And Report episode number 17. Wow. 17 already welcome back! We've got a ton to talk about today, including the Federal Reserve the State of the Union. We'll talk about consumers and the potential death of the consumer.

We'll talk about chat GPT potentially predicting war and a lot more. Let's get started first, my heart goes out and I imagine yours does as well. For now, the over 11 a thousand dead in Turkey Uh, and the earthquakes that have been felt and experienced in Turkey and Syria and elsewhere in the region So terrible to see the collapsing of so many buildings. And you know it's just every building collapses, tearing apart families.

uh, taking away the lives of of people and children. It's it's absolutely devastating. Uh, Bed, Bath and Beyond completed their offering and they actually were able to raise the money they were looking to raise. So given that they burn about, uh, four million dollars a day, we would expect that uh, at, uh, what they raised, they should be able to survive another about nine months or so.

Disney is uh, walking back plans for its streaming first strategy apparently as finally, frustrations have grown so high within the company that they're realizing. wow, why are we taking a profitable business and throwing all the money into an unprofitable streaming business? Profit at Disney has plunged 45 in the last two years. Streaming losses exceed three billion dollars a year at the same time as regular TV is in Decline And so Disney's now looking into licensing options. It uh, personally, it just it just doesn't sound great.

The whole streaming business just sounds like a money loser and it's almost like people are trying to turn Disney into a SAS company which which it's really not. That's more of a broad entertainment business that makes a lot of money providing especially entertainment at parks or with products high margin products. Unfortunately, streaming has been the opposite of that and based on Netflix, it doesn't seem like the uh, sort of uh, streamer advertising Biz is is really uh, the one to be in. but we'll see what happens when Disney actually ends up rewarding S P 500 results are coming in uh, better than expected for companies within the S P 500.

Expectations were to date that earnings would fall 3.3 Those were estimates that we had before S P 500 companies started reporting. So far, EPS has only Fallen 2.8 That's a good 500 basis points uh, less bad uh or 500 basis points better than expected. So so far the profit contraction we're seeing not as deep and ugly uh as feared, which is good. Let's hope that continues.

Knock on Wood prosecutors in the FTX case against Sam Bankman Freed are requesting that the SEC and Commodities Future Trading Commission hold on their civil lawsuits. Now that led to a lot of Click bait headlines on social media suggesting here we go. the political donation checks must have cleared the civil lawsuits by the SEC and the Commodities Future Trading Commission are being halted against Sam Begman Freed when the reality actually is a lot less. Um, shall I say uh Sinister The reality is that the Civil uh prosecution is being asked to pause their cases until after the parallel criminal case concludes.

So in other words, let the entire criminal case get handled first. Let's Sam Bankman free, try to defend himself criminally first, and then whatever comes out of that could also be used against him civilly in the civil cases which would get renewed right after the criminal case. So that means the SEC and S the Cftc are civilly same. Begman Free.

Some clarity on that: Zoom is cutting about 1300 jobs ebase, cutting about a four percent of its base, cutting about 500 jobs. As we get more and more cuts and layoffs, you do have companies like Uber which reported this morning suggesting hey, you know we don't. We don't want to just cut jobs to cut jobs, we try to run an efficient business as we go and In Fairness Super did very well this morning. We'll talk about Uber earnings a little bit later, apartment vacancy rates sitting at about four and a half percent actually still off peak so not not seeing any kind of major stress in apartment vacancies.

Intel Sold about 11 billion dollars in the bond market to fund their capex expenditures as well as just general operating expenses. You've got SAS businesses led by Fortinet giving a stronger annual forecast and helping boost some uh SAS companies pre-market Uh, companies that I've been watching that have relatively high valuations. but I think are great companies or companies like crowdstrike up 2.3 in the pre-market you've got a cloud flare that was also up in the pre-market up about 1.59 As this company gave pretty strong guidance in cyber security, Arm may end up going public this year. That'll be quite interesting.

They design chips. They'll be a competitor obviously to Intel and they already are. They're just a private company right now. Arm chips are at the heart of most smartphones.

Uh, generally X86 Intel chips are known for being in computers and and servers. although even that dominance is sort of being worn away from Intel and Arm chips have generally been deemed to be more mobile focused chips. Uh, Although both X86 from Intel and Arm chips are kind of trying to sneak into each other's territories and expand their dominance, Arm Chips are are built on a risk architecture which is different obviously from the Intel architecture then. Uh, we had of course the crazy crazy State of the Union.

Let's talk about the State of the Union because boy that was entertaining. We're gonna pull something up quickly in one sec. Standby subscribe. All right.

Yeah, there we go. The State of the Union was absolutely wild. I Think one of the or at least my favorite part of the State of the Union was Absolutely. when Mitt Romney called out the fraud George Asantos this was fantastic.

Now of course I'll go through my thoughts on the entire State of the Union but I have to play you this clip First of: Mitt Romney Responding to Uh comments from reporters asking why did you say to George Santos you shouldn't be here Now this exchange. Initially, the exchanged between Mitt Romney and George Santos some folks were looking at that going oh is Mitt Romney actually acknowledging George Santos George Santos is sort of that that famous uh liar in Congress right now here I gave a little outline over here. although this is a list not including everything on George Santos George Santos Uh says he went to college, didn't actually go to college, says he went to a prestigious prep school, didn't actually go to prestigious Prep School says he worked at Citibank and later worked Goldman Sachs on Wall Street Both of those were not true, says he ran a charity and took donations for sick dogs. That turned out not to be true.

Apparently his mother died twice. once in 9 11 and once in another convenience or opportunity for him to talk about or his mother's death. Apparently he's got a whole host of other lies as well, and he potentially even worked for a Ponzi scheme. So this guy George Santos is basically a full-on fraud.

Anyway, you've got Mitt Romney Uh, who responds to reporters here? Let's take a listen into this and then we'll talk about, uh, broadly, the State of Union Some of the drama that unfolded about the State of the Union because boy oh boy, it sounded a whole lot more like something out of the House of Commons in the United Kingdom When Boris Johnson is trying to make an argument or less, trust is trying to make an argument and everybody starts screaming and shouting. We'll talk about that in just a moment. But first, let's listen to what Mitt Romney Had to say. Okay, stand by I Can't hear anything? That is.

