DiMartino Booth, Federal Reserve, Jay Powell

POWELL ON POWELL — A Deep Dive into 2012’s FOMC Transcripts

It’s official…for a second time around. At least that’s what the CNBC headline said: Fed Chair Nominee Jerome Powell Wins Approval (Again) of Senate Banking Committee. It would seem the esteemed Committee is challenged by expiration dates, which could give one pause as it pertains to dairy products and such. Though the members voted on December 5th to approve Powell’s nomination, it would seem the expiry date came and went on December 31st.

For the record, Senator Elizabeth Warren was the only committee member to vote against Powell’s nomination…again. The full Senate now has all of 16 days to confirm Powell before Janet Yellen’s term ends on February 3rd.

At the risk of stating the obvious, time could be of the essence. While it’s true that the ink has yet to dry on the acclamatory, congratulatory and laudatory approbations of the Yellen mini-era, we might not want to risk even one day without a warm body chairing the Federal Reserve Board.

According to one veteran hedge fund manager, today resembles neither 1987 or 1999. What does this say of what’s to come, of the markets’ fate? One thing is for certain. If Jay Powell is confirmed, he’s going to find out.

To say that a den of cynics lays in wait, hoping for Powell’s failure is kind. Consider the very first Twitter reply to the posting of a Business Insider article about the world’s nine wealthiest men having a combined net worth that exceeds that of the poorest four billion.

I tweeted out the following: “I’ll repeat this until I’m blue in the face. Inequality will morph from a socioeconomic to a macroeconomic issue and boomerang back with a vengeance. And I’m a proud card-carrying capitalist if there ever was one.”

The first reply: “End the Fed and all other Central Banks.”

The public, it would seem, is taking no prisoners. The gig is up that trillions upon trillions of dollars of quantitative easing have accomplished one thing – they’ve made the rich richer. Let’s be clear, that’s a gross oversimplification. But the Pavlovian and vitriolic reaction to any mention of inequality nevertheless induces howls from the masses who lay the blame for the yawning gap that’s opened up between the proverbial have’s and have not’s squarely at central bankers’ doorsteps.

Meanwhile, despite my own fears that the cryptocurrency craze could infect the FANG stocks if Bitcoin did something like halve, all seems to be fine in the major indices. In fact, as Bleakley Advisory Group’s Peter Boockvar points out, if we manage another three days without a 5% correction in the S&P 500, history will have been made, as in the longest winning streak of all time. Is it any wonder the Goldman Sachs Financial Conditions Index is at the lowest since 2000?

And yet, the long end of the yield curve seems incapable of responding with anything more than a Heisman to the insistent laundry list of reasons long-maturity Treasury yields should be rising – climbing deficits leading to greater supply, razor-thin risk premiums, producer prices bubbling over. At last check, the 10-year yield registered 2.56% to the 2-year’s 2.04%. Correct me if I’m wrong, but that 52-basis-point differential is within a hair of the flattest curve we’ve seen for the better part of a decade.

Add them up – a grassroots campaign calling for your failure, risky assets gone wild, a bond market that’s double-daring you to hike into building inflationary pressures, oh, and, just for good measure – no historic precedent. How would you like to be Jay Powell?

The good news is that Powell understands every single aspect of what’s to come. His CV suggested as much, but it wasn’t until I dove into the freshly-released 2012 FOMC transcripts that I was sure. Especially after reading his words, I reiterate my contention that Powell is no clone of any of his predecessors. With that, I invite you to enjoy the fruits of my painstaking parsing of the transcripts in this week’s newsletter, POWELL ON POWELL: A Deep Dive into 2012’s FOMC Transcripts.

A personal aside. I was able to catch up with my best friends from New York over the long weekend in beautiful La Jolla. It had been over three years. Let’s just say that was too long a stretch. Sometimes Facetime just doesn’t cut it. Do yourself a favor before the new year sweeps you away, and schedule a time to catch up face-to-face. You’ll thank me for it.

Hoping you too enjoyed your long weekend and wishing you well,

Danielle

 

 

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THE GREAT RECOVERY — Unambiguous Clarity Over the Horizon

Are you a grasshopper or a weed hopper? A subscriber recently chided me for succumbing to that which I deride the very most, the dreaded groupthink. So ubiquitous is the consensus on the economic outlook for 2018, I’d been swept away on a wave of conforming concordance. What followed was, “You surprise me weed hopper.”

In the spirit of discovery, I must admit to being a bit mystified. I was familiar with ancient Asian teachings that raise the grasshopper to esteemed status. To wit, grasshoppers “overcome obstacles, jump into successful ventures and are forward thinkers. A grasshopper’s nature is stable, vibrant, content, intuitive, patient, peaceful, creative, insightful, connected, courageous, resourceful, and much more.”

A weed hopper, on the other hand, references one who is new to the scene to the art of smoking weed or a small aircraft which uses tricycle landing gear and a tubular-frame fuselage. True confessions, the scent of marijuana is all that’s needed to induce a wave of nausea for this one. And I’m a bad flier.

But maybe that was the point. Perhaps I needed to be reminded of the importance of nuance. Had I just accepted “weed hopper” as a synonym for “grasshopper,” wouldn’t that have proven the point that I’d stopped discerning and begun to take others’ thoughts as my own?

