Watch *BEFORE* The Fed FOMC Minutes [2pm]

today the fomc minutes get released for

the February 1st Federal Reserve meeting

there's a lot of concern and

tentativeness that the Federal Reserve

meeting minutes are somehow going to

show some sort of substantially more

aggressive Federal Reserve honestly I

hate to say it but I think that this

Federal Reserve minutes set is complete

nonsense that's because mostly we

already know what Jerome Powell told us

and I'll provide you a rough summary now

but we also know that these minutes came

from before the noisy data that we got

from January noisy and hot jobs data

noisy and hot CPI data noisy and hot PPI

data noisian hot pce data and of course

hot retail sales data and jolt's data

yeah literally every report was pretty

damn hot in January but this meeting

happened before all of those reports so

of course we know just like when things

are trending down one month doesn't make

a trend when things are trending up one

month doesn't make a trend in terms of

reports and maybe the seasonal

adjustments are going to be so hot for

January that hey you know what February

we'll be right back to sort of a hope

for disinflation my belief is things are

going to be very noisy very very

volatile this year long term I expect

substantial disinflation and I just hope

the Federal Reserve doesn't overdo their

hiking but today people are going to be

looking for clues for exactly this what

kind of recognition of the potential

risk of over tightening is the Federal

Reserve providing us that's probably the

biggest red flag that I want to be

looking for in today's fomc minute so if

I sort of had to write down what I was

looking for my number one most important

thing today would be indicators of fear

of over tightening remember Jerome

Powell was the one who originally told

us hey if we over tighten we can always

just loosen again rapidly but then he

quickly followed up with that by saying

ah you know but then again this was

about a month later you know we don't

want to create a tremendous amount of

economic pain and hardship for

individuals as especially amongst those

least able to Bear it in other words

lower income consumers who are already

the ones suffering the most from this

insane inflation that we've been dealing

with now yes their wages have been

rising more but that doesn't help when

literally everything is ridiculously

more expensive especially for the lower

income individuals including food and

rent so my big thing is I want to look

at the risks of over tightening and

potentially the fed's willingness to

overdo it really hurting lower income

consumers the most remember American

Express tells us wealthier people the

ones spending through the recession not

poor people but then again American

Experience generally caters to a higher

income demographic where companies like

synchrony or Citibank or a farm are

generally catering to a lower credit

score and lower credit audience as a

result higher default rates higher

credit loss reserves and really more

concerns that uh oh maybe we're not

actually being compensated enough for

the risk we're taking that's leading to

a tightening of lending standards and

even what you saw at a firm the buy now

later company that obviously generally

appeals to a lower income demographic

uh buy now pay later company a firm

suggesting that hey we need to raise how

much we're charging for these loans

because we want to operate a profitable

company and we're realizing oh we're

starting to lose too much money on these

loans this is a problem so what did the

Federal Reserve have to say about the uh

uh you know sort of in their last

meeting and what could we expect as a

preview today well I want you to

remember what the Federal Reserve

started by talking with Jerome Powell

came out and said the following quote

the full effect of our actions are yet

to be felt even so yes there still is

more work to be done so what he's

telling us is very clearly the FED is

acutely aware that there is a lag some

form of lag we don't know what that is

is it three months six months 18 months

who knows to their monetary policy and

so yes there's still work to do to get

inflation down but how much of that can

just occur by us holding or being closer

to potentially pausing or right now

what's most likely in most priced in is

that we're just looking at 25 BP hikes

so we go 25 in March we go 25 in may we

go 25 in June if we need to we just beat

data dependent and patient but the

biggest thing for me today is again how

willing is the Federal Reserve to ruin

the lives of poor people that is your

biggest tell Jerome Powell in the last

meeting told us that higher mortgage

rates continue to a weekend housing

weakening housing in my opinion is

actually one of their big goals housing

weakening is great for the FED because

you're basically just taking away from

richer people

biggest tenants are substantially poor

like 20x poor than homeowners generally

on average so let's take away from rich

people by crushing housing I personally

believe the FED doesn't care so much

about crushing the stock market they

want yields to be up and so far they've

actually been engineering this perfectly

yields 10-year yields for example while

it went down to about 3.39 for a hot

