Off is this an insanely volatile market, Folks, it's not exactly a relentless bear market that doesn't reward good earnings, but boy does it punish bad earnings. Facebook apparently had the single day biggest equity wipeout ever. 220 billion dollars in market value gone and it dragged everything else down with it. Add this to the long list of losers, Paypal, Netflix, and so forth that are going and just taking on misses.

These markets aren't messing around. If you don't perform tip top on earnings, the market's going to treat you like a garbage can and it creates a lot of anxiety everywhere else. If you're holding any major stock right now, you've got to be thinking it doesn't take much for that stock to drop 10, 20, even 30 percent on a dime. It just takes one after hours report to beat you down like a rabid dog.

Not only that, but if you're a stock whose competitor just got wiped out on earnings, you're gonna get wiped out in sympathy with that. Stuck. We were talking just yesterday about how you saw people running for the exits on Snap after Facebook's flop People panic Sold Snapchat after Facebook's numbers and it was down about 23 today. And then what happens? Well, they end up beating on earnings and all of a sudden you got Snapchat up over 50 in the after hours.

Quite the difference from after hours yesterday to after hours today. Saw a similar thing happen to Amazon people rushing for the exits and then earnings come out and Boom 17 up. This really tells us two things. Number one, Big Money doesn't know what the hell is going on right now either, and number two, they're willing to sell first and ask questions second.

And I wouldn't be surprised to see folks in many of these large caps that are on shake your ground start saying you know what? I don't want to risk a 20 draw down when I'm up so much and there are so many bad catalysts coming up, I'm gonna sell out now. I'll ask questions on whether it was a good decision later. Even companies that did report good or onions over the last couple of weeks have been seeing drawdowns Again, I wouldn't be surprised that the market starts saying you know what, Hey, we won, we got a good company, we made huge gains, and the company reported good earnings. Why not get out? Now, while the getting's good, why wait until they start joining the rest of the pack and guiding lower and lower? But anyways, today, I want to drown out the noise, the fear, and the back-to-back daily volatility.

and I want to walk you through the situation where you're in right now this instant, and how it's going to affect you and your moolah Moving forward. we'll talk about exactly what needs to happen in order to get a sustained rally and your best buying opportunities. But first, a quick plug during a time period of high inflation, uncertain monetary policy, overpriced real estate, and of course, quickly falling stock prices. Well, it's more important than ever to diversify across asset classes, but unfortunately most average investors only invest in one asset class and then get below average returns.

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Number one: you need two or three reports showing slowing inflation designating a change in trend. I know that we often talk about the Cpi and the media reports on the Cpi, but the Fed does like to focus more on the Personal Consumption Expenditure Index or the Pce price index, which focuses more on what businesses are selling. And the core version of that doesn't include energy nor food. And that's the one that the Fed likes to focus on primarily.

Which means that the Cpi reports over the upcoming months are going to be very, very hot and they're not going to come down as quickly. whereas with the Pce, it doesn't include energy or food, right? And in terms of energy, the massive pricing push effect that it's going to have on the Cpi reports isn't going to be as present in the Pce because it's only going to have the opportunity behind the scenes to push prices up in other goods and services versus actually being a line item on the overall index report. But the point is that focusing on the Pce instead of the Cpi does mean that the standard for dropping inflation is going to be lower. so that's a good thing in terms of this analysis.

So though, if you look at the overall pricing pressures that we've had so far this year and some of the early data that we've seen, it doesn't seem like we're anywhere close to having even a first report of dropping inflationary pressure. Seems like the next report is going to come in hotter, and then the next report under that is maybe going to drop a little bit and then it's going to be a very, very slow process. I think number one's going to happen when you start seeing the economy slowing down. you're starting to see some obvious signs of that happening.

Okay, number two, you need to see the Fed acknowledge the slowing inflation, but also pause course or slow down the course of tightening. Yesterday we were talking about my pacifier analogy. The Fed is the pacifier, the market, and the economy is the baby. I bet you the baby needs to grow the hell up.

It doesn't need a pacifier forever. What you don't want to do is yank it out and then have to put it back in. What you do want to do is smoothly and slowly pull it out strategically, And ideally you want the baby to know the pace at which it's being pulled out. You don't want the baby to be constantly crying, because oh no, he's going to yank it at any moment.

Right now, that's the market that we're in. and as long as that's the case, it doesn't matter if he's actually Going to do it a lot slower because the market won't trust them because they don't know where inflation is going. So you have to see not only inflation go down, but you have to see the Fed acknowledge inflation and then signal that they're going to at least slow things down. That's when the market is going to calm down on these parts.

