Hey guys, it's ashley the stock market rallied at the end of may. The s p, 500 gained five percent and many grow stocks went up a lot more, so investors have decided. The crash is now over. We have had three big green days, so it's time to pop the champagne and get ready for your stocks to go all the way to the moon, except when you zoom out on the chart and realize that the 20 game by tesla is relatively meaningless.

When you look at the big picture of what happened throughout this year so far, and your favorite growth stock might be up by a third, but you zoom out and realize that that is all just noise and the worst bit is that it may well get a Lot worse before things get better, i know that the popular thing to do on youtube is to declare that you have all the answers. You are the prophet, the oracle, the messiah you have all the secret keys right now is the bottom go and buy the dip. This kind of thing gets the people going, even if you have declared the bottom twice in the last three months and then even made yourself congratulatory videos saying how much of a market time ingenious. You are just before the stocks all went down a whole lot further and unfortunately i do not know exactly when the market will bottom out much like all the other youtubers that like to pretend to know but have exactly zero idea.

I like to operate on likelihoods and unfortunately, at the moment, in my opinion. For me, the outlook is that it probably is going to be pretty ugly pretty bumpy for a little while and in this video, i'm going to share a whole lot of information that i am using to base this opinion information that, i think is quite pertinent to Try to understand where things may be going. There are a lot of different competing issues at hand, we're going to talk about inflation, development of several different key drivers, the movement of post-covert economy and the problems associated with that and the massive looming energy crisis. That is brewing on the horizon.

Now, in just a few days on friday june 10th, the us bureau of labor statistics will publish the may consumer price index. Data and analysts are salivating at the prospect of inflation, having already peaked and being on the way down, because in april you see, inflation was only 8.3 percent and in march it was eight point, five percent, so we are now past the peak and the consensus seems To be the may, data will be eight point, three percent again or maybe even full, but there are not one, not two four major problems that i don't really hear. Many people raise often at all, and these problems may mean that inflation could well get ugly over the summer months, and the data that we have now is somewhat supporting it. The first problem is very simple: it is the power of compounding, because if you zoom out just a little on the us inflation chart, you will notice that in april 2021, just over a year ago, inflation started skyrocketing.

It went from 2.6 to 4.2 in just one month, but then, if you zoom out even more, you can see what happened before that, because in april and may 2020 inflation took a nosedive down to 0.3 percent and 0.1 percent, because that is when covet hit the Whole world went into massive panic mode and everything shut down. Governments were busy setting up their money printers and dishing out endless business subsidies. So when you look at inflation data back in april and may of 2021, you are comparing those months to the same months. One year before and the year before, 2021 in april and may 2020, we had that massive suppression by over one percent compared to the months either side of that dip.

This is, what's called the lapping effect, and it is always surprising to me how few economists seem to actually understand and consider what this means at least the popular ones that you get to see on cnbc and other such places. Inflation is not an absolute statistic. It is a relative measure. You are comparing a month this year to the same month last year.

So when we had a big drop in inflation in april to june 2020, we then saw a very fast rise in inflation when we lapped those months a year later. In 2021, the reality is that inflation wasn't necessarily jumping. It was just some artificial, suppressants, artificial ways that inflation is being measured. The reality is that inflation wasn't really actively increasing just in those months and not before or after it was increasing, actually quite a lot during the summer of 2021, when that chart was flat, and this is why, in april 2021, inflation went up relative to a month.

In 2020, when inflation was artificially suppressed in the short term, if inflation in april 2020 was not suppressed, if it was just roughly the same 1.3 or 1.4, as it was say in march 2020 or even 2.5, as it was back in january 2020, then the april 2021, inflation figure would have been much much lower instead of 4.2 percent. It could well have been 2 to point five percent, and the same thing then goes from may 2021 and june 2021. But then you have this bit in the summer of 2021, when inflation stayed flat, except that flat period was very consistently higher than the same period. A year before so every month, during that period, the price growth was continuing and the net impact on prices of goods and prices of services was accelerating.

So now we're in 2022, and here is the really important bit. The slapping effect works both ways. Last year, in 2021 march jumped up from 1.7 percent to 2.6 and in april it then jumped from 2.6 to 4.2, and if we are seeing a steady, long-term inflation effect, then in april and may this year we should be seeing a slight deeper in inflation. Even if prices are rising and the rate at which they are rising is increasing, are you following this? When the same period last year sees a fast run up, you would expect that then everything else being equal.

The same period this year would take a slight dip, because the rate of the increase is what matters, and this year april did dip down to 8.3 percent, which is actually a very, very small dip, given the rate at which april was growing last year and the Consensus on the forecast is that may will also be at 8.3 percent. So may then, will not dip at all. If we hit consensus even though maybe last year was still rising very very fast. So, even if the consensus is right and it has been low too low pretty much every single month recently, even if consensus is accurate, it is still a really bad sign, despite all the media probably celebrating it if it happens because look what happened in the summer.

Last year, 5.4 in june 5.4 in july 5.3, in august, back to 5.4 percent in september, and if we are continuing along the same non-linear upward inflation curve, we may well see inflation actually sitting flat somewhere around that above 8 mark and then pushing towards 10. And then, when we're lapping october onwards, that's when inflation went on a run last year and we may be in for a real shock this year. And, of course, everybody will be massively surprised if late on in the summer and heading into the winter season, inflation suddenly for no apparent reason whatsoever goes completely off the charts and the problem actually gets a lot worse because there are several compounding other issues at play. First, here is the calendar of the federal open market committee meetings.

