U.S. Recession To Be Revealed By January 2025 “Data Bomb” | Danielle DiMartino Booth
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Let's close the door. I'm very pleased to be joined once again on Monetary Matters, Daniel DiMartino Booth, CEO and Chief Strategist of QI Research. Daniel, it's great to see you. What did you make of the Federal Reserve meeting that occurred yesterday?

Well, you know, I continue to relate Powell to whether he's Dirty Harry Powell or Mr. Nice Guy. Yesterday was definitely Dirty Harry. And I don't know if he's trying to kind of secure his legacy and make sure that nobody ever accuses him of being the second coming of Arthur Burns again. But he opened the door to

110% of optionality yesterday. Yeah. What do you mean 110% of optionality? Anything can happen. And to me, what he conveyed is we are going to operate under the presumption that let's just say that there's twice as much goods inflation generated as there was in 2018, 2019 in that episode.

if that's going to be the case. And I'm just throwing numbers like spaghetti up against the wall. If that's going to be the case, then we're prepared. We're prepared to be much more reticent. We're prepared to be a much more slow-going, easing institution. And Danielle, what data that came out after the September 18th meeting with the Federal Reserve did its first 50 basis point cut?

What data do you think made the Fed Reserve get more hawkish and less inclined to cut interest rates in 2025? The Federal Reserve indicated on its dot plot it's only going to do two, or it plans on doing two, or that's its median projection of two. So going from 4.2 on the low end to 3.75 on the, again, that's on the low end. What pieces of data? Let's see, I guess the unemployment rate went down. We had

two jobs reports. The most recent one was quote unquote rosy in terms of nonfarm payrolls. The previous one was definitely a dire, I believe 12,000 jobs, definitely a recessionary level of job additions. Even with those initial revisions, it was still a negative print for private nonfarm payrolls in October. And there wasn't some

gigantic, huge rebound, at least in the private sector in November. I mean, it could have been one inflation report that said, you know, inflation is going to be a little bit above your target. But I guess that was

What got me, Jack, is that there was no smoking gun. There was no smoking gun that suggested a reacceleration of inflation. If anything, it just suggested that it was going to take a little bit longer to bring back down to target, but nothing radical enough to say we're going to cut our planned path in half.

Maybe it was the unemployment rate, because I think the unemployment rate ticked up for July and that data was released in August, I think. And the SOM rule had been triggered. And maybe that was what caused the Federal Reserve to do its 50 basis point cut, as well as discuss cutting even earlier than September. And I think the employment rate has gone down from 4.4% to 4.2%. I don't have the exact number of basis points in front of me. Yeah, 0.3%.

And at 4.3% in a very low fashion, as opposed to 4.246%, which was, I think somebody actually did the math down to the position. It was 7,155 jobs away from being the high post-cyclical print of 4.3%.

So it was he really was if you want to say that the unemployment rate is off of its post COVID 4.3% high because it never has gotten one full percentage point off of 3.4%. But if you want to split hairs, so be it because it rounded down from 4.426 to 4.2. But the Fed actually lowered its year end target to 4.2.

two percent meaning jack they expect for the unemployment rate to tick down when december is reported because you're only 0.007 percent from it ticking up to 4.3 percent which would be above their year-end target now that they've lowered it to 4.2 percent i know i sound like i'm really splitting hairs but we are talking about

a median projection that suggests that between the months of November and December, the job market strengthened. I remember, Danielle, in our interview, our second interview on Monetary Matters of September 19th, right after the Federal Reserve released its September dot plot, the unemployment rate had been projected for 4.4 at the end of 2024. And

4.4% for the end of 2025. I believe I was the one who made the comment that to me, that seems low because we were reporting at a time it went from 3.8% to 4.3% in a few months. But the unemployment rate has gone down. So in September, it went from 4.3% to 4.1%, 4.1%, and then 4.2%. But again, there is the second decimal point there. What do you think has led to the unemployment rate going down? And yeah, also tell us,

you in much more precise language, how much has the unemployment rate going down? I mean, it really is ridiculous that people talk about 4.1, 4.2 and not the actual, the 10th digit instead of the extra digit. And it does. And it makes me feel like an idiot to have to go there. But when you're talking about the unemployment rate at 4.246%, Jack, and what we know is that it did tick down, that there was a lull in September layoffs that were announced.

and that that manifested in the data for the September unemployment rate. By the same token, my buddies at MacroEdge suggest that December is never a big layoff month. It's a very bad optic if you're any employer to say, happy holidays, by the way, you're fired. So we always see kind of a seasonal lull in December. That's to be expected. And my friends at MacroEdge say that they think December's

announcements are going to be somewhere in the 40, 45,000 range before popping right back up to 110,000 in January. January is typically your biggest month for big bankruptcy announcements. You know, we've been told that Big Lots and Party City and Container Store are three big, big, big ones that are in the pipeline to be announced, quote unquote, in the next few weeks.

So I'm not quite sure how the optics are going to look, but by the time we get to January the 29th, which also happens to be the day the Bureau of Labor Statistics releases its estimates of the death portion of the birth death model on the day the Fed next releases its statement. We were talking at dinner last night about the fact that I'm sure that there were some staffers from the Philadelphia Federal Reserve who were a little surprised

at projecting such strength going forward for the labor market, given the Philadelphia Fed had run through the quarterly survey of employment and wages and determined that in the second quarter of 2024, payrolls had declined by 0.1%. In other words, job losses had begun in either April, May, or June of 2024,

Your typical academic PhD knows their history and understands that typically when job losses have begun and the revisions with using real-time data as opposed to very poor, poorly responded survey data, we know that job losses now began in the second quarter of 2024. And the Fed would have presented that information to Jay Powell and everybody around that table.

