원문 보기
Chimoth, also known as Chpock because he spacked a bunch of businesses that in aggregate lost a whole lot of money, including Virgin Galactic, Open Door, amongst others, speculates that the Federal Reserve may raise interest rates. In this video, I'm going to explain what the Federal Reserve is actually likely to do.
We're going to keep this video short because I'm not feeling my best. If you want to invest, go to houseack.com. Earn a 5% yield and all the upside in the stock with what we do with the company. Man, that rhymed. I didn't even plan that. That was great. Anyway, let's get started. First, there are two sides of this debate.
On one side of this debate, we have people who argue the Federal Reserve needs to raise rates. And the argument that they give for raising rates, we'll just put it on screen here. All right. The argument for raising rates is stimulative tax cuts uh and uh high inflation from tariffs. All right, simple argument.
Okay. Second, there are people who argue that the Federal Reserve is too late and needs to cut. Unfortunately, I think both of these people, these groups of people do not understand how the Federal Reserve operates. It's fine. I'm here to help you understand that. So, enjoy my pixelated text raise. Oh, the tax cuts are stimulative.
Oh, we're going to have high inflation from tariffs. more on the cut side. economy slowing uh tariffs will slow GDP more and uh this will lead to a deflationary potential crash uh on top of uh a weak labor market and uh and then of course um uh you know low pricing power at companies right small PP okay the thing is both of these sides are correct once data breaks.
You have to remember right now we do not as a federal like looking at this from the point of view of a Federal Reserve or the Federal Reserve. We do not have any delta. Okay, Delta is very different from alpha. Don't don't get confused with the alpha report and the coupon code expiring this week because we're raising the prices a lot on the alpha report as we come out with the app that makes it pretty epic for you to see my stock opinion at any given time and my valuations for them.
It's okay. That's coming out soon. Delta is basically just the difference, right? This is what the Federal Reserve cares about. The Federal Reserve does not care about your opinion about whether or not there's going to be a crash or a slowing economy. The Federal Reserve does not care if you think the tax cuts are going to be stimulative.
In fact, the tax cuts are not necessarily going to be stimulative at all given the fact that we're just extending the 2017 tax cuts. And yes, we are returning the 179 deductions uh for certain products, uh, you know, uh, such as investments such as machinery, which is great for chip manufacturers, uh, certain investments such as aircraft or real estate products that can be cost segregated.
Great. But again, broadly, the tax plan is an extension of the 2017 tax cuts along with some additional items. No taxes on cash tips. Cash tips likely weren't declared anyway, so I'm not sure exactly how stimulative that is. Uh, and then overtime pay. All right. Yes, there are some extra things in there that are going to increase the budget deficit that are going to unfortunately uh lead to pain when it comes to the deficit.
But will they be mega stimulative like what we saw during co? No. Will they be somewhat stimulative? Yes. Now, does any of this matter? Does even my opinion on this matter? No. Because what matters to the Federal Reserve is the delta. In other words, what is the change in the economy's growth in inflation and the labor market?
And so far, I'll make this as clear as possible. The change or the delta that the Federal Reserve sees in markets is a big fat zero. So in other words, until we have change, the Federal Reserve doesn't know whether that stasis zombie is in his sort of vat floating around is going to have his vat broken and shattered and he's going to fall out on the floor dead because the economy is dead or is going to break out of the top of it because he's so strong and he's fully matured and he's been overstimulated.
He's going to take over the world with pain. That's what the Federal Reserve responds to. Until we have a delta of zero, the Fed doesn't care. Instead, the Federal Reserve will look at this. Oh my gosh, look at that. I wrote all of that on the very chart I was going to reference. Isn't that almost like a sign?
Yes, all of this is the noise. Until the delta changes, that's redundant. Until there is a meaningful delta, the Federal Reserve will pay attention to this. What is this? This is a fiveyear forward inflation chart. It's basically the difference between the 5-year Treasury yield and the 5-year inflation protected Treasury or TIP security.
You don't need to worry about that. Don't calculate it. Just look at the damn chart. Okay? Guess when the Federal Reserve is cutting rates. I'm going to try to make this really simple. So, I'm going to take a giant oval for green. when the Federal Reserve is in a cutting mindset. I think this should be pretty damn obvious.
