The Fed Will Be FORCED to Lower Rates , Here's Why

why are banks all over the world cutting rates but the FED likely will not have these other Banks solved their inflation problem or is there weakening weakening economies more the focus we're going to dive into that all today yeah it's a big deal right because typically the FED does something and then the world reacts right like yeah everybody says the US sneezes and the rest of the world gets a cold well this is not the case today no we have you know the uh Bank of Europe ECB yep ECB Switzerland Sweden and the Bank of Canada all cutting rates uh 0.25% um and we're almost positive when the FED meets this Wednesday they won't be cutting rates in the US yeah so as you guys know like everybody's hoping for under six% rates I just don't see it I first of all I don't think we're going to get a rate cut this week and there's a couple reasons why and this is Meaningful because a lot of people people that are underwater especially on the commercial real estate which is what we're dealing with um are trapped you know they're they're hoping for lower rates I just don't see it I do think that maybe uh politically might see some toward the end of the year but it doesn't really even matter at this point some people say there aren't going to be any um but the reason it's important is because there's a lot of Trapped Equity sitting in these single family houses refinancings are dead new home sales are dead and and uh and and a lot of these people can't get out of these big commercial projects because of the the rates are so high right it's all has to do with this 2% Target inflation rate which the the FED has admitted that um they're worried about still right but they're maybe not as worried as they were so that's what we're kind of seeing uh in these other countries um you know they're lowering their uh interest rates so one might assume that they hit their 2 % inflation mark because we've heard a lot about that we have to hit 2% inflation it's you know now is the time this is the biggest threat to our society blah blah blah but they're not but they didn't hit their 2% inflation Mark so that's something um we've been mentioning on this channel is we expect the Federal Reserve as well to accept higher inflation um the bank of Europe is accepting a 2.5% inflation rate and Canada currently sits at 2.7% inflation it's funny because um thecb said that they're not fully giving it up because now they're saying well if we expect it to fall to this this year and it'll be 2.1% by 2025 so they're not giving it up the the stick but they are lowering ahead of uh inflation falling yeah I think there's a couple things to consider here the reason why this is important is that the ECB has not cut rates since 2019 so let me repeat that again they they have not their last cut was in 2019 so this is kind of this is very a big deal because typically the FED kind of leads and then the other the other Banks kind of follow the other central banks kind of follow um now to be fair they hit 10.6% uh inflation in October of 2022 uh you know the the ECB uh in Europe so I think that that's that's a big big deal uh much higher than we we have but they've released earlier so it's very very interesting I think it's in it's good to note though that spending has slowed more in these countries than it has here in the US um because here our consumer spending still pretty high and also their unemployment is uh a little higher than than ours is so I do think that that is worth noting that they kind of went ahead and did that but you know when they start to lower these asset prices I'm asking you that's going to I'm sorry these rates that's going to make asset prices and things increase correct high high interest rates restrain economies that's that's exactly what it does it's the slow inflation that's certainly worked you can't go from 10.6 or 9.1 where we were all the way down so that's actually working but if you guys look at these as you guys know I'm a first of all I was never very good at in school but I do like to read this stuff call me a geek this is the beige book and the um the these are the minutes of the FED Open Market Committee um in uh in May on May 1st so it's really important to to really understand what's going on here and the FED is clearly concerned about inflation still the one big wild card in all of this I think is unemployment now if you look at there something really weird happened in may like really really weird so there were 272,000 jobs added in May so imagine that okay most people think that's good that's way ahead of uh the projections yet the unemployment went up to 4% so unemployment went up but yet they blew Expectations by over 100,000 so does isn't that seod and if you look at um if you look at the number of jobs and so this is precisely what the FED does not want actually it's the opposite of what you think now the fed's target unemployment rate is 4.4 it went from 3.7 to four so oddly enough the unemployment rate went up but and so did the amount of jobs so it's an interesting thing but I think you need to so Jerry can you play our first clip um the FED cut please but the FED is going to be we think cutting later this year not necessarily for the reasons the markets are expecting which is sort of benign disinflation but because we are going to start to see if not this morning then in the next couple of months more weakness in the labor market it's going to force their hand and bring them to the table with interest rate cut I don't know so essentially um the the job creation is lowering I think that clip kind of ended a little bit soon but Jerry if you want to play the next one but the FED is going to be we think cutting later this year not necessarily for the reasons the markets are expecting which is sort of benign disinflation but because we are going to start to see if not this morning then in the next couple of months more weakness in the labor market it's going to force their hand and bring them to the table with interest