Well folks, are we experiencing A Tale of Two Cities Are we going into a recession and is inflation going to stay stickier than anyone expects? Or is the recession already over? Hmm, that's an interesting thought after all. Consider that in the first quarter of 2022, Real GDP was negative 1.6 percent. In the second quarter of 2022, Real GDP was negative Point: Six percent. That sets up the technical definition for a quote.

Technical Recession: Two quarters of negative GDP In a row Now Democrats In the White House will say nah, that wasn't actually a recession whereas other people say, oh, how convenient for you to change the definition of recession. Facts are what they are. We had negative real GDP for two quarters in a row. whatever you want to call that fine.

But there was now an argument being made that the bottom is in knock on wood I'm not saying it Bloomberg Intelligence is saying the bottom might be it Bloomberg Intelligence has something known as the Economic Regime Index. And the Economic Regime Index suggests the worst economic pain in this market happened a few months ago, and that things may not actually be as bad as they seem. And maybe the stock market realizes that. And maybe that's why the stock market is actually up 20.

Since October that's the S P 500 year. Today the S P is up over seven percent. The NASDAQ is up over 20. Some exchange traded funds that are more Tech focused.

Sometimes pricing power focused are up over 30 percent. In some cases, there's some real opportunities that have happened. Look at Bitcoin Bitcoin and Ethereum are up somewhere 80 since the beginning of the year. It's phenomenal.

Yet despite this, the Bears are present and so I Want to talk about both the Bears and the Bulls in this video? The Bears Like to point to this chart and say, well, wait a second Here investors have withdrawn cash from U.S equities for 11 out of 15 weeks this year. That seems bearish. In fact, you could see those withdrawal periods here. You can also see this massive tax loss harvesting event here, which is the Blue Line showing you a massive decline in the last week of December.

Excuse me All right. So why is so much Cath and cash being withdrawn from equities? and why then is the market still slowly trending? Ah well. Some argue that cash is being withdrawn because clearly the earnings recession is afoot. Morgan Stanley's Mike Wilson will have you know that the earnings recession is coming.

Companies are going to miss their forecasts which are already low. They're going to miss on EPs and we're going to go into a real S P 500 to climb. We're going back to 3200. We're going down 20 30 percent.

Why do they say that? Well, in part, because you do have the S P 500 heavily exposed to things like consumer staples and Health Care stocks, which in my opinion as well as REITs which in my opinion won't do so well in 2023. I Think they're likely to experience the real earnings recession, though lately they've been propped up by some mag attack. Now there's also the argument that hey, well, people are taking this money out of the stock market because you could get four to five percent on money market funds and Hell Well, if you've got so much money that you can make in Money Market funds. if you can make four to five percent, why would you risk any of your hard-earned cash in the stock market? Just take a four to five percent risk-free return and call it a day.

Yes, maybe. But remember, a four to five percent return actually is your payment for opportunity, right? It is an opportunity cost. Somebody who is investing in the four to five percent yields might potentially be missing out on 20 30, 40, 50 returns in the stock market. However, they might also avoid another 20 downside in the event that occurs, right? So this cash withdrawal chart not that fantastic, especially when you couple it with the fear that it's possible inflation will remain a lot stickier than we expect.

In fact, here's a piece from the a Wall Street Journal which talks about economists turning more pessimistic on inflation. And really, what they're talking about is how economists have been surveying and all of a sudden, economists actually expect inflation to end the year up at 3.53 versus 3.1 percent in January. And the number of economists thinking that rates are going to get cut by the end of the year has flip-flopped from a majority to now only 39 percent of economists. So part of that is because a lot of economists believe inflation will be higher for longer and this is a pretty typical bear argument that people make.

This chart, by the way, shows you the dark blue line on top, which is uh, the April forecast for inflation and the light blue line being the January forecast. I tried to throw in what I call the sort of like wedge in Orange here and that's really just to show you where uh, inflation might be higher. See this little extra difference here. This is what the market has to price in it's higher for longer inflation, right? And uh, that's negative for the stock market obviously.

or is it though and see, this is where even though consumer expectations for inflation via the consumer sentiment survey at the University of Michigan just popped up to its highest level since 2020., now a lot of folks are saying hey, maybe we are going to have higher inflation for longer. Maybe that does mean rates are going to be higher for longer even though all of that might be true, the Bloomberg Intelligence Economic Regime Index suggests most of the pain. it's already over. and when we align what the S P 500 forward returns could be based on what has happened since the 1970s, might be time to turn bullish.

Now this follows the Economic Thrust Index, which we talked about just in the last two days were the Economic Thrust Index is basically one of the most reliable signals for just being past the bottom and on an uptrend. And that Economic Thrust signal is saying we're here. It's time to buy, baby. Now Who knows, but take a look at this.

This is the Economic Regime Index and I'll explain it because at first it looks a little funky. So what you want to do is you want to zoom in over here to the right. And what this does is it measures the change in momentum of things like manufacturing, industrial capacity, consumerism sentiment. It puts all these data sets together and what you could see historically here this chart goes all the way back to 1970.

So then you've got the 1970s, the mid 70s recession, the late 70s recession, the early 80s were session rights. yada yada. What you can see is that this chart usually bottoms at the end of a recession. Look at that.

Notice how it it leaves the bottom at the end of a recession. it bounces along that bottom in the recession. But it the recession is almost always over by the time it flip-flops See that? Look at that. That's interesting.

So where are we right now? Oh crap. Look at that. We're out of the potential bottom territory there. So is it then possible that.

when recession designers is there? I Say that word. The Uh Bureau of economic research ends up deciding the National Bureau of economic research. The Nber ends up deciding. Okay, yep, we were officially in a recession from Q1 2022 to Q1 2023, or even Q4 2022.

