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End of the 40-Year Bull in Debt and a “Global Depression” Threat

May 28, 2022

End of the 40-Year Bull in Debt and a “Global Depression” Threat

Francis Hunt interviews Danielle DiMartino Booth in a must watch video, her most economically comprehensive yet.
End of a 40-Year Bond Bull Market

Discussion Topics

Please do yourself a favor and watch the video link below. Here are just some of topics discussed.

  • Possible end of the 40-year bull in debt, if so a “global depression” threat
  • Emerging Market Blowups
  • The Yen
  • Equity Markey Complacence – Bond Market Reacting to Reality of Higher Interest Rates, Equity Markets Say Prove Hikes Are Coming
  • Game of Chicken
  • Average age of Senators – No one will stand up to the Fed except Pat Toomey
  • Jay Powell knows the damage he did by saving BBB-rated bonds
  • Yield Curve Inversions – How Much Time Is There?
  • Watch currencies especially in countries importing energy
  • Inventories
  • De-globalization
  • Not going to get fiscal stimulus in this mid-term election year.
  • Housing wealth effect in reverse
  • Violent unwind of the carry trade (Yen and Euro)
  • Pension Plan Irony, Pension Plan Risk, Pension Plan Ponzi Schemes
  • Fed Pushes Legal Limits
  • Monetary policy favors the 1%
  • Extends and Pretend on Commercial Real Estate Loans, Midsize Banks Hold this Debt
  • Investment ideas: Look for Safe Municipals (not Illinois), Gold, Cash
  • Avoid value traps like discretionary spending and healthcare, wary of energy because of huge valuation runups

Two Teaser Quotes

In response to a question about the end of the 40-year bull market in bonds, Booth replied:

“I don’t do hyperbole at all, but if this really is the end, and we really are going to see real rates rise appreciably, then you are talking about a global depression.”

Later in the interview, Booth commented “If you want a front row seat with popcorn, follow the EM [emerging market] space.”

YouTube Interview 

Thanks to Danielle DiMartino Booth and Francis Hunt for an amazingly informative video interview.

…click on the above link to read the rest of the article…

DiMartino Booth: “Remember, This Is A Confidence Game”

November 11, 2019

DiMartino Booth: “Remember, This Is A Confidence Game”

  • In the past two weeks, led by those in the Midwest, renters, part-timers and those making $50,000 or less, the Bloomberg Consumer Comfort Index has declined 4.3 points, its steepest decline since 2011; its Personal Finance Index sunk to a 10-month low despite peak stocks
  • Since June, households have built more cash than credit, a.k.a. de-levered; this coincides with three of the last four months’ declines in revolving credit with the two months through September marking the first back-to-back declines in more than seven years
  • The Bloomberg Consumer Comfort Index’s two-week fall led by those making $50,000 or less occurred alongside two weeks of continuing claims rising over the prior 12 months, the first of the cycle; a third week of deterioration in these two indicators would establish a trend

It helps to be familiar with your source of inspiration. Suffice it to say Hugh Cregg III qualified on this count despite a well-to-do upbringing in San Francisco’s Bay Area and being carted off to a private prep school in New Jersey. As artists tend to, Hugh forged a different path than pedigree suggested of the bookish student athlete who earned a baseball scholarship. Somehow, he ended up working as a truck driver, a carpenter, a short order cook, a partner in a landscaping business and even a street corner singer in Europe before finally making a name for himself. Though it wasn’t his first hit, with a breadth of experience as inspiration, Huey Lewis would one day hit it big with “Workin’ for a Livin’.”

Working men and women have been among the most content Americans in recent years. As we’ve written extensively in recent months, CEO confidence has been cascading downwards while that of the lowest income earners has held at some of the highest levels. 

