holy sh9t - what the fed JUST said

Federal Reserve just had some incredible

things to say and here's what you need

to know about what happened first

something of course the media is not

covering Jerome Powell said this very

powerful statement listen very closely

to this and we'll get into some of the

other very important things that Jerome

Powell said he said quote

Alan Greenspan who was the FED

chairperson back in the 80s after

volcker quote

famously said that pervasive uncertainty

was the defining characteristic of the

policy landscape

now it's worth remembering that Alan

Greenspan made those comments during

what we now think of as the great

moderation

that statement has never been more apt

than it is today

that right there is the most powerful

quote of Jerome Powell quoting Alan

Greenspan or really of any of the quotes

that Jerome Powell has given us ever

because this right here just revealed

what Jerome Powell truly believes about

inflation now to understand this you

have to remember what the great

moderation is the great moderation

is the last 40 Years of disinflationary

pressures that we have seen that have

actually led us to run inflation for the

last decade before covid under two

percent at around 1.75 to the point

where the Federal Reserve was actively

considering reducing the inflation

Target they had to 1.75 percent because

the idea of the Phillips curve which

suggests that when unemployment is low

you are going to create inflationary

pressures was a very accurate tool for

determining inflation yet that ended up

being very false in fact in today's

discussion Jerome Powell actually

brought up the Phillips curve and said

you know maybe we've kind of been

looking at the wrong thing instead of

looking at the Phillips curve we need to

look at other aspects of unemployment to

determine how much inflation we're going

to have so for a moment if you're

confused on Phillips curve ignore it if

you want the quick take away just know

that Phillips curve argues that the

lower unemployment is the higher

inflation should be that they this

should be sort of a wall there but

ignore that for a moment because Jerome

Powell actually gives us a new tool

one he's talked about before but he puts

it in a new context He suggests that

look there's a difference between four

percent unemployment and four percent

unemployment and this is actually a

really powerful argument it's the second

most powerful argument that Jerome

Powell makes the first that we might

he's hinting that we might actually be

at the next start of a great

disinflationary moderation driven by

technology and smoother Supply chains

that's long-term very bullish don't get

me wrong I'm not suggesting there aren't

reasons to be short-term bearish whether

it's the debt ceiling or whatever other

drama click bait you want to listen to

that doesn't actually give you a dose of

reality because remember there are two

forms of negativity there's that

negativity that's like oh my gosh

somebody's saying the stock market's

gonna crash here's why we don't think

it's going to crash because of here the

actual facts in the economy and then

there's the other form of negativity

which is just purely negative and

doesn't seem to want to recognize

reality but anyway so

told us there's four percent

unemployment and then there's four

percent unemployment and what's the

difference quits and vacancies see when

people are willing to quit a lot because

there are more vacancies there's a sign

that employer employees labor believes

they have pricing power and that leads

to potentially an unanchored wage price

spiral which is exactly what Ben

Bernanke today said was part of the

contribution to the failure of what

happened in the 1970s and why the 1970s

were so vastly different from the way

well things are today and that's pretty

critically important because most people

as Jerome Powell put it today have not

actually experienced inflation in their

lifetimes before now that's a pretty

powerful argument as well because it

really begs the question of okay well if

most people haven't experienced

inflation before is it entirely possible

then that people's expectations are

wrong because right now it's seems like

people have this feeling that oh no

inflation's going to stick around how

are you going to put the genie back in

the bottle and I kid you not every

single time every single time I make a

video talking about inflation there are

people in the comments who say I don't

know man when I go to the grocery store

prices are still high

my gosh I really really really hope that

by now you have watched enough of this

channel to learn that is not how

inflation works now I want to keep

talking about the new stuff about what

the Federal Reserve actually cares about

and what's actually going on but let me

just pause for a moment for

unfortunately

dare I say the people who haven't been

educated by our school system and

finance oh wait that's everybody uh the

people who haven't been enlightened yet

let me just quickly make the argument

and I'm gonna make this very simple the

Federal Reserve does not care how high

your prices have gone it's depressing