And you're talking about net job losses because people are always getting hired. People are always leaving jobs. But in terms of the net number, you're saying since Q2 2024, the U.S. economy has shed jobs, not added them on a net basis. On a net basis, that is correct. Just based on again and just to explain what the quarterly census of employment and wages is, you get about something north of 12 million U.S. employers are obligated by law on a quarterly basis to report to the census their headcount.

And if there's been one phenomenon that the Financial Times, the Wall Street Journal, Bloomberg, they've all been reporting very well on this phenomenon. It's the stealth layoff. And that is companies who would rather not have the bad optics of a layoff announcement. So they're shoving their employees out the door by way of attrition.

and making it, giving them performance improvement plans and making it almost impossible for them to complete their jobs. And that's why if you don't see a layoff announced and yet you see a sizable decline when you've got to report your headcount, that means that you got rid of people by attrition and presumably avoided those great big severance costs. About a year ago, I won't happen to name the name of the CEO or the bank, but there was a big bank CEO being interviewed on Bloomberg and he basically said the same thing. He said, we are not laying people off, but we are

not hiring and just through attrition, our workforce will decline. That is the effect of what he said. And that does match the data, Danielle, I believe in the Joltz data where the firing rate, the separation rate has not skyrocketed, but the hiring rate has gone down. So fewer people are being added to the team.

And if you do lose your job, based on what we saw from the nonfarm payroll data, and this is also, again, something that would, this is a subject that would have been raised by whether it was Federal Reserve Board staffer or somebody from one of the 12 district banks, the fact that the median duration of employment has increased to 10.5 weeks, while we see continuing jobless claims remain at very stubbornly high levels, Jack,

But time you got to 10.5 weeks, median duration of being unemployed in the Great Recession, that didn't hit that level until October of 2008.

the month after Lehman fell. So we were already, the recession started in December of 2007, by the time it was backdated, we were already 11 months into recession by the time median duration of unemployment got to the level that it was reported as being in November of 2024.

And Daniel, tell us initial claims. I'm looking at them now, 220,000. I think that is higher than in 2022, maybe a little bit, but like pretty much maybe even lower than average. So you said initial claims are high?

Continuing claims.

We've heard all year long. I was kind of astounded to do the math and look at the data and see that at the end of 2021, the data showed that there were 5 million gig workers in the United States total. And as of the third quarter of 2024, just Uber alone employs 7 million drivers.

So we've seen this massive shock absorber for the economy because people are saying, you know, I get 26 weeks of about $300 a week in most states. In states like Tennessee, North Carolina, Florida, you get up to a maximum of 12 weeks of unemployment benefits. Again, that $300 a week level.

And so we've seen the gig economy absorb millions upon millions of workers who are very logically doing the math and saying, I can make three times what my state will pay me to become a Lyft, DoorDash, Uber driver. And so the gig economy has absorbed a lot of would-be initial jobless claimants. They're not living on $300 a week. And they're rightly, you know, I can't tell you how many

Uber and Lyft drivers I've had in 2024 that are brand new to the job. So the continued claims, it has gone up. It's at 1.874 million, but it is still lower than most of after 2009, just because the labor scarring was so high, I guess. It was higher than 2009 to 2018. So it's rising, but it's still somewhat low.

It is still somewhat low. And one of the reasons behind that is because we have what's called an exhaustion rate that is also at recessionary readings. And what that tells you and what the states are telling the federal entities on an individual basis is that until the unemployment rate itself is at a high enough threshold, extended unemployment benefits at the state level do not kick in.

And that's why we're seeing so many Americans exhaust, exhaust their continuing jobless claimants and fall completely out of the social safety net and into presumably the welfare system. Or what we've also seen is kind of an explosion in multigenerational household formation, whether it's adult children moving in with their parents or

The flip side of that is we've seen a real increase in 2023 and 2024 of adults moving in with their children because the cost of long-term care nursing home care is as high as it is. I'm not denying what's in the claimant data. I'm just trying to explain to you that the number would be higher if we were already in a period of extended unemployment benefits that oftentimes doubles that 26 weeks.

where you can then continue to collect unemployment benefits from the state. I would say the only state that's probably

Nearing that threshold is probably California where things continue to get worse. Daniel, I think very few people would disagree with the statement that the labor market is softening. Powell has used that phrase pretty much exactly. The Fed would disagree with that. They lowered their unemployment rate target for the end of 2024. So actions speak louder than words as far as I'm concerned. According to the dot plot, they believe that the labor market is strengthening.

I think that's because they've kind of been burned because they had forecasted a unemployment because the unemployment rate has been, has been going down. But yeah, I mean,

Again, in September, I said that 4.4 sounded low for a 2025 projection. And here we are at 4.2. But Powell himself said that even if with the current amount of hiring, and I guess the current amount of people going into the labor force, which is impacted by immigration, I hop up an issue, which I generally try and avoid, but I think I really can't at this point because it matters. Basically, the unemployment rate is going to go up

10 points every two months or five basis points every month, which is 60 basis points a year. So if current trends are going in place, that would be an unemployment rate of 4.8, 4.9%, not 4.4%. So there is a

a different view there, although that could be just Powell's own view is five basis points increase in unemployment rate per month. Perhaps it's a staffer report that he happened to agree with, and that's why he said it. Whereas the dot plots and the summary of economic projections for the unemployment rate is everyone on the FOMC committee.

Well, and you know, look, I would add that when the Bureau of Labor Statistics releases its quarterly census of employment and wages, the initial release is on a county by county basis. And it is

It is a beat down to aggregate those numbers. What we knew from the initial release that the broad number was a negative 1.2 million jobs that had not been created on a net basis that had we we have been presuming had been created. The second time they do the release, which was just a few weeks ago, they release sector by sector by sector basis. The reason I bring this up is because you raise the issue of immigration.

