hi I'm Jimmy in this video we're going
to look at what the stock market's been
doing recently what the Federal Reserve
is doing to interest rates we're going
to look quickly at something known as
the FED Dot Plot and then we're going to
look for some potentially safe
investments in a stock market that has
been down a lot and one of the main
reasons the stock market's been down so
much is because of what's been going on
with inflation to illustrate this is the
inflation rate going back the past few
years and we could see that recently
inflation is way up there this is the
highest level in like 40 some odd years
and this is a real bad sign for the
economy or at least for the stock market
so we're going to look for some safe
investments in this type of market and
what the FED is doing and how that could
play out over the next couple years but
before we jump into that I just want to
tell you real quick about an investing
platform that we're building we've
already got the beta version of the
website up where we built a discounted
cash flow calculator but the plan is to
build a discounted cash flow calculator
and a whole ton of other valuation
methods on top of financial statements
and the ability to do the research
research a stock right on the website
but the idea is that you punch in a
ticker maybe a company like Tesla the
website will kick back the best possible
valuation methods for that stock and
I'll tell you what the fair value of
that company would be for each valuation
method it would work for regular stocks
would work for something like a bank
would work for a more stable company
like apple but the idea is that we want
to make it quick and easy to try to find
stocks that are worth researching closer
if we can do that then the I think the
what I think the website could be very
very useful to a lot of investors who
are trying to get better performance out
of their Investment Portfolio now if you
want to sign up to this website like I
said we've already got the beta version
of the discounted cash flow up and
running and we're continuing to evolve
it uh to try to gradually introduce more
different more evaluation methods so
again if you want to sign up I'll leave
a link in the description below but for
now let's jump back to the inflation
rate and look at what's causing the
problems for the economy so clearly this
is a problem one of the reactions that
the Federal Reserve has had to higher
inflation is to increase the interest
rates for short-term rates this is the
Fed funds rate basically this is an
overnight rate that the to reserve
controls the Federal Reserve doesn't
control all interest rates they control
the overnight lending rate and well they
control their overnight lending rate and
most other interest rates sort of follow
suit with them not always as we would
expect we'll come back to this in a few
minutes but in their most recent earlier
this week in the most recent
announcement the FED announced that they
are increasing interest rates by about
75 basis points that's three quarters of
one percent of 75 basis point assist and
if you're watching the news at all if
you're watching something like a CNBC or
a Bloomberg you might have seen them
come out and say that
75 basis points is what it is what is
expected but the thing that a lot of
economists are watching for even
investors Big Time hedge funds people
like that are waiting for is what is
known as the feds Dot Plot okay so this
chart here is we're setting up what the
feds Dot Plot is so in 2022 just to
illustrate this came out in June by the
way this is the previous meeting not the
one that just happened a couple days ago
I'll show you that in a second I just
want to show you how they've shifted
because that's important so the way that
this works is each of the members of the
Federal Reserve vote on where they think
interest rates will be at the end of the
year so for this one this is 2022 we're
looking at where does where do each
member believe they vote anonymously
where each member believes that interest
rates will be at the end of the year
don't forget this is a poll that was
taken at the end of June well each dot
represents a different person and the
important number that we're going to pay
attention to in a second is what is the
average what's the median number what's
the middle number out of all of them
then when we fast forward to 2023 well
we can see that 2023
broadly speaking nearly every member of
the FED thought that interest rates
would move higher this is where do they
expect to debate on the December 31st
2023. okay fast forward again to 2024
now you can see there's a wider
dispersion but in general the average
looked like it ticked down a little bit
lower there
okay then they if we jump forward to
2025 well we can see there it was a
little bit tighter and in the case of
the June meeting this changed for the
September meeting but we'll come to that
in a second in the case of the June
meeting this is what they call the long
run rate this whole group Here is known
as the long run rate and this is not
necessarily what they expect at the end
of 2025 they are saying that this is you
might hear this called the natural rate
or the neutral rate basically two and a
half percent that's the median number in
this case two and a half percent is
where they expect
given the current economic environment
that should be If the Fed was at two and
a half percent that would either be
helpful to the economy nor will it hurt
the economy so when we take the averages
for each of these lines well we can see
that right now over the next couple
years on average the FED is expecting to
contract the economy they're expecting
that they're going to have to slow the
economy we know that because the the
fed's expectations of interest rates are
above the natural rate so as long as
it's above it that should in theory slow
the economy when things get bad they
will drop it below it and that in theory
should speed up the economy so now let's
look at the September meeting of 2022.
