Hey, everyone, welcome back! It's been a while since we've done the live stream right before the Market opens. So let's get into uh, what's going on this week? Uh, First, we're going to start with uh. throughout the video, we'll cover obviously markets fed vaccines exposed by The Wall Street Journal That was wild. We'll talk about that shooting California chat, Gbt, crypto, debt ceiling, real estate, and more.

But first, I think it's useful to do a little Catalyst check. So we've got some earnings this week. we've got uh, synchrony and Logitech today tomorrow Johnson Johnson Verizon Lockheed uh ge Raytheon DR Horton Microsoft Texas Instruments those are all tomorrow Wednesday Of course Tesla Boeing ATT IBM Thursday American Air MasterCard JetBlue Intel and Visa uh actually I need to double check if Visa is Thursday But either way, massive reports coming out this week. and personally, I think a lot of markets are pretty tentative about what's actually going to end up happening with their earnings as potentially a signal of an earnings bottom or has maybe that earnings Bottom already come in Q3 or Q2 of last year? So there'll be a lot of comparing of Q4 to the prior quarters.

Now that's really important because Goldman Sachs and and many on Wall Street thinks that the stock market ends up bottoming about six to nine months before the bottom in uh earnings. So if the bottom in earnings is now, uh, then then does that mean the the stock market has already bottomed? Uh, who knows. Uh, if if we're on a trend towards bottoming and earnings actually bottom in Q1, does That mean maybe October-ish was closer to the bottom? and I think given that we're uh, we're off off some of the lows now I think everyone's hoping the bottom is behind us. but uh, then again, there's always that potential for a capitulation style uh, or Black Swan Catalyst that really drives us slower and we're testing that trend on the NASDAQ again.

Uh, technically the NASDAQ had its bottom here on October 13th, going all the way down to 253.. And so now we're testing the trend. Uh, which, it's not just the NASDAQ that we're testing the trend on. Uh, it's also, if we hop on over to the S P 500, we see the same Trend trying to get tested.

This is the fourth time in six months that the S P 500 has tried to break this, which is pretty remarkable. and uh, if we head on over to uh, even for example, uh, Tesla very similar as well. Uh, we actually don't have a trend line drawn here, but we can see the true Ender's been pretty much straight down. Let's go ahead and try it so we'll grab it from here and it feels as though potentially that trend has broken on Tesla which is also very similar to what we're seeing at Bitcoin And so Bitcoin uh, some incredible movements here and we'll have to move.

Let's go to the weak chart here: I Can draw a little bit of a better Trend Here we go. Uh, so with Bitcoin very similar as well. If we hop in and uh, basically, just try to draw Peak to bottom here uh, and a line on the left a little bit, we get somewhat of of a downtrend like this that certainly isn't broken. and uh, there are arguments that now we're breaking that.

so which makes sense. Uh, we're seeing that again across the board. Whether it's the Spy being tested again for the fourth time in the last six months. the NASDAQ Tesla Bitcoin, You name it, we're having a similar movement in a lot of places.

No, that could be because a rising tide lifts All Ships right? And there's always this argument that, well, sure, Rising tide might lift All Ships. But if we end up hitting a Black Swan or we end up getting a double wave of inflation, we'll be right back to New lows. Those are very, very real risks that we'll have to pay 10 into. And so I think inflationary data is most critical and so that's where when we look at catalysts.

looking ahead I think we've got a few that we can look at first and probably the most important is right before the Federal Reserve meeting. Uh, which is probably the most important Catalyst coming up. but right before the Federal Reserve meeting on January 30th, we'll get that I should I'll call it the second most important piece and that is the ECI. That's the employment compensation.

Index This is one of the favorites of the Federal Reserve. We'll be getting the ECI release on January 30th. my birthday is on the 28th, but the ECI release on the 30th also aligns with of course the expiration of the program coupon code on building your wealth. You get lifetime access to those uh and the Ecis expected.

Uh, well, it has a survey of 1.2 percent gain. Uh, we'll we'll see what it is. This is a quarterly report that comes out and the FED likes to watch it for inflections. We'll see uh, but uh.

Obviously, employment compensation is a big deal for the FED uh and actually oops, I think it it either got moved or I was wrong. Uh, it looks like for the fourth quarter, it's actually coming out on the 31st. so apologies for that. The 31st is actually the first day that the Federal Reserve meets and then they'll have their Fomc press conference and uh rate decision the day after on February 1st.

we do have a little bit more data coming out before that, including we have uh, let's see today, we don't Tomorrow we'll have the uh, that's Uh January 24th. we'll have Uh Pmis coming out on services and Manufacturing from the S P will have a Manufacturing Index release on Uh the 24th as well mortgage applications on the 25th. On the 26th, we'll get some GDP numbers quarter over quarter analysis. uh, expecting 2.7 percent down from 3.2 percent.

We'll get uh, some inventory figures, new home sales on the 26 personal income figures on the 27th. With real personal spending, we'll also get a sentiment from the University of Michigan one year out and five years out now, we actually get a Miss To the downside last time on expectations for inflation, so hopefully that holds as well. the S P Uh numbers for uh, real estate price movements for November come out on January 31st. This I think is actually ridiculous that the housing numbers take so long to come out.

We could go in to multiple listening Services right now and and pull what the housing price changes are for the 20 uh cities of the S P 500 I'm personally tempted to just make my own S P 500 uh core logic case Schiller style 20 City index and just report it way earlier. Uh, but uh yeah. I mean it's ridiculous. Think about it January 31st I can already tell you the numbers for January and the S P is in.

And the case Shiller indices are telling you the numbers for November I mean that's that's a full uh, two months of data that are being ignored. We're looking at data from three months ago, which is quite remarkable, but that's one of the things about real estate. It moves so terribly, much slower than than the rest of the market and the rest of the market data even. But then again, that could also create some opportunities, especially since I think a catalyst coming up for Real Estate will be our first year over year negative sales numbers for Real Estate Now that's actually a big deal because when we start looking at negative, uh, year-over-year numbers, what ends up happening? Well, people start getting a little bit panicked, which Uh is is only uh, interesting to the point that maybe it creates an opportunity to actually finally Buy in a little bit of a fear environment and those negative year-over-year numbers start coming out approximately I Would say by once we get our February numbers which we won't actually get given this crazy delay until April, we'll start seeing those negative year-over-year numbers and that will probably continue for about six to nine months and those sort of negative numbers will uh, in my opinion, end up being quite painful.