because yes insurance is more expensive

the cost of uh employment whether that's

uh for a nanny or daycare is all up

vacations are up flights are up

everything is up for but guess what that

doesn't make any lick of a difference to

the federal reserve's desire to control

inflation

going forward and that is very different

from prices of the past so when we

understand this we can understand that

in the 1970s we had massive massively

different thinking Paul Krugman from The

New York Times actually put together an

amazing piece on exactly this look at

this chart with me for a moment in the

early 70s economists thought that price

controls could slow inflation down price

controls are a way of saying oh no uh

companies are price gouging let's just

put a ceiling on how much they're

allowed to charge on how much they're

allowed to charge for gas and that'll

stop inflation

no that fails because you create massive

shortages people have to pay with their

time then the price controls become so

politically unpopular that you remove

the price controls and then you have

even higher inflation than if you just

let the free market freaking function

but then

you see here in the 70s and 80s we

thought that you needed to raise

unemployment to fight inflation that's

actually a critical statement here

because if you feel like you have to

raise unemployment to reduce inflation

you will force a dirty recession much

like Paul volcker did

but then we thought a good inflation

Target was four percent but the reality

is two percent was a better inflation

Target this yellow line is inflation the

blue line is unemployment this by the

way from about uh Mr Greenspan's take

over all the way uh the last 40 years

over here to about 2017 well I mean

realistically to about 2020. all of this

is deemed to be about the great

moderation this this slow decline in

inflation no matter what unemployment

has done

and we've realized and this is more for

maybe the mathematicians we've realized

that what actually causes inflation

isn't printing money or high prices

those don't cause inflation it is the

rapid expansion of how fast you are

printing money so it is the rate of

acceleration well that is acceleration

is right is your acceleration of money

printing that causes inflation right let

me try to just make that a little image

okay if I print money like this

Kim and printing money everything's good

no inflation but if all of a sudden from

2020 to March of 2020 you all of a

sudden go like

and you start spinning the wheel a lot

faster that is when you get inflation

and then when you're like okay now I'm

gonna

slowly turn it back the theory going

forward is that that should cause

disinflation which I want to be very

clear that doesn't mean prices for your

stuff are going to go down it means

prices stay at the high levels where

they are and they actually go up they

just go up at a slower level

at a slower rate than previously now

Paul Paul Krugman is not maybe the best

example of somebody because a lot of

people don't like him uh when it comes

to talking about the Federal Reserve

he's an economist but Ben Bernanke puts

it very well and he says look we had

massive issues in the 70s we didn't

control inflation expectations and today

the bond markets expectations of

inflation are extremely low the problem

is you have a little bit of a disconnect

between the bond Market's expectation of

inflation which is they studied

Financial point of view on inflation and

consumers expectations of inflation

because again quote many are

experiencing High inflation for the

first time in their lives and people are

fearful about high prices and that makes

it very difficult to control a

consumer's expectations of inflation

because people don't understand

inflation that's why I have to continue

to explain some of these basic concepts

Concepts I feel like over and over again

because I regularly but captain and

those are your Bears a lot of them those

are the people that are sitting on the

sidelines in cash like

no man I'm not I'm all convinced there's

gonna be another leg down there's gonna

be a double dip whatever like do

whatever you want with your money but

listen to what Jerome Powell said

remember I don't really care what you do

with your money I just want you to

succeed and so I want you to have the

best information possible and in my

opinion the best information possible is

that Jerome Powell just implied we could

be at the start of the next great

moderation let me read you that again

and then I want to get to some other

really critical things that he said

especially about restrictive policy

rates and a pause okay ready so once

again

pervasive uncertainty was the defining

characteristic of the policy landscape

of the Allen Greenspan era it's worth

remembering that that comment was made

during a period of what we now think of

as the great moderation and what do we

have today pervasive uncertainty we have

no idea what's coming next well we have

some good ideas but things could end up

wrong and the FED has been wrong before

I mean even just this chart that I

showed you shows the FED just doesn't

