10 year yields are September's meme stock transcript

[bell] All right, this is my last market outlook from Costa Rica. I uh head home on Wednesday, Micron's uh earnings day. I will be landing in Toronto around 2:35. So, I will be able to uh check out the end of the day and see the earnings as I'm uh being driven home. Um, so for those of you out there who have been complaining that my microphone is too low, uh, when I get back to Canada, I'm back on my normal system. It might be better.

Although I listen to my video after, I don't hear a microphone issue. But I will uh not deny your lived existence and I will say okay maybe maybe there's something there. I can't replicate it but okay. Um here we go. Money supply for August. Um 23.34 trillion up from 23.22. If you calculate the August growth rate and annualize it, you get to about 6.38% per year. Long-term growth in the money supply has been around 6% per year.

That's uh in line. S&P um you almost as you read through the I got some quotes, you know, as you're reading through the release, you think, did Trump write this? because some of the sentences were no one's ever seen anything like this ever before, but let's go through it. Uh, and again, it's one of these things where, you know, throughout the year, you had uh, you know, B minus, C++ reports and suddenly you get to October and September and everything's in A+.

H, I say um, S&P Global, the composite. This is including manufacturing and services. Uh 584 that is a 62-month high. 62-month high. S&P uh manufacturing uh came in at 57. Look at the expectation 536 uh way higher 52 month high. And uh services the expectation was 56 came in at 587. In fact it was expected to be lower than the month before. No other way. And not only that, 59month high. The index's new orders services highest since March of 2022.

Manufacturing the highest since April of 2022. Were you aware of that? Did it feel that way in September with everything going on with yields rising, diesel at at all-time highs, all-time highs, gasoline prices elevated that you would say, I bet this has been the best month for like five years in both services and manufacturing. What about backlog of completed uncompleted work? Sharpest increase. Sharpest rate of increase since May of 2022.

Well, tell me about employment rose at a rate not seen since June 2022. Services uh June 2020. This is a for the composite manufacturing. You go back to February 2021 to see a rate of increase this great. And this is a quote right from the release. A pace rarely exceeded since comparable data were first available in 2009. prices, however, surged overall rate highest since October of 2022. Um, wow. Like coming out of nowhere, you get into September as things get worse in the world and wow, everything just exploded.

Highest for for five years, six years. No one's ever seen anything like this before. You wonder if Trump has some loyalists over at S&P Global. Um, but there it is. Anybody surprised? I'm going to show you when we get to the S&P 500 page, I'm going to show you some of the other sectors. We'll break it down for the sectors. And many of them are either in correction territory, headed for bare market territory, or near correction territory.

Yet, the S&P is only down less than 1% off the high, and the economy everywhere is just exploding. Why is it uh why is it not in the prices then? Current accountative246 billion. This is for Q2. That is a 1 trillion a year uh run rate on the current account. That's a trade deficit. 1 trillion a year. Um I I I uh would seem to think that you'd want to get more balanced trade. So I agree with the administration that you need more balanced trade.

But this unilateral uh approach to balance trade uh I think shows a fundamental lack of understanding of how things are done. Uh if the US has a trade deficit with let's say Costa Rica and you see that it's importing uh agricultural product that you simply cannot grow in the US, you would not demand that Costa Rica then buy your stuff because they're ripping you off. you simply don't have any. It is up to you to provide products and services that are so compelling Costa Rica then buys them from you as opposed to demanding.

I don't go to my dentist and say, "Look, I spend $2,000 a year with you on maintenance and cleaning. I demand that you uh balance this trade by buying $2,000 worth of my services." I would have to produce a product so compelling my dentist would say, "Hey, you know, I bought one of your subscriptions the other day." Oh, well, thank you. But my job is to have trade surpluses with other customers knowing that I have trade deficits with certain suppliers.

