Yesterday we talked a lot about how stocks perform after elections, but something that might be more important this time because after all this time is a different kind of election. We have not only a war that's creating geopolitical issues between obviously Russia and Ukraine, we've got this crazy supply chain disruption continued to be perpetuated by covet Zero policies in China and you've got inflation that we haven't seen since the early 1980s, a time during which we really didn't have. well, obviously Covet Zero, but a real globally involved geopolitical issue like a war between two countries. Now don't get me wrong, there were conflicts in the early 80s, so you obviously you had Russia and Afghanistan in 79 you had uh, you know, the person the first Persian, Gulf, War the beginning of the 80s, but none of these Rose to the disruption that we're seeing in Russia and Ukraine now, and sort of the global involvement over the potential for uh, well, nuclear, uh, battle. And so we have really a different environment, and potentially looking at what performance on average occurs after an election might not actually be the best tool. Remember this? It was the chart that we looked at yesterday and it suggests that generally in the days between October 31st and the end of the year with any kind of gridlock, we see a positive stock movement between 1.4 to 2.9 percent, and then in the calendar year after we tend to see gains of anywhere between 18.7 to uh, upwards to if you had all Democratic or all Republican control here into the 20s of a percent. That's fine, but this is at least 31 different elections here and I'm worried that this might not be your typical year, so instead I wanted to look at okay, what do stock markets do after we hit Peak inflation. So rather than looking at the Catalyst being a election uncertainty, let's actually talk about what the real uncertainty is and that's inflation. and Peak inflation gives us a very interesting chart. So I'm going to pull up right after I mention that Masterworks is sponsoring this video. Look, if you want to diversify your Investments away from Real Estate or stocks a little bit, use my link down below. Skip the wait list that Masterworks usually has for the public. skip it with my link down below and check out Masterworks Get in on basically syndicated art where essentially you take really expensive art, really high quality art, and you slice it up into little shares that other people can then buy and then you could potentially sell or you just hold until Masterwork sells the entire piece and yeah, hope to take a large profit. So far, out of the last three large art sales Masterworks has conducted for their investors, they've averaged a 21 return. so check out Masterworks linked down below. Okay, so let's look at that inflation chart. These are the returns you can expect for hitting Peak inflation. Now what I really want to do is focus on the years here because if we look at the years really, the year we probably want to pay most attention to is right here. the Paul Volcker era because this is really the time of a Fiat currency inflation error inflationary disaster which you really had when we left the Gold Standard. you know 2008 I I Wouldn't say that 2008 over here was really an inflationary, uh, bust cycle. neither would I say this of of many of these different Cycles We did have a quite substantial inflation over here in the early 70s, so maybe we can look at this. We had some uh, Korean War inflation. We had some post-war inflation. Those those were shocks that led to inflation. uh, somewhat similar to what you see with uh with pandemics. You also saw this sort of lifting of price. uh, caps lead to some inflation. So you actually do have some pretty inflationary comparisons here with what I would say really saying in contrast to what we've seen in 1990 and 2008. But regardless, if we look at this, oh, how funny I Just actually noticed that they, uh, in the averages have a section that's like averages excluding 2008. uh, that's pretty funny because I as well am scratching my head about 2008. uh, being in here. But anyway, so uh, we look at Peak inflation and what do we generally see in the stock market? And what do we generally see in the Treasury market when we hit Peak Inflation? Well, by far, in absolutely every event, treasuries do very well when we hit Peak Inflation Now this is very interesting because look at this. This is not saying treasury yields rise. This is. Ah no. there's actually one negative one negative. Okay, fine. Um, this is saying that the actual value of bonds Rises So how could you take? how could you participate in this? Well, you could buy bonds, right? You could buy a 10-year treasure, you could buy a two-year Treasury, and you could deal somewhere around four percent. Right now, the reason the yield is so high is because a lot of people are dumping them and they've been losing a lot