Welcome back to Meet Kevin Report number 27 February 18th. We've got a lot to cover today. Uh, specifically, we're going to cover things alike: the next Gen Tesla vehicle. We'll touch on the Uh some changes happening at some schools.

It's a little a little concerting. We'll also talk about the Fed's a potential a pivot and how that might relate to the jobs. Market We'll look at some themes for investing and we'll also talk about the FED potentially forcing a recession this Saturday That means today will be the first day we have a Uh group Elite Hustlers course member live stream. It's the first time in probably over three years that we're actually having a Saturday live stream and the goal is for every Saturday we'll have a uh, an Elite Hustlers live stream that's in addition to the course member live streams that are Monday through Friday.

We'll do that on Saturdays We'll just talk about business and growth, increasing income, increasing that top line so you have more to invest during the week so that starts soon. This is, uh, you know, obviously a pretty a turbulent time at the moment because you've got a lot of uncertainties sitting around. the FED What's going on with real estate yesterday ended quite interesting I Think a lot of folks expected the market to end a lot more down over the last couple days, but uh, surprisingly, Bond yields held Through The Madness of PPI Bond yields were sitting around a 3.8 percent. As PPI came out, we saw a 10-year treasury bond yields rise all the way to about 3.9 and there was a moment we thought, uh, oh, here we go, going right back into the fours.

That was the fear that would run right back into the force. Well, we pretty much ended the week where we were right before PPI on Valentine's Day sitting at right at 3.81 You can actually see that graphically here personally from the 10-year yield I like to just jump on over to Cnbc.com grab that 10-year yield, but you can see after PPI uh, we we had some actually. basically after both retail sales and PPI this week, we had a substantial data set or substantial jumps on both of the data set releases, but uh, relaxed right back down to the levels where we were before I'm I'm surprised by that, mostly because I I was almost certain that, uh, this this PPI print would be enough to push us over, uh, the four percent range and it makes me wonder what the bond market is seeing if the bond market does think we're that much closer to a recession, that the Federal Reserve is either, uh, bluffing or or somehow unserious in its intent to continue to raise rates, uh, to high levels. or that the market just doesn't care that and that could be another factor is that what if What if the market says, hey, you know what? Okay, bring it on.

Five, Five and a quarter percent. Big deal. What else you got? Six percent don't care. Big deal.

It's entirely possible that's entirely possible that we're insulated from the larger impacts of higher rates. Uh, potentially because businesses and consumers have substantially more savings than they had pre-pandemic Remember that somebody pre-pandemic had somewhere between maybe two and a half to five thousand dollars in their account. and that same average account balance today from Two and a half to five thousand dollars has risen to twelve point Eight thousand dollars. And it's only Fallen four point four percent over the last year, suggesting maybe we really are insulated uh, from from some of these higher rates.

which would increase the argument that the FED actually has to do much more, uh, than even five percent. So uh, we'll see I Find it very, very interesting to see how it seems like the Bond market is a little bit kind of given a little middle finger to the fat. like yeah, we're we don't really believe this is 10 enough yet. Oh well, we'll see.

We'll see how those uh, uh, those things obviously evolve. You know what I think will be interesting is I Think this year will be Uh, where last year was was heavily painful I Think this year will be a year of uh, playing the the Patient Watcher game where we're just observing. We're like bird watchers, especially if you're invested. You're kind of just like All right I kind of see what's going on, just sort of watching from the sidelines whereas last year just it was just pure pain because it was just straight down.

Uh, if you were, if you were in the market entirely the last year, then absolutely the best. Best thing for 2022 was short I Don't know if that's going to be the best strategy for 2023 so far. trend's been up. see if it continues.

So uh, all right. uh what else we have here? Let's see here. let's see here. Uh uh okay.

yeah. so Johnny Garcia is asking about course members and and being a member here on uh YouTube So those are completely different things, right? If you want to be a member on YouTube when the member chat is open, that's I think it's like 4.99 or whatever, but that's YouTube that's totally separate. uh I have no control over over the name of that. Otherwise I would call it a different name rather than member.

but uh, that's what they call a channel member. Uh, that's not to be confused with being a course member. Those are different things. Course members you get lifetime access uh to to the content and the live streams once you're in this.

but here's the channel member. it's it's a recurring uh fee but usually on Saturdays Sundays I like to open it up Uh, so we have a we have a subscriber chat free chat so uh, let's see here. Somebody wrote uh by Lucid uh someone else writes oh bye bye bye someone else writes by Tesla Yeah, so we, um I my goal is to live stream daily. Uh, just so you know.

So these these reports, the expectation is every day. Uh, but the goal is really to start around 4 30. The last three days that I've started flying have started closer to five unfortunately, and that's the schedule has been a little bit more to adjust to. Uh, but I should be able to move back to 4 30.

but uh, with flying. I've also been getting in later at night. so uh, we've been covering a lot. For example, just two days ago, the great Fortune of meeting with Brett Whitten from Arc Invest boy I'm gonna post that video today so that's going to be one that you won't see in this live stream.

so stay tuned for that. I'll probably post it later this morning, but I'd be uh honored for you to watch that and let me know what you think about Brett's perspectives. but very, very incredible. Uh, insights and and perspective.

So very excited about that. All right. So now we have, uh, let's get into some of the uh, some of the structured content. Dare I say structured content? Uh, okay, so let's talk about uh, what's going on here with Honors Bosses? I Can't believe it.

But Honors A classes might be a thing of the past. You might remember going to high school and you might remember there are regular classes, there are honors classes, and then there are advanced placement classes. AP classes. Honors classes were more challenging AP Classes were even more challenging and potentially gave you college credit if you got a four or five generally on the advanced placement test.

However, according to the Wall Street Journal cities in places like none other than California once again are deciding. You know what it's time to increase equity. And by increasing Equity we're going to punish people who want to challenge themselves. Yes, that's literally something that's happening now in.

