The Fed *JUST* Revealed the TRUTH | YIKES.

holy smokes you won't believe what the

Federal Reserve just said and forecast

about when inflation is going to go back

to two percent what the lagged effects

are going to be where the most pain is

going to be and how that could lead to a

recession and more this is a good piece

and there's a lot to talk about on this

one and we'll also talk about certain

stocks and valuations so buckle up this

is a deep one let's go this video is

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already finished this cup of coffee for

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cup of coffee is empty but it's branded

okay my I I generally make two cups of

coffee because when I finish one I don't

want to get up to get the other one and

then I actually had my son refill this

one so this is actually a third cup of

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this this one around because it's empty

but it's branded okay sponsored hashtag

paid promotion welcome to the Chicago

fed the Chicago fed just released this

particular letter right here and they

talk about the past and future effects

of recent monetary policy tightening

what's really fascinating about this is

well mostly we're not going to read all

of it because well that just there's a

little too much econ in this one and as

much as I love econ let's just say

there's a limit so we're going to start

with a little abstract and then we're

gonna go to the conclusion and we'll

look at a few charts okay so let's start

here and and the conclusion is actually

pretty wild now it's not to say that Jay

Powell is going to listen to this 100

but let's think about it a little bit

because there are some big things that

they say about inflation here so we

estimate how much of the impact from the

fed's current tightening cycle is yet to

be felt in the economy in both absolute

relative terms to do this we use some

fancy models which uh they explain the

models later but basically they use some

amazing some fancy stuff and they

estimate that the majority of the

effects of output and inflation or on an

output and inflation that higher

interest rates have had in other words

the lag they suggest which keep in mind

the Bears are telling us that because of

the lag defects of the fed's hiking

policy we're screwed like it's going to

take 18 months for you to feel all the

effects maybe some say that because of

the clear communication of the Federal

Reserve now we might actually start

feeling these effects much more quickly

and based on this piece by the Chicago

fed they suggest that the majority of

the these lag defects of monetary policy

titing have already occurred and that

policy and they'll go through exactly

what percent they think in just a moment

but it's about 75 percent that they

think has already occurred and there's

some important implications for that

they think that the policy tightening

that has been implemented will how

however continue to exert further

restraint in the quarters ahead

amounting to downward pressure of three

percentage points on the level of GDP

and two and a half percentage points on

the level of CPI tightening effects on

the labor market manifest more slowly so

more than half of the policy impact on

total total hours worked is yet to come

now that's actually interesting because

it feeds into the leftover part that the

Bears do talk about the Bears say hey

look it is actually the jobs Market that

is really where the pain can begin in

this recession that we may be going into

the reason people believe that is

because recessions can really start for

a few different reasons they could begin

from cyclical cyclical reasons they

could begin from uh industry reasons but

what this uh impact is is potentially

likely to be from uh that is through

this cycle is from an impo oh yeah okay

I just want to make sure the bike is

right I thought the bike was on my

airpods for a momentum like as much as I

like listening to myself on these things

I hate listening to myself but uh

they're functional for that but uh or if

I have to put somebody you know another

interview on or something like that boy

oh boy in terms of speaking through

these things the audio is crap so anyway

so this type of recession what people

believe uh is that we would actually

begin the recession by having pain in

the jobs Market paying in the jobs

Market would then lead to lower spend

lower spend would then lead to lower

earnings per share at companies and

obviously less output and then

potentially thereby layoffs and then you

have this cycle of pain right where you

get pain in the jobs Market lower spend

paying the companies more pain in the

jobs Market you basically have this

self-fulfilling disaster

and the risky thing here about the

Chicago letter is they say look we felt

75 of the tightening on GDP on CPI

already but only 25 or sorry only 50 of

the pain on labor well I guess they say

technically here so more than half of

the policy in yeah I guess that's

actually a little less than 50 see more

than half of the impact on labor Is Yet

To Come according to the model's

forecast the policy tightening that's

already been done is sufficient to bring

