Dave & Danielle: Video Haymaker

In The Ring - November 11th, 2022

"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." -William Feather

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As I wrote in Making Hay Monday, my first interview with the rising financial media star Danielle DiMartino Booth went missing.  We’ll never know for sure if it was my fault (a reasonable assumption) or that of Google Meet.  Naturally, I’m going with the latter.

This time, we used Zoom, and it went smoothly, though I will admit doing this on the road, as I did last week, was a bit challenging on my end.  All in all, the finished product turned out more than acceptable, largely due to Danielle’s smarts, charisma and verbal panache. 

It was a wide-ranging discussion with a lot of focus on our once-hallowed, now beleaguered, central bank.  This befits a person who once worked directly with former Dallas Fed president Richard Fisher (whose name comes up in our chat).  Several years ago, I had a semi-private dinner with Mr. Fisher and when I asked him about Danielle, already a friend at that point, he spoke of her in glowing terms.  If you’ve never watched her before, you’ll soon see why. 

As you’ll hear, both of us have been taking note of Jay Powell’s personality shift into a grumpy and tough-talking Fed chairman.  This is as opposed to the smooth and market-massaging Fed-head he was until a few months ago.  One could say we are now seeing Jay Powell “unplugged” and that new persona has sucked a lot of energy out of the financial markets.

Yesterday, of course, it was back to the euphoric — I would say maniacal — days of last year for stocks.  The softish inflation number reported was the liftoff catalyst and it was one heck of a booster rocket.  Both Danielle and I believe we are going to see the CPI decelerating.  In fact, in our “Lost in Cyberspace” podcast, she pointed out that the last few months have been running at an annualized rate of around 2%. 

Yesterday’s massive rally is yet another sneak preview of what will happen once the Fed really does pause and, more importantly, begins to ease.  However, she thinks that’s not likely to happen anytime soon.  Frankly, in my view (not necessarily hers), market frenzies like yesterday are going to make Jay Powell want to bring out his verbal equivalent of a .357 Magnum and take aim at overzealous animal spirits.  As our mutual friend David Rosenberg has repeatedly written, bear markets don’t typically end until the Fed is most of the way through an easing cycle, per previous Haymaker commentary.  My apologies for the redundancy but it’s a crucial point that “peak inflation” revelers are missing right now. 

You’ll also want to listen to her views on the Eurodollar market, as well as on America’s unemployment rate.  She believes the jobs situation is far weaker than popularly believed, partially due to the obscuring effect of severance packages, that’s an intriguing theory that I haven’t heard from other experts. 

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We also discuss the recent disaster in the UK bond market and how that may — or may not — be coming to America.  She makes an important distinction between how margin calls are met over there vs here.  However, I also read a chilling quote about the U.S. pension system that ended one of her recent weekly missives.  As I bring up, Wall Street’s “cockroach” axiom applies in this case:  There’s never just one. 

We also dive into the vital topic of inverted yield curves and Mr. Powell’s “moving goal posts” when it comes to the current inversion (short rates higher than long ones).  He seems to be conveniently focusing on whichever part of the curve allows him to keep tightening — and if that doesn’t do the trick, he ignores it!

When it comes to another important topic — corporate profits — we are once again in harmony.  We both believe analysts’ estimates for next year are in La-La land. 

Lastly, around the 58-minute mark (see the timestamps below), I ask a few questions relayed by some of you. She provides thoughtful answers to all of them.

Hopefully, you’ll find this a lively and informative podcast.  If not, it was my fault and definitely not Danielle’s.

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To learn more about Evergreen Gavekal, where the Haymaker himself serves as Co-CIO, click below.

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Timestamps:

Introduction & Rainbow Anecdotes: 0:00 - 5:01

Congratulations & Volcker 2.0: 5:02 - 7:17

The “Starkness” of Powell’s Options (Plus, Used Car Prices): 7:18 - 11:06

Severance Packages: 11:07 - 13:11

Powell’s Pain Point: 13:12 - 15:44

Too Much Outstanding Debt (The Haymaker’s Big Fear): 15:45 - 17:48

UK Pension System (LDIs): 17:49 - 18:38

Babylon Bee: 18:39 - 19:44

“Dirty Harry” Powell: 19:45 - 22:30

Falling Housing Prices (and Global Concerns): 22:31 - 27:45

“Magical Thinking” + Commercial Real Estate (WFH Impact): 27:46 - 30:23

Revisiting Jobs, Challenger Survey (and Quill Plug): 30:24 - 31:57

Charles Payne and Powell Unscripted: 31:58 - 34:12

Stock Market Rising, Valuations High: 34:13 - 35:23

Chris Low, 6% Fed Funds Rate, Pandemic Ploy: 35:24 - 37:09

Pat Toomey, Stimulus Law: 37:10 - 38:56

Meltdowns and the Cockroach Theory: 38:57 - 39:48

Public Pension Risks: 39:49 - 42:14

Yield Curve (and Moving Goalposts): 42:15 - 45:10

2023 Earnings Estimates, “Sheer Garbage”: 45:11 - 47:11

Analogy: 1937 Bear Market Recession (and Earnings Illusions): 47:12 - 51:22

(Bond) Buybacks: 51:23 - 52:14

Quantitative Tightening: 52:15 - 55:39

“The Fed Whisperer”: 55:40 - 58:27

Reader Questions (EuroDollar, Subprime Car Market, Treasury Market, U.S. Dollar, Emerging Markets, Interest Rates, Politicized Fed): 58:28 - 1:20:31

Quill Intelligence + Thanks: 1:20:32

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