And Central Bank just stuck with a shocker of interest rate hikes and it could be the nail of the coffin for a 25 BP hike next week. From the Federal Reserve, there's been a lot of debate about whether or not the FED would go with the 25 basis point hike or a zero basis point hike or maybe even potentially cut. but the European Central Bank might have just put a nail in that coffin. They are sticking with a half Point rate hike.

They are rake hiking rates by 50 basis points. and while they have lower inflation forecasts, they're projecting inflation will remain high for quote too long. They're not offering guidance on their prior moves. There is no flagging of future intentions they're saying, but the price action and markets today provides confidence that they need to give their pre-committed rate hike of 50 BP Markets were pricing in at 50 chance actually for 50 BP.

So it was a little bit more like a coin toss. But this is what the ECB is saying. Uh, the first sense of the first sentence. So the policy statement reads inflation is projected to remain too high for too long.

This is a big tell for the Federal Reserve. It's a towel for the Federal Reserve that basically says listen up, we're going to be going with 25 BP But it's also a tell that says maybe the banking crisis is over. Maybe the banking crisis is not as bad as fear. Uh, that's uh, that's an idea.

So while 50 of the market was expecting the ECB to go to a 25, 50 was expecting 50. we did end up getting 50. this is leading the 10-year treasury in the United States to fall even more just sitting at 3.4 right now. That should be a boon for real estate in the short term, so we'll see.

anyway. that gives you the ECB update and updates for today. Thanks so much for being here. Check out the programs and building your wealth.

Get life insurance in as little as five minutes by going by Kevin.com Life 12 free stocks with Weibo by going to Metcaven.com Weeblehead. Well now we gotta dive deep into what just happened with the bailout for credit Suite So we talked about yesterday, but also the implication Nations that this is leaving for markets. Let's get started with that oil. I think is The Biggest Loser Here because markets are really starting to price in the likelihood of a recession.

Oil on a Brent basis is sitting at 73 bucks and Wti's down at 69. Just a couple of weeks ago, we were sitting above 80. For both of these, we've plummeted on oil prices nearly 10 bucks each type of oil. This is incredible because oil is absolutely one of the inflationary impetuses for this market.

So if you could thank the Banking Crisis for anything, it's to thank you thank the banking sector and their drama for potentially reducing the pain of higher oil and gas prices. Now usually people say pet cabinet core inflation takes that out. Who cares about that? And core services are sticky. Yeah, well.

guess who charges more when oil and gas prices are higher Airlines hotels service providers. Whether it's Transportation or otherwise, there are a lot of sectors of our economy that are actually services that use oil or gas as an input cost for heating or Transportation or otherwise in English. If the banking crisis is leading oil prices to plummet, then thank you for helping contribute to a decline in inflation. Hopefully that would be fantastic.

Certainly five-year break evens are expecting that right now. Five-year break evens have just Fallen to 2.39 down from a high just about a week ago of 2.8 which was very, very high. You've got a terminal Fed Funds rate now being priced in a terminal rate of about 4.9 percent. That's well off the 5.65 we saw about a week ago and we now expect rates to be down to about 3.8 percent.

That is an about 100 basis point or one percent cut by a December. Now yesterday we did hear that the Swiss National Bank is uh, in the midst of a quote-unquote uh. Managing a confidence crisis leading the leading Chris uh, Credit Suisse To borrow 50 50 billion francs works out to about 54 billion dollars from the Swiss National Bank Uh and uh. and and they offered up some of their debt as well.

Now what's fascinating about this is yesterday you had Credit Suisse shares plummet about 24 in one day, but after this bailout surged by about 40 percent the most on record. The bank's credit default swaps also no longer were trading at about a thousand a bip spread, they shrank substantially. Which is great because now there are a lot of Bankers coming out like an individual from JP Morgan Who says look, the reason this bank had problems was because of uh, confidence issues at this particular bank that this is more idiosyncratic or individualistic to Credit Suisse Not to be worried although I hate saying this. But if you go back to what happened in 2008 in March of 2008, guess what we heard Oh bear, Stearns is going under.

