Critical Fed Indicator JUST Flipped & China's Coming DISASTER for Inflation.

the bond market is pricing in a federal

reserve a U-turn and some massive new

catalysts have just occurred including

what just happened to the two-year

treasury yield what is China's inflation

going to look like how large is China's

inflation going to be relative to what

we saw in the United States we have

answers to exactly that in this video

we'll also talk about China's population

problems and we'll talk about the issue

the Federal Reserve faces but the

potential good news we have about Supply

chains combined with some bad news on

CPI a lot to cover in this video let's

get started right after reminding you

January 30th is around the corner make

sure to use that last coupon code ever

where you're moving away from the

couponing strategy check that out you'll

get the best price guaranteed

for sure for at least the next three

months if not even longer so consider

those programs on building your wealth

link down below lowest entry place is

close to 300 bucks so it's not actually

that much check it out we'll see you

soon right now markets are pricing in a

38.6 chance of

a pause yeah a

38.6 chance that on February 1st the

Federal Reserve ends up pausing that is

in contrast to a 61.4 percent chance

that the Federal Reserve hikes rates

0.25 with no probabilities assigned to a

50 basis point hike none at all and this

is really the bond market once again

telling us the FED is being too

aggressive it's time to dial back

expectations on the FED there was

actually uh well we can actually look at

uh what what Futures are indicating the

Wall Street or the financial times

rather did a great piece on this uh

Financial Times here just reported that

the Futures Market indicates that the

FED won't even make it to five percent

instead not only won't they make it to

five percent they'll probably cap out at

about 4.75 percent but

by the end of the year according to the

financial times the Futures Market is

pricing in at least a half percent of

cuts and by the end of 2024 the FED

funds rate will fall down to 2.8 and

when you look at the depth of the

inversion of the yield curve

historically we are pricing in that by

the time the FED is done cutting rates

we will be right back at zero now the

FED might not be done cutting rates

unless something massively breaks until

potentially 2026 which means we could

really be going through 24 25 26 we

could be going through three years of

rate Cuts unless they break something

and are forced to drive down uh rates

lower but I expect that they'll slowly

trickle down rates and that's exactly

what the bond market is expecting as

well of course you do have individuals

like Michael burry who say that well yes

we might see even a half a negative half

percent of deflationary figures in CPI

this year which could actually end up

leading the Federal Reserve to cut rates

this year as the bond market is pricing

in but don't get too excited we'll end

up with a second wave of inflation says

Michael burry and that'll end up leading

the FED to have to raise rates again

just like they did after the 70s level

of inflation were they lowered rates and

then ended up popping back up to uh to

have to raise rates again in the early

80s but this time because they had

broken inflation expectations they had

to raise rates more aggressively now I

somewhat dispute this mostly well

partially because of Hope but also

because uh the quote this time is

different oh gosh neither of those

actually sound like good reasons no 70s

inflation was substantially different

from the inflation that we face today no

matter how you slice them we had just

left the gold standard uh in the early

70s and we just ended up removing price

caps from the administrations of the

late 60s and early 70s that led prices

to initially soar around conveniently

the same time as we had left the gold

standard which led to this belief that

oh we're about to turn into the Weimar

Republic and there was no precedent for

the FED actually ever being able to

control inflation

on a Fiat currency because it had never

been done before in America in fact the

only history we had to look at in the

70s was that every single currency that

has ever existed has failed so of course

inflation expectations uh were at least

somewhat unanchored in the 70s we don't

have that problem today now it's

possible that problem could come back

but it appears that whether you look at

consumers or you look at the bond market

the belief is that inflation should

continue to Trend down now we do have

five-year break-even inflation rates

which are somewhat volatile they're

sitting at about 2.29 right now they

were as low as 2.19 a week ago I was

hoping that downtrend would continue

because I personally think inflation

Break Even expectations on the five-year

need to go down to something like 1.5

1.6 before the FED actually Cuts however

we're well off the 3.6 where we have

been previously and we're on a straight

downtrend despite the sort of daily

volatility that we get on the five-year

