The Economy is Starting to Crack.

wow this is quite interesting not only

is the economy starting to look bad

which is leading someone Wall Street to

suggest could actually be good for

stocks the bank bailout program is

starting to see some of its usage

inflect up again and that's leading some

folks to be a little bit concerned about

what that could mean going forward on

top of that we just had Nike earnings

and the forecast wasn't that great and

it comes right after what we talked

about this morning looks like it's

starting to Bear some fruit let me

quickly remind you what we talked about

this morning as usual I've got a lot of

my content available for you on ec.com

but if you want to listen to it or watch

me here you can do that as well so uh

this morning we talked about this idea

that the lower 60% of American incomes

are likely going to be most affected by

higher credit card debt and therefore

higher credit card delinquencies and so

this morning I suggested there was a

chance we were going to see more people

start having to pull back from

discretionary types of purchases that

all Americans buy whether you're in the

lower or the upper percentiles in this

case Nike and Costco would be frankly

very perfect candidates to see some form

of pullback as consumers get pinched

whereas potentially higher income

thresholds those in the upper 40% might

be more likely to still go buy solar

panel systems or Tesla vehicles or new

computers or start a business or

whatever especially as their stocks

start Rising whereas individuals who

don't own stocks might not have that

benefit so that's what we talked about

this morning well if we scroll up over

here past some of the other news and

updates including the Kathy Wood update

or the asml Intel Apple update we'll

find the Nike update take a look at this

while Nike beat by about 21 percent we

did end up getting a gross margin beat

as well we had some weak guidance and it

led to some sadness for the stock a lot

of sadness in fact the stock down

somewhere

around 11% here in the after hours it

fell even more after the company gave

guidance which they preserve for their

actual earnings call and I wrote down

some notes from the specific earnings

call so you could see oh this is where

they think things are going here and

like I said not the best Direction so

let's look here not only did we miss in

China which is expected Nike SE softer

Revenue in calendar q1 Q2 of 20124

they're going to lay off people not just

in management but also different

portions of their procurement supply

chain and even though they had one of

the strongest Black Friday weeks ever

they see indications of a more cautious

consumer around the entire world and

there retail sales forecast came in

short of expectations with softness

starting to show up in digital traffics

and higher levels of promotional

activity throughout the entire space

this morning and I don't really know why

but I was tempted to go through the

pelaton earnings call and I'll tell you

I saw the same thing there they're like

yeah we're having to promote a little

bit more uh it's not as bad as last year

but we're definitely having to promote

very very little talk about increasing

sales and a lot of talk about promotions

not so great same thing now happening

with Nike and I think this is sort of

the canary in the coal mine of what's

coming to the bulk of the consumer which

is oh no the bulk of the consumer might

really start raining in it wasn't just

Nike which we got from the reports today

talked about this one before remember

Ulta yeah and now we got the bank term

funding program we got to talk about as

a disaster but remember what we talked

about with Ulta with Ulta we realized

uhoh Ulta is starting to have to be more

Promotional and they're starting to see

an a limit to how much they could raise

prices because the consumer's unwilling

to pay for it anymore now Ulta was still

able to provide a positive forecast so

their stock went up but in their actual

earning call notes they made it very

clear yeah there's a limit to how much

we can raise prices now I did read the

Micron earnings call this morning and

they seemed optimistic about being able

to raise prices because cashr companies

are continuing to spend on memory or

specifically AI related chips but that's

not true of the typical consumer daily

purchase Goods I would guess this same

thing would be true for not just a Pon

or Nike but also think about McDonald's

Costco uh Sam's Club Walmart Target uh

under arour you name it just your ba

everything that somebody would buy on a

daily basis whether it's uh Furniture

potentially some of the lower hanging

fruit over at Apple uh or or whatever uh

and that could actually lead companies

to end up advertising more because you

don't want to see your unit volumes go

down so usually what you do is end up

advertising more so you lay off staff

where you can you replace them with AI

and then you advertise more to try to

get your sales volumes up and then you

save the money somewhere else so in a

weird way you could actually see

revenues go down margins go up and AD

spending go up because you're laying

people off but the problem is when you

see that lay that the laying off start

the FED goes oh dear we might have

started a little bit of a Poopsy dupsies

problem here and this is why a lot of

folks are flagging the Sam rule the Sam

rule right here is a way of starting to

indicate when we might be going into a

recession this looks at the change in

monthly unemployment over time and as

the number goes positive we can very

quickly and rapidly Skyrocket via the

Sam rule which would tell us we are

indeed in a recession unfortunately

tends to lag so theoretically you could

be in a recession now and not know it

yet so definitely some red flags in

addition to that look at the bank term

funding program the bank term funding

program just released its latest data

for the week ending December 20th the

bank term funding program inflected up

once again increas this increases the

hopes for that should be rate Cuts I'm

