worsening...

hey everyone meet kevin here have we hit

market bottom yet or what should we look

for to determine whether or not a market

bottom has happened well folks

let's take a look at the following and

talk about what's going on in this crazy

market because we just started off the

second half of the year right again

folks let's get right into it right

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kevin.com public okay folks one of the

first things that we really need to hit

a bottom is what we call a cathartic

flush out and this is really when the

volatility index gets to a point

of such height or such extreme

which in this case is actually

represented by

a decline over here and that's because

of the measure we used but in other

words when these lines here were at lows

the volatility index hit substantial

extremes and you can see right here in

this inverted chart

that we really haven't hit extremes yet

that we hit extremes over here in the

dot-com bubble when we bottomed out at

the beginning of 2003 we hit extremes

here in 2009 we had extremes during the

covet pandemic and really what was

incredible is the copper pandemic wasn't

that long ago and you might remember

that during the coveted pandemic we saw

price drops in the stock market of the

dow and the s p of three four five

percent at the same time we saw stocks

plummeting oh across the board 15 to 20

percent now in case you don't remember

the covet pandemic take a look at this

screen right here this is a screen grab

look at that amazon down seven percent

disney down thirteen percent zillow down

fifteen percent tesla down thirteen

percent you the nasdaq in here over 8

down the dow

9.3 down this folks was march 12 2020 i

have a screen grab recording of this and

it just really reminded me of wow that's

kind of what a cathartic flush out looks

like that's what it looks like when all

of a sudden the volatility index goes

from this insane

low

where things are relatively benign like

they are now and it just feels like

we're bleeding out

and we actually get to a real

capitulation point that yet

hasn't occurred in this market now part

of the reason for this is we still have

relatively low longer term inflation

expectations sure over the next year

folks have a lot of fear that inflation

is going to be quite substantial as they

should this is a consumer sentiment

expectation here and then of course

we've got the five-year expectations

here we're not really expecting what we

saw in the 70s and this chart does such

a great job of showing us that

difference of expectations because if

you look over here look at this this

massive slope that we have here this

represented the expectations of

individuals for one year ahead and five

years ahead back in the 70s when we got

paul volcker so you could really see

that missing anchoring of inflation

which we have today we have an anchoring

of inflation

in that look at these long-term

expectations of the five-year they're

relatively anchored here along with

history sure the one year is higher but

that five that three to five year term

out is relatively anchored and we're

seeing this not just in consumer

expectations for inflation as well we're

also seeing the same

phenomenon occur in the bond market in

fact if we jump over to right here

you'll see towards at the bottom here

look at this recent decline we've had

here this plummeting this is a

plummeting that has really been unique

to the end of june and end of july here

in the bond markets expectations for

inflation if i go all the way over here

you kind of see this january february

ramp up this sort of aligns with

the markets just having a horrible time

right

but look at this plummet over here where

sure we had a commodities boom we had

expectations that inflation was going to

go to the moon but those expectations

have really subsided so you're kind of

in this weird environment where it's

like okay so we're not having a

cathartic flush out where the vix

explodes and inflation expectations run

away and this is really the end of the

world because

maybe it's not really the end of the

world but then again it depends whom you

ask because if you take a look at this

chart

you can see this spread between on

average or in the median here the middle

in the middle inflation expectations are

anchored but if you look at the people

who believe that inflation the top the

25 percent of people who think inflation

will be the highest in the next five to

10 years that's the 75 percentile item

here if you talk to these folks

inflation is a runaway problem and we're

gonna have a disaster these are

generally your low your really vocal

inflation is going to kill us folks and

then you look over here at the bottom 25

and these are your and this is not

bottom 25 of income it's just of those

with the lowest inflation expectations

these folks say no no we actually think

inflation is likely to be even less

going forward because it's so high now

so you look in the middle most people

nowhere near what we saw in the 70s or

in this in this particular chart doesn't

even go back to the 70s it just goes

back to the 90s historically still

relatively low we've got this divergence

between the vocal folks so the inflation

is transitory folks and then the peter

schiff we're screwed folks

and so to some degree it makes sense

that we don't have the conditions for

like that kind of big pain that we saw

in the 2020 pandemic again at least not

in in a very short period of time it's

more like a slow bleed out but we've got

to also be real see this segment right

here on the chart this lower area to the

right of the chart here

this is a representation of real

two-year yields so what's the two-year

treasury bond yielding minus inflation

you get to the real estimate

what you can say here is it's still in a

miserable position it's super super low

at negative six percent

and one of the things to know is

throughout this chart over here the

federal reserve has never ever ended a

tightening cycle

without positive real

yields you can see even right here in

the middle roughly where i am we see

this positive which is kind of above

where my arms are here positive that's

when we last ended the tightening cycle

back in the mid 2000s although i will

say we did also end a tightening cycle

briefly when we kind of took a pause

over here in the 2018 era and again you

can see that yields were just barely

positive there but we don't have that

now which actually to many market

experts says we're quite far away from a

bottom because not only do we need to

have this chart be

positive which means the fed has to talk

these yields up which right now yields

aren't going up they're actually going

down they're falling today why they're

falling because we have recessionary

fears and folks say oh we'll flee to the

safety of the bond market and we'll be

safe in the bond market well great the

more people flee to the safety of the

bond market and more those yields go

down the more the fed has to work to

tighten so you've actually got a pretty

terrible setup of conditions that

suggest no the bottoms not even close

why well let's write those out first

the vix has not had a flush out yet we

really need to see a vix of 40 plus to

say okay yeah this this is capitulation

this is a bottom we know that retail

hasn't capitulated yet although the

amount of money that they're able to

contribute to the market is trending

down this makes sense we talk about this

regularly with course members about

what's the best balance between cash and

being invested of course everybody has

to make their own decision but it's a

question that we're asking on a daily

basis and if you're not part of the

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link down below so we don't have that

