Folks, the FED has a new massive problem in this video. I'm going to violently break down exactly this new crisis that the FED is facing and what you need to know. We also just got some new data from Nomura which breaks down what the Algos are doing and new position changes they are making. In light of the recent inflation news, this data reveals a lot about what we could expect to see as we go into the end of the year.

Let us get right into it. and if you appreciate videos like this, make sure to hit that subscribe button. Okay, so this morning the producer price index the PPI came out and it confirmed what we saw on the CPI. The pace of inflation is indeed cooling down.

The PPI came in at 0.2 percent overall for October, which was below the 0.4 estimate that the market had had. So for folks hoping that inflation has peaked, well, this is at least more evidence suggesting that it doesn't suggest that we're not just going to Plateau at high levels, but it does suggest that we have gotten a peak in inflation back here. Now in terms of what you can thank for this, well, a significant reason that inflate was down is because of a slight decline in Services, which is the first outright decline that segment had since November of 2020.. You look at this chart.

final Demand Services are in green. You can see that segment had a huge outsized impact on inflation in almost every report, and now it's in the negative. Finally seeing a cooldown in the segment as the Man drops. This is what the FED has been hoping for for a very long time.

the economy slowing down enough and destroying the consumer enough where they stop spending as much and as they stop spending as much. Well, all of a sudden, people that are offering those services or those goods have to start lowering their prices. Of course, in the next few months we may find out that this slowdown in consumer spending was a result of the consumer actually dying instead of just being treated with a Slowdown. But as of right now, this is good news on the inflation front.

Let's see a new problem is emerging now. Financial markets are starting to loosen again, which is the opposite of what the FED wants and has been trying to do all year. According to Reuters, even If, the Fed delivers the remaining tightening. Now expected a sharp drop in borrowing costs across the economy in Loan.

mortgage or credit card rates or a storage in stock prices could end up sustaining demand, but willowing inflation and making the Fed's job harder. But guess what's happening exactly that? You're getting all of that Right now, the stock market is up 11.8 percent in the last 30 days. Some indices up a lot more than that. The 10-year treasury dropped below 4 and has cratered there.

Mortgage rates are dropping week after week. Again, it follows that credit card rates and personal loan rates are also dropping and this is in the context of nearly every metric of household debt being up substantially year over year. Credit card debt also increased by the most in 20 years. When borrowing Costco What? People are supposed to borrow less and spend less and thus reduce overall demand? That's the whole goal that the FED has.

yet. People are looking at those higher rates and they're spending more and more money. some because of necessity since their earnings aren't keeping up with inflation. but a lot of people are continuing to spend today and to worry about the rest tomorrow.

And as rates go down and then crater a bit as Financial conditions loosen. Well, all of a sudden, there are even more. They're even more encouraged to do that kind of thing. The US dollar Index shows the USD getting weaker month over month as people are expecting a looser environment.

So yes, there has been a huge loosening month over month, expecting the FED to start slowing the pace of raid hikes at the bare minimum. And this is before the FED has actually started doing that or even made any clear indication that they're going to do that. Imagine what happens when they do start easing rate hikes? What financial markets are going to do. And so this puts the FED in a very tough spot.

Sure, maybe the Fetters think it's appropriate to ease the aggressiveness of hikes, but if they do that, they also risk spurring an even bigger loosening of financial conditions, which then Spurs what well inflation to come roiling back according to Reuters Every time investors and Traders begin to price a Fed pivot, market conditions loosen and inflationary pressures rise easing Financial Conditions make the Fed's job of bringing down inflation harder, which in turn actually makes a pivot less rather other than more likely. So the opposite of a self-fulfilling prophecy Deutsche Banks Jim Reed said on Monday And this is true even if the FED isn't actually doing a full pivot, but is rather just doing a small pivot which is slowing the pace of rate hikes which then would lead to pausing which then would lead to a full pivot to cutting, which is expected to happen sometime towards the end of next year. And the point is, if people think that Financial conditions are going to stop being tightened, well, they start factoring that in ahead of time. They start loosening things up ahead of time and all of a sudden inflation starts picking up again.

and then all of a sudden the FED has to react by being even more aggressive than markets had factored in. Which means that this is like they said, the opposite of a self-fulfilling prophecy. In a minute, we are going to get into exactly what the Financial Conditions Index is screaming. But first a word from today's sponsor and today's video is brought to you by MooMoo Mumu is a One-Stop trading app that makes it easier for users to do everything they need to trade stocks.

