The Market Spiral that will FORCE a Recession | Fed.

oh boy we got a lot to talk about

regarding wage disinflation is it

happening how's it happening where is it

happening and are there red flags let me

tell you up front there are some red

flags we've got to pay attention to

we'll start with some of the good news

but you should stick around to the bad

news because it's important to pay

attention to not just the bullish news

but also the bad so let's get into this

new report out from Goldman Sachs before

I get out get into this report from

Goldman Sachs so I want to quickly

remind you

about what I've been saying over the

last about three months during the

beginning of this earnings cycle which

is Starbucks Chipotle much easier time

finding it much easier to hire folks

less labor turnover and of course we've

heard this before Lyft and Uber massive

new availability of workers like a 37

increase at lift leading to margins

declining actually 37 increase of

workers over at Uber but basically Lyft

complained about an extreme increase in

the availability of workers this is a

good thing right it puts less pressure

on wages which we we know that so going

into this I just want to remind you of

what I've been talking about already and

seeing for the last months here but now

we gotta look at Goldman Sachs do they

reiterate my findings and what red flags

do they give us so take a look at this

so outlook on wages and potential wage

disinflation take a look at this so

right here significant Improvement in

labor availability references in Russell

3000 earnings calls so three thousand uh

companies in earnings calls references

to quote labor shortages or various

different quotes of that have fallen to

the lowest level of the pandemic

recovery so post pandemic we're at the

lowest level of references to shortages

sitting at just 4.9 percent in Q4

earnings calls compared to 16.5 percent

in Q3 2021

our more detailed review of the Dow and

large cap consumer company transcripts

was even more encouraging

two-thirds of companies references

two-thirds of references pointed to

increased labor availability and no

companies cited labor shortages

worsening furthermore several companies

viewed the Staffing situation as back to

normal including Starbucks in Hilton hey

look Starbucks was one that I was

talking about for a while right okay

great so where's the red flag because so

far that sounds good right we'll talk

about exactly that let's keep going here

out of 44 of these calls discussing wage

pressures in Q4 a third of them cited or

expected a sequential moderation so this

is one of the red flags a third of them

basically only 33 percent of them were

like yeah now we think wages are going

to moderate right now that's different

than than when we hear this sort of

bullish attitude at first because the

bullish attitude at first is yay no wage

price spiral which reduces the risk of

the draw of the Federal Reserve and

Jerome Powell needing to rug pull

markets and force the recession to

prevent a 1970s style of runaway

inflation and then we end up getting

Paul volcker right we do not want that

the good news is we are not seeing that

indication no indication of a wage price

spiral at all it's what I've been

talking about for months it's what's

good what Goldman is reiterating here

however only a third of companies are

actually expecting wages to potentially

moderate which would be stay flat or

potentially decline that means most

companies are actually still that's 67

percent of companies are still

experiencing wage pressures but maybe

not labor shortages that means you're

hiring more people you're getting more

availability but you are employing

people at higher prices than you did

maybe pre-pandemic right for example The

Wall Street Journal had a podcast this

morning it was about a 20-minute long

podcast and the bottom line of it was

hey

companies and retailers and food service

providers are finding it easier to hire

people but instead of paying say 11 in

average per worker eleven dollars an

hour they're paying 15 so they're

finding the workers but they're still

paying more right and this is where

Goldman Sachs says

wage pressures are easing and labor

shortages have eased significantly

further and they're not particularly

worried about a pullback in earnings or

earnings expectations and which is good

for potentially avoiding a recession

however what's the big red flag with a

big red flag at least one of them there

are multiple one of them is that wage

pressures are easing but will likely

linger throughout 2023 that's because

markets are still adjusting to the fact

that yeah we are living under an

environment of substantially higher

wages right so everything's still kind

of adjusting up yeah it's easier to get

Workers it's just easier to get workers

at these higher prices right it's like

all right great you're not paying 11

bucks an hour anymore you're paying now

Hefty prices so what other warnings do

we get well labor shortages waning which

is great uh the breadth of Labor

