*Why the Hell the Stock Market KEEPS Crashing*

what the heck happened in the stock

market today folks i'm going to explain

everything that's going on in the stock

market why

the market freaked out today after that

jobs data and what tesla said we're

gonna get into some details we're gonna

go into some charts and we're even

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other cherry over here anyway let's talk

about the market okay so

january i said that good news was gonna

be bad news

and i said that bad news was going to be

terrible news that's because when you

miss earnings you drop like snapchat 50

when you beat earnings you send the

signal to the federal reserve that they

need to tighten more

and that's bad news because then we have

to price in higher interest rates and

the market don't like that some market

goes down and so we got things to talk

about regarding this first thing is the

jobs report which we covered this

morning so we'll keep this brief

we were expecting 318 000 jobs we got

390. sounds good right wrong it's a

disaster because it means the fed's

still not tightening enough even though

the adp report told us private company

job losses at small companies were

around 91 000 the other companies are

still hiring like crazy and even though

we've got a list of companies that uh

let's see i posted about this on twitter

there we go follow me at real meat kevin

you've got a list of companies cutting

paypal cut 80 jobs bolt carvana

robinhood klarna netflix gemini loom all

of them cut uh between 2500 to carvana

down to 80 at paypal but hundreds at

like klarna and some of these other

companies and then of course you've got

hiring freezes and slowdowns at nvidia

uber lyft microsoft twitter salesforce

coin tesla snap facebook these are the

most uh you know freezes and layoffs

that we've seen since may of 2020 but

still despite all of that we still

somehow beat on the jobs number maybe

this is the last month that we're going

to beat right but because we came in hot

the market started selling off today no

doubt about that now fortunately we're

not seeing that wage price spiral

remember the survey was for 4.8 percent

annualized we got uh 3.6 so that's good

and that's the wage growth it's not so

great for individual employees but in

terms of like preventing uh depression

in the economy by getting paul volcker

good

cpi projections though

they're hot the survey is hot and it's

not good they keep getting revised uh

and they're coming in hot okay

month-over-month expectations for cpi

0.7 that's 8.4 that is way too hot at an

annualized runway rate for cpi that does

include food and energy though core

point five percent annualized run rate

that's six percent still too hot how the

hell are we ever gonna get to two

percent we're not with these numbers

year over year eight point two percent

get out of town so what happened today

in the markets

well the 10-2 break even has you know

kind of gone up a teeny little bit over

here this wasn't too much of a move here

that big drop over there that's really

where everybody's like oh my gosh they

inverted yield curve the 10 2 has

actually been pretty stable we've been

uninverted at about 29 basis points but

it did take up a little bit the one that

actually had a little bit more of a

problem is this bottom one right here

okay this is the five year break even

which is the projection for inflation

this is how the market predicts

inflation and if you look real closely

to the end right there you can see oh oh

there we go you can see we got a little

spiky spike doodle there that's because

of the jobs report just today we went

back over three percent now at 3.07

obviously way down from the nearly four

percent where we were after the whole

ukraine disaster but still

uh you know when we see a spike like

that the market tends to trend down now

regarding this here this is the 10-year

treasury you can see we're almost

peaking again we were up at almost 3.2

there a few weeks ago but now we're back

right to about three percent terrible

for the real estate market uh that's uh

that's gonna be our next headwind right

that's the big thing we're gonna be

talking about for the rest of years the

real estate market probably into next

year so those are things to really pay

attention to and we've got some some

problems coming in this data not so much

in that recessionary 10-2 spread but

those break-evens going up the treasury

yields going up why because the market's

still moving too hot that's why we're

seeing those break-even expectations go

up but what's the market actually

pricing in let's talk about what the

market's actually pricing it a little

bit so this is kind of what we already

had we already had the market uh

experience going to liftoff which

reminds me we got to talk about

quantitative tightening which we'll talk

about in just a second we've already had

liftoff in march this is the fomc rate

right the fed funds rate federal open

market committee sets these we went from

0 to 0.25 in may we bumped up 0.5 that's

why we're at 0.75 on the lower bound

right now right that's just those two

numbers added together easy right great

so

what's next well we expect 250 basis

point hikes this is pretty much

guaranteed markets pricing in like a 99

chance of these right here that's not

where the mystery is folks the mystery

is what happens come december and here

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what do we got over here well this is

