Will the stock market crash terribly after the Federal Reserve pivots well according to the following chart, The answer is absolutely yes, and you should wait before investing again. I'm going to explain this chart and break this chart down and show you how this chart could potentially be substantially misleading you. Now note: I've been getting a lot of emails and comments, not only about this particular chart, but also folks wondering. Wait a second Kevin What do you mean You're getting rid of coupons? Here's what we're doing.

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Okay, what do we got to talk about regarding this chart A lot. There are a lot of problems with this chart. The first thing that I want to do is provide you a little bit of something that is substantially missing from this chart. What's missing from this chart is that the Federal Reserve did not actually create its precedent for bailing out the stock market until 1987's Black Monday crash.

How convenient that this large crash right here is conveniently ignored in this chart because when the Federal Reserve actually created its first ever pivot, so to speak. Where the FED actually introduced unlimited Market liquidity. ah, the market Actually Rose And why is that not on this chart? Because it would ruin the argument that this chart is trying to make. see some folks call a pivot a pause in rates or reduction in rates.

But this chart tends to assign a pivot as any time rates are cut. But wait a minute. the Federal Reserve bailed out markets in 1987 by calling up banks around the United States and saying lend, we must lend and we will guarantee your lending. That set the precedent for the Federal Reserve bailing out the stock market.

Why? Because in 1987 on Black Monday thanks to the Advent in part of computerized trading and disalignment in settlement for Futures Trading Stock Trading, Options Trading and this belief that everybody could just wildly invest in the stock market and don't worry, portfolio insurance will bail you out and prevent you from having any losses, which was basically just a way of saying you set a limit to automatically sell when stocks fell below a certain point. Well, what ended up happening? The stock market fell 20 percent in a day thanks to a Domino effective selling and no circuit breakers. That's when when the FED realized wow. First of all, we have structural issues in the market.

The SEC realized this as well. In fact, people were complaining to the SEC saying let's go back to paper trading like this is stupid. The SEC is like no guys. Listen, we need more information in markets not less.

let's stick with these computers. Let's just fix things. Let's just fix the way trades settle so they settle on the same day rather than people having negative balances as they wait for trades to settle leading to margin calls and the stock exchanges realized, you know, maybe we should have circuit breakers to make it so that the stock market can't sell 20 in margin after margin after Margin Call selling. And that's what we have today.

and you created the precedent of the Federal Reserve's bailout. So think about that. Before 1987, you never had the precedent that the FED pivot meant anything. The FED pivot had no meaning until 1987.

So the left side of this chart really doesn't matter. And after the Feds pivot here, the stock market actually went to New highs within just two years. Now, this left side and I don't really want to. just like passively explain this away.

but I'll quickly give you a little breakdown on why we had real collapses here. It's because there were actually real problems in the market. Remember, the FED is supposed to cut rates when we go into a recession, right? That is a real issue. So if you're going into a real issue or like a real structural recession, of course, it makes sense for the stock market to fall in 1969.

Most Americans were concerned about war debt and Vietnam debt-based spending. and so the government started trying to pay down its debt, leading to substantially less government spending and negative GDP leading to a recession in at 69 and 70 which followed Decades of growth. So yeah, we had a recession here. That's normal.

the stock market. Falls In a recession, the FED usually reduces rates. In a recession? That's normal. What about in 1973? Well, this is when we had the oil price shock of the 70s.

This was a big disaster and what folks forget is how price shocks work. We had massive price caps in the 70s and a quick 101 economics lesson. As if on the left side you have the price of goods and services and on the bottom you have the quantity demanded of goods and services. and you draw a little intersection here of the two, what you get is what's called a demand curve and you get a supply curve.

and where they meet is where the market is deemed to be at equilibrium in the middle. right? This is the price for that quantity. Uh, that that is eventually supplied right? So demand meets Supply. But what happens when you Institute a cap and you say you know what? We're not going to let the the price of gas or oil or whatever be above this particular cap.

Well, what happens is the quantity the market is willing to supply is here. it's lower than where the quantity is actually demanded, which is here. And this intersection here creates something very simply known as shortages. It's an Economics 101 principle and when you have shortages, you create panic and people were waiting hours in gas lines.

