost of the debt servicing obligations are close to all time lows as a percentage of household income. And it's the same for the corporate sector as a percentage of profit, the aggregate financing costs are the lowest in half a century. So at this stage of the game, there isn't really the Fed hikes didn't have much of an impact.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Could say that with confidence, with the exception of commercial real estate, which is its own issue, credit markets, there has been a tremendous amount of refinancing and then it's been the issuers, i.e. the companies that have been setting the terms. And they also have taken advantage in the loan market of just extremely, extremely narrow credit spread. So there's been a huge refinancing wave. Any worry about the looming maturity wall, again, outside of commercial real estate, so far that problem has been solved. Of course, it will emerge later and perhaps it will be pushed out later as it always does.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“No, of course, of course, it can widen. But I think for the investors that are investing in these bonds, they're seeing the all-in yield, which is okay. You know, it's not so bad. And if the Fed cut Then there's no reason why those fixed income markets shouldn't perform quite well as they have done in the past when rates are heading lower. Besides which the default rate is pretty low, I don't have the latest data to hand, but the default rate is running very, very low. Corporates are able to refinance themselves. There are plenty of willing buyers of these high-yield issues. That's not going to suddenly come to a halt. You know, it really needs something big for the capital markets to suddenly shut up, shop and stop financing corporates the way they have been.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Lot of what your economic analysis has an edge on asset prices, risk assets, equity valuations, and corporate credit spreads. However, I think by saying credit is loose, credit spreads are narrow and the equity values are high, the corporate cost of capital is low. There might not be as much of an edge there because that might help the economy, but it's already priced into markets. You can't be bullish on high yield because the spread is narrow. It can only wadden”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Not that I think it really needs to go that far. If you look at financial conditions, they're already very easy. And by financial conditions, if you look at credit spreads, I mean, the corporate cost of capital with credit spreads this low and with equity valuations as high as they are, the corporate cost of capital is very, very low for those that have access to the capital markets. Do corporates really need that additional Fed stimulus? You know, I'm not so sure. Maybe smaller companies who have to borrow from banks, there it's going to help if the bank lending rate comes down as the Fed lowers the Fed funds rate. But for the fixing for traditional bond issuers, it's certainly not that bad. And especially for the high yield guys, high yield spreads are super tight.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Well, I suspect that the labor market by the same token, the labor market signals that we've had up to now, are perhaps, they're flashing a warning sign, sure, but I don't think this means that it's about to just go parabolic, the unemployment rate. Besides which, you know, we're starting at a point when the Fed has a lot of ammunition. The Fed can cut rates very dramatically here and really provide a lot of...”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“We've had those signaling a recession, credit standards at banks, tightening of credit standards will bring about a severe contraction in commercial and industrial loans and so on. That could be the start of a recession. None of these things have worked. None of these things have worked this time around. I mean, the yield curve first inverted two and a half years ago. It then disinverted briefly. But, you know, two and a half years, it's been saying, okay, you know, we're heading into a recession. And yet we've had extremely strong growth.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, she was brilliant. You know, she said she was asked to come up with some sort of early warning sign that the Labour market was falling apart. So she, you know, she went through the history and came up with this rule that, you know, when the average over three months is more than half a percent higher than the low point of the previous 12 months, that's when the trouble begins. And she's. You know, one of the first to say, Well, it's not an absolute Reliable indicator, that's how it worked in the past. And the same thing with the yield curve. People say, okay, you know, the yield curve's inverted. That's the signal of a recession. Leading indicators from the conference board.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“It's like any of these indicators. And Claudia's son said this herself. When she was at the Fed, I think it was you guys that interviewed her. It was a great interview or your colleagues at...”