What was JUST Revealed about the Fed's Master Plan | Disaster.

good news bad news from the Federal

Reserve first we're going to break down

a new piece from Nikki leaks we're going

to corroborate that with what banks like

Morgan Stanley and JPMorgan Chase are

seeing regarding the FED then we're

going to talk about what to expect going

forward and is there potentially some

hope hey everyone meet Kevin here we are

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and in the meantime let's hop on over to

this what do we have here we have fed

minutes show officials feared Market

rallies could hinder inflation fight

so initially this is actually bad news

take a look at this the federal

reserve's minutes had essentially

uncharacteristically blunt warnings that

cautioned investors against

underestimating the central bank's

determination in fighting inflation and

the FED is anxious specifically because

of financial conditions that seem to be

loosening and see that's what's very

interesting when we jump on over to

Morgan Stanley we can see that the FED

is right to be anxious Financial

conditions are created by the sum of the

following strong dollar treasury yields

that are high stocks that are low oil

that's expensive basically all of these

things combined together when they're

going in the direction that makes things

worse for us again like strong dollar or

higher interest rates make it so that we

spend less money on goods and services

ideally because we have less money me or

because it's more expensive to make

decisions those things lead to an

increase in financial conditions

unfortunately for the FED since the end

of November we've actually seen those

financial conditions plummet and this

might explain why Jerome Powell U-turn

in November he was actually acutely

aware about potentially over tightening

and this is why it seemed like Papa

Powell was like Hey all right look we're

gonna go through a tough time but but we

don't want to kill you

and after that Financial conditions

across the board actually loosened think

about it the 10-year treasure yield even

though it's high right now at 3.76 it's

not as high as it was back then I mean

we were sitting around four and a

quarter percent for a while on the

tenure that's crazy a lot of these

conditions have substantially loosened

now well that's nice be because it means

that hey markets are starting to price

in that okay maybe inflation is falling

more than expected I mean just take a

look at for example what's happening in

Europe and you could see exactly that in

Europe you have inflation falling from

11.3 to 9.6 well at least in Germany

this is still double digits but it's a

nice drop in Germany inflation in France

and Spain fell more than expected this

week turkey had a substantial decline in

inflation although uh they're still at

like 64 inflation it just came down from

85 percent don't mind turkey though uh

and uh you are seeing pain in the United

Kingdom as well that's suggesting that

hey inflation should be trending down

manufacturing is shrinking at the

fastest rate since 2009 shop closures

are hitting the highest total in five

years mortgage approvals falling to the

lowest level in more than two years

Italy's inflation at 12.3 from 12.6 uh

year over year so we're seeing declines

we're still at really high numbers right

don't be really excited in that sense 12

inflation in Italy is still pretty dang

incredible but the idea is that markets

seem to be pricing in okay inflation is

trending down let's start pricing in

maybe a Fed cut but the problem with

that is as soon as the markets start

pricing in this idea of a Fed cut

we actually remove the very pressure

that's been pushing inflation Down AKA

tighter Financial conditions as depicted

by this chart so the more inflation goes

down

ironically the more likely inflation

stays High longer because of the way

markets are pricing in inflation

dropping now this can set up in my

opinion a good news bad news scenario a

good news inflation's coming down

bad news inflation going down leads to

financial conditions loosening and the

FED then has to get more aggressive they

have to talk dirty to us like they did

in the minutes they did not give us any

hope in those minutes yesterday and if

anything the minutes yesterday were

concerning because the only source of

optimism were actually ruined by data

that came out yesterday morning the

joltz report we already talked about

that

but the point is that's bad

the only hope that we have so if good

news lower inflation leading to bad news

from the FED I mean just look at Neil

kashgari coming out suggesting that

interest rates should jump to 5.4 and if

inflation doesn't go down fast enough to

two percent we might have to go much

above that

this morning Esther George comes out and

says we need to continue to raise rates

the FED is realizing that markets are

pricing in the pause I mean if you if we

look at the Fed rate monitor we'll see

that right now markets are only

expecting a 25 basis point hike Feb one

and to a large degree look at this chart

right here it shows us that

98.1 certainty based on market pricing

that we're only getting a 25 basis point

hike Feb one the vet has not indicated

they're going 25 or 50. they haven't

indicated anything the Market's just

like yeah we're pretty confident and

this confidence has actually been rising

towards 25 basis points rather than 50.

