Fed JUST Released an Update!

hey everyone meet kevin here wow we had

a wild day from like an insane low this

morning tesla it's 790 to tesla being up

2 on the day and everything going great

this is such a volatile market it is

insane and it creates some opportunities

but we're going to talk about why was

the market green today and what did the

federal reserve just say that actually

added some color and a little bit of

guidance and a little suggestion

regarding what could happen with

inflation rate hikes uh and the future

let's talk about that quick note this

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okay let's get into this so neil

kashgari uh this was interesting okay i

got like i was surprised when i saw some

of these headlines and these headlines

weren't in the terminal they were on on

smaller news agencies uh well i guess i

shouldn't necessarily say smaller it was

like yahoo and other market watch and

stuff like that i guess there's probably

smaller than bloomberg but whatever uh

and the headlines were things like

neil kashgari says maybe only two rate

increases this year uh neil kashgari

says fed might pause in spring and i'm

like oh my gosh those headlines are

actually really bullish because if you

think about it uh we've been told from

the federal reserve they're planning to

do three rate hikes last time the

federal reserve said they were gonna go

from three rate hikes to two rate hikes

it was the end of 2018

and the market started rallying again

after that it's like oh is that

potentially the reason do people have

memories of 2018 and is that actually

what he said right

some things to talk about uh and and

this pause in the spring i mean what so

like raise rates and then and then just

like chill back and do nothing so i saw

those headlines and i'm like

oh that sounds a little weird on the

tesla uh anyway

you know what is that i don't know

tesla

that's why it's down 31 this year

anyway so i'm like okay let me read the

transcript so once the market was closed

i'm like let me figure out exactly

what's going on uh i went through the

transcript and here's what we know

so first of all neil kashgari and this

is really important to know

when you line up the federal reserve

board members neil kashgari

on a rank of who's most dubbish to who's

most hawkish in case you don't know what

that means a dove like a little

a little birdie little birdie birdie uh

is like oh no don't don't raise rates so

you know it'll be okay things will get

better all their own that's a dove right

well just give me some crackers to chew

on and leave me alone uh that's enough

and then a hawk is like no i'm not

getting in there my little kill and

we'll kill inflation i'll take this down

okay that's that's awe on a scale of

who's most dovish to hawkish so hawk is

being at the bottom dovish being at the

top neil kashkari literally ranks at the

top he is the most

duffish there is he don't want to do

anything because he doesn't want to see

us go into the r word recession

okay so he gave us a little bit of

insight in terms of his thoughts and

then now we're going to get some insight

as well into like where did this click

bait come through from those headlines

uh so first on supply chains

he talks about because of the supply

chain issues having penciled in two rate

hikes for december but this is a little

bit misleading because most fed board

members are raising their estimates for

rate hikes after december powell said

that on wednesday so i hate to say it

but whoever ran that article whether it

was reuters yahoo market watch

i have to call this one clickbait neil

kashkari did say in the interview i

penciled in two rates for 2022

but again he said in the interview he's

probably moving this up because things

have actually gotten worse since

december now the only company so far to

indicate that things have gotten or

might be better in q1 of 2022 is apple

but they still say even though things

are going to be slightly better we're

still going to have quote significant

supply chain constraints there was a

little confusion this morning because i

mentioned that in a video but some

people like oh but apple said it was

better i think this again was a little

bit kind of clickbait headline today

where uh app the apple news was that oh

oh that's it supply chains are getting

better no not not quite so fast

apple literally in their earnings call

you see it on my twitter

said we're still experiencing

significant supply chain disruptions

