Why the Fed just CRASHED the Market [Explained].

hey everyone me kevin here so the

federal reserve just spoke and basically

crashed the market

again that v-shaped crash we had this

morning basically

we got revisited in certain stocks like

tesla not at all we didn't hit the sharp

bottoms that we did this morning but we

definitely hit some

lows after mr powell decided to talk

today

why why would this happen well the

easiest thing to do is explain what

jerome powell

said uh add some insight into what

jerome powell was saying and then

go into what he didn't say which is uh

causing some pain in the market so here

we go uh first

jerome powell started off by talking

about inflation and this is a big thing

jerome powell

drills this into the market but the

market doesn't care

jerome powell consistently tells us that

it is unlikely

that quote deeply ingrained inflation

expectations will change

what this means is we have had inflation

declining

for decades since the 80s inflation has

been going down

we expect things to get cheaper with

technology

not more expensive in time we have been

in this deflationary cycle much like the

eurozone

which is even worse off than we are and

drum powell believes look we're going to

see these short term spikes and there

are two reasons we're going to see short

term spikes

one we're going to see them because of

something called bass effects

in english that means in march when we

look at the inflation readings the cpi

readings in march

they're going to be way higher than they

were in march of last year because

inflation was in the toilet

uh last year because everybody's cutting

prices because nobody was buying

anything right

we had this sudden deflation march april

and may of last year because of the

pandemic

and so when we compare year over year

it's gonna look like oh my gosh we've

got

three percent inflation three and a half

and play in percent inflation

jerome's like dude that's not gonna

matter like that

that is not real inflation that doesn't

matter so ignore that

he's making this crystal clear he says

the same thing over and over again

he's basically begging the market like

trying to grab people by the next coin

we're not seeing inflation that's

basically what jerome powell is doing

while at the same time

money printing so it's kind of like he's

grabbing your neck with one hand there's

no inflation okay

while running the money printer so the

market doesn't believe him because he's

running the money printer right

now uh jerome powell says that there's a

second reason we could see inflation

and that's just the economy reopening

again people go on vacations again

traveling against spending money again

that'll create a short-term spike in

inflation but the big thing that that he

says here is

it is unlikely that d and he really

added inflection on a lot of his words

today

deeply ingrained inflation expectations

will change

jerome powell believes that inflation

only goes up

when people expect prices to go up so

for example

let's say a cup of coffee is a dollar if

we expect this

cup of coffee will be a buck uh you know

a dollar and three cents next year and

then a dollar and six cents thereafter

and a dollar and you know nine cents and

i don't know

some change thereafter then then we

expect inflation to come but most of us

don't expect that we actually expect the

cup of coffee to

maybe go to like a buck one maybe a buck

two right like we don't actually as a

society

tend to believe that there's going to be

massive inflation however the money

printing

is what's creating this bizarreness like

if you ask people you know a few years

ago when are we going to see big

inflation

most inflation wasn't that big of a

concern inflation really only became a

big concern because of the money

printing that's happening

now and it's possible that jerome is

wrong and that's the bet the market is

making

the market is betting money that jerome

is wrong

the velocity of money is going to go up

the amount of time

money circulates through the economy is

going to increase which means prices

will go up because so much money is

going to be chasing a limited supply of

goods

supply demand says then prices go up but

jerome is saying okay fine maybe that'll

happen after reopening

but that's not going to stay consistent

we're not consistently going to see

those pressures and so when he's asked

is the market wrong on inflation he says

look

we're watching the bond market we saw

what happened in the bond market last

week basically the spike of the 10-year

to 1.5 and that acceleration

and the bond yields going up he noticed

that he says he paid attention to that

but he says look despite what happened

we're a

long way from our goals we would be

concerned

if the markets were actually starting to

fail or if there were a tightening of

financial conditions that banks like

banks like oh we don't want to lend

anymore let's start freezing credit

lines and stuff

he says that's when i would be concerned

but markets

hey they think rates are going to go up

sooner we don't think so

is what fed uh chair jerome powell is

saying and i'll explain why then the

market is crashing

because there there's a reason for that

uh now

then he says what would it take to then

raise rates and he says look it's going

to take substantial

progress for some time when he uses the

word sometime

usually he's referring in my opinion to

six to 18 months of progress in fact he

kind of

laughed about the fact that i mean he

didn't laugh about this it's not

laughable but he's kind of like look

we just had three months of no progress

is what he's saying in the labor market

like we need substantial progress for

some time

and we just had three months of no

progress like jerome powell

like if i could like really simplify

what jerome powell feels right now

he's like how effing clear can i make it

we're not having any progress why are we

assuming there's progress

there has been no progress we see no

progress we think the progress you think

is going to come is going to be

temporary and fleeting like drum powell

on the inside i think he's freaking out

i think he goes home to his wife and

he's like these people don't get it like

i keep saying there's not going to be

inflation i keep saying we're nowhere

close to a recovery and here's the

market thinking no no jerome's lying

the rates are gonna go up soon okay i

think that's what's in his head like i

sincerely think he goes home and he's

extremely frustrated

oh and that's why when he's on these

