The Fed is Wrong: The Coming Severe, Long Market Crash

this folks is the financial times it's a

pretty reputable newspaper for what it's

worth and

we've got an article in here that we've

got to talk about because it's basically

talking about how jerome powell

is wrong in fact it's called powell's

inflation bet is based on flawed

reasoning now i saw this and i thought

let's get some coffee and read it

because it's hard to read without coffee

but

beyond that yesterday i made a video

about

eight reasons why the fed might be right

why inflation might not come and that

is probably a really good video to watch

before this one

to especially if you think inflation is

coming it's always good to

you know challenge your confirmation

bias right or challenge your your biases

and that's exactly what i'm doing here

because this here says powell's wrong

and so i want to see

what why does this person think powell's

going to be wrong is it just going to be

well he's running the money printer or

his mouth is moving or like what's the

actual argument going to be

well i gave it a read and i thought you

know what this is actually something we

should talk about

he's got some good points so this

author's name is uh andrew parlin

and uh he's his title or the title of

his article is powell's inflation bet is

based on flawed reasoning

and here are just some parts of what he

says so

the first thing that he starts off with

is

basically saying underneath jerome

powell's grace suit and mild manner

is a man pursuing one of the highest

risk

policy experiments in economic history

i'm like oh you got me hooked with that

one you know in fourth grade when

they're like make sure to hook your

audience in i'm like oh damn

well i don't know i want to know what

what what's your reasoning i mean it's

not that long of an article

let's hear what it is and so here it is

so first he describes that drone powell

is somebody who believes that inflation

will temporarily overshoot two percent

then fall back to two percent

and that we won't need to raise rates

until 2024. he goes on to say that

jerome powell believes we're going to

have a growth rate of around

6.5 percent in 2021 unemployment will go

to 4.5 percent

yet all of a sudden all of this is going

to happen while at the same time we're

buying 120 million dollars

i'm sorry 120 billion dollars per month

in treasury bonds and mortgage-backed

securities

80 billion of treasury bonds and 40

billion of mortgage-backed securities

and so here are the four reasons he

gives for why jerome powell

is going to be wrong and why inflation

is going to come with a

vengeance much more strongly

than we anticipate and why that's going

to be devastating

for markets and potentially lead to a

market crash like

all right man give me your worst let's

see let's

let's hear it okay because i had eight

reasons yesterday you got four

i kind of got you outnumbered here let's

see how good the arguments are okay so

first reason he gets

the risk reward of his experiment is

wholly asymmetrical

skewed hugely to the downside if powell

is right

it is unclear what the reward will have

been the downside however is

incalculable

an entrenched inflation such as

which we have not known in decades and

the need to slam

on the brakes throughout aggressive

re-tightening

given how inflated asset prices are the

bust

that would follow would probably be

unusually

severe and protracted okay let's

un-package that because those are some

large words here

basically he's saying yo jerome powell

thinks

our economy is going to grow way slower

he's skewing to the downside he thinks

it's going to take

longer but he's not protecting against

the

odds of the economy actually growing way

faster than we expected to and then all

of a sudden we're going to be caught

with our pants down

because inflation is going to go up

interest rates are still going to be

zero

and we'll have to quickly adjust raise

rates and that

sudden increase in interest rates is

actually going to cause a

severe crash and meltdown in especially

high value stocks because

all of a sudden the fed's going to have

to eat their own words and they're going

to have to u-turn

so why is jerome powell

challenge or basically aligning his

philosophy or his principles

so far to the downside that no no it's

going to take a while to grow it's going

to take a while

for things to get back to normal why is

he going so heavy to the downside why is

he not going with a little bit more of a

middle-of-the-road approach

to go okay we we want to make sure that

if if things

need more time to grow we can

accommodate that but if things start

booming we can accommodate that too

why is he so confident that rates aren't

going to need to be able or need to go

up sooner than 2024

and by not preparing for that

possibility that rates might have to go

up sooner

this author thinks that we are basically

creating

or setting up for a massive

bust that would be unusually severe

so sharp and far down big drop

and protracted long so a long crappy

period of time

and this could honestly and he didn't

say this but this could spawn the great

deleveraging that ray dalio always talks

about where people all of a sudden get

burned by all this debt

and then they get they get super nervous

about debt ever again in the future and

then they start spending less

they start paying down debt more to try

to avoid bankruptcy or they went

bankrupt and they don't want to get into

debt anymore

and actually ends up slowing down our

economy for many years into the future

oh damn that makes me want to pay down

some margin

like seriously like okay i mean that's

not a horrible argument now jerome

powell would probably we don't know

because they won't let me interview him

keep trying but anyway drunk powell will

probably respond with something like

well hey look

you know we're monitoring this and if

inflation does go out of hand we have

tools to deal with that

but ultimately the big priority is

making sure that

people who are hurt the most

like minorities or women

have enough time to be able to get on

the ride so to speak of this economy

growing

and so we don't want to raise rates too

soon to prevent people from being able

to get on the ride

and yeah that might mean some asset

prices go up but that's our that's our

mission to have

full or maximum employment and stable

prices

maximum employment also includes

minorities and women

at least that's how the fed has been

defining it lately so

hey okay i mean interesting point

okay okay second the level of inflation

vigilance on the part of the fed chair

is cr a critical component in keeping

inflation expectations firmly anchored

so basically what jerome powell says

matters okay got it

