The Catastrophic Ticking-Time Bomb & Fed's Second Wave | Market Crash 2.0.

all right here we go the employment cost

index report is coming out in about 10

seconds we are looking for a survey of

1.1 this is probably going to move the

stock market today we're looking at 1.1

or less 1.1 or less anything above would

probably be bad news we need to see

employment Costco one percent let's go

good news good news good news good good

good good good good good oh that's great

uh that is below expectations again the

prior report was 1.2 percent now we're

at one point uh last um or the survey

for this report was 1.1 percent we just

got one percent thank you oh this is

actually really great we want to see a

softening in employment cost this is

probably the most important uh report

going into the Federal Reserve meeting

uh this is very very good news we are

seeing now the NASDAQ going from

negative to Flat uh you've got uh only a

slight boost on certain stocks it's not

the most widely reported at peace but I

wouldn't be surprised that as the day

goes on this actually ends up softening

the Federal Reserve stance and this

could end up boosting stocks today so

I'm very optimistic about the employment

index report coming in at just one

percent this is great news uh and uh and

it's something that even Nick T reported

is something that the Federal Reserve is

going to be paying attention to and that

leads us to obviously needing to have an

inflation discussion which let's go

through an inflation discussion see what

some of the risks are for inflation and

the market uh first I will just

highlight the importance of ECI by

showing you Nick t on Twitter saying fed

officials have said they pay close

attention to the employment cost index a

comprehensive measure of wage growth Q4

figures just out aren't likely to change

the outcome of the fomc's meeting which

means we're still going to be getting

the 25 basis point hike but it could be

in important in shaping the Outlook well

folks Nick T often deemed to be the

federal reserve's mouthpiece is

basically telling us hey Jerome Powell

might be nice to us at the Federal

Reserve meeting tomorrow which is quite

bullish but it does stand in the face of

some not so bullish information and what

I'd like to do is in the most unbiased

way possible try to go through some

things that are good news some things

that are bad news and just realistic

information regarding inflation I'll

also provide you insight into what's

going on with what layoffs tell us in

terms of where in the recession cycle we

could be a lot to cover let's get

started the first thing that we have to

remember is we have seen a deceleration

and a reduction of inflation risks

however there are a lot of companies

that are reporting dangerous to us for

example Procter and Gamble and Johnson

and Johnson both reported that

inflationary pressures are still

elevated and if anything they are worse

on a month over month and week-to-week

basis at the beginning of 2023 but they

do give us hope they give us hope that

by the second half of the year we could

actually see those inflationary

pressures subside now that's a really

big deal because it's also similar to

what now brand new reports out are

telling us from Whirlpool Whirlpool

expects to see raw material costs

provide relief in 2023 and they're

already starting to see material cost

Productions so while we're getting this

sort of initial good like bad news that

oh no costs are still running High

now more and more companies are

reiterating inflationary costs seem to

be coming down in fact Nick T the fed's

mouthpiece just posted another piece

saying Whole Foods asks suppliers to

lower prices as costs ebb the grocery

store stain a chain says it wants price

tags to reflect easing inflation in

other words whole paycheck in other

words Whole Foods is suggesting hey it's

time to start reducing prices which

would actually be disinflationary or

potentially deflationary one of the

biggest complaints that I get every time

I talk about inflation potentially

easing as individuals tell me Kevin

that's great that whirlpool and Procter

and Gamble and Johnson and Johnson are

starting to see some of their costs come

down but when are they actually going to

reduce prices for us because when we go

to the grocery stores when we go to

Target and we go to Walmart and we spend

money we're still spending a lot more

money than we used to and it's a sir and

it's true you're totally right to be

pissed but the good news is finally the

companies are starting to wake up and

realize crap we're gonna have to reduce

prices and pass these benefits on to

customers to actually help Boost Retail

Sales again retail sales would also

include discretionary sales that's

usually where your margins are as well

right your margins for Walmart or Best

Buy are going to be on some of those

discretionary things it's not the the

one product you're going in there for

