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Transcript

Felix Prehn - Why the Market CRASHED & It’s About to Flip! + Stock Market News 05 March 2025 · Felix Nikolas Prehn's Podcast

• 0:00
  Speaker 1: Felix here and welcome to this pre-market live stream.
• 0:03
  Speaker 1: Just checking the audio is working, and yes it is.
• 0:06
  Speaker 1: I want to walk you through four actually no, five enormously important things here today.
• 0:13
  Speaker 1: We're going to start with the four reasons why markets are tanking.
• 0:17
  Speaker 1: I want to give you a bonus and explain that in a second.
• 0:19
  Speaker 1: The jobs recession seems real.
• 0:22
  Speaker 1: We need to understand that.
• 0:24
  Speaker 1: I'll give you charlie munger's advice, if he was with us.
• 0:27
  Speaker 1: And number four will the fed save us this time?
• 0:31
  Speaker 1: And if it doesn't, what's actually going to happen here?
• 0:33
  Speaker 1: So let me share my screen with you here.
• 0:36
  Speaker 1: There we go the four secret reasons why the markets are tanking.
• 0:38
  Speaker 1: Um, and this boat is insanely important.
• 0:41
  Speaker 1: I read something today from somebody who was like, oh, I'm fine, I'm leveraged, I'll hold.
• 0:43
  Speaker 1: Today, from somebody who was like, oh, I'm fine, I'm leveraged, I'll hold these forever.
• 0:45
  Speaker 1: And I was like you're going to hold leveraged ETFs forever, really, ok, let me explain that to you, why that's an incredibly dangerous thing to do.
• 0:54
  Speaker 1: Jobs recession, charlie Munger's advice.
• 0:56
  Speaker 1: And is the Fed going to save the stock market this time around?
• 0:59
  Speaker 1: If you think this is going to be useful to understand properly, deeply, then write wealth in the chat and in the comments down below and I see that you're awake and real and listening, so write wealth in the chat and I know that we'll keep going and it's probably providing some value here.
• 1:17
  Speaker 1: So let me kick off with what's going on here.
• 1:20
  Speaker 1: So the S&P is down 5%.
• 1:23
  Speaker 1: It's the largest pullback.
• 1:26
  Speaker 1: In what six months?
• 1:28
  Speaker 1: It's the 30th time we've pulled back by more than 5% since just 2009.
• 1:36
  Speaker 1: Thanks for everybody writing wealth here 30th time.
• 1:40
  Speaker 1: It's not exactly a rare event, is it?
• 1:42
  Speaker 1: A few times in whatever, that is, 15, 16 years.
• 1:46
  Speaker 1: So thanks for all the wealth there.
• 1:48
  Speaker 1: Guys, appreciate you being awake and paying attention.
• 1:52
  Speaker 1: Okay, so let me walk you through the actual reasons then.
• 1:54
  Speaker 1: Here so, and we can see this and I'll show it to you the first reason is CTA volumes.
• 2:01
  Speaker 1: What the heck are CTA volumes?
• 2:02
  Speaker 1: These are algo volumes, algo funds, computers, and they sell very, very heavily at the beginning of the day and at the end of the day, which is when they trade.
• 2:13
  Speaker 1: Can you look this up?
• 2:14
  Speaker 1: Yep, you certainly can.
• 2:16
  Speaker 1: Here is the S&P from yesterday in trade vision, and what do you see?
• 2:21
  Speaker 1: Well, you see that there is a spike in volume at the beginning of the day here, right, and what does the market do it tanks as those buggers sell and then at the end of the day, just before 4 pm, you see the sell off Again.
• 2:35
  Speaker 1: You are going for unselling.
• 2:36
  Speaker 1: So beginning of the day here and the end of the day, those bastards are selling and that's definitely not not helpful.
• 2:42
  Speaker 1: So that's the first reason we're actually going down.
• 2:45
  Speaker 1: The second reason is that the buyback deaths, which is the biggest single buyer of stocks ever literally the biggest single buyer of stocks are companies themselves.
• 2:58
  Speaker 1: They buy their own shares back.
• 2:59
  Speaker 1: Those guys go home at 350.
• 3:01
  Speaker 1: I don't know what they're going to do at 350, but they go home at 350.
• 3:04
  Speaker 1: So what do you see?
• 3:05
  Speaker 1: Well, just before they go home, the market tanks because those guys stop buying, right.
