Fed Rate Hike Risks & AI Bubble — Full Breakdown & Transcript

[00:02] Federal Reserve dropping a bomb that they might end up hiking rates next month because Kevin Walsh made mistakes. We'll talk about what just came out in a We'll talk about what just came out in a moment is very eerie.

[00:16] See, the dot bubble burst when the Federal Reserve went back to rate hikes after 2 years and 3 months. And they ended up hiking rates six times. They

[00:28] hiked rates in June of 99, August, November. Then in 2000, they hiked in February. So basically like, you know, they skipped a meeting and hiked again. they skipped a meeting and hiked again. March of 2000, and then in May of 2000,

[00:43] we got the final nail in the coffin, a 50 basis point hike. rates ended up going up 1.75% from 4.75 to 6.5% to tame inflation.

[00:58] That's six rate hikes. But now you're getting calls for us starting with three rate hikes and starting as soon as next month. Now, why is that eerie? Well,

[01:12] what's eerie about this is the market topped right in the midst of this rate hike cycle. The market ended up topping in March of 2000, which was about 9 months after their first hike. And the timing is strange. See, the Fed's nail

[01:29] in the coffin.com hike came exactly hike came exactly 38 months since the last time they had a Fed rate hike. If the Fed hikes September 16th, they

[01:45] will be hiking exactly 38 months since the last time we've had an interest rate hike. That is weird timing.

[02:00] Obviously, it's not a perfect overlap, right? The last time 30 it was 38 months from their last hike to well their last hike again. This time it would be 38

[02:12] months from the Fed's last hike to the Fed's first hike. But who knows? It could be their first and last. We don't know. The point is 38 month like gap know. The point is 38 month like gap there. Little weird kind of coincidental

[02:26] we'll call it. Maybe we'll call it that because anytime we make a comparison because anytime we make a comparison between now and the dot bubble, people start freaking out and lashing out in the comments as if I haven't already

[02:41] done the research myself. But people lash out and start going, "Kevin, this lash out and start going, "Kevin, this time is different. Earnings are so much better and more robust this time. You can't compare to the past, you know.

[02:57] Everyone has rabbit hole on their phone today. They can all buy the dip. This time is different, bro. These people are going to have a seizure. Feel bad sometimes when I see the freak. It's like, imagine you'd be

[03:12] so angry about the news that you're going to about the news that you're going to freak out in the comments at a YouTuber. freak out in the comments at a YouTuber. My reaction to that is

[03:25] what the [laughter] Anyway, all right, let's uh let's focus here and be a little bit more professional. I think that's like the opposite of what

[03:37] we do on this channel. But anyway, uh Kevin Walsh is starting to acknowledge Kevin Walsh is starting to acknowledge that he's uh really effed up with his left of the decimal speech and this is uh creating some increased potential for

[03:51] us to get a rate hike because now he's essentially got to do damage control for that speech. The left of the decimal speech was his first speech where he's forward guidance, but we're going to forward guide that we're only going to

[04:06] focus on inflation to the left of the decimal." And then the bond market is decimal." And then the bond market is like, "That's dumb. That's tarded. Um, we'll hike a lot for you." And we ended up seeing the 2-year and the 10-year,

[04:20] you could look at the charts yourself, skyrocket in the intermedating period meeting. Kevin Worsh then at his next meeting is Kevin Worsh then at his next meeting is like, "Wow, I take comfort in how well

[04:33] the market has responded to me being an idiot." Obviously, he didn't say the latter part, but he did literally use the word, "I take comfort in the fact that rates have gone up this much." Well, the

[04:48] in my opinion, the bond market is basically pricing in the increased risk premium the bond market needs to justify for Kevin Walsh losing credibility,

[05:03] providing less guidance and therefore increasing the risk of bond market increasing the risk of bond market volatility. When the risk of volatility volatility. When the risk of volatility increases or the perceived future

[05:15] volatility of an asset goes up, your discount should also go up. Let me discount should also go up. Let me explain that in simple English.

[05:27] Hey yo, if there's a chance this stock's going to go down a whole lot more, a whole lot faster, I'mma pay less for it. [laughter] That's basically what's happening in the bond market. Uh, and that makes sense.

