The Fed's Great Reset JUST Hit a Wall

well folks just minutes ago we got more

data out that follows up on yesterday's

data which really gives us some more

color on the Federal Reserves a great

reset the Federal Reserve made it very

clear we need to look at the data and we

just got three sets we got GDP yesterday

we got inflation via the fed's preferred

pce gauge this morning as well as the

employment cost index and it's important

to set this up appropriately on one hand

yesterday stocks plummeted after we got

the annualized GDP report that's because

we were expecting an economy that was

growing at a modest or moderate Pace we

were looking for an annualized GDP read

of 1.8 percent which remember what

annualized means when you're calculating

GDP it means you got a read of GDP

growth of 0.45 over a three-month period

and then you just multiply it by four

and you get 1.8 percent but we didn't

actually grow at point four five percent

if we grew at 0.45 and inflation came

down hey everything's probably peachy

the economy is still moving along in a

modest positive way probably don't need

the FED to keep hiking rates and

inflation seems to be trending down

unfortunately well or fortunately and

that's the Twisted world we live in

right now we actually got a number that

was quite different from this yesterday

and we had some numbers this morning

they're also quite different than

expecting what'd we get we got point six

percent on the three-quarter basis which

gives us growth of 2.4 percent on GDP

that means the economy is actually

growing faster than expected and a lot

of folks are nervous that if the economy

is growing faster the fed's going to

have to do a lot more to rain in

inflation that's because there's a

belief especially amongst the Bears that

the hotter the economy operates the more

inflation we are dealing with

but that's also what people thought in

China when China went to reopen they

thought that when China went to reopen

we would have this great burst of a

second wave of inflation and back then I

argued wait a second China's economy was

doing quite well and growing at an

average clip of eight percent which

would be like two percent per quarter

for like four times our growth rate

for nearly a decade before the pandemic

and they were not facing inflation

in fact if anything everybody was

worried that in the longer term

Innovation would drive deflation which

is in fact what Japan is facing so much

so that they just had to adjust yield

curve controls to essentially stimulate

their economy

and so this is where we could look at

today's data which Jerome Powell told us

to pay attention to and ask ourselves

okay is this really a bad thing now one

thing that is bad is end phase is

forecast for solar in Q3 even though Q2

beat like crazy Q2 was fantastic million

dollar buyback beats All Over beats on

EPS beats on Revenue everything almost

speeds or Revenue was more roughly in

line but Beats at least on EPs and

margin great numbers really for Q2 Q3

complete disaster though makes you

wonder is it a by the dip or is

something happening to solar demand and

could that tell us something about the

strength of the consumer

who knows but what we do know is that

this morning we got the employment cost

index and pce

ECI is really important because it could

flag a wage price spiral it's something

we've been paying attention to but it's

been that sort of gopher that just never

comes up

the employment cost index in the prior

read had a read of 1.2 percent

in this read we are expecting 1.1

percent what we actually got was amazing

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them out link down below so what did we

get on the ECI we got one percent as an

actual read which is great we actually

came in lower than expected again we

were looking for a 1.1 prior was one two

we got 1.0 fantastic what about pce the

fed's preferred inflation gauge on a

month over month basis we were expecting

0.2 we got point two on a month over

month core we went from a prior of 0.3

to expecting 0.2 we got point two so a

very much in line info inflation read

here on a year-over-year figure we got a

three percent handle on the pce and year

over year core we got 4.1 versus the 4.2

expecting expected and the prior core of

4.6

so this really sets us up for a

fascinating environment because on one

hand you're going to have the Bears say

that the FED can by no means Crush

inflation

if the economy is growing strong that

those two things are just going to run

Contra to each other and unfortunately

if the economy does well we're just

going to need to anticipate more raid

hikes when on the other hand the Federal

Reserve made it clear that they just

want to see inflation fall and they're

willing to exhibit some patients that's

what Jerome Powell just mentioned in his

last presser finally he mentioned

they're willing to exhibit some patients

and the reason for that is even though

they really want to get inflation down

as quickly as possible while inflation

expectations are anchored they're

willing to be somewhat patient so that

way we don't end up with a lot of

joblessness and layoffs because that

creates a lot of human hardship

especially if inflation is trending down

and all you have to do is be a little

bit patient to see it come to fruition

of course everything comes down to what

actually caused inflation we personally

believe that it was the rapid accelerate

duration in the rate of money printing

that caused inflation not necessarily

money printing in itself now of course

we understand that's different from what

the Austrian economists think who say

that anytime you expand the money supply

Kevin that is inflation to them you

might have some stress over the next few

years as the bull market potentially

continues on Via the Nike Swoosh

recovery and yeah there'll be some

volatility yeah there'll be some buy the

dip opportunities but you can always buy

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it out at mykeven.com life so what do we

