Layoffs Surge, Delinquencies Soar; How Bad Will It Get? | Danielle DiMartino Booth
Summary
Fed Policy: Guest argues the Fed is behind the curve and should cut at least 25 bps, with minutes suggesting no December cut and labor data delays complicating guidance.
Consumer Stress: Broadening delinquencies across credit cards, personal loans, HELOCs, and auto loans, alongside a rising unemployment rate, point to deteriorating consumer health.
Retail Dynamics: Walmart (WMT) strength is driven by essentials like pharmacy and grocery and wealthier consumers trading down, while Home Depot (HD) faces weaker discretionary demand.
Market Risks: AI leadership shows cracks (e.g., NVDA), Bitcoin’s tight correlation with the NASDAQ signals elevated risk, and investors are rotating into defensives.
Health Care Opportunity: The guest highlights beaten-down Health Care with durable dividend payers as a defensive way to stay invested, supported by aging demographics and historical playbooks.
Commercial Real Estate: CMBS stress and potential end of extend-and-pretend raise the risk of price discovery and losses, warranting close monitoring of banks’ exposure.
Inflation and Rates: Trueflation near the 2% area and falling rents suggest disinflation and lower long-end yields, increasing odds of eventual Fed cuts.
Notable Companies: Mentions include Verizon (VZ) potential layoffs, JPMorgan (JPM) workforce shift to Texas, Bank of America (BAC) small-business losses, Oracle (ORCL) CDS monitoring, and CoStar (CSGP) rent data.
Transcript
the unemployment rate went up. We know that October layoffs were the worst for any October in 15 years. As of September, the unemployment rate hitting the Fed's year-end target of 4.5%. It's definitely time for the Fed to move on. They saw increases across the consumer book in terms of delinquencies. The top 10% of earners who've been carrying this entire economy are responsible for 50% of consumption. the last thing that can happen when the other 90% is in recession. >> Talking now with Daniel Debartino Booth, CEO of QY Research and uh the Fed minutes released this week showed some uh disagreements over the course of monetary action. Um and we'll talk about that. Welcome back to the show, Danielle. Good to see you. >> Great to see you again, David. And lots and lots to talk about. >> Absolutely. Let's start by talking about the Fed. Uh now we have here um reports that uh officials were at odds during their October meeting over cutting interest rates. So divided over whether a stalling labor market or stubborn inflation were bigger economic threats. We know that there were dissents. While the FOMC approved a rate cut at the meeting, the path forward looks less certain. Disagreement stretched into the outlook for December with officials expressing skepticism about the need for an additional reduction that markets have been widely anticipating with many saying that no more cuts are needed at least in 2025. Well, that's disappointing for markets and uh you know it seems that uh uh risk assets have been taking a bit of a slide in the last couple of weeks but I don't know if it's because of the Fed. Anyway, I'll let you comment on uh the Fed Minute uh uh released this this uh this week. >> Well, you know, the Fed minutes had less work to do by the time they hit the wires yesterday and they were exactly what we expected. Um they emphasized that several members felt that it was not appropriate to lower rates at all. And then they emphasized that several members did feel it was appropriate to continue raising rates into the rest of 2025 and then it said many members felt that it would be appropriate given what's happening with inflation to kind of push pause. So, it was a little bit of everything, but in the end, the consensus that went out was this idea that there was going to be no December rate cut um come in in come come December 10th. I think that that would have been the takeaway yesterday, but I certainly don't think that that was the reason that Fed funds futures literally collapsed yesterday. >> What was the reason? Well, that was the administration um that was somebody from on high, shall we say, announcing that the there would be no October non-farm payroll report at all and that when there is a November non-farm payroll report, it's not going to be it it won't be coming out when at its regularly scheduled time, it's going to have October rolled into it and it's going to be released on December the 16th, 6 days after the Fed meets, at which point Fed funds futures collapse. Ed, we'll talk about the labor market in just a minute, but you've warned that the Fed is behind the curve and uh this policy that they're instituting higher for longer that they've been doing for quite some time. Is that still the prudent strategy as of today, November 20th, or you know, is it uh is it maybe time to move on? >> Um it's definitely time for the Fed to move on. Um there are two things that we know with certainty. We know that that severance for all of the more than 100,000 US workers who accepted the buyout at the beginning of the year, remember Doge, we know that their severance ran out at the end of September. So, they would have shown up in the unemployment rate. We know that October layoffs were the worst for any October in 15 years. And we furthermore know that seasonal hiring is at one of the lowest records on record period. So just the the combination of what we know in in October i.e. There were a lot of a lot of federal workers who applied for benefits immediately. They would have showed up in the unemployment report and we know that there were 150 plus layoffs announced in the month of October followed by Verizon saying it may cut up to 20% of its workforce up to 20,000 workers in November. So yeah, uh the Fed does not need a road map to figure out that things have worsened appreciably. the consumer is um is showing different uh signs here according to different reports depending on what you look at here. What one report shows that middle class shoppers are spending less and uh this is evidenced by uh Home Depot customer bases maybe pulling back a little bit according to some reports. At the same time though Walmart's reporting strong earnings and so um we've got here maybe people spending more at Walmart and discount stores. And I was reading another article earlier this week, Danielle, about uh uh the wealthy spending a little bit more at Walmart. I don't know how they would know what the income distribution of their customer base is at the counter, but um anyway, that was the report. So, you've got here maybe signs of distress at the middle income uh level and then at the other hand, Walmart strong quarter shows Americans are still spending. I don't know what to make of these headlines. Are they conflicting to you? Actually, uh, no, David, they're not conflicting at all because Americans are spending at Walmart. And I'll tell you what, they're spending money on because the only double-digit growth rate that they had in sales was in pharmacy, things that they absolutely have to buy. They had a singledigit growth rate in groceries, which was the second biggest driver of their revenues and their earnings. And finally, yes, wealthier people are trading down to Walmart and they are the only ones who are buying a lot of the discretionary goods that Walmart sells. But right now, Walmart is doing as well as it is because it sells what we absolutely have to buy the essentials at the lowest prices that is then drawing these middle income buyers in that by the way, they're going there for groceries. They're going there for what they need to get at the pharmacy. They're not going to Home Depot to redo their deck because they can't afford it. So, the stories actually mesh together perfectly. >> Okay. And how much in distress are consumers right now when it comes to spending power? >> That's a very good question. Um, Standard Importers Global came out yesterday afternoon with a report that said that outside of auto loans, which have tailed off at a very high level, the highest since the great financial crisis, but that outside of auto loans, they saw increases across the consumer book in terms of delinquencies, personal loans, credit cards, um, as well as even home equity lines of credit that we're seeing delinquencies rise. And by the way, S&P clarified that on the subprime