 …click on the above link to read the rest of the article…

Economists Puzzled By Surge In US Money Supply

October 14, 2019

Economists Puzzled By Surge In US Money Supply

Summary:

  • Uncertainty incites a dash to cash, which we’ve seen at an accelerated pace beginning about five months ago, amounting to $887.4B; In the two weeks ended September 30th, MZM rose by $158.1B, a figure that has only been eclipsed in the immediate aftermath of 9/11
  • Declining inflation expectations have netted record levels of households expecting rising real income gains; and yet, consumers are less confident about economic growth with a third anticipating rising unemployment captured in the continued rise in the fear of the unknown
  • Those aged 45 and under expect annual income gains of more than twice households as a whole; this corroborates the top-third of income earners’ (managers’) higher unemployment rate expectations vis-à-vis middle-income-earners’ (worker bees’) job market outlook

We Americans are drawn to nicknames that evoke our cities’ characteristics:  The Big Apple, The Windy City, Hotlanta. But those passionate Italians demand their cities be identified by the vividness of color, an element that played right into the logo design of the world’s most iconic sports car. As for the horse, that image was painted on the SPAD S.XIII flown by Francesco Baracca, Italy’s World War I flying ace who recorded an astounding 34 kills before being killed himself in 1918. As recounted by Enzo Ferrari, fate stepped in as such, “In ‘23, I met count Enrico Baracca, the hero’s father, and then his mother, countess Paulina, who said to me one day, ‘Ferrari, put my son’s prancing horse on your cars. It will bring you good luck’. The horse was, and still is, black, and I added the canary yellow background which is the color of Modena.”

 …click on the above link to read the rest of the article…

Former Dallas Fed Economist Reveals “The Ugly Truth About The Federal Reserve”

September 6, 2019

Former Dallas Fed Economist Reveals “The Ugly Truth About The Federal Reserve”

VIDEO

…see first link above for transcript…

The Fed’s Failures Are Mounting

March 14, 2019

The Fed’s Failures Are Mounting

In the decade between “60 Minutes” interviews, the central bank has sparked a recovery without inflation but not much else. 

Fed Chairman Jerome Powell has his work cut out for him.
Fed Chairman Jerome Powell has his work cut out for him. Photographer: Justin Sullivan/Getty Images North America

Danielle DiMartino Booth, a former adviser to the president of the Dallas Fed, is the author of “Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America,” and founder of Quill Intelligence.

Friday marks the 10-year anniversary of the Federal Reserve Chairman Ben S. Bernanke’s groundbreaking “60 Minutes” interview. To listen to current Fed Chairman Jerome Powell on the same show a decade later, the central bank’s best laid plans since then would seem to have played out according to script with one glaring exception: the Fed’s balance sheet.

When “60 Minutes” reporter Scott Pelley asked Bernanke if the Fed was printing money, his reply was, “Well, effectively. And we need to do that, because our economy is very weak, and inflation is very low. When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.”

If the primary goal was recovery without inflation, the Fed delivered. Since the onset of recovery in June 2009, the core personal consumption expenditures index, which measures the prices paid by consumers for goods and services net of food and energy prices that tend to be more volatile, has been above 2 percent in just five months in 2018, four in 2012 and one in 2011.

 …click on the above link to read the rest of the article…

DiMartino Booth: The Fraying Of The Fed’s Fragile Narrative

December 3, 2018

DiMartino Booth: The Fraying Of The Fed’s Fragile Narrative

Former Dallas Fed official Danielle DiMartino Booth joins the show just as Chairman Jay Powell faces his first major challenge: will he keep raising rates as promised now that autos, housing, employment, and even tech stocks look soft? And if not, will he effectively signal that the US economy is in big trouble?

“I’m most concerned about the bottom line evaluations in the corporate debt market…these bring back memories of the sub-prime credit crisis…”

“The corporate bond market has doubled since 2007. It is over 9 $trillion. Subprime loans were 3 trillion… The Fed should be calling out potential financial stability risks. That is the unspoken third mandate.“

It looks like the US credit market is about to hit the wall. US wall of maturity is around 2020 to 2022, acc to calculations by SRP.

“Apparently in six weeks we have come “worlds apart from neutral” to “Just under” and that is when markets really, really took off.”

