WTF just Happened transcript

The risk to achieving of the inflation target have increased. Risk to the labor market have receded. >> Make you wonder, Steve, what happened between from the September meeting to the from the meeting prior and I know Jackson was in between because you know they didn't hike and it wasn't that different of a of a data set then. >> No, they're wrong. They're wrong. Why are the rates skyrocketing and the expectations for red Fed rate hikes skyrocketing?

Why? CNBC misses the boat. You literally just had Sarah go, "Well, what changed between July and now? Why all of a sudden are yield surging? Oh, this is weird. The the microphone isn't telling me." Okay, sorry. That's mean. I just think it's so damn obvious and nobody's paying attention to it. We pay attention to it on this channel. He brought it up many times before, BUT IT PISSES ME OFF when the suits on CNBC can't even figure it out CUZ IT'S NOT THAT DAMN hard as to why all of a sudden rate expectations are skyrocketing.

It's right here. It's the simplest freaking chart you could look at. It's so damn obvious and nobody pays attention to it. It's the most blunt thing ever. the uh Kevin Worsh's first meeting was over here in June and during his first meeting on a weekly basis, private jobs were plummeting. We came off of this surge right here which the PMIs and uh you know the S&P flash indicators, the ISM reads, they were telling us that there was a massive surge in hiring in right around here in March because of the war.

In other words, people are like, "Well, we may as well manufacture really quickly and get some manufacturing cooking here because if we don't, we're going to have these supply chain issues because of hormuse and fertilizer and uh what, you know, helium, whatever. Maybe the Red Sea will get slowed down." So, you get this boost in manufacturing. When Kevin Worsh took over, which uh Powell's last day in office was uh well, as Fed chair, he's still on the board of governors, was May 15th, right about here.

We had a weekly read of 30,500 jobs per week on ADP. And I like ADP because it's private payrolls as opposed to the uh BLS or the Bureau of Live Statistics. Anyway, Kevin Worsh took over here in [clears throat] early June and that's when he had his first actual meeting and his first press conference. That's when he's like, "Oh, we'll look at to the left of the decimal for inflation." And he wasn't in a rush to hike. Then in July, and this is where Sarah Eisen, I love Sarah, but come on.

Sarah's like, "Well, what changed?" Well, in the July meeting, the ADP numbers were still plummeting. And everybody's like, "Oh my gosh, what if we go under zero?" And we ended up getting a weekly read on July 25th of uh 8,250. And a lot of people are like, "Oh, but can what does the labor market even matter?" It matters massively because that's exactly why the Fed rapidly cut with a 50 basis point cut before the election in 2024, which of course a lot of people thought was purely political, but the labor market was falling off a cliff at the same time you had the Japanese carry trade issue and then it rebounded.

[laughter] Uh, and so what changed? Well, look at this. We bottomed out. And so we just had our last Fed meeting uh you know what about a week ago on September 16th and you could see the beautiful rebound that has occurred between those levels. But we just got another ADP read yesterday morning and it surged even higher back to over 20,000 beating expectations and you could see the total Uturn in the trend. And so, duh, we're seeing some aggressiveness in the rate market right now, obviously.

Let's go look at that. But I'm also going to show you this crazy, we're going to break down, I'll summarize this crazy piece on what's going on with the economy. This just came out this morning as well, and it's also driving yields up like crazy. It's both of these things together that matter, and you got to understand both of them. So, first of all, if you zoom into the bond market right now, the 10-year yield just skyrocketed.

I mean, we're up 7.5 bips. Bro, this sucks. Not only are we up 7.5 bips on the 10-year, but you literally just had bar from the Federal Reserve come out and say, quote, "Inflation is clearly not trending towards target." Okay, well, that's bearish. economic growth is strong and the labor market is solid. It's not a surprise that he's saying that right after we ended up getting this read from uh the uh the flash PMIs.

You could actually see these notes right here in the meet Kevin app. So this this portion's free uh for now at least. Uh use it. May as well use it. Bar inflation clearly not trending towards target in a timely manner. Economic growth is strong. Labor market is solid. Fed was out of position. made an adjustment in the right direction. Going into recent policy meetings, the Fed needed to recalibrate monetary policy. Risks to achieving 2% inflation have increased and the risk to the labor market have receded.

Further rate hikes are likely needed. Great. So, this isn't data dependent or data trend dependent or whatever. This is crap, right? But it's because the economy is in a weird way booming. And I know that that doesn't always sound relatable because a lot of people are like, "How's the economy booming? You know, it's so hard to get a job." I'll talk about the labor market uh in just a moment. But what what I want to do right now is we're going to pop on over to see what's going on with yields.

