DANIELLE DiMartino Booth, Money Strong, Jay Powell, J-Curve

Powell & Goliath – Riding Out the Jay Curve

How goes the business of “watching the paint dry”? As boring as the Fed planned? Maybe the stormy markets and Mother Nature are in cahoots and scheming to keep winter alive and as vicious as she’s ever been. From my snowy perch in New York, I can certainly report that Mother Nature sure as heck hasn’t received the memo that Spring has arrived. And neither have the markets.

Call it the risk parity unwind. Pin it on Bitcoin’s downfall. Blame Facebook and trade tensions. But for my money, it’s all about Quantitative Tightening. Or as Nomura’s George Goncalves rightly identifies, what’s really got the markets on edge, is the triple tightening of rising LIBOR, rate hikes and QT. Tack on the European Central Bank’s intentional taper and the Bank of Japan’s inadvertent taper and it’s anything but watching paint dry.

But then, it was always naïve to assume that the diametric opposite of Quantitative Pleasing would be any fun, and foolish to believe the “watching paint dry” meme. For now, the markets are largely unconvinced that all of this tightening will come to pass, or at least that’s what surveys and stocks’ relatively good behavior convey.

The short rate market remains a might bit more skeptical. The LIBOR-OIS spread is on everyone’s radar just like the bad old days of the Great Financial Crisis. For any of you who need a refresher, just think of it as the difference between one interest rate that incorporates credit risk and the risk-free rate, as in the fed funds rate.

Wide is bad, narrow is good. At over 100 basis points, a full percentage-point-plus, the spread is at the widest since the 2007-2009 bloodbath in credit markets. The financial sector is sniffing out risk in the air. Now, some of this has to do with repatriation and a funding shortage, a technical issue that should resolve itself.

But as Citi’s Matt King points out in a short report you should try to get your hands on, the relative calm will soon be disturbed. As King explains, as soon as the Treasury stops paying out tax refunds, continued T-bill issuance will lead to an increase in the Treasury General Account at the Federal Reserve. This will in turn deplete bank reserves by the same amount. And that will reduce the available capital to conduct currency swaps, a decidedly bad thing.

Speaking of the Fed, today is a very important day for one Jerome “Jay” Powell. He will take to the podium at his first post- Federal Open Market Committee press conference. Buoyant stock markets are said to reflect rumors that Powell will wax dovish.

One thing is for sure. Much to the disappointment of those who want to exact revenge on the speculators and a special class of degenerates they refer to simply as “banksters,” Powell will not be pushing through any half-point rate hikes. He may be hawkish, but he isn’t reckless. That is not to say Powell is a pushover. As we heard him say and repeat in his recent Congressional testimonies, it is not the Fed’s duty to put a floor under stock prices.

What Powell should do is announce that press conferences will henceforth follow every FOMC meeting. This simple and elegant move would send shudders through the market but it would also give Powell the flexibility afforded by having every FOMC meeting be “live.” Besides, it’s time for the Fed to grow up. Hiding behind four meetings a year has long since outlived any utility.

For more on the challenges awaiting Powell, please enjoy this week’s installment, Powell and Goliath: Riding Out the Jay Curve


Hoping you’re enjoying Spring weather somewhere and wishing you well.





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Divine Introspection — Crafting the Clearest Crystal Ball

Does anyone feel the need to take a vacation? 2018 will go down in history as one of the most volatile in stock market history and we’re not even through the first quarter. Dramamine could easily replace the No Doze traders needed to keep their eyes open last year. Is this a case of being wary of what you wish for?

At the core of the unrest are the dueling forces of central banks’ various forms of tightening – rate hikes, tapers of intended (ECB) and unintended (Bank of Japan) varieties and, of course, quantitative tightening – and a near anarchy state in an Administration that seems hell-bent on starting a trade war with China.

Meanwhile, back at Uncle Sam’s ranch, the country’s borrowing costs are on the rise as the deficit hits the highest level since 2012. As Peter Boockvar observed, February’s interest expense of $23.3 billion was up 10% on year-ago levels. Interest expense now sucks up 6.3% of spending vs. 5.8% in the prior year.

Even as interest rates and expenses rise for all borrowers, signs are multiplying that the economy is slowing. Retail sales appear intent on maintaining their disappointing streak. To put the most recent figures into perspective, nominal core sales, which net out autos, gasoline and building materials, totaled $268.8 billion in November and $268.2 in February. In other words, they’ve gone nowhere.