Uh, to where? unless rates fall substantially. some some fear Catalyst could continue to push prices down quite a bit. That now brings us to the Federal Reserve and rate projections. Let's go ahead and pull those up really quick and we'll also see what's going on in our pre-market here.

and we got some stuff to talk about with the Fed. So uh, pre-market Actually, it was red. It's tipped green a little bit here pre-market now. sitting down up 0.11 s P up 0.09 you've got Nasdaq futures up Uh, 0.2 If we take a look at bonds here, you're sitting right back at 3.5 for that 10-year treasury.

We did drop to about three point and uh, Three Nine last week bounced right back to about 3.5 There are a lot of expectations that the 10-year treasury is actually going to end up sitting at 3.5 percent for the rest of the decade. Uh, which I I think is a little bit of an extreme uh, assumption. but uh, it's what we're going to be paying attention to. You do have oil up again? About one percent.

A lot of fears that China's reopening uh is going to push oil up substantially. Although, if you look at oil on a one year chart here, it looks nothing more. Uh, it looks like nothing more than just regular fluctuation in the oil. Market If really, this represents the Chinese reopening Catalyst It doesn't seem to be that big of a deal though.

Some argue that. don't worry, that is still working its way up to 100 bucks to get priced in. which would of course, Drive inflationary pressures up, which would be less than ideal. Uh, we'll talk about China a little bit more as well later.

But right now, markets are pricing in a 38.6 chance of a pause. Yeah, a 38.6 chance that on February 1st the Federal Reserve ends up pausing. That is in contrast to a 61.4 percent chance that the Federal Reserve hikes rates 0.25 with no probabilities assigned to a 50 basis point hike. None at all.

And this is really the Bond market once again telling us the FED is being too aggressive, it's time to dial back expectations on the FED. There was actually uh, well, we can actually look at uh, what? what? Futures are indicating the Wall Street or the Financial Times rather did a great piece on this uh, Financial Times here just reported that the Futures Market indicates the FED won't even make it to five percent Instead, Not only won't they make it to five percent and they'll probably cap out at about 4.75 percent, but by the end of the year. According to the Financial Times, the Futures Market is pricing in at least a half percent of cuts. And by the end of 2024, the FED funds rate will fall down to 2.8 percent.

And when you look at the depth of the inversion of the yield curve, historically we are pricing it that by the time the FED is done cutting rates, we will be right back at zero. Now, the FED might not be done cutting rates unless something massively breaks until potentially 2026, which means we could really be going through 24, 25, 26. We could be going through three years of rate Cuts unless they break something and are forced to drive down uh, rates lower. But I expect that they'll slowly trickle down rates and that's exactly what the Bond market is expecting as well.

Of course, you do have individuals like Michael Burry who say that Well, yes, we might see even a half a negative half percent of deflationary figures in CPI this year, which could actually end up leading the Federal Reserve to cut rates this year as the Bond market is pricing in. But don't get too excited, we'll end up with a second wave of inflation says Michael burry and that'll end up leading the FED to have to raise rates again just like they did after the 70s level of inflation were they lowered rates and then ended up popping back up to Uh to have to raise rates again in the early 80s, but this time because they had broken inflation expectations, they had to raise rates more aggressively now. I Somewhat dispute this mostly well, partially because of Hope, but also because uh, the quote this time is different. Oh gosh, neither of those actually sound like good reasons.

No 70s inflation was substantially different from the inflation that we face today, no matter how you slice them. We had just left the Gold Standard uh, in the early 70s, and we just ended up removing price caps from the administrations of the late 60s and early 70s. That led prices to initially soar around conveniently the same time as we had left the Gold Standard, which led to this belief that, oh, we're about to turn into the Weimar Republic And there was no precedent for the FED actually ever being able to control inflation on a Fiat currency because it had never been done before in America. In fact, the only history we had to look at in the 70s was that every single currency that has ever existed has failed.

So of course, inflation expectations, uh, were at least somewhat unanchored in the 70s. We don't have that problem today. Now it's possible that problem could come back, but it appears that whether you look at consumers or you look at the Bond market, the belief is that inflation should continue to Trend it down. Now we do have five-year Break Even inflation rates which are somewhat volatile.

They're sitting at about 2.29 right now. They wore as low as 2.19 a week ago I Was hoping that downtrend would continue because I Personally think inflation Break Even expectations on a five-year need to go down to something like 1.5 1.6 before the FED actually. Cuts However, we're well off the 3.6 where we have been previously and we're on a straight downtrend despite the sort of daily volatility that we get on the five-year break. Even going back though, to the Financial Times, we can see that the Financial Times argues that one year U.S inflation swaps are only pricing at 1.7 seven percent.

That's the lowest level in more than two years. and the one year Break Even inflation rate stands at two percent, potentially indicating that inflation might be down as low as two percent by the end of next or at the end of this year. And so the market, as they say, genuinely believes that inflation will come down more quickly than the Federal Reserve actually expects it to now. Uh, of course the Federal Reserve says hey, we don't want to repeat the mistakes of the 70s or the 80s, So as Christopher Waller says quote, we do not want to be head faked.

Inflation is not just going to miraculously melt away. it's going to be a slower, harder slog to get inflation down. And therefore, we have to keep rates higher for longer and not start cutting rates by the end of the year. This stands in large contrast to the market.

So now, how is it possible that the market could be pricing in rate cuts? when you have individuals at the Federal Reserve saying we're not going to cut by the end of the year? Well, this is possible because the Federal Reserve is between a rock and a hard place. As soon as they say or in any way indicate or suggest that they are actually agreeing with the market that they might cut rates by the end of the year. Which even if they say they won't right now, they still can, right? They have the right to change their mind just like you and I have the opportunity to flip-flop So uh, as soon as the Fed and this is The Rock in a hard place situation, the FED obviously now in control of driving the ship towards inflation plummeting. But as soon as the Federal Reserve suggests sure, yeah, you know, maybe maybe we'll cut rates by the end of the year? I Expect that they would set off one of the largest, not only stock market rallies, but they would actually end up setting off a rally in the bond market.

