The Fed is about to Rug Pull Markets | Danger.

we gotta talk about the Federal Reserve

because my gosh there is a lot of news

about the Federal Reserve suggesting

that's it this is it we're going back to

50 basis points and in this video we got

to talk about the reality about what's

going on with the FED because the

regular narrative that you're seeing at

least in headlines in my opinion is

blatantly false but we're going to

review all of the information and data

together first it's worth noting that

people are bearish especially in the

institutional world I think on one hand

that's because a lot of institutions

were caught offsides first remember it's

Friday that means the flash sale and the

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institutions were caught offsides they

were caught very cash heavy or very

short heavy and as a result when the

January rally came around they had to

save face and argue no this is just a

bear Market rally this isn't reality in

fact we have seen the most amount of

short covering in January that we have

seen since April of

2020. that's insane so a massive amount

of short covering uh short covering

again the likes of which we haven't seen

since April of 2020. I could show that

to you statistically the higher the line

goes on the chart you're seeing right

now uh is short covering uh and uh you

could oh sorry I said April of 2020 it's

actually since the meme rally of January

of 2021 forgive me the highest short

covering since the meme rally of 21

which obviously that says something

because the meme rally of 21 had some

insane short covering but look at this

on a chart basis short covering shows

you when the line goes up you've got the

highest short covering the short

covering is insanely high right now and

again I think that's because here in

January of 2 2023

we had most into institutions thinking

okay first half of the year is going to

be hell we're going to go into a

recession it's going to be very very

choppy let's keep our short positions

when we actually ended up seeing the

market do substantially well in January

relating to a lot of short covering and

then of course the safe phasing oh well

or face saving attitude of oh well it's

just a bear Market rally and sure maybe

that might end up proving to be true but

I think a lot of Institutions are

looking at everything right now to

suggest oh yep things are a lot worse

than maybe they are but who knows maybe

things are worse

but one of the narratives that's

spinning up right now is this idea that

Loretta master and Mr Bullard are

calling for a 50 basis point hike and a

lot of folks are saying that's it this

is going to be the moment where the

Federal Reserve actually u-turns and

goes from 25 basis points which they've

dropped at only raising rates 25 basis

points and they go back to 50 basis

point hikes and the narrative is they

are going to U-turn to 50 basis point

hikes because the data is coming in

stronger when the reality is actually

different both Loretta Mester and Mr

Bullard have always been calling for

front loading rates in fact Mr Bullard

was calling for getting to four or five

percent with increments of 100 basis

point hikes for over a year he's been

calling for getting to five percent or

four percent for over a year potentially

using 100 basis point hikes so it's not

like all all of a sudden Loretta Mester

and Bullard are like oh yeah let's go

for 50 basis point hikes because PPI and

CPI came in hot that's not actually what

happened however institutions are

spinning that narrative and now you're

seeing all of these mainstream headline

articles suggesting oh my gosh 50 basis

points might be coming back they

literally haven't changed their opinion

at all they've been of the same mindset

every single meeting higher higher

higher higher

and they've been always calling for 50

they were not fans of 25. even though

everybody ultimately agreed at the

Federal Reserve hey we're going for 25.

