RATE CUTS

oh boy we got some numbers this morning

that are sure to upset some of the

Bears let's talk about those numbers oh

there's a lot going on today not only

these numbers but then we got to talk

what the heck is happening in the rates

market and what's that doing to the

yield curve first labor productivity

backtack advances

4.7% boost of Labor productivity up from

the 4.3 expected this is good more labor

productivity means that people who are

the more people who are at jobs given

that we keep adding jobs every single

month we're at like a 266,000 jobs gain

on average over the last 6 months

long-term average is like 180,000 that's

the weird part about more immigration

and more labor force participation but

of those people who are going back to

work and are already at work their

productivity is increasing faster than

people expected this could be because

businesses are becoming more demanding

of their employees

or could AI be helping now it's probably

businesses being more demanding and cost

cutting wherever they can and ensuring

that their employees are more productive

this is a fantastic thing though because

it's also reducing labor costs now

yesterday we talked about ECI the

employment cost index it's basically a

fancy quarterly report that says we kind

of want labor to be rising at about 7%

per year 7 to 75 right in that range

because if you multiply or or so that's

per quarter that's because ECI is

measured per quarter if you multiply

that out by four you get to about 3% of

wage growth that's usually what you want

you want 2% inflation growth 3% wage

growth you want people to make a little

bit more than what inflation is that's

the fed's goal and the idea is if you

have 3% wage growth 2% inflation then

you have stable prices and potentially

maximum employment well yesterday we

talked about how ECI was still a little

hot coming in at 1.1 but trending down

for a quarter puts you at more of a pace

of like

4.4% going back to this chart right here

though look at what came in today

another measure called Unit labor costs

unit labor costs were projected to

actually go up

3% well they actually in the third

quarter per the BLS unit cost measure

went down Nega

.8% this is quite literally the opposite

of a wage price spiral and we know this

is volatile you can see it here on the

white line it goes up and down it

zigzags but the point is that helps

smooth out or I should say lower the

smoothed out 3 to six month Trends

that's very important because the

Federal Reserve is worried that an

expanding economy could mean inflation

but we're not certain that it will and

right now you could actually as we're

seeing here have a more productive

economy with less inflation that is good

this is the data we want to see we want

more of this now keep in mind the jobs

report comes out tomorrow and so we'll

get another read of average hourly

earnings on a month over month basis

we're looking for 3% with 180,000 job

gains best case scenario you beat on

non-farm payrolls you come in like

200,000 jobs right and your average

hourly earnings come in low like. 2%

that's what you want expanding economy

lower costs that's what this chart says

right here and it's fantastic this is

great news is that why the stock market

is rallying

today unlikely the stock market is

probably more likely rallying today

because of the plummet in yields

remember we've talked about this for a

very long time that it has been my

belief that as soon as the Federal

Reserve indicates we have hit Peak you

license people's willing willingness to

buy the 10-year treasury again because

you get you get to lock in basically

money market rates for the next 10 years

risk-free if you hold for that 10year

period right and that's crazy to think

that today you could still get

4.64% locked in for 10 years if you

think that yields are going to go down

in the long term that is an amazing deal

you would want to go long on bonds you

want to see bond prices go up yields

come down obviously not personalized

advice just generically this is

something to think about the benefit of

this is if you're happy that you're

locking in money at 5% at say wealth

front or Robin Hood or whatever that

could go away like this as soon as the

FED Cuts 200 bips like Jeffrey gunlock

is calling for he thinks we're going to

go into recession by q1 Q2 of next year

and then we'll have 200 to 250 bips of

cuts instantaneously because the FED

will finally be convinced that they've

done enough on inflation and they're

willing to bring rates down to prevent

unemployment from skyrocketing which

then becomes a self-fulfilling prophecy

if you let it continue happening well

then what happens instantly your money

market yields plummet usually within a

week I shouldn't say instantly uh at all

these different companies because

they're not willing to lose money

continuing to feed you a higher yield so

all of a sudden you're like I'm making

5% and then you know in 6 months from

now you might be like oh damn I'm only

making 3% now now I wish I had bought

the treasuries that I could have locked

in 4.6% % on for the next 10 years and

since yields are now lower I'm also

getting Bond capital appreciation you

know who really like set the the stage

here Bill Amman it's like screw

treasuries I'm going short when 10-year

treasury yields are at 420 so 10year

treasuries fall because he's doomsday

again because that's what he does um

10year treasury yields rise to 5%

because he says it's going to go way

past 5% and then he covers right when

it's at like 4 97% you know these yields

are just too good not to buy BDS are

undervalued flipflops and now he's

writing the gains I mean I have to say

as a Trader he is the perfect

manipulator of markets people just

listen to this guy anyway it's crazy

it's absolutely crazy what else is crazy

is I forgot to change the banner here we

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so what's going on with yields now