[05:41] So now you've got other committee members basically trying to send forecasts for him. They're almost seeding his power. You know, while Wars is trying to be dark, Qashqari is going on his circuit saying we should be

[05:55] raising rates. We know Hammock and Logan are talking about raising rates. You've got Qashqari literally saying, "I don't trust the Iranians." Hormuz is uncertain. Energy costs are high. The consumer and labor is hanging in.

[06:10] Doesn't sound like rates are restrictive to me. Mary Daily is also warning that higher inflation could trigger rate hikes soon. You got a whole chorus of Fed folks. A whole kumbaya going, "Hey,

[06:26] of America is not helping. They're jumping in going, "Hey, we actually think we should see three we actually think we should see three raid hikes uh this year. We should wait,

[06:38] hold on. We need the right mug for this." Oh, we should see three raid hikes. Once in September, then in October, and then in December. And you know what you could do to set it all up? Jackson Hole. Oh, great. We're back to

[06:52] Jackson Hole. Oh, great. We're back to Jackson Hole. Yeah, Jackson Hole is this month. Oh, I'll be live streaming it. But Jackson Hole is literally at the end of this month, August 27th to August 29th, and he's usually the keynote

[07:05] speaker, the keynote fool. [laughter] But that's often where they could set up and sort of fix their mistakes and set up what's coming. You know, Jerome Powell set up the, you know, some ruggins in Jackson Hole before. So, you

[07:21] attention to and the entire world tends to pay attention to it. So, what's happening now? Well, what's happening now is this Financial Times piece came out that su suggests Kevin Worsh to stick with leanfed messaging. Okay,

[07:35] really tell us anything. But what's actually very telling here is people close to Walsh say he acknowledged he's made mistakes in his first 10 weeks at expecting the knucklehead to be perfect when he first gets his job, but he also

[07:50] has a history of being a knucklehead. you know, he was the guy calling for rate hikes while the economy was collapsing in 2008. In 2007, it's like, we should raise rates. In 2008, we should raise rates. In 2009, as the

[08:05] economy is like trying to get footing, hey, we should raise rates. It was exactly the wrong call. And he has a legacy of making exactly the wrong decision. So, not only does he have to overcome his legacy of being wrong, now

[08:21] he has to overcome this, we're only going to focus on the left of the decibel. And he's kind of got that like smug kind of glide glib, however you say it, attitude anyway, where it's just I'm going to act professional, but I'm

[08:35] actually I just got a stick up my butt. Yeah, there's a puppet down there guiding me. It's actually Donald Trump. [laughter] Um, which apparently Donald Trump has been ringing this guy off the hook.

[08:49] Apparently Donald Trump will go as often as calling Kevin Wars like three or four stretches without calling him and he'll call him again for like three or four times and and he does this over and over again and he's asking for advice about

[09:04] like what about AI? What about Iran? Now hopefully I mean we could presume that thing which is like you better make a deal otherwise I'm gonna have to hike deal otherwise I'm gonna have to hike you know uh whatever but what we have to

[09:18] think about is in this article right here we have talk about hey well inflation expectations are still stable fine I mean you could zoom out on any chart and call it stable uh you could

[09:31] zoom out on uh memory stocks if you zoom out far enough and call them stable >> [laughter] >> technically call anything stable. But uh the one that really matters today. Kevin Walsh would be prepared to raise

[09:44] interest rates at September's meeting if inflation readings released in coming weeks are hot. Ah, great. Okay. So, that really sets us up to be pretty live for

[09:57] and and we should be pretty prepared for a rate hike uh over the next well, frankly, meeting. And every data point that leads into that meeting is going to be really important. This was something that we talked about in the alpha report

[10:11] yesterday morning. And I'm just sharing this with you. It's not a pitch. Yesterday morning, I said, "Look, we just had two epic days of releveraging. Monday and Tuesday, massive days of releveraging. Be cautious here because

[10:25] we have jobs data coming up on Friday." this Fed uh Financial Times piece that came out today actually makes that jobs data tomorrow even more important. But think about that. Yesterday morning, the market's up, you know, whatever we were

