Latest / Felix Nikolas Prehn's Podcast / The $34 Trillion BUY Warning! + Stock Market News 03 January, 2024

Transcript

The $34 Trillion BUY Warning! + Stock Market News 03 January, 2024 · Felix Nikolas Prehn's Podcast

• 0:01
  Speaker 1: Good morning to you, welcome to this pre-market life, the second trading day of 2024.
• 0:07
  Speaker 1: It's promising to be an exciting one, and I want you to be the best informed investor there is out there, and that's why I'm going to walk you through the key data points from yesterday, but also the bigger picture, so you can make the best decisions possible to make a lot of money.
• 0:23
  Speaker 1: This is probably why you're here.
• 0:24
  Speaker 1: All right, let's get kicking here.
• 0:26
  Speaker 1: I've got Winston on the sofa behind me.
• 0:28
  Speaker 1: What do you think, winston?
• 0:30
  Speaker 1: You care to raise your head?
• 0:31
  Speaker 1: There we go.
• 0:34
  Speaker 1: You can see his little face.
• 0:36
  Speaker 1: He'll be with us in spirit.
• 0:39
  Speaker 1: Well, he's sleeping, probably for most of it.
• 0:41
  Speaker 1: But there we are.
• 0:43
  Speaker 1: Good morning to everyone.
• 0:45
  Speaker 1: Before we get cracking, I want to encourage you to do one thing, and one thing only, and that is join me in literally exactly one hour for a live trading training where I will walk you through how very, very simple our three rules based trading system really is, and I'll teach it to you completely for free.
• 1:07
  Speaker 1: You walk away with the knowledge, can implement some live trades together and everything else.
• 1:12
  Speaker 1: All you're going to do is sign up at FelixFriendsorg webinar, grab yourself one of the last spots available there and make 2024 the year where, well, money works for you rather than you work for money.
• 1:25
  Speaker 1: It will not be nice for a change.
• 1:27
  Speaker 1: I certainly think so.
• 1:30
  Speaker 1: Let's run through what really happened here yesterday.
• 1:32
  Speaker 1: This wasn't meant to happen.
• 1:36
  Speaker 1: This is the US 10-year yields, the return you get on bonds, essentially, which kind of mooned up in sympathy with Bitcoin.
• 1:49
  Speaker 1: When that happens, it means that bonds are more attractive compared to stocks and therefore money leaves stocks for bonds.
• 1:58
  Speaker 1: Fairly simple process, but it hits stocks.
• 2:03
  Speaker 1: It hits stocks pretty hard.
• 2:05
  Speaker 1: We also got the dollar index.
• 2:07
  Speaker 1: Here it is, which is DXY, is the ticker.
• 2:11
  Speaker 1: If you ever want to look that up, if you feel like it in the middle of a boring date or something you go darling, what do you think of the DXY is up to today?
• 2:19
  Speaker 1: See, if you get an answer, you'll be your soulmate when the dollar goes up like this.
• 2:24
  Speaker 1: What does that mean?
• 2:25
  Speaker 1: Well, it's a slight sign of panic, moderate panic.
• 2:30
  Speaker 1: People buy the dollar as a hedge.
• 2:32
  Speaker 1: People buy the dollar when they are just generally worried about life.
• 2:36
  Speaker 1: Also, they buy the dollar to buy those higher 10-year bond yields.
• 2:42
  Speaker 1: It's a little bit of all of it that, I think, happened here together yesterday and the Magnificent 7, the Mag7, as Wall Street has named them.
• 2:56
  Speaker 1: Well, they did a little bit of a tumble yesterday, led by one stock in particular, which we'll get into in a moment here.
• 3:06
  Speaker 1: But that's really what pulled the indices down.
• 3:09
  Speaker 1: It's the Magnificent 7 money all leaving?
• 3:12
  Speaker 1: To buy Bitcoin?
