 Good day, fellow investors. Welcome to the stock market news with a long-term fundamental twist. This week has been all about the Fed Chairman and Fed Minutes that came out and how the Fed changed its rhetoric from extremely hawkish to a little bit more dovish. And the markets consequently reacted very, very positively. On Monday, the markets were already up, then on Wednesday when the news came out, when the speech came out, the markets really exploded and the five-day change, as I'm filming this Friday before the market opens Friday 13 November 2018, the market is up 3.31% in one week, which is very, very good compared to the 7% decline we have seen over the past two months. Now, something very important to differentiate is what the Fed does and its rhetoric does, what the Fed says. Because it's very important what the Fed says influences the markets and the economy. So they have to be very careful what they do, of course, but also what they say. And we see how just one speech, one change in words really lifts up the markets, which isn't logical, but we'll speak about that later. Let's give a quick overview of what has been said and what has been done and then discuss and explain the implications of it for us investors and the economy. So the topics of today are Powell's dovish speech, the Fed's meeting minutes, economic data, investment risk reward outlook and how best to invest in this environment. So on October 3, 2018, Powell said the following. We are a long way, I repeat, we are a long way from neutral at this point probably. This week he said this, interest rates are just below a range of estimates of the so-called neutral level. And this is very, very important for the economy and asset values because it all starts with the Fed's interest rates. Let me explain. If we look at the federal funds rate, we see how over the past three years, two and a half years, they have raised those rates from 0.25 to close to 2% now. Why is this so important? Well, people have unfortunately already a lot of debt, big student debt, mortgages, car loans or credit car loans. And now if interest rates go up, debt becomes more expensive and consequently interest payments increase and there is less money available for spending. For example, I have plotted the 30-year mortgage interest rates against the Fed's funds rate. And you can see how correlated that is. The 30-year mortgage rate went from 3.5% to the current 5%. This means that the cost of a mortgage increased 42% over the last few years. That is a huge increase and this chart shows it even better. How correlated this is and how big of an increase was there in the cost of a mortgage. You see the cost of a mortgage in the blue line on the right side, the percentages. Now, why are Powell's words so important? Because previous to the last speech, the normal rate was expected to be between 3% and 4% with interest rates. This means if you have the federal funds rated 4%, mortgages will be at 7%. So that's another 50% increase in the price of mortgages, price of car loans, credit car loans, everything. Government debt, the interest on the government debt will also be higher. Now, as we have seen not such strong economic data over the past, which we will talk in a minute, the Fed has changed in its rhetoric and lowered the normal expected rate in the future. So that's a huge decrease in the expected rate what the market was pricing in, which means that the Fed is looking at what's going on in the economy and they know that if they increase rates too fast, the next thing that happens is a recession. So they say, they are saying now we don't want to be the ones that trigger a recession. So that's okay, that's logical, but we have to see as investors, okay, what are the implications of this? What does this mean for the market? On the one hand, the market goes up when the Fed says that they are slowing down interest rate hikes, but that does also mean that the economy is slowing down and that the economic data is not that good. So that's why they are slowing down. But the market first sees, okay, interest rates is what is driving things first and the economy comes in second. But someday the economy will come in too, because that's normal, cyclical and natural for the economy. A look at the Fed's minutes shows how they are watching what is going on and allowing for flexibility. That is something new. So as they say, another increase in the target range for the federal funds rate was likely to be warranted fairly soon. So in December they will hike no matter what, if things don't change too much. However, many members expressed uncertainty about the timing of future increases, which means they might slow down. The concerns, the uncertainty points to the high levels of uncertainty regarding the effects of fiscal and trade policies on economic activity and inflation, high level of debt in the non-financial business sector and especially the high level of leveraged loans, on which we already made a video. And that is what makes the economy vulnerable to a sharp pullback in credit availability. The potential for an escalation in tariffs or trade tensions was also cited as a factor that could slow economic growth more than expected. Just to look at history, you see that when the Fed increased interest rates, usually what happened next is a recession. So they are trying to prevent it. Perhaps they are kicking the can down the road. So of course they don't want to start a recession. On the economic data from various sources, Apple cuts its iPhone production, creating turmoil for suppliers and that spreads across the economy. Because if Apple is selling less iPhones, less money, less upgrades, less growth and it slows down economic growth. Just as a sign. Further, the Schiller index home prices have slowed down in growth. They are now still at 5%, which is still great, but the trend has slowed down, which isn't good for a highly leveraged economy. A leveraged economy needs home prices to go up constantly so that the debt is easier to be repaid. Also something that was a big deal over the week and is a big deal. GM targets five factories for closing. 