*New* Massive Economic Warning Flashing.

oh huge video here on the bear thesis

the inverted yield curve and the

cantalone effect what does that tell us

this is a big video on economic thought

and theory and if you're an investor

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expiring next week now we gotta talk

about the cantillon effect it's a French

word it's a French effect and it's

really impressive because it might blow

your mind in terms of a traditional

economics but what I'm going to do to

start with this effect is I'm going to

introduce use what Jamie dimon just said

and it'll show you why this effect

potentially is so important so take a

listen to Jamie Diamond here for a

moment on Jim Cramer we're not going to

listen to all of this but let's get

started nothing wrong because maybe

that's too short a term maybe what we're

thinking about when we talk we'll talk

about the FED is not what is happening

boots on the ground here yeah I think

they're different I mean the FED look

they have I have all the Bold respect

for Jay Powell uh but you know the fact

is we lost a little bit of control of

inflation models didn't pick that up

I've always been suspicious of models

and we're using extensively I always say

that you use a little bit of judgment

too uh and there's been a sea change

governments are borrowing a lot of money

and you got to incorporate that what's

taking place that means they're spending

it that's inflationary wages we haven't

we've seen come down but not so much oil

and gas will probably be going up

because you know the investment has been

curtailed right uh and you know the the

green environment the green economy we

think it's close to four trillion

dollars a year of additional spending so

you're talking and the IRA act which I

think has a lot of good stuff in it the

infrastructure app the chicks app this

is huge money and so you know me you've

got to see change and I think we should

all get adjusted to that and you know

we'll have more normalization of

interest rates and we'll be fine just

remember America's most prosperous in

the planet will be fine okay but I'm

going to pause there because the rest is

actually less interesting but let me

just highlight some of the things he

mentioned here and then we'll get into

those models so first of all Jamie

Denham is really taking this position

that I don't know man even though we've

gone away from sort of the monetary

money printing which is the Federal

Reserve basically

bailing everyone out via essentially the

unlimited money printing which was then

distributed via stimulus checks uh

unemployment pay PPP loans whatever

you actually have now is Jamie Dimension

look inflation reduction Act is cool and

all but energy green energy is four

trillion dollars of potential new

inflationary impetus government spending

government subsidies could actually be

the next wave of stemi checks that's

actually really interesting he says that

because one of the things that I use to

describe the chips act which is another

act that was just passed which is

massive 80 plus billion dollars of of uh

support and subsidies and then sanctions

and restrictions on chips uh

specifically for chip companies and

preventing China from being able to

access some of our technology although

they just steal it anyway those are

basically massive stimulus checks for

the chip makers I mean Taiwan

semiconductors Intel Nvidia uh it

doesn't matter whether it's the chimp

maker or or the actual chip designer

there is so much stimulus money going

into Android G batteries EV Chargers

look at the stimmy checks basically

Tesla's going to be getting from hanging

out with Joe Biden hey yeah we'll open

up your supercharger Network in exchange

for a few billies so we can make more

superchargers everywhere so our Tesla

owners don't get pissed off at all the

congestion that we're going to create by

letting other people use the Chargers

Jamie Diamond in the nicest way possible

is basically saying we are going from

people stemi checks to corporate welfare

in chips and energy and it's going to

have a massive inflationary impetus

that's actually by the way how China

stimulates China during this recession

uh or sort of this coveted pandemic did

not stimulate their people with stemi

checks and and cash they the people had

to go save their own money it was very

difficult for uh for for Chinese

individuals relative to to Americans or

even Europeans in regards to how much

government support we were receiving on

an individual basis and in China you

focused on corporate welfare corporate

support corporate stimulus well that

that's basically what Jamie dimon is

suggesting we're moving into this

potentially new inflationary regime

driven by government spending and how we

have to ignore models traditional

economic models and we're likely to see

what he says is a normalization of

interest rates that's a way of saying we

probably won't be going back to zero

percent maybe we're going to stay at a

Fed funds rate of three or four percent

for quite a while longer and we've got

