Hey everyone, welcome back to another meet. Kevin report We are on episode 75. Welcome back! First thing we're going to talk about is the IMF is now warning that the five year growth outlook for the entire world is likely to be the weakest that we have seen since the 1990s. This is in a piece by a Bloomberg that apparently now the International Monetary Fund is warning uh and urging Nations Uh, that basically they need to avoid economic fragmentation caused by geopolitical tension and take steps to boost productivity because otherwise we're going to be as a globe doing way less well than we might otherwise.

So let's try to translate that to English. Let's think about that. Really, what they're trying to say is hey, look, we've got massive issues across the globe. We've got a crisis in Russia that's leading to more of a partnership potentially between countries like Russia and Iran Uh, Korea, North, Korea and China Whereas we're getting that sort of fragmentation on the west, where at the West maybe you have this desire of America to work with Europe as usual? uh, as well as Ukraine but you have this fragmentation potentially occurring with South America Uh, so TBD.

But point being, the walls are the Um. The Bloomberg report really suggests that without strong Global growth, we could accept we could have excess Global poverty and I think it's very interesting to think of economic growth from the point of view of uh, All Nations together rather than just America or just where it is that we are living. Uh, so I think that, uh, that is pretty. Uh pretty.

remarkable. Uh, in a pretty remarkable warning. Really, it it almost. uh, kind of reminds me of the days I Talked about a Frugal decade back in 2020.

Obviously, with the amount of stimulus that we had received, there's no way there was going to to be a set of frugal years ahead with the amount of money that was handed out and printed. But beyond that, if potential for a Frugal decade in the longer run could be quite interesting in this IMF report kind of alludes to that. Where we think about it, you're really putting people through dual economic shocks. You put them through the shock of Covid and the psychological lockdowns of Covid the lack of human interaction for what a year plus, since depending on what state you were in, maybe if you were in Florida you never had that problem.

But uh. anyway. the uh, that's one. And then of course, number two.

Whatever it is we're going through. now. You know what? What if this recession is not just a two-year uh, recession. Uh, where it's 2022 and 2023, but instead it's it's five years long.

And I think that's something that a lot of us think that this recession will be quite shallow and uh, quick. quick to end. Uh, but unfortunately, no guarantees about that. So uh, you know, we've uh, unfortunately, got to get some concerns from that.

Uh, POV that. Uh, maybe there is a more of a downside risk? Hopefully not. I Don't think so. I Still maintain my belief in the Nike Swoosh so we'll see.

We'll see today. If the Jobs Report can reiterate the Nike Swoosh that would be very nice. The Jobs report is expected to come out within the next five minutes. We'll go through the surveys and expectations as well as uh, we'll we'll uh, we'll see what what is up ahead I will go through uh quickly what Barons is suggesting.

So uh, Barons is suggesting that quote a Jobs Slowdown. That could be here. Let's go ahead and share the screen with it and we can look at it together. So let's see here we will present the extra camera of the iPad Okay, all right, look at that.

Fantastic. Fantastic. All right there we go. and uh, there we go.

We'll throw life insurance up. Okay, job slowdown could be here. What to watch for in today's Jobs report? So that Jobs report is coming out in about five minutes? Of course, we'll be going through that in detail. Let's see what we have here.

Jobs growth likely slowed in March as rising interest rates, persistent inflation, and growth fears weighed on employer demand for workers. a Slowdown could Mark a steep or sorry, a step towards normal levels of growth for the U.S Jobs Market which has been exceedingly tight for more than a year, but can it also. But it could also underscore that job creation remains remarkably healthy even as other aspects of the economy slow. So the expectations are that we've added 240 jobs, 240k jobs, a thousand jobs.

Uh, that is the consensus. The fact set consensus. That's down from the 311 consensus, and certainly down from the Uh. The 311 consensus is the pace that we've been on rather since December.

Um, and it is down from that that crazy over 500 000 read that we got in. January Economists also expect the unemployment rate to Hold Steady at 3.6 So we'll see investors and economists have been expecting to see signs that the economy has begun to deteriorate since the early March Uh collapse of Silicon Valley Bank and Signature. While the Jobs report for March will be closely parsed for Clues as to where the labor market was heading, is unlikely to show what impact the banking terminals had yet. Yeah, that's true.

I I Think there's a lot of fear that the banking turmoil has done a lot of a lot of damage to our economy. I I'm not convinced of that. I'm not convinced that the banking turmoil is necessarily that tragic for Uh for our Market I I Wonder if the banking turmoil could be a little bit more of a this is uh, this is what happens when rates rise quickly and the riskiest of the banks, unfortunately, get whacked. and uh, those are the risk mitigation measures that each of the companies need to.

uh, need to, implement themselves. And those were the choices that Signature and Silicon Valley Bank made. and unfortunately, they paid the price for it with a loss of a lot of their share value and potentially their jobs. So we'll see, we will.

see. everybody looks at it a little bit differently. Everybody thinks every single Bank should be impervious to any kind of failure. I disagree with that.

Uh, it's entirely possible that uh, Yellen and Jerome and Biden did the right thing for financial stability, but I'm not terribly convinced. Uh, so anyway, let's take a sip of coffee here and prepare for the jobs report coming out in two minutes. All right, they're trying to push Cbdc's where they can freeze and Claw back your value, you know? I I disagree with that and I appreciate you being a Channel member. but In Fairness I I disagree with that I I I Think Cbdc's will come Central Bank Digital currency, digital currencies and I don't think they're going to be that big of a deal I Think people are making them out to be so much more of a big deal than they are I Don't think they're going to be any different really than the US dollar.

I Mean, in theory, if they wanted to, uh, uh, you know, restrict your access to the dollar, they could do that as well. They could seize your bank account just like they could potentially do that. So I I Don't see how this is very different than you having cash in a bank. Um, so I I Don't know, You know And then people are like, oh, but what about privacy? It's like, well, not really like, uh, like that.

privacy uh is isn't a problem as well already with your credit card and your bank data like I just I Just don't see the convincing argument as to why the Central Bank digital currency is is different. Yes, you can get paid in cash, but you can still get to get paid in cash in the future too. Nobody's saying cash is going away. they're just looking at it as a supplement.

