There's 16 massive, different Trends happening when it comes to investing and you want to pay attention to all of these now. Beautiful thing here is Deutsche Bank Put together a phenomenal piece on this and they really give you a guide to how you should be thinking about the market in their opinion. When's the FED going to cut raids? What about inflation? What about investing in a green tack? What about the debt cycle? China Private Equity Natural Resources volatility or active investment? What's what's the difference between active investment and passive investment In terms of 2023? What are they seeing? What kind of uh subsidy? Wars are we looking at and how to potentially benefit from them? Deutsche Bank Put together a phenomenal piece on this uh and I thought hey, well, let's dive into it together. so let's do just that.

This is the piece from the Deutsche Bank research at Dbr and uh, here we go. 16 themes driving the markets. First up, we have adjusting to higher inflation, so I've made some notes so we'll just go through some of the highlights here: Deutsche Bank Believes that we should be pricing in about 200 basis points of rate cuts by mid-2024 so that would be reducing rates from say five and a half percent back to about three and a half percent by mid-2024 as a recession ends up hitting in mid 23. So Deutsche Bank has a belief that the recession is probably going to hit us somewhere Q2 Q3 in 2023..

estimates for the recession do continue to get delayed, though a lot of folks are calling for no, it'll be early 2024, No, it'll be mid 2024. Deutsche Bank Believes middle of 2023. Either way, almost all researchers suggest it should be a relatively mild recession, and it seems to be the most predicted recession that's ever happened. I Think it'll be terribly ironic if you never actually end up seeing the recession.

it'll actually be terribly funny. Uh, because it'd be good. We we really don't want to go through a recession. Some people say, well, if you don't go through a recession, you won't get sticky inflation down.

We'll see. But if we can get sticky inflation down and not go through a recession, best case scenario because they don't have as much job loss. So firms with pricing power they talk about a lot of Industries who are able to strengthen uh, their their sort of Labor uh. Organization during Covet ended up strengthening so much that you actually have really resilient companies right now that made it through covet.

And I've thought about this before during Covid. One of the things I talked about on the channel was this idea that companies that are actually going through layoffs during Covet are becoming a substantially more lean. They're going to figure out how can we raise revenues and grow and make more money? Basically, with fewer people, labor tends to be one of your largest drivers of costs at company. So Deutsche Bank is making the argument that that sort of weeding dare I say uh, that was happening during Covid actually strengthened firms to be able to get through whatever this recession is that we end up going through now.

I Personally think that that kind of strengthening of not just businesses, but also households could actually make it that you don't end up having a recession. you actually just continue to have GDP growth. There's a reason why the Atlanta Fed Now index for what they believe GDP is so far in Q1 is about 2.4 percent annualized and the projections going forward so far are pretty well positive. In fact, some folks from the FED think that if they were to revise their projection for GDP in 2023 from the summary of economic projections, they would actually move it up from about half a percent to one percent.

and that might even still be low because the economy is still growing. It's incredible. They talk about how China is unlikely to export material inflation to the world post their reopening. I've also talked about this quite a bit and that's because a lot of the spending that's happening in China right now is travel Hotel Entertainment, local casinos.

Uh, you know, probably Starbucks locally, right? These These are the things that we're seeing and hearing: uh, on on the ground floor over in China less demand necessarily on Commodities Some folks still think you're going to get that sort of Commodities inflation. However, so far it seems like you're not getting that new real estate building. Boom Yeah, maybe home sales in China will will rise, but you've got plenty of vacant homes that need to be sold in China so you can actually see home sales go up without Home Building Rise in China creating less Commodities Inflation We'll see. but you can see here: headline Inflation Core Inflation ISM Guy: it's all reducing uh in price pressures.

Ism is sort of in the A survey Institute for supply side management, survey of pricing, forward pricing, and and you can see all of these measures are rotate heading down. However, if you look at Services X energy you you have a tiny rotation down, but it's still remaining pretty resilient and sticky. You actually see that if you remove housing as well, it's still up there. A lot of that is being driven by personal services, whether it's haircuts.

