Okay folks, in this video, I want to explain quite bluntly why I believe another rug pull is coming. Sit back and get some tea, because we're gonna go step by step number one. I believe the Fed is nowhere near done right now. Markets are expecting an equal chance of a 50 basis point hike versus a 75 basis point hike in the next meeting in late September, which is a bit more hawkish than markets had thought just a week ago and especially two weeks ago.

But if you look out a couple more meetings into December, markets are still expecting rate hikes to top out somewhere around 350 to 375 basis points. Now remember that range because if you go out five more meetings to July 26, 2023, markets are expecting rates to be topped out at that same that very same 350 to 375 at that time as well. Sure, some expectations are slightly higher, maybe you have a 25 basis point margin for error, but the bigger picture here is that the market is expecting rate hikes to start topping out very very soon, which would be all fine and dandy if if that was true. The problem is that it's probably not.

Odds are strong that by summer of 2023, net and in effect, the Fed is going to have to go more aggressive than the market has already priced in, which is a problem. Why are markets so convinced that Fed rate hikes are almost done well? It pretty much all has to do with inflation. If you look at the New York Times Cpi Report chart, it shows that in July we had a very small drop in the year-over-year rate of inflation, both overall and in core inflation which excludes food and energy markets are using this little curve hither to project that the inflation battle is behind us. In any other world, 8.5 inflation year over year would be a freaking disaster, But because it's a cool down from over nine percent, we are supposed to be cheery and happy-go-lucky little garden gnomes.

Well, let me tell you, I am no happy garden gnome. and markets right now are expecting drops similar to periods of time like back in the 1970s and 1980s. Despite the fact that we had rate hikes significantly significantly higher and the economy tanked during that time period, we are expected to believe that this here is going to drop like a rock without either either of those things happening. We get all of the good without any of the bad.

I just do not see how that is possible if you look at the recent Cpi report. Sure, energy prices and some commodities cooled off, but you're starting to see a lot a lot of stubborn pricing pressures and specifically labor because of the tight labor market. and what happens when those pricing pressures continue to go up. Well, those are pretty damn sticky and they tend to stick around.

So even though commodity prices go down, what happens? Well, if labor costs just keep going up. Well, people don't really start lowering prices right because that eats into their profit margin. If we are expected to believe that no massive recession is ahead of us, what is it exactly That's going to stop that out-of-control inflationary pressure. And then the other argument that you could say is, well, hey, wait a second Charlie, I believe that inflation is far behind us because energy prices are cooling off a little bit.

And yes, absolutely they have cooled off from rush attention and supply shortage peaks. That's fantastic. It's great. I'm glad that happened, but they've started stagnating in the 90s, well above where they were all last year.

and a lot of these issues that drove them up in the very first place have not been fixed and many are getting worse. The main reason that oil prices have even been driven down right now is because of recession fears. The same recession fears that at the same time we are expected to believe are completely overblown. I just don't see how both of those things can be true at the same time, right? Oh, don't have to worry about energy prices because oh, they're factoring in a recession.

And then over here, don't have to worry about a recession because that ain't gonna happen. Bank of America came out today and said that U.s gasoline prices are expected to jump again towards the end of 2022.. On top of that, of course, hurricane season tends to disrupt a lot of supply chains and of course, cause some upward pressure in domestic oil prices. These are things that are not deflationary.

So when it comes down to a Fed, rug pull and a Fed axing of the stock market, I do believe that the Fed will have to be a lot more aggressive than markets expect by sheer nature that I don't believe that inflation is going to drop like a rock like markets think it will. I do think there's some big money out there that's like, well, we don't necessarily think that inflation is going to drop like a rock, but we don't think the Fed is really going to step up and do what's necessary to bring it down anytime soon. and thus, bullish. But the problem is, when you look at that bigger picture, it still suggests another rug pull because eventually something breaks.

Okay, moving on. The second reason that I believe that there's another rug pull ahead of us is, well, the economy. So if you go and you take a Series 7 test to be registered as a stock broker in the United States, well, if there was a question on the test that asked you what is the recession, you'd have to define it as two consecutive quarters of negative Gdp growth. But of course, if you become President of the United States, then you can define a recession as whatever you want it to be.

But the fact of the matter is that when you have two consecutive quarters of negative Gdp growth and inflation at just under four decade highs, you do not have a healthy nor a stable economy. You have an economy with a bunch of doofuses driving it, telling you everything's okay and their hands are up in the air saying, oh, look at us, hey, maybe it's fun to feel the wind in your hair and everything, but the fact of the matter is that eventually this ends badly. Meanwhile, the so-called tight labor market is delivering wages that underpace inflation, and below the surface, is delivering a lot of low-skilled jobs that really don't pay much, and you're losing a lot of high-paid jobs specifically in the financial sector. You go and you ask some mortgage brokers how their businesses are doing, they're not doing so hot, you're losing tons and tons of high paying jobs, and we're supposed to say oh, but that's good because now we got some very, very low paying jobs that are probably just going to be bludgeoned like six months from now.

