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The Great Reset is Starting. — Transcript

by Meet Kevin · 6,036 words · 918 segments · language en · Watch on YouTube

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0:00There's now breaking news that a $17
0:02billion hedge fund is going belly up.
0:06They just issued a letter to some of
0:08their investors that they're returning
0:09cash. They have fired the head of
0:12equities. This is according to Bloomberg
0:14News. And they've also fired a
0:16substantial portion of their equities
0:18team. This is at the same time that the
0:21Korean semiconductor index, which is
0:23super memory forward, is trading at its
0:26lowest forward valuation in history. And
0:31the stock market is clearly at extreme
0:34fear levels as people are worried,
0:36uh-oh, is this the beginning of the
0:39Great Depression? Is this the popping of
0:43the dot bubble? Is this people getting
0:46margin called? liquidated CTAs selling
0:51via technical triggers because their
0:53algorithms are flying off all the cells
0:55at the same time. Unfortunately,
0:58Barclays thinks it may actually get
1:01worse from here. Barclays is arguing
1:04that what's happening right now in high
1:06growth names is not happening yet at a
1:10bunch of other names. And so when that
1:12dispersion, these high losses in
1:14individual high growth names start
1:16spreading out into correlation,
1:19everything could end up buckling down
1:21lower. So in other words, strap in, put
1:25your pooping pants on, and let's
1:28understand what the heck is going on.
1:30This is the worst move in the
1:32Philadelphia semiconductor index since
1:35Leo Fold got his butt liquidated and
1:37since all of America got liberated. We
1:41have not seen capitulation until today.
1:46Holy moly. Now, knock on wood that maybe
1:50the bottom is in on the day, but boy oh
1:53boy, I I don't want to say the bottom's
1:55in. Look at that. We're down 5% on the
1:58NASDAQ. This is a multi-standard
2:01deviation head to what is normal. This
2:03is not a normal move. We got down to 6%
2:07on the NASDAQ 100 which is almost
2:10circuit breaker level. We almost hit
2:12circuit breakers that we have not hit
2:15since co. This is insane. Dell's down
2:2011%. Tesla's down about 10%. SpaceX is
2:24down 8%. Robin Hood's down 10%. There is
2:29pain across the board. And
2:32it toteening.
2:38I kid you not. Apple has also joined the
2:41suckening. Their first bond raise in
2:43over a year. Apple realizing the writing
2:46is on the wall that uh-oh uh it's
2:49getting a little tighter to raise money.
2:51Which is exactly what Meadow warned two
2:52weeks ago when they said, "Boys and
2:54girls, we need to raise money as
2:56freaking P. Uh the wall is closing in on
2:58us. We need to raise $96 billion.
3:02Apples. Now, you know what? We will also
3:04join. Apple joining today. The sucking
3:07raising $7 billion their first in over a
3:10year. I'm not exactly sure why. I don't
3:12know. Maybe they could raise $7 billion
3:14to fix Siri, which has somehow gotten
3:17even worse. It seems like every time
3:20they have a WWDC and they're like,
3:22"Guys, you can now get Siri with AI." it
3:26actually just gets worse. But what's
3:29also getting worse are financial
3:31conditions. And this is going to have a
3:33big impact on the Federal Reserve, which
3:35is pretty important. So when we think
3:38about financial conditions, you have to
3:39think about what yields are, a
3:42combination of what liquidity is doing,
3:45which you know that's certainly
3:46tightening down, uh, and what the stock
3:49market is doing. People regularly forget
3:51that the stock market is a component uh
3:54in financial conditions. And so when the
3:57stock market goes down, financial
3:59conditions actually tighten. Financial
4:02conditions are exactly what the Federal
4:04Reserve tries to fight. For example, in
4:07the last meeting when the Federal
4:09Reserve decided to hold, Kevin Walsh
4:11said, quote, "Financial conditions have
4:13tightened for some businesses and
4:15households as market participants are
4:17getting more discerning." Financial
4:20conditions matter because as they
4:23tighten down, we ultimately get a
4:25Federal Reserve that says, "Hey, maybe
4:28we don't actually have to tighten as
4:29much." And that's exactly what we're
4:32seeing in the futures markets right now.
