Hey everyone meet kevin here in this video we're going to talk about what to avoid in the stock market, provide an inflation update and we'll talk about the federal reserve as well as upcoming catalysts. This video is brought to us by ftx, which is linked down below, and you can learn more about them and sign up for free cryptocurrency when you sign up for ftx, okay, so first listen to some of these quotes here from the suits stocks, have had an Epically bad start to the year: that's those are the suits now calling it epically. Bad blue chips are technically in a correction that was on the front page of the wall street journal today, throughout the first 44 trading days of this year, the dow and spy had have had their worst year ever their sorry, their second worst year. Ever in 123 years, so second worst year ever out of 123., that makes this a pretty special year.

You've got better mortgage. The company that was famous for having their ceo fire, like a thousand people on a zoom, caller or multiple thousands of people on a zoom, call just fired an additional 3 000 people. This is happening at the same time as banks and financials are just getting wrecked, which is ironic, because a lot of people are like, oh, but banks and financials should be doing better during an interest rate hiking period right, not necessarily because banks and financials really like Transactions and transactions go down in an interest rate, hiking environment. It used to be that banks, like the interest rate, don't get me wrong.

They still do to some extent but lower transactions, lower brokerage volumes, killing financials right now, and so maybe it's no surprise that credit card companies are starting to raise their fees for transactions. We'll talk about that towards the end of the video and then when we look at some of the numbers that we've got out here, brent crude right now at 128.7, the 10-year treasury, at 1.84 up a little bit from yesterday and the 10-2 spread now down under 25 basis points we're at a spread of 23.88 for the 10-2. This is the lowest level that we have been in since the inversion of the yield curve in 2019 and remember, anytime, we've had an inversion of the 10-2. We tend to have a recession within 18 months thereafter.

Now yesterday, in my interview with kevin o'leary, he says: don't worry, it has to stay inverted for a while, but that part is up to debate to see how long it has to stay. Inverted. So we'll see five year break, even which is a measure of the potential future expectations for inflation and just broke the highest level. Again, it has been going straight up day after freaking day, and you don't even want to look at this chart because it's gross look at this here.

It is at 3.51. It's absolutely crazy, so the five year break, even is crazy and inflation is going nuts, but we got to talk about how to position for the stock market what to avoid and an inflation update, as well as catalyst update towards the end of the video. So right now we know that cyclicals, like financials energy materials, industrials and consumer discretionaries, are pricing in at their lowest levels relative to defensives, which are utilities, consumer staples and real estate, we're at the lowest levels since november of 2020, which is worth noting november of 2020. Remember what happened right before november of 2020? In october of 2020, we had a lot of fear in the market.

We had fear that getting a new president was going to lead the market to fall, that there was either going to be election uncertainty or that the results of the election would be uncertain, and so we had a lot of fear in the market and anytime. We get this fear in the market. We see a move over to things like utilities, consumer staples and real estate, and we've even got a chart for this to kind of look at some of the difference here. So let's go ahead and pull up that chart just to see this is the cyclical to defensive, chart right here and the more cyclical stocks become expensive, uh the lower this.

This ratio is right, the difference between the two here so right now, anytime. We see this line go down, it means defensive. Stocks are taking a little bit of a stronger positioning and you can see that fall. Obviously over here.

This was our. You know going mostly defensive, uh time frame where we break under a hundred in terms of a ratio. This is where people are more in defensives than they are in cyclicals, which again cyclicals being like consumer discretionaries, which could be like your etsy's or your amazon right and real estate being on the other side, being a defensive being more like investing in reeds. But anyway.

Now we're seeing that same or similar kind of fear, a level that we really haven't seen since about here, which was around that november of 2020 time, and we really took off when fear left the market. So i think the easy way to kind of conclude this. This sort of chart here is anytime, you see the line go down, it means the market is getting more defensive. Every time you see the line go up, it means the market is taking on more risk, and so the last time we saw that sort of low point was around that election time frame when we had a lot of uncertainties in the market and so you're.

