The Coming Stagflationary Recession | CRISIS.

is it possible that we are going into a

stagflationary

recession and what does this have to do

with potentially looking back at the

1970s well let's talk about exactly that

so in the 1970s we had the arab oil

embargo which created a prolonged period

of inflation gas lines gas shortages gas

rationing and massive inflation massive

to the point where we had to get what's

now called vulcard which is when paul

volcker stepped in finally in the late

70s and early 80s and said enough of

this we're raising rates aggressively to

over 15 16

so we can crush inflation by getting

ahead of inflation we are going to force

a recession because when we raise rates

so substantially we sap demand creating

a year-over-year negative growth in gdp

two quarters of that in a row boom

you've got a recession so we crushed it

uh essentially by raising rates to such

ridiculous levels that borrowing

essentially stopped and we were able to

end inflation by proving that the

federal reserve had the intention of

fighting inflation see back in the 70s

at the same time as we had the arab oil

embargo we had a complete loss of

confidence in the federal reserve

because the federal reserve just hadn't

had to deal with this before and they

were clueless in terms of how to deal

with it the government was failing

because the government had price sealing

policies in place which just exacerbated

shortages i mean think about it if

prices are not allowed to go up then you

get even more shortages and which

eventually

bottles up even more inflation and so

when those price ceiling policies were

removed

in the 70s by nixon what did you end up

having well you ended up having

substantial inflation because the price

ceiling is now gone and so prices were

able to go to market prices which were

now exacerbated by even worse shortages

right and so inflation took hold

via the uh arab oil embargo these

lifting of failed government uh policies

on price ceilings and the expectation

that the federal reserve was not going

to be able to tame inflation that was

really bad and on top of that what did

we do in the 70s well nixon in 1971

decided you know we're going to leave

the gold standard which made everybody

think that's it we're going back to the

1920s wymore republic where you're

walking around with wheelbarrows of cash

in

because well like a loaf of bread costs

a wheelbarrow of cash uh and so this

this led to the expectation that

inflation was just going to destroy the

american dollar especially since it

wasn't on the gold standard and either

we'd go back in the gold standard or

we're screwed now we ended up just

getting vulgared which was also bad

because it led to a pretty nasty

recession but but it ended up solving

inflation and and so this is how we

ended up regaining fiat trust so to

speak and inflation stabilized and so

for 40 years thereafter inflation has

been essentially on this downward trend

that you know productivity is up uh

you've got uh innovation up and and

really expectations that over time as

democracies mature you end up getting

less inflation that's just statistically

what happens and this is why uh more

mature democracies like you have uh in

europe are substantially uh or

before this latest crisis have been

facing substantially lower inflation

than us even to the point of being in uh

territory where uh rates are negative

right this is not where the amer where

america was before uh the pandemic and

war and so that's where we now have this

boom of inflation now and it is the

largest commodity shock that we've

really experienced since the 1970s

and so it's scary because

much like the shock of the arab oil

embargo in the 70s we've got this dual

effect now of a pandemic via covert 1.0

uh delta variant of covid omicron

variant of covid and now war all leading

to a similar style energy and commodity

shock again the likes of which we

haven't seen for 50 plus years and this

could get even worse by the halting of

natural gas flows from russia to germany

and other countries who refuse to use

the russian ruble to transact because

this would require germany essentially

have a bank in russia and uh send euros

to that bank in russia uh convert to the

russian ruble and then buy uh you know

natural gas poland has so far refused to

do this and has been cut off by russia

and so you get a lot of these sort of

fears that are building up and on top of

that we now had the first quarter of

negative gdp for the united states uh

you know since the covet pandemic this

was absolutely not expected nobody was

forecasting uh this well at least in in

terms of uh economist consensus

estimates of uh growth of 1.4 you know

us actually i think it's actually growth

of 1.5 but actually having gdp of

negative 1.4 we've got some real issues

right on top of the fact that china is

already likely in a recession but their

their data is questionable so you know

maybe they are intercession but we don't

know about it uh south korea has had its

highest levels of inflation in the last

10 years we don't even need to start

talking about the inflation that we're

seeing in brazil over 10 argentina even

more than that europe's likely in a

recession or going into a recession

global growth is slowing and quite

frankly we expect

gdp this year uh to be four point one

percent across the world or at least i

should say we expected that in january

and that's already been cut by like 25

down to 3.3 percent and quite frankly

that's likely still too high we're

probably going to have even lower global

growth uh at the same time we started

the year with global inflation

expectations of around 2.25 for the

world and we're going to be at like 6.2

percent that's at least where the

estimates are now which are also

probably wrong

so this is where now there are serious

concerns that we're going to

be in a stagflationary environment

potentially all of 2022 and so

stagflation is really like the worst

possible case that you could imagine

because if you're on stagflation and

you're maybe in a stagflation induced

recession so we could call that

