Central Bank Liquidity: The Next Crisis Catalyst?

Published on
November 26th, 2018
Topic
Recession, Consumption, Credit-cycle
Duration
37 minutes
Asset class
Bonds/Rates/Credit

Central Bank Liquidity: The Next Crisis Catalyst?

The Expert View ·
Featuring Danielle DiMartino Booth

Published on: November 26th, 2018 • Duration: 37 minutes • Asset Class: Bonds/Rates/Credit • Topic: Recession, Consumption, Credit-cycle

As 2018 draws to a close, global central bank liquidity will flip from net positive to net negative for the first time in a decade. Danielle DiMartino Booth joins Real Vision to explain her thesis that share buybacks have created positive momentum in US equity markets that until only recently have moved away from historically low volatility. The question is, can that volatility be contained as liquidity withdraws? Filmed on November 14, 2018 in New York.

Comments

  • BS
    Bert S.
    17 December 2018 @ 01:21
    Pal
  • JS
    Jaco S.
    14 December 2018 @ 02:29
    Excellent. Thank you.
  • F
    Floyd .
    3 December 2018 @ 23:03
    What a commonsense view ,rationally explained and well understood. Danielle should be brought back to access the Fed's moves as they make them.Her perspective would be valuable.
  • RP
    Ryan P.
    2 December 2018 @ 19:22
    I think your housing thesis is super intuitive and I agree almost word for word on what you said. I’ve learned over time that it’s not about equities. It’s all about credit. The story in bonds is going to be the story of 2019-20. Volatility is coming.
  • JS
    J S.
    2 December 2018 @ 16:22
    Thank you DDM, brilliant as always! I am currently short the nasdaq and uncomfortably so ... based on your opinion, should I hold on or should I close my position?
    • RP
      Ryan P.
      2 December 2018 @ 18:48
      When did you enter the position? How are you expressing it? What’s your timeline on this trade ? How are you managing the risk? What was your thesis to lead to the trade idea? Has it changed? Start answering those and you won’t need her to answer you.
    • JS
      J S.
      2 December 2018 @ 19:17
      TBH I wasn't expecting Danielle to respond. I was selling the rally, which rallied a little more than expected!
  • RK
    Robert K.
    30 November 2018 @ 15:07
    Big fan of DiMartino. Have her book - I highly recommend it to everybody who still lives in a fantasy world thinking we have smart people in central banks who think they know what they are doing.
  • JC
    Joe C.
    30 November 2018 @ 03:05
    We’ve seen an inordinate number of cabinet/administration members take heat and “resign”. Do you think the President holds the same sway over the Fed Chair? If markets go south, Powell could easily become a tweetstorm-targeted scapegoat, particularly if he bucks consensus/expectations/precedent and either holds firm on tightening or does not ease at a rate acceptable to the White House. Is the tail risk, not of a Powell resignation but of a Powell “resignation—in the same sense we’ve seen other top officials ousted—at all a possibility?
  • SS
    Shanthi S.
    29 November 2018 @ 22:15
    Brilliant! Such a clear thinker. Thank you!!!
  • ML
    Maxim L.
    29 November 2018 @ 04:25
    Thoroughly enjoyed it.
  • BS
    Bill S.
    29 November 2018 @ 03:51
    Carefully read his turn of phrase: "Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth." The key is two terms, "just below" and "broad range of estimates..". Powell does not appear to be giving up on raising rates, the key is what "range" he has in mind and..what number within that range he believes or FRB staff economists believe is neutral. So, in my view the market heard what they wanted to hear and did not analyze the spoken word. The press established a false headline. In short, once this settles in, get ready for the reversal.
    • DD
      Danielle D. | Contributor
      29 November 2018 @ 12:08
      It’s hard to say. I suspect Powell not pleased with outsized stock market reaction. To your point, what made no sense yesterday in context of rally was 10-year yield closing north of 3%.
  • IB
    Ian B.
    29 November 2018 @ 00:36
    Looks like Powell is a clone or scared.
  • MT
    Mark T.
    28 November 2018 @ 21:39
    Thank you Danielle for appearing on RVTV. I hope you get a bunch of new subscriptions. Come back soon. Your views ring true and lead to actionable conclusions even without specific recommandations.
    • DD
      Danielle D. | Contributor
      29 November 2018 @ 12:11
      That is the goal of our research at Quill Intelligence. We’re not stock jocks but we’re also mindful that we all have to have our portfolios positioned prudently.
  • SL
    Seth L.
    28 November 2018 @ 17:23
    Toning down the hyperbolic tone would go a long way in building credibility. Just sounds like a ranting narrative and hard to take seriously. Sorry.
    • DS
      David S.
      28 November 2018 @ 20:30
      Hyperbole sells newspapers. DLS
    • SP
      Steve P.