Seeing more people maybe crowd those defensive sectors right now, and one of the big takeaways of the video here that i want to talk about is stock crowding, because stock crowding, in my opinion, is generally what you want to avoid, and so that could potentially mean that. Maybe there are opportunities to buy the dip on some of those uncrowded positions and stay away from the more crowded positions and i'll show you a chart as to why, but first, what are some things that we know are really really crowded right now. Well, in this particular chart, we just saw defensive so we're getting crowded. We also know that commodities are going to the moon.

I mean everybody's talking about how uh not only has nickel like 3xed over the past year and a half, but that wheat's going to keep going to the moon, that oil is going to keep going to the moon. We're getting these outlandish bets that oil is going to go from 128 a barrel to 200 a barrel 185 a barrel and that's crowding a lot of folks into these energy stocks, especially uh like uh non-diversified etfs like xle or people, are following oxy or warren buffett Into oxy, which carl icahn just sold out of took a billion dollar profit on it, so he's getting out, but buffett and a lot of retail are flowing in. We saw yesterday 340 million dollars of retail money, go straight into energy, that was the biggest retail buying sector out of all retail buys. Yesterday, yesterday retail bought 1.5 billion dollars worth of stocks and so you're, seeing a lot of money going into energy and uh and commodities right now and so they're becoming pretty crowded and one of the big lessons that you always want to remember when it comes to The stock market is take a look at this chart.

Okay, this. This is a critical one right here. It's this popular does not equal, profitable. Anytime.

You get crowded stocks, you tend to see an underperformance and that's literally, what we've seen so far year to date. This is a year to date, performance stock of uh retail sentiment indices. They through arc in here is the blue line, the crowded fund index, the hedge fund's most crowded stocks, all since december 31st, and what you can see is this massive underperformance of these crowded plays. So you see the s p is the top line.

That's down about 12. Since december 31. you see the crowded fund index and the hedge fund most crowded trades. These are down to about 83 or 80, so basically down 17 to 20 percent and then of course, arcs down there about down 39, along with the retail sentiment basket from goldman sachs down about 32.

So you really see that if you're in crowded trades, you tend to underperform, and so one of the warnings that i have for the market is that, even though it's popular to get into those defensive stocks right now to get into the xles the energies, the wheat Basket, uh and, and some of these, these uh defensives uh one one of the things to be cautious of is the more crowded the trades become the harder they can fall so be careful. It's kind of just like that mean momentum right, the the more we go up, the harder we can go, go down and the faster we can go down, and so one of the things that i advocate for is setting those trailing stops. So if you're investing in these set, those trailing stops four or five percent on some of the more crowded trades. So that way in the event, there's a u-turn you're a little bit insulated now.

The other thing that i wanted to talk about uh was uh inflation. How obviously we're seeing a big move uh and a lot of fear that inflation is going to be a lot more long, lasting and the worst case scenario is that inflation ends up becoming anchored, because when inflation expectations become anchored, then the federal reserve has to work To un-anchor them right now, jerome powell is really proud because he says that they have done a very good job at keeping inflation anchored low. And that's because when we look at things like the university of michigan consumer sentiment, indices and inflation expectations, we see that consumers expect inflation to come down like have over the next year. As long as that stays low, the fed might not have to paul volcker us, but we have these massive fears that we could end up in a situation where uh used car prices keep going up.

They're up 40.5 percent uh over the last year used cars. Make up 5.5 percent of cpi new cars are up 4.. Sorry 12.5. Over the last year they make up 4.5 percent of cpi.

We know that rent makes up 9.6 of cpi, and housing in total makes up 39 of cpi, and this lags. So, even if we see car prices come down a bit, if we just see rents move up the way they should because they use the stupid owner's equivalent rents and they super lag on cpi. Well then, we could end up seeing inflation really move up substantially over the next few months, especially as oil prices drive up inflation. Remember if we hit 150 dollars a barrel, we would expect cpi to be two percent higher solely because of higher input costs from oil, which is a lot, and so this does still create this downside risk for the federal reserve and we've got the cpi report coming Out in two days, but i just want to urge a caution that that cpi report isn't really going to give us the data that we need.

