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Should I Invest Now or Wait for a Crash 2019 - Leading Economic Indicators for the US Economy - YouTube
Channel: Learn to Invest - Investors Grow
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Hi I'm Jimmy in this video.
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We're going to do a quick review of
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where the US economy stands to
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see if we can use various economic
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indicators and information like
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that to try to determine if a
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recession is coming soon.
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And in theory a meaningful pullback
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in the stock market.
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Or is the economy moving
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along decent enough.
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And will the stock market move
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higher. This is the second video
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in our quarterly economic analysis
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series. So there are some economic
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indicators which generally do a good
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job of looking at where the economy
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is at. And some that are good for
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predicting where the economy will
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go. One of the leading economic
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indicators is housing.
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Now we've looked at a lot of these
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charts in the last video that we did
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in our economic analysis series.
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So if you're interested in seeing
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that or if you're curious more about
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how we started this.
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Well there's a link in the
description
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below to that video.
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Okay. So this is a chart of housing
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starts and basically housing
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starts looks at how many new houses
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are being built.
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Often times a strong housing demand
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can lead to a robust economy as more
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houses are being built more people
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buy furniture they buy appliances
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things like that.
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So in theory a strong
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housing market should lead
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to a stronger overall economy.
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Now in our last video this is where
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housing starts were and this looks
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like a pretty big drop off at that
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time.
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And although I do want to point out
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how volatile this indicator actually
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is now the early signs were
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that this was negative but we wanted
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to see where it went.
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In the meantime we had marked this
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as a negative for the economy
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but frankly now I'm not so
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sure.
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I don't think it's a positive
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because really what we're looking
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for is this to me this looks more
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like it's flattened out here at the
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top.
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But I'd have trouble saying that
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this is either a positive or a
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negative thing for the economy.
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So on our handy scorecard here
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we're going to mark mark this one as
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neutral.
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This gray area in the middle.
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We're considering this neutral for
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now. OK. Moving on.
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Our next economic indicator is the I
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assume manufacturing PMI
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index. You might also hear this
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called The Purchasing Managers
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Index. Basically this
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economic indicator tracks the
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changes in production levels
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from month to month in the
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manufacturing sector.
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So in theory better manufacturing
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better so a stronger economy.
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So this is the chart from three
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months ago.
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And as we could see it wasn't
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looking too good.
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Well since then things have gotten
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worse. So if we jump back to
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our scorecard.
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Well on our scorecard we had
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this as a point for the Bears
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and it seems that our updated
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data has confirmed that this is a
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negative sign for the economy right
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now. OK. Up next we have
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unemployment now.
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Unemployment is not a leading
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economic indicator but
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I do think it can do a good job of
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helping us paint a picture of where
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the economy stands right now.
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So in our last video called
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should I invest now or wait until
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later. Well I got a lot of pushback
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on unemployment so much so
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that I actually did a video
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specifically on unemployment.
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And if you're curious about how
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unemployment works are looking at a
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deeper dive of what goes behind
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on the unemployment number.
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Well there's a link in the
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description below to that video.
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But here's the long and the short of
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it. Last time I showed a chart like
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this and I said something
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along the lines of unemployment
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is low.
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So that's a good thing for the
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economy.
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And I suppose it's not terribly
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surprising. But I got a lot of
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pushback saying well if
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unemployment is low it has to rise
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and therefore that's a negative for
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the economy.
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And yes it will absolutely go back
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up which is a bad thing for the
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economy.
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But the question is when.
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Now if we were to switch to a
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shorter term unemployment chart.
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Well I agree that it's unlikely
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that unemployment will continue to
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fall. But there is another
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possibility and that possibility
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is that unemployment could trend
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sideways for at least a little bit.
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And in theory once we hit
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full employment well
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wages should rise
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at a faster pace.
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And if we overlay wage growth on top
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of this chart well we can see
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that this the exact thing that's
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been happening as unemployment
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has fallen well wages
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have begun to rise at a faster
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pace.
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That alone could help push the
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economy forward. They don't
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necessarily need falling
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unemployment a stagnant unemployment
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with rising wages could essentially
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do the same thing.
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Now unemployment once again is
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not a leading economic indicator.
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So I think we should limit how
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much we weigh this into our decision
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making ability our into our decision
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making process.
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But I do think it makes sense to
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consider where unemployment's at
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and consider the fact that wages are
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rising. OK.
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So jumping back to our scorecard
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here. I think unemployment gets a
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check for the bulls.
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So if we had a green check mark one
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point for the bulls.
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OK. Next we have consumer confidence
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now where unemployment is not
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a leading economic indicator.
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Consumer confidence is
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now just to illustrate that this is
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a chart of consumer confidence
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leading up to and into the Great
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Recession.
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This line right here.