because you need it you're going in

there because you need uh you know a USB

cable Best Buy doesn't care about that

they're trying to get you in the store

so you go buy a TV a new computer an

apple a computer so they can get their

commission or you go buy a washing

machine and then you use their higher

margin Geek Squad or or or their their

services their install services to go

install that for you right and then sell

you warranty plans and insurance plans

and those are extremely high margin

those are like 90 plus percent profit

right so or sell you gift cards which

most people don't redeem their full gift

cards so companies want you to come into

the store but the problem is people have

been so squeezed and retail sales

plummeted last month in December

especially when you adjust it for

inflation we had a horrible retail sales

report with downward revisions for the

prior month uh companies are starting to

realize we need to drop prices otherwise

people are going to stop spending now

this is a good news this is very good

news I think I mean listen to this Whole

Foods is asking suppliers to help the

retailer bring prices down on packaged

groceries as inflation moderates they

want to bring down retail prices in its

store aisles so as their own costs start

to decline as Food suppliers have raised

wholesale prices citing higher

Transportation labor and production

costs Supermarket operators say they

have passed those increases along to

Consumers this was previously as prices

have increased after more than a year of

price increases Shoppers have been

cutting back on purchases which is what

I've just described buying cheaper

versions of groceries and seeking out

deals across Supermarket aisles some

people I actually used to do this when I

had no money I would look at the

circulars to see where grapes were on

sale like who had the best sale on

grapes and I have a certain area where

there's Trader Joe's would sell grapes

for say 2.99 Vons would sell Graves for

3.99 a pound and I'd hop on over and go

to Ralph's and get them when they had

the 99 cent per pound special and they

had like a lot of grapes you know so you

know I I some people argue hey was that

really worth your time look back then I

was working for seven dollars an hour

the answer is yes it was worth my time

but the point is that's what people do

when they don't have a lot of money it's

very normal that's what I did as well

when I didn't have a lot of money we

know our customers are weighing the

impacts of inflationary pressures the

company has worked over the past year to

absorb Rising food costs offer new

promotions work with suppliers Whole

Foods rate of price increases have has

been lower than the industry average

yeah probably because you started a lot

higher the spokesman woman said adding

that the chain has lowered prices on

some items including cereal bread and

sparkling water and the company is in

committed to ensuring that prices were

reflect easing inflation now this is

great overall inflation is starting to

cool prices of fresh fruits uh Fish

seafood fell in December from November

levels obviously we still have issues

with things like eggs doesn't help that

apparently an egg manufacturing facility

uh burned down in America that that

hurts so certain things are clearly

still hot spots but look yeah we are

still seeing some uh strong indicators

that are getting stronger and stronger

fortunately that inflationary costs are

expected to plummet and that's good

that's very good especially if those

benefits get get passed on to Consumers

now while inflation is a decelerating

there are red flags one of the biggest

red flags is what some folks are calling

the potential for a second wave or a

second chapter of inflation this is what

Michael burry's been warning about

Michael Barry's taking a little step

further He suggests look the fed's gonna

ease the fed's gonna pause then they're

going to reduce rates are going to cause

another wave of inflation and boom we'll

be right back to where we started

another disaster where the markets have

to fall

I personally don't necessarily agree

with that assessment but that's okay

we'll leave my opinion out of it for

right now another second chapter version

of inflation though is a concern that in

some areas outside of the United States

you're actually starting to see

inflation surprise again for example the

Spanish Spain's consumer price index

report just came in at 5.8 percent

versus an expectation of five percent

and this is suggesting that in some

Emerging Markets we're starting to see

inflation become synchronous throughout

the world over time that higher prices

in one country lead to higher prices in

another country and the implication of

this could be that eventually as we see

inflation go through a second chapter in

the rest of the world we could see

upside risks to inflation in America

some of those upside risks to inflation

