BLACK MONDAY? The Japanese “Carry-Trade” Fully EXPLAINED

As I write this, it’s very early on Monday morning and the financial meltdown is only getting worse.

I warned last night that we might be in for a “Black Monday” and so far that is unfortunately looking like it may be true.

But what’s causing this?

You may have heard a lot about the Japanese Carry-Trade but maybe you don’t fully understand what that means?

People are saying this is the likely cause of the sudden financial meltdown, so what is the Japanese Carry-Trade and why is it suddenly ruining everything?

Once again, my friend MeetKevin (Kevin Paffrath) gives the absolute best explanation of what this is that I have found from anyone so I wanted to pass it along to you.

Watch the video below or scroll down for the full transcript and I think it will make a lot of sense.

Watch here:

Full transcript:

Why are markets absolutely collapsing? What is this Japanese carry trade we’re going to talk about? We’re going to explain it in this video so you fully understand the Japanese carry trade that everybody keeps talking about and why Japan could be leading markets to crash in America.

Of course, it could also be that we are now under an imminent threat of an Iranian and Hezbollah-led attack against Israel, which threatens to be larger than anything Israel has ever seen before. With Israel now warning that Israelis could be without power for 3 days as they face a multi-pronged attack expected to begin within the next 24 hours, if not tonight then tomorrow night. Just a crazy world that we’re in.

Or is it just that the US might be going into a recession? Or D, all of the above? Well, in this video we’re going to start by talking about the Japanese carry trade and trying to explain it.

Now let’s be clear right at the start. The Japanese stock market ain’t doing too well. Just in the last 12 hours, the Japanese market—well, let’s just put it this way—their TOPIX index circuit breaker hit, no more trading for a period of time. Bond market circuit breaker hit, no more trading for a period of time. South Korea, in sympathy for what’s going on in Japan, just decided, you know what, nobody’s allowed to sell after the KOSPI’s down 4.6%. Zoom in on Japan for a moment, NIKKEI down over 65%, the NIKKEI 225. Nintendo stocks down 11.3%. But who cares about Nintendo? What are the banks doing in Japan? Oh, the second largest bank in the country down 15.5%. The largest bank in the country, like the equivalent of a JP Morgan, down 12.2%.

Well, at least gold’s up. Real gold, not digital gold because Bitcoin’s down 11%, Ether down 21% in the overnight trading. On the app Robinhood, you could look at Tesla down 6%, Apple down 6.9%, Nvidia down 6.75%, and all futures are red, led by, no joke, small caps and NASDAQ 100. You’ve got the S&P down 1.42%, Dow futures also down 0.77%.

So, this is just a quick little rundown on what the heck is going on here. This is a lot of pain. Why? What is going on? Well, let’s start with the carry trade failure. Let’s explain this.

So, everybody knows that the entire world has been facing a lot of inflation except for Japan. They’ve basically stagnated since the ’90s and they’ve faced issues of too much deflation. Maybe they’re not having enough babies, maybe they’re not having enough innovation, who knows. But they did not have the inflation problem of the rest of the world. This meant that while Japan was actually lowering rates and had negative interest rates, everyone else was raising interest rates. Now, this does something very interesting because when interest rates go up in, let’s say, the United States, it becomes more attractive to buy the 10-year Treasury bond.

So, for example, if the 10-year Treasury is trading for 3.76%, just like it is now, and the Japanese 10-year is trading for 0.82%, which bond would you rather have? The 10-year debt paying you 3.7% guaranteed and backed by the full faith and credit of the US, or the Japanese 10-year paying you just 0.82%? It’s a no-brainer, an absolute no-brainer. You’re going to buy the US bond and if you have any other currency, you’re going to sell that other currency, you’re going to go buy US dollars, and you’re going to go invest in that US bond. This creates a lot of selling pressure on currencies like the Japanese yen. So, the Japanese yen goes down in value, which enables something unique called the carry trade.

