Welcome to January 30th. Today is expiration of coupon code day and it's the final coupon code we're doing for the programs on building your wealth Link down below. Then we're moving on to something totally different, adding a lot of content and a whole lot of fewer pitches and higher pricing. So check out those programs.

Lock in that pricing link down below. Welcome back to episode number eight and again, it's January 30th today. We've got lots to talk about. First, we're going to start with a catalyst for the upcoming week.

We've got the Dallas Fed manufacturing data coming out this morning. 7 30 Eastern We've got Tuesday data. Uh, UBS Uh, we'll be reporting snap chat. We'll be reporting AMD We'll be reporting.

We'll also get the Employment Cost Index report. That'll be a big deal because it'll be coming right before that Fed meeting. and I Want to know? hey, how's that wage inflation doing? And the ECI is one of the Fed's favorite methods for analyzing how wage inflation is moving. We'll have the Home Price data for November which is ridiculously lagged, but it's the Fhfa and S P Home Price Index of data that'll come out for November on Tuesday morning.

Wednesday We'll get construction spending. We expect that to come in with zero percent growth and we get ISM Manufacturing for the month of December. We expect that survey to come in contractionary at 48 versus 48.4 before that, and we also get vehicle sales numbers. But more importantly, we get fed on Wednesday we expect to hear from Jerome Powell at 11 A.M California time we'll be getting the interest rate hike decision.

We pretty widely expect to get 25 basis points, and so far the Federal Reserve has been pretty consistent with. if the market expects something, that's what the market ends up getting. so we're expecting that 25 BP hike. But what we're really looking for is how the FED sort of massages their messaging.

We'll talk a little bit more about that and what to look for in a moment. Uh so uh. And then 30 minutes later, of course we'll have the Federal Reserve press conference and that's where we'll probably be able to get most of the insights from. Federal Reserve board positioning for future rate hikes, any potential for cuts, and any potential for uh, insight into how long we're going to sit at that terminal rate once we arrive there, and where, maybe hey, where is that neutral rate? We'll also talk more about that in a moment.

then we on Wednesday also have Facebook and Peloton reporting. Jolt's data also comes out actually before the FED meeting will be getting Jolt stata which is good as well as the ADP unemployment report ADP unemployment reports. Expecting 170 000 jobs down from 235 000 prior would be one of the lowest surveys here. Bank of America is expecting we'll start soon start seeing negative unemployed or employment reports I should say uh, not unemployment reports, employment reports and we might actually go negative in Q1 is is the estimate from Bank of America We'll see so far.

for the employment report for December, we expect to be at about 170 000. The Jolts report: this is the job openings and labor turnover Report is expecting 10.293 million job openings. That's down from 10.45 but still above some of the levels that we've hit just a few months ago of below 10 million on Thursday we'll get the European Central Bank that'll probably be hiking rates. we'll get the bank of England that'll probably hike rates and we'll get Google Apple Amazon Qualcomm and Deutsche Bank reporting uh earnings Friday We'll get uh, the Friday Jobs report the January Jobs report already.

It's kind of crazy to think that January is over in just one day from now. Uh, that? uh, that does put us uh at the Uh. Also, as I've mentioned, the expiration of that coupon code link down below the best price guaranteed going forward into the future. price will be higher.

We also have information that uh Biden is expected to talk to McCarthy and intends to work with McCarthy to prevent a default on the debt ceiling. Both sides are saying don't worry, we will not allow a default to happen yet after Kevin McCarthy couldn't even get elected as Speaker of the House A lot of folks are concerned that default is exactly what's coming and it's the last thing that we need in a recessionary environment. The European Union is uh, starting off uh well, well, continuing. I should say the Green subsidy race.

As the Financial Times puts it, The Financial Times yesterday had a piece talking about how uh, in the United States you've got the Inflation Reduction Act in Europe you've got the EU in individual countries all pushing for tax cuts for chips, solar energy, batteries, and really, you're getting this sort of back and forth of of subsidies and incentives to develop. Clean Energy Products And Chips now? Uh, this I think it leads to basically massive stimulus checks for green related companies and chip companies. So uh, we'll see how everything evolves. But I Expect that over the next decade, these uh stimulus checks are going to pay off pretty well for chip and energy companies.

you had a Sofi report Earnings today better than expected with even better guidance than expected. Sofi Uh. reported revenue of 443 mil versus the 423 that was expected. They also took a lot more to the bottom line than expected ebitda coming in at 70.1 million versus just 42.6 expected.

I'm personally very surprised by that I Thought their net interest Revenue would plummet with how much money they're spending on attracting new customers with higher interest rate yields on their products. Congratulations uh to them! that's awesome. We have uh forecasted Revenue to be between 4, 30 and 440 mil in the first quarter, which is actually more than expected. And so that's leading sulfide to rise in the pre-market Now One of the things I like doing? We generally do this with course members, but one of my favorite things to do is go through earnings reports in detail.

Uh, they. They can give us a lot of incredible in insight into what companies are doing and what's going on. Really with the broader economy and what we can do is take a brief look at Sofi and see what's going on. We'll do exactly that together.

So the first thing that I'm noticing is their total interest income came in at 307 million, which relative to last year, is almost a 3X That's substantially increases the rate of growth they had in the Uh for in the year ended uh, December 31st The year ended December 31st. They were. Uh, they were sitting at about 773 million for the entire year in net interest income, and last year they sat at 355 million for the entire year of 2021.. Well, now in just the last three months of 2022, they've almost made as much net interest income as they did in the entire last year.

That's pretty remarkable now. Obviously, their net interest expense has also gone up, but that would be that's totally expected. sitting at roughly about 30 percent. net interest expense here: 98 million versus the total interest income.

So net interest income here: 208 million? Pretty incredible. Obviously, this comes before Opex, but still remarkable. We've got some income here from selling loans and loan originations. That's another 248 million and Opex running up to about 495 mil.

So you're still ending here with a loss of 40 million. but it's the smallest loss we have here in the reporting periods that we see. Uh, just a five cent per share loss. 40 million dollar loss with a pretty large ballooning here in revenues, and not as much of a ballooning in operating expenses.

So quite frankly, pretty impressive. Pretty impressive. Uh, so congratulations to Sofi you have a growth year year over year of Opex looking at 25, but again, net interest. Or we can even go with total net revenue here.

