America is in a 'cardboard-box recession,' demand for services is cooling, and inflation could surge again, Charles Schwab's top global strategist says
The Bottom Line
- Jeffrey Kleintop warned of a "cardboard-box recession" and a credit crunch for small businesses.
- Charles Schwab's top global strategist flagged a services slowdown and predicted stubborn inflation.
- Kleintop touched on Taylor Swift, Beyoncé, Space Mountain, and roach motels during the conversation.
Jeffrey Kleintop rang the alarm on a "cardboard-box recession," warned small businesses are facing a credit crunch, and flagged a slowdown in America's services sector during a recent episode of "The Long View" podcast.
Charles Schwab's chief global investment strategist also cautioned the economic picture has changed drastically in the past couple of years, suggested inflation may prove stubborn, and highlighted several other risks to investors' portfolios.
Kleintop touched on everything from Taylor Swift and Beyoncé to Walt Disney World and roach motels during the wide-ranging conversation.
Here are Kleintop's 10 best quotes, lightly edited for length and clarity:
1. "I am a data junkie. I get up in the morning and I plug my Bloomberg in like an IV."
2. "If I'm on a desert island and I can only get one piece of economic data — because what else would you want on a desert island? Maybe you're a Beyoncé and a bottle-of-rum person. I am a PMI guy. I love the Purchasing Managers' Index. I think it's a wonderful tool."
3. "I find comfort in looking at the plunging demand for cardboard boxes. I've been referring to this as a 'cardboard box recession' because things that are manufactured and shipped tend to go in a box, and because demand for corrugated fiberboard — which is what most cardboard boxes are made from — has fallen just like it did in past recessions. So, literally, cardboard boxes are in a recession."
4. "If you're a florist and you were thinking about buying that extra truck and staffing it, it's hard to do that now. Banks are demanding more collateral, higher rates, qualifying fewer borrowers. So, things are getting tighter." (Kleintop was highlighting that many small businesses are finding it harder to borrow.)
5. "We know travel and entertainment have been strong — just ask Taylor Swift. It's been big, but it's coming down. We've heard that from airlines. You're seeing higher vacancies at hotels, more open reservations on OpenTable.com. I live three miles from Walt Disney World here in Florida. You know what? You can actually get on Space Mountain lately. You don't have to wait two hours."
6. "All these signs are indicating that we're seeing a bit of a slowdown in the services sector. That's important because there are 10 times as many services jobs as manufacturing jobs in the US. If we start to see the service sector reflect more signs of this slowdown in demand, well, we might see a weakening labor market, and then that could feed into the retail space, and construction, and so many other areas. Not a deep downturn, but even a small pullback there could really mean a lot when it comes to the labor market."
7. "There's a very different environment in terms of inflation, valuations, interest rates, and credit conditions — very different from the last cycle, leading to very different leadership in the market. We've turned the corner on a new cycle, whether we ultimately define what we're experiencing right now as an official recession or not."
8. "We don't have a lot of experience with QT. It's a little bit of a roach motel. Like you can check into QE, but it's real hard to check back out again. (Kleintop was referring to quantitative tightening, where the Federal Reserve shrinks its balance sheet to cool the economy, and quantitative easing, where it buys bonds to stimulate growth.)
9. "The market is enamored of this idea that everything is going to be turning around quickly next year. We just don't see that." (Kleintop warned that inflation has rarely plunged and stayed flat and low in past cycles, and suggested a period of higher, more volatile price growth was likely.)
10. "We don't know how deep and how broad this is. We have a sense of it, but it's been going on for so long. It's one of those things where you just don't know how many things could get broken when it starts to move." (Kleintop was flagging the risk that Japan may raise interest rates and strengthen the yen, disrupting the popular "yen carry trade" where investors borrow cheaply in Japan then invest the funds for a higher return elsewhere. He warned there could be mass selling of dollar-based investments and other high-yielding currencies and assets.)
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