This video is brought to you by the programs on building your wealth and all of my buy sell notifications in the links down below hey everyone. We kevin here in this video we're going to conduct a consolidated review over why the market is falling and how long the market might continue to fall. Folks, there are a lot of fears that the stock market and associated bitcoin and cryptocurrencies are falling because of rising interest rates. However, recent history shows us that may actually not be the case.

See the true fear might be something different. The easiest way to look at this is to understand what the federal reserve's fed funds rate was over time. So we can google fed funds rate st louis fed, and then we can learn a little bit more about the history of the federal funds rate, which is the overnight borrowing rate for banks and take a look at this when we look at this particular chart here. It's really helpful to know that this fed funds rate skyrocketed to help compress the massive inflation that we were experiencing in the 1980s.

But what's very important about what happened in the 1980s. Was that the rampant inflation that we saw in the 70s and the recession that we saw in about 1974? A lot of the 70s and 80s inflation actually came as a result of stringent price controls from our government, which is very unique? Because we don't have those sorts of price controls today see up until about 1966, there were lids on top of how high prices for certain things could go. Goods or energy prices. There were lids on those, so the free market wasn't able to say hey.

We have a supply shortage, the price is going up, they were limited by an artificial ceiling by the government, and so when those price ceilings were removed. It's no surprise that we saw substantial inflationary readings at the same time as leaving the gold standard leading to a loss of confidence in fiat. Essentially, right now, inflation did rotate down every time inflation has spiked, and now this is the fed funds rate chart, not the inflation chart right, but if we type in st louis fred cpi, which we understand the cpi is potentially a disputed measure, you know they update The measure over time because well they have to i mean we can't keep. You know people bag on the cpi.

For oh, the cpi isn't accurate anymore. Are we supposed to compare to the same 24-inch tv? I mean we have to update to a new product? Don't get me wrong, there's always room for shadiness, but some level of updating of consumer products as part of the basket of cpi is totally normal. But anyway. So we saw this broad inflation here and, what's crazy is the same price controls that were in effect in this in the late 60s? Actually, very similar ones came back in the mid 70s and it wasn't until those price ceilings were removed, that we had this rampant inflation again in the late 70s going into the 80s.

This is where inflation ran as hot as 14 and people were getting 14 15 yields on their freaking savings account uh, which is insane and then, of course, this is what led to the uh, the volcker rule coming in to save the day, which is basically, let's Just raise rates dramatically so that way we can crush inflation. Even if that means we have to skyrocket unemployment to 10, which is what happened and induce a recession which is exactly what happened. Interest rates because inflation went so high interest rates went so high that a recession was induced in 1981 and 1982.. So there are a lot of fears that, oh, my gosh.

This is the same thing that's happening, but it's always important to remember there. There are differences. I don't want to be that person. That's like.

Ah, this time is different, but we don't have those same sorts of reasons: driving inflation. Now we don't have artificial price ceilings when we have our legitimate shortages in the supply chains and, unfortunately, those keep getting worse. Now look, we had very positive pmi readings uh in that inflation looked like it started. Inflecting down, we had uh inflation in germany, start inflecting down, manufacturing, slowdowns or shortages appear to be inflecting to the downside.

The manheim used vehicle index is actually showing a sign of an inflection point, which means that prices for used cars are finally stabilizing and potentially actually rotating down in several to many different categories. This is good. Unfortunately, we still have lingering year-over-year inflationary reads, and this is why europe in whole had substantial inflation uh in december. In fact, the inflationary reading for december was higher than expected, which is not good news.

The job inflation or wage inflation that we saw last month was worse than we expected here in america and on wednesday we get another inflation read. We expect it to be the highest we've. Seen in over 40 years, the last inflation read from november, which we got in december, was 6.8 percent. Now we expect inflation to come in at a 7.1 percent clip, and this is raising fears that oh, my gosh, we are literally on the same course as what we saw in either the mid 70s or late 70s and early 80s, where inflation was skyrocketing out of Control and the only thing that could save us is the federal reserve admitting that they were wrong, which they basically already in part done.