shortages on the basis that they've

analysis analyzed here has retraced 75

five percent of the increase from 2019

that's a fantastic chart you can see

that depicted here but basically the

chart runs up to a level of labor

shortages of 16.5 percent pre-pandemic

labor shortage references were really

sitting at closer to about two percent

and now we're sitting at four point nine

percent so on a Fibonacci sort of

retracement you're down

75

on uh mentions of Labor shortages great

but you're still paying higher wages

what do you have over here in terms of

commentary Hilton talks about the labor

market situation has eased a lot the

health care uh HCA Healthcare says we're

starting to see more favorable Trends in

our recruitment function yum brands

we're seeing stores staffed

appropriately so this is good right

because it shows you no wage price

spiral because it means look we're able

to hire people but still you're hiring

people at a higher wage uh you've got

across Healthcare frankly there there

are still issues in terms of the labor

market things are a little bit better

says Laboratory Corporation so you're

still seeing some Embers maybe of

shortages that's normal right we're not

back at normal mentions of Labor

shortage just about 4.9 but it's or 4.6

but it's a huge inflection to

bullishness right which is great and it

shows the waning of the wage price

spiral the wage price spiral by the way

just to show you how important it is it

was the one reason I sold my stocks in

January of 2022. I said we hit a wage

price spiral which it seems like we're

running into a wage price spiral which

what I sold was probably somewhere right

around over here in this environment of

like Peak mentions of Labor shortages

which what happened that ended up

feeding through the economy for the most

pain about six months later right when

you got to about June of 2022 uh that

and October of 2022 over here on the

chart those were roughly around the

times you had the worst sets of

inflation inflation fears wage price

spiral fears so this is this was really

a leading indicator of the pain that was

coming to the market right you had

insane inflation fears that turned into

not inflation fears later now that's

actually really incredible if you think

about this as a leading indicator it's a

leading tool that's telling you as long

as this keeps going down in six months

from now you should see even less wage

pressure more relaxation this is why I'm

back to like essentially fully invested

not yoloing margin but like these

leading indicators to me are like

grabbing me by the shoulders and

screaming going the opposite of the

conditions that you saw in January of

2022 are what you're seeing now which

reiterates the lack of that wage price

spiral fear which is very very important

so this is a fantastic fantastic leading

indicator keep in mind still Embers of

inflation remember I've talked about

this many times 3M Johnson and Johnson

Procter Gamble what do they say still

expecting price increases to feed

through the economy until about the

second half of the year so that means

until June you're still seeing those

Embers of inflation which is kind of

probably why we're seeing some hot

reports here in January in part at least

but the expectation is those will be

gone by the second half of the year

that's what companies are saying and I

think what companies are saying is very

important Starbucks talking about no

labor issues minimal impact from labor

from Hershey Company here great

fantastic what do we have over here

accordingly the absence of progress in

the other two-thirds of earnings calls

on wages going down arguably implies

continued upward pressure on real wages

this is right just because you are

seeing a lack of shortages doesn't mean

the Embers of inflation aren't still

there like people are available at

higher prices and this is a warning from

Goldman Sachs where they say this could

create second round effects of higher

inflation in the short term and yes this

is consistent with the volatility that I

expect this is why I talk about the Nike

Swoosh recovery that's going to be very

volatile Trend up but very volatile I

believe the second round of the stop it

Siri I believe the second round effects

are going to be that feeling of ah still

seeing some stickiness still some

stickiness right but the good news is

the leading indicators are suggesting

that as we get through those Embers

they're waning we just want to make sure

those continue to wane and as this

Goldman Sachs report

analyzes here and quotes Staffing firm

Manpower group we expect wage inflation

quote to continue to come down but it's

going to take a while in other words

slower recovery but it's going in the

right direction which is great here are

some talks about wage pressures not

going away so some of the worst ones

over here Industrials this aligns with

what we heard again G

um Johnson and Johnson 3M uh Procter

Gamble here's Mohawk Industries which is

a home furnishings company we see

inflation impacting our labor costs

