Transcription
All right. Uh, back from Florida and uh getting ready to head up to uh to Maine for at least a week, uh, maybe longer, and preparing for the uh move up there for the summer.
This will be a different um video. Uh, I I really do believe that uh the combination of some of the things we've been talking about for the last three weeks in terms of getting ready for the next regime shift, which would be about inflation and the pressure it would put on the Fed and yields possibly moving higher, and the fact that now everyone has been forced in and we clearly have uh the next phase of parabas.
And I want to remind people, uh, because I'm writing a paper on this. It seems like a distant memory, but last year the main parabas of the year uh were first palunteer. Uh, you can go look at it having a similar move as micron has the last 18 months. Uh, you can go look at gold and when gold doubles in a year, um, that is volad adjusted uh uh whatever bagger you want, and silver was a four or five bagger. Uh, those things have been consolidating. And in a world of bubbles, parabas, and speed crashes, as I said, these things shift quickly, and there is absolutely no doubt that uh between the leverage ETFs, the breath breaking down, that the market is in a different position.
And so for me personally, I've been scaling out of things. I've mentioned that I had taken twothirds of Micron off. I am effectively, as far as I'm concerned, um, out of everything. Uh, definitely out of all of Micron. And this is not a negative view. This is just, and this is not me wanting to short this stuff. I will be looking to accumulate things as I've been doing in silver and as I've been doing in Bitcoin. Those things are not at 52-week highs and they don't have any bubble signs to them right now. You're going to have rolling bubbles.
But this agenda for today, hoarding bottlenecks in the next risk phase. U, it's just too positive. And in particular, we're running hot into scarcity. Uh, and that's where I want to start this off because uh, I did write a paper this week on running hot into scarcity. And again, this is about the government that wanted to run it hot, but they're running it into scarcity, guys. And scarcity at the beginning of the year for me to be short abundance, long scarcity, which has been the trade. It's not just the thematic portfolio that I have that's up significantly this year. The other side was to be short software. If you take the two of them combined, you're talking about a massive outperformance. And I think now, after we're five months into the year, uh, the scarcity trade is becoming the dominant part. But scarcity brings bottlenecks. It brings shortages, and it does bring changes in earnings, and that's what I think is going to happen.
So, let's go through the inflation data. CPI came in in line, a 6 print, but again, it takes the year-over-year CPI up to 3.8%. 8% and it continues to trend. I don't think the important part is that it's a 6. I think that aside from during COVID, it's the largest print basically since 2012. Yet PPI, which came in even hotter, and this is the final demand PPI. Um, I just think at this point people don't realize that this is not just an oil story. Uh, this is the scarcity and the hoarding that has gone on for the dramatic shift that we've seen in AI compute demand. I've talked about shortages. I've talked about the model changes. I have moved almost completely to chat GPT at this point. 5.5 is by far the best model. Codeex to me has replaced quad code. Um, I moved all of my open claw stuff at this point to codeex, uh, to 5.5, and I've seen just amazing abilities to it, particularly while while I was in Florida.
So I just think at this point the compute shortage and the hoarding and the leaprogging and all the things that are necessary, and as I go through this, you'll realize if you put together what has happened in the first quarter of this year, this was a dramatic shift. Open 4.5, open AI agentic world, much quicker than anyone expected. And it happens at the same time that the one big beautiful bill, capex depreciation was going on, hoarding's going on, leaprogging is going on, the revenues went higher, we have RPOS's all over the place. Guys, we have a lot of things built into the market um that can be delayed by not being able to build out the data centers, not being able to plug things in. And I think that's where we're going to be at. It's not a negative story, but you have to get used to the AI uh cycles compared to the traditional consumer versus manufacturing business cycles. AI cycles are constantly in this $90 trillion buildout, which is going to happen. We don't have enough supply for this. So you're going to run into positions where there's an issue.
Here's the import price inflation, which significantly above. These numbers have been tracking high even before the war. And that's the most important thing in here. We're going in at levels that are um absolutely much higher than what could have been expected. Here's the PPI. So the input cost side, and this is overlaid with year-over-year CPI. So again, I don't see how this, the only way this wouldn't happen is if this was a temporary spike. I think you're going to see headline inflation for CPI head up significantly. And again, these are overlaid on the exact same scale. We did go way above. So even right now, you're still talking about a five handle on CPI if that is all that happens. And I don't think that's all that happens.
So as I talked about, we are back in a regime. Um, there's no doubt that this is different. So since chat GPT, uh, or sorry, yeah, chat GPT was democratized and launched here is the beginning of '23. We've been in a situation where rates have been above uh CPI. Now we have CPI breaking above rates, three-month bills. So we've got negative yields, yields around the globe, 30-year US 30 years, JGB 30 years, uh, German uh 10 years, and guilt 30 years. This is not just a US thing. We have rates around the globe following the inflation situation. There was no solution to Iran. So the straight is still shut. That is the major issue. And if it again, you've you've we've talked about it before. Um, I think we're way past the point of ignoring uh the impact that it's going to have. It's obviously had an impact on oil prices, but I think we're now going to start to see that the longer this sits up here, the more that the inflation pressures go, the more it puts pressure on the central banks to respond and actually raise rates. All of these traditionally are very, very big negatives for the market.
