PSA: The Economy is F*cked | Danger.

we're going to have a real economic

contraction be in the in the teeth of a

very tough recession and that makes

everything much more intense there's

actually big trouble there is something

really weird happening in the economy

and we need to talk about it and in this

video we're also going to talk

specifically about what might be causing

it because it is a weird dilemma that

hasn't happened before and it's leading

a lot of people to say is this time

different but is that different maybe

really bad for certain companies in this

video we're going to break it all down

because it's turning and it's coupon

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okay look so Dollar General just

reported a disaster this morning their

stocks down like

16.5% uh they are expecting to take

another $100 million in annual shrink

impact in other words theft things are

so bad people are just stealing more

from the dollar store that's how bad it

is people are stealing from the dollar

store and their sales continue to hit a

wall throughout August even though they

weren't even reporting the August

quarter they were just answering

commentary about August in their

earnings call and now they actually got

downgraded from JP Morgan after such a

bad result this kind of aligns with what

Capital One and AMX told us about small

businesses and uh individual consumers

somewhat hitting a wall in the summer

Capital One talked about it Target

talked about it Best Buy talked about it

Home Depot talked about it I think it's

I hate to say it but it's somewhat

becoming uh ubiquitous that consumers

are substantially experiencing pain

combine this with what we're seeing with

okay great we got our pce numbers today

personal incomes fell to 2% on the month

gains so yes personal incomes went up

but very low less than expected the

personal savings rate fell back into the

threes back to just 3.5% which is

poultry I mean we saved more money in

2009 and 10 coming out of the recession

of 2008 than we're saving right now

and uh we we like to call it super core

inflation came in actually at the

highest level since January that's no

bueno by the way okay highest level

since January means a 46% read now of

course some fed Watchers are saying well

that was really driven by portfolio

management so now people are looking at

what they call the super duper core

inflation which takes out portfolio

management which could be a little bit

more volatile and then inflation is only

0.25% at the same time we continue to

get jobless claims or jobs added numbers

that get revised worse

over time leading a lot of people to say

we've got some serious problems so the

question then is why could the stock

market be doing so well and what else

could be causing massive potential

issues well we have a fantastic piece

from society

gener the Frenchies okay and and they're

going to give us a really interesting

take on this listen to this history

shows that economists do actually

predict recessions but the problem is

they end up giving up on their recession

forecasts right before the recession

arrives it's kind of like the bus stop

dilemma where you wait for a bus and

you're like this is taking way longer

than I expected so you start walking to

your destination and basically as soon

as you walk to start walking to your

destination but you're too far away to

walk back to the bus stop the Bus shows

up so the recession shows up after

you've already u-turned okay maybe we

w't have a recession well the reason

they suggest this is because when you

look outside the mega cap tech companies

there's actually big trouble they

mention it in fact they say that usually

the Us corporate sector is a massive

borrower borrowing money and living off

of debt we already know we're in a

pretty big debt bubble now I personally

don't believe this is the cycle where

our debt bubble collapses this is why

I'm more bullish than I am bearish this

obviously being concerning news but I

don't believe that this is the cycle

that we actually go through the real big

great reset that will come in the future

the dollarization will come in the

future but we've got other problems

right now and those other problems are

in part broken down by Society generally

so what they say is that if you look at

the total interest expense of companies

you're actually going to expect that the

interest expense of companies is going

to go up as rates go up but that's not

actually what happened in aggregate that

is all companies together interest

expense didn't really go up at all in

fact it went down now this is super

counterintuitive why when the FED funds

rate goes up the blue line here would

you have the red line net interest

payments go down all while at the same

time you're finding more bankruptcies

happening SNP reports 402 corporate

bankruptcies so this year nearly on par

with the 407 scene in the pandemic of

2020 and only surpassed by the great

Global financial crisis okay so what's

actually happening well their argument

is the following they basically say and

I translate it here on the left and I

wrote LOL WTF remember the whole

inverted yield curve okay inverted yield

curve means short-term deposits are

paying higher yields than long-term

loans in other words s because of the

inverted yield curve the richest

companies think the apples the Facebooks

the Amazon the Microsoft the Teslas the

richest companies are able to borrow at

10 20 30-year debt at cheaper rates than

they're able to make on their cash

deposits think about that for a moment

you could literally be apple and be like

hey we've got $100 million in cash let's

invest it at5 % treasury bills or

somehow get it into money markets where

we're earning 5 to

6% and then let's borrow that 100

million back on a 10year

basis well wait a minute the 10e is only

charging us about 4% so we're getting

charged 4% on the 10e we're paying for

that interest on the 10e with money

market money that we're getting at 5 to

6% so in other words you're literally

getting paid if you have a real good

corporate credit score like the big

companies do you're literally getting

paid to borrow long and deposit short it

is like the total perversion of the

yield curve usually you get an inversion

of the yield curve because all of a

sudden people are like oh crap