So I'm not convinced of that. It'll take a little more time to convince me on that. All right, let's get into this Jobs data, All right. We are 30 seconds away from jobs data changing.

Non-farm payroll is expected to be 230 000 down from the prior of 300 and 11 000. we are looking for private payrolls to come in at 218 Prior 265. Most important: average hourly earnings. Expecting it to come in at 0.3 Uh, and here we go.

Okay, we got 236. A little above expectations. Uh, we've got 0.3 for the month over month. Average hourly earnings average year over year earnings 4.2 Uh.

So I would say 6 000 more jobs than expected. On the Uh, the headline read that actually dropped the unemployment rate. The unemployment rate. fell to 3.5 percent.

The uh, this is good. The labor force participation rate jumped up to 62.5 All right. So this is, uh, this is not a bad report. It's not a fantastic report.

I'd say it's a moderate report which is actually kind of potentially good. What you want right now? Uh, because you don't want a horrible report suggesting we're about to go into the hell of 2008, right? We've already got S P Pmis and ISM Pmis that came in yesterday. Slightly recessionary and people are starting to get fearful that oh, what if we're walking into a recession? We need to be careful here. So we have to be careful what we wish for Because if we keep wishing for a recession then maybe exactly that's or weak numbers then maybe that's exactly what we're going to get now.

The stock market is closed today, so measuring the response will be a little interesting though. I think we do have Futures open. So what? what is interesting here is this is a this is a stable report. However, it does show that decelerating.

Trend Again, we were at 311. uh, last month. Now we're down at 236. the fact that surveyors were within 6 000 jobs is actually pretty impressive given that uh, usually they're much more wrong.

The average hourly earnings coming in at 0.3 as expected, is fantastic. That's a sign that we are stable. Uh, there is no wage price spiral. I've been pounding the table on about no wage price spiral for about six months though now.

So I I Think this is just sort of reiterating that headline inflation for wage data at 4.2 So that's still Healthy Growth for wages. But by no means is it a sign that we are having this sort of runaway inflation. which is uh, which is a good side. We do not want to see runaway inflation.

Let's now go ahead and look at the actual report itself. So we've got the actual report right here and let's see what we're looking at. So this is at the employment situation. Keep in mind: this video is brought to you by short form: Go to Meet Kevin.com Short form to get super powered Book summaries at short form.

It's very, very cool. Check them out at Meet Kevin.com I'm sorry short form.com Meet Kevin Total non-farm payroll 236 in March unemployment rate Little change that is down that 3.5 Both the unemployment rate and the number of unemployed persons at 5.8 million changed little in March little net movement since early 2022 among the major worker groups Hispanic Unemployment decreased to 4.6 percent, essentially offsetting an increase in the prior month. The unemployment rate for adult men was three Four adult women 3-1 teenagers Nine Eight women, Three two Blacks Five Asian Two eight You've got Uh. Permanent job losses did increase by 172 to 1.6 million in March The number of re-entrants in The labor force declined by 182 000 to 1.7 a million.

So fewer Uh re-entrants into the labor force. That's potentially a sign that you're seeing fewer new hiring re-entrants are persons who previously worked but were not in the labor force prior to the beginning their job short search. Uh, the number of long-term unemployed. Those jobless for 27 weeks or more was a little changed at 1.1 million.

Okay, so little change in the long term unemployed. So despite all the those massive layoffs were saying not seeing a large take up here in the long-term unemployed. But then again, the the job losses that we've been seeing have really only just started occurring. so it might be too early to see a change in the long-term figure here.

Okay, we've got labor force participation rate continue to Trend up. This is good. This is a sign that more people are potentially coming off uh, retirement or off of uh unemployment checks uh, right? or welfare. and they're basically re-entering the labor force.

Which is good. Although there are work requirements for some of these jobs, Covid has really made it easy to not work. The employment population ratio itched up a little bit. Okay, fine.

The number of persons employed part-time for economic reasons was essentially unchanged. So part-time unchanged. I'm really looking for differences here. Inflection points: The number of persons not in the labor force Who Currently want a job little change at 4.9 million? Fine.

Uh, We're also going to get wall Street's reaction here in just a moment to these numbers Again, so far I'd say these numbers are pretty benign. They're not a sign that we're in a recession, and they are reiterating no wage price spiral. I Personally actually think that is the best case scenario that you could wish for. You don't want something Terror terribly off expectations because then it also casts more doubt on on economists ability to do their job, which people already have little doubt in.

anyway. You just don't need to amplify that even before 1.3 million here for those marginally attached to the labor force. Also, little changed the number of marginally attached to the labor force uh, or discouraged workers basically. um, little change 351.

supplemental data. So the non-farm payroll increased 236 compared to the average monthly gain of 334 over the prior six months. So that gives you a sign of some weakness. and Trend in March employment continued to Trend up in Leisure and Hospitality government professional and business services and Healthcare we'll look at the tables in just a moment.

Look at that. Leisure and Hospitality Hotels Resorts uh, skiing, restaurants, whatever. up 72 000 jobs in March That's a lower than the average of 95 000 over the prior six months. so you are starting to get a little bit of weakness.

Uh, in in this. Finally, a little bit of maybe turning over a little bit of softening in the job status, but not depressive numbers of jobs data that's good employment and Leisure Hospitality is still below its pre-pandemic Levels by 368 000 And remember, that's below levels that's not below Trend that's important. Think about that when they say that and I think this is a very important perspective and my goal on this channel is always to teach perspectives. That's why I have entire courses on building your wealth for teaching perspectives.

So when when we have uh, Jobs data that uh, that shows Oh yay, we have jobs growth. and then we have this big decline in jobs data. Oh, I accidentally unplugged that. Uh, and then all of a sudden we get back to slightly below the level where we were right.

So we're about negative 300. What was that? 80 000 jobs or something like that? Well, that's that. Might be almost back to 2019 levels. But what it's not is back to Trend levels.

See, at Trend levels, you're probably down about double that. You probably still have another 800 1000 jobs to go. Last month, we were down still about nine hundred thousand jobs below trend for leisure and Hospitality Uh, Health Care is just back to 2019 levels. Uh, and uh, it also below Trend.

