The Fed Chose Independence Over The Economy As A Double-Dip Recession Unfolds: DiMartino Booth
Summary
Federal Reserve's Independence: Danielle DiMartino Booth emphasizes that the Fed prioritized its independence over economic concerns, opting for a 25 basis point rate cut despite internal disagreements among Fed officials.
Labor Market Concerns: The discussion highlights that the U.S. economy has not created jobs since April, with significant layoffs in sectors like healthcare due to AI, indicating a recessionary environment.
Gold Investment Strategy: Monetary Metals offers a unique investment approach by paying interest on gold holdings in physical gold, allowing investors to accumulate more gold while benefiting from potential price appreciation.
Double-Dip Recession: Booth suggests that the U.S. is in a double-dip recession, with job losses commencing in the second quarter of 2024 and ongoing economic challenges despite temporary optimism around elections.
Market Dynamics: The podcast discusses how passive investment flows dominate market behavior, often overshadowing economic realities, and the potential risks if these flows reverse.
Fed's Dual Mandate Critique: Booth critiques the Fed's dual mandate of minimizing inflation and maximizing employment as inherently conflicting, advocating for a focus solely on inflation control.
Structural Economic Changes: The conversation touches on the shrinking U.S. population and the impact of AI on productivity, with companies investing in technology rather than expanding their workforce.
Future of Fed Policy: Booth questions the effectiveness of the Fed's traditional tools, like rate cuts and QE, in the current economic climate, suggesting that the Fed put may no longer work as expected.
Transcript
Hey everyone, welcome back to another special in-person instudio episode of the Julia Laro Show where we are joined by none other than Danielle D. Martino Booth, CEO and chief strategist of Qi Research. Danielle, it's always my favorite time when we get to have you in studio. So really appreciate you. It's I'm I'm happy to be here. Truly I am. Yeah. Post FOMC and also your birthday. Happy birthday to you. Really wonderful celebrating you as amazing. It was it really was amazing. So let's start your reaction. A 25 basis point rate cut one to center. What's your takeaway from what we saw this week? So um I was actually visiting with some clients this afternoon and I summed it up so succinctly. I'm just going to repeat it. The Fed chose independence over the economy. Elaborate a bit more on that. Um the Fed is under a full frontal attack. I mean, nobody would disagree with that. Um, right now, the fate of the Fed, if you will, could be in the hands of the Supreme Court and what they decide about Governor Cook. Um, but more importantly as to yesterday's meeting, you know, you have to remember that um Jeffrey Schmid and Alberto Malum, this is Kansas City, St. Louis Fed presidents uh you know they their views on inflation are hawkish enough that they might have otherwise dissented in favor of no rate cut. And then you've got on the opposite end of the hawkish do spectrum you've got Christopher Waller and Michelle Bowman. uh because they desented in July that implied that they believed if and actually Christopher made a speech to this effect. Um I think the name of the speech was let's get on with it meaning let's get on with this easing cycle. Um, I think that they would have dissented for a 50 basis point rate cut. And yet we effective, when I say effectively, I mean it. We effectively got no dissents from Fed policy makers and as opposed to the sitting chair of the council of economic adviserss. Okay. So on the Waller side, um what do you make of like his decision or like not dissenting? You know, he could have very well um sacrificed uh a shot at being the chair of the Fed with this one non descent. Um I would certainly think that uh and and the same could be said for for Michelle Bowman. her name has been thrown around as well and you know to that it's very rare that I would say you score one for integrity at the expense of US consumers and households who are struggling right now. Um, we just got a new business table round table um business round table uh CEO survey out and it shows that uh companies are going to continue to reduce uh headcount and it shows that uh hiring freezes are going to remain in place in the private sector. um the the data that we're getting on um on the job market is not improving and even according to Christopher Waller's own formula because he told us in his most recent speech how he views the labor market he views it through the prism of the private sector but he views it through the prism of the private sector net of health care and education because people are always going to get sick and people are always going to be going to school. So, we consider these sectors to be quote unquote recessionp proof. Um they're not cyclical industries even though we're seeing layoffs pick up appreciably in healthcare as artificial intelligence begins to rationalize even the health care sector and how that is delivered more efficiently. So if you look at that through the prism, what what what Waller calls the core private sector, um the US economy has not created job one since April. Gold keeps setting new all-time highs, but price appreciation isn't the only way to profit from owning gold. Monetary Metals is redefining the future of precious metals investing. Instead of paying to store gold, imagine getting paid to own it. With Monetary Metals, you can earn up to 4% on your gold. paid in physical gold. That's right. Your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every single month. And you still benefit if gold's prices rise. You're earning more gold every month and enjoying potential price appreciation at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% on your gold paid in gold. that. Okay, that right there. The US economy has not created one job since April. I want to give you credit because we saw that massive downward revisions. You have been on top of this for a long time and you deserve the credit. Well, uh, thank you. and it's not been fun to be uh you know she's called however many of the last year censuses and I'm like no actually I put a I I I've I've said before and in public forums exactly when I think job losses began and now we have the data in hand that shows that that's when job losses did begin the US economy was in recession in the second quarter of 2024 we know that um do markets care? No. That's why our mantra at QI research is trade the narrative, own the truth. Um because markets trade off of many different things, mainly flows, passive flows. Uh and they care about the narrative. They care about where the biggest hedge funds in the world are positioned and being positioned with them to profit with them. um if if they're active investors and if they're passive investors, they money just plows in twice a month via 401ks. Um so it's not so much a market call, but you need to