Fed Cut in September? Fakeout or Breakout | Tom McClellan
Summary
Market Outlook: Jerome Powell's recent comments suggest a potential rate cut in September, but uncertainty remains about whether this signals a genuine shift or a market "fakeout."
Fed Policy: The Fed's actions, including quantitative tightening and reverse repurchases, are impacting market liquidity, with mixed signals causing market volatility.
Interest Rates: Long-term bond yields are expected to rise, influenced by historical patterns in gold prices, indicating potential future increases in mortgage rates.
Inflation Cycle: A 5.3-year inflation cycle suggests rising inflation into 2026, which could initially benefit the stock market before prompting Fed intervention.
Gold and Commodities: Gold's current high levels and cycle patterns indicate a potential bottoming in October, with implications for other commodities like grains and coffee.
Investment Strategy: With current market uncertainties, maintaining cash positions or investing in collateralized loan obligations may be prudent, as bearish seasonality and geopolitical risks persist.
Technical Analysis: Small speculators' confidence in gold and Bitcoin suggests potential market corrections, as historical patterns show these positions often precede declines.
Fed's Lagging Indicators: The Fed's reliance on lagging indicators like employment and inflation may lead to delayed policy responses, emphasizing the need for more proactive measures.
Transcript
Inflation apparently isn't the problem anymore. Employment is. That's what Jerome Powell told us from Jackson Hole last Friday. And the market cheered his message cuz he pretty much said he's going to cut rates in September without committing. Well, we have to find out whether that's just a head fake, whether we're in a bare trap, bull trap, or what the situation is in the markets right now. I've invited a fantastic guest on the show, a first time guest as well, Tom Mlelen. He's the author of the Mark McClennon market report and he's a really famous and very well-known uh tech technical analyst and uh his family is also known for producing some of the indicators you technical analysts out there might be using on a daily basis and I'm really curious to get his take on where we're at in the cycle. Really excited to have him on. But before I switch over to my guest, hit that like and subscribe button. It helps us out tremendously and we much appreciate it. It's a free way to support us, so please do it and we appreciate it. Thank you so much for doing that. Now, Tom, it is great to have you on the show. Thank you so much for joining us. >> Glad to be with you. >> Yeah, Tom, really looking forward to the next 30 minutes here with you because we have a lot to make sense of and to maybe put some uh unemotional uh framework around things. Um, but before we get started and get into the nitty-gritty, let's get your general take on the market and the financial markets in particular here, Tom. Well, uh, the market is a wild doing wild things this year because it's getting inputs from whatever people think about what President Trump is doing and whatever the Fed is actually doing and understand that that's it's not about what Trump is actually doing, but it's about what people think about what he's doing. That that matters far more than the actual actions. And but the Fed has definitely got their thumb on the scale with uh with the quantitative tightening that they're doing, but also with a soft quantitative easing that they're doing through something that's really wonky called reverse repurchases of of uh Treasury bonds. Uh that's doing weird things to liquidity in the in the market and then uh hinting at interest rate cuts. And so uh the market's getting jolted around by news a whole lot more than by actual events and earnings. Yeah, the market is being confused on all fronts, but it yet it's cheering on the message it's getting from from the federal bank and from even from President Trump. It is cheering it on. Is the Fed put back on? Should we be expecting maybe more QE in different shapes and forms here? >> Uh I hate the term Fed puts because it means so many different things to different people. So I don't want to give you a yes or no on that because that answer will mean different things to different people. The Fed is obviously the big gorilla in the room and whatever they do does matter. Uh they they are not doing what they should do. They are not listening to the bond market very well which I'll cover. I I brought some slides to go through if you're interested in looking at charts. >> Oh absolutely Tom though be that'd be great. Um if you want to bring those up we can dive right in because I really want to get your take also on the stock market uh bonds and you even brought uh some some info here on Bitcoin and curious what that correlation is at the end. Um, if you want to, you can jump in sharing if you want and uh we'll we'll run through that together and uh I'll interrupt you if I have to uh or not have to if I want to and maybe have to clarify or have some follow-up questions for you there. >> Sounds good. Let me make sure that I can do the switchology of this. Um they're talking about seasonality and everybody knows that we're in August right now as we are recording this and August is one of the two worst months of the year. August and September when on average the market tends to go down. And uh the market has been struggling to follow the annual seasonal pattern. That's the blue line. That's if you just chop up the the price history into one-year chunks of time and average them together. That's what the average pattern looks like. And the market is at times tried to follow that. But every once in a while, a big news event will come along like the Fed cutting rates last December or Trump announcing his liberation day announcement of tariffs on April 2nd that sent the market into a tail spin. After we have those events, the market tries to get back on track again and follow its average pattern. The latest of these news events was the Jackson Hole speech on Friday by Powell where he strongly hinted that interest rate cuts were coming and everybody celebrated by pushing the the Dow at least up to a new all-time high. The S&P 500 didn't quite make it, but it had quite the big celebration. So, is this a kickoff to a breakout move or is this a fake out? That's the hard question that we have to ask ourselves. One of the things that was interesting about that day was the breath was enormously strong that day. Uh we had more than 10 to one up volume. And so here's a chart that looks at the instances of when you have 10 to one up volume on the NYSE. And that's what the black bars show are those instances. What it means though depends on the context in which it occurs. If you have a long decline and then suddenly you get a big turnaround day with a 10 to one up volume day, that tends to mark initiation of a strong new advance. If however you see it at the end of an advance where the market's already been in an uptrend and you get one of these kind of blowoff moves, uh then it marks an exhaustion event. So which is this one? That's the hard question because we got a breakout to new all-time highs. So is this an exhaustion event or is this the initiation? That's a really hard question to answer and and I'll give you a perfect answer six months from now. But right as we try to do it in real time, life is a little bit more challenging. One of the things that uh I like to look at though is I when I do the analysis, what I always try to do is I want to get the answers ahead of time about what's supposed to happen. Some people can just look at charts and bars and volume bars and and and read patterns that way, but I want to have a road map of where we're supposed to go. This is my best road map for the bond market, and I'm talking about long-term interest rates. I what I do is I take the price of gold, that's the plot that's on top, and I shift it forward in the chart by 20 and a half months to reveal how the same dance steps get traced out by bond yields uh after that 20 and a half month lag time. Now, this is zoomed in so that we can see the minor details. 