Hey guys, it's sasha, the stock market has just taken a giant dump at 2 p.m. Yesterday, on january 5th, the us fed published the minutes of the meeting that they held in december and the stock market threw its toys out of the pram with grace stocks. Getting completely smashed across the board, these minutes published yesterday showed that the members of the federal open market committee are a lot more concerned about inflation than they previously led on what a surprise, the wording in the minute is still very cagey, but if you read these, Every month, because you are a massive nerd, you will notice a big shift later on. In the report.

It says participants remarked that inflation readings had been higher and were more persistent and widespread than previously anticipated. While participants generally continue to anticipate that inflation would decline significantly over the course of 2022 as supply constraints, eased almost all stated, they had revised up their forecast of inflation for 2022, notably and many did so for 2023 as well. So, in the space of just one month, all of the committee members suddenly decided to sharply increase their forecast for inflation. All of them suddenly came to this amazing realization that it maybe isn't all that transitory, and this realization, for the entire committee made up of all kinds of different experts was, of course, absolutely nothing to do whatsoever with politics.

Okay, now look at this bit here on the right participants observed that uncertainty about the economic outlook remained high, most agreed that risks to inflation were weighted to the upside, and then we had this. The killer comment buried right in the middle of this section, 10 pages into the report. A couple of others noted the risk that persistent, real wage growth in excess of productivity growth could trigger inflationary wage price dynamics. This is the bit that spooks me personally, probably the most as an investor in this report, not what everyone else is talking about, because this is the first admission that some people on that committee think that inflation might now be in the process of running away.

And this is very serious. This sentence is saying that they're they they think there is now a notable risk that wages are growing disproportionately just to match the levels of real inflation, so workers need to go and pay their bills. They need to put food on the table and the price of those bills and that food is going up very fast, so those wages they're being paid to pay for those things have to go up as well. Just sustain the cost and as the wages go up, the price of goods also goes up because it costs more to produce the goods to deliver the goods to sell the goods, because you have to pay wages right and that's how that crazy, dangerous spiral can suddenly Begin being very, very bad, that's what the inflationary wage price dynamics reference indicates.

So, despite a lot of reports saying it's, okay, don't panic! There are a lot of good things as well. Nothing to see here. The reality is that we're being warmed up for action and the stock market did not like these minutes at all. In the two hours after that report came out before the markets closed, the nasdaq fell three percent, and that is a lot now.

The stock market has already been anticipating inflation and the rates going up and the growth stocks have been getting absolutely smashed as a result. Since november, some of the stocks that i personally hold companies like fiverr pinterest parents here and other companies that are either not yet turning a profit or maybe just breaking even have all seen 50 or more in some cases, wiped off their share price. In the last few weeks - and that means that those stocks now need to go up by a hundred percent just to get back to where they were two months ago, but things might get a lot worse before they get better. Because the next u.s inflation report is coming out very soon in just a few days before the market opens on wednesday, the 12th of january, and if we're not seeing any improvements on the 6.8 figure from november, the market might just completely lose its marbles.

If inflation goes up and breaks through the 7 mark, we might see some real fireworks now. There is a good chance that the overall inflation figure will actually drop in december. Gas prices were 20 to 30 lower in december than in october and november, and oil was also about 10 down and energy costs were the biggest single driver of overall inflation figures. In the recent reports, plus those energy figures also have an indirect effect on the cost of everything else too, because you know energy is needed to produce and transport goods, but the problem is that oil has just jumped right back to 80 at the start of 2022 And if we see a small drop in inflation in this january report for december, which is purely driven by fluctuations in gas and oil prices, the real underlying inflation might go somewhat unnoticed.

This might sound ridiculous, but this has been happening through the whole of last year. So we could well have a fake bit of pretending that inflation is transitory. You know it's already coming down, things are good, you know, he's dropped to six point, five percent or six point three percent from six point: eight percent, while wages and price of goods in reality, underneath this cloak are still climbing, and all of that is going to Do one thing it's going to delay action by the fed and potentially push the problem to february or march instead, by which time it might be a whole lot worse. So, what's the right play here as an investor, especially if you hold a bunch of grey stocks like me that have already lost half of their value in the last two months? Well, the truth is, i do not know what will happen with inflation in the next three months.

