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Are we gonna give some Credence to the Bears? And of course, every time I give the Bears some credit and show reports from the Bears Like what we're going to talk about here. Whether it's Mike Wilson from Morgan Stanley Guess what position he's thinking he's a bear man. We're gonna go look at what Bloomberg economists are forecasting. We're gonna look at some of their models, We'll look at transitory Goldilocks and we'll look at the vibe session.

We'll have a lot to talk about. But I Have to first disclaim: Any time I may make a bearish video, there are losers that of course we're not going to mention by name. but there are these losers who like to take screenshots of my channel and they're like look at Kevin One day he's British One day he's bearish and it's like you're just another idiot who doesn't watch to the end of the video. So and honestly, not even through the end of the video I mean I'm on honestly when I cover the bearish stuff I'm like look, I'm covering this but obviously I'm a bull and here's my take on it right.

Like it's like it's like I I don't know I think sometimes people are just like miserable in their own lives and they have to find a reason to hate on someone. It's like I think I've been pretty damn consistent about my my Nike Swoosh thesis right? I I Don't want to make that clear up front? Okay, you don't even have to make it to the end of the video I think I'm very clear uh that while we had that V-shaped recovery and by the Dip was great in in the covet pandemic, this is a probably an elongated Nike Swoosh We're gonna have a lot of ups and downs and plenty of by the dip opportunity communities and no massive Panic rush to to be all in. uh, you know I I've been saying for a bit, you know I don't think 10 to 15 cash on the sidelines and no margin is is a bad idea. Uh, you know so those are my takes but I I don't know.

those are those are the same people who who try to allege things like oh well Kevin was selling while he was telling you to buy. That never happened I like if I tell you I'm buying, that's what I'm doing I would never do that. First of all, I'd get in trouble by the FCC I'm SEC regulated folks. Okay, that would be terrible.

Uh, now I might change my mind very quickly like I did in January of 2020 and I get that like. in fairness, it went fast. Okay, it went from me buying like January 18th to like January 21st. Oh like I finally put the pieces of the puzzle together, right? Uh, Which ended up being the right call to flip right.

thank God. But uh. but anyway. so uh, let's talk about some of the the drama we've got here.

So Bloomberg Economics suggesting that Powell's preferred recession indicator skyrocketed in January. Now from a bearish point of view, that means oh, crap, we're going into recession. From a bullish point of view, that means hell yeah. Jerome Powell's preferred measure went dirty.

That means he's gonna spank us less hard. Uh, anyway. so then you've got uh, the the indicators. So what they are basically is you have three potential yield curves to look at.

You have the twos and tens which is the two year ten year. You've got the three and ten which is the not the three year. Okay, it's the three month ten year. Uh, and then you have the three month 18 month yield Curve Model and Powell's preferred is the three month 18 month model.

I'll throw that up on screen right here and I'll keep myself off of it so you can actually see it. so I'm not blocking it. So and this, this chart is honestly a garbage chart. Uh, someone sent this to me and I'm like dude, this is such a complicated looking chart.

But anyway, on the far right you can basically see Powell's line goes up okay, it's the deepest inverted yield curve we've seen with the Powell preferred indicator which suggests recession coming right. The two is ten is pretty high, the 310 obviously pretty inverted as well, but nowhere near as bad as as Powell's as Powie good old Powie. Then you've got the Bloomberg economics 12-month recession model and it's basically at a hundred percent, which the last time it was at 100 was in 2019, which obviously Then we got the coveted pandemic. it was at a hundred percent in 2006 and seven, which obviously we got the Great Recession Uh, it was at a hundred percent in the.com Era which obviously we that that all com bubble.

but we did have a false indicator in 1998 where you actually had, uh, the indicators suggest uh, we had a hundred percent probability of going into a recession within the next 12 months and it was actually wrong. We didn't end up going into a recession within the next 12 months. we ended up going into nothing. We were.

We were fine in 1999, and it really wasn't until a year later in 20 2000 in 2000 that we started seeing uh oh, it looks like we might be heading into a recession and then sure enough, we did. Uh, by uh, like 2000, Uh, 2001, 2003? Uh, obviously recessionary era. So it shows you that these these indicator there's are not perfect, right? They have false starts and that's okay. and that's to be expected that these indicators have false starts.