[10:38] up yesterday. I think we were at 7:25. Yeah, we were at the 725 line yesterday morning. So, here we are in the alpha report yesterday morning and I'm like, hey, we just had two phenomenal days. Be cautious. the market tends to sell down

[10:53] before we get especially after a big rally, you know, a big releveraging, you tend to sell down before a big catalyst event like a jobs report. And so yesterday was a day of caution. And so look at what happened. Look at what

[11:07] ended up happening. So we made that call right here in the alpha report documented and the market literally bled. We we fell from 725 all the way down to 7:15. You know, today we're teetering. Okay, you know, hey, can we

[11:21] can we hold on to 715? Can we hold on to this level? Some of this is by the dipping on SanDisk and Western Digital, which are, you know, still still red which is nice. But I mean, focus for a moment. This makes tomorrow very

[11:35] important. That call in the alpha report was great, but I want to be clear. This makes tomorrow very important. Now, I'll probably be live earlier tomorrow in the course member liveream so we could really analyze this jobs

[11:49] me. You could always join over at meetke.com. Uh, August 14th is when the but you may as well join so you could be part of it. Tomorrow, we'll cover the jobs report. Uh, you could join using coupon code vacation green. Remember,

[12:03] Most people do verify that with your CPA. Yet, every single course is bundled into the alpha membership. you get all the trade alerts, uh, you know, our analysis, the stocks we're buying, the stocks we're selling, whatever, the

[12:17] trade alerts, right? You get those as well. So, go check that out. Uh, but catalyst calendar actually looks like and then let's also think about the actually start with the Greenspan mistake. Uh, by May of 2000, uh, Allan

[12:33] Greenspan had finished his rate hike cycle of six rate hikes. And that rate hike cycle was widely considered to have burst the dot bubble. And it's possible it's because funding costs went up 1.75%. I mean, it's quite a bit. But

[12:46] you're already seeing funding costs go up. I mean, Google's coming out raising another $25 billion. So, we're getting the resucketing. It's sort of like the return of the suck. You know, we're going to start having like Star Wars

[12:58] related names here. You know, the rise of the suck, the return of the suck or the whatever, right? [laughter] The suck strikes back. The suck 2.0. I don't whatever you want to call it. The suck episode 4.

[13:12] [laughter] Uh anyway, so we saw Coreweave had to raise interest rates on their offering to over 10% to raise money for their uh data centers. SpaceX had to raise interest rates to

[13:28] attract capital to actually, you know, fill their bond offering. Google's going out raising another $25 billion in sort of a laddered bond offering. That's in addition to the $40 billion of shares that they want to dump onto the market,

[13:41] yet. Who knows? Maybe they did it in July, but we don't we don't know that yet. Uh on top of that, when Allan Greenspan finished his sort of six rate hikes there and funding costs went up by

[13:56] 1.75%. It's worth noting that treasuries were sitting at like a 5-year high at were sitting at like a 5-year high at that time. Well, if you now look at our Treasury yields, a lot of our treasuries are sitting at long-term highs as well.

[14:13] I think our uh 30-year just hit a Let's go look at the 30-year Treasury really quick, cuz we hit a high right after the July meeting that was pretty nasty. I want to say it was almost 5 uh let's see 30-year Treasury. I don't

[14:28] know why it's so hard to load. There it is. Uh yeah, 5 like17 5.19 is where we sit right now. Uh oh, there we go. Okay, here it is. So after the July meeting, we actually had 5.27 there for a moment at the closing price.

[14:40] That's remarkable. And so if you zoom out, that's a 5-year high on the 30-year Treasury. And if you zoom out, this is actually the highest level we've been on

[14:52] the these treasuries since either we're at about 2006 pricing, but our peak would have brought us back to about 2004. So, this is a massive high. We're talking about a 20 to 22year high on the

[15:06] talking about a 20 to 22year high on the 30-year Treasury. And uh that moment when the Fed was raising rates in the dotcom bubble also marked a multi-year high in treasuries. And so don't just think about the Fed's rates. Think about

[15:20] the companies that are trying to spend more on capex that are trying to raise more on capex that are trying to raise money. The stocks that got hit the worst as the market started selling off through that rate cycle were of course

[15:32] through that rate cycle were of course tech stocks. Cisco, Intel, Oracle all crashed then. And the NASDAQ 100 ended up crashing 78% from March 2000 to October of 2002. So that's a 2 and a half year crash.

