Fed *FLIPS* to STIMULUS | Serious U-turn

Well, JPOW just flipped. This is wild.

We just potentially got Powell telling

us that he's turning the vacuum cleaner

off. And uh let's just say he gave some

hints as to why he's turning the vacuum

cleaner off. So, let's get into that

note. This video is going to be

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though. Let's focus right now on Powi

Wowi. What was just said? Okay. So,

first of all, as expected when we put

together our bingo board, we thought

that Powell was going to talk down the

fact that we're not getting labor market

data. We we actually wrote here that he

would downplay the BLS data, that we

have other data that we can get to, and

that the labor market's not falling off

a cliff and that we're on a wait and

see. We're not getting a rug pull. We

want to get closer to neutral. A lot of

this pretty basic. you know, we've seen

a lot of that so far. Uh, and this

reiteration that we're in a low, higher,

low fire market. We've heard of this

before, but what was new here was that

Powell came out and spent the first

maybe 10 minutes talking about the

balance sheet. Now, to understand the

balance sheet, I want you to think about

the money printer days. Okay? So, think

about this as simply as possible. Oh no,

the economy's in the pooper.

bring out the money printer. You run the

money printer. Basically, what you're

doing is you're growing the balance

sheet. Okay? You're printing money. And

the way you print money is you just

digitally go into a spreadsheet and you

go, "Well, we were at 6 trillion. Let's

just change the number to 9 trillion."

So, you literally just change the number

on the spreadsheet. And all of a sudden,

out of thin air, you've created $3

trillion. And then you go, "Here you go,

Congress. go shower the economy with

money and save the world. That's

basically money printing in a nutshell.

That has now substantially increased the

Federal Reserve's balance sheet. Now the

Federal Reserve is interested in

reducing the balance sheet, which

they've been doing since 2020. They're

like, "Ah, we've gone too much. We're

reducing the balance sheet." Now the Fed

is talking about no longer reducing the

balance sheet. So think about increasing

the balance sheet running the money

printer. Think about reducing the

balance sheet as vacuuming. So you're

you're like, "Ah, we put too much money

going around sucking money back out of

the economy." You're absorbing

uh by basically saying, "Hey, we're

going to sell bonds. We're going to take

money out of the economy and we're going

to try to use that as a tool to

restrict." Well, now Jpal's like,

"We've done a lot of vacuuming. We're

just going to go over here and go

click." So, in the coming months, he's

going to turn off the vacuum cleaner.

Okay. Well, what does that practically

do for us? Like, what's what's the

trade, bro? Kevin, tell me what what's

the trade? When you turn the vacuum

cleaner off, what you're really doing is

you're saying, "Okay, we are going to go

and no longer put this pressure on the

treasuries market, which could mean that

we might end up seeing yields actually

start coming down, which is nice. We

might also see because remember the

whole point of vacuuming up money is to

increase market rates. And if you

increase market rates, you're basically

tightening to try to control inflation.

You say, "All right, we've done enough

vacuum cleaning." You stop doing that.

You stop sucking money out of the

economy. You stop selling those bonds.

By selling bonds, what you're really

doing is you're increasing the supply of

them. I know that gets a little bit

complicated. You increase the supply of

them, the price goes down, yields go up,

right? You stop doing that. You actually

let yields come down. So bottom line, I

know that gets complicated. When the

vacuum cleaner turns off, yields get to

start falling. Now, he told you which

part of the curve. He literally told us

which part of the curve. Now, you could

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the channel. But he told us, JPAL

specifically told us which bonds. He

said ideally we want no mortgage back

securities in the future. So they want

to get rid of all of those. Once they're

done with those, they're not they're not

interested in MBS's.