That is uh how it's done. It's up to the US to provide a compelling reason for the rest of the world to say we should buy that stuff. And that's how you balance trade. But this unilateral demand has isolated the US. You now on almost a daily basis have headlines of countries that are making deals ex us making deals around the US. So I don't know that this is going to get any better until you realize that hang on a second, we don't have to solve this unilaterally.

We can solve this bilaterally and trilaterally and multilaterally. Okay, crude oil stocks the week ending September 18th up three almost 3 million barrels. The expectation was to be down 600,000. They must have imported a lot. Not really. Only 369 million. That is up from um the week before, but that doesn't make up for the 2.96. Most of it went to Cushing, Oklahoma. 2.26 million barrels. Look at this gasoline stocks. big draw down 1.6 million barrels.

Look down here at refinery runs uh lower by 519,000 uh barrels. Gasoline production lower. Distillate stocks lower. Uh distillate fuel production uh lower. There is no shortage of oil in the world. There is just a shortage of refineries at this point. If these straight of horm opened up, I don't know that it would really reduce uh diesel or gasoline prices very quickly. But the glut of oil, I think you could probably trade quickly through the 80s and the 70s and even print a six handle if it started flowing freely.

That doesn't look likely. Iran had presented the US with a 7-day plan to open up the straight and oil fell last week on that report. I thought, "Nah, it's not over." And Trump then on uh I think it was late Friday night said, "No, I'm not going to do it. I'm probably going to start bombing them again after the election." Bombing them again after the election. Why? Why wait till after the election? Right? You have to think that he's using that as leverage against the American voter.

Durable goods zero down from 0.9 but uh better than expected. It was supposed to be a drop so it came in better than expected but still a drop month over month. Let's take out transportation just to see if it gets better. Uh and it doesn't. Expectation was for6 came in at.3 below last month as well. Well maybe defense is the uh problem here. Let's take out defense. Well then that drops to 0.1 down from 1.4 four and uh you know let's get back up on that horse and let's cut up the data a different way.

What about all the non-defense orders and let's take out air. Ah there's our growth 1.6. Told you told you we were doing well data uh you will learn if you do any research is one of the weakest suspects you'll ever get in your interrogation room. They confess easily. If you torture them enough, they will confess. And there's our confession. There's our growth, sir. 1.6. Uh, Michigan consumer sentiment 481. Big drop from the month before 51.

This is for September. 481. Uh, inflation expectations that climbed up to 3.4. Uh, and uh, sentiment breaks down into current conditions and expectations. Current conditions drop to 50.9. And what about the future, dear sir? Oh, it's even even worse. 46.3. And what about uh your expectation for inflation? 4.6. Uh none of that going in the right direction. Uh and what do we uh we're September 27th now? 3 days left in September, 31 in October, and 3 days to the election.

Uh you have what? 37 days. 37 days to the election. And this is not helpful. Let's have a look at rates and yields. And what a spectator sport the 10-year yield was last week. Intraday hit a high of 5.217 on Thursday. I was watching the chart saying, you know, I had some people are saying, are you seeing this? Look at this go. It was like perpendicular right up the side of the chart like Spider-Man climbing a building.

Uh look at our three-month uh 4.24 effective federal funds rate at 3.88. 98. This is as of Thursday. These are constant maturity yields suggesting that sometime in the next 30 days, you got at least another rate hike in here. The 3-month is already pricing it in. Big news is on yields where the consumer borrows. Nobody nobody borrows at the effective federal funds rate. Um the 30-year cycle high on Friday. The 20-year cycle high on Friday.

When I say cycle high, this is from when Powell started raising rates in 2022. Taken out taken out the October 2023 cycle highs. The 10-year hit a cycle high on Thursday 518 on a closing basis. Intraday 51 uh 5.217. A 7-year on Thursday cycle high fiveyear same thing. three-year same thing only the two-year the cycle high was 5.19 sitting at 4.81 81. And if we look at the uh capital market uh curve where things are priced off of, car loans are priced off the five-year.