20 and a half months later, you get the same footsteps occurring in the bond market that occurred already 20 and a half months before in gold prices. The the parallel I liken it to is suppose you're standing at the beach and you go out to you walk out to the end of the pier and you look underneath your feet and you see a wave go right underneath your feet. Now, that same wave is headed to the beach, but the wave is not going to hit the beach the same time that you see it go under your feet at the end of the pier. Gold is is the messenger. Gold is at the end of the pier and it sees the wave. That same wave is going to hit the beach later and you just get to know about it because you're standing at the end of the pier looking at it. Now, the thing that we're seeing right now, if my mouse will work, we're we're supposed to be getting a top right now in yields to echo the top that occurred in gold prices 20 and a half months ago. And then we get a dip and another and basically two months of chopping sideways as we go into uh the fall of 2025. But notice that this chart is zoomed in and it's not showing all of the history of gold. This is still looking at gold when it was at $2,000 to $2,100 an ounce. Everybody knows that gold is at $3,400 an ounce now. And so we can look at a longer term chart and we can see that here we're talking about just this little bit of chopping in gold's pattern that bond yields are echoing. We have yet to echo this big up move in gold prices. And that's what's coming uh later this year and on into 2026 for bond yields. Long-term bond yields are headed a lot higher if this relationship which has been working for decades continues working. Now it gets it gets off every once in a while with the end of QE2 the the it broke briefly just was not in a good correlation but then it got back into into dancing uh with the pattern fine again. The magnitude of the co crash was a whole lot greater than what gold said was it was supposed to be but the timing was right. Sometimes you get a weird magnitude spike like this. So things can go can happen where it drives the the actual bond market a little bit off of the road map, but in general after that happens, it tries to get back on track again. Now, that's for long-term yields. >> I was going to say, Tom, can I jump in real quick? When you say long-term yields, are we talking 10, 20, or 30, or doesn't it matter? >> Well, the Treasury yield index, which I'm using here, it's going to do basically what 20 years and 10 are going to look very much similar. The Treasury yield index is the current yield to maturity on the whatever is the most recently issued 30-year Treasury bond. Okay? >> And so this is looking at 30-year yields. So 30-year mortgage yields are going to look a lot like this because they're all going to move together. 20 20-year bonds, 10-year bonds are going to also look a lot like this. Not exactly, but at the short end, it's going to be different. This is my best guide for what the Fed should do. The green line is the 2-year Treasury note yield. So two years are a whole lot different than 30 years and they behave very much differently. The green line will tell you in advance what the black line should do. The black line is the Fed funds target rate which is what the FOMC sets and they're still up at 4 and 38% even though uh the two-year note yield is threequarters of a point lower. there's there's a huge spread and so the Fed could cut a half a point and they would still not be catching up to where the two-year says they should be going. They are way behind uh in their decision-m and when they do that they create big problems. When we we we saw um they were slow to raise interest rates in the early 2000s because Greenspan was about to hit office out of office and he wanted to work on his legacy. So they overstimulated the real estate bubble and then they were asleep at the switch in 2006 and 2007 when they kept rates high even though the two-year said rates should be really falling and they and it took even though they cut rates faster than ever before they still weren't catching up to where the two-year said they should go. Then uh after living through that experience the 2008 and n bare market they wanted to make sure that they put pumped plenty of fuel back in the banking system. So they fueled what we call the everything bubble uh and they got what they were too slow to get raise rates up. They were then too slow to get rates down as we were heading into the COVID period. So the Fed is always behind. They need to learn to listen better to what the two-year says and they wouldn't create so many problems. >> Yeah. A lot of their indicators are all lagging obviously. Employment, inflation, they're all lagging indicators obviously. So they'll always be behind the eightball when it comes to uh yeah forecasting I would assume right >> they've got 400 PhD economists working for the Federal Reserve who I'm sure are great at doing economics the way they were taught in college but that's not necessarily how the real world works. The bond market knows better than those 400 PhD economists and but those economists have very expensive degrees and so it can't possibly be true that something as as simple as the mere bond market could know more than they know. >> No 400 no just the overhead alone doesn't make any sense. Um but maybe on the previous slide Tom you you mentioned something about the mortgage rate and I think that is quite interesting because a lot of people are hoping that now the housing market will get more affordable at least to them uh with a kind of interest rates which seems to be misguided hope I guess um based on that chart and your prediction you you're expecting mortgage rates probably to climb higher rather than lower >> I am and I have a very good reason for why I expect mortgage rates to come higher if you let me go on ahead to the next chart infl Inflation is has a very important 5.3year cycle and we are at the bottom of that cycle right now and starting to turn up and and the this chart just shows a simple sine wave to depict what that cycle looks like. But where you get the lows you get very pretty reliably a low in the red line which is the inflation rate doesn't always coincide exactly but the cycle works generally over time. We are now at that cycle low and turning up. So 2006 and 2007 should see rising inflation rates. Now if you're worried about what does rising inflation rates mean for the stock market, actually rising inflation is good for the stock market. The mark the stock market tends to do well when inflation is on the rise. It starts to have trouble once the Fed decides to do something about that rising inflation. But the actual inflation itself is actually good for the stock market. So that's a rising inflation forecast into 2026 is not in conflict with expecting a good stock market in 2026, which I do expect, but we still have a lot of 2025 to get through. >> This is actually and and just to continue, this 5.3 year cycle is an interesting cycle because every other cycle peak tends to be much more significant. And so we are now going into one of the less significant ones, but we just had a hugely significant one with the 2021 and 2022 inflation experience where we got up to 9% briefly. Uh and it's a funny thing that every other cycle seems to be more important. The the lesser cycles that we're going into, they're still important, just not as as big as this. Now you're thinking, now why would that be? Why would it be that every other time in a 5.31year cycle you get a more significant cycle peak? And the answer is if if you think about what is 2 times 5.3 years, that's 10.6 years, which is the sunspot cycle. >> So, we're really all driven by the sun. >> Interesting. >> Isn't that interesting? >> That's an interesting take. Yeah. I haven't Nobody's mentioned that before. >> Can Can you elaborate on that? Like what what is the significance of that? like you caught me off guard there a little bit, Tom. >> Oh, good, good. I like that. Um, nobody nobody thinks of this because nobody thinks that it even could be uh relevant. Um, very my my grandfather was an astronomer. He had a PhD in astronomy, helped train Apollo astronauts, ran the Griffith Park Observatory in Los Angeles. And so I I know a little bit about the solar system and and stars and and I think of things that people don't think about. And I also know a little bit about the stock market because of what my parents did. So, I uh sit at a good place to be able to think about both things. Uh you'll you hear people like Arch Crawford who will tell you that planets run everything and I don't agree with that. But the sun is a is a big deal and it governs a lot of what happens. And you wonder why would that matter? Well, the the the sun when we have a sunspot cycle, it emits a whole lot of charged particles and charged particles do funny things to people's brains uh which allow us to accept inflation more and get upset about it more. And so that I think that's the best explanation for why it works this way. But at some point, you know, when you've got 70 years of data on a chart and and the and the cycles are lining up, at some point you stop asking about the why and you just accept that it is that way. Does does it also line up with revolutions in history? >> Uh it can. Yeah. Uh there's for not just the the the 10.6ear cycle, but there are also longer cycles and and how sunspot cycles play out. And so those do tend