The Fed's DIRTY Pivot [New Economic Collapse Warning]

hey everyone me Kevin here oh boy the

Federal Reserve minutes are out we just

went through almost absolutely every

single line in the report and I don't I

don't understand apparently some people

are trying to allege the markets turning

slightly green because the report wasn't

as bad as it could have been and that

this report is somehow evidence of of a

Fed pivot and I'm thinking to myself

what the hell are you smoking this

report actually had a very bad pivot to

the bad side in it and we need to talk

about that pivot because it is the

greatest risk to our economy and this is

not even just fun this is just like

straight up potentially bad

we're going to talk about what that

issue is and they gave us a pivot to the

dark side on that issue so we have to

pay specific attention to that issue but

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

go through the report and I'm just going

to show you the highlights

so let's do it the first thing that

we're noticing is liquidity is falling

in the treasury market so this is not

great because this is the same sort of

disaster that is happening in the United

Kingdom the United Kingdom does not have

enough buyers of bonds when you don't

have enough buyers for bonds price go

down and prices have been going down so

freaking much in the United Kingdom for

bonds that their Federal Reserve known

as the bank of England not to be

confused with banks like in America I

had to come in and set a floor and that

floor goes away Friday they're like yeah

we're we're removing the floor so don't

tell us we rug pulled you so prices

could then continue to fall and they did

so because Pension funds were about to

go bankrupt and then millions of of

retired people in the United Kingdom

would have been screwed without their

pensions uh it could have been a

disaster so anyway the same kind of

liquidity issues that we're seeing in

the United Kingdom are now actually

being remarked on by the Federal Reserve

that's not good that is a lack of

liquidity in the treasury markets

because of elevated interest rate

uncertainty this is how things break

they talk about this potential that the

reverse repo markets will get used less

that's not actually happening so the

reverse repo markets are when Banks Park

excess cash overnight and the use of

those markets is exploding we're like

2.2 2.3 billion dollars it's absolutely

a trillion dollars I'm sorry it's it's

an insane number I'll show you the chart

right here uh and and so we're not

actually seeing a decline here which the

FED is hoping to see a decline here so

they could actually see that their

policies are starting to work but

they're not yet it's still not working

so what the fed's doing is still not

really having an impact now throughout

this report they must have mentioned

about 20 different times that the labor

market is still very very tight and

strong and this is actually a really bad

thing because at the same time as you

have the labor market super tight you

have a broadening of inflationary

pressures now what's very important to

remember about that specifically is that

wages and uh inflation hold on let me

find a section here it is the Fed tells

us

that what's probably going to happen

first is you're going to see demand fall

and then inflation go down but this

creates a really kind of perverse uh

trajectory follow along with this for a

moment the FED says they noted also the

FED noted also that inflation had not

yet responded to policy tightening and

that a significant reduction in

inflation in inflation would likely lag

that of aggregate demand and that would

probably need some softening in labor

market conditions to actually get there

so think about what that means

practically for a moment that means in

order to get inflation down waiting

doesn't work anymore we actually have to

see demand destruction so demand has to

go down right big old down then after we

see demand go down we have to see that

softness in labor

and only after that and with a lag do we

actually get inflation

down so that kind of sucks because it

tells us that hey look we're gonna

probably have to suffer under the weight

of high rates and bad earnings for

longer because we have to get through

the pain of bad earnings in order to

have Labor go down which will then drive

inflation down so it's kind of just

going to be a sucky process in fact in

this report the FED talks about how it's

probably going to take the quote coming

years to actually get inflation done I

don't know how anybody read this and was

optimistic about it it wasn't actually

good in fact we already started we're

starting to see according to the Federal

Reserve uh credit card and auto credit

delinquency rates rising over the second

quarter so in the third quarter they

Rose over uh the second quarter

this okay this by the way right here so

in addition to this little kind of path

that I just drew for you which is uh

let's go back to it for a moment demand

has to go down that hurts earnings then

you see softness in labor then inflation

goes down that order is really terrible

because in the meantime if we get wages

that continue to go up so wages continue

to go up which encourages people to

switch jobs because if you switch jobs

you tend to get about twice the wage

increase than if you stayed at your job

quick explanation of that that would

mean if you made a hundred thousand

dollars a year if you stayed at your job

maybe after one year you'd be at about

1074 which is about a 7.4 percent hike

but if you switch jobs you might be at

about 114 nine which is almost twice as

much more additional pay if you just

switch jobs right this is what the FED

is trying to prevent because it creates

something really really nasty known as a

wage price spiral now a wage price

spiral is the absolute worst thing that

could happen to the economy and could

literally lead to an economic collapse

the dollar could collapse the United

States government collapse and I'm not

I'm not being overbearing here like

literally the FED will do whatever they

need to do to prevent a wage price

spiral and they won't let this really

take hold because they know how bad it

will be like you'll get Weimar Republic

you'll get Venezuela you'll get all that

if you get a wage price spiral and so

they have to kill this wage price spiral

is where wages

uh generally go up more than the rate of

inflation so let's say if wages are

going up by six percent right now and

inflation is let's just say 5.9 percent

you know in a few months it drops to 5.9

but now wages are higher you technically

have a spiral where wages are going up

then product costs uh uh go up because

people have more money to pay for those

things so uh then

you get product costs or or you know

people raise prices for products then

those wages aren't as valuable anymore

so people demand higher wages again to

be able to afford those products and you

continue to get this stair climbing

which ends up looking kind of like a

spiral it's really really bad so what

was really devastating was actually the

difference this is the pivot okay this

was the pivot the only pivot I saw from

the Federal Reserve was the following

okay it's on page eight of the last

summer or last minutes from July so from

July 26th and 27th on page eight the

