Yikes: The Fed on 1995's Soft Landing vs Today [Hint: It's Bad.]

can the Federal Reserve pull off a soft

Landing or what makes this time

different than what happened in the

mid99s why would we not have a soft

Landing like we did in the mid90s just

because we cut 50 basis points just like

we did in September of 2007 or in 2001

leading into the good old dot bubble

buron and the Great Recession why is the

Federal Reserve convinced that this time

we will stick a soft Landing or are they

not convinced and that's why they cut 50

and maybe things are actually quite the

opposite today as they were in the mid

90s well in this video we're going to

analyze some old fomc transcripts that I

went through that's the Federal Reserves

Open Market Committee and I spent my

weekend reading some of these

transcripts just to see what things were

like in the mid90s so I could tell you

what the Federal Reserve was see in the

mid90s and we can compare what was

happening then to today so we can see

can we stick this soft Landing just like

we did in the '90s and we're also going

to go through later in the video what

the heck Challenger just said about our

labor market today and it came as a big

surprise to me so stay tuned and buckle

up let's get right into it so uh first

things first I I just want to cover some

things we already know that are quite

frankly the opposite of the 9s this this

is old news you should already know

about this this is not new I just want

to catch you up just to address it very

quickly okay and this is not what this

video is about because this should be

basic to you you should hear this and be

like I already know that okay so to

catch you up just in case you didn't the

10y year and the 2-year yield curve

inversion fancy way of the market trying

to predict a recession it's basically

never wrong and when this inverts that

is when we go below zero we tend to have

a recession within a couple coup years

thereafter we briefly inverted right

before covid we inverted right before

the 2007 recession that's basically the

blue line going under the black line and

we inverted before the bubble did we

invert in the '90s nope we got close but

we did not invert did we invert before

the 1990 to 91 recession absolutely we

did and we can kind of keep looking at

that but honestly it gets pretty

redundant so the first thing we know is

already the opposite is that we've been

the most inverted here since the80s so

we have inversion now we did not in the

mid 90s we did not have a Som rule

trigger this is growth in the

unemployment rate by a certain

percentage

above we're not going to get into the

details of the three-month moving

average compared to last year basically

unemployment rate starting to accelerate

going up and it could be an indicator of

recession coming if we go above a level

50 now again this is just catchup you

should already know this we just hit

that level just like we did before uh

2007 7 2008 before 2001 before the 91

you you get it like these these are

known indicators at this point but what

was the Federal Reserve seeing that is

similar or different today in their

summary well actually not even their

summary their straight up transcripts

what were they talking about well I'll

give you my sort of summary on it

February of 1994 that's where I started

I started in '94 and I found a Federal

Reserve that was concerned with the

start of the tightening phase so to me

that sounds a whole lot like kind of a

19 or sorry a 2022 where we started

seeing rates go up and that's because

the Federal Reserve was concerned about

the economy growing too rapidly and us

getting wage inflation well that's

definitely not what we're seeing right

now the Federal Reserve is concerned

that we're going to slow down too much

that they're behind the curve they don't

think they're behind the curve they say

they tell us that because if they did

tell us we were behind the curve they'd

create panic in markets it would be very

bad so they of have an incentive to lie

to us but anyway let's take him at face

value and assume that we're not yet

behind the curve even though we probably

are concerns over the economy growing

too rapidly you're certainly the

opposite of what we're facing today in

addition in the February of 1994

transcript they were read about wage

inflation and a wage price spiral that's

because the economy was really starting

to ramp up after that 9091 recession

things were taking off and looking

really good so the feds started raising

rates to try to put a lid on inflation

they were worried that there was going

to be so much economic growth wages with

Skyrocket and you get a wage price

spiral they started seeing Commodities

rise and when we started going into May

of 1994 they were complaining that the

prices for things like steel and

aluminum were rising in price somewhat

again the opposite of what we're seeing

in markets today we have a Federal

Reserve today that's not concerned about

a wage price spiral and if we look at

the bcom index which is the Bloomberg

commodities index we can get a little

read on on what Commodities have done

over the last year uh and even though

they've picked up here in the last maybe

two weeks or so we've seen Commodities

rise really nicely on the Bloomberg

commodities index we know this is a

volatile chart and clearly we're way

lower now than where we were a year ago

if we go year to date we're roughly

where we started the year so we're kind

of flat year to date and we've looked in

the last 5 years we could see postco

when we were really raising rates this

would be a lot more similar what saw 94

this rising of commodities prices giving

the FED cause for concerns not so much

this that we're seeing over here which

is a very clear downward trajectory so

again something essentially the opposite

today than what we saw in the mid 90s

and so then the Federal Reserve was

questioning okay hey well look we've got

real GDP at 3 to 4% we fell to a low of

about 3 and 1 half to 2 and a half two

and a 2.2 at the absolute lowest point

in 1985 and we went right back up again

in ' 96 a lot of folks think that we

might see 24 or 25 be that sort of hole

in GDP or maybe even 22 and then we sort

of rise out and our GDP actually really

starts taking off again of course back

then the Federal Reserve was worried

about overstimulating and concerns about

still a tight labor market and they

didn't really have many geopolitical

concerns see like today we are not

