October 7, 2022

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The risk of the Fed making a mistake is ‘probably the largest’ since 2018: Analyst

8 min read

Financial Analyst & YouTuber “Meet Kevin” Kevin Paffrath sits down with Yahoo Finance Live to talk about market reactions following economic pressures like the Fed’s interest rate hike cycle and the Russia-Ukraine war, the outlook Elon Musk’s acquisition brings to Twitter, and working from home.

Video Transcript

First let’s take a look at the broader markets because stocks coming off one of the worst months that we have seen in quite some time. The NASDAQ was down more than 13{6e6db3521f07ebedc52abc8c7bfbbc5a7fcd8802a2a8a5c8cfaa0d09c6ebceb7} during the month, and the Dow has been off 5 weeks in a row. But our next guest, he’s actually warning that the crisis is worsening. Kevin Paffrath, he’s a financial analyst and also YouTuber of “Meet Kevin.”

Kevin, it’s great to see you. We want to talk with you about Tesla and Twitter and exactly what Elon Musk is doing. But first, let’s get to that latest warning because I think it might catch some people by surprise. How bad is it going to get?

KEVIN PAFFRATH: Yeah, look here’s the thing. The Federal Reserve is at a substantial risk of making a policy mistake here. Now, I’m in this market. I’m enjoying these valuations as opportunities to keep buying in. But I’ll say, the risk of the Federal Reserve making a policy mistake here is probably the largest, at least based on what the market is pricing in that we’ve seen since the brief amount of pain we had at the end of 2018. Which really, as soon as the Federal Reserve pivoted, the market went straight back up again.

We saw that pivot from the Federal Reserve right around the first week of– or, I’m sorry, the third week of December in 2018, and the rest of ’19 was great. Well, the year ahead– so we’re looking for that Fed pivot. And right now, expectations are that inflation will actually come in at just a 0.2{6e6db3521f07ebedc52abc8c7bfbbc5a7fcd8802a2a8a5c8cfaa0d09c6ebceb7} month-over-month next month when CPI data comes out for April, I’m sorry, so this month. And that could hopefully hopefully settle the Fed back down.

DAVE BRIGGS: So Kevin, Dave Briggs here. So tech stocks took a pounding in April, worst month since 2008. Is this an opportunity for you, and what are you telling your 1.8 million followers on YouTube? Where is the opportunity right now?

KEVIN PAFFRATH: Yeah, so in my opinion, the pain is not over in this market. There can be more downside, especially since we just broke the 0{6e6db3521f07ebedc52abc8c7bfbbc5a7fcd8802a2a8a5c8cfaa0d09c6ebceb7} level looking at the Fibonacci retracements on the NASDAQ, which is scary because we hit that 0{6e6db3521f07ebedc52abc8c7bfbbc5a7fcd8802a2a8a5c8cfaa0d09c6ebceb7} level and bounced off of it when war started on the 24th, right before the Fed meeting in March on the 8th, and again on the 14th of March. Well now we’ve broken through that level. That was about 318 on the QQQ. Now we’re at like 311.

We’re coming back to that right now. We’ll see how we end up closing, but that’s a really bad omen for really the next three weeks of catalysts that we’ve got. We’ve got CPI, Jobs Data, the FOMC meeting. We’ve got Victory Day coming up on May 9th. That’s when Russia’s going to pretend to declare victory. But we’re hoping that once these catalysts go, we go through these two more weeks of pain here, we’re on the up and up.

So my thinking is we want to buy while there’s still a lot of substantial uncertainty ahead of us, and that could be right now, right before that Fed meeting. And I’m very optimistic on names like Tesla or even Etsy. Everybody flocked out of the consumer discretionaries, and now all of a sudden Etsy is only selling for 23.6 times 2022 earnings. And it’s got 17{6e6db3521f07ebedc52abc8c7bfbbc5a7fcd8802a2a8a5c8cfaa0d09c6ebceb7} growth annualized for the next five years projected. This is pretty low on the PEG ratio, kind of like Tesla. And that’s why I like both of those names.

Kevin, when you talk about Tesla, I guess there’s lots of questions about Elon Musk getting involved with Twitter, what exactly that’s going to mean for the company going forward. Some investors are a little bit nervous that maybe he’s not going to be carving out enough time or as much time as he initially was for Tesla. It doesn’t sound like you view this as a risk for the company. What do you make of this?

