The Implosion of the Fed & Massive, Coming Recession.

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money group folks let's get into the

topic in this video we're going to talk

about the potential implosion at the

federal reserve as politics pressure the

fed and what might happen over the next

six to 12 months and beyond i'm also

going to talk about history and what

history might teach us about how long

inflation might last hint if you don't

know what happened after world war ii

and how that compares to what happened

in the 70s

buckle up you're about to learn a lot

towards the end of this video i'm going

to point out some investments that i'm

making and that i think will do well no

matter this scenario so first what the

heck is happening well folks we have

10.4 million job openings according to

the jolts measure that's 44 more than

usual we had 4.4 million people quit

their jobs in october likely at least in

part due to vaccine mandates and 25 of

workers are considering a job change or

retirement within the next 12 to 18

months which is definitely putting

prices on wages going up at the same

time consumers are expecting inflation

of 4.9 percent the highest consumers

have ever anticipated for inflation

since 2008. consumers also expect prices

to rise 2.9 percent over the next 5 to

10

years

that means constantly beating what the

federal reserve's expectations are for

the next five to ten years consumers

also expect rent to skyrocket the most

we've ever seen in decades and these

expectations began going up in about the

spring of 2021 and a lot of this makes

sense look around ikea for example is

complaining that profits will fall for

two years as they keep products

affordable but are slowly being forced

to raise prices due to supply chain

constraints commodity prices have

skyrocketed despite being in a 200 year

downtrend and wheat prices are going up

so much that france is having to raise

the price of baguettes and french don't

like more expensive baguettes

bottlenecks in shipping are also leading

to overflowing disorganization theft

loss and ultimately what this turns into

is bottlenecks creating more bottlenecks

in supply chains and shipping

half of americans who heat their homes

with gas are expected to spend nearly 30

percent more on gas this winter

and our latest cpi read came in at the

highest in 30 years with a 6.1 read at

the same time asset prices are

skyrocketing hedges to inflation are

skyrocketing like crypto to some degree

and average hourly earnings are up 5.1

percent year over year it's obvious we

are in an inflationary time

while these indicators and there are

some indicators that are showing maybe

maybe prices were cool like for example

we saw lumber prices slow down and

they're finally continuing to slow down

we're seeing some indications that maybe

container prices for shipping are

starting to fall on a weekly basis we've

been seeing this since about july but

all indications or most indications that

we're seeing in the market

pretty painful so why is this happening

and where do we go from here well a lot

of this has to do with the natural delay

of the federal reserve's money printer

see when the federal reserve prints

money you can go to two places it can

essentially go to congress and this can

get out into the market pretty quickly

when the federal reserve spends money

through stimulus programs like ppp eidl

grants or stimulus checks we get money

very quickly and that money gets spent

very quickly this is what led to that

v-shaped recovery we saw in 2020 coming

out of the coveted recession but

monetary stimulus when the federal

reserve buys bonds can sometimes take 12

to 18 months to actually get out into

the economy that's because bonds being

bought by the fed from corporations or

foreign investors or banks

might not necessarily need the cash

immediately so they park the cash into

money market accounts which ultimately

show up on the federal reserve's chart

of reverse repos which we've seen a

skyrocketing of cash available

and now we have this cash sitting around

not being used and it potentially takes

12 to 18 months to actually get into the

economy so that bond buying that we

started back in march of 2020 about 20

months ago might actually just now be

starting to hit the market which is

coinciding with supply chain constraints

and now higher inflation even though we

have begun to taper we don't actually

expect our taper to start affecting the

market for another probably 12 to 20

months

and sure we're not printing as much

anymore but we're still printing we're

printing we were printing 120 billion a

month now we're printing 105 billion a

month and we're expecting to taper that

down 90 billion 75 billion and so on and

so forth

but the question is where do we go from

here if we're still printing money today

to try to prop up the market in 12 to 20

months why is the fed doing that and

what if the fed u-turns on their entire

policies well there are two paths we can

go and politics are certainly getting

heated around this larry summers the

former u.s treasury warns that failing

to address inflation will quote re-elect

donald trump who will deal with it a

