Welcome back to another pre-market open live stream: Dow Futures down about a third of a percent S P down about 2-8 NASDAQ down About point Four break evens on the five-year inflation rate is still sitting at about 2.3 Personally, I'm still of the major mindset that we've got to see that number somehow work its way all the way down to 1.5 1.6 before the Federal Reserve is going to be comfortable with an ultimate pivot. Though it's possible, just like that has risen very quickly in the past. We could see that fall very quickly in the future, so for now we'll have to be patient on that one. We do have uh, some Uh reports coming out.

Today we have the S P Pmis coming out for the United States as well as uh, some other countries like Uh, and within Europe you've got Manufacturing Services and the composite Pmis coming out at 645 California time this morning 9 45 Eastern Looking at surveys of 46, 45 and 46.4 in order: Manufacturing Services Composite: All of those are measures that 50 would equal an equal amount of companies or reporters indicating or people reporting indicating contraction under 50 or expansion over 50. when you're at 50, you're balanced. If the average number is coming in under 50, it means more people who are responding to the survey or more companies responding are suggesting the economy seems like it's in contraction, so we'll see what those numbers look like. Uh, so far, pretty much all of the numbers have been coming in pretty ugly and it's definitely re-motivating some of the bear cases for a lot of folks.

Uh, and I think that's potentially also why we're seeing a slight little pullback and Futures here. although I will say the Futures Market has been pretty bad at actually determining what's going to happen in the day of notice, it seems more like Bitcoin Uh is has lately at least been the leader of what's probably going to happen in the day. and when we look at Bitcoin, well, it's up a third of a percent whereas Dow Futures and S P Futures are down a third of a percent. So I'll go with Bitcoin on this one.

Uh, and so far it it seems like it has almost sort of led us out of the doldrums of, uh, the stock market. Uh, We've started seeing Bitcoin turn right around the 11th of January is really when we started seeing a little bit of a turn uh in in Bitcoin pricing and uh, that's roughly around the same time we started seeing the S P run towards its 200-day moving average. so we'll see, uh, fingers crossed for good news unless of course you're shorting in that case, you suck. No, it's all good.

Everybody's got to hedge their portfolio unless that's the only thing you do now. Anyway, a lot. Uh uh, you know we've got obviously earnings today as well. This morning you had Johnson Johnson beat you at Dr Horton miss right? Horizon Miss But I think the big one that a lot of folks are going to be paying attention today is actually Microsoft Microsoft reports after the bell I am considering going live after the Bell to cover, uh, manufacture, uh to cover Microsoft uh.

However, and this is going to sound weird, but the closing lives if I do them. I may do them in such a way that I end up uh, deleting the uh closing bell live streams afterwards now. uh, there's a reason for that. It's it has nothing to do with me or views or trying to get people to click the closing lives or whatever.

Uh, it will end up having to do with uh, sort of compliance and legal requirements. Uh, but that doesn't mean I can't uh, enjoy streaming that with you. It just means it'll it'll disappear uh after. So that that would be for the closing belt? Uh, so we'll pay attention or keep an eye out for the closing bell.

We'll see if I end up streaming. but I think it'd be fun to cover Microsoft so pay attention to that. Uh, then we do have some interesting things going on in the Twitter space. Uh, mostly.

Mr Elon Musk is getting called Mr tweet yesterday in his court case where uh, he is being sued for fraud over the 420 taking Tesla private at 420 tweet yesterday in court personally. I Don't think terribly much happened, but to give you a quick rundown, essentially, we know that Elon Musk has been getting sued over this idea that some investors sold Tesla stock because they thought Elon was going to take Tesla private at 420. That would not have represented a handsome enough profit for them. So they sold out and then ended up missing the three to four x run that Tesla has been on since then.

In my opinion, they're lost since they had plenty of an opportunity to buy the thing back before. uh, before the run. but they missed out on that weenie babies. Uh, anyway, now they're suing Elon Musk And so in court yesterday, we heard a lot of ideas from Elon Musk about how well I mean even though the Saudi Sovereign Wealth fund hadn't actually committed to doing the deal, it was verbally committed.

and then only later in writing via minutes that were written up by the private investment fund. Uh, did they indicate that the deal was not committed. And so Elon Musk actually went as far as saying the individual representing the private investment fund was actually covering his AWS and sort of changing things after their verbal discussions. On top of that, Elon believed that funding was secured because he could have sold SpaceX stock to fund the buyout of Tesla.

That's an argument that obviously we'll see if jurors go for it. I Think it's uh, pretty compelling, mostly because it's in the face of people who are suing musk for just not having made enough profit. And I don't think that argument is going to go very well in San Francisco since a lot of individuals who are suing him are really just suing him over this. at least that's what it appears like are suing musk over this idea that they should have been able to make more money than they did like something.

the San Francisco Court's gonna go and be super happy about that one. Uh, anyway. uh, this morning we had uh Esther George from the Kansas City fed. she's actually retiring soon.

Uh and uh. She urged her colleagues to exit the mortgage-backed security Market which is quite interesting because the treasury or the Federal Reserve right now is rolling off about 60 billion dollars of treasuries. 35 billion of mortgage-backed Securities. Uh, and the more they they roll off mortgage-backed Securities the more you actually push mortgage rates up and understand.

bonds can be really, really tricky. So to keep it really simple, just think to yourself, when they roll off bonds, they're putting less buying pressure on the market, less buyers price down, price down yields up, yields up interest rates up for mortgages, right? Uh, However, there's there's a lot of argument over at the Federal Reserve that they actually need to start selling mortgage-backed securities because they're falling substantially behind on uh, their their plans to to roll off more mortgage-backed Securities And that's in part because as interest rates go up, less people are motivated to refinance. and if less people are motivated to refinance, less pre-principal payments get made to mortgage-backed security portfolios and actually makes it harder to roll off. So they're like way behind on their goals of rolling off mortgage-backed Securities So that's leading Esther George to say well, let's just not and that's leading Other people say no, let's double down and actually just sell mortgage-backed Securities which probably would would Well, either direction.

