 Hey everyone, this is Dan. The September CPI was posted on October 13 and it came in at 8.2% which is slightly lower than the August number of 8.3%. S&P 500 went up more than 2.5% on the day the September CPI was announced. Some people believe it was due to short covering and some people think it was because the worst is over for inflation. Is the picture really that good? I don't think so. I will explain in the next few minutes why I am so pessimistic about inflation and about a short term outlook for the stock market. I will also talk about my investment strategies in light of what I found. Let's get into the details. First of all, let's look at how the market has been trending since the beginning of the year and also in the last 2-3 weeks. Since the beginning of the year, the ETF SPY which represents the movement of S&P 500 has dropped 25%. QQQ representing the movement of NASDAQ 100 has dropped about 30%. The broad trend has definitely been very bearish since the beginning of the year. And let's zoom into the last couple of weeks. The market reached a new low on October 12. Then came the CPI announcement on October 13. On that day, the market dropped in the beginning, then recovered quickly and ended up more than 2.5% higher than the previous day. Market was up again today, which is October 17. Looking at the stock index futures now, which is about 10pm, the market will most likely be up tomorrow as well. Let's look at the CPI numbers. As you can see, we are at the level that's higher than any time in the last 40 years. The July All-Item CPI came in at 8.5%, August is at 8.3% and September at 8.2%. The Federal Reserve Banks have been trying to lower the inflation rate. Their stated target for inflation is 2%, much lower than the current 8.2%. In the video I posted on September 18, I showed my calculations for the glide path for inflation rate to get down to 2% within the next year. I showed that in order for us to achieve that glide path, the month-over-month inflation rate will have to be between 0.1% to 0.17%. If we can achieve that, then the CPI will be around 45% in March of 2023. At that point, hopefully the Fed will see the progress of the efforts and will slow down quantitative tightening, which will then lead to the recovery of the stock market. What we have for September instead of being 0.17% will have 0.4%. If we keep going at the 0.4% month-over-month rate, the year-over-year rate a year from now will be well over 5%, which is far from the Fed's 2% target. I see that. I'm sure the Fed Governors see that as well. That's why the Fed will most likely tighten more from here on. The Fed has also been monitoring another CPI number, which is a CPI less food and energy. If you look at that CPI number, the month-over-month change for September is 0.6%, which is even worse than the 0.4% here. With the high month-over-month inflation rate, I believe the Fed will not be able to slow down QT at least until May or June of next year. For then, we will most likely see the stock market drop even more from where we are today. If you think what I'm saying is interesting, I'd like to encourage you to click the like, subscribe and notification button. That'll enable you to receive notification when I post my next video. It'll also encourage me to create more videos like this in the future. Thank you very much. Let's continue. We have a lot of interesting stuff to cover. What has Fed been doing to reduce inflation? They've been raising the Fed funds rate, which caused the other interest rates to go up also. They have reduced the Fed total assets, and they have increased the overnight reverse repurchase agreements, the ORR. The Fed governors have also been talking tough about tightening. The end results of all these Fed actions are that the pace of inflation has slowed down, although not quite enough yet. The stock market has certainly dropped since the beginning of the year. We have been seeing slower GDP growth in the last two quarters. Unfortunately, we might see the unemployment rate go higher in the next few months. Some say that if the Fed tightens too much, we might end up with a recession like what happened in the 1970s. Let's hope that doesn't happen and that we can get a soft landing without going to a recession. After looking at the September month over month inflation rate, I believe the probability of getting a soft landing is getting smaller and smaller. In the most recent FOMC press conference, we could see that the Fed chair Mr. Jerome Powell is increasingly concerned about the inflation rate. In the September 21st press conference, Mr. Powell mentioned the importance of fighting inflation, which can possibly cause pain for the economy and cause pain for the average citizens. In fact, he used the word pain, painless, or painful seven times during the press conference. In comparison, in the July FOMC press conference, he used the pain-related words only twice. And in the June press conference, he used pain-related words only once. Jerome Powell is telling us to brace ourselves for the tough times ahead because the Fed will be tightening more to fight inflation. The CEO of JPMorgan Chase, Mr. Jamie Dimon, said on April 13, I'm simply pointing out that those are storm clouds on the horizon that might disappear. They may not. And since April 13, S&P 500 has dropped 17%. Mr. Dimon's prediction is therefore not to be taken lightly. Recently on October 10, Jamie Dimon said the market can easily drop another 20%, considering how much more tightening the Fed will have to do to bring down inflation. I agree with Mr. Dimon. Yes, the market will drop 20% or more from where we are today, unfortunately. Let's see how much tightening the Fed has been doing since the beginning of the year. From this chart, we can see the Fed funds rate has gone up five times since March of this year. It is now at 3.08%. There's another 0.5% to 0.75% increase expected on November 2, which is the next FOMC meeting. The Fed total assets started to decrease in April of this year, which reduced liquidity in the market and has the effect of lowering the stock market and lowering inflation. The overnight reverse repo or ORR has gone up by almost $800 billion since the beginning of the year. The increase in ORR also has the effect of reducing market liquidity and reducing inflation, as well as depressing the stock market. I discussed ORR in more detail in my August 16 video, which you can find in my YouTube channel. This is a chart showing the change of market liquidity due to the changes in Fed total assets and ORR. As you can see, since the beginning of the year, the market liquidity has been decreasing. Let's superimpose the SPY chart. You can see the correlation between these two lines. Most recently, after SPY hit a new low around September 28, the Fed increased market liquidity slightly. The market then rebounded somewhat before heading down again. There is another recent development that will cause inflation to go higher and will cause the Fed to tighten more. And that's the announcement by OPEC on October 5. OPEC has decided to cut production by 2 million barrels per day. The reduction will drive up oil prices, which will drive up the prices of other goods and services. That means the Fed will have to tighten even more to control inflation. When the Fed tightens more, the stock market will drop more. This is the chart showing the spot price of WTI crude. We can see the uptake since the October 5 OPEC announcement. What are my conclusions? The September CPI did not go down as much as I expected. And definitely, the .4% month-to-month increase is much higher than the .1 to .17% increase needed to bring down inflation to 2% within the year. Compared to August, September all-item CPI went up by .4%. At this rate, the Fed would not reach the 2% inflation rate target in 2023. The Fed is not likely to pivot or stop QT until way after May of 2023. And the market is not likely to recover under the Fed has started to pivot. The recent decision by OPEC to reduce oil production by 2 million barrels per day will drive up oil prices and other prices, which will aggravate the inflation problem. What are my strategies? I will continue to monitor the month-to-month CPI changes. If the month-to-month CPI changes are less than .17%, I will gradually increase long positions. But that's not the case now. And if the month-to-month CPI changes are more than .175%, which is exactly what happened in September, I will keep more cash on hand, I will be selling long positions and selectively buying short positions such as S.QQQQ or SPXA. I will continue the swing trade oil and gas-related ETFs such as U.C.O. and UNG, which are influenced by geopolitical events and not so much by inflation rate. At this point, I would like to remind you to subscribe to my Twitter account in addition to subscribing to my YouTube video. By way of my Twitter account, I inform my subscribers almost on a daily basis of important news developments, and also some of my trades. For example, on October 7, I tweeted that I saw UCO shares bought on August 29, October 3, and October 5 with an average gain of 5.8%. On October 14, I tweeted that I saw SQQ shares at 4.1% gain. Thank you for watching all the way here. I'd like to remind you to click the like, subscribe, and notification buttons. As usual, I would very much appreciate your comments, questions, and suggestions. 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.