Prepare for Massive, Coming Fed Cuts

need to talk about the Federal Reserve

massively cutting interest rates in the

face of inflation plummeting despite the

last projections we got from the fed and

along with that not only are we going to

look at the data along as with some

former fed economists think we're also

going to look at investor positioning

where is it potentially least crowded in

terms of positioning right now let's

talk about all of that hey everyone meet

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advisor but this is not a personal

financial advice video it's an economic

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okay let's jump into this so here is a a

former Federal Reserve economist John

Roberts we're going to start with what

he says about the surprising December

summary of economic projections and then

we're going to lead into how does this

potentially affect rate Cuts coming from

the Federal Reserve now it's also worth

noting that guess who shared this

particular piece on monetary policy it

was none other than Nick T now Nick T is

actually really important when it comes

to where things are coming from because

Nick T this guy over here on Twitter is

the kind of guy who's been known to be

the federal reserve's mouthpiece so if

he says something there's a chance it

actually came from the Federal Reserve

and what's fascinating about this is

that John Roberts starts by saying holy

smokes we had a Fed here that went

aggressive they thought that in 2023

based on the last summary projections

we're going to be knocking on the door

of a recession a low much lower GDP

estimate than anyone was expecting we

have a higher inflation estimate than

anyone who is expecting PC at 3.1

percent which you're going to see some

data in just a moment that suggests this

is way high compared to what we actually

think we're going to get and a Fed funds

rate capping out at 5.1 percent also

much higher than the September

projection and higher than anybody

thought so you had a pretty aggressive

fed report here John Roberts thought

that this was really surprising that the

FED has this heightened pessimism around

inflation which doesn't really make much

sense because the incoming data for

inflation hasn't really been that bad

the uh in September we saw core prices

rise 0.6 percent which isn't great but

in October November we saw them only

rise an average of 0.25 percent so why

is the Fed being so aggressive well many

think there are two explanations for

this one explanation is the Fed

basically just wants to keep this Stone

Cold Hard face on and they're basically

saying hey look inflation coming down

that's what we expect we're going to

keep hiking and basically they're trying

to push the markets to over correct to

the downside to make sure that inflation

doesn't pop up like a golfer at

whack-a-mole or I guess that's like a

mole pop in their head but anyway you

get the idea they don't want it to pop

up again they want to keep it down and

they'd rather push harder than they need

to to make sure there's no chance of it

coming up again and that over pushing

could really push us into a recession

now there is the potential argument that

well maybe they're worried about wages

right that third piece of the

inflationary puzzle that wages are too

stubborn that over the three months

through November average hourly earnings

Rose at 5.8 percent at an annualized

rate up from 4.8 percent of the

preceding three months that's a problem

but when we actually dig into the labor

reports as we've done many times already

on this channel what's a quick summary

of what we find well we see that labor

force participation is up a sign that

people are running out of their stimulus

check money and credit card spending is

so high that they need to go out and

basically get another job this is why

we're seeing more multi Ai jobbers and

more part-time workers boosting the

unemployment numbers we're actually

seeing lower real job gains when you

look at the Philly fed the Philly fed

tells us yeah we didn't create a million

jobs in the second quarter of 2022 maybe

we created 10

000 new jobs in other words the actual

number of job gains is being way

overstated and in our last report we

actually saw wage gains get revised down

at the same time as average hours worked

per week is is coming down which would

actually put upward pressure on the data

really suggesting that wages are

actually starting to flip-flop but the

problem is if wages do end up

flip-flopping look what you get here and

you actually get unemployment Rising you

do increase the risk of a recession

which The increased risk of recession

increases the odds of big cuts which

we're going to talk about big time in

just a moment but look at this this is

actually a really interesting comment

here from the the uh from from the

article Nick T shared they suggest here

that wait a minute we have never seen

the unemployment rate Rise by more than

half of a percent outside of a recession

now that's actually really interesting

because what you have is the projection

that the unemployment rate is actually

going to rise by somewhere around one

percent

if that actually happens then we're

probably looking at a recession which is

likely going to be followed by Massive

rate cuts which is exactly what the

market is starting to price in right now

especially if it's true that Peak

inflation is behind us now what's

fascinating is what the market is

starting to price in according to

vandertrack in this email I received

this morning investors are no longer

focused on the terminal rate instead

they're focused on the coupon code

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though actually investors are no longer

