Prepare for the Fed's Coming RUG PULL CRASH.

well the Federal Reserve is back at it

again rate expectations are as follows

and after rate expectations we're going

to look at their latest beige bug as

well as some recent commentary we'll try

to align that up with what we've got

going on with war notices and what are

those anyway we'll talk exactly about

that but First Rate expectations we have

about a 13.9 market expectation of a

pause which basically means you're not

going to get a pause in May instead

you're much more likely to get a hike in

May and then maybe a pause which many

are calling hike in May and go away

that's hopeful but then again hope is

not the best investing strategy right

now we are though seeing Market future

pricing at 86.1 percent for a hike to

five to five and a quarter percent in

may now this is particularly important

because you've had individuals come out

like Loretta master and other folks from

the FED Kaplan otherwise multiple fed

individuals come out and suggest just we

just need to get slightly above five

percent and then pause this is sort of

the suggestion they're making catching

you up to speed here with the exception

of Bollard who thinks we need to get to

5.6 to 5.7 percent 5.6 to 5.7 would

really leave us with three more rate

hikes that would be a summer of rate

hikes that's bullard's say but most fed

officials seem convinced that we just

need to get above five percent now since

we're at 4.75 to 5 now one more raid

hike actually puts us at an effective

fed funds rate of

5.125 which is above five percent so

technically a lot of the feds speak

we're hearing now is reiterating

that we're going to be above five

percent with one more rate hike and

maybe that's all we need to do obviously

the FedEx fomc meeting is going to have

a lot of stress around it because a lot

of people are going to wonder what

indications are we going to get for the

future after May and that's a rightful

question and we can look at some

projections do keep in mind that the

next fed meeting is actually coming up

pretty close it's on May 3rd is then

where the meeting starts on the 2nd the

press conference is on May 3rd now

what's really interesting is that's 12

days away from now it's kind of crazy to

think here we go again we're going to

have another fed meeting on a Wednesday

in just 12 days so after that we'll have

uh after the May meeting we'll have the

June 14th meeting in the July 26th

meeting and then we'll have a little

break until September if Bullard has his

way we'll get 25 25.25 most of the folks

at the fed and the summary of economic

projection from the Feb which have

always been wrong in the past and always

been low but if this time happens to be

different and they happen to be right

we'll only get one more raid height now

what do we see in terms of expectations

and how could these expectations

potentially shift the federal reserve's

rate hiking regime well first of all we

know that break even inflation yields

which is basically your five year uh

difference between your treasury bonds

and your treasury inflation protected

securities tips those right now sit

right here and these give you sort of a

Market's expectation of what's going on

with inflation clearly expectations are

still trending down this is good though

what we really want to pay attention to

is that we have this corner over here a

nice downtrend uh and you know we had a

little Spike here right before the

banking crisis a little bit of a trough

after the banking crisis but we've been

pretty nicely steadily trending down

here now what's what I really like about

this particular chart is we're actually

not seeing a de-anchoring of those

inflation expectations which we actually

did see in the last University of

Michigan survey last Friday now we won't

get another University of Michigan

inflation expectation survey until next

Friday which will be about five days

away from the Federal Reserve meeting

and hopefully that one year inflation

expectation comes back down to the mid

three and a half range where it was the

last survey we got last week shot up to

Mid fours and that's dangerous because

the FED thinks inflation expectations

are starting to de-anchor they will

guaranteed rug polus and give us many

more raid hikes than we could

potentially bargain for Now understand

this chart this in my opinion is the

chart that tells us where the Federal

Reserve Cuts this chart right here is

the five-year break-even chart over the

last five years and the last time the

Federal Reserve cut we were right about

here at this sort of red line over here

this is about the end of 2018 it's

actually probably closer to like right

here it's probably around the last time

the FED cut in addition to of course the

covet pandemic when in March we got

those dramatic rate Cuts probably right

away round here so these are levels

where the Federal Reserve has last cut

in terms of break evens and you can see

if we throw up a green line over here

let's do that if we throw up a green

light you can see we've still got some

work to do to be anywhere close to where

the Federal Reserve has historically cut

but we are getting closer to that 2018

level so there we go keep that nice and

straight there we go so that's going to

put us somewhere around

