Hey guys, it's Sasha Yesterday Jerome Powell said that interest rates might have to go higher than previously expected, and immediately after he said that, everyone went absolutely bonkers. The stock market fell one and a half percent, treasury yields jumped upwards, and all the degenerate clowns on youtube crawled out of their dark Corners to tell you that the world is collapsing and the FED just ended. The stock market is going to be really bad. This will be the mother of all recessions, so please sell all of your stocks, Dig out a bunker in your backyard and start praying.

So let's take a minute to look at what is actually happening without all the fear-mongering Yesterday Jerome Powell said that the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes. And everyone took these words to Mina Jerome Power is some kind of maniac and he's going to crash the economy hard by raising interest rates as high as possible because that is the only way to stop this runaway inflation which seems to be going higher and higher and higher. I'm not sure if we're watching the same thing now.

I Watched the two-hour session where Jerome Powell testified to the Senate banking Housing and Urban Affairs committee yesterday. I Also watched the first bit of his testimony Today, it's still going on. He's basically repeated the same exact things word for word, and the opening remarks in those sessions were exactly the same as what Jerome Powell's been saying for the last six months. I'm not really sure what everyone was watching.

The FED has two objectives: to keep employment as high as possible and to manage inflation down towards their long-term goal of two percent. These are the only two objectives of the Federal Open Market Committee and they have two levers that they can use to achieve that objective. They can change interest rates up or down, and they can manage the Fed balance sheet up or down. now.

Inflation has two different types of components: primary and secondary. primary components of inflation are food, energy, and housing. These are the three parts of the CPI that are foundational to basic people's ability to make ends meet. to survive.

Nobody can avoid paying for food, energy, and a place to live. These components underpin everything else. They account for about half of the total Consumer Price Index with the other half being made up of secondary inflation factors. Things like new cars, used cars, apparel, blah blah blah Etc Things like transportation and Medical Care are kind of crucial to the working of the economy and somewhat indispensable many people's lives.

They're not discretionary in the same way as buying a new car is, but they are still not primary drivers like food, energy, and shelter. The next updates of the CPI is coming out next week and two of the three primary factors are now seeing a massive slowdown in inflation. Energy is entering strong, negative territory. You might not see it in your electricity bill or the pump just yet because the energy companies are in cahoots with the regulatory bodies and with the government and are busy fleecing people for every dollar that they can.

That, unfortunately, is how our lives go. Energy bills are at record highs while the cost of natural gas has collapsed and the oil prices back down at eighty dollars. You can see on both the gas and the oil chart that the price right now is massively lower than the same price Exactly One year ago, this is something I mentioned will happen a few months back and now you can see it in the data. That means that right now the price of oil is minus 22 percent a year on year and the price of natural gas is minus 45.

And you can see in the charts that over the next few months that Gap is going to increase unless we see a sudden, unpredicted increase in energy Commodities again because of some kind of force. Major Jerome Powell referenced in this testimony yesterday that housing and rent prices are slowing down a lot and this will filter through an into inflation data in the year ahead. You can see on the Zampa report that National Rent growth continued to slow down in February now down to about seven percent. and this means that for the first time during this inflation Spike rental increases and house price growth is now lower than the shelter.

Read in the CPI which is at 7.9 Now when we see the inflation data next week, shelter is most likely going to increase again and probably increase quite a lot maybe to 8.5 or 8.6 percent because Shelter lags a rent and house price increases from the past and has to catch up to the crazy increases that we saw over the last 24 months. in January food was still up over 10 percent year on year, which is excessively high, but two out of the three primary inflation drivers are now moving in the right direction and food is coming down. I'll beat slowly even though next week when the CPI data comes out I am sure I am confident everyone is going to their pants when they see the shelter figure, which it was obvious for some time now because most people people seem to not understand this lag effect. Jerome Powell Said that secondary inflation items are not showing the same signs of slowing down that the primary ones are, and there are two reasons for it.

The first reason is that those secondary items didn't explode like the primary ones did. Remember: energy was a 50 last year, food had been in the double digits for months now, and rent prices were going up at 12 to 15 percent a year for a year and a half. So yeah, those are now falling. And the price of clothes that did not explode in the first place also is not coming down as fast because it doesn't have a high starting point.

But you can see that the majority of secondary CPI items are not really key drivers of the high inflation that we've been seeing. And the really important factor is that the primary factors are a big reason behind inflation. In the secondary factors, the cost of labor, cost of salaries, cost of Transportation of goods property costs are all a huge part of the overall cost of running a business. So naturally, when primary drive drivers go up, secondary inflation factors follow.

usually after a lag, and when primary drivers go down, secondary factors tend to follow as well. Also, with a lag. Ultimately, when inflation was going up in 2021, nobody seemed to care or pay any attention. I was making videos and it seemed like I was talking to a brick wall.

Remember, when inflation was transitory, it doesn't really matter. Stocks were all going to the Moon Back In December 2021. Well, now we're seeing the exact opposite happen. Inflation is on the way down already fallen to 6.4 from the 9.1 last.

June. Employment has remained at record levels. The current unemployment rate is 3.4 percent, which is the lowest in over 50 years. New employment data is coming out in two days time, but early indicators are that February data is also incredibly strong, and everyone seems to think that this is a massive problem for investors.

But take a step back from listening to the Doom and Gloom salesman who have no idea what they're saying and chasing the latest trending topic for of views because their channel is dying. High employment is good for business. High employment is good for the economy. It is good for investing in those businesses and it is incredibly unusual for employment to remain strong while the stock market is taking a beating and the economy has slowed down.