side, they're seeing delinquencies at the highest level since 2009. But even on the prime side, they're seeing delinquencies at the highest since 2010. By the same token, TransUnion released a report yesterday and it showed that for the for for auto loans made in 2021 and in 2022, those delinquency rates are completely off trend compared to prior years when auto loans were made. So during the go- go days of the pandemic when the government was pumping out I don't know what are we up to now 16.5 trillion dollars of of debt that's been created since the pandemic. But when the government was pumping out one stimulus check after another, they didn't make you pay your rent for 19 months. People bought a lot more car than they could afford because they didn't have any other they had so many of their other expenses were being covered by Uncle Sam and they didn't have to pay their student loans. But it's those vintages that are seeing absolutely horrendous delinquency rates. So, and it's it's not getting any better, right? The unemployment rate went up. >> Gold is one of the best assets of this year. And you already know why people hold gold. Well, it's because it's real money. But what if your gold could do more than just sit in a vault? That's where today's sponsor, Monetary Metals, comes in. They offer a way for you to earn yield on your gold paid in physical gold. Through their leasing marketplace, you can earn up to 4% yield per year in gold. Instead of paying storage fees, your bullion can now work for you. And because that yield is paid in gold, not cash, your stack grows no matter what the dollar does. Thousands of clients already earn monthly interest in gold and silver through monetary medals. So don't just hold it, put it to work. Go to monetary-medals.com/lin link down below or scan the QR code here to learn more and get started. All right. Well, it's time to play my favorite game with you, Danielle, which is fact check the Fed. So, we have here the minutes pulled up and um look at the statement here. Information on the labor market was limited by the federal government shutdown. However, available indicators were consistent with a continued gradual cooling in the labor market without any evidence of a sharp deterioration. Is that true? Continued gradual cooling, no sharp deterioration. >> Well, um yes, it it's true technically because those are minutes that preceded what we've subsequently heard from ADP, which is that job losses have ensued. So, of course, they're not supposed to incorporate recent history after the Fed meets into those minutes. But when the Fed met, that was correct. Even though they knew that there were job losses in June outright, um they got even worse. That 160,000 jobs disappeared into a vault of negativity through revisions. Um but with what they had in hand that day, they could technically be correct. >> And uh we've got here the staff review of the situation, which is important. The financial situation, we know they monitor that. Uh broad equity price indices increase moderately boosted by technology firms um with positive AI news and earnings. Credit spreads were little changed on net, only remain low by historical standards. The one-mon option implied volatility of the uh S&P 500 was largely unchanged on net and remained near the medium of its historical distribution. Uh risk appetite in foreign financial markets was generally strong. And so if you're at the Fed and you were analyzing financial market conditions right now, would you be of the opinion that everything is fine and there's nothing to worry about for now and so monetary policy should not reflect a pending um financial market uh uh sort of correction or either you know continued or heightened risk in the financial markets let's say. Well, David, um, you're just making this too easy. >> You That's probably one of the most asinine things I've ever seen in any minutes. And by the way, uh, you know, we've now got Bitcoin south of 87,000. And that is your ultimate barometer for risk appetite in the market. And the market after the Fed proved the Fed that there was to the Fed that there was a lot of vulnerability uh even in the AI narrative as one company after another. I mean now we all follow Bitcoin and the credit default swap price for oracle debt. So um you know open your eyes Fed officials anybody that those that the markets were overvalued. Give me a break. >> So so so the basically they need to inject more liquidity into December but they're already ending QT. I no I did not say inject liquidity. They certainly need to lower the Fed funds rate by 25 basis points at a minimum. >> Okay. At at the minimum and then NQT and then um and then just leave it at that is what they should be doing. >> Well, yes, because I applaud the way that they're ending quantitative tightening because they're going to continue to shrink their mortgage back securities book. So, and roll that into treasuries mostly at the short end. That doesn't bother me one bit as long as they continue to shrink that mortgage book. I don't think the market's going to put up with it for very long, but um I don't disagree with what the Fed did with its balance sheet. >> I understand. I want to ask you about this particular article that Ray Dio put out on uh on X. Uh let me just share my screen. Here we go. Stimulating into a bubble. Did you see that the Fed's announcement that it will not sorry it will stop QT and begin QE? So I don't know if that's true. They're going to begin Q. >> That's not true. Okay. I I I thought so. While it it is described as a technical maneuver anyway you cut it. It's an easy move that is one of my indicators to pay attention to in order to track the progression of the big debt cycle dynamic. Well, um technically he, you know, there there were some inconsistencies in that sentence, but uh the fact remains that they are cutting into an all-time high for the stock market and some other markets as well. Um some argue there is a tech bubble. I don't know if that's your view and uh this is a dangerous precedent. Last time that they cut uh when the markets were at a high um things got frothy uh were frothier afterward. So, um, you know, they're they're kind of at a difficult predicament right now. Can you just comment on what's going to happen to our national debt, the debt cycle, like very Dio alluded to, and ultimately what happens to this financial market bubble, if there is one, when the Fed starts cutting at an all-time high. >> Well, um, with all due respect to, uh, to Mr. Dallio, the Fed has not been cutting aggressively enough. And the Fed also, as Alan Greenspan, who I believe is still alive, can attest, uh, if the Fed wanted to use some macrocredential regulation, which is within its purview, it could certainly increase margin standards. Um, but right now, Bank of America has reported that the average small business in America is losing money, running at a loss. And we know that borrowing rates for small businesses and for most households remain proh prohibitively high. Uh so that is the Fed's job. The Fed's job is not to cowttow to any particular conditions in the financial markets. And at this point, I think the real economy is sending off strong enough signals and the recognition that there's so much debt propping up this AI bubble as opposed to 12 months ago when it was mostly cash flows that I I don't think the Fed has a chance in hell of simulating a bigger bubble. Well, going back to some of the things you said earlier, which indicators do you trust the most when gauging the path forward for economic growth and ultimately what the Fed does? Is it the is it the yield curve? Is it credit spreads like we talked about? Is it the labor market itself or a combination of those things? Something else? >> Well, of course, I mean, if you're looking at the actual macro indicators, that is what should be dictating Fed policy. But these days, I'm following the price of Bitcoin, which has got about a 99% correlation with the NASDAQ 100. And the more Bitcoin comes down, the more the stock market tends to follow it. And that pro that presents the biggest problem of all for the Fed because when the top 10% of earners who've been carrying this entire economy are responsible for 50% of consumption, the last thing that can happen when the other 90% is in recession. That's acknowledged at least by