really concerned about overs stimulating

the economy we'd like to see kind of

growth stay up because we're actually

not so much worried about a tight labor

market anymore we're worried about the

job openings rate plummeting and uh even

though layoffs haven't really started

yet a lot of folks are concerned that we

could just be one market correction away

from a surge of layoffs that companies

are ready to lay off when everybody else

lays off because if you're the only one

laying off your stock could get hit as a

sign that oh you must be the weak one

not able to earn money in this market so

they sell your stock companies don't

like that look at IBM for example IBM is

doing something right now called quiet

layoffs and IBM confirmed this uh but uh

there are reports right now that IBM is

quote reportedly cutting thousands of

jobs this week the layoffs are being

conducted with non-disclosure agreements

you can see it here this is Times of

India but they're reporting from uh I

mean this this is everywhere the

register first broke this news and so a

lot of people have been talking about

this again it's it's confirmed confirmed

in the company earnings they've been

talking about Workforce restructuring

but they're really not wanting this to

be big news because it hurts your stock

and once everybody confirms job cuts are

happening that's when you really start

this sort of cycle of layoffs and that's

what the Federal Reserve today is trying

to avoid more of that and keep in mind

we also have a lot more uncertainties

today than we did in '94 when it comes

to geopolitics I mean look at Iran

Israel Gaza the axis over there then

you've got China and recession in China

you've got Ukraine Russia there a lot

more issues than we had in 94 maybe even

a little bit more political volatility

but then when we get to the minutes of

January

95 once again no mention of the labor

market weakening instead we focus on a

Mexican financial crisis which they

stopped talking about by July of 95 and

this is where they talk about

inflationary pressures having moderated

and starting to

potentially assume and declare victory

on inflation that inflation was under

control this is by the way similar to

today but while they're talking about

winning on

inflation they still had concerns over

an overheating economy which is

different from today it's actually again

the opposite the labor market was also

still deemed tight when you got to

September of 1995 labor shortages were

still being talked about companies were

apparently these were anecdotes coming

from the actual transcript they talked

about in-house labor being being used

like cross trining their employees

because they can't find workers to get

take new jobs they even started talking

about certain companies feeling quote

discouraged because basically they can't

find workers so they stopped expanding

their businesses because they couldn't

find workers to fill the work in other

words the economy was actually good and

growing rapidly they didn't have

concerns over weakening they just had

concerns that there weren't enough

people to work and you had these labor

shortages that could lead to inflation

but we never got the inflation from

those Rising wage pressures now there

were also virtually no mentions of

layoffs which is a bit of the opposite

today where the Federal Reserve says

we're not seeing layoffs but we're

attentive so there's a reason for this

the reason and I haven't pulled this

chart up yet but I had it handy actually

pulled it up I just didn't show it to

you yet the reason and I think this is

the perfect place to bring it up is take

a look at this particular chart here

this chart shows you the unemployment

rate and the federal funds rate the

effective fed funds rate so what I want

you to notice is right here going into

covid there was no increasing of the

unemployment rate we just had a sudden

shock of pandemic right that's fine okay

going into the 2007 recession what do we

have over here unemployment that started

rising in fact the unemployment rate

bottomed in 2007 now this is important

important you you want to kind of pay

attention to some of these numbers

because they're going to give you a

little bit of uh how should I say help

in understanding you know where we sit

today the unemployment rate bottomed in

2006 in October and may of 2007 about 7

to 13 months before the 2007 recession

so in other words you had about almost a

full year here of rising unemployment

before the recession go to 2001 in 2001

the unemployment rate bottomed in

actually April of 2000 11 months before

the march of 2001 recession so again you

had about a year of rising unemployment

and notice it rises very very slowly

going into the start of a recession but

the point is it rises just like you had

this increase in the '90s and if you go

back in time as well you'll see that in

the 80s a slow rise going into it and

you either come from this floor or or as

the unemployment rate starts going up

the recession begins this is pretty

consistent what's interesting about the

9s is look at the 9s right here as the

Federal Reserve was lowering the fomc

FED funds rate which is the red line the

Blue Line consistently fell the Blue

Line actually fell from

1992 all the way to about 2,000 you had

8 years of declining unemployment that

is exactly the opposite of what you had

in 2001 and it's the opposite of what

you had in 2007 and I hate to say it but

folks it is the exact opposite of what

we have today we have Rising

unemployment today we don't have a

9-year trajectory of declining

employment where as we're reducing rates

the unemployment rate is going down

we're actually reducing rates Now 50

basis points as the unemployment rate is

rising and we're trying to stop we're

trying it's like we're trying to plug

the leak if you will uh in the sinking

I hate to say it hate to use sort

of the Titanic reference but it's kind

of like there's a hole and you're trying

to plug it whereas in the mid90s there

was no hole and notice how in these fomc

transcripts what they are describing is

an economy that is extremely the

opposite of what we face

today I do we have do we have a labor

market so tight that some firms are

considered discouraged it's crazy or

here's another one they literally saw a

risk of the potential of a positive

demand shock suddenly sending prices up

we're worried about demand falling off a

cliff not worried about a demand shock

running this Market back towards

