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Up until recently, runaway inflation was all anyone could talk about.

Suddenly, now everyone is fixating on the surge in bond yields, worried that they’ll continue moving even higher.

Have we made a permanent shift to an era of higher cost of capital that will constrain economic growth?

Or is this spike in yields a transitory one? And those hoping for a Fed pivot & a return to lower interest rates finally get their wish?

For answers, we’re fortunate to sit down with Danielle DiMartino Booth, CEO & Chief Strategist for Quill Intelligence. She was a former advisor to the Dallas Federal Reserve during the great financial crisis, working with Richard Fisher, and she’s author of the book Fed Up.

Follow Danielle at


Danielle DiMartino Booth 0:00
So slap me Adam, if I use the term Perfect Storm, it’s overused. The fact is we’re seeing companies closing bankruptcies re erupting what we had 10 in the month of July, and we’re on track to have 29 in August, in terms of companies closing on a per diem basis, according to daily job, which has been around since 2009. We had about four or five companies, locations closing per day, throughout the summer months, it’s kicked up to nine per day, in August. So we’ve seen a definite turn in terms of money that is coming out of the economy, you’re taking away people’s income producing capacity, at the same time that the employee retention credit went from 30 billion in the month of July, an all time record being pumped into the hands of high net worth individuals. Thank you, Mr. O’Leary, Wonder Man, to right now we’re running closer to $17 billion. As as the IRS commissioner has come out and said, We’re gonna get a hold of this. And we have, in fact, we’re speaking to Congress about stopping it. So things are changing, and three different ways they’re changing happened to be happening at one time.

Adam Taggart 1:23
Welcome to Wealthion and Wealthion founder Adam Taggart. Up until recently, runaway inflation was all anyone could talk about. Suddenly, now everyone is fixating on the surge in bond yields worried that they’ll continue moving even higher. Have we made a permanent shift to an era of higher cost of capital that will constrain economic growth? Or is this spike in yields a transitory one, and those hoping for a Fed pivot and a return to lower interest rates finally get their wish? For answers. We’re fortunate to sit down with Danielle DiMartino Booth, CEO and chief strategist for quill intelligence. She was a former adviser to the Dallas Federal Reserve during the great financial crisis working with Richard Fisher. And she’s author of the book fed up. Danielle, thanks so much for joining us today.

Danielle DiMartino Booth 2:14
Great to be back with you, Adam. You couldn’t have any better timing right now with that question of yours.

Adam Taggart 2:19
Great. Well, look, it’s always a pleasure to talk with you even more of a pleasure to talk with you about a timely topic. So let’s jump right in. Before we get to bond yields, though, let me just ask you the kickoff question, I like to ask you at the beginning of every one of these discussions, which your current assessment of the global economy and financial markets.

Danielle DiMartino Booth 2:38
So, you know, right now, I think the global economy is as close to being in recession, as it’s been pretty much since Oh, 809. The differentiating factor that I would throw out there is, is that the Federal Reserve is not about to launch zero interest rate policy for the first time. And China is not about not about to spend enough money to pull the rest of the world out of its global recession. So yeah, I mean, that was one long sentence. But it says a lot

Adam Taggart 3:09
about are two normal saviors are not coming to the rescue. Exactly,

Danielle DiMartino Booth 3:13
exactly. And I think that that is the differentiating factor between then. And now they’re completely separate from one another. But boy, do they get related when aggregated?

Adam Taggart 3:24
All right, um, well, look. So we have this interesting moment in time here where I’ve asked this question of a few folks recently, I’m dying to hear your answer. So first off, you said we’re basically on the precipice of recession right, which is interesting, because you read the headlines, and of course, they dialed hard landing down to soft landing now to no landing at all right. So it’s certainly not a recession, the markets are pricing in at this point. But we’ve had on the monetary side, Jerome Powell and the Fed jamming the brakes, right with this historically aggressive rate hiking campaign while qt is going on. You have the banking system concurrently placing its foot on top of the Feds foot on the brake pushing down because they’re tightening lending standards. Mostly because they just want to protect themselves from from bad loans. Right. So that is pushing hard on the brakes yet over on the fiscal side, right, we’re running one of the highest deficits we’ve ever run certainly on as a percent of GDP. It’s one of the most aggressive you know we’ve ever had. We’ve never had one this aggressive from that standpoint, with unemployment this low. So we have this very weird mismatch where the fact that we’ve got the monetary breaks being pumped while simultaneously we’re jamming on the economic gas. What dynamic is this creating and how long can you do that before you start really having some some big issues that that are undesirable like a resurgence of inflation from from the fiscal stimulus?

Danielle DiMartino Booth 4:55
So I think that I think that there are as you say, several times and it makes what what you didn’t mention is that it this is peacetime. So historically we

Adam Taggart 5:07
have graduated, it’s hard to jump in. But I’ve said many times. In fact, in the intro to my last video, we have a wartime deficit in a peacetime economy.

