Latest / Financial Survival Network / Inflation & Fed Rate Cuts Market Outlook for S&P, Dollar, Gold, & Silver...- Jim Welsh #6052

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Inflation & Fed Rate Cuts Market Outlook for S&P, Dollar, Gold, & Silver...- Jim Welsh #6052 · Financial Survival Network

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  One of the reasons why I think we're headed toward a very sluggish economic window
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  of time that will last the next ten to fifteen years. If you look
• 0:08
  at monetary policy from the nineteen fifties into two thousand, the Fed funds rate
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  almost always was above the rate of inflation, so it had a real rate
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  of return. You were listening to Carrie Lutz's Financial Survival Network, where you
• 0:24
  get valuable information you just can't find anywhere else to thrive in today's trying times.
• 0:30
  You need the Financial Survival Network now more than ever. Go to Financial
• 0:36
  Survivalnetwork dot com and get your free newsletter and gift. Financial Survival Network now
• 0:43
  more than ever, And welcome to you are listening to and watching the Financial
• 0:51
  Survival Network. I'm your host, Carrie Lutz. Well, hey, I
• 0:56
  can write the headlines for the story that's coming out on FRAY and that is
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  expert surprised by sudden increase in an unexpected increase in inflation and PCE and all
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  that good stuff. Jim Wilsh is here with us now macrotides dot com.
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  So, Jim, did I write the right headline for the story? I
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  think close. I mean, obviously, what I was writing about a few
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  weeks ago, was that when the CPI came out carry on April tenth,
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  it would show a definitive increase from the three point two percent up to at
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  least three to four and poteste three five. It came in at three five.
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  The core was unchanged. The PCE is probably going to be more unchanged,
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  both the core and headline. But the point being is given that people
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  are now anxious to see progress on inflation because the FED is wanting to see
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  progress on inflation, and anything that doesn't provide that means that FED raycuts are
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  pushed more out into the future. And we've gone from six rate cuts at
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  the beginning of this year to three before the CPI, and now it's down
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  to about one and a half. So again it comes down to expectations and
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  people wanting to see that PCEE inflation, which is the Fed's most preferred thing,
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  you know, starts to show that it's trending down. I don't think
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  we're going to get that, And if economists are expected that to be the
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  case, then they are going to be disappointed and they are going to be
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  surprised, all right, So this is kind of like Mark twain. The
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  rumors of my death have been greatly faterated. Rumors of the upcoming FED rate
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  cuts have been the totally exaggerated, haven't they. Yeah, And it was
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  silly all along. As I was riding back in December and January, with
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  the unemployment rate hovering near a fifty year low and the inflation figures were well
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  above the Fed's two percent target rate. The last thing that FED would want
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  to do is cut rates, adding stimulus to an economy that was grew three
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  percent last year, which would only increase the odds that in twenty twenty five
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  inflation would tick up. And Paul and others have said the one thing they
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  want to avoid is the mistakes of the nineteen seventies. And what happened in
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  the seventies was the FED increase rates significantly in nineteen sixty nine seventy it cost
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  a recession. They increasing rates significantly in seventy three seventy four. It led
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  to a recession, and those recessions then forced the Fed they slash rates quickly.
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  Inflation never really came out of the system, and by nineteen eighty one,
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  the FED had the funds rate up at twenty percent, so the FED
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  wants to avoid that, yo yo, which is why I think they've held
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  the funds rate where it's been since last July. But at the same time,
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  it's also why I think they're wanting insensitive to the idea that cutting too
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  soon would undermine some of the products they've achieved. And that's why, you
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  know, my take was they were going to be more patient, and the
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  data points proves that that patient's was warranted. All right, So are they
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  in control? Are they losing control here? Jim? Well, they're always
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  behind the curve. I mean, I just think that the FED, by
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  its nature, is evaluating data that is in the rear view mirror, and
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  when data points change quickly, they can't help but be too late. And
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  that's what obviously happened in twenty twenty one. In twenty twenty two, they
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  were thinking that inflation wasn't going to be as bad as it turned out to
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  be. They've called it transitory, which is wrong. So it's, you
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  know, the problem they face in terms of understanding the difficulty of the job.
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  The lag time between rate cuts or rate increases is variable, and it
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  can be twelve, eighteen months or even long longer. So again, I
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  think that's why they're trying to be very gradual in what they've been doing and
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  will continue to take that course. So the one thing I will, I
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  guess, argue strongly is the FED has a two percent inflation goal, and
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  if you think about it, money doubles, the cost of living doubles every
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  thirty six years. At two percent in quadruples in seventy two years. The
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  average person lives, as we know Carrie, more than seventy two years,
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  which means that in a person's lifetime, if the FED is successful in achieving
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  quote unquote stable prices of two percent a year, cost of liberty is going
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  to quadruple in everyone's life and only a central banker would call that stable prisis.
