YouSaid · the spoken record

Jonny Matthews

lines on the record: 102
first: 2023-11-10
most recent: 2023-11-10
sittings or episodes: 1
sources: podcast

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“Right, that's right. Yeah, it was quite an achievement, really, to get it that high. We had food price inflation that was also much, much higher. Just everything was going up in prices at a much faster rate. And we still have higher inflation, much higher inflation. You're right in that you say, yeah, you've got to proceed carefully when you first exit that stimulative policy. But Parliament, before they even made the first hike was criticizing the Bank of England. There was a House of Lords committee that said, you know, the bank has a dangerous addiction to stimulus, which is a great way of describing them. They were still doing QE, carrying on with the zero rates, when it was clear the economy, economic growth was picking up quite fast and inflation was going through the roof. So, yeah, okay, they had to move slow.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Possibly you're right in that respect. But then to just move by 15 basis points in one increment is when most of us would have looked at that and thought, well, that's just crazy. And in fact, they delayed it by month. They had guided towards the hike and then changed their minds and then put the hike in place the following month.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Well, yes, I've got to be honest. I have tried to use my little bit of knowledge unsuccessfully for the last couple of years. I thought the UK would be a little bit more vibrant, the UK economy than it has turned out to be. And I thought the Bank of England, the Bank of England was very, very slow to hike rates. I mean, inflation was just quite staggering when you look at it. Inflation had gone north of 5% and the Bank of England moved its bank rate from tin basis points to 25 basis points. I mean, as if that was going to make any sort of difference and has been very, very cautious in hiking rates.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Honest with you, rate differentials just looking at expected rate differentials, current rate differentials, and the impact on currencies. It's something that seemed to work quite well in FX, but for the last year or two, FX has been pretty dead. I mean, even the prime candidate, Dollar Yen, for example, with what's going on there with the BOJ keeping rates negative and with yield curve control, while the Fed's been hiking, in theory, you know, you would expect a much greater sell-off in the year and probably higher dollar yen. you know, it hasn't happened. And here we are anchored at about 150. FX has been tough for the past couple of years. I would say anyone that's purely focused on FX trading, well, maybe they're much better than me, but I certainly haven't been able to make any money for it.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Think Europe has spent the whole year struggling with growth. We've had, I think, a quarter positive 0.1%, negative 0.1% zero. It's been like that. So, you know, you might not, it might not officially be termed a recession, but it's pretty poor rate of economic activity. And the ECB is on hold now. It looks highly unlikely that they will put another hike in place. And if anything, they're probably going to start cutting sooner. Year than the”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Well, certainly we are seeing a much worse Weaker economy, signs of much weaker economic growth. I mean, Europe has pretty much stagnated throughout all three quarters of this year. In the UK, it's been very, very patchy. We have a monthly GDP reading and the quarterly readings. And it's been weak. The Bank of England meeting today kept rates on hold at five and a quarter percent, even though inflation is still at six and change, whatever. But the Bank of England is not going to hike rates because it's quite clear that the economy is weak. And the impact of the rate hikes is filtering through quite quickly as mortgages get reset. People are really feeling some pain. It's a very different dynamic here in Europe to what you have in the States.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Here in Europe. But, you know, well done, the US, it's fantastic. The fixed rate 30-year mortgage is fantastic. There have been attempts to introduce something similar in the UK, but it just hasn't taken off.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely, absolutely. Throughout, I mean, you know, it's not a homogeneous market throughout Europe, but in the UK, typical mortgage fix is two to five years. We have 25 year mortgages, but the rate is fixed for two to five years. And in different countries throughout Europe, they have different standard periods for the fix, but they're relatively short compared to the US. The impact of the rate rises isn't felt initially. But as each, you know, every month there's a whole in the UK, I think about 100,000 mortgages that will reset into a new rate. And believe me, it is very, very painful. If you've had a two-year fix at something like 1. whatever percent and the current two-year fix is 4. whatever you're going to feel quite a bit of pain in your mortgage payments so it's a very different market”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Far as households are concerned, this increase in interest rates has not impacted them as much as may be in the past. Might have done. Plus, many, many households are very cash rich and they're doing very well out of this increase in interest rates.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Average rate and the outstanding stock of mortgages. The average rate of all the thirty year mortgages that are out there is just 3.6%. Now, that's the blue line in that chart. Now, you can see it's gone up a little bit as people, new entrants to the market have taken out a mortgage. They're paying a much higher rent rate. It's gone up a little bit. But nothing like the pace at which new mortgages the current average 30-year mortgage rate. That is close to 8%. But homeowners with their 3.6% mortgage rates, they're just not moving home. They're staying put. There's no need for them to, you know, if they can avoid it, they're not going to move home and give up their low cost mortgages for something that's going to cost them near the 8%.