candidate for congress shannon bray a

navy vet from north carolina says that

shiba inu should be part of our national

discussions in part thanks to inflation

and republicans argue they will not

support any of biden's spending plans

due to inflation and even moderate

democrats like joe manchin are arguing

this as well

all of this adds inflationary fears and

compounds these fears and angst amongst

democrats who don't want to lose power

in 2022 which right now if they don't

control inflation they're expected to

lose power in 2022 because right now

they have the presidency the house and

senate and unless inflation goes away

magically by november of 2022

it's not looking good for democrats and

this is motivating a lot of democrats to

encourage replacing the chairperson of

the federal reserve jerome powell

potentially with somebody who can

actually handle inflation and what we're

going to do now is we're going to talk

about that potential replacement and

then we're going to talk about paths

that the fed might be going down so

let's talk about the current potential

replacement candidate which predicted

puts at about a 33 percent chance of

getting or of being the replacement to

jerome powell the other 70 you know 67

being jerome powell maintaining a seat

well let's go to lyle brainard she would

be the replacement remember elizabeth

warren has called jerome powell a

dangerous man saying that republicans

like him sow the seeds for the next

recession instead we need democratically

elected people like brainerd who would

be a democratically elected a nominee

history shows that democratic nominees

can sometimes be a little more hawkish

against inflation and that's

particularly because we think of paul

volcker who is a legendary hawk who

whipped inflation in the 80s to get it

down but so far when we actually look at

brainerd's policies who could be the

replacement for jerome album she tends

to pretty much always agree with jerome

powell with the exception of removing

regulations on things like dodd-frank

which jerome powell was a fan of she was

not she has never dissented against a

decision that jerome powell has made to

either keep the money printer going to

keep the money printed or to speed up

the money printing or to keep rates low

in fact she's a big fan of fate which

stands for flexible average inflation

targeting which means we're going to

keep inflation high for longer and we're

doing that on purpose so that we have an

average of two and a half percent

inflation she is in favor that she was

also the author of the language maximum

employment rather than full employment

this means this is basically the fed no

longer trying to determine what full is

instead moving away from that simplistic

number of full employment and going for

something more vague like broad

inclusive policy see brain art is a

person who doesn't believe that we're

ready to determine that we've lost jobs

permanently

because if that were true then we would

raise rates sooner instead she believes

that employment still has time to go

that we need to still be accommodative

of employment that we still need to be

accommodative of the market so in other

words brainard

if anything seems like a mirror image or

i shouldn't say mirror image like a

spitting image like a replica of jerome

powell and in some cases she's

potentially even more dovish that is

let's keep interest rates low longer

let's print money more

longer which seems like it would be the

opposite of what people in congress

would want if they're politically trying

to show they're doing something to take

control of inflation keep in mind

brainard and this is really interesting

she was part of the treasury department

during obama's term for international

affairs

and she offered insight into how

damaging inflation was especially on

households who can't maintain their

purchasing power in in foreign countries

in developing countries see she sees

inflation as a significant risk her

background says inflation is really bad

but she's also calling for patience

she's calling for doing what jerome

powell does for keeping rates longer and

keeping the money printer going she

strongly fears that the u.s economy

could actually slump back into a period

of low inflation once bottleneck issues

are resolved

so this is really interesting so if we

get brainerd or we're stuck with powell

in both cases it seems like the fed is

convinced

we've got to keep the money printer

going even though we're seeing high

inflation right now

this sounds pretty crazy right it's very

kooky

but there might be a reason for this

let's go down the two paths the first

path is what if the fed is stupid and

wrong

the second path is what if the fed is

playing 4d chess

and they know what happened in the late

1940s and how it's different from what

happened in the 1970s and the fed could

actually have a master plan that

actually might

work

well we'll talk about that in a moment

first we're going to talk about what if

the fed's wrong because that's a whole

lot more interesting and keep in mind if

any of this overwhelms you and you kind

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all right let's get back into this so

