[Music] I'm Charlotte Mloud with investingnews.com and here today with me is Danielle D. Martino Booth. She is CEO and chief strategist at QI Research and the author of the book Fed Up, an insiders take on why the Federal Reserve is bad for America. Really good to have you here. Thank you for being here. Thank you for having me again. Good to be here. Of course. Always good to be catching up with you. As we were saying before we turned the camera on, there's so much to go into, but I thought


because we of course know that you're always keeping a close eye on the Fed, it would be good to start there because we just had the latest meeting last week. I think as expected, rates were left unchanged and it seemed like the meeting overall didn't seem to make a lot of waves, but I thought to ask you anything that you would pull out that you think investors should be aware of. So, so I did find it rather intriguing that the Fed has decided a little bit earlier than I think what I and the


street had been anticipating that they were going to be reducing um the the roll off of of treasuries from their balance sheet. I think that that was kind of the one unexpected that came out of the meeting. Uh so I also try and look to the opposite side of that and that is that they're going to maintain the pace of their mortgage back securities roll off which is something that I had been advocating for um for for 12 18 months here. So I am pleased to see that they're going to continue at


least down that path to get out of what we referred to when I was inside the Fed as credit easing trying to uh target a particular area of the economy. And we know that that Fed actions really did result in higher home prices than than we would have otherwise all else being equal. Uh but again, it was the balance sheet announcement that I think was the unexpected. Okay, good to good to pull that out. And then on the note of interest rates, it looks like they are still on track for two further cuts in 2025, although there


is there's pressure from Trump to cut further. So, do you see them staying on track with those two cuts or or anything else you're looking at there? So, I I do see the pace of uh of layoffs and bankruptcies um in the US economy as as probably uh going to put the Fed in a tight position going into May. We've got two non-farm payroll reports before they meet on May the 7th. And I think that because the unemployment rate is just a rounding error shy of being at 4.2% 2% that there is a risk, a very tangible


risk given again all of the layoffs, store closures that we've seen in 2025 and the economic fallout, not just not just in the public sector, but more so in the private sector that the Fed's going to be at its 4.4% year-end unemployment rate target a lot sooner than it foresees. Such that uh, you know, the president could be right here. We could be seeing quite a few more than two interest rate cuts this year. I foresee maybe four or five. Yeah, that'll be something to keep an eye on.


And I think maybe let's talk a little bit more about bankruptcies because I think that for those who are following you on Twitter or X, they'll know that you've been tweeting about some of these big bankruptcies. So, what's happening there? Is there a cycle here that we can look at to know what's coming? What are your thoughts on on what we're seeing? So, right now in the month of March, we're trending towards 23 large bankruptcies. large is defined as uh liabilities or 50 million or more. For


heaven's sake, we saw three in a 24-h hour period with a 100 million or more in liabilities. But that number 23 is critical I if we do indeed see that number for the month of March which is almost over here because that's the highest that we've seen since August of 2023 which was the the highest in the post-pandemic era and actually takes us back to 2010 before we see another month where we saw that many large bankruptcies. So we're definitely seeing an a credit cycle play out here in the


US economy whether we want to call it that or not. We're seeing that that financing is drying up for companies and that's forcing them into the chapter 11 proceedings. Wow. And going back to, you know, this meeting, we had talked, I think the last time was in November and we spoke about the the possible clash between Trump and Powell and how that was perhaps building. Do you see that playing out out further as we proceed into 2025? So, um, there's actually been a lot less out of the White House than than I think


many of us had anticipated in terms of Trump being vocally anti-fed. There's probably a lot to be said for the calming agent of Treasury Secretary Scott Bessant and what appears to be a decent working relationship between the new Treasury Secretary and and Chair Powell going forward. I think that that has to do also with the balance sheet. uh the reduction of the quantitative tightening is is maybe Powell getting it a little bit into into Bessett's camp. So I think the criticism has been less


than what was feared and I I would hope for more of that to come. Yeah, it seems like Powell has kind of flown a little bit under the radar. So we'll we'll keep watching and see how that plays out. I think in in last week's meeting Powell did really highlight the uncertainty though that is related to what the Trump administration is doing and a lot of that relates back to tariffs. So it is quite difficult to talk about the whole tariff situation because it's essentially changing from day to day at


this point. But broadly could we get your thoughts on on tariffs? You know, is this something that's going to dissipate? Are we headed to a fullout trade war? What are you thinking? So I I do think that every day that passes by, we get a little bit more nuanced uh trade policy, a little bit more focus and detail on what the tariffs are going to look like. you know, as long as we continue to see uh progress in the sense of gee, automobiles are going to be excluded uh and and these are some of