You've had five rate hikes year to date on car loans. Five rate hikes, housing, mortgages, you've had four rate hikes year to date. And go back to the S&P report. Prices surged at the fastest rate since 2022. The capital market curve is not doing it. Look at the money market curve floating rate. It's not doing it either. I don't know that gradualism is going to get this done at this point. Uh you may as well just raise the short rate to 6% at the next meeting and just get it done with nothing takes inflation out of a system like a recession and nothing will do it like a global recession.

Uh but this gradualism and the administration which appears to be working diametrically against deflation doing the best they can to make sure it doesn't happen. Uh, and the more the government spends, the more it adds to inflationary pressure. And then I'm going to make the case a little later that unfortunately I don't think that the Treasury or the Fed really has much of a choice at this point. Um, raising rates is is simply going to cause other big problems.

Uh, and we have a lot of problems looming. We'll look at the triple seat on the next page and that is a problem coming up. Just to give you a visual look at this September 25th to January 1, there's the yield curve. It is higher at every single tenor. This is the price of government debt. The default riskfree price of government debt. That doesn't mean it doesn't come without risk. It just comes without default risk.

At least that's the belief. I don't know if that would be entirely true at this point that it comes without default. Slopes are uh still uh upward sloping. We can see the curve is upward sloping. So it is helpful for banks. The 2 to 10 year to date is flatter than it was at the beginning. 3 month to 10year is up but not as high as it was before. I thought it would do a lot better. That was uh a call that has been stymied by uh the Iran war, the US war on Iran, the US war of aggression on Iran.

Uh KRE doing the right thing, pulling back, this is not helpful. If you have expectations for more for the short rate going up more and more, that is not helpful uh for banks at all. And at higher higher levels of the yield curve, it does theoretically um reduce the demand for loanable funds. We're going to look at the Z1 financial accounts from the Federal Reserve to see where the level of debt is and what the growth rate of debt has been lately and theoretically can be thrown out the window.

It appears that the demand for debt from both households, governments, and corporations is accelerating as the yield curve goes up. That's inflationary. You got to stop these people from borrowing. You got to remove the chocolate cake if you want people not to eat it. You cannot simply just raise the price of the chocolate cake cuz pay for it, they will. Uh higher rates are hitting where they should. utilities um down 3.87 uh real estate uh down 1.4.

Canadian real estate REITs just taking a hit. The Canadian 10-year breaking 4% last week that was a big catalyst for the downward pressure on REITs. Staples also uh dropping as well. IWM dropping as well. That will make sense when we see the triple C uh OAS. uh but tech and S&P leading and we'll look at some of the sectors of S&P um about 70% of the S&P is at uh uh or near at or in correction territory really comes down to three sectors information technology energy uh and healthcare with communications slightly in there as well. uh but seven of the uh 11 sectors mm- not at all.

TLT printing a seven handle dropped into the 78s at one point finished in the 79s year to date down 9%. Uh the uh coupon simply just does not make up make up for it. But almost 5% yield on TLT. Now, you can do better by simply going into uh the bonds themselves. When you start seeing a 10-year at 5.17, the 15-year zero, uh that is a zero coupon bond that is due August 41. It's a uh a principal strip uh was yielding 5.53% last week.

I bought another face value face value of it of 25,000. It's uh selling for 44 cents on the dollar. zero coupon. So, there's no withholding if you're uh a foreign investor. However, if you are a foreign investor, you do have to worry about how long Trump is going to be there because there is a possibility to get the debt down. He simply cancels all debt to foreigners, saying they've been ripping us off for years. So, I am a little nervous about uh about buying it.

But uh while there is a nonzero probability of that, I'm going to put that at at a very low probability because even this administration must recognize the fastest way to become an emerging market is to do that and you will lose your developed market status very quickly. You will be an emerging market in no time. And uh ZQ pricing in uh over the next four quarters, another three rate hikes on top of what we already have.

