Hey everyone, so when do we buy again? That's the question right. When do we buy again - and i think in order to understand when personally, i believe, it'll be safer to invest, because you know that i'm mostly in cash right now, we need to study the what i call sh 9 t scenario case scenario. Now that's going to sound a little fetish, but i like to work backwards. I try to think what is what is the worst case scenario, and then how can i walk back to see okay, what what other indicators are going to come up that are going to tell me? No, no, no! We're not going to that scenario.

We are, you know, going to recover before that, which i really really want. You know people think it's crazy, that somebody who's mostly in cash, would not want a recession, but i think they're that that forgets the fact that every source of revenue goes down when we're in a recession. Uh, you might lose your job in a recession. You might uh, you know, spend a lot less money uh, which would lead advertisers to spend less money, which means youtube ads, go down sponsorships because all that stuff goes down.

If you lose money, i lose money, everybody loses money, it's not just our investments that go down. We just lose straight up money, and so wrestling receptions are not good uh. Sometimes they can create reset periods and opportunities. Certainly, they create plenty of opportunities, but they're not good.

So what is the sh9t scenario? Well, the the sh-90 scenario is: is the following? Uh simply put inflation and uh supply chain issues continue to persist. We see some softness that starts inflecting. Maybe we start seeing container prices slowly start moderating kind of, like robinson, said in their earnings call a couple days ago that they expect in the second half have some moderating of this. We start seeing used car prices moderate a little bit.

Maybe we start seeing some of those things, but we still end up with ridiculously high consumer price index, readings and pce readings because of housing and energy costs going through the roof. Remember housing makes up one-third of the index used cars make up like one-sixth of the in there. I'm sorry. Actually that was more like six percent of the index, uh so substantially less.

So the point is: if we end up with persistently high inflation readings and uh more supply chain issues, the federal reserve as much as they want to soft talk us right now, hey, don't worry so much about those rate hikes. You know we're going to do this smoothly or whatever, on one hand, they're saying we're going to do this smoothly. On the other hand, they're saying we're going to walk the walk they're going to raise rates they're going to pull the ecb u-turn and the bank of england u-turn and they're gon na raise rates uh, which we expect to start on march 16th, probably a quarter percent. Maybe a half percent doesn't really matter uh, but the point is they're gon na start walking the walk because they need to because the big danger is if inflation and supply chain issues persist, and this is overarching inflation.

So, even if you have certain categories that are low, if some stay high, the fed's going to have to act - and this is where a lot of folks say - oh well, wait a minute kevin. The fed can't raise rates because then we're gon na have to pay much more interest like that's, not possible. So let's clarify these one at a time. That's wrong.

The united states government can sell bonds directly to foreign investors or americans and then finance they're debt. So it's kind of like borrowing to pay the interest on your other borrowing that can work in theory. You could also raise taxes cut spending, but that usually doesn't end up happening uh. So the us government can absolutely find ways to finance their own debt and keep in mind just because rates go up doesn't mean that all of the debt that we have outstanding becomes more expensive.

Our debt rolls off over time like the two years come due. Then the five years come due. Then the seven years come due right. So all of our debt doesn't jump right away because interest rates jump besides uh the the percentage of interest that we're paying as a percentage of gdp is exceptionally low right now we could double the interest we're paying today and we would just be at the percentage Of gdp for interest expense spent uh, as as where we were in the 90s.

So in other words like that argument, doesn't fly so the fed's got to raise rates because they've got to at least send the signal to markets the psychological signal to market step. We are going to fight inflation now. I personally don't actually believe that interest rates going up to a quarter percent, half percent or even one percent - are going to really do anything for inflation because who needs cash right now, banks got lots of cash. Businesses got lots of cash, and consumers have the most cash they've ever had before, or even uh net worths, that they've ever had before household net worths and household balance sheets are through the freaking roof highest levels that we've seen in decades and so uh.

What are our credit card? Interest rates going up? Two percent are really going to stop us from spending. I don't think so uh and i think it's consumers are likely to continue to spend and businesses are likely to continue to spend uh. Any kind of moderation that we see in consumer spending is is hopefully a good thing that eventually we see reduced inflation, but unfortunately, even if we stop spending today, the inflation ratings tend to lag anywhere between two to six months, because price increases that are planned ahead Of time by corporations, and we can actually end up seeing more inflation rather than less, this is for for at least the next six months right. This is why uh bloomberg economists are expecting a 7.3 cpi read next week on thursday on the 10th of february, when the inflation numbers come out, it's just not good and the longer we continue on that trend.

