The Stock Market Crash | *MARK THIS DATE*

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links down below hey everyone we kevin

here in this video we're going to

conduct a consolidated review over why

the market is falling and how long the

market might continue to fall folks

there are a lot of fears that the stock

market and associated bitcoin and

cryptocurrencies are falling because of

rising interest rates however recent

history shows us that may actually not

be the case see the true fear might be

something different the easiest way to

look at this is to understand what the

federal reserve's fed funds rate was

over time so we can google fed funds

rate st louis fed and then we can learn

a little bit more about the history of

the federal funds rate which is the

overnight borrowing rate for

banks and take a look at this when we

look at this particular chart here it's

really helpful to know that this fed

funds rate skyrocketed to help compress

the massive inflation that we were

experiencing in the 1980s but what's

very important about what happened in

the 1980s was that the rampant inflation

that we saw in the 70s and the recession

that we saw in about 1974

a lot of the 70s and 80s inflation

actually came as a result of stringent

price controls from our government which

is very unique because we don't have

those sorts of price controls today see

up until about 1966 there were lids on

top of how high prices for certain

things could go goods or energy prices

there were lids on those so the free

market wasn't able to say hey we have a

supply shortage the price is going up

they were limited by an artificial

ceiling by the government and so when

those price ceilings were removed it's

no surprise that we saw substantial

inflationary readings at the same time

as leaving the gold standard leading to

a loss of confidence in

fiat essentially right now inflation did

rotate down every time inflation has

spiked and now this is the fed funds

rate chart not the inflation chart right

but if we type in st louis fred

cpi which we understand the cpi is

potentially a disputed measure you know

they update the measure over time

because well they have to i mean we

can't keep you know people bag on the

cpi for oh the cpi isn't accurate

anymore are we supposed to compare to

the same 24-inch tv i mean we have to

update to a new product don't get me

wrong there's always room for shadiness

but some level of updating of consumer

products as part of the basket of cpi is

totally normal but anyway so we saw this

broad inflation here and what's crazy is

the same price controls that were in

effect in this in the late 60s actually

very similar ones came back in the mid

70s and it wasn't until those price

ceilings were removed that we had this

rampant inflation again in the late 70s

going into the 80s this is where

inflation ran as hot as 14

and people were getting 14 15 yields on

their freaking savings account uh which

is insane and then of course this is

what led to the uh the volcker rule

coming in to save the day which is

basically let's just raise rates

dramatically so that way we can crush

inflation even if that means we have to

skyrocket unemployment to 10 which is

what happened and induce a recession

which is exactly what happened interest

rates because inflation went so high

interest rates went so high that a

recession was induced in 1981 and 1982.

