Watch Before Jan 12: The Fed’s GREAT RESET.

this video is a deep dive on inflation

and it's extremely important in my

opinion to watch the full video because

it could affect your entire investing

Journey for the rest of the year I'll

also give some thoughts towards the end

of the video in terms of potentially

where to invest

now I do want to also start by saying

yesterday I am grateful to say we had

our very first flight looking for Real

Estate areas to invest in for our

startup and if you want to join me on

those flights and you want to Shadow me

We are booking openings for February and

March where you can join me just use the

link down below and you can actually

join me on my jet as we explore real

estate together you can Shadow me maybe

we'll even do a barbecue at the studio

afterwards check that out link down

below okay let's get started so the

first thing that we have to look at is

the fact that the Wall Street Journal

just put out a phenomenal piece and this

is just one of the many things that

we're going to look at here but the Wall

Street Journal just put out a phenomenal

piece titled what if inflation suddenly

dropped and no one noticed and this was

a really Incredible One listen to this

over the past five months which that's

actually pretty important because Jerome

Powell regularly talks about looking at

inflation in three to five months a

month brackets they do that kind of like

technical analysts use moving averages

to smooth out those day-to-day or sort

of month-to-month fluctuations right so

they look at three to five month

averages over the past five months June

to November and and also keep this in

mind June to November we just actually

had a nice uh slow report for November

and we had a slower report for October

if we can keep that trend for December

with CPI coming up here on the 12th

could be good but look at this over the

past five months June to November

inflation slowed to a crawl weather

measured by CPI or pce the annualized

inflation rate has been around 2.5

percent over these five months that's

actually really incredible because

remember the Federal Reserve has a

policy known as fate flexible average

inflation targeting and if they can get

inflation to average two and a half

percent and the last decade you know

taking out the extreme that we've just

had or considering it as part of the

average right it all Smooths out that

way you look at okay we had a big spike

you get to maybe two and a half percent

after that but before that we're sitting

at one and a half to one point eight

percent we could average inflation out

to two percent and the FED could argue

we're already there now and we're not

trying to get to Opium here because

there's actually still a red flag here

so there is still some work to do but

this data is actually really incredible

because it shows that over the last five

months the annualized rate of inflation

has only been sitting at two and a half

percent that's remarkably low now

unfortunately the problem with this is

if we jump on over here we'll see core

inflation this is when you take out

energy still running a little bit on the

hot side and this is a problem because

if you just look at the core you see

that over the last five months we've

been sitting at 4.7 percent annualized

for CPI and 3.74 pce now what that means

is oil and energy prices have been

coming down a little bit faster than

core prices are coming down now some say

that's actually exactly what you would

expect because even though CPI you know

the Consumer Price Index says that okay

here's how much oil went up or down with

Energy prices right that's our headline

inflation number oh here's core where we

take out Energy prices the reality is

Services Transportation input costs to

product all of these things are often

based on how much it costs to actually

travel and uh you know ship stuff around

which includes oil prices so even though

we have a core measure of inflation how

do you really strip oil and energy costs

out of core well you don't you kind of

just say you do on Headline and then

what happens is three to six months

later you get lower oil prices actually

showing up in core so this Wall Street

Journal article here suggests that we

might already be on the trajectory

towards a flexible average inflation

Target of two percent in fact we could

already be there now we just need core

prices to follow that's pretty

incredible now the Federal Reserve also

already sees three forms of inflation

contributors mostly falling with the

exception of one we know that demand for

goods is falling we know that household

inflation is falling when we look at

recent rents we see household inflation

coming down substantially quickly which

is great we expect that to show up as a

big anchor in data over the next six

months and the fed's already kind of

pre-building that in but the FED is

still stuck on this idea that wages are

rising and that wages or wage earners

have a lot of pricing power to demand

more wages and they're fearful that we

might have a wage price spiral which is

basically where inflation goes up and

people keep demanding more and more

wages and then when they demand more

wages companies have to raise their

prices and you get this stair stepping

up of inflation and then you get Paul

volcker who comes out in the early 80s

and says we can't have this we must

crush the economy well the Wall Street

Journal had another phenomenal piece

literally about the wage price spiral

take a look at this

heard on the street the fed's fear of a

wage price spiral might soon Abate

that's the last piece of the puzzle it's

literally the last piece of the puzzle

that we're waiting for the FED to

flip-flop on look at this section that

I've got right here with the X's

the causation of inflation is less from

wages than the vice versa as inflation

heated up workers asked for higher wages

so they could keep up that's normal

right that's the start of a wage price

spiral as inflation goes up people ask

for more money right now inflation has

begun to cool so wages are cooling as

well

that would be a different situation than

what we had in the 70s where workers

were demanding higher wages because they

thought that future inflation was going

to remain high okay this right here that

is a very key word see that word thought

there this has to do with something

known as inflation expectations and I'm

going to show you something about

expectations in just a moment but this

time around readings on people's