“The Fed could engineer a soft landing, but it is a rare occurrence and as Powell is learning, there is a lagged effect in terms of when those interest rate hikes are put in and when they show up in the economy.”

“Powell is trying to broadcast that he is truly data dependent…‘if the data change, I’m going to change with the data.'”

“…look across energy, manufacturing, real estate & construction, leisure & hospitality states…jobless claims across all of these sectors have turned up. It is a weakening economy…”

“If the economy is truly slowing, then top line growth will slow, earnings expectations will be ratcheted down going into 2019.  Those are things that the stock market will not like.”

…click on the above link to read the rest of the article…

The U.S. Economy Is on a Sugar High

October 8, 2018

The U.S. Economy Is on a Sugar High

Many companies are rushing to secure products and materials before the trade war worsens

Across the U.S., companies are hitting the panic button. The Trump administration has levied 10 percent tariffs on $200 billion of Chinese goods, a charge that is expected to rise to 25 percent by 2019. This tops the tariffs on $50 billion of Chinese goods that were imposed in August, and is an effective tax on U.S. consumers, who will soon be paying more for everything from cosmetics to clothing to cars if they aren’t already.

Against that backdrop, it’s becoming clear that many companies are rushing to secure products and materials before prices rise regardless of current demand. You could say they are in panic-buying mode. The upside is that this behavior bolsters economic growth in the short term. The downside is that there is likely to be a nasty hangover. The noise in the economic data will be amplified by the rebuilding from Hurricane Florence. The estimates of the storm’s damage span from $20 billion to $50 billion.

Evidence that panic buying has set in was seen in the September Chicago Purchasing Managers Index report, which is a bellwether for the broader national manufacturing sector. While the results “disappointed,” with the index falling from 63.6 to a still high 60.4 and the new orders component sinking to a six-month low, the inventory component surged above the 60 mark. (In these diffusion indexes, readings above 50 denote expansion.) To put the stockpiling in context, inventories have only breached 60 twice this year. Such nosebleed readings are so rare that they rank in the 97th percentile over the last 30 years.

As per the Chicago PMI: “Firms continued to add to their stock levels, building on August’s marked rise. The scarce availability of inputs continued to encourage stockpiling while forecasts of higher future demand also contributed to the rise in inventories.”

…click on the above link to read the rest of the article…

Inflation Has Run Amok – Danielle DiMartino Booth

August 30, 2018

Inflation Has Run Amok – Danielle DiMartino Booth

Former Fed insider Danielle DiMartino Booth is sure the Fed is going to raise interest rates again at the September meeting. Why? DiMartino Booth explains, “I think he’s (Jerome Powell) the most independent Fed Chair in the past 30 years, and I think he’s going to raise rates regardless of what is happening in politics. . . . You don’t kowtow to political pressure when you need to do right by the economy. . . . Powell thinks the inflation numbers are under-reported. He’s listening to companies saying their profit margins are being squeezed . . . non-labor costs are outpacing labor costs by the greatest extent in three years, and what that tells you is inflation has run amok. . . . I think the Fed is going to continue to raise rates. . . . I think the markets have priced in the (September) rate hike by 90%. We may be looking forward to Jay Powell backing off come December. So, I am not really worried right now about a skyrocketing dollar.”

DiMartino Booth points out the biggest problem the world faces now is record global debt near $250 trillion “that few can conceive a workable solution.” Di Martino Booth says, “It really does keep me up at night because of the nature of debt. As we approach the 10 year anniversary of Lehman Brothers, the one takeaway that many have forgotten in the decade that has passed is that you don’t know where the true ticking time bomb is when there is an over-indebted problem. . . . When systemic risk is released, it cannot be contained by any higher authority and potentially be unleashed. The greatest peril of debt is we don’t know where the danger truly lies until something triggers it.”

…click on the above link to read the rest of the article…

Markets Better Prepare for Stagflation

April 25, 2018

Markets Better Prepare for Stagflation

By all metrics, prices are heating up. But the same can’t be said for economic activity.
Pray for Jerome Powell.     Photographer: Andrew Harrer/Bloomberg

Investors better wake up to the growing risk of stagflation. The coming weeks promise to deliver the verdict on how they should be positioned.