know where the economy is in a cycle. We need to know that the economy because job losses have never begun in US history until after the onset of a recession ever. Mhm. So, we know that recessions started sometime in the first quarter of 2024 prior to job losses commencing. Um there's there's a good shot at at job losses coming out for a brief spurt of enthusiasm and um kind of promise of change around the US election. But we know also now with realtime revisions. So these are the revisions that are reported every month for two months. Now we know that the pandemic notwithstanding and the noise that was associated with the pandemic that in June 2025 the US economy shed jobs on a net basis for the first time since September 2010 in terms of realtime economic data being reported. Now we always get revisions at inflection points in history and now we have to go through the second and third derivative exercises of backing 900,000 911,000 fewer workers in the economy in the year ended March 31st 2025. Now you have to back that out of income. You have to back it out of GDP. It changes all the models. It changes the models. And that's why in the first quarter of 2001 and in the first quarter of 2008, it took five quarters before we actually knew that we had been actually in recession that the number in front of GDP was not a positive a plus sign but a negative sign. Do you think we're are we still in recession then? Well, we're certainly in recession if we're it looks like it looks like that that job creation peaked in May. Okay. and then started to fall. In fact, there was something fascinating about the market's initial reaction to the continuing jobless claims data for the first week of September. Um, and that's I mean, we're we're complete wonky dorks at QI Research. We'd love to dig in the weeds of the data. And so, something didn't make sense when we looked at states by states. And lo and behold, the number of individuals in the state of North Carolina collecting jobless benefits did not go from north of 20,000 to 200 in one week. Rather, it was a typo. So, we actually had continuing according to the Department of Labor. So, we actually had continuing jobless claims rise to the highest level in more than a month instead of falling this morning. which is why the 10-year which has kind of had a bad ugly ride since the the Fed decision came because it was a um Powell called it um a riskmanagement. Yes. I wanted to ask you about the risk management cut. Yes. Meaning we may be pausing again um in favor of the inflation mandate. Uh but we now know uh and so the tenure popped all the way up to I want to say 4:14 today before it closed at at 410 and it was below four yesterday, right? It dipped below four yesterday. But as soon as as that news began to circulate began to circulate around chat rooms, starting in my chat room for our pros, then you saw the tenure come off the high yield of the day because they were like, "Oh, we did not see a major decline in continuing jobless claims. We actually saw a sizable increase." Yes. Okay. Um, why do you think it is that the market has not recognized we're in a recession? Because it makes me wonder, Danielle, like gosh, if you look at who owns the asset prices, they sure seem to like be great. They probably aren't in a recession, but when I see folks who comment the comment section, there are a lot of people who feel like they are in a recession. So, does that also illustrate they're not a K-shaped economy here? I don't even think I don't think the letter K is appropriate anymore. I mean, we're going to have to in avent a new a new letter because as Moody's announced earlier this week, um the top 10% now account for 49.2% of consumption in this country. Um that same top 10% owns what? 87% of the stock market, something along those lines. And they probably own homes. They own homes and they're not feeling a recession. But is the letter K appropriate when you're only talking about 10% of the US population? I don't know what the letter would be, but yeah. Yeah. I mean, University of Michigan, we just saw the the percentage of individuals expecting the unemployment rate to rise in the next 6 months. Is it 65%. Those are your comments. Those are your comments because 65% of Americans know that the unemployment rate is going to rise. They know that the job market is in a recession. Yeah. And it's and and we've never gone over 50% and stayed over 50% as we have since April without the US economy being in recession. Do you think we're heading into a double dip recession? I think we're in a double dip recession. In a double dip. That is our firm's that is our firm's actual call right now. Can you elaborate a bit more on that? Yeah. Well, we know job losses commenced in the second quarter of 2024. So, we know that the economy was in recession in 2024. Again, there was a lot of enthusiasm. There was a burst of confidence around the presidential election. Um, you know, are companies going to unleash just crazy amounts of capex and start hiring in the private sector? Of course, the CEO round table for the third quarter just told us the answer is no. Um, but there was that burst of enthusiasm and then we slipped right back in. So the closest historical correlary that we can draw was kind of the the brutal double dip recession of 80 and 81. And we forget that that President Jimmy Carter at the time had grown federal payrolls and that Ronald Reagan came in after inauguration day and slashed federal payrolls. And we haven't seen that in the data yet. By the way, Reuters estimated that 248,000 federal workers had had accepted the the buy the buyout. Mhm. Okay. Well, um the vast majority of them their severance package ends on September the 30th in just a few weeks. And that won't get counted until until they file for unemployment unless they've gotten jobs. But we know that hard to get a job right now. Yeah. We we know that the long-term unemployed, those who have been unemployed for 27 weeks or more, a half a year or more, and they become stigmatized. Employers don't want to employ Employers don't want to hire them because they've been out of work. But we know that the level is north of 25% of the unemployed. Yes. Who've been long-term unemployed. That scarring is very problematic and indicative of the fact that if you lose your job, you're not getting another one. Mhm. And that might also explain um in the labor data, you've seen a lot of people who've become like consultants or they're doing more gig work. U so that might it might look like it's a job, but they're it's not the job that they want. No, I mean since January, okay, this is in the last nine months, we've lost more than 1.4 million full-time jobs. These people want a full-time paycheck. I can promise you that they are not covering the rent. They're not covering their essential spending with a part-time gig work. They're not whatever they're putting on LinkedIn, their initials. LLC so that they can show work continuity that's not paying the bills. Do you think this is all going to