This is why when you drive by In and out, it's people wait like an hour for their food in the drive-through because the price is too damn low. In and Out, should raise their prices, but instead they keep their prices low and they make people spend not money, but spend their time. Which is stupid, right? You're better off buying, paying a little bit more, and going making money somewhere else, but whatever. In and Out obviously is a great business, so we won't keep banging on them in 1981.

You could hardly call this a Fed uh, pivot when we're going into a depression thanks to Inflation Expectations having having exploded And sure, the FED did reduce rates, they reduced rates from 22 percent to nine percent. Nine percent is still high, but inflation was like 18 19. So this was a Fed induced depression. Now that actually has some similarities to today, so we'll keep that in mind.

1981. We will say this one has some similarities, but keep in mind it was just the beginning of the Federal Reserve's pain. The Federal Reserve had to Stamp Out inflation for years after 81 and this was just the beginning. This was thanks to Inflation Expectations having completely broken.

So there's some similarities to 81, which we'll talk about in just a moment. But let's first talk about two thousand. First, I Want to explain that this chart is a logarithmic chart. Which means basically it tries to make all of the moves look relatively similar rather than just being a regular linear chart.

That's because obviously price is back here in the 70s are way fewer than or way smaller than where they are today. So it would really make the chart look a lot bigger today and tinier back then. So we use log when we look over large time frames. this is very normal and What it lets you do is it lets you see that the insanity of 2000, which was a post uh Fed bailout time frame was really not.

so. The 2000 market bubbled up about four x the height of the 2021 stock market bubble in 2000. and in the.com Era we saw companies like Qualcomm over 25 X their stock prices. In fact 12 of the largest large cap stocks Rose over 10x and 7 of the next largest companies Rose over 9x.

The NASDAQ went up 85.6 percent in just a year and the S P 500 Rose just 19. You added an insane insane bubble. Now sure you might compare that to 2021 and say oh, come on, but Zoom 5x then then fell a lot because of the work from home trade in a bunch of stimulus. but dude, 5x versus 26x on Qualcomm or 10x on large caps? Insane.

The magnitude of the.com bubble was absolutely insane, and you could see that simply by looking at the chart. The run-up over on the right side over here is nothing compared to the run-up we had in the.com bubble. So the.com bubble really was an era of irrational exuberance. Absolutely insane.

And you even had companies that just ipo'd going bankrupt just nine months after IPO like Pets.com as Venture Capital no longer became available and these companies were just straight up profitless tech companies. Now we still have profitless Tech today that went through a bubble in 2021. but the magnitude of profitless tech everyone on basically being profitless was remarkable. and the Federal Reserve wasn't what in real well I Mean some could say the Federal Reserve helped contribute to the.com Bubble because we had the great Moderation era of declining rates following the 80s.

But what really most people say contributed to the 2000 attack bubble was this belief that oh my gosh, computer ownership is increasing. everybody's having a computer now. the best place to invest is the.com era and companies couldn't actually deliver on the promise of profits whereas in 2021 you actually had companies like Apple and Google and Facebook reporting massive real cash flows and profits, companies actually being able to deliver on their profits and the magnitude of the bubble being substantially smaller. Now that contrasts again with the crash of 2007, which is where we also get a mark of a Fed pivot.

Here in 2007, you had a massive mortgage Market disaster which actually reminds of the 1989 recession which once again is not listed on this Fed Pivot chart. And so what you had in 2007 and 2008 was a mortgage disaster. Ninja loans, no income, no job, no asset loans, dead people getting loans, teachers getting multi-million dollar loans, everyone buying homes that shouldn't be able to afford loans. And as soon as their interest rates reset from negative interest rates to positive, people like oh I was told I could just refinance and appraisals.

We'll just bring it in at Value that only works until prices start coming down. And guess what? Bubble bursts, short sales, foreclosures, and new regulation coming out of the recession like the Dodd-Frank ability to repay rules. Massive Reformation In appraisals, and the real estate industry, people actually have to prove they have the ability to repay. no more negative interest rates as teaser rates, right? You have to qualify based on what your final rate is.

I mean huge structural changes. So when you consider this chart, you have to consider that you really had massive structural issues in a lot of these quote-unquote pivot errors. Let's just draw some of that for a moment. Let's consider that in 69, the Vietnam War before the FED bailout era, you had price caps in a structural issue, creating a recession and less spending.

