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if you are at all concerned with what's going on in the economy this is the video for you because who else shoots nerf gun rockets I think I just like the sound of it but before I get started with this practical breakdown on the economy let's get a little bit of a message from some depressed youtuber that's going to tell us some sad stories while at the same time trying to sell us gold and fear and remember oh I spilled by keeping interest rates artificially low they have created a bubble that's much bigger than the one that popped in 2008 because we have no real savings in this country we have enormous debt everybody is levered up to the max government the private sector business consumers because rates have been so low we borrow so much money the market wants interest rates to be higher but the Fed doesn't want to allow that to happen because the roll the road back to normal interest rates is a very bumpy one because it's gonna take us right through another financial crisis that's right because after all if we all listened to Peter shift we would come to the same conclusion that we need to go through this recession and higher interest rates are part of the cleansing process as painful as that process is now going to be because apparently putting people through a recession and taking away growth opportunities from poor communities in our society who are just now starting to experience some growth is the right thing to do but the Federal Reserve has no stomach for doing what's right especially if you're selling gold hmm huh take there well now that we have that out of the way let's get into today's content and the outline number one what just happened and was it what we expected or was it not what we expected and why does it matter number two what the Federal Reserve says is wrong with our economy and we finally got some comments from them on household debt and business debt and some possible cracks in the economy we'll also talk about what this means for our investments and now and yes our wealth from savings accounts then we'll jump in to try to figure out how bad a recession would be if we actually had a recession we'll also talk about negative interest rates the yield curve and whether or not the Fed is lying to us because after all the meet Kevin report is all about news that makes you money so number one there was no surprise the Federal Reserve dropped rate so this is what I said in the video that I said I would delete within 24 hours which has been deleted we said the most likely scenario was that the Federal Reserve would drop interest rates by a quarter of a percent well while this happened the Fed also gave us enough of a wink-wink nudge-nudge to sort of imply the possibility of some additional rate cuts coming down the road in fact chairman Powell himself voted against the quarter point rate reduction why because he wanted it to be a half point rate reduction which was sort of our more dire worst case scenario so what we actually got was a signal from the Fed that was a mix between the scenario of everything's dropping a quarter of a percent and the potential of a half point drop and so what did stocks do in response well rather than going up like I said in scenario 3 with a half point drop or down like I said they would with a quarter point drop the market stayed flat because we got both signals mortgage rates also appeared to stay relatively flat a really interesting mix between these two scenarios just so you know usually the Fed says we're dropping rates a quarter of a percent and that's it we're just gonna wait and see what happens and that's all we're gonna do well this time because of them nudges in them winks we got some implications here that actually left reporters sayings things like hey you're sort of like modestly implying that we might see some future reductions here however along with this information we also got some pretty dang incredible insights into what the Federal Reserve believes about our current market place and these are really crucial impacts that are going to matter no matter what you were investing in particularly real estate stocks bonds but let's focus on that right after this message remember that in about three weeks I will be in Miami hosting an in-person real estate crash course and we are doing our private live stream for our online courses this Saturday and Tuesday coming up so make sure you join using coupon code TEDx the fad to get twenty two percent off before September 30th remember you get access to all of the online recorded lectures the future lectures that get released our discord community and our private live streams now number two let's talk about debts and the economy and some more things that we learned without spilling the coffee this time now just so you know I watched and dissected the entire 52 minute press a conference that the Federal Reserve held and consistently the Fed pointed towards two things as problems in the economy and otherwise they didn't find major issues that we needed to be worried about which this is all going to play into do we do we think the Fed is lying to us are they trying to keep us complacent so that we keep spending money but the only two things the Fed kept talking about were not just the geopolitical events but also from slowing global growth and trade policy uncertainty so aka stuff going on in the UK and stuff going on between Trump and China now the Fed did also say that yes obviously manufacturing is having some difficulties but this could be a part of a normal evolution in an economy that's leaning more toward services now which is about seventy to seventy-five percent of the United States economy when asked about the possibility that the Fed is creating a bubble with easy money they responded and said hey you know what household debt is solid if anything it's at lower levels than it historically has been at if you actually look at households