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How worried should we be about the complete market crash and the huge problems with bond yields continuing to rise ? And why do they continue to grow ? And what does the state of the economy indicate? And what are those " canaries in the coal mine" again? Because up until now, we have honestly been too bullish on the NASDAQ 100.
We were so bullish on the NASDAQ 100 that we talked a lot in our alpha reports and morning streams for course participants about the NASDAQ 100 heading straight for new all-time highs, that's how bullish we were . We were referring specifically to the call options on 712 from October 16. It was probably about a month ago, somewhere around...no, it was around September 14th, somewhere around there.
Right in the midst of tanker strikes. This option literally skyrocketed from around $12 all the way to $44. This is almost a fourfold increase on this option. Why? What is happening? What are the main pros and cons of this economy? And what's happening to those credit spreads and bonds? We're going to talk about this .
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With that in mind, let's move on to what's happening with profitability and the economy. So, right now, the economy, as we know, is very " boiling". We just received the final S&P Global data for September. And we also received the final PMI data from ISM. And we have two main " indicators" that we talked about on the channel .
Many people get a little confused when I talk about these indicators, because they wonder: are these really these two? And the answer is yes. So, we are definitely seeing a crazy boom in spending on artificial intelligence right now. There is no doubt about that. In fact, the technology sector has accelerated its growth to its highest rate in over 5 years.
We're actually comparing this to 2021, which is pretty crazy, because comparing to 2021 is like comparing to the heyday. And we say that now the pace is the highest since then, and everything that was between then and now looks insignificant against the background of the growth that the economy is demonstrating.
This is largely due to spending on artificial intelligence and its increasingly widespread use. People and companies that don't use AI are truly left behind. This leaves us with two main indicators. The first indicator "in the mine" that does not change its color or style is the labor market. The ability of the labor market to absorb layoffs and some kind of restructuring is what is sustaining this whole boom.
If the job market collapses, we're all finished. The economy will plummet into the abyss. That's why it's so important to pay attention to what's happening in the labor market. Fortunately, if we look at the three- and six-month trend of the ADP private employment report , which is a kind of check on the government data, and the three- and six-month trend in the government data, we see that the economy is picking up somewhat in terms of employment.
And when we look at Nick T.'s posts in X, we see three- and six-month levels of job growth here, as well as private sector employment growth. We seem to have hit rock bottom in 2025 during that era of migration. There was a lot of concern that the labor situation here would become quite negative. But we really pushed back on that.
So, until we hit a cliff and something starts to change course, the labor market indicator is feeling good for now. Just great. This allows us to remain optimistic about the economy. And we see that in the ISM reports that came out this morning. Filling vacancies left vacant due to promotions or retirements is still ongoing.
Employment returned to growth in September, and we are seeing restructuring due to efficiency gains through AI. So the fact that restructuring is taking place still leads to employment growth . So far, so good. And the second indicator is what I call AI trading underwriters. Now it's OpenAI and Anthropic.
They may change in the future. You can replace whoever guarantees the purchase of AMD and Nvidia chips with Anduril, CoreWeave, SpaceX, or, you know, anyone else. It doesn't matter much because of Microsoft, does it? It's not so important who the basic buyer is. It matters who the end user is. And the end user or buyer is now OpenAI and Anthropic on behalf of you and the business.
So, the end user of these chips is now the main “ danger indicator.” The good news is that in two or three years they can be easily replaced. You know, a new company might appear . I don't know. It could be Reinvest, which will take over from OpenAI and Anthropic. It doesn't matter. The point is , it could be another company.
And the advantage is that this "indicator" can evolve. The labor market—no. Therefore, monitoring them both is the most important factor in the future. But I mean, Microsoft is also a great option. We have a target price for Microsoft, which we have been talking about for a long time on our streams for course participants, -562.
I encourage you to join us. . And Microsoft is simply showing incredible results. And I think they are quietly breaking forward. People are not paying attention to this breakthrough that Microsoft is demonstrating . But consider these notes, and then we should look at the more troubling, or dare we say, more exciting, points about accelerating profitability.
But if we look at the S&P index, we see a sharp rise in the technology sector. All seven US sectors showed expansion in business activity in September. Most of them showed stronger growth than in August. The technology sector was by far the best performer, reaching 62.7 in September compared to 56.6 in August.
This is the fastest pace of expansion in business activity since June 2021. September data also indicated the steepest increase in resource prices. And that's a shame. This is obviously putting pressure on what we are seeing with Treasury yields . Which, to be honest , are now around 5.32. That's about five basis points above my ideal, which is the point where you should stop growing because eventually you're going to break something.