which is really interesting because the

FED at the same time is trying to fight

exactly this impression that the FED is

going to slow down things are going to

relax and that's what they're doing

they're sending Esther George out

they're sending Neil kashgaria hey go

make a post they're telling uh uh what's

his name Nikki leaks over at the Wall

Street Journal to to make sure markets

don't rally they're scrambling to try to

make sure that inflation does end up

moving down

because even though it is the more we

see it go down the more excited people

are that oh yay let's go back to Rally

mode in the market and that'll kill

inflation again because inflation will

Skyrocket and so here you have a Fed

that the only hope we could have and

then we'll write this one down okay

here's the only hope we have the only

hope if if you're bullish on this Market

which I don't know how you could be

bullish on this Market you'd have to be

pretty insane but let's say you're

bullish uh and let's say you wanted some

hopium okay here's the only hope you

could have the only hope is that

inflation does actually plummet that's

it that is the only hope we have is that

inflation proves somewhat transitory

right it just took longer than expected

but it ends up going down consider for

example the CPI projections for next uh

for the next CPI read coming out on the

13th we're expecting zero percent month

over month and 6.7 percent uh on the

year over year

that's great but now the expectations

and this always makes me nervous now the

expectations are are really getting

ahead to where look it was easy to beat

point six percent month over month

inflation expectations that was easy so

for example two months ago we came in at

point four that was easy right

in my opinion it's hard to beat zero

percent month over month because

basically you have to go negative now if

we go negative on the month over month

oh good lord that would be so great that

would be wonderful but again it could

probably lead to a stock rally which is

going to piss the FED off even more so

you're actually in this weird position

where any rally the stock market has and

any kind of rally the bond market has

gets crushed by more aggressive talk

from the Fed so keep that in mind okay

any rally in bonds or stocks get sold

because the FED will talk them down

boom unless

inflation plummets best case scenario

very very quickly

now that kind of makes it tough to be

bullish right basically if you're a bull

you are making a bet that we are going

to get an inflation plummet and maybe

it'll even be more of a glorious plummet

than ever expected in fact inflational

plummets so much that we don't even have

to worry about the crazy jobs data

because you know what the jobs data just

symbolizes imbalances in the market and

they're not actually going to lead to a

rise in inflation now that might sound

crazy or it might be possible consider

the following

this chart right here shows US states

that have recovered versus not recovered

on payrolls compared to prior to the

pandemic what you'll notice is this

massive shift from sort of Central

America the Midwest ish and North uh in

the Northeast to either the west or the

South massive shifts here right

now this is kind of remarkable because

it's a total change from what we've been

used to and that in my opinion makes it

really hard to look at comparative data

and say oh yeah we've got a you know all

this crazy new job creation and for

example continuing claims or the

unemployment claims this morning came in

better than expected which means we

actually had less claims than we were

expecting I want to say we were

expecting somewhere around 215 000 in

terms of unemployment claims uh let me

get the exact number here 215 000 and we

ended up somewhere around 200 oh 204. we

were expecting 225 we came in at 204.

and that is better than expected but

it's not so great because it kind of

shows that even though we're expecting

more layoffs and we see things like

Salesforce cutting and Amazon cutting

we're still not getting a lot of layoffs

because people are rebalancing where

they want to live but not only are they

rebalancing where they want to live look

at some of these service sector areas

comparing today's employment levels for

Food Services drinking places

accommodations and clothing stores all

three of these are still lower than

where they were at the end of 2019.

so it's not a surprise that we're still

creating so many jobs to some degree

even though we know there are

differences between the household and

the establishment survey it's not a

surprise that there still is to some

degree some job growth because we're

still in that rebalancing process it's

insane and look at these for example

these sectors have exploded since before

the pandemic professional and tech

services these are like Engineers

lawyers accountants admin and support

finally seeing a little inflection point

transportation and warehousing look at

that it's over a million jobs more than

what we had uh before the pandemic so

you've got this massive rebalancing of

the jobs Market that again if you want

opium and you want to believe that we go

bullish what you're betting is you're

betting that the the tight labor market

is really just a consequence of this

rejiggering right so tightness equals

regular ring and as long as inflation

plummets and the tightness really is

just a re-jiggering and we don't get a

wage price spiral then yeah okay if that

happens it's time to be freaking bullish

but I hate to say it this is a pretty

dang big ask it could happen you know I

I personally think you know maybe

there's like a 40 chance this could

happen okay it's the best case scenario

inflation plummets no wage price spiral

best case scenario because then the FED

can go from all its crazy Hawking now

to not Hawking and ironically what they

would actually be doing if this happens

if this hope scenario plays out what

happens well what they've actually done

then is they've kept the market bearish

for longer and more net short for longer

which potentially sets up for that

squeeze

now again this is the Opium scenario

you've got to be really careful about

this because we do have concerns

an unwarranted fire easing of financial

conditions complicates the committee's

efforts to restore price stability

you've got JP Morgan talking about no

participants seeing a cut in 2023 we

continue to look for a 25 BP hike in the

next meeting with a risk of a 50 basis

point hike you've got uh further talk

here by Nick T about this this argument

that any sign from this is a reference

to quoting Neil kashgari any sign of

slow progress that keeps inflation

elevated for longer will warrant in my

view taking the policy rate potentially

much higher this is much higher than the

peak that he's forecasting of 5.4

percent

that would mean what 5.75 6 would be

much higher than 5.4 yikes now this is

good core prices right over the three

months ended in November core prices

increased at three point six percent

annualized the lowest such reading since

February of 2021. that's great and it's

also still a opium aspect that remember

the FED is looking for pce inflation to

be at two percent not CPI PC is usually

lower

and it's usually a good sign that the

FED is looking for this number to

average two percent which means we

actually could run a little hot for a

little longer

so what do we have to take away from all

of this well we have to know that the

more bearish stocks are right now

is actually in a weird way good and I

know that sounds crazy but the more

bearish the market is right now and the

less rallies we have now does two things

one keeps the FED a little chill number

two gives us more of a buying

opportunity the more the fattest chill

the more comfortable they are that

inflation is going to plummet and then

when inflation does that's when we can

actually see Financial conditions really

actually loosen again I mean really we

want to get these Financial conditions

back to like January 22 levels right

that would be a huge rally in the stock

market from where we are now and it's

possible

but in the meantime we gotta act like uh

you're right fed you're right no rallies

no rallies okay all right we'll keep

everything down just we'll we'll be

bearish we'll be bearish in the meantime

hope inflation plummets

and we go rally but remember if you're a

long-term bull right now in this market

and you're excited for that big u-turn

you're betting on inflation plummeting

and no wage price spiral and if you

think that's crazy and unlikely to

happen like you think the larger

likelihood is nope more pain and we're

getting the six percent fed funds rates

probably don't want to be long in this

market

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prices change today tonight thank you so

much for watching we'll see you next one

thanks bye