Well, I mean if they, if they just completely did nothing to the mortgage ranked security Market probably wouldn't see much happen to mortgage rates because so far nothing's happened uh, or nominal uh roll-offs have occurred. However, if they decided to dump mortgage-backed Securities, you could potentially see mortgage rates pop up a little bit. Uh, and keep in mind that mortgage rates are, uh, frequently aligned with what the 10-year treasury is doing. 10-year treasury has been pretty dang stuck in the mud around three and a half percent personally.

I Think you've got to get to somewhere around two and a half to really start instituting some excitement again in the real estate market. We'll see so, uh, again. Today we've got Pmis, Manufacturing Data Services data composite. We've got Microsoft We've got uh also a change of Bio by Mr Beast apparently suggesting that he is now the super official CEO of Twitter And most people seem to be under the impression that superficial beings he's not anything.

which in my opinion is probably the case. But it's still somewhat entertaining to think that Mr Beast with obviously hundreds of millions of followers uh, could be the super official CEO of Twitter There you have it. Twitter superficial CEO Uh, Anyway, uh, so one other thing that I want to hit and we've got some uh, deep information we want to get into, but uh, well, I just want to hit how how you can, um, contribute to this show. Uh, this is the second episode of the Meet Kevin report and you could go to Metcaven.com chat join the Discord and there's actually a section where you can contribute content that you want to see me cover on the show.

So again, go to either Mad or Meet shouldn't matter uh, Metkevin.com chat that should open up the Discord invite for you and you could also now watch or should I say listen to this although I think you could do both on uh Spotify Apple podcast and Apple podcast or a Google podcast about an hour or so after uh, we end up going. uh, we end up going live so uh, something else. uh, that's quite interesting. in case in case, podcasting is easier for you.

it's also streamed on Twitch and Facebook and I'm not sure if it shows up on Twitter but supposedly there as well. And then, as far as the schedule, my goal is to go live somewhere around 4 30, 4, 45 in the morning to about right before the Market opens. and then we transition over to the course member live stream. And we do Course Member Q, a real estate analysis, fundamental analysis, uh, and so on.

So let's go ahead and listen in for a moment to this dude who says he's not buying stocks right now. It's listening. So what is your cash type of holding versus what it had been say six months ago. Have you been building it? Have you been accelerating it to some of the bigger ones you've seen? Well, so I mean that's not something we actually do as an insurance company, right? You, You bring money in, you put it to work.

Um, and so we're You know we're very in the weeds and credit and making sure that we like the things that we're in and and we you know we're comfortable with the credit risk we're taking. Um, but you know when we do a relative value assessment, you have to assess cash and that assessment obviously has been improving because the rate of return on cash is improving in other lives. You were heated about the dots. are the dots efficacious now? Or should they be discarded by the fed? Well, if they are, What they're telling you is they're going to be cutting rates well before inflation drops anywhere close to two percent.

They're telling you that that's not me, that's their Dot Plot is telling you that. Um, and yet everyone assumes that they're not going to do anything. They're going to be able to sit for a really long period of time, even as in, you know, even as the economy Withers and I Don't think that's going to be the case. Interesting Drew Man, it's wonderful to see a really a pandemic sign for all of us at Bloomberg Surveillance Somebody who's been with us for decades? Drew Mattis is with MetLife And so what did we learn there? The idea that cash is an alternative.

perhaps not to put your money, but as a comparison versus equities versus bonds versus credit. And what that does in terms of putting a higher bar for taking risk. I Learned how many people listening and watching encourage a 36-month perspective. I would say it's single digits we've become addicted to.

You know, some people, three days, Some people, three months, nine months is long time. Yeah, all right now this dude's gonna go rant about short-term mindsets. While he does that, we'll go hop on over here to the actual Dot Plot And this is what the individual is talking about. He's talking about the Federal Reserve Dot Plot Where, uh, essentially the FED is telling you that they expect to cut rights in the future.

He's not wrong. Of course, the FED expects to cut rates in the future, and in the long run, the Fed hopes to be able to sit around two to three percent. That's at least where the bulk is probably the bulkier sitting at about two and a half percent which is deemed to be the longer run neutral rate. A lot of markets though expecting or Bond markets various different bond market measures.

Expecting that the Federal Reserve by the end of this sort of cutting cycle will end up having to go all the way to zero simply because because of the depth of the inversion of the yield curve various different measures within the bond market. so we'll see what ends up being correct. So the Bears All right. Uh, let's go ahead and pop on for a moment to CBC and then we've got some things to cover.

Let's see what they have. Cannot talk for others but we haven't seen any elevation about that. The customers are paying the link which is a low uh, so very good. but as I said, we saw higher intent when they come into the store than we have seen ever before.

We also saw a holiday traffic from the consumers where they waited longer but they came just days before Christmas and then they did the deal. Usually they started much earlier so it's new patterns where they see. But overall we see good, good quality on our consumers. No bad debt, you raised your rates.

Consumers were able to kind of handle that and was it enough to keep up with your higher costs? Uh, so we we made some uh, price increases in the second quarter. When we came out from that, we knew that that will impact our third co-worker churn. And it did. and somewhat in the beginning of the fourth.

Then the Sharon came back to the all-time low that we have always been running on. and that's where we are right now. So Sharon came down. Uh, the price increases we did last year was of course, a little bit about what's happening with inflation.

Etc Let's see where inflation is going this year. Some things has actually calmed down when it comes to inflation, but we're always going to look in, but we're going to do it. Surgical and segmentation. It's not the broad stroke we're going to see.

Some areas might lower the price and be more aggressive. some others I might see. Here we have an opportunity. That's the work we do every day on the largest consumer base in this country when it comes to wireless business.

Hans Want to thank you for coming in? Hans Vesberg, thank you so much. All right coming up a check on some other early earnings reports and then a Bitcoin on the move again this morning crypto firm Grayscale, the CEO Michael San and Sean will join us to discuss the move and possible someday regulation of the industry and the Taylor Swift ticket disaster sparking a hearing in Washington today about competitiveness over charging fan safety. We're going to hear from both sides of The aisle on that issue. Stay tuned All right.

So this morning and uh, last night, we've had quite a few negative pieces of information come out about the market. A lot of banks suggesting there's reason not to buy the rally. Uh, to not get caught in this idea that, oh, that's it. Uh, Peak uh Peak Pain is now behind us and we can move forward in this stock market rally.

