Ep. 254: Jonny Matthews on US Economy and Why the Fed Will Not Cut in 2025
Feb 7, 2025
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Jonny Matthews, Senior Portfolio Manager at Fortem Capital and creator of SuperMacro, shares his journey from engineering to finance and insights from his time at Salomon Brothers and Brevan Howard. He discusses the potential for low growth and high inflation in 2025, the challenges facing the S&P 500, and AI's impact on productivity and equity returns. Matthews also analyzes global economic conditions in Germany, Japan, and China while offering practical advice for aspiring finance professionals navigating today's complex market landscape.
Jonny Matthews emphasizes the importance of adaptability and perseverance in finance, illustrating this through his unconventional career journey into the industry.
He warns that tariff pressures can undermine the strong U.S. economy by increasing costs while expressing caution regarding the Federal Reserve's monetary policy.
Matthews suggests focusing on strategic investment selection amid volatility, advocating for less extreme market expectations and valuing more stable European stocks.
Deep dives
Journey into Finance
Johnny Matthews' path into finance was not straightforward. He studied engineering at Imperial College before realizing his passion for finance and subsequently pursuing a master's degree in the field. Initially working at British Aerospace, he eventually joined Salomon Brothers, where he thrived in the competitive environment of trading. His entry into finance illustrates how unexpected career trajectories can lead to success in the industry, emphasizing perseverance and adaptability.
Lessons from Career Peaks and Valleys
Throughout his extensive career, Matthews gathered significant insights into the financial markets. He recounted his aggressive trading style in the 1990s and the transitional experience of moving from a major bank to a hedge fund at Brevin Howard. Here, he learned the importance of managing risk without the safety net provided by customer flow business, which taught him to sharpen his focus on market understanding and research. His anecdote about loading up on options before the 2008 financial crisis serves as a cautionary tale of opportunity recognition amid market turbulence.
Economic Landscape Insight
Matthews provided a detailed overview of the current U.S. economy, characterizing it as strong but increasingly sensitive to changes, particularly regarding tariffs. He noted that both household and corporate balance sheets are in robust condition, with corporate debt servicing costs at historic lows. However, tariff threats could potentially undermine growth and raise prices for various goods. He expressed concerns that the Federal Reserve might adopt a more cautious stance due to the inflationary pressures stemming from these tariffs.
Global Market Dynamics
The discussion shifted towards Europe and emerging markets, where Matthews identified distinct challenges for regions such as Germany and China. He highlighted Germany's transition away from Russian energy, which negatively impacted its industrial sector, while suggesting that improved trends are expected as the market stabilizes. In contrast, he painted a bleak picture for China, where a reliance on real estate and significant leverage pose serious long-term recovery challenges. Such dynamics showcase the interconnectedness of global economies and the varying responses to regional economic policies.
Future Investment Strategies
Looking ahead, Matthews emphasized the need for a strategic approach in selecting investments, particularly in light of recent volatility. He recommended positioning for less extreme events rather than anticipating significant market downturns, pointing out that opportunities to buy cheap downside protection in equity markets could arise. He also expressed skepticism about the current U.S. equity market's valuations, indicating a preference for more stable value stocks in Europe. Such insights underline the importance of adaptability and prudent decision-making in navigating evolving market conditions.
Jonny Matthews is a senior portfolio manager at Fortem Capital and creator of SuperMacro, an institutional-level macroeconomic research platform. Before that, he spent 12 years as a partner at Brevan Howard, where he managed a $500 million investment portfolio. Earlier in his career, Johny spent 11 years at Citigroup, leading a team in equity derivatives trading following the acquisition of Salomon Brothers, where he began his career. His expertise spans fixed income, equities, FX, credit, and derivatives strategies, including relative value and volatility arbitrage trading. This podcast covers lessons learned during his time at Saloman Brothers and Brevan Howard, experience of trading before the GFC, thoughts on the US economy – growth, inflation and tariffs, and much more.
