YIKES | Major Fed Liquidity RED FLAG

really big overview on the liquidity

crisis that is starting. That's what

we're seeing at Bitcoin. It gives you

insight into why Besson warns that some

sectors of the economy could be going

into recession. It gives you ghoul

speeds fooling us on his reading of the

inflation chart. It also shows you how

backwardlooking the Fed is as well as

major catalyst for this Wednesday.

Austin Goulsby from the Federal Reserve

has some news for us and we're going to

talk about that this morning along with

what's going on in the economy and the

lack of activity that's actually showing

up in the jobs report which is really

bullish at least so far based on state

unemployment claims data. We're not

expecting to see a big shocker but

that's not changing the fact that we are

seeing shockers at the repo facility of

the Fed. So, how do we reconcile this?

How do we put all of this together?

Well, let's break it all down one step

at a time. So, the first thing that

we've got to know is that this week on

Wednesday, we are going to get a

combined ADP report. So, mark your

calendar for Wednesday morning at 5:15

a.m. California time, 8:15 if you're

lucky and you're on the East Coast. Uh

the ADP report is going to give us not

only the moving average of the last uh

sort of the weekly last four weeks of

data, which is nice because we get the

weekly data hopefully going into a

little bit of November, but we're going

to get that entire October read for ADP

jobs. We're expecting 35,000

on that ADP report. Now, a lot of folks

are saying that's going to be what

actually decides whether or not we get a

December rate cut. Right now, we've got

about a 69% chance of a December rate

cut. And a lot of folks are thinking

that we could be on the precipice for

some real pain if we keep seeing this

sort of funding stress. See, this right

here at the Federal Reserve is why they

turned off the money vacuum cleaner

because we're starting to see a little

bit of a lack of liquidity. Some of that

might be why we're seeing pressure in

Bitcoin. In other words, in order for

people to continue to buy uh these

high-flying tech stocks like Nvidia or

invest in AMD or otherwise, there's some

argument that because Bitcoin has been

trading sideways since the summer,

people might be finding liquidity in

Bitcoin and then moving it into tax

stocks or wherever else. The repo

facility doesn't tell us about liquidity

for you and me, though. What it does is

it tells us about liquidity for banks,

which sometimes can be even more

concerning because why all of a sudden

are we seeing the repo rates or or repo

usage skyrocket and why did we just see

the largest increase in the repo rate

since 2020? Now, this rate itself isn't

that big of a deal, 4.22 on the repo

rate. What matters more is the rate at

which it changed. Usually this repo rate

only changes by about four to five basis

points at any given time. However, here

we had an 18 basis point skyrocket in

the repo rate, which suggests way more

of a demand for cash on Halloween on

Friday than markets anticipated. Part of

that could be because of pain brewing

under the surface. And this is why we're

not really seeing this kind of pain yet

in the labor market. Even though we had

layoffs that showed up at Target, at

Amazon, and at other companies, we're

not actually seeing that pain show up in

the labor market yet, but we are

starting to see red flags in liquidity

markets, which might actually be very

normal. See, typically when you go into

a recession, the most lagging data is

the unemployment data. But in a weird

way, the unemployment data is like the

only thing the stock market cares about

right now. The stock market is looking

at the unemployment data saying, "Hey,

as long as we're roughly in the range of

break evens, we're bullish, right?

That's essentially what markets are

doing." Jerome Powell's got the break

even employment rate somewhere around

zero. You've got Fed members like

Hammock who have the Fed uh unemployment

break even rate estimates somewhere

around 20,000. The estimate for ADP this

Wednesday is that we're going to get

35,000 jobs. And even if we miss on

35,000, as long as we get something

between 0 and 20, markets are likely to

look at this and go, "Hey, cool.

Bullish." Especially since even after

these layoffs, we're still not seeing

initial jobless claims on a state basis

show any kind of even a seasonal spike.

I mean, look at last September and

October. At least you had a spike in

unemployment claims here that sort of

aligned with what you generally get

around this time of the year. not right

now. Not seeing the spike at all. And

so, in a weird way, we kind of see

markets continuing to throw money at AI

and the tech trade because we're

justifying

that the economy is fine because our

unemployment rate hasn't fallen off a

cliff yet. And so far, earnings are

doing just fine, which is fair. So far,

earnings have done fantastic. 70% of the

S&P 500 has reported. Profits are up

13%. the estimates were closer to 6% uh

that profits would be up 6%. We got 13%

which is amazing. Sales are up at the

fastest rate in the last three years.

Margins are up in nearly every sector.

