Latest / Felix Nikolas Prehn's Podcast / Money Supply Growth And Stock Markets: Where The Cash Flows

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Money Supply Growth And Stock Markets: Where The Cash Flows · Felix Nikolas Prehn's Podcast

• 0:00
  Oil's up almost 50% in a year. Estate agents are losing their jobs. Tragedy, I know. But it tells you something about the housing market. And almost half American investors now reckon the stock market will be lower in 6 months time.
• 0:12
  So you put the news on, it sounds like the start of something really ugly, doesn't it? And I get it. A lot of people are thinking about selling and sitting in cash until it all blows over.
• 0:22
  But I think that's the wrong way around.
• 0:24
  I think every one of those scary headlines has a second half that no one's explaining to you. If you look at oil, everyone assumes that high oil prices hurt America. Well, the data shows you something different. I'll show you that chart in a second. Everyone assumes that if everyone's pessimistic on the market, that's a really, really bad thing. Well, again, historic data shows you something quite different. But it is also important to realize that the money is not going into the market. It's not going into the S SNP, what you're always told to buy. No, it's going into a couple of stocks. And it's very important, I think, to understand this, understand the structure of it, and by the end of the next couple of minutes, by the end of this video, you will actually know what to do about it. So, we're not going to panic here. We're going to have a plan. My name is Felix Nicholas Pin. This is Winston here. I'm an economist and a former investment banker and also the founder of the PIN Institute where we publish research on financial markets and and provide instructions on how they actually work.
• 1:25
  And there's no sponsorships on this channel. There's no endorsements ever.
• 1:28
  And it means I can say whatever the heck I like, which is how I like it. And now there's going to be quite a lot of information in in this video here. So I'll put it all together for you in a in a free report. You can download it.
• 1:37
  Literally every chart and every number that we're going to talk about here at felix.org/w /ce uh once 100 uh catchy catchy URL. The links in the descriptions are downloaded. It's free.
• 1:48
  And before I show you some hideous charts here, just for a moment, give yourself a pat on the back because honestly, the fact that you even watch this kind of video takes puts you ahead of probably 99% of people and most people hear about this when it's all over, when it's already happens in a year or so. So, you are in a pretty good place, I I would say. So let's understand oil here for a moment. This on the screen here is Brent crude which is the global oil price. Now a year ago it was about $60 odd dollars and it spiked to like 116 and as I'm recording this it's just under the $100 mark. So it's up about 50% 50% this year. I mean it jumps. It gets the same headline, right? Petrol's going up or gas as you call it. Consumers are being squeezed.
• 2:33
  America is in trouble. And look if you fill up a pickup every week you feel it.
• 2:38
  I'm not going to pretend you don't, but ask the question almost nobody on the news bothers to ask. When the price of oil goes up, who's actually selling the oil? Let me show you this little chart here on the screen. Well, America is by far the biggest oil producer on the planet. It produced about 66% more than Saudi Arabia last year, 70% more than Russia, and almost three times what America was producing in just 2008. So for most of my life, high oil price was basically a tax America had to pay to the Middle East, right? Money went out of petrol stations in, you know, the middle of the country and to, you know, Riad and places like that. And the 1970s oil shock wrecked the American economy for the best part of a decade. But it doesn't work like that anymore. When the price goes up, a big chunk of that money lands in America, in Texas, in Dakota, in New Mexico, in the pension funds that own the drillers, and in the pockets of the shareholders of the oil companies and the whole supply chain. So, the scary headline has a second half to it, and it's actually a pretty good one if you're a shareholder. So, the biggest winner from expensive oil is America. And let me show you what I mean. So go to the Winston app and type in EOG. EOG Resources is one of the biggest American shale drillers. And what do you see? Well, first of all, it's got a really, really good score.
• 4:06
  And look at the history of that score.
• 4:09
  The fundamentals are improving. The money, the stock price, which is what this is, is going up and up and up and up and up. And look at their revenue growth. Insane, right? Their profit growth, insane. Their cash flow is fantastic. I'm telling you to buy this stock. you know, could argue the party's always behind us and that sort of thing, but this is a business that's improving.