Danielle DiMartino Booth 5:14
Exactly. Exactly. And and what’s interesting is, when you’re running wartime deficits, all companies are lining up to do what they can to do their share for Uncle Sam, because it’s the patriotic and the right thing to do. Because the Biden administration has, has kind of handcuffed a lot of the initiatives that have come out with the inflation Reduction Act, with ESG and dei initiatives, say what you will. But there are several well known companies that had been burned recently by trying to cross the line into being political rather than to just serve their shareholders. So you’re not going to have the same uptake as you would otherwise. But what we are seeing currently in the here and now is the vestiges of the infrastructure spending. And when you look at non building, and that’s actually a term it means it means construction activity that doesn’t actually create a structure, create a building that goes up create a home that you that you that you’re living in. But when you tangle that out of the Dodge construction data, on a monthly basis, you’re seeing that non residential construction and residential construction are down year over year, but that’s being almost fully offset by infrastructure type of spending. So that’s a 12 to 18 month lag. And that’s why we’re seeing more stability than we would otherwise. Right now, in the US economy. The reason I bring this up, Adam is because there will be a lag effect to the inflation reduction expending, which is the next big level of a fiscal stimulus. We hear about it, the government is spending it but we’re not seeing it manifest yet in the US economy. But again, the recipients are not necessarily as you would have seen in more time, across the board. Some companies are cut, some companies are going to stop back and say step back and say, You know what, I don’t want this funding. I don’t want the I don’t want what’s attached to it. Because I live in fear of my shareholders revolting and or worse, the people who buy my products. So again, this is this is this is a transmission mechanism, type of situation that I think people have to distinguish when we were pumping wartime spending levels when we were pumping $7.6 trillion into the economy on a trailing 12 month basis, as opposed to what we’re doing right now. 6.7 trillion. I’m citing Michael Hartnett a bank of Bank of America data, that first huge push into the economy was bypassing the banking system and going directly into households checking accounts that ignited real inflation. What we’re seeing today, though, it’s going to go through companies and eventually to the end consumer, many of whom are going to be unionized employees, and it’s not going to have the same immediate and direct and, as I would say, efficient impact if you’re talking about fiscal policy transmitting to inflation. And that’s why I follow this gauge called True flexion. The people who run the gauge, they were kind enough to give me the data back to 2012. When it first came out, if you look at at the correlation, since it was introduced, January of 2012, it has a 97% correlation with headline CPI. Well, guess what it’s ticked up quite a bit from about 2.1 to about 2.7, in very short order. But if you look inside the components of deflation, that really is a gasoline prices at the pump situation. Whereas food prices are actually declining. Of course, food prices are twice your input, that energy are into the CPI. And shelter is declining as well. That’s mainly an apartment story. And you’re starting to see more and more references to apartments over supply. We’re starting to come to that recognition phase before it was just like, well, we’ve got a million units in the pipeline. And it was nice and theoretical to talk about now they’re actually completed and the units are opening and competing with existing multifamily units. So we are seeing that actual deflation come down the pipeline, of course that’s 40% of your CPI. So I would argue that the fiscal stimulus is indeed something that has taken a lot of attention of investors. But by the same token, it will not act as immediately as what we saw with the pandemic crisis response, as we see and I posit that while we’ll have some base effects going into the fall in the inflation numbers, that the areas that are that are seeing disinflation and actual outright deflation apartment rents are going to be stronger, they’re going to be a stronger drag on that, especially as we see the labor force continue to deteriorate, which is not a figment of my imagination, Adam.

Adam Taggart 10:23
All right. Well, we’re gonna talk about that labor force in just a second. Let me let me just summarize what I think you said. And correct me if it’s wrong. You didn’t say this specifically. But it’s sort of what I’m taking away, which is the jamming on the gas, right? This this substantial deficit spending that we’re seeing has probably pushed forward in time, or maybe back in time. So further into this year, maybe next year, the recession that we were all expecting at the beginning of this year. But what you’re saying is, is as you look at the continuation of how the deficit money’s being spent, and some of the issues that come with it, like companies, maybe not wanting all the strings attached, maybe not wanting all that money, necessarily, the lag effects of what the monetary side of the house has been doing raising cost of capital, you know, all that, as well as just a lot of the the really worrisome macro data that you and I spend a lot of our time worrying about, you think that lag effect is eventually going to overpower whatever potential stimulative inflationary effect of the remaining deficit spending is going to be. So even though we have crosscurrents, one of them stronger, and is going to win out here in the story?

Danielle DiMartino Booth 11:35
Well, it certainly will be stronger if the Fed holds in place. And that really is all the Fed has to do. The Fed could theoretically later on in the fall, there’s somewhat of a 33% probability that before we ring, the New Year’s Eve bells on January the first 2024, there’s about a 33% probability that we might see one more 25 basis point rate hike out of the Fed. But even that really isn’t going to matter as much to commercial real estate deals that have to be refinanced. And then, beginning in 2024, the reality that runs parallel to that in the corporate bond market. And that starts to be something that is, is rip companies have done a bang up job of extending out their maturities. They did that when the Fed was too low for too long. But you are there is irrefutable evidence in in the bankruptcy cycle right now, in the default cycle that a lot of companies simply cannot even contemplate looking at a higher cost of capital running their companies, I daresay. And I hate shoot myself in the foot here, because I don’t want people to disregard the bankruptcy cycle. But I think a lot of companies are being pre emptive, about filing for Chapter 11. Seeing the writing on the wall over the next six months, and the fact that it doesn’t look like they’re going to have any kind of a pivot that takes interest rates back down to the zero bound. And that’s a lot different than saying, Gee, I wonder if by June of 2024, Jay Powell is going to reduce interest rates by 25 basis points or 50 basis points, completely different dynamic than what we’ve grown accustomed to with his with his three predecessors.

Adam Taggart 13:24
Okay, all right. So this is all a great segue into the topic. I started teed up in the intro, right, which is where our bond yields headed from here. And what will that mean for the bond market for investors, but just for the economy with this higher cost of capital? number of questions for you on this. But let me just start with with what do you think is causing the sudden move higher in yields that we’ve seen, you know, over the past month plus, and if I can, I just interviewed Luke Roman, and I’ll give you his list. And you can you can see whether you agree with it, or you pick anything else out from it. But he said in pretty short order. We’ve had four destabilizing events. We’ve had the price of oil increased by about 20%. We had the Bank of Japan widen out that yield curve control efforts. We had the Fitch downgrade of the US credit rating. And we had the US Treasury announced that it’s going to borrow 1.9 trillion in the second half of this year. And you know, Lucas said okay, those have all sort of contributed to, to, you know, the Treasury buyers getting a little spooked and saying hey, I want a higher yield to compensate me for this risk. Does that summon up are there other reasons why you think that you know, we’re now staring at what a 4.3% 10 year US Treasury on the day that you and I are talking?