inflation

back near the fed's Target by the middle

of 2024 while avoiding a recession now

that's really interesting they're

basically saying look the FED has to do

no more and we can avoid a recession as

long as the FED essentially stops hiking

because there is still a very large lag

effect on labor the effects on CPI and

GDP are already functioning well now

let's go jump to the end and we'll look

at some of the charts here so if we go

to the end over here we look at their

conclusion they suggest here that they

rely on expectations of monetary policy

and so this is their argument a little

bit more of a forward-looking model

expectations are pretty important in

fact there's a strong argument that the

entire reason the Federal Reserve is

actually suggesting that there might be

one more hike is because they're not

trying to Signal they're done here's the

problem once they signal they're done as

soon as the bed says we're done what do

you do you license locking in higher

yields on the 10-year treasury or even

the 20 year right the longer end of the

Curve

once you license locking in the longer

end of the curve which is a fancy way of

saying it just basically saying 10 20 30

year bonds right once you give people a

license to buy those in other words hey

we've reached Peak yields go ahead and

buy the long bonds something really

incredible happens once you do that

guess what happens

once once you let people buy these you

let people buy these then what ends up

happening demand goes up for long bonds

like the longer term bonds I should say

not being bullish bonds but the longer

term bonds when demand goes up for the

longer term bonds what ends up happening

uh yields fall uh on on these longer

term bonds right and that what does that

actually end up doing it loosens uh

Financial conditions so the problem with

that is the Federal Reserve is trying to

put pressure on markets by having higher

yields 10 20 30 year mortgage yields

which are mortgage rates which tend to

follow the 10-year treasury you need

these yields higher so you could have

this broader tightening of the economy

that's what the FED wants they want this

tithing as soon as you say the peak is

in you say to people buy it and you can

now lock in these longer term bonds

without the risk that values these bonds

is going to or are going to continue to

fall which right now they kind of have

continued to fall I mean consider what

we've got on the 10-year you had Bill

Ackman short the tech basically the tens

right around two point or 4.2 uh we're

at 4.27 right now in terms of yields

which actually means he's up because the

inverse relationship we recently went uh

a little we went down a little bit we've

been up a little bit we had all this

giant roller coaster here I personally

think they need to go down from here

that's why I'm a long TMF uh which might

be a little early but that's because I

think we're we're within one hike of

being done which I think creates this

interesting opportunity to maybe go long

TMF uh which is essentially a a

leveraged ETF for going long the uh the

long end of the treasury curve like the

10 20 30s and uh it and as soon as the

FED does admit we're done TMF should do

very well but we have to wait for that

moment so anyway uh they're they're

arguing that they use their policy here

or or their models to try to understand

what's going on with expectations a

shift in policy making over time that

puts more emphasis on the expected

policy path such as a heavier Reliance

on explicit forward guidance may have

made the expectations Channel more

important and thus shortened the

apparent lags of transmission this is

important and it's not to say that like

oh this time is different but one thing

that factually because again you could

totally still be walking into a

recession right it's worth knowing them

but one thing that is dramatically

different in this cycle compared to the

Past Federal Reserve tightening Cycles

is that the FED is much more what is APM

f i see the comments ATM it's just

ticker TMF ticker TMF just type that in

you'll learn more about it go read the

perspectives anyway uh so in past

tightening Cycles from the Federal

Reserve

you didn't actually have this extremely

clear guidance of what was to come uh in

terms of hey we're going to uh hike

until we believe that expectations are

set to bring us back to an average of

two percent inflation uh and they're

very clear in fact pretty much every

single time they've hiked for the last

you know year and a half they're like we

probably have to do more you know here's

our estimate but we probably have to do

more and some actually argue the fact

that the FED has told us so aggressively

we have to do more is why the yield

curve is so inverted now people get mad

at me when I say this they're like well

Kevin Kevin don't don't explain away the

yield curve okay the yield curve is

basically always right especially when

it's this inverted uh that's true when

when you just look at the yield curve in

general there has been uh you know there

have been like you look at 1998 you sort

of had a false inversion uh you know

people will say like oh but that was you

know really close to the.com Bubble