Total net revenue. Uh, if we consider net interest revenue and uh, the other products like selling loans, they're up 60 in Revenue a 60 Revenue increase net revenue increase versus a 25 Opex increase which includes sales and marketing. So great job! Uh, really, really impressive. Not expecting that at all.

So congrats so far. Bitcoin Uh, did do a little bit of work this weekend. It ran up to uh, almost 24 000, got rejected at Twenty Four thousand. Uh, we ran, uh, all the way up to uh, Twenty Three thousand, Nine Hundred and Sixty Four, only to come really crashing down this morning.

Uh, right around Uh 2 A.M Eastern time we started selling down a little bit. Uh, I Think this is, uh, the beginning of sort of your pre-fed trading. Uh, you tend to get this pretty regularly before the Federal Reserve actually reports uh, their, uh, uh, their decision and and uh ends up potentially talking the market down into the dirty slums of of Fed induced recession of pain. You tend to, uh, you tend to see stocks sell down.

Uh, and and ultimately, what ends up happening this week is, is, in my expectation, entirely dependent on the Federal Reserve Uh, Remember, we've also got that Employment Cost Index report coming out tomorrow, which I think will be a pretty large Catalyst for Uh in in preparation for the Fed, so stay tuned for that. Tomorrow we have the five-year Break Even inflation rate by the way. still sitting around three point sorry 2.38 This is off of the lows off of the triple lows that we've hit, but uh, it's uh, it's it's staying consistent with about a low level that we've seen in December or low level we've seen in November. And all in all, the last quarter had inflation break evens substantially lower than any part of the prior year.

that is, uh, the last quarter substantially lower inflation expectations than the nine months before that, especially coming off the war in Ukraine. You do also have a financial conditions moving around a little bit. uh, Financial conditions though, uh, broadly. while they did spike a little bit, last week, ended up rotating down for much of last week and into today where Financial conditions are lower than where we have been since August August is the last time Financial conditions have been this loose Financial conditions a little bit different from break evens and that they, uh, will will take into account not just uh, stock prices, but they'll also take into account treasuries.

Which treasuries have been a little bit. uh, a little bit. On a run here this morning, we're looking at about 3.55 on the 10-year and we've seen this vacillation that the 10-year quite a bit where. maybe we'll go slightly below.

then we go back above, then we go slightly below. We go slightly above. We're really stuck at that three five level. It's almost like a magnet now.

While that on one hand is great because it signals to the FED don't vary, you don't have to get more aggressive. Financial conditions are tight. It is. Uh, it is a little problematic for the real estate market.

Real estate is expected to suffer more the longer the 10-year treasury yield sits at three and a half percent. So definitely some, uh, some red flags now. Uh, we also have some geopolitical red flags and catalysts, and there are quite a few of those. So we've got to talk about uh, exactly what's going on with China Taiwan and Ukraine because boy oh boy, these could all be a hot bed of pain.

Uh, for the next Honestly, years going forward with now projections of a potential war between China and Taiwan Wrapping the United States right into it. We'll talk about those projections. We'll talk about what's going on in Ukraine now. So China and Taiwan Now we have a a former Army General Michael Minnehan who's come out and suggested that we could see War within two years between Taiwan and China and that could end up dragging the United States into battle to help defend or defend a Taiwan versus China.

The individual says that my gut tells me we will fight in 2025. He wrote in a memo to staff a U.S Representative Uh replied to this and Uh agreed with the assessment unfortunately and this was Michael McCall who suggests that China is looking to ultimately take control of Taiwan Of course some other individuals in the House of Representatives replied to this and thought it was absolutely ridiculous that China would end up invading Taiwan that China has become yes, a style of other authoritarian and Communist Regime but much more capitalistic, but very different from the United States in that we are all about individual capitalism. China is all about National capitalism and the last thing they'd want to do was Crush their economy even more with the war. but that doesn't change General Many hands or uh, Mr McCall Congressman McCall's opinion that China strongly believes in the One China policy.

Now remember that's not to be confused with the old and now removed one child policy which probably helped China ultimately lead to a declining population or receive a declining population and a declining birth rate. That policy was removed, but Chinese still aren't having a lot of babies. But anyway, back to the One China policy. The One China policy really argues that there is no difference between Taiwan and China that they are a unified China.

Of course, Taiwan sees itself as an independent democracy or Republic and China has warned that Kevin McCarthy should absolutely not repeat the same mistake of Nancy Pelosi by visiting Taiwan. Remember that in August between August 2nd and August 3rd. Nancy Pelosi Visited Taiwan First leader of of Uh, her closeness to the presidency just three seats away from the presidency to visit Taiwan in decades, and this led Beijing to launch pretty large-scale middle military exercises with Midsole's Landing and Japanese and Taiwanese water. McCarthy did promise to make a trip to Taiwan of his own if he became speaker of the house.

Now, obviously, he's Speaker of the House Taiwan is one of the four Asian tigers also known as the four little Uh Dragons. Uh, Hong Kong Singapore Taiwan South Korea These four are essentially Uh regions that have become highly globalized and highly Innovative and are leading to a lot of capitalistic growth in the Asia Pacific region. But it's worth noting there's still some pretty big ties between Taiwan and China. You've got 42 percent of a Taiwan's exports still going to China and guess what? most of those are Optical equipment like mirrors and lenses which is our or well, both of those are very important in semiconductor equipment and semiconductor equipment itself.

China Obviously wanting to expand its own semiconductor supply chain substantially, their big bet is on the semiconductor manufacturing International Trade corporation, which is a competitor. it's a Tsmc. However, China still heavily relies on Tsmc and that is why Taiwan Uh exports about 42 percent of its exports to China or at least in part of the reason why. Taiwan.

Also, Imports 22 percent of all of its imports from China. This is different from the United States who just sends about 15 percent of its exports to China and 10 of our Imports come from China. So McCall Representative McCall ultimately warns that China is going to be strategic with how it might end up wanting to invade Taiwan in that they'll probably wait until after the 2024 elections. That will give them an opportunity to potentially influence Taiwan's elections in 2024.

