 Hello, good evening, everyone. Once again, my name is Ali Hmedi, consultant with TIKNO for your futures webinar series. We're going to be continuing the series this evening and discuss the market outlook within the interest rates and interest rate market outlook, which is very interesting coincidentally. Tomorrow, they'll be announcing the Federal Reserve of the United States, most likely a hike, but they'll make their announcement. Tomorrow, we'll get into that further in tonight's webinar. I hope everybody's had a good trading week. It's been very volatile. As we sit today, markets have opened up in the US to the downside. The S&P is down on 50 points and the Dow 30 is roughly down to 20 as we speak with further concerns about the economy in general. We'll be discussing quite a few topics related to the interest rate environment and the particular outlook and forecast for tomorrow. Without further ado, this here gives us a backdrop dating back from the mid-50s, what the interest rates, the Fed funds rate. So let's clarify what the Fed funds rate is, which is what the Federal Reserve makes their announcement on when they say they're hiking the interest rates. They are hiking the Fed funds rate, which gives the overnight lending rate that banks lend to each other. That's not the rate that we as consumers receive or get when we go apply for a loan or a mortgage or anything where we take a line of credit. We get what we call the prime rate plus depending on the type of credit and background you have and depending on what type of loan you're taking. So the Fed funds rate and the interest rate that primarily moves the U.S. economy and has a lot of weight behind it or the most weight behind it is the Fed funds rate. And that's what you see here in this chart. You've seen that spike as Reagan took office, President Reagan and the Volcker rule took effect where they ended up pushing up interest rates higher than the inflation rate and then the economy took off afterwards and then everything kind of settled back down. And then as you can see this here on the tail on the right end, it's basically been zero since the 0809 collapse. You see the sharp decline there on this graph. And then it spiked a little bit during the President Trump's term and then they brought it back down to zero and then they started raising interest rates again now due to inflationary concerns. This particular current contract for July, 2022 is a snapshot from yesterday's graph from TradingView where the ultra U.S. Treasury is the U.S. 10-year Treasury, which is one of the Treasury bonds, if you will, used as a risk-free rate of return. I'll get into that later as well in tonight's webinar. But when we say risk-free rate of return, we're talking about there's zero risk and how much interest you will be getting for that zero risk. And the 10-year Treasury has been somewhat volatile this year because of the rate hikes, but it's still, let me just give you right now where it's trading. So bear with me one second and I'll tell you where the 10-year Treasury is trading as we speak right now, organized here. It's trading at two spots, 76%. So apologies for the little delay there, but at 276, that's telling us you're able to receive 2.76% return or interest for 10 years for zero risk. Okay. So that's why they call it the risk-free rate of return. And this was the snapshot of the current contract for the 10-year, what they call the Ultra in the futures market, was trading yesterday at 156.17. And then if we look at the December end of this year, basically what, six months out, five months out, it was trading yesterday at 157. Spot 19. And if we take it out just a bit further through the end of Q1 and 2023, March, it's trading also at one, as of yesterday it was trading 157.19. So neither here nor there, we're going to get into the discussion of what this particular number means, not only for the actual futures market itself, but how it affects everything else in general. So from June's 2022, which is last month, when they announced the 75 basis point rate hike last month, they obviously had their meeting and then they made their announcement. Now, during each meeting, they have a recorded log of the meeting called the minutes and they always released the minutes of the FO&C meeting with a lag. So they release it two to three maximum four weeks after the meeting has taken place. So tomorrow when they make the announcement for the rate hike, before they make the announcement, they have their meeting, but they will release those meetings, minutes, sorry, for tomorrow's meeting at some point in time by August, mid-August, August 17th. So this was coming from last month's FO&C's meeting announcement and the Fed policymakers continued to anticipate that ongoing increases in the Fed funds rate would be appropriate and backed a 50 to a 75 basis point hike in July, which would be announced tomorrow. Officials also noted that the US economic outlook warranted moving to a restrictive stance of policy and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist. Now, what has happened with the inflationary number? The CPI number came out at 9.1. That's the quote unquote official rate of inflation at the moment. You had forecasts from economists that were perceiving it to be lower than 8.6, which was the previous number and some forecasting it to stay the same, but it actually came in higher than most expected, which means inflation is still on the upswing or upward trend. They also noted that policy firming could slow economic growth for a time, but they saw the return of inflation to 2% as critical to achieving maximum employment on a sustained basis. July 27th, which is