The Disaster Begins | Bankruptcies & Collapse.

you're going to want to watch this one

to the end the disaster begins now

terrible earnings recession oh fud level

99 fun folks we have to be real about

what we could be facing here almost

everyone on Wall Street is expecting a

nightmare

an absolute nightmare of margin

compression almost across the board we

expect that 80 percent of all companies

will have margin compression and that

only the top 20 percent of companies

won't have margin compression and

unfortunately Wall Street is really

gloomy because remember what we talked

about at the beginning of 2020 we said

look and I believe I could have been one

of the first in this Finance Community

uh I'm not trying to Pat myself on the

back I'm just trying to say one of the

things I warned about in January was if

we have two quarters in a row of

negative GDP we'll have a technical

recession now that doesn't necessarily

mean that we're actually in a recession

it just means technically on paper we're

in a recession and what the concern then

becomes is if people believe we're in a

recession do they pull back and go whoa

we gotta pull back spending oh no and at

the same time as people pull back

spending do poor people then start

piling on and taking on all of the loans

and we have some data now that suggests

maybe we are being too gloomy maybe Wall

Street is too concerned and one of the

most important things for you to know as

an investor is what is your Achilles

heel see if you're all cash and you're

shorting the market right now or you're

out of the market you got to ask

yourself what's the bull thesis that

you're missing if you are in the market

you've got to ask yourself what's what's

the danger that you're missing right and

so we cover a lot of both sides but one

of the things that we really have to

look at is what's going on with

consumers and I'll tell you there's some

stuff about consumers that's actually

well I'll let it speak for itself look

at this we've heard that borrowing has

skyrocketed over the last quarter we

actually seem that you see that here

total Consumer Credit a skyrocketed one

of the highest levels we've seen before

I've talked about this in other videos

I've tweeted about it but look at this

when we actually get this Bank of

America breakdown of all consumer credit

card new accounts what we actually see

is average FICO scores

or 7 70. so this actually means people

with more of an ability to repay their

debts are borrowing

well what does it look like if we go to

Consumer autos

oh man average booked FICO score around

7.90 even though the volume for Autos is

down the people still borrowing right

now seem to be those who have more of

the ability to repay and this is really

interesting because this morning in our

course member live stream we went

through the JPMorgan earnings call we

did a little bit of research on Bank of

America and some other looks into the

consumers as I generally like to do we

even did some dominoes just to see

what's going on with the consumer and

one of the big things that we noticed

with JP Morgan is they were warning us

that hey we're seeing the lower income

segments start seeing their deposits go

down and their excess savings might be

totally gone by the summer of next year

in fact as we kind of approach the

summer of 2023 we might see not only the

lower incomes but the middle incomes and

the rest of sort of the income tiers

we'll start seeing all of their extra

savings go away by the middle of 2023 so

JP Morgan's kind of given us this heads

up that like people could still have

spending power between now and the

summer of 2023 so even though we feel

like Hey we're technically in a

recession now we actually might not be

yet because consumers are still spending

like crazy and remember that our

negative GDP numbers were not actually

driven by a lack of spending they were

driven by a negative trade report on GDP

so when we actually look at the consumer

the consumer isn't driving a recession

yet and so that could lead us to a

potential upside surprise in earnings

consider this Jamie dimon and JPMorgan

tell us nominal spend is still strong

across both discretionary and

non-discretionary categories with

combined debt and credit card spend up

13 year over year now sure eight or nine

percent of that is probably inflation

but they say cash buffers remain

elevated across all income segments with

spending growing faster than income

though we're starting to see a decrease

in deposits on those lower income

segments

so then this goes back to something else

so we started talking about in q1 of

2022 that maybe where we need to focus

is actually those businesses that appeal

to the higher income demographics who

are potentially going to write out this

entire recessionary drama I mean

consider this look at the people

borrowing right now the people

functioning in our financial markets

average credit score 770 for consumer

credit cards 7.99 for Consumer vehicle

lending we go to mortgages

768. go to home equity lines of credit

these are smart people by the way these

are people who hopefully saw my videos

in in January of 2021 where I said Now's

the Time to break the piggy bank of your

home equity line of credit get a

refinance appraisal at a high as long as

you can afford the payment open that

credit line look at that smart people

high credit scores 792 credit scores not

to correlate smart people with higher

credit scores just saying smart people

opening those lines of credit as long as

they can afford them right so that way

they have the opportunity to use that

potentially to go buy the dip in the

stock market when pain comes later so

we're actually seeing

right here unfolding in front of our

eyes the rich again getting richer

they're taking advantage of the fact

that they can borrow on their homes at

appreciated values and potentially take

this money and go buy the dip in the

stock market if they need a new car they

can get it it's not the lower income

demographics that are doing it now

that's actually really important because

the higher credit score the lower

likelihood of bankruptcy and foreclosure

or repossessions sure it's easy to go oh

click bait repossessions are through the

roof foreclosures or through the roof

sure they are when you compare to the

pandemic when there were none going on

but what are we seeing Airline demand

through the roof it's the poor companies

like Carnival cruise lines that are

getting screwed it's the companies

without pricing power like Nike because

everybody can generally buy Nike right

it's those that also appear that lower

demographic that are getting screwed

they're the ones in the earnings

recession now of course at everybody

also already got their new pc everybody

also has their new tablet look I still

haven't even opened this okay this is

ridiculous I still haven't opened these

iPads okay we just have too much stuff

now and so it's no surprise that now

we're seeing Goods inflation core Goods