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Yes, without a doubt, the increase in interest rates should be having some impact on the economy, but Nowhere as much as people might expect. And I think I've shown it in a couple of charts in my slides that I sent you. First of all, as far as the mortgage market is concerned, that's the one.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“So, normal economic cycle, not that necessarily exists, but central banks raise interest rates that imposes stress on the economy and there's a recession and then they lower them. What do you think about the appropriate level of interest rate is in order to, you know, for slowing down the economy? Is the fact that interest rates now are 5.5% instead of zero, is that having a slowdown effect on the economy? If interest rates were still at zero, would we be in a huge, huge boom?”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“The economy during the pandemic, you know, we fired 20 million people, rehired them, growth. We had rates of growth that were in double digits, both positive and negative. And we're coming out, we've got an echo of that now, where inflation has been sky high, it's coming down fast, but we don't know where it's going to settle. And because of that, you know, it's very difficult to map typical yield curve dynamics onto where we are in the cycle, in the economic cycle. This is an economic cycle unlike anything any of us has experienced. I think economists like to say, well, this is where we are in the economic cycle, this is what happens. But this is, there is no precedent for this.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Of all, I would say that those people that said, right, Yukovit version, that means we're going into a recession. They then say, oh, well, no, that's not the key signal for a recession. It's when the yield curve steepens again after being inverted. That's the recession sign. Well, I just think that what's going on with these yield curve dynamics, it's a reflection of the economic environment that we're in currently where we haven't seen something like this. None of us in our lifetimes have seen something like this where...”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“What is your Sense from the bear steeping where bonds are selling off, but it's the long end of the treasury yield that are steepening. So it's exiting inversion, still inversion, but the long end is going up more than the short end explaining for the audience. I know you're not a real believer in the inverted yield curve of yield curve is destiny, but normally bear steepening occurs at the beginning of an economic cycle, right? Right after the central banks cut interest rates and then the long end goes up. Isn't it like how do you interpret what's going on now where the federal reserve hasn't cut? They've raised rates, but yet the long end is selling off.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“And I think we'll have a yield curve that is kind of disinvert, certainly when the Fed starts cutting rates. I think, of course, the yield curve will disinvert. But I think maybe the Fed cuts 100, 150 basis points over. At Southern, starting at some point during next year. And then, you know, the longer term yields maybe get down to. And a half to four percent Will rise up again.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I could be wrong, the economy could go into a horrible meltdown. But, you know, the way I see things, the Fed could cut 100 basis points or maybe more, but we'll have an upward sloping yield curve. We have a much greater supply of paper, as you said, from the much higher fiscal deficits. And then you slow down in the economy that brings unemployment higher will increase those fiscal deficits and the supply of treasuries. Not going back to a situation where yield curve was super flat, where QE was encouraging people to extend in duration and then extend out on the credit spectrum and then move into equities. We're not going to have the same thing again.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“That means if, sorry, if and when the Federal Reserve cuts, other central banks cut, they will cut a very small amount. They're not going to cut to 3% or 2% or even 0%. They're going to cut 100 basis points to 4.5%. So the new floor will be 4.5% and then everything else will be upward sloping from there, the five-year, 10 year.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“And we did. We had a period of near zero rates. The yield curve was as flat as a pancake. And I think that is put into people's expectations, well, it's what behavioral economists call confirmation bias. You know, people are used to really low long-term, really low rates at the short end and long end rates. Think that was an exceptional period that has biased people's expectations going forward things are going to be very different. We're going to have I don't want to call it permanently, not a permanent, but a very long period of much higher rates.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Unlikely, but I wouldn't rule it out. You know, I think we're in a we've entered a secular period of higher rates. It's like I said before, higher fiscal deficits, a higher neutral rate, neutral real rate, and higher inflation. I think if you look at the great financial crisis and the period that followed, we were always going to have a decade of really tepid growth and low rates. You know, I think when the financial crisis happened, we all got busy reading Reinhardt and Rogoff, you know, ploughing through that as fast as we could 800 pages there or whatever it was. And they were spot on. They just said, you know, after you have a financial crisis, you can just pretty much write off the next 10 years. You're going to have slow growth and governments struggling to get fiscal deficits under control.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“You know, I haven't, for me personally, I've got some five-year tips. And that's in, if you like, in my. PA portfolio where, you know, which you just locked away, I don't even look at the mark to market, I don't even care, you know, that's just there. I know that's going to be a great investment. But as far as whether you should go five years or ten years, probably I would go even longer. I go probably 10 years would be a good place for me.