저자: Kevin · 외국인
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WSJ 기사 등을 근거로 6~11월 CPI·PCE 연율이 약 2.5%로 둔화했다고 주장하며 인플레이션 하락을 강조. 헤드라인 CPI 7.1%→6.5% 예상, 근원 인플레 둔화도 언급. 임금-물가 악순환 우려 완화, 노동시장 지표 과대평가 주장. 유가 하락과 손익분기 인플레 기대 하락, 장단기 금리 역전(3M-10Y) 심화를 근거로 경기침체 및 Fed 피벗 가능성 제시. 향후 방어주 대신 현금흐름이 강한 성장주 선호, 레버리지(마진) 지양 권고. 수치 근거: 2.5%, 4.7%/3.74%, 83% 금리인상 확률, 2023년 1월 CPI 예상 0% 월간.
다듬은 글
This video is a detailed analysis of inflation, and I think it's extremely important to watch it in its entirety, as it could impact your entire investment journey through the end of the year. At the end of the video, I will also share my thoughts on where to potentially invest. I want to start by saying that yesterday, fortunately, we made our first flight in search of real estate for our startup's investments.
If you want to join these flights and stay with me, we are opening reservations for February and March—just use the link below and you can fly with me on my plane to explore properties together. You will be able to watch my work. Maybe we'll even have a barbecue in the studio afterwards. Be sure to take a look.
Link below. So , let's begin. The first thing we should pay attention to is a great piece that the Wall Street Journal just published. This is just one of many things we'll cover here, but the Wall Street Journal ran an incredible article called "What If Inflation Suddenly Fell and No One Noticed?" and it was truly mind-blowing.
Listen to this. Over the past five months , which is actually quite significant, because Jerome Powell regularly talks about estimating inflation within three to five months. They do it similar to how technical analysts use moving averages to smooth out those daily or monthly fluctuations, right? So they look at the averages over three to five months—the last five months, from June to November.
And by the way, keep in mind: from June to November, we just had a nice, lower report for November, and we also had a slower report for October. If we can maintain this trend in December, then with the CPI data coming out on the 12th, it could be a good thing. But look at this. Over the past five months , from June to November , inflation has slowed to a minimum.
Whether measured by CPI or PCE, the annual inflation rate over these five months was about 2.5%. during these five months. This is actually amazing, because remember, the Federal Reserve has a policy known as FATE—flexible average inflation targeting. And if they can achieve an average inflation rate of 2.5%.
And over the last decade, you know, if you take away that extreme that we just went through, or you take it as part of the average, right? This way everything is leveled out. You see: okay, we had a big jump, then you come out at about 2.5%, but before that we were at 1.5–1.8%. We could average inflation to 2%, and the Fed could claim that we have already reached that target.
We are not trying to get here now because there is still an alarm signal here. So, there is still a lot of work ahead. But this data is actually striking because it shows that over the past 5 months, the annual inflation rate has been only 2.5%. This is an extremely low figure. Unfortunately, the problem is that if we go here, we will see core inflation.
This is an indicator excluding energy carriers, which is still somewhat overstated . And that's a problem because if you look at just core inflation, over the last 5 months we've had 4.7% year-over-year for the CPI and 3.74% for the PCE. This means that oil and energy prices are falling slightly faster than base prices.
Some say that this is exactly what we should expect, because even though the CPI, the consumer price index, shows the dynamics of energy prices, right? This is our overall inflation rate. Here is the baseline figure where we exclude energy prices. In fact, services, transportation, production costs .
All of these things often depend on the cost of transportation and logistics, which includes oil prices. So, even with a baseline inflation rate, how can you actually exclude oil and energy costs from the base? Well, that's impossible. You just say you do one general calculation, and after 3-6 months the lower oil prices are actually reflected in core inflation.
So this article in the Wall Street Journal suggests that we may already be on track to a flexible average inflation target of 2%. In fact, we could already be there. Now we just need the base prices to pull up. This is quite impressive. The Federal Reserve also sees three inflation drivers mostly declining, with one exception.
We know that demand for goods is falling. We know that household inflation is declining. Looking at recent rents, we see that household inflation is falling rapidly, and that's great. We expect this to become a significant factor in the data over the next 6 months. And the Fed is already taking this into account to some extent in advance.