That is the requirement number one. Kevin You must have the volume on if you're going to present audio. Why do you think I Didn't expect that he'd be standing there trying to shake hands with every senator in the president. United States Given the fact that he's under ethics investigation, he should be sitting in the back road staying quiet instead of uh parading in front of the president and uh and and people coming into the room, he says he, you know that he embellished his record look embellishing is saying you've got an A when you get an A minus.

lying is saying you you graduated from a college you didn't even attend and he shouldn't be in Congress and uh, they're going to go through the process and hopefully get him out and uh, but he shouldn't be there and if he had any shame at all, he wouldn't be there. Why did you make a point to say that though? I mean I Mean it was kind of out of your way. He was standing right there in the aisle shaking hands with everybody. Did he respond to you? uh, he may have I didn't hear it All right? We're gonna pull off this here.

So this is Mitt Romney Making it very clear. Look, there's a difference between an embellishment and an outright lie. George Santos Obviously has been very clearly labeled as a liar and what a lot of people. Uh, well, a lot of people were extremely frustrated that.

So when let me put it this way, when the President walks in for the State of the Union, he walks in through one of the alleys uh of of the House of uh Representatives So you've got the House Chamber and the doors open and uh, you know here comes. Uh, you know you get the music that comes on. the Patriotic music that comes on Yeah and the President walks in and starts shaking hands with everybody. Anyway, the aisle seats of that aisle the President walks down or really coveted people.

Really, they try to sit in those aisle seats. so that way they have an opportunity to shake hands with all the Senators who are invited from the Senate chambers into the house Chambers and of course the justices who walk in, the military generals who walk in, and eventually the President. So George Santos somebody a lot of folks think should not be there because he's a lion scumbag, takes one of those coveted aisle seats and starts shaking hands with everybody that really pissed people off at the State of the Union. So that was probably one of the biggest sort of scandals at the State of the Union.

Followed of course by Marjorie Taylor Green standing up and shouting uh, multiple times and and voicing sort of or making the the face with her her mouth that Joe Biden was a liar. uh, there was a particular and that ended up going trending on the internet. uh, but I think one of the most uh uh, agitating pieces to her. uh, which you could see that photo? let's see.

Oh, of course, there we go. Let's get that photo up right here you can see here giving a thumbs down here. and uh, it's kind of a little bit of an odd clip here with Joe Biden pointing a finger back. but anyway, you've got uh, uh and and that's not to be uh, construed as the middle finger just sort of pointing at.

but anyway, you, you've got Marjorie Taylor Green uh, shouting out a liar and a big old thumbs down and this ended up coming out because uh, Joe Biden This was a little bit of a stretch. Joe Biden ends up calling on Uh Republicans suggesting that Republicans want to Sunset or cut Social Security and Medicare. This led to an uproar. Uh, people ending up shouting that Joe Biden was a liar and people ending up clapping at the people who were yelling at Joe Biden.

So this was a little tense and the reason it was tense was because yeah, Joe Biden went a little too far here. It's been very, very clear from a leadership on the Republican side that no one is planning cuts to Social Security and Medicare. Yeah, there have been previous suggestions that Social Security and Medicare and entitlement programs should have had Cuts even Ron DeSantis. Back in 2014 and earlier in his career suggested that there should be cuts to Social Security Medicare.

but in this cycle it's been very clear in Republicans have been and United that as part of debt ceiling and debt limit negotiations, cuts to Social Security and Medicare are off the table. Donald Trump has suggested there should be no be no Cuts McCarthy has suggested there should be no Cuts GOP Leadership otherwise has suggested no Cuts Uh, and this is despite the fact that Medicare's a trust fund could basically be insolvent by 2026. essentially not enough money to cover their expenses and Social Security could be insolvent by 2033.. So obviously there's need for some form of Reform here and it's being caught up in the debt ceiling negotiation.

The fact that it got caught up in the debt ceiling negotiation was a perfect opportunity for Joe Biden to take a stab, but probably not the best since it's not exactly what is being discussed anyway, so not a good idea. What Republicans are though discussing Uh is they are talking about potentially cutting agency spending. Like cutting spending. especially to the Department of Defense Specifically because Republicans want? well, they want about 20 in cuts from agencies here somewhere around 195 billion dollars of Department of Defense cuts.

particularly because they're not the biggest fan of sending more money to Ukraine Uh, then you are looking for potential not Cuts but potentially changes to Social Security and Medicare in terms of Eligibility. Some folks are construing that as cuts under the Uh 80 million dollars uh authorized under the Inflation Reduction Act for the IRS Republicans are arguing that money should be cut from here, so that way we don't have to raise the debt limit as much and that the IRS should actually be shrunk again and not made larger as it was. Obviously, that's unlikely to happen. Republicans are looking to claw back about 157 billion dollars of covet Aid They want to actually tighten the Border Uh.

That led to an uproar as well. During the State of the Union, there were suggestions about Joe Biden uh, working on legal immigration, working to secure the border, and that we've got a Fentanyl crisis that led to some Republicans shouting out that the reason we have a fentanyl crisis is because Joe Biden's been failing at doing his job at actually securing the Border Uh which? In Fairness is the illegal border crossings have been skyrocketing and uh, unfortunately. uh, this has in part led to an increase in uh, Fentanyl? Uh, the Fentanyl disaster that we're facing. Especially in California You're seeing a lot of that California schools now authorizing in certain districts students to carry Narcan which is the antidote for fentanyl overdoses.

It's it's a whole disaster. Fentanyl is probably the biggest drug disaster that we're facing right now. Uh, certainly biggest new drug disaster that we're facing right now anyway. Uh, then you've got some more Republican arguments such as hey, look, if we're going to fight about the debt ceiling, we should talk about better work requirements if you're going to be receiving food stamps or welfare.

although there are already work requirements for these programs Republicans Just want to take that to the next level. And then of course there are some Republicans that suggest we should just dig in and not raise the debt ceiling. Of course you heard. Jerome Powell Talk about not even the money printer can save the US economy from the pitfalls of not raising the debt ceiling and then defaulting on our debt, implying that we would have a full-on quest crisis and financial crisis if we didn't raise the debt ceiling.

so there's really no option but to raise the debt ceiling. but this catches you up a little bit on some of the debates that are going on now. It's also worth noting that the Associated Press ran a poll right before. uh, well, it was I shouldn't say right before.