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. And then if you just look at it in terms of the equity risk premium, it's extremely, extremely low. So to me, given the choice, I would rather have money invested in fixed income, given the choice between... Nominal bonds, just regular treasury bonds or tips. Which is capturing the real rate plus you get the real rate and you get the uplift from CPI inflation. I'd much rather have my money invested in tips for a long-term investment. Equities, that said, I don't think we're going to have an equity market meltdown. Because I think growth will be sustained throughout next year and people will find reasons to want to be involved in the equity market still. I just don't think you're going to have a rush to the exit.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Got actually one of the flattest books I've had for years because the way to me there are not the most obvious opportunities out there that there were a couple of years ago for the equity market. Course, valuations are high and can be, you know, if you look at the 12 month trading earnings yield on the S&P 500, for example, it's something like 5% or whatever it is. Well, that doesn't compare too favorably to a risk-free rate that's close to 5%. Course, you've got inflation and to some extent”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Equity wealth also. I mean, I know the equity market is down about 10% from its recent peak, but households still are still sitting on a huge amount of accumulated wealth. And so... Think they, you know, they should feel confident that even with slower pay growth. Still confident enough to carry on spending.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“And as a result of the comprehensive revision in September, the trajectory of these lines changed. We found that the savings rate since the pandemic was actually higher than was previously calculated. And as a result of that, the cumulative excess savings are now over a trillion based on this kind of way of modeling them, whereas previously they were at round about 500 billion. So, you know, that's still a hell of a lot of excess savings that are somewhere in the financial system. In addition to this, these excess savings that we're seeing here, the household sector is in great shape. You know, the total household wealth is something like 170 something trillion or so. Even the lower 50% of the income distribution has a much greater amount of wealth now Then anything that it's had in the past 10 years, housing wealth is sky high.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I mean, there's a lot going on in this chart. So, you know, the blue dotted line shows the trend rate of growth of savings. And anytime that savings are below that trend rate, There's basically a drawdown in cumulative, say, excess savings. And when the solid blue line is above the trend line, you're building excess savings. And of course, during the stimulus checks were handed out and there was a big social uplift in social security benefits, you saw these excess savings going through the roof. Now every five years there is a comprehensive revision to the national accounts.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Excessive inventories that have to be worked off. And I think we're still going through that post-pandemic working off the excess inventories. Manufacturing still hasn't really stabilized and found its feet, but hopefully will be coming towards the end of that process.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“There have been periods, I think 2015 and other periods where manufacturing has been in a recession. But the rest of the economy hasn't. So it is, let's face it, it is a small part of the economy and it can do its own thing. We had a very strange period during the pandemic where there was this massive demand for goods because people couldn't buy anything else. They just sat at home pressing buttons on Amazon and ordering stuff. And they really had nothing else to spend their money on. So that really just caused all the and the supply chains were all snarled up. And so, you know, there was a kind of delay in manufacturing these goods and a catch-up period. And then all of a sudden, you had this excess.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Manufacturing is only about, I think manufacturing is responsible for only about 8% of the workforce. So, the true test will be tomorrow's ISM services index. We want to see continued strength in that It's very difficult to find one particular forward indicator of labor demand and say, well, okay, that's what I'm going to focus on. You just need to take inputs from as many different sources as you can.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“But that is a very lagging indicator. That really is because it's a couple of months delayed before we get to see it. But you have other more high frequency data like the claims data, like I said. We're just not seeing really much of a pickup in claims. I mean, what was it today, 217,000? Sure, it's gone up by 5,000 since the prior week. It's nothing. Those initial jobless claims are still running at a very, very low level. The pickup in continuing claims does concern me a little bit. but it's nothing to freak out about at this stage of the game when it comes to the ISM surveys well the manufacturing survey is is kind of strange because it just seemed to fall off a cliff it looked like we turned a corner a couple of months ago and then in this most recent survey it just it just just well collapsed basically”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Like, well, first and foremost, I want to make this point that quite often. Economic analysis that I read. The economists, when things aren't going their way, they will say, well, there's this wrong with the data or there's that wrong with the data. If it's the payrolls, it'll be, oh, it's all the birth deaths adjustment or, you know, it's people working two jobs at any one time. But I have to tell you, first of all, that establishment survey takes a very, very well run survey. And the Labour Department is stuffed full of PhDs in economics and statistics. And so there's no reason to doubt that they're doing something wrong or fiddling this data somehow. It is what it is. And we've just seen very, very strong period of job growth. The JONT stator, I agree with you, the survey response rate is quite low. And like you say, the marginal cost of posting an ad is these days is very low.