Oh boy, we are pricing in almost Perfection and that could be setting us up for some serious disaster over the next few weeks, especially over the next two days. Because tomorrow is the CPI release, the Consumer Price Index Inflation Report release. We will talk about the actual expectations for CPI. Then we're also going to talk about the Federal Reserve expectations for the Fed and I'll tell you both of the expectations this time are really on the uh, sort of bullish side, which I actually prefer when expectations are leaning bearish.

When expectations are leaning bearish, it's really easy to beat them. For example, last month we had expectations that inflation would come in at 8.1 percent and that month over month would be at point six percent. and I'm like, oh man, seems a little high, you know, based on some of the research and reading I was doing, we ended up coming in at 7.7 and 0.4 right along my expectations I Felt really good about that. Now that's awesome, but those numbers were also leaning and starting High Problem in my opinion is when markets are expecting bullishness, it's really and good numbers.

It's really easy to miss to the high side and it's uh, it's not so great. I'm gonna end this video. start by talking about those expectations regarding to the Federal Reserve Remember how the FED is regularly telling us that oh uh, you know we're gonna hike rates and then we're gonna stay high for longer? Well, there's add to this. Let me show you some of the history and then uh, you're going to kind of see what expectations are and you'll see what I'm saying here.

Okay, all right, look for some time. All right. So that's the phrase we keep hearing here. What is the average time between the peak Federal Reserve rate and their first cut? Okay, well, the average is actually about 11 months.

You can see here different uh, Peak and cut Cycles Peak rate. Uh, and then they cut until what rate right? And really, what we care about is this time how long is for some time? Well, previously it's been five months, 18 months, eight months, five, fifteen, eight months, and seven. The average here is about 11.. So usually we stay at a peak rate for about 11 months.

However, one of the issues with this chart here is that in all of these periods, inflation was relatively stable. If you look at these years here on the left, none of these years are like, oh my gosh, Inflation was raging during that time. And if you go, look at the 19. the early 1980s and you're like, well, that was the last time we had raging out of control inflation, right? Or we could look at the Korean War back in 1951 where inflation plummeted within a year.

But the problem with that is it was only War driven rather than pandemic and War driven right. It was also before the time of really massive intervention by the Federal Reserve So 1951. maybe not the best example. the 1980s were really weird because they the Fed was really weird in 1980s.

and that's why they're not in this chart. They kind of raised rates. Cut rates. Raised rates.

Cut rates. Raise rates. Cut rates. Like when you look at the chart, it's just like like they were so confused.

Uh, and that's actually what the FED is trying to prevent. This time around, they're trying to prevent signaling confusion. And so that's why the 80s aren't actually on this chart. We're just looking at really years since then, and so since then it's sort of like, okay, well, um, that's not great.

You know it seems like they stayed Peak for a while now. Look, every cycle is different. In 95 and 97, we didn't and really 2008 18. Rather, we didn't really in these: Cycles Here, face a potential substantial recession.

We did face a potential mass of recession and actually did end up having recessions here in.com and 2006. But still, if you just average this right here, holding rates high for longer is still going to put you at what is that? That's Uh, 23 divided by 2. That still puts you at holding rates at a high level. Uh, for somewhere around 11 and a half ish months, that's a long time.

We don't want to stay there long. Not only do we not want to stay there long, but it's not what the market is actually anticipating. Remember the Federal Reserve meets uh, starting tomorrow. Their meeting ends on the 14th which is Wednesday They'll raise rates what's expected Now 50 basis points and we're going to be looking for clues for the Fed's peak and then then cut cycle.

The problem is the Fed is is basically telling us hey, look, we're going to raise rates to probably five and a quarter percent and then we're going to stay there longer. Well, if they raise rates to five and a quarter percent, that's not even as high as the market is anticipating. So if they raise rates of five and a quarter percent, they'd be raising up to about this red line here. And if they held rates for about that average of 11 months which whether you used all of the months that I just showed you or just the two previous examples, the average hold period is about 11 months, that would keep our hold period to somewhere around.

Let's see that's March about Feb of next year. So about right here, this is actually what the hike period would look like. but it's not what the market is. Pricing in the market is actually pricing in that we don't even get to the peak of 5.25 we only get to about 4.75 to 5 somewhere in between there.

and then we actually start cutting as soon as the summer around June and July and then we kind of just reduce from there. The problem with this is actually very bad. That in my opinion, is very bullish. Okay, this is very, very hopium.

