The Next Fed Rug Pull | Prepare for Hell.

February 3rd that is when jobs data

comes out I will be streaming jobs data

live at 5 30 a.m and that can actually

shift sentiment for the good news that

we're seeing in the stock market now

following Powell but the jobs data

itself tomorrow won't be the big

Catalyst that we solely want to pay

attention to because there could be a

lot more and in this video I break down

what to pay attention to at the Federal

Reserve now that Jerome Powell has

started to tell us that the beginning of

disinflation is here let's take a look

at that link down below remember

February 3rd jobs data 5 30 in the

morning February 3rd 11 59 PM expiration

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and let's get into the content all right

let's talk about what's next for the

Federal Reserve after dovish comments

are from Jerome Powell yesterday which

were surprisingly more dovish than we

expected I mean essentially Jerome

Powell the more he talked the more the

market went up usually it's the opposite

the more he talks the more the market

goes down and I think it's really

important to start with an inflation

discussion and what we really need to

see happen in order to see Jerome

Powell's dovishness continue so I'm

going to show you exactly the sectors

that you want to pay attention to when

it comes to inflation coming down it's

not Goods inflation we know that goods

are already disinflating coming down in

inflation rates we know that housing and

shelter is expected to start showing

massive declines for inflation which

could help anchor the inflation reports

down substantially however Jerome Powell

is concerned that when you look at

inflation X housing X energy X food

basically you just look at what they

call the super core of services which is

where higher wages could hurt inflation

the following are the sectors that we're

looking at on screen now we have water

and sewer and trash collection Services

domestic services lawn mowing repair of

household items medical expenses that's

a big one medical expenses sitting at a

nearly a seven percent weight

Professional Services sitting at about a

3.4 percent weight within that that

would include physicians dental

eyeglasses Hospital Services notice that

in hospital services in the last CPI

report we actually got a 1.7 inflation

read month over month that's pretty high

High that's pretty aggressive though we

did get a substantial drop in Services

by other medical professionals so

Medical Care Services overall only

increased about 0.1 percent but if we

see a a jump in that in future inflation

reports we could actually be setting up

for potentially a negative inflation

surprise so I want you to pay attention

to Medical Services transportation

services car and truck rentals have been

plummeting for example vehicle

insurances public transportation

including airfares we actually kind of

expect the potential for Price Awards so

start coming to Airlines at least this

is roughly what we gleaned from the

United Airlines report which is a way of

potentially saying hey look if you get

price Wars at Airlines we can continue

to see airfares drop and public

transportation makes up about a point

nine percent weight on CPI reads

recreational Services holding about a

3.1 percent weight that'll be another

important one to watch uh we've got

education and communication Services 5.3

percent weight admission to Sporting

Goods miscellaneous personal expenses uh

haircuts uh apparel services financial

services tax prep Services these are the

sort of services that the Bureau of

Labor Statistics will report data to us

coming up here in 12 days on Valentine's

Day and they're going to be very

important for what the FED is looking at

so if you're looking at okay where do we

want to be cautious where do we want to

potentially pay attention for increasing

prices it's those Services sectors so

maybe pay a little bit more attention to

what you're getting from companies that

are reporting uh service style Revenue

so maybe pay a little bit more attention

to the advertisers which we'll talk

about later such as a trade desk or

Facebook earnings or Google earnings

maybe pay attention a little bit more to

what we're seeing at those airline

services and are we seeing any of those

pressures subside a lot of companies

when it comes to inflation seem to be

expecting deflation or or deflation or

at least disinflation by the second half

of the Year giving you for example uh

the uh consideration of even AMD

suggesting that their Pipeline and this

is a little bit more good style

inflation right but for AMD at least we

expect to see more discounting on the

older pipeline of products that's

disinflationary right helps bring our

Goods costs down Pulte Homes discounting

homes more okay eventually that feeds

through pushing real estate prices down

pushes rents down brings down that

housing inflation GM discounting

vehicles more great maybe that

discounted Vehicles which is a durable

good will eventually translate to lower

prices in car rentals because if cars

are cheaper to buy then they're cheaper

to rent out for uh for for

transportation purposes right important

Johnson and Johnson Procter and Gamble

higher inflation at the beginning of the

year but expecting lower but again

that's more on the product side so we'll

really want to start switching to paying

attention to earnings for companies that

are providing us services and is it

possible that technology companies could