that was their word i'm not adding the

word significant they said that uh it

was i think their chief financial

officer or whatever their earnings call

they said that uh and their primary chip

supplier one of their primary chip

suppliers says they don't actually

expect a supply chain shortages to get

better until 2023 and that's one of the

primary suppliers for apple so a little

bit of click bait on the apple news a

little bit of click bait uh so far on

this this two rate hike news now there

is good news in what neil says i don't

want to like take the good news away i

want to provide good context because i i

want the market to do well uh recessions

are bad everybody loses money

it's not good and it's also very hard to

open new businesses in a recession you

want to open new businesses

when things are booming it's a lot

easier to do that

uh and i have plans of doing that this

year multiple times but anyway uh

one of the other things he told us is

that

one of the the big things we've got to

watch is how fast workers come back he

said what was unique was looking back to

2017 and 2018 we would see labor

participation go up in the later part of

the economic expansion so what that

means is as you're getting towards like

all right this expansion's been going on

for 10 years since like 2008

more marginalized workers potentially

come into the workforce because

businesses are broadening their reach

for who to pick so people potentially

with lower skill sets different races

different sex whatever and that's a good

thing the fed wants that that's their

version of maximum employment is trying

to make sure that as many people as

possible can be in the labor force

but the problem is he's saying we've got

a watch in labor reports and this is a

big catalyst okay you want to write this

down you have not written this down on

your calendar i think you're making a

mistake february 4th march 4th feb 4

march 4. those are fridays

and those are at 5 30 in the morning

when we are going to get labor reports

and he says one of the big catalysts for

us basically slowing down or maybe

pausing we'll see he says conceivably

that we could pause

if things come in substantially better

right big big big if which again means

the headline was kind of clickbait about

the pause thing because he also had some

other ifs in the other direction which

we'll talk about in a moment but anyway

what he's looking for is labor

participation so seeing that number

which i think it's like 66.7 i think it

went up like one tenth of one percent uh

from the last month and what we want to

see is we want to see that number tick

up

so that's a big catalyst the feb4 number

and march 4 number the problem is

because of omicron it's entirely

possible that uh that participation

number could actually go down a little

bit before it goes up so there could

actually be more bad news before good

news uh which isn't great because what

we don't want is bad news at the

beginning of february and then

everybody's looking forward to march

16th going oh crap the fed's about to

raise rates half a percent and then we

get a february freakout freak freak

february that would be bad we want rally

fat right

uh and we want positive catalysts like

we want real catalysts we don't just

want uh you know momentum uh traders

pushing stocks up to the moon uh and and

then they collapse right back down

because then that's not real uh stock

growth we want real stock growth and we

get that when we get positive catalysts

in the market so mark your calendar

march 4th and feb 4 both of those we

want to see labor participation come up

he says it is critical to see that labor

participation come up

then he the next thing is obviously

inflation okay mark your calendar for

this one

feb 10 march 10 so 4 10 4 10 feb 10

march 10. uh the feb 10 march 10 that's

when cpi comes out he does say and he's

the most dovish he says look inflation's

lasted longer because of the covet

shutdowns uh he does think we could

start to normalize this year quote

if

if if if if

that labor force participation goes up

that was a big if for him he mentioned

this probably three or four times that

we got to see workers come back and

supply chain issues to work themselves

out he's as a dove remember the duff

doesn't really want to do anything uh

the dove wants supply chain issues and

companies to resolve their own problems

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until their earnings uh but anyway so um

