Barclays Recession, Stagflation, Fed U-Turn, Wage Risk, & Morgan Stanley Stock Picks.

oh boy we've got a lot to cover in this

one first we're going to go through my

opinion on the bottom of the market then

we're going to look at institutional

analysis including Barclays thoughts on

the potential for a soft Landing what

the fat is going to do next Wall Street

journals insights on wages the Goldman

Sachs Financial conditions index these

are incredible charts and we'll look at

10 years of a potential growth sector

with a lot of pp a big PP that you want

to be paying attention to then we'll

also be looking at natwest's macro

Outlook but first we are going to start

with my insights into well my thesis on

the bottom of the market what do I think

and when do I think things are going to

bottom now to be clear this is just the

culmination of all of my research and

it's my opinion just because I'm a

licensed financial advisor doesn't mean

that this opinion is correct but

somebody commented and said Hey Kevin we

want to know what your opinion is

because we get all the sauce some

research from you but sometimes we don't

get that sort of cohesive opinion on

with all that info what do you think

Kevin and we want that perspective so

I'm going to go ahead and start actually

by providing that so just to catch you

up okay this part might sound familiar

but remember there's a big difference

between a Fed U-turn and a Fed pivot

pivot is like lowering the amount of uh

rate increases they're doing or the

amount of them or pausing right those

are pivots u-turns are what the FED does

when they break stuff like in 1987

that's when they created the precedent

that's when they started the idea of

look we will come in and we will bail

out markets we will provide Financial

liquid liquidity and be the lender of

Last Resort they did the same thing in

March of 2003 ending the.com crash they

u-turned at the bottom because you break

things and then they're like oh crap we

need to bail everything out and then the

U-turn right so they did the same thing

in Feb of 2009 the same thing in

December of 2018 and again more recently

as we all remember in March of 2020 they

were stock markets bottomed at the exact

point the fed u-turned and is really

really incredible however now we're

really aware of this and so guess what

markets are trying to do today which and

these are dangerous words right saying

the words this time is different is

dangerous you have to be aware of that

right but what markets I believe are

trying to do right now is they're trying

to predict that bottom they could be

wrong but this time could be different

in that basically and this is my thesis

markets could bottom and the Federal

Reserve might not U-turn until

potentially six to nine months later

where you actually end up having a

U-turn here and then you really see

potentially an inflection point up uh

even more dramatically in the stock

market however the difference between

this point over here and this point here

could be 50 so think about that you you

could see stocks off Bottom by maybe 50

percent certain of them or indices off

Bottom by maybe 10 20 percent by the

time the FED u-turns and that's because

in this cycle our recession that we're

expecting seems to be the most predicted

recession ever and every single move the

FED is plotting is essentially aligning

with the bond market and usually we

don't have that clear of insight into

the FED just copying what the bond

market does because usually the FED

bails everything out once stuff breaks

which stuff could still break right

that's a risk to this thesis but right

now the bond market is pricing in 1.7

percent of cuts in 2023 that's this year

the bond market is pricing in 1.73

percent in fed cuts and at the end of

The Cutting cycle the bond market is

pricing in 500 basis points of cuts and

so my thesis is that by the time we

actually start getting cuts that U-turn

it's going to be so clear that they're

going to cut that markets will have

already done a lot of rebounding and so

to some degree this chart could actually

look a little bit different where you

could have the situation where prices

come down

and then we bottom we actually

aggressively sort of v-shape off of the

bottom then the FED u-turns but it's so

predicted that sure we just sort of

continue on with a Green Market but like

the fed's already u-turned and so that

bottom could become or come to us before

a Fed U-turn that's my thesis so that's

why personally I'm actually investing

more into the market because even though

I might not know exactly where the

bottom is and I don't profess to know

where the bottom is right I want to be

buying sort of like this right this is

kind of my thesis is hey can I take

extra money can I build businesses can I

make investments near the bottom what

can I do to limit my taxes make

investments to get more growth happening

near the bottom because I think by the

time the FED u-turns it's going to be

easy to make money again it'll be easy

to start businesses it'll be easy to

invest again

but I want to make the big Investments

starting the hard part so that's my

personal thesis I agree with the bond

market that massive cuts are coming you

don't have to agree with that right if

you think that inflation is going to be

sticky then this is a big issue right we

could continue to Trend down down until

something really breaks right we get

another surge of inflation something

really really breaks and then what

happens the Federal Reserve ends up

having to bail in at that point to bail

out markets and what do you get well now

you get the real bottom and the real

U-turn so I just as clearly as possible

trying to provide you the difference

between my opinion and the risk factors

what could happen right but I do think

it's also worth noting what Barclays

suggests and this is interesting uh

because they they tell us exactly what

we want to be paying attention to to see

if the Soft Landing is possible or not

and the very first thing you want to pay

attention to is this right here January

30th the expiration date for the program

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code jet before January 30th when

