The Fed Minutes (just out) Warn of Brewing Danger.

well folks it's official the Federal

Reserve according to Zero Hedge is now

racist and cutting interest rates is

racist we've got to break this down and

understand why the heck this is being

said and what happened with those fed

fomc minute meeting notes this morning

let's discuss those I did try to go live

couldn't do that though because there's

some kind of going live glitch so sorry

about that let's give you a recap though

after the fact so first of all Mr

ghoul's spoke at a conference and did

suggest that Rising black unemployment

is now a concern and this comes after we

got hot CPI data and this is leading a

lot of people to go wait where did all

of a sudden that come from why is the

Federal Reserve all of a sudden wanting

to no longer be data dependent on

inflation and now start looking at other

reasons to potentially cut why is this

happening well in today's it's the

Federal Reserve may have actually

signaled exactly what the problem is but

first let's analyze Mr ghoul's

underlying complaint that Rising black

unemployment is becoming a problem let's

take a peek here this is a chart of

seasonally adjusted black employment or

unemployment I should say you can see a

slight move up here on the right though

I will say it doesn't seem to be

anything more than these sort of normal

jumps that we could get either here or

or here or here or here or here it

doesn't seem to be anything more than

that at this point so it is interesting

that on a day that you get hot CPI you

get a Fed board member suggest you know

what even though CPI is coming in hot we

still have to cut because black

unemployment is going up interesting now

ghoul spe is one of the more doish

individuals at the FED but then what I

wanted to do is compare this to what's

happening with other RAC like white

asian and Hispanic and you will notice

that in those categories you are seeing

the unemployment rate moved down where

black is moving up so that could In

fairness amplify what ghouls be is

saying here you can see the last two

reports here are up on Black uh and down

or flat on the others the others being

white asian and

Hispanic but is that a reason to delay

rate cuts

or not and what is the Fed really

actually concerned about well I think

the minutes today gave us a little bit

of a look and maybe what the Federal

Reserve is truly concerned about and

they're almost just looking for an

excuse as to how can we keep justifying

that we need to cut rates now it's

interesting because the bond market

doesn't think the Federal Reserve is

going to cut rates anytime soon we've

got the 10year treasury sitting at 5 55

and now we're pricing out rate Cuts all

the way out to November we're barely

pricing in one and a half rate Cuts this

year Barclays reduced their rate cut

expectations a lot of banks are expected

to follow suit today and over the next

few days but take a look at this this is

directly from the minutes and this is

the first time I've actually started to

see this sort of intensity of

delinquency talk maybe to really set a

baseline let's actually go to the last

uh fom minute set and we'll start at the

last one and we'll just search for

delinquencies so they talk about how

delinquencies and conventional mortgages

remained low while delinquency rates on

credit cards and auto loans Rose in the

third quarter to levels notably above

those before the pandemic so we did see

some deterioration slightly but remained

broadly solid is the phraseology they're

using here they also say aggregate

delinquencies of commercial mortgage

backed Securities uh continue to be

elevated in November and in January they

indicated that credit quality was

expected to deteriorate somewhat so none

of that seemed very exigent or

concerning they did talk about some

declines in commercial real estate

prices and uh they did indicate notable

leverage in the financial sector that

was the last minute set well how does

their sort of verbatim make us feel this

time take a look at this credit quality

for large firms and home home mortgage

brokers remained solid but deteriorated

further in sectors such as commercial

real estate and credit cards the

trailing six-month default rate on

corporate borrowers bonds and Loans

remained low in contrast credit rating

downgrades outpaced upgrades for leverag

loans so in other words expensive more

likely to default loans those loan

downgrades uh exceeded expectations in

both January and February and credit

quality for smaller businesses has

declined so we are seeing that weakness

that debt bubble issue too much debt

fees are too high this morning on our

course member live stream we analyzed

whirpool and one of the things we

noticed with whirpool is they're

spending over $300 million on interest

and quite frankly their cash flow free

cash flow isn't that great their balance

sheet doesn't look that good they don't

even have enough current assets to cover

their current liabilities and they're

borrowing just toay pay their 6%

dividend I see that dividend getting

slashed and I didn't when I saw them

brag about their dividend and the

earnings called but when I actually

looked at the balance sheet I think

they're on an unsustainable path

especially with higher interest rates

and I think the Federal Reserve is

realizing crap soon we're going to start

probably seeing some real debt defaults

picking up and it's starting to hit

households too look at this mortgage

delinquency rates for commercial and VA

loans were largely unchanged but

delinquency rates on FHA Loans picked up

slightly so we're starting to see a pick

up in FHA loan delinquencies interesting

because we thought there was so much

equity in the single family Market why

would we see delinquencies here so we're

seeing a pickup on FHA credit card

delinquency rates increased a bit

further and stood above levels just

before the pandemic the upward Trend in

Auto delinquency rates did stabilize so

that's good but delinquency rates for

nonfarm non-residential loans at Banks

increased to levels we have not seen

since late

2014 now that's really interesting

because now what we're getting is the

Fed saying whoa we're starting to

compare delinquency rates now to the

past and for non-farm non-residential so

basically just sort of your Consumer

loans your personal loans we're starting

to see uh the highest level of

delinquencies that we have not seen

since

2014 at all banks that's not great that

is a high level of delinquencies and we

don't want to be at those sort of levels