rate cut though you're having some doubts about the US achieving a soft Landing the thing that you're looking at is employment I mean straighten me out cuz I don't quite get it um sequentially we're expected to see an increase in jobs what are you seeing that economists in the market aren't seeing when it comes to the jobs Market sure so the payrolls have been very strong really in the last year or two years but you have seen sort of this this gradual decline in job creation which is going to be natural the later you get into a cycle it's the leading indicators for employment that really concern us when we look at leading indicators for the unemployment rate cuz again the unemployment rate is not a leading indicator once the unemployment rate is rising it tends to mean it's already a little bit too late for the FED to step in and help the market or help the economy with interest rate cuts the unemployment rate is higher by about half a percent than it was a year ago wage growth is higher as well but wage growth is higher so generally if the if the labor Market's softening why would wage growth be so strong I believe it's about 4% year-over-year why are we seeing wage growth if the labor Market's actually soft so wage growth is also decelerating so the two things that we look at together are the quits rat so how often are people leaving their jobs voluntarily and that tends to um to to lead wage growth by about a year and the quits rate's been coming down pretty rapidly over the last year as the market sort of normalizes and even quits now are a little bit less common than they were before the pandemic we think that's going to continue to bring wage growth down that's a sign that the labor market is not as tight despite the headline payroll growth the labor market is not as tight as it was again a year ago but things like small business hiring how many small businesses saying are saying they're going to be hiring in the next 3 to 6 months that's really started to come down pretty significantly as well and that has been historically a very reliable indicator for Rising unemployment rate so I wanted to show you that video because I think it's important to note you know some maybe some um information behind the jobs numbers so they're kind like he said unemployment is the last thing that's going to give there's a lot of indicators that employment is slowing down and that's going to obviously um affect the fed's decision as well moving forward right so so but I also want to point out something that we did a video last week about immigration and uh there is a mention in the FED minutes on page seven for any of that you guys want to fact check me it's on their it's on their website by the way you can just print it this is interesting participants further commented that the recent estimates of Greater immigration in the past few years and an overall increase in labor Supply could help explain the strength and the employment gains even as the unemployment rate had sign had remained rough flat and wage pressures had eased so what they're saying here is exactly what's going on in Canada is you know as you guys know can the uh Canada brought in over a million immigrants in the last two years and it's put significant pressure on housing prices the average house price in Canada is $791,000 and if you take a look at Toronto or Vancouver the only uh they're in significantly higher well over in the millions and so why is that so you know the amount of people coming in put pressure on everything and in this particular case wage growth is severely impacted and there's all kinds of um paper on this like people this is a controversial topic but I think it's import it's an important one because you've got inflation you've got wage growth and you've got unemployment so unemployment actually went up yet the we added the the the the number which you know you got to you got to question that yeah absolutely and I do think though that when the FED lowers rates to get back to um all these other countries lowering rates it may not be because of our employment rate so they may lower it sooner because there's going to be pressure from these other countries that are lowering rates to have the FED lower rates because they can't divulge that much from the FED right which is the point of the the entire conversation is that the ECB came out the Bank of Canada came out and so now the fed's going to uh you know they're going to it's going to be interesting this week on Wednesday well yeah and and on Wednesday you know just based on the research that I've done and we've done like I don't think that they're going to lower rates yet because you know these um other governments are only a quarter of a point different than than went down a quarter of a point but moving forward they're going to want to lower them more so the question is though why are these other economies accepting the higher inflation and not keeping rates the same why are they lowering rates so you have to kind of take a look at that too but you also have to look at the the growth like the growth you know because that's one of the things so GDP let's call it so q1 was 1.3 and that's down from 3.4 so there there you know there the when you we we talked about stagflation before now there's three things for stagflation one is high infl high inflation two is low economic growth and three is high unemployment so that is stagflation is worse than recession right it's worse and there's only been one in the history of the US and it's been in the 70s and so you know if the FED does lower rates what is that going to do it's going to create asset appreciation again it is but I think Jeff Snider theory on this was actually really interesting because he's like you know a quarter of a percentage is not going to really do much for anybody right agree with them but what it does is It's Not Meant For The Individual right like a quarter a point I mean nobody's even going to notice that on anything and nobody's going to refinance over that but it's