Crypto and US equities in a world of persistent inflation

Transcript

GM good morning welcome to the milk Road show The Daily crypto show where we bring you insights faster than businesses scrambling to rewrite Supply chains I'm your host Jay Hamilton and today we're joined by Johnny Matthews macro specialist and renowned portfolio manager before starting super macro his daily newsletter on everything macro he managed 500 million in assets over at brevan Howard he's got 24 years of professional investing experience and as we were saying before we hit record he also Al was a DJ Gambler at one point just like everybody that's in crypto now even though he's not in crypto himself very deeply but today we are going to discuss everything macro we're gonna get Johnny's view on where we are in the macro cycle where does he think we're

going what's the impact of tariffs how how much of a problem is the strength of US economy or how much of a benefit is it to investing in the US economy right now what about the rest of the world what's going on in other major economies and then obviously also we'll talk a little bit about liquidity is is liquidity coming where does Johnny see capital and money flowing throughout the short-term medium and long term before we jump in everybody please just take a minute subscribe to the channel give us a like give us a subscribe give us a comment whatever you can do makes a big difference for us helps the show grow and get in front of more people and helps us bring on bigger guests now without further Ado Johnny welcome to

the milk Road Show hi Jay thank you so much for having me on it's uh quite an honor to be invited on to this show thanks man appreciate you saying that it's always it's always great to get a somebody from across the pond somebody from the future you know I'm I'm about eight hours behind you so you're seeing the world differently than I am right now I'm seeing the same stuff going on uh okay let's start with um sort of high level you know you've you've been a professional investor for almost uh three decades or decade and two decades and a half and you've been through many cycles more Cycles than most of our listeners have been through for a lot of our listeners this would be their first second maybe third cycle you've been

through more from your view 30,000 100,000 Point View where are we right now in the macro cycle I I see things I see the economy still motoring along a full strength there and I'm talking about the US economy this this is what the the economy that really accounts um it ended the year with very solid momentum at the end of last yearold real income is still growing at a very healthy Pace there are more jobs than unemployed workers more available jobs than unemployed workers corporate and household balance sheets are in excellent shape you know they deleverage after the financial crisis their debt

servicing obligations how much they pay to service the debt as a percentage of their income whether it's corporates or households is as low as it's been for decades so things are really really strong at the moment and I think a lot of people's expectations are shaped by the experience that followed the financial crisis a lot of people think we going back into that low inflation low growth world with low rates and I don't think that's coming back again possibly and I hope not for the rest of our well probably not for the rest of my life you've got some younger viewers uh you know they may see it again um but certainly not in the short term I I don't see that coming back so I'm quite

constructive about us growth but of course there are impediments and my biggest concern is obviously White House policy um we don't know if Trump genuinely believes that by threatening terrist he can bring manufacturing back to the US I mean that is to me that's that's crazy I doubt very much it's going to happen um so is he is he threatening these tffs as a negotiating tool to try to you know tighten border border security reduce the flow of fenel from from China Mexico Canada even uh or does he genuinely believe we can bring

manufacturing jobs back to the US that remains to be seen But on so far the fact that he's given Mexico and Canada a one month reprieve is a good sign um let's put it this way there are certain industries in the US that would be really catastrophically affected if these 25% parites um with Mexico and Canada took place um I was reading a report from the Kato uh it's a Kato Institute of economic research consultancy talking about the complexity of the auto supply chain and for example a transmission a car transmission system

or an engine can crisscross the border between the US and Mexico or the US and Canada seven or eight times before it ends up in a car oh my God yeah now if you applied a 25% tariff each time it came across that's crazy yeah but even even if it's just once I mean it would be you know just impossible to track you know that that and even simple component in this research paper you know they track the path of a little Electronic Component that gets imported on the west coast and to Mexico to be put into a circuit board sent back to the US then it goes back to Mexico backwards and forwards ends up in a car seat that ends

up in a car you know these Supply chains are so complex and interwoven it's it's just really as far as I'm concerned it's impossible to break them and the idea that you may be able to get um us workers to do these jobs that are being done in Mexico I'm not sure what they get paid in Mexico but perhaps it's like five bucks an hour or something you're not going to get those jobs uh you won't get people in the US to work for that kind of money so both countries are much better off and this is a fundamental um principle of fruit trade both countries can be better off the Mexicans have more work orbe it it's lower paid but it's

