Welcome back to meet! Kevin Report number 34. super excited to be here! February 25th lot to talk about today today. We're going to be talking about uh, not only what's going on with households, household savings bound sheets important topics here. we're going to be reacting to some things going on in politics and we'll also be talking about what's going on with this cantileon effect which is pretty interesting French effect that has a lot to do with inflation, so we'll talk a lot about that.

Thank you so much, by the way for being here and your comments uh, in the morning? Uh, for example here: Victor Thank you for posting this three minutes ago. Just wanted to say thank you Kevin made my first million in large part to your inspiration with rental real estate. That's amazing. Honestly I I say it almost every day I think the best way to make your first million dollars is in real estate Rental real estate.

uh, so many people uh that I say that to then respond with the usual objections which I hear all the time which like I I I don't have the down payment no I don't have the credit oh I you know I can't qualify I and those are usually the first objections and then generally I respond to these objections with well, then get educated so you can get a better job. We can start there. You know, if you have a W-2 job, it's pretty dang easy to qualify for. Real Estate You don't have the 20 down, then put three percent down and potentially get a median income home buyer grant to get into real estate.

The the objections are usually extremely solvable. If your credit is bad, then pay off all your bills twice a month now. I Understand some of those things might seem like I'm oversimplifying how difficult it is to go from having credit card debt and low income to actually making money and not having let's say credit card debt that's accruing and lowering your credit score. Look I get it.

I went from working at Hall I mean my my income growth trajectory was extremely slow the first few years. I mean think about it. went from Hollister at the 16 making what 724 an hour to work in my butt off at Jamba Juice at eight bucks an hour to get at eight dollars and five cents an hour after a year of work to quitting that because I'm like really five cent raise. Okay, bye going to Red Robin for nine dollars an hour and basically getting roughly a raise to uh that was within about four months to about nine fifty an hour because I started getting a slight percentage of tips at uh working the line.

uh and and then my first year of real estate where I made you know 35k. It's like you know you could work for 25 bucks an hour right now and and make more than what I made my first year in real estate for. You can make more than I made my first two years in real estate. So it's like really, really slow.

But obviously you know once you you find a way to provide value to society by getting educated more, it's easier to get over that lower income hurdle and then be able to pay off your debts and then make sure you're paying your bills twice a month so your credit score isn't getting in. Now you can qualify for Real Estate Now when you qualify for Real Estate Stop trying to buy your dream home right, buy something to to start with So uh, you know Victor in your case I don't know what you started with I appreciate you bringing that uh, that anecdote over here. but uh, you know I mean think about about it. If you start with even your own home and it's a two bedroom one bath house, it's a little Fixer-Upper or a condo.

What a wonderful thing to be able to move into, get a loan for you know, three to five percent down, Three and a half percent down FHA Zero percent down VA Three five percent conventional whatever and own that property. Live there, fix it up for a year, learn how to work with your hands a little bit and the value of real estate, and guess what you do the next year you go. do it again. and then when the market starts doing its thing and you slowly start paying down your principal and you're not over exposing yourself to to uh High payments that uh your your income can't justify, Well guess what? You slowly approach becoming a millionaire and eventually your tenants just walk you into becoming a millionaire.

And then of course you know before you know it, you'll be one of those people that has multiple real estate properties and a net worth of millions of dollars and people will be looking back going. Man, how'd that guy get rich? What you know? Why can't I be Randy like the it's like well they went through the Journey they went through the process. Look at this. Look at this.

Victor Victor says started house hiking a duplex with an FHA loan. See this is brilliant. Absolutely brilliant. So what Victor's saying is he put three and a half percent down.

Probably you could put more down on FHA but you generally don't So put three and a half percent down. But instead of putting it down on a house, bought a duplex so we could rent the second half and at least help contribute to some of the mortgage. Now in some areas that can be a little bit more expensive, some markets are very difficult to do that in with a duplex because there are very few duplexes or the duplexes are so expensive. Uh, and and it makes more sense to maybe look at single family and maybe you house hack via renting out rooms right? If you could get into a two three four unit apartment building and you can get in with three and a half percent down and have tenants contribute to your mortgage payment, why would you not do that? It's phenomenal.

Uh so uh so I mean there's so many opportunities and I think I really believe it? This is what I say I mean look most I would say my most popular course and it's the one that that people share with their friends and say Hey you gotta buy this as well and join it is the stocks and Site course. I Think that's because most people find that most accessible right? Uh, and it's all about building your wealth uh, through through long-term investing and being tax efficient and uh, fundamental analysis on on companies. So you're looking at companies that that are getting you the highest chance of success rather than just sort of speculative momentum bets. Uh, that's stocks and psych.

And obviously there's a lot in there in terms of again, taxes and investing and so on and so forth. But a lot of it also makes reference to how you can utilize investing in stocks to help you get a leg up in investing in real estate. whether that's down payment hacks or income hacks or whatever things you can do to make sure you get. You also get into real estate and that's obviously the second most popular program that I have the zero to millionaire real estate investing course and it's It's really because when I say zero to million I highly believe it.

Uh, not only do I believe it I know it's possible. So it's it's fantastic. Uh, it's it's really good. Let me get that bundle coupon.

Well, you get a bundle right on the website, but if you wanted to email for if you needed a special bundle or some guidance, just email Kevin.com But yeah, anyway, seriously, anybody listening, even if you just take the inspiration of okay you know I want to get serious about buying real estate? That's good, That's a good thing. Very very very excited about that. So I I hopefully uh, hope, hope you all can enjoy that. Atlanta is going through a rough time down 38 of the market.

So something else to remember too is when you're investing in real estate in at least just my opinion you want ideally to try to find the lowest risk you can find areas with lower poverty rates and higher median incomes. It's better in my opinion Generally to to stay away from extremely high cash flow is red flag because sometimes those markets can be a little bit more volatile. uh and uh I Don't know specifically about Atlanta but I've seen in in some markets. uh on on the East Coast some parts of uh for example I'll just say it uh Atlantic City Jersey for example has like a 38 poverty rate and uh, but but the cash flow is really really good and so you have to be.