The more pressure is going to be on the federal reserve to act and to walk the walk and to raise rates to show that they will not just stand by and let the situation get worse. This is why we saw this massive u-turn in december. So, what's the sh9t scenario, because so far this just sounds like, what's probably going to happen right well, the bad case scenario is the following: we start towards the second half of the year like the summer and the fall winter. We start seeing spending fall by consumers, which again we think would be good for inflation right, but because inflation lags, inflation is likely to still be high.

While spending slows down a little bit relative to 2021. see, we can still be spending like crazy, but if we just spend a dollar less than we spent in 2021, we have a negative year-over-year gdp comparison, negative gdp comparisons lead to recession, and this is where the Difference of a paper recession and a real recession comes up. What happens if, let's say in q3 and q4, we end up getting negative gdp reads. This is the sh9t scenario we get negative gdp reads because people don't have the child tax rate anymore.

They don't have the unemployment paid anymore. They don't have the student loan forbearance. They don't have the mortgage for banks, they don't have any of the stimulus checks, anymore, they're, not getting anything from the government anymore. So so now we're spending just slightly less than we did.

Last year, which isn't hard to imagine that we would spend slightly less than crazy spending year, like last year, coming out of a pandemic, where everybody's going willy-nilly spending everything everybody feels rich. Now we get negative gdp prints for two quarters in a row, and this is the fudd-ish sh-90 scenario right and now we enter what's called a paper recession. Two quarters of negative gdp is a paper recession. You are technically in a recession, but everybody's gon na be like wait a minute.

We don't really feel like we're in a recession because we're still spending very similarly to 2021, even if things have slowed a little bit. It's like hey, we're, still doing great right, but since we're in a paper recession, hey yo jerome powell, can you just hold off a little bit on on hike and rate? So much and can you come bail us out, you know maybe don't run off the balance sheet as much, and this is unfortunately where i worry, the federal reserve is going to say we're sorry. We cannot bail you out just because your stock prices are going down and we're in a paper recession we have to fight inflation and because job openings are so high, we haven't seen layoffs, yet inflation is still so high and we're in a situation where we actually Prefer for stock prices to go down because it removes risk from the uh financial markets, which is very very true. You got to keep that in mind.

The federal reserve, the more bubbly stocks, get the more risk there is in financial markets, because people take on more margin. Debt people make more speculative bets. People go crazy in options. You know all that sort of stuff that speculation is bad.

It leads to bubbles and bubbles can lead to the collapse of empires could lead to the collapse of an entire country right. So we don't want that. We want to stay away from that. It's actually healthier to have a recession than like a bubble and then a depression right, but anyway, this is where the federal reserve goes look.

Job openings are still high yeah. We have negative prints, but that's because we're comparing to high numbers last year. So so what we're in a paper recession, but we need to keep fighting inflation. So thanks for calling us up, we're actually now going to use this opportunity to tell you that we're raising rates again so now, you're, potentially in a scenario where the fed is raising rates.

While we are in a paper recession. And what do you think that is going to psychologically do to people the fed crimping down on us while the stock market's falling and we're in a paper recession? Probably leave people to freak out cut their spending, which i've already told all all of the folks here on the channel or my courses start saving money like cut your expenses. Other youtubers have already copied my idea of telling everybody hey start saving money start building up, because just in case we go into a bear market go through the last. You know three months for your bank statements start cutting out subscriptions start cutting out stuff right.

That doesn't mean the whole world is going to do it. It's not like we're trying to create a recession here. It's just, i think it's the frugal and smart thing to do like stop thinking we're rich, because if the market can turn on a time and if we go paper, recession fed then crims down on us in real recession, because they're like we would rather have a Real recession than risk a bubble and then a depression that is probably when we get to absolute ridiculous levels of peak fear. This is when people start dumping their real estate.

People start dumping their stocks, and people are just fearful because the person they thought that was their friend who was going to come bail them out is not bailing them out and people keep referring, and this is so stupid. People keep referring to oh, but but we didn't have this problem. When we raised rates in 2016., i mean you know the market actually did pretty well. While we were raising rates, uh hello, inflation was under 2 in 2016..

