Now we got to talk about the disaster that could actually be facing us. And yeah, it is the recession because we've regularly been talking about excess savings and how excess savings or potentially the white knight in the no Landing fairy tale Oh crap yeah, that's exactly what uh analysts are now suggesting that this idea that we can keep flying uh in the economy without having to land either via a soft Landing or a hard Landing recession suggests that everybody's just going to keep spending through this recession. and as long as inflation Trends down we're Gucci everything will be just fine. After all, Bank of America has widely told us that hey, look, people who used to have 2500 to 5 000 in their bank accounts now hold somewhere around 12 800 in their bank accounts and that has only been drawn down by about 4.4 over the last year.

That really suggests that hey, if people have a lot of excess money, maybe they could keep spending, keep Doling it out and actually lead to a GDP increase. Now that's very interesting because the GDP increase would obviously mean no recession, no recession, and continued spending might mean that Consumer Staples which I personally think are going to get reamed in a recession particularly companies like Procter Gamble Johnson and Johnson any kind of restaurant uh, Target Walmart Costco you name it. I Personally think they're all going to get reamed under substantially higher costs. They're all scrambling to find more productivity or ways to be productive.

Even Tyson Foods is freaking out like we got enough employees. Now we got to figure out how to be more efficient because we're not hiring anymore because we got enough employees. Okay, the excess savings though, is potentially dwindling away, but at what level. And that's what we want to pay attention to because the only thing that, in my opinion, could potentially save the Staples and restaurants or the companies that I just mentioned or Xsa.

But unfortunately, Jamie dimon. the CEO of JPMorgan Chase does not see inflation coming down fast enough. certainly not by the fourth a quarter. In fact, He suggests that the Federal Reserve could end up being substantially more patient rather than necessarily continue to hike, but just remain at a high level for substantially longer than the market is anticipating.

Now By some accounts, it's entirely possible that the Federal Reserve needs to hike rates up to five and a half to six percent hike rates up to five and a half to six percent before they're done. But they could actually potentially remain at those high levels for so long that once access savings are depleted and they have less liquidity or less access to credit, we can actually end up seeing the real pain from this recession now. Bloomberg Economics believes that households today have at best 12 months of excess savings. Runway At worst case scenario, six months left.

That puts the recession in alignment with when excess savings run out of between September of 2023 and March of 2024. Bloomberg Economics suggests that excess savings are somewhere potentially as high as 1.7 trillion dollars. However, that 1.7 trillion dollars may not account for Capital losses that people have incurred due to Investments they've made over the last couple years losing value when you consider that excess savings might only be 1.4 trillion dollars. and the uh, the the Bloomberg staff actually believes that a lot of that 1.4 trillion dollars might end up being really illiquid.

So Bloomberg suggests what if only, or what if the excess savings we have are actually way smaller than the reality or than what we actually currently think there are. In other words, what if we run out of this excess savings way sooner than we think? Remember right now, we know that the X excess savings or just the savings rate in America has fallen to ridiculously low levels, right? You could just Google that St Louis a Fred and type in savings rate and you'll see that the savings rate has fallen to very low levels. This is a very common argument of the Bears The bars pull up the savings rate and what they like to suggest is, well, look, the savings rate is plummeted. Therefore, we're going into our session and if we just zoom into about the last 10 years Yes, the savings rate used to sit around seven percent.

it exploded during the government's stimulus payment era. That makes a lot of sense, but we've actually seen that savings rate plummet to levels as low as somewhere around three percent, and potentially now sitting around four and a half percent, which is well below that trend of average of about 6.9 percent before the pandemic. So we have a below Trend savings rate. That's what the Bears say.

This is bad. This is a red flag. The Bulls counter that and say, but we have so much excess savings. Well, Bloomberg is now countering the Bulls argument and saying maybe we have excess savings, but what if a lot of that is a liquid? let's try to look at some real estimates that Bloomberg suggests.

Bloomberg thinks the people with the lowest sixty percent of incomes have just 566 billion dollars in excess savings. That works out, Which sounds like a lot, but when you consider sixty percent of the population, divide that out. That works out to only one to three months of excess savings. That means as soon as this next quarter that is the next three months March April May Which is not really a calendar quarter, but it's just a quarter Right over the next quarter, we could potentially see Staples start getting whacked because the poor people that is the lower 60 percent of individuals that is the poor 60 I Know that might sound offensive, but it is statistically what it is.

I'm just gonna stick with the statistics here. Okay, lower 60 percent might have to start cutting back substantially within the next one to three months. That is a big red flag if you are exposed in my opinion, to any kind of stocks that are exposed to lower income spending. Let me tell you the opposite.