like come to a head? Um, so there uh to be fair, the same CEO survey that just hit the wires did show a slight uptick in capital expenditure intentions. Now, this is the one stimulative potentially the one stimulative aspect of the big beautiful bill because companies know that starting next year they get to depreciation, they get tax breaks. Um, and that has spurred economic activity in the past. The the caveat here is the same survey shows that again they're not planning on hiring more people. CEOs are indicating we're going to plow money into costcutting endeavors to increase what one worker can produce for us. Use AI. Use AI. And that's exactly what they said, Julia. Increase the productivity of the um of the person. Don't increase your headcount. Yeah. So, will this all come to a head? You know, um this is going to be the first year, I think, in US history, um this is according to somebody else's calculations who's a demographer, but this will be the first year in the history of the United States that we see population contract. So if you think of the unemployment rate, the denominator is the the size of the workforce, the numerator is the number of unemployed. Well, you're shrinking the denominator appreciably with all of the out migration and deportations, which means you need to have less unemployment. unemployment needs to increase less to move that unemployment rate up more. Let me ask you this. Going back to the Fed, um their mandate, this dual mandate, even chair pal yesterday talked about the tension between the two and trying to strike that balance. Does the mandate even make sense? No. No. the mandate. Um, so gee, we're bringing up Jimmy Carter twice and I think he was a an amazing, wonderful statesman after he left office. He was not good with economics. Um, but the economy was so bad that in 1978, the second mandate was added to the Federal Reserve. That was that was a Jimmy Carter era expansion of the Fed's what had been lender of last resort in times of financial crisis and inflation and that was it. Mhm. But they add something that's inherently in conflict. Yeah. Because when you want to minimize inflation and maximize employment at the same time, I want to juice the economy and I want to slow the economy down. Which is it? So they've they've been in conflict with one another. I It's part of my book Fed Up. I I have I have long time advocated for Congress to go back and rewrite the the financial um the Federal Reserve Act to amend it back to just minimizing inflation. Has there ever been like a conversation about that that you know of that there are um generations of libertarian-minded individuals in Congress um are aware of this. But Congress Congress is an interesting beast because they haven't done much for the country lately. Well, they haven't done much for the country since Alan Greenspan came to office. It's been so much easier to avoid legislation and just push all the pressure over to the Fed. You fix it. You fix it. But maybe they can't because if they're in conflict or it's contradictory, it's exactly what can you really do? Exactly. Okay. Um, you mentioned your book Fed Up. This is why I like it when you interview me because you're a smart cookie. You're very smart and I love learning from you. Okay. You mentioned your book Fed Up, an insidider take on why the Fed is bad for America. I think I got the title right. There you go. You did. Okay. Um made me so popular at the Fed. That subtitle. I love it though. Would if you were to write a book today, what would you write about or maybe an update to Fed Up? What would you add? I would write about the unexpected, and we've spoken about this before. I would write about the rude awakening of the United States and the world economy, discovering that the Fed put, it is going to be the rudest of awakenings. Now, here I'm I'm going to we're going to go Socratic for a second. What does the average investor what are they saying when they say the Fed's going to rescue the markets? The stocks are just going to go back up. But what would the Fed do to do that? Cut rates. How much? How much? Um how many people are talking about? Thank you. Because zero bound. Once they get to the zero bound, then they can launch quantitative amazing. So when people today talk about the Fed will run to the rescue of the markets, they're talking about the Fed going to the zero bound and relaunching QE. Period. End. That's how they interpret it because that's what it's that's the world we've known since 2008. Bias. Yeah. Yeah. But that worked in 2008 because the labor force participation rate among individuals who were 55 and older increased appreciably. The boomers went back to work. They kept their money in the stock market. 72% of the US portfolio is in the stock market. 20%'s in cash. The balance is in fixed income. 40% of the stock market is owned by individuals who are over the age of 70. 70 and older. The median age of baby boomers today is 71. They own 40% of the stock market. They own 25% of the housing market. What happens? We're still doing Socrates here and we've talked about this before. What happens at the zero bound for all those boomers? Because we know what they did in 07. We know what they did in 01. They're going to sell. Are they gonna sell? Are they going to is are most 71y olds going to rejoin the workforce? Well, they're definitely not not going to rejoin the workforce. Okay. Or maybe they or maybe they have to, but I don't know. Like what are the opportunities if you rejoin? Are you Is there Is there a hiring freeze on? Well, if we're Do they have AI skill sets? I was going to say, yeah. or you do like gig economy work, but then like I don't know if they're taxis ton of octogenarian lift drivers and Uber drivers these days. I do. It's sad. It is. Yeah, it's tragic. Um, but those are what you would consider to be stop gap measures. But I'm talking about the 40% who are sitting pretty who I'm talking excuse me I'm talking about people who are over the age of 70 who's who who own 40% of the stock market. They're not going to go drive for Uber. No. And if you go to the zero bound, yesterday they were making four four and a quarter. Today they're making 4%. On their cash. Mhm. How low can the Fed go? We don't know. We We don't know. Is it probably closer to Treasury Secretary Scott Besson's 150 basis points? Can we go to that threshold that would kind of break below 3% that they're making on their money market fund? Would that co that would probably cause them to rotate into dividend paying stocks to generate an in income cash flow stream and because they're probably also on a fixed income too because they they don't have a job either. They're they have to also people are living longer too. You have to think about longevity and what you can take out every single year and how expensive healthcare is as a factor of your aging. Yeah. And then also there's going to be in home care or they might need help. Um yeah. So how so can is the Fed put dead? That's what I would write about because the zero