And if the influencing campaign in those elections fails, then they might end up looking at a military Invasion Now, Uh, Colonel Douglas Uh, McGregor Believes this is unlikely. He is a retired U.S Army colonel. Uh, he was very active during the Gulf War. He actually suggests that the issue so much isn't Taiwan and China Oh my gosh, China and Taiwan Uh, it's actually Russia and Ukraine And that's because Russia is, according to him, holding up a lot better than individuals and countries had hoped.

Russia has found ways to work around sanctions. If anything, they've made it easier for China and India to get access to cheaper oil and and to become substantially stronger competitors to the United States Ukraine is ultimately facing a lack of uh, well, potential lack of fighting, aged and fighting capable individuals. Having lost already as many as 150 000 people confirmed Deb with another 35 thousand individuals missing in action and believed to be dead by some estimates that uh, well, there are some estimates that seven years of Javelin production uh have have basically already disappeared uh in the war between Ukraine and Russia, Lockheed, Martin and Raytheon whose earnings reports I went through last week and who partnered to make javelins, for example, faced years of order backlogs before the war. and now those order backlogs are even worse.

So in a weird way, we like to think that oh, a military-industrial complex Lockheed Martin and Raytheon profiting bigly off the war? Well, they actually haven't really been able to increase their production that substantially, and what they're really doing is just adding more and more and more backlog to uh, what they end up needing to produce over the next decade. However, it's probably going to be great business for them through 20 30, really, especially as a lot of countries like uh, even Spain Canada Finland Uh, France Germany the Netherlands are all on the same page of now, potentially sending not just armored personnel carriers, but also tanks, maybe even F-16s into Ukraine. And really, what they're doing is they're depleting their own stockpile, sending that to Ukraine the front lines so to speak. and then they'll just Place new or orders for brand new stuff that they'll eventually get when Lockheed and Raytheon and the other military machines are capable of actually producing these products now.

Colonel Douglas McGregor is very concerned about uh, the War Uh with Ukraine and does not indicate that it's anywhere near being finished. unfortunately. Uh, this comes at the same time as a Financial Times piece actually gave a little bit of light to what Russia is doing to make sure it continues to have a competitive Army I was a little bit blown away by this on one hand. On the other hand, it also somewhat makes sense, but apparently Russia is now authorizing uh, mercenary businesses like the Wagner group in Russia to hire pardoned criminals to fight in Ukraine.

The Wagner group is a paramilitary group essentially a paid contractor to help fight in Ukraine and basically the only person who has the power to Pardon individuals in Russia is Putin. Of course, he can assign other people to do that pardoning and the expectation is they're pardoning tens of thousands of criminals, armed robbers, murderers, you name it to go fight in Ukraine Dimitri Peskov, a spokesperson for Putin actually ended up praising a convicted Armed robber who was recruited by the Wagner group for heroism in his fighting in Ukraine and Putin himself awarded that individual that former prisoner armed robber a medal a New Year's Eve while also forgiving the rest of his sentence. He had already served seven years for his armed robbery and now he's a war hero. apparently.

Russia is also now continuing this practice. Despite the United States and other groups labeling uh trans these these Uh mercenary groups as transnational criminal organizations, the goal of these labels is obviously to elimit their International reach to limit their ability to conduct business, to limit their access to Banking and finance, and the US is straight up basically sanctioning these companies. The United Kingdom is actually estimating that the number of Prisons or prisoners so far recruited to fight for Wagner just one of the companies in Ukraine has reached 50 000. Russia is apparently also now Uh taking taking in former convicts and former chefs chefs.

uh to end up becoming leaders in uh, the Uh offensive by Russia against Ukraine Basically, hey, who can we get to fight? This comes at the same time as unfortunately Ukraine was embarrassed for a scandal over graft. This is essentially the Uh, it was really all tipped off by this guy named Yuri Nikolov. He tipped off the ministry of Defense about Crazy Prices for catering on things like uh, just regular Battlefield rations whether those are crackers or dried fruits or whatever and he exposed insane pricing that Ukraine was being charged and billed for this this military food. Apparently there was a 350 million dollar deal with a catering company and and they were charging wildly inflated prices.

Ukrainians themselves are pissed off because they personally I'm not talking about tax money here, personally have donated around 500 million dollars of their own money to help fund the War uh in Ukraine and uh Now apparently uh, at the same time as Ukraine is internationally asking for money and weapons. What you actually have Are these expose coming out of substantial government corruption over where the money is going and being spent. This has led to the sacking of numerous different government officials. One chief of staff from Zelenski, fired or resigned, five governors of front-line provinces fired or resigned four Deputy ministers fired or resigned Two members of the President's ruling Savant of the People party.

This is a group in Parliament resigned or fired. A lot of finger pointing going on, a lot of new anti-graft policies, anti-corruption Corps uh, courts being created. The European commission is suggesting they're investigating this and we're trying to work with Zelenski on resolving the issues. Solenski came into power in 2019, kind of ironically promised to end Uh tensions with Russia and now we're actually at war with Russia.

So a lot of pain going on between Russia and Ukraine and a lot of stretching going on on both sides and this is the kind of stuff that happens in war. but corruption is not going to be something very very popular, especially when the United States is sending nearly 100 billion dollars of economic aid uh, and military aid to Ukraine for example, tanks which might not arrive for several months. 31 tanks from the United States Abrams Tanks these are actual fighting tanks, not just armored personnel carriers are going straight from the manufacturer to Ukraine. In the meantime, two battalions of Leopards and British Challengers a total of about a hundred tanks are also going to Ukraine.

We're expecting to get the first wave of about 40 Leopards in about three months puts us at about April the second batch later on we mentioned earlier, but to reiterate, Spain Canada Portugals and Netherlands Finland Everyone is really tripping in here to contribute and allows them to give away sort of their older equipment and buy new equipment themselves. However, tanks are not the easiest because not only do you need to know how to actually operate the vehicle, but now you need to be proficient enough to operate that vehicle while potentially Under Fire and in a Battlefield and this could take five to six weeks of just basic training and tactical training to learn how to actually integrate tanks, armored personnel carriers, javelins, howitzers all together. Now, the potential plan is that Ukraine might be able to attack from the north and cut off Russia as a north-south supply routes. This would be by going in through the Luhansk Province and essentially limit the flow of Russians and limit the supply of Russians to the South.

