This Is How Experts Gamble on Our Future

In today's Masters Series, adapted from the August 22 issue of the Chaikin PowerFeed daily e-letter, Karina details the significance of the federal-funds rate... reveals how we can use this metric to improve our investment decisions... and discusses the possibility of a looming recession... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: It's time to put the odds in your favor... Many investors have no idea that Wall Street traders actually place bets on what they think the Federal Reserve will do with interest rates. And these predictions can help us individual traders make better investment decisions. That's why Karina Kovalcik – senior quantitative analyst of our corporate affiliate Chaikin Analytics – says it's critical for folks to pay attention to what the "smart money" thinks the Fed will do moving forward... In today's Masters Series, adapted from the August 22 issue of the Chaikin PowerFeed daily e-letter, Karina details the significance of the federal-funds rate... reveals how we can use this metric to improve our investment decisions... and discusses the possibility of a looming recession... --------------------------------------------------------------- This Is How Experts Gamble on Our Future By Karina Kovalcik, senior quantitative analyst, Chaikin Analytics We've talked a lot about rising interest rates this year... Out-of-control inflation is a dominant narrative these days. And of course, so is the Federal Reserve's attempt to tackle the problem. Just about everyone has an opinion on it... In fact, just last month, I explained that figuring out the Fed's plan for its future meetings is the "right sign" for investors right now. The topic is inescapable – and critical. But did you know that institutional-level traders place bets on the Fed? Even better, we can see the summary of these bets. And that can help us figure out what to expect. So today, let's talk about the tool Wall Street uses to bet on the Fed. And more specifically, we'll look at exactly what these power players currently expect to happen next... First, we need to define a few simple terms... The first is the "federal-funds rate." The Fed sets this rate. It's simply the "overnight" rate at which banks borrow and lend their excess reserves to each other in the short term. All other interest rates are based on this one number. It determines what regular folks like us pay when we borrow money from the bank. It dictates how much interest we get in our savings accounts. And it does the same things for businesses as well. So even a small tweak to that one number can swing the economy in a big way. --------------------------------------------------------------- Recommended Link: [When 2022 Ends, Which Side Will YOU Be On?]( While investors panic over rising inflation... a looming recession... and a devastating stock sell-off... the forensic accountant who predicted the 2008 and 2020 crashes just issued a new warning: Fortunes could be made and lost by the end of this year. And if you want to be on the right side of history, you need to act next week. [Click here for details](. --------------------------------------------------------------- And Wall Street can actively bet on what changes the Fed will make to that number. That leads us to the second term we need to define – "futures contract." A futures contract is exactly what it sounds like. It's a financial agreement to buy or sell a specific item on a specific day in the future. Banks and high-level expert traders use futures contracts to hedge against market movements or to speculate. A "fed-funds futures contract" is the combination of those first two terms. Banks and market experts enter into these contracts in order to speculate or hedge about what the Fed will do with interest rates at a designated point in the future. Importantly, we can measure how many investors are betting each way at a given time. And we can use that number to figure out the probability of specific rate hikes. In other words, we can see what Wall Street predicts will happen next at the Fed. I'm not saying the experts are right every time. We are talking odds after all. But this data is still extremely valuable... It gives individual investors like us access to information that we didn't previously know. That's critical because the big institutions use this data to make their investment decisions. And fortunately, this data is available to investors like us in [CME Group's FedWatch Tool](. The methodology used in the FedWatch tool can get a little in the weeds. You just need to know that it allows us to see in real time what Wall Street traders expect to happen. Today, Wall Street traders are virtually certain that the Fed will act again in the coming week... The FedWatch tool points to a roughly 86% chance that the Fed will boost the federal-funds rate by 75 basis points ("bps") on September 21. And it shows a 14% chance of a 100-basis-point hike. In other words, these experts believe there's a 100% chance of at least a 75-bps hike next week. Looking even further out, the FedWatch tool indicates a roughly 70% likelihood that the federal-funds rate will be at least 3.75% in November. That's 150 bps higher than the current range of 2.25% to 2.5%. In short, Wall Street expects the Fed to continue raising rates in the months ahead. And as I've explained before, that approach will only hurt investors like you and me. The Fed is on track to strangle the economy long past the decline of inflation. And that means the possibility of a prolonged recession is very real. But until we know for sure, we're keeping an eye on how the experts place their bets. And right now, they're betting on higher rates. Prepare accordingly. Good investing, Karina Kovalcik --------------------------------------------------------------- Editor's note: In volatile times like these, many investors are wondering what to do with their portfolio. That's why you should circle Thursday, September 22 on your calendar... That night, at 8 p.m. Eastern time, two investing legends are teaming up to offer a financial lifeline that could essentially erase the past eight months of heartache, losses, and fear... And it could even trigger a wave of wealth that is so powerful, you could see life-altering gains. It's free to attend, but a reservation is required. [Click here to reserve your spot](. --------------------------------------------------------------- Recommended Link: [A Massive Wave of Bankruptcies Is Coming]( It's actually much bigger and more important than what happens to the Nasdaq or S&P 500... and some of the world's best investors are practically drooling in anticipation. That's because this crash will create a slew of 100%-plus opportunities, backed by legal protections that stocks can only dream of. A top analyst tracking the story believes this could happen within months – and you must prepare now. [Get the full story right here](. --------------------------------------------------------------- You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. For questions about your account or to speak with customer service, call 888-261-2693 (U.S.) or 443-839-0986 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Or e-mail info@stansberrycustomerservice.com. Please note: The law prohibits us from giving personalized investment advice. © 2022 Stansberry Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Stansberry Research, 1125 N Charles St, Baltimore, MD 21201 or [www.stansberryresearch.com](. Any brokers mentioned constitute a partial list of available brokers and is for your information only. Stansberry Research does not recommend or endorse any brokers, dealers, or investment advisors. Stansberry Research forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees of Stansberry Research (and affiliated companies) must wait 24 hours after an investment recommendation is published online – or 72 hours after a direct mail publication is sent – before acting on that recommendation. This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.