By all metrics, inflation is heating up. But it’s not clear the same can said for underlying economic activity.

According to producers, input costs have risen for six of the past eight months. And it’s not just big companies that are feeling pressure. One in four small businesses say they plan to raise prices, a 10-year high, according to the National Federation of Independent Business. Inflation’s persistence will finally begin to trickle through to consumers.

David Rosenberg, chief economist at the wealth management company Gluskin Sheff, recently quipped that investors “better say a prayer for Jay Powell,” the Federal Reserve chair. The deniers will dismiss the suggestion. But Rosenberg is serious, citing the core consumer price index’s March leap to 2.1 percent, a level that breaches the Fed’s 2 percent inflation target.

“There is going to be a price to be paid for last year’s string of wireless-induced 0.1 percent prints which are falling out of the year-over-year math,” Rosenberg explained, referring to the collapse in wireless services that skewed inflation lower in 2017. “I see 50/50 odds of a 3 percent core inflation by year end.”

That would certainly grab the Fed’s attention and — critically for investors — keep the central bank in a tightening mode through the end of the year and into 2019. Notably, no single Federal Open Market Committee member voiced concern about the risk of inflation that is too low, the first time this has occurred since the Fed began making public the views of participants in 2011.

 

…click on the above link to read the rest of the article…

DiMartino Booth: It Won’t Take Much More For The Fed To Break The Markets

March 19, 2018

DiMartino Booth: It Won’t Take Much More For The Fed To Break The Markets

Via Financial Sense,

The following is a summary of our recent FS Insider podcast, “Danielle DiMartino Booth: Problems at the Fed, More Volatility for the Markets.”

Danielle DiMartino Booth, founder of Money Strong and author of Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America, warns that the US is more highly levered today than it was in 2008 and it won’t be long before rate hikes start to impact the economy.

Though our own Fed funds risk neutral index (see below) shows Fed monetary policy as still relatively loose and not yet a threat, a combination of slowing economic growth and further rate hikes will eventually usher us into the next downturn.

Here’s what Danielle told Financial Sense Newshour…

FISCAL, MONETARY POLICY IN CONFLICT

We just had a huge fiscal stimulus with the recent tax cut, but monetary policy is going in the opposite direction.

Eventually, she warned, we’re going to have one of those moments where the Fed overshoots and they’ve moved too far, too fast.

Though Danielle admits we don’t quite know when that point is yet, Fed monetary policy should now be seen as a headwind with the “final hike that breaks the market” much lower than in the past.

Source: Bloomberg, Financial Sense Wealth Management

DEBT A LARGE CONCERN GOING FORWARD

We’re on track for a trillion dollar deficit in 2019, at the same time China and others are buying fewer Treasuries.

It will be interesting to see if we hit 3 percent on the 10-year, as it might serve as a mental catalyst for markets, she said.

Danielle sees defaults heading higher, and thinks it’s not going to take too much more in rate hikes before it impacts the economy.

WE NEED A RETURN TO NORMAL MARKETS

We essentially have a lost decade behind us, Danielle said, and if the Fed pushes the economy into recession, expect more QE and debt.

Quantitative easing is problematic because it’s habit forming, she stated. She’s hoping the new Fed chair, Jerome Powell, will stop the next round of QE in its tracks and allow the market to go back to being a price discovery mechanism.

…click on the above link to read the rest of the article…

Danielle DiMartino Booth: Don’t Count On The Powell Fed To Rescue The Markets

February 12, 2018

Danielle DiMartino Booth: Don’t Count On The Powell Fed To Rescue The Markets

The new Fed Chair may break from his predecessors

The recent gut-wrenching drop in asset prices began on the first day of the job for new Federal Reserve Chairman Jerome Powell.

How is Mr. Powell likely to react to a suddenly sick-looking market? Will he step in forcefully to reassure investors that there’s a “Powell put” in place as a backstop?