Now this is important if bond prices rally up, because all of a sudden people say, that's it. Inflation's done. Let's take our cash, throw it into bonds. What happens is bond yields go down.

And when bond yields go down because prices of bonds are going up, what ends up happening? Well, you end up doing what's known as loosening. Financial Conditions: A lot of interest rates are tied to interest rates in the bond market. so that could be credit card rates, mortgage rates. It could be rates on car, a boat, a plane.

It could be a margin line of credit for a company, or a wholesale line of credit. All of these rates coming down would loosen stress on businesses and people, which is great for us, but actually runs counter to the Federal Reserve's goals. And all of that could be set off in motion simply by the FED yapping. And this is why markets have kind of started to look at the Fed and say, uh, whatever you say, Fed, We get it.

We see you, We hear you, We see you. But we're over it now. Of course, there are absolutely still real risks. What are those real risks, Or the fact that jobs and wage data have to convincingly come in low? essentially? Uh, no.

this isn't to say we don't want individuals to start making more money, but it is to say that when that Employment Cost Index comes out for Q4 on January 31st, we need to see that we're not introducing any kind of wage price spiral, because that is not only likely to lead to entrenched inflation, but it is likely to break inflation expectations. Now, one of the most reliable indicators for the Federal Reserve cutting rates is actually fascinating, and it has to do with this thing called the two-year Treasury Bond in relation to the Fomc rate. Now, watch this. This is crazy.

So what you want to see here is that in 2004, the two-year treasury fell below. Uh, this is probably closer to 2005. Actually, 2005, the two-year treasury fell below the Federal Reserve's Fomc rate. You can see the two-year treasury actually led the Federal Reserve's rates up.

See that here. how? this blue line? that's the two-year Treasury? See how it's more lumpy because it moves with the stock market. That two-year rate actually led the Federal Reserve's rates up. And it's important to remember that the Federal Reserve frequently follows what the Bond market tells it to do so, even though there's fluctuation.

Once it became clear that we potentially had hit AP care, the Federal Reserve happened to hold on rates and they held without the two-year ever breaking the Fomc line again. And as the two-year treasury fell, so did all of a sudden, rate Cuts start coming. Now, of course, we fell into a recession in 2007, eight and nine. But there was another instance as well where if we look at over here 2018, we could actually see again, the two-year lifting off over here.

before the Federal Reserve's liftoff. two-year Peaks out above the Fed Fomc rate breaks on the hold. And then what? The two years starts falling. And sure enough, the FED starts cutting.

Now, what's remarkable about this is if we pop up over here, look at what just happened. We we have literally had the two-year lead. the Fed Up and Away Up and Away. There has not been a crossover of the two-year and the Fed Fomc rate.

What just happened? The Bond market did it again. It said rates are coming or rate cuts are coming. Now, it's not to say we're not doing this right before recession. In fact, honestly, we're probably already in the recession.

Uh, in fact, if we look at last year, we already had a quote-unquote technical recession two quarters in a row of negative GDP Unless of course, somehow that magically gets revised away. or we just had a really long and shallow recession. Honestly, I don't really care I am treating this situation as if we are in a recession and in my opinion, that means increasing frugality, decreasing debt, and working harder to ensure that you could maximize your income. That is important in these sorts of times.

But these Cuts or or I should say this sort of dropping in the two-year treasury. It, in my opinion, is one of the most reliable indicators that we have suggesting that the FED is trending towards this idea of flipping and having to cut. Now another thing that's pretty weird and and this is another thing that sort of suggests: If the Fed keeps going here. They might end up breaking something.

You have this: Federal Reserve facility called the Federal Repo Facility and the Repo Facility is supposed to be a temporary place where people. Well, I should say money markets. Not people, but money markets Banks Institutions can park money overnight and they can receive a yield on this roughly equal to what the Fed or the the Fed's real uh, uh, Federal Funds rate is. Now that Federal Reserve Repo Facility has exploded in use since about March of 2021, and there were some changes here in liquidity and reserve requirements at banks that actually occurred on March 31st, which perfectly coincides with all of a sudden when Banks started using the reverse Repo facility.

Well Now we're sitting somewhere at about two trillion dollars of money sitting over here. Now there are some problems with this. Uh, and we're going to hop on over here to a Financial Times piece where uh, they make this observation. They make the observation that investors are stashing an average of 2.2 trillion dollars away at the reverse repo facility And you might ask yourself, okay, well, you know why does that matter? Well, the reason it matters is simple: instead of Institutions buying treasury Bonds in a time of quantitative tightening, which remember if they buy bonds that would increase prices in somewhat lower yields, but then it would let the FED kind of dump more bonds, right? So it lets them roll off bonds that lets markets absorb those bonds rather than that happening.

What's actually happening is the Fed is quantitatively tightening, but people aren't buying treasuries to offset that. When I say people I mean institutions. Instead, they're parking their money into the overnight repo facility. Because think about it.

If you could earn 3.75 basis points in the repo facility and you have zero risk, it's literally deemed risk free. and not only is it a risk-free investment, but there is no Market volatility, right? Even treasury bonds are considered risk-free But you have Market volatility. Not only do you have uh, no Market volatility in the repo facility, but you are risk-free so you have the benefits uh that treasury bonds don't have which have Market risk the FED repo facility doesn't so institutions are like, well, gosh, okay, we'll just park our money over in the repo facility. To some degree, this leads to a massive liquidity crunch in the bond market and this is the one place where investors suggest if this continues, we could end up seeing something break in markets which ends up leading to some kind of Black Swan Catalyst where the FED has to swoop in and bail out Markets basically support the the Uh fiscal Plumbing uh or the the Uh the financial system so to speak.

uh, much like the Bank of England did. And then that then either ushers in back the normal era of quantitative easing or or we potentially reignite inflation by doing so. And then we end up proving Michael burry right? So there's some risks to that, especially since there are still other risks to inflation that we need to consider. Uh, consider that.

Um, when we had uh, the earnings call for Procter and Gamble which I covered last week, one of the things that made me nervous about it was oopsies. We actually started seeing signs of inflation still running hot for Procter and Gamble. Now personally, I think there's a little bit of a risk that Procter Gamble just didn't hedge appropriately because they said they didn't or they had contracts roll over from 2021 into 2022. So I'm treating them right now as a little bit of an outlier, but they are an outlier that says hey, we're still dealing with inflationary pressures I'm hoping that's just their excuse for well, basically having bad earnings now Barclays had a great piece on the market and the economy and the Fed and out of the piece.