what if the fed is wrong

okay so if the fed ends up being

wrong

and we end up having inflation last then

what could happen is the federal reserve

might have to panic

and react very quickly they might have

to suddenly end our tapering completely

and just stop buying bonds entirely then

they might have to suddenly announce in

an emergency manner that they are

raising interest rates because they've

lost control of inflation this could

lead to a very negative market reaction

if not a recession it could lead to a

spike in volatility it cause it could

cause an immediate decline in the stock

market and depending on how the bond

market reacts which we would expect

rates would jump substantially and

instantly bond yields will likely

overreact to the upside meaning mortgage

rates will go up we could see real

estate prices tumbled so if the federal

reserve

says we were wrong on inflation

panic reacts and raises rates which is

what a lot of people especially gold

buffs are calling for

then we could see pain in stocks bonds

and real estate real estate for example

could move substantially a one percent

increase to the upside in mortgage rates

could lead housing prices to fall 10

percent remember the rule of 10x for

every 1 increase in mortgage rates

housing prices tend to fall about 10

now we'd like to think that real estate

prices fall slowly but this is not true

look at 2018 in the summer of 2018 you

will see that when interest rates

started getting moved up rapidly by the

fed which ended up leading mortgage

rates to also increase real estate

prices fell very quickly 12 in a matter

of six weeks

if this event occurs markets will also

likely lose substantial confidence in

the federal reserve because that means

that everything the federal reserve told

us was complete in other bs and they

were wrong and they failed now many of

you watching this video might already be

thinking well i already know they're

wrong they suck

and that's fine but that would be the

nail in the coffin that would remove any

chance that they were possibly right

they would be wrong they would admit

defeat and they'd panic react probably

leading to a temporary recession which

we've actually seen before the federal

reserve tightened so substantially and

quickly in 1948 and 1949 in response to

increasing inflation that ended up

proving to be temporary

that we fell into a recession

see that's because after world war ii

when we rejiggered our manufacturing

from wartime efforts to peacetime

efforts which meant spending money on

goods and educational products and

entertainment products or whatever

we all of a sudden had a surge in demand

for stuff that our manufacturing

facilities couldn't keep up with which

led to inflation the federal reserve

responded very quickly and aggressively

leading to a recession and you won't

believe this

deflation the federal reserve tightened

so quickly

they panicked and created deflation

which in theory would be the response of

or at least somewhat of a goal to try to

reduce inflation they just overreacted

back in the 40s but don't worry we've

got more to learn from the 40s which

we'll talk about in a moment because it

gets very very interesting but that's in

the other scenario

so right now

obviously the federal reserve reacting

very quickly history shows

could mean the federal reserve loses

confidence crashes the market creates a

recession just like it did in 1949 and

yeah it gets inflation down but at a

very painful cost because they will

create a market crash the fed will also

have all of their trust implode and they

will be an utter failure

that's very bad that is scenario number

one that is the fed being wrong and the

implosion of the federal reserve

but there's another scenario that

actually also has the potential of being

right which there is also historical

precedent for see back in the 1970s we

had high inflation due to a lack of

supply for oil and a removal of price

caps from the 1960s see in the 1960s

there were limits on how much things

could cost price caps anytime you have a

price ceiling you create economic

inefficiencies which when those price

caps are removed you end up seeing

prices skyrocket sometimes to the upside

too much and you end up creating

inflation at the same time we also left

the gold standard which created massive

reasons for to some degree

hyperinflation in the 1970s in excess of

14 in certain months

that's insane

but

back in 1946

7 8 and 9 we had something really

interesting happen remember what i

described after world war ii about the

rejiggering of manufacturing processes

about how people were moving from

wartime purchases to peacetime purchases

and this ended up leading to inflation

inflation in 1946 was 8.33

in 1947 it was over 14

and in 1948 it was 8

then the federal reserve over tightened

overreacted too quickly to what ended up

being temporary inflation this inflation

in the 1940s the late 1940s was

temporary because people were shifting

demand

very similarly to what we're kind of

seeing now in the 2020 to 2021 cycle

people are shifting their demand

substantially i mean think about how

much demand has been shifted we went

from a normal economy to doing nothing

out and about not having services to

only buying goods cars and junk now

we're still buying lots of goods cars

and junk thanks to all the stimulus that

has pumped up people's wealth and the

wealth effect of the stock market being

higher and people retiring more than

ever before so then spending more money

than ever before and sure now we're

introducing service spending again while

people have more wealth we have a

massive increase of the amount of

spending and our supply chains just

can't keep up with this

this has very eerie similarities to what

happened after world war ii 1946 47 48.

