Folks, everybody is pissed at me because yesterday I made a video talking about Pce inflation and how wonderful it was that Pce inflation came in below expectations and it looked like Goods Inflation was zero and service inflation was finally disinfighting to just 0.2 percent. and boy oh boy. The comments I got were quite extreme. They were somewhat to the effect of one like this.

For example: Jane just wrote inflation is Not Going To stop. We will Not Stop buying. And yesterday somebody else which actually inspired this topic, somebody wrote what the F are you cheering about low inflation my Ass When I go to the store, nobody is reducing prices and everything is still expensive Kevin you're smoking crack. You don't know what you're talking about.

Unsub dislike. All right. So let's start at the basics and dismantle this and then I'll show you some earnings calls from just the last week. So these are not the traditional earnings calls that I've been talking about regularly through the cycle.

They're actually brand new earnings calls and we'll go through and look at some of the latest data. So let's first explain how inflation actually works. All right. So in order to do this, we're going to go ahead and show the little coupon code Banner right here.

that is your reminder to get in before the CPI coupon code expires and then we're going to go to this little sheet here and I'm going to draw you how inflation works again. This is going to start a little basic and then I'm going to get into some new information on earnings calls. So I want you to remember this because it seems like I have to regularly explain this: If something costs 100 at a store you're walking into and you're pissed off because all of a sudden, that object now costs 110 dollars. How much inflation did we just experience year over year? This should be relatively easy math.

There was a positive 10 move in inflation because inflation could obviously be negative as well. This represents a positive 10 move in inflation. Now if inflation does the following and that 110 dollar product is now one hundred and Twelve dollars, How much inflation did we just have? Well for Simplicity Okay, I Know this is not a perfect math, but for Simplicity we had approximately two percent inflation. Notice that in this case, did the store ask yourself, challenge yourself here.

Did this store cut prices? In this case, Would the store have discount banners up telling you about how this price is no longer 110. The price has been reduced? No, The store would not do that because the store actually continued to raise prices. So your frustration is actually accurate Because prices have gone from one hundred dollars to now one hundred and twelve dollars. prices are still high.

Because prices have gone up, they have adjusted upwards. That is frustrating. but that is not actually what we're cheering. We are not cheering that prices are still high.

We are not cheering that prices are not going down because obviously we would love for prices to go down. We're actually cheering is what's called an inflection point in the rate of inflation. So if inflation is moving at say, two percent, and then all of a sudden it jumps to ten percent. and then it goes back down to say three percent or two percent or whatever it is, the trend of inflation is towards disinflation.

Disinflation is moving from 10 inflation to two percent. Inflation. That is disinflation. It just means the trend has now moved down.

Inflation is no longer going up in its growth rate. Remember inflation is a rate of change measure. So if you kind of relate that to a car, think about it. Like if you're slowly accelerating at a red light because you're trying to save your fuel economy, You're slowly accelerating like a grandpa.

Your rate of acceleration is very low. Your inflation rate is very very low. But if you're somebody who drives aggressively like let's say a newly licensed teenager and a BMW you might floor it on the gas, which is similar to printing a lot of money and you create really fast inflation. And then you hit the brakes and then you stop the economy really quickly, right? That's kind of the the jarriness that we're experiencing here now.

Note: what we are cheering again is that disinflation is occurring. and what we're looking for right now in the economy are signs of disinflation. And this is where I'm going to introduce you to three different earnings calls all from the last week to give you a little bit more color on how disinflation may occur. Keep in mind that deflation would actually be prices coming down.

So if that 112 dollars went down to a hundred and eleven dollars next next year, then you would have again for Simplicity approximately a one percent decline in inflation. which is deflation right? Negative inflation deflation. A falling rate of inflation is disinflation. Okay, now let's look at some earnings calls.

So let's zoom into this. Our next call here. This is: Darden Okay, this is Darden Darden is the company that does restaurants like Olive Garden LongHorn Steakhouse Cheddar Scratch Kitchen blah blah blah. Okay, Fantastic.

