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Hey everyone, me Kevin here coming to you from Copenhagen and we've got some problems with interest rates and that's why the market is taking a little bit of a breather right now. Take a look at this. For the December 9th meeting of the Federal Reserve, we're sitting at only a 30.9% chance that we are going to maintain interest rates where they are. We have a6% chance of getting rate cuts and the balance so about 69% is all rate hikes for the rest of the year. And if we go out to the middle of next year, that now gets even worse. We sit at just a 15% chance of staying at the interest rate we have now with a.3% chance of seeing an interest rate cut, which markets have been really euphoric
about the idea of Kevin Walsh coming in and dropping interest rates. Now, my opinion, and I'm going to explain why this is happening, of course, but my opinion is that Kevin Walsh is going to be an anchor to interest rates, but it's starting more and more to look like I'm really in the minority here because by the middle of next year, there's an 85% chance of a rate hike. I'm of the mindset that Kevin Worsh is likely to be patient on inflation even though the labor market is heating up now, waiting until at least probably September or October to see if we're going to get that rollover of, of course, tariff inflation. Remember, a lot of trade deals weren't actually negotiated in
concept until well, China, for example, like November and December of 2020. So, it's going to be a while for us to get the appropriate lapping. Now, what that means is if Kevin Worsh is patient and we do see that second half of the year roll over of inflation, these expectations for rate hikes could go back down and subside. That's the bet that I'm making. That's the side that Jerome Powell is on and that's the side that I would argue Kevin Worsh is also going to be on. So, I'm in the minority. I think Kevin Worsh and drone Paul are also in that minority that we're not going to see rate hikes that we're simply going to anchor ourselves where we are and do nothing. Reason being they
don't want a repeat of 1970s where we go into a hiking regime then we go into a cutting regime and then we hike a little bit and then we cut a little bit. It's too much movement. It's too much for markets and frankly private credit does not have the appetite for this right now. Now, we're going to talk about obviously the jobs report. What's pushing this? Uh, a lot of people are going to respond and say, "Kevin, the jobs report's just fake uh, fake news, fake numbers, fake information. Don't believe it. Don't trust it anyway. It doesn't matter." So, we'll keep that towards the end of the video for that. But I want to touch on why I bring up private credit in this. And I find it very interesting because the Wall Street
Journal had a fantastic piece that I read on the plane, mostly because I downloaded it before because the whole like 11 hour freaking flight, I didn't have Wi-Fi. But what are you gonna do? You know, you try to sleep a little bit and you're like, "My neck hurts." You know, it's not that great. But anyway, uh the era of anything goes in private credit lending is coming to an end. That's a red flag also because what happens when you have the Federal Reserve suggest, hey, you know, we might have to hike rates. That puts more of a squeeze on private credit. Private credit's already going through a squeeze and it's actually worsening. One of the
leadins to a recession is actually credit tightening. And in this Wall Street Journal article that I highlighted, I'm just going to give you the highlights on this. There's talk that right now private credit firms are tightening their lending standards, increasing interest rates and other fees they charge on loans, and they're closing other loopholes that would otherwise simplify a company's ability to qualify for loans. Now, you might think, why do companies make loans easy to get in the first place? All comes down to marketplace competition. If you want to borrow $50 million as a startup or whatever and you have 10 banks, you're going to go to the bank with the lowest fees. If you want to borrow that
50 and there's only one bank who's offering money, they can take terms. They can all of a sudden set the price and say, "Well, we're going to charge you 5 million in fees or, you know, maybe two and a half, right? Somewhere around 5% seems to be what we're seeing right now." And that discount or margin rate has been rising. It's risen in March. It's risen in April. It's risen in May. So, we're seeing tightening by fees going up. We are also seeing the number or the volume that they're willing to lend these private credit uh firms go down to companies. Uh and we're seeing adjustments to financial metrics that used to be okay, like removing one-time discretionary expenses no
