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- [00:01]
Danielle DiMartino Booth
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- [00:31]
Ann Berry
Data during the government shutdown, the Fed was flying almost blind as political pressure mounted for a rate cut. Today we revisit my conversation with former fed advisor Danielle DiMartino Booth for her thoughts on the dynamic for Monday, December 29th. It's Brew Markets Daily and I'm Ann Berry. Now when we dropped this episode on October 13, one listener wrote to say that it was a quote, sleeper hit and we couldn't agree more. So we're delighted to bring it back. Now, hot on the heels of the release of Federal Reserve meeting minutes and early into this year's government shutdown, Danielle DiMartino Booth joined us in studio for a high energy conversation on so many macro topics that are still top of mind today. Like what's the outlook for Fed independence? What are ghost postings? What was Alan Greenspan's relationship with the markets irrational exuberance or not? Is a new Enron looming large? And has gold gold become a meme stock? We covered so much ground. So stay tuned for my conversation with Danielle DiMartino Booth, CEO and Chief Strategist for Qi Research and previously an advisor to Richard Fisher at the Federal Reserve bank of Dallas. But first, a word from our sponsor. Vanguard producer John what do you know about bonds?
- [01:51]
John
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- [01:53]
Ann Berry
I meant the bond markets.
- [01:55]
John
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- [01:56]
Ann Berry
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Ann Berry
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John
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- [02:25]
Ann Berry
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John
Vanguard Marketing Corporation Distributor now let's listen.
- [02:39]
Ann Berry
Back to my conversation with Fed insider Danielle DiMartino Booth, I have in front of me the Fed minutes from the September 6th to 17th meeting of the Federal Open Market Committee. Tell me what you took away from seeing these when they came out yesterday.
- [02:54]
Danielle DiMartino Booth
Well, I was, I was gratified to see that the disparity that had existed prior to Stephen Myron joining the Federal Reserve Board was very much still in evidence afterwards because there were a few members who were in favor of not having cut rates at all in September. They would have otherwise had, had they had their druthers, sat on the sidelines and said, no, no, no, inflation's important. There were a few who mentioned in the minutes they were not by name, but there were a few who were concerned about those benchmark revisions to the labor market. And, you know, had they had their druthers, it was obvious they would have gone for a larger rate cut. And yet they all came together on September 17th and they presented a unified front. They voted together, they made a stand for Fed independence. And it was, it wasn't until we got to see the minutes that we knew we all came together for a higher purpose.
- [03:53]
Ann Berry
That's so interesting. That's so interesting. What do you think they do next time?
- [03:59]
Danielle DiMartino Booth
Well, it's pretty difficult to be flying as blind as they are. You know, I think the best, the best signal that we, that we got not knowing we were going to veer into a shutdown was before FOMC blackout started. There was a speech given by Christopher Waller and it's pretty obvious that any rift that existed because Waller has dissented now twice against Powell. I think that rift has been mended after him standing tall with Powell and voting with Powell this September meeting. In any event, Waller gave a speech and he said, look, we're looking at alternative measures of employment. Heck, ADP tells us in the middle of the month how the data is looking. So we actually get a look into a proprietary data set that's not available to anybody in the public. And we already know that the labor market is weakening through that prism. It wasn't just that he was talking about ADP specifically. He was saying, and broadcasting in advance, we're going to find alternatives in the event that the government does shut down. This being said, what do they do on October 29th? It really depends on how long the government has shut down. Markets have already fully priced in a quarter point additional rate cut on October 29th. If we get too close to the government reopening and that meeting, I think they go for the rate cut regardless. You do, because there's been so much evidence in so many Carlyle Group, bank of America. Everybody's coming up with their own proprietary internal labor market indicator to replace kind of this vacuum that's been left with no non farm payrolls, with no initial jobless claims, with no continuing jobless claims. So most of the shops are coming up with alternatives. None of them are suggesting any improvement. And what we looked at this morning in our daily Feather was we looked at the past few post pandemic years because we tend to follow not seasonally adjusted claims, especially in a post pandemic world when all seasonality was thrown completely disrupted. So we look at the number of Americans searching on Google for file unemployment and it's been a very, very consistent guide until recently. And we've seen the percentage of Americans searching for file unemployment come way off trend of the past few years and the trend was very steady. And it's shot way up again. Yet another indicator that something else is amiss in the labor market. Regardless of what the Bureau of Labor Statistics should report with a now a tremendous lag.