It's very difficult to buy blindly there because you really have to know Street by Street by Street and that's okay. It just comes with a little bit more risk when you're starting out. Something to keep in mind as well. So uh, Redfin data center is showing uh Atlanta Georgia going from about uh okay.

so so going from yeah from 400 down to a low of 340 340 ish from 400. That puts you down and puts you down 15. Maybe some markets of yours are about top 30, huh? It's interesting. The Simpsons predicted Ohio You know train derailments happen like all the time, right? and it's like oh Ohio was was a little crazy but trained Romans happen all the time.

especially in Ohio these have happened before these spills I'm not saying they shouldn't happen again and not trying to discredit The Simpsons because they are pretty incredible at predicting the craziest things. and then as Elon always says, fate loves irony and the craziest things end up happening. but I got to see that I've never seen that episode of Simpsons so I'm going to write that down. Thank you for that.

Uh, if you're in Colorado look up C H F A Colorado Housing and Finance Authority There you go. probably help you get into uh low down payment. Let's see uh chfa Colorado counseling and Finance Authority We'll take a look and see if it's similar to what I'm saying. I I Do caution against investing in homes that are deemed affordable housing.

but if you can take an affordable housing loan and get into a normal neighborhood uh, that's I think generally a fantastic idea. Colorado Statewide Approved lender We offer home purchase loans and grants, second mortgage loans for down payment or closing costs. Yeah, see, This is perfect. We also sponsor free home buyer education across the state in the English and Spanish to prepare you for home.

See, that's fantastic. Yeah Gen X here says uh, uh, no down, that's awesome. That's awesome. Absolutely awesome.

That's that's exactly what I'm talking about. So yeah, there are generally opportunities like that in in every area of the country. It says mostly because the Federal government tries to increase home ownership. so they Dole out, uh I mean multi thousands of dollars of home buyer grants and the goal really is helping first-time home buyers.

sometimes even first-time home landlords. Really incredible. Yeah, All right. so I'm in a regular house? Yeah, See, good for you? Yeah, exactly.

Yeah, Yeah, exactly. It is. as long as as long as you can avoid rental restrictions, right? That's important because sometimes some of the grant programs, not all of them. But some of the grant programs won't let you rent out the house after a few years and that's a little risky.

Uh, do airplanes appreciate faster than houses? generally? No. Generally, airplanes are a depreciating asset. We're in a very bubbly airplane market right now because of massive plane shortages, so there's sort of a temporary surge on plane prices. Do you think people who are buying now are acting a little unreasonable? Uh, yeah, I mean not necessarily.

mostly because it's so difficult to qualify for a home right now. And the um, uh, what? what? I What I would say is you did have a temporary drop in mortgage rates that really encouraged people to get into housing uh in in the last few weeks as we potentially thought, oh, that's it. The housing markets bottom, uh, and I I don't think that has occurred just yet, but probably not too terribly far off. Uh, but yeah.

I mean seeing seeing low inventory right now uh, combined with uh, the you know at the end of December you usually get a mass Exodus of real estate listings, so combine that with the idea that maybe mortgages had bottomed and the bottom was in Led to quite a bit of a surge here in January I Don't think that's sustainable given how high rates have gone, but we'll see. Uh, we'll see. All right. Let's see here.

Oh, Covered. Effed up landlords I mean I Think that's sort of like a one in a hundred year pandemic where kind of like, oh, covered was so bad for landlords Maybe I Mean if you Think about it with with how many landlord concessions there were and landlord stimulus there was or rental assistance, there was saying covet after landlords is in my opinion not accurate. Uh, some landlords? Yeah, maybe. but um, in in and there were so many opportunities to get to get help I find that very difficult uh to say And then and then that that should somehow dissuade people from getting into real estate I Think it's a mistake knock on wood.

We fortunately didn't have a single missed payment during the Covet era. All right, let's go ahead and talk about what do we want to talk about today? Uh, we'll talk about well, let's go ahead and start with uh, uh Morgan Stanley piece on individual finance and uh, and sort of what happened yesterday in markets and then we'll jump into some of the politics and the cantilearn effect and more. So we'll jump into this. Okay, stunned by well, stocks got wrecked on a Friday and in this video we've got to talk about are households going to drive us right into an earnings recession? And when could they potentially drive us into an earnings recession? So far, with over 72 percent of S P 500 companies beating estimates for their earnings which is slightly less than what you would usually get in terms of upside surprises for earnings, but still not in an environment where we're substantially recessionary.

What are we facing in terms of an earnings recession? And when could it actually come? Well, Morgan Stanley has a piece on when we might actually see a bottom and consumers ability to continue to spend money. After all, after the reports that we've gotten for January, it certainly seems like the consumers are still doing just fine unfortunately, leading to propped up inflation, which is creating fears that uh oh, the Federal Reserve might have to do a whole lot more. And it's not just individual retail investors who are fearing that I believe based on stock market activity, it's also institutions. We're not yet convinced that inflation is absolutely on a downtrend.

once we have confirmation that inflation is, without, without a doubt on a downtrend. I Expect a lot of cash that is sitting on the sidelines that hedge funds Pension funds, institutions, and Retail investor accounts to start flowing right back into the stock market. We're at some of the lowest allocations from cash to the stock market that we've seen in decades right now, and part of that is due to substantially High bond yield rates. Look, for example, at the two-year or six month treasury bonds and bills you're looking at near a five percent yield you could throw your money into Robin Hood or Wealthfront or even Sofa right now and earn anywhere between four and a half to maybe five and a quarter percent in yield.

Just sitting around even JP Morgan is picking up the phone, calling people with balances in their bank accounts going, hey, want to lock up your money for six months and we'll give you a CD like those old things that Banks give for people who lock up their money and get a yield in return. Yeah, it's crazy right now. So the question is, why would you even bother investing in into stocks? The only rational explanation is that you would expect that once inflation provides confirmation that inflation is indeed trending down, all that money on the sidelines will look and say five percent is nice, but my opportunity cost sitting out on stocks might be 10, 15, 20. so maybe now's the opportunity to hop in even if we're slightly off lows and ride that wave.

