So what the heck did Jerome Powell just tell us and how are markets reacting well? First and foremost, I'd like you to actually see something good because there's a lot of bad news around what we just heard today. So why not start with some good news? There's a coupon code. Oh no. okay, sorry, that's the wrong script.

It's actually this right here. This is the five-year Break Even chart. And this five-year Break Even chart shows you that break evens are actually falling after Jerome Powell's testimony Today yesterday, they started this tiny teeny little insignificant inflection point down. But after this statement from Jerome Powell about even just the remote possibility that they would consider consider re-accelerating the pace of rate increases has shoved inflation expectations right back into the hole.

This is like playing whack-a-mole with inflation. I Guarantee you this chart right here is something Jerome Powell thinks about when he's sitting on the toilet thinking about what the hell hell am I going to say in Congress tomorrow and you know what his goal is to make sure this chart goes down. I Personally do not think the Federal Reserve will be in a position to Pivot until this chart goes from 2.6 to about 1.6 Now we were almost there. in January Things were going great.

Look at that. We were making our way over there. we're sitting at about 2.1 We were trending down gloriously. Everything was looking freaking fantastic.

on the side of the chart. everything was going great until of course we got that hot January data That just ruined everything. Combining that hot January data with this idea that the Federal Reserve is only moving at 25 basis point hikes LED markets to think uh oh, we could lose control of inflation and if there's one big takeaway out of everything that we heard today, it's that Jerome Powell does not want inflation expectations to go unanchored because that will cause more problems problems even Elizabeth Warren who went on a rampage against Rome Powell for how dare he suggest that potentially two to three and a half million Americans might lose their jobs thanks to the Federal Reserve hiking rates Jerome Powell Countered in my opinion, with the accurate response of well, what do you want You want us to just walk away and let the whole ship sink like it's the way it works. You know the utilitarian approach of some pain is going to have to be felt by everyone to solve the inflation and the insane money printing that we've done.

Fortunately, because of Jerome Powell's responses as such and his suggestion that maybe we'll actually have to go back to a 50 basis point hike has sent inflation break-evens back on the course towards down. Now, Unfortunately, that will be aligned with fears that Jerome Powell and the FED will actually hike rates by 50 basis points. and next Federal Reserve meeting on on March 22nd and now increases the potential uncertainty around March 22nd, markets are presently pricing in a 48 chance of a 50 basis point hike that's almost double the chance of a 50 basis point hike that Futures markets were predicting yesterday. And even though Jerome Powell talks about being very mindful with lags and not potentially needing a significant increase in unemployment, we still have a lot of data ahead of us.

Most notably a Jobs report on the 10th, which is this a Friday it will be covering it live 5 30 A.m Pacific time. Then we have the CPI report on Tuesday the 14th at 5 30 A.m I will be covering it live Pacific Standard time. Now What's very important as well was Jerome Powell's statement. and I personally think it's Jerome Powell's statement that not only led the stock market lower bond yield incur in yield inversion to worsen to nearly a one percentage point gap between the two-year knocking on the door of five percent and the 10-year knocking on the door of four percent.

That's a one percent inversion. The steepest inversion that we've seen since the Paul Volcker era. But in my opinion, what actually send markets down was this right here. This was Jerome Powell's opening statement.

and first, he talks about the current economic situation, specifically talking about the reversal of softening trends that we had been seeing in data just a month ago. Now, he does say look, some of this reversal is likely due to unseasonably warm weather in January We've talked about that a lot as well on the channel. We've also talked a lot about how there could be a lot of seasonal adjustments that are leading to a lot of noise in the January data. And maybe we could actually end up seeing some of these seasonal adjustments uh, get removed over the Uh over the course of the next releases that we get for data.

So in other words, when we look at these next data sets we want to see hey, is January getting revised down? or is it staying hot if you look at some of the leading indicators for the Federal Reserve Ah, not so great. It actually kind of implies that when we look at like the inflation Fed Now forecast from Uh, the Cleveland Fed, which has been historically pretty dang accurate on what the projection is for inflation. Well, let's just say the March data is kind of suggesting crap. It's probably still going to run above expectations.

unfortunately. In fact, you can go see that yourself just by Googling the Cleveland Fed Inflation Now casting report. And when we look at the CPI forecast, this updates every single day. From the Federal Reserve When we look at the forecast for inflation, we could see that February's headline inflation is expected to be 6.21 Right now, the Wall Street estimate is six percent.