probably good jobs compared to elsewhere in Mexico and the US are able to focus on the higher value added products the the manufacturing processes that require more complexity more um perhaps more a more educated Workforce and both both parties are better off so that in a nutshell is how I see the US it's it's it's a really strong economy and I hope that Trump realizes you know if it ain't broke don't fix it just you know just he's inherited a wonderful economy and all he's got to do is basically stay out the way and let it let it carry on it certainly seems to be the general

consensus from at least our world and the guests that we're having on the show that the tariffs are a negotiating tactic that it's feels unlikely that I mean we'll see Trump is obviously unpredictable and nobody can put themselves in his mind only he thinks the way he thinks but that's that seems to be the general consensus when you talk about the the US economy what what's driving the strength of the US economy what has made them really take these leaps when so many other economies which we'll talk about later in the show are are not in such a strong position well I can actually pinpoint one factor and it is productivity growth

um a Fed study between 2019 and 2023 looked at what what the the secret Source was for how the US outperformed the other economies and they looked at total GDP the total growth in GDP over those four years in Canada European Union us um I think they might have included the UK I don't remember what I do remember is the thing that really US GDP far out scrip the other major economies and the thing that powered us growth was productivity improvements productivity barely improved at all in Canada you know the increase in

productivity was just purely driven by more people working more people went to work each person didn't produce more stuff there were just more people working in the US you have more people working and much better output per men hour much much improved output per manh hour and you know the FED researchers were trying to figure out how this could be and it really the conclusion they came up with was that in the US there is a much more flexible labor market and when the pandemic hit 20 million people were fired instantly just gone I'm not sure about Canada but in in the European Union in the UK we had all these kind of

um subsidies given to businesses t to hold on to their workers we wanted to retain the the bond between the worker and their business in the US just fired everybody everybody got uh generous stimulus checks they got uh unemployment benefits and so on and people had time to find a job that was more suitable to their skills and they called it a sectoral reallocation of labor was that's what they said was responsible you basically threw everything up in the air gave everyone a chance to find a job that they're better suited to and and you know for companies to find workers that were better able to do the jobs that they had on offer and you ended up with a much more efficient

Workforce very interesting so so growth very strong in the US very strong which sets up the rest of sets up a lot of the markets that we invest in and particularly crypto which is really denominated in US Dollars mostly uh sets set sets us up very well what what about liquidity and inflation in the US what are your thoughts on those factors right now well well actually this is very interesting we had of course we had a period of very low stable inflation between 1 and 2% a year and those 10 years also leading up to the pandemic then we had the pandemic and inflation

really took off not only in the US but everywhere else and the value of of fixed income invest really got destroyed over that period I have a chart you know with everything starting at 100 in say 2015 showing the performance of everything that is not the dollar basically so whether it's gold crypto assets equities um real estate everything was an anti-d dollar trade and you can see the Consumer Price Index you know just going from the you know up and up and up it it really took off in 2020 made a strong strong L Lurch higher and you know carried on at a you know reasonably um

steep incline but everything else if you are out of out of dollar you know out of fixed income assets whether it's treasury bills or longer term treasury bonds you did very well you did very well if you're a treasury investor in terms of your total return um over the last few years it's been it's been it's been negative it's been awful absolutely awful and I think you know obviously there's still some kind of anchoring some sort of biased expectations of investors that we're going back into that low rate environment I happen to feel that with us running such large deficit and with other countries you know the large

deficit um it's going to be difficult to get inflation back down to the Target and although the FED says you know we're not going to change our 2% Target I think in reality the FED would be happy with 3% inflation rate um as long as the labor market doesn't fall apart I don't think they're going to try and BR Drive inflation all the way back down to 2% if it means crushing the labor market so we could be in an environment now where we we have 3 to four% uh inflation over the next few years in which case investors need to think very very carefully where they part their money

