2 *Dangerous* Warnings for Stocks!

hey everyone me Kevin here in this video

we're going to talk about what to avoid

in the stock market provide an inflation

update and we'll talk about the Federal

Reserve as well as upcoming catalysts

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okay so first listen to some of these

quotes here from the suits

stocks have had an epically bad start to

the year

that's those are the suits now calling

it epically bad blue chips are

technically in a correction that was on

the front page of the Wall Street

Journal today throughout the first 44

trading days of this year the Dao and

spy had have had their worst year ever

there's I'm sorry their second worst

year ever in 123 years so second worst

year ever out of 123. that makes this a

pretty special year

you've got better mortgage the company

that was famous for having their CEO

fire like a thousand people on a zoom

caller or multiple thousands of people

on a zoom call just fired an additional

3

000 people this is happening at the same

time as Banks and financials are just

getting wrecked which is ironic because

a lot of people are like oh but Banks

and financials should be doing better

during an interest rate hiking period

right not necessarily because Banks and

financials really like transactions and

transactions go down in an interest rate

hiking environment it used to be that

Banks like the interest rate don't get

me wrong they still do to some extent

but lower transactions lower brokerage

volumes killing financials right now and

so maybe it's no surprise that credit

card companies are starting to raise

their fees for transactions we'll talk

about that towards the end of the video

and then when we look at some of the

numbers that we've got out here Brent

crude right now at

128.78 the 10-year treasury at 1 1.84

percent up a little bit from a uh

yesterday and the 10-2 spread now down

under 25 basis points we're at a spread

of

23.88 for the 10-2 this is the lowest

level that we have been and since the

inversion of the yield curve in 2019 and

remember anytime we've had an inversion

of the 10 2 we tend to have a recession

within 18 months thereafter now

yesterday in my interview with Kevin

O'Leary he says don't worry it has to

stay inverted for a while but that part

is up to debate to see how long it has

to stay inverted so we'll see five year

Break Even which is a measure of the

potential future expectations for

inflation just broke the highest level

again it has been going straight up day

after freaking day and you don't even

want to look at this chart because it's

gross look at this for a moment here it

is at 3.51 it's absolutely crazy so the

five-year Break Even is crazy and

inflation is going nuts but we've got to

talk talk about how to position for the

stock market what to avoid and an

inflation update as well as Catalyst

update towards the end of the video so

right now we know that cyclicals like

financials energy materials Industrials

and consumer discretionaries are pricing

in at their lowest levels relative to

defensives which are utilities consumer

staples and real estate where the lowest

levels since November of 2020 which is

worth noting November of 2020 remember

what happened right before November of

2020 in October of 2020 we had a lot of

fear in the market we had fear that

getting a new president was going to

lead the market to fall that there was

either going to be election uncertainty

or that the results of the election

would be uncertain and so we had a lot

of fear in the market and anytime we get

this fear in the market we see a move

over to things like utilities consumer

staples and real estate and we've even

got a chart for this to kind of look at

some of the difference here so let's go

ahead and pull up that chart just to see

the this is the cyclical to defensive

chart right here and the more cyclical

stocks become expensive the lower this

this ratio is right the difference

between the two here so right now

anytime we see this line go down it

means defensive stocks are taking a

little bit of a stronger positioning and

you can see that fall obviously uh over

here this was our uh you know going

mostly defensive uh time frame where we

break under a hundred in terms of a

ratio this is where people are more in

defensives than they are in cyclicals

which again cyclicals being like

consumer discretion areas which could be

like your etsy's or your Amazon right

and real estate being on the other side

being a defensive being more like

investing in reads but anyway now we're

seeing that same or similar kind of fear

a level that we really haven't seen

since about here which was around that

November of 2020 time and we really took

off when fear left the market so I think

the easy way to kind of conclude this

this sort of chart here is anytime you

see the line go down it means the market

is getting more defensive every time you

see the line go up it means the market

is taking on more risk and so the last

time we saw that sort of low point was

around that election time frame when we

had a lot of uncertainties in the market

and so you're seeing more people maybe

crowd those defensive sectors right now

and one of the big takeaways of the

video here that I want to talk about is

stock crowding because stock crowding in

my opinion is generally what you want to

avoid and so that could potentially mean

that maybe their opportunity

opportunities to buy the dip on some of

those uncrowded positions and stay away

from the more crowded positions and I'll

show you a chart as to why but first

what are some things that we know are

really really crowded right now well in

this particular chart we just saw

defensive so we're getting crowded we

also know that Commodities are going to

the Moon I mean everybody's talking

about how not only has nickel like 3xed

over the past year and a half but that

wheat's gonna keep going to the Moon

that oil is going to keep going to the

Moon we're getting these outlandish bets

that oil is going to go from 128 a

barrel to 200 a barrel or 185 dollars a