Danielle DiMartino Booth 14:45
So, I think that is a good a good synopsis but I venture to say that the Fitch downgrade is actually you should reflect back on what Fitch was trying to say and look at it relative to other countries, and what their position is in terms of being one of these four big ones, as Luke would have put out there, we actually had a full blown debate about this in my Bloomberg chat room with my institutional clients. Just yesterday, and the only thing that we came up with as being kind of definitive for explaining this relatively inexplicable rise in inflation, yes, we’ve seen a move in energy. But But Jay Powell has continued to he’s persistently said he’s paying attention to core services and net of shelter, which means that he’s drilling way down to determine how, how resolute he’s going to be in his monetary policy stance. I think we all know that energy prices move, but they move the headline. And that’s not what Powell has told us his focuses, but the Bank of Japan, that was the one that was the one aspect, the one factor that nobody could really put their finger on how big of an of a swing factor that it has proven to be here over the last few weeks. And I’d venture to say that that is the biggie. And it’s also the least understood because, well, my gosh, how long have you been waiting for this moment. So it’s also the most difficult to determine what the outcome is going to be. But if you look at any gauge, of where the these bond yields are, they are so stretched, visa vie historical norms, regardless of what other series, you want to slap up against them. That something tells you that right now, what we’re seeing is a heck of a lot of positioning, and a heck of a lot of jockeying, trying to get in front of the narratives that tend to rule the financial markets, as opposed to the fundamentals.

Adam Taggart 16:48
Okay, so all of a sudden, we’re seeing, you know, this narrative erupt of, Oh, my God, yields are gonna keep going higher, like, you know, seems like all of a sudden, people are just now beginning to buy what Kyle has been saying, you know, for for a year and a half of higher for longer, right, but now they’re taking the football and they’re beginning to sort of catastrophize in their minds. So the morning you and I are talking here, there’s a Bloomberg article that came out that said, hey, the federal funds rate might need to go up to 6%. Right. So all of a sudden, people are beginning to say, hey, you know, this thing could really take off from here, and you’re beginning to see articles talking about how we’re just in this secularly, higher era of higher cost of capital now, and all of a sudden, it was all about pivot, pivot, pivot pivot. And now, it’s like, wow, just this, we might be stuck with these higher rates for a long time. And, of course, that’s now erupting a debate between weather bonds, and specifically US Treasuries. You know, our, I’ve got, I’ve got basically just as many people on the side of saying, this is a historically attractive time to buy US Treasuries. And this is the time to start going out on duration, and you can make a ton of money while sitting in safety and getting paid. And then I’ve got about an equal number of people suddenly on the other side of that saying, Oh, my gosh, they’re like a roach motel. Why would anybody be going out long duration bonds, if yields are going to be going higher from here for the long run? Do you have an opinion on? What’s more likely? I think you do. But I’ll let you say it.

Danielle DiMartino Booth 18:19
I do. Because I think that that that fundamentals can be ignored for a very long time. And I think that that certainly has been the case. And you know, kind of the the it’s going to be a soft landing camp grew exponentially when there was a resolution to the debt ceiling that didn’t involve bloodshed. So there was this massive relief that came about after the debt ceiling was resolved. And we’re now waking up to the fact that well, okay, how are we going to finance it? And wait a minute, those people who were burned by the debt ceiling resolution have egg all over their face? And they really are angry those on the far right. So good luck headed into October Oh, and by the way, even though somewhere between 45 and 60% of Americans who are supposed to resume repaying their student loans, even though 45 to 60% have no intention of doing that. And have been surveyed across three four different surveys as saying I got it. It starts on October the first I’m just going to disregard it, because I can you know, the others who plan on resuming repayment that occurring alongside of a budget standoff with some pretty pissed off people on the far right. That’s colliding with the honeymoon about the debt ceiling, ending the layoff cycle resuming in a very dramatic fashion in real time metrics on top of the IRS finally waking up and smelling the coffee. Now that a lot of these paycheck Protection Program scandals are breaking people are going to jail alle, because of the fraud, the IRS is actually trying to get in front of the employee retention credit, a wave of fraud, and it’s actually going to have a huge economic impact at the same exact time. So slap me, Adam, if I use the term Perfect Storm, it’s overused. The fact is we’re seeing companies closing bankruptcies re erupting what we had 10 in the month of July, and we’re on track to have 29 in August, in terms of companies closing on a per diem basis, according to daily job, which has been around since 2009, we had about four or five companies, locations closing per day, throughout the summer months, it’s kicked up to nine per day, in August. So we’ve seen a definite turn in terms of money that is coming out of the economy, you’re taking away people’s income producing capacity, at the same time that the employee retention credit went from 30 billion in the month of July, an all time record being pumped into the hands of high net worth individuals. Thank you, Mr. O’Leary, Wonder Man, to right now we’re running closer to $17 billion. As as the IRS commissioner has come out and said, We’re gonna get a hold of this. And we have, in fact, we’re speaking to Congress about stopping it. So things are changing. And three different ways they’re changing happened to be happening at one time. All right, so

Adam Taggart 21:34
a lot of body blows set to hit the hitting are set to hit the economy in short order here. You mentioned the EU. And by the way, I should say all those are happening to at a time where national tax receipts are declining from where they were last year. Right. So expenses up receipts down. That’s not a good equation. You mentioned the employee retention credit. I know you’ve been doing a lot of work around this. I don’t think many people know what it is. I think I’ve mentioned it once briefly on this channel before. Can you just tell folks, what exactly it is and why the statute is mentioned are important because it’s a good example of that jamming of the fiscal accelerator of the economy that I think most folks didn’t really even realize was going on.

