Welcome back to Episode 89 of the Meet Kevin report. Always exciting to be here. It's also incredible that we're almost at 90 Meet Kevin reports now OPEC has apparently uh, well, they introduced Russia via phone call and Saudi Arabia potentially teasing a partnership between Uh OPEC and Russia or an expanded partnership between them and Saudi Arabia Pay attention to kind of goes into that: Narrative of that US dollar D dollarization as a reserve currency of the world and the Petro dollar backer. The Uh foreclosure rates are ticking up in the United States However, while they are taking up, they're still well below 2019 levels.

So I think fears of this sort of foreclosure wave were widely misplaced consumers at least starting to sow some potential weakness. and Broad uh, categories like uh, well, subscriberships over at ATT or telecommunications. Interestingly, a lot of the T-coms not doing great T-Mobile fell 10.4 percent yesterday, which is crazy they they fell more than Tesla Yesterday, they had over a billion dollars in free cash flow, but that missed estimates and they added fewer subscribers than folks thought. Oops, 10.4 decline pretty wild Seagate Also missed yesterday on this talk about an extended inventory correction for Uh chips and uh, specifically, memory and storage Uh chips.

And of course, yesterday, we saw the largest rocket ever. We saw that take off during yesterday's Meet Kevin Reporter SpaceX called the resulting explanation a rapid, unscheduled disassembly. So now we've got to take a peek at what expectations are for rates and what's going on with the Federal Reserve because a lot of people have been wondering, hey, we need a Fed update. So where's the latest on the FED We'd like to know.

So and I think the FED sort of place. You know the driver's seat of most of what we're doing here. Uh, especially when it obviously comes to raid projections. And then what goes, cabin for earnings at company.

So let's jump into the latest that the Federal Reserve has for us in terms of what we should plan for. All right, let's push this button and go. well. the Federal Reserve is back at it again.

Rate expectations are as follows. and after rate expectations, we're going to look at their latest beige book as well as some recent commentary. We'll try to align that up with what we've got going on with war notices and what are those Anyway, we'll talk exactly about that. But First Rate Expectations: We have about a 13.9 market expectation of a pause.

Which basically means you're not going to get a pause in May Instead, you're much more likely to get a hike in May and then maybe a pause which many are calling hike in May and go away. That's helpful. but then again, hope is not the best investing strategy right now. We are those seeing Market future pricing.

Uh, at 86.1 percent for a hike to five to five and a quarter percent in May. Now this is particularly important because you've had individuals come out like Loretta master and other folks from the FED Kaplan and otherwise multiple Fed individuals come out at just we just need to get slightly above five percent and then pause. This is sort of the suggestion they're making. Catching you up to speed here.

with the exception of Bullard who thinks we need to get to 5.6 to 5.7 5.6 to 5.7 would really leave us with three more rate hikes? That would be a summer of rate hikes, that's Bullard to say, but most beneficials seem convinced that we just need to get above five percent now since we're at 4.75 to 5 now. One more raid hike actually puts us at an effective Fed Funds rate of 5.125 which is above five percent. So technically a lot of the Feds speak we're hearing now is reiterating that we're going to be above five percent with one more weight hike, and maybe that's all we need to do. Obviously, the FedEx Fomc meeting is going to have a lot of stress around it, because a lot of people are going to wonder what indications are we going to get for the future after May and that's a rightful question and we can look at some projections.

Do keep in mind that the next Fed meeting is actually coming up pretty close. It's on May 3rd is then where the meeting starts on the 2nd. the press conference is on May 3rd. Now, what's really interesting is that's 12 days away from now.

It's kind of crazy to think here we go again. we're going to have another Fed meeting on a Wednesday in just 12 days. So after that, we'll have uh, after the May meeting, we'll have the June 14th meeting in the July 26th meeting and then we'll have a little break until September. If Bullard has his way, we'll get 25 25.25 Most of the folks at the Fed and the summary of economic projection from the FED which have always been wrong in the past and always been low.

But if this time happens to be different and they happen to be right, we'll only get one more rate high. Now what do we see in terms of expectations? And how could these expectations potentially shift the Federal Reserve's rate hiking regime? Well, first of all, we know that break even inflation yields, which is basically your five year uh difference between your treasury bonds and your treasury inflation protected securities. Tips: Those right now sit right here and these give you sort of a markets expectation of what's going on with inflation. Clearly, expectations are still trending down.

This is good though. What we really want to pay attention to is that we have this corner over here. A nice downtrend. Uh, and you know we had a little Spike here right before the banking crisis.

A little bit of a trough after the banking crisis, but we've been pretty nicely steadily trending down here. Now, what's what I really like about this particular chart is we're actually not seeing a de-anchoring of those inflation expectations which we actually did see in the last University of Michigan survey last Friday. Now we won't get another University of Michigan inflation expectation survey until next Friday which will be about five days away from the Federal Reserve meeting. and hopefully that one year inflation expectation comes back down to the mid three and a half range where it was.

The last survey we got last week shot up to Mid fours. And that's dangerous because the FED thinks inflation expectations are starting to de-anchor they will guaranteed rug, pull us and give us many more raid hikes than we could potentially bargain for. Now Understand this chart. This in my opinion is the chart that tells us where the Federal Reserve Cuts This chart right here is the five-year Break Even chart.

Over the last five years and the last time the Federal Reserve cut we were right about here at this sort of red line over here, this is about the end of 2018. It's actually probably closer to like right here. It's probably around the last time the FED cut in addition to of course the covet pandemic. when in March, we got those dramatic rate Cuts probably right away round here.

So these are levels where the Federal Reserve has last cut in terms of break evens and you can see if we throw up a green line over here. Let's do that. If we throw up a green line, you can see we've still got some work to do to be anywhere close to where the Federal Reserve has historically cut, but we are getting closer to that 2018 level. so there we go.

Keep that nice and straight. There we go. So that's going to put us somewhere around 1.6 ish where we want to see this go. We've had a wonderful downtrend.

Yeah, we've had some ups and downs here. The trend is clearly down. However you look at it, it's trending down. It's just going to be how long is this trend going to take? Where do we draw that trend line, and what do we ultimately get if we go with sort of an average or probably something like this.

