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The kid doesn't care about that. The kid just got a piece of chocolate. He's gon na run around the circles, exactly what's going on with the market right now. Is this good long term? Probably not, in fact, i would say.
Definitely not is this good short term? If you're a swing trader - probably yes, you're gon na have a great day, probably even a great week. Why not is this the market saying that rate hikes actually won't matter to market levels as long as it's well telegraphed? Oh, my goodness. What's going on with the market the first time we've seen john powell go on tv and don't crash the market. In fact, the markets are exploding with joy, it's literally christmas.
Now. Why is that happening? I'll explain the second in this video, but for me to do that. First, i have to summarize what actually came out of the meeting and the jerome paul announcement that caused this. Basically, there are two things i want to talk about.
Number one is the increase in paper pace; essentially them going to 30 billion per month, much faster, slow down. Now that was anticipated. I don't think that's what's leading up to what's going on with the markets right now that we knew about and as expected, they went to 30 billion per month, giving us until march next year now. The second thing that happened was, i think, it's causing this implosion of happiness in the stock market right now.
The second thing that happened is basically the fed gave us their opinion about the interest rate increase for this year next year, 2023, 2024 and long term. Over 2025 and onwards, and what they said right now was way more populistic. I guess than people anticipated people like mohamed allerian and myself included, were in records saying that we have to go way more aggressive with interest rate hikes, because if we don't, we will prevent the stock market from crashing. But essentially we're going to be in the situation where we say well.
The operation was a success, but the patient has died, pretty much you're not going to crash the stock market, but you're going to cause insane inflation, which is going to put the market into recession. If i were them, i would do three things which they will not do. I would want to be very open and honest as to why i got the inflation call wrong and try to regain the inflation narrative two. I would go even further than doubling the weight of paper and three.
I would open it up to the possibility that rate hikes may come faster than what the market has they're, not going to do that. What they're going to do is double the rate of of tape and not go beyond that they're going to tell us that inflation is more persistent and higher. We know that and then they're going to wrap all that up in the uncertainty packaging because of omicron. So they're going to be they're going to stay behind and fall further behind.
In fact, so, basically, everybody anticipated the fed to go hardcore on rates, because there's literally no choice we're staring down the barrel of 10 inflation by the end of this year. Probably q1 is going to be 10 and a half 11 percent. That's even if you trust the cpi numbers which, by definition a little bit skewed. Let's put it this way, so the inflation problem is a big big problem. The fed has a major credibility problem, so everybody anticipated to go hardcore in rates, even though it's not popular, and yet they didn't. The rates are pretty much very close to what we heard in september since september. We got this 0.1 percent this year. By end of this year, 0.3 by the end of 2022, and i'm looking at my notes, 1 by the end of 2023, now what you're looking at the screen right now is what they actually voted on.
So, as you can see this year, it's staying at point. One percent no problem next year. Everybody is talking about 0.75 there's two people talking about 1.25, but essentially the average is probably around one percent, so three times more than what they said in september. I wonder what changed in those two months, but they actually tripled their estimation and still that's not enough, at least if you look at it as a gambling position right, they didn't cover the spread because people thought they're going to be way more aggressive, like percent and A half because it's really dire straits right now, but look at what's going on next, their long-term inflation goal.
Most of the voters said 2.5 percent, which is exactly unchanged from september. So the long-term goal of the fed is 2.5 percent interest, as if nothing has changed in september, and that is what causing the market to go ballistic because the fed is essentially saying well. The party is going to go on even when the interest rates will go up. It's not going to go up beyond 2.5 percent, which is way way lower than we have to be right.
Now it's a bad move and i think it's going to cause massive inflationary problems, but that's besides the point: the markets don't care about inflation in 2025., the markets care about dcf valuations and basically, once the fed came out and said: okay, long-term inflation, long-term interest rates Are not going to go about 2.5 percent? Basically, when everybody expected three and a half four percent that sent the market into a celebration into a party. That's why you're seeing everything go up right now. So basically, the fed has always chose the political game, essentially not doing anything too drastic too dramatic, even though it's necessary because they want to keep people happy the market responding. I'm sorry, i'm just getting tired, there's the market responding in a way.
That's you know like a kid getting a piece of chocolate and now he's happy but yeah. But what about the tooth decay and you know becoming unhealthy and whatnot the kid doesn't care about that. The kid just got a piece of chocolate he's going to run around circles exactly what's going on with the market right now. Is this good long term? Probably not, in fact i would say. Definitely not is this good short term if you're a swing trader, probably yes, you're going to have a great day, probably even a great week. Why not so let me know below if you agree disagree. I hope you enjoy this video as always. Don't click, nothing, don't smash, nothing just enjoy the video and if you want to join our patreon community, the link is below it's five bucks per month and you gon na be supporting your community.
See you tomorrow.
What happens in January when all this blowout spending has to be repaid? I think it's too soon to call until February or March. Or maybe they were smart overbuying at cheap interest, but what happens in default? Everything will taper but who benefits?
Want to make them angry?