And then there’s the very source of groupthink, the Federal Reserve, though we can hope the times, they are a changing. For the here and now, a veteran and voter on this year’s Federal Open Market Committee continues to voice concerns over worryingly low inflation. That’s what happens when you suffer from the worst form of myopia that keeps you focused on a failed inflation gauge. What this unnamed Fed official should have said was what a fellow grasshopper, Dr. Gates, pointed out in reaction to this inside-the-box thinking:   “What the Fed should be concerned about is tightening the economy into a recession because the cost to buy what we must (non-discretionary) is rising at an appreciably faster pace than the cost to splurge on what we covet (discretionary).”

Price pressures for necessities are running too hot, not too cold. That applies to companies and households alike, by the way. Pick your poison – a margin squeeze or further strain on household budgets.

In the meantime, rampant commodity inflation continues to pressure yields upwards. As if the bloodletting needed reinforcements, this week’s bond market rout has intensified care of the two largest foreign holders of Treasuries. The Bank of Japan appears to be, denials notwithstanding, tapering its quantitative easing (mechanics matter). And China is making rumblings about the reduced attractiveness of holding our sovereign bonds with the added punctuation point that the risk of a trade war gives them more license to pull back.

And so, the two-year/ten-year Treasury spread gaps out by 10 basis points and there’s Bill Gross and his bond market peers of the world who angst (talk their books) about the end to the glorious bond market mega-run that’s been around for most of our careers.

Are you surprised the stock market is taking all of this in stride? If you answered in the affirmative, all I can say is, “You surprise me weed hopper.” In the meantime, in the real economy, it’s full steam ahead, something the Fed will follow, come what may. For more on the economy’s prospects this year and beyond, please enjoy this week’s installment The Great Recovery: Unambiguous Clarity Over the Horizon.

With hopes you are a grasshopper, and wishing you well,

Danielle

Subscribers click HERE for the current issue.

 

And in case you missed it, please enjoy the best in class —  2017’s Money Strong Top 10.

Click Here to Subscribe to the Money Strong Newsletter.

For a full archive of my writing, please visit my website Money Strong LLC at www.DiMartinoBooth.com

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AGAINST ALL ODDS — An Open Letter to a Strong Leader

Dear friends,

Welcome to the year of the crosscurrent. Expect for the ride to start out and stay bumpy, especially after landing.

For the time being, happy days are still very much here. Average what the Atlanta Fed and New York Fed are forecasting for economic growth in the just-ended fourth quarter and we’re talking about full year growth of 2.7 percent. But it gets better. There’s an increasing chance we’ll have 12 months of GDP growth at a 3-percent rate by the time the books close on the first quarter. Any upside from here will make Republicans giddy with excitement.

Back on Wall Street, the markets have sniffed out the economy’s seeming resilience. Stocks continue to reach for records celebrating the manufacturing renaissance as much of the country continues to rebuild from the Year of the Natural Disaster and the dollar remains weak, a beautiful combination if there ever was one.

In the event the holidays distracted you, the Chicago Purchasing Manufacturing Index hit the highest level since March 2011. In fact, the whole of the Midwest factory sector was booming headed into the new year boding well for the economy as a whole…with one notable exception care of my compadre Dr. Gates. Manufacturing in the Hoosier State, it would seem, has fallen into negative territory. That bears watching as Indiana is a bell weather for the U.S. as a whole.

Speaking of signposts, households have grown increasingly comfortable with leverage to maintain their living standards, which of course economists cheer. That’s worked for 24 straight months as credit card spending growth has outrun that of income growth. But home prices continue to catapult upwards at more than twice the rate of income growth and rents refuse to provide the respite so many households desperately need.

Did someone mention cross currents?

Into this fray steps the Federal Reserve and a whole new cast of characters, most of whom are unknowns to us or should be (still maintaining that Powell is no Yellen clone). What will they ponder when they convene the last two days of this month? Perhaps they will angst over the smoking hot prices paid component in the just released ISM report. The 69-handle resulted from 17 out of 18 industries reporting higher prices. Couple that with a 69.4-read on new orders and you can bet your bottom line there are more supply chain disruptions to come.

Will PPI rather than CPI alone sway the new crew to err to the side of caution, committing to more rate hikes than the market has priced in? For those inclined to keep a running tally, it only takes two rate hikes to completely offset the tax law’s boost to 2018 GDP.

And then there’s the elephant in the room, the fact that 2018 is the year of tapered shrinkage. With a hat tip to Nicholas Glinsman who did some quick back-of-the-envelope math, from this day forth (actually yesterday forth), European Central Bank (ECB) purchases are hereby halved. Looking back to the last three months of 2017, combined ECB and Fed reinvestment summed to $60 billion. Starting in January, that rate collapses to $15 billion. By the end of the first quarter, we’re talking $5 billion, which is still positive.

But by September, the dueling duo central banks will be yanking $40 billion a quarter from a financial system we’ve been assured will nary blink an eye. 2017 = $2 trillion in global QE. 2018 = $1 trillion. No sweat?

