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Economic expert Danielle DiMartino Booth explains why perspective is key and how markets have been looking for an excuse to rally (0:50). Whatever you do, don't lose your job! (4:00) Unreliability of some economic data (6:00). Powell, inflation and a weak housing market (7:30). U.S. dollar counter-intuitiveness (14:30). Encouraging precious metals (18:00). Oil supply and demand (19:00). Bitcoin: more counter-intuitiveness (21:40).
Transcript
Rena Sherbill: Danielle DiMartino Booth, always a pleasure to have you on Seeking Alpha. Thanks for joining us. Really appreciate it.
Danielle DiMartino Booth: Well, it's great to be here. We need to do this more often.
RS: We absolutely do. I agree. We should not wait as long between appearances. Speaking of waiting between appearances, a lot has been going on in the world geopolitically, economically, financially.
Pretty much every way you can imagine if something's going on, it's happening. Talk to us about how you are thinking about things, processing things, waiting for things. What's your take on the state of the world, the state of the markets right now?
DDB: I think right now, that perspective should be trading at a premium.
Looking for trends, trying to decipher what's happening in the underlying economy, I think it's more important than ever when you're surrounded by noise and anything can rattle the markets.
I was looking at the price of crude oil, and my goodness, it's lower than what it was a week ago. You'd never know.
So given all of the crazy, tumultuous events that have occurred here in just the past three days or so, but that's why I think right now, perspective is key.
When you hear, oh gee, home prices fell nationwide for a second month in a row, you're like, well, that hadn't happened since the great recession or at least going into it. That's unusual.
Americans' perceptions of the job market have deteriorated for six months running, according to the conference board.
Well, you know, that hadn't happened since the great recession. And at some point, you start to see patterns emerge that tell you that you need to look through the ups and downs, the ebbs and flows.
Oh, gee. The stock market, it only goes up. Well, sure, it only goes up. It only goes up because inflows to the stock market are nonstop. People continue to contribute to their 401k's blindly.
People over the age of 70 who own 40% of the stock market, they're not selling as long as the Fed doesn't lower interest rates and give them some reason to sell.
So everything's hunky-dory on the surface, but look beneath it. Look for patterns.
Look for anything that can give you perspective right now because I think that that's what's key. It is so easy to miss inflection points in the economy if you're just paying attention to what's happening on the surface.
RS: In terms of the oil piece that you mentioned and the market's reaction to all this madness afoot, do you feel like the madness has been priced in? Is that what we're talking about a little bit?
DDB: No. I don't think the madness has been priced in. In fact, I would say it's the opposite.
Markets have been looking for an excuse to rally. And once that mind frame is set, then it won't matter what happens.
Good news, bad news. Markets are momentum flow-driven beasts, and they have done a very good job of absolutely dismissing and ignoring whatever is happening in the underlying economy.
And as investors, we should be very cognizant of what makes markets and what's happening in the real economy because they're two completely separate ways separate prisms into the world.
RS: So what are you looking at in the real economy? What are the data points that you're most concentrated on and looking for?
DDB: So I think right now, one of the biggest takeaways if you're above the sky flying at 40,000 feet is, don't lose your job. Whatever you do, do not lose your job.
When you look at, there was a trend with the Atlanta Fed. I don't like the Atlanta Fed's GDP now tracker. I think it's a Mickey Mouse model. I shouldn't be disparaging. But the Atlanta Fed's wage growth tracker, that's something I follow really closely.
And for years after the pandemic hit, if you were looking for greener pastures, if you were a job switcher, you were getting paid up big time to go job hop, job to job to job.
The last three months, we've seen that dynamic flipped on its head. So if you're a job stayer, these are two different terms the Atlanta Fed uses, job switcher, job stayer.
Right now, you're getting paid less if you're quitting your job. You're getting paid more if you stay in it. Why is that? Because companies are putting a premium on reliability.
Companies actually want to see their employees back in the office. It's companies right now that are in the driver's seat, and you have to pay attention to that because it's a narrative shift.
And that shows you don't lose your job because it's really hard to find one when you've had nearly 2,000,000 Americans on continuing job as continuing jobless claimants and the highest levels that we've seen in years multiple, it's telling you something.
That when the quits rate is going down, this used to be Janet Yellen's favorite job market indicator because it was to take this job and shove it rate.