So okay, let's keep going here. Government employment increased forty seven thousand. so the government is employing I'm actually surprised that you have Labor growth over here in professional business services up 39 000. That, uh, the trend here is about thirty four thousand.

so slightly above Trend over here in Professional Business Services. Slightly surprised by that. Daniel Dickinson Here says he's been laid off twice in Tech once in 2008 and once in 2020. Yikes.

Uh, sorry to hear that it's always tough. Layoffs suck. Healthcare Added 34 000 jobs lower than the trend of 80 or uh, fifty four thousand. Social Services continue to Trend up seventeen thousand in March in March Employment and transportation warehousing changed little.

Uh, 10 000 over. You've got lot of tension over here in warehousing. Oh, that's actually very interesting. Wait a second.

Warehousing and storage Lost jobs? Wait a second. That's actually a really big deal because Wow! Remember what we read yesterday yesterday. We started reading about this and that was that as the economy weakens I'll give you the quick synopsis on this: the state of freight. as the economy weakens.

What happens is more companies leave their products sitting in warehouses and now warehouses are full. We made this analogy yesterday of the farmer basically filling up their Silo and they could basically have a supply glut a lot of supply and not put that on the market because they're filling up their Silo But now the silos are full and the price is for new air housing are going up and so what happens with a lag? Well what happens with a lag is you get a dump in prices. People start dumping their Supply because they don't want to store it anymore. Well, what did this jobs report just do related to that? Well, this jobs report just told me this warehouse and Storages lost jobs.

That actually reiterates the idea that there is a lag in storage, a deflation basically, and product deflation. Let me let me simplify that here. So if I write this down here: I'm going to say if let's set some conditions: if uh, we have Supply Rising then you'd assume warehousing would also become more expensive and more would be hired in warehousing, right? Let's make that a little smaller. Here There we go.

That is what you would assume. You always have to be careful with assumptions because you know what assumptions do right? They make an ass out of you and me. Uh. anyway.

so so this is interesting because if we have more Supply then there's more warehousing demand at first. But but at some point you face an inflection and the inflection is where people basically protest and say you know what, instead of storing even more, I'll just dump at lower prices. Uh, or why does it want to touch this? It's something so sensitive. There we go.

you have this dump at lower prices. Now that's actually very interesting because it suggests that we could be seeing more price reductions sooner than we expect. What did we just get at Tesla We just got two in a row: price reduction on the model S and X Now I personally take no responsibility for that, but I will continue to bag on the model S and X I Do not think they are worth it am I Really nervous about that. They've dropped prices on those twice.

No, not at all. They don't really move the candle. uh, compared to the Model 3 and Y sales. Uh, but it's a sign that this is what businesses do.

As inventory piles up, you cut prices that's totally normal. And seeing now a softening in uh in warehousing, that is actually just what we want to see. that's exactly what we want to see to suggest that deflationary prices are coming. so I'm excited about that.

Okay, let's continue on here. So warehousing, A little change? uh, or well, slightly negative. They're calling it little changed. Uh, but again, it's also not skyrocketing because people aren't building new warehouses, employment and Retail trade has little changed.

It's negative: 15 000 job losses, building material, garden equipment minus nine thousand Furniture Home Furnishings Down nine thousand partially offset by job gains in department stores plus fifteen thousand retail trade employment Little changed over the year. employment showed little change over a in in over the month in other Industries including mining, gas, extraction, manufacturing, wholesale, and otherwise. Here's that average hourly earnings point: Three percent. That's very good.

Average work week for all employees edged down: Uh, this is It's good that we're not seeing a massive plummet in this, but I will say this: average hourly work week. This has been teetering for months now. It's been up and then down. It's been up and then down.

So I really don't see it as that big of a deal to continue to look at the average hourly early hours week average hours worked in a week? Don't see that as that big of a deal. uh, bobbing up and down a tenth year or there. That could honestly just be survey based. So uh, let's see if we can get into some of the tables and see what we have for the please and if we can get a little bit more granular into the data I Do think overall this is an optimistic report.

Let me see if there what how the bond market is reacting to this. So if we jump into the bond market we're looking at. let's see here. Okay, we've got uh Dow futures basically the stock market's flat Dow futures up about a tenth of a percent Nasdaq futures up 0.9 uh sorry, uh s p Futures at 0.9 0.09 you've got Nasdaq futures basically flat at uh 0.04 Now, uh, you might be wondering.

wait a minute. Kevin how are Futures up when the stock market is closed? Well folks, the stock market might be closed, but that doesn't mean future Traders or weenie babies who take every day off that they want I'm just kidding I Don't want to offend the stock market people I Actually really like the stock market folks and I really don't do anything with Futures So what am I doing here? I'm like betraying my side supposed to enjoy your day off and your time with family or something I Don't know. Go enjoy Easter Um or whatever it is you celebrate I Don't know what else happens in Easter Passover there's other stuff anyway. Okay, so uh, that's the Um and I appreciate you being here.

Either way, okay, that's the uh Bond Okay, wait sorry, that's the stock market. Let's look at bonds. So bonds actually Rising Slightly so you've got the 10-year popping up to about 3.355 Now that's actually a good sign that we're sitting closer to stability rather than a recessionary impact. which that's a very good.

uh. so I like to see that we do not want recessionary. Now let me see. five-year break evens have modified at all.

and then we'll get into some of the tables here. So five year break even? All right. Five year break evens so far are, uh, sitting roughly stable. Although they may give me an update here within the next two minutes here.

So so far, those stable. But let's go ahead and look at some of the charts that we have. Shelby So in order to do this, we are going to click a few buttons. here.

There we go: Button Number one, Button number two. Fantastic. Fantastic. All right.

So this gives us the unemployment rate. Let's go through some of these others here. Let's look at the household survey as well, just to compare. Actually, that would be a good idea.

Let's jump over here. Let's look at what the Household Report is saying today. So household data. Uh, let's see the household I'm trying.

They don't show us the actual number. where is the number in the household? That? Okay, Also, go to the table table Alpha for that. Okay, no problem. I will do that by.

Let's get back in over here then. All right. So let's see here. They don't break it up as easily as you'd think here to get the difference between the household and the payroll survey.

but I will grab it I Want you to keep in mind the difference between the two. The uh Household survey is uh, when when they call actual individuals, right? They call individual people and they say hey, are you uh employed right now and if you have multiple jobs, you're discounted as one person. whereas the payroll survey calls businesses, which does create a potential for double counting. uh, individuals.