to get used to this idea and that means

markets really have to adjust to higher

rates for longer that sort of reiterates

what I've said earlier patience patience

patience it's a very interesting idea

but another very interesting idea that's

somewhat uh uh compounds what Jamie

dimon suggests here is the following and

we're gonna this is so remarkable I'm

gonna read a lot of this and add

commentary it's not that long it's

really worth it because in my opinion

it's it's just mind-blowing Insight uh

into perspective on economics so if

you're an econ person this is phenomenal

I I mean like I usually think the flash

sale on the programs on building your

wealth that's going on right now or the

shadowing experience you know come learn

from me directly ask me questions

whatever

I think that's incredible and that's

that's a really good deal but this

effect is insane all right you ready for

this so I really like this let's let's

go through some of this together so the

cantalian effect is a change in relative

prices resulting from a change in money

supply this is very that sounds

complicated but it should be a very very

simple basically what is being said is

look inflation occurs when you change

the money supply how much money supply

there is we're going to keep going here

in just a moment because it gets more

interesting than that you might think to

yourself oh well that's obvious right

like yeah print more money than you get

inflation right not necessarily and this

is the crazy thing about what Jamie

dimon says about models because the

economist just talked about exactly this

as well so the economist did this really

really good piece the piece is uh right

here and it's uh lots of investors think

inflation is under control not so fast

and if we go through this piece we'll

actually find uh that there's a lot of

talk about sort of the traditional uh

idea of inflation which is that okay

well if we have uh higher rates we have

higher rates to fight inflation and

basically the way we calculate inflation

is just as a formulaic measure of what's

unemployment and what are rates doing

that's sort of the old school and

traditional Keynesian way to look at

inflation but the economist makes this

really interesting argument right here

that aligns with what Jamie dimon is

saying and aligns with what the country

on the fact is saying take a look at

this

tracking the money supply is deeply

unfashionable so again when I read that

definition of the cantal on whatever

effect you might be thinking to yourself

oh yeah well duh inflation goes up when

the money supply goes up right but look

it's actually not the traditional school

of thought even The Economist reiterates

that tracking the money supply is deeply

unfashionable since the 80s central

banks have generally focused on interest

rates rather than trying to fix the

amount of money in circulation money

does not even feature as in in other

words money is not even a part of the

quote state of the art models there's

that word models of inflation in other

words the models of inflation that we

use today don't even care about the

money supply which completely ignores

the gun DeLeon effect I have no idea how

to say that word so I'm just going to

keep going with that by the way and I'm

not going to excuse myself anymore so

here we go which the traditional models

are interest rates the real economy

which could which includes a labor and

inflation expectations so in other words

traditional economic models say hey we

got to look at what are rates what's the

economy doing and what are expectations

of inflation we've heard that a million

times before certainly for my channel as

well hey as long as inflation

expectations are anchored maybe you're

okay but that's also important to make

sure that we're on the path towards

disinflation otherwise oh God otherwise

those expectations will break and then

we have to make things worse like

throwing your pencil oh I hope I didn't

break the tip oh it still works okay

cool anyway so what do we have yet the

money supply was one of the few

indicators to provide an advanced

warning of inflation across the oecd

organization of economically developed

countries a broad measure of the uh this

sort of warning Supply or warning from

the money supply shows that we saw a 12

increase uh in the six months after

February 2020. so in other words by

about August of 2020 which was really

about a year and 13 maybe a year and

three months yeah about a year and three

months before like getting to the end of

2021 where we really started getting

nervous about inflation we actually

already saw the warnings in the money

supply and it was a massive red flag

that big inflation was coming simply by

looking at the expansion of the money

supply but it's not just the expansion

the money supply that's interesting

we'll have to go into detail about that

so let's keep going and I'll tell you

you if you think it's just money supply

up higher inflation that's actually

wrong it does have to do with the money

supply but it's actually the derivative

of the money supply that matters I'll

