There Will Be No Recession | Jonny Mathews
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Very pleased to welcome back to forward guidance, Johnny Matthews, veteran macro trader. Johnny spent 12 years as a portfolio manager and partner at Brevan Howard, managing a substantial macro portfolio and was a trader at Citigroup for 11 years prior to that. Johnny, great to see you. Great
to be back on the show. Thanks for, inviting me, Jack.
I'm really glad you are back, Johnny. At the bottom in the stock market in 2022, when everyone was worried about recession, including me, you were a recession denier. When we spoke for the first time on forward guidance in November of 2023, you called yourself openly a recession denier. Are you still a recession denier and why? I
am. And I've you know, I've got quite a few charts that we can go through that will support the case. Of course, I'm aware that the labor market has lost some momentum in the States. And, you know, the worry is that if that continues, you get into this doom loop where household income goes down, consumption growth slows, consumer confidence drops, corporate earnings drop, and then corporate start cutting more labor and so on. And you get into this, doom loop, but the Fed has plenty of ammunition to arrest that. That that's point number 1. But point number 2 is I am very surprised that, payroll
I think it's accurate to say that in 2022, nominal growth that is, you know, real growth as well as inflation was very, very robust, but the real growth collapsed because inflation was so high. Price of oil was at $120. 2023, inflation fell like a stone. And as a result, real growth went up a ton. So nominal growth fell, but inflation fell much more. So real growth went up. And I the same has been true in in 2024. So so when you say q three, the real growth for the Q3 will be robust, I assume you're referring to real growth, which factors into the fact which benefits from falling inflation. In
Corporate income growth, but household income growth has also been quite strong. Household wealth has gone through the roof. And of course, you know, households, really, the savings rate has dropped, but that doesn't mean say they're not saving. You know, they're still saving. The savings rate is down to 2.9%. That it's a fallacy to say, oh, well, all these excess pandemic savings have been spent. You know, they've just been blown on on reckless consumption, and now no one's got any money left. That's just not true. Consumers are still saving something like half a trillion a month. That's that
Right. And it's a little counterintuitive, but a low savings rate means very high rate of consumption, which supports growth. And a dollar saved is is, I think, is less likely to go into investment than a dollar that is that is consumed. And we have a consumption driven economy. I mean, the the savings rate in China is very high and their economy struggles. So in a depression, the savings rate is very high. So a low savings rate is not necessarily super bearish for the economy. Well,
I think the other the other thing you've got to bear in mind is that, you know, people look at this this low savings rate and think, well, this is this is storing up trouble for the future. If people aren't saving money for a rainy day, then then Yeah. You know, they they're not gonna be able to withstand the the the tough times. But household wealth just grew dramatically after the, pandemic. I think it's up about a 3rd in in in 4 years total household wealth. When we look at savings, you know, how much people are saving each month, we don't take account of the return on those savings. We're
I'm totally with you on the savings
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