Morgan Stanley is a flip-flopping I Would have not expected this. not at all. but Morgan Stanley's Mike Wilson the mega bear. Okay, remember, he's the guy who says stocks are going to hell.

the recession's gonna stop suck. It's going to be way worse than you expect. and basically anybody who's a bull right now is essentially sucking air on Mount Everest which is so oxygen depleted that clearly you're getting delusional because you're not able to think clearly because obviously the stock market's going down. That's been Mike Wilson's argument and I remember I made a video about that amount Everest a piece that he put out and I thought it was so ludicrous I thought to myself, Holy smokes, now the Bears are getting delusional.

In other words, the Bears are starting to run out of crap to say about this economy because the reality is is the consumers and businesses have a lot more money than anybody previously thought and it's lasting a whole lot longer than anybody ever thought it would. So yes, while things are trending bad, we seem to have more fuel in the gas to keep this plane flying for a lot longer than we thought. A lot more fuel in the gas tank. uh, which would essentially coincide with this idea of, well, maybe the plane doesn't have to land yet, and maybe we can be patient in getting inflation down before markets actually go into that sort of Mike Wilson recession.

But anyway, my opinion aside, Mike Wilson actually just changed his tune a little bit and I'd like to read you a quote. take a listen to this. Equity Markets survived a crucial test of support last week that suggests this bear Market rally is not ready to end yet. He specifically pointed out the Spy basically bouncing off of the SMA 200 line, which you could see that specifically here.

We've talked about it many a time before, but here's your SMA uh 200 line. your simple daily moving average And that 200 daily moving average showed you support at about 390. We ended up getting to a low of about 392 before bouncing off and closing at about 401. A pretty, uh, pretty pretty traumatic uh, moves we've seen over here.

Uh, anyway. I mean boy, that is actually pretty dramatic. I Mean, if you had a low of 392 and you ended up closing at 401, what is that? Uh, 401 divided by 392. Okay, yeah, it's about a 2.2 percent swing from from previous low to to next state close.

That's not even next day high, which was 404. That's more like a three, three and a half percent. That's remarkable. But anyway, Mike Wilson is now calling this a short-term pivot.

He does, however, still reiterate that once the fundamentals deteriorate then the real pain will come. He says this doesn't change the quote. very poor risk reward ratio currently offered by many stocks given valuations and earnings forecasts that remain way too high. In other words, Mike Wilson is saying: look, people are just going to run out of money.

People are going to have money for for to sustain earnings anymore, and then earnings are going to disappoint. margins are going to disappoint, and you're going to have a pretty nasty crash and that the real pain is still ahead of us. That's the Mike Wilson point. Now he says the gap between reported earnings and cash flow a cash flow is the widest that it's been in 25 years, driven by excess inventory and capitalized costs that have yet to be reflected in earnings per share.

So in other words, when you spend a bunch of money, but you capitalize it, you basically spread the expenses over time. And so when those spread expenses hit in the future when people finally stop spending as much money, we're going to the hell is basically what Mike Wilson's trying to say. and now he's trying to hedge his argument that everything's going to Hell by basically saying okay, well, fine, maybe maybe the rally will last a little bit longer. But don't worry, the bear Market's coming I promise I Think that's really interesting because yeah, they've they've been, you know, Mike Wilson has been sort of a bear for quite a while now.

He was right about, uh, you know, the bearishness that we saw last year. But then again, every bear was right last year. at one point I spent two months as a pair I posted pictures of me skiing uh, uh, last January and it was basically just a picture of a bear with skis on the ski lift all alone. a very sad, lonely bear.

Uh, but what? I always like to do is I try to look at some of the other information that we're getting from other analysts specifically, even within Mike within Morgan Stanley I Personally wonder if all these people at Morgan Stanley are in the same office and they've like put Mike Wilson in a corner and then you've got like the level-headed people on the main floor that are kind of like there's Mike again ah poor Mike like I I don't know I don't know and who knows, maybe he'll end up being ripe. But here's yet another piece from Morgan Stanley which is basically the opposite. Uh and what I thought was interesting about this one and I I try to read everything right I try to read the bear case and I tried to read the bull case and when I hear the Bears arguing that, don't worry, the pain will come and you must be on Mount Everest because the oxygen is getting thin. It makes me think like dude, you're running out of facts and when you're running out of facts to support the bear case, the bear case is going to go away.

