JP Morgan Turns BULLISH - Fed CUTS | *Flip Flop*

wow a new JP Morgan report tells us when

potentially the Federal Reserve could go

back to zero percent interest rates

we'll also talk about their expectations

for inflation and let me tell you they

are remarkable this comes at the same

time as Bloomberg suggesting hey look at

the financial tightening that has

already happened without an actual

increase in the joblessness rate you

look at crypto down two-thirds housing

market rotating down buyers at a

standstill tax stocks down over 50

percent the Federal Reserve has done a

lot to tighten Financial conditions

without actually costing jobs and in

this particular report we're going to

talk mostly about inflation and what

could end up happening with inflation

this report the JB Morgan report on the

2023 U.S economic Outlook Bad Moon

Rising this is what we're going to go

through in this video in the insights

are incredible by the way if you case

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all right so what do we have here first

the JPMorgan report starts with a few

quotes they suggest that no post-war

expansion has died of old age they were

all murdered by the fed and boy oh boy

has this Market been murdered not only

has it been murdered but and potentially

rightfully so because of high inflation

but I mean think about what would happen

if the FED hadn't been tightening right

now we'd probably probably still be

hitting all-time new highs like we were

in 2021 which was just so crazy I

remember every single day on CNBC

another all-time new high as if that

wasn't a sign of a bubble at all anyway

they talk about here how the

unemployment rate goes down by the

escalator and up by the elevator these

are the first two quotes they start out

with kind of interesting I mean you

think about it if you flatten out the

pandemic it did take from about 2010

2009 to all the way about 2021 to go

from over nine percent unemployment to

under uh three and a half percent or

three point six percent right around

there pretty incredible

this is the projection of the survey of

professional forecasters expectations

for recession in the next four quarters

do keep in mind that every time I

mention this people say wait didn't we

already have a recession and yes well

technically we had two quarters of

negative GDP it's possible those could

actually get revised up those GDP

numbers and it's possible that the

actual recession is still ahead of us

and not behind us there's also this talk

about how difficult it is right now to

see Financial excess and as a result of

this and supply chain

normalization take a look at what

JPMorgan is predicting they suggest that

it is not difficult to see the Federal

Reserve returning to their effective

lower Bound by the end of 2024 that

would mean zero percent rates and let me

tell you zero percent rates would be

really really bullish except they do

think that would take until about the

end of 2024. they think the disinflation

that we actually need so that decline in

inflation could actually happen with

without a lot of pain to the labor

market keep in mind we've seen a lot of

pain in valuations for assets but when

they talk pain they're talking labor

market pain here they mention a perfect

citation here well it's everything's

always an imperfect citation when you go

into history but it is a pretty decent

comparison economic history teaches that

this is not a fairy tale disruptions

associated with the Korean War

mobilization pushed inflation up to 9.3

percent by March of 1951. just one year

later inflation was

1.9 percent over that period the

unemployment rate fell by half of a

percent so you could actually have

inflation plummet without seeing

unemployment rise keep in mind that for

inflation to continue to go up you not

only need prices to have risen let's say

from a hundred dollars to 110 but then

you must see them Rise Again from 110 to

121 dollars if inflation just moderates

like this and price is just a flat at

110 yes the prices are elevated from

what they previously were but inflation

in that point an example price is

staying stable would actually be zero

and that would take a lot of pressure

off of the Federal Reserve and JP Morgan

says that they see signs that a

moderation is already underway and that

cooling will become more prominent over

time they believe that CPI inflation

will cool from 8.2 percent year over

year in September to seven percent in

December and then just 3.4 percent by

September of next year largely driven by

that decline in rents which is pretty

optimistic and pretty bullish they do

mention that supply chain dislocations

have eased pent up demand for goods and

more recently services such as travel

should fade now this I think is

interesting that the demand for travel

might actually fade I think that could

be very interesting tight labor market

conditions May loosen as well you know

one of the things that could really

loosen labor conditions right away I

believe would be if we had better

immigration policies there are plenty of

hard-working individuals that would love

an opportunity to work in America but it

is so difficult to get somebody from out

of the country to actually be able to

work in America anybody who's come

through the immigration process knows

it's hell it's absolutely terrible

cheers to Coffee by the way

hmm

all right so what else do we have here

we have Auto prices recently jumped over

the last couple years but an improvement