4:34We only now have a 70% chance of a hike
4:37in December based on the current
4:38pricing. And pricing uh for a uh for for
4:43how many rate cuts we're going to get by
4:44September of next year has actually
4:47fallen even more. We are now at uh we
4:51are at 1.98
4:53potential rate hikes for next year by
4:56September 15th. That's down from about
4:582.4 yesterday. So we've really come
5:01down. So, financial conditions are
5:03tightening, which lower the chance that
5:05the Federal Reserve uh will hike more,
5:08which is good because as stock markets
5:10go down, people get nervous. But the
5:11flush out is pretty extreme. And these
5:14are some charts that we could look at.
5:16Morgan Stanley's technology, media, and
5:18uh well, and and the telecom factor uh
5:21is about 60% below its 12-month high. We
5:25are now seeing lower momentum in
5:28technology than we have seen since the
5:31dotcom bubble.
5:34Holy smokes,
5:37that's insane. So, at the same time as
5:41you have the uh the RSP, which is the
5:44equal weight S&P 500 at essentially
5:46all-time highs, although it is slightly
5:47red today, the broader stock market
5:50breath is doing decently. You know,
5:53you've got Disney up at like 118. It's
5:55actually climbing. You've got stocks
5:57like Pelaton and Lone Depot coming off
6:00their bottoms. You've got David Busters
6:02and Red Robin coming off of their
6:04bottoms. So, you've got Walmart back to
6:06the 130s. So, you've got some of these
6:09consumer stocks coming back. You got
6:10Apploving, which is a stock we own up
6:1330% today. We've been seeing this as a
6:16cheap value deal. Advertising, I think,
6:19is one of the big next frontiers. I keep
6:21saying it, set it up for a while. But
6:23anyway, what matters here, what matters
6:26here is that we have not seen this level
6:29of despair in technology momentum since
6:34the dotcom bubble burst. The.com bubble
6:38bursting. Didn't even get this low.
6:40Momentum was down 55%. We're down 62%.
6:45And guess what, folks? This chart was
6:47created before today. In other words,
6:50momentum is going to be even lower,
6:54which is wild to think about how how
6:57extreme this momentum is getting. Now,
7:00the good news is you could play the
7:02betting markets with this. Not that you
7:03necessarily want to, but we've been
7:05talking about this one for a while. If
7:06the stock market sells off, I do not
7:08think the Fed is going to hike again in
7:10December. So, I placed a bet that the
7:13Fed is going to hike exactly one time.
7:16If you go to Koshi, you could type in,
7:18hey, number of rate hikes this year. You
7:20could play along with this if you want.
7:22It's a prediction market. Uh it's got
7:24about $400,000 in volume. It's not, you
7:26know, one of the most popular uh ones,
7:28but it's one that I like playing because
7:30I watch it with the Fed. And so, if you
7:32want to join that one, too, remember you
7:33could uh use our sponsor Cali. Go to
7:35cowshi.com/meke
7:37and you get $25 when you sign up for
7:39Cali and make your first trade. Remember
7:41this as financial conditions tighten it
7:43does mean that either
7:47bond yields are going up which is not
7:48happening where stocks are falling and
7:50right now we're getting the stock
7:52falling side of this. Now the underlying
7:54economy is doing fine. The underlying
7:56economy broadly that is we know there
7:58are segments of the economy that are
7:59doing well but ADP at 86,000 yesterday
8:03uh for the month 86,000 the month before
8:05that even though it was a slight
8:07negative revision of 4K we still beat by
8:0919K ISM and PMIs are booming data center
8:14spend is skyrocketing
8:17this is not a sign of the AI bubble is
8:20over. This is a sign of a digestion
8:23phase and volatility after the election,
8:25which we said there's going to be
8:27volatility after the election. Did we
8:29think we're going to have a negative 6%
8:30day on the NASDAQ? In fairness, no.
8:32That's pretty crazy. Uh although, you
8:34know, it might recover. Look at some of
8:36these other charts. Risk appetite right
8:38now is lower than where we were on the
8:41Leo fold time frame. Now, we're not
8:44quite as low as we were during
8:46liberation or the JPY carry trade, but
8:49risk appetite is really riskoff right
8:51now. And then if you take a look over
8:53here, look at Apple's correlation to the
8:55NASDAQ. We have never in the history of
9:00Apple
9:02seen this low of a correlation to the
9:04NASDAQ 100 technology index. Apple to
9:07the NASDAQ, even though Apple is now
9:10joining the sucking has going all the
9:13way back to the 1980s
9:15never been this bad,
9:18which is pretty wild. So, why is this
9:20happening? Because it seems like
9:22spending is actually doing really well,
9:24right? Yeah, it actually is. And let's
9:27consider some of the the tech spending
9:30numbers for a moment because when you
9:32actually see these visually, you could
9:35see that this AI boom isn't over. If
9:38anything, spending is honestly just
9:40getting started. Jensen told us, and I
9:43think he's right, that AI has just
9:46gotten useful within the last 6 months,
9:48which does sort of beg the question of
9:50like why was it so euphoric before,
9:53right? 23, 24, 25, it wasn't that good.
