WEBVTT 00:00:00.000 --> 00:00:02.720 Welcome in, everyone. We're diving deep today 00:00:02.720 --> 00:00:05.839 into some pretty interesting changes happening 00:00:05.839 --> 00:00:07.839 in the U .S. economy, you know, the kind of stuff 00:00:07.839 --> 00:00:10.019 that really makes you go, hmm. What's going on 00:00:10.019 --> 00:00:12.820 here? Yeah, absolutely. We've got a ton of fascinating 00:00:12.820 --> 00:00:15.259 data to unpack today straight from the government. 00:00:15.599 --> 00:00:18.579 Plus some seriously sharp analysis of Powell's 00:00:18.579 --> 00:00:21.300 latest moves and a briefing that ties it all 00:00:21.300 --> 00:00:23.859 together and helps us see the big picture. Exactly. 00:00:23.859 --> 00:00:25.800 And that's exactly what we're here for today. 00:00:26.359 --> 00:00:29.339 We're cutting through the noise, extracting those 00:00:29.339 --> 00:00:32.380 key insights so you can really understand what's 00:00:32.380 --> 00:00:34.560 happening beneath the surface of the autonomy. 00:00:34.840 --> 00:00:36.820 I like that. Cutting through the noise. That's 00:00:36.820 --> 00:00:39.020 what we do best. You know, and one of the most 00:00:39.020 --> 00:00:40.619 intriguing things we're going to explore today 00:00:40.619 --> 00:00:44.179 is this idea of a Quad Four environment. Ah, 00:00:44.219 --> 00:00:46.740 yes, Quad Four. Now, I know that might sound 00:00:46.740 --> 00:00:48.979 a little jargony, like something you'd hear whispered 00:00:48.979 --> 00:00:51.320 on Wall Street, but trust me, it's important. 00:00:51.719 --> 00:00:53.979 It could have some serious implications for where 00:00:53.979 --> 00:00:56.539 things are headed. Oh, absolutely. Big implications. 00:00:56.799 --> 00:00:59.259 So let's break it down. What exactly is Quad 00:00:59.259 --> 00:01:02.399 Four? OK, so in the simplest terms, Quad Four 00:01:02.399 --> 00:01:05.640 is like a specific phase in the economic cycle, 00:01:05.920 --> 00:01:09.349 and it's marked by two main things. slowing economic 00:01:09.349 --> 00:01:11.969 growth and falling inflation. It's kind of like 00:01:11.969 --> 00:01:15.370 this unique combo of economic forces. Glowing 00:01:15.370 --> 00:01:18.969 growth and falling inflation. Got it. So what 00:01:18.969 --> 00:01:21.230 makes us think we might be heading into Quad 00:01:21.230 --> 00:01:23.569 Four territory? Well, we're seeing a bunch of 00:01:23.569 --> 00:01:27.150 signs, both in the hard data and in how experts 00:01:27.150 --> 00:01:29.150 are interpreting things. For starters, we've 00:01:29.150 --> 00:01:31.950 got a noticeable uptick in federal layoffs. Layoffs. 00:01:32.189 --> 00:01:34.049 Yeah, and specifically those working for the 00:01:34.049 --> 00:01:36.209 government. If you look at that chart, initial 00:01:36.209 --> 00:01:38.920 claims, federal employees, you'll see a pretty 00:01:38.920 --> 00:01:41.239 dramatic spike recently. And the analysis that 00:01:41.239 --> 00:01:43.599 came with it, it emphasizes that the feds have 00:01:43.599 --> 00:01:46.180 been a big source of new hires lately. So these 00:01:46.180 --> 00:01:48.359 layoffs, they're a pretty big deal for the overall 00:01:48.359 --> 00:01:51.239 jobs picture. Wow. Yeah. That chart really jumps 00:01:51.239 --> 00:01:53.519 out at you. That upward trend in jobless claims 00:01:53.519 --> 00:01:55.379 definitely signals something's changing. What 00:01:55.379 --> 00:01:57.680 else is pointing to this potential Quad 4 scenario? 