explain that in a moment I'm not a big

fan of calculus either so don't worry

about that but I'll explain that so

let's keep going a recent study by

economists at the bank of international

or four International settlements finds

that countries with stronger money

growth saw markedly higher inflation and

that incorporating money growth into

inflation forecasts would have improved

their accuracy so in other words maybe

what we need to do when we're trying to

predict inflation is actually look at

the change in money supply growth rates

there's the derivative and then we might

know what could actually happen with

inflation we're going to go back to the

cantal only or whatever effect in just a

moment but let me explain that so if the

money supply okay so let's call it the

M2 money supply is going up like this do

we have inflation or not according to

the what we just read from the economist

well the answer actually is no now that

seems weird right but that's because

this is linear okay now let me change

that if the money supply is growing like

this do we have inflation or not

the answer is yes because the derivative

which is the rate of growth here is

exponential here the rate of growth is

constant so the growth rate is if if

we're now measuring the first derivative

which is like the acceleration think

about it like when you hit your gas in

your car if you get to one level of in

of acceleration where you're adding

maybe I'll just say a mile per hour per

second let's just say your your actual

rate of growth or your your acceleration

is actually constant right the graph of

your acceleration is constant it's flat

you're accelerating at the same speed

when you're accelerating at the same

speed your potential and your money

supply is rising you're not actually

creating inflation according to this

argument the argument is actually that

when you hit the gas faster and faster

and faster and you're accelerating

faster and faster and faster and your

derivative line is growing in other

words the rate of growth is expanding so

in other words if you're thinking about

like company earnings think about that a

little bit differently think if you're

growing at 25 25

your rate of growth is constant right

but if you're growing at the money

supply at 25 then 35 then 45 your or

maybe even 50 to go along with the sort

of the more exponential curve there

maybe it's even 60 right now your rate

of growth has shifted from a constant to

much faster what happens when you do

that boom inflation that's where the

inflation comes from and it's really

interesting because if you look at the

money supply graph you could see right

here look at the constant almost

constant increase of the money supply

here right no inflation no inflation

right here during all of this no

inflation

but look at when the rate of growth

changed

big fat rate of change right that was a

red flag that was a huge warning signal

that said oh the rate of change has

exploded we're about to deal with a

whole hell of a lot of inflation that's

fascinating now let's keep going with

the gun delay on the fact uh okay I feel

like I'm saying it like an Italian but

it's actually French uh see it came from

a 1680s book which actually came before

Adam Smith In The Wealth of Nations book

uh and it's the uh is

uh in general whatever essay on the

nature of trade in gen okay whatever who

cares so since the 2000s the world's

largest Central Bank started to run out

of policy tools like lowering interest

rates and many were aggressively

creating new money during each major

financial crisis yeah so you have a

financial crisis they just turn the

money printers on the current state of

the US economy is experiencing inflation

expanding during the Biden

administration at rapid levels resulting

in the increase in price cases that

occur in energy Blue Collar labor and

food but not in other products and

services keep in mind this article is a

little bit older but it teaches us a

principle that is very important today

okay it's very important to internalize

this one I would like personally I would

write this down in your notes somewhere

because it's so interesting but anyway

with the creation of the US fed and the

U.S exiting the gold standard the C

effect has favored investors and owners

over wage earners workers in the

aggregate okay I started my channel

around that thesis my channel exists

around the belief that you will not

build wealth if you are not either an

investor in stocks or bonds

real estate or businesses that's it you

have three choices to get rich in

America okay stock spawns businesses

real estate if you have none of those

you're probably poor and you're gonna

stay poor it's just like I wish they

would teach you that in fifth grade so

you could like put that mindset to work

earlier but you know most people don't

learn that until they're like 25 or 35

or 45 and then it starts getting too

late

that's sad but I don't know maybe they

do that by Design that's it

the sea effect also had a theory in

which the beneficiaries of the state

creating the currency is based on the

