Warning: The Fed's Planned 18-Month Recession [You are NOT Prepared]

oh boy it's a very painful the failure

of First Republic Bank was the second

largest bank failure in the United

States his entire history the 14th

largest bank in the U.S gobbled up by JP

Morgan the biggest bank in the United

States which usually they're not

supposed to be able to do that but they

got special exemptions because well they

paid the most supposedly or they got

some friends over at the right places

but anyway

now hedge funds are loading up shorts

against the entire stock market and we

are seeing the most bearish positioning

in stocks that we have seen since

November of 2011. that's back when

investors were worried about a double

dip crash following the 2008 and 2009

financial crisis that's right hedge

funds are that bearish right now and

this is scary because it's not just

hedge funds it's also retail via ETFs

ETF inflows in April were half of what

they wore in March a sign that investors

are either out of cash or they're

allocating to other Investments like

maybe gold or treasuries or money market

funds being a licensed financial advisor

operating an ETF and selling programs on

building your wealth this is shocking to

me add to this that the hero of many on

social media Elon Musk also the hated

person of many says the FED is operating

with too much of a lag in other words

the vet is overdoing their work and

markets and stocks need to fall to

properly show the FED how much damage

they're causing and may have already

caused then maybe the low volatility

we're seeing in markets right now isn't

actually something to take solaceon

isn't something to feel good about it's

actually potentially just

the Calm before the storm and that the

worst is yet to come

after all two-thirds of economists are

expecting a recession in the next 12

months the yield curve inversion between

the three month and the 10-year is over

160 basis points deep and while some

yield curves have started to re-steepen

we haven't seen potentially the fed's

favorite that three-month tenure go

anywhere nearly steepening it and

usually the Real Pain happens when that

curve starts rest deepening it guess

what we haven't seen it start yet but we

have started to see mortgage spreads out

to the highest and widest level that

we've seen in the last six months which

is a sign of stress beginning in

financial markets and Charlie Munger is

already warning of a commercial property

storm with his buddy Warren Buffett and

really all eyes are on the Federal

Reserve for a change in strategy and so

that's what we're going to do in this

video we're going to analyze the fed the

fed's pivot and stagflation and what

they're really up to are they really

this stupid well also briefly plug a

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exciting but again more on that later we

need to understand also what's going on

in the jobs market and earnings and so

we'll be touching on those as well so

let's get started with what the hell is

the Fed actually doing are they taking

us down the right path do they know what

they're doing or are they making a

massive mistake like Elon Musk suggests

well first it's worth remembering that

Jerome Powell the chairperson of the

Federal Reserve has made it

exceptionally clear

one he is a student of history and

number two he does not want to repeat

the mistakes of the 1970s or 80s

so what were the mistakes of the 70s and

80s and how do those compare to musk's

commentary well in the 70s the FED

operated with what some say was more of

a leading data approach in other words

they used politically desirable data

some say the Fed was basically more of a

pushover to politics and when presidents

like dick Nixon wanted to have looser

money policies to help them win

elections the Fed was more than willing

to oblige the problem is you ended up

destroying the federal reserve's

credibility and now you might think to

yourself come on man the fan has no

credibility right now oh but that may be

true but it's even worse if they lose

what's left of their credibility

see back when they were printing money

when inflation was six percent just a

year ago

people lost a lot of respect for the

Federal Reserve

the FED being a student of History

realizes when their credibility starts

going in the dumps they have to flip and

make sure they put the pants back on and

show you who's really the boss and that

means moving from leading data to

potentially using lagging data and the

question isn't so much of is the Fed

going to over tighten no no they're

going to over tighten the question is

how much are they going to over tighten

to show the world they're still wearing

the pants

one way you could look at this is by a

analyzing a discussion from the Federal

Reserves Federal Open Market Committee

transcripts not their minutes but the

actual word for word transcripts from

October and August of 1980.