One of the most important parts for me was the risk that CPI actually doesn't come down. Now that's probably the biggest thing we're not pricing in see, we are pricing in already that the housing sector is going to roll over that's already priced in to some extent into why we're seeing the stock market go green, right? We believe that inflation is going to plummet and there are a lot of spammers in the Facebook comments on my live stream here. okay Can't Ban uh interesting I For some reason I can't ban them either. Well ignore the losers who are chatting in the chat.

There's no way I can chat while doing this. uh, that is impersonating me, everybody else chatting at respect. But anyway, continuing on. The big risk is that we end up seeing uh in inflation from from CPI shelter not end up showing up or we end up seeing finance And this is why the FED has to be tough, right? Imagine the FED loosens Financial conditions much like I talked about and then all of a sudden real estate starts going up again and rents start going up again.

Well what do you have in a situation like that? A crisis. You have a really bad situation because the hope that we have that inflation is going to plummet is that CPI is going to fall due to housing and new and used vehicles which I think it's I think we can all agree that new and used vehicles are probably going to continue their plummet. but if Financial conditions shift and we start supporting shelter inflation going up again, that would be bad and I almost guarantee you I would put money on it. I Should say that one of the discussions uh, that uh that Jerome Powell is having with his Uh board essentially is the idea that hey, look, if we end up talking this market up and we end up saying that all is good inflation is coming down, then you are going to break any hope that inflation will come down via uh, Shelter the anchor of inflation.

uh, through shelter. That's a big deal. So uh, these are critical things that we want to pay attention to. Now on top of this, what I think is also really interesting is uh, the what the Eurozone is doing but also what we've got going on with China.

So we've got to talk about these things too. So let's take a brief moment and look at the Eurozone. So uh, in the Eurozone we uh, we just had this uh piece that was put out by Zabin Zabina. uh, she is actually a board member uh, of the ECB The European Central Bank.

This is a piece that she wrote in the uh oh no. I'm sorry, she's an executive board member of Deutsche uh, the Deutsche Bundespunk. Aha, Okay, not the ECB uh. Either way, she wrote a piece of in the Financial Times basically talking about how in the past they had to cut or they had to have low rates uh, to essentially support what was too low inflation.

and today they have to do the opposite, right? That's that's where she starts. Fine, not a big deal, but what we want to look at is she says over here, this is very much what I've been talking about as potentially that risk for the United States. Look at that. Just listen to this piece right here.

The consequences of the significant Market footprint resulting from our purchase programs roughly 40 percent of public debt is in the hands of the Eurozone system, and those issues are increasingly visible. Collateral scarcity in markets for German bonds is a significant Distortion. Okay, let me now try to say this in English Uh, because uh, you know I'm not. uh, that would that is a mouthful.

So in English as we have less volatility, or as we have less liquidity in the bond market, we increase the odds of breaking something both in Europe and the United States much like what we saw in England And this is a member of the Deutsche Bundespan telling you that we are seeing the same problems that England saw to some degree to a lesser extent. Obviously, and as the U.S faces in our bond market and this is a problem, because at some point in the future we might have to step in and start buying bonds again. Right now, the European Banks RSA or the European Central Bank is expected to start quantitative tightening by essentially rolling off bonds much like the United States is doing. but that is going to again reduce liquidity.

So hopefully, hopefully investors like you and me by bonds is what they're saying so they don't end up breaking something. but that breaking something is probably the one swan uh, or should I say Black Swan that uh that everyone is concerned about? Uh, so we'll have to pay attention to this dearly. So all right, let's continue on. So that's the Uh.

that's the European situation reiterating what we have here. The other issue is China and this is this is another big one uh, that we have to pay attention to. and this is the reopening inflation concern. Remember, we basically went from zero covid to full covered China's economy as a result, grew at its second slowest Pace since 19.

since the 1970s, the GDP didn't come in as badly as expected. It came in at three percent for 2022 instead of the 2.7 expected uh, joblessness down to 5.5 retail sales actually beat beating three months of disappointments, But China's population is starting to shrink, leading to longer term concerns that China is going to slow down. It's the first time in 60 years that we've seen China's population shrink and we actually had 850 000 fewer people alive in China than we did at the end of 2021. we also only had 9.56 million babies born in 2022..

that's the lowest level of babies born since 1950. And this is in part. uh, well, uh. the population decline is in part because of low numbers of babies born, but also people leaving China 10.4 million individuals died.

But remember, we had a population decline of uh of of one point. Uh, we had a population decline of 850 000. The uh difference between deaths and babies born? Oh, that actually is somewhere close to that. Uh, let's see here.

let's do that number really quick. That's 10 point 10.41 minus 9.56 Oh, that's about yeah. okay, that that actually aligns with the 850 000. Okay, in my opinion, yeah, people, people dying doesn't fully account for the difference in the population in China I Think there's a higher likelihood there's also some amount of individuals who are leaving China and moving to different areas.

I Don't think China wants to send that signal, so it's unlikely that we're going to see that sort of data come out of China It's actually surprising that they even give us negative data sometimes, but uh, I wouldn't be surprised if there is a larger decline actually happening than we expect. But anyway, they are suggesting it solely because less babies were born compared to, uh, how many individuals died. Uh, now that gives you a little bit of background on sort of the longer term potential lid on China's growth. Uh, although China is doing better than expected now.

and Bloomberg actually had a great piece analyzing the potential impact of China's reopening. and this, in my opinion, is probably one of the most important pieces. And the estimate is that China's reopening could essentially come with a 750 or 720 yeah, 720 billion dollar inflation bomb. now.

I Think this is interesting because Namura Holdings indicated that the Chinese households have built up about 720 billion dollars now. 720 billion dollars in savings is about one-third of what the United States built up of about 2 trillion in excess savings. And part of that is because China didn't offer stimulus payments to people. Instead, they offered money to corporations to keep people employed.

so they actually, which is real, Really wild. I Mean, think about that for a moment. just take like a brief pause and think about that for a moment. China A socialist company or socialist country provided money to businesses to keep people employed, whereas the United States under a capitalist structure gave money to everyone.

