just lost LOTS of money - wtf just happened

your boy Kevin just lost lots of

money poopy doopy you're raw fch me yeah

welcome on in everyone this is the oo a

little bit of a tough day for the dirty

bear the data this week was really good

my hedges got smoked really badly to the

tune of a small house in Florida

poof unfortunately I guess that's the

downside of being a bear against train

America dirty dirty dirty Kevin so where

does that leave us now because quite

frankly the data was really good this

week PPI was pretty good we're like oh

okay that's pretty good CPI comes in

it's oh okay well that's pretty good now

personally I thought that the good

inflationary data would actually be bad

for company and earnings as we've seen

in the last CPI reports but instead what

we actually saw is

oh no we're just going to rally on

everything we're going to Rally uh after

the bank of Japan bails out the US Stock

Market last week we're going to Rally

after unemployment claims what when do

we rally after unemployment claims

Thursday then we're going to Rally

before PPI on Monday rally after p CPI

on Tuesday rally after CPI on Wednesday

and then Iran doesn't

attack I guess the week isn't over yet

but then you get retail sales data

they're just a complete blowout after

McDonald's and Amazon and Disney and

most companies are complaining about a

substantially weaker Q3 and this this

weakening of the consumer but no you get

a blowout retail sales and a really good

report from Walmart now I like I know

some people are going to say and have

this argument that oh well you know more

people shopping at Walmart Kevin is

actually a bad thing because it means

they're so broke they have to I'm

like I don't know or or people like the

fact that Walmart is responding to

disinflation it is cutting prices and

people want a good deal you it's kind of

like me I want a wedge deal on real

estate I want good deals so I I I don't

blame people for shopping at Walmart I

actually think it's a great thing I

think everybody should just have like a

Walmart Plus subscription stop wasting

time going to the the store and just

order it all online and have it

delivered to you I think same day not an

ad # not anad uh but in this video I do

want to talk about uh obviously my

recession thesis uh data and then I also

want to talk about a new stock sector

that I'm increasing it a position in uh

I'm exposing exposing myself okay that

sounds weird I'm I'm getting

increasingly exposed to a specific

sector and there's a real reason why and

it'll make sense uh it's

the complete opposite of uh what we've

been into earlier the year and at the

end of 2022 when we called the Nike

Swoosh volatile Nike Swoosh recovery so

far it has been a Nike Swoosh recovery

and it has been volatile but that

volatility hasn't pushed us into

recession yet uh and so uh I I'm still a

bear I'm still uh I have I'm not

flipping and and it's not to be stubborn

uh it's that I am truly concerned about

a Q3 Q4 slowdown I am truly concerned

about uh lessness uh and I am also

concerned about uh deflation which

actually is is a wonderful thing mind

you for the consumer it's just bad for

jobs The Economist just as an example

just the other day had a fantastic piece

about how manufacturers in China are

going bankrupt uh because there's not

enough to manufacture uh in other words

Supply chains became so loose that

manufacturers are like what we'd gladly

produce a lot more stuff you know this

is why I don't think there'll be a

second wave of inflation people are

under this impression that oh okay well

as soon as we cut rates we're going to

have a second wave of inflation because

everybody's going to be able to go buy

cheap stuff again but the factories are

like please we've expanded our capacity

with new machinery and capex and and

larger factories so much we are so

overbuilt for capacity now please have

we are built for covid in a world that's

not going to print money like that uh at

least in that short of time frame likely

ever again that was probably a once in

a-lifetime money print in that sort of

condensed period of time don't get me

wrong we will always print money but

manufacturers would absolutely love uh

an an influx of order so so I'm not a

believer in a second wave of inflation

but I am a believer in

deflation uh leading which is the

direction that I think we're heading

into I'm not a Believer or I am a

believer I should say that deflation

will eventually lead to joblessness uh

in addition to artificial intelligence

which actually comes up with this sector

that I'm interested in a beneficiary of

artificial intelligence

so uh so yeah I I I did close my hedges

uh I closed my hedges yesterday actually

after the CPI data because I'm like bro

everything is retailing on every

everything's rallying on everything no

matter what this is crazy so uh we've

just been on a week uptrend and uh like

a week straight of an uptrend and it's

like there's no stopping it right now I

still think it's euphoric I still think

valuations are high and I do think data

is noisy but uh

there are few things that I think are

very very concerning to me number one

manufacturing and number two what ends

up happening when EPS growth slows down

and we do get substantially more layoffs

the triggering of the S rule has not

been wrong we've talked about this

before we've also talked about the false

fire in 1959 how it really wasn't a

false fire you did have a recession

immediately after the only reason it

didn't increase unemployment as high as

it did in the 57 cycle is because it

literally just triggered two years

before that because you sort of had a

double dip recession there anyway so uh

I want to talk a little bit about my

current strategy and where I currently

sit because obviously things are are