• 3:10
  Speaker 1: So they help us a little bit during the day and then they go home, close the border books and the market starts tanking again.
• 3:17
  Speaker 1: So again, that's really really important to understand that in terms of timing, right.
• 3:26
  Speaker 1: And then also last night we saw a lot of hedging going on.
• 3:27
  Speaker 1: People were protecting their portfolios because they were worried what the Donald was going to say, and he was going to say something really, really crazy.
• 3:33
  Speaker 1: I listened to the whole thing.
• 3:34
  Speaker 1: He actually didn't say anything particularly surprising?
• 3:38
  Speaker 1: I don't think so.
• 3:40
  Speaker 1: I don't think that's going to have that much of an impact.
• 3:42
  Speaker 1: But what happens is when people hedge, what happens?
• 3:46
  Speaker 1: Hedging drives the stock market down, drives the stock price down.
• 3:50
  Speaker 1: When you then close your hedge, it does the opposite, and you'll see this before major events like Fed speeches, inflation data and so on.
• 3:58
  Speaker 1: You see, the day before the market goes down, the day after the market tends to go up.
• 4:02
  Speaker 1: That's just the way hedging flows work, if you understand that a little bit.
• 4:07
  Speaker 1: And then we've got leveraged ETF strategies and I want to spend a few minutes on that because it's so, so important to understand that.
• 4:15
  Speaker 1: Honestly, if you don't understand this, you really put your money and your wealth and your safety at massive, massive, massive risk.
• 4:21
  Speaker 1: So the amount of leveraged etfs has grown tremendously right.
• 4:28
  Speaker 1: There's 140 billion in that now.
• 4:31
  Speaker 1: In 2020 it was like 30 billions.
• 4:33
  Speaker 1: It's gone up like five times and, of course, it is the promise of quicker riches, right.
• 4:40
  Speaker 1: If the stock market or your stock goes up and that etf is leveraged, it's going to go up two times or three times.
• 4:47
  Speaker 1: Now what's the problem with it?
• 4:49
  Speaker 1: What happens when it drops?
• 4:50
  Speaker 1: This is going to get a little bit technical and I posted a.
• 4:53
  Speaker 1: I posted this on on my twitter if you want to read this in peace and quiet or you can just take a screenshot, but I wrote holding leveraged ets for the long run is a special kind of painful.
• 5:04
  Speaker 1: They're designed to multiply daily returns, not long-term returns.
• 5:10
  Speaker 1: There's a fundamental problem with this and you might seriously want to take screenshots of this or take notes, because this is really going to be.
• 5:20
  Speaker 1: They don't track the underlying stock perfectly.
• 5:27
  Speaker 1: So, for example say it was a nice example say you were in a three times leveraged etf.
• 5:33
  Speaker 1: Right, and it's trading at 100, the index.
• 5:38
  Speaker 1: It falls 10.
• 5:38
  Speaker 1: So the index falls to 90.
• 5:41
  Speaker 1: Your etf falls to 70.
• 5:42
  Speaker 1: To maintain the 3x leverage on the now 90 index, it rebalances to hold exposure worth three times the 90.
• 5:55
  Speaker 1: If the index drops another 10% to 81, the ETF falls another 30%, now down to 49%.
• 6:03
  Speaker 1: So the losses accelerate and the fund's value shrinks way, way, way faster than the index.
• 6:10
  Speaker 1: Right, it's just the leverage thing.
• 6:12
  Speaker 1: But the problem is that not only are there transaction costs for all this daily deleveraging and rebalancing, but there is something we call decay in it.
• 6:26
  Speaker 1: So essentially, the problem is that the losses compound faster on a larger base in the leveraged ETF.
• 6:35
  Speaker 1: So the leveraged ETF will lose more money than it should in proportion to the underlying, and it just means that in the long run, in a falling market, these ETFs will lose an astounding amount of money, and way, way, way more than you think.
• 6:50
  Speaker 1: That's the problem with this.
• 6:51
  Speaker 1: They're really not built to be owned for the long run.
• 6:55
  Speaker 1: They're built to be used for the very short term, to hedge a position or run something up for a couple of days.
• 7:02
  Speaker 1: But people are now owning these in the long run and it's a really, really, really, really dangerous thing to do.
• 7:08
  Speaker 1: So I would not recommend this in any way, shape or form.
• 7:13
  Speaker 1: If you want to leverage, options, I believe are a much, much safer play if you understand them A little more complex.