Nobody does and the markets are overreacting, very hard on any fear of rates going up. In fact, the markets are really reacting to the fear of the fear of inflation. More than they are to inflation itself, because the traditional view is that increased rates mean increased discount rates and valuations and increased discount rates mean that companies that only expect to start being profitable in three or five years time are suddenly now worth a lot less. As a result, because those profits are not worth as much in today's money, but here is my take on this - the relationship between inflation and the performance of growth stocks now is very different to what it was in the early 80s, when we last saw a big Inflation spike and at any point before then, the world now is entirely different prices on goods, wages and everything else are far more flexible.

If inflation hits hard, eventually, wages will have to follow. That's how economies work, because that's how the game works. That's the ugly inflation spiral that we are now seeing in places like turkey, where you know, inflation has now gone up to 36 percent. Wait for it because the turkish government didn't want to increase interest rates, so eventually rates will go up and they will go up to be higher than inflation in order to push it back down, because that's what i've been saying all along has to happen eventually.

But this is where we're going to see a big difference in the business models of different companies, because not all companies are going to be actually hit hard by this, for example, take fiverr fiverr is a one of the companies i'm invested in it's a platform where People outsource work and if inflation is eventually going to cause wages to go up, so will the prices of people providing their services on fiverr sure there will be a delay and there will be short term pressures and people's buying power is going to drop. All of that is going to happen, but when we are talking in terms of years, wages will balance out and fiverr's revenue is directly correlated with how much people charge for their services in the platform, because the platform takes a percentage-based fee, so yeah the discount rate That applies over the next year or maybe two to three years might be higher than we anticipated before we saw this inflation situation develop, but the revenues will then catch up and grow too relative to those same models and the net effect of the revenues growing by Percentage and then being reduced by the same sort of percentage is not as scary as the fear the market is currently showing. Fifer is now trading at 95, as i'm recording this video with a market cap of 3.5 billion dollars. Fiverr's annualized sales based on recent quarterly data, is about 300 million dollars, so we're trading in about 11 price to sales, and this is a company that has been growing at 54 percent per year on average, and it's going public four years ago, with that rate of Growth increasing more recently than it was doing just in 2017-2018, and the company has a 40 net margin today, if you exclude the marketing spend, which is enormous because the marketing spend every quarter is what fuels the growth they are buying more customers by spending the dollars They are earning on that marketing, with very conservative scaling assumptions.

You look in the business that is growing at over 50 per year because that's the number they've been posting consistently for several years and has 50 net margins in maturity because of scaling effects and after we excluded that marketing cost. So when this sort of business trades at 11 times sales, what you're really saying is that you're expecting to be trading at single digit pe ratios in two years, on the basis of maintaining the current trajectory and then deciding to stop investing every single dollar to make Into growth, because if they continue to invest in growth, that projection is only going to be better. You can use a similar argument for companies with fluid pricing dynamics and high demand. For example, companies like tesla tesla, has already increased the price of their cars massively during 2021.

Far far outstripping inflation and demand is still growing faster than supply for tesla, and even if inflation hits 10 percent and then stays there for a year or two in reality, this has very limited effect on the business model, because car prices for tesla will go up. Just like everything else, far in excess of the increase in car prices that are baked into the analyst models that will then have to be discounted by a larger factor. In my model, i have prices going up by just three percent per year, so yeah. If inflation comes, maybe my 10 discount rate in the model is too low, but my 3 increase in cup prices per year is going to be even further away from reality.

So to me this is just a game of chess. I'll probably see a drop in the value of my portfolio in the short term because of how the market works and how it reacts and how it overreacts, but eventually the wall street analysts are going to go and realize that doom and gloom didn't quite happen. In the way they thought it would and companies that are kicking ass, i'm miraculously continuing to kick ass. It might take a few years and in that time i'm going to have a lot of comments on my videos with very colorful language telling me how wrong i am because the price of my stocks has dipped.

But i am very happy to wait and if inflation does go nuts and the market plunges in the next few months, i am going to go shopping and i'm going to go buying hard. If you found this video useful, please make sure you go and 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,.