in response to chairperson volcker Mr

Roos States the following quote

I think that credibility is important

not just because we like to use the word

and like the Ring of it this is from

1980 mind you

but because without credibility in what

we have announced we are going to have

higher interest rates in other words

inflation expectations might be

rekindled because of the loss of

credibility and basically

we'd have High interest rates and high

inflation if we lose our credibility

now consider that for a moment we know

that Jerome Powell studies the 1970s and

80s and uh you obviously have the FED

lamenting today that they don't want to

repeat the mistakes of the 70s and 80s

because back then the FED lost

credibility and the FED does not want to

continue to lose credibility today

because if they lose credibility then

what do we end up with they just told

you if credibility goes away we get

higher interest rates

and high inflation that's exactly what

happened in the early 80s and it was a

big problem so how did the Federal

Reserve actually put their pants on well

they raised interest rates by more than

double from around 8 to over 18 in

today's terms forget about a 25 basis

point hike going from uh 4.75 to 5

imagine going from 4.75 to 10 percent

that's what the FED did to restore

credibility in 1980 we don't want to go

back to that because that didn't lead to

a shallow or mild recession or soft

Landing no it led to a nasty recession

it led to an 18-month long recession

with unemployment higher than it was

during the 2008 financial crisis

let that sink in for a moment I just

said unemployment was higher during that

rug pull by the Federal Reserve because

they lost credibility because they

screwed up playing politics

they ended up giving us a nastier

recession by definition of the

unemployment rate than what we had

during the 2008 financial crisis

so if the FED were likely to have a

conversation with Elon Musk they'd

probably say yo the pain you're feeling

right now

bro it's nothing compared to what you're

going to feel if we don't control

inflation expectations and get our

credibility back in line so if you want

to see Tesla go to

24.33 like some of the Bears out there

are talking about hey you know what why

don't we just do you a favor let's cut

rates tomorrow and then after we cut

rates and reignite inflation we'll rug

pull you down another 80 percent

or we could actually look at what's

happening and what history has taught us

look at the transcript from the 1980

meeting in August the FED clearly

discusses the concern of losing control

of inflation expectations what do we

have today yes five-year break-even

inflation rates that's the bond markets

measure of inflation expectations are

trending down and this is good

but they're well above the level where

we paused rates the last time in 2018.

they're also starting to unanchor in the

near term

as measures of consumer expectations of

one-year inflation measured twice in the

last month by the University of Michigan

have shot up over one percentage point

to 4.6 percent

in English the mission isn't a complete

shoulder I'll try that without an accent

the job ain't done there's still more

work to do to make sure that inflation

expectations don't continue to disancher

that instead they continue to anchor

down low and potentially fall even lower

because until then the fed's job is not

complete and that's really scary it

should make you nervous about the

Federal Reserve and you should believe

them when they say we are going to be

higher for longer now don't get me wrong

I don't want to be a a bear here okay

I'm overall hopeful and optimistic but

let me be clear hope is not an investing

strategy so higher for longer is

problematic because it means we're going

to lose the insulation blanket around

our economy today protecting it from the

fire of the federal reserve's aggressive

rate hikes that insulated blanket is the

joltz report that stands for the job

openings and labor turnover survey and

it's basically a measure of how many job

openings there are on the economy think

about it if you lose a job your spending

goes down right no you get another job

and then you keep spending but if you

lose your job and you can't get another

job then your spending goes down and

that's why the joltz report is so unique

because it tells us how much of that

fire blanket do we have left because the

FED lit a fire now the fire blanket of

the joltz report is starting to shrink

okay we have now shrunk three readings

in a row we are at the lowest level in

two years and it's likely to worsen now

that is what the Federal Reserve wants

they want the labor market to be more in

balanced because they think that will

reduce wage inflation but the question

is once you burn that blanket away do

you put that fire out instantly or does

the fire start to burn you that is the

fear the FED is overdoing it and the

question then is how much damage are we

going to create but it's not just the

FED it's also the fire of artificial

intelligence consider the CEO of IBM he

just reported plans to pause hiring for

roles it thinks AI artificial

intelligence will completely replace or

eliminate in the coming years

these are non-customer-facing roles like

employment verification jobs for human

resources about 26 000 workers could be

affected at just IBM and what did the

CEO say he said quote I could easily see

30 percent of that in other words that

part of the business

sounds insensitive getting replaced by

artificial intelligence and automation

over a five-year period

that's an insane claim from an employer

of tens of thousands of people IBM an

American staple saying AI is going to

replace a ton of our back office work

thousands of workers gone Morgan Stanley

just announced 3 000 layoffs and the CEO

of Citibank says blockchain technology

is cool and great and all but it's been

kind of slow to catch on Artificial

Intelligence on the other hand that will

be fast and if you thought crypto was

fast

it's not but if you thought it was fast

as gonna be even faster

now we really need to understand the

implications of all of this on the

economy but I want to give a shout out

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to make sure you're the most productive

