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is Jerome pow playing a scop on us good old jpw from the Federal Reserve gave us a rug tug yesterday not a rug pole we were expecting a rug tug not a rug pole but we were wrong in where that tug came from we got a little tuggin on the long end of the curve not on the shorter end where we're were expecting to see some revision up but is this potentially all part of drum Powell's sop today the day after the FED meeting we consider exactly that see one of the things that was driving me to believe that we would get a rug tug not a pole because fed doesn't want to have to dramatically cut we did talk about that beforehand but one of the reasons that led us to this conclusion was the financial conditions chart look at this very closely when you see the red line you could see that the federal funds rate skyrocketed and initially the financial conditions via the Bloomberg Financial conditions index in this chart Rose in line with the FED funds rate this makes sense but what has happened since then well even if you take out the banking crisis over here you could see that since about the uh third quarter of 2022 Financial conditions have actually loosened substantially we've come straight down on financial conditions and so this led me to think japal might want to tighten these up a little bit how could we be standing at levels as low as 2014 and 2018 when inflation was running at 1.7% and we were trying to prop up inflation not prop down inflation how could we not tilt hawkish well we were wrong jout did not tilt hawkish and so the question is why why did he not tilt hawkish on the short term and only gave us a little rug tuggin on that long term why is that well one of the reasons he could be doing this is psychological by keeping the FED funds rates stable for longer as re heard he's prepared to keep these rates high at this level for the foreseeable future at 5 and A4 to 5 a half% what we're doing is we're sending a signal to people that psychologically says the FED is fighting inflation but what is the Fed doing at the same time they're propping up the economy and jobs by allowing Financial conditions to loosen that's the only explanation I could think of here is that psychologically he's doing this he's going to face I'm fighting inflation and over here he's got like the there's like a fire and it's the economy and jobs and he's pouring gas on it so he's kind of like see see look I'm fighting inflation I'm fighting inflation and he he's actually purposefully trying to stoke the fire of the economy to stick the soft Landing remember that's what gets jpow his statue in people's front yards is solving inflation while not having a recession you kill the fire over here yes inflation will go away but then you've killed the economy and then you have massive joblessness which is bad so what do you do instead you try to stoke this in the background and in the foreground what do you do you fight inflation oh fighting inflation fighting inflation basically it's the perfect scop the same is true with quantitive tightening slowing okay now that's a fancy phrase you don't have to so much worry about that but the slowing of QT coming is another way of actually loosening Financial conditions even more and so now I'm starting to think oh my gosh I think this is the plot all along this is the point pretend you're fighting inflation which that hurts interest ratees sensitive stocks we know that at the same time purposefully Drive Financial conditions looser what does that do it leads to more lending more stock buying pressure more Bond buying pressure more business spending more credit more Deb uh debt and bond buying pressure is useful because the treasury keeps issuing so they can give billion dollar grants to Intel and other companies and fund these exploding deficits so as they say don't fight the fed and the FED yesterday proved to me that the Nike Swoosh can hold now that doesn't help interest rate sensitive stocks right we we wrote that here at ec.com remember I like posting our research and our company sort of news updates over on eack you could see that for uh free uh down in the SE fed section in green but anyway what are the next catalysts and what is this really mean for us from a practical point of view well if the Nike Swoosh can continue then from a practical point of view what it is or what we're hearing is the Federal Reserve will continue to prop up probably your mag 6 your apples your Microsoft your Google your chip makers your chip designers your Nvidia the economy can keep booming on that note Maybe even your SAS businesses you can keep booming the companies with earnings that are growing can keep booming the companies with negative earnings are the ones getting whacked in fact if you look at cumulative returns in the S&P 1500 and you compare them between uh again those companies with negative earnings and momentum stocks or companies with growing return on Equity what do you getting well you're getting a very clear Divergence momentum or return on Equity stocks are Absolut Ely killing it whereas any kind of negative earnings company is getting destroyed what kind of companies have negative earnings well mostly small caps that are getting buried under the weight of high interest rates or large caps that medium and large caps which are interest rat sensitive where their customers get buried under high interest rates and so that leads to negative earnings when we hear about negative earnings or potentially negative uh uh deliveries for Teslas or or whatever people start start pricing that in by going short those stocks oopsy dupsies now when it comes to something like apple for example I've personally been really tempted to buy the dip I'm not too worried about the doj suit because it really what it says is Apple is winning now 31% of Apple's bottom line does come from services and a good chunk of that comes from the app store they do still make most of their money from products and so yes forcing some kind of reduction in Services uh potential Revenue here could hurt Apple but I think a 3.6% sell-off where we sit right now it's a potential buy the dip opportunity I've been thinking about buying the dip on Apple but then it ran up to 178 and I'm like hm now it's back to 172 pretty close to that 169 170 floor or or support level we've seen tempting but anyway uh and keep in mind if you want alerts for all of my trades buy sells you name it longterm short-term whatever it is make sure to join the stocks and psychology of money Group which uh we have a increase on tomorrow evening at midnight so get in before 11:59 and if you have questions email us at staff meetkevin.com for bundle up inquiries but anyway this financial conditions scop I think is something that we really have to internalize as okay the FED doesn't need to help interest rate sensitive stocks and at the same time they can help all of the other Stocks by fueling the fire of loosening Financial condition the buy now pay laters the financials the paypals the affirms the targets the Macy's the Home Depot it doesn't matter you can literally support everything except the interest rate sensitive stocks and and you still send the signal the psychological signal that you are fighting inflation because that's what you're doing you're sending the message at the same time QT slowing and the loosening of financial conditions not even getting a mention by JP well other than like oh yeah Financial conditions are helping tighten inflation really bro have you looked at the financial conditions chart they're not helping maybe it is just all supply side either way pay attention to that next Catalyst to pay attention to uh the next pce and CPI reports are going to be particularly important as well as the jobs report maybe less so pce I'd probably put in more on jols jobs and CPI that's April 2nd 5th and 10th the reason for that is they are either going to prove that drum pow was right to dismiss January February or wrong and that will change everything for the May 1st fed meeting so mark your calendar for those dates obviously I'll be live streaming all of those uh so and and I live stream those some people aren't aware but I live stream them on the meet Kevin live channel so if you haven't gone to meet Kevin live it's a different Channel and that's where I live stream all these generally at about 5:25 in the morning uh every day the market is open it's realistically more like 5:26 a.m.
but uh yeah so anyway uh thank you so much for watching what do you think is this just the FED sop is this all part of the plan because I don't think we can be kidding ourselves that jpow is unaware of the shenanigans that are going on here I think he knows damn well what he's doing and I think he's doing it on purpose to prop up GDP while saying don't worry we can have a stronger GDP while inflation is falling
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