But the Fed is still fixated on the idea that wages are rising and that workers have enough leverage to demand higher pay . And they fear that we could get a wage- price spiral, which is when inflation rises and people demand ever higher wages. And when they demand higher wages, companies are forced to raise prices, and inflation begins to spiral upward.
And then Paul Walker appears in the early 80s and says: “We can’t let this happen. We must suppress the economy." Well, the Wall Street Journal published another phenomenal article about this spiral. Look at this. Hear it on the street. The Fed's fear of a wage- price spiral may soon subside. This is the last piece of the puzzle.
This is literally the last element we are waiting for the Fed to change its position on. Look at this section that I have marked with crosses here. The cause of inflation is less wages than vice versa . When inflation rose, workers asked for higher wages to keep up. This is normal, right? This is the beginning of the " wage-price" spiral.
When inflation increases, people ask for more money. Now inflation has started to cool down. So, salaries are also stabilizing. This is different from the situation in the 1970s, when workers demanded higher wages because they believed that future inflation would remain high. Okay, that's the key word.
Do you see the word " considered"? This is due to what is called inflation expectations. And I'll show you something about waiting in a moment. But this time, indicators of people's long-term expectations, here's a little insider insight. Although they are higher than before the pandemic, they still remain relatively low.
This means that people expect inflation to fall, and when inflation falls, people are generally less likely to demand a raise, right? That is, in general, inflationary pressure is falling: gas prices are falling, electricity prices are falling, car fuel prices are falling, travel prices are falling, etc.
When the situation finally normalizes, like the prices of eggs, milk, chicken, right? We see these prices coming down and the pressure on us to survive is gradually easing. And if we expect inflation to be, in quotes, "temporary" in the long run, then maybe we shouldn't push so hard out of fear: if we ask for a higher salary, what if we get fired and thrown out into the market, where, damn it , we won't find a job as good as ours because all the good jobs are already filled by those who were laid off at Google, Facebook, Amazon, or somewhere else.
Although Google is not laying off employees yet, other big tech companies are . So what do we have here? Is this an assumption, or, in fact, the Wall Street Journal goes on to say that another factor is that the proportion of workers represented by unions is much smaller, which reduces bargaining power.
Quite interesting, especially given all the drama surrounding Starbucks, Amazon, and Apple, where major union battles are taking place . But it's quite interesting because if the wage-price spiral weakens and inflation declines and the labor market begins to soften, then the third and final element of the Fed's concerns about a rapid rise in inflation collapses, which may actually explain why we see a reduction in expectations for a 25 basis point rate hike on February 1.
You might be thinking, "Okay, Kevin, if expectations for a 25 basis point hike are falling, then that should change to a 50 basis point hike, right?" Wrong. Last week, 98% of the market expected the Fed to announce a 25 basis point hike. That is, almost the entire market thought, based on the bond market and futures curves, that on February 1, the Fed would raise the rate by 25 basis points.
Now it is 83%. So, 83% of the market believes we will get a 25 basis point increase . Let's clarify this. 17% of the market believe that there will be no increase at all. In other words, a Fed pause. This is already a serious reversal in the data. The market is not even considering the option of 50 basis points.
And if the Fed went to 50, they would essentially " knock the ground out from under" the market, which would be shocking because we have huge problems with the labor market data that the Bureau of Labor Statistics releases. Actually, you should watch my video from yesterday about this , but I'll give a quick summary.
The average length of the workweek has decreased, or the average number of hours worked per week has decreased. This actually puts upward pressure on average earnings . I explained all this in another video. The bottom line is that if you work fewer hours and people are on a salary, that means they earn more, and that supposedly pushes up wage inflation figures, when in reality those figures have turned out to be much lower than expected.
In addition, we received a downward revision of the data for the previous report , which means that wage pressures are already easing. We also have a higher labor force participation rate , which is why we have seen a drop in unemployment rates; This means that more people are going to work because they are forced to , which increases the supply of workers and reduces pressure on wages.