break even going back though to the

financial times we can see that the

financial times argues that one year U.S

inflation swaps are only pricing at 1.7

seven percent that's the lowest level in

more than two years and the one year

Break Even inflation rate stands at two

percent potentially indicating that

inflation might be down as low as two

percent by the end of next or at the end

of this year and so the market as they

say genuinely believes that inflation

will come down more quickly than the

Federal Reserve actually expects it to

now uh of course the Federal Reserve

says hey we don't want to repeat the

mistakes of the 70s or the 80s so as

Christopher Waller says quote we do not

want to be head faked inflation is not

just going to miraculously melt away

it's going to be a slower harder slog to

get inflation down and therefore we have

to keep rates higher for longer and not

start cutting rates by the end of the

year this stands in large contrast to

the market so now how is it possible

that the market could be pricing in Ray

cuts when you have individuals at the

Federal Reserve saying we're not going

to cut by the end of the year well this

is possible because the Federal Reserve

is between a rock and a hard place as

soon as they say or in any way indicate

or suggest that they are actually

agreeing with the market that they might

cut rates by the end of the year which

even if they say they won't right now

they still can right they have the right

to change their mind just like you and I

have the opportunity to flip-flop so

as soon as the fed and this is The Rock

and Hard Play situation the FED

obviously now in control of driving the

ship towards inflation plummeting but as

soon as the Federal Reserve suggests

sure yeah you know maybe maybe we'll cut

rates by the end of the year I expect

that they would set off one of the

largest not only stock market rallies

but they would actually end up setting

off a rally in the bond market now this

is important if bond prices rally up

because all of a sudden people say

that's it inflation's done let's take

our cash throw it into bonds what

happens is bond yields go down and when

bond yields go down because prices of

bonds are going up what ends up

happening well you end up doing what's

known as loosening Financial conditions

a lot of interest rates are tied to

interest rates in the bond market so

that could be credit card rates mortgage

rates uh it could be rates on a car a

boat a plane it could be a margin line

of credit for a company or a wholesale

line of credit all of these rates coming

down would loosen the stress on

businesses and people which is great for

us but actually runs counter to the

federal reserve's goals and all of that

could be set off in motion simply by the

FED yapping and this is why markets have

kind of started to look at the fed and

say uh

whatever you say fed we get it we see

you we hear you we see you

but we're over it

now of course there are absolutely still

real risks what are those real risks are

the fact that jobs and wage data have to

convincingly come in low essentially uh

no this isn't to say we don't want

individuals to start making more money

but it is to say that when that

employment cost index comes out for Q4

on January 31st we need to see that

we're not introducing any kind of wage

price spiral because that is not only

likely to lead to entrenched inflation

but it is likely to break inflation

expectations now one of the most

reliable indicators for the Federal

Reserve cutting rates is actually

fascinating and it has to do with this

thing called the two-year treasury bond

in relation to the fomc rate

now watch this this is crazy

so what you want to see here is that in

2004 the two-year treasury fell below uh

this is probably closer to 2005 actually

2005 the two-year treasury fell below

the federal reserve's fomc rate you

could see the two-year treasury actually

led the federal reserve's rates up see

that here how this blue line that's the

two-year treasury see how it's more

lumpy because it moves with the stock

market that two-year rate actually led

the federal reserve's rates up and it's

important to remember that the Federal

Reserve frequently follows what the bond

market tells it to do so even though

there's fluctuation once it became clear

that we potentially had hit AP care the

Federal Reserve happened to hold on

rates and they held without the two-year

ever breaking the fomc line again

and as the two-year treasury fell so did

all of a sudden rate Cuts start coming

now of course we fell into a recession

in 2007 8 and 9. but there was another

instance as well where if we look at

over here 2018 we could actually see

again the two-year lifting off over here

before the federal reserve's liftoff

two-year Peaks out above the Fed fomc

rate breaks on the hold and then what

the two years starts falling and sure

enough the FED starts cutting now what's

remarkable about this is if we pop up

over here look at what just happened we

we have literally had the two-year lead

the Fed Up and Away Up and Away there

has not been a crossover of the two-year