That means the Fed's now casting report, which has been pretty accurate is saying I Don't know you might be hopeful for a seasonal adjustment. you know, change getting revised away in January But for us, even in February the data is still hot. In fact, we're expecting Core on Wall Street We're expecting Core to come in at 5.4 percent, but the Nowcast is actually showing a 5.54 read: This means that the Feds Now cast is already suggesting forget about January Man February is still going to look a little hotter than expectations. Guess what that means Higher for longer baby higher for longer And that's kind of what the Federal Reserve predicts here.

They don't talk about seasonal adjustments, they just talk about how January was a little bit warmer. Then they talk about how a supply chain bottlenecks have eased. But the problem is services and core inflation is showing little signs of disinflation. Now look, part of this is because we still haven't hired everybody back yet.

Airlines are still short on employees, restaurants, hotels, medical care services are still not back to the employment trends that we saw pre-pandemic Look, even you have to remember this. Even if you get get back to the same employment level of where you were in 2019, you should have more employment today. And in many places, we still have less employment today. That's a big deal.

I Mean consider Medical Care services, for example, We just got back to 2019 levels, but we're supposed to grow about 900 000 jobs. or we should have grown about 900 000 jobs between now and then. So that means we should have been up here. But we're actually in line with 2019, so they're still hiring to be done.

Yes, some of the bonuses have gone away. Uh, so it's become a little bit easier to find employees, but we're still lacking Ultimately, as many employees as we need in some of these services. This is leading to that continued disinflation which is or or lack of disinflation and services which is a problem. And then here is the hammer you ready for this.

Look at this. As I mentioned, the economic data. The latest economic data came in stronger than expected, which suggests the ultimate level of interest rates is likely to be higher than previously anticipated. Previously forecasted was 5.1 percent via the Fomc Sep report that is now currently expected to be higher than previously anticipated.

And listen to this, he's given us the big warning here. He's saying if the next jobs in data and CPI report indicate that we need to tighten more, we would be prepared to increase the pace of rate hikes. In other words, going back to 50 BP So the FED is willing to go back to 50 BP should we get hot reports these next two numbers. Now that's really bad in my opinion because that's a that calls into the consideration The Fed's credibility.

Now they could try to talk this away as like oh well, you know we got hot data so we responded to it. But the problem is when you have a Fed that goes okay, we're going up at 75. Okay, now we're going up at 50. Okay, now we're only going up at 25.

Uh, now we're going to go up to 25 again. Oh no Data Hot again. Oh no, let's go back to 50. this sort of start stoppie mentality is exactly what got us into the Poopy Doopy in the 70s which led to getting Paul Volckert in the 80s where the FED had a stop start approach where they lost their credibility because it showed that when it's seemed like things were getting soft, the Fed was being too bullish when it seemed like things were getting you know, hotter.

Maybe they were being a little too aggressive. Who knows. But the start stoppy attitude ruins the Fed's credibility. So going 50 I think would be a big mistake for the Federal Reserve But yes, look, and I've said it even though I I really think going 50 is a big mistake I've said it before I'll say it again if these next reports come in like very bad.

Oh yeah, we're screwed. In fact, right now, markets are pricing at A 5.6 percent terminal Fed funds rate. That's literally up from 5.4 percent. yesterday.

and like a month and a half ago, we were sitting at 4.9 percent. We sat at 4.9 percent for like six months. and then just like this, over the last six weeks we've been skyrocketing up to 5.6 on a federal, Uh, on on a terminal rate. now.

Uh, this is leading some Wall Street analysts to already start pricing in a 50 BP hike. We know it's at about a 48. Chance Some are saying uh, we, you know we might even see another 50 basis point hike in May I I don't know I Think it's more likely to see 25 25 25 over time, especially since they do recognize these lags. So I think we would need to get some kind of blowout report next to actually verify a 50 or solidify 50? I should say I don't see it happening, but uh, hey, look could happen so we'll keep paying attention to it now.

Obviously, there was a lot of fighting about Uh employment. and this is a big deal because remember, the Federal Reserve has a dual mandate. one is stable prices, the other is maximum employment. And there's this thesis that in order to bring inflation down, you have to create a recession and then jobs are lost.

