DiMartino Booth, Money Strong, Quill Intelligence, Federal Reserve

Stress Testing the Fed — Passing the Liquidity Baton

A dozen years before Great Britain boasted Harold Abrahams, Lord David Burghley and Eric Liddell at the 1924 Paris Olympics, the United States had Edward Lindberg, Ted Meredith, Charles Reidpath and Mel Sheppard. This four-man team ran for gold in the inaugural 4×400 relay at the 1912 Stockholm Olympics. At 3:16.6 minutes, the Americans set the first Olympics Record and smashed the prior world record by nearly two seconds. As extraordinary a film as Chariots of Fire is, the powerful story line does play fast and loose with history. While Liddell does refuse to run on Sunday and in so doing, truly makes history, Abrahams never competes to win the court race at Cambridge University and it isn’t until 1935 that he meets the hauntingly beautiful opera singer he will later marry.

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence

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Danielle DiMartino Booth, Daily Feather, Money Strong, Quill Intelligence

The Nothing Beyond — Australia: The Final Frontier of Economic Civility

Ne plus ultra, “Nothing More Beyond,” was the warning that greeted navigators and sailors at the opening of the Strait of Gibraltar. The message was clear: Cross this maritime Rubicon into the realm of the Unknown at your own risk. Legend has it that Hera, the queen of the gods, drove Heracles mad, which ended tragically with the greatest of Greek heroes slaying his wife, son and daughter. His sanity restored, he sought to atone for his atrocities. Pythia, the Oracle of Delphi, instructed Heracles to humble himself at the disposal of his cousin, King Eurystheus, for 12 years in whatever capacity requested. The result was the 12 labors of Heracles, the tenth of which involved cattle raiding from the monster Geryon’s herd at the edge of the Unknown. Hence that great Rock which stands sentry to this day.

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence

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

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Danielle DiMartino Booth, Quill Intelligence, Money Strong, Quill

Beating the ‘BBB’ Dead Horse — Financial Instability Rises to the Fore

If you’ve a vested interest, or worse, care, the act of release, letting go, white-flagging is one of life’s greatest growing pains. It is inevitably easier to cling on for dear life, praying for a miracle to stave off the inevitable. Something is bound to already have come to mind. We’ve all been there. Linger too long though, and pride transforms the formidable to the foolish. Metaphors applied to the futility of staying in the game when it’s better to fold did not originate with Kenny Rodgers’ The Gambler, nor was there a dead horse involved.

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence

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

Click Here to buy Fed Up:  An Insider’s Take on Why the Federal Reserve is Bad for America.

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Danielle DiMartino Booth, Money Strong, Quill Intelligence

Not Home Alone — The Bunking-Up of America

A time of giving thanks, rudely interrupted by haughty holiday hustlers, should fortify our resolve to watch what we ask for in this season of giving. Indeed, there was a time daylight savings signaled a time of transition to Thanksgiving, not an alarm bell hastening the hanging of twinkly lights and wreaths on every window and door and the premature bedecking of Christmas trees. This is a time to gather the family and laugh together at the hilarity of John Hughes’ classic Planes, Trains and Automobiles. Few better moments exist to cry together and give thanks all over again as Steve Martin finally makes it home in time to reunite with his loved ones and carve the turkey. Who could be blamed for singing along to Paul Young’s Every Time You Go Away, you take a piece of me with you…

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence

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

Click Here to buy Fed Up:  An Insider’s Take on Why the Federal Reserve is Bad for America.

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Danielle DiMartino Booth, Money Strong, Quill Intelligence

Fed’s Rosy Outlook Snubs History

Goldilocks herself would blush at the near perfect jobs and inflation scenario forecasted by the central bank

Federal Reserve officials meet Thursday to discuss monetary policy, and while no one expects the central bank to boost interest rates at this time, there’s sure to be a lot of interest in how they address the recent turbulence in financial markets in light of their Goldilocks-like outlook for the economy. In other words, something has to give.

The minutes of Fed’s Sept. 25-26 meeting revealed that a cadre of Federal Open Market Committee members advocated for pushing the federal funds rate, currently in a range of 2 percent to 2.25 percent, to beyond what is considered a neutral level into territory that restricts economic growth. Fed Chairman Jerome Powell puts the neutral rate somewhere in the neighborhood of 3 percent. That’s predicated on the unemployment rate staying below 4 percent through 2021 and inflation remaining at an idyllic 2.1 percent level.

Goldilocks herself would blush at such a near perfect scenario. Consider that January 1966 is the only month since 1960 that unemployment has been below 4 percent with inflation being south of 2 percent. The Fed’s projections out through 2021 do not simply suggest we will go there but that we will stay there for an awfully long time. Such fairy tales would accomplish something: they would fill the empty quadrant that has but that sole occupant at the moment.

The Lonely Quadrant

The Fed’s projections for low unemployment and inflation have few precedents in the past six decades

Danielle DiMartino Booth, 10.4.18-empty-quadrant-unemployemnt-PCE-inflation

We have had a protracted period of well-behaved inflation, thanks to the deflation China exported around the world by way of its less expensive goods, technological advances that depressed prices and, of course, the extraordinary exertions of monetary policymaking in the post-Greenspan era. Precedent also exists for the unemployment rate staying below 4 percent for four years – it happened in the 1960s. But that episode was also accompanied by a functioning Phillips curve, with the inflation rate rising from a starting point of 2 percent to 5 percent.

