Hey guys, it's Sasha The economy is booming and since everybody else is too busy selling, Fear I Am going to share a bucket load of numbers that have just come in that look phenomenal I Am not exaggerating The macroeconomic data that I am going to share with you looks exceptional. but what is going on with all the hysteria? CNBC Has just been discussing this morning how much the markets are going to collapse by mid-year so we like cash. So back to your question on 60 40 portfolio I mean I Think you know cash at 4.6 percent makes a lot of sense. And then this job report appears at 8 30 a.m Eastern time and the job report says that non-fun payroll increased by 517 000 jobs in January This is huge. The Wall Street estimate seemed to sit around 885 000. so this report only went and beat the analyst projections by the small tiny margin of 180 percent. Unemployment is down at 3.4 percent. And what does the market think about this? Well, Futures dipped immediately and the accepted wisdom is that the strong Job market is bad for stocks. Stock prices fell. I Am going to explain why all of these so-called analysts think that these strong job numbers are bad for stocks and then I am going to explain why this way of thinking is actually a giant pile of horses. Unfortunately, understanding this point requires the presence of brain cells in the brain, so it is perhaps not surprising. That Wall Street Analysts continue making the same dumb point over and over and over. So the theory here is that strong job numbers mean that more people are employed and on average people therefore have more money to spend because they're being paid wages. People have more money to spend and that means that they are going to go and spend it. And as all of these employed to many employed people rush to spend their money, demand for goods and services goes through the roof and we have this inflation. Spike We have the second wave of inflation coming because all of these people are employed and they have too much money. The popular analysis right now is to compare the situation to the situation we had Back in 1970 when inflation slowed right before going even higher in 1973 and 1974, or comparing it to late 1977 to early 1978 when inflation also slowed down. But then the Feds stopped increasing rates and inflation started skyrocketing again in the summer of 1978, before reaching 14.8 in March 1980.. The problem with citing past data is that there are only two things that are similar between now and the the 1970s. Both periods had high inflation and there was a background of an energy crisis. The problem is that the root causes of the inflation were entirely different. The root causes and the outcome of the energy crisis were also entirely different. The financial tools employed by the veteran tackling Inflation were and are entirely different and many other things about the economy Today, the nature of the stock market. many other things are all also entirely different. The US economy in the 1970s was heavily based on domestic Supply. It was also heavily based on manufacturing and selling. Goods Today's economy in the US has shifted significantly to the supply of services and the supply of those Services is broadly Global. it's International. The reason this is important is because in the 1960s and 70s, labor unions became a very big force in U.S politics and in the U.S way that companies worked. Because so many of the critical jobs in the economy sat under labor unions, the moment inflation hit, those unions went to town on getting workers pay increases. They set off the worst inflation waste spiral in history, and this is pretty much where that phrase became a thing. It was uttered before, but that's when it became popularly known as salaries went up. People went out to spend, keeping demand high, high demand to push the prices even further, high pressure and unions negotiated more pay and so on and so on. Richard Nixon then started taking action against the unions and then trying to control inflation by mandating Price freezes those didn't really work unsurprisingly, and so inflation got out of hand. Today, the biggest companies driving the US economy in the U.S stock market are Tech Giants. There are still worker unions and similar organizations, sure, but the way that these operate and the impact is vastly different. As a result, while inflation ran all the way through last year, wages did not keep up in the US. Workers were down as much as five percent in real terms on their wages because of the difference between the high rate of inflation and and a low rate of wage increases. So at the same time, popular understanding of Economics today is also very different to the 1970s people's understanding. financial planning, whether you think so or not, is also very different. Today we have this unique situation where employment data is smashing every expectation and we're seeing record record levels of jobs in the United States and record low levels of unemployment. This means that a very solid number of people are in work and they are able to pay their bills. They are able to pay their mortgages and their rent. They're able to pay their credit. This is critical. It means that some of the common triggers for a financial meltdown are not present in the data. We are unlikely to have a major credit crunch. As a result, people are not going to get kicked out of their houses anytime soon. However, those same people that have all of these jobs are earning Less In a real terms and this point is where I Think most of the analysts seem to be missing the point. Their wages have not been growing as fast as inflation. So while they can pay their mortgage, pay their rent, pay their loans and credit cards, spend on the discretionary items is taking a big hit. People are putting off upgrading their latest iPhone if it's not necessary. And so we saw Apple's results last night. iPhone Sales have fallen sharply. It's not surprising Mag sales are down 30 percent year on year. That's huge. It's also not surprising we already saw the same thing happen with AMD. Their client segment took a massive hit as well. We have seen the same thing with: Netflix. Customer numbers for Netflix are up, but the revenue per customer is down. People are being more cautious with their money. The more discretionary the spend, the more it gets cut. Netflix Only saw a marginal 2.1 drop on Revenue per customer as customers are downgrading packages or buying less. iPhone Sales are down 8.2 percent. Max sales are down 29. High