Prepare for the Fed's Tug Tomorrow [Why I'm Short].

well as you get your trades ready for

tomorrow's tugging listen to these

phrases directly from the Federal

Reserve and I will put them on screen on

balance and despite the suggestion about

feeling strongly that we should be

easing Economic Policy strong

inflationary pressures still persist if

we were to attempt to ease it's pretty

clear that everybody would think we had

let the inflationary cat out of the bag

and it seems to me that interest rates

would be even higher under those

circumstances so I don't think we have a

choice we have to stay on our general

path here but the scenarios of what

could possibly happen can be pretty wild

chairman vulker I'm not quite sure where

that leaves us response

scared yeah that is from 1981 March 1981

when the yield curve was just as

inverted as it is today about -40 basis

points and today we're in a market where

let's just say stock market

concentration is sitting at levels that

we haven't seen since the Great

Depression which should be concerning

now does that mean it's time to cut and

run and go bearish on

everything Maybe not maybe things just

aren't that bad maybe the economy is

just growing well and interest rates s

Ives are going to get hurt for a little

while longer but there is a growing

concern amongst banks on Wall Street

that maybe we won't get as stable of an

fomc dotplot tomorrow now Bank of

America still thinks so and Bloomberg

intelligence they still think we're

going to get three rate Cuts in

tomorrow's projection but what I'd like

to show you is the following well keep

in mind I've posted all of this on

ec.com I want you to see what Goldman is

warning these right here are the dots

the infamous dots and what these dots

say is they basically just chart where

the fomc's projections are as of

December notice how most of them over

the long term settle down over here at 2

and a half% that's where the long-term

fed policy rate is expected to go there

is however some concern right here by

Goldman Sachs that we think the risks

are now higher than they have been about

re pricing higher dated

rates and the median dots could show

fewer Cuts or if they do rather we think

that longer run will start to drift up

so let me explain that in English

basically these little yellow dots might

move up and if these yellow dots move up

then the entire curve becomes a lot more

flat now in English what does that mean

it means the markets are not pricing in

the risk that you could see 10 or 20

year treasury yields go up even higher

than where they sit now consider for a

moment we ended the year with about a

3.8 10year treasury yield now we're

sitting at about

4.3 this evidence or sort of this maybe

I guess I shouldn't call it evidence I

should call it more of a belief or

concern is why you have some folks

arguing that 10year could either stay

here at 4.3 or sneak its way up to 4 1/2

or towards that 5% Direction before we'