in America might be that Medical

Services could jump Medicare payments

will increase at their highest rate in

14 years that's already expected we see

the expectation that maybe rents or

owner's equivalent rents could stay

higher for longer

that yes used car prices are going down

but if that decline goes away in

February which is a five percent wait

for inflation is it possible that other

aspects like rent staying higher longer

or medical services staying higher

longer or Rising could actually lead

inflation to mist to the upside

especially with the fact that in January

we get new CPI weights which we won't

see until the February a report on

inflation which will look at the

schedule of releases for when we get the

January report of inflation we get the

January report of inflation on February

14th so mark your calendar for that but

the question here is how will those new

that's Valentine's Day by the way how

will those new weights affect how

inflation is calculated especially since

we're moving from a two-year waiting

measure to just a one-year waiting

measure that's likely being done to get

rid of the 2020 pandemic distortions

that's putting on the best case scenario

here not the tinfoil hat scenario a tin

foil hat scenario of course being oh of

course the Bureau of Labor Statistics is

going to manipulate the data to make

inflation look like it's artificially

lower than it actually is that's the

more tinfoil hat Direction but anyway

the the concerns are that we could

be facing a second wave of inflation not

just because of Emerging Market risks

whether it's Spain or other countries or

medical care service to stay higher

longer rents stay higher longer used car

prices stop falling which hurts with the

the deflation fight or disinflationary

fight but then you've also got the

Chinese reopening now we've talked about

the Chinese reopening ad nauseum on the

channel but I'll just give you the quick

bottom line the Chinese consumer is only

about 32 percent of the Chinese economy

compared to 70 that is the consumer of

the United States economy is 70 so the

consumer makes up about twice the

inflationary pressure in America than it

did in China

or does in China and so this idea that

the consumer going back to spending and

traveling is going to drive substantial

oil demand and inflation makes sense but

I think it makes more sense as a trade

than the reality that's going to create

inflation in fact just consider for

example my rubber band thesis that a lot

of companies are willing to provide

substantially more goods and services

and they have excess capacity which

could actually absorb a greater increase

in demand and one of the easiest places

you can see this is by looking at the

chip sector you've got companies like

Micron Western Digital uh the South

Korea I can't pronounce this one but

it's like high Nix all of them including

Samsung they're all lowering their

output because they're seeing massive

deflation in in the chip sector

specifically in memory companies like

Intel got out of memory companies uh

like Nvidia have much less exposure to

memory more exposure to gpus and servers

AMD has a little bit more exposure to

the PC market so we might see a hit

there when AMD reports but the point is

you you have a lot of potential excess

capacity uh at a lot of companies

throughout the world we've hired

substantially to make sure that when

people want to spend we're able to

absorb their spending so that's

something that could put a lid on

Chinese inflation also considering the

fact that Chinese excess savings are

only about five hundred dollars per

person relative to the excess savings

that we had in America after the covid

lockdowns ended of about six thousand

dollars per person that's a massive

difference of about 12 times per person

of a difference so a substantially less

of a of a of an inflationary Catalyst I

believe in China but it's something that

individuals are still concerned about

and look Spain's missed to the upside is

a red flag on top of that you also have

what some folks call The Tinderbox time

bomb that we might face the Hedge find a

hedge fund advisor excuse me uh who uh

advised the author of the book The Back

Black Swan uh Naseem taleb He suggests

that uh that uh so in other words the

author who advises hedge funds let's get

that clear uh and author of the book of

The Black Swan is providing a

substantial warning that it's not just a

second chapter of inflation that could

really hurt uh even if it's just sort of

temporary misses to the upside but it's

also that ballooning debts across Global

markets could end up wreaking havoc on

our markets and He suggests that the

greatest Tinderbox time bomb in

financial history is all of the debt

that countries like the United States

have accumulated through the covet

pandemic and He suggests that if the

credit bubble pops because maybe we hit