It was about a week ago asking Democrats if if Joe Biden should end up running again last year. 52 percent of Democrats suggested Joe Biden should run again this year, just a week before the State of the Union, only 37 percent of Democrats think that Joe Biden should run again. This is leading to the idea that maybe people like Katie Porter uh or uh, even someone like Gavin Newsom might end up trying to run against Joe Biden in 2024 And a lot of people. Honestly, and it sounds kind of evil.

But a lot of people were looking at this state of the Union speech hoping that Joe Biden would prove that he's just an old, feeble old man who stumbles over a speech and has trouble reading the teleprompter and they were going to use that as ammunition to suggest that he's not capable of running for president again. Unfortunately for those people, Joe Biden actually did pretty dang good in terms of not stumbling. Don't get me wrong, this is not to say his entire speech and everything he said was good just to say there were that like there were really gaffes, he didn't really scroll up his speech. he was clearly well prepared and he, you know he didn't give people that ammunition that they were hoping for that.

Here's the feeble old man running the State of the Union that didn't end up happening. Now that's not to say you didn't have Kevin McCarthy acting like he was bored and falling asleep although he was mostly respectful. Kamala Harris was Mrs jump up and down and clapped at everything. You didn't have any kind of talk about crypto or really, the only limited talk you had about the stock market.

What? Yeah, you had to talk about crypto at all. But the only real talk that you ended up having about the stock market was this idea that, uh, democrats should pass a stock buyback tax that is four times as large as the current stock buyback tax. Current stock buyback tax is about a one percent. So in other words, if a company does, uh, let's say a hundred dollars of stock BuyBacks they pay 1 one dollar in tax that's been nominal.

Companies have been increasing their stock BuyBacks Like crazy, especially at these lower prices. You have companies like Enphase Apple Starbucks Everyone's talking about stock BuyBacks Especially profitable companies, especially at a time where the stock market has been pretty, uh, pretty beat up. So a lot of talk about stock BuyBacks And it's very unlikely that any kind of quadrupling of the corporate buyback tax is going to happen. It's unlikely that the billionaire tax is going to happen.

some sort of tax on unrealized capital gains. Very unlikely. Joe Biden Talked about passing the Pro act. This basically expands the rights to unionize McCarthy Shook his head no at this.

Obviously unlikely that this is going to happen. Uh, especially with Republicans in control of the house. Talked about uh, how in order to get to an electric vehicle and a more sustainable energy future, we're going to rely on oil and gas a lot more. That led to Applause which is actually honestly the very correct way to look at it.

Look, we need clean and efficient oil and gas as much as possible to get to a green future, right? So I actually ran as Governor in California under the premise that we should allow our natural gas refineries in California to upgrade their stupid dumb 1970s technology to technology that's actually efficient and would make natural gas more efficient. So that way we have a cheaper and more reliable energy. Grid in California So that way, while having a stable grid, we could build more housing and we could increase our investments into a green future of course. Californians For example, California Democrats or at least the California Democratic Leadership because I think most people in California are reasonable.

It's just the government is a terribly unreasonable out here. But anyway. Uh, the California government stance is nope, no Investments at all into natural gas because it's not 100 green which is completely moronic. So it was actually a good thing that you saw.

Joe Biden Mention: Look, we need clean and efficient oil and gas to get to a green future. He's absolutely right about this and this actually led to Applause from the right as well. So this is pretty good. I Actually appreciated that he talked a little bit about like Resort fee fees and pricing for Airlines and junk fees on credit cards.

Uh, nominal little things to make people feel good. Did bring up the tire Nichols A disaster. Uh, talking about police reform holding police departments accountable for police brutality? Uh, look. I Completely agree.

There needs to be a lot more of an investment into Uh: training on de-escalation and elevating the role of of a proper law enforcing and de-escalating rather than kind of turning it into this, uh, this, uh, sort of cowboy-esque style of policing where where it's almost, uh, entertaining and and enjoyable to beat up on people because of the stop resisting argument. look I was a law enforcement Explorer for three years. I'll tell you, the first thing you do in law enforcement is, even if somebody's not resisting, you just start shouting, stop resisting because it looks good for the camera and it's bad. Okay, that's not the kind of stuff that should be happening.

It's terrible. It's It's quite frankly, in many regards, disgusting. Uh, and uh. And it really, it's It's just a matter of more training that's that's required.

But it's difficult because police departments, they're seeing their funding get cut. Uh, not only are they seeing that, but not a lot of people want to become cops. right now. It's a big problem.

uh, being a cop like when I was a police explorer uh, 13 years ago and and I went on. Ride Along Non-stop with law enforcement. It was actually respected. People would wave at cops.

You know it was a respectable position. a profession. Now it's not. I mean over the last? Uh, certainly four years it's become an extreme hot potato.

And police departments are actually seeing quality. Uh, uh. people no longer apply for Police Department positions because of the reputation that police are under. so it's it's a terrible situation anyway.

Uh, Joe Biden Talked about codifying Roe V Wade that's obviously not going to happen under divided Congress this has to do with abortion. This is one of the few times Joe Biden actually mentioned the word abortion. Uh, then you had, uh, you know, calls on more legal immigration and Asylum obviously this led to some anger. Again, about the Border uh Biden obviously talked about how strong his economy is and this, of course is very frequently hit with uh, you know, responses like, and this is just so debatable.

I'm not going to spend a lot of time on this, but it's very, very common for people to make uh, the statement that well Joe Biden talks about how great the economy is and how he shouldn't be responsible for inflation. But the reality is inflation was low before he got into office. This then leads to some people on the left saying hey, well Donald Trump passed most of the stimulus uh, in a bipartisan manner for covet and then of course it leads to other people saying well, so did Joe Biden When he got into office, the first thing he did was pass more stimulus and then of course people throw up chat with charts like this where they say well, look at the chart, you know there's the line where Biden takes office on the right and when he takes office, what happens Inflation skyrockets and then of course again, this is where people say well, of course because inflation is a lagging effect of printing all the money we do. The reality is both Republicans and Democrats are responsible for the massive amount of money printing we did.

