The Fed's Greatest Fear is Spreading | Warning & Danger.

stock market has already wiped out 13

trillion dollars and the question now is

can things get even worse or is there

actually some Hope on the horizon well

there are three things that we have to

talk about in this video and the first

isn't that hopium filled but maybe the

second two things will be the first is

this thesis that Bloomberg intelligence

believes there is a real risk the

Federal Reserve could end up having to

move the terminal fed funds rate to six

percent right now the FED is talking

about a peak around four and a half to

four point seven five percent but then

again they told us that the terminal

rate for them would be 2.8 percent back

in March that's what they would be to

tell that's what they were telling us at

oh well we'll get to 2.8 percent by next

year and that'll help the transitory

inflation go away yeah well now they've

raised that by two percentage points and

now markets are pricing in five percent

as a terminal fed funds rate right

around five percent however there are

more and more murmur rings that

inflation at least certain parts of

inflation are going to be so sticky that

the Federal Reserve is going to have to

keep pushing to probably a terminal rate

of closer to six percent especially to

Stamp Out a wage price spiral remember

wage price spiral is the worst thing

that could happen it is what I said back

in January would cause the FED to force

a recession they ended up forcing a

recession anyway but they will keep us

in this recession even longer if we have

a wage price spiral and based on the

last fomc minutes sort of the notes from

the meeting the murmuring is about a

wage price spiral potentially being an

issue or coming to the Forefront more so

than they ever have in the past and this

is what's leading a lot of folks to say

well if wage inflation ends up somewhere

between five and a half to six and a

half percent then we need to get the FED

funds rate above that rate of wage

inflation so it's five and a half

percent we got to get the FED funds rate

to six percent that means higher

treasury yields and more pain for the

stock market to come because that has

not been priced in yet remember when we

moved from pricing at 3.75 percent in as

a terminal to four and a half percent we

hit new lows in the stock market

so keep that in mind we do have this

risk ahead of us about a potentially

higher terminal fed funds rate but there

is some hope at least temporarily for

the end of the year let's go ahead and

take a look at some charts and then

we're going to talk a little bit more

about inflation just keep in mind if you

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when you sign up for Weeble okay so what