flush out yet we've got retail with less

money to contribute we do not have we'll

say no

positive

yield on that shorter term which is the

two year

and with people every time you see like

the 10-year treasury going down like it

is now anytime that 10-year goes down at

somewhere around 2.81 right now as a

yield anytime you see that you should be

thinking to yourself crap

that's actually bad this should be going

up not down because the more it goes up

the more financial conditions are

tightening the more it goes down the

more financial conditions are loosening

right a decline in this treasury yield

represents also a decline generally in

mortgage yields which makes it more

affordable to go speculate on housing

again right and so these are conditions

the fed is going to look at and say well

folks we got to talk up

the two year the short end of the curve

we get to talk this up which means more

pain coming from the fed we got to talk

this up to actually tighten things in

the market

we've got to get retail to the point

where they're out of money and then

we've got to get them to a point of

capitulation where that vix flushes

above 40 or to create a flush out we

still haven't seen these conditions

unfortunately when we map this out it

doesn't really matter if our economy is

such that potentially it's going to move

into a recessionary territory many of us

think we're already in one uh starting

in about february i realized as well

myself like yeah no this probably is the

beginning of this fashion the recession

doesn't have to be two quarters long

either right we could end up having a

four to five quarter

long recession

and this is what's creating fears of

stagflation is that we could potentially

be in a recession right now which would

be represented by q1 and q2 being in a

recession but then at the same time we

could see growth come off this crazy

sugar high that we've been on and we

could see growth at a negative at

companies nike's already got negative

growth

year over year and you see that two

quarters in a row now you've got an

earnings recession and when you couple

an earnings recession with high

inflation what do you have a stagnating

economy you have stagflation and so it's

very likely that we could be facing this

stagflationary disaster

over the next half of the year here a

lot of folks are convinced that this the

second half will find its bottom

i i'm in that camp as well but i have to

tell you you know i go through my notes

and i'm not always right i look back at

uh

last april and last summer and i said to

myself actually i wrote this down in our

course member alerts it was one of the

things i remember saying is first i

mentioned hey i'm going to sell

shift technologies because i think if

when there are lack of used cars you

can't advertise and bring new customers

into a platform so i've been out of

shift since uh somewhere between six

dollars and fifty cents and seven

dollars because of of just the the macro

changes that we've seen in the used car

market terrible place to be is a used

car manufacturer so at the same time i

was talking about this in our course

member notes one of the things i

mentioned was hey you know if we have a

prolonged bear market there are certain

stocks that we want to be out of

and uh at that time

the odds i thought of a prolonged bear

market within the next year were closer

to 20

well unfortunately uh the odds of uh uh

well my prolonged bear market i should

say

came right we've been in a bear market

now for coming up on seven months here

so obviously that can happen

at least though you want to have a

manuscript for what are you going to do

right so for example you can't hold on

to a company like a firm going into a

recession at least until the allowance

for losses at a firmer financials maxes

out and then that's when you want to

hold companies like this but these are

this is why it's so important to write

down what your expectations are so that

way you can see an inflection point in

your expectations and it's okay to to be

wrong on a projection what's most

important though is that you notice

changes coming in those projections uh

and unfortunately we're just not yet

seeing

an inflection point other than some

things that suggest hey the market's

slowing down take a look at this global

semiconductor stocks falling to the

lowest level

since 2020 relative to the overall

market right here so this means you've

really squeezed out all of the

semiconductor premium in the

semiconductor market which is quite

phenomenal especially since most folks

have looked at semis as as the next

innovative play to really be within you

can go over here and take a look at

commodities and that's this blue section

right here this lower blue here what you

can see here is commodities seem like

they may be peaked here towards the end

of may and beginning of june maybe we're

getting some relaxation and commodities

which might take some pressure off of

inflation but how could you take

pressure off of inflation when you still

have

an increasing set of of lagging housing

inflation coming via owner's equivalent

rents and at the same time

single stock volatility is still

