저자: Kevin · 외국인
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연준 유동성 경색 신호(레포 금리 18bp 급등)를 근거로 신용·유동성 위기 가능성을 경고. 고용 지표와 실적은 양호하나 현금 부족으로 시장 조정 위험이 있고, 정부 셧다운 종료 시점이 큰 리스크라고 주장. 비트코인 약세와 MP머티리얼즈 하락을 유동성 부족의 예로 듦. 12월 금리인하 가능성은 약 69%로 언급. 테슬라 단기 490달러 도달 가능성을 언급하며 주총 통과 시 상승, 부결 시 414 이탈을 예상.
다듬은 글
really big overview on the liquidity crisis that is starting. That's what we're seeing at Bitcoin. It gives you insight into why Besson warns that some sectors of the economy could be going into recession. It gives you ghoul speeds fooling us on his reading of the inflation chart. It also shows you how backwardlooking the Fed is as well as major catalyst for this Wednesday.
Austin Goulsby from the Federal Reserve has some news for us and we're going to talk about that this morning along with what's going on in the economy and the lack of activity that's actually showing up in the jobs report which is really bullish at least so far based on state unemployment claims data.
We're not expecting to see a big shocker but that's not changing the fact that we are seeing shockers at the repo facility of the Fed. So, how do we reconcile this? How do we put all of this together? Well, let's break it all down one step at a time. So, the first thing that we've got to know is that this week on Wednesday, we are going to get a combined ADP report.
So, mark your calendar for Wednesday morning at 5:15 a.m. California time, 8:15 if you're lucky and you're on the East Coast. Uh the ADP report is going to give us not only the moving average of the last uh sort of the weekly last four weeks of data, which is nice because we get the weekly data hopefully going into a little bit of November, but we're going to get that entire October read for ADP jobs.
We're expecting 35,000 on that ADP report. Now, a lot of folks are saying that's going to be what actually decides whether or not we get a December rate cut. Right now, we've got about a 69% chance of a December rate cut. And a lot of folks are thinking that we could be on the precipice for some real pain if we keep seeing this sort of funding stress.
See, this right here at the Federal Reserve is why they turned off the money vacuum cleaner because we're starting to see a little bit of a lack of liquidity. Some of that might be why we're seeing pressure in Bitcoin. In other words, in order for people to continue to buy uh these high-flying tech stocks like Nvidia or invest in AMD or otherwise, there's some argument that because Bitcoin has been trading sideways since the summer, people might be finding liquidity in Bitcoin and then moving it into tax stocks or wherever else.
The repo facility doesn't tell us about liquidity for you and me, though. What it does is it tells us about liquidity for banks, which sometimes can be even more concerning because why all of a sudden are we seeing the repo rates or or repo usage skyrocket and why did we just see the largest increase in the repo rate since 2020?
Now, this rate itself isn't that big of a deal, 4.22 on the repo rate. What matters more is the rate at which it changed. Usually this repo rate only changes by about four to five basis points at any given time. However, here we had an 18 basis point skyrocket in the repo rate, which suggests way more of a demand for cash on Halloween on Friday than markets anticipated.
Part of that could be because of pain brewing under the surface. And this is why we're not really seeing this kind of pain yet in the labor market. Even though we had layoffs that showed up at Target, at Amazon, and at other companies, we're not actually seeing that pain show up in the labor market yet, but we are starting to see red flags in liquidity markets, which might actually be very normal.
See, typically when you go into a recession, the most lagging data is the unemployment data. But in a weird way, the unemployment data is like the only thing the stock market cares about right now. The stock market is looking at the unemployment data saying, "Hey, as long as we're roughly in the range of break evens, we're bullish, right?
That's essentially what markets are doing." Jerome Powell's got the break even employment rate somewhere around zero. You've got Fed members like Hammock who have the Fed uh unemployment break even rate estimates somewhere around 20,000. The estimate for ADP this Wednesday is that we're going to get 35,000 jobs.
And even if we miss on 35,000, as long as we get something between 0 and 20, markets are likely to look at this and go, "Hey, cool. Bullish." Especially since even after these layoffs, we're still not seeing initial jobless claims on a state basis show any kind of even a seasonal spike. I mean, look at last September and October.
