There's a lot of bad news. So from people saying sell the rally to car repossessions that are skyrocketing, massive warnings for the market and a Federal Reserve that Nick T just tweeted is expected to evaluate how are these lags affecting the market and the economy, especially since this time seems different. After all, we are coming out of a pandemic and are in war. How is this going to affect markets going forward? And what are my thoughts about Jerome Powell and the Federal Reserves activity coming up this week.

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Paycheck to Paycheck You've got a repo crisis going on in the cars Market You've got craziness coming to the Federal Reserve this week and many analysts saying don't chase the rally What do we believe? What do we think? Let's talk about it but always remember the coupon code expires today January 30th Check that out link down below for the best price possible. at least guaranteed for the next three months, if not likely much longer via lifetime access. First, the share of Americans who say they're living Paycheck to Paycheck has now moved up now. 64 percent of Americans say they're living Paycheck to Paycheck.

That's an increase of three percent from last year. And on top of that, eight million people out of that group earn more than a hundred thousand dollars per year. Yet half of the people earning more than a hundred thousand dollars per year say they are now living Paycheck to paycheck up substantially. Also, from last year, this comes at the same time as in America We're worried about a big recession coming Germany Telling us no, don't worry, everything's fine, we're not going into a recession and then literally days after about two business days after Germany says don't worry, we're not going into a recession Ah, Chancellor Olaf Schultz Alice is good.

Everything is great. What happens? Oh no. GDP Numbers come in for Germany showing a 0.2 GDP Decline and uh, Germany's of course a manufacturing Hub and a much greater than expected pullback. sadly potentially pulling Germany into recession.

But we got to talk about America Because look, even though we've got the Federal Reserve coming up this week, why is the market been rallying? well Mike Wilson and says the rally is something that you should not. Chase Mike Wilson is of course the bear from Morgan Stanley and he tells us the reason we saw a rally in January is because of the seasonal effect of people selling in December potentially tax loss harvesting and then getting back into the dip opportunity or fomoing in on some short covering after. December Mike Wilson Reiterates, do not fight the fed and remember that this is another piece that I found. But something to keep in mind is the last time we had a January that moved as much or nearly as much as it did this January this has been the best January since 2019.

uh, the last time in 2019 January ended up popping up markets eight percent and now we're up about six percent in January which again is the best January since 2019. But the difference between then and now was that in December of 2018 actually right around the 18th, 19th and 20th, the Federal Reserve u-turned and individuals thought they were going to continue hiking and they did not. This is obviously before the pandemic and we had a pretty bloody December And so that was the last time we had a great January. When the FED actually moved, the vet has not moved at all.

In fact, it's expected that Jerome Powell is probably going to keep on a pretty nasty mask this week. That's because as stocks are starting to slip up a little bit or start rallying up a little bit which is a slip for the Federal Reserve, we're seeing it slipping in financial conditions Financial conditions in the last three months have started to loosen and while on one hand looser Financial conditions is good for avoiding a recession. The Federal Reserve does not want Financial conditions to get so loose that we end up leading inflation to rise again. That would be the biggest risk.

And so my belief is that Jerome Powell is going to have to keep a very ugly mask on when he ends up talking at the press conference this: Wednesday We widely expect a 25 BP hike. We're not expecting any kind of move away from a 25 BP hike, but we're expecting Jerome Powell to probably reiterate what he gave us in the summary of Economic projections in December Any move off of what he told us in December would probably be seen as uh, bullish, especially if he softened The Stance I Don't think he's going to be more aggressive based on what he reported in his December summary of economic projections with the rest of the Federal Reserve staff. Because data has actually come in weaker than when we had the Federal Reserve meeting in December we've had weaker inflation. We've had weaker manufacturing numbers, so I'm not expecting a Fed that is going to be more hawkish than December.

Now personally, that could actually be a good thing because it could mean that we're not going to get talked to so dirty that the market ends up selling off. but I would would caution against a lot of bullishness Mostly because I believe it'll be Jerome Powell's job to make sure he makes it very clear that he thinks we're still knocking on the door of a recession, that the 0.5 GDP estimate for 2023 is still his base case, that we're going to narrowly avoid a recession. but a narrow avoiding of a recession in the words of the FED is probably in the words of the market a uh, a recession and I wouldn't be surprised for him to reiterate the need to drive the unemployment rate up to 4.6 percent which is what they the Federal Reserve board together reiterated uh in December in addition to hiking rates to about 5.1 percent at a terminal rate. Right now, we sit at about 4.25 and if we get to about five percent which would be three more 25 basis point hikes will be at that five to five and a quarter rate hike which we expect from the Federal Reserve uh at their terminal rate.