this means not only are we uh higher uh

than our prepandemic levels but we're

really running up to maybe beginning of

2007 style levels I'll show you this on

a chart so you can see this a little bit

more visually this is what they're

referring to delinquency rate on

Consumer loans at all commercial Banks

you can see we've passed our prepandemic

high here of 2.47% now at 262 we're

basically going straight up like a

rocket ship over here and we've seen

that right before the recession we were

sitting just over 3% which we getting

closer to at about 262 right now uh and

when they say the highest level since

2014 really they should be referring to

late 2013 but the closer we get to the

recession the more we're making

comparisons by going up this sort of

ladder over here and it's just not the

ladder we really want to climb up now

we're going back to here we could see

delinquency rates for commercial

mortgage back Securities continue to

increase in January and February and get

this folks delinquency rates would have

been higher had many borrowers with

loans maturing last year not received

extensions the deterioration commercial

real estate credit quality sparked

investor concerns about the health of a

few small us and foreign Banks over the

intermediate period so it seems like the

Federal Reserve is starting to get

concerned about aspects outside of just

inflation in terms of maybe why they

need to cut this year however I'm not

sure if I'm supposed to feel happy about

that or scared by that because the

reality is if the Federal Reserve feels

like they're being forced to cut because

we're seeing rising delinquencies and

Rising unemployment in at least a c

certain segment at least in this case a

certain race uh then we potentially are

cutting not because inflation is solved

but because we have to and see those are

the most scary kind of rate cuts to get

rate Cuts because things are normalizing

are good that's okay rate Cuts because

crap things are deteriorating those are

bad those lead to Corrections crashes

and recessions and I'm not saying that

the rate cuts are causing the recessions

they're usually a response to things

that are causing a recession and they're

an early indicator that we're heading

into a recession so these are some of

the early little smoldering fires that

I'm getting out of the feds minutes here

that are starting to smolder a little

warmer and warmer and again this ghoul

spe com basically saying

yeah I guess that is a little higher but

black on employment is rising when I

first heard that I'm like where did that

come from that it came out of nowhere

now I get it then I looked up the data

and I'm like okay okay I I see it but

what happened to the data dependency on

inflation we we should be I the FED has

clearly a debate about uh that

dependency on inflation uh they uh they

mentioned here in the notes that some

members argued that we should not

dismiss the recent inflation reports as

aberrations in other words uh don't just

like discount uh the problems that we're

having with this higher level of

inflation uh in the JN Feb and March

reports

instead uh you should actually be

concerned by them and in that case maybe

we just need to stay at a higher rate

for a while Larry Summers thinks there's

a 10 to 15% chance of actually raising

rates others at the fat are saying ah

it's just seasonality that's in the

minutes but again these other sort of

where there's smoke there's fire

concerns I think these are things that

we really want to start paying attention

to a little bit more to say okay are we

going to start cutting because we have

to rather than we get to and again

cutting because we have to is much worse

than cutting because we get to so where

does this leave us now well obviously

waiting for more updates from the

Federal Reserve waiting for more clarity

from uh various different board members

and our PPI report tomorrow morning I'll

cover that live at 5:30 in the morning

California time and then of course we'll

be covering jpow on May 1st but in the

meantime the little smolder Rings over

here they're becoming a little more

clear oh one more thing remember last uh

time maybe you don't but the last time

we talked about how foreign headline

inflation was actually expected to

contribute to a a decline in inflation

out here this is called exported

deflation you can actually see that

right uh oops wrong button you could see

that right here this is the last fomc

minute set foreign headline inflation

continued to fall however the pace of

decline had varied okay that's what they

said last time well this time when I

search for foreign inflation what do

they say foreign inflation picked up

early in the year as downward pressure

from previous energy price declines

waned great actually not great this

means we're actually now exporting less

deflation to America which is not good

somebody this morning mentioned oh well

disinflation is still

happening not really because we actually

just moved up in month-over-month

inflation figures and when you move up

you're not actually disinf lating you're

stabilizing or if anything you're just

inflating like let's just say you're

inflating more so uh some concerns here

about what's going on what the Federal

Reserve is going to do these are some of

my takeaways here as I'm recording this

now I am noting that the uh inverted

yield curve that 210 is getting more

inverted uh not great we're back at the

most inverted levels that we've been in

I want to say March 28th we were a

little lower and then uh early March we

were a little lower so we're kind of in

the hole this year we're really at the

lowest point that we have been in terms

of inversion lowest point was about 45 B

basis points we're down at 41 right now

but in January we were only 18 basis

points inverted so in other words we're

we're getting more inverted again which

would be another potential signal that

recession is still isn't solved that

might still be ahead of us we might

still near need that as sort of a

clearing system and maybe that'll be

what ends up killing inflation once and

for all which obviously we don't want a

recession but uh it is a concern so

anyway thanks so much for watching and

we'll see you in the next one goodbye

not ever

these things that you told us here I

feel like nobody else knows about this

we'll we'll try a little advertising and

see how it Go congratulations man you

have done so much people love you people

look up to you Kevin P there financial

analyst and YouTuber meet Kevin always

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