- [06:50]
Ann Berry
Here's a question for you because Danielle, I followed you for years actually, and when I follow you on X and everyone should take a look at your social media presence, you post very regularly. Whenever you read about a big layoff coming actually for a large employer, you're out there and you're saying, look, there's another one coming. Here it is. And you've been saying that for years. Do you think that one consequence of this government shutdown, this one instance, there have been others, but this one's just very visible at the moment of the Fed being forced to look for other sources of labor data. Do you think that this actually is the catalyst that gets the Fed to do what you've been advocating for for a while, which is indeed make it common practice for you guys to look at other sources of data.
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Danielle DiMartino Booth
Yay. Absolutely.
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Ann Berry
Danielle's nodding her hands.
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Danielle DiMartino Booth
This is like a best case scenario. Yes, it absolutely would be okay. This is a watershed moment for Fed policymakers. You know, it's, it's even prior to President Trump dismissing the head of the Bureau of Labor Statistics and replacing him and then now removing the replacement. So we have no head of the BLS right now. But even for that, 89% of polled economists across the United States were saying whatever it is we're getting, it's not kosher, it's not even acceptable. We're not relying on it because we.
- [08:16]
Ann Berry
Keep seeing, we kept on seeing big revisions, didn't we? So data would come out. And then the next month we would see them being revised.
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Danielle DiMartino Booth
And then even the, you know, it wasn't even waiting 18 months anymore to get these huge, oh my gosh. And the year ended March 31, there were 911,000 fewer jobs than what we were starting to get them much closer. Oh, gee. Two months later, June was revised into the red. The pandemic notwithstanding, that was the first month of that. We found out within two months that we had lost jobs on a net basis since September 2010. And that's got to wake up policymakers. But yes, I hope that this is the mother of all morning brew wake up call to say it is time to find some alternatives and rely on them. And you know, the beauty of X, except for those bots. But the beauty of X is that I learn. I learned so much when I posted a year ago on ghost postings, on postings that employers were putting out there to boost morale. But they weren't actually real job openings. They had never had an intention of filling them. They were just putting them out on LinkedIn or on indeed, to make current employees feel a little bit more secure in their job. Even though the employees were like, we don't see any new people.
- [09:37]
Ann Berry
Oh, interesting.
- [09:38]
Danielle DiMartino Booth
Our workload's getting bigger and bigger and bigger. They haven't brought on people in so long, it feels like we're in a hiring freeze. And now that's become endemic. Now we have to deal with what Chair Powell describes as a low hiring, low firing environment. Once you start to break into the corpus, once its hiring freezes and canceling job openings and buyouts and attrition, your headcount starts to shrink. And companies do not want to announce layoffs. They do not. It is just toxic. But they found a way around it. They found a workaround or they lay off 10, 20, 30 at a time so that they don't have to file a warn notice in the state because they haven't hit that hundred threshold of employees that they're going to lay off at one time. So they just, they just drip out the reduction in their headcount. And that's why we're also seeing such massive revisions. Because once a quarter, you have to tell the census, if you're, if you're ABC employer, once a quarter, you are legally obligated to report to the census what your headcount.
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Ann Berry
So it catches up. The information does. At some point, the light gets shine shone on it. That's the labor side of it. And we're going to come back to it and more structural changes. Danielle. But let's talk about the inflation side of the equate of the equation. Now you've got got a ton of experience not only observing the Fed and commentating on the Fed in your current role. You've been inside at the Dallas Fed in your time there. Just paint the picture for us. How much conversation was there focusing on the labor side instead of the inflation side of the dual mandate? So just for the audience, just to recap, the Fed is supposed to look at both trying to optimize employment but also keeping inflation at this 2% target. Two sides, two, two pieces of the balancing act. So how much are you seeing the shift today towards labor versus inflation versus your time there and how much when you were at the Dallas Fed were people worried about Fed independence?
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Danielle DiMartino Booth
So there wasn't enough worry about Fed independence when I was there. There wasn't near enough worry. Sebastian Malady is Alan Greenspan's biographer and he basically shadowed the man for two years. He was kind of an embedded reporter, if you will, a war reporter. And his main takeaway was, you know, Alan liked to be popular. He really enjoyed the maestro cnbc filming him walking into a Fed meeting and trying to gauge the weight of, of the briefcase he was carrying. He really loved the public's adoration. And Mallory's conclusion was that's why he became so beholden to the stock market.