Okay, now you’re going to have to roll with me on this one because it’s a little complicated, but I’m going to make it as simple as possible. Here’s an example of what a carry trade looks like. Let’s just start extremely simple. Let’s just say right now you want to take on a margin loan on stocks in America. It might cost you 6.5% in the US, but what if you could go to Japan and in Japan you could borrow at 1.5%? Oh, well that’s a lot more desirable. Why don’t I go borrow in Japan and then go invest that money in either US Treasuries, which are literally yielding more than what I’m paying on my debt, or how about MAG 6 stock, or MAG 7 stocks, whatever you want, right? The biggest stocks in America, buy some Nvidia, buy some Tesla, whatever. This is essentially an arbitrage of interest rates. That’s what this all comes down to.

Now, how does this go wrong? Well, first of all, to understand how it goes wrong, let’s understand how it goes right. Let’s say I borrow oodles and boodles of money in Japan, and just to make math simple right now, we’re just going to call it $1,000 worth of yen. I’m going to take that money and I’m going to use it to go buy US assets. Well, if the Japanese yen keeps going down in value, it’s actually going to be a lot cheaper for me to pay off that money. Like, let’s say I take that $1,000 and I put it into US Treasuries over here. Well, every single year I’m getting my 3 or 5% yield on money markets or Treasuries, maybe even a little bit more. So, let’s say over here I’ve all of a sudden after a year got 1,050 bucks and the Japanese yen fell 20% in value, so I actually only have to pay back $800 worth of yen over here. This is great. I picked up 50 bucks very cheaply in America, so I’m plus 50 over here, and I can now pay that yen back with $200 fewer dollars. So, I pick up $200 over here. Let’s go, baby! I just made 250 bucks, 25%. Chaching! Investing on the fact that the Japanese yen is going down. And guess what? The Japanese yen usually goes down. It’s just kind of unfortunately the way it’s worked.

So, for example, if you pull up the US to Japanese yen valuation over here, you can see there are very rare cases where the Japanese yen spikes. Once over here in ’95, over here in 2011, you can see over here the yen’s actually been plummeting, so it’s actually made the carry trade more desirable. I mean, you’ve dropped 27% in the value of the yen. So, that example I just gave on the iPad over here, this has been printing money. It’s been absolutely minting, minting, minting. Yeah, let me close this door. I hear the children again. Hold on a sec. Double doors for soundproofing, let’s close this stuff. Anyway, so you’ve been printing money doing this carry trade because the Japanese yen just goes down, down, down. So, people keep adding to their bets, adding to their bets, adding to their bets, adding to the bets. Okay, cool, like you’re winning. That’s wonderful.

Like, Kevin, what’s wrong with this? Ah, yes, yes, there has to be a downside to any trade, right? Of course there is. So, let’s say you decided to take your $1,000 over in Japan. So, you’re going to borrow $1,000 worth of Japanese yen, okay? So, we take our $1,000 over here, $1,000 worth of Japanese yen, and now what we’re going to do is we’re going to invest that into the dip on Tesla, okay? And let’s just say we bought Tesla just for giggles because this could be anything, okay? You’re like, man, Tesla’s going to the moon, baby. I’m going to buy it at 270. And then of course, you know, Elon rug pulls you and delays the robo-taxi event, whatever. Okay, you know, put any placeholder there. This is not a Tesla video. This could be anything. It could be Nvidia, the darn thing’s down like 25% from its peak. You know, it could be Tesla, obviously, you’re going to be down about 30% or it does not matter what it is, or you have a leveraged position. It doesn’t matter what it is.

Let’s go with you buy Tesla at 270. Okay, you know what? Forget even what price it is. You just put $1,000 into Tesla stock right here because you borrowed $1,000 worth of yen. You put it all into Tesla stock. But wait a minute, if you put $1,000 into a broker in America, why are you just going to use $1,000? Come on, man. Reg T margin, 50% down. I get to buy $2,000 of Tesla with $1,000 of a deposit, right? That is a typical margin loan in America. So, now I borrowed the money cheap over here. The money that I borrowed very cheaply in Japan, I’m now going to leverage again in the US stock market. But why does this matter? I mean, the Japanese currency keeps devaluing, everything should be fine.