We are also seeing more people taking on multiple jobs, fewer full-time employees, and more part-time workers. This also indicates an increase in the number of people filling jobs, perhaps due to the need caused by the significant increase in the cost of living. You know, Joe Biden was bragging about how great the unemployment report was, but pretty much everyone on the internet was like, "Hmm, this report only looks good because we're having to take on a few jobs because of all the inflation we've been facing over the last year." And they are right.
In fact, the number of full-time employees has decreased. And not only do we have fewer full-time employees, but we also have significantly more people who have multiple jobs or work part- time, which suggests that we are actually seeing a loss of full-time jobs, which again reduces the pressure on wages.
People are taking on multiple part- time jobs—yes, it improves the overall numbers by creating the illusion of employment growth, but these are the same people who are simply working multiple jobs to make ends meet . This reduces pressure on wage levels. Even Nick Timiraos, who is the mouthpiece of the Fed.
Even he tweeted that the latest labor market report is slightly reducing pressure on prices and wages. So he speaks quite cautiously. Again , the Fed's mouthpiece. But when we look at the real data, doubts arise. It seems like the salary situation is getting really sluggish. In fact, the Federal Reserve Bank of Philadelphia itself believes that the Bureau of Labor Statistics overstated the number of jobs created in the second quarter of 2022 by 1 million.
This means that instead of approximately one million ten thousand jobs created in the second quarter of 2022, only about ten thousand were actually created. And here's the strange thing: after hearing these statistics, you might think, "Kevin, why are you talking about the second quarter of 2022?" Because that's how long it took the Philadelphia Fed to realize this.
It took the Fed six months to realize what they had done wrong. Now, markets seem to agree that inflation is mostly behind us. That's why we're finally seeing expectations of a pause from the Fed in the data. This is just a huge turning point. In addition, let's look at break-even figures and compare them to perhaps the most important factor.
So, we're going to look into this. OK. So first, let's look at break-even indicators. This is this graph. I'm going to take myself off the screen for a moment now, but pay attention: this is a yearly schedule. And look where we are relative to the annualized breakeven inflation expectations graph. These are market expectations.
The third minimum is right here. We are at the third low. I believe we need to see these inflationary breakeven rates fall. One interesting factor that could lead to a decline in inflation expectations is the fall in oil prices. This, friends, is the 2022 oil price chart. This was, well , shortly after the war started.
You know , there was a jump here, a military jump. There was a summer jump here, and there was a fairly significant increase on the eve of the third quarter. But now oil prices are starting to move towards lower levels that we almost saw before the war, which is quite interesting. We definitely want to see these oil prices come down.
What's notable is that if we superimpose inflation expectations, this blue line, on oil prices. Look at the pattern we've been seeing since 2018. The COVID pandemic is here. The decline in inflation expectations in 2019 coincided with the decline in oil prices. The rise in oil prices over the past few years has coincided with rising inflation expectations.
Now we have a trend, albeit quite volatile, towards lower oil prices . What do we see? A trend towards a decrease in inflationary breakeven point. And what we really want to pay attention to is this dotted line. See this dotted line? I believe that when we cross this line and the blue line drops below the 2018 level, we will see a breakthrough in inflation expectations.
This will be the moment when the Fed will not just make a U-turn with a pause, but will start lowering interest rates. They will start cutting them. The reason is that the rates here were 2.5%. We currently have 4.25%. And remember, what will happen first is not entirely clear. But we believe that if oil prices fall to, say, this level, we expect the breakeven points to also fall.
And remember what we talked about in this video: inflation expectations aligned with falling oil prices seem entirely logical. Because we have already discussed earlier that while you can say that base prices are rising, the overall figures for the last 5 months, year-on-year, are only 2.5%. So what happens when these lower oil prices start to be reflected in underlying prices and oil prices continue to fall?
We will find ourselves in this disinflationary spiral. Of course, there is a huge risk factor here. The risk factor is what happens if oil prices go up? So I would argue that the most important thing right now is to monitor oil prices. For example, if China reopens, what will happen? Oh, will this create a huge demand for oil or not?
How fast will this discovery be? China, for example, is easing its real estate lending policies, but how quickly will people and banks that have already been burned be willing to return to speculative real estate lending? Maybe not as quickly as people think, which means we could see restrictions on the Chinese economy for longer, especially if there is a second wave of COVID or multiple waves that really hold it back.
