 Hey everyone, this is Dan. Recently the Chairman of the Federal Reserve Bank Mr. Jerome Powell mentioned that he believed a softish landing is possible while the Fed brings the inflation rate under control. More specifically he referred to the year 1994 when the Fed was able to engineer a soft landing of the economy. Is a soft landing really possible for 2022? I looked into the historical data for the last 50 years and found something very alarming. You really need to listen to what I have to say so that you can figure out how to protect your investments in the stock market. Let's get into the details. As you probably know already, the market has been very bearish since the beginning of the year. If you look at SPY and QQQ, as you know SPY represents the movement of the S&P 500 and QQQ represents the NASDAQ 100, SPY so far is down 18 percent since the beginning of the year and QQQ is down 28 percent, definitely this is a very bearish picture. Is the market going to continue to go down as the Fed fights inflation or are we just going to have a really soft, soft tish landing as Mr. Jerome Power said. Now no matter what happens in the next few months, there are other financial instruments that have been moving in the opposite direction of the broad market. This chart for example shows SPY here, the candlestick chart on the bottom, QQQ below that and then these other instruments actually have been performing much better than SPY or QQQ and I'll mention what they are later on. So this is my insurance policy. If we are not going to end up with a soft or soft tish landing, then I will continue to trade these ETFs or stocks to protect my portfolio. If you like what you've seen so far, I'd like to encourage you to click the like, subscribe and notification button that will enable you to receive notification when I post my next video. It will also encourage me to make more videos like this in the future. Thank you very much. We have a lot of important stuff to cover. Let's continue. Where did the 1994 come from? That came from a speech made by Jerome Power on March 21st at the Conference of National Association for Business Economics in Washington DC. In that conference, Jerome Power mentioned that it's possible to achieve a soft landing like 1994 and he also referred to 1965, 1984 and 1994. So what happened in 1994? We'll get to that in a minute. In the meanwhile, recently, there was an article published by CIM Business saying that since Jerome Power was saying that we're going to have a soft tish landing like 1994, so we should just party on just like it's 1994. That's certainly optimistic. I certainly hope that will happen. I always hope for the best, but in the meanwhile, for risk management, I like to plan for the worst so that I know what to do. If things don't go the way I thought they're going to go, that way I don't end up like a deer in the headlight and end up losing a lot of money. And then most recently, on May 17th, the Wall Street Journal did an interview with Jerome Power. He mentioned how the Fed is going to control inflation. He said the word demand many times. For example, here Jerome Power was saying that there's an imbalance in the economy broadly between demand and supply and that the Fed has a job to do on demand. And he gave the example that there's more demand for workers than there are people available. In other words, the Fed wants to reduce the demand in the market. Jerome Power admitted that they cannot do much about supply. He also mentioned unexpected events such as the Ukraine war and the COVID lockdown in China that's been driving down supply while the demand is very high. And that's why the prices have been driven upwards. In order for the Fed to reduce demand, what would they do first? They will be raising the Fed funds rate, which they did already. They raised the Fed funds rate twice already since the beginning of the year. And there are probably five more rate hikes to go by the time 2022 comes to an end. And also, they will be reducing a Fed total asset by selling the treacheries and mortgage backed securities held at the Federal Reserve Banks. Since they are going to be selling the treacheries and mortgage backed securities, they will be collecting money from the banks. When they do that, they are in effect reducing the money in circulation in the market. When there's less money to go around, that will then lower the prices of stops and other goods in the market. And that's how they can lower the inflation rate. The end result, of course, what they hope to be able to accomplish is to decrease the inflation rate as measured by the CPI Consumer Price Index. But also related to that, we will most likely see, based on historical data, we will also see the drop in the stock market. And also, most alarmingly, there will be higher unemployment rates. Now, the cost of all the concerns is really inflation. Where are we with inflation? Since March 2022, the inflation rate as measured by the CPI was 8.5%, pretty high. And then April wasn't much better, it was 8.3%, a little bit lower, but not much. And from May, the number will be published on June 10th, 2022. And my prediction that it's probably going to be 8.1%, 8.2%, it's not going to be much lower. In other words, the Fed indeed has a lot of work to do to reduce inflation and to work on this demand problem as measured by Jerome Powell. If we look at the total Fed assets, it started out in 2019 at about $4 trillion level. And then since the pandemic, it has shot up to now $9 trillion, almost double. In the meanwhile, S&P 500 also doubled during this period of time. So there's definitely a good correlation between the total Fed assets and the value of the stock market. And what is the Fed going to do now? First, they are going to stop increasing the Fed asset. And they have done