Which realistically, if we then let's say we're able to extend this out. We're probably not looking at that cut until realistically, somewhere around November December January before we actually get to that level. But the markets are pricing in Cuts sooner than that, and that's leading some folks to wonder. Do the equity markets have it wrong And what we're going to do is we're going to look at these expectations and how they've changed over time.

And then we're also going to look at War notices. Speaking of Warn and a warning, all of our marketing is ready for moving from the individual courses strategy. We are changing everything Over Tonight at 7 Pm, which does mean there's probably an extra like uh 13 12-ish hours here or whatever. that if you want to get that final coupon before we get rid of the uh, the lowest prices massive price increase the barrier to entries going up substantially.

We're moving on uh, and we're still providing value to these programs and still doing live streams. We're just saying we're going to do a completely different strategy in terms of pricing and serious when I say it like if you want the best price guaranteed then that was the time. So check out those programs and consider that link down below. But what do we have right here? So this is the 421 implied overnight rate probabilities chart.

and uh, what's worth noting here is it looks like we're thinking a peak pricing right now might actually come somewhere over here in June. So what's interesting about this chart compared to this chart right here is you have a shift Now this is the March chart. Okay, so this is March 31. And then this prior chart that I just showed you is the Um.

There it is is the April 21. So today chart and what you'll notice is the peak is actually in the June meeting the way the market is currently pricing and rate projections, so that does potentially call for two more hikes whereas over here the peak was in May. So in other words, after the banking crisis kind of turned out to be a little bit of a nothing burger and now there are expectations that the Federal Reserve is totally willing to sacrifice more bank failures, especially if they're just Fringe banks that had, uh, risky standards of of Safety and Security then then why stop the rate hiking? In other words, and this is where markets are starting to realize yeah, the Fed's probably going to be willing to risk more of a banking crisis, which there doesn't seem to be a banking crisis right now, and if lending standards don't really tightened more than expected, it's possible the FED is going to hike a few more times. Maybe hike in May and go away is unrealistic and markets are starting to price that in and I Think that's why.

unfortunately we've had about now five days in a row of a negative NASDAQ We're on day four in a row of negative for the Dow Jones and it does somewhat make you wonder hey, uh, is this potentially a red flag that um, hey, you, you need to price in higher rate or a higher terminal rate and maybe we're going to be closer to what? uh, Mr Bullard over at the FED Belize which would be closer to about that mid five range. Something to start considering and a lot of folks say the stock market has not properly priced this in. Now when we look at War notices and then we'll look at the Fed's beige book. When we look at War notices, we do get an indication that more layoffs are definitely coming.

but I have a problem when it comes to or notices and layoffs and I'll explain that. so take a look at this. This is a chart of War notices which are basically requirements by a larger World by the government, but from larger companies to give a warning that there are layoffs coming within the next 60 to 90 days. And as you can see here in blue the summary: the white line is uh, jobless claims.

The Blue Line shows you War notices and you can kind of see an inflection right here and right where there was an inflection where War notices started accelerating, we kind of slowly started seeing claims Trend up as well. Well now those War notices are really starting to explode and that's leading to a lot of fear that we're about to see a big wave of unemployment numbers that just don't look that great. Now we've been adding fewer jobs to the labor force every month via the employment surveys, but we're still vastly positive, still averaging over 200 000 jobs per month net gained. Which is interesting because as a lot of people like to say, hey, layoffs are terrible.

Oh my gosh, if people get laid off then they're not going to be able to function and GDP is going to go down right? That's traditional wisdom is that GDP goes down in layoffs, But the reality that we ought to consider is, well, those people probably aren't going to sit idle. they're going to get another job. And if they're more productive in that other job, then GDP could actually go up in layoffs. So it sort of depends.

Are we net seeing people struggling on the side of this? Street Who used to be Finance or Tech professionals who just can't get another job somewhere else? Or is this just all a big rejiggering post covet? That's a big question people are asking. Of course, the biggest driver of the Federal Reserve's decisions is going to have to do with inflation. And that's where it's useful to look at the Fed's Beige Book. So here's just I'm just going to point out some highlights from the Beige Book: The Beige Book Uh, just came out a day and a half-ish ago I Think it's worth looking at some of the Nuance in it.

It's nothing a massively groundbreaking in terms of Earth shattering news, but it gives you the perspective of what the Federal Reserve is paying attention to and where they're really kind of struggling to debate. Okay, like should we pause after one more hike or are we going to keep going TBD So here's sort of your overall view: Nine districts reported no or slight change in activity. A three indicated modest growth. So you've really gone from everyone expanding substantially to three having modest growth and most being flat.

In terms of U.S Districts consumer spending was generally seen as flat. Tourism and travel picked up across much of the country. Manufacturing flattered down, residential real estate and sales softened modestly. The Do note that some prices have started to somewhat Trend up when it comes to residential real estate.

Some folks are suggesting that's because maybe the worst is already behind us in terms of residential real estate. uh, labor markets. So a show a slower pace of growth than in recent reports. This to some extent is good because we don't want to see a wage price fire.

But really, even mentioning the wage Price power right now is so dated because really, there are no conditions indicating we're facing a wage price spiral. So really, if you hear people talking about a spiral coming online, it's misplaced. There's no evidence of it right now. So here you can see kind of a breakdown of various different regions where we look at: Philadelphia Cleveland You can see that wages and other cost pressure has continued to ease.

Wage growth slowed to a modest Pace Prices grew in Richmond at a strong pace. so notice how we have these various different uh results. It's like the entire country hasn't yet hit that softening, right? But most areas look at this: Atlanta Wage presser pressures East Chicago Prices and wages Rose moderately San Francisco demand for retail Goods softened residential commercial real estate activity fell. Outlooks were largely negative in Dallas Uh Kansas City Saw no pullback in in capex expenditure plans for companies.

Uh and uh did uh. It didn't see a pullback in planned wage increases either. Worker retention was higher even as wage growth slowed. So you're seeing this sort of mixed economy, right? This There's No Smoking Gun here that we're definitely going into a recession and there is No Smoking Gun That inflation is definitely gone.