      2 December 2018 @ 00:37
      If you had listened to the 'hyperbolic' message Seth, you would have gained an insight into what we will undoubtedly experience in the next downturn in the US. And that draws closer by the day. Danielle's credibility is absolutely not in question here, unlike some of her audiences shallow judgement values.Give credit where it is due.
    • my
      markettaker y.
      2 December 2018 @ 03:37
      I didn't find it hyperbolic. She's enthusiastic about her subject — that's all I felt.
    • DS
      David S.
      5 January 2019 @ 04:26
      First sentence is certainly relevant. Second sentence is harsh. DLS
  • MB
    Markus B.
    28 November 2018 @ 13:02
    Danielle, one of the best RV contributions of late. Maybe a question to you as someone that has more insight than us plain mortals: Given the ongoing pressure by the administration on Chair Powell do you see the risk that he may decide to leave, not finishing his term? Any insight / views appreciated.
    • DD
      Danielle D. | Contributor
      29 November 2018 @ 04:50
      Powell doesn’t need the perks of being a Fed chair. I believe he accepted position to serve his country and that he will rise above the fray and complete his term with integrity. I hope I’m right.
  • BT
    Brian T.
    28 November 2018 @ 13:00
    Awesome!
  • BT
    Brian T.
    28 November 2018 @ 13:00
    Awesome!
  • OS
    Oliver S.
    28 November 2018 @ 12:15
    Brilliant!
  • cl
    chi l.
    28 November 2018 @ 09:13
    she has a great mind. super analytical...much better than other speakers so far...(some biased).. great input.
  • WB
    William B.
    28 November 2018 @ 06:29
    I’m a Daily Feather subscriber so take this comment in context of my financial interest in The Daily Feather and every interview or publication Danielle might do. I was blown away.. This is such a great presentation. I learned a lot. The Daily Feather is a great resource for keeping up on what Danielle is looking at each day but this video is the macro view that she keeps current at all times.
  • JF
    Joseph F.
    28 November 2018 @ 06:27
    Wow. Fantastic interview.
  • GR
    Garey R.
    28 November 2018 @ 03:23
    Thoroughly found this interview to be worthy of consideration, enough to view it several times and still considering a third or fourth. She mentioned autos briefly in the presentation but it would certainly be of interest to hear more from her about that sector of the economy. Have her back again! Thanks to the RealVision team for the great content and insights!
  • DY
    Damian Y.
    28 November 2018 @ 03:03
    This is the second time I've watched this interview as there is a lot of great information to take in. Thanks Danielle and thanks RV.
  • BH
    Bernard H.
    28 November 2018 @ 00:58
    Very good. Danielle highlights a crucial point that many market commentators overlook about the property market in the US and here in Australia: The Millennials are not going to be there to buy the Baby Boomer properties off them. The Millennials are much more interested in using their money to enrich their experiences in life and the thought of going massively in debt to buy a house just does not appeal.
  • PC
    Philip C.
    28 November 2018 @ 00:24
    I'm not sure why baby boomers seeking liquidity will be forced to sell their homes. The inceasingly popular option is equity release, which usually takes the form of home reversion or a reverse mortgage. I can foresee this becoming big business as the bulk of the boomer generation retires.
    • DS
      David S.
      28 November 2018 @ 18:53
      It is more sensational to say that baby boomers will be forced to sell their home. DLS
    • EF
      Eric F.
      30 November 2018 @ 09:48
      That can only be a big market if the demand is here from lenders. I could see lots of reasons for that not happening including (1) too much supply (2) a liquidity event
  • SW
    Scott W.
    27 November 2018 @ 22:01
    I was just talking to a friend who labors at Capital One about how they now consider themselves to be a "technology" company. How they are hiring the brightest and best engineers (not financiers) from the ivies. How said brightest and best stick around for a year at best because they get bored - most likely because there's no more innovation to be found in extending consumer credit to the masses. I think this comports with DDB's general theme that "liquidity" has been pushed around for entirely too long and in far too many unintended ways and places. I might also just be a raving old codger.
  • OG
    Owen G.
    27 November 2018 @ 20:48
    A great watch, thank you. RV - Is it possible to some how replicate the ending headline below? The reason I ask, when I come to read the actions/points at the end of the videos, I will often pause the video to take some notes. When you pause the video, you get the time, the play buttons, etc which all get in the way. Just an observation and a wish from me. Many thanks.
    • OG
      Owen G.
      27 November 2018 @ 20:49
      Just noticed, it fades away after time. As folks say nowadays, 'My bad'.
  • VP
    Vincent P.
    27 November 2018 @ 20:07
    Excellent presentation. Cash management, ST Muni's and Gold lets one sleep at night. Good color and style Danielle. You are now obliged to return on the other side of this mess we're in. It appears you'd be welcomed! Thank you!
  • TJ
    Terry J.
    27 November 2018 @ 19:18
    Invaluable and thought-provoking analysis from Danielle, who clearly knows the Fed's strengths and weaknesses like the back of her hand. Thank you RVTV for yet another priceless video.
  • PP
    Patrick P.
