Yikes! Watch BEFORE the Fed Meeting TODAY [FOMC].

here's one you want to watch all the way

through before the Federal Reserve

meeting because we've got three really

important things that we've got to talk

about before the FED meeting number one

the disaster of the ADP jobs report that

just came out number two what JP Morgan

thinks the results will be in the stock

market after the FED meeting so what to

prepare for and number three we've got

another update from Nikki leaks which is

a reference to the person who basically

gets text messages from the Federal

Reserve and then tweets or write stories

about them at the Wall Street Journal

alright folks let's get into this the

first thing that we have to look at is

the ADP report that just came out

initially when you look at it it looks

like a complete disaster it looks

terrible okay because it suggests we

gain 239 000 jobs in October and that

the annual wage gain was 7.7 now why is

this terrible it's terrible because of

something potentially known as the wage

price spiral where if inflation is below

the level of how quickly wages are going

up so if inflation Falls to like 7.6 and

wage gains are 7.7 percent you

potentially start having a wage price

spiral where the gains in wages become

self-sustaining spiraling to the upside

because workers demand more pay as

prices have gone up for goods but then

because workers demand more pay prices

of goods have to go up and you

self-sustain inflation and it never goes

down okay absolutely terrible and on the

surf surface it feels like oh no this is

absolutely terrible we need to see this

annual pay go down but when we actually

dig deeper into the report we actually

get what I consider some hope take a

look at this we suggest or ADP suggests

that hiring was not broad-based and

we're seeing early signs of a Fed driven

demand destruction only affecting

certain sectors of the labor market now

that's a big deal so they're basically

saying hey hey fed fed numbers on the

headline bad but we're starting to see

all causing damage and then things get

really interesting because when we

actually look at this breakdown we've

lost jobs in a lot of sectors look at

this minus 8 000 jobs for goods

producing this is a shrinkage in jobs

information down seventeen thousand ten

thousand down Financial activity

professional and business services

education and Health Services minus

minus minus for services lots of job

losses here we're almost exclusively all

of the jobs coming from right here folks

Leisure and Hospitality this is really

interesting because if we compare this

to a separate ADP report we could see

that in most of the monthly earnings

gains between 2019 and 2021 are

occurring in the group The cohort of

lower income individuals and ADP

suggests this makes sense that lower

income areas are seeing the largest the

lowest paid workers are seeing the

largest increases of pay in some cases

as high as 42.5 or 42.4 percent pay

increases since before the pandemic so

you're really seeing that lower end

really see dramatic strides in wage

gains and the reason that's so important

to differentiate is because if we gave

the fed this report and just said hey

annual pays up 7.7 we might have a Fed

that needs to rug pull us because these

numbers on the headline are scary it's

only when we break them down and say

wait a minute it's actually that lower

income job sector they're the ones who

are getting the jobs and they're

probably the ones making up the bulk of

the pay increase and on top of that we

see that job gains for momentum and sort

of these wage increases is starting to

ebb in fact for year over year uh pay

growth we saw an edging down of pay

growth for job switchers from 15.7 in

September to 15.2 percent in October but

for people who stayed at their jobs were

still consistent at that 7.7 percent

these are high numbers here and if we

look at median pay change by category

look at where no surprise the biggest

pay change category is so on the surface

we have bad news but when we actually

break it down we're like ah these are

the lower paying jobs that are seeing

most of the wage gains and they're the

ones that have been catching up most

since before the pandemic they really

deserve to be getting the biggest pay

bump because they've been so far left

behind and so hopefully hopefully we

have a Federal Reserve that will come

fed time here today we have a Federal

Reserve that either today or in the

future starts realizing hey wait a

second we need to talk about this wage

price spiral and identify it as what it

is it's just a one remaining sector

catching up the rest of the jobs Market

is starting to slow now I want to talk

about JP Morgan we're going to talk

about JP Morgan just a moment but keep

that in mind the rest of the jobs Market

is starting to slow it's just Leisure

and Hospitality that's booming and quite

frankly if you look at Uber if you look

at American Airlines you look at what

American Express is saying all of them

are saying travel is still booming that

will eventually get hit as people draw

down on their consumers I don't know

that you need higher higher fed funds

rate to get people to stop traveling

because here's the reality a higher fed

funds rate isn't going to affect home

like people at their homes and their

ability to travel like a higher fed

funds rate is going to affect a company

that's trying to buy uh you know finance

a plane or Finance new Machinery or

whatever because most of those rates are

directly tied to the FED funds rate with

the consumer they just use their savings

or they go from a high interest rate

credit cards to a personal loan over at

Sofi it's brilliant now let's realize

that is a good thing we just need the

FED to realize raising rates more is not

going to stop Leisure and Hospitality

spent we just have to let people spend

their money get through the holiday and

then realize we're in a recession and

then that'll slow you don't actually

have to be more aggressive now let's

talk about JPMorgan right after a

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podcast said let's go so JPMorgan