barrel and that's crowding a lot of

folks into these energy stocks

especially uh like non-diversified ETFs

like XLE or people are following oxy or

Warren Buffett into oxy which Carl icann

just sold out of took a billion dollar

profit on it so he's getting out but

Buffett and a lot of retail are flowing

in we saw yesterday

340 million dollars of retail money go

straight into energy that was the

biggest retail buying sector out of all

retail sale buys yesterday yesterday

retail bought 1.5 billion dollars worth

of stocks and so you're seeing a lot of

money going into energy and uh and

commodities right now and so they're

becoming pretty crowded and one of the

big lessons that you always want to

remember when it comes to the stock

market is take a look at this chart okay

this this is a critical one right here

it's this

popular does not equal profitable

anytime you get crowded stocks you tend

to see an underperformance and that's

literally what we've seen so far year to

date this is a year-to-date performance

stock of uh retail sentiment indices

they threw Arc in here as the Blue Line

the crowded fund index the Hedge fund's

most crowded stocks all since December

31st and what you can see is this

massive underperformance of these

crowded plays so you see the s p is the

top line that's down about 12 since

December 31. you see the crowded fund

index and the hedge fund most crowded

trades these are down to about 83 or 80

so basically down 17 to 20 percent and

then of course arcs down there about

down 39 along with the retail sentiment

basket from Goldman Sachs down about 32

percent so you really see that if you're

in crowded trades you tend to

underperform and so one one of the

warnings that I have for the market is

that even though it's popular to get

into those defensive stocks right now to

get into the xle's the energies the

wheat basket uh and and some of these

these uh defensives one of the things to

be cautious of is the more crowded the

trades become the harder they can fall

so be careful it's kind of just like

that Meme momentum right that the more

we go up the harder we can go uh go down

and the faster we can go down and so one

of the things that I advocate for is

setting those trailing stops so if

you're investing in these set those

trailing stops four or five percent on

some of the more crowded trades so that

way in the event there's a U-turn you're

a little bit insulated now the other

thing that I wanted to talk about was uh

inflation how obviously we're seeing a

big move uh and a lot of fear that

inflation is going to be a lot more

long-lasting and the worst case scenario

is that inflation ends up becoming

anchored because when inflation

expectations become anchored then the

Federal Reserve has to work to unanchor

them right now Jerome Powell is really

proud because he says that they have

done a very good job at keeping

inflation anchored low and that's

because when we look at things like the

University of Michigan consumer

sentiment indices and inflation

expectations we see that consumers

expect inflation to come down like half

over the next year as long as that stays

low the FED might not have to pull

vocorus but we have these massive fears

that we could end up in a situation

where uh used car prices keep going up

they're up 40.5 percent uh over the last

year used cars make up 5.5 percent of

CPI new cars are up 4.5 sorry 12.5

percent over the last year they make up

4.5 percent of CPI we know that uh rent

makes up 9.6 of CPI and housing in total

makes up 39 of CPI and this lags so even

if we see car prices come down a bit if

we just see rents move up the way they

should because they use the stupid

owner's equivalent rents and they super

lag on CPI well then we could end up

seeing inflation really move up

substantially over the next few months

especially as oil prices drive up

inflation remember if we hit 150 a

barrel we would expect CPI to be two

percent higher solely because of higher

input costs from oil which is a lot and

so this does still create this downside

risk for for the Federal Reserve and

we've got the CPI report coming out in

two days but I just want to urge a

caution that that CPI report isn't

really going to give us the data that we

need yet whether we get a Miss on

Thursday or we get a beat on Thursday

doesn't really matter because we want to

know what inflation is not from a

snapshot from February but from March

and April and May that's what we want to

look at because remember how messed up

it is how in terms of how they measure

inflation for volatile things like gas

prices well in CPI what they'll do is

they'll say okay here's our CPI for

February let's say the expectation right

now is that CPI is going to come in at

7.8 percent and the month over month is

expected to come in at 0.8 percent minus

food and energy 0.5 percent

so write these things down you should

have these written down by the way these

are the expectations so 0.5 uh month

over month without food

and energy so these are the expectations

this is annualized 9.6 which just means

we multiply by 12 right this annualized

is six percent again multiplying by 12.

so these are the expectations but

whether we get a miss

really matter in my opinion because why

well the energy shock

isn't really going to be fully priced

into this February CPI report because

the way they'll look at February is they

won't look at Feb 28th and say okay oil

was let's say a hundred dollars per

barrel let's include that in CPI via gas

prices or whatever well they'll actually

do because they're not looking at oil

prices anyway they're looking at gas

prices but gas prices follow oil prices

but anyway what they'll actually do is

they'll look at what were oil prices Feb

won

to Feb 10. then they'll do the same

thing for approximately Feb 11 to Feb 20

and then the same thing for Feb 20 to

Feb 28 and then they'll take these three

little baskets right here and let's say

oil prices were 90 95 and 100 well then

they'll just take the average and

they'll say okay cool gas prices are

essentially close to uh uh 95.

