Risk of 'Major Correction' for Markets as Jobs Numbers TANK: Danielle DiMartino Booth
Summary
Market Outlook: Danielle DiMartino Booth warns of a potential major market correction due to overvaluation and draws parallels with past financial crises, emphasizing the role of passive flows and speculation.
Economic Policies: Booth critiques the Trump administration's economic strategies, highlighting high uncertainty and its impact on American companies, while praising Treasury Secretary Scott Bessent for his stabilizing influence.
Job Market Concerns: Recent downward revisions in job market data signal potential economic weakness, with Booth noting the importance of these statistics as they influence investor behavior and market movements.
Interest Rates and Inflation: Despite rising inflation, Booth questions the effectiveness of rate cuts, suggesting that minor adjustments may not significantly impact the broader economy, particularly in commercial real estate and small business lending.
Gold as an Investment: Booth sees gold as a hedge against uncertainty and overvaluation in risky assets, driven by central bank purchases and investor sentiment, but doubts a return to the gold standard is feasible.
Housing Market Risks: Concerns are raised about tightening lending standards and demographic shifts affecting the US housing market, potentially leading to structural pressures on home prices.
Investment Opportunities: Booth advises focusing on stable, cash-flow-generating companies as potential investment opportunities, particularly for aging demographics seeking reliable income streams.
Federal Reserve Critique: While Booth does not advocate for ending the Fed, she suggests significant reforms to improve accountability and market pricing, aligning with some of Ron Paul's criticisms.
Transcript
Hello everybody and welcome into commodity culture where our goal is to make you a better investor in the commodities sector. My name is Jesse Day and on this episode I'm thrilled to welcome Danielle D. Martino Booth to the show. An economist, former Fed adviser, Wall Street veteran, and the author of Fed Up, an insider's take on why the Federal Reserve is bad for America. Danielle believes that current valuations in the broad market are not tethered to reality. And she draws parallels to both the tech wreck and global financial crisis in making a case that although the market can remain irrational longer than we can remain solvent, eventually reality has to come home to roost and the result won't be pretty. Danielle also provides her thoughts on the gold market and the question of gold revaluation, a growing crisis she sees in the US housing market, how the debt and deficit situation could potentially be solved, and so much more. So, strap yourselves in for my conversation with Danielle D. Martino Booth. Danielle D. Martino Booth, it is great to have you on Commodity Culture. I want to kick things off with your assessment of the Trump administration's economic and trade policies thus far. It's now been around nine months since Trump took office. What do you make of the policies and strategies coming out of the administration and the efforts of Treasury Secretary Scott Bessent? Good, bad, and ugly. So, um, you know, I I I think that a lot of the policies could have been more carefully um deployed at this juncture. I don't think I don't think anybody would agree with me. The uncertainty factor is pretty high uh at this point for a lot of American companies. Um we see that evident in hiring freezes and declining capital expenditure plans. We will see if the big beautiful bill if the passage of that bill unleashes um a wave of of investing. There's certainly a lot of of hope uh as it pertains to that. And specific to Treasury Secretary Scott Bessent, I would say that he has definitely been a calming force, a calming influence um throughout his his his short tenure. So, um, again, I don't think I'm I'm alone in giving him pretty high marks, uh, since he started off, um, heading up the nation's Treasury Department and wearing quite a few hats, I would add, as well, because there has been something of a revolving door with a lot of, um, sorry, I'm didn't mean to be making my laptop bounce around, but there has been something a revolving door with other officials uh, that have that have been calling on on on Bessant's time to wear many different hats. Well, I want to also discuss the broad market with you because I have a lineup down the block of guests on this show for the past three years who have been pounding the table that the market is extraordinarily overvalued by a number of different metrics and that we are set for a massive correction. Some are calling for a long-term bare market ahead for the MAG 7, the three big indices and just the overall broad stock market. What is your view here? Do you think there is an argument to be made for the market to continue to move higher? Where do you stand on the issue of the current health of the the broad market? So I think um this is a market that is driven by passive flows and um and by momentum and by speculation and a lot of the a lot of similar elements were around in 1999 and and in 2000. um a and we saw of course that bubble inflate and valuations get higher than than anything that we thought that we would see. So hopefully we've learned a little bit from that that you can certainly go broke uh if you're using valuations purely as a timing mechanism. We know that that does not work. And again I I I think that the changed structure of the stock market is what's really relevant here. As long as you have more individuals who are contributing to uh target date 401k funds um then you're going to have continued increases in uh market cap weighted passive investing index type strategies. Uh it's just a fact of life. We do however have shifting demographics and that is I I think a key differentiator between now and what we did see in 2001 2007 and that is that we've got upwards of 11,500 Americans retiring every day. Of course they're no longer contributing to 401ks and then we've had some serious weakness in the in in the market for college graduates as well. So uh it's a matter of simple math. you have to have more people coming into the job market to offset retirees or you're going to start to turn the direction of those passive flows. And so when that happens, then you do begin to run the risk of seeing a major correction in the markets. And I I would add to that that a lot of the revenue expectations going out several years into the future is very reminiscent of what we saw in 2000 um in the year 2000 in 1999. And there I think there is a growing recognition that there's going to be some cannibalization in the AI space and that not all of the companies that are making extraordinary investments today uh are going to end up being the winner the one or two big winners in the AI space. Meaning that there is some large degree right now of of sunk cost being incurred. And that's uh and we're also seeing it play out in companies begin to take debt on to support their investments in artificial intelligence. So um you know could we see momentum continue for the next six months? Could there be hopes that Fed rate cuts are are going to unleash a wave of liquidity? Um, I I certainly think that the momentum trade can continue, but what we have to remember is that we're not talking about zero interest rate policy and the relaunching of quantitative easing just yet. Right now, we're talking about whether it's going to be a quarter of a point or a half of a percentage point rate cut at the September meeting and