a second wave of inflation and then the

credit bubble pops we could end up

seeing a financial crisis substantially

worse than the Great Depression of the

late 1920s that we are going to see the

most catastrophic market failure that

anyone has ever in their lifetimes read

about and hen his warning he says

Corrections were once natural and

healthy in economies but now a

correction of the magnitude of the debt

cycle correction that we need he argues

could create or become a quote

contagious Inferno capable of destroying

the system entirely that the world is

just too leveraged today that the debt

construct is just too big

that's scary those are some scary

phrases and scary words so this is why

this sort of second phase or second wave

of inflation is leaving a lot of people

very nervous even Paul Krugman who

believes that disinflation is coming

he's a New York Times writer a lot of

people don't like him a lot of people do

like him he's an economist he says that

look even though his base case is

inflation coming down there could be a

self-denying prophecy that could end up

reigniting inflation now this is really

weird because usually we hear the word

self-fulfilling prophecy is usually what

we hear but a self-denying prophecy is

basically one where we say look it is

not a problem uh to to worry about

inflation because inflation's already

trending down there won't be a second

wave of inflation Michael burry will be

wrong and look too many companies like

Whole Foods Procter Gamble Johnson and

Johnson a Whirlpool are all suggesting

that we should see disinflation by the

second half of 2023 so we're good well

Paul Krugman says that if ultimately we

deny the potential for inflation then we

could reignite inflation by just

starting to spend again and not worry

that the Federal Reserve is going to

crimp us uh and and to crimp inflation

out and this is why I think the Federal

Reserve is going to be forced to keep

sort of that hard face on to make sure

that inflation doesn't get out of

control and financial conditions do

remain at least somewhat tight to

prevent inflation from reigniting so far

though the data suggests that a lot of

this could just be fear uncertainty and

doubt consider again retail purchases

have fallen for three out of the four

last months spending on Services rent

haircuts and the bulk of this sort of

services style inflation was flat in

December

now what we also see is that really

consumers especially poorer ones are

being forced to pull back on overall

spending as well not just services

inflatia or Services based uh spending

we also know uh that uh ultimately as

unemployment starts Rising the number of

spending we expect to see should plummet

uh and that is what we are also seeing

as a potential Catalyst for the bottom

of the market now this is an interesting

one there's an argument that industrial

layoffs this is a report put together by

rbc's head of equity research as

reported via barons

uh this report by RBC suggests that one

of the ways that we can determine where

the bottom of the market is is when we

look at a spike in industrial layoffs

now this is interesting because Dow

chemicals and 3M just reported that

they're both starting to trim their

workforces Dow chemicals just reported 2

000 layoffs and rbc's head of equity

research suggests that industrial

layoffs are one of the best indicators

we can pay attention to to suggest that

a recession is either already here or

around the corner and generally we know

this stocks tends to tend to bottom when

the recession begins because stocks tend

to pull us out of a recession in fact

what they've done is they've looked at

the last two recessions and they

suggested that ignoring coven they

suggesting that they suggested that

the.com bubble low of the stock market

coincided with a peak in industrial job

losses they also suggested that the

Great Recession low came right after a

peak in industrial job losses and they

see that happening now as well so

personally trying to put all of this

together you've got hawkish Folks at the

FED you've got bearish Folks at the FED

you've got Leo Brainard suggesting look

there are lagging effects we have to pay

attention to we've probably got to cut

here eventually or at least pause

Bloomberg on their front page suggests

that the FED points towards a pause in

May once hikes have time to sink in

which would basically price in 25 basis

points for February that's pretty much

guaranteed for tomorrow and another 25

basis point hike potentially in March

but let's try to put all of this

information together because all of this

is obviously spawned by yes an ECI

report that has turned indices positive

which is fantastic

but what do we want to pay attention to

as investors well in my opinion to

string all of this data we just got on

inflation together my strong opinion is

that the best thing we can do is be

patient be very very patient because I