California Take a look at this Culver City California A group of parents stepped up to the lectern Tuesday night at a school board meeting in this middle class Los Angeles Area City to to push back against a racial Equity initiative initiative. The high school they argued should reinstate honors English classes which were eliminated because they did not enroll enough black and Latino students. The district earlier this year replaced the honors classes at Culver City High School with uniform courses officials say will ensure all students of all Races receive equal rigorous education. The article goes on to say uh, that that? Well, they talk about the parents uh, uh, fighting this suggesting look, we really feel Equity means offering opportunities to people of diverse backgrounds, not taking away opportunities for others I Think there's a phrase here that is really applicable when we think about this and it's uh, Equity should be equal opportunity.

Everybody gets an equal opportunity, but not an equal result, right? So if you have potentially different students advancing at different levels, they shouldn't be punished so to speak And and not be able to take an honors class because somebody else hasn't been able to catch up as much. Now, The folks in California who are removing honors classes suggests that one of the reasons the honors classes were removed was because only 13 percent of those in the 12th grade advanced Placement classes were Latino whereas Latinos represented 37 percent of the student body. Asians made up 34 of the AP class compared to just 10 percent of the students. Black students represented about 14 of AP English versus 15 of the student body.

A little bit more in line there. And they go into this idea that Uh individuals from a younger age may feel less motivated if uh, if everyone else is taking honors classes and they're just taking normal classes and the honors classes, let people maybe average a higher GPA for uh for for getting into college or whatever. So the idea Culver High School has implemented is, you know what? Let's just get rid of the opportunity for you to take honors classes. and let's let everyone take what's known as a college prep class everyone will take College Prep Now that might seem like it's better than just a regular English class.

Well, this is where I'd like to add my own two cents. This is straight up: California is so stupid and their school system is failing so much now they're actually demoting people who are trying to challenge themselves in schools. This is shocking: I actually had the honor of going to a California high school for 12th grade when I was a student in Florida I took honors classes and AP classes when I came out to California I actually purposefully only took college prep classes. Guess why I wanted to do nothing and I aced those classes doing nothing I came here and from went from actually learning a lot in honors and AP classes to purposefully taking College Prep in California and learning nothing.

There was essentially no homework, no challenge, no education. It was stupid I learned nearly nothing. It wasn't until I went to college that I actually started learning again. So I kind of felt like my senior day was a complete waste.

In fact, college prep classes were known as being so easy that two things personally happened to me because I've got a lot of personal experience related to this. because again, I I went to a California high school. Two things happen to me. Number one because the classes were so easy I only had to go for a half of a day so I didn't even get the full High School experience in high school here in California because the horses were so easy.

On top of that, in my very first day taking a college prep class in college prep economics, the uh teacher in that 12th grade class came up to me and said hey, you know a lot about economics do you want to come in my AP class and at that point I had already convinced myself that for my senior year because I moved out here to live with my girlfriend I'm like nope I want to do nothing So I told the teacher I go no thanks but it was. It was really cool because all right going to a college prep class and within the first day he's like uh, do you want to go to AP uh which which you know was really cool but it went to show that even the teachers are like like if if you actually have an interest in the subject, you don't belong in college prep because College Prep is so easy. So now what you actually have is California and other states like Rhode Island suggesting you know what if we can't have everyone have an honors class, let's just dumb it down, let's just remove the honors classes so that way everybody can be in the basic class together. I Personally think everyone should have the choice the right to choose if I want the right to choose an easier class I have that if I have the right to choose a harder class, I should have that opportunity.

Now regarding Equity I actually ran for governor and I realized that unfortunately in poorer areas you do something known as you concentrate poverty. So what that means is individuals who are living in poverty end up often becoming poor. That's because when you live in poverty you have you have a real struggle to get by and survive. So you end up moving to cheaper and cheaper locations.

Well, the more you move to cheaper areas, the worse social services are for those areas because more people are moving to them. and I mean Social Services Being like police Medicare medical, fire all that all these services are worse. Schools generally go down as well. so when you concentrate poverty, you create problems, but you also tend to reduce opportunity for those folks.

And I realized that when I ran for governor when I ran for governor, I realized you need to help education in the poorer areas to actually be able to help minimize poverty in the future. So the state should be making a very strong effort to provide more services in poorer areas. In fact, I had a concept known as future Schools where when I ran for governor in California and I came in second place out of the Uh out of the recall candidates almost a million votes in realized that what we needed to do was actually educate students more in poorer areas who yes are in California more often black or Latino and what you ended up needing to do was provide a new potential school system where where you could teach completely from the bottom up and solve the education system solely in high school. So in other words, we would not rely on the education someone received in elementary school or middle school because it was probably bad and that education younger individuals in poorer areas received often.

uh, in the poor areas, you would substantially higher black and Latino populations. The education those folks received from elementary school to middle school was so subpar that they had no chance to get by in high school. So California's solution to this is okay. Well, if we can't have everyone be in honors classes, let's not fix why they can't get into an honors class.

Let's just remove the honors classes. That's completely moronic. It's kind of like how California tried solving fire hydrant theft. so illegal marijuana farms in the desert of California were hooking up illegally to fire hydrants to water their illegal marijuana plants their their Farms right, their illegal marijuana forms and rather than prevent the crime, California decided let's just remove the fire hydrants.

California is so backwards. you literally cannot have a more stupid state. Oh, people are stealing water from the fire hydrants. Let's get rid Of the Fire hydrants.

Oh, people can't make it into honors classes because they're elementary and middle school education sucked. Wow Let's just remove honors classes and punish people in California This is the most stupid thing I've ever seen California is so backwards and their rationalization for removing honors classes in uh, Culver City is. Well, the teachers were Jarred by the racial statistics and felt obligated to do something. The teachers should feel obligated not to fail people in elementary school in middle school.

Maybe if the teachers union got off their ass and did something and actually helped and and fund teachers more appropriately, especially in poorer areas. Maybe everybody would have the opportunity to enroll in a honors class if they wanted to. But no, rather than trying to elevate students California wants to demote the successful folks or the folks who want to try harder or have a greater opportunity. that's pathetic.

that is a disaster. California is getting worse by the day I Feel embarrassed to say I live in California I Feel like I I am making these videos so often now where I'm like what the hell is happening in California and it's just getting worse and worse and worse. It's so frustrating and then sometimes I get comments from people that are like, well, why did why did you try to do something about it Kevin I Did it literally ran for governor when I was 29 years old. It came in second place.