long-term expectations okay A little

insight here while higher than before

the pandemic are still relatively low

this means people are expecting

inflation to come down which as

inflation comes down means people are

less likely to ask for higher wages in

aggregate right this means in total hey

inflation pressure is coming down

natural gas prices coming down

electricity prices coming down uh you

know fueling your car prices coming down

travel prices coming down whatever as

things finally start relaxing like egg

prices milk prices chicken prices right

we start seeing these prices come down

pressure on us to survive slowly Goes

Down And if our expectation is that

inflation is in the longer term

quote-unquote transitory then maybe we

don't have to push so hard for fear of

if we ask for a higher wage what if we

had fired then we get thrown out into

the market where ah crap maybe we don't

even get as good of a job anymore

because all of a sudden the good jobs

have already been taken by previous

people who've gotten laid off from you

know Google Facebook Amazon whatever

although Google not quite yet laying off

but the other big text anyway so what do

we have here this is a suggestion that

or or actually here the Wall Street

Journal goes on to say another factor is

that the share of workers represented by

unions is far smaller creating lower

bargaining power kind of interesting

especially since you see a lot of drama

about Starbucks and Amazon and apple

seeing big unionizing fights but this is

quite interesting because if the wage

price spiral is abating and because

inflation is coming down and the labor

market is starting to soften then the

third and final piece of the federal

reserve's fears about inflation

skyrocketing away

falls apart which actually could explain

why we're starting to see expectations

for a 25 basis point hike February 1st

from the FED go down now you might think

okay well Kevin if the expectations for

a 25 basis point hike are going down

then that must be replaced by a 50 basis

point hike right wrong last week 98 of

the market expected the FED to come out

with a a 25 basis point hike so almost

all of the market thought based on the

bond market right Futures curves we

thought we were going to get a 25 basis

point hike from the Fab Fab one now it's

83 25 so 83 of the market thinks we're

going to get a 25 basis point hike I'll

clarify that

Seventeen percent of the market thinks

we're going to get a hike of zero in

other words fed pause that is a big

U-turn in the data already 50's not even

being considered by the market anymore

and if the FED goes 50 they basically be

rug pulling the market which would be

remarkable

because we have massive issues with the

jobs Market data that the Bureau of

Labor Statistics is releasing in fact

you should watch my video on this

yesterday but I'll give you a quick

summary

average hourly work week declined or the

average hours worked in the work week

declined that actually puts pressure up

on average earnings explain this all in

the other video bottom line if you have

less hours worked and people are on

salary it means people earn more money

and it kind of pushes up what looks to

be like wage inflation but the wage

inflation numbers actually came in way

lower than expected and we had a

revision down in the last report which

means wage pressures are already falling

we also had a higher labor force

participation rate which is why we saw

that unemployment rate fall and implies

that more people are going to work

because they have to go to work which

means more people in the labor market

more supply of workers less pressure on

wages we also have more people taking

multi-jobs less full-time workers and

higher part-time workers this also

implies that we're getting a higher

supply of people filling jobs maybe

because they have to because wages have

gone up so much you know Joe Biden was

bragging about how great the

unemployment report was and pretty much

everyone on the internet was replying

going uh the unemployment report only

looks good because more of us are taking

more jobs because we have to thanks to

all the inflation we've been facing over

the last year and they're right

in fact full-time workers have fallen

and not only do we have less full-time

workers but we have way more

multi-jobbers and way more part-time

workers which suggests that all of a

sudden if people are taking more

multi-jobs we're actually seeing losses

in full-time jobs reducing wage pressure

again people taking multi-part-time jobs

yeah increasing the headline numbers

making it seem like there are more

people on payroll but it's the same

people just working more jobs to try to

get by that reduces wage pressures

now Nick T even he's like the fed's

mouthpiece he even came out on Twitter

and suggested that the last Labor report

marginally reduces pressure on wage

prices so he's kind of playing this a

little soft again fed mouthpiece

but when we actually look at the data

we're like

I don't know man things are starting to

look really soft in wages in fact the

Philadelphia fed themselves sees the

Bureau of Labor Statistics overstating

jobs created in the second quarter of

2022 by 1 million that means instead of

seeing somewhere around a million 10 000

jobs created in the second quarter of

2022 we only had about 10 000 jobs

created now what's remarkable is that

stat I just gave you you might be

thinking yourself Kevin why are you

talking about Q2 2022 because that's how

long it took the Philadelphia fed to

realize it it took six months for the

FED to realize they screwed up

now markets seem to agree that inflation

is mostly behind us that's why we're

seeing the expectations of a Fed pause

finally show up in the data this is a

huge freaking Turning Point

on top of that let's take a look at

break evens and compare the breakevens

to probably one of the most important

things when it comes to Burgh even so

we're gonna look at that all right so

first let's look at break evens that is

this chart right here so I'm going to

hide myself in just a moment but I want

you to pay attention to this is a

one-year chart

and look at where we are relative to the

one year chart of inflation Breakeven

expectations these are Market

expectations

third bottom right here we're at the

third Bottom now I believe we need to

see these inflation break evens fall

one of the interesting things that can

lead inflation expectations to fall is

actually oil prices coming down this

folks is a chart of oil prices in 2022.

