Now we gotta bring up the bear case again. You know I don't like the fear, uncertainty and doubt. but I pay attention to it because I need to know what I could potentially be missing. This is really important and JPM tells us exactly what the problem is and it's really interesting.

Take a look at this JPM and this is a piece out. uh from Feb 20th year JPM published this and says look the equity Market rebound since October is drawing investors in, many who are convinced last summer that any rally should be seen as a bear Market Rally are now nurturing increasing optimism that a recession can be avoided altogether and that earnings remain resilient. However, while looking forward and we believe that Q1 will stay robust, we do not expect there will be a fundamental confirmation for the next leg higher and see the rally fading as we move through the quarter with quarter One potential actually marking the stock market high for the year. Now that doesn't sound great, right? The high for the year You look at the QQQ Fibbies.

Man, come on. this being the high lame. Absolutely lame, right? Look, zoom out for a sec, look at the QQQ We get rejected at 3 11.99 on on the Fibonaccis. There we go on screen.

Now we get it rejected by 311.99 Fallen Back to about the 289 support level and as that ends up marking a high for a year. Well damn that sucks. that's gonna set up for a boring 2023. Why does JPMorgan think that? Why are they so bearish? Well let's see what they say.

Number One yield curve inverted. Remember, we've never escaped a recession from this point of the inversion. and they're right now. Some people make the counter argument that the reason the yield curve is so freaking inverted is because we expect a rapid, massively rapid disinflation.

And that's why you're seeing basically two-year yields on onto your bonds that are way higher than the 10-year long term. Basically, the bond. Market's telling you. look, Somehow, we expect massive disinflation.

These yields aren't going to last. Now that would be really weird because it would be the first time in history that we have had a yield curve steepening and not a recession. But just think about this for a moment. Okay, like logically for a moment.

because I I think I Think there's a lot of confusion when we hear the yield curve. I Understand, it's a very complicated concept and I'm not professing to know it perfectly myself. but let me just try to make this very, very simple: If the two-year bond yield is five percent and the 10-year is four percent, then what you're really saying is hey, look in the future. I Actually don't expect inflation to be that high in In, you know, 10 years down the road.

but over the next two years I Do expect it to be very, very high. And so in other words, that is one way you could potentially explain away the inverted yield curve simply from an inflationary argument that I need more compensation today than I will in the future. That is the easiest way to explain away the yield curve. However, it is not the traditional way to explain the yield curve.

Generally, a yield curve inversion occurs because markets are expecting massive disinflation, not because of just you know, like okay, The disinflation's Happening They expect it because of massive job losses, people spending less money, and you actually going into a deep recession. That's usually why you see a yield curve inversion because the Market's like uh yeah, we think there's going to be rapid disinflation from the market crashing, not because it's naturally going away. So that that does make the yield curve a little bit more like okay, like historically it's been big recession coming. could quote unquote very dangerous words this time be different.

Maybe it hasn't been historically, but that is the counter argument to JP Morgan's warning signal here: money supply moving lower and decelerating rapidly. That's actually a bullish argument that is a bullish argument that if money supply is potentially a leading indicator for massive disinflation, then then great. However, it leads to the idea that oh, this could actually indicate a contraction coming right or session coming. I Believe you're more likely to see that earnings recession to Consumer Staples JP Morgan here arguing basically across the board.

But that's again because they're also looking at the industry levels. Uh, and the industry levels represent a lot of consumer staples. Banking lending standards are tightening and half tightening have tightened. They make the argument as we've heard many times before that Oh, usually you know when we see the FED pivot, maybe it's going to be because they've actually really crushed the economy so much and that is possible.

You know we've talked about that many times on this channel that in my opinion, when the Federal Reserve pivots, it's because they're so convinced we're not going to get Paul Volckert. that'd actually be a good thing. The counter argument is no, the Fed's only going to Pivot when they break something and they're about to break our economy because they've raised rates so high at the same time as you still have quantitative tightening occurring in the background. Now, some of the data that they use I think is unfortunately very misleading.