okay then he says things should start to

normalize

his focus though and i thought this was

a really good piece of information says

his focus for when inflation is going to

come down is actually the 12-month

figure that maybe by mid-year will start

to see inflationary inflation numbers

roll down so that way those higher

prints start rolling off is is was his

quote now

i doubt that a little bit because last

summer the inflationary readings

actually came in lower you know we

weren't doing too bad with inflation we

kind of have like a flat period in the

summer which is not so good about

potentially numbers coming down in the

summer inflation really came in high in

like october or november december and

maybe that's when we start seeing year

over year smaller numbers because

obviously if you're measuring compared

to a higher number last year it should

be easier to come in with a lower

inflation print he does think that

inflation expectations are stable

because and this was a big one because

the fed has set the proper inflation

expectations so he believes because of

the fed's communication

inflation expectations are

stable now what's really interesting

about this is first of all you can

measure inflation expectations by

looking at the five or ten year break

even charts if you even look at like the

two year break even charts and you're

trying to find stability on the right

side of that curve to where it's not

skyrocketing when it's going up that

means people think inflation is going to

be worse in the future the bond market's

pricing that in necessary people uh

people would be like consumer

expectations right uh but anyway

uh he says

uh there there are two things that are

important first if inflation does come

down then we can do less which he wants

to because he's a dove right but

listen to this one he says quote but

we need to start by walking the walk we

need to walk the walk we need to walk

the walk he said that three times

so what does that mean what does that

mean when when a fed person is saying we

need to walk the walk well what he's

saying is we got to go into march and

actually do what we said we were going

to do we are communicating that we are

going to end the taper in march and that

we're going to raise rates and he's

saying it's time for us to walk the walk

otherwise investors are going to lose

faith in us

and they're not going to trust us

anymore and then they might think that

we're going to let inflation go out of

control so

he believes they're setting the stage

that we are going to deal with inflation

that's why jerome powell was so hawkish

in december that's why jerome powell was

so hawkish this wednesday we're going to

deal with inflation possibly because

biden's yelling at him

but also probably because inflation's

actually a problem right now

uh so they're communicating that but the

most duffish guy the most stovish guy

you got at the fed is saying we gotta

walk the walk

now what's also kind of interesting to

know about neil kashgari is he is not a

voting member of the fed so when you're

not a voting member for 2022 it means he

actually has no say in the interest rate

policy as to whether or not they hike in

2022. he does become a voting member in

2023 and since he's a dove that would

help maybe ease inflation or i'm sorry

uh interest rate hike pressures right

because again he's enough

okay good then this was an interesting

one and this was the c word okay this

was interesting he says

the yield curve matters this is uh you

know how everybody's talking starting to

talk again about the inverted yield

curve and everything right

yeah he says the yield curve matters in

his opinion not to predict recessions

but to try to let us know where the

neutral interest rate is the neutral

interest rate is the interest rate where

the federal reserve does no longer need

to raise rates determining where that

neutral rate is is key and he believes a

flattening yield curve tells us maybe

there's a limit to how much we could

raise rates that's bullish by the way

however what's not bullish remember i'm

always no matter what side i personally

am on my goal is always to give you the

the facts the way it is whether it's you

know beneficial or not to me it doesn't

matter the facts are what the facts are

this was an interesting one so that's

bullish that's bullish

uh is basically saying there might be a

ceiling on rates what's not bullish

though is this

he says

is it possible that we have to move to a

net

contractionary state where basically

they're tightening more because

inflation's not coming down or workers

are not coming back which hint hint

so far inflation's been getting worse

not better says powell and

we've been in more of a uh an

environment where workers are not coming

back because they have more savings

people are retiring people don't want to

go and get mommy uh especially older

generations or people retiring or older

right

uh or earlier well

existing folks who were working a

retiree earlier

and so he says yes it's possible i don't

want to do that mistakenly but it is

possible that we have to move to a net

contractionary course for now though we

need to walk the walk now folks i don't

and i'm really done yet but i don't know

about you but i want to ask you let me

know in the comments

just so far based on everything i told

you is it fair to have a headline that

says

fed sees two rate hikes

or fed may pause in spring

come on man that's

bullcrap

that's bull crap because all these extra

details do not say

uh those headlines at all

you know total clickbait uh which does

partly make me wonder if some of today's

rally

was

potentially a little bit misplaced

and so i just want to give a warning

that what's going to happen next week is

we're going to hear from some hawks

we're going to hear from some of the

other fed members as they go out on the

press circuit and go talk the talk uh

and uh and we'll see what they say i

imagine to be a little more hawkish than

this guy but anyway uh he does say if

supply chains sort themselves out

maybe we'll be good the expectations are

everything though uh and then listen to

this he says quote we mean it we're

going to walk the walk

i think if the most devish member is

coming out saying we're going to walk

the walk i think all of the other board

members especially the hawks will be

like we are raising rights and much

now powell indicated that we want to

raise rates steadily so which kind of

goes in contrast to this pause idea

and

yeah okay good that's uh that's all so

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bottom line folks

i actually think this is

very very crystal clear from neil

kashgari here he's very clear he's the

most dovish guy the guy who's least

likely to want to raise rates is saying

we need to raise rates in march we need

to start walking the walk we need to

start doing what we're doing or say

we're going to do because we don't

exactly know how much interest rates are

going to affect the market and actually

help reduce inflation and if inflation

gets out of control we've got issues he

does expect inflation prints will go

lower this summer i think it might

take a little bit longer because the the

reads were a little flat in the summer

you could look at last year's uh summer

and it was kind of like oh is inflation

going down that's cool

but

things have things have changed boy have

things changed after delta but anyway

those are uh those are

the notes from neil kashgar i think

they're quite useful and we should take

those into a monday and see what news we

get monday tuesday wednesday thursday

friday thanks folks for watching and

we'll see you next one bye