pricing will change so Landing Me Softly

Barclays talks about how thanks to the

December CPI number and the Atlanta

wedge tracker uh winch tracker I'm

thinking about real estate wage tracker

we might actually see the prospects for

a soft Landing increase but there are

some big risks here so the first thing

we're going to do is we're going to look

at the Atlanta wage tracker I want to

teach you about this because the wage

tracker really aligns with some of the

behavior that we've seen from Jerome

Powell now the wage tracker basically

uses a three-month average and a

12-month average to tell you about

what's going on with wages and I think

it's actually pretty fascinating so if

we pull that chart up this is what we're

looking at and what you could see if we

jump onto a 12 month average for wages

it looks like wages are just

skyrocketing and this is really

dangerous because it increases the odds

of what's known as a wage price spiral

where basically wages are growing faster

than inflation inducing new inflation as

people have more money to spend and

therefore you end up with runaway

inflation High inflation expectations

and ultimately Jerome Powell has to turn

into Paul broker and push us into a deep

dark depression rather than just a soft

recession and if you look here when

Kevin you turned on stocks in January of

2022 and I'm like oh my God I got a

flip-flop we were just at the beginning

of wage prices going up I sat down with

somebody who used to work for the

Federal Reserve at a JP Morgan luncheon

and I'm like you guys aren't paying

attention to wages and they're like well

we only have a 15 chance of recession

price then and I'm like you're blind

cell right uh and and so anyway sure

enough wages skyrocketed after that

right now don't get me wrong hey look I

had some good bets and I had some bad

bets over the last year right that's for

sure but when it comes to macro I'm just

going to give you all my insights and

what I saw then is the opposite of what

I'm seeing now why well just for an

example not just earnings call but an

example earnings calls where I'm seeing

the opposite start happening right

people's ability companies abilities to

raise prices are are falling you're not

seeing the insane inflation and reports

you were seeing before but now you look

at the wage tracker and you look at the

three month moving average this is not

the month over month this is the three

month moving average and look at what

you have you have finally the the growth

still being positive which is good for

workers but it's finally inflecting down

we have not actually really had an

inflection point down in this entire

cycle yet certainly not one of this

magnitude right we've had little tiny

little pauses here misses on some of the

data on three month average uh which is

is just sort of month-to-month

fluctuations you see but you go to

overall weighted you go to college

degree you go to mail you go to paid

hourly Services prime age job Seeker

notice how they're all

inflecting down right let's do some more

let's go overall back to 1983 inflecting

down how about job switchers inflecting

down how about females inflecting down

you usually full time that one you

couldn't really tell because I was in

the way of that one but uh basically

also here I'll just hide myself for a

second so there we go also reflecting

down anyway point being

the Atlanta wage tracker is giving us

good news now that's great but we still

have a big problem and Barclays makes

this big problem very very clear we know

this from my coverage of the last CPI

report it's great that we have a

moderation and core CPI prices reflected

reflecting deflation even in the goods

component but there are three components

right number one Goods number two

housing number three wages well we see

Goods deflating we see disinflation

finally coming to wages but we have this

problem in housing see if you look at

what's known as core core inflation

which removes shelter and medical

subcategories and CPI we're down to only

two percent or sorry 0.2 percent month

over month inflation which annualizes to

about 2.4 percent right at that level

where the FED could come out and

actually preserve their own credibility

by saying hey uh that's close enough to

two percent thanks to our policy of

flexible average inflation targeting

pronounced fate we're good we don't have

to hike anymore and they could save face

because they could just refer back to

fate kind of crazy but anyway now you

see core core plummeting but what's

propping it up right now Big Time

shelter baby and we expect shelter to

plummet absolutely sharply plummet over

the next uh a few months because we're

seeing leading indicators like rents

plummet but the big risk factor that

Barclays talks about right here is that

inflation could remain persistent if for

some reason we don't actually see

shelter inflation fall they say here

that we must see new rental contracts

materialize in CPI for us to actually

have any hope at a soft Landing now we

believe that's going to happen because