possibly you look at 1994 you almost had

an inversion so they've been some cases

where it's like it's not a hundred

percent perfect in in a very quick term

uh but yeah otherwise I mean short of

short of these these little asterisks

let's just be very clear about it

anytime you have an inversion that's

this deep you've had a recession okay

there's there's no mincing it here you

get a recession after you're this

inverted the one way that people try to

explain this yield curve being

disinverted though is I want you to

think about this and it's kind of a

little bit of a wild thing to think

about but if let's put it this way okay

if somebody came to you uh and said uh

so if someone someone said hey uh yields

are going up

for the next two years which is roughly

what the FED has been suggesting is that

it's going to take until 2025 to get rid

of this inflation if somebody said that

then you probably would have substantial

risk uh in two-year treasuries right in

shorter term treasuries why would you

buy uh a two-year treasury which what's

a two-year treasure yielding right now

let me see to your treasury the two-year

treasury right now is at five percent

four nine nine seven okay okay why would

you buy a two-year treasury watch this

two-year treasury what does that get you

five percent yield you're like oh well

Kevin of course I'm gonna buy that for a

five percent yield no you don't buy the

two-year treasury for a five-year yield

you know what you do for a five-year

yield you get a money market and then

you get your five percent yield guess

what the money market no risk of higher

for longer because basically Cash

There's No risk of your bond losing

value because the fed's going up higher

so in other words what happens less

people buy the two-year now the 10-year

is a little different the 10 year plus

is a little different that's 20 or 30

year right because you're like look I

can get through the next two years and

then have Juiced Returns on 10 20

30-year bonds for a long time I mean

consider the 10 year right now is 4.27

that is you buy it right now you can get

4.27 uh you know for the next 10

freaking years it's amazing you look at

the 20-year uh oh this is this is just

so wonky you ready for the 10 or the 20

year

4.55 percent right now and then let's

look at the 30 year

30 year 30 year right now uh that's the

30-year mortgage 30-year treasury okay

30-year right now

4.36 percent so again point is you want

to lock in these higher yields for a

very long term you go by the longer end

of the curve because eventually you

expect eventually the fed's going to cut

rates and when they cut rates what

happens these long bonds become more

valuable so in other words when cut

uh 10 20 30 become much more valuable

and then yields fall right but the

two-year well it might take two years to

get those cuts

so you're not guaranteed well guaranteed

with an asterisk that capital

appreciation so what does that do

so more people buy the long bonds than

the short bonds okay well what does that

cause an inverted yield curve

kind of crazy so uh that's that's at

least uh my thinking because you have

again more buying on the 10 20 30. what

happens when more people buy the 10 20

30. yield goes down price up yield down

so the long bonds yielding less because

they're more desirable for that

long-term investment the capital

appreciation you could get through the

feds to your hiking cycle expectations

are literally manipulating the yield

curve in exactly the way you would

expect like ignore ignore the potential

for a recession for a moment and I'm not

saying like put your blinders on oh

there will be recession just think for a

moment let's just say some like Jesus

Christ came down and said there will be

no recession

thank you God right okay okay

why then would the yield curve be

inverted well because at the same time

basically you know the econ Jesus Christ

is coming down and going by the 10 20 30

year bonds don't buy the two-year buy

money markets instead so like in simple

English that that factor right there

would literally give you the inverted

yield curve which is weird because

people are like but wait the yield curve

is supposed to say recession but again

if Jesus Christ came down said no

recession you would still have this

inverted yield curve because of

what I just described which is kind of

crazy because again a lot of people

it's definitely signaling your session

yes maybe it is maybe that the the

lagging pain in jobs is going to drive

us into recession it's entirely possible

uh let's keep going though because they

do talk about when they think uh

inflation will be over so okay here we

go

their their latest data now about when

inflation will come down you ready for

this this is based on their survey this

is a good one too the surveys whatever

models suggest that the effects of past

tightening on inflation have almost run

their course however

however skipping the econ talk here

headline CPI inflation will fall below

2.3 percent in 2024.

this 2.3 percent rate of CPI inflation

historically translates to around two

percent of inflation according to pce

suggesting the fomc's target would be

approximately met by the middle of 2024.