As a follow-up to my recent analysis of the car industry, auto sales have fallen for four months running. The continuing clampdown in credit availability should send this sector back into recession, where it last was in September before Mother Nature interceded to give sales a boost.

The Atlanta Fed tracks the data as close as any economist in endeavoring to maintain a real-time GDP forecast. As recently as February, it appeared that growth in the first quarter would clock in at an amazing 5% pace. Yes, the February to which Atlanta refers is one in the same with last month. In the ‘how quickly things can change’ department, after factoring in today’s retail sales report, Q1 GDP looks to come in at a mere 1.9% rate, smack dab in the middle of the middling range it’s been in for the past decade.

What could turn the tide? We’re told that tax refund mailings have been delayed and that the fruits of the tax cuts will be bounteous in future consumption figures. Wage gains, which truly are building despite the consensus’ incorrect take on last Friday’s jobs report (the last time it took so little time to find a job was May 2009), should also manifest in increased spending. The only thing to say to this optimism is, “We’ll see.”

As for upside surprises, to study the markets implies that the outcome of the Italian elections was benign. The first majority vote for non-establishment parties in modern times suggests the situation is fluid, to be polite. The yield on 10-year Italian sovereigns is 2%. Ergo, all must be well in the land of my ancestors. Right?

Truth be told, I’ve painted a picture of confusion on purpose. The murky outlook coupled with nausea-inducing market volatility make economic fortune telling the most difficult of tasks.

The best I can offer is that we should be looking pretty good, as in fit. Take a drive and you can’t help but bump into a fitness, spin, barre, yoga or Pilates studio. Whatever happened to going to the gym? My point is, leading indicators come in many forms. But what do they actually say about what’s to come?

Finding reliable guideposts, true leading indicators, at what appear to be economic inflection points separates the men from the boys, or women from the girls, if we must be PC. This week I’ve taken up that very challenge. I invite you to enjoy this week’s installment, DIVINE INTROSPECTION — Crafting the Clearest Crystal Ball.

Hoping you’re spinning your way to your cardio best and wishing you well.





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Danielle DiMartino Booth, @dimartinobooth, economy, housing prices, REAL ESTATE ROULETTE.sm

REAL ESTATE ROULETTE — Does the House Always Win?

So much for the sunny, funny, isle of Manhattan. Travel snafus related to the lovely ‘thundersnow’ unleashing her fury on New York scuttled my writing schedule, if you’ll pardon the late arrival in your inbox.

The good news is this week’s newsletter is of the evergreen variety, as in you can read it at your leisure, though it might not prove to be all that relaxing.

Before triggering the launch sequence to the newsletter, a word on the markets. Riding the daily ups and downs in the stock market is akin to landing in full-blown thundersnow at La Guardia (where do the meteorologists come up with these colorful terms?)

It’s as if we weren’t reading about the record calm that had lulled markets into a gravity-defying comatose state just months ago. In the space of one calendar quarter, we now find ourselves reading headlines declaring 2018 to be one of the most volatile on record. And it’s just now March!

Investors for their part are falling all over themselves, jockeying for the top spot in the guessing game of How Will Jerome Powell React? Will it be QE4? How will that look? Treasuries and more mortgages or will he pull a Draghi and start buying corporate bonds?

Call it pig-headedness, call it what you will. I’m still of the mind that Jay Powell is of his own mind. “Reactionary” just doesn’t fit the mold. Besides, the most convenient scenarios require Quantitative Tightening to stop in its tracks, which is a huge assumption considering he was one of the primary advocates to have a set game plan to execute QT…six years ago.

More to the point, as the ADP report reminded us this morning, job creation has averaged 210,000 for 12 months running. Leave behind the hard data/soft data debate for a moment. Jobs matter more than anything else, especially for an economy dependent on consumption to drive the train. And Jay Powell knows it.

Lael Brainard herself, the last of the old guard of doves on the Board, agreed in a speech that rate hikes should remain on track. Given the tough talk, even from the doves, investors would be best served preparing for four or six rate hikes in 2018.

Come again? Four rate hikes are considered to be the worst-case scenario. Two is the kinder, gentler hoped-for middle ground. But when you consider that roughly every $200 billion in QT equates to a quarter-point rate hike, and that the Fed is poised to execute $420 billion in QT this year, what we really should be talking about is whether we will get the equivalent of four or six hikes worth of tightening.