okay sorry one sec there we go yeah so

uh that that shows how CPI lags CPI

lagging is a problem because it means if

we end up getting like an eight percent

read this time let's say when the

expectation is what I say was 7.8 we get

an 8 read fine probably gonna end up

being worse next month so I actually

think April uh for the CPI release we

get in April that's probably the one

that's going to create more help hard

palpitations than this CPI release so

I'm not hanging my hat much on the CPI

release I'm more concerned about that

longer term because if we don't see that

inflection point down there's still a

massive risk that the FED ends up you

turning ugly on us now the easiest way

in my opinion to understand how the

fed's kind of been playing us is to

think about it like this so let's say

that going sort of down here is them

supporting the economy and being being

like helpful to stocks right to being

helpful to us right so the fed's kind of

been playing down the fears of inflation

forever calling inflation transitory

well in December we got this really ugly

shock where all of a sudden they're like

uh-uh big U-turn oh crap inflation's

Horrible inflation's no longer

transitory we have to taper faster we

have to taper more aggressively this is

terrible right absolutely terrible for

uh for stocks and this is why we saw

that pain in December and January

especially when those minutes came out

in January well because of the crisis in

Ukraine we've kind of seen a little bit

of a softening in the FED stance but I

don't want to say they've kind of that

they've turned super dovish I think

they've more gone on to pause here and

there's a real concern about them going

into this pause mode because we're going

to get this data here for uh Feb CPI

you know then we're going to have the

fomc meeting

on the 16th so this is on the 10th and

then we're gonna get the uh March CPI in

April

Marge CPI we'll just write April right

here

and it's entirely possible that if we

keep seeing inflation

come in with these terrible reports that

the federal actually just sort of be

like patient for the time being we'll

see these over and over again 25 basis

point hikes over and over and over and

over again but if CPI continues to come

in high it's still entirely possible

that the FED could end up having to vote

for us and they come in with some crazy

interest rate increase where all of a

sudden they come in with like 100 basis

point increase or 75 basis or 50 basis

point increase and then they rug pull us

so this is still very much a reality or

potential for 2022 and this is why the

the two big things that I want to really

address in this video are number one be

careful about those really crowded

trades but number two we're not in the

clear just because this CPI report on

Thursday comes in ad expectations or

below or above

stand by like it I don't think we're in

this market where we want to be all in

just yet at the same time you're still

seeing companies raise prices I mean

just today we saw Apple raise the price

of the iPhone SE by seven and a half

percent also according to the Wall

Street Journal visa and MasterCard are

now raising their merchant fees these

are the fees that businesses have to pay

uh they don't really they're sort of

invisible to the consumer because we

swipe our card we don't really see it

but they're sort of the back end fees

and uh both of them was visa and

MasterCard are raising their fees in

2021 just for example Merchants paid

55.4 billion dollars in merchant fees

and credit card fees these fees by the

way lead to like huge profit margins for

visa and MasterCard there's a reason

they bring like 40 to 50 percent of the

bottom line a lot of it has to do with

these fees and so apparently these fee

increases will affect uh mostly online

purchases though it looks like really

all fees are going to be increased with

the exception of some of those on Lower

businesses with Visa who have less less