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“And what you can see in this chart is that the labor force grew in line with the pace of employment growth up until about a year ago. And then job growth in the household survey. This is the household survey, not the establishment survey, just the household survey. Job growth has been kind of flatlining for the last year, but we've got something like one and a quarter million more people in the workforce. And that is really what's driven up the unemployment rate. It wouldn't surprise me. It wouldn't surprise me if it ticked back down to 4.1%. You know, I could look very, very stupid this Friday if it ticks up another tenth of a percent. But, you know, the central forecast is 4.2%. It wouldn't surprise me if it goes back down to 4.1%.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Course, you know, I could be made to look very stupid this Friday when we get the payroll print. But when it comes to the unemployment rate, you're right, the unemployment rate has gone up from 4.1 to 4.3%. Most of that, most of that was driven by an increase in the size of the workforce. And let me make one point about that unemployment rate. It comes from the household survey. This is a survey of 60,000 households. You got 160 million people employed in the US. The household survey goes and surveys 60,000 households and asks people, have you got a job? And if you haven't got a job, are you looking for work? And that is the basis for the unemployment rate from the household survey. It's widely wildly inaccurate and volatile. But that's, you know, that's the tool that we've got to work with.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“I have another chart showing the layoffs and discharges from the Jolt survey, which is matching its record lower. That's right. The challenger layoff announcements. That's a three-month average. The actual, the most recent point for July was 25,000, which is an all-time low. We're not seeing layoff announcements. I know the weekly jobless claims picked up during the summer, but there's some distortions from the, you know, since the pandemic throughout the seasonality, you've got the auto plant shutdowns that drive an increase in layoffs. And we saw the same thing last year. Layoffs went up during the summer and then came down in the fall. I think we're seeing the same trend this year.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Like eight percent in Q1. So if corporates are earning. Earning more, why do they need to, why would they need to scale back their labor requirements? I agree with what you say. Certainly we've seen the hiring rate slow down. It's interesting. We haven't seen any pickup in the pace of layoffs. In fact,”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“First question is why would that be why if you look at corporate earnings, if you look at Subset of whole economy corporate earnings, the earnings of the SP 500 up close to 11% year on year. And I've got a chart, you know, that shows corporate earnings and labor demand. It's jolts job openings, which track each other quite closely. So, you know, if corporates are making more money, they want to expand. That requires more labor. There's no reason for them to start shedding labor or really scaling back the pace of hiring. Earnings are just too strong. Now, this is S&P 500 earnings, but it's the same in the national income and product accounts, the NEPA accounts, which takes account of whole economy corporate profits. So that's unlisted companies, that's small businesses. And you've got a similar sort of profile there. It's more volatile, but year over year, corporate profits were up something.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Totally with you on the savings rate. You've got a fantastic chart about personal savings we can show later, just showing how they are so far above trend in the US. I think the case for a recession, the strongest point is definitely the latest. The unemployment rate has gone up from 3.4 to 4.3. The most recent jump was from 4.1% to 4.3%, 20 basis point jumps. Available jobs, so Jolts, is down. I believe it's actually below the 2019 trend line. The quit rate is down, showing workers are much less confident that they could get another job if they quit. And the hiring rate is down as well. How do you analyze the claim that the weakening of the labor market is nonlinear and suggestive of something that happens right before a recession or maybe even in the early innings of a recession and that it's possible we are in a recession already?”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Is households don't need to save, you know, their wealth to income is close to an all-time high. Why do they need to save so much?”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“When we look at savings, how much people are saving each month, we don't take account of the return on those savings. We're just looking at how much is being put away each month. But those savings are growing due to strong equity gains, strong housing market gains. And of course, some of it is put into money market funds, which are paying over 5% and treasuries and so on and so forth. Most household wealth is in equities and housing. And those have been doing extremely well. So right now, household wealth, well, we've only got it for, you know, the Fed's only produced the latest household wealth numbers for the first quarter, but you can almost guarantee it's going to be a record high at the end of the second quarter as well, just simply from what we've seen in the stock market, the gains in the stock market, and the higher values of home prices. So the bottom line.