Why Stocks are Falling, Hard.

hey everyone me kevin here let's talk

about why the market is crashing because

things are on fire right now in a bad

way things are really red there's only a

little bit of green left over and i'm

having trouble finding it but folks in

this video we're going to talk about

exactly what's going on right after i

mentioned that you should get 41 off

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code diamond hands all right let's get

into it so

why the heck is the market crashing well

this is the first trading day after the

latest pce report came out the personal

consumption expenditures measure which

lags the cpi report came out with its

inflationary reading for august higher

than expected pretty much beat across

the board by about 0.1 percent on core

inflation and headline inflation

headline inflation coming at four point

three percent core coming in at three

point six percent versus that three five

expected inflation in august climbed at

the quickest pace we pace we have seen

in 30 years but this isn't so much of a

surprise because the base effects of us

comparing back to a hole so it's not

that much of a surprise the problem is

when are we going to get the freaking

inflection point in inflation when is it

finally going to inflect down now i have

my bats placed on

october 13th but

uh you know i don't think it's going to

be as much of an inflection to the

downside as we're hoping for i do think

there's going to be a rotation of the

downside i'm going to be blatantly wrong

if october 13th inflation goes up but i

really do expect it to go down and i

hope it goes down a lot but if it only

goes down normally

it's just going to be exhausting but

what's interesting is even though oil

prices and oil price futures these

things are going up

as individuals expect uh potential

inflation which you know you kind of

wonder like what came first the chicken

or the eggs some folks say that oh well

the price of oil is going up because

inflation is potentially going up price

of uh the brent at 81.68 and regular oil

here's 78

and you've got natural gas up every

everything energy wise is up which

unfortunately

when these things inflate they actually

increase the measure of inflation

readings because cpi and pce read things

like oil prices and gas prices to

determine how much we're actually

spending so inflation here

or these prices going up potentially

because of inflation just leads to more

inflation crazy but one thing that's

really interesting is even though the

pce came in worse than expected we're

really not seeing a crazy surge in the

10-year treasury we did have a surge in

the 10-year treasury from about 1.3 to

about 1.5 after the fed announced that

they were going to try to finish their

taper by the middle of 2022 and probably

start at the end of this year but we've

actually come down since then which was

really surprising usually the 10-year

treasuries are a good way to determine

okay what does the market think in terms

of longer run inflation

you can even go to the five-year

treasury but it looks very very very

similar to the 10-year treasury the

five-year treasury tends to be more

sensitive to the federal reserve

ten-year treasury tends to be a little

bit more sensitive for things like

mortgages and mortgage interest rates

but again same exact pattern here as the

10-year

so we're not really seeing a lot of

inflation baked into the market right

now if we go to the 10-year break even

the 10-year break even is is pretty much

at a similar place where it's trading

flat or at least it has been trading

flat yep and it's certain oops it

certainly still is trading flat and a

flat trading ten-year

break even inflation rate

is really a sign that the market again

not necessarily pricing in substantially

higher inflation if we zoom out a little

bit to

around january to february we really see

this run

starting in november you really see that

10-year break even rate run run run run

run and then we actually fall to this

plateau over here

and so this is sort of the market at

least the bond market not necessarily

pricing in runaway inflation but maybe

maybe this is a situation where bonds

are pricing in inflation where it is and

the stock market is pricing and

inflation is not escaping as quickly

that could be a possible symptom here is

that bonds are pricing in okay this is

where we're going to be with inflation

and the market's reacting going dang it

we thought it would fall sooner it's not

let's sell uh technology stocks that's

entirely possible that a lot of people

who thought there would that inflation

would not be lasting as long as this are

potentially becoming converts and now

they're dumping technology stocks as a

result

uh we've also got i mean raw materials

like cotton and crude we talked about

oil obviously have been spiking used car

prices inc interestingly look like they

may be beginning to spike again at least

in some of the latest inflation readings

here that would not be such good news

for some of the used car companies or

the car shortage

and although this could be a symptom of