We have not seen a crisis like uh, the covet pandemic for over 100 years, So it's no surprise that our government and uh, and monetary systems panicked. uh, printed way too much money. It was a mistake. I think honestly, uh, everybody knows better.

At this point, that's not the way to respond. uh, but uh, you know, blaming just one side for the inflation I think is just an uneducated argument and it doesn't really go very far with me. But anyway, look, the State of the Union happened. That's my summary on it.

Hopefully you appreciated my summary and now I'm gonna move on. Okay So that was a lot. All right Now we got to talk about uh, we're gonna talk about uh, hedge funds and uh Market positioning. especially the Federal Reserve But I want to take a very brief moment and I want to see what Bloomberg's talking about.

Uh, stand by for one second here. Let me see what they have to say here. Give me a second. this is how you dance around it without saying The man himself said through himself, right, yeah, I guess so but then why even you know okay I think so it's like she said it but then like it was just like don't ask me this surveillance cork please, you've got a box full features down a half of one percent.

this is Bloomberg All right, so not really anything here. Quick look at Futures Yeah, Dow Futures down about point four five percent s p Futures down half NASDAQ down 0.38 But what I really want to bring your attention to is what's happening with the 10-year treasury yield. 10-year treasury yield sitting at 3.65 Uh, these are some of the highest levels. It's certainly the highest level that we've seen all year long.

Over the last six months, we're still off the highs that we saw in October and November, but these are the highest levels that we have seen in 2023. I Should say with the exception of about the first two or three days, we were just collapsing on yields there. so we're trending back up specifically after this Jobs report. That was a big shock.

And what I think is really incredible is how markets responded to that Jobs Report shock. And that is exactly what we've got to talk about next. And here we go. We've got to talk about the next big risks that we Face We got to talk about what hedge funds are doing, the five big risks that our Market faces, What did Michael Burry just tweet And what significance does it have to us? What did Joe Jerome Powell say yesterday? And more importantly, how does what he said yesterday apply to what we have in markets now going forward.

So let's talk about all of the big five next risks. And no, the big risks aren't exactly what Michael Burry is talking about though. these five big risks could lead to what Michael Burry is talking about. So why don't we start there? We'll start with what Michael Burry just tweeted Michael Burry tweeted the the essentially the meme this time is different and what he did is.

He tweeted a chart of the Federal Open Market Committee rates uh aligned with the S P 500 and what he basically does is is he implies that the S P 500 uh continued a rotating down as uh Ultimately, the Federal Reserve started cutting rates. This goes back at Harkens Back to the pivot argument. So a lot of people on social media are making the argument that as soon as the Federal Reserve pivots, the stock market actually collapses even more. Honestly, I've beat this to death on my channel.

but people still are recirculating this stupid argument that after the Federal Reserve pivots, the stock market collapses more What they really do and I'd really prefer not to regurgitate the whole thing. But what they really do is they look at this particular chart that I've driven all over and they make the argument that oh, this time is different and they mock that. They mock that just like Michael Burry is doing and what I find and again just going to do a quick summary on this because we've got so much new information to cover. but basically big argument.

The Federal Reserve did not create the precedent of bailing out markets until the late 1980. These so really pivot talk before the late 1980s, before 1987, and Black Monday is really not worth it. You're better off looking at the pivots post 1987. This is where the Federal Reserve had a precedent of bailing out markets.

And what you have to look at is the uh, the likelihood that prior crashes were structural crashes, right? We had structural crashes and structural pivots. For example, the crash after the 2019 pivot was coveted. Okay, like nobody could have predicted that. That's nonsense.

The crash after the 2007 pivot was the disaster of the mortgage crisis, the fact that dead people were getting loans. so there was rampant and insane speculation on real estate. Much like the structural disaster of the insane insane speculation around the.com era where people all they had to do at companies was add.com to their name and the stocks would double or triple quadruple in value. These were massive structural speculative bubbles built up in 2000 and 2007, and they're very, very similar uh to to the the uh uh or I Should say uh to 2019 where uh, all of a sudden you had a Fed pivot and the FED pivot? really? Uh, let me rephrase that for a second.

2000, 2000, and 2017 or seven had these massive structural issues right? In 2019 had an issue that was not a financial structural issue because it walked right into the Covet Pandemic. So you have this argument that oh, when the FED pivots the market Falls and that when the FED pivots this time, the Market's going to fall again. That's the argument that's being made. My counter argument is you had real structural problems in 2000 2007 and it's very, very difficult to call what happened with the Covet Pandemic something anyone could have really predicted, right? Okay, so when you move that out of the way, how does that actually potentially make 2023 different? And this is where it's worth noting that yes, using the phrase this time is different is generally bad, because oftentimes history repeats itself.

Or at least Rhymes right? and it ends up being bad. So is it possible that markets fall after the FED pivots? Of of course, it's absolutely possible. But why or what would it take for a pivot now to actually lead markets to collapse? Well, this is where I personally make the argument that what we have right now is a structural inflation problem. But as soon as inflation goes away, you actually end up having alignment with the Federal Reserve.

The structural problem goes away, which aligns with when the FED pivots. And since the structural problem goes away in alignment with the pivot, you're actually likely to see the stock market rise more than you're likely to see the stock market. Fall Understand that difference. When the FED pivoted in Prior eras, the Fed was not the reason the market was falling.

The Fed was responding to real structural issues. Speculation around the Savings and Loan crisis of the late 80s, the 1987 stock market disaster. You've got the speculation around dot coms and the speculation around real estate. What you have now is a Fed inducing a recession Be because of inflation.

However, the FED is not expected to Pivot or reduce rates. You turn until you actually end up having inflation proving that it's gone. So in my opinion, the uh, the the reason for the pain we're seeing now is totally separate from this basic chart in that in Prior instances, fed pivots were an attempt to soften but not solve the actual structural problem that was going on today. A Fed pivot would align with actually success on the underlying problem we face, which is inflation.