I will shout out uh Koshi though. They are now a sponsor of my startup called Reinvest. So that means we get to reinvest more money into real estate and uh the apps we're developing. But shout out to them because if you uh use this uh link kalshy.comr/mevin or just scan the QR code, you get 25 bucks when you sign up for Kelsey and make your first trade. You can also use coupon code meet Kevin when you sign up. It's kind of cool.

So big fan of this uh and uh always gamble responsibly or bet responsibly. But let's go look at KHI and the KHI markets because yesterday I said the odds of a rate cut at 5% on Khi were ridiculously high. We made a whole video on this yesterday, but they were ridiculously high. They've now come down to 4.5%. This is a joke. They should, you know, there's a spread in here obviously, but this should be like zero. [laughter] Okay, so there's not going to be a cut.

Like the fact that you could get a payout betting that there will be two cuts right now is is insane to me. The economy would have to like war with Iran uh honestly would have to be resolved. War with Ukraine would have to be resolved and the labor market would have to fall off a cliff. It ain't going to happen. The odds on the betting markets now for a rate hike in the October meeting uh are at 62%. That's up 10 basis points today on a trade level.

You can see that right here. Uh, now if I pull up the CME watch group, I could see CME has us for September of next year starting to price in five to six interest rate hikes. I kid you not, we were at 3.5, call it over here, which is off the chart. Okay, so we were at 3.5. Where do we sit right now? Well, now the middle of the bell curve is sitting at four rate hikes. That's right here. This is four rate hikes by September of next year.

This is five rate hikes. This is six rate hikes. And what you could do is you could add these up to get sort of a cumulative percentage of us getting four rate hikes. So four rate hikes we have, let's add it up really quickly. We have a 70, we're pricing at a 76.7% chance of four rate hikes. 76.7% chance of four rate hikes. Uh we are pricing in a 48% chance of five rate hikes now. Literally a coin toss of five rate hikes.

Now before this flash PMI data that just came out, which is really important that we got to go through. I want to be clear, I didn't think that we were going to get four hikes. This data here is starting to make me shake my boots a little bit because my impression has BEEN THERE'S NO WAY, NO WAY we are getting four rate hikes. We're not getting four rate hikes. There's no way. It's not going to happen. Maybe we'll get two.

One in September, one in December. That's it. This Holy smokes, dude. This read is absolutely nuts on on on what's going on in the economy. So, this is the S&P global read. It is a a business read on what's actually going on at businesses. It is a private survey. It is not based on government data. If you go into the GDP now data set, you can actually break down what goes into it. And it is not private data. This is public government data.

The government data is telling us that we're sitting at 5.1% real GDP estimates for right now, which is remarkable. This is very, very high for Q3. Uh the private data just told us that we should honestly shake our boots and potentially expect more rate hikes. Why? Because look at this. This is insane. So, uh let's let's look at this from the top. Oh yeah, sorry. I wrote all these notes up here as well. For anybody who invests in house hack, this isn't a pitch or whatever, but I wrote this over here.

House hack which is obviously now called reinvest. People wonder it's like oh you know what what do you guys reinvest? And so the idea is anybody who buys which I'm not pitching here but anybody who buys our courses our app or the terminal that we have coming out later this year which is going to be sick. Uh or the rents that we get on like $85 million of market value real estate or now little sponsors that we have like Kali which I actually think is really cool.

I think is win-win. Not you know you get 25 bucks. I'm going to go in there and I'm going to trade the Fed too which I think will be really cool. Uh but uh on top of that, you know, it's more that House Hack can then reinvest. So it's it's a cool partnership. But anyway, um all of those things go into us reinvesting in real estate. Uh and so we're really excited about that. So the more the economy booms, and that's why we brought this up.

The more the economy does this, the better it is. So it's like get out there. I sent a daily wealth the other day. You if you download the Meet Kevin app, you can get the daily wealth on a daily basis, but a daily wealth I sent out the other day was like, "Go make hay, man. Like right now there I I said I think there's no chance in the next 6 months the economy falls off a cliff. That means go make money, baby. Make hay.

And and I always say put your money where your mouth is. And it's like go make more money. The more money you can make for your business, for yourself, your startup, your your education, whatever you could do to go make more money, now is the time to do it. As hard as it is, go make more money. And I know that's easier said than done. Sometimes it does mean getting re-educated or reskilled in something, right? Which sucks.

But now is the time to grind. Put the grind in. But look at this. This literally reiterates this. Business growth surges to the fastest level in over 5 years and job gains accelerate. This doesn't mean you're late. You you could you could still hop on on this boom. But look at this. Uh what you have right here is you've got flash PMI expectations for services were expected to come in at 55.3 and they came in uh not at 55.3.