And what we saw in the second print was as of the second quarter of 2024, one of the big macroeconomic conundrums of 2024 was the fact that we hadn't seen construction job losses kick in yet. Well, once we got that revised data, we found out that on a net basis that construction workers had indeed started to lose their jobs

by the time June rolled around of 2024. And that would explain why your not born in the United States unemployment rate is as high as it is. And that's because a lot of these construction jobs are going away. We got fresh data out on single family housing permits. They were up 0.1%.

which means that because home builders are sitting on the highest level of completed spec homes since 2010, their plans going into 2025 really have been cut back. If they're anticipating permits are only going to rise by 0.1% going forward. And that means that with so many of the gig projects,

data center type of construction completed with what we know incoming President-elect Trump is telling us about slashing and burning to the ground what's left of the infrastructure spending and chip spill. We know that there's not a very big caboose in terms of federal spending to support going forward construction at the margin, a sector where we've now finally seen job losses begin to kick in as of the second quarter of 2024.

That's been the last holdout, Jack, outside of state and local government job creation and health care job creation. And we just had the first state come out of the gate a few days ago, the state of Washington, and say, we've implemented a full hiring freeze and a full wage freeze because all of the COVA era jobs,

state funding that was coming from the federal government has run out. That has been exhausted. So one of the biggest engines of job growth going into 2025, which is state and local government employment, we're going to see that start to dissipate. And that's without even bringing into the discussion the Department of Government Efficiency.

Yes, the healthcare sector employs 18 million people, whereas the residential construction employs 950,000 people. So do you think that there could be a decline in the amount of employee and residential building construction, but that is more than offset by just the massive moves in healthcare? That appears to be a secular trend that doesn't really care about the economy. I mean, the workers fell off a cliff in March 2020.

But it went up during 2008. It went up during the 2001-2002 recession. It went up during the 1990 recession. It's going up now. It does not care about interest rates. It just seems to be something that is unstoppable.

It is a, it's what we call a recession-proof industry and it's surely a more recession-proof industry as you know your oldest baby boomer is now was born in 1946. They've just turned 78 just like my mother. So as America ages there will be more and more need for healthcare workers. Unfortunately, Jack, they're not the type of healthcare workers that you would want.

And when I say that, I mean, you need more people who are helping individuals with chronic long-term healthcare issues. We discussed it at dinner last night. I'm all over giving Ozempic to everyone because I think on a public level, it would certainly cut down on healthcare spending dramatically to be able to see the follow through in the decline in people with chronic illnesses, which is what we're seeing Ozempic effectively creates.

My biggest issue though is a construction worker makes a heck of a lot more than somebody who's changing bedpans. And a federal government employee, we know for a fact, gets the highest amount of pay for the lowest degree of educational attainment.

And those types of workers we know are also going to be in the crosshairs. So we are in an income driven economy. I will tell you that work that the Dallas Federal Reserve did showed that in the recessions of 1970, 1984. I'm getting my years wrong and 2001. So don't quote me on that. But there were three recessions, one in the 70s, one in the 80s and 2001, where consumption never declined.

Consumption never declined. So what declined? Export investment? It is private fixed investment that has driven every single post-war U.S. recession. When that declines, and of course, we're in the midst of a nasty industrial recession that's telling us the declines are coming. We're liquidating one retailer after another.

all these A and B office properties cannot be converted into multifamily. So we're seeing commercial real estate developers and dealmakers have to trade for the value of the dirt underneath these buildings because there's so much of it. As well as Moody saying, you know what, extend and pretend's over. We've already seen enough double defaults in commercial real estate loan books on banks. We're finished playing this game. We're in the business of downgrades now for these loans.

And so 2025 is going to be a year of reckoning there as well. But the reason that I bring this up, Jack, is because you in an income driven U.S. economy, when you have the Bureau of Economic Analysis come out and say, based on just the downgrade to the downward revision to.

payrolls in the year through June of 2024, instead of the income that was originally reported as being upwards of $150 billion, they took third quarter personal income nationwide and revised it down by $91 billion. And what was left over was $65 billion.

And the reason I bring this up was this is based on just the baton handoff. If we're really down 1.2 million jobs more than we had originally baked into our personal income data, then we know that for the third quarter and it's September 30, 2024, which is of course, you know,

old news at this point. But still, when your revision of $91 billion downward is lower than what you have left over in the end, $65 billion, that's a big deal when 70% of U.S. GDP is U.S. consumption. Consumer spending has continued to grow at over 5%. So that is the one part of the economy that definitely is not in recession, is spending. So Danielle, I think a

A lot of the official data that a lot of people on Wall Street pay attention to that is reported on CBS, NBC is nonfarm payrolls and the unemployment rate. And I think it's fair to say that both of those data sets have been portraying a labor market that is stronger than your work and how you think it suggests. So at what point do you think there will be a converging between those two different realities? And you'll say, aha, I was right.

So I think that you're seeing it in real time on a rolling basis with a massive lag because we're talking about data sets that are released on a quarterly basis, looking back at data that's a year old. But this is exactly why in 2008, we were talking about robust non-farm payroll growth. We were talking about robust GDP figures that were then five quarters later, we learned out that the first quarter of 2008 was actually had a negative sign in front of it.

But that is the duty of the National Bureau of Economic Research, not me. I don't sit on the business cycle dating committee that was established during the Truman administration. It's not my job to date the recession in the United States. It's the job of the National Bureau of Economic Research's business cycle dating committee. But once they have enough data in hand, as they did as they got into 2008, it took them 366 days.

after recession started. They didn't report that recession had started in December 2007 until 366 days later, one day more than a year, Jack. But once they start to see revisions of the magnitude that we're seeing, they should be able to come out and say, this is when recession started in 2024.

And when do you think the NBER will declare a recession? So as you said, the recession actually started in December 2007. I believe NBER did not declare that recession until December 2008. So I think you're right about the year delay. When do you think the NBER will declare a recession?

recession? On January the 29th, as I was saying, we get a tweak to the quarterly census of employment and wages because right now the only thing that we know on a net basis is the number of companies that were born in that given period. The year ended June 30th, 2024. But what we get on January the 29th, the day the FOMC next releases its statement and Powell has a press conference, is the number of deaths that occurred.

in companies, business deaths that occurred in the economy through June 30th of 2024. And given the information that we've seen from Bloomberg on bankruptcies, given the information that we've seen from Standard & Poor's on bankruptcies in 2024, we know that for the entire year, they've been running at the fastest pace since 2010.

