So, according to a bloomberg, article about 40 of the nasdaq is now down 50 or more from their one year, high tech, taking it on the chin yesterday and basically the past two weeks over inflation and rate fairs and as that getting clobbered down now more than Eight percent below its record high. So if you're, a growth stock investor, there's like a 40 chance that a lot of your portfolio was slashed by half, that's not an easy thing to stomach and trust me. I know i hold a lot of volunteer shares, so i'm feeling the pain just like the next guy. So the question is why this is happening what's causing this, and even more importantly, is this? The bottom is this the end, and is this a buying opportunity before the launch? Now there's a really famous saying that you know everything will be okay in the end and if it's not okay, it's fine.

It just means that it's not yet the end. So the question is: is this the end uh? It has been a tough uh, two weeks, alicia what i'm curious, what what you're doing about it and whether you think it's uh going to continue to trend the way it has, or you think that this all of a sudden turns into some kind of buying opportunity And now we're getting to the interesting part what's causing this well. The markets are especially good at pricing and future developments. You know they're really good at predicting the foreseeable future, and the markets are currently pricing in inflation.

Inflation rate is at seven percent. It's almost 6x higher than last year, and everybody knows the fed will have to raise interest. Well, we do think the fed is going to hike three times this year and, as you were mentioning earlier likely to start balance sheet runoff before the end of the year. That's a pretty far cry from what markets were priced for just a few months back, it's kind of a simple math, that's being priced in into the current stock prices.

It's all it is now thing. Is it's not the whole story? The question is: if that's the case, then you should assume that this is the bottom right, because the markets are really good at pricing in future developments. Well, the question is: how far do you think the fed is going to take these rate hikes? One big difference this time is that the fed has tried hard to signal what they're doing and in what sequence. It's a significant adjustment and another way to ask this question: is this the bottom? Is this a buying opportunity and the answer is: it depends if you believe, the fed that they follow through their plan of raising interest to about one percent in 2022 and about one and a half percent in 2023.

This is definitely bottom, because this thing is completely priced in and baked in into the stock market as it stands today, so you should be buying more. I guess if you believe that that's the case, however, if you don't believe the fed, if you think the fed will have to raise interest rates at a faster pace at a higher pace, this is definitely not the bottom, because this has not yet been priced in And let me show you why um you have goldman, we have jp morgan, you have evercore, you have a number of analysts now saying that the fed is going to hike rates four times this year, so the fed has an inflation problem and it's going to have To react so here's the thing the market is currently pricing in the 2022 rate hikes to about one percent and the 2023 rate hikes to about one and a half percent. The question is: can the fed sustain this promise? Can the fed keep its ward and basically assure that this is the bottom? And let me show you why i think that's not the case, so the markets aren't there yet and the reason why the markets aren't there yet because they're not sure that the fed will be willing to do what it needs to do. There's a willingness issue out there and the marketplace is going to wait to see where the fed what the fed actually does.

So. Last year we had inflation about 1.2 percent. This year we were already at seven percent, so inflation spiked by 600 percent 6x in a single year. That's actually something to worry about.

That's not a simple thing. In fact, this is the highest inflation we had since the 80s in the last 40 years. We have not seen inflation numbers like this. That means the fed has to be extremely aggressive.

So how aggressive well right now, if you look at it, we're talking about one percent, one and a half percent for the next two years. That's the estimate, that's the expectation, and the question is: is this one percent and one and a half percent enough? Well, let me show you why i think it isn't john taylor famously coined the taylor rule basically saying the difference in inflation year to year times one and a half. This should be kind of the standard of where interest rate should be so if last year we had 1.2 this year, where they have seven percent, so that difference times one and a half will give us about eight point: seven percent. So that's just the starting point.

If you add in two percent for the you know, standard inflation and one more percent for long-term inflation, so you're looking about anywhere from nine percent to twelve percent of where the interest rate should be today and that's really far away from the zero. We have right now, so basically, this would mean the fed will have to raise interest rates to the levels we had in the 80s, with paul volcker to about 12 percent. Can the fed do it? Will the fate do it? What will happen to the u.s economy? What will happen to the us debt? Let me explain because the answer to this question depends on. Is this the end of the growth stock collapse? Because if the fed can't pull it off, we'll see more interest rate hikes and then we'll see tech stocks drop even lower and if they can't do it, then this is the bottom.

So the whole answer revolves around this macroeconomic question. So in the 80s we had this massive interest rate spikes that stopped inflation. Now paul volcker is very famous for that. The government actually worked with him, but the huge difference is that in the past 40 years since then, our u.s debt has grown wow quite significantly.

So in 1982 we had about 25 of our gdp in u.s debt. You want to guess how much we're at right now at 100, 100 of our gdp is u.s debt. The problem with this scenario is that if the fed actually pulls the trigger - and they raise interest to 12, we're looking at about 2.7 trillion dollars more in debt service costs for the us government. And we can't afford that, because the only way to get that money to service the debt would be either to reduce government spending, to increase tax collections to print more money or to borrow more money.

