hey everyone me kevin here jerome powell just had a lot to say he is meeting in portugal with other central bank leaders like bayley from the bank of england and of course christine lagarde from the european central bank the oldest central bank that exists but folks i'm gonna start with something new that jerome powell first briefly mentioned last week but he went into more detail today and i'm gonna really go deep into explaining this one because i actually think it's scary in the short term but really motivating and exciting and good news it's bullish dare i say in the longer term and then i'm going to cover the rest of the meeting with other things that were mentioned which are also very important let's get right into it okay so first what we have is yes the extension on the expiring coupon code tomorrow that means prices will go up tomorrow night on the programs i'm building your wealth link down below but first what we have actually is jerome powell telling us that quote as demand comes down inflation could come down very quickly his word was very quickly and his rationale for that had to do with what he calls the vertical supply curve and that the federal reserve failed in modeling for the complete supply chain collapse that we ended up seeing and that's how the fed got inflation being transitory so wrong is that they didn't model for a complete and sustained supply chain collapse mr bailey from the bank of england said the same thing that you know the word transitory came from the idea that we're gonna have one supply shock not multiple like the first wave delta omicron war and over stimulation right constant injections of additional supply shocks so but what is this argument that powell makes about a vertical supply curve okay so this is going to quickly evolve uh from economics 101 to like economics 102. okay so this is not going to be that complicated all right so this is a normal supply and demand curve now you don't want to shut down if you think this is redundant it's really important you understand this so you understand the next part and if you've never seen this before and you're like kevin that is an x that is not a curve you're pissing me off don't worry you could still get life insurance in as little as five minutes link down below by going to mattkevin.com live but no you you want to understand this so basically this concept is very simple as price goes up we would expect that quantity demanded which is this q right here would go down that's why the supply the supply and demand curve has the demand curve sloping down so as price goes up we go more along this curve or the line goes up like the red line or the black line on the left here this area is going up we demand a lower quantity right okay that's simple the same thing is true in reverse for supply as price goes up the quantity that suppliers want to provide to the market goes up because they make more money so you get this sort of equilibrium point where if let's say price is here well there you know suppliers are like please let me bring a lot of goods to market and again just so you can see how that works on the demand side so that way you have a full understanding here is we're going to check you okay if the price is really low for something so let's say all the way over here how much do we demand how much quantity well a lot more right we demand more when prices are low like when there's a 50 off coupon code linked down below that's expiring tomorrow and the price goes up but anyway that's a normal supply and demand curve now where supply and demand meet is where you get an equilibrium that's really important because that's when the market is in balance okay cool let's now go over here and draw the disaster that we have now so first what we're going to do is we're going to draw the usual curve this is what we had before the pandemic except let's do it with straight lines so it's a little easier to see everything there we go all right supply and demand now let's say this was the usual curve now in red we're going to do the new curves so the first thing that we're going to do is we're going to move demand way to the right because what we're going to say is that people are demanding so much more quantity and when people demand so much more quantity we're going to move the entire demand line which is right there with that uh the black line label d and we're going to move this over substantially to here because all of a sudden we're demanding so much more the problem is this in a normal market supply that is being you know provided to the market would move up we would see a lot more supply at yes a higher price right all of a sudden this would be your equilibrium higher price more quantity provided however that's not where the new supply line is instead the new supply line demand line being here the new supply line looks a lot like this that's a vertical supply line so we'll label this s sub 1 and we'll label this over here d sub 1. there we go okay so now what do we have well even though quantity demanded has gone up substantially what's actually happening is the amount that we're able to get supplied is only here when it should be over here and the problem with that is here you have a shortage you have a shortage of goods and when you have a shortage of goods what happens you don't have enough baby formula you don't have enough tampons seriously that's like the next shortage apparently uh and and you you see prices go up even faster see even to meet the demand over here in normal market yeah prices would go up but prices go up even more when the supply curve is vertical marked by this intersection over here see price is higher now that's a really big problem because it says we're having shortages and we're not getting enough stuff to market uh at prices that should be lower now here's why i'm taking all this time to explain this because when the opposite happens and demand plummets i want you to see what happens this is really important we're going to draw this in green and this is what jerome powell is saying this is what could happen okay this is a big deal so watch this if i now say that demand is going to shift substantially over to a recession right and we're gonna put demand right here or let's do it a little bit more like right there okay cool so now demand moves over to the left demand goes way down in quantity because people like i'm out of money i'm done now what happens is really interesting in a normal functioning market the price should go down but it should go down to roughly this blue level here but because the supply curve is vertical and now we have so much extra stuff in inventories what actually happens to prices they go down even more the lower blue level and so even though that might look complicated let me give you some big big big bottom lines from that and then tell you about the rest of what the federal reserve just said the big takeaway from that vertical supply chart that jerome powell is talking about is that even though prices feel like they're