East. Another option is going uh South more towards trying to destroy Russia's Uh Supply chains essentially between Russia and Crimea. The problem is you have a lot of open territory here. Open territory is really tough because it makes it very difficult to move troops and supplies forward because all it takes is a Russian trench to take out your moving Uh troops.

This is actually where tanks and armored personnel carriers end up becoming huge, not only for reconnaissance, but actually being able to take substantial swaths of land. Move forward and pressure Russia Uh, it uh. It's a very D-Day esque style of Uh potential scenario that that Ukraine needs to pull off. Estimates are that you would need three times as many attackers to be able to break through a Russian defensive line and Uh, and potentially Uh control it.

Uh, that would be in an effort to obviously overwhelm the Russians. So again, Ukraine's getting about 31 Abrams about 100 tanks from Europe. You've got this belief that Uh, China and Taiwan on one hand could potentially go to war within two years. and at the same time, war with Russia in Ukraine is, uh, unfortunately, nowhere really near finished.

As much as there is hope that the arrival of the tanks will help the lack of Manpower and they continued raising of Manpower in Russia continues to create nervousness, especially since in August August September Russia recruited about 300 000 more service members, but only 150 000 of them have been deployed. So far, another 150 000 are uh, have been held back and are prepared for future deployment. Yikes. A lot of pain going on between China and Ukraine and these are going to be massive geopolitical issues we'll have to pay attention to now.

Don't forget today is January 30th, so check out those programs on building your wealth, link down below, get the best price guaranteed going forward, and get lifetime access to all the content trading challenges. Buy Sell alerts, course member live streams by joining any of the programs linked down below. Now we've got to talk a little bit about the economy and the Federal Reserve. But first, let's take a listen in to see what Bloomberg has to say.

Names face just a little bit of a cyclical test. Are we seeing some of the structural story that's dominated these names and delivered monster gains over the last five years or so? Are we seeing that structural shift? A change in the underlying Trend term that could be with us for years to come? Regardless of the cycle, I'll go with the structural shift I Think that gone are the days where you can get up and expect Amazon Apple alphabet meta platforms to outperform against NASDAQ automatically. I Think you need to see some company specific initiatives or in the case of Alphabet and Meta, a rebound in digital advertising on a strengthening economy for those shares to outperform the NASDAQ even over short periods of time. So I would say it's more structural I Think it's a change in Dynamics and I think it's something that's going to continue to play out over the next 12 months.

Tom How does that influence your thoughts on how we should be thinking about valuing these companies With that in mind, Well, the challenge for Amazon uh long term is in order to maintain its premium Multiple, They essentially have to outgrow the contraction in their multiple Uh from an earnings standpoint, which is why you're seeing such a significant shift in focus to services to higher margin efforts for Amazon. But the question for all these companies in Big Tech is can they outpace the contraction in their multiple Uh? Perhaps by having their profits grow at a higher than expected rate. And I think it's going to be a challenge across the board. what's going to happen to the unprofitable tech companies? And I Think about Snap, for example, as they report earnings tomorrow.

Is this going to be the beginning of the end? All right. it's two two things. One, the good news is that uh, you're seeing a bid. So a lot of the companies this year are getting, uh, positive performance in their share price, even if you're seeing a pullback in some of their uh, projections for earnings.

But for the companies like Snapchat For companies that are losing money today and maybe don't have a great balance sheet, they're basically an Embrace Against Time Can they get incremental? Capital Will the Capital Markets reopen? Uh, before they run out of money and in many instances is to be determined? I Tell them this was great I Hope we can do this again later this week When these numbers start to drop some photos of D.A Davidson What have we got? Apple Amazon All right, let's go ahead and hop on into what to expect. uh, economically and what's going on economically. There's a lot of wildness going on, so let's get started there. All right.

One more sip of coffee and then we're ready to go more. Americans Are now living Paycheck to Paycheck. You've got a repo crisis going on in the cars. Market You've got craziness coming to the Federal Reserve this week and many analysts saying don't chase the rally, What do we believe? What do we think? Let's talk about it, but always remember the coupon code expires today January 30th Check that out link down below for the best price possible at least guaranteed for the next three months, if not likely much longer to get lifetime access.

First, the share of Americans who say they're living Paycheck to Paycheck has now moved up now. 64 of Americans say they're living Paycheck to Paycheck That's an increase of three percent from last year, And on top of that, eight million people out of that group earn more than a hundred thousand dollars per year. Yet half of the people earning more than a hundred thousand dollars per year say they are now living Paycheck to paycheck up substantially. Also, from last year, this comes at the same time as in America We're worried about a big recession coming Germany Telling us no, don't worry, everything's fine, we're not going into a recession and then literally days after about two business days after Germany says don't worry, we're not going into a recession Ah, Chancellor Olaf Schultz Alice is good.

Everything is great. What happens? Oh no. GDP numbers come in for Germany showing a 0.2 GDP Decline and uh, Germany's of course a manufacturing Hub and a much greater than expected pullback. Sadly, potentially pulling Germany into recession.

But we got to talk about America because look, even though we've got the Federal Reserve coming up this week, why is the market been rallying? well, Mike Wilson says the rally is something that you should not. Chase Mike Wilson is of course the bear from Morgan Stanley and he tells us the reason we saw a rally in January is because of the seasonal effect of people selling in December potentially tax loss harvesting and then getting back into the dip opportunity or fomoing in on some short covering after. December Mike Wilson Reiterates: do not fight the fed and remember that this is another piece that I found. But something to keep in mind is the last time we had a January that moved as much or nearly as much as it did this January this has been the best January since 2019.

uh, or the last time in 2019 January ended up popping up markets eight percent and now we're up about six percent in January which again is the best January since 2019. But the difference between then and now was that in December of 2018 actually right around the 18th, 19th, and 20th, the Federal Reserve u-turned and individuals thought they were going to continue hiking and they did not. This is obviously before the pandemic and we had a pretty bloody December And so that was the last time we had a great January when the FED actually moved, but that has not moved at all. In fact, it's expected that Jerome Powell is probably going to keep on a pretty nasty mask this week.

That's because as stocks are starting to slip up a little bit or start rallying up a little bit which is a slip for the Federal Reserve, we're seeing a slipping in financial conditions. Financial Conditions in the last three months have started to loosen and while on one hand looser Financial conditions is good for avoiding a recession. The Federal Reserve does not want Financial conditions to get so loose that we end up leading inflation to rise again. That would be the biggest risk.