• 3:13
  Speaker 1: Probably not, but it'd be nice if that was true, wouldn't it?
• 3:16
  Speaker 1: And this is it.
• 3:18
  Speaker 1: On an hourly chart.
• 3:20
  Speaker 1: You can see it actually gapped down here, and that's fairly unusual.
• 3:26
  Speaker 1: And why did that happen?
• 3:27
  Speaker 1: Well, they got downgraded.
• 3:29
  Speaker 1: So the thing with Apple is that their sales, their revenue, isn't actually really growing very much, and it's because, well, people have got so many of these phones they don't really feel the urge to buy the next one.
• 3:44
  Speaker 1: So their phone sales, or falling in phone sales, are the biggest chunk of Apple.
• 3:48
  Speaker 1: Now, part of their business is growing, like their services, their subscription business, which is glorious, but it hasn't quite offset the falling revenue there.
• 3:59
  Speaker 1: And then you look at the China story, where sort of iPhones are going out of fashion a little bit.
• 4:04
  Speaker 1: So it's kind of not glorious.
• 4:07
  Speaker 1: And Apple is trading at near old time highs Also.
• 4:10
  Speaker 1: We got to take some perspective on this, but that's kind of what was the kicker yesterday, today, and semiconductors, in sympathy, also went down.
• 4:19
  Speaker 1: And you then think well, why are semiconductor shares falling like this?
• 4:23
  Speaker 1: Does that mean somebody is expecting a recession once again, because that would explain less semiconductor purchases?
• 4:32
  Speaker 1: Can't just be Apple, surely?
• 4:35
  Speaker 1: And then you look at oil and you think hang on.
• 4:38
  Speaker 1: There's an Iranian warship in the Red Sea, there are Houthis who are firing at mass vessels with missiles, and then Americans who are blowing those boats out of the sea.
• 4:50
  Speaker 1: And there's all that stuff going on.
• 4:52
  Speaker 1: And the Israel war is dragging on and Israel has assassinated a commander of Hamas in Beirut in his apartment.
• 5:03
  Speaker 1: I hope you're not the neighbor.
• 5:05
  Speaker 1: That would not be very pleasant.
• 5:06
  Speaker 1: Imagine that Iraqi drone sorry, iraqi, israeli drone flying through the window.
• 5:11
  Speaker 1: Not exactly what you want over breakfast.
• 5:13
  Speaker 1: But no, oil is going down regardless, and oil is, of course, a huge function of our expectation of global growth.
• 5:25
  Speaker 1: So if you think the global economy is going to slow down, then oil prices come down.
• 5:29
  Speaker 1: Is that the possibility?
• 5:31
  Speaker 1: Well, there is a possibility.
• 5:33
  Speaker 1: Certainly, yesterday was a bit of a oh Now.
• 5:37
  Speaker 1: Some people are now saying what if the big fund managers have already allocated all their 2024 stock money into stocks?
• 5:51
  Speaker 1: Panic.
• 5:51
  Speaker 1: It's not true, though, if you look at the data, it just isn't true They've allocated.
• 5:56
  Speaker 1: Last year.
• 5:58
  Speaker 1: Their increase was tiny.
• 5:59
  Speaker 1: This teeny tiny increase was all that they did their inflows into mutual funds.
• 6:05
  Speaker 1: And look at the actual hardcore data here and you see last year, 2023.
• 6:13
  Speaker 1: Sounds weird to say last year, wasn't it?
• 6:14
  Speaker 1: It kind of feels like yesterday $172 billion went into ETFs and mutual funds in 2023.
• 6:26
  Speaker 1: Not particularly a great deal In 2021, we did almost a trillion, so it's not really that much.
• 6:34
  Speaker 1: So, no, I don't think all the money has been spent.
• 6:37
  Speaker 1: And if you look a little closer at all the money that went into money market funds and ETFs and mutual funds together so all those together, that was $1.3 trillion.
• 6:55
  Speaker 1: So you're thinking, but hang on, hang on, hang on.