substantially below what we had during

the dot-com era and then certainly of

course even during the recession over

here this is single stock volatility

here coming in at about .38 and look at

this we were almost double that

volatility in the dot com era and

substantially above that both in the

covet pandemic and the uh 2008 recession

so uh does this mean we're at a bottom

probably not yet we've still got a lot

of work to do is it possible we could

bleed up maybe that'd be nice like it's

sort of instead of bleeding out like

slowly maybe bounce around the bottom

and slowly start trending up again maybe

but again if you look at the conditions

of the federal reserve and what they're

trying to set they want positive real

yields they want a higher 10-year

treasury they want tighter financial

conditions those are things that

actually spell for more pain to come

when the federal reserve has its meeting

in a couple weeks at least more tough

talk and they'll be going in a blackout

period before their next meeting but

expect they'll have their meeting we'll

get some tough talk at the meeting and

then after that we'll get even more

tough talk because again as we see these

bond yields come down the fed's thinking

dang market's going the opposite

direction again time to talk dirty to

the markets again

so

write down your expectation this is sort

of my

overarching tip to you is write down

your expectations though uh in my

opinion if i were let's say 50 50 cash

right now okay so let's say we're 50 50

cash what would i be writing down well

if i were looking for a bottom to deploy

some of that cash versus uh

you know

easing characteristics what would i be

looking for well easing characteristics

obviously would be cpi coming down

unfortunately right now the expectations

are this week when we get our next cpi

read we're going to have the highest cpi

ever it's going to come in at a rate of

something like an 8.8 percent which is

even higher than we had before it's at

least the bloomberg consensus estimate

again to get that bottom we need that

that vix uh probably to be above 40

again maybe even above 50. in addition

to that we need a positive

yield

on the uh the two-year that's a positive

real yield on the two-year we certainly

in order to see some more easing we need

to see commodities continue their trend

down and we probably need to see oil

sub 75 dollars per barrel though jp

morgan just released an estimate that a

worst case scenario could be that come

winter season we could uh we could end

up having oil run up to 380 right so a

lot of this

is hopeful that cpi will actually peak

meaningfully that we'll see commodities

continue to trend down that we'll see

oil come down maybe that the war ends in

ukraine unfortunately what you have

you've got a situation where putin

doesn't even seem like he's interested

in negotiating he's going to keep going

until he gets what he wants and so far

at least in the last few weeks it looks

like ukraine is quite frankly running

out of weapons and running out of money

and running out of soldiers and

things are

leaning a little bit more in favor of

russia right now that's not great

again we've been talking about the

conditions for bottom which we haven't

really seen yet so

we're in a tough spot to say with

certainty that yeah now is definitely

the time to take all that extra cash and

flush in but at least now you have some

ideas of the things to track to know

when to adjust no matter what stock

you're in you should always be asking

yourself what should i be looking for

for a red flag now another thing you

might just end up doing with leftover

cash is what i've been talking about

since january which is just wait for a

u-turn from the federal reserve the

problem is the following

right now we have year-end estimates

that the federal funds rate will be at

three percent by the end of the year and

by early 2023 will rise to about three

and a half percent with a u-turn of the

fed going back from three and a half

percent to about three point two five

percent sometime in the summer of 2023

the problem with this folks is you've

got people like bill ackman okay now

keep in mind bill ackman if for some

reason every time it seems like he comes

out yapping it's on a bloody red day and

he's shorting that day now i can't

guarantee that it just happens to be

something that bill ackman likes doing

maybe he calls it hedging but he likes

to get out of the money puts essentially

not necessarily could be using other

derivatives but something to this fact

to where if he gets a short-term spike

he makes some big money but anyway he

came out this morning conveniently and

he's like you know the fed's really got

to get to four to five percent to kill

inflation and that's going to be better

in the long run for everyone he says

well

folks if bill ackman is right and the

fed even has to get to four percent that

means the market has to price in another

half percent of tightening and delay

that u-turn which the market also would

have to price in any time the market

still has to price in bad news and we

approach that bad news you get more pain

in the markets right so

folks i i don't know i i think if you're