And so my belief is that Jerome Powell is going to have to keep a very ugly mask on when he ends up talking at the press conference this: Wednesday We widely expect a 25 BP hike. We're not expecting any kind of move away from a 25 BP hike, but we're expecting Jerome Powell to probably reiterate what he gave us in the summary of Economic Projections in December Any move off of what he told us in December would probably be seen as uh, bullish, especially if he's softened The Stance I Don't think he's going to be more aggressive based on what he reported in his December summary of economic projections with the rest of the Federal Reserve staff. Because data has actually come in weaker than when we had the Federal Reserve meeting in December we've had weaker inflation. We've had weaker manufacturing numbers.

so I'm not expecting a Fed that is going to be more hawkish than December. Now, personally, that could actually be a good thing because it could mean that we're not going to get talked to so dirty that the market ends up selling off. But I would caution against a lot of bullishness Mostly because I believe it'll be Jerome Powell's job to make sure he makes it very clear that he thinks we're still knocking on the door of a recession. that the 0.5 GDP estimate for 2023 is still his base case, that we're going to narrowly avoid a recession.

but a narrow avoiding of a recession In the words of the FED is probably in the words of the market a uh, a recession and I wouldn't be surprised for him to reiterate the need to drive the unemployment rate up to 4.6 percent which is what they the Federal Reserve board together reiterated uh in December in addition to hiking rates to about 5.1 percent at a terminal rate. right now we sit at about 4.25 and if we get to about five percent which would be three more 25 basis point hikes will be at that five to five and a quarter rate hike which we expect from the Federal Reserve Uh, at their terminal rate. Now the bond market is pricing in rate cuts at the end of 2023. but I expect Jerome Powell To reiterate what he said in December we're not even talking about rate Cuts.

That's okay though because when the Federal Reserve is convinced and this is the beautiful thing, Uh, and this is why I do not expect to see this now. But when the FED is convinced inflation is gone and wage inflation is gone, what is the Fed going to do? Well, the Federal Reserve can very easily in my opinion and maintain their credibility by making the following very simply making the following very simple: hey look we have a policy called Fate Flexible Average Inflation Targeting. We believe that the average inflation rate for Pce is going to be two percent. We don't actually have to have the the every single months read be two percent.

This is an easy way for them to back off the idea that inflation needs to be two percent. They could let it be a little higher for longer while still softening conditions right on top of that. I Believe that once they're convinced inflation is gone, which is not yet, they can very very quickly U-turn and stop the bleeding in the jobs market and actually prevent wage loss from going as high as they projected in December I Really believe December is the Federal Reserve trying to shoot ahead of the Running Deer In other words, inflation has sort of been this. Running Deer that's been getting away from the Fed and the FED has been following it, but they've always been lagging it in all of their summary economic projections.

Over the last year and a half, the Federal Reserve has been wrong. They've had to revise them. Up, up, up and up and up now. I Believe the Federal Reserve has finally given us a December report where they've actually come out ahead of inflation by becoming so aggressive.

and I think now the Federal Reserve doesn't actually need to be more aggressive, especially since that inflation data and Manufacturing data is now coming in softer. I Think the FED is just likely to maintain what they iterated in December So if I had to sort of simplify the messaging for what do I think we're going to get from Jerome Powell I Want to make this very clear: I Do not believe we are going to get more Hawking than December I Believe we'll probably stay consistent with the December Hawking Consistent with December Hawking is basically just referring to the summary of economic projections from December I Think that's the easiest punt that Jerome Powell could do. He could go up, give a statement, answer the Q a and basically just punt the February meeting all the way to March Just hey, look, we're doing 25. BP Still waiting for more data? look at the summary of economic projections of December.

That's our opinion. Nothing's changed that again. it's not not really bullish, so I wouldn't call it heavily bullish. We're not.

I Don't think we're going to get a massive sort of softening position from Joral Powell and I Don't believe we're going to get more Hawking So I actually think what we're going to get is a very neutral drone this time. Now it is possible it is possible that neutral ends up being considered bullish because it isn't more. Hawking I Think a lot of folks believe that because markets rallied in January after that December disaster, the FED has to turn into a hawk. I Do not believe that is true I believe the FED will see that Financial conditions are still substantially tight.

10-year treasury yields are still sitting around three and a half percent. Also, again, substantially tight. and any kind of little Rebound in the stock market we've seen is actually good for the purpose of avoiding a recession. Remember what they're trying to do.

They're trying to thread a needle. here. they're threading a needle suggesting okay, look, we don't want things to be so tight that we definitely have a recession, but we don't want things to be so loose that we recreate inflation. We just want things to be, you know, sort of in the middle and that's where I think the Fed's in the right place to just be neutral this time.

Jay Powell If you're watching this Ma'am I Would love to be at those Fomc press conferences so I could throw you some softballs. Daddy Okay, I think it'd be really cool to have some YouTube representation over at the Federal Reserve But in the meantime, uh, I'm not too nervous about Jay Powell on Wednesday and I think that is okay. This is despite the fact that you have JP Morgan and Morgan Stanley saying sell the rally Bank of America saying they expect us to move from job gains in 2022 every single month to job losses in Q1 of 2023 as high as 175 000 job losses per month coming in Q1 2023. That would be a massive flip.

Uh, something that that, uh, that the markets would not be very uh prepared for I think But remember we, we've known this since. quite frankly I mean forever. But but I've been talking about this since January of 2022. for over a year I've been talking about this job losses lag recessions.

So quite frankly, the fact that everybody keeps focusing on job losses for me is just ludicrous. Because we we know job losses lag a recession, so the worst could potentially already be behind us. We'll see hedge funds don't seem to think so Though the commodity Futures Trading Commission just released data that there are 2.4 million contracts on treasuries with massive short bets. Massive short bets.

We are more short, uh, than we have been in quite a while on treasuries. Uh, let me explain briefly what that means. When you are short treasuries, you believe that prices for treasuries are going to go down When prices for treasuries go down. What does it mean it means uh, oh short? Sellers And hedge funds think that interest rates on yields or on Treasury yields are actually going to Skyrocket.

