Need to talk about the Federal Reserve massively cutting interest rates in the face of inflation plummeting despite the last projections we got from the Fed. And along with that, not only are we going to look at the data along as with some former Fed economists, think we're also going to look at investor positioning. Where is it potentially least crowded in terms of positioning right now? Let's talk about all of that. Hey, everyone meet Kevin here.

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Okay, let's jump into this. So here is a a former Federal Reserve Economist John Roberts We're going to start with what he says about the surprising December summary of economic projections and then we're going to lead into how does this potentially affect rate Cuts Coming from the Federal Reserve Now, it's also worth noting that guess who shared this particular piece on monetary policy? It was none other than Nick T. Now Nick T is actually really important when it comes to where things are coming from because Nick T This guy over here on Twitter is the kind of guy who's been known to be the Federal Reserve's mouthpiece, so if he says something, there's a chance it actually came from the Federal Reserve And what's fascinating about this is that John Roberts starts by saying holy smokes, we had a Fed here that went aggressive. They thought that in 2023, based on the last summary projections, we're going to be knocking on the door of a recession, a low, much lower GDP estimate than anyone was expecting.

We have a higher inflation estimate than anyone who is expecting PC at 3.1 percent, which you're going to see some data in just a moment that suggests this is way high compared to what we actually think we're going to get, and a Fed funds rate capping out at 5.1 percent. also much higher than the September projection and higher than anybody thought. So you had a pretty aggressive Fed report here. John Roberts Thought that this was really surprising that the FED has this heightened pessimism around inflation, which doesn't really make much sense because the incoming data for inflation hasn't really been that bad.

The Uh: in September we saw core prices rise 0.6 percent, which isn't great, but in October November we saw them only rise an average of 0.25 percent. So why is the Fed being so aggressive? Well, many think there are two explanations for this. One explanation is the Fed basically just wants to keep this Stone Cold Hard face on and they're basically saying, hey, look, inflation coming down. That's what we expect.

We're going to keep hiking and basically they're trying to push the markets to over correct to the downside to make sure that inflation doesn't pop up like a golfer at Whack-a-mole or I guess that's like a mole pop in their head. But anyway, you get the idea they don't want it to pop up again, they want to keep it down and they'd rather push harder than they need to to make sure there's no chance of it coming up again. and that over pushing could really push us into a recession. Now there is the potential argument that, well, maybe they're worried about wages, right? That third piece of the inflationary puzzle: that wages are too stubborn that over the three months through November average hourly earnings Rose At 5.8 percent at an annualized rate up from 4.8 percent of the preceding three months, that's a problem.

But when we actually dig into the labor reports as we've done many times already on this channel, what's a quick summary of what we find? Well, we see that labor force participation is up, a sign that people are running out of their stimulus check money and credit card spending is so high that they need to go out and basically get another job. This is why we're seeing more multi Ai jobbers and more part-time workers boosting the unemployment numbers. We're actually seeing lower real job gains. When you look at the Philly Fed, the Philly Fed tells us yeah, we didn't create a million jobs in the second quarter of 2022.

Maybe we created 10 000 new jobs. In other words, the actual number of job gains is being way overstated and in our last report, we actually saw wage gains get revised down at the same time as average hours worked per week is is coming down, which would actually put upward pressure on the data. Really suggesting that wages are actually starting to flip-flop. But the problem is if wages do end up flip-flopping, look what you get here and you actually get unemployment.

Rising You do increase the risk of a recession, which The Increased risk of recession increases the odds of big cuts, which we're going to talk about big time in just a moment. But look at this. This is actually a really interesting comment here from the the Uh from from the article Nick T shared. They suggest here that wait a minute.

We have never seen the unemployment rate Rise by more than half of a percent outside of a recession. Now that's actually really interesting because what you have is the projection that the unemployment rate is actually going to rise by somewhere around one percent. If that actually happens, then we're probably looking at a recession, which is likely going to be followed by Massive rate cuts, which is exactly what the market is starting to price in right now, especially if it's true that Peak inflation is behind us now. What's fascinating is what the market is starting to price in.