have here the five-year Break Even chart

showing us that yes inflation

expectations have popped up smidget

nowhere near what they popped up in

February where we ran up to about 2.6

2.7 percent we're still stable at about

two three but we are up from about that

2-2 level and we're slowly sneaking up

on this so I'm really watching this

level I'm surprised it did not sneak up

more after those GDP numbers yesterday

in addition or uh yeah actually after

those GDP numbers yesterday specifically

uh in addition to that we have the

expectation for the terminal rate for

the Federal Reserve it did not actually

move up after the GDP numbers yesterday

and hasn't moved much after the

inflation numbers this morning now this

is actually really interesting because I

would have expected that this number

would have popped a bit but this is a

sign that the bond market is actually

siding with the bulls in this regard now

I know that sounds crazy because the

inverted yield curve but the bond mark

is telling us nope we don't actually

have to price in another rate hike nope

we're not really worried about runaway

inflation now every bear and their mom

has one Big Tool in their War chest and

it is called the inversion of the 10-2

yield curve how however we have to be

real with this and this is actually a

debate that those on Wall Street

regularly have

regularly have we have to be real and

consider that yes it is the steepening

of the yield curve that's the problem

not just the inversion the Bears agree

with this as the yield curve inverts

well or sorry re-stepens that is goes

from being negative to positive again we

tend to get pain and their the Bears are

going to look at yesterday and they're

going to say Kevin did you see how GDP

came in stronger yesterday did you see

how stocks sold off a lot yesterday that

was just a little bit of re-steepening

prepare for even worse re-steepening and

this is

I have to hand it to them the best

argument they have because take a look

at this this shows you the tend to

inversion anytime we are under the zero

we tend to Signal a recession within 18

to 24 months as you can see we actually

inverted right about when the Federal

Reserve started hiking in March of 2022.

now some of the Bulls like to counter

argue this and say well this is just the

bond market pricing in the fact that

inflation is likely to plummet after all

if inflation is going to go away why

would you not pick up some of these look

at this this is the 30-year treasury

back over four percent why would you buy

a two-year treasury yielding you say

five percent but only for two years when

you could literally lock in essentially

guaranteed money from the government

at four percent for the next 30 Years

this is way different from you buying uh

or putting your money into like a Robin

Hood where you're gonna get four percent

for maybe the next few years this is

getting four percent for the next 30

Years every single year that's a really

good deal why is that happening though

what could that have to do with the

inversion of the yield curve well right

here this is what the bond market is

doing they are buying the long bonds and

they are not buying the short ones this

makes sense let me ask you this would

you rather buy stocks in a volatile

environment like potentially now

or buy a two-year treasury bond well I

think the opportunity cost of a two-year

treasury bond is likely a lot higher

you're probably better off buying stocks

would you now rather buy stocks or

guarantee four percent for the next 30

Years A lot of the population Pension

funds hedge funds

retirees we're going to look at this and

go a base at four percent locked in for

the next 30 years is a great deal let's

get that in fact a lot of Pension funds

only need to return like five to seven

percent so if you could create a base of

a four percent asset and then throw in

some other assets that could maybe

potentially get you the rest of the

yield that you need you don't actually

have to do that much work so it makes

logical sense to allocate a lot of money

to a four percent treasury for 30 years

it's incredible it's a great way to get

the yield that you need and then you can

arrest invest in other assets that that

you desire to invest in or what other

whatever for the rest of your return

this is why institutions are buying long

treasuries and they're not putting as

much pressure on the shorter term

treasuries what happens when you do that

well folks when you buy long anything

you buy you lower the yields on when you

don't buy short you actually

increase by lowering demand therefore uh

and lowering the price you actually

increase the yield of the shorter term

stuff and guess what that's how you get

an inversion usually this works in

opposite but this is such we're in such

a unique circumstance where you can buy

these really high yielding longer term

bonds and the shorter term ones come

with more risk it somewhat makes sense

that the yield curve is inverted and any

of the latest data that we have shows

that at least based on GDP we're at

least six months away from a recession

and frankly by then we might have blown

way through the potential of getting

into a recession so buckle up things are

still going to be volatile and you can

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by me so what is the big bottom line

here the big bottom line here is

GDP is stronger than expected that's

great for earnings it is great for

workers and employees what else do we

have inflation continuing to fall along

expectations and the employment cost

index coming in lower than expected this

sense the FED doesn't have to do more on

top of that I mean this is this is

frankly the Goldilocks definition and

the inverted yield curve makes logical

sense because of institutional

allocation now what's potentially a

value play to make out of all this well

look at Intel's earnings I've allocated

quite a bit to Intel over the last eight

months and they just smashed earnings by

six well they're up about six percent in

pre-market pay attention to Intel read

about Intel Intel a lot of people look

at and say it's a value trap I look at

it and say they are investing to be

American greatest chip manufacturer and

they're getting some big old stimulus

money from the government so we want to

pay attention to Intel and we also want

to pay attention to the solar industry

the solar industry is still going

through really what's probably the start

of the solar recession so we'll have to

be somewhat careful about the solar

industry but there's an argument to be

made that once we get back through all

of this madness Sorrel solar we'll be

right back to growth so decide how you

want to play these but these are still

two great stocks and face and Intel and

we'll see you in the next one thanks so

much and have a great day bye now I want

you to know this when it comes to AI to

time is what's going to make you money

and if you can prove that value to an

employer you'll always be able to be

employed so this is another way of

making sure that you don't get replaced

but

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