9:59Now it's actually getting useful. And so
10:01what's happening with spending? We've
10:03touched on this before, but it's really
10:06important to look at this visually.
10:07Okay, we're at if we draw a little chart
10:10over here, and we call this June. June,
10:15we were at $1.8
10:18trillion of offbalance sheet spend.
10:21Okay, this is off balance sheet spend.
10:26We're at $1.8 trillion in June. Okay,
10:30that's June. What happened by August? By
10:34August, it almost doubled
10:38to 3.1.
10:41So all of a sudden, we go from here
10:46to here in the span of two months. It's
10:50literally two months and we've
10:52skyrocketed over here. What's since
10:55happened? Has this spending gone down?
10:59Well, here we sit uh what do we 8 10
11:02about 2 months later? You know, the
11:04beginning of November. So, 2ish months
11:08later, we now sit at
11:134.11.
11:15Uh that's slightly less of an increase.
11:18This is a little bit more extreme over
11:20here. So, this would be a little bit
11:21more drawn out. H whatever. You kind of
11:23get the idea. This slope is higher than
11:25that slope. Doesn't matter. But the
11:27point is the spending is going up by
11:31insane amounts. We've gone from 1.8
11:33trillion to 3.1 to 4.11 trillion of
11:36spent in the span of 4 to 5 months. So,
11:40what's happening? Why is there so much
11:42fear if purchase orders are
11:44skyrocketing? I mean what did h what
11:46happened to Amazon's commitments?
11:49Amazon's commitments like Amazon alone
11:52just Amazon okay Amazon went from about
11:56125 in commitments
11:59to $254
12:02billion.
12:03Why are the rich companies spending more
12:06money on AI and the market is selling
12:09off? How do you reconcile those things?
12:13Well, you reconcile it on a bigger
12:15whiteboard. So, this is what we drew.
12:18All right. So, here we go.
12:21First, Microsoft, we want to spend more.
12:26Yeah, that's literally what they're
12:28saying. If you look at the Microsoft
12:30earnings call, we can pull it up. we
12:33look at the Microsoft earnings call,
12:34we're going to see that this is a
12:35company that says, "Hey, we don't see uh
12:40a, you know, an economy or or sort of a
12:42this this bubble situation where we
12:45should be spending less money." Now,
12:47Microsoft is in the headlines right now
12:50because of delays uh of
12:54NeoCloud deals with companies like
12:56Nscale or Iron. And so, a lot of people
12:59are like, "Oh my gosh." They read the
13:00headlines and they say, "Oh my gosh."
13:02Well, if Microsoft is delaying those
13:04deals with those companies, with those
13:06with those Neoclouds, then the AI boom
13:08must be over, right? Let's let's bail.
13:11Let's jump ship. Let's talk. Let's Let's
13:13pull what the uh paperhander guy did
13:16over on Twitter. Who's the paperhander
13:18guy on Twitter? Well, you can follow me
13:20there at Realme Kevin. I tweeted about
13:22it yesterday. Uh but this is very common
13:25when you get high momentum areas. A lot
13:28of people flow into high momentum stocks
13:31when everybody's buying them and they
13:33can't lose money because the stock
13:35market just keeps going up. Here's this
13:36guy who posted, "Grumpier by the day. I
13:40hit my personal circuit breakers. I've
13:42cleared my account of shares." This guy
13:44literally liquidated everything. My
13:47breaker is the moment at which my
13:48account can cover capital gains gains
13:51plus pay off my house. So in other
13:53words, this guy has debt and then panics
13:57because his portfolio went from 1.3
14:00million to 650k or under it. So the guy
14:03paper hands and sells everything cuz
14:04he's got debt. We don't know what kind
14:06of margin he has or what. But now people
14:09look and go, "Oh, I got to pay off
14:11money. I I better get out." Oh, but
14:14wait, the AI boom is over, right? It's
14:16it's dead, right? I mean, Microsoft, if
14:19they're killing deals with Nscale or
14:20these other companies, it's over, right?