in the supply side may allow vehicle

prices to decline over the coming years

uh over the coming year actually here

with shelter inflation based on new

rents starting to plummet and an updated

Source data to the Bureau of Labor

Statistics where research on health

insurance prices should lead to a drop

in related CPI prices after they surged

going into September so some fancy

calculus going on over here on top of

this even though inflation expectations

have been somewhat mixed they believe

that inflation expectations tend to

follow reports this is something I've

talked about before that it's awfully

convenient that after we get a bad CPI

report all of a sudden inflation

expectations go up it seems like as long

as inflation expectations are relatively

stable they just end up following what

the reports actually do that's why I

wrote the reports big cat expectations

now inflation is a macro phenomenon and

the ultimate resolution will require

macro rebalancing and that's exactly

what we're happening having right now

with quantitative tightening which

JPMorgan will dive into suggesting when

QT might actually end even though it's

just now beginning which is remarkable

they touch a little bit here on we're

just getting back to normal levels of

the foreign-born labor force coming back

after the pandemic that's because we had

a lot of foreign-born workers who were

not here during the pandemic who are

coming back to typical trend lines and

since the dollar is so strong it

attracts more people working in America

they also suggest

that the population is growing older and

that could explain why we're seeing a

decline in the labor force participation

somewhat along this orange trend line

here where when the population gets

older you get less participation and

this isn't not this isn't necessarily A

Bad Thing the way the FED has been

seeing it the FED has frequently been

frustrated that the labor force

participation rate is falling the number

of people eligible are capable of

working who are actually working and

they're frustrated by that though there

could be a natural reason for that as

they show here in the trend chart from

JP Morgan now given the massive churn in

the labor market even a ma even a modest

slowdown in the pace of hiring can lead

to a decline in employment in most

business Cycles more job loss can be

accounted for by lower hiring than by

higher layoffs now this I thought was

really interesting they're basically

saying because people are so used to

changing their jobs all the time quits

basically right voluntary turnover you

don't actually really have to have a ton

of layoffs to see the unemployment rate

go up what you really just need is

people to continue leaving their jobs at

a normal pace and as long as you're not

hiring as much the unemployment rate

will go up and that'll show the FED that

their policies are really starting to

work they indicate here that hiring

reached a peak in February is now 11 off

of peak and there's been some degree of

moderation for wage inflation which is

good because we don't want to see wage

inflation take off this right here is a

forecast for wage inflation yellow is

approximately where we sit now and we

somewhat expect that to Trend down on

average here off of peak now they also

suggest here that short-term interest

rates are expected to increase or have

increased almost 500 basis points that's

five percent between March 2022 and

March 2023. and this adds substantial

costs for corporations which is a red

flag for companies with a lot of debt

keep in mind there's a reason that Elon

Musk is potentially looking to refinance

Twitter debt which is around 11 with a

margin loan against Tesla debt because

that debt would probably be a lot less

expensive and it would help the cash

flow of Twitter which actually cash flow

at Twitter would potentially help the

stability of Tesla stock price but one

thing that is beautiful about Tesla is

they really don't have any debt you have

to be careful of Highly indebted

companies like movie theaters cruise

lines and Airlines right now because of

that interest expense really Weighing on

earnings per share also what do we see

here we think that consumer spending

declines about two to three cents for

every dollar lost in household wealth so

the more we continue to see housing

prices fall as well as potentially stock

prices fall although more likely a

heavier impact on home prices fall

consumer spending should continue to

fall which would lead to hopefully

declines in inflation

all right continuing on with the report

here disposable income was down to was

down 2.9 percent year over year after

adjusting for inflation and some

estimates are suggesting that by the

middle of next year households could be

completely out of the excess savings

that they've earned right now as Jamie

Dimond has said we expect excess savings

to be around one and a half trillion

dollars and we expect them to be

completely out of excess savings by the

middle of next year which could also

lead to more disinflation the effects of

Fed rate hikes are also generally

clearest on the housing market relative

to other parts of the economy and this

hiking cycle looks no different real

residential investment declined

16.3 percent across the first three

quarters of 2022 and our past Research

indicates that total home sales decline

by about 10 percent for every 100 basis

points in increase in mortgage rates

given the roughly 400 BP increase in

mortgage rates our research search