in this market

i hope you're just dca in and this is

another thing that we talk about uh in

in our courses as well is look the

market cycles do this and you really

have a choice when the market goes down

of course you could try to sell here and

buy here right but timing is difficult i

mean even if you sell there and you buy

a little bit earlier you know you buy

halfway down or three quarters of the

way down the cycle even if you do that

you still have to offset the fact that

sure you may have reduced your cost

basis but now you've got to pay taxes

right so there's a lot to consider when

you're doing this but for most people it

seems like

trying to do buying in this this lower

section here is actually a beautiful

opportunity

unfortunately a lot of folks who sit on

cash that do end up selling no matter

where they end up selling uh oftentimes

they end up missing this and then they

end up really waiting for confirmation

because any kind of bounce they just end

up calling a bear market rally uh that's

or a dead cat bounce that that's just

gonna end up giving back and going lower

but for me it's these highlighted

periods right here here this is really

where i want to be buying and it's

periods like november which is what i

was doing as well i like to trim

selling you know 10 to 20 percent of the

portfolio and doing a little bit of

trimming obviously in hindsight it's

like should have just sold everything

dead right hindsight but uh but this

generally can be a good strategy in

euphoric times you trim and uh in

painful times you just slowly add add

add not to any kind of breaking point

where obviously you're going to get

margin called or something like that but

certainly in a position where

you're taking this extended period of

pain which that could be a year right

there could be longer it could be two

years you know dot com bubble was three

years so it could be a while yeah and

you're using that as an opportunity

anyway some more thoughts i'll give you

this because we just had some click bait

over this from

bloomberg bloomberg was suggesting uh

via a headline that tesla is pausing

gigafactories that was their headline

tesla pausing gigafactories i'm like oh

that's actually one of the worst things

that you could say because what we want

and it's a catalyst for tesla is we want

tesla to produce more gigafactories not

less we want to see them copy and paste

the model of giga berlin and giga austin

taxes all over the world let's get 10

more gigafactories within the next five

years and so the this idea that oh no

tesla could be pausing factories is

actually terrible and it's one of my

conditions for uh massive warning signs

for for potentially getting out of a

position

like tesla is is us not being able to

continue to expand the uh the

gigafactory setup of course when you

actually read the article you see that a

lot of it was well really just clickbait

so here you can see the title tesla

pauses plants and i hear that i'm like

what are you talking about tesla paws

plants but then of course all they're

really doing here is they're actually

upgrading their model y assembly line in

shanghai for the first two weeks of july

such as one of the lines uh they're

pausing so they'll keep producing the

three then they're going to switch and

they'll pause the model 3 line for a

20-day stretch starting july 18th and

they're going to work to upgrade factory

output for both of these vehicles

expected to be completed by early august

so you're going to have that mid q3 kind

of temporary shutdown pain point there

and then we also expect that berlin will

take a two-week break starting july 11th

uh you know so to me that's a completely

different story than a catalyst that

says oh yeah we need to uh dump tesla if

anything that's like no this is great so

what you're telling me is uh you know

we're now initiating upgrades to

increase production uh and we

potentially could more than offset the

the delay uh in in having paused these

lines by producing more vehicles once

these lines are upgraded i actually

think that's considered investing it's

not really pausing gigafactory expansion

plans yeah some of these are temporarily

taking a break in some lines for

upgrades but totally normal for me

totally frustrating headline there but

anyway so these are things that i'd be

looking for

i think it's always important and i

would do this right now as i would write

down what are my catalysts to say when

am i going all in with my cash write

these conditions down so you could

actually compare them and you should do

that for every stock and every

individual stock that you own as well so

that way you know what's like a red line

for you what's the worst case scenario

for a stock i mentioned a firm earlier a

firm a big thing for me was hey a firm

is great in a bull market you do not

want to own a firm in a recession at

least until you get to max allowance for

credit losses

and quite frankly a max default rate

which guess what folks buy now pay later

has not been through a recession yet

it's not necessarily a play i'd want to

hold through a recession but anyway see

what happens thanks so much for watching

folks we'll see you next one bye