In the meantime, the tax man commeth, and that’s a good thing for several states that could use a bit of good news on the revenue front. The question is, will a bold leader, one with foresight and vision, emerge with the wisdom to make use of the tax windfall no one is talking about? For more on this, please enjoy the new year’s first installment, AGAINST ALL ODDS: An Open Leader to a Strong Leader.

With hopes you steer clear of the storms and wishing you well,

Danielle

And in case you missed it, please enjoy the best in class —  2017’s Money Strong Top 10.

Click Here to Subscribe to the Money Strong Newsletter.

For a full archive of my writing, please visit my website Money Strong LLC at www.DiMartinoBooth.com

Click Here to buy Fed Up:  An Insider’s Take on Why the Federal Reserve is Bad for America. Amazon.com | Barnes & Noble.com | Indie Bound.com  |  Books•A•Million

 

Danielle DiMartino Booth, TOPTEN2017

Money Strong Top Ten 2017 — Make That Top 11 #NeverForget

Money Strong Top 10 — 2017

Make That Top 11 #NeverForget

Many of us have just sung the most popular song in the world, Happy Birthday, albeit it in varying forms, dialects and venues. Color me sentimental, but Stille Nacht, or Silent Night to you and me, stirs the spirit and celebrates Jesus’ birthday as no other. I even have a favorite line from the Austrian poem cum smash hit hymn Franz Xaver Gruber wrote in 1818 – “With Dawn of Redeeming Grace.” In a world tragically bereft of grace, regardless of your religion, what could possibly best rising with the sun to find grace itself redeemed?

With that happy and hopeful thought in mind, it is time we look forward by looking back, which we achieve by singing the world’s second most popular tune, Auld Lang Syne. In 1788, Robert Burns sent the song to the Scots Musical Museum with the disclaimer that he was merely recording what he knew to be an ancient song. In exchange for being the first to put pen to paper, Burns is often credited as its author. If nothing else, he deserves props for taking the initiative that resulted in the introduction of the song and its translation into countless languages worldwide.

Auld Lang Syne is tough to translate but the song’s essence defines simplicity – we must look back at the year’s events to honor all of those we hold dear. Readers of Money Strong certainly qualify. The inspiration, feedback – both kind and constructive, and encouragement give me the courage to write to my best ability week in and week out. As we ponder what 2018 holds, tradition dictates that I share with you the newsletters from the prior year that have resonated the most with none other than you.

With ado, I add that #11, Angels Manning Heaven’s Trading Floor, was for a third year running the most read weekly newsletter. I cannot express enough pride in sharing that with you. I am also linking my favorite version of Auld Lang Syne, sung in haunting beauty by Mairi Campbell and featured in this video clip from Sex and the City, a show that captures my years in New York, years on which I often look back with a smile on my face and a tear in my eye. With that, I give you 2017’s Money Strong Top 10 List.

 

1.  Destination Reformation — The Dawn of a New Era in Central Banking

Combine contraband coffee, paralytic guilt and a gift for translating Greek and you too can change the world. Such was the case with a young, deeply devout Catholic by the name of Martin Luther in the year 1516.

A decade after he traded academia for the priesthood, Luther found himself disturbed by the quid pro quo nature of Catholicism. Sin expunged via penance in increasingly pecuniary form struck Luther as graceless at best. A field trip to Rome only served to dial up his unease as the ornateness on vivid display communicated dishonesty and even vice. That this epiphany coincided with the first trickles of coffee into Germany was fitting given what was to come.

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2.  The Labor Market: The End of the Innocence?

One of the first of life’s lessons we all learned is that we need not rush life; it will do that for us and in the end against our will. The inspiration for this wisdom could well have sprung from Ecclesiastes wherein we read these peaceful words: To every thing there is a season, and a time to every purpose under the heaven. Co-writers Don Henley and Bruce Hornsby embraced the spirit of this message as the 1980s were coming to a close. You must agree 1989’s The End of the Innocence, that haunting and mournful ballad, was just the coda needed to move on to the last decade of the last century.

“Let me take a long last look, before we say goodbye,” the song asks of the listener who can’t help themselves but to listen.

Many veteran investors, those who don’t need to be reminded about the Reagan era because they were there, may be feeling a bit more wistful as they peer over the horizon. They have lived through extraordinary economic times and maybe even recall the early 1970s, the last time initial jobless claims were at their current historically low levels. They know, in other words, this can’t go on forever, that we are nearing the end of our own innocence.

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ATLAS STUMBLES Inequality and Macroeconomics at a Crossroads, DiMartino Booth, Federal Reserve, Money Strong
3.  Atlas Stumbles — Inequality and Macroeconomics at a Crossroads

 

“If you don’t know, the thing to do is not to get scared, but to learn.” 

“Man’s mind is his basic tool of survival. Life is given to him, survival is not.” 

“I like to deal with somebody who has no illusions about getting favors.”

Red-blooded Americans read these lines and, if in polite company, resist the urge to beat their chests. These mantras say all that need be said of the virtues of honesty, integrity, productivity, grit, independence, pride and liberty itself. Accurately attribute the quotes to Ayn Rand’s Atlas Shrugged, however, and some pause for a moment of reticence, gently reminded of the need to be politically correct.

