This Time is Different | Major Market Collapse.

now we've got to talk about the Bears

again let's take a listen to what some

of the Bears are saying and we're going

to talk about what is being said about

maybe this time is different new piece

out from the institutions we'll be

looking at in just a moment but let's go

ahead and get started with the bear

piece remember the flash sale on the

programs on building your wealth is

linked down below and expires with

investor day next week let's go I'm

trying to contain myself Scott but it's

difficult I think this move today is one

of the most idiotic moves I've seen in

the markets in quite a long time today's

news is not news okay last week you had

the CPI this is talking about pce right

so the market moving down on uh moving

red this individual is calling the

market moving red idiotic because we

already knew that inflation was coming

in hotter for January this is

nonsensical as essentially we're saying

it's an argument I've made before but

we'll also see the counter argument here

in just a moment let's keep going PPI

for the month of January they showed

that inflation flipped up in January PC

today for the month of January which I

will remind everybody was 24 days ago

that it ended is once again showing it

hot okay that tells us nothing about

where we're going prior to that you had

three months in which inflation reports

came in better than expected so the

question before us Scott before the FED

before any investor is which which is

the true story is January a blip or is

it or is it a new trend and if you look

at commodity prices if you look at Goods

prices they are clearly showing that the

trend to disinflation is intact the

question that hangs there Scott is

what's going on with wages I don't know

the answer Nobody Knows the answer until

we get next week's labor report but to

tr this is obviously the bullish

argument here the person on the right is

going to give us the bearish argument I

do want to say he says nobody knows the

answer about wages I'm not saying I know

the answer but I think we got plenty of

indicators read the earnings calls for

this might sound redundant if you've

been listening for a while but I'll say

it really quick Lyft Uber massive

extreme increase in the avail ability of

drivers a cloudflare massive amount of

people applying for very few jobs 1300

open jobs 400

000 applications in 2022 for those 1300

drops the availability of Labor is

Extreme it's becoming easier to hire

people at Chipotle at Starbucks a target

of Walmart pretty much at restaurants

across the country labor is becoming

substantially more available it's gonna

be a while before we actually see that

because we are still going through some

of that shifting let's keep going pretty

damn today whether you're an algo or a

person on yesterday's news which is what

today's PC is is idiotic today's news

weissmester inflation's too high do a

little more to get price stability bring

interest rates above five percent hold

them there how do you see it I mean Jim

he used the word idiotic on on the

sell-off you know if I were on the wrong

side of the trade I probably think it

was idiotic also but oh it's such a slam

he's basically saying well you're a bull

and the market went red today of course

you you're saying it's idiotic oh burn

but I'm not so I continue to be bearish

this fuels The bearish Narrative it

fuels The Narrative of being uh you know

higher for longer with the fed the FED

is going to err on the side of doing too

much and I'll go back to what I said yes

saying all these times before those can

focus on a single data point they can

explain away say this was expected you

know are you guys idiots what's new here

which is essentially what we saw just

now from my colleague here but the

reality is that it's directional the

economy directionally is slowing while

the FED is raising rates so it's idiotic

is to have multiple expansion in that

environment multiple expansions find

when you have trough earnings we're

nowhere near Trot so the market is way

overvalued will continue to decline as

the economy versus inflation stays

stubbornly now I want to just quickly

interject and make sure to remind you

that when they're talking about multiple

expansion this doesn't mean that every

company is overvalued it's basically

saying why did the S P 500 see its

multiple valuation go from 16 to 18. why

would you have multiple expansion in

this environment and really there there

are two potential reasons uh one is it's

stupid and it's going to fall back down

because the FED is going to push us into

a deep dark recession and especially in

my opinion the consumer staples uh and

and the Legacy companies within the S P

500 are going to go into a recession

they're earnings are going to collapse

and you should not be paying these sort

of multiples for the s p 500. I believe

this is roughly what he's saying uh now

the other idea and and potentially

counter argument to his idea that the

market is overvalued should not be

seeing multiple expansion the potential

counter argument is the idea that well

what if we're not facing a Paul volcker

what if the markets are pricing in

serious fear and have been for the last

year that this is a repeat of the 1970s

