2026 06 17 17 01 48

0:00 Hi everyone, Rocket Man here. Um, and in today's video, we're going to talk about Fed stuff. Uh, normally this was going to be the end of the week video. Uh, or or end of the week was going to be a video, midweek was going to be an article, but I think this is worth flipping because I just don't have enough time to write up everything blah blah blah. Uh, as usual, please do not share this link. Um, yeah, that's pretty much the only rule. Uh, feel free to me, uh, message comments down below or in the Discord if you have any questions.

0:29 If you're not in the Discord and want to join, uh, please message me down below or DM me on Substack. So, the Fed comes out and it's WASH's first meeting and kind of does nothing that's really unexpected. So, uh, this is the the the kind of headline news that hit before WASH's conference and it said the Fed lifts RA paths, inflation outlook rises, uh, median Fed funds rate rises 3.8 in, uh, 2026 from 3.4. Basically, we're unpricing cuts. And in fact kind of indicating that at least one cut might or one rate royes might go in. 3.6 2027 again basically saying whatever cut we put in in 26 is going to come out in 27 but functionally no. And then 3.4 in 2028. Uh now if you've been a longtime reader/subscriber of mine or watcher you know I've been a very bad or very not a fan of J. how and one of the reasons is historically these kind of targeted cuts that he's done in the past where he's like, "Oh, we're only going to cut 50 bips hurt more than they help." Like you either got to start cutting and cutting starting a cutting cycle aggressively to get the rate cycle lower or hold things high tight. And he he's kind of massaging on the margins ended up causing more damage and kind of put us in this place we're in today. Uh obviously the Iran issue caused some of the problems uh caused kind of the major spike up which is why the cuts came out.

1:52 But War is there to kind of clean up Powell's mess. And there was a couple things that the market was kind of hoping for. One of which was these especially this specific rate hike would not be in the market. That the dot plots would show there was not the Fed officials did not want a rate hike. The second thing was that where is it? No, that's just his thing. um the inflation target will be revised up right a 2.5% inflation target might not seem like a lot but a half a percent move over the course of one decade or two suddenly means everything is materially higher I think it's something like 50 what is it a 1% move higher it's something like things are up seven 18 or 19% um higher than they would be so if it's a 2% versus 3% so half percent is roughly 10% which is a significant number for a lot of people right like like if you get a pay raise that's 10% % of your earnings gone over the course of the decade. So this did not happen.

2:48 This did not happen. Uh Wars and uh this is a comment from his uh from his uh uh press conference. Inflation framework review task force is focused on drivers of inflation. Uh we'll get to that in a second. And all this led to the Treasury 2-year yields going up. So this is SHIE, the ETF that that hold that basically manages. This is basically TLT for short end of the curve, right? This thing puked like crazy, right? Like it was it had been kind of garbage since February.

3:17 This is the weekly, by the way. Let's go to the daily. Like since basically the early March headline, we we basically invade the market starts immediately realizing the two-year is collap needs to collapse because or the two-year value of the bond needs to collapse because yields have to go higher. And we go from 83 down to 81, which might not seem like a huge move like on on a on a numerical basis, but like I mean this thing just does not move quickly, right? Like you see this thing, this is 2023 kind of just slow grinding uptrend and it just struggled to move higher because yields aren't going lower. And in fact, this is good, right? So we'll get back to this in a second why this is good.

3:59 But but this is basically what the issue was today. The market wants wanted this to clearly break out and go that way. That's what they wanted. Uh but meanwhile, TLT technically finished higher. This is this is important. Okay. So, you know, you can see some of my old drawings on here. Nothing new for those of you that follow this channel for a while, but the yield curve currently looks like this. Just a technically this is actually exists even though I just freehanded it. This is the 20-year with that little bump, but functionally like the 5-year and the 30-year are yielding the same roughly percentage. Like there's not really a time value to carry to once you get past 10 years, they're all roughly the same thing. What Walsh wants to do is he wants to make the yield curve look like this, where the 2-year yield is higher than the 30-year.

4:52 This implies deflation, but what he's doing is forcing the curve lower by spiking the short end because the assumption is there's go he's going to cause a recession. Now, that's what this task force piece comes in where he said we're going to uh we're going to have a review task force to focus on drivers of inflation. If they come back and say, "Oh, the drivers of inflation are all um balance sheet management by the Fed and uh Iran."

5:23 Well, then he's this this the rate cut this rate cut is going to disappear off the dot plots, the one that's here. So, suddenly then the yield curve will naturally get here. But he needs the 30-year lower. He needs TLT up. To get TLT up, he needs the front end to continue to collapse. The problem is the front end is basically how the market's priced consumers defensives banks industrials in some level consumer cyclicals healthcare etc etc they all care about what the two-year is doing now housing cares about what the 10ear is doing but for the most part every the rest of the market cares what the two-year is and suddenly the response was you had this this rush to belong the same things that have worked the non-consumer consumer names that are secular growth stories which we've talked about in the past which are your semiconductors uh with some industrials and then aa you know a couple others here and there capital markets blah blah blah but the majority of the the money needed to flow into the semiconductor space.