one path okay this is what 28.7

of the market believes right now is that

we're going to get a 50 basis point hike

which we've already had plus two more

and then we're going to go to 25 25 25

for the rest of the year so that we end

at 2.5 this is considered the neutral

rate where the fed is neither

accommodative nor tightening however

because inflation is running hot the

federal reserve has told us we're likely

to go above neutral potentially to like

2.75 that would mean a 0.5 hike in

september and then down to 0.25 and 2.25

in december obviously this is all

predicated on what happens with

inflation now

leading up to this well leading up to

today we had a green week until today

destroyed everything with this hot data

that's why the market's having such pain

today right is this new data the surveys

for cpa a cpi consumer price index

inflation right and the jobs report

coming in hot those things hurt and yeah

i mean tesla doing the layoffs and stuff

that didn't help i mean coinbase down

nine percent tesla's down nine percent

is terrible but

this right here is the base case for the

market right now 50 chance that we get

to 2.75 at the end of the year that

would be 50 basis points of a hike in

september followed by 25 and 25. this

right here is really being considered uh

what some folks are seeing the uh some

people are calling it the u-turn some

people are calling this like the

potential pause like maybe we get the

pause in september only 28.7 percent of

the market thinks we're actually going

to get the pause in september some

people say oh we'll get we'll get the

u-turn of the pause in november or

whatever a real i wouldn't really call

this a u-turn i would call this more of

a pause a real u-turn would be like if

let's say in in january we're like uh-oh

we have to go negative 0.25 in other

words reduce rates again why could that

happen well if inflation all of a sudden

plummets which is entirely possible you

know we go from

eight point you know five-ish percent or

whatever in in march of 2022 and that

ends up being some form of uh of a peak

and then we

slowly and then quickly tick down on

inflation we could actually be in an

environment where we have to go back to

negative rates in a couple years we're

looking at the fed stimulating again

negative rates and stuff like that would

be a big u-turn and it'd be amazing for

a risk-on rally we're not close to that

right now okay so let's not even

speculate about that kind of madness

right now instead what we should focus

on is really what the market's pricing

in and it's an 18 chance that we get a

50 50 and 25 which would be three

percent above the neutral rate there for

the fed funds rate or the market really

not pricing in 3.25 but here's the

problem why do we have a red day today

because when we get strong jobs data

like this

this number becomes much more likely and

when 3.25 at the fed reserve rate

becomes more likely

which you can see if you add this up

right now is not being priced in at all

i mean that's almost 28 i mean this

would be like a one percent chance right

here if you roughly add that together

maybe two three percent the more this

becomes likely the more the market has

to reprice and that means red market

right okay so let's talk about some

individual companies here because we've

got some problems the first one i want

to actually talk about is shift shift

technologies okay let me show you how

things can actually become a problem

shift technologies we did this in the

course member live stream this morning

we spent probably

15 20 minutes doing a

somewhat of a deep dive on shift as much

as you can in 15 to 20 minutes you know

you can't do a full fundamental analysis

in 20 minutes but when we do this is on

the course member live streams or the

goal is to really give you as much

exposure to fundamental analysis as

possible so the last few days we've been

doing like etsy nvidia we've done end

phase we've done uh shift we've got like

crowdstrike coming up and so we really

try to explore uh different

elements of fundamental analysis it's

supposed to be to teach you what i know

about fundamental analysis i'm a big fan

of teach someone to fish feed them for a

life rather than just here's a fish

right tell them what to do okay so

problem with shift technologies is is

really something that you can see

that is going to be a big risk for the

rest of the economy first of all uh

number one thing with shift technologies

is they use credit lines called a

flooring line of credit a flock

and the interest rate on that when we

were at zero percent was 3.8

we go over here to 3 at the fomc they're

probably going to be paying somewhere

around 7 to 10 percent on their flooring

line of credit i don't know why they

call it flooring line of credit don't

ask me but that's just what it's called

and that's what they use to buy cars and

then they pay it off when they sell the

cars right problem is

used vehicle prices are doing this

and shift has been collecting more

inventory which it's important to have

inventory so that way when people

download the shift app or whatever they

actually see cars they could potentially

buy if there's no inventory and shift is

advertising and people go to the app and

they're like well i mean i saw your ad i

downloaded your app but you have no cars

and then they delete the app your roi on

advertising goes down so you're

literally burning money having uh on on

cars that are losing value and burning

money on advertising not so great if

interest rates go up now you have even

more of a burn right so you've got a lot

of potential problems so this is just an

example where you could see interest

expenses potentially double at a company

like shift and advertising obviously

becomes less expensive if they have less

inventories and so then it really hurts

a company so then you ask yourself okay

well if the company's gonna potentially

get hurt with higher interest rate costs

uh how much cash do they have to survive

so that they can keep buying inventory

keep their advertising effectiveness up

right well not much they're down to

roughly

uh i believe it was roughly off the top

of my head about 95. you know what i'm

just going to look really quick i have

it here on my ipad so they are down in

q1 to cash of yup 94. i was close 94.8

mil of cash so 95 basically anyway

they're down to this well last quarter

uh or or this yeah this last quarter

their cash burn which was absolutely

insane folks their net cash burn in the

last quarter we'll go to the statement

of cash flows here

was 87.5

mil that wasn't their net loss their net

loss was like 57 mil or something like

that but they burned 87.5 million in

cash just in the last quarter that burn

rate is up like 50 from the quarter

before that the problem with that is

shifts out of money because they only

got 95 mil left they've already used up

about 100 mil on their flooring line of

credit sure maybe they can continue to

get debt but how are you going to raise

