In january of 2022, i likened the sinking of the titanic to what was about to happen to our economy. Inflation was a bigger beast than we saw coming. The federal reserve had to quickly reverse course, but unfortunately, that came at the cost of destroying stock and asset valuations throughout our economy, breaking stable coin pegs and ultimately ending diamond handers. But what's most unfortunate is not that i spent six hours editing together that titanic clip in january, because i thought it'd be fun and that other people then stole it from me and used in their own youtube videos without so much as a mention, but that it Became true that a depression may be coming and that a prolonged drop in asset valuations, a drop in available credit consistently negative gdp, not just for two negative quarters but consistently negative, potentially for the next two years and a substantial uptick in unemployment and bankruptcies for an Extended period of time, the likes of which we have not seen for 100 years could be ahead of us, and this is something the market is not ready for.

In fact, the market is not even ready for a recession, which is a problem because see the new york federal reserve just came out and mentioned that we have about an 80 percent chance of a recession like what we had following the 1990 recession that we have. Maybe a 10 chance of a soft landing or a soft-ish landing see take a look at that. According to the model, the probability of a soft landing is only about 10 percent. Conversely, the odds of a hard landing are about 80 percent straight from the federal reserve.

Yet the stock market is only pricing in a 68 chance of a recession and in 75 of the recessions that we've had previously here going back to the early 1960s, we found that stocks had to price a recession into the tune of 80 to 90 percent. For us to actually have hit a bottom in the stock market, so that means we have more pain to go and it makes sense because if we take the average of all market crashes going back to 1929, we are the blue line right here and with a Recession, the black line is our expected trajectory, meaning that, if we're just here, we have potentially two more bottoms to go before. We actually make it to the bottom and folks, when consumers are experiencing the most a negative sentiment shock that they have in the last 22 years. Worse than the great recession, and for some reason going into this sort of madness, their savings rate is lower than it was in 2008.

Home affordability is plummeting with even the fed chairperson of the federal reserve, saying it'd, be prudent to pause and wait for a reset before buying. It's no surprise that we're starting to see cracks like 42 percent of people now, reportedly making late payments on buy now pay later platforms, or some are now saying, buy now pay never. Now. This suggests that we could potentially see a wave of defaults and liquidations in the personal and stock market, much like we've already seen in the crypto market.

When i say personal, i mean bankruptcies, but this could also go to business. Bankruptcies consider the likes of revlon, which just filed for bankruptcy. This explains why the credit risk we are seeing in our market right now is one of the highest levels of credit risk that we have seen associated with the bond market since april of 2020. Yikes manufacturing orders are also plummeting folks to recessionary levels.

This is based on ppi data out just this morning, because if you want the latest information you know to subscribe to this channel, where i bring you the latest information of what's actually happening. The pmi data was a disaster this morning, it's manufacturing indexed atom. On top of this, u.s business activity has taken a step down to the slowest level that we have seen since july of 2020, which is weird because that's when we still had parts of our economy substantially locked down, and we were just trying to reopen. That's how much we've already slowed yikes.

This is now leading folks to suggest uh-oh. We might be in for not just a recession, but one that is fueled by pain that we have not seen since the recessions of take a look at this here december 1969. 1973 november january 1980 and july 1981, all of these recessions, consistent with the characterization of high inflation and steep increases in the federal funds rate, which remember we just had the largest increase in the federal funds rate in over 20 years, going back to 1994, almost 30 Years, the highest hike from the federal reserve and take a look at where the fed funds rate peaked back then and then consider where people think it'll peak today. So back, then the effective federal funds rate had risen to a peak of 10 in 1969, 14.

74. 20, 1980 and 22 in 1981.. Yet what is the stock market pricing in today? A good old, 3.75 terminal fed funds rate so either. Somebody here is smoking.

Some something special or ray. Dalio is right when he says that reducing inflation will come at a great cost. That it is naive and inconsistent with how the economic machine works, to think that the federal reserve, raising interest rates will make things good once it gets inflation under control. No wonder and no surprise that ray dalio's got some big shorts in the market.

So what's actually happening and where do we go from here? Well, the first thing that we have to do is we have to talk about the consumer. Then we have to talk about the fed and the potential for a massive mistake and then we'll talk stocks and maybe what to do after that, keep in mind folks. Yes, there is an amazing coupon code as well. That is expiring this friday.