We had an extremely bearish federal reserve report or the minutes report that was released just last week from their early december meeting. It was a disaster, it was the worst report that we had ever seen. It was basically the federal reserve admitting that they effed up on inflation. Now this doesn't mean that inflation is still not transitory, and this is actually what's interesting because it gives us an idea as to okay.

Well, how long is this potential pain going to continue, because it's clear that the pain in the stock mark a stock market right now has to do with inflation, but it doesn't only have to do with inflation folks, it has to do with fears of rate increases, But that's not all folks, that's not all a lot of bearishness this morning came because the uh, the fear at least introduced by goldman sachs, who argued this morning that we're not going to see three rate increases in 2022, but that we're going to see four and So we saw this dramatic repricing of tech stocks this morning only to rebound later in the day the nasdaq swung almost 10. Within the day we were down 2.7 at one point and then it was insane and insane day right, but the fear of rate increases isn't really. In my opinion, the big issue take a look at this folks. Okay, we're going to zoom into the last 10 years.

Look at this here, i'm going to hide myself for a moment. Okay, look at this between 2000 and uh the end of 2015, when we had our first interest rate liftoff in early 2016 and then throughout 2017 and mid 2018 interest rates were climbing. But what's really interesting about this climb is, if we hop on over to the s p 500 during the same period of time, and we zoom on back and we're going to go to 2016 and 2018, which is right here. What i want you to notice is the following: take a look at this.

The end of 2016 is right here. The s p 500 is about at 218.. By the time we got to early 2018, we were sitting at 286.. That means over those two years.

286. 286, divided by 208, the s p 500 - actually gained 37 percent. So why did the stock market go up? 37 percent, while we were watching interest rates, go up up up up up up up up up up up up up up up like a roller coaster. Click click, click, click, click link, it's kind of like hey we're going to have eight federal reserve meetings this year.

We expect that at basically half of them we're going to get an interest rate increase. That must be why uh the stock market is falling right. In my opinion, not necessarily, i actually think the stock market is falling because of the following fed balance sheet, and this right here folks is mind-blowing because watch when the stock market started falling. The stock market started falling right here, which is the turn of the beginning of 2018..

You had a little bit of drama. You went from 286 to about 257. Okay, not that bad 257 is the new price divided by the old price. Gets you about a 10 drop? Okay, fine gained throughout the rest of the year went back a little bit hit new highs, so went back to old highs and then hit new highs.

293 fell all the way down to 233 293. Sorry, new price, 233, divided by old price, 293, almost 294 - that's about a 20.5 percent, 20.7 percent decline in the s p. 500.. Why, folks, why did we have a double set of declines at the beginning of the end of 2018? Well was it because rates were going up solely, it was because look at the inflection point that happened here.

Folks look at this. This is the federal reserve's total assets, their balance sheet. How many bonds do they have on their balance sheet right? Take a look at this rate. Liftoff started right here in january notice how the amount of money the federal reserve held between the beginning of 2016 and the beginning of 2018 was constant, but what happened at the beginning of 2018 folks? Oh, we go from 4.4 trillion to tick, tick, tick, tick, tick, tick, tick, tick! We go all the way down to just 3.8, which is about a 0.6 bill or 0.6 trillion or 600 billion dollar drawdown in the amount of money on the federal reserve balance sheet.

So, in other words, a 600 billion move down on a 4.4 billion dollar sheet or about 15 percent led the stock market to drop 20. Okay, well, look where we are now folks. The federal reserve's balance sheet is at 8.7 trillion dollars. It is twice where we were over here and we expect this to start drawing down folks this summer the federal reserve has made it clear that not only do they expect to raise rates a likely 90 chance in march, but they also expect not to wait before They start drawing down on their balance sheet, which basically means selling bonds, and so when the federal reserve sells bonds, what they do is they take cash and they give bonds to the market, which means they take money out of the market.

It's like a big vacuum. Cleaner, like the luigi's mansion vacuum, cleaner, sucking up the money and the liquidity that's in the market. How do you know that there's a lot of liquidity in the market? Folks, don't kid yourself, saint louis fred? What are you going to type in come on? You should know this: reverse repos, reverse repo market. What is the reverse repo market? The reverse repurchase agreement market - is essentially a place where banks can store their excess cash.