Probably one of the biggest individuals screaming this is Mike Wilson from Morgan Stanley We're going to take a look at some of his notes, but it's not just him. There are a lot of companies screaming don't Buy the rally and I'd like to pay a little bit of attention to exactly what it is they're saying and observe what the market is doing in response to bad news. I Think one of the easiest ways to look at what the market is doing in response to bad news is to look at how companies are performing following their earnings reports. So we just had Logitech report earnings and logitech's earnings weren't that great.

Logitech announces uh, the third Quarter 2023 results. They did so. uh, last night Switzerland January 24th uh and they indicated that sales were down 22 in US Dollars and they blame the macro economic environment on this. They say that gaming sales were down 16 in US Dollars Keyboard sales down 22 percent Pointing devices down 14 Video collab sales down 17 and a reflection that consumer purchasing was concentrated in promotional weeks throughout the quarter.

Now, we just heard the Verizon CEO say that people were kind of buying or spending money in in lumpy periods that people were still buying, but they're doing so in sort of lumps. That's is roughly what Logitech is telling us. and it's also what Macy said that a bulk of the spending was happening during promotional periods of time, and that can actually be a sign of some stress from the consumer that consumers are waiting until the last absolute minute or last possible minute to depart with their cash. Maybe because cash is becoming a little bit harder to come by because either they've been laid off, their hours are getting cut, we are seeing hours drop for hours, worked on labor surveys, which is taking some pressure off of wages, and we're also obviously seeing the savings right plummet.

But not only that, the amount of savings that individuals have in America is now lower than where we were before the pandemic. So you're seeing that draw down as well as an increase in deficit spending, taking on debt to spend money to support a lifestyle or to support spending. Now what I thought was remarkable was most of the damage for Logitech stock was actually on January 12th. When they pre-guided that some of his pain was to come, the stock fell from about 68 to about 56..

However, after the actual earnings came out, the stock barely moved. and if we look back to December or we look back to some of the lows of last year, even with some of these terrible Q4 earnings, you're not seeing companies fall back to levels that we had seen at the end of last year, suggesting that some of the pain that we're looking at in the stock market may already be priced in or potentially more pain than was necessary was priced in way back at the end of last year. Now you again do have a lot of investment analysts saying be careful. The leading data is over whelmingly negative, and this is where you have folks like Morgan Stanley's Mike Wilson suggesting that the stock market still has a large correction ahead of it, potentially as high as a 20 correction coming more.

Uh, Morgan Stanley's Mike Wilson suggests that the S P with a Ford 17.5 times price to earnings multiple is too optimistic that the S P is basically pricing in a less hawkish fed. it's pricing in a Goldilocks scenario and it's not really pricing in an earnings Miss. In fact, they suggest that 70 of exposure for U.S companies is to America which means even as the dollar weakens providing some relief for companies with International exposure, most of the S P 500, well, 70 percent of its earnings come from the United States where the United States is actually the one potentially lagging more than the rest of the world. This is actually kind of crazy in fact I Joked about this last year: I Go.

Wouldn't it be crazy because everybody's calling for a recession in Europe and everybody thinks we're going to get through without a recession in the United States, Wouldn't it be crazy if it's the U.S that goes through a recession and not Europe And in a weird way, that's kind of how things are looking right now. It's almost as if the United States is destined for a recession, whereas now you've got Germany and France saying hey, growth's going to be low Germany Just came out with a 0.2 estimate, but we think we're going to skate past without a recession, especially as their winter wasn't as hard as expected and in part this is leading the emerging markets and International Community to see their stocks rally above and beyond that of the United States. Consider that Europe is up about 12 since October lows, whereas the United States is only up about 4.85 since October. In fact, if you look at the Msci World Index and subtract out the United States, the rest of the world is up 19 to our about five percent.

So the rest of the world is actually substantially more optimistic than the United States right now, which is basically the opposite of what everyone was expecting last year. That this was an international problem. the United States would be able to weather this this sort of inflationary pain more. Maybe we printed too much money and that actually isn't actually going to be true.

But anyway, Mike Wilson here suggests that the hard data and Survey data all points to a recession and earnings per share declines. They think that the big pain is actually going to occur in Q1, so this is a big warning from Mike Wilson and those are over at Morgan Stanley suggesting that we have to be careful that the full reopening in China will not be enough to help the United States. They say that the S P 500 only has about four percent of its shares exposed to the United uh or exposed to China so the Chinese reopening shouldn't actually show up in earnings really at all is what they're suggesting. Now this is where I think it's very fascinating.

Something that you can do is you can go look at your own stocks. Let's say, for example, you're really interested in pricing power stocks. You could look at your individual stocks and say oh, wow, look Nvidia 25 exposure to China That alone is already five times more than the United States average exposure to China in the S P 500. AMD is about 25 exposure to China Taiwan Massive Taiwan Semiconductors Massive International Exposure Uh, you've got a Tesla 45 International exposure Apple substantially large International exposure I Could show you how to calculate that as well.

It's pretty simple, but usually what I like to do is I Like to just go investor relations. Throw that into Google type in something like investor relations and then the company you're looking for. and then when that investor relations page pops up, grab the last quarterly or an annual report, and generally pretty soon after the revenue section on the income statement, you actually see a geographic breakdown, which is useful obviously for understanding what's your exposure to. Emerging Markets You'd be surprised, but a lot of U.S companies actually give you a lot of international exposure.

The S P 500 in aggregate doesn't though. And this is where a lot of folks say the biggest recession might be coming to larger indices and not individual stocks. This is where we're also seeing a lot of data pointing to retail buying actively managed ETFs or individual stocks more than they're buying. uh, index-based ETFs at this point Point Fascinating argument.

Let's keep looking here at: Mike Wilson though Mike Wilson here suggests that in January of 2001, forward earnings per share. we're down four and a half percent from the peak. And he actually says that remember that in January of 2001, we were about a year eight months into the.com bubble. He actually thinks we're in the same place today as we were in January of 2001.