As for the stock market giving Powell anxiety attacks day in and day out, don’t count on his getting a case of the jitters. On both of the days he testified to Congress, Powell took the opportunity of baiting politicians to assure investors it wasn’t the Fed’s job to give credence to the stock market. Can we please get a “Go Jay!”

While we’re in the cheering mood, perhaps we should wish the current stock market rally a Happy Ninth Birthday! That’s right, it’s that time of the year again when we look back to March 9, 2009, when the S&P 500 bottomed at 666 in intraday trading.

Speaking of anniversaries, but of the happier sort…I had hoped to be in New York today to wish my friend Arthur Cashin a happy birthday in person. In that Mother Nature had another thing to say about those plans, I hope you will join me in wishing the best market historian ever to grace us with his presence the same, a very happy birthday.

With that, I welcome you to enjoy this week’s installment, REAL ESTATE ROULETTE: Does the House Always Win?

To any stranded travelers and all the birthday boys and girls, wishing you well,


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Of Latvian Laundry & Italian Idolatry — And Other European Tales from the Crypt

Greetings from the sunny, and oft times funny, isle of Manhattan. Spring is springing, infusing the air with the promise only the changing of the seasons can induce. What a delight to bear witness to the beauty only unique New York can offer — fumes, sirens, blaring horns and all.

For a different sort of nice change, the political scene here is not the world’s focal point. The battle lines being drawn are between Great Britain and the European Union, where hard tacks Brexit negotiations are heating up.

There are but three weeks remaining for the EU and Britain to agree upon the terms of a Brexit transition, scheduled to take place in 2019. But it’s becoming increasingly likely Prime Minister Teresa May and her conservative government won’t even push off the starting block to getting a deal done.

The main sticking point to the EU’s trade proposal involves the status of Northern Ireland in a post-Brexit world. The establishment of a ‘hard border’ with the Republic of Ireland indicates that customs controls and immigration checks would be established. From the economic and political perspectives of parties on both sides of the border, free movement remains tremendously beneficial.

The real issue comes down to sovereignty. Critically, Northern Island would be subject to EU institutions and judges. More broadly, the trade deal is expected to propose the European Court of Justice oversees the final deal which facilitates Britain’s exit from the EU. To be clear, a European authority would have authority to enforce EU law on British sovereign territory.

Exacerbating the tenuous dynamic, Teresa May faces dissension from various factions of the House of Commons and even within her own conservative government. The very un-British drama of it all!

For all its challenges, Britain does have one distinct advantage over all of its developed market peers, that of time, at least in a fiscal sense. The graph below popped onto my Twitter feed yesterday care of Bloomberg’s Lisa Abramowitz. The Deutsche Bank chart tells a simple enough story. The United States wasted a great opportunity to extend the maturity of its sovereign debt while Britain seized upon the lowest borrowing costs in 5,000 years as no other.


In the event you’re chummy with anyone on the Senate Banking Committee, could you please call in a favor and request that they ask Jay Powell what possible explanation there is for Uncle Sam being such a senseless borrower?

With any luck, we would get more of what we’ve now heard twice – forthright answers, just as was previewed in my most recent Bloomberg column, Powell Brings Plain-Spokenness to the Fed.

In the event you missed Powell’s Congressional debut Tuesday, here are my two favorite answers. When asked about the ideal unemployment rate, Powell didn’t begin to get boxed into any sort of target nonsense that plagued his predecessors. He simply said: “If I had to make an estimate I’d say it’s somewhere in the low 4s, but what that really means is it could be 5 and it could be 3.5.”

And then there was my absolute favorite, which needs no introduction: “We don’t manage the stock market,” but “it enters into our thinking. I think the general thing is that the stock market is not the economy.”

Powell did not scream fire in a crowded theater as so many of his premature detractors had hoped. That would have made him the daft one.

I would add one note of caution to Powell’s prediction that the U.S. economy will remain on solid footing for the next two years, and that is the U.S. economy does not function inside a vacuum. As was the case when our financial crisis bled into other economies, it is equally plausible that events beyond our country’s reach can and will bleed into our economy.

As to the closest risk in range, it is not tempestuous Brexit negotiations. As nonplussed as the world is, this Sunday’s Italian elections do have the power to disturb the relative peace that’s prevailed since our own election day. For more on that and other challenges facing our European counterparts, please enjoy this week’s installment, Of Latvian Laundry & Italian Idolatry and Other European Tales from the Crypt.