we're gonna have to go through a deep

dark depression to kill inflation well

the markets are pricing in massive fear

of Apollo volcker than when the fear of

a Paul volcker goes away the market

could actually expand even as rates

continue to go up because even if rates

go to six six and a half percent it's

still better than a Paul volcker so it

just depends how the market is waiting

that negative potential right let's keep

going be bad now I feel really bad

because now I realize I just pulled the

wife saying idiotic you're right Steve I

shouldn't use idiotic you know because

that's your uh venue

talking about yourself but things are

delusional insane oh he just called him

idiotic this is great stupid stupidly

insane criminally insane I mean the

number of adjectives that you've used

when things are not going exactly your

way to explain away data points is

prolific but I mean your case let me

let's be honest okay

um it's very easy to be negative I I

totally get it but your case is harder

to make

because a good economy like you've been

pointing out only means more activity

from the FED right it means more demand

that they need to crush it means rates

are likely to continue to move up or at

least stay elevated and that's a problem

for stocks isn't it regardless of how

idiotic you think this move is that is a

problem and that's what Michael Hartnett

talks about today and why he says when

the Bank of America flow show s p goes

to 3 800 by March 8th that's you know a

couple weeks away he essentially makes

the case rates up stocks down not that

complicated yields are going to go north

of four percent and the s p is going to

go lower give me a good job bringing it

down to taking the insults out but I I

applaud you for that uh give me next

week's labor report let's see how

average hourly earnings are I hate to

wait three weeks for the CPI PPI of

February but I'm telling you this is one

man's opinion just one man's opinion as

far as what the FED is going to do and

the impact on the markets you need to

see February's inflation report to

determine if J January was an outlier or

the start of a resurging inflation Trend

all right so Brenda vangelo join the

conversation weigh in on this little

mini debate that we've had to start the

show here on the desk

sure thank you so I think that it could

be that January just ended up being

overly hot that's the time of year when

everybody puts your price increase

usually salaries go up we also had that

you know significant increase in Social

Security benefits that really probably

boosted consumption during that time but

at the end of the day I think if we look

at data right now you cannot deny that

the consumer is still incredibly strong

they're not spending on all the things

they spent on during the pandemic but

they're absolutely spending on all kinds

of other things like travel as we heard

the booking things are really fantastic

they're spending on events and concerts

the consumer is still really strong so I

think even though that likely means that

is going to continue to raise interest

rates here I also think it might pay a

little bit of a different picture in the

shorter term for corporate earnings

because I think we had all been

expecting that things would be really

starting to slow down that companies

would no longer be able to pass along

price and higher costs and that Dynamic

might change a little bit particularly

for those companies in the services

director where we're still seeing demand

be really strong so I think it's not all

potentially a negative here but are we

in for a choppy period I think

absolutely until we can sift through all

of this and really understand exactly

what's happening in my mind it's clear

that the consumer is really strong and

that's such an incredibly strong part of

our economy uh that in my mind that's

that's a positive I'm trying to continue

maybe a positive unless as the bear said

oh who's sitting on the right of this

picture here

maybe that means the FED goes way too

far and I think that's really the Big

Bear argument that the problem is we got

to pay attention to the Catalyst the

catalysts are quite interesting because

the bull here mentioned give me the

labor report next week eh I'm not

confident that the labor report first of

all I know it ain't coming out next week

A and B I'm not confident that the labor

report is actually going to be super

helpful as long as it doesn't indicate

any kind of late wage price spiral which

I doubt it will it's very unlikely that

the labor report is going to show any

kind of real softening that will really

help the bullish argument I actually

think what you're waiting for is CPI now

the labor report you want to write this

one down mark your calendar for March

10th that's when the labor report comes

out CPI Consumer Price Index inflation

comes out on March 14th and then of

course the fomc meeting is March 22nd so

pretty traditional bear argument here

that hey the fed's going to over tighten

and the traditional bull argument is hey

well maybe it's like gonna be that bad

because consumers still have money to

spend through this recession and

inflation is going to go away but is the

Islam different so organ Stanley has an

interesting piece over here and some of