Although most evidence is pointing to inflation being mostly gone, but there's certainly no evidence of a wage price spiral. We do have somewhat of a mixed picture here: Minneapolis Prices were steady and wages Rose slightly Like none of this is suggesting that we need to get Paul Volcker rug pulled right. None of these summaries here suggest that kind of pain. what? I Enjoy here is: Boston Noted that cost pressures abated noticeably.

sharp declines in the cost of raw materials and significantly lower freight costs. On balance, the Outlook called for further easing of price growth for the remainder of 2023. In Boston This is good. We want to see that disinflation at effect because it means the FED has to do less, right? And that's good.

We want the FED to potentially have to do less. Inflation pressures moderated somewhat, but remained widespread is what the New York area tells us. Okay, so less pressures, but maybe somewhat still sticky. What do we have in Philadelphia Firms reported that prices continue to rise moderately.

However, they noted that the rate of price increases appeared to be slowing. This is good. The FED should take solace, and that some of these numbers are actually starting to look good, right? What do we have in the Cleveland District Some manufacturers said they continue to raise prices to quote catch up from cost increases over the prior two years. Similarly, some retail contacts reported selectively raising prices to cover higher costs, although they did so cautiously.

So, you're getting this more like timid price increasing, right? Remember when we read the Olive Garden the Gardens earnings call. what did we find They're like, hey, we raised prices but but not all the way. Like, not as much as inflation. This there is a a point where people stop paying.

They're just the demand is not unlimitedly. uh, uh, elastic. Uh, or rather, it is elastic. In other words, it's responsive to prices, right? So um, uh.

So in other words, there's a limit to how much people are going to pay and play in English right? Uh, There were some reports by firms in both sector sectors see here it is that customers were starting to push back on further price increases. This is the Richmond one Uh, which actually had probably the most sort of aggressive summary at the front. except now they're starting to also notice the customer pushback buyers were reportedly winning more concessions compared to the past two years of a take it or lose it price environment says: Atlanta Chicago tells us producer prices Rose Modestly shipping costs had slowed noticeably. consumer prices generally increased due to continued elevated demand and pass-through of higher costs.

So a general still Trend up of inflation, right? You're still seeing prices go up, but nobody's talking runaway inflation, which is good, so it's getting closer to suggesting the FED might be in the right place. Still work to do though, right? We're not seeing all of these districts complain about prices declining. In that case, you'd be more in a position where the FED might be prone to pivoting and and, uh, you know, cutting rates, but we're not seeing that yet. The economy is actually still holding up pretty dang well, so we're kind of in that sort of uncomfortable Middle Ground Where it's like, huh? Things aren't bad enough for the FED to do anything.

Inflation is slowly going away. It's taking longer than expected, which means we're probably just gonna have to deal with a higher rates for longer. What do we have in the St Louis District Overall contacts project: increasing prices, but at a slower Pace compared to Prior quarters. Yeah, I mean this is so far very consistent with the FED giving us certainly another 25 BP hike and and playing a little bit more Wait and see.

Now the wait and see for the next period. that is for May. we're not going to get another inflation report I Don't even think we'll have time for another Jobs report. In fact, if we look at the BLS schedule of releases here, we're probably not going to get another Jobs report.

Uh. and I Don't think we are the next Jobs report, right? because that's on a Wednesday. So no, we're not going to get another CPI or Jobs report. The next jobs report is on the fifth.

Uh. and then we don't get inflation until the 10th and 11th via CPI at PPI and the next Fed meeting is the middle of June. So we've got uh, you know, somewhere in June 14 15. So we've got some time that's actually.

Oh, that's interesting. CPI is on the 13th in June. So for the June meeting, we'll actually have two inflation reports, whereas for the May meeting, we'll have zero more inflation reports. Just the data we already have.

Businesses said Some there's some difficulties with passing along cost increases. Most indicated that the expect prices to increase further over the medium term to rebuild profitability. so you still have that tendency, though. Okay, we're still going to raise, but not as high as we previously saw.

and you kind of see that reiterated in both Dallas and San Francisco. Uh, and uh, uh. higher Final prices, although again at a low at a slower Pace Okay, which all of this is very consistent with. The FED is close a little bit more work to do, but we're getting there and so where do we sort of? Bottom line this when it comes to the Federal Reserve Well, in my opinion, we are set in stone for a 25 BP hike May 3rd.

Unless something crazy happens after that, we're going to get two CPI reports before we hear from the Federal Reserve Again, that means those reports CPI and PPI as well as the Feds prefer PC All of those reports need to come in soft. If those reports come in soft, they'll dictate a pause if they come in sticky. we'll get another 25 BP here. So if you're making bets for May I think it's a foregone conclusion, we're getting 25.

then everything is going to be right. back on to writing those CPI numbers, which we'll be getting now. within the next week we will be getting the Pce report and that sentiment report next. Friday The next Friday report on sentiment is going to be huge because we want to see that anchoring of inflation coming back because For the First Time In This sort of tightening cycle We've actually seen a little uh oh uh.

Expectations are unanchoring a little bit and that's dangerous. So mark your calendar for 7 A.M on the 28th for that, and then also 5 30 a.m on the 28th. We'll be getting the Pce report, which is the Fed's preferred inflation gauge, but of course CPI has a lot of weight and so we expect the deflator to come in at 0.1 percent core month over month. Though that removes food and energy right the more volatile component.

we'll expect that to come in at 0.3 Also, pay attention to oil prices. Oil prices right now are slightly Lee up for the morning up about four tenths of a percent, but we're still nicely down. probably down a solid five percent from the peak after the OPEC nonsense. And uh, since we've had Earnings week now mostly behind us, let's keep our fingers crossed for a nice bullish.

Friday So we could go into the weekend and not be in that situation where you have the darn stock ticker symbol screeners on your watch or your phone. and all weekend you're just like, yep, still down. We don't want that. So with that said, what are the expectations for the Fed? The Fed's actually, and it sounds crazy.

It sounds chillest, chill-ish to say it, but they're kind of doing their job and they're starting to succeed at it. Inflation's not running away. There's no wage price buyer only. economy is still strong enough to or not a recession.