the abatement of inflation occurs then

without a recession as real GDP growth

remains in positive territory throughout

the projection although the model does

not forecast the significant slowdown in

hours worked as a result the model

predicts that three-month t-bill rates

should be unchanged for the rest of the

year before gradually declining in 2024

this is that higher for longer thing

where it's like get that gradual decline

right unlike the counterfactual exercise

shown in figure two these forecasts do

not isolate the effects of monetary

policy however it is important to note

that there are white uncertainty bands

around the forecast whatever that's

basically a fancy way saying look at our

uncertainty bands okay so this is where

they're like okay is a recession

possible yes but look at where the

uncertainty bands say it's possible

basically the end to beginning of 2024

but that would only be that tiny little

segment right there so yeah that chance

is still there but it seems like we

should be at a positive real rate of one

to two percent over the next two years

yes we know the Atlanta fed now real GDP

has is at like 5.6 but we don't even

need that we just need to be below Trend

which you know if if trend is like right

there you know two and a half percent

GDP we just want to be below that that's

the fed's goal and then here's their

projection for headline inflation which

suggests by the beginning of 2025 yes

maybe inflation could be as high as say

2.4 or quite frankly as low as you know

1.1 percent probably be right around two

percent is is their projection look at

some of the other bands right here

cumulative effects on hours worked you

can see most of the pain for that jobs

effect and these are very small

percentages mind you most of that pain

really expected to be over here 24 25

there's your lag defect you've got uh

you know some other charts you can kind

of look at here these are these are less

important when I went through this the

first time uh but I did think this was

interesting look at where they expect

rates to actually start falling you

ready for this

basically November that's where they

think you're you hit your Peak and then

from there it's basically falling rates

all of 2024. guess what that's going to

be really good for falling rates in

2024. okay you ready for this this is

going to piss a lot of people off again

it's gonna be really good for those

cyclical interest rate sensitive sectors

gee I wonder what some of those might

sound like how about

Tesla and phase and some of the other

delicious interest rate sensitive

companies guess what companies that's

bad for how about those Staples like

Dollar General Dollar Tree Hershey's

Kellogg Walgreens Paramount

Pfizer oh how interesting all of those I

just read off have hit new 52-week lows

at some point today how interesting

that's kind of what we were expecting

would happen at the beginning of the

year now one I will be wrong about I I

will I will say has not hit that damage

yet is quite frankly and I'm a little

like I'm still pissed off about it

because I think it's still coming

McDonald's I think McDonald's is

literally overvalued trash right now

absolutely literally overvalued trash

I'm sorry okay look I'm not I'm not here

to give you licensed Financial advice in

this video uh but I'm gonna give you my

real opinion here we can even look at

the earnings for it I am here to tell

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I thought it was cool because people

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whole thing is like it's a URL shortener