this it just makes sense to read Parts

too because they make this interesting

argument so usually when we say the word

this time is different what we're doing

is we're kind of making fun of the

people who are taking the long stance

going oh well the market will be fine

this time is different because those are

generally deemed to be the four most

dangerous words in investing oh this

time is different well Morgan Stanley

makes the argument that well I mean

let's be real here every time is

different so as markets look to the

Future the standard practices assume

that Cycles are cycles and taking

history as a guide and anyone shouting

this time is different is met with

skepticism but of course we have all

lived through covet now and the fact the

facts alone set this cycle apart from

others so it's worth asking what is

different this time and what is not I

think this is a great piece so let's go

through it the coveted pandemic

distinguishes this cycle from the past

World War II business cycle demand

collapsed in a highly correlated way

nearly every data economic data series

now has a very clear statistical break

marking the first difference relative to

other Cycles in other words is

everything in unison basically hit a

wall with covid that's very different

from from other Cycles the key

characteristic of this cycle is what

they say here volatility and supply and

demand and how shocks evolved across

different sectors the initial collapse

in demand for both goods and services

was followed by a Resurgence of demand

for goods against the specific supply

chain that was basically correct the

decoupling of demand for goods from

demand from Services has not been seen

in previous Cycles so this is

interesting they're basically saying hey

like we haven't had a cycle before where

everybody's at home ordering crap on

Amazon but they're not using Services as

much because all of a sudden they're

cutting their own hair right this is a

really interesting argument because it's

like yeah like we were kind of stuck at

home buying crap on Amazon buying our

groceries online and we were cutting our

own hair that's an we're not going to

the dentist right like that's weird we

haven't seen that before because we

haven't been any pandemic before where

there was Amazon right so that's a it's

a good point uh and it kind of then

explains why we have seen this massive

inflation in goods and now the goods

deflation is occurring or disinflation

is occurring but the services explosion

came much later so of course it's going

to take longer for that Services

disinflation which again that's where

the Bears say yep exactly taking longer

is why the Market's going to be in pain

for longer but anyway

the initial collapse in demand led to

disinflation but the surge in demand for

goods in particular led to Goods

inflation to decouple from Services

inflation this is to say that when

everything hit a wall companies are like

crap we need to reduce prices to

actually get people to buy it but we had

such a quick v-shaped recovery thanks to

all the stimi money everybody went YOLO

crazy and would we have massive

inflation okay we already know that

subsequently Services demand were

covered as the economy reopened but the

reopening was Rife with frictions as a

large swath of the labor market

reinvented itself or was displaced for a

period of time this is so important to

mention the Reinventing of the labor

market this idea that we never before

had this normalized work from home

culture it used to be

weird and embarrassing to say you work

from home like right now I know that

sounds crazy to say but if you're

probably older than like 25 maybe even

older than 23 and you've been in the

workforce well before like 2018. you you

know what I'm saying like when I got

into the real estate business in 2010 if

you said oh I work from home you were

deemed as somebody who's just got a side

hustle you're not really serious about

the business where's your office I want

to go to your office I want to see

you're actually investing in your

business like that's old school it was

embarrassing to say you work from home

now work from home is like the norm it's

insane how that's changed and that's led

to a lot of Reinventing as well where

you know some people now work at

multiple companies from home at the same

time because they're doing like two

hours of work here two hours of work

there two hours there right making a lot

of money doing that very very

interesting but anyway uh We've also

seen a massive rejiggering in the amount

of people who retired from retail and

Hospitality who are no longer working

there so you need a new cohort of people

working there people who were working in

retail Hospitality now potentially have

moved on to working intact because they

got educated in in Tech who knows anyway

while the collapse in demand was highly

correlated the recovery was not in other

words everything hit a wall but we were

covered in very weird ways one

consequence of this uncorrelated cycle

is that inflation has been noisy what an

interesting argument because you have

seen noisy inflation remember last year

in March it's like Yay inflation is

going down and then it was like June or

July I'm on the beach in Germany live