• 4:28
  It's got really, really good margins and it's an American oil company. And you can do the same thing for many other stocks just to get yourself a snapshot.
• 4:34
  Here's another one, Exxon, for example, XOM. Now, the overall score that we give isn't all that great, but look at the improvement. And that's usually the sweet spot. Stock price is obviously up a lot. Um, and again, cash flow generation is the best it's been in like two years. Profit growth is the best it's been in two years.
• 4:52
  So, what does that show you? Well, it shows you oil is doing well, but also that you might want to be in the better quality companies rather than just in oil generally. And we'll we'll get to that in just a second. And it's what ties us nicely into the chart that's on the screen right now. This is the S&P 500. And the surface on the surface it looks fine, right? Markets up whatever it's up by this year, 13% or something.
• 5:14
  But you see the red bit. The red bit here shows you that 82% of stocks in the S&P 500 are down. Only a handful are actually up. So think about what that means. If you buy the index and tucked it away, well, which is what most sensible people have been told to do for the last what 40 years, you think you own four 500 companies. You think you're spread out and safe. In reality, you're relying just on these sort of blue Yeah.
• 5:41
  these blue car stocks up the top here, which is, you know, 18% of all the names. The other 400 names or whatever are just dragging you down. And the problem, of course, is that when the guys at the top stumble because management does something stupid, the whole thing stumbles. And that's your pension. This is your saving. This is your portfolio for most people. And and I I get that for most people this works out on the long run. But just look at this chart and tell me you are happy to own 82% losers. Right? Just just just think that through. Um and to me that shows one thing. It shows that the system has changed. The buy and hold forever thing. I think it was our parents generation for for whom that work because the market moves faster.
• 6:24
  The lunatics on Wall Street trade faster. And I don't know a single guy who works in any of those institutions or hedge funds who's just buying a stock and holding it till the end of time.
• 6:34
  Like I I just don't know anybody. I'm not saying they do it, I'm not a financial adviser. I'm just saying I don't know anybody who does that. So what is the skilled money instead? And I always say skilled not smart because they're not smarter. No, they've just been trained better. Well, they follow the money. They follow the trend. They follow where the money is flowing and they don't fall in love with a stock for life. So if more money is about to pour into this market, and I'll show you that in just a second, it will not go into everything equally. It'll go into certain stocks. The other 82% well they might just sit there or worse might actually lose money and I'd love to teach you how to potentially find those stocks where the money is flowing and everything else but then this video would become like two hours long. So I'm not going to do that. So what I'll what I'll do instead is I'm going to run a live session for you on the weekend on Saturday. It's going to be completely free. It's about two hours long and I'll just be teaching you live. You can ask me questions. And if you're sitting there thinking, "Oh, this sounds a bit complicated." Relax. It can honestly be done with index funds. So, I'm not saying you have to learn the big stocks, but if you want to learn that, grab your free seat. There's a link down below in the description. Just click on it. And if you're going to join us and you're ready to improve your financial education, then come and join us and and and just write ready in the comments down below and I know you're going to be there. But let's come back to the American economy for a moment. So, the American job opening data about real estate jobs. So this is from the government right so the data must be right well normally in July we had about 95,000 job openings right in August it was about half that about 50,000 and so it halfed and it's the lowest number on this chart since 2024 so back far back I had the data and you can see why that's happening right mortgage rates are like 7% plus so if you're a young couple you're not going to buy a house right basically it's going to be very very hard to sell houses to new people who going to have to take out new mortgages.
• 8:31
  So houses just sit there. The state agents basically get paid when they sell something. So they stop hiring or start letting people go. And that's a big painful part of of the economy. And it's painful if you work properly. And and I'm very genuinely sorry for you. Now the second half is what the Fed does with a chart like this.
• 8:51
  The Fed cares about two things. Prices and jobs. So for a long while the argument against cutting rates has been very simple. The economy is strong.