So that should be reflected in a further downward revision to what we already know, which is negative 1.2 million. These are things that the NBER could have ignored. They could have acknowledged them earlier. But the fact is, we've learned in this political season that even data can be politicized. So to the extent that they used to just wait on average about 250 days to

and they waited 366 days in 2008, tells us that the NBER can pick and choose how long it waits. But if it was to wait longer than 366 days to declare recession, let's say if job losses started, best case scenario based on the Philly Fed's math, let's say that because it was negative 0.1% in the second quarter of 2024, best case scenario, job losses didn't start until June.

So you back that up. And that means that because you know net job losses do not begin until you're already physically in recession, that means that they would backdate it to call it May or April. So what I'm saying is if they wait past May or April, which would shock me, every single one of them was an Obama appointee, is an Obama appointee on the Business Cycle Dating Committee.

But if they wait beyond April or May of 2025, they're going to be placing their reputations at risk, Jack.

And by saying you're a political component, you're saying that they are Obama appointees and are likely Democrats, and therefore they were slow to call a recession during the Biden administration, but will be much more eager to do so under a Trump administration. That's what you're saying, I guess. And it's not necessarily the National Bureau of Economic Research that's going to be kind of got the bullseye target on their back.

But their colleagues at the Department of Labor, their colleagues at the Bureau of Labor Statistics and their colleagues at the Bureau of Economic Analysis, they've already been told by Musk, you are in my sights. I'm looking to slash and burn spending to these statistical agencies that need to learn how to gather data in more real time.

I think if you wanted to learn how to gather data, you probably have to hire more people, not let people go. I mean, it's so hard to gather this data. And Danielle, I'll just say for our audience that if Apple reports a quarter and it says $70 billion of revenue up 9% year over year, that is real and they're counting every dollar. And

almost every time, especially if it's a legitimate company, that will not change. There can be an accounting scandal where they could say, oh, we messed up, but the number is the number. Whereas a lot of this economic data, particularly the non-farm payroll is a model. It's based off over 300 million people in the United States and it's based on models. And I am open to the idea that the non-farm payroll is overstating the strength of the labor market. And by the way, I think a lot of

current and former people at the Federal Reserve are just based off of, you know, conferences I've been to and hearing people speak. But yeah, I would be I would be hesitant to say that, you know, the BLS was keeping the nonfarm payrolls high to help Biden. And now they want to hurt Trump. I think if there is a mistake in overstating, it is just in the wrong, you know, the data is wrong, not not biased. That's my view, though. I'll give you this much. It is modeled.

And the birth death model is modeled based on a backward looking five years. And so in speaking with the Bureau of Labor Statistics in the next few days, I know that on January the 29th, the period against which they gauge births and death is going to roll forward away from a more favorable time. So you're eventually going to be rolling 2019

as a benchmark out of the data and rolling 2024 into 2025 into the birth death seasonal adjustment. So that's coming down the pipeline. You know, Jack, the only issue that I have with the Bureau of Labor Statistics potentially flattering the data is that

If you look at statistical probabilities, if you look at the distributional tails and you say to yourself in July of 2023, the revisions were so immense in government job creation that they offset a negative revision to private non-farm payrolls, which happened to be the case.

But if you consider what's happened with private nonfarm payrolls, Jack, it's almost statistically impossible to have 18 months in a row of negative revisions. It just doesn't happen in the real world. So if they are models and the models are broken, then that needs to be addressed. And if we know from ADP, for example, you know, hey, we can perfectly track private nonfarm payrolls.

Why don't we just outsource it? The private side, and of course the government's going to have its own really good and reliable data on the government side in terms of government employment.

What's to say that there doesn't need to be a radical rethink in terms of how data is collected? ADP already works for the government. So you could just extend out that joint partnership and say, you know what, you take care of real time gathering of payrolls because that's what you already do.

and we're going to combine your data and we'll provide the payroll data on the government, even though I think ADP also services that. My point, Jack, is we don't need to be in a modeled statistical world when the models have clearly broken down such that it's statistically impossible to have had the string of negative revisions that we've had. It just doesn't, at least in what I learned in business school.

Powell yesterday, he was asked, do you think we've avoided a recession? He said, it's pretty clear that so far we have avoided a recession. He even went further when he was asked about, well, why do you have such this low unemployment rate forecast? And he said, quote, most forecasters have been calling for a growth slowdown for a very long time and it keeps not happening. And he is correct that a lot of economists have been calling for a recession for a very long time, going back to 2022. And I said on Twitter that Powell is calling out the recessionistas.

So do you agree with his statement and why not? I don't agree with his statement. When I talked to you in 2023, I was explaining that pumping $1.5 trillion into the hands of wealthy people between the Paycheck Protection Program and the Employee Retention Credit, along with forbearance that ended in the late 2023,

I was saying it would be impossible to go into recession with the government pumping that level of money into the economy. We spend the money that we're given, and Americans spent the money that they were given, but at least I was able to identify what was feeding it. When you hear the Bureau of Economic Analysis downgrade income in the third quarter of 2024 by $91 billion to $65 billion,

Either Powell's not paying attention to the data, or he doesn't believe in the precedents of 2001 and 2008, when it took the statistical agencies five quarters before we actually had a negative sign in front of Q1 of 01 and Q1 of 08 data. If he wants to ignore history, that's fine. If he wants to declare this time is different, even better.