That's basically what the inverted yield curve says as well, right? the inverted yield curve. The reason it's inverted is because we say okay, Well, for the next two years we want to get compensated at a higher rate than what we want to be compensated for the next 10 years because we think we're going to go through a recession now. we want to get compensated through and we're not so worried about the long term. That's why the inverted yield curve is is well inverted, and it's generally a sign of a recession.

It could be a sign of just rapid disinflation that we're expecting. that is, inflation is still high today, and we're expecting that to go away. but it's probably going to lead to a recession. Uh, and as is generally accurate, the yield curve.

Well, let's just put it this way, it hasn't been wrong in the past. and so that's leading a lot of questions to the idea of like, hey man, well if your goal is to slow and cool the economy, isn't that going to cost jobs And is it not possible that we have to get to seven percent unemployment to get inflation down And to this, Jerome Powell said historically Yes, that's been true, Which what I thought was really interesting about this part of his discussion is he balances this idea of okay, yeah, I mean historically it's true, we have to get to seven percent unemployment to get inflation down. And then the individual who was asking drone power questions, uh, continuous and says, okay, Well, in order for us to get to two percent, history suggests we need to get the unemployment rate all the way up to 10 percent, right? And to this, Jerome Powell almost gets angry and he says, no, that's nowhere near in play. So why did he not protest seven percent unemployment? But he did protest ten percent employment so much.

I Actually thought it was a really good tactical strategy to try to flush out what Jerome Powell is nervous about Dronepal doesn't actually seem that nervous about the potential of seven percent unemployment, especially since he reiterated what Elizabeth Warren said when Elizabeth Warren said look now the last 12 times the unemployment rate has gone up a percent. The 11 times, or 11 out of those 12 times, the unemployment rate didn't just go up one percent. it went up another percent thereafter. Well, if we're at three five, now, we go up a percent.

We're at four or five. We go up another percent. Now we're at five. Uh, uh uh, we're at five five.

Uh, we're starting to knock on the door. or start trending towards six and seven percent unemployment. So maybe it's not horribly unrealistic to think that in a few years, you know, maybe by by the end of 2024, we could actually be knocking on the door of five to seven percent unemployment. Kind of scary because you know there are a lot of people complaining about not having a job right now.

and guess where we sit right now? Right now, we sit at three and a half percent unemployment. So I don't know how they're counting employees or what, but I'll tell you there are a lot of people complaining about not being able to get jobs right now. I'll actually show you one now. This one's a little embarrassing.

Okay, I'm gonna do this because look I I I I will fall on the sword to just provide Insight even if I look look like a loser and sometimes you know what? I make myself look like a loser. not necessarily intentionally, but if we can learn from it I am okay with that as well. but this is a really important one to look at. And what's crazy is this is almost becoming a trend.

Let me first say, remember the days where there was a trend of people showing off how much money and or like how much free crap they were getting at their job like Google or whatever or whatever. Well look at this. Hop onto this particular Tick Tock Here this guy basically has a little thing. Me thinking getting a job after being laid off won't be too hard, right? And then this is only 10 seconds long.

But you hit play and then what happens is deny a letter grammarly and then Podium I'm just kind of pausing here. Influx Data Lumos uh Apollo Sprout Social Uh. and then it's kind of Loops. Through some of these things, it looks like he kind of looped it a couple times, but anyway, he puts up a bunch of denial letters.

Uh, and so what's interesting is in the comments. there actually were a ton of people I Think you might have to be logged in to see the comments, but there were ton of people who were talking about oh my gosh, there's so much unemployment right now. like this is so relatable. I can't find the job and actually when I look at the comments here: I I I'm just gonna say it okay I was a little bit of an uh I'm like this is fantastic news for inflation.

Okay, yeah, that's that's pretty dickish. Uh, but I did say sorry for you uh I I Then I then felt really bad when he responded and says OMG I follow you sorry uh but but anyway, back to the point of the FED Yeah, it's it's crazy because you've got a lot of people complaining about job loss on Twitter but we're just at three and a half percent unemployment. Imagine if that potentially doubles like Elizabeth Warren is right to be like dude, what's gonna happen to the people who lose all of their jobs but Jerome Powell still has to look at this and go. He's steering the ship.