this is uh just briefly after uh the War

Began you know you had a spike a war

Spike over here you had a summer Spike

over here and you've had a quite a bit

of rising going into the third quarter

over here but where we sit right now

on oil is actually starting to Trend

towards lower regions that we almost saw

before the war which is quite exciting

like we want to see these oil prices

come down without a doubt now what's

remarkable here is if we overlay

inflation expectations which is this

blue line right here with oil prices

look at the pattern you see going back

to 2018 covet pandemic over here

inflation expectations coming down in

2019

corresponded with a decline in oil

prices

oil prices rising over the last couple

years corresponded with a rise in

inflation expectations now we have even

though it's pretty volatile a trend down

in oil prices what do you have a trend

down in inflation break-evens and what

we really want to pay attention to is

this dotted line right here see that

dotted line I believe that when we break

this dotted line and the blue line here

goes below the 2018 levels and we start

seeing inflation break evens break to

this side over here this will be where

the FED starts to not just U-turn with

pausing but they actually start reducing

interest rates they start cutting the

reason for that is rates over here were

two and a half percent right now we sit

at 4.25 percent and remember whichever

one comes first isn't exactly clear but

what we do think is if oil prices can

fall and let's say they fall to here we

would expect break evens to go down as

well and remember what we talked about

in this video

inflation expectations aligning with oil

prices going down makes a lot of sense

because what we talked about earlier was

that even though you could say core

prices are running hot and headline

numbers are coming in at just two and a

half percent over the last five months

on an annualized basis well what happens

when those lower oil prices start

showing up in core prices

and oil prices keep falling we end up

going into this disinflationary spiral

now obviously there's a huge risk factor

here a risk factor is what if oil prices

rise so I would make the argument that

the most important thing to do is pay

attention to oil prices for example if

China opens back up what happens oh is

that going to create a huge demand on

oil

or not how quick is that reopening going

to be China is relaxing for example

their real estate lending policies but

how quick are people and Banks who have

now been once bitten and are potentially

Twice Shy how quickly are they actually

going to be to get back into speculative

real estate lending maybe not as quickly

as people think which means we could see

a lid on the Chinese economy for longer

especially if you have a second covid

wave or multiple coveted waves that

really kind of keep a lid on rather than

seeing some kind of v-shaped recovery in

China's economy you end up seeing more

of a slow recovery which is kind of what

we're expecting in our markets right

now what I think is really incredible as

well is that the bond market is actually

giving you a prediction for oil prices

now you might think that's crazy like

wait a minute wait you're gonna tell me

the bond market is going to try to make

a prediction on oil prices

yeah actually exactly what the bond

market is doing in fact if you look at

the three month 10 year yield curve what

is deemed to be the most accurate for

predicting a recession

look at where we sit now

right here at the lowest level we have

sat at ever on this chart going back to

1994 the chart goes back to 1994. we are

sitting at a more inverted yield curve

than we did at the bottom of the.com

bubble the bottom of uh proceeding into

the uh the 2008 recession and this

doesn't bode well for oil prices now

don't get me wrong oil prices did have a

spike in 2008. they did have a spike

right before the collapse of Lehman

Brothers

and there's a suggestion that it's

actually not the inversion of the yield

curve that's the most damning for

company earnings and the stock market

it's actually the steepening and so the

deeper it goes the inversion the more

painful the steepening could be now this

is where we have to be careful because

if you notice on that chart the bottom

of that 310 inversion actually came

before the bottom of each stock market

bottom in fact let me chart for you the

stock market bottoms the stock market

bottom in 2003 occurred somewhere right

here which is about February March of

2003 and guess what that's when the

Federal Reserve you turned baby when did

the bottom happen in the stock market

for the Great Recession well that

happened in about February of 2009.