Education Services Transportation services, Accounting services whatever. A Medical Care services Health Care Insurance services A lot of these still Rising Quite a bit Now a lot of folks think myself included that that's still part of the burning embers of of companies basically having to deal with higher costs and prices. This is an interesting one they talk about here: how the real economy might not really pull the handbrake, so to speak in the second half of 2023. And what you're going to find is the cost of debt is likely to rise substantially for businesses who end up having to refinance their debt at higher interest rates.

And so what I wrote next to that is, if you're looking for companies to invest in right now, you might potentially look at companies that have substantially lower, uh, debt. The lower debt you have at companies that you invest in, in my opinion, the less risk you have to those interest rate shocks. And so ideally I mean this is something that I've been looking at in pricing power related stocks you ideally want to look for again. not personalized.

Financial Advice: We always want to make that clear here: I don't know your portfolio so I can't give you personalized advice. But broadly I I Think looking for pricing Power stocks, those are companies that have the best margins within their field, the ability to adjust pricing while still maintaining margins. The definition of pricing power, but also High free cash flow and low debt. Both of those very, very important.

One of the reasons I'm actually staying away personally from the airlines is because even though Airlines to some degree could be argued to have pricing power right now, you have a lot of debt at the airlines that I don't want to be exposed to. because I think that debt is actually going to get much more expensive before. uh, it, uh, before before rates rotate down. Here's some talk about China's recovery and talk a little bit about what we've already touched on: Lower inflation and it's potentially underappreciated by investors.

They are bullish on the idea of construction economies. Uh Commodities given the amount of infrastructure spending that, uh, that that China is pumping out generally, China provides stimulus not in the form of stimulus checks, but in the form of more construction spending or corporate welfare. basically, like corporate incentives. There have been conflicting views on this.

So even though Deutsche Bank believes that you're going to see this sort of continuation of stimulus infrastructure spending, a lot of Uh analysts on Wall Street actually think that China already has enough infrastructure. I Know that sounds ironic because it's obviously a developing country, but you've got literal ghost cities that have been built that have not actually been occupied yet. So an insane amount of building under the thesis that if you build it, they will come and so far you just don't have the come. Uh, so we'll see private.

Capital Now I Think this is interesting. They make an argument that right now you've got money managers that are sitting on potentially 1.3 trillion dollars of dry powder cash to potentially invest in startups when the time comes again to invest in venture capital. However, there are a lot of existing businesses that have essentially low credit scores. Uh, and in the leveraged loan Market these are going to be more uncertain businesses, lower cash flow businesses, probably profit list companies that are burning a lot of money and the debt they have is expected to refinance substantially higher rates.

And Deutsche Bank warns warns that there's potentially going to be a risk of a full default cycle bankrupting a lot of these companies that are not even public. Uh, these are private companies that could end up leading to a lot of layoffs, and a lot of this is due to a substantially high debt with not enough cash flow to cover that debt. In fact, they suggest that the cash flow to debt ratios today are so bad that they're potentially two and a half times as bad as what they were in 2010. Uh for for the leveraged loan Market here.

Now in their words: I'm going to use their words because I've just translated the idea that there for you because it's a little bit complicated here the way they write it. But in their words, they say less than 20 percent of the leveraged loan Market is now backed by a debt to ebitda ratio of less than four times. in 2010, it was over 50 percent. In other words, two and a half times as bad.

This is a bad thing, so more risk that you're going to see some form of contagion in the private business area. so a lot more potentially layoffs from private businesses, not necessarily public, lower debt exposed companies. Some talk here of course about Uh subsidy Wars I Found this uh as is a consistent theme that I'm seeing now. and I do wonder how much of that is is going to potentially start getting pre-priced in? but uh, there's this idea that uh, you have a subsidy war between not just the United, States and Europe, but also China uh, all of them providing massive subsidies to batteries, solar, wind, and and really, the uh, the electrification boom of Uh Renewables potentially pretty large opportunities there.