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DiMartino Booth, Big Boys, CRE, Money Strong, Fed Up

4.  The Big Boys of Summer

Do you feel it in the air? Is summer out of reach? Many of us came of age, or thought we did, the first time we heard Don Henley’s mega-hit The Boys of Summer, released in October 1984. But can a song be reincarnated to mean even more? Can one brush with destiny change everything? This week more than any other, it’s right and true to look back and answer that question in the affirmative.

For those of us in New York 16 years ago, September 12th and 13th stretched on for many more than the 24 hours the clock conveyed. It wasn’t until the early morning hours of the 14th, when Dick Grasso announced the New York Stock Exchange would remain closed through the weekend, that many of us were released, on many levels. Walking the beach that weekend, looking for signs in the sand, Henley’s mournful song stopped me in my tracks. “Those days are gone forever” forever took on new meaning.

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The Smell of Dry Paint in the Morning, Danielle DiMartino Booth, Money Strong LLC

5.   The Smell of Dry Paint in the Morning

Irish Playwright Oscar Wilde defied Aristotle’s memorable mimesis: Art imitates Life. In his 1889 essay The Decay of Lying, Wilde opined that, “Life imitates Art far more than Art imitates Life.” Jackson Pollock, the American painter, aesthetically rejected both philosophies as facile. We are left to ponder the genius of his work, which in hindsight, leaves no doubt that Art intimidated Life.

Engulfed in the flames of depression and the demons it awakened, Pollock’s work is often assumed to have peaked in 1950. The multihued vibrancy of his earlier abstract masterpieces descends into black and white, symbolically heralding his violent death in 1956 at the tender age of 44. Or does it? Look closer the next time you visit The Art Institute of Chicago. Greyed Rainbow, his mammoth 1953 tour de force, will at once arrest and hypnotize you. As you struggle to tear your eyes from it, you’ll ask yourself what the critics could have been thinking, to have drawn such premature conclusions as to his peak. Such is the pained beauty of the work. Rather than feign containment, the paint looks as if it will burst the frames’ binding. And the color is there for the taking, if you have the patience to slow your minds’ eye and see what’s staring back at you.

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Investing Now & Then: A Panoply of Parallels, DiMartino Booth, Money Strong, Fed Up
6.  Investing Now & Then: A Panoply of Parallels

So much for “ghoulies, ghosties and long-leggedy beasties” having a monopoly on “things that go bump in the night.”  No longer is this classification reserved for things that taunt, tantalize and toy with our terrors as that traditional Scottish poem first invaded our minds. Earlier this summer, some avid astronomers, tasked as they are with mapping out the infinitely capacious celestials, literally stumbled upon a distinctly different sort of bump in the night. A mysterious ‘cold spot’ sighted telescopically might actually be a bruise of sorts, “the remnant of a collision between our universe and another ‘bubble’ universe during an earlier inflationary phase.”

Such a discovery would strip the ‘uni’ right out of universe landing us smack dab in a ‘multiverse’ in which all conceivable outcomes are playing out at once in a layered rather than singular reality. In the event this panoply of parallel possibilities has left your brain in a painful pretzel, ponder not another moment. The jury is in and the verdict is parallel universes in quantum mechanics and the cosmos alike are unanimously unproven.

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The Buford T. Justice Job Market, Danielle DiMartino Booth, Money Strong, Fed Up

7.  The Buford T. Justice Job Market

Never in the history of filmmaking has artistic license paid off so handsomely.Of course, comic legend Jackie Gleason was no schlep in the world of thespians. Odds were high he would deliver a handsome return on stuntman cum director Hal Needham’s investment. And while it’s no secret there would have been no directorial debut for Needham had his close friend Burt Reynolds not agreed to be in the film, it was Gleason’s improvisation that made the Smokey and the Bandit the stuff of legends.

Though Gleason’s character’s name screams ‘surreal,’ the stranger than fiction fact is that Reynolds’ father was the real life Chief of Police in Jupiter, Florida who just so happened to know a Florida patrolman by the name of Buford T. Justice. The treasure trove of quotes from the film’s tenacious Texas Sherriff Buford T. Justice, who so tirelessly pursues the Bandit in heedless abandon over state lines, elicited nothing short of laugh-out-loud elation from anyone and everyone who has ever feasted on the 1977 runaway hit (it was the year’s second-highest grossing film after Star Wars).

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Economy, Pensions, DiMartino Booth, Danielle DiMartino Booth, Money Strong LLC, Fed Up: An Insider's Guide to why the Federal Reserve is Bad for America,

8.  Retirement in America: The Rise of the Velvet Rope

Before there was the One Percent, there was the velvet rope at Studio 54. Gaining entry to the divine disco, with its adherence to a strict formula, was just as exclusionary. This from Mark Fleischman, the Manhattan haunt’s second owner in a memoir released to mark the 40th anniversary of the club’s opening:  “A movie star could bring unlimited guests, a prince or princess could invite five or six guests, counts and countesses four, most other VIPs three, and so on.”