At least you had a spike in unemployment claims here that sort of aligned with what you generally get around this time of the year. not right now. Not seeing the spike at all. And so, in a weird way, we kind of see markets continuing to throw money at AI and the tech trade because we're justifying that the economy is fine because our unemployment rate hasn't fallen off a cliff yet.
And so far, earnings are doing just fine, which is fair. So far, earnings have done fantastic. 70% of the S&P 500 has reported. Profits are up 13%. the estimates were closer to 6% uh that profits would be up 6%. We got 13% which is amazing. Sales are up at the fastest rate in the last three years. Margins are up in nearly every sector.
And the only thing that people are concerned about right now is that things are so bullish with labor and earnings that we just don't have enough money. That's what's leading to record amounts of leverage, the highest levels of margin debt we have ever seen. And obviously why when we have any kind of hiccup whether it's in crypto or stocks we see really rapid declines.
I mean look at this. Just in the last hour and a half we actually I mean this just updated but within the last hour and a half we we actually had this chart showing about $600 million in crypto liquidations as Bitcoin fell below $16,000 for a moment there. Uh that chart has since moved showing only 46 million in the last hour.
That's because within the last two hours most of those liquidations took place. You can see the 4hour wreck level here almost 700 million. A lot of that of course on Hyperlid almost 2 and a halfx that what we've seen on Binance who of course you know Binance has no idea who CZ is after pardoning him because why why would a president know anything about the person who's pardoning who he's pardoning and the same person who just happened to provide a multi-billion dollar lifeline via tokens to World Liberty Financial in coordination with the Saudis.
That's really a topic for a totally different video and totally tangential to what we need to talk about, which is Kevin, how the hell do we put all of this together? Well, I think there's actually a very simple explanation. I think the way you put this together is like this. Look, jobs right now still fine.
And that's what's keeping the market going. The problem is people just don't have that much available cash. Money markets are misleading. You know, a lot of people look at money markets and they're like, "Oh, but Kevin, you know, uh, market funds have so much available cash, but they forget that a lot of that cash is really just corporate balance sheet cash like Apple available cash or Nvidia or Microsoft available cash that sits in short-term duration money market funds or, you know, 3 to six month treasury funds that then uh get end up, you know, being deployed into stock buybacks or circular investments into open AI or Amazon or whatever kind of other deals end up getting financed.
So the money that's available in money markets, I I don't actually see it as consumer available money or investable money that's available. You even see the Bank of America fund manager survey shows that currently available cash for fund managers is at a dangerously low level. In fact, Bank of America calls it a bearishly low level because typically when investable cash gets as low as it is now, we tend to see a pullback in markets.
So to me, this isn't so much about the jobs market being bearish. The jobs market so far is bullish. The problem is it is lagging. The jobs market tends to lag bad news. The lagging bad news, in other words, good news right now is actually keeping the market pumping. The problem is again cash and liquidity.
And what's amplifying that lack of cash? Well, what's amplifying that lack of cash? In my opinion, too much collateral risk. In other words, too many cockroaches. And I actually think that's why we're seeing some of this funding stress starting to show up over here. The usage of the repo facility is basically when banks say, "Crap, we don't have enough money to meet our obligations over the next 24 hours.
We need to borrow more money rapidly from the Federal Reserve." This skyrocketing on Halloween is also interesting because it comes after the Fed meeting last Wednesday where the Fed says, "Hey, we're going to turn off the vacuum cleaner." Now, in fairness, they're not turning off the vacuum cleaner until December 1st.
But honestly, if we keep seeing crazy spikes like this in lack of liquidity at banking institutions, it's likely that the Fed is going to actually have to move up the time that they turn off their vacuum cleaner from December 1st potentially to like now because there is a liquidity strain. When banks have liquidity constraints, it's usually because banks are starting to get more nervous.
Think about it. If banks get more nervous because they're like, "Uh, what if all this collateral isn't really worth what we're being told it is? What if there are more cockroaches that we've lent to than we thought?" I mean, keep in mind, you have to remember that the IMF made it very clear that 90% of the lending going to these risky institutions, these inter these non-bank intermediary, you know, financing institutions comes from big banks.
