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DoubleLine Podcasts

S8 E21 Danielle DiMartino Booth on the World in the Wake of COVID-19

In a tour d’horizon of markets, macro and monetary mavens, returning guest Danielle DiMartino Booth joins DoubleLine’s Jeffrey Sherman and Samuel Lau to survey the landscape post-COVID-19. This episode was recorded July 10, 2020. Ms. DiMartino Booth is CEO and Director of Intelligence at Quill Intelligence. A former official of the Federal Reserve Bank of Dallas, she is author of the critically acclaimed book “FED UP.”

Ms. DiMartino Booth sees trouble for the economy in the latest producer price data print, crushed corporate profit margins and the frozen state of the credit cycle. For those who have been hoping for a V-shaped economic recovery in the U.S., she warns, “The second side of the V is going to be shallower as we veer into W.” Confirming reports of this expectation should appear in the regional Federal Reserve surveys.

Income inequality amid today’s economic hardship, the guest and the hosts note, could lead to a Democratic sweep of November elections, which would represent a watershed for the government’s agenda and central bank policy. “If you push the inequality divide too far,” Ms. DiMartino Booth says, “you’re going to end up with a sufficient mass of votes who want to bring in Modern Monetary Theory, who want to have universal basic income.” That in turn could lead to a rapid doubling of the federal debt and the reprise of inflation.

Among other topics, Ms. DiMartino Booth says that heavy levels of corporate debt amid skyrocketing bankruptcies pose another long-term threat to the economy, particularly in the retail sector. “Bankruptcy doesn’t mean what it used to mean because companies are so levered up that there’s not enough value that they can pull out and come all the way through restructuring and maintain the same footprint, … the same headcount,” she says.

What does Ms. DiMartino Booth believe investors might be overlooking or underappreciating? One area is the excess supply in the lodging sector, in particularly in full-service hotels and luxury apartments in central business districts. Much of this overbuilding, she notes, was financed by private equity and single-asset, single-borrower debt, a “wicked risky” asset class that did not exist a few years ago and in 2019 accounted for 47% of the issuance of commercial mortgage-backed securities. “Pensions, endowments, life insurance companies – inappropriate investors – have piled into this asset class,” she says.

Where might opportunities lie? “For people who understand office [property] and have dry powder,” she says, “I think there will be some historically amazing deals that get done on the cheap.”

Guest Speaker Bio

The views and opinions expressed herein are as of the date recorded and should not be construed as an offer to buy or sell any securities. Such views/opinions may differ from those of DoubleLine Capital or other of its affiliates and are subject to change without notice. DoubleLine has no obligation to provide any updates or changes. The following audio presentations represent DoubleLine’s intellectual property. No portion of these presentations may be published, reproduced, transmitted or rebroadcast in any media in any form without the express written permission of DoubleLine. DoubleLine has no obligation to provide any updates or changes. To receive permission from DoubleLine please contact info@doubleline.com.

Neither DoubleLine nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.

DoubleLine is not providing any financial, economic, legal, accounting or tax advice in these podcasts. The receipt of these podcasts by any listener is not to be taken as constituting the giving of investment advice by any DoubleLine entity or individual to that listener, nor to constitute such person a client of any DoubleLine entity. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

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