1.6 ish where we want to see this go

we've had a wonderful downtrend yeah

we've had some ups and downs here the

trend is clearly down however you look

at it it's trending down it's just going

to be how long is this trend going to

take where do we draw that trend line

and what do we ultimately get if we go

with sort of an average or probably

something like this which realistically

if we then let's say we're able to

extend this out we're probably not

looking at that cut until realistically

somewhere around November December

January before we actually get to that

level but the markets are pricing in

Cuts sooner than that and that's leading

some folks to wonder do the equity

markets have it wrong and what we're

going to do is we're going to look at

these expectations and how they've

changed over time and then we're also

going to look at War notices speaking of

Warn and a warning all of our marketing

is ready for moving from the individual

courses strategy we are changing

everything over tonight at 7 pm which

does mean there's probably an extra like

uh 13 12-ish hours here or whatever that

if you want to get that final coupon

before we get rid of the uh the lowest

prices massive price increase the

barrier to entries going up

substantially we're moving on uh and

we're still providing value to these

programs and still doing live streams

we're just saying we're going to a

completely different strategy in terms

of pricing I'm serious when I say it

like if you want the best price

guaranteed now is the time so check out

those programs and consider that link

down below but what do we have right

here so this is the 421 implied

overnight rate the probabilities chart

and uh what's worth noting here is it

looks like we're thinking a peak pricing

right now might actually come somewhere

over here in June so what's interesting

about this chart compared to this chart

right here is you have a shift now this

is the March chart okay so this is March

31. and then this prior chart that I

just showed you is the um uh there it is

is the April 21 so today chart and what

you'll notice is the peak is actually in

the June meeting the way the market is

currently pricing and rate projections

so that does potentially call for two

more hikes whereas over here the peak

was in May so in other words after the

banking crisis kind of turned out to be

a little bit of a nothing burger and now

there are expectations that the Federal

Reserve is totally willing to sacrifice

more bank failures especially if they're

just Fringe banks that had uh risky you

know the standards of of Safety and

Security then then why stop the raid

hiking in other words and this is where

markets are starting to realize yeah the

fed's probably going to be willing to

risk more of a banking crisis which

there doesn't seem to be a banking

crisis right now and if lending

standards don't really tightened more

than expected it's possible the FED is

going to hike a few more times maybe

hike in May and go away is unrealistic

and markets are starting to price that

in and I think that's why unfortunately

we've had about now five days in a row

of a negative NASDAQ we're on day four

in a row of negative for the Dow Jones

and it does somewhat make you wonder hey

uh is this potentially a red flag that

um hey you you need to price in higher

rate or a higher terminal rate and maybe

we're going to be closer to what uh Mr

Bullard over at the FED Belize which

would be closer to about that mid five

range something to start considering and

a lot of folks say the stock market has

not properly priced this in now when we

look at War notices and then we'll look

at the fed's beige book when we look at

War notices we do get an indication that

more layoffs are definitely coming but I

have a problem when it comes to more

notices and layoffs and I'll explain

that so take a look at this this is a

chart of War notices which are basically

requirements by a larger World by the

government but from larger companies to

give a warning that there are layoffs

coming within the next 60 to 90 days and

as you can see here in blue the summary

the white line is uh jobless claims the

Blue Line shows you War notices and you

can kind of see an inflection right here

and right where there was an inflection

where War notices started accelerating

we kind of slowly started seeing claims

Trend up as well

well now those War notices are really

starting to explode and that's leading

to a lot of fear that we're about to see

a big wave of unemployment numbers that

just don't look that great now we've

been adding fewer jobs to the labor

force every month via the employment

surveys but we're still vastly positive

still averaging over 200 000 jobs per

month net gained which is interesting

because as a lot of people like to say

hey layoffs are terrible oh my gosh if

people get laid off then they're not

going to be able to function and GDP is

going to go down right that's

traditional wisdom is that GDP goes down

in layoffs but the reality that we ought

to consider is well those people

probably aren't going to sit idle

they're going to get another job and if

they're more productive in that other

job then GDP could actually go up in

layoffs so it sort of depends are we net

seeing people struggling on the side of

