What the Fed *JUST* Warned

This is insane to see this inside of the FOMC minutes. The Federal Reserve just released their minutes. And while a lot of people are freaking out about the most simple things that their AI is telling them to worry about, like, oh no, most committee members saw another rate hike as likely they missed the forest for the trees as usual. But that's okay. That's why we come here to get the extra nuance. Yeah. And another cup of coffee. The ghost of JPAL is back. Can you see the ghost of JPAL on the screen here? If you look closely enough and you squint your eyes, you will see a coupon code and Jerome Powell. No, it's right here. This is literally verbatim Jerome Powell when I read this. Moreover, real private domestic final purchases PDFP. Did somebody say PDFP in the house? I'm not talking about PDFs, even though this is a PDF. I am talking about two PPs. PP PDFP real private domestic final purchases, which comprises PCE and private fixed investment, which often provides a better signal of underlying economic momentum than does real GDP, appeared to have picked up notably in the first half and to have been rising faster than GDP. Consumer spending growth has firmed. The AI buildout continued to support robust increases in business investment spending. And the AI buildout also fueled strong imports of high techch capital goods while real energy exports rose to record highs in the second quarter amid disruptions to oil shipments from the Middle East. This is hands down Jerome Powell writing all over it. And why does it matter? it matters because if you look at the chart and you go back to the CO chart, the chart doesn't look like it's making that much of a difference. So, we're going to ignore that COVID line right there. And if you look at this now, you can actually see we have the highest first uh well, this is second quarter right here. So, these are quarterly data points that they have. We are at the highest data point on a quarterly reading going all the way back to the chat GPT moment when we had a 4.7 read and we're at 4.6 six right now. And honestly, I would bet that for Q3 when this data actually comes out, we will be even higher than this. In other words, PDFP says, "The ghost of J Pal is booming." And like I I don't know like I I like the top comment and it didn't have that many likes but it was one of the ones up at the top of my last video was like Kevin now you're shilling for this economy and it's like they're trying to be jaded about me saying yeah I I think peak fear is over and I think stocks are going up. Then stocks go up and then they're like, "Oh, well now you're just a shelf for the economy." Is are you Whatever. The economy is broadly doing very well right now. That doesn't mean everybody is doing well, but the boom in artificial intelligence is crushing numbers. The weakest part is in the labor pricing power sector, which maybe this is why people get frustrated because they're seeing shrinking pee pee. See, they even mentioned that right here in the Federal Reserve piece. They mentioned that measures of labor cost growth were below their year earlier measures even though the 12-month change sat at 3.3% through June. The last BLS report was even weaker for this. So you kind of have to remember that like this got even worse worse post these uh uh meetings. So yeah, I would guess some people whose peps are shrinking, you know, their worker pricing power might be a little fussy and then they kind of take it out in the comments. It's sort of like a kid who had a bad day at school throws their food and all of a sudden they throw their food and everybody's like, "Wait, why is the child pissy?" It's because they're child, you know, they don't know how to regulate their emotion. But anyway, they mention here that labor force participation rate uh stepped up back up following unusually low readings of the past couple months. This is actually a red flag though that we want to pay attention to because if they're talking about unusually low readings, then if this normalizes, the unemployment rate ticks up and then this bragging about how the unemployment rate is stable goes away. And then that actually becomes a real catalyst that weighs on the stock market. We're not there yet. That's going to take at least six months. you'd have to have like six months of the unemployment rate going ding ding ding ding ding ding up up uh and then you'd end up getting uh to a problem. We're not at a problem right now. So, some other notes that we have in the FOMC minutes, the shift uh in expectations was attributable in part to FMC FOMC communications. Now, I thought this was interesting because in their minutes, they're basically saying, "Hey, you know, markets basically priced in this rate hike, which we wanted to do because we kind of communicated what might end up happening." And I think that's particularly funny because Kevin Worsh is the kind of anti-communication guy. And so, you still have people in the minutes that are like, "Nah, man. Communication's still kind of important." Now, what you'll find in the prediction markets is that the Fed decision for October right now sits at about 84% uh as a maintain that's with $ 8.7 million of volume. If I look at the bond market, it shows we really don't have an arbitrage on that at this moment. Uh so there's really little little to be expected of a difference here. So that's pretty consistent. If I go to December though, December right now we are sitting at about a 15.5% chance of no more rate hikes and the rest so about 84 a.5% suggest that there'll be at least one more rate hike, right? 