YouSaid · the spoken record

Michael Howell

lines on the record: 110
first: 2023-06-22
most recent: 2023-06-22
sittings or episodes: 1
sources: podcast

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2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Can't refinance, you fail, or the corporation fails, you become homeless because you can't roll your mortgage and disaster happens. These are the sources of financial crises. And if the Federal Reserve and other central banks want to avoid financial crises, they have to supply liquidity.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“If it doesn't happen, I mean, it's like saying, you know, if you flip the light switch, does it go dark? I mean, that for sure. If you pull the plug out of your computer terminal, does it switch off? Yes, it will. And the fact is that if the Federal Reserve doesn't produce liquidity in the amounts that the market needs, then you'll see a financial crisis. And I come back to the fact that what has changed and what is not in the textbooks and what is not in the narrative of economists is the fact that the financial system is a refinancing system for debt, not a new financing system for capital expenditure. And that is the fundamental difference that we've all got to start to understand. And in that situation, if you don't get the liquidity, in other words, the balance sheet capacity to complete the roll on the debt,”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“We go so, Michael, it sounds like a lot, at least in the US liquidity that has gone up so far has been for your cop-out phrase, but technical factors. But it sounds like as you expect liquidity to increase eventually, the Fed is it can't continue to do what you call shadow quantitative easing or increasing liquidity without pulling that QE switch. Eventually it will have to do quantitative easing outright, true quantitative easing, true QE. If the Fed doesn't do that, what do you think the world will look like if the Federal Reserve does not return to quantitative easing? I understand that it is your base case that they do return to quantitative easing at a certain date, but if they don't, what does the liquidity picture look like there?”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Well, as long as I've been in the business, I've noted the correlation between banks and the slope of the yield curve. And if you get a yield curve that begins to move more positively, then banks should do pretty well. If you look at the regional bank index in the US, that tends to move, if I'm correct, from my memory serves me correctly, about a year after the movement in the liquidity cycle. So that would suggest that if liquidity continues to move higher over the next few months, maybe 2024 is a decent time of buying the regional banks in the US.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“The fear of that, the extrapolation of that fear worldwide, which caused central banks to change and start looking more at financial stability concerns. And that's what's put the bottom in. And the market has basically begun to price a more positive outlook ever since. Now, I think that if you look forward, there is a lot more liquidity coming because it's not just banks that need to be bailed out. It's also governments. And I think the central banks have got a big task on their hands in the future.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“That's the reality. And people keep saying, maybe we missed it. Maybe we missed it. But the market keeps moving up. And all I would say is to come back to a point maybe I made earlier on, a 20% rise in the big indexes is telling you something has changed. It's telling you that maybe the bear market has ended. And if you look at the leadership of the market, I'm not talking about the breadth here. Look at the leadership. If my statement about semiconductors and housing is correct, then these are normally leading sectors. So there's a lot of dots that join up here. And I think liquidity was the trigger in starting this revival. And all I'm saying is that this is a liquidity pickup that's been triggered initially by financial stability concerns. The bell, if you like, the rang at the bottom was the British guilt crisis. And it was the extrapolation of...”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Unquestionably, liquidity is tight now. I'm not saying it isn't. I'm not saying black is white here. I'm saying liquidity is tight, but it's inflecting upwards. And things are getting better. There's a tailwind behind us, not a headwind in front of us so much. So it's at the margin that financial markets tend to price. And everyone is looking. I mean, among our clients, everyone's saying, look, what we're doing is we're waiting for the pullback, then we can buy again. We're waiting for the pullback. We're going to buy. We're still waiting for the pullback. And then we're going to buy. I mean, markets always climb a wall of worry. Okay.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean, what we're doing is we're measuring the liquidity in the system. In other words, we're measuring what we call funding liquidity. We're not measuring market liquidity. In other words, the liquidity in specific markets. They are a derivative of what happens prior in terms of funding liquidity. Funding liquidity will drive market liquidity. Now, if you go back to the very first slide you showed, which was our liquidity, our annotated liquidity cycle, what you can see in sort of big letters at the top and the bottom of that liquidity cycle is when you get a peak in liquidity, it says asset booms. And when you get a trough in liquidity, it says banking crisis, right? Now what we just had, funnily enough, is a series of banking crises, right? U.S. regional banks, credit suites versus Boston, CSFB, et cetera.