If you can't quit your job right now because job insecurity is going up, which is the opposite of what happened in the aftermath of the pandemic, that's telling you something about the underlying health of the US economy.
RS: In terms of that data that you're looking at, last time you were on, you were talking about the unreliability of some economic data.
How would you update investors, or is there anything to update investors in terms of the reliability or what you're focused on there?
DDB: The only thing that we can rely on is the unreliability of the data.
Because of the revisions that I was speaking about months ago, it simply become more entrenched. The downward revisions are deeper than they've ever been in US history.
And that tells you that markets are gonna key off of nonfarm payrolls grew by this much. Our bond traders, our stock jocks, are they gonna trade off of that headline figure? Yes. They are.
But the actual underlying data, because of the magnitude and the systematic nature of these downward revisions becoming deeper and deeper with each quarterly revision, by the way, to the Bureau of Labor Statistics model, compared to the 12,000,000 American companies that by law must report head counts once a quarter to the Census Bureau.
That's actual hard data on the ground.
The divide between the models at the Bureau of Labor Statistics and what's actually happening has never been wider. Trade off of it. And as I say, my mantra has never ever applied more. Trade the narrative, own the truth.
RS: You're very good with words. I hope people are paying attention to the articulation here. Very good stuff. Another thing that we talked about last time you were on was Powell and interest rates and fighting inflation. Lots of jawboning since then.
What are your thoughts about the Fed, about Powell's role at the Fed, about fighting inflation and the interest rate conversation? What are your thoughts there, and what would you say you're looking towards this summer and the next couple of meetings?
DDB: I think one of the biggest changes in the US economy is the rapidity with which we've seen the housing market weaken. Nobody was expecting this. This is completely out of left field.
We had Case Shiller S&P Case Shiller home prices decline for a second month in April. Okay. March and April, this is peak spring selling season, and you're seeing home prices month-over-month decline two months in a row?
What does this have to do with Jay Powell? Guess what? Housing's the biggest input to the CPI. Housing's the biggest input to the PCE.
If home prices are falling during the peak home selling season, and we know that May was weaker than March and April, that means you're gonna have three months in a row of falling home prices. Pay attention, Chair Powell.
It's gonna be a lot more meaningful, and it's gonna be a much greater drag on inflation that home prices are falling for the first time since '05, '06, '07, that you need to shift your focus away from being hyper focused on tariffs and the potential for bleed through when the largest input to inflation has got a negative sign in front of it.
That's going to overwhelm any type of, oh, tariffs might cause inflation, concerns that Powell is voicing, making it appear that he might be making monetary policy against Donald Trump, which is a big no no.
The Fed's an apolitical, independent institution. It is Jay Powell's mandate to make monetary policy in the public interest and not just be doing things because the President is calling him a loser or whatever he's saying in his non-presidential way.
It is Jay Powell's duty to make monetary policy regardless of what's happening in the political arena, and the hard inputs to inflation and the hard inputs to the labor metrics are telling him that monetary policy is restrictive.
It's too tight.
RS: So what's your sense of what's gonna come from the next couple of meetings? Are you encouraged by what you think might be coming? Are you discouraged by it?
DDB: I'm encouraged by the fact that we have not one, not two, but three Fed officials who've come out after the latest Fed decision and say, you know what? July should be in the cards here. We're seeing enough on the labor side of our mandate that we shouldn't be talking about September right now.
Because if we're talking about September, that means that the economy probably needs it right now, and that July should be a live meeting.
So I'm happy that you're seeing enough dissenting voices in order to shift the narrative away from we can just wait, we can sit on our hands, we have plenty of time, we have all the flexibility in the world.
That doesn't look like it's the case anymore, but I'm happy to hear Fed officials come out and say it out loud.
You make chair Powell's life a little bit uncomfortable. You know what? He won't make that same mistake by pausing in July as he did in 2024 and waiting for an unusually large rate cup to come through in September.
Let's not wait. Let's go ahead and deliver to the US economy. And by the way, 25 basis points, it's just a pimple on the you know what of humanity, but it's still the Fed signaling. You know what?
I'm signaling to say, I hear you, American working people. I hear you that you're struggling. I wanna signal that I'm with you, not against you. It's enough sometimes for the markets and for the economy to get that signal.
RS: Does the war or the threat of war or escalation in fighting, does that affect this conversation? Will that affect Powell's decisions? Do you have a sense of how much that plays into this?