the more ownorous and difficult tariffs uh that that would have been uh imposed on the US economy, imposed in in Canada, imposed in Mexico. As long as we can see a a a continued dissipation and a more targeted approach towards the tariffs, I I think that that fear factor could begin to come down. Anything can change at any time. And I think that that is why Federal Reserve officials were so united in their their their voiced concerns about the potential for tariffs to reignite inflation. But if we do go


by the 2018 2019 playbook, inflation actually fell over that period unexpectedly. And the greater drag as a result of reduced global trade was on US economic output. There there was a greater drag on growth. Yeah, that was definitely a topic that I hoped we could touch on because of course there's been so much talk about how tariffs might be inflationary and in your recent work you talk about how it actually looks like we're headed toward an a disinflationary environment. So of course there's a lot


to unpack there but can you can you share the basics of of how you arrived at that conclusion? Well, the most important input to inflation is the wherewithal to handle higher prices and that is a paycheck. So, in the sense that Americans fear that their income is going to be declining in the coming year and how that is showing up with the um with with what CEOs of corporations are saying uh when when they're reporting their earnings, whether it's the CEO of Walmart Corporation or Lonar, the


homebuilder saying, "We're having to discount homes more than we had anticipated." that really is a reflection of layoffs as they move through the economy and aggregate income coming down and not able to pay for higher input costs even if they're imposed. And that's the critical distinguishing factor here. It's not so much that that tariffs would not cause input costs to rise. Nobody can deny that. It's it's an effective tax. the the the critical factor is whether or


not those increased costs can be passed along to end consumers. And so far, what we're hearing from corporate America, the answer is no. That they're not able to pass those costs along. That Americans are being very careful with their discretionary spending and reducing spending on goods and services at the same time in order to shoulder the cost of essentials. Yeah, I think it's a really interesting perspective and good to to look at it with you and I like how in in I was reading one of the


pieces that you wrote and you talk about this distinction between what the data tells us and narrative and I know narrative is so easy to get sucked into. So any any thoughts on how people can avoid that when they're looking at all this information out there? Well, it always helps to be aware of the entity delivering the news or the entity saying, "I think inflation's going to be high because of tariffs." Is this a great big hedge fund that happens to be positioned favorably if if if Treasury


yields were to rise based on this fear factor as opposed to seeing it actually manifest in the data. So, you have to be very weary and aware of real time metrics. what price is actually being charged are, you know, my favorite example, I was in the grocery store on Sunday and I bought a dozen eggs of eggs for $2.99. And you know, that has nothing to do with what the media has been reporting about egg prices. So again, if you're a consumer, if if you're somebody who's watching the headlines, if you're a smaller investor,


you do what Warren Buffett says that he's done his entire career and go kick the tires. Go see what things are actually costing. I'm hearing anecdotes of people seeing their auto insurance premiums begin to come down. You know, again, that goes against the narrative and everything that we're hearing. We're hearing automakers saying that they're having to increase their incentive spending. That means that we can't afford higher car prices. Regardless of what happens with tariffs in the


automobile sector, if you can't afford to pay the higher prices, if your paycheck is shrinking, if you're working as a lift driver because you lost your job, uh then you're you're worried about the cost of your rent and you're worried about the cost of your grocery bill and and what you're paying at the gas pump. You're not even concerned with what a vacation might or might not cost because you can't pay for that anyways. So kick the tires, be on the ground, do your own


homework, and don't necessarily get sucked into the narrative that either the media or large investors are pressing for their own purposes. Yeah, I really like that as in people can go out and they can take a look for themselves as something you can do. So really good to go into that. And so again, going back to our conversation this past November, you had told us that the US was already in a recession. So curious to hear more about that and then how this disinflation scenario then plays into that. So we have indeed seen um one


after another downward revisions to 2024 payrolls. That process is nowhere near its end and yet we see the numbers continue to come down. We saw Challenger Grand Christmas announce 172,000 layoffs for the month of February. So it appears that the layoff cycle is indeed accelerating into 2025. And again, the biggest determinant of prices and prices that can or cannot be paid is what your paycheck is. And what we're seeing is average weekly earnings have have stagnated starting in September and


begun to fall on an inflationadjusted basis. That's the real data. That's what we have to pay attention to, especially when the unemployment rate has ticked up from four to almost 4.2% 2% and and the Fed's year-end target for that rate is 4.4%. It looks like we could easily get there with the March and April payroll reports that precede the Fed's next meeting, which is May the 7th. Okay. Okay. So, we've talked, I think, quite a bit about some of the economic concerns in the US, but I think for many people,