them. The last thing the Fed can afford right now is for the stock market to fall out of bed because you're going to take down that 50% of consumption that again on its own has been holding up the economy. >> The the wealthy also hold real estate. Can you comment on the residential real estate sector? >> Well, uh to the extent that the wealthy own real estate, they're not having the best time in the sense that second home sales have also crashed. And so, you know, if if they want to get rid of their second home in the Hamptons, it wasn't quite it's not quite as easy as it was. Maybe the Hamptons is a bad maybe Myrtle Beach would be a better example fail. But, um, but I would say that the wealthy are certainly aware of the fact that you've got now got home prices falling in more than 50% of the cities across the United States. and the fact that their wealth is is in the stock market, the fact that their wealth is in real estate, they're starting to get hit from both sides. >> Okay. Is it you you're currently in New York right now? Is it actually true that people are moving out of New York following Mamani's win? Is that just talk or have you is that from personal anecdote, can you confirm any of that? >> Uh, no, I cannot, but it's a little soon. >> Okay. We do know look I I am I am in New York but I am hopefully if the if the storms allow flying back to Texas today where JP Morgan Chase has got more employees in the state of Texas than it does in the state of New York and that trend looks to be accelerating going forward as Yall Street gets up and running. >> Interesting. Yeah, that in Florida. Okay. Well, back to markets now. So, uh job cuts rise, wage growth cools. Um, has a labor market already kind of tipped over to the point of no return here or can can something be fixed? Could something can something turn around? >> Well, the something that would have to turn around would be that the private sector would decide to stop firing people and start hiring people. I mean, what we know right now is that the unemployment rate is four was 4.4% 4.4 excuse me. Yes. 4 point Yeah, I got that right. Yeah. 4.44 Excuse me. Percent 4.4 44. Okay, sorry I'm repeating that so many times I had to get it right in my head. In other words, we are 610 of a percentage point away from as of September the unemployment rate hitting the Fed's year end target of 4.5%. >> Sorry, what do you Sorry, what what do you mean by year- end target? I didn't realize they have a target for unemployment. >> It's part of the dot plot. They say Fed officials the median of where Fed officials feel that the unemployment rate was going to end 2025 is 4.5%. They're 610 of a percent. They were 610 of a percentage point away from that in September. And again, we know that more than 100,000 government employees, their severance ended on September the 30th. So Fed officials, they're they're not that stupid. They know that the unemployment rate that's not going to be reported for October, mind you. It it easily crossed over that 4.5% threshold 3 months before the end of the year. And then you throw on top of that, as I'd said, the highest level of job cuts for the any October in in 15 years. >> And um and why are companies not hiring right now? And uh I mean that's kind of a simple question when you think about it. But then if you're an investor, you're looking at the markets, you're thinking, well, everything's going up. Not everything, but you know, stocks are at all time high. It seems that people are making profits, right? Nvidia just beat earnings. So, so why are they being frugal? >> Well, Nvidia did just beat earnings, but in a big old nod to First Brands, uh they're they sure are factoring a lot of their accounts receivable. Bless them. Um no, I I think there's a combination of things going on um you know, on the social media platform formerly known as Twitter. I I I actually answered your question today and I think it's a combination of companies having overhired during uh the post-pandemic period because they were projecting and extrapolating uh that all of the consumption and the buying and and and this huge amount of demand care of stimulus checks was going to continue. And so now they're they're correcting for having overhired then in addition to the US economy being in recession which is when you fire people. >> Okay. So overhired now they have to lay people off to trim their fat. And uh and then we have here also um um on the other hand though we have potential stimulus that may help uh the working class. So Trump wants to give out $2,000 checks. They call them, his administration calls these dividends and uh they claim it's from the extra revenues from tariffs. So we let's talk about that. Um they haven't the checks haven't hit the mailbox yet, but uh if they do, once they do, what happens? Are we going to get m is that basically the equivalent of QE? >> Well, it would be it would be QE for individuals with the highest propensity to spend. The problem is the GOPs in Congress uh have already said no. >> All right. So, well, that that's too bad. You know, I'm pretty sure some people were looking forward to that. Um, okay. Well, the um what else can the government >> We did get 10% inflation. We got double digit inflation when we started handing money out like candy, which actually hurts the recipients more. >> Yeah, that's that that's a fair point. Listen to Danielle. You know, sometimes sometimes the uh the candy uh isn't something you should be consuming right away. has long-term health effects that uh may not be great. We uh we need to talk about then what the federal government can do to help stimulate the economy that doesn't involve risking inflation rolling over or potentially ballooning the um the the debt bubble or equities bubbles uh more. Um is there is is there something that the government either Congress and or the Fed can do right now that could invigorate um either capex spending from government uh from the private sector and or hiring? Well, so the one big beautiful bill certainly has helped the tech companies because they're accelerating their depreciation and they'll be able to do so um once the new calendar year begins. Um, President Trump is rolling back most of his tariffs. That's that's helpful. Um, it won't be helpful to tariff revenue, however. But he is rolling back the tariffs and um, you know, to the extent that he continues to um, walk back some of the policies that could certainly give companies more clarity going forward. But I I think one of the biggest impediments even to the federal government right now is that one of the highest sources of inflation, two of the highest feeders of inflation right now, if you will, are food and electricity. Now, food you cannot control. You I mean, you could take those Brazilian tariffs off, which did happen, right? The coffee tariffs went away. >> Yeah, that's right. >> Um but as far as the electricity goes, are you going to tell all the data center people to stop? Well, I take that back. They um Americans did so at the polls in great numbers. They voted down data centers being built in their backyard because their electricity bills are already high enough. So, what can the federal government do to stimulate growth at this point? It's very very very good question. My answer is you provide the greatest possible degree of certainty for corporate America. get rid of all tariffs, allow them to take advantage of the one big beautiful bill and possibly have some kind of small business administration effort to help the entrepreneurs who are absolutely drowning in high borrowing costs. >> Okay. So, let's talk about uh your outlook ahead then starting with uh inflation itself. What's your baseline expectation for inflation in 2026? >> Um, we've spoken so many times over the years. You know that I follow trueflation truation very closely. I think it's a brilliant use of of the blockchain. Um, it is strangely coming down right now. It's at 2.41% as of today at a time when a nonseasonally adjusted series should be seeing upside. So, uh, there's a little bit of conundrum there. Um, but that's what I'm following the most closely because it's not a seasonally adjusted series. In other words, it should be going up right now into year end. And that is why we usually see upside to the seasonally adjusted um, inflation figures and then it starts to come down