• 8:58
  prices are halt. So why on earth would you cut? Which is why we just got a rate increase. And that argument has to be defended every single month against the actual data. And housing is where the data breaks first because it's the most rate sensitive thing in the whole economy. Housing slows, then the people who build houses slow down, then the furniture shops slow down, the removal v stop, the carpet fitters, the banks that write the mortgages and all that. And the Fed knows that chain better than anybody alive. So a collapsing number in real estate jobs is exactly the sort of chart that ends up on the table in that room when they make F interest rate decisions. It gives them cover. They can say, "Look, housing's slowing down a little bit. Jobs are going. We just need to ease off here." So I'm not saying they're going to cut next month. But what I'm saying is that it takes the wind out of this idea that we're going to get higher and higher interest rates.
• 9:49
  And lower interest rates affect you in many ways. When rates comes down, well, your bank's going to pay you even less interest. But the important thing is that borrowing gets cheaper for companies. So, their profits go up. They invest me. And a huge pile of money that's been sitting in money market funds, but they're getting a pretty decent return. It's like trillions and trillions of dollars. They start looking around for somewhere better to go. And where most people get this wrong is that they read the media or they watch the news and it says the economy is bad, therefore the stock market must be bad.
• 10:20
  Right? You think the stock market is some sort of thermometer for the economy. Economy good, stocks up, economy bad, stocks down. Right? It feels obvious, but it's wrong. Go back to 2020. In April 2020, American unemployment hit 14.7%.
• 10:35
  Shops shut, planes parked in the desert, people were queuing for food banks. It was terrible. It's the worst job number since the Great Depression. And by August of that same year, the S&P 500 was at a record high. millions of people out of work and the stock market is at an all-time high. And people were mad about that. And I understand why. It feels sort of obscene, but it wasn't a mistake and it wasn't some conspiracy.
• 11:00
  It happened because the stock market isn't measuring how you feel today. It's measuring what companies are going to earn in the future and how much money is sloshing around looking for a home. And in 2020, the government and the Fed flooded the system with money and that money had to go somewhere. A lot of it went into stocks. So the economy is your main street jobs, the wages, the prices of eggs, you know, that kind of stuff.
• 11:23
  And then Wall Street is where the money goes. And the two of them can head in completely opposite directions for years at a time. It works the other way around as well. By the way, in 2022, in 2022, we had lots of jobs and the S&P fell 19% over the year. Why? Because the Fed was raising rates and it was pulling money out of the system. So the economy felt fine but the money was leaving the system the banking system the stock market. So bad news can also be good news for the market. Weak jobs a slowing housing market falling job openings take a reason for people who control the money to loosen up so we get more money and when they loosen up the money hits the market first. Now you feel a little bit later in the real world. So the question I'd like to ask yourself is not how is the economy going. It's which way is the money moving? And I'll show you the chart that answers that in just a second. But first though, the crowd because the crowd right now is is is is terrified. And I know that because there's a survey that asks all the American investors, not all of them, but you know, a sector of them. And they've been doing that since 1987. The American Association of Individual Investors ask its members one question. Will the stock market be higher or lower in six months or the same? And it's regular people or on average 31% of people said and on average 31% of people say it's going to go lower. That's the average over the last 40 years. But just now 48% of people said it's going to be lower. So that's significantly higher. About half of every ordinary American investor think it's going to go down. And you might think, well, that's bad news, isn't it? Well, half the people think it's going to go down and maybe they're right, but statistically the opposite is true. When the crowd gets this frightened, the market has a habit of doing the opposite. You go to 2009, 70% of Americans were bearish on the market. The S&P moved up 67% in the next 12 months. In 2022, 60% of Americans were bearish on the stock market. The stock market moved up 18% that year. So, why does it work like that? Well, someone's really bearish. A lot of the time, they've already sold, which means not that many people are left to sell, and there is a lot of cash sitting on the sidelines that might potentially pile in. Like, I'm not promising the market's going to do XY Z.
• 13:46
  I haven't got a freaking clue. I haven't got a crystal ball. But if history tells us anything, and if Winston tells us anything, there you go, little man. Um, then typically this is pretty decent.
• 13:57
  It's not the perfect timing tool or or any of that, but it's a it's a it's a contrarian indicator. I guess that's the word for it.