Danielle DiMartino Booth 22:24
So think of think of the paycheck Protection Program as as the pint you order when you go into the pub. And we know that the fraud was into God knows the hundreds of billions, and that we’re prosecuting that now. And it’s making a lot of headlines and good for prosecutors for rooting out the fraud. So think of the paycheck Protection Program as the great big frothy Guinness pint you order when you sit down. The employee retention credit is the shot chaser that comes after it. And what when when when Biden expanded the employee retention credit created out of the Cares Act, to have employers who retained employees during COVID, even though their business was interrupted, you couldn’t double dip by the way most people are but you could not double dip with the paycheck Protection Program loan and the employee retention credit but we’ve seen a wave of people doing just that. So what began with with with the the legislation that Trump signed into law with the Cares Act, it’s about up to $21,000 of payroll taxes that you could clawback if your business is interrupted in the year 2020. That was expanded by the Biden administration in 2021 to encompass not just companies that had their businesses interrupted also through the third quarter of 2021. But also miraculous Phoenix is rising out of the ashes in the form of startups that were created because of the pandemic. God bless America. So how much easier Oh, and by the way up to $26,000 per employee that you could clawback. So miracle of miracles, I know you won’t believe it, Adam, but startups took off for the races and the IRS is wise to the fact that most 99% of companies that we’re going to, to claim this employee retention credit have long since done so and paid out. And yeah, I joke about Kevin O’Leary, but he’s only on financial media every 15 minutes with Clockwork because he’s actively advertising quote unquote, don’t leave your money on the table. He’s joined by get innovation taxes. People most people have heard of Wonder trust. Most people have heard of get but they don’t connect it to a government program. That if you had paid out July is $30 billion per month would have pumped $400 billion into the US economy. On an annualized run rate. It’s about one and a half percentage points of GDP. But it has been Putting in 1520 28 $25 billion a month into the US economy, in addition to the infrastructure spending that was coming out of the fiscal side. And it’s, it’s little wonder that the US economy hasn’t gone into recession because this employee retention credit, that is not even, even for accounting purposes, a government transfer, it’s simply reduced income taxes paid for the purpose of Uncle Sam’s accounting, but it’s pumped billions of dollars into the hands of well to do Americans who’ve taken advantage of the system. So I write about it off. And I’m publishing on it this week, again, because my hat’s off to the IRS, when would I ever say that they have approached Congress and asked for an early end to this program that they have acknowledged is probably now predominantly fraudulent claims. And that is going to leave a dent in spending, I would remind you very simple write this one down, folks, that top quintile of income earners in the United States of America account for more than 40% of US consumption, which is 70% of US GDP and 18% of global GDP. You take money away from that cohort, you’re going to see it show up in reduced consumption.

Adam Taggart 26:26
All right, so we’ve had this stealth stimulus going on through this program that not many people have been aware of, it’s been largely going into the pockets of the top 20%, as you mentioned, so it’s been unfair, unjust in terms of who’s benefiting and who’s not. That has been helping stoke consumption, you know, we’re 90 70% consumer driven economy. And you’re basically saying that money spigots getting turned off now or is in the process of getting wound down and the IRS has its way maybe fully shut off. And that that is another one of these shoes to drop that you mentioned earlier, sort of in your perfect storm list of things that are going to dampen the economy going forward. You’re nodding as I’m saying all of this,

Danielle DiMartino Booth 27:10
you rattled off one, two and three, the bankruptcy cycle has researched, the layoff cycle and closing down of locations has also researched and a large source of income for your highest propensity to spend Americans has also been crimped.

Adam Taggart 27:28
Okay, so I’ve, I’ve made a dad joke on this channel several times that I’m going to change my my name to Adam Lambert, just to help people really reinforced the understanding that the lag effect is real. And even if it hasn’t fully manifested yet, it is going to we haven’t dodged that bullet. The no landing scenario is highly unlikely to put it gently. I believe you’re in this camp, correct?

Danielle DiMartino Booth 27:55
I’m definitely in this camp. I understand that Wall Street has its own much bigger camp. But that’s okay, Adam, we can go off and have a camp of our own.

Adam Taggart 28:05
Oh, gosh, if I’m in a camp with you, Danny, I don’t care who I don’t care where anybody else is.

Unknown Speaker 28:10
So anyways, yeah.

Adam Taggart 28:14
All right. Well, look. So a couple other things wrapped up in this. And thank you, because you’re taking us exactly where I want to go. Get back to the Fed for a moment. You know, Powell has been as consistent as he has been like him or not, because he sees his job as getting inflation under control, right, killing that inflation dragon. And in his mind, you know, he has defined that as back to 2%. And there’s a lot of chatter right now, you know, trial balloons maybe being floated by Larry Summers and others. Maybe we rise it up to 3%. And then we can just sort of declare mission accomplished and move on with our lives. Right? How is not saying that? At least not yet. So first question for you is is? How likely do you think he’s going to? How successful is it going to be in taming inflation from here, because you mentioned his focus on services, inflation, and that’s where the sticky stuff is. And we have all this other stuff coming down that you’ve mentioned. But it is pretty sticky. And I’m wondering have posited? Are we potentially seeing the Pareto principle where the first 80% was the easy stuff to get rid of? And the remaining 20%? Is the hard stuff to get rid of? So could this last disinflation battle last longer than folks are expecting? Or do you expect them to be successful in the shorter term?

Danielle DiMartino Booth 29:33
So it’s not so much that I expect Powell to be successful because he’s netting shelter out of his calculus. And if you do that, then you’re going to have the portion that remains which does include health care, which is is poised to re accelerate. You are going to have that as an offsetting factor going forward. If you’re even if you’re just looking at the CPI at the headline level, but we have to bear in mind that shelter is twice the weight of health care. Here’s the CPI. So I do think that he’s going to be able to get inflation under control the way the average American reads the headlines. Does that mean that a loaf of bread or a gallon of milk estado is not appreciably more expensive than it was prior to the pandemic? Yeah, that that’s absolutely correct. But I think that the headline and core CPI as reported, I don’t think he’s going to have trouble getting them back down towards the 2% level. Well, his core NET core services, net of shelter, is actually never really it’s designed to never been negative. So as long as he focuses just on that, but he’s gonna have some pretty mad politicians as a factor of time going forward.

