The Fed JUST RUINED Us | The Great Fed Reset. — Transcript

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1. 0:00well it's too soon to say that the
2. 0:01Federal Reserve has turned dovish as
3. 0:03expected the Federal Reserve had to stay
4. 0:05hawkish but they gave us some hints of
5. 0:08how things could potentially turn dovish
6. 0:10that we weren't expecting which
7. 0:12initially LED stocks to Rally a bit but
8. 0:15that was quickly put to bed especially
9. 0:17as Jerome Powell told us that the path
10. 0:19to a soft Landing has narrowed the
11. 0:24window is shutting specifically because
12. 0:26we expect to stay at higher rates for
13. 0:29longer Jerome Powell made it very clear
14. 0:32that if today we were going to do a
15. 0:34summary of economic projections which we
16. 0:36lasted in September we would once again
17. 0:39which has been consistent for the past
18. 0:41year revise our expectations up keep in
19. 0:45mind the summary of economic projections
20. 0:47has a terminal fed funds rate projection
21. 0:49of 4.6 percent before you turning down
22. 0:53now drone Powell is suggesting that
23. 0:55would go higher how much higher we could
24. 0:58really only determine based on some of
25. 1:00the things that we've heard from Nikki
26. 1:02leaks over at the Wall Street Journal
27. 1:03whom over the last few days suggested
28. 1:06that the Federal Reserve seized the
29. 1:09potential for a terminal fed funds rate
30. 1:10between five and a quarter percent to
31. 1:13five and a half percent and of course as
32. 1:15inflation continues to be more Broad and
33. 1:18persistent we get a more restrictive
34. 1:20path that is necessary we did get some
35. 1:23answers to Big questions that we had
36. 1:25like is the Fed just totally blind to
37. 1:28the fact that if you subtracted shelter
38. 1:30inflation from CPI we would be at zero
39. 1:34percent inflation Jerome Powell actually
40. 1:36gave us an answer unfortunately it
41. 1:38wasn't the answer we wanted it was an
42. 1:41answer that just plays into the great
43. 1:43reset Playbook that the Federal Reserve
44. 1:45is just here to ream us and the answer
45. 1:48was yeah we know you could take out
46. 1:51shelter inflation and basically
47. 1:53recognize that inflation is zero and
48. 1:55that some of the recent leases signed on
49. 1:57the margin so the recent ones are
50. 1:59suggested that rental rates are coming
51. 2:02down but they're coming down from a
52. 2:04level that's actually higher than where
53. 2:05CPI is even recognizing that inflation
54. 2:08is in other words suggesting we actually
55. 2:10have more up to do before we go down
56. 2:12this is actually consistent with what JP
57. 2:15Morgan suggested that shelter inflation
58. 2:17would probably remain at a month over
59. 2:18month rate of somewhere around 0.7 to
60. 2:210.8 percent for another year which is
61. 2:24really bad because that suggests uh
62. 2:26somewhere between 8.4 to 9.6 percent
63. 2:28inflation from a segment of a CPI report
64. 2:31that eats up like 32 percent of CPI and
65. 2:34somewhere around 20 to 25 PC and so
66. 2:37while drum pal said we're well aware of
67. 2:39that unfortunately he's also well aware
68. 2:41that rents overall are still trending up
69. 2:45and even though on the margin they've
70. 2:47trended down we still have more pain
71. 2:49coming so he's focused on that overall
72. 2:51CPI picture this led markets to be
73. 2:54understandably a little bit sad and
74. 2:57questioning the federal reserve's path
75. 2:58especially when they talk about this
76. 3:00idea of hey I thought y'all were gonna
77. 3:03slow down which should not be considered
78. 3:06a pause Jerome Powell said at least
79. 3:09three times that it is way too premature
80. 3:12to talk about a pause a pause means no
81. 3:15longer racing rates instead Jerome
82. 3:17Powell talked about three steps and
83. 3:19three core questions
84. 3:20how fast should interest rates be raised
85. 3:24and he suggested look we've got to move
