Oh boy, we got a lot to talk about regarding wage disinflation. Is it happening? How's it happening? Where is it happening? And are there red flags? Let me tell you up front, there are some red flags we've got to pay attention to. We'll start with some of the good news, but you should stick around to the bad news because it's important to pay attention to not just the bullish news, but also the bad. So let's get into this new report out from Goldman Sachs before I Get out, get into this report from Goldman Sachs So I want to quickly remind you about what I've been saying over the last about three months during the beginning of this earnings cycle which is Starbucks Chipotle much easier time finding it much easier to hire folks, less labor turnover and of course we've heard this before.

Lyft and Uber massive new availability of workers like a 37 increase at lift leading to margins declining actually 37 increase of workers over at Uber. But basically Lyft complained about an extreme increase in the availability of workers. This is a good thing, right? It puts less pressure on wages, which we we know that. So going into this I just want to remind you of what I've been talking about already and seeing for the last months here.

but now we gotta look at: Goldman Sachs Do they reiterate my findings and what red flags do they give us? So take a look at this so outlook on wages and potential wage disinflation. Take a look at this. So right here. Significant Improvement in labor availability references in Russell 3000 Earnings calls So three thousand uh, companies in earnings calls references to quote labor shortages or various different quotes of that have fallen to the lowest level of the pandemic recovery.

So, post pandemic, we're at the lowest level of references to shortages, sitting at just 4.9 percent in Q4 earnings calls compared to 16.5 percent in Q3 2021. Our more detailed review of the Dow and large cap consumer company transcripts was even more encouraging. Two-thirds of companies references two-thirds of references pointed to increased labor availability, and no companies cited labor shortages worsening. Furthermore, several companies viewed the Staffing situation as back to normal, including Starbucks in Hilton Hey, look, Starbucks was one that I was talking about for a while.

right? Okay, great. So where's the red flag, Because so far that sounds good, right? We'll talk about exactly that. Let's keep going here. Out of 44 of these calls discussing wage pressures in Q4, a third of them cited or expected a sequential moderation.

So this is one of the red flags. A third of them. Basically, only 33 percent of them were like yeah, now we think wages are going to moderate right now. That's different than than when we hear this sort of bullish attitude at first because the bullish attitude at first is yay No wage price spiral which reduces the risk of the draw of the Federal Reserve and Jerome Powell needing to rug pull markets and force the recession to prevent a 1970s style of runaway inflation.

And then we end up getting Paul Volcker right? We do not want that. The good news is, we are not seeing that indication. No indication of a wage price spiral at all. It's what I've been talking about for months.

It's what's good What Goldman is reiterating here. However, only a third of companies are actually expecting wages to potentially moderate, which would be stay flat or potentially decline. That means most companies are actually still. That's 67 percent of companies are still experiencing wage pressures, but maybe not labor shortages.

That means you're hiring more people, you're getting more availability, but you are employing people at higher prices than you did. Maybe pre-pandemic right? For example, The Wall Street Journal Had a podcast this morning. It was about a 20-minute long podcast and the bottom line of it was, hey, companies and retailers and food service providers are finding it easier to hire people. But instead of paying, say 11 in average per worker Eleven dollars an hour, they're paying 15.

So they're finding the workers. But they're still paying more, right? And this is where Goldman Sachs says wage pressures are easing and labor shortages have eased significantly further. And they're not particularly worried about a pullback in earnings or earnings expectations, and which is good for potentially avoiding a recession. However, what's the big red flag With a big red flag? At least one of them.

There are multiple. One of them is that wage pressures are easing, but will likely linger throughout 2023. That's because markets are still adjusting to the fact that, yeah, we are living under an environment of substantially higher wages, right? So everything's still kind of adjusting up. Yeah, it's easier to get Workers It's just easier to get workers at these higher prices, right? It's like, all right, great, you're not paying 11 bucks an hour anymore, you're paying now Hefty prices.