So that means big banks are potentially the most at risk if we end up having stress on those underlying collateral values. That's why we saw Jeffre tank. JP Morgan still at all-time highs though. But often times people look at the repo facility say I don't know man. These could be signs that there are brewing underlying concerns about what's going on in the market.
It's probably one of the reasons why we've got uh the Bank of England saying there's a real risk of a quote sharp market correction. The IMF says that valuations are so above fundamentals that we do risk a disorderly unwind. Uh and that even Jamie Diamond says we might be entering bubble territory. All of that is fine.
Like people make bubble warnings and they create all these sort of like you know crash scenarios all the time. None of it usually happens unless there's a lack of cash. And part of this, in my opinion, all aligns. The repo facility is showing liquidity in crisis. There's not enough money at the biggest institutions.
They're panic borrowing from the Federal Reserve. That's one. Number two, you're seeing a slowdown in Bitcoin. usually when we have excess liquidity, we see Bitcoin absolutely kill it, but we're seeing the opposite right now. Now, of course, you know, we do have idiosyncratic movements as well. I mean, obviously, uh something that we're anticipating in the alpha report uh in the course membership is that Tesla might knock on the door of $490.
I think that'll be a psychological barrier, but also an all-time high barrier and a technical barrier once this vote passes for Tesla. I anticipate that the vote will pass. If it doesn't, I think 414 is in play and we might even lose 414. But I I do anticipate this will pass. And so I think that's why Tesla is sort of prefront running this event.
Uh and then of course it's no surprise that when we get sort of these idiosyncratic uh news deals like what you see with Rare Earths, you end up getting sell-offs continue on stocks like MP Material, which my target for MP Material is $31. I hate to say it, but we talked about this in the alpha report back when we were at 65 and 70.
We said in the alpha report, hey, MP material might be going to 100 bucks. Now, we're saying we peak out at 100 bucks, which is exactly what happened. We said that before it happened. It happened. Now, our target's $31 on MP material. I think it's just going to be too long for us to get revenues over here.
And people are looking for cash. This is why it all relates is in order for people to keep chasing plays like who knows, Palanteer reports earnings today. We'll see. We talked about that in uh our course member live stream this morning as well. But beyond that, people need cash. So in order for people to go chase the trend that's going on at Amazon and this enthusiasm we're seeing, this recent enthusiasm that we've seen at AMD, in order for people to keep chasing Nvidia up, they need to raise capital from somewhere.
Where do they raise capital? In my opinion, one of the places is Bitcoin. And it all comes down to a lack of cash, which does make us somewhat sensitive to a potential correction in the near term. Now, when does that correction come? In my opinion, the biggest risk for a correction isn't tomorrow. It's actually when the government reopens.
Now, I anticipate that the government will reopen before Thanksgiving. I do not think that they want air traffic controllers gone for the biggest travel week in the entire year and Black Friday sales, which you know, the economy really relies on the consumer and consumers have been weak. So, do you really want to screw that up?
I don't think so. But I actually think that's the biggest negative catalyst we have is the government reopening because then we actually start getting real data again. Now, we'll get the ADP report here on Wednesday and we'll be covering it obviously, but there's a lot of focus on where is the money.
Obviously, layoffs, we're going to see are are these layoffs going to show up? This will be a big deal because ADP is a contractor for Amazon. So, we'll see the payrolls data from Amazon probably show up in the October report, assuming some of those layoffs have not just been announced, but have actually started actually showing up on like payrolls data.
But Starbucks firing 900, Target 1,800, Amazon 14 to 30,000 because it's as many as 30,000, Paramount 1,000, Wilson Kors 400. These are all issues. At the same time, you've got people like Goulsby saying, I don't know, man. You know, inflation's still a concern. Nah, I don't think so. I think you've still got room to run between now and the end of the year.
Uh I do think you have a negative catalyst with uh the the uh uh you know government reopening but broadly earnings are good, jobs data still good, but we're getting early warning signs that people are just straight up running out of money. Okay, that's basically what's going on here. People are out of freaking money.
And I think as a result of this, some people are starting to sell some assets like Bitcoin. That's my take. You know, we're seeing selling pressure there obviously. You know, Bloomberg this morning, they had a piece about how they think that uh Bitcoin is actually going to fall under a 100,000. They're going to break right through 100,000 and fall below it.
