Ep59: Danielle DiMartino Booth – Don’t Fight Liquidity, Flow with It

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Guest profile

Danielle DiMartino Booth is CEO and director of Intelligence for Quill Intelligence LLC, a new research and analytics firm. She is known for her meticulous research in the financial markets and her unique perspective honed from years of experience in central banking and on Wall Street. Danielle is a global thought leader sought after for her insights on monetary policy in the United States and abroad. As a sign of the high value placed on her expertise, European Parliamentarians invited her to Brussels in May 2018 to share her insights on global economic trends and fiscal policy.

Track record at Federal Reserve Bank of Dallas

Last decade, Danielle spent nine years from 2006 at the Dallas Fedwhere she served as advisor to that districts president, Richard W. Fisher, until his retirement in March 2015. She provided market intelligence and policy briefings and advised Fisher on policy, a unique role that had not existed outside of the New York Fed before her appointment. Get to know Danielle in todays feature story, her remarkable career journey from working in equity markets, then as an advisor to Fisher, to her current role as a financial consultant, author, and commentator. More importantly, discover what she regards as her most significant investment loss and the valuable lessons she learned from it.


My biggest lesson that Ive ever learned is that I will never again deny the simplicity and the utility of liquidity and its as simple as that.

Danielle DiMartino Booth


Analyst has also dodged some major bullets in her time

While these podcasts are about the missteps our guests have made, Danielle has also had a considerable share of good fortune or made decisions that saved her from calamity; none perhaps more than when she turned down employment offers from four of the most ill-fated companies in US history: Arthur Andersen, Enron, Lehman Brothers, and Bear Stearns.

So, as she told Andrew: You never know in life that your choice might just end up being serendipitous but indeed providential at the same time.” This all happened right before Danielle started working on Wall Street, which was ahead of her return to Dallas to serve at the Federal Reserve. This was also a move she had never planned to make. Danielle revisits New York every two or three weeks to contribute analysis to media outlets as a “Fed Whisperer”, offering explanations as she “understands how central bankers think”, a rare talent indeed.

‘Architect’ of liquidity reboot fails to take own advice

As a Fed insider, Danielle witnessed the meltdown following the financial crisis of 2007-2008. Her Dallas Fed boss at the time, Richard Fisher, was being criticized for comments against the Fed lowering interest rates to the zero-bound”. He had pointed out that the ongoing problem was not a case of the price of credit being the impediment to the market working but rather liquidity being frozen, despite it being richly liquid in the preceding years.

Danielle reviewed and understood her boss’ comments. She had helped to create many of the liquidity systems applied via the New York Fed. She had helped to turn on the financial “jaws of life” to force open the capital markets with liquidity facilities. What she realizes now is she had listened but not truly heard, looked but not truly seen, and had learned little from her experiences.

Despite being “one of the chief architects of these facilities”, she said was perhaps blinded by the emotion brought on by taking interest rates to zero unnecessarily. She then saw first-hand the collapse of the global investment bank, Lehman Brothers, and the bailout of AIG at the cost of US$85 billion. In the following months, she saw quantitative easing (QE, more or less printing moneyrolled out and the effect that had on financial markets. Again and again, she failed to recall the lesson she had taught others about the importance of liquidity.

Now 10 years on, Danielle notes that the European Central Bank (ECB) has finally stopped its QE program (one of the measures used to stimulate liquidity and therefore the markets) early this year but warns that it is going to be the first time in more than a decade that the economic world will be net negative in a global liquidity position.

Danielle’s takeaways

1. When liquidity opened up, Danielle says she should have jumped in feet first and invested enthusiastically to follow the flow until ECB chairman Mario Draghi put a halt on the ECB’s QE, but not until then because …

2. “Liquidity is global. It is fungible, it is agnostic, it knows no borders, and it knows no asset classes. It flows to wherever the cracks are open.”

Liquidity moves where it can “find a home”. Every single asset class in the world has moved up, even gold, because of the rise in liquidity, which, over the past decade, “has found many homes”:

a. Australian, New Zealand and Canadian real estate

b. Commodities markets

c. Hong Kong residential real estate

d. Commercial real estate in London

e. Corporate bonds in the United States

f. Stocks almost anywhere

3. Investors need to understand that as long as the wave of liquidity exists, they should not fight the waves. She explains: “As long as the liquidity is abundant, then you should be invested in risky assets.”

4. BUTNow that liquidity is being withdrawn, the markets (and investors) do not like it at all.

5. Investors worldwide should be really aware of what central bankers are doing, and that is, all central bank bosses are applying the same policies

  1. Even the Bank of Japan appears like it will not continue down the QE path.
  2. The fact that QE is being pulled back into 2019 “should be completely front and center for investors worldwide”.

Andrew’s takeaways

1. Looking back at Danielle’s time at the Fed, interest rates were coming down.

2. As she said, the price of credit, in other words, the interest rate, did not cause tightening in that market. Instead, the banks were flush with cash, but they were not lending.

3. Though lending rates were low, banks were risk averse and had held back on lending.

4. The Fed stepped in and tried to get liquidity moving in the system.

5. When interest rates are brought down and floods of money come into a system, you usually get two things:

  1. Inflation, and
  2. Malinvestment


Debt and how investors should prepare for the storm

Andrew Q1:

  • Companies and individuals were really hurt after the crisis, so they did not borrow that much in the first five years after the financial crisis. But a lot of that bad debt went onto the balance sheet of the US government.
  • Now the government’s sitting on a huge pile of debt and that is partly put on the Chinese government also.
  • Is this just a currency/government problem or is it really a consumer and a company problem now?

Danielle A1Both, sadly.

  • China’s debt to GDP ratio in China is above 300%; its non-financial debt is the likes of which we’ve never seen.
  • Non-financial debt to GDP in the United States is higher than it’s been in the history of mankind.
  • So is government debt – looking at US$1.3 trillion in deficit by next year.

Andrew Q2:

  • What should the average Joe investor think now that we see that the market is very high, driven by lots of the factors that we’re talking about? Is it going to go higher? Or should they think it is headed for a crash? Or can the markets be maintained at this level?

Danielle A2:

  • A lot of people think that governments and/or central banks are going to turn on the money-printing-press again.
  • BUT: Before they turn the presses on, they will have to lower interest rates back to the zero-bound.
  • That means going through a recession to get there.
  • I lost in the weeds … because I was a bitter person inside the factory, inside the money-printing institution.
  • As long as the liquidity is abundant, then you should be invested in risky assets. If the liquidity spigot turns off, then you should not be ashamed to take advantage of 3% returns on cold hard cash and maybe have some gold as a hedge, in the coming one or two years.

Final words from Danielle:

You always take your profits off the table. If you want to let the dice roll, leave your cost base is there, take your profits. Put them in something safe, call it a day and youve still got a foothold in your original position.

In other words, when she was working on Wall Street, Danielle used to have a yellow post-it on her computer that said:


“Pigs get fat; hogs get slaughtered.”

Danielle DiMartino Booth


Resources from Danielle DiMartino Booth:

About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.

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