    27 November 2018 @ 16:32
    IMO the Fed has two mandates...Protect the over spending and borrowing of the US government, and at all cost protect the banks...especially the money center banks. Everything else is window dressing.
    • DS
      David S.
      28 November 2018 @ 19:00
      It is self evident that the Fed cannot "...Protect the over spending and borrowing of the US government". Congress and the President "control" the spending. DLS
    • MS
      Michael S.
      2 December 2018 @ 19:03
      I think the Fed's two mandates are high stock & bond prices.
  • BS
    Bill S.
    27 November 2018 @ 16:14
    Very entertaining. Would like more in depth content on the IG BBB potential fallout and it's effect on HY as well as IG funds out there. Even a Vanguard VFSUX ST IG fund has about a 20% exposure to BBB and other Vanguard/IShares IG funds are worse than that. Just what is the estimated rollover into HY and the effect on the IG sleeve?
  • PP
    Peter P.
    27 November 2018 @ 15:42
    Well, that was outstanding. The best thing I’ve seen on Real Vision in months.
  • MM
    Mike M.
    27 November 2018 @ 14:17
    Excellent. Hope to see Danielle in February. Inflexion point is close at hand. Thank you.
  • NG
    Nick G.
    27 November 2018 @ 12:49
    Yes, agree with almost everything. And that is the problem. I fear that most of these points are already mostly, if not fully, priced in.
  • CE
    Carol E.
    27 November 2018 @ 08:34
    If you didn't know now you know. Danielle is one smart, astute woman who I am now listening to.
  • FV
    Fredrik V.
    27 November 2018 @ 07:49
    I started to think about the difference between earning per share compared to earnings...has any of you seen a graph on how the delta has been?
    • EF
      Eric F.
      30 November 2018 @ 10:03
      No but EPS have definitely been boosted without full consideration for buy backs with some earnings flat to negative but masked by this. Add in that buy backs fuelled by low cost (for now) debt. You then also look at compensation plans and insider selling to fully realise what is going on. Powder keg waiting to go off.
  • LC
    Liliana C.
    27 November 2018 @ 06:37
    Very insightful in several areas. Thank you Danielle!!!
  • SS
    Sean S.
    27 November 2018 @ 06:36
    Absolutely brilliant, Danielle! Thank you for sharing.
  • DC
    Darren C.
    27 November 2018 @ 04:13
    Share buybacks. I am sure they seem great in times of borrowing free free money and buybacks making the stock fundamentals look arguably reasonable. What I have not seen or heard is what happens when companies cannot afford to borrow to buy back shares anymore? Further, can one not assume that paying back those loans would be a huge headwind to earnings and/or free cash flow? It would seem that at some point in the future, 2-3 years, this double whammy might encourage a serious re-valuing of US equities. If anyone can point out what I'm missing I'm all ears. Amateur here, so please be gentle as much of the content here is above my pay grade.
    • LC
      Liliana C.
      27 November 2018 @ 06:27
      Well, let’s see? When companies cannot afford to buy back anymore and they’ve borrowed to the freaking wasoo to buy back shares that management was selling, well that’s precisely when management golden parachutes out as the mess is not their problem and they got theirs. New management comes in as Board pretends to be upset at what old management did under their watch, and they cost cut, to clean up the mess and get back in the green or so they say. You know what cost cut means right? Yep! Lay-off those workers that never got a raise as management paid itself millions for being geniuses at keeping stock up. Wash, rinse, repeat. Just watch, The Big Short.
    • BC
      Burton C.
      27 November 2018 @ 06:49
      You are correct, but let's not lose sight of what stock buybacks are for. It is strictly a management compensation scheme at the expense of the owners, the shareholders. A strip mining of equity.
    • DD
      Danielle D. | Contributor
      27 November 2018 @ 11:26
      Barring a re-ignition of quantitative easing, I don't think the share buyback reversal will take 2-3 years. They stop buying back their shares when their bonds come under assault. We've already seen this play out with several prominent companies that had been major buyback players in the aftermath of GE's bonds coming under siege. Thank you for your comment.
    • JO
      John O.
      27 November 2018 @ 11:51
      They've bought their own shares when the equity markets are way high and borrowing costs low. Achieving nothing productive and adding nothing to future earnings, but manipulating EPS. And they've used cash for this when many of them have huge pension deficits.
    • MC
      Minum C.
      27 November 2018 @ 16:27
      Interesting dialogue on share buybacks. Lots of anger and hate being lobbed at CEOs trying to maximize shareholder value. But who built the playground that promotes this type of deflationary corporate behaviour? Was it not Bernanke and Yellen? If a teacher tells the bully in a sand castle he can continue to throw sand in the face of the other kids without consequence, the bully will continue to throw sand...until the teacher is fired and a stricter teacher arrives on the scene. Before 1982, share buybacks were not allowed.
    • DS
      David S.