at the beginning of the year. In other words, we could easily be looking at sliding right below the Fed's 2% target going into the new year with this gauge that I follow. >> If that were true, then investors priority should not be hedging against inflation. It should be um it should be what? It should be hedging against um a recession perhaps uh or uh or just staying on the defensive until something pops or maybe risk on will recover. What's your what's your baseline there? you know, I'll I'll look to somebody who's been doing this for a little bit longer than me, and that would be Warren Buffett. So, uh, you know, he's sitting on a mountain of cash waiting for opportunities to avail themselves. I dare say that even though he's no longer going to be active in the company, that things will start to look a little bit better as this correction continues uh in the stock market and that valuations will start to become a little bit more appealing. So to the extent that you can have powder be dry and the ex and to the extent that you can be hedged in your portfolio, I c certainly suggest that that to investors >> and if uh inflation is not going to be sticky to the upside, at least according to true inflation, then potentially we can see the long end of the yield curve come down, 10ear yield maybe uh lower a bit. >> That's certainly what we're seeing out of shelter, which is the largest determinant of the inflation metrics. Um, Co-Star came out a few days ago and October rents were in the negative. Rents have been nationwide have been in the negative for three months running. And I I mentioned earlier that more than 50% of US cities are seeing falling home prices. Um, that does not benefit US households near as much as it sounds like it might because home prices are still so so so much higher than what they were prior to the pandemic in 2019. But that doesn't matter because the influence on inflation from shelter disinflation is going to be something I I presume Jay Powell is going to be happy to no longer be chair of the Fed by the time that hits hard. >> But uh what happens to uh what happens to the bond market? Um in that environment, do we see do we see yields come down? In that environment, we should indeed see yields come down because the Fed will be forced to take rates down. And unless we're going to see that Doge dividend check and Congress could easily, David, look, right now they're saying, "No, right now they're giving the administration the Heisman in terms of we're not sending out that $2,000 check. We remember what happened last time that happened. We're still living down the the legacy of that inflation. But you know what? It's it's November 2025. I can't imagine that they might not get a little bit more anxious the closer they get to midterms. >> And um anything that doesn't look overvalued to you right now, Danielle? >> Well, that's a good question. Um I think that a lot of the names in healthcare have been beaten up and I don't think that the aging of America is going to come to a screeching halt. So to the extent that you can find good dividend paying stocks in that sector that you're quite certain are going to survive what's to come that that's exactly what people did by the way in 2008 and in 2009. They bought stocks that even though the stock price fell they knew the dividend was safe. They collected that dividend while the stock market then started to recover. And those are the kinds of ways that if you want to be exposed to the market that I think are are safe ways to do so. That's why when we see the the Dow outperforming the NASDAQ, which we've been seeing lately by a wide margin, that is people piling into utilities. And the exact same scenario played out in the year 2000 that we started seeing this aberration where the high where where the go- go NASDAQ was underperforming the Dow and that was a rotation on the part of investors into the safest most defensive sector which is utilities. >> Uh that and perhaps precious metals although I'm not sure if that uh qualifies as being fairly valued right now. like get your take. What do you think? >> Well, um, we haven't really seen, I think, enough of a downdraft in the broad equity markets to fully test how many tourists own gold and would be selling gold to meet a margin call. So, I would just say please push pause on that question. >> All right, we'll come back to that. I want to finish on one more chart. Uh this is you know you've definitely seen this consumer sentiment at pretty much um all-time lows. Well the the last time it was this low if you look at a longer term chart was actually 1981 uh early 80s um when there was really really high inflation and uh and I I just want to ask you we've talked about the we've talked a lot about the labor market on paper. Have you you know living in the US because I I'm I'm up here in Canada. Have you noticed or do you have any personal anecdotes that can support this particular chart? It is a survey and so what can you tell me from your personal life or from your observations by talking to regular people that may support or refute this particular chart? So because of the age of my children, I speak to a lot of college students. Um I've still got two in high school, but that's coming to an end pretty soon here. But listen to younger people who can't get jobs or can't get internships. Um, you know, we've got the the 20 to 24 year old unemployment rate right now is 9.2%. And people on the ground are feeling it. The the the series that I track most closely, David, inside of the University of Mission sentiment survey is higher unemployment expectations. In fact, at QI Research, we call that the holy grail of economic indicators. So that is it's at 64%. That twothirds of Americans foresee a continued rise in the unemployment rate. We we are talking about some of the highest levels in that indicator on record. >> Even even now after Trump has taken some tariffs off the table, that still p well I guess it'll take some time. But again, this is higher unemployment expectations, not expectations for where inflation's headed. >> Yeah. >> These are whether or not you feel like you might be in danger of losing your job. >> Okay. >> Normally, when they get that high, that means to answer your question that either you yourself have lost your job or you know somebody who has. >> That's right. Yeah. There a lot of indicators that show that we're um near 2007 levels, but um what are you working on right now at Qi Research? Let's give us a give us a teaser for uh for your for for your for your research here. >> So, one of the areas that we're looking at most closely right now um is is that we're revisiting, I should say, is commercial real estate. Um, we recently saw a particular commercial mortgage back securities deal where a distressed investor was able to come in, buy many slices of the many tanches of one particular CM CMBBS, then take the mortgage out and then take down the AAA holders who actually suffered a loss. If the distressed investors are going to find a way of ending extend and pretend and ending pray and delay, I'm watching this sector very closely because it's been on life support for years. And if we're going to start to see price discovery there, there's you have to keep a close eye on the banks as well. >> Okay, very good, Danielle. I appreciate your time. Thank you very much. So, where can we follow Qi Research and yourself? Uh, so please, um, if you're not already a Daily Feather reader, please subscribe dartinoboot.substack.com. If you run Money for a Living or Family Office institutional investor, come to Qi Research. We'd love to have you. Invite you right on into our Bloomberg chat room. And if you do not follow me on the social media platform, formerly known as Twitter, please do so at D Martino Booth. >> We'll put the links down below. Pleasure to have you back on, Danielle. We'll talk again um after the uh after the actual meeting, which is in a couple weeks for the It's not the right time to say it because you're in Canada, but I'll say it anyways. Happy Thanksgiving and thank you for >> Oh, yes, yes, yes, of course. Happy happy American Thanksgiving. Enjoy time off with your family this week. So, yeah, thank you. Thank you very much for coming on. >> Thank you. >> Thank you for watching. Happy Thanksgiving to yourself and uh and uh stay tuned for more.