bound when every half a percentage rate cut, every 50 basis points takes 70 billion dollars of interest income out of the hands of retirees. You're playing with fire if you go to the zero bound because you'll p you. Why is the stock market up, Danielle? Why is good news good news? Why is bad news good news? Why is any news Mhm. Good news for the stock market because passive is a beast. Twothirds of the flows into the market automated. Do you think that's what's been holding everything up then? Oh gosh, yes. Yeah, the passive flows. Oh gosh, yes. Absolutely. And no one's really seen what that looks like on when that reverses. Never been stress tested. Not in US history. Never been stress tested. That's what Mike Green often talks about. Yeah. Ever. But if the Fed were to go to the zero bound like most crazy foaming at the mouth stock market bulls are like the Fed will ride to the rescue. They will take we'll go to the zero bound. We'll they will relaunch QE. And I'm like yeah and then what does 40% of the stock market do if you're at the zero bound? Mhm. Then you stress test pass it for the first time in the history of indexing. That would be very ugly. Oh wow. Which means the Fed put Mhm. is no more doesn't work. But I mean as things stand, you know, FedEx still sells very well. I I I dare say our Treasury Secretary has read it because he sure has been um echoing my final chapter, shall we say, in things he's written. Remind me of the final chapter. The final chapter is um there's nothing less satisfying than reading a book that's like excuse my French. I know this is a family show. No, you can you can cuss on the show. A You do not want to read a without saying okay now what do we do about it? Mhm. And so the final chapter talks about 1913, the US economy, St. Louis, Chicago, Minneapolis, Kansas City. These were huge booming rail heads. Why do we have all of those Federal Reserve district banks where they are today when you could have one in the Midwest? Cleveland Fed. I mean, my god, there's five of them. Yeah. But you could certainly have one. And by the way, former Treasury Secretary, former Fed Chair Yellen, things really go wrong in that 12th district. I mean, countrywide Silicon Valley Bank, but you just needed a 112th district to cover, I don't know, half the ge geography of the United States in 1913. California wasn't the world's fourth largest economy back then. Yes. Now you have a deficit of supervision on the West Coast. So, I would advocate for adding one. Yeah. on the west coast, but getting rid of four. Yeah. In the middle of the country. We probably don't need You're right. It was a different time. It was a totally different time railroads and not and do we need 786 PhDs to screw in a light bulb? From the same school of thought. Probably not. So, it talks about that as well. It talks about bringing practitioners. The last chapter of Fedup talks about bringing practitioners who understand the intersection of the financial markets and Fed policy. I Rick Reer, he could walk through that passive theory in two seconds flat. He would understand exactly how monetary policy would affect the financial markets if you went to the zero bound again. Rick Reer would get it and he spent two hours visiting with Bessant. Do do you think he's the front runner or could be? I look I I mean cynically be a great time to sell all of his stock holdings which is a bonus. It's a perk, right? Ask blankfine. Ask Cohen. Ask any of them. Okay. So, I have to ask you one final question before I let you go and you've been very generous with your time. This week would have been the 17th anniversary of Lehman feeling. Mhm. financial crisis. You September 15th. Yes. September 15th. That's right. Monday. You were known for your call on the housing market, the financial crisis. You nailed it. Looking back over the last 17 years, what's a lesson you think we still haven't learned? Well, that brings us back to Governor Waller. Um, Governor Waller in his very first televised interview after he was confirmed onto the Federal Reserve Board said that home prices were on fire and that the Fed had no business conducting quantitative easing in the mortgage back securities market. And in fact, that is a violation of the Federal Reserve Act. The Fed is not legally able to to conduct credit easing and to rescue one particular sector of the US economy as it's done not once but twice with housing fully distorting the biggest asset on most Americans balance sheets. Not the top 10% but the biggest asset on most Americans balance sheets. And people people were a little bit surprised. They didn't mention anything about the MBS rolloff. Kept it at 35 billion a month every month. I mean, they've reduced the Treasury roll off to just 5 billion a month, but they're keeping that MBS going. I hope the Fed has learned that lesson. The the flip side of it is we didn't know enough about the non-banking sector in ' 07 and in '08. I wrote briefings about it. We know less about it today, but it's gargantuan compared to what it was. Non-depository financial institution loans are up north of 20% year-over-year whereas other conventional bank loans are flat as a pancake. We don't have a trillion dollars of margin debt. We don't know how much leverage is in the stock market because the the money that triple levered ETFs use is borrowed in the shadows. It's barred in the non-banking sector because things like a big subprime automobile lender that went kaboom because it had warehouse lines at not one, not two, but three banks. Same collateral. It's called an offbalance sheet loan. We used to talk about that in the days of WorldCom and Enron, but now we have it that is just massive. And regulators need to understand better what has become the fault line and that is the private markets. Danielle, it is always a pleasure having you. Before I let you go, um, let folks know how they can find you, support your work. Um, QI research, the Daily Feather. I'm a paid subscriber to the Daily Feather. Um, you just celebrated your 10th anniversary. We did. We've been We've been cranking this research out for 10 years. Any parting thoughts? Written all over my face. Um, oh, parting thoughts. You always ask me about parting thoughts. The floor is all yours. Anything you want to say. Um, I would say give peace a chance. We have to listen to each other and be tolerant of one another's views in this country and there's a leadership vacuum that has to be filled. Somebody's going to have to rise to the top in this country that quits trying to antagonize. And I'm talking about both sides of the aisle. We have to give peace a chance. We have to open our ears. I've raised all four of my kids. All four of them. Turn your listening ears on. Turn your listening ears on. We have to listen to each other in this country. Give peace a chance. Well said. Daniel D. Martin Booth, CEO and chief strategist at Qi Research, author of Fed Up, friend of this show. We always enjoy our conversations. Really appreciate you, Danielle. Thank you for having me.
