[00:02] pants on in nine days. And in this video, I'm going to break down exactly what the base case is with the Federal Reserve's Jackson Hole speech coming up Reserve's Jackson Hole speech coming up again in just 9 days on the 27th of
[00:15] August. And I'm going to break down exactly what you should pay attention to to know when's the best buy the dip opportunity between here and there. What could happen after Jhole? So, let's talk about this. Break it all down. So first
[00:29] thing that we have to know is the Treasury market is steepening. We are getting a bearish steepening which means we are seeing yields go up and the spread between the 2-year and the 10-year is widening. We are widening
[00:44] into shock territory. This is partly because every single day we get a new truth. We are getting truth in the face closer to man this Iran war is just going to keep dragging on. For example, Donald Trump just this morning,
[00:58] conveniently the second the market opened red, conveniently the very minute the market opens, sends a message that don't worry, all is good. The straight
[01:10] of hormones is open and operating in operating and all water mines have been removed or detonated. Hey, let's let's pump the markets up a little bit. We don't want any red around here. What is that? Gross.
[01:22] Go look at it. Literally the minute the market opened, he sent this. But anyway, it was led with there are no talks or conversations going on or scheduled with
[01:34] Iran. Obviously, this is problematic because we fear that even though we've gotten some decent PPI and CPI numbers, we're seeing some things supposedly per
[01:46] the Bureau of License and Statistics telling us that, oh, don't worry, everything's okay because motor vehicle insurance rates are going down and healthcare insurance rates are going down. Maybe for everybody else, but not
[01:58] for me. But anyway, but anyway, you know, uh that's great, but it's all balanced with ah crap. If this Iran situation keeps going on, then we expect oil prices to continue to stay elevated and rise more and more and more and that
[02:14] feeds through to higher yields, which unfortunately since we are seeing the top and largest four hyperscalers move to negative free cash flow within the next 12 months. And therefore they need to rely on AI financing more. If they
[02:31] to rely on AI financing more. If they are financing at a rate that is some form of premium above what treasuries are. And the higher treasuries go, the more money they have to spend financing their AI data centers. And the whole
[02:43] freaking trade basically links to oil prices going up equals risk up for the prices going up equals risk up for the AI trade. Bottom line there, right? But what does this have to do with Jackson Hole? I mean, Brent is sitting at $92
[02:57] now. This is the highest since we've been highest price that we've seen since really uh the the um uh the ceasefire and very briefly about 3 weeks ago. Once we had the ceasefire, we saw oil prices come down from about 113. We came down
[03:15] pretty nicely. We went all the way down to about 70 bucks, 71, $72, which is great. We had a nice recovery there on oil prices. uh back down to the downside, but unfortunately we're sitting at essentially the high levels
[03:30] where we have been sitting very briefly over here in July. Not great. Those are inflationary pressures that are coming up right before Jackson Hole. Now, what are the expectations for Jackson Hole? Well, not much. Mostly that is what the
[03:46] problem is. Most folks are expecting that at Jackson Hole, Kevin Worsh is going to tell us, "Hey, everything's good. The market's already seeing yields go up. The market's doing the work for me. I don't have to do anything. And as
[04:00] a result of this expectation that Kevin Worsh is just not going to do anything, there's right now only a 34.6% chance that we're actually going to see a rate height hike on September 16th. So, even though we are seeing oil prices
[04:15] So, even though we are seeing oil prices rise and even though we are seeing the spread between the 2-year and the 10-year Treasury steepen, so this is a bare steepener. That's the bad one. Okay, that means markets have uh a fear
[04:29] over inflation and it is not the typical bull steepening where markets are bull steepening where markets are excited about growth. Right now, markets are pricing in more longer term inflation risk premium and the Fed doing
[04:43] nothing. A bull steepening, which is awesome. That's when the two-year and than the other. So, you actually get a steepening in the spread between the 10 and the two, but yields are coming down. That's when we got things like the CO
[04:57] money printer got turned on or that was, you know, 2020, we saw a couple bull steepenings and then we saw a nice bull steepening. Really, the last one we saw was in 2023 and 2024, which is when we saw FOMC rates peak out and we really
[05:13] led into the first rate cut of the cycle in September of 24. That's when we had we haven't had bull steepenings under Trump. We've had bare steepening. And that's bearish. It's bearish risk assets because we're
[05:29] at a more shockprone area where the market the bond market is trying to say hey Fed you are behind. Now a lot of folks say Kevin there's nothing to worry about here. Kevin Borch isn't going to do anything. He's not
