No-Mad
Listen here or on the go via Apple Podcasts and Spotify
Danielle DiMartino Booth shares why Jerome Powell is a man on a mission and why this is where he wants to be (0:35). Should we trust economic data coming out? (2:20) Importance of following real time layoff data (4:30). This is an abridged conversation from a recent Investing Experts podcast.
Transcript
Rena Sherbill: Danielle DiMartino Booth is CEO and Chief Strategist for QI Research, an author, she wrote Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America. You’ve probably seen her on all the big shows talking a lot of insightful points. I’m very excited to have her on the show. I’ve been reading her on Seeking Alpha for many years.
How are you thinking about and looking at things right now?
Danielle DiMartino Booth: I think that this is a place where Jay Powell wants to be. Maybe not for what I would consider to be obvious reasons, but this is a man on a mission and his mission is to keep rates for as high as he possibly can to really just shrink the size of the balance sheet to the greatest extent possible.
And any time you have data out that disappoint the markets, but that he knows are going to be fading, it still gives him ammunition. And that’s what’s important for us to keep in mind, is, what is his motivation?
I think that in the short-term, there’s obviously a little bit of pain involved. And I say in the very short-term. If the rate cuts that they were hoping for, let’s say in May, if that gets pushed to June, that disappoints investors who want easier financial conditions, but the truth is, we’ve had easier financial conditions because the stock market’s gone up so much since the December FOMC that the stock market went up too much.
And I think that that is why Powell is, he’s gratified and fine to hide behind inflation data that real-time data is telling us is not correct. And that’s kind of the case right now.
Medium-term, long-term, it remains to be seen. We still have not felt the full brunt of the lag effects of what the Fed is doing. It is succeeding in taking down zombie companies, one at a time, as opposed to having anything really systemic and messy breakout, which is great.
RS: The point you mentioned about trusting these numbers and how investors should be looking at it, or even just market observers, economic observers, looking at this data, Wall Street Breakfast, we had a survey out and a lot of the respondents don’t trust the data coming out of CPI or similar reports.
What are your thoughts there in terms of the data that we’re looking at? How trustworthy is it?
DDB: Well, in the case of payrolls, it looks flat out manipulated. And that’s not a word that I use lightly. I have a lot of respect for many of the statisticians, but there are simply too many aberrations to ignore at this point.
As far as the CPI goes, it’s had a reputation for a very long time of being super lagged. So, regardless of what the trend is, we’ve seen hotel rates come down rapidly. We’ve had year-over-year hotel occupancy declining for six months in a row and it has turned negative. So, we know situations for hotels are not ideal, discretionary income is drying up, and yet we see a big pop in the CPI for hotels.
That just tells me that the CPI itself remains plagued by being a poor construct, where some of the reality of what’s happening on the ground in terms of real prices simply takes a while to follow through to the data.
We saw the same thing with the December CPI that showed increasing used car prices. It was just a lag. We saw a great big step down in the January data, which – the longest standing issue with the CPI is that it has a huge catch up factor. So, you have to try and look ahead and use other metrics to get a feel for what prices truly are.
Of course, it’s easier for Jay Powell if he wants to, again, to have something to hide behind. So investors – if you’re an economist, you follow what the real data are telling you. If you’re an investor, you follow what Jay Powell is going to tell you he’s following, whether it’s right, wrong, or in between.
RS: Because that’s what dictates the market, you’re saying?
DDB: Because that’s what dictates the market, exactly.
Things like what we’re seeing in – that will never be captured. Right now in the city of Nashville, you can on average get four months of rent for free if you’re signing up for a new lease in a new apartment.
This has become a nationwide phenomenon that again will never be picked up in any rent CPI, even Truflation won’t pick that up because for financing purposes, companies are only going to report what their stated rents are, but effectively, it’s getting a lot cheaper to rent.
And it’s flowed through the New York Federal Reserve, for example, their monthly survey of consumers. In October, consumers across the nation were expecting rents to rise at 9%. We’ve never seen a decline of this magnitude in data back to 2013. It’s now down to 6.3%. It’s coming down precipitously because that’s what people on the ground are seeing.
You have to find alternative modes. You have to track layoff announcements during the earnings season. And this one’s been quite a whopper. This is a corporate America CEO Game of Thrones, where they’re, it’s some kind of a sick foot race to see who can slash head count to the greatest extent. So, you have to follow real time layoff data as well to get a feel for pricing power that companies are going to have or lack thereof.
