Latest / Felix Nikolas Prehn's Podcast / BREAKING: FED *Just* Flipped 📈 + Stock Market News 20 March 2024

Transcript

BREAKING: FED *Just* Flipped 📈 + Stock Market News 20 March 2024 · Felix Nikolas Prehn's Podcast

• 0:00
  Speaker 1: Thanks and welcome to this pre-market fed super special.
• 0:05
  Speaker 1: It's the most exciting day of the year, isn't it?
• 0:07
  Speaker 1: For us investors, because it's going to speak and what is he going to say?
• 0:11
  Speaker 1: Well, we've got some fairly good insight on that.
• 0:14
  Speaker 1: I'm going to share that with you.
• 0:16
  Speaker 1: That's the whole point here, but I also want to run you through a couple other things that are definitely making markets move today.
• 0:23
  Speaker 1: So smash the.
• 0:25
  Speaker 1: You know what, put your questions in the live chat and we will get to all of those live here as well.
• 0:31
  Speaker 1: And I've got a goodie for you in store today, which is the following A lot of people don't really fully understand what interest rates do if they come down, what stocks and what sectors might be good to buy and so on.
• 0:45
  Speaker 1: So I thought I'd write it down that I did that today.
• 0:49
  Speaker 1: So I wrote out a document very excessively entitled the Impact of Federal Reserve Interest Rates, and it walks you through what it actually does, what sectors it affects, a little bit of history and a little bit of understanding, and then also walking you through stackflation which is a real possibility, and I think it's important to understand that and what happened in the 70s and 80s and what stocks might benefit from those and why it's a six page document.
• 1:20
  Speaker 1: I hope it's reasonably easy to understand and you can get that free at philxfrenzororg, fed, philxfrenzorgschlesorg, orgfed, f-e-d, or there's a barcode even.
• 1:32
  Speaker 1: You see how high tech we are over here and it'll help you to understand a bit more what's going on in the market, because that's the whole point of this, isn't that?
• 1:39
  Speaker 1: That's the whole mission here.
• 1:40
  Speaker 1: And let's also have a glance at the pre-market.
• 1:43
  Speaker 1: That's not pre-market, that was previous day.
• 1:45
  Speaker 1: Pre-market Pretty flat.
• 1:50
  Speaker 1: Nvidia down a touch, met her up a little bit, google seems to be peaking, test rub 0.6% and everyone is hanging on the edge of their seats because, well, what's going to happen today?
• 2:02
  Speaker 1: Two outcomes Papa Powell says nothing that would be quite nice.
• 2:07
  Speaker 1: Or Papa Powell comes in talking about interest rate cuts happening this year, which I think is likely.
• 2:15
  Speaker 1: I don't think we're going to see a massive reaction to it because we already kind of have a pretty good feeling of what he's going to say.
• 2:24
  Speaker 1: I think interest rate cuts in May aren't happening and therefore he's not going to have to change his language too much, and we've got some thoughts actually from, I think, bank of America, but the language is likely to be so let me walk you through that here, but make sure you get yourself a copy of that free guide to interest rates.
• 2:47
  Speaker 1: I know it's sexy, isn't it?
• 2:49
  Speaker 1: What are you so engrossed in, darling?
• 2:51
  Speaker 1: I am reading about interest rates and the impact on investments.
• 2:55
  Speaker 1: It's not exciting.
• 2:56
  Speaker 1: I know what exciting lives we live.
• 2:58
  Speaker 1: Fet rate cut odds by meeting for June.
• 3:08
  Speaker 1: Let me get a slightly thinner pen here, microsoft being a bit too generous with the ink.
• 3:14
  Speaker 1: Today that's June and green, so for June we have a 57% likelihood of a cut priced in by the market right now and every meeting before that.
• 3:28
  Speaker 1: It's obviously less and it's not a lot, is it?
• 3:33
  Speaker 1: And I'm kind of with them on that.
• 3:35
  Speaker 1: I'm kind of with the market on that.
• 3:36
  Speaker 1: My money is on July because they are likely to be too conservative.
• 3:48
  Speaker 1: Now, if you look at the December votes of the market participants the FETBot you know the FETBot, how they voted.
• 3:59
  Speaker 1: They basically got five people said we'd get two cuts.