Good. It's gracious. One party rule equals Echo Chamber, You're very correct. That's the problem.

You literally have a government that would rather send stimulus checks to people making five hundred thousand dollars then actually keep honors classes. That's California for you. That's so stupid. Ah, crazy, crazy crazy.

That's why California Rant for you Yeah I I Just I Was shocked when I saw that yesterday. I'm like this is so bad. this is so ridiculous. All right.

Anyway, all right, let's keep going here. So um, the weather is not worth it. Well, I mean you could solve it. You could just not go to public schools.

It's just more expensive, right? So you pay the taxes and you can't go to a public school because the school system is is horrible. Uh, you know stuff like this happens. Uh, you know it's basically just more expensive. Terrible, terrible, terrible, Terrible.

Uh yeah, homelessness is number one. Yeah, But you also have to solve the causes of homelessness. and unfortunately, California's education system is so broken. you're actually just even if you solved all of the homelessness that you had today, you still have a steady pipeline of people becoming homeless because California has failed people so badly.

Terrible. Um, can we see a collection of all your mugs? Yeah, that is. That's probably one of my favorite things to do is collect different mugs RuneScape Rust World of Warcraft they're great. Nobody knows bugs better than I Do Nobody knows Nobody knows Uh I actually have a uh a picture I want to show you I uh trap myself yesterday in the uh cockpit of the plane and I thought I'd show you a picture oh Dad I would find it and made a face strung by.

uh, here it is. there's Kevin stuck in the plane make sure to remove before flight. Stupid. uh.

Anyway, all right so next up. Uh, we could go through 16 economic themes. Oh that would be good. That's a good one.

We'll do that in just a sec see what else you have? Uh Kevin have you been using chat? GPT no I haven't in about a week and a half as the last time I've logged in. uh you know I really? I I can't wait for that to just be part of like Google or something. mostly because I hate logging into chat GPT I Know that sounds like a a basic problem, but I've made my account with with Microsoft and then you have to go through the two factor and it logs you out all the time. I I it's just a pain in the butt so I rarely log in because it's a headache I Know that sounds nominal, but it's it.

I just I haven't been compelled to play around in it because I really don't care? Uh so uh and then I can't be bothered. but uh yeah, there's some I see some funny coverage on uh online about it. Have I actually flown my plane? Oh hell no I'm Never Gonna Fly that sucker No thank you I I am not a flyer I I'll sit in the back. Oh well.

I'm not gonna get a pilot's license. Nope. thought about it. Took a discovery flight.

read the FAA pilot handbook and they basically had a section around page 100 that's like who should not be a pilot and there's basically a picture of me so uh yeah, no no no no no mm-hmm All right let's go ahead see what else we got. So next up let's look at uh, we've got 16 themes driving the markets. This will be interesting things. Hi, let's ever talk about seeing UFOs no, but we were joking about that.

Yesterday we were actually flying so uh, private air travel travels higher than, uh, than commercial and we saw Spirit Airlines flight that was probably going about 300 miles an hour and uh, we're coming up from behind it and we were maybe about 6 000 feet above it. It was a clear day so we could see a and we were going about 535 miles an hour so it was pretty neat. We were flying right past the Spirit Airlines flight about 6 000 ish feet above them and it was interesting just seeing I felt like we were in a race. I I Don't know why that's interesting but I I think it is.

Anyway, it Max Speed the thing's like 565 miles an hour I Saw yesterday I'm like nice now I'd love to have a plane in the future. Maybe that could go like mock 0.95 You don't want to break the sound barrier, it's not worth it. Uh, until you start going like multi mock. But anyway, uh yeah, what's what's Mark Mark 0.9895 to miles per hour? Let's see what that is like.

700, right? 728? That's awesome. Maybe another like 150 miles an hour. Juicy. and get places faster.

But those those planes are like ridiculously expensive. Uh, most most airlines travel around 500 miles an hour. Uh, maybe 550. Uh, I See 450 a lot.

This thing flies about 565 so it's pretty pretty par. It's pretty cool. Uh. anyway, all right now we're going to talk 16 themes.

Okay, there's 16 massive different Trends happening when it comes to investing and you want to pay attention to all of these now. Beautiful thing here is Deutsche Bank Put together a phenomenal piece on this and they really give you a guide to how you should be thinking about the market. in their opinion. When's the FED going to cut rates? What about inflation? What about investing in a green? Tech What about the debt cycle? Oh China Private Equity Natural Resources volatility or active investment? What's what's the difference between active investment and passive investment? In terms of 2023? What are they seeing? What kind of uh subsidy Wars are we looking at and how to potentially benefit from them? Deutsche Bank Put together a phenomenal piece on this uh and I thought hey, well, let's dive into it together.

so let's do just that. This is the piece from the Deutsche Bank Research Dbr and uh, here we go. 16 themes of driving the markets. First up, we have adjusting to higher inflation.

so I've made some notes. We'll just go through some of the highlights here: Deutsche Bank Believes that we should be pricing in about 200 basis points of rate cuts by mid-2024 so that would be reducing rates from say, five and a half percent back to about three and a half percent by mid-2024 as a recession ends up hitting in mid 23.. So Deutsche Bank has a belief that the recession is probably going to hit us somewhere Q2 Q3 in 2023.. estimates for the recession do continue to get delayed, though a lot of folks are calling for no, it'll be early 2024, No, it'll be mid 2024 Deutsche Bank believes middle of 2023.

Either way, almost all researchers suggest it should be a relatively mild recession, and it seems to be the most predicted recession that's ever happened. I Think it'll be terribly ironic if you never actually end up seeing the recession. it'll actually be terribly funny. Uh, because if you're good, we, we really don't want to go through a recession.

Some people say, well, if you don't go through a recession, you won't get sticky inflation down. We'll see. But if we can get sticky inflation down and not go through a recession, best case scenario because they don't have as much job loss so firms with pricing power. They talk about a lot of Industries who are able to strengthen uh, their their sort of Labor uh.

organization during Covet ended up strengthening so much that you actually have really resilient companies right now that made it through Covet. and I Thought about this before during Covid. One of the things I talked about on the channel was this idea that companies that are actually going through layoffs during Covid are becoming a substantially more lean. They're going to figure out how can we raise revenues and grow and make more money.