Adam Taggart 30:43
Okay, so I guess the spirit of my question was, well, I hate to ask when, because it’s unknowable, but sort of like, how long it’s gonna take for him to get to a point where he can say my job is done?

Danielle DiMartino Booth 30:57
Well, I think that when you start to see because of this confluence of factors that’s going to have, that’s going to have an arresting effect on consumption into the US holidays. So those are some big headline makers. So I think that once you have the pressure really tick up going into the election year, that he is going to be increasingly pressured to say my job is done, because you’re going to see after the base effects come in and out. Over the next few months, you’re going to see that inflation number coming down. I’m knocking on wood, but that’s what we’re seeing. Right now, Adam. So will he say mission accomplished with an Astros, but not by my measure, it’s going to be difficult to do. But that’s why he’s laying the groundwork for lowering the Fed funds rate in 2024. But by the same token, also saying I can continue to shrink the balance sheet at the same time, proven my mettle, I can run parallel policy successfully.

Adam Taggart 31:58
All right. Okay, so this is really getting into the meat of it, then. So I’m gonna, I’m gonna make some statements qualify them anyway, you’re like, but I believe you and I look at it similarly, where the risk here, especially given how the indicators that Powell is choosing to look at the risk here is that the Fed may actually be over tightening, right? policy may be too aggressive given where things are gonna go anyways, given the lag effects that we’re talking about, you’re nodding as I’m saying this. And so I guess it’s probably up for grabs at this point, whether Powell was able to get to a point where he says My job is done. Or he just says, I have to stop going down that path, because things important enough things are actually breaking that that’s now my new priority, right? So it sounds like you are, we’re talking probabilities here. But you’re of the mind that these these this perfect storm of what I like to call sort of gravitational catalysts that just weigh increasingly on economic growth is going to get so high by end of this year, early 2024, that we probably are going to see a Fed pivot at some point, and that interest rates will start making a march back down again. So in other words, getting back to my original question, folks that are now beginning to panic and say, Why would anyone want to be in a long bond? I’m assuming that maybe you’re thinking actually, there’s probably some good reasons to be in a long bond, if you are looking out into 2024. True,

Danielle DiMartino Booth 33:28
I certainly think I would agree with that assessment, Adam. And I think that if you’re talking about rate cuts in 2024, that that is that that is your highest probability outcome. But again, he has reiterated what Laurie Logan of the New York Fed a lifetime fed economist who’s now the president of the Dallas Fed. What she posited recently in her speech was that the Fed could again run parallel policy, reduce the federal funds rate at the same time that they continue to run off the balance sheet, which is its own form of tightening my mentor, Dr. Dr. Lacey hunt would tell you that other deposits and US commercial bank liabilities hit a cycle low in the latest weekly take on that in the Feds ha That will continue. And it will continue to have a disinflationary impact on financial assets. It will continue to be a thorn in the side of CFOs. Who need to refinance, it won’t matter to them that the Fed has stopped lowering rates or started to nudge rates down a little bit here and there, if they’re still looking at at least a doubling in their financing costs when that time comes in 2024 Because again, the Feds continuing to deplete liquidity. The Dallas Fed has a banking survey. It’s it’s shows it just a few days ago, we found that there was an eighth consecutive month of decreased demand for loans. We can’t ignore things like that, especially because we still have banks that are And that are clearly in distress according to first Moody’s, then Fitch and now Standard and Poor’s.

Adam Taggart 35:06
Alright, so let’s peel this back. This is super interesting. So one of my questions for you is, is can the economy sustain the current cost of capital? We have, I think, I think you’re thinking not for long, right. And what’s interesting is the Fed could cut rates, I mean, it could cut from five and a quarter down to three, right. And yet, we have all these corporations that are going to they borrowed when debt was cheap, right. And that’s what a lot of them have been existing on, especially the zombie ones, they’re going to have to basically refinance when that debt matures, even at 3%. Right. So if the Fed is cutting materially, even at 3%, that’s still a really big increase in cost of capital for these companies. So unless the Fed like, has a massive turnaround, where it literally just goes back down to close to zero, very quickly, we’re going to have additional injuries as time goes on. And companies have to rewrite here. So I totally get what you’re saying about, we’re going to be feeling the impacts of these higher this higher cost of capital for a good period of time here. And certainly, if the Fed continues Qt, even if it’s lowering rates, that’ll that’ll compound issues here going on here. One question I have for you about this, and you’ve been nodding, so I’m assuming you’re agreeing with what I said. But if not clarify. There’s a difference between corporate bonds and US government bonds. And in the example that I mentioned, where, you know, interest rates are coming, the federal funds rate is coming down. Deep, I guess from going as Do you think US Treasuries are attractive here? Because that’s the big debate that’s going on right now. And I think if the Fed does begin to bring rates down, that’ll probably be positive for US Treasuries, especially long, dated, dated duration ones in the environment we’re talking about, but if you have a different opinion, please, please let me know, I don’t want to mischaracterize you.

Danielle DiMartino Booth 36:57
No, no, I don’t have a different opinion. And again, it’s predicated on the fact that I think fundamentals will begin to matter. And I count one of those fundamentals as a company that is not able to refinance, that has a fundamental impact on the economy, and that they cannot refinance. They’re not in business, they’re not creating paychecks. And that is a very fundamental event. For the market. Every time we see a company go, every time we see a Walgreens location, close every time we see a PNC Bank branch close, that has a material impact on the income generating capacity of the US workforce.

