So the markets have rallied and the Recession is finally over or is it now The CPI report for October is out at 7.7 Sounds like great news inflation has Dropped four months straight from a peak Of 9.1 and it seems that we are in the Clear you know in fact the markets had a Crazy rally with the s p flying up over Five percent within a few days but I Want to stress that this is most likely A bear Market rally and everyone is on Hopium we want to believe that power is Done with his rate hikes we want to Believe that inflation is on its way Down to two percent within the next few Months but we're going to have a reality Check here guys the fundamentals of the Economy are still very weak the cost of Borrowing is up inflation still stupidly High everybody's beginning to see wave After wave of layoffs happening this is Not a cause for celebration because time And time again the Federal Reserve is Telling us that they aren't done yet Guys demand destruction is still coming Because the gap between interest rates And inflation is still too high Inflation is still the number one enemy Of the Federal Reserve where Paul saying That he wants to get a fat funds to a Level where the real interest rate is Positive and that means interest rates Need to go above the current rate of Inflation and we still have a big gap
Today the FED funds today is four Percent at best and core inflation and That's the index the FED really looks at Is still staying strong at 6.3 percent Inflation is becoming sticky and power Has no choice but to keep hiking rates No I've been saying we will hit five Percent easily and I will still stick to That forecast there's still going to be Two to three more rate hikes before we Can sit back and re-evaluate what we Have now is a classic brand Market rally Filled by hope yep and copium the market Is still looking for excuse to pull Stock prices higher but I don't think it Will last you can't just rely on one Data point the fundamental picture is Getting worse and not better first Inflation over seven percent is not good News it is still Insanity at seven Percent you will lose over 50 percent of Your purchasing power within 10 years And that is using government figures Which we all know is understating real Inflation it feels more like 10 or even 15 percent so prices across the board Are still going to head up inflation is Only slowing prices that are up they're Gonna stay elevated and the fat is Determined to keep demand destruction Going and we see it so many times before They are likely gonna hike until we Reach real positive interest rates Because if you think about it right it
Creates a deflationary spiral which is Necessary to fight inflation now if Inflation is at safe six percent and Rates are at seven percent this creates An ultimate incentive for people to stop Spending and start saving you literally Suck money out of the economy and They'll be few were dollars chasing the Same amount of goods and this will make Prices drop can I get it right we are Getting conflicting messages from the FED we are Brainard saying rate hikes Should start slowing down soon but I Want us to focus on what the FED Governor Waller has to say because I Believe that is their true intention he Is cautioning the world that the FED Isn't done yet there's still more pain To come he specifically said these rates Are gonna stay keep going up and they Are going to stay high for a while until We see this inflation get down closer to Our Target this isn't ending in the next Meeting or two and we need to pay Attention guys we need to smell the Coffee the fat is still going to keep Hiking well into 2023 and even when they Stop hiking rates are gonna stay Elevated they're gonna stay high now the Interesting thing about his statement is How he's confirming that raids are going To match inflation and probably exceed It as planned and according into Waller It's really not so much about the pace
Anymore where we end it's going to be Driven solely by what happens with Inflation so as long as CPI or call Inflation is higher than the pet funds We can expect more demand destruction Happening so we need to analyze the Inflation factors on the demand side of Inflation is being handled right now the Federal Reserve they are pulling money Out of the economy by the leveraging the Balance sheet and Hiking rates is it Working probably but the intention is to Make everyone poorer so we can spend now On the supply side it is not a bit of Roses it is not a Rosy picture inflation Is controlled mainly by Energy prices so If oil prices Spike and they stay high Everything else is going to cost more And what do we have going forward the Price cap on Russian oil is coming and That could unleash another inflation Monster if Putin decides to restrict his Supply to the G7 seven countries which Includes the United States and this will Cause global oil prices to jump up again And everything from food to fertilizers Will get more expensive and with the Midterm election results of the Democrats taking the Senate I'm very Certain that America won't be pumping Oil anytime soon so the energy Supply Back home won't increase the focus will Still be on green energy plus if we look Towards the Middle East OPEC is not
Playing ball guys the group that Controls 60 of all exports has said they Will cut production to maintain prices Now open has cut their oil demand Forecast for 2022 and they are cutting Production to protect their revenues and Remember open is going to cut away 2 Million barrels per day of production Starting in November we can't forget That so Energy prices are going to stay High and the Federal Reserve knows that I'm very sure they affected these events Into their calculations and right now They have a green light to keep hiking Guys you need to understand what the Federal Reserve really cares about they Only care about their dual mandate they Won't care about your stock portfolio They don't care if you're up or down 10 They only care about maintaining stable Prices and maximum employment and guess What even though companies like meta Amazon they're about to lay off tens of Thousands of people the broader economy Still looks good unemployment might have Risen to 3.7 percent but it is still Near all-time lows and payrolls are up 260 000 in October this tells power the Economy is still strong people still Have money to spend and the economy can Still take a further bidding from higher Interest rates and I know this is Twisted thinking but welcome to the