to to line up that way. Not as neatly as as you might like. Uh but there is some evidence for that. Yeah. There is also evidence of a very long 60 to 70year cycle and in long-term sunspots that does tend to coincide with very very long-term interest rate cycles, but that's another topic for another time. >> Yeah. No, it's interesting. We might have to dive into that a bit more here, as you said, at another time, but I'm curious like what what do you think drivers for inflation will be this time? Usually, it's the Fed screwing up like they've been doing. And uh when they print too much money, that's that's the biggest one. But it's not just the money itself. It's how people feel about the money. And that's where the sunspot variability comes into it because it affects the human brain. Our brains are made up of a bunch of circuitry and wiring. And if you bombard them with charged particles, then people tend to get uppy and make funny decisions. And that's tends to be a lot of where inflation comes from. >> I I've seen a chart you presented on on another channel. I think it was Adam Tagert's thoughtful money channel was a good friend here of the channel. Um in terms of M2 money supply, uh it is my like I my understanding that M2 money supply is at its peak right now. Um why why do you think inflation is still under control then in regard to that? >> Because there are lags in how that works. They've actually brought M2 down especially in terms of uh as a ratio to GDP. It's come down a lot but it takes at least a year to work that itself through the system because um when when you get uh it's like releasing water out of a dam. It doesn't all flow down the stream immediately but it starts to and and so those same lags work in the economy. >> Interesting. Interesting. Now we since we're talking about cycles, I wanted to talk about gold which has seen a big rise and actually gold is uh one of the best leading indicators for what inflation is going to do. Uh gold near all-time highs is a big deal because it tends to bring the same sort of action in grain prices and coffee prices and cattle prices with about a one-year lag. What we're seeing in gold right now, it has its own cycle that's about 13 and a half months in length. Uh and so every time you get a bottom in this cycle like we're due for in October, you get what we call the major cycle low, but you also get a midcycle low, uh what I like to call the half period harmonic. Same thing with the 10.6 year sunspots and 5.3 year inflation cycle. The half period harmonic matters. We've just had the very very dimminative midcycle low, but we're seeing slightly higher highs, which is a good thing. That's a bullish thing. That's called right translation. When you see right translation around the midcycle low, uh you still have to put in the major cycle low, but it says bullish things for when we get into the next cycle in 2026. So, I'm very excited about having a nice bottom coming up here, ideally due in October, but it can be a month or two early or late, and that's very normal. uh when when I can identify this bottoming condition arriving, I'm going to be very excited about being bullish on gold for the next cycle and and seeing it do well. >> How how dramatic is that cycle low going to play out? Like we're at let's assume $3,400 right now. What what do you expect the low to be and what what should we do or what what no sorry, let me rephrase that. Like what will drive it to that point? Like what do you expect to be the trigger for that move? It's a it's a natural question and it this cycle won't give you that answer. Sometimes you get a really really important cycle though. Sometimes it hardly shows up at all. But it's if you look hard enough it's there. And so it can be either of those and it won't tell us in advance what it's going to be. You just know about the timing that something important is going to happen here. We don't know how much of a decline we're going to get, if any. it could just chop sideways for between now and October and that in the inflection point uh of the end of that sideways period and the start of an advance that will be the cycle bottom. Uh you just don't know in advance because it's quite varied. We there is also an eight-year cycle in gold prices and we are in the bullish ascending phase of that separate cycle. So you have different cycles going on at the same time and uh we have countries uh and armies and economies all trying to compete with each other and some of them try to cheat by devaluing their money and that affects how gold works and and gold affects how other things works and and it all plays together. >> Let let me oversimplify it, Tom, but uh if you were to put a buy, hold or sell on uh on gold right now, what would it be? Well, for my daily edition subscribers, I've I'm neutral on gold short, intermediate, and long-term. >> And what that means is not just a forecast looking out some distance in the future, but for those refer to trading styles. So, uh I don't see a good compelling case to go long or short gold right now either either way for any of any of those trading styles. When we get a nice oversold opportunity or a overbought opportunity, yeah, I might develop a different opinion for short-term trading. We get to about October plus or minus, I'm much more excited about getting bullish on gold. Uh, now it's just not a great time. >> Something get stuck in my head that you mentioned earlier is the QT and QE part um of of the Fed mand or not mandate, but the part of the Fed's role is of course quantitative tightening that it's been doing, but also quantitive easing. you've been bringing up reverse repo which seems to be very misunderstood or not even understood at all by by our audience and myself to be quite honest as well. Um what what are the implications here like what what is the Fed doing and will they flood the market with additional liquidity soon? >> Well, they have been um they got up to as many as $2.1 trillion worth of reverse repos that they were holding. This is a super wonky, boring concept that you're gonna want to fall asleep hearing about it, but a a a repurchase agreement or a reverse repurchase agreement, they they both constitute agreements between member banks and the Fed. And a reverse repurchase agreement is where a bank borrows treasuries from the Fed to make their balance sheet look better. And in exchange they pledge some of their deposits as collateral for that. And what that the net effect of that does is it it withdraws liquidity from the stock market when you undertake a reverse repurchase agreement. When you unwind that as has been happening since 2021, uh that $2.1 trillion of reverse repos is now down to about $30 billion. It's declined a lot. And what that means is that all those bank deposits and bank reserves are freed up to do other things like help lift the stock market. So it's the unwinding of reverse repo. Is everybody asleep yet? Because this is super boring. I'm still here. Super wonky. But it's the unwinding of the reverse repos that has functioned as and effectively as a quantitative easing even as the Fed is rolling off its mortgage back securities and treasuries. So, it's doing quantitative tightening and quantitative easing at the same time in really wonky ways that are hard to know and understand. Now, I'm just really trying to understand the connection with the stock market and why everybody's cheering like a Fed cut and why everybody's so happy and pushing valuations higher and higher without logic and reason to a degree as a pragmatic bystander here. Right. >> Well, the only thing that there's only two fundamentals that matter when it comes to the stock market. The first is how much money is there and the second is how much does that money want to be invested? If you change either of those, you move the stock market. >> No, it's true. It's true. Demand is outstripping supply. I guess that's why we keep going up. >> So, let me say one more thing about gold right now with gold up at a very high level. >> Um, this is a chart of the commit from data from the commitment of traders report showing the net position of the nonreportable traders. These are the small speculators. So, you know, if you own one or two futures contracts in gold, you get included in this group. It doesn't include the big commercials, which are the gold producers. It doesn't include hedge funds. It's the little guys. Right now, they are net long in a pretty big way. And they almost never get short. Uh when they do, it's a great bottoming opportunity for gold prices. So they're net long most of the time, but right now they're net long in a really, really big way, expressing a whole lot of confidence that gold is going higher. Gold really likes to punish that kind of confidence. We saw that back in 2000 when gold was topping. We saw