So far, its best case scenario. Will it hold up? Nobody knows. We do know. 7 p.m tonight we're changing all the prices so uh, cheers to that and uh, don't sue me bro.

All right, So let's uh, let's go back to the next topic, you know I'm I'm down to respond to Steve here for for the next uh uh, for the next uh topic here. So somebody says can you move a little bit on the left? can I move a little bit on the left oh oh I think you were talking when I had a chart up. eh yeah, we'll do that next time. So uh, let's see here.

Um okay, yeah. I'm down to respond to some of these things. I I Always appreciate your all those questions and insights and I'll give you my opinions. which remember like my goal whether I'm right or wrong is just to give you perspective.

Uh, and obviously I do everything in my power to be right because who doesn't want to be right? I mean even Jerome Powell wants to be right? You know whether or not he will be, uh, you know, remains to be seen. So uh, let's see here. how do you get access to the member live stream? Uh well when you sign up for the programs and you watch the first lecture, it it describes exactly how to get in. so make sure you uh, you knock that out and uh okay, all right, some good questions here.

Let's go ahead and answer some of these if anything's interesting. So let's talk about this. Well Steve in our live chat says we're going to have a second wave of inflation after the recession. That's definitely coming because after all, if the Federal Reserves SCP report is projecting point four percent GDP at the end of the year, and now you've got some Fed officials expecting a slight recession.

Oh damn, anything they say you know is going to be worse. And the actual reality is. So far, Steve's been right. Everything the FED has projected has been worse in reality.

So assuming that anything the FED says is actually going to be better than expected may end up being a Fool's Aaron Instead of the fact that they were hiking back in March of 2022 when inflation was already at six and a half percent. That's when they started hiking. But what were they doing? At the same time they were still printing 80 billion dollars of money, they were still doing QE quantitative easing right? Why? It's mind-blowing Well, it's because they thought inflation was going to be transitory. Oh, it was covid.

Then it was Delta Omicron and War. Okay, those are four shocks, but that'll be temporary. Well, temporary. Ended up lasting a whole hell of a lot longer Now, Maybe it'll end up proving to be transitory, but that'll be over.

Probably twice the time frame that the Federal Reserve expected. So everything's taking a lot longer, things are lasting a lot longer, and usually that's a good thing, but in the case of bad news, it's not a good thing. So is it possible that when we go into this shallower recession, we're going to end up with a second wave of inflation? and there are a lot of fears that the answer to that is hell yeah. I Mean look at what the Bond market is already.

Pricing in the Bond market for some reason expects some massive fear coming very very soon. I Mean look at it right here. The Bond market is screaming at you, telling you, uh oh, the Bond market thinks something's going to snap very soon. Which is kind of weird because like things, don't seem that terribly bad right now.

But the way you would read this is you would look right here. look at this if the peak Fed rate which is just where this orange bar Peaks right here is in tune. Why is the market pricing in all of these Cuts Well, it assumes something is going to break. In fact, you can look at this Barclays piece which tells it to you in a different phrase rate Cut Expectations right now are being priced out.

However, the the implied rate path remains far below the Fed's consensus. This looks rather strange given the market is pricing a further rate hike in May implying the Bond market must be expecting a material deterioration in the economy in the next few months. Looking back at history and I'll translate this in a moment in case I lost it. But looking back at history, we found only three instances of a similar outcome: 1974, 1980, 1981 All saw a sharp weakening across macroeconomic indicators like the Institute for Supply Side Management information, the non-farm payroll, jobless claims, and inflation.

While admittedly ISM Manufacturing is already down at recessionary levels, the jobs Market inflation are both in much better starting positions than in these other periods. In other words, this time is different, right? Therefore, we find it hard to believe that we are bearing down on the much anticipated pivot from the FED to cut unless there is a serious economic weakening. And so this is really interesting because let's translate this. Basically, what these Wall Street suits are saying is yo man, dude with the dragon chain armor.

Listen up man. The Bond market thinks rates are going to tank by the end of the year. The bomb Market knows all because it has a crystal ball, it doesn't it? And because the Bond market says big rate cuts are coming, something's about to hit the fan. And then when something hits the fan, the FED is going to have to turn the money printer on again.

And then this is where you get to Steve's argument: Steve Who says quote I hope I am wrong Steve's argument is that as soon as you turn the money printer on again, you're F because you're going to go right back to the inflation that you had during the pandemic. and I think this is where it's worth considering previous times, the Federal Reserve cut and did we end up getting inflation? Let's consider the Fed's pause in 2018. Did we get inflation when the Federal Reserve paused its rate hike regime? No, we got a bull market and Below Trend inflation. What about in 2009 when the Federal Reserve provided basically uh, so to speak, unlimited bailout? It wasn't unlimited at that point.

There was a number set on it, but a big bailout. Big backstop of markets. The FED basically created the bottom of the market by a law large bailout in February of 2009 and this is about six months after the Lehman Brothers disaster And everything. Even though Congress was trying to bail, you know everything out in like September and October.

It wasn't until a Fed really stepped in with the money printer. and what did we get for the next decade? No inflation. So it makes you wonder is structural disinflation? That's a fancy way of saying because we have technology that makes things generally more either productive or cheaper. Therefore, in the long run, like how much are you paying for a 40 inch TV 20 years ago, that's an LCD, uh, two grand.

How much are you paying today? 200 right? That structural deflation? Is it possible that we'll go right back to seeing that? And I think where this comes to in in expectations is you have to just personally ask yourself, Well, what do I believe And let me set the stage for you because I think it's a lot easier to think about it when we not only consider history, but also when we consider what's likely to happen. So let's think about this. So when we're on this page right here, what we can do is, we can say all right. So what cause, What do we know that caused massive inflation? Okay, what caused massive inflation and what caused no inflation? Okay, so if we compare these segments here, we should be able to have a little bit of an idea.

So what caused no inflation? Well, no inflation was. Let's see. Let's go with a little bit of a smaller print here. There we go.

So no inflation was what we saw in 2018, what we saw in 2009. Some could even argue what we saw in the orally 2003 era because we really didn't have a massive inflation problem. You could also say the late 80s, right? the 87 89 recession. We didn't have inflation here.

