I am very bullish on both US stocks and Bitcoin in June. The most critical day of June is the 12th. On June 12, because two big data are coming at once. Inflation data will come before the American stock markets open, both core and headline inflation. We are waiting for this with great curiosity and the FED will announce its interest rate decision on the same day. Moreover, it will not only announce the interest rate decision. We will also monitor future economic projections and the opinions of FED monetary committee members regarding interest rate cuts. President Powell will also give a speech and answer questions from the press. It is also very interesting that such exciting days overlap each other. In fact, the FED meets on June 11. The meetings last two days, but the results are announced on June 12. I'm sure they will wait for the inflation data or they already know the inflation data. It's a little hard to be sure how well the independence issues are working on that issue. But either way, the markets will be greatly affected. Because either both will go bad. In other words, inflation will be high and the FED will make a harsh statement and we will be ruined, or inflation will be reasonable and the FED will speak reasonably and the markets will continue in an upward direction. If these are very positive, the markets will perhaps break off a bit and move upwards.
First of all, I think inflation will be good. I estimate that we will decrease headline inflation to 0.1 and core inflation to 0.1. The reason for this is that there are only two items left that resist inflation: one is rents and the other is automobile insurance. Auto insurance companies took a nosedive downward last month. I think it will continue like that. Because the pricing is obviously now slightly lower than in the same month last year. We now expect positive news regarding rents. Because many sources show that rents are falling downwards and this is not reflected in the FED's report due to some reporting errors. However, the fact that inflation data is low on a monthly basis does not mean that headline inflation will decrease on an annual basis. Because inflation was 0.1% in May last year. For this reason alone, the base effect does not come into play in the headline here. But when it comes to the core, things change a bit.
When we look at the core, core inflation was 0.361% in the same period last year. If it comes to 0.1 this month, as I predicted, or a little higher, let's say it comes to 0.2, core inflation will still go down annually. Because we are deducting 0.361% after total inflation, we are adding something new. Any number below 0.3 will pull core inflation back annually. I think this is inevitable. In other words, headline inflation will most likely remain the same annually due to the negative base effect. As for core inflation, we will go backwards significantly. But the indicator that the FED gave more importance to was the number they call core pce. Core PCE was very good last month, remember it reached around 0.2. This reduced this to 2.8 per year.
If the data on June 12th is positive, the data will be announced later, we will probably enter there with the rate down to 2.4 - 2.5%. This means that we are more positive in the FED's year-end projection. If my prediction about inflation comes true, the FED probably won't speak too harshly either. In its previous projection, the FED predicted 3 interest rate cuts for this year, we want them not to change it. Actually, we have such a simple expectation. Also, don't let their tone be too harsh. They will definitely say that we are not where we want to be yet. The fight against inflation is taking longer than we thought, etc. These are 100%, but the important thing is that there is no deviation from the predictions of 3 interest rate cuts for this year. If there is more, it is better, of course, but it does not decrease and they accept to slow down regarding the course of the economy.
They no longer deny the coming thousands of data about the economy slowing down. They accept the inflation data delay on the rent side and make a slightly more bullish forecast for the coming period. The only issue that will cause the FED to be relatively dovish is not positive inflation data; there is also very serious pressure on them. I'm not talking about political pressure. There is definitely such pressure in an election year, but some of the cracks in the economy are now starting to become truly frightening. The latest new open positions report shows that there are only 8 million open positions against the expectation of 8.35 million. In other words, there is now a serious deterioration in new employment creation in America, and the previous month's employment was also corrected backwards, decreasing from 8.7 million to 8.4. That is, the employment market in America is currently broken.
Apart from that, ISM data arrived. So, we looked at the vitality on the production side in America. There is a slowdown there too. In fact, when we look at the Chicago ISM, which came on Friday, we also have data indicating that America has entered a recession. So the economy in America is definitely slowing down. This is an issue that will put pressure on the FED. In this context, the American employment report coming this Friday is also very important. There, changing the unemployment data from 3.9% to 4% could change things a lot. There is such a possibility. Because we see the effects of the slowdown and high interest rates everywhere in America. Another issue that could put pressure on the FED could be the European Central Bank's interest rate cut on June 7. This is of course not guaranteed, but since there is a serious increase in unemployment rates in Germany, it is very likely that the European Central Bank will cut interest rates and the expectation is that they will decrease from 4% to 3.75%. As you know, interest rates in America were already quite wide between 5.25 - 5.50%. Now the gap will open even further.