So I I just really am trying to put to rest this idea that markets are going to collapse after the FED pivot because there's so many people who are like I'm going I'm staying 100 cash until the Federal Reserve pivots because then markets are going to collapse and then after markets truly collapse, that's what I'm going to buy. Sure, there are risks that that could happen, and we're going to talk about a lot of those risks in this video. But do I I think that these risks are going to be large enough to actually drive the market to lower levels than what we've seen recently? Well, you'll have to see. So let's get into the risks.

The first big risk that I see in markets is a negativity bias, and this is that big money is really shying away from the Stock Market rally that we're seeing right now. The reason for that is they're unconvinced that the rallies that we're seeing now are sustainable because we have too much mixed data and so the suggestion is, hey, you know what? Maybe reduce your exposure to equities? So what you're doing or what you're seeing from institutions is you're seeing LS companies which are long and short companies actually doing something known as degrossing. They're reducing their exposure to both long positions and short positions. and they're moving into other assets whether that's cash or bonds.

They're basically trying to escape the market in general. You're seeing this level of grossing at a level of which you have not seen since January of 2021, one which is during the meme stock rally era. So this suggests that hedge funds right now are negatively biased on the stock market, that they don't believe that this rally we're seeing now is sustainable of course. I've regularly had the thesis that we are in a Nike Swoosh style recovery that it's not going to be a very simple straight up, but we're going to have a lot of volatility in the Nike Swoosh up and the problem that I think you have is you have a lot of bears who are stuck in this bias and they're degrossing because they're under this impression that there's no way this rally is sustainable and because of that, they are kind of blinding themselves to reality.

For example, there's this dude macro Alf on Twitter I I put out a large piece on both Twitter and YouTube breaking down one of his charts. We took about eight hours in the office trying to rebuild his chart and we're like dude, we can't replicate the negativity that you're sharing on Twitter Like, please show us where we're wrong because we can't replicate the bad news you're telling us is coming. And after we couldn't replicate it and we pointed it out, we never got a response. It's very similar to these kind of tweets right here.

This macro guy says there are few worrying signs if you're a central Banker trying to kill inflation. He talks about housing showing some signs of Life used car prices coming up on a monthly seasonal adjusted basis and financial crisis loosening as if quantitative Easing was just announced in December is it time to fight back and I replied to this uh, just a less than an hour ago here and I said essentially, what are you talking about Financial conditions tightened, not loosened after the Jobs report Uh, and that's very simple to see because we could just look at the Goldman Sachs Financial Conditions Index, which we have on screen now and the Goldman Sachs Financial Conditions index shows us that when the Jobs report came out. uh, which is right here. we actually had a large steepening in financial conditions.

Yes, Financial Conditions have been relaxing over the last six months, but to suggest that just recently Financial conditions have loosened as if the Quantitative Easing was just announced is actually the opposite of what actually happened. Financial Conditions immediately tighten. Why is that important? Because Jerome Powell in yesterday's report, told everyone the world that, hey, you know my response to the Jobs data is well, you know we know this is going to be a bumpy ride and what happened right after the Jobs data? Well, Financial Conditions immediately responded Jerome Powell Literally said that yesterday Jerome Drum Powell Literally said Financial Conditions Tightened right after the Jobs report. This was essentially Jerome Powell Saying look, the market is kind of doing our job for us as soon as something volatile comes out That suggests there's more tight and more tightening needed.

The financial markets immediately tighten and he's not wrong. You could simply look at the 10-year treasury yield to see the 10-year treasury yields were down at 3.38 after the Fomc press conference. Where do they sit Now after that Jobs report over 25 basis points higher at three Point Six Five. So this idea of of this and we'll talk about some of the other items that uh alfier brings up.

But this idea that uh, that that uh markets are not responding in a rational way is is actually very misleading. But people are buying this negativity bias. Hook Line and Sinker from from the Bears and I'm not here to suggest that I'm just Mr Bull and I'm super biased to the upside. Don't get me wrong, there are plenty of risks and we're going to talk about them here.

but I think it's really important to look at some of the differences from Fed pivots of the past to now that this is the first time you have an alignment with a Fed pivot implying the war against inflation has been won. You did not have that in Prior crisis. You didn't have that at all. You also don't have only the bad news that some of the Bears are pointing out.

There are. there's good news and there's bad news. and I think it's worth covering both of those because the last thing you want to do is you, you don't want to end up being that person system that you know a year from now is still all in cash and you're like just double dip. I Swear it's coming.

Yes, you just gotten the hose sitting out the market for the last year. I Think there are a lot of bears who are already frustrated they've sat out the market for the last five weeks because the Market's been on a tear. No, again, that's not to say that's sustainable, but it is to say that uh, you do have positioning that potentially is self-fulfilling and I think this negativity bias is dangerous. In fact, we're starting to see inflection points already from Uh, investment bankers surveyed by Bloomberg who suggests that they're actually leaning towards wanting to increase their exposure to tech stocks more so than they felt six months ago.

And the question is, do you want to increase your exposure to Tech over the next six months in September when they were asked only 32 percent wanted to now you're seeing 41 percent Want to? Now that's still less than 50 percent. But you're starting to see a slight transition to to where some of the Bears and institutions are starting to roll over and they're starting to see maybe we do need to deployed some of the money that we have sitting on the sidelines. Maybe earnings just aren't actually as bad as they've seemed. And that's statistically what we talked about in the intro as well that S P 500 EPS has only declined 2.8 percent.

Uh, whereas the expectation was a 3.8 3.3 percent decline. That's a 500 basis point Beat. Things just aren't coming out as terribly as expected. We're seeing more than 69 percent of companies report Revenue beats over very bad expectations, and even companies that end up reporting bad earnings like the chip companies Nvidia Taiwan Semiconductor, Samsung have almost all rebounded.

And so the thesis that the worst is yet to come really relies on some form of massive Black Swan coming through. And don't get me wrong, that could absolutely happen. For example, Bridgewater Capital gives us an example or or they give us a thesis that says look the biggest risk that Bridgewater Capital sees which we'll call risk number two for the purposes of this video risk number one being negativity bias, but risk and and essentially institutions trying to self-fulfill this negativity. Uh, then you have the risk number two, which is I think a more realistic risk which is that the recession ends up being deeper and longer lasting than we're expecting in Prior recessions.