And the only thing that people are

concerned about right now is that things

are so bullish with labor and earnings

that we just don't have enough money.

That's what's leading to record amounts

of leverage, the highest levels of

margin debt we have ever seen. And

obviously why when we have any kind of

hiccup whether it's in crypto or stocks

we see really rapid declines. I mean

look at this. Just in the last hour and

a half we actually I mean this just

updated but within the last hour and a

half we we actually had this chart

showing about $600 million in crypto

liquidations as Bitcoin fell below

$16,000 for a moment there. Uh that

chart has since moved showing only 46

million in the last hour. That's because

within the last two hours most of those

liquidations took place. You can see the

4hour wreck level here almost 700

million. A lot of that of course on

Hyperlid almost 2 and a halfx that what

we've seen on Binance who of course you

know Binance has no idea who CZ is after

pardoning him because why why would a

president know anything about the person

who's pardoning who he's pardoning and

the same person who just happened to

provide a multi-billion dollar lifeline

via tokens to World Liberty Financial in

coordination with the Saudis. That's

really a topic for a totally different

video and totally tangential to what we

need to talk about, which is Kevin, how

the hell do we put all of this together?

Well, I think there's actually a very

simple explanation. I think the way you

put this together is like this. Look,

jobs right now still fine. And that's

what's keeping the market going. The

problem is people just don't have that

much available cash. Money markets are

misleading. You know, a lot of people

look at money markets and they're like,

"Oh, but Kevin, you know, uh, market

funds have so much available cash, but

they forget that a lot of that cash is

really just corporate balance sheet cash

like Apple available cash or Nvidia or

Microsoft available cash that sits in

short-term duration money market funds

or, you know, 3 to six month treasury

funds that then uh get end up, you know,

being deployed into stock buybacks or

circular investments into open AI or

Amazon or whatever kind of other deals

end up getting financed. So the money

that's available in money markets, I I

don't actually see it as consumer

available money or investable money

that's available. You even see the Bank

of America fund manager survey shows

that currently available cash for fund

managers is at a dangerously low level.

In fact, Bank of America calls it a

bearishly low level because typically

when investable cash gets as low as it

is now, we tend to see a pullback in

markets. So to me, this isn't so much

about the jobs market being bearish. The

jobs market so far is bullish. The

problem is it is lagging. The jobs

market tends to lag bad news. The

lagging bad news, in other words, good

news right now is actually keeping the

market pumping. The problem is again

cash and liquidity. And what's

amplifying that lack of cash? Well,

what's amplifying that lack of cash? In

my opinion, too much collateral risk. In

other words, too many cockroaches. And I

actually think that's why we're seeing

some of this funding stress starting to

show up over here. The usage of the repo

facility is basically when banks say,

"Crap, we don't have enough money to

meet our obligations over the next 24

hours. We need to borrow more money

rapidly from the Federal Reserve." This

skyrocketing on Halloween is also

interesting because it comes after the

Fed meeting last Wednesday where the Fed

says, "Hey, we're going to turn off the

vacuum cleaner." Now, in fairness,

they're not turning off the vacuum

cleaner until December 1st. But

honestly, if we keep seeing crazy spikes

like this in lack of liquidity at

banking institutions, it's likely that

the Fed is going to actually have to

move up the time that they turn off

their vacuum cleaner from December 1st

potentially to like now because there is

a liquidity strain. When banks have

liquidity constraints, it's usually

because banks are starting to get more

nervous. Think about it. If banks get

more nervous because they're like, "Uh,

what if all this collateral isn't really

worth what we're being told it is? What

if there are more cockroaches that we've

lent to than we thought?" I mean, keep

in mind, you have to remember that the

IMF made it very clear that

90% of the lending going to these risky

institutions, these inter these non-bank

intermediary, you know, financing

institutions comes from big banks. So

that means big banks are potentially the

most at risk if we end up having stress

on those underlying collateral values.

That's why we saw Jeffre tank. JP Morgan

still at all-time highs though. But

often times people look at the repo

facility say I don't know man. These

could be signs that there are brewing

underlying concerns about what's going

on in the market. It's probably one of

the reasons why we've got uh the Bank of

England saying there's a real risk of a

quote sharp market correction. The IMF

says that valuations are so above

fundamentals that we do risk a

disorderly unwind. Uh and that even

Jamie Diamond says we might be entering

bubble territory. All of that is fine.

Like people make bubble warnings and

they create all these sort of like you

know crash scenarios all the time. None

of it usually happens unless there's a

lack of cash. And part of this, in my

opinion, all aligns. The repo facility

is showing liquidity in crisis. There's

not enough money at the biggest

institutions. They're panic borrowing

from the Federal Reserve. That's one.