[05:43] going to put his pants on. Don't worry about it. Fine. But there are a lot of pressures setting up risks between now and Jackson Hole that I think could
[05:55] create a delicious buying opportunity. Now, we'll get to the bottom line on the buying opportunity in just a moment, but something worth paying attention to. This morning in the uh alpha report along with yesterday, yesterday morning
[06:07] along with yesterday, yesterday morning when the market was at 7:35 and green, I went bearish on the very short term mostly because of what happened with Iran this weekend. I did a big breakdown on what was going on with the nuclear
[06:20] want to show you exactly what I wrote in the alpha report this morning. The Q's bouncing at 7:15 was a target today. I wrote, "I'm not mega bullish and I would avoid risk near-term, but this could be a tell. Do we hold 7:15 or lose it? We
[06:34] barely hit 735 by Monday in the pre-market and nearly on Friday." Now, keep in mind this 735 number, the reason I'm referencing this is because about two weeks ago, uh, when we were somewhere around 684
[06:48] somewhere around 684 bucks, we set two targets for the Q's, 715 on the upside and 735. We essentially hit both of them. We certainly hit both of them within about
[07:00] 50 to 60 cents, which is great. Uh but the problem is between now and Jackson Hole, I wrote markets might give all of that up uh back to 675 to 685 is
[07:12] possible until there's new clarity on yields. So this was in our alpha report want to get that every single day, you already know the drill. You could go to meet Kevin.com. You can use coupon code jhole. We are uh changing the way the uh
[07:26] lifetime access works uh after August 27th. So, if you want to get in and and there going to be some big changes uh after this month. So, go check that out over at meekke.com for that lifetime access to the alpha report and alpha
[07:41] be a tax writeoff. You get all that. Okay. So, but what's the problem now? Okay. Here's the setup for the problem. And this is the part that most aren't paying attention to. So, the expectation, this is uh we'll call it
[07:56] the base case. The expectation is that Kevin Wars comes out and says we're, you know what, we don't need to do anything. The market has already done the work for us. Right? That's the expectation. But what are the problems that we face right
[08:10] now? Well, one of the problems that we face right now has to do with financial on screen here. Financial conditions uh per Bloomberg are the loosest they have been in the last 3 years. And other
[08:24] people look at this chart and say, "No, it's actually worse than that." It looks like we have the loosest financial conditions this century, basically all of the 2000s. I think the reason Bloomberg says the last three years
[08:37] maybe is because we had maybe a slightly nominally higher point somewhere around here in 203 somewhere around here. You know, I don't I don't really see it, but it seems like it seems like financial conditions have been pretty loose. It
[08:50] within the last 3 years or this century? The way people read the chart doesn't really matter. What you can see is the higher this blue line is, the easier financing is. That is a combination of interest rates, credit spreads, stock
[09:05] market performance uh and and various other measures like the VIX and so on. Right now, yields are at record highs, but financial conditions are recordly
[09:17] loose. So, very, very loose. Why? Well, because the stock market is elevated. So, if the stock market falls, financial conditions can tighten really, really quickly. It's sort of the last prong or if you will, the last leg of
[09:32] the three-legged stool keeping us up, right? So, financial conditions being right? So, financial conditions being loose is actually a risk factor. Why is loose is actually a risk factor. Why is it a risk factor? Loose uh financial
[09:46] conditions. Why? Well, because how is Kevin Worsh going to go, "Hey, rates are restrictive. We're good." When we literally have the loosest freaking in 3 years or 20 years, depending on how you want to 26 years, depending on how
[10:00] words, financial conditions are really, really loose. And it's going to sound ironic and like the guy's got no credibility to say, "Oh yeah, things are tight." So, that's not good. On top of
[10:14] tight." So, that's not good. On top of that, and unfortunately, we have the damage of Iran worsening. On top of that, we have the to the left of the decimal baggage we still have to deal with. Remember the first Fed meeting
[10:29] not going to pay attention to the right of the decimal. We're just going to pay attention to the left side of the decimal." A lot of people heard that and kidding? You're basically changing what the inflation target is. You're
[10:42] the inflation target is. You're basically saying we could have a 2.99 inflation rate and you'd be happy with that because the number to the left is a that because the number to the left is a two. That's effectively a 3% target on
[10:54] inflation. So a lot of people got really pissed off about this. And so people say, "Hey, Jackson Hole might be an opportunity for Kevin Worsh to finally go, look, I got to put the pants on. Financial conditions are too loose. The
[11:07] Iran oil shock is worsening. AI deflation that that's a narrative that I deflation that that's a narrative that I also believe in. But AI deflation is kind of like the inflation reduction act.
