Jerome powell and the federal reserve have officially started to move forward with quantitative tightening. This is not a good thing for the stock market. This is not a good thing for liquidity and this, quite frankly, could cause some pain down the line uh as we move forward with the economy in the stock market, and i want to talk to you about why this is important and what you can do to Sort of monitor the situation and best take care of yourself guys welcome back to trade straight we're freaking talk faster, don't skip classic i'm gon na, probably by saying i'm not advising experts, so they're gon na say the queen of salt uh. Let's get into it now.

I'm not the only one who thinks that the federal reserve is incompetent all right. I don't think this is a hot take. This isn't like drinking tabasco sauce. This is something that a lot of people have come to find and the reason that uh, i think people sort of feel this way is.

They seem to always be late to the party. They seem to have very ambitious goals and have all these tools that they're going to utilize, but never quite follow through with it. Well, this time, there's an opportunity for it to be different, let's find out if it actually will be now. The stock market today is reacting to quantitative tightening.

What is this? We're gon na explain this to you in a little bit, but, as you can see the first day of quantitative tightening beginning today, we are down 1.06 percent on the day for the s p 500, which is a top 500 large cap companies in the united states Stock market, needless to say, people are not taking to it very kindly why well it's because the fed uh has announced their plan on how to approach quantitative tightening for financial markets and for the economy. Now the purpose of quantitative tightening, but very simply uh. I'm gon na lay out for you really right. Uh right here check this out, you've got quantitative easing, which is qe and quantitative.

Tightening uh the united states went through a very long period of what is known as quantitative easing. It is a period of time in which the federal reserve bought a whole bunch of mortgage-backed securities, why they still exist as beyond me and a whole bunch of uh treasury notes, and what this did is drive stonks way up. Why? Well, what it did is provide a whole bunch of extra liquidity that wouldn't have before existed see if you have all this federal reserve money which, by the way uh the fed, is trying to off balance about nine trillion dollars right now. So obviously, a lot of extra money has been pumped into the stock market, uh, the stock market, the real estate market, uh, the the bond market.

Whatever you've got all this extra money, that's sort of floating around that stimulated the economy. You loosen things up a lot. Uh, a loose market or quantitative easing typically goes with a dovish sort of stance, dovish, meaning that the the fed is trying to do everything in its power to stimulate the economy. This makes sense, if you think about during the the lockdown era, when uh you know, things were not doing very well and the fed was just trying to sort of get things.

Moving. Quantitative easing was a part of their plan. Well uh. They bought a whole lot of stuff and they've been holding on to a whole lot of stuff for a whole lot of time and their response to inflation, which is really what quantitative tightening is trying to combat, is inflation and a predictable rate hike uh is the Opposite of this, this is a a a way for the fed to basically offload their balance sheet.

They are trying to get rid of about 9 trillion right now and plan on selling mortgage-backed securities and treasury notes, uh aka bonds. And what is this going to do? Right well for the financial market, stocks typically go down now. This might sound crazy. This me, this may seem like a strange concept, but you've probably heard of the idea that the stock market is currently in a liquidity crisis.

What does this mean? It means that there's not enough money rolling around to take care of uh sort of the everyday transactional needs that are being asked right. The supply and demand change seems to be off balanced now if the fed sort of stimulates the economy by adding cash, because that's really what this is - is they're, adding cash into mortgage-backed securities and treasury notes. Well, what happens if you do the exact opposite, you're taking money away? It is a drive away from liquidity and, if you're, in a liquidity crisis - and you add some extra volatility on much lower volume - and on top of that, you kind of have some some cell volume trying uh to push things in a certain direction for the economy. Well, you can obviously see where this could be problematic for stocks.

You can probably also understand why uh jerome powell in the federal reserve has said we cannot guarantee a soft landing anymore. Don't pay attention to the fact that i have been re-elected for another four-year term? It's not important. What is important is to know that we may not be able to manage the situation and they have laid out their plan knowingly that uh. This is going to cause some pain for the markets.

The federal reserve's, almost 9 20 asset portfolio was set to be reduced. Starting on wednesday, which is today june, 1st of 2022. they've laid out a pretty uh straightforward plan. Quantitative tightening is here they want to offload in two specific categories.

One of these is mortgage-backed securities, as you can see right here, and the other is treasury securities they'd like to sell 60 billion dollars of treasury securities a month and 35 billion dollars of mortgage-backed securities per month. Now this is going to take them a very, very long time to offload this nine trillion dollars that they would like to take care of, and a lot of people are speculative rightfully so that this may not actually take place. See the last time that we did quantitative tightening was back in 2017 and 2019.. This uh, the quantitative tightening, was meant to sort of reverse the effects of quantitative easing manage inflation, take care of uh extra liquidity that maybe shouldn't exist in the market.