DDB: I'm actually gonna agree with Powell at this moment because when he was asked in front of Congress, is what's happening with geopolitical tensions playing into your monetary policymaking framework? And he said no, nor should it be.
It would be the case certainly if there was a prolonged closure of the Strait Of Hormuz, for example. But we haven't even had a closure, and we've got oil prices south of where they were before all of this broke out, over the very dramatic weekend.
So if there was something that showed, demonstrated, illustrated there was going to be a prolonged upward pressure on oil prices, and that's the most visible price to American workers. Yes. That would be problematic.
That should play into how Powell and other Fed officials are looking at monetary policy.
But as JPMorgan Chase reported in their real-time debit and credit card spending data, month over month, the spending at the gas station's down 11%.
RS: Do you have an opinion on whom the next Fed chair may be or when that might happen, or do you have an opinion on how much that matters? Is that something you spend a good amount of time thinking about?
DDB: I do. And I spend quite a bit of time studying who Jay Powell's successor may or may not be come May of 2026. But more importantly, Adriana Coogler is going to be replaced in January of this year.
And there's so much focus on whether or not there whether or not there's gonna be a shadow fed chair that we could easily shift, you know, the limelight to who's gonna be appointed in January to replace Kubler to a fourteen-year term?
Is Trump gonna put in place somebody who he wants to be a potential successor to Powell? Does he wanna pit this person against Christopher Waller, who's the number one front-runner who's a sitting Fed governor?
So you have to pay close attention to this because we're talking about the most powerful leader of a central bank in the world.
And, for me at least, who President Trump chooses come January is just as important as the potential successor to Jay Powell come May of 2026.
RS: Do you have a preference? And what are your thoughts on what the new leader should be doing?
DDB: I don't really wanna throw my name behind anybody per se, but I will say that I'm paying very close attention to the contenders who've already been named. And my gosh, you can follow it on Polymarket. There's a betting market for this.
I just want to hear somebody who's listening. That's what I wanna hear from a future leader of the Fed because I feel that Jay Powell has become a bit tone deaf these last few months, and I don't want that.
I want somebody who's listening to working American men and women and who are gonna make monetary policy regardless of how much pressure there is coming out of the White House.
RS: And what would you say about the dollar (DXY) these days? How you're thinking about that? How you're looking at it in the short term and long term?
DDB: So it's interesting because we're guiding our clients right now to behave as counterintuitively as the greenback has behaved.
So when the Fed goes into a holding pattern, vis a vis the rest of the world and the rest of the world central banks are in an easing posture, and we see the dollar fall out of bed, well, I mean, the contrarian mind in me thinks, okay, fine.
So if we're tighter relative to the rest of the world and the dollar falls, maybe when the Fed starts to lower interest rates, the dollar is going to counterintuitively rally because it's not been following a script at all, and it's one of those crowded trades out there is we wanna sell the dollar, we wanna sell the dollar.
Well, what happens if the Fed starts to lower rates and we see the dollar rally? It can happen.
And that's actually how we're guiding our clients into the second half of 2025 is to anticipate a counter trend dollar rally because the dollar has been weakening even as monetary policy here has been tighter relative to the rest of the world's central banks.
RS: How are you thinking of that given your experience in the markets and and talking about macro events and how things are affecting currencies, what are your thoughts about the trajectory of the US dollar right now?
DDB: Well, again, I'm a contrarian in my thinking, but part of that has to do with the fact that we've seen services disappoint in Germany. We've seen services disappoint in China.
This working assumption that if the United States catches a cold, the rest of the world's not gonna get pneumonia, it's never been proven in the history of mankind.
We are the largest economy by a wide margin on the planet, and if our economy is slowing enough to make the Fed start to cut interest rates, you know what?
It's going to have ripple effects in the rest of the world economy that we've already seen is slowing despite their central banks already being in an easing framework.
RS: To that point, there's a lot of discussion around, is the US investable now? Should people be looking at the international markets? What's your take there?
DDB: I always worry about looking for the silver bullet solution.
And while I perceive and quietly while we've had the rest of the world pile back into US markets, you know, it was, oh, there's American exceptionalism, and now there's a flight away. Everybody wants to sell the United States, and quietly, we're at the highest levels in the stock market that we've ever seen or within spitting distance.
So, while I don't necessarily see there being a safe haven in other country, I would also be very wary of saying that the rest of the world is absolutely the place to be to go hide.