they're looking at what's going on in the stock market and what's happening there. Are we going to is this a bubble? Are we going to see a comedown there? What are your thoughts? How are you looking at that? So, every time you see a correction in the stock market, you have to ask yourself, especially when there's a quick rebound after, is this a dead cat bounce? Is this is this beginning of a more protracted trend? Um, most of the time in the history of the markets, it really is a dead cat bounce. And we end


up um go sorry, opposite thereof. Most of the time when we see a correction, you do see stocks continue on their upward trajectory. But that is certainly not going to be the case as what I call the recession recognition trade starts to filter through. And that's when you start to pay attention as an investor to company's ability to afford to keep their dividend intact, to what cash flow is, to what sales and revenue growth is looking at because those are a lot more difficult to manipulate compared to what


companies are reporting as earnings. Especially when earnings expectations are coming down, it's easier to beat a lowered bar. But that the same cannot be said for what revenues um are being collected by companies, what their cash flows are. And I think that that's what investors have to be very attentive to and one of the reasons that we've seen a rotation into more defensive areas of the stock market that do indeed pay dividends. Yeah, I think that goes into another point that I wanted to touch on


with you is what should investors be doing in this situation? So, is that the right move to go into these more defensive plays right now? I think that that's certainly what the tea leaves are telling us and that's that that is what corporate America is telling us and until we see uh kind of a protracted turn where and the best time to be investing in the stock market for the long term is when companies are expanding their payrolls. There is no greater vote of confidence in the future than hiring new employees. And so that


is the signpost that we should look for. It's very easy to pull up Google and see that that the searches for unemployment insurance have absolutely gone through the roof in the last few months. That's a sign that layoffs are continuing and that the stock market valuations are are are continuing to reflect. You know what? Now's a better time to be defensive because as we say valuations don't matter until they do. And when you start to see corrections, that's a reflection of the fact that the


valuations actually are counting. really good to touch on that as well. And you know, on on the note of paying attention to what's actually happening versus what you're being told. So, we have Trump who's who's telling us we're going into this golden age of America. If you had to characterize where where we're heading, how would you put it? So, I do think that if if Trump and Treasury Secretary Scott Bessing are able to put the United States fiscal standing on on sure footing going


forward and reduce deficit spending, reduce the US debt, that we could be at the precipice of a golden age for the United States economy. That being said, there is no such thing as a free lunch and there will be a price to be paid along the way. And I I you I'm not defending the president in any way, but he has said that there is going to be a period of transition for the US economy. Treasury Secretary Bessant has said that the United States economy may be pausing, maybe coming to a a period of


of of a slight setback. Not using those words, but I think what they're trying to say is that there is going to have to be a journey in order to get to a better place. most politicians blink and end up going back on their commitments to making the government more efficient. One of the examples that we do have to look back on historically, however, is the uh episode of Ronald Reagan in the beginning of his presidential term. There was indeed a a devastating recession that occurred there in 1981


and there was a large uh reduction of the federal workforce that had been built up during the Carter administration that Reagan came in initially and and paired back and we did go into recession. But when you ask the average American civic science history student what they remember about the Reagan administration, the first words out of their mouth are not recession. And so I think that that's something we have to to try and and keep close to ourselves is perspective. So if this is going to be a proverbial and I'm I'm


blue in the face from saying it, short-term pain for long-term gain, then so be it because we do have prior episodes in US history that we can look back on where it was okay in the end. We paid a price, but the price was worth what we paid. Yeah, I think memories memories are short for sure. So, and it's it's useful to look back at what do people actually remember. So, that will be something to watch as well. Just as we're getting to the end here, I'm almost afraid to ask, but you know, any


you're you're very deep in the data. Any other things that are keeping you up right now that you would want people to be aware of? So I think when it comes to watching the data you have to closely track I think job openings um layoff announcements, bankruptcy announcements, store closure announcements. These are the things that are happening on the ground and I am very much anticipating and looking for a turn in a lot of these series. But I think that at this time, the more real time you can be in your monitoring of


the data, the more informed and prepared you're going to be as an investor. Okay. Really good to to talk about that as well. Any any final thoughts that you would leave people with? At a time when many American households are are pulling back, it's definitely uh the onus is upon US households to be very careful in their in their financial planning and make sure that they uh they shepherd their nest egg very carefully and make sure that they've got money for a rainy day. Okay. Well, I think that is a


really good place to leave it. Thank you so much for taking the time to go over all of these different points. I found it really useful and thank you. Thank you for having me today. Of course. And once again, I'm Charlotte Mloud with investingnews.com and this is Danielle D. Martino Booth with Qi Research. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts, so leave us a comment below. [Music]