Warning: How Long the Crash will Last.

hey everyone me kevin here we're all

wondering when the heck the great

crisis is going to end that we have been

stuck in if you've been in any high

multiple stocks

since approximately february 19th in

other words if you've been investing in

the same stuff that kathy wood is

investing in

or even stocks similar to her use kind

of in the last two months been like

oh man i just lost lots of money

and this is no shade on kathy wood we

love kathy wood and we're huge

supporters on this channel but the point

is

right now there's a huge rotation away

from any high multiple stock and we are

seeing it

over and over again in fact anything

high momentum

which lately high momentum has really

been associated with high multiple

is selling off like crazy uh spax which

are extremely high multiple because a

lot of them aren't even profitable

huge sell-offs look it's quantum escape

down 13 today sure they had a short

seller report

but that just comes that's coming well

they're at the bottom basically

now they're getting pushed down even

further you've got gevo down nine

percent nano dimension down eight

percent canoe down seven and a half

rite aid is down the virgin galactic's

down blink is down

leona's down anything that basically has

ever been mentioned

on wall street bets it's almost kind of

just like big middle finger

and and it's it's painful uh churchill

sos

arkamoto uh bngo down four percent i

mean

anything momentum related down today

a game stopped down two percent i think

the only momentum doing decently today

is amc

coming after some positive commentary

from the

ceo but beyond that everything else is

getting spanked and even amc has had a

little bit of a sell-off

during the day today and so so why is

this happening

why are we seeing a sell-off in high

multiple stocks

at the unless you know what the easiest

way to do this is let's do this

let's write this down because this it's

ridiculous kind of almost what's going

on here

so here's what we're seeing we're seeing

a high multiple so i'm going to put high

p

e price to earnings stocks

are down in the gutter okay so at the

same time as we have high pe stocks down

in the gutter

what else is happening yields well

yields on the 10-year

so basically 10-year slash bonds are

plummeting which is ironic like they

literally i think it just broke 1.53

it did the 10-year just broke 1.53 which

when this all started in february high p

e stocks were selling off because bond

deals were skyrocketing

now bond yields are plummeting and

people because people are buying bonds

again

or companies or banks or whatever buying

bonds again and the high multiple stocks

are plummeting

at the same time you have home

refinances i'm just going to put refi's

people taking out way less money than

they ever have in the past

you're seeing only about 30 of people

refinancing actually doing what's known

as a

cash out refinance

then at the same time banks today

today banks complained that lending

is way down and i'm not just talking

real estate lending here i'm talking

about consumer lending

whether that's cars or credit cards or

lines of credit portfolio lines of

credit whatever

bank lending is down the banks are like

yo this is like a profitable segment for

us

and um yeah lending's like way down like

we're totally open for business here

willing to do some more loans but

uh nobody's coming like uh we thought if

we build it they will come but they

ain't coming

uh yeah so look at look at this disaster

high multiple stocks which also includes

no earning stocks

so if you're wondering like why is like

a cciv down

let me make it very simple for you how

many cars has cciv sold

bingo zero okay so uh

until companies actually start proving

their earnings you're gonna be suffering

in these high pe stocks these high pe

stocks this is the period of time where

high pe is going to have to prove

themselves

but what out of everything is up right

now

well the s p and down dower up and

that's because the lower multiple stocks

are running like crazy uh i mean you've

got apple and

amazon and google actually doing pretty

dang well

nvidia which is one of the lowest

multiple growth stocks

doing pretty well i mean you're paying

40 times future earnings for this

company

that's a far cry from you know the the

three figure multiples you're paying for

companies like tesla or end phase or

some of these that we think

will have more growth than nvidia

they're going to have to prove

themselves

because they're already priced so high

but anyway so you've got high pe stocks

selling off bonds going down which is

totally weird

at the same time people are taking out

less debt

but in february

we hit record high levels of margin

around 817 billion dollars worth of

margin

in america folks we have never been

above

700 billion dollars in margin

uh since basically november

uh between in november we broke 700

billion in margin

and we've climbed up to 800 billion in

margin take a look at the recent

trackings

and we could just simply go to finra to

take a peek at this look at this

so here's january february you can see

we broke to 800 billion dollars in

margin debt and if you just look around

here

all of these other dates here with the

exception of here november 2020

all of these other dates it's always

around four to six hundred billion

here's lots of 500 billions and 19 600

billions and

18. 500 billions and 17

4 to 516. okay you you get the idea like

we could literally just keep scrolling

here

and it's even smaller over here but the

numbers become a little less

relevant when we scroll all the way down

like this so uh anyway

with recent debts in margin we're like

at

all time freaking highs here with margin

debt

and so let's go back to the sheet here

wait a minute so

high multiple stocks are selling off

bonds are selling off and people are

taking on less

debt this right here is a little bit

starting to rhyme with what something mr

ray dalio likes to say

and it's also something i've talked

about on this channel

what have i talked about on this channel

that this decade might become

the frugal decade well

as part of being frugal the frugal

decade

you could see the blend of the frugal

decade and uh ray dalio's beliefs

which ray dalio's beliefs are the great

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deleveraging

yeah in other words people wanting to

get the heck out of

debt it makes sense it literally makes