      28 November 2018 @ 20:46
      Minum C. – I agree share buybacks at market highs do not increase shareholder's value. It benefits executive pay as executive stock-option selling would dilute the stock. We should not blame the Fed, as the execs would have bought stocks at record high prices and at high interest rates if it were in their own interests. DLS
    • AL
      Andrew L.
      30 November 2018 @ 01:46
      Buy backs will stop when rates go up, as we are starting to see. Companies finance short, as it’s cheaper, and then keep rolling over their debt. When the free money marygoround slows, so will buybacks. Companies will have problems refinancing, leaving no money for buybacks.
    • OG
      Olivia G.
      3 December 2018 @ 09:16
      Stock buyback is good when capital cannot be deployed elsewhere at a sensible rate of return. It’s also only good when management thinks that the stock they’re buying back is cheap! Buying back stock at an inflated valuation is bad management of capital. Worst is if management buys back stock at an inflation valuation, using borrowed capital, so as to artificially inflate earnings.
  • LB
    Louis B.
    27 November 2018 @ 03:50
    Great interview and fun to boot, coming from an ex-Fed insider! Loved it when she remarked about the importance of the delta, when comparing today's change in interest rates to the '80s... Dare I say it? I hope she's right and Jerome Powell will be steadfast in his plan to carry on 'normalising' quietly. BUT... The central bankers' shenanigans could surprise all of us yet again. They (not necessarily the Fed) could very well conjure something out of nowhere that manages to keep the believers from running to that narrow exit door. But what could be better than liquidity? I don't know. I'm no prestidigitator! But I do know that cognitive dissonance is prevalent and easily exploited by central planners. Again, I hope she's right. After all, what she says makes total sense and I agree with it. But we've now been in neverland for soooooo long!
  • JG
    Jackie G.
    27 November 2018 @ 03:37
    Does anybody know where I might be able to take a look at the index(s) she mentions?
  • JS
    Jon S.
    27 November 2018 @ 02:45
    Ha Ha, perfect mix of sarcasm and historical perspective. I could listen to Danielle for hours.
  • DY
    Damian Y.
    27 November 2018 @ 02:19
    Brilliant interview. I always love to listen to Danielle speak. Lots of great information. Please RV, bring her back again soon.
  • PD
    Pat D.
    27 November 2018 @ 01:32
    Great presentation. Looking forward to hearing from her early next year Interestingly, only 5% Thumbs down (It's generally around the 10% mark).
  • DB
    Daniel B.
    27 November 2018 @ 01:23
    You’ve nailed it Danielle, big thumbs up!
  • PG
    Philippe G.
    27 November 2018 @ 00:38
    Excellent! Appreciate the direct and honest delivery.
    • BM
      Beth M.
      27 November 2018 @ 03:02
      I agree...very informative
  • SL
    Stephen L.
    27 November 2018 @ 00:17
    Did anyone actually learn anything?
    • DS
      David S.
      28 November 2018 @ 19:15
      Everyone knows different things. I did not learn anything new, but apparently many people did. This is part of RVTV’s mission to help democratize finance. The Fed Piñata is always well received. DLS
    • EF
      Eric F.
      30 November 2018 @ 10:08
      If you didn’t learn anything Stephen, I think that’s more on you than Danielle. Sometimes it’s better to just say nothing.
  • ZH
    Zack H.
    26 November 2018 @ 23:55
    What a breath of fresh air, great colour on monetary past and future. Great guest Real Vision!
  • MR
    Mathew R.
    26 November 2018 @ 23:42
    Loved her book...awesome to see her in a RV interview!
  • EH
    Edwin H.
    26 November 2018 @ 23:34
    Sooo, scotch anyone? A glass... A bottle...
  • HS
    Hendrik S.
    26 November 2018 @ 23:02
    She is such a hotty. Love her linkedin photo.
    • RP
      Raoul P. | Founder
      27 November 2018 @ 00:14
      Please, this is not the place...
    • HS
      Hendrik S.
      27 November 2018 @ 08:58
      Only the truth... meant as a compliment...my appologies if this offended anyone....
    • HS
      Hendrik S.
      27 November 2018 @ 08:58
      Only the truth... meant as a compliment...my appologies if this offended anyone....
    • HS
      Hendrik S.
      27 November 2018 @ 17:57
      Twentyseven (27!) thumbs up (almost double the second best rating!!) for a comment that has nothing to do with Danielle's outstanding interview (or gorgeous looks)! That's so pathetic!! Raoul, you have created a bunch of brainless uninspireable but utterly correct followers.
    • DS
      David S.
      28 November 2018 @ 19:42
      Hendrik S. - Raoul's comment was carefully worded not to be judgmental. I have seen other references like this toward men in the comment section. In either case it diverts from the financial discussion. DLS
    • EF
      Eric F.
      30 November 2018 @ 10:10
      What an arsehole.
  • SU
    Shakeel U.
    26 November 2018 @ 22:06
    Very good 10/10. Please bring Danielle back, and thank you.
