The following video is brought to you by meet kevin and is nothing other than pure fud fear, uncertainty and doubt because we're in in this video we're gon na talk about the sh9t case scenario. And if and if you replace the uh nine here. With the ninth letter in the alphabet, you'll know what case we're talking about: okay, let's just get right into the meat of the matter here so rents today, surged 12, on a month over month basis, cpi right now is only incorporating 4.5 of rent inflation, shelter, inflation. This means a lot of that rent inflation, we're seeing is still to come in cpi readings for inflation.

That's a little bit of a problem. We want to watch this. Miami, for example, saw their rents on a month-to-month basis, go up. 35, that's nuts! I don't know.

What's going on in miami uh today, we also had a very terrible ppi report: uh. This is the purchase price index and the month over month, ppi i came in at one percent the estimate the consensus estimate was for 0.5 on a month-over-month basis, which kind of looks like this when they do estimates. You kind of get this dispersion here of different economists or experts or whatever, who come up with an estimate. This was the consensus we ended up over here way out here at one percent on the month over month.

Now, one percent on the month over month is the equivalent of 12 annualized inflation, which, quite frankly, most people who look at prices. Today we look at things and we're like oh come on. We know hotels are up 20. We know.

Insurance is up 17 to 20 percent uh car insurance foods up 40 percent gas utilities are up 30 to 40 percent. We know cpi is massively lagging anyway, so some of these things are no surprise, but the problem is these: issues are becoming more broad-based, see going back to the ppi here. If we take out food and energy, some of our biggest gainers, we still had a point. Eight percent month-over-month increase, which works out to 9.6 on an annualized basis.

Uh. The estimate for our year-over-year ppi by the way was that we were going to see 9.1 uh for the year-over-year ppi read. It actually came in at 9.7 and again to strip out the really volatile food and energy we still came in at 8.3. Even if we go a step further and take out of the month-to-month food energy and if we take out trade as well, we're still seeing uh close to and over eight percent annualized inflation if we strip out food energy and trade pretty wild.

The ppi report today was absolutely miserable and uh. You know obviously there's a lot of enthusiasm in the market, particularly today, because of this talk about a troop withdrawal from russia and, of course cnn is continuing their war mongering of oh well. We haven't seen evidence of the withdrawal. Yes, i chill out cnn.

Okay, like you, can't move from an army that freaking fast like give them a freaking chance, okay, anyway. Obviously this is good news and we've seen oil come down three percent, which is great uh. Unfortunately, the longer run trajectory for oil uh has been another issue that we could actually write up here on the board of issues. For this poop case scenario.

Uh is the trajectory i'll just i'll, write it over here the trajectory of oil price growth, uh and the trend growth uh. It might only be getting hit with a speed bump of what happened here in russia, where we ran from about 90 per barrel to 95. uh. There was a lot of fear that oil would go to 120 a barrel.

In the event, there was an invasion into ukraine, but uh the the longer run. Trends for oil are not in our favor and and that's unfortunately, because it's taking so long for companies to bring more rigs online they've they've brought a lot more online uh we're about somewhere around 600 in the united states somewhere around 600 rigs online. Whereas back in like 2009 and 10, we were at 1500. so graphically think back to a march of 2020 for a moment when we had this crash in demand and and gdp and everything crashed.

But we had this larry kudlow v-shaped style recovery. At the time when we were crashing over here and hitting bottom, there was a lot of talk about maybe having like a nike, swoosh style recovery where things come down like this and then take a lot longer to recover. This lag here is exactly what's happened in oil is that we've had a much slower recovery in oil, and this wedge here between demand and oil has gotten so large and that's why we're seeing oil prices rise so much. So it's worth noting that oil rigs are just not coming online as quickly as they really need to to keep up with demand, and so we still have this issue of of oil here.

Still a big issue, rent still a big issue, not in our cpi reading. Yet we talked about ppi worsening, not getting better. It's still missing estimates to the worst side. The same thing happened just a few days ago with cpi, we we came in at the highest end possible of where any of the estimates were a significant beat on cpr.

This has also led to the belief that we're starting to see a wage price spiral. That's because wages are up about eight point: eight percent on a month-over-month annualized basis right. That means that wages are actually growing faster than inflation is growing, which means that wage earners people working have pricing power, which means they have more ability to ask for, raises and and get more money in aggregate right. This might not apply to every single person watching, but in aggregate the problem with the wage price spiral is, it could lead to a decoupling from the supply chain, issues that we have, which simply put if supply chains get better.

