Latest / Felix Nikolas Prehn's Podcast / FED Rate Cuts Cancelled? THIS is Critical💥 + Stock News Market 04 January 2024

Transcript

FED Rate Cuts Cancelled? THIS is Critical💥 + Stock News Market 04 January 2024 · Felix Nikolas Prehn's Podcast

• 0:00
  Speaker 1: Felix here and good morning to you.
• 0:02
  Speaker 1: Unfortunately, winston has just told me that the labor market data just in was way better than expected, and that's the exact thing that we did not want and that's the exact thing that Wall Street's been warning us about that the Fed might cancel the March rate cut.
• 0:22
  Speaker 1: So when I walk you through the data points here so you understand the exact setup, where the markets position, where the risks, where the opportunities are, we can make money out of this and everything else and it's, of course, not financial advice it all comes straight from this guy back there who's had another lovely day.
• 0:37
  Speaker 1: Come and also join us on Tuesday, before we get cracking here, and learn how we make money in three steps, fully automated, and it's very, very simple.
• 0:48
  Speaker 1: It's completely rules based.
• 0:50
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• 0:52
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• 1:08
  Speaker 1: So what's happened down here with the huh?
• 1:13
  Speaker 1: What happened here?
• 1:14
  Speaker 1: I thought we had one second, one, second, one, one, one, one second.
• 1:22
  Speaker 1: Bear with me, I'm trying to get that thing there, not to be in the middle of the screen.
• 1:26
  Speaker 1: Okay, that'll do.
• 1:27
  Speaker 1: There.
• 1:28
  Speaker 1: We go Righty-ho.
• 1:29
  Speaker 1: So let's get cracking.
• 1:30
  Speaker 1: Let me show you what the data looks like that we just got in.
• 1:33
  Speaker 1: I will color code this green for good, red for bad, black for hideous, and I will just use green and red and there won't be any any use for green, I would think.
• 1:45
  Speaker 1: I think it's mostly red, and it's a weird thing to say that higher job creation 216,000 jobs added to the payroll is bad.
• 1:56
  Speaker 1: Why is it bad?
• 1:56
  Speaker 1: Well, it's almost 50,000 higher than expected and it basically says to the Fed interest rates need to stay higher for longer because inflation is still a real thing and therefore the market isn't going to like it.
• 2:14
  Speaker 1: And pre-market, we're down once again.
• 2:16
  Speaker 1: Average hourly earnings, which is inflationary, is up 0.4% more than expected, so that's also bad.
• 2:25
  Speaker 1: The participation rate has fallen, which is also bad, because again it removes supply and therefore it pushes up labor costs, so that's bad.
• 2:36
  Speaker 1: And the unemployment rate is lower than we thought it was going to be.
• 2:42
  Speaker 1: That's bad, obviously not for people who are looking for jobs, but from a Fed point of view.
• 2:46
  Speaker 1: Imagine the sherry swirling crystal, the canter whirling, a sort of Fed president who is thinking we can achieve things by making people unemployed.
• 2:55
  Speaker 1: And it really is the private, non-farm payroll here that's to blame 34,000 jobs more created than we were expecting, and it's just, it's just not good.
• 3:08
  Speaker 1: It's just not good.
• 3:09
  Speaker 1: It's the exact opposite of what we wanted.
• 3:13
  Speaker 1: Morgan Stanley had warned us of this.
• 3:15
  Speaker 1: They're saying the expectation for a Fed rate cut in March is over done and we only expect a March cut if payroll falls below 50,000.
• 3:27
  Speaker 1: For February 50,000.
• 3:29
  Speaker 1: What did we just get?
• 3:30
  Speaker 1: We got 216,000.
• 3:33
  Speaker 1: So do you really think we're going to drop from 216,000 down to 50,000 by February?
• 3:41
  Speaker 1: And then election year?
• 3:42
  Speaker 1: Is that likely?
• 3:43
  Speaker 1: I kind of doubt it.
• 3:45
  Speaker 1: What do you think, winston?
• 3:45
  Speaker 1: Do you think it's likely?
• 3:46
  Speaker 1: He seems doubtful.
• 3:52
  Speaker 1: This is what Goldman Sachs predicted would happen.
• 3:55
  Speaker 1: They said if the data comes in at 200 to 250,000, which is where we are we're going to get a 0.75 to one and a half percent sell-off on the S&P 500.