So if you think yields are going to go up, you take the Michael burry approach and you short look on screen now I'll hide myself here for a moment Traders Have never been this bearish on treasuries, aggregate treasury shorts the highest level of Short Selling since we have seen. Uh well, I mean you can kind of see it tapers off to nothing going all the way back to 1993. There on the left. but on the right of this chart, we are at the highest level of short interest on treasuries that we have ever seen.

This is substantial. Now again, hedge funds like to hedge, so if things are getting better, great, go long stocks. If things are going to get worse, maybe you hedge by shorting treasuries. especially since the Federal Reserve could end up telling us that they believe the neutral rate is closer to 4.8 to 4.9 percent.

In which case, we have more work to do. Given that right now, we're sitting at about a four percent lower bound on the FED funds rate and we need to see that move up via 25 basis point hikes. uh throughout? Uh, potentially the next three Cycles Uh, So keep that in mind we want to. We're probably gonna get to 4.5 Let me make this very clear, because it's the 25 25 basis point brackets are a little confusing.

We're at 4.25 to 4.5 Now we get a 25 basis point hike. we'll be at 4.5 to 4.75 Get another 25 basis point hike. Uh, and we expect that for Feb we get the next one will be at 4.75 to 5.. we get another one will be at five to five and a quarter.

Uh, and this is why markets are expecting. Uh, we will potentially pause in May at five to five and a quarter. that would be slightly above that neutral rate which the vet has been talking about getting to for a while. Then the question just becomes how long do they pause there and how soon do we cut I Don't believe the FED will be very inclined to give us many hints for that in this next Fomc meeting, but we'll see what's worse though potentially is not exactly what the FED is doing.

but what's going on with the car and auto market? Because a lot of folks are saying that the auto market is in a straight up bubble. In fact, the Federal Reserve just released its Q3 monthly rate of cars financed and folks in Q3 2022, it shot up to the highest level ever, growing to 41.2 billion dollars of vehicles financed in Q3 which could coincide with high vehicle prices and high uh, uh, Well, I mean High financing costs. But in terms of nominal loans Finance High vehicle prices probably are what helped a drive this highest ever level of vehicles financed and that was in the third quarter of 2022.. roughly matches the rise in inflation that we've seen, but it doesn't help that interest rates also doubled over the last year and delinquency.

Delinquency rates are starting to rise, especially for subprime borrowers leading the analysts for from Fitch and rating credit rating from Fitch to warn for a massive wave of incoming vehicle defaults and repossessions. In fact, some banks are now reportedly increasingly speeding up how fast they could repossess possess cars so they can sell them out. Obviously at a loss, but less of a loss than if they waited to repossess the cars longer. Think about it.

If car prices are plummeting, then you want to reap and your your borrower stops paying. You want to repossess that car as soon as possible so you could dump it on the market and get a a lower loss than you would have otherwise. if you were holding on to that slippery slope of prices plummeting so far, we are still seeing the Uh default level on vehicles rise just roughly to 2019 levels, no exceeding of those default levels yet. However, Fitch does believe that very soon the lowest income subprime borrowers will exceed the default rates that we saw in 2019, Not getting to the default rates that we saw in 2008, but still a substantial amount of additional pain.

Now, some of the reasons for this: We kind of set up the perfect storm for subprime borrowing. You basically masked people's bad credit scores due to the pandemic because it was impossible to be late and to get a bad credit score during the pandemic. well, nearly impossible. You got a bunch of money from the government unemployment money, stimulus checks, you name it.

On top of that via forbearance and you not being you not needing to actually make your payments, leading a lot of credit scores to actually increase during the pandemic. combine higher credit scores with a massive car shortage High interest rates, chip crisis, and massive run-up in vehicle prices. What you have is people masking how qualified they actually are via higher credit scores. So higher credit scores, higher interest rates, higher prices, and gas prices running up you have a recipe for disaster in car affordability.

And so now, since, uh, over the last few months, about the last four to five months, we have seen a substantial take up. Uh, in the number of 30-day late and uh, the number of 90-day defaults. There's uh, this individual on Twitter called the car dealership guy. He's been, uh, talking a lot about this problem, but he recently noticed that, uh, he believes banks are so worried about repossessions on one hand, that they're increasing how quickly they're repossessing cars.

But on the other hand, they're so morally incentive or like amorally you'd almost call it amorally incentivized to keep lending to keep their profits to potential. Potentially Rising What they're now doing is they're repossessing cars faster on one hand, but on the other hand, they're waiving requirements for loans so they can keep making new loans. So it's kind of crazy. more people are defaulting on one hand, but they're actually making it easier to get a new loan on the other hand, that's because they're starting to wave what's known as the open Auto stipulation.

This is when you go qualify for vehicle financing and it shows you already have an open Auto loan. you're not supposed to qualify for another one unless you can make both payments. Well, now, apparently, lenders, according to car dealership Guy are starting to waive that stipulation, making it easier for people to buy a new car, even as banks are worried about this crazy flood of repossessions. The car dealership guy says this is stupid, especially since many people are underwater on cars they've bought over the last two to three years.

Usually people who are underwater have to pay money. You have to feed the kitty to sell your car to buy a new one. Feeding of the kitty means taking thousands of dollars out of your wallet to buy a new car and and pay off your old one. But most people don't have that money.

So at the same time as defaults are rising and repossessions or skyrocketing, you actually have Banks going. Yeah, but let's keep the funnel full and let's keep lending as car prices are and or have already fallen 30 percent are are continuing to fall. Uh, this individual believes that repossessions could end up getting ugly and this is really bad for the car market. Elon Musk even went as far as replying to this saying good prediction Yikes, that's not so good.

On top of that, we also have potential inflationary pressures, which continue to get talked about from China and wages. consumption is expected uh to and hopefully be the main driver of the economy per the Chinese government, but consumption is actually not the main driver of the Chinese GDP Now in my opinion, I actually think that could keep that second wave of inflation down, but we'll see: Chinese government really wants to propel uh spending in China household spending uh, as a percentage of GDP is only 38. in China In the United States it's 70. So in other words, the individual consumer makes up 70 of the US economy, only 38 of the Chinese economy.