They came in oh I can't put an arrow here. There we go. They came in at 58.7 which is a huge beat. Well above the 56.5 before it's a diffusion index so any number above 50 is growth. We're knocking on the door of 60 which is insane. uh flash US manufacturing came in at 57 and the expectation was 53.7 which was actually lower than the 53 we had last time. But listen to the commentary. Forget the numbers for a moment. You could get lost in the numbers.

Listen to this over here. US business continues to boom. If you ignore the postcoid lockdown, what do you have? The latest improvement in business activity is the greatest recorded improvement in business activity going back all the way to early 2015. Business is clearly booming now in both manufacturing and services and severe supply chain bottlenecks are amplifying the price pressures. So, how do you cool demand? Okay, this is literally what Barkin said yesterday. we covered this um you know we also pinned it over here if you go to the top of the meet Kevin app sometimes I'll pin news that comes through just to make it a little easier to pay attention to it but one of the things that he said yesterday which I don't know if we as clearly talked about it so I want to highlight it here but one of the things a Barkin said yesterday was we need to cool demand when the federal Federal Reserve is telling you they need to cool demand.

It means the economy is freaking booming. It is on fire. Obviously, that can lead to inflationary pressures. Uh when supply is constrained, right? So, if I remember this correctly, um I don't think I want to get into econ 101 right now, but the idea is when you have supply and demand curves and the economy moves, if the economy is going to move and you get more, you know, you got your P and Q, I'm going to do it. When quantity demanded and quantity supplied when they when both curves move to the right because the economy is going up and both curves move together, price actually stays the same.

That's econ 101. Price stays the same. So this is why people say you can have economic growth without inflation. Yes, textbook correct. The problem is right here, supply chain bottlenecks. When you have bottlenecks, then what you have in econ 101 is the quantity demanded exceeds the quantity that is capable of being supplied. That's when you get shortages for memory [clears throat] or for chips for components and manufacturing.

They could be motherboards. They could be field programmable gate arrays. They could be uh A6. It doesn't matter the AI capex boom, the consumer boom on services that we're seeing, not everybody's I, you know, I want to be clear, okay? Not everybody's printing money. In fact, if you go over here to a wage study, uh, wage suppression, in other words, people's like the worker share of corporate income has been plummeting.

So, not all workers are winning here. I want to be sensitive to that. So, you know, like when I talk about the economy and I'm like, "Wow, everything's booming." I also understand that what's booming is corporate profits. The companies are making more money. Workers as a share of those profits have not been booming. So, this is where it's like, how can you get exposed to assets, right? How could you get exposed to real estate?

How could you get exposed to uh equity in either the company you have, whether through stock options or direct stock purchase or or whatever, right? That's how you end up participating in that boom. Easier said than done, right? So, [clears throat] I want to be mindful of that. It is corporations that are winning and AI is just going to make that worse. So, anyway, so you got these supply chain bottlenecks, which this basically reads like a giant middle finger to the Federal Reserve.

They're basically saying, "You guys are way behind on rate hikes." Listen to some of these notes, okay? US business activity growth accelerated for a fourth successive month in September to reach the fastest rate in over 5 years. Renewed improvement in manufacturing output growth. Employment also rose sharply with jobs added at a pace not seen in over four years. Just pause on that for a moment. We are now getting flash indicators that the economy is adding jobs at a pace we have not seen in 4 years. you are screaming a freaking middle finger to the Federal Reserve to hurry up and and hike.

And I just I mean I' I've been talking about this segment so much here. I just realized the cues have also fallen off a cliff. Uh and people are going to think I am so full of freaking crap, but course members know. Dude, I was bearish this morning. I said, "Look, between now and Friday, especially with no deal, you're probably going to have a buy the dip opportunity." Uh, and I targeted sort of a strategy for two days for buying the dip.

Uh, and uh, and I'm like, you know, hitting alltime highs on the NASDAQ 100 is cool and all. We hit that earlier than expected, but but like, let's take a little chill pill here until we get a deal with Iran, okay? So, be extra cautious. That was our alpha report this morning. AND DAMN, THAT PUPPY COOKED. UM, but I, in fairness, I also was not expecting this. This report was crazy. Uh, employment uh, okay, backlogs for work continued to rise at an increased rate and supply chain delays intensified, aka more rate hikes.

Uh, and this fight for corporate profits, by the way, just leads to more advertising spend as well, which I think overall ends up being good for the advertising companies, Meta included. They've got an event today and tomorrow. We'll cover that later though. Registering. Okay, here we go. Uh, output index registered the fastest expansion since July 21 and an acceleration of growth for the fourth consecutive month. So in other words, the rate at which we're growing is the fastest that we've seen since July of 21.