I want you to see the feedback that's up on screen here, for the programs on building your wealth, people want an a to z, guide to building wealth and that's what we have linked down below take advantage of the opportunity we have now to get fifty percent Off of the programs, the prices never are lower than what you can pay today. They go up over time because we keep adding value over time, we're creating a brand new studio to bring even more value to the lectures in the courses themselves and we're so excited to keep contributing. And we also do daily fundamental analysis like yesterday, when we warned that it is a mistake to chase the revlon bankruptcy, meme movement and then, of course, today, the stock is down substantially. Folks, let's get into the next step the consumer.

The consumer makes up 72 of our economy more than two-thirds of it. So if you want to know if we're heading into a depression or recession, you need to look at the consumer and there are two things: the consumer needs to survive number one. They need jobs and, unfortunately, now most fortune 500 companies are either freezing hiring or beginning to let some of their employees go. Here is a graph that shows the percentage of cumulative job postings and we're starting to see the decline on top of that savings, which has plummeted to the lowest level since 2008 is a terrible indicator because, as we go into a recession or even a depression, we Should be saving more, not less? On top of that, it's no surprise that when there's the potential beginning worry about job loss and a lack of savings, what's happening in retail activity.

Well, no surprise. Retail store traffic is plummeting retail sales data is negative. Folks, if you want to know, what's really happening to the consumer, take a look at the latest piece from barclays, which gives us the true disaster that we could be expecting from the consumer and that the stock market is not yet pricing in folks. Here it is our high frequency credit card data are flashing, warning signs about u.s consumption, both in high-end and low-end consumption arenas.

While this slowdown has only been apparent in the last four to six weeks, it is consistent with a massive drop in friday's consumer confidence numbers. The savings rate is now far below the pre-covet levels, and wealth effects are significantly less positive after 2022's risk-off market movement and listen to this. This is the warning folks. Neither equities nor corporate credit, like bonds are correctly priced for a downside in consumer surprise in consumer spending plummeting in the second half of 2022.

This is this is not looking back folks. This is looking forward at some massive problems. We've got coming. Take a look at this.

Our credit card data suggests that the us consumer might be starting to pull back. Our credit card data shows that spending growth slowed from 20 year over year in january to just 10 percent year over year. In may now, spending is still growing. This is a chart of growth, but take a look at the substantial inflection point that we had right here.

This inflection point here could really end up leading a to a negative, a negative result in consumer year over year. Spending by the second half of the year, and that's when we start seeing real contraction and the stock markets are not appropriately poised for these. It's not just barclays who sees this, but it's jp morgan as well. Take a look at this.

There are 15 retail profit warnings for based on consumption in europe, but this also extends by j.p morgan to the united states, and they see that even though the consumer had initially started by trying to make up for lost time quote, we expect this to deteriorate rapidly. In the second half, as the catch-up effect wanes and the impacts on disposable incomes start to bite more acutely, this is not just a european issue, it is an american issue. Barclays is telling us what's going on with the american consumer, but jp morgan is telling us all. Retail is in trouble.

Going back to barclays. Take a look at this chart right here. First, they mention, and this is to give them cloud and credibility. Their credit card spending data tends to accurately reflect what ends up becoming the official federal data, and this is why, based on their regression analysis analysis here that it's very important to pay attention to the warning that barclays is giving us take a look at this right Here, spending of consumers of both high and low income products has drifted down.

They made this analysis by comparing spending at companies like william sonoma, which beat earnings handsomely in q1. Nordstrom best buy tiffany and comparing those to spending at the dollar tree dollar store raw stores. Burlington coat factory, marshals, tj, maxx, coles and so on. Take a look at this folks.

What do you have in this chart? You have an inflection point as in a decline in spending in both the high priced consumers and the low-priced consumers. That's a concern because we previously have been thinking that, oh, don't worry, the high-end consumer is going to keep spending they're the ones that are going to keep propping up this market. But it now seems that in the last six weeks, even this has changed even not just good spending going down, but in the last six weeks, service spending also now seems to be considerably slowing. You've probably seen me using ftx charts for ta on crypto technical analysis using that sweet trading view integration, because ftx is so easy to use and it's my personal favorite crypto exchange and to anyone else trading crypto.

