Everyone meet kevin here, brought to you by extra, go to metkevin.com extra, to learn more all right folks, so something wild happened. Today we got ta talk about what james bullard, the president of the saint louis, a federal reserve, had to say today and with a potential warning sign that is starting to brew in the market. We just had an inflection point on something very, very important that very few folks were talking about, so we're going to talk about that towards the end of the video, but first james bullard, president of the saint louis federal reserve, a voting member of the federal reserve's Open market committee - that's the body that votes on how much and when to raise interest rates, how much and when to offload the balance sheet. Well this morning, in a discussion with bloomberg, news stated that he now supports raising interest rates by one percent by july.

First now, given that the july federal reserve meeting isn't until july 27th, that actually means that bullard supports rates going to one percent forget about a quarter of a percent or half percent to one percent within the next three meetings or potentially, even sooner so right. Now this on sort of a base case scenario implies three successive hikes likely 50 basis points or half of a percent in march, followed by a 25 basis, point increase in may and another 25 basis point in june. He also says that the fed should remove accommodation for markets as soon as possible, because right now we're actually still stimulating now, one percent rates are still accommodated, but we are still stimulating we're still printing money right now, which is just nuts. Meanwhile, the fed is so far behind the curve on inflation.

Companies have lost faith and now they're raising prices more than ever before more than last year, at least what we're seeing in q1 because they have to they're behind the curve. The supply chain and transitory inflation's arguments aren't really keeping up right now. So there's now this possibility, because of what bullard implied about, maybe even an inter inter-policy meeting there is this possibility that the fed will call an emergency meeting, and this is what's really spooking the markets today, and this is why we're seeing a lot of red in A lot of different stocks, even though bullard says he doesn't believe in the bill, ackman shock and awe approach. Bullard suggests that we could have an inter meeting move, which basically could mean jaqen rates up instantaneously to one percent.

Now jerome powell usually doesn't like doing that. So if there's any good news here, it's that j-pal likes steady, eddy and predictability at the fed. This has been his promise that they're going to communicate more clearly if things change, they're going to communicate these clearly and and well in advance. That's always been the goal of the fed, but unfortunately, while in the well in advance, have left has sort of left the fed lagging a lot now think back to the last time.

The fed did something really unexpected. You go all the way back to the beginning of march, the first week of march 2020 and that's when the fed sent interest rates from two percent to zero instantaneously on a sunday totally unexpected move. It is that was the day before i called up my lender and i'm like the fed just dropped rates to zero. Please refinance everything before other people go in, which was great, because then i got my money by like the beginning end of march, beginning of april, which was the perfect time to buy the dip in march of 2020, but now times are different.

Now you know this. I'm not the biggest advocate right now of buying the dip, because i'm worried about this kind of pain continuing, but let's think about what this could mean if the fed ends stimulus, all of a sudden out of nowhere and jumps interest rates in an inter-party meeting, the Stock market could be in for quite a bit of a shocker now again. Hopefully that does not happen. I want to be bullish in that hey we can get to that soft landing, but i'm i am really worried that they're just playing the violin for us on the titanic, and i just want to be transparent about that.

Now. We've got to talk in addition to what we just talked about with the vet. We've got to talk about another dangerous warning sign that just happened, and i hate to sound like dr fudd, but i'm starting to get to the point where i just may have to embrace it. I'm dr fudd and i'm writing you a prescription of caution, but first we got ta talk about our sponsor today, which is extra folks.

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Because now you can build your credit with a debit card. So learn more at medcavan.com extra and thank you to extra for sponsoring today's video. So folks, let's talk about this other boogie man in the room and what the market is doing right now. So yesterday, the market had priced in only a 24 probability of a 50 basis, point rate hike today following bullard's graze and this terrible inflation uh report that we got this morning.

The market is now pricing in a 99.6 percent chance of a 50 or a 50 basis, point hike uh in march they're pricing in a hundred percent of a probability that will hit one percent by june. Now bullard is a hawk, so maybe they're getting a little ahead of themselves, and maybe that means we'll have some green ahead, because again, bullard is a hawk uh he's not as dovish as some of the others who have come out. Uh, like marie daley, who tends to say hey, you know, maybe we'll only need two rate hikes, maybe it'll all be okay, we'll have that soft landing, but the market's pricing. This end we're seeing the red and there's another boogeyman that we've got to talk about, and this has to know has to do rather with the wage price spiral.

This is when the price of goods and services rides and workers end up demanding more money. As long as workers have pricing power, their real wages tend to rise. That's a really interesting note. Think about that.

