Liftoff, Carry, and the Fed: Three Forces Moving Markets

SpaceX goes public and runs. The Japan carry trade is under pressure. And the Fed meeting is right around the corner. 

We break down what's driving each story and what it means for markets. 

Let's get into it. 

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Transcript

SPEAKER_00 0:00

From Wall Street to managing hundreds of millions in client money, Nick and I use our alphabetic tube of credentials to discuss the investing and tax strategies that actually work. Oh, and we played Division I college football together. So strapped in. This one hits hard. Let's go.

SPEAKER_01 0:22

Alrighty, folks. We have four critical topics that we must discuss. Many of them are moving and grooving as we are recording. Number one is going to be the peace deal. Do we have it? Do we not? Let's assume we do. What happens next? Then we can talk about SpaceX. They are trading for their first full day. As of this morning, they are popping five or six percent already. I do want to talk about the yen carry trade because something very important is going to happen tomorrow. Stay tuned for that. And the most important thing this week is Wednesday when Kevin Walsh closes up his first Fed meeting and gets in front of that microphone. What fireworks is he going to unlock? And of course, in order to do this, we're going to talk with Taylor, CEO of Life Goal Investments, been on Wall Street more than a decade, helping the top 1% of the 1% make some moves. Taylor, man, what's going on? And uh let's talk that peace deal. It's breaking news on truth social.

SPEAKER_00 1:16

It's now everywhere. What say you? I mean, this is the 39th peace deal that we've we've now generated. So it'll be interesting to see. Yeah, no, this one, I mean, it does seem real. Both sides seem to be on board with it. Um, I'm still suspect in the fact that literally there have been CNN ran a poll, there have been 39 peace deal uh approaches thus far. And so it sounds like Friday, this is thing is gonna come to fruition, but there's you know, however many hours, 96 hours between now and then, that things could unravel, and that's been the case thus far. So hopefully this time's different.

SPEAKER_01 1:49

Well, yeah, let's, you know, at some point we have to make an uh, you know, make I'm gonna ask you to make an assumption. Let's just assume for a minute it goes through, they have this great signing in Geneva on Friday, and we go on. And then if we want at the end, we'll assume it blows up and we'll talk about that next. But let's assume the peace deal happens. We are already seeing the market drastically change, oil now below 80. Yeah, right, markets ripping rates down significantly. Yep. This uh this could be a gift to Kevin Walsh, a gift to President Trump if this sticks, right?

SPEAKER_00 2:24

Oh, it absolutely could. And and with the backdrop of earnings doing what they're doing, this has been that one big nagging outlier. I think the market is basically priced for this to have taken place. So I don't think that you're gonna get this big massive rally out of stocks, although you're getting a good move today. And and the oil side of things is is really that kind of linchpin that's that's starting to move down. It's it's actually I I heard Brian Sullivan on CNBC this morning say that at that juncture, and it was 5 a.m. Eastern time or whatever it was this morning, $80 and 23 cents a barrel was was what WTI was trading at that juncture at that point this morning. And that is exactly to the year to the penny what it was a year ago. And the price of gas now is is not directly incumbent upon oil, but obviously it's the largest driver. Last year, the average national price for a gallon of gas was 315, and today it's right around 406, 410, somewhere right in that ballpark. So this should directionally take gas prices lower, which is incredibly important because we are we are entering the travel season here.

SPEAKER_01 3:29

Yes, yeah, yeah, travel season. Uh really in full swing. Usually they say it starts Memorial Day, so we're we're in that. Um, but again, if we kind of look at the calendar, uh, something that we have in November is called the midterm elections. And if we go into midterm elections and gas is going lower, not higher, the economy is strong adding jobs as it did last week or the week before, whenever those were reported. And oh, by the way, here's the other just just how math works. Inflation's gonna look a lot better in November than it does today, right? The base effect, falling oil. Uh, there will be lots of two social posts about crashing inflation. Yep. Uh just how math works. So this might come together for it.