Number two, you're seeing a slowdown in

Bitcoin. usually when we have excess

liquidity, we see Bitcoin absolutely

kill it, but we're seeing the opposite

right now. Now, of course, you know, we

do have idiosyncratic movements as well.

I mean, obviously, uh something that

we're anticipating in the alpha report

uh in the course membership is that

Tesla might knock on the door of $490. I

think that'll be a psychological

barrier, but also an all-time high

barrier and a technical barrier once

this vote passes for Tesla. I anticipate

that the vote will pass. If it doesn't,

I think 414 is in play and we might even

lose 414. But I I do anticipate this

will pass. And so I think that's why

Tesla is sort of prefront running this

event. Uh and then of course it's no

surprise that when we get sort of these

idiosyncratic uh news deals like what

you see with Rare Earths, you end up

getting sell-offs continue on stocks

like MP Material, which my target for MP

Material is $31. I hate to say it, but

we talked about this in the alpha report

back when we were at 65 and 70. We said

in the alpha report, hey, MP material

might be going to 100 bucks. Now, we're

saying we peak out at 100 bucks, which

is exactly what happened. We said that

before it happened. It happened. Now,

our target's $31 on MP material. I think

it's just going to be too long for us to

get revenues over here. And people are

looking for cash. This is why it all

relates is in order for people to keep

chasing plays like who knows, Palanteer

reports earnings today. We'll see. We

talked about that in uh our course

member live stream this morning as well.

But beyond that, people need cash. So in

order for people to go chase the trend

that's going on at Amazon and this

enthusiasm we're seeing, this recent

enthusiasm that we've seen at AMD, in

order for people to keep chasing Nvidia

up, they need to raise capital from

somewhere. Where do they raise capital?

In my opinion, one of the places is

Bitcoin. And it all comes down to a lack

of cash, which does make us somewhat

sensitive to a potential correction in

the near term. Now, when does that

correction come? In my opinion, the

biggest risk for a correction isn't

tomorrow. It's actually when the

government reopens. Now, I anticipate

that the government will reopen before

Thanksgiving. I do not think that they

want air traffic controllers gone for

the biggest travel week in the entire

year and Black Friday sales, which you

know, the economy really relies on the

consumer and consumers have been weak.

So, do you really want to screw that up?

I don't think so. But I actually think

that's the biggest negative catalyst we

have is the government reopening because

then we actually start getting real data

again. Now, we'll get the ADP report

here on Wednesday and we'll be covering

it obviously, but there's a lot of focus

on where is the money. Obviously,

layoffs, we're going to see are are

these layoffs going to show up? This

will be a big deal because ADP is a

contractor for Amazon. So, we'll see the

payrolls data from Amazon probably show

up in the October report, assuming some

of those layoffs have not just been

announced, but have actually started

actually showing up on like payrolls

data. But Starbucks firing 900, Target

1,800, Amazon 14 to 30,000 because it's

as many as 30,000, Paramount 1,000,

Wilson Kors 400. These are all issues.

At the same time, you've got people like

Goulsby saying, I don't know, man. You

know, inflation's still a concern. Nah,

I don't think so. I think you've still

got room to run between now and the end

of the year. Uh I do think you have a

negative catalyst with uh the the uh uh

you know government reopening but

broadly

earnings are good, jobs data still good,

but we're getting early warning signs

that people are just straight up running

out of money. Okay, that's basically

what's going on here. People are out of

freaking money. And I think as a result

of this, some people are starting to

sell some assets like Bitcoin. That's my

take. You know, we're seeing selling

pressure there obviously. You know,

Bloomberg this morning, they had a piece

about how they think that uh Bitcoin is

actually going to fall under a 100,000.

They're going to break right through

100,000 and fall below it. Uh that was

in the Market Live blog. But um you

know, I'm not trying to be a Bitcoin

bear. I'm just saying I think people are

selling to be able to go buy some other

stuff that they want to diversify into

because there's just no other money. So,

you have to sell some assets. I think

that's what's happening. That's why you

got the MP selloff. That's why you're

going to keep seeing sell-offs in in

well certainly in scams like old five. I

mean old five the only reason old five

goes up is be in my opinion because

insiders stop selling and then as soon

as it goes up again a little bit it

tanks again down another 13%. My price

target by the way on this one is

delisted zero is my price target on

this. I've been bearish on this since

seven or eight dollars this because

mostly because I think it's a scam my

opinion. Don't sue me bro. But anyway,

what matters now is let's listen to the

Austin Goulsby interview. I do want to

quickly shout out that House Hack has

had its most insane 3-day fundraising in

just the last 3 days. Like the last 3

days, I think we're at like half a

million dollars. We fundraised, I think

it was close to 14 or 15. I can look at

the exact numbers, but it was either 1.4

$1.5 million in October, which is great.

