Fed's Minutes Signal PANIC

wow the Federal Reserve minutes just

came out and I have to say you know at

the FED meeting how we got this like

really hawkish Powell remember before

the FED meeting how I predicted like if

jpow gets his 50 he's going to have to

Hawk and that's what happened now I

wasn't expecting some of the things that

ended up happening in the market but but

we thought if JP goes 50 he's going to

Hawk and he hawked at I mean he hawked

to us it was crazy how much he hawked

everything's fine the economy's fine

everything's fine well when you actually

look under the hood it's like oh damn

this four cylinder is about to bust it

don't look very good and I'm going to

just restrict this conversation to the

most important part of what came out of

these fed minutes and let's discuss them

and talk about pricing power and what's

going on here but it's actually

potentially a lot more dire than jpow

really let on at the last meeting uh and

I think important to have this

discussion of you know if they screw

this up it's very difficult to fix think

about this you can fix low inflation by

printing more money but you can't get

jobs back once they're gone and folks

that's like the definition of what we

just saw in these minutes these minutes

highlight a dovish Fed not the hawk that

we got from japal let's go into some of

the minutes together and see what we've

got here so this is the section I want

to get started in we we already know

they're going to be data dependent all

the reports are going to matter blah

blah blah blah blah we already know that

the last jobs report was basically

785,000 government workers we already

know that in the household seasonally

adjusted level that is 785,000

government workers out of nowhere out of

somehow appearing in payrolls lowering

the unemployment rate with this massive

seasonal adjustment after you remove all

the teachers you still get a 785 K boost

that means you actually lost like over

250,000 regular jobs yeah it it wasn't a

good labor report although everybody's

been cheering about how great the labor

report is well listen to the FED here

because if you go to the FED minutes you

go to page seven and on this is where

you're going to see the biggest pain

first I want you to see some of the

things that the FED is really worried

about first they see a modest slowing in

GDP but that's just the start as GDP

starts slowing I understand GDP was hot

with estimates in September but you have

to also keep in mind the September pull

forward may have been heavily due to the

port strikes salespeople calling up

going hey get your order in now before

those Port strikes shut everything down

obviously those are over now and in fact

when you look at wholesale trade numbers

that we got this morning they were half

a percentage Point worse than expected

so we got substantially worse wholesale

trade numbers this morning which is

somewhat indicative of yes we had a pull

forward last month but it ain't going to

last with some of the data going forward

and the FED is keenly aware of this they

see a slowing of real GDP coming on top

of a slowing of real GDP they see waning

pricing power and I understand everybody

wants deflation like that's the thing

it's like yay we want lower prices but

people forget that deflation means

businesses can't show growth when

businesses can't show growth St stocks

don't go up so what do businesses do

when they can't show growth on the top

line they show growth on the bottom line

they do that hopefully with lower input

costs via Commodities or producer prices

or they cut jobs and that's the problem

because even the FED in these minutes

acknowledges that while companies aren't

conducting layoffs they are hiring less

people who are quitting jobs aren't

getting the pay premium they used to and

companies are just well kind of let

people go via attrition and then not

rehiring them when they leave they're

doing more with less so while it sounds

good to have increased productivity

remember increased productivity is

another way of saying we need fewer

workers waning pricing power means we

can only grow wages or sorry EPS through

fewer workers so I mean think about this

for a moment in an anchored inflationary

expect expected environment with slowing

GDP growth I'm going to put down arrows

for every time it would push jobs down

slowing GDP growth jobs down waning

pricing Power jobs down I actually think

there are very few companies if any that

actually have pricing power right now I

think it's a pretty precarious time

especially where valuations are

increases in productivity reduces the

demand for labor a softening in

commodity prices that could that could

be neutral so we'll leave that one

unmarked several participants noted that

nominal wage growth had continued to

slow with few participants citing that

it was set to decline further that

reduces consumption which starts the

cycle of more layoffs these signs

include lower rates of cyclically

sensitive wages and data indicating job

switchers were no longer receiving the

premium over other workers some

participants noted that wages were a

relatively large portion of a business

business's costs in the service sector

and that that service sector deflation

would ultimately be assisted by nominal

wage growth in other words deflation

like inflation's not the problem we're

probably going to see more

disinflation but that could also come

especially since jobs are a large

portion of a business's cost in the

service sector potentially also jobs

down several participants noted that

supply and demand in the labor market

