URGENT: Watch BEFORE Wednesday

hey everyone we kevin here this video is

going to be quite important for trading

in the stock market this week and for

longer term investors in terms of what

we can expect to happen to the real

estate market the longer term stock

market should we be in defensives should

we be in cash should we be in tech

stocks are we gonna get a saint patty's

day rally well that's what we're gonna

talk about in this video it is worth

noting that saint patty's day is the day

after the fomc meeting ends the meeting

begins on the 15th of march that's this

tuesday it ends on the 16th which is

this wednesday and this wednesday at 11

a.m california time we will get an fomc

statement along with a summary of

economic projections from the federal

reserve followed by about a 45-minute

press conference wherein jerome powell

will be answering questions from the

press

generally i find the questions from the

press are actually a lot better than the

questions that we see in congress when

jerome powell goes to testify before

congress the last time that we heard

from jerome powell was about two weeks

ago when he did testify before congress

and the big things that we learned from

him two weeks ago were that he thought

this war was a game changer and that

obviously there would be inflation that

comes from the oil and energy shock but

that he expected the adjustments from

the oil shock to be sort of a one-time

impact to inflation that is something

that is not transitory that isn't even

necessarily remotely recurring that is

more sort of a one-time all right here

it is and then it's gone and so what

we're going to want to do is break down

what we expect for the summary of

economic projections and exactly what to

look for in terms of how jerome powell's

tone changes because it's really going

to set the pace for stocks and crypto

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folks let's get into the sep so this is