And if you double count individuals, then you might have a little bit of a misleading result. So uh, it looks like the household survey moved. Wow, That's actually a pretty large move here. The household survey went up 577 thousand.

So 577 000 move in the household survey compared to a 236 000 job in the job move in the payrolls data. This is likely because the household survey has been very volatile and trying to play catch-up to the actual payrolls. Uh, uh. survey.

So I don't necessarily see that as bad, but is substantially higher than the 177 we had for households last time. Uh, and then a little lower than well, actually a bit lower than the 894 we had in January for the households. So I think you are seeing some of that households catch up. Oh, that's not very entertaining.

What is you? There we go. Let's get back to some charts over here. Silly silly. HDMI Cables All right, let's keep going here.

so let's look at this so we could take a look at some charts I Want to see? particularly if there are any interesting ones here. This will give you the average hours worked for different groups here. I'd Love to see if we can get a little granular in this. This is manufacturing so we could see manufacturing hours worked declining off of those Peaks that we saw in 2021.

Uh, that's good durable goods. Nice decline there as well. Those are going to be like appliances uh, or other equipment. Let's try computer and electronic manufacturing also rotating down.

Let's go with apparel apparel. Actually up. Look at that apparel manufacturing at a high right now. Shout out to those Nike and Lulu folks, Paper Manufacturing, do we really care? I Mean we're not printing money anymore, so that number's going down? Let's go with Machinery Manufacturing down on Machinery manufacturing.

Uh, how about Appliance and electronic equipment also rotating down and then Furniture Over here, let's see furniture and make it a little challenging to use this chart. There's Furniture seems roughly stable. All right. Any other particular employment, let's try employment by industry.

Let's take a look at this chart. All right. So let's jump into Construction Okay, and let's take away the totals. There we go.

look at that construction. Nice rise here. been very consistent. Maybe just topping out there on the right.

Maybe a little bit of a topping out Leisure and Hospitality just so you can see the trend. that is a terrible color. also nice. Trend Directly up.

How about professional business services? Yeah, a little bit of a lower, slower inflection inflection point there. so a little bit of a Slowdown Financial activities. This is where you're really seeing the uh, a little bit of the Slowdown You're actually getting that negative inflection point. All right, let's get it.

Information Technology Information Technology Also seeing that inflection. to the downside, let's get uh, hmm. how about just government in general? That's not too useful? Let's take a look here and not very useful at all. Okay, Manufacturing and let's get rid of government and financial activities and just look at Manufacturing Okay, we can't.

let's try again. if we do this, there we go. There's your manufacturing also hitting sort of a resistance level there if you will on manufacturing. it doesn't seem like a construction is hitting that level though.

Is it yeah, barely. I Mean maybe just beginning. but I think the charts are somewhat useful in taking a little bit of a glance at what's happening. So let's take a look at some of the Q and A that we have I Want to see what y'all are thinking here.

uh Tesla nominates former Texas JB strawberry isn't he also on um, uh, over at Redwood material I think so. So let's see here. while not our favorite scenario, could there be a silver lining with stagflation I Actually think this is potentially a a good scenario that this is a I would not call this an unfavorable scenario I'm optimistic about this. This is a an At an at expectations read: I mean look at what we have.

no wage price spiral as we've been reiterating and optimism around. maybe the economy isn't doing that horribly. I Think as as, uh, investors. A lot of folks right now are of the mindset that we are likely to be looking at a a terrible uh economy and another 2008 that's That's certainly a concern that a lot of folks have, and we'll go ahead and look at some other reports as well.

But um, yeah, I'm not that pessimistic. Maybe A developer? Let's see. Uh yeah, you built on a swamp last fall. Yikes.

I Guess everything in Western Florida is built on a swamp though. So okay. so I think that does it for uh for a job segment, let's go jump into uh, another uh piece. and this piece that I found I thought was quite interesting It it talks about this idea of uh, the the next cycle being quite different.

Also, let me see something here. trying to see folks, is there on your screen a flicker on the camera? just curious if there is a flicker on your on your screen for what you're seeing. And then let's get into some other research and headlines. Uh, okay, so let's get this in here.

one second transition over. Okay, now we're gonna call this this cycle is different. No, no flick. Oh good.

Okay, fantastic. Then it's just on the preview that I'm seeing, which is quite annoying. but uh, that's okay. let's jump on it too.

This cycle very much appreciate. Y'all all right, let's go into this piece. Uh, next piece here. So the next piece is, uh, right over here.

It pushes this button and this button. Well folks, in this next piece, we're going to talk about this: TS Lombard Argument that how is this cycle different and every time we hear this time is different we want to be nervous. But what they're actually saying is Tech That's the only thing that's Different about this cycle. What they discuss is this argument that this cycle is different because in every down cycle, there is a poster child for what got overbuilt, distorted, and basically bubbled up.

and this time Tia Slombard argues it's hex term. It happens every cycle, an industry convincing themselves and investors that they are a growth industry immune to economic cycles and then discovering they are, after all, a cyclical business. which means you are affected by the business cycle after all, commercial real estate. Here is potentially another obvious problem and a coming issue for banks.

Given that Banks hold 50 percent of commercial mortgages specifically the small ones relative to the the smallers I'm sorry the the larger Banks hold about seven percent commercial mortgages. it's the Smalls and needs medium medium-sized banks that have more of exposure here as far as inflation high prices as opposed to the rate of change needed to reverse some of the items for consumers to gain loss spending power, blah blah Okay, if not so, let's make this clear. As for inflation, high price levels as opposed to the rate of change need to reverse for for some items for consumers to regain lost spending power. In other words, what they're saying is this time in this recession Tech is potentially most exposed to a tech.

Crush Now it could be argued that that's already happened, but they're saying that even if inflation goes away, prices are now so much higher, right? Remember, if you paid a hundred dollars for a piece of tech that now costs a hundred and twenty dollars, you have experienced 20 inflation over a certain period of time. Be that one year, two years, six months, Whatever. And if inflation now goes away, you're still at 120. You have a zero percent rate of inflation, but you're still paying more money.