Those price caps really came to double down and create disasters in 73, which also happened to be when we left the Gold Standard. and and we're skip 81 for a second, we're going to come back to 81 for a second. We look at the FED bailout actually beginning in 87, the convenient forgetting of the disaster of the Savings and Loan crisis over here, which was a structural issue where thrifts and Banks basically had the triple threat of a having massive mortgage security holding bags because there was no Fannie Mae and Freddie Mac to basically securitize your mortgages. Don't worry so much about that.

but it's basically just to say that Banks were so upside down on bonds at the same time as interest rates were declining and people with were withdrawing money from uh, Savings and Loans. so they're holding on to bags, they're making less money and people are withdrawing money from the Savings and Loans You had a massively upside down Savings and Loan crisis here where you actually had a huge, a pretty large recession in 89 and 90 And there were real structural issues to that recession. Real structural issues to the 2000 recession of profitless companies leading to this magnitude of a bubble that doesn't even compare to what we saw in 2021. 4X The bubble.

You had a massive structural bubble of the real estate market in 2007 and I Hate to say it, but this chart is like criminal to suggest that the 35 percent pivot of the 2009 pivot or 19 pivot which was really the December of 2018 pivot where the FED said oh, we're not going to raise rates anymore. This is stupid because they're saying there was a 35 percent drop using Covet. they waited until Covet to say there was a 35 drop. Come on man, like that should tell you this chart is just raked.

But what do we actually have here? If we take out this rigged one over here, we have a structural pivot disaster over here where you actually have a real recession with real issues. Real recession with real issues. Real recession with real issues. Real recession with real issues.

Real recessions over here with real issues that were ignored and fed pivots that actually led the market to go up and not down, but again being conveniently left out of this chart. So when the market went up after a Fed bailout, the chart ignores it instead to double down on this idea that the FED pivot crashes Markets they use Po A Covet I Almost said Povid They use covet to show you that markets crash after the FED pivot. So you have three cases here where the chart is raked, rigged, rigged, rigged. Then if you look at the structural ones, the really structural ones, you get rid of 2007 and you certainly get rid of before fed bailout periods.

So you're really left with the 2000 ERA with rampant uh, you know, uh, speculation which is somewhat similar to what you saw in 2021, just four times smaller in magnitude in 2021. Okay, so you could say that's just this insane structural speculation that's unlike what we've ever seen before, even recently, right? And really, what you're left with is the only similar pivot here in 81. And guess what folks, 81 to 2023. those are actually similar.

And the reason they're similar is because they're both fed induced recessions. And that's why in my opinion, when the Federal Reserve actually and finally, U-turns we're actually going to be in a substantially better situation today than ever before. That's because the prior recessions were caused by issues unrelated to the FED inducing a recession. The FED may have contributed to asset bubbles.

We know that I am not here to be a Fed chill, right? I'm here to tell you that today we actually have a very, very strong economy. fundamentally strong economy, low unemployment wages, growing household Debt Service Payments at the lowest levels ever. Household net worth at the highest levels ever Obviously doesn't mean everyone, but in aggregate, we're in a way better position economically today than ever before. Now you don't know this.

but between the last segment and uh, this little recording segment here, we just did the course of our live stream. Boy oh boy did we see some crazy stuff on that Roblox uh earnings report. And if you want to see fundamental work like that or just be part of me with the market open, get lifetime access through those courses linked down below you buy once you're in Forever You only have to pick one of the courses, just pick your favorite or the cheapest one. Whatever you want doesn't matter, but love to see you there.

Okay, so we need to understand the big difference now between the only two similar periods on the FED pivot chart because everything else is stupid in my opinion. Okay, I'm not trying to be extreme here. I'm just trying to simplify massive structural issues on all of the FED pivot items here that they show on the chart with the exception of 81 and I'll show you a big difference between 81 and today. Okay, and the convenient inclusion of covid and exclusion of the FED bailout period make this chart extremely misleading.

I Think this was put together by somebody shorting the market I Don't know, but the point is very, very misleading in my opinion. Now let's talk about 81 versus today. The big problem with 1981. has to do with something known as inflation expectations.

They were off the charts. That's because in the 70s the Fed was trying to fight inflation down. but they went stop go stop go stop go. And that led to people believing at the same time as the United States left the Gold Standard that we are never going to get inflation down.