I'll show you what I mean when I say some of the data is misleading in the charts right here, especially in relation to that mortgage chart which I'll show you just a moment. but I want you to see some of these charts so just to really catch you, catch you up really quickly. Here's a chart on the 10-2 yield curve inversion which shows you basically a recession coming. After every single inversion you see, the red circle shows you inversion blue, which I'm going to highlight here as a green circle shows you recession coming every single time.

But don't worry, this time is different. That's that's the bull argument, right Again, for the reason that I've explained, average recession usually starts 16 months after a reserve. or you know, uh, 16 months after the inversion. However, here, they do also recognize the bull thesis.

They say here, there's a growing view that the yield Curve will not work as a recession signal this time around. We have sympathy with some of this, in particularly the point that the yield curve at present could be predominantly pricing in a sharp level of disinflation ahead. This is essentially what we just explained. So they are.

They see that, however, they worry that the Federal Reserve will not pivot because the labor market is such a lagging indicator of any kind of recessionary cycle. The FED is really blinding themselves to keep rates higher for longer to make sure they don't lose any more credibility because they were so hurt in the first cycle that the FED is probably going to keep looking at lagging indicators like jobs. And hopefully they don't. But if they do, they're going to cause a deep recession and that's going to hurt.

And that's why potentially a pivot from the FED could aligned with pain. Now this is where they show tightening lending standards. Okay, fantastic, but this I think we'll see here. that is the Employment Cost index showing you a little bit of leveling.

We think it's unlikely the FED is going to cut anytime soon. Great! Okay, these two charts right here are the ones that I think are a little bit misleading, which they are using as a bearish argument. Take a look at this. They show this chart here of: U.S mortgage payments as a percentage of income and they show you this massive massive skyrocketing of oh My Gosh.

U.S mortgage payments as a percentage because this is so freaking high. So this is not true though, because most people have fixed rate mortgages. so this chart actually only shows you U.S mortgage payments as a percentage of income for new purchases. Oh come on man, that doesn't affect the vast majority of people right now.

That just affects the current housing market which I already agree I think the current housing market is screwed, but that's not a surprise right now. But I think this is a misleading bear piece. Uh, and so I think you can dismantle that just like I Think you can dismantle this idea that oh, the U.S savings rate is so low. That means you know the Market's going to go into a deep dark recession.

Find the U.S savings rate is low. But where is your mention of a survey data and Bank of America survey data Which we know you're seeing as well because Jamie Dimon talks about it Jamie dying Diamond Literally said in the earnings columns is a JP Morgan PC or Jamie Diamond literally says hey, uh yeah lower income consumers might actually run out of their excess savings by the end of the year, but higher income consumers still have plenty of extra savings. There's a reason why Bank of America says people who had two and a half to five thousand dollars of excess savings now have somewhere around 12.8 thousand dollars in excess savings, which is only down three point uh, or 4.4 percent from last year where they had about 13.3 thousand dollars of Xcases. So in other words, you get like this insane amount of excess savings still available to where in my opinion, JP Morgan's bare arguments here really narrow down I Don't think you could use the savings rate as a bear argument I Don't think you could use U.S mortgage payments as a bear argument and Consumer Debt Service payments as a percentage of disposable income are roughly at the same levels we saw in 2015: 16, 17, 18, and 19..

So I don't know the biggest bear argument that I can agree with them on uh. And and then of course we've got this. like blurriness about the idea of what is the inverted yield curve Really mean it's not entirely clear that slightly tightening lending standards are really going to be a bear argument. I Think the one thing that we could really agree on is the Federal Reserve seems to be convinced that they need to look at lagging indicators.

So a lot of the bare argument that JPM is making here I personally dismantle. But the one piece that I really give them Credence to is this idea that The Fad is looking at lagging wage indicators and this is why in the FED Fomc minutes today I'm really looking for any indicators that they are aware of the laggingness of wages and that really, they should ignore the jolts and the labor reports and such because they may have already gone too far with tightening and they may break something that is the bear case. The Federal Reserve breaks something. They then have to print money to bail out markets.

They print money and bail out markets. and then after they print money and bail on markets, they actually re-induce inflation because now the money supply is expanding again. it's exhausting. So that's the big red flag is is a Fed that goes too far.

But but like this, this idea that that inflation for sure is is getting ridiculous I just don't see it, it's just not in the data.