that back in 2011 and 12 when they were supremely confident. They were had big net-long positions and they ended up getting punished by a big long bare market. So this is another reason why I'm expecting that 13 and a half month cycle due to bottom in October to to be meaningful and to keep gold prices from going up for the moment because these guys need to get their attitude adjusted. Right now they are too confident and usually the way the way they get their attitude adjusted is by gold making a scary feeling decline which scares them out. You get a nice bottom uh when they drop down to a very low net long position and that's a great buying opportunity. They're not there yet. Um I expect that they will get there in another month or two or three, but they're not there yet. Um these non-reportable traders are are what I think is among the most important data to look at in the commitment of traders report because you you're looking at the hot money guys who get who chase every rally and they flee from every selloff. And so when they're all leaning too far in one direction, that's a big powerful message. And that's the same message we're getting right now about Bitcoin. This the green line is the non-reportable traders net position in the microbitcoin futures contract. So this is small traders trading the small bitcoin contract and for the entire history of of this contract they have been net been net long to varying degrees. And right now they are net long in a really really big way because the high prices of bitcoin have them feeling very very confident. They were feeling that same way back in 2021 and they got to find out that Bitcoin prices can go down. I'm not necessarily saying that Bitcoin prices have to go down now. I'm just saying that when you get these guys feeling very confident and owning this contract in a long position in a in the futures in a big way. Uh that's a sign of a topping process for Bitcoin prices. And so I'm not very excited right now about the prospects for Bitcoin. Bill, uh, Bill, I was just going to say like Tom, um, you you've been saying in the past, T, Bill, and chill. Um, because I'm trying to get an investment strategy out of you here for the next six months until the year end. I'm curious like what should Joe and Jane Blow do here? Um, how should we position? What should we expect? >> Well, you're still getting 4% plus on a money market account. uh you can get 5% if you buy uh credit uh uh um collateralized loan obligations you and you can even do that in an ETF. Uh and that's not a bad thing right now. I don't think that the market has uh the potential to fight really hard against the bearish seasonality that we have for another month and a half going into early October. Uh you're fighting against uh bearish seasonality. You're fighting against the Fed running out of reverse repos to to zero out. You're uh still in an environment when who knows what President Trump is going to do. That's a risk factor and what other countries are going to do. And so you've got a lot of things arguing against the market. 2026 is looking like a great time for the stock market, but we still have to get through the rest of 2025 first. And I think there's a decline still coming ahead. I'm bearish right now on the stock market. Maybe just to follow bit granular, but uh the the Fed cut in September, is it fully priced in? >> Um they're probably going to chicken out and only cut a quarter point. They should cut a half a point and keep more cuts on the table based on what the two-year is going to is saying right now. However, the the the window for the Fed to do any cutting is very short because that inflation cycle I showed you is turning up now and it's going to be starting to become more evident um within 2025 and really screamingly evident within in once we get into 2026. So, yes, they should cut now because they have the rate in the wrong place, but inflation coming is going to have them uh chickening out on any more rate cuts after we get past September and maybe into a little bit later this fall because they're going to start seeing the signs that inflation's back. We can't do it anymore. >> Well, we we've said earlier in the conversation, Tom, and I'm going to challenge you just a little bit here that the Fed is always behind the eightball. So, if you say they're they see inflation coming, shouldn't they play hockey and maybe skate in front of the puck and just raise rates? >> I I understand the argument. Um, first of all, they're not smart enough to realize what 5.3 year cycles based on sunspots are saying about inflation, even though it's been working for decades. They're not smart enough to know that. Second of all, they're going to lag and wait for to see that what the data say. Third, they're in the wrong place now already, so they need to cut. Uh, but I don't think they're going to cut very long and very far. And so I I realize that I'm sounds like I'm talking out of both sides of my mouth. And I am right now because I'm talking about the short term versus the long term. Short-term right now, they need to cut today and not even wait till September. They they're in the wrong place now and they should cut now because it's creating problems by doing that. uh and and we're seeing that in the housing market being soft and people can't sell a house and they can't uh find a house to buy uh at the current mortgage rates and afford it. So that's creating a problem right now. But the problem for a few months from now will be the rising inflation that gold has already been telling us about and that the the 5.3 year cycle is saying is gonna be happening. That's not something the Fed is going to even know about. It's not something you're going to hear on CNBC for a few more months, but it's coming. >> Maybe very, very last question here, Tom, is just the lag effect. If you say they need to cut now because they're already too late, what do you expect the lag effect to be of those rate cuts? >> Well, they're always behind by how much varies each time. Uh if if I were in charge, I would uh I would stop having flying in all the different Fed governors from all the different districts into the Mariner Eckles building in Washington DC to hold FOMC meetings. I would just outsource interest rate policy to the two-year note yield and and get a much better outcome. Uh you're I'm very good at explaining what the economy should do, what interest rates should do, what the stock market should do. What 12 guys in a room are going to decide to do, that's a much harder question. >> Yeah, good point. Good point. A lot of emotion involved probably and some political pressure maybe perhaps as well. >> And some stubbornness and some reputation and some vindictiveness because you're not going to reappoint me as Fed chairman. So, I'll screw you. So, there's all those things going on at the same time that are way too hard for me to model with the tools that I have. >> It's tough to stay neutral in the current environment, emotionally neutral, and just blend it out. It's just impossible. Like, I get it. We're all human. So, >> we are. And the and the and the real key is if you can learn to use your own stomach acid as a contrary indicator for what you should do investing wise uh or your own uh jubilance and and excitement that then you can do well the best but it's really hard to do that as a person to to go against what your stomach is telling you. So, it's best to find a buddy and who who gets emotionally bearish and emotionally bullish at the wrong times. And if you can find that guy, get to nurture and cultivate him and get information from him all the time because that's a a true gem to if you can ever find one of those guys. >> Fantastic. On that advice, we're going to wrap it up here, Tom. Really appreciate you joining us. Where can we send our audience to follow more of your work, Tom? I >> I sensed you might ask that question and so I had this one ready. Uh mcoscillator.com is our website. That's a contraction of the Mlelman oscillator, the indicator that my parents developed back in 1969. Uh my my mother has passed away and my father is still working with me. He's 91 years old, works every day, still driving, still do great, loves what we do. Uh analyzing the market. Uh you can we have a twice monthly newsletter. We have a daily edition. If you want to just take a look, we have a free weekly chart and focus article that comes out by email every month. Uh no strings attached, no spam. We don't ever sell our email list to anybody. So, just it's just a way to get people more acquainted with the indicators that we do. >> Fantastic, Tom. Really appreciate your time. Thanks so much for coming on so financially. Let's catch up in six months and see where we're at. And uh let's see, let's play the hindsight game a little bit and see if those indicators were correct. Really appreciate you coming on. Thank you so much. And everybody else, thank you so much for tuning in. Really, really appreciate it. Don't forget to hit that like and subscribe button and let us know what you think. Is the Fed too late? What should they do? Is it just a bear trap that we're seeing in the markets? And what are your expectations moving forward? Also, let us know what do you think about gold? Are we going to hit a market or a mid-market or midcycle low as Tom suggested? I'm curious what your thoughts are. Let let us know in the comments down below. Thank you so much for tuning in and we'll be back with lots more here from Sore Financially. Take care out there. [Music]
