Gold is a Hedge Period! | Interview with Former Fed Insider Danielle DiMartino Booth

okay welcome back to the show Danielle great to have you here I’d like to start with kind of looking at headlines versus reality the narrative out there is that everything is fantastic Real Estate’s great stock markets doing okay we’re not going down it’s it’s it’s hanging in there unemployment slowed how accurate or inaccurate is this narrative should we really be following it you know I’d be very cautious right now it makes me very uncomfortable when there is so much agreement and when so few people are on the other side of arguments and the people who are on the other side of arguments tend to be derided and that’s a really frightening environment for me because it’s so reminiscent not 2006/2007 but it’s so reminiscent of 1999 that makes sense from our perspective there’s definitely a lot of complacency out there with regard to how people are investing their their money at this point I’d like to talk a little bit about interest rates for a moment has the strategy of low interest rates really generated prosperity as the headlines would suggest oh I don’t think it benefited prosperity across the nation I think it benefited a small pocket of individuals on a small 18 by 2 Mile Island called Manhattan and I’m not trying to be glib I just I’m concerned that we see in the background if you moody did an interesting study recently they adjusted automobile delinquencies for the size of the population and they based it off of jobless claims and we don’t have to crawl in there but they went back to 15 years of data which is all they had to go back to and we’re at the highest level on record so it bothers me that there is still that we’ve seen so much stress build up in the household space and yet we have to contend with this narrative that Ben Bernanke was a patriot for writing to the rescue of the economy it certainly didn’t go across the nation that way there are still a lot of people who are very cash rich house poor all these years later Yanis poor house rich but he you know I you have to give Bernanke credit I mean he definitely did what he could to save the financial system at the time but really they kicked the can a massive massive can down the road and now now there is no place to go and get a yield without taking risk and it did don’t you agree that everyone’s been forced to take risk and part of that has been that real estate market where they borrow money it’s cheap and you better push back because it’s a real pet peeve of mine you know Bernanke was the Bernanke was one of the chief architects of the housing bubble to begin with if you look back at 2003 2004 2005 2006 transcripts so he was right there as was Yellin at the San Francisco fed and Greenspan but they were all very much on board with blowing up that housing bubble that that created the need to come to the rescue of the markets in the first place we didn’t have to have the financial crisis we didn’t have to have emergency crisis measures because we didn’t have to have the housing bubble and so what do you think that was on their part was that their relationships and pressure from Wall Street or was that just not just weren’t paying attention what was behind their decisions on those actions you know I there was a very famous conversation that occurred in Alan Greenspan’s office when he was warned about the perils of subprime missus years before it blew up and Greenspan apparently said you know we only regulate 25 percent of mortgage lending in this country we only need to worry about those we regulate meanwhile countrywide financials out on the west coast right in Janet yellen’s backyard becoming the biggest mortgage lender in the world and eventually turns to fraud and they turned a blind eye and chose to to philosophically aligned themselves with the idea which greenspan this is a cup this is this is greenspan baby that you cannot come in before a bubble and do anything about it you have to wait until the aftermath of the bubble and then come in and clean it up a very very reckless way of thinking and then they believe in this idea of the wealth effect but the wealth effect was very fleeting for all those people who bought more home than they could afford yeah I remember reading in your book I think that was one one of the big