minute but popped right back to 3.94

we're almost we're knocking on the door

of nearly four percent on the 10-year

right now it's insane you look at the

two-year I mean some of the numbers

you're getting right now are knocking on

the door five percent it's crazy

Financial conditions are very very tight

and if if the housing market can solve

it that should drag everything else down

not so true as Princeton Economist

Robert Schiller has told us for the

stock market now keep this in mind drum

Powell does realize that yes there's

some signs of wage growth easing but

we're still out of balance job vacancies

are very high so we know that he gave us

that heads up but he says despite job

making sees being high and even after

the hot jobs report came out Jerome

Powell's response was hey you know what

Financial conditions already responded

and tightened that doesn't necessarily

mean we have to do more that's what he

said in an interview uh with um Mr uh

Ruben Dave Rubin the day after the jobs

report it was fantastic uh so really in

my opinion I'm just expecting a

reiteration of just hey look we're going

to keep it slow and steady 25s 25 25-25s

we don't want to cause unnecessary

hardship any kind of indication like

that to me is is somewhat bullish and I

like to say somewhat bullish because I

think we've already tightened

potentially too much

um but uh but anyway uh Jerome Powell

also and it's fascinating to go back to

my notes I love going back to my notes

because you pick up things differently

than you do the first time around but um

you know he talks about this idea that

our policy should reflect Financial

conditions which in his words quote have

already tightened significantly now

their belief is that they still need to

raise a little bit to get policy rates

to be somewhat in line with those

financial conditions that's pretty clear

but we don't got to go too far because

remember there is that dual mandate uh

and so of course regarding the terminal

rate they haven't decided yet for March

and may that's fine we expect to see a

reiteration of that because we're going

to get a whole nother set of data in

March here uh now the other thing is

this is probably the biggest thing for

the Federal Reserve is they say it's

very difficult to know if we've done too

little and they're very cautious about

prematurely loosening and so this is

fair I do think when Jerome Powell tells

us the disinflation process has started

and M2 money supply is falling and wage

growth indicators and the the Embers of

inflation are showing that they're going

away I do think it's clear we're going

to have higher rates for much longer but

I do think we're leaning towards that

pause pretty soon now that's not to be

confused with a Fed pivot right the

fed's certainly not going to cut rates

until we actually see confirmation that

inflation is falling and remember every

time I bring up the pivot it's important

to remember the famous words this time

is different the most

famous dangerous forwards uh in

investing however

the reality is If the Fed actually Cuts

rates this time around they're doing so

because their convinced inflation is

basically going away right uh and

they've potentially just gone too far

but anyway big thing uh for the Federal

Reserve on on their forecast is hey look

still some work to do but we want to be

very very careful that we're not

unnecessarily crushing jobs and Jerome

Powell told us about the wage price

spiral that looked so far so far any

fears of a wage price spiral are

actually becoming less Salient that

there's less evidence in the surveys

they're doing and the monitoring that

they're doing uh that there are the

conditions for a wage price spiral are

actually present instead we see a drum

Powell who says look we see Goods

deflation we see housing deflation and

then we're not we're basically neutral

on service inflation that yeah look we

hope he says we hope that the

disinflation process that we've seen in

goods and housing will carry over to the

core Services segment X housing and he

believes that we will see that very soon

that process begin he does say look I'm

neither optimistic nor pessimistic but

his suggestion is look we should see

that disinflation process starts soon so

let's be patient we're as long as we're

not cutting we're potentially not over

tightening right so that's what I expect

is a stable neutral fed in these minutes

that come out today that don't

necessarily give us any cause for alarm

if anything they'll give us cause for

patience and I think that's the most

important thing to have in the market

right now because again that Nike Swoosh

is going to be very very volatile

because there's so much fear or

uncertainty and doubt that pops up

especially around every time the Federal

Reserve farts or says something uh but

but a few big things to really take away

from this number one I don't think

today's minutes really matter that much

because I think the Market's just going

to Discount the fact that that happened

before

uh the release of all the crazy negative

reports that we got however if you're

looking for something bullish look for

potential indicators that the FED fears

over tightening we already know they

fear prematurely loosening that's okay

though the solution to that is easy you