Fed Cut in September? Fakeout or Breakout | Tom McClellan
Summary
Transcript
Inflation apparently isn't the problem anymore. Employment is. That's what Jerome Powell told us from Jackson Hole last Friday. And the market cheered his message cuz he pretty much said he's going to cut rates in September without committing. Well, we have to find out whether that's just a head fake, whether we're in a bare trap, bull trap, or what the situation is in the markets right now. I've invited a fantastic guest on the show, a first time guest as well, Tom Mlelen. He's the author of the Mark McClennon market report and he's a really famous and very well-known uh tech technical analyst and uh his family is also known for producing some of the indicators you technical analysts out there might be using on a daily basis and I'm really curious to get his take on where we're at in the cycle. Really excited to have him on. But before I switch over to my guest, hit that like and subscribe button. It helps us out tremendously and we much appreciate it. It's a free way to support us, so please do it and we appreciate it. Thank you so much for doing that. Now, Tom, it is great to have you on the show. Thank you so much for joining us. >> Glad to be with you. >> Yeah, Tom, really looking forward to the next 30 minutes here with you because we have a lot to make sense of and to maybe put some uh unemotional uh framework around things. Um, but before we get started and get into the nitty-gritty, let's get your general take on the market and the financial markets in particular here, Tom. Well, uh, the market is a wild doing wild things this year because it's getting inputs from whatever people think about what President Trump is doing and whatever the Fed is actually doing and understand that that's it's not about what Trump is actually doing, but it's about what people think about what he's doing. That that matters far more than the actual actions. And but the Fed has definitely got their thumb on the scale with uh with the quantitative tightening that they're doing, but also with a soft quantitative easing that they're doing through something that's really wonky called reverse repurchases of of uh Treasury bonds. Uh that's doing weird things to liquidity in the in the market and then uh hinting at interest rate cuts. And so uh the market's getting jolted around by news a whole lot more than by actual events and earnings. Yeah, the market is being confused on all fronts, but it yet it's cheering on the message it's getting from from the federal bank and from even from President Trump. It is cheering it on. Is the Fed put back on? Should we be expecting maybe more QE in different shapes and forms here? >> Uh I hate the term Fed puts because it means so many different things to different people. So I don't want to give you a yes or no on that because that answer will mean different things to different people. The Fed is obviously the big gorilla in the room and whatever they do does matter. Uh they they are not doing what they should do. They are not listening to the bond market very well which I'll cover. I I brought some slides to go through if you're interested in looking at charts. >> Oh absolutely Tom though be that'd be great. Um if you want to bring those up we can dive right in because I really want to get your take also on the stock market uh bonds and you even brought uh some some info here on Bitcoin and curious what that correlation is at the end. Um, if you want to, you can jump in sharing if you want and uh we'll we'll run through that together and uh I'll interrupt you if I have to uh or not have to if I want to and maybe have to clarify or have some follow-up questions for you there. >> Sounds good. Let me make sure that I can do the switchology of this. Um they're talking about seasonality and everybody knows that we're in August right now as we are recording this and August is one of the two worst months of the year. August and September when on average the market tends to go down. And uh the market has been struggling to follow the annual seasonal pattern. That's the blue line. That's if you just chop up the the price history into one-year chunks of time and average them together. That's what the average pattern looks like. And the market is at times tried to follow that. But every once in a while, a big news event will come along like the Fed cutting rates last December or Trump announcing his liberation day announcement of tariffs on April 2nd that sent the market into a tail spin. After we have those events, the market tries to get back on track again and follow its average pattern. The latest of these news events was the Jackson Hole speech on Friday by Powell where he strongly hinted that interest rate cuts were coming and everybody celebrated by pushing the the Dow at least up to a new all-time high. The S&P 500 didn't quite make it, but it had quite the big celebration. So, is this a kickoff to a breakout move or is this a fake out? That's the hard question that we have to ask ourselves. One of the things that was interesting about that day was the breath was enormously strong that day. Uh we had more than 10 to one up volume. And so here's a chart that looks at the instances of when you have 10 to one up volume on the NYSE. And that's what the black bars show are those instances. What it means though depends on the context in which it occurs. If you have a long decline and then suddenly you get a big turnaround day with a 10 to one up volume day, that tends to mark initiation of a strong new advance. If however you see it at the end of an advance where the market's already been in an uptrend and you get one of these kind of blowoff moves, uh then it marks an exhaustion event. So which is this one? That's the hard question because we got a breakout to new all-time highs. So is this an exhaustion event or is this the initiation? That's a really hard question to answer and and I'll give you a perfect answer six months from now. But right as we try to do it in real time, life is a little bit more challenging. One of the things that uh I like to look at though is I when I do the analysis, what I always try to do is I want to get the answers ahead of time about what's supposed to happen. Some people can just look at charts and bars and volume bars and and and read patterns that way, but I want to have a road map of where we're supposed to go. This is my best road map for the bond market, and I'm talking about long-term interest rates. I what I do is I take the price of gold, that's the plot that's on top, and I shift it forward in the chart by 20 and a half months to reveal how the same dance steps get traced out by bond yields uh after that 20 and a half month lag time. Now, this is zoomed in so that we can see the minor details. 20 and a half months later, you get the same footsteps occurring in the bond market that occurred already 20 and a half months before in gold prices. The the parallel I liken it to is suppose you're standing at the beach and you go out to you walk out to the end of the pier and you look underneath your feet and you see a wave go right underneath your feet. Now, that same wave is headed to the beach, but the wave is not going to hit the beach the same time that you see it go under your feet at the end of the pier. Gold is is the messenger. Gold is at the end of the pier and it sees the wave. That same wave is going to hit the beach later and you just get to know about it because you're standing at the end of the pier looking at it. Now, the thing that we're seeing right now, if my mouse will work, we're we're supposed to be getting a top right now in yields to echo the top that occurred in gold prices 20 and a half months ago. And then we get a dip and another and basically two months of chopping sideways as we go into uh the fall of 2025. But notice that this chart is zoomed in and it's not showing all of the history of gold. This is still looking at gold when it was at $2,000 to $2,100 an ounce. Everybody knows that gold is at $3,400 an ounce now. And so we can look at a longer term chart and we can see that here we're talking