What does that mean? That means individual people have had their purchasing power, their pricing power reduced, and in order to regain pricing power, you might need to see wages go up. However, we're not seeing wages go up in the form of, say, a wage price spiral, And if we are not seeing wages go up and prices are higher, then people can simply afford less stuff. Now, an argument is being made that today we have plenty of excess savings. Still, Yes, Yes, it is true that not only do we have a lower savings rate now than we did before the pandemic.

That is true, but we have a higher base of savings. Remember what Bank of America told us last month? somebody with five thousand dollars in their bank account before the pan? Uh, yeah, before actually the pandemic. Now sit somewhere at a 12 900 to 13 900 of extra cash. But what happens when that is spent? Are we in a deep, dark recession? Or have we finally conquered Inflation? Jerome Palace Done with his rate hikes and we can go back to the Glorious Bull Run of the 2010-2019 cycle.

Some people say that's delusional. Other people say no, that's actually entirely what could happen. But let's see what. TS Lombard Argues the coming reversal in credit expectations will also help lower inflation by pulling down service price inflation.

So in other words, less credit, less service Inflation great. But what they see coming will be a downturn with a recession that ends up correcting the excesses of 2010 to 2019 specifically Tech and asset values. not simply a correction of the post covet boom. Now, this is fascinating because this is actually a Peter Schiffian argument.

Peter Schiff has argued that we are not going through a crash of the Covenant be printing. we are actually repaying the debts of the bubble we created post 2008. T.S Lombard is now echoing the Peter Schiffian argument and folks that is one that could that should create nervousness. Now, how could asset values go down? Well, let me make this argument in regards to real estate.

So a lot of people obviously you know this already. Well, most of you do, but some people don't obviously. Uh, for those of you don't, I'll explain I'm a licensed financial advisor, but I started in real estate. That's very rare.

It's very rare that you have somebody go uh from from Real Estate brokering to financial advising, this video is in personalized Financial Advice because of course I don't know you? Um, but but when I look at this I think I I try to look at what's going on in the economy from from both sides I try to do the same thing in politics as well. It's very difficult because obviously divisive videos do much better. But what I think is fascinating is this potential that real estate may not necessarily rebound immediately if rates drop. We have this expectation that the Bull Run of real estate will continue if interest rates drop.

But what might also happen if interest rates drop. The people who have refused to sell might think, oh well, interest rates are lower. Now now is a good time for me to move and sell my property. Or maybe I'll get a higher price because interest rates are lower.

But if everybody thinks that inventory bubbles up and you could actually then have substantially more inventory than you previously had in the last eight years. frankly, certainly during the pandemic. And if you have to adjust to a higher level of inventory that it doesn't matter if rates go down, you could actually see a real estate crush and you could see that same real estate Crush in residential which could just be Amplified by a similar Crush that you see in commercial real estate. So I think patience in real estate is very Prudence right now.

don't get me wrong, I I My goal with my real estate startup is to create a a 10 to 100 billion dollar company. uh with House Hack I Could not be more enthused. Uh about the path and trajectory we're on. Uh, so I'm very excited about that.

but I am also having to be very cognizant of where are the potential black swans individuals aren't paying attention to. So I run those scenarios through my head and this TS Lombard piece evokes some of those potential fears. Uh, now that's not to say it's oh fud fear, uncertainty, doubt, it's this is this is a a real argument. So uh, as uh Daniel here says in the chat, patience is a virtue I completely agree.

Uh, and and maybe it could be considered a normalization right? All right. So um, there's a little bit of a preview they give here on jobs, but we've already gone through the job stat up, mostly at expectations here now. I Think this is very interesting. They show a confirmed weakness in White Collar hiring and they use this to basically say well, the tech sector is far from being relative to the entire economy.

Remember, you could lay off the entire Silicon Valley Bay Area and only affect three percent of jobs. So while the tech areas far from being relative to the entire economy, it has been on the margin an important driver of overall growth, hiring and spending, and a source of income from the financial sector as well as investment wealth. When the tech sector booms, you have people who build their wealth. And when people build their wealth, what happens? People can spend more on services or going on holiday, going on vacation.

right? holiday. sorry I Was talking to some Europeans yesterday and that's how they say it I am after all European I was born in Germany But I consider myself an American I've been here since I was what? 13 months old? Somewhere between 13 and 18 months old? Nobody seems to know anyway. Tech Employment increases 60 since 2009. look at that difference.

That actually gives you a A A A showing here. Look at this two things here: Non-public Tech Firms uh, net worth versus uh, non non-financial corporate Tech X Real estate. So non-financial core. This is a little bit confusing.

Let's look at this chart instead: I'm not going to try to understand that one your live, we'll We'll understand this one together. High Tech versus uh the private sector excluding Leisure and hospitality and Social services. so that would be private sector jobs could be like manufacturing. Uh PC repair.

Um, to some extent that could be really any local business that is outside of tech. And what you're finding is this large wedge here between 2009 and 2022, where you've seen a boom in in hiring for Tech relative to other sectors commercial real estate. Obvious problem, notably The Leverage in large offices. Yeah, and and we realized this already that JPMorgan just mentioned the other day that we could be seeing a 350 to 400 billion dollar hit from commercial mortgages.

I Was just talking to a a another financial advisor yesterday and they see, uh, a potential. We they see BlackRock liquidating a substantial amount of mortgage-backed Securities and the liquidation of that could lead to the selling of a substantial amount of real estate assets. We shall see, commercial real estate debt has been less of a problem than it was in the 90s commercial real estate recession over here. So you have less of a problem out here in terms of commercial mortgages outstanding in total.

Uh. And then you could see that commercial real estate held by Banks has been slightly trending up versus non-banks The large banks have been heavily moving into commercial real estate, whereas the non-large bank lenders have been helping people with 30-year fixed rate mortgages. These are going to be your mortgage brokers, your direct lenders, your UWM your rocket mortgage, and otherwise, uh, dollars downward impact? Not finished yet. I Actually believe that I think that the dollar is likely to continue to fall and uh, that's why I started by taking a short position last summer in the dollar and uh, I'm not short the dollar right now anymore, But I do think there's still some move down, uh, potentially in the dollar specifically as yields fall remember as yields full People's desirability or interest in the US dollar declines.

