Forget Recession | This is the Next Great Depression.

hey everyone me kevin here is the next

great depression upon us after all we

already know that inflation is not going

down and did not peak in march has hoped

instead it's broadly expanding markets

are now pricing in substantially more

aggressive action by the federal reserve

with an expectation that the fed could

raise the fed funds rate to a high of

three and a half to four percent by the

end of the year to fight inflation that

would be the highest fed funds rate in

15 years harkening back to what few of

us want to compare to 2007 just the

beginning of the great recession but see

the great recession could end up being a

baby compared to what happened in the

early 1980s where inflation had been

elevated for over six years and people

as well as markets had lost faith in the

fed's ability to actually control

inflation that led to a fed chair paul

volcker saying enough is enough and

increased federal reserve interest rates

the fed funds rate to 20 percent

purposefully getting ahead of inflation

crashing markets and to finally prove

that the fed was actually serious about

lowering inflation today even if rates

were at three and a half to four percent

we would still be half the rate of

inflation today inflation expectations

are rising but they're not yet at the

levels that we saw in the early 1980s in

fact they seem somewhat quote anchored

however it has been made clear that if

inflation expectations run away jerome

powell will have no problem quote paul

vulcaring us and even the last 30 days

he'd mentioned his admiration for paul

volcker and talked about how paul

volcker did the right thing to bring

inflation under control this is the

first time in his career as the fed

chairperson that he has uttered the

words paul volcker which have come to

mean much more of a signal of

potentially pain to come

as memories are brought up of the early

80s

than of just simple admiration

the federal reserve is all about

communicating their hints and folks

there are plenty that there's a lot more

pain ahead of us

or is there see our fed u-turned with

the belief that inflation was no longer

transitory in november and december of

last year 2021. the federal reserve said

don't worry though they had already sold

their individual stocks to avoid a

conflict of interest so it was all good

we were set to tighten which meant stock

prices had to come down and that they

did since then the s p 500 is down 18.4

and the nasdaq technology is down 18 oh

sorry

28.09 percent since the beginning of the

year bloomberg is reporting that s p

multiples are down to 40 percent that's

the similar decline that we saw for

price to earnings ratio multiples as the

dot-com era crash note these are

multiples not prices earnings seem to be

holding up prices better today than in

the dot-com era where companies were a

lot less mature today's stock market

crash however is happening three times

as fast as that of the dot-com era which

is giving many hope that maybe the

recovery will be three times as fast

especially since the dot-com bubble took

some stocks 14 years to go from a top

through the bottom and back to a higher

than original price

14 years a long time it's a generation

but the idea that today's stock market

might rebound three times as fast

because it fell three times as fast

might just be hopium see s p multiples

are down about 40 percent peak to trough

in may and the s p pays just five

percent in earnings and quote-unquote

pays because this includes dividends and

net earnings that's a fancy way of

calculating this but when the s p pays

out just five percent at the same time

as we have a fear that we might be

facing an earnings recession coming up

which is two quarters of a negative

year-over-year earnings growth for

companies at the same time as investment

grade bonds are yielding 4.4 percent

folks are asking themselves why take the

risk on stocks it'd be better to sit in

cash or in bonds

not all bonds are winning either and if

you're actually trying to achieve that

4.4 yield on investment grade bonds you

have to hold through duration otherwise

if you're trying to resell on the market

while the bond market's crashing you can

end up seeing the value of your bond

portfolio plummet but if you hold

through duration guess what happens you

don't invest your money in the stock

market while you wait for that yield to

come a reality and sit on the sidelines

of perceived safety downside for that

more pain for stocks at the same time

consumer credit is exploding at the

fastest pace in the last 30 years which

unfortunately consumers taking on more

credit especially riskier credit like

credit card debt often pre-signals a

recession on top of this mortgage rates

and the housing market are seeing pain

themselves mortgage rates have exploded

over three percent higher than where

they were in december leading to an over

30 reduction in purchasing power in just

five months some are saying don't worry

the real estate market will be fine

there's too little inventory but that's

what folks said about the apparel

business which is now saturated with

inventory and if we look at leading

indicators for housing what do we see

inventory starting to inflect up and the

amount of active listings with price

drops rising both the leading indicators

that even the founder of the real estate

case-shiller index says