tomorrow, is the date that the Fed will announce their interest rate decision and interest rates are already at 1.75% and the market is anticipating a 75 basis point increase to 0.75% to push it up to 2.5%. So now, the 2% has always been, let's say the Fed's benchmark to keep inflation in check, but in all reality, to achieve 2% and they're chasing the inflation number now where the official inflation number is at 9.1%, where real inflation could realistically be more than 12, maybe 12.5%, it's going to take a lot of time. If you think about it, one of the only ways rationally from an economic perspective for it to bring inflation down the interest rate, interest rates need to be tighter or higher than the rate of inflation. And that's going back to the US president, Ronald Reagan's administration, is what the vocal rule did. They increased interest rates to the point where they were higher than the rate of inflation. So that meant it was costly or to borrow money. It was tighter restrictive economic policy and they at the same time increased supply. So if you restrict the money, but increase supply, in theory, if you have more supply of product, the price will naturally come down which brings down the rate of inflation. And if you have a restrictive money policy where it's not so easy to borrow or give out cash like they've been doing or the US has been doing for the last couple of years, it also makes it more difficult for, let's say consumers to go out and borrow. If they're getting money for free, they're not gonna go work. There's no incentive to work because they're getting the handout. And then at the same time, if they're not working, then the GDP slows and then you can see how that affects the economy in a vicious circle. So if nobody is working, but they're getting cash and spending it freely in the market which is propping up the markets like a house of cards, so to speak. And they're not working, they're receiving this. So they're not really providing any output. They're only receiving cash. So that means companies are not reaching the full capacity of employment. That means more and more people are less inclined to work because they're receiving a handout. And then at the same time, when that happens from a corporate standpoint, you produce less. And if you produce less, that in natural cases is going to decline your rate of production. And therefore decreases the GDP of the nation wherever the corporation is from. In this instance, the United States. So right now the market is already priced in. Now they've priced in a 75 basis point increase for tomorrow's announcement. So if anything comes in, let's say less or more than the 75 basis point announcement, then it's going to create more of a significant ripple effect across all markets. If it comes out one point higher, 1% or if it comes out 50 basis point hype versus the 75 basis point hype. But it's priced in already at 75 basis points for an overall 2.5% fed funds rates effectively. From tradingeconomics.com, interest rates in the US are expected to be at one and three quarters by the end of this quarter, which they were correct because Q2 ended last month. And according to trading economics, global macro models and analyst expectations, their longterm for the US funds rate is projected to trend around 3.75% in 2023. Well, if tomorrow's announcement is accurate and it's increased 75 basis points and we get to 2.5%, this particular analytical forecast from tradingeconomics, they are saying that there's still one and a quarter, 125 basis points to go into 2023. So that could be one big rate hike between now and the end of the year. That could be two separate rate hikes. However, you want to dice it up, but at 3.75% being their forecast or their projection for 2023, based on everything that's happening in the markets, could be a bit conservative, in my opinion. From CNBC.com, the federal, we're going to get here, we're going to discuss several layers of the importance of this particular rate and how it affects not just the markets, but everything else around it. The Federal Reserve likely will raise its target federal funds rate by another 75 basis points at its meeting this week. Now, they also are forecasting a 75 basis points hike and how will this affect, how will this increase will affect you from an investor standpoint and also from a consumer standpoint. Any increase by the Fed will correspond with a hike in the prime rate, which I referred or alluded to at the beginning of the webinar, and that's what consumers receive prime rate plus, it could be like prime rate plus LIBOR or prime rate plus and added specific, let's say one, two, three percentage points on top of the prime rate for depending on what type of line of credit you are applying for. So that will increase the prime rate, sending financing costs higher for many types of consumer loans. Now, short-term borrowing costs or rates will be the first to jump and credit cards, there's a direct connection to the Fed's benchmark. So Fed rates increase the prime rates, which we just discussed, which in turn increases variable rates according to wallet hub, factoring in the Fed hike, the Fed hikes from March, May, June and now July, credit card users will wind up paying around 12.9 to 14.5 billion with a B, US dollars more in 2022 this year than they would have if those increases had not occurred. That's a very large sum of money coming only from the credit card sector. Adjustable rate mortgages, HELOX, which is short for home equity lines of credit, car loans, et cetera, those will also become more expensive. The interest rates will become higher for the consumer to borrow money. So this is where