so there are a lot of fears that oh my

gosh this is the same thing that's

happening but it's always important to

remember there there are

differences i don't want to be that

person that's like ah this time is

different but we don't have those same

sorts of reasons driving inflation now

we don't have artificial price ceilings

when we have our legitimate

shortages in the supply chains and

unfortunately those keep getting worse

now look we had very positive pmi

readings uh in that inflation looked

like it started inflecting down we had

uh inflation in germany start inflecting

down manufacturing slowdowns

or shortages appear to be inflecting to

the downside the manheim used vehicle

index is actually showing a sign of an

inflection point which means that prices

for used cars are finally stabilizing

and potentially actually rotating down

in several to many different categories

this is good unfortunately we still have

lingering year-over-year inflationary

reads and this is why europe in whole

had substantial

inflation uh in december in fact the

inflationary reading for december was

higher than expected which is not good

news the job inflation or wage inflation

that we saw last month

was worse than we expected here in

america and on wednesday we get another

inflation read we expect it to be the

highest we've seen in over 40 years the

last inflation read from november which

we got in december was 6.8 percent now

we expect inflation to come in at a 7.1

percent clip and this is raising fears

that oh my gosh we are literally on the

same course as what we saw in either the

mid 70s or late 70s and early 80s where

inflation was skyrocketing out of

control and the only thing that could

save us is the federal reserve admitting

that they were wrong which they

basically already in part done we had an

extremely bearish federal reserve report

or the minutes report that was released

just last week from their early december

meeting it was a disaster it was the

worst report that we had ever seen it

was basically the federal reserve

admitting that they effed up on

inflation now this doesn't mean that

inflation is still not transitory and

this is actually what's interesting

because it gives us an idea as to okay

well how long is this potential pain

going to continue because it's clear

that the pain in the stock mark a stock

market right now has to do with

inflation but it doesn't only have to do

with inflation folks it has to do with

fears of rate increases but that's not

all folks that's not all a lot of

bearishness this morning came because

the uh the fear

at least introduced by goldman sachs who

argued this morning that we're not going

to see three rate increases in 2022 but

that we're going to see four and so we

saw this dramatic repricing of tech

stocks this morning only to rebound

later in the day the nasdaq swung almost

10 within the day we were down 2.7 at

one point and then it was insane and

insane day right but the fear of rate

increases isn't really in my opinion the

big issue take a look at this folks okay

we're going to zoom into the last 10

years look at this here i'm going to

hide myself for a moment okay look at

this

between 2000 and uh the end of 2015 when

we had our first interest rate liftoff

in early 2016

and then throughout 2017

and mid 2018 interest rates were

climbing but what's really interesting

about this climb is if we hop on over to

the s p 500 during the same period of

time and we zoom on back and we're going

to go to 2016 and 2018 which is right

here what i want you to notice is the

following take a look at this the end of

2016 is right here the s p 500 is about

at 218. by the time we got to early 2018

we were sitting at 286.

that means over those two years 286 286

divided by

208 the s p 500 actually gained 37

percent so why did the stock market go

up 37 percent

while we were watching interest rates go

up up up up up up up up up up up up up

up up like a roller coaster click click

click click click link it's kind of like

hey we're going to have eight federal

reserve meetings this year we expect

that at basically half of them we're

going to get an interest rate increase

that must be why uh the stock market is

falling right

in my opinion not necessarily

i actually think the stock market is

falling because of the following fed

balance sheet and this right here folks

is mind-blowing because watch when the

stock market started falling the stock

market started falling right here which

is the turn of the beginning of 2018.