The Fed Chose Independence Over The Economy As A Double-Dip Recession Unfolds: DiMartino Booth
Summary
Transcript
Hey everyone, welcome back to another special in-person instudio episode of the Julia Laro Show where we are joined by none other than Danielle D. Martino Booth, CEO and chief strategist of Qi Research. Danielle, it's always my favorite time when we get to have you in studio. So really appreciate you. It's I'm I'm happy to be here. Truly I am. Yeah. Post FOMC and also your birthday. Happy birthday to you. Really wonderful celebrating you as amazing. It was it really was amazing. So let's start your reaction. A 25 basis point rate cut one to center. What's your takeaway from what we saw this week? So um I was actually visiting with some clients this afternoon and I summed it up so succinctly. I'm just going to repeat it. The Fed chose independence over the economy. Elaborate a bit more on that. Um the Fed is under a full frontal attack. I mean, nobody would disagree with that. Um, right now, the fate of the Fed, if you will, could be in the hands of the Supreme Court and what they decide about Governor Cook. Um, but more importantly as to yesterday's meeting, you know, you have to remember that um Jeffrey Schmid and Alberto Malum, this is Kansas City, St. Louis Fed presidents uh you know they their views on inflation are hawkish enough that they might have otherwise dissented in favor of no rate cut. And then you've got on the opposite end of the hawkish do spectrum you've got Christopher Waller and Michelle Bowman. uh because they desented in July that implied that they believed if and actually Christopher made a speech to this effect. Um I think the name of the speech was let's get on with it meaning let's get on with this easing cycle. Um, I think that they would have dissented for a 50 basis point rate cut. And yet we effective, when I say effectively, I mean it. We effectively got no dissents from Fed policy makers and as opposed to the sitting chair of the council of economic adviserss. Okay. So on the Waller side, um what do you make of like his decision or like not dissenting? You know, he could have very well um sacrificed uh a shot at being the chair of the Fed with this one non descent. Um I would certainly think that uh and and the same could be said for for Michelle Bowman. her name has been thrown around as well and you know to that it's very rare that I would say you score one for integrity at the expense of US consumers and households who are struggling right now. Um, we just got a new business table round table um business round table uh CEO survey out and it shows that uh companies are going to continue to reduce uh headcount and it shows that uh hiring freezes are going to remain in place in the private sector. um the the data that we're getting on um on the job market is not improving and even according to Christopher Waller's own formula because he told us in his most recent speech how he views the labor market he views it through the prism of the private sector but he views it through the prism of the private sector net of health care and education because people are always going to get sick and people are always going to be going to school. So, we consider these sectors to be quote unquote recessionp proof. Um they're not cyclical industries even though we're seeing layoffs pick up appreciably in healthcare as artificial intelligence begins to rationalize even the health care sector and how that is delivered more efficiently. So if you look at that through the prism, what what what Waller calls the core private sector, um the US economy has not created job one since April. Gold keeps setting new all-time highs, but price appreciation isn't the only way to profit from owning gold. Monetary Metals is redefining the future of precious metals investing. Instead of paying to store gold, imagine getting paid to own it. With Monetary Metals, you can earn up to 4% on your gold. paid in physical gold. That's right. Your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every single month. And you still benefit if gold's prices rise. You're earning more gold every month and enjoying potential price appreciation at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% on your gold paid in gold. that. Okay, that right there. The US economy has not created one job since April. I want to give you credit because we saw that massive downward revisions. You have been on top of this for a long time and you deserve the credit. Well, uh, thank you. and it's not been fun to be uh you know she's called however many of the last year censuses and I'm like no actually I put a I I I've I've said before and in public forums exactly when I think job losses began and now we have the data in hand that shows that that's when job losses did begin the US economy was in recession in the second quarter of 2024 we know that um do markets care? No. That's why our mantra at QI research is trade the narrative, own the truth. Um because markets trade off of many different things, mainly flows, passive flows. Uh and they care about the narrative. They care about where the biggest hedge funds in the world are positioned and being positioned with them to profit with them. um if if they're active investors and if they're passive investors, they money just plows in twice a month via 401ks. Um so it's not so much a market call, but you need to know where the economy is in a cycle. We need to know that the economy because job losses have never begun in US history until after the onset of a recession ever. Mhm. So, we know that recessions started sometime in the first quarter of 2024 prior to job losses commencing. Um there's there's a good shot at at job losses coming out for a brief spurt of enthusiasm and um kind of promise of change around the US election. But we know also now with realtime revisions. So these are the revisions that are reported every month for two months. Now we know that the pandemic notwithstanding and the noise that was associated with the pandemic that in June 2025 the US economy shed jobs on a net basis for the first time since September 2010 in terms of realtime economic data being reported. Now we always get revisions at inflection points in history and now we have to go through the second and third derivative exercises of backing 900,000 911,000 fewer workers in the economy in the year ended March 31st 2025. Now you have to back that out of income. You have to back it out of GDP. It changes all the models. It changes the models. And that's why in the first quarter of 2001 and in the first quarter of 2008, it took five quarters before