Public Pensions & the Trolley Problem — The Impossibly Immoral Choices the Future Holds

Forget about the snowy spring weather you’re trying to avoid up north. It’s tornado season down south, that special time of the year you tune in to the local news for a quick check of the weather before heading out to battle the masses on the highways and byways.

As coincidence would have it, a story covered on that same local news station stopped me dead in my tracks. Kaitlyn Smith, a resident of a Dallas suburb, was off to visit her 90-year old grandfather. After parking our front, Smith noticed something was decidedly missing from his open side yard, as in the concrete slab was there but the 100-plus pound air conditioning unit had been ripped off its foundation, while her grandfather was at home.

It would appear that the word is out that the CRB Commodity Index has soared to the highest since October 2015 though it’s doubtful most thieves have Bloomberg terminals within reach. Nonetheless, the shocking story reminisced of the heady days of the last housing boom when vacated houses would be harvested for scrap metal of any kind.

The contributor du jour is nickel which is up by more than 10% on concerns that Russian sanctions put Norilsk Nickel in their crosshairs. Add this to the list of metals from aluminum to copper to steel. And of course, we’ve seen a surge in oil prices which is bound to bring joy to households nationwide, or not. Look for a spurt of anxiety the next time a confidence survey is released. Pump prices bleed through to inflation expectations faster than any other factor, and with good reason as it often means no family meal out that weekend.

For the moment, investors remain in a celebratory mode. Earnings season thus far has been a cause celebre as banks parade out one beat after another. And why shouldn’t they given the return of trading volumes care of the volatility renaissance and tax cuts that went straight to the bottom line? As an added bonus, banks’ raw materials are brainpower, not metals. They already pay their highly-skilled workers very well, so there’s no need to worry about that same wage inflation that’s biting the industrial sector in the backside torching margins.

As for what’s to come, perhaps we should key off of trucking giant J.B. Hunt. With a hat tip to Peter Boockvar for catching this, read the following earnings excerpt very carefully. “JBT revenue decreased 1% from the same quarter in 2017. Revenue excluding fuel surcharge decreased approximately 3% primarily from a 15% decrease in load count partially offset by an increase in revenue per load. Revenue per load excluding fuel surcharge increased 14% primarily from a 10% increase in rates per loaded mile and a 3% increase in length of haul compared to the same period last year.” Did you catch it? Load count fell 15% over last year but the top line was salvaged thanks to a rate increase.

I’m not sure what you call a decline in activity offset by higher prices, but it does have a name in the dismal science of economics and it isn’t one many like to harken. Is this dreaded fate what the yield curve is so desperately trying to communicate? If that’s the case, the message is falling on deaf ears. Volatility has been tamed anew and stocks are all the rage as if February never happened.

The same cannot be said of our nation’s teachers who are increasingly hot-tempered as the spring budget-writing season gets underway. Massive Medicaid and pension underfunding seem to have taken a toll on school funding and many teachers have had it up to here, compelled to protest their unfortunate circumstances, especially any threats to their pensions. Does anyone at all see a bit of irony in their outrage? For more on this, please enjoy this week’s, Public Pensions & the Trolley Problem: The Impossibly Immoral Choices the Future Holds.

Before bidding you adieu for the week, I would like to reiterate my call to action from last week. Last November, Rich Yamarone passed away suddenly at the age of 55, much, much too young. Rich had become as an institution in and of himself as senior economist at Bloomberg. Everyone he called friend he loved and made laugh, and we were all better for knowing him. My dear friend Josh Frankel has blessed Rich’s memory by spearheading the creation of the Richard A. Yamarone Memorial Scholarship in Economics at Brooklyn College. In the past week, Peter Boockvar, Philippa Dunne, David Rosenberg and Barry Ritholtz have joined me in calling upon their listeners and readers to give as generously as they can to this honorable endeavor. Please join us in contributing via the link below.


NOTE:  Donors should enter “Richard A. Yamarone Memorial Scholarship” in the comments box provided to ensure that their gift will be allocated to the Yamarone Scholarship. 
Hoping you don’t have to duck into a storm shelter, of any kind, and wishing you well,


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DiMartino Booth, Money Strong

When K.I.S.S. Fails – Private Equity on the Razor’s Edge

Don’t you wish every day was Turnaround Tuesday? That’s the clever term coined by a buddy of mine at Citi who sadly cannot be named and take proper credit. But it is a great term to describe the pattern that’s emerged in this year’s first quarter, a three-month span most market players were relieved to see written into the history books.

As for what’s to come, the scent of spring is decidedly in the air. Car sales hit it out of the park in March thanks in no small part to a cordial calendar which provided 20% more Saturdays than 2017 did. Incentives that would make a Mad Man blush and rising interest rates did their fair share as well.

To commemorate the season’s good tidings, General Motors’ executives have, for the sake of our collective auditory intake, dialed back the volume on the noise by reducing the frequency with which they report sales to a quarterly basis, down from what had been a monthly pace since the 90s. To think how swimmingly that worked out for retailers. How very thoughtful indeed.

At the opposite end of the spectrum, it’s become deathly quiet in Tokyo’s bond trading pits. According to the Wall Street Journal, a brand spanking new 10-year issued March 13th didn’t trade…at all, the seventh such instance in 24 years of record keeping.

