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What the hell is going on in the stock market today, because it looks a little strange. Well, to be honest , the market seems to be pricing in new growth concerns, as well as the Fed's Beige Book report that just came out. But the Fed's Beige Book data and what happened in the Treasury bond market don't quite match up until you look deeper: what's really going on here and why are people getting nervous?
So let's try to sort it out and understand what's going on. Let's start with the "Beige Book". Okay, obviously we got a CPI report this morning that wasn't exactly ideal. Goolsby called it disappointing. He says that prices and costs are actually the worst part of this economy right now. Barkin says we'll get more information tomorrow from the PPI index, which comes out at 5:30 a.m., as well as retail sales data, which comes out at the same time.
We expect 0.6 in the overall PPI tomorrow, 0.3 in the core, as well as 0.3 in the control group of retail sales. The problem you see now is that most of the economy is saying, "Look, we're willing to continue paying these prices." You can see it here. More than half of the counties indicated that consumer spending was driven primarily by higher-income households.
Tourism continued to grow, and while there were reports that lower-income consumers were more cautious in their spending, for the most part, firms had a positive outlook and people continued to spend. This is a bit problematic because we know that the Federal Reserve cannot influence or do anything about oil prices or the cost of artificial intelligence.
They simply can't do anything about it. So a lot of people tell me, and I see it all the time in X, but that's why I think you come here to get those deeper nuances that, you know , headline readers don't pay attention to. So what are these deeper nuances? Well, here's how it works. Well, when we have two powerful inflationary impulses, like now—last week it was tariffs, last year it was tariffs, then in January tariffs again after the IEPA tariffs were declared unconstitutional, and then new ones were introduced again— all this comes after that.
The main sources of inflation now are frastructure, because AI itself, in the long term, unfortunately for many workers, is likely to be deflationary. So, we have the development of AI and oil prices due to events in the Middle East. The Federal Reserve cannot influence this at all; it is powerless here.
We can just put an end to this , because by January- February the effect will wear off, and we will worry less because it has already happened. At best, these tariffs will disappear in the future—I suspect they will all be abolished in 2029 under the new regime, and frankly , their abolition could either cause a boom or pull us out of a recession if we find ourselves in one—knock on wood, no.
The Fed can't control these things, but it can influence what happens next. If people see the prices of AI and oil rising, they have a choice: either keep spending or stop. If they continue—we'll get rate hikes, the Fed will say, "We'll show you who's in charge." And if they stop spending, there will be no increases or even a reduction in rates.
So, that's what they're trying to influence. And all of this can be summed up by inflationary expectations. Tomorrow's data is quite useful, although PPI is not as much, but it will give us what we need to calculate PCE, which is a combination of CPI and PPI. This is the producer price index . People pay less attention to it, but it's the part of PCE that's important to the Fed.
So tomorrow it will give us a little more clarity. But retail sales data would be more useful. Retail sales will show us: are people continuing to spend money? And historically, these rates have been high because people think, "Oh, prices have gone up. This is terrible. Let's keep buying things." And the Fed looks at that and says, "Okay, if that's your answer, then we're just going to have to raise rates." Of course, it makes people nervous, and they're like, "Oh, the insurance costs." By the way, this is why you should look for insurance.
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They are a paid sponsor of the channel, obviously. So what do we have here? We need to move on to prices. This is where the fun begins. So, the pricing section is right here. And here they say that second- order effects are something to look out for , because higher oil prices are trickling into the county reports.
And companies are passing on these rising costs to supply chains. This is obviously problematic because while some people may resist price increases, others pay anyway. And since other people are still paying, we may have to act in response . This is not good. This is not ideal. This is not what the market wants to hear.
Now, if you look here, it gives some idea of what we're seeing, I think, in the bond market. So, a war starts or continues, oil prices rise, leading to inflation, and then expectations for a Fed rate hike increase. Then bond yields rise, right? That is, bond yields increase along with this. Then there are concerns about higher yields as to whether Neo Clouds can actually afford these higher rates.