But I think One of the things that we also have to be very clear about when we look at these models is that they're not necessarily telling us we're going to hell right? Like, think, think about that for a moment. In fact, one of my, by the way and this is sort of a tangent. One of my favorite Warren Buffett quotes is tell them to go to Hell tomorrow. Uh, very good tool by the way for uh, if you're ever in business, uh, tell them to go to hell tomorrow.

like relax your expectations. But uh. anyway, this, uh, the idea, uh, that. oh, we're definitely going to hit a recession.

Okay, fine. so the models say we're definitely going to hit a recession. How bad is the recession going to be? Oh well. I don't know.

Well, sure the models don't really tell you how bad it's going to be. Now you can try to suggest when or or how bad the models are going to be and the way you do that is you kind of look at Okay, well, if, uh, if we're going to see a recession, uh, how much is the Federal Reserve going to have to cut? And if you line that up on the charts right now, the Fed's looking at potentially cutting in the event of recession by 5.25 percent because that's how deep the inverted yield curve is. And if you stack that up with a linear regression model to what's historically happened, that's what you get. You get, you know, basically 525 basis points worth of cuts, which is wild, But maybe that's exactly what we end up getting over the next few years so it could end up playing out.

But it could also be that the recession we see is like, oh no, we're down point one percent in GDP Like, okay, that's pretty benign, right? and that's actually what some of the high frequency signals are showing us as well. Uh, this is sort of like some of the the Uh mortgage pre-approvals you're actually seeing an increase suggesting. Okay, maybe people are still resilient to buy, which is really fascinating. You're seeing.

Uh, sure, manufacturing and Industrial is losing steam, but you're seeing Services consumption Still pretty dang resilient. You look at the cruise lines, you look at the airlines like people are still spending. You've got American Express saying people are spending through the recession or whatever it may be. Consumer demand generally stable I Like this one, bookings at Open Table as of January are actually up at the start of 2023.

Now it's possible that if they're comparing to 2022, you had, you have to remember you had Omicron in 2022 and nobody was going out to restaurants in 2022. That was pretty crazy. Uh, but uh, then you've got uh, you know, consumers still traveling? That's a big deal. Uh, the beige book shows the same thing.

It's not just earnings, but it's the Federal Reserves beige books showing that consumers are still traveling. And yeah, you've got leveling off of of job listings and potentially job openings. But the Jolt suggested job openings actually opened indeed.com is telling us they're leveling off, but Joltz is saying oh, they're still going up at the same time as you. You've got uh, you know more of this consumer travel demand.

You actually have the number of oil rigs down own 4.5 percent since December at the same time as the Chinese reopening, potentially pushing oil demand up. and you've got a lot of pessimisms. That pessimism levels at households, like consumer and business sentiment is pretty a pretty poor. uh.

the gap between where consumers feel right now and what they expect for the future is huge. It's the largest that we've seen since the 2008 recession. And then of course you got people like, well, Morgan Stanley's Mike Wilson Basically saying, look, all of this combined is going to turn into a very ugly earnings season. He's of course, our staunch bear.

He says, look, sure we're seeing rates go higher, but the Market's just not pricing in what higher for longer actually means. And what's going to happen is when those bad earnings come in, markets are going to sell off and you're going to see broad declines on the indices because right now Morgan Stanley's Mike Wilson says look, prices are just straight up disconnected from reality and maybe tomorrow's Pi report will end up being a reality check he calls it of course. This is also leading to a lot of calls that hey, we're going to end up going higher for longer and by going higher for longer, the Market's basically not pricing in that EPS is going to get screwed. Now that's That's Mike Wilson he's the bear at Morgan Stanley Interestingly though, not everyone at Morgan Stanley actually agrees with uh Mike Wilson So what do you have over here? Uh, the No.

Landing Let's talk about that right after I Mention that I need to take a sip of coffee bet you weren't expecting that one. Um, thank you. All right. so what do we have over here Before we look at that, take a look on screen here.

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Outlook We present our expectation for a soft planning this year with a forecast of just 0.3 percent real GDP on a Q4 basis. We hardly call for a stellar growth, but four saw a positive outcome. Nonetheless, we stood well beyond the more pessimistic consensus. At the time, economists and markets have moved in our Direction Well, except for Mike Wilson Uh, but basically they're they're saying.