So what do we have here? We significantly exceeded the industry's benchmarks for same store restaurant sales and traffic outperforming more traffic than we did on sales. So traffic is outperforming the competition. However, what did the company do? The company continued to underprice inflation, resulting in lower overall check growth relative to the industry. So what they're saying is, we're getting traffic, but we're not raising prices as much as inflation is going up.

Folks, there are two letters that this company does not have as much of. What are those two letters this company does not have when you have an earnings call that says we are not raising prices as much as we could have. Well folks, it should be obvious this company lacks pricing power. It lacks pricing power when it is not able to raise prices with the level of inflation because what's happening is their margin is declining right? Margin decline is very, very normal.

And then what we can do is we can compare margin decline between various different companies and say well, whose margin is likely expected to be most resilient, which company is then High free cash flow and with the most resilient margin and those are typically the companies you want to be in at this sort of time. Okay, fantastic. So what else do they tell us about inflation? Well, they tell us. Look at this: food and Beverage Expenses Rose 1.1 percent driven by Commodities inflation of about nine percent which was higher than we anticipated going into the quarter and significantly outpace or out pricing outpaced pricing of 6.3 percent.

So in, this is a red flag here, right? Because some food and beverage inflation is still happening. But look, inflation is going up by nine percent in certain food and beverage categories. but they're only raising prices at 6.3 percent. That shows you a lack of pricing power.

Now take a look at this chicken. Dairy and Grains continue to be categories experiencing the highest levels of inflation for Darden. However, they have improved versus the prior quarter as we expected. However, beef inflation improved.

This is one of the reasons we like to take out food out of inflation measures because it is so volatile, right? So look at this. This shows us that restaurant labor was 120 basis points better than last year as we benefited from sales leverage. Good trying to run more efficiently despite hourly wage inflation of eight percent. A lot of year-over-year measures.

these are year-over-year measures. Most of these for wages and food are still very high. This is normal. This is actually reflected in CPI and Pce that you're still seeing that sticky service inflation year over year.

That's normal, but it looks like some of that is starting to wane. Why is it starting to wane in Services Why would I show you a restaurant that is saying hey man, some of the inflation is still high While I'm doing this because we're starting to see the company say look, even though some of our input costs are higher, we're not able to raise prices anymore. Eventually, that actually reduces CPI Because when you have a company that says look, our Ppi is high, our producer price inflation is high, but we're not able to raise prices matching our PPI What happens when Ppi is not passed on to the consumer CPI False. And that's what we want to start seeing happening.

So we're starting to see the crack at a sector that historically has been doing very well. So I'm purposefully looking at a company that is still showing you sticky inflation, but they're starting to show you the flip flop. What are they doing? They're looking at margin performance. Why? Because they don't have pricing power anymore.

Now they're talking about underpricing inflation, and in order to try to offset some of the increased costs, what are they doing? They're reducing their marketing spend red flag for advertising, and they're going through other cost saving initiatives. So this is really a company that's telling you like, hey, look, we're trying to get more efficient, but we're going to get squeezed here. So this is not a company I would want to invest in in 2023 because they're getting squeezed, They're reducing their marketing well. Reducing your marketing is a great way to potentially reduce your Revenue At the same time you have cost pressures and you can't raise any more prices.

That's a red flag. Uh, total? Uh inflation for Commodities Uh, expected over here. This gives you some numbers here. Expected.

Uh, we expect Commodities inflation between nine and a half to ten percent. So some some large sticky levels of inflation. Right now, we expect Commodities inflation that is solidly in the low single digit range for the fourth quarter. So they're talking about the last year we've had very high inflation.

but now looking forward. what do we expect? Well, they actually expect potentially Commodities inflation that'll rotate back to the low single digit range and potentially closer to flat and going forward they expect. Look at this. and while we don't normally provide commodity, Outlook this early for the next fiscal year, we are anticipating low single digit inflation for the Commodities Basket In Fiscal 24, led by high single digit inflation on beef and produce, we expect all other categories to range from slight deflation to low single digit inflation.