Layoffs Surge, Delinquencies Soar; How Bad Will It Get? | Danielle DiMartino Booth
Summary
Transcript
the unemployment rate went up. We know that October layoffs were the worst for any October in 15 years. As of September, the unemployment rate hitting the Fed's year-end target of 4.5%. It's definitely time for the Fed to move on. They saw increases across the consumer book in terms of delinquencies. The top 10% of earners who've been carrying this entire economy are responsible for 50% of consumption. the last thing that can happen when the other 90% is in recession. >> Talking now with Daniel Debartino Booth, CEO of QY Research and uh the Fed minutes released this week showed some uh disagreements over the course of monetary action. Um and we'll talk about that. Welcome back to the show, Danielle. Good to see you. >> Great to see you again, David. And lots and lots to talk about. >> Absolutely. Let's start by talking about the Fed. Uh now we have here um reports that uh officials were at odds during their October meeting over cutting interest rates. So divided over whether a stalling labor market or stubborn inflation were bigger economic threats. We know that there were dissents. While the FOMC approved a rate cut at the meeting, the path forward looks less certain. Disagreement stretched into the outlook for December with officials expressing skepticism about the need for an additional reduction that markets have been widely anticipating with many saying that no more cuts are needed at least in 2025. Well, that's disappointing for markets and uh you know it seems that uh uh risk assets have been taking a bit of a slide in the last couple of weeks but I don't know if it's because of the Fed. Anyway, I'll let you comment on uh the Fed Minute uh uh released this this uh this week. >> Well, you know, the Fed minutes had less work to do by the time they hit the wires yesterday and they were exactly what we expected. Um they emphasized that several members felt that it was not appropriate to lower rates at all. And then they emphasized that several members did feel it was appropriate to continue raising rates into the rest of 2025 and then it said many members felt that it would be appropriate given what's happening with inflation to kind of push pause. So, it was a little bit of everything, but in the end, the consensus that went out was this idea that there was going to be no December rate cut um come in in come come December 10th. I think that that would have been the takeaway yesterday, but I certainly don't think that that was the reason that Fed funds futures literally collapsed yesterday. >> What was the reason? Well, that was the administration um that was somebody from on high, shall we say, announcing that the there would be no October non-farm payroll report at all and that when there is a November non-farm payroll report, it's not going to be it it won't be coming out when at its regularly scheduled time, it's going to have October rolled into it and it's going to be released on December the 16th, 6 days after the Fed meets, at which point Fed funds futures collapse. Ed, we'll talk about the labor market in just a minute, but you've warned that the Fed is behind the curve and uh this policy that they're instituting higher for longer that they've been doing for quite some time. Is that still the prudent strategy as of today, November 20th, or you know, is it uh is it maybe time to move on? >> Um it's definitely time for the Fed to move on. Um there are two things that we know with certainty. We know that that severance for all of the more than 100,000 US workers who accepted the buyout at the beginning of the year, remember Doge, we know that their severance ran out at the end of September. So, they would have shown up in the unemployment rate. We know that October layoffs were the worst for any October in 15 years. And we furthermore know that seasonal hiring is at one of the lowest records on record period. So just the the combination of what we know in in October i.e. There were a lot of a lot of federal workers who applied for benefits immediately. They would have showed up in the unemployment report and we know that there were 150 plus layoffs announced in the month of October followed by Verizon saying it may cut up to 20% of its workforce up to 20,000 workers in November. So yeah, uh the Fed does not need a road map to figure out that things have worsened appreciably. the consumer is um is showing different uh signs here according to different reports depending on what you look at here. What one report shows that middle class shoppers are spending less and uh this is evidenced by uh Home Depot customer bases maybe pulling back a little bit according to some reports. At the same time though Walmart's reporting strong earnings and so um we've got here maybe people spending more at Walmart and discount stores. And I was reading another article earlier this week, Danielle, about uh uh the wealthy spending a little bit more at Walmart. I don't know how they would know what the income distribution of their customer base is at the counter, but um anyway, that was the report. So, you've got here maybe signs of distress at the middle income uh level and then at the other hand, Walmart strong quarter shows Americans are still spending. I don't know what to make of these headlines. Are they conflicting to you? Actually, uh, no, David, they're not conflicting at all because Americans are spending at Walmart. And I'll tell you what, they're spending money on because the only double-digit growth rate that they had in sales was in pharmacy, things that they absolutely have to buy. They had a singledigit growth rate in groceries, which was the second biggest driver of their revenues and their earnings. And finally, yes, wealthier people are trading down to Walmart and they are the only ones who are buying a lot of the discretionary goods that Walmart sells. But right now, Walmart is doing as well as it is because it sells what we absolutely have to buy the essentials at the lowest prices that is then drawing these middle income buyers in that by the way, they're going there for groceries. They're going there for what they need to get at the pharmacy. They're not going to Home Depot to redo their deck because they can't afford it. So, the stories actually mesh together perfectly. >> Okay. And how much in distress are consumers right now when it comes to spending power? >> That's a very good question. Um, Standard Importers Global came out yesterday afternoon with a report that said that outside of auto loans, which have tailed off at a very high level, the highest since the great financial crisis, but that outside of auto loans, they saw increases across the consumer book in terms of delinquencies, personal loans, credit cards, um, as well as even home equity lines of credit that we're seeing delinquencies rise. And by the way, S&P clarified that on the subprime side, they're seeing delinquencies at the highest level since 2009. But even on the prime side, they're seeing delinquencies at the highest since 2010. By the same token, TransUnion released a report yesterday and it showed that for the for for auto loans made in 2021 and in 2022, those delinquency rates are completely off trend compared to prior years when auto loans were made. So during the go- go days of the pandemic when the government was pumping out I don't know what are we up to now 16.5 trillion dollars of of debt that's been created since the pandemic. But when the government was pumping out one stimulus check after another, they didn't make you pay your rent for 19 months. People bought a lot more car than they could afford because they didn't have any other they had so many of their other expenses were being covered by Uncle Sam and they didn't have to pay their student loans. But it's those vintages that are seeing absolutely horrendous delinquency rates. So, and it's it's not getting any better, right? The unemployment rate went up. >> Gold is one