I was NOT expecting THIS.

hey this note from the federal reserve

that you're about to see could be

bullish for us i'm really excited for it

especially leading into tomorrow where

if you haven't yet watched my video

watch the video that's titled watch

before may 11th all about cpi tomorrow

but i really want to focus on what the

fed just said neil kashkari president of

the minneapolis fed let's get right into

what he said and then i'm going to give

you a conclusion at the end which let me

just say i was not expecting this all

right let's get into it quick note

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folks let's get into it phasing rates

and in whether it's through a series of

50 basis points or maybe 75 does at some

point come back on the table if you're

trying to increase supply through

investment

you're cutting off your nose despite the

fit your face you you want to you know

you want capital deployed to ease all

the supply constraints and it's going to

be more expensive to do that every time

you raise race it's it's almost a

catch-22 and a very difficult

and blunt tool that the fed has to just

try to destroy demand it's a real

problem i don't know you sure you want

to keep doing this a really good

question there by the way because the

question is like dude like lower rates

would help us invest in the factories

and in the supply chains to make them

better

obviously my expectation here is the

federal reserve's argument is like hey

you got high enough valuations to

finance and we just want to get back to

neutral we don't need to stimulate more

to finance your expansion so while i

like the setup it kind of misses the

fact that companies got plenty of money

but let's listen to the response from

neil kashkari he is the president of the

minneapolis fed

well we have our job to do you know we

have to bring inflation back down and

i'm confident we will do that but

remember the cost of capital for most

and for most large firms is still very

very low right they can still go fund

themselves at very attractive rates so i

think we're a long way away from the

cost of capital being the barrier for

example to firms investing in the energy

sector i do think it's more lack of

confidence on where energy prices are

going to be over the medium term to see

what kind of return they get on their

investment and also the regulatory

environment that you spoke about hey

neil um

the fed has a dual mandate and that's to

focus on inflation but also focus on

unemployment the jobs market um in the

past we've talked about how the fed

probably has even more mandates than

that worrying about a series of other

things from the economy overall to to

what might happen with the stock market

is it fair to assume because at this

point you sound like you are pretty

laser focused on the inflation piece of

it understandably so inflation is

destroying things right now is it fair

to assume that you're not paying that

much attention as a as a body to what

happens to the stock market at this

point it's it's going to be focused on

inflation and what happens to the market

happens he's nodding

absolutely i mean we i mean i'll be

honest with you i never focus on the

stock market as a goal uh we pay

attention to asset prices as it comes

back around into psychology and spending

behavior but ultimately it is our dual

mandate that drives us you know for five

years up until the pandemic i was

probably the most dovish member of the

federal open market committee and i was

i took that view because we were

undershooting on inflation and i still

saw there was slack in the labor market

so if you're under shooting on both

sides of your mandate that means the

monetary policy is too tight

now we have a very strong labor market

and we want to keep it strong but

inflation is much much too high and we

have to bring inflation back down and

ideally if we have monetary policy

dialed in right those two things will be

in tension we'll be at two percent

inflation and we'll be at a very healthy

labor market and we'll have confidence

that we've got it right but right now

it's just imbalanced and we need to

bring it back into balance

you just said you don't focus so much on

the stock market unto itself but you do

focus on the psychological impact of of

the price of assets well effectively

what i imagine you're saying is the

wealth effect or the lack of wealth

effect

given where you've seen assets move over

the last month

how do you think that that psychology

has changed has do you think that and

also given some of the other numbers you

were just talking about in terms of how

much household wealth families have how

much more does that have to come down to

change the psychology

well it's a good question you know when

i think about this this um

regime that we might be in a higher

pressure equilibrium the wealth effect

is part of that so stock prices were

very high relative to pre-pandemic home

prices very high relative to

pre-pandemic and then even the lower

income households that don't own stocks

or don't own a home many of them have

much stronger

healthy balance sheets than they had

before the pandemic my theory is that

all of that is leading people to feel

more confident and to spend more and

maybe that's what's pushing us into this

higher consumption higher spending

higher inflation regime so yes the stock

market has come down home prices are

still very high the the latest data is

that still been quite robust even though

mortgage rates have climbed quite a bit

just over the course of this year and

again household balance sheets continue

to be very strong and so you know we

just need to keep paying attention to

the data some of the

most recent inflation data on some

measures is a little softer than we had

thought might come in so maybe there's

some evidence that things are starting

to soften just a hair but we just need

to keep paying attention to the data and

seeing where it comes out before we can

draw any conclusions did you catch what

he just said and in my opinion it's

bullish

inflation is actually already coming in

lower

than what the federal reserve was

expecting it to remember the federal

reserve missed the boat in terms of the

fact that inflation ran way too hot way

too fast

but their expectations were that it

would slowly cool eventually and now

they're actually already saying that

internally amongst each other they're

seeing more of a decline we already know

that the stock market needs to go down

for the federal reserve to feel that

individual's wealth is going down so

they spend less money to drive inflation

down now that's not the goal right we

know the goal isn't to bring stocks down

it's just that when you bring the stock

market down and you bring the real

estate market down people spend less

money and then inflation goes away right

and now obviously he gave us a big hint

here that hey you know stocks have kind

of already gone down but real estate

even though rates have gone up still

hasn't gone down in other words hey we

might still have to kind of tighten the

screws on real estate a little bit so

they're watching and waiting for real

estate prices to come down imagine being

this group of people like let's go crash

stocks okay let's now go crash real

estate like it's kind of wild and

powerful right but think about this way

loretta mester this morning said the

following quote volatility is painful

but necessary to get inflation down i

wrote this on twitter that's why you

should follow me on twitter at really

kevin i wrote translated yo we need

stocks to drop so people feel poorer and

then inflation will come down as people

spend less don't worry though we sold

our stocks beforehand to avoid a

conflict of interest

sure by the way they stopped owning

individual stocks uh and sort of being

able to make these portfolio decisions

kind of at the peak of the market in

like november and then they went into

this crazy tightening cycle so it's like

oh

gosh just copy the fed when the fed

sells you sell

but they can't do that anymore

supposedly anywho uh this this lower

inflation expectation

really big deal

imagine if tomorrow and maybe they

already know this right maybe they have

their own estimates or they get a leaked

early copy or whatever imagine if they

already know the cpi is going to come in

low tomorrow in my opinion

bullish very very bullish if we get cpi

that confirms the thesis that inflation

may be peaked in march and actually

comes in even lower than expected it can

be very very very good especially for

risk assets which are all

kind of still selling off anyway good

luck out there thanks for watching check

out the programs on your wealth link

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