And so, Danielle, the dot plot indicated two interest rate cuts in 2025. What's your outlook? What's the Danielle DiMartino Booth dot plot looking like? I think given what we know of bankruptcies that are in the pipeline and layoffs that are in the pipeline for the month of January, I think that the

Forget about surveys and models. I think that we'll have enough because we have filled up the pool of part-time workers. We currently have more part-time workers for economic reasons and because they've chosen to be part-time workers than we had at the peak, the prior peak in 2010. So because of that, we know that the economy has much less room to absorb people who lose their jobs now.

And that means they're going to be pouring into the claimant data going forward. And we're going to see a continued rise in the unemployment rate going forward. That's how I see it, because that's what the data on the ground are saying right now. And if that's the case, I think that just like the Fed has been backpedaling with every other dot plot, because it is literally a moving target. It's going to be seven. It's going to be four. It's going to be two. It's going to

I think then you're going to have a revisit of the dot plot come March. And so they have backpedaled into cutting a lot and then into not cutting. And then they finally did the 50 basis point. Over the past two months, they've been backpedaling into not doing as many cuts. So do you think that they're going to do more than the bond market's pricing, which is like 1.5 or 1.2 cuts? I think you'll see more. I mean, again, the private sector, Jack,

could completely do a 180. All of the survey data that shows such enthusiasm could come to fruition. The private sector could say on January the 20th, when Trump is sworn in on Inauguration Day, he's our president, we're not firing anymore, we're hiring. And if that's the case, great.

then the private sector is going to take off to the moon, more than offsetting what we know are going to be government job losses. And so if that's going to be what we see in early 2025, I will be the first person to raise my hand and say, even though I believe recession started and we'll be backdated to April of 2024, we're out of it. We've exited recession. Private sector's hiring.

And the economy is the number of people it employs.

So if that's the case, I mean, we haven't seen that. We saw Empire Manufacturing. We saw a burst of enthusiasm in the November survey. It came right back in December. Same thing for Empire Services Survey. A burst of enthusiasm right that accompanied Election Day. A full reversal in December. This morning, we had the Philly Fed come out. The six-month outlook exploded by more than on record in the month of November.

hitting 50 something. It slid right back to 30 something in the December print that just hit the wires a few months ago. There's going to have to be follow through from not just optimism, but optimism turning into net hiring in the private sector. And if that's the case, Jack, I'll come back on Monetary Matters and say we have exited recession.

Yeah, I mean, that really would be something if the private sector started hiring a bunch of people, not because of any

from President Donald Trump, but just because they love Trump. And earlier, Danielle, I was quite defensive of saying the data isn't influenced by politics. I think that for hard data or data that is not sentiment-based, but I think definitely for sentiment-based indicators, I think you do have to be careful. I'll give two examples. The first one, you mentioned an example

interview economists, and you said it just collapsed. Perhaps those economists are Democrats, and they weren't all too happy of the election over a month ago. The other side is the small business survey was tanking up three months ago, and now it suddenly has surged. And I think perhaps that is because a lot of small business owners are Republican, and they are excited about the future of the country. So maybe

The economy wasn't so bad six months ago as the NFIB survey was, was a small business survey was indicating. And it's not that good now. It's just people's politics are influencing these survey based things. And maybe we should stop, you know, we should, we should underweight these survey based measures.

And that's the only thing that I do to keep my sanity in check, Jack. I follow Macro Edge because Macro Edge only follows layoffs that are announced. A company has announced X number of people are going to be fired, period, and to me, that is not a survey. That is a data point. I follow dailyjobcuts.com. They track companies. They track big, small, medium companies that are closing.

And right now they're running about a 10 per day run rate, which is about the fastest that they've seen. And it has been that way for months and months and months of small businesses, medium sized businesses and large businesses closing.

When this stops, Jack, when the actual closures stop, when people stop losing their jobs, when I stop seeing epic bankruptcy data at the beginning of the month say, oh boy, six months ago, it was just a consumer, excuse me, six months ago, it was just a company bankruptcy cycle that we'd seen pick itself up off the ground. Now we're seeing follow through with household bankruptcies,

rising and they look to be hitting the 2019 levels in 2025. And that does not even begin to factor in what you've got 42 million Americans with student loan debt. According to national figures, about 50% of them are not paying on those student loans for the first time since March of 2020. In January of 2025, their non-payment is going to be reflected in their credit report.

It can be the first time it's even reported. So are they going to turn to buy now, pay later? Or are they going to go to bankruptcy to get rid of all the mortgage debt and the auto loan debt and the credit loan debt that they took on after March 2020 when their student loans were put on pause and they went about their business for the next four years, assuming that they would never have to pay them again.

Daniel, what have you made of just the miraculous move higher in the stock market? I believe it was you at QI Research who made a note much earlier this year saying the S&P could go to as high as 6,000. I don't think it's based on economic reality or fundamentals. That's not my economic view at all.

It's basically a bubble. I don't know if you used the B word or not, but why did you make that call? And yeah, are you surprised that we went as high as S&P 6,000, which seems- No, not at all. Look, this is the way markets operate. It's always how they've operated. The Federal Reserve continues to say we see happy skies in front of us, even though I will say that Powell said that he could personally never own Bitcoin, da-da.

