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hey everyone me Kevin here we need to talk about drum pow because he gives us a surprise potential rugging tomorrow at 1155 p.m. eastern time so be prepared for a speech from Powell which of course I'll be live streaming but I think what's very important is setting up a strategy going into this meeting especially if you want to be able to identify the hints that Powell drops just note that before that at 8:50 a.m.
so while we're live at the meet Kevin Market live Channel free live streams I do every morning on the market while we're live here we are going to be getting Michelle Bowman though I don't really think anybody cares what she says because she was the one dissenting vote that wanted to go 25 and everybody else went for a 50 at the last meeting so we kind of already know she's a bit of a hawk economy is fine there's more of an inflation risk blah blah blah blah blah we kind of already know what she's going to say but last week on Thursday when we had Powell on a calendar he didn't talk about macro or frankly he didn't talk about monetary policy at all and this came as a little bit of a surprise potentially because he was waiting for some leaks and some pre- dat leaks this week since this week is jobs week and who knows maybe he's got a little heads up for us in terms of what the jobs D is going to be now also In fairness the earliest I've ever heard that drum pow would get a data leak would be like the night before or two nights before so five nights before the Friday jobs report maybe less likely but let's come up with some scenarios first of what we think jome Powell might say and that way we could be prepared when that happens to either trade on that news right away or to position a longterm portfolio appropriately in case there's a warning or a big old thumbs up to keep the rally going okay great so let's analyze first because this is going to help us understand this analysis we have to first understand what happened the last time okay the last fomc meeting I made a prediction that we were going to get a 50 basis point cut however I also said that if we were to get a 25 basis point cut it would come with a dovish pow and if we get a 50 it would come with a hawkish pow now an example of a doish power would be hey look we're going 25 but we're leaving 50 on the table for the next meeting especially if we see any kind of continued weakness in jobs we we are ready we might even go 75 you know like that's an example of being really really dovish uh and being willing to react really rapidly this did not happen though we actually ended up getting a 50 and it was a hawkish 50 we literally got quotes which were almost the opposite of what we saw at Jackson Hole Jackson Hole was like we seek no further weakening in the labor market the FED meeting JP's like yep everything's fine he literally said those words every everything is fine the economy is fine the econom is doing great GDP is strong inflation is falling and we're just preemptively cutting not because we're behind but because we don't want to fall behind well a lot of people think Powell is behind so let's now predict what we end up getting tomorrow uh keep in mind we did get this 50 we did get the hawkish 50 so I was right about the 50 but I will tell you I was wrong and this will lead into this next piece as well I was wrong about the direction that yields would go for bonds honestly I thought because there was only about a 55% chance that we would end up getting the FED going 50 and I was leaning towards that 50 I thought that bond yields would go down when we got a 50 but they didn't go down because pow was so hawkish bond yields actually went up which is interesting because when yields go up they do something known as tightening monetary conditions they tighten Financial conditions so if Bow's wanting to loosen but his actions actually led to tightening then maybe there's a chance he could undo some of that tightening tomorrow and this is where we'll want to begin to speculate on okay what is po going to do tomorrow so let's think about this together first I want you to think to yourself while you look at this beautiful black screen here what do you think he's going to say tomorrow is he going to be hawkish or is he going to be doish or are we just not not going to get anything useful out of them I don't know any of those things are possibilities but I'm going to give you what I think are the most likely possibilities likelihood number one I actually think that you're going to get a humble Dove see the cool thing here is Powell can go back to his dovish self without having to feel like he's doing a favor for anybody at the meeting see he got almost everybody to vote with his 50 probably because he said look give me the 50 I'll go up there and Hawk and then that way the Hawks who were left on the board are like all right 50 Andy's gonna go hawk all right all right and he hawked to us but I think he overdid it and I think he realizes I think markets are like bro you just tightened things like you went too hawkish so I actually think tomorrow we're going to get a humble Dove a humble Dove uh is going to be in contrast uh to uh a hawk uh Haw Tua Hawk Tua Dove you know you know whatever Powell I can't do I can't spell it correctly but you know what I mean so a hawkish Powell is a possibility but let's break through what some of these things could look like so first of all a hawkish Powell might look like hey look the Atlanta fed GDP report is at 1.3% this is great news hey the personal savings rate which was previously thought to be below was revised away wow this is great news yeah there's some issues with restaurants and temporary job openings and job openings in general and construction job openings and isms are running low and manufacturing's not doing that great and we're potentially going into what's called a growth recession where growth begins to operate below Trend but we're not seeing that yet and we're ready to cut if we need to but otherwise I don't think he'll actually say the word soft Landing but he'll basically imply we're going towards a soft Landing or frankly he might even go as far as saying we might have no landing at all you know there have been no Landings in the past the only reason people think the odds of a soft Landing or no Landing are basically zero is because we've really never gone uh from this deep in the inverted yield curve down like 101 basis points certainly not since the 80s but every time you come up from inverted to positive which which is where we are now about 20 basis points you don't actually have a recession right away you only have a recession when the yield curve goes between 50 to about 90 basis points positive so if you look back at 2007 or 2001 this is when the recession was triggered when you were this uninverted we're about right here which potentially means we're within about 2 months of a recession but I suppose there's a chance this whole curve curve is just wrong this time is different and there won't be a recession see the problem with recessions which makes them extremely hard to predict is recessions come all at once and you really have to think