maybe a follow-up to that at the October meeting, but we're certainly not talking about anything remotely resembling just yet the zero bound. And now a quick break to hear from our sponsor. Ark Silver Gold Osmium owner Ian Everard is considered one of the most honest and levelheaded gold and silver dealers in the United States. Praised even by his competitors. So give him a call today to take advantage of the specials right now. Silver kangaroos 2023 1oz coins mint fresh only $247 over spot. Mint fresh silver maple leaves 2025 coins 1 ounce $2.87 over spot while supplies last. Reach out today at 3072649441 or by email at ianarchsggo.com and make sure to tell him that commodity culture sent you. And now back to the interview. Excellent summary. Um you you mentioned the job market here. We've seen massive job market revisions to the downside recently, surprising some. I think that a lot of the statistics that are coming out of the government for some time now have been cooked in one form or another. Firstly, what are the implications of this downward revision? And secondly, with all the massaging and downright false information that goes into a lot of government statistics, job market reports, inflation statistics have changed massively since the 80s, is there any real reason to even be paying attention to that data at this point? Well, the reason you have to pay attention to the data is because the biggest investors are paying attention to the data. So, uh, it's not exactly a a deeply satisfying or intellectual response, but, uh, for better, for worse, when non-farm payrolls hit the headlines, u on non-farm payroll Friday, investors pay attention. They move money around based on that. Algorithms key off of what the data is. Um, so if anything really has changed, I would say in the medium term, it's that it looks like uh the revisions are more real time in nature. And that means that we're seeing true downside downward momentum in the uh in the payrolls data. We've got the unemployment rate at 4.3% which is still historically very low but nonetheless the highest of the current cycle. Um and again if these revisions are starting to come through in real time. June of 2025 we had net job destruction. We had payroll losses for the month. We found out about that just two months after the June data were revised. That's a heck of a lot faster than having to wait 18 months to find out what happened in March of 2024, for example. You know, wait, you know, excuse me, April of 2024. We didn't find out what the state of the job market was then until this past September, the current month that we're in. But so I think investors should definitely be attentive to increased downward momentum in the payroll data because that is when things can start that's when the ground underneath you can start to shift more quickly. And speaking of inflation statistics, the official headline CPI around 2.9% um has been rising recently and of course most are expecting the Fed to cut rates at the FOMC meeting tomorrow. You mentioned they're trying to figure out whether it's going to be 25 or 50 basis points. That seems to be the debate, not if they're going to cut. What is the logic of cutting rates here in the face of rising inflation? And perhaps the deeper question is does adjusting the Fed funds rate either up or down really accomplish anything significant in today's economy? So, um you know, the answer is uh we we have seen tangible evidence that refinancing applications have gone up. People uh a lot of Americans are watching their FICO scores fall. they're facing rising consumer delinquencies, whether you're talking about automobiles or credit cards. Uh, and so to the extent that people really need to access cash and are trying to tap into their home equity, we're seeing tangible evidence that even a 25 basis point decline in in your mortgage rate can get some action going. But in the broadest sense, no. No. We're we're seeing a lot of um mortgage uh purch applications to purchase homes. We're seeing a lot of um banks refusing to uh the applicants and do I really think that 25 basis points that a quarter of a percentage points is going to move the needle when it comes to commercial real estate or small business lending? No. Again, I think a lot of the I I think a lot of the hope that's out there is that when people start to talk about the Fed lowering interest rates, they're not talking about going, you know, just a quarter of a percentage point. They're thinking in the back of their mind because that's how investors have been trained to go, oh, the Fed's going to zero overnight and then they're going to relaunch the the purchases and growing their balance sheet. We're not in the middle of a global pandemic right now and there is no financial crisis that we see. We have bankruptcies that are piling up. We still have the lagged effect of the Fed holding interest rates at a higher level than they certainly have in modern history. So that is still playing out. Uh but as far as the zero bound in QE, we're not there yet. Do you think part of this is motivated by political pressure in terms of Powell getting pressured by Trump continuously to lower rates? And do you think the bigger picture for the US government in terms of wanting a rate cut is to lower the interest expense on their own debt? Oh, well I mean that's that that is the obvious motivation here. But I think Powell has proven himself in spades that he is not going to bow to political pressure, but rather I I think that there there has to be a recognition um even for Jay Powell who contended until the last meeting in July that the labor market was still solid that the labor market is no longer solid. The Fed is a dualmandate institution. um there even though inflation is not at the 2% target um or you know and and and the fact that it is closer to 3% the Fed does have to acknowledge the weakening in in the job market in some way shape or form even if it's just a signaling if that 25 basis points is not going to do a lot holistically speaking for for the broader economy. And with everything we've discussed so far as the backdrop what are your thoughts on gold as an asset right now? What do you think are the main factors that have been driving the gold market to this point, recently reaching all-time highs after being in a consolidation pattern for around 4 months? And what role, if any, do you see gold potentially playing in the monetary system and the global economy ahead? So, I think um I think that first and foremost uh there have been fundamental drivers of the recent increase in in gold prices. Central banks have been buying quite a bit of gold. uh but but more fundamentally gold is considered to be a hedge and when you are completely uncertain about what tomorrow holds then you naturally flock into the arms of precious metals. It's simply the way of the world and it's it's been how it's worked. Um as far as gold's role in the future monetary system, there's not a practical way to make that happen without crashing the world's largest economy. Um, so even though in I I am a a a vocal advocate for sound monetary policy and for sound money, um, I I don't think that there is a pathway right now to readopt a gold standard if such a thing is being contemplated. But I do think that that concerns about rate cuts potentially igniting inflation um and uncertainty about the record valuations that we've discussed right now and risky assets is is sending investors fleeing to hedge their portfolios with gold and that makes perfect intuitive sense. And do you have any thoughts on the prospect of the US revaluing