Another three. I bought more ZQ. I have 79 contracts now spread between August uh to November of 2027. Uh the last purchase I got was four at uh 9512. And when I saw it hit 9512, I tried to get more, but it just it bounced off 9512 and ran back up and it hasn't come back down since, I have a hard time seeing three more rate hikes, even though inflation is there. I have a hard time seeing how you're going to get four more rate hikes uh into an already fragile system. uh that I think that either something significant breaks first uh or uh a meeting of the minds and I know it's hard to find minds within the Trump administration these days but a meeting of the mind say look this is given the size of the square this is ridiculous you can't just look at the length of the square you have to look at the width and this idea of we're just returning to historical levels on rates is looking at the length now uh That argument may suffice for the economy may be able to handle it or corporations may be able to handle it or businesses can absorb it but it it misses uh the other dimension of the square for both uh for all for households for corporations and for governments real yields all of them September 24th 25th Thursday and Friday cycle highs on real yields here they are here look at the 30-year 3.22 22.

The 10 years at 2.85 on a real yield. None of this is good for precious metals. Gold down 1.96 for the week, negative year to date. Silver 3% down for the week, almost 10% down year to date. Platinum, palladium, same thing down year to date. They are also auto catalysts. And when you have a have five rate hikes on on the on on car loans because they're priced off the five-year, well, that's going to hit demand for for auto loans as well.

So, platinum and palladium down. And if you have a shift over to EV from internal combustion, you need less of that stuff as well. Copper um eating out a small gain. uh BHP's biggest copper mine in South America, Escandido, is offline until they figure out how that uh how the the deaths happened or that um there was an accident and somebody died and it is standard that everything shuts down till they till they clear the mine of safety.

Um oil had a pullback last week. We can see that. But still up 60% year to date. And on Hyperlid, it's about uh a buck 80 higher than Friday's closed because uh that one man said on behalf of everyone without any consultation with anybody, I don't like the deal. I'm going to start bombing them after the midterms. I'm the only one making the decision here. Everyone else falling long. That gas had one hell of a week. Look at that.

Up 10%. and uh food, corn up, soy up, wheat is the only one that pulled back. But look at these increases year to date. All farming requires diesel. And then uh once you farm it, you transport it, that requires diesel. So um look for the delivered price in the supermarket to have increased by more than what the crop has increased in the field. uh mortgage rates not doing well and you would not expect them to do well either.

You have crushing the housing sector reducing mortgage activity and increasing uh their funding costs because they borrow at the short rate. Um many of them are underlevered which means duration took a hit as well. So they are they are not not doing well. Look at that mortgage rate 7.03 03 over 7% crushing mortgage apps for September 18th down 1.5. Building permits for August negative 2.1 but look at this new home sales for August up 6.4%.

Uh Berkshire has reported that it has bought more LAR. It is an 11% owner of LAR. It is hard to ignore LAR at this price but I think it's going to be dead money for a while. I think it's going to be sideways money for a while. But that's how you build a position is you buy a little bit now, next month you buy a little bit more, you buy a little bit more. This is not one of those where I where you have to either get your whole position uh or it just runs on you.

I think LAR is down uh for a while. Uh home home building I think is going to be under pressure uh for a while. uh 31 days to the next FOMC and uh the waiting is heavily on another rate hike 64%. Uh up from 57% the week before reverse repos sitting closer to the zero line under a billion repos at zero reserves still hanging out same level. TGA back at 950. So for 388 which is right where effective federal funds rate is and uh the balance sheet uh continues to build less than a billion but continues to build.

Uh I would seem to think that wars is very anxious to get the results of those committees back so it can start changing the focus of what the Fed does or how the Fed does not what it does but how it does it. [sighs] Um let's uh go right to uh OAS the uh credit uh credit spreads um contracting since year to date. Uh really not much to see here except triple C up 227 points. It is at 11.12 a 36 basis point jump. 11.12.

