the WORST *Fed* report in 2 years was JUST released | BAD.

well folks this is officially the worst

beige book I have read since the start

of this tightening cycle a beige book is

a report released from the Federal

Reserve that gives insights from their

12 member banks of what's going on in

the economy and well let's just say it's

starting to turn not great in fact it's

almost exactly the opposite of what we

saw in December of 2021 when the Federal

Reserve was just basing their hiking

regime on explosive growth in each of

these 12 districts now before we go into

the beige book which we are going to go

into I want to bring your attention to

something we are analyzing this morning

in the market open Liv stream and it is

indeed this this here is a chart of

initial claims now it is so old news to

say that jobless data lags and and we

don't really get that until it's too

late but what's very very interesting is

if you look at the monthly change uh

monthly to quarterly change the they're

roughly the same but in this case we

actually went with the quarterly change

if you look at the quarterly change in

unemployment claims soon as you saw a

20% or more move on quarterly

unemployment claims you pretty much had

a recession and the end of the recession

almost perfectly aligns with the peak of

unemployment claims so you could see

Peak Peak Peak Peak Peak and then the

gray bar obviously signifies the end now

what you'll notice uh is that we uh at

least as of today uh don't actually have

any kind of indication that we've seen

unemployment claims actually Spike which

means before we get into the beige book

it's worth paying attention that within

the span of one to two quarters we could

actually see unemployment claims

substantially Spike you have to be

careful when you look at these numbers

not to look at them on a weekly basis

just because they're so volatile but

when you drop this to a quarterly basis

you can see here look we've had a little

bit of a surge went from about 26,000

unemployment claims to 240 but wait a

minute 240 over 206 is about

16.5% haven't seen the more than 20%

move yet Zoom that out uh and uh take Co

out of there look at this over history

when you get the spikes the big spikes

not covid kind of spikes but the big

spikes over quarterly periods they come

fast and they come rapidly and they

signal that you are in a recession each

time you had a large Spike you were in a

recession we've not had the large Spike

yet you were in a recession see you had

little pops like this of 10 to 15% those

were not recessionary indicators you got

to be over 20% we found we have not seen

that yet but it can happen very quickly

and the reason I bring that up in

relation to the beige book is what we're

going to do is we're going to go through

uh the beige book from the bottom up so

basically we're going to go from uh the

uh uh the San Francisco disc district

and we'll work our way up and I want you

to see some of the things that we've

highlighted here in the beige book uh

I've got the beige book by the way

linked at

eac.org softness we're going to write uh

a you know a little markdown and every

time we hear about inflationary

pressures outside of like isolated

inflation pressures I mean like

everything's getting more expensive

right that matters we'll write down a

little note insurance doesn't matter so

much mostly because yes everybody has to

pay insurance but it's an extremely

lagging indicator a lot of people don't

understand this so I suppose what we

could do is just give a a quick little

example of how this might look so so

when you think about being an insurance

company I want you to think for a moment

let's say you're in January and you pay

for insurance for somebody or or you

give somebody an insurance policy for 12

months right very common some insurance

contracts are underwritten longer but

I'd say most are probably 12-month

insurance policies well now let's say

all of a sudden in whatever you're

insuring let's say is building materials

okay let's say there's rapid inflation

in building materials in March so all

all of a sudden we'll put a little X

right here or Star right here and we'll

call that the inflationary impetus for

building materials when are you actually

going to start seeing higher prices in

building materials are you going to see

it right away in March well no because

even if lumber prices go up it takes

time for lumber sellers to adjust those

prices so there's going to be a lag

between an inflationary impulse and

actual inflation in commodities like

copper and lumber and otherwise

especially because a lot of these are

bought on contract sometimes 6 to 18

weeks out so you can have another delay

here of you know two 3 4 months whatever

so let's say you don't actually start

seeing an increase in inflationary

prices until the latter half the second

half of that 12-month period well you're

not going to see a full year of higher

costs until you get to the next year so

let's say for example example this is uh

year one okay you're not actually going

to see a full year of those higher

costs uh until the next year so in year

two you're going to go wait a minute we

just had a full year of higher costs

compared to that prior year wow that's a

lot you know what we're going to do

we're going to have to raise our

premiums for year three because

everything got more expensive

so probably from an inflationary impetus

to actually prices going up to actually

in like insurance premiums going up

you're probably looking at at least a 12

to 18 month flag but then you got it

like not everybody signed up for their

insurance in January so it could take

another 6 to 12 months to roll over

everybody to higher rates so like when I

