Warning: This Is An Economic Sign That Can't Be Ignored

Something bizarre is happening to the economy right now as we speak. We're seeing warning signs, we're going to go over in this video, that we haven't seen since 2020 and 2008. The bottom line here is the economy should not be doing what it's doing right now. And this is a signal that investors cannot ignore. I'm going to reveal exactly what's going on in three simple fast steps. Step number one, let's go over this most recent inflation shock. You guys know why, the price of oil going up, coming down. Now it's going right back up. Let's look at a chart going from today's date all the way back to 2018. On the left, we go from 0% up to 8%. What is this? This is the CPI or the CP lie, as a lot of people like to refer to it. Is it a perfect measurement of the rate of consumer price inflation? No, absolutely not. But it is something the market pays attention to. And if the market pays attention to it, we have to pay attention to it as investors. So going back to 2018, a little over 2%, we go down. We know what happened during the Cerveza sickness. Now this is the first red arrow. I want you guys to make a mental note of this point. Right during the Cerveza sickness when we had that big kind of deflationary wave that just hit when everyone was in lockdowns, the government locked you in a cage. Because we had another one more recently. In fact, just the other day. So red arrow here, make a mental note. And red arrow here during the Cerveza sickness. Okay, then everyone knows what happened afterwards. We had stimmies, stimmies, and more stimmies. We had a massive demand increase. Well, the exact same time, we had a decrease in supply, a supply shock. So prices go one way, straight up to the point where in the summer of 2022, we had the CPI at 9.1%. But then we had big disinflation. Now, did prices go down? Absolutely not. They were still going up, but they were just going up at a slower pace. That's the difference between disinflation and deflation. Okay, so fast forward to 2023, 2024. We're humming right around, I call it 3%, 2.5. Kind of bouncing back and forth and back and forth. But recently, with what's happening in the Middle East, as you guys know, oil prices spike straight up to $120 a barrel. Now, they have come back down, and then they went back up again, because it's on, off, on, off, on, off. But we'll save the geopolitics and the Straits of Hormuz and the price of oil for a separate video. What I want to focus on here is this ripple effect that the higher price of oil, even if it stays high for two months, should have in the economy. And now we're seeing the complete opposite, which is not only a warning, but it's what's extremely, extremely bizarre. Now, I know a lot of you right about now are saying to yourself, okay, George, before we get into this ripple effect that is the key to this step, we have to talk about the elephant in the room that, of course, the CPI is coming down because those oil prices that you were just referring to, well, they came plummeting down. Right, but I'm not just talking about the headline CPI. We're talking about core. And this is what's really, really important. Because in the last CPI print, we saw core was flat. Zero percent gain. In fact, they rounded up. It was actually slightly negative. So let's go back to these arrows really quick here before I forget. Why are these red arrows so important? Because this is when we had month-over-month negative, not disinflation, but deflation. We had negative month-over-month CPI prints. See, even though we had this disinflation here, we never had a month-over-month negative print. We just had one. Just had one. And you have to go all the way back to the cervasus sickness to find another time when we had a month-over-month negative print. And if you guys remember the cervasus sickness, and then going back to the GFC, where obviously we had them back then, the economy was not just bizarre, it was terrible. In fact, a lot of people would argue the economy was collapsing. So the fact that something that just happened hasn't happened since the cervasus sickness and hasn't happened since the GFC, in and of itself, is not a good sign. But let's go back to this ripple effect here. You guys know how this works. It's pretty much common sense. It's kind of what you read in the textbooks, if you will. So you have this high price of oil. It spikes up. And that goes into transport costs, because oil equals the price of gas, most likely. So gas prices go up. So transport costs go up. And they have to transport goods, let's say to Walmart. So the price of goods go up. And then, eventually, you have to increase wages, which means services go up as well, as far as the prices. So just because you have this bump in oil, it kind of trickles down, for lack of a better term, through the entire economy, through transportation, goods, services, and then also wages, theoretically. So assuming that wages do actually go up, then this increases demand. Well, if you increase demand, keep supply the same, oil likely goes up, and you go into this doom loop. At the very least, wages go up, and then the supply of goods stays the same. Well, wages go up, demand increases, and you get this, right? The cost, the price of goods goes up as well, likely services. So this is this price-wage spiral boogeyman that's always hiding beneath the bed. The people of the Fed, they always talk about it. And for some reason, it's like their biggest nightmare. But the key here, and the assumption, which I think is completely inaccurate, if you actually look at history, and look at the data, is wages. In other words, the labor market. You have to have a healthy labor market. And if you're seeing core prices stay the same, or possibly even go negative, while you're getting what should be a massive inflation shock that should not just lead to prices going up and then coming right back down, but going up higher and higher and higher. It should lead to an acceleration of consumer prices very similar to what you saw in the 1970s. But it's not. The economy is doing the opposite of what you would expect it to do right now. And the real secret to understanding exactly what's going on right now is going back in time and reviewing what happened during the GFC. We're going to do that in step number three. But before we get there, we've got to see not only what's happening with the CP lie, but what's also happening to the PP lie. And this is producer price index. We're going to get into that right now. Step number two. Let's go right over to this market watch calendar and see what's going on with the producer price index. Why should we worry about this? Because this feeds directly into the PCE, which is the main indicator the Fed uses to determine whether or not they're going to lower or maybe hike interest rates. So looking at the calendar, Wednesday, July 15th, that was the most recent report. We see that the producer price index came in at a negative as well. Negative .3%. Now what's important is to look at the expectation. The expectation was for 0%. In fact, last month, look at this. We go from a .6 last month to a negative .3. But again, this could be explained with the volatile food and energy, the oil prices we were