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As i see it, coming folks check out those courses linked down below where i talk to you about my feelings, about what i'm researching and reading and studying before anything comes live to the channel. You get the first look check out those programs linked down below and use that coupon code expiring tomorrow. All right folks, look at this goods versus services spending credit card spend on goods has gone from about 14 right here in year over year, growth to about nine percent in year-over-year growth. So you have a delta there of about a five percent difference, but take a look at this services spending started the year around 33 percent.

Now it's sitting at 19. That's a delta or a change of 14 percentage points, that's massive. Hence they barclays suggest that when their credit card data shows a slum, we should be careful. This is restaurant spending again still growing compared to last year, but rapidly declining, and this is why we could continue to see misleading numbers if for q1 earnings for q2 earnings, but we're missing the boat if we're not paying attention to the second half of the year.

Now barclay suggests hey, you know, maybe people are spending more money in cash than on credit cards and while they don't have data for the united states, they do have data for the united kingdom and they don't see any kind of increase in atm withdrawal growth, implying That no people are not spending more money in cash that probably the high frequency data that we are now seeing, which signals for a substantial decline in consumer spending in the second half of the year. And probably a recession is not yet being priced in by the market, in fact, take a look at this consensus quarterly over quarter or i'm sorry year over year. Sales growth here is represented by this blue dotted line here. Well, unfortunately, based on credit card spending, data, we're probably needing to see estimates for earnings down here in this green dotted line, which unfortunately means we have a delta of likely over 14, between where sales growth is actually expected to be and where credit card data is Suggesting it actually will be.

This means the stock market has a lot more pain to price in, and it's consistent with other signals that we are reading. Obviously we're seeing substantial margin compression as well due to higher inventories, and this these higher inventories are being reiterated by pmi numbers, which continue to come out in negative manners and suggest compression to earnings growth for companies. This is a problem, especially if you're in the stock market. We've also seen that not only is consumer spending more dramatically falling than expected that inventories are outpacing inflationary growth, because this is something where we could initially say, hey.

Well, you know. Maybe inventories are just going up because of inflation. No, we are actually growing. Inventories at a faster rate than inflation is growing, which is likely to lead to, as barkley says, more discounting or holding of inventory on their balance sheets company balance sheets, reducing cash flow, even more and after all, historically companies that entered into an economic downturn expanding inventory At faster paces than sales experienced greater reductions in margin, in other words, the more companies go into a recession with more inventory, the more compression they end up experiencing.

Much like, as i wrote here, the current downtrend is worse than the great financial crisis, and so walmart and target are positioned, pretty miserably and unfortunately, it's difficult to find a flight to safety. Everything from food and beverage, chemicals, retailers, natural gas, autos building materials, consumer products, packaging manufacturing, tech telecom - all of them are seeing substantial inventory growth, creating little safety except potentially, companies with rapid excess growth such as tesla, where even if they lost 50 percent of demand, they Would still be growing, eps end phase as long as housing stays afloat, sure maybe nvidia if the crypto chip dump that we're expecting doesn't end up destroying the market for new chips, oil if demand for travel stays up, although we're already starting to see the higher income Consumers starting to spend less on goods and services, and it's probably just a matter of time before they spend less on travel, because it's really only the higher end, consumers that are spending money on travel right now, of course, we wonder, can we short? Well? Maybe we do short, maybe we shorts financials, which generally in a recessionary, inflation, don't actually bottom out until they take the max amount of credit losses that they're expected to take for that recession. Maybe we look at kimberly clark and clorox or hasbro and whirlpool companies that are being affected by a shift in consumer buying patterns. Maybe we short home builders because for housing exposure or we short companies like home depot because as home prices potentially fall, people spend less on their homes.