So what other warnings do we get? Well, labor shortages waning, which is great. Uh, the breadth of Labor shortages on the basis that they've analysis analyzed here has retraced 75 five percent of the increase from 2019. That's a fantastic chart. You can see that depicted here, but basically the chart runs up to a level of labor shortages of 16.5 percent.

Pre-pandemic labor shortage references were really sitting at closer to about two percent, and now we're sitting at four point nine percent. So on a Fibonacci sort of retracement, you're down 75 on uh, mentions of Labor shortages. Great, but you're still paying higher wages. What do you have over here? In terms of commentary, Hilton talks about the labor market situation has eased a lot.

The health care uh HCA Healthcare says we're starting to see more favorable Trends in our recruitment function. Yum! brands. We're seeing stores staffed appropriately, so this is good, right? Because it shows you no wage price spiral, Because it means, look, we're able to hire people, but still, you're hiring people at a higher wage. Uh, you've got across Healthcare Frankly, there there are still issues in terms of the labor market.

Things are a little bit better. says Laboratory Corporation So you're still seeing some Embers maybe of shortages. That's normal, right? We're not back at normal mentions of Labor shortage just about 4.9 but it's or 4.6 But it's a huge inflection to bullishness, right? Which is great. And it shows the waning of the wage price spiral.

The wage price spiral by the way, just to show you how important it is, it was the one reason I sold my stocks in January of 2022. I said we hit a wage price spiral which it seems like we're running into a wage price spiral which what I sold was probably somewhere right around over here in this environment of like Peak mentions of Labor shortages which what happened that ended up feeding through the economy for the most pain about six months later, right when you got to about June of 2022. Uh, that and October of 2022 Over here on the chart, those were roughly around the times you had the worst sets of inflation. Inflation fears, wage price spiral fears.

So this is this was really a leading indicator of the pain that was coming to the market, right? You had insane inflation fears that turned into not inflation fears later. Now that's actually really incredible. If you think about this as a leading indicator, it's a leading tool that's telling you. As long as this keeps going down in six months from now, you should see even less wage pressure, more relaxation.

This is why I'm back to like essentially fully invested, not yoloing margin, but like these leading indicators to me are like grabbing me by the shoulders and screaming going the opposite of the conditions that you saw in January of 2022 are what you're seeing now, which reiterates the lack of that wage price spiral fear which is very, very important. So this is a fantastic, fantastic, leading indicator. Keep in mind still, Embers of inflation. Remember I've talked about this many times: 3M Johnson and Johnson Procter Gamble What do they say? Still expecting price increases to feed through the economy until about the second half of the year.

So that means until June you're still seeing those Embers of inflation. Which is kind of probably why we're seeing some hot reports here in January in part at least, but the expectation is those will be gone by the second half of the year. That's what companies are saying. and I think what companies are saying is very important Starbucks Talking about no labor issues minimal impact from labor from Hershey Company here.

Great, fantastic. What do we have over here Accordingly, the absence of progress in the other two-thirds of earnings calls on wages going down arguably implies continued upward pressure on real wages. This is right. just because you are seeing a lack of shortages, doesn't mean the Embers of inflation aren't still there like people are available at higher prices.

And this is a warning from Goldman Sachs where they say this could create second round effects of higher inflation in the short term. And yes, this is consistent with the volatility that I expect. This is why I Talk about the Nike Swoosh recovery That's going to be very volatile Trend up but very volatile I Believe the second round of the Stop It Siri I Believe the second round effects are going to be that feeling of ah, still seeing some stickiness. Still some stickiness, right? But the good news is the leading indicators are suggesting that as we get through those Embers they're waning.

We just want to make sure those continue to wane. And as this Goldman Sachs report analyzes here and quotes Staffing Firm Manpower Group We expect wage inflation quote to continue to come down, but it's going to take a while. in other words, slower recovery, but it's going in the right direction which is great. Here are some talks about wage pressures not going away, so some of the worst ones over here: Industrials This aligns with what we heard again: G Um, Johnson and Johnson 3M Uh Procter Gamble Here's Mohawk Industries which is a home furnishings company.

