Are you guys started hearing about inflation? Well, that's too! Damn bad, because there's gon na be more talks about it, as the fed is picking the absolute worst time to really get aggressive with rate hikes. We're going to discuss that here today guys welcome back to trace trades where we're going to talk fast and just classic. I'm probably saying i'm not going to find an expert, so please don't say the green salt, let's get into it uh today we're going to talk about the fed being aggressive with 75 to 100 basis. Point hikes now.

Some of you may not think this is relevant to uh amc or the stock market or small, mid cap companies or whatever it may be, but this is a large reason why we are in the situation we are with uh. The bear market is because the fed was not aggressive enough early enough with rate hikes, so today we're going to discuss why this is important and there was a couple of people. I took a poll in my live stream yesterday on how many people understood how the the rate hikes work and about 60 percent of people said they did not understand it. So we're going to walk you through that process.

In case you don't know, here's the uh, the initial uh sort of situation. The fed is rumored to be talking about a 75 to 100 basis, point hike that will get priced in uh tomorrow released tomorrow, and if this does happen, uh the market is going to react in a specific sort of manner. But more so and what's more important is the long-term uh question, which is: when will the bear market end and i've drawn out sort of what i believe to be the end game, the end state for the end of this bear market and what it looks like For a couple different scenarios - as we will talk about here today, but in order to understand this all we're gon na, give you a quick run through on what uh what this even is related to. So in this bear market uh, it's important to understand two basic concepts, so just quantitative, easing and quantitative tightening quantitative easing is something that took place back between 2019 to 2021.

In order to stimulate the economy, it's a losing effect. It's meant to uh inject cash into the economy, and what this fed will do is they'll buy stocks uh, they did buy stocks, they bought mortgage-backed securities, which is also something that relates back to 2008 uh. They printed a bunch of money, they lowered interest rates and this in turn, uh created a bullish stock market. Why well, the fed was sort of squeezing everything as they added money that typically wouldn't be there uh the money that was printed was ejected into banks, which allowed them to leverage up massive amounts of money into the stock market, as we've seen from my name, such As goldman sachs uh, all this cash that shouldn't really be there was pumped into the stock market and pushed things way to the upside.

Well, quantitative tightening is the exact opposite thing: it's undoing all the work from 2019 to 2021, in which they printed money and ejected cash into the economy. They are now selling stocks, they are now selling mortgage-backed securities, they are raising interest rates, and this is the part that we're going to be talking about here today. As we talk about 75 to 100 basis. Point hikes: what does this mean even uh 0.75? Is the equivalent of a 75 basis point hike? It means they will raise interest rates by 0.75 percent, a 100 basis point hike would mean they were raising rates by 1.0 uh.

This is what is being talked about. This is what's being rumored. This is very aggressive. May i add uh, this is typically bearish for stocks.

It started at the beginning of january ish of 2022 and has been quite bearish for stocks, or at least the talks have been. I really started following through with the plan back in about march and since then, you've really only seen stocks go down. Why they're pulling all this money that was previously injected into the economy and into the market out of the economy and out of the market? That is what quantitative tightening is, that is the situation that we are presently in now. Why does this matter? Why is this important? Because this is going to have a lot to do with how this bear market ends? This is really entirely in the hands of the federal reserve and how they handle this situation and how much pain our economy and how much pain our stock market has to face.

This is going to run into. When will we get the rally? When will we get the massive euphoric high that typically comes at the bottom of uh, immense immense amounts of fear and extreme fear? I've got three different situations outlined here, uh and they all have varying. I would argue levels of happiness for us and happiness for the fed uh, and this is my opinion. Maybe you have a different opinion.

This is what i think makes the most sense bear in mind. This is my first bear market that i'm attempting to analyze and predict i'm sure i'm gon na get some things wrong. I'm sure i'm gon na get some things right uh, but this is the best we can do right is take some educated guesses. Based on what we know situation, one the fed gets more aggressive uh.