Instead of a V-shaped recovery in China's economy, you will see more of a slow recovery , which is what we expect in our markets. Now, I find it incredible that the bond market actually predicts oil prices. You might think this is crazy. Like, wait, you mean the bond market will try to predict oil prices?
Yes, that's exactly what the bond market does. In fact, if you look at the 3-month 10-year yield curve, which is considered the most accurate for predicting recessions, look where we are now, at the all-time low on that graph since 1994. This schedule has been maintained since 1994. We now have a more inverted yield curve than during the dot-com crash.
during the period leading up to the 2008 recession. And that doesn't bode well for oil prices. Don't get me wrong, oil prices really jumped in 2008. This happened just before the collapse of Lehman Brothers. There is an opinion that an inverted yield curve is dangerous for company profits and the stock market .
In fact, its rapid growth is what is dangerous. So the deeper the inversion, the more painful this growth can become. We have to be careful here, because if you notice on the chart, the bottom of the 3/10 inversion was before the bottom of the stock market. Let me show you the graph. Stock market bottom.
The bottom of the stock market in 2003 was around here, in February- March 2003. And guess what? That's when the Federal Reserve changed course, friends. When was the stock market bottom during the Great Recession? This happened around February 2009. Note: A reversal occurs when the yield curve rises significantly again because the economy has been hit hard.
You might be asking: where the hell is there to find security in this market? Because if we are facing rapid growth, even if inflation falls significantly, the pain may remain. And that's true. We do expect inflation to fall rapidly. We have already seen many indicators of this. I'll add one more to make the picture clearer.
This is the Producer Price Index from the US Institute for Supply Chain Management, overlaid on the CPI chart. Hey producers, are you paying more or less money this month than last? And the more often they say they pay less, the faster the green line, which has already collapsed to the right, falls.
This indicator usually precedes the fall in CPI indicators by about half a year . This is the blue line, the top one, which has barely changed direction. So, in other words, we expect a significant drop in inflation. Summarizing the video and talking about investment decisions , I think we made very clear arguments.
We know that commodity prices are falling. This is confirmed by the producer price index. We know that household inflation is falling rapidly. We know that the employment report is completely wrong, and we see the wage- price spiral disappearing from the market. So there are no longer any arguments in favor of inflation remaining high.
Unless, of course, the CPI report due out on the 12th—the projections of which I'll talk about in a moment— turns out to be shockingly high. In fact, we should see quite low numbers, given that the three aspects of inflation are falling rapidly. This is great. In fact, expectations confirm that December inflation forecasts are 0% growth on a monthly basis.
This is lower than 0.1% last month. Core inflation actually rose slightly to 3%. This is a change from 2% previously. We'll see. Personally, I hope we fall just a little short of the baseline just to break this argument down as well. We are starting to see the baseline coming down. Such an expectation.
I don't form these expectations. Wall Street does this. Headline inflation is expected to decline from 7.1% last month to 6.5% . When I checked it last week, it was 6.7%. This means that expectations are already being revised downwards . 6.5% for the overall indicator . This is still very, very high, but it shows that it is starting to fall rapidly.
Core inflation is expected to be 5.7% year-on-year, down from 6% last time. So, with all that said , how do you protect yourself in the future when the yield curve starts to rise again? Well, in my opinion—and this is my opinion, okay?—I'm a licensed financial advisor. I manage ETFs. I have courses on wealth building.
You know, I'm in real estate. I have a real estate startup where you can join me and watch me work while flying on my plane. Link below. I do a lot of different things, and I say that as a caveat because even though I do a lot of things , n this video. I can't do that because I have no idea what your situation is.
Isn't that right ? So, this is general advice, but it's advice that I think works for me personally, and that's my opinion. I believe that benchmark indices will suffer the most in 2023-2024. The benchmarks are your classic Vanguard index funds, the ones with a significant exposure to consumer staples, defense , healthcare, basically whatever was booming in 2022.
Take a look at McDonald's shares: they're down about 1% for the year. And what is McDonald's starting to do? Well, they're starting to realize, " [ __ ], we're going to have to cut costs," because not only do we want to automate more, but we 're also starting to feel the pressure on our ability to maintain margins as we enter a recession.