Of course, the last reports that we've gotten with a Hot Jobs report that came out the day after the Federal Reserve meeting with a lot of folks putting on the tinfoil hat saying sure y'all scheduled the FED meeting for a day after the labor report and In Fairness. Usually the FED has their Fed beating a week prior. it's the third week of January they usually have it here. they had it in the last week of January which rolled into February 1st.

Uh, thanks to the calendar of the FED generally holding this meeting on a Tuesday and then press conference on Wednesday and then of course right after that we got a CPI report that was hotter than expected with hotter revisions. From the prior month, we got a Producer Price index report with hotter than expected results and hotter revisions. From the prior month, we got a retail sales report that gave us a hotter than expected Report with hotter than expected revisions and then just yesterday we got a Pce, which is the Fed's preferred inflation gauge for January other than expected Pce report and hotter with more revisions. All this, while you've got multiple credit card companies suggesting boy, it just seems like people are still spending money.

So when does that spending go away? and is it possible that this inflation is just going to continue? Well, let's take a look at what Morgan Stanley suggests is going on with individual household balance sheets, and maybe when those excess savings will go away. Keep in mind right before we look at this household report for Morgan Stanley there are really two trains of thought right now. One is that inflation is transitory and yeah, we might have some volatile January data thanks to massive seasonal adjustments or just the January effect of going from a cold December to a warm sees unseasonably warm January leading potentially to more spring style sales in January and a boost in temporary inflation. That is sort of the transitory argument.

And then of course, there's the argument that, well, the numbers we had in the last three months of 2022 or all outliers now are facing slowing disinflation and we're probably going right back to the races with inflation. So what says Morgan Stanley Well of course Morgan Stanley says use that investor day a flash a sale linked down below for the programs on building your wealth, you get lifetime access to all of the new content that's added all the new content I added now or add now is done on our Blackboard which is really phenomenal for uh, teaching. People are really enjoying it and loving it. And of course we do our daily course member live streams but you get lifetime access to if you join.

So check that all out link down below. So what do we have here Morgan Stanley Telling us households have been using their excess savings savings level now uh, however now under shooting Trend Okay, this is this is the usual thing that I talked about where I get a little frustrated when people only look at the savings rate because excess savings are still so positive after the pandemic. But just so you can visualize the savings rate, some of y'all were asking that we visualized the savings rate. This is where you can visualize the savings rate you can see.

here. we sit roughly at the beginning of 2023 and that savings rate bottomed roughly around October September Of 2022, that savings rate is returning slightly to Trend. However, we still sit below trend on that savings rate you can see. Obviously, during the covet bubble, we had a massive increase in the savings rate and generally we match Trend Right after all, that's why it's called Trend We kind of make the trend and then the trend line comes afterwards.

But anyway, right now, we are still substantially below that trend line. Uh, we're approaching that trend line though. Uh, we're expected to approach that trend line. Uh, by about 2024..

see if I draw this. Maybe to Q1 2024. Let's see, let's draw a line up to that. Yeah, I'd say that's about Q1 2024.

still got a little bit of work to do. Maybe by Q2 Q3 2024, you actually get to Trend again on the savings rate. But right now where we sit, we're still quite a bit below trend on the savings rate. generally.

the personal savings rate sitting somewhere around five to seven percent, Us right now sitting at about 3.4 percent. So this is where a lot of folks are concerned. Hey, how can the consumers hold up right? Well, graphically, here's one we expect: Maybe we we could see a bottom in earnings, right? So first, and we're going to align excess savings to try to figure that out because we assume that if the savings rate is below Trend then people right now are still able to spend money to sort of avoid a recession. but people are only able to exp essentially spend money to the point where they have excess savings or excess available debt right? There are two ways you can continue to spend money when your income goes away, and that's either debt or money that you have saved up.

And if we first start by aligning where we sit right now, I'm going to draw a red line going up roughly to where we sit right now. And when we look at cumulative excess savings, this chart here suggests we're still sitting at levels that's somewhere around uh, 2 billion. I'm sorry. this is two trillion dollars of excess savings.

The chart is provided in billions. and uh, we are. Uh, we're looking at thousands of billions, which are trillions and we're still sitting at quite a bit a high level of excess savings. It doesn't really matter so much how much that number is though.

I Think what matters more, and what is more telling is, where's the inflection point? Where do we go potentially? And this is Morgan Stanley's estimate from excess savings to a deficit of excess savings. So a negative excess savings means you have less money than you had before the pandemic, right? And so where does the chart go? Negative? Well, in my opinion, based on the sort of analyzing and sort of drawing a line on this chart, it looks to me like we don't go negative in excess savings until May of 2020. Four, Now, that's pretty remarkable. That really suggests that consumers have roughly another 14 to 15 months of excess savings.

Which is really interesting because if you look at the inversion of the three-month 10-year yield curve, which usually projects a recession within the next six to 18 months, it's worth noting that we've already been inverted for about seven to eight months. So if we take that off the inverted yield curve we're looking at maybe about 10 to 11 months to go. That potential recession signal of of the latest. The inverted yield curve would generally signal a recession somewhat aligns with the beginning of 2024, which is pretty close to aligning with when Morgan Stanley thinks we're going to go to negative excess savings.

So maybe the inverted yield curve is approximately saying q1 of 2024 for a recession, excess savings are roughly saying Q 2 of 2024.. Now that's really interesting because it suggests that oh well. if we go into a recession, that could mean the most pain is still ahead of us, right? Well, that's maybe something where we have to look at history a little bit and think about this. So we'll look at history and we'll We'll make some sort of uh, conclusions in terms of what we think in terms of stock market pricing.

So first of all, let's look a little bit historically. so if we look at the S P 500 at least as of the last recession, uh, well, that goes back to Oh I can't really get a chart going back further I'd like to get one going back further the covet pandemic was a little bit of an outlier. I'd like to get uh, the S P 500 going back a little bit more. So let's go ahead and look at this together here.

Let's see if we can get the S P 500 historical on St Louis Fed uh or the Fred website. This is a fantastic way, uh, to see or to visualize what uh, what valuations for stocks are doing. Going back, uh, over time? Oftentimes able to Overlay this with recessions. but right now we're having a little bit of trouble getting that graph.

so let's just Google it say let's go. let's just go with S P 500. Uh, overtime with recession chart. So that way we can kind of visualize this.