SPEAKER_00 4:15

Yeah, because if it doesn't, right, and and things were to go the other direction, the the midterm is going to be a bloodbath. And we talked about that before. Uh, the Democrats would almost definitively take the house. And so oil, oil's a driver, and it's that that that billboard that everyone drives by three times on their way to work and three times on their way home of the gas prices. So it's something that really, really, really sticks in people's minds. And this is a win. Now, granted, let's talk about the front end of like this was largely self-inflicted, and it'll be funny when we look back five, 10, 20 years from now, whether this is deemed as a success or a failure.

SPEAKER_01 4:52

And and and I dude, it might be interesting in a year. Why do you say five to ten years? Fair, fair.

SPEAKER_00 4:57

Next year, I want to look back. I think that's the reality of the confluence of things that takes place in the Middle East, I think, is very interesting because uh basically there's one of two ways of looking at this. We just went in there and in a war that was unprovoked by us, um, and and something we didn't necessarily need to do. I think the other side of it is, and this is maybe playing the long game, and and and I'm just trying to play devil's advocate against the populist opinion right now, where we shouldn't be there. And and and granted, I tend to fall on that side of the uh of the sword as well. But to be clear, just to try to see the other side, it's I've heard it referred to as mowing the lawn, like you have to do that once in a while. And so every 10, 15, 20 years, whatever it is, we have to go and shake the tree of people that are running terrorist organizations around the world and you know, creating nuclear weapons, and and something where if you don't go in and shake them out, you don't know where it would wind up. And so it there is a long view perspective of like, okay, I know this is not a heavily supported war, and it's not supported by me either, to be clear, but that is at least the counterpoint to that.

SPEAKER_01 6:00

Yeah, again, I'm gonna stay out of the politics of this one. I just want to stick to economy, inflation, deflation. Again, if if this happens, if Straight of Hermuz opens and there are no tolls or fees or whatever the hell they're calling that. Um, I still think we're gonna have inflation because it's in the system now for the next three to four months. Inventory, spoiler inventory. Yeah, it's it's it's just gonna take a while to shake out. But lo and behold, right around October, November, it should start looking better and better. Now let's just turn the coin over and say something happens in the night, next 96 hours, Israel does this, or we do that, or Iran does this, and you know, uh, this violent snap that we had lower this morning could quickly reverse the other direction, correct?

SPEAKER_00 6:45

I I I think that the downside for this one would be more magnitude than what we've seen in the other, hey, we got a deal on the table, and no, then it gets pulled off, etc. This is the first one that feels a little bit more sincere. This feels real, right? Yeah, yeah. And Pakistan being the you know, the entity that's that's running the negotiation in the middle there.

SPEAKER_01 7:07

You have a signing date and a location, kind of important.

SPEAKER_00 7:10

Yeah, it it is funny though. I I did hear this morning that um, you know, being that the supreme leader there is is uh who is it basically? Um, they don't know if it'll be Trump that actually heads over No, I don't think it would be. You know, you don't want to JD JD or someone like that.

SPEAKER_01 7:24

Yeah, I agree. All right, but let's get off that again. I think both of us would pray, hope, pay for peace. So let's assume it's let's hope it sticks. Let's assume there's a hope there's a great signing on Friday, and this gets behind us. And we move on to the next thing that's fun and interesting. Uh, and let's actually talk SpaceX next. SpaceX went public. I will admit it started trading much earlier than I expected. I thought it would be really 2 or 3 p.m. first trade, and I think it went out before lunch, right before noon, right? 11 something. Um, other you know, orderly. I you know had a little pop at the open and then kind of traded back and and you know ended up, I don't know, 10-15% off that, and actually did not perform as well as I thought it would.

SPEAKER_00 8:07

I heard a couple arguments on this, and and and listen, Elon is a diabolical character, people love him, people hate him. So, like this isn't a referendum on Elon, but I will say this, and I agree with the comments that I heard like Elon prices better than any banker has priced an IPO in a very long time. What you want in an IPO is you want to come in relatively close to what the price winds up settling out at. The last thing you want to do is overprice it and then put the tape in a downward market because so many question marks start to start to build there. But the other end of it is you price it too low and the company leaves money on the table with not garnering enough on that lift. So um, with a 20% pop in the day, um, that was that was literally about as ideal as you could possibly make it. And it's you know, Elon looks brilliant at the end of the day with the pricing of this because the let's be clear the bankers did not set that price. Elon did.