Don't worry, the market has bailed out Bear Stearns Everything is fine. The banking risks are not systemic, they are just based on idiosyncratic problems with the individual. Bank And what ended up happening well within six months, we were in the depth of a severe financial crisis. And that's essentially where fears point us today that what if this is all just the tip of the iceberg.

That's what Jeffrey Gundlock is saying. That's what under individuals and hedge fund managers are telling us. They're saying, be careful, this is dangerous. You've got investors ranging from a Jeffrey gun law but also Michael burry suggesting this is just like 2000 and 2008 all over again.

and you've got uh, an individual that CNBC interviewed yesterday Steve Eiseman of The Big Short said that if the spreading banking crisis stops the Federal Reserve from raising rates next week, investors should actually be phased by that 50 basis points is off the table. So they're either going to do 25 BP or they're going to do nothing he said on fast money. but if the FED doesn't raise rates, maybe it'll be positive for a couple hours or weeks. But by the FED not raising rates because they're scared.

Well, you should be scared. In other words, he goes on to say in his video interview that hey, look, If the Fed doesn't raise rates. It's a sign that this banking crisis could be a whole lot worse than we actually think it is. Uh, so uh, you know.

This individual also says in an interview though, he sort of Hedges what he's saying about potentially this being a systemic financial crisis by saying look, Credit Suisse I say basically has been a problem child in investment banking for as long as I can remember I Think that's actually kind of interesting. This idea that ah, well, it's no surprise that Credit Suisse is the one going under I Mean after all, they're the ones who were exposed to the drama of Green Zill Capital and Arcago's capital management and those blow ups the most and that's LED off. Thanks to that sort of instability, they've had to basically sell off at a discount billions of dollars of risky loans. But anyway, we know that the treasury Department is actively monitoring this for whatever good that does us.

The real question here is is there going to be Panic around an ongoing banking crisis? Uh, obviously you know this is starting to sound not only eerily similar to 2008, but I hate to say it yearly. similar to last week last week. remember when I said hey I had dinner with Kathy Wood and what did she say? Oh, don't worry, it's just Silicon Valley Bank Yeah, and I agreed with her at the time, but now it's not just Silicon Valley Bank or Silvergate from last week. But it ended up turning into a signature in New York on Sunday and then Credit Suisse yesterday on Wednesday.

Now, technically Credit Suisse hasn't gone under yet, but I mean they needed a bailout, right? So it's you're starting to scratch your head. Like okay, we literally said last week it was just going to be just these two. Then it was going to be just these three. Now it's just these three.

Plus Credit Suisse So it is creating a little bit of nervousness and a lot lot of questioning around. Okay, what does the Federal Reserve going to do here now? We actually remember that. Uh, yesterday it was the Saudi uh, Saudi National Bank That said, hey, we're not going to contribute any more funds to this bank That created a massive amount of fears. Uh, keep in mind the the Credit Suisse Even though yesterday we talked about how they sat at about 582 83-ish billion dollars in assets under management.

This is a bank that used to have about 800 billion dollars under management. So think about that. A bank that went from 800 to 580. or yeah, three billion dollars in assets under management has already lost.

Basically the size of Silicon Valley Bank Think about that. 800 minus the size of Silicon Valley Bank puts you at about 589. Credit Suisse is 583 billion under management. So it just shows you how large this bank is and they've already basically had a run to the tune of 100 the size of Silicon Valley Bank Still got another two and a half of those to go.

so it's leading to a lot of fear that uh oh, if we have any sign a sticky inflation, we're screwed. Now at least there is some good news here. And we do. We're going to go through this Bank of America piece here on CPI inflation.

Uh, but you know I Want to give you also the heads up that today the ECB is expected to declare whether or not the uh, they're going to go for a 50 basis point hike or a 25 basis point Hike The Hope is that they'll end up going with a 25 again. If we have zero then then potentially it's a sign that uh oh, we have bigger issues than basically everybody is letting on and we don't want to hear that. uh, now we. So we expect that today.