Yet whether we get a miss on thursday or we get a beat on thursday. Doesn't really matter. Because we want to know what inflation is not from a snapshot from february, but from march and april, and may that's what we want to look at because remember how messed up it is how in terms of how they measure inflation for volatile things like gas prices In cpi, what they'll do is they'll say: okay, here's our cpi for february. Let's say the expectation right now is that cpi is going to come in at 7.8 percent and the month over month is expected to come in at 0.8, minus food and energy 0.5.

So write these things down. You should have these written down by the way. These are the expectations so 0.5 uh month over month, without food and energy. So these are the expectations.

This is annualized 9.6, which just means we multiply by 12 right. This annualized is 6 again multiplying by 12., so these are the expectations, but whether we get a miss here or not, doesn't really matter in my opinion, because why? Well, the energy shock isn't really going to be fully priced in in this february cpi report, because the way they'll look at february is they won't look at feb 28th and say: okay, oil was let's say a hundred dollars per barrel. Let's include that in cpi, via gas prices or whatever well, they'll actually do because they're not looking at oil prices anyway, they're looking at gas prices, but gas prices follow oil prices, but anyway, what they'll actually do is they'll. Look at what were oil prices feb 1 to feb 10, then they'll do the same thing for approximately feb 11 to feb 20 and then the same thing for feb 20 to feb, 28 and then they'll.

Take these three little baskets right here and let's say: oil prices were 90 95 and 100. Well, then, they'll just take the average and they'll say: okay, cool gas prices are essentially close to uh, 95.. Okay, sorry one sec. There we go yeah so uh that that shows how cpi lags cpi lagging is a problem because it means, if we end up getting like an eight percent.

Read this time. Let's say when the expectation is what i say was seven point: eight percent. We get an eight percent, read fine, probably going to end up being worse next month, so i actually think april uh for the cpi release that we get in april. That's probably the one that's going to create more hard palpitations than this cpi release.

So i'm not hanging my hat much on the cpi release i'm more concerned about that longer term, because if we don't see that inflection point down, there's still a massive risk that the fed ends up you turning ugly on us now, the easiest way, in my opinion, To understand how the fed's kind of been playing us is to think about it like this so uh. Let's say that uh going sort of down here is them supporting the economy and being being like helpful to stocks right to being helpful to us right. So the fed's kind of been playing down the fears of inflation forever, calling inflation transitory. Well in december, we got this really ugly shock where all of a sudden they're like uh-uh, big u-turn - oh crap, inflation's, horrible, inflation's, no longer transitory, we have to taper faster.

We have to taper more aggressively. This is terrible right, absolutely terrible for uh for stocks, and this is why we saw that pain in december and january, especially when those minutes came out in january. Well, because of the crisis in ukraine, we've kind of seen a little bit of a softening in the fed stance, but i don't want to say they've kind of that they've turned super dovish. I think they've more gone on to pause here and there's a real concern about them going into this pause mode because we're going to get this data here for uh feb cpi, you know, then we're going to have the fomc meeting on the 16th.

So this is on the 10th and then we're going to get the march cpi in april march, cpi, we'll just write april right here and it's entirely possible that if we keep seeing inflation come in with these terrible reports that the fed will actually just sort of Be like patient for the time being, we'll see these over and over again 25 basis, point hikes over and over and over and over again. But if cpi continues to come in high, it's still entirely possible that the fed could end up having to volcross and they come in with some crazy interest rate increase where all of a sudden they come in with like 100 basis, point increase or 75 basis or 50 basis point increase, and then they rug pull us. So this is still very much a reality or potential for 2022, and this is why the the two big things that i want to really address in this video are number one be careful about those really crowded trades but number two we're not in the clear just Because the cpi report on thursday comes in at expectations or below or above standby like it, i don't think we're in this market where we want to be all in just yet. At the same time, you're still seeing companies raise prices, i mean just today, we saw apple, raise the price of the iphone se by seven and a half percent.