But in the last 3 days, we raised nearly

another half million dollars, which then

if you like I I don't expect we would

multiply that over the month. But then

you you compare that sort of to a month

basis. Like the rate of fundraising is

insane. So I just wanted to give a quick

little update on that. This is not a

solicitation. If you want to learn more

about investing in house hack also now

doing business as reinvest, go to

reinvest.co or houseack.com, read the

solicitation, read the offering

circular. But I just wanted to thank the

audience here and I want you to know

that my my goal is to make this like I

want to take Warren Buffett's torch and

make this Berkshire Hathaway uh for the

next, you know, 70 years. I want to grow

this puppy. Maybe we'll do annual

shareholder events like uh like

Birkshshire over time. But anyway, let's

listen to Foolsby over here and we'll

add some commentary on to what he's

fooling about.

>> The policy meeting that you were

somewhat uneasy about frontloading rate

cuts based solely on slowing payroll

growth and that at the same time

inflation had been moving in the wrong

direction and just counting on inflation

to be transitory made you uneasy. So why

did you vote in favor of cutting rates

last week? Was there anything that

changed?

>> Do they all got pressured? I'm convinced

they all got pressured. Schmidt had the

balls to vote no. But Hammock, uh,

Bostic, uh, uh, and and many of the

others are just like, you know, I didn't

want to, but I did anyway. Uh, like you

weanie babies.

>> That caused you to want to take out more

insurance.

Well, before the last meeting, not not

this not this November meeting, but in

September, um

my we we issue the the statement of

economic projections, our dot plot

projections of where the economy is

going to be and where rates are going to

be.

>> It's actually a summary of economic

projections. I'll give him a pass on

that because he's kind of like newer on

the board of [laughter] last year

>> and at that time I thought there would

be two rate cuts for the year. I'm

balancing off two things. One, as you

know, I believe that the the place rates

will ultimately settle is a fair bit

below where we are today. And as long as

we can get the dust out of the air, I

still think that golden path is

possible.

And I'm trying to weigh that off with

these concerns about frontloading,

especially when we have the data shut

down. We're getting some information

about the job market and we have very

little private sector information about

inflation. So, uh I think we want to be

wary, but I'm still just trying to

balance those off.

>> I will say the the data we got this

morning, by the way, was not bad. Uh it

was a little mixed. Uh but I I would say

it leaned bullish, right? I mean like

S&P Global Manufacturing this morning,

fastest demand growth in 20 months and

the pricing data while it was still

growing, it grew slower than expected,

which is good. Lower basically inflation

than expected and employment growth was

modest. That was the S&P Global, which

this one leans definitely bullish,

although they do talk about an

unprecedented rise in unsold inventory,

which could trigger a down move in

manufacturing. That was S&P. ISM was a

little more bearish. Uh, new orders

contracted for a second month in October

following one month of growth. Backlog

index rose blah blah blah. Again, also a

mixed report. Like if you zoom into it

and read it, it's kind of like, h, okay,

this isn't like nothing is telling us

we're falling off a cliff. Labor data

doesn't say we're falling off a cliff.

Earnings certainly don't say we're

falling off a cliff. Uh, uh, you know,

these these um manufacturing surveys

don't say we're falling off a cliff. I

get why the Fed is cautious. The biggest

concern, like red flag to pay attention

to right now is liquidity. I actually

think they should they got to turn off

the vacuum cleaner early. And they might

do that because if they don't, you risk

a shock right around the same time as

the government reopens. So like part of

me is like if I want to trim stock, I'm

kind of tempted to do so like almost

right before the government reopens.

>> [laughter]

>> If if you wanted to trim stock, all

right, I'm not I'm not saying that as a

way of saying like, oh, you know, you

sell or whatever. I'm saying that as a

way if if you are looking to why do you

sell stock? You would sell stock if you

want to diversify. You know, a lot of

people they look at their portfolios,

they're like, dude, I've had such

runners on some of these stocks. I'm

going to diversify, you know, and I'm

not saying that's, oh, go invest in

house hack or whatever. It's like maybe

you want to buy a different stock or you

whatever you want to buy a house or you

want to pay down some debt, right? Like

those are all reasonable reasons to sell

stock or you've got some tax

liabilities, right? Like maybe you made

a killing this year and you invested in

the stocks and you made even more of a

killing. Uh and and then you're like,

"All right, well now I got to pay taxes

in in 2026, so I'm going to trim a

little bit for taxes." Those are

reasonable things to do. Like I'm going

to have a massive tax bill. And that's

okay, but that doesn't make me bearish.