And that's why Academy Securities is nervous. It's not just that yields are coming back, or the spread between two-year and ten-year bonds is coming back to 50, which is a shock zone. That doesn't necessarily guarantee you'll get a shock, does it? We were above 50 from the day of liberation and actually until the end of, well, the initial ceasefire.
You were above the shock zone. So , it doesn't necessarily guarantee that you will have a shock, but it does indicate that the risks are higher. And this is where Academy Securities gives us a little bit of additional information, where they actually argue, near the end of their article, that the Iran deal and more news about AI could help.
Well, we already know that Kevin is optimistic about the Iran deal. This is positive for the market. The market, you know, the market will go up, and people will look back at this market and say, " Wait, how did it just go from 700 to 800 Qs?" It will happen in an instant. The same with Nvidia. You know, I was optimistic about this breakout of level 227 by Nvidia.
And now it's at 237. We're starting that same breakthrough that we were talking about, little one. At the same time, even Marvell is breaking through our 266 line, which we have been following quite closely . So, in doing so, they're saying, " Call me nervous, not scared." And why are they nervous? Because they're nervous about this widening of spreads that we're seeing in high-yield loans.
We also talked about this last week. Many are talking about widening these spreads. And if you take them out of context, they're not so terrible. When we look at high-yield spreads more broadly, yes, they have widened , which is a risk to the economy. Are they higher compared to what we saw in 2022 , for example?
No. But one of the reasons why they're widening, or why things are even worse now, if you will, is because the nominal yield on the 10- year Treasury note is so high, and the market is just blatantly ignoring it. This is what makes this person nervous, and I think it's entirely reasonable. And they give us a little insight into where they think retail investors are buying and where big players are not paying attention.
So I'll show you that in a moment. I think it's quite interesting. But a lot of people ask me, "Hey, when is this nonsense happening?" We touched on this as well this morning will make a quick note on this. People often say, "Kevin, do you know how you allocate assets in a situation like this?" So, how do you hedge?
If you have a certain amount of money that you invest in stocks, how do you protect yourself from panic? My thesis is that it is similar to the operation of an electric circuit. You take the money you earn, and you have a small resistor that limits the amount you invest in the stock market. I believe that asset allocation is your hedge.
In other words, you can be very optimistic about your stock portfolio, but for every $100 of capital, you only invest, say, 30% in it. And you distribute the rest : some to private equity, some to real estate, some to pay off debts, some to cash, right? This, in fact, is a method of hedging. All of this becomes a hedge against risks in the stock market.
This doesn't mean that stocks are bad. You can be optimistic about stocks. After all, we are. That's why we were buying dips and sending trade alerts on QQQ at 700, saying, "No guys, this is nonsense." This is the peak of fear. But people still write in the comments: "Kevin, I thought you said the peak of fear was 3 weeks ago." I reply: " Look at QQQ 3 weeks ago." From then on, they went straight up.
But, by the way, look at this. These are 10- year bonds. And what they're talking about here is an acceleration that the stock market is ignoring , which creates risks. Right? The slope of the line was already aggressive here. Also aggressive here, but here he became simply crazy. This increase in the slope creates a lot of potential risks for the economy, which is why we are in this shock zone.
Now an interesting observation: they say there are no " bears" on Treasury bonds. No matter who you talk to, they are not pessimistic about bonds. In fact, it is said that retail investors are likely to outpace professionals again, pouring funds into TLT at a crazy pace. TLT received the largest capital inflows and is now at its highest level since late 2024.
Now TLT becomes very interesting because it loses my lower bound. You can see that last time it was in October and November 2023, and we usually bounce, right? From this line 78-77. We are below that level now. This author argues that private investors are buying up bond dips too early , but also says that there are no " bears" in the bond market.
That is, people are either neutral or optimistic about bond yields. So why are bonds losing value? Why is profitability increasing? Well, he says it's because of the following. The price of oil negatively affects bonds. Budget deficits negatively affect bonds. The issuance of long-term Treasury obligations negatively affects bonds.
Global supply, i.e. the issuance of bonds by each country, is also a negative factor. Corporate offer. That is, how much money SpaceX or Google needs to raise. This is also a negative factor. Google just issued preferred stock. You may not have heard of this , but it's worth knowing. Google just issued preferred stock.
