The Fed Pivot & Mega 50.1% Crash.

a Federal Reserve pivot will crash

markets even further no hey everyone

meet Kevin here this particular chart

has been trending as of the last couple

of days specifically on Reddit I'm gonna

break this chart down but we're not

actually going to spend most of the time

breaking down this chart because it's

actually

overly simplistic and misses some really

key elements of what actually could

drive our Market to rebound rather than

crash let's talk about the Federal

Reserve pivot and why the Federal

Reserve pivot in this case might not be

what you think it is so first thing okay

this is First Impressions I want you to

look at this chart and ask yourself okay

what is the takeaway of this no the

takeaway isn't that this video is

brought to you by Mojo although that is

true and we'll talk about them in a

little bit there's a link to them down

below but let's first talk about this

chart so briefly this chart tells you a

few things it tells you that when fed

pivots stocks crash buy more okay is

that causation without correlation or is

it because the FED pivots they end up

leading stocks to crash in other words

is it just a coincidence that stocks

happen to fall more or is it because the

FED pivoted that stocks fell well first

of all what do they mean when they say

pivot ah okay definition pivot is the

first month

of fed cut rates in economic cycles and

then they're comparing the stock returns

to the S P 500 or they're using the S P

500 to determine what stocks do okay

that's fair I agree that we could use

the S P 500 and I agree that to some

degree a rate hike is a version of a Fed

pivot okay fair so what do we have here

we have the global financial crisis and

we have a Fed pivot in August of 2007

and stocks crash an additional

50.com bubble December 20 2000 pivot

38.3 oh no minus 4.4 minus 16 oh my gosh

every single pivot is led by a further

stock decline

all the way with an average of negative

22 returns with a pivot to bottom time

frame on average of

13 months oh no wait a minute I thought

when the Federal Reserve u-turns it

would be good for the market why is this

wrong then or maybe it's not maybe it is

true well first let's understand a few

things

this chart tells us a pivot which is the

first rate hike right now what we want

to understand or compare this to is what

we originally call the FED U-turn which

is synonymous should be synonymous with

bailout okay so the FED like when does

the FED say that's enough let's bail out

markets right so let's call one version

the FED bailout uh we'll call this the

old U-turn and the reason I call it the

old U-turn is just because it sounds so

similar to Pivot and pivot will be the

first rate uh cut sorry not hike there

we go First Rate cut okay perfect so

pivot we have the chart form what do we

know about the fed's previous bailout

cycle well we know that the fed's

bailout cycle actually didn't start

until the SNL crisis uh and and

specifically Black Monday Black Monday

not like a Black Friday sale for coupons

okay we're talking about Black Monday

this was October of

1987. and it was a devastating stock

market crash where the stock market fell

20 in a single day the computer era just

became of age it was October 19

1987. and that's it people thought the

stock market was going to end and so the

FED actually said we will stop at

nothing to backstop markets that was in

1987.

and the rest of the FED U-turn dates

which I'm going to provide you we're

going to call this the first fed bailout

U-turn date then there's a second one

that happened there's a third one a

fourth one and a fifth one so far we've

had five fed unlimited bailouts that's

actually it which you'll notice that's

less than pivots and they all happen

since

1987 and that is really really important

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welcome back so the next U-turn that we

had was actually in March of

2003. so what's interesting about this

is you actually have the FED bailing out

markets in October of 87. in March of

2003 and this is actually in alignment

ironically with the bottom of the market

in alignment with bottom and we're gonna

see how this is different from a pivot

in just a moment in February of 2009

in December of 2018 and March of

2020. so these are not examples of when

rates were just cut these are examples

where the FED stepped in and said we are

going to support markets we will stop at

nothing to support orderly markets and

you'll notice every single one of these

states aligned with the bottom of the

market this is very different from a Fed

pivot we can see a Fed pivot happened

substantially

earlier now what's actually interesting

is we really only had two recessions

where the Federal Reserve promised

intervention

prior to all of these examples prior to

the top two examples here in all of

these segments here the FED hadn't yet

created the precedent of bailing out the

stock market

so really this chart is only giving you

two examples or should only be giving

you two examples of the fed's actions

and yeah the FED cut rates in August of

2007 and the market didn't bottom until

when until the FED conducted their

unlimited bailout in February of 2009.

