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How the Fed will potentially create a ‘stagflation’: Marketgauge.com Partner

Michele Schneider, Marketgauge.com Partner and Director of Trading Research & Education, joins Yahoo Finance to discuss the outlook on the Fed, the energy market, and the crypto market.

Video transcript

ALEXIS CHRISTOFOROUS: I want to bring in Michele Schneider now, partner and director of trading research and education at marketgauge.com. Always good to see you, Michele. So tell me what you are expecting to hear from the Fed chairman today. And also, what would you like to hear from him?

MICHELE SCHNEIDER: Well, what I expect probably is pretty well in line with what I would like, so. But essentially, I--

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ALEXIS CHRISTOFOROUS: Well, that works out.

MICHELE SCHNEIDER: Yeah, right? So while, as a trader, it's nice to know that your opinion will match also what you'd like to see happen in the market, but and I wouldn't necessarily say this is what I'd like to see. Because it could be somewhat of a somber approach as we look forward. As you know, since we've been talking for such a long time, I've been very interested in commodities and the idea of inflation.

And although the Fed last week came out and said the word "inflation"-- that's all they had to do, was say it-- then all of the commodities fell out of bed and the dollar for them, because they were doing top dollar swaps, which was part of what they were doing during the pandemic. And so people stopped to think now maybe we were going more deflation.

But I still maintain that what Powell has to focus on is not so much what's going to happen with raw materials and the supply chain disruption. Because I really do believe they think that's transitory. I think the much bigger problem they have at their feet is the labor market and keeping the economy robust.

As we know, we still haven't had an infrastructure plan or anything in place, other than the whole get back to work trade that really shows where we're going to grow as an economy going forward. And that's why with raw materials, even though they've come off, I still think they're in short supply with high demand that he's going to focus on the economy and the labor, hence potentially creating a stagflation.

KRISTIN MYERS: So Michele, I was asking Jordan Jackson this from JPMorgan. But I would love to just also get your insight. I was mentioning to him that we've repeatedly heard from the Fed and from others that inflation is transitory. And I think sometimes when we hear a phrase, we never ask enough questions about what people exactly mean when they say that. So I want to ask you exactly how transitory is transitory, as you're seeing it?

MICHELE SCHNEIDER: Well, I think there's two parts of what they're looking at as far as inflation. So let's break it down. If they're looking at, say, the used car market or the housing market or the rental of cars market, and then, of course, the whole idea of the higher gas prices and oil prices, perhaps-- and I only say perhaps for the last part. But certainly for the first part, that would be the more transitory. We're already seeing that housing prices have come down a little bit, although the demand is still strong. That's where I look at transitory because those things are supply-demand related, of course. But as you know, things can shift in those areas.

But what I do think all of those, though, have over them is the labor market. One of the reasons why some of these used car and rental car markets, besides the fact of the chip technology and shortage of supply and supply chain disruption, is part of the labor market. And I know this from experience because I have a good friend who runs a used car lot. And they can't find anybody to work. So let's put that on the side.

The non-transitory, or when I say longer term, to me, potential scenario here is with the raw materials. And the reason why is you can't just decide I want to mine more copper. I want to mine more gold or steel. Or I want to grow more corn, wheat, soybeans. Because we have other factors involved. Besides labor, we have mother nature, and we know that we're experiencing a serious drought throughout the country in a lot of the growing regions. And it takes time for these commodities to recycle.

And so as long as the supply is limited, until we can recycle some of these, which could take two or three years, and the demand remains high, that, to me, is the less transitory part, which then, of course, you add oil as the X factor, could put us into a potential scenario like we saw in the late '70s, early '80s.

ALEXIS CHRISTOFOROUS: Yeah, I want to talk a little bit more about oil, now above $72 a barrel. It's a little lower today, but still, it's sort of been hanging out in that $70 to $72 range. When does that become an issue for consumers as the economy continues to recover?

MICHELE SCHNEIDER: Well, it's sort of like a tsunami in essence because consumers are already having issues with the cost of everything going up, especially food when you go to the supermarket. And now on top of that, they've got a pretty high price to pay at the gas pumps. So I think it's already being pinched here, which is why you're seeing consumer sales go down and some of the consumer sentiment starting to wane a little bit.

But if oil continues, there's sort of a-- there was an interesting survey recently that once oil gets to or gas gets beyond $4 a gallon and then $5 a gallon, what's interesting is people have an alternative now. That's when they say maybe they'll buy their first electric car. So that's kind of also, , there's the pinch to the consumers and the price of oil certainly hurting. But at the same token, probably for the first time, people are starting to think, what else can I do to get out and move about? And that's where electric cars are coming in. Of course, that creates a whole lot of problems. But we don't need to go there.

KRISTIN MYERS: So Michele, I do want to pivot now and ask you about cryptocurrency. We talk about it now every single day to pretty much every single guest. Crypto has been floated out as a great hedge against inflation. But we're seeing today just a slight bounce back in particularly Bitcoin, which did dip below that 30,000 level. What are you making of some of these recent moves in the cryptos? Is this-- are you looking at some of these price movements perhaps as buying opportunities? Or do you think that these are really warning signs that some investors really need to take heed of and stay away?

MICHELE SCHNEIDER: Well, you certainly have to be cautious, obviously, because of the volatility. But I'm still-- I think today's action was really interesting, breaking 30,000 and then coming right back through. And the last I looked, it was trading over 32,000. That, actually, from a technical standpoint, although everybody's talking death cross and head and shoulders top, I see it as what we call a very strong slingshot bottom, which means you make a new 60 plus day low, you reverse, you close near the highs, and you get followthrough the next day.

So with that said, if we continue to hold here over 30 and we get some followthrough, say, tomorrow, I would actually be looking at it as a tradable bottom. I think there's a lot of speculators who got out, but the institutional players stayed in. And as we know, Michael Saylor from MicroStrategy keeps buying these dips. And he's had a pretty good track record when he comes in and buys these dips. Within a very short period of time, the market starts to rally again. So that's kind of what I'm looking at it right now, is a buy opportunity but wait one more day to make sure this was real.