this just happened a few days ago so in
in 2022 the Federal Reserve expects for
interest rates to be significantly
higher than the two and a half percent
but also higher than where they thought
it was just a few months ago probably
because
inflation hasn't gone quite as good as
they were hoping it would okay fast
forward to 2023 again the average has
moved up fast forward to 2024 once again
the average although still much more
disperse than the first two years which
would make sense so it's tougher to
predict out more years so the further
you go The Wider the dispersion would
get but again on average the numbers are
higher than both the long run inflation
a natural rate that they would have set
that they would expect but also they are
expecting that on average things would
be a bit higher now one thing that I
mentioned before is that in June they
use the 2025 and four numbers as the
long run rate here they actually added
2025 numbers so these are not the long
run rate the long run rate actually
stayed up on average at two and a half
percent so I'm just going to leave that
orange line there but we can see that
they also projected out to 2025 so
that's about you know three and a half
years from now because this the end of
2025 or three and a quarter years from
now the end of 2025 but we it looks like
the FED is on average expecting that at
the end of 2025
interest rates will still be higher than
the two and a half percent
to illustrate that let's add the average
line now this average the blue average
is above both what they expected back in
June but it's also way above or a
relative amount above the natural rate
so if we were to clean this up a bit I
this is one of the most important things
to pay attention to if you're ever
looking at the FED Dot Plot In general
one quick thing to look at is what is
the average line you can find this
information right in the Federal
Reserves website what is the median
number what is the average line compared
to what they expect over the long run
that over the long run can change and
will change Through Time although it
doesn't change as dramatically as some
of the other numbers do clearly okay
this brings us over to potential good
Investments
one obvious investment the most popular
investment is stocks and if we look at a
chart of the S P 500 over the past year
well clearly things have been bad in
fact the stock market's down about 20
percent since the start of the year
that's a problem for nearly every
Investor's portfolio now one potentially
good investment although it's probably
not the sexiest of Investments is to
consider something like investing in
Bonds in fact this is a chart of the
two-year U.S treasury yield
in theory this is one of the safest
possible Investments on the planet if
you're going to say a risk-free
investment this would be it this is as
close as anybody's going to get to a
risk-free investment well recently this
number is at four percent it's above
four percent which means and that's by
the way an annual number if we were
going to invest in a two-year Treasury
and if we held it for the full two years
well we would get four percent slightly
over four percent each year sure four
percent might not sound like a great
investment at this point but when we go
back to the S P 500 the stock market's
down 20 suddenly having a four percent
investment sitting there holding our
portfolio higher could really be a
helpful thing to do so when we go back
to the chart of the two-year treasury
yield again four percent is a fairly
secure investment now if we're saying
hey that's not that's not that's too
safe we got some other options in a
second but I do want to point out one
thing this is a chart of the two-year
treasury yield the yield is essentially
the dividend that they pay the interest
that they pay
we if we were to pay and this is very
important for us to re for us to
remember is that if we were to pay ten
dollars for a bond and pretend that Bond
pays one dollar in interest every year
we pay 10 it pays a dollar we are
getting a 10 yield right that's about
our return but it's all based they're
always going to pay a dollar every year
they're going to pay a dollar but it all
depends on the price we pay so if we pay
nine well the price well the yield goes
up because we're still collecting a
dollar but we only paid nine percent we
only paid nine dollars I mean so we're
getting higher than ten percent if we
paid 11 well the price will fall the
price is I mean not the the price will
fall the yield will fall price and yield
going opposite directions to illustrate
that point this is a chart of the one to
three year treasury ETF put out by eye
shares the ticker symbol is s-h-y
basically this is the same as buying
treasuries they buy the treasury as they
hold them but you can do it in ETF
format but you'll notice that the price
of this has actually fallen and that is
very much because the yield the yield
has gone up and the price has fallen or
the yield has gone up because the price
has fallen and that's very important
because I don't I am not suggesting that
I what I am suggesting is that buying a
two-year treasury is not the same thing
as buying a treasury ETF I hesitate on
Treasury ETFs because they are
constantly rolling over the bonds that
they have to own they're constantly
buying different treasury ETFs uh
different treasury bonds if I was going
to buy a treasury bond I would buy the
actual Bond and hold it for the full two