Uh that was in the Market Live blog. But um you know, I'm not trying to be a Bitcoin bear. I'm just saying I think people are selling to be able to go buy some other stuff that they want to diversify into because there's just no other money. So, you have to sell some assets. I think that's what's happening.
That's why you got the MP selloff. That's why you're going to keep seeing sell-offs in in well certainly in scams like old five. I mean old five the only reason old five goes up is be in my opinion because insiders stop selling and then as soon as it goes up again a little bit it tanks again down another 13%.
My price target by the way on this one is delisted zero is my price target on this. I've been bearish on this since seven or eight dollars this because mostly because I think it's a scam my opinion. Don't sue me bro. But anyway, what matters now is let's listen to the Austin Goulsby interview. I do want to quickly shout out that House Hack has had its most insane 3-day fundraising in just the last 3 days.
Like the last 3 days, I think we're at like half a million dollars. We fundraised, I think it was close to 14 or 15. I can look at the exact numbers, but it was either 1.4 $1.5 million in October, which is great. But in the last 3 days, we raised nearly another half million dollars, which then if you like I I don't expect we would multiply that over the month.
But then you you compare that sort of to a month basis. Like the rate of fundraising is insane. So I just wanted to give a quick little update on that. also now ack.com, read the solicitation, read the offering circular. But I just wanted to thank the audience here and I want you to know that my my goal is to make this like I want to take Warren Buffett's torch and make this Berkshire Hathaway uh for the next, you know, 70 years.
I want to grow this puppy. Maybe we'll do annual shareholder events like uh like Birkshshire over time. But anyway, let's listen to Foolsby over here and we'll add some commentary on to what he's fooling about. The policy meeting that you were somewhat uneasy about frontloading rate cuts based solely on slowing payroll growth and that at the same time inflation had been moving in the wrong direction and just counting on inflation to be transitory made you uneasy.
So why did you vote in favor of cutting rates last week? Was there anything that changed? Do they all got pressured? I'm convinced they all got pressured. Schmidt had the balls to vote no. But Hammock, uh, Bostic, uh, uh, and and many of the others are just like, you know, I didn't want to, but I did anyway.
Uh, like you weanie babies. That caused you to want to take out more insurance. Well, before the last meeting, not not this not this November meeting, but in September, um my we we issue the the statement of economic projections, our dot plot projections of where the economy is going to be and where rates are going to be.
It's actually a summary of economic projections. I'll give him a pass on that because he's kind of like newer on the board of last year and at that time I thought there would be two rate cuts for the year. I'm balancing off two things. One, as you know, I believe that the the place rates will ultimately settle is a fair bit below where we are today.
And as long as we can get the dust out of the air, I still think that golden path is possible. And I'm trying to weigh that off with these concerns about frontloading, especially when we have the data shut down. We're getting some information about the job market and we have very little private sector information about inflation.
So, uh I think we want to be wary, but I'm still just trying to balance those off. I will say the the data we got this morning, by the way, was not bad. Uh it was a little mixed. Uh but I I would say it leaned bullish, right? I mean like S&P Global Manufacturing this morning, fastest demand growth in 20 months and the pricing data while it was still growing, it grew slower than expected, which is good.
Lower basically inflation than expected and employment growth was modest. That was the S&P Global, which this one leans definitely bullish, although they do talk about an unprecedented rise in unsold inventory, which could trigger a down move in manufacturing. That was S&P. ISM was a little more bearish.
Uh, new orders contracted for a second month in October following one month of growth. Backlog index rose blah blah blah. Again, also a mixed report. Like if you zoom into it and read it, it's kind of like, h, okay, this isn't like nothing is telling us we're falling off a cliff. Labor data doesn't say we're falling off a cliff.
Earnings certainly don't say we're falling off a cliff. Uh, uh, you know, these these um manufacturing surveys don't say we're falling off a cliff. I get why the Fed is cautious. The biggest concern, like red flag to pay attention to right now is liquidity. I actually think they should they got to turn off the vacuum cleaner early.
And they might do that because if they don't, you risk a shock right around the same time as the government reopens. So like part of me is like if I want to trim stock, I'm kind of tempted to do so like almost right before the government reopens. If if you wanted to trim stock, all right, I'm not I'm not saying that as a way of saying like, oh, you know, you sell or whatever.