provides multiple outcomes for what

could happen with the Federal Reserve

let's take a look at some of these

outcomes so first JPMorgan suggests

there's a low likelihood of the FED

coming out with a 50 basis point hike I

agree I think this is almost a zero

percent chance but they suggest If the

Fed turns dovish now because for

whatever reason the FED flips and

realizes okay we've done enough let's

slow they think markets could rally 10

to 12 percent now if the FED goes 50 and

is hawkish which has a slight chance I I

think almost no chance here but is

slightly possible uh like already seeing

a reduction in these rate hikes uh in

the pace of rate hikes you could also

see a substantial rally at the S P 500 I

I don't think so I don't think we're

seeing that until December next they

think you could have a 75 basis point

hike with a dovish press conference they

think this is the second most likely

outcome I personally don't think you're

going to see it dovish Powell I think

we've got two jobs reports and two CPI

reports before they could dare have this

credibility challenge of having a dovish

Fed Reserve meeting and then getting

really bad data over the next two

reports right now the ADP report has

some levels of optimism to it but again

you don't want to go into two jobs

reports and two CPI reports with a

dovish meeting and then look like an

idiot right so I feel like you have to

be hawkish anyway dovish could lead the

s p up two and a half to three percent

whereas unfortunately a hawkish press

conference and a 75 basis point hike

which is deemed the most likely outcome

could lead the S P 500 down one percent

now you do have a 100 or a 100 basis

point hike possible but probably

unlikely but if we got a 1 100 basis

point hike and a dovish Fed or 100 basis

point hike and a hawkish Fed you'd

probably see either a four and a half

percent s p decline or six to eight

percent decline it would be so

unexpected it would almost be deemed a

rug pull by markets now we're not

expecting that though unfortunately we

have Nikki leaks to give us a little bit

of insight remember this is the guy who

always writes about the Federal Reserve

uh this is the guy who gets the text

messages and what is Nikki leaks telling

us well he tells us that the FED is

trying to tighten Financial conditions

and keep them tight notice keep them

type is a tight is really important

because you could tighten to a certain

level and then continue to keep pressure

by talking hawkishly right and Mr Nick

here says that talk about the FED pivot

can be confusing because there are

multiple ways you could see a pivot you

could see that raising rates rapidly to

catch up is deemed somewhat of a pivot

right you pivot to get aggressive like

what we saw at the beginning of last

year that would be a bearish pivot right

then raising rates at a slower pace is

also deemed to be somewhat of a pivot

then the holding rates at a given level

is deemed to be a pivot going from

Raising to not raising at all and then

there's another style of pivot which is

just like the FED going to straight out

bailout mode like a fourth pivot here

right so there are many ways to look at

a pivot usually markets bottom when the

FED does the four thing which is when

the U-turn and rather than just doing

any of these they go okay we've done too

much we've caused too much damage we

need to support markets again like what

you know we've seen historically by the

Federal Reserve following Black Monday

in 1987 uh 2003 at the end of the.com

bubble February of 2009 December of 2018

and March of 2020. those were

historically the bottoms of the market

and they aligned with fed uh massive

u-turns u-turns not even just pivots

like full on u-tunes anyway like think

of a pivot in like basketball right you

do it you dribble you got your dribble

dribble and then just pivot like to the

left to the right I think a U-turn is

like okay I'm out of here you know full

on full-on reversal anyway derivative is

Market uh Nick here says it shows that

investors expect the FED funds rates to

to remain and three and a half percent

dude we're not even at three and a half

percent yeah that's crazy and expect it

to remain at three and a half we're

close but I expect it to remain at three

and a half percent for the long run the

highest level since 2014 as wages rise

uh and people worry that higher

inflation will end up being structural

in other words sort of built in and it's

self-sustaining so we'll see we've got a

lot of reports coming up but here's my

take I really want to see the FED make a

clear distinction between the type of

wage gains that we're getting but I'd

also like to see a clear distinction in

the type of inflation that we're getting

that it's heavily based on the housing

markets shelter inflation again if you

subtract shelter inflation from CPI what

do you get you get no inflation now I

see some comments people pounds are like

oh how could you subtract the single

biggest thing if somebody's somebody's

uh you know expenditures and say you see

look in station zero

because the way CPI is measured lags by

6 to 12 months rents are already coming

down but CPI still sees them as trending

up and CPI hasn't caught the inflection

point yet so it actually means that real

renters today on the open market are

getting better deals on rent than they

were a few months ago

uh and CPI doesn't see it that way yet

so hence why some people call it the CP

lie now I know anecdotally a lot of

folks like to come out and go I don't

know man it seems like rents are only

going up just look at the data the data

says rents have already peaked we're not

going to go debate that here we've

debated that in plenty of other housing

videos so

my demands for today

and expectations 75 basis point hike

hawkish fit he's got a hawk he has to

Hawk because otherwise we're just going

to loosen Financial conditions and lead

to a stock market rally he doesn't want

a rally yet

let that come in December be patient

then I'd like to see this is my like to

so I expect 75 and I expect Hawk but I

would also like to see some clarity on

concerns around a wage price spiral and

insight into CPI shelter inflation and

if we actually get those two things

those two things could actually be

deemed dovish and so you could see what

sounds like a hawkish bed turned dovish

and bullish for markets so I'm

optimistic and hopeful but remember hope

is not an investing strategy thank you

so much for watching and we'll see in

the next one goodbye