its gold reserves? This is some thing that's been floating around recently, particularly since the Fed released a report which focused on some other countries that had revalued all or a portion of their gold reserves and the implications of that. That led to speculation online that they are considering a similar move as at the moment gold is held at $48 $42.22 I believe somewhere around there on the Fed's balance sheet. Do you think this is a realistic proposition and would it actually accomplish anything? Well, so, um, you know, I'll give you my disclaimer. I'm nine hours shy of sitting for my CPA. So, that that's how I left business school was three classes shy of being a bonafide certified public accountant. Um, I I think 750 billion dollars could certainly be helpful. Uh but in an economy that's $28 trillion in size with these massive deficits, uh the accountant in me says that it would be a one-time um accounting maneuver in order to revalue what's on the balance sheet of the United States and it would last for about as long as $750 billion last in the United States, which I think is three quarters, right? Um another area you've been sounding the alarm about recently is the housing market in the US. what has you most concerned there and what could the implications be of a meltdown in the housing market for the broader economy? So that's a much different question and um I I I think the fact that uh as I mentioned earlier mortgage applications are being rejected uh by banks. Banks are definitely clamping down on their lending standards. We just had a big subprime automobile lenderricolor blow up and leave you know some some leave banks with some losses to to the to the extent that lending standards are tightening I think that that makes life a lot harder for the Airbnb jocks of the world who really do require loose lending standards the ability to tap into constant financing to support their portfolios of of short-term rentals that they were anticipating when they got into the name always having rising weekly rental rates. It certainly isn't the case right now. And again, I would bring up the subject of of demographics. Um, on top of this, because not only do Americans the age of 70 and older own 40% of the US stock market, so they cannot see interest rates go to the zero bound, by the way. They cannot go back into the into the workforce right now. They're just too old. The median age of a baby boomer is 71 years old. But not only are baby boomers um more apt to sell their stock than they have been uh in prior cycles, they own 25% of residential real estate. So that's a quarter of homes in America that are owned by baby boomers. If you were to see a correction, if baby boomers were to be concerned because they keep reading about record high valuations in the stock market, then you start to see things like Red Fin reporting that uh in in data going back 12 years, second home sales have fallen to the lowest on record. Uh that is that is the absence of activity in an area that is, you know, of great interest to retirees in the United States who own 25% of of residential real estate. And by the way, uh, if you take the demographic argument one step further, the the falling birth rate in the United States, out migration at the same time means that there are fewer buyers. And there's certainly fewer buyers for McMansions and some of the larger homes that the baby boomer generation has amassed over the years. If you've only had 1.25 children, you don't necessarily need five bedrooms. And that, I think, is going to be something of a demographic um, divide. And you're going to see a clashing of of demographics there because there simply aren't enough young American families with four or five children to put into a house and fill up those great big homes, much less the ability to afford to get into such a high mortgage. So I I I think you're going to have some structural pressures on home prices going forward that that are not going to go away for a long time. You recently wrote a piece on Quill Intelligence titled Deception and Plain View: The Private Credit Ruse comes to light. Can you walk us through your findings in that report? So, I go back to Triricolor, the subprime auto lender that blew up. Uh, it had warehouse lines um of credit with several banks at the same time based on the same collateral. uh that was a blowup in the private credit space that that became very public. And the concern is that because there's not the same amount of due diligence because private uh because borrowers in the private credit space uh were finding out the hard way tend to be even lower credits than junk rated borrowers or leverage loan borrowers. Because of that and because of the the massive increase in the growth rate of the private credit market, I think that this is an area where you could see um illli liquidity become very problematic and and you could I don't I don't necessarily think is um is an isolated situation. I think it's much more to allude to the color that I'm wearing today. I think it's much more of a canary in the coal mine. Interesting. When looking at the market today from your perspective, what are the areas of the market and the asset categories that you think are presenting a potential opportunity and what areas of the market are best avoided in your view? So, I think investors should look to some of the more boring areas of the market because you have to look at investing kind of through the prism of somebody who I'll go back to my median age of baby boomer is 71. So, if the Fed starts to aggressively lower interest rates going forward because the job market continues to weaken, uh, what are these people going to buy in the stock market or in the bond market if cash stops paying them enough to live on in their fixed income existence? And so, you know, companies that will not be uh threatened with cutting their dividends, um that are going to produce cash flow, that's those are some of the areas that baby boomers will flock to uh if they don't make the decision to sell their stocks outright. They would not be going to companies that do not throw off cash flow streams. So, I think that that is an area where investors should be mindfully hedged going forward. So again, um it seems like every question you ask me goes back to the idea of demographics. Um but demographics is our destiny. It was not in 2001 and demographics was not our destiny in 2007. There were options at the time for this massive baby boomer generation to stay in the workforce or to rejoin the workforce. But that is no longer the case. So, you have to be one step ahead of where they're going to be in their thinking and be positioned to benefit from uh from areas within the within asset classes where they're going to be putting their money if need be. And then areas of the market that you would be avoiding at this point in time. Well, I mean, again, it's it's every bubble inflates for longer than anybody ever anticipates it inflating. Um but you certainly would not want to have full on right now the average American um portfolio is 72% stocks. Uh to the extent that you're in that I in that large cohort um you just have to be mindful of what your age is and and how long you can weather any potential disruption in the market. Uh but the sell-off would seem to always start historically in the most overvalued areas. And there's no reason to think that this time is any different given some of the aggressive, shall we say, revenue projections that are being made by some of these big players right now. And any thoughts on the fixed income market, maybe starting