14:22Well, no. Capital expenditures in two in
14:26the second quarter will be over $50
14:27billion by Microsoft. In the calendar
14:30year, Microsoft expects to spend $170
14:32billion. Now, why are they not going to
14:34spend more? They're not going to spend
14:36more because of third-party capacity
14:39delays.
14:41In the second half of the year coming
14:43up, we expect capex spend to accelerate
14:47primarily from CPUs inclusive of higher
14:50memory and storage costs. I'm actually
14:52really bullish NAND right now. I think
14:54you buy the dip in NAND storage. That's
14:57different from RAM. Okay, look up the
14:59difference. Uh, but I think an overupp
15:02is coming from memory but not NAND. It's
15:05an interesting play, but anyway, that's
15:07a little more niche and really a topic
15:09for a different video. So what you have
15:11here is you have delays happening with
15:14these data centers. Why are some of
15:15these delays happening? Well, there are
15:17reports that because we're moving to
15:20what's called persistently online
15:22artificial intelligence agents. There
15:26are reports that Microsoft is respecting
15:29what they want on their data centers and
15:31they're saying, "Oh, well, we want
15:33different cabling architecture. Maybe we
15:36weren't as clear about what we wanted
15:37before." So now there are all these
15:40articles
15:42that are coming out that are leading to
15:44even more fear in the market like this.
15:46Microsoft sour on Neoclouds owing to
15:49data center delays and basically they're
15:51saying costs are going up. up their
15:53regulatory delays. Microsoft has buyer
15:56remorse for working with the NeoClouds
15:58like Iron
16:00Delivery has of third party capacity has
16:02been delayed mostly because of these
16:04intricate networks of fiber optic cables
16:07and basically bad specking for what
16:10would ultimately be needed. Elon of
16:12course has jumped on this bandwagon and
16:13said, "Hey, some of these puppies are
16:15going to go bankrupt." But anyway,
16:17that's basically what he said. Microsoft
16:19over here has pledged hundreds of
16:21billions of dollars to data centers. You
16:22could actually see the total pledges
16:24here outside of their uh earnings call
16:27here. These are Microsoft leases which
16:29have not yet commenced. You'd actually
16:31see that in in the second and third
16:32quarter we've skyrocketed in how much
16:35money they want to spend on data
16:37centers. So the problem isn't the
16:39willingness to spend on AI. The problem
16:42is that there are delays happening in
16:44data centers at the same time as other
16:46things are going on. So Microsoft wants
16:48to spend more. Okay. Well, that's
16:50bullish, right? Then over here, but now
16:54we want persistent AI agents. Okay,
16:56that's fine. That's bullish because it's
16:59going to take more CPUs. It's going to
17:01take more memory. It's going to take
17:03more compute.
17:04We're changing the specs. That creates a
17:07delay. People in the stock market don't
17:10do well with delays. There is no
17:12patience in the stock market. Peoplehand
17:15anytime patience is required. It's a
17:17great buying opportunity. delays which
17:21not only occurred with Microsoft related
17:22companies like iron but gas
17:24infrastructure at Oracle or whatever
17:27make credit default swaps go up. When
17:30credit default swaps go up, liquidity
17:33goes down. It's a doom loop. This right
17:36here is a doom loop. And then you get
17:41the blue wave with moratoria threats.
17:44leveraged stocks get crushed and a lot
17:47of people are leveraged up in 3x
17:49leveraged ETFs and they get absolutely
17:52smoked on days like today because then
17:55they lever up on leveraged ETFs which
17:57guess what don't show up on FINRA margin
17:59statistics
18:02uh and now you're margined up on like a
18:053x leveraged ETF so you could get rich
18:08quickly and then you go bankrupt. It's a
18:10terrible idea. You should be owning
18:12great quality companies without exposure
18:16to debt right now. Some of the
18:18valuations right now worth mentioning
18:20are very very low. We look at for
18:23example Micron right now is trading for
18:26a 35
18:29peg. Microsoft's at about5. Lum is at
18:3372. Marll is at 68. Broadcom is at.58.
18:38Nvidia is at 0.59.
18:42How much of a cyclicality discount do
18:44those plays need? SanDisk 1.2. These are
18:47very low. These would generally be
18:50closer to two to two and a half at the
18:52margins that they run. And you can look
18:54at even a company like Apploven. In
18:56fairness, Apploven's up like 30% today.