It's just interesting. Uh, which seems more socialistic, right? Anyway, Uh, so the the numbers are fascinating though. the potential that the Chinese individuals have themselves saved up 720 billion dollars does potentially send the signal that yes, maybe we could see an inflationary surge or at least some kind of pressure from China Now personally, and this is my opinion: I Actually believe that most Supply chains today have built themselves up to make sure a 2021 shortage never happens again. people and businesses are frustrated that they did not have the supply to fulfill demand.

The worst feeling is when you're in business, but you can't fulfill all the orders you're getting. It's the worst feeling ever. It makes CEOs look like clowns and it pisses people off, especially investors. And so I think that a lot of companies and this is what we're seeing with companies like Taiwan semiconductors.

I Think these companies are setting up massive spare capacity to where right now we're kind of like like if this is a normal rubber band or kind of like a crumpled up rubber band right now just waiting for some more demand to start coming because we're in a recessionary environment. Whereas in 2021 the rubber band looked like this, it was almost stretched to the extreme and and some would argue it snapped right is so if the rubber band represents capacity I Think we're scrunchy right now, which is good because that means if we reopen, you could kind of scrunchie to normal and I hope that the Chinese uh, you know reopening doesn't create the sort of inflationary, uh, disaster that we've uh, that we saw in 2021. Now, uh, I Made a little note here that I think the Omega surge of Chinese pent-up demand will actually end up being very good for Byd. and Tesla I I Believe this because I think after three years of lockdowns, people are going to want a car.

Uh, now the Byd? Uh, there are some really great videos on the auto three uh, In the United Kingdom that was just released from Byd, their full self-driving is actually non-existent Now to the extent that you think that matters. for vehicle developers, I think it's quite fascinating, but they essentially have adaptive cruise control and Lane centering. but I think Honda's had that for like three years now. So I personally don't find that very impressive.

However, they they are less expensive Vehicles than Teslas. So while Tesla does have that technology Edge I'm not sure yet that people might want to pay that sort of money for a Tesla versus a Byd and so you're probably still competing in two different markets. I do think it's very interesting though. and I've been saying this for over a year.

Uh, that I think the Chinese are very, very smart in that they ramped up their precautionary savings because the government wasn't going to come do that for them. And this here shows you the potential net increase in China's household savings deposits. I here wrote a wow on that because I think it's actually very impressive that they pulled this off without the help of the government. I Don't think we would have seen that happen here.

We would have seen a lot more defaults and foreclosures. uh. But then again, you know we don't have the kind of punishments for for uh, not paying back your debts as China does. uh, And so we'll see if commodity prices and oil and uh, Supply chains end up inflating like they did here in 2021 Again, I Don't think so so.

I Think the rise in oil, uh, prices right now is a little bit more of a trading move. Do keep in mind that substantial movements that we've seen away from, for example, growth Innovation and Technology Uh, certainly profitless Tech But getting away from profitless Tech makes sense in a recession I think a substantial portion of this, uh, a rise in oil that we've seen recently which is still nominal. It's just a tactical trade. it's hey, it's logical to sell the idea that China is going to cause a re-inflationary boom.

Let's go long oil and then talk up how much of an inflationary boom there's going to be in. China Personally, not the biggest believer of that, so this gives us a little bit of insight into The Fad where rates are going. uh Commodities uh, risks but also other risks that we Face to inflation. All Right Moving On Let's uh, let's take a quick check of pre-market and we've got a bunch of other things to cover as well so that'll be fun.

Let us see what we have here right again. Please ignore the scammers uh in the Um Facebook chat, this is this is why I kept telling myself don't stream on Facebook Anyway, all right, Uh, taking a quick peek here at uh, the pre-market let's see what we've got here. Uh wow. Wayfair was up 20.25 after rate cuts on a Friday pre-market Wayfair up 12.

This is actually remarkable. It actually makes me interested in taking a brief look at uh, Wayfares Fundamentals. Let's go ahead and do that together. Uh, Wayfair And this is one of the things that we're seeing is companies are laying off and then their stocks are actually Rising uh.

For example, we just this morning had another layoff announcement we had. uh, actually I mean this follows multiple waves of layoff announcements that we've seen. Uh, but we have a six percent of Spotify's Workforce being laid off and the stock NOW up six percent on that idea, the Spotify already off of its bottom which was suffered closer to around Chris it looks like the bottom I mean it was relatively flat from about the beginning of November to Christmas Eve but uh, Christmas Eve roughly around a similar bottom up six percent. Now on layoffs and this makes me curious about Uh, Wayfares fundamentals, obviously.

Wayfair One of those consumer discretionary stocks absolutely beaten the crap. Uh, mostly in my opinion because of uh, this this idea that okay, well, people are going to buy less stuff. uh, in a recessionary environment, so let's tactically trade out of that. But let's take a brief look at some of their financials here.

We did have a revenue decline year over year on both the nine month and the six month uh for Wayfair and that decline looks to be roughly about 10 percent here. Although let's get let's see what the inflection here is. Three, one, Two one. Yeah, it looks like that's about a 9.9 percent decline.

Uh, in year over year. Rev. And if we look at it on the nine month, nine, one, one seven, divided by Ten, Four Five Six, we're looking at about a 12.9 percent decline. This actually implies that things are getting better and not worse.

Uh, costs of goods sold 21 6 divided by Two eight, Four Zero sitting at about 29. Uh, and one-ish percent. Uh, cost of goods sold over here relative to what we had in 2021. It looks.

Let's see what our inflationary pressure looks like. That's actually about the same. Roughly About the same. Uh, that's fascinating.

You can see the company is still advertising a little more than a 10 increase here in advertising Big Boost in SG A surprising, and that actually is probably why they've announced some layoffs because is one of the things that has pushed them towards a deeper net loss. here of 283 million dollars is actually this growth probably in SG A to maintain the revenue that they've received. so they're advertising more and growing SG A But again, they did just announce uh, layoffs and so their stock has really popped on this. Just be aware, profitless companies Very, very risky in a recessionary environment.

especially if they're negative. Free Cash flow. Sometimes you can actually have a net loss, but some of it just be based on stock based com. uh.

