CRAP: Worst Since 2000.

Well, markets are pissed and you've got a lot of institutional analysts suggesting something's about to break or at least give is the wording. We're going to go through exactly some of those in just a moment. But let's also get a quick catch up out of the way of where we stand in the face of terrorism. Uh the United Kingdom has decided to release its five terror suspects on bail. That was not on my bingo board. Uh but when it comes to Iran, which was really what we wanted to focus on, Aragoti is meeting. He's the foreign minister of Iran. He's a little bit more of a hawkish guy compared to the president of Iran. He is meeting with mediators today. The United States will not be present, which has some people nervous, although we, you know, this is my anticipation that Donald Trump has sort of already kind of put his demands out there and now it's on negotiating a response from the Iranian side. Now, the Wall Street Journal at the bottom of one of their articles gave us a little bit of a hint as to what's left in this negotiation because there are three core things that Iran wants. They want the naval blockade gone. They want their uh seized Iranian billions of dollars uh and uh they want sanctions relief on oil and air travel or otherwise, right? So that way they could actually keep their economy functioning. Uh the United States wants nuclear inspections and this well at the end of last week we heard the Iranian president say, "Hey, look, we're open to nuclear inspections." And then the IEA IAEA came out and said, "Hey, we could restart inspections pretty quickly. We're ready." They got all perked up and excited. But Donald Trump said, "Well, the Iranians agreeing to open the straight of four moves within 7 days in response to the blockade and sanctions and the monetary relief would have been an acceptable deal last year." DONALD TRUMP NOW SUGGESTS A I want more. Basically, the Wall Street Journal is hinting what that more is. The Wall Street Journal says right here that Trump no longer wants to return it in response to the unfreezing of billions of dollars of Tron's own money. I think Donald Trump is looking at this from the point of view of I don't want to look like Obama. Obama gave them their own money back. I don't want to be that guy who gives them their own money back right before the election. Uh so, you know, it feels in a weird way like we're getting closer. I know that sounds crazy to say, but I mean, when we hear good news on the willingness to have weapons inspections, uh, get Pickax Mountain inspected, gosh, that would be a game changer. That would give me a lot of confidence, uh, that, hey, hopefully we're not going towards the direction of trying to build a bomb. And what we're talking about now is releasing their own money back to them. That's the hold up right now. It gives me confidence that we're closer, but it certainly doesn't feel that way, right? It feels a little delusional to say that on a day like today where the market is falling off of a cliff and I understand that. I get that. But not only that, look at the 10-year. THE 10EAR IS UP 7.8 basis points. We just shot through 5 and a4. The entire market, I mean, the 2-year yield is also up eight basis points. The yield curve is flat at 31 basis points, but bro, the two, the one, and the 10-year Treasury are all up eight basis points today. So, I like I get it. It sounds like maybe I've gone full [ __ ] Not to be offensive regarding that word, but it sounds like, you know, like Wall Street Bets would say, this guy's gone, you know, full off the looney bins here. when yields are up nine or uh eight basis points, the market's falling off a cliff. Uh by cliff, we mean the 735 line right here on the cues. Well, it looks like we're trying to come back to it. Boy, that was a little bit of a sharp decline there. And then to say that, well, it seems like things are actually getting a little closer, but it does seem that way when we actually look at the details. Now, when we look at what the institutionals are saying, it's the following. we say that something has to give when it comes to the levels of where things are right now with yields, but not necessarily just the levels, it's the rate of change. Uh, and this is where we look at a few sock gen pieces right here. So, let's go through some of these piece by piece here. First of all, it is easier to be bearish today than it is to be bullish. They argue that this is not the big top yet and that markets are overall really bearish right now, more so than what we've seen historically. I marked a liberation day right here in terms of the bearish sentiment. The higher this line is, the more bearish people are. The initial war sentiment right here and where we sit right now. So, we have been straight up on bearishness on this market. The