Okay, let's try what Yardini has for us: S P 500 with recessionary Cycles There we go. Okay, that's exactly what we're looking for. Sorry for the delay there. All right.

So what's interesting here is recessions. When we zoom in, we see these sort of bluish lines here. Oftentimes we go back to recessionary eras, we'll see that recessions align. potentially at least in the last crisis.

It looks like the recession almost aligned with this with the start of the recessional line with the top of the market. And we know that the recession and stock market bottomed in about February of 2009. Which is interesting because it potentially suggests uh oh, this historically this start of a recession. Really where stocks bottom out.

And this is something where Goldman Sachs told us about three weeks ago that recessions are usually when recessions start. they usually start the bottoming process for stocks. And that's because when we align the start of recessions with when we have a bottom of an earnings cycle, we could see that the stock market usually bottoms out about six to nine months before the bottom in earnings. So that's interesting because if we go back to 2009, potentially because this recessionary period over here lasted uh, really, about two years, it's possible that we bottomed out in earnings somewhere around the end of 2008, and we didn't actually hit our stock market bottom until the Federal Reserve broke something in February of 2002.

And so that makes us Wonder today. Okay, well, if earnings potentially are going to be at a bottom in, well, October of 2022, then maybe we've already hit a bottom in the stock market, right? Although what if earnings don't actually hit a bottom until we inflect a negative in excess savings? Well, that would align more with Q1 of 2024, which potentially suggests maybe the bottom is still ahead of us, right? If the recession is, maybe in the bottom of earnings is the first part of 2024? Oops. Let's actually go ahead and show the screen there. There we go.

Bottom of 2024. Does that potentially forecast a bottom of the stock market and a leg lower Still coming before the worst gets priced in. And this is really where you have two trains of thought. You have the historical argument that yeah, look, we aren't going to hit bottom until in the stock market until we actually price in that bottom of earnings and that bottom of earnings if it wasn't Q4 2022 or people are still spending through this earnings quote unquote recession.

So maybe the worst is still to come. So this is where there are really two trains of thought that you have to evaluate. Okay, what works best for your situation? What do you believe? Because I believe there are two trains of thought. Train of thought.

Number one is: if we're going to have a bottom in earnings in Q1 Q2 bottom of 2024, bottom of Eps, then you're probably looking at a bottom in the stock market of somewhere around Q3 to Q4 23. that probably aligns with another large leg lower, and it probably also aligns with sticky inflation, right? Because if we have sticky inflation, we're going to see that terminal rate from the Federal Reserve likely move from where we sit right now, which is about 5.43 percent when I checked this morning to potentially a rising of six to maybe even 6.5 percent. Some even say seven percent as a terminal rate. This is one scenario where when we align all this this sort of historical data which is provided by Goldman Sachs and of course we could see this chart wise as well that generally the stock market bottoms about six to nine months before the bottom in earnings and the beginning of a recession can often, uh, start the bottoming process.

So that means stocks eventually pull you out of a recession. so you don't generally want to invest in stocks at the sort of technical end of a recession, right? Then you can almost sort of align this here. See, let's draw this graphically because there's a lot to align. Uh, so if we go over here and we suggest that a recession might be over by Q324, let's say let's call it recession over well.

And then we have a stock market that pulls us out of a recession. And maybe that recession begins somewhere in Q423 where earnings basically hit rock bottom and that recession begins. Then potentially that stock market bottom sits somewhere over here between Q4 and maybe Q1 2024, right? If we look at our crystal ball, maybe that's what we're looking. 2024.

That's the thesis of sticky inflation aligning with excess savings are gone, and that is provided obviously by Morgan Stanley Because that's what we're looking at here. So again, if you want to see that here, when do we go to negative excess savings where consumers can no longer spend through a recession? Well, that's potentially uh, you know, Q3 Q4 or sorry, rather, uh, bottom of of people's ability to spend right? Uh, potentially aligns with Q4 q1 Q2 2023 to 2024. And when does that align with the bottoman of of potentially earnings? Well, potentially that Q4 to Q2 as well. And then according to Goldman Sachs bottom of the stock market might be six months before that.

So going back to this drawing over here, that might say bottom is somewhere Q4 2023 I would say probably out to yeah, q1 2024 in this scenario, because even if earnings bottom in Q uh, uh, three, Q two, Q three With that excess savings, right Q2 Q3 bottom and earnings over here, you've got that six to nine month rule that aligns your bottom a little bit earlier there, which aligns with the inverted yield curve right? This is what the 310 is telling you. So bottom line Scenario number One suggests: sticky inflation, higher terminal yield. When do earnings potentially bottom, and how much before, uh, earnings bottom does the stock market tend to bottom? That's your scenario One where a lot of bears right now are saying you've got Morgan Stanley's Mike Wilson you've got Goldman Sachs You've got JP Morgan The the bear position is hey, look, we've still got another big leg lower and that could potentially align with that recessionary Dynamic we're seeing now. Or oh yeah, maybe you do still have another like lower and maybe that's what you want to be prepared for.

And that's roughly what the timing would look like when we look at negative excess savings. and also looking at Q for 2022 is basically not that bad. Like, sorry, not there yet, right? That's scenario number one. Scenario number two: is this idea that? okay, well, maybe maybe that bear case could play out, but maybe inflation proves itself as declining in the months of February.

Remember, these are February reports which come out a month later, so we would get these reports in March, April May and those reports would be for Feb, March and April. Maybe these inflation reports end up proving Hey, don't worry, the January data was an anomaly, and if the January data was an anomaly, then you know what? Maybe inflation will prove to be transitory. We top out at 5.25 we level off, and the stock market starts pricing. In all right, the bottom is behind us.

We can continue to spend money, and by the time we actually get to where we get to negative excess savings, what potentially helps, refill the savings pot? Well, this is where, in the favor of the Bulls in scenario Two, you look over here at your savings rate rebounding roughly at the beginning of 2024, second quarter of 2024 to where you could. Then, even though you've depleted all your excess savings, you're going right back to spending the money that you're making. That's a thesis. Both the Bears and the Bulls have an argument here.

