hey so the fed's about to rug pole us and what happened in Japan might happen again but I wanted to thank you for 2 mil Subs y'all are amazing and mean the world to me thank you so much now let's get into the world ending could there be another wave of the collapse of the Japanese stock market that takes the entire global economy with it much like the stock market on Monday into the United States where we had Jim Kramer freaking out and pretty much everyone on Wall Street freaking out you've got to know could history repeat itself and that is what we are going to address in this video because quite frankly UBS believes this carry trade we talked about a couple days ago is only quote 50% Unwound which means we may have another Black Monday ahead of us in this video I'm going to address why this Black Monday happened and I'm not going to explain the carry trade because we already did that in the last video I'm going to explain specifically why the United States stock market was not able to stop the bleeding as a result it doesn't even matter if it's the Japanese carry trade that collapses or something else falling over this stock market here in the United States as well as elsewhere throughout the world is on fragile foundations and in this video I'm going to explain why but first before we talk about the stock market you must understand a Tinder Box that exists right now in the Middle East and no I'm not making a reference to the fact that it's going to be 107 degrees outside in Iran tomorrow I'm referencing the fact that Iran is using that Tinder Box as an excuse to close government buildings and Banks tomorrow no mention of closing schools just government buildings and Banks which interestingly could be the perfect targets for a Counterattack or preemptive strike from Israel this comes after the state department argues the United States just had a base struck in Iraq where several US service members once again have been injured we have been attacked on our bases over 200 times and have not responded to these Iranian backed Rebels a lot of this might change as Iran is expected to invade Israel soon in fact Iran just got its shipment from Russia of air defense mun misss and weaponry Iran may be preparing to strike and preparing its countermeasures but this video isn't about that Tinder Box this video is about the rest of the fragility of the US Stock Market and whether or not we are trending towards a recession we're going to dive into earnings what professionals believe and the Federal Reserve first Cathy wood who studies a lot of microeconomics believes we are almost certainly in a recession now TS Lombard Isn't So convinced TS Lombard argues that this rut will blow over that this carry trade might be one and done because the Federal Reserve has the right tools this time to fight a recession however they do acknowledge that Powell could mess this up but what's there to mess up if if this is Japan leading to potential crisis in the US Stock Market well the reality is the US Stock Market is so fragile not just because of what's happening in Japan and selling pressure what's happening in geopolitics but what's happening in the underlying Realm of the US consumer and US businesses TS Lombard says bouts of volatility are usually over between 5 to 6 weeks after a Monday like we saw which suggests we still have a very fragile 5 to 6 weeks of pain potentially ahead of us they suggest that recession is not an option for the Federal Reserve and they'll bail us out but this is where a lot of people disagree they argue that the election is likely to extend that volatility for the next 13 weeks double the usual volatility you would get after a Black Monday this idea also that a recession is not an option is also a giant trap remember this it took the Federal Reserve 2 and 1/2 years to bail us out of theom bubble it took the federal res Reserve 6 to 10 months it's because we had a double bottom that's why there's a range to fully bail us out in the Great Recession of 2018 only during covid did the Federal Reserve respond rapidly but then they contributed to the highest inflation we've seen in the last 40 years which high inflation is known to destroy countries ironically recessions are considered healthy they don't destroy countries inflation does this leads a lot to say that the Federal Reserve will not make the same mistake again so unless you think this time is different the Federal Reserve is probably likely to wait until the very last moment to capitulate and fully bail us out if we have another Japanese crisis or for whatever reason a stock market selloff especially in the face of stronger ISM Services data that we just got on Monday suggesting prices are potentially Rising rather than Contracting this makes the stock market quite risky uh in fact TS Lombard goes as far as suggesting that investors today during these periods of volatility like what we saw as a result of Japan will lead investors to do something known as selling into strength this means they won't necessarily sell on the day that everybody is panicking but instead something much like what we saw today will happen there are two very important things that happen today and you should pay attention to these maybe even