Uh, Deutsche Bank believes that copper and steel might benefit mostly from from that. Remember, they also have the idea that we're going to see a more of an infrastructure boom, which would be supportive Also to uh, certainly, uh, to steal for framing, uh, copper for electrical wire. Anyway, new tech. They suggest here that they believe over the next year you're going to have companies heavily focused on cash flow generation and judicious capex.

Now that's really interesting. Uh, that potentially uh, you're you're going to see uh, the companies that benefit the most being ones that are able to show. Look, we can invest heavily while still maintaining cash flow and they believe that subscription companies might actually be that a type of business that could benefit the most. Now, initially, a lot of us thought that software service businesses would actually do very poorly in this market because uh of of layoffs, especially in the tech field.

But I actually went through the cloudflare earnings call and I was blown away by this. Uh, watch this. In 2022, we had over 400 000 people applying for 1300 positions. And on top of that insane demand for people wanting to work at these SAS companies.

And these SAS companies still growing like crazy. What they actually talk about is the weakest part of their sales are smaller businesses that larger businesses continue to seem to be hiring. And it's the smaller businesses uh, that that are the ones that are less materially important to their bottom line over at Cloudflare. And it's the smaller businesses that that are spending less money ramping up.

And so, Cloudflare for example, continues to expect to be able to grow their net retention rate by about 130 percent. Uh, this is pretty incredible. So you've got a company here expecting to grow basically not have negative churn, right? Still growing 130 from a retention basis, but then of course, still growing with new seats as well. On top of that, uh, and still hiring like crazy, but also an insane amount of availability of workers? Now, in my opinion, that tells you two things.

It tells you. damn. software companies get to pick I Mean you're hiring a quarter of a percent of the applicants? How do you even go through 400 000 applications? On top of that, it shows you a wild wild availability of Labor This is remarkable. The availability of of Labor is is so high uh that uh that I Don't think labor has pricing power anymore going into 2023 I think there is lingering pricing power really in sort of retail and Hospitality but white collar I don't re I can't see much pricing power left.

this is. this is remarkable and it's a sign that suggests we should not worry about a wage price spiral. There seems to be a substantially uh available labor force that uh, that should help keep wage costs stable. You know we want people to make more money, but we also don't want to wage price spiral that ends up being bad for everyone.

Uh, they do say the fangs with the double A there still have uh, huge moats, balance sheets to be able to withstand a recession. However, expect a lot of utility, especially around uh Anti-Trust So I wrote gooog next to that and then you've also got like Microsoft and blizzard return of volatility I think this is pretty obvious. Uh, so I didn't I Didn't make many notes over here, but we're in a substantially volatile uh sector or a moment in the economy right now creates a lot of uncertainty. You have uh, this idea about a renewal of active investment now I Think this is actually very important they talk about.

You can't rely on uh, comparing your Investments to Beta right now making beta comparisons which would basically be saying that okay, well, your company has a two beta. It should outperform the S P 500 by a factor of two or underperformed by a factor of two right? Uh, and so they make this argument that you can't look at the indices right now. Now that's actually something that I've been saying for about probably three months now that you probably want to get away from the indices. obviously.

Again, not personalized. Financial Advice. But the idea is that you potentially want to get away from the indices because the indices are going to be way down by Industrials and Consumer Staples that end up suffering uh, basically taking it in the margin. In other words, higher costs without being able to raise prices? think Procter Gamble think 3M I think Johnson and Johnson They expect they can't really raise prices anymore going in through 2023, and that they're going to have to absorb higher costs via margins.