86. 3:26into a more restrictive territory and he
87. 3:28fumbled a little bit on one question
88. 3:30when we said as we move into restrictive
89. 3:33territory and then kind of corrected
90. 3:35himself and said ER as we continue to
91. 3:37raise rates suggesting he realizes we're
92. 3:39in a restrictive territory but ended up
93. 3:43saying even though we're in a
94. 3:44restrictive territory we still need to
95. 3:47keep hiking now we might hike at a
96. 3:49slower Pace the CPI data that comes out
97. 3:51over the next two reports between this
98. 3:53fed meeting and the next fed meeting
99. 3:55could lead us to slow our pace of rate
100. 3:59hikes in December to 50 basis points or
101. 4:02in the meeting after this uh December
102. 4:05again depending on reports Jerome Powell
103. 4:07said the Slowdown may come within the
104. 4:10next two meetings and as soon as the
105. 4:12next meeting however that's not to be
106. 4:14confused with the fact that they could
107. 4:16actually just keep hiking rates at just
108. 4:19smaller increments for example if we go
109. 4:21from 3.75 to 4 and a quarter with a 50
110. 4:24basis point hike next but then we go 25
111. 4:2625 25 25 25 25 we could be at five and a
112. 4:29half or six percent even with 25 basis
113. 4:32point hikes and so that's the second
114. 4:34question is how high do we go and all
115. 4:37Jerome Powell gave us here is we still
116. 4:39have a ground to cover in other words we
117. 4:41still have rates to hike so sure the
118. 4:44individual meeting to meeting hikes
119. 4:46might be a little slower starting in
120. 4:48December but what really matters is not
121. 4:51how fast we're hiking them anymore what
122. 4:53actually matters more is where we end up
123. 4:56which could be higher and would be
124. 4:58higher if we had to decide today than
125. 5:00what we previously expected on top of
126. 5:03that and this is still to be determined
127. 5:04is how long do we actually stay at those
128. 5:07higher more restrictive rates now
129. 5:09markets of course were very very
130. 5:11enthusiastic when we got this blue text
131. 5:14added to the policy statement which
132. 5:16suggested that in determining the pace
133. 5:18of the future increases for the Target
134. 5:20rate the committee will look into an
135. 5:23account for the cumulative tightening of
136. 5:26monetary policy and the lags at which
137. 5:29monetary policy works as this statement
138. 5:31first came out I talked about something
139. 5:34that Jerome Powell also ended up talking
140. 5:36about and that's that the first thing
141. 5:38that happens is the Federal Reserve
142. 5:41tightens rates or markets anticipate the
143. 5:44Federal Reserve tightening rates then
144. 5:46you see economic activity slow down
145. 5:49which generally starts with businesses
146. 5:51business fixed investment coming down as
147. 5:54Jerome Powell told us in today's uh
148. 5:56meeting you also start seeing interest
149. 5:58sensitive sectors like housing slowdown
150. 6:01and also again business investment
151. 6:04because businesses that are investing
152. 6:06tend to utilize rates that are based on
153. 6:08things like the Wall Street prime rate
154. 6:10the sulfur rate the liberal rate these
155. 6:13are all rates that move right with the
156. 6:15FED funds rate Jerome Powell made it
157. 6:17clear that consumers usually don't
158. 6:18borrow at this rate so there can be a
159. 6:20lag again when consumers react and then
160. 6:24only after the FedEx Financial
161. 6:27conditions tightening business economic
162. 6:29activity Titans and consumer activity
163. 6:32Titans then we start seeing inflation
164. 6:34come down and so we have no clear
165. 6:36charted path as to how long it's going
166. 6:38to take but he does recognize that there
167. 6:41are lags now while that lag talk was
168. 6:44really enthusiastic or created a lot of
169. 6:46enthusiasm for markets Jerome Powell
170. 6:48kind of ruined it really quickly because
171. 6:51he essentially told us look if we over