  • Sv
    Sid v.
    26 November 2018 @ 21:56
    very nice discussion
  • DF
    Dominic F.
    26 November 2018 @ 21:08
    Danielle is awesome!! If things are crystal clear to you after watching this interview you need to check your bias’. Plain speaking, on point after point after point, no agenda, and funny to boot. Thank you Worth Wray for suggesting we follow Danielle on Twitter when she had 400 followers. Her insights are invaluable and Jerome Powell is da man 😉
    • DF
      Dominic F.
      26 November 2018 @ 23:05
      Shoukd read *”aren’t crystal clear”
  • NI
    Nate I.
    26 November 2018 @ 20:40
    Good interview RV. Curious about Danielle's claim to hold "cash". Does she mean $100 bills in a vault or as liabilities of one or more banks. I'm guessing the latter since she claimed the returns were above inflation (presumably she means the BLS version of inflation). The fallacy of course is the inflation measure. John Williams' shadowstats.com and many others including my own household budget show that inflation is at least 4%-5%. Even the Oracle of Omaha says 5% on average. The hedonic adjustments at the BLS are a farce (where can I buy a 1968 television?). Danielle will lose capital with her allocation as a consequence of underperforming genuine inflation, but not as much as she might in the equity or BBB bond market. I agree with her on muni bond safety in certain locations, but I don't think munis will beat inflation either (except maybe the BLS version). Gold is a good answer, but it will also take a hit in the early phases of meltdown just as it has in past crises; however, high probability that it will ultimately recover to preserve purchasing power.
    • DD
      Danielle D. | Contributor
      27 November 2018 @ 03:38
      90-day Treasuries suit me fine in this environment. I may get more creative if December is the final rate hike. To your point on inflation, I suppose I would rather lose less, even in real terms. Great comment.
    • AM
      Andrew M.
      27 November 2018 @ 10:42
      90 day USTs with a mind to buying more duration and even gold / gold miners if a bigger slowdown becomes evident and Fed pauses or reverses coruse? Seems like a wise strategy with headline inflation likely to peter out early next year.
    • AM
      Andrew M.
      27 November 2018 @ 10:44
      And agreed with Danielle. What's important to acknowledge is that the opportunity cost to holding stocks on high yield now is very low, since both are at historical extremes. Stocks could continue to rally but offer pretty poor risk-reward imo
  • NH
    Neil H.
    26 November 2018 @ 20:38
    always great to get Danielle's perspective. She seems concerned about mortgage rates over 5% hurting the economy, but what happens when we go into a recession and rates go down. will she still be worried or will housing perk back up with lower rates again.
    • DD
      Danielle D. | Contributor
      27 November 2018 @ 03:38
      Housing affordability will hopefully come off its high boil but home sales won't rebound on a dime, in my view.
    • EF
      Eric F.
      30 November 2018 @ 10:15
      In a recession housing ain’t gonna bounce back up because rates get cut a little (and there ain’t more than a little left to cut). Let’s get real here.
  • AP
    A P.
    26 November 2018 @ 19:20
    Like her style a lot. All the best with your new company Danielle.
    • DD
      Danielle D. | Contributor
      27 November 2018 @ 03:49
      Much obliged.
  • MC
    Matt C.
    26 November 2018 @ 19:17
    Surprised that she confuses the explicit short vol blow up w/ risk parity...
  • AG
    Anubhav G.
    26 November 2018 @ 19:15
    I am unable to find MOVE index on TD. Does anybody know the correct code ?
    • DS
      David S.
      26 November 2018 @ 22:12
      I had trouble finding it also. It is a Merrill Lynch generated index developed by Harley Bassman. If no one else can find a direct link, you could call Merrill Lynch. RVTV has a great Mike Green interview with Mr. Bassman and Chris Cole – SHORT VOLATILITY: THE KEG LOOKING FOR A SPARK. Good luck. DLS
  • CL
    Cyril L.
    26 November 2018 @ 18:37
    Too sensationalist. She's more of a journalist than a deep thinker. I've read her book about the Fed, which while interesting was a bit annoying too for that exact reason. Hard-hitting statements but not much to back them up. One example: "Leverage loans are basically issued by companies that cannot access the junk bond market. They are junkier than junk. So what do they do? They go off to their friendly neighborhood investment banker, and they syndicate a big junkie loan. " Hmmm. No. I work in leveraged loans (on the buyside) so admittedly I'm biased, but that statement is simply factually wrong. Actually many companies issue both leveraged loans and HY bonds, so no they don't issue loans because they can't issue HY bonds. They're just different instruments, with different characteristics. Moreover, typically loans are senior secured and HY bonds unsecured (at least in the US), so if a company issues both loans and HY bonds, its loans will be less risky than its HY bonds. It's true that as in every extended credit cycle, some leveraged loans are issued that shouldn't be issued and investor protections (covenants) have seriously weakened. There will be a day of reckoning, and some loan funds (and HY funds) may blow up, but the majority of the market remains healthy (at least on a relative basis, i.e. if you invest in a leveraged loan fund managed by a conservative and experienced manager and end up suffering permanent capital losses, it will still be the least of your worries because in the environment in which that happens, all your other assets but maybe gold and cash will have lost much more value). People may freak out about leveraged loans because of all the headlines, but my advice is if you see the loan index trading back at 70 or below like in 08-09), buy a loan fund from a conservative manager (simply pick one whose fund will have declined significantly less than the index) and either it will be the trade of your life or if not, you'll still lose much less money than on everything else.