[11:22] inflation reduction act should remember that the CBO, the Congressional Budget Office projected that the inflation reduction act, which was the big massive reduction act, which was the big massive investment into like wind and solar uh
[11:35] battery storage and all that was actually expected. It was a 10-year sort of projection. Uh and over those 10 years, the projection was that inflation would go up first and then at the second half of the decade would actually start
[11:48] coming down. Uh and that was what was the expected impact of specifically the inflation reduction act. So ironically, yeah, when you build out infrastructure, you create inflation first and you get that disinflation or deflation later. AI
[12:03] deflation. I think we're still in this phase over here, the buildout. We're still seeing prices go up, not prices go down for prices go up, not prices go down for compute, uh, for chips, for bits.
[12:16] That will turn, but it's not turning yet. So, it's challenging for Kevin road when you've got a lot of these really large uh, inflationary impeties. really large uh, inflationary impeties. So, uh, the task forces that he uses, I
[12:31] can down the road. And I maintain that Kevin Worsh is supposed to be this Fed chair who's the anchor, right? He's going to anchor rates and he's not going to let rates end up uh going up and he's going to do whatever he can to keep
[12:45] rates on hold and eventually get to his cuts so he could fulfill his promise, cuts so he could fulfill his promise, his promise to Donald J. Trump. But the problem with this is we have a lot more setups now going into Jackson
[12:58] Hole that say assuming we only have a 34% chance of a hike in September might be on the low end. Now what we should really understand is a history of the surprises and reactions that we had at Jackson Hole. Uh there have been a lot
[13:14] of Jackson holes. I mean you have one every week every year. In 2018, every week every year. In 2018, we had an asex expected Jackson Hole. Markets basically did nothing. So you always have to remember expectation
[13:27] versus reality is what matters. So in 2018, as expected, basically no change 2018, as expected, basically no change in markets. Uh in 2019, we had a in markets. Uh in 2019, we had a slightly doubbish uh surprise and we had
[13:42] a modest rally in the stock market. In 2020, we had an asexed meeting. In 2021, we had a dovish surprise. And guess what? Stocks went up. See where this is
[13:55] When you get a surprise in a certain direction, stocks move. In 2022, we had a hawkish surprise. So, we hawkked and stocks went down as much as
[14:09] hawkked and stocks went down as much as 3.4% on the S&P 500 on the day. uh and then it took another few months to actually bottom. In 23 you had an asex expected. In 24 you had an as expected and in 25 you actually had a dovish
[14:23] and in 25 you actually had a dovish surprise and the market rose about 1.4%. That was just in the day. So this is just an example where if we have an at expectations Jackson Hole which is Kevin Worsh is
[14:38] going to do nothing. He's not going to give forward guidance. He's not going to set any kind of uh actions up or whatever. He's just not going to do he's not even going to hint that oh, we're going to try to get ahead of inflation,
[14:50] he's actually going to give us forward guidance, but he could come out and he could say something like we're going to act before inflation is in the rearview mirror. We're going to try to get ahead of these inflationary issues and these
[15:03] loose financial conditions. Then a reality check is possible. And so then we have to ask ourselves, as expected, we don't really care. The the market movement is basically going to be negligible if it's as expected. Do we
[15:16] think he's going to be dovish? How? We already think he's dovish. The market already thinks he's not going to do anything. So there's no way he could think he's going to be doubbish. The market already prices in that he's going
[15:32] to do absolutely nothing on Jackson Hole. So we can erase the dovish surprises. So as expected doesn't matter. The dovish surprises don't matter. The only thing that now is left is the potential for a hawkish surprise