doing very very well in markets right

now and people are euphoric and things

are rallying and that's wonderful but my

POV is the following first I'm going to

talk about my sort of personal game plan

and then I'm going to talk a bit about

this current stock sector that I'm very

interested in and why so current game

plan first of all buying a lot of real

estate that's what we're doing with

house got the house hack shirt on

actually uh wedge deals we're we're

doing great right now we're averaging

about

$134,000 per wedge deal which is

fantastic um we've got third party

valuations going on and appraisals to

justify what we're doing and it's it's

going really really well so from the

real estate side we're like at the

moment knock on wood not missing like

it's going great that's not to say there

aren't ups and downs and little you know

things that could go more perfectly or

whatever but it's going great uh second

thing is uh I've been uh start I've

started studying the elsad I don't know

if I mentioned that but it's just sort

of a personal thing that I always like

learning and always like studying

something although yesterday I also had

to sign up for some more finra tests I

thought I'd be done with those but I'm

signing up for the 86 and 87 uh that's

it's getting kind of exciting with finra

so we're pretty stoked about the things

we've got going so I've got elsat in

November series 86 and 87 to nov

November coming up been spending a lot

of time playing Nerf guns with the kids

and uh we're going to build a little

small Greenhouse with the kids as well

so a lot of family time which is really

cool uh but as far as the this the stock

sector that I'm interested in first of

all it's built around this idea that

recessions are slow recessions don't

move very quickly outside of covid look

obviously when we had covid we had this

explosion of of a recession it may made

sense to have puts all and hedges all

day long because you had a 30-day crash

I mean you could just make tons of money

every single day because the market was

just- 7- 7- 7- 7% you're triggering

circuit breakers on a regular basis

right so that was a pretty remarkable

time but normally when you look back at

recessions the stock market takes one to

three years to sell down and the tough

thing is trying to pinpoint well when

does that start and then how do your

Hedges survive during let's say bare

Market rallies if we're going into a

recession right maybe we're not even

going into a recession maybe we're going

to stick the soft Landing of

1995 and great uh and so that's where

what I've done is I've positioned my

exposure to this might sound crazy but

actually the mortgage sector and I'm

going to explain why first of all in the

event of a soft Landing because of

disinflation or frankly even deflation

not only Manufacturing deflation but

also look at the Wall Street Journal

talking about hourly pay basically

plummeting because there are so many

people available to work at hourly wages

people are starting to get really

desperate for jobs this is the I mean

you have speared Airlines laying off

Pilots I we we literally went from Pilot

shortage to Spirit Airlines laying off

Pilots now I mean maybe it's because

it's Spirit but pilot layoffs crazy 250

Pilots getting laid off it's wild so

anyway when you combine manufacturing

def inflation and wage deflation you're

going to have economic deflation and I

don't think you're going to have a

second wave of inflation for the overc

capacity arguments that I've made so I

think the Federal Reserve is on a clear

PA path to lowering rates so I have no

concerns about CPI and PPI I think

that's just going to keep going straight

down I do have a concern that that is

going to lead to layoffs which

eventually leads to EPS collapse and

earnings collapse and a consumer

collapse we haven't seen an explosion in

layoffs Beyond obviously the triggering

of the Som rule you know I need I'm

going to get a new bracket for this by

the way some one that doesn't sit on the

desk uh and put it on the floor and kind

of arch over be a little better testing

this out just for this video because

this is more a little conversational if

I'm using the computer and notes and

other stuff I'll have just our usual

shotgun mic uh by the way let me know

which one do you think sounds better

this is the desk mic right here and this

is the shotgun mic you're probably used

to hearing so shotgun mic that you're

used to hear desktop mic they sound

different obviously but anyway so the

current sector the mortgage sector is

very interesting uh now they had a

little bit of a run yesterday because

there was a news about refinancing and

so a lot of people sort of bought and

basically traded it right people went in

to trade it and then they were closing

those positions today that's pretty

typical but if you look at Trends right

now and you type into Google Trends

refining

and you look at the past 5 years you're

going to see something very interesting

you're going to see right here at the

beginning of August the first week so

about the 4th through the 10th as as

treasury yields were falling you

actually had a nice spike in refinance

searches which hasn't shown up in

mortgage company earnings per share

yet uh and if you zoom out even further

and you go out to 2004 to present you

see that similar spike is just beginning

and I think that trend line is actually

going to keep Rising because there are a

lot of people who financed loans in 200

uh 22 23 and 24 that either can

refinance cheaper now only by a little

bit or they need to because they're so

high in credit card debt they're

consolidating now don't get me wrong I

don't encourage you do that I think

that's a bad idea because if you

refinance your house to pay off your

credit card then your credit card Deb