the street who used to be Finance or

Tech professionals who just can't get

another job somewhere else or is this

just all a big rejiggering post covet

that's a big question people are asking

of course the biggest driver of the

federal reserve's decisions is going to

have to do with inflation and that's

where it's useful to look at the fed's

beige book so here's just I'm just going

to point out some highlights from the

beige book the beige book uh it just

came out a day and a half-ish ago

I think it's worth looking at some of

the Nuance in it it's nothing a

massively groundbreaking in terms of

earth-shattering news but it gives you

the perspective of what the Federal

Reserve is paying attention to and where

they're really kind of struggling to

debate okay like should we pause after

one more hike or are we gonna keep going

TBD so here's sort of your overall view

nine districts reported no or slight

change in activity a three indicated

modest growth so you've really gone from

everyone expanding substantially to

three having modest growth and most

being flat in terms of U.S districts

consumer spending was generally seen as

flat tourism summon travel picked up

across much of the country manufacturing

flattered down residential real estate

and sales softened modestly the do note

that some prices have started to

somewhat Trend up when it comes to

residential real estate some folks are

suggesting that's because maybe the

worst is already behind us in terms of

residential real estate labor markets so

a show a slower pace of growth than in

recent reports this to some extent is

good because we don't want to see a wage

price spiral but really even mentioning

the wage Price power right now is so

dated because really there are no

conditions indicating we're facing a

wage price spiral so really if you hear

people talking about a spiral coming

online it's misplaced there's no

evidence of it right now so here you

could see kind of a breakdown of various

different regions where we look at

Philadelphia Cleveland you can see that

wages and other cost pressures continue

to ease wage growth slowed to a modest

Pace prices grew in Richmond at a strong

pace so notice how we have these various

different

results it's like the entire country

hasn't yet hit that softening right but

most areas look at this Atlanta wage

pressure is eased Chicago prices and

wages Rose moderately San Francisco

demand for retail Goods softened

residential commercial real estate

activity fell outlooks were largely

negative in Dallas uh a Kansas City saw

no pullback in in capex expenditure

plans for companies and uh did uh it

didn't see a pullback in planned wage

increases either worker retention was

higher even as wage growth slowed so

you're seeing this sort of mixed economy

right this There's No Smoking Gun here

that we're definitely going into a

recession and there's no smoking gun

that inflation is definitely gone

although most evidence is pointing to

inflation being mostly gone but there's

certainly no evidence of a wage price

spiral we do have somewhat of a mixed

picture here Minneapolis prices were

steady and wages Rose slightly like none

of this is suggesting that we need to

get Paul volcker rug pulled right none

of these summaries here suggest that

kind of pain what I enjoy here is Boston

noted that cost pressures abated

noticeably sharp declines in the cost of

raw materials and significantly lower

freight costs on balance the Outlook

called for further easing of price

growth for the remainder of 2023 in

Boston this is good we want to see that

disinflation at effect because it means

the FED has to do less right and that's

good we want the FED to potentially have

to do less inflation pressures moderated

somewhat but remained widespread is what

the New York area tells us okay so less

pressure is but maybe somewhat still

sticky what do we have in Philadelphia

firms reported that prices continue to

rise moderately however they noted that

the rate of price increases appeared to

be slowing this is good the FED should

take solace and that some of these

numbers are actually starting to look

good right what do we have in the

Cleveland District some manufacturers

said they continue to raise prices to

quote catch up from cost increases over

the prior two years

similarly some retail contacts reported

selectively raising prices to cover

higher costs although they did so

cautiously so you're getting this more

like timid price increasing right

remember when we read the Olive Garden

the gardens earnings call what did we

find they're like hey we raised prices

but but not all the way like not as much

as inflation this there is a a point

where people stop paying they're just a

demand is not unlimitedly uh uh elastic

uh or rather it is elastic in other

words it's responsive to prices right so

um

uh so in other words there's a limit to

how much people are going to pay and

play in English right uh there were some

reports by firms in both sector sectors

see here it is that customers were

starting to push back on further price

increases this is the Richmond one uh

which actually had probably the most

sort of aggressive summary at the front

except now they're starting to also

notice the customer pushback buyers were

reportedly winning more concessions