However, we could see here that net cash used in operating activities is negative. 772 million dollars. If we look uh at, uh, their free cash flow and we take off purchases of equipment, here, we're at all. We're at essentially a negative 900 million dollar free cash flow in nine months, so you're burning almost a billion dollars in nine months.

Go to the Uh balance sheet. Here we're looking at maybe around, uh, 1.2 billion dollars, not considering inventories or receivables of, uh, essentially cash over here. Whoopsies. Uh, there we go.

and uh, liabilities of accounts payable of about one billion dollars. other current liabilities. Almost another billion dollars. But we've got two billion dollars of current liabilities and long-term liabilities here of another three billion dollars, the company does not have a lot of cash.

They will burn through all of their current assets just paying for their current liabilities. So that's that is probably the biggest red flag when you look at money losing companies. and it's one of the reasons that I Believe, uh, some of the best investments that could be made. Now obviously you have to figure this out for yourself.

I can't advise your portfolio even though I'm a person. Uh, even though I'm a financial advisor. Uh, I Personally think that yes, while the ocean of stocks going up can lead some of these cash losing companies to also go up, and then we could see some mean momentum in them. I Think there's some massive risks to investing in money losing companies in a recessionary environment because as cash needs go up at these companies, I Think they'll be forced to either raise debt or sell stock.

and if they sell stock in a low liquidity time, you could see very, very quick and sudden drawdowns of the stock valuations, whereas companies that have free cash flow won't have to do that. So I Think you have substantially larger risks and for me, the risk of a money losing company isn't worth that potential. YOLO On the game now. Maybe What? What you do is you instead of allocating a lot of cash to cash losing companies, you look at more of things like uh, you know, longer call options or maybe you even out of the money call options if you need to satisfy.

Sort of that. YOLO Appetite Not the biggest fan of doing that because I personally rather take the premium and go buy shares. Uh, but that that is something that people do, especially when wafer is up 20 on Friday and now 12 up in pre-parket So something something to consider. but from a fundamental point of view, there are definitely some substantial risks here.

Uh, that I would be careful of. So uh, all right, let's uh, let's take a brief moment and see uh What uh, what we've got going on over at the Doombergs? Let's take a listen in over here. Reserve Economist Claudia Let me go I Want to get to a more thoughtful thing? a more theoretical thing, but in your Note is something that is ancient High Inflation cures High inflation that is foundational. Discuss that concept right? Well, we have to remember the Federal Reserve does not set prices right? This what we see is, they're in there, right? they're They're raising costs of things like borrowing which are important in decisions.

And yet this is an interplay of hundreds of millions of American consumers and tens of millions of businesses. So I As someone who followed consumer spending very closely in my 10 years at the Federal Reserve the retail sales last week were kind of a punch in the gut, right? The American Consumer re I mean this is 70 of GDP and yet this is mainly the good spending and businesses need to get the the signal like consumers will get price sensitive. So this is the idea of the high inflation. At some point, the consumers pull back and then the businesses you know they got to price it in and at least Tamp down that inflation and maybe even cut some prices.

There are the two M's in the academics. There's the University of Michigan and all the great inflation work done there over the years, and also a small startup school on the banks of the Charles River in Boston Massachusetts Institute of Technology Claudia I. Want to talk about Olivia Blanchard's new effort which I think you're in close? Uh, she's got a point there that really consumers do make up 70 percent of uh of the economy Now we've known this right. But it's worth reiterating because what did we get in retail sales? We got a massive revision down in retail sales for the last quarters.

But not only did we get a massive revision down, we ended up getting a big Miss for this, uh, or prior months, But for for this month we got a big Miss. So uh, you know, definitely some pain in uh in uh in the um world of consumer spending and uh, the hope is obviously that that sends a little bit of a signal to the Federal Reserve to relax. but don't worry, it won't fed. ain't going anywhere.

at least for now. Reasons that we've had so much inflation is: our economy was not resilient. Whether it was Supply chains or we had underpaid workers and that those are not levers that the Federal that the Federal Reserve can pull. And we have learned in this crisis: fiscal policy is powerful.

Something that's powerful. We should spend a lot of time getting it right in terms of how to use that. the FED is I Mean we've learned a lot about the FED but it is not our powerful, our most powerful tool. Well I Want to just say Claudia Last week, Uh, one of the conversations not on air behind closed doors of Executives of companies worldwide.

we're not playing blaming the supply chain disruptions. They were blaming the last payment that was made out in 2021 to stimulate an economy that already was flush with cash. And they're saying it's going to take time for that to work through. but that was the main driving factor of inflation.

Do you disagree? So it's the beginning of 2023. I mean we, it's absolutely in the mix, right? And this is the thing about. We learned that policy was very powerful. We also took a big dent in consumer spending.

When everything shut down, there's still a lot of pent-up demand. I Think we forget this time last year we were coming out of an Omicron wave that really was affecting if nothing else, getting keeping workers on the job. And then we were hit by the war in Ukraine right There have been some really important disruptions to the economy to our daily lives since those stimulus checks went out, and frankly, you can only spend those once, right? So there's actually been a drag on fiscal policy that probably has a lot to do with some of the weakness we saw at the end of of this past year. Well Washington is pretty much in gridlock, so there's a lot of uh, it's an interesting argument when we actually the timing of when we actually got those stemi checks.

So now unfortunately we have to talk about, uh, something that, uh, something that irks everyone in markets is the following chart. folks, it is the US no longer actually approaching the debt ceiling, but actually having hit the debt ceiling on Thursday of last week and we should touch a little bit on the implications of uh, hitting the debt ceiling and some of the potential Solutions or not solutions that, uh, that have been proposed for dealing with the debt ceiling. So first, we hit the debt ceiling limit. That doesn't actually mean anything yet because we haven't defaulted on our debt.

Everybody's worried about default, so think about it. Kind of like maxing out your credit card, but not actually missing a payment yet on what's owed or what you're using your credit card for. This is because the government's kind of like going around looking in the Mattress Corner you know, the crevices of the mattress and trying to rejigger things to make sure that well, we can extend the time to uh that that in which we would actually default out to something known as default day or as Janet Yellen calls it the X State Some of the ways that the government plays with the X state is they can pause contributions or investments into government workers retirements Health Care payments. They can delay tax refunds.

