The Coming Stagflation Disaster.

hey everyone kevin here there's been a

lot of fear about a stagflation we've

heard that tsa check-ins are going down

that more airline tickets and travel are

getting canceled and rescheduled to the

future and hotel room reservations are

declining we're starting to see this

sort of delta slow down at the same time

we are at peak levels of inflation and

bond deals are going up but is there a

secret truth to what's really going on

here that might not be as bad as we

expect especially coming up to the cpi

data release tuesday at 5 30 am let's

talk about this and some opportunities

and how i am investing through all this

madness

folks first today though is 9 11. and my

heart goes out to everyone affected by 9

11 and i hope and pray that we never

have such a horrific terrorist attack

again

let's now folks get into a talk on

inflation and stagflation

first this is a screenshot from the

bloomberg terminal thank you very much

to the bloomberg terminal for allowing

me to post this here take a look at this

this is a shot of news trends

for

references to the word stagflation

through the bloomberg terminal which

sort of consolidates old news

what's crazy is it skyrocketed just

recently within the last few weeks here

even though we had a really high

inflation over here uh and inflationary

readings and fears of high inflation

staying were really exploding over here

in the february to march time frame in

fact you could see that by looking at

the 10-year treasury yield right 10-year

treasury yield exploded under fear in

february and march but we haven't gotten

the stagflation fear until just recently

the last few weeks and it's worth trying

to figure out why would folks think that

stagflation is a concern well a lot of

it has to do in my opinion with delta it

makes sense we're seeing those slowdowns

again travel airlines hotels things are

slowing down this makes sense that at

the same time you would have a slow down

because of delta and super high

inflation that you might think the

economy is starting to stagnate while

maintaining high inflation but are these

high inflation levels a real concern or

is there something that we should

specifically be paying attention to

that might give us some more clarity for

us being on a path to potential normalcy

again well let's break that down so cpi

data that comes out this tuesday 5 30

a.m california time i will be live

streaming that so make sure to subscribe

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a video is posted if that's what you

want okay so this tuesday we're

expecting month-over-month inflation to

come in at 0.4 percent and

year-over-year inflation to come in at

5.3 percent this is really really high

and looking at this on the surface it's

like oh my gosh this is crazy like we're

at a slowing down market because of

delta or economy at the same time as

high inflation this is bad

well now we've got to look at the

details because as usual the devil is in

the details things that have led to high

inflation over the last few months have

been things like wedding dresses i kid

you not that's one of the categories

used car prices airline tickets and uh

lodging well we just we already know

that lodging tsa travel airlines these

are slowing down so we expect some

pressure to be lifted off of these

prices and these prices to stabilize

because of delta

we also know that used car prices have

been skyrocketing but according to the

manheim index of used car prices values

we've actually seen a stabilization of

used car prices you can see that right

here we

previously had been skyrocketing and

this is why we had some crazy inflation

here starting specifically in february

right around here because this was

really waiting inflation up up up up up

up up up up up up up up up

and that's really slow down here now

there are two things that could make

inflation continue to be bad

but this right here so far we should be

going into the cpi read the cpi print

expecting it to come down because all of

these things the travel lodging

and used cars slowing down

but the two things propping up inflation

right now or the potential two things

that are going to prop up inflation are

wages especially in lower wage

industries

like local retail or local services it's

a danger local service inflation and

rents those are the two big things uh

that is wages and rents that we're

expecting to potentially prop up the cpi

print an inflation print and how much of

a prop up we get is going to be really

really important to this market because

everything related to this cpi print is

going to give us answers

on

will the federal reserve begin their

taper or not in other words this tuesday

if we get a misuninflationary

expectations inflation via the cpi comes

in lower than expected whether we

believe it or not

the federal reserve is likely to pause

on that taper until november and we hope

hope hope to have a beautiful september

and october rally in the stock market

until the beginning of november

doesn't mean we don't have other

uncertainties going on we still have a

debt ceiling debate we've got a big

infrastructure debate all that's

happening at the end of this month here

in september so there's still going to

be a lot plenty of room for uncertainty

so to speak plenty of room for the

market to go down and fluctuate up and

so on but for me

i'm hoping the cpi print comes in lower

than expected so that way the fed delays

their taper we do not get the taper this

month we don't get a taper announced

until at the earliest in november

potentially we kick that can down the

road and we start seeing inflation

inflect to the downside

but could this potentially lead to

hyperinflation i don't think so and i'm

going to prove to you why and then i'm

going to show you a second piece of

evidence that has to do with what the

bond market is doing which is very very

interesting so buckle up for that one by

the way while i pull this chart up here

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right folks take a look at this this