• 4:07
  Speaker 1: We're not quite there yet today, but the market's still young.
• 4:12
  Speaker 1: We look at the life market in just a second here and yeah, it's just tough data.
• 4:18
  Speaker 1: City Bank said they believe labor market data over the next three to four months will be the ultimate tell whether the Fed's dovish-pivot has been successful or too late in avoiding a recession in 2024.
• 4:34
  Speaker 1: I guess that's another way of looking at it.
• 4:36
  Speaker 1: You can say, well, the soft landing is happening, but this isn't a soft landing, this is a soft takeoff.
• 4:42
  Speaker 1: We don't want that, we just want flat.
• 4:46
  Speaker 1: Flat labor market would be good, but this is a recovery that we weren't quite ready for yet.
• 4:52
  Speaker 1: Recovery should be happening at the end of the year, not the beginning of the year, and therefore it is a problem Now over all the market.
• 5:00
  Speaker 1: Is it in trouble?
• 5:02
  Speaker 1: Well, there are a couple of things that I look at.
• 5:04
  Speaker 1: One is how are people positioned?
• 5:08
  Speaker 1: Where are they?
• 5:09
  Speaker 1: How much of their portfolio is, how much of their cash is right now in stocks?
• 5:15
  Speaker 1: And it's quite a lot.
• 5:17
  Speaker 1: It's on this scale here of zero to, in theory, 200, but at about 160, which is the peak of 2017.
• 5:31
  Speaker 1: It's higher than anything we've seen in 2023.
• 5:35
  Speaker 1: It's the peak in 2019.
• 5:38
  Speaker 1: It's the 2008 peak.
• 5:40
  Speaker 1: So it kind of looks like we're near-ish the top right.
• 5:44
  Speaker 1: We're looking pretty stretched.
• 5:45
  Speaker 1: If you look at CTAs, that's, algo Traders, which is basically the dumb computers who just trade on the basis of technicals, sort of chart type analysis stuff that we teach.
• 5:58
  Speaker 1: They are fairly stretched, but not massively.
• 6:03
  Speaker 1: We have been higher.
• 6:05
  Speaker 1: We were even higher at one point in 2023.
• 6:07
  Speaker 1: So they could go a little bit higher.
• 6:09
  Speaker 1: Now this is again Goldman's.
• 6:12
  Speaker 1: They're saying what happens is if we drop below 4,500 basically 4481, then in the medium term, next couple of weeks or so below that, the Algo funds would start to sell.
• 6:28
  Speaker 1: But at the moment they're unlikely to do anything major just because of the way they're positioned and overall is pretty hot.
• 6:37
  Speaker 1: But, winston, behind me you're a bit hot.
• 6:39
  Speaker 1: Why are you hot?
• 6:41
  Speaker 1: It's like a window or something.
• 6:44
  Speaker 1: If you look at the sentiment indicator right now we're at 1.2.
• 6:51
  Speaker 1: And that's for you statisticians out there, standard deviations from where we are usually.
• 6:58
  Speaker 1: And if I zoom in a bit more on this, you can see we have been higher, but we've never been higher for a very, very long period of time.
• 7:08
  Speaker 1: Trying to get a straight line in here, not succeeding at all, but you get the idea.
• 7:12
  Speaker 1: There were blips where we were higher, like 2021 peaks or 2016, 17 peaks and so on, but it's fairly unusual to stay up there for a really, really long period of time.
• 7:24
  Speaker 1: So the bullishness that we've got is nearing a peak not at the peak but nearing a peak and if you want to know where everybody is positioned, I think this is a nice little breakdown, Like a screenshot of this, because it's kind of I think it's interesting.
• 7:42
  Speaker 1: Then I'm a bit of a data hound.
• 7:47
  Speaker 1: Institutional investors is the first bracket up here.
• 7:49
  Speaker 1: Hedge funds are very long.
• 7:54
  Speaker 1: Future positioning is very long.
• 7:57
  Speaker 1: The mutual funds are sort of they could go a bit longer.
• 8:04
  Speaker 1: Foreign investors have just run for the hills for some reason.
• 8:09
  Speaker 1: They've sold a lot of shares, clearly.
• 8:11
  Speaker 1: And then retail, which is you and me and that sort of passive funds and active equity funds.
• 8:21
  Speaker 1: So these are all fund managers but retail people invest in.