hear people talk about inflation and

insurance I'm like do you realize that

is one of the most lagging indicators

could look at for inflation Motor

Vehicle Insurance health insurance these

are massive laggards okay so once we get

past that let's get into San Francisco

so what does San Francisco tell us uh

this is the whole like western side it's

not just San Francisco uh this includes

SoCal and and you know other parts

anyway we'll go through some of this so

what do we have here labor availability

improved ah okay so labor availability

improved okay well that's not

necessarily a bad Catalyst right but it

is easing labor so we'll put a little uh

a one tick there for easing labor price

pressure is eased residential real

estate softened further drop in

employment turnover so people are

quitting less or getting fired less at

this point pay increases back to normal

levels so no wage price spiral no wage

pressors pressures multif family

vacancies increasing in rents falling

now this is a big problem that a lot of

people are not paying attention to but

when we start looking at Price pressures

declining in residential real estate

especially in multif family you have to

be really cautious because if you want

to go out there and buy multifam I want

you to know this when you go buy

multifam it's like insurance but in

Reverse you could be this happy go-lucky

multifam buyer and and this is something

we're studying on a daily basis with

house hack and a seller is like hey look

how beautiful my trailing 12month income

is and you're like wow I feel like I'm

getting a good deal based on the

trailing 12 great but what are the rents

today how has the property been managed

today how many concessions are built

into that trailing 12 and how many false

promises are built into that trailing 12

and what's it going to mean for your F12

your forward

12 that could leave you very sad so you

have to be very careful with multif

family especially when rents are

starting to fall if you look at the

Zillow Market rent Trends you are

literally seeing rents collapse in

certain areas I mean we're talking down

you know if the average rent's like 2500

bucks you're seeing rents come down $2

to $400 so you're talking 10 to 20%

declines in rents it's pretty aggressive

okay so that's SF that's the SF district

oh but it gets much more entertaining

and you're going to be paying attention

to something that really causes concern

here soon Dallas what does Dallas say

although Bankers remain pessimistic and

expect future business activity and Loan

demand to decline the Slowdown is

expected to be more mild than prior

expectations or prior Cycles wait a

minute that's literally what they say

every freaking recession every single

recession it's yeah you know we're going

to go into recession but oh don't worry

it won't be as bad as last time okay so

what else we hear in other sectors all

right well we hear weakening demand

neutral to pessimistic Outlook wage

growth moderated oh that's the second

district for wage growth moderated so

far nothing on inflationary pressures

broad-based increase right so uh

elevated demand for daycare that means

more people are going back to work

because they need to to survive

companies feel overstaffed oh no that's

a Prelude to layoffs hello Urgent Care

said wages are unsustainable uh that's

also a Prelude potentially to layoffs or

longer wait times but some of these are

these are a lot of these are anecdotes

remember so we kind of have to take out

the lowest anecdotes the worst ones and

the highest anecdotes weakening demand

across and then just look at the

averages weakening demand a bit of price

growth in Services flat Goods expected

price increases of 3 and a half% this

year a lot of companies go in expecting

price increases and then they go oh wait

a minute uh price increases were

actually way less than expected like for

example this morning I was reading in

the market open live stream somebody's

talking about General Mills and they're

like well General Mills says they had

pricing power and they can raise prices

as much as they want and it's funny

because like I'm like bro what earnings

call are you reading like is this like

one or two years old turns out they were

reading an earnings call a year old well

like because you read the earnings call

from less than a month ago for General

Mills and what do they tell you they say

that's because our pricing has basically

trailed inflation now they've responded

to inflationary pressures but they've

been trailing inflation so in other

words they can't even keep up uh with

their their pricing because they would

lose too much demand they would

sacrifice too much in volumes and that's

not worth it to them

retail sales Outlook worsen

manufacturing declined that's not great

that's not a great report at all okay

how about the next District Kansas

consumer spending fell fast food even

pulled back that was bad look at this I

have that highlight or I need to

highlight right here contacts noted

sales volume at lowcost Quick Serve

restaurants which had been robust during

previous pullbacks elsewhere declined

moderately bro when people start cutting

back on food and eating less and food

insecurity goes up people's notion that

oh yeah well people keep spending on

food wrong they'll eat less because like

you basically just start starving when

you don't have enough money this is

horrible like the this beige book is a

this is a very very different and I'm

not saying like from a point of view of

this time is different I'm saying like

this time's the same like it's very bad

it's telling you a recession is around

the corner the Atlanta fed real GDP now

indicator which I threw up on ec.com uh