Oh, but wait, then all of a sudden Japan says, hey, look everyone, we finally got inflation. Let’s raise interest rates because inflation is finally moving up. Uh, what? Yes, this is exactly what Japan did last week. They raised interest rates 25 basis points and they were already at positive, so they just went up another 25 BPS. And what happens when countries raise their interest rates? That’s right, their bonds become more desirable, especially since Japan is now going up and everybody else is cutting. So, you’re getting more of a yield in Japan. So, what all of a sudden happens to the value of the US dollar when yields go down? Oh, the dollar goes down, the Japanese yen goes up, which exacerbates the spread because you’re going in both directions. And so, oh, over the last month, so over the last 30 days, the Japanese yen has appreciated 10%. Oh, but wait a minute, I borrowed $1,000 worth of yen over here. How many dollars do I need now to repay that loan in Japan? Well, now because it’s 10% more expensive, I need $1,100 to repay my loan in Japan. No problem, no problem. What’s my Tesla stock doing? Oh God, it’s down 30% and I’m on margin. Oh, okay. So, just to make math a little fun here, actually, the example I did is I went with 35%. So, let’s assume it’s down 35%. That’s down $700 on $2,000. So, that means all of a sudden I have $1,300 left over here. But wait a minute, I’m such a dgen, I also borrowed over here, so I actually only have $300 of equity. $300 of equity out of the $2,000 of stock I bought is 15%. Oh, who’s that calling? Oh, it’s Mr. Margin calling. And now you get liquidated. Sure, you get your $300 back, but you got liquidated, which contributes to more selling pressure in the United States. Oh no, but wait a minute, bro. Now I only have $300 left and I have to pay an $1,100 loan off in Japan. And now Japan is going, hey bro, margin’s calling. And you’re like, what? Why? Because sir, you have $300 of collateral left on the $1,100 loan you just took out because we could see what you did with your money. We want our money back. You’re at margin levels. And you’re like, okay, guess I’m filing BK and getting hosed. Boom, now you have to either borrow more from somewhere else to pay off that $1,100 loan or you’re defaulting and you’re destroying the banks. Which now it totally makes sense why the banks are collapsing in Japan. Well, their stock valuations are collapsing because they are getting burned over here on their debt as well. So, they burn us in our stock market and they get burned in the banks over there. Now, how big is this trade? Well, nobody really knows. Cathie Wood thinks it could be as much as 10% of the United States stock market. That’s massive. Like as much as $1 trillion of leverage in all risk assets, risk assets, crypto stocks, doesn’t matter.

Okay, this is always funny because I talk about this in my course member live streams and people are like, oh, you know, sometimes people are like, oh, but Kev, crypto is not a risk asset. Like it is the definition of a risk asset. Why do you think gold is up and Bitcoin’s down 11% right now? Your boy Kevin, by the way, uh, let’s just say this is not an advertisement or anything, but I’ve been talking about this for a couple weeks now since probably since about July 11th, like everything really hit the fan. But, um, on the fund I manage, we’re like 5% short Bitcoin. I wish I had more short Bitcoin right now because that’s going to do really freaking well tomorrow. Remember, if you want any of my buy/sell alerts or anything, meetkevin.com. You can learn everything in the courses I’m building here with you. You should be part of the course member live streams because we talk about this kind of stuff on a daily basis or even chat in our Discord server. Uh, but anyway, what is next? Well, maybe Japan can just print more money, right? And they could sort of solve this issue, right? Well, so far, the Japanese cabinet is saying they’re watching market moves with a sense of urgency and, uh, don’t worry, share prices are determined by a variety of forces and, um, yeah, we’re just going to keep watching. That doesn’t really inspire a lot of confidence.

So what about the money printing part, Kevin? Like, when are they just going to turn the printer on again and make all this pain go away? Ah, okay, well, in order to understand that, we have to consider what Japan’s debt to GDP is and compare it to where everybody else is in the rest of the world. So we have a lot of debt in the United States. We know a little over 100% here. Japan’s debt to GDP sits around 263%. That is higher than Venezuela and it takes the number one spot for being the most indebted country in the world as it compares to GDP. That’s pretty pathetic. So I don’t think they’re turning on the money printer anytime soon because they freaking can’t.

Add to this the fact that an attack by Iran is likely imminent and add to this that people are pricing in recession fears in America and you’ve got a whole heck of a lot of uncertainty. Now, does that necessarily mean that the United States stock market is going to sell off on Monday? Well, the futures market says so, but that was during the Japanese stock market open. Maybe cooler heads will prevail and everything will be hunky dory in the morning. Everything will start going up again, we’ll have a nice little rebound and maybe we’ll open up to just a little buy the dip opportunity and nothing else to see here. Everything’s fine. Or things will completely panic and everybody will take every opportunity at a bounce just to sell more stock because this is a sinking ship and everybody sees the exit over there.