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“And that is not unique to the US, that excess demand for labor over available supplies is not unique to the states about a year ago the OECD did a study. And showed that in most of the top 20 advanced economies, that ratio of vacancies to unemployed workers was much higher than it had been prior to the pandemic, much, much higher. So there does seem to be some sort of almost a global shortage of labour. And all the time that we have this demand for labor. Keeping employment on an upward path, we're not going to dip into a recession. It takes a heck of a lot to put the economy into a recession. And we just haven't. Just don't have those any reason for it to happen at this stage.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“In terms of what do I think going forward, well, I think, of course, we had that strong period of what people call revenge spending coming out of the pandemic. People are just desperate to go out and spend money on travel and leisure, stuff that they couldn't do during the pandemic. Now, from what I can see, you still have very strong labor demand. In fact, labor demand still exceeds the supply of available workers. And that's true. That's very true. Just the most recent Jolt status showed you still got a ratio of something like one and a half times as many. Vacancancies as there are unemployed workers. Now that's a much higher ratio than anything we saw prior to the pandemic. In the two decades of data that we have from Jolts.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Took nominal here. Yeah, yeah, yeah, yeah. First of all, I mean, the great thing about nominal high rate of nominal GDP growth is it brings down the debt to GDP. And that's one of the reasons I think US debt to GDP got to about 130% and it's come down to 120, maybe just a bit below 120%. So one of the ways that a government can get out of a fiscal mess is just to sustain high levels of nominal GDP growth. That's the best way out of it. If you can, conning investors into paying unrealistic prices for your bond issues. Course, you can't repeat that year after year at some point, you've got to address the fiscal deficit”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Think we're going to have a slow growth period and hopefully things will either settle on a slightly shallower trajectory or growth will pick up again during the next year.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Possibly we'll see the auto workers their strike will show up in the manufacturing payrolls, maybe 30,000, 35,000 less jobs there. You know, it wouldn't surprise me if we see a slower pace of payroll growth going forward. When it comes to other factors, obviously the third quarter was just exceptional, but third quarter growth was boosted by inventory accumulation and fiscal spending. Those two factors won't be repeated in the current quarter. Consumption growth was just off the charts. And I think it's almost bound to slow down quite a bit in the current quarter. So I think, you know, the pace of growth is slowing. I don't think that there is anything that we've seen so far that suggests we're going into a recession.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“That suggests to me that okay companies are not firing people but they're not hiring at the same pace as they were. So someone that loses their job now is going to take a lot longer to find well longer to find a new job. So that's one of my concerns in this high frequency data. Up to now, the payrolls have been surprisingly robust. You know, we entered this year with almost a half a million new jobs in January. Monthly pace of payroll growth slowed. Throughout the year, better than the last two months it's picked up again. And of course, we had a much higher than expected payroll print in September. For October, I think the we'll see.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Have to say there are some concerning. Changes in the data. The US is fortunate you've got these weekly claims data, which is almost like a real-time snapshot of the labor market. And what we're seeing is the initial jobless claims, they're still pretty low. They're undeniably low. But the continuing claims have been inching higher for the last three or four weeks. I think they are in today's print, they're something like the highest since July”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely, absolutely. And I think the challenges that we've got going forward, or that the US has same in the US, is getting service inflation, service sector inflation back under control. You know, if you look at the components of inflation, I think core services, that services excluding energy services in the US, I think that's still running at something like 5.7%. Sure, we've had a big decline in headline inflation, but it's primarily a big chunk of that is basic effects from energy and goods prices. And we're coming to the end of that now. So goods price inflation is going to, it is currently zero and maybe it will, you know. Settle out at half a percent, one percent, whatever energy inflation, what we just don't know. But services inflation, I think it's going to take a lot of time to get that really back down to.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“So you do look at supply and demand, but it sounds like your primary lens is looking at the economy and how new economic data is going to perform relative to the assumptions. So if people think inflation is going to be 5% and it's 4%, that could be bullish for bonds. If people think growth is going to be 3% and it's 2%, that's bullish for bonds.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I don't disagree. So that's what makes it such a challenge to map supply and demand dynamics onto the changes in long-term yields. Because you have this issue where the supply is going to ramp up, but the demand will also ramp up because of expectations of future interest rates. I mean, the way things are at the moment, yeah, supply is higher, but there is a price for everything. So, you know, at the right yield, you can clear that supply. And from my perspective, I just think that yield is higher than it would otherwise have been without this additional supply.