Will the Stock Market Rally in September?

hey everyone me kevin here in this video

i'm going to go through the truth about

why i'm not buying stocks right now and

my thoughts on inflation and how my

thoughts have changed over time

some folks very few who maybe aren't

really clear on following nuance think

that i have flip-flopped in my opinions

on inflation and in this video i want to

provide that nuance and some graphical

depictions of sort of what's going on in

my mind as it relates to inflation and

then potential stock strategies which

we'll talk about towards the end of the

video and i think the easiest way to do

this which we talked briefly about this

morning in the course member live stream

which which sort of spawned the idea of

ah you know we should make a broader

video on this i'm gonna do things like

this pretty regularly which of course

there's an amazing coupon code linked

down below for you to join in those uh

course member live streams but anyway uh

it i i thought you know what why not

make a broader video just sort of

clearing the air about this let's get

this out so

the easiest thing to really do is uh

take just a blank sheet here and what

we've got is sort of this this continuum

right so we've got uh november of 2020

right here uh feb march july here's that

september to october kevin keeps talking

about in the november plus right and

what we're going to do

is we're going to kind of draw on here

what i expected

in terms of inflation what has actually

happened

what kind of projections we're looking

at now

and how delta can screw everything up

and it's worth seeing this graphically

because graphically it helps us

understand where the pain is in the

market and potentially how it could

change going forward

and maybe that could guide us in some of

our investing decisions so

let's go ahead and draw this so first if

you go back and watch my videos in

november of 2020 what you'll find is

that i expected inflation or the

market's inflation expectations to

really start going up in march of 2021

and this really sets our baseline we

knew this was going to happen because we

were going to be hitting those

year-over-year numbers uh comparing

march of 2021 all the way back to march

of 2020 itself or april figures to april

of 2020 and there was a big hole in in

inflationary readings right this is what

the graph looks like so when you compare

back to the hole obviously you you have

larger inflationary readings

so the expectation which we knew this

was coming the expectation was that we

were going to have this relatively low

inflation some sort of explosion in

inflation here

and then we would begin to see a

flattening

and then come september and october we

would see a sharper kind of inflection

point to the downside and then maybe

this sort of leveling off this is

roughly what my expectation

was

for inflation

now let's draw a reality which it's

always good to do expectation versus

reality

and then see the difference so the first

thing because it also helps us learn for

the future in terms of how our

expectations might be modified for the

future and i think graphically this is

the best way to do it so what actually

happened

was we we had this low inflation but all

of a sudden in february we had a freak

out about inflation so we really saw

this inflation come in much sooner or

concerns about inflation come in much

sooner than expected and unfortunately

higher than expected

for

longer than expected and so this is kind

of where we are now this is this is what

we felt uh and so this morning when we

talked about this a bit in the course

member live stream i really called this

extra increase right here inflation fat

right like this extra inflation these

extra supply chain issues uh the the

inflation that's larger than expected

and longer than expected is really

represented by this orange here so you

can see like

trajectory wise it doesn't make sense

when people say oh somebody's

flip-flopping on their opinions on

inflation they're just modifications

like a flip-flop would be like you think

inflation's high and then the next day

you think it's going to be low right it

doesn't make any sense at all that's

illogical it's illogical when people say

that

unfortunately just a small minority

folks but it's important to realize that

modifications and inflections in the

market are things that we could study to

try to understand how do we want to

invest going forward so what what is the

current sort of projection

so the current projection going forward

is also slightly different and that is

that we do expect there to be an

inflection point but we've kind of

softened how quickly we think that

inflection point will happen

and uh how how low that inflation will

go so this dotted line here i'm going to

call the the projected line right so

we'll just say dotted line here is

projected and so what you can see is

this really builds in not only more

inflation here but it also builds in

more inflation here we still have a

downward inflection that we're expecting

for inflation but it's not as much of a

downward inflation inflection as as

we're hoping for which one of the

reasons i bought a lot of call options

back in may was because i believed when

we would see this substantial

plummet here like this sudden

rotation down in inflation

that we would potentially see a euphoric

rally in the stock market because the

stock market would go whoa

we were not ex like whoa we knew high

inflation was was here but we were not

expecting it to disappear that fast

but now

that that potential of it just

inflecting down quickly is softened by

the supply chain shortages that are

continuing

and

the potential for rents to go up and

services to go up now they didn't go up

as much as expected in the last reading

but still we're expecting inflation to

be a longer run issue than expected and

so these this is a change in

expectations uh and uh unfortunately

that means in my opinion there might be

less

of a of a rally when inflation doesn't

fly downward but now here's where things

get fun

uh so the fun part here

is when we try to include delta in this

okay so delta screws all of this up even

more so ironically i mean let's think

for a moment what happened with covid

with kovid

people spent less money

sales went down which is funny because

or maybe not funny but it's like that's

what's kind of happening right now right

sales went down so sales went uh down

with covet sales are going down now

we're seeing retail sales slow we're

seeing this inflection point in people

spending less money compared to where

they were spending more money because

they were propped up by

stimulus money right which we don't have

anymore the odds of a fourth stimulus

check are pretty elusive right now

excuse me but anyway here's what delta

could do

delta could come in here and create a

pause in spending while creating a pause

and spending we would expect supply

chain shortages to actually worsen as

china shuts down ports

because they're freaking out about covet

or whatever because that's what china

does

that'll worsen our supply chain issues

which actually prolongs inflation in the

long term but in the short term we

actually potentially

draw this as this potential delta dotted

line here we potentially actually suffer

more deflation in the short term

but then when we come back out of delta

whenever that is we have no idea when

we'll come out of delta but whenever we