They raised funds, it seems, under 6.5% preferred shares , which give you 6.5% until the summer of 2029. That is, they are essentially paying you 6.5% per annum for 3 years. And then they're either...I'm not sure if they're necessarily convertible. I need to check. But , essentially, they convert into Google shares for about $440 or something.
Personally, I think this is a bad deal, you should check the details yourself. I personally think this is a bad deal because the conversion comes at a premium. And Google shares are now worth about $340. You know, you're already pricing in significant growth potential. I think this deal would be much fairer if they offered 6.5% for 3 years, but with the option to enter the stock at $340 or $360.
Somewhere in this range. Not such a huge prize. Well, it doesn't matter. This is just an example of raising capital. And the fact that countries like Saudi Arabia, or, to add to what I said , Japan and Europe, are selling U.S. Treasuries. Many are getting rid of treasury obligations because they need to raise funds themselves.
Not because they are pessimistic about the 5.3% yield on 10- year bonds. They just have different needs. They need to fund the development of AI. Whatever. So, in other words, they are saying that now is the time to be perhaps cautious/ worried, but not to give in to fear. And I think that really reflects the sentiment in the market, because people are very nervous about the economy, and it continues to show impressive results.
And if we look at the ratio of the price of copper to gold, it's essentially, well, let's take the growth in the price of copper, which is showing very good results. It is an industrial metal, and we compare it to gold. And, well, usually, well, first of all , we can clearly see here that the bottom was when Varsha was elected, which is very interesting, because even if copper remains stable and gold prices are falling, gold is a fear metal.
So, as fear decreases in this case , this graph increases. So you could say, oh, this chart is going higher, which, you know, if gold is going down and copper is also going up, that spread is widening, so the chart is going up even more. In general, they say that when the graph is rising, the economy looks more optimistic.
But this came after a chart drop that was actually caused by gold's rise. So, because copper has performed very well in the last few years. So let's graph it like this, and it'll make it a little clearer. OK. So, this downtrend here was mostly driven by the rise in gold. Okay, so it was the rise of gold.
And now, if we look at the trend on the right, gold has stopped here because of Warsaw. Remember, on January 30th, I predicted that the peak for gold had been reached because Kevin Warsh is not the Fed chairman who prints money. This is bad for a future recession, and it is also a bearish signal for gold.
I think gold is in for an 8-year bear market as Kevin Warsh heads the Fed. So this is me applying my Fed research to gold. Now, this segment that we are currently observing is actually a kind of upward trend. In my opinion, it depends little on gold, or at least not that much. I think it's due to copper and the state of the economy.
So, essentially, an economic boom . You can explain this graph any way you want, but I think it helps to understand why the graph moves the way it does. And we see that now we are actually reversing a 5-year downtrend in copper versus gold. And perhaps, if the economy continues to grow at the same rapid pace, this line could be much higher in the future.
Even if gold remains stable, copper could continue to move. Well, okay. And if copper stops, gold could fall. In any case, this spread is often an excellent barometer of the state of the economy. My view is that the spread continues to widen, despite concerns about the Treasury market . So, going back to the state of the economy for a moment : the S&P data we received this morning indicates that industrials are performing better, and consumer services are supporting strong business activity.
Even the financial sector, which has slowed down and lost growth momentum, is still developing faster than in the first half of the year. In other words, even where things aren't going their best, they're still doing very well . Healthcare was the weakest sector, which they actually admitted. So, all of this together points to an economy that is rapidly growing thanks to spending on AI.
And we have these two real risks. Can we add a credit crunch here? It is possible. I mean, as I always say, you want to hedge by allocating funds to different assets outside of the stock market, but I think trying to hedge against a black swan is a very difficult thing to do, and you're likely to get the timing wrong.
That's why I prefer the " two canaries" to identify problems in the economy. As long as these two canaries perform great, and they both do, we should be bullish on the stock. And that's exactly what we see. This is why I believe we continue to move towards all-time highs for the QQQ index. And while it may be an unpopular opinion, I believe that the rise of Meta, Microsoft, Nasdaq 100, Nvidia—this is just the beginning.
Well, I shouldn't say " the beginning," but there's still a lot of euphoria ahead. Which is very exciting to me. And if you want to know exactly what deals we're making and how we're positioning ourselves, our research platform coming later this year—the Reinvest terminal—is something to get involved with before we cancel lifetime access.
You can apply for it by the end of the year. Of course, prices will increase by the end of the year , so you will get the best price today, compared to later in the year. But anyway, check it out at meetkevin.com. I think it's a really great product, and what we're building is really, really exciting. So I will be glad to see you on our tea.
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