again leading indicators as researched

by the FED itself all you have to do is

look at the Cleveland fed the Cleveland

fed has a somewhere around 40 page

working paper on exactly this here it is

Federal Reserve banking Cleveland

working paper

disentangling rent industry differences

and when you go to the conclusion

section way over here you can see that

most indicators of inflation are

plummeting dramatically but CPI is still

playing catch-up but as soon as CPI

stops playing catch up which we think

will come by this summer we're going to

have this massive anchor of deflationary

pressure and that could really lead to

that soft Landing that everybody is

hoping for but remember hope is not an

investing strategy so we have to be

clear as hopeful as we can be that

things are lining up that businesses are

finally no longer bragging about all of

their pricing power via strictly just

raising prices and raising margins now

we have to get more nuanced and go uh oh

we're in a recessionary environment

pricing power is plummeting at companies

across the board and now it's kind of

like okay well whose pricing power is

plummeting the least right that's what

you have to do in a recessionary time

because everyone shrinks like everyone's

PP shrinks during a recession it's kind

of like when the cold comes around you

know everyone's well okay you get the

idea so then it's just a matter of okay

well now that there's been some

shrinking in PP who's still got the

biggest amount of pp left you know the

biggest one and so that's a big issue so

finding those companies is hard but even

Barclays shows us or at least tells us

uh and shows us that they're seeing GDP

forecasts not just increase at their

company or sort of their institution but

also at institutions across the board

companies and people and institutions

are coming to believe that wow maybe

things won't actually be that bad as

long as inflation keeps coming down and

this is where you get to the soft

Landing thesis that basically they're

projecting the little green bars here

being their revised projection from

November which is blue they basically

revise down their 2022 GDP but they were

negative for GDP for 2023 you could

barely see that blue sliver there and

now they're actually thinking no no we

we could actually end up with a full

year of growth here it'll be a small

amount of growth but we're not

projecting as negative for economies

anymore whether it's the US Europe or

the United Kingdom thanks in part to gas

prices and a much warmer winter that's

helping out Europe for example and

thanks in part to well quite frankly

inflation starting to fall now this is

where Barclays still thinks the

following they still do believe and I

differ here they still believe that the

Federal Open Market Committee the

Federal Reserve will raise rates to 5.25

before the end of the hiking cycle the

market does not believe that they say

that as well the market as a terminal

rate is sitting at like 4.9 right now

and it kind of continues to Trend down I

personally think you've got a lot of

folks today saying well the inflation's

got to get to two percent they got a

long way to go yes but don't forget

about fate everybody forgets that the

FED could just pull the rabbit out of

the hat and go ah as long as we average

two percent it's fine what did we have

the last decade lower inflation right we

were struggling around you know to get

inflation up we were sitting at like 1.6

1.8 percent it was incredible so we

could really average two percent over a

longer term as long as we continue to

see this trend down now they also

believe that uh certainly by May we're

going to be done with the hiking cycle

at that time they do believe we're going

to be at the early stages of a shallower

recession and we could see two quarters

of a recession but still end the year

positive

although a lot of folks will say

technically we already had two quarters

in a row of negative GDP in 2022 so

maybe we already had our recession or

we're just gonna have a double dip

recession where it's sort of like we had

our recession in 2022 maybe that gets

revised away and then we get another

recession in 2023. it's a crappy time

right or maybe it's the best time to

invest

either way uh this is where Barclays

talks about here lower gas prices easing

Financial conditions and improved growth

Outlook could actually end up hurting

underlying inflation and so it's just

going to be a risk that we have to deal

with over the few next few months is

that as we see inflation plummet maybe

people start getting a little

comfortable too soon and the market does

actually move up hurting those financial

conditions now let's look at Financial

conditions because in my opinion this is

fascinating because it shows you how

tight things have gotten relative to

where we were when meet Kevin had his

big flip-flop and what I want you to pay

attention to is not just the big

flip-flop moment but I also want you to

compare to where we sit relative to

let's say like a