was roughly balanced wage increases were

unlikely to be a source of wage

pressures we've heard Jerome Powell talk

about this before with regard to Housing

Services some participants suggested we

could see more rapid disinflation AR

Trends coming this basically means more

disinflation less inflationary risks

more labor market risk the labor market

was now less tight than it was just

before the pandemic and some

participants stress that rather than

using layoffs to low lower labor demand

uh businesses had instead been taking

steps to post fewer job openings

reducing hours or making use of

attritions what we already talked about

participants observed that the

evaluation of Labor Market developments

had been challenging with increased

immigration revisions to payroll data

and possible changes in the underlying

growth rate regarding productivity in

other words it's kind of like the FED

feels like they're flying in the clouds

with no instruments this is bad they

they're basically saying we can't fully

trust the data right now and what we're

starting to see is that labor is

weakening and inflation's less of a

problem so way less of an inflation

problem way more of a Lab problem than

japal LED on at his press conference now

participants indicated that the Baseline

is that the labor market would remain

solid but some also argued that once you

get labor market easing the risk that

easing could transition to a more

serious deterioration

increases and the problem with that is

once you start they say it themselves

once you start having um I can't

remember exactly where it was but

basically once you start getting uh a

weakening in the labor market it's

really hard to fix it now they said that

business contracts were optimistic about

economic Outlook but they were

exercising caution this is something you

saw in the beige book as well where

they're basically like we're looking

forward to a good Q4 but what if we

don't have a good Q4 what if the holiday

season sucks what about these slowing

expenditures or these strains on

household budgets and delinquencies and

credit cards and automobile loans and

the fact that the level of 27 weeks of

unemployed workers has been rising

substantially and the only time it rises

substantially is in a recession right

now the stock market and bond market is

only pricing in like a 15% chance of

recession nobody is properly positioned

for a potential recession here but then

again you know this time's different

we're going to have a soft Landing a

couple participants however did not

perceive an increased risk of further

weakening these are the people that

actually kept the Federal Reserve in my

opinion from going a 20 with a 75 BP cut

I think there's so much stress coming

from these these fed officials that most

of them are like no the upside risk to

inflation have diminish and we've got

big problems potentially on labor coming

and a SL a sharper than expected slowing

in consumer spending in response to

labor market cooling uh or because of

these lower budgets from lower income

households could make it even harder

it's also remember worth always

considering that once the labor market

Market weakens it's a lot harder to fix

it take a look at this a few

participants highlighted in particular

the costs and challenges of addressing

such weakening in unemployment once it

is fully underway in other words if you

get a Fed here that is blind to the

downside risks they are going to drive

us into recession and even though we got

a hawkish Powell if you actually read

that labor report I wanted to go bullish

off of it but if you actually read that

labor report and if you actually look at

the data and you go oh man table alpha 8

is really bad private payrolls are

falling government uh you know

employment up after having already

subtracted out your uh teachers going

back to work oh and then how does that

compare to Prior September oh well if

you look at prior September it's really

bad you have non-farm payroll levels

huge adjustment up while at the which is

something you haven't seen before while

at the same time you have uh the people

actually responding to the survey at

record lows uh these are these are bad

things look at the adjustment that you

got in the government uh payrolls right

here you have three giant red lines like

this once in July of 22 December of 22

and once in this last report you know

hey you know what maybe just ignore it

uh but to me it's a red flag and that is

a doish Fed uh and I think right now the

fact that I mean it still blows my mind

that yields have risen as much as they

have but I think the higher yields go

right now the greater chance of people

flirting with recession I personally am

of the mindset that and this is not

personalized Financial advice but my

mindset is pay off margin please I don't

want to see you go bankrupt from margin

okay pay off margin think about

diversifying raise some cash raise some

cash for a post elction dip or something

okay but it is okay to take some profits

from the Vegas

table protect yourself that is a doish

fed and if you think that labor report

was good you did not read table A8 look

it up yourself type it into Google BLS

labor report click on it scroll to the

bottom PDF click on it scroll to page

18 alpha

8 then read private payrolls government

payrolls seasonally adjusted and

non-seasonally adjusted read both of

them and you will not think that job's

report was good good luck everyone 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 P there financial analyst and

YouTuber meet Kevin always great to get

your

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