It just means I'll take some good

opportunities and trim a little bit. You

know, why [laughter] not? Anyway, let's

keep going here.

Kevin, you must hit play. Apparently,

you can't use the space bar on Yahoo.

Not much changed since the since the

September SCPs. Um, and so I I I had no

problem with that.

>> So, Austin, you're saying you're trying

to sort of look through uh all this dust

waiting for

>> in other words, no big red flags yet.

Okay, fine. Ghoulsby, give us some more.

Give me talk dirty to me. Goulby

>> press conference that there's a feeling

that you've cut twice and you're now 150

basis points closer to neutral than you

were a year.

>> Yeah. Somebody here in the chat says

with so many layoffs I don't see how the

jobs numbers can't go up. Yeah. I mean

remember the 27w week unemployed thing

is a concerning chart. The thing it's

all about absorption though. It's not

just about layoffs. You have to think

about the process of layoffs. It's

layoffs can get announced in October,

but that doesn't mean the data is going

to show up in October. It is entirely

possible that these people get a

severance. They don't end up filing for

unemployment until January. And it just

sort of butters out when they apply for

unemployment. And as long as they get

absorbed somewhere else, it's good. So,

you can have layoff announcements, as

long as they get a job somewhere else,

it's good.

But we don't we don't know that yet,

right? So just using layoff

announcements that ain't going to cut

it.

>> Perhaps maybe you should wait. Are you

one of the chorus?

>> I I don't I'm not supposed to say

anything about what other folks say in

in my mind, as you know, I am uneasy

with frontloading rate cuts. I do

believe rates will come down, but in a

way rates should come down with

inflation. We've got to if we're just

going to count on the inflation that

we've seen here where the last three

months core inflation is running 3.6%

at an annualized rate and core services

I think are running close to 4% as

annualized rate for the last three

months. That's worrying because that's

going the wrong way.

>> If we're just counting on that to go

away because it's transitory that makes

me uneasy. So, I I'm I'm not decided for

for what I think about the next meeting.

And we are still going to get at least

some private sector observations and the

Chicago Fed's labor market indicators

telling us some about the job market.

We're probably not going to get much on

the inflation side. So, I am a little

wary. and my my threshold for for

cutting is

>> and and mind you he's referring to the

12 month uh data right the 12 month or

or the annualized three-month data so

you know what you could do here is you

could kind of look at Nick T and Nick T

usually gives us good charts I'll go

ahead and pull it up while he keeps

yapping but multiplying by four is

essentially what he's doing in the last

3 months of data Powell downplays this

so he's more of a hawk here on inflation

than power was

>> higher than uh than it was at in the

last two meetings.

>> So to your point, Fed Chair Pal used the

analogy of when it's foggy, you want to

slow down, become a little bit more

cautious. Is that a fair

characterization for you and how are you

viewing the balance of risks? Uh fully

recognizing that we haven't had official

data uh on the labor market side because

of the government shutdown. Sounds like

you may be more worried about inflation

than employment now when you look at the

balance of risks.

>> I've been a little more worried about

inflation than the job market in the if

you think of it as a balance of risk for

the reason that other than payroll job

growth. If you look at things like the

unemployment rate or other rates that

are less affected by population uh

changes or immigration policy, those

things have been pretty stable for some

time. If you look over the last 12

months, the unemployment rate has not

been going up. We haven't seen a big

uptick in layoffs, which if this were

the beginning of recession or

deterioration of the labor market that

was rapid, you would expect to see

higher layoffs or firing. We haven't

seen that.

>> I I feel like that's such an awkward

thing to say right after Amazon just

announced 14 to 30,000 layoffs. Target,

Molson course, uh, you know, and a lot

of companies. So, it's a little awkward.

I know those numbers haven't shown up

yet, but I'm surprised he's not like at

least saying something like,

"Well, but I mean, that could change."

So, we're watching it. Like, no hedging

there at all. Here's the screenshot that

I was going to pull up. This is what

he's referring to with inflation, just

so you know. So, this is the threemonth

rate, but it's multiplied by four, so

it's annualized. And so what he's

referring to if I grab an arrow here is

see this core services xousing level

right here that has moved up very nicely

which isn't great in fairness on this

3month it's extremely volatile. So, I I

think you could take that with a little

bit of a grain of salt because if I put

sort of a line through, I don't know,

maybe like a line of best fit over here.