that already in the last couple of months. If you can see, the Fed asset was going up at the rate of $120 billion a month from middle of 2020 to the end of 2021. In the last two, three months, it has flattened. It has not increased. And pretty soon in the next three to six months, it will start decreasing. According to the Fed, it will start decreasing to the tune of about $95 billion a month. That means they will be progressively taking money out of circulation. And that's definitely going to push down the stock market. What are they going to stop? They will stop if the CPI, the inflation rate gets to a reasonable level, which in my opinion will be more like 3% to 4%. Today, the Fed funds rate is at 0.83%. Raising the Fed's fund rate is one of the tools that the Federal Reserve Banks will be using to bring down inflation in addition to reducing total asset. They have a long way to go as far as increasing the interest rates. Let's look at 1994. How does it compare to today? I know this is a complicated chart to look at. Please bear with me for a few seconds. I will explain the different lines. First of all, the orange line here is a CPI. And then the green line here is a Fed funds rate. Unemployment rate is a black line. The S&P 500 index is a blue line. During the years from January 1992 to January 1996, the Fed funds rate started at 4.03%. Then it actually went down a little bit to 2.9%. And then eventually it was raised to 6.05% as the Fed fought inflation. Today, where's the Fed funds rate? It's at 0.83%. The Fed funds rate is much lower today. CPI back then started out at 2.6%, the orange line. And then it went up to 3.3% here, a little bit higher. And then eventually, the Fed was able to bring it down to 2.5%. Where's the CPI today? 8.3%. So with all the commotion here, with changing the Fed funds rate from 4% to 6% with a 2% hike, they were able to lower the CPI basically by just about 1% point. And today, we have 8.3%. And according to Jerome Paul, they want to bring it down to 2%. But I would say, even if they can bring it down to 4%, then they will probably declare a short-term victory. But imagine to bring it down 4 percentage point, how much Fed funds rate will have to increase to get to that level. Back then, they had to go up to 6%. Now at 0.83%, even if they go up to 6%, that's quite a distance already. And that's going to have profound impacts on the economy and on the stock market. S&P during that time, it was better than a soft landing. Actually, the stock market was flying from the beginning of this period to the end of this period. The stock market went up by 47%. And definitely that's the dream come true for the stock market investor like myself. But looking at the numbers on the right hand side, today is definitely not 1994. And if you think the stock market will continue to go up, then it will be definitely wishful thinking. Therefore, we need to prepare for a scenario that's going to be worse than the 1994 scenario, probably much worse. And then if you look at that employment rate, back then it started at 7.3%, went up to as high as 7.8, then went down a little bit to 5.6%. And today, that employment rate is 3.6%. And that's why Jerome Haag has been saying that there are way too many job openings for the people looking for work. Even back then, an employment rate was much higher. And for the Fed to bring down the inflation rate, unfortunately, they will have to also cost unemployment rate to go up. Now, if you look back 50 years, almost 50 years, 49 years, starting from January of 1973 all the way to today, this is a CPI. Today we're at 8.3%. If you look at 1994, as mentioned by Jerome Powell, the inflation rate was only a 3%. So that's hardly comparable. Even 1984, the other year that he mentioned in that speech in March, the inflation rate was only 4%. And then a little bit outside of this chart in 1964, the inflation rate was between 0.97 and 1.6%. So all three years are not really comparable to what we have today. Now, I'm not saying that Jerome Powell was lying because he's a top banker in the country. It's important for him to stay calm and appear to be in control. If he's gonna come out and say the sky is falling, then indeed we're going to have a major crash in the economy. And that's why he has to stay calm, tell us something that's a little bit on an optimistic side. And I'm pretty sure he and the rest of the people in the Federal Reserve Banks are trying the best to stabilize the system and doing the best to bring down the inflation rate without causing a major recession. If you draw a line from the inflation level today all the way back to 1973, you'll see that there are only two instances when the inflation rate was popping up above 8%. And that happened in 1974 and 1978. So let's look at what happened in those two years. First of all, let's look at 1974. I'm here showing the time period from 1973 to 1976. And during this time, the Fed's fund rate was pretty high, also much higher than today. It started out at 5.9%, went up to as high as 12.9% and went down to 4.6%. As the Fed tried to control inflation and why? Because the CPI started out at a fairly low 3.6%, then it zoomed up to 12.3%, which is indeed very high. And then it came down to 4.8% eventually. So the Fed was successful in bringing down the inflation, but at what cost? First of all, S&P was down 50% from its all-time high at one point. See here? It went down from here to here, a 50% drop. So far, the stock market has dropped only 18% year today. In other words, for the Fed to really bring down inflation, I believe the stock market will drop more than 18%. But hopefully not as much as 50%. That employment rate went from 5.1% to 9% as the Federal Reserve Bank started to tighten the money supply, but then the way they tighten the money supply was just to