skyrocketing right now because we do have shortages and we are facing a relatively vertical supply curve that actually means inflation could plummet a whole lot faster than we expect because now we've got so much more inventory we see discounting we see way less demand you now go from having a consumer surplus an economic term to a producer surplus and you see price come down substantially more we showed you how that works on the chart it also works by reasoning but the fact that jerome powell is saying we're facing a vertical supply curve is really really motivating and bullish because it means that when inflation turns and we finally peak we could see inflation over the next year probably go from eight and a half percent to quite frankly two percent maybe we don't know because we still got those wage pressures we've still got lingering cpi pressures right but let's talk about some of the 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short it would cost you about two percent to short per day which is kind of wild where did i talk about that in our course member live stream which you should definitely be a part of every day it's like an extra video on deep fundamental analysis content that youtube unfortunately just doesn't distribute because it's just not as sexy as fire and pain in the thumbnails anyway we also heard that loretta mester wants to see interest rates at the fed the fed funds rate to go above 4 next year this also led to some pain in stocks in futures this morning now we also got word that consumption in q1 was revised down from 3.1 percent to 1.8 percent for gdp this is the problem some folks thought this was q2 gdp no this q2 is not even over yet okay we don't have that yet but anyway what else we heard from the federal reserve is jerome powell telling us that we are not seeing a de-anchoring of expectations for inflation and what happens is if we do see a de-anchoring of expectations which you just can't allow to happen was the quote he said then the costs go up so much with the de-anchoring in other words if we get a de-anchoring of inflation expectations which means consumers think inflation's just going to keep going up forever we'll have to get paul volcker and we will see an even worse recession he will paul volcker us and he's mentioned before he's inspired by paul volcker so this is a very very big danger good news is this morning the final read on consumer sentiment and inflation expectations came out and even though we saw a temporary tick up to 3.3 percent for consumers longer term inflation expectations that was revised back down to 3.1 percent now that's either because the original data was slightly inaccurate and we didn't see a tick up or it's rigged anyway uh jerome powell also says that the biggest risk now is not over action even though you've got people like paul krugman at the new york times like oh my gosh the fed's going to overreact a lot of people are saying that now jerome powell says the biggest risk is us not doing enough and if we need to pivot to the soft side we will do so but we're not worried about the yield curve right now yeah sure there's a risk of us going too far but it's not bad as the risk of us not doing enough jerome powell also said he really likes the market is doing the work for him that it's very constructive that the fed has basically uh a rate hike plan that mirrors what the markets think so basically they just have to look at what the market is pricing in which is 75 in july 50 50 and 50 thereafter that would get us up to about 3.75 to 4 by the end of the year jerome powell reiterates that household balance sheets are strong however he does question that if disinflation which we've had previously will ever come back he says the pandemic has really led to a threat of further deglobalization remember trump's tariffs on china semiconductors charging 25 tariffs on semiconductors imported from china in 2018 really set up for deglobalization between us and china with our supply chains which is a problem as we have seen via our supply chain shortages in semiconductors and it has allowed china to really strengthen their supply chains around semiconductors bummer anyway we also have talk from christine lagaad that yes their economic models had shortfalls but hey monetary policy is an element of art not a science and honestly it kind of sounded to me like she described the central bank as a board ape nft which is arcane capable of being understood by very few and quite often very wrong and plummeting in value oh gosh that's a burn anyway uh there was also the argument that we should be patient for cpi numbers this friday because germany came in with softer than expected inflation this morning but christine lagarde is like just wait for friday we are going to have a party on friday and it's not the kind of party you want that's because economic economists predict that inflation will go up to a peak of 8.5 from 8.1 prior bailly from the bank of england says that we have now seen a shift from a supply shock to an energy shock and unfortunately that could keep things a little bit elevated longer and again jerome powell does acknowledge that there is a risk of overdoing it with monetary tightening but again that those risks are not as bad as the central banks not doing enough to get inflation down those consequences would be even worse for the economy that could mean complete collapse of the dollar or the pound or whatever now i want to again reiterate how important and hopefully it wasn't boring for you okay leave me a comment down below okay i want to seriously reiterate how important this is right here this vertical supply curve argument and it could be wrong but it is an argument that we will probably look back in 2023 and go oh my gosh now it makes sense inflation went up so substantially and so freaking quickly because the supply curve was vertical and therefore we saw a shortage and prices go up substantially fast because companies had pricing power but that same thing happens with a vertical supply curve when demand falls in reverse you see prices come down far more than where equilibrium should be prices should be higher here at uh at this sort of square that i'm trying to draw but they end up substantially lower which is over here at the lower square and that's because or i should say circle to keep it consistent and again that's because of the vertical supply curve so important in my opinion to see this visually because this is a new argument that jerome pal is making and i don't know maybe he's just blowing smoke but i'll tell you one thing that's not blowing smoke is the fact that the prices will be going up for the courses on building your wealth and you could save a lot of money by getting in now rather than delaying your purchase even just a few weeks because the prices go we plan on getting the courses to about double the price where they are now in the future we're going to get there incrementally thanks for watching check them out link down below we'll see you next one bye.