households are in very strong shape there they're less levered got less debt they've got more income relatively their interest requirements and and that they're in very good shape and yes well business debt is a larger than historical norms we are 11 years into an expansion and it is normal to see greater amounts of debt with larger businesses as the economy grows the size of businesses grows which also means that debt grows however they are paying attention to some particularly highly leveraged a companies to make sure there aren't issues that are going to pop out of those the level of debt relative to GDP in the in the business sector is at a high level however so is the size of the business sector so actually the the business sector itself is not materially higher leverage than it was nonetheless there are a lot of highly levered companies and that that's the kind of thing that happens during a long cycle when there aren't downturns for now into our 11th year you you get you know you do get that kind of phenomena in the in along cycles now you may or may not have heard of that sector before but basically it's called the commercial leveraged loans a sector so in case you see that they're talking about business debt and oftentimes it's businesses with low credit ratings kind of like subprime housing and o8 except now businesses when asked about inflation the Fed came out and said hey you know what we have no expectations of inflation exceeding 2% through 2021 as you can see from our from our policy statement from the SE P we see a favorable economic outlook with continued moderate growth a strong labor market inflation there are two percent objective and by the way that that view is consistent with those of many other forecasters in addition to that they also do not see the unemployment rate going above four percent through 2021 we expect the job market to remain strong the median of participants projections for the unemployment rate remains below four percent over the next several years in fact the Federal Reserve seemed relatively peachy about the United States economy which was a little bit of a shock to me and this is sort of what creates that impression that are they just lying to us and are things worse than they really are which we're going to talk about in just a second but what's another popular thing that people keep talking about the yield curve well the Fed actually had a response for us about the yield curve in fact chairman Powell had a very fascinating sponsz in my opinion at least and he said we do so we monitor the yield curve but white wire long-term rates low there are a number there can be a signal about expectations about about growth there for sure but there can also just be low term premiums for example just well it can just be that there there's this large quantity of negative yielding and very low yielding sovereign debt around the world inevitably that's exerting downward pressure on US sovereign rates without really necessarily having an independent signal basically because so many other countries have really low rates more people are buying the United States Treasury bonds which it drives up the price supply and demand more people buy it the price goes up but drives down the long-term yield and that actually might be the reason to blame for this yield curve that is the yield curve maybe isn't necessarily an indicator now anymore of the economy falling apart but maybe instead it's an indicator of everybody's else's economies having problems which is true them having lower yields which is true and then more people buying United States Treasury bonds which not only feel safer but yield more money now what does all of this mean for our investments and our wealthfront savings account well let's just go ahead and start with wealthfront here and say yes yes this means the high-yield savings rates are probably going to come down again this means we might see a wealthfront yield of a two point zero seven percent and a betterment a yield reduction of another point at two five percent downwards for the high-yield savings account but let me also be fully transparent with you and show you that my wealthfront savings account has twenty dollars in it I really don't care because I don't like to just give you generic middle-of-the-road BS information I like to give you information that matters and information that I believe in and that's why I have currently today a hundred thousand four hundred and one dollars in my wealthfront investment account which because I've referred enough people I spent zero dollars in fees on the on the Vanguard fees because they basically put all my money into different Vanguard funds which is cool because they take care of all that crap for me automatically and all I just keep doing is transferring money over to wealthfront until I go buy a real estate deal and then I take money out of wealthfront and then I go buy real estate because what am i a big fan of constantly buying wedge deals because see when I put my money into this well for an account and they go buy Vanguard funds I pay market value for those Vanguard funds if I can buy below market value real estate why would I not do that all day long oh wait that's right I do and I just wanted to bring that up before I get another million DMS on Instagram from people going oh my god wealth run reduce the rate again here we go they're a scam no this is expected now it technically hasn't happened yet but we all know we're probably gonna get an email tomorrow about this now in the video that I said I would delete I also suggested different investment strategies and I'm actually feeling based on what the Federal Reserve said a little bit more bullish than I was feeling before I went in now I didn't like that Jerome Powell was thinking we needed a half point cut but he specifically said that he feels the United States is going to grow at a solid pace of at least 2% over the next year now again this could all be