Andy Warhol called it the, “dictatorship at the door.” Brigid Berlin, one of Warhol’s Factory workers and guests, once described to Vanity Fair how she, “loved getting out of a cab and seeing those long lines of people who couldn’t get in.” If beauty alone could sway the dandy doorman, famed for flaunting his fur, a different kind of cordon awaited you once you set foot inside the cavernous strobe-lit mecca, that is a screen hung across the dance floor to separate the chosen from the common. The scrim summarily dropped at midnight, but not a minute before, affording elites ample opportunity to make their escape to the VIP floors above.

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The Art of Trade Warfare, Danielle DiMartino Booth, Money Strong LLC

9.  The Art of Trade Warfare

For a moral compass, many look to the Bible. For political directives, Machiavelli’s succinct and direct The Prince. But for matters of war, the Chinese have a lock; they’ve literally raised the wisdom guiding generals engaged in battle to an art form. Here is a but a sampling from the Top 500 List of quotes from Sun Tzu’s fifth century masterpiece, The Art of War:

“Appear weak when you are strong, and strong when you are weak.”

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”

“The best victory is when the opponent surrenders of its own accord before there are any actual hostilities… It is best to win without fighting.”

“The general who advances without coveting fame and retreats without fearing disgrace, whose only thought is to protect his country and do good service for his sovereign, is the jewel of the kingdom.”

“All warfare is based on deception.”

Speed is the essence of war. Take advantage of the enemy’s unpreparedness; travel by unexpected routes and strike him where he has taken no precautions.”

The essence of the last two quotes is what has many market watchers on tenterhooks as Inauguration Day and the Chinese yuan sporting a seven-handle fast approach. For those of you following the Vegas odds, January 20th is sure to mark both Trump’s taking office and the yuan falling to 7-something, as if they’re somehow in simpatico and synched at the hip.

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Danielle DiMartino Booth, Central Bankers, Money Strong LLC, Federal Reserve, Debt, Trojan Horse, Fed Up,

10. Beware of Central Bankers Bearing Gifts

Ulysses’s reputation preceded him.

 ‘O unhappy citizens, what madness?

Do you think the enemy’s sailed away? Or do you think

any Greek gift’s free of treachery? Is that Ulysses’s reputation?

Either there are Greeks in hiding, concealed by the wood,

or it’s been built as a machine to use against our walls,

or spy on our homes, or fall on the city from above,

or it hides some other trick: Trojans, don’t trust this horse.

Whatever it is, I’m afraid of Greeks even those bearing gifts.’

Virgil, The Aeneid Book II

So warned Laocoön to no avail, and that was with Cassandra’s corroboration. As reward for his prescient prudence, the Trojan priest and his twin sons were crushed to death by two sea serpents. It would seem the Greeks had no intention of relinquishing hold of ancient Anatolia, a critical continental crossroad where Europe and Asia’s borders meet, a natural target for conquering civilizations.

Thankfully, history has made history of menacing machinations crafted with the aim of undermining the opposition. If only… History is rife with exceptions starting with most politicians on Planet Earth and more recently, central bankers.

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9/11, Danielle DiMartino Booth, Money Strong, Fed Up

11.  Angels Manning Heaven’s Trading Floors

He could have passed for Yul Brynner’s twin if it wasn’t for those eyes. He was 57 years old, 6’2” tall, tan and handsome with a shining bald head. But his eyes, those elfish eyes dared those around him to partake of anything but his infectious happiness. It was those eyes I will never forget.

It was Labor Day weekend, 2001. One of my best friend’s college buddies from UCLA was in town and his uncle had a boat. So we had the good fortune to be invited to take a cruise around Shelter Island on that long holiday weekend 16 years ago. I was 30 years old at the time and I can tell you there was no “boat” about this Yul Brynner look-a-like’s 130-foot yacht. The crystal champagne flutes, the hot tub on the deck, the full crew – none of these accoutrements faintly resembled the boats I’d been on as a middle class girl spending summers off Connecticut’s stretch of Long Island Sound. The thing is, our friend’s uncle was none other than Herman Sandler, the renowned investment banker and co-founder of Sandler O’Neill.

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DiMartino Booth, Theological Tipster

A THEOLOGICAL TIPSTER — A Wall Street Story by Edwin Lefèvre

Dear friends,

This Friday afternoon, all of those gathered on the floor of The New York Stock Exchange will come together to sing, “Wait ‘Till the Sun Shines, Nelly,” a delightful tune that’s been with us since 1905 care of music written by Harry Von Tilzer and lyrics by Andrew B. Sterling.

The tradition of singing at the Exchange started as the Great Depression was getting underway, devastating the spirits and dashing the hopes of those Wall Street had claimed as casualties of the crash of 1929. Uplifting was indeed in order, which the song’s words deliver in fine form.

 

Wait ‘till the sun shines, Nellie
Wait ‘till the sun shines, Nellie
By and by 

Wait ‘till the sun shines, Nellie
And the clouds go a-drifting-by
We will be happy, Nellie
Don’t you cry 

Down Lover’s Lane we’ll wander
Sweethearts you and I
Wait ‘till the sun shines, Nellie
By and by

 

Take it upon yourself today and the days that follow to look to the bright side, to know the rain will pass. Trouble your mind not with all of the realities that will surely still be with us in the year to come. They can wait.