an old wall street adage states when the

fed chair starts to panic

investors can relax here we have the

reverse

and that's interesting because when the

fed panicked in march of last year

that was like the perfect signal to go

buy everything in the stock market

now jerome powell is super chill he's

like bond deal's going up

no problem that's part of our plan it's

all good

it's all under control it's a good point

uh okay it's no surprise that in

reaction to powell's blythe

dismissal of the inflation risk

expectations

of inflation have leapt to another high

so in other words a big signal

in this author's opinion that inflation

is coming is actually how

nonchalant the fed is being about

inflation

i think that argument is weaker than his

first argument i think his first

argument was actually really good about

hey we're really skewing to the downside

here not if the economy does well

which sets up the possibility of having

to adjust and that could lead to an

issue and

we don't want to see a ray dalio greatly

great re-leveraging

okay third powell has repeatedly stated

that inflation has surprised on the

downside since the 2008 collapse

now this is true inflation has been way

lower than we have expected that it

would be since 2008 this is true

this is of course true oh those are his

words too uh but perhaps

not so relevant economists have only

recently come to appreciate

to what extent fiscal policy was a drag

on growth

both growth and inflation during the

last decade and this is

and this is his reasoning here the total

pandemic spending

just past 1.9 or including this 1.9

trillion dollar package we just passed

now exceeds five trillion dollars which

means we have spent five trillion

dollars in the last

year which is five times

or five x what we spent between 2008 and

2009.

now many economists look back and say we

spent too little in 2008 and 2009

but this author is correct to say that

there is

no precedent it's extremely hard to

predict what's going to happen after

spending 5 trillion

5x what we did in 2008 and 2009 when

there's no precedent

there's no there's like this has never

happened before we've never just printed

25 of of our gdp

uh okay fair fair no precedent that's

fair

uh we do have trends that suggest uh we

are declining in terms of

inflation expectations uh certainly over

the long run and again watch my video

with the eight arguments as to why we

might not see inflation

uh i posted that yesterday very very

important that you watched that one if

you have not yet uh and you're watching

this one

uh and then you can make a more thorough

opinion that way too

uh yourself because that to me your

inflation expectations dictate how you

invest as well

okay so uh it's a fair point okay we

have not spent this much money before

this is unprecedented

hopefully uh you know we'll actually

start getting some more data to help us

understand better

how the economy is responding to what's

going on is uh

is the velocity of money going to go up

again are we going to see

inflation on a month-to-month basis

starts skyrocketing are we actually

going to see prices going up

you know we've certainly seen prices

like commodity prices like copper

and lumber go up through the roof are

there's going to persist

are those high prices going to stay or

are they going to be temporary

a lot of questions to ask okay so so far

i really like that first argument he

made the second one yeah

there's no precedent one it's a good

argument it's true

what he's saying is true there has been

no president now fourth and finally

powell should be especially distrustful

of himself and his own judgment

judgments

for he has firsthand experience in

applying the wrong policy prescription

you know i don't know why they have to

write in tongue maybe because this is

the financial times and they want to be

fancy

but basically what he's saying is your

boy joel powell has been wrong before

just look at 2018

okay 2018 he's like oh we're going to do

automated interest rate increases

and he crashed the freaking market and

then had to u-turn on what he was doing

and

lower rates again because he screwed up

he made a big mistake

and you can actually go through my

youtube channel and see me covering this

stuff in 2018 which is crazy now i'm

starting to feel old

that i i covered that i mean that's only

2018 so i don't know what three years

ago two and a half three years ago

uh but i i remember those days like oh

what's your power going to say this was

back in 2018.

uh it's just the same thing uh good

point

okay touche jerome has been wrong before

touche and he hasn't been uh you know

chair for that long

uh so anyway uh this author ends with

the point is not to rub the 2018 policy

error

in powell's face misreadings of the

economy are routine

which circles back to my main point with

so little known about the dynamics of

consumer price changes

there is no need for the fed to make

multi-year promises

to hold rates at zero it's time to

start the conversation about monetary

tightening

andrew parlin is founder and chief

investment officer of washington peak

investment advisors

i mean this is not a bad article not bad

at all

uh i i don't like

i guess my conclusion from this article

is a yes it's true powell's been wrong

before yes that's true there has been no

precedent before

i think the uh argument about what was

the second argument his argument about

uh oh oh uh do the opposite of how the

fed feels i think that's a little

uh i think that's a little bit more

anecdotal right and plural of anecdote

is not data

so that's important to consider so he's

got good points

i don't think those points outweigh the

eight arguments that were made

on why we won't see inflation yesterday

watch that video i'll link it down in

the description below right at the top

just hit the little expand and you'll

see it there

i might even pin a comment with it the

big one that is interesting to me though

is his first argument about if

jerome powell is wrong we could see a

pronounced uh and prolonged uh

unusually severe and protracted crash

basically

and uh that reminds me of the ray dalio

great deleveraging

and it's a good reminder for me to go

kevin

kevin margin pay off

the freaking margin uh right now

uh and prices have gone down uh i've

gone up a bit but i've also been paying

off margin

uh i am at about 28 margin

uh which is good but i do want to see

that plummet i want to get that down

substantially so we'll see what happens

but uh yeah that is a very good article

appreciate this let me know if you found

this helpful or insightful

kind of scary a little bit too anyway

let me know what you think folks we'll

see in the next video thanks so much

you