What's next for the economy? With record job losses, unprecedented stock market swings and mounting debt, it's a question we're all wondering. Financial Expert Danielle DiMartino Booth joins us to answer it. In a wide-ranging interview, we talk stocks, the housing market, economic recovery and more. Then, we countdown the Top 5 Wastes of Money.
Interview with Danielle DiMartino Booth of Quill Intelligence
Speakers:
Nick VinZant: Profoundly Pointless Host
Danielle DiMartino Booth: Finance and Stock Market Expert
Nick VinZant 0:13 Hey everybody, welcome to Profoundly Pointless. My name is Nick VinZant coming up in this episode, it's all about money, both how to save it. And the top five ways we wasted.
Danielle DiMartino Booth 0:25 Unlike going into the last major downturn in the United States, which was precipitated by households having way too much debt in the way of subprime mortgages. This one was precipitated by corporations and firms in the United States having way, way, way too much leverage. And that left the economy very vulnerable to a shock. You've had companies that that you would say, Wow, I can't believe they're still in business, be able to access the financing that they need. So we call them zombie companies and we now know that one in five American big American company is now a zombie company basically kept alive by very unfair, unbalanced policy that's been unleashed by the Federal Reserve, what we call the silver tsunami. So there's going to be a disconnect, if you will, between the homes that boomers want to sell, and the homes that millennials want to buy.
Nick VinZant 1:20 I want to thank you guys so much for joining us. If you get a chance, like, download, subscribe, share, we really appreciate it. It really helps us out. So this episode is first coming out in the beginning of July. And I think it's safe to say that this is an unprecedented and uncertain time, especially when we look at the economy and what's ahead. Our first guest is an expert in finance, the stock market and the Federal Reserve. She's worked on Wall Street has been an advisor to the Federal Reserve and is the CEO of quill intelligence, where she has been named one of the top voices on economic trends three years in a row. And I think that she has this fascinating insight into what's happening now. What's going to happen and what we can do about it when it comes to the economy. This is Danielle DiMartino. Booth. So essentially, when you look at the economy and finance right now, where are we? Where do you think that we're headed?
Danielle DiMartino Booth 2:24 Well, I think right now, the US economy is in its deepest recession since since the Great Depression. So I think that we're in kind of uncharted territory, if you will, at least for most living Americans. Unlike going into the last major downturn in the United States, which was precipitated by households having way too much debt in the way of subprime mortgages. This one was precipitated by corporations and firms in the United States having way way too much leverage. And that left the economy very vulnerable to a shock, which is why we're seeing a downturn of this magnitude following the Coronavirus outbreak,
Nick VinZant 3:04 Is there any chance we are just gonna bounce right back when this is over, or what do you thing in going to happen?
Danielle DiMartino Booth 3:12 Well, unfortunately, we're seeing that the economy was again in such a fragile place prior to this happening, that we've had the highest number of outright bankruptcies since 2009. And a lot of these companies obviously will go away and never hire again. We had a jobs report recently, that on its surface looked good with a falling unemployment rate, but unfortunately, we've we've had 2.8 million permanent layoffs in the United States to put that in some context, in the recession of 2001. That's about as high as we ever got with permanent job losses, and it puts it on par with sep tember 2008 at that point had into the financial crisis. We were also at this same kind of very high level of permanent job losses indicating that it's going to be a lot more than just the reopening impulse to put the economy back where it was, in fact, that could take years possibly,
Nick VinZant 4:16 For me, somebody who really doesn't know much about anything financial, like what should I be paying attention to the jobs report, the stock market, like, what what should I really be watching?
Danielle DiMartino Booth 4:31 I think the most important single factor that you want to pay attention to at this point is the jobs market. Because the US economy, at its most fundamental level is 75%. consumption. So we are what we spend as a country. That's the simple fact. So if people don't have jobs, or if a third of the companies that have not had to push through layoff but have cut incomes have cut, pay If that's the case, and people are less capable of spending what they did last year, and or they don't have a job at all. So again, we are what we spend as a country, follow the jobs market the most closely,
Nick VinZant 5:13 however bad that this is going to be. Is it going to be a quick kind of bad like we're going to know immediately or is it going to be a slow progress like, oh, wow, we're really not going to hit the bottom four months.
Danielle DiMartino Booth 5:24 Unfortunately, what we're seeing play out right now is that we're having a strong bounce back as there are rolling read openings going throughout the country, but at the same time, because there wasn't a coordinated national response to Coronavirus. We've got a massive wave in the Sunbelt of virus counts increasing. And we're seeing one city and state after another pull back on their reopening. So what we look like we're seeing in terms of an economic recovery is that we've got this sharp bounce back, headed into the second half and retrenching, so we're going to have something called a W shaped recovery where we slide back down. And to your point that is going to make recovery be much more protractedthan it would otherwise be.