lead deflation in that sort of sector

are we going to see lower earnings at

companies like Adobe and Autodesk or

software as a Services Company companies

which basically Drive input costs for a

lot of service-based companies and could

those sort of reductions in price

competitiveness lead to disinflation in

those areas maybe but is that going to

change anything over at Medical Care

Services TBD that's going to be a sector

that we really want to pay attention to

going forward so we'll see but beyond

that the Federal Reserve quite

substantially excited about the

disinflation that we're starting to see

and Jerome Powell does tell us that he

expects to start seeing

disinflation start impacting the

services sector soon that is their base

case that even though it's running a

little hot right now they expect to see

it come down uh very soon when he

doesn't know so he doesn't want to come

across as optimistic or bearish uh or

pessimistic should I say about what's

going to end up happening with inflation

in the services sector but to be a

sector we want to pay attention to and

one of the ways that we could do this is

again when we look at earnings reports

that come out you want to see more uh

sort of uh Bell tightening in terms of

employment nobody wants to see people

getting unemployed but the less wage

pressures you end up seeing the less

pressures you might end up seeing on

Services right the lower cost that of or

the lower expense you have for hiring

people who are going to prepare tax

returns or the lower cost for dental

hygienists all end up meaning the lower

prices that companies end up having to

charge their customers and you can

actually create GDP growth without

substantial inflation so we'll see but

what we got from Jerome power was

relatively dovish yesterday and we are

seeing a lot of signs of disinflation

however they create a substantial risk

that if for whatever reason we end up

seeing Services run hot like those that

I mentioned you could end up having a

pretty quick downside in stocks in a

pretty quick rally in treasury yields so

in my opinion one of the things that you

want to be careful of is uh as much as

I'm invested into the market and as much

as I'm excited about the market going

green because it's been it's been you

know quite a weight for the market to

start rallying again I think it's

important to look at your portfolio and

say look if if you've got margin maybe

maybe start taking a little bit off the

table as we get into sort of a rally

mode or maybe you start seeing a little

bit of a U-turn in the rally people

start selling their alley a little bit

or maybe going into CPI on the 14th

maybe you start selling just a little

bit just to get out a margin and pay off

your margin have a little bit of cash on

the side so that way if we start getting

any kind of inflationary surprises

between which I expect there will be

some inflationary surprises this year uh

maybe then then you have more Capital

available to buy the dip between now and

say the middle to end of this year

so some things to consider along with

obviously what's going on with China

because another thing with China is as

much as I believe the inflationary boost

that we're going to get from spending in

China is going to be somewhere around 1

6 of what we saw in America this is

solely calculated by the excess savings

that are estimated for the Chinese

population versus the American

population following the release of

covet lockdowns suggesting that the

Chinese have about one-sixth of the

money that we had coming out of covet

lockdowns you still have the potential

for surging uh you know surging demand

in China leading to some kind of boost

in inflation AMD for example talked

about how and this is potentially a

Counterpoint how they invested about one

billion dollars in their supply chains

to be prepared for a return to demand I

think a lot of companies are doing that

so I think the Chinese have less money

than Americans on top of that uh during

the reopening on top of that I think

you've got companies that are

substantially more prepared this is my

scrunch example companies are a lot more

prepared for inflate basically a surge

in demand now to prevent inflation than

what we saw in 2021 and 2022 nonetheless

Bloomberg still argues that the Chinese

reopening is set to provide a welcome

boost to Global growth however it could

also boost inflation as central banks

are struggling to get inflation under

control and we could see that pressure

on oil and gas prices we could see that

pressure on Commodities this is a very

common trade right now is the belief

that oil and gas prices are going to

rise that commodity prices are going to

rise and that really this extra demand

is going to fuel uh the the items uh in

sort of our markets that we can't just

create more of we can't just as easily

create more oil as we'd like and we

can't just create as much uh a copper as

we want to be able to sustain some kind

of uh reopening in China again I think

that reopening is going to have 1 6 the

pressure of the United States reopening

and ethics Supply chains are

substantially in substantially better

places than uh now than where they were

them but you also have to consider that

when the United States reopened we were

only sitting at probably somewhere

around 200 oil rigs actually operating

and drilling uh at the time whereas

before the pandemic we were sitting at

somewhere between six to seven hundred

and now we're sitting back at about 600.