um you know it's it's investors look at overnight rates of say you know four and a quarter four and a half whatever they are uh and think well okay I better get out of these overnight rates extend in maturity because it you know F it's going to take rates down a long way um I need to lock in fixed rate that's available on a a 10e treasury bond 4.4% let's lock that in while it's still there but I think that could be a mistake St I think we could be in in in an era of not saying permanently but persistently High inflation and high rates it certainly feels like that is the direction that we're going uh it

almost if it feels like we have created this this environment as a result of you know consistent debt growing debt no solution to that a need for the US government and other governments to continuously print money to try to deal with their debt some form of QE it it feels it almost feels inevitable that we're going to be in that that this period of continuously High inflation is would that would you agree with that well yeah I mean I disagree I think you said at the start of this that um there's no way out of this there is a way out and um after the second world war the UK I think the

debt of GDP was something like 260 % and the way we got out of that was a period of very high nominal GDP growth so that's a mix of real growth and inflation because your debt to GDP is denominated in nominal terms you know if there's a 100 billion let's just say B round numbers 100 billion of treasuries outstanding and your GDP is 100 billion um you always you've got debt to GDP of 100% if you can get your nominal GDP to grow um at a reasonable Pace at a faster Pace than you're paying interest on that debt you got a chance of of reducing the debt to GDP ratio and that's effectively what

we did after the second world war um and I think that quite likely the way that um the advanced Economist will reduce their their debt pile um it's been effective in the past and I don't see why it shouldn't be effective again and that means that we are you know the central banks will perhaps be go easy easier on inflation than than they would have done in the past they will allow inflation to run a little hotter as long as the econom is running hotter and and that way you can you can get your your your debt back under control want to let's let's chat a

little bit about the rest of the major economies we've focused on America so far what's what about the rest of the world what's going on in the other major economies that aren't in such a positive growth point right now I'm um could World be wrong but um I'm I do expect the Euro Zone to to start showing more signs of life um had weaker than expected DDP in before the end of last year um but now real income has been growing in a decent uh healthy clip you know wage growth has outpaced inflation for the

past year or so and yet the savings rate households have just been saving more of their income so we haven't really seen a big pick up in in consumption I'm hoping that with a bit more political stability in France and after the German elections are out the way maybe households will feel a little more comfortable about spending the these gains so so I'm more constructive probably than consensus on the Euro zone I'm quite concerned about the UK I'm quite concerned I don't know if you're aware we our Chancellor increased the company's National Insurance contributions this is effectively just a payroll tax and the pay paid by companies on the salaries of

their employees and it went up by around 8 and a half or it will go up by around eight and a half% from this April wow yeah big jump big jump and on top of that the there's going to be a a minimum pay hike as well so total employment when you look at um hmrc our tax tax collecting uh Authority they keep records of um total pay number of payroll employees and that reached a record uh record high at the end of last year something like 30 30 million something

like that it's declined by 30 or 40,000 for two consecutive months now and what I think what I think is happening is that employers in advance of this payroll hike are scaling back hiring certainly and maybe shedding a bit of Labor and I it's not just there in the official statistics I know anecdotally from small business business owners are that I know who are closing down businesses or you know getting staff where they can I think it's a catastrophic policy that's been put in place by by our our government but uh that's what we've got to live with and that's why I I am particularly negative on the UK so we've got we've got we've

got Euro Zone behind but possibly picking up French elections German elections hope will be out of the way fairly soon uh you K that's pretty scary that situation I wasn't aware of that uh what about Asia what's going on over in Asia I think the um the elephant in the room of course is China and um you know for all these stimulus efforts at the end of the last year um it's not it's the data that more recent data that we're seeing it's not very convincing that they had much of an impact um the purchasing managers indices most recent ones were slightly weaker than the prime month I don't

think anyone believes the GDP figure the last year you know that the Chinese the PBC has a 5% Target and and GDP GDP miraculously grew by 5% last year pretty s nailed it nailed it right sad easy the real estate market there has been you know declining for you know something like 18 months it's going signs and bottom out but you know when you look at the prior experience of countries countries like Spain that had so much of their economy dependent on the real estate market Spain did in in 2008 and then was hit really bad by the

