What the Fed *JUST* Said | The "CLIFF" is Coming.

hey everyone me Kevin here it's time to

talk about what the Federal Reserve just

said specifically an important voting

member of the Federal Reserve about what

could potentially break which is a

little bit scary but first in order to

visualize how things can break I want

you to see how quickly things can change

by using an example that we faced

earlier this year yes that example was

an unforeseen shock a Black Swan this is

where the Bears Wrangle their hands

finally Kevin's gonna flip the bear

this is the inverted yield curve the

inverted yield curve which is the green

line the zero level anytime we cross

below it we tend to Signal a recession

it's not perfect but it usually tends to

Signal a recession in more cases than

not and what we find is that as the

yield curve inverts that is this chart

goes down our economy is more fearful we

might be trending into a recession and

what you'll find is that we got pretty

dang low in this inverted yield curve we

got over here into this negative 100

basis points of inversion negative 100

over here and you had this really really

rapid shock to the upside when you look

specifically right here this was your

March banking crisis and what it shows

you is you could quickly uninvert when

there's a crisis some kind of Black Swan

that you didn't see coming something

that says to the Federal Reserve stop

hiking rates and start cutting rates and

it's usually this that signals the end

of a recession something breaking

leading to a rapid bailout of the

Federal Reserve happened in the late

1980s it happened in March of 2003 it

happened in February of 2009 it happened

in December of 2018 it happened in March

of 2020 when the FED goes oh crap and

the FED blinks that's when your

recession is generally over that's

usually by the FED pivot time the

problem is we've been so conditioned at

knowing about okay yeah buy when the

Federal Reserve pivots that markets have

actually been pre-pricing in this

Federal Reserve pivot I've certainly

been talking about it for over a year on

the channel but actually coming up on

two years this idea of you buy when the

Federal Reserve pivots and this led me

to believe that we might end up facing

what I called a volatile Nike Swoosh

which is where markets slowly start

pricing in that the Federal Reserve will

eventually be

and in a weird way if you look at the

weak chart on the NASDAQ on the QQQ

you've kind of started having that

volatile that's almost been unvolatile

over here this pricing in of the federal

reserve's U-turn since January 1st

realistically here and so now the

question is okay well what does the FED

actually think is something actually

going to break and what is going on with

the yields why is the 10-year up about

8.7 bips today and the two years flat to

negative today what's going on with oil

prices and how do we make sense of all

this because

it just feels like we're setting up for

inflation to renew if oil prices are

this high and that any Talk of the FED

slowing down should be wrong

well we'll analyze that right after we

listen to what the FED just said that is

CNBC by the way notice how they're

talking about the arm IPO pricing coming

in way lower than expected probably

somewhere around fifteen dollars per

share lower than expected I made a video

I encourage you to watch it just type

into YouTube meet Kevin arm IPO breaking

down how overpriced that offering was

and how I'm like this is a rip-off you

should not invest in it so obviously I'm

going to take full credit for them

finally having it come to Jesus moment

and lowering their price all right with

that said let's listen to what the FED

just said an ad commentary yeah we can

only hope Andrew joining us now in

exclusive interview is Federal Reserve

Governor Christopher Waller uh Governor

Waller thank you for joining us this

morning it's really a great time to have

you because we had all that data last

week we had the jobs data and we had the

pce inflation data I wonder if you've

been thinking about it and how you react

to uh to what's happening is it going

along with your forecast

yeah thanks Steve for having me on yeah

that was a hell of a good day week of

data we got last week uh and the key

thing out of it is it's going to allow

us to uh proceed carefully as chair Paul

Senator Jackson Hole there's nothing

that is saying we need to do anything

imminent anytime soon so we can just sit

there wait for the data see if things

continue

uh the biggest thing is just inflation

we got two good reports in a row

and wait and see what a third one looks

like and see whether this low inflation

is a trend or it was just an outlier or

a fluke

when you say low inflation

um when I looked at some of the things

that we know that the chair looks at I

know you do too which is that pce core

taking out housing it actually went up