Take the day off. Shop for those you love with a light heart and smile generously at strangers as you bustle past one another. Wish all around you the sincerest of holiday cheer. And finally, take a moment for yourself to indulge in something that brings a happy memory to mind.

In the spirit of indulgence, for a third year in a row, I humbly offer you a Wall Street tale, a gift from me to you, some levity in light of the season of giving. With that, please enjoy, A Theological Tipster: A Wall Street Story by Edwin Lefèvre.

 

With the deepest of sincerity, wishing you well,

 

Danielle

 

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For a full archive of my writing, please visit my website Money Strong LLC at www.DiMartinoBooth.com

Click Here to buy Fed Up:  An Insider’s Take on Why the Federal Reserve is Bad for America. Amazon.com | Barnes & Noble.com | Indie Bound.com  |  Books•A•Million

PLAYING WITH AETHER – Investors Reach for the Celestials

One of life’s hardest lessons to learn is that you can only control the controllables. The odds of communicating it are slim to none. It must be experienced to make an indelible, unforgettable mark.

Without a doubt, the world’s central bankers are sitting back in collective horror as they bear witness to Bitcoin mania. It’s akin to a runaway train wreck in the making. There’s no emergency hand brake to pull and the undeniable bubble is fast demoting the dotcom bubble to a history book sideshow. And not a thing can be done to stop it.

You would have thought central bankers would have learned the lesson on the controllables and their nasty sibling, the uncontrollables, during the depths of the financial crisis. And yet when the time came, they found it impossible to restrain themselves.

Monetary policymakers worldwide knew that the longer they kept rates at zero or worse, in negative territory, the higher the prospects for good money being crammed into bad investments. They knew that the odds systemic risk would be unleashed grew with every excess drop of liquidity they pumped into the markets.

Where do policymakers find themselves today? To use a technical term, in a pickle.

Set aside the earnings you hear about and focus on the length of the workweek rising in the November payroll report. Focus your attention on producer prices and you will see they’re running at a six-year high. Take a drive on the highway and pay attention to those 18-wheelers. Most of them say “Hiring Drivers” on the back of them. And ask any manufacturer and they’ll sing the same woeful tune – my cost of materials is going through the roof.

Any way you slice it, pipeline pressures are building. And what do central bankers intend to do about it? Why tighten, of course!

Add it all up and global quantitative easing is stated, as in a public commitment, to halve by this time next year. That was not a typo. We’re going from a record annual rate of $2 trillion in quantitative easing to $1 trillion when you sum the Federal Reserve’s Quantitative Tightening and the European Central Bank’s taper. Even the Japanese look poised to ease off on their ETF binge (you can only buy so much of a market despite what the academics’ models say).

So policy is set to tighten into a speculative mania with contagion written all over it. What could possibly go wrong? Endeavoring to defy nature’s laws is a fool’s game at best and inevitably ends in tears, frustration or worse. You can only control the controllables. Learn it by living it and try your best to not forget it.

For more on the challenges facing investors and central bankers alike as we peer over the horizon into 2018, please link to this week’s installment, PLAYING WITH AETHER: Investors Reach for the Celestials.

With the highest hopes for your holiday party season and wishing you well,

Danielle

 

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THE JOB MOB The Societal Impact of the Next Downturn, Danielle DiMartino Booth

The Job Mob – The Societal Impact of the Next Downturn

Before there was the mob, there was the gabelloti. It would seem that these Sicilian estate managers, employed by the church or feudal lord, were not above corruption.

As the nobility’s penchant for the provocative Palermo night life circa 1700 grew and proper pied-a-terres secured, more responsibilities were handed over to the gabelloti, who were charged with the overseeing of the day-to-day operation of the fiefdoms. A primary task for the gabelloti was ensuring the necessary number of hired hands were satisfactorily shepherding, farming and foresting the lands with which they’d been entrusted.

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Danielle DiMartino Booth, Money Strong LLC, Bitcoin, Blockchain

CRYPTIC CURRENCY — From Blockchain to Daisy Chain and Beyond

W. A. Saltford was a dexterous dandy ahead of his time. In 1898, Vassar College commissioned the Poughkeepsie florist to carry out a cherished charge as the first designated outsider to weave and wield the seminal symbol of Commencement Day, the Daisy Chain.

For the procurement of requisite raw materials, Saltford relied on who else but the “Daisies,” those senior-class designated and specially selected sophomores who scoured Dutchess County for thousands of the long-stemmed flowers. In Vassar’s early days, every graduate merited her share, or to be precise, a 100-pound length of shoulder-draped Daisy Chain. As graduating classes grew, scarce daisy supplies and bench-pressing limitations required Saltford innovate. Regal laurel leaves, he discovered, lightened the load and filled the gaps nicely, much to the Daisies’ delight and relief. Today, the chain is fixed at 150 feet. The alternative, given society’s love affair with liberal arts would be a chain of over 600 feet and some very sore sophomores.

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ATLAS STUMBLES Inequality and Macroeconomics at a Crossroads, DiMartino Booth, Federal Reserve, Money Strong

Atlas Stumbles — Inequality and Macroeconomics at a Crossroads

“If you don’t know, the thing to do is not to get scared, but to learn.” 