smoke and mirrors but that does make me feel a little bit better that it's kind of like the United States is on this island and there's a tropical storm going around at sea aka Europe and overseas and the United States overall isn't doing too shabby now don't take this the wrong way I'm not jumping up and down to do a flips anytime assume and I'm not just trying to say that I think things are good so you buy the real estate investing course honestly I think the real estate investing course will be a great purchase whether the market is great good bad orange and bulls because no matter what we're all gonna work together to figure out how to make the most money at any given time but I think now it would also be useful to talk about what would happen if there were a recession how bad would it be and today we're going to refer to the International edition of the Financial Times that by the way is a picture of the drone that may have attacked the Saudi oil fields so just in case anybody was thinking they're little like DJI phantom that fly around your backyard that attacked the oil rigs no they're bigger ok these are bigger than the ones that we buy any but anyway the article I wanted to refer to was published on the September 18 2009 teen edition entitled global economy takes a hit at a bad time and the article says that global manufacturing is in the doldrums and the us-china trade conflict is unresolved with obviously the issues of brexit lingering we hear the same thing over and over and over again but what's interesting is they specifically talked about a surge in the price of oil which even though the Saudis are suggesting they're gonna be back at full production by the end of the month oil is still up a bit and they're saying we need to watch because oil prices will have a big impact in the global economy that kind of a bad time so if oil stays up it could be dangerous for the market places we'll keep an eye on this but anyway they say when a price surge is caused by a shock to supply it acts as an effective tax on consumers of oil then he goes on to say for countries that are hovering on the brink of recession already this could make the difference between stagnation or a mild contraction and then of course he points to Germany and Italy now that's big the last thing we want is stagnation or stagflation which could come after that so oil prices up bad keep an eye on oil if you're worried about the economy oil oil oil this stuff matters but it's interesting that as long as oil remains tempered he believes we would only see a mild recession and in case you're wondering who he is it says an economist at berenberg you can go read the article yourself but then we have another one from a CNBC interview with Tom think chairman and CEO of investment management firm bearings and he suggests that any recession that happens in the United States would likely be shallow given the current state of the country's economy from the US point of view in the US economy if we're talking about a recession in the US the consumer and growth industries like tech have offset declines in other industries we still have tight labor markets and we still have growth I mean look these are just two dudes you know who knows but it's fascinating it's interesting to see that the people that aren't trying to sell us gold or sometimes Bitcoin are still kind of struggling to figure out what is it beyond a global economic slowdown a European slowdown breaks it and the China trade war why does it seem like the United States is still doing decently well which is similar to what the Federal Reserve is telling us well then we can get to the argument of is the Federal Reserve aligned to us and I think the most important thing to do here is not to try to speculate about whether or not they actually are but rather what are the two scenarios and for this we go to the whiteboard so we have two options either the Federal Reserve is lying to us to keep us complacent and keep us spending money to keep the economy going or the Federal Reserve is not lying to us and things really aren't that bad well let's get the easy one out of the way if things are not that bad what should you do you should go buy wedge deals in real estate possibly possibly flip I would stay away from the short-term debt that's still risky for me I think that's probably gonna be risky in any kind of marketplace and honestly I'd still be buying the index funds in the meantime now if the Federal Reserve is lying to us and I think we'll learn quite a lot in the next six weeks I think generally forecasts show growth similar to our own forecasts coming at about two percent which is a good solid year I would still buy wedge deals but in my negotiations on read deals I would use bad news days aka red days to negotiate my deals harder and better which by the way I teach you how to negotiate in the in-person events or the online course I would definitely not flip I would not do any kind of short-term stuff which I wouldn't do that scenario anyway and honestly if I fed was lying to me I probably wouldn't buy market value index funds and this point I'd probably put my money into savings and be looking at wedge deals in real estate because remember wedge deals and real estate they insulate you they protect you from the downs of the marketplace so if you think the feds lying go for wedge deals and real estate and savings if you don't think the Fed is lying and you think things are decent then I probably go wedge deals maybe the flips and the index funds I'd turn those back on and there you have it now make sure to follow me on Instagram you can see a picture of myself and a Jordan Belfort yes the wolf of Wall Street and we're in the Wolf's den for a Wolf's podcast it was awesome cannot wait for that video to drop and then maybe we could even do a video critiquing myself we'll see how it goes thanks so much for watching it until next time
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