Hey everyone kevin here stocks are all of a sudden starting to sell off a little bit midday now oftentimes. We do get a midday sell-off, so it would not be a surprise to rebound from some of the madness that we're experiencing right now. But why is it that all of a sudden we're seeing a little bit of a drawdown on the s p, but also multiple other stocks? Specifically software stocks getting hit particularly the hardest hardware? Stocks are the ones that are really doing well, especially those with margin, but look at some of these folks software software software software software software, everything, here's software, look at this toast, cloudflare, monday.com fastly, all these guys down ten to eight percent twilio uh! You know you've got some in here uh like newegg or dutch bros or moderna selling off for their own particular reasons. But software snowflake getting hit here.

Unity getting hit zoom getting hit bill.com getting hit lemonade, getting hit roblox getting hit draftkings getting hit smile, direct club. Getting hit c3ai getting hit, i mean these are all those are just the five percenters trade desk under a hundred robin hoods getting wrecked on mostly on their lockups, but that's a topic for a different video holy smokes. Why? All of a sudden? Are we seeing this massive software compression and why are hardware stocks doing better and why all of a sudden is the market u-turning intraday like this well part of the reason the market is u-turning is because of the following. It has to do once again with our good friends over in congress.

If you have not yet watched my warning for december of 2021 video that is going to be relevant all month, i highly encourage you to watch it, but one of the warnings was that congress has just until december 10th to actually get their job done. Pass the buildback better plan in some shape or form pass a budget and extend the debt limit well now, democrats and republicans because they realize this is unlikely to get all that done in the next 10 days. Democrats and republicans are like well. Maybe we could just kick the can down the road to january and we'll deal with the budget in january.

We'll just we'll just kick the can down the road again. Do another stop gap measure, because we don't know how to get work done around here. Great fine, but now we don't have an agreement on that. It is now appearing increasingly likely, as reported by bloomberg, that congress will not get a stop gap.

Measure agreed upon, certainly not by the end of this week. That's that's not looking expected at all, but by december 10th, which is the deadline, which means we could literally be increasing the odds of running into a government shutdown again. Debt ceiling crisis increases the pain around uncertainty in the markets here, and on top of that, you just had jerome powell and janet yellen, testifying before the house financial services committee, discussing the impact of inflation about how inflation is lasting longer and is a lot larger than Expected now one of the things jerome powell says about this, and it's worth noting jerome powell mentions hey look. This is because of the massive supply chain constraints that we have not because we printed too much money.

He argues that a lot that look he says old school thinking is that when you print money you expand the monetary, the money supply the supply of money, and then you have inflation. Jerome powell says hey. That used to be true, but that's somewhat old-school thinking, because that changed about 40 years ago. He says that about 40 years ago we started seeing a transition to where all of a sudden, what matters, much more, is actually supply and de demand and the dynamics of supply and demand and, as part of that has to do with the velocity of money.

But part of it just has to do with the way the economy actually functions, and that's why we've seen consistent deflationary trends for about the last 40 years since coming out of the 70s and after paul volcker went ape on inflation. Now you do also worth noting. Have the ecb kind of responding in a similar way the european central bank says look, it would be wrong to tighten right now, because if we tighten right now, the price pressures that we have right now are probably likely to fade by the time our efforts to Tighten now actually take effect, that's because there's usually about an 18-month delay in how long it actually takes to to see monetary policy take effect. So if you start tightening now that tightening really hits the market in about 18 months, but if by then all of a sudden, the supply chain constraints go away, inflation pressures go away and now you're tightening in a market, that's growing slower and prices aren't going up.

Now you could actually push yourself into deflation, which is deemed to be even worse now. In fairness, though, germany just hit the highest level of inflation that they've had since 1992. That's when i was born belgium, 5.6 inflation, germany, 6 inflation same in spain, high levels of inflation, a lot of it having to do with energy prices going up. Surprisingly, rent's not going up that much only about 1.4 percent, but uh goods up 5.2 services.

Only about 2.8 in germany uh just some notes about how kind of some things are acting across the world. Obviously, turkey, over 20 inflation, brazil over 10 inflation. So we we are in a global inflationary crisis right now and jerome powell is reacting a little bit more hawkishly than uh. Anybody has really expected.

We all of a sudden saw jerome powell go from dove to hawk like overnight, and it's freaking out markets a little bit look at what's doing well today, folks, it's crazy, but it's also somewhat expected companies with margins, ford, uh, hp, mattel weber, companies, hardware, companies right Hardware, product companies, apple, lucid, lowe's, western digital seagate - not a lot of the software companies are really kicking butt right here. The fact that google's up is actually a surprise. You know some of the auto is doing well today, but it's for some reason. We've got this weird uh sort of divergence between the software companies like cyber security or artificial intelligence and hardware.

I don't know why this divergence exists right now, but it does it's pretty bad and it's getting worse right now, it's not getting better. So it's definitely something to keep an eye on, and this is something that we've been talking about for a couple weeks on this channel. In fact, if you're not super familiar with it, you got to ask yourself why you're not part of the stocks and psychology of money group. Yet, where we talk daily about what the heck is going on in the market, you can ask questions one of the things and check out that cyber monday coupon code that ends friday it's cyber monday week, but anyway, one of the things that bloomberg told us a Week and a half ago was that if we continue to see uh inflationary pressures - and we see rates, go up over the next few months to a half year, then we're likely to see valuation multiples for software companies come down and that could lead to valuation.

Compression of over 20 for software companies - this is one of the reasons we're seeing a lot of pain in the software companies right now. So it's worth noting that, in addition to the disaster, that is congress and the fact that when you see well, wait a minute kevin, why? Why, then, is hardware going up? Well, ism manufacturing lead times are showing that we might be actually kind of at a peak of peak pain when it comes to supply chain shortages. We've already passed peak pricing for containers, we're now passing peak lead times for hardware. So it's kind of no surprise that the hardware companies are doing better right now, whereas the software companies that were previously a little bit more of the sort of safety getaway during the supply chain crisis are seeing a rotation out of those and into the hardware companies.

My expectation, combined with the fact that we've got a lot of uncertainty with congress leading to this kind of rotation, in addition to, of course, end of the year profit taking or loss taking. So these are some things that we're seeing right now worth watching this. In the market we'll see how this develops make sure to subscribe, to get more information like this. If you found it helpful, consider sharing the video and folks we'll see in the next one check out those programs linked down below thanks, so much goodbye.