This week's Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking with Danielle DiMartino Booth, CEO & Chief Strategist at Quill Intelligence, and a former advisor to the president of the Dallas Fed.
The Fed is "winning" (for the moment), says Booth, but that doesn't mean she approves of the central bank's massive interventions into the markets. Booth wasn't surprised by Jay Powell's quick action as markets disintegrated earlier this year, but what did take her back was the Fed's move to buy junk bonds, and the fancy accounting and legal footwork needed to do so.
If all one cares about is the S&P 500 or the Nasdaq, it's all looking wonderful. But underneath the surface, says Booth, there are millions of homes and cars that need to be foreclosed upon, millions of rental tenants who can't pay, and tens of thousands of businesses that are bankrupt. The Fed has bought time, but the underlying issues remain.
Booth isn't arguing that the Fed should have done nothing, but instead that they went too far. Businesses are still bankrupt, only now they're going to head into bankruptcy with far more debt than if markets had been allowed to clear a bit more.
The discussion then moves to homebuilding ([[ITB]], [[XHB]]), where the outlook at the moment is rosy thanks to "people of means" leaving the cities for the burbs. For the rest, though, there are nearly 9M mortgages in forbearance and levels of delinquencies way higher than anything during the global financial crisis. Banks can't do a whole lot about it right now, but they know a good percentage of these properties are going to be hitting the market. While home searches, mortgage applications, and pre-qualifications might be going through the roof, deal closings for all but the most pristine of borrowers will be a different story. Prices need to come down.
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