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Okay, so you go ahead and you take a look at the Chicago Fed National Financial condition index. That's a mouthful. But the way this works is that the more negative you are, the more loose the financial conditions are, and the more positive you are, the more tight your financial conditions are. Now, obviously the trajectory is attempted to be controlled by fiscal and monetary policy, but that doesn't always work.

You had very, very loose conditions in the decade or so before 2020. They tightened up during the beginning of the lockdown, and the FED did its best to get it to loosen up fast. But now they've been tightening all this year. Again, right? And it's been effective from a financial Market standpoint.

But look what's happening now folks, you're starting to see a loosening again since the beginning of October If The Fed doesn't step up and whip markets back into shape. They'll risk further inflationary spirals down the road as this line continues to go back down to looser and looser financial markets. So this is the big problem and the new crisis that the FED has to face. A overall Financial Market that is loosening at a pace that is getting away from the Fed, the FED is once again starting to lose their indirect soft power of being able to control more markets with their voice and with their planned trajectory And the way that they can snap it back into shape is all of a sudden going and Hiking faster than the markets are currently expecting.

which for the current point in time, that's instead of a 50 basis point hike at the next meeting, that might be a 75 basis point hike. that might be a higher terminal rate when you get into that last hike cycle meeting. So I don't know, folks. it seems to be a little bit too early to be really throwing up the victory flag here now.

I Want to go ahead and talk about the latest data from Nomura? These reports give a lot of insight into what the big Algos are doing and what big money is thinking about the current market condition. I want to be careful with what I show because this is technically proprietary data that leaks and I apologize for the blurriness. But let's get to the main points here. So Nomura identifies three factors that help explain the CPI shock rally that we saw last week: Number one: a relief rally following the release of the CPI data owing to the high event premium that had built up in the market in anticipation of the announcement.

Number two, the impact of Delta hedging as dealer had expanded their Gamma short positions prior to the announcement, and number three, the heavy concentration of Cta's short positions in the 3850 to 3900 band. Okay, so the first one here is that you had such a buildup of anticipation and likely leaning negative for that CPI report that all of a sudden any surprise to the upside would cause a massive massive contrarian rally and a huge reward premium. Then you had the Delta hedging as a result of expanded Gamma short positions. What does that mean exactly? Well, why do you short gamma you short gamma if you want to reduce your exposure to potentially large movements.

for example, if a big earnings reports coming out or in the case of the overall stock market, and in the case of this particular position, well, you may want a short gamma if you have a massive Market roiling Market rattling report coming out like a CPI So Ctas and fund managers were going and hedging their exposure to a huge reaction on that CPR day. And then when you ended up getting a massive pump, the market makers that provided the hedges in the first place. Well, they had to go and buy underlying Securities to hedge and that caused an even further pump. And then number three, the concentration of Ctas at Short positioning in the 3850 and 3900 band.

What does that mean? Well, you had all these Ctas set to automatically short in that region, but then it blew through it so fast that some likely didn't activate and the ones that did activate got squeezed out and forced to cover immediately. Now, the other part that connects to this and what I need to share with you is this: They expect Ctas to continue to cover shorts in U.S equities for the time being. quote are estimates of Cta's natural positions indicate that Ctas will continue to buy back the S P 500 for three weeks, but they say that the Ctas aren't doing this specifically to write a trend and are unlikely to support a major share price rally. They give two major reasons such as concentration and dealers gamma positions.

But the most important part and the most important takeaway here is that the Ctas seem to be closing shorts. Not because they think we're going to head into a continued massive huge rally, but because they want to retake their Firepower and short again at higher prices. then don't think this bear Market rally is going to last. But they do think that it's useful for them to call back their Firepower while it is going on so that later on when it's a little bit higher, they can go and dump massively and make an extra Alpha on the market.

make a little extra moolah baby! And based on this, it appears that the CTA covering could last until a few more weeks and perhaps until the beginning of 2023 before the next rug pull where they will be back and ready to dump that extra Firepower again. So anyways, folks, some very, very interesting activity in the markets right now. From both a Fed perspective, the FED is going to have to make some crucial decisions on whether they start guiding the markets lower and we do have some Fed speakers tomorrow I believe. And you also have a lot of big money and a lot of Algos going and saying hey, you know what? let's get on the sideline a little bit.

let's get a little bit more on the sideline with our short positions so that when prices or if prices go up more, we can just go ahead and dump massively. Anyways, that caps off today's video. Let us know what you think down below. Make sure to hit that ravish and like button and also subscribe if you want to get your up to 15 free stocks with MooMoo I will put a link to them down below.

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