18:58Apploven's excellent pricing power,
19:01excellent valuation, excellent momentum,
19:03uh excellent balance sheet. Everything
19:05about it is excellent. It's only trading
19:07for a one peg right now and they've got
19:09some really big catalysts coming up
19:11which is also pretty exciting. But
19:13that's app. I I've got exposure to app
19:15loving it. I like it. Big fan. I'm also
19:17a big fan of buying the dip. I'm not
19:18bearish on any of this stuff that we're
19:20seeing. And my goal is to show you
19:22exactly why. So what I'll also do now is
19:24I want to show you what's going on with
19:25credit default swaps. And I'm going to
19:27show you the actual chart. I do just
19:28want to shout something out. If the
19:30volatility of the market is driving you
19:33freaking crazy right now, one thing you
19:36could do is you could actually now
19:38invest in venture capital with as little
19:40as $500.
19:42You could go check out uh usvc.com.
19:46They're a sponsor of my startup,
19:48Reinvest, and I made a little video
19:51breaking them down if you wanted uh to
19:53take a look at the uh video, but there's
19:54a detailed video on it. It's called
19:56investing in AI venture capital with
19:59just $500. Here's how. Paid partnership
20:02with USVC usvc.com/mk.
20:07And one of the cool things they're doing
20:09right now is they're doing a 5% match.
20:11So if you sign up, they'll match your
20:13investment uh with a 5% offer. So uh if
20:17you check that video out in detail, you
20:20can see how you could get exposure to AI
20:21venture capital investments through that
20:23fund, USVC. I'm I'm personally excited
20:26about what they're building and they're
20:27adding a 5% match to every investment
20:29now for a limited time. So if you invest
20:31$1,000 for example, you get an extra
20:33$50. So you can check that out at
20:35usvc.com/mk.
20:38Okay, so that's that in case the
20:40volatility of the public market is
20:42driving you nuts. Let's now focus on
20:44credit default swaps. So here you go.
20:46Credit default swaps. Credit default
20:49swaps. Below you're going to see Oracle,
20:51Cororeweave, and Meta credit default
20:53swaps. These, in my opinion, are very
20:55useful because of what we see with what
20:57I call the doom loop. So, I've written
21:00about the doom loop. In fact, I made a
21:02little substack and then we're going to
21:03talk about Iran. So, I made a little
21:05substack uh the first post that I ever
21:07made on the Substack was actually here.
21:11My first stack ever for free
21:14uh on the AI Doom Loop. Okay. So, how
21:17does the the AI Doom Loop work? The AI
21:20doom loop is basically
21:23there's a delay. The delay leads CDS's
21:29to go up, credit default swaps to go up.
21:32When CDS go up,
21:35momentum comes in.
21:38Uh this is basically a trade that comes
21:41in and you drive CDS's up even more.
21:45that
21:47increases
21:49the cost of bond yields. So it makes it
21:52more expensive for these companies to
21:54borrow.
21:55That
21:57increases
21:59the financing risk of the Neoclouds,
22:03which then increases delays, which then
22:07increases credit default swaps, which
22:09then increases credit default swaps
22:10more, which then increases the interest
22:12rates these companies have to pay. This
22:15is the doom loop. Add to this the stock
22:17going down, right? Which would be over
22:19here. Risk and the stock down. So that's
22:22the doom loop. Delays lead to more
22:26expensive debt, more insurance. More
22:28insurance leads to momentum insurance,
22:30which leads to even higher cost of
22:31capital, which leads to the stocks going
22:33down even more. That's the AI doom loop.
22:38So is the AI doom loop worsening?
22:41No,
22:43not right now.
22:45Even though the stock market is selling
22:47off, Oracle has actually come down,
22:50which is shocking. Oracle is down on its
22:53credit default swaps. The momentum is
22:55starting to come out of the insurance
22:58protection that people are seeking
23:01against the AI bubble going poopy dupy.
23:07If you look at Coreweave, in fairness,
23:09it is still at peak. But it hasn't
23:12gotten worse, which is really
23:14interesting. You would think that I
23:15mean, we just pulled these charts. You
23:17would think that right now it would be
23:19getting worse.
23:23Then over here
23:26you have Meta, which is also getting
23:30less bad.
23:32uh you know the numbers are still not
23:34great but they're getting less bad which
23:38is the opposite of what you would expect
23:40when the stocks are selling off which
23:41suggests that what's really broadly
23:43happening in the stock market right now
23:45is a capitulation because of the
23:47Democratic victory. This Democratic
23:50victory is creating this fear that
23:51instantaneously Democratic governors and
23:54states like Texas are going to be able
23:57to immediately stop data centers. And
24:01Democratic uh governors like Kosa have
24:06now been pledging $1,500 stimulus checks
24:10to start giving money back to the people
24:12and how they're going to stop the data
24:14centers. But these people don't take
24:16office until January. Then they're going
24:19to have to work with their legislators.