• 4:04
  Speaker 1: Five people, six people said we'd get three cuts.
• 4:08
  Speaker 1: So that's six times five times.
• 4:12
  Speaker 1: And then four people said we'd get four cuts this year.
• 4:16
  Speaker 1: And that made us giddy inside and jump up and down and we were more, you know, energetic than the Coke Field lot on Wall Street.
• 4:24
  Speaker 1: That I think will get worse.
• 4:29
  Speaker 1: I don't think many people are going to vote for four cuts.
• 4:32
  Speaker 1: I think that is likely to move up.
• 4:34
  Speaker 1: So I would not be surprised if we lost these four down here and they moved a little higher and that will be again kind of as expected but could be a little bit of a negative impact.
• 4:47
  Speaker 1: And the this is Goldman Sachs and basically it shows you what's the current forecast for interest rates for the upcoming meetings.
• 5:02
  Speaker 1: By June we're expected to be 2.4%, 2.5% by July time, so 2.38% for July.
• 5:14
  Speaker 1: If we do go down to this 2.3% in Mayish May-June, then I think it's quite likely we'll get that July cut.
• 5:23
  Speaker 1: We probably just get one.
• 5:24
  Speaker 1: Then I would say that they'll probably sit out the next meeting unless something breaks.
• 5:29
  Speaker 1: If something breaks big bank or something then they would cut faster, but unless something breaks, I don't think they will.
• 5:36
  Speaker 1: This is an interesting one.
• 5:37
  Speaker 1: This is again Goldman Sachs and they put out a red line document which says this is what our views are, the statement will be, and they're literally saying that there'll only be one sentence crossed out, that's job gains have moderated since early last year.
• 5:55
  Speaker 1: Just leave it at that.
• 5:57
  Speaker 1: Just take it out because the official data which nobody believes.
• 6:01
  Speaker 1: But we have to go along with it because the Fed can't really turn around and go oh you Biden lot, there you are lying through your teeth and it's very, very poorly done.
• 6:11
  Speaker 1: They literally are expecting them to bring out the exact copy and paste of the last statement.
• 6:17
  Speaker 1: Powell was busy, couldn't be bothered to redo his homework, and that would be at least stability.
• 6:23
  Speaker 1: The market quite likes that.
• 6:24
  Speaker 1: Right now, the market has basically priced in only two cuts, only two rate cuts until the end of the year, and that's a pretty low level which actually makes it more likely that the market will respond positively to pretty much anything Papa Powell says today and therefore I'm reasonably optimistic on on a statement today.
• 6:52
  Speaker 1: This one's too fuzzy to look at.
• 6:53
  Speaker 1: I think we can skip past some of these.
• 6:58
  Speaker 1: Oh yeah, probably a little bit too in depth and some people will go this guy's mad for talking about this on YouTube.
• 7:12
  Speaker 1: It's just too much information, too much in depth information.
• 7:15
  Speaker 1: But at the moment there is something called the neutral rate and that is sort of the Fed's target rate, where they're saying we don't have a positive and we don't have a negative impact on the economy and right now they're saying it's 2% and they've been saying it's 2% for a really long time.
• 7:39
  Speaker 1: The argument that Goldman Sachs is making that that should maybe be more like 3% to 4%, that maybe inflation should just be a little higher consistently going forward, and therefore, if you bring it to 2%, what you are actually doing is you are destroying the economy and your stifling growth and you're causing unemployment Because you are actually below the point where you cause damage.
• 8:04
  Speaker 1: Does that make sense?
• 8:05
  Speaker 1: So by having rates higher so that inflation stays lower 2%, you are actually depressing demand significantly and that's a risk and that's a risk.
• 8:17
  Speaker 1: So if Goldman's are right on that, it would mean a pretty miserable economy for a while.
• 8:23
  Speaker 1: So, yeah, there we are.
• 8:26
  Speaker 1: If you want to understand that a little bit better, links down below phoenixfranceorg Fed and do download that.
• 8:32
  Speaker 1: It's a full six pages.
• 8:34
  Speaker 1: I see a lot of you guys are in there already.
• 8:36
  Speaker 1: We're just brilliant.
• 8:37
  Speaker 1: And if you want your own copy of it, click on File, make a copy and then you literally have your own copy and that way we don't mess up the original right, which is why we do that.