00:01:58.099 --> 00:02:01.079 OK. So on top of the layoffs, we're also seeing 00:02:01.079 --> 00:02:03.650 government spending slowing down. And I mean, 00:02:03.750 --> 00:02:05.489 the growth of spending. It's like they're pumping 00:02:05.489 --> 00:02:07.629 the brakes a little. This is something that the 00:02:07.629 --> 00:02:10.389 analysis explicitly calls out as a contributing 00:02:10.389 --> 00:02:12.629 factor. Interesting. So less spending by the 00:02:12.629 --> 00:02:14.550 government, and then there's immigration. Exactly. 00:02:14.789 --> 00:02:18.050 Immigration. Huge factor. The chart immigration 00:02:18.050 --> 00:02:20.810 and Big G mattered to employment and spending 00:02:20.810 --> 00:02:24.030 growth. It shows a sharp decline in net immigration 00:02:24.030 --> 00:02:27.990 to the US back in 2024. And fewer people coming 00:02:27.990 --> 00:02:31.310 in. Well, It can put a damper on economic activity. 00:02:31.569 --> 00:02:33.490 Makes sense. Fewer people coming in, less demand 00:02:33.490 --> 00:02:35.770 for goods and services, and fewer workers available. 00:02:36.150 --> 00:02:37.830 And what about consumer spending? Are people 00:02:37.830 --> 00:02:40.090 still out there buying stuff? So the analysis 00:02:40.090 --> 00:02:42.009 suggests that consumers are being a bit more 00:02:42.009 --> 00:02:45.030 cautious these days. They call it tepid consumer 00:02:45.030 --> 00:02:47.490 activity. And that definitely plays a role in 00:02:47.490 --> 00:02:49.569 slower economic growth. Right. Less spending 00:02:49.569 --> 00:02:52.210 means slower growth. It's all connected. You 00:02:52.210 --> 00:02:53.629 know, I also noticed something interesting in 00:02:53.629 --> 00:02:57.180 the data. Crude oil returns are down, like way 00:02:57.180 --> 00:03:00.340 down. 17 % since January 2025. That's according 00:03:00.340 --> 00:03:03.159 to the crude oil returns chart. So how does that 00:03:03.159 --> 00:03:05.020 fit into all of this? That's a great observation. 00:03:05.439 --> 00:03:07.879 The drop in oil returns can actually be a sign 00:03:07.879 --> 00:03:11.840 of things cooling down economically and potentially 00:03:11.840 --> 00:03:14.319 sign that inflation might ease up too. Lower 00:03:14.319 --> 00:03:17.639 demand for oil usually means lower prices. So 00:03:17.639 --> 00:03:20.319 that 17 % drop, it really fits with this idea 00:03:20.319 --> 00:03:23.500 of slowing growth. And maybe even falling inflation. 00:03:23.800 --> 00:03:25.719 OK, so let me recap. We're seeing more people 00:03:25.719 --> 00:03:27.479 losing their jobs in the federal government. 00:03:27.699 --> 00:03:30.319 Government spending is slowing down. Fewer people 00:03:30.319 --> 00:03:32.860 are immigrating to the U .S. Consumers are hesitant 00:03:32.860 --> 00:03:36.139 to spend. And even oil prices are down significantly. 00:03:36.500 --> 00:03:39.400 All of these point towards Quad 4, right? Exactly. 00:03:39.439 --> 00:03:41.219 It's like all these pieces of the puzzle are 00:03:41.219 --> 00:03:43.300 fitting together and they're painting a pretty 00:03:43.300 --> 00:03:45.979 clear picture of where we might be headed. Now 00:03:45.979 --> 00:03:48.240 let's talk about the Federal Reserve. They've 00:03:48.240 --> 00:03:50.659 decided to slow down how fast they're reducing 00:03:50.659 --> 00:03:52.930 their balance sheet. which is currently at about 00:03:52.930 --> 00:03:56.449 $2 trillion. Why the shift in strategy? OK, so 00:03:56.449 --> 00:03:59.969 this is big. The Fed's decision to kind of ease 00:03:59.969 --> 00:04:03.229 up on shrinking their balance sheet. The analysis 00:04:03.229 --> 00:04:04.689 suggests they're trying to take some pressure 00:04:04.689 --> 00:04:07.169 off the financial markets. This could lead to 00:04:07.169 --> 00:04:10.050 lower yields and higher bond prices. Think of 00:04:10.050 --> 00:04:13.759 it like this. When the Fed buys bonds, it increases 00:04:13.759 --> 00:04:16.560 demand, which pushes prices up and yields down. 00:04:16.959 --> 00:04:18.560 Shrinking the balance sheet does the opposite. 