Tyson Foods is experiencing this. Pepsi seems to be at the end of their ropes for being able to raise prices. so they're going to absorb, uh, take it more on the margin, right? So I think that's actually going to hurt indices substantially, especially like an S P 500 Whereas potentially higher cash flow growth companies could end up doing very, very well in 2023, especially those with low debt and high cash flow and and high operating. Leverage So we'll see.

somebody here writes: Kevin doesn't know that the US is already dead? It's going to get worse. Oh well, that sounds terribly bearish. I would hate to be a bear right now. That's all right A lot.

A lot of the Bears of January are very upset right now because they were caught very offsides. Now they could end up being right that we end up going through a more challenging 2023 of sticky inflation. But uh, the last thing I would do was bet against America I would not not to bet against America at all. I would never say America is dead I think America is just beginning like California is dying, but California will will turn I'm confident that California will turn at some point in the future.

I think Californians will get so fed up with how horrible uh, the government has become in California that, um, there'll be a revolution at some point and I'm not talking like armed Revolution like overthrow the government I'm talking like you'll end up getting a full Republican uh, chamber, uh, in the legislature and in uh, in the governor's office and The Californians will be so fed up with with what's happening with uh, some of the policies here that essentially Force homelessness Force less education in schools and schools that already ranked 40th in the State uh high taxes that are going to provide stemi checks rather than actually solving a mental health crisis. and it's I don't want to go through another California tangent anyway. continuing on. but in terms of America I would not bet against America I Thought this was, uh, quite unique because there's been this idea that you could invest in oil companies because oil companies uh, end up uh, trying to invest in clean energy.

and Renewables However, Deutsche Bank they talk about this idea that oil companies and sort of your your legacy energy companies are finding. uh I'm not sure exactly where that page was, but it's somewhere around here. They're finding it very difficult to find places to invest that actually make the money now in in the renewable space. and they like making money now.

So uh, it's becoming very difficult for oil companies to adapt. So right now, what are they doing? It's focusing on oil because you know oil is 80 bucks a barrel. uh for international blend I think uh, your WTI Western blend is what? 78 bucks or something right now? 76? Oh, it's falling a little bit. I Mean that's good from a disinfectionary point of view.

but uh, yeah. I Think the oil companies realize oil prices are not going to stay high this high this long. personally. I think the oil companies are.

actually. well, you were to see this: They're actually taking rigs offline at the moment. Over the last two months, you've seen rig counts flatten and actually fall a little bit because oil prices are starting to fall again. and I think they're sort of sponsoring this idea that all China is going to push oil inflation again because they really want to get one last pump out of oil at 100 bucks a gallon, 100 bucks a gallon, my God 100 bucks a barrel I Don't think it's gonna happen, unfortunately for them.

I I Don't see it happening, but uh, hey, who knows. but I think the oil companies realize the writing is on the wall that oil is is going to continue trending down. especially since remember, even as the the economy continues to reopen, if you will, We we've already hit peak oil and gas demand in 2019. we we are using less.

Even though our GDP is growing, we are using less oil and gas today than we did in 2019. Anyway, so let's look at uh okay, yeah, I like it this was. This was quite interesting too, and I've been saying this a lot. I'm telling you, the 16 piece thematic uh PDF here was so phenomenal by Deutsche Bank because it really gave us this basis for talking about these 16 themes.

But this is one that I'm actually very excited about. They say here that voter power should transition from sort of the silent generation and the boomer generation to Millennials and Gen Z by 2030. and I really believe that Millennials in Gen Z are going to wake up and stop voting for the garbage that we have in. for example, California or at San Francisco that's terrible.

Uh, so we'll see, we'll see. but I'm I'm very excited personally about that sort of transition anyway. Uh, it continued upward pressure on inflation, particularly for low wage workers. I Think we've already covered inflation pretty heavily here with wages.

I Think the high wage workers, you're actually not seeing that sort of pricing power. There is still some stickiness in lower wage factory work. Uh wages? Uh Chipotle Starbucks Obviously seeing it easier already to hire folks, even a health care, you're seeing less signing bonuses. which interestingly, I don't know that you actually see signing bonuses.