what about it made you feel comfortable

well the thing that really drove it were

non-market services and those things can

be volatile they're not really a clear

indication what market prices are so I

typically you know don't like to throw

things out but in general this time it

it clearly was something that was a bit

odd and we'll see if this continues

meanwhile the unemployment rate went up

is that a source of concern for you it

was up by three tenths is this the

beginning of a gathering weakness in the

job market do you think

well the data last week clearly showed

the job market is starting to soften but

the unemployment rate if I remember

correctly last August was 3.7 so you're

roughly where you were a year ago so

we're not seeing a big movement and some

of the increase was just an increase in

labor force participation as more cane

people entered the labor market and are

looking for jobs jobs are getting a

little tougher to find it's not

surprised the unemployment rate went up

a couple of tenths but again it's really

not much different than it was a year

ago

it is worth jumping in here and just

comparing to what the unemployment rate

has been historically now we know and

this is a big problem it's a big big

problem for the Bulls okay the

unemployment rate is literally the last

thing you should be looking at to know

are we actually having some form of

Black Swan or crisis ahead of us

remember Black Swan or crisis is

something so bad that all of the

companies start going

oh we thought we were going for a soft

Landing that's really bad

let's start seeing where we can cut and

then when all companies start going

and they start going okay lay off we

need to preserve that's what a recession

is that's when all of a sudden

everything hits the fan because everyone

actually has true Panic that's when the

layoffs come so it's no surprise that of

course the unemployment is a lie

Intimidator we already know that but

he's not wrong in saying us being over

here at 3.8 I mean look if you draw a

line across this you know you're between

these these two bars right here right

you are very very historically low uh I

mean you've got lows over here in 1968

also sitting around 3.4 to 3.8 you look

at the lows over here in 2000 oh the

great comparison to 2000 but it shows

you the pain that could happen right uh

you know you're not even at well yeah

they are three point eight percent there

you go so yeah you are at a very very

low level but again this could rise very

rapidly and usually it doesn't rise

rapidly until you're actually in a

recession so we know this is lagging but

again it requires the shock we need a

big shock to happen it could be a debt

crisis it could be a banking credit

prices it could be nuclear war we don't

know what it is that's why it's called a

Black Swan and the problem with betting

that there's going to be some kind of

Big Black Swan as if that if there

really isn't a big Black Swan or

something doesn't break then you just

missed out on a whole lot of returns in

the equities Market

potentially even the real estate market

that's all right by the way we're

noticing this massive lack of

competition in wedge deals it's really

enjoyable right now at hausa because the

people who are trying to buy not capable

they don't know what they're doing all

right let's keep listening by the way

that house hack fundraise uh is starting

soon we're just waiting on our approval

letter should be uh within I mean we're

ready to go so it should be uh any day

now here we go

is all of this in line with an Outlook

that you have for a soft Landing or do

you still see a threat of a recession to

the US economy

well the way the data is coming in it's

looking pretty good but recessions often

are caused by shocks that just come out

of nowhere and hit the economy

so that that can always happen uh and

that's why they're shocks we can't

really predict them but the way this is

an interesting line by the way that can

always happen it is true you could have

a Black Swan that comes out of nowhere

at any point of course the economy is a

little bit more sensitive at this point

where maybe it would cause more damage

but yeah I mean you could legit have a

terrorist attack a major war major

catastrophe at any point problem is if

you're always investing waiting for the

Black Swan you know you end up being

right one out of seven years but then

you miss out six years of those seven

years right that's problematic the

data's coming in right now it's looking

looking pretty good that uh if we can

keep inflation coming down for the next

few months on Trend at like two tenths a

month we're we're in pretty good

condition

so can you stop raising rates now or do

you uh do you still need to hike more

well we that depends on the data I mean

we have to wait and see if this

inflation trend is continuing we've been

burned twice before in 2021 we saw it

coming down and then it shot up the end