with US treasuries and uh your thoughts on commercial paper and maybe even emerging market debt. Is that an area that you could see being attractive? So, um, you know, right now there are a lot of individuals, uh, there are a lot of my cohorts out there that are getting long duration that they're terming out their their their debt exposure. If you're in recession, or I should say it differently because we started losing jobs in the second quarter of 2024. If markets begin to recognize recession, then you do tend to have um falling yields further out on on the yield curve. Um, as far as commercial paper goes, boy, we've seen a renaissance there. I mean, commercial paper, the whole the whole market has come roaring back. And that, of course, is a cash alternative uh way, very shortterm for um for corporations to uh to butress their their um true cash positions. So, um in that sense, you would be uh barbelling your exposure, if you will. Um, you know, I'm not I'm not an expert in in emerging markets debt, so I probably I'm probably not the right one to ask about that. But I would I would caution that um at a higher level, we're seeing pullbacks in many manufacturing economies because there was a ton of front load buying in front of the the threat of tariffs. And now that that inventory stock building wave is coming to an end, now you're starting to see kind of a retrenchment of manufacturing weakness in other countries. And that will always have um a bleedon effect to to smaller economies that rely more on the manufacturing industrial side of their economy than they do the services sector. I'd love to get your thoughts on the US government taking a 10% stake in Intel with them also indicating that they may be open to taking a stake in other AI and chip companies moving forward as well. Um, is this a strategic move that makes sense in your view? So, this might be this the shortest answer that I give you today. Um, I I'm a big proponent of the idea that the best way to destroy something is to invite the government in. Um I I it probably would have been a more realistic route to take to as they were discussing uh prior to the government's announcement to to break up intel and to try and um and harvest value in that manner to to the greatest extent for the uh shareholders and stakeholders. I I um I'm I'm just a free market libertarian at heart and I I don't think the government becoming involved is ever going to improve things. Yeah, I agree with that sentiment. So, I mean, I'm Yes. So, yeah, it kind of goes against my grain. Yeah. Um, I'd like to get your thoughts as well on how does the debt and deficit situation get solved in the United States because we have this massive chunk of entitlement spending which is essentially untouchable from a political standpoint because if you want to get elected or reelected, you cannot take things away from a mass of the population. So, how do we solve this problem? Obviously, there's no easy answer, but I I'd love to get your thoughts considering your wealth of experience and being a former Fed insider as well. Well, we do have Gen Z and millennials who add up to 48.5% of US voters. Uh so we we could actually see change on the entitlement front. Um but you're right, they're sacred cows. Uh they don't want to be touched. No politician wants to be the one coming in and cutting Medicare, cutting Medicaid, cutting Social Security benefits. Uh, and it's a real problem for the United States. Uh, when we're speaking about the long term, and you know, at some point, some politician will have to address, you know, I I sound like I'm speaking to you and you're speaking to me in French. You know, it's it sounds like we're talking about the French economy here, but at some point we're going to have to make some mature decisions about retirement ages and increasing uh retirement ages in this country so that we can start to get entitlement spending going forward under control. Or you're going to talk about funding running out before the baby boomers um the baby boomers burning through all of these trust funds before really even beginning to die off in earnest. I mean, we know that healthc care in the very last few years of life is extraordinarily expensive and we're talking about the government footing that bill. And you are the author of Fed Up and Insiders take on why the Federal Reserve is bad for America. So, I have to ask you, we're going to finish on the question of ending the Fed, something that Ron Paul has been championing for some time now. Um, and and a lot of people believe this could solve a lot of problems relating to the US economy. Are you in that camp? Do you think ending the Fed would be beneficial? Could it have negative effects? And is there even a realistic route to undertaking such a such a task? So, I think the Fed's independence is definitely at risk. Um, but that's more an internal between the Federal Reserve and the and the US Treasury. Um, you know, I I I've met Ron Paul and I certainly respect a lot of his views given what the Chinese did to intellectual property um when it was unguarded and it was able to be um uh hijacked. I'm looking for pol for a polite word, but screw it. Um, but given what happened with our intellectual property, I I dare say that if we were to leave the financial system completely unprotected that we would certainly be opening ourselves, increasing our vulnerability to a great extent to our financial system being taken over. And we've already seen all manner of cyber attacks and they do indeed from time to time infect large financial institutions. So the idea of of leaving the biggest financial system in the country unguarded and um is is just not prudent in my view. Now the entire last chapter of Fedup is devoted to how I would take the Federal Reserve down to the studs and rebuild it from the ground up. In fact, Treasury Secretary Bessant has um has echoed me in a lot of the solutions that he feels are appropriate going forward for the Fed, for the Fed to be accountable in its decision-making, for the Fed to maybe not have to have 786 full-time PhDs on staff, uh for there not to be the same 12 districts that existed in 1913 because the US economy has changed since then. Anyways, the the final chapter of Fed Up goes through radical changes that need to be undertaken at the Fed that almost end it, but ending it is not a realistic route to take in my view. But I certainly sympathize with people who feel that the Fed should be ended because what they're really crying out for is for markets to price. And there's nothing wrong with that. price discovery should be uh a goal and the Fed the Federal Reserve should not have a place in making market prices. Well, Danielle, this has been a fantastic discussion. Tell us about Quill Intelligence and where people can get a copy of your book Fed Up. So, um most major libraries have got a copy. Uh I recorded the book myself as well. I think we probably have more activity on Audible and you know I'm coming up on my 10 year anniversary just about 18 months of releasing Fed Up, but we still have quite a few people uh listening to the Audible book and and and buying it unfortunately on Amazon. There are other places I'm sure you can get it. Um been a long time since somebody's asked me about uh how to get fed up, but again in most major libraries if you just want to check it out and give it a read. Um, I just had my 10-year anniversary of uh of founding Qi Research after I left the Federal Reserve system myself. Um, we published the Daily Feather for more retail investors uh every trading day of the week. Martinobub.substack.com. And for institutional investors, we publish eight times a week. We have a very uh rockus, fun, great Bloomberg chat room. We publish eight institutional products a week uh for those clients as well. So come to qirearchearch.com and learn more if um if you're in the business of running money for a living. Great. Well, I will put links to all of that in the description below. Thank you so much, Danielle. It's been a blast. Thank you for having me. And thank you for joining us today. Take advantage of Arc Silver gold osmium specials right now. Silver kangaroos 2023 1oz coins only $247 over spot. Silver maple leaves 2025 1oz coins just $2.87 over spot. Reach out to owner Ian Everard today at 307-264-9441 or by email at ianarchsggo.com and make sure to tell him that Commodity Culture sent you. 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Risk of 'Major Correction' for Markets as Jobs Numbers TANK: Danielle DiMartino Booth