We think prices are going to come down because businesses will have more inventory, but if workers have pricing power and we're decoupled from supply chains getting better because of that pricing power, the wage price spiral says workers can continue to ask for raises. As long as aggregate demand is high, so as long as we can see, it continue to see a demand, we're going to likely continue to see inflationary reads not only in cpi ppi, but also we're going to keep seeing those wages go up. Now we're going to talk about demand because there's some red flags coming up in demand. The problem is: are we going to get demand to slow fast enough to actually get inflation to go down fast enough before the fed ends? The party and that's part of the problem, but in the meantime, what we do know currently and we'll come back to that.

What we know currently is that pricing power at pretty much every single company is through the roof. Marriott raised prices 20 from 2019. Now this isn't such a big deal, because 19 of that is already in cpi. So that's good! This is a good thing.

We've already seen that we know they have pricing power, but that's already in cpi. The problem is, in things like going back to rent when we have a 12 annualized rent increase uh, but we're only seeing four and a half percent show up in cpi. This is a problem because it's so lagging, but you still have companies in their earnings reports from end face: tesla amd, starbucks, xbo logistics under armor, disney ralph, lauren, kimberly, clark, toyota. All of them are saying the same thing: excessive demand and a lot of pricing power and essentially talking about how they're raising their prices.

Even private companies like panda, express raising prices twice in q1 and q2. Here it's incredible uh but anyway then another risk that we have at the same. This is kind of ironic because it's like wow, we have prices going up, but at the same time we're starting to see some measures indicate that gdp may be slowing and some folks think, oh well, if gdp is slowing, maybe that's a good thing, because it'll cool Inflation, the problem is the lag time these companies make pricing decisions three to six months in advance, so you could see prices going up for three to six months longer than uh. Then the demand is actually present only to all of a sudden see a sudden decline in demand, often during a recession right.

So this is actually a bad recipe when you have pricing power and wages and products. People presently spending a lot, but starting to see little indications of slowing in gdp, possibly caused by slowing a slowing or unexpected slowing in personal savings. A lot less stimulus coming to individuals, households and even though we're getting that child tax credit, which i think will have the greatest impact on those making less than 60 000 a year coming during tax refund time. I think for most families, we're probably going to be dealing with a tax bill from either investment gains or or just larger than expected incomes in 2021.

So tax bills are going to be a little bit of a drag on likely net investment into stocks or whatever. On top of this, we have an aggressive fed, an aggressive, fed raising rates. You know not so worried about the united states ability to pay their debts because remember debts take when the when the fed raises rates. It doesn't automatically affect all of the interest that we have to pay right.

Our debt rolls off over time and, quite frankly, we can pay twice as much interest compared to our gdp. Now, if we pay twice as much we'll just be at the levels where we were in the 90s of how much uh in interest, we pay as a percentage of our gdp, so we're half at those levels now so there's plenty of room for the fed to Raise rates and us not to worry about sort of the debt burden, yet we do have a lot of debt where i think this becomes a little bit more of an issue. The fed raising rates is actually going to appear more in the fact that things like margin debt are going to get a lot more expensive credit card debts are going to get more expensive and also mortgages are going to get more expensive, and so that means likely A lot less refinancing refinancing is wonderful for the economy because it gives people a burst of cash which oftentimes they spend on stupid things like cars and boats or consumer goods or whatever uh. You know.

Margin debt is obviously dangerous in stocks because, as your interest goes up, you're probably more inclined to pay off your margin, so less refinances, less margin, not only less spending, but also likely less investment into stocks and, of course, credit card interest going up is another uh Drag on the economy, uh big tax bills we talked about, and then commodities at record highs are the this. These commodity issues really represent themselves in ppi here, so this is probably just a reiteration of ppi. So when we combine all of this, we get to what what i call the uh sh9t case scenario. This is fud.

This is worst case scenario uh. I just hate the fact that this scenario continues to, in my opinion, grow in likelihood, uh, definitely not guaranteed. To happen, but it's it's a little nerve-wracking. So here's the problem when all of this stuff comes together at the same time and ends up and we end up reporting one bad quarter of gdp.

So let's say uh. You know q2 of 2022 compared to q2 of 2021 ends up with a negative quarter of growth. Well uh. If this happens at the same time as we see softer real estate prices, because rates have gone up, then my expectation is we'll have the first real freak out in the market and i'm not talking about s p down five percent, like what we saw in january.

I'm talking about s p down 10 to 15. I think that is real freak out level number one. This is when you start getting to real fear that, oh my gosh, what, if we're heading into our session, remember usually the stock market bottoms well before the recession is over uh. It's kind of like you bottom and the recession plays itself out and recessions are determined.