goes to zero and then you're just going

to end up going into credit card debt

again really bad idea anyway that's just

sort of a more like broad Financial

advice thing it's not personalized

Financial advice but the mortgage sector

is really interesting because I do think

refinances are going to grow the upside

of that is you actually increase the

value of existing bonds that or

mortgages that these companies hold uh

compared to new loans that are made so

in other words you look at a company

like United Wholesale Mortgage company

or rocket mortgage they have billions of

dollars in net assets basically you know

assets above the debt that they have and

a lot of these billions of dollars are

Residential Mortgages so they're not

exposed to the commercial real estate

sector they're exposed to the

Residential Mortgage sector which I

don't think has a 2008 repeatability

because we have completely the opposite

set of loans this time we don't have

credit default swaps on top of uh you

know AAA rated negam ninja loans like

the kind of trash that we had in 2008

today we have loans where people have

the ability to repay the Dodd Frank act

forced that after the recession and

these loans are actually very tough to

get they're very very high caliber high

quality loans so I'm not very concerned

about these mortgages losing value in

fact I believe they're going to gain

value as rates come down as rates come

down I think the mortgages that are on

the books of these companies go up in

value and their refinance revenues go up

now there is a little bit of a downside

in the mortgage servicing rights that

gets a little complicated but just to

quickly address it they can tend to go

down in value as rates come down because

there's a refinance risk that gets

priced in so loan deep I I well I found

out of them I found that rocket mortgage

and United Wholesale had the highest

percentage of mortgage loans to mortgage

servicing rights so more loans and uh Mr

Cooper Penny Mac and uh loan Depot which

are also good had a higher percentage of

mortgage servicing rights so I I scaling

a little heavier towards the rocket

mortgage and United Wholesale versus the

others and now what's really interesting

about this is I think this play Works in

a soft Landing scenario and in a

recession scenario I still think we're

going into a recession I I I don't know

when it'll be if we'll start seeing the

triggers you know Q3 Q4 we're in Q3 now

if we'll start seeing the uh uh the real

recessionary hit in 20125 I don't know

I'm going to be patient I think

valuations are way too high to to sort

of like fomo into to the market I I

don't really care about that uh this is

some personal advice for you it's it's

me you know I'm I'm trying to take a

protectionist POV here and my POV is no

second wave of inflation no Residential

Mortgage

crash rates come down in soft Landing or

recession okay cool that benefits

earnings per share via refinances that

benefits uh the value of mortgage uh

mortgages held by these companies which

increases the book value and so I

actually think that I mean I have a

price target for Rocket mortgage of $30

and United Wholesale of $18 which is

substantially higher than where they sit

today and so uh for me I look at these

hot data trends that we got today as

actually buy the dip opportunities on

those particular companies so I'm like I

I I decreased my exposure to Nvidia to

zero my exposure to Tesla's at zero uh

Microsoft set zero I've got exposure to

Apple and

Amazon treasury bonds like TLT or

uty and uh and then this mortgage sector

because I think the mortgage sector as a

whole benefits in soft Landing as rates

come down or substantially quicker in

recession as rates come down rapidly and

yes joblessness would go up right but

you have to think about it this way

joblessness might go from 4% to 8% if

there's a recession okay so how many

workers are there in the country well

you have about 50 million people who

work so take another 4% of those and

another 4% is 6 million and then about

60% of those might be homeowners but a

lot of those I'll say 30% of those are

two income households so not necessarily

a default risk when if you do that math

if I say uh 30% or single so I'll

multiply by 70% actually no multiplying

by 30% because that's the number that I

want you've only got a risk of maybe

about a million homeowners that could

lose their job and my belief is that a

lot of those homeowners probably have

excess equity in their homes to help

bridge them to get to the next job or

whatever or get through the recession so

I don't think that uh cohort is so risky

to justify sort of the the pressure on

the mortgage sector now the mortgage

sector has already started recovering

you know we're this it's not like we're

buying these at bottom right now uh so

there is a risk that some of that

excitement has already been priced in

but I think the market hasn't fully

priced in that there is not going to be

a second wave it's my opinion could be

wrong uh I don't think the market has

fully appreciated that there's not a

2008 real estate risk I don't think

that's priced in so therefore I think

these companies are at discount and I

don't think uh the market has started to

pick up on oh my gosh there there are a

lot of people ready and willing to

refinance as soon as rates drop even

just a little bit so I'm very optimist

IC on this mortgage sector I actually

think over the next 12 months it could

potentially be the best performing

sector not AI not Nvidia not Tesla uh I

I think maybe nface I have exposed her

to nface may maybe maybe uh they you

know they're they're sort of a bottoming

sector as well and they're kind of

related right they uh inas uses contract

manufacturing so they can sort of scale