Basically, with fewer people, labor tends to be one of your largest drivers of costs at company. So Deutsche Bank is making the argument that that sort of weeding dare I say uh, that was happening during Covid actually strengthened firms to be able to get through whatever this recession is that we end up going through now. I Personally think that that kind of strengthening of not just businesses but also households could actually make it that you don't end up having a recession. you actually just continue to have GDP growth.

There's a reason why the Atlanta Fed Now index for what they believe GDP is so far in Q1 is about 2.4 annualized and the projections going forward so far are pretty well positive. In fact, some folks from the FED think that if they were to revise their projection for GDP in 2023 from the summary of economic projections, they would actually move it up from about half a percent to one percent and that might even still be low because the economy is still growing. It's incredible. They talk about how China is unlikely to export material inflation to the world post their reopening.

I've also talked about this quite a bit and that's because a lot of the spending that's happening in China right now is travel Hotel Entertainment Local casinos Uh, you know, probably Starbucks locally, right? These these are the things that we're seeing and hearing: uh on on the ground floor over in China less demand necessarily on Commodities Some folks still think you're going to get that sort of Commodities Inflation Uh, However, so far it seems like you're not getting that new real estate building boom. Yeah, maybe home sales in China will will rise, but you've got plenty of vacant homes that need to be sold in China so you can actually see home sales go up without Home Building rise in China creating less Commodities Inflation we'll see. but you can see here: headline Inflation Core Inflation ISM Guy: it's all reducing. uh in price pressures.

Ism is sort of in the A survey Institute for supply side management, survey of pricing, forward pricing and and you can see all of these measures are rotate hitting down. However, if you look at Services X Energy you you have a tiny rotation down, but it's still remaining pretty resilient and sticky. You actually see that if you remove housing as well, it's still up there. A lot of that is being driven by personal services whether it's haircuts Education Services Transportation services uh, Accounting services whatever.

A Medical Care services Health Care Insurance services A lot of these, Uh, still. Rising Quite a bit Now a lot of folks think myself included that that's still part of the burning embers of of companies basically having to deal with higher costs and prices. This is an interesting one. They talk about here how the real economy might not really pull the handbrake so to speak in the second half of 2023.

And what you're going to find is the cost of debt is likely to rise substantially for businesses who end up having to refinance their debt at higher interest rates. And so what? I Wrote next to that is if you're looking for companies to invest in right now, you might potentially look at companies that have substantially lower, uh, debt, the lower debt you have at companies that you invest in, in my opinion, the less risk you have to those interest rate shocks. And so ideally this is something that I've been looking at in pricing power related stocks you ideally want to look for again, not personalized Financial Advice: We always want to make that clear here: I don't know your portfolio so I can't give you personalized advice. but broadly I I Think looking for pricing Power Stocks: those are companies that have the best margins within their field, the ability to adjust pricing while still maintaining margins.

The definition of pricing power, but also High free cash flow and low debt. Both of those very, very important. One of the reasons I'm actually staying away personally from the airlines is because even though Airlines to some degree could be argued to have pricing power right now, you have a lot of debt at the airlines that I don't want to be exposed to because I think that debt is actually going to get much more expensive before. uh, it, uh, before before rates rotate down.

Here's some talk about China's recovery to talk a little bit about what we've already touched on: Lower inflation. Uh, and it's potentially underappreciated by investors. They are bullish on the idea of construction economies. uh.

Commodities given the amount of infrastructure spending that uh, that that China is pumping out, generally China provides stimulus not in the form of stimulus checks, but in the form of more construction spending or corporate welfare. basically, like corporate incentives. There have been conflicting views on this. So even though Deutsche Bank believes that you're going to see this sort of continuation of stimulus infrastructure spending, a lot of analysts on Wall Street actually think that China already has enough infrastructure.

I Know that sounds ironic because it's obviously a developing country, but you've got literal ghost cities that have been built that have not actually been occupied yet. So an insane amount of building under the thesis that if you build it, they will come and so far, you just don't have the come. Uh, so we'll see private. Capital Now I Think this is interesting.

They make an argument that, uh, right now you've got money managers that are sitting on potentially 1.3 trillion dollars of dry powder cash to potentially invest in startups when the time comes again to invest in venture capital. However, there are a lot of existing businesses that have essentially low credit scores uh. and and the leveraged loan Market These are going to be more uncertain businesses, lower cash flow businesses probably profit list companies that are burning a lot of money and the debt they have is expected to refinance at substantially higher rates. and Deutsche Bank warns warns that there's potentially going to be a risk of a full default cycle bankrupting a lot of these companies that are not even public.

Uh, these are private companies that could end up leading to a lot of layoffs. Uh, and a lot of this is due to a substantially high debt with not enough cash flow to cover that debt. In fact, they suggest that the cash flow to debt ratios uh, today are so bad that they're potentially two and a half times as bad as what they were in 2010 uh for for the leveraged loan Market here. Now in their words, I'm going to use their words because I've just translated the idea that there for you because it's a little bit complicated here the way they write it.

But in their words, they say less than 20 percent of the leveraged loan Market is now backed by a debt to ebitda ratio of less than four times. in 2010, it was over 50 percent. In other words, 200 and a half times as bad. This is a bad thing, so more risk that you're going to see some form of contagion in the private business uh, area.

so a lot more potentially layoffs from private businesses not necessarily public, uh, lower debt exposed companies. Some talk here of course about uh subsidy Wars I Found this Uh, as is a consistent theme that I'm seeing now and I do wonder how much of that is is going to potentially start getting pre-priced in? but uh, there's this idea that you have a subsidy war between not just the United, States and Europe, but also China uh, all of them providing massive subsidies to batteries, solar, wind, and and really, the uh, the electrification boom of uh Renewables Potentially pretty large opportunities there. Uh Deutsche Bank Believes that copper and steel might benefit mostly from from that. uh, remember, they also have the idea that we're going to see a more of an infrastructure boom, which would be supportive Also, to uh, certainly, uh, to steal for framing, uh, copper for electrical wire anyway? uh, new tech.