Okay, this is when the Federal Reserve is in either a cutting or a halting mindset. Very simple. You get it? All right. When is the Federal Reserve in a hiking mindset? In other words, they're hiking rates because they're worried that uh inflation is getting away. Okay, do you get the picture? Hiking.
This is when the hiking trajectories start. And the Federal Reserve's goal is to try to keep inflation expectations. Oh, I hate it when it does that. Uh stable. And we can't even get a change in inflation expectations right now because frankly there's so little change for the Federal Reserve to respond to.
And that's what drives the Federal Reserve nuts is if you look at inflation expectations, look at how flat we basically are in this tight range over here. This is not an indication that inflation expectations are running away and that the Federal Reserve needs to panic and hike. It is not a sign that we are in a crash and the Federal Reserve needs to cut rates to zero.
This is where people go, "Oh, well, isn't it oddly convenient that the Federal Reserve cut rates right before the election?" If you look at the labor data that was collapsing in June and July, it's where a lot of people went bearish in July and then of course we had our Japanese uh carry trade crisis in August.
If you look at the labor market of those months is really bad. Federal Reserve was responding to a delta to a change. That delta was partly revised away and then partly grown away by frankly election enthusiasm. So what are we left with? Well, we're left with an environment where yes, the Federal Reserve because cut because it looked like we were going to break well below this because you combine the change in the labor market with the low end to the 5-year inflation expectations.
No surprise. Fed cuts. What do we have right now? No expectations of that. We're not even at the low end of that. And even though we were ticking on over here at the higher end of this, our inflation numbers, CPI, PPI, and the PCE numbers were coming in low. In fact, the only reason they're coming in even slightly positive could potentially be because of some of the pull forward of tariffs.
Otherwise, they would have likely been coming in negative and the Federal Reserve would have been likely to respond with rate cuts. But for now, again, no delta of data. So this idea that, oh my gosh, the Federal Reserve needs to do anything is actually a very American bias. It's an American action bias, I like to call it.
It assumes that the Federal Reserve always needs to do something. Sometimes, and you need to understand this if you're a long-term investor as well, sometimes the best thing to do is nothing. Sometimes the best thing to do is just wait. That is what we were doing with House Hack. And when something goes poopy dupy, in the event something goes poopy dupy, let's say the Federal Reserve comes in and cuts rates to zero because there's some kind of panic, we're immediately going to end our 5% bond fundraiser because we're going to be able to finance a bunch of real estate really dang cheap.
And we don't need to pay 5% anymore. Of course, we still will to the people who have the bonds through conversions. But the point is, you don't actually have to do anything with your investments while you're waiting for the Fed or speculating on the Fed. Let's listen for a moment to what Champsack has to say and I'll add some commentary.
Unfortunately for President Trump's agenda and for a MAGA movement, this is the worst of all conditions. The financial markets will punish this. The political calculus will be for the president to decide how much credit he actually wants to take for this bill. I don't actually think financial markets are going to punish Donald Trump's bill.
If the market declines, it's likely because of a decline in growth expectations. But markets that is the stock market they like even marginal stimulus stimulus the 179 overtime tax on no you know the social security provisions which are really not really no tax on social security they're more like expanded deductions are being built in these are marginally stimulative earnings projections like a little bit of stimulus I think he's more referring to the bond market and this idea that the bond market will punish because we'll have a higher deficit for longer.
But the bond market breaks in the direction of recession, not in the direction of deficits in my opinion. We'll listen more because even though it has his name on it, the contents of the bill are different in actual facts than what I think he intended. And what I mean by that is when you look inside of what happened in the 11th hour last night, it's disappointing.
This thing is like antidoge. If Doge was meant to be a reflection of the American voting population's desire for meaningful reform in government, cost controls, some form of austerity, and to get this debt spiral in check, this is the opposite of that. What? Uh, let's also be clear. Many Americans voted for Donald Trump because they did not want Kla Harris, an unelected assigned party member.
Many Democrats were rightfully pissed off about that because, and you should be because that assignment of Kamla got the world Donald Trump. But I'm not convinced that everybody who voted for Donald Trump. There are some, but I'm not convinced that everybody who voted for Donald Trump voted for austerity.