What am I doing here on purpose? I'm trying to show you I'm trying to teach I personally believe and I'm not trying to Pat myself in the back I just I Really personally believe this I Personally believe nobody else analyzes this stuff. What I'm purposefully trying to do is I'm trying to go Okay, Jerome Powell says sticky inflation is the problem. Where's the sticky inflation? Restaurants and hospitality. and Retail Okay, let's go to the epitome of that go to restaurants go to Darden What's Darden saying Dude, the last year we had hella high inflation for labor and commodities.

This sucks. Our margin is getting squeezed. We have to become more productive. We have to cut advertising.

This sucks going forward. We actually expect Commodities some of them to disinflate. beef is still going to hurt us, but everything else is going to be low single digits. and overall we think we're going to have low single digits inflation.

So now they're telling us they're not raising prices and they're expecting low inflation. It's best case scenario. the problem is folks. what I just showed you is called a leading indicator and that's not the only company I'm going to show you I've got a few others I'm going to tell you, but this folks is a leading indicator of disinflation.

Leading CPI and PBI are a laggards. They lag. They are lagging indicators. This is why people are fed up with the Federal Reserve being focused on lagging indicators because they believe the Federal Reserve will over tighten by looking at lagging indicators when it's actually the restaurants that are telling us uh oh, we are actually potentially looking at a down inflection here of inflation.

Very, very good to know. Thank you for that comment. uh Rosie You're right, I did make a mistake of that and I actually mentally thought about that. So the comment here publicly is I made a mistake by mispronouncing a Mrs uh or I said misses but they're actually a Miz a Miz is generally either not declaring that they're married or are unmarried and then a Mrs is a suggestion that you are married I'm really bad with like these these little acronyms and pronouns and stuff.

I'm trying to get better, but thank you for pointing out my flaw and helping me learn. Okay, next earnings call that we have to look at is this is actually one of my faves. We're going to look at the Dave and Buster's earnings call. We're going to be very brief about our business here.

I Want to jump in over here? Uh, this is the financial position page. Hold on. Where is that? Where is it? Where is it? I Think it's right here. Here we go look at this.

I'm going to start with labor inflation. We are seeing some relief here. What have we been talking about? Remember how many times have I said Starbucks Chipotle uh and all these various different companies Uber Lyft are giving us the heads up that labor inflation is going away, that there's no wage price spiral and you know how many times I got pissed off? uh, or people got pissed off at me about that? Yeah, ooh, somebody noticed Somebody by the way, just commented. thank you for using the banner at the bottom of the stream instead of puking adds Kevin That's true.

This individual is thanking me for having at the bottom of the stream here. Get life insurance in as little as five minutes, paid promotion and sign up for 12 free stocks with Weeble by going Metcavin.com free. We just have a scrolling banner down there so I don't have to read it out and look. there's even one for uh Kevin's ETF and courses Metcat meet Kevin.com whatever.

They all go kind of cool. uh. even though I just read them all out anyway. Uh okay.

Oh, somebody's making fun of me saying restaurant is your leading indicator LOL no actually a consolidation of all earnings calls or my leading indicators. Remember what? I just mentioned Uber Lyft Johnson and Johnson uh uh, Procter and Gamble Tyson Foods and Industrial. It's not just restaurants, it's everything broadly. You can easily look.

Look at Cloudflare in the tech space. you can look at the availability of Labor. It's insane. Cloudflare had 400 000 job applicants for 1300 positions.

It's crazy. All right. So what do we have here? Dave And Buster's I'm going to start with labor inflation. We are seeing some relief here.