market's relatively bearish. A lot of people get nervous about diesel crack spreads. And what's interesting here is Sockgen actually reports that crack spreads can plummet really quickly. Sometimes negative 60% in the span of 3 months. So sometimes less of something to panic over. Maybe not something so incredibly bad and something that can recover quickly. They also argue here that the Federal Reserve is likely to stay behind the curve leading now to this feeling of peak hawkishness and we are seeing true labor productivity that has trended higher since 2022 with retail sales per employee at an all-time high for the S&P 500. However, the level of bond yields as in the height of bond yields rarely predicts any kind of shocks to the economy. What does predict shocks to the economy were like what we saw last week which is that something always breaks. There's always when we get these spikes in yields that first derivative the rate of change when those yields come up rapidly just like they are right now historically 16 out of 16 instances as we talked about last week something has broken. Here's just another example of where you could see those spikes. How you got to the Orange County uh uh default that was in the mid '9s. That's when the Fed had to U-turn and go back to oh we hiked too fast, we went too far. Uh the uh Tekken media top, then you had peak housing, you had Silicon Valley Bank, and then of course we've got this other sort of rapid rise over here in yields. Uh and so this could lead to something breaking. So basically a credit event though they argue that the underlying economy is still seeing increasing productivity. And here are some of the themes that sock genen brings up uh which is in addition to this note right here that while right now uh overall this feels like a quiet before the storm they do say the US economy has seen the biggest upward revision in 2027 growth expectations and so while it feels like there's a lot of bearishness right now the underlying economy seems to be holding up uh at least on these aggregate levels. When you look at aggregate labor force productivity, when you look at aggregate um you know wage gains, when you look at aggregate retail sales, people continuing to spend money is actually all pretty remarkable. Now, in fairness, there was a jobs report coming up Friday that a lot of people were looking at going, "Huh, yeah, well, is it really going to hold up?" Well, let's take a look at some of the expectations for that and then go back to Sockgen's piece here. So, on Friday, we have ADP uh or sorry, on on Friday, we have the jobs report that's expecting to come out with 90,000 non-farm payroll jobs uh on Friday. That's well above the pace of somewhere around 20,000 per week, which we've been pacing at probably closer to about 15,000 per week on average with the ADPs. And so, at 90,000, you're sitting at around 22 23,000 per week, which is pretty good pace. Private payroll is expected to be 87,000 and wage gains expected to be.3. So far, as much as we can believe the government numbers, that seems pretty good. ADP weekly won't be issued this week because we'll actually get the monthly ADP report on Wednesday the 30th, which is weird because it's still September, but we're going to get the September data. Anyway, we're expecting a 74,000 read on uh the monthly for ADP on Wednesday. So, two jobs reports this week's uh the private read on Wednesday and that'll be at 5:15 in the morning. Is it 5:15 or 5:30? All right, it's one of those in the morning. It might be 5:30, but anyway. Uh and then on Friday, we'll also get the jobs report at 5:30. Yeah, I think that's what it is. It's 5:30 in the morning for the jobs report Friday and then 5:15 for ADP on Wednesday, California time. Anyway, going back to so those are the some of the catalysts this week that should reiterate that the economy in on an underlying basis is doing well at least from the jobs point of view. This has now led JP Morgan to copy your boy meet Kevin and flipping bullish on the view of US stocks predicated obviously on a deal with Iran. You need a deal with Iran. Until you get a deal with Iran, you got pain. We already know that old news. But JP Morgan flipped to bullish from neutral citing stronger than expected economic activity dropping their cautious stance probably because of those PMIs that we got last week. Uh October is a historically is historically the most volatile month for stocks and the AI theme is likely to persist. Going back to stockgen here, here are their allocation opinions. They argue that you could be right now 60% stocks, 20% commodities, 20% fixed income. Now, I don't blame the take on stocks. I'm a big fan of buying this these dips that we've been in. You know, we've been buying the dip at 700, buying the dip at 710, buying the dip at 715 on the cues. Uh