    • AC
      Andrew C.
      26 November 2018 @ 20:50
      Agree 100% --- lost me at citing 'Smart Money' index --- SMH.
    • DS
      David S.
      26 November 2018 @ 22:25
      It is an introduction like an after-dinner speaker. A much deeper dive like Mike Green’s interview on volatility would be a great next step. DLS
    • AM
      Andrew M.
      26 November 2018 @ 22:52
      Follow ups with Cyril Castelli (Downside in US Credit Market - May 2017) or David Meneret would be most appreciated! The latter even did a section on Real Estate in 2017. With Mike Green interviewing.. obviously...
    • DD
      Danielle D. | Contributor
      27 November 2018 @ 03:43
      The guidance on leveraged loan issuers was given to me directly by a veteran at a credit rating agency who also validated my fears of managerial pressure to maintain fallacious ratings on "investment grade" bonds. I cite Chris Cole as the expert who educated me on his area of specialty, market volatility. Recovery estimates in the next downturn are also a fraction of what they were in the last indicative of how much more stretched corporate credit is in the current cycle vis-a-vis the last when the excesses manifested in a different area of the credit markets. I most appreciate your taking the time to offer your views.
    • EF
      Eric F.
      30 November 2018 @ 10:19
      Maybe too close to the trees to see the forrest Cyril.
    • TK
      Thomas K.
      2 December 2018 @ 00:44
      It's interesting to note that you can be entirely correct that standards remain relatively good, and hence the leveraged loan market appears healthy, yet at the same time Danielle's predictions of looming structural problems can remain entirely correct. Stating that one can (likely) side-step these perils while remaining within the leveraged loan market, I think, misses Danielle's broader point about the complex system writ large. We live in a world in the throes of a love affair with reductionism and quantitative methods. I would go so far as to argue there is a larger bubble than the mother of all financial bubbles: an academic/ideological bubble rooted in hybristic belief that we can precisely quantify, predict, and control nonlinear complex systems such as the global financial system--economists and statisticians seem altogether ignorant of the relative infancy of distributed control as theory, let alone practice. Within the domain that you analyze on the buy side, there may very well be great rigor applied to investment decisions. However, there must--by virtue of time and resource constraints--be a domain of discourse for such evaluation work. One of my favorite analogies is a concept called self-organizing criticality. The best real-world example is a pile of sand: the only way to predict where avalanches are likely is to analyze the entire topography of the pile. The fact that a dangerous high slope at someplace distant can lead to a wipe-out wholly defies the reductionism we rely upon every day to simplify high-dimensional predictive problems down the tractable. The restriction of domain of discourse is both the key ingredient to efficient buying decisions, and the Achilles heel at points of structural dislocation. The rigor of buy-side analysis has theoretical limits--not only insofar as measurement error is concerned, but also in terms of the mathematical constructs used to analyze the data. This seems to often take of form of ignoring nonlinearity and feedback in models, ignoring the non-ergodicity of functions with random inputs, simplifying the topology of the supply chain ecosystem in which a firm exists, ignoring the relatively unmodelable effects of psychology, neglecting the dramatic effect of changes in incentive structures, etc. This lack of attention to detail will always lead to catastrophic mispredictions at points of dislocation. If we take a step back from the minutiae, the heavy reliance on quantitative methods is itself the greatest problem: it lends false confidence to our decisions. To most, math and statistics are a form of magic. Seldom does a decision maker ask how we reduced a problem of several million dimensions down to just a handful. Instead, they take the statistics as gospel. Given how many faulty assumptions have gone into those predictions, it's no wonder we continue to see arguments like this in print hundreds of times per day. We've elevated statistics--and quantitative science more generally--onto a wholly undeserved pedestal. It's time for a return to critical thinking.
    • CL
      Cyril L.
      2 December 2018 @ 10:25
      Danielle I appreciate you taking the time to answer my comment (and others). Eric F., you're absolutely right, I'm worrying about that every day. Corporate credit is a short volatility trade. Liquidity may disappear. I fully acknowledge that there are excesses in this market, and notably in leveraged credit. Capital losses are always possible. But at the end of the day, it's important to understand where leveraged loans fit in the capital structure of the companies issuing them, and by extension in the financial system. But my real point is, everyone should make and present their own analysis based on facts and data. Not just asking one guy. And avoid attention-grabbing but factually wrong statements. If you think the leveraged loan market is going to blow up, please explain why and how - I'm very interested. But please bring substance (and nuance) to the argument.