The bear argument actually calls for a substantial amount of patience, right? Think about the bear argument. The Bears right now are saying, look, we're not going to hit that earnings bottom probably until Q2 2024. we got a long way to go. That means the reset the bottom of the market might not be until Q4 2023 to Q1 2020.

Uh, four. and uh. And that essentially also aligns with the three-month 10-year treasury. So you get alignment with the inverted yield curve.

negative excess savings a bottom in EPs And there's your bear case whereas your bull case is no, no, the January data is an anomaly. January is an um I can't spell that at 5am. Uh, January is an anomaly and don't worry. Feb March and April data will be great and we'll be back to the Moon.

Okay, those are your two Theses and your two scenarios uh and I Think ultimately it. There's probably a case for making a balanced portfolio allocation here, where you increase a higher level of uh of of your savings. So that way you're prepared in the event we do go through another layoff cycle, which is entirely possible. No matter what job you have, it is entirely possible to get laid off.

And that's unfortunate, right? It's very difficult right now, especially on small businesses to survive. I Was just talking to a commercial property manager about uh which divisions in the commercial real estate space they're anecdotally seeing as most pained. And it's small mom-and-pop retail stores very difficult to get new business formation right now taking leases at least yesterday when I was in the Vegas Market to explore. um, uh, real estate There where the most pain seems to be medical real estate obviously doing well, but hey, you could still have pain in medical real estate.

If rents go down, cap rates go down because you're seeing Office Buildings or other spaces that could become medical spaces drive those rents down. so a lot of various pain it seems like uh, lower income smaller businesses likely to get hit hardest the most. though that doesn't mean larger companies aren't going to go through their layoff Cycles as we already know they very well are Wells Fargo laying off lenders almost all of the large Banks whether it's Goldman JP Morgan layoffs in multiple different departments um Financial advising to trading to Consulting consulting's getting hit, texts getting hit I would guess small businesses right now or potentially still jaded about having a hard time hiring. And so there's this idea that some of that employee hoarding is going on.

but what if that that employee hoarding ends up turning into employee paper handing in this bear case, right? employee paper handing could actually align with the bear case I Hate to say it because obviously I lean more bullish. That's my bias, but the more you know I study the bear case, the more I realize yeah, there's there is a very much valid argument and we'll know within the next few months which scenario is more likely to play off. We can't just keep trying to explain away High Inflation as an anomaly. the January reports fair game, massive seasonal adjustments uh, and massive.

A massive potential for anomaly with higher energy costs in January compared to December so pushes up your month over month cost both core and non-core thanks to the flow through of higher energy costs but also going into a much seasonably Warner warmer January Right, That's that's the way you could try to explain that away. But seriously, the the paper handing of the hoarding of employees. So let's write that on paper handing of employee hoarding. That's not going to happen in the first quarter of 2023.

First quarter of 2023, people still have hopium. People still have this belief that it's okay. Let's use our excess savings. Let's get through this recession.

let's just keep trying to expand the business and maybe take on a little bit more risk to expand the business once we once we bottom out and the reality is, that's not a bad Strat Strategy If we end up having great reports in Feb March and April If we have great inflation reports Feb March and April and you are a small business that invested heavily at the end of 2022, you're going to get massively rewarded going into a bull cycle with more employees, more efficiency, and more capability of selling your goods and services. However, if you go into the bear cycle and you spend money on yourself or your business or whatever going into higher debt, well now, all of a sudden, you're going to have those higher debt payments for longer. You're not going to be able to refinance your home or your property or or your rental property or business as quickly as you thought your credit lines for your business or your properties are more expensive. Now, all of a sudden, you potentially actually have to start paper handing your employees because even though you thought you could hold on to everyone now, all of a sudden, you're like crap I Actually can.

That's the bear case. That's the bear case and so that that's really going to be a personal decision for you in terms of what you want to hedge for. But boy, I mean I I Mean some people come to me and they say Kevin what do you think about my situation? I'm like 20 in margin right now because I think we've bottomed out and I'm like, well, that's fantastic if you're a scenario number two, that's miserable. If you're scenario number one, you know, even if you're all in right now, but you're not in margin.

Okay, great yeah. Scenario number One's Gonna Hurt But at least it won't take you out. Uh right. You just have to basically dime in hand.

Uh yeah. However, if you're leveraged and you're going into a scenario number one, it's gonna suck. And that's the case for still having some cash in my opinion. You know, whether that's 10, 15, 20, whatever.

That's roughly what I've been looking at in terms of Uh allocations now then then at least you have a little bit of insulation going into the scenario number one. So uh, that's that I think is very, very important and hopefully brings together some of the madness that's happening. Uh, look, there is still there is still an argument for Rapid disinflation occurring I mean look for example, at uh, at what's happening with with a vehicle inventory and new vehicles I mean uh, you're getting smashed Morgan Stanley talks specifically about that. Let's go a little bit further here.

let's go through some more of these charts. Here we go: look at this: uh: motor vehicle spending weaker than other durable goods due to a 5 million unit Supply glut notice I I Wrote this here in red but GM paused production to optimize inventory according to Detroit News Uh, the shutdown should be lasting two weeks in light. Uh, in due to light duty um, truck inventory being so high that they're just pausing production completely because there's so many new vehicles right now and we're potentially expecting tighter are land loan standards destroying demand for lower income vehicles, but also a glut of inventory leading to Rapid disinflation? That's your Kathy Woody and argument Right now. We've had some signs that used car prices popped in November and December which is a little bit of a concern.

these charts right here showing you the CPI metric for used vehicles and new vehicles. Uh and so uh. There is an argument that hey, you know, rapid disinflation is coming. but the counter right away to that is well, we've actually still seen household wealth hold up pretty dang well.

mostly because a lot of household wealth is in in real estate. and this is why I Suggest: when people want to start becoming a millionaire, the easiest way to do it is real estate. That's why I have a course called Zero to Millionaire Real Estate Investing. Link down below Got a flash sale going on.