raise the interest rate. And they did not change the total assets as much as they did in the last couple of years. In other words, today the Fed is using more tools to control the economy. And that's why I believe that before the stock market will drop 50%, the Fed will do something to stabilize the market. But I believe the 30% drop from the all-time high is quite possible. Then the other period, when the inflation rate started to go above 8% was 1978, from 1978 to 1982. The Fed funds rate started out at 6.7%. It went as high as 19% in order to control the inflation. And then finally it came down to 8.9%. Fed's fund right here, green line, see here. The CPI started out at 6.8%. It started to go up above 8% and then it hit 14.8% here in 1980. And then finally after the Fed has done all the tightening then the CPI finally came down to 3.8%. S&P at one point was down 27% from its all-time high, which is here. And certainly 27% is a lot more of a drop than the current 18% drop here today. And that employment rate unfortunately went up from 6.4% to 10.8% at the end of this period. And that's why I believe having the S&P go down 27% from its all-time high is quite possible in the next year or so. Now if that's going to happen, I should certainly not keep my investments in the traditional fang stocks, semi-conductor stocks or any high growth stocks that have been generating good returns in the last few years. As we have seen, the S&P and QQ have been trending down. I should definitely stick with these instruments that have been showing an inverse relationship to the stock market. And what are these instruments? Let's talk about them. These instruments help us to swim against the current. That means when a broad market is going down, if you invest in these instruments, your portfolio will go up. First of all, TMV. That's the ETF pegged to the 20-year Treasury rates. And since the Fed will continue to raise interest rates to control inflation, I expect TMV to continue to go up. And then, UCO and USO, these are crude oil ETF. Oil prices have been going up because of the Ukraine war. UNG, that's a natural gas ETF. Again, because of the Ukraine war, natural gas price have been going up as well. WEAT, the wheat ETF, again, has been going up because of the Ukraine war. Then in the meanwhile, I have been trading SQQQ or SPXS. And these are three times inverse ETFs pegged to NASDAQ 100 or S&P 500. Because China is gradually opening Shanghai and other cities, I expect the copper price to recover in the next few months. And that's why I bought COPX, the copper miner ETF, already. And I'm looking to also buy in the CPER, the copper ETF. When will the market start to recover? If the Russian-Ukrainian war comes to an end, of course, the market will have a short-term bounce. Likewise, with the end of the COVID lockdown in China, there will be a bounce with the market. Unfortunately, both of them are still happening. However, with these two factors, the market will recover for a three-period time. But as long as the CPI is still high, about 5% or 6%, the Fed will continue to tighten. And as the Fed is tightening the money supply, one of the collateral damages will be sub-market. And therefore, as long as the CPI is still about 5% to 6%, I'll be very careful about investing in certain financial instruments. Eventually, the inflation rate, hopefully, will fall to 3% to 4% range. And that's the point I believe the Fed will declare victory and start raising rate. And in the meanwhile, at that point, they will also stop the asset reduction. Or if the unemployment rate gets up to about 6%, that'll cause the Fed to stop tightening, at least for the short-term, to stimulate the economy in order to lower the unemployment rate. And that's not going to be a happy picture because that means a lot of people will be out of the jobs. I hope we can get to the equilibrium inflation rate of about 3% to 4% range without causing very high unemployment rate. As long as the unemployment rate is not too high and the CPI is higher than 5% to 6%, the Fed, I believe, will continue to tighten which will cause the stock market to drop. And that's why I will be focusing on those instruments that have the inverse relationship with the broad market in the next few weeks. At this point, I'd like to suggest that you subscribe to my Twitter account, which is DanMarketL, in addition to subscribing to my YouTube channel. With my Twitter account, I share with my subscribers on a daily basis some of the trades I'm making and also any news developments related to the stocks or ETFs that I cover. For example, on April 29th, I said I saw SQQQ and had an 8.3% gain. And I explain why because it was approaching a resistance level. And then on May 12th, I said I saw half of my UNG at 8% gain. On May 16th, I said I bought more UNG shares because it's rebounding from the 20 day simple moving average. And then on May 16th again, I said I bought the copper miner ETF because of the reopening of Shanghai. Again, if you like what you've seen so far, I'd like to encourage you to click the like, subscribe and notification button. As usual, I'll very much welcome your comments, questions and suggestions. I do receive a lot of questions and comments on my Twitter account and actually I've been having some pretty interesting discussions with my subscribers. I'd like to remind you that I'm not a financial advisor. I share my stock trading strategies and analyses for educational and entertainment purposes only. If you want to buy or sell stocks, you should make your own decisions and you should definitely consult with your financial advisors before you do so. This wraps up my video for now. I will chat with you again in the next few days. In the meanwhile, I'd like to wish you the very best of luck with your financial investments.