about just this little bit of chopping in gold's pattern that bond yields are echoing. We have yet to echo this big up move in gold prices. And that's what's coming uh later this year and on into 2026 for bond yields. Long-term bond yields are headed a lot higher if this relationship which has been working for decades continues working. Now it gets it gets off every once in a while with the end of QE2 the the it broke briefly just was not in a good correlation but then it got back into into dancing uh with the pattern fine again. The magnitude of the co crash was a whole lot greater than what gold said was it was supposed to be but the timing was right. Sometimes you get a weird magnitude spike like this. So things can go can happen where it drives the the actual bond market a little bit off of the road map, but in general after that happens, it tries to get back on track again. Now, that's for long-term yields. >> I was going to say, Tom, can I jump in real quick? When you say long-term yields, are we talking 10, 20, or 30, or doesn't it matter? >> Well, the Treasury yield index, which I'm using here, it's going to do basically what 20 years and 10 are going to look very much similar. The Treasury yield index is the current yield to maturity on the whatever is the most recently issued 30-year Treasury bond. Okay? >> And so this is looking at 30-year yields. So 30-year mortgage yields are going to look a lot like this because they're all going to move together. 20 20-year bonds, 10-year bonds are going to also look a lot like this. Not exactly, but at the short end, it's going to be different. This is my best guide for what the Fed should do. The green line is the 2-year Treasury note yield. So two years are a whole lot different than 30 years and they behave very much differently. The green line will tell you in advance what the black line should do. The black line is the Fed funds target rate which is what the FOMC sets and they're still up at 4 and 38% even though uh the two-year note yield is threequarters of a point lower. there's there's a huge spread and so the Fed could cut a half a point and they would still not be catching up to where the two-year says they should be going. They are way behind uh in their decision-m and when they do that they create big problems. When we we we saw um they were slow to raise interest rates in the early 2000s because Greenspan was about to hit office out of office and he wanted to work on his legacy. So they overstimulated the real estate bubble and then they were asleep at the switch in 2006 and 2007 when they kept rates high even though the two-year said rates should be really falling and they and it took even though they cut rates faster than ever before they still weren't catching up to where the two-year said they should go. Then uh after living through that experience the 2008 and n bare market they wanted to make sure that they put pumped plenty of fuel back in the banking system. So they fueled what we call the everything bubble uh and they got what they were too slow to get raise rates up. They were then too slow to get rates down as we were heading into the COVID period. So the Fed is always behind. They need to learn to listen better to what the two-year says and they wouldn't create so many problems. >> Yeah. A lot of their indicators are all lagging obviously. Employment, inflation, they're all lagging indicators obviously. So they'll always be behind the eightball when it comes to uh yeah forecasting I would assume right >> they've got 400 PhD economists working for the Federal Reserve who I'm sure are great at doing economics the way they were taught in college but that's not necessarily how the real world works. The bond market knows better than those 400 PhD economists and but those economists have very expensive degrees and so it can't possibly be true that something as as simple as the mere bond market could know more than they know. >> No 400 no just the overhead alone doesn't make any sense. Um but maybe on the previous slide Tom you you mentioned something about the mortgage rate and I think that is quite interesting because a lot of people are hoping that now the housing market will get more affordable at least to them uh with a kind of interest rates which seems to be misguided hope I guess um based on that chart and your prediction you you're expecting mortgage rates probably to climb higher rather than lower >> I am and I have a very good reason for why I expect mortgage rates to come higher if you let me go on ahead to the next chart infl Inflation is has a very important 5.3year cycle and we are at the bottom of that cycle right now and starting to turn up and and the this chart just shows a simple sine wave to depict what that cycle looks like. But where you get the lows you get very pretty reliably a low in the red line which is the inflation rate doesn't always coincide exactly but the cycle works generally over time. We are now at that cycle low and turning up. So 2006 and 2007 should see rising inflation rates. Now if you're worried about what does rising inflation rates mean for the stock market, actually rising inflation is good for the stock market. The mark the stock market tends to do well when inflation is on the rise. It starts to have trouble once the Fed decides to do something about that rising inflation. But the actual inflation itself is actually good for the stock market. So that's a rising inflation forecast into 2026 is not in conflict with expecting a good stock market in 2026, which I do expect, but we still have a lot of 2025 to get through. >> This is actually and and just to continue, this 5.3 year cycle is an interesting cycle because every other cycle peak tends to be much more significant. And so we are now going into one of the less significant ones, but we just had a hugely significant one with the 2021 and 2022 inflation experience where we got up to 9% briefly. Uh and it's a funny thing that every other cycle seems to be more important. The the lesser cycles that we're going into, they're still important, just not as as big as this. Now you're thinking, now why would that be? Why would it be that every other time in a 5.31year cycle you get a more significant cycle peak? And the answer is if if you think about what is 2 times 5.3 years, that's 10.6 years, which is the sunspot cycle. >> So, we're really all driven by the sun. >> Interesting. >> Isn't that interesting? >> That's an interesting take. Yeah. I haven't Nobody's mentioned that before. >> Can Can you elaborate on that? Like what what is the significance of that? like you caught me off guard there a little bit, Tom. >> Oh, good, good. I like that. Um, nobody nobody thinks of this because nobody thinks that it even could be uh relevant. Um, very my my grandfather was an astronomer. He had a PhD in astronomy, helped train Apollo astronauts, ran the Griffith Park Observatory in Los Angeles. And so I I know a little bit about the solar system and and stars and and I think of things that people don't think about. And I also know a little bit about the stock market because of what my parents did. So, I uh sit at a good place to be able to think about both things. Uh you'll you hear people like Arch Crawford who will tell you that planets run everything and I don't agree with that. But the sun is a is a big deal and it governs a lot of what happens. And you wonder why would that matter? Well, the the the sun when we have a sunspot cycle, it emits a whole lot of charged particles and charged particles do funny things to people's brains uh which allow us to accept inflation more and get upset about it more. And so that I think that's the best explanation for why it works this way. But at some point, you know, when you've got 70 years of data on a chart and and the and the cycles are lining up, at some point you stop asking about the why and you just accept that it is that way. Does does it also line up with revolutions in history? >> Uh it can. Yeah. Uh there's for not just the the the 10.6ear cycle, but there are also longer cycles and and how sunspot cycles play out. And so those do tend to to line up that way. Not as neatly as as you might like. Uh but there is some evidence for that. Yeah. There is also evidence of a very long 60 to 70year cycle and in long-term sunspots that does tend to coincide with very very long-term interest rate cycles, but that's another topic for another time. >> Yeah. No, it's interesting. We might have to dive into that a bit more here, as you said, at another time, but I'm curious like what what do you think drivers for inflation will be this time? Usually, it's the Fed screwing up like they've been doing. And uh when they print too much money, that's that's the biggest one. But it's not just the money itself. It's how people feel about the money. And