Performance AMD Process are down 51. It all adds up and makes perfect sense. Customer confidence is not there, and the money of those customers just doesn't stretch as far as it used to. And when you look at the strong employment data through that lens, it actually looks very different because the analysts think that the strong employment data will imply that. of course, the FED will look at it and think because they're so stupid that inflation is going to run away because employment data is too strong. The problem with this argument is that the FED has two objectives. Only one of those objectives is keeping inflation low at two percent or thereabouts. The other objective is to ensure maximum employment. Oh my goodness, could you believe it? One of their objectives is to ensure employment So high employment. Is Not A Bad Thing by itself because the high employment is preventing many of the ways that Financial collapse can get started. It is actually, at the moment, a good thing, but at the same time, the nature of people's jobs and the lagging pay increases mean at the same time, demand is being stoked and we're seeing inflation numbers come down a lot more sharply than many of these so-called analysts expected overlay. On top of that, the fact that the energy prices are collapsing and this is going to result in much better affordability in the coming months, both for consumers and for businesses who don't have to have as much spend on energy for their needs, then consider that the lack of people spending on luxury goods is already resulting in big price drops. Car companies are queuing up to drop prices after Tesla stairs and of course we have the overshoot risk if prices come down too fast and inflation comes down. but at the same time people's wages continue climbing. People spending power May sharply increase in real terms and we could see a second wave of inflation. It's possible, but I Personally don't think it's probable. A number of factors contributing to last year's inflation Spike were one of impacts that do not have a systemic ongoing base. This is important. The injection of cash during covert certainly played a role. It was ugly. It is going to cause a lot of problems that cash has not gone away. We're probably going to continue seeing some of those effects happening in the economy from here, but the effect is going to diminish every month that we move further and further away from the point of injection, which is largely something that happened during 2020 and we're now cycling three years down the road. Russia's invasion of Ukraine Set of a number of other macroeconomic variables as well. But hey, I have no idea which way that war is going to go, how it's going to play out. I Am not one of those Twitter guys who suddenly out of nowhere became a military expert and a Russia expert. There's always a risk that that war somehow spirals out of control. sure, and there is another risk that China goes and does something. Maybe plays around in Taiwan but the world has already readjusted massively in the year since the Russian troops crossed the Ukrainian border. The risk of other similar conflicts I Think after everyone's looked at, what happened to Russia has significantly reduced and generally these sorts of force major impacts are not frequent, nor likely as inflation continues dropping over the next few months. It is highly likely though, that the scenario where wage growth will start outpacing inflation in March or April really happens. And when that happens, a lot of people are going to be very, very surprised because the economy is going to be booming at the same time. I Have a feeling that the FED is not going to rush to bring the raids down because they're not actually as stupid as everyone makes out. And remember that even if wages increase Beyond inflation, they have been lagging inflation for a year, so there is definitely some catch-up time before family budgets have real excess cash to play with. So if I had to guess, would probably not going to see the impacts of all of this flow through until we start seeing the Q3 earnings season sometime in late October. And based on the data in front of us right now, that Q3 earnings season could be yet another point where Wall Street analysts get massively surprised by the completely totally unexpected numbers smacking them right in their smug stock shorting faces. Of course, it is the 2020s. literally: Anything Can Happen We've already had the first mass pandemic in over 100 years, two two stock market collapses, a major war in Europe and we're only three years into this decade. But investing is not a game of trying to perfectly time things. I Guess exactly what's going to happen, even if all of those freaking idiots on Twitter tell you that is not what investing is about. that is for gamblers to waste their time thinking they actually provide some kind of value to the world. Investing is about understanding the mid and long term trajectories, understanding company fundamental mentors, understanding the risk profile, around the macroeconomic factors and around your expectations of company performance. The Ism Purchasing Managers Index data just came out and services have jumped to 55.2 percent from being below 50 in December Business activity in new orders are both over 60 in this index. Remember, over 50 in this index means that the economy is expanding. A particular part of the economy is expanding under 50 means it's Contracting The further away from 50, the bigger the change. These numbers are very strong at the same time. Manufacturing PMI is down at 47.4 Again, pointing to this reduction in consumer demand, reduction in consumer spend, reduction in the production. On the back of that, the January figure is one percent lower than in December. This is another data point that seems to point to exactly the same thing happening. The good news for Manufacturing PMI is that the moment the economy bounces and the consumer confidence returns I Have a funny feeling that this number might climb very fast from where I'm sitting. The data that I am looking at every day is looking better I Can't remember the last time I was looking at the data and the indicators were all. In my opinion, pointing is such an organized and coherent way in such a strong Direction And hey, there is no guarantee of anything the economy can and will go and do that nobody expects. but I am looking at all of these numbers and maybe just maybe the stock market's exposure starts in January Wasn't such a weird move after all.