streaming oh no inflation's going back

to the Moon right and then it comes down

and then like in October or September it

comes up again it's like oh no and then

it comes down for three months and then

it's January and it's oh no it's coming

up again it's been like we've been on

the downtrend but it's been a stressful

downtrend of disinflation right today we

see that inflation for goods has notably

retreated but Services inflation remains

robust even after an aggressive

tightening cycle we with inflation

running harder than at any point since

the 1970s we have another key difference

the fed and other developed Market

central banks is hiking to bring

inflation down this hiking cycle is the

first time since the 70s that we have

been hiking with that motivation this by

the way reiterates the pivot argument

that I've made many times before on this

channel already that when we go to Pivot

the people who think oh the stock

market's going to crash after the pivot

are missing the fact that the only time

our fed today will pivot is when

inflation is conquered but that's

basically the big fear markets have

right now is that inflation is going to

last long so a pivot should align and

that the fed's going to over tighten so

pivot should literally align with

Euphoria because we will actually be

improving by removing basically the

cancer of inflation whereas in the past

Morgan Stanley has taken a telling us

look in the past we would hike rates

because growth was strong and when

growth was slowing we would reduce rates

and pivot because growth started slowing

that's very different this time the FED

is intentionally raising rates to slow

growth substantially below the prior

potential growth of the economy so in

other words in the past we would cut

rates when the economy was slowing this

time we're raising rates to purposefully

slow growth it's literally the opposite

of when we usually uh cut or raise rates

it's totally the opposite that's why I'm

saying people who are making these and

there are a lot of people getting a lot

of views making these videos about the

FED pivot causing the next crash I think

all they do is they look at one chart

and they're like oh well there's a video

for me and they make a video but one

chart and they're not stitching together

what's actually happening maybe there's

like a real economic you know education

that's lacking and I'm not saying I know

everything I don't you know I try to

keep challenging myself but it doesn't

make sense this idea that the markets

are going to crash after the pivot it

this this Associates why the FED would

pivot in this cycle anyway

this time the FED is intentionally

raising rates to slow growth

substantially below the potential growth

rate of the economy and plans to keep

them high while the economy slumps

that's the over tightening concern

that's the bear argument this Central

Bank strategy is clearly a key

difference relative to other Cycles so

where does this discussion leave us why

is it important to highlight the

differences in the cycle well we have a

soft Landing view have had a soft

Landing View for the US economy for a

long time the pushback has consistently

been that previous Cycles have not had

soft Landings so it's not reasonable to

forecast the soft lighting now they're

basically saying look in the past we've

never had a soft Landing when we've or

we've rarely had a soft Landing when

we've talked about it we had a soft

Landing in 2019 uh after the 2018 fed

U-turn and we had a soft Landing in

about the mid 90s like 1994 but usually

when we talk about a soft Landing we

don't have a soft Landing like you go

back to 2006 and we're like oh real

estate's just gonna level off and then

it falls off a cliff right you get a

massive real estate recession but anyway

the pushback has been that maybe it's

unreasonable to forecast the soft

Landing now but Morgan Stanley these

writers are forecasting a soft Landing

not to be confused with uh Mike Wilson

who's a big bear but anyway we were

comfortable that there were enough

differences in the cycle this time to

produce a different outcome the market

narrative has shifted towards us and now

the question arises whether we are

actually seeing enough slowing or even a

re-acceleration so far we do not think

there is sufficient evidence to change

our fundamental view of a slowing

economy and going back to the FED

strategy of intentionally slowing the

economy below potential to squeeze

inflation out a no Landing scenario does

not really make sense to us but the data

for January do reflect underlying

strength the seasonally adjusted

non-farm payrolls were strong reflecting

much less of a contraction in jobs than

is typical for January this labor

hoarding is a key part of why we have

been in favor of a soft Landing in past

Cycles where there has been a Lowdown

there have been waves of layoffs this

time we have seen that pattern in Tech

but not across the rest of the economy

so maybe indeed this time is different

in other words maybe it will be possible

we could stick the soft landing and this

is where I just want to reiterate

because sometimes I don't think people

listen and I just want to be very clear

not to say that I'm going to be right

but it's my opinion and I think my

