Buy the dip.

Summary

In this video, the speaker dismisses the immediate market reaction to the Federal Reserve's actions as an emotional overreaction, predicting a rebound from the sell-off. They argue that despite the Fed's indication of continued rate hikes, the impact on market value is diminishing, while the positive effects of interest income transfers are increasing. The speaker criticizes the Fed's approach and compares the market's behavior to a scene from the movie 'Trading Places,' emphasizing that selling off now would be financially unwise, as the economy is poised for growth and significant income transfers are yet to materialize.

Takeaways

• 📉 The speaker believes the market sell-off following the FED's announcement will be retraced, considering it a hyper-emotional and reflexive reaction.
• 🧠 The speaker criticizes the FED's approach, suggesting that rate hikes have a diminishing negative effect on net present value but an increasing positive effect on interest income transfers.
• 📈 Despite FED's comments, there was no significant change in fed fund futures, indicating market expectations for policy moves remain largely the same.
• 📊 The speaker created a graph for subscribers showing the diminishing impact of rate hikes and the increasing positive impact on fiscal transfers.
• 💰 There has been a significant year-over-year increase in fiscal transfers, with $11.2 billion added in the first four weeks of the fiscal year 2023 from treasury bills alone.
• 🗣️ The speaker finds FED's comments, particularly about over-tightening policy, to be misguided and indicative of a lack of understanding of the central bank's role.
• 🎬 A comparison is made to the movie 'Trading Places,' drawing a parallel between the film's plot and the market's reaction to FED meetings.
• 🛑 The speaker advises against selling based on FED comments, arguing that such moves would be financially unwise as the market is poised for recovery and growth.
• 🚀 The Atlanta Fed is raising its GDP forecast for Q4 2023, suggesting that the economy is rebounding from previous contractions due to fiscal spending cuts.
• 🌐 The speaker compares the current situation to historical economic periods, such as Reagan's first term, and suggests a potential for a significant bull market driven by income interest transfers.
• 💡 The final takeaway emphasizes the importance of considering all elements of the situation and warns against making emotional decisions based on one-sided views.

Q & A

What does the speaker believe will happen to the market after the Fed's sell-off?

The speaker believes that the market will come back from the sell-off, as they think it was a hyper-emotional, reflexive reaction that will be retraced.

What does the speaker think about the Fed's current stance on interest rate hikes?

The speaker thinks that the Fed's current stance, as indicated by Powell's comments, is misguided and shows a lack of understanding of the central bank's role and powers.

How does the speaker view the impact of Fed rate hikes on the market at this point?

The speaker views the impact of Fed rate hikes as having a diminishing negative effect on the market due to the discounting of Net Present Value, but an increasing positive effect on interest income transfers.

What comparison does the speaker make regarding the current economic situation and a historical event?

The speaker compares the current economic situation to Reagan's first term, suggesting that the income interest transfers could lead to a significant bull market similar to what happened historically.

What does the speaker suggest about the Fed's understanding of monetary policy?

The speaker suggests that the Fed, and by extension Powell, adheres to an orthodoxy that has been proven wrong repeatedly and lacks a nuanced understanding of monetary policy.

What is the speaker's opinion on selling based on Powell's comments?

The speaker considers selling based on Powell's comments to be a foolish move, as they believe it ignores the positive aspects of rate hikes and the potential for market recovery.

What does the speaker claim about the increase in fiscal transfers due to the Fed's actions?

The speaker claims that there has been an extraordinary increase in fiscal transfers, citing an example of an 11.2 billion increase in the first four weeks of the fiscal year 2023 due to the discount on treasury bills.

What does the speaker believe the market's reaction to the Fed's meeting will be?

The speaker believes that the market's initial reaction will be negative, but this will be short-lived and the market will recover, possibly by the end of the week.

How does the speaker describe the Fed's current monetary policy approach?

The speaker describes the Fed's current approach as 'psychotic monetarism' and 'psychotic monetary view,' indicating a strong disagreement with their methods.

What movie reference does the speaker use to illustrate the market's reaction to Fed meetings?

The speaker uses the movie 'Trading Places' to illustrate how the market reacts to Fed meetings, with initial moves often reversing after the release of information.

What does the speaker suggest about the role of stocks in protecting purchasing power during high inflation?

