Danielle DiMartino Booth: Fed Risks Repeating December 2018 Liquidity Crisis With Rate Hold
Summary
Market Outlook: Fed divisions, data delays, and tightening liquidity raise the risk of policy errors and even an intra-meeting cut if conditions deteriorate.
AI: Skeptical view that AI will not deliver a broad productivity miracle, instead enabling permanent workforce reductions while insiders sell AI-related shares.
Nvidia (NVDA): Positioned as a market linchpin with outsized influence; heavy focus on its earnings and betting markets underscores concentration risk.
Bitcoin: Noted as moving in lockstep with the NASDAQ 100, serving as a barometer of speculative risk appetite that could signal when the bubble breaks.
Information Technology: Concern that large tech companies are adding significant debt to fund the AI narrative, increasing systemic vulnerability if sentiment shifts.
Semiconductors: The conversation highlights how weakness in key chip names like Nvidia could destabilize broader indices given current market dependence.
ADP (ADP) Data: Praised ADP’s weekly payroll series as among the most accurate and timely labor indicators, arguing the Fed should lean on it despite official report delays.
Risk Management: Emphasis on liquidity monitoring, potential contagion, and valuation excess as key risks into year-end.
Transcript
It really depends on what happens with this economy. And as long as the Fed insists on saying we cannot make informed decisions without official data, it gets more and more difficult as a factor of time despite what we're hearing from corporate America. Danielle D. Martino Booth, CEO and chief strategist at QI Research. It is so wonderful to welcome you back to the show. Great to see you as always, Danielle. and we were recording after the FOMC meeting minutes and I know the last time you and I spoke on Fed day you wanted to dive into those minutes and see what they were talking about. Great to see you and what's your big picture reaction? >> Well, I mean I think the biggest takeaway is the obviousness with which they broadcast how deep the divisions are right now on the Federal Open Market Committee. You know, there were several members who felt it would be appropriate to continue cutting interest rates into the end of the year. There were several who felt that they should not have cut at that meeting, meaning a non- voter beyond Jeffrey Schmidt of the Kansas City Fed who desented. A non- voter also would have dissented. And then there were many many who felt that it was appropriate to pause after the October 29th rate cut and not take any more action until after uh the new year until they had more clarity and could get past their anxieties about inflation, which by the way has all but disappeared. Um the Bank of Bank of America conducts a a fund manager survey and um the trade war, tariffs, inflation dropped out of the top four. So um it's not it's not an issue on on Wall Street. It's not an issue on Main Street. It's not an issue in corporate America. It's an issue for consumers. Uh but it appears to still be an issue for the Federal Reserve. Um so it's it's a very interesting backdrop where the tone deafness appears to be deafening. >> Okay, let's explore this because you and I have talked about this that even you know Fed chair pal at the presser came across as tonedeaf. I take it you're continuing to see that in the minutes. Elaborate a bit more on that. It seems like there's a disconnect then. Well, I think um I I don't really think there's a disconnect as much as there's just overt politics going on uh on the Federal Open Market Committee. I've said it before and I I'll say it again. I think we have better monetary policym um after January when Steven Meyer leaves. I doubt that Treasury Secretary Bessant would um would green flag another individual who was not going to be uh wanting to take an entire term as opposed to just taking a a short hiatus from work. And so I I think policym may get more consiliatory after the January meeting, but then you know it really depends on what happens with this economy. And as long as the Fed insists on saying we cannot make informed decisions without official data, it gets more and more difficult as a factor of time despite what we're hearing from corporate America. >> And you know, speaking of data, we're just not getting a lot of the data, especially around the labor market. Um there other than tomorrow if I I heard we were c chatting before we'll get the September jobs report tomorrow Thursday >> but there won't be another jobs report until after the December FOMC meeting. So they they're probably flying blind then. >> Well Julia, my point that I was trying to make earlier is that they're going to say that they're flying blind. >> Um and there's you know it's an important distinction because we know that they're not flying blind. Um, we know that we had a 15-year high in October layoffs that were announced. Um, subsequent to that, Verizon announced that it was going to be cutting 15,000 workers. Um, you know, the data have not stopped accumulating. ADP has come up with a weekly report that tells you what private payrolls are in the United States. It's bounced off of its lows, but there's still net job destruction according to the largest payroll provider in the country. that by the way stepped into the breach when there was no data and ended up making to the public to the economics community something available on a weekly rolling basis. This is the most accurate data that we've had in decades now that we're getting it from ADP and we're also getting it from initial jobless claims. So there's there's an abundance of data for the Fed to lean on. the fact that they're going to say that without official payroll data that they're not going to be able to make a move, which is clearly reflected in the markets, pricing out the December rate cut. It's it's emblematic of the fact that they're going to lean on anything they can uh really to give this current administration the Heisman. And I think that that's what this is all about. If I could add >> a tinge of irony here, >> this is an administration that desperately wants rate cuts. And what do you do with a Fed that is claiming to not be able to navigate through the fog? >> What do you do if you want them to stop cutting rates? You pull the data. And that's exactly what they've done. This November non-farm payroll report, not only is it going to be delayed, even though it shouldn't be, it's going to be delayed until December the 16th, 6 days after the Fed meets. So, the administration that seems to want rate cuts has literally taken its own rate cut away by the actions that it's taken. >> That is a fascinating thought. I didn't even think of that. Huh. Okay. They're giving a Heisman to the administration, which the administration has been super vocal of wanting rate cuts. >> Yep. They could have just left the November non-farm payroll report to be reported several days before the Fed met. Instead, they've now delayed it until after the Fed meets on December the 16th. And >> why gives the appearance that the the administration is trying to hide something, which makes it even worse. >> Um, but at the same time, it also gives the Fed cover if if if the Fed's looking for cover. >> So, there's there's irony and then there's real irony. And there the real irony here is that the administration is shooting shooting itself in the foot. >> H, that is so fascinating. Okay. Um, yeah, my my wheels turning on that one. I had not even like thought of that. Okay. Um, the Fed though, like you point out, there is an abundance of data out there and as someone who has been a Fed insider at the Dallas Fed and you have talked about different data sources and you I think our last conversation you said they actually do look at the ADG report and we okay then I don't understand like why are they why can >> I mean Jay Powell's on the record in 2019 in a speech that he gave that citing the propriet