Well, according to a poll I ran on X, the latter doesn’t seem to be the big priority. In fact, according to a poll I ran on X, which you should follow me there at real Meet Kevin with 6,761 results, 44.6% of you said yes, Kevin, buy the dip, 34.3% of you said I’m holding, and only 21.2% of you suggested that you were selling. Also, when I suggested that Bitcoin might be a risk asset, somebody replied to me and said, but Kevin, they’re investing in Bitcoin for the tech, right? That’s going to help save you in these market moves. It won’t.

Anyway, so I’m curious, what do you all think? What are you all going to do? I will make the argument that probably the safest investment right now is cash followed by Treasury bonds, which might continue to collapse in yields. Now you might be thinking, oh, but Kevin, the Federal Reserve is going to come bail us out, right? Well, this is where you have to ask yourself, what does the Fed care more about, avoiding recession or avoiding inflation? See, I ran that poll as well, and the vast majority of people said, oh, the Fed wants to avoid a recession. And to that I say, you’re wrong. The Fed cares way more about destroying inflation because inflation ends countries. Recessions are healthy. So buckle up. The Fed ain’t coming to bail you out anytime soon.

Now, if you want to know exactly what I’m trading, make sure you’re part of those courses over at meetkevin.com. Always make sure to hit that subscribe button. We’re about to cross 2 million subscribers, so if you haven’t hit that button yet and you’re not part of the pre-2 million subscriber clan, I don’t know what y’all are waiting for. We’ve got a great clan going on here. Okay, the MKC. It’s great. Come join. Thank you so much for watching and we’ll see you all in the next one. Goodbye and good luck.

By the way, if any of this makes you nervous, you can get life insurance in as little as 5 minutes by going to meetkevin.com/life. You can Apple Pay or Android Pay for it. It’s what Lauren and I use and it takes as little as 5 minutes to sign up. That’s meetkevin.com/life. See you all, bye.

These things that you told us here, I feel like nobody else knows about this. 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 Paffrath, financial analyst and YouTuber Meet Kevin, always great to get your take.

Even though I’m a licensed financial advisor, licensed real estate broker, and becoming a stock broker, this video is not personalized advice for you. It is not tax, legal, or otherwise personalized advice tailored 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 Househack, nor am I presently acting as a market maker. Make sure if you’re considering investing in Househack to always read the PPM at househack.com.

RELATED REPORT:

BLACK MONDAY INCOMING? Everything Is Crashing Overnight, Heading Into Monday

Heads up folks!

I’ve been warning you for many months now that a MASSIVE CRASH was coming.

Is it starting tonight?

It looks like it might be.

The Japan Stock Market is crashing and just got halted:

BREAKING REPORT: Japan experiencing a possible STOCK MARKET CRASH, Trading halted on Major Index..

DEVELOPING.. https://t.co/VGXSP3nrUK pic.twitter.com/KYXvK0Atj0

— Chuck Callesto (@ChuckCallesto) August 5, 2024

Bitcoin is absolutely crashing:

JUST IN: #Bitcoin plummets below $56,000. pic.twitter.com/cc5wYWpLKC

— Jacob King (@JacobKinge) August 5, 2024

The Top 7 “Magnificent 7” are losing BILLIONS overnight:

The magnificent 7 stocks erased over $500B of market cap in overnight trading.

The bloodbath is just beginning. pic.twitter.com/LFDNJWpd7l

— Jacob King (@JacobKinge) August 5, 2024

People are calling for bank collapses next, and I don’t think they’re wrong:

BANK COLLAPSE NEXT https://t.co/SdIHkCGEhQ

— Chad Steingraber (@ChadSteingraber) August 5, 2024

It’s about to get ROUGH:

BREAKING: The Japanese Stock Market is crashing…

Here…. We…. Go….

Stolen Elections Have Consequences…

Trading has been halted… Buckle Up… It's about to get rough.. pic.twitter.com/NddT4iC60M

— Matt Couch (@RealMattCouch) August 5, 2024

It looks like our reporting is SPOT ON once again, because just a few hours ago I brought you this report:

MeetKevin: It’s Over: We’re in Recession [Do this NOW]

As you know, when we talk Finance and Stock Market, I love to see what my good friend MeetKevin (Kevin Paffrath) is saying.