the last time that we got an scp now

this seems crazy but the last time that

we actually got this was december 15th

of 2021 they only come out every about

uh two to three federal reserve meetings

and in january at the fomc meeting in

january during the press conference

jerome powell said that if he had to go

back to december and do his sep again do

his sort of projection that he would

expect that inflation would actually be

a lot higher that he would go back and

revise his expectations up for the end

of the year and so what this is is

basically people like jerome powell and

the other folks in on the fed on the

federal reserve board they get to write

down what they project inflation is

going to be by the end of the year the

unemployment rate's going to be by the

end of the year and what interest rates

will be by the end of the year and so

the way you can see this here is we're

going to go ahead and remove all these

annotations from all this junk that

we've previously written down

and the way you really want to read this

is you want to see two things first you

want to see the median which is really

your middle number it's better than the

average for a purpose like this because

a really low or really high number could

really skew the average a lot so we're

going to go with the median numbers here

and really we're in 2022. so what we're

looking for is what is the federal

reserve's median estimate for inflation

at the end of the year the unemployment

rate at the end of the year and gdp at

the end of the year these are some huge

numbers and then of course the federal

funds rate then what we're also going to

be able to see is the difference between

their prior projections see previously

their projection was september and then

to december where we saw these larger

increases right so i'm going to write

down my expectations here and then we're

going to talk a little bit about ranges

and some of the other things that we

have to pay attention to

so the september projection for the fed

funds rate said that at the end of 2022

we would have 0.3

as a fed funds rate which is obviously

wildly unexpected at this point the

market's pricing in as high as about a 2

rate

one of the reasons you might see this

pull forward is because the unemployment

rate has fallen substantially faster

than we previously expected it to fall

you can see here that we expected the

unemployment rate at the end of 2021 to

be about

4.3 percent and what's remarkable now is

if we just type into google the

unemployment right now and we get the

bls uh employment statistic we're

already at 3.8

and we're at the march reading for

employment i'm sorry the february

reading for employment since we always

look one month back and we're already at

3.8 so we really expect oh the pen

stopped working we really expect by the

end of the year 3.5 should be a

no-brainer and when we move up the

expectations of how quickly the

unemployment rate goes down then another

thing that we can do is we could start

moving up how quickly we expect to move

rates up so it wouldn't surprise me to

see the federal reserve basically just

take the items from this column and say

okay instead of expecting these numbers

by the end of 2023 we're going to move

them up because unemployment's going

down so much faster we're just going to

move the items from this column over

since everything's happening about a

year earlier so i would not be surprised

to see the fed funds rate come in at

about 1.6 for the median now i really

like the range the central tendency

range over here this just shows you the

low and high uh oh sorry not the central

tendency we're going to go over here

this is the range that we want here's

the range for 2022 and so the previous

range was about 0.4 to 1.1 i would

expect to see this be somewhere between

1.4 to potentially as high as 2.3 and

that's going to give us sort of that

midpoint of about maybe 1 6 to 1 8

depending because median is not going to

be average right so there could be more

people on the lower side but i do think

there'll be a few hawks that'll really

show this higher like 2.3 and we'll talk

a little bit about what happens if we

get some worst case scenarios here as

well

now for inflation they like to use pce

which generally comes in a little bit

lower than cpi which you'd think cpi's

already like manipulated to the downside

yeah this comes in even lower but that's

okay obviously pce we're just going to

focus here on the oh headline number

here of pc it's not going to be 2.6

everybody knows it's not going to be 2.6

i personally would expect and we're not

even going to move this over one year

because we're going to be way higher

we've got two forms of inflation now

we've got the old transitory inflation

which has become a lot more persistent

those are your supply chain issues and

then you have the new transitory

inflation which is sort of your oil

price shock and your food commodity

price shock uh nickel palladium wheat

oil natural gas all of these things

these are going to have as jerome powell

put it a quote-unquote one-time price

shock unfortunately one-time price

shocks can take about a year to actually

disappear

so we're going to be paying a lot of

attention to the month-over-month data

when it comes to inflation because the

one-time price shocks will just keep

showing up for a year

until

and that's why you're always going to

look for those month-over-month

inflection points to the downside on

inflation but anyway i would expect this

to come in substantially higher uh it's

probably going to be closer to five

percent but i wouldn't be surprised if

the fed comes in here and says something

like 4.5

remember to always mute your phone

before you end up filming a video

because that gets quite annoying but

anyway

then the unemployment rate wouldn't be

surprised to actually see them leave

this at about three and a half percent

because you can see here their longer

run goal is three and a half percent and

so this is sort of in in their minds

their definition of maximum employment

and this is really just a way of them

saying we're already good we've already

essentially achieved our goals sitting

at 3.8 we're probably going to go down

to 3.5 way before the end of 2022 this

will say 3.5 across the board

unemployment's checked remember their

dual mandate mandate number one is

maximum employment that's already been

achieved mandate number two is stable

prices that has not been achieved and so

that's why we're going to be working on

inflation here the issue is to deal with

inflation you've got to raise rates and

everybody's worried about the potential

for a rug pull that is markets getting

paul vulcard and all of a sudden uh

seeing a substantial increase in

interest rates much faster than expected

which could lead to shocks in the

mortgage market and shocks in the stock

market and lead to substantially more

valuation compression there's some real

potential upside or sorry downside risks

to markets and upside risks to inflation

okay good so these are what we're going

to be looking for

on the scp

my belief is if we end up seeing

something substantially higher than

these numbers that i wrote here on the

sep the market's going to be very

sad

now right now the market is pricing in

about a 95

chance of a 25 basis point hike so it

pretty much means we're almost

guaranteed to get a 25 basis point hike

the fed could shock the market if they

do something other than 25 basis points

it would be really unexpected and

markets would react if they kept things

at zero i think markets would rally

although there'd also be a weird head

scratching here that the fed's just

kicking the can down the road and if

they went into the 50 basis point that

would be a problem that markets would

not be very happy about that because

markets aren't expecting that but the

fed doesn't like to do things that shock

the market though the fed will do things

that lead the market to go down they

just don't want to do that in a way that

would shock the market that's an

important distinction there it's okay

for the fed if prices go down because

that actually de-risks markets it's bad

when they do so as a rug pull and that's

what the market's trying to expect so

for example if we go over to may we're

only expecting a quarter basis point

hike we go to uh this is for the uh

sorry that's march 16th same thing for

may expecting a quarter basis point hike

same thing over here expecting a quarter

basis point hike and basically the

market's pricing in a quarter point all

the way until july where there's a

little bit of a greater chance that the

fed actually comes in and

it potentially says hey you know what

we're gonna do nothing and we're gonna

pause on rate hikes is actually getting

priced in right here do zero but of

course the majority here is suggesting

that quarter basis point hike and then

you go a little further and you see

another quarter basis point height so

really the market is not pricing in any

kind of 50 basis point hike so if we go

to the end of the year you can see the

market thinks we're going to end the

year with a 42 chance somewhere around

1.5 to 1.75 right now we're technically

at 0 to 0.25 so generally you always

read the first number is the trick for

this well if the market says 1.5 is the

most likely scenario maybe slightly

edging on the higher side you know it's

kind of funny it kind of aligns with

exactly what i wrote here and you might

not believe me but i actually wrote 1.6

before i looked at the rate futures

so i'm kind of glad that we're in

alignment i like to see that see i like

to write down my assumptions first and

what i believe based on all of my other

research is going to be likely and then

i can compare to other data so that way

if i'm completely off i can look and go

okay why but this is perfect alignment

here and i kind of expect that based on

what i see in the market and the

research that i do so anyway 1.6 which

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programs okay so now uh 1.6 on the fed