We were having trouble getting to two percent. Now we were just trying to normalize monetary policy right, it's just nuts, so that's the sh-90 scenario. Now what happens at the end of the sh-90 scenario? Uh, you know - and it just be a matter of time before other youtubers copy this just like they suggest uh, that you start saving money. What are you talking about on this channel first, but it's okay, i'm not bitter anyway, um what happens next? Well now, if consumers really start panicking, they cut spending.

Now you get business layoffs and it's only when we actually start getting business layoffs and the unemployment rate goes up. That, in my opinion, is when we have problems, because when the unemployment rate starts going up now, the other side of the dual mandate comes up, and this is where, hopefully, by this time, say it's q4, 2022 or q1 2023 and we're in an sh-90 scenario. Uh. Hopefully, the fed's like okay, okay, okay supply chains have gotten better inflation's down uh we're now going to start stimulating again.

That is your buy signal right there when the federal reserve u-turns. That is your buy signal, because that was the buy signal in the crash of 1987 when uh the recession of 2008 bottomed out in 2009, when the dot-com bubble uh bottomed out in 2003 uh in february march of 2003. It was all because of the fed and uh when the market started stopped falling at the end of 2018 when the federal reserve u-turn, it all has to do with the fed u-turn. Now the the double sh-90 scenario would be the fed saying: yeah we don't care if unemployment goes up, we need to deal with hyperinflation.

I don't really expect that to happen. I really do expect that at some point we're going to get disinflation we're going to see these inflationary figures come down. Supply chains are going to catch up, people stop spending as much money and things will normalize. It's just a matter right now of how bad is inflation going to get? How aggressive is the fed going to get and will that lead to a paper recession that leads to peak panic in markets? Now that's the worst case scenario.

Best case scenario. Is we end up getting uh some form of of continued readings that companies are doing better with inflation, that consumer spending has slowed a little bit? That would be good, but we're actually starting to see that show up in lower inflation numbers and that housing inflation isn't. As bad and we come in for what the people with the violin aka jim kramer, say it's just a soft landing, a soft adjustment, everything's gon na be okay, everything's gon na be fine. That's that's what i hope for best case scenario, market moves up a little bit we buy back in because the market is dealing with inflation or it's dealt with inflation and we're fine.

We don't have an sh-90 scenario now. So how do you start looking for those signals of of that soft landing? We have to have across the board lower reads on cpi or wage pressures, so tomorrow we're going to get uh friday at 5. 30 a.m. We're going to get data on jobs! How high is job inflation going to be on a month-to-month basis? Is it going to be 0.5 percent? That's six percent annualized! That's still high right! It's getting lower or higher! That's going to be a big deal, the market's going to care about next week, we'll get cpi readings inflation readings.

Now this is going to be a huge deal and looking at the individual categories, which are the categories are declining or increasing. On top of that, we're going to be looking at the the march data that comes out as well, because january is going to be a little funky because of omicron. So things are going to be a little skewed. We might see less job creation, but higher job inflation, which would be bad and we might see cpi actually temporarily, coming a little bit low in certain categories because of omicron, but we'll be able to see that by looking at the individual categories.

You know if, like hotels, go down five percent, it's probably because of omicron right anyway. So so these are the things the market is going to evaluate uh and, in my opinion, knowing the sh-9-t scenario is, is not fud. It's actually being aware of how bad things could get when and if the federal reserve uh ends up counter to what we expect them to do and that's when you potentially get peak fear, and so when we work back from that. In my opinion, we can recognize.

Okay, this is probably the best time to invest versus. Maybe now is not the best time to invest right. We can make that evaluation determination. I also do want to be crystal clear.

I i don't think that every individual with a a smaller portfolio - you know - let's say if your income, fifty thousand dollars and your portfolio is twenty thousand dollars. I don't think it's prudent for every single individual to just say that's what i'm selling and i'll rebuy back in later. You know timing, timing, market timing, the market in general, is is next to impossible. On a short-term basis, you use technical analysis to increase your odds.

Uh timing: macro cycles is much more possible, but if you have a small portfolio, it might just make more sense to focus on making more money than trying to try to time the macro cycle. Right uh. You know twenty thousand dollar portfolio you're better off figuring out. How you can go, earn fifty thousand dollars more and you'll end up making more money so anyway, my thoughts, thank you so much for watching.

Hopefully, this was insightful if it was consider sharing the video didn't even have a sponsor in this video. I don't know who we want to throw in go to kevin.com life and get life insurance in as little as five minutes all right. Folks, thanks so much bye.