YouSaid · the spoken record

Mike Singleton

lines on the record: 83
first: 2023-08-28
most recent: 2023-08-28
sittings or episodes: 1
sources: podcast

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“Or recession when there's not, and that's continuing to juice spending in certain categories like services, understandably. So I think the big question is, when is the headline unemployment rate going up? The historical leads and lags suggest that the really aggressive increases will be in Q1 and Q2 of 2024. That said, could it be a little bit earlier or a little bit later? Yeah, I think it could. But right now, I don't think there have been any major shocks to a traditional business cycle thesis.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“One of the measures of the growth cycle that we really like at Invictus is the ISM manufacturing PMI. So if you look at changes in interest rates and the influence they exert on the manufacturing PMI, it's generally about 16 months, you know, give or take their sort of confidence intervals around that. That would indicate that we should start to see some real manufacturing pain and Q4 of this year, right? And we've already seen some manufacturing pain already, right? The PMI is at about 46. It's kind of a recessionary level. So I don't know. I think the business cycle is progressing probably more or less as you would expect given historical leads and lags. I think we just saw a lot of money printing. We're still seeing considerable fiscal stimulus. I mean, if you look at federal outlays as a percentage of GDP, they're upward of 6% currently. And basically that's a recessionary level of outlays of spending. The federal government is spending money like there's a crisis.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Even if we do have a secularly tight labor market, which I think certainly is not out of the question, it doesn't preclude a recession where the unemployment rate goes up. In terms of the leads and lags, it depends on the part of the economy that you're looking at, again, right? The lead time between interest rate increases and declines in mortgage applications is maybe a month. It's very, very short. It's very predictable. It's not what Milton Friedman would say, long and variable, right? You know, rates up, mortgage applications down, total home sales fall quickly. All of that is sort of at the front end of the business cycle or of a downdraft in the business cycle, so to speak. The bigger question is when do you start to see layoffs? Because that entails sort of discretion from management. And does it metastasize into services and so on and so forth? And we know that”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Given that rising interest rates, the Federal Reserve has been rising interest rates since March. So for pretty much a year, year and a half, are you surprised that it's taken this long for the economy to slow and the unemployment rate to go up, given that in March 2022, when interest rates were at zero and the Fed raised them for the first time, the unemployment rate was at 3.6%. And now the unemployment rate is at 3.5%. It sounds like you're not convinced that we have a secularly tight labor market, which will be a tailwind for inflation for a long time.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Buy Q3 of 2024. And generally speaking, when all of your leading indicators are saying more or less the same thing, your risk antennae should be up and you should be looking at the labor market very closely. So all of these indicators together are what are setting our expectations for a rather rapid increase in the unemployment rate through 2024.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Sure, so you could use basically an interest rate model that looks at the correlation between changes in interest rates and the unemployment rate. Given that we've seen a really dramatic increase in rates, obviously that's indicating that we see a more dramatic, a relatively dramatic increase in the unemployment rate. You could look at the NAHB Home Builder Sentiment Index. It tends to lead the headline unemployment rate by 18 months. And if you look at the correlation prior to COVID, where the correlation broke down for kind of obvious reasons, it's about an 85% correlation. So it's a very good leading indicator. And if you just run a regression, the decline in the NHB index in 2022 indicates that we'll see 7.3% unemployment by August of 2024. If you look at the net percentage of commercial banks tightening their lending standards, that's another time series that leads the headline unemployment rate. It's also indicating that we see upward of 7% inflation unemployment.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Right, so it's very hard to forecast the severity of a recession. It's almost impossible to forecast major systemic risk events like the financial system breaking down or COVID. So we generally shy away from that. I will say, though, that generally the So, yeah, that's kind of our base case. But, you know, when you're in the middle of a recession and the unemployment rate is going up and the market's dropping 200 base, you know, 200 points a day, you have to adjust as new information comes in. So that's our base case right now. But as more data comes in and we get closer to the event, our views, they'll no doubt change as we get more data.