14,000 people will lose their jobs. And this is a big deal because businesses are saying, okay, we are preparing for the downturn in the cycle. And when businesses do that, there is nothing that can be done. They simply have to act according to what their information about the market is. And this is something that the Fed cannot prevent. They can postpone it by lowering interest rates, allowing for easier car purchases, but the market has spoken. And this is really, really a picture that I hope we will not see many times over in the future, but something to keep in mind. Even the usually extremely bullish international monetary fund downgraded its global outlook. So they lowered global growth for just a bit. And just a bit, when they change something just a bit, that's a big deal for the world and the economy and everything. Because everything is so fragile that small changes have a big impact. On the business side of things, similar to GM cutting jobs, this is something very important. Something that practically summarizes what businesses do. That's the key when it comes to an economy. And business equipment orders are not growing despite the tax cuts and despite the fiscal stimulus. So you can see how business equipment orders are actually down 4% last month. And they are on the trending line is at zero. And it was negative. So those things are not above zero, which gives a good signal about the economy and what to worry about. And the Fed is seeing it and reacting. Now, how to invest in this economy? Okay, the Fed is doing whatever they can to postpone or to prevent a recession. Nobody wants to see a recession, which means that they are increasing the risks. Because as everybody else in the world is still printing money, you don't want to be the only idiot that is tightening. So they say, okay, we will slow down, which means keeping lower interest rates and destabilizing currencies, giving stimulus to the highly leveraged uncertainty. So they say that highly leveraged, leveraged loans are a big risk to financial stability. And with lower interest rates, they stimulate that environment even more. So long term, short term perspective, they don't want short term pain and are willing to risk longer term pain by risking what is very important. And that is the currency. If they lose control of inflation, if they lose control of the leveraged markets, and if businesses start saying, okay, we have had enough, no matter what, where are the interest rates, we're not going to risk anymore, then the Fed might lose control and we might see stagflation because they cannot lower those rates anymore from where they are, which might lead to a spiral of inflation in the future. The Fed has never managed to control everything because we have had crisis every few years. So in that perspective, I think that we should avoid owning bonds because yes, they will lower interest rates. Bonds might do good, but that story might last up till a point and then everything crashes. So that's why I'm avoiding long term bonds, especially short term bonds, okay, you can park your cash there. Secondly, we should avoid zombie companies. So those companies that are really dependent on the debt, because if there is a contraction in the market, even if the Fed, Eurozone, Japan, everybody's helping them. If the crisis comes and we see business data that the crisis will come eventually, then those will go bust very, very quickly. And that's a risk you don't want to run. You don't need to run in your portfolio. So on that note, buy businesses that have real assets, commodities that will increase as inflation increases. So think how to position your portfolio over the long term. I own commodities stock, I own utilities, I own some companies that can transfer the increasing prices to the future in line with inflation and don't have any debt, even to gold miners. So that's how I am positioned. Perhaps it gives you an idea to see how you can position yourself, but the main messages don't own the extremely highly leveraged risky place that are surviving just because the Fed is helping them. That will end at some point. So any upside that you might have, it's not worth risking a 100% downside. On the economy, it's clear that it is so dependent on stimulus, both fiscal and monetary stimulus. And that's how it is. One day, the Fed and politicians will lose control because they are not allowing for a natural cyclical economy. And if we look at the number of bankruptcies in the US, those are at historical lows. The last time those were so low was what, 2006, 2007. You know what happened afterwards. So historical lows, zombie companies, nobody is allowed to go bankrupt. It reminds me of communism. God forbid, we have a recession. So I think that recession would actually be good. It will eradicate the bad. It will lift up the strong and then we can go into a new cycle and reach higher levels. Postponing a recession is like postponing rehab to a drug addict and giving him more drugs to make him feel good. Sometimes, somewhere, this will crack. I don't know when, I don't know where, but I have the feeling that this is not sustainable for the long term. And the Fed is doing what they have to do. We see Trump pressuring the Fed constantly about higher interest rates. Yes, everybody loves lower interest rates, especially if you are highly leveraged. I'm very curious, how will this end? As for us, we on this channel will continue to look at great businesses that will do good no matter what. That will have protection against inflation, against tech inflation, against economic crisis, and that are able to weather storms. And we are going to focus on value investing that over the long term, especially when there is stormy weather, does extremely well. I'll start with Seth Clariman's margin of safety book summary. So please subscribe, as it will give us a great mindset on what to do. And also, tomorrow, I'll give an interview with a business consultant. Now, he's a hedge fund manager, where he discusses, okay, what are the competitive advantages that allow a company to do well over time over the long term, and whether all the cycles, no matter what. So please subscribe to the channel. We are here for a long term perspective on stocks, on markets, on the economy, and we want to get ahead in the long term. Looking forward to comments, and I'll see you in the next video.