Summary
Transcript
Hello everybody and welcome into commodity culture where our goal is to make you a better investor in the commodities sector. My name is Jesse Day and on this episode I'm thrilled to welcome Danielle D. Martino Booth to the show. An economist, former Fed adviser, Wall Street veteran, and the author of Fed Up, an insider's take on why the Federal Reserve is bad for America. Danielle believes that current valuations in the broad market are not tethered to reality. And she draws parallels to both the tech wreck and global financial crisis in making a case that although the market can remain irrational longer than we can remain solvent, eventually reality has to come home to roost and the result won't be pretty. Danielle also provides her thoughts on the gold market and the question of gold revaluation, a growing crisis she sees in the US housing market, how the debt and deficit situation could potentially be solved, and so much more. So, strap yourselves in for my conversation with Danielle D. Martino Booth. Danielle D. Martino Booth, it is great to have you on Commodity Culture. I want to kick things off with your assessment of the Trump administration's economic and trade policies thus far. It's now been around nine months since Trump took office. What do you make of the policies and strategies coming out of the administration and the efforts of Treasury Secretary Scott Bessent? Good, bad, and ugly. So, um, you know, I I I think that a lot of the policies could have been more carefully um deployed at this juncture. I don't think I don't think anybody would agree with me. The uncertainty factor is pretty high uh at this point for a lot of American companies. Um we see that evident in hiring freezes and declining capital expenditure plans. We will see if the big beautiful bill if the passage of that bill unleashes um a wave of of investing. There's certainly a lot of of hope uh as it pertains to that. And specific to Treasury Secretary Scott Bessent, I would say that he has definitely been a calming force, a calming influence um throughout his his his short tenure. So, um, again, I don't think I'm I'm alone in giving him pretty high marks, uh, since he started off, um, heading up the nation's Treasury Department and wearing quite a few hats, I would add, as well, because there has been something of a revolving door with a lot of, um, sorry, I'm didn't mean to be making my laptop bounce around, but there has been something a revolving door with other officials uh, that have that have been calling on on on Bessant's time to wear many different hats. Well, I want to also discuss the broad market with you because I have a lineup down the block of guests on this show for the past three years who have been pounding the table that the market is extraordinarily overvalued by a number of different metrics and that we are set for a massive correction. Some are calling for a long-term bare market ahead for the MAG 7, the three big indices and just the overall broad stock market. What is your view here? Do you think there is an argument to be made for the market to continue to move higher? Where do you stand on the issue of the current health of the the broad market? So I think um this is a market that is driven by passive flows and um and by momentum and by speculation and a lot of the a lot of similar elements were around in 1999 and and in 2000. um a and we saw of course that bubble inflate and valuations get higher than than anything that we thought that we would see. So hopefully we've learned a little bit from that that you can certainly go broke uh if you're using valuations purely as a timing mechanism. We know that that does not work. And again I I I think that the changed structure of the stock market is what's really relevant here. As long as you have more individuals who are contributing to uh target date 401k funds um then you're going to have continued increases in uh market cap weighted passive investing index type strategies. Uh it's just a fact of life. We do however have shifting demographics and that is I I think a key differentiator between now and what we did see in 2001 2007 and that is that we've got upwards of 11,500 Americans retiring every day. Of course they're no longer contributing to 401ks and then we've had some serious weakness in the in in the market for college graduates as well. So uh it's a matter of simple math. you have to have more people coming into the job market to offset retirees or you're going to start to turn the direction of those passive flows. And so when that happens, then you do begin to run the risk of seeing a major correction in the markets. And I I would add to that that a lot of the revenue expectations going out several years into the future is very reminiscent of what we saw in 2000 um in the year 2000 in 1999. And there I think there is a growing recognition that there's going to be some cannibalization in the AI space and that not all of the companies that are making extraordinary investments today uh are going to end up being the winner the one or two big winners in the AI space. Meaning that there is some large degree right now of of sunk cost being incurred. And that's uh and we're also seeing it play out in companies begin to take debt on to support their investments in artificial intelligence. So um you know could we see momentum continue for the next six months? Could there be hopes that Fed rate cuts are are going to unleash a wave of liquidity? Um, I I certainly think that the momentum trade can continue, but what we have to remember is that we're not talking about zero interest rate policy and the relaunching of quantitative easing just yet. Right now, we're talking about whether it's going to be a quarter of a point or a half of a percentage point rate cut at the September meeting and maybe a follow-up to that at the October meeting, but we're certainly not talking about anything remotely resembling just yet the zero bound. And now a quick break to hear from our sponsor. Ark Silver Gold Osmium owner Ian Everard is considered one of the most honest and levelheaded gold and silver dealers in the United States. Praised even by his competitors. So give him a call today to take advantage of the specials right now. Silver kangaroos 2023 1oz coins mint fresh only $247 over spot. Mint fresh silver maple leaves 2025 coins 1 ounce $2.87 over spot while supplies last. Reach out today at 3072649441 or by email at ianarchsggo.com and make sure to tell him that commodity culture sent you. And now back to the interview. Excellent summary. Um you you mentioned the job market here. We've seen massive job market revisions to the downside