PREPARE for Powell's Surprise Speech Tomorrow [Federal Reserve].

hey everyone me Kevin here we need to

talk about drum pow because he gives us

a surprise potential rugging tomorrow at

1155 p.m. eastern time so be prepared

for a speech from Powell which of course

I'll be live streaming but I think

what's very important is setting up a

strategy going into this meeting

especially if you want to be able to

identify the hints that Powell drops

just note that before that at 8:50 a.m.

so while we're live at the meet Kevin

Market live Channel free live streams I

do every morning on the market while

we're live here we are going to be

getting Michelle Bowman though I don't

really think anybody cares what she says

because she was the one dissenting vote

that wanted to go 25 and everybody else

went for a 50 at the last meeting so we

kind of already know she's a bit of a

hawk economy is fine there's more of an

inflation risk blah blah blah blah blah

we kind of already know what she's going

to say but

last week on Thursday when we had Powell

on a calendar he didn't talk about macro

or frankly he didn't talk about monetary

policy at all and this came as a little

bit of a surprise potentially because he

was waiting for some leaks and some pre-

dat leaks this week since this week is

jobs week and who knows maybe he's got a

little heads up for us in terms of what

the jobs D is going to be now also In

fairness the earliest I've ever heard

that drum pow would get a data leak

would be like the night before or two

nights before so five nights before the

Friday jobs report maybe less likely but

let's come up with some scenarios first

of what we think jome Powell might say

and that way we could be prepared when

that happens to either trade on that

news right away or to position a

longterm portfolio appropriately in case

there's a warning or a big old thumbs up

to keep the rally going okay great so

let's analyze first because this is

going to help us understand this

analysis we have to first understand

what happened the last time okay the

last fomc meeting I made a prediction

that we were going to get a 50 basis

point cut however I also said that if we

were to get a 25 basis point cut it

would come with a dovish pow and if we

get a 50 it would come with a hawkish

pow now an example of a doish power

would be hey look we're going 25 but

we're leaving 50 on the table for the

next meeting especially if we see any

kind of continued weakness in jobs we we

are ready we might even go 75 you know

like that's an example of being really

really dovish uh and being willing to

react really rapidly this did not happen

though we actually ended up getting a 50

and it was a hawkish 50 we literally got

quotes which were almost the opposite of

what we saw at Jackson Hole Jackson Hole

was like we seek no further weakening in

the labor market the FED meeting JP's

like yep everything's fine he literally

said those words every everything is

fine the economy is fine the econom is

doing great GDP is strong inflation is

falling and we're just preemptively

cutting not because we're behind but

because we don't want to fall behind

well a lot of people think Powell is

behind so let's now predict what we end

up getting tomorrow uh keep in mind we

did get this 50 we did get the hawkish

50 so I was right about the 50 but I

will tell you I was wrong and this will

lead into this next piece as well I was

wrong about the direction that yields

would go for bonds honestly I thought

because there was only about a 55%

chance that we would end up getting the

FED going 50 and I was leaning towards

that 50 I thought that bond yields would

go down when we got a 50 but they didn't

go down because pow was so hawkish bond

yields actually went up which is

interesting because when yields go up

they do something known as tightening

monetary conditions they tighten

Financial conditions

so if Bow's wanting to

loosen but his actions actually led to

tightening then maybe there's a chance

he could undo some of that tightening

tomorrow and this is where we'll want to

begin to speculate on okay what is po

going to do tomorrow so let's think

about this together first I want you to

think to yourself while you look at this

beautiful black screen here what do you

think he's going to say tomorrow is he

going to be hawkish or is he going to be

doish or are we just not not going to

get anything useful out of them I don't

know any of those things are

possibilities but I'm going to give you

what I think are the most likely

possibilities likelihood number one I

actually think that you're going to get

a humble Dove see the cool thing here is

Powell can go back to his dovish self

without having to feel like he's doing a

favor for anybody at the meeting see he

got almost everybody to vote with his 50

probably because he said look give me

the 50 I'll go up there and Hawk and