used to be proprietary data that ADP provided uh to the Fed on on every two weeks that was not available to the public but that they had access to. Now it's available to the public on a weekly basis which means it's an even deeper richer resource uh of information and more real time and yet they're falling back. They're actually contradicting what they said. Waller's most recent speech um spoke about the ADP data and the importance of it and it's it's as if they've literally forgotten what they said on the public record. >> Yeah. You know, um markets I I mean as we're recording today, um we have 30 minutes till the close. Markets have turned into the positive territory. My guess is Nvidia. I don't know like why why they turn >> Wednesday. Yep. >> Yeah. Yeah. Nvidia is kind of underpinning everything. But I was just thinking even last week um when we saw markets uh have their worst decline since April, a lot of that had to do with all of a sudden the rate cut was not so certain in December that it's like a 50/50 toss up. >> Mhm. >> What do you think? Like what I mean I think I my take is you think we should have a rate cut, right? I think that we should have a rate cut for the economy, for the public good that the Fed is supposed to serve. If, you know, until Congress removes the employment mandate that they gave the Fed in 1978, they're obligated to pay attention to what's happening. You know, I I I was just I went back and revisited Jay Powell's resume today because I I said to myself, you know, this is remind yourself, Danielle, where's this person come from? And from 1997 until 2005, he was with the Carile Group. And there he founded the industrials um in investing division of of the private equity giant. And so for all of those years he built up quite the you know the list of contacts. And when he first became Fed chair, I think a lot of people in the markets were heartened because they said he's not just going to listen to the to the official data. He's also got, you know, hundreds and hundreds of CEOs who he speaks with all the time. So I had to remind myself of what Powell did before he came to the Fed. And I find it very disingenuous to suggest that the people he used to speak to who are firing thousands of people at a time when they are not normally fired right in front of the holidays. I find it very difficult to believe that he's not still talking to these same people. Again, it is willful blindness and it is high hypocrisy. Hey there, I just want to take a quick moment to thank you for watching this video and I would really love for you to subscribe to this channel if you like this content. Over 70% of our viewers are not yet subscribed and we are on a mission to hit 100,000 subscribers. So, if you could just take a quick moment, hit subscribe. Thank you so much for your support. We appreciate you. And back to the video. Yeah. To not do the cut just because of what's happening in the economic backdrop. I guess my other thing is I know like people talk about the Fed being independent and then there's a conversation around the politic the politization. >> I can't say the word either. >> I can't say the word politic. >> I can't say it. >> The other word I can't say is strategy or strate. I had a voice coach who worked with me on that. I still can't say it. >> One of our son's friends is named Rory. Ror. Rory. Forget it. >> Yeah. >> Can't say it. >> I don't know. I probably couldn't say Rory. Yeah. Rory. >> Anyway. Okay. >> After this commercial, we'll be right back. >> We will be right back. We're having fun, Danielle. We always have fun. Okay. Um I just don't get it with the Fed then. Like I just don't understand. Like why does it matter if Trump wants a rate cut? Like I don't understand why does it matter like if they cut I just don't get it. >> It shouldn't. It shouldn't. Um, you know, look, it is Powell's job at the podium to communicate the intentions of the Fed. Powell can come out and say, "We do not agree with the fiscal actions that have been taken by the current administration because they've been detrimental to the broad US economy. We don't agree with continuing with deficit spending as is being done." Uh, but it doesn't matter how we feel about what the administration is doing. I am Jay Powell. I am Fed I I'm chair of the Federal Reserve and I'm telling you that what we're going to do is what's right for the country and what's right for the people we serve. And that's why Congress created the Federal Reserve to be an a-olitical institution to not be in any way influenced by politics. And yet politics is what's driving monetary policym I it's when you think about how tenuous the situation is right now that the world is hanging by a thread depending on what happens next with Nvidia and with Bitcoin and the fact that if either of them fall out of bed and this great big valuation bubble that we're staring at finally begins to deflate and the fact that the top 20% of income earners in the United States own 87% of the stocks. The top 10% of Americans control 50% of consumption in the US economy. If anything happens to the stock market, we're going to go from a K-shaped economy to an underscore. It's it it will be so rapid. And yet, this is the environment in which the Fed is choosing to play with fire. And and the thing is they'll be outed because they can ignore the plight of working men and women. >> They can ignore it as long as the stock market hangs in there and that top 10% of earners that's worth 50% of consumption continues to fly private and go on shopping sprees on Fifth Avenue and spend to abandon. They can continue to ignore it because that top 10% can hold the whole economy. It can hold up GDP. But if that top 10% even gets nervous, the fact that the other 90% is in recession, that will become much more apparent. And then history will look back on this Fed in particular as having been so derelictked in its duty to the American people that it chose to look the other way because the stock market was up. >> But they've Yeah. And they've already been looking the other way because as you and I have talked about, >> there's a recession out there already. a lot of people who feel it. >> Look, you've got I I I was just looking at at at at the data before I came on. You've got 64% um of college graduates ages 20 to 24 in the labor force. And this is a huge decline in terms of the employment ratio of this particular age cohort, 20 to 24. I I saw another interesting little snippet. In 1993, um I think 87% of all high school graduates said that they anticipated being married one day. That's fallen into the 60 percentile. That that even even high school seniors coming out sense the lack of opportunity such that they're they're not even they're like, "Well, who can who can get married? Who can afford to have kids? who can afford to buy a house. You know, I that's the backdrop. This is where we are in US history and the Fed is choosing to completely disregard the bigger picture. >> Yeah. It's a when you say like this is where we are in US history and you share stats like that, it also makes you think like what is our trajectory then and where are we going? It's like these will have longterm consequences not just in the moment right now of like oh like you're talking about like generational impacts or >> well that's the thing you know my mentor Lacy Hunt Dr. Lacy Hunt has >> has pointed to the difference between the AI revolution and other technological innovations going back through time that were accreative to jobs. And his point is AI actually allows companies to have less plant and equipment. It's the point of it. AI allows companies to permanently reduce the size of their workforces. And that is a distinguishing factor between the advent of the internet all the way back to the cotton gin or fire for that matter with the caveman. AI is not going to be the productivity miracle that's being sold by people who are methodically, legally selling off their shares in AI