The speaker suggests that stocks, even in countries with high inflation, have been a good hedge against the negative impact of inflation and bad monetary policy, protecting purchasing power.

Outlines

00:00

📉 Market Reaction to Fed's Policy Statement

The speaker begins by dismissing the significance of the Federal Reserve's (FED) recent actions, predicting a market rebound from a sharp sell-off they attribute to an emotional reaction to Fed Chair Powell's comments. They argue that despite the FED's indication of ongoing rate hikes, the market's discounting of future value has a diminishing negative effect, while the positive effect on interest income transfers is increasing. The speaker provides a graph to subscribers illustrating this point, noting that rate hikes have not significantly altered market expectations. They criticize Powell's comments as showing a lack of understanding of the central bank's role, suggesting that his approach is misguided and based on political reasons rather than sound economic policy.

05:02

🎬 Trading Analogy and Market Behavior

The speaker compares current market behavior to the plot of the movie 'Trading Places,' drawing parallels between the film's depiction of market manipulation and the real-world reactions to FED announcements. They highlight the predictability of market movements pre and post-FED meetings, suggesting that today's sell-off was a reflexive response that will likely reverse, as has happened historically. The speaker emphasizes the importance of income transfers, pointing out the significant increase in fiscal transfers due to higher interest rates, and predicts continued economic growth in the face of rate hikes. They also mention the Atlanta Fed's upward revision of the GDP forecast, indicating a positive economic outlook despite monetary tightening.

10:03

🚀 Historical Precedents and Market Outlook

The speaker draws a comparison between the current economic climate and that of Reagan's first term, suggesting that the current situation could lead to a significant bull market driven by income interest transfers. They criticize 'monetarists' for focusing solely on the negative aspects of rate hikes, arguing that the positive effects of income transfers are being overlooked. The speaker maintains that selling off in response to rate hikes would be a mistake, as the market is poised for a strong upside. They provide examples from other countries with high inflation, where stock markets have protected investors' purchasing power despite adverse monetary policies. The speaker concludes by urging investors to look beyond short-term volatility and consider the broader economic context, warning against the dangers of emotional decision-making in the face of market fluctuations.

Keywords

💡FED

The Federal Reserve, often referred to as the 'FED' in the script, is the central banking system of the United States. It plays a critical role in setting monetary policy, including interest rate adjustments, which have a significant impact on the economy and financial markets. In the video, the speaker discusses the FED's recent actions and their implications on the market, emphasizing that the FED's rate hikes are not as detrimental as some might believe.

💡Sell-off

A 'sell-off' refers to the act of selling a large amount of assets, typically securities, in a short period. The speaker mentions a 'sharp sell-off' in the context of the market's reaction to the FED's announcements, suggesting that this was an overreaction driven by emotion rather than rational analysis.

💡Hyper-emotional reaction

This term describes a response that is excessively influenced by emotion rather than reason. The speaker uses this phrase to characterize the market's reaction to the FED's press conference, implying that the selling was not based on a calm assessment of the situation but rather a knee-jerk emotional response.

💡Zombie-like reflexive selling

This phrase combines 'zombie-like', suggesting a mindless, automatic behavior, with 'reflexive selling', which is selling that occurs without thought or analysis. The speaker uses this term to criticize the market participants who sold off assets immediately after the FED's announcement, suggesting they were acting without considering the long-term implications.

💡Monetary policy

Monetary policy refers to the actions of a central bank, like the FED, to control the supply of money and interest rates in an economy. The speaker discusses how the FED's current monetary policy, specifically its approach to interest rate hikes, is misunderstood by many and argues that the effects of these policies are more complex than commonly portrayed.

💡Net Present Value (NPV)

Net Present Value is a financial metric that calculates the present value of future cash flows minus the initial investment. The speaker mentions NPV in the context of the impact of interest rate hikes on the discounting of future investments, suggesting that the negative effects of rate hikes on NPV are diminishing.

💡Fiscal transfers

Fiscal transfers refer to the movement of money from one group or sector to another, often through government spending or taxation. The speaker argues that the FED's rate hikes will lead to significant fiscal transfers, which will have a positive impact on the economy and markets, a perspective that contrasts with the common view that rate hikes are negative.