To our friends in Britain and Italy, and as always, wishing you well,





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Danielle DiMartino Booth, CLEARDANGER.sm


Will Autos Crash the U.S. Economy?

After ten years, is the time finally upon us? We will soon enough know. Today marks the first Minutes release that carries the promise of cleanliness. As I’ve written to on multiple occasions, in disapproval mind you, in 2008, Janet Yellen suggested that the FOMC Meeting Minutes be manipulated to massage the intended message the FOMC should have conveyed.

If investors had misread the statement, or if the world had changed in the three weeks since the statement was released, well then just change the verbiage of the Minutes to reflect the Fed’s new and improved outlook. How convenient.

But Yellen will not have been in the house when today’s Minutes were set to be released. That means they might, just might, reflect what really was said around that mammoth table in the Eccles Building.

If we do read of a raging inflation debate, you can bet your bottom dollar we’re getting clean goods. If the verbiage is nice and soft, well then, that will reflect poorly on Jerome Powell’s leadership abilities. It will be an admission that the Fed should have soothed frayed nerves the intraday minute the Dow was down 1,600, not even waiting for the close.

I do so hope it’s the former of the two, that Powell takes this second step to restoring decency, decorum and dignity to the institution. The first step towards becoming a truly apolitical and independent institution will thus stand – the Powell being mum to stock market gyrations part.

If stocks are rattled now, just wait until the storm building in the auto sector comes onshore. Several weeks back, I was taken to task for even suggestion that such a fate awaited the U.S. economy. What do they say about making lemonade with lemons?

This week I’ve taken the opportunity of being called out to make some calls to the best and the brightest covering the auto sector. The analysis and data they provided from multiple sources provided plenty of back-up to support my initial assessment. If anything, I fear forecasts calling for new car sales to decline to a 16.7-million annual rate are overly optimistic.

On a personal note, as a mother of four school-aged children, I am truly distressed to witness the acceleration of school violence. The incident made me recall yet another beautiful Peggy Noonan column. As she wrote:

“It’s hard to know another person’s motives,” a friend once said. “But then it’s almost impossible to know your own.” We are often mysteries to ourselves. The area between your true self and the mystery—that’s where trouble happens.

That passage reminds me of a great book once recommended to me to read. I can only pray our nation’s leaders have the wisdom, upon reflecting on the sad state of violence in our schools, to stand up for our nation’s children. It’s well past time to conduct background checks that prevent weapons that have one place and one place only – that is, the battlefield – from falling into the hands of those inclined to make tragic trouble that sacrifices our babies and those who nobly endeavor to teach them.

With that, I do hope you enjoy this week’s installment, Clear & Present Danger: Will Autos Crash the U.S. Economy?

To all of our nation’s students, safekeeping, and as always, wishing you well,



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The Dark Side of the Boon

Whither stagflation? Say it isn’t so! Like it or not, the unrounded core inflation for January came in closer to a gain of 0.4%. In other words, look for the year-over-year rate’s next stop to be 1.9%. What could offset this march upwards? New car prices fell month-over-month and year-over-year. This trend should accelerate as millions of SUVs come off lease this year.

The question is, does the threat of rising inflation become a self-fulfilling prophesy?

We’ll know with tomorrow’s release of the producer price index. That’s where the real action is that’s driving inflation — the front end of the pipeline. For more insights into what is driving input prices, link on to my fresh off the presses Blomberg column: Inflation’s Real Threat to the Economy.

As for investors, it’s plain they’re anything close to game for a hawkish turn at the Fed. Call it the global grab for easy money. My good friend, George Goncalves, is Nomura’s Head of U.S. Rates Strategy. He’s just returned from a tour through Europe and was kind enough to share his insights into the thinking of investors across the pond. In the interest of gauging clients’ expectations for growth and inflation and how the Federal Reserve’s reaction to changes in the economy and financial markets fit into the equation, he received the following four queries:

“What would it take for the Fed to skip March, when does it need to signal?”
And if it hikes in March “why would it raise the dots at this meeting when it can just wait and see how financial markets and the economy react and raise forecasts in June instead, especially since it’s Chair Powell’s first presser?”
“How much of an FCI (financial conditions index) hit is needed for the Fed to abort normalization?”
“Will Powell go slowly to avoid any backlash from the Trump Administration?”
Granted, these questions are to be expected after a downdraft in equities after months (years) of a non-stop rally. That said, the underlying tone suggests that many market participants are still banking on the Fed to act as a back stop should conditions worsen.