Adam Taggart 37:39
All right, so let’s huddle around the campfire in our glamp here. Okay. So we’re on, you know, believe recession is much more likely than the the no landing, folks over in that other no landing camp, right. So how bad Daniel, you know, I know you like me really kind of take all this down towards the employment situation. And what then happens with layoffs, because we’ve been around the block enough to see some of the larger, more recent recessions that have had, you know, layoffs in the millions. And we’ve seen the collateral damage of that. For this type of environment that you see coming here. What what do you think it’s going to be like for most folks is lived experience? Is it going to be like a like a 2008? Style one with that much job loss? Will it be shorter? Will it be more prolonged? What are you seeing right now in the tea leaves you’re looking at?

Danielle DiMartino Booth 38:32
So I think what we have ahead of us is not necessarily the violence in terms of the Delta decline in GDP, but much more. So the persistence of the US economy, in an environment where there’s no growth or contracting GDP. And one of the reasons that I see the persistent nature of what’s to come is the different cohorts who are who are living based on extending and pretending. So I specifically reference bank loan officers, as well as individuals who are dangling by a thread holding on to investments in residential real estate. Because when you say that the narrative has flipped to a pivot, when people say pivot, they mean zero interest rate policy. That’s how a pivot is defined. Because a lot of people are not gonna be able to crawl out of the hole they’re in unless the Fed goes straight back down to the zero bound. As you as you said, if you’re talking about, you know, the difference between 0% and 3%. Well, that’s the difference between a life and a death when it comes to the corporate landscape. And that’s material. If you haven’t already interviewed her, I can’t believe I’m plugging somebody but she’s just fabulous. Nobody, right. And she’s on the ground, going from community to community all across the United States, looking at the sheer number of vacant investment property Is and also noting that a lot of the homebuilders are sitting on spec homes that are not even being listed right now. They’re waiting for January of 2024, to reclassify them as land that they’re building on, even though you could move in tomorrow, compared to a property that has to be properly taxed. Hoping again, that the Fed pivots all the way down to where they get to quit buying down points, one at a time at a time, because their margins are getting squeezed to where we can reintroduce the two and a half percent mortgage, yay. There are too many different players in the economy that are hoping for zero interest rate policy, when they think of the idea of a pivoting, as well as quantitative easing as a nice little icing on the cake.

Adam Taggart 40:56
Yeah, and you’re making me think too, about, you know, the auto manufacturers and dealers that have you know, those armies, fleets of cars that are like parked around racetracks that aren’t being used and whatnot, because again, they’re waiting for better financing terms to come out, right, they don’t want to flood the market and depress prices right now. So there’s just so much of that going on. So okay, so And by the way, I do follow melody on Twitter, I haven’t interviewed her on this channel. So I’ve just taken down a note to send her an invitation, I’ll let her know that you were the one who made the plug. So like, funny, Daniel, we hadn’t before this sentence, you know, talked about housing. Right? I mean, talk about people that are praying for return desert, right?

Danielle DiMartino Booth 41:43
I mean, the sheer number of individuals who are being highlighted, and I feel badly for these people on on social media who are saying I absolutely have got to get out from under the yoke of this, this investment property. But the purchases were made based on weekly, weekly cash flow assumptions, not monthly. But what am I going to be able to generate? Even if I’m across the country, buying a property that’s 1000s of miles away? What does Airbnb suggest that I’m going to be able to generate off of this property, so that I can create this nice flow of cash, nice flow of income for myself? Well, these were not mortgages that were designed to be put on hold for 12 months, while while domestic travel whether you’re listening to Alaska, or Southwest Airlines, or JetBlue, while domestic travel clearly takes it on the chin, and the employee retention credit send people off to Gabe fe, and they’re all doing all this international travel. But you know, if if what looks to be occurring is occurring and what’s the the the impact on domestic travel and on Airbnb, there’s more shadow inventory out there, and you can shake a stick at. And in addition to that, we’ve got all these apartments coming online. And we have all of these homebuilders building spec homes as quickly as they can. So I understand that it’s really awesome to talk about, you know, the number of properties that are not on the market. But you know, to reference melody, right, going to this one community where 55 Plus aged people literally went into a near riot because their homeowners association fees were rising, because insurance premiums are going so much up so much in the state of Florida. Well, you know, as things turned out, she looked into this one little community where on the community’s website, there were 100 listings for purchases and rentals and you look on MLS, you look on 16, one, six. So I think that 18 months from now, 12 months from now we’re going to be talking about the shadow inventory. That was, you know, not some boogeyman that keeping Danielle up at night, but that was a real thing. building into a if it’s not saved by zero interest rate policy and the resumption of QE, where are we going to be? In terms of oh my gosh, there’s too many homes out there?

Adam Taggart 44:03
Yeah. Gosh, I mean, we could make this entire discussion just about what’s going on in the real estate market. So let me try to just wrap it up in the sense of little good, right? I mean, if at least until mortgage rates come up to

Danielle DiMartino Booth 44:21
you for a second Adam. You’re like I’m James Joyce. And then you have to riddle and Danielle anyways continue.

Adam Taggart 44:31
You you’re knocking out of the park with the analogies today Daniel was so but nothing, nothing good, at least until mortgage rates like really come down substantially. There doesn’t seem to be a lot of reasons to have a ton of hope for that anytime soon. So, and we didn’t really even talk about commercial real estate, which is an even worse situation. I mean, it’s it’s, it’s bad. It’s really bad now, right? I live out in the San Francisco Bay area. You know, we’ve got real really big property owners in San Francisco that are jingle mailing, you know, hotels and massive office buildings, right back to the banks. So it’s already started in earnest here. So, okay, so we have all of this coming drag effect from the legs that we’ve been talking about, that’s going to hit the economy. Presumably, we haven’t mentioned this specifically, but I’ll give you a chance to opine on it, that is going to lead to an earnings recession, right in corporate America, that is then going to trigger layoffs. That is obviously going to be really bad for the housing market, right? Because you’re going to have a lot of people lose the incomes that they’re currently using to pay today’s housing prices. So therefore, that should make housing price correction really kick on in earnest. If I heard you correctly, you don’t see this as like a tree falling. In other words, it’s a short, sharp event, you see this as like a slow grind, just rolling thunder happening over quarters, probably yours, correct me if that’s wrong. So I kind of taking it if I wrap everything up in a bow from you as kind of like, this is a Gird your loins moment where, you know, we really need to be thinking ahead and saying, okay, you know, if I work for a living, if I work for a paycheck, you know, how should I be thinking about what’s going to happen to me if my employer struggles if I get a pink slip, etc, if I’m, if I’m a homeowner, and I have a lot of equity in my home, I gotta make some decisions pretty quick, right? You know, do I sell and pocket what I have? Or do I risk maybe writing this thing down over the period you’re talking about here? Obviously, from an investment standpoint, and we’ll talk about this in just a second. But you could ask, okay, great, what investments make sense for this type of future? So before we get to that part of the conversation, did I summarize kind of your general outlook correctly there?

