Transcription
So Tom Lee just said something very interesting, a prediction I never thought I'd hear him say. We absolutely have and will talk about it. I'll break it down in a second.
But look, I got to say these are very interesting times right now in the stock market. A lot of people are unsure about how long this bull run that's been going on since 2023 is going to continue. A lot of people are trying to kind of hedge their bets, manage the risk, and essentially a lot of folks right now are a little bit on the nervous side. And now we have Tom Lee coming out with this prediction, which adds a lot of intrigue to this whole setup, which is why we have to talk about it.
Now, I haven't covered Tom Lee here in the channel in a while. But I got to say that since 2023 onwards with a few minor mistakes, he was mostly right. And people who went with his predictions for the most part so far for the past three years have been okay. So even though people love to hate on him and call him a permable, look, the numbers don't lie and his credits are pretty good.
Now he just went on CNBC and he said a lot of things about the jobs market, the economy, the Fed cuts, Bitcoin, the stock market. There's a lot to unpack here, but as you know in my videos, I don't like to hold you hostage. So, I've edited kind of a highlights clip of everything he said that matters. I'm going to play it for you, the highlights, and then I'm going to offer my analysis should you choose to watch that. So, first of all, let's roll the Tom Lee clip and then I'll kind of give my two cents about it.
Well, uh, we can see that Fed fund futures uh, jumped from roughly 2.3 cuts by the end of this year to almost three. So on the heels of that jobs report, the bond market essentially is saying that the the labor market is now deviating further from the Fed's target than inflation and therefore justifying actually one additional cut. So I think that makes sense to me because we know inflation and that August CPI gets reported this week may be elevating, but that the markets are going to begin to view that as transitory, whereas the weakness in the labor market, as you know, once it begins to to weaken, it's very hard to reverse that momentum. So I think it's important for the Fed to intervene quickly.
And is your are you of the view three times this year minimum? If if I look at what the bond market's pricing, which is now essentially three cuts and the Fed is talking about two, the bond market is saying the Fed is behind in terms of how they're perceiving um the these changing conditions. And so I think on on the 17th when the FOMC makes its rate decision, I I think there is a chance the Fed's responds to that. And if it does, it's it's going to be good news because the bond market is going to take comfort from the Fed recognizing the labor market's weakening.
Where you think the economy is headed? If we get these Fed cuts and the economy, you know, doesn't take a a steep leg down despite what we've seen with the jobs market, that's one thing. But if if we get these cuts and you're also dealing with a slowing economy, potentially even a recession down the road, I mean, that's a completely different story. You looking at these Fed cuts as for good reasons because we can do it and get away with it and it's going to improve the economy, or you looking at this and thinking, I worry about what comes on the other side?
Yeah, I'm going to take the camp that I think that these cuts are actually going to be very constructive for the economy because the 30-year mortgage um is strangulating the economy. We know housing is slowed dramatically. Um but we also know that there's a lot of pent-up demand for housing. So, it's a market that does need to be fixed in terms of easing sort of supply demand conditions. And we also know the ISM, which is a measure of business confidence, has been below 50 for 31 months. It's the longest stretch since the ISM's ever been created. So I think business confidence recovers if the Fed starts to cut. And so the combination of easing mortgage rates, business confidence recovery, I think is kind of a broadening cycle. And actually, I think that's why small caps have been the second best performing group after mag 7 over the last 8 weeks.
You know, one of the things that Scott Besson said was he thinks that the economy is actually in better shape than we think and and that the jobs numbers are going to get better. How does that factor into your thinking or does it?
I think on the margin I'd agree with Treasury Secretary Bezen's comments for two reasons. One, when we go through corporate earnings, we don't have any increase in comments from businesses saying business tapered off in July or August. So even though the labor market shows like it's deteriorated the last two months, business conditions haven't. In fact, even the Fed's beige book um most regions reported improving conditions. So that is one thing. And the second is we know the labor market undergoes a lot of revisions and we get September's benchmark revisions. I think it may show that the job market's been weak all year. And in fact, maybe the last few months have actually been stable. So I think Treasury Secretary Besson is sort of correct to an extent.
Uh, Bitcoin, before we let you go, tell us what you think. We're at about $111,000. The upside, the downside from here.
Uh, Bitcoin and cryptocurrencies like Ethereum are super sensitive to monetary policy. So, I think that September 17th is an important catalyst. Crypto typically does really well in the fourth quarter. So, I I think Bitcoin can easily get to 200,000 before year end. I know it's a big move. It's almost a double. One of the reasons Bitcoin stalled this year is the Fed's been on pause for 9 months. That pause all year. If you look at an easing cycle, that's only happened two other times in 1998 and 2024 where the Fed began to resume cuts in the fourth quarter in September. Equities do really well. As you know, crypto is beta to equity. So, I think it's going to be a very strong fourth quarter.
So, you're you are seriously bullish into into the into the end of the year at this point given these given these rate cuts.
I would be more cautious, Andrew, if we didn't encounter so much skepticism about stocks. So I think year to date the S&P is up 10%. As you know when you look at a pretty good measure like AI net bulls less bears, it's been negative for 5 weeks. So at all-time highs investors are bearish and we find that skepticism among our institutional clients. So I think most are kind of bracing for a defensive view between September and year end. That's why I think that the stock market will surprise to the upside.