You could see it has been trending up

and this goes all the way back to 2018,

but it's not that unusual. And in fact,

if you just draw the line since the

pandemic, it's kind of doing this,

right? This would probably be a better

best fit right there. That would be for

the light blue color. housing inflation

is basically going straight down. And

then this is where you're seeing

tariffs, right? So Powell tells you this

line right here is because of tariffs

and that's going to be transitory.

Powell says the housing component is

coming straight down. And while core

services exhousing are up, they're also

trending down. So you can kind of see

how these two people are interpreting

the same damn chart in different ways,

which is just annoying.

I personally lean towards the uh uh you

know this idea that over the next 10

years we're going to see massive

disinflation if not even deflation just

because the economy will continue to

slow bleed not necessarily fall off a

cliff.

>> There's still concerns on that side and

as you say we're going to get some

private sector data so we can at least

keep observing that. But I I just want

to emphasize

be very careful at moments of transition

where you're trying to figure out

whether the economy is turning relying

too heavily on 12 month backwardlooking

numbers like the 12 month trailing

inflation. every each month we get a

number

>> and 11 of the months we already

>> talking up why I'm using three month

annualized

>> the last three months inflation is not

going down but is instead going up

including in some categories that are

not driven by tariffs like services

those are areas of concern and so that's

that's a little bit you know

>> right and we saw that downtrend the

longer term downtrend on it sitting in

your front yard. So, before you let

Fluffy out to go run around, just let's

at least get one more look.

>> All right. Well, aside from Fluffy, I do

want to come back to the job market

because yes, payroll growth did slow

over the summer months and since then

you sort of have been in the dark as far

as official data. But last week, we saw

some

>> somebody has a good question here. They

say, "Hey, Kevin, that Renovo company

going bankrupt being backed by private

equity, was that another squeeze for

cash?" Typically, what happens? Okay,

I'm just going to give you a quick

example of how how quickly poop hits the

fan. And this is why the repo market and

that liquidity constraint matters. Okay,

I'm going to make this really simple.

I'm going to make it so simple. I

remember I need to get a whiteboard. Who

remember who was here for the whiteboard

days? Maybe this is a bad idea. Uh, but

I feel like it's fun. All right, cuz so

here's here's how this works. I'm going

to take this beautiful meat Kevin pad

here and I want you to pretend this.

Okay, I want you to pretend that I'm a

contractor and I have a $10 million

business line of credit, also known as a

block. Okay, let's assume I have a $10

million business line of credit and

that's what I use to pay my employees.

This is how a lot of contracting firms

work. and that Renovo firm that went

bankrupt that was like a roll up of like

six or seven different succ different

different companies. Um

they might use individually many

different business lines of credit to

support their business operations. And

so what happens is if you know like you

go you basically send your workers to go

work then they do their work and then

you bill your clients. And if the

clients are slow at billing you have to

rely on lines of credit just to survive

in construction. Construction is a very

very expensive business. Very easy to go

bankrupt in construction. The problem is

when banks start having concerns about

underlying

companies, banks start closing lines of

credit. That's the worst case scenario.

If there is a credit crunch where all of

a sudden banks widely start saying,

"Yeah, you have a line of credit. Um,

good one, bro. Hey, uh, your line of

credit, it's going to be gone in the

next 30 days." Banks do this. Banks do

this when they start panicking, when

they start getting nervous and they have

the right to do that. They have the

right to rugpool you. What happens?

Well, the underlying businesses go,

"Well, I guess we're going bankrupt

then. So, where else are you going to

get debt?" You know, those the lines,

it's always debt. Every recessionary

cycle is debt. There's a reason why

Kevin is debtree right now.

>> Major layoff announcements from the

likes of Amazon to UPS. Uh if you did

look at private sector data, ADP's

measure turned negative for the month of

September. We're going to get a another

uh measure uh this coming Wednesday. In

the Beige book revealed that employers

are looking at cutting headcount either

through attrition or layoffs uh due to

policy uncertainty, weaker demand and

AI. Does that not worry you? Do you

think that perhaps payroll growth has

decelerated further since you have

gotten official data?

It might have and and that's why, as I

say, I'm not decided going into the next

meeting. I want to see how things are

playing out. I do think the public

announcements of layoffs, you would

expect if that is an immediate business

cycle driven matter that you would start

to see an uptick in the official

unemployment insurance statistics or or

the layoff statistics or you would get

war act type data um of that.