person you possibly can be now the

problem with the jolt staff as the jolt

status report came out this morning the

stock market dropped that's likely

because markets are realizing we need to

price in the remove of our insulative

blanket and the fact that we might get

burned once those job losses increase

the damage to our economy could be

severe the FED is already expecting the

unemployment rate to rise one percent

but anytime that has occurred in the

past the unemployment rate has gone on

to rise another one percent meaning we

are getting early indicators that the

data the FED is looking at which is

backwards looking

is starting to get crushed this is risky

because once the damage is done it can

take a while to undo but the fan has to

be careful here not to undo their fight

against inflation in the first place and

risk resurgent inflation this is why the

FED in their commentary to us is very

likely going to make it clear that their

job of constraining inflation

expectations is not done and even if

they stop raising interest rates after a

25 BP hike they're going to stay there

for quite a while and they're going to

be very data dependent to make sure that

a inflation isn't reanimating

but B to make sure it is trending

appropriately and quickly down because

the longer it takes to get inflation

down the longer it might end up becoming

sticky and entrenched and the greater

the likelihood we get a Paul volckering

however the only way to actually Force

this is not by driving up interest rates

is by causing job loss but the FED can't

fire people interest rates end up

crimping money that wealthier

individuals and businesses have access

to

they're usually the ones who employ

people right businesses and wealthier

individuals employ people

so in order to get less people employed

you have to crush wealthier individuals

by hurting their stocks in their real

estate and you have to crush business

owners by increasing their cost of

capital and then hopefully they fire

people which sounds terrible but that's

basically what the FED is doing because

the FED thinks hey as long as we get

inflation down sooner rather than later

less people will be hurt in the long run

it's a very utilitarian game it's kind

of like you know that analogy where a

train is barreling down the road and

there's one person tied to the tracks on

the left and 20 people tied to the

tracks on the right

you have to decide by turning the lever

which group of individuals are going to

get uh you know trained

and the utilitarian answer is well the

greatest good for the greatest number of

people

so that's the choice you make that's the

choice the Federal Reserve is making

but if you're in Congress be like yeah

I'm just gonna make no decision

anyway this might explain why today's

earnings so far have actually been

resilient in the face of this economic

slowdown look at Chipotle American

Express Visa e-commerce you name it

earnings are coming in much better than

expected and it appears that markets

were really just too pessimistic for

most companies

but cracks are beginning to show take

Sofi for example much of their value

right now when you actually look at

their balance sheet this is something we

did on our course member live stream by

the way we do this almost daily we pick

a company we go through some of the

financial statements do it all for you

so it makes it really nice and easy for

you but anyway so far much of their

value when you look at their balance

sheet right now has to do with loans

available for sale

however their portfolio growth or loan

mix in other words where are they

growing where is the growth happening at

Sofi is Shifting to a not so great

segment

growth is 46 year over year in personal

loans

and in student loans you're down 47 and

Home Loans you're down 71 percent

so in other words you're getting less

higher fee and more secure loans like

home loans and you're getting more low

or should I say no fee personal loans

with no light fees that's what Sofi

promises all of these loans are

exploding so far in popularity but

they're much riskier and on average

they're unsecured and about twenty five

thousand dollars in size this is risky

for a company like Sofi because it

probably only takes about a 15 markdown

in the value of their loans available

for sale

for them to be upside down

that's risky for a company like Sofi and

it makes you wonder why the stock is

going down oh wait no it doesn't

because when you actually look at the

numbers it's like oh yeah that's where

the risk is during a banking crisis

lending something I've actually been

talking about for months if not years at

this point I don't want to own financial

services companies in a recession

but that may not be true for everyone

but I will tell you this

if the ability to borrow ends for

consumers and we end up ruining

consumers ability to spend because maybe

job losses hit at the same time as

people can't borrow any more then maybe

Mike Wilson and Morgan Stanley will be

right Mike Wilson says the Bulls the

equity the stock Bulls are delusional

for thinking that the margin expansion

that companies have been so used to

during the pandemic that recently hit a

floor

may see an upswing again in the second

half of 2023 and 2024.

