Me kevin here. Everybody is worried about the potential for what's known as a a federal reserve. A rugging or a rug. Poll.

And oftentimes. This is a reference to somebody known as mr. Paul volcker. And the reason nobody wants a paul volcker is because paul volcker said.

Oh. My goodness. The federal reserve has lost credibility and in order for us to regain credibility if inflation is here let's just set interest rates to here and prove to the world that no no we're serious about crushing inflation which obviously led to a devastating recession now the federal reserve has said well inflation's there but don't worry folks don't worry we're credible and therefore. The fed even though inflation is here at eight percent is only setting rates to potentially a terminal four percent oops.

But don't worry the fed says they're credible. So what are three things that could potentially lead to a return of paul volcker to a return of the rugging well number. One is very interesting. It actually is one that we haven't talked about on the channel before.

But we really should pay attention to and it has to do with this nominal number right over. Here see at. The bottom there that bottom. Right corner it.

Says 19 there it is. 19 what does that represent well that 19. Represents something having to do with motor vehicle insurance. And this is actually a very interesting line item and vandatrak spent quite a bit of time talking about that this weekend and i want to give you a brief summary as to why motor vehicle insurance isn't just hey save 15 on your gun jones with geico or whatever blah blah blah.

It's so much more than that see car insurance has to do with the total pricing of what it costs for think about this medical services related to the cost of accidents. It has to do with labor costs related to actually installing pieces or parts to cars or fixing them doing bodywork to cars not just humans right. But it also has to do with the input costs of parts. It also has to do with the costs of rental cars.

Which then has to do with the semiconductor industry so to some degree car insurance by itself is what's kind of referred to as a microcosm of our total economy in other words. If you just look at all of the things that go into car insurance pricing. It's almost like taking a cross sectional slice of our entire economy and saying man medical labor. Parts semiconductors rentals.

You know the cost of people being unable to work because they were injured in an accident. The cost of litigation. The cost of court filing fees all of this gets summed up in car insurance and we had a pretty bad read this last. Month yeah just the last.

Month we had a reading of 19. Which annualized means that medi or car insurance motor vehicle insurance increased at an annual rate of over 20 roughly about 22 because you can multiply 19. By 12 and you get to a figure that's over 20 inflation in just motor vehicle insurance. This is a dangerous sign because it's one of the early signs that uh.

Oh. We're starting to get what's known as service inflation now when you think of service. I want you to think of it being particularly bad because of the s service can tend to be sticky. Because it takes a while of all of those little input costs going down to actually drag inflation from services down so service inflation spiraling out of control an absolute danger that we want to pay attention to and it takes a little bit of nuance in the reports to.

See but. Boy it's not a good thing and that 19. Percent read in the last inflation report. Tells us that inflation really is quite broad the more broad.

It is the more aggressive. The fed has to get to get all of the bucket down. It's so much to wrap your hands around in your arms. Run.

It's not just oil and gas prices. It's like everything it's bad. But another one that tends to be really really sticky and this is the second issue has to do with wages. And there's something special happening over wages.

And this is a problem because of something known as the wage price spiral. Now you're probably familiar with the wage price spiral. But i want to show you a few charts that show a little bit of danger happening. Here.

And it's something we've also got to pay attention to but in addition to paying attention to this you've got to know that within the next 10 days that 50 off coupon code for the programs on building your wealth expires and the price is going to go up and lately. It's been going up faster than the rate of inflation because there's so much demand for these products on building your wealth because we keep adding content. The goal is to provide so much value to these programs that when you go through them you're like oh my gosh not only has this program paid for itself. But i'm making good returns on the knowledge that i've gained here which i was never taught in high school never taught in college.

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So that way when you go from zero to complete your mindset about money will be completely transformed check out the programs. I generally recommend people start with a bundle on stocks and psychology of money and most importantly that zero to millionaire real estate investing program especially since there might be some nice real estate investing opportunities coming up soon. But let's not talk about this wage spiral and the charts that we have coming up especially important because one of the things with a wage price spiral is that it's really difficult to undo basically. What happens is the costs of goods go up.

So it becomes more expensive to live right the cost of living or col. Goes up when the cost of living goes up people demand higher wages. When people demand higher wages companies that want to preserve their margins. Raise prices.

Again increasing the cost of living for people working wages or earning wages. Which again increases a demand for higher wages. This kind of spiral can lead to a self sustaining self fulfilling form of inflation. Which is very very bad and can dispel could literally spell the end of a currency as we know it and this has happened many times.

All you have to do is look at south america and you can see the disaster that inflation can rage on countries and currencies. Which have often gone to zero. You might remember wheelbarrows of cash back in the days of the weimar republic that can happen wage price. Spirals are a great way to lead that to happen so what kind of charts.

Do we want to pay attention to now we want to pay attention to wage growth. This makes sense. And what do we notice with wage growth here recently well recently within 2022. We could look at the atlanta fed wage growth tracker and what we're actually seeing is this increase in wages higher than normal based on the atlanta fed's measure of it.

And you see sort of this inflection. Point right over here in about the middle of 2021. Where all of a sudden this one actually runs hotter or starts running hotter than it usually does in trend. And has now surpassed the average hourly earnings based on a composition adjustment.

Which is just a different way of measuring it and just average hourly earnings the way the bureau of labor statistic measures statistics measure that measures. It excuse me this is brought to you by the atlanta fed and this is their version of what they are estimating current wage growth might be like and the scary part folks is right here. We have this odd inflection point up this is understandable because we have a lot of inflation. Here that's driven wages up year over year and we know that but the fact that we're here.