While no straight line can be drawn between cause and effect, investors have been a bit agitated about the prospect for much higher rates since Powell nodded to how rarified the economic air is, noting that it would almost seem to be“too good to be true.” For good measure, he added that “better monetary policy has played a central role” in creating this picture perfect backdrop. Well, yes, $22 trillion in global quantitative easing goes a long way.

In return, we have financial markets worldwide suffocating as that liquidity is withdrawn and there are precious few places to hide. As Bloomberg News reported of a recent JPMorgan Chase & Co. strategy piece, one-in-five asset classes have positive returns this year with every market aside from the Nasdaq Composite Index, U.S. leveraged loans and commodities underperforming cash.

And yet, most investors will continue to hope for the best, which is emblematic of late cycle behavior. How else would it be possible to have 83 percent of companies filing to raise money via initial public offerings not generating profits? According to research undertaken by the University of Florida finance professor Jay Ritter, the proportion of unprofitable IPOs surpass that of the prior peak of 81 percent in 2000 just as the Nasdaq was tipping into crash territory.

The major difference between then and now is we have the Fed in a double-tightening mode, raising interest rates and shrinking its balance sheet assets, just as other major central banks begin a shift to tighter monetary policies — or at least less accommodative policies. That’s removing liquidity from the global financial system.

It all kind of makes you stop and wonder exactly where U.S. stocks would be absent 2018’s forecasted $1 trillion in share buybacks. The only question is whether anyone inside the Fed has woken to that same realization and with it the recognition that the empty quadrant is not apt to be filled in the coming years.


This article originally appeared in Bloomberg Opinions — 11.05.18

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

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence LLC.

Visit QuillIntelligence.com to find out more. Click HERE to SUBSCRIBE.

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

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Pressing Perfection’s Bounds — The Quest for Value in Recoupling Markets

Even the best can be bested. One of the happiest endings following both World Wars started with an Italian Marchese and two horses. After fighting in the cavalry, the Marchese Mario Incisa della Rocchetta enrolled in the faculty of Agriculture in Pisa, beloved war horse in tow. Naturally drawn to the local equestrian community, he met one Clarise della Gherardesca and fell in love. In 1930, the couple married in the old church in Bolgheri and moved to Rome where they restored a family property and raised thoroughbreds. Enter Ribot, Italy’s most famous racehorse who triumphed in Paris’ Prix de l’Arc de Triomphe in 1954 and again in 1955 against a stiffer field in his fourth year of racing. Neither France’s Sea-Bird nor Secretariat raced for more than three years making Ribot the highest-rated horse in history (Stud fees understandably commanded a premium.)

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence

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

Click Here to buy Fed Up:  An Insider’s Take on Why the Federal Reserve is Bad for America.

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DiMartino Booth, Bloomberg Opinion October 18

Why Main Street Should Worry About Wall Street’s Bond Selloff

The potential for higher borrowing costs to inflict damage on household finances has grown in the era of extraordinarily easy monetary policy.

The recent leg lower in the bond market has pushed mortgage rates to the highest since the start of the decade. The glass half full people might say that’s not a problem since rates are less than half the levels seen during the bad old days of the 1980s when borrowing costs exceeded 10 percent. But that’s not the way to think about the potential fallout from higher rates. The real issue is what current mortgage rates represent to the current generation of home buyers. And by that measure, the outlook is rather dire.

According to the Mortgage Bankers Association, the average loan rate for a conforming 30-year mortgage was 5.10 percent in the week ended Oct. 12, the highest since early 2011. Back then, that level didn’t hold for long, as rates crashed to 3.5 percent by late 2012 and held at those low levels for years. As recently as July 2016, the 30-year rate was at 3.6 percent. Starting points matter, especially now with home prices at nosebleed levels. According to Black Knight’s August Mortgage Monitor, the monthly payment on the average home has jumped by 16 percent since the start of the year. That’s up from a 3 percent increase in 2017, illustrating the effect of rising rates on affordability.

The potential for rising rates to inflict damage on household finances has grown in the era of extraordinarily easy monetary policy. Yes, mortgage lending standards were tightened after the housing bubble burst in the financial crisis, but record low rates have nevertheless allowed buyers to afford pricier homes and homeowners to refinance to improve their cash flow via lower payments in order to augment stagnant income growth. But that was then. Refinancing activity is off by a third compared with last year, an effective drag on households.

Twice a month, the University of Michigan reports its Consumer Sentiment Index. In the preliminary October report, reported buying conditions for autos and homes fell. The last time both of these gauges were as low as they are today was the early 1980s as the economy was emerging from a grueling recession. If history is any guide, a sustained level of higher rates is the second nail in the coffin for housing followed by an upward turn in the unemployment rate and recession. We’re well on our way to the second stage.