Now the bond market is pricing in rate cuts at the end of 2023, but I expect Jerome Powell to reiterate what he said in December we're not even talking about rate Cuts That's okay though, because when the Federal Reserve is convinced and this is the beautiful thing, uh, and this is why I do not expect to see this now. But when the FED is convinced, inflation is gone and wage inflation is gone, what is the Fed going to Do Well, The Federal Reserve can vary easily in my my opinion. Maintain their credibility by making the following very simply making the following: very simple: Hey, look we have a policy called Fate Flexible Average Inflation Targeting. We believe that the average inflation rate for Pce is going to be two percent.

We don't actually have to have the the every single months read be two percent. This is an easy way for them to back off the idea that inflation needs to be two percent. They could let it be a little higher for longer while still softening conditions right on top of that. I Believe that once they're convinced inflation is gone, which is not yet, they can very very quickly.

U-turn and stop the bleeding in the jobs market and actually prevent wage loss from going as high as they projected in December I Really believe December is the Federal Reserve trying to shoot ahead of the Running Deer In other words, inflation has sort of been this. Running Deer that's been getting away from the Fed and the FED has been following it, but they've always been lagging it in all of their summary of economic projections. Over the last year and a half, the Federal Reserve has been wrong. They've had to revise them.

Up, Up, Up and Up and up now. I Believe the Federal Reserve has finally given us a December report where they've actually come out ahead of inflation by becoming so aggressive. and I think now the Federal Reserve doesn't actually need to be more aggressive, especially since that inflation data and Manufacturing data is now coming in softer. I Think the fat is just likely to maintain what they iterated in December So if I had to sort of simplify the messaging for what do I think we're going to get from Jerome Powell I Want to make this very clear: I Do not believe we are going to get more Hawking than December I Believe we'll probably stay consistent with the December Hawking consistent with December Hawking is basically just referring to the summary of economic projections from December I Think that's the easiest punt that Jerome Powell could do.

He could go up, give a statement, answer the Q a and basically just punt the February meeting all the way to March Just hey, look, we're doing 25 BP Still waiting for more data? look at the summary of economic projections of December That's our opinion. Nothing's changed that Again, it's not not really bullish, so I wouldn't call it heavily bullish. We're not I Don't think we're going to get a massive sort of softening position from Jorom Powell and I Don't believe we're going to get more Hawking So I Actually think what we're going to get is a very, very neutral drone this time. Now, it is possible it is possible that neutral ends up being considered bullish because it isn't more.

Hawking I Think a lot of folks believe that because markets rallied in January after that December disaster, the FED has to turn into a hawk I Do not believe that is true I Believe the FED will see that Financial conditions are still substantially tight. 10-year treasury yields are still sitting around three and a half percent. Also, again, substantially tight. And any kind of little Rebound in the stock market we've seen is actually good for the purpose of avoiding a recession.

Remember what they're trying to do. They're trying to thread a needle. here. they're threading a needle suggesting Hey Look, we don't want things to be so tight that we definitely have a recession.

but we don't want things to be so loose that we recreate inflation. We just want things to be you know, sort of in the middle and that's where I Think the Fed's in the right place to just be neutral this time. Jay Powell If you're watching this man I Would love to be at those Fomc press conferences so I could throw you some softballs Daddy Okay, I think it'd be really cool to have some YouTube representation over at the Federal Reserve But in the meantime, uh, I I'm not too nervous about J-pow on on Wednesday and I think that is okay. This is despite the fact that you have JP Morgan and Morgan Stanley saying sell the rally Bank of America saying they expect us to move from job gains in 2022 every single month to job losses in Q1 of 2023 as high as 175 000 job losses per month coming in Q1 2023, that would be a massive flip.

Uh, something that that uh that the markets would not be very uh prepared for I think But remember we we've known this since quite frankly I mean forever. But but I've been talking about this since January of 2022. for over a year I've been talking about this job losses, lag, recessions. So quite frankly, the fact that everybody keeps focusing on job losses for me is just ludicrous Because we we know job losses lag a recession, so the worst could potentially already be behind us.

We'll see hedge funds don't seem to think so though the commodity Futures Trading commission just released data that there are 2.4 million contracts on treasuries with massive short bets. Massive short bets. We are more short than we have been in quite a while on treasuries. Uh, let me explain briefly what that means When you are short treasuries, you believe that prices for treasuries are going to go down.

