The Fed JUST Bailed Us Out.

Well, Waller may have just saved the entire market. The guy who's jaded for not getting the job as Federal Reserve chairperson is literally running cover for Kevin Walsh now in a weird way by bagging on Kevin Worsh, but running cover for Wsh in the sense that we know Wsh doesn't want to hike, but he has to seem like he's credible. So, he kind of needs somebody else to dunk on him and go, "No, no. I mean, this guy's an idiot. We're not We're not raising rates." And then Washington go I could keep Trump happy and I could keep my credibility pants on. This is a game of 4D chess, baby. And we are reading it like a textbook. And that's why we well it's actually not why but yesterday we updated the bear bull scale or the data from yesterday is why we're updating the bear bull scale. And so I'm going to show you the number on this clipboard in just a second here. I know anticipation. It's great, isn't it? It's kind of like the coupon code expiring tomorrow, which uh we did unfortunately have to extend that, but more on that later. That'll expire tomorrow at 11:59 p.m. at meetke.com and meet mereinvest.com. Let's focus now on what did Waller just say. So Waller, well, not only what he just said, but also what happened with the odds of a rate hike. The odds of a rate hike literally just tanked from about 68 to 69% to only 48. We literally just flip-fpped on Waller's commentary from we're twothirds likely to get a rate hike to JK we are more likely to not crazy instantaneous market reaction. We're also seeing the 2-year drop about six basis points more than the 10-year right now. Both of these yields coming down and we know it has nothing to do with Iran because oil prices are actually up more. Uh but remember those oil prices it's a lot it takes a lot more effort for those to feed through to core inflation uh since they usually get deleted from the inflation core metrices uh as that's after all what core is. You remove the more volatile food and energy categories. Anyway, uh you can see Brent here at 96. So we know it's not because of oil or Iran. Anyway, let's talk about what Waller said. So here's what Waller said. Waller complained that Walsh is too focused on financial conditions and he needs to stop being focused on financial conditions and focus on what matters and that's actual economic data. Now, I regularly get folks to say, Kevin, you know, what's what's the scoop with financial conditions? Why do people care about financial conditions? Why does it come up? financial conditions. The the idea is that if financial conditions are loose, you might have to hike rates to constrain uh sort of unlimited spending because if you spend in an unlimited manner, you could end up driving inflation. Waller literally crushes both of these arguments. First, he says financial conditions are mostly based on what's happening in the stock market right now. And I always find this really weird. Why is it that financial condition metrics are a combination of what interest rates are, what credit spreads are, and what stock prices are doing? Because in that case, if stock prices are skyrocketing, you actually have really loose financial conditions. Because high stock prices act as an anchor to financial conditions, implying things are really, really loose. while at the same time all of your other financial metrices like rates, you know, yields, the cost of debt, credit, whatever, all those could actually be tightening. Now, it's obviously not that clearly divided, but the point is Waller is like, "Dude, stop caring about financial conditions. They are manipulated by the stock market. If the stock market goes down, everything looks tight. You'll have hiked into tightening, which is tarded. Don't do that." And that is a fair complaint. This is a really fair complaint. Waller also says look we should have forward guidance because what WSH is basically saying is Wsh goes oh you know there's a hull of mirrors problem where if we give guidance then financial markets react and then we're supposed to look at financial markets to decide what to do that's sort of circular like Nvidia and Waller's like bro if you don't want a hall of mirrors Don't look in the mirror, you idiot. Like, he was blunt today. Okay. And I personally think it was 40 chess. Like, I think he was meant to come across as mean to let War feel like he has credibility while at the same time bagging on the odds of a rate hike in the September meeting. So, uh, don't look in the mirror. He says, he says, look at actual economic data just like JPOW had done for the eight years before that. He also complains about Besset like he's holding he's not holding back today. He's like, "Dude, Scotty B, short-term interventions don't do anything, man." And he's right. Short-term interventions almost always fade. Like, we think we we're getting intervention in the Treasury market potentially today. We think we're getting intervention uh in the um uh the Japanese yen right now. All of this interventionism, it's all going to fade. Actually mean anything. But Waller actually makes a fundamental argument, too. He says, "Zero population growth depresses real yields. We're just really not growing our