around the world as we start raising

labor rates they're playing catch-up to

higher wages so again people are

available but you're still paying them

more right

Manpower group we expect wage inflation

to come down but it's going to take a

while Chipotle sees labor costs

improving we've talked about that as

well before this report came out hey

maybe They're copying me no just kidding

I'm trying to Pat myself on the back but

I don't actually believe that I'm sure

they're doing just similar research

which is great A Marriott International

the wage pressures have moderated and

we're seeing a more normalized

environment great modelies there's a lot

of talk about diminishing cost inflation

we don't see that at the moment and it's

driven largely by energy ingredients and

labor on the labor side of things uh

Pulte group says their cost site is

still elevated labored energy inflation

by Procter and Gamble McDonald's says

labor utilities will affect operating

margin Walgreens says the same problem

and this is where I think a lot of those

consumer staple companies are just going

to take it in the margin which is

another thing I've consistently been

talking about on the channel here people

like to say I flip-flop a lot which is

fine because I do change my mind a lot

but I tend to be very consistent when I

have an investing thesis have been very

consistent about this investing thesis

and and I'm looking for reasons to say

Hey Kevin where where are you wrong and

so far the only thing I could find is

Mike Wilson telling us that we're we're

too high on Mount Everest and we're in

the danger zone where our oxygen levels

are going down to the point where we're

turning delusional uh which the fact

that he has to come up with that kind of

analogy suggests that he's kind of

starting to lack some data to support

his argument but we'll see uh we'll see

you know time will tell uh anyway

Goldman Sachs here predicting uh that

the unemployment rate will actually stay

pretty stable throughout most of the

Year here they don't actually see the

unemployment rate Rising above 3.6

throughout the entire year uh 10-year

treasury note here's a note for Real

Estate right really expected to say in

potentially the low four percent range

the entire year up from where it is now

around 3 9 which is another red flag for

Real Estate but you know we talk about

those red flags for Real Estate pretty

regularly so this is some important

things to pay attention to but when it

comes to wages I think Goldman Sachs is

right to say that things are looking

good and the fear about the wage price

spiral is going away that's probably the

most important tool that we have to

suggest maybe that big old second wave

of a market crash isn't coming and we

could actually hold on to those moving

averages that we've broken on like the

QQQ or other stocks where we've talked

about previously we finally broke the

trend of lower highs breaking that Trend

and breaking above the 200-day moving

average I think is happening because the

realization is setting in the market

that yes things are going to take longer

it's going to be a slow and hard

recovery but we're not trending towards

a wage price spiral to where we have to

get Paul volckert so this is a

fantastically bullish report from

Goldman Sachs it is not one that says

let's all go YOLO and margin and go

crazy and then everything's going to be

great tomorrow

but I think it is a very clear

indication uh that that we are seeing uh

disinflationary effects in the wage

Market someone named MK here says

shrinkflation is rigging CPI actually

CPI already adjusts for shrinkflation

they adjust per quantity of good so

shrinkflation is is clearly adjusted for

in

um in CPI it looks like now you're

spamming it why don't you address the

shrinkflation that's trending on Twitter

you know look I'm a big fan of using

Twitter but yeah I go one extra level

deeper okay do a little research into

how CPI is calculated and you'll see CPI

does address that the idea is to to look

at a similar basket of goods over each

reporting period and adjust for quantity

of that good

which course is the best to buy well I

appreciate you asking that question I

think you really want to start right now

in the market that we're in with the

zero to millionaire real estate

investing course however a lot of people

like the stock start with the stocks and

psychology of money group so those are

probably tied for most popular and I

think what a lot of people do is they

just bundle those two together would you

get a special price if you bundle those

two together but uh I I think fastest

way to to Big wealth this real estate

cycle you got to take advantage of it

obviously stocks and psychology money is

opportune as well because we're I think

we're in a fantastic time right now

so oh thanks John for saying Kevin is

the best Finance YouTuber man

I I can't say best but I appreciate I

really appreciate you saying that thank

you for that uh so shrinkflation is

because it's cold outside damn it

anyway thank