Latest / Felix Nikolas Prehn's Podcast / FED Rate Cut: THIS is Critical + Stock Market News 01 May 2024

Transcript

FED Rate Cut: THIS is Critical + Stock Market News 01 May 2024 · Felix Nikolas Prehn's Podcast

• 0:00
  Speaker 1: pre-refinancing announcement.
• 0:01
  Speaker 1: I mean, how much more exciting could this morning get?
• 0:04
  Speaker 1: And then, of course, what Papa Powell is going to say today and how we make money out of it.
• 0:07
  Speaker 1: And there are actually very clear strategies for that, courtesy of Goldman and Sachs, the bankers with a big heart that I will share with you and I'll walk you through.
• 0:18
  Speaker 1: I've also got a monster benchmark for you of all the S&P 500 stocks, which you can download down here at phoenixcom and it'll literally give you the data of every S&P 500 company margins, cash flow, pe ratios, forward PE, long-term earnings, growth, all the good stuff.
• 0:37
  Speaker 1: And you can filter it, mess with it, just click on file, make a copy.
• 0:41
  Speaker 1: Then you've got your own and you can do with it as you wish.
• 0:45
  Speaker 1: Pre-market looking mixed.
• 0:47
  Speaker 1: Amazon good Earnings were pretty solid.
• 0:50
  Speaker 1: Tesla down a touch Interesting story on that one.
• 0:53
  Speaker 1: Nvidia down a little bit.
• 0:54
  Speaker 1: Microsoft and Google both green, I guess, on the Amazon cloud business news.
• 0:58
  Speaker 1: That's sort of spilling over there.
• 1:00
  Speaker 1: But the rest of the market is a bit like oh, what's going to happen today?
• 1:04
  Speaker 1: What's going to happen today?
• 1:05
  Speaker 1: What's going to happen today.
• 1:05
  Speaker 1: So let's walk through that.
• 1:06
  Speaker 1: Let's understand that.
• 1:11
  Speaker 1: You can, of course, ask questions as many as you like.
• 1:14
  Speaker 1: All you've got to do first is smash and destroy the like button.
• 1:18
  Speaker 1: I'm sorry if I pressed the button yesterday, did you?
• 1:24
  Speaker 1: Oh, I don't remember.
• 1:25
  Speaker 1: I have a fairly thick skin.
• 1:27
  Speaker 1: You can press as many buttons as you like, but yeah, it's true, sarcasm in writing is one of those things.
• 1:33
  Speaker 1: It doesn't really come across very well, right?
• 1:34
  Speaker 1: So I'm going to make myself my little powder drink here.
• 1:40
  Speaker 1: I'm really getting into electrolytes and I was talking about it the other day and sugar-free ones, and, honestly, if you exercise a lot, you have no idea You're probably short of things like magnesium, potassium and chloride and sodium, which is salt, basically, but the good kind of salt, and it's a wonder thing.
• 2:01
  Speaker 1: So I'm addicted.
• 2:02
  Speaker 1: It's my new drug of choice.
• 2:04
  Speaker 1: This one's got a nice sort of lemony flavor too.
• 2:06
  Speaker 1: But let's get on to employment numbers, because you're probably here for that and not for general supplement advice.
• 2:14
  Speaker 1: Why is the market closed, says Khaled?
• 2:17
  Speaker 1: It's pre-market, my friend.
• 2:19
  Speaker 1: Good morning everyone.
• 2:22
  Speaker 1: Lean protein is king.
• 2:23
  Speaker 1: Yeah, it's true, it's true, protein is quite important.
• 2:28
  Speaker 1: It depends, though, what you eat, whether you get enough or not.
• 2:30
  Speaker 1: I think people probably eat a lot of the time, a little bit too much.
• 2:33
  Speaker 1: But anyway, let's get into this.
• 2:35
  Speaker 1: This is ADP National Employment Report, private, non-fabular.
• 2:38
  Speaker 1: Basically, how many jobs were created?
• 2:41
  Speaker 1: And well, it's a beat More jobs than expected.
• 2:45
  Speaker 1: But how did they do that?