2018. so this is important this is the

Goldman Sachs Financial conditions index

and what you're going to see in this

chart is that the white line represents

Financial conditions how tight are they

when the pandemic hit Financial

conditions

skyrocketed and the Federal Reserve

moved to loosen Financial conditions to

bring things back to normal by lowering

rates and providing liquidity we almost

got to those levels here look how I mean

even if you just look at sort of this

little mountain of financial conditions

tightness over here that's where we saw

assat in September of this year like

Financial conditions have been crazy

tight which also represents the peak of

financial conditions in December of 2018

when the Fed u-turned so the FED

u-turned here when Financial conditions

were actually less tight than they have

been this year so Financial conditions

are really really tight and have been

very very tight this year if we look at

the line of where we are now I'll go

ahead and drag that one over actually I

did that here there we go if you look at

where we are now this is where we sit

now this is where that is relative to

covid and this is where that is relative

to 2018. still pretty tight so even

though Financial conditions yes are

softening that could be a good thing for

the FED because they might say hey

that's okay you know as long as

inflation continues to plummet we could

see some loosening

but the more this stays elevated and the

more inflation continues to loosen and

fall the more the FED will be likely to

U-turn and drop these Financial

conditions much lower and more towards

longer term average which will probably

be right around this orange line that I

just turned uh red here

that is your longer term average for

financial condition tightness and that

shows we've got a good way to go in

financial conditions coming down that

would be the cutting cycle and If the

Fed actually breaks things because

they're too slow at reacting they could

actually push Financial conditions even

lower to kind of unfortunately what led

to the boom cycle in 2021 and this is

why you get people like Michael burry

saying they're going to end up cutting

they'll respond too late they'll end up

cutting so dramatically that you'll end

up creating another inflationary period

via Financial conditions that are just

too loose

all right that's a lot to take in but

now we've got to go to the next piece

now the next piece is interesting uh

this actually is a quick one this is

just a small piece from The Wall Street

Journal I wanted to point out this other

risk factor right here and that is that

even though we're seeing an inflection

in wages The Wall Street Journal

mentions in this article I'm just kind

of going straight to the bottom line for

you in this one wages tend to be

stickier than inflation as uh the person

they interviewed from credit Suite

suggests they don't rise or fall as

rapidly as consumer prices that means

wage gains could exceed inflation for a

little while until in uh until wages

start falling now that's fascinating

because it's basically saying we could

be an environment where people are

starting to get fearful about a wage

price spiral where inflation maybe Falls

to say three percent very quickly but

then wages are sitting at five percent

let's say in year-over-year growth and

that difference makes people worried

about a wage price spiral and maybe

forces a fed to stay more aggressive for

longer which if they stay more

aggressive for longer it reiterates that

maybe the FED will end up going too far

or waiting too long to U-turn and then

when they U-turn and they break

something they'll actually go really

really aggressive at cutting and you're

just in the next boom cycle which again

we think that next boom cycle gets sort

of precedes when the FED u-turns because

the Market's just now calling the feds

Bluff and they're starting to say nah

you guys aren't going to make it that

long Y'all Gonna U-turn oh we're pricing

that U-turn in that's why I have this

thesis that we could potentially see one

of these scenarios here where the

markets bottom well before the FED

U-turn because the Market's already

saying that's okay fed you keep

pretending to be you know the tough Dad

we know you love us at the end of the

day we know you're coming back so I

think that's quite fascinating in

addition to another thing that's very

interesting is this right here Morgan

Stan finally put out a piece and in the

future I'll go through the individual

companies that they talk about I'll give

you that spoiler in a moment but I'll go

through an analysis on the individual

companies later but Morgan Stanley puts

out a piece and talks about maybe one of

the most attractive Investments to get

into

you know once we're closer to the bottom

of the market which could be now who

knows right but along with my thesis

Morgan Stanley actually thinks for 2023

the best place to go is places that

benefit from the inflation reduction act

and that's because we're going to get 10

years plus of federal support for wind