financial China has a similar had a similar proportion of their economy dependent on real estate either directly or indirectly now the the the market has you know it's it's it's I won't say it's collapsed but it's really you know it's been declining for a long time I'm not sure that the stimulus efforts that they've taken can really turn things around uh significantly so you know you can draw analogies with Japan um from the late late 90s when mid90s when it went into a very serious downturn real estate Bubble Burst and uh they had periods of deflation um and a you know two decades

of stagnation really I don't think China will be quite that bad but um the prospects are not good let's put it that way so when you when you zoom out what what does this say to you as an investor what do you how are you taking all this information of a strong US economy with a new we haven't even really talked a lot about Trump yet but with a you know a new a new office and a a real accelerationist office that is really focused on pushing the economy and there already strong and looking like they could just get stronger and then you

have these other economies struggling like H how do you process all that and and take it into actionable inputs as an investor well I think I think I think what's interesting is um some of the D regulation steps that the Trump Administration is is taking May well be um copied elsewhere and um there was a an editorial in the financial PES last weekend co-written by um lagard head of the ECB and uh Bond Deion uh EUR the um European commission president at set you know setting out all the steps that the the Euro Zone needs to take to become more efficient

and more Dynamic so you know talking about um deregulation um more open and efficient Capital markets and so on really trying to um replicate replicate the kind of policies of the US more closely and certainly um you know the the financial regulations uh governing um uh Dei policies you know ESG investing and so on they are quite I don't want to say ridiculous but you know there are certain yeah I mean they are they're heavy they're yeah they're constraining they they're not yeah they are I me if you

want yeah go ahead sorry if you want to label yourself an ESG compliant fund you have to really jump through hoops and then everybody in the market has to learn understand the regulations concerning ESG funds and so on and be familiar with them so there's all these compliance requirements on everybody else as well well you know Trump's going to do away with that and you know we'll have to follow suit I think we will have to follow suit and so a lot of the the deregulation that takes place in in the US May well be replicated uh elsewhere and and are the other economies capable of that to me America is uniquely positioned because Trump is

is a unique human who has been able to achieve things very quickly because of just his his his ability to push forward and kind of you know For Better or For Worse it depends your perspective and I know it's not good for everybody necessarily but certainly as an investor who favors open free markets that have Innovation and have opportunities Trump is really pushing in a way that I just I just don't know if like can Euro can Euro Zone do that and China definitely like there's just no way that China could do that in my mind I think realistically no I doubt very much they can do anything like what

Trump's Banning doing um they'll they'll maybe discuss it and and some policy steps they they will have to take they will absolutely have to they're not going to be anywhere near as dynamic as the US economy not a chance but by the same token Trump can't get away with just doing anything he wants he's he you know certain things he's got to get through Congress I know he''s got this um ability to use these executive orders and find something in the in the Constitution that allows him to just you know just Ram stuff through um but he's going to have legal push backs to to to some his his policies but yeah I mean I I do tend to agree with you I think you

know the Republicans have got a majority in both houses certainly for the next couple of years yeah short term yeah yeah so it's it's opportunity to do some big things in in his first 100 days you know to really leave his Mar so where does this leave you then so we've got a a situation where it certainly seems like America is very set up great they're they're at a great point right now you've got a this new rationalization from Elon Musk and Doge and all these things happening very very quickly which to me says okay is the gap just going to get bigger here

and does that mean that American equities and possibly crypto and the American Tech is that the place to be investing and to be focused right now well first of all you hit on a number of things there first of all let's deal with The Gap is it going to get wider between us and the rest of the advanced economies not necessarily not necessarily I think they'll just stay wide I don't know if it'll get any wider I think it's about time Europe really B some catching up Japan is also looking quite perky now so um so you know I think there is the opportunity for the rest of the world to sort of deep Pace you know not not allow

the Gap to widen when it comes to um us equities I you know we we've just had two consecutive 25% year on-year um Can it happen again can it happen again like is that even possible no but then you know if you'd have asked me this last year I'd have said no it's not gonna happen again but right but you but you you know you have to take account of valuations you know when you're valuing equities I know th this hasn't counted for the last couple of years but generally we look at the p ratio and we look at earnings forecast so forecast earnings over these two years have only risen by about