US-based population right now. Obviously, a a good portion of that could be because, you know, the borders are pretty damn sealed right now. You know, I mean, if you if you even watch Fox News for 20 minutes in 2024, you're like, damn, there's a flood coming in. The real Anyway, uh on task forces, Waller also had something to say. He said, look, you can't use these opaque task forces. We have a trust problem if you do that. You know, just because you got a bunch of cronies who basically want zero rates and argue there's going to be disinflation, people aren't going to trust you. You have to give them the data. And I couldn't agree more. And that's why I want to give you the data on this and tell you about my Bear Bull scale. But the very first thing I have to do is apologize that we had to extend the coupon code because they shut us down on coupon code expiration night. And I'm showing this because I feel bad that a I got all of these emails from people that ARE LIKE, "KEVIN MCKAY, HELP US. WE'RE TRYING TO SIGN UP. We can't get in." And I know everybody complains that I, you know, printed this on a black background. Yeah, I know that was wasteful. I'm sorry. But anyway, you know, like that's not fair. So, we did extend that uh this coupon code will expire uh tomorrow night and then we've got a big website transition. We're getting rid of the lifetime access at meet reinvest as well. So, what a lot of people are doing is they're uh emailing us for a bundle and they're getting the uh meet Kevin membership or maybe they already have the meet Kevin alpha membership and then they're getting the homes AI membership as well because the lifetime access for that is going to go away. It's going to be really expensive and then you know it'd be nice to lock that in and not have a monthly fee, right? Anyway, with that said, bearbull scale 74 baby. Why is this up? Because the ADP stability, my bull bear scale or bear bull scale did not actually move because of Waller's commentary because I don't really care what they say. I'm looking at the data and uh the reason this actually fell into the sixes when did I I have a I have a historical breakdown of this. The reason this fell into the sixes was because of the weakening labor market data which has now stabilized. I'm a big fan of looking at the data. So, uh, we were down at 6.5 at the beginning of August and the NASDAQ has gone nowhere since then. Hardware stocks have gotten hit since then. Uh, you know, obviously we're still on the software Q3, Q4 bottom, but the overall scale has come off this weakening of well, not only the escalation that we're seeing in Iran, but coming off of uh uh the highs of labor market numbers that we had earlier uh in the year, specifically Q2 was was rocketing. So, the stabilization that we're seeing helps us stabilize up uh on the bareb scale, which I think is good. Still not like in an all-in risk level, still conservative dip by mode. But this is one of the calls that we made this morning in the alpha. We said, "Look, software had a little bit of a sell-off over the last few days, specifically names like uh Palunteer or Crowd Strike. There's an opportunity to buy the dip today on software." And we specifically in our alpha report this morning called out Tesla as upside. It's up 4% right now. Salesforce we called out as upside, up 3%. Most of that after the market opened. Look at that. Uh we also called out Axon. This one's, you know, been kind of stable. It's up 2% here. Uh and then look at Palanteer. This was one we really highlighted because it's sold off the most over the last few days. So of course you've got the opportunity for a really nice bounce here. Look at that. 8%. UiPath, another one up about 4%. IGV was one we called out as well. That one's that's an that's an index of 102 different stocks up 3%. So, we were quite bullish on on these bouncing and uh hey, if you want to be part of the alpha membership, make sure you join there. Let's get back to Waller. So Waller then tells us that people need to verify the data on the task forces, but especially on the inflation task forces because people aren't going to trust you if you just say, "Oh yeah, inflation's lower." They actually want to see and verify the data on the balance sheet. Waller thinks that a scarce set of reserves would be a mistake. He says it would be a mistake to surprise markets and not have forward guidance and then also have low reserves. Instead, you should be transparent with markets. This is the data we're going to use to justify a hike or a cut. This is the balance sheet that we're going to hold just in case crap hits the fan. And we're not going to surprise you. We're going to be transparent. We're not trying to be opaque and then say financial conditions or what we actually have to focus on, which is kind of what he did at Jackson Hole. So, you know, Waller here, Chris Waller argues, hey, I'm very different from Walsh. You should have picked me for the job. he did want the job after all. So maybe he's bitter. Uh and he says one of the reasons yields are going up is because of global uncertainty, not necessarily uh this productivity that we're seeing in markets. In fact, he goes as far as saying