Yikes: The Fed on 1995's Soft Landing vs Today [Hint: It's Bad.]

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1990년대 중반 FOMC 회의록을 분석해 현재와 비교. 1995년식 연착륙 기대와 달리 현재는 실업률 상승(2007·2001 침체 전 패턴과 유사), 장단기 금리 역전, 기업 감원 증가로 침체 신호가 더 강하다고 주장. 연준의 대폭 인하가 채권에는 긍정적이나 주식은 침체 여부에 따라 갈린다고 봄. 중간에 유료 광고(Weeble, 라이프 보험) 포함.

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01. can the Federal Reserve pull off a soft Landing or what makes this time different than what happened in the mid99s why would we not have a soft Landing like we did in the mid90s just because we cut 50 basis points just like we did in September of 2007 or in 2001 leading into the good old dot bubble buron and the Great Recession why is the Federal Reserve convinced that this time we will stick a soft Landing or are they not convinced and that's why they cut 50 and maybe things are actually quite the opposite today as they were in the mid 90s well in this video we're going to analyze some old fomc transcripts that I went through that's the Federal Reserves Open Market Committee and I spent my weekend reading some of these transcripts just to see what things were like in the mid90s so I could tell you what the Federal Reserve was see in the mid90s and we can compare what was happening then to today so we can see can we stick this soft Landing just like we did in the '90s and we're also going to go through later in the video what the heck Challenger just said about our labor market today and it came as a big surprise to me so stay tuned and buckle up let's get right into it so uh first things first I I just want to cover some things we already know that are quite frankly the opposite of the 9s this this is old news you should already know about this this is not new I just want to catch you up just to address it very quickly okay and this is not what this video is about because this should be basic to you you should hear this and be like I already know that okay so to catch you up just in case you didn't the 10y year and the 2-year yield curve inversion fancy way of the market trying to predict a recession it's basically never wrong and when this inverts that is when we go below zero we tend to have a recession within a couple coup years thereafter we briefly inverted right before covid we inverted right before the 2007 recession that's basically the blue line going under the black line and we inverted before the bubble did we invert in the '90s nope we got close but we did not invert did we invert before the 1990 to 91 recession absolutely we did and we can kind of keep looking at that but honestly it gets pretty redundant so the first thing we know is already the opposite is that we've been the most inverted here since the80s so we have inversion now we did not in the mid 90s we did not have a Som rule trigger this is growth in the unemployment rate by a certain percentage above we're not going to get into the details of the three-month moving average compared to last year basically unemployment rate starting to accelerate going up and it could be an indicator of recession coming if we go above a level 50 now again this is just catchup you should already know this we just hit that level just like we did before uh 2007 7 2008 before 2001 before the 91 you you get it like these these are known indicators at this point but what was the Federal Reserve seeing that is similar or different today in their summary well actually not even their summary their straight up transcripts what were they talking about well I'll give you my sort of summary on it February of 1994 that's where I started I started in '94 and I found a Federal Reserve that was concerned with the start of the tightening phase so to me that sounds a whole lot like kind of a 19 or sorry a 2022 where we started seeing rates go up and that's because the Federal Reserve was concerned about the economy growing too rapidly and us getting wage inflation well that's definitely not what we're seeing right now the Federal Reserve is concerned that we're going to slow down too much that they're behind the curve they don't think they're behind the curve they say they tell us that because if they did tell us we were behind the curve they'd create panic in markets it would be very bad so they of have an incentive to lie to us but anyway let's take him at face value and assume that we're not yet behind the curve even though we probably are concerns over the economy growing too rapidly you're certainly the opposite of what we're facing today in addition in the February of 1994 transcript they were read about wage inflation and a wage price spiral that's because the economy was really starting to ramp up after that 9091 recession things were taking off and looking really good so the feds started raising rates to try to put a lid on inflation they were worried that there was going to be so much economic growth wages with Skyrocket and you get a wage price spiral they started seeing Commodities rise and when we started going into May of 1994 they were complaining that the prices for things like steel and aluminum were rising in price somewhat again the opposite of what we're seeing in markets today we have a Federal Reserve today that's not concerned about a wage price spiral and if we look at the bcom index which is the Bloomberg commodities index we can get a little read on on what Commodities have done over the last year uh and even though they've picked up here in the last maybe two weeks or so we've seen Commodities rise really nicely on the Bloomberg commodities index we know this is a volatile chart and clearly we're way lower now than where we were a year ago if we go year to date we're roughly where we started the year so we're kind of flat year to date and we've looked in the last 5 years we could see postco when we were really raising rates this would be a lot more similar what saw 94 this rising of commodities prices giving the FED cause for concerns not so much this that we're seeing over here which is a very clear downward trajectory so again something essentially the opposite today than what we saw in the mid 90s and so then the Federal Reserve was questioning okay hey well look we've got real GDP at 3 to 4% we fell to a low of about 3 and 1 half to 2 and a half two and a 2.2 at the absolute lowest point in 1985 and we went right back up again in ' 96 a lot of folks think that we might see 24 or 25 be that sort of hole in GDP or maybe even 22 and then we sort of rise out and our GDP actually really starts taking off again of course back then the Federal Reserve was worried about overstimulating and concerns about still a tight labor market and they didn't really have many geopolitical