We've seen that the Federal Reserve has been able to essentially come out and bail out markets very quickly. But if inflation stays High what do you have this time? Well, this time you have a Federal Reserve that maybe can't come out and bail out markets because the FED has to stay strong in the inflation fight. And if inflation stays high or takes back up again like in fairness, as the Bears are pointing up out, used car prices shot up at their highest Pace in September of 2021. In month over month data between December and January, it's a red flag.

It's a red flag That, yeah, inflation may be more sticky than we expect. That is a realistic red flag That in inflation stays High Because then you're not talking about a Fed pivot crashing the market. What you're actually talking about is inflation Staying High crushing the market and the FED not pivoting. So let me make that really clear.

If you hear people making the argument that oh, the FED pivot is going to crash the market, realize that in the cycle we are in now, what is more likely to crash the market is the Fed not pivoting because it implies that the war against inflation is even harder to win. That is the real risk you face right now is the Fed not pivoting. So really I think it's way too basic. Basic of an argument to say that oh, on a fan payments on the Market's fault.

It it like lacks a fundamental and this is a fundamental misunderstanding of how the market actually works. That's my thesis. Of course other people are going to have different Theses but I think it is way too basic. It's people who got a hold of one chart and and they can't look past the chart they're like but Kevin I'm sorry.

Okay, it's I know that's aggressive and I shouldn't be making fun of other people I just think it's made. It's way too basic. Markets are very complicated and they deserve a deeper look. Okay, so the FED not pivoting is the big risk and this is a risk that Bridgewater agrees with.

So that's risk number two. Risk number three obviously is uh, is is the fact. uh, that look The last time around uh, we ended up having uh, the last recession. we ended up having a a fiscal regime that decided the best thing to do was print money while another hedge fund on Wall Street thinks that a real risk we face is that if inflation stays High you could literally have potentially Congress or state governments which California has already embarked in this stupidity.

Uh, and basically you could have governments sending inflation relief stimulus checks which would just end up exacerbating the inflation issue which leads to the other risk of again the FED not being able to Pivot because inflation doesn't go away. So that's a risk that you have moronic governments like in California where they sent out inflation relief stimulus checks to households earning up to 500 000. It's moronic and now the state is in a deficit Now Some people like to respond to that and they say, but Kevin California requires that unspent money be returned to the taxpayers. Fine.

But guess what you could have done California You could have invested that for better education, better mental health, better policing, better or water. Control Systems better fire suppression systems or methods. You could have invested that into actually solving homelessness. You could have made California a better place and you could have saved for a rainy day.

Instead, you sent inflation release stimulus. It's just completely moronic and defies logic. but then again, the governor of California is trying to buy votes, so that way he could run for president. That's the nature of politics.

Unfortunately, it's not actually trying to solve the problem. it's trying to get to the next, uh, the next tier. So to speak of government, that's pathetic. Then the next risk that you have, which we'll talk about more later, is China Any kind of adversarial relationship with China would be a massive potential Black Swan event any kind of war or incursion uh into Taiwan uh, something that the United States would end up getting lassued into.

much more so than they're lasted into the war between Ukraine and Russia and we're already pretty darn involved involved in that. but a war between China and Taiwan would would be substantially worse. Uh, for for the United States points of view, uh, in an involvement's sake, in the involvement of South Korea Japan That's really where you could potentially create a World War. So that would be a potential Black Swan And that is risk number four that our economy faces and markets face.

And then another risk. Uh, which I Personally am not the biggest believer in. but it's this believer that we're actually going to maintain an inflationary and sticky inflationary regime because of de-globalization This idea that much like Joe Biden said in the State of the Union Address that we have to invest in chips at home and a manufacturer more at home. which increases the cost of goods and services because of course, labor costs are more expensive.

It's more expensive to build a factory out here. The only reason Taiwan Semiconductors is building a factory out here is because it potentially enables them to get more contracts from companies like Apple. Maybe in the future, they'll be able to try to lure in the Department of Defense because they're manufacturing things locally and they're getting Mass subsidies. So de-globalization is your fifth risk now.

I Personally think the government is likely to re-globalize Uh, that is, even though a lot of folks think Uh, we're You know, after Covet, everybody's going to try to Homegrown grow all of their manufacturing because they're frustrated and they don't want to suffer from the supply chain nightmares that we had during Covet. I Actually think it's more likely that the entire Globe re-globalizes which is basically you get away from China and you start globalizing into Indonesia Vietnam India the Philippines Mexico South America whatever. I Think that is much more likely that you basically just rebuild Supply chains elsewhere rather than completely de-globalizing That is the fifth risk that it seems like uh, we are facing. So those are some of the the big risks that are facing our markets.

Notice they're very different from a Fed pivot. I Really just want to put a nail in the coffin of that because I'll tell you I keep seeing people making videos about the pivot and I'm like oh my God How many times do I have to kill the pivot? This is such an incredibly, uh, an incredible moment where it's so obvious the Fab will only pivot when inflation is conquered. And if inflation is not conquered, then the real risk to our markets is actually the FED not pivoting duh I I Don't know. Again, it's It's a basic level of analysis that just needs to die.

Now of course, there are the economic arguments that is. You know what's going on with the Phillips curve? Okay, let's briefly talk about the Phillips curve. and this actual risk that inflation does stick around because In Fairness. If we're going to talk about inflation and what's going on with inflation, we should briefly look at some of the issues that we're facing with inflation, right? And uh, the Phillips curve.

So briefly, the Phillips curve suggests that basically, when unemployment is low, you should create inflation. and when unemployment, or when inflation is high, you basically need higher unemployment to kill inflation. And so this is leading a lot of people to say that Central Bankers are going to reactivate the Phillips curve. And basically, they're not going to lower rates until unemployment is up because the only way you actually kill inflation is by Leading people to lose their jobs.

Okay, that is the old school traditional Phillips curve argument. That argument was created in the 1990s. But what happened between the early 1980s and 2020? Well, you had 40 years of the Great moderation. You had unemployment falling and inflation falling.