Um the cycle high on this I think was 12 something. And I'm still tracking the cycle lows over here to see how low it will get. But I think it's time to start tracking cycle highs. Mostly for the triple C. I think you're about 120 130 basis points away. I think it was 12.54 was the cycle high on this one. So you're getting to a point uh where you're going to be hitting new highs. Now when I say it's a cycle high, it's a cycle high on the OAS.

It is uh uh sorry the 12.54 was a cycle high on the OAS. We're not there yet. But on the effective yield, which means you put this spread on top of the yield, we are at uh a high on the effective yield, a cycle high on the effective yield, not so much on the OAS. So IWM has been underperforming quite significantly approaching a correction correction level and uh it is mostly because this is uh the the uh the high yield uh sector is mostly within the small caps.

There's mostly where you're going to find these these sorts of uh spreads. Let's talk about uh the triple C effective yield. Here is a chart from Fred showing the um ICE BFA uh triple C and lower US high yield index effective yield. It's a 16.1 effective yield. Typically these are small cap companies that uh gives a good explanation of why IM has been outperforming. Um, and you can see in the last uh the October uh highs on the yield for treasuries, you had about a 12.5% OAS.

We're about 11.1% now, but you had a much lower effective yield because you'll recall the 30-year, the 20-year, the 10year, the 7-year, the 5year, the three-year last week took out the October uh the October highs on this cycle. So that OAS is on top of these higher treasury uh yields. So it's the effective yield that results in the cash outflow from these companies. There you go. This is uh Federal Reserve's Z1 financial accounts.

Uh gives you the level of debt by quarter. You can go back uh a couple of decades on this one. Uh here is non-financial business because on the next screen we're going to look at government debt. Well, what about corporate debt? Because they've been issuing a lot of debt. You can see their growth rate. Uh uh here the um this is household um here's a total non-financial debt growth 5.166. The quarter before 5.929 rather muted before that but uh it is more variable.

Um 23.9 trillion. This is uh publicly traded debt, privatelyplaced debt uh and bank loans uh 24 trillion with nominal GDP sitting around 32 trillion near 75% of GDP. I highlight Q4 of 27 for a reason just to show you how low it was then 10.4 trillion versus 23.9 trillion today. But as a percentage of GDP at that time it was sitting around 52 53% not 75%. because debt um as I'll show you on the next screen you can think of as a square where you have interest and principle uh and we are as commentators have been pointing out returning to historical levels on uh the level of interest rates that uh prevailed uh before the great financial crisis but on a debt load on a principal load that is a much larger amount.

Well, the economy is much larger you would say. you would expect debt to be larger. So we control for the economy by dividing by the size of the economy. The debt as a proportion to the size of the economy is much larger today. So you cannot say we are returning to a normal rate if the length of the uh of the base is so much bigger and I'll show you uh for government debt how bad it is but corporate debt is there as well.

Uh the household has been um rather muted though. Uh in 2007 it was at 14.2 trillion. It's only at 21.377 trillion as a percentage of GDP. It is lower. However, and we do have a troubling uh point here. It's only a point. This is the growth in debt for households and nonprofit. This is household and nonprofit debt. This is the growth in this quarter grew 5%. We look at this series 2% 3% here. Let's get something to write on here. 3% here 3% 4% 3% 3 and then a jump to 5% in uh in that quarter.

State and local governments you can see the same thing uh you know for the year 6% followed by 9%. Um the um non-financial businesses breaks down into these two categories. is you have non-financial corporate business and non-financial noncorporate business. So public and private uh total amount uh this was 6.4 trillion in uh Q4 of 2007. Now it's 15.7 trillion. This was 4 trillion. Now 8 8.2 trillion. Uh so this more than doubled this about uh just a little bit more than doubled.