The weight of the world rests on Jay Powell’s shoulders. Let’s just hope he is strong in his convictions and that stock market hissy fits don’t equate to threats to financial stability in his mind. So far, that seems to be the case. The bounce back in the markets is no doubt buying Powell the time he needs to prepare for February 28th, when he is due to face Congress for the first time, and March 21st, when he steps into the true lion’s den, the press conference that follows the next expected rate hike.

As long as the wealth effect for the wealthy stands pat, it would seem, grace will be given. On that note, I’m compelled to share a breath of fresh air on the so-called ‘wealth effect,’ or as one clever Twitter follower rightly identified it, the ‘wealth defect.’ Many of you are familiar with the succinct work of Stephen ‘Sarge’ Guilfoyle, a hard-hitting stock jock and markets commentator who’s seen a thing or two in his career as a U.S. and markets veteran. He woke this morning feeling “warm and fuzzy.” And why wouldn’t he on this Valentine’s Day?

On the other hand, he had this to say on unicorns and other figments of our collective imagination: “Bernanke’s wealth effect…a reality in the short term. It is nothing more than a perversion of longer-term trends set to exacerbate potential declines in U.S. standards of living. A House of Cards.” Indeed.

On a separate note, I was deeply disturbed to learn of a recent Guardian story depicting a recent acquaintance of mine, Artemis Capital Management’s Christopher Cole, in a scathing, false light. As a member of the Fourth Estate, I was horrified at the insult to the field of journalism deceptively depicted as ‘reporting’ and appalled at the unsubstantiated personal attack the writer unleashed.

As a markets veteran myself, I was equally aghast at the light in which hedging itself was depicted. I will touch on the quaint stance pensions have taken with regard to hedge funds in the weeks to come. For the moment, and in defense of all true hedge funds, let me say that the sanctioning of the abandonment of hedging in today’s world should be grounds for termination. After all, when executed properly, hedging is a portfolio’s only way of protecting its precious cargo, in the case of pension funds, retirees’ nest eggs.

I’ll share with you the best of the blatantly, wrongly accused Cole’s letter to the Guardian, which I’ve linked and encourage you to read in full:

“If we do our jobs right during market turmoil and heightened volatility, teachers and doctors won’t be laid off, life savings and retirement plans are not critically harmed, and investors have a solid defensive position in their portfolio.”

Damn straight.

It’s been altogether too convenient to blame the machines for the past few weeks’ market disturbance. Don’t fool yourself. It’s the people behind the machines that foment market disruption, not the machines themselves. You’d best be hedged for what’s to come.

In the meantime, be equally safe assured that the wealthiest in our midst are preparing for what they see with their own eyes: a decided turn in the market and economic cycles. If turn-of-the-century, post Greenspan/Bernanke/Yellen-put history is any guide, rumblings in the market manifest in form of pain for the real economy. For more on how the tail of the markets now wag the dog of the economy, please enjoy this week’s installment: The Dark Side of the Boon.

To the wrongly accused my very best, and especially today, which marks the one-year anniversary of Fed Up’s release, wishing you well,





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The Unbearable Lightness of Trading, Danielle DiMartino Booth, Economy

The Unbearable Lightness of Trading

This morning, I looked up to the sky and saw a lone goose flying due north. The thermometer registered a chilly 31 degrees. In the distance, I heard a flock of geese squawking as if to call their errant flying mate back to the fold.

No doubt, many investors feel they too have lost their way these past few weeks, as if their internal compasses have malfunctioned. Dashed is the calm, replaced by jarring twists and turns as markets veer decidedly off course.

The root cause of the disturbance is interest rates. As miniscule as the moves in rates have been, we’ve learned the hard way how very sensitive these fragile markets have become. As one Twitter follower noted, a bond fund with a 10-year duration – think risk sensitivity – will decline in value by 10 percent if interest rates rise by one percentage point. Touchy, touchy!

And that’s the plain vanilla variety of risk. Though plenty of market sages have warned of the perils of risk parity and short volatility strategies, it wasn’t until Monday’s flash crash that we learned how much more sensitive they are to small moves in interest rates that in turn push up volatility.