just stay level like you just get to

five and a half percent or five and a

quarter percent or whatever just stay

there and wait uh that's that's the easy

part and we've got potentially three

Cycles but they're like three fed

meetings to do so and that actually

gives us a February data March data

April data May data uh that's four

months of data before the June meeting

which would really take us above uh the

average of of where the Fed was

expecting to go in December got plenty

of time for data so really the big thing

is what can you do to remove this idea

from markets that oh that's it the fed's

gonna somehow all of a sudden uh Paul

volkera so we're gonna get 50 BP hikes

again and we're gonna go back to 100

basis point hikes I don't think they're

trying to send that signal volatility in

fact I personally think that would

actually hurt their credibility that

they would rather stick with the 25s

because they don't want to be seen as

changing their minds too often they want

to be seen as no no this is we're on the

right path remember when drone Powell

came out I think it was uh was it

December I think it was the December

meeting yeah man it's like he suggested

oh yeah the the soft uh CPI reports

we're seeing you know we saw in November

and October oh yeah uh we we expected

those you know it's kind of like okay

they're trying to make it seem like

they're still very much in control and I

think one of the best ways they can do

that is by exhibiting patience but also

by making it clear that they don't want

to cause unnecessary pain that they'd

rather be patient at a certain level

than just getting ridiculous and and

Paul volckering us when it's not

necessary now of course and I think they

can massage these minutes after the fact

the one place the sort of the other

place that I would be looking is are

they trying to massage any kind of

messaging about inflation break evens

that might be a little bit more

concerning giving given that inflation

break evens have been popping up on the

right side though you know even though

we've had this run-up in inflation break

evens mostly on the backs of the January

data you know I'd suppose if there's any

kind of optimistic way to view this you

could you could try to view this

optimistically and say hey look okay

it's noisy but it's still a ballpark

downtrend right or you could even say

Hey you know whatever it's it's stable

look we could just Channel this see look

okay look even the channel trend is

slightly down just wait for some more

disinflationary reports and that goes

away so I think there are ways to talk

that away and the Federal Reserve might

do them but bottom line out of all of

this I'm not terribly bearish on the

fomc minutes today to me honestly the

fact that we have minutes coming out

today is slightly a bit of an eye roller

uh but hey you know what if we could

take anything away including fears of

over tightening I think that would

actually be a a bullish element so we'll

see but anyway those minutes come out at

uh 11 A.M Pacific time so uh buckle up

yeah what will happen if we return to a

75 BP hike no no no no no no like I I

there's no way uh and I mean let me just

put it this way I think you're probably

looking at like a less than one percent

chance that can happen because really I

think the feds in this this mindset of

if we send the signal that we're

changing our minds then they will lose

whatever credibility they have left

because it will send the signal to

markets that things are out of control

uh and that the Federal Reserve is

incapable of doing their job and then

you will literally send a signal to

markets that oh damn uh we're going to

need to get Paul volckert uh and I don't

think that's necessary right now because

the leading indicators are not

suggesting that as we've talked about

with the M2 money supply as we've talked

about with with uh uh you know leading

indicators I I think I don't even think

there's a likelihood of you seeing a 50

BP because again it changes The

credibility of the FED they're they're

kind of thick 25 25 when they pause like

when that pause actually happened

they're going to be willing to stay

there for a while I'm not expecting Cuts

anytime soon and neither is the bond

market anymore originally we were

thinking Cuts maybe at the end of this

year that's been pushed off to next year

and also the idea that of a recession

this year has somewhat been delayed so

uh uh so what if they do a psychological

hike and cut wait what do a psych hike

and see but no no no that's not what the

fed's trying to do like they're not

trying to psychologically you know f

with you uh like they're trying to be

very clear about their messaging and

then do what they say they're going to

do right they don't want to send

volatility because that's how you break

things it's literally how you break

things like the financial markets are

very fragile and what you don't want to

do is start like throwing around Stones

like the fed's kind of walking through a

glass house right now and you don't want

to happen what happened in the United

Kingdom where you break the bond market

and the Federal Reserve has to bail out

markets it's the last thing the FED

wants to do right now because then you

could get your double dip of inflation

or or sort of your your double bump of