    • CL
      Cyril L.
      2 December 2018 @ 10:49
      And to be clear, by blow up I mean severe and permanent loss of capital. At least 25-30%. Because we can all do like modern journalists and zerohedge, calling a 0.5% decline a crash or a selloff and a 5% decline a blow up, but we can also try to have a little pride and not do that.
  • AA
    Aymman A.
    26 November 2018 @ 18:24
    Brilliant!
  • RA
    Robert A.
    26 November 2018 @ 18:20
    Yes, some more please. Danielle and Richard Fisher must have attended some Texas based “Pithy, Concise and Succinct” thought and speaking school. I could listen to both of them for hours. I enjoyed Danielle’s prior RV work and immediately ordered and read her book “Fed Up”, which book I highly recommend to my fellow RV’ers. IMO, this is one of the best RV presentations of the hundreds I’ve watched...it checks all the boxes—timely, informed, well presented and, of course, the “pithy, concise and succinct” box. You go Girl!
    • DD
      Danielle D. | Contributor
      27 November 2018 @ 03:50
      You are too kind. Thank you.
  • HO
    H2 O.
    26 November 2018 @ 18:11
    A great speaker, and a follow up conversation with her would be even better with an interviewer to give the discussion more structure. A lot of listening required to put together her outlook and read it through to her investment thesis.
  • VA
    Vikram A.
    26 November 2018 @ 17:23
    This is great. Any chance we could find out which muni bonds specifically she would buy and/or which muni manager she has her money with?
    • HJ
      Harry J.
      26 November 2018 @ 18:32
      I second your comment. Doubt if we’ll get an answer. But it would be great to have an idea!
    • DD
      Danielle D. | Contributor
      27 November 2018 @ 03:45
      I have a veteran of the muni market manage on my behalf. I only own individual bonds. The reasoning is along the lines of benefitting from the "throwing out the baby with the bath water" syndrome. There are many profligate issuers out there who will grab the headlines but plenty who've played it prudent will be money good. I find it prudent to not share the name of my muni manager but suggest you ask to see his/her track record and again, make sure they are buying individual bonds as opposed to funds or ETFs.
  • BP
    Bob P.
    26 November 2018 @ 16:34
    I just listened to the whole thing again - closely. If this doesn't scare you I don't know what will. This woman clearly knows what she's talking about. I really hope they have her on more. She's a true expert right at the heart of the problem.
    • TM
      Timothy M.
      26 November 2018 @ 19:56
      I am a VIP subscriber to Danielle's Daily Quill report. Like RV, the information you receive is well worth the cost. The Daily Quill subscription cost $25/month.
  • DJ
    Dan J.
    26 November 2018 @ 16:25
    excellent interview
  • ag
    anthony g.
    26 November 2018 @ 15:01
    Well explained. Bring her back at some point ? Well done RV.
  • Nv
    Nick v.
    26 November 2018 @ 14:01
    Great episode. Well done
  • DS
    David S.
    26 November 2018 @ 12:59
    Brexit is another hot crisis catalyst in the markets. The British Parliament is certainly in disarray. PM May has made a Herculean effort to get a Brexit deal to give an alternative to a Hard Brexit. It will be difficult to call an election, as another RVTV interview disclosed that it will take more than a majority of Parliament to call for a new election. A new referendum on Brexit would be difficult and not definitive. A third option is not to leave the EEC. It has been over two years since the referendum and the world has changed. The Brexit vote was basically 52% to 48% - certainly not compulsory. With all the Brexiteers fighting each other hammer and tong, staying in the EEC might be a winning vote in Parliament. A vote on staying in the EEC might also bring the Brexit factions back together. I am not a citizen of Britain nor the EEC. I am not proposing, just trying to understand Brexit options. Does anyone else have other viable Brexit options. The outcome of Brexit will certainly move world markets. DLS
    • KJ
      Keith J.
      26 November 2018 @ 22:03
      I am a British citizen. The people who voted leave have not changed their minds. That entire narrative is driven by the London elite bubble of journalists and political commentators who wish for it to be so. If you go to any of the Northern towns they have not changed their minds in the slightest.
    • DS
      David S.
      27 November 2018 @ 19:41
      Keith J. - Thanks for the information. I think Brexit is more important now than central banks, trade wars, Italian bonds, etc. The Brexit referendum is not legally binding on Parliament. I am trying to figure out what Parliament will do before the March deadline? Are there other real options that Parliament can consider? I asked in this forum as there are many smart RVTV viewers out there who better understand the current dynamics. I agree that politicians are posturing, thereby feeding a news frenzy. Parliament, however, will either pass legislation or not. If not, will the UK have a Hard Brexit, or will no legislation mean remain? DLS
    • KJ
      Keith J.