Now. Borrowing more money is actually not that smart, because it's only going to make your debt even more expensive, basically not solving anything. Printing money is only going to make inflation worse. So these two options are off the table, so you're left with reducing government spending and increasing tax revenues, and those things are not so easy to do.

Well. Reducing government spending has its political problems and i'm not going to get into that. It's not my business. Everybody understands exactly what it means: less government spending on education on roads on infrastructure and a big lash from the community at the government for doing that, because nobody will like the government giving them less.

It's just as simple as that. But it's a political issue whether they can do it, they can't do it. I don't know. The second thing is raising tax revenues, and the only way you can get that done is by increasing your gdp, because just raising tax rates as simple as the towns, it's not going to give you extra tax revenue.

In fact, if you look at the laffer curve, if you raise taxes beyond the optimal point, you're not only not increasing your tax collections, you're actually losing tax collection. So if you actually raise taxes beyond the optimum you're, reducing your tax collections and where's that optimum right now well, according to the oecd, it's about a 20 for corporate tax and the u.s is right on point at 21. So the uss pretty much is already a little bit over the optimum point, so they can't raise corporate tax rates. So how will they raise all this money? How will they increase gdp? Well, if you can increase gdp, you will definitely collect more taxes without increasing tax rates.

But how can you get this done well, unfortunately, the only reason to get it done is by deregulating and reducing corporate tax rates by then stimulating the economy, stimulating gdp growth, getting more tax revenues, but the problem is that this government is not really suited for that, Because it literally goes against everything, people voted for basically, less government spending, less taxes, it's a classic republican government, but what we have right now is a democratic government and i'm not saying either or one is better or worse. I'm just saying that this specific government will have a political struggle, putting through a plan like that, because their voters would not stand for that. And if this is the only solution, the question is: can politicians when push comes to shove, sacrifice their own careers in the short term to do the right thing, long term, for the government for the economy and for the most part, the answer is no they're really Self-Serving - and i don't trust politicians, but if they will actually do it if they pull through this, even though it's detrimental to their career and even though in their lifetime political lifetime, nobody would appreciate what they're doing and they will get destroyed. Then we'll definitely have that saving factor.

However, i'm not going to sit here and trust politicians to do that, because i know there's a completely different solution that we can do today to solve this problem. The problem is that the fed is basically chained. They can't raise interest rates without raising the u.s debt and that can't be solved without this government doing exactly the opposite of what it promised. So what can we do here so check this out? The problem is that the us debt is so sensitive to interest rates.

To begin with is because the policy is to roll over these short-term debts, because short-term debts are cheaper right now the one-year bond is about half a percent, that's mighty cheap. However, if you look at the 30-year bond, that's two percent: it's a lot of difference. There's about 340 billion dollars saved when you go from two percent to point five percent on your u.s debt. So the government is choosing this cheap interest just to keep paying less.

Today but they're also creating the problem where, because you're in the short term, debt you're completely exposed to interest rate hikes. If you go on the 30 year and you take a two percent fixed just like a mortgage right, you're paying more today but you're getting a fixed rate, you completely disincentivize, you don't care about interest rates, so the government can actually do this today they can roll Over all these short-term cheap debts that are extremely sensitive to interest rates and they could put everything in a 30-year bond in the 30-pound you're paying 2. Yes, that's 340 billion dollar more expensive, but then you become agnostic to any interest rate changes. So the question is: is 340 billion a cheap price to pay to get free from this recession and to let the fed actually raise interest? Well, i think it is, but you decide so here's the thing right now.

The politicians have three options and these three options will determine if this is the bottom for the growth stocks or not, option number one, kick the can down the road and basically do nothing now. That means the growth stocks are already bottomed out. They're not going to raise any more interest rates and they're basically going to sacrifice the future of the us economy for the short-term political gains. The problem with this, you have to understand that the legacy of these politicians will be tarnished because in five six seven years everybody will realize that these guys have sacrificed the u.s economy for their own benefit.

And if there's one thing, politicians actually care about is their legacy now. The second option is for this government to basically do the opposite of what it promised to the people who voted for it, basically reduce taxes and reduce government spending, so that ain't happening. So that means we are only left with one option: a simple mathematical solution: everybody gets to keep their careers, nobody gets fired, nobody's legacy gets tarnished. We pay a little bit more for debt right now, but we completely enable the fed to battle inflation and put us back on track.

For me, that option seems very plausible, and that means we're still about to see a lot of interest rate hikes, which means stocks in the growth sectors have not yet bottomed out. Now that's my idea: that's my opinion might be an accurate, might be wrong mighty rams of a madman, i'm just a guy on the internet. This is not professional advice. This is not financial advice.

You do your research, you decide for yourself, but i'd like to hear your opinion, so let me know below, if you agree or disagree with me and let's have a chat there. Thank you for the channel members. Thank you for patreon for supporting this i'll see you tomorrow.