listen to those numbers again 46

inflation was 8.33 percent 48 it was i

was right 47 it was 14 and in 48 it was

eight percent that means we had high

inflation peaked and went down that was

a three year period of a transitionary

form of inflation transitionary

potentially transitory took three

years and it only ended when the

government over when the fed separate

when the fed overreacted and forced us

into a recession in 1949 the fed

overreacted and our federal reserve

today does not want to overreact again

because guess what happened after that

recession of 49 when the fed overreacted

we ended up with really low inflation in

the 1950s

aside from the korean war when we had a

very brief period of inflation wartime

inflation aside from the korean war

the 1950s through about the mid-1960s

or about this 15 16 year period of time

had very low inflation we constantly

undershot inflation targets we're

constantly sitting around 1.2 to point

five percent inflation for 16

years

so it's weird because anytime you see

inflation happening it's usually because

of temporary issues the issues in the

70s oil shocks the

removal of price caps and removing the

gold standard well no those things are

going to cause inflation

world war ii and sort of the reopening

after world war ii well duh that's going

to create inflation but when you look

outside of these time frames you tend to

have very very low inflation and so this

is what the fed realizes right now and

the fed wants to prevent the mistake of

1949

and so this is where the federal reserve

is saying we know there's a 12 to 20

month delay and when we print money

so let's go down the rabbit hole first

supply chain issues start subsiding

container prices which are already

starting to come down come down more

shipping container prices not only come

down but warehouses have enough

employees and strong efficient systems

in place to deal with overshipments but

now we get to normal shipments and

they're really efficient the holiday

rush is over companies are well stocked

and now more efficient than ever workers

are potentially more productive than

ever the price of raw materials plummet

because now all of a sudden we're

ordering less in bulk and at the same

time as china's economy slows leading to

less demand for raw materials we end up

seeing raw materials for things like

aluminum lithium steel and lumber all

come plummeting leading again commodity

prices across the board to fall and

companies while having raised wages are

now finding a new happy median which

means we don't have to continue to raise

prices because we get to full employment

now inflation starts to inflect down

sure prices went up but they're not

continuing to go up they kind of hit a

ceiling

now potentially certain prices of things

start going down we start seeing

inflation not only no longer going up

but starting to get closer to

zero that is if prices stay stable we

have zero inflation right it could still

mean that price look the price of milk

can go from two dollars to six dollars

just as an extreme example right and

that would be 300 or three times

inflation right like three times that's

crazy right but if the very next year we

go from six dollars to six dollars with

zero percent inflation we go from six

dollars to five dollars and forty cents

that's ten percent deflation on the

price of bill just as an example right

and so this creates the very real

possibility that in some categories we

are going to see categorical deflation

used car prices uh commodities whatever

now this is where things get really

interesting and this is where the fed

might be playing 4d chess

get this

if the federal reserve knows that their

money printing takes 12 to 18 to 20

months to hit the market then it's

entirely possible that the money

printing the fed is still doing right

now

is going to really appear in the market

at the end of 2022 which is potentially

when supply chain issues will

go away when we might actually start

seeing deflation and the money the fed

is printing now will actually prevent us

from falling into deflation at the end

of 2022 to prevent consumer price

indexes from going totally negative now

this is super 4d chess here if the fed

pulls this off correctly and prevents

hyperinflation by uh you know

by you know essentially being correct

that this is transitory inflation and

prevents deflation by printing money

today that they expect to really hit the

market a year from now

that would be like a genie that would be

like the fed has turned into god

and in this case which it's possible i

know it might be a long shot but it's

possible i would expect that real estate

prices would continue to zoom asset

prices like stocks would continue to

take off crypto might actually lose some

of its sex appeal as inflation clickbait

subsides but blockchain technology

obviously is going to be here to stay

and the fed could end up perfectly

navigating us both through

preventing 1970s style hyperinflation

and 1949 style deflation and recession

that means we could literally be in a

frugal decade not have a recession in

the 19 or in the 20s here throughout the

2020s and it's a long shot but it's

entirely possible that our portfolios

could continue to do extremely well

throughout this entire decade

and so when people ask me about my

portfolio i you know my portfolio go

through really quick it's about a 52

million portfolio uh there's about nine

million dollars 10 million dollars of

real estate debt about 22 million is

real estate so about 42

real estate in the portfolio about 4 is

in crypto 28 is in tesla i know that's a

lot i've got about 15 percent combined

in a firm etsy and phase and matterport

i love these companies these are like

really really great companies but the

point is i'm 100 invested and i'm not

super exposed i have zero exposure to

what commodities a zero exposure

i actually think and maybe i'm insane

which is entirely possible then at least

i'm upfront and transparent about it's

entirely possible that the fed could end

up being right

that the fed could navigate

what history is telling us

very well now history people always say

oh this time is different but history is

bound to repeat itself and historically

we're not seeing what happened in the

70s we're seeing more what happened

after world war ii and we could

potentially be going into the 1950s

which is when we just had low inflation

for another decade plus

bearing you know absent a war

and so this is where we look and we go

wait a minute

maybe a lil brand or brainerd nomination

and confirmation it's just going to keep

us on exactly the same path that

inflation is transitory maybe not

temporary but transitory and we're

printing to prevent potentially

deflation at the end of 22 when we get

through supply chain issues and so if

this is the case then i expect stocks of

real estate to do very very well and

remember if you want my buy and sell

alerts anytime i make a transition i

share my opinions buy sell i tend to do

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and sometimes there are quiet periods in

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friday coupon but really what's the

bottom line here well folks the bottom

line is

no matter what happens i'm staying

invested if we end up getting into a

potential recession scenario where the

fed overreacts i'm not in margin which

is good so i'll be able to have some

money to go buy the dip in the meantime

i'm fully invested and i'm not super

concerned about the future of our market

i don't think the federal reserve is

going to overreact and i don't think

that leo brainard is actually going to

be necessarily bad for the fed i think

it would just be a

continuation of the powell regime

so these are my thoughts on the

implosion of the fed and the potential

for a market crash if you found this

helpful consider sharing the video and

check out the programs on building your

wealth down below thanks so much

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