If workers have pricing power, real wages go up, so we can now study the inverse if real wages are going up. That means workers have pricing power right and most of us would agree. Workers have pricing power right now and this all comes from the imf's working paper on wage price spiral. It's an older paper, it's not from it's not from recent times here, but it tells us what to identify or what to look for to identify wage price spirals starting and they say that wage price spirals start to happen when businesses seek to increase or maintain their Profit margins by raising prices and employees or workers seek to maintain their real purchasing power by demanding more pay, and so this is what's really interesting.

If you look at what kathy wood told you just a couple days ago, she said oh year over year, inflation data is 7 and year over year, wage growth is 5.6. That means real wages fell. That means workers, don't have pricing power and we're heading towards deflation. Well, unfortunately, we've got bad news for kathy wood because we got the january employment report and today's inflation report, both of them, had something scary in it.

That folks aren't talking about right now the cpi report said that wage earners saw their wages increase 8.2 percent over the last 12 months. That means real wages are now growing by about 1 8.2 minus, where we are now 7.43 ish somewhere around here. 7.5 is with inflation somewhere between 0.7 to 1 of real wage growth, which actually means individuals. Purchasing power is growing, and the imf tells us if individuals, sorry, wage pricing power.

The imf tells us that if wage pricing power is growing, we could be at the start of a wage price cycle and that's a boogeyman that markets might try to unfortunately, start pricing in see. We also had the jobs report about a week ago. That told us average hourly earnings, increased 23 cents in january or 8.8 percent month over month, reiterating this about one percent increase in purchasing power, and now real wages are actually growing more than inflation, despite the fact that inflation is so high. This is dangerous because it indicates the start of the wage price spiral which unfortunately, could self-sustain high inflation until the federal reserve finally comes out and ends this nastiness by properly raising rates quickly.

And it's going to be quite a bit of rate increases that we need, because individuals still have more cash balances, so they don't necessarily have to borrow. And unfortunately, when we get the first rate, increases, variable rates and lines of credit are likely to see their rates. Go up, which means actually input costs at companies could go up before demand goes down to end the wage price spiral and just inflation in general. Now i know this is a lot to take in, but there's even more because there's this thesis that well supply chains will just resolve themselves, and this is where we end the video right supply chains are going to resolve themselves and everything's going to be fine.

But the problem is the wall street journal on the front page today says toyota and honda see lingering shortages and they believe that supply chain issues will actually stretch throughout the year without getting better. As a result, you've got insurance companies that who are also struggling for the same parts as manufacturers like travelers, progressive kemper and state farm. All of them are raising their prices that, by the way, is right. Next, to that article, car insurers rush to raise premiums state farm in just the last six weeks has raised rates two to three percent in just six weeks.

That's a lot on an annualized basis. Progressive says: they've raised rates 17 and kemper is raising premiums 11, but they've only raised it so far, 50 of their customers, so they still got work to do. That means more price increase is coming now. There is some light, there's some positivity and that, for example, was buried in the b section on the wall street journal.

Where hey you know, toyota's challenges aren't just supply chains. It's because they're transitioning they're going to electric vehicles - and you know we want to go green. Unfortunately, going green, it doesn't really matter what the reason is going, green or evs, or whatever all contribute to more complicated supply chains. Rebuilding new supply chains.

This stuff tentatively, is expected to take a lot longer than we expect. We even know that companies that supply apple are complaining that they do not have enough wafers or that they're completely booked out of wafer supply for the next five years already, which is just wild. Now we do expect to hear good news from the big players right: apple, amazon, amd end phase, they've all seen some improvement in chip supplies, which is really good. Part of that could be because we saw crypto prices fall and face got their hands on more asics, which is great, but supply chains improving.

While that is hope, i'm worried it's just hopium. If consumers end up with more purchasing power because of the wage price spiral supply chains, getting better might not actually matter, instead of this folks, omicron was supposed to slow travel in spending. What actually happened on a month-over-month basis, so multiplying by 12 to get an annualized rate coffee's up 2.7 furniture is up 3 to 3.6 percent. Dishes are up: four percent apparel is up one percent, which is that's on a month-to-month basis, so that's 12 percent annualized, specifically girls, closing, which is up like 33 on an annualized basis.

Video and audio products up pet products up recreational products, up appliances up holy smokes, the more good news we get from earnings, and we talked about this a few weeks ago. This is the bottom line, the more good news we get from earnings that people are spending more and more money and the more news we get that real wages are actually now rising, increasing people's purchasing power. The longer this inflation boogeyman is going to stick around the more we're going to see 10-year treasuries bob up over 2 percent and potentially start running towards what people say is a cap of maybe two and a half percent. But what if it's? Not so, i hate to say it, but we've got some issues.

I know this isn't the most bullish video, but this is all i got. I really hope we go back to the moon at some point. We hit that soft landing, but i also want to be very realistic, and hopefully that's what you keep coming here for is realism thanks, so much for watching and we'll see in the next one and make sure to go to metkevin.com extra to learn more about that Extra debit card thanks so much folks, bye.