met Kevin shorter and people like

but I don't get it you're you're meet

Kevin like

anyway McDonald's it's overpriced trash

uh I'm sorry it's just it's just my

opinion and I think their stock needs to

come down substantially I think that

you're going to deal with like the one

place you're going to deal with the real

pain of the leftover effects of

inflation are going to be the fact that

you're starting to see at restaurants

people finally start pulling back one of

the things the beige book told us

yesterday is that people were starting

to pull back on restaurant spend that

restaurant spend was was flattening and

basically every kind of eating out was

was slowing down and flattening uh and

uh on top of this idea of restaurants

Ben flattening you have higher food

costs you have you have wages that still

are playing catch up right and I don't

think that actually ends up leading to

any kind of you know wage price spiral

that we've totally missed a wage price

spiral in the cycle but it does lead to

pain for companies like McDonald's but

let's just look at McDonald's for a hot

minute here okay so if I look look at

McDonald's for a hot minute what I'm

gonna do is I'm going to look at the

valuation of this company it's probably

going to piss me off it's been a while

since I've looked at it but you know

what we should be real and go look at it

for a month so what do we got here so

McDonald's is looking at generating

11.54 of eps the sucker's trading for

275.44 divided by 11.54 that puts you at

a 23.86 peg okay 86 those patties

McDonald's you guys are about to get

screwed it's just my take I could be

wrong uh but anyway that means for

McDonald's

23.86 okay and we're going to save that

and what we're going to do is we're

gonna go we're going to look at the

growth rate that's for the end of this

year growth rate going forward 7.8 8.6

10.3 12.5 I think it'll be less but

whatever that puts you at 39.2 uh as a

as growth over the next four years

divided by four nine point eight percent

uh average growth expected compounded

annual for the next four years okay

23.86 divided by 9.8 that's putting me

at 2.4 Peg paying a 2-4 Peg for

McDonald's

why it's because it's seen as an

inflationary safety play people still

see it as a play that suggests a world

of inflation's high people are gonna not

be able to buy miso Sham in a cheesecake

and they're gonna have to forego on that

beautiful sweet brown bread which is

just molasses dyed white bread and

they're gonna end up having to suffer

McDonald's

so it's some institutional hedge okay

this is in contrast to a company that

actually grows uh and that's going to be

a company like Tesla which Wall Street

expects to grow uh somewhere around you

know 20 29 per year I think that

estimate quite frankly is on the low

side but whatever it's in contrast to a

company like this or a company uh like

uh like a uh like an end phase which is

basically selling in like Value World I

mean look at you really want a true

comparison you look at you want to know

the cheap ones right now the cheap ones

right now

on a PEG ratio basis that are actually

growing companies that matter that

aren't just inflation Hedges uh that are

companies that benefit from interest

rates going down the the list of the

cheapest ones simple okay so I'm going

to sort this I have a thing called the

kpeg it's basically the Kevin's adjusted

growth rate and then the peg we talk

about it in the course member live

streams anyway the cheap ones uh end

phase ubiquity TSM all of them under one

with a kpeg uh actually mostly right

around one with a regular PEG ratio as

well

Etsy PayPal ERJ AMD uh surprisingly

actually Nvidia meta Disney although

Disney you have to be careful about all

of those under 1.5

Tesla's like a two you know but but

that's that's also being generous with

you know well I should say conservative

with the growth 30 to 35 but McDonald's

just ripoff man anyway so I think it'll

suffer just like the rest of these

suckers uh that we've expected that the

Staples will end up suffering again the

reason people are in the Staples is

because they see these suckers as an

inflation hedge and uh the days are

numbered again

have done well here's the chart of

McDonald's they've done very very well

it's very upsetting to me because it

means I was wrong but I'll be right

eventually

so anywho uh oh Starbucks that's a

really good question so you know I

actually the thing about Starbucks is I

find that they're expensive uh over

eighty dollars they're at 95 bucks I've

actually personally been waiting for

Starbucks to come into like the 80 price

range but the reason I was excited about

Starbucks going into the 80 price range

was because I thought I would be able to

pick up a good deal on Starbucks uh

around 80 bucks and then have cheap

exposure to China because Starbucks like

covertly doubled their restaurants their

stores right their coffee shops in uh in

China during the pandemic like nobody

paid attention to this and they just

like overnight it feels like doubled

their stores in China problem is now

China is basically in the dumps so you

know that that is now less desirable

even less desirable which is not great

because it's kind of like wait a minute

crap that's what you wanted uh you know

Chipotle I will say they have managed to

really hold up I think I'm not going to

invest in them because I still think you

have some like a staple exposure here

but they have the growth they really

have the growth uh you look at their

growth rate you're projecting a growth

rate at this company uh

21.6 over the next few years which is

really really incredible uh if I take

their EPS 1954 let's see here

1954 projected Wall Street EPS uh my

numb lock turned off what is going on ah

Kevin there we go 1954-12 divided by 43

38 uh divided by 21 but she had 2.1 so

still still a little up there you know

I'm okay like up to a two I think things

get sticky like apple ran up to a three

for a while there and I think they're

actually still around like two eight

it's too expensive that's why I had to I

had to reduce my exposure to Apple it

just got way too like once these numbers

these pegs get too high I'm like yeah no

thanks paying way too much money for

growth but then I also have to figure

out what industry they're in and what

potential for more growth there is after

that so anyway thanks so much for

watching this segment check out uh

stream yard by going back kevin.com

streamyard and we'll see you actually

why not advertise these things that you

told us here I feel like nobody else

knows about this we'll try a little

advertising and see how it goes

congratulations man you have done so

much people love you people looked up to

you Kevin path right there financial

analyst and YouTuber meet Kevin always

great to get your take