If *THIS* Happens, a Major Stock Market Crash is CONFIRMED.

hey so this Friday is super important

and you might want to understand exactly

what's going on and I'm going to break

it down super easily for us so you may

have heard that the Federal Reserve

might potentially lead us into a

recession in their attempt to fight

inflation by raising interest rates

they're making it more expensive for the

economy to function and so in a weird

way by making things more expensive

they're trying to make things less

expensive by stabilizing how much

business is charged for goods and

services like everyday things like

groceries electronics and travel and

once they cure those Rising prices they

hope they can reduce interest rates now

that's sort of the vision of the FED we

don't necessarily have to agree with

them completely but what we do know is

this Friday something important is

happening that we want to pay attention

to and it's something that led to a

disastrous recession in the past first

think about it kind of like this the FED

is treating the economy kind of like a

Rowdy teenager getting their wisdom to

teeth removed they're putting us to

sleep long enough so they can solve the

problem extracting the wisdom teeth

which has grown a little too large but

if they put us asleep too long well

that's a problem just like not having us

asleep long enough is a problem right so

we know they're threading this tough

balance

but I took a deep dive into the history

of the Federal Reserve over the weekend

I looked at thousands of papers from

their secretive board meetings see the

Federal Open Market Committee has

meetings every approximately six weeks

about eight times a year but the

transcripts of those meetings are secret

you may have heard of the minutes before

but that's just a summary it's not a

transcript of what was actually set the

transcripts come out about six years

after each meeting and so I decided to

go back to the early 1980s to see what

was going on then and what I found was

absolutely mind-blowing first to set the

stage so you know where we sat in that

time period you have to look and

understand

this particular chart take a peek at

this this chart shows you the federal

reserve's interest rates and I drew an

arrow to where August of two of 1980s

notice interest rates had just been 17

and a half percent and those interest

rates were actually being cut all the

way down to under 10 think about that

for a moment I think we're up to 17 and

a half percent and then they were

reduced to under 10 people were cheering

hey yay this is wonderful look interest

rates are under 10 again how spectacular

but what ended up happening well

unfortunately those interest rates

skyrocketed again under the leadership

of Paul volcker so think about this we

think of Paul volkers the guy who raised

interest rates substantially but we

generally don't think of them as the guy

who basically just came in and interest

rates went up and then they went down

and then they skyrocketed rates again

that's why people associate Paul volcker

but the good old rug polling remember

you don't want to be standing on a rug

to have somebody pull the other end out

because unlike Fine China on a dining

room table you end up falling and

getting hurt nobody wants to fall or get

hurt so wait a second why did interest

rates Skyrocket to 17.5 drop under 10

and then get booted right back to the

Moon

while there was a problem and the

Federal Reserve made that really clear

in the documents that I found this

weekend and it's Eerie how similar some

of these concerns are today and how much

this actually relates to something that

happens this Friday ready for this

buckle up here we go here it is August

12

1980. quote

it seems to me despite our roller

coaster ride we have not dented

inflation

expectations very much I think we have a

real Groundswell for an explosive

development on the side of inflation

expectations again in spite of all we've

done we haven't laid to rest inflation

expectations very much

Listen to How it continues obviously

long-term interest rates are very

heavily influenced by both actual and

expected inflation I think we have a

real dilemma here

chair volcker then moves on to ask the

next person what they think and the next

person says inflation expectations have

actually deteriorated in the last month

or so think about this you're Paul

volcker and you're asking your cohorts

at the boardroom table

all right you think inflation

expectations are getting worse what say

you well sir I too think inflation

expectations are looking worse listen to

the way they say it but my own

perception like that of others is that

the price Outlook and inflation

expectations have actually deteriorated

in the last month or so the unit labor

cost situation of course looks terrible

they use those words those were their

words in their transcripts of this board

meeting listen to this while we still

have a weak economy in the near term it

may be a little stronger than we thought

it was that sounds eerily similar to

today but the price situation if

anything looks worse conceivably a good