Nick VinZant 6:14 Is it going to be a situation where the haves it's not going to be that bad and the have nots, it's going to be really bad? Is that going to be the case?
Danielle DiMartino Booth 6:22 Well, I think a lot of that, sadly, is going to depend on the next stimulus package that comes out of an increasingly divided Congress. At the end of July, there is a supplementaries $600 per week and unemployment insurance that is set to expire. A lot of rental moratoriums are expiring as well. And in some cases forbearances on mortgages also will start becoming due such that you will indeed have people of means people of wealth be fairly untouched by what's to come. But you will you will increasingly see those With less, it looked for alternatives so that they aren't kind of emergency financial emergencies in their life. Just to give you one example, we've seen a spike in the number of multiple, multiple parts of family bumping up together. So we, we've been joking about the millennials in the basement for a generation now. But this is an actual spike in the number of people who are either parents moving in with their children or children moving in with their parents.
Nick VinZant 7:29 Is there anything that I know obviously, hindsight is 2020. But is there anything that we as a society are from a policy standpoint, they could have done they could have avoided all of this?
Danielle DiMartino Booth 7:40 Well, now That's it? That's a very deep question. And the answer is that yes, there is something that we could have done many decades ago, when, with the advent of the credit card, and what what that taught Americans and what became ingrained in their way of consuming and behaving, as well as companies, as well as the federal government, then this is fostered by years of the Federal Reserve holding, borrowing costs at artificially low levels, which really does facilitate a lot more borrowing than then you could do otherwise. It's if it's cheap to borrow, then you can borrow more, right? Pretty simple. But it's it's become an ingrained part of our culture. And that left a lot of us families, as well as US companies. Hit by this, this outside shock of the virus, and completely unprepared because saving has become this extinct part of the American culture. And, you know, you might remember your grandparents or your parents saying, boy, you you've always got to save for a rainy day, but for so many Americans that was an abstract in theory notion, and what we saw coming into this was that how Hold with made $100,000 in 2019, that's 38% of these households to take one example had not a penny of savings set aside. So I think that this will leave a scar of sorts, it's certainly going to feel like a scar for Americans who become accustomed to getting the latest iPhone when it comes out and always upgrading their car every few years when it comes off of lease and always having the nicest newest things. I think that I think that there will be a lasting permanence, if you will, and how we view spending money going forward, because so many found themselves unprepared.
Nick VinZant 9:37 One of the things that struck me like I kind of, you know, I knew a lot of people that lived paycheck to paycheck, and that seemed to be a pretty consistent thing. But I was really surprised to hear how many companies were essentially doing the same thing.
Danielle DiMartino Booth 9:50 That's exactly right. You are seeing where even small and medium sized companies in the United States a didn't have a cache cushion, or B had too much debt taken out and found themselves, you know sideswiped by this by this tragedy that has seen a loss of small businesses that that concerns me will take many, many years, if ever to recover a recent recent survey by Yelp, you know, Yelp, you can always see Yelp online for this in that review. But a recent survey by Yelp found that a third of retailers, including small retailers, and over 50% 53% of restaurants say that they're going to be closed permanently. After this. These are massive numbers to recover from which goes back to one of your first questions. Whether or not this is going to be a matter of bouncing back in a matter of months or years.
Nick VinZant 10:45 I mean, are these solvent companies in the sense that like yeah, these are these are rock solid stuff. I'm thinking of like, Caterpillar things that you think of they're not going anywhere? Or is this kind of forgiving? For the phrase, like getting rid of companies that only had a couple of years left anyway,
Danielle DiMartino Booth 11:04 Well, unfortunately, what you raise is, there are going to be plenty of household names that are still household names, years from now. There were some small mom and pop companies that were just illiquid. And were not able to access the financing that they needed to bridge this crisis. But they were actually strong sturdy solvent, good balance sheet companies, but didn't get access to to liquidity because maybe they didn't qualify for the paycheck Protection Program. Maybe a lot of their boys were 1099 or they weren't able to use 75% of the proceeds for employment if they were only going to be open up, be able to open up their company in bits and pieces to in order to to adhere to health standards. So in that sense, we have lost some American companies that we shouldn't not have. But by the same token, because the Federal Reserve has opened up liquidity problems, excuse me liquidity programs to all kinds of junk rated companies, we also have a facilitated the living dead in the larger corporate sector with access to the capital markets access to the corporate bond market, you've had companies that you would say, Wow, I can't believe they're still in business, be able to access the financing that they need. So we call them zombie companies. And we now know that one in five American big American companies is now a zombie company basically kept alive by very unfair, unbalanced policy that's been unleashed by the Federal Reserve.