These are the meetings when the fed decides on interest rates. We have one coming up in june, just after the inflation numbers come out, then we have another one at the end of july and all the heads of the fed bank over the last couple of days seem to be in absolute agreement that they will increase rates By 0.5 percent in each of those two meetings and on paper that might even look kind of good, the rate will go up to 2 and inflation may well be hovering around that eight and a half to nine percent mark and everyone will be praising jerome powell's. Measured and very smart, steady approach because it will look like the policy is working at some point in mid to late summer, inflation will have been contained, the rates are steadily rising and are already working. This is the magic, the first time in history when this type of policy has ever worked, not putting the brakes on the economy, but helping inflation come down, but then we only have three more meetings planned for the rest of the year.

The september meeting comes on the back end of that summer: inflation plateau. So it's fairly probable, although who knows that we won't be seeing much going on yet and what happens if october numbers come out and inflation goes above 10 percent. Suddenly it will look like maybe inflation didn't just go away all by itself for the first time in history. I know i know very surprising if that happens, and everybody will actually suddenly be massively surprised by this fact.

The fed will be looking at inflation in the double digits and potentially heading higher faster than expected, and the rates will be at that point at two or two and a half percent. At the same exact time, the winter season will be upon us and europe will be scratching their heads, trying to figure out how to actually survive the winter without using russian oil and gas. Because remember in the last couple of days, the eu just agreed to block all ships deliveries of russian oil and gas, and many of the bigger countries have also agreed, including germany and poland, to turn off the pipelines as well. Now, oil and gas are currently at historically massive price levels, and the pressure in the coming months over the winter season in next year is probably not going to help those prices, but at the same time, we'll eventually have to have shelter.

Prices come through in the cpi as well. Every month that passes, housing prices and rent continue to grow at a somewhat bonkers pace. The zampa report continues showing rents that are growing 12 to 14. Year-On-Year month after month after month, the saint louis fed data is showing the house, prices are exploding, and yet the cpi, for the latest, available month and april, was showing that shelter is growing at only 5.1 a year.

This metric is delayed from the actual price of shelter because it is based on surveys. It is based on people's feelings, people's opinions, but also it takes time for higher rents and higher mortgage prices to fully propagate into actually affecting people, because, if you're on a fixed term mortgage, if you haven't moved house, if you haven't rented a new place, you may Well not be impacted, despite the prices going up. Eventually, though, this measure will go up and the longer that the lag is between the actual prices increasing. When the measure goes up the higher it will have to go to catch up, because it will have to make up for being lower than the real increase in costs in that intervening time over a longer period of time when the rises were going up cumulatively.

So at the moment, property prices are going up at about 20 year on year and rents at maybe 12 to 15, depending on which report you look at. So there is every chance that shelter will begin creeping up towards that 15 mark at some point as well, and shelter makes up a third, a third of the total cpi index and if shelter isn't say 15 - and it is a third of the index - or at Least, pushing towards there and the energy is at say, 50 or 60 percent and energy is another seven and a half percent direct in the index, probably another seven to eight percent indirect. It will be pretty much impossible for inflation to be below 10 almost regardless of what everything else in the cpi does, and then we get into the worst problem, because everyone is worried only about the absolute level of inflation, but the level of inflation is only one. Half of the story, the smaller half the bigger half is the length of time that you are sitting at that high level of inflation, because a few years of consistently high inflation can be much worse than the short spike.

That then goes back down to a lower level because inflation multiplies it takes effect continuously over time. If you have two years at 10 inflation, then the cumulative effect is that prices do not go up by 20. They go up by 21 and if everyone is patting your own power on the back this summer, because inflation is apparently being curbed but still staying put at that 8.5 or 9 level, we will see potentially the inflation wage spiral take effect, and this is where it Gets really really bad if your wages do not go up for a year and prices go up by 10. You know things are pretty bad, it's not the end of the world.

You have less disposable income, you're spending a lot more money on paying bills, but you can maybe maybe make ends meet especially energy and food bills that are going up way way faster than inflation at the moment. But if you don't get a wage increase for two years and prices are now up 21. You get into a place where push comes to shove and there is a good chance that if the situation plays out this way, then when we get to q3, when prices are continuing to climb, we may well see one heck of a push on salaries, and this Is where it can get extremely dangerous if salaries start growing at rates, far in excess of the fed rate you're on a very real risk of inflation, not needing fuel to burn anymore? This is critical and one point that many people often don't really understand. You can get into a self-propelling nuclear explosion that nobody can any longer control, except some extremely urgent action by the fed.

There are definitely a lot of good reasons why the u.s inflation can't follow the path of venezuela or russia, or many other countries that experienced hyperinflation in the past. But some of these reasons are losing weight in front of our eyes. We have china and russia now happily trading oil and gas without using dollars, for example, and i expect that the fed will probably begin at least i hope they will taking much more urgent action than it has been if inflation starts to get near to across the 10 mark, because maybe just maybe the obvious issue will become even more obvious to a point where the chairman of the federal reserve realizes that it's kind of his job to actually do something, rather than sit there scratching his ass. Although, just six months ago, the same person was telling everyone that this time it is completely different and inflation will definitely just go and disappear all by itself, because it's transitory.

So who knows so? My top tip here is to buckle up. I have no idea which way things are going to go, but it is definitely looking pretty choppy out there and it could well get a lot worse before it gets better. If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching.

I really really appreciate it and, as always i'll see you guys later, you.