[15:47] and then that drives markets down. Now markets tend to at least try to be forward-looking. So, I think some of this negativity that we're seeing in the going, do we really want to leverage up before
[16:04] Jackson Hole? Right? This is something to think about. When have we had our biggest moves this year in the stock market? The biggest moves have come market? The biggest moves have come after a money raise. Money raise in uh
[16:18] February and March and the very beginning of April. The market fell. people raised cash. As soon as there was a positive catalyst, that money got deployed really rapidly for about two months. Like this was an incredible
[16:32] 10-week rally until the SpaceX IPO basically marked the top. Then we briefly had the uh Leopold liquidation after uh the SpaceX top. Uh and then
[16:44] back, though we still haven't made it to some of those all-time high levels. And so right now we haven't really had a money raising period where people are selling and they're taking sort of bets off the table. Instead, we're kind of in
[16:59] off the table. Instead, we're kind of in this like slow schlloish market where people are a little nervous or should be at least that the Federal Reserve might give us a little bit of a we're going to put the pants on. We're going to clean
[17:12] this situation up. We're going to clean up these expectations. At the same time, up these expectations. At the same time, that can create an opportunity for us because if the market does continue to behave
[17:24] almost as predicted. I mean, look at this. In the alpha report this morning, we said, "Hey, the test is going to be bouncing at 7:15." And look what happened this morning. We're at 720. You saw it in in black and white. I wrote
[17:39] saw it in in black and white. I wrote it. Uh, we bounced in the 7:15 range. You always get usually within a buck of the wines. Very, very common. Look at that bounce at 7:15 up from there. Holding this is great, but there is a
[17:53] risk that this dip we're feeling today does keep going between now and Jackson hold, which is next Thursday. I actually think that creates a buying opportunity and there's a little bit of a tool that we can use to pay attention to the odds
[18:10] that we're going to see a surprise. I think we could watch the 2-year think we could watch the 2-year Treasury. See, if the 2-year Treasury Treasury. See, if the 2-year Treasury runs up to 4.35 again, markets are
[18:23] going to go hawkish." But the 2-year Treasury is actually falling right now, which sets up the opposite expectation. Markets are assuming the Fed's going to go dovish at Jackson Hole, but it sets up because of
[18:39] financial conditions and the Iran war uh and the slowness of AI disinflation, you actually set up the real risk of a hawkish surprise from Kevin Worsh here. So, in other words, you always want to ask yourself, where is the market
[18:55] doing something that you disagree with? If the market is going dovish on Worsh and there's a reason for Worsh to put the pants on, the pants on, then there's a really good setup for a
[19:09] surprise. How much of that gets priced into the stock market between now and then, we'll see. But the next nine days will probably be more volatile because of war. I think they're a buying
[19:21] opportunity. Uh mostly because I think for the rest of the year we'll probably have a slow schlog up in the markets. I'm not of the mindset that we're going to have this, you know, postappril 10 week straight up rally. Everybody's
[19:33] leveraging up. I think people got a little gunshy by margin and debt. And so it's more likely we see a slow schlog up rather than this uh this rapid kind of rather than this uh this rapid kind of V-shaped recovery. But there's a real
[19:47] risk that we get we kind of get rubbed uh at Jackson Hole. So, we'll see what happens. But that's my analysis for Jhole. Hope it was useful to you and >> why not advertise these things that you told us here. I feel like nobody else
[20:01] see how it goes. >> Congratulations, man. You have done so you. >> Kevin Praath there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.