Like so far, people and businesses still have lots of money and and I think that's the big thing that everyone is missing is just I want to just grab them by the shoulders? Now on one hand, that could be really bad because we could actually confirm a meaningful re-acceleration of inflation, right? If in January If the January numbers, uh, re-accelerate in or continue to prove and re-acceleration here in in February With the data we're getting in March, we're screwed. Mark Mike Wilson's gonna be right then. Okay, and in fact, look, you already know this right? You already know that coming up. We have a jobs report on the 10th, we got CPI on the 14th and then we get the FED on the 22nd.

You already know this. but something that we haven't talked about before is that you should not pay attention specifically to those reports. You know what you want to pay attention to. You want to pay attention to the following the revisions: I Want you to look at the January revisions When this data comes out, pay attention to the January revisions because here's the best case scenario in my opinion.

Best case, Best case: We get the Feb data. The Feb data comes in slightly soft. Okay, I mean the softer it is obviously the better. but you want the FED data to come in soft.

But then you want the Jan data to be revised down because the Jan data was so ridiculous with seasonal adjustments? I'm really hoping for revision down. I Just want to be really clear here before. I Keep going through this Morgan Stanley piece. if the data for January gets revised down and you get soft February Data I Think we break through the next levels of support on the retracement levels for everything Bitcoin Spy Tech Tesla I Don't care what you're investing in AMC Oh, you know it's not my fault if you want to invest in bankrupt code I mean in AMC Uh, you know, like it's all going up.

that would be great, so revisions pay attention to those really, really important. But what's Morgan Stanley saying over here. So Morgan Stanley suggests that hey, in the coming weeks we'll get more data. duh, We know that.

but Morgan Stanley believes right now that the FED will only require two more price hikes or or interest rate hikes. Now that's interesting because we've really been talking about this idea of maybe a pause after March until that January data came out. After that January data came out. everybody's like, oh crap.

Yep, we're going to end up seeing rates go up higher for longer and so now we're pricing in that, uh, that hike in, um, in May as well. In fact, if we look at Futures pricing, we're about a 71 chance of getting a 25 BP hike. Oh wow, that's actually bullish. Uh, in a uh, a 28 chance of a 50 BP hike.

Now I think that's ludicrous I think there's almost no chance we get a 50 BP hike unless of course, the data comes in like terribly bad. The data would have to be so so bad for jobs and CPI to get a 50. because it would just shoot The fed's credibility and foot for what they have left. And then when we look at May we're looking at probably a somewhere between a yeah, it's about a 90 95 chance that we're gonna be up at five and a quarter to five and a half.

So yeah, it's actually closer to like 97. But anyway, pretty pretty much a foregone conclusion that by May we're gonna be at five and a quarter on the low end and uh, 5.5 on the higher end. That's That's essentially a foregone conclusion, right? Uh, so. but anyway, what do we have here? So they talk about after these two more Cuts they think the FED will pause.

So they're setting this up to say that. Okay, June pause and then March of of next year? That's when they actually think you get your first cut and you're gonna start seeing 25 BP hikes or Cuts rather. Now this is pretty far out. So what we've noticed is that everything has taken a lot longer than expected.

unfortunately. Uh, and patience is really, really important in this sort of. Market But if this ends up playing out uh, the way it's expected here, as long as people continue to have money to spend between now and then, Yeah, we could be okay. In in a crazy way.

we could be okay. to sustain this economy out of a recession it would be I'll tell you it like fate loves irony as Elon Musk always says it would be the most ironic thing to see that the most predicted recession and the steepest hiking cycle in in 40 years does not end up turning into a recession. Yeah, I that Jerome Powell will go down as an absolute hero now. I've also been reading some Fed papers and it's important to to remember because some people keep talking to me about like oh, the Fed's definitely going to rug pull us I'm like I don't know man, the FED is pretty acutely aware of of the pain that their activity causes.

