Why Stocks are Dumping.

hey so I just got back from a house hack

board meeting and a lot of people are

asking me Kevin what's going on in the

market today why is the volatility index

up

21% and what does this potentially have

to do with Donald Trump and it's really

interesting because as volatility is

spiking and we're seeing a little bit of

a sell-off in the stock market there are

a lot of thesis out there but it aligns

with something that I just read from a

company earnings call that I thought was

really interesting and potentially

summarizes exactly what's happening uh

but first let's hit a little bit of

background of what's going on things to

pay attention to number one the Russell

2000 small cap index is now 1.9% below

its summer Peak and it's

8.6% below its postelection peak I think

the Russell 2000 is actually a really

interesting risk barometer to pay

attention to because generally the

Russell 2000 does exceptionally well

when you're in a euphoric bull market

where really companies just can't go

bankrupt or there are bailouts and

stimulus flowing around it's usually a

lot more difficult for smaller cap

companies especially since upwards of

40% of the companies in the Russell 2000

either don't make a profit or zombie

companies where they make even less

money than the debt payments they have

to make meaning they're trending towards

bankruptcy and barely staying above

water you're kind of exposing go to a

lot of risk in the Russell 2000 and

again that risk is fine you risk is fine

when everything's going up but that

becomes a little bit more damaging when

you potentially walk into that rward a

market downturn and so what you'll

notice is right now the Russell 2000 is

again 1.9% below summer Peak and

88.6% Below its postelection enthusiasm

that Donald Trump would help usher in

lower business regulations and therefore

a better envir for small caps to do

business and survive now while that

still may be true Donald Trump does not

have full control over the ultimate

state of the economy and that level of

uncertainty could be enhancing some of

the pain that we're seeing now but it

might not be that look the vix is up 21%

today some people it's bobing between

21% and 17% I see right here now but

some people say this is just a bear trap

and that on Monday and Tuesday we're

going to Rally again others say this is

low liquidity because people have dumped

their money into money markets again

others say it's the bond market and it's

finally some pressure because of the

bond market others are literally blaming

Tesla for this selloff they're saying oh

you know Tesla got in front of its skis

and because Tesla got in front of its

skis I'm taking my kit skiing by the way

here soon uh I love spending time with

my little boys I got a a six-year-old

and a nine-year-old and they're they're

really fun but anyway uh we were at

Magic Mountain yesterday follow my

Instagram story you get to see me on the

roller coasters I'll post some more uh

as well that's uh real me Kevin on

Instagram uh I'll post some more stuff

this weekend too I think you'll like it

but anyway uh what's really interesting

here is people are blaming Tesla because

they're like oh it got in front of its

skis and now any give back that Tesla is

doing is is going to drag down the cues

uh I'm like all right you know that's

that's kind of a stretch just to blame

Tesla but whatever others are saying no

valuations are finally coming into play

and I'm like I I I don't know if the

market ever really fully understands

valuations it's sort of like if stons

are going up people buy stons if stons

are going down people sell stons and

then you get extremes and valuations

towards either side I mean look paler is

selling for a nine Peg okay I love paler

I actually you know back when it was $14

I'm like this is a real AI company back

when Tesla was 100 you know 80 bucks I'm

like this is a real AI company they're

just not being priced as such right now

well now it's like the totally opposite

direction you know we've got humanoids

coming tomorrow and we've got the best

AI in the world apparently at paler

anyway right so uh others say the S&P

500 has had now its best performance or

one of the best years since 1929 and

that doesn't bode well for future

returns leading some to become more

cautious on stocks in 2025 uh and then

we get into the Trump uncertainty

argument which this was really

interesting I want you to see this and

no it's not a coupon for we don't have a

coupon or anything right now I just just

want to provide this value I wasn't even

thinking about making a video today but

so many people were asking me about

what's going on I'm like all right well

maybe this can help us explain a little

bit so I was looking at Restoration

Hardware as I usually do when I study

earnings and earnings calls and I'm like

all right why did their inventory go up

30% so I start asking you know I start

searching basically like what's going on

with inventory why is inventory

exploding at this company uh is it some

sort of like buildup basically that

they're doing uh in anticipation of like

a trump presidency right see purchase is

up 30% about inventory over here they're

asked about it so I'm like all right

this is interesting what's their resp

response I just want to read this to you

usually I don't highlight all this but I

want to read this to you because it's

like so straight up pointing the finger

at Trump listen to

this uh all right so the first part of

everything you said I'd say correct

about inventory going up and

efficiencies planning around there

you're exiting China is there any Safety

stock in that that you're comp

contemplating for exiting Mexico all

right so here it gets interesting I

think we said we're going where we're

going in China it all depends on what's

Happening in Mexico okay interesting so

let's understand what's happening in

Mexico here we go ready for this look

Donald Trump wrote The Art of the deal

and if you've read the art of the deal

it's great book by the way I incorporate

some of the lessons in the art of the

deal in the trumponomics course it is

it's by far one of my favorite courses

uh that I've made but anyway if you've

ever read the art of the deal uh you if

you do we'll see the negotiating

starting to play out there is a global

negotiation happening right now where