Uh, and then of course, if we end up getting uh 25 BP hey, that'll be neutral, it'll be a nice little leading indicator for us at the Federal Reserve as well. So what do we have here regarding CPI And then of course you've got First Republic as well, which just got downgraded to junk at Fitch and S P, which are rating agencies. But then again, if you remember 2008 uh, you know you know the rating agencies mean nothing. What's up Matt Cores You know a lot of a lot of banks are reporting uh, or interested in potentially selling their assets, right? But what's so problematic about Banks selling is that the more time goes on, the less valuable those Banks actually become a Silicon Valley Bank is looking for basically under receivership, is looking looking to be sold out, but every day that goes by, those Banks become less valuable.

Why? Well, first of all, corporations who would want to potentially buy out these banks are going to heavily discount the existing assets at those Banks to be able to hedge that they potentially would overpay. Generally, investors do not want to overpay for a bank, so you're likely to get lower bids than the assets are actually worth at individual Banks The problem, though, compounds every day that goes by at either a First Republic or a Silicon Valley Bank or Credit Suisse or otherwise every day that goes by where these banks are in the news, people are looking at their phones going crap. I Bank With that bank, you know what? Why not rather be safe than sorry? Why don't I just leave that bank and go to a big four or a big eight Bank You know something that's actually fully regulated by the Federal Reserve stress test and now you know systemically important. Bank Now all of a sudden, you actually every day you don't have a sale or somebody come in and swoop out these: Banks You lose more customers.

and if you lose more customers every day, then you're basically taking a skeleton that's rotting that has a little bit of meat left on the bone and you're rotting away whatever is left of that rotten bank already. So there's there's nothing to left to eat anymore. There's nothing, there's no calories left so to speak, and every day that goes by, you have more and more of that evaporation. So uh, it's it's a problem.

But not only is it a problem, but it could be a massive disaster. If all of a sudden, the Federal Reserve ends up, you know, having to come out and say hey, we've already used the entire 125 billion dollar facility. Could you imagine the Panic that would happen? Then if the FED says hey, we're we just ran out of money in that facility. Now we need more more money.

You know, No, they could do that via leveraging. But uh, and and we're not clear if they need to be transparent with us on whether or not they're leveraging, but it's all a disaster. Uh, anyway. Bank of America here reporting at least if we have this dual concern of a banking crisis and inflation.

which weirdly enough, in 2008, we didn't even have the inflation crisis. You know, we had some, but but nothing like what we're seeing today. So you're really fighting a dual crisis here. But at least Bank of America is telling us that the CPI inflation for the year should end up continuing to moderate.

I Want you to pay attention to this box right here and you're gonna see that it's core services that makes up the bulk of the inflation that we are forecasted to see going into 2024? But Bank of America gives us a little bit of an idea in terms of how this might end up coming down. So let's scroll over here so they do mention that we expect elevated wage costs and ongoing employment shortfalls to continue to lead to more persistent food away from home. Inflation? Fine indeed. Average hourly earnings for production and non-supervisory workers at food and service drinking places where up six percent annualized over the last six months.

That's really showing you where in retail and Hospitality where you're still experiencing from a smaller labor sector than you had before the pandemic. Think about that. 2019 you were at level X Let's say, and now you're actually x minus Uh, you know why you're you're smaller in terms of a labor sector than you were between by 2019 or compared to 2019, whereas Healthcare is at the same level. But these these industries should not be at the same level of employment.

They should have grown Healthcare should have had an additional 900 000 workers. We just don't have that right now. So uh, it's uh. you know this is one of the reasons you're continuing to see this sort of pressure.

But what does Bank of America tell us in terms of how these core Services might end up coming down? Well, First look, we're still waiting for that shelter. A disinflation to show up That has not happened yet. Uh, this is the shelter inflation right here. These are the expectations for it on a quarterly uh, basis, month over month.

We hope that it'll go down from about 0.7 in Q1 maybe to about 0.6.58 in Q2 down to about 0.4 and Q3 And by Q4 hopefully we're down to about 0.2 which would be great because that'd be about 2.4 annualized inflation. And then the FED can come in and just fade this away, right? But take a look at this excluding shelter. The forecast is unfortunately not so clear. We continue to expect this component will approve.