deal more than a little worse rather

than a little better

oh so in other words these inflation

expectations were out of control so the

point where the board members were

absolutely panicking in their August of

1980 meeting and look what they did

after that Panic my friends they rugged

the market by skyrocketing interest

rates here we are trying to debate

whether the Federal Reserve is going to

go with a 25 basis point hike and then

pause or a 25 basis point hike and then

another 25 basis point hike when we

haven't even realized the reality of the

severity of the matter is if inflation

expectations run away you know what'll

end up happening who will end up kidding

not five percent inflate or interest

rates or five and a quarter percent will

get seven percent or eight percent so

the last thing we want are inflation

expectations to as they say d anchor

because then we're screwed nicely put

now if you liked what I just showed you

make sure to subscribe and like the

video really appreciate it but I want to

show you what just happened this last

week and what it could signal for what's

to come and folks it's not exactly ideal

and now I want to be very clear I'm

generally very optimistic but if there's

one thing that keeps me up at night

it's this and it's not something that I

want to pay attention to but it is

something we have to pay attention to it

is the University of Michigan's consumer

sentiment survey we'll be getting the

final read for this report this Friday

listen to what the last report said year

ahead inflation expectations Rose from

3.6 percent where they had remained

anchored for the last 12 months folks

and all of a sudden they've jumped to

4.6 percent from March to April these

expectations have been seesawing yes but

not not by a percent they've been

seesawing by about a tenth of a percent

alternating between increases and

decreases correct however this overshoot

is quote notably elevated and the

bumpiness

of these expectations could potentially

lead to a de-anchoring of longer-term

inflation expectations though right now

those have been remarkably stable

so in English the last consumer survey

that we've had about inflation

expectations from the University of

Michigan is that we might start being

concerned that inflation expectations

could break again much like they did in

the 80s now last Friday we got something

known as the preliminary report and it

showed us a big problem with inflation

expectations this Friday at 7 A.M

Pacific time we will be getting the

revised and final numbers we really want

to see those numbers coming under 4.6

because if they maintain at 4.6 the

Federal Reserve may be convinced to hike

not just one more 25 BP but continuously

until those numbers again anchor low

because if they don't anchor low then we

could start what's known as a wage price

spiral see what inflation expectations

become unanchored you can cause

something known as a wage price spiral

this is when the price of Labor Rises

faster than the price of goods and

services which are also Rising but

people working then realize they're

having struggle struggle surviving on

what they're being paid because prices

keep rising and rising and rising and so

they demand higher pay or threaten to go

somewhere else and when that spiral

becomes self-fulfilling the FED has

failed then we get Paul volckert we get

rug pulled you get someone like Paul

volcker who puts us through a nasty

dirty recession with the stock market

plummeting and a lot of joblessness

massive layoffs that actually stick and

lead to the unemployment rate Rising not

like the Click bait unemployment that

we're getting right now where people are

getting laid off but there's so many

available jobs the unemployment rate is

actually falling no we mean real

skyrocketing of unemployment numbers

the fed's commitment to controlling

inflation and helping anchor inflation

expectation

in the long term is what's super

critical following the volcker era once

the Fed was able to get back on a path

of controlling expectations they were

able to more gradually reduce inflation

through something known as opportunistic

disinflation that's something that

chairman Alan Greenspan really took home

that's how they ended up going from 18

inflation to nine percent inflation in

the matter of a year or two through Paul

volcker and then from nine percent

inflation down to one and a half percent

inflation over really the next 20 to 30

years they had patience and getting to

that lower Target but they were able to

have that patience solely because of

inflation expectations

long as expectations are low the Federal

Reserve has latitude to basically be

nice to us to give us some more of that

juicy laughing gas so we can really see

how much of a joke the FED truly is but

in the meantime we have to pay attention

to that because they can hurt us

especially since with a wage price

spiral is so critical and look at what

Bank of America and nomura research have

to tell us about the wage price spiral

and expectations that we might hold

regarding wages take a look at this Bank

of America report just out from a couple