Federal Reserve said the following

they said

in addition to the committee's ongoing

policy firming and anchored longer-term

inflation expectations these included

competitive pressures restraining prices

the apparent absence of a wage price

spiral the tightening of monetary policy

blah blah blah

look at those words this is the only

time wage price spiral was mentioned in

the last minutes the apparent absence of

a wage price spiral that was last time

look at what they said this time folks

it's terrible okay ready for this

it's right here it's on Page Six

the staff

is it here hold on maybe it's not

actually a page thanks although it's

like uh oh sorry it's also on page eight

it's right here ready for this

a number of participants commented that

a wage price spiral had not yet

developed but

cited its possible emergence as a risk

that's very different from the last

report whether they said no wage price

spiral now they're like oh we might be

at the start of a wage price battle that

is how you collapse an economy that is

how you absolutely destroy an economy if

you let a wage price spiral happen this

is terrible like that's actually really

really bad

so uh they believe that the economy will

be suffering from below Trend growth in

the coming years as they fight inflation

down

they uh want to remind you to take

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then they also want to remind us that

they're not seeing any kind of

broad-based inflation yet if anything uh

we're actually still or deflation yet I

should say we're actually still seeing

some businesses that are like oh we're

having some relief in Supply bottlenecks

but then other businesses are like no

we're actually not having any relief so

even though we we're starting to see

some commodity prices fall not every

business is actually benefiting from

commodity prices going down some

businesses are like what are you talking

about like inflation is still actually

going up so that's bad we need like all

businesses out there shouting like oh my

gosh everything's getting a lot cheaper

we're not seeing that yet at the same

time you're getting higher financing

costs which is slowing down investment

like fixed investment from businesses

and Manufacturing is slowing down which

makes sense because inventory is piling

up like crazy

lower income individuals are getting

screwed but higher income individuals

are still spending they're actually

holding up quite well they don't believe

the recession is real so the fed's like

all right well let's screw them

let's start with their stocks then we'll

start then we'll go on to their real

estate and then they'll just show up at

their house and kill them okay no I'm

just kidding now now I'm gonna get

banned off YouTube I that was a joke

anyway participants expected the

transition towards a softer labor market

would be accompanied by an increase in

the unemployment rate last SCP they

estimated that the unemployment rate

would go up to about 4.1 percent it's

kind of a nominal increase honestly

they also talk about how some businesses

won't actually lay people off because

they're so Jaded by how hard it's been

to actually hire people

weaker consumer demand would result in a

reduction of business profit margins

from their current levels they're giving

you an earnings warning right here

uh businesses are planning to cut prices

they talk over here about how pivoting

too soon is actually bad because like

even though current shorter term

inflation expectations are anchored

longer term inflation expectations are

not and they're actually pretty diverse

and so that's a risk that if you pivot

too soon you could end up destroying

inflation expectations then inflation

starts going back up and then you're

really screwed so whoever's saying the

FED is indicating a pivot here is just

smoking crack

um in my opinion the slowdown in Europe

this is the only time they mentioned the

word recession was actually about Europe

recession Europe right here I don't

think the Slowdown Europe's going to be

over until at least 2023 probably I mean

like their winter is going to suck I

mean Paris is already turning off lights

to like the Eiffel Tower and stuff to

save energy

this could hurt real estate rates more

the sale of mortgage-backed Securities

uh keep in mind that treasuries are

rolled off mortgage-backed Securities

are sold so rolling off just means

they're not buying them again right

because they're shorter term

mortgage-backed Securities are like

30-year bonds

they're likely going to get sold at a

loss

more of them being available lowers the

price of those mortgage-backed

Securities which are a type of bond

which leads to higher yields on

mortgage-backed Securities potentially

driving up mortgage rates bad for real

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PPM over there at househack.com okay so

we talked about the trajectory of

inflation going down

hmm

there was some pushback that uh you know

we have to be careful that and this is

potentially where some people are

getting this idea of of like a pivot

from that they have to start considering

the downside risks of tightening too

much

but keep this in mind the wage price

spiral is worse and more important than

that consideration in my opinion and so

I think even though this will be a

concern it doesn't imply a pivot at all

uh and that's it so there you have it

that is a summary of the federal

reserve's minutes

thank you so much for watching make sure

to subscribe for more of this content

and remember that tomorrow at uh 5 30

a.m the CPI report will be coming out

Delta Airlines also reports tomorrow

says Blau that'll be really interesting

the summer travel season I think was

very great American Airlines already

preliminarily guided higher on both

revenue and margin but still like down

nine percent from 2019

uh

[Music]

yeah fed already said the risks of doing

too little outweigh the risks of doing

too much exactly new Supply squeeze on

gasoline from OPEC feels like they just

want the world to burn well I mean you

have to remember these these uh oil

companies they really got screwed during

the pandemic and they shut a lot of

wells and they they fired and laid off a

lot of people now like you look at oil

kind of like this okay watch this

Wells not Wells Fargo okay oil wells

went from like that to like that because

of covid and it's come back really

slowly the reason for that is a lot of

these companies have had to take on a

lot of debt uh just to stay alive during

this period of time and it's also hard

to hire uh like new Oil Workers right

deck workers uh Engineers whatever

so I'm not I'm not here to sympathize

with the oil companies okay I'm just

saying like

they're gonna do whatever they can

to milk High Energy prices as freaking

long as Prof possible

and they're going to use that to pay

down their debt

and uh and and hopefully continue to

open more Wells

but uh anyway that's just my thesis on

um so like from a capitalistic point of

view I don't think you can argue that uh

you know the the oil companies are are

wrong to cut Supply I think from a

social point of view they're total jerks

uh but not from you know from a

capitalist point of view it makes sense

uh you know capitalism is a nice

okay CPI tomorrow thanks so much for

being here we'll see you soon goodbye