I'm saying that as a way if if you are looking to why do you sell stock? You would sell stock if you want to diversify. You know, a lot of people they look at their portfolios, they're like, dude, I've had such runners on some of these stocks. I'm going to diversify, you know, and I'm not saying that's, oh, go invest in house hack or whatever.
It's like maybe you want to buy a different stock or you whatever you want to buy a house or you want to pay down some debt, right? Like those are all reasonable reasons to sell stock or you've got some tax liabilities, right? Like maybe you made a killing this year and you invested in the stocks and you made even more of a killing.
Uh and and then you're like, "All right, well now I got to pay taxes in in 2026, so I'm going to trim a little bit for taxes." Those are reasonable things to do. Like I'm going to have a massive tax bill. And that's okay, but that doesn't make me bearish. It just means I'll take some good opportunities and trim a little bit.
You know, why not? Anyway, let's keep going here. Kevin, you must hit play. Apparently, you can't use the space bar on Yahoo. Not much changed since the since the September SCPs. Um, and so I I I had no problem with that. So, Austin, you're saying you're trying to sort of look through uh all this dust waiting for
in other words, no big red flags yet. Okay, fine. Ghoulsby, give us some more. Give me talk dirty to me. Goulby press conference that there's a feeling that you've cut twice and you're now 150 basis points closer to neutral than you were a year. Yeah. Somebody here in the chat says with so many layoffs I don't see how the jobs numbers can't go up.
Yeah. I mean remember the 27w week unemployed thing is a concerning chart. The thing it's all about absorption though. It's not just about layoffs. You have to think about the process of layoffs. It's layoffs can get announced in October, but that doesn't mean the data is going to show up in October.
It is entirely possible that these people get a severance. They don't end up filing for unemployment until January. And it just sort of butters out when they apply for unemployment. And as long as they get absorbed somewhere else, it's good. So, you can have layoff announcements, as long as they get a job somewhere else, it's good.
But we don't we don't know that yet, right? So just using layoff announcements that ain't going to cut it. Perhaps maybe you should wait. Are you one of the chorus? I I don't I'm not supposed to say anything about what other folks say in in my mind, as you know, I am uneasy with frontloading rate cuts.
I do believe rates will come down, but in a way rates should come down with inflation. We've got to if we're just going to count on the inflation that we've seen here where the last three months core inflation is running 3.6% at an annualized rate and core services I think are running close to 4% as annualized rate for the last three months.
That's worrying because that's going the wrong way. If we're just counting on that to go away because it's transitory that makes me uneasy. So, I I'm I'm not decided for for what I think about the next meeting. And we are still going to get at least some private sector observations and the Chicago Fed's labor market indicators telling us some about the job market.
We're probably not going to get much on the inflation side. So, I am a little wary. and my my threshold for for cutting is and and mind you he's referring to the 12 month uh data right the 12 month or or the annualized three-month data so you know what you could do here is you could kind of look at Nick T and Nick T usually gives us good charts I'll go ahead and pull it up while he keeps yapping but multiplying by four is essentially what he's doing in the last 3 months of data Powell downplays this so he's more of a hawk here on inflation than power was
higher than uh than it was at in the last two meetings. So to your point, Fed Chair Pal used the analogy of when it's foggy, you want to slow down, become a little bit more cautious. Is that a fair characterization for you and how are you viewing the balance of risks? Uh fully recognizing that we haven't had official data uh on the labor market side because of the government shutdown.
Sounds like you may be more worried about inflation than employment now when you look at the balance of risks. I've been a little more worried about inflation than the job market in the if you think of it as a balance of risk for the reason that other than payroll job growth. If you look at things like the unemployment rate or other rates that are less affected by population uh changes or immigration policy, those things have been pretty stable for some time.
If you look over the last 12 months, the unemployment rate has not been going up. We haven't seen a big uptick in layoffs, which if this were the beginning of recession or deterioration of the labor market that was rapid, you would expect to see higher layoffs or firing. We haven't seen that. I I feel like that's such an awkward thing to say right after Amazon just announced 14 to 30,000 layoffs.