signaling for corporations so that's what it's doing it's signaling to them hey we're easing up like don't fire your employees don't let anyone else go start hiring it's all going to be okay don't worry about this so in his opinion and of all the research I done I I believe he's correct is it's a psych psychological thing right for corporations because what they don't want is mass layoffs and what they don't want is you know people not being able to afford to spend because that will create stagflation so all these governments are kind of signaling to corporate and now these governments are going to be signaling to the us that they want rate cuts and I think that that is what's going to push the us to do rate Cuts in July or September yeah that's a possibility I I I I remember hearing him say that higher prices turn into higher wages which in turn turn into higher prices which in turn turn into higher wages I mean that's the truth right yeah and and the one thing that drives all of this our interest rates so you know as PE as as corporations finance things and ask consumers finance things it gets harder for them period right and so then they demand more money from their employer because things are more expensive that's how it works and then the employer has to take a look at does this work you know how because my you know the the one thing that's not going up are revenues right right so wages are certainly not going up and I think I think immigration is a wild card here because it's going to take it's going to pull down that wage growth you know you can't you can't add millions of people into an economy and don't think that they're not going to try to be working right right period right and so that's going to pull down that it's it's just a uh it's it's just going to be a really really interesting thing to watch but I don't think the fed's going to increase rate or cut rates this week and um also as I've said before I I think this is a little this little bit of this is meaningless you know because there's the rates when they were significant were in the four range right we're so far above that but that doesn't mean we're not going to cut more rapidly because when you kind of read some of this information and listen to people like Jeff Snider that's been you know um researching this they think that there are going to be substantial rate Cuts because they he thinks that they're now going to start focusing on stagflation versus a recession versus inflation and they're also going to claim victory on inflation as they are because even the bank of um or the ECB came out and said right now it's a 2.5% we expect it to be 2% next year so we're lowering rates and all is well right they're kind of packaging it up I think that's fair too yeah I mean they have I mean you know they brought it from nine to let's say mid tws I think that's good but it also if they're going to start lowering rates again to avoid stagflation they're also accepting a higher inflation because the inflation rate very well could go back up with low rates if they continue to lower it's possible you know in this beige book for those of you guys who aren't familiar with it eight times a year each Federal Bank summarizes the economic activity of that bank of what's happening and I I went through this and I'll tell you what it's flat Auto Sales flat retail spending flat housing you know the one thing that went up was tourism strength but they're all worried about the the summer tight credit all that stuff and and I'll tell you the one big wild card that nobody's talking about yet are the banks and what's interesting is on the 26th of this month the bank uh the FED is releasing a bank stress test this is going to be really interesting so it could be that they're just trying to get past this with no cut and then the stress test is going to be released the other thing don't forget CPI is out on Wednesday so this is isn't that interesting that the CPI report is out at 2:00 and chairman pal talks at 2:30 do you think maybe had access to it before right so you you know there's a lot going on this week I think it's really interesting and the month of uh June too cuz the bank stress test that's kind of the wild card they they look at the private sector yeah and I I think you know what we're going to see from the FED has been what we're seeing from these other countries we're going to have higher inflation they're going to accept higher inflation we've been saying on this channel for a long time that they're going to accept higher inflation um because they're trying to avoid stagflation right that is that is this uh siren that is now going off that all these countries are trying to avoid so I because of that and what we try to teach all of you that listen is during times of stagflation we did a video on this uh you want to be in hard assets you want to be in Gold you want to be in real estate so that is what we're going to be seeing just expect that you're going to have a higher than normal inflation for some time could it be could it be that the reason gold has had this Spike what it went from 1900 or 2000 to what is it 24 2500 now like it's just four months 5 months okay could it be that some of the Insiders might know that and they're getting into hard assets to hedge the dollar and to hedge inflation I don't know but it's an interesting thing to think about one thing that is a fact is that gold has gone up a lot so I'm not I'm not advocating to go out and buy a bunch of gold what I'm saying to you is you should be in hard assets if we're heading into periods of of high inflation so I have a question for you that I know a lot of people are sitting on so if we're anticipating rate cuts by the FED even if it's just a quarter point in this summer or this fall should they be buying a home now or do you think because do you think when they start to lower rates a quarter of a Point housing prices are going to go up or do you think they just wait it out and just yeah I don't think it's a good question but I I as you know