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“Huge Shock” Not Seen in 40 Years to Hit Corporate America as Early as the Spring Warns Expert

The Daniela Cambone Show Jan 10, 2024

“We’re going to watch companies as early as March and April begin to actively refinance debts for the first time in 40 years,” warns Danielle DiMartino Booth, CEO, and chief strategist for research and analytics firm QI Research. Speaking with Daniela Cambone, she shares her concern about companies grappling with higher financial costs during debt refinancing before maturity, which could impact profits at current rates.

DiMartino Booth highlights a disconnection between the claims of Fed officials, such as Janet Yellen stating the strength of the US economy, and the harsh reality of many Americans losing their jobs. She argues against any notion of a victory lap and points out that, despite a contentious political election, Fed Chair Jerome Powell is striving to remain apolitical, not favoring any political party.

In navigating the financial uncertainty, Booth advises investors to turn to gold. “Gold, for me, is the ultimate diversification vehicle at any and all times, whether there’s inflation or deflation in the background,” she concludes.

CHAPTERS:

0:00 Economic status quo
2:38 The Fed
3:55 Inflation fights
5:22 The upcoming election
8:24 Promising sectors/housing
11:15 Gold
12:44 Banking sector
13:57 Corporate debt refinance

TRANSCRIPT FROM VIDEO:

00:07

Hi, this is Daniela Cambone and welcome back to the Daniela Cambone Show now on ITM Trading. Well this week investors will parse through a pair of key inflation readings to gain clarity into the path forward for rate cuts from the Fed. The December consumer price index is set for release Thursday and we have a producer price index coming out on Friday. So to help us read through all the tea leaves here of what we can expect from the Fed from their first meeting of 2024 please

 

00:35

Welcome to the show, Danielle DiMartino-Booth. She’s a former advisor to the president of the Dallas Fed. She’s the author of Fed Up, an insider’s take on why the Fed Reserve is bad for America. And she’s the founder of Quill Intelligence. Danielle, so good to be back with you. How are you? Happy 2024. It’s great to be back. We really have started off the year with quite a bang in these markets, haven’t we? Let’s talk about that because of course, the million dollar question is, has the Fed averted?

 

01:04

recession and pulled off a remarkable feat in economic policy making. I mean, Janet Yellen and the Fed’s Barkins seem to think so. Are they too ahead of themselves here? I think it’s premature to be taking a victory lap. What you can say though, and especially because the Federal Reserve pays so closely, pays such close attention to its own proprietary internal data, is that we kind of got a preview for what’s to come in the CPI and the consumer price.

 

01:34

index with the New York Fed’s survey of economic expectations, which came out Monday morning and showed that the household’s inflation expectations had dropped to 3.01 percent. Very big move in one month. More importantly, in the last two months, the biggest line item, the biggest feeder into the CPI, which is the roof over our head.

 

02:01

Yes. The city has gone from about nine plus to seven plus. We haven’t seen that big of a move since the series inception in 2013. So it’s great news for Americans that have been suffering that there are so many apartments coming out of the construction pipeline that we’re seeing rents falling. That’s music to the ears of most Americans. Yes. Yes, yes, yes. So obviously, do you find it interesting how we’re just hearing…

 

02:31

I feel like there’s not a common consensus amongst the Fed here. And I think I had read one article saying like, you know, they’re not at a meeting, they’re not just all throwing in their ideas, but everyone’s kind of going off on tandem. That’s just here. Do you find it interesting that they’re not just speaking the same language? Well, it’s clear that there’s, it’s clear that there are a lot of different opinions, schools of thought, and that should be the case. That should be the case at the Fed. The problem is at some point, their disparate views.

 

03:00

entered this element of noise into the market and FedSpeak in and of itself becomes this kind of disruptive tool that they have. And you stop and you say, well, gee, there’s Janet Yellen saying that the US economy has come through, we’ve beat inflation, the economy is strong. And yet you have so many Americans losing their jobs and revisions to the data that suggests there’s no reason for a victory lap. And companies…

 

03:29

in what appear to be, I call it a foot race. Every CEO in America right now, it’s like we’re gonna slash 25% of our workforce because we’re on team shareholder. That’s all good and well, except there are people losing their jobs and we’re seeing layoffs and business closings advance and accelerate into 2024. And what most people wanna know, Danielle, is we keep saying that we’ve won this inflation fight, but the prices, consumer prices,

 