24:21It's going to take probably until March
24:23or April before you actually see
24:25legislation on data centers. I wouldn't
24:28be surprised if they end up coming to
24:31the conclusion that wait a minute, do we
24:33really want the data centers to go to
24:34Louisiana or to the red states or do we
24:38want to keep those construction jobs in
24:40Texas?
24:42I think what happened and this is my
24:43opinion. I think what happened is at the
24:46same time you had these AI safety fears.
24:49Remember at the uh kind of the end of uh
24:53August and the beginning of September,
24:55everybody got really nervous about those
24:57rogue agents breaking out uh and they're
25:01breaking out of containment and all of a
25:03sudden you get this giant safety fear,
25:08right? So you get this massive safety
25:11fear and what happens when you get a
25:14giant safety fear? People say, "Okay,
25:17what we need to do is stop AI." Well,
25:20who can stop AI? I know. Vote Democrat.
25:27Now, whether or not those politicians
25:29are actually going to do what they say,
25:33I question. I question that
25:35substantially.
25:38But AI safety fears
25:41uh have driven this election. At the
25:44same time as Donald Trump screwed up. He
25:47didn't get a deal done with Iran. That
25:50was a big mistake. JD Vance himself says
25:54that was one of the reasons why
25:55Republicans got shellacked here.
25:58Republicans got destroyed because they
26:00didn't end the war. This is JD Vance's
26:03tweet where he literally says it and
26:05Donald Trump says in response to this
26:08that JD Vance is mostly correct that he
26:11agrees with JD Vance that we should have
26:13ended the war before and that the war
26:15was underestimated as a reason for why
26:17people voted the way they did. We should
26:20have focused on the cost of living. We
26:21should have focused on inflation. We
26:23should have put it focused on putting
26:25America first and our relationship with
26:28Israel and we didn't. and therefore
26:30Republicans lost.
26:32So then the question is where do we
26:34stand on a deal now? Well, the problem
26:36with that is it's not good. Now the
26:39Iranians more than ever feel they want a
26:43nuclear weapon. There is more talk now
26:46than ever before that the Iranians say
26:48we need the same nuclear deterrence
26:52that
26:54Pakistan has, that North Korea has, that
26:57India has, that Russia has, that China
27:01has. We need the same thing that they
27:05need, which is not great. And so that's
27:08what's stalling, excuse me, that's
27:10what's stalling negotiation efforts.
27:12Now, I think the greatest chance to make
27:13a deal was before the election. It's
27:15harder now. New York Times now saying
27:17that Iran is reviewing a set of
27:19proposals that could shape the future of
27:21their nuclear program. Now, there's a
27:24hope that maybe that'll represent a
27:26breakthrough. We hear this every other
27:28day. I'm hopeful eventually we'll get a
27:31deal. And if we get a deal, everything
27:33goes back to the moon. All this painful
27:36by the dipping will have been worth it.
27:39But I did think that Donald Trump would
27:41have realized the best time to make a
27:42deal was before the election. The next
27:44best time to make a deal is now.
27:47Iran's willingness to re-engage on
27:48nuclear talks after weeks of refusing to
27:50budge suggest recent mediation efforts
27:52by Qatar to prevent a full-blown return
27:55to war have had some success. That's
27:58good. We like to hear that. They
28:00describe the terms being reviewed as
28:01quote concrete proposals. That's nice
28:05because a deal with Iran right now would
28:07bail out the stock market. It would bail
28:09out the pain on yields. It would bail
28:12out the pain on oil, which is actually
28:14up 3% today. Why is it up 3% today?
28:17Well, it fell under $100 yesterday on
28:19the JD Vance post.
28:21But that doesn't mean Donald Trump's
28:23actually going to do anything about it.
28:24That's the problem. The pressure to do
28:26anything is off the table now. So,
28:30we don't know. We don't know when we're
28:32actually going to get a deal with Iran,
28:33but between now and us getting a deal,
28:36we have to deal with tighter financial
28:38conditions, which yes, lowers the odds
28:40that the Federal Reserve is going to
28:42raise rates. We have to deal with more
28:44spending and more money raising by
28:46companies like SpaceX who have to raise
28:47a trillion dollars, Microsoft, Meta,
28:50Apple who's now raising money, Amazon
28:52who's raising money, all at the same
28:54time that the labor market hopefully
28:58keeps holding up. See, the worst thing
29:01that could happen right now is the stock
29:04market falls to the point where it
29:05forces layoffs. That is the worst thing
29:08that could happen right now. If the
29:09stock market falls to where it forces
29:11layoffs, you go into a recession.