      27 November 2018 @ 22:29
      Nobody knows for sure. If nothing else happens UK will be out with no deal on March 29th. However as it has not been done before there are various theories as to whether it could be revoked. My personal view is that if there was a situation where some future prime minister went to the EU asking to revoke it the terms they would impose would be very bad for the UK as they would hold all the aces. Both political parties are so divided it is very hard to predict. For all the Tory infighting, Labour’s front bench is primarily London remainers but there are a significant number of northern mps from the old industrial towns who fear electoral disaster if they betray their voters. Corbyn himself represents a highly metropolitan elite seat in Islington but has voted against the EU throughout his career as he sees it as a symbol of capitalism. He has tried to sit on the fence as much as possible but may have to take a position soon. If May’s deal fails I think she should resign as she seems to have held her personal desire for some kind of face saving deal above the interests of the country, conceding too much on all the key issues. Not sure she will, but if she does it’s very unclear who would replace her. From a markets perspective as a UK investor I have tried to hedge my exposure to the pound because traditionally in times of stress in the UK it’s the currency that takes the hit (ERM, 08, Brexit vote). Long term though I’d back the UK as a resilient nation whereas there are so many things that could go wrong in the Eurozone. Such as Mario backing himself into a corner, Italian stress, Spanish banks, french strikes etc...
    • DS
      David S.
      28 November 2018 @ 20:17
      Keith J. - Just what I was looking for. Thanks to you, I can focus any trade ideas around the pound. I agree that the UK is resilient, and the pound will recover over time. Thanks and all the best. DLS
    • EF
      Eric F.
      30 November 2018 @ 10:24
      I’ve changed my mind Keith. I voted in before but seeing the way the UK has been treated in this process just makes me now want to leave. A lot of good has been done by the EU, but too few have benefited from it (i.e. just France & Germany). I think you string along Brexit long enough and there may not be an EU to leave.
  • BP
    Bob P.
    26 November 2018 @ 12:39
    Very good information and perspective. This is what we pay for.
  • DS
    David S.
    26 November 2018 @ 12:18
    Most annalist I have seen agree with Ms. DiMartino Booth's assessment of the current liquidity and super debt cycle crises. The future may be a little different if the Fed raises in December but does not follow the next rate increases as stated. In addition, the Euro Central Bank may not stop its QE in December as scheduled. The debt super cycle will unwind, and it will be ugly. The big money to be made will be in timing which is above my pay grade. DLS
    • DS
      David S.
      28 November 2018 @ 20:20
      Today's news looks like the Fed may raise in December, but carefully look at any rate increase next year. Now we will see what EEB will do. DLS
  • PD
    Peter D.
    26 November 2018 @ 11:30
    Ms. DDB's call that Jerome Powell is not an ordinary central banker is one of the gutsiest around. Conventional wisdom and Powel's resume suggest that he is a typical swamp rat, who will flood the system the minute markets break materially from their long-term uptrend. This was already the most entertaining RV presentation of the past two weeks. However if DDB is correct about Mr. Powell, it will vault her to a whole new level,
    • AM
      Andrew M.
      26 November 2018 @ 22:34
      We will see very soon. Right now the stresses (as evidenced by credit spreads and other metrics etc) are actually about half that of the so-called Yellen put in 2016, if you can believe that... And most Fed chairman don't like coming to the rescue of markets unless there is a serious feedback loop to the economy - even Yellen made this point. Libor rate of change has been fairly significant, but US personal debt is 2003 levels and corporate debt is still not as big a concern as 2008. There are some signs of softness as you might expect, but overall the US economy looks like it can handle slight higher rates. Importantly, the ROW can't, and neither can US assets can't because they're reliant on excess liquidity and central banks holding their hand. Will Powell acquiesce? We will see this week
    • DD
      Danielle D. | Contributor
      27 November 2018 @ 03:48
      Powell once worked for a $1 salary to educate the Congress on the perils of the United States defaulting on its debts and he has no need to propagate an economic agenda nor does he need the Fed's fine pension. He was astute enough in 2012 to recognize QE as "habit-forming" and should recognize credit volatility as the danger that it will present when it finally and truly rears its ugly head (GE kerfuffle was but a dress rehearsal.) Thank you for your thoughtful comment.
    • PN
      Paul N.
      27 November 2018 @ 05:45
      IMO the "Powell Put" exists but it has a lower strike price than other central bankers.
    • AM
      Andrew M.
      27 November 2018 @ 10:37
      I agree that Powell does seem quite different. Not sure about a Powell put tbh, unless we see serious feedback loops. The Fed is achieving its dual mandate with unemployment at 50 year lows, growth moderate, and core PCE inflation reaching their target. Even with the recent sell-off stocks are ~30% higher than when their hiking cycle began. Bowing down to markets (when the stock market has been a relentless inequality machine) and then going into the next crisis with Fed Funds at a 2 handle and a 4trn balance sheet probably isn't high on Powell's agenda.
  • AR
    Abishek R.
    26 November 2018 @ 10:48
    Vintage Real Vision. Brilliant.

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