Matthews: Credit Markets Show Recovery Is for Real

Jeff Matthews, the longtime money manager, told Yahoo! TechTicker today that he thinks the economic recovery and stock market turnaround may well be for real.

The key to a recovery, says Matthews — who also maintains the popular “Jeff Matthews Is Not Making This Up” blog — is the credit markets. And, he says, “I think we’ve seen plenty of signs that [the credit market market turnaround] is here, and it’s for real.”

As signs of the credit thaw, Matthews cites the fact that the three-month LIBOR rate — which last fall was 5% — recently fell below 1%. He also says the Federal Reserve is successfully keeping interest rates low, and notes that mortgage rates remain very low.

On the anecdotal side, Matthews says a good sign is the volume of email he’s been getting featuring new prospectuses from brokers selling debt or equity in secondary offerings. “That’s money. That’s credit,” he says. “And that tells me that there’s demand for it, and that companies are able to access those markets.” One bank, he notes, even issued debt to pay back government TARP funds last night. “That’s very bullish,” Matthews says. “The government was the lender of last resort last fall. Now the markets are functioning again and able to lend.”

Matthews says he doesn’t try to predict the market’s movements, and he doesn’t know where stocks will be in six or twelve months. But he does think the recovery is real. “I think what you see is a normal, cyclical recovery,” he said. “And I think what you’ll see is it start to spread out into other companies.” Now is a chance for investors to prune their portfolios of low-quality stocks that have ridden the recent bullish wave, and put money into better, long-term investments, he says. Instead of paying attention to the stock market’s short-term volatility, Matthews says to keep an eye on LIBOR and the credit markets, and follow as many company reports as you can to find indications of whether credit and consumer spending head in the right direction.

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