And that's because we need the dollar in order to buy uh of quote unquote safe assets like treasuries. And so, uh, the more yields are high on our Ultra safe potentially the safest asset in the world products, the more we end up with a demand for our dollars that drives our dollar up. So you know is, take a listen over to CNBC So we'll close off this section here. Uh, let's do a summary: I Suppose on TS Lombard I Guess the summer here would be: Is it possible that if we combine this summary? Uh, let's think about it this way: Combine this information from TS Lombard with what the International Monetary Fund said this morning that we could be going into a five-year slowdown and what do you face? Well, you face an environment where potentially you could have a repayment or session of the bubble of 2009 to 2010's Bull Market and you could have a five-year Slow blow recession with a real estate slowdown over the next five years.

and in my opinion, the next five years if we have a slower recovery and we do not, simply Resort back to the excesses of the 2010 to 2019 cycle. I Believe the next five years would actually be a glorious opportunity to build your asset base. Think about it, what you want is your assets to be massive in the future. and if you potentially invested in let's say pricing power stocks today which got us through the next five years and then we went back into a bull run where credit started expanding again rather than tightening and real estate really started recovering again.

Maybe you could set yourself up pretty well by working hard over the next five years and making sure you have as much available. Capital Now that's something we regularly talk about in the course member live streams which I encourage you to check out link down below. you get lifetime access to those courses under building your wealth. And of course you can use the coupon code that next expires which means the price will be going up on the 12th of April which is a week from today when we will be covering.

Uh, actually it's not a week from the day. it's actually only five days from today when we will be covering the CPI release. And that's why we're creating the honor of the CPI coupon code. 69 off prices did take up a little bit from the last time and they will take up again after this coupon expires and you can now use Buy Now, Pay Later to join.

All right. So that ends this segment on potentially this, uh, what should we call it the uh, the IMF bear Market So I'm a fair market let's take a listen to CFC Uh, CNBC has any coverage today given that even though the market is open I expect they will, but they seem to be uncommercial right now. So let's see if this suits have anything to say about this jobs report. Five year Break Even Index: Uh, still holding stable so that somewhat implies stability.

uh Market Okay, here we go. Friday's employment report ended up coming in pretty close to public published consensus. While a weak number would have been would have cemented the end of the Fed's psych, uh, Fed's tightening cycle, this figure keeps the door ajar for another hike. particularly if the CPI report surprises to the upside.

Yeah, I completely agree with that. I Agree with that. Let's see how the treasure yields are holding up now: Nasdaq Futures even though the stock market will be closed today. Positive.

And if we jump over to bonds, we're up about six basis points on the 10-year so relative stability I'd say that's a good thing. All right, and it doesn't I Don't think CNBC actually has their show up today, so we won't be popping up over there. Let's do a slight bit of Q A here with uh, the blue Chat and green chat group. By the way, you could be in the blue chat group.

if you're a course member, you get those in the course. Memory Live streams. Uh, what about renters being evicted? Yes, that's uh, entirely a possibility that we could go through an eviction cycle. Absolutely.

I wasn't a homeowner over the time, but I believe it was Zero interest they just checked in. Let's see, you're talking about deferments? Yeah now, I'm not so worried about the deferments for mortgages given that people can now adjust into a potentially a 40-year mortgage to make sure they could stay within their homes. A lot of people are pretty frustrated by that. But personally, I actually like the 40-year mortgage.

We can do a piece on that. Yeah, how can we structure a piece on the 40-year mortgage? Let's see here. I Sorry I need a better table So I can have a place to put this microphone? Let's see here. Can I do this? No jerks.

All right, let's run by. yeah. Generally it's difficult to calculate a four-year mortgage because most calculators don't do it 40 years. But I can make one really quick and then we can talk about it.

Um, let's grab just a regular template and then adjust it. Okay, let's see. Got it. Okay, so the 40-year mortgage would be in 40 years times 12 480 months.

Okay. Mortgage length? Got it? Okay, Fantastic. Actually, this does. sort of Let me play with it.

Oh, that's fantastic. Okay, interest All right. let's play with this because it should be pretty fun. Monthly Data: Cumulative Interest: Oh I Love these charts.

Okay, let's do this together. Okay, stand by there. we go 30 seconds here. Okay, so recently there's been a lot of trending talk on and other than a Twitter about the 40-year mortgage and basically people are starting to circulate this conversation over oh my gosh, people are going to get 10-year car loans and then they're going to get 40-year mortgages.

What's next? 100 year mortgages, 20-year car loans? Heck, you know what? Let's take the logical fallacy of the slippery slope argument and say we're going to have a 30-year fixed rate mortgage on a car. And that car which is a Toyota Camry is now going to cost you two hundred thousand dollars. Well folks, generally I despise Twitter that it has nothing to do with Elon Musk Obviously, you know I'm an Elon Musk fan. It has to do with the fact that generally generally the highest quality information on social media folds to the bottom, whereas the most invigorating and emotionally creative byline is what gets everybody's attention.

It's the same thing on YouTube I mean you should know this by now. the headlines have to be Jazzy and snazzy. Otherwise, people aren't interested. If you don't have a snazzy headline, nobody clicks and then nobody can get the perspective that actually matters.

For example, yesterday and then we're going to talk about this 40-year mortgage. For example, yesterday I suited up and I went on mainstream television I Hopped on none other than everyone's favorite channel on the left and everyone's hated channel on the right Newsmax Okay, obviously I purposefully flipped that, but yeah, I Went on Newsbanks I Talked to Sean Spicer he's talking to me about the following of the dollar because that's more bait that's going on right now. and I'm like, dude, if you're buying assets, it doesn't matter and they're like, wait, we didn't even think about that. You're saying we could just buy real estate to stocks, bonds, or gold, or whatever, some kind of asset and then not even have to worry about what our asset is denominated in.

Yes, but you don't generally find that headline or that body line because it's not sexy. So anyway, as much drama as there is going on around this 40-year mortgage, the 40-year mortgage for a real estate perspective would actually be a godsend for Real Estate Investors Specifically not for big corporate landlords, because big corporate landlords are not going to get access to these 40-year mortgages specifically for you. So let's take a piece out of the Playbook of the uh, you know, zero to millionaire, uh, course on building your wealth right? Why do I have a course on building your wealth? The zero to millionaire? Well, I Do. There's a coupon code linked down below you can now use buy now, pay later for because I Truly believe that every one of you can become a millionaire through real estate.