Kevin is perhaps the top Financial YouTuber and a guy who makes things REALLY easy to understand.

He’s also wildly successful, bootstrapping himself from working at Jamba Juice in high school to suddenly running many multi-million dollar companies and having his own private plane.

Those are the kind of people I like to listen to.

Not people in Congress who’ve never made a single dollar their whole life that wasn’t GIVEN to them by the Government, but people who are actually out there DOING things and doing them well.  Having success.

So I tend to listen to what he says, and the bad news is he’s EXTREMELY bearish on the stock market right now.

And this is not a guy who typically is bearish.

By his own admission, he finds going against “Trade America” to be very difficult.

In other words, most of the time he’s bullish on the future of America.

But right now?

Not at all.

Just last week he published this video:

That video has proven to be very prescient already.

On Friday, Gold surged to a new All Time High, as the stock market wiped out BILLIONS of dollars in one extremely bloody, red day.

Gold Hits New ALL TIME HIGH — Here’s Why

Is that just the start?

Kevin thinks yes.

That's why he just released this update video where he confirms how bad things are about to get.  Be sure to notice what he says about Gold and Silver:

FULL TRANSCRIPT HERE:

Well, folks, bad news. We might officially be in a recession. We need to talk about why in this video. We need to talk about when markets bottom because there's a lot of information out there, and you kind of have to pick which side to follow on this one. We're also going to talk about how to prepare yourself for all this.

First things first, you probably already heard about the job numbers this morning. I don't want to reiterate the nonsense. What matters most is that this jobs report was 2.6 standard deviations off expectation, which has now triggered the S rule. The S rule being triggered is a recessionary indicator. The St. Louis Federal Reserve literally calls it the Realtime Som Rule Recession Indicator. Once it crosses over 0.5, boom, you might already be in a recession.

In fact, when you go back and look, 1960s, boom, you're in a recession when it crossed 0.5. Over here, boom, 70s, you're in a recession when it crossed 0.5. Over here, didn't cross 0.5, no recession. Over here, crossed 0.5, recession. Over here, hit 0.5, didn't exceed 0.5, no recession. Over here, you pass 0.5, recession. Pass 0.5, recession. What do you have over here? 33, no recession. No recession, 0.5, recession. Get where I'm going with this, right? Every time it goes over 0.5, recession. Look at where it is right now.

Now, it's not a hard and fast rule, it does not mean with certainty that we are in a recession, but it is quite likely that we have just entered a recession. Some people are going to say, "Oh, but Kevin, it was the hurricane. It's the hurricane. That's why the job numbers came in low." Okay, then what's important to know now is that if we are in a recession, when does the market bottom? That's the big question.

According to Bloomberg, if you average all of these prior recession indicators, the market bottoms when the S rule triggers. Oh my gosh, that means right now, buy the dip! Hold on, not so fast. I like to look at 2000 and 2008. I take out COVID, and I wanted to see what happened when the S rule was triggered at these levels because, in my opinion, they much more associate with not a run-of-the-mill recession, but rather an insane bubble of some form. The dot-com bubble, the housing bubble, and now the AI bubble.

Okay, I'm gonna say it. Do I think there's an AI bubble? Yes. I've been complaining about this for a very long time now, and what I found when the S rule was triggered here was very different from what Bloomberg said. And that's my goal on this channel, to always provide you with perspectives that at least challenge some of the mainstream perspectives out there. So you get different perspectives, so you can ask yourself, "Do I agree with Kevin, or do I agree with Bloomberg?" I'm going to give you both sides, and then you can decide. You don't have to pick my side.