Yesterday we looked at CoreWeave's balance sheet and made a whole video about how the debt does n't look good right now . And there is a lot of concern about companies like CoreWeave, to the point that Elon Musk even tweeted: “ This video...This sponsor is brought to you by meetkevin.com/silo. Wait.
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It's simple. meetkevin.com/silo. Silo to start before the end of this, like Coreweave, where even Elon Musk writes in X "Ouch" in response to Coreweave's debt, as the actual value of the bonds is plummeting, currently trading below 80 cents on the dollar. So, the CEO of the company, as Bloomberg reports, which, by the way, Grock is now summarizing for us, quotes: "When you build a new type of technology company, there will be periods when the markets don't understand you and act irrationally." You know, this is where the same meme about Elizabeth Holmes comes into play.
Yes, when you change the world and I can't do an accent like Elizabeth Holmes. But anyway, the reason I say that is because then, you know, the next line here— he expressed confidence in the business model, the customers, and the quality of execution. It says there is relentless discipline in the financial mechanism we have built.
OK. The problem is that the financial mechanism they have built is terrible . They boast that they have a backlog of orders that can cover all expenses, but their balance sheet is a disaster. They are $8 billion short. They don't have the money needed to pay the bills. No wonder Elon Musk writes "oh" in X.
That's not good. Over 50% of CPI categories are growing at over 3% year-over-year, which only accelerates profitability growth, making it more expensive for AI data centers to build out their capacity, especially smaller Neo Clouds that don't have huge cash flows outside of hardware. And that makes people question the whole hardware cycle, which is why in our Alpha report this morning we said that there will be problems with the hardware until we make a deal with Iran.
That's all. After we went on air this morning on the CPI, we said, " Look, you have to be pessimistic about hardware, except for maybe Apple, because they're not spending on data centers like the others until we get a deal with Iran." And this sell-off is really putting pressure on Donald Trump to act faster.
But this is obvious because if Neo Cloud's profitability is higher, then there is a concern that they will go bankrupt and someone will have to absorb their equipment. And if someone can take over the equipment of a bankrupt company, you may have to buy less, and so the whole cycle slows down. Unfortunately, this coincides with the situation regarding CTMX or CMTX in China .
This is actually a whole topic for a separate video we have to make about Chinese memory, but a short spoiler. I made a video back in May, June, and July about how I'm a bit pessimistic about the memory cycle and that I see 2026 as the year when memory has peaked. And part of that is because we're not just going to start getting supplies in America from companies like Micron, whether in Idaho or New York or somewhere else, even though most of Micron's supplies now come from Taiwan.
Taiwanese semiconductors, mostly. As a result, you will see increased international competition for a standardized product like DRAM. Okay, that's not very good, and now you have a Chinese state-owned company that somehow manages to produce DRAM and is expected to capture up to 17% of the global market thanks to Chinese production, which Elon Musk rightly tweeted: "Hey, you know, usually when they succeed at something , they do it very cost-effectively." "They do it without the most advanced EUV lithography machines." They do this using multiprocessing on older DUV machines.
So, to put it simply, the Chinese are very creative in their approach to competing in memory scarcity. So expect not only that American shipments from Micron or other big players will start arriving, but they will be more expensive than Chinese ones. So, ironically, you will get more supply, but it will be a more expensive proposition in the US.
While the Chinese will bring their supplies to the market, which will also potentially put downward pressure on overall prices. But at the same time, they will probably be able to do it with better margins than we can. So, we're kind of getting a double whammy on memory market players like Micron, right?
But the point is that all of these fears are happening simultaneously right now. So, what is my opinion on this ? My point is that until there is a deal with Iran, and if there is not, then, of course, things are still worse. So I'm not here to lecture you on whether I think we'll make a deal with Iran.