[15:51] That's like, you know, two remember 2022 when we had like a 10-month stock market when we had like a 10-month stock market crash. Okay, multiply that by uh three. You know, that's that's an extended period of pain and suffering. Uh, and

[16:05] I'm not saying that's going to happen. What I'm saying is the risk is the more funding costs go up, the less sustainable these capex cycles become. So, you just every time you get these rate hikes or even just bond market

[16:20] yields go up, the riskier the market gets. And that's the that's the point of rate hikes anyway, right? Or I mean that's that's the point. Rate hikes are designed to cool inflation and cool capex. That's the mechanism by which

[16:33] it's supposed to happen. But you're also getting bond market investors who are saying, "Hey, I'm going to need to get compensated more for the risk." Right? compensated more for the risk." Right? So, not good. Um, this Financial Times

[16:48] piece also, in my opinion, suggests that there's a little bit of a desire to maybe flip. Okay, maybe we do need some forward guidance. Yeah. What? You don't want the market to be rugpulled, huh? Isn't that what we

[17:02] carry trade? That, you know, forward guidance is actually useful. Of course, then then you get the people on usually on X that are like forward guidance is Keynesian. That's nasty, disgusting leftist crap.

[17:19] But as with everything, you know, people with a higher IQ than the typical uh, with a higher IQ than the typical uh, you know, SH9T poster on on X looking for engagement bait. Uh, that wouldn't know nuance if it hit him in the butt.

[17:35] um recognize so so people tend to recognize recognize so so people tend to recognize that if you didn't have any regulation in markets uh and you had a completely free market

[17:47] which I'm actually a fan of free markets but I recognize if you had a completely unregulated market we would probably be either way closer to socialism and communism in America

[18:02] than we already are uh or uh we'd already be there mostly because the damage that comes from a completely un unregulated or unguided market uh is so

[18:15] much deeper, right? Because you don't have a government trying to soften the blow in the bottom, right? Like in other words, this is sort of what Kevin Walsh was trying to do in 2008 and 2009. And there are a lot of people who believe

[18:28] that are like that's okay, let the bottom fall out. That's fine. Like I get IQ argument to say let the bottom fall get that. I get that argument. I'm

[18:40] saying not recognizing that there's another side or there's nuance is the another side or there's nuance is the low IQ move. The high IQ move is I know I I know there are arguments for letting the bond letting the market totally

[18:53] crash and dump and let all the the the waste uh collapse, all the zombie companies, let them all fail. Fine. It doesn't matter to me. We're going to be doesn't matter to me. We're going to be fine. Sitting on $100 million of of real

[19:07] estate and real estate developments and and securities uh with no bank debt like so so whatever, man. We're we're we'll play whatever game. If we're going to go cut rates to zero and bail everything out or whatever, fine. We'll we'll play

[19:22] going to fall out, let everything collapse, we'll play that game, too. We're ready. Um but you know I I know not everybody's that fortunate and and that's why I recognize that when people say oh we

[19:35] involved at all or the Fed involved at all. That creates a lot of human suffering a lot. Uh and that's why there is I think a U-turn now on this sort of Fed's not going to have any forward guidance but but hint hint Kevin Walsh

[19:51] rates at the September meeting. [laughter] This is setting up forward guidance again. They are flip-flopping on us in real time. And it's crazy because, you know, sometimes people be like, "Oh,

[20:05] Kevin, you always say the fence flip-flopping." They are, dude, they're flopping around like a fish I just took out of water and threw it onto the boat deck and it's flopping around so much it got itself off the hook and now it's

[20:18] between everybody's feet. And I'm like, "Ah, this scaly bastard." [laughter] you know, somebody pick this thing up. Anyway, uh so, uh you know,