So why do interest rate cuts in Europe put pressure on the FED or have a positive impact on the American economy? Firstly, as the yield on government securities in Europe decreases, there will be a flow towards American government securities. Interest rates in America have already gone back a long way. This may be one of the effects. Because money always looks for the place with the highest interest rate, and interest rates are much higher in America. Of course, the arrival of such new money will increase the demand for American bonds. This will also push down the interest rates on American bonds. This is positive for the economy. Because the cost of borrowing will decrease.
The second issue that puts pressure on the FED is that Europe says that the FED actually made a wrong calculation and says, look, our cost structure is actually worse than America. As you know, workers' rights are very protected in Europe, etc., but despite this, our inflation is lower than yours. There is only one reason for this. We calculate rent inflation differently and the European Union says that if America calculated rent inflation like we do, America has already achieved headline inflation of 2% annually, and according to our calculations, it has been there for 9 years. This seems very reasonable to me too. Because it is not possible for Europe, which operates at higher costs in every aspect, to have lower inflation than America. This is clearly a calculation error. The calculation error is that America's inflation rate is excessively high due to rent. This is again an issue that will put pressure on the FED.
I'm sure Europe's way of calculating this attracts the attention of the FED and I think they will now have to accept this nonsense about rents. Another issue that puts pressure on the FED is the situation of banks in America. As you know, it has been rumored for a long time that some banks in America are in trouble. The reason is that the value of the state treasury papers they hold has decreased. Because when interest rates rose, values fell. They have plenty of treasury securities with low interest rates. A new report came from the FDIC, the insurance institution that protects the money of depositors in America if these banks go bankrupt, and it said that the number of troubled banks in America has now increased to 63. It was previously 52, but increased to 63. 11 new banks became more problematic, and compared to the previous period, the loss from these government bonds, which had not yet been reflected in the books, increased by 39 billion dollars, reaching 517 billion dollars.
This means that the bank went and invested the treasury paper at low interest. In 2021, interest rates increased and the value of the treasury paper in hand decreased. They don't write this off as damage. They show this as a footnote in their profit and loss statements. That's why this is considered unrealized, that is, a loss that has not yet been recorded in the books. The number here reached 517 billion dollars. If there is no improvement until the end of maturity and the interest rates do not go back, this loss will turn into a realized loss. There is currently a risk of such damage in the 517 billion dollar system. This risk of harm is not something America cannot handle. The FDIC can pump this money back into the system or the FED can open new back doors. He did this in March last year. He gave money through the back door during the collapse of Silicon Valley Bank and Signature Bank.
However, entering this amount of money into the system through this back door will again make money abundant and increase inflation. The 63 banks listed here among the risky banks have a total of $82 billion in assets. In other words, a risk of 83 billion dollars has accumulated in risky banks in the short term. The FED is afraid of this. So it's not like he can't make up for it. A situation like this, which we call Bank Run, where depositors run to the bank in a panic and demand their money, does not occur. Because the numbers are still small compared to the American economy, but they still mean money entering the market. The Fed won't like this. The solution to this is to stop the increase in interest rates. Pulling downwards if possible. Then, this issue we call unrealized cost will decrease over time. In fact, if interest rates go even lower, banks may even turn a profit, which seems a bit difficult.
Because interest rates were really low at that time. I also think we won't be going back there much. Banks have been dealing with this problem for 27 months. The problem is getting bigger with the low-interest bonds they hold. For this reason, it seems inevitable to me that the FED will have to think about reducing interest rates, let alone increasing them. Yes, we took a look at what could happen in June. That's why my scenario is positive. This will have a positive impact on both American stocks and bitcoin. There are some other nice tidbits too. One of these is a report published by Fundstrat, which I follow.
Fundstrat says we went back to 1930 and found that if the first quarter of any year was positive and April was negative, May and June were very likely to be positive. When they look at all the data, you know that the probability of May being positive is 47%, and this year May was positive. They reveal that the probability is 82% in June. If we exclude a bear market from the situation, there is one of them, the number increases to 100% in June. So fundstrat says there is a 100% probability that June will be positive. Of course, one should not reach such extreme conclusions based on past data, but this is still interesting data.
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