And uh we are now four months in a row of growth. So that takes us back to about the end of May. The steepest rise in output we've now seen in over 5 years, which is a welcome development because it was accompanied not just by services sector. That was the steepest rise in output in 5 years. But manufacturing also grew to the fastest level since April of 22, which basically means both manufacturing and services are booming.

I drew these red lines here, so forgive me for marking up their graph, but I think it shows you a very clear uptrend in the economy. The economy is still booming. Now, do we need to be concerned about recessionary risk? Of course, the labor market is one of the canaries in the coal mine. And then the labor market is saying you bro this canary is singing. This canary is having baby canaries. This canary is on fire. You go over here.

This was barking yesterday. This period will be more like the mid1990 cycle adjustment. I don't know. But this could end up being a very accurate forecast that maybe, just maybe, 2026 is actually kind of like 1995 and not like 1999. And anybody who knows about the dot bubble peaking in May of uh what was it between March and May of 2000 doesn't want to hear any reference to 1999. Yeah, [laughter] you start making references to 1999, it's just getting a little bearish.

So, ironically, the stocks are going down right now because the economy is booming so much and you have to price in more rate hikes. Let's take a look at this. Uh, you had for employment, this is very bullish. What do we have for employment here? Companies backlogs of uncompleted orders, a key indicator of capacity utilization and future business growth rose in September at the fastest pace since May of 22, having accumulated at an increased rate in both manufacturing and services.

The rise in backlogs of uh work encouraged for firms to take on more staff. Uh yeah, like we just hired three more people at reinvest, you know, house hack. We think we're booming and I I mean I'm also I feel like putting in so much more work uh because it's so fun right now with just like all the different verticals that we have cooking and growing. So it's really fun as as as a startup. But like again I say I'm a big fan of put your money where your mouth is but also put your actions where your mouth is.

So, it's sort of like, you know, I don't just I'm not just the person that's gonna, you know, sit and have a eye tie and then daily wealth send people a notification and go, "Hey, make sure you go grind out there." It's like, "Nah, man. Your boy me Kevin grinding as well." And I think that's obvious. You know, you could see that. I'm trying to pull up the um world interest rate probability sheet in the meantime. Uh we we'll look at that in just a moment, too.

So, take a look at this. Prices price pressures have intensified in September. This is another middle finger of the Fed. average input cost measured across both goods and services surged higher. The overall rate of inflation has now hit its highest level since October of 22. So this is not a Fed number. This is not CPI. This is not uh whatever blah blah blah. What this is is money honey in the private sector going damn we got pricing power right now.

That's what Barkin said yesterday as well that he wasn't sure that company's pricing power was actually declining which implies that you know people can keep raising prices. So you know something to be aware of. Now if you look at at the world interest rate probabilities I am now looking at uh a peak of 3.66 additional rate hikes by September 15th which is really interesting because if you include the September hike that now pushes us up to 4.66 66 hikes priced in fully priced in you have fully priced in 4.66 hikes between now and September 15th of next year which means we are trending towards almost pricing in a full fifth rate hike.

Okay. So then what we have over here wage pressures were uh also noted to have picked up in many cases. Not great. Inflation was blamed on higher fuel and transport costs, though again wage pressures also noted to have picked up. Supply shortages are an issue. Job growth hit the highest level since February of 21. And that's the report. So, you have a lot of data here, whether it is the uh Atlanta Fed data, this data that just came out from the S&P flash PMI, which is the first read of September, and the ADP tracker clarifying why, you know, people are confused about why is the Fed hiking, why are yields higher?

This is it. This is the explanation. Uh and so I think you know when you pay attention to this there are arbitrageages you could take advantage of in the betting market whether it's Kalshi or whatever but it's also important for when you're investing in stocks to be aware of the headwinds that you're facing because these yields are now very rich. We've now clearly broken through 5%. We are now up 8.9 basis points. And what I'd like you to see is this the yield curve.

The yield curve is legit flat. It has moved zero. Which basically means if there's no change between the 2-year and the 10-year, it means both the 2-year and the 10-year are going up at the same rate. And they're basically giving you a double middle middle finger. It's sort of like the 10 year is like and the two-year is like and and they're both GOING WE'RE BOTH GOING UP AND and the difference between the two is staying constant.

Uh that's a sign of an economy that's hot. Unfortunately, that is going to weigh on rate hikes. And the fact that we don't have an Iran deal yet, you know, we still got time. The UN General Assembly ends Monday. Uh the fact that we don't have a deal yet is making people nervous. So, some work to do on Iran while at the same time you've got a booming economy. If you like that video, check this one out. I think you're going to love it. >> Why not advertise these things that you told us here?

I feel like nobody else knows about this. >> We'll we'll try a little advertising and see how it goes. >> Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Papra there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.