That's because this was all part of the Great moderation. And so no inflation could be because of structural disinflation. That's what I talked about with the LCD screens, right? In other words, we can print without inflation. That's interesting.

So what definitely causes inflation Like what do we know with certainty causes inflation? Well, let's try. Uh, three rounds of massive stemi checks, right? Stimmy? Hey, don't get me wrong. I Love the stimi check days. They were great, but it's no surprise we had massive inflation, right? How about uh, a massive uh, massive unemployment payments for not working? Remember the somewhere around 600 a week for doing nothing right? All of the obviously the Eidls the Ppps.

All of this right. We know that causes inflation. We know price caps and subsequent removal cause inflation. That's what we had in 1969.

Uh. and then we know uh, and then somewhere around 75 as well. We also know that inflation is caused by unanchored inflation expectations. This is when the economy gets fed up and says the FED doesn't know what the F they're doing.

so screw them. when did that happen? Well, you could argue that happened in Uh 79 to 81 where we also had then two waves. Uh, one wave was over here in 75 and the other wave was in the late 80s. You basically had Uh and an oil disaster.

right? Oil prices? way up, right? We think oil prices are so high today, but they're really a fraction of what the explosion was that we saw in the late Uh, 70, mid to late 70s. So really compare the the things that cause inflation to what we expect here. So what do we expect going forward and this is a guess right? Uh, we would expect in a rate cut regime. What do we expect? Do we think we'll go back to stimulus checks personally? I Believe the answer to that is unlikely I Think what we would see would probably be expanded support for a poor and maybe ex and more expanded additional on top of what we already have support for U.S manufacturing because that would create more jobs, right? creating Basically providing stimulus checks to manufacturers is what China does.

and if you look at China they don't They're not experiencing heavy inflation. In fact Chinese rates are kept at I think it's 2.75 They're not facing an inflation problem and the stimulus checks that China gave did not go to the people. They actually went to the creators of Labor which is manufacturing you know AOC was on Twitter ranting yesterday that the Labor Department is supposed to be for people and not bosses. but the reality is, bosses create jobs.

People don't create jobs. People do jobs. Bosses create jobs anyway. I Don't know why I went off on an AOC tangent here, but but then again, she likes to say things that are popular on Twitter that are often detached from reality or economics anyway.

But she does a great job running campaigns. You can't. You can't. You can't fall through for that.

Uh, even if you hate her guts, you can't fall. She knows how to run a campaign. So anyway, um, but what do you have? How is today different And I hate using that phrase because every time I use the word different we always think oh, oh, this time is different you know and that obviously that means that uh, you know that's wrong. But uh, I Think we have to go a step further here and actually look and go.

Well, Do we really think we're going to get any of the things on the left again? That would cause a second massive wave of inflation after this, say, shallow or deep recession that we get when the Federal Reserve starts printing again? Well do we think we're going to get rounds of stimulus checks and massive unemployment payments for not working, creating massive supply chain disruptions and lockdowns? No, of course not. I Mean nobody in their right mind is going to go back to that? No way. Hell No. Uh.

or do we have price caps? No, we've learned that price caps don't work. Do we have unanchored inflation expectation? Technically No. Have we seen a recent crack? Yes. So we want to pay attention to this one, But technically right now, no.

Do we have an oil disaster With oil prices skyrocketing? Gas is more expensive Now that's true. But is it anything like the 4X that we saw uh, back in, uh, in in the 80s or even what we saw in the 2008 era? No, of course not. Yes, oils and gas is a little more expensive, but it's nowhere near the levels that it even was in the last in this cycle, right? So no, we don't have an OPEC or oil disaster I Mean we do have new fears like we have this D dollar fear, right? So there's the D dollar fear. But I've already broken down on the channel a thousand times, so this is complete nonsense.

I Just posted a video on it yesterday just type into YouTube Me: Kevin China breaks the dollar or whatever. Uh, then you can have this argument about uh China invading Taiwan Yes, that's a potential problem, but it's probably like a less than five percent probability. And of course, if you have a different probability then maybe you think differently. Uh, and yeah, we've got the Russia Ukraine disaster.

But so far, the world is moving forward. You know, without any massive inflation Continuing right? We were facing disinflation right now. Yes, there's still some levels of sticky inflation, but the point is, if we go through a recession, the current cycle of inflation is expected to be gone, so not terribly worried about that. So what do we think going forward? Well, yeah, maybe expanded support for the poor and additional support for manufacturing.

But do I really think we're going to get after the FED goes back to cutting some kind of massive surge of inflation again? No. Because nothing aligns with the left side Here, everything aligns with the right side of this document here, which is the 18, 2009 2003 Late 80s Great moderation style money Printing And guess what? No inflation. So thanks Steve you just helped me make a 10 minute video I Appreciate you you. know I feel like you all.

You're owed like a royalty here. Like a share of this video's Revenue You know. So anyway, with that said, Do I Really Fear massive inflation? No. but instead what I'm gonna do is I'm gonna listen to the opening bell.

A lot of good things to say and that's what I missed. No I don't know. Remarkable person just comes back meeting with the heads of state of wherever she goes. Probably the most difficult which is saying that just not understanding what people in America think that Europe is so weak when it's not mm-hmm All right now just to finish that thought up, uh, Gary Roberts says Milton Friedman would disagree.

Government printing is what causes inflation. Uh, that's not actually what Milton Friedman says Milton Friedman says it's the expansion of the money supply. We're always printing money, but if we're rolling that money off, then we could actually see money printing happening at the same time as the money supply is Contracting right? So we can look at the money supply. This is an Austrian School of Economics thesis and so we could look at the money supply.

and to some extent, Milton Friedman is correct. However, it's actually the first derivative of the money supply that you have to pay attention to. It's not the money supply itself that you have to pay attention to. Now that sounds extremely complicated.

It makes it sound like I just came out of a math class. Trust me. I Hate math. So let's make this very simple.