Target, Molson course, uh, you know, and a lot of companies. So, it's a little awkward. I know those numbers haven't shown up yet, but I'm surprised he's not like at least saying something like, "Well, but I mean, that could change." So, we're watching it. Like, no hedging there at all. Here's the screenshot that I was going to pull up.
This is what he's referring to with inflation, just so you know. So, this is the threemonth rate, but it's multiplied by four, so it's annualized. And so what he's referring to if I grab an arrow here is see this core services xousing level right here that has moved up very nicely which isn't great in fairness on this 3month it's extremely volatile.
So, I I think you could take that with a little bit of a grain of salt because if I put sort of a line through, I don't know, maybe like a line of best fit over here. You could see it has been trending up and this goes all the way back to 2018, but it's not that unusual. And in fact, if you just draw the line since the pandemic, it's kind of doing this, right?
This would probably be a better best fit right there. That would be for the light blue color. housing inflation is basically going straight down. And then this is where you're seeing tariffs, right? So Powell tells you this line right here is because of tariffs and that's going to be transitory. Powell says the housing component is coming straight down.
And while core services exhousing are up, they're also trending down. So you can kind of see how these two people are interpreting the same damn chart in different ways, which is just annoying. I personally lean towards the uh uh you know this idea that over the next 10 years we're going to see massive disinflation if not even deflation just because the economy will continue to slow bleed not necessarily fall off a cliff.
There's still concerns on that side and as you say we're going to get some private sector data so we can at least keep observing that. But I I just want to emphasize be very careful at moments of transition where you're trying to figure out whether the economy is turning relying too heavily on 12 month backwardlooking numbers like the 12 month trailing inflation.
every each month we get a number and 11 of the months we already talking up why I'm using three month annualized the last three months inflation is not going down but is instead going up including in some categories that are not driven by tariffs like services those are areas of concern and so that's that's a little bit you know
right and we saw that downtrend the longer term downtrend on it sitting in your front yard. So, before you let Fluffy out to go run around, just let's at least get one more look. All right. Well, aside from Fluffy, I do want to come back to the job market because yes, payroll growth did slow over the summer months and since then you sort of have been in the dark as far as official data.
But last week, we saw some somebody has a good question here. They say, "Hey, Kevin, that Renovo company going bankrupt being backed by private equity, was that another squeeze for cash?" Typically, what happens? Okay, I'm just going to give you a quick example of how how quickly poop hits the fan. And this is why the repo market and that liquidity constraint matters.
Okay, I'm going to make this really simple. I'm going to make it so simple. I remember I need to get a whiteboard. Who remember who was here for the whiteboard days? Maybe this is a bad idea. Uh, but I feel like it's fun. All right, cuz so here's here's how this works. I'm going to take this beautiful meat Kevin pad here and I want you to pretend this.
Okay, I want you to pretend that I'm a contractor and I have a $10 million business line of credit, also known as a block. Okay, let's assume I have a $10 million business line of credit and that's what I use to pay my employees. This is how a lot of contracting firms work. and that Renovo firm that went bankrupt that was like a roll up of like six or seven different succ different different companies.
Um they might use individually many different business lines of credit to support their business operations. And so what happens is if you know like you go you basically send your workers to go work then they do their work and then you bill your clients. And if the clients are slow at billing you have to rely on lines of credit just to survive in construction.
Construction is a very very expensive business. Very easy to go bankrupt in construction. The problem is when banks start having concerns about underlying companies, banks start closing lines of credit. That's the worst case scenario. If there is a credit crunch where all of a sudden banks widely start saying, "Yeah, you have a line of credit.
Um, good one, bro. Hey, uh, your line of credit, it's going to be gone in the next 30 days." Banks do this. Banks do this when they start panicking, when they start getting nervous and they have the right to do that. They have the right to rugpool you. What happens? Well, the underlying businesses go, "Well, I guess we're going bankrupt then.
So, where else are you going to get debt?" You know, those the lines, it's always debt. Every recessionary cycle is debt. There's a reason why Kevin is debtree right now. Major layoff announcements from the likes of Amazon to UPS. Uh if you did look at private sector data, ADP's measure turned negative for the month of September.
We're going to get a another uh measure uh this coming Wednesday. In the Beige book revealed that employers are looking at cutting headcount either through attrition or layoffs uh due to policy uncertainty, weaker demand and AI. Does that not worry you? Do you think that perhaps payroll growth has decelerated further since you have gotten official data?