• 2:47
  Speaker 1: Well, they did revise down last month, so last month was a little higher and then they revise it down.
• 2:55
  Speaker 1: It's the power of statisticians you can lie and cheat and do whatever you like, but it's still a pretty strong labor market.
• 2:59
  Speaker 1: Basically, everything created jobs, except for tech, tech sack people, tech with a, with an h, but everybody else has been been hiring.
• 3:10
  Speaker 1: Like you know, hiring is going out of fashion, which means strong economy.
• 3:15
  Speaker 1: And then you look at what about salaries, wages going up.
• 3:20
  Speaker 1: Well, if you're staying in your job, you should be getting a five% pay rise, which obviously sucks, but it's better than a kick in the teeth.
• 3:29
  Speaker 1: But if you're changing jobs, you're still getting 9.3% pay rise, which implies that the labour market is, on the face of it, somewhat strong, is on the face of it, somewhat strong, and you're going to hear me talking at twice the speed now.
• 3:54
  Speaker 1: Now, adp is a private organization and they understate jobs created by a fairly large amount compared to what Biden's lying cheating lot at the BLS come out with.
• 4:09
  Speaker 1: And this isn't Biden who came up with that.
• 4:11
  Speaker 1: Every president in history has done the same thing.
• 4:13
  Speaker 1: So they're not Democrat bashing, I'm just saying they are making it into particular art form the manipulation of economic data.
• 4:21
  Speaker 1: And what does that mean?
• 4:22
  Speaker 1: Well, it means that tomorrow's jobs data should be very strong.
• 4:26
  Speaker 1: And what do we have?
• 4:28
  Speaker 1: If we have very strong job data?
• 4:29
  Speaker 1: We have a tough morning for Powell Jerome Powell the great, and I know you all worry about his happiness.
• 4:36
  Speaker 1: I know it's at the very kind of core of our being and our thinking and our prayers every single day.
• 4:43
  Speaker 1: But he can't really come out and go strong job market, kind of highish PCE, inflation and kind of a strong economy overall.
• 5:04
  Speaker 1: So I'm going to cut rates.
• 5:09
  Speaker 1: It doesn't work that way, does it?
• 5:10
  Speaker 1: It just kind of goes against it.
• 5:12
  Speaker 1: So you can't really say that he's going to cut rates.
• 5:14
  Speaker 1: So what is he going to do?
• 5:15
  Speaker 1: How is he going to get himself out of this?
• 5:17
  Speaker 1: Well, here is one reason he's got to get himself out of this.
• 5:21
  Speaker 1: It's sort of a bit like Houdini, you know, locked in 13 chains in underwater in a box, and bit like Houdini, you know, locked in 13 chains in underwater in a box and you've got 30 seconds.
• 5:39
  Speaker 1: The amount of money that the US government is borrowing is approaching, once again, levels we had during COVID.
• 5:41
  Speaker 1: Remember that insane, miserable period that seems like some sort of sci-fi movie where the government told you couldn't go anywhere and you had to take vaccinations that now turn out to be completely unsafe, but they were mandatory, otherwise you couldn't walk your dog that period and we seem to be getting back to that, and I'm not aware of a global disaster crisis.
• 6:00
  Speaker 1: That should kind of explain that.
• 6:02
  Speaker 1: But hang on, presidential election right, that could be it.
• 6:05
  Speaker 1: You need to spend a lot of money so you get reelected.
• 6:08
  Speaker 1: Everybody loves you if you give them money.
• 6:09
  Speaker 1: That could be it.
• 6:10
  Speaker 1: I know cynic over here.
• 6:11
  Speaker 1: Presidents tend to do that.
• 6:14
  Speaker 1: So what's the way out for you?
• 6:16
  Speaker 1: Well, papa Powell is still shredding money fairly significant amount about 60 billion per month.
• 6:26
  Speaker 1: Significant amount about $60 billion per month and on Wall Street.
• 6:33
  Speaker 1: That's why I was doing that on Wall Street.
• 6:39
  Speaker 1: It is widely expected that he's going to cut that in half.
