Why Stocks TANKED Today | *2 New Dangers*

Hey everyone, me Kevin here brought to

you by Extra. Go to metkaven.com/extra

to learn more. All right folks, so

something wild happened today. We got to

talk about what James Bullard, the

president of the St. Louis Federal

Reserve, had to say today and the

potential warning sign that is starting

to brew the market. We just had an

inflection point on something very, very

important that very few folks are

talking about. So, we're going to talk

about that towards the end of the video.

But first, James Bullard, president of

the St. Louis uh Federal Reserve, a

voting member of the Federal Reserve's

open market committee. Uh that's the

body that votes on how much and when to

raise interest rates, how much and when

to offload the balance sheet. Well, this

morning in a discussion with Bloomberg

News stated that he now supports raising

interest rates by 1% by July 1st. Now,

given that the July Federal Reserve

meeting isn't until July 27th, that

actually means Bullard supports rates

going to 1%. and forget about a quarter

of a percent or half percent to 1%

within the next three meetings or

potentially even sooner. So right now

this on sort of a base case scenario

implies three successive hikes likely 50

basis points or half of a percent in

March followed by a 25 basis point

increase in May and another 25 basis

point in June. He also says that the Fed

should remove ACU accommodation for

markets as soon as possible because

right now we're actually still

stimulating and 1% rates are still

accommodated, but we are still

stimulating. We're still printing money

right now, which is just nuts.

Meanwhile, the Fed is so far behind the

curve on inflation. Companies have lost

faith and now they're raising prices

more than ever before, more than last

year, at least what we're seeing in Q1

because they have to. They're behind the

curve. The supply chain and transitory

inflations arguments aren't really

keeping up right now. So there's now

this possibility because of what Bullard

implied about maybe even an inter uh

interpolicy meeting. There is this

possibility that the Fed will call an

emergency meeting. And this is what's

really spooking the markets today. And

this is why we're seeing a lot of red in

a lot of different stocks. Even though

Bullard says he doesn't believe in the

Bill Aman shock and awe approach,

Bullard suggests that we could have an

intermediating move which basically

could mean jacking rates up

instantaneously to 1%. Now Jerome Powell

usually doesn't like doing that. So if

there's any good news here, it's that

JPOW likes steady eddy and

predictability at the Fed. This has been

his promise that they're going to

communicate more clearly. if things

change, they're going to communicate

these clearly and and well in advance.

That's always been the goal of the Fed.

But unfortunately, well in the well in

advance have left has sort of left the

Fed lagging a lot. Now, think back to

the last time the Fed did something

really unexpected. You go all the way

back to the beginning of March, the

first week of March 2020, and that's

when the Fed sent interest rates from 2%

to zero instantaneously on a Sunday.

Totally unexpected move. It is. That was

the day before I called up my lender and

I'm like, "The Fed just dropped rates to

zero. Please refinance everything before

other people go in, which was great

because then I got my money by like the

beginning uh end of March, beginning of

April, which was the perfect time to buy

the dip in March of 2020. But now times

are different. Now, you know this, I'm

not the biggest advocate right now of

buying the dip because I'm worried about

this kind of pain continuing. But let's

think about what this could mean. If the

Fed ends stimulus all of a sudden out of

nowhere and jumps interest rates in an

interparty meeting, the stock market

could be in for quite a bit of a

shocker. Now again, hopefully that does

not happen. I want to be bullish in

that, hey, we can get to that soft

landing, but I'm I am really worried

that they're just playing the violin for

us on the Titanic. And I just want to be

transparent about that. Now, we've got

to talk in addition to what we just

talked about with the Fed, we got to

talk about another dangerous warning

sign that just happened. And I hate to

sound like Dr. Fud, but I'm starting to

get to the point where I just may have

to embrace it. I'm Dr. Fud and I'm

writing you a prescription of caution.

But first, so folks, let's talk about

this other boogeyman in the room and

what the market is doing right now. So

yesterday, the market had priced in only

a 24% probability of a 50 basis point

rate hike. Today, following Bullard's

craze and this terrible inflation uh

report that we got this morning, the

market is now pricing in a 99.6% 6%

chance of a 50% or a 50 basis point hike

uh in March. They're pricing in a 100%

of a probability that we'll hit 1% by

June. Now, Bullard is a hawk, so maybe

they're getting a little ahead of

themselves and maybe that means we'll

have some green ahead because again,

Bullard is a hawk. Uh he's not as dovish

as some of the others who have come out

uh like Marie Daly who tends to say,

"Hey, you know, maybe we'll only need

two rate hikes. Maybe it'll all be okay

and we'll have that soft landing." Uh

but the market's pricing this in. We're

seeing the red and there's another

boogeyman that we have got to talk about

and this has to know has to do rather

with the wage price spiral. This is when

the price of goods and services rise and

workers end up demanding more money. As

long as workers have pricing power,

their real wages tend to rise. That's a

really interesting note. Think about

that. If workers have pricing power,

real wages go up. So, we can now study

the inverse. If real wages are going up,

that means workers have pricing power,

right? And most of us would agree

workers have pricing power right now.

And this all comes from the IMF's

working paper on wage price spiral. It's

an older paper. It's not from uh it's

not from recent times here, but it tells

us what to identify or what to look for

to identify wage price spirals starting.