All they want are treasuries and they

said that right now they are overweight

longerterm treasuries and underweight

shorter term. This means that once we

kind of get rid of the rest of these

longerterm treasuries, that's where you

might see some of the biggest shift by

turning off the vacuum cleaner, which is

probably bullish long-term rates coming

down, bullish mortgage rates coming

down. the 10 to 25 year end of the curve

probably coming down. Now, why would

Jerome Powell do that? Why turn bullish

here? Or should I say dovish? This was

more dovish, right? Which is bullish in

the short term for the stock market. In

fact, that's what we wrote over here. I

actually originally thought we were

going to get a neutral powell and that

we would end up getting yields up. But

what we actually got was a dovish

powell. And we thought, okay, but if we

get a dovish powell, then we will end up

seeing yields come down, which is what

we're seeing

now. What does this mean? Why is he

going dovish? Well, one of the reasons

he's going dovish, he was asked about at

the end, is because he says we might now

be at the point where the beverage curve

is normalizing. Now, this is another

complicated one to understand. Man, I'm

going to keep this as simple as possible

because if you're not familiar with the

beverage curve, you're like, "Okay, what

are we talking about? Like Coca-Cola or

Pepsi or like you know what? What's the

play here, man? I don't understand."

Look, this is very simple. This chart is

the normal version of this chart. The

non-perverted

version of this chart. It's basically

how it normally operates and has

operated for the last 40 years. Okay.

Something very odd has happened recently

though with this chart. And if you look

at the chart, I'm going to throw these

little stars over here. The vacancy rate

has plummeted. So, we started putting a

bunch of dots basically where these

stars are. And this is what Powell said

when he goes, "Ah, yeah, beverage curve.

That's uh that's gone straight down." He

says, "We've been fortunate of that, but

we may now be at a place where the

unemployment rate starts going up. that

turning point may be now. Okay, that's

bad because

what this means is if you normalize this

curve and you start getting data that

pushes you this way, which is the normal

path of the curve, then data points

start coming out along this way of the

curve and the unemployment rate is going

to skyrocket to 10 to 15%.

Rapidly and he says we may now be at

that turning point. So think about this.

He's actually being mega dovish here

without saying, "Hey, we're going to

rapidly cut a bunch of, you know, do a

bunch of rate cuts." He's telling you,

"Yeah, we're turning off the money the

money vacuum because we need to start

stimulating the economy because we have

serious risks here on the labor market."

On the other hand, he's like, you know,

we don't want to send the signal that

we're going to cut rates really rapidly

because that's going to mess with

people's inflation psychology, which he

was also worried about. He's like, look,

most of the pricing pressures right now

are coming from tariffs. He says

structural inflation very, very low

right now. Most of the pressures are

from tariffs. So, think about what he's

doing. Okay, there are three prongs to

what Powell is doing here. Three prongs.

All three of the prongs tell you you

should join the Meet Kevin membership.

Oh, that's a funky little video there,

isn't it? Cuz you had like two pictures

of me on top of each other. Let's go

with it. Okay. Join the Meet Kevin

membership. People say the ad goes away

once you join. Potentially tax uh tax

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to have you in the membership. Anyway,

no, the the three prongs that we just

saw from Powell. Think about this. Three

things he just did, all of them point in

the same direction. He told us one,

beverage curve normalization is upon us.

That's part one. Okay. Part two, he

tells us that inflation from tariffs is

the remaining inflation. But normal like

structural inflation, structural

inflation not present only tariff

inflation basically. Okay, that's prong

one. So prong or well I should say prong

one is beverage curve normalization may

be starting. Okay, that's a red flag.

Okay, this is important red flag for

recession. You get a normalization of

the beverage curve, we will be in a

recession faster than you can blink. He

actually also told us which is very

interesting. He actually said that uh

the first thing to slow with rates is

purchasing. Labor

uh takes much longer. That's the long

and variable lag portion. Right. Okay.