so you've even in the oil markets got

substantially more rigs online now than

you did during the reopening of the

depths of the pandemic because oil

companies were hit so hard and had to

take on so much debt to survive

especially when oil went negative that

they ended up shutting down Rigs and

laying off Oil Workers and it's taken a

few years to get those folks back and to

get rigs back online in my opinion that

suggests that even with the reopening

now you could see a substantial

absorption of Chinese excess demand

without seeing substantial boosts in

inflation we'll see like I said the

biggest concern for inflation is going

to be in that Services sector yes

there's obviously going to be the

concern about Commodities price

inflation I'm personally not concerned

about that but I know a lot of Traders

are making bets on that I think the

biggest thing we want to pay attention

to is the potential for higher Services

inflation that could be something that

actually derails Jerome Powell's

optimism it's very possible that if

Services inflation starts ticking up

again that the next summary of economic

projections might end up being a U-turn

kind of like what we got from Jerome

Powell between November and December in

November Jerome Powell was pretty

optimistic then in December all of a

sudden he turned hawkish again and we

got the most hawkish summary of economic

projections uh ever uh in in this

tightening cycle and that same kind of

thing could happen again I don't think

that's my base case I would just call

that sort of the edge scenario of uh as

as exciting as it is that markets are

running and I'm very happy about that

and I'm substantially benefiting

obviously from from the market rally and

I want to see that continue going on I I

don't think it's wise to be um to think

that inflation for sure is over uh there

are still risks on the horizon uh as we

saw at the bank of England raising rates

50 basis points today ECB racing rates

50 basis points both of them talking

about inflation risks being skewed to

the upside there are risks especially in

that Services sector now is it possible

that Powell the ECB and the bank of

England are as I've previously said

keeping on that hard mask to make sure

that inflation expectations don't not

anchor absolutely totally possible that

Central Bankers are just acting tough in

order to pressure inflation down

hopefully that's the case right and I

believe that's the case that's why and I

want to be very clear so there's no

confusion uh my like I'm I'm long this

Market uh and I'm very happy about that

because I do think that inflation will

plummet but I do think there's the

potential for some minor at least upside

surprises in in the services sector and

so it makes sense to have a little bit

of dry powder a little bit you know

maybe 15 or something like that

available for uh potential dip

opportunities when we go back into red

weeks because there always will be red

weeks again and it's something to

remember is when a rally starts is that

yes enjoy the rally while it goes but

there will always be another red time in

the future so keep that in mind but

again my my longer term thesis is that

uh whether you're all in now or your

dollar cost averaging just stay safe for

the potential downside risk uh that will

probably end up being temporary as long

as you can survive potential short-term

drops to the downside I think we are on

that Nike Swoosh recovery and things are

going to be substantially more positive

than they are going to be negative now

this is only true though if you're

listening to folks that I think are are

trying to have a balanced view of the

market uh there are unfortunately some

folks that are real big bears who just

refuse to believe that it is remotely

possible that inflation could go away uh

and that for example would be somebody

like this dude on Twitter named macro

alph no don't get me wrong I'm not

trying to bag on them uh you know I like

his negative points of view because they

serve as sort of like a contrarian

reminder he's a big fan of saying the

first Innings of a recession always look

like a soft Landing that first the labor

board could weakens but not enough to

generate substantial job losses and it's

really only once you get job losses and

earnings decline that and inflation

drops that you realize oh my gosh this

recession is terrible uh and then things

get really bad so in other words you've

got this individual saying look things

are going to get a whole lot worse

before they get better and this sort of

is reiterated by people like Michael

burry who say sell or other people who

say look as soon as the Federal Reserve

pivots things are actually going to

collapse even more than uh than they

already have I personally disagree with

that assessment very heavily the reason

I disagree with that assessment very

heavily is because the recession that we

face today potentially maybe we don't

right maybe we don't even go into

recession but the recession we face is

one that is induced by the fed this is a

manufactured recession it's known as

forcing a recession or or at least

forcing the market close to a recession

or close to recession this is what I

talked about in January of 2022 I said

that if inflation went hot the FED will

force a recession especially if we get a

wage price spiral now the good news is

Jerome Powell believes the odds of a

wage price spiral have actually been

diminishing this is very good because it

means that maybe we don't have to get a

forced recession and that is the key is

the Fed does not actually have to

continue engineering layoffs the FED can

and will you turn on needing to continue

to engineer layoffs and a forced

recession and that's what makes dare I

say this time different from prior

recessions is that in Prior recessions

you had really structural issues in

markets let's look for example at the

structural issues of the Great Recession

dead people getting housing loans

rampant speculation uh for for Real

Estate uh basically people with terrible

credit scores getting these insane

adjustable rate mortgages where they

were being offered negative interest

rates to lower their payment even up

front to let them qualify but then in

six months their interest rate would

adjust to Nate from negative something

you know negative say one percent to

like positive seven percent and people

were signing up for that because housing

prices were just going up so fast that

people thought oh my gosh I'll just

refinance in six months and I'll just do

it again and I'll get rich through real

estate it was kind of the same kind of

bubble mechanic and structural problem

that you saw in the.com bubble what

makes really this recession different