that's where the sunspot variability comes into it because it affects the human brain. Our brains are made up of a bunch of circuitry and wiring. And if you bombard them with charged particles, then people tend to get uppy and make funny decisions. And that's tends to be a lot of where inflation comes from. >> I I've seen a chart you presented on on another channel. I think it was Adam Tagert's thoughtful money channel was a good friend here of the channel. Um in terms of M2 money supply, uh it is my like I my understanding that M2 money supply is at its peak right now. Um why why do you think inflation is still under control then in regard to that? >> Because there are lags in how that works. They've actually brought M2 down especially in terms of uh as a ratio to GDP. It's come down a lot but it takes at least a year to work that itself through the system because um when when you get uh it's like releasing water out of a dam. It doesn't all flow down the stream immediately but it starts to and and so those same lags work in the economy. >> Interesting. Interesting. Now we since we're talking about cycles, I wanted to talk about gold which has seen a big rise and actually gold is uh one of the best leading indicators for what inflation is going to do. Uh gold near all-time highs is a big deal because it tends to bring the same sort of action in grain prices and coffee prices and cattle prices with about a one-year lag. What we're seeing in gold right now, it has its own cycle that's about 13 and a half months in length. Uh and so every time you get a bottom in this cycle like we're due for in October, you get what we call the major cycle low, but you also get a midcycle low, uh what I like to call the half period harmonic. Same thing with the 10.6 year sunspots and 5.3 year inflation cycle. The half period harmonic matters. We've just had the very very dimminative midcycle low, but we're seeing slightly higher highs, which is a good thing. That's a bullish thing. That's called right translation. When you see right translation around the midcycle low, uh you still have to put in the major cycle low, but it says bullish things for when we get into the next cycle in 2026. So, I'm very excited about having a nice bottom coming up here, ideally due in October, but it can be a month or two early or late, and that's very normal. uh when when I can identify this bottoming condition arriving, I'm going to be very excited about being bullish on gold for the next cycle and and seeing it do well. >> How how dramatic is that cycle low going to play out? Like we're at let's assume $3,400 right now. What what do you expect the low to be and what what should we do or what what no sorry, let me rephrase that. Like what will drive it to that point? Like what do you expect to be the trigger for that move? It's a it's a natural question and it this cycle won't give you that answer. Sometimes you get a really really important cycle though. Sometimes it hardly shows up at all. But it's if you look hard enough it's there. And so it can be either of those and it won't tell us in advance what it's going to be. You just know about the timing that something important is going to happen here. We don't know how much of a decline we're going to get, if any. it could just chop sideways for between now and October and that in the inflection point uh of the end of that sideways period and the start of an advance that will be the cycle bottom. Uh you just don't know in advance because it's quite varied. We there is also an eight-year cycle in gold prices and we are in the bullish ascending phase of that separate cycle. So you have different cycles going on at the same time and uh we have countries uh and armies and economies all trying to compete with each other and some of them try to cheat by devaluing their money and that affects how gold works and and gold affects how other things works and and it all plays together. >> Let let me oversimplify it, Tom, but uh if you were to put a buy, hold or sell on uh on gold right now, what would it be? Well, for my daily edition subscribers, I've I'm neutral on gold short, intermediate, and long-term. >> And what that means is not just a forecast looking out some distance in the future, but for those refer to trading styles. So, uh I don't see a good compelling case to go long or short gold right now either either way for any of any of those trading styles. When we get a nice oversold opportunity or a overbought opportunity, yeah, I might develop a different opinion for short-term trading. We get to about October plus or minus, I'm much more excited about getting bullish on gold. Uh, now it's just not a great time. >> Something get stuck in my head that you mentioned earlier is the QT and QE part um of of the Fed mand or not mandate, but the part of the Fed's role is of course quantitative tightening that it's been doing, but also quantitive easing. you've been bringing up reverse repo which seems to be very misunderstood or not even understood at all by by our audience and myself to be quite honest as well. Um what what are the implications here like what what is the Fed doing and will they flood the market with additional liquidity soon? >> Well, they have been um they got up to as many as $2.1 trillion worth of reverse repos that they were holding. This is a super wonky, boring concept that you're gonna want to fall asleep hearing about it, but a a a repurchase agreement or a reverse repurchase agreement, they they both constitute agreements between member banks and the Fed. And a reverse repurchase agreement is where a bank borrows treasuries from the Fed to make their balance sheet look better. And in exchange they pledge some of their deposits as collateral for that. And what that the net effect of that does is it it withdraws liquidity from the stock market when you undertake a reverse repurchase agreement. When you unwind that as has been happening since 2021, uh that $2.1 trillion of reverse repos is now down to about $30 billion. It's declined a lot. And what that means is that all those bank deposits and bank reserves are freed up to do other things like help lift the stock market. So it's the unwinding of reverse repo. Is everybody asleep yet? Because this is super boring. I'm still here. Super wonky. But it's the unwinding of the reverse repos that has functioned as and effectively as a quantitative easing even as the Fed is rolling off its mortgage back securities and treasuries. So, it's doing quantitative tightening and quantitative easing at the same time in really wonky ways that are hard to know and understand. Now, I'm just really trying to understand the connection with the stock market and why everybody's cheering like a Fed cut and why everybody's so happy and pushing valuations higher and higher without logic and reason to a degree as a pragmatic bystander here. Right. >> Well, the only thing that there's only two fundamentals that matter when it comes to the stock market. The first is how much money is there and the second is how much does that money want to be invested? If you change either of those, you move the stock market. >> No, it's true. It's true. Demand is outstripping supply. I guess that's why we keep going up. >> So, let me say one more thing about gold right now with gold up at a very high level. >> Um, this is a chart of the commit from data from the commitment of traders report showing the net position of the nonreportable traders. These are the small speculators. So, you know, if you own one or two futures contracts in gold, you get included in this group. It doesn't include the big commercials, which are the gold producers. It doesn't include hedge funds. It's the little guys. Right now, they are net long in a pretty big way. And they almost never get short. Uh when they do, it's a great bottoming opportunity for gold prices. So they're net long most of the time, but right now they're net long in a really, really big way, expressing a whole lot of confidence that gold is going higher. Gold really likes to punish that kind of confidence. We saw that back in 2000 when gold was topping. We saw that back in 2011 and 12 when they were supremely confident. They were had big net-long positions and they ended up getting punished by a big long bare market. So this is another reason why I'm expecting that 13 and a half month cycle due to bottom in October to to be meaningful and to keep gold prices from going up for the moment because these guys need to get their attitude adjusted. Right now they are too confident and usually the way the way they get their attitude adjusted is by gold making a scary feeling decline which scares them out. You get a nice bottom uh when they drop down to a very low net long position and that's a great buying opportunity. They're not there yet. Um I expect that they