• 14:06
  And by the way, the best time to buy always feels very uncomfortable, doesn't it, Winston? Always feels very uncomfortable. Um, now let me give you one more piece of data that I think will make a big impact on how you think about the market. This on the chart here is money, money supply. They call it M2 to make it sound. And it basically is all the money in America that people can get their hands on. It's cash, current accounts, saving accounts, money market funds. And the Fed puts this data out every month. And right now, we're sitting at $23 trillion.
• 14:36
  And it grew at the fastest rate since 2022, which is quite a long period of time. So, they are printing money and they're doing it fast. They're speeding up. Last year, same part of the year we're at right now, they printed $600 billion. This year, they printed almost a trillion dollars. Right now, to see why that matters, you need to know what happened just before from 2020 to 2021, you know, COVID madness period. Um, the money supply went up insanely, right?
• 15:06
  27%.
• 15:07
  So, the S&P doubled in about 17 months.
• 15:10
  Everything went up basically. But right now, 82% of stocks are down. So, yes, they're printing money, not quite as quickly, but it's not lifting all the boats. It's lifting only certain boats.
• 15:21
  And the way I think about it, money printing, it's it's like a vitamin B shot into the stock market, right? It doesn't cure whatever's wrong with the patient, but it perks everything up for a little while. And the money's got to go somewhere. So, it goes looking for a return and it tends to end up in stocks.
• 15:36
  So, we've seen this before, right? So, let's wrap up the whole thing because clearly this young man wants to go out and do something. Um, oil, high oil prices are actually good for a big part of the stock market, which is the oil companies and the supply network to the oil companies. Housing slowing down means what? Well, the Fed might not have to raise interest rates. Can maybe even cut them at some point. The crowd is really, really scared and so the market's really, really bad. Well, they've all sold already. Maybe we're nearish, you know, the bad patch. And they're printing money faster than they have in four years. And we know what happens when they print money. It flows into the market. So the money is coming back. So what can you actually do about this? Well, first of all, this isn't financial advice. I I'm not a registered anything. I'm not telling you what to do. But I would say don't hold too much cash because the money printing also causes inflation. So be aware that your cash just melts away. It's not a good place to be. And stop reading the news and the economy as a signal for the actual stock market because it isn't.
• 16:38
  And what I look for is look, look at quality stocks. Is the revenue growing?
• 16:43
  Are the earnings growing? Uh are they making a good return on their money? And you can see all that in the in the the app I was showing you about, you know, earlier. And you can look up all that data and their filters for all of it and everything as well. So, there's a free link down below to a free 30-day trial.
• 16:57
  After that, it's a paid software, but you can cancel on day 29 if you don't like it. So, check that out if you want to look for some stuff. Um, and just bear in mind that the S&P 500 is basically just a small bunch of companies and a little bit of a tail end that doesn't really matter. So, I know you feel safest in cash, but you know, it's going to guarantee lose you money right now. And then you feel safest in the index fund and you also know 82% of that underperforms the market. It's just the way it's set up and it's getting narrower and narrower and narrower. So, there is definitely some risk there. So, what would I do? Well, what I do is I follow the same process that I learned from my mentors and I've done that for many years now. And again, I promise you any returns and what this is about. I just think understanding more about how the market actually functions allows you to make better decisions. I think at the very least, it allows you to avoid a lot of risk that you're probably taking that you're not even aware of. And that again allows you to probably have better outcomes because you don't have to have those big losses that most people seem to have sitting have sitting in their accounts. So come and join us on Saturday live. Winston will be there and I'll teach you um how Wall Street looks at investing. How they look at following the money and how we look at quality stocks over whatever is popular in the in in the press and you can do that with index funds and if you have to do it with stocks even and and it'll be fun.
• 18:20
  It'll be two hours. Uh grab the grab yourself a free seat. uh click on the link down below in the description. If you got some value out of this, share it with somebody who might benefit from it, too. And I wish you all the best.
• 18:30
  >> Right now, I think we're going through some sort of weird phase transition. And normally when you get bad economic news or you get bad jobs data that people are going to fly to safety into the bond