“Man’s mind is his basic tool of survival. Life is given to him, survival is not.” 

“I like to deal with somebody who has no illusions about getting favors.”

Red-blooded Americans read these lines and, if in polite company, resist the urge to beat their chests. These mantras say all that need be said of the virtues of honesty, integrity, productivity, grit, independence, pride and liberty itself. Accurately attribute the quotes to Ayn Rand’s Atlas Shrugged, however, and some pause for a moment of reticence, gently reminded of the need to be politically correct.

The need to be ‘PC’ was not even in accepted vernacular back in 1957, when Rand’s book was being vilified by critics. The tome was labeled a testament to hatred and cruelty, a soulless slaying of the welfare state. As fate would have it, a rich rebuttal in the form of a letter to the editor of the New York Times would make history: “‘Atlas Shrugged is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should.”

That the vehement defense was penned by one Alan Greenspan might go down as one of the most malevolent mockeries writ from an era in central banking heralded by the Rand acolyte himself. It rings as impolite in its bluntness, but it was Greenspan who most bastardized Rand’s basic premise, that innovators and producers build model economies.

Every tragedy has a beginning. At the outset of this particular saga was the moral hazard born of Greenspan’s fascination with the stock market. He was literally in awe of those Rand would have characterized as perfect producers, Wall Street’s Masters of the Universe who consumed what they killed. It’s one thing to admire, but quite another to allow yourself to be intimidated when you are tasked with regulating the world in which the Masters reside.

And yet, in the weeks and months that followed the crash of 1987, the newly minted Federal Reserve Chairman directed the New York Fed to leak to bond trading desks the Fed’s plans to inject liquidity into the system. By sanctioning the front running of the Fed, Greenspan had effectively invited the Wall Street’s foxes into the hen house to feast on preordained profits.

Stop and think for a moment about the regime change this heralded, the alteration thrust upon the principle of risk-taking, of markets’ duty-bound and noble tradition of price discovery. Greenspan flipped the very law of nature on its head for those who had been schooled to live and die off the consequences of their trades, come what may. To be shielded from the ramifications of their actions denunciated everything Wall Street did and should represent.

And yet, here we are, 30 years later. Thanks to the bounteous harvest of moral hazard sown by Greenspan’s original sin, far too many of Wall Street’s innovative producers have devolved into the looters Rand so decried in her tribute to capitalism. Rather than create anything of lasting value, today’s Wall Street leeches what it can from the bottomless, fetid supply of the moral hazard manufactured by central bankers.

If only it just ended there it would be bad enough. But politicians long ago opted to tie their fates and fortunes to the same poisoned central bank dealer. As far as they’re concerned, the monies that keep them in office need be fungible and nothing else.

And so, the Stygian tale turns, sustained by trillions upon trillions of dollars of debilitating debt taken on along the way. The central banks print money. The investment banks pocket fees. The tab swells. Add it all up and global credit sums to $220 trillion today, up from $150 trillion at the onset of the financial crisis. Narrow your focus to the four largest developed markets, those most active on the money-printing stage, and you find that $34 trillion of debt has amassed since then. Call the chart below simple if you will, but sometimes one line says more than enough.

Sum of Central Bank Balance Sheets and
Cumulative Budget Deficits for the United States,
Eurozone, the United Kingdom and Japan ($Trillions)

CENTRAL BANK ASSETS

In the words of the Deutsche Bank analysts who created the graph: “Another way of looking at this is the extra amount of stimulus over and above living within our means (no money printed, no deficits) seen since the Great Financial Crisis. In the end, $34 trillion of stimulus and Quantitative Easing has delivered very low growth, subdued inflation and sky-high asset prices around the globe. This is unprecedented territory and how can anyone estimate what the fallout will be when we normalize again?”

In all actuality, the very same Deutsche analysts answered their own question in the same report that produced that daunting chart above, of debt built to nowhere, akin to that pork-financed bridge, also to nowhere, so pilloried in the media years ago. The fallout will be anger — unprecedented, immeasurable levels of unrequited anger among the masses that know all too well that the economy’s designated producers have become looters, robbing them of a passageway out of the hell on earth they’ve come to know as subsistence care of entrepreneurship and innovation succumbing to slow, sad deaths.

Populism itself is coming home to roost and it will present itself as the macroeconomic challenge of the ages.

No doubt, ‘populism’ is a subjective force, all but impossible to quantify. Thankfully, that didn’t stop the Deutsche analysts from giving it a go. To wit, they weighed populist votes and population size in seven large countries over the last century, specifically those of France, Italy, Spain, the United Kingdom, Japan, Germany and the presidential elections within the United States. Qualifiers included parties that espouse communism, nationalist policies tied to immigration and militarism and leaders with dominating, charismatic personalities rather than well-defined policy positions. In Europe, anti-NATO and Euro-skeptic tendencies were also captured while in the United States, anti-corporate progressives that defied the establishment made the cut.

It’s noteworthy that these general themes, in one form or another, have withstood the test of time, answering the question as to whether we can’t all just get along. (Apparently not.)