They suggest here that they believe over the next year you're going to have companies heavily focused on cash flow generation and judicious Capex. Now that's really interesting. Uh, that potentially, uh, you're you're going to see uh, the companies that benefit the most being ones that are able to show. Look, we can invest heavily while still maintaining cash flow, and they believe that subscription companies might actually be that a type of business that could benefit the most.

Now, initially, a lot of us thought that software service businesses would actually do very poorly in this market because uh, of of layoffs, especially in the tech field. But I actually went through the Cloudflare earnings call and I was blown away by this. Uh, watch this. In 2022, we had over 400 000 people applying for 1300 positions and on top of that insane demand for people wanting to work at these SAS companies and these SAS companies still growing like crazy.

What they actually talk about is the weakest part of their sales are smaller businesses that larger businesses continue to seem to be hiring. And it's the smaller businesses uh, that that are the ones that are less materially important to their bottom line over at Cloudflare. And it's the smaller businesses that that are spending less money. uh, ramping up.

And so Cloudflare, for example, continues to expect to be able to grow their net retention rate by about 130 percent. Uh, this is pretty incredible. So you've got a company here expecting to grow basically not have negative churn, right? Still growing 130 from a retention basis, but then of course still growing with new seats as well. On top of that, uh, and still hiring like crazy, but also an insane amount of availability of workers? Now in my opinion, that tells you two things.

It tells you damn. I mean you're hiring a quarter of a percent of the applicants? How do you even go through 400 000 applications? On top of that, it shows you a wild wild availability of Labor This is remarkable. The availability of of Labor is is so high uh that? uh that? I don't think labor has pricing power anymore going into 2023 I think there is lingering pricing power really in sort of retail and Hospitality but white collar I don't re I can't see much pricing power left. this is.

this is remarkable and it's a sign that suggests we should not worry about a wage price spiral. There seems to be a substantially uh, available labor force that uh, that should help keep wage costs stable. You know we want people to make more money, but we also don't want to wage price spiral. Evidence being bad for everyone.

Uh, they do say the fangs with the double A There still have uh, huge moats, balance sheets to be able to withstand a recession. However, expect a lot of utility, especially around uh Anti-Trust So I wrote gooog next to that and then you've also got like Microsoft and blizzard return of volatility I Think this is pretty obvious. Uh, so I didn't I didn't make many notes over here, but we're in a substantially volatile uh sector or a moment in the economy right now creates a lot of uncertainty. You have, uh, this idea about a renewal of active investment now I Think this is actually very important they talk about.

You can't rely on, uh, comparing your Investments to Beta right now making beta comparisons, which would basically be saying that Okay, well, your company has a two beta. It should outperform the S P 500 by a factor of two or underperformed by a factor of two, right? Uh, and so they make this argument that you can't look at the indices right now. Now that's actually something that I've been saying for about probably three months now that you probably want to get away from the indices. obviously again, not personalized.

Financial advice. But the idea is that you potentially want to get away from the indices because the indices are going to be way down by Industrials and Consumer Staples that end up suffering uh, basically taking it in the margin. In other words, higher costs without being able to raise prices? think Procter Gamble think 3M I think Johnson and Johnson They expect they can't really raise prices anymore. Uh, going in through 2023 and that they're going to have to absorb higher costs via margins Tyson Foods is experiencing this: Pepsi seems to be at the end of their ropes for being able to raise prices, so they're going to absorb, uh, take it more on the margin, right? So I think that's actually going to hurt indices substantially, especially like an S P 500.

Whereas potentially higher cash flow growth companies could end up doing very very well in 2023, especially those with low debt and high cash flow and and high operating Leverage So we'll see. somebody here writes: Kevin doesn't know that the U.S is already dead. it's going to get worse. Oh well, that sounds terribly bearish.

I would hate to be a bear right now. That's all right. A lot of a lot of the Bears of uh January are, uh, very upset right now because they were caught very offsides. Now they could end up being right that we end up going through a more challenging 2023 of sticky inflation.

but uh, the last thing I would do was bet against America I would not not bet against America at all. I would never say America is dead I think America is just beginning and California is dying. but California will will turn I'm confident that California will turn at some point in the future. I think Californians will get so fed up with how horrible uh, the government has become in California that um, there'll be a revolution at some point and I'm not talking like armed Revolution like overthrow the government I'm talking like you'll end up getting a full Republican uh, chamber, uh, in the legislature and in Uh in the governor's office.

and The Californians will be so fed up with with what's happening with uh, some of the policies here that essentially Force homelessness Force less education in schools and schools that already ranked 40th in the State uh high taxes that are going to provide stemi checks rather than actually solving a mental health crisis and it's like I don't want to go through another California tangent Anyway, continuing on, but in terms of America I would not bet against America I Thought this was, uh, quite unique because there's been this idea that you could invest in oil companies because oil companies uh, end up uh, trying to invest in clean energy and Renewables however, Deutsche Bank they talk about this idea that oil companies uh, and sort of your your legacy energy companies are finding uh I'm not sure exactly where that page was, but it's somewhere around here. They're finding it very difficult to find places to invest that actually make them money now in in the renewable space and they like making money now. So uh, it's becoming very difficult for oil companies to adapt. So right now, what are they doing? It's focusing on oil because you know oil is 80 bucks a barrel.

Uh, for international blend I think uh, your WTI Western blend is what? 78 bucks or something right now? 76? Oh, it's falling a little bit. I Mean that's good from a disinflationary point of view, but uh, yeah. I Think the oil companies realize oil prices are not going to stay high this high this long. personally.

I Think the oil companies are. actually, well. you wanted to see this. They're actually taking rigs offline at the moment.

Over the last two months, you've seen rig counts flatten and actually fall a little bit because oil prices are starting to fall again. and I think they're sort of sponsoring this idea that all China is going to push oil inflation again because they really want to get one last pump out of oil. at 100 bucks a gallon, 100 bucks a gallon my God 100 bucks a barrel. I Don't think it's gonna happen unfortunately for them.