talking about in step number one. But look at the core. It's only up .1% where the expectation was up .3%. And last month, it was .8%. That's the core. And that's when you strip out the food and the energy. Like we said in step number one, the economy should not be doing this. These are not the inflation numbers you would expect to see in a healthy economy. And we saw this exact same phenomenon not only during the survey sickness, but especially during the GFC. And we're going to get into that more, like I said, in step number three. But before we move on, let's go up to the CPI because in step number one, we were just talking about the headline number and the core. But look at what the expectation was and what it was last month. So headline, the expectation was for a negative .2. We got the negative .4 last month at a .5. But again, look at core. That's what's most important. We should be seeing those ripple effects from the higher price of oil that we've had over the last two months feed through to this core CPI number. And we ain't seeing it. Last month, it was a .2. This month, it was flat. And they actually rounded up. This was slightly negative. Year over year, the core comes in at 2.6, last month at 2.9. These seem just like numbers on a spreadsheet or just the MarketWatch calendar here. But if you actually understand what these numbers and what these data are telling you, it's a huge red flag. But now let's go over to the CME group to find out what the odds are of what the Fed is gonna do next. I think you guys are gonna find this absolutely shocking. So if we go back just one week, there was a 31% chance that we would see a rate hike, a rate hike at the next meeting. But now that has dropped from 31% all the way down to 10%, which it might as well be 0% if it's 10% because there's no way the Fed is going to disappoint the market. So we've gone from all of these rate hike, rate hike, rate hikes because of the inflation shock that everyone thought we would have. But now we're right back down to a pause and my prediction is that we will likely see a rate cut before we actually see a rate hike. And if we do see a rate hike, it's only gonna be one. It's gonna be a one and done. It's gonna be very similar to the rate hike that we saw from the ECB in July of 2008. Why do I think we'll likely get a rate cut before we get a rate hike? Which is completely contrarian. Or why do I think if we do get a rate hike, it'll be a one and done? Because of the economic signals that are everywhere. All you have to do is ignore the mainstream media and look at what's really, really happening with the data. And we're gonna go over that right now. Step number three. To understand what's happening right now and what will likely happen in the future, we have to understand what has happened in the past. So now I wanna go back to the dreaded 2008 GFC because it's very applicable to what we are seeing today with these economic signals we've been talking about in this video. So we go to a chart from November of 2008 all the way back to May of 2007. On the left, we go from 0% up to 8%. This, again, is the CPI or the CPY. But what I want you to really focus on here is first of all, from when the Fed started cutting rates, ironically enough, the CPI was right around 3.6% if my memory is correct. But what happens? We go almost straight up to right here. But more specifically, let's hone in on what happened from March, March of 2008, just to July. The CPI went up by, I think, even over 1.6%, going from right around, let's call it 3.6% or 4%, straight up to a peak at 5.6%. Why did it do this? Editor, go ahead and throw up a chart of oil during this time frame. And we can see that oil did the exact same thing that it's done recently. It's gone from, let's just say, 80, 70 bucks straight up to back then. It got up to a peak of 140. This time, we just got to a peak of right around 120. But why didn't this red line, the CPI, continue to go higher and higher and higher and higher? Why wasn't 2008 similar to what we saw in the 1970s? Because when you have an oil spike, you've got basically two options. You've got two paths for inflation. You're either going to keep going up and up and up, or you're going to go up slightly, and then you're going to go straight down. So why did it go straight down? It didn't even go flat. It went straight down instead of doing the 1970s to where we fast forward to November of 2008, and we go from the CPI being 5.6 all the way down to zero. And you might be saying to yourself, well, George, it's obvious, because we had this little thing called the global financial crisis. Right, we absolutely did. But the global financial crisis, the straw that broke the camel's back, is exactly what we are going through today, where the price of oil goes up, and the CPI spikes momentarily, and then it starts to come back down instead of continuing to go up. Why? Why does it do this? Let's go back to the two options. Because now we need to get into the monetary system, the banking system, because this is a reflection of the overall health of the economy or what's happening in the economy as far as risk-taking. Health, that gets a little nuanced because the economy wasn't exactly healthy in the 1970s. But we'll look at it through the lens of risk-taking. So if you have low risk, then the banks are going to be creating more and more money. That's going to allow for the inflation to go higher and higher and higher because going back to step number one, editor, maybe you can help me out with this, that allows wages to go higher to where you do have the dreaded boogeyman of the price-wage spiral. But what if the banks look out into the economy and they see a lot of risk? In other words, they're worried that if they do create money by lending it into existence, they're likely not going to get paid back. Well, that means that the amount of money that's created isn't enough to raise wages to compensate for the higher oil prices, and it becomes like a tax. It becomes a drag on the economy. So if the economy is right here teetering on the edge because of mortgage-backed securities, everything's going on, you get that spike in the CPI due to the spike in oil, and that is the tipping point where instead of going to the 1970s, you have a financial crisis. And to be clear, it doesn't necessarily have to be a financial crisis. It could just bring on the end of a credit cycle, private credit, Blue Owl, BlackRock, Blackstone, etc. Don't want to get off on a tangent, but you guys know the usual suspects. It could just be the tipping point that takes us over the edge, the straw that breaks the camel's back and takes us to that final stage of a credit cycle that could be like a GFC, or it could just be like a garden variety recession like we saw during 2000 and 2001. The problem with 2000 and 2001, as you guys remember, the stock market went down, I call it 40 or 45%, and the NASDAQ went down by 80%. So what's the whole point here? When I say the economy should not do this, what I'm referring to is in step number one. It shouldn't show us signals that there isn't any upward pressure on prices due to wages because this tells us that we are in a high risk environment where this is very unlikely and this is the more likely scenario.