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  So to me, the goal of two percent is way too high,
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  but that's obviously not going to change. That's what they've set out, and
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  if anything, there's potential where they will back off that two percent target very
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  next year and maybe even later this year if we start seeing unemployment to hire,
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  well, imagine if the US currency was like bitcoin, and every year
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  or two you had a having, so they had to have the amount of
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  money they're printing every I think they should do it every six months. Can
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  you imagine we would have deflation, which they make it a real negative thing.
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  But what deflation means is the purchasing power of the currency is going up.
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  What is so bad about that, Well, they're just worried that that
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  only has happened during very deep recessions. They're worried that their primary tools of
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  funds right. And this gets through. This is a great topic to chat
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  on here because one of the reasons why I think we're headed toward a very
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  sluggish economic window of time that will last the next ten to fifteen years.
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  If you look at monitors policy from the nineteen fifties into two thousand, the
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  FED funds rate almost always was above the rate of inflation, so it had
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  a real rate of return. Starting in two thousand and one, the Fed
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  dropped the fundtionent to one percent, inflation was more than one percent, and
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  since two thousand and one the funds rate has been negative for that whole entire
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  period, which implies that its effectiveness as a monetary tool in leveraging the economy
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  either to grow or slow down, especially grow, is being neutered. And
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  so I think if we go into the next recession whenever it shows up,
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  I think next year is will very lightly candidate. Is the Fed going to
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  cut rates? Yeah? Is it going to have the same stimulative effect that
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  it used to? I don't think so. And the other component is debt.
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  In the nineteen sixties, every one dollar of debt generated about ninety cents
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  of GDP. We're down to less than forty cents for every dollar debt.
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  And think about it, it's kind of straightforward, simplistically, but straightforward.
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  Last year GDP was a three percent the budget deafit was six percent. So
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  is the private economy really flourishing when most of the stimulus is coming from the
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  federal government And the answer to that is obviously no. So the two policy
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  tools that they've used, fiscal and monetary policy to kind of regulate the economy
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  for the last forty plus years, I think are have shown to be less
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  and less effected, which implies that the next time we go through a recession,
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  they'll try the same thing they've always tried. I just think we're going
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  to see diminishing results, which means less the economic growth and you know,
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  higher unemployment as a result of that and so forth. So I'm glad you
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  brought it up. You know, FED policy has evolved and I think in
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  an unhealthy manner in the last twenty five years. So let's look at the
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  charts, Jim, and tell me what you see in the offing here.
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  Okay, let's drop down a little bit. This is a piece that you're
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  going to have available to people who are watching. Guys. It just looks
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  like the trends in the show notes. Yeah, so you know social Security,
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  what's happening there? Over then you know they're both going to go bank
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  rept Medicare social Security? What does that mean? You know? Deficit spending?
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  I love that unless you're collecting it. Yeah right. You know last
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  year's deficit of six percent is the biggest deficit ever during either each time or
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  outside of recession. You know, interest expense, how it's consuming the budget
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  and so forth. These are just charts that I think most your viewers will
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  find informative. We'll stop here on this one. This is an important one
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  which thret year treasury bond. Yeah, okay, got it. Basically,
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  what this implies is the bull market, the secular bill market and treasury bonds
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  that started in nineteen eighty one and lasted until twenty twenty has ended. And
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  what we see is that trend line going back to nineteen eighty one was decisively
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  broken in twenty twenty two. In addition, they decline. When you look
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  at it, you can see one, two, three, four, five
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  down until last October. I believe Carrie, this is a signal that we've
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  begun a new secular bear market in the bond market that's going to last ten
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  to twenty, maybe even thirty years. That's how long secular market trends last
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  in the treasuries. At least that's the case from nineteen forty five to eighty
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  one, eighty one to twenty twenty. So that I think is another reason
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  why an extended period of slower growth, because on balance, I think treasury
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  yields are going to be higher. If we can scroll down a little bit
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  and we'll get to some of the other charts that are we're going to talk
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  about. Since I don't I don't think that you can do it. Got
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  it down, Go down, go down? Please, thank you go down.
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  Let's see you go down further. You know people have access to this,
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  so they can let's shown a little bit more, all right, just
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  tell me the adding I'm looking for. Yeah, okay, here we are.