💡Treasury bills

Treasury bills are short-term debt securities issued by the U.S. government. The speaker provides an example of how the increase in interest rates has already led to a substantial increase in income from treasury bills, illustrating the positive fiscal transfers that can result from rate hikes.

💡Monetarist view

The monetarist view is an economic perspective that emphasizes the role of the money supply in the economy. The speaker criticizes this view, suggesting that it is overly simplistic and fails to account for the full range of effects that interest rate changes can have on the economy.

💡Over-tightening

Over-tightening refers to the situation where a central bank raises interest rates too much, potentially leading to economic contraction. The speaker quotes FED Chair Powell's comments about over-tightening, using it as an example of a flawed understanding of the central bank's role and the potential benefits of rate hikes.

💡Behavioral reactions

Behavioral reactions are responses that are influenced by psychological factors rather than purely rational considerations. The speaker suggests that many market participants' reactions to the FED's announcements are behavioral, driven by ingrained beliefs rather than a careful analysis of the economic situation.

💡Income interest transfers

Income interest transfers refer to the movement of income from one asset to another due to changes in interest rates. The speaker argues that these transfers, resulting from the FED's rate hikes, will be significant and beneficial for the economy, contrasting with the negative view that rate hikes are harmful.

💡Ronald Reagan's first term

The speaker draws a historical parallel between the current economic situation and the early years of President Reagan's administration, suggesting that the current rate hikes and fiscal policies could lead to a similar period of economic growth and a bull market in stocks.

💡World War Three

The speaker mentions the threat of World War Three as a serious global concern that could overshadow the economic environment. While not directly related to the main theme of the video, it serves as a reminder of the broader context in which economic decisions are made.

Highlights

Market sell-off due to Fed's announcement is expected to be retraced as a hyper-emotional, reflexive reaction.

Fed rate hikes now have a diminishing negative effect on Net Present Value but an increasing positive effect on interest income transfers.

A graph was created showing successive rate hikes and their effects on fed fund futures, with no significant change post-Powell's comments.

Fiscal year 2023 has seen an extraordinary increase in treasury bill discounts compared to the previous year.

Powell's comments on over-tightening and supporting the economy later are criticized as showing a lack of understanding of the Fed's role.

Central banking is described as adhering to an orthodoxy that has been repeatedly proven wrong.

Behavioral reactions in the market are attributed to a belief in the Fed's influence, likened to a scene from the movie 'Trading Places'.

The Atlanta Fed is raising its GDP forecast for Q4 2023, indicating economic growth post-previous rate hikes.

The discussion of income transfers and their potential impact on the economy, drawing parallels to Reagan's first term.

Critique of the one-sided view of rate hikes as negative, highlighting the overlooked positive aspects of income transfers.

Advice against selling based on Fed comments, framing it as a potentially foolish move.

Comparison of stock market performance in countries with high inflation, suggesting stocks as a hedge against monetary policy.

Emphasis on controlling emotions and thinking rationally about market volatility and Fed actions.

Warning of financial suicide for those selling on rate hikes, suggesting they are missing out on potential market upside.

The forward economic environment is deemed positive, with the caveat of avoiding global conflict.

Final thoughts on the importance of understanding all elements involved in market dynamics and Fed actions.