But when you are at this stage of cycles, there shouldn't be any logic. You shouldn't be surprised that you've had more decliners than advancers for a record number of days going back 100 years because you should not have more advancers than decliners when the concentration of stock market performance is in a handful of names to the greatest degree since

1929 was the last time we had market concentration the way we have it. But when you get concentration in terms of where you're seeing the outperformance, when passive investment continues to be the main driver of the market structure, and that is a function in and of itself of price agnostic buying, feeding price agnostic buying. And when you have

the incoming administration saying they're going to set up a bitcoin strategic reserve

where else are you going to go but you're going to pile into those seven names in the stock market you're going to pile into bitcoin because you're you're being told you're not alone you're going to be joined by the damn federal government so why wouldn't you why wouldn't you jump on that gravy train of a few names that keep going despite the fact that underlying it with more decliners than advancers the rest of the companies are telling you what's happening with the real economy

Yes, it is true that I think breath is actually weak. People have been saying breath is weak for over a year now. And I don't think it has actually been true, but I mean, from like the beginning of December until a few days ago, I, it was on a 10 day basis. Um,

The amount of S&P companies that had a negative return over those 10 days was over 400, I think 414 of the S&P 500. So it is getting increasingly narrow. And yesterday we actually had the, Danielle, so yesterday, the day of the Fed meeting, we had the biggest sell-off in the S&P 2.95 or 2.98% in over two years, total panic. It was bedlam. But this, uh,

I mean, Daniel, you and I, you know, you kindly invite me to these dinners at the Federal Reserve. And I was, people are not talking, the chatter is not as if we had the biggest sell-off in two days, in two years, but it is. And the Bloomberg headline was as if the headline, as if the sell-off was, you know, half that. And of course, you know, we're recording the morning of December 19th and it's going up. We'll actually release this today to make sure it's as up to date for our viewers here today. But yeah, it does seem the market is breathing some rarefied air.

Well, I mean, it is. It's breathing rarefied air. And, you know, I brought up the structure of passive investing and the gigantic engine that it's proven to be for the biggest names, for price agnostic. The only thing passive tells you is $1 into one ETF means buy. It doesn't tell you buy at what price. It just means buy, whatever the price is.

But yesterday we crossed a tiny little Rubicon. We went from people in money market funds, which remains at a record, right? $7 trillion in money market funds. So these folks went from getting at the beginning of the year, 5.5% to sit back in the bleachers, drinking their beer, eating their popcorn, making 5.5% on their cash. Now they're making 4.5% on their cash.

I always remind people that 40% of the stock market is owned by individuals in the United States over the age of 70. These people are not working.

and they're not planning on going back to work. And the Fed has just sliced one percentage point off of the interest income that they've been spending 70 cents on the dollar of this interest income, because that's how interest income specifically works. And I sound like I'm beating a dead horse, but that's how it's treated. It's treated as cash coming in the door,

I'm not touching my corpus. I'm not touching my principal, not touching my nest egg of savings. I'm going to spend 70 cents of that. Now, if I'm making an extra dollar of wealth, paper wealth in my IRA account or in my 401k account from when I was in the workforce, I'm going to spend two cents of every one of those dollars. So the wealth effect works differently than the effect of interest income in terms of its transmission mechanism into consumption.

So you're spending 70 cents on the dollar when you're clipping five and a half percent coupons, you're taking a cruise around the world and you're taking the grandkids with you. If that interest income starts to fall, however, and you start to say, wait a minute, I'm not going back into the workforce, but I'm one of the 40% of Americans who controls the stock market.

Ask yourself, Jack, what happens if at the end of 2025, the interest income grandma and grandpa have been collecting goes just to where the Fed suggests it will. So you've gone from five and a half percent interest income to four, 12 months from now. Are you going to continue to sit on all of your stock holdings and expect to retire in the same fashion you were when you were clipping five and a half percent interest income?

And Danielle, so you're saying, and it makes sense that the multiplier effect of interest income of when people get cash from owning very risk-free instruments such as treasury bills is way higher. The wealth effect, people spend that way higher than if the stock market goes up. I'm sorry, did you give a number of the ratio of how much more impactful it is? Oh, gosh, yes. No, I mean, this is academic science.

papers back to the dawn of mankind, whether you've got a second home or your primary home has gained in value or your IRA, your stock market portfolio has gained in value. Going back through history, you tend to spend two cents of every incremental of dollar that you get off of overperformance as for every dollar that you gain in your portfolio, whether it's capital appreciation, capital appreciation, you spend two cents of every one of those dollars.

Interest income, you spend 70, seven, zero. - 2% to 70. Because I was going to say, there is a difference, you know, someone with cash earning 5% versus someone in stocks who'd earned like 28%. - That's what I tell my mom and her friends and everybody in their cohort who are in their 70s. I'm like, you know, they're like, "Should I be selling my stocks? Oh my gosh, my interest income is going down. I don't know what to do." You know, my stock answer is always, "Does it pay a dividend?"

Is it a good company? Are you certain that the company is going to continue to pay the dividend such that you look sprightly? You just came back from your power walk, sweetheart. You're going to live to be 85 years old, right out the ups and downs in the stock price, as long as you're pretty darn certain that that dividend income is going to continue to be thrown off of that particular stock that you own.

Granny, if you own Nvidia, good luck. I mean, inappropriate is what I'm saying. Not that AI is not the next coming of Jesus Christ himself. We don't even need to wait for Christmas. Not that he's coming on Christmas. That would be revelations and the world will be ending, Jack. And we wouldn't ever be able to have another debrief dinner and that would be bad. It wouldn't matter. Yeah.

But in terms of the advice that I give to people who do not plan on reentering the workforce to make up what they lose, as long as the dividend that their stock is throwing off is money good. I think the CEO of Chevron Corporation said recently on Bloomberg TV that it'd been 70 years since they'd cut their dividend. Fine. And why sell your Chevron stock? Just clip the coupon and you can sleep at night.

Daniel, what do you think about the fact that the stock market's gone so much up? You referenced passive inflows. I think that's every two weeks people get paid, they allocate money to the 401k. Would those inflows suggest that actually the labor market isn't weak because there's a lot of inflows?

Well, not necessarily, Jack. And that's why if you look at the work that Mike Green has done starting in January of 2020, excuse me, January of 2024, he's got a great chart that shows you that the largest index fund in the country, this is I think the Vanguard Total Stock Index Fund. It looks like somebody was on the table and died because it's been completely flat. And actually in January and February of 2024,

Jack, there were net redemptions from that fund, which had never been seen in the history of mankind because there was a confluence of events. You have white collar people getting laid off left and right. Even if you're collecting severance, you still cannot contribute to your 401k. Talk to any college graduate. Good luck getting a really good paying job with that 401k. And at the same time, you had a burst of Americans retire en masse at the end of 2023.