money from shareholders with a one

dollar stock price so the point is you

can you know why are some companies

dropping a lot that that have negative

cash flows it's because in a recession

when you have a lot of used inventory

used car inventory and people stop

buying used cars

and you're out of money and you can't

raise on the stock market

a you potentially get de-listed from the

stock exchange which makes it even

harder to raise money and b

you could just go bankrupt it's bad uh

now i sold shift way back when it was

like i don't know it was like six

dollars and ninety cents six dollars and

eighty cents or whatever i took about a

ten percent haircut on it and i did that

because i started seeing uh oh wait a

minute there's there are no used cars

there was no inventory back then to

actually have used cars to sell and if

you don't have inventory their

advertising sucks right whole

advertising should be again anyway big

big big big big problem here with shift

technologies right problem now a lot of

people are complaining about microsoft

and they're like oh but kevin you know

microsoft also reduced its guidance well

if you look at the earnings call for

microsoft

and the 8k and you compare them

microsoft gave us a heads up of this

back in april they're like hey heads up

we're gonna have some foreign exchange

risks coming up and market risks coming

up and their entire lowering of guidance

was based on foreign exchange that

basically means if the dollar becomes

stronger and their sales in other

countries are now worth you know five

percent less or whatever well they have

to take a five percent hit to guidance

and so they ate kade they gave the

market an update that's when 8k means

they gave the market an update and said

hey we're getting hit by fx foreign

exchange problems that does not actually

mean that demand at microsoft is going

down so that wasn't too big of an issue

for me and we do have some good news at

some companies like for example lulu man

uh i think lulu's still in for some pain

going forward but not right now

operating margins at 16.1 percent same

store sales up 24

at lulu really good they raised their

fiscal year guidance really good air

freight still remains expensive red flag

though okay you want to know what the

red flag is and this is why it's bad for

the fed this is why the market's going

down when you've got a company like lulu

going hey we're still doing great

everybody's still shopping over here our

shoe sales are doing really well even

though we only have women's shoes and no

men's shoes hey men's you want a shoe

just get the women's one like let's

literally what they're doing um what the

problem what they say is

ocean shipping is not improving and

still spending a lot of money on air

freight in other words having to spend

more money on these inflationary style

costs and not seeing improvement in

those supply chains yet while still

having demand outpacing their forecast

that's a problem because you still have

a hot economy you still have people

spending money like crazy when they

probably shouldn't be

oh well at some point that'll stop for

example like what we're already seeing

at the buy now pay later players the

wall street journal did a big piece on

uh the buy now play pay later players

this week they said that the losses are

starting to pile up and wholesale lines

of credit are getting more expensive a

firm holds about 50

of uh their own debt so when a firm for

example does a buy now pay later loan

they keep about 50 and then they

securitize the other 50

klarna is now laying off some of their

staff uh subprime loans for buy now pay

later issuers make up 43 of their base

that's sort of buy now pay later space

as a whole a firm has always said that

they try to appeal to a higher quality

customer but that was back in the

peloton days so i don't know how that

has changed so maybe less subprime risk

over there but wall street journal was

not really happy about buying up later

because

delinquencies of 30 day lates are up

almost double from a year ago we were at

1.4 30 day lates now at about seven

percent and once somebody's 30 day late

30 days late good luck collecting oh but

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usage is also rising as people become

more sensitive to price increases we

know that crowdstrike increased their uh

forecast but is actually still falling

despite that they fell in after hours

yesterday when they reported

and then of course we had the whole

jamie dimon hurricane comment that

didn't help he says that consumers still

have in his opinion six to nine months

of spending power left in their bank

accounts but after that he's warning of

a hurricane brewing and that we should

start

bracing for impact and this is where a

lot of the forecasts are still that

maybe we're not in recession now but

maybe that recession comes at the

beginning of 2023.

i don't know i don't care but i keep

seeing deals in the stock market i can't

help myself but buy more we covered all

of this this is the big reason markets

are moving that's the projection of what

the fed is going to do and there's a lot

of expectation that the more hot data

like this that we get cpi jobs reports

like lulu microsoft's still killing it

crowdstrike the more reports we get like

this the more companies like shift go

bankrupt and the fed hawks rates higher

the more they hawk rates higher the more

bankruptcies we'll see and ultimately

the greater risk that the fed ends up

putting pushing us into a a sort of

larger recession than they expect

because they over tighten at the same

time as inflation comes down inventories

rise and then they have to u-turn

that u-turn will be really glorious when

it comes but we're in the thick of it

right now and it kind of sucks so anyway

folks if you're nervous about it life

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tasty for tastyworks and we'll see in

the next one thanks so much bye now

another thing to consider is

quantitative tightening that's making

things worse now that started june 1st

what does that mean it means the federal

reserve is going to start rolling off

the treasuries that they have and they

might even consider selling some of them

like mortgage-backed securities now the

problem with this is when you dump

treasuries or you stop buying them you

lower demand for them when you lower

demand for something the price goes down

when the price goes down the yield goes

up so that means the yield goes up on

things like the 10-year treasury which

is exactly what we saw happen today it's

knocking on the door three percent it's

going up again the more the yield for

that goes up the more attractive bonds

actually become over stocks so now you

have people going over to treasuries

picking up treasuries at a three percent

yield instead of buying stocks so

there's some more qt downside for you

but that's just what we had to deal with

also still not good for real estate