And keep in mind the stock market didn't actually bottom out until about the end of 2002 early 2003 where we had a flat now In Fairness. and this is something that Mike Wilson does not mention. Today's stock market plummet has occurred about three times as fast as the drawdown that we had in 2000 uh, to 2003, suggesting that maybe today we would actually recover three times as fast. Who knows.

But he makes some other comparisons such as where Pmis are and where the unemployment rate is. Basically saying the recession has not been priced in yet, and what ended up happening between January of 2001 and March of 2001 was a 20 drawdown through the end of March and a shallow labor cycle thereafter, and monetary policy at the time was not accommodative enough to compensate for those deteriorating fundamentals, And he ends up saying that look, five percent rates today by the FED is going to be very hawkish in the face of bad news. Mike Wilson goes on pretty heavily here to show all of the bad news and all of the fear, uncertainty, and doubt you could potentially put together in a report. to reiterate why the stock market rally now is ridiculous Now, Stock Market seems to disagree, because obviously we've had a pretty strong move over just the last couple weeks.

But then again, the stock market has a very short-term mindset. whereas data obviously, it tends to represent longer periods of time. although sometimes by the time we actually get the data and the data shows that maybe we're in a recessionary environment. Sometimes it actually argues that it could be.

or we could actually argue that it could be the best potential time to actually buy, even if there's more pain ahead. Look for example here: CEO Confidence about the economy bottomed out Over here, it's a little large. Uh, let's do that. a little smaller.

There we go. CEO Confidence about the economy bottomed out in about 2009, which is roughly where the the stock market bottomed out. now. it did bottom out in about 2001, which is not yet where the stock market bottom and look at where we sit right now.

Pretty painfully low. If you look at small businesses, what percentage of small businesses think it's a good time to expand? Pretty dang low levels right now. Kind of like what we saw in the Covid recession. And if you compare that to 2009, you didn't really get the bottom of small business expansionary thought until about 2009..

Again, that was actually buy time. So in a weird way, some of Mike Wilson's charts here. even though he's trying to be bearish about the market, in my opinion, you're kind of signaling a screaming. But don't get me wrong, but I am that kind of crazy person and I realize that I feel like you have to kind of be crazy to to do what I do and to want to work as much as I do I don't encourage it for anyone but what I actually believe and I wholeheartedly believe this.

But I believe that a recession is one of the best times to expand. It's one of the reasons I've added another course. Remember we've got a coupon code expiring on January 30th For that. it's one of the reasons I Bought a plane to expand my startup and I personally bought that plane.

Zero dollars have been charged to my uh, to my company, uh, my real estate startup for that because I'm basically what I'm doing is I'm making this life YOLO Thinking this is the time to build, this is the time to launch an ETF This is the time to launch a startup. This is the time to launch everything that I can expand my businesses because nobody else thinks it's time to do so I Love that personally I think the worst time to do it is here, right? So anyway, uh, that's just my thesis. Obviously, then you have ISM Pmis Manufacturing surveys obviously plummeting drops in ISM below 50 sending recessionary signals I'm mean, there are no shortages of charts pointing down, suggesting yes Mike Wilson You are correct. Things look painful.

Inventories are rising Supply chains are loosening. However, one of the big differences that Mike Wilson forgets is that these charts actually provide a counter narrative to his fud see a lot of investors today, especially people like Michael Burry. Argue that. Wait a minute folks.

we gotta take a seat back here because wait a minute What if the FED ends up cutting rates because we're in a recession and then we end up getting a second wave of inflation? Well, in my opinion and it's an argument that I've made before. We have a scrunchie of pent up capable. Uh Supply right now, rather than being a stretched thin rubber band, we're a little scrunchy of a rubber band right now where manufacturing can easily expand and be a normal rubber band from where we are now. In other words, companies have a lot of excess Supply capabilities on the sidelines and his own charts argue what I am saying Supply chains have loosened.

Yeah, no kidding. Supply Chains are at some of the loosest levels that we have seen since the 2009 recession or the.com bubble. That actually in my opinion, counters his own arguments so that things are bad because in my opinion, the biggest fear that we have now is that inflation pops back up. This suggests no, and so does inventories.

Or so do inventories. Rising Because as inventories rise, you get pricing pressures to the downside, which is a deflationary force. a disinflationary force. So I hate to say it.

but Mike Wilson has a 41-page basically fud piece on on the market and these are his positions: He's under weight Tech underweight discretionaries he's still old school January 2022 long Health Care long Staples and long utilities look I hate to say it, but that was the Tactical trade of 2022. The the best thing you could have done in 2022 would have been to move to cash or go Staples That was the Tactical trade and the opposite of that tactical trade was uh, well, well. I should say to reiterate that tactical trade, but just the other side of that tactical trade was getting out of discretionary and getting out of tech. Well, if inflation goes away and one of the only reasons we're actually seeing such a terrible uh a bear Market is because the FED is inducing a recession to Stamp Out inflation.

and if the inflationary concerns actually go away and prove that they're gone, then maybe things actually aren't that bad. But bears are really good at only giving you bad information. Now don't get me wrong, there are also Bulls who only give you good information and I'm probably a little bit biased to the bull side. I Do try my best to provide balanced information, but I Have to say I'm a little bit concerned that we're getting into an environment where there are actually a lot of analysts who are trying to manipulate data to the downside to paint a more bearish picture than is really happening now.

I Actually respect this individual on Twitter but I have a lot of questions for him and I hope that he could provide a little bit more answers into what he provided. There's this guy named macro Elf who's basically been a bear since about February of 2022. uh, I followed him a lot when I originally became very bearish in January of 2022 and sold my stocks because I'm like, oh, look, here's another bear, You know because I felt kind of lonely. Anyway, he posted something the other day called the Credit Impulse Chart.

Now to briefly understand Credit Impulse and this is really important because there's there's a real big concern to this. To understand Credit Impulse, you have to know that credit impulse is just a fancy way. CI is saying hey, how much debt are people taking out So how much debt and we'll go ahead and call this new debt How much new debt are people taking out as a ratio of GDP So in other words, you're measuring a change, right? If this number goes massively negative, it just means people are taking out less debt as a percentage of GDP And that could actually be a red flag for the future of earnings for companies. which actually reiterates what Mike Wilson says at Morgan Stanley that, hey, look if Morgan Stanley and Mike Wilson are huge Perma Bears right now and they're like hell's about to come ahead of us.