• 6:56
  Speaker 1: Hardly any of that went into stocks.
• 6:58
  Speaker 1: So where did all the money go?
• 6:59
  Speaker 1: Who took it all?
• 7:01
  Speaker 1: It wasn't the Ukrainian prime minister or president or whatever he is, and no, it was the bond and the money market.
• 7:10
  Speaker 1: They got $1.4 trillion of money last year.
• 7:18
  Speaker 1: And if you're expecting the Fed to cut rates and we have to get to the end of the story in just a moment if you're expecting the Fed to cut rates 1.5% is what the market is expecting, then this money should be leaving, or greener pastures, because it makes very little sense to buy bonds, more and more bonds when rates are going to go much lower because your yields are going to go lower.
• 7:47
  Speaker 1: Okay, there is a trade aspect there, yes, but it doesn't make sense to hold them.
• 7:51
  Speaker 1: So therefore, we would expect money to leave the bond market and flow into the stock market, potentially to the tune of a trillion dollars, which would be like seven times what it did last year.
• 8:08
  Speaker 1: So we have the setup for a benanza.
• 8:13
  Speaker 1: I mean proper 80s sparklers and glitter and everything greed is good type setup.
• 8:23
  Speaker 1: And then you're thinking well, what about all that debt?
• 8:31
  Speaker 1: What about the banks?
• 8:32
  Speaker 1: Are they in trouble?
• 8:34
  Speaker 1: Yes, regional banks are a shit show.
• 8:38
  Speaker 1: They've got the management competence of Bart Simpson and therefore they should actually all be out of business.
• 8:46
  Speaker 1: But Uncle Sam doesn't like it.
• 8:49
  Speaker 1: Apparently it upsets people when there are lots of bank runs every week.
• 8:52
  Speaker 1: It's not very good for reelection chances and that sort of thing.
• 8:55
  Speaker 1: So there is a secret bailout of all those banks and it's done via the reverse repo facility.
• 9:03
  Speaker 1: Really, that feeds liquidity into the market.
• 9:06
  Speaker 1: Now there is another thing here which is hard to see on the surface, but so far in 2024, $314 billion has been pumped into the market as liquidity by the Fed.
• 9:21
  Speaker 1: Part of that is because, if you're a bank, you can get money from the Fed's reverse repo facility at about 4% interest and then you can take that money and you can park it back with the Fed 30 seconds later and you get 5% interest.
• 9:39
  Speaker 1: So it's an arbitrage trade, it's a risk-free trade where the Fed pays you a 1% point and that's a bailout, nothing but a bailout.
• 9:51
  Speaker 1: And I don't think it's an accident.
• 9:53
  Speaker 1: No, I think they know what they're doing.
• 9:55
  Speaker 1: They're propping up with a drip the little banks.
• 9:59
  Speaker 1: This facility is almost empty or almost used up and they will have to make it larger and extended until the end of time, because it is going to expire in March and this is going to be the bank bailout done.
• 10:15
  Speaker 1: So I'm not really worried about this.
• 10:17
  Speaker 1: We should be worried about it, but the Fed is going to take care of it, so I don't think it matters all that much.
• 10:25
  Speaker 1: What about this number here, which is my headline $34 trillion?
• 10:32
  Speaker 1: It's a number so large it sounds silly and it's kind of a meaningless at this point.
• 10:38
  Speaker 1: It's the amount of debt the United States government has officially on the books.
• 10:43
  Speaker 1: The off-the-book stuff is off the charts.
• 10:46
  Speaker 1: We better not look at that, because then you just lose the will to live.
• 10:49
  Speaker 1: The problem with this isn't actually the amount, it's that it's increasing at faster and faster rates.
• 10:57
  Speaker 1: Look at this In the last three months they added a trillion in debt.
• 11:02
  Speaker 1: In the last two years it was $4 trillion.