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This is the high of the S&P
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500.
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And as we can see consumer
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confidence was hesitating
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a bit leading up to it.
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And it looked like it had started to
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trend lower.
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Right when the market was hitting
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its high. And if you're unsure about
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the. Gretchen at that point for
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consumer confidence well perhaps we
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would have been more convinced when
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consumer confidence continued to
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fall from above 90 to
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below 60.
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And if we'd reacted at that point
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well right there the market
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was down about 17 or 18 percent
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compared to its eventual fall of
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more than 50 percent.
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Well fast forward to today and
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here's what today's consumer
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confidence looks like in just so
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we're on the same page.
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This index is actually called
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the Michigan Consumer Sentiment
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Index and basically its
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goal is to capture the mood of
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consumers as far as their economic
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well-being and their outlook.
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So compared to pre great
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recession levels it seems that this
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indicator looks quite good.
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Now would jump over the yield curve
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or more accurately put the inverted
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yield curve so the inverted
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yield curve is a key indicator.
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And I actually did a video just
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recently on this topic.
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And if you're interested it could
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be worth the time because
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the yield curve has been inverted
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for a while. This footage was
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actually taken from that video.
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The link below if you're interested.
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But currently the yield curve
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remains inverted and
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we know that because the three month
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Treasuries are paying a higher yield
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than the 10 year Treasury bonds.
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And as we pointed out in all of the
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inverted yield curve videos that
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I've done well this is a big
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deal because all U.S.
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economy recessions have
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been preceded by an inverted
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yield curve.
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Now not all inverted yield curves
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have led to recessions but this
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simply shouldn't be ignored.
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This is absolutely a point
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for the Bears so we'll mark
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that down chart here.
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So our final indicator isn't really
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an indicator at all.
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In fact it's the ETF money
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flows. So basically we
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look at how much money how much net
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money so money body and money sold
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out how much was remaining how much
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has gone into or out of
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different ETF from different types.
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So I took a universe of about 350
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of the largest ETF.
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And then we looked at how much money
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went in and out of each of those
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funds over the past few years
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I figured that if we can see
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actual money where's that actual
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money being invested.
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Perhaps we can use that to guide
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us to to recognize at least
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what the big money is thinking.
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So here the flows for 2017 2018
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and 2019 now we're almost halfway
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through 2019.
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So I'm actually going to double up
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the 2019 numbers just to make
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them a bit more comparable to the
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two other groups.
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Now what interests me the most is
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not that these
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numbers are trending lower but
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it's how they compared to each
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other. So the fact
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that they're trending lower could
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easily be related to the fact
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that they're more ETF available in
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2019 than they were in 2017.
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And I kept the universe the same for
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all three years just to take us
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of a sample size.
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The biggest thing that jumps out at
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me with this chart is the fact that
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fixed income took in more money
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than equities in 2019
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now. Fixed income as bonds.
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So basically this is important
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in my eyes because this implies
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that a lot of big money is
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looking for safety which
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would imply that there is
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a hesitation about investing in
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stocks right now.
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And if we dive deeper into just the
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bond categories Well there we
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can see that government bond
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investments are way up in 2018
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and 2019 compared to 2017.
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They're the green bars and
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this actually confirms the belief
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that there is at least a partial
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flight to safety happening right
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now. And just so on the same
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page with this chart I actually
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doubled the 2019 numbers just
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like I did to make up for the fact
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that only halfway through the year.
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So it's an estimate but either way
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the point remains the same.
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So my opinion is that it appears
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that things are a bit more negative
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this time than they were a few
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months ago when we did the video
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last time.
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Now I don't like the fact that the
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yield curve is inverted and remains
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inverted for as long as it has.
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I think that's a negative.
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The trade tensions can't be helping
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manufacturing and we should watch
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housing starts to see
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which direction that goes.
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Once again I'm landing in the same
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spot pretty much maybe a bit more
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hesitant than last time as I was in
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the last video.
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And that is that we should remain
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fully invested.
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But I think it makes sense to hedge
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our portfolios if we haven't done so
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yet. Now if you're curious
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about seeing a video on how to hedge
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your portfolio let me know in the
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comments below I'd be happy to do
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something like that.
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And basically it's time to take a
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defensive stance a safety sense
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but what do you think.
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Do you think that the economy is
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going to get stronger or weaker
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over let's say the next 12 months or
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so. Are you fully invested.
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Do you think that we should hedge
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our portfolios.
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Let me know what you think in the
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comments below.
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And don't forget I'll be updating
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this series every quarter from now
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on. And if you're curious to see a
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hedging video let me know in the
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comments below. So if you haven't
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done so yet hit the subscribe
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button. Thank you so much for
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sticking with me all the way into
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the video and I'll see in the next
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video.
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