03:57

you know, at the checkout are still high. Well, this is something of a latency effect. And the reason that I think so many Americans have these timestamps in their mind of where and when prices were was because the economy was forcibly closed during the pandemic. So you’re like, when I stopped going to the grocery store, this is what a gallon of milk or a loaf of bread costs. When I started, when I was allowed…

 

04:26

to go back to the store, gee, it had jumped up to this price. And even though it’s off the highs, and food prices are indeed off of their highs, whether it’s eggs or milk or even a loaf of bread. With four kids home over the holidays, we were going through a gallon of milk every single day. Those prices have come down, but they’re still appreciably higher than what they were prior to the pandemic. And because of that line in the sand, so many Americans are much more aware

 

04:55

of inflation than they were before the pandemic when prices were just kind of creeping up because we’ve had inflation with us. We’ve had an increase, a steady increase in prices, but what Americans remember is pre-pandemic, post-pandemic. And they’ve just, that’s made it all the more acute for them in their memories. I also want to bring up the fact that it’s an election year. So let’s talk about the conundrum that Powell could find himself in.

 

05:23

because his decisions on interest rates are not just economic tools, but they also do carry significant political weight. And I just want to bring up an interesting opinion piece I found on the New York Times. Don’t be surprised if Trump starts attacking the Fed. The author writes, speaking about cuts, there’s a vigorous debate about whether those rate heights were excessive, which I’m not going to litigate here. Whatever you think about the past policy, the case for cuts going forward is very strong, and I hope the Fed will act on that case.

 

05:53

He questions whether the Fed, however, is ready for the political firestorm it’s about to face and whether it will stand up to the pressure to keep rates too high for too long because it’s a safe prediction that Donald Trump and his supporters will scream that the coming rate cuts are part of a deep state conspiracy to reelect President Biden. Thoughts on this Danielle? So there is something to be said for the Fed being aggressive in an election year.

 

06:22

especially in an election year that’s going to be as contentious as the current one will be. It’s probably going to rewrite the history books. It’ll be so contentious. That being said, I think that one of the reasons that Powell got out in front of the Iowa January 15th caucuses, because the Fed doesn’t meet again. He’s not back at the podium until January 31st. That’s the first meeting of 2024. I actually think that he wanted to get out in front of the caucuses and say,

 

06:51

I think we’re pretty much finished raising interest rates, but don’t hang your head on any one particular meeting. And I think he wants to not be seen as helping either party. He wants to be as apolitical as since Paul Volcker was in office. And that’s a big, that’s a big ass because, because Alan Greenspan, Ben Bernanke, Janet Yellen, they were all very, very political.

 

07:19

in how they craft it monetary policy for the benefit of the Democrats. And that’s something that remains in a lot of market watchers’ minds. And but to suggest that there’s a deep state conspiracy if the unemployment rate starts to go up appreciably and Powell was to start lowering rates, you know, kind of at a steady, modest pace, that’s not going to really help out either.

 

07:48

candidate, if they’re the presumptive candidates. And I think that that’s really the bigger picture here. If we’re not gonna go from say five and a half back to zero percent, Right. J-PAL’s actions aren’t really gonna stack up to a hill of beans. They won’t, they won’t make a big difference for Americans shouldering 23% credit card rates. So what if they’re 22.75%? That’s not gonna generate a lot of economic activity. It’s not gonna help a company having to refinance if they’re having to go from say 2%

 

08:18

to 4% if they’re gonna go from 2% to 3.75%. Who cares? I wanna just do a quick roundup with you here now that I have you here today of sectors that look strong versus sectors that look weak. Let’s start with housing. Is 2024 the year to buy a house? Let’s say for first time buyers, Danielle. Heavens, no. You’d be catching a falling knife. You know, we’re just now seeing.

 

08:45

I think we’re seeing nearly 700,000 multi-family apartments coming out of the construction pipeline in 2024. That’s the highest since 1974. It’s a huge number of apartments that we’re seeing coming online. They’re going to be competing for first-time homebuyers housing budgets, and they’re going to be bringing down a lot of these Airbnb jocks, as I call them. These Airbnb jocks are struggling to…

 

09:15

to turn their short-term rentals into long-term leases. So there’s a lot of rental supply out there that suggests a first-time home buyer specifically. Why don’t you wait until that supply comes online and is competing with smaller starter homes. Push this one off until 2025 because rents are falling. Save the money and rent for less. Okay, so keep, keep renting for now.