And then all of a sudden, the Macro Elf post this for Credit Impulse the Blue Line representing G5 Credit Impulse G5 Being like Us China right? Uh, the big five economies of the world. Well, this is massively concerning because it shows credit impulse going from positive, say about three and a half percent to about negative two and a half percent. This is a massive drawdown in credit impulse and this looks very very concerning. And so what? My team and I actually did and and again I Want to be very, very clear here.

We could be wrong, but we have suspicions about this chart. What we did is first thing we said, let's try to replicate the data. Let's see where they're getting their data from And so the first thing we did is we looked at the United States Credit Impulse charts and we do not see that drop. This chart goes all the way back to 2000.

his chart went to about 2014 and yes, we do see some decline, but it's nowhere near what we saw in the pandemic. And when we jump over here, we actually see that his pandemic, uh, a credit impulse drop is like right there and we're like, why is there so much Distortion in his chart showing such a massive decline in credit impulse, implying basically the world is about to end. Why is there such a difference between his chart and the U.S credit impulse And then we're like, okay, well, maybe China's credit impulse as part of the G5 is really bad and we're like, well, here's China Going back to 2004 for the credit Impulse chart and yeah, it goes up and down, but it's nowhere near as low as what we've seen in the past. So how all of a sudden are we getting this massive chart to the downside in credit impulse from a bear? And this is where we thought to ourselves, we have to figure out how he built this data And again, we could be wrong about how we built this data.

But we have a theory. Even though it's not perfect, we have a theory about how a bear is showing that everything's about to go to hell in the market. and we're a little bit concerned about the theory. Take a look at this.

This is his tweet. The Tweet here from Mackrell suggests that his Global impulse tracker tracks the real pace of economic money Creation in inflation-adjusted terms. Now this right here is a really critical phrase. He says inflation adjusted terms.

So what we did is we thought, okay, what if he's taking this ratio right here and he's subtracting nominal inflation from it. Which means if credit impulse is like negative point two five percent and throughout the last 20 years, inflation has been say two percent, then everywhere credit impulses negative 2.5 percent it would be negative 2. right. And then you would just see fluctuations like from negative 2.25 to negative 2.75 to maybe positive Uh, or to negative 1.75 right? you would see minor fluctuations.

But what would you do if you subtracted inflation today from this? Well, you'd go a credit impulse of basically negative 0.25 minus inflation. of say, seven percent. You'd be a negative seven points. Uh, two, five percent.

In other words, if you just subtracted inflation from his credit impulse chart, you would basically get Credit Impulse That looks like that because inflation is so historically high today. So that was our Theory. We're like, is he subtracting inflation from a ratio which you should not do you? You should not take inflation off of a ratio. If you want to inflation adjust this.

You inflation adjust the new debt and the GDP But you do not inflation adjust a ratio. Inflation adjustments are made to pricing power not to raise. Okay, so we went with that anyway though. and we rebuilt his chart.

Uh, going all the way back to the 80s. Uh, I Believe that's the chart I have here. Let me double check. Uh, okay, we went back to 2000 because the G5 for China didn't pull back to the 80s.

Uh, but we do have other charts going back to the 80s as well. and I'll talk about this. So we rebuilt the Credit Impulse chart and uh, the gray line that you're about to see is the rebuilt Credit Impulse chart over the last 22 years. If you simply subtract inflation from what credit impulse is doing, so I want you to pay attention to the Gray Line And our chart's not as pretty as the macro guys.

But look at this chart that we've rebuilt, you could see on the right side: The Gray Line plummets because you're pulling inflation off of it more so than the plummet you saw during the pandemic. More so than the plummet you saw in the recession. And when we rebuilt this going back to the 80s, we also saw a massive drop in the 80s because because you're pulling off inflation off of a ratio which I don't think you should do so. Now we again, we don't know if this individual who's providing this data is doing so.

uh, you know, to purposefully mislead people? That's not what we're suggesting. We're just saying we can't rebuild this credit. Impulse Plummet the way he has it. His only goes back to 2013.

It ignores the recession. It ignores the inflationary time of the 80s. And we think the way they're achieving this chart is by somehow making some kind of crazy inflation adjustment on the right side of the chart, which we think is totally misleading and inappropriate. Again, maybe maybe we have rebuilt the charts inappropriately, but we cannot recreate that kind of bearish chart because seriously, when we first saw it, we're like, this is terrible.

That's horrible. So that's why we wanted to rebuild the data because we're like. that is really a bad leading indicator for Market But we can't rebuild the data. We're not getting the same bearish result.

And so we think what's happening is the data is whether intentionally or not being manipulated to paint a more bearish picture of the economy than should actually be painted. Now moving on to some other reports. Don't get me wrong, there are a lot of bad indicators which: I talked about how Morgan Stanley is bearish I Talked about how the uh, the macro elf guy is is providing very bearish information. We've looked at Logitech earnings to just see how bearish things are.

Right now, things are bad. There's also Barclays warning that hey, hey, we got to be careful. we're getting a little bit too. Goldilocks over here.

I'll show it to you. Look, this is uh, this is uh, the temporary Goldilocks I Believe that's the headline of this, a temporary Goldilocks a global macro thought piece. And they're basically saying Europe and China are doing better than expected better than the United States U.S Data flow has worsened. Retail sales are falling sharply in November December Housing starts an industrial production point to a further slowdown.

So don't get me wrong, data is looking bad. The question now is just how bad is it and how much has been priced in. That's the question right now Barclays Interesting note: actually thinks that the X date or one will run out of money for the debt ceiling is actually closer to August Uh, we uh. Barclays also says we think markets will only react a few weeks before the debt ceiling debate.

Uh, the soft Landing narrative is likely to carry on for a few weeks, but bad data could actually drive the market lower. This is very similar to what Morgan Stanley is saying. So don't get me wrong, I'm probably outnumbered in how many bears there are right now. there are a lot of bearish folks.

Here's another one: BNP What do they say they say? Fundamentally, we do not not believe the current Goldilocks flow of information is stable equilibrium. If U.S data proves more resilient and the labor market remains tight, then inflation will not fall and will remain near the Fed's target without the policy. Uh, well, without policy being kept restricted for longer, something has to give. So they're basically making this argument.