will get there in another month or two or three, but they're not there yet. Um these non-reportable traders are are what I think is among the most important data to look at in the commitment of traders report because you you're looking at the hot money guys who get who chase every rally and they flee from every selloff. And so when they're all leaning too far in one direction, that's a big powerful message. And that's the same message we're getting right now about Bitcoin. This the green line is the non-reportable traders net position in the microbitcoin futures contract. So this is small traders trading the small bitcoin contract and for the entire history of of this contract they have been net been net long to varying degrees. And right now they are net long in a really really big way because the high prices of bitcoin have them feeling very very confident. They were feeling that same way back in 2021 and they got to find out that Bitcoin prices can go down. I'm not necessarily saying that Bitcoin prices have to go down now. I'm just saying that when you get these guys feeling very confident and owning this contract in a long position in a in the futures in a big way. Uh that's a sign of a topping process for Bitcoin prices. And so I'm not very excited right now about the prospects for Bitcoin. Bill, uh, Bill, I was just going to say like Tom, um, you you've been saying in the past, T, Bill, and chill. Um, because I'm trying to get an investment strategy out of you here for the next six months until the year end. I'm curious like what should Joe and Jane Blow do here? Um, how should we position? What should we expect? >> Well, you're still getting 4% plus on a money market account. uh you can get 5% if you buy uh credit uh uh um collateralized loan obligations you and you can even do that in an ETF. Uh and that's not a bad thing right now. I don't think that the market has uh the potential to fight really hard against the bearish seasonality that we have for another month and a half going into early October. Uh you're fighting against uh bearish seasonality. You're fighting against the Fed running out of reverse repos to to zero out. You're uh still in an environment when who knows what President Trump is going to do. That's a risk factor and what other countries are going to do. And so you've got a lot of things arguing against the market. 2026 is looking like a great time for the stock market, but we still have to get through the rest of 2025 first. And I think there's a decline still coming ahead. I'm bearish right now on the stock market. Maybe just to follow bit granular, but uh the the Fed cut in September, is it fully priced in? >> Um they're probably going to chicken out and only cut a quarter point. They should cut a half a point and keep more cuts on the table based on what the two-year is going to is saying right now. However, the the the window for the Fed to do any cutting is very short because that inflation cycle I showed you is turning up now and it's going to be starting to become more evident um within 2025 and really screamingly evident within in once we get into 2026. So, yes, they should cut now because they have the rate in the wrong place, but inflation coming is going to have them uh chickening out on any more rate cuts after we get past September and maybe into a little bit later this fall because they're going to start seeing the signs that inflation's back. We can't do it anymore. >> Well, we we've said earlier in the conversation, Tom, and I'm going to challenge you just a little bit here that the Fed is always behind the eightball. So, if you say they're they see inflation coming, shouldn't they play hockey and maybe skate in front of the puck and just raise rates? >> I I understand the argument. Um, first of all, they're not smart enough to realize what 5.3 year cycles based on sunspots are saying about inflation, even though it's been working for decades. They're not smart enough to know that. Second of all, they're going to lag and wait for to see that what the data say. Third, they're in the wrong place now already, so they need to cut. Uh, but I don't think they're going to cut very long and very far. And so I I realize that I'm sounds like I'm talking out of both sides of my mouth. And I am right now because I'm talking about the short term versus the long term. Short-term right now, they need to cut today and not even wait till September. They they're in the wrong place now and they should cut now because it's creating problems by doing that. uh and and we're seeing that in the housing market being soft and people can't sell a house and they can't uh find a house to buy uh at the current mortgage rates and afford it. So that's creating a problem right now. But the problem for a few months from now will be the rising inflation that gold has already been telling us about and that the the 5.3 year cycle is saying is gonna be happening. That's not something the Fed is going to even know about. It's not something you're going to hear on CNBC for a few more months, but it's coming. >> Maybe very, very last question here, Tom, is just the lag effect. If you say they need to cut now because they're already too late, what do you expect the lag effect to be of those rate cuts? >> Well, they're always behind by how much varies each time. Uh if if I were in charge, I would uh I would stop having flying in all the different Fed governors from all the different districts into the Mariner Eckles building in Washington DC to hold FOMC meetings. I would just outsource interest rate policy to the two-year note yield and and get a much better outcome. Uh you're I'm very good at explaining what the economy should do, what interest rates should do, what the stock market should do. What 12 guys in a room are going to decide to do, that's a much harder question. >> Yeah, good point. Good point. A lot of emotion involved probably and some political pressure maybe perhaps as well. >> And some stubbornness and some reputation and some vindictiveness because you're not going to reappoint me as Fed chairman. So, I'll screw you. So, there's all those things going on at the same time that are way too hard for me to model with the tools that I have. >> It's tough to stay neutral in the current environment, emotionally neutral, and just blend it out. It's just impossible. Like, I get it. We're all human. So, >> we are. And the and the and the real key is if you can learn to use your own stomach acid as a contrary indicator for what you should do investing wise uh or your own uh jubilance and and excitement that then you can do well the best but it's really hard to do that as a person to to go against what your stomach is telling you. So, it's best to find a buddy and who who gets emotionally bearish and emotionally bullish at the wrong times. And if you can find that guy, get to nurture and cultivate him and get information from him all the time because that's a a true gem to if you can ever find one of those guys. >> Fantastic. On that advice, we're going to wrap it up here, Tom. Really appreciate you joining us. Where can we send our audience to follow more of your work, Tom? I >> I sensed you might ask that question and so I had this one ready. Uh mcoscillator.com is our website. That's a contraction of the Mlelman oscillator, the indicator that my parents developed back in 1969. Uh my my mother has passed away and my father is still working with me. He's 91 years old, works every day, still driving, still do great, loves what we do. Uh analyzing the market. Uh you can we have a twice monthly newsletter. We have a daily edition. If you want to just take a look, we have a free weekly chart and focus article that comes out by email every month. Uh no strings attached, no spam. We don't ever sell our email list to anybody. So, just it's just a way to get people more acquainted with the indicators that we do. >> Fantastic, Tom. Really appreciate your time. Thanks so much for coming on so financially. Let's catch up in six months and see where we're at. And uh let's see, let's play the hindsight game a little bit and see if those indicators were correct. Really appreciate you coming on. Thank you so much. And everybody else, thank you so much for tuning in. Really, really appreciate it. Don't forget to hit that like and subscribe button and let us know what you think. Is the Fed too late? What should they do? Is it just a bear trap that we're seeing in the markets? And what are your expectations moving forward? Also, let us know what do you think about gold? Are we going to hit a market or a mid-market or midcycle low as Tom suggested? I'm curious what your thoughts are. Let let us know in the comments down below. Thank you so much for tuning in and we'll be back with lots more here from Sore Financially. Take care out there. [Music]