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“So, I remember talking to an oil analyst, an old timer, and he talked to me about supply and he said, but what about oil demand? He said, Jack, if you'll go through the record books about like how to calculate oil demand, I made those equations up and they're total nonsense. Like no one knows how to forecast oil demand. And it's interesting you say that. I mean, supply is known or it can be estimated, but demand, it's really tough to see, but in a recession bonds rally. That is something of a something of a law of nature or is it not, right? I mean, if we enter recession, the US government will run larger deficits, that would be one in which the fixed income does okay, or right.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Looked at estimates for the deficit for next year, which are generally lower than we have this year. There are a number of one-off factors this year that I'm sure you're aware of, you know, lower tax revenues, a big uplift in cost of living allowance at the start of the year and so on and so forth. So those are one-off factors that won't affect it, won't affect the deficit next year. But if we do go into a serious slowdown, it's just going to blow out again. That is one of the things that makes me think that I think we've entered a structural era of Want to say permanently, but much higher rates, higher inflation, higher deficits, and higher long-term bond yields.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Do you find that analysing the supply and demand is very challenging? One thing I will say is that if you look at the size of the fiscal deficit during periods of expansion and recession, you'll find the fiscal deficit blows out during a recession when unemployment goes up, you have the automatic stabilizers. Employment benefits just go through the roof. And so the fiscal deficit blows out. Now, it's very strange to be at this stage of the economic cycle with such a massive fiscal deficit. And so there is a stepped up increase in the supply of bonds. Almost regardless of what happens to growth, it's going to stay big. If growth collapses, we're going to have an increase in unemployment benefits that will just blow out that fiscal deficit to an even greater extent.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Think those make really solid investments. And the 10-year treasury now where it is at 475, I do think you're going to earn a real income over the next 10 years. There's not going to be destroyed by inflation or by a catastrophic fall in the price of the bond. So I think it's much more difficult to stay with a fixed income short at this stage of the game.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, you know, I've Used to do a weekly presentation to a bunch of US brokers who would laugh at me because I was saying, you know, there's nothing in this data that indicates we're going into a recession. You've got to ignore the inverted yield curve. But like I said to you earlier, you know, with the yield that touched 5% recently, and I don't I don't rule out the possibility that we still go beyond that, maybe up to five and a half percent. I'm really not ruling out that possibility. But the risk reward isn't there now. It really isn't. And we had real yields that were up almost at 2.5% on tips. They're now about 2.3%.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Really didn't sure, you know, you can find that a relationship that fits through history, but just because the yield curve's inverted, it shouldn't really imply that the economy is definitely going into a recession. It's just shows that people are aware that the Fed has hiked rates a long way and they expect them to reverse those hikes pretty soon. So I've been quite a recession denier for the last 16, 17 months.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“We had inflation that had already gone past 7% and the 10-year treasury yield was yield at about 1.5%. So that was a very, very easy trade for me. I felt absolutely sure it was going a lot higher. And I Think at the time I put it on in quite large size, and I've stuck with the trade until very recently. I reduced the size coming into this year, became a lot more choppy. I didn't believe that the Silicon Valley implosion and signature bank were systemic events. And I wrote about it at the time in my note. And that was an opportunity to really build the trade up again. I think the Treasury got down to about 3.3%. So I built it up again then. And I also really never subscribed to the idea that an inverted yield curve was indicative of a recession”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Yes, yeah. Well, when I first put this trade on. Was as we were coming out of the pandemic, and it was very, very clear to me that with the fiscal stimulus and the monetary stimulus that the economy had had, plus the revenge spending that everybody was keen to do, myself included and the experience of just trying to book a flight, trying to book a hotel, anything like that. You know, everything was booked up for months in advance. You were paying top dollar for everything and lucky to get a seat, whether it's, you know, whether it's a show or a sporting event, everything was just getting booked up straight away. And this was just as things were getting back on their feet. Now, this was in early 2022.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT
“Recipients in pretty much every single major investment bank in the city and most of the large hedge funds. And I found that by writing about macro, it forced me to really delve deeper into the details. And it's really improved my trading a great deal, partly because I'm not doing stupid little intraday trades without a good fundamental reason. I'm too busy writing the note. But also, you know, it's given me much more confidence to take quite long-term positions that I can stick with.”
2023-11-10 · Forward Guidance · The Massive Bond Short | “Recession Denier” Jonny Matthews (ex-Brevan Howard) On The Duration Bubble, Correlation Trades, and Variance Swaps · IDENTIFIED FROM THE TRANSCRIPT