the individual screaming the loudest

right now aren't even necessarily voting

members of the Federal Reserve Open

Market Committee right now but aside

from going down through the Nuance of

exactly who's voting and their biases or

whatever I think it's important to

remember that because institutions are

caught offside you have a lot of

negativity towards this rally now that's

not me suggesting that absolutely this

rally is Justified some things

especially at certain companies that do

not have a lot of profitability in my

opinion shouldn't be rallying the way

they are that's okay what's important to

pay attention to though is the actual

trend of CPI and PPI and I think the

data is quite useful to look at here so

here's a piece from Barclays a Barclays

that actually nicely lays out for us the

deceleration that we're seeing on

year-over-year CPI and PPI inflation yes

PPI came in hotter than expected but

look at the actual chart

of course we're going to get volatility

of course we're going to see charts that

are not just straight down they never

are look at them historically going back

to 2012 2013 14 15 16 17 18 19. look at

how volatile these surveys are they do

this up and down and up and down and up

and down all of the time they are not

smooth curves there is no survey data

that is a smooth curve but what you're

looking for is the longer run Trend look

at the longer run trend of 2012 to 2015

stable even though you had a sink in

2015 and 16. if you continue the 2012 to

2015 Trend look at what you end up

getting

basically a continuation of inflation

Trends into 17 18 19 20. then of course

we get the covet pandemic and this is

where the trend changes we have a clear

Trend up of inflation but what do we

clearly have now in terms of an

inflection point

even though data is noisy in the short

term what is the very clear trend on

inflation it is straight down and again

there are going to be bumps along the

way we're going to get noisy data that

shows indications that inflation is

pushing up temporarily and it's not

falling as fast as we like and every

report isn't perfect and and you know

coming in lower than expectations but

this is headline year over year CPI and

PPI let's now jump on over to core

measures

core okay less the volatile components

less food and energy and what do we

actually have look at this

all measures of PPI are showing a

decline in inflation

all measures of course some parts are

still feeling a little bit more sticky

than we would like of course we're still

dealing with some higher costs for

longer we know that but what have I been

saying regularly and I'm going to now

give you evidence for this as well and

I've also been giving you evidence you

should already know this and I know part

of this is going to sound redundant and

I want to say it to catch you up and

then I'm going to move on to some more

evidence I've been regularly talking

about how companies are telling us

inflationary pressures that still exist

are expected to be gone by the second

half of the Year those are your

Industrials your Pepsi your Procter and

Gamble your your Consumer Staples right

you're Johnson and Johnson yes there are

still inflationary Embers we still have

Embers of inflation but we're seeing

those pricing pressures go away and

expect them to be gone by the middle of

the year that's still going to take a

while to show up in all the survey data

of course there's a lag that's logical

what are we seeing at companies that are

hiring in labor-intensive fields wow

Health Care not issuing signing bonuses

anymore like they used to have because

they actually have the availability to

hire people again what about uh the uh

the sectors within retail uh it's easier

for Starbucks to hire people Chipotle

finding it easier to keep people and

easier to hire people you're seeing this

consistently as a trend throughout

company earnings but Bank of America

finally put out a piece which I thought

was very very useful

uh and they mentioned and their piece

over here take a look at this I'll read

you this paragraph right here

U.S earnings call and then this piece by

the way just out so yeah this came out

last night February 16th right here and

I've been talking about this for weeks

but now I got a an actual like

institutional piece saying the same

thing because I've been observing this

in actually reading the earnings calls

while Bank of America just went through

with their little algorithms or whatever

and here's what they write

U.S earnings call analysis suggests

improving availability to hire mentions

of quote improved labor availability or

of quote ease of hiring end quote by

Management on earnings call calls

continue to rise through the earnings

season so more of the commentary that is

becoming easier to hire easier to get

labor this is the same thing we saw by

the way with Uber and Lyft right Uber

and Lyft what did they tell us massive

increase in the supply of available

labor leading to lower Peak pricing

leading to lower margins especially at

Lyft anyway

to some extent recent Staffing Cuts have

further helped ease the labor market

situation our analysis recorded a

substantial rise in the mentions of

layoff slash Workforce reduction on

earnings calls mentions per company were

the highest for Tech and financials

while industrial mentions are low

compared to the last two cycles remember

Industrials like the Johnson and Johnson

or sort of your more industrial

producers Procter and Gamble they're

kind of still in the hey we've got

Embers of inflation stage hoping they're

gone by the second half of the year but

you do also have companies like the

Aerospace sector GE Boeing Embraer they

are still facing labor issues that's

probably the last sector that's going to

recover and generally recessions align

with when industrial layoffs are the

highest that is in other words like the

worst the worst is marked and demarcated

by a peak in industrial layoffs so

they're usually the last last to lay off

and and they're still struggling So In

fairness we're still in that phase where

you're still seeing like Aerospace and

certainly the defense sector having

struggles uh to to uh Master uh sort of

their margins and inflation and labor

Embers so you still have Embers of

inflation right but the trend now is

down and that this these Embers are

getting extinguished over time anyway

continuing with what was written here

mentions of wage growth and wage

inflation on earnings calls are still

near all-time Highs but modestly off the

q1 2022 levels so in other words you're

seeing companies that are still saying

look

we still have higher wages we still have

higher wage inflation that we have to