Who is not exposed generally to that lower sixty percent Tesla Apple and Phase Semiconductors Solar Edge See what I'm doing? The people who spend money on more expensive devices, more expensive cars, more expensive home owner Investments Like energy, more expensive chipsets which companies Buy in servers buy. Those in my opinion, are going to be companies are going to be insulated from this lack of spending. That makes sense. That doesn't necessarily mean that's exactly what's going to happen, but it's one of the reasons.

I have a strategy called focusing on investing In High Free cash flowing pricing Power stocks I Believe companies that are selling stuff to people with more money have pricing power even during a recession I Believe those companies are recession resilient. Now that doesn't mean they're perfect in a recession, they can still draw down and be very, very volatile. But I think coming out of the recession and even going through the recession, they will fare much better than other stocks. That's just my belief.

that's my investing thesis. Who knows. But Bloomberg Economist is now calling for or Bloomberg Economics I should say is now calling for a recession in the second half assuming savings run out in the next three months for that lower 60. However, if the savings last longer, they believe the recession could begin at the beginning of 2024, so it really sort of aligns with that estimate that probably between September and March is where we're looking at it now.

Bloomberg Economics suggests that uh, there are two different estimates if we have around 770 billion dollars of excess savings per person, not just the lower 60, but for everyone, we're sitting at around five thousand nine hundred dollars of savings per household. If we have 1.7 trillion, the higher estimate, we have around 13 000 of excess savings per household. But again, we have to potentially adjust that for how much of those savings are illiquid, or how much of those have suffered from Capital losses because they've invested money and lost money. And what happens when household savings and household wealth starts declining.

and then all of a sudden the wealth effect kicks in, where because home values are going down, people start spending less money on residential improvements which also could affect energy stocks or battery related stocks, right? And what do you end up having? You end up having a recession? Now, the good news is you have a lot of companies. Like yesterday, we were looking at a geothermal company. Uh, fantastic geothermal company evaluation. Well, I'll save the valuation for the course member livestream, but we went through a geothermal company.

It's probably it's the largest. uh, one of the largest in in the world. Uh, and uh. And we talked a lot about sort of its balance sheet and its revenues and its cash flows.

and its valuations. Uh, and really, the future for the company. Uh, but anyway. Uh, that company was specifically talking about how battery costs seem to be declining because of less EV spending in China Kind of interesting.

Also, a red flag, yes for Tesla, but also specifically for Byd, which is generally appealing to a lower income audience, right? Anyway, Bloomberg Economics goes on to say that as wealth increases, the savings rate can tend to be less. So they're trying to counter argue this lower savings rate. They're basically saying, look, if people feel richer, they don't necessarily have to save as much money that they do save money when they get it from the government. But they don't necessarily have to save as much money if they have more wealth.

So it is possible that we do still have a lot of excess savings. The big question though, now is how much do we have? enough excess savings to get us through the next three months? Or enough excess savings to get us through the next year? and when we align this with inflation? Obviously, if we only have enough excess savings to get us through the next six months from poorer folks, well, then you're going to see Consumer Staples get hit first and hard and that recession comes sooner. If it takes us two years to get through inflation, well, then potentially everything gets whacked, the lower income related stocks and the higher income stocks. If inflation goes away by the beginning of 2024, and wealthier people still have excess savings and poorer people don't then maybe only Staples get whacked.

And the more expensive stocks or more expensive selling stocks, the ones that sell stuff to people with more money. Maybe those don't get hit as hard. So you're kind of playing this teeter-totter game where based on excess savings, we're going to determine how bad the recession ends up being for how many different companies now. What's also very interesting and in my opinion, very relatable to what you have here on YouTube is the following: The suggestion that lowest the lowest income households have stopped accumulating Financial assets as early as 2022, and in early 2022 they suggest I should reread that correctly.

They stopped. Lowest income households have stopped accumulating Financial assets early in 2022.. Now that's actually really interesting because if you look at Finance in YouTube, you will see that Finance YouTube viewership has fallen off of a cliff across all of Finance. It's not just some individuals, it's all the finance is getting whacked.

There's a reason for that. It's because lower income households who were interested in finance in 2020 and 2021 are no longer as interested in finance. Bloomberg is reiterating that I'm taking an anecdote to reiterate that as well. That's very interesting because that's sort of the cyclical.

Trend When you get everybody interested in finance, fees are up, less people are interested in finance views or not personally. I Almost wonder if it potentially makes sense to time how you invest in either stocks or real estate based on finance viewership on YouTube If everybody is watching real estate videos on YouTube Maybe everybody's trying to get ready to buy real estate If real estate YouTube videos aren't doing that well, maybe less people are interested in buying real estate because it's a tougher time and cash is less readily available. It's really interesting. It's something I'm paying attention to because I think that the people who watch my content are people who are probably mostly between the ages of 25 and 45 and are looking to build their wealth and build their income.