inflation now I know some people argue

there could be a second wave of

inflation and that's after the Federal

Reserve starts cutting aggressively

because of the employment problem then

we get a second wave of inflation I

don't think that's likely I actually

think the Federal Reserve is the light

this is my opinion right everything I've

described so far this has just been fact

this has been and then I want to get

into this Challenger report here which

is freaking crazy but you know the

market that you've described or just

heard about in the

9s is the opposite it is not even

slightly different it is literally an

opposite Market of what we see today and

let me evidence that to you by showing

you the Challenger report that just came

out this was scary job Cuts announced by

us-based companies surge in August

2024 hiring Fall's lowest year-to date

since Challenger report began tracking

in

205 this was out September 5th before

the FED meeting us-based employers

announced 75,000 Cuts in August a

193% increase from the 25,000 Cuts

announced one month prior so something

started happening in July and August uh

I understand they didn't have the

layoffs yet in July but when we look at

earnings we could see some slowdown

started in July and then that led to

layoffs in August now the question is is

it going to lead to more layoffs in

September or not if the layoffs pick up

again in September or October or worse

like at the end of the year and the

beginning of the year you know after the

holiday season maybe businesses will try

to hoard labor until then and then the

real Poopsy doopsy hits we're going to

have some real issues because now you're

going to have a Federal Reserve that is

dealing with the same situation that you

had in 2007 the same situation that you

had in 2001 and not the same situation

that you had in the 95 soft Landing

again everybody keeps talking about the

1995 soft landing and that's why I

thought to myself well okay I'm going to

be different I'm going to actually go

read the FED transcripts and try to

understand what it was they were seeing

then so I can understand think about

some of these other numbers here PWC

when you got some small layoffs these we

talked about the IBM Cuts pwc's laying

off 1,800 workers what was interesting

about that was not the number of workers

but it was that they had their first

layoffs since

2009 ah crazy IBM's talking about

replacing workers with AI GM Cisco just

announced additional layoffs although

War notices aren't really that high yet

I think people might try to hoard

through the next few months here there

could be some real uncertainty come post

holidays but we'll see some other things

that are worth looking at in that

Challenger jobs report uh is that this

is the second highest level of cuts

announced since 2009 excluding covid

which definitely indicates some form of

economic uncertainty now In fairness a

lot of the layoffs uh more of the

layoffs out of all of them

16439 reported that the layoffs were

because of market and economic

conditions but twice that were because

of cost cutting so at this point twice

as many compan companies are still

saying oh well we're just cutting costs

whereas you know half as many of the

cost cutting are saying oh well we're

laying people off because the market

sucks in a real recession like when

you're in it that flips people are like

yo we're in a recession man sorry we're

just laying off

everyone so in my opinion from from what

I'm gathering we're not quite there yet

but we seem to be knocking on the

recessionary door and the issue with

this is trying to time when the

recession is going to strike is

literally impossible because quite

frankly you could have a Japan style

carry trade shock tomorrow and and it

lasts longer boom you're in recession uh

or you could have the market just keeps

going up and keeps melting up up up and

then all of a sudden post holidays oh no

Black Friday sales weren't that good all

of a sudden people start cutting way

more than expected in January and then

that's where your recession actually

begins in q1 of 2025 who knows these are

all things TBD but I will tell you the

one thing that I think will do well over

the next year with more certainty and

this is not a guarantee obviously but I

personally think Bond deals are going to

have to come down dramatically because a

the FED cut 50 to try to support the

markets and yields went up so the FED

has to talk these yields down if they

can't talk the yields down they're going

to have to cut more because if they

don't cut rates more rapidly than the

market is expecting they will probably

miss the opportunity to create a 1995

which honestly the data we've looked at

so far already suggests we're we're just

not going to be a 1995 but even if we

are a

1995 we have to Spur hiring in an

economy that avoids a recession you can

do that by cutting rates more than

expected and if you have a recession you

cut rates more than expected so either

way soft Landing with slower growth you

need to cut rates more to encourage

businesses to hire and in the face of AI

it's harder to encourage businesses to

hire because they're just like I'll just

have my existing workers use AI more I

know that doesn't work in every single

field obviously they're uh AI resilient

you know businesses like try to get you

know AI to build a house for you you

know there there's some things you're

going to have problems with replacing AI

with but sales uh you know some some

forms of frankly White Collar businesses

are going to face a lot of AI stress uh

and so in my opinion that's going to

lead to a Fed that just has to drive

rates down further and I also think

there's so much slack in the economy

both in the jobs market and

Manufacturing that I just don't see a

second wave of inflation because even a

pickup of demand would just fill the

slack that we already have in businesses

businesses are ready for more work

that's what Co did for them it helped

them get ready for more work and now

there's not more work and so it's either

we prevent more layoffs or

weow but both of those are going to

require lower

rates which again in my opinion bodess

really well for the bond market and as

far as stocks it's going to be an either

or you either get recession stocks tank

50% or you get no recession and stocks

can keep running so let me know what you

think in the comments down below thank

you so much for watching if any of this

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