notice how the U-turn actually happens

when the yield curve is significantly

steep again because the economy has been

hit so hard

and so then you might be wondering crap

Where is Safety in this market because

if we have that steepening ahead of us

even if inflation comes down

substantially the pain might still be

ahead of us and this is true so we do

expect that inflation is plummeting

we've seen many indicators of that here

I'll even add another one just to try to

make it more clear this is the U.S the

United States Institute for Supply Chain

management

manufacturing prices paid index overlaid

with CPI

in English hey yo manufacturers are you

guys paying more money or less money

this month compared to last month and

the more you have them saying we're

paying less money for Stuff the more the

green line plummets which is the one

that has already plummeted on the right

side

and this one tends to lead CPI numbers

plummeting by about six months that's

the Blue Line the top one that's barely

inflecting so in other words we expect

to see a big plummet in inflation

happening

and summing up the video going now into

what to potentially do investment wise I

think we've made a very clear argument

here we know Goods prices are falling we

can see that reiterated by manufacturing

prices paid we know that household

inflation is plummeting we know that the

jobs report is totally wrong and we're

seeing the wage price fire will get

removed from the market so there's

really no leftover argument to say that

inflation is going to continue running

hot unless of course this CPI report

coming up on the 12th which I'll talk

projections in just a moment comes in

crazy hot we should actually see it come

in pretty dang soft based on the three

aspects of inflation plummeting that's

great in fact the expectations reiterate

that December projections for inflation

are a zero percent growth month over

month that's down from point one percent

last month core inflation

up actually slightly to point three

percent that's a change from point two

percent in the prior we'll see

personally I hope we kind of Miss on

core so we could just Crush that core

argument as well we start seeing core

come down that's the expectation I don't

make the expectation Wall Street does

headline inflation expected to be down

from 7.1 percent last month too

6.5 percent and when I checked this last

week it was 6.7 so that means the

expectation is already getting revised

down down down down 6.5 for headline

it's still very very high but shows you

it's starting to plummet core year over

year expect to be 5.7 down from 6.6 in

the last

so

with all of that said how do you protect

yourself going forward when that yield

curve starts steepening again

well in my opinion and this is my

opinion okay I am a licensed financial

advisor I run an ETF I have courses on

building your wealth I you know do real

estate uh I have a real estate startup

where you could join me and you could

chat on me with a a flight on my jet

link down below I do a lot of different

things and I say this as a disclaimer

because while I do a lot of different

things

I can't give you personalized Financial

advice in this video I can't do that

because I have no idea what your

situation is right so this is generic

advice but it's advice that I believe if

it works for me personally and it's my

opinion

I believe that the benchmarks in 2023 to

2024 are going to get reamed the most

the benchmarks are your classic Vanguard

index funds the ones with a heavy

allocation to Staples defensives Health

cares basically the things that have

boomed in 2022

look at McDonald's stock down like one

percent year over year and what's

McDonald's starting to do well they're

starting to realize crap we're gonna

have to start cutting a lot because not

only do we want to automate more but

we're starting to see pressures on our

ability to maintain margins as we go

into a recessionary environment and it's

time to start cutting staff and

automating more which shows again

downward pressure on wage price uh you

know with the wage price spiral which we

reiterated earlier but it also shows

that the companies that did the the best

in my opinion over the last 12 months

are potentially setting up for pain in

that steepening of the yield curve

my opinion the companies that survive

that steepening of the yield curve are

the ones who don't go through the

earnings EPS recession and those aren't

the McDonald's of the world or the

Walmarts or or your Staples that have

done pretty well in my opinion those are

the growth stocks who can prove that

they can actually still grow earnings

per share and free cash flow in some of

the most challenging macro environment

times in the last quite frankly over

decade probably the last 14 years since

the Great Recession

in my opinion those are companies that

have pricing power which I know this

sounds crazy but I think those are