Transcripts

hey what's up everybody it is Wednesday

uh November 2nd yeah

I'm not gonna talk too much about the

the FED today because you know I really

think that's kind of irrelevant I'll say

a couple of things I I will say this at

the outset that the sharps sell-off that

that's all going to be retraced the

Market's going to come back from that

you know that was a hyper emotional

reaction it was it was totally zombie

yeah

um reflexive selling you know I knew

that was gonna happen as soon as Powell

went to the uh press conference he was

going to dump all over the market and

he's going to say something like which

he said that you know we're not even

close to ending raid hikes uh and

everything is driven by this

you know psychosis monetarism and

psychotic uh monetary view everything we

know this and I I've been through this

like a million times

um the only thing I'll say is that Fed

rate hikes now have a diminishing

negative effect from the standpoint of

net the discounting of of Net Present

Value right uh but they have an

increasing positive effect on interest

income transfers so I actually created a

graph I sent it out to my subscribers it

basically shows that each each

successive rate hike now and you could

even they could even go one percent I

mean you know basically we have not even

after today's comments by Powell there

was no really no change in fed fund

Futures uh with respect to what they

have built in as the the expectation for

the next policy moves I mean there's

still you know 75 basis points today we

saw that uh it's still a 50 basis point

rate back in December of 75 basis point

rate hike probability probability excuse

me went up a little bit

it's a 25 basis point rate hike in

February so you know that's where it was

before the today and that's basically

still where it is but even if the FED

goes 75 in December I mean even if it

goes one percent 100 basis points in

December it could go 100 basis points in

February uh the the percentage increase

from the prior level of interest rates

now is is a diminishing slope it's a

declining slope

which means that the negative impact

from interest rates it's diminishing but

the positive impact with respect to

fiscal transfers that's going up I I

mean you have right now in the first

four weeks of this fiscal year 2023 we

have 11.2 billion was added just from

the discount on treasury bills okay

that compares to 153 million at the same

time last year I mean it's it's an

extraordinary gigantic increase year

over year and that's just a discount on

T bills that's not eventually what we're

going to see in uh interesting come on

on treasuries on tips you know all that

stuff so I mean you know that's just in

its very early stages so I mean just to

sum up right now

if you're selling based on these you

know stupid comments by Powell and I I

do uh believe they're stupid because he

said something too he said if we over

tighten it gives us room to

um support the economy later on so this

guy thinks like he has to reload like

the FED has to reload like in order he

thinks like that statement shows that he

doesn't even yeah he doesn't understand

even

the role or the function or the powers

if you want to use that term of the

central bank I mean here he is

running with negative cash flow

okay no problem on that

you know still conducting policy with

negative cash flow but yet at the same

time making a statement

which makes it sound like they gotta

build up some kind of you know uh a

cushion so that they could cut rates

again at some point in the future so

like

it's complete idiocy all right it's just

a guy who's a lawyer who got put there

for political reasons

and you know it's not just exclusive to

Powell I mean he's he's the Fed chair

but I mean all these guys I mean how

many times can I say it over and over I

mean all these guys

they just adhere to an Orthodoxy and

it's not even the FED it's it's

throughout Central Banking they just

adhere to an Orthodoxy that has been

proven wrong over and over and over

again and they just keep doubling down

and tripling down on the same thing

I don't pay any attention to it I

understand you know there's going to be

behavioral reactions because the people

are they they've been brainwashed into

believing that that this is the only

thing that counts I mean it's the only

thing anyone ever talks about hey have

you ever and today's I have to laugh

kind of today's activity because

it reminded me a lot

I don't know if you guys ever saw the

movie Trading Places with Eddie Murphy

and um

uh who else was in there uh I was a guy

who used to be on Saturday Night Live

but anyway Eddie Murphy

uh Trading Places it came out in the 80s

and Eddie Murphy was kind of this

homeless guy and uh he was picked up he

was he you know he got into this um

scheme uh where they were gonna teach

him the the owners of this big commodity

trading firm Duke and Duke they were

gonna prove that they could take any

person off the street even a homeless

guy and teach him and

um

you know uh make up a success and at the

end uh you know without going through

the whole entire plot at the end there

was a scene that was filmed on the

commodity exchange actually it's where I

used to work at the at the commodity

Exchange in the in the World Trade

Center you know that before it got blown

up uh and in fact I I knew some of the

guys in that scene they were actual

Floor Traders friends of mine but they

were like extras they put them in there

to fill up I think that thing was filmed

in the uh the orange juice pit in the

world in the commodity exchange but

anyway at that last scene

uh these guys Duke and Duke

they thought they had

um the crop report so they thought they

had inside information but really Eddie

Murphy was turning the tables on these

guys and they knew that what the the

true cop report was and so like the the

Duke and Duke Brothers the owners of

this big commodity firm they had their

Brokers bidding up

the price of orange juice because they

thought the report was going to be