• 7:18
  Speaker 1: I believe are a much, much safer play if you understand them A little bit more complex, but much, much safer.
• 7:21
  Speaker 1: Does that make some sense to you?
• 7:23
  Speaker 1: If that makes some sense to you, put a one in the chat, just a number one, and I understand it doesn't have to make 100% sense, just some sense, and obviously feel free to take screenshots there as well.
• 7:32
  Speaker 1: So what would be the one thing that would be tremendously helpful for you.
• 7:41
  Speaker 1: It would be well, what do we buy next?
• 7:44
  Speaker 1: Well, let me walk you through some jobs data here, because the jobs data is pretty astounding.
• 7:50
  Speaker 1: And you're then going to ask yourself, okay, some monster, okay, appreciate that.
• 7:56
  Speaker 1: Are we supposed to get a confirmation when we sign up to your webinar?
• 7:58
  Speaker 1: Um says don, yeah, it should be in your inbox.
• 8:00
  Speaker 1: Maybe have a look in your spam folder, my friend.
• 8:02
  Speaker 1: Otherwise, drop me.
• 8:02
  Speaker 1: Drop me an email.
• 8:03
  Speaker 1: Um, alpha, charlie, what's with all the threes there?
• 8:08
  Speaker 1: So, yeah, I want to do one thing this week, given like an homage to last week, and then this week, as this madness continues, a lot of you've been messaging me literally like hundreds or thousands of you, probably with all the social media, about like, what do we do?
• 8:22
  Speaker 1: And I'm worried about this Should I buy this, should I sell that?
• 8:24
  Speaker 1: And I want to give you the rules to when do you buy, when do you sell, how do you manage it.
• 8:29
  Speaker 1: And then I also want to teach you, because it's important in a moment like this how do we hedge our portfolio, how do we protect our portfolio from the big drawdowns.
• 8:41
  Speaker 1: Not the 5%, because 5% is fine, but what if it was 30%?
• 8:45
  Speaker 1: Right, that would be a real problem for a lot of people 30% down and we can make money on that in a pretty much free way if we understand how to do that.
• 8:54
  Speaker 1: So I want to teach you guys that If you come and join me on Thursday at 8.30pm New York time, it's completely free felixvencelogcom Links down below.
• 9:03
  Speaker 1: It's also pinned into the chat and I will teach you literally what I've learned over the last 13, 14 years of doing this, what I learned as a former banker and now trading for myself and it's cost me hundreds of thousands of dollars in mentors.
• 9:18
  Speaker 1: Like.
• 9:22
  Speaker 1: I literally have a chat group with about eight of my mentors and we were literally just discussing some hedging traits and you just get this like couple of hundred years of wisdom in there and I love having access to that and I want to share that wisdom with you guys because I know it's going to help you get from the concerns and the worries and the struggles to what do I do, what do I buy, to clarity, having a clear plan and actually driving yourself towards your financial freedom goals, which is really what the mission is here.
• 9:47
  Speaker 1: So come and join me there on Thursday.
• 9:49
  Speaker 1: Do you do options learning in the Academy too, or mostly stocks.
• 9:53
  Speaker 1: We do both, my friend, so we do both.
• 9:58
  Speaker 1: I think if you're a complete beginner, then I would start with stocks.
• 10:01
  Speaker 1: It's much simpler and you need to understand those basics and charts and risk management and all those kind of core concepts.
• 10:08
  Speaker 1: And if you really enjoy that and you want to take it further, then come and learn options with us and obviously you could start wherever you like.
• 10:15
  Speaker 1: There's no real hard rule on that, but that's what I would generally recommend.
• 10:18
  Speaker 1: So I think both have a hugely important part to play in a wealth-growing strategy which I think everybody should have and everybody does have.
• 10:28
  Speaker 1: It just might be that yours isn't all that well-formed, if you're really honest with yourself.
• 10:33
  Speaker 1: So come and join me on Thursday there.
• 10:35
  Speaker 1: So, okay, we just got out jobs data and this is private data from ADP, which is a private company.
• 10:41
  Speaker 1: I actually own some of those shares and we were expecting them to generate 140,000 jobs.
• 10:47
  Speaker 1: They reported 77,000.
• 10:50
  Speaker 1: So that's a that's a pretty, pretty significant drop.
• 10:53
  Speaker 1: So 100 percent or something like 50 percent less than expected.