So the growth really came in the non-financial corporate side. Okay, this is a rather sobering screen. Here's the tenure. This was Thursday. Um absolutely incredible. Here is your intraday uh 5.217. Uh and this was uh Friday. So Thursday had a big run and Friday had another big run. Two days in a row. It's just incredible. Um we hit uh 5.18 on the closing on Friday. The uh last observation above that on the closing daily basis was July 6th, 2007, 5.19.

Um taking that one out, you go back to uh June 17th at 5.26. You take out the 5.26, 26. You're going back to 2002 to get a reading uh a reading that high. The third year 5.49. The next highest reading was 5.58 in June of 2014. So we are now pre financial crisis levels on the uh on the yield curve. Um July 6th since this was July 6, 2007. Let's compare the debt uh um which is the base of the square because to figure out your interest expense, it is the area of the square of your interest rate multiplied by your debt.

And here we're just going to take the 10ear and just uh uh just we're not we're not actually calculating the interest expense on the tenure. I'm just putting the tenure in here because they are um identical. If we base the argument if we're just returning to historical levels, the anomaly was the 2010s, nothing is there's nothing to see here, everything is fine. That only works if the base of the square returns uh to the historical level.

You go back to 2007 uh and look at interest expense in the government accounts, it was 47 bill78 million. It represented 2.8% of GDP. The debt at that time was $9 trillion. 9.007653. I have a billion here. That's trillion. Sorry. 9 billion. The interest expense for the year was 2.8% of GDP. The weighted average interest rate on this debt was 4.53. How do you get that? Well, you take the interest expense, divide by the principal.

And now that is just a sort of an endofear uh but if you um um calculate it based on monthly you can get very close to what a weighted average interest rate is because it is broken down by month 4.53%. Let's go to today because yeah we're just returning back to the same level. Our principal today is 40.068 trillion. Interest expense uh 1.385. This is taking the first 11 months of actual interest to the end of August and extrapolating that out and figuring well September will be will be in line with that.

So you divide the first 11 months uh um by 11 and multiply by 12 and you get to 1.385 which is 4.26% of GDP. Look at the difference. Interest expense when the 10ear was back at almost 5.2 was 2.8%. 8% of GDP and we're just returning back to that. But now our burden is 4.26% of GDP. If it were 2.8% of GDP, you would say, well, we have a bigger economy. You have bigger debt. But as a proportion, interest expense is no different than it was.

It's double. Well, almost double. 4.26% of GDP. Weighted average interest rate here is only 3.49. This was 4.53. Imagine if you went to 4.53. We don't have to imagine. Let's do it. At 4.53, your interest expense would be $1.8 trillion. As a percentage of GDP, it would be 5.59% of GDP. There is no coming back from that. That is a runaway train. You're not going to grow faster than that unless you allow inflation. You must allow inflation.

You have to inflate that debt away. If you have a Fed that's fighting inflation and raising rates, you're not going to be able to get that done. Um, this is the debt growth. Um, 5.74% uh uh per year. Uh, for the last four years, debt has been growing at about 5.4 uh% uh for that period of time. You can actually calculate it over this period of time uh as well. This is a 19-year period of time. Uh 40 / 9 uh to the power of 1 over 19.

I have some forecasts here uh just roughly in a spreadsheet projecting out the uh level uh of debt and the uh rate of where uh interest rates would be and figuring out uh that there's about right now about another trillion dollars of deficit sitting outside of interest expense and probably no political will to change that at all. Here is a calendar of debt trajectory. By January, you'll hit 41 trillion. Midway through the year, you'll get to 42.

By the end of next year, you'll be at 43 trillion. Uh getting into the end of 28, you'll hit 45. January, we'll hit 46. By August of 2030, you will hit $50 trillion of debt. This is a runaway train at this point. Um I [clears throat] don't know that you can ignore this. I don't know that the Fed can ignore this. I don't know that it can continually raise rates. Um like again, let's go back to that capital curve. Multiple rate increases on car loans and bank loans.