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Right. So there are a lot of different indicators you can use to try and determine the best time to buy long term government bonds. A lot of people look at various measures of yule curvature. A lot of people have said, well, when the three-month tenure inverts, that's when you start buying bonds, when maybe a short-term measure of curvature inverts, maybe the three-month two-year, that's when you want to start going out on the spectrum of duration. And Victus, we found the most useful way of thinking about it is that when the Fed starts cutting rates, actively cutting rates, that's really the best time to start buying government bonds. And you're probably going to be a little bit late if you go by that rule, right? Because the long end of the curve will start to discount slower growth conditions before the Fed formally announces its cutting. But if you want a more reliable way to get into bonds and you'll still, you know, generally the Fed doesn't cut 25 basis points at a time, it cuts in rather large increments. So you'll still catch a lot of the move.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“We're still doing $85 billion of QT, which no one seems to be talking about anymore. All of that will be introducing a lot of strong upward influence on the back end of the yield curve. So we don't really at this cycle, we don't think it's a good idea to buy duration until we really see the whites of the eyes of the recession.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Actually, make that statement, we think maybe it'll be December of this year, but the bulk of the damage in terms of the unemployment rate, we think, is Q1 and Q2. Asset allocation ahead of that, right now our favorite asset allocation choice is short-term treasury bills. I know that's an incredibly boring answer. It's not an original answer at all. But look, 5.5% nominally risk-free paper at this point in the cycle we think is attractive. Generally, one of the best allocation choices headed into a recession is long-term government bonds. We think it's too early to make that call, right? We think that the tenure treasury yield, the 30-year yield can still move higher from here. One, because the Fed is likely, in our view, more likely than the market is pricing in to hike one more time and perhaps even two more times through year end. And on top of that, the Treasury is introducing a ton of duration into the market.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“So I think the answer is yes. And I'll move the conversation quickly away from GDP because it's just not our favorite measure of the growth cycle at Invictus. Generally, we're looking at pretty evenly at production data, income data, consumption data, and employment data. Those four categories tend to be correlated, although unvarying leads and lags. Employment tends to be the lagging most indicator. When we look at all of those, all of that data together, it does say that the U.S. economy continues to slow in aggregate. In terms of when that hits in terms of a formal recession, well, like I said, really the labor market data is always the lagging most indicator. And when that hits, that tends to be when you see the odds of a recession go really, really high. And usually the NBER will make that declaration several months later when it's not super helpful. Our expectation is that if we had to throw a wild guess out there in terms of when the NBER will...”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“So, I would agree with you that the aggregate, yeah, whatever you find on Fred, the macro data is not useful, but I do pay a lot of attention to what's released from like Bank of America and JP Morgan. And I can send it to you. They actually, so that's a great point about the distribution of wealth effects. And yeah, excess savings went from 50 billion to a trillion, you know, if it's all in Bill Gates' bank account, it has almost zero economic significance, but they do break it out by cohort. It does show that all across the spectrum, there's more money in people's accounts. Okay, so is the economy slowing down right now? And are we in a recession? Do you expect a recession? And then how's that impact your asset allocation outlook?”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“And from a forecasting perspective, or in terms of setting your expectations about where the economy is likely to go, and Victus, we don't think that they're all that useful.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“And if you look at statistics that describe sort of the bottom end of the income distribution, they're not doing quite as well. So those savings statistics really aren't so relevant. And we actually just got the data on charge offs and delinquencies from the Federal Reserve Board yesterday. And if you look at credit card delinquencies, which is generally a good measure for sort of working class people because the top 1% is generally not running super high levels of revolving credit card debt. They generally pay their balances on time. They're probably not going to be delinquent. It's up 118 basis points over the last two years. And that's significant. It's actually even just in absolute terms above 2019 levels right now. So I think it's easy to look at statistics like checkable checkable deposits from the Federal Reserve wouldn't say, well, they seem really high relative to pre-COVID levels, but they don't actually do a good job of describing the median consumer in the U.S. economy.