70% chance we get at least another rate hike. Uh I guess you could actually go cumulative. One more rate hike would be 84 5%. And two more rate hikes would be about 13.9% chance. Uh I think uh and maintain that this exactly one here is probably going to grow. Although a lot of people are calling these minutes hawkish, which in fairness, like the meeting was hawkish, right? So that's fine. Uh I am kind of excited though because I I think there's a very real chance we're not going to end up getting that second rate hike. And let's look at some of the other components inside of this because when we look inside of the Fed FOMC report, we'll see some other hints. A quick shout out though, if you want to end up trading any of these positions, consider going to kshi.com/r/mevin or scan the QR code here and get a free $25 when you sign up for Cali and make your first trade. They are a paid sponsor of Reinvest. Uh I went in here and I like I like placing little predictions on uh the Federal Reserve. That's that's uh Federal Reserve and Iran. Those are the only two things I've placed on. I know some people use them for sports uh and there's I mean you could do politics as well, but I like a Fed guy. I really like I think it's kind of fun. Continuing on into the notes we see here, the manager noted the rise in equity prices this year was entirely attributable to strong actual and expected corporate earnings while price to earnings multiples had declines declined. This is insane to see this inside of the FOMC minutes. They're basically telling you, hey, uh yeah, you know, uh stock prices went up, but uh it's because earnings went up so much. And it's actually pretty crazy. the earnings were so strong that the PE ratios actually went down. They're basically telling you the economy is booming, stocks are actually getting cheaper while it's booming and the risks to the labor market are not present at the moment, which is consistent with what we've been seeing. They see they call the credit market stable. And then they also go on uh to tell us that hey, China might be a little weak right now. I think that's because they're printing less money in China. We were talking about that this morning on the live stream as well. Uh and they do argue that the only problem that we have right now is that we're not getting to our inflation target. We're not seeing quote sufficient progress because of and then they literally mention it here crude oil and refined fuel products plus surging AI related investments. Now several participants observed that the rate of price increases in core services excluding housing remained elevated. Some mentioned that core goods also remained elevated as the effects of the AI buildout appeared to increase what the effects of tariff or while at the same time the effects of tariff increases waned. So we finally lap tariff increases but now things are getting more pricey on the AI side. So it's like dang it persistent inflation yet again. uh although they do say that some individual items like software or cell phone uh you know pricing or portfolio management fees had made large contributions and those would probably fall in the future. So in other words they're telling us hey look like yeah oil prices are to blame. So is AI to blame? That doesn't necessarily mean those conditions are going to stay. And if those conditions don't stay, like we get a deal with Iran, we don't necessarily have to hike. A lot of people are quoting, most participants estimated that another increase in the Fed funds rate would likely be appropriate. Everybody is quoting that on social media, but nobody is quoting the next line. Participants emphasized, however, that they would approach each meeting with an open mind and it would depend on incoming information. Yeah. So, in other words, the next two CPA two to three CPI reports are going to be really critical. Let's go look at the CPI schedule of releases because I think it's quite useful. Uh, and the first thing that you see when you go to the schedule of releases, it's actually kind of remarkable, is the coupon code expiring Thursday evening. That's shocking. I will say Reinvest the company with people getting reinvest terminal right now. I'm gonna look at it. Yesterday was over a six-f figure day. Today is over a six-f figure day. We're going to be over we might end up hitting half a million dollars in just two days of people signing up for Reinvest one. It's apparently it's a really good product offering that people are really excited about. It's going to be a sick research terminal. Honestly, it's going to be really cool. But uh thank you to all of those of you. It helps the startup out. So, anybody who's an investor in the startup should be very happy. So, what do we have here? The November CPI report doesn't come out until after the December Fed meeting. So, we're not going to get that CPI report, but I bet you they're going to end up having the deets on that CPI report. We just won't get it. So, as far as us, what's in play for us is going to be the November 10th and the October 14th CPI reports. Those two reports are going to set the decision up as to whether or not we get a hike in December. So, we got two reports to go. As long as labor is stable between now and then, those are the two dates that you want to mark your calendar on. October 14th and November 10th. Pretty sure I said