inflation has decelerated from over

eight percent to six and a half percent

Services inflation has gone up to about

six and a half percent so we've kind of

met now we're hoping that inflation can

inflect down sometime in q1 of 2023

maybe but then again we've had a lot of

opium that inflation would go down by

the end of this year and it hasn't yet

so don't get me wrong there are still

downsides if inflation persists but and

I know quite frankly the consumer being

strong might contribute to inflation

which is a problem but when we look at

earnings of Quality Companies higher uh

tier companies especially companies that

appeal to a higher income demographic

for example Tesla or end phase as long

as home values are higher Generac as

long as again home values are high

anything home related requires home

values being high as soon as home values

start deteriorating you'll see that

deteriorating as well but there's a

reason you're seeing uh Tiffany right uh

Louis Vuitton right these luxury Brands

actually seeing more sales rather than

less airfares people traveling to to

Europe we're seeing more of that rather

than less from the people who can afford

it so what does that mean that means if

we are bears on this market and we

believe that this earning cycle is going

to be absolutely terrible then maybe

segment which companies you're looking

at for example Domino's when we actually

if consider inflation their their sales

are probably down 10 to 12 percent

but maybe we look at some of again those

more luxury related businesses like I

hate to say it because I don't really

think they're luxury but I do think

they're middle to upper class American

Express look at the businesses that are

still hiring not laying off who's hiring

right now Tesla's hiring for their

factories and American Express is hiring

because they're opening cards like

they've never opened cards before and

American Express is probably your top

tier in terms of FICO scores

so it's kind of interesting if you want

to stay away from Real Estate you look

at American Express and you look at

Tesla right now now we know the chip

Market has gotten destroyed and trying

to create some real issues especially

for companies like Nvidia and AMD when

25 of their revenue goes to China only

10 percent of uh Taiwan semiconductors

goes to China right so so there's a

potential opportunity but

there is some real potential that this

earnings season won't be as bad as

expected and so if there is a word of

caution to folks who have potentially uh

a lot of bearish bets be prepared for

potential upside surprises on companies

not only with pricing power but

potentially more of those luxury good

based companies because what I'm seeing

and what I'm reading on Wall Street is a

lot of Doom and Gloom but when we

actually start going through the reports

that are coming out again either the

airlines or the banks

they're not telling us to expect the

worst just yet now that's not to say hey

it's time to go to the Moon again oh the

stock market's green take out margin

Pile in stay out of margin get away from

debt in this market you still want to be

careful if you get green rally days and

you're in margin use those as an

opportunity to get out of margin but boy

oh boy

I'm I'm seeing some some good things out

of the beginning of these earnings calls

and these uh Consumer Reports here

especially what we see here on borrowing

from Bank of America here by the way is

that chart on core goods and services

you can see how core Goods inflation has

come down Services inflation is still

Rising but if we can get services to

come down especially owner's equivalent

rents that could be good take a look at

this other retail report also separately

out from Bank of America

spending from higher income Shoppers

remained strong from their October

report in September for September right

based on their October report which was

reporting on September in Q3 the 125 000

plus income cohort spent 10 percent more

on luxury than last year upper middle

class is still spending now spending by

those who make less than fifty thousand

dollars fell thirteen percent but look

somebody making fifty thousand dollars

you have to ask yourself what are they

not buying well they're generally not

Apple customers they're generally not

iPad customers they're generally not

Tesla customers they probably don't own

their own homes so they're probably not

in phaser Generac customers they're

probably not uh customers of American

Express now Atlanta which has like a

median income of like thirty six

thousand dollars it's really really low

look at this a reportedly Home Depot is

putting up six hundred thousand square

feet of space around some of their

properties in Suburban Atlanta for

Subway

and that's despite strong consumer

demand year over year in sales at Home

Depot but in Atlanta they're like uh oh

red flag this is the kind of stuff that

I'm paying attention to for house hack

because I need to make sure that when we

buy real estate for househack it's in an

area that's not going to go bankrupt

that's not going to die and remember if

you're an accredited investor join me

okay joined by the end of October and

you'll make sure you get uh it's up to

60 in warrants it's like 60 call option

so you put 100 Grand in that's like

getting 60 Grand worth of call options

totally for free now read the

perspectives for the details as to how

all that works but anyway this is a big

deal especially as they see vacancies

going up in this area and we're seeing

clothing sales soften with department

store spending falling below 2019 levels

well again who likes to go shop at

Macy's or some of the lower tier things

like let's say a Nordstrom Racks right

Nordstrom Rack generally you're under

100K demographic

right so these are places to stay away

from these are hints to pay attention to

uh now look at this here they still talk

about luxury though our global luxury

goods team reported a slower September

as well but positively highlighted that

luxury revenues remain robust as in Q2

an impressive feat given the global

context

it's interesting uh all right really

incredible so

what does this mean well what this means

is we are whether we are or are not in a

recession we are going through what I

would call The Tale of Two Cities

recession where poor individuals

households making under seventy thousand

dollars a year unfortunately you're

going to get reamed by inflation and

energy costs and higher Goods costs

those making over a hundred twenty five

thousand dollars a year are still

spending they're still borrowing they're

the ones responsible for more borrowing

which doesn't mean we have a debt crisis

it just means that they're like yeah

whatever all right we gotta get through

this we're gonna keep spending money and

so I want to be investing where those

people are spending money pay attention

to that that is potentially money all

right folks thanks for watching we'll

see in the next one bye