In fact, this is the first time ever that we're seeing this phenomenon play out. This is the first time when the FED is grappling with this situation. The traditional Economist approach to managing inflation is that in cases of extreme inflation where it goes over 10 percent and grows, the central bank rate has to go up to at least match the rate of inflation typically in order for it to start meaningfully coming down. But this time two things are different.

One is at the super high level of employment that I just talked about is proving very resilient. The second is that this is the first time when the FED has implemented quantitative tightening as part of their policy. Well, they did a bit of it in 2018, but that wasn't a major Financial downturn like what they're seeing today was more like a test. This is the first proper test of that strategy working, which in theory should allow inflation to come down while maintaining lower interest rates than you would otherwise have to implement.

And so far it really seems to be working. The fact that energy spiked last year because of the war in Ukraine also created an artificial increase in artificial Spike over the top of natural inflation that exacerbated the problem. but this year we are seeing that normalize in a big way as well. In any case, everyone seems to be obsessed with exactly where the Fed rate is going to cap out.

Is it going to be 5.25 Is it going to be 5.5 is, again, to be something else. Will the March increase in two weeks be 0.25 Will it be 0.5 And although it is an interesting point of discussion, it is also fundamentally Irrelevant in the long term. For any long-term investor, if you are basing your investing decisions precisely off when the FED will make whatever increase the interest rate, you have already lost the game game. A Fed rate of 5 or 5.5 percent is perfectly normal I Know it sounds weird, and I Know that a bunch of dweebs on YouTube who have only started investing in the last three or four years think that a rate of five percent means the world is going to end because they've never seen a rate of five percent.

But it is not the five percent rate. That's weird. What is weird is the zero percent rate that we've had since the financial crash in 2008.. if anything, the combination of those stupidly low interest rates and the massive injection of stimulus cash into the economy during Covid have led to a wake-up call on how a normal economy actually tends to function.

Being able to borrow money pretty much infinitely add zero percent interest rates is not normal, and it is not a good thing. It encourages exactly the wrong kind of mentality. the wrong kind of business behaviors, their own kind of personal behaviors. It encourages unprofitable companies with no points to their existence to survive on free debt.

We have seen an explosion in this garbage in last 15 years, and we now see seeing a very healthy pullback in that space. Now everyone is concerned about whether or not a recession is going to happen. Why does it actually matter? Just take a step back and think about it. The difference between the economy growing 0.1 and falling by 0.1 percent is 0.2 percent.

But if the economy is Contracting Everyone suddenly panics, everyone throws their toys out of the pram like you know the world is opening up. We're all going to sink into the depths of hell. and yet there isn't actually that much of a difference. This is the same margin of difference to the economy as growing by 4.1 percent or only growing 3.9 But nobody cares if the economy only Grows by 3.9 instead of 4.1 percent because the base level for that difference is not zero.

Here is the chart of the S P 500 over the last 100 odd years. It's on a log chart, so you can see it a bit easier. And the gray bits on this chart are the recessions. Remember, the recessions are declared after they happen, not before after.

Traditionally, it's a two-quarter trading definition, so when the recession is declared, you've already been in it for six months today. The definition is a bit different, but it doesn't change the fact that it's retrospective and you can see that recessions tend to coincide with the market having a downturn. Well, no, the chart drops during the gray bits, but not all drops coincide with the recession. This is the first point.

quite a few stock market dips do not have a recession. But what's even more interesting is this: Imagine that we are entering a recession. It is probable maybe we're already in it. The overwhelming advice seems to be there.

You need to panic. You need to sell your stocks. You need to be watching the news daily because the is going to hit the fan. But if you actually look at this chart and have a brain, you can see that this is the dumbest thing that you can do because the outcome of pretty much every recession is a massive stock market rally.

Investments Made during a recession have a substantially above average rate of return. It is not rocket science. If you buy stocks that have been sold off, you are going to do better on average than buying them at all-time highs. And yet back in 2021, everyone was tripping over each other to buy stocks at all-time highs.

YouTube Was going nuts. Everyone was watching all of these tips for the dumbest companies you can buy and now everyone is panicking and selling their stocks. After the sell-off has happened, take a big step back and look at what's happening. Inflation is on the way down.

rates have already gone up substantially. Maybe they'll go up a bit more. maybe not so much. It doesn't really matter.

exactly. The world has gone past the pandemic. The S P 500 is 16 to 17 down from its peak 14 months ago. Which means that this bear Market has now gone on longer than average.

What should you do? Do you listen to all the ass wipes telling you to sell everything because you need to time the market and get your stock slightly cheaper? And if you miss it because you are greedy Gambler you will miss out on the rally. Which by the way is exactly why most active investors lose to the stock market, with many of them actually losing money. Overall, it's because they are them by emotion and greed instead of data. and Method or you can choose to load up while many stocks are still selling at 50 off their previous all-time highs.

Granted, many of the hype stocks all the dumbass Cinema chains popular on Reddit and whatever will probably never get remotely close to their all-time highs because those all-time highs were driven by degenerate idiocy. But among the sell-off there are many good companies in them that got sold off along with the rest. I Know that dimwits will turn out in the comments to say Stacy you're so boring did you say the same every time I'm a girl and you know what? Yes, yes, I do because I do not tell you a different thing every day based on what I think is going to get, the views based on which way the tea leaves formed and the pattern resembling a Golden Goose or whatever. it is because the winning long-term investing strategy is not about doing something different every day.

It is not about gambling on short-term price movements. So I am going to sit here commentating, providing useful analysis, sharing insight, and yes, saying the same every single time. I Am so sorry. if you find this useful.

please don't forget to smash like button for the YouTube algorithm and thank you so much for watching I really appreciate it I'll see you guys later foreign.