A well-kept secret closer to home is that the Federal Reserve wasn’t necessarily keen to taper its QE purchases back in 2014. No, the move was a bit more forced on the doves as market functionality was jeopardized because the Fed was buying such a huge slug of Treasury and MBS issuance.

Could the same hindrances be at work in Japan? Or has Kuroda seen the light and acknowledged that QE is as futile an endeavor as any ever undertaken by a central bank? My money is on the former.

Every month, the University of Michigan queries households on what they’re hearing in the news, good or bad. According to Dr. Gates, my eagle-eyed economist friend, something rather unusual happened in March. Upper-income households perceptions of the news swung 50 points from positive to negative.

How unusual, you ask? It is after all, just bluster and talk, not a full-blown trade war. Right? Let’s just say the biggest spenders in an economy that runs on spending aren’t convinced this will blow over. What’s particularly telling is the other three instances in history where such a huge swing has been recorded. That would be November 1987, which needs no explanation; July 2002, when accounting scandals wracked markets; and August 2011, when a no confidence vote on Uncle Sam jolted investors. File that where you like.

Speaking of friends, I would be remiss to not share the infinite wisdom of my good friend Peter Boockvar. He recently made the observation that we no longer live from one economic or business cycle to the next, but we rather ride one credit cycle after another according to the ebbs and flows of monetary policy. If you can’t appreciate the distinction, consider that in the pre-Greenspan world, the Fed’s hiking and easing campaigns made saving cash more or less appealing. Since 1987, however, the virtue of saving has been annihilated altogether, by design. Kind of gets under your skin.

Along those same lines, has all of this private equity fund raising begun to irritate you? “Pigs get fat, hogs get slaughtered” anyone? For more on what’s driving the fee-fest, please enjoy this week’s installment, When K.I.S.S. Fails: Private Equity on the Razor’s Edge.

Hoping you’re not still circling foggy La Guardia in the sky and wishing you well,


PS. Please enjoy my latest Bloomberg column which highlights where the smart money is these days (Spoiler alert: it’s not in the stock market) in Powell Shows Markets Won’t Be Rattled by Volatility.


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The Bounty Hunter and the Fugitive Collateral — The Flight Risk in the Corporate Bond Market

‘Tis the season for bunnies, baskets and bill auctions. Wait – one of those did not belong. And yet, April will herald Treasury bill auctions that put optimists’ posits to the test. Is the spike in short rates a technical glitch that will right itself or is there an underlying issue?

At least we can all agree that borrowers of the $200-plus trillion in leveraged loans, interest rate swaps and mortgages linked to Libor worldwide sure do hope the technical glitch gets fixed and in a hurry. 2018 may be a young year but Treasury bill supply over the past five weeks has already exceeded the 2017 total by over two times. It should thus come as no surprise that demand for Treasury bills is at the lowest in nearly a decade. The first few trading days of April will bring bill auctions that should tell us a bit more about investors’ moods.

Speaking of the last decade, the yield curve is at its flattest in over ten years. After putting up quite a fight, the flight to safety trade finally kicked in during trading yesterday and carried over into the overnight hours. At 2.75%, the 10-year Treasury yield has broken through a key resistance level, technically speaking (again).

If you were just to look at the data, it might stand to reason that long rates are coming down, both here and abroad. Metals prices are receding, which typically flags a tempering in economic activity. On that other hand, rig count in the United States is at a three-year high implying downside to crude prices. Is it a coincidence that the Dallas Manufacturing index tanked in March? More to the point, what’s with all this worrying about inflation?

Please hold is the best answer I can come up with. Follow those earnings reports because other sorts of nefarious price pressures are eating many companies alive. The question is will Jay Powell take note of what companies report? Well, he did start the Industrials Group back in his Carlyle days.

It won’t take long to alarm Powell given what survey data have been saying about transportation and input costs rising. General Mills — cereal maker — gave a preview in one of the first earnings reports to be released commenting that input costs had risen so far so fast it caused the company to turn in a disappointing profits report.

As more companies follow suit, Powell should be emboldened to push for more tightening on the Fed’s part — raising probability that it will be four and not three rate hikes in 2018. Inflation and slowing growth? How very distasteful.

Investment bankers aren’t waiting for any verdicts to come in. They tried their college best to rack up their annual bonuses in just the first three months of the year. If they can manage to crank out another $5 billion in M&A activity in the last few days of the month, March 2018 will go down as the second highest monthly tally for M&A in history.

On the other, other hand, this cycle might just be gearing up for one last push. The yield curve has managed to not invert for the longest period on record, so we’ve got that going for us. Or is that maybe a bad thing? Remind me please. What happens when rates stay too low for too long?

For more on that (rhetorical) question, please enjoy this week’s foray into the wide (and I mean wide) of “investment grade” credit. You’ll understand the air quotes after you read, The Bounty Hunter and the Fugitive Collateral: The Flight Risk in the Corporate Bond Market


Happy Easter or Spring Break or both if they apply in sync, and as always, wishing you well,




PS.  Have you ever read something so good you had to share it? A few days ago my pal Richard Rosso tweeted out this gem of a quote that fits the times more than any I’ve recently read. Enjoy

Humans are prone to herd behavior – it is warmer and safer in the middle of the herd. We feel the pain of social exclusion in the same parts of the brain where we feel real physical pain. So being a contrarian is a bit like having your arm broken on a regular basis. — James Montier


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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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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 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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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,


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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,


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