focused on the terminal rate that is the

height of where the Federal Reserve is

going to hike rates to instead actually

the market is now focused on bets

suggesting the Federal Reserve is going

to cut by almost two percentage points

by the end of 2023. now I want to be

very very clear here I think there is a

massive difference between the Federal

Reserve pivoting and the Federal Reserve

u-turning generally the Federal Reserve

pivoting is sort of deemed to be a

reduction in interest rates uh interest

rate hikes kind of like going from 0.75

to 0.5 that didn't lead to a market

bottom right things got worse after that

that's expected though I also don't

think a pivot is going to zero or a

pause right I really don't think that's

really the pivot I think a big U-turn is

when the market really hits bottom and

that U-turn seems like it's starting to

get priced in now because historically

the U-turn is when the FED goes oh crap

we went too far turn everything on its

head everything on its head we're not

just pausing we are stimulating again

print money again cut rates again and

the market is now trying to pre-price in

the U-turn I think that's why we're in

sort of a rally mode today at least in

the stock market which could be a bear

Market rally but I do believe markets

are going to pre-price in this fed

U-turn because it's been so historically

clear starting in the late 80s followed

by the 2003 fed U-turn which marked the

stock market bottom of the 2009 February

bottom which marked the bottom Market

when the fed u-turned the December 2018

the march of 2020 right all of those

were fed u-turns when the market bottom

and the market is trying to pre-price

that in by saying look

we are going to get almost two

percentage points 1.77 percentage points

worth of cuts by when the end of 2023

but wait the FED says they're not even

considering Cuts exactly because they

got to tell you to your face they're not

considering cuts to try to keep that

mole of inflation down but the reality

is when poopy hits the fan and inflation

actually does plummet they're gonna have

to cut cut cut cut and we're going to be

right back to the days of money printing

that's almost a two percentage Point

decline now I want to remind you of a

video that I made a month ago where I

started talking about this a month ago

this is that video a month ago it's uh

the title is the coming massive fed

bailout prepared to go to zero and what

did I talk about here I talked about the

yield curve inversion of the tens twos

suggesting that we're actually going to

see about

500 basis points of cuts by the time the

cycle ends basically what they do is

they look at the depth of the inversion

on the left side here and then I

correlate that to what has historically

happened when the yield curve has

inverted and when you align these two

you set up for about 500 basis points of

hikes because you could see we had less

of an inversion in 2020 we had less Cuts

we had a larger inversion in the 80s and

we had substantially more Cuts 8 to 900

basis points eight to nine percent well

here we align at about 500 basis points

of cuts but wait a minute the highest

that right now the Federal Reserve

actually thinks rates are going to go is

sitting at what oh

5.1 percent which written another way is

510 basis points which if you actually

get the full reduction of 500 basis

points you're basically at 0 to 0.25

again

that's zero percent of a rate which

means if we get 1.77 or about let's just

call it 200 of that now we go from maybe

a peak of around 5 500 basis points take

off 200 in 2023 we could see another

potentially 200 come off in 2024 and

maybe that last 100 come off in 2025 or

it could all go a lot sooner as the FED

freaks out even more now that's pretty

wild but again the market right now is

starting to price in Cuts now this

actually does create a downside risk

what's the downside risk well the

downside risk is simple if inflation or

let me put it this way if the

inflationary mole pokes up again what

happens boom down right because if the

inflationary mole pokes its head up

again the Market's going to go okay yeah

oh we're getting a little bit too

premature here we're not going to end up

seeing those cuts let's go ahead good

and revise down our expectations for

cuts and then we actually see the market

Fall more

again if we think that the markets or

that inflation is going to plummet kind

of like Vanda track here thinks it does

oh boy oh boy then we're good as long as

we don't see another Peak right markets

upturn could actually be sustainable

this is Vanda track's implied headline

CPI projection right here this here is a

Vanda track suggesting that inflation is

currently sitting around 7.1 percent and

that the market is expecting that by