Now. This is an extremely oversimplified example, but it's practically what happened? What happens when money markets are full? The leftover cash goes into here and take a look at this. The inflection point here began on march 31 2021, which is exactly when the standard supplemental leverage ratio ended, in other words, the amount of cash that banks needed to hold on to was eliminated. We removed some of the leverage requirements.

So now banks had all this extra cash and they were able to put it somewhere. They couldn't lend it because there weren't that many willing businesses or people to borrow this stuff sure there are people buying homes like crazy and they're extremely qualified home borrowers knock on wood that continues. We don't want to see a loosening and credit standards, because that could start creating issues in the real estate market. The housing market's already seen housing interest rates go up about a half of a percent from a low of about 2.8 now to about 3.3, which does give you about a 5 headwind to real estate prices.

Remember for every one percent. You get uh in interest rates. Going up home prices tend to go down about 10 percent, but that doesn't mean you actually go down 10, because if the market is appreciating more than then you have a net potential positive right, but anyway it's like a give and take. But anyway, look at all this freaking money this! This right here is lots of money.

It's 1.56 billion dollars that banks are parking because everybody's got so much cash, and this cashola i expect over the next six to 12 months, is going to dramatically go boop down at the same time as the federal reserve's balance sheet is going to go down, and I believe that, because history shows is what's creating fear in the marketplace now, when do we expect the pace of this drawdown to stop? When is the federal reserve going to stop sucking up money and vacuuming up money in the marketplace? Well, folks, i believe this occurs when cpi finally inflects down now call cpi rigged call it what you want, it's what everybody's paying attention to and don't think that cryptocurrencies are your hedge against inflation, because the bottom line is they're. Not the beta of cryptocurrencies has very closely started aligning with the nasdaq, which means cryptocurrencies trade substantially more like tech stocks than they ever have before. Tech stocks are suffering, and so is crypto and guess what folks? That means your inflation hedge in crypto is not happening. Instead, cryptocurrencies do very well when the federal reserve is putting money or liquidity into the system.

In other words, the federal reserve is making this line go up and we're not fearful about the tap being turned off on that right. Now we're fearful about the tap being turned off, so we're seeing crypto prices come down right, uh and, of course, we're seeing liquidations combined with that. A lot of leverage in crypto and liquidations in crypto are instant, it's kind of scary, but anyway, okay, folks. What do we need to understand here? Well, we really need to zoom in to understand this picture properly.

So when we first analyzed inflation, we and i made videos about this in december and january of 2020 and 2021 that transition there, and i said folks the big danger that we're going to run into is that when we get to march and april of 2021, we Are going to compare to this hole right here see this is inflation, so inflation was sitting at 1.7, 1.8 percent, all the way up to 2 percent. Then we fell into this hole where we had months of 0.33 percent inflation, 0.22 percent inflation. So compare that hole where inflation is essentially in this hole and the easiest way to do this is looking at the nominal number here, because then we can actually do the math. So let's look at the cpi, which is just an index there.

We go look at that hole. Inflation sitting at 255 in may call it 256 to round. So the old number is 256 divided by come over here to may of 2021 268 well 268 divided by the old number. That's a 4.7 inflation read not a surprise.

The whole was there: we knew what was happening, we knew it'd come. The problem is notice how right here, inflation started, uh trading, sideways and notice. How this right here, when the crypto market realized oh inflation's, trading sideways? Maybe we can keep the money press going longer. We can keep this number elevated without drawing it down.

Crypto all of a sudden started skyrocketing a little bit of a lag and when crypto responded it took a couple months because remember this is lagging information. We didn't have september cpi data until october and by october it's like oh, my gosh crypto's doing well, because we had this flatness inflation was finally inflecting down, see how it's going up. The slope of the line is very sharp, but then it started flattening and then flattened again. That flattening is bullish for crypto it's bullish for tech stocks.