According to Vandertrack in this email I received this morning, investors are no longer focused on the terminal rate. Instead, they're focused on the coupon code linked down below for the programs on building your wealth and making more money like in the elite Hustlers Course the new course showing you all the tax benefits and tricks I know for building your wealth or people wanting access to those fundamental investing live streams where I break down earnings reports, a cash flow statements, balance sheets with you and we do it all together and I answer your questions. check those out. Link down below.

get lifetime access. Though actually, investors are no longer focused on the terminal rate that is the height of where the Federal Reserve is going to hike rates to. Instead, actually, the market is now focused on bets, suggesting the Federal Reserve is going to cut by almost two percentage points by the end of 2023.. Now I Want to be very, very clear here: I Think there is a massive difference between the Federal Reserve pivoting and the Federal Reserve u-turning Generally, the Federal Reserve pivoting is sort of deemed to be a reduction in interest rates.

Uh, interest rate hikes. Kind of like going from 0.75 to 0.5 That didn't lead to a market bottom, right? Things got worse after that. That's expected though. I Also, don't think a pivot is going to zero or a pause, right? I Really? don't think that's really the pivot.

I Think a big U-turn is when the market really hits bottom and that U-turn seems like it's starting to get priced in Now, because historically the U-turn is when the FED goes. Oh crap, we went too far. turn everything on its head, everything on its head. We're not just pausing.

we are stimulating again. Print money. Again, cut rates again. and the market is now trying to pre-price in the U-turn I Think that's why we're in sort of a rally mode today, at least in the stock market, which could be a bear Market rally.

but I Do believe markets are going to pre-price in this Fed U-turn because it's been so historically clear, starting in the late 80s, followed by the 2003 Fed U-turn which marked the stock market bottom of the 2009 February bottom which marked the bottom. Market When the Fed u-turned the December 2018, the March of 2020, right. All of those were fed u-turns when the market bottom and the market is trying to pre-price that in by saying, look, we are going to get almost two percentage points 1.77 percentage points worth of cuts by when the end of 2023. But wait, the FED says they're not even considering Cuts Exactly because they got to tell you to your face, they're not considering cuts to try to keep that mole of inflation down.

But the reality is, when poopy hits the fan and inflation actually does plummet, they're gonna have to cut, cut, cut cut. and we're going to be right back to the days of money printing. That's almost a two percentage Point decline now I Want to remind you of a video that I made a month ago where I started talking about this a month ago. This is that video a month ago.

It's uh, the title is the coming massive fed bailout prepared to go to zero. And what did I talk about here? I Talked about the yield curve inversion of the tens twos, suggesting that we're actually going to see about 500 basis points of cuts by the time the cycle ends. Basically, what they do is they look at the depth of the inversion on the left side here and then I correlate that to what has historically happened when the yield curve has inverted. and when you align these two, you set up for about 500 basis points of hikes.

because you could see we had less of an inversion in 2020, we had less Cuts We had a larger inversion in the 80s and we had substantially more Cuts 8 to 900 basis points eight to nine percent. Well, here, we align at about 500 basis points of cuts. but wait a minute. the highest that right now the Federal Reserve actually thinks rates are going to go is sitting at what, oh, 5.1 percent, which written another way is 510 basis points.

Which if you actually get the full reduction of 500 basis points, you're basically at 0 to 0.25 Again, that's zero percent of a rate. Which means if we get 1.77 or about, let's just call it 200 of that. Now we go from maybe a peak of around 5 500 basis points, take off 200 in 2023. We could see another potentially 200 come off in 2024, and maybe that last 100 come off in 2025, or it could all go a lot sooner as the FED freaks out even more.

Now that's pretty wild, but again, the market right now is starting to price in Cuts. Now, this actually does create a downside risk. What's the downside risk? Well, the downside risk is simple if inflation. Or let me put it this way, if the inflationary mole pokes up again, what happens? Boom down, right? Because if the inflationary mole pokes its head up again.

the Market's going to go. Okay, yeah, oh, we're getting a little bit too premature here. We're not going to end up seeing those cuts. Let's go ahead good and revise down our expectations for cuts.

And then we actually see the market Fall more. Again, if we think that the markets or that inflation is going to plummet kind of like Vanda track here thinks it does. Oh boy oh boy, then we're good. As long as we don't see another Peak right.