takeaways was this idea that Janet Yellen watched it all it was in her neck of the woods as when she was at the San Francisco fed and she didn’t really notice the bubble that was that was coming up but so looking at the Fed policies right now they’ve been inflating a bubble and now they’re looking to raise rates which is that a chance that they could break their own bubble and how long can they keep raising rates before they have to turn around I mean you know Bernanke was lowering rates from over 6% do you think that they could get back up to 6% again no I mean I think that the difference between the two year and the ten-year Treasury yield being at 0.32 percentage points right now I think that the bond market at least is communicating that that the Fed will be lucky to get away with one more rate hike before they invert the yield curve which will ignite fear in the market it’s not so much that the moment of inversion is followed you know tomorrow at 2 p.m. we go into recession that’s not how it works but the fear that that moment ignite will propel a sell-off in risky assets so I I worry that they can’t even get to the December meeting even though Powell is very adamant that he wants four more rate hikes that he wants to get to three percent on the overnight lending rate I don’t I don’t see it happening unless there’s a massive reversal in what we’re seeing in the bond market so if they’re having trouble if you think they’re even gonna have trouble getting to December in in in some sense one you know the street would ask why raise rates at all why not keep the punch bowl there is it just a question of optics I think a lot of people in our industry say look they’re only raising the rates so that they can lower them again later and look like they’re actually doing something well there is there is optics and there is the need to have bullets in the chamber I think had had Jay Powell had his druthers that given the fact that 2012 transcripts he was already talking about shrinking the balance sheet exiting extraordinary policy this is before they even implemented QE 3 so Jay Powell has been of the mind for a very long time to have much tighter monetary policy than what was implemented by his predecessor so III think he really wants to get to that 3% bogey and I also sense that they’re concerned about financial stability and and the the really the stock market has not reacted as we would think it would have at this point to a tightening rate environment we still have you know the Nasdaq making record highs so the animal spirits so to speak have not been extinguished by Fed policy so in this sense you’re saying the the Fed rate they keep raising interest rates which may you’re saying it will then make it harder to borrow money because the it’s going to be harder to service that debt and that’s what’s going to squash the stock markets that’s what they’re I mean I think that I think that they definitely I think Jay Powell definitely wants there to be some error that comes out of these markets I mean any way you measure market valuation they’re there their record highs so he’s aware of that this is an individual who founded the industrials group at a major private equity firm and he speaks to CEOs all the time he’s aware of how overstretched market valuations are he’s more aware than anybody I think it’s been probably Paul Volcker so is he look for a quote-unquote soft landing though because don’t you think that if they start to if they can get to three you don’t think they will why not get why don’t you think that they’re gonna get to three and you know again do you think they’ll be a soft landing that’s what he’s expecting what the Fed is never engineered a soft landing through a tightening campaign so I’m gonna go with it’s not different this time I’m just I’m sticking to that and again things that we’re seeing come out of the household sector record high automobile delinquencies credit card delinquencies are going up that there’s a reason financial stocks are going down because we’re already seeing stress we know that the housing market is peaked and rolled over what is the engine of growth going to be that even begins to suggest that we get to June 2019 which will make it the longest expansion in the history of the country because we’ve already just we are in the second longest expansion right now so essentially you’re saying we are many others are saying that too

we are headed towards the recession if and we’re getting pretty close the yield curve is showing that in us in a way do you think we’re gonna see another crisis event or just a strong recession it’s hard to say you know the European situation is definitely fluid and it could certainly bleed into into United States markets we’re watching Deutsche Bank I hope somebody at the Fed is watching Deutsche Bank very carefully because we don’t know where systemic risk is going to come from so I don’t know if there’s going to be another financial crisis you can never identify the origin of systemic risk before it is triggered but what we do know is every time the ten-year Treasury yields begins to approach 3% another country blows up so you do see how tenuous the situation is in the inability of central bankers to normalize because they used low interest rates and debt creation to foster prosperity which you know it doesn’t work over the long haul so where do you see all this going then with all of the debt that’s been created the Fed balance sheet you think they’re gonna pay that you think they’re gonna get that down what is where are we headed with this I mean 20 21 trillion in debt in the US four and a half trillion on on the feds balance sheets are they going to be able to somehow get out of that situation are they going to just go into more debt I think the game plan right now would would be to hope to reduce the size of the balance sheet by a trillion dollars you know I don’t know that they’ll get there I just don’t you know you’ve got the the head of the Central Bank of India writing a very very public opinion piece in The Financial Times saying we cannot handle quantitative tightening do you hear me Jake how and you’ve got Argentina and Brazil and with Latin you know we recently saw the Thai behind so the potential to set off contagion be a quantitative tightening is becoming very very real and that leads one to question whether or not they’ll even be able to pull off a trillion dollars quantitative tightening we’re barely about fifty billion and look what’s happened right so then we go the other way the biggest monetary the biggest monetary policy experiment in the history of mankind and if you talk to people inside the central bank offline off the record they will tell you they didn’t know what was going to happen going in and they have no idea what’s going to happen coming out yeah we had Nomi Prins on last week and we were discussing the fact that there is no plan B and so you know what how do the how does the everyday person who’s following the regular narrative what are they supposed to do do they just keep following along with what the mainstream media says and just keep doing the real estate and the the stocks and cross their fingers and hope that the central banks can figure it all out I guess if they’re young enough to have that kind of a position that’s fine if they can’t afford to work for twenty more years they might want to wake up some elder coffee and go to the mattresses go to the mattresses in other words get get some of your wealth outside of banking system well not necessarily outside of the banking system but outside the markets right yeah that makes sense yeah I mean buying into real estate at these mostly valuations is just you have to be not I have a friend you just bought a 3,400 square feet 2.7 million dollar townhouse in Los Angeles you can’t make this stuff up you just can’t same thing the same thing on the stocks right I mean valuations are sky-high and you wonder how how are you supposed to how are you supposed to continue with that well that’s the thing people need to look at the stock market is they would look at a piece of real estate as they would look at a potential property to purchase how are they ever going to make a return if they’re buying in at such a high price and they if they look at it more rationally as they because consumers understand real estate prices if something that they understand in their bones if they take a rational approach like that they’re like I’d be better off getting almost two percent on a monthly piece of paper and keeping my powder dry yeah I agree definitely with keeping keeping some liquidity available at this point of court Darren actually had a question over here as well I didn’t yell Darren through our real money show just a quick question I’m wondering to what extent and of course recognizing we have a natural bias and what we do towards that leans towards holding a portion of physical metals in the form of maybe gold or silver in one’s portfolio so we certainly acknowledge that bias as our listeners are tuned in to this show but to what extent might an asset like that