Looking backwards anyway right, so you want to be looking at this stuff ahead of time, but anyway uh the problem with freakout number one is when we get freakout number one, we're probably not going to have the fed u-turn yet because the fed is going to be Fighting what well super high cpi ppi, the rent inflation, the oil inflation uh, the price inflation from all the companies, the wage price spiral, the fed's going to be busy fighting all of these forms of inflation and the commodities inflation right. The fed's going to be fighting all these forms of inflation and the fed's going to tell us sorry folks, we're sorry. We got a quarter of bad gdp, we cannot stimulate, we have to keep fighting inflation because the last thing we want is stagflation. That would be the worst, and this is when we get to fear number two, which is the freakout number two.

So if this right here is, let's say, 10 to 15 down on spy, this right here, uh it could could be something like 25 to 30 percent. On spy uh, if not even more - but i do expect this to last - a very short period of time. So if you're hodler, i don't think that these are going to be very, very long, drawn out kind of falls. I think they're going to be more shorter term freak outs, because the federal reserve could actually purposely engineer us into the max fear of a recession, but not necessarily a recession, see if we have max fear that we are going into recession and everybody on the streets Is like save money we're going into a recession once everybody's talking about we're going into a recession now we'll finally have a reduction in aggregate demand and we have a reduction in aggregate demand now the federal reserve? Can you turn and say you know what we've we've tightened too much? We can go back to stimulating they go back to stimulating at the same time as aggregate demand via consumer spend goes down.

What happens when aggregate demand plummets? Well, the inflation goes away. You might actually go from disinflation to some levels of deflation, and this is where your kathy woodyan deflation style recession could could take hold, but hopefully not for a very long time. As we do expect. The federal reserve to u-turn which remember folks, the best times to invest if you looked into the past, were 1987, approximately october 2003 in approximately uh feb to march off memory here, 2009 feb.

This is probably march, then, whatever uh in 2018 in december and 2020 in march. Those were your best times to invest. If you were ever going to time the market and something special happened at each of these five cases, the federal reserve, you turned to the positive side. What is the last thing that the federal reserve just did? Then you turned to the negative side.

Remember the january disaster on january 5th, when we got the federal reserve's minutes from their december meeting, it was a crisis and in their january meeting during the press conference, jerome powell told us that things got worse, not better the minutes by the way for this u-turn. From january on, the continued u-turn from january come out tomorrow, so i think that's not going to be a great catalyst 11am tomorrow i'll be covering that uh, but anyway, this this is critical here. So, in my opinion, what we really need to have a soft landing to to prevent this crisis here in order to prevent this crisis, here's what we need. Okay, we need oil to go down.

Oil's got to chill out energy prices have to chill out. We need the wage price spiral to break which the wage price spiral breaks. According to 2003 working paper from the imf very very relevant today, uh the wage price spiral breaks when aggregate demand goes down. Okay, when ad goes down the wage price file breaks.

So now we get oil down which could go down when consumer demand goes down. Wage price uh spiral ends which goes down when aggregate demand. Uh goes down uh. Now.

Companies who have initiated price increases they're, probably not going to react extremely nimbly. Usually it takes a quarter or two for companies to react on pricing. We see that with price increases we see that with price declines. So probably one to two quarters after we start seeing aggregate demand go down.

Who knows maybe that's q3, q4 or 2022, then we start actually seeing pricing power become a reduction in pricing which could squeeze margins, which aren't great for company earnings. Anyway, when we start seeing that prices are coming down, uh then uh. The slowing gdp would just reiterate. Aggregate demand going down slowing savings reiterates aggregate demand going down, which is good, but you got to have this happen enough to where inflation actually starts going down, and then you can actually get the fed to stop being as aggressive.

That's how you solve this? The big question out of everything here is: can if there's a big bottom line out of everything, is: can a d go down uh before uh uh, or i should say, maybe not necessarily before, but around the same time, uh around the same time as inflation stabilizes? We'll make that a stabilize see as long as aggregate demand is going down while inflation stabilizes. Maybe we can go to a soft landing, maybe we're starting to see some signs of aggregate demand going down right now, but the problem is inflation's still doing this right now, and this right here is the big boogeyman, because even if this goes down a little bit, This does us nothing while this is still going up so anyway, there's your sh-90 case scenario. If you want to discuss this sort of scenario or other projections with me live every day, the market is open check out the programs, i'm building your wealth link down below you, get lifetime access to all the content and the course member live streams. Thanks for watching bye,.

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