Massive Economic Collapse | Prepare for a 45% Decline

oh man another data revision and another

a bad day for economic data and it just

goes from bad to worse I said in January

of 2022 that we will be in a market of

good news is bad news and bad news is

horrible news Well now we've not only

got bad news but we've got some horrible

commentary from people like Kathy Wood

complaining to The Fad in her latest

letter which we'll go through and Jamie

dimon talking about how much further the

S P 500 could actually fall these are

pretty devastating

well items to comment on and we're gonna

comment on them now so we can go through

it all and talk about how we could get

through all of this madness now keep in

mind this is information that we're

going to want to track for not just the

next 24 hours but the next weeks and

months because some of these data points

are kind of scary let me give you an

example Barons just reconciled some

information about this big change that

we just had in consumer spending not

because consumers have actually spent at

a different level but because the

original data that was collected was

just wrong we believed originally that I

just want to say we the United States

originally told us and reported to us

that consumers had about 2.4 billion

dollars of excess savings and a lot of

people were kind of scratching their

heads at that and saying wait if

consumers have so much excess savings

especially as compared to before the

pandemic why all of a sudden are we

seeing this explosion in consumer credit

see this is a chart that I tweeted just

a few days ago and I talk about how

total Consumer Debt on credit cards is

exploding not only faster than

expectations but at the fastest Pace in

the last 42 years now obviously today's

increases in credit are always going to

be larger than what we've seen in the

past because well the dollar is worth

less so we've printed so many more

dollars so on a nominal basis this does

make sense but even in the relative

period of the last 10 years we're at

explosive levels of consumer borrowing

happening and so this is naturally

leading a lot of us to say okay so if

consumer credit is exploding but then we

have a lot of x says consumer saving

like What's Happening Here is one of

those wrong and also most importantly

what's happening to delinquency rates

well Barons just gave us some insight

into this they told us that yeah the

data was wrong the data that we're at

about 2.4 trillion dollars in excess

savings is actually 2.1 trillion yeah

the United States screwed that one up

they revised it down now to 2.1 trillion

dollars in excess savings and uh oh yeah

side note one third of that has already

been spent about 31 that is has already

been spent so that means we really only

have about 1.4 trillion dollars in

enough in in sort of remaining savings

maybe and a lot of those savings might

actually be concentrated in the upper

quintiles of individuals with income now

that sounds fancy but just remember the

upper quintile would be the top 20 of

people's incomes right and if you take

the top two 20 groups so the top 40

percent of people you're going to see

that they represent the top 60 of

consumption whereas the bottom twenty

percent only make up nine percent of

expenditures so that's really important

because it basically tells us that the

poor individuals are probably not only

the ones getting screwed more but

they're the ones that probably have less

savings and they're the ones who have to

go to credit cards and they're the ones

not only getting screwed by higher

energy costs less able to pay their

utility bills uh but they're also

getting screwed by higher food costs

right and so now what we're expecting is

the this potential drawdown of savings

in the higher income thresholds to

potentially turn into more borrowing at

the higher income thresholds as well and

eventually more depression of earnings

for stocks in the future but we're going

to go through this really weird path and

it's actually quite a dangerous path

let's draw this path out to understand

it a little bit better so the path that

Barons is worried about that we might go

on is one where all of a sudden we still

see companies actually doing well like

with earnings wise you still see

earnings growth because you have the top

consumers still spending money they're

still going on cruises they're still

buying fancy clothing they're still

traveling whatever they're still

spending money like crazy and so while

they continue to spend money like crazy

and since the Richer people are

responsible for most of the consumption

what they're actually doing is yelling

to the FED yo fed hike more and so the

FED is hiking rates more because

wealthier people are continuing to spend

money willy-nilly and so then what

happens when even those wealthier people

start slowing down well now potentially

the fed is in a position where they've

over hiked but in the meantime while

everybody's like fed you're going too

fast you're going too fast wealthy

people still have money to go through

now that is in contrast to the people

who are already getting screwed and this

is why we're actually already starting

to see delinquency rates go up and this