companies that can lower prices to

continue to be competitive

while actually maintaining thick margins

increasing free cash flow increasing

their bankruptcy buffers because they

can make it through this and they're

companies that end up taking market

share during the recessions because the

ones with low margins or low free cash

flows end up having to reduce production

of uh of of money losing products let me

give you an example here in my opinion

when you take a company like byd which

is a Chinese auto manufacturer that has

a net profit margin of 1.45 percent what

do you think happens when prices get

forced down in a recession by five

percent well they potentially go

negative and if you go negative it's a

sign that you literally have zero

pricing power you have negative pricing

power you have unpricing power right now

every company even good companies with

pricing power are going to have to

adjust prices down down in a recession

that's normal you raise prices in Good

Times you lower prices and bad times but

the ones with actual pricing power are

companies in my opinion that maintain

High net margins like I know it sounds

redundant but I say it all the time

Tesla brings about 14 not including

energy credits in net to the bottom line

so even if Tesla has to drop prices

across the board and maybe their net

margin goes down to 10 percent or nine

percent 8A negative that means companies

with negative margins have to slow their

ability to aggressively expand and take

market share who ends up taking a market

share the company that still has net

margins and so if you could find

companies that have that kind of pricing

power that have fallen out of favor in

the last year because you have a

rotation into defensives that are

detached from fundamentals you just have

institutions going inflation is high

okay what do we do well the textbooks

have as we go into defensives and we go

into Staples oh crap but what if when we

actually go into that EPS recession

these companies start losing free cash

flow and yes inflation might go away but

you start getting screwed what happens

well all of a sudden you'll slowly start

seeing a rotation back that the

companies that are actually still

growing throughout the recession because

those are going to be the safest plays

because they have the greatest free cash

flow and in my opinion if you could find

ETFs that are focused on investing in

High free cash flow companies not

profitless companies you want to be

careful about Innovative companies that

are losing money because Innovative

companies can be very Innovative but if

they're losing money during a recession

big risk if you have an Innovative

company that's actually increasing the

amount of cash flow they have during a

recession and eating market share in my

opinion that's where you're planting

seeds for the real future

now when it comes to real estate I urge

a lot of caution I read about real

estate every single day whether it's

online or in the paper or whatever I

study real estate I study the MLS I Fly

For Real Estate I meet people on the

ground let's just give it to you this

way someone who's also a real estate

broker although I don't represent

clients I know how to talk to real

estate agents okay okay

the inside scoop is stuff still getting

a lot worse before it's getting better

okay that should be obvious it's not

like it's a real Insider secret here

point in my opinion is

these inflationary numbers coming down

are going to be really good for

companies that have fallen for reasons

that are not fundamental but have fallen

for Trend changes towards defensives and

Staples

and when that inflation proves to coming

down and the FED pauses and eventually

u-turns

the companies with the biggest market

share growth stand in my opinion the

biggest and most massive gains over the

next decade

and I'd like to have a lot of my money

positioned into an ETF that has exposure

to those for one simple reason

when those stocks run I don't want to

pay capital gains to rebalance my

portfolio appropriately and ETFs allow

you to potentially avoid capital gains

that's because if you hold the ETF the

ETF manager can rebalance within it by

trading stocks and not actually passing

capital gains to the invest the

individual investor that's insane

so that's my belief and I really see

inflation plummeting but we have a CPI

report coming out on the 12th and we

gotta see that what I just said is

getting reiterated by the month over

month reports I hope so because

everything's pointing that way but

always remember hope is not an investing

strategy so you have to be cautious and

in my opinion that means

stay out of margin debt and survive make

more money survive but then invest where

you think it's best for the next five to

ten years thanks so much thanks so much

for watching check out those uh Shadow

day options link down below and we'll

see in the next one good luck