stocks. This episode is brought to you by VANX Rare Earth and Strategic Metals ETF, ticker symbol REMX. Rare Earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind turbines. Van Ec recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly from mining to advanced manufacturing. Investors can gain access to this powerful trend through REMX. Visit van.com/remx Julia to learn more. you gave a talk recently at the New Orleans Investment Conference. It wasn't just a panel or an interview. You actually gave like a presentation. Um I think you also hit on some of these themes too, but >> it's gone it's gone kind of viral. I'm I'm sorry. >> Yeah, it has gone viral. Yeah. And it's, you know, this is kind of like there you we've seen this kind of play out throughout history, too. Are you just um like maybe bigger picture concerned about just more of the trajectory of the US more broadly then? >> Well, we've spoken about demographics in the past and we know that when you add up Gen Z and millennials, you get to 48.5% of the US voting population. We can pretend that what happened here on this island with its mayoral election was an idiosyncrasy just like we can pretend like and first brands were idiosyncrasies in the credit market because it's a it's it's it's a convenient narrative. But what if what happened in the mayoral election is more a reflection of of younger Americans voting with their nihilism. And what does that say about the future leadership of the United States? What does it say about the the dreams of our founding fathers of having a country that provided opportunity to everyone not just a chosen few. So I think that we are at a critical economic juncture in this country. We, you know, those who forget that Rome fell because of in income inequality, you have to remember the lessons of history or dare say, rumor has it, you repeat them. >> Yeah. Yeah. They rhyme. Um, and you know, you bring up a a point too of like our path that we're on. It kind of makes me wonder like will there be a reckoning or do you have to have some sort of crisis to get back on the right path or something? I don't know. It just Yeah. Yeah. >> Well, that's what that's what US history says, >> right? That is what US history says. It says that every 60 to 80 years, as Neil How demonstrated in the fourth turning, >> you know, I mean, the last time we had something that was of this magnitude was the civil rights. >> Yep. >> Um from the 1960s. So, you know, if it's every 60 to 80 years or so. >> Yeah. The seculum, it's like Yeah. the 80 years. Yeah. It it's it's getting there. >> And you feel it. You feel it when you hear about kids who are 22 years old coming out of college and cannot get a job. And to tell somebody, oh, that that four years of education was just wasted. That can really jack with your mind. >> Yeah, definitely. Um, we've had Neil How on. I've not had him on in over a year, but he did say that we are in the fourth turning right now. Um, and we're going through that. >> Well, co I'm I'm friends with I'm friends with Neil and he basically said that CO acted as an accelerant. >> Um, interesting. >> Because we gave people so much during CO and then we took it all back. So, >> yeah, >> it really angered them. So, it accelerated the turn. If you were a policy maker, um, or you were at the Fed or I don't know exactly. We can do whatever in the hypothetical, what would you do? >> Well, first I would get a bulletproof vest and then I would say quantitative easing is gone forever and then I would >> don't name it something else and do the same thing, right? >> Don't name it something else and do the same thing. Don't um, you know, stop interfering in markets. take the Fed funds rate down to 2% because we're in a terrible recession, but never go below that 2% floor because anything beneath that, all it does is inspire speculators. Um, regulate non-banks as rigorously as you regulate banks so that one generation of regulation doesn't just create innovative finance bankers who are going to be like, "Okay, fine. If that's what if that's what DoddFrank did, then we'll just work work our way around it. And lo and behold, a few years later, the non-banking sector is a lot bigger than the banking sector. Why? Because they moved where they can where they can go to to make money. So, um I I don't know if if I was in charge of the world, if I was in charge of the Fed, if I was in charge of a regulatory agency, if I was president of the United States, I would just I would just dispense with all the Excuse my French. I've never done it. >> I love it. Danielle, for president, I will sign up to be your press secretary. >> And I would let my press secretary speak the truth. >> Um gosh, it's uh and and again, the reason I started that out by saying I would get a bulletproof vest is because nobody wants to do this. >> Nobody wants to say we need to let the markets be free because that's what our founding fathers were. That's what they advocated for. That's why that's why we fought to escape Britain. >> On that point, what do you make of this kind of conversation around like the government taking stakes in companies? >> Oh, for God's sake. It's um it's unamerican. I don't have much more to say about that. I just had a Forest Gump moment. >> Yeah. Yeah. Um I guess even just more broadly with like the speculation, you did mention Bitcoin. Um, oh gosh, where's Bitcoin right now? Let's look. It is Oh, it's 89,000, but it's Yeah. >> Oh, it's it's well off its loads. >> Up a tiny bit. Yeah, it just turned as I looked at it. >> Um, you know, um I I don't I don't believe in coincidence. And there's a chart that Bloomberg put out a few days ago that shows that there's like a 90 something% correlation with the NASDAQ 100 in Bitcoin. Um, that is not what we call coincidence. You know, some people might people might be like, "Oh, causation is not correlation, blah, blah, blah." I'm sorry, but when you're moving in lock step, Bitcoin right now is a pure reflection of animal spirits. if it's moving in lock step with the NASDAQ 100. Um, you know, the the fact that it's strong enough to dictate the path of the markets tells us how far along we are in terms of the speculative mania, how long this has gone on. And and you know what? Maybe we do need a barometer. Maybe we do need something to tell us when the gig is up. Because when you start to look at the amount of debt on the balance sheets of the largest technology companies, I mean a year ago we were talking about their tremendous cash flow. A year ago we were talking about how strong their earnings were. A year we were having much different discussions. Now they've put on hundreds of billions of dollars in debt. Some of it off balance sheet, some of it on balance sheet. Hey Enron, hey WorldCom. So, but it's all public, which means that anybody who's now buying into this AI narrative is saying it's different this time. They can also take debt on and they'll be able to get to their pro-formid numbers even though they're making they're making millions of dollars in earnings, but they're borrowing billions. It's just >> But in that kind of an environment, fine. Let Bitcoin tell us what our fate is because at least we recognize that the emperor's that the emperor's naked. >> I said naked like I'm from Texas, but naked. >> Naked. >> Yeah, naked. Naked. Bottomed. Um, okay. >> Rory can't say it. >> Rory. I know. We're having a lot of fun. I don't know if this has always been the case, but isn't it kind of strange like how much weight we put on one company and one company's earnings and all eyes on this one company and the stocks popping? Somebody just put in my Bloomberg chat a a chart that showed the betting probabilities of Nvidia beating its earnings and in the last two hours of the trading day, it had completely collapsed. I mean, there's a betting market. >> I'm looking right now. I'm looking on Let's see what Oh, and they also they beat their >> They haven't report it yet. >> I don't