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Models, we think that will be almost completely run off over the next month or so. So we wouldn't count on excess savings being a tailwind for consumption for all that much longer. I also think it's important to acknowledge that a lot of these conversations about excess savings or checkable deposits don't really account for wealth distribution. And obviously that's an important variable because a lot of these deposits end up in the hands of people that own businesses or financial assets, which is to say kind of the top.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“So, a lot of good points made there. I would point out a couple of things. So a lot of people have been talking about excess savings. So if you just look at the personal savings data from the income and outlays report and you draw a trend line from, say, 2016 to 2019 and you take the value of the months above that trend line and you subtract, that was through all this period of stimulus in 2020 and 21. And then you subtract 2022 and 23 where we've seen relative disk savings. You get an excess savings number, sort of a stock and flow measure. There was about $2 trillion of excess savings at its peak. I think that was in 2021. Our work at Invicta shows that that number is now down to below $150 billion. So 5% of that peak number. Is there still some excess savings? Probably so. But given”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“About how if someone had $1,000 in their bank account in 2019, they had something like $1,500 at the peak, and now they have something like $1,200. So it's gone down. But the amount of money in people's bank accounts, and that's pretty good, you've got to look at that. That's a pretty good economic indicator, is still well above 2019 levels.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“So, the Federal Reserve controls interest rates, short-term interest rates, how does that lead to people not being able to afford a couch? And also, I'd say in the couch buyers, a couch being $2,000 is very bad for the economy of the couch buyer, but it's very good for the couch seller. And the couch seller, you know, they've got owners and people who work at the private sector, you know, a $2,000 couch, you could say actually an economy that can even have the gall to sell a couch for two thousand dollars is one that someone's buying it. You know what I mean? Inflation. And it's not a recessionary signal. But in what way do you say the Federal Reserve is because the aggregate level of bank deposits is, yes, affected by the Federal Reserve, but how much money is in people's banks accounts? That has a lot to do with income. JP Morgan had this survey we discussed it a little bit.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Is, but if you only have $1,000 in your bank account, it's a no brainer. You're going to go enjoy a weekend of Oppenheimer and you'll spend $30 instead of spending $2,000. And so the Fed is, in a way, forcing incomes and spending into a certain part of the economy, which is services, which tends to be smaller items and more affordable given most people's budgets and given what financing, how expensive financing is right now.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“That's why we've had an inflation problem. That's why we're still seeing growth pretty strong. I think something that people talk a lot about the Fed creating money, which is true, but I think something that is under acknowledged is that the Fed not only creates money, but also influences where that money is spent when mortgage rates or interest rates in general are very expensive. That's going to direct the flow of incomes and consumption into things like services, right? I mentioned to you yesterday, my wife and I are looking at a couch. It's from Costco. So it's sort of the value. It's sort of the value end of the furniture spectrum, but it's still $2,000, right? $2,000 for most of America is a pretty big expensive item. So when given the choice between, you know, buying a $2,000 couch or going to see Barbie or Oppenheimer, if you only have $1,000, I don't remember what the statistics.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“So, I think it's important to talk about where this is happening in the economy, right? So a lot of what you're describing is happening in the services sector. And that's not to dismiss its importance or the fact that it is happening, but it's not happening in those leading cyclically sensitive parts of the economy that I mentioned earlier. And the fact of the matter is that incomes were still strong. If you look at the last income and outlays report, wages and salary disbursements from corporations, which is a very good proxy for what you're getting deposited directly into your bank account at the end of each month, was up 6% year over year and six and a half percent on a three-month annualized basis. That's a result of basically being at 3.6 unemployment, 3.6% unemployment rate, and seeing wage growth in the four to five percent range depending on which measure you look at. And so when incomes are strong, people are going to spend money.