Very hopeful. but if the fat actually stays with their 11 month hold on average, or honestly, even if they just hold anything more than three months, we're gonna have to price in all of this pain. All of this Orange right here needs to get priced in the difference between their hold and where the charts are expecting right now. And this is why when you look historically, it looks a little remarkable that the current market is pricing in 200 basis points of cuts.

And if you look in Prior Cycles this is much more what we're pricing it over here is much more than what we've really priced in previous to Cuts in any cycle here, previously going back the last 30 years. Now that's weird. I Think one of the reasons the market is acting like this is because when we look at how deep the yield curve inversion is, the market is actually pricing in 500 basis points of cuts. Because we are so heavily inverted.

at about 80 basis points inverted, we are expecting about 500 basis points of cuts eventually and sure, I actually do think that's going to happen, but the market is trying to say oh, cuts are going to start in 2023. What if they don't actually start until 24 or 25? How deep is that recession going to go now? Jerome Powell did start Going a little bit bullish in this last cycle, but all of that could die if the CPI expectations Miss And this is where we have a little bit of an issue yet again. see: CPI Expectations last time were high CPI Expectations last time were easy to beat. Year over year was expected to be 8.1 percent, Month over month was expected to be 0.4 Uh, point.

No point. Six percent and we ended up coming in at 7.7 and 0.4 It was really easy to beat those numbers. The numbers are a little bit different this time. Month over month expectations are 0.3 for both core and regular headline month over month, and the expectations for year over year are 7.3 You can see that here: 7.3 with a bias to to Actually, it's pretty pretty evenly distributed here.

Bias to the left and right, but still 7.3 and then a bias to the low side here. Expectation: 0.3 bias to 0.2 That's not great because we're really now in this December cycle. Pricing in that CPI tomorrow is probably going to be solved I Think the best thing we could Hope For Tomorrow is we just hit those expectations. Hit the freaking expectations.

We don't even have to come in lower than that. and look I know all eyes are going to be on the FED I Know people are worried about wage price inflation, service price inflation with PPI coming in a little bit hotter than hoped. uh here last week. but look everything starts with the consumer consumer.

good prices, slow down, then produce your price to slow down, then wage prices slow down. We know rental inflation is coming down. We know the Fed's paying attention to this. We need this CPI report to come in low.

This is the start of everything or low or at expectations. That's what we need for tomorrow. If we just get ad expectations, my belief is there's a reasonable expectation that markets can rally that we Now let me be very clear: I Do not think we are at all for 2023 expecting a V-shaped recovery. This is not a Larry Kudlow Oh it.

Crash. We're going to V shape up I Think what we're seeing we're going to see next year. Here is we've got the the V down. We've had a very very quick V down.

We've Fallen about three times as fast as we did in the.com Era crash. But I do think we're going to have a very kind of slow gradual anchor dragging along the bottom of the ocean, slowly getting reeled up. uh Market recovery. and that's because our our opium is very high right now based on what the market is pricing in for a Fed U-turn and any any bad CPI report is going to derail that.

especially since we've had this this reputation of basically CPI comes in high, then low, then High then low then High then low, We just needed to go low like last month and then sustained low If we get that rally mode and then maybe maybe that sort of soft Landing that you just saw depicted there actually could be a reality. but uh, look, there's there's no way to sugarcoat this if tomorrow's CPI misses these expectations. like again, all we do have to do is meet. We don't even have to beat to the low side, but if we miss to the bad side, this can be dirty.

Uh, I'll be covering it. live. So I Can't wait to see you then. But um, buckle up, buckle up.

Probably the best actual positioning is just cash on the side because when the Market opens, What's It Gonna rally like three or four percent before you actually get in. But if it goes to the dark side, it could just be so ugly. So I mean I I Think really, cash is not trash I think cash is probably the best asset these days. Uh, if you're in you, you must have a very, very long-term mindset.

And that's okay. There are a lot of people myself included that have a very long-term mindset. It's like, man, whatever. and you know I'm just gonna keep buying.

You know, pricing, power, stocks, and and build my quantity. But that takes Diamond Balls If you have any short-term needs in this market, cash Cash. You can always get in once. we actually sustain good data points anyway.

Thanks for watching. We'll see in the next one. Good luck everyone! I'm going to New York Stock Exchange Now.