Hey guys, it's sasha, the stock market is in free fall and it doesn't look like there's any light at the end of the tunnel just yet. In the last two weeks or thereabouts, the total stock market index is down 4.8 percent from its peak, and the nasdaq 100 is down. 5.2 percent growth and value stocks are being completely destroyed. Tesla is down twenty percent in the last month and has just dropped back under one thousand dollars in pre-market trading.

Palancia is down 31 one of my biggest positions. Fiverr is down 35 and most other tech stocks with future weighted earnings are, in the same exact spot. People are panicking, people are seeing their portfolio lose 20 in a few days and they become very afraid. The big question is: what is happening? Are we in the early stages of a massive market correction or a crash that will later be called some kind of fancy? Name with retrospect in the future, by the way, the dot-com crash also started off, pretty steady with relatively small daily drops until it was about a month or over after the peak, and that's when we began seeing big one-day drops happen and the overall market sell-off intensified And it's been about three weeks since the last time the market peaked and we are still sliding down.

Is this going to get a lot? Worse? Is inflation at the risk of running away, because politicians played too much politics? Are we going to see sharp it rises in interest rates that will slam valuations of gray stocks, or are we in a short market correction that is already bottomed out? Maybe it is just about to bottom out. Are we going to see the traditional market rally in the week leading up to christmas and forget this selloff ever happened in january? The big problem staring at us is inflation. So let's talk about it over the last 10 months, inflation in the u.s began rising very quickly and drawing power. The chairman of the fed called it transitory.

Over and over joe biden only just came to power, and it appears that the new administration didn't want to start raising interest rates right at the beginning of their tenure, because you know reasons we all had the signals earlier this year, that an interest rate rise is Probably necessary and it became more and more indicative and more and more obvious as the year progressed, but here we are in december and the question many analysts are asking is whether it is now too late. Is inflation now running away? Will we have to raise interest rates so sharply that it is now actually going to be very difficult to catch? It was relatively easy to call inflation transitory in the summer by saying that prices are only going up as a temporary factor, because you know the situation with covert this year is so different to last year, and that's the line that the u.s government chose to push. Now, technically, the u.s fed should be a completely separate and fully independent body. They should not be driven by the government.

Politics and technically. The chair of the fed should be impartial and base policy on things like numbers, and you know smart analysts that happen to be working in that fed, but then remember also that the completely independent chair of the fed also just happens to be nominated by you guessed. It the u.s president and the nomination window just happened to close, and it just so happens at the same time that the chair of the federal powell, who, for whatever, completely unknown nothing to do with politics, reason kept saying that inflation is transitory. Despite all the evidence, stacking up against that theory that during power was again nominated for another term by joe biden, funny that, right and very surprisingly, immediately after that nomination came through jiren powell completely changed his position and after probably at least a few minutes.

If not, maybe even an hour of deliberation, he decided to do a complete 180 and just say: no. Inflation is now definitely not transitory, and it is probably here to stay. It just happens that the decision i've made uh came. You know in the time that i've had to reflect immediately after i got nominated.

It was weird that the last set of inflation data was actually published two weeks before that nomination that showed that u.s inflation had gone up 6.2 percent, far higher than the wall street expectations at the time, and not 0.8 percent higher than just one month before that. That is a massively sharp rate of increase and the next set of inflation data is due on friday this week, at the end of the week and analysts think that it will hit 6.7. At least that is the consensus, and even if they are right, it is also going to go up another half a percent month a month, but the last two times they actually underestimated all right. This is becoming pretty worrying now, because inflation is now higher than it has ever been since the massive recession that ended in 1982..

You heard that right and that went up from being an almost historically lowest ever rate and the rate at which it is going up is sharper than anything we have seen since world war ii, which doesn't particularly instill much confidence because at other times when inflation did Go up, the authorities usually did what every economics textbook will tell you to do and increased rates, because a timely increase in interest rates has one intended outcome that suppresses inflationary pressure by essentially devaluing the currency, in effect for increasing the cost of borrowing to banks and Letting nominal prices sort of catch up with real ones. Now inflation is traditionally bad for growth stocks. If you are investing in a company where a large part of the valuation comes from revenues that they will generate in 10 years time, for example, then we get to the present value of that revenue stream and evaluation process by applying applying a discount rate 10 times Over for every year, between now and that point in the future, and if inflation decides to run rampant, then analysts will go and increase those discount rates that they apply in the models and the cumulative effect of increasing discount rates is very significant. A hundred dollars, and in 10 years time, discounted to today's value at eight percent, is only worth 43 dollars at 10.