• 8:24
  Speaker 1: They are mostly pretty long.
• 8:29
  Speaker 1: So on the right here, 100 is long.
• 8:32
  Speaker 1: The active funds can still go a lot longer.
• 8:36
  Speaker 1: Why is that?
• 8:36
  Speaker 1: Well, they've just taken profits and they're kind of sitting on probably bond trades or cash, so, but overall we're at about an 80 on the sentiment indicator out of 100.
• 8:49
  Speaker 1: So, yeah, you can go to 90, you can go to 100, but we're fairly stretched.
• 8:55
  Speaker 1: Why does this matter?
• 8:58
  Speaker 1: This is dealer gamma and this is one of those things that hardly anybody understands.
• 9:03
  Speaker 1: I thought you should be one of those people because it's very, very useful.
• 9:07
  Speaker 1: So let me get my keyboard out here and I'll write it out for you, because it's probably the easiest thing when dealer gamma.
• 9:20
  Speaker 1: So when gamma is high, dealers, who are the market makers, the guys wafting the papers on the stock exchange are forced to buy when the market drops and are forced to sell when the market goes up, and that essentially stabilizes the market.
• 9:50
  Speaker 1: And we've been in this Goldilocks scenario for pretty much all over November, december to November, and it's recorded on the dis后鳥伏尔 hardenback.
• 10:01
  Speaker 1: November, december, we were very high and right now we're coming down.
• 10:06
  Speaker 1: We're still pretty elevated here, but we're coming down to more kind of average levels and that means expect more choppiness.
• 10:18
  Speaker 1: The market will be possible for the market to move down more because the dealers are no longer buying shares as they fall, and to really understand that, you need to understand options quite frankly, which is, of course, something you can do if you come and join me.
• 10:33
  Speaker 1: See that banner that just pops up FelixRentonorg slash webinar on Tuesday.
• 10:38
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• 10:45
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• 10:46
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• 10:50
  Speaker 1: It's a bit like smashing the like button on YouTube.
• 10:52
  Speaker 1: It also just makes everything better in life Now and then there is another little thing, and that's something that's also in the Feds mind, and that's the banking crisis from 2023, first quarter, which has never actually been solved.
• 11:08
  Speaker 1: All they've done is they've shoved about $150 billion down the throat of regional banks and their incompetent management, and that they do that through something called the BTFP Bank Term Funding Program, which is so boring.
• 11:26
  Speaker 1: I remember that, and the amount of money that banks have sucked out of that just hit another all time high, and the reason for that, actually, it's that it's a risk free trade.
• 11:41
  Speaker 1: You can borrow money from the Fed at a lower rate than if you deposit your money at the Fed, so they're literally taking money out of one pot and the deposit to get in the other pot, but it also goes to show that these banks are kind of like not in good shape.
• 11:55
  Speaker 1: So what happens is that in March, this program expires.
• 12:02
  Speaker 1: The Fed's going to have to justify an extension, and by doing that, they'll have to admit that the banking crisis is still here Market isn't going to like that and that they've broke the banking crisis, the banking sector and they're not really going to love that.
• 12:19
  Speaker 1: So it's a tough one for them.
• 12:22
  Speaker 1: And if you look at the regional banking ETF, which it's recovered tremendously and you kind of wonder why?
• 12:35
  Speaker 1: Well, because they've been given $140 billion in cash, but that's meant to expire in March, so this could be a bit of a March hiccup and it's definitely something they need to address Now.
• 12:46
  Speaker 1: Cutting interest rates would help these incompetent banks, but you do need the labor market to calm the heck down.
• 12:55
  Speaker 1: So if you do have a job, it'd be tremendous if you quit and went unemployed for a little while, just for the good of us greedy stock investors.
• 13:04
  Speaker 1: Would you not do that for your fellow investors?
• 13:06
  Speaker 1: Not a serious suggestion, obviously, unless somebody actually does that.
• 13:11
  Speaker 1: What you can do if you are frustrated with which way the market's going come and join me on Tuesday.
• 13:17
  Speaker 1: We can make money in any market.
• 13:18
  Speaker 1: Honestly, it really doesn't matter what the market does up down, sideways, backflips and all that kind of stuff.
• 13:24
  Speaker 1: You just need to learn the three rules, learn to apply them, and you can do that by joining me at phoenixfriendsorg slash webinar.