However, they never really followed through on it. In fact, there's a lot of extra cash. That's on the fed's balance sheets that has not quite been resolved from previous periods of quantitative tightening my personal speculation. I believe that the fed is not going to quite follow through with this, the way that they say they are going to.

If they do. I think it'll be good for the economy in the long term in the short term, meaning in the next two. Three. Four five years in which quantitative tightening takes place you're going to watch a couple.

Different side effects happen if they follow through with their plan and probably the most important. One is rate hikes. Uh interest rates will go up significantly huge huge huge increases in rate hikes and in interest rates, and this is sort of the bank's way of accommodating to a fed that is trying to tighten the economy and take excess liquidity out of the economy. Something that's not talked about, though, if the fed is uh is taking money back right, we're trying to get money out of the hands of these treasury notes and out of the hands of uh these mortgage-backed securities, what happens to the reverse repo market? Well, we know that banks have been sitting on an unreal amount of of capital for quite a long time, and if i have to pull up this chart here, really quick.

What you're going to find is we continue to set all-time high, all-time high timeline all-time high over and over and over we're actually over two trillion dollars for the reverse repurchase agreement market, which is essentially a transaction that takes place between banks and the federal reserve uh Overnight and banks, as of may 23rd monday 2022, have been sitting on 2.04 trillion dollars, which is a lot of money. So, if they're going to tighten the economy well, what happens to the banks? They got to start raising interest rates. They got to make their money somewhere, they don't have as much liquidity. Well that affects you, they're gon na make you pay for that makeup.

Does that sound like anything familiar? Of course it does. It sounds like every single time that the big boy on the top uh really is facing some problems. They just pin that on you and make you pay for the bailout. They make you pay for the excess cost and the excess fees they make.

You take care of it for them and i think that's what it's going to fall back on is those rate hikes, as we sort of mentioned here before so quantitative tightening is here right. Just to give you a quick recap: quantitative tightening is meant to take liquidity out of the market. The fed is meant to dump bags on essentially retail. I mean that's really what it is here when you're selling mortgage-backed securities and you're selling uh these treasury bonds.

What do you think this is going to do they're not going to sell for a bad price they're trying to make money the fed can't lose money, they can't lose money. Why would they do that? So they give it to you, and this is going to create a liquidity crisis on top of a liquidity crisis. I think it's going to affect stock market uh and and moving forward is going to increase interest rates, which is just going to obviously put some pressure on the economy and the way that things are currently sitting right now. Now i'm going to close off this video, i said that i was going to give you some things that you can watch for and what to pay attention to and if quantitative tightening follows through the way that i think that it could and they really actually follow Through with this, i, i have low expectations, the fed kind of sucks at following through on what they say, they're gon na do, but if they do, they follow through in the next two to five years and really tighten things down and they continue to sell their Assets the way that they plan on uh, this is going to affect the stock market, which makes it more important uh, now more than ever, to be able to track and watch how to read a chart and how to be able to see what's coming right.

I personally and i i don't think, we've seen the bottom on the market. I don't. I think there was an opportunity for a short-term relief rally and even maybe like a like a a psych-out sort of uh fake out breakup, bull, bull market breakout right. I thought you might have seen a possibility of maybe 440, but we didn't get it.

You rejected off this 236 fib uh, which is 418 bucks just about a dollar short of that, and i think, there's downside and i think, being able to read a chart being able to understand this different economic sort of situations is important. I'll. Keep you guys up to date on those things uh, and this is ultimately going to bleed off into everything. It really is in a bear market.

Nothing can ride the wave it's an intense, intense wave, and that includes uh small, mid cap companies. Everyone refers to these as meme stocks uh. I will no longer be doing so, as i don't think that's doing justice to these companies and what they actually do. But everything is going to get affected, which really makes you uh the the big thing that we can control here right and how i'll close the video is.

We can control our own decisions. We can control what we do with our money and, at the end of the day, uh buyers always win in a bear market and losers are always the sellers and that's what i've got for this video. So i want to be able to talk about this. This is pretty important.

This is why the market's red today - and i think that you're going to continue to see uh volatility, like you haven't seen in quite some time in a couple of years, continue to sort of uh unwind, as the fed tries to undo the mess that they pinned On to uh retail investors and the average american, that's what i've got for you guys catch you all later: much lovely taps, peace.