having a good credit, a good credit history and let's say good earning potential will help keep your rates lower than someone with a lower credit score or less earning potential. So those types of lender loans will have a higher interest rate on them. Anyone looking for a new loan can expect to pay more. Student loans for US universities. The US Congress sets the rate for the federal student loans every May of each year before the upcoming academic year and they also base it on the 10-year treasury to also earlier at the beginning of the webinar and the new rate goes into effect every July. So the rate that they set for student loans was set in May of this year for this upcoming 2022-2023 academic year and it goes into effect or went into effect this month, July and what happens between now and May of 2023 with the Fed funds rate. Right now it's increasing as we just alluded to and discussed. It will therefore effect what rate students will be taking loans out to pay for their university education, which will be higher next year from the ones that took out federal loans this year, which the ones that took out this year are paying more than the ones that took out last year. So that's a good point. Savings accounts. Interest rates on savings accounts are on the rise after consecutive hikes. So you think, okay, this is a good thing. Even though savings accounts will be paying you more interest, it won't mean much since inflation is at 9.1% officially and even higher unofficially. So what that gap means is erosion of capital. If the official inflation rate is at 9.1% and let's just say savings accounts with tomorrow's, if it's accurate, assuming that it is a 75 basis point hike tomorrow and now the Fed fund overnight rate is 2.5%, now prime rate increases. So now let's just say you can get a savings account paying you, let's just 3% on APR from a savings account in bank. Well, you're getting 3%, which is better than it was in the previous years because it's been basically zero, but with inflation at 9.1%, you've got 6% or more loss of purchasing power or erosion of capital. So it's not necessarily a good thing, but when you have cash sitting in a bank and you're in this type of situation, obviously earning as much as you can is better than earning nothing, but you always have to keep a pulse on inflation and how do you hedge against that or how do you take advantage of these types of market situations and volatility. From ICIS.com, this came out in March of 2021. So we're almost a year and a half, 15, 16 months ago. Okay. And here is what they had to say at that point in time. And the reason I pulled it out from a year and a half ago will let you see how important it is or the importance of being able to dissect what sector you want to be investing in and or trading in. And at the same time, how to do in-depth research on what it is that you are specifically investing and trading in. The key risk in the financial markets is in the financial markets. Sorry. The key risk is in the financial markets since investors assume now that central banks will never let markets fall. Now this goes back to the slogan too big to fail from the 08 collapse after Lehman Brothers collapsed, then they didn't let any other financial institution find bankruptcy or go out of business. So every step of the way, they've made access to money much easier. And any institution that's in trouble has been able to find a way with their respective governments, i.e. Greece within the EU in 2012, the ECB European Central Bank didn't let them fail, but they also had to comply with what the ECB wanted in order for them to get the bailout that Greece needed in order to maintain status quo within the EU. Under US President Biden's term, his administration is focused on jobs rather than stock markets. And as a result, the Federal Reserve is now hoping to see higher rates and inflation as a sign of economic recovery. Now, in my opinion, they're getting it backwards. And I'm bringing this up now because this was stated back in March of 2021. Now, here we fast forward 15, 16 months and look at the situation. Okay, unemployment rate is still low, but inflation is out of control and the interest rates are trying to catch up. And now it's a catch 22 situation. The danger in all market downturns which is what we are in right now is that selling becomes a sole self-fulfilling as realism returns. So what I'm getting at there or what they're getting at is they're realizing, okay, we need to get out because market is going down and the reality of it is not as good as the administration has made it out to be, even though unemployment rate is low, the reality is inflation is high and interest rates are increasing. The key risk is focused on the likely response from ETFs, those are exchange traded funds and high frequency traders since they are buying when prices move higher and selling when prices move lower so that when investors are loaded up on margin, they all rush to buy and when the margin calls come in, the investors are all forced to sell in a hurry. So it's almost like a herd mentality when they see a bull trap and they see the market go up they end up buying at the high and then they see the market falling down again they end up selling at the low and that cycle repeats itself due to lack of experience or thinking that trading is quote unquote easy or investing is easy when it does require some adequate research and knowledge of what you're doing the end result according to this article from ICIS is that they will have a bubble-free market driven by earnings and analysis rather than momentum and stock market cheer-dupes but it will likely take a few years to unwind the