• 10:58
  Speaker 1: And what does that mean?
• 10:59
  Speaker 1: Does that mean we're heading for a recession?
• 11:00
  Speaker 1: But here's the actual ADP data and it's that little blue and red bar there.
• 11:08
  Speaker 1: That's the jobs created.
• 11:10
  Speaker 1: So it's the worst jobs creation since mid-2024.
• 11:16
  Speaker 1: We had one that was a little bit worse.
• 11:18
  Speaker 1: So what are we seeing?
• 11:20
  Speaker 1: Well, we're seeing the jobs market finally slowing down.
• 11:23
  Speaker 1: Is that a good thing or a bad thing?
• 11:26
  Speaker 1: Well, it might impact what the Fed's going to do next, and we'll have a look at that in a second.
• 11:36
  Speaker 1: Are options more of a gamble than investing in regular stocks, says Monica, if you don't know what you're doing?
• 11:40
  Speaker 1: Yes, but you can also gamble with stocks.
• 11:43
  Speaker 1: So it depends on how you use it.
• 11:46
  Speaker 1: If you use it right, you can get an advantage over stocks with less risk and potentially higher outcomes, but you do need to understand it.
• 11:54
  Speaker 1: So there's a little bit more to it, a little bit more layers to that cake of knowledge, than just plain good old vanilla stocks.
• 12:00
  Speaker 1: So this is something we need to watch out for, and I thought this was a nice bit of wisdom.
• 12:08
  Speaker 1: I saw this quote this morning.
• 12:09
  Speaker 1: This is from one of the greatest investors who's ever lived, one of the kindest people out there who's ever been in the financial markets, charlie Munger.
• 12:17
  Speaker 1: God rest his soul.
• 12:18
  Speaker 1: And he said if all you ever did was buy high quality stocks on the 200 week moving average, you'd beat most investors by a large margin over time.
• 12:27
  Speaker 1: Now we're not quite at the 200 week moving average yet.
• 12:30
  Speaker 1: We're at about the 200 day moving average, so we need to go quite a bit longer.
• 12:33
  Speaker 1: But what he's essentially saying is buy the dip on quality, and that's a pretty decent approach if you want to make some money.
• 12:42
  Speaker 1: I thought I'd throw that in there, because it can sometimes be.
• 12:46
  Speaker 1: Sometimes we just need the inspiration.
• 12:47
  Speaker 1: That feels kind of bad.
• 12:48
  Speaker 1: The markets are falling.
• 12:49
  Speaker 1: It's a bit depressing, but actually this is like everything is on sale, and everything being on sale is usually a good thing.
• 12:56
  Speaker 1: Right, job status?
• 13:00
  Speaker 1: A lagging indicator, it's true, although the private sector data, the ADP data, is a little bit more up to date than what the government puts out, which is just complete gobbledygook, really.
• 13:08
  Speaker 1: So yeah, come and join me tomorrow at Felix Rensselaer's webinar at 8.30pm, and it's a live, completely free stock investing masterclass.
• 13:17
  Speaker 1: I'm going to teach you when to buy, what to buy, when to sell, and I will give you a bonus hedging lesson to prepare you for the next dip, which will inevitably come.
• 13:26
  Speaker 1: This is the 35% dip we've had in the last 15 years, so we get at least two of these a year.
• 13:33
  Speaker 1: So you want to be prepared for them, you want to be able to make money out of them.
• 13:36
  Speaker 1: Now I threatened, I mentioned the Fed.
• 13:51
  Speaker 1: Everything is transitory and the Fed, we're hoping, will cut interest rates.
• 13:54
  Speaker 1: And what are you seeing on this chart here?
• 13:55
  Speaker 1: You're seeing that the expectation for the end of year 2025 rates just went from 4% down to 3.5%.
• 14:02
  Speaker 1: So that's two rate cuts.
• 14:04
  Speaker 1: Right, that's two rate cuts.
• 14:06
  Speaker 1: That's pretty good.
• 14:07
  Speaker 1: Why is that pretty good?
• 14:08
  Speaker 1: Because a half a percent interest rate cut what does it do to your favorite growth stock?
• 14:13
  Speaker 1: A half a percent interest rate cut 0.5% cut should drive your stocks up by about 5%, and you're like I need more than 5%.
• 14:24
  Speaker 1: Well, but it's a good start, right?
• 14:25
  Speaker 1: Momentum might just drive it up a little bit more.