then that way the Hawks who were left on

the board are like all right 50 Andy's

gonna go hawk all right all right and he

hawked to us but I think he overdid it

and I think he realizes I think markets

are like bro you just tightened things

like you went too hawkish so I actually

think tomorrow we're going to get a

humble Dove a humble Dove uh is going to

be in contrast uh to

uh a hawk uh Haw Tua Hawk Tua Dove you

know you know whatever Powell I can't do

I can't spell it correctly but you know

what I mean so a hawkish Powell is a

possibility but let's break through what

some of these things could look like so

first of all a hawkish Powell might look

like hey look the Atlanta fed GDP report

is at 1.3% this is great news hey the

personal savings rate which was

previously thought to be below was

revised away wow this is great news yeah

there's some issues with restaurants and

temporary job openings and job openings

in general and construction job openings

and isms are running low and

manufacturing's not doing that great and

we're potentially going into what's

called a growth recession where growth

begins to operate below Trend but we're

not seeing that yet and we're ready to

cut if we need to but otherwise I don't

think he'll actually say the word soft

Landing but he'll basically imply we're

going towards a soft Landing or frankly

he might even go as far as saying we

might have no landing at all you know

there have been no Landings in the past

the only reason people think the odds of

a soft Landing or no Landing are

basically zero is because we've really

never gone uh from this deep in the

inverted yield curve down like 101 basis

points certainly not since the 80s but

every time you come up from inverted to

positive which which is where we are now

about 20 basis points you don't actually

have a recession right away you only

have a recession when the yield curve

goes between 50 to about 90 basis points

positive so if you look back at 2007 or

2001 this is when the recession was

triggered when you were this uninverted

we're about right here which potentially

means we're within about 2 months of a

recession but I suppose there's a chance

this whole curve curve is just wrong

this time is different and there won't

be a recession see the problem with

recessions which makes them extremely

hard to predict is recessions come all

at once and you really have to think

about this for a moment if everybody

sort of like everything's fine there's

no recession there's no recession

there's no recession then you're not

actually laying people off and so you

don't actually see bad jobs numbers and

you don't actually see earnings go down

but if for some reason something tips

over and the tightening was just too

much we get a certain company that goes

bankrupt or a Black Swan or there's a

market crash or whatever then you could

actually very rapidly in the span of

frankly a week or two tip the economy

into what actually looks substantially

more like a recession and then you get

layoffs the job loss the decline in

earnings this all happens very rapidly

which makes it extremely difficult to

predict which is why I think Jerome

Powell's yapping tomorrow is going to be

important because he might give us some

hints in terms of what he's seeing in

leading indicators from discussions with

businesses on potentially layoffs coming

job hits or uh potentially also what he

sees in the way of black swans and so

how he behaves tomorrow is going to be

his I like to say his natural self will

have an unrestrained power he's not

subject to the whims of the rest of the

board tomorrow so if we get an fomc

powel it's worth noting you'll probably

see stocks up and you'll probably see

yields up as well so in other words

bonds might lose value stocks Bitcoin

and otherwise might go up and if you're

looking for things to go down because

you want to buy the dip or whatever

maybe on the jolts report this week the

ADP unemployment report uh or the jobs

report on Friday you'll actually have a

chance to buy the dip maybe or who knows

maybe there'll be a dip before the

election or it'll just never dip and

it'll just keep going to the moon and

valuations will keep being as Extreme as

they are and uh this is potentially a

blow off the top moment who knows uh

anyway so the other option is we get a

humble uh Dove so uh this is where I uh

I actually think we're more likely to

get Powell so this is uh I'm going to

just make it really clear Kevin's

opinion okay so here's what a humble

Powell looks like a humble Powell

acknowledges these wins right so we're

going to get the uh acknowledgment uh of

good okay but the problem is you're not

going to keep things at that level so

you know think about jobs for a moment

Jobs go up they start turning down if

you're trying to stay at this level and

you're trying to put a floor under that

level to prevent things from continuing

