FS Insider recently spoke with Danielle DiMartino Booth, CEO and director of intelligence at Quill Intelligence and the author of FED UP: An Insider’s Take on Why the Federal Reserve is Bad for America. She spent nine years at the Federal Reserve Bank of Dallas as an advisor to Richard Fisher.
In her interview with FS Insider, DiMartino Booth highlighted what a unique period we’re currently in as there isn’t a similar historical cycle, “we’ve never had quantitative easing in past cycles, we’ve never had 22 trillion dollars of effective money printing in past cycles, so it’s very difficult to get a feel historically for where we are.” She continued, “What we know is that quantitative easing did cause bond overvaluation to be unlike anything we’ve seen in the past 150 years.”
DiMartino Booth argued that risky assets should include corporate bonds in addition to the stock market. If we consider the period from 1999-2001, there were 13 months between the time of the inversion and when we’d hit a recession. “So in other words,” DiMartino Booth said, “overvaluation shortens the runway, it shortens the time span between that first inversion and when you’re technically in a recession. I would say that because we are so much more over valued in the current episode that we have even less time than the 13 months … 2019 is very feasible for falling into recession.”
In a recent report DiMartino Booth officially called “the bottom in initial jobless claims; the current cycle, the second longest in economic expansion in U.S. postwar history, has turned.” She noted jobless claims have risen and job growth across four major sectors has stalled.
In making a call she said, “you always have to follow what is most cyclical in trying to time a cycle.” These leading indicator type of sectors tell you where the economy is headed and not where it’s been. And it was because she’d seen such a turn in these sectors she said, that she made the call.
The tendency for asset markets to move in tandem when we do have a downturn Di Martino Booth said, “is much more pronounced in what we have in front of us than in any other cycle.” She advised that if we do, in fact, think this is going to be the Fed’s last rake hike, we begin to lock in cash rates. She added that perhaps it would be time to consider the hedging benefits of holing gold “because the two things we know are that cash does not hurt you…and that hedge is the only asset class that moves inversely to all other asset classes when they line up and behaves the same way when they go down together.”
Having spent nine years working as an advisor at Federal Reserve Bank of Dallas, DiMartino Booth said if there’s one thing she learned from that time it’s that “there are very few places to hide when central bankers have been monkeying with interest rates.”