deal with in the face of margins but now

it's becoming easier to hire we're

starting to see that inflection point

right which is great and that's not to

say that the Federal Reserve doesn't

have to keep rates higher for longer but

it is to say that as we saw in the

Barclays piece we are clearly on an

inflection point of inflation rotating

down again on screen now again the trend

is clearly down and certainly when we

get uh inflation data for housing start

rotating down we can actually maybe more

meaningfully see this drag down so yeah

2023 is still going to be the

environment of fighting the Embers but I

personally believe the big Wildfire of

oh crop inflation is going to move the

moon this is hell is over the hell is

over but we still have the lava that

hell left us with and that is still

feeding through our economy we're still

fighting those fires but the trend is

very clear that it doesn't appear

inflation is going to be as horrible as

the 1970s and inflation expectations say

the same thing is it possible we're

going to get a second wave of inflation

yes but I personally don't think so you

do see that there is an alignment and

this is actually does give Credence to

the idea that maybe there would be a

second wave of inflation you do have a

similar you have sort of this

environment where inflation tends to be

worse in countries with excess savings

and inflation tends to be worse in

countries with less excess savings when

we look at for example Spanish inflation

and and inflation in Spain one of the

things that you're actually seeing is

when you have elevated inflation in

Spain uh it's when savings are higher

but excess Savings in Spain have fallen

a lot quicker than excess Savings in

other countries and what's interesting

is as those excess savings is in other

countries or rather in Spain has come

down here's a chart for example of

excess Savings in Spain you can see at

the top right Spain's excess savings

rate has plummeted relative to other

countries like Germany or the United

Kingdom Ireland the Netherlands blah

blah blah as you see excess savings

shrink in Spain you're actually seeing

inflation in Spain fall a lot quicker

and so to some regard we still have a

lot of excess savings as well in the

United States but the excess savings

rate is falling people still aren't

buffering their excess savings the way

they had been certainly not during the

pandemic so yes it is true that all and

it should be obvious right it should go

without data but it yes more savings

leads to more inflationary pressures and

the reality is

people still have a lot of excess

savings we went through this yesterday

statistically showed that Bank of

America suggesting that people with an

average bank balance of two and a half

thousand to five thousand dollars now

have an average bank balance uh this is

pre-pandemic right pre-pandemic now have

an average bank balance of twelve point

eight thousand dollars and it's only

Fallen 4.4 percent over the last year so

there's still a lot of excess savings

out there right but the new rate of the

rate of growth of excess savings is now

negative which is good and hopefully

that means we can reiterate the

downtrend without a second wave of

inflation it does not appear based on

daily research so we're conducting that

China is going to be somehow this

magical double inflationary push what

people are spending money on in China

seems to be local travel and

entertainment not necessarily solely on

goods and services where we expect

supply chain nightmares again Supply

chains are very very loose right now uh

which is good especially and certainly

becoming looser and looser that doesn't

mean there still aren't problems but

they're becoming lot looser Automotive

still has some supply chain issues but

look at this chart as well this is a a a

chart that basically shows you PPI

overlaid with uh operating margins and

guide on operating margins and you

basically see that as ppi is coming down

margins are coming down as well and

that's actually really interesting

because it suggests a a lack of

potentially pricing power at companies

to continue to pass on higher costs and

actually preserve their margins so even

though ppi is falling you are also

seeing margins come down and that

suggests that we should continue to see

a decline in CPI Consumer Price

inflation because again the buffer of of

basically cost

is not solely the consumer paying more

but it's out it's actually the consumer

saying I'm not paying any more and then

companies taking it in the margin we've

regularly been talking about companies

taking it in the margin and I think this

graph really represents that to us that

as uh forward margins are coming down

ppi is coming down to see this sort of

happen together

now at some point uh or some argument

can be made that well margins aren't

falling as quickly as they should

suggesting that you know maybe uh either

uh companies are able to still pass on

pricing or they're becoming more

efficient I hope the truth is companies

are becoming more efficient and that's

what we're seeing via layoffs we'll see

there's still though uh what what some

companies are calling a lot of excess

bloat I found out very interesting

there's this argument that companies

like meta so Facebook have a lot of

excess uh headcount and what they

basically did is they calculated uh

earnings uh or sales growth so Revenue

growth for companies and they compared

that to pre and post layoff employee

growth and they found that Facebook

still has 20 more workers than their

sales growth would justify after the

layoffs Amazon still has 24 excess

workers Microsoft still has one percent

access workers and companies that have

actually laid off more than their growth

are companies like Google and a sales

force which have actually potentially

become more efficient uh via layoffs

than uh and their sales growth has

actually now exceeded their employee and

head count growth so kind of interesting

so obviously we'll see I'm of the big

believer that yes

things in 2023 are going to be very very

noisy so sort of bottom line out of

everything I'm reiterating uh that even

though we're getting all this noisy

noisy noisy data I think it continues to

reiterate what we're talking about with

the Nike Swoosh which unfortunately the

Nike Swoosh in this case is not very

smooth and we never expected to be I've

always drawn it as a crazy swiggly line

so yes expect expect the madness but I

think as the analysts we talked about

yesterday you're starting to say maybe

buy the dip is back right maybe buy the

dip is back because the trend is slowly

towards a repaired economy not an

economy that's necessarily going into

the 1970s and runaway inflation