KEVIN PAFFRATH: Yeah, that’s correct. In my opinion, it’s not a risk at all. Here’s the thing. Everybody remembers, they have this impression of Elon Musk as this person who’s always working because we remember that story of him saying, look I used to sleep on the factory floor of Tesla.

The model has been made. The product, the gigafactories has been made. Now it’s a matter of the 100,000 employees at Tesla to really copy and paste and replicate this model. Elon Musk can move on to other projects and endeavors, whether that’s testing AI over at Twitter, which I think is one of the huge motivations of acquiring Twitter. Because that AI is going to be the similar technology that we end up using in the Optimus robot when we come back to Tesla in the future. And quite frankly, I think Elon’s attentions are much better spent developing AI and looking towards the future than sleeping on a factory floor anymore. So in my opinion, not an issue at all.

And I’m also more excited about Twitter than I have been in the last couple of weeks today, because Elon Musk just this morning replied to Ross Gerber from Gerber Kawasaki, and said when Ross asked, hey, is there a chance that existing shareholders can keep their Twitter shares? And Elon replied and said, we’ll do our best. Now that’s no guarantee. Previously we thought, no way. You’re going to get liquidated at $54.20 and that’s it, if the deal goes through. But now, if there’s a chance you can keep your shares, I mean, it could end up being a 2x.

DAVE BRIGGS: Kevin, it’s interesting to see how this has fallen along political lines. Republicans are thrilled that he is going to take it private and own it, and Democrats are panicked. Women don’t like that Elon is taking over Twitter. Men predominantly do. It’s been very fascinating to see the reaction. What do you make of that, and as a social media influencer, content creator, what would you like to see Twitter do differently?

KEVIN PAFFRATH: Yeah, look I think the first and most important thing is that we get humans out of the moderation over at Twitter. And I think everyone can agree, whether you’re on the left or the right, a woman or a man, that we should just have people out of the decision-making of what gets moderated, what gets removed, who gets banned, or what gets down ranked essentially, on the Twitter algorithm. And so the beautiful thing is, when Elon brings what everybody’s looking forward to, that open-source algorithm, we’re– everybody, left, right, women, men, we’re all going to be able to review, what’s the computer doing? And do we agree or disagree? And we can have an open dialogue about whether or not we agree.

And if there’s disagreement, well then it can be fixed and it can be modified and it can be trained. And again, this training, I think this is all part of the 4D chess game that Elon’s playing. That training, that AI training, is absolutely going to end up, in my opinion, what’s in that Tesla robot in the future, folding our laundry and taking care of our work for us.

DAVE BRIGGS: Speaking of folding your laundry, I was surprised at a tweet from you yesterday that said after 13 years, Kevin, 13 years of working at home, you are getting an office. I presumed the signature advantage to being a YouTube star is you never had to leave the house. Why are you?

KEVIN PAFFRATH: Yeah, absolutely, I’ll tell you. Ever since I had children, my first child in 2015, my next in 2018, every time I walk outside of this– it’s even a soundproof room that I’m in right now, because that way I can’t hear children or anything. But every time I walk outside, I feel guilty because my children are like, Dad, play with us. But no, I’m just going to the bathroom or getting a cup of coffee. So work-from-home has really blurred that work-life balance, so much so that even when it’s 6 o’clock at night sometimes, because my office is in my home, I know I could just go walk down and make another video, when I should be putting my children to bed.

And so now, I’m purposefully getting a commute. So I’m going to have my Tesla, full self-drive my way to work 15 minutes and back. And I’ll sit there and just watch and relax and kind of unwind from work on my way home and prep for work on my way there. So I’m excited for that separation. I’ve never had it before in my professional career. Maybe I’ll come back to work-from-home, but I’ll tell you right now, I’m very excited to get away from work-from-home.

DAVE BRIGGS: Kevin, that’s going to make my co-host very happy. She just had a baby, first day back in the office, so she needs some motivation.

I do. I was going to tell you it actually made me feel pretty good about it, yeah.

KEVIN PAFFRATH: Congrats.

Perfect timing. Thanks, Kevin.

KEVIN PAFFRATH: Yeah, no delineating that work-from-home life, so, so important. I recommend it to anyone. Thanks for having me.

DAVE BRIGGS: Thank you, Kevin. Check them out. Meet Kevin on YouTube.

https://finance.yahoo.com/video/risk-fed-making-mistake-probably-195553739.html

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