Anyway, you you look at the decline in in household net worth and it's nominal. I Mean here's a chart on the right side that goes all the way back to the 90s and you can see net worth as a percentage of disposable income has never been as high as it is now it if for a moment. I take for example I'll take a a white eraser here sort of and I'll just draw over the top of this chart to get rid of the fact that right now we're a little bit lower than the peak, right? But I Just want you to compare. Where are we? Now There we go.

Okay, so now compare the chart to where we are. Now We're substantially higher than anywhere we've been during the pandemic, and 17 and 14 in 2006 in in the 90s, substantially higher net worth as a percentage disposable income. Today, Even though that's come down in 2022, it's still so much higher. And that's helping support some of this excess spending.

And uh, well, yeah, we're starting to see an inflection point in wage growth, which is good. It's still incredibly. High We haven't seen some of these inflation levels or job stayers since before the.com bubble. We've never seen this high of wage inflation for job switchers.

Uh and uh, and yeah, hopefully we get rapid disinflation of goods. When is that actually going to show up as Services Well, what if it takes another year, right? Well, then you reiterate the bear case. If it takes another year to get rid of the sticky inflation, you're just reiterating the bear case scenario number one over here, which aligns really with sticky inflation actually. I Already wrote that there on the left, the bare case aligns with sticky inflation so you actually don't have in the long term bears and Bulls who are too terribly different, right? I Think that a lot of bears and Bulls agree that look in the longer term you don't want to bet against America right? but that that next leg down seems to be the case or that individuals make as a bear versus the Bulls And there's data supporting arguments on both sides.

Uh, Although leading indicators, in my opinion, lean heavily towards the bull case via what we're seeing at earnings calls, it's unclear if the Federal Reserve is going to align with what we're seeing as a leading indicator in earnings calls of rapid disinflation, rapid availability of workers I Should say uh, Supply chains normalizing substantially and rapidly and really a lack of pricing power. any lingering or or should I say the ability to raise prices since pricing Powers Really the ability to raise or lower prices while still maintaining margins? The lack of uh, sort of inelastic or a demand elasticity, right? So uh, back in the day, Uh, and like you know, beginning of 2021 uh, demand was was almost uh, I Should say perfectly inelastic. In other words, you could raise the price as much as you wanted and people were still buying. And now you're seeing a return to demand elasticity which is basically saying eh, you raised the price I Stopped buying right? My demand becomes flexible as opposed to perfectly inflexible.

Uh, anyway. so TBD but this is the bear bull case and which side I think will be heavily I Mean we know it'll be heavily dictated by what happens in these February March April reports. Uh, the January is is is I mean the Bears are cheering January and if we get a bad Feb March April report the Bears will probably end up being right. So fingers crossed.

Uh, you know for for a bullish. Feb March April We shall see It'll be very, very interesting. Uh, right. So that's our bearable cage case.

Hopefully that was uh, detailed and it's sightful for y'all so we'll call that yeah, bearable case. See what kind of questions y'all have before we jump into some of the other topics here. Uh, I make 80k as an order selector I don't even know what that means Javier What is an order selector? What do you do? Do you pick which button to press the green button or the red button and you select? Oh, we're going to use Alibaba or Amazon How does all of this impact the Dixie Well if you have sticky inflation you have higher yields for longer and the dollar will will could make new highs. If you do experience disinflation, the Dixie will plummet because your higher yields will disappear and uh and and people will move from investing in bonds which even means foreigners demanding dollars to invest in bonds, investing in in basically the Dixie us because you need to buy the Dixie to buy buy U.S bonds.

uh and and the favor for will move towards foreign bonds uh or foreign investments which means less Demand on the Dixie which means down Dixie. So basically uh, in the bear case Dixie go up full case Dixie Go down. In the two scenarios we just talked about, good question. Very good question.

Can you comment on treasury bills? Big opportunity cost? But yeah, they're fantastic. The only reason I think it makes sense to be in treasuries in the market where it is right now is if if you're either sitting in cash and you're just never going to buy stocks with them or you have the cash to buy real estate, look, if you're going to use the cash to buy real estate, sit on the sidelines, wait for the real estate market to confirm a bottom, then go buy real estate. But you know, for example, that's what we're doing with househack. So for house hack, sitting in treasuries is fantastic.

It's even safer than sitting in in, you know, a broker account because the treasury bills much more guaranteed than FDIC insurance at 500k, especially if you have much more than that. Um, so that's phenomenal if you're waiting by real estate. But yeah, if you want to, if you're just an individual, um, you've got to evaluate the opportunity cost in the stock market based on scenario one and two we just talked about. Yeah, can you explain the Nvidia evaluation versus Tesla Um, Well, you when you look at evaluations for companies I I'll give you just a quick example I'll pull it for you.

Let me get that. Let me get the numbers for you. So what we generally evaluate is earnings per share growth. Uh, as a PEG ratio.

That's what I like to do. Uh, now let's see here. let's go: I'll get you EPS on Nvidia here. Strong bar.

Okay, and this is this is. these are the kind of questions we generally answer in the course member live streams. but uh, to give you an example. So Nvidia is sitting at hopefully a 25 EPS growth.

It should be somewhere around two based on my deep dive Fundy analysis that I did last time. But anyway, selling for about 232 86 divided by 444 on EPS. Uh yeah. so you're sitting at a price to earnings ratio at Nvidia of about 52 and a half with growth at about 25..

So you're trading for a PEG ratio of about two right now. whereas I think Tesla's closer to about a PEG ratio of one right now. which does make Tesla more attractive than Nvidia. So if I go to Tesla's forecast, you're sitting at about four on EPS 196 divided by four puts you at about 49 for a forward p E ratio in 2023.

And then if you take a growth rate you know some say 50 I Think that's pretty unreasonable. The bear case seems to be about 38 percent. Well, I mean the real bear case is lower that it's probably more like 30 percent. Tesla's worst case right now seems to be estimated about 30 38 growth EPS growth.