even the 735 line by the dip. You know, right now we're at 732. So, it's sort of like a, you know, it's a DCAing process, I suppose, uh, leading into a hopeful deal with Iran. If we don't get a deal, we're all screwed. But anyway, uh, my opinion on allocation is that this is still a little bit rich. Even though I'm bullish on the stock side, I I think it's a little bit rich stocks and commodities, especially copper, very correlated to the state of the economy driven by the AI spend. So, I actually feel like these are very correlated bets right here. stocks and commodities. If you're looking at copper, which they do mention copper right here as one of their longs, uh I'm I'm as you know, more like 85% real estate and like 15% cash and ston. Uh and that's not to be overall bearish stocks. I think over the next six to 24 months this will look like a buying opportunity in the stock market. But I do think that the risks are greater that the stock market is is closer to a top than uh than the low build real estate area. But that's okay. You don't you don't have to believe that. I think the the low inventory low building real estate areas are are closer to their bottom. Florida and Texas still have some work to do. But anyway, uh they argue by the dip on the midcycle hike. I agree with that. On long commodities, they're long copper. I don't really have much of an opinion on that other than I think it's correlated to AI and they say buy the debasement trade, so long gold. I personally maintain gold peaked under Worsh and Worsh is not going to be a money printer. There are a lot of people that believe Worsh is going to be forced into quantitative easing. That's possible. But I think he's going to be the guy that looks us in the face and says, "I got a task force working on this. And there's going to be a lot of suffering between crisis and quantitative easing because it's going to take a lot to convince this guy to print money. And that's going to be hard for gold. This is actually just deflationary, not inflationary." But anyway, cyber security should continue to compound. Nvidia obviously had an announcement this morning on software for uh Agentic uh supervision. I I really think the cyber security play should be all over that. Uh so obviously Nvidia also pitched their buyback which has helped Nvidia get over the 227 line but uh Sockchen believes we could see a return to ROI for uh free cash flow for the hyperscalers in 2027. We were actually analyzing Microsoft a little bit this morning and some of the strengths and weaknesses. Uh, and there are some hints inside of the Microsoft analysis that we were doing this morning for what's going on with um for other software companies. Now, when it comes to rate expectations, it's it's um worth looking at some of these rate expectations. So, the Federal Reserve unfortunately, and let me pull this up right here. The Federal Reserve is unfortunately, well, I should say bond markets on behalf of the Federal Reserve are unfortunately still pricing in 3.83 rate hikes between now and next year. Uh, which is not great. Uh, that would mean we are pricing in nearly five rate hikes. I mean, the economic data that we've gotten has been pretty solid. So I I get the desire for rate hikes, but I will say, you know, the odds right now from the market are that we are definitely getting our next rate hike before January of 2027. So for October right now, Fed funds, we are sitting at a 68% chance of a hike. This would put you right before the election. This might be an easier place to take a no if you think that the Iran deal is going to come because you've got 3.7 million in volume and uh you could take a no over here which right now only has a 32% shot. Well, I think a lot of this is coming down to what's with with Iran. But let's keep looking at this sock genen piece. Uh I do want to take a quick moment though to mention that if you want to join uh those betting markets and make a bet, you can always use that link in the description below. kalshi.comrme Kevin. They're an affiliate and sponsor of reinvest. You get 25 bucks when you sign up for Cali and make your first trade. Uh I always like to say look for the bigger volume. I remember I actually got a letter from predicted that I have some unclaimed money over at predict it back when I u played with the betting markets back in like during the co days uh and and even going into the governor campaign in 2021. And it's really interesting because Kalshi and Poly Market have really kicked their butt. Uh and and I think Khi uh just overall very nice uh user experience. But anyway, go check that out as a sponsor of the channel. Just be clear about that. Okay, let's go back now to uh this piece on from Sockgen. So that's right here. Sockgen arguing that the big turning point here is essentially ROI on the capex