29:15Fortunately,
29:18that does not appear to be what's
29:19happening right now. ADP strong, ISM
29:22strong, PMM, PMI strong, all of them
29:25indicating more hiring. Labor force
29:27productivity came out this morning. What
29:28did we hear? Q3 labor force productivity
29:32is at up at the highest annualized pace
29:35we have seen in over a year. 3.6%
29:39annualized labor force productivity.
29:42Again, AI, it's just getting started in
29:45the productivity boost. Unit labor costs
29:48are down.7%.
29:50Now, in fairness, that does mean worker
29:51pricing power is weakening. Worker PP is
29:55getting smaller. Okay, we want big pee
29:58pee. All of us want big pee pee. We all
30:00want to be able to make more money.
30:02>> Big pee pee.
30:03>> That's what we want.
30:06But AI actually makes it easier for
30:08companies to get rid of you and do work
30:10without you, which isn't great. We do
30:14not want the labor market to roll over
30:15right now. What's happening right now?
30:18Well, what's happening right now is the
30:20labor market is doing very well and the
30:23AI spend is increasing. So, if we look
30:26at the two real recession canaries,
30:30okay? And trust me, I will scream
30:34recession at you as soon as I actually
30:36think we're heading towards a recession.
30:38Who knows, maybe it'll be too late by
30:40then. No guarantees. But I think there
30:42are two
30:43labor
30:46and uh AI spend. Okay, those are your
30:51two canaries for a recession. Right now,
30:56AI spend is going up and to the right.
31:00Right now, the labor market, as crazy as
31:03it sounds, in aggregate, not every
31:06portion of the economy, in aggregate, is
31:09going up and to the right. when these
31:11winds start fading, these these
31:14tailwinds, that's when you should really
31:17get nervous.
31:19But I actually think what's happening
31:21right now, like you know what, if I had
31:24to put together why the market is
31:27selling off right now, uh I would
31:30simplify it into a a combined
31:36answer.
31:39Okay.
31:40One sec.
31:47Here we go.
31:51There you go. Fear about Democrats,
31:56which in my opinion is overblown, plus
31:58debt
32:03equals people weeny bitching.
32:07market is basically a graph of human
32:09emotion. You know, the market doesn't
32:12have to align with where we think
32:14valuations are at all the all times.
32:17That's how fundamental analysts make
32:20money over the long term. They buy when
32:23things are fundamentally cheap. There
32:25are a lot of fundamentally cheap
32:27companies right now. Nvidia, I mean, we
32:30went through some of the PEG ratios.
32:32These are really good companies that are
32:34dirt cheap that are printing money, but
32:37fear and a lack of momentum like we saw
32:39in that Morgan Stanley momentum index,
32:42that's what's creating this pain. Now,
32:44what about that labor market? People are
32:45like, "Oh, but you know, what about
32:46unemployment claims?" Unemployment
32:48claims, which I do think are a lagging
32:50indicator, but unemployment claims right
32:51now have not been as low as they are
32:53right now since 1969.
32:58So despite the fact that you hear, oh,
33:00Disney's laying off, or voluntary
33:02buybacks at Microsoft or whatever,
33:04people actually filing for unemployment
33:06insurance on a weekly basis are the
33:08lowest level that they have been in, I
33:11got to do the math on a calculator, 57
33:14years, over half of a century. That's
33:18how low unemployment claims are right
33:19now. That's insane to me. And this is
33:23what we called in our alpha report is
33:25expect volatility after the dem sweep.
33:29It's not going to be straight up after
33:32the election. It could take 6 to 12
33:35months after a midterm election for
33:37things to go up. I think right now a lot
33:41of people are swallowing a really fat
33:43pill and they got to digest this brick
33:47at the same time as there's a lot of
33:50digestion going on with the liquidity
33:52sucking that's going on.
33:56People don't really care about all this
33:59data when they go hit the sell button.
34:01what they care about is making, you
34:04know, making their portfolio look like
34:06it's going up every single day when
34:08really what they should be doing is
34:10focus on how can I acquire more
34:12highquality companies that I can hold
34:14forever. The stocks that we are buying
34:17long-term in our membership of
34:19reinvest.com, these are stocks we are
34:22holding for at least 10 years. We've
34:26made that clear. every single one of
34:28those puppies. Hold hold hold 10 years.