Because, again, I go back to what we were talking about with the dollar just now. If the United States economy is slowing, that's gonna have ripple effects in Europe. That's gonna have ripple effects in China.
And you might wanna consider something like, oh, I don't know, platinum (XPTUSD:CUR), gold (XAUUSD:CUR), things that have been pushed by the wayside that are truly defensive posturing as an investor in times of me talking about a slowing US economy and the effect that's gonna have on the rest of the world.
RS: Yeah. I was gonna say the perfect segue to that conversation is gold and precious metals.
Is that something you're encouraging clients towards? Are you a fan of the ETFs? How would you articulate your thoughts there?
DDB: So it's hard to say buy miners because, boy, everybody's discovered the miners. It's hard to say by silver (XAGUSD:CUR) because everybody's discovered silver.
But we were encouraging our clients to be investing in gold and silver and platinum.
Platinum was one of the unsung heroes, and I'm happy to see how it's been performing. But, again, if we're talking about falling interest rates, in theory, you should not be seeking the shelter of precious metals.
But if you look back at when the world first recognized the global economy to be slowing, and you look at those initial phases, whether you're talking about '08, '20. There your precious metals do outperform because people are looking for something that is truly going to move in an opposite direction as your riskier assets.
RS: And then in regards to the oil angle, how are you thinking about it? And what do you sense is or do you have a sense of how that's going to be up or down in the coming days, weeks, months?
DDB: If you think about the effect of the rest of the Middle East on the specter of Iran being a major threat, really being disabled, that gives other Middle Eastern countries a green light to export oil.
And it's a supply-demand thing. I don't think the oil market's reading it wrong necessarily, that there is essentially a passing of a huge amount of risk that's been a play for the Middle East.
And now they're able to be more active players on the global stage at a time when global demand is falling.
I think the oil markets are telling us where global demand is, and I think the oil markets are telling us that supply has every reason to increase going forward.
Again, not the way you would traditionally think about things, but this opens up an avenue for a lot of Middle Eastern countries that have been operating in a very tense environment.
You take away Iran's nuclear capability, it opens the door for them to be bigger exporters.
RS: As we wind down the conversation, what do you think should be foremost in investors' minds right now, or what would you encourage investors to be thinking about focused on, or what's an essential part of the conversation for investors to keep in mind right now?
DDB: So as we speak today, and this is just a time stamp, but as we speak today, we've seen the ten-year benchmark yield break below the $4.30 level. Haven't seen that in a while. I haven't been able to say 4.2 anything in a while.
So the stock market right now is celebrating the fact that it's like, yay. We're going into recession. Just stop and think about that for a minute.
Yes. We can force the Fed into lowering rates in July. We can celebrate the US economy being in recession and enforcing the Fed's hand.
But at the end of the day, if there's one thing that came out of the most recent earning season, it was companies saying, you know what? We're missing on our top line.
And it's revenues that are in the crosshairs, and I would caution investors at a time like this to trade the narrative, but own the truth.
If you've enjoyed a nice little rally in your portfolio, and you've ridden this wave or risky assets right up, I would say it might be time to take some profits off the table.
RS: I'm interested in your take on Bitcoin (BTC-USD) if you would care to say a couple of things about what your thoughts are there.
DDB: Now we're talking about yet another counterintuitive. Because as we've seen stock prices go up, we've actually been seeing Bitcoin come off of its highest boiling point.
I would be very careful here, especially if you've made a ton of money. We have yet to see manifest and demonstrated the ability of Bitcoin to be a means of exchange. And until it has that capacity on a practical level, you need to continue to treat in your portfolio cryptocurrencies as being kind of on the fringe of risk taking.
And if you've made a whole potload of money, as I used to have all those years I was on Wall Street, I put more and more tape on top of the same exact sticky. Pigs get fat, hogs get slaughtered.
RS: We seem to be in a counterintuitive era, I think. It seems to be where we're at.
Danielle, I'd love it if you shared with investors how to find out more about your work, about working with you.
DDB: Well, I'm incredibly in gratitude to my crazy good team at QI Research. We've just celebrated our ten year anniversary of me leaving the Federal Reserve. So we're celebrating by letting the community grow. Come see me at dimartinobooth.substack.com or at QI Research. And you know what? If you can't afford one of the lowest rates for great macro research, follow me on Twitter. It's a free MBA at DiMartinoBooth.