longer be able to get removed from your IBIDA. So, in other words, you can't qualify for as much for some of these startups. The point of this, and the reason I'm putting this together is because I believe the Federal Reserve is paying attention to private credit markets. We just this week heard of three more redemption crises where we had three different private credit firms have to stall or freeze redemptions because they're just too many of them. Still happening. We thought private credit was an end of 2025 issue. Nope. Still going on. And so when you have private credit brewing over and you have the market threatening rate hikes, you really create a potential double whammy
for pain in this sector which could spill over to the broader economy. Nobody cares about one random company borrowing money no be like going belly up, right? That generally doesn't matter. But where it becomes systemic is when banks across the board tighten credit and every small, medium, and large business has harder time accessing liquidity. This is exactly why everybody's trying to rush to IPO right now because liquidity still exists. The question is not that it exists. The question is how much longer is it going to exist? And the Fed knows this. By hiking rates, they would likely be making a mistake and shove us into a recession, which would not be good. Now, why did we get these great numbers uh
this morning from the labor report? And again, I know a lot of people are going to look at this and say it's all fugazi. Donald Trump has taken over these numbers, but Nick T has a fantastic chart that with revisions shows us that three and six month data on labor has really come off that Q4 bottom. We were falling through that lower bound, that zero payrolls growth bound. We were falling through it. We were certainly below it on the threemonth and now we're skyrocketing right out of that hole. So the beginning of 2026 has been fantastic for the labor market. And it's not just
the Bureau of Labor Statistics telling us this. It's also the private payroll surveys like ADP, ISMS, and the S&P. So this is not just the government data, if you will. Now in fairness, last month we had a BLS report that indicated the households survey was weakening. that reversed this month. Household employment up 149,000, unemployed down 66,000. We got a 172 read on the headline uh payrolls data, which beat expectations by basically 2x. Expectations were 88k, so almost 2x there. Uh and the revision prior, we had 115 on the prior read that was revised up to 179. So really a banger jobs report to the extent it's being believed and I'll tell you when you look at the
bond market and the stock market today it's being believed. Now the good news out of all of this you can still use coupon code marll over at meetcaven.com that'll expire early next week. But let's keep understanding for a moment this jobs data because we also had a beat on our productivity numbers and the productivity numbers are critical because people believing that we are in an AI bubble are concerned that well we're spending all this money on circular capex and we're not going to see any productivity. Well so far we have average hourly earnings sitting at.3% at expectations. Uh when it comes to the actual productivity figure which is a merger of uh two figures average hourly earnings and then uh hours worked
we could see that non-farm business sector labor productivity increased.3% in the first quarter uh as output increased 1% and hours worked increased.7%. Those are all great indicators. We want to see hours worked go up. We want to see output go up. We want to see pay go up. All those things are happening. So in fairness, whatever is happening, whether they call it the circular spend in the economy right now, whatever is happening because of AI or otherwise, we're still seeing overall data boom. Now, that doesn't mean every aspect of our economy is booming. It certainly isn't. But look at where some of these
jobs were concentrated. Leisure and hospitality, 70,000 jobs. People are still traveling. People are still eating out. Got local government hiring up 55,000 excluding education up 44,000 healthcare 35 mining 5K financial activities though down 22K uh and then the other sectors little changed. So overall, much like the ADP report we saw, we have a broadening that's happening in the economy and the bond market is responding to that with a sell off in bonds leading yields to go up. At the same time, we have elevated levels of inflation, which obviously isn't great. That said, I don't think Kevin Worsh is going to do anything. I think because of private credit and liquidity concerns, it would be a mistake to hike and the market would
probably sell off and we'd have a self-induced almost recession from a sell-off should the Fed go to hike. Uh, and so I'm going to take the um the bullish stance and argue that the Fed is stuck. I don't actually see rate hikes coming. I think uh dips will end up being bought. And if you want to see exactly what we're buying, come join us over at meetke.com. Use coupon code marll. Thanks so much for watching.