know. I'm looking just to see if uh I can't find it on the betting market, but I'll have to look cuz it was like what will Nvidia say on their call? They have all there's so many markets now. >> H >> and that's that's you know what Julia what you just said there's so many markets now. >> We've yesterday >> we we've become this there's no I'm I'm starting to think that there's there's a reason nobody's in Vegas. >> We don't need to go to Vegas. >> We can just >> Vegas. I want to Vegas. >> We can get on anything we want. Anything. Just put it on red. All right. So, there is a betting market. You're right. Um I just went on Poly Market. Will Nvidia accordingly earnings 86% chance right now. Yeah, I was on um there was a betting market yesterday on Cali on like will Bill Aman say may I meet you on his Twitter spaces and he did not, I don't think. But yeah, there's a Yeah, there's a market for anything. And also, I did go to Vegas this summer for Backstreet Boys. Totally empty other than for the for the concert. >> Yep. Scary. Well, that's what happens when you charge $3159 in including tax, title, and license for two beers at a pool. >> Yeah. Yeah. H crazy times. All right. >> It was so shocking. I remember the 3159 part. So, >> yeah. Um, you mentioned like your Bloomberg chat. I always like getting like intel from you. You have such a pulse on like what the institutional players are talking about. You've kind of mentioned some things, but what is that interesting conversation happening right now? You know, it was interesting yesterday. We actually uh shared a chart not of Bitcoin um but of Alibaba and um you know what if that was what what if the idea was what if what's breaking in the US markets actually has the capacity to be contagious and it was like woo deep thought there's a lot of technicians in my chat so there's a lot of charts running around in resistance levels and um but when you start to you use the word crisis I mean when you start to talk about the possibility of contagion and we're talking a lot about insurance companies and and credit rating agencies in somebody's you know home in New Jersey um and just the ridiculousness of it all the conversations are very very interesting We talk about private credit and private equity a ton. >> Yeah, that I first got turned on to that because of you um when we were together um at after one of the FOMO's probably I don't remember which one now, September maybe. Um >> and that's the other thing the Fed is actually ignoring liquidity right now. >> When you start to get violent moves in the market, that is a reflection of liquidity drying up. You know, if they don't cut on December the 10th, they're opening themselves up to come in with an intra meeting emergency cut. >> Wow. Okay. Um, if you the next time you and I will see each other, >> two seconds. >> Yeah. >> December 2018 FOMC meeting. Powell stood tough and we had the blood bath on Christmas Eve and he had to do a full 180. He's actually not just read this chapter before he starred in the movie. >> Was that because of the repo? >> It was because liquidity dried up. We We didn't have a single junk bond. >> No, no, no. That was the next year. That was not QE. That followed it. But in late 2018, there hadn't been a single junk bond issued for 41 straight days. Um, and that was becoming a globally contagious issue. And and Pal was forced to back down and reverse his hawkish stance from the December 2018 FOMC meeting. >> Got it. Okay. Um, if the next time you and I will see each other will be um after the December FOMC. >> I know. What would be your question for Pal? >> My question for Pal would be, why have you stopped talking to your contacts? Why can't you hear the voices of the people doing the firing and the people being fired? And then my next question would be like go out in front of the Eckles building and catch an Uber and you tell me if the person driving that Uber isn't overly educated or should be retired. >> Danielle, before I let you go, um, just to go back one more time, if the Fed does not cut, they're opening themselves up for an intrame emergency cut. >> It's highly feasible. Look, we've got some liquidity issues here. They're going to stop QT. They're they're literally doing balance sheet policy that is conflicting with monetary policy at this point. So they're they're they're recognizing that that the plumbing of the system is potentially in a dangerous situation and yet they're holding monetary policy tight at a time when Bank of America has told us that that now small business earnings have turned negative. Small businesses in the United States are now losing money. You cannot tell me that interest rates are prohibitively high for the mom and pops in this country. >> Does that Does this also have to do with the New York Fed meeting with the Wall Street firms over the lending facility? Does it have Yeah. Now you're getting >> I feel like the New York I feel like the New York Fed is probably one of the really >> important ones to pay attention to. Right. >> It is it's it's where the markets desk lives. And the Fed wanted to find a new mousetrap to dispense with the stigma of going to the discount window. Okay, fine. But the standing repo facility that was created a few years ago that was supposed to destigmatize accessing funding directly from the Fed, you're still going to have your name revealed in public. Maybe there's a two-year wait, but it's still a very, very bad look. They didn't take away the stigmatization. Wow, I nailed that word. Um, but they didn't take it away. And that's why this meeting that happened at the New York Fed, you know, the big broker dealers said to the New York market, they're like, "You can bring a horse to water. You cannot force it to drink." And with repo lending going through the roof north of the Fed ceiling, I'm speaking in gibberish right now. It shouldn't be. There shouldn't be funding that's going on north of the Fed's upper band. And yet it is. Meaning they don't believe in the sanctity of the liquidity facility that the Fed created and could be backing themselves into not QE 2.0 easily. >> Danielle D. Martina Booth, CEO and chief strategist at QI Research. I always enjoy our conversations. I look forward to our next in-person one. Before I let you go, let folks know where they can find you, support your work, and any parting thoughts that you'd like to leave this audience. The floor is all yours. >> Well, thank you, Julia. Please come to dartinob.substack.com. Um whether the government shut down or not, whether the data is there or not, we pump out the daily feather every single trading day of the year. We love our cult following. Please come join. And if you're an institutional investor, come to Qi Research and uh and jump into that Qi Pro chat room and see what's what's all going on there. Um and of course, follow me on what formerly known as Twitter at D Martino Booth. Uh this is my parting shot. Uh we we don't take anything with us when we're gone. The legacy that we live that we leave on this planet is our children. And when high school seniors are indicating that they don't want to get married and have children, that's another legacy that we're leaving. We're leaving fewer of us. And this Thanksgiving when you come together with your family, you need to be talking, having serious discussions about who in the country can be the next generation of leader to bring the American dream back. not to just the top 1% or the top 10%, but as our founding fathers envisioned and what we've always been thankful for to be Americans, opportunity for all. Somebody out there wants to represent all of us. It's not the Fed. It's not the current administration. It's not the Republicans. And it's not the Democrats, but somebody is out there. People are out there who want to provide opportunity to all Americans. and come together around the table, give thanks and talk about the solution. >> Danielle D. Martino Booth, thank you so much. Thank you.