Look, the economy. Yeah, right now we're getting some data That's like bad saying inflation's going to come down, but if the labor market remains tight, maybe inflation doesn't go down. The thing is, nobody really knows what's going to happen. But I am starting to see a trend where some people who have kind of adopted the bearish mindset are doubling down on being Perma bears.

That is even news that's coming out that's good is starting being interpreted as bad because that's their position and a lot of people have a really hard time flipping their position. It's really hard to say oh, things are changing. That's very, very difficult. And for some reason in society we seem to be attracted to people who have the same position all the time.

You know, like never use debt. There's not a single circumstance you could use debt or like never buy a single family home. It's stupid, right? Like, it's very hard for people to make the argument that wait a minute, there could be exceptions to those rules, right? It's very hard to say Oh, maybe things actually aren't as bearish as they seem. Because after all, and this is sort of just just my my thesis on this.

My thought is that yes, we have bad data, and yes, the data is pointing to a substantial slowdown in inflation, but we have to make sure that data continues to come in. Otherwise, the FED has to stay strong and tighten through a recession, which truly would be bad. Fortunately, so far, leading indicators are suggesting inflation will continue. Its plummet.

Now we just have to prove that it will continue to plummet to the FED I. Highly expect that, but that is the weak bull thesis. The bull thesis falls apart as soon as inflation shoots back up. We could, though, and this is something that I think a lot of bears are not considering.

The FED does not have to destroy the labor market. Think about that for a moment. This is something that a lot of bears are not considering. Right now, the FED does not have to kill the labor market.

The FED thinks that the unemployment rate is going to rise to four and a half percent. That's what they believe from where we sit. Now at about 3.5 percent, they think the unemployment rate is going to get to four and a half percent in order for them or have to get to that level in order for them to get inflation. Deb.

But let me make an extreme example here. just to show you how this doesn't have to be true, let's go extreme. Let's say starting next month, inflation comes in negative. Okay, and we don't actually think that.

but let's just say the month over month data is negative. And you know what? let's be extreme. The year-over-year data is a negative and let's say for the next three months it's all negative and it continues negative thereafter. In other words, comparing to 2022, everything is less expensive.

Well, at some point the Federal Reserve will find that this fall in inflation is consistent and persistent enough that they can reduce rates. and if the unemployment rate has gone up to say 3.7 percent and job openings have reduced a little bit, but the unemployment rate hasn't gone up to four and a half percent, the FED does not actually have to continue forcing people to lose their jobs in order to get inflation down. because remember the Dual Mandate of the Fed, the Dual Mandate of the FED is stable prices and Max employment. Well, if prices are actually unstable, to the downside and jobs are going up, then they're failing at both ends of their mandate.

So then they have to cut rates and stabilize the unemployment rate from going up and actually kill this idea and prevent that. This is just an extreme example. To prove that the FED does not have to continue to Hawk until unemployment skyrockets, they just have to Hawk until inflation is down and stably down. That's it.

Then they can U-turn and remember. The big thing that I think a lot of folks forget is the Fed has an easy out to maintain and restore their credibility. All they have to do is say hey, look, inflation right now is sitting at about three percent. That's consistent with our two percent average.

That's all they have to do through the policy we adopted in 2019 called Fate Flexible Average Inflation Targeting and then guess what game Over All of a sudden, people like damn, they pulled a rabbit out of the hat that we weren't expecting and like I've been screaming about this for quite a while now that they're probably going to end up pulling out that average argument uh, to stabilize markets and and ultimately fight off the recessionary Dynamics that we're going through. but again, I Want to be very, very clear. My criticisms of some of the Bears are not to say they are wrong. I'm not here to say I can tell you the stock market for sure is not going to fall 20 in March I Just personally think what we're seeing right now is consistent with getting inflation down and things could end up a lot better than has potentially already been priced in.

And I solely believe that because of what in terms of price being priced in I Believe that because what I'm seeing in earnings Taiwan Semiconductors provides bad news. Guess what stocks up like 50? Since that bad news Nvidia provides terrible news on forecasts. Guess what stocks up substantially? Uh. Samsung product reports like a 69 drop in Revenue Guess what stocks up substantially Logitech Similar thing nowhere even close to the bottom we saw last year, suggesting in my opinion that for earnings coming up especially, you've got like Microsoft and Tesla coming up.

Yeah, the numbers are probably going to be bad, but possibly not as bad as expected. and that's actually quite bullish. So pretty remarkable situation going on in markets. It's also pretty remarkable that that coupon code expires in 30 days I'm sorry in Six Days on the 30th and you get lifetime access to all those programs on building your wealth and the course member live stream that we do after the pre-market live stream.

Okay, so there we have a lot of information on the FED uh and uh and some of this uh, bearish news. Let's uh, let's take a listen over here to Bloomberg for a moment. Let's see what they're yapping about writing about. It's about Binance which I guess is world of crypto now and they're mixing collateral and funds of customers including your kids Lisa they're in there somewhere.

they're in that that's somewhere I think they're into uh, the Roblox currency. this is the adult Pro view on crypto I Want to just draw that to everybody's attention. The real issue is how full how how far that really will go in terms of the Fallout and the kinds of Regulation or oversight of some of the collateral for people are saying uh and and then for people who need to take their money out or want to take money out of certain of these uh platforms. we got a 23 000 print on Bitcoin which means we can go to John Farrell he is in London with the always interesting Callum Pickering Mr Farrow I Actually have to start with an apology Tom just quickly.

um, taking a lot of heat for this from the last segment. aluminum. Okay, just yes. aluminum.

Yes. I think we get it back to front I think you did the English version I did the American version. We spent too much time together. Okay, thank you.

Yeah, sure can pick her in with me now senior Economist at Barenberg Callum I Don't want to start with that I Want to start with this this from BMP Paraber in the last 24 hours. I'll read the quote out for you and I'll get your view on it soft. Landing has been the catchphrase for still young 23, but we think it will go out the window in the same fashion as transitory inflation did in 2022.. that line right there.