Just mention the truth…
Inflation will get worse, not because of a great market but because of so much money and so little actual production….
Anybody else find the clickbait amusing, the information is solid but I just find the whole presentation really fun
Tom, what will be the drive or high inflation? Are there any except supply chain issues? Inflation will drop after Christmas, that is obvious. This is not economics of 70'. When supply chain normalise inflation will drop. We still have overproduction, just supply is blocked.
Markets hate uncertainty above anything else. Companies are doing well despite the future of rate hikes. Now there’s less uncertainty. The rate hikes will decrease inflationary pressures. It’s all good now.
Surprises me that this is your position on inflation after you detailed the supply chain shocks on semiconductors that are only temporary
I like Tom but he got it totally wrong yesterday…and he was too confident about it. Just shows no one knows it all.
Tom, how can the Fed hike rates to 4%? The US gov debt is already at the brink of unserviceable at close to zero interest rate. If they hike it to 4% the US will default on their debt leading to all hell breaks loose won't it?
The rate rises are being held down until after the mid term elections. They will then be raised too slowly until the 2024 elections. They will then blame the rate rises on the incoming Republican President.
I think they’re purposely trying to inflate to eat away at their enormous amount of debt, they know its not going to happen through growth. And they can’t really raise rates much or very fast because you know how many zombie companies there are out there, the government would be one of them and if rates go up too fast or too much they will not be able to service their debt. And unfortunately this country grows through taxes and debt. They borrow more to pay off the last debt and so on and so on
You said it yourself Tom, don’t F*** with Christmas. I’m already buckled up thinking we were going to get rate hikes before this. So now, I’m going to free up some money, and enjoy my Santa Claus Christmas. I’ve still got bank stocks, etc. at the ready. I don’t understand the taper thing, but other than that I’m ok with a couple of more months of fun before we have three sizable rate increases. Enjoy your holidays!
Tom, you are really blind now, probably because of your political or other beliefs. This is very good longterm. It is measured and rational thing to do.
Tom, U right in majority of the points you maid,
But i don't c rates getting this level of 3%-4% as you predict.
Fed 8s trapped, now it looks like ok, economy is growing so they can plan to raise the interest rate, but the world is full of news (usually bad ones), its like it was i Japan, they are planning to raise it, but it apparently takes 20 years, cuz they are under 0.5% 🤷 for 20 years or so
I still would probably prefer my stocks not to sell off beyond recognition. things can always change as they please next year
Seriously, all the “let’s double the rate hikes” folks are all saying “if it was me, I would …”. Thank the mkt gods it’s not you mother lover 🤔😂
Hi Tom, long term lurker of the channel here. Is there merits to Jeff Booth‘s argument in his book The Price of Tomorrow? Where he argues that the deflationary pressure from Digitalization plus the aging demographic will force interest rate to stay low in hope that Inflation can help to sustain the Gov debt.. So market can throw a tantrum but the possibility of sustained high interest rate (Volcker) is close to zero?
Tom, I've been watching you for a while. You seem like a real dude. Thank you for your content and opinions. If ever you happen to be in Canada. Quebec in particular. You will be vip at my restaurant, all on the house. No joke. Cheers 🍻
Starbucks going to $200!
Not per share. Per cup of coffee. ☕
Why pump the brakes when you can pump the gas!!
After these two weeks I'm staying in cash going in and out quickly every once in a while but nothing long term… F…That…
For all we know we are already in the trajectory of an even bigger crash but we are not able to see it just yet. But I do know that if people are calling the top, 99% of the time, it will not be coming soon at all.
A crash usually happens during black swan event which is not predictable.
Nobody will be able to predict when exactly the crash will happened but we do know what some time along the way it will happen. Hence the best thing to do is to be dollar cost averaging into quality companies and to stay invested. Don't fight the market, the trend is your friend.
I think you are overselling the ability of Fed to control the type of inflation we are experiencing through monetary policy.
I also don’t completely agree with the inflation idea. I do agree they should have put the brakes on the stimulus long ago and raise interest but with stimulus will eventually drying up and everyone hoarded 2 years worth of toilet paper won't be paying higher prices for more toilet paper. I think inflation might not get as bad because all the hoarders got years of supply along with the FOMO people. Personally I bought what I want a while back and didn’t spend much this holiday season and I know a lot of people are in the same boat. I don’t see people at Costco loading up big items like years past during this time of the year. I was there a few times and it’s just like any other day with most carts full of just food and essentials as supposed to years past when people had tons of TVs and other larger items. Plus people wants to get out of the house so hotel and service industry is picking backup plus china is headed to a recession, we will know in a few months and my personal feeling is inflation will ease if not go into recession territory thanks to what's going on in China.
Powell is out of weapon …rate hike will b massive soooner than powell said ..powell is just not causing panic ..but he will 😂
If I’m a new investor and I understand about 30% of what you’re talking about, but I still watch every video to the end and pay attention intently… what books would you recommend I should read in order to quickly learn all the terms and general cycles of the markets? Anyone?