concerns see like today we are not really concerned about overs stimulating the economy we'd like to see kind of growth stay up because we're actually not so much worried about a tight labor market anymore we're worried about the job openings rate plummeting and uh even though layoffs haven't really started yet a lot of folks are concerned that we could just be one market correction away from a surge of layoffs that companies are ready to lay off when everybody else lays off because if you're the only one laying off your stock could get hit as a sign that oh you must be the weak one not able to earn money in this market so they sell your stock companies don't like that look at IBM for example IBM is doing something right now called quiet layoffs and IBM confirmed this uh but uh there are reports right now that IBM is quote reportedly cutting thousands of jobs this week the layoffs are being conducted with non-disclosure agreements you can see it here this is Times of India but they're reporting from uh I mean this this is everywhere the register first broke this news and so a lot of people have been talking about this again it's it's confirmed confirmed in the company earnings they've been talking about Workforce restructuring but they're really not wanting this to be big news because it hurts your stock and once everybody confirms job cuts are happening that's when you really start this sort of cycle of layoffs and that's what the Federal Reserve today is trying to avoid more of that and keep in mind we also have a lot more uncertainties today than we did in '94 when it comes to geopolitics I mean look at Iran Israel Gaza the axis over there then you've got China and recession in China you've got Ukraine Russia there a lot more issues than we had in 94 maybe even a little bit more political volatility but then when we get to the minutes of January 95 once again no mention of the labor market weakening instead we focus on a Mexican financial crisis which they stopped talking about by July of 95 and this is where they talk about inflationary pressures having moderated and starting to potentially assume and declare victory on inflation that inflation was under control this is by the way similar to today but while they're talking about winning on inflation they still had concerns over an overheating economy which is different from today it's actually again the opposite the labor market was also still deemed tight when you got to September of 1995 labor shortages were still being talked about companies were apparently these were anecdotes coming from the actual transcript they talked about in-house labor being being used like cross trining their employees because they can't find workers to get take new jobs they even started talking about certain companies feeling quote discouraged because basically they can't find workers so they stopped expanding their businesses because they couldn't find workers to fill the work in other words the economy was actually good and growing rapidly they didn't have concerns over weakening they just had concerns that there weren't enough people to work and you had these labor shortages that could lead to inflation but we never got the inflation from those Rising wage pressures now there were also virtually no mentions of layoffs which is a bit of the opposite today where the Federal Reserve says we're not seeing layoffs but we're attentive so there's a reason for this the reason and I haven't pulled this chart up yet but I had it handy actually pulled it up I just didn't show it to you yet the reason and I think this is the perfect place to bring it up is take a look at this particular chart here this chart shows you the unemployment rate and the federal funds rate the effective fed funds rate so what I want you to notice is right here going into covid there was no increasing of the unemployment rate we just had a sudden shock of pandemic right that's fine okay going into the 2007 recession what do we have over here unemployment that started rising in fact the unemployment rate bottomed in 2007 now this is important important you you want to kind of pay attention to some of these numbers because they're going to give you a little bit of uh how should I say help in understanding you know where we sit today the unemployment rate bottomed in 2006 in October and may of 2007 about 7 to 13 months before the 2007 recession so in other words you had about almost a full year here of rising unemployment before the recession go to 2001 in 2001 the unemployment rate bottomed in actually April of 2000 11 months before the march of 2001 recession so again you had about a year of rising unemployment and notice it rises very very slowly going into the start of a recession but the point is it rises just like you had this increase in the '90s and if you go back in time as well you'll see that in the 80s a slow rise going into it and you either come from this floor or or as the unemployment rate starts going up the recession begins this is pretty consistent what's interesting about the 9s is look at the 9s right here as the Federal Reserve was lowering the fomc FED funds rate which is the red line the Blue Line consistently fell the Blue Line actually fell from 1992 all the way to about 2,000 you had 8 years of declining unemployment that is exactly the opposite of what you had in 2001 and it's the opposite of what you had in 2007 and I hate to say it but folks it is the exact opposite of what we have today we have Rising unemployment today we don't have a 9-year trajectory of declining employment where as we're reducing rates the unemployment rate is going down we're actually reducing rates Now 50 basis points as the unemployment rate is rising and we're trying to stop we're trying it's like we're trying to plug the leak if you will uh in the sinking I hate to say it hate to use sort of the Titanic reference but it's kind of like there's a hole and you're trying to plug it whereas in the mid90s there was no hole and notice how in these fomc transcripts what they are describing is an economy that is extremely the opposite of what we face today I do we have do we have a labor market so tight that some firms are considered discouraged it's crazy or here's another one they literally saw a risk of the potential of a positive demand shock suddenly sending prices up we're worried about demand falling off a cliff not worried about a demand shock running this Market back towards inflation now I know some people argue there could be a second wave of inflation and that's after the Federal Reserve starts cutting aggressively because of the employment problem then we get a second wave of inflation I don't think