put a sticky note on your computer first thing that happened we had the NASDAQ recover after we have a Thursday sell-off a Friday selloff and a Monday selloff the vast majority of the time and on average we are green on the following Tuesday it's a phenomenon called bounceback Tuesday it's not a big deal it's very highly predicted and bounceback bounceback Tuesday today in the NASDAQ occurred with volume that was really light in other words the nasda D 100 Technologies index Rose almost 22% at one point actually slightly more on very very low volume which suggests people are slowly nibbling buying and then what happened right around an hour before the closing bell volume increased and the stock gave up over well the index gave up over 1 and a half% a massive movement in the span of an hour for the NASDAQ 100 this is likely because institutional investors as TS Lombard warns sold the strength this is really bad because when investors sell the strength it means you don't have buyers and when you don't have buyers you exacerbate the potential of another Japan really destroying our stock market but there's another thing that happened today we had super micro computer that reported earnings and super micro computers as soon as their revenue beat and guidance came out skyrocketed from about $616 all the way up to $729 that is an increase of over $1 18.1% it's an insane explosion and then just like TS Lombard warned us almost as if on Q investors sold the strength take a look what happened afterwards after that runup the stock collapsed significantly lower than where it was now sitting around $540 which is substantially lower than where we were at the closing it's 12.3% lower so in other words we literally had a 30% swing in this stock from top to bottom in after hours because we got strength and we sold it off and what's sad about this company is if you actually zoom out and you look at thisan broadly the company is already down from $1,229 now all the way down to $540 ask yourself how scary that is for a moment by doing the math on that $540 divided by $1,229 is a 56% drop in just one stock in a matter of uh less than 4 months which is less than the time it usually takes for the Federal Reserve to bail us out of a recession so if you think the recession is over because the stock market corrected 15% and today the stock market was almost up a percent you might be sadly mistaken we might be experiencing a dead cat bounce which is kind of like when you drop a cat that's dead it bounces up off the floor you get a little bit of back a little bit back and this isn't to be morbid it's just to say it's very normal even in a recession to have green days and we understand this uh in fact because of this crash that happened on Monday and because of the fear that we have that another crash is going to happen like this we are going into almost every single day with shorts at the end of the day just in case some crazy stuff happens overnight we did that on Friday and when I say we I shout it out in my course member live streams I don't say that you should copy exactly what I do I just give you perspective but what I want you to know is on Friday I went in with a 30 C option I spent about $30,000 on an option and that turned into roughly $120,000 it was actually $118,000 a massive gain on one contract that I was using to hedge my portfolio now I don't encourage you copy me I can't guarantee you're always going to make money off every single trade that I make but a lot of my course members they say Kevin you give perspective that other other people don't see until it's too late and if you want that perspective make sure you join us in the stocks and psychology of money group all you have to do is go to meetkevin.com it is our sponsor for this video that's right I'm My Own sponsor for this video and I'd appreciate it if you joined we've got a flash sale going right now because a lot of people have been asking for a coupon to get in so check it out before that flash sale ends we expect to end it within the next 24 hours maybe 30 hours just sort of depends on when we get to it because a lot of people have been asking look at this nice email I got as well somebody wrote here I was just reading the Discord notices from today and Kevin I have to say Kevin is often more right than not in the market only constructive criticism I have for him is he is just early to his moves I've been an avid watcher with him since early 2020 and he has a nose for the moves before the market does anyway these are the sort of things that course members say now no guarantees again but do check it out link down below for now we got to understand why could selling the strength lead to potentially another Japanese selloff well again we have another 50% to go in the Yen trade so I mean I'll give it to you straight on that one if you just look up and you could make this very very easy on yourself uh and it's just part of what you want to pay attention to all you have to do is type into Google yen2 us d That's yen to USD and I want you to track this go to the 5day when you go to the 5day you're going to do something very very carefully when you see this Spike expect the carry trade to send pain to America and then you have to