00:04:18.939 --> 00:04:21.180 So by slowing that down, they're trying to prevent 00:04:21.180 --> 00:04:22.980 yields from rising too fast. And they're trying 00:04:22.980 --> 00:04:25.639 to stabilize the bond market a bit by not selling 00:04:25.639 --> 00:04:28.220 off their bonds as quickly. Exactly. And here's 00:04:28.220 --> 00:04:30.240 where it gets really interesting. We need to 00:04:30.240 --> 00:04:32.560 consider how much U .S. Treasury debt is coming 00:04:32.560 --> 00:04:35.379 due soon. We're talking a massive five point 00:04:35.379 --> 00:04:37.800 three trillion dollars. That's according to the 00:04:37.800 --> 00:04:40.459 five point three T in U .S. debt maturities chart. 00:04:40.600 --> 00:04:42.759 And look at those maturities coming up between 00:04:42.759 --> 00:04:45.720 April and July of 2025. It's a huge amount of 00:04:45.720 --> 00:04:47.560 debt that needs to be refinanced pretty quickly. 00:04:48.100 --> 00:04:52.740 $5 .3 trillion? That's a lot of money. So how 00:04:52.740 --> 00:04:54.939 do falling yields play into this? This is where 00:04:54.939 --> 00:04:58.259 it all connects. Lower yields would make it much 00:04:58.259 --> 00:05:00.680 cheaper for the Treasury to refinance all that 00:05:00.680 --> 00:05:03.670 debt. The analysis suggests that... this could 00:05:03.670 --> 00:05:06.050 potentially save the government hundreds of billions 00:05:06.050 --> 00:05:08.430 of dollars in interest payments. And the Fed 00:05:08.430 --> 00:05:10.810 knows this. They're calling it a pressure cooker 00:05:10.810 --> 00:05:13.250 situation. Yeah. So slowing down the balance 00:05:13.250 --> 00:05:15.170 sheet reduction, it's like releasing some of 00:05:15.170 --> 00:05:17.350 that pressure. That makes sense. Lower borrowing 00:05:17.350 --> 00:05:18.930 costs for the government could have a ripple 00:05:18.930 --> 00:05:21.290 effect throughout the entire economy. Now there's 00:05:21.290 --> 00:05:23.389 a chart here called U .S. Central Bank Total 00:05:23.389 --> 00:05:26.250 Assets Effect on Yields. It seems to suggest 00:05:26.250 --> 00:05:28.470 that the size of the Fed's balance sheet and 00:05:28.470 --> 00:05:31.089 bond yields have an inverse relationship. What 00:05:31.089 --> 00:05:32.819 does that mean? All right, so that chart is pretty 00:05:32.819 --> 00:05:35.300 fascinating. Basically, when the Fed's total 00:05:35.300 --> 00:05:37.300 assets decrease, which happens when they shrink 00:05:37.300 --> 00:05:39.680 their balance sheet, yields tend to go up. And 00:05:39.680 --> 00:05:42.899 when their assets increase, yields go down. So 00:05:42.899 --> 00:05:45.040 by slowing down the reduction of their assets, 00:05:45.379 --> 00:05:47.319 they're essentially trying to moderate the upward 00:05:47.319 --> 00:05:50.040 pressure on yields, which, as we just discussed, 00:05:50.339 --> 00:05:51.920 could really help the Treasury with all that 00:05:51.920 --> 00:05:54.720 refinancing. So, the Fed is playing a strategic 00:05:54.720 --> 00:05:57.420 game here, trying to balance a potential economic 00:05:57.420 --> 00:06:00.500 slowdown with the Treasury's enormous debt obligations. 00:06:01.100 --> 00:06:03.360 It's a lot to juggle. Now, how have the markets 00:06:03.360 --> 00:06:05.100 reacted to all of this? I know we've already 00:06:05.100 --> 00:06:07.759 seen some movement in yields. Yeah, the markets 00:06:07.759 --> 00:06:09.779 are definitely paying attention. The U .S. Tenure 00:06:09.779 --> 00:06:11.980 Yield Percent Chart shows a pretty big initial 00:06:11.980 --> 00:06:14.800 reaction in the bond market. The yield on the 00:06:14.800 --> 00:06:16.720 10 -year U .S. Treasury note has dropped about 00:06:16.720 --> 00:06:20.060 50 basis points since January 2025. It hit a 00:06:20.060 --> 00:06:23.420 peak of around 4 .78 percent back then. And by 00:06:23.420 --> 00:06:25.839 March 20th, it was down to about 3 .2 percent. 