may bring back people's memories of a

2008 real estate bubble burst

but that's not the only bubble to

potentially burst or to have burst

consider blank check spec ipos burst

fintech stocks like sofi and robinhood

bursting stay-at-home stocks like zoom

and peloton getting gutted some of them

down 90 percent from their peaks

and despite strong travel demand

airlines aren't faring much better due

to an oil price shock the likes of which

also helped lead to the 2007 great

recession

also inflation being at a 40-year high

trending up and expect it to stay

stubbornly high for the foreseeable

future in 2022 doesn't instill

confidence in the market so if you're

fearful about the market you're right to

be fearful and is raising concerns that

the fed will continue to raise rates

unfortunately causing bankruptcies today

about 12 percent of companies in the s p

500 are considered zombie companies

these are companies with declining and

higher interest rate payments alone than

they have net income and guess what

happens to these companies in a

recession

often bankruptcy consider the

multinational personal care company

revlon established march 1 1932 selling

products around the world with locations

in london paris hong kong tokyo sydney

and singapore the company has 5 700

employees and despite a well-known brand

is now rumored to be preparing a chapter

11 restructuring bankruptcy filing this

led the stock to fall nearly 53 in a day

followed by another seven percent in

after hours in my programs on building

your wealth including buying real estate

to go from zero to millionaire which are

all linked down below with an expiring

50 off coupon code i'm often asked how

can we spot a company going bankrupt

before it happens

well in this case it's easy if you read

the financials for revlon in their last

quarterly report march 31st 2020 two

you would have learned everything you

needed to know in less than five minutes

here you go here's a picture of revlon's

balance sheet in the first quarter of

2022 they reported 70 million dollars in

cash and no market securities the only

other current assets they had consisted

of prepaid expenses which is supposed to

keep a business operating doesn't help

you pay your interest and inventory

which if people stop buying or you have

to substantially cut prices below

potentially the cost of goods sold

makes you have no valuable inventory and

trade receivables aren't that useful

because that's money that's supposed to

show up within the next year but it may

not so basically they had 70 million

dollars in cash in q1 2022 with some

hope that other money would come in okay

well 70 million dollars with hope that

other money comes in sounds good right

well not if you keep looking see

unfortunately they had debt due to be

paid of about 60 to 70 million dollars

and folks those were just interest

payments on that debt which means quite

frankly they'd be about 30 days away

from default if any of their receivables

were delayed and even if they did make

the payment they'd be facing the same

problem the next 30 day period in fact

consider this they have 11 times as much

debt due within the next year as they

have cash and the long-term picture

wasn't any better they have nearly 50

times as much long-term debt as they do

cash but maybe their business would help

them survive right well that's unlikely

in the first quarter of 2021 they lost

96 million or about 32 million dollars

per month

that didn't get much better in the first

quarter of 2020 where they lost over 22

million dollars per month combined with

debt expenses of around 60 million

dollars per month and folks you don't

have to keep looking far to understand

why this company is going bankrupt and

the fear is that this bankruptcy and the

job loss that come out of bankruptcies

like this will only lead to a cascading

effect of job losses then foreclosures

in the real estate market followed by a

sapping of consumer purchasing power as

their savings are exhausted a slashing

of prices as inventories drop all while

at the same time the federal reserve

could miss the signals of these

bankruptcies and inventories rising in

job loss which would lead to

disinflation or substantially declining

inflation and instead proceed to hike

rates like paul volcker pushing us not

into a recession but actually pushing us

into a great depression again as the

federal reserve over tightens at the

same time we go into an era of job loss

depression and disinflation and that's

partially because the federal reserve's

monetary policy actions like

quantitative tightening and rate hikes

don't tend to impact the market for 6 to

18 months if in 12 months from now for

example in may of 2023 we have

substantial disinflation bankruptcies

job loss and more foreclosures at the

same time as the federal reserve's

hawkish actions today start impacting

markets and businesses ability to borrow

and spend or hire

we could be going into a depression so

if you're wondering why the market has

been bearish 38 of trading days this

year featuring bearish price action

known as the triple lower low

well it's because there's a lot of

reason to be fearful a triple lower low

by the way is a lower high in the stock

market followed by a lower low followed

by a lower close the next day see lower

lower lower triple low

and folks 2022 has just hit a record for

the highest level of triple lower lows

since 1983.