inflation and a double dip crash right

so the last thing the FED wants to do is

is like start throwing stones and start

being like a loose cannon here that's

that's not that's not at all remotely

the the indication of of what the

federal reserve's goal is whatsoever I

don't see that at all who knows I could

be wrong at least I'm willing to make it

willing to make a point here and uh

really you know what I think suffers the

most from higher for longer it ain't

stocks folks it ain't stocks stocks will

be I so strongly believe stocks will be

totally fine once we're convinced that

the big problem of a potential Paul

volcker goes away that's the biggest

fear I think markets have I don't even

think markets give a crap about the

potential for a recession or negative

EPS I really don't think that's what

people really care about not at all why

do I not think that well I don't think

that mostly because the fed or markets

care most about these potential

exogenous shocks of getting a Paul

volcker right that that you end up

having to absolutely destroy markets uh

that I think is what the market is most

worried about and most hedging for a

slight recession whatever man okay so

Staples are going to have negative

earnings GDP slightly negative whatever

the Smart Companies will go will just be

investing and using it as an opportunity

to build right my belief could be wrong

but it's my belief so what actually gets

destroyed when in the higher for longer

element real estate housing housing is

where the sh9t show shows up because

that is directly affected by rights

substantially so higher for longer when

you hear that

like it's like when the FED pauses and

we're at the higher for longer level or

even we're doing these nominal 25 BPS

this is a sign the fed's in control

slowly getting the inflation out of the

system things are looking better and

better and better as time goes on like

the trend is going in the right

direction just gonna be patient here

that patience ruins real estate it's

actually good for stocks there's a

reason we're off the lows because the

the fear of of uncontrollable inflation

is going away of course January

reactivated some of those fears but

that's okay we expect that sort of

volatility uh you know Carlos here says

dream on if you believe in two percent

inflation see but your problem is you're

not actually referencing a time frame

here I don't think the Federal Reserve

thinks inflation is going to go to two

percent this year sure that might be a

dream but that's because it takes time

for inflation to fall out of the system

I mean look how long it's taking for

rent inflation to go to work its way

through the system rent inflation's

still going up and we already know the

current data is saying it's plummeting

so it takes a long time for this data to

actually show up such lagging garbage it

sucks but look when are we going to go

back to two percent inflation who cares

it could be 26 27 28 29 doesn't matter

as long as we're trending towards that

I'm a big believer that the that stock

markets can go from hedging for a new

Paul volcker to

of recovery the slow Nike Swoosh

recovery we don't actually have to get

back to two percent remember folks they

could pull hat the the

um uh the the Fate Genie out of the

bottle right flexible average inflation

targeting we could we could literally

have a 10 year cycle folks of inflation

above two percent and a 10-year cycle

before the pandemic of inflation below

two percent and guess what the FED does

oh look the average was 10 or was two

percent over a 20-year period like hello

yeah so so there's uh like this this

this idea that oh yeah we're not gonna

stop until we get two percent man

everybody's forgotten about fate and and

the patience that's possible but again

that patience screws housing so my

belief about housing and this is a very

important one I want you to like you

know this is I really believe this I

believe you are better off not buying

real estate where you think the bottom

is like right here I think you're better

off focusing on real estate when you

have absolute confirmation that you're

not actually double legging down right

so in other words I would rather buy

real estate here than I would buy real

estate here even though that's roughly

the same level I would rather be patient

because I I think that as as long as

these 10 years sit around four percent

we and we might be here with some silly

January and December data and I think

that's what's ahead of you uh and that's

solely looking at the 10-year and what

we're seeing in terms of the potential

for year-over-year fear rents and uh

institutional liquidations so uh anyway

when was it set in stone we needed to be

at two percent well I was actually

really the problem that was the fault of

the FED uh they they uh over the last

three years they've basically massaged

that into markets uh you know back in

the 70s actually the late 80s what am I

saying but after Paul volcker the

Federal Reserve utilized a strategy

known as opportunistic disinflation and

they basically just took their time to

get back down to uh two percent

inflation and that time was somewhere

around 25 years uh to get back down to

uh two percent inflation so it took took

a dramatic amount of time it's really

incredible