ask ourselves are investors in America going to sell the rip or are they going to keep buying the dip well on Tuesday the Japanese stock market recovered as the Yen actually depreciated but look what's happening now it's appreciating again so be careful this spike in this carry trade is not over yet bounce back Tuesday May certainly have made it seem like this is oneand done my take is it's about to get worse now let's understand For a Moment how things could get worse first consider super micro computers they announced that 10 for one stock split and yes they announced record revenue revenue well above expectations 18% over expectations in fact but their margins came in weak now why would their margins come in Weak well I believe that their margins are coming in Weak and I'm going to tell you what actually happened because we heard about it in their earnings call but I initially wrote that I believed their margins came in Weak because you've got someone or the market in general demanding price cuts and so super micro computers propping up revenues because they want to send a growth signal to the market so they could get their stock back up from being down 50% so hey let's prop up revenues by cutting prices cutting prices is bad because it destroys margin and so what did we learn in their earnings call well in their earnings call they told us exactly that they blamed a very large Enterprise high quality large scale customer and said because of them they had to lower margins in other words they had to offer them large discounts this is really simple because it starts with the following it's Amazon we have a$1 billion contract with you you need to cut your price 10% right now otherwise we're canceling all of it and we're going somewhere else now I'm being hyperbolic but what power does Super Micro have to say no now you might say oh they'll send it to somebody else oh but what have manufacturers across all of America and super micro been doing they have as super micro said in their earnings call quote expanded Supply and their large customers know it so they demand discounts because they can and then investors sniff that out and they sell the rip see now they argue they have plenty availability they have plenty of product and you might think their profit margin would guide back up but no they're having trouble getting it back up to where it was they're going to work very hard they say to get it back up to the prior range it's probably not going to happen but this isn't just about super micro computer this is about how does selling the strength affect the entire Market well think about this for a moment the way stock markets crash is somebody cuts spending it could be as simp simple as capex spending pressures margins at Super microcomputer this is literally what we just saw then somebody cuts capex spending Dell and Intel just did that after their stock drop then jobs get cut which increases margin to try to make the investors happy but when jobs get cut the consumer gets hit which then creates a self-fulfilling Doom Loop of less consumption by consumers and consumers are 70% of the economy if AI spend Fizzles the one thing actually propping up drops right now in spending disappears then the economy sees worse earnings Boom the recession is in full swing then try to deal with the other 50% of the Japanese carry trade you're not going to be able to it's going to be very disgusting but hey it's not just super micro who reported today it's Airbnb ah yes Airbnb down 16.3 3 %. they beat in the second quarter but in the third quarter they signaled quote softer Outlook they called it a broader moderation softness due to slower lead times some hesitancy they said they're seeing they said this in their earnings call by the way I already went through these earnings calls they said we're starting to see hesitancy in how quickly people book we've seen some movement in lead times they say people are booking later they might be booking one to two weeks out we're not seeing the two-month Bookout anymore like we usually do then they're asked hey will you provide 2025 guidance nope will you provide Q4 guidance nope what about Q3 guidance oh that's lower not good but that's just Airbnb well what about Trip Advisor oh yikes you missed and you're down 11.7 6% okay okay okay but it can't just be the travel sector can it what about Celsius remember that energy drink that everybody went nuts over by the way we did a huge Deep dive analysis in our course member live streams and my course members were asking me Kevin why don't you invest in Celsius and I said there's too much competition in this space and they're going to lose all their pricing power as soon as we go towards the recession and so what did Celsius warn right here in their earnings call they said said that they saw their product in the convenience Channel selling 43% more year-over-year earlier this year but what just happened let me read it to you we also began to feel the effects of the same macroeconomic factors that are pressuring same store sales and affecting consumer purchasing habits just last week one of the largest convenience chain noted their same store sales were down more than 4% so you went from 44% growth to now being