than 250 000 in annual consumer credit

card volume which that's a really low

number I mean if you're only selling 250

dollars in Goods uh that's that's not a

lot for any business so that's like the

the micro businesses there are getting a

little bit of support but otherwise

those fees are going up so all across

the board you're seeing companies and of

course every earnings report that we've

looked into all across the board you're

still seeing price increases those have

not all been reflected yet in CPI so I

think we have two massive warnings uh

and of course shout out again to FTX

before I recap those two FTX is the

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time as being able to trade

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single day on my computer and you should

as well check out FTX via the link down

below but the big takeaway here is

twofolded the number one big takeaway in

my opinion is be careful about those

crowded trades the ones that seem really

sexy the one everybody's going into you

know the Palladium or the nickel or

wheat and oil related trades and those

are great for making quick money

momentum meme style but always remember

to set yourself a stop loss so that way

when and if that trade reverses you've

got some protection I do think that

buying Commodities could be a hedge

against maybe your let's say Tech

portfolio or portion of your portfolio

or maybe even the indices in general

because the more we see oil go up for

example the more the spy and NASDAQ seem

to come underweight so it's entirely

possible that those could be a hedge but

again just set your limits so that way

you're not part of a big sort of uh

cycle to the downside in these I mean

there's a reason the CEO of uh

Occidental Petroleum today mentioned

that we're not planning on significantly

increasing our production because we're

just going to take the extra cash we're

making now for more expensive oil and

we're going to use it to pay our

shareholders when the oil Market comes

down again like when the CEO of the oil

companies are telling you this it's

because they know these prices don't

last they come up and then they fall

they come up and then they fall it's all

a game so just remember that if you're

making bets on these and then uh another

thing obviously to keep in mind is that

fed rug pull that we talked about be

careful because there are a lot of

things that could still lead them to rug

pull us there's also talk and I thought

this was sort of just an interesting

little bonus note one of uh the

individuals who was interviewed on CNBC

this morning they mentioned that we

might actually walk into what's being

referred to as a sentiment recession

which is if the global economy starts

getting too nervous about uh the outcome

of potentially war with Russia in well

certainly war with Russia and Ukraine

but also potentially war with the

European Union Nations or NATO then

there could be a quote sentiment

recession where you see people

purposefully start pairing back their

borrowing which you're already seeing in

China and increase their savings and

then you get those negative coughs where

all of a sudden you actually start

seeing negative year-over-year comps and

that's your start to a potential

recession which could be why that 10-2

yield curve has also Fallen but best

case scenario we could get over these

hiccups these shorter term catalysts

inflation Catalyst Russia Catalyst we

just go back to the moon but until some

of these catalysts get cleared I I'm not

super impatient in trying to time my

entries but I'm definitely entering when

there's when there are big fear days so

uh but again still not all in certainly

not yoloing onto call options more

interested in selling calls selling puts

and staying out of margin and debt all

right that's that for that video thanks

so much for watching make sure to check

out FTX by the link down below and we'll

see in the next one bye