The Fed is Preparing for a Depression | 30% More to Drop.

oh Jerome Powell's gonna be more pissed

than I am today because I feel like crap

I think I feel worse today but anyway I

can guarantee almost guarantee that

Jerome Powell woke up this morning and

he's like

am I a joke to you okay that was not a

good impression but that that the vision

right there is leading stocks to go

lower so what happened no it's not the

coupon expiration that happens tonight I

remember lifetime access goes away so

you may as well buy it before if that

coupon stops working lifetime access

goes away as long as the coupon's

working you got lifetime access so take

advantage of that specifically in the

path to wealth course but anyway what

happened

well something equally bad let's discuss

that so the 1970s were obviously marked

by high inflation inflation that was so

high that we coined the phrase getting

Paul volckert which is now synonymous

with the Federal Reserve pulling the rug

out from under you as they raise rates

so high to beat inflation down well just

to make this clear right now we're

sitting at a Fed funds rate of 3.25 to

try to kill inflation that's pretty

sticky around 8.2 percent well in 1981

Paul volcker raised the FED funds rate

to 21

above the highest level of inflation to

prove that the Fed was serious about

containing inflation that obviously led

to a nasty recession with unemployment

Rising all the way to 11 we're like

three and a half percent unemployment

down that was 11 back then because of

what Paul volcker did to the markets and

to the economy well Paul volcker's plan

worked inflation fell within about a

year just roughly a year later by

October of 1982 inflation fell to five

percent it fell over 10 percent from

over 15 percent down to five percent and

the Fed was able to drop their fed funds

rate from 21 to 9

slowly then and methodically reducing

the FED funds right thereafter to make

sure that they would keep inflation down

and to make sure it didn't pop up again

well this obviously led a lot of

comparisons over the past year here to

will Jerome Powell have to be like Paul

volcker well we have to raise the FED

funds rate to be higher than the level

of sticky inflation which might be like

an eight or nine percent fed funds rate

so far the answer has been no but every

single time we have a Fed meeting we

keep raising our expectation of How High

the FED is going to have to go

originally the FED told us they were

just going to go to 0.9 by the end of

2022 and now we're looking at four

percent by the end of 2022 expectations

have totally changed so speaking of

expectations inflation expectations have

been pretty low and that's because it

seems like most people are under the

impression that inflation is going to go

away that to some extent inflation is

still transitory it's just transitory

for longer I mean I I really don't think

there are many of us who are like oh

inflation's going to be you know eight

percent for the next five or ten years I

think most of us would agree that it's

way too high now and it's going to Trend

down now how quickly it Trends down is

where the debate comes in but it's

certainly not the level of inflation

that we had in the 1970s and what are

the core differences between then and

now has to do with inflation

expectations that is back in the 70s

nobody actually thought that inflation

was going to Trend down in the longer

term if anything they thought inflation

was going to keep going up and that

their money was going to become

worthless because they just left the

gold standard and that leaving the gold

standard was compounded not only by War

but it was also compounded by the

elimination of price controls which

really LED prices kind of take off

anyway

the point is the 70s had quite a few big

differences but the biggest one is that

in the 1970s and early 80s people

thought inflation was going to keep

rising and folks so far that has not

been the case and Jerome Powell has

cheered that he's told us that so far

inflation expectations are anchored and

this is a good thing but we do need to

raise rates now aggressively get to a

level and pause there that expectations

are low and actually get inflation down

well what did we have the pleasure of

discovering this morning well we got to

discover that the University of Michigan

inflation expectations and Retail data

came out and while retail sales were

mostly flat and slightly below

expectations a sign that the FED is

actually starting to finally take some

of that heat out of the economy barely

though consumer expectations for

inflation

missed the one-year expected inflation

rate was 4.7 percent in the prior report

and it's been trending down it's

actually been trending down as if the

FED has been working expectations down

well today

economists projected a 4.6 result and we

actually got a one-year inflation

expectation of 5.1 percent that's an

entire half percentage Point higher than

expected it's higher than any of the

reports we've had in the last six months

and while it's subject to revisions

it's leading the market down because

Jerome Powell is regularly referred to

as success in keeping expectations down

and there are two types of expectations

one is the expectation of consumers

which just shot up which is not great

and the second is the expectation of

inflation in markets here is the

Market's expectation for inflation and

you can see we bottomed out right at the

end of September but so far in October

we've been rising now we're lower than

really where we've been most of the year

which is a good sign that market

expectations for inflation are still

somewhat anchored but when we zoom out

over the last five years we're still

pretty high we're well above the highest

level that we saw over here I'll hide

myself for one over here in 2018 we're

well above that and so now that we're

trending up again though is a little bit

of a risk factor and I think that's why

we're seeing very upset stock markets

today why because if these inflation

expectations go out of control it

increases the odds that the fat has to

increase their terminal fed funds rate

and then we're going to get that kind of

drop that Jamie dimon just warned about

inflation Which is higher than people

thought stickier because it wages a

whole bunch of stuff higher rates if you

go back a while ago people expected

three would be the top now it's four

they may you know four to four and a

half maybe the number may have to go

higher my gut tells me higher and you we

have there's no example we have

inflation coming down very rapidly over

a three or four year period uh down to

two percent and then of course this QT

we've never had QT before it's a

dramatic change in the flow of funds

around the world central banks selling

governments are selling foreign exchange

matters are selling Banks don't have to

buy anymore and so it's just kind of an

unknown quality there and then the war

which I put in the carry was a major we

really don't know the full effect how

it's going to end what's going to happen

oil is fragile oil prices Supply is

fragile Supply chains and oil and gas

and food are fragile it's bad that so I

look at that as those things are huge

turbulence which are kind of right in

front of us or in the middle of it today

and you know that could easily cause a

recession my comment about the stock

market was I don't know if it could be a

soft Landing I don't think so but it

might mild recession or a tough

recession my point in the tough

recession yeah you would expect the

market another 20 or 30 percent I'm not

going to give odds across those three

things but you know for all of us who

have to worry about risk yeah of course

you should plan for those things as a

bank my job is to serve my client

regardless of those outcomes which is

what I mostly worry about

the the the Silver Lining is that the

Western world

maybe with because Ukraine that the

Western world I mean in America Europe

Japan Korea Philippines Australia get

its act together and understand how

serious uh if we want to defend Freedom

democracy freedom of Rights freedom of

speech free enterprise for the next

hundred years we have got to get this

right and this it seems like we're

getting together that's the part I like

okay so you heard it from Jamie dimon 20

to 30 percent more downside is what you

need to be prepared for and even though

JP Morgan reported earnings this morning

showing resilient businesses and a

resilient consumer all it does is

reiterate the first thing Jamie Diamond

says rates might have to go higher that

terminal rate is probably going to skew

to a higher side because inflation is

being stickier and that's possibly going

to lead to more pain in the stock market

yikes

anyway check out that coupon code down

below if you want to get up to 12 free

stocks also use the metcaven.com links

link down there scroll over to Weeble at

kevin.com Weeble get yourself up to 12

free Stocks by signing up for Weeble met

kevin.com Weeble thanks bye