• 11:06
  Speaker 1: So we are running at double the debt rate accumulation of the previous two years, and it was only $11 trillion in the previous four years.
• 11:17
  Speaker 1: So we're getting faster and faster and faster down this abyss.
• 11:21
  Speaker 1: Now the good thing is, interest rates are going to come down and you therefore think oh, that means they're going to balance the books.
• 11:29
  Speaker 1: No, they're going to chuck more money at you, the voter, in the hope that you will vote for them.
• 11:35
  Speaker 1: That's essentially what happens there.
• 11:37
  Speaker 1: They're hoping to buy you a vote with your money.
• 11:40
  Speaker 1: So if you figure that out, you'll make a smart decision in terms of who you vote for.
• 11:44
  Speaker 1: But I don't really know.
• 11:45
  Speaker 1: Is there a candidate who is against debt?
• 11:48
  Speaker 1: Is there I mean, unreasonable levels of debt?
• 11:51
  Speaker 1: I'm not sure there is, but I do have a Republicanjsk, agnes.
• 11:55
  Speaker 1: What's the problem with this, then?
• 11:56
  Speaker 1: Lots of debt spending is good for the economy, it's good for the consumer, it's good for the stock market, it's good for profits.
• 12:04
  Speaker 1: Everyone's happy, at least in 2024.
• 12:07
  Speaker 1: Maybe at some point something will happen.
• 12:09
  Speaker 1: Well, there is a little issue with it, and that's this.
• 12:12
  Speaker 1: Too much debt sucks up all of the cash.
• 12:17
  Speaker 1: So if this is your cash pile out there, you know, like the extra trillion that the consumers got in money market funds, if there is an absurd amount of debt being issued, somebody has to buy that debt, and if, therefore, all of the money goes into government debt, then there is very, very, very little money left to buy stocks, and that's really the only really big downside that I see for 2024.
• 12:48
  Speaker 1: At what point and nobody knows the answer to this, by the way At what point does the government just hoover up all the money?
• 12:56
  Speaker 1: Now, at the moment, the Fed is buying a lot of that debt because the government is issuing something called T-Builds, which are short-term builds, which the banks are buying, and the banks are getting that money from the Fed, the reverse repo facility and I know it's not sexy, it's kind of weird and complicated, but that's the way the country is run at present.
• 13:17
  Speaker 1: It's a secret bailout of the Fed, and that money is almost used up.
• 13:22
  Speaker 1: So the interesting thing will be what happens in auctions after March.
• 13:28
  Speaker 1: Does the Fed just pump more money into the economy, which they could do?
• 13:32
  Speaker 1: They could actually slow down rate cuts and just pump more money into the economy, which would be the same thing as rate cuts, and it would keep the US government afloat.
• 13:41
  Speaker 1: So we're going to see how that works out.
• 13:43
  Speaker 1: That's going to kind of be the interesting one.
• 13:46
  Speaker 1: I would encourage you strongly and urge you, and Winston does too, don't you, winston?
• 13:52
  Speaker 1: Winston, do you encourage people?
• 13:54
  Speaker 1: Winston?
• 13:55
  Speaker 1: He's sleeping.
• 13:56
  Speaker 1: There he is.
• 13:56
  Speaker 1: Are you sleeping?
• 13:58
  Speaker 1: I should get you a little bit higher up so you're on screen.
• 14:03
  Speaker 1: Winston would like to encourage you to join me live in 45 minutes, not here, but at FelixFriendsorg slash webinar even up here, so you can learn our three-step trading system, which is honestly way, way simpler than you think, and I'll break it down for you.
• 14:19
  Speaker 1: We'll do some live trades together so you can see it put into practice and it'll make you a smarter investor and maybe you'll enjoy it.
• 14:29
  Speaker 1: Maybe you want to trade, maybe you don't.
• 14:31
  Speaker 1: It's all good, but unless you understand how it works, you won't be able to come to that conclusion, at least not informed, in a way.