Now, I don't think slowing down inflation on its own is going to cause the Fed to adjust. I think at the very most it might cause them to slow things down and not accelerate. But if you couple this with a slowing economy, which is what many companies and economic data are guiding for, the Fed will have to look at inflationary problems cooling down at the same time that the economy is cooling down and it will no longer be in the necessary rush to tighten. Now a pause would be super bullish, but the better choice for a healthy long-term trend would be a slowdown.

Maybe the market's factoring in five to seven interest rate hikes this year, which is extreme in my opinion and not gonna happen. Maybe instead of that, you get two or even three modest ones, or the Fed goes a little bit more aggressive. But then on the last rate hike in December says okay, this is the last we'll do for a while. We're gonna wait and see after this again.

What you don't want is the Fed to go too fast and then have to reverse course and then we get back to square one again. We want tightening. It just has to be slow and it has to be steady. The baby needs to get the pacifier out of its mouth.

It just needs to be done strategically just because the other parents are looking at your baby that's growing older and older and are judging the baby because it has a pacifier in its mouth. Still, and their babies don't have pacifiers in their mouths because they're so much better than your baby. That doesn't mean that you want to go ahead and yank it, but unfortunately, I do think the economy is going to have to slow down in order to see those inflationary numbers slow down because the supply chain is healing very, very slowly. If you look at all the points that I'm about to mention, it seems very, very obvious that we are heading for a fairly steep slowdown in 2022.

at which case inflationary pressures would come down, but companies that you're buying would be worth less as well because they'd be selling less products and services. So there may come a point where you've checked the boxes for inflation coming under control and monetary policy also slowing down, which would both be good for a rally. but at the same time, the companies that would be rallying may be seeing worse and worse quarters. So you have that other problem.

So what I think is going to happen is you'll first get these two and then you'll hit an earnings season where companies are like, yes, our last quarter was bad. It was bad, Bad bad. But we are now finally guiding for the next quarter. We finally see light at the end of the tunnel.

Towards the end of this bad quarter, we started seeing things pick up again. We're hiring again, we're increasing our advertising budgets, things are getting back and rolling, and we are very optimistic. At that point you have companies guiding for more and more positive forecasts in the future at the same point that valuations have gone down and where inflation is under control and monetary policy is a little bit more combinative than the market is factoring in right now. Okay, so with that in mind, where are we on the current trajectory? Well, oil and energy prices are continuing to go up.

That's not good, causes everything in the economy to become more expensive in terms of jobs. The Adp report shows companies unexpectedly cut 301 000 jobs in January. That's likely because of Omicron as hospitality and leisure were hit the hardest. and when people spend less money on hospitality and leisure and going out and doing things and experiences, then all of a sudden what happens while they start bidding up goods which are of course in a shortage and good prices are going to get higher in terms of prices.

So obviously this is a negative factor in the short run. But Omicron is going down dramatically, so I think this is going to be less of an issue. But who really knows? The point is that 2022 isn't starting off at the best foot ever. Even though most of the slowdowns will happen q2 and Q3 tomorrow, we'll get more clarification on jobs.

There's a big report coming out. The other thing is that companies, except for a few, are complaining of wage and other input inflation and in many cases lower consumer demand. Now there are some big caveats here. Some companies are reporting such good Q4 numbers that people are still willing to buy them up, but the ones that are providing guidance are admitting that, hey, consumer demand is going down.

Costs are going up. That's the worst of both worlds. We can't pass on our price increases to consumers as easily as we were able to do last year. If demand drops off steadily and this trend continues.

what happens? Well, companies have to lower their prices to offload their inventory, or to actually sell things at the same time that their input costs are going up Huge. What does that mean in the short term? Well, profit margin's crunching. That's a painful process, but once it happens across the economy, you start seeing that inflationary pressures go down, and then companies can rebuild their profit margins from those lower levels. Once things get picked up again.

But right now, companies are continuing to opt out of providing guidance or are forecasting weak future quarters. And the way that I look at it is the companies know they have a bare minimum of a quarter or two before they start getting onto a natural trajectory, some of them many more than a couple quarters. It's not that simple to fight in industries where you have again increasing input costs and lower consumer demand. Many of them are coming off of a couple record years and they have to adjust lower and lower.

and the base case scenarios from the previous years are going to make them look like morons. and that's just simply why they don't want to guide. Meanwhile, of course I don't need to say this again, but large caps are still trained at very, very frothy valuations, so the market's expecting them to do really, really well, despite the fact that many of them don't have any confidence in themselves to do well. Next, you have consumer confidence at a new low in the pandemic.