So basically Tom Lee is saying that the market currently is setting up and pricing more cuts than the Federal Reserve is saying they're going to do. Basically he's looking at the bond market and he's saying look the market thinks that the Fed is kind of bluffing or they will change their mind. Whatever the case may be. He's essentially alluding to the fact that more cuts are coming than the Fed is letting on. And he's saying look the labor market right now is indeed slowing down but it's not too bad. It's easily manageable and you can stop that before it becomes a runaway train. Essentially, if you think about it, when the train leaves the station, right, it's very, very slow and it takes a lot of time to pick up speed, but once it has picked up speed, it is very hard to stop. The same thing with the job market. Once you see the first cracks like we've been seeing, this is the time to drop interest rates and stop it before it actually becomes a problem. And I think that he is saying here that the Fed aren't idiots. They're gonna see that and they're going to cut rates to prevent that from happening.
Now, he thinks in this clip, as you just heard, that we will get three cuts by the end of this year. Now, we're already in the middle of September, which means that pretty much this is it, right? And here's the thing. The most interesting part about this whole interview was nuanced and was alluded to. They didn't dive deep into it because how could they? It's a seven minute interview. But I'm here to kind of break it down. Tom Lee was alluding to this fact. He's saying that a lot of experts and historians are saying, "Look, whenever the Fed cuts rates, it doesn't guarantee a happy golucky fairy tale ending to the stock market." A lot of times a Fed cut eventually we got a recession or a bare market or a stock market downturn. And that is true. Not every time we got a cut, we actually had a good stock market and a good economy right after.
What Tom is saying that it's not always consequential. What he's saying is if the cut is preemptive, if the cuts happen before the market breaks ahead of time, when you start seeing the first cracks, like we're starting to see with the labor market, when the stock market is still doing good, when the economy is still doing good, when the earnings are still great for the companies, GDP growth is still good. When you're cutting ahead of time preemptively, you're not going to get a recession most likely. However, if you are late and you are doing this as a response, not as a preemptive measure after the market has already went south, it's very, very hard because you already are trying to battle a runaway train.
So, what Tom is saying that right now we're in the situation where cuts will still be preemptive because everything else is still good. Earnings are good, GDP is good, the labor market is just starting to slow down. So, this would still make it a good cut versus a bad cut. It's all about the timing for the Fed. If they get it late, the impact can be very negative on the market, right? He's still actually on board with the fact that as long as earnings are good and we've gotten the last round of earnings that was pretty much spectacular. That means that the cracks we're seeing in the labor market are essentially just kind of the canary in the coal mine. It's still not the huge SOS moment. That's a good thing.
Right now, I don't know if the Fed is going to comply with Tom's Lee's prediction, right? We don't know. But the assumption is that the Fed sees the same data that we're seeing, the same data that Tom Lee is seeing and most likely they'll get the same decision, right? There's no point in sitting here and trying to guess what the Fed will do. The best thing is just to let it happen and adjust accordingly. And I'll talk about that a little bit at the end of the video.
Now, he's also saying in the video, in the final section of the interview, he says, "Look, Bitcoin is at 111 and it's been vastly held back because of high interest rates, but once we'll get this interest rate cut, it's going to be insanely volatile. It's going to up and down and it's going to do crazy things. But by the end of the year, which means whatever's left from September, October, November, December, we might end up at 200,000 per Bitcoin, which means from 111 to 200 in 4 months." And I think it's a very, very interesting prediction. I'm just going to put it this way because I think a lot of people will hear that, but they don't understand the flip side. Bitcoin is so volatile. And again, I'm not a Bitcoin expert here and I don't pretend to be. But Bitcoin is so volatile that what Tom Lee is saying, this thing might go from 100 to 200 in four months or from 100 to 50 in 4 months. That was the second half of the sentence he needed to complete because that is certainly possible.
And again, with Bitcoin, my whole thing is very simple. I'm not a Bitcoin expert, but I will say one thing. It is so entrenched in the US financial system that it is unimaginable that it will ever go away. I don't know about any other coins or cryptocurrencies, but Bitcoin is basically so intertwined with US financial system. It's game over for all the Bitcoin haters. It's here to stay.
Now, if you want to be a Bitcoin investor, just do two things. Number one, keep a limited exposure. And number two, understand the volatility. You might go from 100 to 50 or 100 to 200 and then back to 30. It's an insane ride. You know, it's only suitable for long-term players with a very strong stomach.
Now, as I said in the first half of this analysis, we don't know what the Fed is going to do with the cuts. We don't know how the stock market is going to react. We don't know what Bitcoin is going to do. We don't know nothing. Okay? Now, the only thing we know here is how to prepare. We don't predict. We prepare. So, we have a plan. My students and I in the academy, the Rook Academy, we have a very specific plan. What happens if the Fed cuts? What happens if the Fed doesn't cut? And exactly how to utilize each specific scenario to make money. Because again, we don't try to time the market. We don't try to guess what's going to happen. We have a plan of how to make money no matter what happens to have a scenario built for each specific case. And that is why we're not freaking out and we honestly don't care. There's a way to make money when the market is going up. There's a way to make money when the market is going down. Whether the Fed is going to cut rates, doesn't cut rate, doesn't matter.
Now, if you want to be a part of our community and you want to join the academy, you're more than welcome. patreon.com/dommash. We would love to have you there. I currently have 25,000 students and I think the reason is because it's actually pretty good. Join our Discord, join the Patreon, see the articles, see the lectures, and become a part of the community and learn with us how to prepare, not to predict. Thank you so much. I'll see you in the next one.