DOUBLE Warning about the Market.

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hey everyone meet kevin here we've got

some risks to talk about for the market

and a lot has to do with the federal

reserve now we've already had

conversations about what happens if we

just get brain art is she just going to

be a mirror image of jerome powell and

is it going to make a difference or if

we keep jerome powell is the market just

going to shrug off the fact that the

chair ever even came up for renomination

and who cares we've also talked about

timing we've talked about the fact that

joe biden told us that we should have an

answer within the next four days on

monday which means we should have an

answer today on who the next chairperson

for the federal reserve is going to be

is it going to continue to meet your own

powell is it going to be brainard is

going to be somebody else

but now we're hearing that the decision

might come over the weekend and at the

same time as hearing that the decision

might come over the weekend some folks

think ah maybe we'll hear when we

finally get to thanksgiving and we'll

hear by then

who knows the point though of this video

is to highlight two potential concerns

and potential issues related to this

nomination because while we wait for joe

biden to get it i mean to get his

nomination up

we can finally look at something like

the wall street journal's editorial

board and say wait a minute these are

two real risks that maybe we haven't

considered before so take a look at

these risks first

uh as a preface before we talk about the

two risks it's worth noting that uh the

wall street journal's editorial board

agrees that brainard will probably be

very much like a conjoined twin to

powell and act very much the same as

powell that is keep rates low

keep uh keep uh essentially uh the taper

moving at a relatively slow pace and be

patient with the market wait to see what

happens with inflation before acting too

fast or potentially

too quickly to tighten

but the wall street journal editorial

board gives us two potential risks the

first of the two is right here take a

look at this

the wall street journal editorial board

basically goes as far as calling bernard

a flip-flopper

look at this

donald luskin of trend macro notes

brainard struck a dovish tone in

september of 2016 before the election

but on the eve of the trump presidency's

inauguration in january of 2017 she

suddenly discovered that the fed was

close to its inflation and unemployment

targets and two months later called for

tighter monetary policy

so here the wall street journal

editorial board is giving us a a warning

you're giving us a heads up that hey

wait a minute wait a minute wait a

second

if we get powell

we might have somebody who stays

consistent

who stays the course and stays with that

inflation's transitory argument through

the middle of next year

if we get brainerd while we think that

she's going to be on the same course

that might be the oversimplification she

could end up flip-flopping just like she

has in

2016-17 where she previously

flip-flopped literally on the same

discussion inflation versus tighter

monetary policy

this is a warning this is a risk to the

markets that hey if we get brain art we

have a higher likelihood of a sudden

flip flop than we would with powell

but the second concern that the wall

street journal editorial board brings up

really comes after they just utterly

crush drone powell listen to this

neither one deserves the job powell or

brainard if you judge them based on how

well they have performed in their main

duty of maintaining price stability

the powell fed has presided over

inflation that it failed to predict and

has been slow to address

the fed's professed inflation target is

two percent but consumer price index

that consumer price index rose 6.2 on

october above a year earlier by any

measure this is a historic

failure mr powell's credibility has been

damaged with his persistent refrain

until recently that inflation is

transitory his new monetary policy

framework of average inflation targeting

this is by the way formerly known as

fate flexible average inflation

targeting unveiled in august 2020

has been a bust

now

obviously the fed would say hey well

wait a minute we designed fate for a

three or four year time frame it's going

to take time to see flexible average

inflation targeting you can't just

average over a few months you gotta have

average over a few years so obviously

powell and brainard would probably

defend the fed uh dramatically here but

it's interesting where

the wall street journal editorial board

takes us next if biden wants to distract

himself from the inflation failure he'd

nominate a current critic of the fed

policy this is interesting

so take a look at this they're playing

politics the wall street journal

editorial board is basically saying

if biden

wants to set wants to first of all

probably get his build back better plan

passed by somebody like joe manchin in

the senate which now we've passed the uh

buildback better plan in the house but

it's going to be up to the senate to

pass it which is really going to hinge

on two votes kirsten cinema and joe

manchin and they're very worried about

inflation so here if bide wants to

distance himself from this inflation

failure he'd nominate a critic of

current fed policy to basically show

he's very different and doesn't agree

with what's happening with inflation

that could actually be what's needed to

get joe biden's plan through

but that could create some shake-ups in

the market right take a look at the

recommendation they make they suggest

and they even admit they never thought

they'd say this because the wall street

journal leans conservative

they suggested or suggest here that

larry summers a democrat would be a

logical

choice given his purse basically his

persistence on inflation uh coming in

higher than expected that is larry

summers is somebody who at the beginning

of the year said that joe biden's 1400

stimulus check plan would lead to

rampant inflation that the white house