the car shortage and a sign that supply

chain issues are actually getting worse

not better this is despite the fact that

barons last week had a big piece on you

know companies are ordering ahead

they're doing whatever they can to beat

supply chains yeah we're going to have a

volatile winter here but things are

going to get better over the next year

but now the stock market seems to be

debating is that true do we actually

think things are going to get better

we've got ism prices paid coming in

higher than expected it's worth noting

that the ism is a manufacturing index

something known as the purchasing

managers index a pmi reading above 50

indicates expanding manufacturing and

below 50 or at 50 means no change in

below 50 means a contraction the k ism

came in at 59.5

uh but what's fascinating is well i'm

sorry the ism was expected to come in at

59.5 but it actually came in at a beat

at 61.1 which is good because that means

manufacturing is doing better but

there's also the ism prices paid index

and prices paid the expectation was 78.5

as a reading we came in at 81.2 which

means prices paid were much higher than

people expected even as analysts

expected so still seeing that price

growth reiterating that lasting

inflation and i think that's what the

market is really reacting to is this

potential for a lasting inflation and

that right here is my reminder to make

sure to double check that you've gone

down below and checked out those

programs on building your wealth and

using that coupon code make sure you use

that coupon code okay

so

that's interesting and and i think this

is a really good way to sort of deduce

what's happening in the market is bonds

again

staying flat because we've built in the

inflation rate we're expected to be but

the stock market was potentially

expecting it to fall faster because of

random people on the internet saying

that maybe it'll fall by september

october readings which we'll see

september readings come out october 13th

we'll see

so obviously i'm referring to myself but

it does seem like there's some selling

going into the cpi report coming out in

october 13th or on october 13th uh

interestingly though the university of

michigan one-year inflation expectation

measure

came in at 4.6 which is actually 0.2

percent less than the 4.8 expected so uh

this is uh this is

remember the consumer expectations from

the university of michigan

personally i don't really care so much

about them i find them to be a lagging

indicator i don't think consumers are

the best determiners of what inflation

is going to be but it's still something

that could weigh on markets uh where

markets are like oh my gosh ism price is

paid up which is inflation up pc up

which is inflation up bond yields stable

up okay which is also a potential sign

of inflation now uh oil and energy costs

up okay that's going to hurt inflation

too supply chain issues lasting okay

that's going to hurt inflation ism

prices paid up oh that's not good right

like everything is pointing in it's up

or it's staying up and the staying up i

think is becoming a little bit more of

the issue again why aren't bond yields

going up anymore it's because the

market's like okay we've reached that

level of inflation is it going to go

down oh crap it's not going down okay so

bond yields stay stable and stocks sell

off

kind of interesting

then we have uh yeah again new reports

coming out that supply chain constraints

are still preventing some companies from

meeting their revenue targets

it says here many earnings reports will

be coming out obviously later this month

we know this investors may be fearing

bad earnings reports caused by supply

chain concerns this is an interesting

note here that uh and it's very very

true

look investors could potentially start

pricing in the fact

even more so that lasting supply chain

constraints

is is going to have a more long-term

impact on earnings for companies it's

not going to be as transitory so why not

sell now before you get those bad

earnings reports coming up for q3

remember you do also have taxes due

october 15th for a lot of people on

extension so a lot of individuals on

extension might be liquidating certain

positions at potential gains or even

losses just to prepare for their tax

bills coming up keep in mind last month

margin on account or outstanding with

finra did go down which is a good sign

of some safer healthier deleveraging but

still uh you know you've you've got some

some catalysts here that do suggest uh

that this sell-off is rooted in uh in in

fear now i personally believe these

fears will evaporate but then again if

they last longer then they'll continue

to cause pain for longer which hey in my

opinion means go work more and use that

extra money you're making plow it into

the dip

but we'll talk more about that in a

moment so uh worth noting as well that

in vietnam surges of coronavirus cases

have forced factories to either close or

operate at severely reduced capacity

vietnam by the way

keep this in mind second largest

producer of apparel and footwear for the

united states this explains why nike cut