though well the 10e is down about 14

basis points the 2year is down 3.6 basis

points now that does a few interesting

things uh number one it actually makes

the yield curve more inverted again yeah

here it is little bit of inversion again

but we're still the steepest we've been

this entire cycle uh since the inversion

obviously uh this is the 5-year forward

break even so no change here on

long-term and inflation expectations

still 248 uh but look at the shorter

term inflation expectations over the

next 5 years rather than 5 years out and

another five years after look at that

after JP Pal's Peak yesterday and some

of these employment read numbers that

we're getting we actually saw a fall in

this expectation despite yields coming

down this is probably because people are

starting to get convinced that the fed's

done in fact the fed's terminal fed

funds rate right now is sitting at

3.68% that is less than staying stable

it's basically starting to price in a

cut in fact you now just have a

14.8% chance per market futures of a

rate hike December 13th remember that uh

uh that is the next fed meeting and on

November 13th apparently it's always the

13th now you'll get a CPI read that'll

be a big deal following this Friday's

jobs report which be covering live

tomorrow morning but anyway uh January

31st has a

20.6% chance of a rate hike March has a

67% chance of being stable and about an

equal 14 to 17 18ish perc chance of

either a 25 BP cut or hike kind of

interesting uh and then certainly once

we get to May you've got about a 50 50

to 60% chance of 1 to 2 50 basis point

Cuts all those things should be positive

for your risky more yield sensitive

companies that could be your Tesla or

other

manufacturers so this is great great

news but is is the pain over is this

something to cheer is this the bottom of

risk assets well in my opinion it all

comes down to your expectations for what

jpow is going to do if you think

inflation is going to keep going up and

you think that as inflation continues to

rise JP's just going to have to come out

and raise rates again I don't know where

you're seeing that I would love for you

to leave me a comment down below of

businesses that are aggressively still

raising prices with the exception of

Aerospace or ski resorts please leave me

a comment down below just so we can all

learn together I'm not trying to like be

proven right or wrong here I just think

it's useful when everybody gets together

and puts their comment down where are

you still seeing price increases and

we're not talking about where where has

inflation happened I'm saying where are

you still seeing continued inflation

going forward uh so that's that's a very

important question so leave that comment

down below uh but if look if that's what

you believe then obviously you're not

going to go long treasuries you probably

actually go short treasuries because you

think their values could fall more and

probably won't go long risk assets but

jpow basically set in the top for rates

is a license to buy treasuries and this

could just be the beginning of a bond

market rally where Financial conditions

actually loosen in other words and this

is the weird

thing you know how jome PO is like hey

Financial conditions are tightening

because yields are going up well if they

tighten too aggressively the FED might

consider reducing rates right but if

they start cutting then you're really

going to lead to a plummeting of

financial conditions so instead all you

really need is to manipulate the market

you send jpow out with a little hint a

little hint that uh you know we might

we're making great progress we're really

worried about maximum employment we

might be

done what happens yields fall all of a

sudden the market is basically cutting

interest rates for you right now today

we are basically getting a 25 basis

point cut the way the market is

responding I realize that's not full one

to one on the tenure but that's roughly

how uh how the economy seems to respond

when we get the 25 BP hikes except now

it's in Reverse so it's actually

phenomenal the market today is almost

treating this last pause and Conference

from japal as a rate cut crazy and the

market can do all of that itself you

don't actually need the FED to cut rates

if yields start plummeting and bonds

start rallying anyway that's my take

thanks so much for watching make sure to

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it keep in mind as well even though I'm

a licensed financial adviser licensed

real estate broker and becoming stock

broker this video is neither

personalized Financial advice nor real

estate advice not tax legal or otherwise

personalized advice and any stocks that

I mentioned we could have uh bullish and

long positions in such as uh the one

stock I mentioned here that was Tesla

we've got an actively managed ETF and

hold long Securities that also probably

benefit from yields going down so always

be aware of people's biases especially

the ones who don't tell you their bias

all right folks thanks so much for being

here we'll see you in the next one

goodbye why not advertise these things

that you told us here I feel like nobody

else knows about this we'll we'll try a

little advertising and see how it goes

congratulations man you have done so

much people love you people look up to

you Kevin PA there financial analyst and

YouTuber meet Kevin always great to get

your

take