And it's time to reduce staff and automate processes more, which again indicates pressure on the price of labor, you know, due to the wage and price spiral that we already talked about. But it also shows that the companies that I think have performed the best over the past 12 months may face difficulties due to the steepness of the yield curve.
In my opinion, the companies that will survive this rising yield curve are those that do not fall into an earnings per share (EPS) recession. And it's not companies like McDonald's or Walmart, or grocery chains that are holding up pretty well. In my opinion, these are growth stocks that can prove they are capable of growing earnings per share and free cash flow during the most challenging macroeconomic times in the last decade, or more specifically, the 14 years since the Great Recession.
Now, in my opinion, these are companies with pricing power. While it sounds crazy, I believe they can lower prices to be competitive , maintaining high margins, increasing cash flow, and creating a “ safety cushion” to weather the crisis. These are the companies that capture market share during recessions , as firms with low margins or low cash flow are forced to cut back on production of unprofitable goods.
Let me give you an example. In my opinion, let's take BYD, a Chinese automaker, whose net profit margin is 1.45%. What do you think will happen if prices have to be reduced by 5% during a recession? Well, they will potentially become unprofitable. And if you become unprofitable, it's a sign that you have literally zero pricing power.
You have negative pricing power. You have no pricing power. Now every company, even a good one, with pricing power will be forced to cut prices during a recession. This is normal. You raise prices in good times and lower them in bad times. But the companies with real pricing power, in my opinion, are those that maintain high net margins.
I know it sounds repetitive, but I say it all the time. Tesla earns about 14% of its net profit, excluding energy credits. So even if Tesla has to lower prices and their net margin drops to 10% or 9% . It will not become negative. This means that companies with negative margins are forced to slow down their aggressive expansion and market capture.
Who ultimately takes away market share? A company that still has a net margin. So, if you can find companies with that kind of price advantage that have lost favor last year due to rotation into defensive assets that are disconnected from fundamentals. You see institutions saying: inflation is high.
Okay, what should we do? Well, the textbook says: let's move into defensive assets and essential goods . What a mess. What if when we actually enter an EPS recession, these companies start losing free cash flow. And yes, inflation may disappear, but you will start to lose yours. What will happen? Well , suddenly you're going to start to see a gradual rotation back to companies that continue to grow during the recession, because those will be the safest options because they have the most free cash flow.
And in my opinion, if you can find ETFs that focus on , rather than loss-making companies, you should be careful with innovative companies that are losing money, because innovative companies can be very innovative. But if they lose money during a recession, that's a big risk. If you have an innovative company that actually grows its cash flow during a recession and captures market share, in my opinion, that's where you're laying the foundation for a real future.
Now, regarding real estate, I advise you to be very careful. I read about real estate every day, whether on the internet, in newspapers, or elsewhere. I study real estate. I am studying the MLS database. I fly for real estate. I meet people on the ground. Let me just put it this way. As someone who is also a real estate broker, even though I don't represent clients, I know how to talk to real estate agents.
Of course? OK. Insider information is this: things will get a lot worse before they get better. Of course? This should be obvious. This is not some insider secret. The bottom line, in my opinion, is that a decline in inflation rates will be very beneficial for companies that have fallen not due to fundamental reasons, but due to a change in trends towards defensive assets and stable companies.
And when inflation does indeed come down, the Fed takes a break, and eventually reverses course, the companies with the biggest market share gains will, in my opinion, see the biggest and most massive gains over the next decade. And I would like to put a lot of my money in an ETF that has access to them, for one simple reason.
When these stocks take off, I don't want to pay capital gains tax on rebalancing my portfolio. And ETFs allow you to potentially avoid capital gains taxes. This is because if you own an ETF, the fund manager can rebalance within it by trading stocks without passing on capital gains tax to the individual investor.
This is madness. So, I am convinced that inflation is falling rapidly, but the CPI report comes out on the 12th and we should see my words backed up by the month-to- month reports. I hope so , because everything points to that. But always remember: hope is not an investment strategy. Therefore, you must be careful.
In my opinion, this means avoiding margin debt and surviving. Earn more, survive, but invest where you think is best for the next five to ten years. Thank you. Thank you very much for watching. Check out the "shadow day" options linked below, and see you in the next video. Goodbye.
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