will Mexico what will happen with

Mexican tariffs how what moves should we

make proactively see they're kind of

like Hey we're going to kind of get

ready here for potentially not being

able to get our inventory so let's build

up inventory before Trump comes in so

what happens when companies start

building up inventory well think about

it companies start building up inventory

before Trump comes in what does it make

it look like it makes it look like

November and December production numbers

are skyrocketing oh my God manufacturing

is going up in November December right

after Trump gets elected oh my gosh all

of a sudden like manufacturers are doing

good again this is great but what if all

of that is just to build up for the

potential of tariffs in q1 Q2 2025 and

then all of a sudden they're not

actually selling all that crap you know

restoration Hardware's inventory went up

30% their sales went up 8% their revenue

like their their gross profit went up

like 5.9% they're selling less stuff

they're like they literally bought like

five times the number uh five times the

the inventory they need right they're

revenues are increasing at 6% their

inventory is increasing at uh um you

know 30% whatever ballpark on the

numbers here uh that's that's a mismatch

already but on top of that they're

selling stuff for lower margins because

they don't have any PP left everybody's

PP is shrunken your ability to get Max

PP is not available right now

everybody's having to fight on price

because you know people are a little bit

more cost conscious if you will so

people's pricing power is falling so

they're building up inventory like crazy

before Trump but people aren't buying

that much more and their margins are

going down so they're blowing money on

inventory that's not going to get older

under the hope that things are going to

get better now people have been saying

oh macro is getting better is it though

well Restoration Hardware is about to

tell you take it from them not me we're

making some moves proactively but I

think Mexico is making moves you're

already hearing from inside sources that

they're moving troops to the Border oh

there's your title Mexico's moving

troops to the

Border World War III no we're not we're

not going to do that uh they're going to

try to make take more responsibility for

immigration and if I were the president

of Mexico I sure would because I

wouldn't want the biggest economy of the

world to cut me off from trade so uh

there we go so Mexico I think is a

little different than China Mexico is

not going to become the next Global

superpower that has a military that can

threaten the United States China can

right okay interesting so in other words

they say Mexico is just going to bend

over Trump is a great negotiator I think

he's looking at the world's playing

field and saying how do we use leverage

negotiation without leverages

impersonation that's a killer line by

the way you should write that down

negotiation without leverages

impersonation fantastic line all right

China is a whole different story it's a

whole different game but EU even think

of what happened to North Korea in

Trump's first term I mean the guy in

North Korea was sending missiles over

Japan what every week saying he could

hit California Trump met with him once

and the guy never sent another

missile some of this is hyperbole but

why because he likes Trump no for

another reason the negotiation the power

The Leverage right uh so we're going to

see a lot of negotiations play out here

I don't think there'll be a lot of

decisions that become a big negative for

us in the US economy so they don't think

Trump is going to make decisions that

are bad for the economy so they're kind

of like okay cool well we'll just build

up inventory because Trump's not going

to make it worse that's true I don't

think Trump is necessarily going to make

the economy worse but the underlying

economy might already be

trash I I hate to say that right now

because it feels like things are still

very good and Gucci right but anyway I

think the United States has a lot of

Leverage right now but then listen to

this about macro ready for

this uh the numbers wouldn't say macro

uh oh sorry okay here we go I don't see

our competitors having uh basically like

a lot of momentum improving momentum

right so they're comparing themselves to

their competitors they're saying well I

don't see our competitors having a lot

of momentum uh so are we the only ones

getting it I don't know I mean I do

think there's pent up demand and there

are a few people having to buy homes but

the numbers wouldn't say that it's the

macro issue otherwise you'd see a more

broad pickup so I think people are more

optimistic I think there might be a few

more people stepping in the housing

market but that's I mean for the most

part our industry is down 78% okay this

person's all over the place with how

they talk it really bugs me but I'm

going to distill this in a moment I mean

there are not too many people that have

positive growth right now and uh even if

you look at our growth from a comparable

basis there's only a two-o difference

between total demand and comparable man

so could we be getting to a point or two

could we be getting a point or two from

macro being a little bit better maybe

but I don't think that's meaningful

instead we're executing better and we're

better managers okay all right

distillation okay distill this with

me to a 5-year-old explaining this

document and this tangential discussion

to a

5-year-old hey man we might not be able

to buy stuff from Mexico uh the first

half of the year as things go to crap

with the military moving into the border

so uh let's go shopping

now and uh we hope things get better

we're certainly doing our jobs well

please don't fire us but uh we're not

seeing macro getting any better right

now in other words the economy is not

really improving that meaningfully but

it can't get worse so let's just go

shopping that's my distillation here

which is in my opinion I mean like

actually is more than an opinion I think

it's basically Restoration Hardware like

straight up telling you yeah bro like

things aren't getting better but we

don't think they can get worse because

of trump so let's just go let's just go

buy everything we want and uh if the