And it's now worsening is a little bit of a cause for concern. Now. Some say that this spike here correlates to this little itty bitty hole over here. But this is quite a substantial move compared to just this little dip right here.

So sometimes you get what are known as base effects. Which is comparing back to the whole of last year. And that's why numbers can appear higher right. But folks.

This is something to pay attention to and if we go a little bit deeper and we look at something like the wage growth tracker alone. And we kind of zoom into a little bit more. What do we see we see an absolute increase here not just at the end of 2021. But also this inflection point again in 2022 now when we look at annualized wage growth.

We do see a decline in wage growth. That means wages are still going up. But 12 months you know on sort of a 12 month average wages have been going up about five percent. We look at about a six month average going back.

We're sitting about four and a half percent wage growth and within the last. Month we're about that 39. But this doesn't help us understand why all of a sudden. We have this big inflection point at the right side of these curves of potentially wage costs going up and so some are calling this an early red flag of potentially while we see commodity prices come down the risk that we end up seeing service.

Inflation actually just start taking off along with potentially a wage price spiral. Just now starting to take off and on july 29th. We are going to hear from the federal reserve and what we're going to want to pay specific attention to is the federal reserve's take on what's happening with not just service inflation. But also wage inflation because these things could keep the fed aggressive for longer.

Which is bad. But that's just two of the three things and we're not even talking about the expiring coupon code no we've got to talk about the fact that we've got a bigger potential problem. That has a lot more weight in inflation. So you remember one of the most popular measures of inflation is cpi well cbi carries.

What are known as weights. So when a cpi report comes out and we look at something like motor vehicle inflation we can actually see that the weight for cpi inflation for motor vehicle insurance is 23. Percent. So that means for every 100 or every doubling of motor vehicle.

Insurance we only see cpi move by 2379 percent. So you double it only moves cpi inflation by two point uh three seven percent right. However that's motor vehicle insurance. One that's a lot more damning actually has to do with owners equivalent rents and housing which has closer to a 327.

Almost a one third percent weight as part of the cost of inflation or how much or the measure of inflation. How much inflation goes up and the problem with owner's equivalent rents is that rents have skyrocketed to the tune of somewhere between 14 to 25 year over year across the nation. And the problem is the more we end up seeing rent go up the more we actually have cpi go up. And if cpi is super super high in july.

And let's say maybe we've peaked in july. And now we're like oh. It's good gas prices are starting to go down a little bit and oil prices are starting to go down a little bit. But then cpi gets propped up because rent goes up even more because the measures of rent inflation owner's equivalent rent are delayed six to nine months from what the actual market is doing that is market rents right now are up 14 to 25.

But owner's equivalent rent is really only up about five percent right and if owner's equivalent rent is only up about five percent then we still have nine to uh 20 percent to go to be realized in cpi. Which means that delay could show up over here in august september. October. November.

December. And we could actually end up. Seeing inflation. Even though.

Commodity prices are going down. We could see inflation get propped up even. More and maybe we end up seeing something like a 10 inflation level. And you think that well maybe rents will go down right that would be the hope because if rents don't go down and owners equivalent rents.

Which have a 33 weighting uh in cpi drags inflation readings up even higher then maybe maybe we're screwed because the fed's going to have to pull vulcarus right. But hey is there a chance that rents will go down well. This is where things get a little tricky. See as inflation or cpi goes up the federal reserve increases rates.

When the fed increases rates or the bond market. Thinks. The fed is going to raise rates. What goes up mortgage rates.

And so when mortgage rates go up. What goes down is buyer. Purchasing power. Which actually increases the demand for rentals and don't take my word for it you can just take a look at what jp morgan says about this because this is a complicated topic.

That's known as inertial inflation. We're not going to get super deep into the weeds on this. But take a look at just this section here. Complicating things.

Further is evidence that higher rates intended to lower inflation. Make rent inflation worse in the short run. And that's because supply can't keep up and rental rates. Go up leading to more pain as prices for rents go up as prices for rents go up.

Because. The fed is raising rates and now all of a sudden. We're seeing rents go up even more. The fed's raising rates to try to get inflation down.

But what they're actually doing is pushing up cpi rents at a six to nine month delay meaning they're potentially hiking on us. While we're in the midst of a recession. And this is why it is so critically important to be prepared for the dangers. That lay ahead.

Now we don't want to be all crazy fear mongery and say that's it this is the end of the world. We're for sure going to get paul volcker. This is a warning for you that if you don't have a sticky note on the wall in front of you right now that has at least services like motor vehicle inflation on the wall in front of you so you can pay attention to it and watch it if you're not paying attention to wage growth and if you're not paying attention to rent and owner's equivalent rent growth. You're walking blind in a market where we could end up seeing all of these things lead to us getting paul volkard out of nowhere.

And if we get paul volkard. Expect massive pain in the markets at least in the short term. And hey maybe they'll be buying opportunities just maybe. And maybe those buying opportunities will never come maybe all of these things will fade away and that's actually another reason you want to pay attention to these things because if all of these things fade.

Away service. Inflation doesn't become a problem wage. Inflation. Fades.

Away is not a problem rent inflation. Fades. Away is not a problem. Then guess.

What also fades away. Mr. Volcker. And that should actually give you confidence to get into the market rather than constantly being fearful that oh no everything's just going to get worse and not get better personally.

I'm paying attention to these signs. I'm very nervous that these things are going to inflect to the bad side. Which there are some signs that they are already reflecting to the bad side. But i'm hopeful that there's some kind of glass ceiling and that they come down.

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