suggests we could still see another on

top of the declines in housing sales

we've already seen another 15 to 20

percent declines in home sales and

obviously when home sales go down we

expect home prices to go down with them

although home prices did keep climbing

in early 2022 and we'll see what ends up

happening because right now we expect

that home prices likely peaked around Q2

of 2022 and there could be according to

JPMorgan a complete 10 percent Peak to

trough decline in home prices obviously

still much higher than where we were in

the pandemic but this is one of the

lower estimates JP Morgan and Redfin

closer to five to ten percent declines

many Wall Street analysts are expecting

15 to 25 percent declines though we

shall see Capital spending decisions

should be determined by the cost of

capital and therefore they expect that

higher rates are going to lead business

investment deployment they actually

mentioned that 40 percent of businesses

either export or come straight up just

come from outside of the United States

and therefore with higher interest rates

and a stronger dollar we should see a

substantial decline in business

investment which should help lead to

more disinflation notice how so far

everything is pointing to disinflation

right

now on top of this the JPMorgan report

suggests that a mild recession may

actually be met with a modest degree of

fiscal stimulus Could you actually

imagine us going into a recession the

FED turning the money printer back on

again which Jerome Powell has alluded to

and Congress potentially sending stemi

checks or is that just going to put us

right back into an inflationary

environment both possible both possible

kind of scary it's just maybe the fed

and Congress need to stop doing stuff I

don't know maybe that could really

extend pain during the bottoms but

anyway now that rates are more

convincingly in restrictive territory

this period of policy making this

difficult period of policy making

appears to be behind us that's actually

quite bullish potentially now they

suggest that the Federal Reserve is

going to be outcome oriented and after

this 50 basis point hike in December

could end up moving down to 25 basis

point hikes for the February meeting

it's right around February 2nd and could

continue delivering 25 BP hikes until

they're convinced that inflation is

trending down and potentially even pause

in May boy what a pause in may be quite

bullish thereby avoiding the mistake of

the Stop and Go policies of the 70s

where they would raise rates pause lower

rates than raise rates again big mess we

don't want that to happen because that

could potentially allow inflation to

Fester but if and in fact we might be

much more like a 2006 where we raised

rates to about five and a quarter

percent which is actually what the

federal reserve's terminal rate

expectations are now and then the FED

maintained those rates there for about a

year however if inflation plummets we

could see a much speedier unwind of this

restrictive policy and a lot of folks

are actually calling for a substantial

massive rate cut once inflation starts

proving that it's going to plummet and

this JPMorgan report is really telling

us that plummet is coming now a lot of

people are worried about quantitative

tightening however they suggest that the

federal reserve's balance sheet should

decline a little over a trillion dollars

next year Banks hold about three

trillion dollars in reserves and they

suggest there could be an end to

quantitative tightening by as late or as

soon as late 2023 that's because they

believe that Banks usually like to sit

around two trillion dollars in reserves

however the reverse repo facility with

another 2 trillion in reserves could

keep tightening going for a little bit

longer potentially up to two years

longer at this rate so while there is

some hopium that quantitative tightening

could stop at the end of next year it's

probably going to continue through 2023

and 2024 but again a flip down in

inflation and a rotation down in rates

could mean we're quantitatively

tightening while still inducing the

economy for more spend with lower

interest rates and so in my opinion this

entire report is actually quite bullish

think about what they're telling us JP

Morgan is looking at all indicators of

inflation suggesting that we should see

inflation come down easily to three

percent by September of next year and if

it comes down faster like it did after

the post uh after the Korean War we

could actually see larger and faster

rate Cuts now obviously it's probably

too soon to actually get bullish on this

sort of news since we've got to actually

see those reports and data come in but I

have to say I read reports every single

day and usually they're really bearish

this report from JP Morgan

almost across the entire board reads

very very bullish and I'm very excited

knock on wood that maybe just maybe this

December CPI coming out next Tuesday

could finally Mark the bottom of the

market and I'll tell you if I could

choose when to ring the bell at the

stock exchange it would be to Mark the

bottom of the market so fingers crossed

let's hope but remember hope is not an

investing strategy and even though I'm a

licensed financial advisor and I run an

ETF this video is

non-personalized advice this is not

personal advice for you it's always

consult a professional if you need

personal advice thank you so much for

watching check out the programs on

building your wealth and we'll see in

the next one goodbye