interviews he says things like

uh we're trying to get to sustain two

percent inflation and run moderately

above that we're trying to get to

maximum

uh employment which maximum employment

doesn't just mean

four percent unemployment as a rate it

means uh

that blacks whites hispanics women

people of all races and colors are fully

employed that's maximum employment and

that's very important

he says we are quote a very uh

long way away from that and that there's

a lot of recovery that still needs to

happen

we're not going to raise rates until we

see these conditions fulfilled

and he calls these conditions very

desirable aka it's like

he's going dude it's a long way out

he says inflation expectations are

expected to be transitory

and he even gets frustrated during the

interview during the interview he says

there's a lot of ground to cover i'm

trying to make it as clear as possible

the problem is jerome powell is stuck

with all the big words and he's

he just needs to simplify and go y'all

look it's simple

we ain't got inflation coming solid

inflation coming for probably four years

so shut the f up sit down keep buying

your stunks

we're gonna keep running the money

printer and stop freaking out because

you're freaking out for no reason now

whether we believe him or not that's the

different thing and clearly the market

doesn't believe him

so uh and i'm gonna talk in just a

moment about why why would the market go

down while he was talking

uh but i quickly want to finish make

sure i got everything here presumably

the next couple months we'll see some

growth

but we'll want substantial further

progress so he's already discounting

the fact that we're going to see some

growth in the next few months

and he's basically saying like it's

gonna take some time beyond that

to to actually see growth in terms of

when he doesn't speculate on that

there's no there's no formula

it's really just whenever jeromy powell

feels like

we've hit substantial growth there's

there's no steadfast

formula and i think that's why people

are frustrated because it's like it's

confusing

uh because again it's it's he's holding

you by the neck choking you going

there's no inflation but he's running

the money money printer and billions of

dollars or spewing into the economy

every month right

so it's like mixed messages and this is

why people have a hard time believing

what he says

but he is in a very like he's concealing

his emotion but you know he's really

frustrated inside okay so why would the

market sell off why he's taught while

he's talking

not all stocks sold off uh to the lows

that we saw early

earlier with the exception of tesla

tesla

literally just right now looks like it

hit a new low

i actually just bought a little bit more

tesla uh and

uh and as always i send alerts of all my

buys and sells to

those of you in the stocks in psychology

money group but why would the market

sell off

after his talk i mean he's basically

saying all the right things right

so why would the market sell off okay

here's the answer

the market is selling off after jerome

powell spoke

because the market expected there were

rumors circulating about this last night

a lot of rumors about this last night

there were rumors that jerome powell and

the fed were going to

come out this morning before the

pre-market or potentially during his

talk

just now and he was going to come out

and go you know what

we see the stress in the bond market we

are going to extend

the standard liquidity ratio at

banks which expires on uh march 31st

and that is going to in english we're

gonna make it so that banks

have more cash available and they can go

buy bonds

which if they buy bonds that'll drive

yields down jerome did not do that

that is why jerome crashed the market

today because jerome

doubled down on his old talk which we

already know about

but did not do what the market was

expecting which

this deadline is coming up on march 31st

it's called um

the slr standard liquidity ratio

something like that

uh and basically it says banks need to

keep a certain percentage

of cash on their books uh but

that was eliminated during the pandemic

for one year so it was kind of like

march

you know in march they eliminated this

liquidity reserves ratio

and they extended it and this this was

going to last for a year

that expiration comes up at the end of

the month there's a rumor

that the reason bond yields are going up

is because banks aren't able to buy

because they're trying to come up with

enough money

to make sure they can meet the rules

that are coming around at the end of the

month now

banks haven't really been massive buyers

of bonds so

i don't know i think they're like five

percent buyers of bonds or whatever so i

don't know how

um oh thank you supplemental uh

supplementary leverage ratio whatever

thank you uh i appreciate the

clarification though so in case you want

to look it up the sli

that's the technical name for it but

it's the same thing uh and so

basically the rumor was that okay the

fed was gonna see this tension in the

bond market and come out and say

all right it's all good we're gonna come

in we're gonna come

save the day and basically we're just

gonna make it so that banks

y'all good you know what have another

six months of not needing to have

all that money on standby uh you know in

your bank

go ahead have another six months you

guys want to go shopping for some bonds

go ahead

and that the rumor was that that was

going to create some demand for bonds

now during the conversation that jerome

had here bond yields

shot up actually substantially i mean we

just hit

higher bond yields than what we had

uh looks like last last week

oh yeah we just hit look at this or at

least we're matching

the levels we had before that is crazy

let's maximize this let me see if i can

quickly draw on this oh i can oh that's

really cool

see right here that was uh last

tuesday and thursday i believe was here

this was thursday this was tuesday

and uh look at this disaster jerome

powell caused here

and it's not really jerome's fault just

because some people had a rumor

that the fed was going to act and do

something today now the fed didn't

and the market's like well fine then f

fu

and so this is why we're seeing some

more of this pain

uh in the market right now so did the

fed crash the market

uh yeah basically the fed just crashed

the market again so i'll be back for a

market closing live stream thank you so

very much

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in the next one appreciate you bye