compared to the past two years of a take

it or lose it price environment says

Atlanta Chicago tells us producer prices

Rose modestly shipping costs had slowed

noticeably consumer prices generally

increased due to continued elevated

demand and pass-through of higher costs

so a general still Trend up of inflation

right you're still seeing prices go up

but nobody's talking runaway inflation

which is good so it's getting closer to

suggesting the FED might be in the right

place still work to do though right

we're not seeing all of these districts

complain about prices declining in that

case you'd be more in a position where

the FED might be prone to pivoting and

and uh you know cutting rates but we're

not seeing that yet the economy is

actually still holding up pretty dang

well so we're kind of in that sort of

uncomfortable Middle Ground where it's

like huh things aren't bad enough for

the FED to do anything inflation is

slowly going away it's taking longer

than expected which means we're probably

just gonna have to deal with a higher

rates for longer what do we have in the

St Louis District

overall contacts project increasing

prices but at a slower Pace compared to

Prior quarters yeah I mean this is so

far very consistent with the FED giving

us certainly another 25 BP hike and and

playing a little bit more wait and see

now the wait and see for the next period

that is for May we're not going to get

another inflation report I don't even

think we'll have time for another jobs

report in fact if we look at the BLS

schedule of releases here we're probably

not going to get another jobs report uh

and I don't think we are the next jobs

report right because that's on a

Wednesday so no we're not going to get

another CPI or jobs report the next jobs

report is on the fifth uh and then we

don't get inflation until the 10th and

11th via CPI and PPI and the next fed

meeting is the middle of June so we've

got uh you know somewhere in June 14 15.

so we've got some time that's actually

oh that's interesting CPI is on the 13th

in June so for the June meeting we'll

actually have two inflation reports

whereas for the May meeting we'll have

zero more inflation reports just the

data we already have businesses said

some there's some difficulties with

passing along cost increases most

indicated that they expect prices to

increase further over the medium term to

rebuild profitability so you still have

that tendency to okay we're still going

to raise but not as high as we

previously saw and you kind of see that

reiterated in both Dallas and San

Francisco uh and uh uh higher Final

prices although again at a low at a

slower Pace okay which all of this is

very consistent with the FED is close

little bit more work to do but we're

getting there and so where do we sort of

bottom line this when it comes to the

Federal Reserve well in my opinion we

are set in stone for a 25 BP hike May

3rd unless something crazy happens after

that we're going to get two CPI reports

before we hear from the Federal Reserve

again that means those reports CPI and

PPI as well as the fed's prefer PC all

of those reports need to come in soft if

those reports come in soft they'll

dictate a pause if they come in sticky

we'll get another 25 BP here so if

you're making bets for May

I think it's a foregone conclusion we're

getting 25. then everything is going to

be right back on to writing those CPI

numbers which we'll be getting now

within the next week we will be getting

the pce report and that sentiment report

next Friday the next Friday report on

sentiment is going to be huge because we

want to see that anchoring of inflation

coming back because For the First Time

In This sort of tightening cycle we've

actually seen a little uh oh uh

expectations are unanchoring a little

bit and that's dangerous so mark your

calendar for 7 A.M on the uh 28th for

that and then also 5 30 a.m on the 28th

we'll be getting the pce report which is

the fed's preferred inflation gauge but

of course CPI has a lot of weight and so

we expect the deflator to come in at 0.1

percent core month over month though

that removes food and energy right the

more volatile component we'll expect

that to come in at 0.3 also pay

attention to oil prices oil prices right

now are slight Lee up for the morning up

about four tenths of a percent but we're

still nicely down probably down a solid

five percent from the peak after the

OPEC nonsense and uh since we've had

earnings week now mostly behind us let's

keep our fingers crossed for a nice

bullish Friday so we could go into the

weekend and not be in that situation

where you have the darn stock ticker

symbol screeners on your watch or your

phone and all weekend you're just like

yup still down

we don't want that so with that said

what are the expectations for the fan

the fed's actually and it sounds crazy

it sounds chillest chill-ish to say it

but they're kind of doing their job and

they're starting to succeed at it

inflation's not running away there's no

wage price spiral and the economy is

still strong enough to or not a

recession so far its best case scenario

will it hold up nobody knows we do know

7 p.m tonight we're changing all the

prices so uh cheers and uh don't sue me

bro

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