Much of the other portion of the economy in China is the result of the housing boom, but the housing boom is turned into a massive housing bust. How quickly will individuals come back into the housing market even with lower restrictions on housing? Nobody knows. So we'll see. Fortunately though, back in America we have a piece by Morgan Stanley suggesting that you can stop worrying about wage price uh, inflation.

and even though Morgan Stanley overall is pretty bearish, they suggest that because of more concentration of of jobs that is more uh, like larger and fewer companies having more jobs leading to less competition amongst other companies leading to higher profits for those companies and lower unionization ultimately should keep a lid on wage prices. We'll see. So if we put all of this together, look, there's a lot of bad news. You've got a lot of analysts screaming about sell the rally.

it's a bear Market Rally You've got Germany Potentially walking into a recession even though they didn't think they would. You've got a repo crisis going on in the cars. Market You've got this potential for a second wave of inflation in China I Personally believe and this is sort of my summary of it: I Don't believe a second wave of inflation in China is really going to lead to a lot of pain in the United States I Don't believe the conditions are president for a wage price spiral that we want to pay attention to. That even though the auto bubble may be present, it is not anywhere near the levels of the 2008 crisis.

It's still about half the levels of 2008. And yes, poor individuals are going to suffer the most as usual in a recession. I Don't believe that the Federal Reserve necessarily has to push us off the cliff into a deep dark recession. and whether or not we have a recession uh, I I believe the United States will be relatively resilient uh over the next decade.

and uh, once we get through this temporary Madness We're Off to the Races for the rest of the decade and Chips will be the next new gold with pricing power for the rest of the decade. We'll see right now, chips aren't doing that great chip equipment companies seeing sales falls 30 to 50 percent, but it seems as though a lot of that pain has already been priced in. So what do you think? is the Fed going to talk dirty to us? Are some of these smaller Embers of pain like in the Repos market and in China going to lead to an explosion of pain and the reiteration that you should never fight the Fab or are we facing that Nike Swoosh recovery where? Yes, there are hot spots, but we're going to get through those. We'll get through China We'll get through wages, we'll get through inflation, we'll get through, uh, reopening, and we'll get through the repos.

uh, crisis in cars. We'll get through all of that and we'll just slowly keep chugging along. That's my belief. It doesn't necessarily have to be yours, but if you want to chat with me about your opinion, make sure to join the courses on building your wealth.

Link down below. Today is January 30th the day the coupon code expires and that's it. We're moving away to higher pricing and a lifetime access is yours. If you sign up via the link down below for any of those programs on building your wealth, let's now hop back on over to Dubai Uh markets a little bit softer after an incredible rally led by the tech names and that really has stood out to me.

and today you are seeing a disproportionate sell-off in the NASDAQ the S P down eight tenths of a percent now 40 of 50. And this really does come on the heels of perhaps a little bit of an increase in yields, but otherwise stability 3.55 for the 10-year which really raises a question of how much there is a direct correlation between Bond yields and tech stocks that when Bond yields go down, tech stocks rally and vice versa. Michael O'rourke Chief Market Strategist at Jones Trading joining us now. and I Want to start there after an incredible rally led by those Tech names? Yeah, sure.

I I See your comment here that the coupon code wasn't working for you? Uh, the coupons? They expire at the end of the day today. So 11 59 PM Uh, it's possible you might be having an issue with uh, uh, maybe there's an ad block or something. Try a private browser or disabling. Adblock Worst case scenario: check out on the course.

email us and we will fix it for you afterwards. We can adjust uh, before it even hits your card. Uh, we can adjust it. Uh, so what? what? Whatever issue you have If it's the member code or whatever it is, Uh, check out with the normal code, then we'll fix it after the fact.

Just email us if you need a custom bundle, send us an email at Kevin.com We will get you taken care of 2022. Knowing the environment was a little a little bit gloomy, so they wanted to put money to work and they've done it thus far early in 2023. But you're looking at seven Mega Camp names driving 50 of the S P 500 game year to date and that's including Microsoft who basically had a disappointing earnings call. So um, I like I said I think it's still happening but I don't think it's sustainable.

Let's dig into uh, the earnings side of things you said. So far, we really haven't seen incredible earnings. What? How important are the earnings that we're going to see later this week? But uh, on Wednesday Apple Amazon uh and Alphabet all coming out on Thursday Yeah, I'm calling it AAA Thursday Uh, you're talking about three Mega cap names that represent about 12 or 13 of the S P 500. They do 1.2 trillion in revenues.

So when you look at Amazon you know Google or alphabet and um, oh, the price War has begun baby. Ford Officially Cuts Prices on the mock E Now why is this remarkable? Well, it finally shows that Tesla's price cuts are affecting the broader Market uh on the release of this news, Ford uh is down a 2.56 percent Now what's really important to know about this is a lot of folks. When Tesla's price Cuts first came out, said, oh, don't of every Tesla's price Cuts won't affect the broader Market nobody else is going to follow them and cut prices. What happened basically within a week of Tesla's price Cuts BMW cut prices.

three and a half to ten thousand dollars for multiple of their markets. Uh, their their vehicles in their market and take a look at this Zero Hedge article here. Five days after we report reported that Tesla was accused of weaponizing price Cuts In order to crack their competition in the electric vehicle space, Ford has announced price cuts for their electric Mustang Machi along with several other models across the board. keep in mind that Ford is not even profitable on the Maki Ford is arguing that they are going to ramp up significantly their production of the Mustang Maki in 2023, which is basically a way of saying they're going to lose even more money in a recessionary year and in an Autos crisis this year? that's wild.

Zero Hedge goes on to say that Tesla's move to squeeze competitors by sacrificing some of its strong profit margins could be seen in recent price cuts of the model Y which is now priced at 53 000 from around sixty six thousand dollars. If buyers qualify for the federal tax credit, they can knock off another 7 500. Bank of America analyst John Murphy says unlike Tesla traditional automakers have very thin profit margins or lose money on their EV lineups. and that's exactly what I just said about Ford Uh-huh So reducing prices is even worse.

Keep in mind that if a company like Byd, everybody's freaking out about a Dyd. But if a company like Dbyd ends up dropping prices, they only have 1.45 percent of their net profit margin and then they crumple after that, then they're negative. Uh, which might happen in a recession. So now there's a suggestion of who's and next to drop a prices we'll see but at the same time as uh, we have, uh, we have, uh, this this price War happening in the auto space? Uh, we have, uh, you know the Tesla earnings report that came out last week and I Want to be very clear because I I don't think folks are paying attention to this I do think this is a red flag and don't get me wrong, Okay, I'm a big fan of Tesla I'm an investor in Tesla uh uh, you know I've got a lot of exposure to that slime in many different ways and I'm not sure Tesla but I want to be very clear about this and I'm saying this because yeah, I think a lot of people get misled by little quotes that float around the internet.