The fact is that until there is a deal with Iran, the hardware will likely be in a difficult position. Not only because these higher yield rates are a concern for companies like Coreweave, but also because of the new competition from China that people simply didn't pay attention to regarding standardized products.
Now that you get over the yield fears, the neo- clouds will be fine, or they will go bankrupt and be absorbed. Once you get through this and overcome the fear of memory, who wins? Apple, AMD, Nvidia . Actually, anyone who packages their logic next to memory, and who benefits from cheaper memory. Because if I'm going to rent you a house, and, you know, the heating and air conditioning system costs me 50% of the value of the house that I'm giving you, I'm going to be at a loss by renting that house.
If the cost of heating and air conditioning drops to 1% of the cost of the house—great. You know, now I can rent out your property profitably. It's the same thing as memory, except in this analogy, memory is heating and air conditioning, right? And so Nvidia benefits when the core component of their, well, working system or functional GPU system or CPU system, their new stuff, gets cheaper.
The same will be true for Apple. They will just put it in their margin. Now, you know, we're looking at a lot of this thesis and, so to speak, what our position is on investing in the kind of volatility that we expect at least until the 27th , when we expect a deal with Iran. But anyway, we talked about it a lot is morning.
You can view it. Remember, you can always go to reinvest1.com. You will have access to our superintelligence in a single terminal after this winter. We are very excited about this. It comes out in the fourth quarter. Then the terminal starts. You will get everything in one membership: Alpha membership, trading alerts with portfolio, , new modules, courses, whatever.
There are a lot of incredible things out there, so head over to Reinvest1.com. And if you have any questions, you can always write to us at [email protected] or [email protected]. It doesn't matter, the letter will end up in the same place. Okay, so let's keep looking here. Inflation fears are clearly in the bond market.
This is exactly what we need to start with now. So what will happen to the bond market? Well, the bond market is now seeing a flattening of the yield curve. And the flattening of the yield curve, I mean, we're down what, 10% today? Look at this. 11%, we fell by 38 basis points. We were just above shock territory.
So, why is this happening? Well, first of all , the graph doesn't load, but the point is that it crashes. Why is he falling? Well, it's falling because 10-year bonds are falling. So, this morning in the public livestream and video on inflation, I suggested that the 10-year could...well, they could temporarily jump higher, I think of the 5.27 as a starting point, could temporarily jump higher than 5.27.
I think they will come back quickly . I still think 5.27 is the ceiling. And now we've lost all that crazy growth we had this morning. Everything disappeared. Yields are back to where they were, and that's great. You're actually even lower than you were yesterday after the CPI report, that's crazy, right?
Well, not exactly. This is a sign that people are getting nervous or starting to worry more about a recession or slowing growth. Why? Because inflation expectations will actually be reflected here, in 2-year bonds. The Fed's responsibility to raise rates in response to inflation will be reflected in 2- year bonds, which are currently at 4.81.
And 10-year Treasury bonds are falling, which is your indicator of fears about growth and long-term inflation. So if people are worried about a recession, these 10- year bonds may start to be actively bought. You start getting more bids around the 5.27 level. And so those concerns about the NEO cloud are now turning into buying opportunities in the Treasury bond market.
This actually creates a support level for TLT. So, the more people get nervous about iron, the more TLT confirms its bottom. Look at this. We just turned the 7877 line, which is an incredible line that we, as you can see on the weekly chart, keep bouncing off of. So when you put all of this together, what does it mean?
This means that volatility in iron ore should be expected until a deal is reached with Iran. Number one. Essentially, this is the number one main conclusion. Volatility before the Iran deal. In other words, you will have buying opportunities on dips before the Iran deal. And I'm not even happy about this drawdown.
I need you to get me back to the 712 or 700 level on the Nasdaq 100, and then I'll be happy to buy on the dip. Because that's where I last experienced the peak of fear. And I don't think we'll go back there, but if we do , I'll buy on the drawdown. Of course? This is the number one main conclusion. Number two, I'm pessimistic about memory and the memory cycle.