[20:30] then despite or like during all of this, you've now got Bessen lashing out you've now got Bessen lashing out against Nick Tieros, our homie Nick T. Listen to this of one of the highlights of the WASH Fed has been watching

[20:47] stenographers posing as journalists like Wall Street Journal's Nick Tanamos Ter I Tim Timmeros. I always screw up how I pronounce his name. It's my fault. I'm too lazy to actually read that. It's Tim and then

[21:04] uh reduced to reporting Fed backroom gossip because they're incapable of performing real economic or monetary policy analysis without being spoonfed. it's good we don't have forward guidance." Meanwhile, you know, it

[21:18] forward guidance back. So, you know, Besson already looks like a fool here. But we like Nick T. We actually think he not only gives us good uh uh you know like analysis, he also has been known as Nikki Leaks to help provide us the

[21:35] forward guidance. [laughter] We we we think there have been some text messages between people at the Fed and Nick T uh leak stuff during blackout periods to not shock markets. That is intentional to make sure you know

[21:49] intentional to make sure you know markets don't crater uh when the Fed acts. Of course, you know, Scott Besson uh is getting a lot of blast back uh is getting a lot of blast back because he ran in 2024 with Trump

[22:02] during, you know, the campaign and said, "Hey, we're going to have a 333 economic agenda, 3% annual growth, 3% budget deficits of GDP, and we're going to increase oil production, uh 3 million barrels a day." Okay. Well, we didn't do

[22:15] any of those. Okay. Average annual growth is closer to 2% like 1.9% annual. Okay? Not like the quarterly volatile data. uh budget deficits are like twice 3%. They're like 5.8% uh as of September. And uh oil production is only

[22:32] September. And uh oil production is only up like half a million barrels a day.57 to be exact. And that's since January of 2025. So that's over an 18-month period. The only thing with a three in front of it is inflation.

[22:45] it is inflation. Thanks, Bessant. some catalyst dates to look at. So, what matters next is we've got the jobs report tomorrow. We're expecting 80,000 jobs. Uh a soft number here would

[23:01] actually be good [laughter] because it would potentially put a damper on a rate hike. Uh a blowout number would be really bad because then it's just all right, buckle up, we're getting our rate hike. You know, it's coming. CPI comes

[23:13] out August 12th. That's 2 days after Lauren's birthday. August 14th, that's 2 days after CPI. coupon code expiration. I meet Kevin.com. Prices are going up. Um we are we are really getting close. Uh

[23:29] are we are really getting close. Uh probably this month uh either by August 14th or by the end of this month, we've got a big shift coming to pricing. Uh and so I think you're you're going to want to get in before that. Uh so, you

[23:44] know, get it get in here in August because things are going to change. it's because things are going to change. it's going to be more expensive. So, um BLS, uh jobs, the next set. So, the August job numbers come out September 4th. So,

[23:58] mark your calendar for that. And then CPI September 11th. So, then you've got the Fed meeting on September 16th. And then, of course, you've got uh the Jackson Hole meeting on August 27th. So, we actually got a F kind of rich

[24:12] catalyst calendar here. You know, it's uh it's going to be juicy. So, we got some work to do. Uh, I'll be covering it. I'll be adding context and clarity to all of this. So, always make sure you're here. Uh, I I I know, you know,

[24:27] mentioned the coupon code." It's like, well, we don't have any sponsors on the channel. You know, the only thing I I work to promote is House Hack. Uh, House Hack and Reinvest. That's it. Uh, that's where the money goes from the alpha

[24:40] membership. So, if you join, you're just helping out out House Hack and Reinvest it's the most transparent thing you could ask for. I'm not I'm not paid by Russian bots. I'm not paid by, you know, third party companies. It's it's uh

[24:56] YouTube ad revenue and then and then it's it's house hack. That's it, boys and girls. You know, and I I think that's fair. Uh you know, we're not running sponsored posts in between this. Uh so, uh you know, I don't know. I I

[25:10] transparent. All right, folks. Thanks so much for Goodbye. Good luck. Why not advertise these things that you told us here? I >> We'll we'll try a little advertising and see how it goes.

[25:22] you. >> Kevin Pra there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.