and the Fed fomc rate what just happened

the bond market did it again it said

rates are coming or rate cuts are coming

now it's not to say we're not doing this

right before recession in fact honestly

we're probably already in the recession

uh in fact if we look at last year we

already had a quote-unquote technical

recession two quarters in a row of

negative GDP unless of course somehow

that magically gets revised away or we

just had a really long and shallow

recession honestly I I don't really care

I am treating this situation as if we

are in a recession and in my opinion

that means increasing frugality

decreasing debt and working harder to

ensure that you could maximize your

income that is important in these sorts

of times but these Cuts or or I should

say this sort of dropping in the

two-year treasury it in my opinion is

one of the most reliable indicators that

we have suggesting that the FED is

trending towards this idea of flipping

and having to cut now another thing

that's pretty weird and and this is

another thing that sort of suggests If

the Fed keeps going here they might end

up breaking something you have this

Federal Reserve facility called the

federal repo facility and the repo

facility is supposed to be a temporary

place where

people well I should say money markets

not people but money markets Banks

institutions can park money overnight

and they can receive a yield on this

roughly equal to what the federal the

the fed's real uh uh federal funds rate

is now that Federal Reserve repo

facility has exploded in use since about

March of 2021 and there were some

changes here in liquidity and reserve

requirements at banks that actually

occurred on March 31st which perfectly

coincides with all of a sudden when

Banks started using the reverse repo

facility Well now we're sitting

somewhere at about two trillion dollars

of money sitting over here now there are

some problems with this uh and we're

gonna hop on over here to a financial

times piece where uh they make this

observation they make the observation

that investors are stashing an average

of 2.2 trillion dollars away at the

reverse repo facility and you might ask

yourself okay well you know why does

that matter well the reason it matters

is simple

instead of Institutions buying treasury

Bonds in a time of quantitative

tightening which remember if they buy

bonds that would increase prices in

somewhat lower yields but then it would

let the FED kind of dump more bonds

right so it lets them roll off bonds

that lets markets absorb those bonds

rather than that happening what's

actually happening is the Fed is

quantitatively tightening

but people aren't buying treasuries to

offset that when I say people I mean

institutions instead they're parking

their money into the overnight repo

facility because think about it if you

could earn 3.75 basis points in the repo

facility and you have zero risk it's

literally deemed risk free and not only

is it a risk-free investment but there

is no Market volatility right even

treasury bonds are considered risk

risk-free but you have Market volatility

not only do you have uh no Market

volatility in the repo facility but you

are risk-free so you have the benefits

that treasury bonds don't have which

have Market risk the FED repo facility

doesn't so institutions are like well

gosh okay we'll just park our money over

in the repo facility to some degree this

leads to a massive liquidity crunch in

the bond market and this is the one

place where investors suggest if this

continues we could end up seeing

something break in markets which ends up

leading to some kind of Black Swan

Catalyst where the FED has to swoop in

and bail out markets

basically support the the uh fiscal

Plumbing uh or the the uh the financial

system so to speak much like the bank of

England did and then that then either

ushers in back the normal era of

quantitative easing or or we potentially

reignite inflation by doing so and then

we end up proving Michael burry right so

there's some risks to that especially

since there are still other risks to

inflation that we need to consider uh

consider that um when we had uh the

earnings call for Procter Gamble which I

covered last week one of the things that

made me nervous about it was

oopsies we actually started seeing signs

of inflation still running hot for

Procter and Gamble now personally I

think there's a little bit of a risk

that Procter Gamble just didn't hedge

appropriately because they they said

they didn't or they had contracts roll

over from 2021 into 2022 so I'm treating

them right now as a little bit of an

outlier but they are an outlier that

says hey we're still dealing with

inflationary pressures I'm hoping that's

just their excuse for well basically

having bad earnings now Barclays had a

great piece on the market in the economy

and the fed and out of the piece one of

the most important parts for me was the

risk that CPI actually doesn't come down

now that's probably the biggest thing

we're not pricing in see we are pricing

in already that the housing sector is