of the best assets of this year. And you already know why people hold gold. Well, it's because it's real money. But what if your gold could do more than just sit in a vault? That's where today's sponsor, Monetary Metals, comes in. They offer a way for you to earn yield on your gold paid in physical gold. Through their leasing marketplace, you can earn up to 4% yield per year in gold. Instead of paying storage fees, your bullion can now work for you. And because that yield is paid in gold, not cash, your stack grows no matter what the dollar does. Thousands of clients already earn monthly interest in gold and silver through monetary medals. So don't just hold it, put it to work. Go to monetary-medals.com/lin link down below or scan the QR code here to learn more and get started. All right. Well, it's time to play my favorite game with you, Danielle, which is fact check the Fed. So, we have here the minutes pulled up and um look at the statement here. Information on the labor market was limited by the federal government shutdown. However, available indicators were consistent with a continued gradual cooling in the labor market without any evidence of a sharp deterioration. Is that true? Continued gradual cooling, no sharp deterioration. >> Well, um yes, it it's true technically because those are minutes that preceded what we've subsequently heard from ADP, which is that job losses have ensued. So, of course, they're not supposed to incorporate recent history after the Fed meets into those minutes. But when the Fed met, that was correct. Even though they knew that there were job losses in June outright, um they got even worse. That 160,000 jobs disappeared into a vault of negativity through revisions. Um but with what they had in hand that day, they could technically be correct. >> And uh we've got here the staff review of the situation, which is important. The financial situation, we know they monitor that. Uh broad equity price indices increase moderately boosted by technology firms um with positive AI news and earnings. Credit spreads were little changed on net, only remain low by historical standards. The one-mon option implied volatility of the uh S&P 500 was largely unchanged on net and remained near the medium of its historical distribution. Uh risk appetite in foreign financial markets was generally strong. And so if you're at the Fed and you were analyzing financial market conditions right now, would you be of the opinion that everything is fine and there's nothing to worry about for now and so monetary policy should not reflect a pending um financial market uh uh sort of correction or either you know continued or heightened risk in the financial markets let's say. Well, David, um, you're just making this too easy. >> You That's probably one of the most asinine things I've ever seen in any minutes. And by the way, uh, you know, we've now got Bitcoin south of 87,000. And that is your ultimate barometer for risk appetite in the market. And the market after the Fed proved the Fed that there was to the Fed that there was a lot of vulnerability uh even in the AI narrative as one company after another. I mean now we all follow Bitcoin and the credit default swap price for oracle debt. So um you know open your eyes Fed officials anybody that those that the markets were overvalued. Give me a break. >> So so so the basically they need to inject more liquidity into December but they're already ending QT. I no I did not say inject liquidity. They certainly need to lower the Fed funds rate by 25 basis points at a minimum. >> Okay. At at the minimum and then NQT and then um and then just leave it at that is what they should be doing. >> Well, yes, because I applaud the way that they're ending quantitative tightening because they're going to continue to shrink their mortgage back securities book. So, and roll that into treasuries mostly at the short end. That doesn't bother me one bit as long as they continue to shrink that mortgage book. I don't think the market's going to put up with it for very long, but um I don't disagree with what the Fed did with its balance sheet. >> I understand. I want to ask you about this particular article that Ray Dio put out on uh on X. Uh let me just share my screen. Here we go. Stimulating into a bubble. Did you see that the Fed's announcement that it will not sorry it will stop QT and begin QE? So I don't know if that's true. They're going to begin Q. >> That's not true. Okay. I I I thought so. While it it is described as a technical maneuver anyway you cut it. It's an easy move that is one of my indicators to pay attention to in order to track the progression of the big debt cycle dynamic. Well, um technically he, you know, there there were some inconsistencies in that sentence, but uh the fact remains that they are cutting into an all-time high for the stock market and some other markets as well. Um some argue there is a tech bubble. I don't know if that's your view and uh this is a dangerous precedent. Last time that they cut uh when the markets were at a high um things got frothy uh were frothier afterward. So, um, you know, they're they're kind of at a difficult predicament right now. Can you just comment on what's going to happen to our national debt, the debt cycle, like very Dio alluded to, and ultimately what happens to this financial market bubble, if there is one, when the Fed starts cutting at an all-time high. >> Well, um, with all due respect to, uh, to Mr. Dallio, the Fed has not been cutting aggressively enough. And the Fed also, as Alan Greenspan, who I believe is still alive, can attest, uh, if the Fed wanted to use some macrocredential regulation, which is within its purview, it could certainly increase margin standards. Um, but right now, Bank of America has reported that the average small business in America is losing money, running at a loss. And we know that borrowing rates for small businesses and for most households remain proh prohibitively high. Uh so that is the Fed's job. The Fed's job is not to cowttow to any particular conditions in the financial markets. And at this point, I think the real economy is sending off strong enough signals and the recognition that there's so much debt propping up this AI bubble as opposed to 12 months ago when it was mostly cash flows that I I don't think the Fed has a chance in hell of simulating a bigger bubble. Well, going back to some of the things you said earlier, which indicators do you trust the most when gauging the path forward for economic growth and ultimately what the Fed does? Is it the is it the yield curve? Is it credit spreads like we talked about? Is it the labor market itself or a combination of those things? Something else? >> Well, of course, I mean, if you're looking at the actual macro indicators, that is what should be dictating Fed policy. But these days, I'm following the price of Bitcoin, which has got about a 99% correlation with the NASDAQ 100. And the more Bitcoin comes down, the more the stock market tends to follow it. And that pro that presents the biggest problem of all for the Fed because when the top 10% of earners who've been carrying this entire economy are responsible for 50% of consumption, the last thing that can happen when the other 90% is in recession. That's acknowledged at least by them. The last thing the Fed can afford right now is for the stock market to fall out of bed because you're going to take down that 50% of consumption that again on its own has been holding up the economy. >> The the wealthy also hold real estate. Can you comment on the residential real estate sector? >> Well, uh to the extent that the wealthy own real estate, they're not having the best time in the sense that second home sales have also crashed. And so, you know, if if they want to get rid of their second home in the Hamptons, it wasn't quite it's not quite as easy as it was. Maybe the Hamptons is a bad maybe Myrtle Beach would be a better example fail. But, um, but I would say that the wealthy are certainly