172. 6:54tighten we could just turn the money
173. 6:56printer on again this was not What
174. 6:59markets wanted to hear markets didn't
175. 7:01want to hear yay worst case scenario if
176. 7:03we over tighten we'll just turn the
177. 7:05money printer on so markets saw
178. 7:08something that kind of looked dovish but
179. 7:10then got really sad because they
180. 7:12realized Jerome Powell would rather over
181. 7:14tighten and then stimulate than not
182. 7:16tighten enough and lose control of
183. 7:20inflation and have inflation become
184. 7:22entrenched unfortunately that's bad news
185. 7:24for the stock market which means stocks
186. 7:26down and bad news for bonds which means
187. 7:29bonds down and yields up because what
188. 7:32you're saying here is Jerome Powell in
189. 7:35today's meeting tells us hey I don't
190. 7:37think we've over tightened yet but we
191. 7:39would rather over tighten than
192. 7:42undertight so in other words we still
193. 7:45haven't done you know the real damage
194. 7:47and we can keep going and we would
195. 7:49rather keep going than pause too early
196. 7:52this is why I made it very very clear
197. 7:54that we are not expecting a pause
198. 7:58anytime soon maybe we'll expect to slow
199. 8:00down and how quickly we move uh interest
200. 8:03rates up regarding a wage spiral Jerome
201. 8:06Powell says we don't see a wage spiral
202. 8:08right now however once you see it it's
203. 8:11already too late you're in trouble so
204. 8:13that was not exactly what we wanted to
205. 8:15hear however there was something
206. 8:16slightly bullish in that hey Jerome
207. 8:19Powell thinks we can actually end end up
208. 8:21seeing the jobs Market cool just by
209. 8:23having opens come down job openings come
210. 8:26down without actually seeing
211. 8:27unemployment go up personally I think
212. 8:29that's bullcrap personally I think you
213. 8:31need to see unemployment come up and I
214. 8:33think that's more of a political
215. 8:34statement that basically says yeah yeah
216. 8:37we could do this without causing
217. 8:38joblessness yeah right like I said
218. 8:41before the meeting and on Twitter follow
219. 8:43me there at realme Kevin I said it both
220. 8:45before the meeting and on Twitter before
221. 8:47the meeting
222. 8:48Mom and Dad don't skip out on traveling
223. 8:52a steak dinner because Jay Powell raised
224. 8:54rates but they do skip out on travel and
225. 8:58a steak dinner when they lose their jobs
226. 9:00that's when consumers get affected and
227. 9:03that's the kind of lag that we're uh
228. 9:05we're waiting to actually take hold of
229. 9:08markets but we just haven't seen it yet
230. 9:10especially since consumer spending is
231. 9:12still growing and household spending
232. 9:14might even be offsetting government
233. 9:16spending that we previously had
234. 9:18something Jerome Powell talked about the
235. 9:20shift of fiscal spending to household
236. 9:21spending because household balance
237. 9:23sheets are so strong he does suggest
238. 9:25that or re-suggest the importance of the
239. 9:28housing market coming back into balance
240. 9:30this is an area that he believes is very
241. 9:33overheated and has been very overheated
242. 9:35and that there's still more work to be
243. 9:37done in the housing market remember that
244. 9:38Jerome Powell was the one who told us
245. 9:40hey if you're a first-time homebuyer I
246. 9:43might wait for more of a reset in the
247. 9:45housing market before buying and this is
248. 9:47something I've been talking to all the
249. 9:48core members about in the real estate
250. 9:50investing course when we do deal
251. 9:51analysis and we look at comparables
252. 9:54comparable sales and investment
253. 9:55opportunities say you know what just
254. 9:58probably not the best time yet but stay
255. 10:01tuned same is true for househack we're
256. 10:03waiting but anyway balance sheet is
257. 10:06still being reduced not too much insight