damage that has been done over the past 20 years so they back in March 2021 according to their synopsis is that this would create no more bubbles in the market it will be driven purely by statistical analysis on how well the actual company is doing their earnings per share what market sector they're in how healthy the sector is in and if the company is a good company it will be driven by good investment cash versus the pump and dump I'm sure everyone's heard of Wall Street Bets from the Reddit line where you had AMC and you had the name just skimmed my mind but you had AMC and you had the game stock where people were just pumping in because people were short selling that is a very very dangerous game that is pure speculation that is not proper investing if you will but that's what they're getting at is that it would create a bubble free market another reality check if we fast forward to where we are today is that inflation is now considered to be considerably high and possibly uncontrollable and rates have been increasing this year and are still forecasted to increase and the markets have been taking a beating if we look at year-to-date year-to-date S&P 500 as we speak today is down 18 and a quarter percent so roughly almost 20% down year-to-date and markets down today again so markets are taking a beating inflation is high possibly not controllable interest rates are increasing incrementally but not high or fast or hard enough to make a dent in the actual inflationary cycle that we're in and it goes back to where you're seeing people getting out of the markets selling at the wrong time because their headline investors, their market cheerleaders this is what they're getting at from warpoliticsreview.com it's a widely acknowledged truth that when the US economy sneezes many countries catch cold that's a joke but the US economy is the largest economy in the world and they are the market drivers and they are in the driver's seat and again with this week's interest rate high is sure to create new problems for already battered economies and families in less affluent countries the move will unintentionally pile on onto the multiple interconnected crises and growing challenges already facing developing countries i.e. the Russia-Ukraine conflict and then issues political issues from Peru all the way to Sri Lanka et cetera et cetera this should, if you're looking at it from a holistic approach not purely from what the interest rate is going to be and how you're going to trade the interest rate on tomorrow's announcement is where are the opportunities based on this number that's coming out tomorrow and where the Fed rate is going and where it's headed where are the opportunities in the market and understand how to use futures to your benefit in these types of situations this is why I put this particular slide in here so that this is more than just the interest rate number that the Federal Reserve is coming out with it's got very big ramifications very big consequences negative and or positive for global economies and how are you able to protect what you're currently investing in is it affected is that what you're currently invested in will the interest rate affect your current portfolio most likely in some way one way or another this is where you're going to have to understand what you're invested in or trading in know how to either hedge and protect what you currently have within your portfolio and at the same time if you are starting to build your portfolio understand the dynamics that are coming into play and being able to come up with your own strategy and say okay here is my strategy I've done my research based on one two three I'm going to take positions one two three and let the market play out you can see here the chart that I've included here this is the interest rate chart and you can look at it from basically from 0809 all the way up through 2016 this is when it went up briefly under the Trump administration then it came back down and has been basically flatline like it was prior to 2016 and then this year has started to increase so if you look at 2018 19 and 20 etc you'll see it come back down and then in 2022 you'll see it to come back and it's going to be higher it's going to be up in here it's broken the 2% level so you can see where the trend is headed with the interest rates out of the Federal Reserve and then you have the U.S. Treasury and then you have the Treasury Bonds remember I was talking about the risk free rate of return the U.S. Treasuries have multiple maturities and so you have Treasury notes those tend to be less than one year in maturity and then you have bonds that are longer than one year so you've got a one month, two month, three month, six month etc. Treasury notes and then you've got one year, the 30 year, you've got the 20 year, you've got the 15 year Treasury bonds so how is the Fed funds rate compared to the risk free rate of return and I know there's a lot of colors on this particular screen but the Fed funds rate is the red one and going back to the mid 50s if you just track it along and you can see that it went above the risk free rate of return because they were tackling inflation at that point in time, inflation was if I'm not mistaken 12-13% maybe even higher but it was in the teams double digits and so the Fed funds rate increased and they brought inflation back into check and you can see it down trend until a flat line basically in 09 as they brought it back down to zero and here's that spike under the Trump presidency they brought it back down now you can see it starts to tail back up but here's the thing under Trump when it was spiking he was against it because he was more business