The Coming Massive, Stagflation Market Crash.

hey everyone meet kevin here is the

stock market preparing for a big

pullback and what could unemployment

have

to do with it first let's analyze this

as cnbc pro ran a story this morning

that said as of june 25th the s p 500

has gone a full 275 days

since its last decline of 5 per more

suggesting that the s p

based on history they say is primed for

at least a 5

pullback the last one happening in

september

when the s p 500 lost nearly 10 percent

they say

they say that the average time span

between declines is 178 days

making this stretch the longest stretch

since and world war ii that we've gone

without

a rollover essentially a five percent in

the s p 500

and so this got me thinking okay what

what about

the fact that we know that if inflation

is here to stay

we could easily see an s p 500 roll back

and i got to my

thinking myself well what could lead

inflation to stay up and i thought to

myself well

jobs could especially when right along

the same line

we have an article from cnbcpro that

says more people plan to quit

as return to work plans go into effect

and

this segment here was very interesting

they said in what's been dubbed the

great resignation

a whopping 95 percent of workers are now

considering changing jobs

and 92 are even willing to switch

industries to find the right position

according to monster.com most said

burnout and lack of growth opportunities

are what's driving the shift

now this really got me thinking i

thought okay well wait a minute

wait a minute if people are thinking

about quitting then businesses have to

hire

if businesses have to hire and they have

to pay more money then

that would rise input costs which might

mean businesses would have to raise

prices which

is a form of inflation and if then

inflation is here to stay

and the s p 500 hasn't had a rollover in

a bit

maybe that could be the perfect storm

especially since in three days

we have jobs numbers coming out here on

a friday at the beginning of july we're

going to have our jobs numbers for june

coming up

those are going to be hotly watched and

a lot of folks are wondering wait a

minute

we might not see the unemployment rate

fall as quickly as we think

which means even though unemployment is

high because people are switching

industries or as the chairman of the

federal reserve says hey

you know it's not that easy to take

people's jobs away and throw them back

in

maybe unemployment's going to stay high

a little longer

and at the same time businesses are

still going to have trouble

finding workers leading to higher pay

for workers when they get jobs and so

now i just threw a whole bunch of stuff

out at you we talked about the stock

market potentially being due for a five

percent pullback the s p 500

we know that workers are in demand but

it's hard to find them even though the

unemployment rate is

high and even though unemployment

benefits are expiring soon

and we're worried that rising prices

with workers especially

you know especially at the same time as

the economy potentially stagnates

by us not seeing the unemployment rate

go down

we start wondering wait a minute are we

setting up for something bad

like stag inflation where all of a

sudden the market

isn't improving we're not seeing as many

people go back to their jobs all of a

sudden we start seeing inflation

because businesses have to start paying

more money and then we get that s p 500

rollback

it's a pretty ugly scenario and what i'm

going to do

is i'm going to try to deconstruct the

monster that i just created

and try to see if i can explain my way

out of this because this is a tough one

and at the end i'm going to give you my

odds in terms of what i think

isn't going to happen but first let's

try to unpackage this

so back when covet happened what what

happened

people lost their jobs right and think

about this for a moment practically

as a business let's say you're apple and

you employ

i don't know 5 000 people at one

particular facility

you say you know what hey look pandemic

we're going to work from home

sorry 20 of you have to go and you lay

off a thousand people

horrible right thousand people get laid

off pandemic

happens okay it's done it's gone time to

rehire

so you laid off a thousand people do you

bring back those same thousand people

that

no longer work for apple or do you start

looking for potentially

new workers who have a new enthusiasm

for the business

or maybe do you just bring back the best

of the thousand

well generally we believe that

businesses always seek to become the

most efficient operations they can

so out of a thousand people who are laid

off the expectation is that only about a

third actually return this is according

to the federal reserve only a third

actually return to their prior job and

we generally would expect that third to

be potentially the most efficient third

and so what's interesting about this is

businesses

even though they might want to hire a

full thousand people back they basically

had the perfect job interview for those

thousand people

they kept the most efficient folks and

all of a sudden what happens to the

corporation when they start hiring new

folks even at higher prices what happens

they're actually becoming more efficient

because it's almost like and i know this

sounds insensitive to say but it's

almost like

the corporations of our country all of

them

kind of went through a great weeding of

either people who don't like their job

or potentially just not getting

everybody right but potentially

weeding out people who don't like their

job who aren't as efficient as they

could be or should be

uh or or maybe belong somewhere else and

that's totally fine

like just you could be a really hard

worker you might just hate your freaking

job

you know what i mean so an interesting

counter could potentially be that

through this massive

coveted transition yeah we're going to

have higher

unemployment but we could actually have

a higher gdp more efficient businesses

more profitable businesses and yeah

higher unemployment because people are

