and welcome back this show it is 633 on this Friday Eve edition of the Labor Day weekend show right I mean Memorial Day that's it Labor Day right Memorial Day all I know is I got vacation head even though even though I have to work on Monday Michael we would see if a joining us this morning Mike's also ready for Labor Day already come down with yeah you've already come down with your sprinkles and everything yeah Mike's up in Maryland where they actually have seasons actually things like bloom up there but actually we have all the pollen stuff down here going right now everybody everybody i knows walking around with a nasal drip at the moment so all right well Mike futures are pointing down fairly decently this morning down 22 on the S&P and the Nasdaq is down about III Dow is down a little over 200 this morning they didn't really like what the Fed said yesterday in their minutes you know the the markets have really been kind of betting on the fact that the Fed was going to kind of fold to President Trump and look at cutting rates sooner than later in fact if you look at the Fed Funds prediction of future Fed Funds rate their pricing in a cut by the end of this year but at least from my initial read of the minutes yesterday that really doesn't seem to be such a likely event what did you take out of it yesterday yeah they they seem to have take what we call more hawkish stance meaning that they're less likely to lower rates over the coming call it 3 to 6 9 months and like you said the markets priced in for lower rates specifically they think the Fed will cut by the end of the year so we looked we talked about at Lantz yesterday afternoon and I was surprised that the market didn't really react negatively it was down a few points from where it was before they released the minutes but it was you know mark it didn't seem scared this morning it seems to have digested what the Fed has really said and it's you know like you said markedly lower yep but you know this you know what what I found interesting particularly in the notes today is that two things in particular now now let me be clear these these these were the minutes of the last meeting that they had last month right so but sorry can I stop you I stop you for a minute yeah they so they are called the transcripts now what me and you know as transcripts are when someone takes notes at a meeting and then publishes them correct and those notes usually are verbatim right these quote-unquote transcripts are revised and modified and updated right yeah it's not what they actually said it's a meeting right right this is what they what they wish they would have said three weeks later look and look I think that's a brilliant a brilliant point because I you know I've said this before you know everybody watches the Fed if you're not in the markets that I understand you probably don't know you know who the Fed is then I found what's totally fascinating about this when you know I was in the markets in the 80s and the 90s and eerily in early 2000 if you ask somebody on the street who chair Minh of the Federal Reserve was they go what's the Federal Reserve right I mean they were behind the scenes you know nobody knew who Alan Greenspan was really unless you were in the financial markets but the average guy on the street had no idea who the Federal Reserve Chairman was I mean it's just most people barely know who the president is much less who the Federal Reserve Chairman is now this guy is probably one of the most prominent figures everybody knows who he is everybody watches what he says whether you're in the financial markets or not you've probably pay attention to what's going on with the Fed because it's so public and so televised now and the point about this is is the Fed ever actually came out and said what they actually said in the meeting which is a man we're getting really close to a recession this corporate debt issue is a much bigger issue than you know and we're concerned about it but we certainly can't tell anybody because if the Fed came out and said you know hey this this corporate debt issue or the markets or there's a recession right around the corner that we see everybody would panic and we would be in a recession immediately so they have to really carefully tailor what they say because the markets hang on every word defense says every single word they care about adjectives verbs they're very careful say the right thing to kind of cut right down the middle so you know unfortunately our jobs now as investors we we depend on what the Fed says because they have such an impact on the market and where people think the markets going so we have to pay attention and we have to look for slight changes and inconsistencies and what what's interesting about the report that we got yesterday was that there was what I would say is a little something for everyone they were wishy washy on a lot of topics and if you thought they were hawkish it certainly seemed hawkish to us but I can also see how someone may have come away from that thinking that it was dovish inflation that's a great example right they said they said that in the the recent downtick and inflation which is very minimal but they said it was transitory meaning it's going to last for a few months ago away that's hawkish that means they're not going to cut rates because of lower inflation if it's if it's really not going to last that long right then then right after that they go on to say however they are concerned that inflation expectations are getting anchored at a lower rate so now they're saying well we are concerned that everyone thinks inflation will be lower so so just in those two statements you can see how someone that thinks the Fed is not going to raise rates is not going to raise