The Fed Shifts AGAIN | This Changes Everything.

quick note if you're in la san francisco

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free to meet me at any of those go to

meetkevin.com to rsvp to cap why would

the market start going up

if we have all of the same uncertainty

certainties that we had all week we've

been uncertain about covid we've been

uncertain about afghanistan we've been

uncertain about supply chain shortages

we've been uncertain about the taper all

of these issues have been an issue

leading the market to soften and then

sort of sell off while the sudden are we

seeing the market go up maybe this has

something to do with it let's understand

this kaplan uh who is uh the dallas fed

president says he's open to shifting his

stance

on the taper

if delta curbs the recovery

so this is really interesting dallas fed

president robert kaplan said he's open

to adjusting his view that the fed

reserve should start tapering its asset

purchase program sooner rather than

later if the delta variant persists and

hurts economic progress so this is

interesting so in other words he's

saying

if delta

is continues to suck and continues to

create issues in our in it with code

cases going up then then maybe we don't

taper yet which is kind of crazy because

we're already pumping money into the

market like crazy

and this this essentially would continue

that 120 billion dollars per month of

treasuries and mortgage-backed

securities which just seems wild but uh

like personally i kind of want to see

the taper happen sooner because it

lowers our inflation risk if they're

saying hey we'll wait on the tape or

we'll just keep printing that funny

money

then uh then really potentially we're

we're increasing

the potential for eventual inflation and

higher pricing kind of interesting so

i've got to be agile open-minded and

avoid being rigid about if i saw that

delta variant was going to be persistent

enough or unfold differently uh say then

it has in other countries the uk or

india and be more challenging to where

it starts to affect demand okay so in

english

he's like dude if they also goes bad i'm

gonna change my mind

uh let's see i've gotta take into

account we'll adjust my views

accordingly

most uh fed officials see this week we

also got the fed minutes which were a

little bit more hawkish on on tapering

which hawkish means like they're more

interested in spending less money and

printing less money

uh more being more conservative fiscally

conservative often deemed as hawkish

like a deficit hawk right

but uh

this is fascinating because now he's

basically saying hey we're even though

the minute said that we're open to you

turning

okay

so let's see here yep we talked about

the minutes covet cases have spiked

across the country we've got a month or

so to see how this all unfolds

interesting so what they're saying is in

september towards the end of september

they're going to decide this is actually

a potential

catalyst moment where

maybe if we have a dip we would see that

dip between now and the 20th maybe of

september or mid-september and then what

if in mid-september the fed goes you

know what we decided we're not going to

taper this year does that potentially

push us into a euphoric rally does that

mean today's bull trap is not

necessarily a bull trap and that maybe

the market's trying to potentially price

in oh sweet we might still have funny

money for a while that's very

interesting

this is fascinating let's go back to

this because that is that's what we're

seeing here while the u.s unemployment

rate fell to a pandemic era low 5.4

percent in july vaccines rose to a

record okay great highlighting

businesses persistent struggles to hire

enough workers so we continue to have

the worker shortages continue to have

child care obligations we do have

enhanced unemployment benefits ending

september 4th but that could potentially

put more of a struggle on folks reduce

the cash people actually have on hand

while at the same time the fed

doesn't potentially taper gosh see

everything is contingent on delta right

now and the market is i think excited

today over the potential that okay yeah

delta might might be here more but

you're saying you're going to give us

some more of that some more of that

stuff

[Laughter]

which is really interesting

so when i weigh the efficacy of uh that

versus side effects that's why i've said

that we'd be a lot healthier to start

weeding off these purchases as soon as

we're able to i don't know how effective

these purchases are at this stage right

exactly so

he's still leaving that skepticism up

but this is a big piece right here to

suggest that hey maybe maybe if delta

goes bad we we won't continue to taper

so i let's understand that a little bit

i think the easiest way to understand

that

is uh let's do something graphically

so

let's see here how can we do this how

about

oh here we go so this is my graphic on

what i think is is happening in the

market right so we've got this we have

this expected curve of inflation in red

and then we have in green the current

and expected path of inflation showing

you that inflation has been higher for

longer

then we have what potentially delta

could do and see delta

delta i mentioned this before delta

could lead to deflation temporary

deflation which is this purple line

going down

and what kaplan here is saying is well

if we have that deflation

occur then maybe what we need to do is

we need to print more money longer to

minimize this and and basically try to

curb that deflation do something like

this right

by doing so though they're injecting

more money into the markets and it makes

you wonder if they inject money in to

prop up deflation over here

and and maybe we do have that sort of

deflationary curve that looks like this

it's a little bit better it's propped up

does that mean we're going to see

more inflation

up here in that longer run right

so that's that's really what we're

facing here is this concern over

uh it it's all it all relates back to

inflation and this talk about taper is

is this temporary stimulus where

potentially we could see

lower inflation or deflation while at

the same time more mark money in the

market and i think the market is being

very short term right now because the

market is very uncertain about the

longer term so it's easier for the

market to go oh you're saying we might

have some more green for another like

three or four months okay yeah sign me

up so it's almost like the market is

being so super short term like three to

four month

outlook here because there's so much

confusion about china

when a rate's going to go up the supply

chain issues the port

constraints right and delta's basically

trying to get people to line up here to

prepare for for a potential coveted

winter again so this talk about maybe

not tapering as soon as first of all

like a u-turn from uh the the

aggressiveness we've heard over the last

few weeks so we're going to taper soon

and we're probably going to taper faster

and quicker than we thought and now

we're you turning to well but if delta

comes back you know maybe maybe we need

to chillax a little bit in fact take a

look at this

we go to uh look at the 10-year treasury

yield right now

which is very it's sort of our tell of

what's going on with people's

expectations on inflation we could see

the 10-year

pump uh bumped up a little bit today not

not much it went from 1.24 to 1.55

but that movement up is maybe a little

bit of a tell that now the bond market's

going oh

well if we're not going to taper as soon

maybe that does mean we're going to have

a little bit of a longer and you know

inflationary pressure and maybe 10 years

need to push up again

really interesting uh what's this quick

link to the fed taper plan the fed's

plan to taper support is just one of

several hurdles for the bond market

let's take a look into this here's just

a cnbc pro article

touching on this as well federal

reserve's plans to start exiting its

easy money programs this year

opposed potentially the most serious of

several challenges the bond market faces

okay talk about

yields maybe stopping the taper

additionally continued inflation

pressures also threaten to push yields

higher

right we know this tougher road ahead

okay it's complications in terms of

exactly how we're going to tape or what

we're going to do this seems to be a

little bit more of a nuanced article in

terms of the workings of the uh

the bond market rather than uh

you know what we just talked about which

is a little bit more broad so this is

interesting uh this this i think is uh

very interesting and it's something

that's worth paying attention to so this

is why i don't love looking at the

minutes because the minutes are old

they're like you know six weeks old

or a month old so

this new shift of hey if delta gets

worse we're not going to taper is

potentially going to shift

and create this this new shift in fact

i'm going to put it in here

so we have it i'm going to put it in

here as this little orange shift if we

get the taper to continue

you know maybe deflation then doesn't

come in as much as expected but we see

inflation actually come back a little

higher than expected and so this would

be

taper

delay we'll call it a tapered delay

uh due to it's really due to delta

uh due to delta hey look we could just

put a triangle because triangle stands

for delta

anyway interesting shift by the fed

worth paying attention to so thanks for

hearing me out on that one

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