going to roll over that's already priced

in to some extent into why we're seeing

the stock market go green right we

believe

that inflation is going to plummet

and there are a lot of spammers in the

Facebook comments on my live stream here

okay Can't Ban uh interesting for some

reason I can't ban them either well

ignore the losers who are chatting in

the chat there's no way I can chat while

doing this

uh that is impersonating me everybody

else chatting I respect but anyway

continuing on the big risk is that we

end up seeing uh in inflation from from

CPI shelter not end up showing up or we

end up seeing finance and this is why

the FED has to be tough right imagine

the FED loosens Financial conditions

much like I talked about and then all of

a sudden real estate starts going up

again and rents start going up again

well what do you have in a situation

like that a crisis you have a really bad

situation because the hope that we have

that inflation is going to plummet is

that and CPI is going to fall due to

housing and new and used vehicles which

I think it's I think we can all agree

that new and used vehicles are probably

going to continue their plummet

but if Financial conditions shift and we

start supporting shelter inflation going

up again that would be bad and I almost

guarantee you I would put money on it I

should say that one of the discussions

uh that uh that Jerome Powell is having

with his uh board essentially is the

idea that hey look if we end up

talking this market up and we end up

saying that all is good inflation is

coming down then you are going to break

any hope that inflation will come down

via uh shelter the anchor of inflation

uh through shelter that's a big deal so

uh these are critical things that we

want to pay attention to now on top of

this what I think is also really

interesting is uh the what the Eurozone

is doing but also what we've got going

on with China so we've got to talk about

these things too so let's take a brief

moment and uh look at the Eurozone so uh

in the Eurozone we uh we just had this

uh piece that was put out by zabin

zabina uh she is actually a board member

uh of the ECB the European Central Bank

this is a piece that she wrote in the uh

oh no I'm sorry she's an executive board

member of Deutsche uh the Deutsche

bundespunk okay not the ECB uh either

way she wrote a piece of in the

financial times basically talking about

how in the past they had to cut or they

had to have low rates uh to essentially

support what was too low inflation and

today they have to do the opposite right

that's that's where she starts fine not

a big deal but what we want to look at

is she says over here

this is very much what I've been talking

about as potentially that risk for the

United States look at that just listen

to this piece right here the

consequences of the significant Market

footprint resulting from our purchase

programs roughly 40 percent of public

debt is in the hands of the Eurozone

system and those issues are increasingly

visible collateral scarcity and markets

for German bonds is a significant

Distortion okay let me now try to say

this in English uh because uh you know

I'm not uh that would that is a mouthful

so

in English as we have less volatility or

as we have less liquidity in the bond

market we increase the odds of breaking

something both in Europe and the United

States much like what we saw in England

and this is a member of the Deutsche

bundespan telling you that we are seeing

the same problems that England saw to

some degree to a lesser extent obviously

and as the U.S faces in our bond market

and this is a problem because at some

point in the future we might have to

step in and start buying bonds again

right now the European

Banks RS or the European Central Bank is

expected to start

quantitative tightening by essentially

rolling off bonds much like the United

States is doing but that is going to

again reduce liquidity so

hopefully hopefully investors like you

and me by bonds is what they're saying

so they don't end up breaking something

but that breaking something is probably

the one swan uh or should I say Black

Swan that that everyone is concerned

about uh so we'll have to pay attention

to this dearly so all right let's

continue on so that's the uh that's the

European situation reiterating what we

have here the other issue is China and

this is this is another big one uh that

we have to pay attention to and this is

the reopening inflation concern remember

we basically went from zero covid to

full covid

China's economy as a result grew at its

second slowest Pace since 19 and since

the 1970s though GDP didn't come in as

badly as expected it came in at three

percent for 2022 instead of the 2.7

expected uh joblessness down to 5.5

percent retail sales actually beat

beating three months of disappointments

but China's population is starting to

shrink leading to longer term concerns

that China is going to slow down it's

the first time in 60 years that we've

seen China's population shrink

and we actually had 850 000 fewer people

alive in China than we did at the end of

2021.