That's obviously why I have courses to add even more perspective to what I can provide on YouTube going to the course member live stream after this video, for example. Uh, but what's really important is that when you lose sort of the fringes of the the other income either younger people or people potentially with less money, it's a sign that the market is getting tougher, right? Obviously that aligns with the market. Obviously, it aligns with what we're seeing with excess savings. If people don't have money to invest anymore, what's the point of watching Finance Content Very interesting Now, credit card interest rates are expected to reset substantially higher uh throughout the rest of this year as well, which will crimp, uh, substantially excess savings as well.

And Bloomberg basically says the runway is not long enough for us to get through without a recession. They're basically calling for a recession because we do not have enough excess savings to prevent a recession. There's no way is what Bloomberg expects and again I've said it many times in this video which stocks I think will do the best and worse. But let me give you an example of one that isn't doing so well right now: Dick's Sporting Goods Just posted its smallest quarterly gross margin since the first quarter of 2021 heightened or because of quote heightened promotional activity during the holiday season to basically put pressure on margins due to massive discounting.

But it's not just retailers who are massively discounting, it's also manufacturers who are starting to see it. We are seeing the strongest weakness in two years of growth for manufacturing right now. New ISM data shows that we are down in manufacturing 1.7 percent from May of 2022. roughly the peak on a three-month average.

Now that might not sound like a lot, but remember, for you to have growth, you need everything to grow like stuff needs to go up, not down. If GDP was negative 1.7 percent, it would be terrible. That is a bad GDP decline I mean a soft Landing is like a negative point. two percent GDP negative point.

or one point seven percent would be terrible ISM Orders on a three-month average basis moving average down 1.7 percent. So the retrenching is starting. Manufacturing does only represent 11 of GDP, but it's an early indicator of recession now. People are remodeling less.

They're buying less appliances they're buying Less Furniture They're buying less carpeting. Uh, all of these items are down 15 in January year over year. By the way, Previously, Uh owned home sales are at levels that we haven't seen since the crash of 2008 because less people were moving so less people are investing in homes. People usually buy new things after they move.

You get new appliances after move right. Machineries down 1.8 Uh, steel and iron metals are down 3.8 percent. These sort of primary medals, the output of plastics, uh, and and other sort of industrial goods are also down. In other words, like basically, good luck.

Like recession is coming, Job gains in the last three months have hit the slowest Pace in the last 18 months, so last three months slowest Pace In the last 18 months, we're gonna need luck essentially to avoid a recession. At this point, car production still hasn't recovered business inventories and Q4 or higher in November and December than at any point since 2009. Great Recession You've got a pile up of inventories that's also now hitting sub suppliers. Think about it, if you sell t-shirts like custom printed T-shirts you're looking and you're like, well, we don't need to buy as many new printing presses because we don't have as many new orders.

but now we also have to buy less ink for our silk printing. Or however, that's done, we have to buy less cotton or yarn or stitching or whatever. Everything gets hit. When the economy slows down, construction demand is expected to fall 11 this year.

It's it's all a disaster. Like when it comes to excess savings. And the disaster uh, that is pointing to a recession. You got to be really careful.

It is a hard time to invest right now Again, There's a reason why. I Personally am trying to focus on software related companies where I think the spending will continue ships Apple Tesla Uh, some of the energy companies that are starting to look like a juicy deal. Although there's still more downside ahead, especially if real estate weakens even more. And this is where you really want to pay attention to that 10-year uh yield curve because right now you're sitting at about 3.96 on the 10-year it's expansive.

It's going to hurt real estate. Absolutely going to her. So anyway, this gives you a lot of data. a lot of info.

Hopefully you found this helpful if you like this. My goal is to stream every day uh, basically every single day no matter where I am I'm going to Florida later. this uh actually I'm flying to Florida today. Oh good lord.

I gotta be in Puerto Rico tomorrow back in Florida Oh, there's a lot to do, but anyway, my goal is to still provide the value every single morning. all right before the Market opens. Jpow does speak at 7am this morning, so in about 33 minutes. hey, thanks so much for watching and subscribing as well as sharing the videos.

In case you've enjoyed it, make sure to consider getting more perspective via the links. Down Below In Becoming a Millionaire through Real Estate Investing one of our most popular courses zero to millionaire Real Estate Investing that is often bundled with the Stocks and Psychology of Money Group or the do-it-yourself Property Management and Rental Renovations guide. After that, you can also check out the Elite Hustlers which has its own special exclusive live stream for people looking to make more money as an individual earner or that is as an entrepreneur or as an employee. And of course a check out the other programs specifically for agents or YouTube content creators.