They can also suspend new investments into things uh, like the Disability Fund or the Post Office Retirement Health Care Benefit funds. They can do a lot of this. And and right now the estimate is that we'll have enough money not to default on our debt until hopefully June 5th, 2023. So somewhere in here some analysts suggest maybe July and August.

So her date of June 5th is a little bit of a surprise. But yes, right now we're at a hundred percent of our authorized debt limit. now. When the debt limit and the debt ceiling was first first created, it was designed to allow the government to actually borrow money and make it easier for the government to borrow money.

But what it's actually done is now. it's become a political battle and has led to a government shutdowns. much like in the 2011 when the United States lost its AAA debt rating when we were just hours away from a default and everyone on TV had to deal with seeing Parks shut down. Uh, people pissed that they couldn't go to work or weren't getting paid as government workers, even some essential services and that ended up leading our credit rating to fall And the stock market did react to this.

However, the sort of impact in the bond market was relatively limited. Uh, we. we didn't see much, uh, in the way of fluctuation and yields any more than we would have seen otherwise on a regular basis. So it seems like markets kind of got over this, and since 2011, we haven't had such crazy debt ceiling in implications.

However, now you've got concerns that, well, what if this time is different and what if this time Republicans end up more hardlined than what they have been in the past. Part of the reason people are this fearful is because of Kevin McCarthy's election. Remember that Kevin McCarthy speaker election was so contested that it took 15 rounds to get him elected. We haven't seen that many rounds of a speaker election since the mid-1800s when we were debating slavery.

That's intense now. We've had multiple speaker rounds as recently as the 1920s, but nowhere near as intense as what we saw just now since the 1850s, which is remarkable. Now Kevin McCarthy calls for cuts to discretionary spending and something actually that a lot of people think is kind of odd Republicans want to cut spending, potentially for defense by as much as 75 billion dollars Now part of the reason or motivation for that is they want to crimp the ability for the current Biden Administration to send money to Ukraine for Aid Keep in mind that so far NATO has been pretty committed I mean I would say astutely committed to supporting Ukraine even to the point now that you've got Poland in the Netherlands considering sending uh Generation 4 F-16 fighter jets to Ukraine which would completely change the future of the battlefield in Ukraine they have essentially no air superiority or uh, really, capabilities of offense Beyond some tactics that they're using like drone attacks uh uh against Russian Uh positions now or even into Russian territory actual Russian land, uh and so Republicans are calling for a limit to how much offensive power that Ukraine could get and really a limit to the spending. In an argument that if we continue supporting this war, we could end up in a World War III situation.

And given that Russia is a nuclear power, we end up walking into a nuclear war now NATO so far seems convinced and Europe seems convinced that the likelihood of Putin engaging in any kind of nuclear combat including strategic deployments of sort of localized nuclear warfare or Warheads is very, very small. and even though Putin has threatened it, it NATO seems to be calling his bluff, even just because of talks around F-16s going to Ukraine but also now more than just armored personnel carriers potentially going to Ukraine but potentially actual battle tanks coming over like the German Leopard uh battle tank. uh uh, heading over to Ukraine or at least potentially heading to Ukraine from Poland. This is what Republicans want to reign in.

They want to reign in the billions of dollars of discretionary spending that the Biden Administration has available. The Biden Administration says they will not negotiate over the debt ceiling, and this, uh, and if anything, the Biden Administration so far seems convinced that the debt limit should be raised. Chuck Schumer argues that we want to move quickly on raising the debt ceiling. And given the potential stalemate that we saw by Republicans under Kevin McCarthy's leadership, where even Republicans can't get on the same page with things, there's a lot of nervousness that this could be another one of those default environments.

Where, yep, the U.S finally ends up not only leading to a government shutdown much like what we saw in 2011, but for the first time ever, the government ends up defaulting on its debt. That could be really bad because it could reiterate that Black Swan event. Remember earlier, we talked about how there's a lack of liquidity in the bond market, and if there's a lack of liquidity in the bond market, and all of a sudden we potentially default on our debt, then there will be even less liquidity in the bond market. And and now you're in a situation where the debt ceiling itself could create the Black Swan that crashes markets substantially lower than we've ever seen In this last down cycle.

that is, we could hit brand new lows, the vix could Spike to 40 or 50, the fear-based index, the volatility index, and we could actually see capitulation that the United States has just lost their ability to operate institutions, and foreign governments reduce their willingness to actually buy U.S treasuries as foreign assets, because now they're more unstable or the value of them has just plummeted, yields rise, and the economy goes into a deeper, darker recession. The worst time to probably default on our debt would be in a recession, which is one that we're probably in right now now. There have been some ideas around this, and some of these ideas seem interesting. Some of them have already been shot down.

Uh, in terms of how to potentially solve the disaster of approaching the debt limit. One of the ideas, as put together by Barons is actually this idea that maybe maybe Joe Biden can just break the law and play continuous spending. Anyway, let's take a look at this argument because it's interesting. It's I find it actually a little bit more interesting than the trillion dollar coin, which I'll reiterate in just a moment.

So there are two potential things that the government can do. Uh, and one of them is the trillion dollar coin, which we'll talk about in a moment, but the other is the institution of something known as the Congressional Budget and Impoundment Control Act of 1974. this Law requires that the President spend money for programs that have been legislated. Now, the reason this came up is because: President Nixon said, you know what I disagree with a bunch of spending.

so I'm just gonna not spend the money and so Congress is like dude, we've allocated this money, you have to spend it and Nixon's like, make me And so they did. They passed the 1974 Impoundment Act which forces the President to spend money for things that Congress has allocated. In other words, Joe Biden potentially has a choice of breaking the law in that he breaks the law by not spending money uh, via the 1974 law, or he breaches the debt limit. Either way, he's in a situation where Baron says he would be in violation of one of his obligations as president.

That is the obligation to Uh, either make the payments as required by the 1974 law or uh, he ends up breaking uh, the the idea the law in the other direction by saying, well, we're just going to break the debt ceiling and make sure we kind of honor the other half of this law which says I'm not allowed to break the law of not making payments on things So this is a really interesting thesis that I believe this was The Baron's editorial board put together. Yeah, Baron Barons advisors editorial team put this together and they say they've actually sent this idea to the treasury Department to encourage them to do just this. Now they say they haven't heard back, but uh, Barons makes it pretty clear that hey, we have a potential solution where you could break less of a law than a big law by breaking the debt ceiling and potentially driving us into a, uh, a deeper recession. So fascinating idea.