When prices for treasuries go down, what does it mean it means Uh oh short. Sellers And hedge funds think that interest rates on yields or on Treasury yields are actually going to Skyrocket. So if you think yields are going to go up, you take the Michael burry approach and you short look on screen. Now I'll hide myself here for a moment Traders Have never been this bearish on treasuries aggregate treasury shorts the highest level of Short Selling Since we have seen uh, well, I mean you could kind of see it tapers off to nothing, going all the way back to 1993.

There on the left, but on the right of this chart, we are at the highest level of short interest on treasuries that we have ever seen. This is substantial. Now again, hedge funds like to hedge, so if things are getting better, great go long stocks. If things are going to get worse, maybe you hedge by shorting treasuries.

especially since the Federal Reserve could end up telling us that they believe the neutral rate is closer to 4.8 to 4.9 percent. In which case, we have more work to do. Given that right now, we're sitting at about a four percent lower bound on the FED funds rate and we need to see that move up via 25 basis point hikes. uh, throughout.

Uh, potentially the next three. Cycles Uh, so keep that in mind, we want to. We're probably gonna get to 4.5 Let me make this very clear, because it's the 25 25 basis point brackets are a little confusing. We're at 4.25 to 4.5 Now we get a 25 basis point hike.

We'll be at 4.5 to 4.75 Get another 25 basis point hike. Uh, and we expect that for Feb we get, the next one will be at 4.75 to 5. we get another one will be at five to five and a quarter. Uh, and this is why markets are expecting.

uh, we will potentially pause in May At five to five and a quarter, that would be slightly above that neutral rate which the vet has been talking about getting to for a while. Then the question just becomes how long do they pause there and how soon do we cut I Don't believe the FED will be very inclined to give us many hints for that in this next Fomc meeting, but we'll see what's worse though potentially is not exactly what the FED is doing, but what's going on with the car and auto market? Because a lot of folks are saying that the auto market is in a straight up bubble. In fact, the Federal Reserve just released its Q3 monthly rate of cars financed and folks in Q3 2022, it shot up to the highest level ever, growing to 41.2 billion dollars of vehicles financed in Q3 which could coincide with high vehicle prices and high uh, well, I mean High financing costs. But in terms of nominal loans Finance High vehicle prices probably are what helped a drive this highest ever level of vehicles financed.

and that was in the third quarter of 2022.. roughly matches the rise in inflation that we've seen, but it doesn't help that interest rates also doubled over the last year and delinquency. Delinquency rates are starting to rise, especially for subprime borrowers. Leading the analyst firm Fitch and rating credit rating from Fitch to warn for a massive wave of incoming vehicle defaults and repossessions.

In fact, some banks are now reportedly increasingly speeding up how fast they could repossess possess cars so they can sell them out. obviously at a loss, but less of a loss than if they waited to repossess the cars longer. Think about it. If car prices are plummeting, then you want to reap and your your borrower stops paying.

You want to repossess that car as soon as possible so you could dump it on the market and get a lower loss than you would have otherwise if you were holding on to that slippery slope of prices plummeting. So far, we are still seeing the uh, default level on vehicles rise just roughly to 2019 levels, no exceeding of those default levels yet. However, Fitch does believe that very soon the lowest income subprime borrowers will exceed the default rates that we saw in 2019, not getting to the default rates that we saw in 2008, but still a substantial amount of additional pain. Now, some of the reasons for this: We kind of set up the perfect storm for subprime borrowing.

You basically masked people's bad credit scores due to the pandemic, because it was impossible to be late and to get a bad credit score during the pandemic. Well, nearly impossible. You got a bunch of money from the government unemployment money, stimulus checks, you name it. on top of that, via forbearance and you not being you, not needing to actually make your payments, leading a lot of credit scores to actually increase during the pandemic.

Combine higher credit scores with a massive car shortage, High interest rates, chip crisis, and massive run-up in vehicle prices. What you have is people masking how qualified they actually are via higher credit scores. So higher credit scores, higher interest rates, higher prices, and gas prices running up you have a recipe for disaster in car affordability. And so now, since uh, over the last few months, about the last four to five months, we have seen a substantial take up.