its forecast last week citing the loss

of 10 weeks of production in vietnam

vietnam makes up about 50 percent of

nike's branded footwear so if you're

investing in shoes i wonder if foot

locker will be exposed to this as well

the vietnam shutdowns are going to hurt

your shoes

obviously uh as a part of the three and

a half trillion dollar infrastructure

package we are weighing the impact or

the potential for the actual corporate

tax increase or capital gains tax

increase we have fear over the debt

ceiling will the debt ceiling get raised

will that be connected to a two or three

trillion dollar infrastructure package

that increases taxes this uncertainty is

something we're following very closely

on the channel and i make standalone

videos about the stimulus and

infrastructure and biden packages so if

you want to know more about the size of

packages coming out what what package

size you might be surprised with make

sure to subscribe to the channel because

i'll be reporting more on those

evergreen notoriously here well

evergrant is notorious but uh evergren

surprisingly has been a lot less of the

focus right now in the news compared to

inflation debt ceiling supply chain

constraints evergrand i feel like is is

something that has really now faded into

the background

and we're about to even take it off the

back burner of the stove if you know

what i mean and if you don't let me

explain uh there's we talked about this

this morning in the live stream that

evergrand it looks like will potentially

be acquired

by uh hopson another real estate

developer hops and chew

51 stake which is a controlling interest

in uh evergrand which is big

and uh the hong kong stock exchange does

currently have

three three three three and six six six

six those stocks uh suspended those are

evergrand stocks however uh evergrand's

new

new energy vehicle stock is open

and that particular stock

is up 48 or closed up 48 which was

pretty incredible and it's a sign to me

that the market is actually cheering

evergrands uh resolution although we do

not yet have confirmation on exactly how

these things are going to close out

because it has not been formally

announced yet however the this is what

we are suspecting is that a developer is

going to buy out evergreen which is

honestly best case scenario this is what

we expected we expected the market to

come in with a solution for evergrand

the reason for that is the chinese

communist party wants to promote common

prosperity and punish corporate elitism

and so a failing

corporation even though that might have

been caused by the communist party of

china thanks to their debt changes uh

basically saying hey take on lots of

debt and then oh now you have lots of

debt now we're going to change the rules

on debt kind of pulling the rug on

future borrowing hurting a company like

evergrand substantially but anyway

now when other companies get involved

if the chinese communist party helps

those other companies that's not

politically unpopular that's propping up

the other companies letting them be the

white knights and sort of saving the day

to uh ever grant's demise but that's the

way things work in china so i do expect

the evergrant issues to fade into the

background i do expect the debt ceiling

crisis to end we will it probably get

some sort of breakthrough

compromise deal that'll be my guess is

like 2.2 2.4 trillion dollars something

in that neighborhood it will include a

lot of the initiatives that joe biden is

seeking but probably a shorter term for

a lot of different things

i do expect the debt ceiling to be

increased by a budget reconciliation

that'll be democrats only with this

infrastructure package i think they're

going to plow this package through

and uh and and uh we will not have a

debt ceiling crisis expect that to go

away i expect the inflation crisis to go

away at some point hopefully it starts

inflecting down soon evergren's going

away and we should be over our jobs

fears in the market to see how well jobs

are doing this friday this friday we do

have the jobs report coming out kathy

wood mentioned she was surprised the

jobs report didn't come out on october

1st i was personally surprised she said

that because almost always when the jobs

report falls on or the first friday of

the month falls on one of the first days

of the month they end up delaying the

jobs report until the second week

because they need more time to process

the data because they usually collect

that data the third week of the prior

month

and that does not give them enough time

to put the data together so

anyway so uh folks

i do believe i strongly believe that

that fear will be going away soon

i am actively monitoring the market i'm

actively trading at this particular

market i'm buying the dip i'm

as as we like to say that i'm doing the

btfd and uh i will continue to do so

because i've been sitting on cash for a

very long time waiting for an

opportunity like this and it's here so

i'm going to take it thank you so very

much for watching and folks we'll see

the next one goodbye

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