trade. This morning we're looking at Microsoft. They still for the year have about $15 billion of free cash flow, but one thing that was really remarkable about Microsoft was that they don't actually have enough money to pay their bills right now for the year. Now, their cash flow will offset that, but I find it really remarkable that if I jump into their balance sheet, let's see here. I got their income statement, balance sheet right here. I've got about 95.8 billion in deals or bills, not including their deferred revs. So, I've already subtracted their deferred revenues, which means we are sitting at $95.8 8 billion in actual current liabilities that need to be paid over the next 12 months. And they have about $76.8 billion in cash. So you're really relying on that free cash flow to actually pay your bills, which is kind of wild, frankly, for Microsoft. Anyway, continuing with the sock genen piece over here, the sock gen here argues that price toearnings ratios may have deflated with rising bond yields, but they say that equities look expensive relative to bonds. Sure, and this makes sense, especially how much bonds have risen. What it's essentially saying is if we expect that the stock market is going to return let's say 7% let's just say and you could get 5% risk-free on the treasury your equity risk premiums only 2% there you're only getting compensated an extra 2% to take the risk on stocks why would you do that so in other words while price to earnings ratios are really low you are in a little bit of a pooper duper right now where unfortunately because bonds are so high it looks really desirable to go buy balance right now. That's possibly why we're seeing so much pressure in stocks right now because yields are indeed so high. The odds are something does end up breaking in the form of a credit shock. But does that take the entire economy down with it? Probably not. Not yet. And keep in mind, one of the reasons I'm personally positioning, I'm bullish on stocks, but with a smaller portfolio, is because I do think that when the economy goes, not in the next 6 to 12 months, but when the economy goes is really going to suck for the stock market. Uh, but anyway, rising long-term uh EPS expectations, sustaining valuations, and this is true right now. we still have a lot of growth built into uh expectations for stocks. If anything, one of the reasons why you've seen a little bit of a slowdown in some of the memory names like a Micron or SanDisk, well, that's not memory, that's nan flash, but in some of these related names, these more previously commoditized names that people are like, oh, now this time's different. One of the reasons you've seen them kind of soften a little bit is because well, you've got micronics coming up tomorrow, but there's this fear of, oh, you know, what if high bandwidth memory prices peak out in 27 and more supply comes on and and then all of a sudden, you know, you don't get the pricing power anymore you used to have. Fair. People want to see growth, but you are seeing a lot of growth at a lot of corporates. In fact, you're seeing so much that Stockgen is calling it greedy. They're basically saying, hey, people have in high inflation expectations, so why not raise prices? So profits rising as a percentage of GDP, indicating that people are raising prices uh more so than cost pushing cost push inflation. Cost push inflation. Here it is. Cost push inflation is this red line right here. That's what it costs you to make your goods and your services. But what you are charging is the blue line. And so the more you see this spread right here, the more you see that disparity, the more companies will say, "Oh, well, this must mean corporates are being greedy." So anyway, the bull market will end, but when and I agree with this. I at some point the AI bubble will roll over and it's going to suck. And the reason I say it sucks and I always like to be really clear about that because, you know, I'm relatively high on the Bearbull scale right now, but I'm also not delusional. Like I'm high on the bear bull scale because I think that all this this shock in the 10-year right now. Gosh, it's up almost I mean according to Bloomberg right here, it's up almost 10 basis points today. That's crazy. Yeah, 10 basis points on the day to 5.27 is the little buy line right there. That's crazy. Uh my take is that those sort of shocks create short-term fear, panic, the Iran fear. There's so much bearishness right now. You look at CNN greed and fear for the uh breath indicator. To me, all of this is screaming opportunity. I mean, look at this. Your extreme fear on breath. It's fallen off a cliff in September. Put call options indicate fear. John Bond demands agreed. But, uh, stock price breath, stock price strength at fear. The number of companies hitting lows on the New York