00:06:25.920 --> 00:06:28.220 That's a half percentage point drop, a pretty 00:06:28.220 --> 00:06:30.519 significant move in the bond market. So if Quad 00:06:30.519 --> 00:06:33.240 4 is really on the horizon, what could that mean 00:06:33.240 --> 00:06:35.740 for yields and the bond market in the future? 00:06:35.980 --> 00:06:38.300 Well, if slowing growth and falling inflation 00:06:38.300 --> 00:06:41.579 continue, we could see yields drop even further. 00:06:42.019 --> 00:06:44.779 And when yields go down, bond prices tend to 00:06:44.779 --> 00:06:47.540 go up. So bonds could be looking at some significant 00:06:47.540 --> 00:06:49.100 gains. This is definitely something investors 00:06:49.100 --> 00:06:52.040 will be watching closely. Makes sense. Now, I've 00:06:52.040 --> 00:06:54.480 noticed that Ryan Ricci, a macro analyst at Hedgeye, 00:06:54.519 --> 00:06:56.540 keeps popping up in our research. And there's 00:06:56.540 --> 00:06:58.879 a lot of talk about the VIX index. What's the 00:06:58.879 --> 00:07:01.939 connection there? Ricci is laser focused on the 00:07:01.939 --> 00:07:05.230 VIX. which basically measures how much volatility 00:07:05.230 --> 00:07:07.930 the market expects in the future. It's often 00:07:07.930 --> 00:07:10.949 called the fear gauge. And he's identified 20 00:07:10.949 --> 00:07:13.750 as a critical level for the VIX. 20? Why 20? 00:07:13.949 --> 00:07:16.430 According to Ricci, if the VIX goes above 20, 00:07:16.550 --> 00:07:19.149 that's a big red flag. It could mean that fear 00:07:19.149 --> 00:07:21.569 and uncertainty are rising in the market, which 00:07:21.569 --> 00:07:23.589 could lead to a broader market downturn. It's 00:07:23.589 --> 00:07:25.470 like a signal that things are getting shaky. 00:07:25.910 --> 00:07:28.009 And he even suggests it could go as high as 25 00:07:28.009 --> 00:07:30.949 or more. So a VIX above 20 is a warning sign. 00:07:31.129 --> 00:07:34.509 Exactly. It could trigger a shift in market psychology 00:07:34.509 --> 00:07:38.629 from complacency to fear. Think of it this way. 00:07:39.170 --> 00:07:42.310 Once the VIX goes above 20, big institutional 00:07:42.310 --> 00:07:45.009 investors, they start looking at their risk models 00:07:45.009 --> 00:07:47.870 and those models start flashing red. That means 00:07:47.870 --> 00:07:49.750 they're going to start selling to reduce their 00:07:49.750 --> 00:07:52.490 risk. And that selling can push the market down 00:07:52.490 --> 00:07:55.509 further. Interesting. So what if the VIX stays 00:07:55.509 --> 00:07:58.720 below 20? Well, that's where things get interesting. 00:07:58.980 --> 00:08:01.240 If the VIX can't break through that 20 level, 00:08:01.339 --> 00:08:03.360 especially with big earnings announcements coming 00:08:03.360 --> 00:08:06.620 up like Nvidia's, we might actually see the market 00:08:06.620 --> 00:08:08.899 move higher. It would suggest that investors 00:08:08.899 --> 00:08:11.259 are feeling a bit more optimistic or at least 00:08:11.259 --> 00:08:13.540 willing to take on more risk. So the VIX at 20 00:08:13.540 --> 00:08:15.939 is like a fork in the road for the market. Yeah, 00:08:15.939 --> 00:08:18.019 I like that analogy. It's a crucial level to 00:08:18.019 --> 00:08:20.319 watch. Now, I also wanted to touch on tariffs. 