aware of the fact that you've got now got home prices falling in more than 50% of the cities across the United States. and the fact that their wealth is is in the stock market, the fact that their wealth is in real estate, they're starting to get hit from both sides. >> Okay. Is it you you're currently in New York right now? Is it actually true that people are moving out of New York following Mamani's win? Is that just talk or have you is that from personal anecdote, can you confirm any of that? >> Uh, no, I cannot, but it's a little soon. >> Okay. We do know look I I am I am in New York but I am hopefully if the if the storms allow flying back to Texas today where JP Morgan Chase has got more employees in the state of Texas than it does in the state of New York and that trend looks to be accelerating going forward as Yall Street gets up and running. >> Interesting. Yeah, that in Florida. Okay. Well, back to markets now. So, uh job cuts rise, wage growth cools. Um, has a labor market already kind of tipped over to the point of no return here or can can something be fixed? Could something can something turn around? >> Well, the something that would have to turn around would be that the private sector would decide to stop firing people and start hiring people. I mean, what we know right now is that the unemployment rate is four was 4.4% 4.4 excuse me. Yes. 4 point Yeah, I got that right. Yeah. 4.44 Excuse me. Percent 4.4 44. Okay, sorry I'm repeating that so many times I had to get it right in my head. In other words, we are 610 of a percentage point away from as of September the unemployment rate hitting the Fed's year end target of 4.5%. >> Sorry, what do you Sorry, what what do you mean by year- end target? I didn't realize they have a target for unemployment. >> It's part of the dot plot. They say Fed officials the median of where Fed officials feel that the unemployment rate was going to end 2025 is 4.5%. They're 610 of a percent. They were 610 of a percentage point away from that in September. And again, we know that more than 100,000 government employees, their severance ended on September the 30th. So Fed officials, they're they're not that stupid. They know that the unemployment rate that's not going to be reported for October, mind you. It it easily crossed over that 4.5% threshold 3 months before the end of the year. And then you throw on top of that, as I'd said, the highest level of job cuts for the any October in in 15 years. >> And um and why are companies not hiring right now? And uh I mean that's kind of a simple question when you think about it. But then if you're an investor, you're looking at the markets, you're thinking, well, everything's going up. Not everything, but you know, stocks are at all time high. It seems that people are making profits, right? Nvidia just beat earnings. So, so why are they being frugal? >> Well, Nvidia did just beat earnings, but in a big old nod to First Brands, uh they're they sure are factoring a lot of their accounts receivable. Bless them. Um no, I I think there's a combination of things going on um you know, on the social media platform formerly known as Twitter. I I I actually answered your question today and I think it's a combination of companies having overhired during uh the post-pandemic period because they were projecting and extrapolating uh that all of the consumption and the buying and and and this huge amount of demand care of stimulus checks was going to continue. And so now they're they're correcting for having overhired then in addition to the US economy being in recession which is when you fire people. >> Okay. So overhired now they have to lay people off to trim their fat. And uh and then we have here also um um on the other hand though we have potential stimulus that may help uh the working class. So Trump wants to give out $2,000 checks. They call them, his administration calls these dividends and uh they claim it's from the extra revenues from tariffs. So we let's talk about that. Um they haven't the checks haven't hit the mailbox yet, but uh if they do, once they do, what happens? Are we going to get m is that basically the equivalent of QE? >> Well, it would be it would be QE for individuals with the highest propensity to spend. The problem is the GOPs in Congress uh have already said no. >> All right. So, well, that that's too bad. You know, I'm pretty sure some people were looking forward to that. Um, okay. Well, the um what else can the government >> We did get 10% inflation. We got double digit inflation when we started handing money out like candy, which actually hurts the recipients more. >> Yeah, that's that that's a fair point. Listen to Danielle. You know, sometimes sometimes the uh the candy uh isn't something you should be consuming right away. has long-term health effects that uh may not be great. We uh we need to talk about then what the federal government can do to help stimulate the economy that doesn't involve risking inflation rolling over or potentially ballooning the um the the debt bubble or equities bubbles uh more. Um is there is is there something that the government either Congress and or the Fed can do right now that could invigorate um either capex spending from government uh from the private sector and or hiring? Well, so the one big beautiful bill certainly has helped the tech companies because they're accelerating their depreciation and they'll be able to do so um once the new calendar year begins. Um, President Trump is rolling back most of his tariffs. That's that's helpful. Um, it won't be helpful to tariff revenue, however. But he is rolling back the tariffs and um, you know, to the extent that he continues to um, walk back some of the policies that could certainly give companies more clarity going forward. But I I think one of the biggest impediments even to the federal government right now is that one of the highest sources of inflation, two of the highest feeders of inflation right now, if you will, are food and electricity. Now, food you cannot control. You I mean, you could take those Brazilian tariffs off, which did happen, right? The coffee tariffs went away. >> Yeah, that's right. >> Um but as far as the electricity goes, are you going to tell all the data center people to stop? Well, I take that back. They um Americans did so at the polls in great numbers. They voted down data centers being built in their backyard because their electricity bills are already high enough. So, what can the federal government do to stimulate growth at this point? It's very very very good question. My answer is you provide the greatest possible degree of certainty for corporate America. get rid of all tariffs, allow them to take advantage of the one big beautiful bill and possibly have some kind of small business administration effort to help the entrepreneurs who are absolutely drowning in high borrowing costs. >> Okay. So, let's talk about uh your outlook ahead then starting with uh inflation itself. What's your baseline expectation for inflation in 2026? >> Um, we've spoken so many times over the years. You know that I follow trueflation truation very closely. I think it's a brilliant use of of the blockchain. Um, it is strangely coming down right now. It's at 2.41% as of today at a time when a nonseasonally adjusted series should be seeing upside. So, uh, there's a little bit of conundrum there. Um, but that's what I'm following the most closely because it's not a seasonally adjusted series. In other words, it should be going up right now into year end. And that is why we usually see upside to the seasonally adjusted um, inflation figures and then it starts to come down at the beginning of the year. In other words, we could easily be looking at sliding right below the Fed's 2% target going into the new year with this gauge that I follow. >> If that were true, then investors priority should not be hedging against inflation. It should be um it should be what? It should be hedging against um a recession perhaps uh or uh or