that's likely I actually think the Federal Reserve is the light this is my opinion right everything I've described so far this has just been fact this has been and then I want to get into this Challenger report here which is freaking crazy but you know the market that you've described or just heard about in the 9s is the opposite it is not even slightly different it is literally an opposite Market of what we see today and let me evidence that to you by showing you the Challenger report that just came out this was scary job Cuts announced by us-based companies surge in August 2024 hiring Fall's lowest year-to date since Challenger report began tracking in 205 this was out September 5th before the FED meeting us-based employers announced 75,000 Cuts in August a 193% increase from the 25,000 Cuts announced one month prior so something started happening in July and August uh I understand they didn't have the layoffs yet in July but when we look at earnings we could see some slowdown started in July and then that led to layoffs in August now the question is is it going to lead to more layoffs in September or not if the layoffs pick up again in September or October or worse like at the end of the year and the beginning of the year you know after the holiday season maybe businesses will try to hoard labor until then and then the real Poopsy doopsy hits we're going to have some real issues because now you're going to have a Federal Reserve that is dealing with the same situation that you had in 2007 the same situation that you had in 2001 and not the same situation that you had in the 95 soft Landing again everybody keeps talking about the 1995 soft landing and that's why I thought to myself well okay I'm going to be different I'm going to actually go read the FED transcripts and try to understand what it was they were seeing then so I can understand think about some of these other numbers here PWC when you got some small layoffs these we talked about the IBM Cuts pwc's laying off 1,800 workers what was interesting about that was not the number of workers but it was that they had their first layoffs since 2009 ah crazy IBM's talking about replacing workers with AI GM Cisco just announced additional layoffs although War notices aren't really that high yet I think people might try to hoard through the next few months here there could be some real uncertainty come post holidays but we'll see some other things that are worth looking at in that Challenger jobs report uh is that this is the second highest level of cuts announced since 2009 excluding covid which definitely indicates some form of economic uncertainty now In fairness a lot of the layoffs uh more of the layoffs out of all of them 16439 reported that the layoffs were because of market and economic conditions but twice that were because of cost cutting so at this point twice as many compan companies are still saying oh well we're just cutting costs whereas you know half as many of the cost cutting are saying oh well we're laying people off because the market sucks in a real recession like when you're in it that flips people are like yo we're in a recession man sorry we're just laying off everyone so in my opinion from from what I'm gathering we're not quite there yet but we seem to be knocking on the recessionary door and the issue with this is trying to time when the recession is going to strike is literally impossible because quite frankly you could have a Japan style carry trade shock tomorrow and and it lasts longer boom you're in recession uh or you could have the market just keeps going up and keeps melting up up up and then all of a sudden post holidays oh no Black Friday sales weren't that good all of a sudden people start cutting way more than expected in January and then that's where your recession actually begins in q1 of 2025 who knows these are all things TBD but I will tell you the one thing that I think will do well over the next year with more certainty and this is not a guarantee obviously but I personally think Bond deals are going to have to come down dramatically because a the FED cut 50 to try to support the markets and yields went up so the FED has to talk these yields down if they can't talk the yields down they're going to have to cut more because if they don't cut rates more rapidly than the market is expecting they will probably miss the opportunity to create a 1995 which honestly the data we've looked at so far already suggests we're we're just not going to be a 1995 but even if we are a 1995 we have to Spur hiring in an economy that avoids a recession you can do that by cutting rates more than expected and if you have a recession you cut rates more than expected so either way soft Landing with slower growth you need to cut rates more to encourage businesses to hire and in the face of AI it's harder to encourage businesses to hire because they're just like I'll just have my existing workers use AI more I know that doesn't work in every single field obviously they're uh AI resilient you know businesses like try to get you know AI to build a house for you you know there there's some things you're going to have problems with replacing AI with but sales uh you know some some forms of frankly White Collar businesses are going to face a lot of AI stress uh and so in my opinion that's going to lead to a Fed that just has to drive rates down further and I also think there's so much slack in the economy both in the jobs market and Manufacturing that I just don't see a second wave of inflation because even a pickup of demand would just fill the slack that we already have in businesses businesses are ready for more work that's what Co did for them it helped them get ready for more work and now there's not more work and so it's either we prevent more layoffs or weow but both of those are going to require lower rates which again in my opinion bodess really well for the bond market and as far as stocks it's going to be an either or you either get recession stocks tank 50% or you get no recession and stocks can keep running so any of this makes you nervous and you want to get life insurance in as little as 5 minutes make sure to go to met Kevin /li and if you'd like to get some free stocks with Weeble make sure to go to metkevin.com Weeble metkevin.com Weeble that is both of these actually are paid promotions with the channel take a look at this you go to Weeble the trading platform I love to use over here what do we got ear up to 75 free fractional shares and 7% apy that extra 2% apy on 5% for the first 30 days click here to start so go check this out check out that bonus metkevin.com weeel Linked In the description as well both paid promotions