of 2022 we saw it coming down that all

got revised away so I want to be very

careful about saying we've kind of done

the job in inflation until we see a

couple of months continuing along this

trajectory before I say we're done doing

anything

it's also true like you got to remember

what's happening internationally and I

think it's really easy to forget what's

happening internationally because

internationally could be a red flag of

some things to come consider this for a

moment we just saw that Saudi Arabia

once again voted to extend voluntary

cuts of 1 million barrels per oil a day

until the end of 2023. now this is an

OPEC but it's a big producer of oil and

this is in addition to the 166 million

barrels per day voluntary cuts from OPEC

right so you've got the OPEC guts and

the Saudi Cuts leading oil prices to

rise those could create an inflationary

impetus this on top of obviously

Russia's oil cuts which we know is just

really fueling China but then China's

economy is slowing down which is why

they're cutting oil production because

they're like well we got less demand

from China but at the same time consider

what's happening internationally

Singapore just barely missed its

recession uh and and came in with lower

estimates revised down than expected for

their economy South Korea Korea's

inflation Advanced much faster than

expected people were looking for a 2.9

percent acceleration then ended up

getting a 3.4 percent year over year uh

this has led the bank of Korea to say

hey maybe we don't need to cut anytime

soon in Europe it somewhat feels like

inflation has falled or stalled I should

say fall to stalled the annual rate of

inflation accelerated in France to 5.7

to 2.4 percent in Spain inflation in

Germany which is obviously the largest

economy in Germany was 6.4 in August

only slightly down from the previous

month core inflation which takes out

those Energy prices in Europe did slow

but barely from 5.5 to 5.3 in Europe it

really feels like everybody is suffering

except for America at the moment which

at on one hand is a little bit of a red

flag that maybe we're just supposed to

be like everybody else and eventually

we're going to get a bad inflation

report again and that could lead to

rates going even higher and then that

leads to a banking crisis and then that

leads to the Black Swan it's all charted

out it's obvious as the Bears like to

say this is right there the problem is

right there

uh that's entirely possible so far it's

not what we're seeing in the data though

and again it's it's hard uh to to argue

okay yeah you know we we should

absolutely be investing in the bear case

because the U.S data isn't that bad now

of course there's this element of oh

well is it rigged maybe but even if it's

rigged it's not trending that bad it's

still trending good even when you

consider the revisions we are trending

in the way the FED wants us to Trend

with unemployment with jobs with

inflation things are good this is why

Waller talks about a pause I'm kind of

giving away a little bit of the ending

here but we'll listen to the rest and

we'll keep adding some commentary but

point is

America feels a little goldilock-ish

right now and yeah to some extent we

should be a little cautiously optimistic

around that I think that's the way to

play this Market is kind of like I don't

know the economy seems pretty good but

uh let's at least have a little bit of

caution you know maybe a little bit of

cash on the side to buy the dip when and

if that occurs right okay let's keep

listening but keep this in mind the rest

of the world is not winning as much as

America is this does put strength on or

pressure upwards on the US dollar

pressure upwards on the US dollar 10

hert earnings at American companies

because it makes the dollar more

expensive which leads to less earnings

in other countries but also when you

convert other country revenues whether

it's Chinese Yuan or Europe or whatever

into the dollar you end up having less

money right an iPad sold in Germany for

example or France brings less net

revenue to the United States when the

dollar is strong and unfortunately

because the United States feels so

Goldilocks strong-ish you have the

strengthening of the dollar

which does put pressure on corporate

earnings so so it's like yeah good news

kind of bad news it's it's not a clear

as day yay all in leverage up on YOLO

margin and and uh uh yellow call options

right but it isn't so bad that we want

to say oh we want to set this one out

completely that was 2022. best move

would have just been sit 2022 out

completely don't even buy the dip in

2022 but again hindsight is 20 20 right

this year doesn't feel anywhere near as

bad as 2022 and if somebody is creating

fear the level at which we had in 2022

now I think they're being disingenuous

but that's just my take again I'm always

looking for like a hmm where's their