You have to buy property and hold property now. Generally what people do is they go to a mortgage calculator and they say well. But Kevin if I take a 40-year mortgage, I'm going to pay a lot more interest over time and that is true. Let's go ahead and do a little calculation and uh, see how much more interest you would be paying and then let's talk about maybe why this just isn't what it seems.

So let's uh, grab the the uh a share screen here specifically on uh, this, uh, this mortgage calculator and what we're going to do is we're going to calculate first the difference in payment uh, between what we would expect for a 30-year mortgage, but then also what we would expect for a 40-year mortgage and we're going to compare total interest paid and then what we're going to do is uh, we're going to ask Okay, well, why would we ever want to pay more? Why would we do that? We would want to pay less right? Isn't the goal to minimize the amount of interest that we're paying and the answer to that is not necessarily. It depends on what we are doing with our currency, otherwise with our cash. So let's go through some of the numbers here. So first some of the numbers.

Let's look at a 350 000 purchase price. You know what? Let's bump that to 450 000. Let's get with a more normalized uh house here and let's go with a more normal interest rate today. Obviously, we're probably looking at about a six and a half percent interest rate I Generally don't advise buying right now and I Don't think anybody actually expects we're going to see a six and a half percent interest rate for the long term.

So let's go ahead with what I dealt with a lot in 2000 or so a lot in 2009 at 10. when I started in the real estate business, bottom of the market basically and it was when the market was still falling when I got in. Uh, so we were trending towards the bottom four and a half percent. Let's assume that you're not going to buy until rates are four and a half percent or your average is going to be four and a half percent if you buy now and refinance later.

And let's do a typical 15-year mortgage to go extreme here: your payment in this scenario with 10 percent down on a 450 000 house, four and a half percent rate is about three thousand one hundred dollars. Now that is not your total payment for this property because remember, your total payment is actually going to be made up of something known as P I T I so that is going to be principal interest, taxes, insurance and then you have. If you have the pleasure of also having HOA dues, you can, uh, you could throw those down. So let's just put PI right here.

and usually we I separate p and I but just to make things a little easier right now, we'll just grab the total right here and then we're going to go get our taxes. And unless you live in the state of Texas, you're probably going to be sitting somewhere around 1.2 percent on an annualized basis. So we're going to divide that figure by 12.. There we go.

and let's make sure we have our parentheses in the correct places. There we go. Now here's the magic of this little: Fun Hack Your property taxes on a monthly basis are usually just the purchase price minus three digits. Yeah, mind-blowing hack there.

eh? Uh. I I Love little hacks in real estate I Teach endless hacks in the real estate zero to millionaire Course Link down below. Okay, then Insurance Let's go with about 75. Now, obviously this is going to get adjusted if you're and let's say you have no HOA because everybody hates.

Let's say you are, um, not. You know, in a flood zone where your insurance could be 275 dollars and let's say you're not in Texas where your property taxes could be doubled and if this is your payment for this property is now 3623. Now this is actually a little bit problematic because if we want your front end ratio, don't worry, you don't have to know what that means. If we want your front end ratio for this property to be 30, uh, you know what? I'll be generous I'll go with 35.

Well then your monthly income. Before we even consider any of your other debts in your debt. to income, your your monthly income. is going to have to be somewhere around ten thousand Three hundred dollars to afford this property.

Or one hundred Twenty Four thousand dollars. Uh, and this also assumes that you have saved up about forty five thousand dollars plus closing costs. So you're probably going to be sitting somewhere around fifty thousand dollars now. Okay, well, uh, that's going to be a little bit of an oof, eh, Because not a lot of people make a hundred twenty four thousand dollars.

Uh, but your total, uh, interest paid over the life of the loan in this scenario would be uh, let's go over here. 180. That's your 15 year, your total interest paid would be 152.6 and your total principal payment would be 405.. So let's add a 405 plus one five, two point six.

Your total paid for this home would be sitting at 557.6 if you held it. Uh, to the to the 15 in 15 years, right? So that is how much you've actually paid for the property if you held this loan to maturity. Fine. Okay, now let's change these numbers a little bit.

Let's go with a 30-year fixed rate mortgage and now we're going to leave most of the other numbers the same. Uh, However, look at your ability, your the necessity of qualifying how that's just changed. Let's actually write it down and you need let's write down. Need 124 000 of income 4K income to qualify.

All right Now let's change this again to your typical 30-year fixed rate mortgage at four and a half percent. And in this case, you need 88.3 or 88.3 thousand dollars to qualify for this 450 000 home. Now, if you keep this to maturity, you're going to be paying somewhere around 738 000 for this house. 738 000 in 30 years is how much you're going to be paying for this house over that lifetime.

Okay, now let's go with a 40-year mortgage. So 40-year mortgage. Oh, and your payment dropped too. What was it? Your payment was two thousand fifty two dollars.

So in this case you had a 25.57 payment. So you'd have a payment would be here. The payment would be 33.6 K Here the payment would be about a 2.6 K payment. and then now your payment would be about 20 52.

Oh no, it would be a little higher. Hold on the 2.6 is with the yeah, that's with the 30 year. Okay, let's drop this to 40. there we go.

1821 brings you to about 2.3 Okay, 2.3 K payment. You would only need 80.4 K to qualify. So about 10 percent less income to qualify and your total over that period of time paid for the property would actually be 800 And about seventy Four thousand dollars. Eight hundred and seventy Four thousand dollars.

So now we look at this and what do we first see? When we look at this, the first thing we do is we say, oh my gosh, in order to qualify with lower income. Uh, needing just 80 000 of income. So basically a third less from 124 over here. Oh, what we're doing is, we're making housing more affordable.

This is true, you're making housing more affordable, but in order to make that housing more affordable, you're actually raising how much money people are paying over time, right? Not necessarily. And so from a real estate investor point of view, the real estate investor is almost always going to choose the 40-year mortgage if they have that option. Wait a minute. Kevin Why would an investor pay more money? That doesn't make sense? Investors usually want less money out.

All right. Well, not necessarily. Uh, not necessarily. Because what you're doing over here to an investor is you're changing the cash flow and the leveraged appreciation factor for the property, right? And so take a look at this.

