Fed To Hike Into ‘Train Wreck’; How Will Stocks, Bitcoin, Gold, Bonds React? | Gareth Soloway

Gareth Soloway (0:00)

But at some point, you have a crash. Governments around the world, they are starting to realize that fiat's days are numbered.

David Lin (0:07)

What is going to be worse for the economy and ultimately markets? If the long end continues to rise, let's say the ten year goes to 5, 5.2 percent, or the short end goes up because the Fed funds rate goes up.

Gareth Soloway (0:19)

The Fed has to be the adult in the room here and raise rates.

David Lin (0:23)

Markets are down today on Tuesday, September 15th. In anticipation of tomorrow's FOMC, meeting stocks are down, gold's down, Bitcoin's down, 10 year and 30 year yields are up.

So why is the long end of the curve going up? Is it telling us that the Fed rate hike is coming tomorrow and there's no other way around it? Is that a certainty? We'll find out what the Fed is going to do. We're going to do a Fed preview today with Gareth Soloway, chief market strategist and president of Verified Investing. We'll be getting his outlook on not just what the Fed's going to do tomorrow, but what they're going to do perhaps into December and how the markets will respond to Fed policy in the next three months. Right now on Kalshi, there is a trade for the Fed decision in September. Traders are overwhelmingly in favor of a 25 basis point hike tomorrow. There is an 87% chance, according to Kalshi traders. If you agree with those odds, a $50 trade could yield $56 or $57 if you're correct. If you're contrarian and you think that there is not going to be a hike tomorrow, well, there's a 14% chance on Kalshi and a $50 trade in that particular case could yield $362 if your contrarian take is right and the Fed holds tomorrow. This video is sponsored by Kalshi. It's the largest prediction market in the United States. Unlike a sportsbook, you're trading peer-to-peer real-world events from economic data to political outcomes and the price moves based on public opinion.

Not a house. Go to the link in the description down below or scan the QR code here to get started. Use my code LIN. New traders who use my code can get $25 when you trade $25. Kalshi is CFTC approved and available at all 50 states. And we're going to get Gareth's take on whether or not he agrees with the 87% chance on Kalshi. Gareth, welcome back to the show. Good to see you.

Gareth Soloway (2:17)

Hey, thanks so much, David. It's great to be here and there's a lot to discuss.

David Lin (2:21)

Everything from oil to why stocks are falling this week. I had a chat with my friend, not a chat bot, a real life friend. I was talking to you offline about a chat bot, but my friend said, I never quite understood how these guys get paid so much, just release a number between 25 and 75 Even I can do that job. Well, okay.

The Fed has a lot of variables to look at when deciding whether or not to raise the rates. The FedWatch tool, we'll take a look at what prediction markets are saying. The FedWatch tool from the CME is predicting a 93% chance.

And the CME FedWatch tool has been pretty accurate leading up to the event, especially right before an actual FOMC. What is your assessment? Let's just start there.

Gareth Soloway (3:08)

Yeah, so they will raise rates. They historically do not want to disappoint markets. When probabilities are even north of 75%, it's generally a lock that they will do what the markets are anticipating. In addition, you can't deny the fact that inflation remains stubbornly high. Oil being above $100 a barrel for this long and being elevated since the early portions of the year is only adding pressure to inflation, which they have to get under control. You have diesel above $6, which, remember, that's supply chain. That's trucks bringing goods, so it's going to get passed through. So they have to act here.

I actually think the markets are happy they're going to act. And I could argue here that we could see rates fall if the Fed raises rates. And I'll tell you why. And this is interesting. So what are the concerns?

David Lin (3:59)

So you mean the long end of the yoke curve will fall if the Fed book it?

Gareth Soloway (4:01)

Correct.

Right. Because the Fed sets the short end. Right. Absolutely. But the reason the long end could fall is because you have a loss of confidence in people buying our debt or sovereign nations or pension funds buying treasuries. The fact that we have $40 trillion in debt, the fact that the president is so involved in monetary policy. So the Fed by acting and saying, hey, we're going to tamp down inflation, we're going to raise rates, gives more confidence to buyers of our debt, more buyers gain confidence, they're willing to accept a potential lower interest rate. Now, I don't think we're going way lower, but I could see this 5% as being a pullback level on the 10-year yield.