That is good. This explains why we had an october rally, because again we didn't get the september data until october. So it makes sense, but what happened then folks? Oh, my gosh, the delta variant effed everything up again supply chains now, omicron! Oh my gosh! Things are worse than ever now: everybody's talking about inflation again, because the line's gotten sharper now what's crazy is the answer. When is this going to end? Well, it might not end soon again right now we have expectations that inflation is going to come in at 7.1 percent on wednesday morning at 5 30 a.m.

California time i will be streaming it, but not only do we expect that inflation will be coming in at such a high level, but folks take a look at this. The next read of december is probably going to be kind of here where my mouse is, and if it comes in here where my mouse is remember, what we're comparing to we're comparing to december of last year. Ah - and the problem here is this area here is relatively flat. In my opinion, we don't actually start seeing inflation inflect down until we get to this higher level of inflation.

Why well watch this okay right now we're taking up about two points: uh two points in inflation here. So if i get a tick up of two points here, 278 88, 278.88 plus two - that gets me a 280.88 and now what i'm going to do is i'm going to divide that number by the year-over-year number? It shouldn't exactly match what the expectations are, but that's. Okay divide the new number divided by the old number 0.56. Let's see what it is, it is oh, my gosh, it's 7.4, that's really freaking close, so you can see based on the chart, like economists don't have that much work to do.

The economists are projecting 7.1 inflation just by looking at the chart and extrapolating the the growth of the line, i'm getting to 7.386 inflation right, very simple, and so when does inflation actually start going down, and when does the market actually start? Finally, getting better well, it starts finally getting better when we compare to a sharper slope of last year and we start getting some flatness in the new data watch, how extreme this could be. Okay, let's say we get five months down the road and inflation stays at the same levels, but moves up about half as fast as it was going before. That would mean, instead of going from, let's say, 280.88 to 290.88. Let's go like 285.88 divide this by this.

This more slanted or sloped line here, 26855 divided by 268.55. What do you get? Boom? 6.4 inflation? Oh, my gosh, all of a sudden you're, getting an inflection to the downside, but folks what if inflation is totally flat? That is, prices stay the same. Oh my gosh inflation's down at 4.6. What? If inflation goes down just one point in the cpi category, just one point and we're comparing to that sharper level before that brings us down to 4.2 percent.

So just solely by looking at the graph and by expecting that we're going to get some form of slowdown in price appreciation, we're going to see a dramatic decline in that inflation rate. But unfortunately i don't know that it's going to come soon knock on wood. It comes in two days knock on wood. It comes on in january, knock on wood, we've priced in the worst, and that today was one of the worst days we saw i'm knocking on wood, but no guarantees.

The pain could honestly continue until march april and potentially even may now best case scenario. Here's best case scenario, okay best in my opinion, best case and most realistic case scenario. So i don't want to just play best case scenario. I want to play realistic.

Uh want to play realism as well. Well best case scenario: is you join the programs on building your wealth link down below and you use that coupon code, but a birthday coupon code, but anyway, what's most impor or hopefully and even realistic? Is that come april and may come this period? We actually see that inflection down in inflation at the same time as rates are going up, but wait a minute. Let's combine the information, remember what happened when rates went up between 16 and 18, not much instead less pressure to maybe unwind that balance sheet, because inflation is going down that could be really bullish and we could literally have this alignment where the stock market says: okay Stock market right now is like that's it everything's going to zero. This is the worst ever everything's gon na go to crap.

As soon as the fed starts raising rates everything's going to zero. No, the market might be fear pricing. All of that in right now, but if we combine an inflation inflection to the downside and the fed being a little bit more dovish by saying okay, maybe we don't have to unwind so much of our balance sheet. We could literally have an explosive spring rally.

No guarantees no guarantees what so freaking ever but folks it's possible and would it would align with the technicals that i believe, will lead to a cryptocurrency rally in the summer of 2022.. These are my thoughts. If you want more about how i'm trading this crazy market, you can get all of my buy, sell notifications in the stocks and psychology money group link down below and get that 50 off before the price doubles on the path. Of course.

That means you get that 50 off and the coupon code, which means you're really getting a substantial amount off like 80 off on it. Uh, take a look at that program, link down below it's a new one, the path uh that content comes out at the end of the month and folks, we'll see in the next video thanks. So much bye.