Number two, structural inflation is not

present. Only tariff inflation, which

again all of these reiterates support

jobs. Okay. Reiterates doubbishness.

only tariff inflation. What does that

do? Support jobs. Doubbish. Okay. Then

the third one. So beverage curve

normalization. We got that. We got

structural inflation uh not present. Uh

and then obviously we got his argument

that very clearly we are seeing uh a

desire to get back to neutral. So back

to neutral support weakening labor

market which somewhat is is reiterated

by the beverage curve. Anyway, but put

pull all of this together. Uh, this

shows up. How do you do this? Balance

sheet runoff stopping. That's probably

the better way to put number three,

right? Balance sheet runoff stopping is

basically to support jobs. It's

actionably dovish. Like, this is not

Powell being verbally doubbish. It's him

literally saying, "Hey, we're about to

take action to stimulate because the

jobs market is starting to show serious

signs of issues." He's discounting the

BLS data for now, saying we have other

data we can get our hands on. But he

also says, "Hey, we're about to miss out

on a lot of data." Like, we're about to

walk into uh and this is where the

Bureau of Labor Statistics came out with

um or sorry, Bloomberg was reporting on

the BLS this morning. They actually

wrote that the September report will be

very important. We might not get it

though. The October's report will be

missing starting if the government shuts

down about, you know, is still shut down

in about a week from now. So, if we're

still shut down next week at this time,

which we probably will be, we're going

to start screwing up the employment

survey and the payroll survey for

October. Remember, the government shut

down on October 1st, so we probably had

a lot of our surveys already sent for

the September data. And a lot of that

data is probably bad because it would

show the Doge layoffs and the the you

know the voluntary dismissals. Those

were supposed to show up in the

September report. Now we would have

adjusted for that. We would have added

that back in. But you know we expect the

break even rates basically 0 to 20,000.

So what if the labor report showed -50

and 50 of those were you know from the

government the voluntary departures.

Okay. Add that back in. You're at zero.

So maybe you're right at break even.

unemployment rate doesn't really change,

right? Fine. But what if it was negative

100k? I don't know. You know, it's maybe

maybe Donald Trump purposefully doesn't

want these job reports out. I mean, he

wants CPI report out because he wants

the COLA adjustment for 69 million

voters who are receiving retirement

benefits like Social Security. And

Donald Trump, you know, scores really

well amongst older voters. So, of

course, he wants them to get their cost

of living adjustments for Social

Security payments. So, he brings the CPI

report back. Why does he I mean, then he

obviously has the power to bring the

same damn people back to give us the

jobs report, but why would he do that?

That would just make him look bad. So,

leave that part of the government shut

down.

A little manipulative, right? But that's

exactly what's happening right now. So,

as a result, Powell's like, we know the

data is probably bad. I mean he

referenced he's like not only can we

look at state unemployment claims but we

can also look at ADP data. Now in

fairness he said so far data on the

economy and GDP are actually stronger

maybe just as firm as what we had at the

uh last meeting but he does make it

clear that like hey you know we could

look at other data look at ADP for

example and what happened with ADP ADP

at the beginning of this month we were

expecting 51,000 the prior read was

54,000 remember what we got -32,000

and then it's like oh but what if you

average you know add back in the 40,000

adjustment. Add them back in, you're

still at like 8 to 14,000 jobs. That's a

terrible ADP report. So, it's not a

surprise. Like, if you actually break

down what JPOW just did, he actually

just turned dovish. Now, it's probably

going to take a while for the market to

to like digest all this stuff,

but Powell turning dovish is exactly

what they should do to avoid

being too late. Powell doesn't want to

be Mr. T too late. So consider that

again the three big components here. Uh

number one, we're turning the vacuum

cleaner. Well, number one is the

beverage curve normalization. We could

be at that point. That's really dovish.

It's like uhoh, we're at the turning

point. Two, structural inflation isn't

present. It's only tariff inflation,

which they've said they're going to look

at that as sort of like a onetime

occurrence. Not necessarily at one

point, but over time and then one time.