I don't try to time the markets right like if it cash flows today based on today's rates we're an escrow on a big project in Las Vegas right now so it cash flows on today's rates fixed so if my property cash flows the one that we're buying you know and rates go down great that's a huge win but I you can't Bank on that so I'm hedging the up and then I'll refinance on the down so you always just got to take a look at doesn't make sense for you to be able to do that you know if you're if you're I think the residential Market which is different than the commercial Market is um is going to go through some temporary softness but I don't see any any any any relief ins sight I I mean like we think four in the 400s is High I mean just take a look at Canada they're they're in the seven High sevens I'm not saying we're Canada because we're certainly not they only have like 40 million people or something but the the reality is it's a very interesting thing to watch as as you start to mess around with their Central Bank and and um and and immigration all the things and the Restriction of supply and all the things that they've got going um it's crazy to me that that there are cities that are in the in the low Millions as an entry you know and we've had those but it's um it's really really really interesting so I don't see any relief on the single family side so if you can afford it today's rate are historically about average you know knock yourself out um you know I always but if I'm buying rental real estate or or investment real estate I always make sure cash flows so if you're trying to bank on lower rates that's a huge mistake if you're trying to see a cap rates are going to go down huge mistake um we're going to have some you know turmoil for the next 18 to 24 months as all this new construction hits it's going to be a great T time I think and we're all see starting to see a little uptick in the MLS which is also good so Supply higher Supply creates price softness so in fact denil and I are looking at a house and the it's been on the market for 266 days 266 days one house okay so you don't hear those stories all the time but it is a truth so why would why would that be you know there's all kinds of reasons but the you know not everything is is uh what it was you know you guys know you there were lines of people bidding up prices well above list so that's all gone and now it's kind of reversing back the other way and and as George gamon always said I he always had the greatest analogy you know he he talked about an air hot air balloon he said a hot air balloon um it goes up that's inflationary but it could have a hole in it which could also be deflationary so you can have inflation and deflation going on at the same time you know so when we're throwing around these numbers you got to look at the whole picture right you got to look at energy you got to look at housing you got to look at food you got to look at all of the things that make up that that number and that's what the fed's looking at and and I'll tell you um it just to me looks like inflation's here for a while it's certainly not going to get harnessed anytime soon it's not no and if you're looking for investment opportunities you should check out Limitless we have that coming up at the end of August guys that's going to be great we got 50 speakers we got three three stages 2,000 people this typically sells out this is our third year U we should have uh hopefully about 2,000 people at this and uh 80 exhibitors it's going to be fun and if you and by the way the whole focus on this is going to be the uncertainty of what's going on we're bringing in people to be able to talk to you about oil and gas and gold and silver and even Bitcoin and crypto and and and obviously starting a business and then AI I can't wait to Eric sue if you guys don't know who is you should look him up he just did two incredible interviews one with Gary Vee and one with Alex Heros I'll tell you those are amazing and he just talks about what is AI doing today and how can you apply it to your business so we have some really really really good speakers there I'm excited about uh we got Pace morby in the house today yep um doing a podcast on that we got Chris Martinson talking about hard assets so it's definitely worth that if you guys are confused as we all are and where things are going don't miss Limitless and use K 10 to get 10% off so let's jump into our uh premium questions here so we had some good ones today so um Charelle is asking how much do you want a property to cash flow to make it worth it yeah it's a good question so here's the way to look at things if you can buy it well the I guess the one month treasury went down let's just say it's four and a half I don't know what it is today haven't looked lately but if you have 100 Grand sitting in a bank and you're making 4 and a half almost risk-free it's it's backed by the government you got to imagine that that thing produces cash flow of four four four and a half or you know 400 or uh $4,500 right that's what that is 100,000 divided by .045 okay so when you look at cash flow from an investment you have to realize that is it is it riskier to be in a piece of real estate that produces say 5% probably so you're going to want that's you're always got to measure it with with what you're doing today so the what's the cost of the money what's the opportunity cost or lost in the money that you're investing so so for us it's a you know you can buy something that doesn't cash flow today if you have a plan to increase it you know but you got to be careful on the value ad strategy or the forced Equity strategy because those um are largely off the table right now not in all cases but in a lot of cases so so I always measure it with what's you know you know when bank accounts were at less than 1% and they were paying less than 1% on your actual savings then that made a lot of sense I mean I would invest in three and 4% real estate let's say or five or six but now you've got that as a compete as a