economy tanks well then it's not our

fault if the economy does well then

great then we'll be able to sell more

inventory that we have even if the

military is deployed to the border of

Mexico and you know there's a poop show

on the border with cartels and otherwise

creating you know

challenges okay that to me is a perfect

example of corporate uncertainty where

corporations are like yeah we're

optimistic things are going to get

better crap but the numbers aren't

really showing that things are

definitely going to get better right now

and I think that's why you're seeing the

Russell sell down cuz there's

expectation reality expectation

everything's going to the Moon okay well

now the moon's been priced in so now

it's like all right what's the

reality numbers aren't really going up

yet now may I don't know maybe Trump

gets in office and all of a sudden

everybody starts spending more money I

don't think so but whatever you know

then at the same time you've got uh Nick

T putting together an article over at

the Wall Street Journal uh and in his uh

Wall Street Journal article he's

basically like yo the fed's

flip-flopping they're like we're not

going to use uh we're not going to talk

about the incoming president uh policies

uh which could be inflationary such as

tariffs and then all of a sudden the

Central Bank starts including

forward-looking factors in their pricing

2 months later Trump has been

threatening new uh uh you know tariffs

uh and then you do have people like

Larry cudow I have that in here

somewhere Larry cudow who says oh no

we're not going to cause inflation

tariffs can't be inflationary because if

the price of one thing goes up unless

you give people more money then they

have less money to spend on other things

so there's no inflation Larry cudow it

doesn't freaking work that way okay

like inflation is not correlated to GDP

so like think about that for a moment if

you spend

$1,000 on $1 items you have spent

$1,000 if that $1 item becomes

$2 you have spent $11,000 on half as

many items right but does CPI measure

like how much you spent no it looks at

the per item cost the per item cost

doubled so inflation just doubled bro

they don't care that you ended up

getting less they're looking at the per

unit cost bro Larry cudow you should

know this you were the director of the

NEC you are Mr v-shaped recovery and

here you are on a podcast saying tariffs

don't cause inflation look I understand

in 2018 the fed's like oh we're going to

look through the inflation but that's

because we were trending below Target

inflation not only were we trending

below Target inflation but you had the

FED saying we're going to use flexible

average inflation targeting that ended

up being a scam H uh but uh that's cuz

infl was too low they told us they were

lying to our face Jerome Powell

literally said that yeah we we used

flexible average inflation targeting

because inflation was running below

Target so we wanted you know people to

think we were trying to average it to 2%

but now that we're above inflation we're

not going to average down we just want

to get it down to 2% and like bro this

policy is a scam you guys came up with a

this policy to imply that you would

always is average up down and low up and

then just have an average of 2% and then

you just kill it it's it's like the

FED they've really started pissing me

off anyway so so yeah look I mean and

then you also do get Nick T saying like

there are problems that that could

happen like you've got somebody at the

FED like this one guy cougler they keep

coming up with new people over here who

supported the jumbo Half Point cut in

September amid labor market worries uh

lately suggesting that the Central Bank

might be in less of a position to ease

rates if labor force growth slows or

stops so in other words this is this is

actually a Big Red Flag Warning right

here right because if the FED is in less

of a position to lower rates because of

tariff pressures while labor force

growth slows or stops well what do you

end up with stagflation worst freaking

case scenario so yeah you know why is

the stock market maybe getting a little

nervous well maybe it's because when you

look at things like what you see at

Restoration Hardware the hopia is now

starting to get some

uh I like to call it uh how should we

say it uh

realism uh CL like uncertainty around

realism I think that's an easy way to

put it right so you have hope that

everything's going to go perfectly but

then you have uncertainty that you add

into that hope so you discount the hope

with the uncertainty of yeah well we're

not seeing the real changes yet

Restoration Hardware is the one saying

that so like don't take it from me I'm

just sort of distilling what what I see

here and look I know you know the the

real estate market has been a little

slow but mortgage demand listen to this

mortgage loan demand and refinancing

demand is up from year ago levels

despite higher interest rates the

highest interest rates in two decades we

are at the highest levels of mortgage

originations since

2022 we're seeing larger loan sizes and

we're seeing buyers returning personally

buying the dip on mortgages right now

seems really sexy because you know since

September like a company like rocket

mortgage has lost like 50% of its stock

uh valuation because you know interest

rates went up 100 basis points as the

FED cut 100 basis points whatever cool

by the dip opportunity in my opinion or

don't I mean like I'm not your financial

adviser you don't have to listen to me

just giving you ideas so things to think

about like is is now the mortgage bottom

I don't know maybe it's got another 50%

to go who knows anyway these are just

some of my thoughts on what's going on

why we're seeing some uncertainty out

there what some of of the details are in

terms of what a company like restoration

is Hardware is saying and how that

potentially correlates to what's going

on in markets and vix and if you like

this sort of perspective just subscribe

to the channel that's it doesn't cost

you anything and then follow me on

Instagram I'll post some more stories at

uh real meet Kevin thanks folks I love

you all we'll see you soon goodbye good

luck 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 you

Kevin PA there financial analyst and

YouTuber meet Kevin always great to get

your take