This is, this is really, i think, the best case scenario most favorable for retail fed has to get more aggressive, and this is going to have fall in line with, particularly if they actually follow through with uh 75 to 100 basis. Point hikes, as has been rumored right, they'll get more aggressive. The stock market will suffer more, but it will curb inflation faster and the fastest of the three situations that i see as possible. The byproduct of this is going to be less economic toll, cost of living.

Aka you lower inflation, which means that things will cost uh, not less, but you won't see as much pain, uh and raising of prices, as we have seen in the past year, so far larger market losses - and these will be faster market losses and an embarrassed fed. Uh, why has the fed been so reluctant to do this? Why have they waited a year and a half to get to this point? It's because they've been wrong and wrong and wrong and wrong and wrong again and uh. Jerome powell wanted to get reelected well. He finally got his four-year term and uh now they're finally facing the facts here: uh swallowing their pride and doing what is probably the right thing and what should have been doing what they should have been doing for quite some time now: uh less economic toll they Actually curb inflation, they get inflation down from that 8.6 year-over-year value and they drop it down to 5-4-3 uh.

This is going to not take away the damage done, but uh make life better than it could be if they are not. This aggressive to begin with the big problem and why they've been so reluctant, is there's gon na be very fast market losses. This actually uh poses a risk to, i would argue, a flash crash and that's why likely got uh the spy, the broad market really having some pain in the previous couple of days. I mean this is a drastic sell-off that we've seen and yesterday was about a three percent red day, uh off of a lot of rumors that i add, of the fed being very aggressive.

The risk here is deflation right. If they're too aggressive, you could risk deflation. I've mentioned this before i'll say it again: you can think of balancing inflation and deflation as sort of a scale, and you want to stay as close to the middle as possible. This is the the goal right on this side is massive inflation and, on the other side is massive deflation, and he would have liked to avoid either of these things and how you would sort of manage that is by being in the middle of dovish and hawkish, And sort of balancing that act as as positively as you can, so this is the risk and, to be quite frank with you, the the pain to me would be worth the the economic reward right.

I would much rather go through a very quick rip. The band-aid off get it over with, instead of applying a band-aid and pretending that we're not going to be having this problem next situation situation, two fed remains consistent stock market slowly bleeds, as we have seen, and you're gon na have slower, overall inflation control or no Control see the fed has been raising rates by 25 to 50 basis points, and over the last three months we have seen no control over inflation. It's been eight point, five, eight point three and eight point six percent year over year, comparatively from may to april to march right no improvement, and this is coming off of very not aggressive rate hikes. The byproduct of this greater economic toll, you're gon na see that price gouging is gon na start to really go through the roof.

You're gon na see prices on gas food rent, everything's gon na go up exponentially slow, but likely equal market losses to situation, one where you're just more aggressive it'd just be a more controlled manner, which would make the fed overall happier. This is to me uh a better situation than situation three, but we much obviously rather see situation, one as you can just get this over with the risk. Economic toll on inflation are gon na be worse here, and you have a longer overall bear market, which is something that the fed, i honestly think, should not be happy with, and they likely wouldn't be happy with. But nonetheless, here we are anyways situation.

Three to the end of the bear market and you better pray to god. This doesn't happen. Is the fed, discontinues quantitative tightening? What would that mean? They would stop selling stocks, they would stop selling mortgage-backed securities, they would stop raising interest rates and what would this do? As a byproduct, well, it would induce sort of a synthetic bull market. I think you would watch prices go sky high, but at a cost right.

So this would be the situation discontinued, quantitative, tightening stock market insane rally. Hyperinflation high risk! Why? Because if all you're trying to do is alleviate the pain in the stock market, which is something the fed is supposed to do - is manage the stock market and watch prices, that's part of their job right uh. Why is this a risk? Well, if you take away raising interest rates, inflation is still running rampant and then you run into the problem of what, if it gets worse, things only get worse. If you don't take care of the problem and that's a real risk here.