going to go ahead and fix that really

quick increases the hopes for rate Cuts

not eight Cuts uh but anyway uh this

allows uh remember what the bank term

funding program does is it basically

allows Banks who have bonds to go to the

Federal Reserve and say look our bonds

lost a lot of value but can you just

lend us based on what the bonds should

be worth 100% of the face value of these

bonds and that way we can give our

customers the withdrawals they're

looking for now there are two potential

reasons you could see withdrawals from

Banks which if you see withdrawal BS

from Banks money moving out of Banks

Banks have to come up with that cash

somewhere if they have bonds they don't

want to sell those bonds for a loss so

they go to the fed and go hey can we

borrow money so we can give our clients

their withdrawal money so they do that

we just saw this INF flct up these are

usually smaller Banks Regional Credit

Unions whatever they don't want to go

bankrupt they're probably not going to

go bankrupt we're probably not going to

see a banking crisis number you know 2.0

basically because the FED will just bail

them out this is a taxpayer backed f by

the way any losses the FED experiences

here taxpayers are on the hook for

bailing out so what is a bailout program

let's be clear about that but anyway the

point of this is why would people be

taking money out of the banks well

probably because they're seeing the

stock market go up and they're like okay

well these yields at the banks aren't

going to last so let's take our money

out of the bank now the bank is like ah

crap we got to fund all these

withdrawals and they just throw it in

the stock market which is no longer in

the bank's hands or they go buy bonds

themselves which is then also no longer

in the bank's hand another $8 billion

came came out of here and let's be clear

that's that's a lot and if the trend

continues up this program could

potentially double because what I think

will happen is bonds will continue to

Rally so bond prices go up yields will

continue to go down that'll just

reiterate more people taking their money

out of Banks and throwing it into bonds

or the stock market because as yields

come down the stock market will also

become more attractive and so it's

likely we could see some more smaller

Banks just shut their doors they might

not necessarily go bankrupt because

you've got the bailout facility assuming

they have acceptable assets to deposit

at the FED as soon as they run out of

acceptable deposits yes then they might

go bankrupt literally that's where the

phrase bankrupt comes from by the way

when the bank runs out of money so if

you're at smaller Banks you know so

hopefully you're under that FD limit

okay banking crisis 2.0 could come

around uh markets now pricing in 155

basis points of cuts and then of course

you have individuals who are suggesting

I mean mostly the kabi letter here on

Twitter they or X they are like the

classic Perma a bear uh and it's fine

like it's great because then I can look

and go what are the Bears up to now and

it's like the same exact thing that

they've been talking about for a year

they just do over and over and over

again it's like Oh look The Chart

overlaid uh back to the 1970s is so

similar that's great but you know people

like to say you should look at history

and study history well who says it has

to be the 70s because if you go back to

the mid1 1950s or the late 60s uh you

know after the Korean war after the late

50s or you look at the mid 90s you don't

actually have that big of a deal like

there's there's no problem you could

have a soft Landing but of course the

kobc letter wants to look at the 70s

which led to Paul vulker without

considering the fact that there are

substantial opposites from then to now

so some of the uh notable ones are we

have stable inflation expectations today

versus we did not back then that was

obvious we just left the gold standard

so we had just been introduced to Fiat

the unemployment rate was also at 8 . 4%

that's more than double than what it is

now okay that's very very very very

opposite uh and the FED had very little

credibility and I'm saying today's fed

has a lot but they had even less

credibility because they didn't even

have a mandate back then they're kind of

just like shooting from the hip uh you

know some things that are similar to the

70s Supply disruptions War Ukraine

Israel whatever uh

but there are a lot of opposites I think

comparing to the 70s is a great way to

mislead yourself now of course could

inflation pop back up as the FED Cuts

rates maybe but it's not what we saw

over the last 40 years so you're

actually making a bet that is

anti-history if you think inflation's

just going to resurge up and I know

people that but Kevin 70s inflation went

up yeah but again we just talked about

how opposite things are so you know you

would you would need to have those

things flip first to un anchor inflation

expectations and then you could expect

that things might look like the 70s

because if you're going to look at

history at least the line history

correctly it's kind of like the 1970s or

a triangle and you have a a square peg

of a market it's like okay well where

does the square peg fit oh mid 90s oh

okay early 1950s post Korean

War those a line a lot better uh of

course they're different shapes a little

bit the colors are a little different

because every cycle is somewhat

different but history Rhymes you just

have to then decide okay what which

history do you want to use if you're a

bear you use the

70s otherwise you go look at some other

stuff well there actually some more

similarities anyway uh inflation

expectations stable on the 5-year break

even at 2.19 and I will see you in the

meet Kevin podcast very soon if you

haven't checked it out yet we have a

great discussion on a lot of different

things we do include a little bit of

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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

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