to go down you have to be really really

aggressive so you could cheer where you

sit right now but you don't want to

declare this Victory so early and then

get complacent because the trend is down

we all know in trading the trend is your

friend so if he acknowledges the good uh

I know I spell my abbreviation weird

here but he makes an acknowledgement of

the good but what I actually think he's

going to do is he's going to say at this

point we actually want to see labor

growth again okay this is uh uh you know

above uh where we are now and that's

because right now labor growth sits

somewhere around

150,000 jobs but frankly you probably

have to take about 30 to 40% off of that

so we're probably sitting between 150 to

100 because we're going to get revisions

again the Bureau of Labor Statistics

just isn't that good at figuring out

right now how many jobs are being

created because we're at a weird

transition point in the economy the

problem is once you go sub 50,000 jobs

which wouldn't actually be that far away

with revision you're in a recession and

so if you get a 100,000 read and then

you revise down to 50 you're probably

trending towards recession people

usually say it's when jobs go negative

but when you go below 50 you're so close

to negative you're probably going to get

revised into a recession at that point

so uh people want to be careful with the

sub 50 number what jpow should really

hope for if I were Jerome paw i' be

saying what we'd really like is to

actually stimulate the economy to

generate jobs in excess of about 180,000

jobs again now I don't think he's going

to be this nuanced he usually isn't but

what I'd encourage him to do is I'd say

look we acknowledge the good but we want

labor growth to get back to a stable or

growing level we do not want it to

weaken any further and as a result we

are prepared with our policy to cut much

more than what we forecast in our

summary of economic projections if

necessary to get us back to growth so

some kind of hint that we're going to

cut more uh that's what I want to walk

away with with a humble Dow Powell

almost a dowel humble Powell

acknowledgement of good we want to get

labor growth Focus back on labor growth

again remember how good those pce

numbers were they were excellent numbers

they really showed us on a you know one

uh on an annualized basis based on the

last 3 months inflation's running at

like

1.9% which is uh substantially lower

than what it was previously and it's

really

indicative remember on a 3-month

annualized basis you've ended up seeing

inflation now running at about 1.4%

which is crazy low you know a year ago

it was

3.5% which means you've actually

tightened situations in the economy by

about another 190 basis points minus the

50 they just cut which means you just

basically increase tightness by 140

basis points 1.4% over the last year by

doing nothing so this is Powell's

opportunity my take this is Powell's

chance right here before the election

because you know you don't have another

fed meeting coming up you actually have

a Fed Blackout Window coming up before

the election so they won't even be able

to talk anymore unless they just Nicky

leaks some stuff but uh this is Powell's

opportunity to do the following bring

yields down okay this is very important

because this would actually

encourage uh jobs and job growth because

you're going to loosen Financial

conditions now it is possible with that

you get I don't think he has to be like

dramatic and I don't think the market

will react dramatically where like

stocks crash uh and stocks are at a

level now where it's okay if like a

little bit comes out a little air comes

out of that balloon but even if you get

a little a sideways to a little bit of a

Down on stocks where you kind of stop

like the the potentially inflationary

constant alltime high alltime alltime

high right you just stop that now what

you're doing is you're creating stable

High valuations lower yields you

encourage jobs while potentially

limiting the concern that stocks would

lead to

inflation and you prevent the economy

from going into a recession this is

important because if you keep coming

across as Huck to Powell and you're like

everything's fine we might not cut at

all that's fine stocks might keep going

up just like they did in 2007 remember

in 2007 for six weeks so into early

November uh stocks went straight up to

all-time highs in 2007 and then the very

next year they were down 53% because you

had a Fed that was like oh everything's

fine everything's fine everything's fine

oh my gosh everything's not fine so I

think po would be really smart to be a

humbl howw here uh humble Dove but we'll

see so uh that's my take if you found

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thank you so much for being here I hope

this is helpful happy Sunday and we'll

see you in the next one goodbye and good

luck