To address these questions, former analyst at the Federal Reserve Bank of Dallas, Danielle DiMartino Booth, returns to the podcast this week. In her opinion, having studied Powell’s previous statements, she thinks those expecting him to continue the market support his predecessors provided will likely be quite disappointed.

Powell appears to be no large fan of continued quantitative easing, and has long been on the record as concerned about the eventual pain its unwind will cause. He very well may resist riding to the market’s rescue at this time, allowing natural market forces to finally have their way:

Look, this is a message that market participants do not want to hear: It is not the Federal Reserves job to put a floor under risky asset prices.

Compare and contrast Jerome Powell’s silence in the wake of the flash crash on his first day at work to Alan Greenspan — who got on an airplane the day after the Black Monday crash of 1987, canceling an appearance he was to have made, and reassuring the markets with a statement on Tuesday morning that the Federal Reserve was standing by and ready and willing and available to satisfy any kind of disruption in the banking and financial systems. That was the day — October 20, 1987 — that the Greenspan put was born.

…click on the above link to read the rest of the article…

2018 Economy Goes Cold – Inflation Hot – Danielle DiMartino Booth

January 3, 2018

2018 Economy Goes Cold – Inflation Hot – Danielle DiMartino Booth

Former Fed insider Danielle DiMartino Booth is not optimistic about a surging economy in 2018. Booth contends, “We have seen 24 consecutive back-to-back months when credit card spending has outpaced incomes.  That tells you households are struggling to get by.  This is not Eve Saint Laurent handbags and Jimmy Choo shoes.  These are families who are using their credit cards to take care of the necessities, to fill up the gas tank, to buy groceries and fill up their refrigerator. . . . We have seen month after month of subprime automobile delinquencies, and we are starting to see a big tic up in FHA mortgage delinquencies as well. . . . We are at almost 10% (delinquencies) of FHA mortgage loans.  Underlying this sugar high that we will see from all of these hurricanes and rebuilding efforts and wildfires, underneath that, still waters run deep and the economy is not doing well.  We are a consumption driven economy that is weakening underneath.  The sugar high will absolutely wear off in 2018.”

What about the bond market in 2018? Booth says, “We have gone from $150 trillion (in global debt) in 2007 to $220 trillion and counting today.  If you delude yourself into thinking a rising rate environment can be good when we have tacked on $70 trillion of debt in the last decade, you are fooling yourself.  It is an accident waiting to happen, and anyone who doesn’t think that it will take the stock market down with it is more optimistic than I am by a country mile.”

Booth says, along with a “bond market debacle,” the world will see inflation right along with it. Booth explains, “Look at lumber prices, look at the cost of packaging, plastics, raw materials, the producer price index . . . is at a six year high right now.  It’s called the mother of all margin squeezes.

…click on the above link to read the rest of the article…

Fed Fears New Record High Credit Bubble – Danielle DiMartino Booth

November 23, 2017

Fed Fears New Record High Credit Bubble – Danielle DiMartino Booth

Former Federal Reserve insider Danielle DiMartino Booth says the record high stock and bond prices make the Fed nervous because it’s fearful of popping this record high credit bubble. DiMartino Booth says, “The Fed’s biggest fear is they know darn well this much credit has built up in the background, and the ramifications of the un-wind for what has happened since the great financial crisis is even greater than what happened in 2008 and 2009.  It’s global and pretty viral.  So, the Fed has good reason to be fearful of what’s going to happen when the baby boomer generation and the pension funds in this country take a third body blow since 2000, and that’s why they are so very, very intimidated by the financial markets and so fearful of a correction.”