And S&P Global says this is the fastest surge in pricing pressure since 2022. The fastest increase in economic activity in manufacturing and services, new orders, employment. Oh my god, this thing is on fire. diesel prices where they are, do you see inflation coming down without a global recession, without raising rates dramatically to crush inflation, but the more you raise rates, the worse you make this the worse you make it.

And if you have a recession, you have much lower GDP tax revenue plunges. Then you have capital losses. So right now, you're getting tax income from capital gains. tax losses means even more loss of revenue. Now you're going to have to spend money to get yourself out of the deficit or out of the uh uh recession. This is going to be even faster. You can take this 2030 and move it down to 2029 if you're going to spend another one two or three trillion on um emergency room care for the for the economy.

You can't break the economy. You need to break the economy to break inflation. But it doesn't appear that you can break inflation because it's not tied to the overnight rate. It's tied to the capital market curve. And the economy is saying, "Why does it matter? Doesn't matter." At some point, you have to turn your attention to the sheer amount of interest expense in the debt and say this is the bigger threat. That's called fiscal dominance. where monetary policy can't do what it wants to do because of the dominance of the debt, just the sheer levels of the debt.

The Treasury has tried to do its thing, but my god, in all his arrogance, he thought 8 billion would be able to solve this problem. Oh, I'll throw 8 billion and they'll recognize the sheer leadership of Donald J. Trump and blah blah blah blah blah. There are no easy solutions to this problem. And there is no political will to solve this problem which means it's a problem and it probably for the economy right now is the only problem.

As these debt levels increase uh that burden is going to start at the margin is going to start crushing businesses, crushing households should be crushing government but it's not. But look at look at these yields. I mean you don't get these kind of movements uh on just on just ordinary oh we need to adjust. Uh this is something else going on forward four quarter operating earnings estimate coming in at 38087. I've said this before.

If we're looking for our bubble, it's in here. And this is an accounting bubble. Uh because of the mismatch between capital spending and the revenue recognized from capital spending versus depreciation for reporting purposes, which happens over a period of time. Closing SPX7743 puts us at 20.33. Doesn't sound uh expensive. Was 20.04 last week. A slight increase in volatility. Total reported 497 86.1 beat on estimates versus a long-term average of 67.5.

That's that's for earnings. Earnings came in 8.5% above expectations. Revenue 3.5%. So you think, well, if we're only at 20 times this forward earnings, and these forward earnings have a tendency to beat 8.5%, it's really cheap at this point. Alltime high still holds 77812 from August 13th which is uh this little guy right back here. We got close got close earlier in the week. IWM heading towards correction territory 7.54 uh the August 14th high 30498 and Triple Q set a new all-time high September 22nd.

I had been thinking based on all of the earnings calls that I was listening to that the NASDAQ 100 is probably going to set new all-time highs between the time that I uh listen to them and the end of the year. And well, so far I'm right. Even if it plunges from here, I was right. I was right. Where's my metal? Where's my statue? No one's ever seen anything like this before. I'm smart. I have good words. uh only down 0.51 from uh 748.

Now let's do it again. I do expect that we will see new highs on triple Q before the end of the year. The uh commentary coming out of the companies. Um I just I c I cannot see this rolling over unless you have an exogenous credit event somewhere. Unless the economy craters on its own. I would not look for the economy to crater because the AI trade falls apart. The AI trade will fall apart if the economy craters. It's going to be the other way around.

So, I would not look for this thing to lead us in into any global recession. However, once being in a recession, uh if this thing breaks, it would be even worse because it is it is a large part of GDP growth right now. Seven companies reporting this week. The big show. The big show, folks. Uh, Wednesday night, Micron. I wish it would stop going up, though. I'm long, Micron. Thank you for going up. But, you know, if it goes up too high and earnings come out and they're great and the market says, "Yeah, but it's all priced in.