SPEAKER_01 9:00

No, oh, of course, yeah. Let's be very clear. Elon stayed the price. And uh, on that note, uh, we have our first trillionaire walking amongst us. I have to admit, as a young child, I thought billionaires were these mythical creatures. I never fathomed having a trillionaire walk among us. Uh, I don't know what that means, but crazy to think about.

SPEAKER_00 9:20

I'll put some context to it because I I I just heard this on the on another podcast this morning. Let's say we have a thousand dollar bill, which is whatever a millimeter thick or whatever it is. Yeah, um, a thousand dollar bill. If you uh put a million dollars out, yeah, I think the the stat was that it's four inches high. Uh thousand dollar bills stacked up to be a million is four inches high. To be a billion, it is the height of the Empire State Building. Okay. To be a trillion, it is 67 miles high. So, like our brain really struggles to fathom how many zeros and what what what the scale of that is. And and and that even becomes funny where one person has that much money, but it also becomes funny when you think about Congress and like, oh yeah, we're gonna run a two trillion dollar deficit this year. And people are like, Okay, it's two trillion, whatever. Yeah, like oh my god, the amount of money that we're talking about here is absolutely seismic.

SPEAKER_01 10:13

Yeah, well, there you go. Let's get to the yin carry trade because I think something happens tomorrow in Japan that could be a nothing burger, or it could revisit what happened last time. And folks, if you don't know, it is rumored that the Japanese will be the second uh large central bank to raise rates. Yes, I said it raised rates. ECB was first last week. It is rumored that Japan will raise rates. Uh, I will say that this time it won't be a surprise. They are clearly telegraphing this raise, so the market won't be caught afoot. But uh yeah, the yin carry trade, are we gonna hear about it the next 48 hours or is just a big nothing burger?

SPEAKER_00 10:51

We're gonna hear about it. I think it's just such a directional change, right? Now they've they have raised rates in recent history, but from a negative standpoint, you know, rates were negative in Japan for for an incredible period of time. So it was everyone's favorite ATM to go borrow money in for free and then chalk it into the Magnificent Seven, right? And that was what was taking place, and that's what unwound uh what was that August 6th of 2024. So we're coming up on a two-year anniversary out of that. But that's what caused the market to puke that that August day where Nvidia just got absolutely smashed and everything gapped downwards. I think the market opened on a Monday down six percent, and everyone is like a yen carry trade. What is that? And and so for so many retail traders, it was like I have no idea what they're even talking about here, but effectively what it was was again think about an ATM that literally will pay you just a little bit of money, pay you money to take it out, and then you can take that money out and bang it into whatever is the most popular trade at that given time, and hedge funds were doing it to a massive they were levered, they were levered on it, exactly right, yeah. And so when all of a sudden then interest rates ticked higher in Japan, what they said was okay, now we're getting unwound out of this position, we got to pay it back, and there's actually an interest rate associated with it, whereas I was getting paid before to hold it, right?

SPEAKER_01 12:13

Yeah, and the biggest thing people don't understand about the year and carry trade, it's not the delta between the rates. You also have currency risk, correct, which can be this big unknown that could really bite you and really cause a lot of pain. Uh, I do think there's one thing different this time versus I'll call it two years ago, just you know, round numbers. Um, we had an easing bias in the United States. So Japan was raising and we were lowering, and and hence double compression right from the top and the bottom. I think it's hard to say we have an easing bias uh today, but again, we'll get to Kevin Warsh in a minute.

SPEAKER_00 12:43

I I was gonna say, I think that's completely up for debate whether we have an easing bias or a tightening bias right now. It's a two-way go, and we don't know which way that two-way we're gonna get there, but yeah, yeah, we'll get to that one in the next topic.

SPEAKER_01 12:54

But yeah, uh, I do think that the the bet right now, again, if you look at the Fed watch tools, is zero rate increases, zero cuts this year, kind of higher for longer. Uh, but and again, the Japanese are telegraphing this rate increase. So I don't expect it to be you know a six percent down day, for example, but you know, I don't think you can lose because the yin carry trade's not done with its you know twisting and turning, I don't think.