>> It's lagging. Bro Goulsby, you should

know this. You of all people, you work

at the Federal Reserve, you should know

this. Unemployment claims peak

after the recession is over.

Think about what I just said here.

Unemployment claims, so you know,

initial claims for unemployment, they

hit peak

after

the recession ends.

Kind of crazy, right? Look at it. Watch

this.

Look at this. 1970s peak unemployment

claims at the end of a recession. Peak

unemployment claims end of recession.

Peak unemployment claims end of

recession. Peak of unemployment claims

end of recession. Here, at least in the

dotcom bubble, we had a rise of

unemployment claims going into the

recession. Guess where the peak was?

After recession. Guess where the peak

was in 2008? At the end of the

recession. So, like that's the biggest

concern right now is that you have

people literally at the Federal Reserve

who are like, "Well, I mean,

unemployment claims aren't going up

yet." Yes, we know that. But we also

have to remember even though the stock

market loves this lagging data because

it gives us more reason to be euphoric,

once it starts going up, you're actually

probably at a worse point in or you're

deeper into the recession than you

actually realize. And this is why Donald

Trump will probably be correct that the

Fed's too late.

>> That would give you a little bit of a

heads up of what was coming in the job

market. I do think the hiring rate is

low. That's that's among the weakest

things in the economy at the moment and

that's made it particularly tough for

new graduates and young people. But a

low hiring, lowfiring economy is

unusual. That's the kind of economy that

you expect when there's a lot of

uncertainty. Normally in the business

cycle, you would have low hiring,

highfiring or low firing, high hiring.

When you get uncertainty, both of those

go up as people kind of pull back and

say they want to wait to see how things

are going before they make decisions.

this whole second part of what's going

on in the job market if it is being

driven by AI if it is concentrated in

the tech sector that doesn't feel as

much like the business cycle to me and

economic stabilization that feels like

more of a structural shift in what

sectors are going to be employing

people. So we'd have to think through

what does that imply for monetary policy

that's a little different than than if

you were afraid that we were going into

recession.

>> Yeah. So to your point, what is all of

this telling you about the outlook for

the economy in a cyclical sense, right?

Not a structural sense because that is

what you have control over at the

Federal Reserve. Perhaps are we at a

turning point in the economy given what

we're seeing in private sector job

market data that GDP data is not yet

reflecting

>> possible. Look that I always say one of

the hardest things the central bank ever

has to do is get the timing right on on

moments of transition. And that's

especially difficult w if you have

squished bugs covering the windshield

and you can't see whether you're still

on the road be and when they shut down

the the data the official data um that

that's the circumstance we're in. So I I

don't I don't know that it's decided. Uh

I'm I'm not decided going into the

December meeting. I am nervous about the

inflation side of the ledger where

you've seen inflation above the target

for four and a half years and it's

trending the wrong way. I believe on the

other side rates can come down a fair

amount. It would probably be most

judicious to have the rates come down

with inflation. So, let's get some

observations that document that

inflation is coming down and that the

uptick we've seen is transitory. Um, but

we got to weigh that off. If the job

market starts to deteriorate in a in a

more significant way, then that would

change the balance of risk.

>> Yeah. Yeah, the

>> Treasury Secretary Scott

>> in In other words, if as soon basically

what they're saying is as soon as they

start actually seeing some of the

unemployment data coming back coming

bad, they're going to cut hard. I agree

with that. Uh in terms of like I agree

that they're going to do that. Uh and

then it makes you wonder like do you

start prepositioning some of your

portfolio for that eventuality? I don't

know. That's that's the tougher thing.

Those are the things we talked about in

the alpha report.

>> Besson said yesterday that he believes

that parts of our economy, particularly

housing, may be in a recession already.

Sounds like you may disagent

interview where Bessant yesterday said,

"Oh yeah, parts of the economy are in

recession or maybe going into a

recession." Uh, you could even see it. I

think it was the just the very last

minute. Uh it was he was broadly

optimistic. So I don't want to you know

I don't want people to feel like there's

any misleading on what he said. He was

broadly optimistic.

>> Joining us now the video towards the end

he was pretty clear.

>> You know we've seen the the biggest

hindrance for housing here that

[clears throat] is are mortgage rates.

So you know if the Fed brings down

mortgage rates then they can end this

housing recession. low-income consumers

who have gotten killed under President

Biden, the these high rates are hurting

them because they have debt, not assets.

So, I think that there are sections of

the economy that could go into

recession.

>> Yeah, that was the big warning there.

It's like, hey, you know, housing's in

in certainly a volume recession, right?