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“What is in that matrix? Most of those factors actually perform pretty well last year. And that was the phase that the liquidity cycle identified as being in. So it seemed to work quite pretty well last year. And it seems to me maybe working not too bad this year as well. So although it's approximately right and maybe precisely wrong, it gives you a pretty good handle on where we are in the cycle.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Now, this is a great case of being approximately right and precisely wrong, but broadly in the rebound phase, which is where we are now, you want those what we call credit arbitrage strategies, other things that should do well. Now, this is not drilling down into the detail. It's saying approximately start to investigate those areas. And what it's saying is that you should be making money out of some combination or cocktail of those particular factors. It doesn't mean to say that you shouldn't be buying the stuff on the right in directional, which is equities, cyclicals, emerging markets, but you don't want to have too much there because we're moving in that direction, but we're not there yet. But you want to be moving away from the volatility-based strategies that were the big winners last year, which if you look at what that...”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Magnitude and what you tend to find, in fact, what you found recently is if you look at, as I foreshadowed that new Fed Empire State Survey and the Philly Fed surveys, both of those are bottoming now and they're bottoming pretty much 15 months after the liquidity cycle. So you've got a pretty good prediction of what the economy should do. Going on to that matrix, what the matrix then says is that it associates each of those zones with what should be ideal investments.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I mean, you need to go back, I think, to phase 43 to get the beginning of that. And what that's saying is that the orange line is how we look at asset allocation. That's basically showing the liquidity cycle. We think of four regimes, which we think of as calm speculation, turbulence, and rebound. So we think of what the climate is like, if you like. Think of that as a seasons spring summer, autumn, winter. The red dots are basically showing where the yield curve tends to inflect. So that comes about six to nine months after the inflections in the liquidity cycle. The economy tends to be the brown blobs. So that's when you see the low in the economy typically. The liquidity cycle tends to lead by 15 months or thereabouts, always difficult to say precisely, but that sort of...”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“It so we've got this sort of quadrant chart up here showing what phase the market is in when liquidity is low but rising when it's high but falling so would we right now is it fair to say be where liquidity is low but it is positive it is rising so would that be in the rebound phase where the stuff that does well or distress securities high yield bonds fixed income areb and stuff like that”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Just put a 65 month sine wave over the top. And for the cynics who are listening, you might say, well, you've just put that on, you know, you fitted it recently. Actually, we had that same sine wave on since I think it was year 2000. And it seems to be, it seems to capture most of the recent gyrations. I actually got the COVID lobe almost spot on. But that let's come quietly and accept that's a coincidence. But if you look at where it's projected to go by 2026, you get a new peaking liquidity. And that's what we think is going on. Now, markets never move in a straight line. Liquidity isn't moving a straight line. But we're going to have a tailwind behind us, I think, not a headwind in front of us. And that's the important conclusion.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“The percentages are the implied growth rate in the Federal Reserve balance sheet, the effective balance sheet each year. Now, you can see there's a dog leg in the chart. The dog leg, I don't think, is going to happen. The dog leg is basically what the CBO project using Federal Reserve assessments of their treasury holdings. But I think those Treasury holdings are flatlining anyway. So I'm not convinced there's the dog leg down, but I think there is the, if you like, ski slope up. And that's the problem. Now, what does that translate into? What does it mean? It means that there's more QE coming. More QE means more liquidity. More liquidity means better asset prices. And if you look at the last chart, there is the long-term liquidity cycle that we draw. This is our index of liquidity, which we track here all the way back to the early 1970s. And it shows the schematic cycle, which we've”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“This chart is showing the estimated levels of US Treasury holdings by the Federal Reserve in orange as predicted by the Congressional Budget Office in the US in their latest projections. And you can see there that the current level of debt treasury holdings is about $5 trillion and on estimates by the CBO they go to about $7.5 trillion by 2033. The figures that I've got, which are in gray, assume that you've got a 5% level of