October 13th at one point, but now looking at it, it says the 14th. So, you know, maybe you have to update your calendar. But anyway, they're they're telling you, look, Iran war ends, we might not have to hike again. If the next two CPI reports coming good, we might not have to hike again. If uh the economy keeps booming the way it is, doesn't mean we have to hike. Just means the economy is booming. And if anything, stocks are actually getting cheaper. Even though they're going up in price, they're just getting cheaper faster than they're going up in price because of really good earnings. Why? Well, because the economy is booming. Treasury yields and financial conditions appeared to be supportive of economic growth with equity prices rising substantially and spreads on corporate bonds having remained narrow. Several participants noted that credit appeared broadly available pointing to a new level pointing to the level of new financing in the economy robust issuance this is the suckening like SpaceX right in corporate loan and bond markets and and they are being absorbed or easier bank lending standards. Now, some people ask me, they're like, "Hey, Kevin, but what about that Aura overs subscription? Remember when Aura Ring is like, "Hey, we're oversubscribed." This was really weird. So, Aura disclosed and I have an idea about how this could work. So, this is uh like I was talking to an expert about this yesterday and we were kind of trying to figure out how both of these things could be true or is somebody lying to us? Yeah. And I don't like to bias towards, oh, they're just lying. I always like to bias towards there's probably extra context here that we're missing. And I think that's exactly what happened here regarding liquidity. Remember this smart ring maker Aura IPO four times overs subscribed. September 25th 925 health and fitness or ring $2.2 2 billion IPO pricing at $40 to $44 per share. Four times overs subscribed is the idea. And I made a video dumping on the Aura Ring IPO. I'm like, A, Apple just killed them and B, no, this is like a fad. They they got to IPO fast because their numbers next year are probably going to be a lot lower. And I felt bad because I didn't like their numbers in their balance sheet anyway or their margins and stuff. And I dumped I I did dump on them. I I do feel bad about that. But anyway, then I look at the Wall Street Journal Aura Ring and then the Wall Street Journal about 11 days later says why Aura's stalled or what I stalled IPO tells us. Okay. And then over here it literally says when Aura tried to go public last month, it couldn't find enough buyers at its proposed price and shelved the listing. The company blamed jittery markets. And so some people are looking at this going, "Oh, well Kevin, the Fed is saying there's ample liquidity, but they're saying there's not." Okay, here's what I think happened. Okay, I think the company's like, "Hey, we think we're going to end up uh, you know, issuing shares to underwriters at, let's call it $20 a share." Okay. And then over here at this level, Aura Ring says, "Wow, we have 4x the demand we were expecting." And then they go, "Okay, well, what is that going to likely price us at when we hit the market?" Well, probably $40 to $44, right? That's what we saw from the articles. And the idea here is that they raise money here, they get the liquidity from the underwriters, and then the underwriters turn around and they can dump it. And this is how people kind of make profit in underwriting plus fees and under there's there's I'm way oversimplifying here. Okay, but the whole intention of underpricing is a so you could raise the money really quickly and b it's marketing. Oh, Aura ring IPO doubles on IPO. It's all bull crap. It's like underlisting a home and then you go, "Oh my gosh, we got multiple offers." You know, you do it because you want it to sell fast and then you want everybody to go buy Aura Ring stock because it doubled the first day. You better get in before it's too late and then that gives them the support to raise more money in the future, right? But I actually think these people are like, "That's not good enough. We want it to be $50 a share once we hit the market." So that's how it could both be 4x over uh overs subscribed and not good enough for them. That's my thesis because remember insiders insiders are going to want to try to dump here. The company raises money here, but then wherever it stabilizes at afterwards is where the insiders try to cash out. So that's a little snippet on on how that sort of liquidity thing works. So what people see that and they're like, "Oh, Kevin, how what do you mean liquidity is good? Ora just poopy doobie." Yeah, but Aura has its own idiosyncratic risks. On top of that, like Apple just killed them. That doesn't necessarily mean that liquidity in the market is weak. And so right now, all these suckings that we're seeing are actually being absorbed. And broadly, even with what's going on in Japan, the Federal Reserve sees all this as stable. Now, could they be lying to us? Of course. But I don't think it's likely. I think Jerome Powell just sent us a big signal that the moon is coming, boys and girls. And you either get your butt on the damn wagon or you stay outside with the zombies and you want to stay outside with the zombies. Well, then [music] I wish you good luck, but it's going to suck. 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 Praath there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.