do we have what we have right here is

first of all this right here is a chart

and I'll move my head in just a moment

and no I'm not in a Motel 6 but thank

you for the comments who suggested that

yesterday this year is a chart that

looks at the S P 500 and and one of the

things that I'm going to simplify this

measurement as it's basically the cost

that or how much you have to spend to

hedge against downside for the S P 500

now that's a mouthful but basically what

you want to think of is when these lines

are at higher levels it's more expensive

to get protection against more downside

for the S P 500 so remember when you buy

protection today like you buy a put

contract today you're expecting there's

a risk that the S P 500 is going to go

down more over the next few weeks or

months and so again when this chart is

at Heights kind of like it was over here

during the covet pandemic it gets very

expensive to protect yourself against

further downside so for example people

who bought put contracts over here like

January and February they saw their the

values of their put contracts Skyrocket

uh during the pandemic I'm sure you

remember some folks if you were trading

back then showing screenshots of how

their puts basically went to the moon

that's this essentially right the cost

of hedging was really high well take a

look at this where we see now the cost

of hedging right now against further

declines in the S P 500 is actually at

the lowest level we have seen since all

the way back over here which is actually

in the 2017 box this is pretty

incredible and it's a sign that things

could actually be much worse there could

be a lot more negative against negative

bets against the market than what we're

actually seeing right now now some of

this is potentially due to this belief

that people don't have to buy as many

Hedges they're a lower there's less

demand for hedging basically because

people have already sold if you think

about it if a lot of people dump out of

the market they don't have anything to

protect anymore the only reason you'd be

playing options is to speculate rather

than hedging remember hedging is a form

of protecting you could downside hedge

and you can upside hedge we talk about

this in the stocks and psychology of

money course there aren't just downside

Hedges there are upside Hedges as well

which is pretty cool but well not people

have a lot of money in cash on the

sidelines which yes even an inflationary

period of time if you're an asset

purchase or cash is King maybe people

don't have to hedge as much and what's

interesting is if the S P 500 goes green

this month which it rarely does it

historically is up by 2.4 percent in the

month of just October that is 1.8 times

larger than its average Decline and

that's because if in October when things

go green they go green baby so there's a

lot of excitement that maybe we could go

green in October and finally have sort

of a fomo rally may it be called towards

the end of the year as people are just

tired of sitting in cash and sitting out

of the market and they're worried about

that potential fear of missing out of

well what if inflation does start

turning down in November and December

looking back a month and then we're not

invested in the market right so that is

that is some fear that is occurring in

the market right now let's take a look

at uh at another chart that we're seeing

here so this one right here shows us

that the S P's up days are getting more

powerful than the down days and the

simple way to look at this is you just

look at the right side of the chart and

you can see these little bars are

getting a little bit more aggressive to

the upside and that's just a way of

saying that we're recently seeing more

UPS or or higher percentage up than we

are sitting down so for example let me

just show you how that might work we

might say oh we're up on the S P 500 two

percent one day then we're down one

percent then we're up two percent then

we're down one percent right that would

be a two to one ratio on this chart and

and you can see we're actually somewhat

starting to approach that and so that is

another potential sign of at least some

temporary Market bullishness here's

another one as well open interest in the

S P 500 Index puts uh has been waning

next to calls in other words when you

look over here

the Blue Line represents call option

purchasing and you can see how this is

actually starting to Peak a little bit

whereas here you're seeing a little bit

of flattening in the put contracts so I

think that's uh that's somewhat

interesting we're seeing a little less

on the put side a little more enthusiasm

for potentially potentially rallies

towards the end of the year uh and when

you sort of divide those as a ratio you

could basically here see in a more

simple way that the level of betting

against the market compared to the level

of betting for the market is falling so

less bets against the market but is

there a reason to be actually be hopeful

or is this truly just uh you know going

to be some kind of fomo rally well

let's take a look at what JPM talks

about so first JP Morgan and what other

Recent research papers from just a

couple days ago talks about this risk of

that wage price spiral which I've been

talking about all year long and we just

talked about earlier in the video and

one of the things that I think is

interesting is they make this argument

that oh well we actually think the fed's

rate hikes are going to pressure down

the wage price spiral risk now In

fairness I met somebody from JP Morgan

who's one of their VPS of of doing this

sort of research and he used to work for

the Federal Reserve I met them back in

January back when I sold which was

remarkable and back then they they he

said well right now we're pricing in a

zero percent chance that there could be

a wage price spiral and I'm like yeah I

think you're wrong but okay we'll see

and uh and and now we're actually

talking about oh crap here comes the

potential for a wage price spiral right

uh so you know take take it take

everything with a grain of salt that you

hear out there ultimately you have to

make your own decision right you only

have yourself to blame or your yourself

to Ward when you do something right or

wrong this is interesting though a