defense spending in the US each year. And that will take the level of debt, required debt holdings by the Fed up to almost $10 trillion by 2033. The numbers above each bar”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“The end game, if there is an end game, and it may just be simply a question of kicking the can down the road, which is probably the most realistic outcome here, is that liquidity has to go up because liquidity is the name of the game here. Markets are dominated by liquidity. Central banks create liquidity. Central banks are being asked to create more liquidity. The financial system needs liquidity for financial stability reasons. The government sector needs liquidity for fiscal stability reasons. And that's what's driving things. You look at the last two charts I've got in the pack, which are page 55 and page 56, pretty much tells you the story here, okay?”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“People with a high level of interest rates. And what you can't do is to get interest, or they've got to be just right. So it's like a Goldilocks scenario, okay? They can't be too high because if rates are too high, governments then start to suffer in the sense that their interest bill will compound and debt will skyrocket. So they can't be too high, which is why yield curve control has got to be there in some form. And they can't be too low for the simple reason that you'll incentivize people to take on more debt. So they've got to be pretty much, I would think, where they are now. And I don't see that much room for movement, which is why I'm not ultra bullish on bonds.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Rates have to stay elevated in an ideal world because the great problem we've got is debt. And as I've said maybe, many, many times before on these programs, what we're living through is a world dominated by debt where financial markets are not new financing vehicles, they're refinancing vehicles. We've got to think about that. Something like seven in every $8 transacted in world financial markets are all about refinancing debt. That is an eye-wateringly large amount of money. And if you don't get the role on the debt, you get financial problems and you get turmoil, you get financial crises. That's what it's all about. It's all about funding. And that's the key thing. Of the $1 that remains an increasing part of that is being taken up by governments with new issuance. So that's the problem we've got. We've got to get the level of debt down. And the only way is to disincentive.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Well, I hesitate to say they're sort of bitpar players in all this. But they're not really the ones that matter that much. The ECB has got this got a target of actually reducing radically the size of the ECB balance sheet as we know. This is starting to occur, but it's not really bitten yet. But I'd say good luck with that because I don't think we're going to get anywhere near their projections. For the simple reason that it risks banking instability in the Eurozone. And I think at the end of the day, what you'll start to see is the ECB beginning to follow what the Federal Reserve is doing. I think a step or so behind the Fed here. But I maybe prove wrong. But I just think the numbers that they've chalked up for indicating a reduction in their balance sheet are fanciful. I mean, they won't get anywhere near that.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean, the answer is that what you say is absolutely correct. But the fact is that the balance sheet per se is not necessarily, as in the case of the US, the best guide to liquidity. What you've also got to take into account is what is being sterilized on the other side. And you've got to look at the liquidity creating parts of the balance sheet. Now, if you do that, the Japanese have not been as easy, or certainly another way, were not so easy as people would have argued last year in 2022, but they're beginning to add liquidity through this year. And that's the difference.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“And how is the Japanese central bank of Japan increasing liquidity? Because I know Bank of Japan does so much quantitative easing. There are some issues of Japanese government bonds, JGBs, that the Bank of Japan owns more than 100% of them because they're synthetically long when they're to people who market participants who want to shorten it. So how could you even judge liquidity of a market where a central bank is already so active?”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Correct. So there is something unusual going on here. And I think, as I said, is that maybe what all this data is telling us is that the world economy is not in such a bad shape as economists are saying. And maybe there is life, if you like, in the Asian economies. And maybe this is what the Japanese market is already telling us, that things are beginning to restart in Asia. And that capital flow diagram is reinforcing the earlier picture of this capital flow to Asia. Now, Asian central banks are monetizing this cash. So that's a further fillip to global liquidity growth. All in”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“A period of the Fed raising rates. Normally, the narrative goes the Federal Reserve raise rates that sucks money from around the globe. So money flows out of emerging markets into the U.S. to hunt for that safe higher yield. And also foreign countries, foreign countries companies, not the countries are Even as we had a pretty significant dollar spike from the beginning of last year to like September.