• 6:40
  Speaker 1: Now we're going to go from $60 to $30 billion, which means we're going to shred less money.
• 6:43
  Speaker 1: Why?
• 6:43
  Speaker 1: Because someone's going to buy all this stuff here and if you are already issuing, you know, a hundred billion, the Fed is shredding 60.
• 6:54
  Speaker 1: You're effectively adding another 60 billion on top, so that line kind of in terms of demand required goes sort of up there.
• 7:02
  Speaker 1: That's a problem.
• 7:02
  Speaker 1: So you kind of don't want that to happen.
• 7:04
  Speaker 1: So the way around that is keep rates higher for longer, but stop shredding money, and I suspect we're going to get some hint for that today.
• 7:13
  Speaker 1: Now, talking of shredding, Elon the great decided to fire his entire supercharger team about 500 people, and they were the ones in charge of rolling out all the superchargers and everything else.
• 7:27
  Speaker 1: And I think Elon just kind of had a Twitter moment.
• 7:30
  Speaker 1: He just walked in the office one day and said what do you people all do?
• 7:35
  Speaker 1: I just can't understand it.
• 7:36
  Speaker 1: Let's get rid of a lot of you.
• 7:37
  Speaker 1: And you know what I love, that I actually do.
• 7:40
  Speaker 1: I think most companies are vastly overstaffed and a lot of people sitting around not really doing very much, so he's sacked a lot of them.
• 7:47
  Speaker 1: Uh, the talk that he might hire some of them back, but essentially what it means is that the charging network will grow at a slower pace.
• 7:56
  Speaker 1: And and why would that be happening?
• 7:58
  Speaker 1: Well, it's a realization that ev demand is slowing.
• 8:06
  Speaker 1: It's still growing, but the rate of it is.
• 8:10
  Speaker 1: So EV demand growth that would be more accurate is slowing.
• 8:14
  Speaker 1: And also the charging network.
• 8:17
  Speaker 1: Really, tesla is already there and they've opened this up to Rivian and GM and everybody else.
• 8:23
  Speaker 1: But is that really making you money?
• 8:27
  Speaker 1: Probably not.
• 8:27
  Speaker 1: So you get to a sweet spot, I think, where there are sufficient charging stations, but unless your sales are massively going to the moon, you probably don't need to add that many.
• 8:35
  Speaker 1: So I think it's just a cost-cutting exercise on top part of Elon and probably just a frustration with a bunch of people not delivering what he wanted them to deliver.
• 8:44
  Speaker 1: I love a bit of Elon Sachs people.
• 8:49
  Speaker 1: I know me too.
• 8:53
  Speaker 1: And okay, here is what Papa Powell has been saying of late.
• 8:57
  Speaker 1: So these are his recent quotes, courtesy of the friendly chaps at Goldman Sachs.
• 9:03
  Speaker 1: And he said PCE should have been changed little.
• 9:12
  Speaker 1: The recent data has not given us greater confidence that indicators likely to take longer than expected to achieve that confidence Policy is well positioned to handle the risks we can handle.
• 9:21
  Speaker 1: If the labor market eases, it's appropriate to give restrictive policy further time to work, and I'd expect him to say something fairly similar to that today.
• 9:29
  Speaker 1: And he's saying the economy isn't suffering from this level of rates.
• 9:33
  Speaker 1: Pce was in line and we need more good inflation readings, and I think that's pretty much exactly where we are right now.
• 9:43
  Speaker 1: And then the rest of the boy band at the Fed sort of mimicking that jefferson saying if inflation persists, hold rates higher for longer.
• 9:50
  Speaker 1: Bauman says remain willing to hike if inflation progress stalls.
• 9:54
  Speaker 1: That we want to make sure bauman doesn't speak.
• 9:56
  Speaker 1: Cutting too soon could risk inflation.
• 9:59
  Speaker 1: Um, disinflation has been bumpy and even as expected.
• 10:03
  Speaker 1: So that's the kind of language I would expect today and and therefore he's not going to hint that there'll be rate cuts in June.
