Hey There Income Hunter,

 

The Fed has an incredible way with words …

 

Unfortunately it’s not very good with numbers.

 

Which is kind of a problem.

 

Yesterday, the Fed made a slight revision to its tightening process as it revised projections for their preferred measure of inflation – personal consumption expenditures (PCE).

 

Now, I’ll give you one guess why the PCE is the favored measure of inflation … 

 

You guessed it, because the PCE calculation historically calculates a lower level of inflation than the official consumer price index (CPI).

 

Neither the PCE or CPI are true indicators of how much more consumers are paying for essential items. 

 

So, it doesn’t really matter what the Fed does, what matters is that consumers are seriously hurting and any tightening will cause more pain in the economy. 

 

Inside, I’ll share the Fed’s new projections and a trade to take advantage of yesterday’s move. 

 

Fed Forecast

 

The Fed has the PCE:

 

• Ending 2022 at 4.3%
• Then dropping to 2.5% in 2023
• And finally to 2.1% in 2024

 

Now, as I said, these are just numbers and they might as well have pulled them from thin air … Because the Fed’s projections on inflation have been way off the mark in the past couple of years.  

 

The FOMC minutes showed that Fed officials agreed to tighten in 50 basis point increments over the next couple meetings.

 

This would mean two more 50bps hikes in 2022 – a .50 basis point hike in June and another in July, followed by a potential pause. That would give the Fed three more inflation prints before the end of the year to prove inflation is, in fact, coming down. 

 

Transparency Is Now Hurting the Fed

 

Think about this for a moment …

 

The West is at war with the East. It may be an economic war, but nonetheless it is a war.

 

Broadcasting your plans to your enemies may not be the best approach – especially since Russia has the upper hand because it is the largest exporter of energy to the world. 

 

The Russians could impact inflation by setting restrictions on exports or even coordinating an embargo, similar to the 1970s. 

 

In the 1970’s, Saudi Arabia put an embargo on oil exports to the US for its involvement in the Arab/Israeli war. 

 

Well, as the US discusses increasing its involvement in the Russia/Ukraine war, we could see a similar measure today.

 

Any increase in oil prices as we head into the peak demand of summer will inflict even more pain on businesses. It’s not rocket science that higher energy prices crush an economy that is reliant on importing energy. 

 

The good news is … I spotted a move in the markets yesterday enhanced by the Fed minutes that presents an excellent low risk/high reward opportunity. 

 

iShares High Yield Bond ETF (HYG)

 

HYG was the best performer in the debt sector yesterday as it rose 1.52%. This was the largest one-day increase for 2022.

 

The question is, do six more hikes change the damage already done to the economy? No way – because the economy is already in recession with another 1.5% in tightening to come.

 

Bearish Strategy on HYG

 

Companies are already talking about layoffs and ways to reduce their costs. Plus, September happens to be the worst period for equities historically,and this bear market has a ways to go.

 

HYG is also one of the worst performers in a bear market and yesterday’s short squeeze provides a good entry point.

 

Notice in the chart below the $79 level provides a great location for a bear strategy with the 50-day moving average providing strong resistance. 

 

 

Bring It Home

 

The Fed has been able to control the markets over its 80 year history, but it cannot control inflation. That’s especially true now, thanks to $31 trillion debt and the fact that foreigners are no longer supporting the Feds debt market. This reality will break some parts of the financial system and high yield debt is the most vulnerable.

 

Finally, don’t forget, Licia Leslie will be presenting live, along with Mark Sebastian, at 7 p.m. TONIGHT. We have been seeing a lot of good candlestick patterns and the timing is right to light up your brokerage account.  Click here to register.

 

And as always …

 

Live and Trade With Passion My Friend,

Griff