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  Let's over. Yeah, thatsp long term yeah next seven. Yes.
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  So in late March, you know what I just showed subscribers this chart.
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  It was kind of like, all right, we've come to an interesting juncture
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  in that from the October twenty too low. You can see a rally up
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  the July of last year forty six o seven, a pullback to forty one
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  hundred, and then the high at fifty two sixty plus that it was three
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  ways. So we were if you're bullish, okay, we're gonna have a
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  wave four pullback of seven percent to maybe ten percent, and then rally up.
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  The bearish count is the top's end, we're going much lower. And
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  so to me, the two paths were, well, we're headed south.
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  And so I continue to think that the decline that we saw initially really getting
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  kicked off in response to that CPI report, Kerrie, I think it has
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  more to go. You know, we got really over sold, we got
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  a bounce. I think the SMP has a chance to get down to ours
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  forty eight fifty or so. That's the three eight to two replacement treasury yields.
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  The rally from last October to the high in TLT at one hundred.
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  I think, as I said just a minute ago, five waves down in
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  Treasury bonds and in TLT suggested we were going to have a counter trend rally.
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  I turned positive in October looking for a big rally. We got it
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  from eighty two to fifty to over one hundred and TLT in late December.
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  My expectation was we would see yields go up because the idea of six rate
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  cuts is ridiculous, and that TLT would retrace a big portion of that decline.
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  The six twenty eight retlacement is at eighty six thirty on TLT. So
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  my take here carry is I think it's getting close to the time to buy
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  TLT. The GDP reporter for the first quarter comes out tomorrow, it's going
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  to be north of two percent. As we discussed, the PCE is not
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  I think, going to offer much inflation comfort, so I think we could
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  see TLT dip there. Mike, I guess the overall view I have is
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  we're going to see the economy slow more than what people expect. In twenty
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  twenty two. The majority of economists we're talking about a recession now sixty five
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  percent of them and don't think of recession's coming. The yield curve, the
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  historical lead time on that is nineteen months, well, nineteen months from July
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  of twenty two is January February of this year, so we're just at that
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  point in time. Carry that historic going back to the nineteen fifties, the
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  yield curve has signaled a recession. So my take is that we're going to
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  see the economy as we get to midyear and beyond slow more than expected.
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  That sets TLT up or a rally that I think could carry it up to
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  one oh five to one oh nine. And in terms of the dollar,
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  uh, you know, my take at the end of December was, like
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  I said, the idea of six rate cuts was ridiculous. We were going
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  to see treasure yield move up and that would lend the dollar a tailwind.
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  It would rally it to one oh four and then most recently refined it to
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  the one oh six fifty one oh six seventy. I think once this upcoming
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  rally is over and again the final touch could come in the next couple of
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  days with the GDP and PCE reports that the dollar were top, and then
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  I think ultimately sometime in this year, Carrier, we'll see the dollar trade
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  below one hundred, and that I think will be again in response to a
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  weaker economy. In terms of gold, in February I recommended buying gold,
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  and the expectation was we were going to be trading. And really the last
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  time we talked, let's say I'm bullish gold. It's going to rally above
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  twenty three hundred this year. It obviously did better than that. I think
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  we're at a point career where a pullback in gold to the twenty two fifty
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  and maybe a touch below will evolve. It'll take weeks, not days.
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  You know, sentiment got a little frothy, and you know, after that
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  pullback, I think we're going to see higher highs in goal again. If
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  the FED is forced to cut rates, not because inflation's down, but because
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  the economy's weakening. I think that's a real tailwind for gold because I think
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  it would be negative or the dollar. So hey, that's a brief calling
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  to the markets. Interesting times ahead, that's for sure, and even silver
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  has joined in on the fun. I think we've got your take on it,
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  so Jim appreciate you coming on. You find Jim's work over at macrotides
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  dot com. Beware of the dollar, beware of gold, Beware of t
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  bills and treasuries. That's for sure. Nate. Got any questions for Jim
• 16:26
  myself, email kl at Carrie LUTs dot com. The link to jim site
• 16:32
  is in the show. That's this interview on Financial Survival Network dot com.
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  Make sure you go there sign up for your free newsletter. Jim appreciate your
• 16:41
  stopping by. We'll talk to you again real soon. Thanks to that to
• 16:44
  be talking media, Carrie, and stay well. Thanks for listening to Carrie
• 16:48
  Letz's Financial Survival Network, your solution to today's trying times. For the latest,
• 16:55
  go to Financial Survivalnetwork dot com. Financial survival net Work now more than ever