we actually knew that we had been actually in recession that the number in front of GDP was not a positive a plus sign but a negative sign. Do you think we're are we still in recession then? Well, we're certainly in recession if we're it looks like it looks like that that job creation peaked in May. Okay. and then started to fall. In fact, there was something fascinating about the market's initial reaction to the continuing jobless claims data for the first week of September. Um, and that's I mean, we're we're complete wonky dorks at QI Research. We'd love to dig in the weeds of the data. And so, something didn't make sense when we looked at states by states. And lo and behold, the number of individuals in the state of North Carolina collecting jobless benefits did not go from north of 20,000 to 200 in one week. Rather, it was a typo. So, we actually had continuing according to the Department of Labor. So, we actually had continuing jobless claims rise to the highest level in more than a month instead of falling this morning. which is why the 10-year which has kind of had a bad ugly ride since the the Fed decision came because it was a um Powell called it um a riskmanagement. Yes. I wanted to ask you about the risk management cut. Yes. Meaning we may be pausing again um in favor of the inflation mandate. Uh but we now know uh and so the tenure popped all the way up to I want to say 4:14 today before it closed at at 410 and it was below four yesterday, right? It dipped below four yesterday. But as soon as as that news began to circulate began to circulate around chat rooms, starting in my chat room for our pros, then you saw the tenure come off the high yield of the day because they were like, "Oh, we did not see a major decline in continuing jobless claims. We actually saw a sizable increase." Yes. Okay. Um, why do you think it is that the market has not recognized we're in a recession? Because it makes me wonder, Danielle, like gosh, if you look at who owns the asset prices, they sure seem to like be great. They probably aren't in a recession, but when I see folks who comment the comment section, there are a lot of people who feel like they are in a recession. So, does that also illustrate they're not a K-shaped economy here? I don't even think I don't think the letter K is appropriate anymore. I mean, we're going to have to in avent a new a new letter because as Moody's announced earlier this week, um the top 10% now account for 49.2% of consumption in this country. Um that same top 10% owns what? 87% of the stock market, something along those lines. And they probably own homes. They own homes and they're not feeling a recession. But is the letter K appropriate when you're only talking about 10% of the US population? I don't know what the letter would be, but yeah. Yeah. I mean, University of Michigan, we just saw the the percentage of individuals expecting the unemployment rate to rise in the next 6 months. Is it 65%. Those are your comments. Those are your comments because 65% of Americans know that the unemployment rate is going to rise. They know that the job market is in a recession. Yeah. And it's and and we've never gone over 50% and stayed over 50% as we have since April without the US economy being in recession. Do you think we're heading into a double dip recession? I think we're in a double dip recession. In a double dip. That is our firm's that is our firm's actual call right now. Can you elaborate a bit more on that? Yeah. Well, we know job losses commenced in the second quarter of 2024. So, we know that the economy was in recession in 2024. Again, there was a lot of enthusiasm. There was a burst of confidence around the presidential election. Um, you know, are companies going to unleash just crazy amounts of capex and start hiring in the private sector? Of course, the CEO round table for the third quarter just told us the answer is no. Um, but there was that burst of enthusiasm and then we slipped right back in. So the closest historical correlary that we can draw was kind of the the brutal double dip recession of 80 and 81. And we forget that that President Jimmy Carter at the time had grown federal payrolls and that Ronald Reagan came in after inauguration day and slashed federal payrolls. And we haven't seen that in the data yet. By the way, Reuters estimated that 248,000 federal workers had had accepted the the buy the buyout. Mhm. Okay. Well, um the vast majority of them their severance package ends on September the 30th in just a few weeks. And that won't get counted until until they file for unemployment unless they've gotten jobs. But we know that hard to get a job right now. Yeah. We we know that the long-term unemployed, those who have been unemployed for 27 weeks or more, a half a year or more, and they become stigmatized. Employers don't want to employ Employers don't want to hire them because they've been out of work. But we know that the level is north of 25% of the unemployed. Yes. Who've been long-term unemployed. That scarring is very problematic and indicative of the fact that if you lose your job, you're not getting another one. Mhm. And that might also explain um in the labor data, you've seen a lot of people who've become like consultants or they're doing more gig work. U so that might it might look like it's a job, but they're it's not the job that they want. No, I mean since January, okay, this is in the last nine months, we've lost more than 1.4 million full-time jobs. These people want a full-time paycheck. I can promise you that they are not covering the rent. They're not covering their essential spending with a part-time gig work. They're not whatever they're putting on LinkedIn, their initials. LLC so that they can show work continuity that's not paying the bills. Do you think this is all going to like come to a head? Um, so there uh to be fair, the same CEO survey that just hit the wires did show a slight uptick in capital expenditure intentions. Now, this is the one stimulative potentially the one stimulative aspect of the big beautiful bill because companies know that starting next year they get to depreciation, they get tax breaks. Um, and that has spurred economic activity in the past. The the caveat here is the same survey shows that again they're not planning on hiring more people. CEOs are indicating we're going to plow money into costcutting endeavors to increase what one worker can produce for us. Use AI. Use AI. And that's exactly what they said, Julia. Increase the productivity of the um of the person. Don't increase your headcount. Yeah. So, will this all come to a head? You know, um this is going