we also only had

9.56 million babies born in 2022. that's

the lowest level of babies born since

1950 and this is in part uh well uh the

population decline is in part because of

low numbers of babies born but also

people leaving China 10.4 million

individuals died but remember we had a

population decline of uh of of one point

uh we had a population decline of 850

000 the uh difference between deaths and

babies born oh that actually is

somewhere close to that uh let's see

here let's do that number really quick

that's 10 point 10.41 minus 9.56 oh

that's about yeah okay that that

actually aligns with the 850 000. okay

in my opinion

people people dying doesn't fully

account for the difference in the

population in China I think there's a

higher likelihood there's also some

amount of individuals who are leaving

China and moving to different areas I

don't think China wants to send that

signal so it's unlikely that we're going

to see that sort of data come out of

China it's actually surprising that they

even give us negative data sometimes but

uh I wouldn't be surprised if there is a

larger decline actually happening than

we expect but anyway they are suggesting

it solely because less babies were born

compared to uh how many individuals died

uh now that gives you a little bit of

background on sort of the longer term

potential lid on China's growth uh

although China is doing better than

expected now and Bloomberg actually had

a great piece analyzing the potential

impact of China's reopening and this in

my opinion is probably one of the most

important pieces and the estimate is

that China's reopening could essentially

come with a 750 or 720 yeah 720 billion

dollar inflation bomb now I think this

is interesting because nimura Holdings

indicated that the Chinese households

have built up about 720 billion dollars

now 720 billion dollars in savings is

about one-third of what the United

States built up of about 2 trillion in

excess savings and part of that is

because China didn't offer stimulus

payments to people instead they offered

money to corporations to keep people

employed so they actually which is real

really wild I mean think about that for

a moment just take like a brief pause

and think about that for a moment

China

a socialist

company or socialist country

provided money to businesses to keep

people employed

whereas the United States under a

capitalist structure

gave money to

everyone it's just interesting uh which

seems more socialistic right anyway so

the the numbers are fascinating though

the potential that the Chinese

individuals

have themselves saved up 720

billion dollars

does potentially send the signal that

yes maybe we could see an inflationary

surge or at least some kind of pressure

from China now personally and this is my

opinion I actually believe that most

Supply chains today

have built themselves up to make sure a

2021 shortage never happens again people

and businesses are frustrated that they

did not have the supply to fulfill

demand the worst feeling is when you're

in business

but you can't fulfill all the orders

you're getting it's the worst feeling

ever it makes CEOs look like clowns and

it pisses people off especially

investors and so I think that a lot of

companies and this is what we're seeing

with companies like Taiwan

semiconductors

I think these companies are setting up

massive spare capacity to where right

now we're kind of like like if this is a

normal rubber band we're kind of like a

crumpled up rubber band right now we're

just waiting for some more demand to

start coming because we're in a

recessionary environment whereas in 2021

the rubber band looked like this it was

almost stretched to the extreme and and

some would argue it snapped right so if

the rubber band represents capacity I

think we're scrunchy right now which is

good because that means if we reopen you

could kind of scrunchie to normal and I

hope that the Chinese uh you know

reopening doesn't create the sort of

inflationary uh disaster that we've uh

that would that we saw in 2021 now uh I

made a little note here that I think the

Omega surge of Chinese pent-up demand

will actually end up being very good for

byd and Tesla I I believe this because I

think after three years of lockdowns

people are going to want a car uh now

the byd uh there are some really great

videos on the auto three uh in the

United Kingdom that was just released

from byd their full self-driving is

actually non-existent now to the extent

that you think that matters for vehicle

developers I think it's quite

fascinating but they essentially have

adaptive cruise control and Lane

centering but I think Honda's had that

for like three years now so I personally

don't find that very impressive however

they are less expensive Vehicles than

Teslas so while Tesla does have that

technology Edge I'm not sure yet that

people might want to pay that sort of

money uh for a Tesla versus a byd and so

you're probably still competing in two

different markets I do think it's very

interesting though and I've been saying

this for over a year uh that I think the

Chinese are very very Smart in that they

ramped up their precautionary savings

because the government wasn't going to

come do that for them

and this here shows you the potential

net increase in China's household

savings deposits I here wrote a wow on

that because I think it's actually very

impressive that they pulled this off

without the help of the government

I don't think we would have seen that

happen here we would have seen a lot

more defaults and foreclosures but then

again you know we don't have the kind of

punishments for for not paying back your

debts as China does uh and so we'll see

if commodity prices and oil and uh

Supply chains end up inflating like they

did here in 2021 again I don't think so

so I think the rise in oil uh prices

right now is a little bit more of a

trading move do keep in mind that the

substantial movements that we've seen

away from for example growth Innovation

and Technology uh certainly profitless

attack but getting away from profitless

Attack makes sense in a recession I

think a substantial portion of this uh a

rise in oil that we've seen recently

which is still nominal it's just a

tactical trade it's hey it's logical to

sell the idea that China is going to

cause a re-inflationary boom let's go

long oil and then talk up how much of an

inflationary boom there's going to be in

China personally not the biggest

believer of that so this gives us a

little bit of insight into The Fad where

rates are going uh Commodities risks but

also other risks that we Face to

inflation