Danielle DiMartino Booth: Fed Risks Repeating December 2018 Liquidity Crisis With Rate Hold
Summary
Transcript
It really depends on what happens with this economy. And as long as the Fed insists on saying we cannot make informed decisions without official data, it gets more and more difficult as a factor of time despite what we're hearing from corporate America. Danielle D. Martino Booth, CEO and chief strategist at QI Research. It is so wonderful to welcome you back to the show. Great to see you as always, Danielle. and we were recording after the FOMC meeting minutes and I know the last time you and I spoke on Fed day you wanted to dive into those minutes and see what they were talking about. Great to see you and what's your big picture reaction? >> Well, I mean I think the biggest takeaway is the obviousness with which they broadcast how deep the divisions are right now on the Federal Open Market Committee. You know, there were several members who felt it would be appropriate to continue cutting interest rates into the end of the year. There were several who felt that they should not have cut at that meeting, meaning a non- voter beyond Jeffrey Schmidt of the Kansas City Fed who desented. A non- voter also would have dissented. And then there were many many who felt that it was appropriate to pause after the October 29th rate cut and not take any more action until after uh the new year until they had more clarity and could get past their anxieties about inflation, which by the way has all but disappeared. Um the Bank of Bank of America conducts a a fund manager survey and um the trade war, tariffs, inflation dropped out of the top four. So um it's not it's not an issue on on Wall Street. It's not an issue on Main Street. It's not an issue in corporate America. It's an issue for consumers. Uh but it appears to still be an issue for the Federal Reserve. Um so it's it's a very interesting backdrop where the tone deafness appears to be deafening. >> Okay, let's explore this because you and I have talked about this that even you know Fed chair pal at the presser came across as tonedeaf. I take it you're continuing to see that in the minutes. Elaborate a bit more on that. It seems like there's a disconnect then. Well, I think um I I don't really think there's a disconnect as much as there's just overt politics going on uh on the Federal Open Market Committee. I've said it before and I I'll say it again. I think we have better monetary policym um after January when Steven Meyer leaves. I doubt that Treasury Secretary Bessant would um would green flag another individual who was not going to be uh wanting to take an entire term as opposed to just taking a a short hiatus from work. And so I I think policym may get more consiliatory after the January meeting, but then you know it really depends on what happens with this economy. And as long as the Fed insists on saying we cannot make informed decisions without official data, it gets more and more difficult as a factor of time despite what we're hearing from corporate America. >> And you know, speaking of data, we're just not getting a lot of the data, especially around the labor market. Um there other than tomorrow if I I heard we were c chatting before we'll get the September jobs report tomorrow Thursday >> but there won't be another jobs report until after the December FOMC meeting. So they they're probably flying blind then. >> Well Julia, my point that I was trying to make earlier is that they're going to say that they're flying blind. >> Um and there's you know it's an important distinction because we know that they're not flying blind. Um, we know that we had a 15-year high in October layoffs that were announced. Um, subsequent to that, Verizon announced that it was going to be cutting 15,000 workers. Um, you know, the data have not stopped accumulating. ADP has come up with a weekly report that tells you what private payrolls are in the United States. It's bounced off of its lows, but there's still net job destruction according to the largest payroll provider in the country. that by the way stepped into the breach when there was no data and ended up making to the public to the economics community something available on a weekly rolling basis. This is the most accurate data that we've had in decades now that we're getting it from ADP and we're also getting it from initial jobless claims. So there's there's an abundance of data for the Fed to lean on. the fact that they're going to say that without official payroll data that they're not going to be able to make a move, which is clearly reflected in the markets, pricing out the December rate cut. It's it's emblematic of the fact that they're going to lean on anything they can uh really to give this current administration the Heisman. And I think that that's what this is all about. If I could add >> a tinge of irony here, >> this is an administration that desperately wants rate cuts. And what do you do with a Fed that is claiming to not be able to navigate through the fog? >> What do you do if you want them to stop cutting rates? You pull the data. And that's exactly what they've done. This November non-farm payroll report, not only is it going to be delayed, even though it shouldn't be, it's going to be delayed until December the 16th, 6 days after the Fed meets. So, the administration that seems to want rate cuts has literally taken its own rate cut away by the actions that it's taken. >> That is a fascinating thought. I didn't even think of that. Huh. Okay. They're giving a Heisman to the administration, which the administration has been super vocal of wanting rate cuts. >> Yep. They could have just left the November non-farm payroll report to be reported several days before the Fed met. Instead, they've now delayed it until after the Fed meets on December the 16th. And >> why gives the appearance that the the administration is trying to hide something, which makes it even worse. >> Um, but at the same time, it also gives the Fed cover if if if the Fed's looking for cover. >> So, there's there's irony and then there's real irony. And there the real irony here is that the administration is shooting shooting itself in the foot. >> H, that is so fascinating. Okay. Um, yeah, my my wheels turning on that one. I had not even like thought of that. Okay. Um, the Fed though, like you point out, there is an abundance of data out there and as someone who has been a Fed insider at the Dallas Fed and you have talked about different data sources and you I think our last conversation you said they actually do look at the ADG report and we okay then I don't understand like why are they why can >> I mean Jay Powell's on the record in 2019 in a speech that he gave that citing the propriet used to be proprietary data that ADP provided uh to the Fed on on every two weeks that was not available to the public but that they had access to. Now it's available to the public on a weekly basis which means it's an even deeper richer resource uh of information and more real time and yet they're falling back. They're actually contradicting what they said. Waller's most recent speech um spoke about the ADP data and the importance of it and it's it's as if they've literally forgotten what they said on the public record. >> Yeah. You know, um markets I I mean as we're recording today, um we have 30 minutes till the close. Markets have turned into the positive territory. My guess is Nvidia. I don't know like why why they turn >> Wednesday. Yep. >> Yeah. Yeah. Nvidia is kind of underpinning everything. But I was just thinking even last week um when we saw markets uh have their worst decline since April, a lot of that