opinion is very clear that a soft

Landing is bad for Staples

Industrials uh a stables

Staples industrial Staples being like

your McDonald's your Costco your grocery

stores I think also bad for your

restaurants I think it'll actually be

good for pricing power stocks especially

stimichek Swan a stimichek ones which

would be things like Nvidia Tesla end

phase things that have gotten hit pretty

hard right now but could do pretty well

going forward in uh into the future so

so that's my my thesis that 2023 is

going to and these companies have

already done well over the last about

eight weeks here but I mean even

substantially better than what we've

seen over the last just six weeks uh but

uh going forward through the rest of

2023 and the reason I say stimmy check

is because a lot of money is obviously

being invested into uh chip sack

inflation reduction energy so that's why

these are some of my favorite pricing

power stocks right now uh but anyway

very interesting argument that maybe

maybe dare we say it is this charm

different who knows we'll see because

there's also the very common and typical

argument if I don't know man say

whatever you want but don't fight the

FED Loretta Masters a bear well what did

we learn yesterday yeah Loretta master

was a little bearish and last time

suggested maybe we need to go 50 BP and

a lot of people are sending me emails

and shouting at me in the comments going

we're going to go to 50. I'm like let me

just reiterate I talked about this

yesterday but let me just reiterate what

Loretta Master said Loretta Master said

I want the upper end so the UE the upper

end to be at five percent the upper end

today is at 4.75 percent in the last

meeting the upper end was 4.5 percent so

if we're already past 4.5 at the upper

end we're at 475 now guess what the

difference is between 475 and 0.5 or or

five percent rather 25 BPS man I I I

don't think there's any way the FED

shoots themselves into the foot and uh

and and goes for a 50 BP they'll kill

any any nominal credibility that they

have left

question here about the inverted yield

curve and why is everybody ignoring How

Deep The inverted yield curve is so let

me explain that I've explained that in

Prior videos before so sorry if it

sounds redundant but I want to make it

very clear what the inverted yield curve

tells you

is that today you're going to demand a

higher interest rate than you will in

the future that's the basic principle

and usually when the yield curve inverts

it's because we think we're going into a

deep dark recession and so we're going

to demand more money to be invested

today as we go through the recession

than we will in the future that's

usually what the inverted yield curve

tells us however and this this is like

the only counter argument that it that

exists for the Bulls regarding the

inverted yield curve it could be right

historically what I'm about to say is

wrong so history is in favor of the

bears but the bull response is yes of

course the yield curve is so inverted

today because we think the very high

inflation we have today is going to

plummet very quickly see because usually

let me try to depict that for you okay

usually when you go into a recession you

take GDP growth which let's say GDP

growth is 2 percent here I'll draw it

like this so let's say GDP growth is two

percent so usually if the market thinks

we're going to go into a recession the

yield curve substantially inverts

because we think GDP is going to go

negative right so let's call it negative

point five percent uh and then

eventually after a recession GDP

recovers again right this is

traditionally what a recession looks

like and so the idea is well the yield

curve starts inverting here and then

re-inverts uh you know maybe somewhere

over here and then you actually have the

depth of the recession still ahead of

you so during this part right here you

have an inverted yield curve the iyc and

and that's sort of the traditional

belief of what the inverted yield curve

signals now I want to show you the

potentially different chart okay that

kind of looks the same

but watch this okay instead of talking

about GDP what I'm going to do here is

I'm going to say seven percent inflation

right and then you potentially get to

negative one percent inflation and then

maybe you get back to I don't know

positive you know I don't know 2.5

inflation which they explain away via

the uh you know flexible average

inflation targeting or whatever it is

possible that the yield curve is

actually describing what you're going to

see in the plummeting of inflation

and because after all the bond market is

dictated by yields right so it's

possible that the yield curve is telling

you no no we think the reinversion of

the yield Curve will actually align with

basically the the like negative

inflation and then when inflation gets

back to normal the yield curve is is

already then normalized right so we

don't know but traditionally the Bears

are right to say yield curve this

inverted hell ahead of us whereas the

Bulls are saying yield curve this

inverted well it's just pricing in all

the disinflation we're about to see it's

crazy I'm telling you their perspectives

on every side here I think it's very

cool think about