Now, we did very well in the last, I mean, frankly, today. Today did very well. Yesterday, I was dumb. I had some AMD calls, I got burned on that. We already talked about getting burned yesterday, but I made more than that burnage back today because my shorts made some really nice dollar hollas. I threw in an IBKR order, the IBKR order doubled my account on IBKR. I rarely trade on there. My Robinhood account, I doubled this week because I threw puts in there as well. I rarely trade in there as well. And then my P&L for today is glorious, 203%. So, I mean, you could see this. This is, you know, $400, $450,000 in tendies just in the last 24 hours because I have been bearish since July 11th. I didn't play it perfectly over the last three weeks, but if you want all my buy-sell alerts just to get my perspective and my discussions in the course member live streams, remember we did extend the coupon code to the end of the day today. We wanted to get through the jobs catalyst. Some people were asking about getting through the jobs catalyst. Here it is. So, meetkevin.com to join. You pay once, you're in forever. Price guaranteed to be the lowest you can ever get, otherwise your money back.

Take a look at this, folks. June 2001, the S rule triggers. Write that down. June 2001, 0.53. That's where we sit today. Now write this down. April 2008 to May 2008, Som rule triggers. Write that down. Why does that matter? Because it took a little bit longer for the market to actually bottom out in those cycles. It took 15 to 20 months to bottom out after the S rule triggered in 2001, another asset bubble. It took 9 to 10 months to bottom out after the 2008 trigger, another asset bubble. In other words, we could be at the beginning of this sell-off. Now, does that mean the market's going to go straight down? Absolutely not. The market will, in my opinion, absolutely not go straight down. In fact, it will just slowly bleed every day.

You're going to get those people who post, "Oh look, Kevin, today the stock is up, see you were wrong." I literally had a financial guy, a financial money manager, when I said, "Why would you go long small caps right now? That is the worst thing to own in a recession." I literally had a financial adviser, and I won't put him on blast. And I'll tell you why, two reasons. I won't put him on blast, but on X, @realmeetkevin, he replies to me, goes, "Oh, okay, Kevin, I think you're going to be wrong." The very next day, IWM's like up 1.5%, small caps. He's like, "See, Kevin was wrong, Tom Lee is right again. Tom Lee is always right." Now look, I'm not here to declare victory right now, but if you look right now, to me it looks like investing in IWM was a bad idea. That's what it looks like right now, and I think frankly it's just getting started. Because if we are triggering a recession warning, the stupidest thing to own are small caps because they're the ones that are going to go bankrupt. You would be better off buying the dip on Nvidia, which I think is a bubble risk. You'd be better off buying the dip on Amazon as the next Walmart than you would be buying the dip on the Russell, where you're going to have a bunch of bankruptcies weighing this sucker down. No way, Jose.

Anyway, as a result of this sort of tiff, the reason I don't want to put that person on blast for critiquing me that very next day is because he ended up deleting his post, so I couldn't find it again. And I didn't even say anything. I'm not like prancing around trying to declare victory today. I didn't even say anything, but all of a sudden I'm like, "I wonder what Tom Lee's saying today." I wasn't even going to say anything. I was not even going to say anything, and this is what I get. I got a thank you card in the mail from Tom Lee. There it is on the screen right there.

Anyway, listen, the Greed and Fear Index is something that we need to pay very close attention to, folks. Yesterday we were at 40, 39. Today we're at 26. This is probably going to keep going. Why? Because market momentum probably has to go below the 125-day moving average, and stock price strength needs to move out of extreme greed. You need all of this to be fear, fear, fear. We're not there yet. The VIX skyrocketed. Safe haven demand skyrocketed. Junk bond yields have skyrocketed. We're about to re-invert on the yield curve. Now, understand what that usually signals. When the difference between the 2-year and the 10-year goes positive again after having been inverted, it usually means you have begun a recession. We are currently 9.9 basis points inverted. We are 9 basis points spread away from once again triggering a recession with now a second indicator. Not there yet. So far, it's just the S rule. This is not good.

Now, I also want you to remember, there's a very, very key signal that we saw this morning. This morning, Jim Cramer was asked, "Are we going into a recession?" And Jim Cramer said, "No, of course not." I'm very nervous. JP Morgan and Citigroup are all increasing their odds of a Federal Reserve rate cut. Nick T, also famously considered Nicky Leaks, believes that a lot of institutions are now ramping up their interest rate cut projections, and I'd like to tell you something. I think they're all wrong. These numbers are all going to end up being too low over time. Now, do I think there's a likelihood of us getting a 50 BP in September? Folks, if the market continues to correct the way it is correcting now, we are going to get a lot more than a 50 basis point cut. The Federal Reserve will declare victory on inflation, and in order to preserve the jobs market, the Federal Reserve will cut rates back first to 2% and then to 0%. They will do so rapidly. They won't do so based on just today's jobs report. In fact, they're going to try to exercise restraint, and they will wait. They will wait, wait, wait, wait until unfortunately it's too late, and they'll have no choice but to cut rates back to zero.