had to do with all of a sudden the rate cut was not so certain in December that it's like a 50/50 toss up. >> Mhm. >> What do you think? Like what I mean I think I my take is you think we should have a rate cut, right? I think that we should have a rate cut for the economy, for the public good that the Fed is supposed to serve. If, you know, until Congress removes the employment mandate that they gave the Fed in 1978, they're obligated to pay attention to what's happening. You know, I I I was just I went back and revisited Jay Powell's resume today because I I said to myself, you know, this is remind yourself, Danielle, where's this person come from? And from 1997 until 2005, he was with the Carile Group. And there he founded the industrials um in investing division of of the private equity giant. And so for all of those years he built up quite the you know the list of contacts. And when he first became Fed chair, I think a lot of people in the markets were heartened because they said he's not just going to listen to the to the official data. He's also got, you know, hundreds and hundreds of CEOs who he speaks with all the time. So I had to remind myself of what Powell did before he came to the Fed. And I find it very disingenuous to suggest that the people he used to speak to who are firing thousands of people at a time when they are not normally fired right in front of the holidays. I find it very difficult to believe that he's not still talking to these same people. Again, it is willful blindness and it is high hypocrisy. Hey there, I just want to take a quick moment to thank you for watching this video and I would really love for you to subscribe to this channel if you like this content. Over 70% of our viewers are not yet subscribed and we are on a mission to hit 100,000 subscribers. So, if you could just take a quick moment, hit subscribe. Thank you so much for your support. We appreciate you. And back to the video. Yeah. To not do the cut just because of what's happening in the economic backdrop. I guess my other thing is I know like people talk about the Fed being independent and then there's a conversation around the politic the politization. >> I can't say the word either. >> I can't say the word politic. >> I can't say it. >> The other word I can't say is strategy or strate. I had a voice coach who worked with me on that. I still can't say it. >> One of our son's friends is named Rory. Ror. Rory. Forget it. >> Yeah. >> Can't say it. >> I don't know. I probably couldn't say Rory. Yeah. Rory. >> Anyway. Okay. >> After this commercial, we'll be right back. >> We will be right back. We're having fun, Danielle. We always have fun. Okay. Um I just don't get it with the Fed then. Like I just don't understand. Like why does it matter if Trump wants a rate cut? Like I don't understand why does it matter like if they cut I just don't get it. >> It shouldn't. It shouldn't. Um, you know, look, it is Powell's job at the podium to communicate the intentions of the Fed. Powell can come out and say, "We do not agree with the fiscal actions that have been taken by the current administration because they've been detrimental to the broad US economy. We don't agree with continuing with deficit spending as is being done." Uh, but it doesn't matter how we feel about what the administration is doing. I am Jay Powell. I am Fed I I'm chair of the Federal Reserve and I'm telling you that what we're going to do is what's right for the country and what's right for the people we serve. And that's why Congress created the Federal Reserve to be an a-olitical institution to not be in any way influenced by politics. And yet politics is what's driving monetary policym I it's when you think about how tenuous the situation is right now that the world is hanging by a thread depending on what happens next with Nvidia and with Bitcoin and the fact that if either of them fall out of bed and this great big valuation bubble that we're staring at finally begins to deflate and the fact that the top 20% of income earners in the United States own 87% of the stocks. The top 10% of Americans control 50% of consumption in the US economy. If anything happens to the stock market, we're going to go from a K-shaped economy to an underscore. It's it it will be so rapid. And yet, this is the environment in which the Fed is choosing to play with fire. And and the thing is they'll be outed because they can ignore the plight of working men and women. >> They can ignore it as long as the stock market hangs in there and that top 10% of earners that's worth 50% of consumption continues to fly private and go on shopping sprees on Fifth Avenue and spend to abandon. They can continue to ignore it because that top 10% can hold the whole economy. It can hold up GDP. But if that top 10% even gets nervous, the fact that the other 90% is in recession, that will become much more apparent. And then history will look back on this Fed in particular as having been so derelictked in its duty to the American people that it chose to look the other way because the stock market was up. >> But they've Yeah. And they've already been looking the other way because as you and I have talked about, >> there's a recession out there already. a lot of people who feel it. >> Look, you've got I I I was just looking at at at at the data before I came on. You've got 64% um of college graduates ages 20 to 24 in the labor force. And this is a huge decline in terms of the employment ratio of this particular age cohort, 20 to 24. I I saw another interesting little snippet. In 1993, um I think 87% of all high school graduates said that they anticipated being married one day. That's fallen into the 60 percentile. That that even even high school seniors coming out sense the lack of opportunity such that they're they're not even they're like, "Well, who can who can get married? Who can afford to have kids? who can afford to buy a house. You know, I that's the backdrop. This is where we are in US history and the Fed is choosing to completely disregard the bigger picture. >> Yeah. It's a when you say like this is where we are in US history and you share stats like that, it also makes you think like what is our trajectory then and where are we going? It's like these will have longterm consequences not just in the moment right now of like oh like you're talking about like generational impacts or >> well that's the thing you know my mentor Lacy Hunt Dr. Lacy Hunt has >> has pointed to the difference between the AI revolution and other technological innovations going back through time that were accreative to jobs. And his point is AI actually allows companies to have less plant and equipment. It's the point of it. AI allows companies to permanently reduce the size of their workforces. And that is a distinguishing factor between the advent of the internet all the way back to the cotton gin or fire for that matter with the caveman. AI is not going to be the productivity miracle that's being sold by people who are methodically, legally selling off their shares in AI stocks. This episode is brought to you by VANX Rare Earth and Strategic Metals ETF, ticker symbol REMX. Rare Earths are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind turbines. Van Ec recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly from mining to advanced manufacturing. Investors can gain access to this powerful trend through REMX. Visit van.com/remx Julia to learn more. you gave a talk recently at the New Orleans Investment Conference. It wasn't just a panel or an interview. You actually gave like a presentation. Um I think you also hit on some of these themes too, but >> it's gone it's gone kind