bullish they were told that the the

information in the report was going to

be bullish so they were buying they were

buying the pit was going crazy orange

juice prices were going up we're going

up and then everybody turns to the TV

set when the uh USDA the Department of

Agriculture releases this uh the report

and Eddie Murphy and his his uh Co you

know conspirator in this they were

selling the entire rally because they

knew the report was going to be bearish

and then they released the crop report

and the crop report was like there's

going to be a over abundance a huge

supply of orange crop and everything

started crashing back down and it was

pandemonium and that was like today and

every fed meeting really like you get

this move before the fed and then it

reverses and I said to a friend of mine

you know I said the market was up right

after the FED meeting and I said watch

Powell come in at the uh you know at the

press conference and and dump all over

it and that's exactly what happened and

went down 500 points but again I started

out by saying and believe me on this you

know this is going to be uh that down

move today is going to be recovered I

wouldn't be surprised if it gets

recovered by Friday uh we got a positive

month in November and you know these

these physical flows these income

transfers I mean these are serious

serious significant things and this is

the reason why you know this is the

sixth raid hike

um the Atlanta fed is Raising its

economic uh GDP forecast for the fourth

quarter I mean we've had five raid hikes

coming into this one today

the economy has turned around from two

quarters of uh contraction which was

entirely due to what you guys know I've

been telling you the almost 2 trillion

that was taken away by the fiscal cuts

the spending cuts now we stabilize we're

back in growth in the third quarter and

we're gonna have even faster growth in

the fourth quarter and again the the big

income transfers haven't even started

yet I mean it's this 11 billion in the

first four weeks on T bills you know

that that's peanuts man that's peanuts

wait to these longer dated treasury

Securities start to mature and roll over

with the higher coupon and then you have

an elevated level of fiscal transfers I

mean this is this is classic

you know this is like what happened in

Reagan's first term

all right this is like what happened in

Reagan's first term and it was this was

the kickoff of basically what was the

greatest bull market I think in history

I I you know and it was it was all

income interest income transfers and

that's what's happening right now but

the monitorists you know as I've

explained or tried to explain so many

times they see only one side of the

equation to them rate uh hikes or Raid

adjustments they only see one side of it

it's you know and when you talk about

rate hikes to them

that is unequivocally negative to them

absolutely look it's one thing you know

if you were selling the market or taking

profits or moving to cash in March

before the FED uh started to do this

because yes there is a discounting

effect in the initially from raid hikes

because it reduces the net present value

of uh you know future Investments

because of the higher cost of capital

but then you know you reach a point of

diminishing returns and that's where we

are right now so if you were selling in

March if you were selling in May you

know even if you're selling it in June

but like now each successive rate hike I

just did a spreadsheet I mean you they

could go one percent they could go one

percent in December they could go one

percent in February they could go one

percent in uh uh what was the next one

after that March it's still diminishing

impact from those First Rate hikes but

the other side of that is it's a it's an

acceleration in those income transfers

and that's you know that is totally

totally being ignored

so you can ignore me you could sell you

can move to cash you could get out of

the market you could say that you know

that that's of course that's up to you I

don't decide what you do I'm just

telling you that that would be a foolish

move that that would absolutely be a

foolish move you should not do that and

um

you know there's there's a big I would

say the the the forward environment

is you know as long as we stay out of

world war three which some people say

and we're already in it uh but you know

and I hate to bring that back into the

into the equation but that's a serious

that's a real and a serious threat uh

but speaking just if I'm speaking now

just on the the economic environment

it's very positive and you know it's

it's suicide it's Financial suicide to

be selling on these rate hikes I mean

it's just you know you're selling into

diminishing returns and you're

completely

um excluding yourself from participating

in what's going to be a very powerful

upside as a result and you could look I

mean there's plenty of other examples if

you don't believe me I mean if you look

at rate hikes in other countries even

that have high inflation the stock

market in those countries in local

currency has been absolutely the best

investment to protect your purchasing

power

I mean if you look at Argentina if you

look at Turkey I mean it is absolutely

those markets have

counteracted

the negative impact from inflation and

and

um monetary policy bad monetary policy I

mean stocks are a good hedge against all

this I know it it may sound hard to

um believe right now because we have all

this volatility and I know like people

look at a day like today and it freaks

them out and they get scared you know

that's not my problem I mean you you

have to try to control your emotions and

you have to try to think

um

you know rationally and understand

all the elements that are involved here

and if you go along with a very

you know

um

one-sided View

then

you're setting yourself up

for a major disappointment anyway that's

it for today that's all I want to say

about the FED uh and we'll see what

happens all right everybody take care

bye