So let's divide that by 38 puts a set of PEG ratio of about 1.3 on Tesla. So I I prefer. So for me as sort of a, you know, a growth investor who's looking at a long-term pricing power plays over the next decade I would rather put more dollars into Tesla today's valuation than Nvidia. That's potentially because Nvidia was propped up quite a bit here on on some of the AI talk and I worry that that might play out a little bit like the Metaverse days, where it's like ooh, metaverse is so fantastic and everybody's so excited about AI So they buy Nvidia or whatever and and that ends up uh, sort of having a little bit of an exit and then you end up with what another opportunity by Nvidia at lower price, right? it's possible.

Uh, so uh yeah, that's that's how I would sort of look at that. Uh, of course, a value investor wouldn't look at it that way. They'd look at a multiple for book and they don't really care so much about earnings growth when I ever talk about the Canadian real estate market because it's just so tiny. it's so tiny, nobody nobody lives in Canada this is Canada even an economy? Just kidding.

no I Love Canada I've got family in Canada Uh, they're you know? Uh, we we play with loonies and toonies all the time. a A it's true I do love Canada I would actually consider investing in Canada The problem is now you'd have to. You'd have to create a Canadian Corporation to do it because they basically banned foreign Real Estate Investors but uh yeah, as long as you're okay with with a little bit cooler Winters you know you're not getting like closer to the Equator kind of weather. uh I think there's some phenomenal opportunities in Canada because Canada is a beautiful place, you have smart people, you got strong business uh you've yeah I mean it's it's uh, it's phenomenal in many ways and a fantastic uh cities with with excellent suburbs that you can invest in as long-term rentals you just basically have to become a local Corporation to do that.

which is fine, it just it's just more hoops and hurdles. what what really they're trying to do is prevent uh you know foreigners? uh dare I say highly or more more likely to be Asian uh Parking cash uh in Canadian real estate as as an uh you know as a safety net you actually had that have I still today have that happening in Miami You know you get people from Colombia Venezuela uh Cuba and they Park cash in Miami Uh because and they could be vacant real estate but they see vacant real estate is safer that as their than their own currency. It's actually kind of your bold Case by the way for Bitcoin as well it's like why go buy vacant real estate in in Miami that you have to maintain when you can just get the same benefit potentially out of Bitcoin So you have a lot of, uh, foreign foreign desire uh for for uh Bitcoin Okay, so Robert what I just said about stopping foreigners has nothing to do with immigration. it's Justin Trudeau's government is is, uh, basically passing a rule Banning the foreign investment into real estate by Foreign citizens, right? That's different from from having anything to do with immigration.

All right. What else? What else we got to talk about? Any thoughts on Tesla Investor day? Heck yeah man, we got a 25 000 car coming up now watch my video yesterday. Uh, it was titled Tesla is bankrupting the competition and uh, some people were very upset about my title because they thought the title Tesla is bankrupting implies Tesla's going bankrupt I'm like no, this is bankrupting the competition obviously and uh, if you watch the video, you get my uh investor Day preview and I think it's very insightful so you can take a look at that. You know what I might do is just for the the title reading Weenies? uh and even if you're just a title reading we need hopefully hopefully you actually watch the video.

I will um, let me see if I'll change the title. Let's let's let's see here. Uh yeah, I'll I'll throw in uh a competition. There you go Investor: Day Preview: All right, we'll make everyone happy.

Investor Day Preview: There we go Now you can check that out and and uh, and the the title can be a little bit more clear. There you go. but um, yeah, that that goes through my my thesis on 25k JC says remember when Kevin was going to quit YouTube no because if you actually go back and watch that video I said I was going to uh, take a two-week break and come back but I think what you're saying is remember all the people who only read the title and thought that and didn't watch the video so I actually appreciate you bringing that up Jay That's exactly what it is. Yeah, yes, Gas man says I like the old title better I Know me too.

People get so sensitive about titles. it's funny, but that's okay. that's all right. My goal is to provide really good value every single day and that's my job.

so that's what I'll continue doing. Okay, so we have, uh now, uh, let's go ahead and jump into. oh this was quite interesting. I'd like to play this because it was so sad.

So I'm gonna go ahead and play this. hold on a sec and then we'll go ahead and react to it as well. Uh, right, while this pulls up, it's taking a second to load. All right.

This was pretty incredible and oh wow, so it's getting a lot more views already on. Twitter someone else posted this on Twitter uh Seth Dylan Well I wonder if he's related to that attorney anyway? Uh, the uh yeah. Okay, let's go ahead and pull this video up and we'll talk about it. Weekends are always so much more chill.

All right, let's hop in here standby. Now We've got to react to what is a remarkable piece of my a high school student essentially slamming his school board for focusing on race and race-based education rather than an education that should be based on Merit rather than the color of our skin. Now I find some interesting points in this and an interesting comparison to for example, the idea and I Want you to think about this as we go through the video to the idea of who's allowed to run for president in the United States Think about this for a moment. Skin color based discrimination is bad and illegal of course, but who could run for president is in some way similar now.

I Don't want to get a lot of angry folks I Know that's a little triggering. so I'm gonna walk back a little bit on that and say look, I'm not suggesting talking about who can run for president has anything to do with the hell that other races have gone through, including redlining and real estate and building about the real estate or the lack of financial education that's provided in poor, more heavily minority-based districts. it is. There is so much work that needs to be done in America but it's very interesting because when you listen to this person's argument I want you to think about their argument in context of if somebody is, uh, born in another country, they don't choose where they're born.

just like they don't choose their race. yet. that is still a legal way that the constitution legally today says oh no, no no, we can still discriminate based on where you're born. And now this particular individual's argument is very interesting and I'd like to play it and we'll add some commentary here.

Yeah, and the reason I bring up the race idea is just for example: not that I actually expect Elon Musk would ever run for president? Uh, but somebody like Elon Musk Of course a lot of Democrats would not like that. uh Republicans might like that. Seems to be mostly a rational person who likes to get things done. Uh, you know it can't run for president because he was born in South Africa But anyway, let's listen to this video here because it's phenomenal.

I might pause for some commentary, but I think it's a really interesting piece and it's worth talking about on my channel. I'm a big fan of us being able to have an open dialogue and talk about even hard things. so that's what we'll do here. Let's go ahead and jump into this Hi my name is Brett Oh darn it.

I've got to change the audio. Source Why does this happen to me Stud boy. Just one second, there we go. We just missed that.