funds so this is what the market's

expecting this is what i'm expecting

everybody's expecting maybe 1.6 towards

the end of the year so where does this

become a problem well i'll show you

where this becomes a problem this

becomes a problem if the federal reserve

ends up suggesting something other than

this if we end up getting a median read

of

2 or even worse like 2.25

i would expect the market is going to

react very negatively the market is not

in my opinion going to react to oh they

did a 25 basis point hike we already

know they're gonna do that that's old

news this is what's going to matter

because this is going to forecast how

many more hikes we have ahead

now how many meetings do we actually

have left this year well you've got the

march meeting but that's going to be

done that's going to be your first 25

basis points then you've got may

june

july september

november and december so you got six

meetings left if they did a 25 basis

point hike at every single one of those

meetings

that uh in addition to to this point

first point two five that would put us

around

1.75 this is where we would end up the

year 1.75 to a range of 2 right this is

where we'd end up this would be kind of

in line as well

so worst case scenario if this ends up

being a 1.7 i don't think it's going to

be a big deal but if it's anything like

a 2 on the low side that is the first

number of the range 2 percent to 2.25

that's going to scare folks and i think

folks are going to look at the median

here because remember this is the vote

this is not down to one person it's a

vote the range is going to matter you

know if we saw something like two

percent to three percent in the range

for 2022 that's going to freak markets

out markets aren't going to like that

though sometimes the federal reserve

likes to plant seeds here that they plan

on being more aggressive as a way to

kind of like

start bursting the bubble to the market

so this is a way that they can

communicate their potential expectations

and then try to get the market to align

so you could see a very quick market

movement if we did get it something like

this i would say this right here would

would be concerning this would be a sign

that the federal reserve is losing faith

that they can actually control inflation

right now they're playing a game of

patience where they do believe that if

they're patient enough they're going to

end up seeing the first supply chain

transitory inflation fall and then this

energy and food shock inflation

eventually also fall especially once the

crisis in ukraine ends which knock on

wood is hopefully very soon

now this inflation reading number right

here and again we're assuming this is

going to be 3.5

if this goes up then it starts making

you wonder like hey is the fed expecting

recessionary signals which obviously

they could also signal here now last

time they raised gdp from three point

eight percent to four percent as a

forecast it would not shock me at all

for the federal reserve because of the

war and the price and everything to end

up saying hey we expect let's say three

percent growth by the end of the year

this would not shock me at all if this

ends up coming in with something like a

one percent

which i don't think but if they end up

putting one percent here for growth and

then they blame war or whatever this is

going to be very scary and it's going to

be very scary because one percent is so

dang close to recession because you get

negative through two quarters in a row

boom you're in a recession so

i don't think this is going to go up uh

i don't think it's going to plummet i

think maybe three percent is going to be

a big adjustment down right from from

their previous estimate here of three

point eight or four percent some big

jump down maybe it ends up coming in at

like 3.5 it's i almost certainly expect

it to come in less but if it comes in at

like a one or two percent

markets are absolutely going to lose it

so

we're going to just going to say the

blue line here very very sad if this

comes in higher it's a good thing but

one to two percent would be very very

bad over here uh two to two and a

quarter percent would be very very bad

and the inflation reading i don't think

will matter so terribly much because

there's just really a shot in the dark

again i expect them to come in at 4.5 if

they expect inflation to come in at like

seven percent i really don't think they

will this is very very unlikely that's

going to give market some cause for

concern because it's going to be in the

fed themselves it's kind of like yeah no

we're we're screwed

and then the other numbers would would

probably align more closely to a one to

two percent anyway or two uh to two and

a half or two and a quarter percent rate

for the fomc so these are going to be

things that you want to watch for but

there are going to be more things that

you want to watch for as well so just as

a quick summary you're going to want to

watch for that gdp prediction how low is