We see inflation impacting our labor costs around the world As we start raising labor rates, they're playing catch-up to higher wages. So again, people are available, but you're still paying them more, right? Manpower Group: We expect wage inflation to come down, but it's going to take a while. Chipotle Sees labor costs improving. We've talked about that as well before this report came out.

Hey, maybe They're copying me? No, just kidding. I'm trying to Pat myself on the back, but I don't actually believe that. I'm sure they're doing just similar research, which is great. A Marriott International The wage pressures have moderated and we're seeing a more normalized environment.

Great modelies. There's a lot of talk about diminishing cost inflation. We don't see that at the moment, and it's driven largely by energy, ingredients and labor on the labor side of things. Uh, Pulte Group says their cost site is still elevated labored energy inflation by Procter and Gamble McDonald's says labor utilities will affect operating margin.

Walgreens says the same problem and this is where I think a lot of those consumer staple companies are just going to take it in the margin which is another thing I've consistently been talking about on the channel here. People like to say I flip-flop a lot which is fine because I do change my mind a lot but I tend to be very consistent when I have an investing thesis. Have been very consistent about this investing thesis and and I'm looking for reasons to say. Hey Kevin Where where are you wrong? And so far the only thing I could find is Mike Wilson telling us that we're we're too high on Mount Everest and we're in the danger zone where our oxygen levels are going down to the point where we're turning delusional.

Uh, which? The fact that he has to come up with that kind of analogy suggests that he's kind of starting to lack some data to support his argument. But we'll see. Uh, we'll see, You know, time will tell. uh.

anyway. Goldman Sachs here Predicting uh, that the unemployment rate will actually stay pretty stable throughout most of the Year Here, they don't actually see the unemployment rate Rising above 3.6 throughout the entire year. Uh, 10-year treasury note: Here's a note for Real Estate Right. Really expected to say in potentially the low four percent range the entire year up from where it is now around 3 9 which is another red flag for Real Estate.

But you know we talk about those red flags for Real Estate pretty regularly. So this is some important things to pay attention to. But when it comes to wages I think Goldman Sachs is right to say that things are looking good and the fear about the wage price spiral is going away. That's probably the most important tool that we have to suggest.

Maybe that big old second wave of a market crash isn't coming, and we could actually hold on to those moving averages that we've broken on like the QQQ or other stocks where we've talked about previously. We finally broke the trend of lower highs breaking that Trend and breaking above the 200-day moving average I Think is happening because the realization is setting in the market that yes, things are going to take longer, it's going to be a slow and hard recovery. but we're not trending towards a wage price spiral to where we have to get Paul Volckert. So this is a fantastically bullish report from Goldman Sachs It is not one that says let's all go YOLO and margin and go crazy and then everything's going to be great tomorrow.

But I think it is a very clear indication uh, that that we are seeing, uh, disinflationary effects in the wage Market Someone named MK here says shrinkflation is rigging CPI Actually CPI already adjusts for shrinkflation. They adjust per quantity of good, so shrinkflation is is clearly adjusted for in. um, in CPI It looks like now you're spamming it. Why don't you address the shrinkflation that's trending on Twitter You know? Look, I'm a big fan of using Twitter But yeah, I go one extra level deeper.

Okay, do a little research into how CPI is calculated and you'll see CPI does address that. The idea is to to look at a similar basket of goods over each reporting period and adjust for quantity of that good which course is the best to buy? Well, I appreciate you asking that question. I Think you really want to start right now in the market that we're in with the zero to millionaire real estate investing course. However, a lot of people like the stock start with the Stocks and Psychology of Money group so those are probably tied for most popular.

and I think what a lot of people do is they just bundle those two together. Would you get a special price if you bundle those two together? But uh, I I think fastest way to to Big wealth This real estate cycle. You got to take advantage of it. Obviously, stocks and Psychology money is opportune as well because we're I think we're in a fantastic time right now.

So oh thanks John for saying Kevin is the best Finance YouTuber man I I Can't say best but I appreciate I really appreciate you saying that. Thank you for that. Uh, so shrinkflation is because it's cold outside. damn it.

Anyway, thank.