Danielle DiMartino Booth 46:49
Yes, Adam, you did a very, very good job.

Adam Taggart 46:52
So okay. You are the regulator. Alright. Okay, so then let’s move to that last question, which is, okay, you sort of market outlook. So first, how do you expect the financial markets to react as this, the rolling thunder of the storm really begins to build momentum.

Danielle DiMartino Booth 47:11
So I think that the biggest exacerbating factor is the realization that most pension public pension fund managers came to a long time ago, they can sit on the sidelines in this kind of an environment. And I think that that realization is coming to individual investors at a much slower rate, that, you know, I can, I can go over here, and eat popcorn and sleep well at night and collect 6% on my money. And I can be okay with that. All said,

Adam Taggart 47:41
and maybe we have some upside, if you believe the bond story that we’ve just been talking about, right? Like I can get paid in safety, and it might make money over time appreciate

Danielle DiMartino Booth 47:50
it potentially, that that that’s your kicker, but I’m talking about very short term. Here, if you wanted to take an 18 month break, you will be very well compensated for just sitting back and seeing, you know, how the leaves ended up falling off the trees, as opposed to the tree itself falling over, as you said, there’s that optionality is there. And the reason I don’t think we’ve seen more of a shift out of the stock market, and into risk free alternatives is because you have baby boomers especially you have an entire generation and generation behind them, who have been told, always leave the vast majority of your money inside the stock market, it is where you have to be for the long term. And, you know, to the credit of the RA community, this, this type of brainwashing is ingrained in individual investors.

Adam Taggart 48:49
But starting to rot, but But you know, with a huge amount of help from the Fed, right, that strategy works great. I mean, surf environments, right? That’s always

Danielle DiMartino Booth 48:58
been lower for longer, you know, zero interest rates, were always going to come to the rescue, the Feds always going to keep your and it’s, you know, it don’t don’t take my word for it. You know, look on my Twitter feed. Jay Powell has been resolute since January of 2022. But yet I have the same exact people saying that he’s gonna cave tomorrow. And, you know, we’re how long into this since January of 2022. And they’re like, we’ve been wrong

Adam Taggart 49:22
for a year. And it’s amazing to me, like, the market has always had to shift. The market has always had to shift this expectation. Right. Jay Powell. Okay. Now, he’s, he’s holding steady, I gotta shift, right. And yet, this year, stocks have continued to climb higher. Right. It’s just It’s been amazing.

Danielle DiMartino Booth 49:37
And I do think 2024 will be the year of descent for Jay Powell. I’m not saying that he’s going to be able to continue at this game forever. And you’re seeing definitely the doves get louder on his Federal Open Market Committee. But even so, there’s still time into the future for him to hold his ground and continue to disprove the zero interest rate QE Tomorrow crowds.

Adam Taggart 50:02
So you know, what I find so interesting about this point is, it shows you how, like, how long the herd is willing to be wrong for, right? It takes a long time for mass psychology to shift, right? And then when it does, you know, it shifts all at once, right. And so where I think opportunity lies right now and tell me if you agree or disagree is those that are paying attention, we can see increasingly that their herd is losing confidence, but it hasn’t shifted behavior yet, right. So if you bought from the hoard early position where the hurt is gonna go, you have the potential, you’ve got a lot of probability to not experience the injury that the herd may very well experience, and then benefit from the capital of the herd rushing into where you’ve pre positioned yourself.

Danielle DiMartino Booth 50:53
But the only thing you have to get in front of is that cousin of yours who’s going to be talking about artificial intelligence stocks at Thanksgiving dinner. Because that’s going to be your moment. It’s when America comes together, and the financial markets close and everybody sits around the turkey, and starts to talk. And it’s when that realization moment is there. When you’re Thanksgivings, early this year, when you’re six, seven weeks into kind of this October, the first budget standoff this October, the first resumption of student loan payments, the employee retention credit really not being the factor that it was turbocharging consumption. It’s at Thanksgiving, 2023. Really, that the discussion we’re having today is going to be had all across America.

Adam Taggart 51:42
Alright, so folks, you use this as your opportunity to use the time you have now wisely. So just in terms of, you know, actionable ideas? Are there any asset classes that you feel particularly good about in this environment? And then there are there are others that you just wouldn’t touch with a 20 foot pole? Given what we’ve talked about? So far, I might put US Treasuries certainly us t bills in your good bucket, and I probably would put AI stocks in your don’t touch bucket,

Danielle DiMartino Booth 52:14
you would certainly put those in my don’t touch bucket that is correct. I wouldn’t be very wary at this juncture, also, of anything on the cusp, because we are seeing the insolvency cycle as we are. So I’d be very careful right now about whether or not you’ve got exposure to Clos or high yield, or even investment grade that is full of companies that might become tomorrow’s fallen angel. Be very careful here.

Adam Taggart 52:43
Okay. Great. All right. Well, look, I know that your continue to be very busy writing reports there at quill intelligence. In just a second, I’m gonna ask you where folks can go and follow you and your work beyond the the ERC article that you’re working on? Is there anything else that you’ve got your eye particularly fixated on that we haven’t talked about yet in this conversation?