recently, surprising some. I think that a lot of the statistics that are coming out of the government for some time now have been cooked in one form or another. Firstly, what are the implications of this downward revision? And secondly, with all the massaging and downright false information that goes into a lot of government statistics, job market reports, inflation statistics have changed massively since the 80s, is there any real reason to even be paying attention to that data at this point? Well, the reason you have to pay attention to the data is because the biggest investors are paying attention to the data. So, uh, it's not exactly a a deeply satisfying or intellectual response, but, uh, for better, for worse, when non-farm payrolls hit the headlines, u on non-farm payroll Friday, investors pay attention. They move money around based on that. Algorithms key off of what the data is. Um, so if anything really has changed, I would say in the medium term, it's that it looks like uh the revisions are more real time in nature. And that means that we're seeing true downside downward momentum in the uh in the payrolls data. We've got the unemployment rate at 4.3% which is still historically very low but nonetheless the highest of the current cycle. Um and again if these revisions are starting to come through in real time. June of 2025 we had net job destruction. We had payroll losses for the month. We found out about that just two months after the June data were revised. That's a heck of a lot faster than having to wait 18 months to find out what happened in March of 2024, for example. You know, wait, you know, excuse me, April of 2024. We didn't find out what the state of the job market was then until this past September, the current month that we're in. But so I think investors should definitely be attentive to increased downward momentum in the payroll data because that is when things can start that's when the ground underneath you can start to shift more quickly. And speaking of inflation statistics, the official headline CPI around 2.9% um has been rising recently and of course most are expecting the Fed to cut rates at the FOMC meeting tomorrow. You mentioned they're trying to figure out whether it's going to be 25 or 50 basis points. That seems to be the debate, not if they're going to cut. What is the logic of cutting rates here in the face of rising inflation? And perhaps the deeper question is does adjusting the Fed funds rate either up or down really accomplish anything significant in today's economy? So, um you know, the answer is uh we we have seen tangible evidence that refinancing applications have gone up. People uh a lot of Americans are watching their FICO scores fall. they're facing rising consumer delinquencies, whether you're talking about automobiles or credit cards. Uh, and so to the extent that people really need to access cash and are trying to tap into their home equity, we're seeing tangible evidence that even a 25 basis point decline in in your mortgage rate can get some action going. But in the broadest sense, no. No. We're we're seeing a lot of um mortgage uh purch applications to purchase homes. We're seeing a lot of um banks refusing to uh the applicants and do I really think that 25 basis points that a quarter of a percentage points is going to move the needle when it comes to commercial real estate or small business lending? No. Again, I think a lot of the I I think a lot of the hope that's out there is that when people start to talk about the Fed lowering interest rates, they're not talking about going, you know, just a quarter of a percentage point. They're thinking in the back of their mind because that's how investors have been trained to go, oh, the Fed's going to zero overnight and then they're going to relaunch the the purchases and growing their balance sheet. We're not in the middle of a global pandemic right now and there is no financial crisis that we see. We have bankruptcies that are piling up. We still have the lagged effect of the Fed holding interest rates at a higher level than they certainly have in modern history. So that is still playing out. Uh but as far as the zero bound in QE, we're not there yet. Do you think part of this is motivated by political pressure in terms of Powell getting pressured by Trump continuously to lower rates? And do you think the bigger picture for the US government in terms of wanting a rate cut is to lower the interest expense on their own debt? Oh, well I mean that's that that is the obvious motivation here. But I think Powell has proven himself in spades that he is not going to bow to political pressure, but rather I I think that there there has to be a recognition um even for Jay Powell who contended until the last meeting in July that the labor market was still solid that the labor market is no longer solid. The Fed is a dualmandate institution. um there even though inflation is not at the 2% target um or you know and and and the fact that it is closer to 3% the Fed does have to acknowledge the weakening in in the job market in some way shape or form even if it's just a signaling if that 25 basis points is not going to do a lot holistically speaking for for the broader economy. And with everything we've discussed so far as the backdrop what are your thoughts on gold as an asset right now? What do you think are the main factors that have been driving the gold market to this point, recently reaching all-time highs after being in a consolidation pattern for around 4 months? And what role, if any, do you see gold potentially playing in the monetary system and the global economy ahead? So, I think um I think that first and foremost uh there have been fundamental drivers of the recent increase in in gold prices. Central banks have been buying quite a bit of gold. uh but but more fundamentally gold is considered to be a hedge and when you are completely uncertain about what tomorrow holds then you naturally flock into the arms of precious metals. It's simply the way of the world and it's it's been how it's worked. Um as far as gold's role in the future monetary system, there's not a practical way to make that happen without crashing the world's largest economy. Um, so even though in I I am a a a vocal advocate for sound monetary policy and for sound money, um, I I don't think that there is a pathway right now to readopt a gold standard if such a thing is being contemplated. But I do think that that concerns about rate cuts potentially igniting inflation um and uncertainty about the record valuations that we've discussed right now and risky assets is is sending investors fleeing to hedge their portfolios with gold and that makes perfect intuitive sense. And do you have any thoughts on the prospect of the US revaluing its gold reserves? This is some thing that's been floating around recently, particularly since the Fed released a report which focused on some other countries that had revalued all or a portion of their gold reserves and the implications of that. That led to speculation online that they are considering a similar move as at the moment gold is held at $48 $42.22 I believe somewhere around there on the Fed's balance sheet. Do you think this is a realistic proposition and would it actually accomplish anything? Well, so, um, you know, I'll give you my disclaimer. I'm nine hours shy of sitting for my CPA. So, that that's how I left business school was three classes shy of being a bonafide certified public accountant. Um, I I think 750 billion dollars could certainly be helpful. Uh but in an economy that's $28 trillion in size with these massive