and again the four most dangerous words

in a recession were really in any kind

of Market or this time is different so

keep that in mind okay like that that is

a risk factor but what does make this

quite different is that as if inflation

continues to go away and keep in mind

I've been cautioning that there are

parts of inflation that could still pop

up especially in that Services sector we

talked about so we started this on

as long as inflation continues to go

away the need for the Federal Reserve to

create joblessness is gone the need for

the recession is gone the only real

structural problem right now with the

exception of a potential Black Swan that

could pop up like a debt crisis or

something crazy

the only

major issue we face right now is

inflation

that's the structural problem right now

as soon as you take out inflation what

do you have you have people who have

more wealth than they've previously had

you've got very good lending in real

estate you don't have dead people

getting loans you've got highly

qualified people getting loans higher

credit scores than ever before yeah

you've got problems in places like the

car market uh and defaults are starting

to kind of return to 2019 levels but are

we seeing the levels of of defaults that

we saw in the 2008 recession suggesting

massive Financial pain for people no

obviously inflation is a you know

people are spending more money at

grocery stores eggs are more expensive

hamburgers are still very expensive uh

you know burritos should not be 14 there

are issues prices have gone up but as

long as that increase goes away it's

entirely possible for the FED to

maintain this U-turn stance and that's

why I have the belief that it makes

sense to be more long-term bullish but

also protected and so that way in the

event we have some shocks to the

downside you're ready to either survive

or potentially by the dip remember you

should not be buying the dip if you're

not potentially capable of surviving uh

so right like don't buy the dip with

margin so uh that that's my belief and

that's why I believe really this pivot

uh from the FED which would be a pause

or reduction in rates is completely

different from a prior pivots where the

Federal Reserve was kind of like wait a

minute I mean if you look at like the

Federal Reserve was not driving the

prior recessions if you look back at the

70s what happened well you left the

dollar you left the gold standard and

you were just getting off of insane

price caps so in other words you had

price caps uh from earlier presidential

administrations in the late 60s and

early 70s those price caps got removed

prices skyrocketed up people like oh my

gosh everything's getting more expensive

yeah because you remove the price caps

and stuff now you also left the gold

standard oh my gosh inflation's gonna

stay here forever expectation of

long-term inflation there's your

structural problem what did you have in

the late 80s a savings and loan crisis

speculative of real estate lending just

like you had in 2008 what did you have

in the early uh 2000s a.com bubble which

was driven by Euphoria and massive

rampant speculation and profitless tech

companies uh which you don't want to

speculate on I I think it's a terrible

idea to speculate on profitless

companies so

those are some of the structural issues

that that you faced and so when the

Federal Reserve was Raising rate or

reducing rates in some of these prior

eras they were actually kind of like can

we avoid a recession and can we try to

stamp out some of the excess of these

other you know structural issues without

creating a recession that was sort of

the prior thesis and this is why you saw

rate Cuts lead to further drops in

markets because the problem of the

market was not the fed the problem of

the market was something else

in this recession the only problem we

have is the fed and inflation right the

fed's fighting inflation so however you

slice it when the inflation problem goes

away uh and the FED starts cutting uh I

think we probably go back to the trend

of the great moderation now if you don't

believe in that then then don't belong

the market right then this is just a

bear Market rally and we're going right

back down uh but that that is one way of

looking at things it's not saying that

I'm definitely right but for me look I'm

taking every opportunity to expand my

palette of pricing power style stocks

and expand my exposure to stocks that

exhibit substantial pricing power leads

ahead of their competitors uh massive

Investments for potential uh uh you know

either uh more capabilities in the

future uh more innovation in the future

uh higher margins in the future right we

are going through sort of a recessionary

time uh so you have to look play the

long game a little bit but I'm a big fan

of companies with cash flow the

potential for high margins or present

high margin and

uh Innovation which because I think all

those sort of companies massively on

sale still even today so that's sort of

my thesis we'll see we'll see though you

know again risks China inflation

Services inflation that's probably your

biggest risk then on the small end of

the spectrum you have the Black Swan

scenario which would be a risk of some

form of massive debt collapse uh

breaking of the bond market because

nobody's buying bonds and the FED all of

a sudden has to jump in because

everybody's parking their money into

repos I don't know so far things are

orderly is there a potential of Big

Black Swan absolutely is it as obvious

like is the downside ahead of us now as

obvious as the downside was in January

of 2022 no not at all like we're in

almost the opposite scenario of where we

were in January of 2022. January of 2022

was hell every company was bragging

about how they were able to raise prices

and people were buying it was insane it

was a bubble uh and uh and and it was it

was stimulus-induced one and now we're

paying the price for a stimulus induced

bubble via High inflation and via the

FED tightening cycle and as soon as that

inflation is out of the system the

structural problem is gone fed can go

back to a looser monetary regime that's

my thesis and so that's what I'm making

my bets on and again I don't want to be

that person that's just going to sit

here and be like all right guys just buy

the S P 500 and and don't pay attention

to financial markets I don't believe

that so I I like playing financial

markets and in painful times I like

increasing my allocation to to companies

that I think are going to do really well

for the next decade uh whether that's

energy chips Tech uh pricing power stuff

whatever it may be but that's my

personality you don't have to agree with

that so but either way I appreciate you

for watching so