Maybe somebody could let me know in the Um comments. you know at the bottom of the video is are signing bonuses considered part of wage inflation? Uh, this would be sort of your employment costs index. uh, signing bonuses. If they're not, then in a weird way, you could actually see uh, wages still rise even though technically they're not because you're not getting the wage signing bonuses anymore.

And so you. the the data we're getting I Think is very, uh, incapable of actually adjusting for a lot of what was very normal during the pandemic. and it's leading us to believe that there's so much more inflation than in my opinion there really is. Yes, I I said that correctly.

I Think there's substantially less inflation than what we're actually seeing uh in in some of the reports. Uh, and part of that is also because of just deflationary trends that you have in things that younger people are buying, but inflationary Trends in things that older people are buying. Look at this. these are the the CPI components since 2005.

and you can see what's getting more expensive are Hospital services and medical care services weighing up the all items inflation and shelter whereas things that are getting substantially less expensive are things what younger people are buying computers and TVs for example right now Eventually, Obviously you know you would expect that younger people age and then unfortunately you have to deal with medical care services. But uh, but hopefully we start getting some disinflation over here in in the medical space as well. So where the cost of care can actually go down, we'll see another another fascinating thing to consider over here. So we've talked about incumbent oil companies already.

We've talked about China pushing Renewables hard uh, low wage earnings continuing to add pressure. Our performers in stocks will likely be companies with lower sensitivity to wage Rises and higher Revenue per employee. That's actually neat because yesterday we did a a course member live stream where we sort of broke down how much revenue companies have per employee at various different companies and we saw essentially which companies seem to have the highest leverage per employee and this is something that you could easily do as well. But Deutsche Bank here making the argument that outperformers are likely to be stocks with low sensitivity to wedge wage Rises and higher Revenue to employ a per employee.

This contrasts with the years of gains in high staff Tech consumer staples and health care. In other words, you have to be careful betting on the everything rally that we had previously and you have to be more choosy. And this is why personally, I'm making so many bets on pricing power stocks that have more operating leverage, not less so. In other words, they're able to make more money with less workers.

Potentially that's growing your Opex or growing your gross profit margins, lower costs of goods sold per Revenue Very important. They talk a little bit here about space will be key going forward. I Think it's a little early to really invest in in space because we we just don't have proven cash flow models yet. Obviously, if if there were ways to reasonably value SpaceX on the public market right now and be uh, it'd potentially be an interesting early play.

SpaceX We don't believe is profitable yet probably won't be profitable for a few more years. but I would not invest in private Equity right now because they have not gone through I Believe mostly the valuation correction that we've seen in the public markets. which means if right now you're investing in like SpaceX stock for example. in my opinion, really, what you're doing is you're investing in a market that still hasn't corrected for the recession or higher rates.

and so you're potentially investing in very high valuations. This is to contrast By The way, just for those of you wondering with Househack, House Hack doesn't have a multiple on evaluation, It's literally selling Equity at cash one to one valuation which is kind of unheard of. Uh, but uh, that's that's because you know I'm driving a a company that I think will be very, very successful. Knock on wood? no guarantees.

Uh, learn more about it at Househack.com But I'm Uh, I'm really wanting to create this company to prove to those who invest in Kevin that in the future you want to invest in Kevin again. right? So building that? that street cred, so to speak of. Hey, let me show you what I can do with the company and uh, we'll start. We'll start at a basically a one-to-one valuation.

Nobody does that. It's because I'm not I'm not trying to, you know, sit here and, uh, ridiculously dilute people. Uh, like you do get it that? uh, a lot of private companies unfortunately, which I think is terrible. So anyway, that's just the way the system is built though.

and I don't think it's fair, but whatever. So I'm going to do it a little differently. So those are uh, those are my thoughts on uh Deutsche Banks uh, 16 themes I think they're pretty incredible.