Markets upturn could actually be sustainable. This is Vanda Track's implied headline: CPI Projection right here. This here is a Vanda track suggesting that inflation is currently sitting around 7.1 percent and that the market is expecting that by July and June we're already going to be sitting around that two percent number. Which Remember folks, everybody gets this wrong online.

Everyone gets this wrong online. Everybody forgets what the Fed's policy actually is. Everybody online 2.4 isn't two percent. Everybody thinks the FED needs to get this to two percent and that's exactly what the pet is saying.

Hey, we're gonna get rates to two percent. But what everybody forgets is fate. Yes, Flexible average inflation targeting fate. As long as they average two percent.

using the last decade and the next decade, we could be Gucci with 2.4 for a little bit as long as it continues to Trend towards two percent. And that then sets us up for analyzing positioning. Crowded trades versus non-crowded Traits: What has pricing power. What doesn't have pricing power? When do you get into real estate? Obviously, you know.

I've got a real estate startup raising a lot of money. We've raised over 20 million dollars for house hack, 20 million dollars cash sitting in the bankola ready to go buy real estate with my real estate startup. We're mostly at a one-to-one valuation right now, so if you're an accredited investor, check it out by going to Househack.com If you're not accredited, we are releasing our full SEC audit. Uh and uh, as soon as the SEC clears it and we'll be releasing everything for the non-accredited around.

uh, very soon. hopefully by February or March so we'll see. We're very excited about that. So what do we have over here? Look at this.

This folks is interesting. This is thematic positioning right now. thematic positioning is overweight stagflation. So in other words, if markets right now are suggesting oh no, we're going into a stagflationary environment, these are crowded themes.

The higher we are on this chart, the more crowded the theme. The less crowded themes right now are actually recession themes. Your safe havens. This could be like a gold trade, right? And your Goldilocks trade or even reflation trades reflation.

You know this is actually expecting. uh, a sort of like Market reopening. This is what we thought, uh, was the big reflation trade of the summer of 2020. Uh, so I I would I Would probably venture to say the biggest trades right now probably should be not really stagflation.

We don't see indicators of that unless that mole pops it set up, but probably recession or Goldilocks one of these is going to push duration would be like growth, right? Purchasing power stocks companies with really strong long-term fundamentals that are unfortunately unpopular and anti-traded in times of stagflationary fears, right? But in my opinion, pricing power stocks really take off and uh in in a deflationary Time or disinflationary time. And they are not very crowded at all right now, which in my opinion, creates an opportunity. especially if you could find a a pricing power related uh or or an ETF that has a lot of Uh pricing power stocks specifically because in the event, certain stocks within that basket run actively manage ETFs have really unique tax benefits where they can exchange stocks kind of like a real estate 1031 exchange without passing along capital gains to the investor. Haven't you ever been frustrated that like one of your stocks has performed well and the others not so much? maybe and you want to rebalance, but then you don't want to pay those capital gains and you end up with a lopsided portfolio? That's bad.

You could fix that with actively managed ETFs It's the biggest tax loophole I've ever seen intact in in stocks. Talk to your CPA about it. Obviously I'm not your tax consultant, but anyway, this is fascinating because when we put these pieces of the puzzle together, as long as that inflationary mold doesn't rear its head again, and as long as the FED keeps having that hard face on inflation keeping inflation expectations down, actually helping inflation fall, then when inflation plummets like Vanda track expects it will by the summer. Oh boy, we could start really actually seeing uh the Federal Reserve start implementing their U-turn and we can start seeing Katsolas unless of course the mole of inflation Peaks its head.

So this is very optimistic. This is very bullish. but you have to be cautious because again, we've played this game before. in March we thought inflation was down in 2022.

What happened? It peaked its head. again. We thought the same thing in the summer. What happened? Inflation pops back up so you have to be careful.

Oh, and look what just came in New York Fed one-year inflation expectations fall to five percent versus Five Point two percent. That's a year out. Three year inflation expectations unchanged at three percent good. Another optimistic inflation report.

Let's keep it going that direction. Things could be good. Thanks so much for watching. We'll see in the next one.

Goodbye.