it going to go anything with a 1 or 2 in

the front bad we're going to want to

watch for that not so much the inflation

number the unemployment we expect to

stay at 3.5 we're going to watch that

fomc fed funds rate is it going to come

in at 1.6 anything with a 2 in the front

it's going to be bad that's not going to

be juicy okay so very very important

this piece of paper here is going to be

critically important to how the market

responds much more so than the stupid

headline that you're going to see on you

know not the bag on cnbc but it's going

to be the headline on cbc fed for the

first time in four years or whatever

hikes rates 25 basis points oh my gosh

lift up

everybody expects this already

news next like there's no news there no

news at all

okay the next thing that we need to pay

attention to uh well there are three

little things that we want to pay

attention to

all right uh and before i hit these

things if you don't mind if you haven't

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this i'd be more interested

hey we can make it happen so i'm curious

all right so this is what else you want

to listen to so number one is the scp

the summary of economic projections

number two you want to look for the

danger of what we call the license to

hike

so the federal reserve in jerome

powell's discussion is probably going to

be testing and the way he answers

questions and then watching to see how

the market responds

the

basically hey do we have permission

to go for essentially like the rug pull

right the 50 basis point hike this is

going to be very subjective in terms of

how we analyze uh the licensed hike

if uh if jerome powell suggests hey if

uh by july the data doesn't improve then

we might have to be more aggressive with

our tools that is going to be a very

clear license to hike and the market's

not gonna like that and that might be

reflected in the scp it might not be see

because the scp will be their

expectations for the end of the year but

then jerome powell's also going to give

us his forecast he's going to say hey

but hey if we're wrong with our

expectation

then we'll go for a larger hike and then

the question is well how high would you

ever raise the rates one percent would

you ever raise them two percent just to

pull vulcarus and get rid of inflation

and depending on what he says there will

be very large recessionary signals right

so then we've got

the uh level of dovishness to measure so

number one scp number two the license

hike number three the level of

davishness

so the ecb shocked us a little bit they

uh tapered their stimulus much faster

than expected despite war and despite

the fact that we expect a war to affect

europe substantially more than it will

affect the united states and so when the

ecb went hawkish on friday and thursday

we saw markets turn substantially more

red that was a big deal that was a big

problem so the level of dovishness

because of war is going to be something

to pay attention to from jay pal uh how

davis is he because of war how much does

war delay

his interest in fighting inflation he

might suggest hey well you know we're

going to delay fighting inflation until

essentially the geopolitical concerns

are over because we believe that the

geopolitical concerns will actually help

reduce consumer demand globally and

thanks to the velocity of money we'll

see demand go down here in the united

states which won't be good for earnings

he won't say the part about earnings but

but when demand goes down inflation goes

down right

uh then uh we're going to look at

his definition of sort of the two types

of inflation does he actually believe

that there are two types of inflation

that is the transitory supply chain one

and then the one-time energy shock one

the uh one-time energy shock one is

something that we really want to pay

attention to

so uh you know is drone probably gonna

say hey this could lead to lasting

inflation that just becomes more

perpetual or is this as he's said before

a one-time hit and then it's over i

don't really expect a lot of talk about

cbdc's you know there are a lot of like

conspiracy theorists and stuff that are

like oh central bank digital currencies

are just designed to tell you where you

can shop and can't shop and

whatever uh that you know i'm not

terribly interested in that i think if

you don't want to use cbdc don't use it

and it's nowhere even close to here

central bank digital currencies are i

think

something we won't see until 2025

certainly not from the federal reserve

maybe from china but it'll probably be

garbage oh gosh this is why i can't

visit china because i say things like

that i'm sorry i'm sorry china if you're

watching i didn't mean it

okay so anyway uh

look it's gonna be a big day wednesday

uh i'll live stream the meeting because

it is such a big day

but uh yeah otherwise if you want to

talk to me you got questions or in those

live streams folks leave me some

comments down below thank you so much

for watching and folks we'll see you

next one bye