solar hydrogen and energy storage and

stocks aren't really pricing that in yet

so they think you want to focus on

profitable growth companies or companies

with a path to profitability me at least

I'm a big fan of pricing power stocks

that are already profitable and are

growing I don't like money losing

companies and I love battery storage

companies big fan of this not the

biggest fan yet of green hydrogen I

actually personally was a big fan of

just the strategy I want to be very

clear about this because we know that

Nicola was a fraud but they had an

interesting strategy because you have to

know this for hydrogen who's going to

buy a hydrogen car

if there is no place

to actually fuel up your hydrogen car

right so you have a chicken or egg

problem nobody wants to buy a hydrogen

car because there's no hydrogen fuel

around

so an interesting thing that Nicola did

which I thought was cool is they said

well fine we'll create an electric

vehicle that also has a hydrogen fuel

cell right their their pickup truck now

you can charge your car as an EV and now

you actually create the demand for

hydrogen fuel because you have an EV

hydrogen hybrid that strategy another

company will pick that up and I think

it's going to be a brilliant way to

basically Trojan Horse the hydrogen

field so that's going to be something to

pay attention to Morgan Stanley is a big

fan of uh stem and plug power I was not

the biggest fan of plug I made a whole

video on when they were like 70 bucks

like this is very dangerous like this

thing's gonna plummet sure enough it did

but you can learn a lot more about plug

by just watching that video because a

lot of the information is still very

relevant type into YouTube meet Kevin

plug power and you'll see it but also

some others here like n-e-e AES and amps

a lot of these are utility players and

sort of commercial grade electricity

providers

fascinating worth looking into those

companies stay tuned And subscribe

because I'll be providing some research

on those companies as well

now we got to talk about Nat West and

yes remember January 30th the expiring

coupon code I also want to shout out a

big thank you to those of you who have

been using the coupon code to Shadow me

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if you want to do that use the link down

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January 30th so what does NatWest tell

us well NatWest tells us that indicators

specifically services isms and most

other indicators particularly in Europe

point to a shallower or even no

recession this winter contrary to

expectations part of the Slowdown might

have been postponed but Chinese

reopenings and overall lower energy

prices bode well for improved economic

Outlook we're starting to get a lot more

good news than bad news right this is

good they also suggest that

stagflationary Dynamics are being

stopped or are even reversing that's

really good for central banks now this

new scenario argues for a modest future

tightening and clearly lends to support

to our long standing call for 25 BP

hikes that's not West here now they have

uh some other pieces that we're going to

look at some brief portions here but

this is fascinating inventories for

natural gas rising in Germany everybody

thought they were going to run out and

they were going to have massive

shortages inventories are going up on

top of that they suggest that in 2023

total energy costs may be around half as

expensive as previously thought and take

a look at this they talk about this idea

that yes right now Jerome Powell is

still trying to have the aggressive face

on but all of the leading data is

pushing down and now what we want to do

is pay attention to the next Catalyst

the next big one in my opinion we've

already talked about financial

conditions but the next big one you want

to pay attention to is right here those

three letters e c i and that stands for

use the coupon code okay no sorry I'm

sorry like that's my that's the only

sponsor of the channel I apologize it's

my job to pitch it I I know sometimes

people like Kevin so many pictures I'm

sorry okay we stopped doing other

sponsors and that's just what we got so

I gotta provide more value for that area

and then I gotta pitch it ECI stands for

the employment cost index the next

Catalyst for that is in 15 days

conveniently the same day the coupon

expires on January 30th is when the ECI

comes out okay so EC on it's gonna be

one of the next big Catalyst and guess

what it happens just two days before the

FED meeting Feb won so hopefully you

found all of this Insight really helpful

let me know in the comments down below

are you okay with these longer form

videos I know they're a little bit

longer but I think it's a lot of good

content and I have to say I'm a little

proud of myself I don't think I had a

single cut in this entire video so let's

go who's gonna edit the video me who

made the video really easy to edit meet

boom

all right folks thanks for watching

we'll see in the next one goodbye