it shows 2.4% for last quarter last

quarter but I have a feeling that's

going to plummet so I'm a little nervous

about that anyway loan demand weaken

seasonal labor subdued oh there's

another one notable reduction in labor

utilization SL hours worked bro notable

reduction and hours worked in labor

utilization that's not good consumer

spending and discretionary saw

substantial declines that's not good

what's the next one let's go to another

one you can read the whole thing by the

wayhack.com it's link there I'm just

giving you the overview here uh and then

obviously adding commentary Minneapolis

declining demand and profits price

increases were mild wage pressures

continue to moderate so nobody here is

really talking about runaway inflation

nobody's talking about wage price spiral

job openings flat to negative recent

hiring demand slowed uhoh there's

another one four future demand expected

to rise ah but remember companies have

expectations of Hope but hope is not

reality okay uh hope is not a strategy

not hiring unless the applicant is

perfect wage growth flattening finally

slowing price increas is mild

substantial majority saw no price

increases Exodus from private to public

sector has slowed High food prices are

leading people to raising chickens and

ducks and selling eggs on the side of

the road bro consumers spending

moderated this is literally in the beige

book this is the what the FED builds

policy off of let's do another one St

Louis mixed business activity stable

wage pressures reduced urgency to hide

uh one firm had daycare prices raised

10% one Brewer saw volumes up but

profits down so you have these sort of

like anecdotal like either hot points

are really weak points but in aggregate

slower consumer spending slight decrease

in manufacturing reduced urge Mercy to

higher and uh prices continue to rise

modestly modestly is like you know maybe

what 2 3% or something like that stable

rage pressures reduced urgency to higher

let's look a little bit more on labor

here employment levels have remained

unchanged labor market remained tight

reports have easing uh urgency to hire

has slowed more firms are using

internships and apprenticeships

construction sources indicated an

increase of new jobs due to influx

that's good increase of jobs here wages

have continued to grow slightly since

our previous report here's the daycare

Logistics firm reported wages were up

about 4% while a restaurant reported

that wages were up even more 5 to 7%

this is a little bit of a warmer report

so I would call this one I wouldn't call

this one a weak one I'm not going to

write this one down on the 1 to four I

would call this one um you like moderate

okay so we'll put uh District 5 here

we'll just they're not actually District

Five I don't think but I'll put them

down as moderate for this one uh but

certainly not booming right okay let's

keep keep going here so that's St the St

Louis District what do we have in

Chicago consumer spending up slightly

employment up moderately prices and

wages Rose moderately labor market

cooling oh okay we'll put that one down

number six uh wage pressures eased rent

concessions up there it is again falling

rents manufacturing flat did not expect

input issues or shortages that's Chicago

uh quick overview of what we have in the

Atlanta District wage pressures eased

further hiring slowed labor market

cooled okay well there's another one uh

weaker demand for goods and services led

to reduced hours reduced hiring demand

that's not good yet the president of

this bank I don't even think he read his

own beige book because he's like oh yeah

we don't think we're going to cut until

Q3 which would be like

July

bro that would be such a

mistake you're going to have to cut

rapidly whatever many companies are off

offering discounts and promotions

there's optimism though optimism is not

a strategy slower manufacturing Freight

insurance and labor still up of course

up since pre pandemic a lot of them

reference pre- pandemic but that's not a

surprise everything's up since pre-

pandemic Richmond consumers sitting on

Sidelines for Real Estate loan demand

softened price growth moderated but

somewhat elevated compared to historical

rates Services up 3.8% manufacturing up

2.8 uh so this was interesting they did

show price increases and expectations so

those were price

expectations uh and those price

expectations were 38 and 28 which still

a little warm there on Services I will

give them that so I'm going to write

them down as uh warm on Services we'll

put number eight as warm on

Services uh and so let's see here okay

there we go so less uh price pass

through this is a way of saying there's

there's a limited like we're facing

higher inflation but there's a limit to

how much we're able to pass through

right retail demand slightly up but

profits down it's when volumes start

collapsing so did they say what did they

say about Labor here uh labor labor

labor okay here we go labor maret so

what do we have here one company

increased salaries 15% of total revenue

of total revenue okay I don't know how

to significantly decreasing margins

that's sort of an anecdote one that's

one out fine what do we have broadly

grew at a moderate Pace the tight labor

market continued wage pressure resulting

in several contacts making operational

changes a company that manages parking

garages reported likely increases in

prices and a reduction at Services then

we got the specialized software company

as a result of increased wages this firm

expects to cut investment plans uh since

they need to continue hiring workers at

higher wages to meet demand other

contacts reported expanded Talent tools

to find workers uh for example an