have the best track record so it's not

like I want to be a shill for the

Federal Reserve you and saying oh they

were wrong all these times they were

wrong about price controls they were

wrong about unemployment they were wrong

about four percent uh you know they were

wrong about all the money printing that

happened over here they were wrong about

four percent unemployment or below four

percent unemployment causing inflation

and it didn't uh you know and so they've

been wrong in the past and it's okay to

say that the point is they're taking all

of those lessons of the past and they're

doing their best at least not to repeat

these mistakes

and so at least by not repeating these

mistakes what do we know we're not going

to get price controls we're probably not

going to get a pole volcker and that's

why the stock market is rising in we

probably don't need to care that the

unemployment rate is below four percent

in fact Jerome Powell gave us the

formula he said look

and I didn't finish this point for a

reason because now it makes more sense

remember how I told you Jerome Powell

said there's a difference between four

percent unemployment and four percent

unemployment that's because four percent

unemployment in 2018 was matched with a

jolts reading that was one to one in

other words you had just as many

unemployed people as you had job

openings so people had less pricing

power

in 2021 there were two times as many job

openings as there were unemployed people

meaning labor had pricing power leading

to potentially fears of a wage price

spiral that is bad unsustainable and

that leads Services inflation to keep

running robustly that however is

starting to shrink the jolt's measure of

inflation is starting to shrink you're

starting to see companies actually

worried about their ability to raise

prices at all anymore whether it's

Consumer Staples your targets your

Walmart Foot Locker these companies are

starting to panic they're realizing they

can't raise prices anymore as they were

now if you're part of our course member

livestreams you already know this

because it's not just me trying to tell

it to you every day we just look at the

data and the facts we look at earnings

calls every day and we do fundamental

analysis every single day and I teach

you how to do fundamental analysis on

companies where we're like oh damn

palantiers balance sheet is really

robust right the day before earnings

what happens skyrockets after that oh

wow open doors really oversold this

could be a really good temporary Trade

because the fundamentals are phenomenal

and they just burn the they're Bond

holders which is good for shareholders

but nobody read the 8K except I did and

so what happened Open Door skyrocketed

what about bill.com well the

fundamentals and even as a SAS business

price to sales ratios are looking really

good here what happened skyrockets on

earnings it's not perfect all the time

I'm just saying some of the fundamental

analysis is actually really functional

you want to pay attention to it so if

you don't know about it yet link down

below but what else did we learn from

j-pal and Ben Bernanke well first

jeromepal actually said this time

that interest rates are restrictive

in his last press conference at the fomc

meeting afterwards here in may he said

we think we might be at a sufficiently

restrictive level of interest rates

today he said we are

and this led the Futures monitor for

interest rate hikes by the Federal

Reserve to dump from a 36 chance of a 25

basis point hike all the way down to a

13.8 percent chance

now while it's very difficult to

forecast what future shocks could really

screw up inflation Jerome Powell gave us

a beautiful outline

he said consider the following

positive Supply shocks exist just like

negative Supply shocks the pandemic

showed us how broken our supply chains

could become very quickly with a massive

increase in demand that was a negative

Supply shock that followed massive money

printing but we don't expect that to

repeat because we're not going to burn

money at that rate again

hopefully

and at the same time positive Supply

shocks exist like

technology which wow reiterates the

whole argument that we might see the

start of a new great moderation

potentially even driven by AI this is

Wallace and why I'm releasing a course

on June 1st that's actually part of an

existing course so existing members are

getting that totally for free on how to

actually use artificial intelligence as

a productive human rather than just oh

my God they're all these AI tools those

so cool how do we actually apply this to

work

well I don't know like I will teach you

anyway from a business point of view

anyway uh and if I could do it you could

do it which is great they just need

guidance on it anyway

another thing is Jerome Powell told us

that there are real one-time shocks that

we had not only that pandemic money

printing but also we don't expect

another new invasion of a massive

country into another country Russia into

Ukraine right and on top of that you

consider uh the increase of the global

labor Supply that has normalized

technology that obviously is a

contributor to disinflation we're