deficits, uh the accountant in me says that it would be a one-time um accounting maneuver in order to revalue what's on the balance sheet of the United States and it would last for about as long as $750 billion last in the United States, which I think is three quarters, right? Um another area you've been sounding the alarm about recently is the housing market in the US. what has you most concerned there and what could the implications be of a meltdown in the housing market for the broader economy? So that's a much different question and um I I I think the fact that uh as I mentioned earlier mortgage applications are being rejected uh by banks. Banks are definitely clamping down on their lending standards. We just had a big subprime automobile lenderricolor blow up and leave you know some some leave banks with some losses to to the to the extent that lending standards are tightening I think that that makes life a lot harder for the Airbnb jocks of the world who really do require loose lending standards the ability to tap into constant financing to support their portfolios of of short-term rentals that they were anticipating when they got into the name always having rising weekly rental rates. It certainly isn't the case right now. And again, I would bring up the subject of of demographics. Um, on top of this, because not only do Americans the age of 70 and older own 40% of the US stock market, so they cannot see interest rates go to the zero bound, by the way. They cannot go back into the into the workforce right now. They're just too old. The median age of a baby boomer is 71 years old. But not only are baby boomers um more apt to sell their stock than they have been uh in prior cycles, they own 25% of residential real estate. So that's a quarter of homes in America that are owned by baby boomers. If you were to see a correction, if baby boomers were to be concerned because they keep reading about record high valuations in the stock market, then you start to see things like Red Fin reporting that uh in in data going back 12 years, second home sales have fallen to the lowest on record. Uh that is that is the absence of activity in an area that is, you know, of great interest to retirees in the United States who own 25% of of residential real estate. And by the way, uh, if you take the demographic argument one step further, the the falling birth rate in the United States, out migration at the same time means that there are fewer buyers. And there's certainly fewer buyers for McMansions and some of the larger homes that the baby boomer generation has amassed over the years. If you've only had 1.25 children, you don't necessarily need five bedrooms. And that, I think, is going to be something of a demographic um, divide. And you're going to see a clashing of of demographics there because there simply aren't enough young American families with four or five children to put into a house and fill up those great big homes, much less the ability to afford to get into such a high mortgage. So I I I think you're going to have some structural pressures on home prices going forward that that are not going to go away for a long time. You recently wrote a piece on Quill Intelligence titled Deception and Plain View: The Private Credit Ruse comes to light. Can you walk us through your findings in that report? So, I go back to Triricolor, the subprime auto lender that blew up. Uh, it had warehouse lines um of credit with several banks at the same time based on the same collateral. uh that was a blowup in the private credit space that that became very public. And the concern is that because there's not the same amount of due diligence because private uh because borrowers in the private credit space uh were finding out the hard way tend to be even lower credits than junk rated borrowers or leverage loan borrowers. Because of that and because of the the massive increase in the growth rate of the private credit market, I think that this is an area where you could see um illli liquidity become very problematic and and you could I don't I don't necessarily think is um is an isolated situation. I think it's much more to allude to the color that I'm wearing today. I think it's much more of a canary in the coal mine. Interesting. When looking at the market today from your perspective, what are the areas of the market and the asset categories that you think are presenting a potential opportunity and what areas of the market are best avoided in your view? So, I think investors should look to some of the more boring areas of the market because you have to look at investing kind of through the prism of somebody who I'll go back to my median age of baby boomer is 71. So, if the Fed starts to aggressively lower interest rates going forward because the job market continues to weaken, uh, what are these people going to buy in the stock market or in the bond market if cash stops paying them enough to live on in their fixed income existence? And so, you know, companies that will not be uh threatened with cutting their dividends, um that are going to produce cash flow, that's those are some of the areas that baby boomers will flock to uh if they don't make the decision to sell their stocks outright. They would not be going to companies that do not throw off cash flow streams. So, I think that that is an area where investors should be mindfully hedged going forward. So again, um it seems like every question you ask me goes back to the idea of demographics. Um but demographics is our destiny. It was not in 2001 and demographics was not our destiny in 2007. There were options at the time for this massive baby boomer generation to stay in the workforce or to rejoin the workforce. But that is no longer the case. So, you have to be one step ahead of where they're going to be in their thinking and be positioned to benefit from uh from areas within the within asset classes where they're going to be putting their money if need be. And then areas of the market that you would be avoiding at this point in time. Well, I mean, again, it's it's every bubble inflates for longer than anybody ever anticipates it inflating. Um but you certainly would not want to have full on right now the average American um portfolio is 72% stocks. Uh to the extent that you're in that I in that large cohort um you just have to be mindful of what your age is and and how long you can weather any potential disruption in the market. Uh but the sell-off would seem to always start historically in the most overvalued areas. And there's no reason to think that this time is any different given some of the aggressive, shall we say, revenue projections that are being made by some of these big players right now. And any thoughts on the fixed income market, maybe starting with US treasuries and uh your thoughts on commercial paper and maybe even emerging market debt. Is that an area that you could see being attractive? So, um, you know, right now there are a lot of individuals, uh, there are a lot of my cohorts out there that are getting long duration that they're terming out their their their debt exposure. If you're in recession, or I should say it differently because we started losing jobs in the second quarter of 2024. If markets begin to recognize recession, then you do tend to have um falling yields further out on on the yield curve. Um, as far as commercial paper goes, boy, we've seen a renaissance there. I mean, commercial paper, the whole the whole market has come roaring back. And that, of course, is a cash alternative uh way, very shortterm for um for corporations to uh to butress their their um true cash