Do you agree? It's what we just read: I Think there are risks to this scenario I think the dangers in markets we start pricing in I would call it La La Land Which is, we have two risks to worry about. There's the huge Global energy price shock, which so far actually at least in Europe and the US doesn't seem to be playing out quite as aggressively as markets might have thought, say six months ago. But then there's the reaction to that, which is tight Financial Conditions from central banks. Remember this energy shock hit tight labor markets and tight product markets coming out of Covid and triggered these second round effects.

And so the danger here is that we think all right. I Think we've got enough. honestly of the fun, but uh, like this is basically what we were just reading. It's maybe they're watching our stream and they're like Kevin's talking about about the parish reports.

Let's put those up as well. Okay, no. I'm just patting myself on the back here. We should though, address the binance issue that just pop up.

Finance Oh my gosh. Finance for so long? and this isn't to just be thought on binance, but it's just like, seriously again, buying finance. A binance who's lost their auditor. Okay, their auditor bailed for for Nobody Knows Why Okay, well I mean the company officially says that.

Well, nobody really trusts our Proof of Reserves reports anyways says the auditor the auditor is like. so we're just gonna stop auditing. Binance auditor for Binance disappears. What do we find out today? Oh My Gosh.

Apparently Binance has acknowledged that they keep collateral for some of the tokens they issue in the same damn wallet as customer funds. Oh okay, so let me explain that because that's a little bit tricky to to Envision So let's hop on over here and just picture this for a moment. Okay, let's say you have a bucket right here and this is customer money. Okay, so that's customer money right here.

and there's a hundred dollars of customer money right here. And now let's say you print a Uh, B and B coin. Okay, you print the BNB coin or whatever you print and you print a hundred bucks of B and B coin and you put I don't know, 20 bucks in there of uh of collateral, right? Well, obviously, if you've printed a hundred dollars of Binance token and you only have 20 actual US dollars in it, this is what's known as being under collateralized. You do not have enough money to actually provide a dollar for every Binance token that you've created.

Now, keep in mind this is just an example. Okay, I'm just making an example. here. However, if you now just happen to put both of this money in the same bucket.

Okay, and you kind of just erase these other little buckets you have here. and you just happen to have customer money in the same bucket as where the Binance token is that you've created or the other tokens you've created. Well, how much money do you have in this bucket now? Well, you actually have one hundred dollars of the finance token. And how much collateral do you technically have for that Finance token? Well, technically, you have a hundred dollars of customer funds and the twenty dollars of collateral you put in.

So you now have one hundred twenty dollars. Which actually means, rather than being under collateralized, you are technically over collateralized and you technically have one dollar backing for every one dollar you have issued for every single token. So they are technically speaking correct in saying yeah, assets are backed one to one. But now The Jig Is Up Now Fortunately, the crypto Market is rising because in my opinion, otherwise, this would lead to a bank run at Binance.

Finance Could be getting really lucky here in that they skirted by this market crash, but this is pretty shady because really, what's being acknowledged by Binance Binance Admitted to this, they admitted to having customer funds in the same bucket as collateral for their tokens. This comes after all of the other crazy and Shady things that have gone on with Finance Don't get me wrong, so far Finance has survived Finance has been that one company that's being treated as the lender of Last Resort As soon as I made a video and I'm not patting myself on the back, other people were talking about it too. But as soon as videos were made about their Safu fund right there, reserves fund, their Insurance Fund being underfunded, they filled it back up, moved some money around. They suggest that they're capable of buying out other crypto brokerages and they make offers.

but so far they haven't closed any deals yet. But they're sending this signal of strength. In my opinion, it's kind of like the emperor wears no clothes a little bit where they're sending the signal of strength well by you will by you will buy you. and when push comes to shove, they don't actually buy because they might not actually have the money which is very similar to that CNBC interview we saw which all the crypto fans and Finance fans who don't want to hear that their Binance token could be at risk or like I don't want to hear it The CNBC interview was rigged in the CNBC interview when the uh when CZ the owner of Binance was asked, hey man, could you cover two billion dollars of Demand right now he says we'll let the attorneys answer that totally Isis Multiple questions about what's going on with reserves and collateral.

They actually have All he says is money is backed one to one. But now they're acknowledging that they mistakenly kept collateral of some of their tokens in the same wallet as Exchange customer funds. This is a supposedly a cold wallet, but this particular wallet represents a wallet that holds reserves for almost half of the 94 tokens that Binance issues. and they were all stored in a single wallet known as Binance Eight.

Now Finance Again, they say customer assets and B tokens are backed one to one by locked Reserves But that doesn't work if those locked reserves are actually the customers. No segregation all of a sudden makes it very difficult to actually verify how much does Binance actually have in reserves? and I Hate to say it, but to the extent that the Binance token remains, you know, elevated to some level in theory. when Binance mints more Binance token, they're basically printing money like the Federal Reserve and they're able to do that as long as people believe that money is backed one to one. It's kind of like the Federal Reserve they print money and even though we had a lot of inflation here recently, we haven't had a groundbreaking like Weimar Republic style of inflation.

Don't get me wrong, there are definitely issues with Fiat currency and the federal uh Reserve, but people in the world still have enough trust in the US dollar to not completely destroy it yet. At least there has been no currency that has survived in the history of currencies. But going back again to this issue with Binance. The fact that the same bucket that holds that customer collateral could be that same bucket that actually holds that one-to-one backing is pretty nerve-wracking for folks, especially since this is thought to have been that one company that was, um, uh, dare I say legit.

Okay, more and more issues now coming up here. so it's something uh to pay attention to now. Uh, Binance did come out and they did say that look: Custer all assets held on the exchange have been and continue to be backed one to one. We don't know if they're playing that one-to-one logic like I just explained in the video here.

But remember, there is no FDIC insurance at Finance, There is no SI PC, Insurance CZ And Binance are under the Uh under multiple investigations with the Department of Justice and multiple other institutions throughout the world. It's scary At the same time, they meant billions of dollars of their own Binance ether, Usdc tether, you name it. And again, it's all supposed to be backed one to one. But all of a sudden we find out that they're not uh, or or at least that customer assets are sitting in the same spot.