Nick VinZant 12:48 This may be a really naive question. This may be a good question. Why can't we just distribute money to everybody you know, the idea of universal basic income because it seems in some senses like You have to have a job so you can have money so that you can spend so you can prop up companies that hire people to have jobs. Like what? Why can't we just give people money?
Danielle DiMartino Booth 13:09 Well, we have, we have just given people money. We've been giving people money, since the cares Act was passed. And if you consider an extra $600 a week in unemployment insurance, when some people were only collecting 250 or $300 a week, there are a lot of people right now who are making more money collecting unemployment than they were making prior to being furloughed or laid off from their position. The question I think you're asking is whether or not we can we can sustain this type of policy indefinitely. And I push back on that because I'm of the belief that if we run up national debts to kingdom come, then eventually we will have people who buy our treasuries at auction when when when Uncle Sam is the one doing the borrowing that there will pushback among creditors to United States who say, wait a minute, you've got the checkbook wide open, you're just gonna run the debts up, because you have the dollar and the dollar is dominant throughout the world as as the means by which transactions take place. We all know that it's King dollar. But you've taken advantage of that status by running up your debts as much as you have. And then we're going to see pushback. And you see interest rates start to rise, and it's game over.
Nick VinZant 14:31 Oh, I see. Let me ask one follow up question that said, it's like somebody could essentially swoop in and buy the debt, and then they could eventually come calling is that kind of how it would work?
Danielle DiMartino Booth 14:41 Or they could eventually say good luck, we're not going to loan to you anymore. Picture. Picture the person in the year 2005, who was going to their banker to get the sixth or the seventh mortgage, because they'd become a professional home flipper. And the banker at some point says, Wait a minute, I'm not going to loan you any more. Because you've got way too much debt, you're not gonna be able to service that in the long run. So I'm gonna cut you off. So I'm going to quit borrowing. I'm going to quit and lending you more.
Nick VinZant 15:08 Switching gears a little bit. How did how did you get into this? What was it that drew you into this world?
Danielle DiMartino Booth 15:14 Well, I was I was fascinated with finance when I went to business school. I got out in 1996, and I started on Wall Street in New York. And it was, it was just a doggy dog. Pretty crazy, fun world back then, and investment banking. But at the same time, there was there was kind of this presence, if you will. This was when pets.com and anything calm for that matter, was able to get financing and do an IPO back in 1999 2000. And so you sense that there was something that didn't make sense that was fueling this mania fueling this bubble, kind of like these crazy Robin Hood or investors who we have today that are day trading their stimulus There's stimulus checks. And it wasn't until really I had left Wall Street and discovered what the Federal Reserve was and how big of an impact that it made on our day to day lives and actually joined the Fed for the better part of a decade throughout the crisis, that I came to a better understanding of just how little the average American starting with me knew about finance in the markets, even though I had worked in them. And that was kind of what got me off on this mission of trying to help educate the world on the importance of understanding economics understanding that the economy is not the stock market and vice versa and and the effect that debt has on your life on a small business life on a big company's life on on the US Federal Government's life on that of China and how how they interact. Maybe, maybe it's the beauty of having a better appreciation for sitting down and watching the evening news because it's You understand the economics of the world, you've got a heck of a lot more context to work with.
Nick VinZant 17:07 I know of the Fed. I know that the Fed is important, but I don't know what they do.
Danielle DiMartino Booth 17:12 Well, at the most basic level, the Fed is mandated with making sure that the dollar bill in our wallet retains its value. They're supposed to minimize inflation so that the buying power of your dollar is is is sustained over the long term, that that's that that's at the most basic and they're supposed to maximize employment in the US economy by having the most favorable interest rate policies that they can have to make sure that that lending is not cut off.
Nick VinZant 17:41 So for you like a typical day, are you watching the stock market pretty much all day long, looking at jobs reports, like how do you go about developing the research and the foresight that you have,
Danielle DiMartino Booth 17:53 you actually have a pretty good understanding of what I do. I follow the markets very closely every night. I watch it every Sunday evening, I watched the Asian markets open. I follow the news wires constantly. I watch economic data as it's released. And that's a worldwide phenomena. And and I follow what the financial markets, how they're interpreting it and what companies are reporting in terms of their earnings every three months or so that gives me an idea for where we are in any given economic cycle.
Nick VinZant 18:26 Are you ready for some of the harder slash listener submitted questions?
Danielle DiMartino Booth 18:31 Of course
Nick VinZant 18:32 Who do you think will have the harder time moving forward boomers or millennials?
Danielle DiMartino Booth 18:37 I think millennials will
Nick VinZant 18:39 have they gotten hit harder than any other generation in recent memory.
Danielle DiMartino Booth 18:44 Yes and No, I some of it lies at the feet of their parents who were overly indulgent. And some of it has to do with cosmically where they were. And that is in many ways At a time in American history when when four year college degrees were pursued to a fault, when there should have been more vocational training, encouraged in the US economy in order to maintain more balance,
Nick VinZant 19:14 do you see any kind of a collapse or any kind of big shift with all of the boomers retiring in the next 10 or 15 years?