That's when you're going to get a lot of folks who argue, "Oh my gosh, this is going to set off a second wave of inflation." No, it's not, because everybody's going to be jobless. You're going to have manufacturing supply chains that are so freaking loose that you can't have inflation because nobody can raise prices, even in an environment of low interest rates, because nobody will be able to finance anything because a) they'll either have lost their jobs, or their hours will have gotten cut, or their salary will have gotten sliced.

I talked about this today in my course member live stream. Listen, I'm not always right in my trades. I always make that clear. I'm not always right in my trades. I do not guarantee that you are going to make money. But what I do every single day is I show up, I try my best, and I give you perspective. And I'm going to give you a little spoiler alert of what I talked about to course members today. I said, "Listen, if we don't go into recession, fantastic. But if you ask yourself right now, is now the time to buy the Cybertruck? Is now the time to YOLO all your money on new clothing, an expensive vacation, a home addition? Is now the time to put your family's future at risk, or is now the time to be cautious?" My belief is the time is to be cautious. My belief is you should cut your expenses. My belief is you should pretend. You should go through an exercise with your family right now. "What are we going to do if one of us loses our jobs? What are we going to do if my salary gets cut in half? What are we going to do if we both lose our jobs? What skill set do we have to get another job?" What are we going to do?

Those are the exercises to start thinking about now. Worst case scenario, you don't lose your job. No recession. Everything goes back to normal. Fine. Big deal. You cut expenses. You were safe. But what happens if you don't pre-plan for that and then you get rugged? Your boss calls you up and says, "Hey, you were making $150K, $100K a year, $80K a year. Now you're making $100K or $50K. Don't like it? Bye. I got 20 other people willing to do the same work for that paycheck." This is a time to cut expenses. It is very, very, very scary. And look, there are going to be green days. This market will not fall off a cliff. I think, frankly, you could go into a 10-month bear market. Yikes.

So, you know, now people are speculating on, "Okay, well, what's going to do well in a bear market?" Well, potentially nothing. But if I had to guess, probably gold. If we do go into a recession, I hate saying it, but probably gold. McDonald's, I actually think Amazon will be a form of McDonald's. Like, I'd way rather be in Amazon than Nvidia. I'll take the AI play on Amazon, and I'll take that people are going to try to get the cheapest product possible on Amazon. They will be the dollar store you want to invest in because if you invest in the dollar stores, they could go bankrupt. I'm telling you, you come here for the perspective that you didn't even consider.

JPow will probably commit to rate cuts at JHole. He kind of already did, but he'll probably recommit to cuts, maybe even 50 at JHole. So, maybe markets will bounce there. They will not go down in a straight line. So, I think you take your tendies when you can, and you reopen positions as you'd like. But what I'm looking at is when I look at a company like Amazon, I think they are going to be a company that will be the dollar store of the future. You go take them right now at $166. That's actually a fib retracement level. $166 divided by $557, they're trading for 29.8 times earnings. Now, you look at their forward growth, which could get skewed, obviously, these growth estimates could get skewed, especially if you're in a recession, but you're looking at growth of 19% + 18% + 26%, 78% + 13%, 39%. You're looking at growth of 77.9% over the next four years. I actually think it'll be greater than that. You're sitting at roughly a 1.5 PEG for a company that gives you AI exposure but is not purely part of the AI bubble. It didn't run up like all the other AI plays and could be the dollar store of the future. And Walmart is sitting at crazy excessive valuations. I don't know, I prefer Amazon, ironically, on the dip, and McDonald's on the dip.

Remember my 2x2 foundation model? It's inspired by Rust. The 2x2 says you want to buy companies that do not have a bankruptcy risk. To me, that kills a lot of dollar stores already. A lot of them don't have the strongest balance sheets. You want Amazon and McDonald's. They're not going to go bankrupt in the cycle. I want valuation. McDonald's and Amazon mostly have that right now. Amazon certainly does. McDonald's is a little bit richer, but I'm okay with it. Sentiment and momentum. The sentiment on both of these is trash. I like buying when sentiment is trash on those companies. And pricing power. Both of these companies, both of these brands, have absolute pricing power. There is not a doubt in my mind about both of those companies.

