Former Fed insider Danielle DiMartino Booth is not optimistic about a surging economy in 2018.
“We have seen 24 consecutive back-to-back months when credit card spending has outpaced incomes. That tells you households are struggling to get by. This is not Yves Saint Laurent handbags and Jimmy Choo shoes. These are families who are using their credit cards to take care of the necessities, to fill up the gas tank, to buy groceries and fill up their refrigerator...
We have seen month after month of subprime automobile delinquencies, and we are starting to see a big tic up in FHA mortgage delinquencies as well.
...We are at almost 10% (delinquencies) of FHA mortgage loans. Underlying this sugar high that we will see from all of these hurricanes and rebuilding efforts and wildfires, underneath that, still waters run deep and the economy is not doing well. We are a consumption driven economy that is weakening underneath.
The sugar high will absolutely wear off in 2018.”
What about the bond market in 2018? Booth says,
“We have gone from $150 trillion (in global debt) in 2007 to $220 trillion and counting today. If you delude yourself into thinking a rising rate environment can be good when we have tacked on $70 trillion of debt in the last decade, you are fooling yourself.
It is an accident waiting to happen, and anyone who doesn’t think that it will take the stock market down with it is more optimistic than I am by a country mile.”
Booth says, along with a “bond market debacle,” the world will see inflation right along with it. Booth explains,
“Look at lumber prices, look at the cost of packaging, plastics, raw materials, the producer price index... is at a six year high right now. It’s called the mother of all margin squeezes.
Companies are suffering. We have inflation. We have very real inflation, and it is hitting corporate America between the eyes. We have seen inflation happening, and we continue to see it happening...
Rental inflation is off the scale...Inflation is up for 2018, and it has been up. We can have deflation and inflation at the same time. If all of this debt that has built up, especially for households, if they are allocating more of their income to servicing debt, then they have fewer dollars to spend on other things. So, you are going to have deflation and inflation at the same time.”
What does the regular guy on the street do? Booth says, “Figure out a way to have exposure to precious metals. Put your bubble vision on mute. You do not have to be invested in the market. That is a fallacy. Take what you have and pay down your debts.”
Full Interview below:
After the Interview: Danielle DiMartino Booth said after the interview,
“I am scared because we (America) are in a really bad place right now. People (in the markets) are going to get shellacked. They have no idea what the momentum is going to look like on the downside.”