up and down their uh their expenditures

they benefit from a not housing

recession

because the lower rates let homeowners

borrow cheaply to install solar on their

homes so so nface is probably in that

bucket as well of of me actually being

optimistic on nphase but that mortgage

sector I think people are very bored by

and and it's not very like sexy or

entertaining uh and so again I think uh

not personalized advice obviously but I

think you know absent the the amazing

rally that's happening today in pretty

much all sectors except for the mortgage

sector I think longer term companies

like United Wholesale rocket and even to

some extent Mr Cooper pennyback and

alone Depot are very

attractive uh and so for me I maintain

about a 2.9 on the bare bull scale right

now uh so in other words it's a little

bit more bullish from 25 but it's by no

means you know back to like bull mode or

even 50/50 mode I'm still pretty bearish

I think the inverted yield curve is

inverting even more and I don't think

it's going to take a lot to really push

us back into serious pain I know today's

Rally Day and then of course the Bears

always look like fools usually Bears

just crawl into a hole and go dark and

just just don't show up for work on days

the market rallies like this I I mean

look at this on on N phase for example

you literally went from my 113 line to

my 119 line it's like literally a

perfect move to move this is pretty

classic we we we see these lines hit a

lot anyway so you've got the 2-year

treasury at up 16 basis points right now

and the 10year is up 11 which means the

treasuries are getting whacked so like

TLT is on sale today and sort of the

mortgage companies but you've also got

the yield curve inverting more by about

five to six basis points which does mean

you have more pricing in of recession to

do uh in other words the data this week

has really just delayed the recession

which makes it very hard to hedge for

you know it's very difficult to say okay

I'm going to hold puts through every

single rally because you're just going

to get smoked on them like I did and

like I always say like I can't guarantee

we're always going to make money we're

always going to be perfect I'm just all

the only thing I can guarantee is I'm

going to just I'm going to show up and

I'm going to do my best for you that's

that's the best we can do and so I think

this mortgage sector is as uh Roan Kitty

would say an an asymmetric Market

opportunity and it's not one that I want

to day trade or short-term trade it's

something that I look at as okay I I

want to I want to increase my exposure

when when rates sort of take up like

they do today on hot retail sales

numbers but numbers like today what they

really do is they delay rate cuts from

the FED which actually increases the

odds of a recession and then it

increases the clamoring of the market

going fed you've gone way too far you

need to like 50 to 75 BP cut rapidly and

I think those sort of actions could

happen between Q4 and q1 of next year so

this does delay things a little bit

though which again makes hedging hard

probably the best hedge is just cash uh

but I still really like treasuries again

20 year 30 year I love those uh because

I think uh we'll see a plummet there uh

gold I'm not the biggest fan of because

if you go into soft Landing or recession

gold performs differently gold per forms

well if you go into recession not so

well if you have a soft Landing mortgage

sector does usually both well in both

scenarios because rates are coming down

and people are going crazy buying uh you

know or refinancing and taking out fin

uh taking out new loans and you know the

ones who haven't lost their jobs and

what's Wild is uh the the value of the

loans they have as long as they're not

defaulting because which that would

generally only happen if home prices are

really rapidly declining which I don't

see happening I actually see them going

up uh or stable stabled up and it

depends on where you are like California

is doing a lot better than Texas and

Florida for example then then the value

of the loans they hold actually goes up

as well so this is a thesis this is not

a guarantee but this is this is roughly

what I'm seeing right now in markets uh

I'm not going to get you know suckered

into uh the Walmart and this oh retail

sales data coming in hot which generally

always gets revised down but I will say

the data was good I have to give credit

where credit is due the data was good

and I paid the price on the hedges for

it for hedging this week but you know

what I'm a big boy it's a number I can

handle it and the only thing I can

promise said I'm going to be here and

going to show up so let me know what you

think in the comments down below this is

the shotgun mic you're hearing right now

so make sure you leave a comment shotgun

or desk microphone it's kind of cool

anyway thanks so much take a sip of this

RuneScape cup which definitely isn't

filled with kala or vodka or tequila or

all three of them mixed

together yeah anyway thanks for being

here we'll see you in the next one

goodbye and good luck can not advertise

these things that you told us here I

feel like nobody else knows about this

we'll we'll try a little advertising and

see how it goes congratulations man you

have done so much people love you people

look up to you Kevin pafra there

financial analyst and YouTuber meet

Kevin always great to get your take

even though I'm a licensed financial

adviser licensed real estate broker and

becoming a stock broker this video is

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not tax legal or otherwise personalized

advice tailor to you this video provides

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Securities potentially including those

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