institutional setup of that state this

essentially means he who is close to the

king and the wealthy likely benefited

from the distributional choices of the

currency through the system think about

all the PPP money right like the people

with guess what real estate stocks and

businesses got the gold

anyway since the 1950s most of the world

has adopted a Keynesian style of

economic theory in times of financial

crisis the central banks are used to

increase the money supply and the large

banking institutions like Jamie dimon

and the capital markets distribute or

lend out that money call markets and

prevent Bank closures time and time it

is clear the uh that in the case of the

U.S capital markets many of the U.S

banks large private Equity houses and

Wall Street farewell after Central Bank

QE I mean that's obvious so they turn on

the money printer who wins its banks

private equity and Wall Street whereas

you individual Savers are usually the

ones who deal with the jump in inflation

and the loss of purchasing power that's

during a QE regime right so in other

words they're saying look under the

Keynesian economic school of thought

when you turn on the money printer to

sort of minimize the effects of a

recession you're really benefiting rich

people more you're hurting poor people

because of the inflation you're creating

thanks to the derivative change or the

change in the derivative of of the uh

rate of growth of the money supply

chanting the phrase by various heads of

state of buildback better can

essentially mean who gets the new money

out of the crisis and where shall that

Capital be allocated okay now this is

interesting because look how crazy and

crazy Lee this relates to what Jamie

Diamond says Jamie dimon says energy

like the green explosion basically chips

right that's who wins that's who wins

uh that's awesome all right so by

analyzing the current U.S financial and

economic system tech companies like

Amazon which Lobby the US government and

U.S airlines benefited tremendously that

can be said of other governments across

the world as well the pandemic was a

boom for the ultra Rich according to the

world economic Forum interestingly with

the passive passage of the cares act PPI

Ubi basically uh you know blah blah blah

we basically supported businesses okay

fine but the Federal Reserve now

preaching about the risks of U.S income

inequality and climate change which is

interesting as their QE policies have

clearly widened the income gap What

policies can be used to mitigate the

gentleon effect how are institutional

investors such as Sovereign wealth funds

pension funds and and basically uh

institution how is Wall Street getting

ready for the crash so to speak when QE

goes away now what's interesting is I

didn't tell you this but this was

written basically at the top of the

market October 2021 in other words they

used the cantileon effect to predict the

disaster that was about to happen in

other words hey QE really great for Wall

Street private equity and businesses and

the rich but when that QE flip-flops

be careful it's going to be hard unless

you have new forms of government support

now what complicates things today is we

do have new forms of government support

and they happen to be in energy uh in

the green space as well as chips

there's a reason why when I keep talking

about my PP uh that is pricing power

stocks when I keep talking about PP

pricing power style stocks there's a

reason why I think there's a massive

wind at the backs of chips AV makers

battery makers

Etc there's a reason okay uh that's why

I'm a big fan of pricing power style

stocks especially based on on the

handouts of government stimulus

unfortunately the cantalon whatever

effect now suggests that we're having a

reversal of the massive inflation uh FX

via looking at the M2 money supply we

could see that the previous rate of

growth that we've had in the M2 bunny

supply has actually turned negative

now that's obviously because we're going

through a quantitative tightening cycle

so let me explain that in relation to

this effect quickly

if previously and I'm gonna I'm just

gonna overly simplify this okay if

previously we were growing the money

supply at two percent a year so we're

going plus two percent plus two percent

plus two percent there we go how much

inflation do we get

zero because the rate of change is

actually constant so it's almost like

inflation is a factor of the rate of

change in the expansion of the money

supply

so when this all of a sudden became say

plus 10 plus 10 right during the massive

money printing we went through what did

we get oh wow we got you know basically

plus 10 inflation holy smokes how simple

it's almost scary how simple it is but

the warning signs were there

and and just to to show you kind of

maybe where we are with actual numbers

today let me go to this piece right here

uh it is uh they show us how how close

we are I'm pretty sure when I get to

Green over here there we go look at this

the expansion of the money supply is

about 17 today and consumer prices are

about 14 above Trend today in other