People are more worried now about spending than they were during the original lockdowns, and part of that is of course because of the lack of a new stimulus. But the other part? I don't want to say this again, but the personal savings rates have just been completely depleted to where they were on the lower end of average pre-pandemic So they're not just going and throwing that out to everything and just paying the increased prices anymore. And there's also the fact that a lot of people felt richer in 2021 than they really were. People on average, despite wage increases numerically, are actually making less money when adjusting for inflation.

If you look at the average hourly wage increases, they rose about 4.7 percent in 2021. whereas of course, the Cpi showcases a 7 inflation rate during that same time period. So that means that people didn't get 4.7 richer, they got 2.3 poorer. Of course, I know if you use voodoo politician math that takes out food, energy, shelter, and anything that people need in their day-to-day life, then all of a sudden.

yeah, negative inflation. But that's not an honest or relevant way to do it, despite the fact that so many politicians on both sides of the aisle really do that. You could really pick and choose with statistics to make any argument you want. But the fact of the matter is, if you look at the data, people have less money, not more on average If you beat inflation, good for you.

But that's not the average American thing is that many people didn't realize this. A lot of people felt richer last year, so they spent more. But this year they were realizing, wait a second, we're not actually richer because all these prices around us are going up. 2021 was the year they got inflated.

2022 is the year they realized it, And now they're starting to say, damn it, I gotta stop spending. Cut, cut, cut. I don't need this. I don't need that.

Replace this with something cheaper. Outside of that, you also have the situation where the dollar is strengthening relative to other worldwide currencies, and this causes the competitiveness of imports to increase and the competitiveness of our domestic companies to decrease. That causes the dumping of cheaper products into our market, which is good for inflationary pressures, but it also screws with the growth prospects of our domestic companies, which again solves one problem at the expense of another. At the end of this period, the Fed may strike from the dollar so much that nobody wants to even transact with our companies, and the trade deficit balloons to something that we've never seen before.

If you want to take a moment to learn about how a strong dollar is actually pretty dangerous for the economy over the long run, I'll go ahead and put a link below. But overall, once inflation comes under control, you got to hope that the Fed starts putting on those brakes. Going back to the top, it seems like right now in totality, we are likely in the last few months of really hot out of control inflation. But the unfortunate part is by the time that inflation actually goes down, people won't be talking about inflation anymore because they'll be too focused on how bad all these companies are doing and how hiring is slowing down and how Gdp growth is slowing down and how everything is looking worse and worse.

That sounds pretty bleak, and if the Fed overdoes it, they could certainly lead us into a big recession. But I think more likely than not, you're going to see these three things pan out: You're going to see inflation pick down, You're going to see the Fed acknowledge inflation picking down, but also acknowledge companies are guiding lower and lower and slower in hiring, and that it's a very, very delicate situation that the economy is in and the Fed's going to say, you know what? We're not going to reverse course, we're going to pause course. We're not going to be as aggressive as the market is factoring in. And all of a sudden you're going to get to the situation where consumers slowly start realizing hey, pricing pressures have gone down, wages are very, very sticky, so they haven't gone back down and they start spending again.

And all of a sudden you're in a situation where you have low and under control inflation. You have monetary policy that is very, very slowly increasing and it's probably going to increase at the pace that it did back last time. We used very aggressive monetary policy, which is to say takes a very, very long time and you barely move the damn thing and you're gonna have all these companies reporting guidance for future quarters that look pretty damn optimistic. Right now, we're in the stubborn and painful cycle where we have to get through these three things.

These three things need to be behind us and who knows how much time needs to pass and how much the market needs to drop for that to happen. But at the end of the day, this is going to be a year where you look back and you say. I wish I had made better choices similar to how we look back at 2020 and any other dip. I wish I focused less on getting the perfect bottom.

I wish I focused more on buying high conviction plays. I also wish that I didn't employ so much capital on every single dip so that I had more to buy future dips. I wish that I was more stoic about when it would recover so that I could have been more patient and not sold out the minute it went down after I bought a dip. I wish that I had done the research on companies that I actually had conviction in so that I could have bought the dips on them instead of learned about them when everybody else bought them up to two Three hundred percent in 2023, 2024.

I wish that I didn't hold that one position that I knew was overvalued, but simply held because everybody else in the market thought it was a safe play. I wish that I had put more thought into my strategy in 2022 instead of running for the hills in fear because the market and Cnbc are telling me that the market's never going to come back because this is something we've never seen before. Now, I wish that I had looked at the bigger picture, bought things that I believed in, and then just kept my head down, saved up cash, and kept buying the dip. I wish that I had hit Charlie's ravishing like button and his subscribe button, and I wish that I had commented, charlie, you're a great man Anyways, folks, have a great one and I'll see you in the next video.