So we could see a repeat of that phenomenon to the extent that I'm sitting on the cusp of retiring and 2024, I'm even wealthier than I was in 2023. So I'm going to ditch my stocks and retire at the same time.

you know, graduates of the class of 2025 are not telling me that they're all getting good paying jobs at graduation. In fact, check any major news outlet and they'll tell you that about the plight of the class of 2025 graduating in May. So as long as you do not have net additions to individuals taking on new target date 401k funds that are pushing new fresh

inflows into these and you still have white collar layoffs, whether it's by attrition or anything else, in addition to individuals retiring, you have to have a net addition of people contributing. If you don't, then you see this Vanguard fund look like a flat line for 2024.

I could be wrong about this, but I believe I asked Mike about that. I think he said that the index that had to stop the inflows in January 2024 was a total world index. So I think the inflows into the S&P 500 or US only have still continued. I'm saying small caps were the offset and technology specific ETFs were the offsets. But it was the Vanguard total index fund that was US stocks. So not the Acqui world? No.

No, not what Mike showed me, but he did show that people had gone into your equivalent of your QQQ index or your small index and that they were rotating in. But again, I think the phenomenon was as pronounced as it was because there was also a reflection of demographics because we know from the Census Bureau that there was a great big burst of retirees at the end of 2023.

Danielle, so I'm not a strategist, I'm a podcaster, but I feel like if I shared your pessimistic outlook on the US economy and labor market, I might be ready, and I wanted to make a bold call, I might be ready to make the bold call that Fed funds could go 1.5%, it's currently at 4.25%, 4.5%, and that the 10-year, which is now at 4.5%, could go to 3%. Are you ready to make that bold call on fixed income?

I do think that there's downside to the 10 year from here. I don't know that it's going to go to 3%. It might go to 3.5%, but I do see downside. I don't think that you escape this momentum in the revisions. And that's exactly what it is. We have downward momentum in revisions that are being released with a big lag. And I don't foresee, there's a ton of mergers and acquisitions going on right now.

Those synergies are going to be realized when these deals are closed and you're going to see massive layoffs attached to realizing those synergies. When you don't need two headquarters anymore, you just need one. So I don't necessarily see a cessation. I think that we did get a shot across the bow with how violently markets reacted to what the Federal Reserve did.

So would I be a buyer of the stock market right now? Jack, no. Am I selling my personal dividend paying stocks? No, I'm not selling them either. But I'm also still in gold and I'm also still in cash. And I like to think that I have dry powder reserved to buy into some of these for sure 100% locked. I remember when General Electric stock went down to like four. GE is still paying its dividend, Jack.

this is like 2009 but there are always amazing opportunities to get into dividend paying stocks when you start to see these passive flows potentially shift amidst demographics continuing to catch up with you as these baby boomers increasingly and i think that's the word you have to use there's an adverb missing there baby boomers are increasingly aging out jack and the one thing that i did i will take my hat off to saying surprise mike green

in pointing out was the last time there was a correction in the stock market, the individuals who are 70 and own 40% of the stock market, they were 60 and owned 40% of the stock market. And in 2001, they were 55. So those baby boomers as they age out have less physical optionality to jump back into the stock market because they're going to go work for 10 more years.

And that is, to me, going to be the crucial test of the Fed put, of Fed policy. If there's one reason I think that Powell would like to slow down

The decline in the Fed funds rate is because I don't think on his watch, at least he wants for the Fed put to be tested. And there's no surefire way to test the Fed put then theoretically to take the Fed funds rate down to one and a half percent. If if you're not making any money on your savings and you cannot go back into the workforce, you're liquidating your stock market portfolio. Jack, you're not selling a small portion of it. You're liquidating it.

You could argue it both ways. You could say when cash yields are very low, you're not having enough interest income, so you're selling your stock. That's your argument. The other argument is there is no alternative when interest rates are zero. And that's why with Fed raised from zero to 5.5 in 2022 and 2023, it was seen as a bearish thing to do because everyone's going to put into cash. So it works both ways. I agree with you, but do you agree with me on the demographics, though? Because I'm going to give you a pushback.

Because in '07, you could go back to work. And in 2001, you could go back to work. I appreciate your pushback to my pushback. And I think it makes for a good conversation. I see what you're saying. Yeah, I do see. I do agree. Danielle, so what was I going to say? Oh, yeah. So you mentioned your personal portfolio. I don't say this enough, but it just so matters. On this show, almost all the time, guests and rarely myself talk about where markets are going. But all

often a much more important thing is the person who is investing time horizon. So for example, even if the market's ridiculously overvalued, a 20-year-old should probably have 100% in stocks. Even if the market is ridiculously cheap and there's huge abundant opportunities, an 85-year-old should probably own less than 100% in stocks and probably a lot less. So on the 10-year, are you willing to give a level or a threshold you think it's going to over the next year? Nope. Fool's game. I will say this much though.

And this is where a lot of the trading goes on or where a lot of the investing ideas come about in my Bloomberg chat room, though. I do think that the curves are going to continue to steepen. So the short end will go down more than the long end? And I think that volatility is going to continue to be a place to be in 2025. People were saying, you know, after the market stepped back a bit, oh, we're going to go back down to the VIX sitting at 12 and staying there and staying in a coma. I don't think that's the case, Jack.

The move yesterday was a kind of 3% annualized volatility. That's 48%. Now, that's not going to happen every time. But the VIX, you know, was at 13 yesterday. Yeah. So I'll even jump into politics for a minute here. You know, to the extent that Trump is going to give pushback to Scott Besson's potentially and say, I don't want to slow walk these tariffs. I want them yesterday.