value and what somebody's saying for

example the other day somebody's like oh

Credit Suisse is uh doing layoffs see

it's the banking Crisis coming back when

no duh they're doing layoffs look at

what the pinks just went through like

this is so obvious of course the banks

are going to do layoffs the whole

banking sector is is is under massive

pressure only people who are winning are

as usual in America the rich getting

richer Jamie Diamond gets exemptions to

the amount uh how large JPMorgan can get

to go bail out first Republic again the

rich get richer and at this point it's

sad but it feels like that's the

American way is the rich are just going

to get richer here the people who put

their pants on are like I'll go through

whatever the hell happens but I want to

be invested on train America those are

the people who end up winning and

everybody who's like I'm just gonna wait

for a great reset it ain't happening and

even if there is a Black Swan at some

point in the future

you ain't gonna have money to buy it

anyway that that great reset that's the

problem that's why poor people always

get screwed in America because when you

have a disaster that happens some kind

of Black Swan it's the people who have

access to assets even if those are

discounted stocks or discounted real

estate or whatever the people have the

capability of borrowing because they

have assets they're the ones who end up

winning and swooping up all the deals

during a great reset of course nobody

wants to say that just people on YouTube

just want to go uh don't worry you'll

have your chance to get rich don't worry

there'll be a great reset

where's the data

but would you say the risks are now

evenly balanced between doing too much

by the Federal Reserve or doing too

little

yeah I'd say there are more uh I mean I

don't think one more hike would

necessarily throw the economy into a

recession if we did feel we needed to do

one

um but at the same time like I said the

job market is still pretty strong I mean

these numbers are still near historic

lows at 3.8 percent unemployment

so um it's not obvious that that we're

in real danger of doing a lot of damage

to the uh the job market even if we

raise rates one more time

a little bit of a warning there that

they are still leaving that door open

again I personally think they're leaving

that door open yes because it's possible

they may actually they may actually

raise rates that's fine uh but I think

they're leaving the door open again to

mess with our expectations we like again

if they came out today and they're like

yeah we're done

everybody's gonna go YOLO margin because

of inflation come back

Chris let's talk about the uh issue of

monetary policy lags this is something

that some folks have said is a big deal

and it's uh there's Yet to Come a wave

of of negative impact on the economy

from the big shocks of interest rate

hikes you had but you've had the opinion

that the lags are here now that in this

economy with a big increase of of

interest rates uh the way the FED did it

if there is not much of a lag to the

economy and that kind of puts you a

little bit at odds with uh Fed chair

Powell who said uh recently that uh um

uh there could be significant lags yet

to come

well this is a a tricky problem because

there's never an exact number on when

the lags tend to hit and I think as they

gave a speech back in July

that um

I think the lags are shorter they're

still there but they're not like we

don't have to wait two years for this

stuff to start impacting on the economy

and we're seeing it that by the way is a

way of saying like hey we can hike right

sooner because we don't have to be so

worried about the lags that's a little

bit more hawkish again I think messing

with our expectations mostly because

look at the betting market right now 96

chance of pause September 20th they've

massaged the messaging perfectly and

they're basically leaving November

December at a coin toss for one rate

hike you have a 42 Channel let's see

less than the coin toss 42 chance for

November 38 chance for December it would

be either one of those since we'd level

out at five five uh and then 52 chance

or sorry only 31 chance that we're at

5.5 in January and only a 20 chance that

we're at 5.5 in March now obviously

these numbers could change very rapidly

but it's pretty clear that markets are

markets are actually starting to price

in the first cut it looks like depending

on if we get the this last hike or Not

by may but uh anyway point is what's

really interesting is one of the reasons

you're seeing so much money flow into uh

or in my opinion one of the reasons

you're seeing selling on the 10-year

because the 10-year right now is up

eight basis points uh you can see that

right here I think one of the reasons

you're seeing this is because why would

you go for 4.25 on a 10-year if you can

have pure liquidity and no Market risk