He's got to make sure that everybody in mass is not at risk of massive pain. And yeah, if that means some people are going to end up getting hurt. Unfortunately, that's the Keynesian based economic system that we're in. In bad times, people lose their jobs I mean Elon Musk Basically is publicly conducting exit interviews on Twitter when he's talking about firing people for not working hard and lying about Their disabilities.

Okay topic for a different video, just saying. Things are starting to get really heated around Unemployment Uh, Unfortunately though, for like Us investors, especially those of us who are so wonderfully part of the stocks and psychology and money group, the real estate investing course, or the other programs I'm building your wealth like the Elite testers group. Unfortunately for Us investors, it means more pain for longer If we have unemployment that doubles over the next year, you have to ask yourself what stocks do you not want to be in Some people are saying, well, maybe I don't want to be in tech stocks because that's where the layoffs are But then you have to ask yourself, is just the excess getting laid off right now? how much in excess savings are those individuals going to have I Don't know. Is that going to trickle down to lower wage workers or the people who were working in Tech Going to have to move in into some service sector jobs just to be able to pay the rent they signed up for I Don't know, it's scary and it is crazy.

But yes, and raising interest rates is going to make things harder in the short term. Yesterday we were having a debate in in the office about how raising interest rates actually increases the cost of credit card, debt, car debt, housing and this is a very commonly least studied but very rarely talked about concept known as inertial inflation is basically to say that when the FED tries to cool the economy to slow the economy down, when they raise interest rates, they actually induce more inflation initially before they actually slow the economy. So unfortunately, all of the slowing effects of unemployment a GDP recession which is a technical recession, An earnings recession. That sort of data is super super lagging.

And the warnings here that you're getting from folks in Congress are dude. Once you start as Elizabeth Warren says once you start seeing the unemployment, how do we know this is not a runaway train, how are you going to turn around and stop all of the unemployment? Kind of interesting. so she actually does make a very good point anyway. So then there's some talk about the labor force participation rate and obviously how it'd be nice if more people would go to work.

even though they'd spend more money, it should be net positive. There's uh, there's talk about the war in Ukraine contributing to inflation. Uh, there is, uh, talk about uh, well, more talk from uh uh, Elizabeth Warren on how do we prevent falling into a recession because we don't want to create job loss? Now remember that uh Elizabeth Warren doesn't like Jerome Powell whether it's for politics or what reasons. But in 2021, she called Jerome Powell a very dangerous man for warning about inflation.

Now we have all of this insane inflation. and Elizabeth Warren is saying that Jerome Powell is quote gambling with people's lives. You claim there is only one solution people losing their jobs. but if you're not going to fight for people, we need somebody at the FED who will.

And then she kind of mutes her mic and storms off and you know a lot of of this I feel like is unfortunately just politics and sort of the political nonsense and and you know, show-stopping that you try to get to go viral on Twitter or whatever so people keep voting for you. uh, you know I I don't know but anywho, so uh so anyway, then uh, we have uh Jerome Powell talking about hell. Look, it's not just the strong Jobs report or the strong uh CPI report from January. it's also the fact that we had revisions for November and December data that are somewhat concerning that a reversing Trend uh of of uh, rapidly decreasing inflation and if inflation takes longer to bring down, then certainly that's problematic.

Now that has reiterated sort of my thesis that we're in a Nike Swoosh style recovery where I expect look, we had a very fast down in 22. It's going to be a very very bumpy ride back up. I Personally do think the ride back up is still going to Trend up. I Actually think there's a buying opportunity going into the fear that we have over the next few weeks to deploy some more cash if we've been sitting on the sidelines for a while.

All obviously that's not personalized Financial Advice: even though I run an actively managed ETF I am a financial advisor I sell courses on building your wealth I'm a real estate broker and I have a real estate startup. Despite all that stuff, this is not personal. it's Financial advice for you. This is my thesis.

like I I Know a lot of this sounds like bad news and higher for longer sounds like bad news and it is bad for the housing market. But quite frankly, the bottom line Reality is that higher for longer it means no Paul Volcker if they came out and said a lot higher. ASAP Now we're getting more worried about a Paul Volcker style recession, right? Hire for longer is kind of like okay, things are controlled. it's just taking a little longer than expected.

it's actually not. Paul Valkyrie Uh, then we've got some talk about commercial real estate commercial real estate. potentially. uh, expecting to get hit a lot more on a valuation from Jerome Powell was sort of questioning.

like how do we have so much office vacancy and basically these valuations that are still propped up the way they are huge opportunities I Think coming up in real estate over the next few years again one of the reasons I have a real estate startup. but anyway, uh, stable coins and crypto. He says there's a lot of fraud, there are Bank Run risks and eventually there will be a place in the world for stable coins if and only if we can have a similar regulatory regime as we do for the current banking system. Uh, especially since there's so much susceptibility towards fraud and money laundering regarding the debt ceiling.