course member posted this remember that

I encourage you always to join the

courses on building your wealth link

down below we've got a great Community

one of our community members posted this

just the term layoff in Google Trends

we're starting to actually see that

Trend increase this year now when we

look at it relative to a five-year Norm

uh it's it's probably in line with what

you saw in 2019 so no real signs of

distress and obviously a lot less than

what we saw during coven but one of the

big things from the JPMorgan report is

that and I really wanted to extract this

as well is hey JPMorgan how do you

actually think that inflation is going

to go down how can we have hopium about

inflation and what I found here was the

following JP Morgan argues that what we

might see

by September of 2023 is a reduction of

of certain categories of inflation in

substantial measures so core Goods which

represent about 27 percent of CPI they

expect to be down two percent by next

September so in other words we would see

a negative a deflationary print for core

goods and that largely being driven by

driven by new cars trucks and uh used

cars and trucks but when you go to core

Services they actually still expect that

services will be up 5.4 percent which

isn't so great that represents more of

our core that represents about 72

percent of our core and uh what what's

remarkable is what actually anchors the

stem is the decline in potentially

Health Services costs but they still

note that by September of next year

shelter inflation could be substantially

high now we've done a very detailed

video on shelter inflation and the

dangers of of really inflation uh

continuing to to uh to strengthen

because of shelter issues uh and that's

because what we see here is

the CPI measures for shelter lag so much

they're so slow that we get this CPI

read for inflation that's this blue line

right here and models estimate that we

really don't actually expect it to Trend

down substantially until probably in the

2024 region and it's just a very slow

move down which is quite unfortunate so

even as other aspects can really Trend

down and we are seeing that I mean we're

seeing container prices uh shipments

from Shanghai to New York or to La all

of them are plummeting here in 2022

which is really phenomenal we are seeing

wheat prices a trend down although

recently they've somewhat started having

this sort of a little bit of a of an

uptrend shelf over here that could be

just because prices got a little bit

oversold there but you could really see

here we're well off those Ukraine war

Peaks and then of course the used

vehicle index down about 18 percent

right here that's the the orange line

the CPI being the blue line which

usually lags by about two months

so you you do have hopium that inflation

is going to Trend down and and JPMorgan

talks about exactly that lifting of

bottleneck pressures and Hope on

inflation but they make it very clear

that look we could still see elevated

inflation because of shelter inflation

so sure are there reasons to be hopeful

are there reasons to say hey yeah we

might be at the bottom let's get in some

bullish call options uh let's let's you

know get a little bit more aggressive in

deploying cash maybe maybe that's a good

idea uh personally I'm a big fan of uh

having having some form of a diversified

approach to the market generally what I

recommend to to most uh folks is sort of

not personal financial advice but in a

broad measure let's just have a balance

of index funds and then uh you know add

some salt and pepper to your portfolio

by adding some exposure to some of your

favorite stocks or maybe some of your

favorite active ETFs or whatever but

what I personally like to do is I i

instead of having index funds as my

diversification I like to use real

estate as my diversification so I've

always been a fan of let me try to get

half of my net worth into real estate

and then half of my net worth into the

biggest and best maybe five to ten

companies sort of little five to ten

Punch Cards like Warren Buffett says you

know you've got 20 in your life so you

pick you pick your favorites and and for

me that's diversification enough but

then again I also have uh you know if if

my stocks go to zero and my real estate

goes to zero I've I've income that can

substantiate My Lifestyle so that's

gonna be different for for other people

but I like to use real estate as a

diversification for me that uh method of

diversification is house hack I'm not

going to have any more personal rentals

probably sometime next year I've got two

more to get rid of and everything will

be uh will be in house hack and that'll

be my real estate diversification which

I'm really excited about and I can't

wait to get all non-accredited investors

in it as well remember non-accredited

investors tentatively we're expecting uh

will be able to join some around January

February minimum investment twenty

thousand dollars details at

househack.com if you're a course member

uh we expect the minimum will probably

drop to about 5k because we feel like

you'll be part of the community and and

uh you know you've got a lot of

Education in those courses it's really

really incredible uh and then if you are

uh or if you are an accredited investor

you can get in now with a 25k minimum

the beautiful thing about that is you

get the option to take advantage of the

um the warrants that we have which are

kind of like call options and you can

learn more about those at househack.com

just make sure you join before October

31st to get the most warrants possible

all right folks thanks so much for

watching I don't know let me know what

you think in the comments down below

personally I do think there is more

upside risk to interest rates but look

the hopium of inflation potentially

peaking and uh and and you know signs

that inflation is trending down uh as

well as the the temporary hope that

maybe we'll have a post-election rally

I have that hope too but then again

we've had hope that inflation would be

peaking for quite a while and that

shelter inflation still makes me quite

quite nervous so uh we'll see how much

more downside we actually end up having

but for me I'm in I'm in and I'm adding

so thanks so much for watching and we'll

see in the next one good luck and

goodbye