of viral. I'm I'm sorry. >> Yeah, it has gone viral. Yeah. And it's, you know, this is kind of like there you we've seen this kind of play out throughout history, too. Are you just um like maybe bigger picture concerned about just more of the trajectory of the US more broadly then? >> Well, we've spoken about demographics in the past and we know that when you add up Gen Z and millennials, you get to 48.5% of the US voting population. We can pretend that what happened here on this island with its mayoral election was an idiosyncrasy just like we can pretend like and first brands were idiosyncrasies in the credit market because it's a it's it's it's a convenient narrative. But what if what happened in the mayoral election is more a reflection of of younger Americans voting with their nihilism. And what does that say about the future leadership of the United States? What does it say about the the dreams of our founding fathers of having a country that provided opportunity to everyone not just a chosen few. So I think that we are at a critical economic juncture in this country. We, you know, those who forget that Rome fell because of in income inequality, you have to remember the lessons of history or dare say, rumor has it, you repeat them. >> Yeah. Yeah. They rhyme. Um, and you know, you bring up a a point too of like our path that we're on. It kind of makes me wonder like will there be a reckoning or do you have to have some sort of crisis to get back on the right path or something? I don't know. It just Yeah. Yeah. >> Well, that's what that's what US history says, >> right? That is what US history says. It says that every 60 to 80 years, as Neil How demonstrated in the fourth turning, >> you know, I mean, the last time we had something that was of this magnitude was the civil rights. >> Yep. >> Um from the 1960s. So, you know, if it's every 60 to 80 years or so. >> Yeah. The seculum, it's like Yeah. the 80 years. Yeah. It it's it's getting there. >> And you feel it. You feel it when you hear about kids who are 22 years old coming out of college and cannot get a job. And to tell somebody, oh, that that four years of education was just wasted. That can really jack with your mind. >> Yeah, definitely. Um, we've had Neil How on. I've not had him on in over a year, but he did say that we are in the fourth turning right now. Um, and we're going through that. >> Well, co I'm I'm friends with I'm friends with Neil and he basically said that CO acted as an accelerant. >> Um, interesting. >> Because we gave people so much during CO and then we took it all back. So, >> yeah, >> it really angered them. So, it accelerated the turn. If you were a policy maker, um, or you were at the Fed or I don't know exactly. We can do whatever in the hypothetical, what would you do? >> Well, first I would get a bulletproof vest and then I would say quantitative easing is gone forever and then I would >> don't name it something else and do the same thing, right? >> Don't name it something else and do the same thing. Don't um, you know, stop interfering in markets. take the Fed funds rate down to 2% because we're in a terrible recession, but never go below that 2% floor because anything beneath that, all it does is inspire speculators. Um, regulate non-banks as rigorously as you regulate banks so that one generation of regulation doesn't just create innovative finance bankers who are going to be like, "Okay, fine. If that's what if that's what DoddFrank did, then we'll just work work our way around it. And lo and behold, a few years later, the non-banking sector is a lot bigger than the banking sector. Why? Because they moved where they can where they can go to to make money. So, um I I don't know if if I was in charge of the world, if I was in charge of the Fed, if I was in charge of a regulatory agency, if I was president of the United States, I would just I would just dispense with all the Excuse my French. I've never done it. >> I love it. Danielle, for president, I will sign up to be your press secretary. >> And I would let my press secretary speak the truth. >> Um gosh, it's uh and and again, the reason I started that out by saying I would get a bulletproof vest is because nobody wants to do this. >> Nobody wants to say we need to let the markets be free because that's what our founding fathers were. That's what they advocated for. That's why that's why we fought to escape Britain. >> On that point, what do you make of this kind of conversation around like the government taking stakes in companies? >> Oh, for God's sake. It's um it's unamerican. I don't have much more to say about that. I just had a Forest Gump moment. >> Yeah. Yeah. Um I guess even just more broadly with like the speculation, you did mention Bitcoin. Um, oh gosh, where's Bitcoin right now? Let's look. It is Oh, it's 89,000, but it's Yeah. >> Oh, it's it's well off its loads. >> Up a tiny bit. Yeah, it just turned as I looked at it. >> Um, you know, um I I don't I don't believe in coincidence. And there's a chart that Bloomberg put out a few days ago that shows that there's like a 90 something% correlation with the NASDAQ 100 in Bitcoin. Um, that is not what we call coincidence. You know, some people might people might be like, "Oh, causation is not correlation, blah, blah, blah." I'm sorry, but when you're moving in lock step, Bitcoin right now is a pure reflection of animal spirits. if it's moving in lock step with the NASDAQ 100. Um, you know, the the fact that it's strong enough to dictate the path of the markets tells us how far along we are in terms of the speculative mania, how long this has gone on. And and you know what? Maybe we do need a barometer. Maybe we do need something to tell us when the gig is up. Because when you start to look at the amount of debt on the balance sheets of the largest technology companies, I mean a year ago we were talking about their tremendous cash flow. A year ago we were talking about how strong their earnings were. A year we were having much different discussions. Now they've put on hundreds of billions of dollars in debt. Some of it off balance sheet, some of it on balance sheet. Hey Enron, hey WorldCom. So, but it's all public, which means that anybody who's now buying into this AI narrative is saying it's different this time. They can also take debt on and they'll be able to get to their pro-formid numbers even though they're making they're making millions of dollars in earnings, but they're borrowing billions. It's just >> But in that kind of an environment, fine. Let Bitcoin tell us what our fate is because at least we recognize that the emperor's that the emperor's naked. >> I said naked like I'm from Texas, but naked. >> Naked. >> Yeah, naked. Naked. Bottomed. Um, okay. >> Rory can't say it. >> Rory. I know. We're having a lot of fun. I don't know if this has always been the case, but isn't it kind of strange like how much weight we put on one company and one company's earnings and all eyes on this one company and the stocks popping? Somebody just put in my Bloomberg chat a a chart that showed the betting probabilities of Nvidia beating its earnings and in the last two hours of the trading day, it had completely collapsed. I mean, there's a betting market. >> I'm looking right now. I'm looking on Let's see what Oh, and they also they beat their >> They haven't report it yet. >> I don't know. I'm looking just to see if uh I can't find it on the betting market, but I'll have to look cuz it was like what will Nvidia say on their call? They have all there's so many markets now. >> H >> and that's that's you know what Julia what you just said there's so many markets now. >> We've yesterday >> we