here is a chart of forecasted inflation

in the united states what i think is

really neat about this chart and again

shout out to the bloomberg terminal love

this software

what i think is really neat about this

chart is it tells us that look

we saw this high inflation

this has already happened this was in

the past we're right about here right

now we're at peak inflation right now

but because we've been on this recent

roller coaster we feel like we're just

on this perpetual up up up up up up up

up up up up up up up up up of inflation

and unless the fed tapers unless the fed

slams on the brakes we are going to see

hyperinflation

but it's worth noting

that the baseline forecast for inflation

no matter how long this stays up or high

or elevated or how fat this this bubble

is right here of inflation the forecast

is that by 2023 we will be back to a

pretty stable inflationary time where

inflation is sitting between two and two

and a half percent that's symbolized by

the solid white line but watch this

what if kevin is right and inflation

comes in lower than expected well if

inflation comes in lower than expected

then the dotted line right here might be

a potential path that we would take

where inflation basically

we came hard came fast but then finally

inflected down

slowed down markets rallied and we were

able to cheer that great inflation was

indeed transitory okay but kevin's not

always right i recognize this i

acknowledge when i make my mistakes uh

and as much as i still think i'm right

about my inflation and i am long on tech

and innovation because of this what if

inflation comes in high

inflation comes in high

then we'll get this fat red over here

and inflation might last longer look at

this we could have five percent five

point five percent inflation basically

lasting into halfway through quarter one

twenty twenty two that would be like

five percent inflation going to february

march of 2022 be crazy right yes in the

short term it'd be crazy but look at

what the long term always does the long

term in all forecasts and all economists

and every researcher everybody seems to

point to the same thing by 2023 we would

expect inflation to be well under 3

percent and continue to converge to that

two and a half percent level uh

potentially even two percent in some

cases but this is a long run expectation

so what's important about this is if you

are a long-term investor remember

inflation is something that is going to

be here for a period of time the

question now is it going to be here for

six more months or two more months at

five percent levels uh or or not right

that's the big question right now and so

some people are looking at the 10-year

treasury yield to try to predict what

does the market believe and there's

actually something very interesting

happening in the 10-year treasury yield

and this is worth talking about this is

a little bit trickier to follow along

but i believe you come to my channel to

get insights that you're not getting

anywhere else and that's why you

subscribe to my channel and come back to

these videos take a look at this folks

when inflation expectations first

skyrocketed we saw 10-year treasury

yields skyrocket this makes sense if we

think there's going to be high inflation

then we see 10-year treasury yields go

up and at the same time if we think

there's going to be high inflation and

10-year treasury yields are going to go

up then we're going to expect tech

stocks to go down high valuation stocks

to go down and things that print money

today

doing much better that is very well cash

flowing companies now doing better

maybe even like real estate or whatever

uh industrials right anyway

what's fascinating here is we've had

this crazy uptrend

then we've had this slow down trend but

look at what's happening over here since

about the beginning of august we've

actually had another uptrend now why

would we have an uptrend well ordinarily

we might look at this and say well we're

having this uptrend we're because we're

expecting inflation to go up that's it

the cpi print is going to miss inflation

is going to go up that's it inflation's

going to keep going back and the bond

market is pricing it in again

maybe not

and this is the mind-blowing part

wait kevin if the market is not

expecting high inflation especially

during this delta surge kind of

stagflationary time stagnating time is

better uh and maybe inflation

expectations will inflict downward why

would tenure treasury yields go up it

could be because of something known as

the shorts covering see when short

sellers

buy

a treasury bonds

they're covering their shorts because

remember when you short something you

sell it you dump it right well what if

over the last few months short sellers

realized crap inflation is going to be

temporary it is going to be transitory

now over the last few months they start

buying back their treasuries okay so

they buy back treasuries they close out

their shorts

now people who were buying treasury

bonds like crazy don't have to buy

treasury bonds anymore because they're

covered

okay so in other words where we saw

yields going down right here

this

down path right here and this excessive

sort of fall over here could have

actually been treasury short sellers

buying treasury bonds back because when

people buy a bunch of bonds the yields

fall