SPEAKER_00 13:20

No, no, any anywhere it seems there is any bit of a free ride, right? The market doesn't provide free rides, like there was always risk associated with that trade. It it happened all all at once two years ago when that risk unwound very, very quickly. But anywhere that you can get the smallest amount of advantage, the markets are incredibly sophisticated. So they will strip out that arbitrage, strip out that advantage very, very quickly, and use it to benefit their underlying stakeholders in a hedge fund, in a mutual fund, and in whatever it is. And so that that advantage still does exist. There's still incredibly low rates there relative to where we're at here. It's you know, the Japanese tenure is at something like 2-5 or something like that, whereas we're at 4.5 here or darn near it. So it's much cheaper money there than it is here, and so that that delta between the two, although it's compressed, is still seismic. And so, therefore, that trade is is still underway. There's no doubt.

SPEAKER_01 14:15

Yeah, it's still playing it again. It was 400 basis points, now it's 200. So, again, not as much juice coming out, but again, Wall Street will take it. Free money, levered free money.

SPEAKER_00 14:25

Well, and and to your point, though, it typically it's not the known risk that that's it's not the known risk that causes the market to absolutely freak out. So, like, even you know, and and now I'm talking out of both sides of my mouth a little bit, but like we still have the known risk of this Friday, this peace deal not coming to fruition, right? So that's that's a known risk. So the market isn't going to absolutely puke down 10, 20 or something like that. I do think that this is the market's highest level of conviction thus far that the deal is gonna get done. So, therefore, there is downward pressure that will be experienced if this one doesn't come through. And then also, like it's like a negotiation between you and an employer or you and whatever. It's like, okay, we're gonna negotiate, we're gonna negotiate, we're gonna negotiate. And then at some point it feels you're close, and then if you're not close and it breaks, then things unravel quickly in opposite directions, and it's an F U, F you. I'm okay, we're we're not next. Yeah, yeah.

SPEAKER_01 15:20

All right, well, let's get on to Kevin Warsh because I think of the four, this is the most uh, you know, most important to my community, probably the most important to the economy. Uh, because you got Kevin Warsh coming in. He's uh he's got a divided Fed again, eight to four. The last meeting, three of them wanted to remove the easing bias. I uh let's talk about that first. Is Kevin gonna have to give up that easing bias to placate the the rest of the Fed? Uh, because I don't think we're getting a cut or a raise. Let's just take that off the table. I don't know. Does Kevin lose the easing bias?

SPEAKER_00 15:52

This whole thing playing out on Friday is very uh the the week is very timely that you get this massive reprieve in oil going. Ain't it good timing? It is. If it went the other way and oil prices, you know, were at 90, 95 a hundred, or something happened, god forbid, to have them go even higher than that. He would be he would be stuck between a rock and a hard place. So it'll be interesting to see. I mean, he's put in that chair because he is kind of an easy policy guy. Now he's not he he's a he's a balance sheet control guy, yes, but from an interest rate standpoint, he is a believer in lower interest rates. So his bias is certainly to move in that direction. I think this week is an opportune time that allows him to at least signal that that is on the table. I think if he is staunch in the fact that this direction is southward in interest rates, I think the market will continue to move. And I think it'll move quickly because I think there's that huge outstanding question mark right now. There's a slight tightening bias right now out of the market where they perceive interest rates more likely at the end of the year to be higher than they are lower from this point. So if that unwinds, I think that is gasoline on a fire right now. And I think that that blows this bubble further and all of a sudden it starts to inflate it more meaningfully.

SPEAKER_01 17:11

No, I agree with that. Um, I I think if Kevin Walsh is successful in keeping the easing bias, that will surprise the market to your point and blow the bubble bigger. I do think, given where most of the Fed presidents are, he's gonna have to give up on that. And again, I don't think he's gonna care. He's playing poker and he knows the game's not about this hand, it's the next hand, right? July is, in my opinion, far more important than June, right? June's the first meeting. Hey, I'm the new guy, you know, this is what I want to do, kind of nonsense. Uh, and then nothing happens, yeah.