years because at the end of the two
years the federal government the US
government is going to give us back our
principal so if we paid a hundred
dollars for a bond
and I almost don't care what the price
does and if you and if interest rates
keep going up the price of the bonds are
going to fall so if I paid a hundred
dollars I get my four percent probably
you know you get the money probably
twice a year semi-annually and then
at the end they're gonna give us back
the hundred dollars so you're almost
guaranteed the four percent a year so I
just want to point out the difference
between Bond ETFs and actual bonds that
being said let's see if we can find
something that's a has a bit more yields
a little bit more meat to it so let's
jump over to some yield curves so yield
curve essentially shows you the interest
rate if you would have plotted out on
different time periods for example so if
we were to look at the treasury yield
curve the the one we just looked at well
we can see that on a 30-year perspective
well the 31 pays slightly over three and
a half percent now again these are
annual numbers it would be three and a
half percent every year for 30 years
probably not high enough you're going to
do a 30-year investment but if you did
the two-year one again it would be a
call it uh slightly over four percent
that's the one we just looked at
slightly over four percent yield
for two years so four percent year one
four percent year two now what if we
would go to a corporate bonds so the
first one we're gonna look at is AAA
corporate bonds and there's two things
that jump out to me with this first
obviously on the longer end 30-year
range
AAA corporate bonds look pretty good
they're a bit higher but on the shorter
term one specifically around the
two-year region well the U.S treasury is
actually above the corporate bonds and
by the way that treasury is called an
inverted yield where short-term rates
are paying higher than long-term rates
that's a bad sign for the economy we've
done videos on that in the past but it's
also interesting to me here that AAA
corporate bonds and treasuries are
intermingling as much as they are
U.S treasuries are supposed to be
risk-free while corporate bonds AAA
corporate bonds these are huge companies
best credit ratings out there you're
talking companies like I believe
Microsoft has a AAA corporate bond
rating and that's fantastic they have
plenty of cash they have plenty of
capital they have plenty of cash flow
plenty of ways to get money so the odds
of them not paying out back their bonds
are extraordinarily slim these are the
safest of the corporate bonds okay let's
go to the next one which has a slightly
higher call it a higher amount of risk
but because of that additional risk they
do pay more interest this is the single
a corporate bonds and again the two-year
one pays a decent amount these are we're
getting if we want more yield we can
pick bonds like this now for me I'd
rather stay in the shorter end of this
if interest rates were up near 10 12 14
sure I'd go 30 year corporate bond all
day 30-year treasury bond perhaps if
those yields are up there
okay what about the next one now we have
Triple B corporate bonds and the
interesting part about Triple B
corporate bonds let's focus just on the
two-year for a second two-year Triple B
corporate bonds pay about 4.9 percent
jump down to the a corporate bonds and
they pay about 4.4 then when we jump
over to the AAA corporate bonds they're
paying about 4.09 percent and then the
treasuries are paying 4.12 so again
there's a range of investment here
a range of different Investments
depending on how much risk we want to
take on but these are in theory much
safer than stocks and again look at the
stock market when we look at a chart of
the stock market over the past year it's
down 20 percent this might investing in
bonds
could probably be a consideration for
many investors now for me in a personal
basis I don't own any corporate bonds or
treasury bonds I don't know any bonds as
of this point but it is something I'm
beginning to look at that's why I wanted
to share this video with you now I'm
also spending a ton of time with the
stock market being down this much I'm
spending a ton of time looking for great
stocks which is why one of the reasons
we're building the investing website the
one of the reasons one of the things I
use the discounted cash flow calculator
that's already up and running over there
one of the reasons I use that so much is
hey what can I find any great
Investments that when this Market
recovers and surely there's no
indication that the stock market won't
recover it'll probably do exactly what
it's done every time for the past 150
years it'll recover and start moving
higher and at some point it'll be at
all-time highs again well I want to buy
as many good stocks at this price but if
I could protect my portfolio a bit right
now in the shorter term
treasuries are a fairly safe investment
and we saw that the FED funds rate is
the the Federal Reserve is expecting to
keep interest rates high for at least a
couple years so this could have a longer
run effect on the stock market
now if you'd like to sign up to get
access to the website I will leave a
link right here I'll leave a link in the
description below and thank you so much
for stick with me all the way to the end
of the video I really do appreciate it
thank you and I'll see in the next video