potentially in an

you know dare I say okay path to see

another great moderation cycle over the

next 10 years now you might be

frustrated and rightfully so over the

inflation that we've seen But consider

the distortions that the pandemic

created look at this chart here this is

uh again the Paul Krugman piece really

actually good piece this morning in the

New York Times I try to read all sources

Wall Street Journal Fox CNN New York

Times Financial Times Barons Bloomberg

what I try I read everything just so I

could understand every perspective but

this really shows you the dark line of

what actually happened this is what we

thought would happen in the labor market

a slow decline of Labor Force

participation we have this uh you know V

shape over here same thing over here

with GDP oh Paul Kirkman made a great

point on GDP he says look

we could think GDP is one thing but then

it ends up getting revised like we have

a real issue with the data that we get

and that creates a lot of uncertainty

any joke that hey like if GDP or

inflation numbers get revised can we

revise what we did with rates obviously

the answer to that is no but they're

saying this because they're cognizant

that there are two side risks here you

could over tighten you could under

tighten except Jerome Powell made it

clear we have the luxury now of time

that we've probably typed enough which

again reiterates the zero BPI now of

course the whole debt ceiling

negotiation tanked the market a little

bit but that's beside the point uh but

anyway some of these charts are are

really uh interesting in this talk about

you know potentially a soft Landing or

you know wages and comparing to the

1970s of of how wage Dynamics are so

different today now of course the four

most dangerous words in investing or

this time is different but you have to

study history otherwise you're doomed to

repeat it and at least in my opinion I

think the Federal Reserve is going to do

everything in their power to to just not

make those mistakes we could end up

having the same result which would be a

terrible Paul volckering you know crash

but it doesn't seem to be the case right

now especially since Jerome Powell also

made it clear that in times of high

uncertainty you can't actually provide

as much of a forecast as you'd like

because you actually remove optionality

from the FED because this is really him

saying if we start talking about how

we're going to cut rates at the end of

the year we take away our options of

actually fighting inflation and people

are all just going to go YOLO into the

stock market and spending money again

and we're going to create inflation

again so he basically said that in so

many words by saying yeah you know if

we're too clear about forward guidance

uh we we end up limiting our options and

we risk creating problems and being

misinterpreted uh he actually said that

the best time for Clear forward guidance

is when there's little uncertainty when

you're at an effective lower bound like

zero percent rates and you're just

trying to suggest that that lower rate

bound the zero percent rate is going to

continue for sometime in the future

that's a way of basically squeezing a

sponge and getting more stimulus out of

the market without actually reducing

rates anymore but during times of

uncertainty like those in which we're

now it's actually not necessary to

provide as clear of guidance because you

could potentially hurt yourself more now

regarding the debt ceiling thing really

quickly you know there's this talk about

Republicans walking out and each side

the White House and Republicans calling

the other stubborn there was supposed to

be a framework for a deal this weekend I

think this is all political you know

posturing this is all bogus I really

think this whole debt ceiling drama is

going to pass and at the same time when

we get that pause the next month

assuming we don't get a reactivation of

inflation if we get a debt ceiling

passes and a pause

I don't know what you're waiting for to

get back into the stock market that is

my personal bias

I want to be clear about that

but I mean please I'm I'm asking Bears

daily to provide me data and facts that

shows that inflation is still a problem

and they got nothing

nothing show me another company outside

of maybe Aerospace that's actually

showing massive price increases still

coming this year

it's not there Aerospace still has

supply chain issues that's the pandemic

linger you know of course you've got

rapid demanded services for uh you know

travel and hotels and labor but that's

already starting to soften we know that

in reading the earnings calls of

companies that actually hire people

anyway thanks so much for watching I

wish you the best good luck out there I

really want everybody to succeed and uh

I I will continue doing my best for you

thank you so much goodbye now I want you

to know this when it comes to AI

time is what's going to make you money

and if you can prove that value to an

employer you'll always be able to be

employed so this is another way of

making sure that you don't get replaced

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