6:29 The problem is, as you can see from this heat map, and we can even do like one month performance. Let's go to one month. Like, we're starting to broaden out, but like year to date, we're broadly green, which is great, but you can see where the heat is in this sector, right? It's really in this semiconductor section, right? Which is just this kind of line of stocks right here. And what what needs to happen is money to to push the market higher. Either a semiconductors need to wash out and recreate a long base and push higher. And again, that won't I don't expect that to be much further lower than we are today. Um, you know, maybe we retest the 50-day again, which is this green up trend line. We retest it again at 430. So that's 10 points basically below where we are today. But you look at a stock like Intel. Intel has touched, which is one of the clear leaders and and looks like out of all of the the semiconductors names, you know, looks like it might actually be ready to go again. Um, but it's touched the 21day a couple times. Uh, and it's touched the 8day, which is like right here, and it looks ready to go, you know. And then you compare that to like SanDisk, for example, that is well above 21 days and and looks like it needs a rest. Uh Micron's a kind of a intermixed thing, but again, similarish story that looks like it needs a little bit of sideways action, not a lot, but these are your really your three leaders. There's there's there's a couple others uh in the semicap space, but we're not going to go too deep into them. And none of these stocks look terrible today, right?

8:01 Like Sand Micron, as I write record this, is up 2% after hours. Intel, as I record this, is up 3 2% after hours. You know, SanDisk, as I record this, is up 1.8% after hours. So, you know, they're all doing okay after hours. We've gotten through the wash out, but what what the market is panicked about is Walsh is basically telling it, I gotta force you lower to get rate cuts into the market. So for Home Depot to do well, I need the whole market to collapse. I can't because because and he mentioned this and I'm paraphrasing this comment. He basically said there's a difference between financial conditions and housing conditions. The housing market is saying the market the economy is way too tight.

8:43 uh or the uh the um rates are way too tight and we need to become more restrictive, but the financial signals are saying everything is too loose. So, he needs to get everything on the same page. So what he's trying to do is jawbone the short end yields higher rate or uh uh value of the bonds down and then force the market to throw up or understand that he is doing this to force the 30-year lower yields lower force the yield curve lower giving him the room to cut and allowing things to go on. And again, a lot of this is going to be hinged on this task force framework for drivers. No one I mean again, you can read these comments.

9:26 I don't really care, but you can you can you can talk about what the causes are. Walsh thinks the causes of inflation is the balance sheet of the Fed. Okay. Every there was an outside shot. No one really expected it, but there was an outside shot that he was going to announce quantitative tightening again on this confer uh this conference. Um my sense is that leaked that he wasn't going to do that uh late last week and that's part of the reason the rally happened in the stock market. Um but broadly the the the thing is the the mark he thinks that's the cause of inflation. If and we tal we've talked about it in Substack and and on videos like if the Iran war inflationary hop create embeds inflation into the system for another 6 n 12 months but it's not growing inflation right like it's just like hey we got to pass these fertilizer costs through to the end user and then we're done. like if it gets to that the the Fed will look past that and cut.

10:29 They just they just will. And that will help fix this weird dichotomy where basically like this narrow stream of the market works. And again, a few other names, don't get me wrong, but like the rest of the market's kind of just a mess broadly. Not good, not bad, just a mess. Like it just some things work, some things don't. And that's kind of why uh uh uh he he sounded hawkish, but it was it was kind of dovish when you look out far enough.

11:02 But it's it's a little bit worrisome for the market because uh and we can talk more like long-term trends. Um really that's rel regarding quantitative tightening and trying to move money out of the VC private equity ecosystem and into uh commercial banking again. But that's kind of irrelevant to this conversation or or tangental to this conversation, I should say. The the real thing he wants to do is get at least 50 basis points out of the um off the yield curve. And to do that, he needs to force the market to give him the slack to do that. And he needs to first do that by getting TLT higher. And then the the rest of the yield curve will start repricing down because then suddenly, oh well, maybe the recession is going to happen next year. We need to price some of these cuts out of the 10-year and then etc., etc. And that will spurn uh spurn a better healthier yield curve that allows him to cut. Um the path forward to be dovish is to be hawkish right now. And that's something Jerome Pow like and and I criticized him routinely. He never grasped. He was very he very much liked being the I get to like as much as you know people he'll say whatever he wants and he's going to write a memoir eventually so we'll pretend to know what he's thinking. But you could tell he was he was a people pleaser at heart and he didn't like to deliver bad news. And you knew that because he handled 2020 to 2022 horribly. Like at no point did he indicate he had any interest to cut or raise rates until basically the market had to quite literally almost break his arm to get him to the podium to raise rates. Uh and then he just had to, you know, hyper raise rates and it was the fastest rate hiking cycle in existence because he was so far behind.

