Why the Stock Market is Freaking - AGAIN

hey everyone meet kevin here so stocks

are starting off a little red today and

there are quite a few reasons let's talk

about those have to do with ecb we'll

talk about incomes and demos we'll also

talk about zombie companies and this is

a really big one because a lot of our

favorite names have this issue and

they've been issues that i've been

talking about regularly whether it's on

this channel or also to course members

where one of the big things that i worry

about especially in times like this is

stay away from heavily indebted

companies there's a reason why indebted

companies can survive when rates are

zero percent but guess what tends to

happen when rates actually start moving

up and you've got zombie companies still

reanimated so stay tuned for that we'll

talk about that during this video but

first let's talk about the ecb

euro

area era well

eur the eurozone just had an inflation

report that came in a lot hotter than

expected the survey was for a 7.8

estimate for inflation in may and we

came in with a jump of eight point one

percent so we missed by about three uh

point three percent there which is not

so great uh even though core was

substantially lower that headline

inflation is still going to lead to

concerns that the ecb might end up going

with a hawkish 50 bp hike as well this

is really similar to the fed except you

have to remember that the eurozone is so

much more used to deflation and negative

interest rates than the feds so if we

get some kind of 50 bp hike over at the

eurozone be a lot more of a shock

to markets than than most are pricing in

markets right now are pricing in about a

25 basis point hike maybe in july keep

in mind ecb still has not raised rates

right so to go from zero and the

expectation that maybe we'll get 25 in

july to all of a sudden seeing like a 50

because of higher oil prices you know

brent's still sitting at like 120 bucks

a barrel it's pretty wild

you know that that could actually lead

to some global tightening in emerging

markets and i know some folks might

think well kevin i only care about the

united states market but remember if one

market like the eurozone market gets

substantially more inexpensive that is

their stocks to get more expensive you

do end up seeing a demand shift from the

united states to a cheaper market

whether that's from the united states to

china or the united states to europe and

so then that reduces demand here which

then potentially reduces prices here as

well it's all connected

now of course last week what we saw at

the end of last week was potentially

what some were calling a little bit of a

tactical rebound and that was basically

founded in the idea that okay well maybe

the fed has reached its peak tightening

and maybe maybe fears of a recession or

overblown because people keep spending

money although the more people keep

spending money the more we kind of get

this weird balance where it's like okay

well if the fed's tightening but people

keep spending money then maybe the fed

needs to tighten even more to actually

bring inflation down but we did see a

little bit of the bounce last week

not necessarily sure if it's going to

continue obviously a lot of folks are

hopeful but i'll tell you there is so

much fear and uncertainty and doubt out

there right now that it's almost it's

really hard to call any kind of bottom

in this market this probably been one of

the most difficult markets for really

anyone to predict whether they're

institutions or individuals but let's

talk about those zombie companies so

zombie companies this is an important

one zombie companies are companies that

don't make enough money to literally

just cover their interest expenses and i

hate to give you some of the big names

here but i'm going to do that after i

remind you that today's the day that

prices are going to be going up on the

programs on building your wealth they're

all linked down below keep this one

short you know it you've heard it before

but today's the day so this is going to

be the largest increase because we got a

huge set of new lectures coming out by

the middle of next month they're already

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them being recorded so super excited for