competitor so you always just got to take a look at the cost or the or the loss opportunity cost of the money itself so our next question comes from Edward and those listening on YouTube go ahead and ask some questions and I'll try and answer them Edward said I have a paid off second home so can I get a line of credit about 120,000 is this a good way to get my first rental using that line of credit so um yes it is danial you've done this it's uh it depends on the cost of the again going back to the cost of the money it's your money by the way don't forget it's your 120 your it's your Equity your money so um and then of course what are you going to do with that so if you're going to pay six 7% for that money and you're going to get two or three it's probably not a good idea well also the risk too is in a lot of home equity lines um they're not fixed so you don't want to put variable debt on right now I would argue you know that's a lot of money for variable debt now if you can pay it off in a year two years whatever you're fine but most people for 120 Grand they're thinking doing like a 10 year 15E payoff period and that's can be really risky right now uh you might want to look into it though because I did have a home equity line where I could lock in a rate after I put the money on but it was a little bit over what a normal mortgage would be and mortgages are high right now so now you're probably looking at 9 or 10% to lock it in which is high so I don't know if now is the best time to do that you know one thing you could look into doing but I would probably wait until rates go down is a cash out refi of your own mortgage and then you have cash in hand at a low rate that's fixed for 30 years and you can buy something with that but it is a little bit risky to use adjustable um one one last thing I love the question because if you can use that money for say three four five months then it probably works so if you can replace it out and just use it as a short-term line then it makes all the sense in the world but if it's something that's going to be long long term I would probably not you know if it's you know so what would that be like that might be like buying something well below market and then putting fixed debt on that and then doing um as denil said some kind of cash back uh Cash out refinance on maybe the where that money is going so I always look at where's that 120 going to go right and then also is your tenant covering that that's the other piece like you know you set it's a second home which is great so hopefully if it's rented I hope it is um you're going to want to make sure that that's covered you don't want any Financial exposure you just want to be able to have access and use the line for something on a short-term basis um some kind of quick turn absolutely so our next question comes from Ashley and she is saying my uh landscaper told me that my tenants dog had puppies what do I do have make sure they give them away no I don't know like uh you know it's it's going to fall back to the lease so hopefully you have a clause about pets in the lease and if you don't have a pet addendum you should um and uh I'm sure you guys should just go on the internet and find those you know there should be language there's definitely language in there you know because obviously you have a in our lease we have it's very specific there's one pet or two pets let's say I think we have a two pet maximum so it's it just boils right back to the lease try uh don't get too emotional just send a simple letter I would first check I wouldn't go off what the landscaper said I'm sure they're right but I would just go you got to go that's part of being a landlord going over there sitting them down and say what's your plan here you know uh and you could also piss them off if you just send them a blind uh Angry letter so just go over there and maybe that's true but maybe um they've already found homes for them all I you you just don't know right just go Um rather than damage a relationship I think tenants are gold personally they always will be um they're the ones who pay off our stuff so um that's that's how I would approach it uh you know but it all does boil down to your lease and you also want to do a walkth through of your house right you want to make sure there's not damage from the puppies because you know on your lease you state the two or one or however many dogs you have and what kind of dogs they are so technically those puppies are not allowed on your property because they were never approved and I agree with Ken chat with them you know whatever see what the plan is but you also want to make sure you don't have damage from puppies if they've been letting them run all around so if if it's a great tenant I would work with them yeah um and just just go address it and just sit down with them and say hey heard you had puppies you know and that's it and then just have an open dialogue but you do need to know your rights which is go back to the tenant or I'm sorry the lease and and take a look yeah and if they refuse to get the puppy out you do have a right to start some kind of eviction process because those are not allowed on the lease yeah Mo most most of the time the um you know people don't keep all the puppies right there's usually a point so but you never know maybe she's a dog breeder and she just didn't tell you it could be yeah anyways we'll see you guys next week thanks for cheers

Channel: Ken McElroy

Views: 49,660

Keywords: FED, rate cut, inflation, central banks, economic slowdown, unemployment, consumer spending, European Central Bank, Canada, Switzerland, Sweden, stagflation, hard assets, real estate, gold, economic policy, interest rates, monetary policy, US economy, global economy, financial markets, economic forecast, macroeconomics, financial analysis, Ken McElroy, Citibank, MeetKevin, economic trends, economic stimulus, asset prices, job security, recession, economic stability

Id: 7b6S6nW7fu8

Length: 30min 55sec (1855 seconds)

Published: Mon Jun 10 2024