about this for a moment if everybody sort of like everything's fine there's no recession there's no recession there's no recession then you're not actually laying people off and so you don't actually see bad jobs numbers and you don't actually see earnings go down but if for some reason something tips over and the tightening was just too much we get a certain company that goes bankrupt or a Black Swan or there's a market crash or whatever then you could actually very rapidly in the span of frankly a week or two tip the economy into what actually looks substantially more like a recession and then you get layoffs the job loss the decline in earnings this all happens very rapidly which makes it extremely difficult to predict which is why I think Jerome Powell's yapping tomorrow is going to be important because he might give us some hints in terms of what he's seeing in leading indicators from discussions with businesses on potentially layoffs coming job hits or uh potentially also what he sees in the way of black swans and so how he behaves tomorrow is going to be his I like to say his natural self will have an unrestrained power he's not subject to the whims of the rest of the board tomorrow so if we get an fomc powel it's worth noting you'll probably see stocks up and you'll probably see yields up as well so in other words bonds might lose value stocks Bitcoin and otherwise might go up and if you're looking for things to go down because you want to buy the dip or whatever maybe on the jolts report this week the ADP unemployment report uh or the jobs report on Friday you'll actually have a chance to buy the dip maybe or who knows maybe there'll be a dip before the election or it'll just never dip and it'll just keep going to the moon and valuations will keep being as Extreme as they are and uh this is potentially a blow off the top moment who knows uh anyway so the other option is we get a humble uh Dove so uh this is where I uh I actually think we're more likely to get Powell so this is uh I'm going to just make it really clear Kevin's opinion okay so here's what a humble Powell looks like a humble Powell acknowledges these wins right so we're going to get the uh acknowledgment uh of good okay but the problem is you're not going to keep things at that level so you know think about jobs for a moment Jobs go up they start turning down if you're trying to stay at this level and you're trying to put a floor under that level to prevent things from continuing to go down you have to be really really aggressive so you could cheer where you sit right now but you don't want to declare this Victory so early and then get complacent because the trend is down we all know in trading the trend is your friend so if he acknowledges the good uh I know I spell my abbreviation weird here but he makes an acknowledgement of the good but what I actually think he's going to do is he's going to say at this point we actually want to see labor growth again okay this is uh uh you know above uh where we are now and that's because right now labor growth sits somewhere around 150,000 jobs but frankly you probably have to take about 30 to 40% off of that so we're probably sitting between 150 to 100 because we're going to get revisions again the Bureau of Labor Statistics just isn't that good at figuring out right now how many jobs are being created because we're at a weird transition point in the economy the problem is once you go sub 50,000 jobs which wouldn't actually be that far away with revision you're in a recession and so if you get a 100,000 read and then you revise down to 50 you're probably trending towards recession people usually say it's when jobs go negative but when you go below 50 you're so close to negative you're probably going to get revised into a recession at that point so uh people want to be careful with the sub 50 number what jpow should really hope for if I were Jerome paw i' be saying what we'd really like is to actually stimulate the economy to generate jobs in excess of about 180,000 jobs again now I don't think he's going to be this nuanced he usually isn't but what I'd encourage him to do is I'd say look we acknowledge the good but we want labor growth to get back to a stable or growing level we do not want it to weaken any further and as a result we are prepared with our policy to cut much more than what we forecast in our summary of economic projections if necessary to get us back to growth so some kind of hint that we're going to cut more uh that's what I want to walk away with with a humble Dow Powell almost a dowel humble Powell acknowledgement of good we want to get labor growth Focus back on labor growth again remember how good those pce numbers were they were excellent numbers they really showed us on a you know one uh on an annualized basis based on the last 3 months inflation's running at like 1.9% which is uh substantially lower than what it was previously and it's really indicative remember on a 3-month annualized basis you've ended up seeing inflation now running at about 1.4% which is crazy low you know a year ago it was 3.5% which means you've actually tightened situations in the economy by about another 190 basis points minus the 50 they just cut which means you just basically increase tightness by 140 basis points 1.4% over the last year by doing nothing so this is Powell's opportunity my take this is Powell's chance right here before the election because you know you don't have another fed meeting coming up you actually have a Fed Blackout Window coming up before the election so they won't even be able to talk anymore unless they just Nicky leaks some stuff but uh this is Powell's opportunity to do the following bring yields down okay this is very important because this would actually encourage uh jobs and job growth because you're going to loosen Financial conditions now it is possible with that you get I don't think he has to be like dramatic and I don't think the market will react dramatically where like stocks crash uh and stocks are at a level now where it's okay if like a little bit comes out a little air comes out of that balloon but even if you get a little a sideways to a little bit of a Down on stocks where you kind of stop like the the potentially inflationary constant alltime high alltime alltime high right you just stop that now what you're doing is you're creating stable High valuations lower yields you encourage jobs while potentially limiting the concern that stocks would lead to inflation and you prevent the economy from going into a recession this is important because if you keep coming across as Huck to Powell and you're like everything's fine we might not cut at all that's fine stocks might keep going up just like they did in 2007 remember in 2007 for six weeks so into early November uh stocks went straight up to all-time highs in 2007 and then the very next year they were down 53% because you had a Fed that was like oh everything's fine everything's fine everything's fine oh my gosh everything's not fine so I think po would be really smart to be a humbl howw here uh humble Dove but we'll see so uh that's my take if you found 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