It might have and and that's why, as I say, I'm not decided going into the next meeting. I want to see how things are playing out. I do think the public announcements of layoffs, you would expect if that is an immediate business cycle driven matter that you would start to see an uptick in the official unemployment insurance statistics or or the layoff statistics or you would get war act type data um of that.
It's lagging. Bro Goulsby, you should know this. You of all people, you work at the Federal Reserve, you should know this. Unemployment claims peak after the recession is over. Think about what I just said here. Unemployment claims, so you know, initial claims for unemployment, they hit peak after the recession ends.
Kind of crazy, right? Look at it. Watch this. Look at this. 1970s peak unemployment claims at the end of a recession. Peak unemployment claims end of recession. Peak unemployment claims end of recession. Peak of unemployment claims end of recession. Here, at least in the dotcom bubble, we had a rise of unemployment claims going into the recession.
Guess where the peak was? After recession. Guess where the peak was in 2008? At the end of the recession. So, like that's the biggest concern right now is that you have people literally at the Federal Reserve who are like, "Well, I mean, unemployment claims aren't going up yet." Yes, we know that. But we also have to remember even though the stock market loves this lagging data because it gives us more reason to be euphoric, once it starts going up, you're actually probably at a worse point in or you're deeper into the recession than you actually realize.
And this is why Donald Trump will probably be correct that the Fed's too late. That would give you a little bit of a heads up of what was coming in the job market. I do think the hiring rate is low. That's that's among the weakest things in the economy at the moment and that's made it particularly tough for new graduates and young people.
But a low hiring, lowfiring economy is unusual. That's the kind of economy that you expect when there's a lot of uncertainty. Normally in the business cycle, you would have low hiring, highfiring or low firing, high hiring. When you get uncertainty, both of those go up as people kind of pull back and say they want to wait to see how things are going before they make decisions.
this whole second part of what's going on in the job market if it is being driven by AI if it is concentrated in the tech sector that doesn't feel as much like the business cycle to me and economic stabilization that feels like more of a structural shift in what sectors are going to be employing people.
So we'd have to think through what does that imply for monetary policy that's a little different than than if you were afraid that we were going into recession. Yeah. So to your point, what is all of this telling you about the outlook for the economy in a cyclical sense, right? Not a structural sense because that is what you have control over at the Federal Reserve.
Perhaps are we at a turning point in the economy given what we're seeing in private sector job market data that GDP data is not yet reflecting possible. Look that I always say one of the hardest things the central bank ever has to do is get the timing right on on moments of transition. And that's especially difficult w if you have squished bugs covering the windshield and you can't see whether you're still on the road be and when they shut down the the data the official data um that that's the circumstance we're in.
So I I don't I don't know that it's decided. Uh I'm I'm not decided going into the December meeting. I am nervous about the inflation side of the ledger where you've seen inflation above the target for four and a half years and it's trending the wrong way. I believe on the other side rates can come down a fair amount.
It would probably be most judicious to have the rates come down with inflation. So, let's get some observations that document that inflation is coming down and that the uptick we've seen is transitory. Um, but we got to weigh that off. If the job market starts to deteriorate in a in a more significant way, then that would change the balance of risk.
Yeah. Yeah, the Treasury Secretary Scott in In other words, if as soon basically what they're saying is as soon as they start actually seeing some of the unemployment data coming back coming bad, they're going to cut hard. I agree with that. Uh in terms of like I agree that they're going to do that.
Uh and then it makes you wonder like do you start prepositioning some of your portfolio for that eventuality? I don't know. That's that's the tougher thing. Those are the things we talked about in the alpha report. Besson said yesterday that he believes that parts of our economy, particularly housing, may be in a recession already.
Sounds like you may disagent interview where Bessant yesterday said, "Oh yeah, parts of the economy are in recession or maybe going into a recession." Uh, you could even see it. I think it was the just the very last minute. Uh it was he was broadly optimistic. So I don't want to you know I don't want people to feel like there's any misleading on what he said.
He was broadly optimistic. Joining us now the video towards the end he was pretty clear. You know we've seen the the biggest hindrance for housing here that [clears throat] is are mortgage rates. So you know if the Fed brings down mortgage rates then they can end this housing recession. low-income consumers who have gotten killed under President Biden, the these high rates are hurting them because they have debt, not assets.