we've become this there's no I'm I'm starting to think that there's there's a reason nobody's in Vegas. >> We don't need to go to Vegas. >> We can just >> Vegas. I want to Vegas. >> We can get on anything we want. Anything. Just put it on red. All right. So, there is a betting market. You're right. Um I just went on Poly Market. Will Nvidia accordingly earnings 86% chance right now. Yeah, I was on um there was a betting market yesterday on Cali on like will Bill Aman say may I meet you on his Twitter spaces and he did not, I don't think. But yeah, there's a Yeah, there's a market for anything. And also, I did go to Vegas this summer for Backstreet Boys. Totally empty other than for the for the concert. >> Yep. Scary. Well, that's what happens when you charge $3159 in including tax, title, and license for two beers at a pool. >> Yeah. Yeah. H crazy times. All right. >> It was so shocking. I remember the 3159 part. So, >> yeah. Um, you mentioned like your Bloomberg chat. I always like getting like intel from you. You have such a pulse on like what the institutional players are talking about. You've kind of mentioned some things, but what is that interesting conversation happening right now? You know, it was interesting yesterday. We actually uh shared a chart not of Bitcoin um but of Alibaba and um you know what if that was what what if the idea was what if what's breaking in the US markets actually has the capacity to be contagious and it was like woo deep thought there's a lot of technicians in my chat so there's a lot of charts running around in resistance levels and um but when you start to you use the word crisis I mean when you start to talk about the possibility of contagion and we're talking a lot about insurance companies and and credit rating agencies in somebody's you know home in New Jersey um and just the ridiculousness of it all the conversations are very very interesting We talk about private credit and private equity a ton. >> Yeah, that I first got turned on to that because of you um when we were together um at after one of the FOMO's probably I don't remember which one now, September maybe. Um >> and that's the other thing the Fed is actually ignoring liquidity right now. >> When you start to get violent moves in the market, that is a reflection of liquidity drying up. You know, if they don't cut on December the 10th, they're opening themselves up to come in with an intra meeting emergency cut. >> Wow. Okay. Um, if you the next time you and I will see each other, >> two seconds. >> Yeah. >> December 2018 FOMC meeting. Powell stood tough and we had the blood bath on Christmas Eve and he had to do a full 180. He's actually not just read this chapter before he starred in the movie. >> Was that because of the repo? >> It was because liquidity dried up. We We didn't have a single junk bond. >> No, no, no. That was the next year. That was not QE. That followed it. But in late 2018, there hadn't been a single junk bond issued for 41 straight days. Um, and that was becoming a globally contagious issue. And and Pal was forced to back down and reverse his hawkish stance from the December 2018 FOMC meeting. >> Got it. Okay. Um, if the next time you and I will see each other will be um after the December FOMC. >> I know. What would be your question for Pal? >> My question for Pal would be, why have you stopped talking to your contacts? Why can't you hear the voices of the people doing the firing and the people being fired? And then my next question would be like go out in front of the Eckles building and catch an Uber and you tell me if the person driving that Uber isn't overly educated or should be retired. >> Danielle, before I let you go, um, just to go back one more time, if the Fed does not cut, they're opening themselves up for an intrame emergency cut. >> It's highly feasible. Look, we've got some liquidity issues here. They're going to stop QT. They're they're literally doing balance sheet policy that is conflicting with monetary policy at this point. So they're they're they're recognizing that that the plumbing of the system is potentially in a dangerous situation and yet they're holding monetary policy tight at a time when Bank of America has told us that that now small business earnings have turned negative. Small businesses in the United States are now losing money. You cannot tell me that interest rates are prohibitively high for the mom and pops in this country. >> Does that Does this also have to do with the New York Fed meeting with the Wall Street firms over the lending facility? Does it have Yeah. Now you're getting >> I feel like the New York I feel like the New York Fed is probably one of the really >> important ones to pay attention to. Right. >> It is it's it's where the markets desk lives. And the Fed wanted to find a new mousetrap to dispense with the stigma of going to the discount window. Okay, fine. But the standing repo facility that was created a few years ago that was supposed to destigmatize accessing funding directly from the Fed, you're still going to have your name revealed in public. Maybe there's a two-year wait, but it's still a very, very bad look. They didn't take away the stigmatization. Wow, I nailed that word. Um, but they didn't take it away. And that's why this meeting that happened at the New York Fed, you know, the big broker dealers said to the New York market, they're like, "You can bring a horse to water. You cannot force it to drink." And with repo lending going through the roof north of the Fed ceiling, I'm speaking in gibberish right now. It shouldn't be. There shouldn't be funding that's going on north of the Fed's upper band. And yet it is. Meaning they don't believe in the sanctity of the liquidity facility that the Fed created and could be backing themselves into not QE 2.0 easily. >> Danielle D. Martina Booth, CEO and chief strategist at QI Research. I always enjoy our conversations. I look forward to our next in-person one. Before I let you go, let folks know where they can find you, support your work, and any parting thoughts that you'd like to leave this audience. The floor is all yours. >> Well, thank you, Julia. Please come to dartinob.substack.com. Um whether the government shut down or not, whether the data is there or not, we pump out the daily feather every single trading day of the year. We love our cult following. Please come join. And if you're an institutional investor, come to Qi Research and uh and jump into that Qi Pro chat room and see what's what's all going on there. Um and of course, follow me on what formerly known as Twitter at D Martino Booth. Uh this is my parting shot. Uh we we don't take anything with us when we're gone. The legacy that we live that we leave on this planet is our children. And when high school seniors are indicating that they don't want to get married and have children, that's another legacy that we're leaving. We're leaving fewer of us. And this Thanksgiving when you come together with your family, you need to be talking, having serious discussions about who in the country can be the next generation of leader to bring the American dream back. not to just the top 1% or the top 10%, but as our founding fathers envisioned and what we've always been thankful for to be Americans, opportunity for all. Somebody out there wants to represent all of us. It's not the Fed. It's not the current administration. It's not the Republicans. And it's not the Democrats, but somebody is out there. People are out there who want to provide opportunity to all Americans. and come together around the table, give thanks and talk about the solution. >> Danielle D. Martino Booth, thank you so much. Thank you.