It will prove to be a sticky problem for the Federal Reserve That said, we do expect a recession to start in Q3 and for the unemployment rate to rise to four point seven percent above estimates of the natural rate by Q224. Over time, we expect the rise in the unemployment rate to put more persistent downward pressure on wage inflation and in turn core Services X Rent and owner's equivalent rents. So in other words, Bank of America is making this argument that look, inflation is probably going to remain so sticky for so long that even though we think you know we might see that downward pressure on rents, we're seeing vacancy ratios climb a bit and we've got plenty of forecast in terms of where we might end up being on CPI Here, it's important to remember that wait a sec. Wait a second.

that sticky segment's got to come down. So what kills the sticky sector? Well, this is something we've actually talked about before. What kills the sticky sector is when you at the margin, have a group of people stop spending money on restaurants, air, try travel, You know, food, basically delivery services. Any kind of services that they can cut out discretionary Services they can cut out.

This is actually why I Personally am relatively fearful of the S P 500 because if you go through the top 30 companies in the S P 500, there are really only about four that have pricing power to some extent. Apple Nvidia Microsoft I Can't remember the last one, but uh. anyway. Uh, there are about four that have pricing power.

The rest of them are all. uh, some form of either energy or staple or discretionary like Coca-Cola McDonald's or otherwise a Visa Mastercard are up there. And in my opinion, if you look at the economy as sort of a spectrum and you cut off it like you take the bottom thirty percent of people and you reduce their spending by 50 percent, That's like taking 15 away. The middle income and the higher income people keep spending.

take that lower segment away. Who loses? Well, those sorts of discretionaries in that S P 500. Again, all you have to do is go to the S P 500 Top 30. let's do it together really quick.

We did this in the course member live stream yesterday. We often do things like this: uh, uh, Top 30 companies, Top 30 companies, uh, on sort of a daily basis in the course member livestream, which is a great way for you to have a reminder to check out those programs of building your wealth link down below. Okay, so Top 30 companies remember you get lifetime access and the price goes up over time. You're guaranteed to get the best price if you join today, although you can always email me Kevin.com if you have a concern.

Oh yeah, Tesla of course. duh Apple Microsoft Tesla Nvidia Those were the pricing power stocks that I believe are in the S P 500. uh. the ones that I don't uh think will fare as well are: I hate to say Google Johnson Johnson Exxon Mobil I hate to say it JPMorgan Meta Visa Proctor and Gamble Home Depot Chevron Eli Lilly MasterCard I'm going to skip appv uh Pfizer Merc I don't know and then you get Pepsi Bank of America and Coca-Cola Now look I understand JPM and Bank of America are getting a ton of deposit inflows, but I still think you're going to see a compression in net interest margin.

You're going to see a compression so that these these Banks can actually retain those individuals I think lending standards will tighten, you'll see a higher default risk and I don't think the banking sector is out of the woods I Personally, I would speculate on the banks like just swing trade first Republic or whatever. Sure, but do I want to Long hold these suckers? Hell no I know I couldn't remember Tesla on the S P 500 I Know that's quite embarrassing. Uh, but anyway, uh see I must not be that much of a bull. But anyway.

uh, point being, that's the sector where I'm really nervous about. it's a lack of pricing power ones that are going to be most affected by a hit at the margin. I actually don't think a Tesla, Apple Nvidia and and Microsoft or hit that terribly I Actually don't know Microsoft So maybe to some degree, but at least the other three are hit that terribly in sort of a consumer driven recession. Now, interestingly, going back to Bank of America for a moment Bank of America is basically saying: look, the Q3 recession is actually actually probably what will drive the unemployment rate up and that will finally be what actually kills the sticky problem of services-based inflation.

So in other words, no killing of inflation that sticky portion until we have a recession. And this goes back to the idea that the FED has to force a recession to kill inflation and that's kind of what I expect now. I Really think if the Federal Reserve thinks these banking crises are not systemic, they will give us a 25 BP hike. It's a coin toss right now.

I Believe that's what's going to happen, but we'll have to see. so that's my take. But if it makes you nervous, get life insurance in as little as five minutes by going to Metcaven.com Life. You could Apple pay Android pay for it.

It's what Lauren and I use. We personally use it along with Weeble you could get 12 free stocks Metkevan.com free. They'll give you sort of the parameters for how you can get 12 totally free stocks just for signing up and uh yeah, we'll see you. Uh well, let me know what your thoughts are the Credit Suisse at debacle rather.

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