• 8:47
  Speaker 1: So, yeah, I hope that's a useful read for some of you to understand Really how the dots connect between what the Fed does and what's going on there in the real world.
• 8:59
  Speaker 1: So a quick glance at Bloomberg Boeing sees massive cash drain A four to four and a half billion this quarter, interesting Fed's to give fresh clues on path of rate cuts.
• 9:12
  Speaker 1: Indeed, that's kind of what we're all waiting for Stubborn US inflation and so on.
• 9:19
  Speaker 1: Chip's functioning on Huawei.
• 9:20
  Speaker 1: Possibly the ASA assembly line ends with Microsoft, google and Meta, and I think that's I think the real AI money outside of Nvidia is going to be made in big tech, because they've got so much money that they can just gobble up whatever comes out in terms of good AI software.
• 9:41
  Speaker 1: They will just buy it and they can because they've got basically unlimited money, right?
• 9:48
  Speaker 1: So I think Pretty low risk place is are those businesses, because they just get business and it's not financial advice, but you know they are just very profitable.
• 10:00
  Speaker 1: They have huge free cash flow, they have huge moats and at this point the risk to them is some startup coming up and doing it better.
• 10:07
  Speaker 1: So they just go and buy the startup and that's a.
• 10:10
  Speaker 1: That's the way to the world runs, right, jimmy?
• 10:20
  Speaker 1: You download the documents to word or PDF.
• 10:21
  Speaker 1: Yeah, of course you could also do that.
• 10:22
  Speaker 1: There is also a download button.
• 10:24
  Speaker 1: If you are a more an offline kind of a person, you know, then you can read it in your bunker with your cans of sardines and your ammunition in the backyard.
• 10:33
  Speaker 1: Do you think in June the market will get hit?
• 10:35
  Speaker 1: James?
• 10:35
  Speaker 1: Not necessarily, because I think the.
• 10:38
  Speaker 1: Let me just pull up for you another chart here on second, let me just get the link.
• 10:44
  Speaker 1: Here it is.
• 10:46
  Speaker 1: You got to go according to market expectations.
• 10:52
  Speaker 1: Cme puts out this really nice chart of expectations so you can see at the top here for each meeting what the expectations are.
• 11:02
  Speaker 1: And this isn't some dumbass poll, this is actually their fed fund futures.
• 11:07
  Speaker 1: It's a traded thing, so it's the market's view of it.
• 11:10
  Speaker 1: And if you go into June, the 60% of the market expects a rate cap.
• 11:17
  Speaker 1: Yeah, so we will be disappointed if we didn't get it.
• 11:20
  Speaker 1: But we have in May where nobody expects a rate cut.
• 11:26
  Speaker 1: Well, 5.8% of people.
• 11:28
  Speaker 1: Do you know?
• 11:28
  Speaker 1: There's always an optimist out there.
• 11:29
  Speaker 1: The Fed will speak then and there will between now and then, if inflation data stays sort of elevated ish, they will slowly and gradually phase out that one rate cap.
• 11:41
  Speaker 1: So it'll just get pushed back a little bit.
• 11:43
  Speaker 1: It's like going to have a big impact on markets.
• 11:45
  Speaker 1: I don't think so.
• 11:46
  Speaker 1: No, I don't think so.
• 11:47
  Speaker 1: I think if we went to say end of year, you know, say July or September, if you don't get one in July, then I think, yeah, we are in for a bit of a rough summer because by July, 50 plus 27 plus one is what is that?
• 12:06
  Speaker 1: 78% of the market, the vast majority of the market, is expecting a rate cut at that point.
• 12:13
  Speaker 1: So only 21% of people saying there isn't going to be one.
• 12:15
  Speaker 1: So you always got to look a little ahead and see where the market is and this is a cool tool.
• 12:20
  Speaker 1: I'll put the link in the chat for you.
• 12:22
  Speaker 1: You can have a look at that.
• 12:23
  Speaker 1: It changes life every single day because it's traded to free website.
• 12:26
  Speaker 1: It's a bit slow to load sometimes to have a bit of patience with it, but it's a cool little tool and you can see down at the bottom how it's changed between now and yesterday or last week and you can see some pretty significant moves there and that gives you a pretty good insight of like what the market's up to.