And let's answer: What actually Milton Friedman suggests when a him or Austrian Econo economists suggests that money, the money supply expanding will cause inflation. What it actually means is the rate of change accelerating up quickly in the expansion of the money supply that causes inflation. Look at this graphically. This is the M2 Money Supply And what I want you to notice is see this entire era from here 1981 all the way to 2020.

that entire segment. What happened Mr Gary Roberts What happened from the left side all the way to 2020. What happened is very simple. The money supply expanded.

How much inflation did we get? Zero? Okay, like 1.5 super nominal. Basically zero. We may as well round it to zero. But what happened when that rate which was progressing steadily even through those recession? What happened when the rate of money supply expansion exploded? In other words, right here over here during the Covet pandemic.

Oh damn, that caused inflation. So we have to parse what Milton Friedman says. And actually you helped me make my point because if we go over here to 2009, you can see the rate of money Supply growth didn't unanchor, ridiculously and stupidly. And we didn't get inflation.

So money supply can expand without causing inflation. It's the derivative of inflation or of the money supply that causes inflation. If I were to make a first derivative chart of this, uh, it would probably look something like let's draw it together. So if we were going to drop a first derivative chart of this boy, it's been so long since I've done this.

So the rate of change for 20 years is flat, right? This is our our chart. flat And therefore no inflation, right? But then all of a sudden, the acceleration how quickly the money supply expanded exploded right. and then we kind of got back to flat. and then we actually turned negative right.

Money supply growth expanding at sort of a negative level. Um, this right here is what caused the inflation, not the 20 years before it. So it's really interesting thing about. look: I Love economics.

And if you want to learn all of my perspectives on building your wealth, check out the programs linked down below. We're changing all the pricing at 7 pm. Uh, tonight? Uh, that's when we're flipping over. so you've got another, you know what, 10 hours or whatever from when you're watching this video.

Uh, it might be even less than that depending on when you watch it. But anyway, 7 p.m tonight we're making the changes. Uh, the lowest price options will be going away to get into the lifetime access on the programs. I'm building your wealth if you like my perspective I'd love to have you over there.

Okay, Gary Roberts says touche I appreciate that. Hey, you know the the and no guarantees, right? This isn't saying I'm perfect or that you know there's it's it's right. All of this is perspective and understanding I Think right and everybody is just trying to do their best. But I appreciate you being here.

Uh okay. good. So uh uh. let's now.

there's a lot of talk about the Fed and I am all right. We've got a few more things that we gotta talk about. Uh oh yeah, yeah yeah. Okay, so yeah, this is a good one.

Okay, it's also an interesting one. So we're going to do a little note here on what's going on with real estate. Uh, this will be a short one, but I I Think it'll be quite enlightening because there's potentially something going on that is skewing some of our expectations and it's really fascinating. Uh, it really has to do with sort of almost a manipulation, dare you say.

But it's real. It's it's happening. So it's not like we're trying to go tinfoil howdy. but uh, there's There's some interesting data here, so let's while.

I pull this up, let's just do a quick peek. How is the Market opening today? NASDAQ is sitting at 0.17 A Tesla's actually going negative off the open so you're getting more selling pressure at the open down about point five percent. We'll see how the day ends up ending. It'll be interesting.

The first five ten minutes are always a little funky. but let me get this realistata piece and uh, and we'll take a look and see. So Real Estate Real Estate. Real Estate.

Real Estate. Real Estate. There it is. Got it.

Got it? Got it? Okay, Perfecto. Let's pull this up now. Uh, obviously a big deal. A lot of people paying attention to real estate right now.

A lot of people wanting to get into real estate as well. So let's go here. Perfect. Okay, let's go.

Well now we've gotta talk Real estate. Real Estate. Obviously a massive deal because we've seen home prices Peak to trough in many areas of the country fall up to 20 from their Peak in May of 2022. since then, we've actually today.

Well, this week we've seen real estate prices year over year, only down according to Redfin about three percent. So how is that possible? How is it possible that from the Peak in May to the bottom in December prices in some areas could be down 20 Nationwide prices could be down 10. and this week, year over year prices year over year are down just three percent. Well, part of this has to do with prices actually starting to Trend up again since the beginning of January.

This is fascinating because if we look at mortgage rates, mortgage rates aren't coming down. If you look at the prime credit score at about 740, they've been pretty stable around well, seven percent. which is pretty wild. All you have to do is Google Mortgage rates Make sure you change your credit score to about 740.

That tends to be where you get the best pricing and then just compare the 30-year mortgage. The Blue Line or the 10 sex arm have been basically aligned around seven percent. and while there have been little ups and downs, we really haven't seen a decline in mortgage rates. So what appears to be happening initially.

and this isn't the fascinating part of data that we got to talk about. But initially what appears to be happening is because inventory is so low. so few people have actually started selling. Institutional sellers have not really started dumping their inventory up Investors as a percentage of home buyers have has moved down from 25 to 17, but they're still out there If you still have a positive number of investors buying single family homes, so you still got investors buying single family homes, you still don't have the liquidations from the institutions, and you certainly don't have your move up Market selling because they're looking at their two and a half percent rate going.

Why the hell would I move and sign up for a seven percent rate at the same time as you have buyers who are basically saying hey man, look that's a great house I'm gonna buy it and then when rates come down in the future I'll refine it I Personally think that's a very dangerous thing to do from a personal finance point of view, unless you can afford the payment today. Going forward because some people are convinced that mortgage rates are going to come down in the future as the FED Cuts rates. But that's not necessarily what needs to happen, especially if you go into a shallower recession or worse, a deeper recession. And that's because mortgage spreads can widen.

Which basically means even as the FED reduces rates, mortgage rates could stay elevated. So there's a risk to assuming with certainty that you're going to be able to refinance lower soon. However, that is what a lot of home buyers are doing today. They're assuming they're going to be able to refinance lower fine.

It's a risky Endeavor but what potentially is really propping up the home buyer market right now? And why does it seem that maybe home prices are actually Rising Well, of course. a It's low inventory. We already know that there is a risk that a surge of inventory would would actually lead to more listings on the market than there are buyers and therefore potentially sort of a A. An actual further correction in prices.

So far, that is not materializing. but what is materializing is home buyer affordability next to what the new construction folks are doing. Now, this will get really interesting. so prep for this.

These charts are fascinating. Number One chart. We've got three charts we're going to look at. we're three.