What they might end up doing is they might end up drawing this. Oops. Let's use a little bit of a smaller pencil here. Imagine this: How funky would this be if the recession ended right there? We drew this box.

There we go. What if that ends up being the recession, right? What if 2022 was the recession and this economic model just like it's been correct in the past, correctly, correctly signals that we have already passed the recessionary pain and that any other kind of future hiccups are potentially already priced in to the market. Now, we're still low, right? Don't get me wrong, we're still substantially low here, and we're still in that sort of volatile area here. But it's somewhat interesting.

And remember, you never want to rely on just one data set. In my opinion, you want to look at the fundamentals of companies I'm a big fan of looking for High Free cash flow companies Companies with high pricing power and companies with high free cash flow and pricing power that are also getting stimulus checks I Hate to say it, but the government is basically handing out stimulus checks to some of the richest companies in the world. Taiwan Semiconductors Intel Tesla Nvidia AMD And face, it's ridiculous. But as an investor, I'm like, well, I'm not gonna say no to the free money.

Nobody should. That would be stupid. but take a look at this. This is the Economic Regime index for the past six months.

that is. it's a six-month moving average. Right now, moving average is going to be less reactive to the day-to-day fluctuations. So you'll notice the bottom blue segment is a lot lower or a lot smoother I should say.

But what it shows is that we've hit that white line on the bottom. That white line on the bottom. Let me highlight that for you. That white line down here is really the bottom.

Almost the bottom here. In 2008, we went past it, right? So in this segment here, we went a little past it. But typically this has actually indicated a bottom hitting that little white line in the 70s and the 80s and the early 90s. And look at what the six month moving average just hit.

It's interesting. So uh, what do S P 500 returns usually do? Now again, I Want to just briefly. Caution when we talk about these: S P 500 returns briefly. Just want to give a caution that I'm not the biggest fan of the S P 500 right now.

That's just my opinion. I Think if you go through the top 60 stocks in the S P 500 there are too many of them that are exposed to commodity Staples health care. That, in my opinion, it's just my opinion, aren't actually going to do as well as they potentially could. uh, going forward.

So that's where I'd rather be focusing my energy and attention specifically on pricing power style stocks a lot of those Champs tax. But but you've heard that all before, right? So that's that's I Don't want to sound redundant here. Uh, but what I do want to focus on is is really this: this: uh, the S P 500 forward returns that Bloomberg is projecting. Now who knows? this is just projections so we don't know.

Uh, but Bloomberg's S P 500 forward returns are the following. So after that index hits its bottom. Bloomberg estimates that the S P 500 historical average between 1970 to 2023 three months forward. After this economic index hits its bottom out of eight recessions, it has only been negative once on a three-month forward basis.

That's pretty impressive. Those are good odds. I mean seven out of eight times. This is positive.

The S P 500 is actually positive in a three month period. In addition to that, if you look at six months forward, you're also looking at being positive seven out of eight times, which is also quite impressive. And then if you look at the one year forward also, seven out of eight times you're positive. But not only are you positive, seven out of eight times, look at the magnitude at which you're positive.

This is what's really impressive. I mean you're looking at in uh, nineteen 80 right here? 19 Actually, no, this is 2009 and 2020. 2009 and 2020, you were positive to the tune of about 40 in the one year forward. Uh, you know the averages over here would be closer to about seven percent average, up on a three month forward, a little bit more dicey on the sixth month, which somewhat potentially aligns with this this fear that oh no, we're gonna have like a Q3 recession or whatever.

Uh, but overall, these signals are pretty bullish, despite the fact that their fears inflation might remain a lot higher. Uh, Than People expect. Now, the other Uh graph that I wanted to show you is uh, is the one that we've talked about previously and it that's the Kopak Index. So if you wanted to see that as an index that was potentially flashing, uh, an inflection of okay, here we go like this is this is the sign to be up.

You could Google that one yourself. Or you could watch a video that I posted just a couple days ago talking about the Coppock index. Uh, in fact, I want to say I posted that on the 14th or the 13th Just so you can have the reference to it, it was the 14th or the 13th And let's see. Uh, it was actually probably the 13th.

Oh yeah, here it is. I believe I Called it massive flip. Uh, coming to stocks. Yes, that's where it was.

Massive flip Coming to stocks. you could watch that video in detail if you really want your like bullish tingleness to trigger. Watch that. If you're a bear, you probably don't want to watch this because this cop box signal here, whatever signal is is indicating uh, some some bullishness that historically has fired almost always at the bottom.

it has pre-fired I Think once in the past actually has no no I don't think this one's ever pre-fired Yeah, look at this and it's not trying to time the bottom. it it triggers just past the bottom. Uh, almost every single time it triggers just past the bottom. I Think there was another index that we looked at.

Let me see here. Uh, the other index. Yeah, this was the other index we looked at. This was the thrust Index This one had a few misfirings.

Uh, so there are a few times the thrust index actually fired a little too early, but the uh, car park was almost always right and suggesting we were just past the bottom. so maybe the bottom is in. Now to me, that's pretty dang exciting because obviously I believe in the Nike Swoosh style recovery. I Think it's going to be volatile.

but I agree I think the worst is behind us. It's gonna take a lot of new Paul Volcker style. Fear for us to get back to the bottom for the bear years. Sorry for the Bulls Pretty excited and I'm happy for y'all so we'll see what happens over the next uh, six to 12 months here.

Let's just say pretty bullish. Check out Stream Yard by the way. Met Kevin.com Stream Yard by the way helps me make all my live streams and pretty much all my videos. and let me put banners up! They're really phenomenal and fantastic so make sure you check out Streaming up.

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