I I Don't see it happening. but uh, hey, who knows. But I Think the oil companies realize the writing is on the wall that oil is is going to continue trending down, especially since remember, even as the the economy continues to reopen, if you will. We we've already hit peak oil and gas demand in 2019.

we we are using less. Even though our GDP is growing. we are using less oil and gas today than we did in 2019. Anyway, so uh, let's look at uh okay, yeah, I Like this was.

this was quite interesting too. and I've been saying this a lot. I'm telling you, the 16 piece thematic uh PDF here was so phenomenal by Deutsche Bank because it really gave us this basis for talking about these 16 themes. This is one that I'm actually very excited about.

They say here that voter power should transition from sort of the silent Generation and the boomer generation to Millennials and Gen Z by 2030.. and I really believe that Millennials in Gen Z are going to wake up and stop voting for the garbage that we have in for example, California or in San Francisco that's terrible. Uh, so we'll see. we'll see.

but I'm I'm uh, very excited personally about that sort of transition anyway. Uh, it continued upward pressure on inflation, particularly for low wage workers. I Think we've already covered inflation pretty heavily here with wages. I Think the high wage workers, you're actually not seeing that sort of pricing power.

There is still some stickiness in lower wage factory work. Uh wages. uh Chipotle Starbucks Obviously seeing it easier already to hire folks, even a health care, you're seeing less signing bonuses. which interestingly, I don't know that you actually see signing bonuses.

Maybe somebody could let me know in the um comments. uh in uh, you know at the bottom of the video is are signing bonuses? considered part of wage inflation? Uh, this would be sort of your employment Costs index uh, signing bonuses. If they're not, then in a weird way, you could actually see uh. wages still rise even though technically they're not because you're not getting the wage signing bonuses anymore.

And so you the the data we're getting I Think is very, uh, incapable of actually adjusting for a lot of what was very normal during the pandemic. and it's leading us to believe that there's so much more inflation than in my opinion. There really is. Yes, I I Said that correctly.

I Think there's substantially less inflation than what we're actually seeing uh in in some of the reports. Uh. and part of that is also because of just deflationary trends that you have in things that younger people are buying, but inflationary Trends in things that older people are buying? Look at this. These are the the CPI components since 2005.

and you can see what's getting more expensive are Hospital services and medical care services weighing up the all items inflation and shelter. whereas things that are getting substantially less expensive are things what younger people are buying computers and TVs for example right now Eventually, obviously you know you would expect that younger people age and then unfortunately you have to deal with medical care services. But uh, but hopefully we start getting some disinflation over here in in the medical space as well. So where the cost of care can actually go down, we'll see uh another.

Another fascinating uh thing to consider over here. So we've talked about incumbent oil companies already. We've talked about China pushing Renewables hard uh, low wage earnings Continuing to add pressure, our performers in stocks will likely be companies with lower sensitivity to wage Rises and higher Revenue per employee. That's actually neat because yesterday we did a a course member live stream where we sort of broke down how much revenue companies have per employee at various different companies and we saw essentially which companies seem to have the highest Leverage per employee and this is something that you could easily do as well.

But Deutsche Bank here, making the argument that outperformers are likely to be stocks with low sensitivity to wedge wage Rises and higher Revenue to employ of a per employee. This contrasts with the years of gains in high staff Tech consumer staples and health care. In other words, you have to be careful betting on the everything rally that we had previously and you have to be more choosy. And this is why personally, I'm making so many bets on pricing power stocks that have more operating leverage, not less so.

In other words, they're able to make more money with less workers potentially that's growing your Opex or growing your gross profit margins. Lower costs of goods sold per Revenue very important. It talk a little bit here about space will be key going forward. I Think it's a little early to really invest in in space because we we just don't have proven cash flow models yet.

Obviously, if if there were ways to reasonably value SpaceX on the public market right now and be uh, it'd potentially be an interesting early play. SpaceX We don't believe it's profitable yet probably won't be profitable for a few more years. But I would not invest in private Equity right now because they have not gone through I Believe mostly the valuation correction that we've seen in the public markets. Which means if right now you're investing in like SpaceX stock for example, in my opinion, really, what you're doing is you're investing in a market that still hasn't corrected for the recession or higher rates and so you're potentially investing in very high valuations.

This is to contrast By The way. just for those of you wondering with House Hack, House Hack doesn't have a multiple on evaluation, it's literally selling Equity at Cash one-to-one valuation which is kind of unheard of. Uh, but uh, that's that's because you know I'm driving uh, a a company that I think will be very, very successful knock on wood, no guarantees. Uh, learn more about it at Househack.com But I'm uh, I'm really wanting to create this company to prove to those who invest in Kevin that in the future you want to invest in Kevin again, right? So building that, uh, that street cred, so to speak of.

hey, let me show you what I can do with the company and uh, we'll start. We'll start at a basically a one-to-one valuation. Nobody does that. It's because I'm not I'm not trying to, you know, sit here and uh, ridiculously dilute people.

uh, like you do get it that? uh, a lot of private companies unfortunately, which I think is terrible. Um, so anyway, that's just the way the system is built though. and I don't think it's fair, but whatever. So I'm going to do it a little differently.

So those are, uh, those are my thoughts on uh Deutsche Banks uh, 16 themes I think they're pretty incredible. Hopefully you found, uh, some insight into those as well. All right, let's talk a little bit about uh, some of the commentary you've got. Um, yeah.

credibility, Reputation compound. I Agree with you Kevin what's the average? U.S Savings I Don't know the cross average, but you you have a substantially higher consumer savings and balances still and and the drawdown of that is a lot slower. You know the average savings right now of somebody who's sitting at uh, who used to sit at that two and a half to five thousand dollar bank balance is now sitting somewhere at uh, twelve point eight thousand dollars? I mean the amount of excess excess savings still available is very, very high. Very high.

Uh, and I don't think markets are are appropriately realizing that uh, and and that'll potentially really delay uh, the recession because people could just continue to spend through it as American Express says uh, uh Okay, let's see all the younger people I know are more heavily Medicated by the 20s than my grandparents are at 75. yeah, you need to find some new friends to hang out with fat cat eyes rigged. Somebody writes ah dear, Zimbabwe US Dollar soon? Yeah, I doubt that. Thoughts on the debt ceiling.

Not terribly worried about it. Uh, really, not worried about that at all. Uh, I Think that'll get passed. They'll raise the debt ceiling and you know there'll be a lot of Click bait and drama over it? No, no doubt.