believe we are going through a Nike

Swoosh style recovery uh in the stock

market I do not believe we are getting a

v-shaped recovery like we got after the

covet pandemic I think we are going to

go through a Nike Swoosh very slow and

steady recovery in this market and I

believe that we are already off the

bottom however I believe there are going

to be plenty of opportunities in these

sort of oscillations here oscillation

whatever these oscillations to basically

buy the dip on individual companies that

you're trying to increase your exposure

to my favorite kind of companies to

increase my exposure to are companies

that I believe have long-term Innovative

pricing power pricing power uh being

defined as something that over the next

decade certainly over the next five

years have the ability to sell Hardware

at higher margins to sell software at

higher margins however companies that

are also limited to being able to uh uh

or limiting myself to companies that

also have the ability to survive during

a recessionary environment so companies

that have high free cash flow right low

debt relative to the cash they have and

sort of these Innovative plays whether

they are asml a company that has a 90

market share Stranglehold on the

advanced chip manufacturing equipment

sector whether it's uh potentially uh a

bet on Taiwan semiconductors and even

maybe a hedge of Intel against Taiwan

semiconductors yes I know Intel which

got out of the memory chip business a

few years ago and their valuation is

plummeted because their their earnings

have been terrible Intel's roadmap for

actually competing under the chips act

with massive subsidies to actually buy

equipment from Taiwan semiconductors and

manufacture it as their own

manufacturing a facility or within their

own manufacturing facilities in the

United States is actually very

impressive very impressive roadmap and

they probably will be a substantial

competitor Taiwan semiconductors in the

future but these are sort of Chip

companies in my opinion substantial

pricing power specific specifically

amongst Taiwan semiconductors uh Nvidia

and asml a phenomenal pricing power you

could look at a company like Tesla to

say relative to being within their own

industry highest amount of pricing power

for vehicles and then the potential

software throughput one of the big

dangers of only investing in software

though is that you end up with companies

that are losing money or free cash flow

negative which I think is a very

dangerous investment to make during a

recession especially during what I think

will be very sort of bumpy road out of

here so so my belief is oh and then of

course you have the internet energy

sector which would be companies like

enface I think dip opportunities or

opportunities to add even though they

could be in a downward trajectory which

which I've been calling for for over a

year that as residential spending

declines these companies will probably

see declines but companies like solar

Edge or end phase which have very very

high margins on their inverter

businesses but are also part of a highly

subsidized industry uh are part of the

green energy Trend uh and have high

margin and have pricing power for their

products these are in my opinion

companies that we want to be paying

attention to now I obviously am not here

to give you personal financial advice

for your portfolio even though I am a

licensed financial advisor and I run an

actively made a gtf and I sell programs

on building your wealth and uh sort of

fundamental analysis technical analysis

whatever uh my thesis is that

through this fear all of this fear

uncertainty and doubt that will probably

continue for the first half of 2023 I

think the stock market is poised to

slowly Trend up with a lot of sort of

like trepidation in the meantime so I

think there'll be plenty of opportunity

to sort of add to positions slowly I

don't think you have to be very

aggressive and I also don't think that

you want to be all cash right now I

think you you should have probably

already started allocating uh but I I

don't think we're in sort of an

environment where it makes sense to YOLO

margin I don't think we're anywhere

close to YOLO yoloing margin uh as much

as I'd like to go back to those 20 20

days I would personally advocate for

staying away from yoloing margin anyway

those are my thoughts on inflation the

employment cost index report and again

very clear expectation that the Federal

Reserve is going 20 or is going for a 25

BPI tomorrow but the most important

thing is going to be that Outlook

obviously I will be covering it live so

I encourage you to be here when I cover

the fomc meeting live we'll be going

live at 11 Pacific time for the

statement where we'll get the uh 25 BP

hike and then we will be going we'll

I'll continue to be live for the press

conference which begins at 11 30 which

is where Jerome Powell will provide his

remarks so hope to see you there