And they say that wage price spirals

start to happen uh when businesses seek

to increase or maintain their profit

margins by raising prices and employees

or workers seek to maintain their real

purchasing power by demanding more pay.

And so this is what's really

interesting. If you look at what Kathy

Wood told you just a couple days ago, uh

she said, "Oh, year-over-year inflation

data is 7% and year-over-year wage

growth is 5.6%." That means real wages

fell. That means workers don't have

pricing power and we're heading towards

deflation. Well, unfortunately, we've

got bad news for Kathy Wood because we

got the January employment report and

today's inflation report. Both of them

had something scary in it that folks

aren't talking about right now. The CPI

report said that wage earners saw their

wages increase 8.2% over the last 12

months. That means real wages are now

growing by about 1%. 8.2 2 minus where

we are now 7.4 four threeish somewhere

around here 7.5ish with inflation

somewhere between 7 to 1% of real wage

growth which actually means individuals

purchasing power is growing and the IMF

tells us if individuals sorry wage

pricing power uh the IMF tells us that

if wage pricing power is growing we

could be at the start of a wage price

cycle and that's a boogeyman that

markets might try to unfortunately start

pricing in see we also had the jobs

report about a week ago that told us

average hourly earnings increased 23

cents in January or 8.8% month

overmonth. Reiterating this about 1%

increase in purchasing power. And now

real wages are actually growing more

than inflation despite the fact that

inflation is so high. This is dangerous

because it indicates the start of the

wage price spiral, which unfortunately

could self- sustain high inflation until

the Federal Reserve finally comes out

and ends this nastiness by properly

raising rates quickly. And it's going to

be quite a bit of rate increases that we

need because individuals still have more

cash balances, so they don't necessarily

have to borrow. And unfortunately, when

we get the first rate increases,

variable rates and lines of credit are

likely to see their rates go up, which

means actually input costs at companies

could go up before demand goes down to

end the wage price spiral and just

inflation in general. Now, I know this

is a lot to take in, but there's even

more because there's this this thesis

that well, supply chains will just

resolve themselves. And this is where we

end the video, right? Supply chains are

going to resolve themselves and

everything's going to be fine. But the

problem is the Wall Street Journal on

the front page today says Toyota and

Honda see lingering shortages and they

believe that supply chain issues will

actually stretch throughout the year

without getting better. As a result,

you've got insurance companies that who

are also struggling for the same parts

as manufacturers like Travelers,

Progressive, Keer, and State Farm. All

of them are raising their prices. That

by the way is right next to that

article. Car insurers rush to raise

premiums. State Farm in just the last 6

weeks has raised rates 2 to 3% in just 6

weeks. That's a lot on an annualized

basis. Progressive uh says they've

raised rates 17% and Keer is raising

premiums 11%. But they've only raised it

so far on 50% of their customers. So

they still got work to do. That means

more price increases coming. Now there

is some light. There's some positivity.

Uh and that for example was buried in

the B section of the Wall Street Journal

where hey, you know, Toyota's challenges

aren't just supply chains. It's because

they're transitioning. They're going to

electric vehicles. And you know, we want

to go green. Unfortunately, going green,

it doesn't really matter what the reason

is. Going green or EVs or whatever all

contribute to more complicated supply

chains, rebuilding new supply chains.

This stuff tentatively is expected to

take a lot longer than we expect. We

even know that companies that supply

Apple are complaining uh that they do

not have enough wafers or that they're

completely booked out of wafer supply

for the next 5 years already, which is

just wild. Now, we do expect to hear

good news from the big players, right?

Apple, Amazon, AMD, NPhase, they've all

seen some improvement in chip supplies,

which is really good. Part of that could

be because we saw crypto prices fall.

Nphase got their hands on more A6, which

is great. But supply chains improving.

While that is hope, I'm worried it's

justopium. If consumers end up with more

purchasing power because of the wage

price spiral, supply chains getting

better might not actually matter.

Consider this folks, omocron was

supposed to slow travel and spending.

What actually happened on a

month-over-month basis? So multiply them

by 12 to get an annualized rate. Coffee

is up 2.7%. Furniture is up 3 to 3.6%.

Dishes are up 4%. Apparel is up 1% which

is that's on a month-to-month basis. So

that's 12% annualized. Specifically,

girls clothing which is up like 33% on

an annualized basis. Video and audio

products up, pet products up,

recreational products up, appliances up,

holy smokes. The more good news we get

from earnings, and we talked about this

a few weeks ago, and this is the bottom

line. the more good news we get from

earnings that people are spending more

and more money and the more news we get

that real wages are actually now rising

increasing people's purchasing power the

longer this inflation boogeyman is going

to stick around the more we're going to

see 10-year treasuries bob up over 2%

and potentially start running towards

what people say is a cap of maybe 2 and

a half% but what if it's not so I hate

to say it but we've got some issues I

know this isn't the most bullish video

but this is all I Yeah, I really hope we

go back to the moon at some point. We

hit that soft landing, but I also want

to be very realistic and hopefully

that's what you keep coming here for is

realism. Thanks so much for watching and

we'll see you in the next one. And make

sure to go to metaven.com/extra

to learn more about that extra debit

card. Thanks so much folks. Bye.