trying to change industries but maybe

businesses

don't need 10 people anymore maybe they

only need

five people and they're willing to pay

those five people

30 percent more rather than that way

hiring back

all the people that were laid off

actually hiring less yeah you're paying

more but net net you actually have lower

costs and see this is where the markets

get

really really complicated that it's it's

not as easy to say oh my gosh

mcdonald's is having trouble hiring

people that's it inflation inflation

it's never that easy there's so much

more nuance that's required in this

market

this is what i also teach in my stocks

in psychology of money group in all of

my courses

which has a coupon code expiring

tomorrow evening it's 40

off link down below but folks take a

look at this written down theory here

okay so this is going to help us i think

follow this a little bit better

so the amount of workers go down

at first right this means that input

costs

in aggregate so in total actually go

down when you lay off workers now

input costs goes up keyword right here

per worker

input cost per worker goes up

now there are less people working at

companies which is actually

evidenced in itself by a higher

unemployment rate i mean think about it

if unemployment was 3.9

and now it's uh just a little over six

percent well what is that signal

well it signals that less people are

obviously working at the same business

as before

because if we hired all the people back

and hired more people back our

unemployment rate would be lower

and so this evidence says this idea of

like okay we're going back we're hiring

back

we're getting that efficient back or

maybe we're reshuffling people are going

to different places and this means they

have to retool and retrain

a tech programmer who used to code in

java now wants to code in a different

script and they have to learn that to

properly apply for a different job maybe

they want to do python

i don't know who's using java anymore

anyway probably nobody

but you know what i mean i'm just making

an example and i ain't a computer

programmer

it's just an example but continue on

with this

that means we could literally have

an environment where we have a higher

unemployment rate

but we actually have more efficiency so

we're not stagflating

we're actually becoming more efficient

which means company margin

actually goes up which actually means

that gdp goes up which means more pay

less people slower gdp

growth the growth of gdp goes up slower

it doesn't have to be parabolic anymore

it can it can more slowly grow as less

people work but it's going up

based on earnings and profits and people

spending more which people obviously

have a lot more money

and now all of a sudden you could

actually be in a situation where

ultimately this is the crazy part you

end up with

less inflation you have less inflation

because companies are becoming so much

more efficient and because of their

hyper

efficiency leading to a higher

unemployment rate what might

look like hey higher unemployment oh my

gosh prices per job are going up oh my

gosh inflation higher unemployment that

sounds like stagflation that sounds bad

what we've actually done is we've

created

a highly skilled and tooled efficient

workforce with people more appropriately

matched with their jobs

or or to the jobs for their skill set

this is interesting to me now i agree

the s p 500 is probably due for a

rotation

but there might even be an argument as

to why we're not seeing the s p 500 roll

over

the last s p 500 crash happened in

september

and that's when tech substantially

rolled off and guess what

else well before we had vaccines

recovery stocks also rotated down so

call recovery stocks blue

and tech stocks green over here well

what's happened since then

well since then we've had vaccines all

of them went to the moon

uh that is tech went to the moon and

recovery stocks

went to the moon then all of a sudden we

had tech stocks

fall uh fall march uh and then may

and now tech stocks are coming up take a

look at this

recovery stocks go to the moon but now

recovery stocks are starting to trend

down

and the point is maybe maybe the reason

we're not

seeing the s p 500 roll over maybe the

reason we've gone

so long with no five percent decline in

the s p 500

is because of these rotations that are

happening right now

where as tech goes down recovery goes up

as tech goes up recovery goes down

remember you've got about 50 50 in the s

p

500 which is really really incredible so

this is where we have to get to

predictions

so i personally think that between now

and the end of the year

we have a 10 to 15 percent chance of

like a

serious s p 500 selloff like 20 selloff

i think is 10 to 15

a 5 sell-off is much more likely

that could be forty to sixty percent

likely that's not

it's not uncommon so it's it's as likely

to happen as it is

not to happen especially if we get these

rotations rotating around we stay flat

for a little bit

but then we get some kind of other shock

temporarily five percent

very easy to roll that over in the s p

500 absolutely could happen

not something that i think changes the

investing thesis at all

i think the big takeaway though is when

we think about inflation and jobs

and high unemployment high unemployment

can actually be a signal

that it's not time to raise rates yet so

you can

actually end up in this crazy scenario

where the fed delays raising rates or

delays tapering because unemployment

isn't recovering as fast as we think

leading tech stocks to benefit as

treasuries go down

leading to the belief that there'll be

less inflation

by the tech now by by the fed not

responding as soon and

in a weird way we actually end up with

the opposite of what

seems to be in our face higher wages for

workers which would

imply uh higher inflation at the same

time as a high unemployment rate which

would imply stagflation so those are my

thoughts hopefully you appreciate this

perspective let me know what you think

in the comments down below and folks

we'll see in the next one

you