12:36 And Walsh understands if I sound hawkish that is actually doubbish because the market will price in more cuts that'll cause the tightness we need to happen. The econom the will have the inflationary effect slow down uh or deflationary effect of the higher rates into the market and then we can be inflationary by or or kind of resp. So does he cut do I do I think he's going to raise rates? No. I I think all else being equal, he he is not going to raise rates. I do think and and this is kind of just everyone who lives in America, you want to start considering uh uh or even Europeans, you want to start considering one more long dollar uh uh trade. Um the you know, the pound finally broke. It's just been it's been just flat basically since the ear since March. Uh I want to see it below uh 131.

13:28 I really want to see it around 127 128. I feel like that's much more fair market for the pound. the yen just continues to grind higher. I still maintain and and I said this for a while like we're going to touch the high 160s 170s and then we're going to be done. Uh so if you're planning a trip to Japan at any point in the next 18 months, the moment that if this thing pukes really hard one day, you just want to lock in your rate and and and be done with it there. The euro looks like it wants to go back down to 112 to 110 somewhere in there. Like I think what's this? Yeah, 112 is probably where it's going to head. So the dollar looks strong. you're going to see this force tightening mechanism and then at some point in September, October, November, December when Walsh flips and becomes very dovish in his speech because he's actually dovish uh and then also does quantitative tightening on the same type. We'll we'll cover that later in a different video. I just wanted to put this out real fast. Um when that happens then suddenly you'll see the market really really pivot hard to a consumerfocused yield focused le uh uh stock market where that's the stuff you want to own. Uh long duration assets like some software will probably do well. Uh but for the most part that's that's going to kind of correspond. Uh and then kind of going back to the S&P 500 heat map like you're hearing kind of chatter right now um uh about how you know for example light has been very weak right so so light is lethinium um or lumentum like this has just been relatively since it's joined the S&P 500 it's just traded flat right it's stuck at 900 and really hasn't done anything since a early April which is crazy because the because all the other semiconductor components have just been explosive to the upside it's also breaking down like like this trading sideways while all the moving averages are going higher. Not great.

15:11 Um, uh, that doesn't mean it's a bad long. It just means it's going to take it's probably going to retouch the the 100 day or potentially the 200 day before it moves materially higher. Now, that might mean it collapses down to 500. Unlikely. Or it means it just trades sideways for another three to six months before the 200 200 day catches up and then worst case scenario, it actually breaks below the 200 day. Right? Like those are your scenarios for for for life. I I don't have a dog in this race.

15:36 My point is um you're you're seeing like tier two, which is what light is, uh semiconductor names start to fall off. Like again, Intel's up 2%. Light's up 610 of a percent right now. Uh we don't even need to talk about Nvidium Broadcom. They've been pretty weak. But like AMD still high name, it's up 1.9%. It was only up 1% today, even after some bullish new uh bullish upgrade. Intel was up three and a half percent and then 2% after hours. I'm using that not to dismiss AMD. I'm just saying that you can see the semiconductor trade is starting to tighten. The leadership list is getting smaller and smaller and smaller. And again, Walsh would like the stock market to pull back. Doesn't need to be hard.

16:22 Doesn't need to be heavy, but a 5 to 7% pullback, and I don't think it's going to happen until after until Q3 or Q4, but a 5 to 7% pullback would be okay. A 10% pullback gives him the all clear. And like you don't need a lot of non-semis to participate in the downside. So my point is RSP puked today pretty badly unfortunately. Um uh my point is at some point in the next and again now it's like it used to be 18 months 24 months and now we're getting into the 9 to 12 month window. You want to start pivoting your account over to yield maxing. Um, and again, I'm going to throw a name out there, and I don't think this is the name you should be targeting, but like AT&T pays a ton, it's like six times Evida, five, might be five times now.

17:09 Like, they buy back about a billion dollars, half a billion dollars of stock a quarter. Um, and they're just kind of aggressive about that. Now, I know there's some consumer issues and component costs, blah, blah, blah. Long story short, like they don't grow very much. They're growing like 3 to 5% a year. Uh, but they they pay down debt and they and they buy back stock. That's all you And they pay a massive dividend. This is kind of the stock you want to have in a decent chunk of your money. uh uh if it's not an outright cash at some point in the next 6 to9 months because at some point while this thing won't rocket to to 40 $60 $80 with a 5% yield if the if this if the 2-year yield goes from 3 and 3/4 to 2 or 3% this thing has to go to about four to uh uh 3.5%. If it goes 3.5% it's 40 it's about 50% upside.