PDF Pages Because this one kind of has two charts on it. First look at home buyer affordability. We know that home buyer affordability has done nothing other than Trend down. That's understandable.

Home buyer affordability goes down as interest rates go up easy. Everybody knows that same is true for first-time homebuyer affordability. Easy mode. Everybody knows that.

That's not a big surprise. What do we have over here though? Here's your existing home sales decline on the bottom right. We'll put a circle around this. This is your Peak to trough in December existing home sales decline.

It kind of looks like an uncertain face if you look at it the right way and you also see that we've hit a little bit of an inflection point here in January or prices have started on a moving average to take up again. This is consistent with what we're seeing in most markets throughout. America Low inventory is driving prices up along with the expectation that inflation has been conquered and eventually people will be able to refinance lower. That may end up being true now I Want to be clear with my biases even though I'm a real estate broker I Don't service clients.

It doesn't make a difference to me what happens. And even with my startup house hack our program is Market independent. It doesn't matter what state we are in in the market our wedge deal model which is well look in My House Hack playlist videos and you can see it's independent of what happens in the market. It doesn't really matter, so my goal is to try to be as unbiased as possible with this information.

But I want to get that out of the way because sometimes people say but wait a minute It totally makes no difference to me. Uh, in fact, I got to sell a couple properties right now. So if anything, my bias is tilted to suggesting I want there to be a little bit of a hot spring right now because I'm putting the property on the market probably in like two hours. So anyway, okay, this is chart number one.

Okay, fine, so we're seeing an inflection point here in price, but what potentially is dragging that price up Now this is what I think is fascinating. Uh, let's jump on over to this particular chart right here. Watch this chart and it's going to take a moment to really analyze this chart, but it's a good one. So the Blue line is home purchase loan applications.

In other words, everybody's going to buy a home with a loan. How many of those people are applying to get a home loan? We're down 39 year over year. In other words, the number is plummeting Where, folks, however, are people actually projecting higher or not projecting? We're actually our loan applications positive as of March 31st New Homes Folks New Homes Now this is really interesting because new homes have a little bit of an incentive to skew prices. This is not trying to bag on new construction home builders.

This is just an economic lesson on how the game is played. Okay, here's how the game is played: if you have a property that's in escrow in November and it's going to close in January Well, that property is probably going to get appraised closer to January probably within two or three weeks of its closing. That means when the appraiser comes in January for that new home, that appraiser is going to say All right. I Need to appraise this, say 450 000 new home.

The easiest thing to do is look at other new homes. Well excuse me What? Better than other new homes in the neighborhood that are the same type of home, so the same home in the same neighborhood? What better than to look at those that are going into Escrow in January that are slated to? Let's say, close in March and we get appraised in March. In other words, the appraiser in January is going to look at those new escrows in January And what they're going to want to see is that hey, our price is going up and maybe the prices are going up. In this case, you could justify the comp for your backlog property on the left and you could sell that property.

Now what we don't always see though, is not only do we find out okay, how much did this go into Esker for, we know them, but what do we generally not see And this has to do with something that Builders are doing heavily right now? Whether it's KB Homes DR Horton Lennar they're all doing it. They're all playing the incentive game and what they're doing is they're doing massive rate buy Downs at as well as construction credits. Hey, you want new flooring? You want an upgraded countertop? Want more? Cabinetry Want us to get on our knees? We'll do whatever you need us to do for you because we want to sell this property for 455. we don't want to see the price go down.

We want to see the price go up because if the price goes down on the right, you're going to lose your deal on the left. That would be devastating for Builders And right now there is the potential. Based on what we're seeing in the charts, that exactly that is propping up the market more supply for new construction homes being sold at lower profit margins. Those still vary profitably because a lot of these Builders bought these Lots back in 2020.

Well, land was a lot cheaper and so they're still making great money. So you have the builders still making great money, giving them more of a capacity to provide incentives meaning that all of a sudden what do you have? Well you end up having a higher applications for new homes because the builders are getting on their knees for people. Now on top of that, just look at the actual data here in terms of inventory at the bottom chart. the bottom chart is the easiest to understand.

You're going to see the pink Line which says new home share of single family home sales relatively stable but somewhat trending up right. But look at this new home share of single family inventory. The inventory is popping off like crazy and has been over the past three years here, and so Builders are very incentivized to liquidate whatever they can ideally at higher prices, potentially pushing those medians and average up setting higher comps for your resale properties. You don't actually have to see the share of sales go up, you just have to see those sales sell at a higher price, propping up the rest of the market.

But if these are heavily incentivized sales, it makes you wonder if there is some skew to the data that we're seeing right now. Which in my opinion, because we're seeing these applications jump for new homes rather than resale homes. uh, some of it and we know how the game is played. Some of this data could potentially suggest that new homes, which if we jump on over the first chart I show you right over here.

Look at this new homes selling for a substantially higher median sales price. Look at that 438 on the median sales price? compared to 363 over here for existing homes. Yeah, you've had a little bit of a takedown, but what do you potentially have new homes dry driving up the median sales prices in markets because of the way incentives are played? What does that mean in plain English Well, plain. English What this means is it's entirely possible that as new home builders are doing everything to preserve their price, we're kind of burning a candle.

And if that candle runs out of steam, because all of a sudden, the incentives homebuilders are providing aren't actually juicing the real estate market anymore. At the same time, as we see a surge of inventory, there is still a risk of downside in real estate prices. Is it a 2008 level? Absolutely not. Do we expect any kind of a foreclosure crisis or short sale crisis? Again, no.

have foreclosures ticked up? Absolutely. But we're still well below pre-pre pandemic levels to where really. the Foreclosure levels that we're seeing right now are nothing that most people with an understanding of what's happening are actually paying attention to just because we're so relatively low compared to where we were before the pandemic. We could look at that by this chart right here.

this chart shows you number of consumers with new foreclosures or bankruptcies and you can see we're substantially below that 2019 level and the trend that we saw in the prior decade way lower foreclosures being the uh, the blue segment and bankruptcies being the red segment. Yes, they are slightly trending up as the pandemic programs Escape us, but that uptrend isn't anywhere close to what we've seen in 2006 and seven where we had this exponential explosion or even the pre-pandemic trend so long and short of it. The upside risk for Real Estate is that inventory stays low and people have gotten used to interest rates where they are and they're willing to buy. The downside risk is that prices potentially are being to some degree propped up by new construction, and if inventory ends up surging, we could see a downside risk to real estate.