20% the PE Ratio has gone up by 30% so the two you know we push push the earnings up by 20% and the multiple that we put on those has gone up by 30% that's where you get your 50% increase in the value of US equities over those two years I don't think you can push that much further um I think I'm not saying it's a Breaking Point and I'm not suggesting we're about to have an Almighty pullback in the in US equities I actually think um us equities are going to have a choppy year certainly choppy six months you know we're going to have these these you know one two 3% pullbacks and then then recover and it's

going to be difficult to trade that market um I think there may be better opportunities elsewhere um while the countries themselves don't have um great the same sort of growth potential most of the large companies that comprise the major industries in Europe and and UK certainly they are primarily exposed to the global economy not the domestic economy so you're not really you know when you buy a UK listed company it doesn't have much of a UK presidency primarily focused outside of the UK so I think there're you know and these these stock markets are on much lower valuations there may be better opportunities there this year interesting keep it going well I I

you know I was going to say I and I don't think I really what I really don't think is that you want to do the super conservative approach of putting all all your money back into cash to to grab the you know four and a quarter percent yield you don't want to you know move to the sidelines and say it looks too scary out there I'm going to stick it all in in TT why do you say six months uh what happens in six months and I ask this because I'm kind of asking everybody this right now because this this seems to be a consensus is that everybody a lot of uncertainty right now yes the setup is good it seems like everybody's yeah pretty bullish setup in the US but a lot of uncertainty Trump a lot of

reasons why there a lot of uncertainty and and liquidity is going down not going up right now so there's this okay seems like chop is the consensus for the next six months what happens in six months though or when at what point do you think it changes difficult question and the reason I say okay for the next six months I think we've got a reason strong economy is that anyone that really says you know I'm looking my oneye forecast or my 2026 forecast I mean it's nonsense is just not worth anything who the hell knows I honestly nobody's got a clue and you do see these forecasts I mean all the central banks put out these forecasts or you know their their interest rate and

inflation and growth and everything I mean you you'll see from the FED at the uh the March meeting nobody's got any idea what's going to happen out there really none whatsoever so for me you know I'm just you know I can say okay the next six months looks okay but we have you know obviously we got no idea what's how things are going to evolve over next six months and then what about liquidity talk to me about liquidity for a second are we going to see coming into this year was a lot of people predicting and as you said you know predictions are like buttholes everybody's got one but that's what we love on this show I won't deny it uh a lot of people predicting

that we are going to see a surge in liquidity in 2025 with a big reason being this four-year debt cycle and we're coming up to a lot of that debt coming to maturity in sort of midye 2025 to for to into 202 six so a lot of people predicting increase in liquidity but right now liquidity is going down what's your thoughts on how liquidity are we going to see a surge in liquidity this year I look I mean these these Debt M the US debt maturity profile you know it's continually being refunded you know there's like 106 billion of uh coupon bearing Securities mature uh in February

I think and you know they'll be 125 billion issued it's continually being refinanced you know and and pushed out to kicking it down the road basically down the road yeah that's it's a continual process so you don't run into a kind of um a wall where everything's suddenly coming up to expiry and you got to you know somehow issue a whole load of debt um it's a continuous process I um I don't see I I'm not an expert I'm not one of these guys that follows liquidity and and the um the monetary Aggregates like N1 and2 and3 and all this there are there are um places that do that but I've never found it never been able to interpret it and

find it useful from a trading perspective and and the same for liquidity different measurements of liquidity I I just you know ridic difficult people warn about liquidity is drying up or it's increasing or whatever and I I've never found it useful in my trading I you know I kind of kind of focused on the bigger picture where I can let's play out you're obviously being a a longtime investor you make decisions based upon probabilities and risk reward give us your what are your scenarios so one scenario is chop for the next six months what what are your other scenarios that are kind of bubbling around in your brain that you think might happen in the in the short to medium

term um I think it's um low probability but it's priced that way is that we get a Resurgence of inflation maybe maybe due to threats of tariff maybe due to uh tight labor markets you know TI for immigration you know it's difficult to find the workers that you want in the US wages start growing up maybe going up maybe we get an increase in inflation that's it's a low probability but it's priced that way nobody expects the FED to like this year let's put it that way that's really a tail risk but I think it is a genuine risk that um maybe