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“So, why has the US economy been so robust? And I'll just give you some numbers for real GDP growth in Q1. It was 2%. And in Q2, 2.4%. This is real. So adjusted for inflation. It was nominal. You're getting four or five, six percent growth, which is, you know, needless to say, not a recession. And then for real GDP for the third quarter, the Atlanta Fed is now casting 5.8% growth, which again is adjusted for inflation. So that's like 7% or 8% nominal growth. So is it fair to say that the US economy has re-accelerated from the trough in the summer of 2022? And if you don't say it has accelerated, why?”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Unemployment rate really moving higher. The nonlinear move that's really a distinct element of recessions, that will be a Q1, Q2 event. And as crazy as it sounds, we think that we could see the unemployment rate above 7% by August of 2024.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Will this metastasize into the broader economy, or will it become a big enough deal that eventually we get a recession and starts to hit incomes and consumption and so on and so forth? And I think that the answer is yes, and that's what the Fed wants. And one way that you can tell is that they're continuing to signal they're going to raise rates and keep financial conditions relatively tight, which has an impact on economic conditions as well. So that's where we think we are in the business cycle. Obviously, the big question is when does the unemployment rate really start to move higher from here? Because that's when people are really going to start talking about recessions. It's when the NBER will start sharpening the pencils in terms of declaring a date. Our model is that Invictus right now say that the headline unemployment rate will actually remain relatively low through the end of 2023. Call it 4% or maybe a touch below. But then the brunt of the damage you're going to see in terms of sort of mass layoffs, the headline, you three.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Able to. So total homesteals are down about 37% from their cycle peak. That matters not just because housing matters, but also because it has a significant impact on the good cycle, the manufacturing cycle. And the reason is because a lot of times when people are buying homes, they're also buying cars or furniture or home appliances like dishwashers or washing machines. These are big, expensive discretionary, financeable items. Really, the items that drive the manufacturing cycle. So when demand for these goods declines, manufacturing companies cut production. They can't cut production forever because you can't run a business without creating and selling goods. So eventually they lay off workers. And that's how you sort of get into the recessionary sort of zone territory, right? Is that job losses start in manufacturing? They may or may not metastasize into the broader economy, but that's how Slack is introduced to the labor market. You get a higher unemployment rate. The NBER makes the form.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Your yield and the Fed funds rate, it's something like 91%, excuse me, 93%. If you look at the 30 year yield and the Fed funds rate, it's about 91%. If you look at even private market interest rates like the 30-year fixed mortgage rate, it tends to have about a 91% correlation with the Fed funds rate as well. So the entire U.S. interest rate complex goes up with the Fed funds rate. It's really the most important thing to watch in terms of just getting the broad interest rate direction correct. And so what happens when interest rates rise? Will the 30-year fixed mortgage rate rises? That makes homes unaffordable. It puts downward pressure on demand for buying new homes. So has that happened? Yes. If you look at the NBA purchase mortgage application data, it's down some 50% from its 2021 peak. I think it was January of 2021. Total homes deals have followed suit, which makes sense. You know, financing home is less affordable, so people can't buy a home for the same price that they used to be.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So maybe I'll take a step back and explain how we look at the business cycle at Invictus because it's sort of unique. You know, macro can mean a lot of things to a lot of different people. So sometimes it's helpful to zero in and really explain what we're talking about. So where does the business cycle begin for us at Invictus? It's really with interest rates. So in late 2021 and maybe even a little before that, the Fed saw that inflation was running hot and they made the decision that they were going to raise rates. They communicated that with forward guidance at first and then eventually policy rates after that. When the Fed raises interest rates or says it's going to raise interest rates, not just talking about the Fed funds rate. The Fed funds rate is the penalty rate or the benchmark rate that influences pretty much everything else in the U.S. interest rate complex. So I think everyone knows that short rates tend to correlate very closely with the Fed funds rate. I think what a lot of people maybe macro tourists tend to miss is that long rates also correlate very closely with the Fed funds rate. So if you look at the correlation between 10”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“So, what has real growth and inflation been doing over, let's say, since October, which was the bottom in the market. Since then, the stock market's been on a tear. Bond market has been performing mediocrely and recently it's been performing very badly. So stocks outperforming bonds, I mean, what kind of signal does that send to the market? And what have you been tracking on the economic side in terms of real growth inflation?”