 

09:41

Let’s talk about what we’re seeing on the equities front. I mean, as we’re speaking today, the Dow dropping 300 points, as they say 2024 struggles continue here. I mean, what do you see on the equities front? Well, we knew that the months of November and December were absolutely extraordinary, historically speaking, in terms of the stock market returns. So any assumption that that’s just going to continue off into the sunset and that…

 

10:07

that the stock market’s gonna go to the moon and the valuations have absolutely no bearing and or all of these CEOs announcing layoffs, I think that that has to do with what a major semiconductor company came out and said after the close. And that was that demand is not coming back. We’re not seeing some kind of a restocking cycle hitting, which would help us. We’re not seeing France, the second largest economy in Europe, that’s fallen into recession. Germany remains in recession.

 

10:37

China’s growth remains at a 40-year low. So what’s the catalyst to propel the top line growth that you absolutely need to see against the framework of Wall Street equity analysts taking down consistently their expectations for earning? At some point, fundamentals have to play into where the stock market’s trading, despite the fact that we want for stocks to go to the moon every single day.

 

11:04

Let’s talk gold prices holding above $2,000 here today. What do you make of the gold trade? Look, gold for me is your ultimate diversification vehicle at any and all times, whether you’ve got inflation or deflation taking place in the background. If you think that the stock market is overvalued, that the credit markets are teetering, that high-yield bonds have never been this richly valued, well then,

 

11:33

as an investor, you want to have an area of defense in your portfolio that if something was to go awry, like a financial crisis type of development, that your portfolio is going to be protected to the downside. That’s where gold comes in. What about some folks who are like, well, I like to do the T-bills and chill? Well, T-bills and chill works and it has worked and it’s going to continue to work if the Federal Reserve is going to come out and say in March.

 

12:03

Okay, we’re gonna take 25%. We’re gonna have a 25 basis point, a quarter of a percentage point decrease in the federal funds rate. Okay, then cash still kind of pays, right? You’re still getting multiples of what you were in for the 40 years before J-PAL started to normalize interest rates. So cash is not gonna be trash overnight unless the Fed takes interest rates to the zero bound and then you’re not getting paid anything. But.

 

12:33

Jay Powell and even the most dovish individuals in Fed leadership, none of them are indicating that they’re going to take interest rates to zero overnight. Let’s talk about cash in the banks for a second. Let me think of that. Obviously, 2023, year of the banking crisis. Will that continue and spill over this year? So there is indeed a risk, Daniella, and you bring this up, and I think it’s the right time to bring it up because we’re seeing…

 

13:01

an acceleration of commercial real estate deals blowing up. It’s becoming commonplace to read a headline that says, oh, this property changed hands for 10 cents on the dollar of the last time it changed hands. So these are major discounting going on. And that speaks to the banks that had issues with runs and losing deposits and holding onto treasuries or mortgage-backed securities with major losses.

 

13:28

A lot of these banks also have commercial real estate holdings and those loans on their loan books. That’s the chapter two in the banking crisis that started in 2023. That’s what you want to pay attention to in 2024 is how big of a write off are a lot of these banks going to be taking on the collateral backing the loans on their own books? Very relevant question you just asked. Well, just to wrap and maybe to that point, I mean, is there anything that keeps you up at night?

 

13:55

that you’re watching this year that you’re thinking, I don’t know about this one. Well, I mean, you know, this is every time there’s been the threat of corporations having to refinance their debts in mass, the Fed has been able to ride to the rescue and take interest rates back down to the zero bound to where corporate America never kind of crashed into this maturity wall. I mean, we’re in a live experiment right now.

 

14:23

2020 is the real deal. We’re gonna watch companies as early as March and April begin to actively refinance debts for the first time in 40 years. So I don’t know what it’s gonna look like, but because it’s such an unknown, yeah, it keeps me up at night because I can’t tell you how the dust is gonna settle as companies are forced to go back to the market and refinance their debts. Wow, we’re in a live experiment.

 

14:52

Talk about strong statement, Danielle DiMartino Booth. I just want to say, I absolutely adore following you on Twitter and can I just say, I love when you give it back to your haters. That’s my favorite part. It wouldn’t irritate me near as much if A, they would never kiss their mother on the cheek with the mouths that they use when they’re hiding behind some veil of anonymity. They’d never talk to their mother that way. And then they call me a boomer.