Not necessarily a price recession. That

depends on which market you're in. Uh

many markets are doing just fine. in

some markets, Texas, Florida, not doing

so well, but uh it basically saying,

yeah, like you know, some of this with

the consumer struggle could worsen if we

don't cut rates more. Fed Daily right

now was talking about this as well. She

says, I supported the rate cut and the

50 basis points that we have done so far

makes us better positioned and I have an

open mind for December. So, you have

some, you know, it seems like they're

all just basically waiting for this ADP

data now uh and and at the beginning of

December. So the next two ADP data sets,

hopefully the job market reopen or the

labor government reopens and we actually

get our BLS data. Those are going to

guide your December rate cut. Honestly,

if you get bad data, you'll end up

getting two you'll get you'll get a 50

to a 75 basis point cut.

>> Agree with that? What are your thoughts

on that?

>> Uh well, I I I think he's he's right

that the housing construction sector's

been weak. It has been weak now for some

time. The kind of the three most

interest rate sensitive parts of the

economy usually that give you a sense of

the business cycle are housing, consumer

durables, and business investment. I

think he's right to highlight housing's

been weak. Consumer durables have been

pretty resilient. Um and and you saw as

you said the GDP numbers coming in and

and consumer spending coming in pretty

solid and businesses investment has been

kind of off the chain. Now much of that

driven by the AI boom so that might not

be cyclical but the interest rate

sensitive parts of the economy don't

feel like they overwhelmingly point to

that we're in a slowdown. I think that

the economy has been pretty strong. The

economy is is pretty solid and has been

there's weakness in sectors and anybody

who's dependent on intermediate goods

that the tariffs are applying to has

been suffering. But other parts of the

economy continue to grow and overall

consumer spending remains the main

driver of solidity. Is that yeah of of

the solidness of of the economy has been

based on consumer confidence.

>> Well, Austin, unfortunately, we're out

of time.

>> So, this gives you a really big overview

on the liquidity crisis that is

starting. That's what we're seeing at

Bitcoin. It gives you insight into why

Besson warns that some sectors of the

economy could be going into recession.

It gives you ghouls fooling us on his

reading of the inflation chart. It also

shows you how backward-looking the Fed

is as well as major catalyst for this

Wednesday. I guess if I would put a

conclusion on all of it, I would say

look, obviously since liberation day, we

have absolutely been crushing it in the

economy. Trailing stops essentially

haven't gotten triggered. We bounced

perfectly off the 630 line. I mean,

within 15 cents, that's basically

perfect here on the cues. Earnings are

absolutely crushing it. Like things

overall feel good, especially at great

companies and great parts of the

American economy. There are many

portions of the American economy that

are just really suffering. Look at Dave

and Busters. Look at Nphase. Like some

of these are just really bad. I mean,

Target, some of these stocks are just

going back to uh COVID lows. So, it is

really a two-tier economy. You really

don't want to bet on consumer

discretionaries right now. You really

want to focus on where the money is

being made. But there are already red

flags starting to pop up that indicate

we might be starting to run into a

credit crisis with Fed liquidity

problems. When that credit crisis hits,

it usually hurts a whole lot faster than

people think. Uh credit credit problems

and freezing of credit lines or margin

calls or whatever usually happen way

faster than people think. And that's why

I always say I think there's there's you

can never get hurt paying off debt,

taking some money off the table, and

just being cautious. You know, let let

you know your long-term stuff ride, but

derisk a little bit, diversify a little

bit. CK Jordan, uh, no, you're actually

totally wrong. CK Jordan says, "Kevin

has been on the recession train the past

three years." No, you're actually

entirely wrong. Let's be very clear

about this. At the end of 2022, I said

we were going to have a Nike swoosh

recovery that would probably end in

euphoria, which is exactly what

happened. In fairness, I started getting

nervous about the labor market last

year. That's different than the last 3

years. That's very important because the

Nike swoosh has really played out

exceptionally well. And if you look at

what we said in 2022, we said we'd

probably have a Nike swoosh recovery

with a euphoric end. I hate to say it,

but look at what we're starting to get

over here. A little scary because you're

actually breaking above that Nike swoosh

trend. You're getting that euphoric kind

of tip. That's also a red flag.

Important to remember that.

>> Why not advertise these things that you

told us here? I feel like nobody else

knows about this. We'll we'll try a

little advertising and see how it goes.

>> Congratulations, man. You have done so

much. People love you. People look up to

you.

>> Kevin Praath there, financial analyst

and YouTuber. Meet Kevin. Always great

to get your [music] take.