And the problem is, this is kind of a lose-lose situation because if this changes and wages start pacing with inflation or outpacing it all of a sudden, you get again that inflation problem going and spiraling out of control. which again goes back to my first point which is more evidence that the Fed is going to have to rug pull us, which kind of gets you back to that bigger picture, which is if you want inflation down, you gotta have either the Fed rug pulling us or the Economy rug pulling us and more likely a combination of the two. And the question is which one is going to be more aggressive at doing it. Meanwhile, you have Consumer Coffin.

It's dumping faster than the Ceo of a meme stock dumps his shares, and that's pretty damn fast. Consumer expectations in Green are lower than at any point since the Great Recession and its recovery, and they are continuing to drop. Where do you think this is going to be three months from now? Is it gonna be better or worse? I think it's gonna be way worse. Current condition opinions are dropping as well.

They're still pretty healthy actually, but they're dropping as well. And guess what? We have more rate hikes ahead of us. Most of the pain from the current rate hikes that we've done hasn't really been felt yet outside of direct finance, and the trend seems pretty obvious on where the economy is going. Maybe you don't agree that we're heading for a massive bludgeon.

But let me ask you this question: Do you believe that we're going to speed up from here? Do you believe that all of a sudden we're going to start growing from here? No, we have to get inflation down. We have to go through this Fed tightening period and it's going to be painful. It's just a question on how long it takes to get through it and how painful it is. The third reason I believe the market is going to be rug pulled is that I believe company earnings are only going to get worse.

As the Fed, Titans markets assumed a fast and massive drop in earnings overall in Q3, and to a large extent, a lot of companies beat the dropped expectations. They usually reported a pretty big slowdown, especially in profit, but most of them reported hey, we're not doing nearly as bad as you expected. We're just doing bad. So all of a sudden markets are like no problem.

However, I believe that markets are jumping the gun. They are assuming, hey, well, earnings aren't dropping as fast as we thought, so they must not be dropping much more at all in the upcoming quarters. I think that's a mistake. I think that's a bad assumption to make as long as inflation remains at near 40-year highs, and as long as the Fed is on an overall tightening cycle without a real solid pivot in inflation and pivot from the Fed, I just see the headwinds.

The massive headwinds on the macro level to be too engulfing for most companies to have a massively growing bottom line. Again, the fourth reason I believe the market will crash is because the global economy isn't a mess. It's a mess. China's property market is collapsing, their manufacturing and overall productivity is shuttered by pretty damn draconian, coveted policies.

They've started cutting their lending rates, but many people believe it's too little too late. Oof. Don't get me started on Europe. You have country after country with record high inflation that makes the Usd look stable.

You have central banks over there being forced to tighten at paces that are incredibly punishing, energy cost increases brought on by Russian sanctions, and this really strange idea that somehow exporting your oil and energy production to Russia is somehow cleaner for the environment. Well, that has basically gutted European citizens and businesses for more than a year now and a lot of the negative consequences are yet to be felt. And it's not just our friends over in Europe either that are going to be suffering or the folks over in China when something terrible happens in major economies that we trade with. Then all of a sudden what happens.

Well, it hurts us too here at home, and it hurts our stock market. And by the way, don't forget about all the developing countries who are basically in either massive massive mounds of debt that they're having a hard time climbing out of and might collapse from, or are seeing huge, huge hyperinflation or both. All of these things have a huge impact on the global economy and a huge threat. So anyways, in conclusion, I often get asked at what point would a market rally make me change my thesis on where I believe the market is going next and the answer is at no point.

At minimum, I need to see convincing evidence that inflation is behind us and the Fed is backing off. Best case scenario, you actually start seeing company earnings bottom and start seeing guidance start pointing upward Again, saying that we've already passed all these major problems is, in my opinion, really jumping the gun. You're jumping like a kangaroo Now Obviously though, from a trading perspective and a deal perspective, every dip at every ounce of volatility is a great opportunity. I recommend taking advantage full advantage of this recession and getting good deals on everything that you can.

If you see some 50 off, get that damn deal like for example, Zip Trader U, which you can get 50 off of when you use coupon code recession 50 and that's 50 off our one-time fee for lifetime access. I had to do it folks. But seriously though, coupon code expires Labor Day which is September 5th and right around the corner, so make sure to check it out before that. Anyways, have a good rest of your day and I'll see you tomorrow.