People Overplaying US Economy Concerns, HSBC's Kettner Says

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Bloomberg Aug 6 05:07 · 6873 Views

HSBC Chief Multi-Asset Strategist Max Kettner says the selloffs are not over yet, but there is going to be a buying opportunity "pretty soon." Asked on Bloomberg Television whether he believes some people are overplaying concerns about weakness in the US economy, Kettner says this is "absolutely" the case.

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Transcript

  • 00:00 You think now you've got a model that that tells us we are in a sell off.
  • 00:04 But the good news is that sell offs don't last very long.
  • 00:07 Is it, are we done then?
  • 00:09 I don't think we're done.
  • 00:10 We're quite done yet.
  • 00:11 But I do think there is going to be a buying opportunity pretty soon because in terms of the fundamentals, nothing's really changed dramatically, right?
  • 00:18 So we're not really seeing things falling off a Cliff.
  • 00:21 In fact, when we look at most of our global
  • 00:23 sort of leading indicators,
  • 00:26 US leading indicators, most of them are still either sort of flat lining or still going up.
  • 00:31 And but yes, there is still, I think on average we according to to our model it's, it's sort of lasts around one month, right.
  • 00:38 The drawdown is around 10%
  • 00:40 in the S&P.
  • 00:41 So we could go a bit further, but of course you know, we've got the VIX already close to 40, right.
  • 00:45 So
  • 00:46 perhaps we're nearer the end and we are already seeing some of our shorter term sentiment and positioning signals,
  • 00:52 particularly things like, you know,
  • 00:53 technicals, things like the VIX futures curve flashing really, really big bias signals.
  • 00:59 OK.
  • 00:59 So
  • 01:00 it's just that it's just a few of them and some others are just really catching up with that and going from very like absurdly bullish levels to sort of
  • 01:09 neutral levels.
  • 01:10 So we really want a bit of like a bit more of a washout bit more of like, you know, a
  • 01:14 further one.
  • 01:15 And that's probably the time we're you start getting OK, a bit more of a washout required before we get
  • 01:19 back to confidence.
  • 01:21 Does you don't sound overly nervous though, Max.
  • 01:24 And maybe some of that has to do with your fundamental view on the US economy and where the weaknesses.
  • 01:28 We heard from Mary Daly overnight saying, yes, where there are, you know, that the labour market is cooling a bit, but it's it's not falling off a Cliff was one of the things she said, although we shouldn't let it get too weak was another
  • 01:38 what what is your view?
  • 01:39 Do you think some people are overplaying concerns about weakness in the US economy?
  • 01:43 Oh, absolutely.
  • 01:44 I think, you know, collectively we probably should, we'll be taking a bit of a chill pill
  • 01:49 because at the moment when we, when we look at it, look at for example, on Friday, the labour force grow grew by 440,000 in July, right?
  • 01:55 And we've seen job growth of 115,000.
  • 01:58 So it's not like we're seeing big job cuts.
  • 02:01 I get it that, you know, companies like Intel and job cuts there, it grabs the headlines absolutely.
  • 02:06 But when you look at like aggregate, look at job cuts, look at layoffs.
  • 02:09 In fact, when we look at layoffs, they're still lower at the moment compared to the lows in the 2010
  • 02:16 as well.
  • 02:16 But is that always a lagging indicator?
  • 02:18 And so by the time we get there, if that's the date of the Fed is waiting for, then the date, then the Fed will be late.
  • 02:23 It's either at least historically, it's either concurrent or it leads by at least like 1-2, three months, right.
  • 02:27 So it's not something where we would say, well, you know, we'll find out in six months that the job cuts have happened, but then the recession was we're already in it or maybe we're already trying to get out of it.
  • 02:36 So I, I don't think so.
  • 02:37 I think in, in fact, when we look at the labor market, what's really, really different and with the, with the obsession around that Sam rule that we've got,
  • 02:45 look, what is different right now is when we look at the Psalm rule, for example, we've never had in the last 65 years in that back test, we've never had a period what for three years it's been gradually increasing.
  • 02:55 We either had it sort of oscillating around zero or it explodes,
  • 02:59 right?
  • 02:59 But we've never had this gradual losing.
  • 03:01 And a lot of that comes down to immigration.
  • 03:03 A lot of that comes down to, you
  • 03:05 know, population growth.
  • 03:06 That's that's been 0.5%
  • 03:09 normally in the last 1015 years on trend.
  • 03:11 And then the last two years we've seen 1 1/2 percent.
  • 03:13 We've seen the labor force grew dramatically, dramatically more and therefore that's sort of pushing automatically
  • 03:21 the the unemployment radar, but it's not really the layoffs and the job cuts.