258. 10:08into the balance sheet are concerned
259. 10:10about inflation break evens starting to
260. 10:13Trend a little bit higher we uh this is
261. 10:15this is a big concern actually is the
262. 10:17potential for inflation break evens to
263. 10:20uh move even higher than where we've
264. 10:23been used to you can see this chart here
265. 10:25over the last year we've started to see
266. 10:26inflation break evens move up again on
267. 10:28the right side that's not the direction
268. 10:30that we want to go in and when asked
269. 10:31about the inversion of the uh the
270. 10:36three-month real uh bond yield curve we
271. 10:41are close to it but not there yet
272. 10:44however once we see that inversion we
273. 10:47tend to confirm from a recession as you
274. 10:50can see depicted graphically here
275. 10:52so basically Jerome Powell tells us yeah
276. 10:56look there are lags in the economy and
277. 10:59it takes time to bring inflation down
278. 11:01but we're in an unprecedented time and
279. 11:03we'd rather hike more than do too little
280. 11:06so in other words keep shorting sell
281. 11:09your stocks get out of margin because
282. 11:12he's about to get hosed and enjoy as we
283. 11:16continue to tighten rates more at the
284. 11:18Federal Reserve for longer again
285. 11:20remember you could be at 3.75 and I just
286. 11:23want you to think for a moment about how
287. 11:25how this could go because there is no
288. 11:27there's no this whole like pause talk is
289. 11:29nonsense there's there's no pause yet
290. 11:31right well we really want to pay
291. 11:33attention to is the following take a
292. 11:36look on screen now you go from where we
293. 11:39sit now
294. 11:403.75 and just go to 4.25 with a 50 basis
295. 11:46point hike watch we do another 50 basis
296. 11:49point hike and then you just go 25 25s
297. 11:52right then you could be at five percent
298. 11:54so let's say this could be December
299. 11:58right here let me get the full calendar
300. 12:00and I can give you uh actual dates as
301. 12:03well fed fomc meeting calendar so this
302. 12:07right here would be November 2 2022 then
303. 12:11we've got December is next
304. 12:16and oh that is the wrong calendar come
305. 12:20on Kevin
306. 12:22here we go December 14th December 14th
307. 12:27we could be at 4.25 January 27th right
308. 12:31before my birthday 2023 we could be here
309. 12:33and this would be a 75 50.
310. 12:3950 uh 25 right you can see something
311. 12:43like this this would be March 17 March
312. 12:4617 2023 then you could see April 28 2023
313. 12:52again another 25 right you could see
314. 12:55this continued hiking for for quite a
315. 12:58while and so this idea that oh the fed's
316. 13:01ready to reduce rates not necessary June
317. 13:0516 July 28 2023 right I mean look at how
318. 13:09long this could keep going you could be
319. 13:11at five and a half percent right here
320. 13:12you could be at 5.75 percent right here
321. 13:15and quite frankly by September of next
322. 13:18year 22nd 23 you could be at a six
323. 13:21percent fed funds rate entirely possible
324. 13:23now we don't want to go to those levels
325. 13:25but even with 25s you could get to six
326. 13:29percent before September that's scary
327. 13:32you know if now you you start moving at
328. 13:34uh at 50 basis point hikes it moves even
329. 13:37faster but it shows you like now we're
330. 13:41not so worried about this decline right
331. 13:43here certainly the market shouldn't be
332. 13:44so worried about this this move from
333. 13:46going from 75 to 50. that's not where we
334. 13:50go bullish where we go bullish is in my
335. 13:54opinion when we start seeing something
336. 13:55like this where we go oh we're going to
337. 13:57cut rates by 20 negative 25. but how
338. 14:00much time is between hikes and cuts and
339. 14:04that is all a big old question mark but
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350. 14:27much for being here we'll see in the
351. 14:28next one good luck