As CNBC’s Rick Santelli warned Tuesday, we’d better know we’re competing with the, “If, then crowd.” Echoing Jim Grant, Santelli likened the risk parity/short volatility trade to 1987’s portfolio insurance. What’s an investor to do if everything priced to volatility is vulnerable and capable of being a trading trigger? Santelli’s answer in true, trademark pith: “Be careful of esoteric products bundled in neat packages.”

Into this fray stepped one Jerome Powell. Can you imagine Monday being his first day on the job, one he started by releasing a videoed statement in which he confidently assured the world of the financial system’s resilience? At least Greenspan had two months to gather his bearings before his own Black Monday dispensed with the façade.

Maybe Powell could have done without his predecessor hitting the Sunday morning news circuit with what appeared to be an epiphany that stocks and commercial real estate were overvalued. Seriously? Now?

For the time being, there are few if any signs of contagion. The fixed income space has been remarkably well behaved. That’s good news considering the European Central Bank’s Monday announcement that it would be increasing its allocation to corporate bonds in the remaining months of its quantitative easing program. Lovely.

If nothing else, I can only hope we’ve begun to appreciate how very distorted markets are rendered when price controls become the norm. Look no further than Venezuela to see what the end game is if price controls are imposed indefinitely, with brute force.

Knowing I once lived in Caracas, one subscriber was kind enough to send me this Wall Street Journal story, How Fast are Prices Skyrocketing in Venezuela?   See Exhibit A: the Egg. Tragically, prices in the country I came to know and love are doubling every two weeks.

With any luck, Powell has the sense to grasp the dangers of markets making monetary policy to the extent they eventually levy price controls of their own. Thankfully, the Fed has remained mum on the markets rediscovering volatility. Let’s hope that remains the case.

In the meantime, I invite you to partake of this week’s tribute to the current generation of traders who’ve withstood the destruction of price discovery at the hands of overly-intrusive central banking policy. Please enjoy, The Unbearable Lightness of Trading.

On behalf of the plight of the Venezuelans, wishing you well,




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RED GOLD, Yellen, China, currency, yuan, dollar, economy, Danielle DiMartino Booth

RED GOLD: Does China Aim to Dethrone the Dollar?

Is it finally ‘go time’ in the bond market? For the moment, the answer is a strong maybe. The yield on the 10-year Treasury has burst through its 2017 highs and is behaving as if it could hit the 3% threshold, elusive since the taper tantrum of 2013.

If you’re looking for hard guidance in today’s Federal Open Market Committee statement, I’d suggest you tamp your enthusiasm. Janet Yellen has orchestrated the slowest tightening cycle in history, defying even the ‘measured’ pace at which Alan Greenspan tightened which culminated in the housing bubble bursting. The last thing Yellen wants to do at her last FOMC meeting is stir any pot.

As far as the markets are concerned, Yellen has been a smashing success. The stock market has tacked on a neat 70% gain while at 2.70%, the yield on the 10-year Treasury has barely budged. We’re talking about a move upwards of three whole basis points (bps), or hundredths of a percentage point.

But then, neither the present nor the past dictate the stuff of legacies. That, as we wise souls know, is the purview of the future. Right or wrong, the good deeds of yesterday and today can be wiped away in the wink of an eye. That’s the nature of stability. If it lingers too long, it tends to give way to its polar opposite, instability, in what Wall Street recognizes as a ‘Minsky Moment.’ There won’t even be a way to feign surprise when that moment hits given the record low levels we’ve witnessed on every measure of complacency that exists.

For more on Yellen’s legacy, please link to my latest Bloomberg column: It’s Too Early to Judge Janet Yellen.

Did I mention the strong ‘maybe’ in answer to whether the rise in yields was sustainable? The idea that the economy has gained so much momentum it can withstand four rate hikes this year certainly gives one the warm fuzzies. But it’s hard to conjure a scenario that suggests 3% GDP growth will persist into the second half of this year, especially in a rising rate environment.

As one subscriber wrote, “The current projections for four hikes seem preposterous. Given the debt at all levels of the economy, I doubt the economy can stand those interest rates.” I couldn’t have said it any better myself.

The one jury that still remains out is the yield curve. As dramatic as the move in bond yields has been, relative to the ludicrous low rate world we call home, the difference between the yields on 2-year and 10-year Treasury remains south of 60 bps. And forget about a 3% yield on the 10-year. Can we first pierce that level on the 30-year which at last check was 2.97%?