This led to the thesis that the Phillips curve was dead. Now you have inflation falling and unemployment is at record lows. It's the second massive piece of evidence that suggests the Phillips curve does not work that you can have low unemployment and inflation falling now. Hopefully that remains true, but there are a lot of people that say no.

What could end up happening is the Phillips curve could magically start working again and inflation ends up being much more sticky. And if inflation ends up being much more sticky, we will have to force unemployment. That is the struggle the Federal Reserve faces right now. We don't know the answer to that, but what we do know is look, there are still problems with prices.

Prices are not over yet even Uber This morning was talking about how prices for for food and ingredients are high. Now they mention that it doesn't look like they're getting higher, which is good. It seems like prices or goods and services are stabilizing, but it's still a problem. Uh, so what do you have when you actually chart this? Well, here's actually probably one of my most favorite charts and it's something I've seen nobody talk about.

but then again, I sit in an office with my head in the computer all day long when I'm not flying for Real Estate Uh, because well I for some reason really enjoy looking for stuff like this and so I Found this has inflation recovered from Covid and the blue line shows you covid sensitive inflation. Like think about it like used car prices, airfares, right? things that were directly affected by covet and you're seeing that kind of coveted sensitive inflation fall. But then you have covid insensitive inflation like food, prices or haircuts or service. Although maybe haircuts isn't the best example.

personal service Services is is really your generally deemed to be your covet insensitive inflation which uh not Haircuts It would be better to say Medical Services right? Medical Services uh and and other wage based uh and and food-based uh expenditures, those are actually still on an upward trajectory, right? This is more of our core. Our super core inflation is still technically Rising. Now we think that Covid's sensitive inflation falling will eventually lead to covet insensitive inflation falling, but we haven't actually seen that level of inflation fall. Coveted sensitive inflation could also be deemed your goods-based inflation, so this could be Goods based.

And then the white line here or coveted insensitive inflation could be called housing, which obviously we expect housing to plummet very soon. but it's also that super core of services. Uh, and and again, we haven't seen disinflation there yet, but we were looking for it. So I Think this chart is very useful.

Now It reiterates that yes, there is still work to be done. But once that white line starts falling, covid insensitive inflation starts falling. Let me draw it. Okay, so let's go ahead and draw it for a moment.

In my opinion, this is how it works. Once we get the blue line coming down, which I don't believe it's going to come down in a straight line I Think it's very reasonable for it to come up and go down. Come up and go down right? It's nothing's. going to be a straight shot, that's my opinion.

But when eventually you start getting this white line, come down and follow the same pattern that in my opinion is when the Federal Reserve can pivot. But remember, their pivot is going to align with killing the underlying problem that is causing the recessionary issues. Now the structural problem today is inflation. The pivot would align with that problem.

Go down. pivot rates go down. That's very different from prior Cycles where pivot had nothing to do with solving the underlying problems of the crashes. Okay, hopefully I've beat that horse dead now because that is one that really bothers me.

Anyway, those are, in my opinion, the risks that we face right now. and I think they're very critical to understanding what's going on, because hopefully they help you position correctly into the future which I think is the Nike Swoosh subject to the risks that we face now. Hopefully if that didn't make it clear enough, let me add a little bit more clarity: I am mostly in invested in the market. Now that could mean I'm biased or it means I'm responding to the data and the point of view that I have which I think I just outlined in this video.

Uh, who knows I'll leave that up to you. but if anybody leaves me another comment and says you're Kevin your child is a gloomy, you must be shorting the market and totally uninvested in the market, you darn suit. I'm just gonna vomit because it's just an example of another idiot title reader who doesn't actually listen to me. Sorry I Gotta take a break Bloomberg What do you have to say? Because they're going to be a you know they're gonna be at five percent in terms of rates, There can be plenty of room for the FED to stimulate the economy.

That's why Paulie Uh, you know said that. You know the risk of staying too tight too long is less than the risk of not doing enough because the family has the ability to support the time comes. Hugely valuable doctor. Ah yeah, look, this is true.

this is true. But I'm just going to add a little bonus piece here. Remember what Jerome Powell said. He said that even though they could turn the money printer on, they don't want people to lose their jobs unnecessarily because if they do that creates human hardship and they really don't want to create more human hardship, That's that's the goal right is is not to make people suffer.

Uh, anyway, so we'll see all right now we've got to talk about Elon Musk and Master Plan 3 because oh boy, the rumors about Master Plan Free are getting out of hand. and I just want to be very clear up front pretty much every time Tesla has an event battery day, the robot uh, investor days Tesla stock Falls And in my opinion, it's because people come up with these insane ideas about what is actually going to end up being announced. and while I'm very enthused about some of the comments that people have uh I think they're mostly nonsense. so I'd like to clear up what's going on when it comes to rumors around Master Plan 3 Tesla and Elon Musk Okay, so first things first: Elon Musk Just announced uh, the the invitation page or what the invitation page looks like for Investor Day at Giga Texas on March 1st this is what it looks like Elon Musk tweeted Master Plan Three The path to a fully sustainable energy future for the Earth will be presented on March 1st the future is bright if you zoom in on this.

What you actually end up finding is that these little images are just copy and pasted Giga castings uh, for or for a vehicle right now I Think that is actually very very telling. Some people though think that what is being shown here is actually potentially a new vehicle because what they're doing is they're zooming in and they're seeing this casting for a vehicle and they're aligning that rightfully so because it's a zoom in of what this is and they're aligning that with this casting image that we have. This makes sense. This is accurate so far, but unfortunately they're comparing it to this picture of a vehicle that is covered at the Cyber Rodeo Now I have provided my own intelligence to this because I happen to be sneaking around at the Cyber Rodeo I I Nobody told me I couldn't be there.

but I happen to be sneaking around and I saw with this little video that I have here where I found the Cyber truck that they were covering up every car. Every car that they had was covered. The model 3 was covered, the model X was covered. All of the cars were covered and while I did not find exactly that same vehicle, all of them were covered.

And that's because you're in a brand new section of the factory. you've got. uh, you know it's it's relatively Dusty They're about to put these cars on a stage. They want them to look good.

Uh, they ended up covering the Cyber truck again. they had to plug it in to charge it. Uh, you know because obviously it's a prototype over here. But point being, these rumors that Tesla is somehow going to announce a new vehicle I think are absolutely ludicrous.

