The Fed is Flipping | What the Fed JUST Said

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the fed down hey everyone meet kevin

here let's talk about what the federal

reserve just said because we just had an

interview on cnbc that gave uh some

potentially scary

insights now this was just one member of

the fed but you know this guy's buying

puts let's just say that you know this

guy's sitting in the board meetings on

his weeble or public.com and going oh

well wherever you can buy puts and he's

buying puts

and uh let's let's go through some of

the things he said then let's talk about

cpi expectations for tomorrow uh today

is october 12th on uh well great the

13th of october we're going to get uh

the september inflation readings i'm

going to talk about expectations for

those those come out at 5 30 a.m

california time 8 30 a.m eastern time so

set your alarm if you're on the west

coast uh a little earlier than usual

uh so uh mr bullard

just came up and discussed how he's been

advocating getting the taper process

done as soon as possible

so that we could be in a position to

react to quote possible upside risks to

inflation next year now it's worth

noting kind of where consensus is right

now consensus is that we're going to

raise rates for the first time in the

second half of next year so just to give

you a little quick chart here i would

write this down somewhere i think this

is important the expectation right now

is that in november we we start the

taper so this is really going to be the

start

and so this will be the taper line over

here so this is november 21 and right

now the expectation is that we end and

i'll call it end

e for expectation

is uh

probably june is what i would say

because they had mentioned mid so i'll

put june slash sort of mid over here

june mid

one board member came out a couple of

weeks ago and suggested a potential uh

end so i'll put end one over here

uh that doesn't look too good here let's

use a smaller pen there we go end

one and they suggested the fall

but ballard

he's counteracting that and he's going

pretty aggressive and so far the data's

kind of been leaning in his favor and so

really what we've just heard is a

potential taper as early as q1 so i'll

put n2 here and this would be a q

uh q1 end

which would be really by march and the

reason he wants to

finish the taper here is so that rather

than potentially raising rates in the

second half which this is the

expectation right here is this would be

called liftoff over here so i'll just

write that lift off

liftoff is just a fancy way of saying

rates

go up

and that's the expectation right now so

i'll do e again but his suggestion is

that we're ready to basically raise

rates right after march so potentially

an april may raising of rates and that's

because he's more fearful about

inflation taking off so far than than

many others uh and this is you know

let's just say during his discussion all

you had to say was uh he's he's buying

puts and pretty much what he was saying

aligned with that uh he says that third

quarter growth has been marked down he

does think it's uh overselling

this economy to call it stagflation he

suggests hey look we've gone from six

percent gdp growth at the beginning of

the year to you know three to four

percent growth now that's not really

stagflation it's just a slowing down

but uh he does also see that growth has

kind of stalled here in q3 but he

doesn't believe it's evaporated he

believes it's just been delayed into q4

and the first half of next year which is

right where he really wants to talk

about raising rates anyway because he

thinks okay we had a little pause like

we hit the

brakes a little bit on growth with the

delta fears right around august but now

we're hitting that gas again and that's

potentially going to contribute to

inflationary

forces kind of hurting us

at the beginning of next year which is

interesting he's talking about this on

the eve of cpi data which we'll talk

expectations in a moment i personally

and no guarantees but i personally think

these people get a heads up on these

reports before they actually come out

who knows if they actually do but anyway

he says that total growth will be

diminished plenty of reopening has still

has to be done though and we

particularly have a lot of fiscal

support so congressional support and

monetary support i mean some would

disagree with that saying that our

unemployment boost has been removed but

then we do have the child tax credit

that's flowing pretty well it's going to

be flowing through

about tax season of next year so about

april 15th of next year so you do have

extra stimulus that you didn't

previously have this is on a monthly

basis right 300 per child uh while under

six and 250 dollars per child under

under 18. it is true that's that is

stimulus you know every every three

months that's like a 1200 stimulus check

per child think about that it's actually

gonna you know that's that's a potential

inflationary pressure

uh he does believe that the pandemic is

coming under greater and greater control

thanks to pills obviously reference to

the merck pill boosters all this on the

horizon

he believes there's a good probability

about a 50 probability that things will

just be stable

and that we get to about a three percent

unemployment rate maybe the upper three

percent of the unemployment rate but he

wants to leave some openness for pricing

in the risk of inflation going quote

higher and higher or rather i think he

said sorry quote staying high or going

higher that was his quote

that's the risk i want to be able to

handle at the end of the taper and that

it's worth understanding why he would

say that so we go back to this chart

right here if if you if you all of a

sudden get hit with inflation

and your interest rates are at zero

how you know now all of a sudden

uh you're you're in this position where

you're potentially creating this lagging

monetary support where let's say

interest rates are at zero until june of

next year just to explain what i mean

here say interest rates stay till zero

here but all of a sudden we have i'll

call it you know what i'll call it mega

inflation right here

well it's too late because to raise

rates i mean obviously they're going to

raise rates but it's too late because

this zero percent monetary support is

probably still going to push inflation

higher so we'll call it like super

inflation right uh as time goes on

because it's going to take a while for

let's say a rate increase to actually

take effect say you go up a quarter of a

percent or whatever you end up going up

doesn't really matter

this is more just an example here so

really what he wants to do is say well

if there's a chance we're going to have

let's say mega inflation by the middle

of next year let's start raising rates

now and let's go to point two five

percent or point five percent sooner so

that way if we do get over here we're

starting to kind of hit the brakes early

it's kind of like we see the traffic

light we're gonna start taking our foot

off the gas a little earlier and uh

being prepared to uh

and actually potentially even starting

to hit the brakes sooner so that way we

don't have as abrupt of a stop because