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Ann Berry
Interesting.
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Danielle DiMartino Booth
And that's why the Fed put was kind of born in 1987. As we went further down from Bernanke to Yellen, they became obsessed, obsessed with the labor mandate to the extent that that they were able to completely blindly disregard asset price inflation, which is a real thing now. We call it easy financial conditions, but it's asset price inflation that was being disregarded because they were leaning so hard in trying to get an all inclusive unemployment rate that was so low that they were missing what was happening in housing inflation, they were missing what was happening in stock market inflation. And of course we had the crisis right. So the Fed's been politicized for a very long time.
- [13:27]
Ann Berry
That's a really interesting perspective. And you've just said Alan Greenspan wanted adoration adulation, but he did at one point call out, quote, irrational exuberance. He did okay and he was laughed at and he was right. And he was right and he was right. So here's a question to sort of draw the comparison with today. Fed chair Jay Powell said he believes that equities are fairly highly valued. People immediately leapt on that and said this is the moment. That's the equivalent of Alan Greenspan saying, we've seen irrational exuberance.
- [14:02]
Danielle DiMartino Booth
Great. We've got three years of Runway ahead of us. Well, let's all go long.
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Ann Berry
Are you. Are we in a bubble, Danielle? Are we in a stock bubble? Are we in a stock market?
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Danielle DiMartino Booth
Oh, gosh, I don't. I don't think anybody disputes that.
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Ann Berry
Well, some people do. I mean, if you talk to Dan Ives, who's been a guest here, and he's such an advocate of tech and saying, no, this is a bull market, that's deservedly a bull market. This isn't a bubble. Because the AI Industrial Revolution is real. People are saying, there are folks who say, no, we're not in a bubble. So what do you think?
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Danielle DiMartino Booth
Well, with deference to Dan Ives, the majority of kind of the former Super Bowls are now saying, we're in a bubble. But bubbles inflate for a very long time, just like they did in 1997, 98, and 99. After the irrational exuberance, those two words were uttered. That is the main line that I'm hearing right now. It's not that we're not in a bubble, because a blind person can see valuations being where they are. And a blind person knows that if you aggregate all measures of valuation that we've seen surpassed anything that we saw in 2000, but yet in 2000, we surpassed anything that we had seen in 1929 and kept on going, Right? So if it's the nature of the bubble to continue inflating, then, yeah, we could go for years from here. That is. That's the theory, at least. It's my source of pushback. I'm actually writing about this as we speak. I'm deep in the weeds right now. My source of anxiety here is financing and funding. Vendor financing. Vendor financing is typically a red flag. It's probably also a term your listeners may have never heard of. But when you start providing the people buying your products with the financing that they need to buy them, and you can draw a nice cute little circle around that, and you say, oh, that's circular in nature, isn't that a red flag? Well, yes, it is. But then when you start to look at the growth in the background of some of these financing mechanisms, private credit. Jim Chanos did. If anybody did not see the Financial Times interview that Jim Chanos did last week, it was so simple and elegant. And what he said was, by the time that we learned that Enron was in fact a bank, was in fact, a financing company dressed in drag as some utility, electricity trader, whatever it was. In the end we found out that Enron was just a massive financing company.
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Ann Berry
So let's give this a name, Danielle. The circular reference, you know, it's Nvidia investing in OpenAI.
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Danielle DiMartino Booth
Right?
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Ann Berry
Right. Is the big one that's out there. Now we've got OpenAI and AMD with this sort of swap, let's call it of a revenue contract for equity.
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Danielle DiMartino Booth
But they're not my point.
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Ann Berry
They're not your point. Who are you thinking?
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Danielle DiMartino Booth
So I'll finish by saying if First Brands, which is just some. Who cares about air filters. If First Brands is our Enron and we are finding out every single day that it is a massive financing company. Yes, there are auto parts involved, but last night before I fell asleep, one of the financing arms of this company said that $2.3 billion had up and vanished. Vanished. And I'm like, oh, this is so, so, so, so Enron or Tycore.
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Ann Berry
Interesting.
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Danielle DiMartino Booth
Jim's point was once you cross over into deploying the financing means into the boring economy type of companies, then you're pretty far gone down the road of the bubble. So good, so good, so good.