engineering firm hired Engineers with no

work experience and spent time training

them okay in other words still

struggling to find Labor uh here okay so

let's put this District down as well as

uh as as a little bit more challenged

still with labor so uh while we could

see hey Richmond this is like your

Virginia area not as bad as some of the

others that we had seen price growth

moderated somewhat it's you see a

slowing here but this this SE this

region here doesn't seem particularly

bad this one seems to be like one of the

uh one of those that's still kind of

pushing along so we'll put them at a

moderate for um number eight there we go

okay so number nine let's see where

we're going to put number nine this is

the Chicago District Bankers not

developing pipelines as they used to

customers increased use of bmpl okay

this is bad this feeds into my thesis

that if we get a jobless recession

people are going to be heavily

indebted credit card uh spend is higher

than what it was and credit card

delinquencies let's look at those really

quick credit uh

delinquencies St Louis Fred we look at

these they're higher than where they

were before the pandemic look at this

credit delinquencies are already rising

and joblessness is at record lows right

now like we have record low

unemployment but delinquency rates on

credit cards are already higher than

every period since

2012 so now yes there's still some hot

Embers in this beige book but combine

that with the weakness you're starting

to see talk about increased usage of

bnpl strong sales for discounted items

but not elsewhere jobs starting to be

replaced by automation some being some

some people basically being laid off to

right size the headcount at businesses

expecting 3% wage growth but again

rightsizing business and business is

skeptical that spending would remain

given given high byy now pay later and

credit usage but we're optimistic that

doesn't sound good that's it's certainly

not labor pressure and it's certainly

not inflationary pressure in fact we

only have one that was slightly warm on

inflation so far we've got two that have

sort of moderate labor everybody else is

like labor Market's going poopy this

just the start like the cycle of layoffs

has not started it could have happen in

the span of one quarter we could see

unemployment claims which came in low

today but it could flip like that the op

here's how it works step one the

optimism goes away so we get bad GDP

reads or bad sales q1 optimism goes away

then the layoffs hit when the layoffs

hit unemployment claims Skyrocket boom

we're in recession big fat rate cuts at

the FED who benefits from that poor

people or richer people well quite

frankly probably richer people people

with Expos exposure to assets real

estate stocks and interest rate

sensitive stocks who gets left behind

poor people the rate Cuts won't actually

help okay it's all trickle down eh so

that then we have the next one so that

was nine so this should be 10

Philadelphia business credit tightened

more credit card use again wage and

price inflation appeared to subside

further again less inflationary

pressures no wage price spiral tourism

edged down lower incomes can't afford

cars manufacturers reported fewer

workers in shorter working hours boom

another one for labor

weakness lower income paid more on

credit and spent less decreased work

week more selective hiring decrease in

employment wage pressures lessened

manufacturing modest decline consumer

spending modest decline price resistance

up don't sound good I mean I know we can

look at a couple sectors you know a

couple regions I guess we should call

them not sectors I keep thinking of the

German Coast Guard commercial on

YouTube it's a good one if you haven't

seen it yet it's a great meme German

coard s is the German

costard uh what are you thinking

about you'll have to watch it that's

good but anyway Federal Reserve Bank of

New York declines in some employment

labor market conditions cooled but

remain solid inflationary pressures

little changed prices rising modestly

manufacturing fell sharply slight

increase for services Business Services

firms indicated a decline somewhat and

personal service businesses pointed to a

sharp

contraction

rip declines and employment write them

down 11 sharp contraction and personal

services those contribute to core it's

not good it's not good this is a bad

beige book this is the worst I've seen

yet Boston economic activity declined

slightly on average employment was flat

on average wage growth remained moderate

hiring became easier unbalance

employment flat on average above average

wage increases to compensate for Price

inflation online prices stabilizing

weaker demand for semiconductors in PCs

is what this one was let's look at the

labor market employment flat wage growth

moderate uh hospitality and Retail

counts increased slightly while

employment remained unchanged at it

firms hiring became easier well I'll

write that one down 12 it firms enacted

above average wage increases to uh

compensate for Price inflation so a

little bit of wage pressure here I'm

going to write that one down so we had

one that had an inflationary report that

was warm on services one that had a wage

pressure uh like warm wage pressures

we'll call it so out of all of the

districts because that's it that's the

beige book for you out of every single

District what did we get out of the

beige book we got 10 that said the labor

market was Cooling and weakening two

that said there was a warm labor market

one that said warm wage pressures and

one that said inflation on Services

everybody else is no INF inflationary

pressures or low inflationary pressures

if anything employment is cooling