I'm also pessimistic about, sorry, SanDisk. So, I am bearish on both of these commodities. I'm actually optimistic about the hardware market recovering once we get past the Iran situation and the memory situation. Of course? Both of these things. In the long run, you have to be very careful not to invest too much money in one asset, because you will start to panic, get a margin call, get confused, and make a mistake in your investment path .
Don't be overly dependent on one stock or one sector. Diversify. We literally, what? On Monday morning, we bought a house for $890,000 through my company Reinvest, because that's what we do. If we ever raise funds again, we expect that over 90 percent of that amount will go into real estate. And I'm not saying this to get you to check us out and invest in us.
This is not an advertising offer. This is not a call for anyone to invest. There are no offers right now . The idea is that I believe that when you have a stake in the stock market, you should also have a stake in cash. You should also have low debt levels under these conditions. You must also have an interest in the property.
I don't know your situation, so I can't advise you personally what to do, but this is my belief. I think if I had a mortgage or a car loan or something else, would I want to buy in a down market or pay off the debt? I would probably pay off my debts. I would like to have minimal debt. And the options strategies that we use at Reinvest One Group, which you can join at reinvestone.com, mostly consist of selling put options when we find higher volatility.
I don't have any open put options sold right now, I've already received the premium on the ones we closed. We will be selling put options again soon, there may be an opportunity in the coming days, so we will send out a notification. These are the main conclusions. Now, what about CoreWeave? Can a company go bankrupt?
Of course. Yes. Their balance is terrible. Am I worried about hyperscalers? No. Hyperscalers will even benefit from these smaller players being absorbed. Remember, Microsoft is a customer that provides 62% of CoreWeave's revenue. And it would be very profitable for Microsoft to buy back all those servers at a discount or let someone else, like Amazon , absorb them.
They get equipment that someone else built at a discount . In addition, managing a data center is not that easy. I mean, a smaller company has to not only manage the data center, but also the software to manage this equipment. I know it sounds strange, but the equipment will not start itself. You actually need experts and people to manage the equipment, restart it, reconnect ethernet, etc.
Of course, I'm oversimplifying. This is probably offensive to the people who work with the code to manage these data centers. It's hard work, and these people deserve good compensation, because there are many nuances that I don't even know everything about. I just know it's hard. This is much more complicated than it seems.
But, finally, here we are, moving on to the part of the Beige Book dedicated to the labor market. So, the Beige Book states that there is still a shortage of specialized, technical, and skilled workers. Okay, so what does this mean for me? To me, that means if you're an AI coder or a really good researcher, honestly , if you're...
that sounds insulting, but it's not. That was supposed to be a compliment. If you're, well, "autistically" obsessed with memory research or semiconductors or stocks, and all you want to do is— it sounds crazy to some people , but some people love it. I'm actually one of those who likes this approach.
If you just like to sit in a room, read, and study stocks, consider joining us, okay? Our Reinvest terminal will have an army of researchers who will make this terminal the best in existence. So, if you want to be a part of this, you'll be eligible for company stock in a year or two, which is pretty cool .
Send us an email at [email protected]. Add a short video presenting why you... "This is why I'm autistic in this business." Yeah, I don't even know how else to say it. Eventually, people will take it out of context. But, anyway, specialized professions like this type of human research, where a person uses artificial intelligence, you know?
I don't need a copy and paste of research results from AI. I can do it myself. People are needed. Heating and ventilation, electrical engineers, specialists in low-current systems. In all of these areas, workers now have a tremendous advantage in setting the price for their labor. But this does not apply to all sectors.
In fact, if you look here, you can see that five counties reported that some firms either reduced staff due to turnover, postponed hiring, or expected fewer new jobs after AI-driven productivity gains. You know who I think will be the biggest beneficiary of investments in artificial intelligence? Netflix.