sense look at this

high p e stocks down

high multiple stocks people taking out

maybe less debt

to borrow to basically borrow and buy

these high multiple stocks because well

they also haven't been really performing

super well

uh really in the last two to three

months they've just been getting spanked

over and over again it's literally been

like

hey high pe stocks space banks

and then we get a little bit of green

but what we don't know is it's just

really the suits

resting their hands and their gloves a

little bit to just come right back and

oh did you enjoy those three days of a

break good

[Laughter]

that's pretty bad pretty ugly

but anyway doesn't it make potential

sense

that what's happening in the markets

right now is a potential deleveraging of

these

massive amounts of margin which think

about it

if we hit record margin levels in

november

between october and november basically

right around the election time people

went deep into margin

plowed money into stocks we got this big

november december january boom

now all of a sudden the rate of margin

growth is slowing because you should

only take out so much margin

i mean watch you could literally see you

literally see

the rate of margin growth uh apply

to to what the heck is happening in in

the world here look at this

here in fact you know what let's do this

for giggles together

uh so let's pull up a generic

spreadsheet here together because it's

kind of shocking

so here we go margin and spreadsheet all

we have to do

is do a quick little simple calculation

here

watch this all right here we go so all

we're going to do is we're going to type

in

october november and maybe we can

reverse engineer how long it's going to

take to fix all this crap

february okay here we go so we were at

659 313 over here this is billions of

dollars 722 billion 118

when you got seven i guess it's millions

but uh

it depends on what you read i just read

the first three digits and then i call

it billions

so 798 605

813 see how slow that growth is already

over here

i mean just intuitively when we look at

it it's like wait a minute we added like

70 billion dollars over here 70 billion

over here 20 billion dollars here and

not even 20 billion dollars over here so

let's just do a percentage difference

so if we do this number divided by this

turn this into a percentage minus one

we're gonna really see

a massive slowdown and this was before

the crash

this was before the the madness so let's

drop in a percentage over here

go to a couple decimals minus one

there we go so we saw a nine percent

increase in margin from october to

november

from november to december we saw a 7.7

percent increase

then a 2.6 percent increase then a 1.69

increase i bet yeah i would not be

surprised and these numbers come out in

a week

i would not be surprised to see this

number go back

under 700 and we end up having

negative margin growth in march

this information will come out on april

i believe 21st 21st or 22nd

but anyway i would not be shocked to see

negative margin growth

because it would make sense look folks

high pe is down why borrow to buy this

stuff

i mean i like buying stuff when it's

cheaper so i've been buying but

at the same time i've also been on a

mission to pay down margin

today i'm at 24 including

the the uh red that we've seen in the

market today

i want to get that to under 20 still got

some work to do this is a lot better

than where i was

you know a couple months ago but uh so

you know

been working on it i've been chugging

along but this all makes sense

high p e down bonds bond yields down

so you'd think when bond yields are down

people would plow money into pe

but no we've been shell-shocked that's

like no no no no

you know margin no no no bueno we had

our we had our little scare

we had our march uh scare you know what

we're good we're good

we're just going to pay this margin off

uh that's why we're not seeing as much

money come out of

real estate we're siri we need we've had

a conversation about this before okay

uh banks bank lending down people don't

want debt anymore and what if i said on

this channel

people are going to be more aware of

their money in this decade than ever

before

my argument with the frugal decade is

that people are going to realize

what the k-shaped recovery really means

the k-shaped recovery

means first of all you don't get caught

with your pants down in a bunch of debt

and a hundred percent margin when the

market falls that's how you get screwed

and you fall right back down to the

bottom of the k-shaped recovery

but people also understand now that

people with businesses real estate and

stocks

win and those who don't have real estate

stocks

and businesses lose and that in my

opinion is going to lead to a frugal

decade

whether that is paying down debt or

spending less

that's been my argument and i've been

saying this for a year now that we're

going into this frugal decade

ray dalio has been mentioning the great

d leveraging for a few years

now the great d leveraging ray d ray

dalio takes this a little bit further

because i don't think right now we're

yet in a great deleveraging i think

we're in a deleveraging

but a great deleveraging is spawned by

interest rates going up

when interest rates go up debt becomes

more expensive and it

nobody wants to take on debt especially

at that point uh and then all of a

sudden people are forced into

deleveraging

but really what we're seeing now is kind

of like phase one of that it's kind of

like well

we do think rates are going to go up

soon everybody's watching what you're on

paul's saying because we're all like oh

man

when's when's the punch bowl going away

folks we're in a d leveraging

that is what we are in right now we are

in the combination of a frugal decade

a deleveraging and people running away

from debt people running away

from margin i kid you not i would i

if i could place options on this right

here that

or make a bet that margin debt is going

to

plummet when this new data comes out i i

think i would i would make some pretty

beautiful

attendees on that and i think we are

going to continue to see this

until we get back to normal levels and

so that helps us understand a little bit

okay well what are normal levels

well take a look folks normalized levels

let's just look at the average

uh let's find like what we think is a

reasonable average here

what would we say maybe 600 600 billion

i think that's that's about the midpoint

of 2020.