down 4% and this happened just last week which would be the end of July which is the same thing that Airbnb said that oh my gosh we hit a wall in July so all these earnings we're getting are like oh July's really good holy crap what just happened in quarter 3 again this is why that carry trade is so impactful folks the carry trade can happen again the Japanese carry trade can happen again why because nobody wants to buy stocks right now okay maybe people want to buy stocks but they're fully deployed remember this folks this is so so important right here cash on the sidelines for us retail investors and investment firms subtitle aggregate investable funds as a percentage of equity market cap record low we have not seen investable funds amongst households and investable or investment organizations this low quite frankly since the dot bubble and Co in other words people are out of Moola to buy the dip so if there's no buyer what happens the order book collapses when you get a Japanese Liquidator that's why stocks collapse and that's why it can happen again because weak earnings across the board look at this after hours Tesla down 2% redin down 4% Reddit down 4.8 rivian down 67 Trip Advisor 12 Airbnb 16 super micro almost 13 Nvidia 2 uh uh NASDAQ 100 down 63 why is this happening because people are realizing the cracks of the consumer are serious they're not getting better now Celsius says don't worry we're going to keep growing and we're going to fight to regain the market share we lost how are you going to do that oh with better pricing and promotions in other words you're going to lower prices that is called deflation which is really good for the consumer but not if you lose your job now you might say but Kevin upstart beat for Q2 and they gave a better guide for Q3 and that's true they did upstart is up 18% in after hours but what does upstart do upstart helps you consolidate your debt it's literally the last thing you want to be doing well because it's a lender people are so out of freaking money that upstart is doing well upstart a stock that's currently trading at $28 when it once was trading for $41 this is the company people want to cheer over it's a joke it's a bad sign so what should really scare you the selling pressure coming from ctas now a lot of people aren't familiar with this because a lot of people are like but Kevin what about all this money on the sidelines in money markets a lot of that is called Cash and cash equivalents on corporate balance sheets or bank balance sheets these aren't investable funds but what should scare you is the CTA cheat sheet brought to you by the market ear look at it here ctas if the market is up over the next week plan to sell $50 billion in total if the market is flat sorry that's if the Market's flat the next week if it's up the next week they plan to sell $33 billion if the market is down they plan to sell $77 billion so in all cases over the next week uh commodity trading advisers which have a lot of equity exposure right now are sellers in the next month if we're flat over the next month they'll sell nearly $100 billion and if we're down the next month they'll sell $211 billion if we're up they'll buy just 40 which is one of the smallest amounts on this chart here's another way to visualize it the upside right here is maybe 15% but the downside is 15 to 45% this is massive so you have to ask yourself do you want to be if we're this little blue line do you want to invest for this or or do you want to protect yourself from this again I don't want you to lose money and lose the potential on the upside I I really don't like I want to be a bull I want to say everything's going to the moon but I don't want you to be the person that this happens to and then you lose your job and then you go bankrupt and then you say why didn't anyone warn me okay fine Kevin fine what else what does Mike Wilson of Morgan Stanley have to say because I heard small caps are going to Rally right small caps well I'll show you exactly what Mike Wilson has to say right here in his latest piece Mike Wilson says you should be careful and you should get defensive he says that the consumer booed growth last year and fended off that hard Landing but if consumption is now fading more than expected investors should be very careful because if we get a further deterioration in growth that materializes Beyond just an expectations Miss valuations would likely be more broadly challenged in other words stalk down and he argues that you should be careful investing in small caps because they are the most economically sensitive but this is not the only thing he suggests he argues the FED is not going to come bail you out the FED is prone not to overreact at this point and we'll have more to talk about at the FED in just a moment but what I'd like you to see is the following first I sent I actually gave a preview of this because I mentioned this on uh Twitter but take a look at this right here this is the spread in other words the difference between the 2-year treasury yield and the Federal Reserve uh uh fed funds rate that spr red that difference right now sits at about 163 at the time the screenshot was taken it's probably about 144 is right now so it's tightened a little