Mike Wilson from Morgan Stanley says

that's delusional don't think companies

are all of a sudden going to become a

whole lot more profitable anytime soon

because really when job losses hit oh

the real pain is going to be felt by

everyone in fact Bloomberg economists

put it this way they say we expect

stagflation light that's their reference

cyflation light has very few historical

examples but it does make you wonder

about the phrase this time is different

which is a dangerous phrase sometimes

the most four dangerous words in finance

stagflation-like would look something

like a zero to one percent growth for

our GDP with inflation sitting around

three percent by the end of 2023 or

2024. now the Atlanta fed now GDP report

puts us at about a 1.7 percent GDP right

now in May of 2023 but that might fall

to between zero and one by the end of

the year

and if inflation's still three or four

percent

that's the inflation and that's not

great because that means the FED is not

likely to just

hike in May and go away and then start

cutting but instead we could actually

see a repeat of what we saw in the 1990s

which was rather than hiking then

pausing and then cutting the FED hiked

and paused and then hiked again they did

have a little cut in between there but

they were a little more volatile in what

they were planning under or what they

what they actually acted upon and so

this would likely severely hurt markets

especially since markets are pricing and

rate cuts at the end of the year not

rate hikes so this is dangerous

obviously everything is predicated on

what happens with the CPI data releases

uh over the next six weeks between the

May fed meeting and ultimately the next

fed meeting that the Federal Open Market

Committee has now it's important

first we've got May 3rd fomc meeting we

already know that the next one isn't

until June 14th but between May and June

14th we're actually going to get two

more CPI reports inflation reports those

are going to be critically important so

you want to mark your calendar for May

10th

and June 13th June 13th is just a day

before the feds meeting in June and then

we'll see if the pause actually comes to

fruition now it's possible that a Fed

pause could actually be good for stocks

if you look at this particular chart but

after a pause could be more important

because if the FED pivots when the

economy is already so broken we could

see the stock market plummet now if the

FED pivots or u-turns when they're done

with their hiking cycle and the economy

is still resilient at that point then

maybe stocks could actually surge up so

in other words nobody knows what the

hell is going to happen now we may get

some signals now but it's unlikely we're

going to so if you're making bats that

the fed's going to be super bullish in

the short term until this data comes out

I think it's probably a mistake instead

we should be looking at some practical

ways we can prepare ourselves number one

be prepared for what the FED is saying

trust them in what they're saying when

they say higher for longer and that

means you want to do a few things to

make sure you are as well equipped as

possible or Nimble as Nimble as possible

in the event you lose your job or some

sources of revenue dry up this is

important make sure you are able to get

rehired and you have all the skills

necessary to make sure you can make as

much money as possible of course

obviously I implore you to check out

making money and getting sh9t done

faster that's the course linked down

below it's the rebranded elite Hustlers

it'll come with the artificial

intelligence lectures for productivity

on June 1st new content will also be

added over time just get in before May

5th for that pre-sale deal but after

this I want you to think about

actionable plans for eliminating debt

that you have

take one step even right now think to

yourself how much margin do you have if

you don't know how much margin you have

that's a problem figure it out first

step one identify the problem

how much credit card debt do you have

how much student loan debt do you have

how about car loans what debts do you

have right now what can you do to start

paying those off even one more payment a

month so start rolling those things off

now you know I'm a licensed financial

advisor but this is just non-personal

Financial advice here limit your debt

the last thing you want in a

stagflationary recession is to end up

jobless and in debt because then you

reset to zero this is why invest in

yourself to maximize your skill set so

that you can stay employed and you can

keep making money but also limit your

debt and I wholeheartedly believe that

after you've done that

take your excess capital and consider

investing it in businesses wonderful

businesses at fair prices as Charlie

Munger says it is better to invest in

wonderful businesses at fair prices than

in Fair businesses at wonderful prices

so maybe you're not getting the steal of

a century in the price and yeah there

might be some more downside risk but

look at high quality businesses ones

with high free cash flow and things that

you think will have pricing power not in

an inflationary environment when

everybody has pricing power but in the

long term like consider the AI

Revolution we don't know what companies

are going to make money but we do know

that chips and servers are likely to do

really well I guess I shouldn't say we

know that with certainty because who

knows maybe AI will be so good in the

future it doesn't even need chips and

servers anymore

who knows but look for great quality

companies that can adapt to change and

when it comes to tomorrow I want you to

think about Halo

fed's going to give us 25 BP they'll

signal a lot of jibber jabber that'll

try to get them to June without creating

too much excitement or too much

pessimism

but don't just think about tomorrow

think about the next 10 years and where

do you want to position yourself for the

next 10 years starting now

[Music]

[Music]

thank you