Danielle DiMartino Booth 53:06
So I think that there is always something to be said, when you’re looking at financial planning, Adam, for states that are doing the right thing. So if we’re at a turning point in the kind of a longer maturity interest rate cycle, then I would be talking to my financial advisor about what states municipalities had been doing things right. And where opportunities might be on an after tax basis going forward. Nobody knows the outcome of elections. But it’s always good to be positioned either way in terms of their outcome. So I would add that,

Adam Taggart 53:42
and is that sort of with an eye towards muni bonds at some point in time and good states or Yes, I

Danielle DiMartino Booth 53:48
guess I am definitely referring to municipal bonds in well run states.

Adam Taggart 53:54
Okay, great. All right. And that’s a nice little advanced, commercial for the my general message in every one of these videos is that most folks should be working in partnership with a good financial advisor who understands all the issues you’ve talked about here, Danielle, which is a very rarefied class, there aren’t very many financial advisors that talk about the things that we do. Sadly, those still stuck in the old model of hey, the Fed is going to come to the rescue and just buy the dip and hold forever

Danielle DiMartino Booth 54:21
on video. Everything will be fine.

Adam Taggart 54:23
Everything will be fine. Okay. All right. Well, look, as always, Daniel, you never disappoint. This has been a fantastic discussion, you always leave it all on the playing field. I’ve really enjoyed the time with you in our glamping circle here. For folks that would like to join the circle and follow you in your work, where’s the best places for them to do that?

Danielle DiMartino Booth 54:43
So I’m fairly new to the substack platform. So love to have you come over and have a look DiMartino As as Adam you’re saying we publish every day. And on the institutional side there will also be information for how to to click through, if you run money for a living, and you want to get in with the QI pro crowd, we’d be happy to join you our Bloomberg chat rooms open.

Adam Taggart 55:08
Awesome. And I just got to make a plug to for your Twitter account. You are incredibly active on that and incredibly generous and sharing what’s going on in your brain throughout the day. I think it was someone who said it’s like a free MBA, you know, on Twitter. So you’re still active there, correct?

Danielle DiMartino Booth 55:27
Absolutely. I definitely still am. And at all hours of the day, it would seem so I think I think I’ve learned how to tweet in my sleep.

Adam Taggart 55:34
All right, I think so too. And what’s your what’s your Twitter handle?

Danielle DiMartino Booth 55:37
At DiMartino? Booth?

Adam Taggart 55:39
Okay, great. And yeah, when we edit this, as we always do, when you’re on we’ll overlay the handles in the URL to your sub stack on the screen so that folks know where to go. We’ll also put links in the description below, folks, if you want to go check those out, which I highly, highly recommend you do. All right. Well, I’m beginning to bring things to a close here, I just want to remind everybody that the Wealthion fall online conference has just had its tickets go on sale. They’re on sale at the early bird price, which is almost 30% off the full price for tickets. So if you’re interested in checking out the conference and securing that low price, I highly recommend to go do So just really quickly. Let me give you a sense of who actually is going to be in the conference. It’s going to be kicked off by Lacey hunt, Keynote and hero of Danielle as she mentioned the Lacey earlier by name. Lacey’s presentations are phenomenal. Just data pack chart rich, they’re definitely worth the entire cost of the conference just in and of Lacey’s single presentation. We’re going to have Jim Grant, they’re probably the world’s greatest expert on interest rates alive, sharing his outlook with us on interest rates. We’re going to have Michael Kantrowitz there talking about his hope framework, which will very laser focus in on the employment situation. That’s the E in the hope framework. We’re going to have Kyle bass, they’re talking about the biggest geopolitical risks that could affect the global economy. Next year, we’ll have Stephanie Pomeroy, they’re talking about the forces of inflation and deflation and how they are likely to increasingly collide going forward, which ones will win out? IV Zelman will be there. She’s one of the nation’s top real estate analysts. So she’ll be giving us her outlook for both residential and commercial real estate going forward. That’ll be moderated as well by Amy Nixon and Nick Gerli. There’s other housing experts who you’ve seen on this channel before, we’re going to have Michael Liebowitz, talking about bonds and giving his outlook for bonds for 2024. Rick Rule will be there sharing his top stock picks in the Natural Resources space. We’ll also on the energy side will have Bloomberg, they’re talking about the global energy situation, he’ll then be joined in a panel with Justin Houston to do a deep dive specifically in the emerging many emerging opportunities that are appearing in the investing in nuclear energy space. And of course, we’re gonna have all of our financial advisors available throughout the day. So you can ask whatever them ask them whatever questions you have. So to learn more, and sign up for that conference and secure the early bird discount price, just go to And if you’ve attended one of those conferences in the past, check your email because we’ve emailed all of our past conference alumni with an additional 15% discount code to use on top of the 30% early bird price discounts. So we really want to make sure that you guys get the best price for this event as possible. And as Danielle and I mentioned, I highly recommend that folks work under the guidance of a professional financial advisor, as you are looking towards the end of the year looking into next year in terms of how you want to position, your portfolio and your wealth. If you’ve got a good one who is doing that for you, and is taking into account all the things that Daniel and I talked about in this video great stick with them, they are incredibly rare. But if you don’t or if you’d like a second opinion from what it does, then feel considered to schedule a free consultation with one of the financial advisors that Wealthion endorses to do that. Just fill out the short These consultations don’t cost anything. There’s no commitment to work with these advisers. It’s just a free public service they offer to help as many people position as prudently as possible in advance of this potential perfect storm that Danielle just mentioned. Alright, folks, Danielle, it’s been wonderful as always having you on this channel, you do such a wonderful job, you always leave it all on the playing field. Thank you for that, folks. If you’d like to see Danielle come back on the channel again in the future. Please do us a favor encourage her to do that by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it, Danielle. It’s been a total pleasure, everyone else. Thanks so much for watching.


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