In fact, let me get to the conclusion on this paper. I was just reading this this morning here. look at this. My favorite line was actually right here where they said such policies uh in in other words, if you Okay, so they talk about keeping rates for too low for too long, blah blah.

but anyway, if if you create the risks of financial crises, uh, then you want to avoid creating the risks of financial crises because of the social, political and economic costs that come with them. and I thought that was fascinating because it really shows sort of the Fed's awareness. this is a Fed paper by the way, it shows the Fed's uh, awareness of of look. you know if you tighten too hard, people lose their jobs, people go bankrupt.

You ruin businesses that potentially could have otherwise thrived. So you really impact humans. Uh, you. you create misery and depression and increase suicides, right? Like it's terrible to put people through a a nasty recession, right? This is the Fed themselves Does not want to have to pull Vulceros because the costs are too high.

It also hurts our standing of the US dollar. And and then of course it hurts the long-term economic uh, prosperity of America as well. Anywho, continuing on here, Fed has made less progress towards disinflation than previously thought. For any additional insight into the main meeting, we would need to see the evidence that the re-acceleration is real.

This is basically saying, look for us to even remotely think we're going to end up getting Uh 50 BP We're going to have to somehow prove that Oh yeah, everything's re-accelerating and even if you look at Costco's earnings call from the second you're not look, you're obviously seeing that prices have gone up. uh, but uh, they're not meaningfully continuing. In fact, most companies even Costco aren't talking about more future. uh, you know, hikes for wages instead.

what are they talking about? They're talking about autonomy and efficiency. I'll just read it to you because I'm not gonna I'm not making this up. Look at this. notwithstanding the two to three off-season wage increases we had over the last 15 months, Uh, we are our which has impacted some slight D Leverage D Leverage Basically, this gets a little complicated D Leverage means basically their Opex and their cost of goods sold went up a little bit higher than the rate that Revenue increased.

So notwithstanding this information, given that we've only slightly deleveraged, is actually pretty impressive given that labor is our biggest expense. So then what do they talk about? They don't talk about more wage increases, instead they talk about it's our productivity. We're getting better at productivity. And then over here you have an analyst that's saying so if compensation is rising six percent and inflation like nominal prices are going up six percent for goods, but traffic is only up three percent, then that means you should be seeing revenues down three percent, right? He's basically saying six and six with offset by three shouldn't be a negative three, right? And they're responding well.

People are spending more money on more expensive things, so not necessarily. uh, in other words, not simply price inflation. It's Mix. Now, Mix is a really important phrase to remember when you're talking about Finance because it's basically saying people are buying higher margin items at Costco rather than somewhere else.

So that's good. That's a benefit to a car score that actually shows some level of pricing power that can increase average selling prices. They're not actually just talking about increasing prices. In fact, when they're asked about the elasticity of price, they say, well, we don't really analyze price elasticity.

We basically just focus on this. If we lower prices, we do more sales. So I think it's really interesting because if you go through the earnings call and I'm just going to sum it up because it's a little Arcane But if I make it simple, the simplest way to put it is Costco is telling you. In my opinion, basically the same thing that almost every other company is.

they're telling you. look, yeah, we had to raise prices, But you know what we're doing. Now we're focusing on the fact that if we want more Revenue we could lower prices. If we want more margin, we focus on productivity and automating.

That's really what you're seeing at almost every single company that I've been analyzing. I'm trying to find where that automate. Here it is. Oh, found it.

Look at this. Uh, so inflation has gone up. We know that it's gone up in the past. We know that and I think the focus.

Now this is important. now. what are they focus on is trying to figure out how to do things more efficiently. One of the things we do religiously every four weeks at the budget meeting is the operators are talking about certain Focus items, whether it's improving overtime hours, in other words, cutting those, or things we've done to automate something physically improving the flow of goods in the warehouse.

So what is? Pretty much everyone talking about? Everyone's talking about efficiency automating, becoming more productive. That's what everyone's talking about, nobody's talking about. Hey, we still got a lot more. uh, you know, wage inflation to pass on.

We still got a lot more price increases ahead of us, and if anything, they're like, yeah, like if you want to increase Revenue We could just cut prices. In my opinion, that's actually very bullish. and and that's it's. very bullish because it shows.