you had a little bit of drama you went

from 286 to about 257 okay not that bad

257 is the new price divided by the old

price gets you about a 10 drop okay fine

gained throughout the rest of the year

went back a little bit hit new highs so

went back to old highs and then hit new

highs 293 fell all the way down to 233

293 sorry new price 233 divided by old

price 293 almost 294 that's about a 20.5

percent 20.7 percent decline in the s p

500. why folks why did we have a double

set of declines at the beginning of the

end of 2018 well was it because rates

were going up solely it was because look

at the inflection point that happened

here folks look at this

this is the federal reserve's total

assets their balance sheet how many

bonds do they have on their balance

sheet right take a look at this rate

liftoff started right here in january

notice how the amount of money the

federal reserve held between the

beginning of 2016 and the beginning of

2018 was constant but what happened at

the beginning of 2018 folks oh we go

from 4.4 trillion to tick tick tick tick

tick tick tick tick

we go all the way down to just

3.8 which is about a 0.6 bill or 0.6

trillion or 600 billion dollar drawdown

in the amount of money on the federal

reserve balance sheet so in other words

a 600 billion move down on a 4.4 billion

dollar sheet or about 15 percent

led the stock market to drop 20

okay well look where we are now folks

the federal reserve's balance sheet is

at 8.7 trillion dollars it is twice

where we were over here and we expect

this to start drawing down

folks

this summer the federal reserve has made

it clear that not only do they expect to

raise rates a likely 90 chance in march

but they also expect not to wait before

they start drawing down on their balance

sheet which basically means selling

bonds

and so when the federal reserve sells

bonds what they do is they take cash

and they give bonds to the market which

means they take money out of the market

it's like a big vacuum cleaner like the

luigi's mansion vacuum cleaner

sucking up the money and the liquidity

that's in the market how do you know

that there's a lot of liquidity in the

market folks don't kid yourself saint

louis fred what are you going to type in

come on you should know this reverse

repos

reverse repo market what is the reverse

repo market the reverse repurchase

agreement market is essentially a place

where banks can store their excess cash

now this is an extremely oversimplified

example but it's practically what

happened what happens when money markets

are full the leftover cash goes into

here and take a look at this the

inflection point here began on march 31

2021 which is exactly when the standard

supplemental leverage ratio ended in

other words the amount of cash that

banks needed to hold on to

was eliminated we removed some of the

leverage requirements so now banks had

all this extra cash and they were able

to put it somewhere they couldn't lend

it because there weren't that many

willing businesses or people to borrow

this stuff sure there are people buying

homes like crazy and they're extremely

qualified home borrowers knock on wood

that continues we don't want to see a

loosening and credit standards because

that could start creating issues in the

real estate market the housing market's

already seen housing interest rates go

up about a half of a percent from a low

of about 2.8 now to about 3.3 which does

give you about a 5 headwind to real

estate prices remember for every one

percent you get uh in interest rates

going up home prices tend to go down

about 10 percent but that doesn't mean

you actually go down 10 because if the

market is appreciating more than then

you have a net potential positive right

but anyway it's like a give and take but

anyway look at all this freaking money

this this right here is lots of money

it's 1.56 billion dollars that banks are

parking because everybody's got so much

cash

and this cashola i expect over the next

six to 12 months is going to

dramatically go boop down at the same

time as the federal reserve's balance

sheet is going to go down and i believe

that because history shows is what's

creating fear in the marketplace now

when do we expect the pace of this

drawdown to stop when is the federal

reserve going to stop sucking up money

and vacuuming up money in the

marketplace well folks i believe

this occurs

when cpi finally inflects down now call

cpi rigged call it what you want

it's what everybody's paying attention

to and don't think that cryptocurrencies

are your hedge against inflation because

the bottom line is they're not the beta

of cryptocurrencies has very closely

started aligning with the nasdaq which

means cryptocurrencies trade

substantially more like tech stocks than

they ever have before tech stocks are

suffering and so is crypto and guess

what folks that means your inflation

hedge in crypto is not happening instead

cryptocurrencies do very well when the

federal reserve is putting money or

liquidity into the system in other words

the federal reserve is making this line

go up

and we're not fearful about the tap

being turned off on that right now we're

fearful about the tap being turned off

so we're seeing crypto prices come down

right uh and of course we're seeing

liquidations combined with that a lot of

leverage in crypto and liquidations in

crypto are

instant

it's kind of scary but anyway okay folks

what do we need to understand here well

we really need to zoom in to understand

this picture properly so when we first

analyzed inflation we and i made videos

about this in december and january of

2020 and 2021 that transition there and

i said folks the big danger that we're

going to run into is that when we get to

march and april of 2021 we are going to

compare to this hole right here see this

is inflation so inflation was sitting at

1.7 1.8 percent all the way up to 2

percent then we fell into this hole

where we had months of 0.33 percent

inflation 0.22 percent inflation so

compare that hole where inflation is

essentially in this hole and the easiest

way to do this is looking at the nominal

number here because then we can actually