Look, our conversations suggests the phrase isn't clearly defined. It tends to gloss over policy implications, but seems to most closely resemble a soft Landing in English Morgan Stanley Other than Mike Wilson think we can get a soft Landing which is really interesting because Morgan Stanley is kind of playing both sides here. It's kind of like oh, we're Bulls but we also have a bear at our company. so like if the bear ends up being right, we could put him on a pedestal and if our chief Economist ends up being right, we could put him on a pedestal.

Kind of interesting I don't have that luxury because I think I'm very transparent and I'm very like clear about my position I Can't play Both Sides unless of course you only read the titles. but if you only read the titles, you're a I I Think the true people who are here to learn watch the videos and they watch the majority of the videos. Uh, and through them and I hopefully you pick up a lot of info and value. That's my goal, right? Provide more value and whatever business you're in.

If you want to make more money, remember the number one rule of thumb is, provide more value. Do Not be a yomi. Ayomi is the kind of person that's like, well, you, you owe me more pain. Maybe if you pay me more money, I'll work harder.

Uh, no, you're fired. If you're a yomi, you're an idiot anyway. and that's not how capitalism Works work hard, then you shall receive. the harder you work, the luckier you get hard.

Landing scenario. So they suggest that a hard land ending is basically anything with less than zero percent GDP Now I think that's really interesting. They're basically saying anything hard is a recession anything and that They also call this potentially the FED over tightening anything soft they actually I think is just slow GDP growth right below GDP Trend growth which would be zero to one point five percent. uh Trend growth.

Uh, resilient growth They think is this no Landing scenario where the plane just doesn't come in for the landing right? And what is the uh no Landing scenario? Well, the no Landing scenario is the economy doesn't slow down, but inflation goes back to Target This is a version of the world where a potential is simply higher than anyone thought I include this scenario. However, it's unlikely that it plays out this year, but they're including it to cover a full range of possibilities. So this is really interesting. So the Morgan Stanley is basically saying look, we're not going to get a like a no Landing scenario where we're a recession or GDP growth is over 1.5 I mean I kind of agree and I don't think that the economy is going to grow at more than 1.5 percent I I My base case is the soft Landing right? or like is is that basically we're just hitting.

Even if we have no growth, it's still not necessarily going to be a recession. Or if it's a recession, it's gonna be like 0.1 Like it's gonna be the most benign recession ever. Uh, I Really don't see this as like an 08. We don't have the massive structural disasters that we have and and it's still possible.

Even though the word is really disgusting, it is still possible that inflation could prove to be transitory and that's what I'm seeing in sort of leading indicators from earning calls from earnings calls from companies. Now that doesn't mean we won't have a bad CPI Read tomorrow. That's sort of a very short-term uh Outlook Uh, but but for the next year I think the trend is very clear down. Uh, so uh.

balance of the data coming out is starting to be mixed. uh GDP and Manufacturing data so far are lining up with potentially flat growth. Uh, flat GDP growth for the year which I I Don't think flat GDP growth is really flat I Think it means no growth? It means zero uh, consumer or a rather uh. conference boards leading economic indicators Lei uh suggesting definitely a recession within the next 12 months.

That's very similar to what Bloomberg says, but then again, it's like like, okay, well how bad is it going to be You know, is this just statistical noise Morgan Stanley Talks about these indicators potentially just being noise. It's like, okay, well sure, we've got a really inverted yield curve, but how bad is it going to be Now this was interesting because Credit Suisse actually started talking about PP Uh, they talk about this idea that even without a full blown recession, we can expect corporate earnings to suffer. This is the Mike Wilson argument, right? But this is at Credit Suisse as much as you can trust them for what it's worth. But anyway, they think that earnings will fall significantly below current consensus expectations.

They think that waning growth waning. Here it is. Pricing, Power and increased interest rates provide an unfavorable mix of factors. I Actually agree with this: I Think broadly, many of the companies in our indices, especially the S P 500 are going to see pricing power evaporate.

And that's mostly because companies are going to either have to cut prices or keep prices stable in the face of still Embers of inflation. Which basically means Rising costs. Which means that these companies take it in the Uh in the margin. Basically, so their margin absorbs some of the pain.

uh, and and that is generally aligned with a lack of pricing power. Now, don't get me wrong, I Think every company is going to lack pricing power relative to 2021. No company is going to have the same PP they had in 2021. you know they all got a little bit older.