to be the first year, I think, in US history, um this is according to somebody else's calculations who's a demographer, but this will be the first year in the history of the United States that we see population contract. So if you think of the unemployment rate, the denominator is the the size of the workforce, the numerator is the number of unemployed. Well, you're shrinking the denominator appreciably with all of the out migration and deportations, which means you need to have less unemployment. unemployment needs to increase less to move that unemployment rate up more. Let me ask you this. Going back to the Fed, um their mandate, this dual mandate, even chair pal yesterday talked about the tension between the two and trying to strike that balance. Does the mandate even make sense? No. No. the mandate. Um, so gee, we're bringing up Jimmy Carter twice and I think he was a an amazing, wonderful statesman after he left office. He was not good with economics. Um, but the economy was so bad that in 1978, the second mandate was added to the Federal Reserve. That was that was a Jimmy Carter era expansion of the Fed's what had been lender of last resort in times of financial crisis and inflation and that was it. Mhm. But they add something that's inherently in conflict. Yeah. Because when you want to minimize inflation and maximize employment at the same time, I want to juice the economy and I want to slow the economy down. Which is it? So they've they've been in conflict with one another. I It's part of my book Fed Up. I I have I have long time advocated for Congress to go back and rewrite the the financial um the Federal Reserve Act to amend it back to just minimizing inflation. Has there ever been like a conversation about that that you know of that there are um generations of libertarian-minded individuals in Congress um are aware of this. But Congress Congress is an interesting beast because they haven't done much for the country lately. Well, they haven't done much for the country since Alan Greenspan came to office. It's been so much easier to avoid legislation and just push all the pressure over to the Fed. You fix it. You fix it. But maybe they can't because if they're in conflict or it's contradictory, it's exactly what can you really do? Exactly. Okay. Um, you mentioned your book Fed Up. This is why I like it when you interview me because you're a smart cookie. You're very smart and I love learning from you. Okay. You mentioned your book Fed Up, an insidider take on why the Fed is bad for America. I think I got the title right. There you go. You did. Okay. Um made me so popular at the Fed. That subtitle. I love it though. Would if you were to write a book today, what would you write about or maybe an update to Fed Up? What would you add? I would write about the unexpected, and we've spoken about this before. I would write about the rude awakening of the United States and the world economy, discovering that the Fed put, it is going to be the rudest of awakenings. Now, here I'm I'm going to we're going to go Socratic for a second. What does the average investor what are they saying when they say the Fed's going to rescue the markets? The stocks are just going to go back up. But what would the Fed do to do that? Cut rates. How much? How much? Um how many people are talking about? Thank you. Because zero bound. Once they get to the zero bound, then they can launch quantitative amazing. So when people today talk about the Fed will run to the rescue of the markets, they're talking about the Fed going to the zero bound and relaunching QE. Period. End. That's how they interpret it because that's what it's that's the world we've known since 2008. Bias. Yeah. Yeah. But that worked in 2008 because the labor force participation rate among individuals who were 55 and older increased appreciably. The boomers went back to work. They kept their money in the stock market. 72% of the US portfolio is in the stock market. 20%'s in cash. The balance is in fixed income. 40% of the stock market is owned by individuals who are over the age of 70. 70 and older. The median age of baby boomers today is 71. They own 40% of the stock market. They own 25% of the housing market. What happens? We're still doing Socrates here and we've talked about this before. What happens at the zero bound for all those boomers? Because we know what they did in 07. We know what they did in 01. They're going to sell. Are they gonna sell? Are they going to is are most 71y olds going to rejoin the workforce? Well, they're definitely not not going to rejoin the workforce. Okay. Or maybe they or maybe they have to, but I don't know. Like what are the opportunities if you rejoin? Are you Is there Is there a hiring freeze on? Well, if we're Do they have AI skill sets? I was going to say, yeah. or you do like gig economy work, but then like I don't know if they're taxis ton of octogenarian lift drivers and Uber drivers these days. I do. It's sad. It is. Yeah, it's tragic. Um, but those are what you would consider to be stop gap measures. But I'm talking about the 40% who are sitting pretty who I'm talking excuse me I'm talking about people who are over the age of 70 who's who who own 40% of the stock market. They're not going to go drive for Uber. No. And if you go to the zero bound, yesterday they were making four four and a quarter. Today they're making 4%. On their cash. Mhm. How low can the Fed go? We don't know. We We don't know. Is it probably closer to Treasury Secretary Scott Besson's 150 basis points? Can we go to that threshold that would kind of break below 3% that they're making on their money market fund? Would that co that would probably cause them to rotate into dividend paying stocks to generate an in income cash flow stream and because they're probably also on a fixed income too because they they don't have a job either. They're they have to also people are living longer too. You have to think about longevity and what you can take out every single year and how expensive healthcare is as a factor of your aging. Yeah. And then also there's going to be in home care or they might need help. Um yeah. So how so can is the Fed put dead? That's what I would write about because the zero bound when every half a percentage rate cut, every 50 basis points takes 70 billion dollars of interest income out of the hands of retirees. You're playing with fire if you go to the zero bound because you'll p you. Why is the stock market up, Danielle? Why is good news good news? Why is bad news good news? Why is any news Mhm. Good news for the stock market because passive is a beast. Twothirds of the flows