Why will the Fed not allow even a small correction in the markets? DiMartino Booth says, “Look back to last year when Deutsche Bank took the markets to DEFCON 1.  Maybe you were paying attention and maybe you weren’t, but it certainly got the German government’s attention.  They said the checkbook is open, and we will do whatever we need to do because we can’t quantify what will happen when a major bank gets into a distressed situation.  I think what central banks worldwide fear is that there has been such a magnificent re-blowing of the credit bubble since 2007 and 2008 that they can’t tell you where the contagion is going to be.  So, they have this great fear of a 2% or 3% or 10 % (correction) and do not know what the daisy chain is going to look like and where the contagion is going to land.  It could be the Chinese bond market.  It could be Italian insolvent banks or it might be Deutsche Bank, or whether it might be small or midsize U.S. commercial lenders.

…click on the above link to read the rest of the article…

The Inconvenient Truth of Consumer Debt

June 11, 2017

The Inconvenient Truth of Consumer Debt

It’s acceptable to build infinitely high levels of household debt — as long as rates never rise.
Ready for a rainy day?Photographer: Anoek De Groot/AFP/Getty Images

Oh, but for the days the hawks had a hero in Sydney. Against the backdrop of a de facto currency war, the Reserve Bank of Australia stood as a steady pillar of strength. The RBA held the line on interest rates, maintaining a floor of 2.5 percent, even as its global central bank peers drove rates to the zero bound and beyond into negative territory.

The abrupt end to the commodities supercycle drove the RBA to join the global currency war. The mining-dependent nation’s economy was so debilitated that policy makers felt they had no choice but to ease financial conditions. In February 2015, after an 18-month honeymoon, the RBA reduced its official rate to 2.25 percent, marking the start of a cycle that ended last August with the fourth cut to a record low of 1.5 percent.

The Bank of Canada has taken a similar journey in recent years. It embarked upon a mild tightening campaign in 2010 that raised the overnight loan rate from a record low of 0.25 percent to 1 percent in September 2010. The bank maintained that level until early 2015. Two weeks before the RBA’s first cut, the Bank of Canada lowered rates to 0.75 percent. The January move, which shocked the markets, was followed in July 2015 with an additional ease to 0.5 percent, where it remains today.

Bank of Canada Governor Stephen Poloz, who replaced Mark Carney after he departed to head the Bank of England, explained the moves as necessary to counter the downside risks to inflation emanating from the oil price shock to the country’s economy.

Two resource-rich economies reacting similarly to body blows is intuitive enough. They eased the pressure on their given economies.

…click on the above link to read the rest of the article…

Former Fed Advisor: State Pensions Time Bomb Spells Disaster For The US

December 18, 2016

Former Fed Advisor: State Pensions Time Bomb Spells Disaster For The US

Underfunded government pensions to the tune of $1.3 trillion, with a gap that just can’t be filled, is the ticking time bomb facing the US economy which faces dramatic cuts in public services – and potentially riots reminiscent of Athens six years ago – according to former Federal Reserve advisor, and President of Money Strong, Danielle DiMartino Booth.

As she picks apart the danger signs with the US on the precipice of recession, it’s the impending pensions crisis that keeps her awake at night, sharing the gloomy sentiment laid out in an extensive March 2016 Citi report titled “The coming pensions crisis.”

With few people taking part in what little recovery the US has had, and given how stretched pensions are, checks are going to have to be written from Washington sooner than you think, DiMartino Booth told Real Vision TV in an interview. “The Baby Boomers are no longer an actuarial theory,” she said. “They’re a reality. The checks are being written.”

A Bulldozer Couldn’t Fill the State Pensions Gap

The $1.3 trillion pensions deficit just takes into account state and municipal obligations, and with promised returns of 8% and funds compounding at 3% for decades it will take nothing short of an economic miracle to recover.  “The average state pension in the last fiscal year returned something south of 1%. You cannot fill that gap with a bulldozer, impossible,” DiMartino Booth said. “Anyone who knows their compounding tables knows you don’t make that up. You don’t get that back unless you get some miracle.”

The last time we saw significant market weakness, the baby boomers pretty much accepted that they would be retiring at 70 instead of 65, she added. “Well, guess what? They’re turning 71. And the physiological decision to stay in the workforce won’t work for much longer. And that means that these pensions are going to come under tremendous amounts of pressure.

…click on the above link to read the rest of the article…

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