those coming out especially the wealth

path course even stocks and psych you

name it so and of course real estate boy

we've got stuff coming for real estate

it's gonna be fun but anyway

big names that are zombie companies

right now

amc folks amc american airlines

carnival cruise lines and these are

companies that i've been looking at but

i keep stopping myself from wanting to

buy with the exception of the amc shares

that i do already hold because i

promised i would hold those shares for a

year which we're actually probably at a

year right now but i'm still holding

them and what's fascinating is that

zombie companies as i alluded to earlier

are companies that you can really get by

and survive with when it's easy to

borrow money remember the bond raises

these companies regularly did when rates

were zero percent and as soon as the you

know potential depressionary fears of

the covet pandemic went away what

happened well all these companies were

able to borrow and refinance at lower

rates lower rates carnival was

previously borrowing at like 17 percent

they were able to get down to 11 and

then you get down to six percent and so

on and so forth well that's all fine and

dandy when federal reserve rates are

zero percent but it's a big issue when

you need a lifeline now and rates are

going up and you're facing rampant

inflation in the market we've already

seen a 75 percent decline in bond raises

by zombie companies this year and it's a

clear sign that even if they wanted to

raise money it's gotten really hard to

raise money in fact

we've got a chart i'll pull it up really

quick and it gives you a little bit of

an idea about what's happening in the

bond market

especially the junk bond market and

you've really seen a u-turn at the

beginning of this year take a look at

this on screen now so now this is your

adjunct bond pricing here and you're

seeing that junk bond pricing kind of

plummet here at the beginning of 2022

and look at the other times on this

chart that you've sort of seen this

plummet you had it briefly during the

beginning of the taper tantrum over here

in 2016 so you tend to see these the

pricing for these go down and when

pricing goes down this means yields go

up right

and yields going up is very very bad for

zombie companies because zombie

companies don't want to have to pay even

more interest to try to get financing to

stay alive remember zombie company still

means you're burning more money in just

interest than you're actually making

which is pretty wild but take a look at

that nice plummet we've got over here in

that junk bond market which is kind of

similar to what we saw over here in the

coveted pandemic not quite obviously

still probably have another 50 or so to

go but you see that inflection point

beginning and so even when we see in

private capital markets it's harder for

people to fundraise now

it's no surprise that junk bonds

especially from zombie companies

are going to be even harder to get uh

you know money races done in which is

really bad because

for them at least but some say it's

actually really healthy because what

ends up happening well you'll get a

large

cleaning that happens essentially a

bunch of bankruptcies so very very

likely that you get a lot

of bankruptcies if we continue on this

high inflationary path high interest

rate path the zombie companies are going

to start turning over and in the last

few years

we now have about 20

zombie companies out of the in united

states as large as 3 000 companies so

think about that with 3 000 of the

largest companies in the united states

600 of them are zombie companies again

companies like american airlines

carnival cruise lines amc you know a lot

of a lot of the names that became sort

of meme names have or what i like to

call momentum names

or at risk there there's a chopping

block there so you do really want to be

careful that even though we could we

could see these like nice you know 10

movements on on like an amc or big

swings on you know smaller companies

especially the the reopening trades that

became such momentum names whether it

was carnival or the airlines or whatever

we've got to be really careful because

when it comes time for them to raise

money in this kind of market could be

the end of the company's ability to

operate it's just a warning

so another thing that we've noticed uh

and this is just a little bit more

historical

and it's just an interesting chart to

look at is uh how incomes have changed

over the last

50 years for folks take a look at this

chart right here so this is a chart of

how incomes have changed again and you

could say over here that incomes for

those in the upper

echelon upper income so probably top 20

top 30 or so

actually well uh 219 000 this would be

more like the top like five percent

anyway top five percent folks of income

has gone up about 61

so you've seen a 61 increase at the top

whereas at the bottom you've seen about

a 45 percent increase

in income so again kind of showing off

that sort of difference in how wealthier

people are getting wealthier you know

there's similar charts on this obviously

for race as well and one of the big

differences continues to be home

ownership home ownership being one of

the big reasons why you see wealth

increase substantially more for whites

and asians than blacks and hispanics

home ownership huge difference remember

that the average net worth of a

homeowner is somewhere around a hundred

seventy hundred eighty thousand dollars

whereas the average net worth of a

tenant is somewhere around five to six

thousand dollars and if you're one of

those folks who believes oh well i can

make more money investing my down

payment or whatever

then

in the stock market than i can in real

estate i think you're sorely mistaken

and you should absolutely check out that

zero to millionaire real estate

investing program because there are so

many easier safer ways in my opinion to

make money getting started in real

estate than getting started in stocks

okay

next

we have

okay so we talked about bonds we talked

about this ah options yeah we want to

talk about options and we talked about

the ecb okay options so this is

interesting too and it just sort of

highlights a little bit of the pessimism

that we're seeing in the market right

now this is our chart of uh call option

buying right now and uh you know

you can see over here

during our last massive rally over here

we have a massive massive uh call option

buying because it was really really easy

to make money on calls because you could

buy them and just hold them and you'd

make money same thing over here i mean

look at how much sort of buy and hold

call options essentially we had here by

continuously buying buying buying right

and uh compare any of that to this small

level over here of call option buying

you're getting and it makes sense

because

a lot of these call options uh

you know are are just uh

you know evaporating uh a call options i

think are terrible in this market i

think the only reason you'd want call

options is to prevent yourself from

going into margin or going into uh you

know essentially um

heavy speculative positions

so during the time of this recording

we've seen uh the qqq dropped to about

one percent spies just down about one

percent as well tesla went from positive

to slightly negative and it's probably

because we're seeing a little bit of

that pricing in of okay how do we handle

the pain that we're seeing of uh the ecb

rate hike cycle now like if we if we've

got a clear path of the federal

reserve's rate hike cycle how is it

going to work when the ecb potentially

becomes more hawkish right and we just

continue to experience pain this is why

even when we get two days of rally it's

really important to remember stay at a

margin and stay safe right now you've

got the 10-year back up to 2.85

you've also got oil and this is a big

one you've got oil

a wti sitting at 119 that's pretty

substantial

in addition to that you've got a brent

sitting at 124. it's pretty high and so

we're going to see some of those

headline inflation numbers actually head

up rather than down because of these

these levels of of oil and energy

now uh the good news is we just got our

chicago pmi read for may it looks like

we got a read of 60.3

which was much better than the estimate

of 55 and that's versus the prior read

of 56.4 it's entirely possible that

because of that pmi print we are getting

a little bit of these green candlesticks

right here uh as that just came out

within the last couple minutes here so

fascinating but anyway expect that

volatility i think it's it's very easy

to get sort of coaxed into this idea

that

oh a couple risk on days we see you know

big moves especially in whether it's amc

or a firm or airlines or whatever

and so we see these huge moves where

like a firm for example goes from 23

bucks to 30 and it just makes us feel

like oh my gosh we can't get hurt like

pile in be careful the biggest number

one thing that i always recommend is

stay at a margin the reason for that is

you don't want to go bankrupt in these

kind of times and this pain can last all

freaking year we are not out of the

woods at any point this year so don't

rush too much into these markets anyway

that gives you an update as to what the

heck is going on

and check out those programs on building

your wealth linked it down below because

we've got a coupon code expiring today

all right so let's do let's see what

kind