inflation starts to pick up again and I don't want to underestimate the um the impact of these immigration controls a tier immigration controls for example in the construction sector in the US something like 30% 26% of the workforce are immigrants and roughly half of them are un undocumented so that's one sector oh yeah yeah that's one sector right there I mean if you spend any time in California you you know you can see most of the construction workers they are Mexican without doubt so that's one sector that it's going to struggle to find workers that it needs it's going to have to pay up if it you know if there

aren't the um uh say lower cost immigrant workers available you got a high domestic workers they're going to demand more money and I think you know you're going to see the same face by the agricultural industry and um the Leisure and hospitality industry shortage of of load and let's put it this way something like 80% of the avocados that are consumed in the US come from Mexico so and there's a good reason for that you California can grow avocados but you can't get the workers to pick them so it's much much more straightforward throw them in

Mexico get them picked and and pack packaged there and Shi them to the US um so I think I think these these policies these type of immigration policies will have an impact on labor Supply restricting labor Supply should push the price up so that's one source of inflationary pressure right there rationalizing Supply chains is another source I mean this is kind of a wakeup call whether the tariffs go ahead or not the supply chains the some Industries are so hugely complex that you know they are severely at risk from any disruption I mean we you know we've seen it once before during the pandemic you've can

get semiconductors for the car car industry so you know incrementally we need to do something uh to rationalize the supply chain the Tariff at the moment you know Trump's inre inre the the tff by 10 percentage points on China part of the reason that Goods price inflation was virtually non-existent uh over the past two decades you know prior to the pandemic was that China was replacing more and more of the goods that that you buy or us consumers buy with cheaper manufactured products so you know each each year some other products were being

replaced with something that was manufactured much more cheaply in in China but if that process goes into reverse that will exert upward pressure on on Goods inflation so there are all those impediments to getting inflation back down to to the Target and to me that is that is a risk that you know the Market's expecting one or two rate cups from the fed this year more than three from the the ECB I think that there is a risk that those break cups don't take place um well not to the extent that the market expects and if that played out what would that look like well I think this is why this is why we're going to have a

a choppy uh Equity Market um I think I think it will play out if growth remains robust um that that's when you got the biggest risk of that happening so the equity Market is going to be caught between two opposing forces one where you got solid growth continued solid earnings growth and disappointment that rates are not going lower so you know that that will keep the the US Equity Market in this kind of in in a well a reasonably narrow range for the whole year that those are the kind of that that's a scenario that you know I think could well play out now the other

scenario is I'm completely wrong about this and you know what happens is you know I've I've been for the last two three years laughed at on some of these podcasts by saying you know there's no recession in sight believe me you know a couple of years ago that was quite a radical view um and now you know I still don't see a recession coming but it's becoming more of a consensus view what if I'm wrong and and everyone else is wrong and something happens something causes a slow down in employment growth maybe maybe company is become really concerned um by the threat of tariffs they pull back on the capex spending they pull

back on employment and so on and things start going into a downturn and consumers likewise become concerned over the Outlook well then all bets are off then then you're going to see a really ugly situation where I think you know obviously fix Inc rally but everything from from every is to crypto and everything else uh will decline gold will probably do okay in that scenario um I think crypto I think the risk factor in it overwhelms the um the need for low interest rates I mean I I just don't think it's got any correlation with interest rates at all it's just you know risk on you buy crypto simple as that yeah yeah it's uh it's it's a

difficult Market to to understand right now it's uh it's C I mean and that's nothing new uh if investing was easy and understanding markets was easy everybody would do it right we'd all be we'd all be rich uh but it certainly feels it feels like there is um a not a not as much consensus as there was maybe last year around what we might see coming into this year definitely there's a lot of momentum right now a lot of momentum and a lot of excitement uh in just happening around around Trump and the impact that he is having uh so quickly and delivering on a lot of the things he

said but it does it does certainly how do you position are you are you pulling out into cash right now are you more sitting on the I mean you said you don't want to pull fully out into cash I don't think anybody should ever do that what how do you position your portfolio right now that's a great question um I if we rewind the start of last year there was a lot also a lot of uncertainty and um a lot of fears of recession um and if you had a pretty strong conviction that the recession wasn't going to happen you had great opportunities really you could be short fixed income you be long equities you could expect equities to outperform