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Debt ceiling, your guests have gone over this in more detail than I don't think I'll go into all the detail, but basically when the Treasury General account draws down that injects reserves into the financial systems, it puts downward pressure on rates. That was a tailwind for financial assets. And then during the banking crisis in March, the Fed obviously expanded its balance sheet to establish these emergency lending facilities that also injected reserves into the financial system that was also a headwind for rates, put soundward pressure on rates. and was a tailwind for the performance of stocks. So long story short, if you get the business cycle stuff right, if you get real growth, inflation, and policy right, hopefully you're going to get a lot of other stuff right as well.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“A lot of the reason that stocks traded down the NASDAQ was down 35%, ARC was down something like 60%. The S&P 500 was down some 25%. And it's relatively easy to attribute that price action to some macroeconomic variables, probably the most important of which was interest rates, right? So we saw real interest rates increase. And depending on which one you look at, upwards of 300 or 400 basis points in a year, the price to earnings multiple, any valuation measure that you look at for stocks tends to be inversely correlated with interest rate. So rates up, stocks down, especially when you see really, really fast moves in interest rates like we did. And then in 2023, it was a little bit of a different story and a little bit more complicated in terms of analyzing the policy. But it's been an interesting year because a lot of the major risks that people were talking about in 2023 ended up being policy tailwinds. So first.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Sure, so I think macroeconomic style investing and analysis has a reputation for being kind of esoteric. And I think that intimidates a lot of people from including it in their process, which I think is a big mistake. And I think it's a mistake propagated by probably people in the industry that want to appear smarter than they are. I think the reality is that there's really only a few macroeconomic variables that really drive the price action for the major asset classes. So think stocks, bonds, commodities, and currencies. What are those variables? Real growth. inflation and monetary policy. If you get those three variables right, you're going to get a lot of other stuff right as well. Of course, forecasting those variables isn't always easy. And in principle, it is relatively simple. I think that actually the last three or four years have been a really good time to be involved in business cycle analysis and macroeconomics because there's obviously been a lot of stuff going on. If we just rewind the clock back to 2020.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Economic circumstances drive a lot of the price action, and depending on the market regime, it can be 70%, it can be even higher. Obviously during recessions, the saying goes that a lot of correlations go to one. So I started to spend more time evaluating the business cycle, analyzing the macroeconomy, and it enhanced my bottom-up stock picking skills. I also found it really enjoyable. After a few good years at Broadrun, I determined that I could create more value out of my own. And so that was how Invictus research was conceived, the firm at which I now work. Invictus provides macroeconomic and market strategy research. It tends really to be almost all top-down, less bottom-up. But that background and bottom-up research is really useful for communicating with my clients. So that's where I am today.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So I actually began my career at a private investment firm called Broadrun Investment Management. Broadrun was much more bottom up in nature. So a lot of my early experience on the job was analyzing individual businesses, evaluating their competitive advantage, their management teams, et cetera, et cetera. It was a terrific job. I really enjoyed it. The three managing partners and portfolio managers were some of the best business analysts that I've met in the business. That said, I did learn after a certain amount of time on the job that bottom-up fundamentals don't drive all the price action for individual stocks. In fact, in a lot of cases, they don't even drive the majority. So that led me to ask, what does? And during my time in the business attending conferences, meeting new people and whatnot, I sort of met some other investors that were more top down in nature, more macro focused. I sort of learned through my conversations with them and sort of a variety of mentors and whatnot that a lot of times it's the business cycle.”
2023-08-28 · Forward Guidance · Business Cycle Slowdown Will Intensify Into Recession | Mike Singleton · IDENTIFIED FROM THE TRANSCRIPT