recession's coming we've got Mass

layoffs coming everything's about to hit

the fan and that could still happen but

this is a massive perversion of what you

would expect in fact they literally

right interest rates simply aren't

working as they once did this is very

strange so then what they do is they say

the largest 10% of companies do not care

about interest rate increases the

largest 10% of companies if you look at

the S&P 500 for example uh and uh

because the okay so what they do is they

put a chart up here of the S&P 1500 this

is a little confusing I'm going to try

to break it down the S&P 1500 is broken

down into the S&P 500 which is large

caps 600 small 400 midc caps you add

that all together it's 500 companies

okay if you take the top like the the

largest 10% of the 1,500 you may as well

just go down to company 150 in the S&P

500 that is Carrier which is a $48

billion stock in other words if you have

a company that you're investing in that

has a more than $48 billion market cap

it's probably over here on the right

side where your effective interest rate

is the red line on the bottom so see

that red line on the bottom there how

your effective interest rate basically

hasn't gone up at all you're pretty

Gucci the same is true for companies

even in the middle 40% the middle 40% is

probably going to be somewhere between

your $5 billion market cap to your $48

billion market cap that's probably your

mid-range right there those companies

have seen an increase in their effective

interest rate but nowhere near as much

much as those lower or smaller companies

that light blue line basically if your

market cap of the company you're

investing in is under $2 billion there's

a good chance you're getting reamed with

high your interest rate expenses and

after all this by the way and we're

going to get to some conclusions here

especially what I think about this but

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okay so what does all of this mean in

terms of what Society General is telling

us and the pain for the consumer well

the first thing that in my opinion it

means is we have to be careful with

consumer exposed stocks unfortunately a

lot of things are consumer exposed so

the best potential plays in this

environment and it sounds like a broken

record but you look at the companies

that are beating it's no surprise right

now the companies that are beating are

companies like Salesforce and that's

because they have a lot of Enterprise

customers the Enterprise customers are

the mega caps so you almost want to be

investing right now where the mega cap

companies are spending money so wherever

the mega cap companies are spending

money that's where you want to go if

that's Nvidia if it's Salesforce if it's

snowflake if it's cyber security

although you know there's some question

about some of these because you know

even spend in cyber security has slowed

down uh these might end up being places

to pay attention to though crowd strike

has performed pretty well uh over the

last few months

certainly in 2023 you could look at

another one like Cloud flare would be

another option they haven't performed as

well as crowd strike but also done

decently well uh and so what are

companies that basically the big

companies are spending money on and

maybe that's where you hide as a stock

investor uh so the consumer exposed side

seems to be the most pained however the

flip side then is what happens when that

flip-flops what happens when the

consumer ends up in a better place and

interest rates start coming down okay

that could happen but is it going to

happen before something breaks well this

is where I kind of wrote down a cheat

sheet here you go in the hopium scenario

you hope that artificial intelligence

spend Capital expenditures at Big Mega

caps all increase at the same time as

inflation goes away so the FED can cut

rates that's your soft Landing your

hopium scenario the bad scenario is you

run out of time something breaks and you

end up with mass layoffs which really

kill the

consumer before you end up well uh

having um having the FED step in to uh

save the day right but by then so much

has already broken you probably end up

having more pain this I think is why

you're seeing the lowest wage increases

at smaller companies it's also why

you're seeing the senior loan officer

opinion survey show that Banks

willingness to lend to small and large

companies alike has plunged to

recessionary

lendingsuite.co it's okay because the

mega cap companies can easily issue

their own bonds so they don't actually

have to rely on banks whereas the

smaller businesses do and that just ends

up killing the smaller businesses which

is usually where you are exposed to uh

entertainment Hospitality more local

small consumer spend stores and this is

where you really got to ask yourself how

much do you want to be exposed to the

consumer or are we at the point where

it's time to buy the dip on the consumer

I'm not convinced that it's time

personally to buy the dip dip on the

consumer I am convinced that there are

opportunities that long-term will end up

still winning but I want to narrow my

exposure to the consumer for example I

think Tesla and N phase probably enough

exposure to the consumer both of those

stocks suffer if the consumer falters

which they kind of have been the

question is have you passed the bottom

yet in the case of end phase are you at

the bottom nobody knows the question on

the flip side then is do you just hide

in some of those Enterprise related

Hardware or software companies until the

consumer definitely flips back to

positive so far it doesn't seem like the

consumer recovery is here yet and that

is flagging big red flags for some of

these institutional analysts and I'll

tell you the explanation that the mega

caps are pulling everything up makes a

lot of sense when you consider the weird

perversion of the yield curve inversion

actually helping

the mega caps yes the perversion of the

inversion I just said that anyway let me

know what you think about this I'll

leave a comment down below make sure to

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and happy birthday Jack he turns eight

today see you bye why 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 to you Kevin PA there financial

analyst and YouTuber meet Kevin always

great to get your take