Apparently, you've got it was about 40 tokens, so roughly half of the tokens that were sitting in this. see if we have some more information here. All Binance now argues that assets are quote sufficiently backed in the event of a Redemption request. Okay, so now all of a sudden it looks like on one hand they're saying assets are backed one to one and now they're changing it to saying no, no assets are actually sufficiently backed.

Oh man. Obviously, after the whole FTX disaster, there's been a lot of scrutiny here. Uh, let's see Finance has issued more than 539 million dollars in total of its 41b tokens that have Binance 8 as a collateral wallet according to calculations by Bloomberg and Based on Binance data from January 20th. Well, if the wallet itself holds more than 1.8 billion dollars in related assets, Overall, Binance 8 contains more than 16.5 billion various crypto tokens Beyond those linked to B tokens.

That's that over collateralization. That means some B tokens in the wallet have far more collateral than would be necessary. For example, Binance Aid had a result a reserve of almost twenty two thousand, seven hundred percent for origin token ogn on Monday Finance previously acknowledged historical issues with insufficient back-end backing for B tokens. Uh, blah blah blah.

And basically now, uh, they're saying this has been solved by putting customer funds into the same bucket. So this is important to clarify. I'll clarify it one last time, and then we'll move on. But it's important to note that let's just draw it again here, just to make it as as an attempt to make it as clearly as clear as possible.

If you have just one dollar of one of the tokens, right? and and let's just call it the MK token. Okay, you have one dollar of collateral backing the MK token. Uh, and I've issued Uh oh, I Don't know I've issued maybe ten dollars of the MK token. Technically, I'm under collateralized, right? But if now I have customer assets of all I don't know a million dollars sitting in an account and those are customer assets and I put them in the same bucket.

Well, all of a sudden it looks like I have one hundred thousand dollars or or I should say 100 000 X the backing needed to handle a collateral requirement. Comments on token MK right? It looks like I have a hundred thousand times the collateral requirement and that was actually how they ended up kind of getting Exposed on this issue is because you had crypto firms looking at this going. dude. Why do you have so much collateral for some of these individual tokens? Ah, because it's the same collateral being used, not just for those individual tokens, but also for many other tokens and customer funds because it's all been commingled into the same bucket.

Now, when you look at the entire bucket in aggregate, you're actually substantially under collateralized. and this is why they're shifting their tone a little bit, saying, well, yeah, on an individual basis, MK is backed one-to-one or customer assets are backed one to one. But if everyone redeemed at the same time, well, we're quote sufficiently collateralized I Don't know. Look between you, me and the fence post here: I wouldn't have any of my money on Exchange I Feel like that's That's a simple thing that folks in crypto should understand at this point that probably in a recession is the most dangerous time to actually stake your money.

Takes treasury bills at four percent or go like you know, find a platform that offers a 3.75 or or four percent backed by FDIC or Sipc insurance. At this point, most of them actually FDIC insured. There are plenty of them. I'm not going to even mention the name because you could just Google it and there are plenty of them and you can pick your own.

Just saying big risks over here. Yikes. So that was a little bit of a earth-shattering bit of news this morning. Oh well, top on over to Bloomberg for a moment and see what they're yapping about in financial markets.

and it would be wonderful if that were really the truth if we weren't just on the Leading Edge of a hit that we're going to have in profits. and of course how markets traded last year are not anticipating this to be. you know, some kind of profit. Nirvana We don't have 20 declines.

Uh, you know about some comment here. No wonder Binance is not approved in New York Yeah, well look. I mean it. It's I Understand this argument that well.

Look, you know, maybe Binance and FTX and you know FTX Obviously being a massive fraud maybe some of these companies were did learn from the banks. But look at the amount of Regulation banks are under now and the amount of insurance banks have and the amount of stress tests and actual audits they undergo. There's no audit for Binance. You don't even know who owns Binance.

It's like in the Cayman Islands You know it's like everything is is is unknown. It's just a total unknown. You're basically just taking somebody's word that it's okay. I mean even House hack? My real estate startup had to undergo an SEC audit.

Uh, well, it's it's an audit that's done by a big four firm that ends up getting sent to the SEC and the SEC reviews it to make sure it passes their their smell. But anyway, you go through an insane amount of auditing when when you're subject to Legal regulation and that's actually supposed to be a good thing. Like for example, people in house act need to know that the money we say we have we have and so they get an audit showing that right? That's important, that that creates trust. whereas when you don't have an audit it Finance Somebody's like oh, we're good, that's a problem dividend Growers Uh, in pharmaceutical shares that have low cyclicality I Think this very near-term period especially Uh, before we see uh, the January employment report and we probably see the FED deliver a hawkish 25 uh is probably going to be a period where we're going to have to settle back a bit.

Uh, and again, that does not tell us to time the market and be all out of equities. Uh, but we're okay with a short covering rally and low quality shares and just missing that for the near term. Stephen How much would you lean into oil majors in particular because of that dividend story, that shared buyback story, and not necessarily a call on commodity prices? It's a full waiting despite a poor cyclical backdrop, and we think that a lot of industrial materials companies uh, are going to see Um earnings downward revisions are going to see weaker activity this year. I would say though, uh, that petroleum.

Generally Um is pretty well positioned for for a week period for the world economy. The downside may be 70 in the bread price. Uh, in what will be a probably a mild Global recession or something that we might call that. Uh, literally the U.S economy is going to have some significant job losses.

We don't believe that you have sales declines without real job declines. We're not just talking about job openings, but even with that said, OPEC has cut production early. Supply Sources around the world are recovering slowly, so I think this is not going to be a particularly bad cycle for energy. Meanwhile, you mentioned the Fed and all right, we're going to go ahead and pull off this uh I'd like to cover something new here I I don't don't All right this this is.

This is a little bit of a touchy one. We're going to talk about the good old vax just for a brief a moment because originally when the vax came out, everybody's like, you gotta have the facts otherwise you know you're an anti-vaxx or whatever and there are a few things that are incredible that's going on. First of all, there's this uh video uh, that's that's circulating on uh on Twitter I Like this: Uh, the reason I liked it is just so you could go into my Twitter history and see what I like is sort of extra context, but it's basically the Pfizer CEO getting confronted by some reporters and he's just sup