So, I think that there are sections of the economy that could go into recession. Yeah, that was the big warning there. It's like, hey, you know, housing's in in certainly a volume recession, right? Not necessarily a price recession. That depends on which market you're in. Uh many markets are doing just fine.
in some markets, Texas, Florida, not doing so well, but uh it basically saying, yeah, like you know, some of this with the consumer struggle could worsen if we don't cut rates more. Fed Daily right now was talking about this as well. She says, I supported the rate cut and the 50 basis points that we have done so far makes us better positioned and I have an open mind for December.
So, you have some, you know, it seems like they're all just basically waiting for this ADP data now uh and and at the beginning of December. So the next two ADP data sets, hopefully the job market reopen or the labor government reopens and we actually get our BLS data. Those are going to guide your December rate cut.
Honestly, if you get bad data, you'll end up getting two you'll get you'll get a 50 to a 75 basis point cut. Agree with that? What are your thoughts on that? Uh well, I I I think he's he's right that the housing construction sector's been weak. It has been weak now for some time. The kind of the three most interest rate sensitive parts of the economy usually that give you a sense of the business cycle are housing, consumer durables, and business investment.
I think he's right to highlight housing's been weak. Consumer durables have been pretty resilient. Um and and you saw as you said the GDP numbers coming in and and consumer spending coming in pretty solid and businesses investment has been kind of off the chain. Now much of that driven by the AI boom so that might not be cyclical but the interest rate sensitive parts of the economy don't feel like they overwhelmingly point to that we're in a slowdown.
I think that the economy has been pretty strong. The economy is is pretty solid and has been there's weakness in sectors and anybody who's dependent on intermediate goods that the tariffs are applying to has been suffering. But other parts of the economy continue to grow and overall consumer spending remains the main driver of solidity.
Is that yeah of of the solidness of of the economy has been based on consumer confidence. Well, Austin, unfortunately, we're out of time. So, this gives you a really big overview on the liquidity crisis that is starting. That's what we're seeing at Bitcoin. It gives you insight into why Besson warns that some sectors of the economy could be going into recession.
It gives you ghouls fooling us on his reading of the inflation chart. It also shows you how backward-looking the Fed is as well as major catalyst for this Wednesday. I guess if I would put a conclusion on all of it, I would say look, obviously since liberation day, we have absolutely been crushing it in the economy.
Trailing stops essentially haven't gotten triggered. We bounced perfectly off the 630 line. I mean, within 15 cents, that's basically perfect here on the cues. Earnings are absolutely crushing it. Like things overall feel good, especially at great companies and great parts of the American economy. There are many portions of the American economy that are just really suffering.
Look at Dave and Busters. Look at Nphase. Like some of these are just really bad. I mean, Target, some of these stocks are just going back to uh COVID lows. So, it is really a two-tier economy. You really don't want to bet on consumer discretionaries right now. You really want to focus on where the money is being made.
But there are already red flags starting to pop up that indicate we might be starting to run into a credit crisis with Fed liquidity problems. When that credit crisis hits, it usually hurts a whole lot faster than people think. Uh credit credit problems and freezing of credit lines or margin calls or whatever usually happen way faster than people think.
And that's why I always say I think there's there's you can never get hurt paying off debt, taking some money off the table, and just being cautious. You know, let let you know your long-term stuff ride, but derisk a little bit, diversify a little bit. CK Jordan, uh, no, you're actually totally wrong.
CK Jordan says, "Kevin has been on the recession train the past three years." No, you're actually entirely wrong. Let's be very clear about this. At the end of 2022, I said we were going to have a Nike swoosh recovery that would probably end in euphoria, which is exactly what happened. In fairness, I started getting nervous about the labor market last year.
That's different than the last 3 years. That's very important because the Nike swoosh has really played out exceptionally well. And if you look at what we said in 2022, we said we'd probably have a Nike swoosh recovery with a euphoric end. I hate to say it, but look at what we're starting to get over here.
A little scary because you're actually breaking above that Nike swoosh trend. You're getting that euphoric kind of tip. That's also a red flag. Important to remember tha.
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