bit but the point is the last times we were at these levels let's just say we're not very happy times look on that chart and see if you can spot when we were last at those levels and then I'm going to give you the cheat sheet by showing you my Twitter follow me there if you haven't yet oh and I'm blurry at real meet Kevin take a look at this the last time this level happened was June of '89 right before the 1990 recession January of 2021 right before the dot recession and December of 2007 right before the 2008 recession that's not good Wilson suggests we should be very careful because the past several weeks have been more about deg grossing than anything else in fact he says it right here now what does that mean well deg grossing is a fancy way of saying drisking he even says here as regular readers no we have remained steadfast in our view that small caps so smaller companies are not the place to be in a late cycle economic environment like today going into the first cut in other words be careful with smaller companies the Micro Data is warning us that the forward trend is weaker this is the same thing that Cathy would argues this is not an isolated slowdown he says restaurants Airlines hotels Autos credit card companies they're all warning of a Slowdown with the exception of some of the wealthiest consumers but this makes sense they got money to burn now the next thing that Mike Wilson argues is really dangerous is that the market last capped out on July 11th which was the same day that we actually had a CPI data release and what he thought was really interesting about this was low inflation all of a sudden became bad news that's because slowing inflation while it's supposed to be good news is actually signaling that earnings are going to come in weaker in that pricing power is waning the pp is getting small the pp is fading and that's not good we like big pee around here in fact take a look at this picture this photo right here will show you exactly little p PE all of these 12 Industries with the exception of clothing and Footwear which I found weird because I don't think that these are actually going to keep doing that well with the exception of clothing and Footwear every single sector has slowing or falling pricing power and it's very very bad now something else that you should be paying attention to is what happened the last time the S rule was triggered in fact what has happened historically every single time the S rule has triggered well we have data on this in fact it's right here history shows when the Su rule is triggered and unemployment Rises by 50 basis points we should expect it to rise a full full 2% in fact the history is right here look at all of these different years where when the S rule has triggered we have seen unemployment Rise by an additional there I'll hide myself for a second by an additional 2% well 1 to 2% now you might ask yourself but Kevin what about that question mark you drew right there on that one year there was an exception to this rule that un employment skyrockets basically after the S rule is triggered it happened in all of these years all years that weren't exactly particularly juicy well there was a reason for that and I'm going to give you the rationale on it and the history on it and then you could decide what the S rule being triggered within the last week means for us going forward in 1959 which is where that line was that one line that's under there where unemployment fell after the S rule was triggered something very unique happened 1959 was a second trigger it triggered after the 1957 trigger during the UN during which unemployment did rise those 200 basis points the market fell 17.4% like the Dow Jones Industrial in 25 months from the 1956 Peak you literally bled for 2 years in the stock market and that's the Dow that means a lot of the components got hit even harder the FED then decided to drastically cut rates from 3.5% to 63% but then they ignited inflation they didn't even over ignite inflation they barely ignited inflation but because they started igniting inflation by cutting rapidly they actually raised rates back to 4% triggered the S rule again in 1959 and caused the second recession in 19 60 where the market then declined 15.7% in 10 months this paved the way for the 1970s where the Federal Reserve reacted in up and down patterns leading to the lack of confidence at the Federal Reserve and we ended up getting a runaway of inflation this is a really critical note because if the FED screws this up again with inflation whatever little faith people have left in the FED will lead the FED to absolutely C collapse markets again in a stagflation scenario the FED cannot afford to do that the FED cannot afford to save the day too early inflation is unforgivable they cannot reignite inflation so they won't have an emergency cut in my opinion and they'll probably cut rates too late they don't want to repeat the mistakes of the late 50s or the 70s people ask oh but but the FED wants to avoid a recession you have to ask yourself what does the FED want more to beat inflation or to avoid a recession most people are going to say the FED wants to avoid a recession but it's actually the wrong answer a recession is curing a recession