days ago this Bank of America report

gives us a warning about what's

happening with wages now it's actually

good news bad news but take a look at

this

right here Bank of America says

models and history suggest that wage

growth is consistently a lagging

indicator in particular wage growth

picks up when the economy is hot and

only slows once the economy is in

recession in other words wage growth

only goes down when we are in a

recession while wage growth has actually

started to fall

now Bank of America here says that

optimists argue that quote this time is

different and wage growth can slow back

to normal without causing unemployment

Bank of America says they're skeptical

they says in they say in recent months

wage growth has shown signs of falling

despite a hot labor market that is a

dangerous recessionary indicator that

could mean a recession is already

potentially here according to Bank of

America so this is something that we

really want to pay attention to because

take a look at this Bank of America

suggests hey maybe businesses maybe the

reason we're seeing wage growth fall is

because businesses are shifting their

strategy they're willing to hire less

qualified and therefore less productive

workers and they're taking away

amenities from us like they're cleaning

the hotel room less often and we're

getting less free snacks on the Airlines

and we're getting shorter business hours

or longer wait times so maybe that's why

we're actually getting less productivity

and wage growth falling and it's a worry

that we're either in a recession or

we're in this environment where we're

paying more but getting less and this is

showcased in some of the data as well

hours worked Rose at 2.5 percent at an

annual rate but GDP is only rising at

1.7 percent suggesting that output is

actually declining and Bank of America

suggests the economy is so out of

balance still today

that it is almost certainly going to

require a mild recession and a

significant rise in the unemployment

rate this is per Bank of America so in

other words it's not just the fear of

what's happening with inflation

expectations though inflation

expectations are very very important

because as no more research tells US

inflation expectations will drive an

increase in wages and wages increase

specifically what are known as quote

non-housing core service inflation

basically that's the sticky part of

inflation the FED has been really upset

about

so put all this data together for a

moment if inflation expectations

de-anchor then the sticky part of

inflation like non-housing services like

the people giving your haircuts or

making you know cutting your hair the

people doing your legal services or Tax

Services they raise prices more because

wage expectations go up that ends up

leading to a wage price spiral and a

re-acceleration of wage growth which

ends up meaning the FED has to force us

into recession and then we truly get the

rise of unemployment this is where Bank

of America is really confused by the

data we're getting right now because

they see productivity going down but not

only do they see productivity going down

they see that we have these weird signs

that wage growth is falling but they

actually think that current signs of

wage growth falling are basically

clickbait they're essentially telling us

hey wage growth is falling right now

because businesses are just hiring lower

wage workers who are providing us lower

quality work this is a sign that the

wage price spiral could still be here

and if inflation expectations de-anchor

this Friday and the wage price spiral is

still here to some degree the FED will

be forced to drive us into a very real

inflation

to correct the lack of productivity that

our economy has now the imbalance again

listen to Bank of America the economy is

still out of balance we still think

getting the economy into balance will

require a mild recession and a

significant rise in the unemployment

rate

this is something that should make us

pay very close attention to what's going

on not only this Friday but going on in

the future now I want to be very clear

while the bond market is signaling

massive fear with an inverted yield

curve I'm finding more reasons to be

optimistic than bearish I think 2023

will be a glorious year to have bought

stocks in real estate and I really

believe in the long term Nike Swoosh

recovery that we hit massive pain in

capitulation we slowly bounce our way

back from there

but it might only become clear that

buying stocks are realistic was a good

idea five years from now and then we'll

wish we could go back to some of these

price levels of course it's really

blurry and I understand the pain that

comes with uncertainty I've personally

been beaten down to the last hundred

dollars in my bank account and I've

personally found myself driving from

Ralphs to Vons across the street solely

because grapes were cheaper across the

street than where I was

I believe however that the harder I work

during hard times the better the good

times will be and I hope you agree and

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the next one thanks so much