Taylor and I Just finished my freshman year at Rhs. Um, I've been a part of District 196 schools now for 10 years and I'm going to give you a glimpse today of what's actually going on inside these schools. Um, despite the board's attempt to deny it, District 196 schools are quickly becoming a place where promoting activism is actually more important than promoting education. I'll take you I'll take you back to my first day at Rhs this fall, the principal came out and gave us a heartfelt speech about equality and standing together.

He began to list countless races such as Latino Asian expressing how much they matter and how important they are, But never once did he mention a race or identity that reflects me or half the kids that were in the class now members of the board. I Know you haven't been to school in a while and I know most of the people I Know none of you or most of you don't have any kids left in the school district. Um, but you must admit how uncomfortable it will be to be characterized just by your skin color on the first day of school and be thought that you were wrong just because of your skin color. So I'll never forget the look one of my friends gave me from across the room as we were sitting there listening to this blatant bias being expressed in the so-called Equity statement by the leader of our school.

To be clear: I Don't need you to tell me that I matter, but hearing the condolences given to other races and leaving Just One race out it. Inevitably, you'll start to feel like you've done something wrong. and then our principal's attempt to unify us. He instead created unwarranted boundaries and barriers between his students, pitting us against each other based on characteristics that we can't control.

In another separate instance, I was told that writing all Lives Matter on the Whiteboard was political and could be seen as offensive. When I questioned the teacher after class, she told me that she didn't have an answer and she just had to erase it and it was quickly erased. There are political signs all over Rhs specific about specific races that matter, specific sexual orientations that matter, and specific perspectives that matter. But when I question the Rhs administration about how these signs were political, they told me that they were supporting human rights.

So when I questioned why the equity statement couldn't represent all students, they told me that to even ask that question was outlandish and offensive. And they when I asked why that was, they told me quote Whites have a pretty good situation right now. Unquote. So is that not racism? Disregarding my question merely because of the color of my skin.

To be honest, after during a year of the people in charge telling me that I'm a racist and I'm privileged and pointing out our irreversible differences, I've never noticed race more and it's becoming the first thing I Notice when I meet someone which has never before been the case. Rhs Administration Confidently told me that Rhs students and staff are happy with their Equity statement, but from my experience in talking with other students, this is not the case. I know many kids who disagree with their teachers, but they're too scared to stand up because they're worried that their grades will be docked and their learning experience will be affected. My honors Government teacher I'm not going to say his name, but he's mentioned that Democrats care more about all people while Republicans only care about themselves.

and he's also inferred to us that socialism is better than democracy. He even had a statue. he had a statue of a socialist leader in his classroom. Um, I have been I've been told by a lot of kids that they just stay silent and adjust their schoolwork to reflect an acceptable opinion to secure a good grade.

Have been approached by multiple teachers who have told me in private that they just want to say that they agree with me and they support me standing up, but they can't say it in front of the class for fear of being disciplined by the administration in some way or losing their jobs. There is clearly only one way to think in this district, and that is that they are teaching their kids to shut up if they don't agree Now Members of the Board: I Want you to take a good look at yourselves in the mirror tonight and ask, are you really standing up for the inequality of all people or are you just pushing a damaging political ideology? Um on on our students. A fellow co-worker at my job who by the way is of color, discreetly told me that the schools seem to be pushing a very leftist agenda in class. This proves that not everyone is happy with your school and not everyone who isn't happy is white.

Now, due to all these instances I've mentioned and many more that I can't fit in this five-minute speech, I've decided to leave this district and continue school on a private Christian School online and and there will be sacrifices and I will not get to walk in the graduation ceremony or attend milestones at Rhs. but I will be able to learn an environment that is not intent on punishing me daily for my skin color and political views. Now, regardless how you take my speech, whether you just shrug it off as Malarkey or Fox News talking points I Encourage you to think about it because someday I'm going to be a leader I May be the president, a governor, or just a professional golfer, but I will never stop believing that everybody has value no matter their skin color or personal beliefs. And it's a shame that you're not going to be able to say that I was an alumni of Rhs in District 196.

Thank you boy! I'd hate to be on that board I Also would probably never be on any board because I think boards suck I'm sorry, like if you're on a board I I Couldn't stand it. Maybe it's just not my personality. but anyway, yeah, look I mean these are important things to think about, right? you? You can't pick your skin color. You can't change that, right to you.

You can't empathize with somebody of a different skin color. You could try to sympathize, but that's the best you can do. You know, if you're black and I'm white I can't empathize with you. The best I could do is sympathize.

That's it. That's that's definitely definitionally the best thing you can do. Uh, you also can't pick where you're born. You know, if you're born in America and you weren't born with an accent uh, which I had an accent until about first grade.

For example, because I was born in Germany I can't change that and and how did that potentially affect someone as a child? I Don't know. I'm not trying to at all make a comparison. that an accent is like a skin color I'm just saying you have no control over that, right? You have no control over your skin color. You can't pick where you're born to some degree, you can't even pick your health right.

Obviously, to some degree you can, you could exercise and try to give yourself the best odds on health uh, and eat healthy foods. But but to some degrees, you with your health is genetically what it is right. So what you can do is very different from what you can't do in my opinion. Here's what you can do.

You can work to have a phenomenal work ethic. You can encourage a strong work ethic, you could encourage and actually perform honestly and provide transparency in what you're doing or do what you say you're going to do right. Your word is as good as gold. You can do the right thing, even when nobody's looking, and make sure that even if you can get away with doing something where you make more money, you choose to do the right thing because it's the right thing to do.

That's Eudaimonia. Living the good life, The aristilian mean doing the right thing. You could also get educated rather than being jaded at the world that we live in. Whether it's your opinion of the corrupt Media or the corrupt monetary system or corrupt politicians, or even as far as thinking everyone on YouTube is a scam.

whatever you can have the jaded point of view of life. and ah well, the cards I was dealt suck and everybody else is a scam. Or you could try to improve. see one of the biggest differences unfortunately between success and uh, crime and poverty is education.

But that's difficult because unfortunately people more often Black and Hispanic who live in poorer areas where the