see the market can also have triple

highs and if you take a ratio of these

we can get a positive or negative number

if you take out if you have a positive

number it means you have more triple

highs in the market than you have triple

lows if you have a negative number you

have substantially more lows triple o's

then you have triple highs this makes

sense and statistically if we draw a

regression line between these you have a

very strong correlation between triple

lows and poor annual performance for the

s p 500 so in english if you feel like

you're right to feel like the

charts say so and we could be going

through an earnings recession right now

without even seeing it yet

all we have right now are substantial

cuts and guidance over and over and over

again take for example goldman sachs

who's cut guidance three times this year

so far

that's

intra

guidance periods usually companies give

guidance at earnings but if they're

continually updating guidance to the

downside in between earnings it means

the market is deteriorating

substantially faster than expected take

for example target who also had to

substantially revise guidance just three

weeks after their q1 earnings call where

they guided one number

and then reduce that number by 60

percent just three weeks later for their

earnings expected in the quarter

or take for example docusign a sas

company with a once once quite brilliant

valuation their stock is now down 58

on the year they just reported earnings

with a billings forecast that was

reduced a lot a lot more than we thought

a stay-at-home company would reduce

their billings for there was this belief

that sure state home companies are going

to pull forward demand

okay that's fine that was built into

expectations that would mean lower

demand in the future because it's been

pulled forward but now we're seeing such

rampant declines in billable forecasts

from the levels where the forecast

previously were many are scratching

their heads as this is it this is

probably the start of an earnings

recession now earnings recessions do not

always have to correspond to an actual

recession in the market but if you're

investing in stocks

both are bad

now even though consumer sentiment

numbers are at the lowest level since

the great recession

consumers are behaving kind of weird

consumers are taking on substantially

more debt

they're saving less money than they ever

have before since the great recession

and at the same time as all of these

uncertainties are unfolding companies

like toast who do payment processing for

restaurants and dave and busters have

both told us in the la in both of their

last earnings calls despite

macroeconomic challenges they're not

seeing any indication of consumers

slowing down their spending

none

so where do we go from here and how

should we invest

well how to invest is obviously very

personal and this can't be financial

advice but some believe that the stock

market crash will not exceed the bottom

that we had in may of 2022. that's about

the 280 to 285 level on the qqq or an

etf that tracks the nasdaq technologies

and that the best time to invest is

actually now during a potential

recession or during the time that we

fear a recession is coming remember the

yield curve the spread between the

10-year and two-year treasury that's

often seen as a leading indicator of a

recession coming

inverted for one day or about 36 hours

on april 1st and so now everybody's

wondering are we fools to be in this

market or are we fools to not be buying

see the favorite quote that often

circulates from warren buffett is be

fearful when people are greedy be greedy

when people are fearful

right now people are fearful warren

buffett and charlie munger are buying

are you buying

and after all when fear strikes it's

understandable to be devastated by the

feeling of years of your hard-earned

money literally evaporating on the daily

in front of your eyes we get concerned

about eight percent inflation

yet somehow we bear through 8.6 losses

on the daily sometimes

in stocks it can just feel like your

back is against the wall it's hard to

fight a falling stock market so fight or

flight kicks in and since you can't

fight

flight takes over and people bail

sometimes at the worst possible time

especially since there's no shortage of

bears who say that things will get worse

before they get better and they might be

right if we get paul volckerd he will

not want to own any stocks or

potentially assets at all you'll want

cash if we don't get paul volcker and

inflation finally trends down

we avoid a great

depression where the federal reserve

tightens as we're heading into a

disinflationary drop loss in bankruptcy

time

if we don't have those

then maybe

consumers might spend less we might have

a minor recession or not

but the fear that we built up today

could end up proving to have been the

opportunity of a lifetime to buy

the bond markets crash will also in the

meantime likely lead real estate

financing to at a minimum correct at

worst case scenario real estate might

just crash

though many outside of the home

ownership realm revel in the idea that

maybe they'll be able to buy cheap real

estate in the future

most important thing if you're one of

the people saying i can't wait for real

estate prices to come down so i could

buy or buy more

most important thing is for you to

prepare yourself adequately get out of

debt increase cash and reduce your debt

to income ratio prepare your tax returns

and your finances and get pre-approved

for a mortgage make sure you're

depreciating more than you're taking

write-offs and make sure you're doing

this in coordination with a cpa and a

mortgage lender see everyone has visions

of buying the dip in real estate but few

prepare themselves

today when somebody comes and says hey i

want to buy a three bedroom two bath

between five to six hundred thousand

dollars there are usually zero to one

properties in that threshold in my

market for example now we expect that

number to rise based on the indicators

we're seeing maybe we'll get to two or

three here in the next couple months but

back in 2011 at the bottom of the real

estate market where everybody's like oh

yeah when real estate dips again i'm

going to be the buyer

few had actually prepared themselves and

if you came and said i want to buy a

three bedroom two bath in this

particular area i could give you a list

of 20 within just one neighborhood

and that's why if you want to learn how

to go from zero to millionaire in real

estate investing check out the sponsor

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when the market is open and i'm in the

office thanks so much for watching good

luck out there and let me know in the

comments down below do you believe we're

going into a depression or is this just

going to be a mild recession