SPEAKER_00 17:44

But July, that's the game. I and I think he's become very clear in his intent to keep his mouth shut. Yes, which is which is I don't know if that makes knuckleheads like you and I our job more interesting or less interesting in the fact that now they're not telling us what it is that they want to do. We have to infer it through their actions, and it becomes a more uh a more closed door type opinion. Yeah, yeah, yeah. So so all of a sudden we get to, you know, then think about all the crazy stuff that that that could be coming out of them. So, but it'll be interesting. I I do think, and and we stated this, I think, of the last episode that, like, listen, we need all the other knuckleheads to shut up as well. Yes, not not just the Fed chair and and their ability to say less because they don't know anything. The data changes, they are not good at forecasting. We've seen that time and time again. They're late to the part plot's gonna be flush, don't you think? Yeah, yeah, yeah. I think so. Um, I I want the other ones to shut up as well. Like, I don't care that you're in that position and that you want to be Fed chair someday or you want to have book tours someday, or whatever it is. It's keep their mouths shut because they talk against each other. One says something on a Thursday, the next one comes out the next Tuesday and says the opposite, the market rallies higher or rips lower. It's just nonsense.

SPEAKER_01 18:59

All right, so kind of uh play the game with me. We you know, Kevin Warsh just wrapped up his first press conference, the vote comes out. You know, if you were gonna pick the top three things that you think happened, like if you were if you were doing a parlay, what would be the three bets you would put on for that that uh press conference?

SPEAKER_00 19:17

Yeah, I think that he tries to lean towards easing bias continually. And I think that this this week is an is an opportune time. I think people are shocked at how less candid he is, how more guarded he is. And the last one is like the outstanding is the question mark that outside flyer of him reverting course. Now you gotta put low probabilities on this, but saying, like, hey, this inflation thing, it isn't transit transient, or it isn't what's the word I'm missing that they said. Transitory. Transitory, it's not transitory because what we also saw is that I did a video on this the other day. It's it's it's our inflation movement happened when it inflected higher, it happened a month and a half in advance of the Iran conflict. So we've had this inflection point that it's not just oil. And by the way, the trajectory of our inflation has moved rapidly higher than all other G7 countries, and the other G7 countries are incredibly oil dependent, whereas we're the exporters. So there's more things at the core of what's causing inflation than just oil. So, in the event that he makes some sort of referendum around that, that would spook the hell out of the markets.

SPEAKER_01 20:32

All right, let me give you my three-legged parlay.

SPEAKER_00 20:34

Let me by the way, you gave me no warning that I was gonna be put on the spot for three points. That's what I came up with. Uh not bad.

SPEAKER_01 20:41

Well, here's my three. I just put these down too, because I had no idea I was asking you this either. So I figured I might as well step up too.

SPEAKER_00 20:48

Yeah, but you're better off the cuff than I am.

SPEAKER_01 20:50

Oh, I don't know about that. So here's here's the first thing I think he's gonna talk about. He's gonna talk about oil. Uh, but more specifically, he's gonna spin it as a supply issue. And the Fed doesn't drill, it doesn't print neutrons or very atoms or whatever. And he's saying the tools that I have or we have at our disposal don't can't impact physical supply shock. So I think he's gonna talk about oil as a supply shock. Number one, number two, this is the one that I'm really leaning into. And I'm either gonna look like a genius or a complete clown.

SPEAKER_00 21:21

I love this. So do I.

SPEAKER_01 21:23

This is fun for me. It's bipolar. I think he's gonna try to do the Jedi mind trick on inflation. He's gonna he's gonna talk about this new way of calculating, he's gonna talk about why he likes it, and it's mean trend inflation or something like that. He's probably gonna mean trend, I think, is what it is. Yeah, something like that. He's gonna have to name that something else because it's a shitty name. But he's gonna basically talk about it and he's not gonna talk about PCE core. And I think he's gonna try to educate the audience on why it's important.

SPEAKER_00 21:52

So again, and those two those two run together, right? Because yeah, the the the the oil and and the trim to mean, and in fact, he's core. PCE isn't stripping it out, but this is doing it in just a different way. So basically, you're just talking about the fact that, like supply side things, shocks that are out of control, the Fed. That's effectively, we need to start reacting to that. And he's he's not wrong. He's not wrong making those comments.