Tesla does not have a lot of free cash and I'm not talking a free cash flow. Free cash flow already fell by more than half. Uh, in the last quarter. I'm talking about free cash That is cash available above and beyond their actual accounts, payable and current liabilities.

That is payables and liabilities do within the next year. Tesla does not have a lot of free cash. There's a reason they just signed up for an up to seven billion dollar credit line just to have some flexibility with their cash. They also did not tell us why there are other long-term liabilities increased by exactly one billion dollars.

Just all of a sudden, a little little one billion dollar increase in current liabilities. Don't mind that at all. Don't mind the 26 billion dollar current liabilities portion next to their 22 billion dollars in cash. Now every time I do this.

you get people that are brilliant and they start saying things like oh, but Kevin they have all this inventory and when they sell their cars in inventory they're 13 billion dollars in inventory. then they'll have more cash again. But those are the same people who then go double count the money in free cash flow. You don't need to look at inventories, you need to look at operating cash flow and the operating free cash flow is down to about 1.4 billion.

That's still fine, but the Investments Tesla expects to make over the rest of the year are going to be very high so Tesla's cash position will be tight. There is a reason why Elon Musk says hey, hey um you know BuyBacks are a great idea but we're not going to do them because we don't know how bad the recession is going to be and we want to make sure we have enough money for 2023 and all of our expansion plans. That's great. I'm glad they're expanding.

Giga Nevada has already been announced. We expect potentially a an announcement for an Indonesia plan, maybe a Northeast Mexico plan. Each of these could have initial investments in the range of three to five billion dollars, massive output of expenses, massive money pits, right? This is good. It's obviously good for Tesla's expansion and their belief that demand will remain high.

But keep in mind Tesla also implied that more price Cuts could come to their vehicles in the future and I want to be very clear about this because I don't want anybody to get blindsided going. Oh my gosh, their margin was 25 in Q4 Everybody thought Q4 was going to be bad. wait for q1 I Think that's when you're actually going to see their margin potentially fall as low as 20. That's what they alluded to in their earnings.

Actually, they didn't even allude to it. They straight upset it. They straight up said in their earnings call, you should expect a gross margin of 80 percent and not in 2023. But going forward after 2023.

Uh, we will try. We will try to approach a 70, uh, gross a cost of goods sold again. So that would be a 20 margin expected for 2023 and a 30 percent is what they're going to try to get to in the future. So keep in mind when people are bragging about Tesla and the price Cuts It's going to hit their margin Q4 was not the bad Q4 was not the worst and it's more likely in my opinion to be Q1 Q2 2023 and there will probably be more price cuts which put even more pressure on Tesla That's okay though, because of Tesla's massive existing profit.

As long as they can continue to fund their expansion, Tesla's going to eat up the rest of the industry and now we're starting to see not only the rest of the industry cut. uh uh, their their prices which is expected, but on top of the price. War that's going on Now You've also apparently had uh San Francisco officials complain asking that Waymo and Chevy Cruze scale back their self-driving division because too many of their self-driving vehicles are getting stuck on roads and uh and are basically jamming up uh, the flow of traffic because nobody is is available to go. uh to solve these.

Uh, or nobody can quickly get these vehicles off the road because while nobody's in them. This is in contrast with Tesla's self-driving system over the weekend. Uh, over one of the morning live streams in the weekend, I reviewed the Mercedes self-driving system and the Mercedes self-driving system was a joke. Uh, let me just give you a rundown of it.

the Mercedes self-driving system wouldn't enable in turns on a highway and they said, well, this is unusual that you would have a turn in a highway. Bizarre, Uh, But then also the Mercedes self-driving system only operates the Mercedes drive system which you get in like the 115 000 plus Vehicles The Eqe eqs. The Mercedes self-driving system only operates when you have a lead car. So in other words, if you're on the highway and there's nobody else there.

One of those beautiful times to be able to drive on the highway, you can't enable the system so you have to speed up to get behind a car. Once you're within about 100 meters of the car in front of you, then you can enable the drive system because it needs to someone to follow. You know what it needs a Tesla to follow like the sheep that Mercedes is being. Then it will only work when you're going less than 40 miles an hour.

It's basically just a adaptive cruise control which keeps you at a distance from the car in front of you and then Lane keep assist that's boring. That's stupid. Tesla has had that for five years. When I bought my Tesla my model X in 2017 I didn't need a car in front of me I didn't have a 40 mile an hour limitation I could turn on autopilot on the highway and autopilot on the store like city Streets was was not good back then.

It wasn't advertised as being good back then either. It's gotten really good now now. Yeah now. I've got FSD It's freaking incredible.

I'll talk about that in a moment, but autopilot back five years ago was phenomenal and no 40 mile an hour restriction on self-driving So keep in mind, well, I'm I'm somewhat saying warnings about Tesla That does not make me a Tesla bear, it makes me a Tesla realist. I'm not only the Little Bull kid who's only gonna say good stuff about Tesla because their whole portfolio is in Tesla It's not true for me, it shouldn't be true for you. it shouldn't be all in on one stock. Uh, but I do believe that Tesla's full self-driving is Miles Ahead of the competition I don't really care about Crews don't really care about Waymo.

Great. They've got mapped self-driving in certain areas which now Regulators are pissed about Mercedes doesn't hold a candle neither the other automakers or Byd because what do they have? adaptive cruise control and Lane keep at certain speed limits? That's stupid. that's boring. What does Tesla have Tesla has the ability for me to sit down in the car, press where I want to go in my navigation which is basically always the same bar I mean uh, destination downtown and uh I hit go and then you go I'm just kidding I I would never drink and drive uh well anymore.

No, not that I ever have uh but anyway. uh the the. What's great about the vehicle now is that you plug in a destination and you hit go. And the darn thing almost always drives without intervention.

Now it's pretty incredible. It's getting good. I Just got another software update yesterday which I'm really excited to try out. Uh, this is something that the competition can't hold a candle to.

and I think that's where the uh the massive margins are going t