Prepare: The Market will Flip HERE.

yesterday we talked a lot about how

stocks perform after elections but

something that might be more important

this time because after all this time is

a different kind of election we have not

only a war that's creating geopolitical

issues between obviously Russia and

Ukraine we've got this crazy supply

chain disruption continued to be

perpetuated by covet zero policies in

China and you've got inflation that we

haven't seen since the early 1980s a

time during which we really didn't have

well obviously covet zero but a real

globally involved geopolitical issue

like a war between two countries now

don't get me wrong there were conflicts

in the early 80s so you obviously you

had Russia and Afghanistan in 79 you had

uh you know the person the first Persian

Gulf War the beginning of the 80s but

none of these Rose to the disruption

that we're seeing in Russia and Ukraine

now and sort of the global involvement

over the potential for uh well nuclear

uh battle and so we have really a

different environment and potentially

looking at what performance

on average occurs after an election

might not actually be the best tool

remember this it was the chart that we

looked at yesterday and it suggests that

generally in the days between October

31st and the end of the year with any

kind of gridlock we see a positive stock

movement between 1.4 to 2.9 percent and

then in the calendar year after we tend

to see gains of anywhere between 18.7 to

uh upwards to if you had all Democratic

or all Republican control here into the

20s of a percent

that's fine but this is at least 31

different elections here and I'm worried

that this might not be your typical year

so instead I wanted to look at okay

what do stock markets do after we hit

Peak inflation so rather than looking at

the Catalyst being a election

uncertainty let's actually talk about

what the real uncertainty is and that's

inflation

and Peak inflation gives us a very

interesting chart so I'm going to pull

up right after I mention that

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down below okay so let's look at that

inflation chart

these are the returns you can expect

for hitting Peak inflation now what I

really want to do is focus on the years

here because if we look at the years

really the year we probably want to pay

most attention to is right here the Paul

volcker era because this is really the

time of a fiat currency inflation error

inflationary disaster which you really

had when we left the gold standard you

know 2008 I I wouldn't say that 2008

over here was really an inflationary uh

bust cycle neither would I say this of

of many of these different Cycles we did

have a quite substantial inflation over

here in the early 70s so maybe we can

look at this we had some uh Korean War

inflation we had some post-war inflation

those those were shocks that led to

inflation uh somewhat similar to what

you see with uh with pandemics you also

saw this sort of lifting of price uh

caps lead to some inflation so you

actually do have some pretty

inflationary comparisons here with what

I would say really

saying in contrast to what we've seen in

1990 and 2008 but regardless if we look

at this oh how funny I just actually

noticed that they uh in the averages

have a section that's like averages

excluding 2008. uh that's pretty funny

because I as well am scratching my head

about 2008 uh being in here but anyway

so uh we look at Peak inflation

and what do we generally see in the

stock market and what do we generally

see in the treasury market when we hit

Peak inflation well by far in absolutely

every event

treasuries do very well when we hit Peak

inflation now this is very interesting

because look at this this is not saying

treasury yields rise this is ah no

there's actually one negative one

negative okay fine

um this is saying that the actual value

of bonds Rises so how could you take how

could you participate in this well you

could buy bonds right you could buy a

10-year treasure you could buy a

two-year Treasury and you could deal

somewhere around four percent right now

the reason the yield is so high is

because a lot of people are dumping them

and they've been losing a lot of value

but it makes sense that when we hit Peak

inflation the value of these bonds would

actually increase and the value of new

issue bonds would fall you would still

if you had bonds uh you know preserve

the the yield that that you received

when you bought your bond if you held it

to maturity but anyway

in almost all scenarios here

you're green with the exception of one

if you then look at stocks you have a

little bit more red in stocks right

you've got some uh years that are read

especially 2008 leading to a pretty

large move to the downside but I'd say

most of the moves after we hit Peak

inflation are pretty dang positive in

fact if we go for Middle tendency we

could see that the six month s p return

sits at five percent 12 month 11.7

percent and 24 month 15.4 percent once

we hit Peak inflation

now if we jump over to excluding 2008

you could almost double these values to

11.7 17.4 into 20.2 okay maybe not quite

a double a double on the first and the

others are about 50 more but the point

here is that this market May care a lot

more about Peak inflation than it does

about the election being over now it's

entirely possible that we coincide that

potentially we end up seeing uh sort of

peak inflation let's say uh you know it

in theory it could be uh it could have

been uh you know somewhere around uh

September right who knows and that maybe

were were actually kind of in this sort

of flatter curve I suppose if the peak

inflation would be something like this

and maybe we're sitting in this flatter

environment where we're kind of this

like here like we've come off the top a

little bit but we haven't really moved a

lot it's entirely possible that that we

could see the post-election rally align

with inflation coming down I think once

we actually meaningfully see inflation

come down then we'll be in a situation

where stocks can actually support

bottoms because until that happens you

have massive issues uh now uh what's

crazy

is if you look at sort of leading

indicators for inflation of course there

are signs that inflation should come

down right whether that's looking at

leading indicators like rents already

coming down uh or the housing market

softening which leads to lower

residential investment you're already

starting to see uh for a while now

you've seen uh discretionary

discretionaries come down that could be

uh PCS that could be clothing you've

seen shipping and freight costs start

coming down where you really haven't

seen a softening yet oh and Health Care

is expected to to come down as well but

where you haven't really seen a

softening yet on inflation is CPI rents

so you've kind of got this mismatch of

of what the market is doing and what CPI

rents are you still actually have

catching up to do which means more

Rising CPI rounds travel spending is

absolutely through the roof so sure

you've got a used car bubble that's

that's basically burst right and the

value of these is plummeting but you're

seeing CPI rents move up travel uh

rotate to to still the upside and these

are some things that are still

sustaining inflation if you look at uh

Commodities it's it's also somewhat of a

mixed bag you look at something like

lithium and you're Rising like crazy uh

whereas a lot of other Commodities

whether it's iron or what you're seeing

a lot of Commodities rotate to the

downside so we're still at this this

sort of mixed bag which you would

generally expect to have a mixed bag

around an inflection point right because

you need enough things to go negative to

start creating the inflection point so

the more things go negative the more of

an anchor you have on inflation and then

eventually you get a turning point

so it is possible that Peak inflation

lines with uh with with the election and

that maybe we do actually see a nice

Mist to the downside uh in inflation

maybe we don't maybe maybe more pain is

still ahead and unfortunately if if more

pain is still ahead then we might not

actually see a cpip until potentially

February or or March or even later and

that's going to mess up a little bit

that uh but a post-election calculus

says we could just continue to get hiked

into a very brutal and nasty recession

and

that is somewhat concerning so and I

think those are things that you want to

be prepared for you want to be prepared

to look at your portfolio and situation

and say yeah no

this could keep going and inflation is

probably more important than the

election cycle which I think pretty much

everybody is anticipating we're going to

have a split uh Congress or certainly a

divided government where well

divisive government I feel like we have

no matter what but uh that is a separate

party control in one of the chambers of

Congress than the presidency so we'll

see well anyway happy election day check

out Masterworks thanks for watching

we'll see the next one goodbye