SPEAKER_01 22:16

I I think he's gonna do this. And yes, it's probably you know, PCE core and this are probably fairly correlated given the shock is, but I again I think he's gonna use it as a reason to educate folks because he wants the big outlier of reporting thrown away. Yeah, is it new cars or used cars? Is it insurance? I mean, it could be anything in a given cycle, it just happens to be oil this time. So he's gonna talk about that. He's gonna be very, you know, kind of by the book, and you know, this is a better way, and blah blah blah.

SPEAKER_00 22:43

He's a nerd, too. So, like let's add let's add he's a wonk. Um, so that that blankets a nine-figure wonk. Yeah, exactly right.

SPEAKER_01 22:51

So, all right, and then here's the third one. I actually think of the three, this is as close to a layup as I have. Maybe it's a free throw. Um, he's gonna talk about the Fed needs better systems and better data. We need to throw away the telephone calls and we need to rely on systems and and you know, we need to have millions of data points every day as opposed to 17 phone calls a month or whatever they do today. So those are my three legs.

SPEAKER_00 23:16

What do you think of those? I love the last one. Love the last one because it it it the data that we're getting from every perspective out of the government right now is so flawed. We're getting an average of 57,000 job revisions um on a month-to-month basis. And that's like, to be clear, that meaning number that's that that's on a number that's like 150. So, like it's you're off by a third, right? So these huge margins of error. So um, no, I love that last point because um no one trusts the data right now. But it it but it's it's the devil you know. So the market, it's not that the market doesn't trade off of it, the market certainly doesn't it does trade off of it. So, whatever that jobs data, whatever that inflation data, whatever that but it's this big to to use your word before opaqueness of it, like you really don't know the validity of the underlying information. There's been at one point we had a wasn't it a uh for an it might have been annually, I think it was an annual 986. I was gonna say 86.

SPEAKER_01 24:10

986. Yeah, that's not good. That data's poor. Yeah, yeah. Well, you just talked about jobs, and I know we missed last week. So, any thoughts on those monster jobs numbers? We had better jilts, better ADP, and better BLS a little bit over a week ago. What do you think of all that?

SPEAKER_00 24:25

It just seems like our economy is is heating up again, and I think that it's all indicative of of what the AI playout is. So, the part of the fear in me, if I'm being you know the negative Nancy on it, is the fact that like as we build out these AI data centers, et cetera, there's a skilled labor that that is needed to do that, but that is a short-term job. Those aren't things that that are perpetual in their nature, as we want to build out as quickly, as rapidly as we can. And it's just something that that that's uh again, that one particular sector that's driving the entirety of the market, it's a race to build. And when that race ends, I don't know if those are sticky jobs. And I think that the other end of it is like not only is that not a sticky job, but it's also taking that new college graduate that's white collar that should be getting a young analyst type role and flipping that old model on its head.

SPEAKER_01 25:18

Yeah. Well, again, uh, Taylor, you are the CEO of Life Goal Investments, a firm that helps the top one percent of the one percent. We appreciate you coming on this channel each and every week and making us just a little bit better. Where should people follow you? Because you put five minutes of value in 60 second clips, and I still don't know how you do it. Where can they find you?

SPEAKER_00 25:36

No, first of all, thank you for having me. It's a it's it's a pleasure. You are one of the most well-read economists that I know. So uh it's fun for me to come on here and get an education from you. You see things from a different perspective, which is awesome. Um, so thanks for having me. But no, we are on Instagram, we're on TikTok, we're on LinkedIn, we're at Life Goal Investments, and and again, it's it's a pleasure putting out stuff every day, trying to see how succinctly we can put a complex message and make it relatable to the layman.

SPEAKER_01 26:01

Yeah, it's it's really truly impressive. Guys, go check them out. Life Goal Investments. Tell them send them a DM. Say hi from one rental at a time.

SPEAKER_00 26:10

We get them all the time. We get them all the time.

SPEAKER_01 26:12

Oh, that's awesome. I'm glad to hear that. Thank you.

SPEAKER_00 26:14

Quick ask if you're enjoying the show, hit the follow and drop a rating. It helps more folks find our podcast. Thanks so much. The information discussed in this video is for educational purposes only and should not be considered investment, tax, or financial advice. Investing involves risk, including possible loss of principal. Always consult a qualified financial professional before making any investment decisions. Past performance is not indicative of future results.