stagflationary recession well now you've

got really big problems because see the

way you solve

stagflation is

by on one hand you have to deal with

part one which is a stagnating economy

well usually the way to solve a

stagnating economy is you expect

productivity to go up and spending to go

up but uh the way to encourage that

would be via stimulus or lower interest

rates but the way

if you do that you actually end up

likely increasing the odds of inflation

continuing and and anchoring and if

inflation gets anchored because people

are seeing wow the fed's still printing

money wow the u.s government is you know

still printing money well then what do

you have well you end up and i just want

to clarify that really quick so i don't

get comments on it the united states

government actually runs the money

printers but the federal reserve can

essentially finance that by creating

numbers on a spreadsheet okay they call

it digital printing the government

actually prints it okay government

stimulates via like stimulus checks uh

the federal reserve stimulates by

lowering rates or you know buying bonds

uh which which then puts cash on bank

balance sheets which they can then lend

out okay clarify so anyway uh so

the way you deal with inflation is by

raising rates and again the way you deal

with stagnation is by lowering rates so

you're really at like

like what what is the federal reserve

supposed to do and remember consumers

make up 70 of the economy so this means

honestly 2022 and we've been saying this

since january and i've had this

consistent argument that 2022 could just

straight up suck why because here's the

thing

q1 gdp was negative well what happens if

q1 gdp being negative is enough to kind

of create enough fear in at least some

consumers that we pull back not like

substantially but just to where we we're

not positive year over year like if gdp

just for simple purposes is 20 trillion

dollars last year and then this year we

pull back just one dollar just one

dollar like you don't actually have to

pull back that freaking much you just

pull back one dollar

now you're negative year over year right

at 19.99 whatever

so

this means we could actually have a

stagflationary recession to where now

some folks are saying look we might be

negative for q1 because we had omicron

in january and people weren't spending

in january people are spending more now

which means maybe we'll have a positive

q2 but if people get scared about what

happened in q1 and then we get worse

spending in q3 and 4 especially since

q34 last year is when we had the child

tax credit lots of spending like crazy

black friday numbers right lots of

consumer spending well then we could end

up having a negative q1 negative q3

negative q4 and even though we

technically didn't have a recession in

the first half we would have a recession

in the second half and you could just

have a nasty 2022 which

would probably set up for an easy beat

in 2023 which means no recession in 2023

but still you're going to live through

potentially this stagflationary

recession of 2022 where the only way to

get through this nonsense is basically

just to suffer you're going to suffer

the stock market volatility you suffer

the real estate volatility

because as the 10-year treasury is

dancing around three percent mortgage

rates people are now getting quoted i

mean they're technically sitting around

five five and a quarter but unless

you're a perfect borrower you're

probably paying like

5.58 right now for for a loan which is

crazy i mean we're closer to six percent

now than we are to five percent

so in other words we could see that

spending decline and end up having a

stagflationary recession towards towards

the end of the year now the only thing

that could potentially make this better

is potentially hitting peak inflation

and us being at a

a point where the federal reserve can

u-turn and so this is the hopium that

everybody has it's kind of like why my

coupon code linked down below for the

programs on building your wealth in real

estate and stocks is back to the moon

because if it comes true that we do end

up having peak inflation in march then

the federal reserve can actually deal

with stagflation they could say okay

cool we don't actually have to raise

rates as aggressively so we could keep

like

staying neutral or slightly kind of

stimulate the markets to avoid or not

markets the economy to uh to prevent

stagflation while at the same time

inflation is naturally coming down that

would just be like best case scenario

but it could be just like you know

smoking opium so uh forecast right now

actually kind of suggests that the

hopium might be accurate uh and so

that's what's also weird is first of all

five year break evens which are the

market's expectations for inflation have

come down since their peak in march

quite substantially the peak in march we

were like 3.7 on the five-year break

even now we're at uh 3.23 so that's a

nice decline the uh forecast for

inflation next month is 0.2 month over

month that's an annualized run rate of

inflation of just 2.4 percent that's

really really good uh core inflation is

expected to be 0.4 which is an annual

run rate of about 4.8 percent that

excludes food and gas which in order for

you to have a higher core number than a

higher overall number means that food

and gas went negative which is entirely

possible that food and gas went negative

because uh in you know in april compared

to march because in march everything

just went to the freaking moon

you know at the same time we have uh you

know some signs that that consumers are

relaxing a little bit uh

you know with with their spending which

is actually a good thing for example

leading indicators of railcar freight

activity are showing somewhat of a

slowdown in consumer spending for

crap for goods and services certainly

durables used car prices going down

washing machines refrigerators right

these things relaxing

however service spending is still crazy

i mean you look at

the travel sector and forecast for like

expedia and forecast for for the