is like literally what you don't want to

see happening right now is delinquencies

going up yeah you are starting to see

delinquencies go up not only are you

starting to see them go up across the

board on all credit cards they're still

at relatively low levels but they are

trending up but you're also seeing

allowances for credit losses

skyrocketing you've seen almost a

quadruple of the provision for credit

losses at a firm's set aside and we're

starting to see the delinquency rates

for major credit cards and financial

institutions like American Express

JPMorgan Chase and others start ticking

up especially in the auto section where

you're seeing subprime auto loan

delinquencies rocketing even higher so

this is a bad combo right because on one

hand you have the FED hike taking to

reduce spending yet the rich people

still have money that they're spending

so they encourage the FED to keep hiking

yet on the other hand you've poor people

borrowing more money but then getting

screwed by the feds hiking because the

fed's hiking isn't making energy costs

cheaper or food costs cheaper that's

just making the cost of surviving on

credit cards or whatever which is

terrible if you're stuck in that

situation but it just makes that more

expensive and so now you're getting

triple whammy that's like your food's

more expensive your energy is more

expensive and to try to make those

things less expensive the fed's raising

rates so they're raising rates on your

credit cards but that's actually not

bringing down the cost of oil and food

because they have no control over that

so in other words you're like triple

screwed it's a terrible situation to be

in and it's because of this sort of

disaster that we're seeing people like

Kathy would freak out let's take a look

at the letter that Kathy Wood posted on

on the arc invest website it's sort of

an open letter to the FED it's a quick

easy three pages long and Kathy Wood

tells us

that the FED they believe is making a

massive policy error that will cause

deflation and she argues that employment

and headline inflation are lagging

indicators of inflation and that instead

we should be looking at leading

indicators of inflation like commodity

prices but not considering oil and food

because first of all the FED can't

control oil and food and they're mostly

the result of the drama that Mr Putin

has caused and so when we actually look

at some Commodities here I purposely

didn't highlight gold and silver as I

consider those to be more precious

metals but if we actually look at

Industrial Metals or Industrial Products

we get things like iron ore up seven

percent per for the year year over year

uh I'm sorry uh yeah year over year up

seven percent but off peak by 45

Lumber down 34 year over year off peak

by 74 memory through the measure of dram

down 34 percent year of every year 65 on

shipping year over year and copper down

20 percent year over year with some

larger levels here again off of peak

that means we hit Peak sometime within

the last 12 months right anyway uh and

then again with the exception of oil and

corn over here this sort of food issue

uh showing still some gains but anyway

this is some of the evidence that she

gives to say look like we're already

starting to see prices come down even

Elon Musk has taken to Twitter to say

yeah we you know if the FED keeps with

these Mega raid hikes we're going to see

deflation here and so then Kathy starts

talking about how inventory accumulation

is overwhelming manufacturers and

retailers and she cites Walmart and

Target as having a 25 to 36 boost in

inventory but also companies like Nike

with a 44 boost to inventory now in

inventories now one of the things that's

crazy about the Nike earnings report is

when I went through the Nike earnings

report with course members which if you

ever want to join use the link down

below the coupon code is officially

expiring this Friday we had to extend it

with an issue we were having with

Shopify but now we're finally ready to

go so make sure you get in but anyway in

that course member live stream where we

talked about Nike which we try to talk

about a different company every day and

sometimes we'll revisit some of the

older companies we previously talked

about in the last Nike earnings call we

we noticed that Nike was spending a lot

of time talking about oh snap we have to

massively discount products a lot more

than we previously thought we had to

because we're just not seeing the demand

it's almost like the demand came right

as or the demand went away right as our

big shipments came in and now Nike is

having to Discount inventory before they

get into the winter season because

they've got a bunch of summer clothes

going into the winter season and so

they've got this sort of disaster of

being forced to reduce prices just to

get inventory off the shelf Lululemon on

the other hand is not having this issue

but that's potentially because they're

still a relatively newer brand they have

a little bit of like that Tesla pricing

power syndrome going on speaking of

vehicles by the way Kathy Wood goes on

to mention that the man he used vehicle

index has peaked and it's now so far

dropped 13.5 percent year-to-date and