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Now, if you look at that and you sort of squint and maybe ponder over the chart, what you can see is it's very, very unusual for the black line cross-border flows to pick up during periods of economic recession or economic tension. These flows tend to be very skittish because foreign investors, particularly into emerging markets, run at the first side of trouble. And so what you've basically seen is a huge amount of money being thrown at emerging markets over the course of the last six, nine months. Emerging market currencies have held up remarkably well through this period. I mean, with a few celebrated cases where that's not been true, but generally they have, which is very unusual for a period of economic downturn and a period of some dollar strength.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Well, those indexes are basically hybrids between levels and rates of change. So in actual fact, they take into account momentum as well. But where you're getting, if I point you towards a chart which basically should illustrate what's going on, take a look at slide 51, because I think there's a very important story that is unfolding there. And this is one of the things that really persuade an us back at the turn of the year when we had a previous meeting on forward guidance, which was why we were positive. And what this is showing is two indicators. One is our global liquidity index, which is the orange line, which is a very broad measure across 90 economies worldwide by size, looking at all components of liquidity. And the black line, which is simply cross-border flows, the cross-border component of that cycle, only to emerging markets.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“And so this chart is actually on another deck, but we can put it up later. You're tracking liquidities for each country. And one of the very few countries where liquidity is actually positive above 50 is in China, where it's at 72. Elsewhere, in the US, liquidity is still low, but it's going up. So would you say the rate of change of liquidity is more positive or more important than the level of liquidity”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“And you can see the clusters of money going in. And there was a lot of money that was injected around the sort of period, maybe early 2016. But the question is, you've got to see a sustained level of injection in markets. But that Chinese liquidity cycle, the black line on that graph is the driver, the impetus behind the world business cycle, which is that chart that I showed you on the following page, 39. So that black line is reproduced on the following slide in orange, and that tends to govern the tempo of the world business cycle. It leads by about six to nine months. And so what you can see here is the likelihood that the world economy may pick up, but you've got a cycle. So it may well be that there is a loss of impetus unless the Chinese keep pumping liquidity back into the system.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. I mean, what was happening back 10, 15 years ago was a situation where the Chinese were simply monetizing huge increases in foreign exchange reserves, and that was causing their domestic credit aggregates to explode. That's why the Chinese economy, if you like, exploded in terms of growth and in terms of asset price appreciation. But that's now stopped pretty much since 2014-2015. They've got a much tighter control over the system because the People's Bank has moved in. And that's shown by that sort of black area, that black cloud over the graph is really the actions of the PBOC. But the best way to put it into perspective, I think, is to look at the following chart, the one that we had up, slide 38, which is then looking at those open market operations.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“You saw a lull in the stock market too. How large is this stimulus that we've had over the past six months in China or 10 months? And what you see going forward versus historical because if we go to that slide 37 in 2012, the balance sheet was almost doubling every six months. And now we're talking about a 5% increase. So it's seems a little.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“I mean, rates are less important in China. It's much more the signaling effect from rates. But what really matters are the daily operations of the People's Bank. That will tell you whether China is easing or not. And as I said, they undertook a major easing at the end of last year through into the first couple of months of 2023. And then basically March, April and May have seen a serious lull in that liquidity surge. And we're seeing some signs of pickup through June.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Back to the interview. So, Chinese stimulus is injections from the People's Bank of China. The level of rates, which is set by the People's Bank of China, state-owned banked and bank lending, I should say much more controlled in China than it is in US and other countries. And then I guess fiscal spending, the stimulus that is in the pipeline right now, how much of that, would you say, is the liquidity injections versus, I know they cut the rate, but it's only by 10 basis points, so not a huge amount.