July and June we're already going to be

sitting around that two percent number

which remember folks everybody gets this

wrong online everyone gets this wrong

online everybody forgets what the fed's

policy actually is everybody online

2.4 isn't

two percent everybody thinks the FED

needs to get this to two percent and

that's exactly what the pet is saying

hey we're gonna get rates to two percent

but what everybody forgets is fate yes

flexible average inflation targeting

fate as long as they average two percent

using the last decade and the next

decade

we could be Gucci with 2.4 for a little

bit as long as it continues to Trend

towards two percent

and that then sets us up for analyzing

positioning crowded trades versus

non-crowded traits What has pricing

power what doesn't have pricing power

when do you get into real estate

obviously you know I've got a real

estate startup raising a lot of money

we've raised over 20 million dollars for

house hack 20 million dollars cash

sitting in the bankola ready to go buy

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we're mostly at a one-to-one valuation

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investor check it out by going to

househack.com if you're not accredited

we are releasing our full SEC audit uh

and uh as soon as the SEC clears it and

we'll be releasing everything for the

non-accredited around uh very soon

hopefully by February or March so we'll

see we're very excited about that so

what do we have over here look at this

this folks is interesting this is

thematic positioning right now thematic

positioning is overweight stagflation so

in other words if markets right now are

suggesting oh no we're going into a

stagflationary environment these are

crowded themes the higher we are on this

chart the more crowded the theme the

less crowded themes right now are

actually recession themes your safe

havens this could be like a gold trade

right and your Goldilocks trade or even

reflation trades reflation you know this

is actually expecting uh a sort of like

Market reopening this is what we thought

uh was the big reflation trade of the

summer of 2020. uh so I I would I would

probably venture to say the biggest

trades right now probably should be not

really stagflation we don't see

indicators of that unless that mole pops

it set up but probably recession or

Goldilocks one of these is going to push

duration would be like growth right

purchasing power stocks companies with

really strong long-term fundamentals

that are unfortunately unpopular and

anti-traded in times of stagflationary

fears right but in my opinion pricing

power stocks really take off and uh in

in a deflationary Time or

disinflationary time and they are not

very crowded at all right now which in

my opinion creates an opportunity

especially if you could find a a pricing

power related uh or or an ETF that has a

lot of uh pricing power stocks

specifically because in the event

certain stocks within that basket run

actively manage ETFs have really unique

tax benefits where they can exchange

stocks kind of like a real estate 1031

exchange without passing along capital

gains to the investor haven't you ever

been frustrated that like one of your

stocks has performed well and the others

not so much maybe and you want to

rebalance but then you don't want to pay

those capital gains and you end up with

a lopsided portfolio that's bad you

could fix that with actively managed

ETFs it's the biggest tax loophole I've

ever seen intact in in stocks talk to

your CPA about it obviously I'm not your

tax consultant but anyway this is

fascinating because when we put these

pieces of the puzzle together as long as

that inflationary mold doesn't rear its

head again and as long as the FED keeps

having that hard face on inflation

keeping inflation expectations down

actually helping inflation fall then

when inflation plummets like Vanda track

expects it will by the summer oh boy we

could start really actually seeing uh

the Federal Reserve start implementing

their U-turn and we can start seeing

katsolas unless of course the mole of

inflation Peaks its head so this is very

optimistic this is very bullish but you

have to be cautious because again we've

played this game before in March we

thought inflation was down in 2022 what

happened it peaked its head again we

thought the same thing in the summer

what happened inflation pops back up so

you have to be careful oh and look what

just came in New York fed one-year

inflation expectations fall to five

percent versus Five Point two percent

that's a year out three year inflation

expectations unchanged at three percent

good another optimistic inflation report

let's keep it going that direction

things could be good thanks so much for

watching we'll see in the next one

goodbye