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- [18:10]
Danielle DiMartino Booth
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- [18:14]
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- [18:55]
Ann Berry
Thank you for bringing this up, Danielle. Because we are all so focused on AI and we are so wrapped up in this narrative, AI is tapped into.
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Danielle DiMartino Booth
The same non depository financial institution private credit lenders that are at the absolute epicenter of what happened with Tricolor of what happened with first brands. As boring as they are, they tie right to AI.
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Ann Berry
Right, you're broadening out our perspective on this, which is incredibly helpful. Let's talk about something else that ties into this idea of asset inflation which you've touched on. Let's Talk about gold, right? Record highs. Oh, wow. Danielle's face literally just fell at the mention of gold.
- [19:33]
Danielle DiMartino Booth
Because it's. It's a basic holding in all portfolios. I mean, I say that in my.
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Ann Berry
Sleep, but you've called it a meme stock.
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Danielle DiMartino Booth
It's a meme stock.
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Ann Berry
Okay. Why is it a meme stock right now?
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Danielle DiMartino Booth
Well, okay, so in my defense, I did work on the sell side when I started out my career here in New York. So sometimes you recognize things for what they are. And typically when the sell side gets in, you're like, sell it. So when big sell side firms that for generations have been told from on high, never mention gold, that is something that. That's what those gold bug weird people. They're up in the middle of the night with tinfoil hats on. That's their world. We are an investment bank, and our asset allocation is with reputable asset classes.
- [20:23]
Ann Berry
And gold's not a reputable asset.
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Danielle DiMartino Booth
Well, it wasn't until five hot minutes ago.
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Ann Berry
And why not? Why was it not?
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Danielle DiMartino Booth
It was considered to be an outlier. It doesn't produce any income. There's no dividend payment. It's an old relic. And now it's a meme stock because Goldman Sachs has got a price target on a precious metal that's supposed to hedge your portfolio in the event that something goes really wrong, not move in tandem with the S and P. So.
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Ann Berry
Ray Dalio has reportedly said folks should be thinking about increasing their allocation to gold.
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Danielle DiMartino Booth
They're all saying it.
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Ann Berry
They're all saying it. You think everyone's just.
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Danielle DiMartino Booth
Morgan Stanley just said 20% of your portfolio should be in gold. Again, when people who've never mentioned the word gold start talking about how much of it you should own, it's great to be recognized, but they're not recognizing it for its purpose, and that's protection. They're saying you need to own it for the same reason you need it to own bitcoin. Because it's going to the moon.
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Ann Berry
And what do you think of bitcoin?
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Danielle DiMartino Booth
Well, it's gone to the moon.
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Ann Berry
Do you think that, like gold, it doesn't yield any dividends? Do you think it's something that folks should consider?
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Danielle DiMartino Booth
Yes. But at least you can make it into something really pretty.
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Ann Berry
Gold. Gold. Okay. So you think less of bitcoin than you do of gold.
- [21:48]
Danielle DiMartino Booth
I think that as an asset class, it's certainly got a higher beta.
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Ann Berry
Got it. Got it. So when you think about where you're personally investing at the moment, Danielle, equities, you've said overvalued gold.
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Danielle DiMartino Booth
That doesn't mean that something like, I don't know, an oil company that's been around for 100 years and has never cut their dividend wouldn't have some appeal in this environment. I do like cash flow. Yep. I like really safe dividends. So there are places to be. They're just the places where nobody else is at.
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Ann Berry
Got it. But it feels like everything's sort of up there, inexpensive and picked over right now. Do you think there's still spots to find value in? And I hear you on energy, but even there we're seeing M A activity picking up. It feels like people have said, oh, let's take a look at energy stocks.
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Danielle DiMartino Booth
Well, that's why I'm saying dividend, because even people who bought GE and wrote it all the way down in 2009, at least they got some cash flow from that dividend. It's a very difficult investing environment. When you speak to a lot of veteran investors, they're sitting on 30, 33, 40% cash. When you look at Berkshire Hathaway, it's sitting on this massive pile of cash. So I think we're in a very, very difficult investing environment right now.