help or play a role even to a small portion of a person’s portfolio in your opinion is not viable it’s not a I don’t mind anything that can’t be put into practice I just I might move on next however what we do know from the past two major cycle downturns is the correlation the the co movement among asset classes becomes almost perfectly one in other words there’s no place to hide dot dot dot except for precious metals and it is a fallacy it may it makes my blood boil gold is not some place to head your portfolio during inflationary times because it’s it’s outperformed just as beautifully in deflationary times gold is not a hedge for one or another environment it’s a hedge period right again we tend to talk of it more as a hedge or something to have even in a small part within a portfolio and I’m curious as we’re talking about what’s going to happen at the end of the year before we conclude today do you foresee some major changes economically within this particular fiscal year are we going to see a very bumpier third and fourth quarter in your opinion I mean things have been great headline news has been out there touting wonderful things about the economy again we’re reading behind the lines do we start to get some mainstream uncertainty in the marketplace in the third and fourth quarter this year well we’ve certainly seen in the consumer you know it’s a funny thing is to answer your question I’m following data sets I never followed before to try and and and look into my crystal ball consumer confidence never moved the market but I’m following like a hawk people’s expectations for income growth and that had been going through the roof in the post-election environment and that has finally turned and come down another data set I’m following that is beyond obscure is challenger grain and Christmas they have layoff data that comes out the Thursday morning before every Friday non-farm payroll Friday jobs report they also have a hiring Index that that they track they track companies hiring announcement you would think reading the headlines that companies are hiring like gangbusters that’s not the case they can’t source skilled labor but as of last month the the hiring announcements had decreased to 200,000 so far in 2018 from a run rate at the same time in 2017 of 400,000 that tells me that the underlying demand for employees after we get past the trucker shortage and the welder shortage and the construction worker shortage because there’s only so many of these people to go around but the underlying demand for employees is not what it needs to be to sustain an economic expansion and I worry that we’re going to start to see this in the third and fourth quarter and that households have begun to communicate it to us via higher default higher credit-card delinquency higher automotive automobile delinquencies and answering questions about their income growth in the future in a negative way I mean to me it seems pretty clear and the writing is on the on the board but again hearing it from somebody that’s in that particular market that watches it as closely as you do may reaffirm for our listeners how important it is to make sure you are double-checking you are doing your due diligence Danijela was a pleasure to be able to speak with you today how do our listeners get in touch with you and follow what you’re doing and get all of the material that you’re putting out into the public sphere well you know I have recently launched a company it’s I’m just coming up on the one month anniversary we have a publication called The Daily feather it is $25 a month I this is my first retail product ever I’ve always catered to institutional investors but this is my first retail product ever I’m not selling anything I don’t have any bias and it is the best I had a trader walk up to me on the floor the New York Stock Exchange a few days ago and say hey you’re that feather woman yes I am and it’s all about financial literacy and everything I’ve talked about I talk about on a daily basis so go to quill intelligence calm that’s quill intelligence comm and sign up for the newsletter it’s the cheapest money that you will ever spend it’s the best return on investment you’ll ever get and I am NOT a used car salesperson I promise well we certainly will encourage our listeners to do just that we’ll have this up on our podcast as well as on the real money show website and they’ll hear it live on Saturday and Sunday of this weekend so we want to thank you for being part of the real money show yet again it Danielle hopefully it’s not too long before we Piku ghin and we hope and wish you all

the best in the rest of the year we look forward to speaking with you soon thanks very much likewise take care