Now, would I hedge by being, you know, maybe short the Qs or short some AI? Of course. And again, we will bounce. We had a little bit of a bounce this morning. We'll probably bounce again next week. But the next four months, three months, going into the election, I don't want to be uber bull. I don't want to be an uber bull in this environment. Get me through the election, and I'll consider it. I'll consider it at that point, but not any earlier than that.

So, I really want folks to think about this not from the perspective of fear-mongering. We could bounce. We could rally again. That's okay. I'm all right, you know, sitting on the sidelines and enjoying. But what I want to know, you know, sort of just watching, cash, raise cash, you know, short to hedge your longs. That's the point, really hedging, right? But what I want to know is when's the market really going to bottom. I think the market bottoms either when we confirm a soft landing, which would be a very soft bottom. It would be a very blurry bottom, a very volatile bottom. Or when the Federal Reserve freaks out in full-on bailouts.

There were two cases that have happened previously in the past. One is when they joined the course member live streams themselves and said, "We're going to the moon." Okay, that never happened. That was really just a sly pitch, probably relatively weak for me to remind you about the expiring coupon code today. One was actually February 10th of 2009 when the Federal Reserve released the following statement: "The Federal Reserve Board on Tuesday announced it is prepared to undertake a substantial expansion of the Term Asset-Backed Securities Loan Facility. The expansion could increase the size of the TALF to as much as $1 trillion and could broaden eligible collateral to encompass other types of newly issued AAA-rated asset-backed securities such as commercial mortgage-backed securities, private label residential mortgage-backed securities, or other asset-backed securities." In other words, the massive QE1 that was actually authorized in November of 2008 under the Section 133 emergency lending program. This was announced in November of 2008. This wasn't enough. It took the Fed really panicking and going for a level of bailout they've never done before, and that's what you got in February of 2009. Look at when the stock market bottomed. February of 2009. How about March, when the Federal Reserve or February to March of 2009, or 2003 when you had your second double dip and the Federal Reserve basically gave the monetary policy and economic outlook commitment to Congress that they will stop at nothing to protect this economy and the market bottomed? That's the kind of Fed you need. They weren't yapping about a dual mandate of inflation. They talked about one mandate: we'll do whatever we need to bail this crap out. It's like when the Fed came out in March of 2020 and said, "We will buy everything. Infinite bailout. We'll even buy stocks." That, my friends, is when the market bottoms. That is when you go shopping.

I'm just going to keep doing my best. I'll be here every day. You know, I know people make fun of me. They call me a flip-flopper or whatever. In volatile times, it is challenging to be perfect. In fact, in any time, it's challenging to be perfect. And I don't confess to being perfect at all. I don't even confess to being good. I confess to being some dude on the internet who does his best and will share his perspective with you. And if you want that perspective in the form of course member live streams, meetkevin.com. If you want it in the form of these free videos, here you go. If you want it in the form of trade alerts, no guarantees we can make money. Obviously, today we had a phenomenal day. You know, up over $450K. It was a phenomenal day and made up for a stupid decision on AMD. You know, then you can get those.

So anyway, we'll see you there. Thank you so very much for being here. By the way, if you are a course member and you want to get free access to the market live chat so you can chat for free and you don't have to be a green chatter, you can get a wrench when you join. Just leave a comment on today's course member live stream and say, "Please wrench me, bro." I will always wrench you. We'll see you in the next one. Thanks, folks. Bye.

Good luck. These things that you told us here, I feel like nobody else knows about this. 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 P., 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 stockbroker, this video is not personalized advice for you. It is not tax, legal, or otherwise personalized advice tailored 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 Hack, nor am I presently acting as a market maker. Make sure if you're considering investing in House Hack to always read the PPM at househack.com.

There's a reason why I keep telling you this:

GET YOUR MONEY OUT OF THE BANKS!

But I am a reporter and what I see happening with the banking system scares me a lot.

The first thing that scares me about keeping dollars in a bank account is how they lose value year over year.

You know that right?

Think you're being smart and "saving up"?

You're literally losing money every year to inflation.