kills inflation it helps them a recession crushes businesses that should fail a recession cleans out existing businesses a recession creates healthy foundations the FED knows this they're economists they're theorists they study this and they say yes recessions are actually good although they could be painful we'll cut rates when we need to well if we go into recession you don't want to invest again until they capitulate but reigniting inflation is not an option here now I know some people say but Kevin we might have a soft landing and they refer to the 1995 era where the Dow Jones Rose to 2.2x from its 1995 level it's pr.com Peak but to this I say the NASDAQ is already up 1.93 X from Q4 2022 I understand I'm using a different index but the point is we have already seen a substantial run in mega caps the mag 7 and some of the biggest businesses in our world today which we measuring Meed then by the Dow and are more heavily measured today by the NASDAQ so you might say I don't know Kevin this time's different we've got another 2x ahead of us but unfortunately it seems like the data doesn't agree in fact Bank of America goes as far as suggesting that recent growth is slowing faster than expected they also say and and so do others say that investors are becoming too greedy relying on the assumption that the Federal Reserve will bail them out the next time there's a Japan oopes in fact Robble Bank went as far as saying when things flip bad we demand rate Cuts heads I win Tails I lose but taking the froth out of stocks is exactly what the FED wants they say this then Loops us back to Iran suggesting an attack on Israel is imminent which unfortunately Robo Bank says a war with the axis of resistance could lead to a volatile oil shock so then you'll have a shock in our economy a recession an oil shock and potentially War this isn't just about Japan it's the fact that nobody wants to buy right now because they already bought and this is why you're seeing profit taking and why at the very least between now and the election you should probably expect profit taking to continue so could there be another sell-off on another one of these Japanese carry trades the answer is no if you think there are buyers if there are a lack of buyers again the answer is yes then you have to ask yourself what is investable cash right now it's very low and so where do I stand on the bare bull scale I stand at a 2 and a half which is pretty bearish I'm not full dirty bear yet but I'm starting to get there unfortunately we may be trending right towards a recession and I have no faith that the Federal Reserve will respond early because when you study history you see that the Federal Reserve has screwed up every time they respond too early and besides if they cause inflation everyone will hate the FED if they cause a recession and the FED comes in on their white night and capitulates and cuts rates to zero and starts QE again they'll love the Fed the FED only loses by cutting too early and once you recognize that you'll probably become one of the sell the Rippers and you'll start protecting your portfolio if you want more of my insights make sure to use that flash sale we have on the programs on building your wealth I wish you the best this is a very scary time and if you like this video please consider subscribing the last time I asked y'all helped me get to 2 million subscri subscribers and I really appreciate and thank you for that just know this video took two days of research to put together for all of you and I do it because a I love it and B I'm really worried there's going to be a massive amount of job loss I would rather be wrong I would rather people not lose their jobs the stock market boom and everybody be happy but I don't want you to go into this unprepared thank you so much for watching goodbye good luck and we'll see you in the next one go to meetkevin.com to check out that coupon code inspiring suit not advertise these things that you told us here I feel like nobody else knows about this we'll we'll try a little advertising and see how it goes congratulations man you have done so much people love you people look up to you Kevin pafra there financial analyst and YouTuber meet Kevin always great to get your take even though I'm a licensed financial adviser licensed real estate broker and becoming a stock broker this video is not personalized advice for you it is not tax legal or otherwise person personalized advice tailor to you this video provides generalized perspective information and commentary any third party content I show shall not be deemed endorsed by me this video is not and shall never be deemed reasonably sufficient information for the purposes of evaluating a security or investment decision any links or promoted products are either paid affiliations or products or Services we may benefit from I also personally operate an actively managed ETF I may personally hold or otherwise hold long or short positions in various Securities potentially including those mentioned in this video however I have no relationship to any issuer other than house Act nor am I presently acting as a market maker make sure if you're considering investing in house Haack to always read the PPM at house hack.com