rapidly and parts of the economy are

starting to cool very rapidly where it

won't be long for unfortunately probably

the uh unemployment claims to start

skyrocketing and again I'm worried about

that because while we know unemployment

is a lagging indicator what I'm talking

about right now is a leading indicator

of what's to come these reports right

here these anecdotes the change over

time of the beige book this being a bad

beige book is not good I think honestly

what we ought to

do uh because I I quite frankly I think

this would be quite useful is why don't

we do a thought experiment here let's

pick a random beige book okay so what

we're going to do is we're going to go

to my good notes that's where all my old

stuff is I don't use good notes anymore

but I'll go to good notes and we're

going to type in beige book and what

we're going to do is I'm going to just

find an archive beige book ah here's one

11 months ago okay so let's go to the

beige

book and we'll go to the summary because

we don't want to read the whole thing

and it's also highlighted we'll go to

the beige book

for January of

2023 okay so what do we have

here labor market oh my God employment

continued to grow at a modest to

moderate pace for most districts only

one reported a decline in employment

holy crap we literally just went from

one reporting a decline to all of them

reporting a decline well I guess a

couple maybe so like 10 out of 12

reporting a decline some districts noted

labor availability had increased firms

continued to report difficulty filling

positions many firms hesitated to lay

off employees even as demand for goods

and services slowed and plan to reduce

their headcount through attrition if

needed okay so that's pretty big that's

a pretty big difference we're talking

about one talking about cooling versus

10 talking about cooling okay that's

interesting prices manufacturers

reported easing freight costs uh many

retailers noted increasing difficulty

passing through cost increases

suggesting greater price sensitivity

that's very similar if anything that's

worsened more discounts and promotions

than they had a year ago good to know

that's consistent a consistent lack of

price

pressures uh what else do we have here

we have uh unbalance contacts generally

expected little growth in the months

ahead uh Auto Sales were flat on average

boosted inventory tourism moderate to

robust uh what else non-financial

experience stable demand well that's

changed because we've seen loan demand

plummet and credit card usage up labor

shortages remained an in uh remained an

issue rate of price uh input price

pressure increases slowed now we're

talking about input price

decreases wage pressures grew at a

moderate Pace that's worn

away Sheriff contacts reporting uh

higher costs and selling prices declin

noticeably it's very interesting so it

it shows you some difference let's look

at one more let's go back even a little

bit more ready now this one's going to

be extreme I think we're going to go to

June of 2020

are you ready for this June of

2021 the expect the the effects of

expanded vaccination rates were perhaps

most notable in consumer spending with

increases in Leisure traveling

restaurant spending augmenting ongoing

strength and other spending categories

home builders noted strong demand uh

supply chain disruptions pushed costs

higher uh employment and wages

employment growth was strongest in food

and hospitality difficulty hiring new

workers especially low wage workers and

truck

drivers uh wage growth remained moderate

but signing bonuses and increases in

wages were starting this is like you

know the precycle right price pressures

increased further this is all the lead

into inflation look at that change over

time like this was telling you in May of

2021 of the pain coming okay in May of

2021 it's like yo poop's about to hit

the fan okay and so what happened poop

hit the fan what 7 months later starting

in December of 2021 so 7 months later

poop hit the fan in May of

2021 now we might be 7 months early in a

bad beige book going we could be in a

recession in August with that same sort

of lead time that wouldn't surprise me

Q2 Q3

recession massive spike in unemployment

claims fed Cuts twice as much as people

think I don't know I'm I'm bearish for

recession ironically bullish for what

that means for interest rate sensitive

stocks and I realize that's bizarre so

it's like wait a minute shouldn't things

go lower in a recession I think you'd be

surprised I think what goes lower in

recession are the stocks the bottom 50%

buy why well because of this you ready

for this go to the beige book now go to

today's beige book type in the word

freely

enter right

here where is it freely freely freely

fre there it is lowincome households

spent less yet paid more on credit while

affluent households continue to spend

freely who's that going to be when rates

go back down well the chips are going to

keep spending freely because those are

cash Rach

companies but now you have ask yourself

what do wealthy people spend money on

when rates are really low and what are

things that other people can't afford

that wealthy people can expensive cars

homes and Home Improvements like

[Music]

solar it's saying I've been positioning

for this for two years you know people

are like give the flip flow no man this

so far that's going along with the

script

St ready to flip-flop

but that that's that's a sign big

problems are coming it's going to mean

big cuts 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

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Securities potentially including those

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maker