I Think when you look at hourly wages quarter sequentially. so quarter over quarter, they stayed relatively flat. Holy smokes, folks, how could you bet that we are going to have hyperinflation when the leading indicators are obvious: flat, flat, flat, flat. Now Dave And Buster's telling you, we feel that we've stabilized and the same for Commodities.

We've actually seen a nice decline. So when you're looking at, call it quarter sequential inflation. which means Court over quarter. We went from about 17 year over year and came down and down and down.

And in Q4 we saw inflation at just roughly four percent. we've been able to get commodity inflation down. We're looking at relief around proteins like chicken breasts and wings. This is good.

This is good. Uh, this is actually very, very good news. Let's look at one more. Can we get underwear inflation? The only underwear inflation that exists are these short shorts that I'm wearing I I Gave everyone, um, a little preview of them yesterday in the course member live stream.

You'll have to check that one out, but these are amazing. These are 19. I've shared them all with course members and they're godsend. I Love them.

They have little zipper Pockets too on both sides. Dude, let me just rant for a second here. Okay, this is deflation in a good way for you. I went to and then we're going to talk about we have one more earnings call to look at we have to look at um Canadian Solar um I went to I bought uh shorts at Hugo Boss running shorts at Hugo Boss and the Hugo Boss running shorts did not have uh or no I'm sorry the Hugo Boss one's ripped so the Hugo Boss one's ripped and then I had an aloe uh uh set of shorts and the aloe shorts.

They didn't rip but they didn't have any. Pockets I'm like what the hell, Each of those were like 60 shorts. one of them, the Hugo Boss ones rip and I love you. The aloe ones don't have any pockets and I'm like what the hell is this? So now I'm wearing 19 shorts.

They're like a three inch inseam or whatever. Uh, but anyway, I'm wearing a 19 shorts and these are like indestructible. They don't tear, they don't rip, they're comfortable. I get them on Amazon They're phenomenal and I'm just like why the hell would I spend more money? This cheap stuff is fantastic Anyway, yeah, no pockets.

That should be illegal I know, no kidding. Ah, you know, need that three inch? uh inseam for the big peepee? Anyway, take a look at this. This is Canadian Solar If you look at the past two decades, raw material costs increased meaningfully due to covet. Recently, some of the raw material costs have started to decline and that's disinflation for you, such as that of Polysilicon as new capabilities ramp up.

But we are not quite at the bottom of the cost curve yet. given the technological innovation and pipeline that will help us receive basically lead to further cost declines. The key point is that we're getting very close to the bottom of the current cost curve for solar. At which point, value and Technology technological differentiation become prominent drivers of profitability, not cost.

With that, we expect to see greater PP and operating leverage as our cost structure stabilizes. Basically, Canadian Solar is saying they have no pricing power right now, but they are seeing commodity costs decline. I'm not a big fan of investing in solar panels because I basically think they're a commodity. I'm a big fan of investing in um, in in end phase solar inverters and batteries.

not a big fan of investing in the panels themselves. so something something to keep in mind. So um, yeah. Anyway, so what do we learn from this? Well, we actually learned that in disinflation is everywhere.

Uh, it's all around us. the disinflation and it's actually a phenomenal thing now. Uh, some of you have been asking how I put these banners up like this and how I've got the little scrolling thing at the bottom. Just go to Metkevin.com Stream Yard, Metkevan.com Streamyard and you could learn more.

If you go to Metcaven.com Streamyard, you'll be able to play around with these. It's kind of cool. Uh, this is that is a paid sponsor. Uh, but Stream Yard is A is a software that I've actually been using for years and they're really cool.

They set up a special for you if you, uh, sign up with them via that link down below. Let's see if you're met, Kevin.com stream your orange just to make sure it works really quick. It should work just fine. Uh, but yeah, yeah it does.

Yeah, it also lets me have recordings of all this content, which is pretty cool. So uh yeah, go to the extremely right. Pretty pretty neat. Some pretty cool tools.