we're starting to see a pile up of

vehicles at uh at inventory or at um

dealerships and soon we're likely to see

negative inflation at dealerships uh

that's called deflation right and so she

makes this argument look that the FED is

making a large mistake looking at these

lagging indicators and the reality is

we're already even starting to see jobs

weaken look at the joltz measure that

just came out last week that's the job

openings and labor turnover rate that

fell 10 or 1.1 million in just the last

report that means we had 1.1 fewer

million job openings than we did a month

prior and it was a big surprise to the

downside even economists weren't

expecting that big of a of a drop

although economists really haven't been

that perfect at all uh with with their

predictions but she's he's right that

was from earlier we're starting to see

that and so this is where she says look

like seriously y'all unanimously voted

for a 75 BP hike and we're seeing all of

these indicators these leading

indicators pointing to deflation not

inflation what the he double hockey

sticks is wrong with you and this is

where we get Jamie Diamond on CNBC this

morning talking about this potential for

more severe pain coming to markets and

we really have this unknown effect of

quantitative tightening we've never seen

quantitative tightening to the scale of

which we're about to see in fact if you

go back to the last quantitative psych

tightening cycle we had to pause it

because markets freaked out at the end

of 2018 and the FED had the U-turn super

embarrassingly and so now you've got

Jamie dimon saying look this is very

very serious Europe is already in a

recession and that likely puts us in a

recession in six to nine months

personally I think we're already in a

recession two quarters of negative GDP

is what I use to determine whether or

not we're in a recession some people use

a different definition but then you just

get political point is things already

suck and if we're going to be in a

recession in six to nine months I guess

that means we're just gonna have four or

five or six quarters of recession which

at some point that just turns into

depression which Jamie dimon some would

suggests could be possible he says look

some things are different today we have

a strong consumer and strong businesses

going into this recession and we have a

range of outcomes that can happen you

could have a soft Landing a mild Landing

so to speak or you could have a hard

Landing but volatility is your guarantee

but Jamie Diamond gave a really scary

warning he said that look right now

markets are at least still orderly but

it's possible that in the next few

months we could actually end up with a

disorderly market and that is going to

be far more serious in fact the S P 500

could drop as much as another 20 because

the reality is the Fed waited too long

they're playing catch up and we're at

War at the same time were hiking rates

like crazy and we're going into a

quantitative tightening cycle this is a

period of time you want to have a lot of

cash that is what we're doing with house

hack in fact if you're an accredited

investor make sure you go to

househack.com and consider investing

with us at househack.com we are going to

be buying a lot of real estate when we

believe the real estate market has hit

bottom right now we are waiting we are

growing the company and preparing to

allocate resources to real estate when

we think bottom comes make sure you get

in before the deadline at the end of the

month because then the amount of

warrants that you get for free with your

purchase goes down but this video isn't

a solicitation make sure to read the

solicitation by going to househack.com

read that PPM in full and if you bring a

letter from househack.investready.com

you could easily prove that you're an

accredited investor and if you're not

accredited yet don't worry yet we're

working on a non-accredited around

probably that'll be available by January

so stay tuned for that but anyway the S

P 500 Mr Jamie Diamond the CEO of James

Morgan Chase says could easily go down

another 20 percent and he says that this

next 20 percent could be more painful

than the first that is the first 25

decline we've already seen and this is

really interesting because we haven't

actually seen complete capitulation in

the markets yet capitulation is usually

when you see such severe pain that every

stock is down over its 200-day moving

averages or you're closer to maybe uh

you know just three percent of companies

trading above their 20 a 200-day moving

averages right now we're still somewhere

between 10 to 20 percent of companies

trading above their 200-day moving

averages we still haven't seen a really

broad-based pain and a sharp V shape to

the downside yet in terms of retail

being net sellers institutions being net

sellers everything being year over year

read more they're still paying to be had

and unfortunately the pain is probably

going to get worse as the FED continues

to hike so why would you be be a madman

and consider buying in this sort of

environment well there are very few

things that say when you're near the

bottom of the market that this is

definitely the bottom and you should

definitely go in there are so many