Maybe we short retail, because maybe retail over inventoried, as we've talked about, maybe maybe home improvement will stay strong longer. If home prices last or at least stabilize rather than fall, but that's a bet that everyone would have to individually make, and so there are a lot of questions in terms of where can we go? Maybe do we short intel because they see pressure on demand and a larger amount of cancellations, as their technology potentially sails out, and now they have to take even larger write-downs on their inventory. All of this consumer pain is, of course, compounded by the fact that even paul volcker, who crushed the united states economy in 1980 and 1981, to prove that the federal reserve was serious about inflation down only managed to bring inflation down to four percent. This is despite raising the federal funds rate to 20 to 22 folks, us in our market.

We have, by some accounts the highest inflation that we've had since 1980, potentially as high as what we've had in 1980, when you adjust for the way cpi is now calculated and we're only pricing in a terminal rate of up to 3.75 percent. At the same time, as not only are we pricing in these nominal rate hikes, but guess what federal reserve monetary policy can take 6 to 18 months to impact markets? That's because it takes time for individuals to see increases to their interest rates on their credit cards. Personal or home equity lines of credit, maybe when they go to lease a new car or a new used car, buy used car whatever it takes time for consumers and businesses to actually see the impact of higher rates, it's not an overnight change, and even though inflation Expectations, measured by the consumer by the university of michigan and five-year break-even yields in the markets are stable, which is somewhat different from what we've seen in prior crashes. But then again, the most dangerous words in investing are this time is different.

The market is trying to price in that the fed will get to 3.75 interest rates and everything will be fine and dandy, then that at the same time as monetary policy actually destroys our economy. We and we see this consumer spending decline and we see inventory lead to disinflation and potentially deflation. The real risk exists that the fed could actually be pushing us into a depression rather than just a recession, because at the same time as all these factors compound that is declining inflation because of height inventories, potentially leading to disinflation or even deflation. Monetary tightening, where we actually finally start to see the higher interest rates in our daily lives and for ourselves and for businesses at the same time as the federal reserve is still hiking, as consumers are spending less, with two-thirds of our more than two-thirds of our economy.

Getting crushed towards the second half of this year, folks, we might not be creating a frugal decade. We might be creating a 1929 style depressionary decade, but i mean folks have to have some confidence in the fed right. Well, according to morgan stanley, at the peak of covet in 2020, 74 percent of consumers concerns were coveted today, 67 of consumers concerns is inflation, suggesting that people are almost more afraid of inflation today than they were of covid. That doesn't signal a lot of confidence in the fed.

So going back to this chart here, some like to say, the stock market is pricing in a recession already, but we already talked about earlier how we actually need the stock market to fault even more to historically set up ourselves for a recession. That means we could see another 10 to 15 percent decline in stocks, but the biggest danger is that the stock market is not yet pricing in earnings expectations going down. This is a real danger. It's generally only upon the stock market.

Actually, pricing in via this white line here, eps or earnings per share going down that we have a true bottom in the stock market and so far, even though stocks have fallen. This blue line here look at eps forecasts, almost no revision. Well, at least, we have the housing market that could rescue us right well, folks, when the nation's second largest home builders, warning of three categories of pricing declines with some markets already seeing significant deterioration and mortgage rates up nearly four percent from their december lows. Reducing purchasing power by about 40 percent and creating less refinances for people to take money to throw into stocks on the dim folks, i don't know if we can really rely on the housing market either.

So at this point folks, you have a choice. Hopefully the first choice you make: is you master your ability to grow your wealth by learning everything that we know in the programs linked down below whether it's real estate investing zero to millionaire or the stocks in psychology of money group? And then you have to ask yourself what you're going to do with your money, because you have three choices right now you could sit in cash, especially if you're concerned that the federal reserve is making a policy mistake, and the stock market has not appropriately priced in That consumers are floundering, you sit in cash. Your purchasing power will go up if asset prices continue to decline. This is contrary to what a lot of people believe that, in an inflationary time, cash is trash because it becomes less valuable.

Cash only becomes less valuable if you're, using it to buy food and energy like gasoline, but if you're using it to buy assets. Contrary to popular belief, your cash actually becomes more valuable. Maybe you sit in the market. 50 50.

You buy a little bit and you sit in cash with a good amount until you feel that capitulation has arrived or you go all in and you buy the f and dip. And you consider this as an opportunity of a lifetime to build positions in companies that you know and love either way. Folks get out of debt. Get educated, subscribe, share this video and build wealth and check out the links down below thanks.

So much and good luck. Bye.