Now, I'm not trying to take away from the idea that yes, in the future there'll be a smaller car. Maybe it'd be a two-door car. Maybe it'll be uh, you know the Tesla Q which people have mocked up because then then you know Elon Musk could get the giggles at the short sellers. so some people call it uh, the Tesla Q maybe you would pronounce it Tesla Chi whatever.

right? And it's this two-door car that people have mocked up with a smaller battery set. Now so far, I'm one of the few people who are actually calling for a smaller battery. I'm a big fan of thinking we don't need 75 kilowatt hour batteries or 100 kilowatt hours or more I think what we need are 20 kilowatt hours That basically get us a car with an 80 to 100 mile range. It's our daily driver.

It's super lightweight. It's super inexpensive to produce. It's two doors. It's basically your solo commuter kind of car.

Enough for you to go get groceries, come home you. You know you go to work. Your average commute's 30 miles or 30 minutes rather, which is fewer miles generally because you have to stop lights and traffic lights and stuff. So uh, you're probably looking at 20 to 25 a minute mile rather a commute One Way 50 round trip you go to a grocery store, add another 10 miles on your way.

You're back. You've got about 20 of your battery left. You plug it in, you charge it right? That that is my thesis of a future smaller car. and while I think that is accurate I Do not believe that just because some stupid car is covered.

Uh, right now, which is just a photo from the Cyber Rodeo where I walked everywhere on and and and probably potentially went places I shouldn't go I I Don't actually think that it's proper to be hyped up that Elon Musk's Master Plan 3 is somehow. uh, the the next car now. I'll be pleasantly surprised. Maybe maybe maybe maybe it's the next car.

But here's what: I think the invitation clearly copied and pastes the Giga castings right. The castings for these vehicles. Now what I think is really incredible about that is for almost a year, I have been suggesting that Elon Musk and Tesla need to scale and they need to copy and paste the gigafactory substantially. Here, by the way, is another close-up look at what those Giga castings look like.

So or or the one piece, uh, casting I keep calling it casting. That's because the machine is is the Giga casting machine, but these are just just actual bodies of the vehicle. Uh, this is sort of one side of a vehicle showing it all compressed together and the idea, which Tesla's pitched before is hey, we could take like 180 parts and welds or whatever and put them back basically into one piece. And the challenges here have been that anytime you try to do this traditionally, you end up getting the Pringles potato chip effect where uh, you have, uh, you know, the casting kind of crinkle up and it's really difficult to actually make it not crinkle up.

But they've basically engineered their own alloy mix of metals to make it not do that, blah blah blah blah Okay, great. So going back to the copy and paste. My thesis is that the reason on their invitation they copy and paste this casting over and over again is because I think Master Plan Three is the master plan about how many gigafactories Tesla can produce and how they can actually massively scale how many mega packs they produce, how many cars they're able to sell, and really turn this into a Lego factory Where no longer are you selling cars, you're just selling a commodity and then you make your margin on full self-driving That's my thesis. And so I think it is massive scale which is playing three.

Which don't get me wrong, I'm not trying to be like super creative with the massive scale thing. Elon himself has said that Generation three or the Master Plan 3 rather is all about scale. So I think the New Gen 3 platform for the car that people talk about is probably just a lower cost version of what is already done. Basically, further bragging about the manufacturing progress that Tesla has now after all is the point of investing in Tesla If you are a Tesla investor, you are investing in the uniqueness of their Alloys To simplify the manufacturing process, the Giga presses you're investing in the ability to build new gigafactories and ramp them quickly and manufacture cars at massive Mass of scale the likes of which hasn't been seen before.

That actually is counter-intuitive to the argument of let's introduce a new model vehicle because as soon as you introduce a new model vehicle you you actually slow down the ability to ramp. We already have new vehicles that need to be ramped. I Mean think about it. Sure, we've got the S, the three, the X and the Y which are already ramped.

but what do you need to ramp next? How about the semi truck? How about the Cyber truck? That's what you got to ramp next. Forget about introducing this two-door car. Do that. In three years, four years with commodity prices have finally come down.

Sorry. Steve if you're watching I think commodity prices are going to come down over time. Uh, you know, long term I think Commodities ultimately always Trend down. Uh Anyway, so these rumors in my opinion about some kind of new car getting announced on investor day or complete nonsense I Think people are going to be highly disappointed.

The stock will probably sell off after investor day buy puts on investor day I Hate to say it. Uh, you know. and and I don't have any shorts on on Tesla right now. it's just the thesis that I have.

All right thesis doc. All right back to Bloomberg's in there So I felt a lot of Sympathy for the stage writers going into this. The Obama speeches hearkened to Lincoln There was a an Integrity of a civil war of the word freedom. But what I remember is a better history a better life.

Does Joe Biden have an equivalency? Does he have phrasing that hearkens back to what you guys did for? President Obama Yeah, absolutely. I Mean the two of them have very different styles both writing and speaking. Um, and Joe is just very sorry. President Biden is just very in no excuse me and you know, with Bloomberg surveillance, you can call him a child.

Carry on. President Biden he was, you saw, you know I Like that he used the phrase blue-collar blueprint instead of some over torqued hackneyed phrase uh, because you know he feels that right from growing up in Scranton I Thought the best parts of the speech: he's got this empathy to him. you know he always has. And the best parts of the speech: when he was talking as a son who had a father who fell in hard times.

as a father who's lost children, you know, as a president who cared about everyone. Those are the parts that really soared as a speechwriter. Do you learn? All right? So speech writer over here talking about Joe Biden's speech I think they could have uh given Republicans a little less ammo to freak out my opinion I think uh, you got a little bit, uh, a little too carried away there with uh with uh, some of the arguments. oh Dow futures recovering a little bit.

only down about a third as opposed to half. Still have the 10-year treasury sitting around 3.66 Now though, we have to talk. China O M G Boy do we have to talk about China Bye chat GPT The algo that everybody's going crazy over when it comes to artificial intelligence apparently sees war with China Now we're going to talk about chat GPT and the crazy jailbreaking and manipulating of chat GPT that's going on I'll show you some examples and other exa