rates because it's transitory right but then someone else thinks yeah they're going to lower rates because they're very concerned about inflation expectations right yeah I know and this is and this is then to your point this is kind of like you know this is I'm about to make a real old reference here but you know detective Columbo he always said oh and one more thing you know that set of the whole point is is that you know no matter what is there's oh and one more thing you know that's you know and when you start taking a look they you know they mentioned something and they've done this recently more and more times talking about the level of corporate debt and the issue of leveraged loans and and loans that have weaker underwriting standards they could be a risk to the markets but yet you know the markets kind of just overlook that entirely as not being a real issue because well we don't need to worry about corporate debt blowing up because if they do the Fed will just come and bail out the markets again right so I actually wrote an article we published it yesterday on corporate and why it does matter but if you look at that state that set of statements from the Fed to on corporate debt you can also read that both ways corporate debt is a problem there's too much of it in other words we shouldn't lower rates because we're just incentivizing corporations to take on more debt then on the flip side what you just said Lance is well corporate debt could be a problem so we have to lower rate so that we can better support corporate debt and not let some of these companies get downgraded and/or go out of business yeah and by the way the article Mike's talking about is on the website right now at real investment advice calm and it's an excellent read one of the that's called the corporate Maginot Line which you know if you don't know what the Maginot Line is this was a wall it was basically an impenetrable barrier between the French and the Germans during World War two and it covered a very sorry World War one my apologies and it covered a very small line that they thought that the Germans would actually cross into France well you know Germany saw this impenetrable line and said ok we'll just go around it and they just around the other went around the wall you know it's kind of like the border wall we have on the Texas border right we have like 54 miles of wall everybody goes oh well there's a wall there can't get there they just go around it but that's kind of the idea here is that you know if there's one small change here there we have so much corporate red a debt that is right on the verge of being junk rated there could be a very rapid increase in the amount of junk debt in the markets with just a very small down taken credit quality and here's the key takeaway Lance that I think most most investors don't understand in the equity markets we buy whatever we want you can buy companies that don't make money that have debt problems you could buy very good companies but most investors are not restricted from only buying good companies or only buying bad companies in the bond market most institutional investors which is a large percentage of the holders of bonds can only buy what they call investment grade paper paper that's rated triple B or better so when paper go when debt goes from triple B 2 BB gets downgraded they have to sell it and someone has to and our big concern is that if enough paper gets downgraded there's no one to buy it there is someone to buy it but the question is at what price will they buy it and that price could be much lower than what we're seeing today and and and the implications of that is not simply just a function there's not a buyer you know if we go back to 2007 what was the real cause of the financial crisis the real cause of the financial crisis wasn't the subprime debt I mean that was a problem right it was six hundred billion dollars worth of subprime debt but that wasn't the real issue what the issue was is when Lehman filed bankruptcy there was basically nobody willing to buy anything in the markets the credit markets literally froze up there was you know if you wanted to issue debt you couldn't issue it there was nobody to buy it and basically the the markets just entirely froze and that's what really caused this massive drop between September and December was just this really this this complete lack of liquidity in the markets and that's the real risk here is that if you start having this massive downgrade into junk rated territory and buyers evaporate you're gonna have very much the same thing happen again you'll have a lack of liquidity in a market that's four times the size of the S&P 500 which is the bond market but the other problem with that is is that all of a sudden financing and liquidity for companies goes to zero and you have a massive wave of of corporate bankruptcies because of lack of liquidity which in a way is actually worse than the financial crisis because this is gonna lead to millions of people losing their jobs if that occurs that's right and the feds clearly aware this based on what powell has said over the last couple weeks based on what Kaplan from the Dallas Fed has said so this is on their radar and it's a concern and we're just gonna have to wait and see on what how the Fed thinks they can help solve this this what could be a big problem exactly all right quick break that article is on the website now it's a michael Leibowitz article called the corporate Maginot Line it's on the website now real investment advice calm we'll be right back after the break for more of the Lance Roberts show right here on the voice get daily investment news you can use deliver to the speed in the Internet sign up for Lance's newsletter now at Lance Roberts