00:08:20.660 --> 00:08:22.540 The sources mentioned that they could throw a 00:08:22.540 --> 00:08:24.860 wrench into the inflation outlook. That's right. 00:08:25.040 --> 00:08:27.800 Powell himself talk about how tariff hikes could 00:08:27.800 --> 00:08:30.220 slow down progress on bringing inflation down. 00:08:30.660 --> 00:08:32.700 He thinks the effect would probably be temporary, 00:08:32.720 --> 00:08:35.639 but it definitely adds another layer of uncertainty, 00:08:36.399 --> 00:08:38.539 which makes the Fed's job a whole lot harder. 00:08:38.960 --> 00:08:41.820 So even with Quad Four potentially on the horizon, 00:08:42.220 --> 00:08:44.240 tariffs could still push prices up in the short 00:08:44.240 --> 00:08:47.120 term. Exactly. Imported goods. could get more 00:08:47.120 --> 00:08:48.940 expensive, making it harder to get inflation 00:08:48.940 --> 00:08:51.039 under control. OK. Last but not least, I wanted 00:08:51.039 --> 00:08:53.120 to highlight something that Ryan Ricci emphasized, 00:08:53.419 --> 00:08:56.000 using data to manage risk. What's your take on 00:08:56.000 --> 00:08:58.399 that? In this environment, it's more important 00:08:58.399 --> 00:09:01.980 than ever. Being data -driven is key, especially 00:09:01.980 --> 00:09:04.419 now with so much uncertainty in the economy. 00:09:04.759 --> 00:09:07.480 You've got to be proactive. Make decisions based 00:09:07.480 --> 00:09:10.360 on solid data, not just gut feelings. And you 00:09:10.360 --> 00:09:12.240 know, hedge -eye. They actually have a pretty 00:09:12.240 --> 00:09:14.940 good track record of predicting market downturns. 00:09:15.159 --> 00:09:17.340 The takeaway here is that risk management matters 00:09:17.340 --> 00:09:20.980 now more than ever. So let's sum it all up. We're 00:09:20.980 --> 00:09:23.019 seeing a confluence of factors that could lead 00:09:23.019 --> 00:09:26.220 to Quad 4, slowing economic growth, possibility 00:09:26.220 --> 00:09:28.940 of falling inflation, a cautious Fed and a Treasury 00:09:28.940 --> 00:09:31.419 facing a mountain of debt. Yields have already 00:09:31.419 --> 00:09:33.639 started to fall and bonds could be poised for 00:09:33.639 --> 00:09:37.000 some gains. But volatility is still a major concern 00:09:37.000 --> 00:09:39.580 and those tariffs are lurking in the background. 00:09:39.960 --> 00:09:42.240 It's a pretty complex picture, right? It is. 00:09:42.360 --> 00:09:45.580 It's all connected. Quad Four, the Fed, the Treasury, 00:09:45.799 --> 00:09:48.799 the markets, they're all intertwined. The potential 00:09:48.799 --> 00:09:51.840 impact on yields and bond prices is significant, 00:09:51.840 --> 00:09:53.860 and it's something every investor needs to be 00:09:53.860 --> 00:09:55.879 thinking about. It really highlights how everything 00:09:55.879 --> 00:09:58.299 is interconnected, doesn't it? Government policy, 00:09:58.740 --> 00:10:01.740 the Fed's actions, global economic forces, they 00:10:01.740 --> 00:10:04.679 all impact our financial futures in complex ways. 00:10:05.000 --> 00:10:07.259 And it underscores how important it is to stay 00:10:07.259 --> 00:10:09.860 informed, to understand how these large -scale 00:10:09.860 --> 00:10:12.120 trends might affect you personally. You know 00:10:12.120 --> 00:10:14.460 it makes you think. What does it even mean to 00:10:14.460 --> 00:10:16.919 be informed in today's world? How do you sift 00:10:16.919 --> 00:10:18.659 through all the noise and find the information 00:10:18.659 --> 00:10:21.360 that matters. That's something to ponder as we 00:10:21.360 --> 00:10:23.259 wrap up this deep dive. Thanks for joining us. 00:10:23.379 --> 00:10:25.940 Great discussion. I always enjoy these deep dives. 00:10:26.240 --> 00:10:26.960 Until next time.