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think the other thing you've got to bear in mind is that people look at this low savings rate and think, well, this is storing up trouble for the future. If people aren't saving money for a rainy day, then... Know they're not going to be able to withstand the tough times, but household wealth just grew dramatically after the pandemic. I think it's up about a third in four years, total household wealth.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Right. And it's a little counterintuitive, but a low savings rate means very high rate of consumption, which supports growth. And a dollar saved is, I think, is less likely to go into investment than a dollar that is consumed. And we have a consumption-driven economy. I mean, the savings rate in China is very high, and their economy struggles. So in a depression, the savings rate is very high. So a low savings rate is not necessarily super bears for the economy.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“That is most of GDP. Most of GDP is consumption. So the US is on track for another solid quarter of real growth. I don't see why certainly household income growth has slowed, which is why to maintain the pace of consumption, they've had to slow down the pace of savings. But I don't see why growth should suddenly fall off a cliff. And certainly once the US starts cutting rates, it should lift consumer spending, should lift corporate capex, should lift household wealth. And so, you know, it'll give another leg up to economic growth.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“That's true, but you know, it's the middle income and the upper income households that drive most consumption. And the data that we had last week on Friday, which was real personal consumption expenditures, was very, very strong for the first month of this quarter. And if you look at the second quarter, May was stronger than April, June was stronger than May, and now July is stronger than June. So you're almost guaranteed unless that pace of consumption drops in September and October, Q3 consumption is almost certainly going to be higher than Q2. That's real consumption. And based on assuming no change in the pace of consumption in August and September, Consumption growth in the third quarter will be something like two and a half to three percent.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, corporate income growth, but household income growth has also been quite strong. Household wealth has gone through the roof. And of course, you know, households really, the savings rate has dropped, but that doesn't mean say they're not saving. You know, they're still saving. The savings rate is down to 2.9%. But that's a fallacy to say, oh, well, all these excess pandemic savings have been spent. You know, they've just been blown on reckless consumption. And now no one's got any money left. That's just not true. Consumers are still saving something like half a trillion a month. That's the difference between consumption and income, household income and consumption. Income still exceeds consumption. There is money being saved. Now I know you could say, well, you know, the distribution isn't even. Of course, you know, the lower income households are struggling.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“So, I think it's accurate to say that in 2022, nominal growth, that is real growth as well as inflation was very, very robust. But the real growth collapsed because inflation was so high, price of oil was at $120. 2023, inflation fell like a stone. And as a result, real growth went up a ton. So nominal growth fell, but inflation fell much more. So real growth went up. And the same has been true in 2024. So when you say Q3, the real growth for the third quarter will be robust. I assume you're referring to real growth, which factors into the fact, which benefits from falling inflation. Inflation fell from 9% to 3% and 2.9%. And we're getting close. When you say a soft landing steady issue goes, I think real growth going up as inflation falls, that is a soft landing. And that is what has driven the enormous rally in assets, bonds, but in particular.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“United States something pretty serious to put the US economy into a recession it really does you need a pandemic a global financial crisis you know the us to declare war on someone something like that and we you know right now thankfully we don't have anything like that on the horizon i'm still in the in the in the camp that uh we won't have a recession i don't even think it's going to be much of a soft landing i think um i think it's steady as she goes”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT
“I am, and I've, you know, I've got quite a few charts that we can go through that will support the case. Of course, I'm aware that the labour market has lost some momentum in the States. And, you know, the worry is that if that continues, you get into this doom loop where household income goes down, consumption growth slows, consumer confidence drops, corporate earnings drop, and then corporate start cutting more labor and so on. And you get into this doom loop. But the Fed has plenty of ammunition to arrest that. That's point number one. But point number two is I am very surprised that payroll growth has slowed as much as it has because corporate earnings are fine. Economic growth at the moment is fine. I mean, Q3 will be another strong quarter of economic growth based on the trend that we've seen in consumption so far.”
2024-09-05 · Forward Guidance · There Will Be No Recession | Jonny Mathews · IDENTIFIED FROM THE TRANSCRIPT