Even though we're going to go through some volatile hell over the next bit here, it's very bullish because the last thing you want is evidence that companies are starting to make you think Paul Volcker is coming, right? This is stuff we look at almost on a daily basis in our course member live streams. When we do fundamental analysis, we try to understand what kind of pricing power do companies have I encourage you to join those. By the way, any of the programs comes with lifetime access to the course member live streams. But anyway, to me, this is fantastic.

This is very good. It's also fantastic that uh Goldman Sachs for the first time ever has just turned bullish on Apple saying it has a 32 upside from here: 199 dollar price Target They talk about Apples widening and increasing install base, basically leading to this moat of people not leaving. Apple uh and uh really, the more people the Venus fly trap in the better. That was pretty interesting.

So uh, we'll see, we'll see. uh but uh, pretty excited about that. Uh, you know I know I know some people here, uh say things like Paul Volcker can't save us either I I mean what? I always respond to stuff like this is hey, uh, what evidence do you have like where where where is the bad because I'm I'm looking for it and people send it to me and then I make a video on it explaining how what they think is bad is actually not that bad. You know that's all that's all like.

Usually the bear argument is but but the prices are still up like 10 I'm like yeah, no, that's how inflation Works stuff gets more expensive. done. You know, like uh, it's it. What's what matters is the stickiness of that, right? So um, someone here writes Costco croissants are so good.

Wow, yeah you mean like in those the white clam shells that were the clear clam shells where you kind of get like that giant box right? sup investment Joy What's up man investment I Love this guy. uh I gotta come back to Chillicothe and visit you. Super curious what happens if rates hold. With 32 trillion debt, you can't tax your way out of a one trillion dollar.

Debt Service Yeah, here's here's the and it's It's totally understandable because central banks are losing money like hand over fist right now because the yields they're getting on their Investments are substantially lower than what they're having to pay out in the overnight repo facility. And really, what happens is that's where politicians sort of just basically write a blank check to to print more money and offset those losses. Now that sounds ironic because it's sort of like, hey, but if you print more money, doesn't that create more inflation? Not necessarily if that money isn't being then circulated through the economy. If it's just going to sort of potentially pay off this deficit that the FED has created.

Uh, and and the idea there is, well, well, then, won't people lose trust in the institution of America? Well, yeah, eventually. I Mean, at some point in the long term, every currency generally tends to go to zero because its government loses power, power, and Trust but in the near term I Don't think it's likely that that's actually something that's going to, you know, sort of destroy our economy. I Think people have people are so much better off today in in aggregate, not everyone obviously, uh, than they were before the pandemic. that, uh, that that, really, uh, once we get back to a normalized economy I Don't think that, uh, markets will terribly care about the rejiggering that happens at the FED.

Don't get me wrong, there'll be some fun things that are going on over there. But another thing to keep in mind too is that not, uh, every set of interest uh, or or debt essentially the bond or the the our government has is uh, attached to the interest rates that are being paid today, right? So you got two institutions, you've got our government and you've got the Fed. The vet is paying money. hand over Fists in the repo facility like they're losing money, right? The government has a lot of their debt.

Uh, that needs to roll into higher yielding debt. And so it basically means the average interest paid is actually still very low for the for the U.S government. In fact, if you look at here, we can look this up: St Louis Fred Uh. Debt payments as a percentage of GDP.

It's still lower than where we were in the 90s. Interest as a percentage of GDP. All right. So look at this.

This chart goes all the way back to the 1940s, right? So going back to the 1940s, what do you have over here? You actually have in the 1990s, our interest rate or or the interest we were paying as a percentage of GDP was basically around three percent. So in other words, we're paying three percent uh of our GDP towards interest. Right now, we're only paying about 1.86 or roughly half of our GDP and interest. Now that is expected to go up.

But even if it goes back up to the 90s, did we really have an economic Calamity in the 90s? Not really. In fact, many say to 1994 was really aligned with a soft Landing Yeah, you had a technical recession in 91, but it's not one ever ever taught anyone ever talks about because it's really not that big of a deal. So uh, I think that's pretty fascinating. Yeah, so we'll see.

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