So why would the fed even consider doing this because the fed hates current pressure from bojadin and retail see the fed is flip flop, back and forth and back and forth and back and forth a million times on whether they should be dovish or hawkish or dovish Or hawkish it's because they've got a lot of people screaming in their ears. They don't know which way to go and they don't know what decision to make. So if they just discontinue quantitative tightening in the short term, they would make everybody happy, except for those who manage inflation, which is themselves uh. Why would they be willing to do this? Well, because it's the short-term band-aid effect, that's something america's very familiar with is hey.

Let's just pretend it's not a problem for now and what to make everybody happy and pretend we're we're sitting in a great shoe and let's watch stocks go up right by product end of bear market bandit applied, he'd watch stocks go up exponentially fed would be super Duper happy, but there would be a massive economic toll and to me a massive risk of hyperinflation. What would this look like? I, i think you'd watch gas go up to ten dollars a gallon. I think you'd watch milk go up to seven. Eight bucks, a gallon uh, i think you'd pay 50 60 bucks for a single meal going out to eat within a few years.

Things would get very bad, and that is the risk of hyperinflation uh and a short-term bull market. These are the prices you would pay. This is why i really hope this situation doesn't happen, but it is a possibility, and it is something that i would consider as i don't have a lot of faith in drone pilot. I don't have a lot of faith in the fed and i don't have a lot of faith in the people who are trying to take care of this problem.

In fact, their approach over the previous couple of months has been to be very delvish in approach to uh their quantitative tightening and now the stock market is really at some lows, really feeling some pain, they're finally trying to get aggressive because they realize the stake here. Uh - and i don't know if they're actually gon na follow through with it time will tell so tomorrow. These are the things to watch out, for these are the three scenarios to me: they're, either gon na announce a 75 bps which is a point size, a 75 interest rate hike, a one percent interest rate hike or a 0.25 to 0.5 interest rate hike. If they announce a 0.75, i think there's two scenarios a dip, then a rip, meaning that there'd be a final price in intraday, followed by a big move up or it'll rip, meaning that 75 basis points is already priced in what does price thin mean? This would mean that big institutions, big money banks, are anticipating that they're going to announce a 75 basis, point hike, so they're selling off in anticipation for that, then, when it's announced well, if they they deem that as enough of a price and they'll start buying again Uh either that or it's all priced in 100 bps.

I don't think that this is priced in. I think if they announce uh a hundred bps or one percentage rate hike tomorrow, you're gon na watch a dip and then more dip uh, because this is unlikely priced in - could be wrong about this, but i don't think we've priced in enough paint. I i just don't: if it's 25 to 50, that's announced, i think you're gon na watch a massive rip. I think 75 is what's getting priced in right now is this has been rumored for a couple of days, uh since i'd argue monday and there's been talks about it even sunday when, when futures were getting really bad uh, so if it's 25 to 50, i think You'd watch stocks go up.

I find this to be unlikely. I find this to be more likely. Excuse me. I find this to be most likely somebody watching for these things.

These are the different situations that i see at hand, and this is really really important guys. I i stand by this in a bear market, man, everything gets tossed right. We can sit here and do all the dd and research we want on uh individual stocks on amc on gamestop on this on that, but at the end of the day, in these situations, man, the mass fear, the mass pain uh - is what's controlling everything, and you Know that when that fear ends when the when the actual problem, it finds a solution, you get that solution applied to the problem, uh that you're gon na watch things recover and then you can really dive into which stock will recover the best right. But you need the recovery first and uh.

This to me is the recovery. This is what the fed's got to do and that's why i want to talk about it today and hopefully walked away from this, having learned something as uh if the fed's not aggressive enough, i think this is gon na pose some real problems on the state of Our inflation and the state of our economy - and you know you're gon na - feel the pain of that for a long time if it's not handled the right way. So hopefully you walk away from this better off. Hopefully, you learned something: that's what i've got for this video catch you on the next one appreciate you as always: much lovely taps peace.