• 10:11
  Speaker 1: He might even say there won't be rate cuts in the next, unlikely in the next meetings.
• 10:14
  Speaker 1: Typically he just says, typically he simply says we'll decide it at each meeting.
• 10:20
  Speaker 1: But the question is, after he says that is his language, more one of confidence, which the market will love, or more one of worry?
• 10:27
  Speaker 1: And if Jerome Powell is a little bit worried, then the market will get very, very worried and we don't really want that.
• 10:34
  Speaker 1: So you want him to be in a good kind of exuberant mood.
• 10:37
  Speaker 1: Now, what do you do if rates go up or stay up for longer?
• 10:45
  Speaker 1: Rates go up or stay up for longer.
• 10:48
  Speaker 1: Well, what have we been talking about in the last week or so?
• 10:54
  Speaker 1: Buybacks we talked about, right Mega cap tech in energy will do well and if rates come down, and the less well-funded tech, so the AI plays past losers the underperformers will do well and the weak balance sheet companies that's typically growth stocks and so we need rates to come down for those to do well.
• 11:20
  Speaker 1: Otherwise, the mega cap thing is going to continue in energy to some extent, and again, this is courtesy of Goldman and Sachs, and this is an interesting chart with no headlines.
• 11:32
  Speaker 1: You don't know what the heck it is.
• 11:33
  Speaker 1: This is global money supply Since 2004,.
• 11:43
  Speaker 1: That's where it's charted and you can see it's pretty volatile right how much it grows by.
• 11:46
  Speaker 1: Right now we're sort of nearing zero.
• 11:49
  Speaker 1: Well, have a look at what happens when try to get that on the same chart.
• 11:56
  Speaker 1: Money supply is stupendously high.
• 12:00
  Speaker 1: We get a big rally right.
• 12:02
  Speaker 1: That rally here is that rally there.
• 12:04
  Speaker 1: What happens, on the contrary, when money supply gets shredded, you get a dip, or over here this was 2015-16.
• 12:14
  Speaker 1: We had that there or you go to 2009.
• 12:18
  Speaker 1: This is 2009.
• 12:20
  Speaker 1: So money supply is incredibly important and therefore the mix of interest rates and money shredding.
• 12:27
  Speaker 1: Printing is really what makes the party continue.
• 12:31
  Speaker 1: So we want Powell to slow down the money shredding.
• 12:35
  Speaker 1: Very, very important.
• 12:36
  Speaker 1: And this might make it a little bit clearer.
• 12:40
  Speaker 1: In red and green, I've got on here the S&P 500.
• 12:44
  Speaker 1: 500.
• 12:47
  Speaker 1: And then in dubious orange, I've got on here money supply, us money supply, money, us money supply.
• 13:02
  Speaker 1: And it doesn't take a genius to work out that pretty much the only reason we make money in the market is because the Fed prints more money, right.
• 13:05
  Speaker 1: So it's so much for the oh, I'm a genius to work out that pretty much the only reason we make money in the market is because the Fed prints more money, right.
• 13:08
  Speaker 1: So so much for the oh, I'm a genius stock picker.
• 13:11
  Speaker 1: No, it's just the Fed keeps printing more money.
• 13:13
  Speaker 1: It's basically inflation.
• 13:14
  Speaker 1: That's how we make money.
• 13:15
  Speaker 1: So that's really what it's all about.
• 13:25
  Speaker 1: Did Yellen get a large tax windfall?
• 13:26
  Speaker 1: Did Yellen get a large tax windfall?
• 13:29
  Speaker 1: No, I think she got about $100 billion more.
• 13:31
  Speaker 1: I thought it would be more.
• 13:32
  Speaker 1: I thought it would be more like $150 billion.
• 13:33
  Speaker 1: She did announce today a lot more bills, which should be positive for the market, and that's basically mean they are borrowing more in the short term and a little bit less in the long term for the longer term dated debt and TLT is a little bit positive on that today, which is what I would expect.
• 13:55
  Speaker 1: 0.2% up Not a lot, but it's a little bit up.
• 13:57
  Speaker 1: Let's see what happens during the rest of the day here.