in the money markets uh and and I find

this very incredible that money markets

have actually seen these recent inflows

now you do tend to get these drop-offs

usually you get these drop-offs as the

Federal Reserve does their uh 80 billion

dollars of tightening per month but this

this slow and steady hiking over here of

the repo balance it's a way of saying

people are just going into money markets

which think about it why would you be

taking 4.25 right now if you think that

you can well you know you could just get

5.5 basically overnight on money market

funds well that's at least what the

banks are getting you know you might be

getting 4.9 or 5 it totally makes sense

to just sit in money markets the only

reason you buy the 10-year is if you

think okay rates are going to plummet

and then you could actually make a

capital gain on this right I actually

think that's a potential move where you

start buying the dip basically on these

10-year treasuries because when the

Federal Reserve finally Cuts guess

what's going to happen it's going to

happen really really rapidly as soon as

the Federal Reserve Cuts rates the money

market funds become less desirable

because your money market is going to go

from five percent to say three percent

really really quickly well then people

are going to start buying up the 10-year

because they're going to be like oh well

I I want to get those higher yields but

when they buy them up all of a sudden

those yields are going to disappear

anybody who owns bonds going into that

is going to get Loosely rewarded

on owning bonds so there is some

argument for actually having a bond fund

or just straight Bonds in your portfolio

going into fed cutting uh definitely a

strong argument here uh so you know keep

that in mind yeah I'm not generally the

biggest Bond buff but right now I'm

actually like I don't know man I'm

looking pretty juicy okay and now as far

as I'm concerned you're starting to see

the economy slow down we're seeing

inflation coming down and it's really

been just a little over a year that

we've done a lot of large hikes

so I think we're already seeing the

impact the other thing that I people

seem to have this idea that long and

variable lags means there's this Cliff

effect what I call the Wiley Coyote

moment where the economy is going long

and then it just collapses that's not

how these typical lags you know they

start having an effect they build up and

then they eventually Fade Away there's

none of this Cliff effect that everybody

keeps talking about

you know I think that's such a great

line right there this idea of the cliff

effect there are so many people right

now making these these bear pieces on oh

we're gonna hit this Cliff as soon as

people have to start repaying their

student loans remember Biden already

softened the student loan Cliff he

already softened it by saying you don't

actually have to make your payment

interest full accrue but just make your

payment when you can and you don't

actually get dinged ding dong dinged uh

for about a year uh when we actually

start punishing people who don't make

their repayments that means you could

slowly ramp on somewhere around 50 of

people don't actually expect they're

going to start making payments as soon

as repayments are due uh now uh yeah and

so that means you're gonna have this

half of people with student loans who

are just going to slowly make their

payments over time or start repaying

over time there's no cliff so that's why

at least the black swans that people are

talking about now I'm like really where

again

it can come out of nowhere that's why

they call it Black Swan but uh again is

is that a reason to say you know I mean

realistically every single year forever

you could be like there's gonna be a

Black Swan coming and this is why you

usually have the bear fighters who are

usually you know it's like it's 2012. oh

there's gonna be a double dip recession

a shadow inventory of foreclosures 2013.

it's all the Eurozone sovereign debt

crisis 2014. here comes the Eurozone

crisis it's gonna collapse the whole

world and it is oh 2012 2015. we're

getting rid of QE or that's that's it

our money our economy is built up on

cheap money it's all gonna implode and

then you look at like the past 10 years

uh you know before coven it's just like

how could you not have been investing

who cares about the nonsense inventory

anyway my take thank you so much for

watching make sure to go to

househack.com drop your information

there to be alerted when we're finally

ready to go live on househack.com

appreciate y'all we'll see you in the

next one goodbye I know how to advertise

these things that you told us here I

feel like nobody else knows about this

well try a little advertising in Seattle

congratulations man you have done so

much people love you people look up to

you financial analyst and YouTuber meet

Kevin always great to get your take