look what I wrote right there February

of 2009. just to clear up the S P 500

bottom the S P 500 really bottomed uh in

in September through February and March

of 2003 and that's because you kind of

sat along this bottom of like an 80 to

90 dollar S P 500 range over here so

that just explains why we have a little

bit of a disparity in terms of the S P

500 bottom here where this chart says

the bottom is September 2002 but pricing

was really the same until the FED uh

bailed out markets in March of 2003 and

so what I want to make so Crystal Clear

here is that

people today are saying oh the FED pivot

of reducing rates is actually going to

be bad news and the reason it's going to

be bad news is because look at this

chart every time the FED has cut rates

in the past it's been bad

and the S P 500 didn't bottom until some

other event in the future okay that's

fair so what we have to actually look at

though is since the FED has established

a precedent of bailing out markets when

do markets bottom markets bottom when

the Federal Reserve bails out markets

that's when markets bottom generally

however what's different between our

recession today and the.com bubble and

the great financial crisis

well let's talk about that the.com

bubble was in a basically a three year

long process a two and a half to three

year stock market crash by many accounts

our stock market today has crashed three

times as fast as the.com bubble and

that's because they're caused by

different reasons the.com bubble was

caused by speculation in dot-coms

internet companies that failed to

produce a profit so speculation led to a

rapid appreciation of prices and then a

collapse when the realization came true

that wait a minute fundamentals actually

matter so the.com bubble was a

speculative Mania that crashed when

people realized fundamentals mattered it

had nothing to do with the Federal

Reserve but the pain finally ended when

the FED backstopped markets in the

spring of 2003. the great financial

crisis

was amania mostly related to credit

default swaps and derivatives based on

the real estate market

speculation in real estate spectacular

crash in real estate fed backstops

markets in February of 2009 aligning

with the bottom

these market bubbles and crashes

actually have nothing to do with the

Federal Reserve rates they have nothing

to do with rates

how is that different from our recession

today

our recession today is entirely based on

the Federal Reserve raising rates to

crimp inflation

that's very very different so again if

we look at this chart we're like wait a

minute

the Federal Reserve has only had a

precedent of bailing out markets in

scenario one and two

when we look at scenario one and two

both of these were caused by rampant

speculation in stocks and real estate

and then they were bailed out by the FED

when they crashed

the recession we have today

sure it might have followed speculation

after stimulus but the recession we have

today would not happen if we did not

have high inflation

see the FED is driving today's crash

again let's summarize that right.com was

speculation on stocks

Global financial crisis great financial

crisis speculation on real estate

today's crash

fighting inflation

and we do that by raising rates

this has nothing to do with rates this

has nothing to do with rates these are

entirely different

market-driven crashes and so because

today's crash is driven by Rising

interest rates we actually believe that

the FED pivoting today will equal

boom time and the reason for that is the

Fed will only pivot when inflation

meaningfully meaning fully rotates down

right so when inflation meaningfully

rotates down and the FED pivots on rates

the reason for our entire crash

goes away

which is completely different

from these two crashes prior and it's

also completely different from the

Precedence that we've had in these prior

recessions because you have not had the

Federal Reserve bailing out markets

until

1987. now you could go back to the

volcker era recession that would be a

fair comparison you could go back to the

double dip recession of a 1981 and 1982

over here and you could say hey well we

got Paul volckert here and why all of a

sudden when there was a pivot did we

take 13 months to hit bottom well that

can also be explained and this isn't to

say that what I'm telling you is 100

going to happen nobody has a crystal

ball but my point is to say and I hate

saying this word because this phrase

because I know it's the like the most

dangerous words in investing or this

time is different but quite frankly like

this chart is totally different from

today it doesn't mean we're not going to

crash more

but this chart is a bad example okay so

what was different in the 1981 recession

in 1982 and why did that pivot lead to

13 months more of pain if they were also

fighting inflation then because they

weren't just fighting inflation they

were fighting inflation expectations

that were highly unanchored nobody

believed in the US dollar we left the

gold standard price caps got lifted

inflation became embedded into society

nobody believed that the FED could

actually control inflation

and that led to what

mass unemployment we're talking about

10.8 unemployment

by November of 1982. that is

substantially different from the 3.5

unemployment we have today and even

though we expect unemployment to rise do

we think it's going to go from three and

a half percent to five percent or all

the way up to 10 percent

so what's my bottom line takeaway out of

all of this explanation

no the FED pivoting is not bad news like

anybody perpetuating that I just want to

grab them by the shoulders and going

this entire crash is caused by the FED

raising rates what do you mean they've

had no longer raising rates is not going

to stop the crash

that's illogical

maybe I will be wrong

but I'm not the kind of person who's not

going to give you my opinion I will give

you my opinion and sometimes I'm wrong

that's what happens when I give you my

opinion if I never want to be wrong I'll

just tell you the same thing in every

single video

I'll read the news I'll tell you what

the news is I'll tell you to buy index

funds and I won't give you my opinion

my opinion is that when the FED pivots

the market will boom even more

however that doesn't mean it's going to

align with the bottom that's because the

bottom of the market is now so clearly

aligned with when the FED u-turns

that markets will try to price in a Fed

U-turn before so I actually expect the

bottom to proceed the fed's U-turn

because remember the FED does what the

market tells it to do

I know that sounds crazy but it's true

because it's like why does the market

want things to go down well because the

Market's like oh God inflation's going

up that means the fed's gonna have to

raise rates and then we start pricing in

that the fed's going to have to raise

rates and then they raise rates right so

anyway hopefully this is insightful if

it was consider subscribing listen I

want to give you my goal is to give you

a fair balance of bad news and good news

because that's just news sometimes

there's good news sometimes there's bad

news sometimes there's more bad news

that there's good news and then vice

versa right anyway hopefully you found

this helpful check out Mojo thanks so

much bye