18:03 If it goes to 4%, it's 25% upside. So that's material upside while the stock is getting cheaper because it's getting buyback. So this is the kind of stuff you kind of want to think about and start building your list there. No one's going to have a correct correct list right now because like right now the whole sector looks terrible, right? Everyone's just trading this down, down, and down. But you can see the AI trades starting to age get get aged. That doesn't mean it can't go higher, but you're starting to see some cracks in the foundation. The leadership list is getting tighter. Walsh wants a mini crash so he can cut. And this is all setting the stage for uh the point where you basically want to only be in unfortunately boomer stocks. And and again at that point the the goal is not to do 30 40 50% and just be a high beta.

18:48 It's going to be similar to how it was in Q4 to early Q1 this Q4 last year early Q1 this year where it's just like you want to be in like healthcare names because the goal is just hey I want to get 3% returns while the market's down 6%. I don't want to do uh 30% returns while the market's up 10%. I want to do, you know, above basically cash returns while while the market's uh trading sideways, if not down. So, um that's kind of what we have to look forward to.

19:13 And unfortunately, that's kind of what uh what Walsh was was laying out. And that's one of the reasons the market kind of got a little panicked. The other thing that was not talked about by anyone else is Walsh put a little bit more on instability in the market. He didn't talk about forward guidance. The the market really likes forward guidance. He didn't talk about kind of what his um uh framework was. He me kept mentioning the focus group and the market just doesn't like instability.

19:36 They like knowing things. And again, this is another sign that he is being smarter how he's running this than J. Paul. J. Paul was very much market's friend. It's not a big deal. So is Ben Bernaki and so is Janet Yelling. And the Fed needs to be antagonistic to the market. Like that is a good thing. The Fed should not exist and be friendly to the market. That is a basically captured institution. Then there's no point to having the Fed. And that's one of the reasons why there's a lot of people who are like, what's the point of the Fed?

20:00 Because it's been a captured institution for so long. So, we'll see if that changes. Walsh clearly wants to go his own way. He, you know, again, two, three, four years from now, he wants to get the balance, the Fed's balance sheet materially lower. So, we'll see what that does to things. Um, that potentially puts a lot of pressure on stocks that need to tap into the bond market and tap into equity mark tap into equities. So you might see small midcaps or even large caps like Google uh start issuing uh more shares to uh and that'll change the composition of of more shares versus less shares and how that pushes the market higher or lower. It's going to be a choppy next kind of 18 to two years 18 months to two years. Like that's kind of uh the longer storm picture. Potentially longer. I don't know. I'm not saying again I don't want to make it seem like oh I'm saying I'm being super bearish. I'm not like it could we could be at 9,000 or 10,000 at the end of 2027. I have no idea. But there's going to be a lot of chop and a lot of uh a lot of just kind of unknowns because the market doesn't know because Walsh is not telling the market exactly what's going on in his brain every 5 seconds. Um it's not a bad thing. It creates more volatility which is good for individual investors. Uh it just is a thing that you need to you need to note. So anyways, that's kind of where we're at. Um yeah, I I don't really have an answer.

21:15 It's not really a lot that's super like need to buy. Now, Capital One's probably the best name. Um, uh, so it's it kind of struggled below the 200 day, whatever. Um, but you can kind of tell that if the consu and the consumer month overmonth retail numbers came out today really strong. If the consumer is not going to roll over and we're basically going to get the market crash purely because of semis, and again, I'm not implying that that's going to happen. I'm just saying like if that's what happens, like Capital One's going to be the biggest beneficiary, this will head to 300 pretty quickly.

21:44 So, this is probably a name you want to be long. Um, other consumer names you might want to consider, uh, uh, Victoria Secret kind of keeps grinding higher. That seems to be high beta quality name. Um, you probably want to buy one of the hotel lines, Marriott or or or Hilton. Uh, don't really have preference. Booking.com is another option. I I kind of want to stay away for airlines. I'll talk about those later at some point.

22:06 Uh, and then you might probably want to get along a basket of of consumer package goods at some point. I don't know when. I'm going to be honest. like that that whole sector looks bombed to hell and I just don't know when it's going to be viable but it will be viable at some point in the next six to nine months and you'll get significant it'll be similar to kind of the materials basket we put on late last year early this year which there was immediately 20 30% returns now obviously that's kind of done a little bit of mixed bag uh solstice is is grinding higher but chopping is doing fantastic duont's doing fantastic uh uh DAO has given up a lot of its post-war gains uh and then huntington obviously ly uh just just did that terrible merger that kind of blew them up. So, you're kind of all it's kind of a mixed bag of stuff. So, um but that's kind of what you want to think about in the next, you know, six to nine months is stuff you want to look at. And so, anyways, uh this has been Rocket Man. Let me know what you think. I will talk to you all later this weekend.

23:01 Enjoy your Friday off. Bye.