treasuries you know there were there were plenty of things to do where the risk reward seem to line up quite well now I think the risk reward is not so appealing for that trade um I am still short referes because my view is that you know that the the P won't be able to reduce rates at the pace they'd like to and and inl in St a chance of picking up again my other my other strong view is on on the pound you know I have been had some Sterling put options and on Monday you know they they'd sort of gone up by four four times what I paid

for them and I sold half sold out half the trade kept the balance but by by today you know that's just gone to you know dollar it's gone it's just gone it's like that stealth part part get I don't know if you've seen it where where Cartman goes into see the bank manager and gives him his money and and it's gone it's gone yeah oh my gosh it just move it moves so so fast right now so fast do you find you do you think that we're when when you zoom out a lot of these you know Cycles can Cycles can be a year Cycles can be four years Cycles can be

10 years 20 years when you zoom out right now do you feel like we're entering are we in a different time than we've been in previously in your life are we entering a new period like do you see like these like larger shifts happening I think they're all diff different I don't think you know people like to try and do a kind of overlays you know overlay a chart of something in the you know '90s with the current situation and say well okay that's that's how it went then and that's this is how it's going to go now but I think each cycle is different each cycle is really different what I would say is this that you've got to bear in mind that it takes a lot really a lot to put

the US economy into a recession the natural course of events is for people to become more productive and the economy to grow um and and that's just the the general Trend um if you think about the recessions that we've had over the last you know couple of decades you know it it took a pandemic it took a global financial crisis um you need something pretty catastrophic to drive the economy into a recession the other thing that I would say is that leverage just leading into that financial crisis was was pretty EXP people were you know I mean anecdotally you you would hear in 2005 or 2006 of these

fairly low paid workers you know maybe I say $20,000 a year buying $400,000 condos several of them you know and lying on their mortgage applications 100% mortgages and so on and and and the game at that time and and they were doing this for years you know they were doing okay from it because they would just sell one and then they do it again and you make money and keep making money and more conventional householders that had a house with a mortgage and the value of the house went up so they just remortgaged took a bigger mortgage and went and bought a speedboat or you know jet ski or whatever it so household leverage just kept going up and up and up corporate leverage was also very very

high and as soon as as soon as things slowed down just a bit as soon as people suspected the game was up there was no way to get out of it the housing market just collapsed there was just no bid you know you just couldn't get out of the house that you wanted to sell we are nothing like in that situation today we really aren't and the average rate on all the stock of outstanding mortgages is is 4% people refinanced into lower lower mortgages as as as the rate went down and down soon after the pandemic and when the mortgage rate went up and up it's now 7% they stayed they stayed put they didn't move home you know that's why

housing transactions are fairly low so people are looked into these very low rate mortgages the mortgage is a very low percentage of the total the value of the house I mean house prices doubled over the last 10 years so you know the the average household is is in in great shape and household wealth is at an alltime how High household wealth to income is extremely high um and that's why know consumers there's not such a need to to save as as fast as they might have done previously they can they can carry on

consuming and enjoying their lives which which would say everything's pretty good I mean certainly certainly I like the comparison to the the previous collapses the previous bubbles that have burst and just knowing that we're not we're not in that type of position right now that is that is reassuring for sure uh Johnny it's been it's been an absolute pleasure to get you on the show today really appreciate your time and your thoughts everybody if you're not following Johnny you can follow him on Twitter at supercro uh and also you can check out his newsletter if you want daily note on everything that's happening in the macro World we'll throw

a link in the show notes let us know how you guys feel about the current macro setup what do you think about the US the Euro Zone China how do you guys feel and do you want us to talk more about on the show as always we do this show for you Johnny thanks again for joining us today it's been a pleasure thank you so much thanks for listening in everybody have a wicked awesome day as always if you liked today's episode please hit subscribe and make sure you follow us you don't miss out on the next one there's also a link in the description to our free 5 minutes daily newsletter will we simplify crypto for you while making you laugh and if you're willing to step up your crypto investing game we're going to also leave a link

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