Will it actually go anywhere? Probably not. Because we'll probably just end up raising the debt ceiling. We'll come to some kind of last minute negotiated settlement. Now there is this idea that the Oba that the Obama Administration came up with.

and this was the idea that let's just create a trillion dollar coin. And uh, the since since the Treasury Department can mint money, they'll just create a trillion dollar coin. And if they create a trillion dollar coin, they have a coin around here. No, I don't have a prop around here.

If they create a trillion dollar coin, they could just go to the Federal Reserve and say hey, we'd like to deposit this with you and the FED would just hand them a trillion dollars of cash. And given that the government runs at about a trillion dollar deficit every year, that could fund us for about a year now, Janet Yellen has argued that this could be rejected by the Federal Reserve and it's unlikely that it would actually be accepted, but the idea was that this trillion dollar coin would actually be a physical coin made of platinum and it would be pegged at one trillion dollars. There is a picture of potentially what it could look like and that's on screen. Now, the one trillion dollar coin.

It's basically just it looks like a thick quarter with dollar sign one t on it and the Statue of Liberty. All right, so that's an idea, but again, probably neither of ideas are likely to happen. Uh, Congress could potentially just pass some kind of uh, borrowing suspension uh, or, or basically a short-term extension for three to six months my expectation and and end up negotiating, uh, some kind of debt hike. Uh, you know.

My guess is that real talks in Congress won't actually start happening until after tax season. One of the reasons for that as well is because the treasury Department's going to get a lot of money from tax Collections and then the treasury Department will actually be able to more accurately tell us when the X date is for the debt ceiling. But usually the debt ceiling debates, at least historically, are just a bunch of political hardlining and they're a bunch of nonsense. We'll see Now we've got to talk crypto because Bitcoin has been kicking a double s lately and it is incredible to watch what Bitcoin is doing.

and there's some pretty incredible things going on in the crypto Market at the same time as Bitcoin is actually doing pretty dang well, many of us we've been seeing the trend broken on Bitcoin. Uh, here's our downtrend bouncing off on the Fibs suggestion is that Bitcoin should be able to get right back to about 28 000. Remember that last year we saw Bitcoin sit pretty heavily between 28 000. Uh, this is the week chart over here, so we're looking at 2021 actually? Uh, but even over here, uh, in 2022, we saw Bitcoin sit a lot around 28 to 30k over here.

We saw that over here. there is now the belief that Bitcoin could quickly run back to about 28 000. And this is, while at the same time, we've got some wild things happening. Uh, in, well, the world of crypto.

Uh, specifically, Genesis filed for bankruptcy. Apparently the company is going or undergoing confidential negotiations with various creditor groups amid a quote unquote liquidity crunch. Uh, Genesis has, uh, you know, or a large owner of Genesis is the a digital currency group? Uh, However, so far them are accreditors and Genesis have failed on any kind of restructuring agreement in Genesis Uh helped fund the Gemini Earn program, which was where Gemini would basically allow their users to stake stable coins and earn a yield on them. But because Genesis is now going essentially BK Uh, Gemini Urn has had to freeze withdrawals, freeze with redemptions, freeze payments, and it's been a big slap in the face to that part of Gemini which has been deemed a pretty Stable Company uh in the crypto.

World A lot of Institutions use a Gemini uh for the institutional uh custody of crypto assets. uh, and so a lot of nervousness still happening in the crypto space. yet crypto actually overall doing decently right now. Even Ethereum is doing very, very well right now, and this is even with staking liquidity potentially coming.

Uh, coming pretty soon here. Remember that one of the big fears or fud story around Ethereum was that when Ethereum goes through with its merge, which it did in about September of 2022, uh, somewhere around where where Ethereum was trading for roughly where it is now 16 to 1700. The fear was that after the merge, about six months later, stakers would be able to open or essentially unlock their Ethereum accounts uh, or Ethereum coins that are staked and that could lead to a large push of uh selling pressure, which could drive Ethereum to lows we haven't seen so far yet. What's remarkable is Ethereum so far might not end up pricing in any kind of of of large selling pressure, mostly because of what researchers on Wall Street say the Advent of and I know this word sounds kind of funny.

Uh, but Lsds Lsds are deemed liquid staking derivatives and basically think about it like a Lido So we know that Lido is an option where people can place their Ethereum into Lido and essentially get staked Ethereum. They could take loans against it, They can transact their stake to Ethereum and essentially use Ethereum as they would if as if they were to have sold it. And so a lot of Wall Street uh individuals were analyzing uh. Ethereum now suggests that maybe we won't have that large liquidation of Ethereum during uh, sort of that lock up expiration because of Lsds.

That's the liquid staking. Uh, uh. derivatives. Uh, and the liquid staking Market is up to about 33 here.

I'll move my remove myself from screen here for a moment. You can see that about 33 percent of Ethereum's Holdings right now are sitting in liquid staking accounts, which reduces some of this belief that validators or those who have staked are going to dump when it becomes, uh, possible for people to liquidate, uh, out of the Ethereum 2.0 lockups. Now we have the Shanghai update which is Eip4895. That's the next major initiative that will finally end up allowing some withdrawals from Ethereum.

Him: Uh, that was supposed to come out in May It's now expected to come out in about March There was a lot of demand uh, for folks to at least be able to have a little bit more liquidity, because certainly there are a lot of validators who are locked up who aren't using uh, Lsds so to speak. Uh, at least not the uh, the kind we're talking about here. liquid staking derivatives, right? Uh, but uh, Ethereums. But by the time of the merge, Ethereum had about 20 billion dollars of staked assets, 13 million staked coins locked up.

Uh, that. Um, since then, we've had about three million coins of Ethereum added, not taken away. People are still adding to staked Ethereum uh, which is really incredible because it indicates that maybe there is that much demand for liquidating Ethereum and it's been really a good thing for the Ethereum Protocol to see that MO more people are are staking and locking themselves up and now we're at Uh 16 million coins or about 13 percent of circulating Supply locked into the protocol. Which is also important because the more you have locked up in Ethereum, the more uh, secure the network is deemed to be.

Uh, So we'll see, we'll see what ends up happenin