It's only worth 35 dollars and at 12, it's worth just 28, but rise that raise that interest rate to 15 and suddenly that 100 in the future drops to less than 20 today, and that is a massive difference to 43 dollars at 80. So you can see that inflation going up by 5 in a year can really cause people to worry a lot about what the future is going to look like, especially if that inflation continues rising, and there is a good chance that this situation will get worse before It gets better because in four days we will see the new inflation data and unless there is a miracle and the data is way way, lower than consensus, inflation is going up yet again and the fed is being placed in a tight in an almost impossible spot. The world is tightening once again with this omicron variant that we're all hearing about. We have new travel restrictions, some countries are introducing new stay-at-home orders, masks are being reintroduced, people are very concerned, and there should be the sort of time when you would normally consider dropping rates rather than increasing them, but time seems to be running out and the very Sudden change in attitude to inflation in the us is not just a coincidence.

These sorts of statements made by these sorts of people during power are only made after very careful consideration. So the fact is this: two weeks ago we were at the ah, whatever inflation is just transitory. It is going to pass and go right back down, but now, just two weeks later we have reached. Oh no inflation is real and it's urgent.

It is a massive problem that we have to address, and the obvious problem is that the next stop for this sort of train can really be panic station, because the fed completely ignored this situation for the entire duration of this year. For whatever reason that absolutely clearly had nothing to do with politics and now we're stuck between a rock and a hard place if the fed waits with the rate, increases and waits for you know a few months to try and not crash the recovery process. We might very quickly find ourselves in a self-propelling inflationary spiral like we have not seen for about 70 years, but the only real way to combat this - and you know not have to buy wheelbarrows - to carry a cash around other than praying and hoping is to increase Rates fast and increasing rates fast is going to put the brakes on a recovery out of omicron and out of the whole covered episode. Full stop, and that has a whole other set of risks and other set of downsides.

A big economic slowdown and the prospect of sending the country into a recession - it is not even going to necessarily be about the actual size of the rate, because the rates right now already very, very low. Historically, we have not seen rates this low, but it is about the speed with which those rates increase, because that speed is what's going to govern the impact on the economy. If the rate is too, the increase is too fast. There can be very serious repercussions, so, on the back of all of that, the market is not feeling very christmassy future looking stocks are getting completely smashed and the market overall is losing, and nobody is quite sure what the next few months are going to bring and The uncertainty itself is probably adding fuel to the fire if we knew that things were not going to be good, but if there was at least some kind of a consistent position from the fed and a public strategy that made some kind of sense, maybe people would Think indeed, that inflation was transitory on some kind of scale, because you know it's being managed, people are looking at it.

It is under some kind of control. So after a while, maybe it's going to go back down after it's gone through some period of volatility. So as an investor in this sort of market, where this uncertainty does exist, what is the best strategy? Do you wait and try to time the bottom? Do you shove all your money in right now, while the popular stocks are selling at a big discount? Well, that is the million dollar question and unfortunately, neither are you nor anybody else, including jerome powell has any idea, but here are a couple of very important thoughts if you were investing in a company just three weeks ago, at a price that you felt had a Very big potential upside and you felt that the risk around that upside was, you know reasonable now that company's selling at a 30 discount. Should you be annoyed about that fact? Should you be annoyed that you could have bought it cheaper, or should you maybe feel positive that you can go and figure out how to use this to your advantage by getting an even bigger potential return on the money that you're investing at this price, because, presumably, If you're an investor, your outlook is a bit longer than you know, two weeks, could the price drop even further? Well yeah! The answer is yes, it might do, especially if this plays out in a nasty kind of way, but then this is what it will feel.

Like right up until the point, when the answer stops being yes and big becomes no because that point you've missed it, you've missed the bottom, because you were waiting for the bottom. Grace stocks often get slammed very, very hard and often very soon in a sort of general market downturn, and that happened previously as well in similar sorts of times, but not all grow stocks are the same. Some i'm far more inflation proof than others. Despite people kind of lumping them all into the same place, companies with very very high levels of demand, for example, outstripping supply, can increase prices in line with inflation or even above inflation um.

As long as we don't get into some kind of weimar republic, territory, tesla has increased their prices by more than the 5 increase in inflation. So far this year, for example, companies with flexible revenue models that are based on relative rather than absolute earnings are often relatively well shielded against inflation, as well on the premise that prices for services offered through their platforms, for example, rise in line with inflation on average. Over time and the panic around, these sorts of things is often far worse than the actual outcome. In the end, it is the panic that often drives a bigger drop than the actual implications on the economics.

Now sure it isn't looking pretty right now, but time is a really amazing thing and an overreaction in the market is an extremely common event in these sorts of circumstances. So, let's see what news we get on friday and what the fed decides to do on the back of that, because these are unprecedented times and that that's not just a phrase. If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching.

I really really appreciate it and, as always i'll see you guys later, you.