Inflation expectations were the worst we've ever seen in the history of inflation expectations. Whereas today, in 2023, inflation expectations are not only anchored but Falling both of them Bond market inflation expectations are at the lowest point they have been in since 2018. Not only that, but consumer expectations of inflation are at the lowest point. Since January of 2022, lowest levels that we've seen for inflation expectations And they're falling.

This is very different from 1981 where even though the Federal Reserve took rates from 22 percent to nine percent and people were like, oh, it's a pivot, inflation was still eight percent, inflation was still eight percent, and inflation expectations were still really, really high. They hadn't Fallen yet because people didn't believe that the FED could actually bring inflation down. If Today Inflation expectations were not anchored, then I would say yeah, we've got a big problem. If inflation expectations spiral out of control, we have a critical crisis on our hands.

But and I Know this word is a cliche and it's dangerous to say this phrase right. This time is different. and I I'm saying this fully aware that that is a dangerous phrase to say, right? Because people are like, no, no, it's not different, It's all going to crash like it did. But when you look in terms of this chart, this chart misleads in multiple critical areas.

It ignores the Fed's bailout standards of 87, the precedent, and after that, Fed bailout, how markets actually increased. It ignores that it ignores the structural issues that were in place before the Fed's precedent of bailouts inflation expectations being the structural issue of 81, the structural issues of leaving the Gold Standard in price caps, the Vietnam War and the deficit pay down that led to a recession after two decades of basically growth, the 4X bubble over here. The real estate structural issues here. This is nonsense.

This is Covid. It shouldn't even be on there as a Fed pivot leading to that crash that the FED pivot did not lead to covid. Okay, so uh, very very. Three massively misleading Elements: Number One Again, 87.

Number two, Not again, not considering the pre and post bailout periods. Number Two this coveted joke over here, and number three. Not considering the structural differences of those recessions and issues compared to now, those in my opinions, in my opinion, are are very, very critical for breaking down this chart. it takes a lot of nuance, but in my opinion and this is just my opinion.

But in my opinion, the FED today is forcing a recession. They are the ones forcing the recession we are facing. We are in what I believe, a very strong economy that is substantially weakening due to the Federal Reserve and I Believe that as soon as the foot. okay, like if this is you right here, you're very, very sad.

Okay, that's because right now you have a giant boot on your neck. Okay, that's your body, right? Uh, right here. that's your body and you're like, oh no, this hurts and you got this giant boot on your neck and that boot is called the Fed. And unfortunately, you're in this situation where you're like, come on man, like the economy, it's just not that bad.

It's just not that bad. And the fans like eat dirt, right? Um, that's kind of what's happening. and so the longer you're down here, the more weak you're actually getting. And the Fed's like yeah, weekend, baby, weekend.

And and they're driving inflation down by doing that now. Hopefully they don't keep us in the mud so long that we end up suffocating and dying and we end up having a substantially worse problem. But as long as the FED follows what the Bond market expects, which is basically a 25 BP hike in February followed by a pause no later than May, followed by 1.7 percent of rate cuts at the end of 2023 and 5 of rate Cuts in total by the end of the cutting cycle, which basically brings us back to zero, which is also kind of insane. Then as soon as the FED actually slows down, given that that's really the only thing hurting this Market the FED pivot should be the best possible thing ever.

I Believe there is a chance the FED pivot could be a Fed U-turn which is when the FED realizes oh my, God we've gone too far. we started breaking stuff and then the FED u-turns However, it's possible that nothing ends up breaking and markets maybe already hit a bottom when they just slowly start Rising as we get through earnings that hopefully just aren't as bad as thought and we end up going to Hopefully and I Know hope is not an investing strategy, but back to a very strong economy, one that we didn't actually have in any of these prior periods. In any of these prior periods, we did not have as bad, uh, or sorry in any of these prior periods. We had worse structural issues than we have today.

Today is just not that bad. I Know it feels bad because it's crappy to be at the top of the market. but anyway, my thoughts: hopefully this is useful to you, but I would be very skeptical of this chart and I'm sorry I took like 20 plus minutes to break that down, but hopefully it's insightful. Thanks for watching.

We'll see in the next one. Bye.