of value. But it makes sense that when we hit Peak inflation, the value of these bonds would actually increase and the value of new issue bonds would fall. You would still if you had bonds. uh, you know, preserve the the yield that that you received when you bought your bond if you held it to maturity. But anyway, in almost all scenarios here, you're green with the exception of one. If you then look at stocks, you have a little bit more red in stocks, right? You've got some uh, years that are read especially 2008 leading to a pretty large move to the downside. But I'd say most of the moves after we hit Peak inflation are pretty dang positive. In fact, if we go for Middle tendency, we could see that the six month s P return sits at five percent 12 month 11.7 percent, and 24 month 15.4 percent once we hit Peak inflation. Now, if we jump over to excluding 2008, you could almost double these values to 11.7 17.4 into 20.2 Okay, maybe not quite a double a double on the first, and the others are about 50 more. But the point here is that this market May care a lot more about Peak inflation than it does about the election being over. Now, it's entirely possible that we coincide that potentially we end up seeing, uh, sort of peak inflation. Let's say, uh, you know it, in theory, it could be, uh, it could have been, uh, you know, somewhere around. uh September right? Who knows, and that maybe were were actually kind of in this sort of flatter curve I Suppose if the peak inflation would be something like this, and maybe we're sitting in this flatter environment where we're kind of this like here, like we've come off the top a little bit, but we haven't really moved a lot. It's entirely possible that that we could see the post-election rally align with inflation coming down. I Think once we actually meaningfully see inflation come down, then we'll be in a situation where stocks can actually support bottoms, Because until that happens, you have massive issues. Uh, now, uh. what's crazy is if you look at sort of leading indicators for inflation, of course, there are signs that inflation should come down right. Whether that's looking at leading indicators like rents already coming down uh, or the housing market softening which leads to lower residential investment, you're already starting to see uh, for a while now. You've seen uh, discretionary discretionaries come down. That could be uh, PCS that could be clothing you've seen shipping and freight costs start coming down where you really haven't seen a softening yet. Oh, and Health Care is expected to to come down as well. But where you haven't really seen a softening yet on inflation is CPI rents. So you've kind of got this mismatch of of what the market is doing and what CPI rents are, you still actually have catching up to do. Which means more Rising CPI rounds Travel spending is absolutely through the roof. So sure you've got a used car bubble that's that's basically burst, right? and the value of these is plummeting. But you're seeing CPI rents move up, travel, uh, rotate to to still the upside. And these are some things that are still sustaining inflation. If you look at uh Commodities it's It's also somewhat of a mixed bag. You look at something like Lithium and you're Rising like crazy. Uh, whereas a lot of other Commodities whether it's iron or what you're seeing a lot of Commodities rotate To the downside, so we're still at this: this sort of mixed bag which you would generally expect to have a mixed bag around an inflection point, right? Because you need enough things to go negative to start creating the inflection point. So the more things go negative, the more of an anchor you have on inflation and then eventually you get a turning point. So it is possible that Peak inflation lines with uh with with the election and that maybe we do actually see a nice Mist To the downside, uh, in inflation? Maybe we don't. Maybe maybe more pain is still ahead and unfortunately, if if more pain is still ahead, then we might not actually see a Cpip until potentially February or or March or even later. And that's going to mess up a little bit. That uh, but a post-election calculus says we could just continue to get hiked into a very brutal and nasty recession and that is somewhat concerning. So and I think those are things that you want to be prepared for. You want to be prepared to look at your portfolio and situation and say yeah, no. This could keep going and inflation is probably more important than the election cycle, which I think pretty much everybody is anticipating. We're going to have a split uh, Congress or certainly a divided government where, well, divisive government I Feel like we have no matter what? but uh, that is a separate party control in one of the chambers of Congress than the presidency. so we'll see. well. anyway. happy Election Day! Check out Masterworks Thanks for watching. We'll see the next one. Goodbye.