No doubt there'll be a lot of drama over it, no doubt at all. Lots of drama. Nobody knows drama more than the government and the debt ceiling. Nobody knows, Nobody knows drama.

Someone here rates I just keep purchasing ETFs and averaging down. I mean hopefully the ETFs you've been averaging into over the last uh, uh, you know month you've been averaging up on your recent shares. but I understand If you're saying maybe you had a cost basis from 21 uh, or or 2022 where you're averaging down. That makes sense.

and actually I mean it lowers your cost base is fine, You know? yeah? I I think ETFs are so wonderful as well in terms of their tax benefits. I think they're great. Mm-hmm too early. Let's see: Tesla isn't it too early for me to invest even price Cuts Honey Uh, I mean you know I I can't give you personalized Financial advice in terms of what you should invest in or should not invest into.

but I think what you're asking me is should you worry about Tesla's price Cuts Uh no I don't think so. Uh, you know you're going to see a margin decline, right? You're going to see margin compressed gross margin to about 20 because so so much higher on an industry average basis. Not terribly worried about that at all. I mean if you're investing in Tesla because you're worried about what's going to happen over the next six months to a year, Uh, then then you're probably not making an investment.

you're making a speculative BET right? Oh so I'm personally not terribly worried about that lawsuit in Florida I have no lawsuit in Florida I Had some fun with Grant Cardone but I won that? Um, Well I Talked about Byd and Charlie Munger yesterday. You could watch my Tesla video from yesterday and you can get the answer to that. Yeah I'm actually paying a lot of attention to Florida real estate because you are starting to see an inflection up in in some areas in Florida prices for uh Tampa uh South Florida Miami as well. So it's it's very different actually from what you're seeing on the uh the West Coast So I actually might have to talk to the team about this, but I might want to make it to Florida Maybe I can get to Florida Friday No, that's not gonna work I need to get to Florida within the next few weeks because I I want to see on the ground uh how what the sentiment is relative to what we're actually seeing in the data because the data is much more bullish on Florida than anything in the west coast right now.

Which is fine because that just means you have more opportunity more patience for the West Coast. But yes, you are correct to observe that that uh Florida is performing substantially better than the West Coast I Know they're going to be a lot of people that are like yep, that's what the Liberals get come to Florida get your Rhonda sanctimonious Yeah, you're probably right. Um, but yes Naples Fort Myers Yeah, you guys got hit hard in the last hurricane I'd Be curious to also know how the rebuilds Florida's so strong though the Floridians are so resilient. you guys just rebuild better.

You build it back better you know Sarasota says Brandon Yeah, All right so let's go. uh I have a DeSantis Holster that exists that's interesting. Yeah, you know, thank you for the 20 donation I have not uh, been doing really any interviews on other channels recently in the last few months but I kind of go through phases of doing this so maybe I'll probably do those when we launch our reggae I'll I'll Uh, I'll start doing uh, sort of podcasts and that again, so stay tuned. probably like April May right now I've got plenty of other stuff going on that I've got to handle myself.

Anywho, all right. Uh, the next topic that we've got to talk about uh is Tesla uh. and then maybe we can touch on the FED a little bit. Yeah, all right, let's talk a little bit about Tesla and a little bit about the Fed and we're going to go to the Elite Hustlers live stream after that? that'll be fun.

Yeah. Six month T Bills Fantastic. Just remember you're you're getting such a high yield on T bills right now because you have a massive opportunity cost. I Mean, think about it, if you bought tea bills at the beginning of the year, you missed out on a 10 to 50 Equity rally, right? So you're like Yay four percent, five percent, whatever.

and uh, the Market's like Yay 50, you know, so you don't want to get caught. Two offsides out of equity now. I Understand, there's there's a lot of uncertainty and fear, but you know we're not. We're not looking at a 1970s Paul Volcker era recession right now.

Is it possible that it happens? Yes. But the leading indicators say no. Those could change. You know, markets change and when the facts change.

You should change your mind. But right now the trend is. um, yeah. they're going to be some parts of Embers that keep inflation sticky, but the trend is down and that means you want to be in not out of equities hashtag not personalized Financial Advice: that's my take.

Harp keeps burning cash I Don't know about that. The Palantir earnings call look pretty good. I Actually did a video on Palantir just type into YouTube meet Kevin Palantir and uh and you can see me go through the palantir earnings. It's such a niche video, it actually didn't get any views.

Uh, which is fine I don't really care, you know sometimes I just throw them up there because I know it's valuable to some people, but uh, at least when I went through the financials for Palantir, they actually weren't that bad. What do you have at Palantir you have? Let's see here actually I have it right here. You see it really quick. You should watch the video anyway.

But so they had a loss of about 17 mil. their revenue grew about 17.5 cost to rev up 20 net loss about 20 mil. I'm pretty sure their cash flow is way higher. You see here balance sheet balance sheet: They've got over 2.6 billion dollars sitting around.

Absolutely incredible. So they've got a ton a ton of money. uh, stock based comp for the year ended was like 564 mil and their free cash flow was somewhere around 180 million dollars for the year and 2022. So you actually can't say uh, uh.

Palantir is is Burning Cash? Uh, because they're they're actually free Cash Flow positive Pretty pretty. Uh, free Cash flow positive. So so I'm I'm pretty excited about uh what? I see So so when people say oh, Alex Carp is uh, Is Burning uh, burning capital I know I don't know about that. All of that, it's actually making money doing pretty well.

They are diluting their shareholders. They are doing that with a lot of stock based calm. But that's normal. Every company gives stock based comp.