give disinflation a chance. Core yields will likely fall with revisions. And as capacity goes up, you do not necessarily need to see prices go up. Now, that's kind of an interesting argument. Uh, if we Oh, boy. Can I draw this live on uh uh on the whiteboard? I think I can. So, basically, this is a very econ 101 argument, but he's right. And I think it's useful to visualize, but so if I have a supply and demand curve uh right here, where you know this is my P, this is my Q. So, quantity demanded, price uh demanded. Uh the idea is if you're in a place where you have a shortage of supply, obviously price is going to go up, right? If quantity supplied is over here and quantity demanded is up here, then price goes up, right? That's your shortage increase of price is that sort of box right there. What Chris Waller is saying is even though demand uh is rising, you could also see uh supply rising. So we could see quantity demanded move. Quantity demanded might go over here to the D1 position. It's been like 15 years since I studied this stuff. Okay? So hopefully I'm doing this right. So quantity demanded can shift to the right. We could see an increase uh here. But we could also see an increase in uh in in supply. Uh and so supply also shifts to the right. So that's the uh S1 line, right? This these are uh demand KN SO and then uh demand one uh supply one. And so what you've essentially done is you've moved quantity from let's say 100 units of production to 200 units of production. And in this case, even though I didn't draw it perfectly, the idea is that prices can actually remain stable. These are supposed to be perfectly aligned, uh, prices can remain stable as long as you're not in some form of short-term shortage situation. So, what he's arguing is from an economic and fundamentals point of view, the economy should be able to expand and keep prices stable. That's not inflationary. Just because the economy is going up does not mean prices go up. And if a shortage is occurring because of some temporary factor, then that's not something an interest rate hike can solve anyway. We can't solve S lagging, right? If S is actually right here and it should be here, then you are going to have higher prices for the short term. But he's basically saying a hike does not cure that dotted line of supply moving in quantity. at all. You don't solve for that with rate heights. Sorry for like the econ, you know, 101 crap here. I find it interesting. I actually am kind of impressed with myself that I even remember how to do all this stuff. This is like literally basic basic like high school econ 101. Um, but it's been so long. It's kind of like, you know, do you does anybody remember the quadratic equation? You know, it's like, oh man. Uh but anyway, so focusing on this uh Waller also says uh disinflation from artificial intelligence definitely possible and we should give disinflation a chance. We you know if if inflation starts reversing we could totally hike but one month isn't going to make a difference. He says, now keep in mind, Waller is one of the people where if he was talking about hiking, we would probably almost guarantee the odds of a rate hike because he was a denter in the last meeting. The three hikers in the last meeting were Qashqari, Logan, and Hammock. Well, no duh. All three of them are coming out going, "Ah, we need to hike." Because that's the same thesis they had last time. Nothing's changed. But Waller is a dove and he is literally tripling down on the dove case here. Obviously, the CPI report on 911 is going to be in play. Uh we'll be covering the CPI report live. That's going to be very important. Uh and uh let me pull up this CPI report projections right now. So CPI PPI comes out on the 10th. PPI expectations on X food and energy are.3. That's a little higher than I believe what the CPI projections are. CPI projection right now, yeah, is2 on core, point4 on headline. And if I take a look at the estimates, we now have 10 estimates and the average estimate is 23. So, you know, we we should be nailing uh I mean the bell curve is really tight. The bell curve basically averages you to 0.2. Now, could we get an extreme? Yeah. I mean, if we got like a 0.5, we'd be screwed. Just sell off, instant selloff in markets, instant rate hike. But lately, I found over the last year, CPI has actually become a whole lot less volatile in terms of its misses compared to expectations. It's more likely to hit expectations than it is to miss. I think people are just have postcoid adjusted their models for tracking their own inflation baskets and then sort of applying that to what they think CPI will end up looking like which is a good thing because it means there's less of a rug pull right we we don't necessarily like the rugpole potential what we really like is Palunteer baby being up like 9 freaking% holy moly make sure to join us over at mete.com and get that alpha Okay, that is Waller. >> Why not advertise these things that you told us here? I feel like nobody else knows about this. >> We'll we'll try a little advertising and see how it goes. >> Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Pra there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.