We're going to go down." And then earnings tend or pricing tends to drift in that direction for a while, which means we'd we'd be three, four weeks of of downward movement before we start going back up again. I would love to see Micron retreat to the low thousands, 1020, 1010, maybe 990 before earnings because then it would pop on earnings and companies that do that tend to drift in that direction for a while. It matters on where the price was before earnings.

Is it all priced in or is not enough priced in just yet? So, let's just calm down on the rally here for Micron. Thursday, Nike keeps hitting 52- week lows. I think this is dead money for a couple of quarters. I don't I don't see them having a Christmas season. And then uh if you're watching Accensor there Thursday night as well, let's look at some sectors. Uh, and I know this looks messy, but uh, XLU makes up 2% of the S&P 500 is down 17% from its high.

It is in correction territory, heading for bare market territory. Um, S&P is only down86%. The high was 4780. This was on uh, uh, February uh, 27th of this year. It's down 17% since that level. February 27th is a key date. That was the day just before Netanyahu convinced the useful idiot to bomb Iran. Uh you see that with XLP as well. XLP uh hit its high of the year on February 27th and is down 8.81% from that high heading towards a correction territory.

That's 4.5% of the uh S&P 500. Real estate 1.8% almost at correction territory down 9.7% hit its high on July 28th. Financials uh 12.3% down 6.2 past the halfway point heading towards a correction. Uh September 3rd it hit its high of uh 5845 and that's just in since September 3rd it is down 6.2%. We're September well we ended September 25th last uh on Friday September 3rd just in a couple of weeks XLI the industrials uh August 5th hit its high and it's 8.3% of the index down 8.7% 1.3% away from correction territory XLY the discretionary 9.1% in correction territory it hit its high on January 9th discretionary rolls over before the rest of the economy does 2 to 3/4 ahead.

This is three quarters now 11.08% materials 1.8% uh hit its high on August 21st down 7.9%. 2.1% away from correction. So you have two of the sectors in correction territory uh with the rest of the uh um sectors very close to correction. XLRE is 30 basis points away from a correction. Staples are 119 basis points away from a correction. Industrial is 130 basis points away from correction. XLB 210 basis points. You get the idea that that if you look at the sectors uh utilities, staples, real estate, financials, industrials, uh discretionary, materials, uh near or in correction territory, S&P 500.86 away from all-time highs.

Obviously, energy has a lot to do with that. uh information technology has a lot to do with that. Communications to a lesser degree and healthcare that is what is carrying the market right now and it is easily the AI trade and the uh stupid Trump trade uh energy. Um uh so if we think that AI will continue and that this president will continue to be stupid, those sectors will continue to perform. But at the cost of all the other sectors, the sum of all of these sectors, that's 40% of the S&P 500. 40% it alone equals that.

One sector alone equals all of this. You can see how much is indexed to AI and saying if AI cracks it all goes away I think is the wrong thing. AI is not going to crack. It's the other way around. If this all goes away AI will crack. But the economy must break and AI will break. I don't see AI breaking the economy. Not with all the conference calls I've listened to. uh not with the the uh um capex and the commitments that have already been made, not with everything that is still still to this day, even even uh um um press releases and and and statements from companies even to this day are are are full speed ahead uh on all of this.

Don't look to AI to be the weak link. The weak link is going to be the long end of that curve. When it starts breaking companies and it starts breaking countries, that cascading effect will take AI down. But AI won't won't lead. It will it will be dragged into everything. Right now, AI is that is that uh uh uh life raft that everyone's clinging to that's keeping us floating. The sharks uh underneath the life raft, that's the long end of the curve.

And we will end it here. Uh this is all all this is really the only thing to talk about this week is is the long end of that curve. Watch that tenure because that that is a wrecking ball. The higher that goes, the more it's going to break stuff. And for those who keep saying we're just returning to to normal levels, great. If debt were at normal levels, if debt is a percentage of assets, percentage of GDP were at normal levels, great.

But they're not. It's the square, the area of the square you have to look at, not the length of one side. [music]