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Term. So I would expect the Chinese to do more. And if you look at the following slide, what that correlates is the people's banks liquidity injections. Shown in orange. That's the data from the previous slide, again with the extrapolation to through the back end of this year. And the gray line is an index of the world business cycle, world business climate. It's basically all major surveys in the world weighted by economic size. So it's the US ISM, the Tancan in Japan, the EFO survey in Germany, the CBI survey in the UK. You get the idea. And that shows the tempo of the world economy as an index. And look at the correlation between what China's doing and the world economy. And that may give you some explanation as to why we think you may be getting a world economy picking up in the next few months.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Is slowing down. Although, as I've been saying, we would expect that to step up again because the Chinese desperately need to goose their economy as the economy is slowing down. And this is the only route they have. I mean, China has basically got only two avenues which it can use to get growth. One is export growth, which would really mean getting the yuan down. But I do expect at some stage in the next few years that the big figure in front of the yuan is 10 against the dollar, not seven. And the other thing they do is try and do domestic infrastructure spending, which requires the shadow banks in China, the nefarious shadow banks, to basically come into play. And they're beginning to increase their lending once again. So obviously the People's Bank has given them a thumbs up to start lending. Now, that may create further problems down the road, but what China needs is growth near.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Generally, and the bars represent daily operations, open market operations by the PBOC. And what that basically shows is a recent peak, but the level of activity has started to tail off. As you can see, those bars are dropping. Although the end bar says September 23, it's because what we tend to look at here is the average level over six months. And we're just assuming that current levels of mid-June remain constant to the end of the third quarter. And that allows us to get those bars in place. And the dotted line is the resulting projection of what our liquidity index would look like. Now, that's a projection. It still means that liquidity is pretty ample in China, but clearly the impetus.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Federal Reserve, the most important central bank in the world. And we've got an awful lot more PBOC watching as well as Fed watching. We do PBOC watching. And what you can see here is it looks as if the balance sheet is sort of beginning to slow. Now, that is probably the correct interpretation for the moment. And the next slide is basically showing a more detailed assessment of open market operations. The black line on the chart is our index of Chinese liquidity.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“37 looks at the balance sheet of the People's Bank. I mean, the key takeaway here is that if you look around the end of 2022, the red line represents a six-month annualized growth rate. So there was a surge in liquidity coming through that is beginning to tail off recently. You can see that in the level, which is shown by the black and orange areas. The orange area is Chinese holdings of foreign exchange. The black is their domestic monetary operations. There was a watershed moment, if you like, in China around 2015, 2015, when foreign exchange reserves were no longer the main engine of liquidity growth. It was basically domestic money market operations by the People's Bank. The People's Bank is now, as I say, alongside...”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Well, the answer is it's similar. It's a lot more straightforward. The Chinese system is nothing like as complex and the People's Bank has more rigid control over the system than the Federal Reserve has. In other words, the Federal Reserve would wish it had as close a control as the people's bank. The People's Bank obviously controls the state-owned banks. It controls the policy banks. It can allocate credit through window guidance. Think back to what happened in Japan in the 1970s and 80s with the BOJ. I mean, this is an Asian type central bank. It is in, you know, I'm not going to say total control, but it controls a lot of the economy. It controls the tempo of the economy. And if you take a look at, there's a few pages of slides.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“But I think the best two sectors of the market, but you correct me because I may be wrong, are house builders and semiconductors.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“And I think the thing to say is, as a final thought, is the stock market may be right because the stock market always tends to bottom about six to nine months before the economy does. So it may have got it absolutely spot on this time by beginning to pick up at the back end of 2022, about six to nine months before what we're saying could be a real trough in the economy.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, I think you just got to look back at some very recent indicators, look at the New York Fed Empire State Survey came out last week. Look at the Philly Fed came out again last week. What did they show a significant bottoming in output expectations? In other words, the economy seems to be bottoming out. Take a look at the Michigan Consumer Survey came out a day later, exactly the same message. It looks like the trough may well be pretty close. And, you know, that's what if you look at other leading indicators, I mean, I'm sure a lot of people will say I'm wrong here, but other leading indicators seem to be saying much the same thing. Look at orders, less inventories for the ISM. That spread is telling you that there's probably a bottom in the economy.