it takes time it's like it's like

stopping a semi truck although some semi

truck brakes are pretty incredibly fast

so maybe maybe a better analogy is it's

like trying to stop a cruise ship you

should probably start taking the gap

foot off the gas early maybe hit those

those reverse propellers a little sooner

uh this particular member of the fed has

been somebody who's been a little bit

more hawkish than other members even

sarah eisen pointed out that he was a

person who came out as hawkish against

inflation while at the same time jerome

powell was coming out as a dovish about

about inflation and how transitory

inflation was going to be obviously

transitory inflation has lasted a whole

lot more than expected

he does mention that more participants

are moving into 2022 for liftoff so in

other words more about board members are

joining him with raising rates sarah

eisen asked hey you know the bank of

england talked about maybe doing a rate

hike at the end of 2021 he kind of

separates himself from what the other

countries are doing he also says that

inflation tends to be higher in the us

than in other places in the world i

think he's referring to europe when he

says that because our inflation level

tends to be lower than other countries

outside of europe but whatever

so then we've got

an interesting comment about supply

shocks alone cannot cause inflation they

have to be accommodated by easy monetary

policy because all prices have to go up

together at the same time which is

somewhat what is happening we are seeing

that so he's saying it's not just supply

this is where bullard is coming from and

where he differs from powell is that

stop calling this just a supply shortage

it's it's supply shortages and easy

money that's what's leading to this

inflationary pain so

cpi is uh is is definitely going to be

on bullard's radar here and uh he's a

big advocate and of staking his claim

that inflation's going to get worse

before it gets better and he wants to be

prepared for that risk and wants to

taper sooner definitely wants to taper

in november wants to accelerate the path

of the taper even though and i'm

surprised they didn't ask him about this

even though the jobs report the last

jobs report came in weak not a single

mention of that weak jobs report

a little bit surprising not to see that

on the radar more the focus again

inflation inflation inflation

so let's talk expectations for tomorrow

so we have an expectation of month over

month inflation coming in at 0.3 percent

tomorrow

minus food and energy we're expecting

0.2 percent tomorrow cpi year-over-year

headline read expected to be 5.3

uh that is uh that is unchanged from the

prior month

we'll see

we have we have a lot of expectations

here we also get the fomc meeting

minutes from the september meeting

that will be released at 2 pm eastern

time tomorrow so we've got a big news

day tomorrow meeting minutes and cpi

data coming out tomorrow

these meeting minutes are expected to

show the federal reserve probably being

a little bit more

dovish in response to delta and a miss

on the prior jobs report from august uh

thereby

deciding to wait to taper until november

we do again have big expectations for

cpi tomorrow if this inflation comes in

at a match i expect the market will be

stable

right now we have been seeing a

softening on the 10-year treasury which

kind of implies that the market is

thinking cpi might actually come in

potentially a little bit weaker than

expected

uh maybe not though we'll see i think

the vast majority of the market

participants like us and and

institutions are really thinking that uh

inflation's going to come in maybe

higher uh than expected i my hope

originally this year has been that

inflation would inflict down in the

september october reads tomorrow is that

day tomorrow is that september read

and uh we'll see if my timing was right

or wrong uh or if it's just delayed

personally i'm not as optimistic about

my original belief as i was previously

and that's because we are still seeing

used car prices going up we're still

seeing lumber prices going up we're

still seeing

pain in the commodity sector which dries

up drives up inflation certainly energy

costs if i look at the manheim used

vehicle index right now

we have let's go to the one month

we are uh

okay let's see here try to get this out

again uh yeah we're we're higher again

higher than where this is for september

okay we're higher again than where we

were as of our peak in may

we did have a little bit of a trough

there in inflation which was expected in

july and august

but we're inflecting back up so really

looking at some things like used cars

supply chain constraints uh freight and

shipping issues that we're seeing

inflation isn't getting better so i

can't be optimistic for tomorrow if

anything i think there's a chance that

we we like if i had to stake my grind

ground right now my hope would be my

hope would be like okay 60 we're gonna

miss we're going to get that inflection

on the downside my expectation

is a 60 likelihood that we're probably

going to have a match or a beat on

inflation which is not going to be so

great for probably for tech companies

maybe that nasdaq and smp getting hit

again personally i hope it gives me

opportunities for deals

i want i'd be i'd even be considering

starting a position in baba

uh qcom has been looking juicy some of

the value plays uh or or really just

lower multiple plays don't necessarily

want to call them value plays but lower

multiple plays like corsair micron

uh western digital some of these united

wholesale a mortgage company some of

these have been pretty low

wouldn't be opposed if we do get an

inflationary read and some more pain and

supply wouldn't be opposed to trying to

pick up some a deal on end phase i'm

sorry on etsy etsy etsy etsy you already

know i'm into enphase and docusign and

tesla and the others

uh potentially call options on tesla

because volatility has been so low and

then of course as usual if i make any

trades you know i will be sending an

alert on any of those in the stocks and

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my thoughts on not just what the federal

reserve said but on cpi tomorrow i'm

very excited a little bit anxious but

i've got some cash on the sidelines to

those weirdo commenters who were like

wait it was just not that long ago

you're like oh i have all this extra

cash

i bought the dip in september

but i do still have cash on the

sidelines

and i'm excited so we'll see what

happens no matter what happens tomorrow

if we get a if we get a missing

inflation

i'm just going to sit around and and

enjoy the gains if we get a beat on

inflation

and we gotta fall i'm gonna go shopping

it's gonna be good uh i do stop my

crypto position worth mentioning uh if

anything i've increased my crypto

position in the last dips

uh it is higher than what i've ever had

before i think i'm at 1.2 in crypto

right now

uh which is uh which is the highest uh

that that i've been at in terms of

crypto

so uh there you have it my thoughts

thank you so much folks for watching and

uh we'll see you all in the next one

thanks again goodbye

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