come out of delta it's possible that we

end up with higher inflation than we

would have had it not been for delta

so this creates like this this is why

there's so much uncertainty in the

freaking market right now because look

if we were going to follow the red line

and inflation was going to plummet

and we would well then in that case we

would stick with the the basically the

original idea which was okay well if

inflation plummets then the odds are we

would see a rotation back to high value

in tech and people would be very excited

about going back to high value in tech

because they're looking for yield

well now with the current projected

green line we have more inflation for

longer so you have the market a little

bit more mixed the market's kind of like

ah i don't i don't really know where to

go i don't really know where to go like

i don't really want to go into high

yield or high tech yet

because what if all of a sudden we do

have more inflation right

which which we expect to have more

inflation so you kind of have this

hesitancy in the market then you have

delta which is putting a lid on top of

recovery stocks but also creating the

fears that we could have temporary

deflation but then worse inflation as we

come out of it potentially leading the

fed to have to raise rates sooner right

so you've got these really bizarre

scenarios where right now the market

just feels like there's no right answer

right now i mean there's always buy and

huddle i mean that's easy that sure but

if you if you're buying hodler you might

not even be watching this video but if

you're trying to find the strategy in

the market this this is very complicated

because if you get a temporary collapse

in inflation because delta all of a

sudden is getting worse well then that

changes that that's going to hurt

recovery stocks

that potentially is going to lead people

to flee to safety but maybe it's not

going to be zoom and peloton maybe it's

going to be modern on apple this time

which which is kind of the trend that

we've been seeing is the safer high cash

plays or plays that directly benefit

from these booster shots and potentially

fda approval right

but again recovery would get smashed

during this time and we'd hit some new

lows which maybe would create by the dip

opportunity for a higher inflation time

of people spending money again

after we get out of delta but we

wouldn't necessarily have stimulus over

here to help prop up those recovery

plays so it you know there's a big

question there

then

uh the other option would be is if if

delta's a non-issue

well if without delta being uh or hold

on let's see here uh bullard u.s had an

inflationary shock that is large and

which the fed needs to take into account

in calibrating 2022 policy well yeah

i mean that's that's essentially uh this

sorry i just saw that alert come through

but anyway so the that's one scenario is

delta pain the other scenario is we just

have higher inflation for longer and we

end up having this sideways trading

market where we're just tentative like

okay maybe delta's not that bad okay

maybe inflation's not that bad but it's

still elevated okay maybe things just

aren't that bad but they're also not

that great or that euphoric

year-over-year comps potentially start

coming in negative because we had such a

great 2021 and so maybe that means the

entire market just trades sideways or or

even just slightly bleeds down a little

bit as the market tries to get back to

stable foundation

i made this analogy yesterday which i

think is very useful in

on our podcast millennial money and uh

the analogy i made was let's let's say

you have uh you have a house okay so so

here's here's your house see here's your

door and everything great

uh in in real estate you can build a

house on a cut lot or a fill lot well

let's say your your cut lot is uh

bedrock right here right this all this

is bedrock

uh and uh this is this is sort of your

your foundation and let this represent

the true

fundamental value of stocks that we're

investing in right now

the question is

how high off the bedrock is our house of

cards

or how high are our stocks off the

ground right now in other words how much

quicksand are we sitting on you know if

this is all quicksand

then really this is just fugazi printed

money that's propping up stock

valuations and it's possible that the

house

actually has to trend down

to bedrock

before we can really inflect up again

right get back to fundamental value and

then let true earnings carry the

properties up this is why people are

like oh kevin look we dipped to here or

we dipped to here we should go buy it

and right now i'm just like i'm not that

confident that we've hit a bedrock yet

uh and and when you combine that with

this uncertainty of of look i mean i can

i can project these things out right i

could project out okay if we have delta

do this if we don't have delta do this

that's fine in both scenarios i

ultimately want to own the shares so the

ultimate answer is is owning owning

quantity of companies that we like and

believe in the long term that's the

ultimate answer and now it's just a

matter of well

can we time it to a better bottom uh you

know or or can we get in before a

euphoric rally if inflation reflects

downward strong that's hard we don't

know and so that's where the uncertainty

is and that's why i think we have this

bizarro market right now and why

everybody thinks the market is weird and

why one day a stock like palantir is

down 10 and the next day it's up 7

i don't know

but anyway this this bedrock analogy

here especially after a season of spec

ipos and ipos

it's somewhat in my opinion something to

pay attention to it's easier it's easy

for us to look at like cheesecake stock

and go oh but hear me here let's pull it

up uh oh but kevin you know cheesecake

stock it's so much cheaper now than it

was before so you go to cheesecake and

you're like yeah it was 65

but what if this is all quicksand what

if what if the true value of cheesecake

stock is 35

and we actually still have room to go

down right so uh that is that is the

struggle of the market right now uh and

and hopefully this adds some clarity uh

as to why is kevin not buying the dip

why am i selling contracts more because

here's another thing that happens in

both scenarios and this is really

important to know in both scenarios us

going to bedrock and stocks

and

in either going through delta

or having inflation reflect downwards

guess what happens in both scenarios

in both scenarios iv goes down this is

known in options as an iv crush uh not

crash it's crush crush uh and and when

iv or implied volatility goes down

options premiums tend to go down tend to

there are a lot of things that go into

options pricing and that hurts

bot call options or bought put options

this is one of the reasons i've been

selling calls and selling puts like

crazy because i capitalize on that that

implied volatility going down i

capitalize while the market tries to

figure out what the heck is going on i

capitalize on that transition of iv

plummeting that's why i'm selling so

many calls and selling something puts

right now uh while i wait

for more answers so hopefully this had

some clarity i appreciate y'all thank

you so much for being here watching this

i know this was a little bit more of a

nuanced video thank you so much for

being here we'll see you next time bye

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