34:35That's going into that makes you ignore
34:39these little weeny babies. Guys, I'm
34:41hitting my personal circuit breakers as
34:43as if the person had to have some logic
34:46for selling
34:49when the reality is that's sort of post
34:52postbranded uh postbranded fear sold in
34:56a package of logic. That's my opinion.
34:59So, one more thing, one more set of
35:03data.
35:05sensitivity right now unfortunately is
35:08elevated uh for fundraising and it's
35:10elevated in exactly the market you kind
35:12of don't want it to be elevated in
35:14semiconductors you kind of have what I
35:16call the perfect storm the most hyped
35:20sector right now in markets
35:23semiconductors
35:24that's a problem guess what the least
35:27hyped sector right now is real estate I
35:30kid you not look on the screen the most
35:35hyped
35:37right here.
35:38Semiconductors. Uh, this is the most
35:41hyped sector that you can buy in the
35:43stock market. Well, I mean, you got
35:44utilities and capital goods over here,
35:45but these are all kind of together.
35:47They're all sort of like in the same
35:49group at a max hype level.
35:52Real estate is almost at the lowest hype
35:54level possible. This is why 90 cents of
35:58every dollar that we put to work goes to
36:01real estate.
36:04because we are buying the dip where
36:07people hate it and that's real estate
36:10and debt just makes people weenie baby.
36:13Semiconductors are getting fearful. This
36:16is going to reverse. You know these bars
36:18are going to start coming down in hype
36:19because people are going to get bearish.
36:20That is an opportunity to buy.
36:23If you look over here you could actually
36:25see semiconductors are also most
36:28sensitive to the yield curve flattening.
36:31Real estate is not total opposite ends
36:34of the extreme. So if you want a barbell
36:36approach, you buy the dip on semis, you
36:38buy the dip on real estate. That is, in
36:40my opinion, a glorious barbell except
36:43I'm like 90% real estate and you know
36:46the the rest other things
36:50flatter yield curve. Uh as liquidity is
36:54getting squeezed. We haven't been at
36:55these levels of the yield curve since uh
36:582024,
36:59which is really where we had the
37:01Japanese carry uh trade crisis. In fact,
37:04I think there's a third chart that we
37:06didn't look at here.
37:09Yeah, right here. Oh, we looked at this.
37:11This is the risk appetite indicator that
37:14liberation in the Japanese carry trade
37:16areas have actually indicated risk
37:18appetite has worsened was even worse.
37:21Now, in fairness, this chart is from 3
37:23days ago. So, this could be way worse
37:26right now. We we might be we might be
37:29closer to those levels right now. That's
37:31the problem. You don't tend to see that
37:32until after the fact, which is a little
37:34bit of a bummer, but uh you know, what
37:36are you going to do?
37:39So, uh yeah, let's take a peek here at
37:44the market one more time. So, the
37:46market, we now have the NASDAQ 100
37:51sitting down about 5% on the day. It's
37:53pretty rough. Did briefly bounce here.
37:56Uh, roughly a double bounce at the 65034
37:59line. We laughed at the 675 line, which
38:02is a little bit scary. Even Lenar's down
38:04today. Even Eli Liy, which has been
38:06killing it. Look at that. Straight down
38:08intraday. We own Eli Liy. I've been
38:12buying this since about probably around
38:141090 somewhere around here maybe, 1100
38:17somewhere in this mess over here. Uh
38:19Mona as well we've been picking up Mona
38:21which is down also today but we've been
38:23picking up Mona uh at um around 145.
38:29Pelaton had earnings yesterday and look
38:31at this
38:33skyrocketed after the earnings to over
38:35$6. And even it has gotten hit today in
38:39this sort of tech selloff. This
38:41broadbased indiscriminate selling or
38:44margin calling or liquidations or
38:46whatever that are going on. It's a
38:48disaster out there. If you like that
38:51video, check this one out. I think
38:52you're going to love it.
38:54>> Why not advertise these things that you
38:55told us here? I feel like nobody else
38:57knows about this.
38:57>> We'll we'll try a little advertising and
38:59see how it goes.
39:00>> Congratulations, man. You have done so
39:01much. People love you. People look up to
39:03you.
39:03>> Kevin Pra there, financial analyst and
39:05YouTuber. Meet Kevin. Always great to
39:07get your take.

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