into the market automated. Do you think that's what's been holding everything up then? Oh gosh, yes. Yeah, the passive flows. Oh gosh, yes. Absolutely. And no one's really seen what that looks like on when that reverses. Never been stress tested. Not in US history. Never been stress tested. That's what Mike Green often talks about. Yeah. Ever. But if the Fed were to go to the zero bound like most crazy foaming at the mouth stock market bulls are like the Fed will ride to the rescue. They will take we'll go to the zero bound. We'll they will relaunch QE. And I'm like yeah and then what does 40% of the stock market do if you're at the zero bound? Mhm. Then you stress test pass it for the first time in the history of indexing. That would be very ugly. Oh wow. Which means the Fed put Mhm. is no more doesn't work. But I mean as things stand, you know, FedEx still sells very well. I I I dare say our Treasury Secretary has read it because he sure has been um echoing my final chapter, shall we say, in things he's written. Remind me of the final chapter. The final chapter is um there's nothing less satisfying than reading a book that's like excuse my French. I know this is a family show. No, you can you can cuss on the show. A You do not want to read a without saying okay now what do we do about it? Mhm. And so the final chapter talks about 1913, the US economy, St. Louis, Chicago, Minneapolis, Kansas City. These were huge booming rail heads. Why do we have all of those Federal Reserve district banks where they are today when you could have one in the Midwest? Cleveland Fed. I mean, my god, there's five of them. Yeah. But you could certainly have one. And by the way, former Treasury Secretary, former Fed Chair Yellen, things really go wrong in that 12th district. I mean, countrywide Silicon Valley Bank, but you just needed a 112th district to cover, I don't know, half the ge geography of the United States in 1913. California wasn't the world's fourth largest economy back then. Yes. Now you have a deficit of supervision on the West Coast. So, I would advocate for adding one. Yeah. on the west coast, but getting rid of four. Yeah. In the middle of the country. We probably don't need You're right. It was a different time. It was a totally different time railroads and not and do we need 786 PhDs to screw in a light bulb? From the same school of thought. Probably not. So, it talks about that as well. It talks about bringing practitioners. The last chapter of Fedup talks about bringing practitioners who understand the intersection of the financial markets and Fed policy. I Rick Reer, he could walk through that passive theory in two seconds flat. He would understand exactly how monetary policy would affect the financial markets if you went to the zero bound again. Rick Reer would get it and he spent two hours visiting with Bessant. Do do you think he's the front runner or could be? I look I I mean cynically be a great time to sell all of his stock holdings which is a bonus. It's a perk, right? Ask blankfine. Ask Cohen. Ask any of them. Okay. So, I have to ask you one final question before I let you go and you've been very generous with your time. This week would have been the 17th anniversary of Lehman feeling. Mhm. financial crisis. You September 15th. Yes. September 15th. That's right. Monday. You were known for your call on the housing market, the financial crisis. You nailed it. Looking back over the last 17 years, what's a lesson you think we still haven't learned? Well, that brings us back to Governor Waller. Um, Governor Waller in his very first televised interview after he was confirmed onto the Federal Reserve Board said that home prices were on fire and that the Fed had no business conducting quantitative easing in the mortgage back securities market. And in fact, that is a violation of the Federal Reserve Act. The Fed is not legally able to to conduct credit easing and to rescue one particular sector of the US economy as it's done not once but twice with housing fully distorting the biggest asset on most Americans balance sheets. Not the top 10% but the biggest asset on most Americans balance sheets. And people people were a little bit surprised. They didn't mention anything about the MBS rolloff. Kept it at 35 billion a month every month. I mean, they've reduced the Treasury roll off to just 5 billion a month, but they're keeping that MBS going. I hope the Fed has learned that lesson. The the flip side of it is we didn't know enough about the non-banking sector in ' 07 and in '08. I wrote briefings about it. We know less about it today, but it's gargantuan compared to what it was. Non-depository financial institution loans are up north of 20% year-over-year whereas other conventional bank loans are flat as a pancake. We don't have a trillion dollars of margin debt. We don't know how much leverage is in the stock market because the the money that triple levered ETFs use is borrowed in the shadows. It's barred in the non-banking sector because things like a big subprime automobile lender that went kaboom because it had warehouse lines at not one, not two, but three banks. Same collateral. It's called an offbalance sheet loan. We used to talk about that in the days of WorldCom and Enron, but now we have it that is just massive. And regulators need to understand better what has become the fault line and that is the private markets. Danielle, it is always a pleasure having you. Before I let you go, um, let folks know how they can find you, support your work. Um, QI research, the Daily Feather. I'm a paid subscriber to the Daily Feather. Um, you just celebrated your 10th anniversary. We did. We've been We've been cranking this research out for 10 years. Any parting thoughts? Written all over my face. Um, oh, parting thoughts. You always ask me about parting thoughts. The floor is all yours. Anything you want to say. Um, I would say give peace a chance. We have to listen to each other and be tolerant of one another's views in this country and there's a leadership vacuum that has to be filled. Somebody's going to have to rise to the top in this country that quits trying to antagonize. And I'm talking about both sides of the aisle. We have to give peace a chance. We have to open our ears. I've raised all four of my kids. All four of them. Turn your listening ears on. Turn your listening ears on. We have to listen to each other in this country. Give peace a chance. Well said. Daniel D. Martin Booth, CEO and chief strategist at Qi Research, author of Fed Up, friend of this show. We always enjoy our conversations. Really appreciate you, Danielle. Thank you for having me.