do the math so let's look at the cpi

which is just an index there we go look

at that hole inflation sitting at 255 in

may call it 256 to round so the old

number is 256 divided by come over here

to may of 2021 268 well 268 divided by

the old number that's a 4.7 inflation

read not a surprise the whole was there

we knew what was happening we knew it'd

come the problem is notice how right

here inflation started uh trading

sideways and notice how this right here

when the crypto market realized oh

inflation's trading sideways maybe we

can keep the money press going longer we

can keep this number elevated without

drawing it down crypto all of a sudden

started skyrocketing a little bit of a

lag and when crypto responded it took a

couple months because remember this is

lagging information we didn't have

september cpi data until october and by

october it's like oh my gosh crypto's

doing well because we had this flatness

inflation was finally inflecting down

see how it's going up the slope of the

line is very sharp but then it started

flattening and then flattened again that

flattening is bullish for crypto it's

bullish for tech stocks that is good

this explains why we had an october

rally because again we didn't get the

september data until october so it makes

sense but what happened then folks oh my

gosh the delta variant effed everything

up again supply chains now omicron oh my

gosh things are worse than ever now

everybody's talking about inflation

again because the line's gotten sharper

now what's crazy is the answer when is

this going to end well it might not end

soon again right now we have

expectations that inflation is going to

come in at 7.1 percent on wednesday

morning at 5 30 a.m california time i

will be streaming it but not only do we

expect that inflation will be coming in

at such a high level but folks take a

look at this

the next read of december is probably

going to be kind of here where my mouse

is

and if it comes in here where my mouse

is remember what we're comparing to

we're comparing to december of last year

ah and the problem here is this area

here is relatively flat

in my opinion we don't actually start

seeing inflation inflect down until we

get to this higher

level of inflation why well watch this

okay right now we're taking up about two

points uh two points in inflation here

so if i get a tick up of two points here

278 88

278.88 plus two that gets me a 280.88

and now what i'm going to do is i'm

going to divide that number by the

year-over-year number

it shouldn't exactly match what the

expectations are but that's okay divide

the new number divided by the old number

0.56

let's see what it is it is oh my gosh

it's 7.4 that's really freaking close so

you can see based on the chart like

economists don't have that much work to

do the economists are projecting 7.1

inflation just by looking at the chart

and extrapolating the the growth of the

line i'm getting to 7.386

inflation right very simple and so when

does inflation actually start going down

and when does the market actually start

finally getting better well it starts

finally getting better when we compare

to a sharper slope of last year and we

start getting some

flatness in the new data watch how

extreme this could be okay let's say we

get five months down the road and

inflation stays at the same levels but

moves up about half as fast as it was

going before that would mean instead of

going from let's say 280.88 to 290.88

let's go like 285.88

divide this

by this

this more slanted or sloped line here

26855 divided by 268.55 what do you get

boom 6.4 inflation oh my gosh all of a

sudden you're getting an inflection to

the downside but folks what if inflation

is totally flat that is prices stay the

same oh my gosh inflation's down at 4.6

what if inflation goes down just one

point in the cpi category just one point

and we're comparing to that sharper

level before that brings us down to 4.2

percent so

just solely by

looking at the graph and by expecting

that we're going to get some form of

slowdown in price appreciation we're

going to see a dramatic decline in that

inflation rate but unfortunately i don't

know that it's going to come soon knock

on wood it comes in two days knock on

wood it comes on in january knock on

wood we've priced in the worst and that

today was one of the worst days we saw

i'm knocking on wood but no guarantees

the pain could honestly continue until

march

april and potentially even may now best

case scenario here's best case scenario

okay best in my opinion

best case and most realistic case

scenario so i don't want to just play

best case scenario i want to play

realistic uh want to play realism as

well

well best case scenario is you join the

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what's most impor or hopefully and even

realistic is that come

april

and may come this period we actually see

that inflection down

in inflation at the same time as rates

are going up but wait a minute let's

combine the information remember what

happened when rates went up between 16

and 18 not much instead

less pressure to maybe unwind that

balance sheet because inflation is going

down

that could be really bullish and we

could literally have this alignment

where the stock market says okay stock

market right now is like that's it

everything's going to zero this is the

worst ever everything's gonna go to crap

as soon as the fed starts raising rates

everything's going to zero

no the market might be fear pricing all

of that in right now

but if we combine an inflation

inflection to the downside and the fed

being a little bit more dovish by saying

okay maybe we don't have to unwind so

much of our balance sheet we could

literally have an explosive spring rally

no guarantees no guarantees what so

freaking ever but

folks it's possible and would it would

align with the technicals that i believe

will lead to a cryptocurrency rally in

the summer of 2022. these are my

thoughts if you want more about how i'm

trading this crazy market you can get

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next video thanks so much bye