Stock Exchange. Breath is extreme fear. Momentum is at fear. You're in the fear indicator over here. Lots of pain. Basically, to me, those are buying opportunities. So, I I think you've got this buying opportunity that'll lead us into this beautiful, glorious, V-shaped recovery almost for the next 6 to 12 months. But that's actually what pushes us into the real bubble. That's the euphoria you set your trailing stops on and then you take your tendies off the top. Not now. And unfortunately, that's what makes me so bearish on gold because I think that Kevin Walsh is just going to cut rates, not print money. That's my take. Like based on my studying of Kevin Worsh's history, he's a cut rates guy. He's a zero rates kind of guy. He is not a money printer kind of guy. And that has really big implications for well bullish real estate and bearish gold just by definition. Uh okay, why does that work? Well, because if gold is a debasement trade and they're not printing money and you're not debasing the currency, then that trade doesn't work. And if you have disinflation that you're only fighting with interest rates and not money printing or worse deflation which is economically generally bad then what happens is bonds and bond market yields have to come down even more to compensate for the lack of money printing which actually drives interest rates lower than they ever have been before even at the zero lower bound of the Fed. So in other words, you could go to zero at the Fed and you think, oh well that's the level. No, market function 10ear Treasury could go even lower. I know that's crazy to think about right now with it basically at, you know, the highest level since 2002. It seems a little loony bin, but that's okay that I just always like to be as clear as possible with with my opinion. So what could pop the bubble? Well, a tightening cycle has started and over the last 11 out of 14 times that has ended in a recession. The biggest risk is that the Fed believes that they are behind the curve. Uh if the Fed is convinced, I wrote they may hike too aggressively. Greenspan hiked aggressively and the final hike was the straw that broke the dotcom bubble's back. And in the mid '90s, they hiked from 3 to 6% and then they backed off by cutting to 5.25 because they went too far. But you still had four years to go before you actually had a market crash. So, it's not always a sign that they're, you know, you're you're ready to fall off a cliff immediately, which is good. Now, we did talk about at the beginning of the segment, something's got to give. So, let's touch on that. This something has got to give not only hinges on the direction of the Iranian deescalation, which we've talked about, but they also say the following here. Uh, we have not seen uh let's see, where is it? right here. We have not seen two metrics since the year 2000 where less than 50% of the S&P 500 names were above their 200 day moving average. That's what we have right now. And there are more 52- week lows than highs for 9 days straight. Both of those issues have not been seen since 2000, which they argue is definitely a sign of stress. Now, they seem to be of the belief that something you could buy on an Iran deal would actually be consumer discretionary, buying names like Eat, Golf Burlington uh, and Yeti, which could all be uh, beneficiaries of a big bounce back. But we do have a risk of a big red before that, which given that this was, you know, posted over the weekend, who knows? Maybe that big red is is all the sea of red we've got in the stock market right here. On Bitcoin, mind you, it's really important we hold this line right here and we keep trending closer and closer to it. That is the bounce you want to see to get Bitcoin up to its 102 level. And uh broadly looks like we are Oh wow. Now we are rejecting 735. Shows you how important that line is. Now perfect bounce on this line by the way on Thursday. And now we are rejecting it. So pretty important mark 735 if you don't have that marked yet. Okay, let's take one more peek here at the treasury yields just cuz it's it's it's so bad. It's almost like shod and fo, you know, it's like oh look at that. It's settled down again a little bit. 0.78. That's roughly where we were earlier in the segment. About that eight basis. Yeah, there it is. Eight basis points. 5.26 over five and a quarter on the 10ear. pretty freaking remarkable. And so with that, I have just one favorite thing to say. >> Here we go. Come on. The dip. >> If you like that video, check this one out. I think you're going to love it. >> Why not advertise these things that you told us here? I feel like nobody else knows about this. >> We'll we'll try a little advertising and see how it goes. Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Pra there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.