Uh, in the number of 30 day late and uh, the number of 90-day defaults. There's uh, this individual on Twitter called the car dealership guy. He's been talking a lot about this problem, but he recently noticed that he believes banks are so worried about repossessions on one hand that they're increasing how quickly they're repossessing cars, but on the other hand, they're so morally incentive or like amorally, you'd almost call it amorally incentivized to keep lending to keep their profits to potential. Potentially Rising What they're now doing is they're repossessing cars faster on one hand.

but on the other hand, they're waving requirements for loans so they can keep making new loans. So it's kind of crazy more people are defaulting on one hand, but they're actually making it easier to get a new loan. on the other hand, that's because they're starting to wave what's known as the open Auto stipulation. This is when you go qualify for vehicle financing and it shows you already have an open Auto loan.

you're not supposed to qualify for another one unless you can make both payments. Well, now, apparently, lenders, according to car dealership Guy, are starting to waive that stipulation, making it easier for people to buy a new car, even as banks are worried about this crazy flood of repossessions. The car dealership guy says this is stupid, especially since many people are under water on cars they've bought over the last two to three years. Usually people who are underwater have to pay money.

You have to feed the kitty to sell your car to buy a new one. Feeding the kitty means taking thousands of dollars out of your wallet to buy a new car and and pay off your old one. But most people don't have that money. So at the same time as defaults are rising and repossessions or skyrocketing, you actually have Banks going.

Yeah, but let's keep the funnel full and let's keep lending as car prices are and or have already fallen 30 percent aren't are continuing to fall. Uh, this individual believes that repossessions could end up getting ugly and this is really bad for the car market. Elon Musk even went as far as replying to this, saying good prediction yikes, that's not so good. On top of that, we also have potential inflationary pressures which continue to get talked about from China and wages.

consumption is expected uh to and hopefully be the main driver of the economy per the Chinese government. but consumption is actually not the main driver of the Chinese GDP Now in my opinion, I actually think that could keep that second wave of inflation down, but we'll see: Chinese government really wants to propel Uh spending. In China household spending uh as a percentage of GDP is only 38. In China In the United States it's 70.

So in other words, the individual consumer makes up 70 of the US economy, only 38 of the Chinese economy. Much of the other portion of the economy in China is the result of the housing boom, But the housing boom has turned into a massive housing bust. How quickly will individuals come back into the housing market even with lower restrictions on housing? Nobody knows. so we'll see.

Fortunately though, back in America, we have a piece by Morgan Stanley suggesting that you can stop worrying about wage price inflation and even though Morgan Stanley overall is pretty bearish, they suggest that because of more concentration of of jobs that is more uh, like larger and fewer companies having more jobs leading to less competition amongst other companies leading to higher profits for those companies and lower unionization Ultimately should keep a lid on wage prices. We'll see. So if we put all of this together, look, there's a lot of bad news. You've got a lot of analysts screaming about sell the rally.

It's a bear Market Rally you've got Germany Potentially walking into a recession even though they didn't think they would. You've got a repo crisis going on in the cars Market You've got this potential for a second wave of inflation in China I Personally, believe in. This is sort of my summary of it: I Don't believe a second wave of inflation in China is really going to lead to a lot of pain in the United States I Don't believe the conditions are present for a wage price spiral that we want to pay attention to. That even though the auto bubble may be present, it is not anywhere near the levels of the 2008 crisis.

It's still about half the levels of 2008. and yes, poor individuals are going to suffer the most as usual in a recession. I Don't believe that the Federal Reserve necessarily has to push us off the cliff into a deep, dark recession. and whether or not we have a recession.

uh, I I Believe the United States will be relatively resilient uh over the next decade. And once we get through this temporary Madness We're Off to the Races for the rest of the decade and Chips will be the next new gold with pricing power for the rest of the decade, we'll see right now, chips aren't doing that great chip equipment companies seeing sales Fall 30 to 50 percent, but it seems as though a lot of that pain has already been priced in. So what do you think? is the Fed going to talk dirty to us? Are some of these smaller Embers of pain like in the repos market and in China going to lead to an explosion of pain and the reiteration that you should never fight the Fab or are we facing that Nike Swoosh recovery Where Yes, there are hot spots, but we're gonna get through those. We'll get through China We'll get through wages, we'll get through inflation, we'll get through uh, reopening, and we'll get through the repos, uh, crisis in cars.

We'll get through all of that and we'll just slowly keep chugging along. That's my belief. It doesn't necessarily have to be yours, but if you want to chat with me about your opinion, make sure to join the courses on building your wealth link down below. Today is January 30th the day the coupon code expires and that's it.

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