Uh and then that's doubish, right?

because you're not worried about

inflation as much. And then of course,

balance sheet runoff, you know, stopping

soon, turning the vacuum cleaner off.

That's huge.

So, all of these things are dovish. This

is a massive dovish flip from Powell.

And it's it's potentially a gamecher

for, you know, what we're going to do in

the alpha report in terms of our uh top

10 stocks for the next 10 years. We've

got six of them are posted. Stocks 7, 8,

9, and 10 are coming out soon uh in the

Me Kevin membership in the alpha report.

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>> coupon linked below

>> to join us in the um me Kevin

membership. But uh let me just make sure

I didn't miss anything here on Powell.

And I'll look at some of your comments

here. Somebody says, "Do you think that

rates will go down 50 basis points?" No,

because they don't want inflation

expectations to get screwed up. So, if

you actually look at Wall Street, you'll

find that currently we are pricing in a

96.7% chance of a cut October 29th and a

98.4% chance of another cut December

10th. So, we are pricing in a full two

rate cuts,

but everything that we've seen here is

broadly

bullish on yields coming down. Now, is

that potentially recessionary because

Powell's waking up? Sure. That's the

struggle that we're going to have to

balance out with the stocks. That's

where we have to look at it and go, "All

right, well, you know, if we are about

to have the normalization of the

beverage curve, the unemployment rate

pops up and then we go look at like

Salesforce to show us earnings on Agent

Force AI, which is like a scam in my

opinion." Uh,

oopsies. That might not be a very good

bucket to reach into. It's sort of like,

hey guys, hey guys, everything is

everything's fine. We have this AI

bucket. We have all this AI bucket of

revenue. And then all of a sudden,

unemployment rate starts skyrocketing

because the beverage curve normalizes

just like it always does in history. And

it's like, it's okay. It's okay. Look at

all this money we're making from AI.

Oh [ __ ]

The whole thing has no legs. You know,

the whole thing implodes then. Uh, so

it's no surprise that gold is doing what

it's doing. I mean, look at gold in the

last year. This is like a double on

gold. When does gold return a double,

dude? In a year. That was crazy. It's

not quite a double, but it's it's pretty

pretty shocking. So, he says, "Just

curious. employers layoff, continuous uh

and high profits, strict immigration

enforcement, stock market pushes up, uh

exchange by inflation, government

shutdown with better. I'm not really

sure if you're asking a question,

though. That was a really good list,

though.

So, somebody asked, "Will that put

pressure on the leverage side?" Well, I

mean, look, you s you should already

have your debt warnings from what you

saw Friday. like triple and double

double leveraged ETFs will go probably

go bankrupt in the next downturn, but we

literally saw

uh you know last week an inverse AMD

triple leveraged ETF went bankrupt,

evaporated and you're going to see more

of that um you know than the next debt

cycle. It's going to be crazy. It's

going to be crazy. Uh so somebody here

writes uh technology isn't showing up in

productivity numbers yet. No, the reason

for that, and I wrote that down, too.

One of the reasons you may not actually

see uh I'm going to explain this, okay?

So, if you're you're still with me here,

good for you. You're going to get some

extra insight here. So, the question is,

why are we not seeing uh some of this AI

stuff show up in our productivity? Okay,

let me give you the most simple

explanation as to why you're not seeing

AI in productivity numbers. AI in

productivity numbers. Okay. So, uh let's

make an example of how this is done.

Okay. So, widgets produced equals 100

per hour. Okay. Uh demand for widgets is

1,000. Let's just say. Okay. And um

let's say uh AI makes it so uh

you know, or well, let's put it this

way. Let's say to do this we need two

guys working five hours to do this. All

right to to make this happen. Let's say

AI makes it so that one guy can do a 100

widgets or you know can do a thousand in

5 hours right that one guy's

productivity doubled. Company output

stayed the same. company costs on labor

haved in this example, right? This could

be like shipping software. It doesn't

really matter what it is. All right? So,

the company costs hald, but the company

output stayed the same. So, did net

productivity change? Did net

productivity change economically?