Austerity sucks. What happened was in the 11th hour, you had a handful of people abstain. You had one person that passed away in the last few days. You had one person that fell asleep on the floor of the house. So, he wasn't even This is a little hyperbolic been woken up for the vote. And in the middle of all of that chaos, what happened was all kinds of things were added and attached and canled at the last minute because what happens is you have to have these puts and takes as Freeberg described.
If you want to spend over here, you have to find a cut over there. But I think what happened was there was really not a lot of financial literacy used to decide what to actually put in and what to cut. And that lack of discipline is going to create I think a negative set of consequences. That's why Congress is so dysfunctional.
I think it's really important to understand for a moment how Congress works. Okay, here's how Congress works. Let's say you're a representative. You need to get reelected in two years. You just blew all your money getting elected. How do you think you're going to get reelected? By raising more capital.
How can you get a promise of more money? Lobbyists. Lobbyists come to you and say, "Hey, Kevin, you want to get reelected? We'll help fund your reelection. We just need you to help us. We know this budget reconciliation bill is coming up. We um we pre-wrote a section we would like you to include. Don't bother reading it because um even if you do, if you change it, we ain't paying you next year.
Here you go. That's how Congress functions. And see, one of the reasons our founding fathers made it so complicated for Congress to do anything is to sort of prevent people from just staying in power forever and getting whatever policy through that they wanted. They wanted to make it difficult to actually get policy through.
One of the benefits of making it difficult to get policy through is frankly Congress ends up doing nothing. Which is part of my message. There are times in an investing career you just become a patient watcher. Be a reflection of the American voting spiral in check. Sorry, I backed up a little bit. It was in the 11th hour.
you had a hands were added and attached and cancelled at the last minute because what happens is you have to have these puts and takes as Freeberg described. If you want to spend over here, you have to find a cut over there. But I think what happened was there was really not a lot of financial literacy used to decide what to actually put in and what to cut.
And that lack of discipline is going to create I think a negative set of consequences. So what are those consequences? Today the tenure is around 4 1/2%. At the rate in which it's escalating since liberation day by the end of this year we're going to be past 5%. The 30-year is on a rate now to get past 6 and a4 maybe even reach 6 12%.
I know anybody can draw trend lines, but if you do this and continue on this trend, it's just a matter of time before something breaks to the downside and then people are going to be like, "Oh my gosh, the 10 year is 3%. Oh my gosh, the 10ear is 2 and a half%." Uh, yeah, cuz you're in a recession. Those are way beyond what most people thought was a reasonable place to be for the United States economy.
And so what will the implications be as rates go to those levels? You'll delever from the United States. You'll sell US debt. You'll own things like gold and Bitcoin if you're curious about what's happening to gold and Bitcoin. Uh by the way, this happens when you are actually concerned about the debt.
But usually what happens in a recession, the entire world goes into a recession and people aren't actually concerned about the debt anymore. They're concerned about surviving and they're like, "Please go into more debt." And so what then ends up happening is at least until the Federal Reserve bails everyone out, people flee to the Treasury bond market because out of assets across the world, at least the Treasury bond market is one that at the very for what it's worth promises to pay you back your capital at the end of your holding period for what that's worth.
Again, we can talk about inflation dynamics and sound money and all that stuff separately. But this is usually what happens in recessionary environments, right? We're just looking at at um risk and typically risk assets go down and they continue to go down until the Federal Reserve bails out markets and tells everybody that's okay to go buy risky assets again.
They started to spike in the last few days. You'll have ratings organizations that add to this cascade by downgrading the I think it's kind of also hilarious that Chimamoth is trying to imply that he's a profit. You're like, oh, you know, this is what you're going to see. You're going to see Bitcoin and gold to go up and you're going to see rating agencies decline.
Oh, by the way, both those happened the last two weeks. Anybody can read a chart and read the news headlines, my friend. the United States that happened on Friday. You'll have very smart people starting to signal that this is a much harder problem than they This is again reading the headline of Elon Musk complaining that it was a lot harder to cut debt from the government than he expected.
Initially thought that's how I personally interpreted Elon's comments over the last few days. So what was the House supposed to do? I think what they were supposed to do was implement some form of austerity. They were supposed to by the will of the people never going to happen pass a recision bill. They were given that recision bill.