Also according to the wall, street journal, visa and mastercard are now raising their merchant fees. These are the fees that businesses have to pay uh. They don't really they're sort of invisible to the consumer, because we swipe our card. We don't really see it, but they're sort of the back end fees and uh.

Both of them was visa and mastercard are raising their fees in 2021, just for example, merchants, paid 55.4 billion dollars in merchant fees and credit card fees. These fees, by the way lead to like huge profit margins for visa and mastercard, there's a reason they bring. Like 40 to 50 to the bottom line, a lot of it has to do with these fees, and so apparently, these fee increases will affect uh, mostly online purchases, though it looks like really. All fees are uh going to be increased, with the exception of some of those on lower businesses with visa, who have less than 250 000 in annual consumer credit card volume, which that's a really low number.

I mean, if you're only selling 250 in goods uh. That's that's not a lot for any business, so that's like the the micro businesses. There are getting a little bit of support, but otherwise those fees are going up so all across the board, you're seeing companies and, of course, every earnings report that we've looked into all across the board. You're still seeing price increases, those have not all been reflected.

Yet in cpi, so i think we have two massive warnings, uh and, of course, shout out again to ftx before i recap, those two uh ftx is the awesome way for you to use a trading views, technical indicators at the same time as being able to trade Cryptocurrencies i have this up every single day on my computer and you should as well check out ftx via the link down below, but the big takeaway here is two-folded. The number one big takeaway in my opinion is be careful about those crowded trades, the ones that seem really sexy. The one everybody's going into you know the palladium or the nickel or wheat and oil related trades, and those are great for making quick money. Momentum, meme style, but always remember, to set yourself a stop loss so that way when and if that trade reverses you've got some protection, i do think that buying commodities could be a hedge against, maybe your let's say, tech portfolio or portion of your portfolio or maybe Even the indices in general, because the more we see oil go up, for example, the more the spy and nasdaq seem to come underway.

So it's entirely possible that those could be a hedge but again just set your limits. So that way, you're not part of a big sort of uh cycle to the downside. In these i mean there's a reason. The ceo of uh occidental petroleum today mentioned that we're not planning on significantly increasing our production because we're just going to take the extra cash we're making now for more expensive oil and we're going to use it to pay our shareholders.

When the oil market comes down again like when the ceo of the oil companies are telling you this it's because they know these prices, don't last they come up and then they fall they come up and then they fall. It's all a game. So just remember that if you're making bets on these and then another thing, obviously to keep in mind - is that fed rug pull that we talked about be careful, because there are a lot of things that could still lead them to rug. Pull us there's also talk, and i thought this was sort of just an interesting little bonus.

Note one of the individuals who was interviewed on cnbc this morning. They mentioned that we might actually walk into what's being referred to as a sentiment recession, which is if the global economy starts getting too nervous about the outcome of potentially war with russia in well. Certainly war with russia and ukraine, but also potentially war with the european union nations or nato. Then there could be a quote sentiment: recession where you see people purposefully, start pairing back their borrowing which you're already seeing in china and increase their savings.

And then you get those negative comps where all of a sudden, you actually start seeing negative year-over-year comps and that's your start to a potential recession which could be why that 10-2 yield curve is also falling, but best-case scenario we could get over these hiccups. These shorter-term catalysts, inflation, catalysts, russia, catalyst and we just go back to the moon, but until some of these catalysts get cleared, i'm not super impatient in trying to time my entries, but i'm definitely entering when there's when there are big fear days so uh, but again Still not all in certainly not yoloing onto call options more interested in selling calls selling puts and staying out of margin and debt. All right! That's that for that video thanks. So much for watching make sure to check out ftx by the link down below and we'll see in the next one.

Bye.