No. The output is the same. Okay. The

output is still the same except who won.

Who won?

The corporation won by spending less

money. Revenue didn't go up necessarily

because of AI. And that's like whether

you call this a widget or you call it a

service or whatever. This is what you

logically have to think about. Is

artificial intelligence going to change

how many emails we can send per hour?

Yes. Is it going to change how efficient

we are? Yes. Is it going to change

demand for our goods and services? Not

necessarily.

That's the problem.

So AI might change the costs of the

corporation and how much money they

could earn, but it does not necessarily

mean that their revenues or or their

ability to sell goods and services is

all of a sudden now blowing up.

So that's a downside for labor. you

increase corporate costs and improve

efficiency, but that does not

automatically increase demand or total

economic output. So basically aggregate

productivity growth doesn't actually

show those efficiency gains. So when

PAL's like, yeah, we're not seeing AI

show up in the productivity stuff. Well,

duh.

And this is what people forget about

artificial intelligence is again, let me

let me just give you I'm going to leave

you with a basic example, okay? Let's

say you go, "Hey,

I'm an attorney and I've got 10

customers who need a trust drawn up."

Okay.

Two years ago or three years ago, I'd

have to have like, you know, three

interns or parillegals drafting these

trust documents and then I have to

proofread them and it goes back to them

and grammar errors and spelling and all

this bull crap. 3 years ago, I need

myself and three people to do my 10

trust documents for clients. Okay, today

I could go, "Oh, y'all parallegals are

fired." And then I could go GPT Pro,

make trust document for those 10 people.

Then I read it with my lawyer hat and

give my professional opinion on top of

that. That's why people hire the

attorneys still because the G the

attorneys are using GPT as well, right?

But then they add, oh, we need to put

this clause in. you know, it's that

extra 10% that you're paying the

attorney for, right? So, they put their

little 10% on. Does that mean the

attorney has more than 10 clients to

service? Well, not necessarily. Now,

technically, the attorney now has more

money available. What could they do with

that more money? Well, maybe they can go

run more ads. But then the question is,

even if that attorney has more money to

run more ads, are there more than 10

customers right now who need those trust

documents? Cuz if every attorney is now

running 10% more ads, people are

saturated with 10% more ads. They feel

like they have more choice. Does it

actually mean more customers for that

attorney? Not necessarily. They might be

spending more ad money just to stay par.

But again, that attorney's net income is

higher because they spend less money on

that entry-level labor. That's look,

this is just coming from from

experience. We saw exactly this over the

last two or three years at at House

Hack. We're like, "Wow, we could do the

same amount of work with like half the

staff or less than half the staff." And

we're like, damn. So, we're looking at

it as a corporation going, oh man, this

is great for our shareholders because

earnings per share is going to go way

up. And we're like, this is great. You

know, does that mean the company is more

productive? Well, obviously, I think the

company is growing and being very

productive. But as you're saying, oh,

net, does it actually mean a company's

more productive? No. We're getting the

same done with less, which is great for

corporations, great for shareholders,

not great for labor. And that's why

Powell is probably flipping a little

dovish here. So in the short term, it's

actually great for markets because in

the short term, the market's just going

to look at it and go, "Damn, Powell

dovish. The punch bowl still rich and

full of booze. Let's keep the party

going."

Obviously, we're probably going to walk

off a cliff at some point, but I mean,

for now, this is great. This is bullish.

This is fantastic.

And you know what else is fantastic?

Kevin's somebody would consider you.

Kevin is fantastic, too.

>> Why not advertise these things that you

told us here? I feel like nobody else

knows about this.

>> We'll we'll try a little advertising and

see how it goes. Congratulations, man.

You have done so much. People love you.

People look up to you.

>> Kevin Pra there, financial analyst and

YouTuber. Meet Kevin. Always great to

get your take.