I want to slap 60% tariffs on China yesterday. I want to slap 25% tariffs on Canada and make sure that its recession never ends and just kick the country when it's down and in the middle of a balance sheet recession driven off of households and their immense exposure to the real estate market that they never had to really...

suffer the consequences of in 2009, 2010, as American households did. I want to slap 25% tariffs on Mexico and make sure that the industrial recession here in the United States becomes an industrial depression because I'm going to put the big three out of business because they bring in all of their auto parts. 74% of some odd auto parts for United States finished cars are made in Mexico. So if crazy stuff happens, and I'm only talking about volatility,

If it's going to be ups and downs from inside the beltway, then I think the market's going to continue to be very, very nervous. Danielle, it's been great having you on. If you could include your thoughts, how would you summarize your view of 2025? Would it be 2025, year of the recession, starting on January 29th is when it will play out because that's the BLS adjustment date?

So I do think that in 2025, we will get the announcement from the National Bureau of Economic Research that recession did start along with job losses sometime in the second quarter of 2024, based on if it passed as precedent, based on what they've done in the past. But by the same token, Jack, I hope to be the first person to be saying, OK, a year from now, we're going to be hearing that the NBER is going to declare that the recession ended, let's call it by June of 2025.

And let's get prepared to be the first ones in to buy. Because recessions don't tend to last 18 months like they did from December of 2007 to June 2009. Your average recession post-war is only 11 months long, Jack. So do you think there's a chance that the recession that you think started in April of 2004, I believe, is already over? I don't think it's already over. That would make it a really short and shallow recession, one of the shortest in U.S. history.

Because outside of the COVID recession, that's when, hey, the government turned the lights off, then the government turned the lights back on. That was two months. Outside of that, the shortest recession that we had was a six-month recession in 1980. But guess what? That short recession ended up being a double-dip recession, but we came right back out of recession because people were so hopeful in an individual by the name of Ronald Reagan.

Do you think that really has a lot to do? Policies definitely matter, but does I like who is president and therefore I'm going to spend money and hire people? No, not until the household balance sheets are cleaned up. And we know that if you use buy now, pay later, that you tend to be in three and a half times worse financial shape than if you just use credit cards. We know that buy now, pay later, people are going to be spending 14% more over the holiday season because they don't have credit to tap.

So credit card charge off rates, the extending and pretending that we're seeing on bank balance sheets, charge offs for credit cards, auto loans, personal loans and commercial real estate extend and pretend ends in 2025. So I see this as being a recession that is going to last at least that 11 months post war average. And I think it'd be fabulous to be coming out of it by this summer.

I do look at bank balance sheets. And I think the one area, which is a big number, that does align with the recessionary view that the economy is headed to or already in a recession is credit card delinquencies are going up. That's because people have been using so much credit and spending so much money. I think in terms of commercial real estate and auto loans and the other things, I mean, I think extent of pretend is

maybe is accurate, but the flip side of extend and pretend is that the stated delinquencies are very low. So commercial real estate, and Danielle, everyone was so bearish on commercial real estate. It wasn't just you and other people, like people who worked at trillion dollar insurance firms who were investing in commercial real estate to me said that, I mean, I had one real estate investor who said that he was like being on the ship of the Titanic in November, 2023. And I think relative to those pessimistic expectations, I would say that I think real estate has outperformed.

A, you should have a guy by the name of Bill Moreland. Oh, he's great. Okay. So have him on and he will succinctly walk you through the math of reported auto charge-offs, reported credit card charge-offs, and reported bad CRE loans being, give or take, double what they are because banks are reclassifying them on another spot on their balance sheets. But to the point of your guest in November 2023, who used the metaphor of the Titanic as,

The US regulators are the ones who are at fault here, Jack.

It's not that your guest didn't know what he was talking about, but when you have Moody's credit rating agency come out and speak to the Financial Times and say, you know, we've had regulators basically forcing us to not downgrade these commercial real estate loans, but now we're seeing them. We're seeing the same loans that they asked us not to downgrade default again.

we're seeing double defaults, meaning, and this is why the FDIC put a warning out a few days ago, the extend and pretend error for commercial real estate is ending. And that's what you get when you have the same loan default twice. And for Moody's to be able to say, you know, you trumped us in front of Congress in 2010, 2011, and slapped our wrist, and rightly so, because we didn't downgrade subprime mortgages. But for the credit rating agency to come out and say,

We've got one hand tied behind our back because the regulators don't want us to downgrade these commercial real estate loans, even though we should, or downgrade this bank, even though we should.

Jack, we're in crazy times. But what we're learning now that these loans are defaulting twice is you don't get a third time at the till. There's no more extending and pretending. And that's why we're seeing buildings trading for 67% discounts, 72% discounts. TREP reports on it every month. Your delinquency rate in offices is already north of 10%. And they fully expect for that to take out the prior 12 and change high.

Going back to 2023, there's some phrase, I forget the exact word, but where basically they're not paying on the loan. And for CMBS, it was shockingly high a year ago. But I do know banks haven't marked them down. They're all being defeased. It was defeasance, defeasance, defeasance.

Yes, exactly. That's the word. Well, Danielle, it's been so great having you on. Thanks so much again. We're going to release this as soon as possible on the December 19th. Tell us, people can find you on Twitter at DMartinoBooth. Tell us about the two services you do for QI research as well as where people can find you there.

So, you know, first of all, we have our daily feather. It's mostly smaller registered investment advisors, retail investors. We've got a great following. We've also got 20% off through the end of the year for our annual feather. And then we've got a great group of

Great Bloomberg chat room, QI Pro clients. It's always exciting to be in that chat room and then you get the full institutional weekly investable advice. My Saturday Outlook, that's QI Pro. You would look me up at QIResearch.com and find me and I'll reach right out to you. And you know what? It costs nothing for you to follow me on Twitter. If you want, still call it Twitter at Demartino Booth. Come see me.

Thanks again for Danielle. And thanks everyone for watching. And a reminder, people can find this show not just on YouTube, but on Apple Podcasts, Spotify, wherever else you get your podcasts. Until next time. Thank you. Just close this door.