positions. So, um in that sense, you would be uh barbelling your exposure, if you will. Um, you know, I'm not I'm not an expert in in emerging markets debt, so I probably I'm probably not the right one to ask about that. But I would I would caution that um at a higher level, we're seeing pullbacks in many manufacturing economies because there was a ton of front load buying in front of the the threat of tariffs. And now that that inventory stock building wave is coming to an end, now you're starting to see kind of a retrenchment of manufacturing weakness in other countries. And that will always have um a bleedon effect to to smaller economies that rely more on the manufacturing industrial side of their economy than they do the services sector. I'd love to get your thoughts on the US government taking a 10% stake in Intel with them also indicating that they may be open to taking a stake in other AI and chip companies moving forward as well. Um, is this a strategic move that makes sense in your view? So, this might be this the shortest answer that I give you today. Um, I I'm a big proponent of the idea that the best way to destroy something is to invite the government in. Um I I it probably would have been a more realistic route to take to as they were discussing uh prior to the government's announcement to to break up intel and to try and um and harvest value in that manner to to the greatest extent for the uh shareholders and stakeholders. I I um I'm I'm just a free market libertarian at heart and I I don't think the government becoming involved is ever going to improve things. Yeah, I agree with that sentiment. So, I mean, I'm Yes. So, yeah, it kind of goes against my grain. Yeah. Um, I'd like to get your thoughts as well on how does the debt and deficit situation get solved in the United States because we have this massive chunk of entitlement spending which is essentially untouchable from a political standpoint because if you want to get elected or reelected, you cannot take things away from a mass of the population. So, how do we solve this problem? Obviously, there's no easy answer, but I I'd love to get your thoughts considering your wealth of experience and being a former Fed insider as well. Well, we do have Gen Z and millennials who add up to 48.5% of US voters. Uh so we we could actually see change on the entitlement front. Um but you're right, they're sacred cows. Uh they don't want to be touched. No politician wants to be the one coming in and cutting Medicare, cutting Medicaid, cutting Social Security benefits. Uh, and it's a real problem for the United States. Uh, when we're speaking about the long term, and you know, at some point, some politician will have to address, you know, I I sound like I'm speaking to you and you're speaking to me in French. You know, it's it sounds like we're talking about the French economy here, but at some point we're going to have to make some mature decisions about retirement ages and increasing uh retirement ages in this country so that we can start to get entitlement spending going forward under control. Or you're going to talk about funding running out before the baby boomers um the baby boomers burning through all of these trust funds before really even beginning to die off in earnest. I mean, we know that healthc care in the very last few years of life is extraordinarily expensive and we're talking about the government footing that bill. And you are the author of Fed Up and Insiders take on why the Federal Reserve is bad for America. So, I have to ask you, we're going to finish on the question of ending the Fed, something that Ron Paul has been championing for some time now. Um, and and a lot of people believe this could solve a lot of problems relating to the US economy. Are you in that camp? Do you think ending the Fed would be beneficial? Could it have negative effects? And is there even a realistic route to undertaking such a such a task? So, I think the Fed's independence is definitely at risk. Um, but that's more an internal between the Federal Reserve and the and the US Treasury. Um, you know, I I I've met Ron Paul and I certainly respect a lot of his views given what the Chinese did to intellectual property um when it was unguarded and it was able to be um uh hijacked. I'm looking for pol for a polite word, but screw it. Um, but given what happened with our intellectual property, I I dare say that if we were to leave the financial system completely unprotected that we would certainly be opening ourselves, increasing our vulnerability to a great extent to our financial system being taken over. And we've already seen all manner of cyber attacks and they do indeed from time to time infect large financial institutions. So the idea of of leaving the biggest financial system in the country unguarded and um is is just not prudent in my view. Now the entire last chapter of Fedup is devoted to how I would take the Federal Reserve down to the studs and rebuild it from the ground up. In fact, Treasury Secretary Bessant has um has echoed me in a lot of the solutions that he feels are appropriate going forward for the Fed, for the Fed to be accountable in its decision-making, for the Fed to maybe not have to have 786 full-time PhDs on staff, uh for there not to be the same 12 districts that existed in 1913 because the US economy has changed since then. Anyways, the the final chapter of Fed Up goes through radical changes that need to be undertaken at the Fed that almost end it, but ending it is not a realistic route to take in my view. But I certainly sympathize with people who feel that the Fed should be ended because what they're really crying out for is for markets to price. And there's nothing wrong with that. price discovery should be uh a goal and the Fed the Federal Reserve should not have a place in making market prices. Well, Danielle, this has been a fantastic discussion. Tell us about Quill Intelligence and where people can get a copy of your book Fed Up. So, um most major libraries have got a copy. Uh I recorded the book myself as well. I think we probably have more activity on Audible and you know I'm coming up on my 10 year anniversary just about 18 months of releasing Fed Up, but we still have quite a few people uh listening to the Audible book and and and buying it unfortunately on Amazon. There are other places I'm sure you can get it. Um been a long time since somebody's asked me about uh how to get fed up, but again in most major libraries if you just want to check it out and give it a read. Um, I just had my 10-year anniversary of uh of founding Qi Research after I left the Federal Reserve system myself. Um, we published the Daily Feather for more retail investors uh every trading day of the week. Martinobub.substack.com. And for institutional investors, we publish eight times a week. We have a very uh rockus, fun, great Bloomberg chat room. We publish eight institutional products a week uh for those clients as well. So come to qirearchearch.com and learn more if um if you're in the business of running money for a living. Great. Well, I will put links to all of that in the description below. Thank you so much, Danielle. It's been a blast. Thank you for having me. And thank you for joining us today. Take advantage of Arc Silver gold osmium specials right now. Silver kangaroos 2023 1oz coins only $247 over spot. Silver maple leaves 2025 1oz coins just $2.87 over spot. Reach out to owner Ian Everard today at 307-264-9441 or by email at ianarchsggo.com and make sure to tell him that Commodity Culture sent you. 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