That's normal. That's just then you have to evaluate. what valuation do you want to invest in companies at? uh, you know, given uh, normal compensation structure. a stock based cob stock options? Uh, but that's not a cash burn, right? They're actually quite cash flow positive.

anyway. I Wasn't expecting to jump into like a palantir discussion there, but I did. All right Now let's talk. Tesla All right, stand by for Tesla We gotta talk a Tesla because I Just interviewed Uh well.

an amazingly brilliant mind over at Orchidvest Brett Whitton Phenomenal researcher and the full interview uh will be on my channel Saturday February 18th. But we're going to talk about Tesla and this potential Next Generation vehicle Brett is convinced that Tesla is going to announce the Next Generation vehicle Now I'm going to talk a little bit about my thoughts about what he said, but I also want to First talk about what Wall Street says about this specifically Goldman Sachs So here is Goldman Sachs take on Tesla and then we'll get into Ark Invest stake and then we'll get into some of my commentary take a look at this: Goldman Sachs Uh says that for investor day, you should expect Tesla to talk about the Generation 3 platform a lower cost structure potentially a Generation 3 vehicle platform where costs could be reduced by about 50 percent. March 1st Is uh going to be the investor day and they believe that everything about investor Day will be about how is Tesla going to get their costs for vehicles down 50? Which actually increases their pricing power Because if they let's say reduce prices 25 but reduce costs 50, you actually have massive PP massively huge pricing power. It's really incredible.

In fact. Uh, rumor has it that Tesla might be close to announcing officially their uh Giga Mexico Uh, either uh, this weekend or or as early as late as next week, we'll see that rumor ends up being true. But I mean just think about the cost of goods sold for manufacturing in Texas or sorry, uh, in Mexico relative to Texas cost of goods sold for labor, your average wage in Mexico is somewhere around three bucks. uh, 325 350 whereas out In in Texas you're probably 15 to 25 bucks so you're already looking at reducing your cost of Labor by an order of magnitude of 4X just by near Shoring Uh In In Mexico Really incredible uh, labor cost reductions And and what you'll have is some people will hear about that as oh, you know, exploitation.

You know, here comes the capitalist exploit. But what you're actually doing is you're just moving to an area where you have a lot of auto manufacturers already I Guess Mercedes and GM are already exploiting Mexicans uh at lower pay. But what the reality is the more you have companies move to Mexico like uh Tesla opening a gigafactory in Mexico What you're actually doing is you're creating more demand for housing and labor and you actually increase average labor costs. Uh, and so maybe you'll see that average labor costs actually rise and you're actually increasing the standard of living in those regions of Uh Northeast Mexico So so we'll see what ends up happening.

but I'm actually relatively bullish on on the uh, the gig of Mexico. But uh, Goldman Sachs here believes that Tesla's going to talk about achieving this cost reduction and then being able to, uh, ship a lower cost consumer-based vehicle based off of that third generation platform. Now Goldman Sachs believes that people, uh, investors think that Tesla would start shipping a lower cost consumer vehicle starting in 2025.. Now, Goldman Sachs says they do not model for a lower cost vehicle they're not projecting in their price forecasts that Tesla will have a lower cost vehicle out by 2025 and they do not expect that Tesla is going to announce a specific product on investor day.

However, there are a lot of investor rumors about maybe a Model Two, a Model Q, a model Q is sort of like another slap in the face to the short sellers because Tesla Q is considered a you know your your uh Tesla short position. Uh, but anyway, what's fascinating about this is most Financial models right now. Most people who essentially project prices for Tesla they they look at. Okay, you know how much money can Tesla make just ramping the three.

Maybe get the cyber truck in there, throw a little bit of semi truck in a little bit of mega pack expansion. That's it. Those are most models. most models aren't touching Robo taxing most model.

um, uh models are not touching a lower cost generation vehicle. However, if it is possible that a Generation three vehicle could uh, be built at a 50 lower cost. Again, remember, you could take something like a Model Three uh, which you know, selling in that 40K range right now and you could lower the cost of these substantially. Let's see what we could get a model 3 for right now.

So let's go to order now on the Tesla page and let's see what the current price is for Model Three. Keep in mind that Tesla has been, uh, reducing the cost of three. But actually, after reducing costs, we ended up raising the cost of the Model Y because they ended up selling out for Q1, Which is through. Basically, you have to wait until April now to get a model.

Um, uh, model Y. But anyway, you've got a Model 3 over here. about forty three thousand bucks. If you could lower the cost of a Model three by fifty percent, you could potentially lower the cost of this by as much as 40.

You don't even necessarily have to announce a new car. You could just sell the model three cheaper, right? So I mean think about that. If if it's 43 000 bucks, let me make sure we don't have incentives on. Yeah, get rid of the potential savings over here.

You could maybe lower the cost of this sucker by 40. That would bring you down to twenty five point Eight thousand dollars. There's your 25 000 car. You don't actually need a new car.

You could just take the model three and sell it for forty percent less. If you get your cost down fifty percent, you're actually gaining operating leverage. You're gaining gross margin while lowering prices potentially as much as forty percent. And that gets you basically right to twenty Five Thousand Dollars.

Twenty Five Nine, Call it so you don't really need a new vehicle to be announced to get to a 25 000 car if Goldman Sachs is right and Tesla can pull off a uh a margin, uh uh, reduction or cost reduction of 50. that's pretty incredible. Maybe they can do that via Gigafactory in Mexico for example, right and deliver the United States version uh via the Inflation Reduction Act which wants Uh Vehicles produced in North America which includes Mexico and uh and you could potentially create that 25 000 vehicle without even announcing a new car now. Arc uh and uh.

Well, I should speak specifically of Brett Whitten which you'll see in the interview again it's being posted uh Saturday February 18th. You can see the full interview that I have with Uh Arc and fast. Brett Whitten Brett Believes that Tesla is going to announce a new vehicle on investor day. He believed and he said it extremely convincingly and he believes it's going to be a vehicle.

Uh, that will be the essentially epitome of the robo taxi vehicle. It will be Tesla's Robo taxi vehicle that in the future you could actually have an optional steering wheel for that. Initially, it might ship with a steering wheel, but in the future it won't have a steering wheel and it will be the foundation for uh, the uh, the the Robo Taxi Network That's pretty incredible. Now, in order to create that uh, you would expect that full self-driving and the road map for full self driving and some of the Cutting Edge full self-driving needs to be substantially better than it is Now right now, you still need a driver, right? that lasts 10 on AI is so hard.

The first 90 is exponentially easier than that last 10 percent to actually get to real full self-driving And now we'll see I've purposefully actually just to see how close we are on the wide release. Let my car get into funky situations and then let it do stupid things in a safe way. Obviously I like I'll go to Yields and it'll treat it like a stop sign. and there's traffic around.

and it's in this unknown area where it just hasn't trained for yet. And I'm jus