words consumer prices are almost

completely caught up to to this change

in rate of the expansion of the money

supply okay so let's go back to where we

were under this page okay so zero rate

of change Zero inflation money supply is

growing constantly massive increase in

the money supply my M to M2 here on the

left right and what happens inflation

skyrockets what are we actually getting

now well now we're actually in this

environment where we're reducing at

let's just say a constant rate

okay so the money supply is declining at

a constant rate so gee I wonder what's

going to happen with inflation

it's obvious it's gonna go down

uh this is where people are like and

including the bull the Bulls and the

Bears are slamming their heads against

tables going fed like it's it's gonna go

down you're going to overdo it and the

recession is going to be what the bad

part is because you're going to destroy

so many companies and this is where you

get a lot of the Bears saying look

there's no reason why companies should

be coming more valuable right now

especially in certain sectors which I

believe are ones that don't benefit from

the new sort of stemi checks that would

be Staples uh grocery stores Staples

McDonald's restaurants these guys in my

opinion Costco's uh right the uh the uh

whatever these are the ones that are

probably going to end up getting screwed

in the next few years and it's the ones

that are getting the stemi checks while

we're visiting deflation then in my

opinion you're going to see the massive

explosion of of value and and that's why

I personally am so heavily focused right

now chips EV battery makers etc etc etc

Tesla whatever whatever because

we're likely to see the disinflation

while at the same time the people

getting stimmy are these sectors so

while you get disinflation and the FED

likely pushing the broader Market

towards recession because they're so

behind they're not paying attention to

the Gunther and the fact they're not

paying attention to that instead they're

paying attention more to the traditional

Keynesian economic School thought you

probably have the FED pushing us over

the over the edge into uh into a sort of

a darker territory which is bearish for

a lot of markets broadly but in my

opinion actually oddly bullish for the

the ones who are surviving and getting

the stimi checks and those are those

here so hopefully you learned something

with the guy tell it on the fact man

take a shot every time I've said that in

this video you'll be fine just don't

drive now Fair follow-up here you says

you say a constant rate of M2 increa and

increase didn't lead to inflation how

does a constant rate of decrease mean

deflation okay let's let's clarify that

because you're right when we go back to

the question mark I drew here the point

that really is being made is it's to say

that okay if we're switching so when we

inflect when we inflect there will be an

impetus change and even if that impetus

change is going back to zero right which

is not deflation this change right here

is considered disinflation right going

from a higher level to a lower level

that's considered disinflation going

negative would be deflation right

generally it's going to be technology

that's going to push you into deflation

which could happen but you're right

let's clarify that let's not go as far

as calling it deflation but the idea

would be if if we're getting to this

this impetus of a Contracting money

supply we should be approaching zero now

obviously this is a broad effect and

it's hard to sort of micro down and say

this is exactly what's going to happen

but I would I would guess solely by

looking at this effect and of course the

leading indicators we're looking at

whether it's corporations earnings calls

whatever it may be

it and and the supply of labor which has

exploded we do still have crazy labor

mismatches though which is a problem but

anyway we would expect to see

disinflation over the next few years

very very rapidly and very quickly but

when I say very rapidly uh that's over

the span of a few years uh and so I

suppose you have to zoom out to call

that rapid uh but I do think that in 10

years from now we look back and we're

going to go uh wow yeah money supply was

expanding at a constant rate okay no

surprise inflation was what stable oh

you all of a sudden expanded money

supply super quickly what happened oh

wow you had inflation oh then you went

back to a stable money supply uh and a

stable rate of now Contracting money

supply what happened oh wow inflation

basically went back to stable right this

and then this period of time right here

right here I think this is what you'll

end up labeling as uh uh there we go

let's write this here transitory

uh now again that'll be painful because

it'll actually have been 2022.

to probably 2020

four or five right

so this period of time will have felt

very long and hellish but it could

according to this principle should end

up proving to be accurate and then who

wins during that time well again the

ones getting the stimmy checks in my

opinion