uh we were somewhere 600 was a high in

2019.

in 2018 we probably had an average and

i'm just

spitballing this really here somewhere

around uh

or i should say eyeballing somewhere

around 645.

so let's say we even want to go down to

645 okay that's a 2018 high

645 is a 2018 high it's higher than

anything we had in 2019

and it's about an august level of margin

which is when we had our last run so

let's say we wanted to get back to 645

billion dollars in margin and we were

able to pay off about three percent

margin

per month okay how long is this going to

last okay there we go i made the formula

so we'll take this formula and all we're

going to do is we're going to paste this

down

let's try to we're going to keep going

until we get to 6 45

okay let's keep going boom

september october september or october

is potentially where the drama ends if

this

is a deleveraging if i'm correct and

this is a d

leveraging we have to wait until

september or october for this pain to

end

which means you've got six months of of

pain and six months of buying

a potentially cheap unless you're high

in margin then you should pay down your

margin

but what else does this align with folks

think about what else this aligns with

what's really really incredible about

exactly what this aligns with

is what we believe might happen with

inflation

and rates because take a look at this

you might remember this from a prior

video i made take a look at this

so this is a chart i made on my

expectations for inflation we talked

about this a few days ago

i mentioned that i believe that year

over year inflation will come in at 2.4

percent for march

it came in at 2.6 percent i was really

close

that's really close uh two tenths of a

percent there a percentage point

difference

so uh i believe that we're going to see

inflation go up to a year-over-year

amount of that three and a half to three

point four percent in april may

we are going to see inflation i don't

want anybody to confuse

what i say with there's no inflation

there is inflation

and we are seeing inflation i just don't

believe it's going to be

permanent now this is obviously where a

lot of folks differ with me and that's

okay

because i respect the other opinion as

well because it's one i have to be aware

of

the belief is that if inflation goes up

to three five

many believe that inflation is going to

continue to trend up

and we're going to see this maybe four

five six percent inflation level

fine that could happen we will know that

probably with

certainty sometime by when we expect

there

should be an inflection point which we

expect the inflection point should

really be over here

around august july september

and what we're looking for is is

inflation staying

high is inflation going to four 4

4.2 4.3 and how

fast is it accelerating obviously going

from 1.7

to 2.6 right here is a big bump right

but that starts to slow and when we see

that slow is it going to slow at 3.5

3.4 is it then going to fall down

quickly as we remove the base effects

or where is it going to level off once

we see that

leveling that's when we have the

inflection point where we go from

rapid changes in inflation like an

accordion rapid changes in inflation

to soft smooth changes in inflation

and are those smooth changes going to

level off around the

4 to point three range in the mid threes

or in the low twos that's what we want

to be concerned with

the point is we don't actually expect

that to come out

until august through october which

what's so weird about that folks we

literally

just found a potentially corresponding

argument as to why this massive

volatility

and essentially this feeling of a market

crash could continue

until september through october people

while we are waiting to see what happens

with inflation

people in general as a society are

de-leveraging they're taking less loans

from banks

they're taking less money out in cash

out refinances

and the rate or the acceleration and

margin has already

ground to an essential halt i believe

it's going to reverse it's going to fall

by approximately three percent maybe

more

hopefully more hopefully it falls by

more hopefully it falls by five or six

percent but it depends

because it's hard to pay off margin when

your stocks are plummeting

right because that means you're

paper-handing means you're selling at

the bottom

sucks but if we see this de-leveraging

until september and october and we

expect that inflation

uh inflection points folks for anybody

who ever wants to know

how long could this crash last we're in

the fourth month of the year right now

we gotta get to nine or ten

that means we have to wait five to six

months potentially

to see our favorite high multiple stocks

actually see some love again potentially

now i don't want to sell and go

buy some other stocks and then come

revisit my stocks in the meantime

because the market moves before we

anticipate

usually if if the market can start

pricing in the belief that

maybe inflation is trending down maybe

the de-leveraging is done once the

market starts feeling that and the

market starts going ooh there's some

cheap deals over here

we're going to start seeing that price

increase again leading into

september and october that's my belief i

strongly believe this and this is how

i'm investing right now

is i'm investing with the belief that

we're going through a deleveraging

we're going through a de-risking we're

not going through some

you know epic market crash epic market

bubble

you know exploding this is just the slow

bleed and a slow bleed feels a whole lot

like a deleveraging

folks if you like my perspectives check

out the programs linked down below thank

you so much for watching

and we'll see in the next one

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you