Netflix. Yes. This is just madness. So Netflix just laid off a thousand workers, and I think that's exactly the kind of example of what's going to happen eventually with AI-induced deflation , where AI becomes so efficient that workers lose leverage over wages, which we also saw in today's CPI report, a -0.7% drop, which is not good.
And as a result, companies will earn more , and people will earn even less, unless, of course, you have one of these specialized skills. This is a pretty serious problem for the Federal Reserve. And I actually think that, oddly enough, that's why expectations for a Fed rate hike have strangely fallen.
So, this morning we had a 50/50 chance of a rate hike in October. We now have a 65% chance that the rate will remain unchanged. So, there is only a 35% chance that we will get a raise in October. And in December, there is a 7.8% probability that the rate will not change. So it's almost certain that we'll get a rate hike at this point for, um, for the Fed markets or the bond market futures that price the Fed markets.
So I think it's very interesting. We have lowered our expectations for a rate hike after the shock this morning. And I think part of it is because The Beige Book came out and said, "Hey, wait, wait, wait. Yes, inflation expectations are rising , but be careful, boys and girls. We don't want to drive us into depression by raising rates." "This will eventually become a problem ." I'm an electrical engineer, I work with power grids, and I get crazy job offers almost every day.
Yes, I believe . Yes, I believe. Someone says : "I love reading, but I get distracted easily." "So you're not right for this job." You just disqualified yourself. I'm also easily distracted. I found a little hack for this, I call it "micro- do not disturb mode." So I have a quick command on my phone.
So when I swipe from top to bottom, I click " enable micro", or I also made a small desktop app for that. It just says " splash" there, like a microsplash. So when I tap on it, it turns on Do Not Disturb mode for 30 minutes and then automatically turns it off. That way, I'm not distracted by notifications, tweets, or, you know, all that junk, it's like: give me a break for 30 minutes.
You know, you grab a new cup of coffee, you turn on your little microsplash. Everyone shut up and leave me alone for 30 damn minutes. And then you will be able to, oddly enough , get a lot of work done. You know what usually makes people unproductive is not being able to get even 15 minutes of silence before you get distracted.
And if you could just sit down and not be distracted for 30 minutes, you would probably get 3 hours of productive work done. So, I don't know. It's just a little life hack. You know, you come here for the clickbait, but you stay for the insights. So, how do you like it ? I'm black, but I also have good credit .
You are hired. And we also have, let's see , someone else I would like to see have such abilities. Gold will soar on the Iran deal. This is an interesting thesis. Gold will soar on the Iran deal. Um, I don't think so. I actually think bonds will soar on the Iran deal. TLT will take off on the Iran deal.
So, people are buying bonds, mind you. You should think about the opposite signal. So the opposite signal is that if bonds are rising rapidly in price because yields are falling, it sends a signal to some gold supporters that people are less concerned about the sustainability of the US fiscal deficit, which actually provides less momentum for gold.
I could be wrong. But this is just the initial reaction to this comment. So, okay, great. Here's my take on what just happened in the market today. There is also a lot of fear, obviously, with people waiting for the Anthropic numbers to find out if the canaries are still alive. You really have two main canaries.
We already know that. It is the labor market that the Fed is pointing to as risks, as one would expect. I'm glad they realize this. It would be bad if they didn't do it. The second is Anthropic and OpenAI. And then, of course, these basic Nio clouds—they're just like little, really little warning signs.
And you know, the situation with Corby is unstable and really bad. And we made a video about it yesterday . And now it has fallen by 10%. I don't think it's a big surprise, but it's not just about them. This is also what is happening in the private lending market. You know, remember, we did a video yesterday about how private credit debt has doubled.
That actual shadow defaults have doubled, roughly, compared to what they were before. So, you know, it's just another red flag. Of course, if you like these insights, be sure to join us on Reinvest On.
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