Discount what you will. Net out what you like. No matter how you slice it, prior to the last decade, populism is off the charts. No period in modern history compares to what we’re witnessing today save the epoch set off by the stock market crash of 1929 that culminated with World War II, with, by the way, the Great Depression sandwiched in between.

Populism Index Against the Backdrop of
Developed Market Financial Crises

Populism index

Hats off to the team at Deutsche for resisting hyperbole in the face of the immutable message delivered in the graph: “While the consequence of the recent rise in populism hasn’t yet destabilized financial markets, the level of uncertainty will surely remain high while such parties remain realistic power brokers in major national elections. (Populism’s) rise surely increases the risk to the current world order and could set off a financial crisis at some point soon.”

It’s that last point that finally brings this week’s subtitle into context. The gravity of populism’s root cause, inequality, is no longer purely political tinder. It’s all about the economy.

The good news is the beginnings of an epiphany is dawning on the have’s. Mega hedge fund magnate Ray Dalio in particular, a man whose net worth crests $17 billion, has voiced concern. In a recent interview, Dalio said that he thought inequality was the most daunting challenge on the horizon, one on par with the period from 1935-1940.

“If you carve out that lower 40 percent, not only has there been no income growth, but death rates are rising because of opiate use, suicide and because they’re losing jobs,” Dalio said. “This is the biggest issue of our time – the biggest economic issue, the biggest political issue and the biggest social issue.”

Dalio is right. And though he’s gone as far as saying the Fed is poised to commit a policy error akin to 1937, he’s not vociferous enough in his criticism of Fed policy for engineering the fine mess in which the country finds itself.

Thankfully, I’m not alone in my indictment of the Fed. In the words of an economist worthy of the deepest respect, Judy Shelton, Janet Yellen’s concern for the plight of the forgotten masses is, “rich.” I recently caught up with Shelton and she had this to say, in a clear rebuttal of the fawning accolades being showered on Yellen as her time at the Fed comes to a blessed end: “While it’s nice that Janet Yellen cares about the issue, I think she should have been more forthcoming in acknowledging the Fed’s own role.”

Shelton’s eloquence shines through in Beware a Magnanimous Fed, an opinion piece she wrote three years ago in reaction to the following naïve statement made by Yellen:  “Although we work through financial markets, our goal is to help Main Street, not Wall Street.” Shelton’s reply follows.

“The problem with Yellen’s public display of benevolent concern over income and wealth inequality is that it implies she means to do something about it. This is worrisome because she views the Fed as a force for good rather than as a distorting government interloper into private-sector credit markets whose clumsy efforts skew financial rewards to savvy corporate strategists and sophisticated investors.

If Yellen wants to restore the free-market values rooted in our nation’s history, she needs to pay heed to the telling correlation between wealth inequality — at its highest level in the past 100 years, higher than for much of American history before then — and the creation of the Federal Reserve in 1913. It’s unbecoming to preach the virtues of equality of opportunity when Americans see only too well who most benefits from monetary favoritism and who is most punished by the inequality of access to vital financial capital.”

It’s doubtful Ayn Rand herself could have said it better. Shelton’s refutation of Yellen’s premise is all the more prescient given the results of the presidential election. The masses may not be able to identify zero interest rate policy and quantitative easing as culprits by name. But their actions speak volumes to their shared revelation that the enemy has been identified and it is indeed within.

As for any aspirations to attain the American Dream, they’ve long since been crushed by repeated iterations of subprime debt illusions ending in tears. Call the two dichotomous headlines from the November 15th issue of the Wall Street Journal Exhibits A & B: Household Debt Hits a New High and More Americans Feel Like a Million Dollars.

If you haven’t yet got the picture, it might be time for a courtesy call to your friendly neighborhood ophthalmologist. As for what lies ahead, populism appears to be taking a nasty turn for the worse. And though the problem is clearly as close to home as it can be, our shared national dilemma is anything but local.

Look no further than my paternal family’s homeland. Radical no longer suffices for the long-repressed Italians seeking relief at the polls. The far right, it would appear, is now rearing its hateful, ugly head. Be on the lookout for more of these headlines as oppression spreads in the way only nasty infestations can.

On a more practical level, it strikes me as untoward to bandy about investment ideas while pondering such heavy prospects. If you’ll indulge me some grace, it’s safe to say defense contractors will have no challenge keeping the lights on in the years to come.

In the end, our collective deliverance can only come from strong leadership that refuses to balk at the grave challenges that lie ahead. To call one last time on Rand’s sagacity, “Evil is impotent and has no power but that which we let it extort from us.”

 

DANIELLE DiMartino Booth, Commercial Real Estate, Federal Reserve, Restaurants

Congestion Indigestion – The Future of the Restaurant Industry in America

Oh how Mrs. Howe’s heart burned. Literally.

And so, her dutiful hubby descended to his basement where he concocted a remedy of calcium carbonate and sugar for his bride, much to her relief. And much to Jim Howe’s financial delight, his made-at-home remedy caught on like wildfire, extinguishing heartburn, neutralizing acidity and digesting indigestion far and wide. Could it be that the excesses of the Gilded Era were just what the pharmacist ordered in 1928? Or perhaps it was the hangover that set in the following year?

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