now they don't have to be buyers anymore

because they've already covered

and now

you have less buying pressure in the

market and so yields are slowly

trickling back up because the short sale

covers

the people covering their shorts aren't

adding to buying pressure anymore and so

the yields are slowly going up as

treasury yields are slowly falling so in

other words this sort of weird

transition we've had in the bond market

right here at least the research that

i've done could actually be a natural

indicator

that the market is expecting lower

inflation

and while expecting lower inflation

we're seeing this kind of slow trickle

up in 10-year treasury yields kind of

interesting a little bit of a mind twist

and the reason it doesn't perfectly look

that way in the chart is because you

have to remember that when people buy

treasury yields or buy treasury bonds

prices go up and yields go down right

it's that weird inversion thing and if

none of that in the last minute made

sense let me just give you a bottom line

on this part of the last minute

if shorts covered their short seller

positions on treasury bonds

then we could see exactly this happen

where basically the market says yeah

inflation's going to inflect down we're

not going to short the market anymore

let's just get out of this shorting the

treasury market expecting inflation is

going to slowly inflect down and

eventually taper all the way back down

like we saw in the forecast chart

and we're going to get out of shorting

this market

that would lead to basically a plummet

in yields

and then a slow rise in yields which is

exactly what's happening here so in

other words even though we're seeing

this trickle up super bottom line epic

bottom line and then we're moving on

from this epic bottom line is the slow

trickle up

could be a good thing for the market

could be a good thing for tech and

innovation

okay now

what do we invest in what the heck do we

do so my belief has been very consistent

i'm a big fan of being heavily exposed

to tech and innovation i'm over 80

exposed

to tech and innovation my the safest of

them obviously fang t those are going to

be facebook apple amazon netflix google

tesla so there's a double a in there and

the t at the end right it's expanding

fang a little bit feng t

uh then if you want to go out on on the

risk curve a little bit you could go to

like amd nvidia the chip suppliers these

guys have been killing it want to go

further down the risk curve we go to

things like etsy and face further down

the risk curve go to things like a firm

lemonade hippo these these are more

risky but other opportunities all of

these in my opinion are innovative plays

going from safest the fang t to least

safe most risky potential highest risk

highest reward like hippo lemonade a

firm right

all of these in my opinion are going to

do very very well could be wrong but i

think they're going to all do very very

well in an in a deflationary time where

we start getting that inflation

inflecting downwards

i believe that weaker inflation plays

with inflation rotating down are going

to be things like retail travel you know

our usual recovery place i still think

there's room for speculation in in these

i think there are opportunities to buy

the dip and sort of ride them up and

then sell out of them i'm a big fan of

this i did a big call option last week

on dave buster's that was very

profitable uh because of earnings so

thank you dave busters for that that was

an awesome one

but things that you want to keep in mind

here are

what you want to invest where there is

elasticity of demand elasticity of

demand is basically am i going to buy a

new iphone if it's

a thousand dollars or eleven hundred

dollars does that extra hundred dollars

make a difference as to whether or not

i'm going to buy this phone if the

answer is no it doesn't make a

difference i'm gonna buy it anyway you

have more elasticity of demand than if

you go on google flights right now and

you're like oh flights to uh you know

canada are

four hundred dollars oh but if they're

500 i don't want to pay for it anymore

right that would mean you'd have less

elasticity and demand i believe travel

has lower elasticity especially during

delta whereas tech and tech related

services software as a service these i

think have very large elasticity of

demand people are going to pay for

higher prices and

or how they're going to pay higher costs

that is if we have some inflation that

we have to pass on to consumers i think

that's the place where people are going

to pay it so

that's why for me

big fan of staying long on tech because

eventually we're going to hit that curve

of going down how long it lasts remains

to be seen but remember folks the curve

moves down in the long run and i think

that is very very very important to

remember

so i will see you tuesday morning at 5

30 a.m i hope you subscribe to the

channel if you like this kind of

perspective always make sure to check

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folks thank you very much for watching

no matter what happens this tuesday i'm

excited for my place but

my options are going to fluctuate based

on what happens but that's part of

training in the market all right folks

thanks so much for watching we'll see

you the next one bye

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