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Ann Berry
Let's switch gears and wrap up together. Danielle talking about something a bit more personal. And that is what is going to happen for the next generation of young people who want to become investors, but also, frankly, even before that, to get the money to invest, are trying to find their way through the labor market right now. And I'm bringing it back to labor because it's. Again, you've. You've really been trying to track what is the impact of technology on the labor market, frankly. But even before the AI discussion was up, you've been tracking this for a long time. When you look at the rates of employment for young people just graduating from school or young people thinking about going to school and asking, is it even worth it? Because I don't know what's going to be sitting there in the job market on the other side. What are you seeing? And you're a mom, right? You've got.
- [23:57]
Danielle DiMartino Booth
And I've got, you know, I've got a senior in college, I've got two seniors in high school, and their friends, my senior in college. Their friends are really struggling. They're really struggling, but they're struggling on a personal level. They're like, what have I just done for the last four years that I'm now not marketable? What's changed so much in such a short span of time? And what have I been doing? Losing sleep, staying up for projects, studying my. Just preparing for tests. And what have I just done? Have I really just wasted all this time? I mean the unemployment rate for new entrants to the job market is the highest that it was since 1988. Well, 1988 we had the biggest surge of individuals into the workforce in US history because that's when the baby boomers peaked in terms of their age entering the economy and that supply was slowly absorbed into the market. But that was a supply driven surge which caused the unemployment rate to rise. Right now it's lack of demand.
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Ann Berry
Right.
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Danielle DiMartino Booth
And it is a frightening world out there for these kids. It's, I fear, given the political backdrop because right now companies are paralyzed and we hope one big beautiful bill is just going to unleash the gates of investment on January 1, 2026. That is the hope I want to get there. But at the moment it seems like even if companies don't know how to deploy AI, it seems like they're deploying it anyways and replacing human beings with that. And you have to worry for these people in their 20s. They'll never get the beginnings of their careers back. This is when they, this is when they pay their dues. This is when they have the energy to pay their dues and work all crazy hours and learn and be sponges and prepare for, I can see my 30s and this is going to be the goal and I'll be like this person and I'll be this successful if they can't even break into the job market and they're voters.
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Ann Berry
So, and just a final thought or pearl of wisdom from you then Danielle, in the spirit of hope is not a strategy. And you're a young person today thinking about where should I go and deploy my talent? That's what you've got, that's your resource at that age. As you have spent all this time passing through the data by sector, you just see so much, you've been in the weeds, but you come up and take a macro view. Is it healthcare? Is it trade schools? Is it, you know, if you were to say to a young person like take this sector seriously as you think about where to maybe think about going, going to look for a job right now, which one would it be?
- [26:49]
Danielle DiMartino Booth
Well, trades is a given and so many Americans don't want to go there. But you know what, if you just graduated at the top of your class in finance, well, maybe think about owning an H VAC company. Learn the skills first though, or your workers will take you out to lunch. But do look at health care, study demographics, look at professions that cannot be replaced entirely by machine. If you seem to think that you have the potential future as a litigator, as law school applications are just through the roof, don't just say I can study for three years and get a piece of paper. Understand, you have got to become the best litigator out there, something a machine cannot replicate. If you're staying over and getting an extra master's in accounting because you want to get that extra skill set, fine. But watch Russell Crowe in A Beautiful Mind. Understand, you need to be the forensics auditor of tomorrow. Think about what machines can accomplish and think about what machines cannot accomplish if you as a human being can outthink them. And by the way, in the interim, take any job you can get and nothing is below, nothing is beneath you. Remember that.
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Ann Berry
Just get on the train. Danielle, thank you so much. Come back. This is just, as you say, a watershed moment, it feels like, for the Fed. And we're going to see a lot happening towards, you know, this government shutdown, what happens the rest of this year. So please do come back, share some more happy. Thank you.
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Danielle DiMartino Booth
Thank you.
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Ann Berry
Well, huge thanks to Danielle DiMartino Booth for joining me. And for the rest of the holiday week, we have more coming for you. We're we're featuring yet more of our favorite guests from this year, including Alexis Ohanian and writer Michael Lewis. We'll be back tomorrow with a look back at my conversation with Andrew Ross Sorkin. That's it for today's Brew Markets Daily.
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John
Brew Markets Daily is hosted by Anne Barry and produced by John Coteau, Tarkab Delatif and Emily Miller. Technical direction by Felicia Edwards. Rosemary Minkler is our audio engineer. And the president of Morning Brew Inc. Is Devin Emery.