 

15:21

which means I’m like, are you trying to change? Are you trying to get me to call my mom? Because my mom’s a boomer and I can reach out to her. But when they’re just outright insulting and anonymous, and people get mad at me, they’re like, do not see that this loser’s only got like four followers? Right. I think that social media, one of the problems with social media and all of the haters and the trolls on social media is that nobody ever holds them accountable for what they’re saying. That’s true.

 

15:48

That’s true. We always just brush them off. I mean, I tell my four kids there’s consequences to actions. And I think that people who are trolling, I think that they should know that there are consequences to what they’re saying, especially if they’re just spewing ignorance. I’m like, you know, Google’s not illegal for you. You have access to Google too. And you can educate yourself too. So don’t just go spewing ignorance because you feel like you wanna throw hatred around. So I just…

 

16:15

There’s not enough accountability in government, in corporate America and across the- Absolutely, absolutely. That’s the bigger part. And I appreciate what you do. And I appreciate and respect the fact that you were able to have such an incredible career while raising four children and making sure there’s always milk in the house. So God bless you for that Danielle. Four under four, that was, yeah. I’ll never forget the time. I don’t know. Yeah. I have two and barely hanging on. So wow, four, kudos.

 

16:43

to you, Danielle. Thank you so much for joining me. I will speak to you soon. Thank you. And happy new year. Happy new year, Danielle. I will, like I said, we’ll see you very soon and thank you all for watching. Please be sure to stay tuned to the Danielle Cambone show here on ITM Trading and you can sign up at danielacambone.com to stay on top of it all. Thanks for watching.

 

17:06

you

SOURCES:

https://twitter.com/DiMartinoBooth

https://www.amazon.com/Fed-Up-Insiders-Federal-Reserve/dp/0735211655

https://www.newyorkfed.org/microeconomics/sce#/

https://www.reuters.com/markets/us/yellen-says-fed-performance-strong-us-economy-robust-2023-12-07/

https://www.cnbc.com/2024/01/03/jolts-job-labor-data-hires-quits-decrease-layoffs-remain-low.html

https://www.forbes.com/sites/brianbushard/2023/12/20/over-305000-laid-off-in-major-us-cuts-this-year-here-are-the-biggest/?sh=11c68c442574

https://time.com/6553141/red-sea-houthi-attacks-consumer-prices-cost/

https://www.youtube.com/watch?v=XBthAzv8yvk

https://www.nytimes.com/2024/01/08/opinion/trump-federal-reserve-interest-rates.html

https://twitter.com/DiMartinoBooth/status/1741889063089484264

https://www.nytimes.com/2016/11/06/books/review/alan-greenspan-man-who-knew-sebastian-mallaby.html

https://www.reuters.com/markets/us/us-default-debt-would-trigger-an-economic-catastrophe-yellen-2023-04-25/

https://www.cnn.com/2013/02/20/us/ben-bernanke-fast-facts/index.html

https://www.forbes.com/sites/pedrodacosta/2019/12/09/paul-volcker-feds-inflation-slayer-dies-at-92/?sh=3315b8952f6e

https://www.cnbc.com/2024/01/08/56-million-americans-have-been-in-credit-card-debt-for-at-least-a-year.html

https://www.linkedin.com/pulse/multifamily-pipeline-massive-heres-what-expect-2024-swiftlane/

https://api.time.com/wp-content/uploads/2020/09/time-100-Jerome-Powell.jpg

https://www.google.com/finance/quote/.DJI:INDEXDJX?sa=X&sqi=2&ved=2ahUKEwij2Kzb4tGDAxVSD0QIHTV1DcYQ3ecFegQIJBAX

https://www.google.com/finance/quote/GCW00:COMEX?sa=X&sqi=2&ved=2ahUKEwif8OL849GDAxUFIkQIHZ94AaQQ3ecFegQIJBAX&window=1Y

https://www.cnbc.com/2024/01/08/stock-market-today-live-updates.html

https://www.wsj.com/finance/banking/how-the-2023-bank-crisis-can-still-be-felt-in-2024-b16f724f

https://www.forbes.com/sites/forbesbusinesscouncil/2023/11/29/is-a-commercial-real-estate-crash-coming-what-industry-leaders-can-do/?sh=5af342e4e2ce

https://www.reuters.com/markets/us/fed-minutes-may-elaborate-coming-rate-cut-debate-2024-01-03/

Sources & References In This Article

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