Determined homebuyers are increasingly turning to adjustable-rate mortgages, or ARMs, which have low initial rates that adjust either higher or lower after some period depending on prevailing rates at the time. Currently, the average 5-year ARM charges a rate of 4.34 percent. As per the Mortgage Bankers Association, ARMs comprised 7.1 percent of new applications in the latest week, the most in a year.

To be clear, demand for ARMs is a shadow of what it was during the last boom when underqualified buyers did whatever it took to get into overpriced homes and lenders were happy to accommodate. At the apex of the housing bubble, ARMs were over half of mortgage activity. The drivers of ARM usage, however, have not changed. It’s still all about price. The average ARM today is $661,000, which are clearly being used to finance high-end homes. And just like when the last housing bubble burst, the risk is that ARMs taken out in recent years will reset at higher rates, leading to defaults and weighing on housing prices.

DiMartino Booth, Bloomberg Opinion October 18

And don’t forget that well-heeled home buyers are also likely to have a high concentration of stock market holdings. And given that eight of the top 10 markets with the largest monthly declines in home prices in July as measured by Black Knight were on the tech-heavy West coast, a month when technology stocks were headed to record highs, it’s not hard to imagine how fast home prices will fall once the air comes out of the tech bubble.

Black Knight highlighted San Jose in its latest report. The average home price in San Jose fell 1.4 percent in July, a sharper decline than any other market and the steepest drop for any month in any of the top 100 markets since the housing recovery began. Prices are down by 2 percent since May following a cumulative rise of 35 percent over the prior 20 months. Black Knight notes that “71 of the largest markets nationwide have seen the rate of home price appreciation slow in recent months.”

How bad things get may depend on supply. The housing market has been marked by low inventories placing ever greater upward pressure on home prices. There are two root causes. The first is that both small and institutional investors have scooped excess supply to flip or rent homes. And the second is the millions of owners who were able to hold onto their homes by modifying their mortgages through a government program through 2016. But after five years, their 2 percent interest-only payment period ends. At that point their loans will fully amortize and the mortgage rate will rise by one percentage point per year for five years. The payment shock will be enormous and could lead to an exorbitant number of homes being dumped on the market.

Two announcements in recent weeks suggest lenders have grown wise to the building risks. Home builder Lennar Corp. put Rialto Capital, its real estate lending group, up for sale. And Goldman Sachs Group Inc. said it will rein in the expansion of Marcus, its direct lending to consumers arm.

The outlook for households, and by extension the economy, is on shaky ground. Many households simply cannot weather a rising rate environment.


This article originally appeared in Bloomberg Opinions — 10.18.18

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

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence LLC.

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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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Fulfilling the Forecast, Danielle Dimartino Booth

Fulfilling the Forecast — The Chimera of Nirvana in Price Controls

‘Tis better to attain or fulfill? A wise man in the Ghandara region of Pakistan, along its northern border with Afghanistan, once asked himself that very question. His answer was yes. Having heard Alexander the Great had reached his homeland, the king of Taxila wisely chose to attain survival, and in doing so, fulfill his Buddhist dream of achieving nirvana. Travelers to the remote region today can attest to the astonishing cultural fusion that took place beginning in the autumn of 327 BC as Alexander’s Macedonian army conquered even the most distant provinces of the Persian Empire.

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence

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

Click Here to buy Fed Up:  An Insider’s Take on Why the Federal Reserve is Bad for America.

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DiMartino Booth, Money Strong, Quill Intelligence, Federal Reserve, Economy,MISLEADING BY EXAMPLE1

Misleading by Example — Foiling the Figment of Forward Guidance

Ah, but to be suspended on tenterhooks, suspense pulsing through your veins as so much adrenaline. Or not… Time has glamorized few words more than it has “tenterhooks.” It all started with freshly woven wool and an aggravated 14th century fuller, a craftsman tasked with its cleaning. Removing the oil and dirt required wetting the cloth which all but guaranteed shrinkage, the arch enemy of fullers. To the rescue rode the tenter, (from the Latin tendere, to stretch) a simple wooden frame, often in the form of a double-sided fence. Securing the cloth using hooked nails driven into the tenter’s perimeter and stretching it to the other side ensured both shape and size were retained during the drying process and the fuller’s coffers plump.


Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence LLC.

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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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DiMartinoBooth, Money Strong, Quill Intelligence, Central Bankers

Do Central Bankers Have the Capacity to Apologize?

* Read Danielle DiMartino Booth Daily via The Daily Feather — Click to Subscribe

It would seem that Sorry is the hardest word to say and hear. It was rare that Sir Elton John took the lead on writing his lyrics. “Sorry Seems to be the Hardest Word” was an exception. Long-time collaborator and co-writer Bernie Taupin reminisced that the lyrics captured, “That whole idealistic feeling people get when they want to save something from dying, when they basically know deep down inside that it’s already dead. It’s that heartbreaking, sickening part of love that you wouldn’t wish on anyone if you didn’t know that it’s inevitable, that they’re going to experience it one day.” The 1976 blockbuster hit was certified gold on January 25, 1977.

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Danielle DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence LLC.

Visit QuillIntelligence.com to find out more. Click HERE to SUBSCRIBE.

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