Now what do I think? What sort of my take and how do I sort of average this out and what expectations do I have? Well, actually, my belief is that we could be in a future real estate regime where prices trade sideways for a bit and a bit as in a few years. Think about it this way: it's entirely possible that prices end up doing this, but generally trending sideways even as interest rates come down. The reason for that is if interest rates start trending down, it's entirely possible that inventory comes up as that resale Market wakes up. There's also that risk of yeah, institutional liquidations or investors saying, oh, interest rates are coming down, let's sell so it's possible we could trade sideways.

Uh, I would say that's probably the best base case scenario to consider. Now there's not a lot of evidence that would suggest we're expecting a big boom in real estate prices again like we saw in 2020 or 2021 though I Still think real estate is a phenomenal investment for the next decade? I'm just not expecting this euphoria that we saw in 2020 2021. I'm also not expecting a 2008 style crash. so I think generally the base case right now is patience will be a virtue in the real estate market.

We'll probably have some volatility, and if we trade sideways, that's probably a good base case scenario. Not expecting an explosion, not expecting destruction, and there's plenty of evidence to point to, mostly just a sideways trading real estate market. Until we get back to uh, sort of trend of maybe 2000 and uh, the 19 era 2019 era. So who knows.

Uh, but that's my take on the real estate market. Would I be gun shy about buying a home? I'd probably be patient right now where rates are and I wouldn't go in with the expectation that I could refinance. do I Think buying a home is a great decision in the long run? Absolutely Do I Think you should learn how to get wedge deals in the zero to millionaire real estate program or changing prices on those up at 7 pm tonight? Yeah. I Absolutely think you should get into only real estate and learning how to get wedge deals because you can do that no matter what the market does.

Is there a big sign to either? Direction No. Cheers! Alrighty, next topic that we have to talk about. There's so much to talk about today. it's like it's like uh I don't even know that we have time for all of it.

but we'll see. We'll do our best here. So next stop, let's see here what we have. So this will be the next topic that we go through.

and here we go. Oh boy, here we are all right. Looks like, um, by the way, Mark it's slightly red right now. Yeah, you're still sitting down about a third of a percent right now on the NASDAQ DJI you're sitting at flat.

basically 0.05 No real exciting movement here. SMP Also just ticked down a little smidgen so we'll see how the day evolves. but so far it looks like it might be a soft red day. That's a bummer.

But uh, that's the way the market fix. All right, Well, let's take a peek at. uh, let's see. All right, let's go ahead and hit this topic here.

Here we go. Okay, next topic. Well, Kathy Wood has a new massive price Target out for Tesla but instead of talking about 2025, in order to expand the valuation and hit the news cycle, Kathy has decided to move out to 2027.. generally Kathy talks about five-year visions and the five-year Vision has always been ending in 2025.

But now that couple years have gone by, it is time to talk about 2027.. And Kathy Wood suggests that Tesla's expected value per share is more than 10 times what the share price is today. Tesla Share price today is sitting at 161.92 slightly trending down today. But what do we have here? An expectation of two thousand dollars per share, two thousand dollars per share divided by 161.9 puts us out actually at 12.3 X from today's price thing now.

why do they suggest this? What do their models show and what do we have in the different cases? Well here we go: Arc has a model and their model projects the following: an expected value of two thousand dollars. This is their base case scenario. a bear case scenario with a 25 probability that Tesla ends up being worth fourteen hundred dollars per share. So their bear case folks is that Tesla only 6.7 or sorry 8.7 X's within the next four years.

and the bull case is that Tesla ends up being worth twenty five hundred dollars or a multiple of 15.5 x. Now let's understand potentially what Tesla's perspective Robo Taxi Business well, according to Arc be the key driver contributing to what they believe leave 58 of the value of the company and 45 of their earnings. That's because they believe that cars will only represent about 62 percent of the company's Revenue uh, at substantially lower margins than Robo taxi network? Uh Now this is interesting because really, you're hitting on that sensitivity here of a lot of people talking Tesla down right now because margins have fallen, they're still phenomenal industry-wide but they fell below expectations of less than 20 percent gross margin. So in other words, every 100 that Tesla makes per vehicle, their gross margin has fallen below 20 dollars of gross profit per vehicle.

And so I Think this is sort of a way to sort of defend and suggest, hey, let the electric vehicle sell at a lower margin. But we actually think in a sort of base case scenario that Robo taxing is going to massively dry have the value of this company. that Robo taxi revenues might only be 25, but because their margins are going to be so high, they'll represent 45 percent of the company's actual profits and 58 of the company's value. In other words, they believe at ARC that the car business is only going to be worth one-fourth of the valuation for Tesla.

So in other words, if we take two thousand dollars per share by 2027. Kathy is suggesting that only 560 dollars of the share price will actually be because of the car business. So write that out so you could see it of a two thousand dollar 2027. Target You're looking at five hundred and sixty dollars of that would be because of the cars.

whereas it appears 58 or approximately 1160 dollars per share will be because of Robo taxi. So for example, if you think Robotaxi is nonsensical, then maybe your price Target is 560 based on Kathy's analysis. Plus, of course, a little bit of revenue for station area energy insurance and human driven ride hailing now. I Actually think it's interesting that stationary energy storage is so low here given the explosion recently in Tesla's storage uh, division.

So this would be a question that I have for Brad is why such nominal forecasts for energy storage. And it's possible that Arc believes that energy storage will be a growth business for Tesla but nowhere near to the level that Robo taxi could end up being or just really autonomy. So let's see what other inputs and outputs we have here. So in 2027 in a bear case, Tesla believes that or Arc it believes that Tesla will sell 10.3 million Vehicles Wow, whereas in the bull case, Arc believes that Tesla will sell 20.7 billion.

Vehicles Now, what's remarkable is they've really reduced their average sell