just staying on the defensive until something pops or maybe risk on will recover. What's your what's your baseline there? you know, I'll I'll look to somebody who's been doing this for a little bit longer than me, and that would be Warren Buffett. So, uh, you know, he's sitting on a mountain of cash waiting for opportunities to avail themselves. I dare say that even though he's no longer going to be active in the company, that things will start to look a little bit better as this correction continues uh in the stock market and that valuations will start to become a little bit more appealing. So to the extent that you can have powder be dry and the ex and to the extent that you can be hedged in your portfolio, I c certainly suggest that that to investors >> and if uh inflation is not going to be sticky to the upside, at least according to true inflation, then potentially we can see the long end of the yield curve come down, 10ear yield maybe uh lower a bit. >> That's certainly what we're seeing out of shelter, which is the largest determinant of the inflation metrics. Um, Co-Star came out a few days ago and October rents were in the negative. Rents have been nationwide have been in the negative for three months running. And I I mentioned earlier that more than 50% of US cities are seeing falling home prices. Um, that does not benefit US households near as much as it sounds like it might because home prices are still so so so much higher than what they were prior to the pandemic in 2019. But that doesn't matter because the influence on inflation from shelter disinflation is going to be something I I presume Jay Powell is going to be happy to no longer be chair of the Fed by the time that hits hard. >> But uh what happens to uh what happens to the bond market? Um in that environment, do we see do we see yields come down? In that environment, we should indeed see yields come down because the Fed will be forced to take rates down. And unless we're going to see that Doge dividend check and Congress could easily, David, look, right now they're saying, "No, right now they're giving the administration the Heisman in terms of we're not sending out that $2,000 check. We remember what happened last time that happened. We're still living down the the legacy of that inflation. But you know what? It's it's November 2025. I can't imagine that they might not get a little bit more anxious the closer they get to midterms. >> And um anything that doesn't look overvalued to you right now, Danielle? >> Well, that's a good question. Um I think that a lot of the names in healthcare have been beaten up and I don't think that the aging of America is going to come to a screeching halt. So to the extent that you can find good dividend paying stocks in that sector that you're quite certain are going to survive what's to come that that's exactly what people did by the way in 2008 and in 2009. They bought stocks that even though the stock price fell they knew the dividend was safe. They collected that dividend while the stock market then started to recover. And those are the kinds of ways that if you want to be exposed to the market that I think are are safe ways to do so. That's why when we see the the Dow outperforming the NASDAQ, which we've been seeing lately by a wide margin, that is people piling into utilities. And the exact same scenario played out in the year 2000 that we started seeing this aberration where the high where where the go- go NASDAQ was underperforming the Dow and that was a rotation on the part of investors into the safest most defensive sector which is utilities. >> Uh that and perhaps precious metals although I'm not sure if that uh qualifies as being fairly valued right now. like get your take. What do you think? >> Well, um, we haven't really seen, I think, enough of a downdraft in the broad equity markets to fully test how many tourists own gold and would be selling gold to meet a margin call. So, I would just say please push pause on that question. >> All right, we'll come back to that. I want to finish on one more chart. Uh this is you know you've definitely seen this consumer sentiment at pretty much um all-time lows. Well the the last time it was this low if you look at a longer term chart was actually 1981 uh early 80s um when there was really really high inflation and uh and I I just want to ask you we've talked about the we've talked a lot about the labor market on paper. Have you you know living in the US because I I'm I'm up here in Canada. Have you noticed or do you have any personal anecdotes that can support this particular chart? It is a survey and so what can you tell me from your personal life or from your observations by talking to regular people that may support or refute this particular chart? So because of the age of my children, I speak to a lot of college students. Um I've still got two in high school, but that's coming to an end pretty soon here. But listen to younger people who can't get jobs or can't get internships. Um, you know, we've got the the 20 to 24 year old unemployment rate right now is 9.2%. And people on the ground are feeling it. The the the series that I track most closely, David, inside of the University of Mission sentiment survey is higher unemployment expectations. In fact, at QI Research, we call that the holy grail of economic indicators. So that is it's at 64%. That twothirds of Americans foresee a continued rise in the unemployment rate. We we are talking about some of the highest levels in that indicator on record. >> Even even now after Trump has taken some tariffs off the table, that still p well I guess it'll take some time. But again, this is higher unemployment expectations, not expectations for where inflation's headed. >> Yeah. >> These are whether or not you feel like you might be in danger of losing your job. >> Okay. >> Normally, when they get that high, that means to answer your question that either you yourself have lost your job or you know somebody who has. >> That's right. Yeah. There a lot of indicators that show that we're um near 2007 levels, but um what are you working on right now at Qi Research? Let's give us a give us a teaser for uh for your for for your for your research here. >> So, one of the areas that we're looking at most closely right now um is is that we're revisiting, I should say, is commercial real estate. Um, we recently saw a particular commercial mortgage back securities deal where a distressed investor was able to come in, buy many slices of the many tanches of one particular CM CMBBS, then take the mortgage out and then take down the AAA holders who actually suffered a loss. If the distressed investors are going to find a way of ending extend and pretend and ending pray and delay, I'm watching this sector very closely because it's been on life support for years. And if we're going to start to see price discovery there, there's you have to keep a close eye on the banks as well. >> Okay, very good, Danielle. I appreciate your time. Thank you very much. So, where can we follow Qi Research and yourself? Uh, so please, um, if you're not already a Daily Feather reader, please subscribe dartinoboot.substack.com. If you run Money for a Living or Family Office institutional investor, come to Qi Research. We'd love to have you. Invite you right on into our Bloomberg chat room. And if you do not follow me on the social media platform, formerly known as Twitter, please do so at D Martino Booth. >> We'll put the links down below. Pleasure to have you back on, Danielle. We'll talk again um after the uh after the actual meeting, which is in a couple weeks for the It's not the right time to say it because you're in Canada, but I'll say it anyways. Happy Thanksgiving and thank you for >> Oh, yes, yes, yes, of course. Happy happy American Thanksgiving. Enjoy time off with your family this week. So, yeah, thank you. Thank you very much for coming on. >> Thank you. >> Thank you for watching. Happy Thanksgiving to yourself and uh and uh stay tuned for more.