Modern economy so when power gets rates Near her birth inflation it's not going To immediately drop them the next day This inflation fight is still going to Continue because we have been at low Rates for Far Over a decade and Trillions they have been written up in Fact there's an interesting article by Barons that says it could take a decade For inflation to get back down to normal And by normal I mean anywhere from two To three percent inflation maybe even Four percent because I highly doubt we Will go under two percent according to The federal reserve's original plan and During this period right power will Likely keep rates much higher than usual And in fact in a survey of primary Dealers and Banks the median expectation Was for rates to stay above four percent By the end of 2023 and that was back in September so this figure is probably Near five percent today and let's Remember that the markets are now driven By hope and delusion anything that beats Expectations is a signal that the worst Is over and the bull market is back on Track but if rates are going to stay Higher for longer we need to understand That we are going to transition into a World of stagflation that could last for Years we are going to see a daily combo Of higher inflation slower economic Growth and Rising unemployment so I
Really want us to adjust our Expectations because the good old days Of 10 on the S P for 10 years probably Won't come back that was doing the cheap Money era the good times of near zero Rates boring costs for companies are Heading up we can see borrowing costs For companies have more than doubled Over the last 12 months the U.S Corporate bond Benchmark is at 5.6 today When it was just 2.2 percent a year Earlier and that is going to translate Into slower growth and less spending Which contributes more towards a Recession companies can't grow people Can't spend and this is going to feed Internet earnings recession that's going To come as early as 2023 maybe even by December this year so we have to brace For impact and let's talk about what Everyone is hoping for the Federal Reserve reversing cost because Eventually they will the FED will Eventually do a 180 and pivot and we are Trapped in this cycle of easy money Explosive growth than a recession and a Period of tightening before the whole Cycle repeats again and let's say the Economy doesn't break and inflation Drops down gradually to the new Baseline It goes from seven percent down to five Percent down to three percent and so on Plus it stays low for a few Quarters at Least then the Federal Reserve might
Start to ease but we also have to look At Global demand destruction around the World because remember every time the U.S hikes rates it has a magnified Effect across the world it causes double Demand destruction because there's also A currency effect that other countries Must account for if they don't money Will flow away from their economy to the US dollar and treasuries just take a Look at the Euro Yen and pound sterling All developed countries are still Getting crushed against the dollar but The world's also trading partners with The US so it's not in the interest of The United States to see the whole world Burn forever if we have enough country Suffering and if inflation in the U.S is Controlled the FED could do a pivot and Is to kick-start the global economy once Again then other countries they all Start easing and we are back into a Long-term bull market before the next Crash happens it's just a cycle that Will repeat forever and ever until the Monetary system resets but that's one Event that could trigger the emergency Pivot that we should pay attention to And that is the bond market collapsing The bond market breaking and I think There are really serious risks to that The problem with Rising rates is falling Bond prices and we do not know how Leverage the entire system is remember
We have seen from the UK that even Pension funds were neck deep in leverage Because they were chasing yields in a Low interest rate environment and we are Beginning to see the U.S treasury market Having liquidity problems as treasury Demand is still quite weak buying bonds Today is a near guaranteed loss if rates Are still going to head up right now Money still flowing through the 10-year Treasury with investors praying for more Rate hikes to end but reality is going To hit as rate hikes continue to happen And interest rates continue to climb and If this reverses and suddenly there's a Wave of bias remorse we will see massive Selling pressure in the market when no One wants to buy and they will Spike Used up and the Federal Reserve could Come in with an early pivot like the Bank of England so we should take the Feds warnings about further rate hikes More seriously we have gone from near Zero rates to almost four percent today And it is a miracle that the economy is Still standing but inflationary Pressures are still strong guys and with The weaker dollar this is going to make Domestic inflation hotter in America as Now it will cost more for them to import Staff so unless I see interest rates Close the gap with inflation I don't Think we are done just yet yes car Prices are starting to come down at
Certain home prices in certain areas They are falling but food and feel they Are still expensive and that is bad for The man on the street now I'm playing This rather conservatively I was buying Some equities at the s p levels of Around 3 600 3700 levels but now Everything is elevated again the bear Market rallies back so now I'm focused More on cash and gold cash because I Believe there's still going to be Another lake or two down rates still Have to stay high to crush inflation and This could cause the economy to crash And burn in 2023. now gold because this Inflation fight could take three four Even five years and I need an asset that Will protect purchasing power especially If we are moving towards prolonged Inflation over three or four percent and This is where gold comes in for me we Can see gold had a beautiful Spike to Over 1770 once the lower CPR report came Out and if we compare gold with the s p It is only down two percent compared to Over 17 percent in the index so I'm Still buy buying more every month or so Because as much as I am afraid of a Market crash a deep recession I believe Inflation is still the bigger problem so Let me know what you think in the Comments below is the Federal Reserve Still going to hike above inflation or Are they going to Pivot soon let me know
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