is underestimating inflation that

inflation is going to come in way higher

and what we need are stronger actions by

the fed in fact the washington i'm sorry

the hill reported the following quote

quote from larry summers my experience

is that you should hope for the best and

plan for something less than the best i

think that means stronger action by the

fed it means the administration has to

be thinking about inflation and this is

essentially

a response to the fed being weak on uh

on inflation being potentially behind

the curve being wrong about here larry

summers said they said when september

came and people went back to school that

the labor force would grow and it didn't

inflation doesn't look like it's

transitory and they said that inflation

would be behind a few specific factors

but it doesn't seem to be specific

factors it seems to be everything

so larry summers is taking these three

things to basically say hey

jerome powell is wrong

like everything that they thought

they've been wrong about so now it's

time to kick him out and have a strong

fed take action against inflation

that's what larry summers believes who's

a democrat and so this wall street

journal editorial piece really paints

the the possibility that we can have two

things happen here actually we can have

three things happen here and and then

separate consequences for all of these

three things here so write down these

three things here number one you could

keep powell if we keep powell then it

makes it a little harder to get the

buildback better plan done in the senate

but biden can really distance himself

from a trump appointment so biden can

just point to the fact that powell is a

trump appointee and you know it's not

his fault so biden can stay distance

from the fed but it hurts him with the

build back better plan if

he ends up picking somebody like

brainard

and she ends up acting like powell well

then unfortunately for biden biden takes

responsibility biden takes the r and it

probably doesn't help him with the

buildback better either so

here we could call it a plus for biden

that trump takes the r the

responsibility but it hurts his

buildback better plan keeping powell

going to brainard means biden takes

responsibility he probably doesn't get

much help with buildback better and we

have the risk factor that we could get

somebody who ends up flip-flopping

which is would create a lot

of uncertainty in the market

or

you could have something like what larry

summer or what the editorial board here

is saying the wall street journal

editorial board you could have a total

blind side end up getting somebody who's

a hawk like larry summers who's kind of

like a paul volcker democrat get in

there

cut inflation raise rates cut the taper

fight fight fight fight fight

you know you've even got richard clarida

who just came out and said quote it may

be appropriate to discuss the taper pace

in december in other words maybe taper

faster right that's more hawkish larry

summers is somebody who'd probably be

very very hawkish

this would probably be a positive for

joe biden getting the build back better

plan done because it would show that he

cares about inflation

and he's going to do everything in his

power to try to reduce inflation as soon

as possible and he could potentially use

that as leverage to convince cinema and

mansion to pass the buildback better

plan which would be good for joe biden

politically

but it could have long-term consequences

of of if we potentially tighten too soon

we could end up tightening ourselves

into a deflationary recession which is

bad and that's the same thing that

happened in 1949 the federal reserve

tightened too soon and we tightened our

way into a deflationary recession and

deflationary spiral which is where

people stop spending money because they

expect prices to be lower in the future

which is really bad people don't spend

money the economy suffers remember

velocity of money you don't spend a

dollar you rob our economy of five

dollars

that's the way it works

so that could be good for buildback

better it could also be good for biden

politically

in the short term

long term it could have consequences but

we might not see long term for another

four or five years and biden might not

be president uh you know in four or five

years so

in terms of the market though

what's probably best for the market is

powell so powell would be a triple plus

for the market

i think brainard would be a single plus

for the market because we're going to

get the flip flop uncertainty of our

history

larry summers would probably be a minus

for the market at least in the short

term because he's expected to be a hawk

now right now

there isn't public discussion that larry

summers is even an option

uh in fact

he we're not even aware that larry

summers has been interviewed by joe

biden maybe he has we don't know

everything but we don't believe he has

so right now the highest

likelihood the largest like if i were a

betting person

i would probably bet

uh somewhere around 70 chance that we

end up keeping powell

maybe a 20 chance that we end up with

brain art actually i probably call that

25

and maybe like a 5 chance that we get

some crazy shock out of left field

uh and we get something like a summers

that could potentially lead to some

negativity in the market but otherwise i

i'd say the

the fed

issues here are uh more bullish than

they are

not bullish uh odds wise like the

expected value here is is is very

bullish for the economy uh and for

markets and it's difficult not to be

investing in the market right now

because the market's just zooming now

i've gone to cash to some degree i'm

about eight point

uh

four percent cash uh and it's mostly

because

i'm looking for those opportunities

and as soon as i find one that i feel

confident in i'm going to jump on it and

of course once i find that i'll be

sending alerts in stocks and psychology

of money group so use that black friday

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next one thanks so much goodbye

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