speculative ideas out there about what

the bottom looks like but the reality is

we just never know what we do know

though is if we can look back at history

over the last 100 years and we could

decide where would we invest if we were

looking at a chart and we're like hey

take these little pin needles and pick

where you'd want to invest in that chart

over the last hundred years

you would almost certainly put pins on

every single recession that's ever

happened that's it you would never

invest outside of a recession and in my

opinion even though we can't call a

bottom and even though I'm becoming a

licensed financial advisor and I can't

give you Financial advice but even

though I've got a lot of experience and

knowledge and markets I'm looking at

this saying look we can't call a bottom

but this in my opinion is a glorious

time to be looking for companies that

you think are going to outperform others

in earnings and there are quite a few of

them whether it's American Express or

it's Tesla or as long as the housing

market doesn't turn down end phase but

personally I think the housing market is

going to have a substantial downturn

probably 15 to 25 percent that's why

we're creating house hack to go take

advantage of those deals because we

expect to buy close to the bottom and

then we're going to build a beautiful uh

real estate company that rents

properties out long term and short-term

airbnbs vrbos long-term rentals you name

it we'll have our own in-house prop

management and we'll be buying wedge

deals below market value so we're very

excited about househire

but anyway if if the housing market does

fall I think end phase is going to get

hit because remember real estate owners

see expenditures on their property as an

investment when the market is rising but

when the market is falling real estate

owners see expenses on their properties

as an expense not an investment that's

according to Home Depot which has a

massive audience of home buyers

purchasing products at their stores to

do Home Improvements so they have really

good insight into that but the point

here is to say look

yes there is the potential for more pain

like Jamie dimon said this summer we are

potentially facing a hurricane maybe

we're in the eye of the storm right now

the eye of the storm ironically is like

when you're in the inside of the like

the hardest part of a hurricane is the

wall of the eye and usually the top left

quadrant of the hurricane uh but then if

you're actually in the eye of the

hurricane it's like really calm and then

you have to go through like the second

half of hell and then it and then then

you have to calm after the storm the

Calm before the storm then you have the

calm in the middle of the storm during

the eye and then the calm after the

storm it's kind of weird but anyway I

grew up in South Florida so I'd been

through many hurricanes but anyway uh

look I think the things as as an

everyday investor here to look at are

and I've said this many a time before

I think timing the market in this sort

of environment is extremely difficult

because you could go very short on on

Tech and chips and you could go long on

oil just as all of a sudden we hit

bottom and oil Falls uh and and Tech

boobs and the FED pivots right

and then you get screwed but you could

also be right you know maybe there's

another 20 to go for Tech who knows we

just made new lows today in the NASDAQ

it's a really scary time but I think the

way to really look at this environment

is

hunker down and look at your expenses

and say what can you cut if you're a

business owner What expenses what

subscriptions can you stop spending

money on what employees aren't as

productive as you thought they might be

what did you get too bloated like Credit

Suisse did you get too bloated like a

lot of companies like Amazon thinking

business was going to keep booming like

it was in 2021 through 2022 and is it

time to maybe do some cutting is it time

to maybe take on a second job or to get

a license to increase your potential

sources of income in your revenue

streams what can you do to increase your

income so that way your exposure

to the risks of a recession go down and

your opportunity to buy the dip goes up

that's why we're raising money for house

hacks so we're prepared to buy more of

the dip but also on a personal level I

like the idea of taking extra cash I

have and allocating it to the market

when we're at pretty painful and

uncertain times does that mean it's

going to do well over the next three

months I don't know do I think it'll do

well over the next 10 years almost

certainly of course still can't

guarantee it you still got to pick

companies that ain't gonna go bankrupt

anyway it's a tough time but as Warren

Buffett always says

be fearful when people are greedy like

in September of 2021 when I was saying

get out of margin this could fall fast

and be greedy when people are fearful

which people are pretty fearful right

now but yeah statistically they could

get even more fearful especially if

Jamie Diamond's right and we've got

another 20 easy to go which will be more

painful than the first 25 percent

yikes thanks so much for watching folks

we'll see in the next one bye