Their PP just doesn't function as well anymore now that they're all a little bit older. but there are still some PPS that are bigger and stronger than other PPS Uh so and I think the goal is to find the largest PP in in a tough time anyway. So a big fan of pricing, power and finding that now should wage growth remain elevated. as PP wanes and get smaller, you would end up having another drag on earnings.

So this is again suggesting if you're looking for companies again, your goal is to try to find uh the biggest PP that's a Credit Suisse piece. I'm actually really impressed. They started talking about PP because I think it's very, very important. It's actually the first piece I've really seen talk about PP uh in in this cycle I'm pretty impressed by that.

Uh, now this is interesting. They called a Goldilocks scenario potentially transitory. Here's just another Credit Suisse piece. Uh, they do not expect a sustained upturn in some industrial production numbers and uh, even though we're we, we've seen a contraction.

We're expecting a rebound. They just don't see that rebound to be very large. Now, what is interesting is they think the impact of covet Zero going away in China will be relatively limited. Uh, on uh, inflationary impacts that maybe there'll be some inflationary push through to European industry like Industries like German manufacturing and Autos But otherwise they say that so Eurokovic was not a major impediment to Chinese industrial activity I Kind of scratched my head a little bit about that because I do feel like a lot of factories were suffering because of zero covet uh and sort of the lockdowns, but they really think the biggest move up is Services which is true I mean that's what we're seeing so far in the Boom in China is travel and entertainment much like what's booming obviously over here as well and they think there are clear risks to see oil over 90 dollars a barrel.

but then again, at the beginning of January everybody's like oh, oil's gonna go to uh, a hundred dollars a barrel and it just like never ended up happening. Who knows? it could still happen. And now I'm starting to see their estimates fall though business surveys fall in uh to levels consistent with a severe slump and that maybe momentum will stabilize the Credit Suisse here. Warning: and this aligns with sort of their their small PP argument smaller pricing power argument.

They expect that consumer strength will fade in the months ahead, along with retail sales trending sideways. Biggest risks being furniture and Appliance demand as home sales continue to deteriorate as well as business fixed investment likely struggling and we do not expect a a sharp contraction though. So again, this is really in line with this idea of like a shallow kind of recession, right? Inventory is still pretty high. You saw the same complaint about inventory still being high at companies like Energizer batteries.

Uh, this is hitting companies like Target and Walmart and so on. Uh, however, you're still under stocked in autos and the argument is that you might be seeing uh I hate using this word, but potentially transitory bump in inflation for Autos Uh, potentially because of the under stocking that we're seeing. Uh, they do expect that household consumption in China will improve this year, but again, likely in Services Structural headwinds will remain and goods demand will remain below pandem pre-pandemic levels. A part of this is because of an increase in precautionary savings by individuals because of wealth lost thanks to lower property prices.

Remember their real estate. A disaster was somewhere in the effect of uh, you know, 35 to 40 percent price decline. So you've got some major hits over there from China So Emerging Markets X China Generally people are pretty bullish. However, inflation is still present sent in Emerging Markets so you have to kind of be careful.

in Latin America they think you're You're still seeing supply side issues. Uh, that'll really hurt the pace of disinflation. and I see that when I analyze Embraer I mean they're still suffering man with with, uh, increasing in prices and supply chain shortages and stuff. Uh, which in the short term does give them uh, some more pricing power for for selling Jets But uh yeah, you know that's uh, that's oh yeah oh yeah.

And then there's this idea of a Vibe session. Okay, I'm gonna be very brief about that. The idea of a Vibe session is that basically, uh, everybody feels like we're going into a recession, but maybe we don't actually end up hitting a recession. That's sort of consistent with the idea of a soft landing.

and I thought it was really an interesting phrase. like really A vibe session? That sounds pretty lame, but okay, I'll address it. so uh, you've got you've got really in my opinion. If you kind of look at this like all this sort of more bearish analysis, anything pointing to a recession is kind of like okay, yeah, earnings are gonna go down, but how much? and and it's really like.

Okay, so we might go into recession, but how much and it's kind of like nominally like. It doesn't really seem like people are really like that. worried that this is gonna be, uh, fall off the cliff style recession. although who knows.

uh, and I think tomorrow's CPI will give us a little bit of uh of uh of uh, an indicator. Yeah, take it in the margin, man. take it to the margin.