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“This is global. So last year China was a huge recession and Europe economy was very bad because the price of natural gas went up like 20 times. What about in the US though? Because the US economy has so far been resilient, at least that's what people are saying.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Defensives. This is what you might call the Stanley Drochermiller indicator because he was. Guy who said this is the best economist I employ, which is looking at the relative performance of cyclicals against defensives. And that was heads up, very useful heads up as it happens, to what the temper of the economy is saying. Now, if you look at what the AI model is telling us, right, this remember is for the world economy, not for the US. The AI model is suggesting that the world economy saw its low point several months ago. This clearly doesn't preclude a double dip. So let's be clear. But the dotted line is the relative performance in the stock market of cyclically sensitive stocks against defensives. Now, both of those are saying the same thing. There are times when they didn't, but certainly for the last decade, they've been tracking pretty...”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“If you let me show you one more chart, page 41, take a look at that chart and then we can debate. What that is the let me just explain what we've got here we do a lot of modeling as you probably gather the orange line is an AI based model of the world economy okay and what we put into that is effectively three inputs it's corporate credit spreads it's cyclically sensitive commodity prices like lumber or copper or oil and it's also the exchange rates of trade dependent economies so all those factors go in and what the model does is it basically tries to predict what the tempo of the of the world real economy is from that information now if you look at the dotted line that is the relative price of cyclicals less defensive stocks in the market this is the MSCI index for cyclicals less”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“And what I'm saying is it's monetary inflation that really bothers me in the medium term. That may be good for stocks and it may be good for crypto and it may be good for gold, but I don't think it's good for bonds.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“It's still monetary tightening is still unfolding. But I think that the reality here is that we're in an era, a long-term era, 10 years or more, where you've got monetary inflation. I keep stressing the word monetary inflation because it's coming from the monetary authorities. It may well be that cost deflation continues and cost deflation can be because China starts to dump goods, the yuan weakens dramatically. I think that has to happen at some stage, that you get demographics run like in Japan causing price deflation. All these things can happen, right? But that's much more on the cost side, not on the monetary side. It may be that there are other factors that cause costs to go up, but the high street price is a combination of both of those two factors. It's cost inflation and monetary inflation together roll up in a high.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“I tend to spend a lot less time thinking about interest rates because I always think that they are a misleading indicator for financial markets. But I think if you had to put me on the spot, I would say that it would be unlikely that the Federal Reserve would raise rates again. Now, I may be spectacularly wrong on that, but all I would say is that if they're serious about getting the reverse repo down in size, I think it would be difficult for them to start the hike rates again. And the other thing, which is maybe a mischievous thought, but it's always worth promoting these things, is that, you know, how serious an inflation fighter is the Federal Reserve if they decide when core inflation is 4% to skip an interest rate hike? I mean, that's another thought that we've got to start, you know, scratching our heads about here. And I take the point that maybe what the Fed has done is still in the pipeline.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“I think in truth, it'll be a bit of both. I think that there's a, you know, I don't think the curve is going to move that dramatically in the next 12 months. But I think it's probably a combination of both of those two things happening. I mean, our view of bonds is that we thought bonds would basically be a comfortable investment this year. We continue to believe that largely the 10-year yield is range bound. I think the outlook from our perspective is much more favor stocks than bonds right now. Bonds are okay. I mean, you're getting a good coupon. Carrie is decent.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT
“Back or to think about, hold the thought that the term premium on the 10-year bond is about minus one and three quarter percent. So if that is an artificial, that's a distortion, if it's normally zero, then you should be adding to the 10-year bond 175 basis points, which would give you a very different shape yield curve. So a lot of the distortion is coming through the term premium. And I would venture that that is because of supply and demand for treasuries right now.”
2023-06-22 · Forward Guidance · Michael Howell: "QE Is Coming Back, Big Time" · IDENTIFIED FROM THE TRANSCRIPT