Big fan of making sure, obviously Congress extend the debt ceiling I Didn't even really want to go into quantifying how bad things could actually get if we did not extend the debt ceiling. Uh, tester went on Senate this was the Senate meeting tomorrow, by the way. I Just want to be clear. tomorrow's like the house version of this.

it's just going to be like more. yeah, wrapping, it's pretty much going to be the same show I probably won't cover The Tomorrow Show because I think we're getting enough Insight from J-pow today that tomorrow's not gonna make much of a difference. but anyway, I'll I might do like a summary after the fact, but I think today is much more important. Tester goes into this story about like how he remembers having what he thought was a good deal on a 10 interest rate deal.

Uh, and basically they start arguing about the neutral level of Interest Nobody knows what that is so that really does us no good. Right now we talk about uh, the current debt and interest payments on the debt we currently have being yes, sustainable. but the path of growth we're on being unsustainable. This is true.

We've talked about this before on the channel as well. The Treasury Department is very clear that we are an unsustainable path of uh, debt accumulation. Uh, Jerome Powell talks quite a bit about housing being a big part of uh CPI and US expecting that to plummet in the near term here? Uh, we we do know as well that uh, just a small note. Yes I See your comment here that uh Joe Biden is now suing JetBlue to block the JetBlue Spirit deal.

Uh, citing that maybe prices will go will go up for consumers. Let's see here somebody here says, do you believe massive raid cuts are coming this year? No. I Don't believe that massive rate cuts are coming This year it was previously priced in that massive rate Cuts Were coming that we were looking at about 1.7 in rate cuts by between September and December that has now essentially been completely removed by by you know, Market movements over just the last six weeks. Uh, price cuts are actually being priced in until 2024 now.

So it sort of just reiterates this idea of it's all going to require a lot more patience, patience, patience, patience personally. I Really think in 2030, we're all going gonna look back at 2022 and 2023 and go. Damn. We had a gift of two years to invest in stocks at cheaper prices.

Like, who cares if you exactly hit the bottom or not. but if you, if you're looking at your long portfolio and you're trying to perfectly time this freaking Market I think you're out of your freaking mind because he ain't gonna perfectly pull it off I tried I think I got out you know I got out with my tail nipped and then I got back in too early and then I got punched in the face. you know? So so like now I saved a lot of money getting out because I got away from a lot of profit list companies and I reallocated to only pricing power style stocks which I think are really going to lead us out of the recession but I am very confident that come 2030 I'm going to look back and go Damn! We got some good deals during 2022 and 2023 and I'm gonna look back and go damn and I rang the bell of the stock exchange during that time and launched course uh uh, the Elite Hustlers course and became a licensed financial advisor and launched a startup. I'm very optimistic or in two years I I'll be bankrupt and then I'll just start a guild on World of Warcraft and you're all invited.

So either way I'm good. either I'm bankrupt and happy playing World of Warcraft or I'm working my ass off on my startup and here on the YouTube channel. So I hope you you know we'll just stream World of Warcraft if the bad scenario happens. So either way, I'm with you on this journey and I'm I I just want to be like as crystal clear as possible.

I Highly implore looking at your long-term portfolio and if you're sitting there in all cash, be like, who cares, like as long as there's no sign of a Paul Volcker. Maybe some of the pain that we're getting here in the near term is just really that opportunity. If you really think we're getting Paul Volckert leave me a comment. Tell me why I every time somebody leaves me a comment suggesting anything about Paul Volcker I research it I study it and I try to see if I'm blind to something because I'm not saying I know everything.

But for me, I'm all in on uh, on on writing two letters. That's it. I Love writing these particular two letters and I have to do pricing power. That's it.

Thanks so much for watching. we'll see in the next one. Hey, thanks so much for watching and subscribing as well as sharing the videos. In case you've enjoyed it, make sure to consider getting more perspective via the links.

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