minded from an economic perspective I'm not here to say I'm pro or against any president just giving me the mindset from that particular administration was where their focus was and this particular administration's focus is completely different and with the opposite of the prior or previous administration's mindset when it comes to the markets the economy, tax rates etc etc which all have come into a very head again to a very nasty storm in my opinion with inflation interest rates increasing raw materials getting into the commodities that we've discussed earlier have increased geopolitical tension and then supply chain disruptions not being able to properly let's say analyze the valuation of a particular sector or stock due to these disruptions end up causing ramifications on the bottom line on investors. Now uses for treasury futures how can we use them within our portfolio well you can hedge against fixed income or bond portfolios fixed income and bonds are synonymous they're the same thing bonds means fixed income and fixed income market is the bond market or you can speculate on the interest rate markets now with U.S. Treasuries mainly the 10 year is the bench they are all used but mainly the 10 years used is the risk free rate return so any increase or decrease in rates from the Federal Reserve will cause volatility the traders and investors need to prepare for or speculate on so depending on what you're doing if you're currently have something in play or in place like a retirement account where you have investments in fixed income because you're limited I'm giving an example so from the pension plan perspective you're looking at retirement accounts where the closer you get to retirement the more allocation you have towards fixed income what happens to fixed income in this type of environment it's going to get slaughtered why because interest rates are increasing so it's coming costlier to issue new debt from a corporation or governmental standpoint and at the same time as an investor standpoint the higher interest rate so why would I hold a bond with a lower coupon when I can own a new bond with a higher coupon so they end up selling the old for the new and the price of the old drops which is what a lot of the pension funds and fixed income bond holders at the moment currently have those will be dropping in price in anticipation for higher paying coupons and newly issued debt so they would need to take a hedge this is one use that they can let's say I don't say play in but invest and and use as a tool to hedge against speculation speculation we don't need to discuss that any further the the market is currently pricing and I talked about that earlier that is going to be 75 basis points tomorrow now it can be anything and the Fed can come out at any point in time they're not held accountable to any specific day or time to when they can or can't increase rates they could come out today literally while I'm speaking right now and say we just increased the Fed funds rate one percentage point and they could still come out tomorrow and raise it 75 basis points and they could do that again the fall they can do whatever they want and raise or decrease their rates however they want according to their policy what they find feasible for whom which is their only concern is the US economy but the market has priced in 75 basis points so anything different than that will see more volatility than expected the key takeaways from this evening's webinar and the market overview US interest rates are dictated by the Fed and I just as I just said they're focused on the US market they have huge ramifications on the rest of the world's central banks and economies so this is an opportunity for you to look at different possible sectors regardless of what it may be whether it's currency whether it's stock whether it's commodities and see historically speaking what's happened in times of high inflationary cycles of the United States and in times of increased funds rate environments what sectors have done well what sectors have done poorly and then invest or act accordingly based on your research any move will cause the markets to react depending on your portfolio or investment strategy that will decide what position you take in the futures market whether you're hedging or speculating again you've got to research how an interest rate height or decreased decision will affect your portfolio and take the calculated decision to protect your positions now this is I mentioned at the beginning August 17th is the date where tomorrow's announcement they'll come out with their rate decision okay so let's just say it is 75 basis once they'll come out tomorrow and say the Fed funds rate has increased to 75 basis point which is now 2.5% and then on August 17th is when they will release the minutes what was discussed in the meeting tomorrow they will release them on August 17th and what is mentioned in this meeting or the minutes is what they are discussing what they are calculating for the future moving forward in regards to the interest rates this is where they will provide a little bit more guidance of how many more hikes they may have or not have for the remainder of the year how much further they intend to go or push up the interest rates for 2022 they very rarely go beyond very small time frames quarter to quarter now they might extend it to 2022 the end of 2022 but they're not going to come out FOMC and say we're forecasting by the end of 2023 the Fed funds rate to be at 5% they're not going to do that they keep things discreet and incremental as possible so that they try to keep control on what they can't control what they're doing and I like to