If this property rents for three thousand dollars a month, that's the rent. Well, then and then we add in Property Management Expenses Well over here you would be sitting at a negative cash flow. On the 15-year mortgage, you'd be having a negative cash flow of somewhere around. Uh, three, four, five, six hundred dollars.

So you'd be negative six hundred dollars per month, On the 30 year, you'd be positive 200 a month. and on the 40-year mortgage, your cash flow, uh, would end up factoring in about this 200 in Property Management expenses would be around 450. so you'd have higher cash flow. Which actually, because this is a fixed rate loan, means you would have more risk with the 15-year loan.

But on top of that, you have leveraged appreciation, right? So consider now that you're paying this, uh, this property down, uh, with less of an outlay every single year on an annual basis, you're putting into the property with the 40-year mortgage you're putting in 23.45 times 12 You're putting in about twenty eight thousand dollars. Or going into this property on the 30-year mortgage. Uh, rough math here. You're putting in about thirty one thousand two hundred dollars into the property and on the 15-year mortgage you're putting in about forty three thousand Two hundred dollars.

Okay, but now if you had appreciation long run appreciation of let's say, three percent, you could even do the math with two percent if you want. But if you had appreciation of three percent, let's just say given that this is leveraged appreciation as well, it's quite fantastic. But anyway, we'll talk about that leverage in a moment. Well, anyway, um, four hundred Fifty thousand dollars 450 000 times appreciation of three percent gives you about Thirteen thousand Five hundred dollars, right? So you've got about thirteen thousand, Five hundred dollars of of, uh, appreciation here.

But now consider what you've actually put into the property. the total you've put into the property, where you put in about 50 to buy it, right? So you put 50 in to buy it. Uh, let's move this to here. You put in 50 to buy it.

Your actual cost of the property since your your cash flow offsets how much you're really putting into it right here. right? Uh, your your cash flow here. So how much are you actually putting in 600 times 12 Net net your net into this property 7 200 offset by your appreciation 13 500 plus 7200 Not even considering principal pay down, right? Not even considering principal Pay down. Here your net worth is up 6 300 bucks on the property just considering cash flow leveraged appreciation.

Uh, and that folks is on fifty thousand dollars. So if we divide this number here by fifty thousand dollars, we're looking at a 12.6 Irr. Okay, but let's do that over here. Well now we have 200 of cash flow plus the appreciation.

So 200 a monthly cash flow that gives us twenty four hundred dollars a year plus Thirteen Five hundred of appreciation on the property. Fifteen Nine. Now we've actually gained our net worth by Fifteen Nine. We're trying to leveraged appreciation.

Point of view is actually now 31.8 percent off Ten percent down. It gets ridiculous when you only put 10 down, but it shows you how remarkable that leverage appreciation can be. And it does get that ridiculous. This is why buying your home is so phenomenal.

Uh, and leveraging for as long as possible with a fixed rate loan is so incredible. But now let's go ridiculous here. And let's take a 450 and this assumes you live there for the first year and rent it out thereafter, right? Five thousand, Four Hundred dollars plus leverage depreciation of Thirteen thousand Five Hundred dollars. Eighteen thousand Nine Hundred Dollars into fifty thousand dollars is a 37.8 rate of return.

Uh, that's your Irr for the first few years. Right Now that Irr goes down as you then reapply that to your next year of the net worth that you're into the property, right? Because for the second year that you're into the property now, you're into the property. Fifty thousand Dollars Plus that eighteen thousand, Nine hundred dollars of wealth that you've created. But you can also be ridiculous here.

And you could offset this by principal pay down every month you're paying down another 300 bucks in principle on the 40-year mortgage. So you could be even more ridiculous over here. The point is, what if when you're leveraging real estate, you tend to have a much higher internal rate of return than your interest rate. And so when we look at the time value of money and this is where I'm going to sort of summarize this Uh, and make this a little bit more clear because I know sometimes it can be a little confusing when we look at the time value of money if your internal rate of return exceeds the interest rate that you're paying, you should always make that choice because your Net Present Value which is just a finance way of saying.

uh, it is a good decision. Your net present value is positive, When your net present value is positive, you win and you want to do more of that. Think about that if you're paying a fixed interest rate of four percent, but you're actually earning five percent on your money. Well, that generally gives you a net positive of half a percent.

That might not be worth it, right? But if you have an internal rate of return of 12, because you continue reinvesting into real estate, you continue buying rental property. Which you can do. An internal rate of return of 12 is pretty realistic in real estate. No company can guarantee that to you, but it's pretty realistic because what you do over time to repeat the process is you continue to refinance as you have sort of longer term leverage appreciation.

You refinance, You buy another rental property. How can you add fuel to this fire and potentially look at a 15, 16, 17 or more rate of return? You buy wedge deals. You buy a wedge deal, You finance properties for the long term, you get leveraged appreciation and a wedge deal. Over the long term.

your interests, Your your net present value is substantially higher than the interest you're paying on the loan. So anybody who simplistically tells you that oh well, you're actually paying more for the property Kevin Why are you paying more for the property? Well, it's because the government is trying to screw you. They're trying to get you to pay more to the banks. First of all, that's a lie.

You don't pay this interest to the banks like people need to wake up and realize this money doesn't go to the banks. This interest you're paying goes to mortgage-backed security holders. not the banks. No, yes, a lot of banks hold mortgage-backed Securities But guess who holds most mortgage-backed securities? Individuals Pension funds other individuals Big Banks Right now, the biggest banks Chase JP Morgan Chase Bank of America they hold like seven percent uh of their balance sheet and Commercial mortgage-backed Securities it's nominal.

Most mortgage-backed Securities are held, uh, not by large institutions. but the interest you're paying is in the bank. It's the mortgage-backed security holder that's important to remember. But beyond that, it doesn't really matter whom you're trying to stick it to by paying lower interest.

This is the flawed number to look at. Looking at your total interest paid is the wrong Financial metric for evaluating whether what you're doing is a good decision or a bad decision. Uh, and unfortunately that's because in America and widely around the world, most people have not uh, been taught true financial analysis and uh, anybody who and I want you to think about it this web. Anybody who says, oh my gosh, you're going to be paying X dollars over the life of that loan for an appreciating asset like real estate is missing the point of how wonderful real estate is.

They don't understand real estate investing, so when I see that drama on Twitter I just laugh And it helps me realize we are going to