It was just n and none of them would have gotten reelected. 9 billion. They couldn't even pass a $9 billion recision and instead they passed a $4 trillion inflation to our debt. Now you hand this to the Senate. The Senate is in a very difficult place. It's over $4 trillion over the next 10 years and now we're conflating inflation with an expanding debt.
I actually agree that the debt matters to the extent of how strong your economy is and as a percentage of your economy. Look, I'm a big fan of of controlling government spending too, but trying to take an axe and austerity is also just going to induce a recession. So kind of damned if you do, damned if you don't place as well.
Do they want to quote unquote claim victory and say, "Here you go, President Trump. Here's your bill. But they'll further bastardize this thing and it will be even further away from what I think benefits MAGA and benefits Main Street. So, who does it benefit? Current course and speed right now, this bill is about traditional Republicans and traditional Democrats.
Yeah. Circling the wagon and putting on a platter a set of things that I think will be hurtful to average Americans. You're going to see energy prices spike. You're gutting the number of electrons that will be available for things like AI. You're going to increase Medicare prices and the math is wrong.
So when you sensitize this thing to a 4 and a half or five or five and a quarter rate, so meaning not what the CBO used, but the real conditions on the ground, this thing is an albatross. And the last thing I'll say is now to top it all off, I think that Jerome Powell will see the writing on the wall.
No, many aspects of this thing are inflationary and if they're not handled well by the Senate, he has a lot of room to actually increase interest rates. So, I would just say that the Senate has an incredibly difficult job. I think the president has an even more difficult job about what to do right now.
But the House did nobody favors. They did not. Yeah. So, keep in mind, first of all, we addressed the drone Powell. He responds to Delta. But what we need to address is one of the reasons this albatross is able to get through is through budget reconciliation. It's really a way of saying that, hey, we don't want to get the budget bill held up, so we're going to pass something through reconciliation, which bypasses the filibuster in the Senate.
In English, you don't need 60 votes. You only need 51. So basically, Republicans or whoever's in power, Democrats had used this the last time, will essentially get everyone around, shove in everything that they can in this budget reconciliation bill. That's why it's expansionary because everybody's trying to get their reelecting meat into the bill because they know this bill has the highest likelihood of passing and this might be the only thing that ends up getting done, the only action before midterms.
which is kind of sad, but that's the way the system works. That's why everybody's trying to not circle their wagons, but hitch their wagons to this bill. So, look, I agree that the debt's a big problem. And I agree with Jerome Powell that it's unsustainable. I don't think what our economy is facing in the near term is while there's a lot of fear around the debt right now, the debt is still, I hate to say it, but sustainable at today's levels.
I think we need to get through the slowing economy first. And by raising interest rates, you're not actually inducing a soft landing. If you're going to raise interest rates and that plane comes in for a landing, you would actually just crash that plane into the runway and then it, you know, delta's over.
Who got that one? And then you have a real problem, which is not good. uh best case scenario, you actually come in for a soft landing and and you just you take off again. You go around and you just keep the economy going and you never actually have, you know, a hard landing or a recession. So, um this is why the Federal Reserve is poised to wait.
And this idea that oh, you know, when you see people come, oh, the Fed's going to be too late, they need to cut, they're going to be too late, they need to do this or whatever. Yes, the Fed's always too late. And when people say that, but Kevin, you know, if they don't cut, they're going to be too late.
I don't think they realize that that's like the definition of the Federal Reserve. They're always too late because they wait for the data to confirm what they need to do. It's literally the way the system is designed. It's kind of like saying, you know, imagine uh, you know, somebody says, "Hey, if you eat an apple a day, you'll never get cancer." Okay, I'm making this up, okay?
And then you're 70 years old and you get diagnosed with cancer. And somebody's like, "Hey, did you have an apple a day?" And you're like, "No, but I'll start now." Yeah, bro. It's too late. like the Federal Reserve is almost always going to be that 70-year-old that waits until the last minute and and then it's too late, you know, and then they have to go really extreme and it causes a lot of damage or whatever.
And so then people are like, well, why don't why don't they just eat an apple a day now? It's cuz it's not how the Federal Reserve was designed to operate. Just the way it is. Anyway, I hope that adds some perspective.
Comments 0