airlines those are actually really good

so consumers still spending but spending

in places where

we're not doubling up on those supply

chain issues so potentially we end up

with a peak in march right

and so then when you kind of look at

what the stock market is doing and this

is in my opinion quite interesting it's

sort of a little bit of a leading

indicator that maybe the inflationary

fear play is starting to unwind a little

bit and remember

i don't know if this is going to be a

fact but i always like to tell you

things when i see them happen uh earlier

so so that way you can have a little bit

of a of a heads up

uh in terms of where a trend might be

going so remember when we had

inflationary concerns it was like okay

get out of consumer discretionaries get

into consumer staples and materials so

what did everybody do everybody flocked

to things like costco which is your like

core consumer staple okay fine but what

happened with costco well costco is now

actually trending down it's down like

what 12 percent now

from its peak just about a week to two

weeks ago another one mp materials was a

lot you know it is still a mining

company but it was seen as oh my gosh

this is the perfect hedge for inflation

it's been on this phenomenal uptrend but

you've seen this peak right around the

beginning of april and so it's kind of

been on like a one month downtrend i

mean so is the nasdaq right the nasdaq's

also been on one month downtrend but you

are seeing some potential capping on

some of these same thing with the weed

etf even though it's been consolidating

on slightly a little upward trend it

certainly hasn't been some of the peaks

that we've seen now again it could be

that this is correlating to the nasdaq

or the spy going down but costco has

been going up regularly during times in

which the spy has been going down again

you go back to costco it's really been

just recent let's go to the day here

instead of the week it's really only

been since about the last week of april

that you've seen this sort of peaking

and u-turning here so this is something

where some folks are saying hey the

market kevin is already telling us that

we're we've hit peak fear and

commodities we've hit peak fear in

inflation protections market

expectations via the five-year break

even are way down from uh you know down

60 basis points uh from from where we

were in march and consumer expectations

of inflation are actually stable

and then this is where folks also say

hey look kevin literally uh you know i

have it right here on the bloomberg

terminal in reuters terminal we

literally just while i've been yapping

here just three minutes ago got two big

updates we got a beat like a a

substantial beat on factory orders up

over two percent versus the one percent

expected which is a sign that i don't

know i mean the consumer's still

spending which echoes literally what

we're seeing in all of the earnings

reports all of the earnings reports that

we're getting whether it's uh you know

uh apple the chipsets the airlines the

banks uh individual companies you name

it the consumer spending

so it doesn't it's not a surprise that

we also just got the jolts number which

is jobs openings and uh we were

expecting 11.2 million job openings we

actually got 11.5 million which means

that like businesses aren't really

worried about a stagflationary recession

uh because

job openings are here you know like

layoffs and stuff tend to happen after a

recession has started but like job

openings are a nice oftentimes leading

indicator uh so so anyway

uh the rest of the year obviously will

will really matter in terms of what the

fed does the fed is expected not to

shock and us but they are expected to

front load some some of their actions

and the hope is again this is just a

hope that in order for us to really

avoid a very painful stagflationary

recession we need

inflation to go down naturally

not to get paul volckerd and the fed to

just go back to like neutral or slightly

accommodative uh but not like super

aggressive like where paul volckery and

uh and absolutely destroy this economy

because the fed could do that if a paul

volcker by the way would look like this

inflation's at eight and a half percent

the fed goes fine we'll set rates at

nine percent that's a paul volckering

like people are worried about 50 basis

points and i'm like this is moronic like

who cares we're at a quarter basis point

now for the fomc you go up a half

percent we're still at .75

like come on man we need to be above two

percent to be above neutral and we're

not even close to where inflation is so

like these fed hikes are super nominal

we're not getting paul volcker here

we're just like

slightly turning the hose off a little

faster than the market likes in the

market like oh yeah it's the end of the

world and the way the end of the world

like actually doesn't happen is

the

stag

the inflation part of stagflation goes

away and we're starting to see signs of

that and so personally i'm really

optimistic but that doesn't mean that

2022 is still not going to suck

but again if i if i zoom out and i'm

like well let me look at the history of

markets where do i want to invest do i

want to invest when the market's at

bottom or do i want to invest you know

when everybody's euphoric and happy well

i'd rather invest in a recession and i

think 2022 is actually the year of

recession whether that's we have a

positive and negative first half or a

positive or an or i'm sorry an all

negative first half or an all-negative

second half or or some combination where

it's like it's negative positive

negative negative and we have a

recession at the end i don't really care

i think it's setting up for low comps

for easy beats in 2023

uh and then your recessionary fears go

away uh that's it's all moved up since

the last gdp report but those are just

my thoughts so my thoughts on the

stagflationary recession you want to

talk to me in private lives you could do

that as well check out the programs i'm

building your wealth link down below

especially the real estate ones okay so

that's my talk on stagflationary

recession