Danielle DiMartino Booth 19:23 We definitely see going forward, what we call the silver tsunami. So there's going to be a disconnect, if you will, between the homes that boomers want to sell, and the homes that millennials want to buy. And some of it will be price in nature. And so I think that there will be a long term unexpected downturn in housing as boomers move to downsize unless that is their children are moving in with them, which is going to be the case increasingly. But yes, the boomers are going to be liquidating their their their investment portfolios and they We'll be consuming a lot less. The idea of boomers consuming less has been expedited by the Coronavirus because of the way that so many have reacted to the Coronavirus. And I say that they've reacted by not taking protections that allow older people to rejoin day to day life such that we really have locked down a lot of our seniors for longer than we otherwise would. And this will cause a long term ripple effect in consumption.
Nick VinZant 20:30 We try to stay a little bit away from politics in this on this particular podcast, I'll ask you this question. You don't have to name names, if you don't want to. But if you want to, then by all means, when you look at the upcoming election, do you look at one person as being significantly better than the other in terms of a financial policy
Danielle DiMartino Booth 20:50 better than the other in terms of financial policy? No would be the answer. I see. One of the underlying problems with politics in america today. Is that there is such extremism that you're voting for an extreme at one end or the other, as opposed to something that is closer to being rational and in the middle?
Nick VinZant 21:13 What is the best financial advice you have ever gotten or given
Danielle DiMartino Booth 21:18 the best financial advice that I've ever received is to save that there is no substitute for actually saving your money that you cannot rely on investment returns as much as you can rely on having that discipline to always set aside money. And then you can invest it prudently such that it grows with time, but first you got to say that
Nick VinZant 21:39 will crypto ever be a real thing?
Danielle DiMartino Booth 21:42 I think that sovereign crypto is in the works and that major nations will have cryptocurrencies one day. Really? You think I mean that
Nick VinZant 21:55 that far, huh? Oh, gosh. Yes.
Danielle DiMartino Booth 21:57 It's It's It's part of technology. That, again the Coronavirus has completely expedited, you now have a huge part of everybody worldwide who who wants to transact at an arm's length and in a sense, get rid of cash. So I think that we will always hopefully have the ability to have to say, gee, I'm an American, I want my hundred dollar bill option, or I want to have it in my checking account. But I think that a sovereign cryptocurrency a Fed coin, if you will, is inevitable, because it's in the works in countries such as Russia, Venezuela and China. So in some way, it's a matter of national security to ensure that there is a sovereign cryptocurrency
Nick VinZant 22:41 is there another country out there that you see this kind of going to join the ranks of big economic powers in the next reasonable timeframe.
Danielle DiMartino Booth 22:49 So I do think that we should be on the lookout for some smaller countries such as Singapore, some smaller South Eastern Asian countries that are more open to, to freer capitalism, and to more honest trade than what we've grown accustomed to with China. And so I think that I think that looking for alternatives to China is going to open the doors. Indeed for new entrants.
Nick VinZant 23:24 This one's kind of light hearted. We asked people ahead of time. What do you think is the biggest overall waste of money?
Danielle DiMartino Booth 23:30 I would probably have to say iPhones.
Nick VinZant 23:34 Yeah, it's not really that much different than the other stuff, is it?
Danielle DiMartino Booth 23:39 No, unfortunately, it's become apparent to me throughout the years that that whatever happens when you download a security update, kills your battery. Makes it to where you, you get so frustrated, you want a new iPhone, but in terms of functionality, not much different generation to generation, just the price is what
Nick VinZant 24:01 I still got the old one. I still got the five works. works just great. I had a blackberry until last year.
Danielle DiMartino Booth 24:09 I miss my Blackberry.
Nick VinZant 24:12 It's so great to just have the key. Did you have the keyboard kind? Or did you have the screen card?
Danielle DiMartino Booth 24:16 No, no, I had the keyboard kind. It was great.
Nick VinZant 24:18 I miss it. I really do. I really do. That's pretty much all the questions that I have. Is there anything? Anything you think we missed? what's coming up next for you?
Danielle DiMartino Booth 24:31 I'll be doing a little bit of traveling, which is saying something I haven't been on the road since February. But I will just keep on keeping on. I've got a research company quill intelligence. We produce daily and weekly. And I'm always easily accessible on Twitter as well at DiMartino booth. So come visit.
Nick VinZant 24:49 I want to thank Danielle so much for joining us. If you want to connect with her we have linked to her on our social media accounts. We're Profoundly Pointless on Facebook, Twitter and Instagram. And we've all Also included her information on the RSS feed that's in this podcast.