leave each webinar with a quote you make most of your money in a bear market you just don't realize this comes from Shelby C. Davis an American philanthropist and retired money manager and it's easy to make money when the market is moving in one direction like it has been let's say for the better of the last decade or slightly more since 2009 onwards we've had really only one down year in the market so that can be a champion or let's say a great investor per se in good years but if you understand the dynamics of what the interest rates are ramifications they have on the markets and the global economies and understand that we are heading into a recession and the recession is defined as two negative growth quarters which has happened so we could say we're officially in a recession now the market has been declining the market year to date is down roughly 20% now is not the time to be fearful now is the time to be an intelligent investor in understanding the dynamic being able to find pieces that you find interesting for yourself what you want to be trading and investing in and doing your due diligence using history as a lesson and reading up and understanding how things played out in the past understanding that we're uncharted territory now but there are a lot of similarities from specific periods in the US markets history when it comes to inflation and the interest rate environment and we'll get where the bear market territories we speak so you know if you are an investor for the long term you're welcoming this storm that we're heading into with open arms if you're a day trader and speculating and really just clicking the button and not knowing what you're doing it's very very dangerous and the losses will mount up so heed my warning and understand that futures are more for the sophisticated investor but the markets right now aside from the futures market are very volatile so I'm going to take a few more quick clicks or listening to recommendations here and there and thinking that it's going to pan out and it's going to make you a foot buck or two you've got to be very very respectful of the market and rely on yourself and only yourself and what you can do with your research with that we're opening it up for any questions if anybody has any questions now any questions going once going twice okay for those of you in attendance and we'll be watching this later on Ticknall's YouTube platform pay attention to tomorrow's decision because they will be making that announcement early afternoon US time and see how the markets react I hope you are taking the necessary measures within your portfolios also in the learning phase this is great we have a question from most gold prices gold prices as we speak right now gold is trading currently at 1716 it's down $2.90 on the day we discussed gold earlier maybe two webinars ago on their market outlook going off of my memory so don't call me accountable to this Musa but we had ranges from several different okay so the effective you mean the expected effect on gold prices so gold usually when things become more expensive in an inflationary cycle and even markets drop like they have been they have what they call flight to safety and flight to safety is investor money moving from the risky assets risk on to risk off assets and gold is considered a risk off asset but it has been volatile this year due to inflation now inflation you have to keep in consideration has been affecting the commodities market across the board wheat just as of yesterday or day before because of a missile strike wheat splint who can forecast that but that was discussed last week when I was talking about corn and the previous week with wheat when we were talking about the ag sector and we were talking about the metals and gold if interest rates are going to increase that means if we think about it rationally okay borrowing money to put into the markets going to become more expensive so people are going to now feel like okay markets taking a beating which it has been markets may be green tomorrow because they may be the expectation may be spot on at 75 basis points and then you're going to have the risk on factor turn back on and say you know what inflation is going to be under control the Fed knows what they're doing and blah blah blah blah and you can have the spikes in the market me personally my personal opinion I feel that we are in a downward trend we're going to have bull traps several of them along the way and risk is going to get turned off and when that happens I can see a spike in gold prices because gold has always been gold and the gold is a very, very, very undervalued and compared when you compare it to gold but you're specifically asking about gold and I'm giving you an outlook I can't tell you that it's going to tomorrow go from you know 1760 it's going to spike up 50 points tomorrow and close 1770 or 1765 or vice versa but the more that risk on is shifted to risk off they're going to be avoiding and they're going to be getting out of fixed income as well where they're going to go and gold is one of those quote unquote safe havens when risk is turned off any other questions I hope that helped you Musa next week's seminar I'll be discussing the S&P 500 which is the standard and poor index which contains 500 largest US companies and corporations and the US market and its futures and its outlook so stay aware stay focused do your research there's no rush to do anything irrational and make sure you come up with something that you're comfortable with and or protecting what you currently have and I'll leave it there best of luck to everyone and I will see everyone next week have a great week and good evening