got major resistance at 5% so I don't

think we'll bill Amman break through

that but this potential for sticking in

this mid4 range puts massive downward

pressure for longer the boot on the neck

so to speak of the interest rate

sensitive stocks and specifically

creates a risk that what if markets

aren't as attuned as they need to be for

the fact that the FED could slowly start

tugging us tomorrow again Bank of

America made it very clear that bank of

America thinks the Federal Reserve is

going to keep the summary of economic

projections mostly in line This is an

eack that we have broken down on it and

here you can see Bank of America's

Global Research forecast at the bottom

you could see they actually think the

fomc's FED projections for 2024 will

stay at three Cuts they don't even move

it at all they keep it at 4.6 just like

in

December now I personally think this is

mistaken I personally think we're going

to see a move here to 4.8 and we're

going to see see a move over here to

over 4% now keep in mind you can see

Bank of America does adjust that 2025

Target up so you're really only setting

up for maybe two and a halfish Cuts in

2025 but they're keeping that longer run

2.9 and 2.25 which is behind my face

there there you go so is it entirely

possible that even Bank of America is

noticing there's a risk that those

longer term yields could start Rising

yes now why would that be well we've

broken this down before scroll all the

way to the top of eack where we post our

research totally for free e.com what do

we have here we've analyzed this before

the potential fear that persistent wage

levels elevated wage levels and this

sort of stagnating of declining wage

growth could end up

hurting the federal reserve's desire to

cut much like what we saw in 81 the

Federal Reserve might be of the Mind

said that uhoh if we send any signal

that we're

done then markets might psychologically

break thinking oh my gosh the FED has

let the cat out of the bag and they're

not finishing the job so the Federal

Reserve has to be careful here not to

signal that they're done with their job

and that they're actually trying to get

more bullish on the economy and more

doish therefore instead the fed's

probably in a position where they don't

want to give us a full rug pole we don't

want to bring out the black swall on but

we got to tug we got to tug a little bit

tug at that rug a little bit and go we

got some more work to do here so that's

why I think when we combine this with

average hourly earnings stagnating

around the 4% level the decline here in

uh uh wage growth slowing remember the

fed target for wage growth is 3% we're

just about 4% right now jolts stagnating

around 20% higher than expected or or

where we were rather and keep this in

mind structural inflation concerns in

that you know how China helped us with

deflation back in the 1980s we imported

just 2% of our stuff from China by 2017

we were at 22% well over that roughly 20

sorry 40-year period we had some nice

disinflation okay great we like

disinflation but what's happening are we

importing more from China no we're

actually importing less and because

we're importing less now just 14 % in

2023 we benefit from China's

disinflation less than we might

otherwise and so I think when we put

together not just the Black Swan risks

of junk bond bankruptcies and some of

the other bankr like the 80% increase

that we've seen in bankruptcies or

potentially a labor market recession

some of these other black market uh

risks or sorry Black Swan risks we do

want to evaluate the case for these dots

moving up significantly tomorrow at

least more so than markets expect I

think there's a chance the Federal

Reserve gives us that little tuggin and

it's just phase one and I think that

case is more likely than not now what we

want to make sure we're very very clear

about is that on Friday we're going to

be raising the course prices for the

stocks and psychology of money group and

the other courses at meetkevin.com this

morning we went into the market with a

triple short all three of them

profitable all of them profitable which

is great so if you want to see all the

buy sell alerts everything that's going

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make sure you check those out go to me

kevin.com stocks and psychology money

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but what I really want to highlight is

something that I think a lot of us don't

want to hear and it's something we

briefly touched on this morning in our

course member Liv

stream I don't like doing this I don't

like doing this but here we go you have

to consider that right now the

fomc and again this is very very clear

from the fomc 2024 rate Cuts

4.6% this is based on December right

2025 there we go we are looking at a

forecast of 3.6 those are the December

numbers 2026 we're looking at

2.9% something that markets are not

paying attention to is not whether or

not we get two to three rate Cuts in

2024 or when it starts that part's

pretty clear we're pretty well aware of

that we've got basically a market

implied 0% chance on the Fed rate

monitor of a rate cut tomorrow so you

know we're less than 24 hours away from

that 0% chance of that less than 3%

chance we get a rate cut in May we're at

about a 37% chance that we don't get a

rate cut in June so the Market's still

pricing in June I think July is really

the earliest but that's okay we've

already talked about that before what

matters more is what the Federal Reserve

says about this the economy continues to

surprise to the upside and don't get me

wrong the 10 two yield curve or the

twoos 10 we like to call it is telling

us hey we're as inverted at-40 basis

points as we have been since

1981 that's a problem there have been

other little periods where we've briefly

Ted touched but we were coming out of a

hole on inversion you know negative 100

basis points inverted now we're at4

which is very similar to what we saw in

81 before the FED decided to raise rates

another 5% from 14 and a half to like 19

and a half now don't get me wrong I'm

not saying the FED is here tomorrow to

try to raise rates but I do think the

FED is going to look at history and some

of those comments that we saw in those

notes I showed you at the beginning of

this video about them being scared and

about the psychological move of their

impact I think the Federal Reserve has

to forecast very very clearly that the

job ain't done so how do you do that ah

okay let's go in here so we're going to

write down how to forecast job not done

yet okay progress being made but we want

to forecast job not done yet well if

you're working at the Federal Reserve

what would you do but the tug you start

doing for implying the longterm the job

is not done is right here folks the 2020

5 2026 numbers are going to be

everything and based on what I'm looking

at in the minutes from the 80s If the

Fed is at all inspired by vulker which I

think they are I think they realize they

cannot signal the job is done I think

there's virtually zero chance a less

than 5% chance that we're going to see

these numbers go down maybe I'm wrong

but I actually think it's much more

likely they go up and

substantially 3.9 is what Bank of

America thinks I think 3. 9 to 4.1 right

around here and honestly that

2.9 it's got to become a three handle

that's how you tug this Market it's

going to come tomorrow in my opinion now

one of the things I'm watching right now

is the qes broke over our open level

after we broke our open level which is

this lower yellow line we had a pretty

rapid move up to about

43898 that's roughly where we sit at the

time of this recording we've been

rejected once twice three times been

rejected multiple times this is the one

I understand the one is not so great

look at the five minute we're getting

rejected here we could break out into

the close if funds start buying we break

out into the close oh well too bad too

sad I guess this ends up rallying into

jpow day that is possible but I think

there's a chance the market if it

rallies into the close is totally

missing the boat on what jpow is going

to deliver tomorrow I don't know I could

be wrong but I think they're making a

little oopsy

dosies what's better is being cautious

going into tomorrow we shall see that's

my take let me know what you think in

the comments down below and I'll be

covering japal live tomorrow 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 pfra there

financial analyst and YouTuber meet

Kevin always great to get your

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