We are not alone in watching the Fed and bond yields for clues about what the future holds. With the yuan at its strongest level against the dollar since August 2015, you can bet the Chinese are glued to their monitors as well. President Xi Jingping pulled a ton of demand forward last year to pull off a glorious 19th Party Congress. Now he’s got to deal with the aftermath as domestic growth slows, interest rates rise and exports are stressed by the strong yuan.

And yet, rumors of the dollar’s imminent death continue to circulate. Maybe the cryptocurrency contingency is right. Maybe the dollar is headed the way of British Pound Sterling. Maybe the Chinese even have designs on being the dollar’s successor. Or do they? For more on this, please enjoy this week’s newsletter:  RED GOLD: Does China Aim to Dethrone the Dollar?

Wherever you may be, wishing you well,


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SOCCER MONSTERS — The Lamborghini in the Carpool Lane

Writing on a weekly basis requires no small amount of inspiration from all corners of this life that I walk. This week’s newsletter, a stark take on the very real economic implications of both demographics and inequality, two subjects I marry for the first time, was inspired by two different events that took place this past weekend and one from long ago.

At dinner on Saturday night, I found myself captivated by a dear friend’s recounting of a run-in he’d had with a client. To keep things appropriately anonymous, let’s just say my friend has been in the business of catering to the wealthiest of the wealthy for many years. And to be clear, he has done so with supreme aplomb and integrity, much to his clients’ approval.

But something has changed over the past few years, he shared. It would seem his clients have lost their capacity for restraint, their etiquette moorings. Some, not all, of course, of the uber-wealthy have decided that their wealth empowers them to occupy a different sphere, to breathe rarified air, and to mock, well, the rest of us, including those who cater to their every whim, including my friend in his professional capacity. Profanity is discharged as any other weapon and petulance has become the norm.

How sad that it’s come to this. Those were the last words that crossed my mind as I laid my head on my pillow late Saturday night.

But then, tomorrow is another day. At least that’s what I’d hoped.

On Sunday, I indulged myself the best way I know how, by tucking into Peggy Noonan’s weekend column. Her writing is as good as it gets. The unflinching light she casts on subjects we must read about leaves me in awe week and week out. And then there was America Needs More Gentlemen. With a sad rush, I was transported back to Saturday night.

Noonan writes of what we’ve all begun to wake to in this era of social media that’s not only helped rob our youth of their innocence, which we carry on about endlessly, but our men of their decorum and self-control. Read the column if you have not already and partake of Noonan’s observations which will make you long for what’s been lost along the way. But be graced here by the best of what we can be.

As Noonan wrote splendidly, “A gentleman is good to women because he has his own dignity and sees theirs. He takes opportunities to show them respect. He is not pushy, manipulative, belittling. He stands with them not because they are weak but because they deserve friendship.” Even better, she notes that there are plenty of definitions of gentlemen to be found on the internet. So plenty of young men out there want to know, which is a great place to begin to find our way back.

The long-ago episode, those who have read Fed Up will know, was a lunch, a celebratory birthday lunch with the man I once advised, Richard Fisher. At the time, riots were burning in Athens’ streets. As the coffee was being cleared, I asked Richard what his greatest fears were for our country’s future. His answer has been with me ever since — that those riots so far away would take place one day on our own streets, that social unrest was coming home to roost if something didn’t give.

Entitled and crude, a vile combination if there ever was one. And yet, in so many ways, on so many levels, that’s what it’s come to as the divide between the have’s and have not’s widens and our nation’s Boomers age in a graceless age. We will recover our collective dignity if we know what’s best for our country. Our economy and more importantly, our very souls depend on it.

With that, I will leave you with this week’s installment, SOCCER MONSTERS: The Lamborghini in the Carpool Lane.

With hopes that you hold the door open or have it held open for you, and wishing you well,


PS. The following Bloomberg column made me laugh as I hadn’t in years, at least on the subject of central banking. A Twitter follower was kind enough to send it to me and I can’t help myself. I simply must pay the joviality forward. So please enjoy, Your Psychiatrist Will See You Now, Mr. Central Banker.

It will act as a lovely offset to this week’s sobering newsletter.



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ICYMI – please enjoy the best in class – 2017’s Money Strong Top 10.

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

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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,




Subscribers click HERE for the current issue.

ICYMI – 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