But there's been one positive, well actually two positives that have uh superseded it. One is that the earnings growth, which has been dominated by the AI sectors, has been far better than expected, but you have a momo chase happening, and I think we're about the ending of that now, at least of the bigger side. Uh, supply chain stress that peaked in COVID heads higher again. This is the global supply chain pressure index and the World Bank's global supply chain stress index. They're reflecting fresh strains. You can see this in everything, the PPIs, the supplier delivery times. Uh, we had a big ruling this week, may not have reached most of your news, but it is important. Um, this was a unanimous, and yes, unanimous Supreme Court ruling to shield freight brokers, or does not take away freight brokers are basically can be liable uh if they hire unsafe trucking companies. This could be an extinction event for 30 to 50% of all freight brokers. Uh, again, the issue with this is uh, we're going to have a supply issue uh within in there. An adverse outcome in this case could create supply chain inefficiencies and destroy hundreds of thousands of transport companies. Major industries players say this was in April. So the ruling came down and it was unanimous. It's impossible to imagine anything in the Supreme Court being unanimous, which just means this is not going to be changed.
Uh, spring drought out this week. Worst US spring drought on record since 1895. We got the crop report. The lowest level since. These are all just bad situations. El Nino, you're going to hear more about it this year. Um, one thing you can't do the straight horses, you can try to um change it. You can try to taco it. You can't do anything with weather. Um, this will be an issue based on history. For many countries around the globe, it usually leads to dryness and fires. The only reason I'm bringing it up in here is when you run Hermoose for as long as it is and inventories are drained, which is a fact. That is not a doomer uh call. That is a fact. We are seeing the inventories be drained. You just don't have a cushion for weather events the way that you would. And it's a global thing. Mosaic cretailing fertilizer production due to the sulfur shortage from Hormuz. Uh, here are the Asian inflation numbers. Sulfuric acid is also important for critical minerals. We don't have anything going through. Plastic prices are pushing companies to the edge. We're going to be out of, believe it or not, motor oil in the next couple weeks. Exxon and Shell inform major suppliers, including Costco, to prepare for empty shelves. Oil changes will be an issue.
Um, Ford CEO Jim Farley has been blunt about it. The data center boom is already mutating into an energy crisis. The US, in his telling, is in the second or third inning of taking this seriously. Ford CEO warns it's already a full-blown crisis, and Goldman sees an AI bottleneck that can't be vibecoded away. This is all the constraints of the physical world. Semi analysis this week. A very obscure part of the semiconductor supply chain, NAPA, is potentially become a quiet constraint on AI chips. We've heard about Helium NAPA. The main point is, and this is the thing I just want to make sure, prochemicals and oil, which are all in inventory issues, and there's nothing flowing through the straight. If you've seen anything from the AI trade, if you've seen anything from my thematic portfolio, whether it's cooling, whether it's um, advanced packaging, now power semis, uh, the bloom energy, all of these different component pieces and powers and chemicals and semiconductors in the rack, servers, they all depend on something coming through the straight. All of them. It's in everything. And the problem is, as time goes on, this becomes an issue. There was clearly hoarding going on in the first quarter, and that is going to raise earnings because the capex side, remember, from an accounting basis, you're not taking all of the expenses. So from an earnings accounting basis, it's very straightforward. You spend $100, it goes into revenue for those companies that are receiving it. If you're depreciating the expenses and you're able to do it because of the one big beautiful bill extending things and allowing them to frontload this, you end up with elevated earnings for now. The question is, when the rate of change shifts, how will the market deal with it?
Um, peak Q1 earnings. I put this together because I want to make sure that again, you guys can sit there, you can go through it. We had insatiable demand. The agentic AI rise was not expected. The adoption realization was not expected. So because we get agentic AI, then all of a sudden we get a parabolic demand side. The parabolic demand means we need more chips, more everything, cooling, tubing, every optical fibers. So it sets off the strategic AI race. It coincides with the one big beautiful bill. So you get this massive amount of dollars that are flowing through. You get all the benefits and you get all these RPOS, which mean that they have to go and they're competing with each other. So that leads to all of these different components that are ordered. The problem is, there's been a lot, I'm sure of over-ordering, hoarding. And if it didn't start that way, every single week that went by, when you're getting the message saying there's nothing here, if you want it, buy it now. The pricing pressure goes high. And then you add in this new component. Remember, the straight of Hormoose being shut down is an April event. So for everyone out there, when there's one thing to be in a war where there's bombing thinking it could end, but now the straits there. This bottleneck is real. So I think it is a big mistake for people to not realize that there is a risk here now. And this is not a bearish thing. This is more of you have to be ready for speed crashes when you're in parabas.
So, I did a uh, a special video on Tuesday of this week to go through a growing set of warning signals that suggest the AI leaders may be entering its next phase of rising volatility or consolidation. What stands out is the weakness is no longer isolated, and signs of contagion are showing up in the hottest market in the world, South Korea. So, I go through this whole thing and basically say I'd be looking for a potential momentum unwind. Now, the reason this was so important last week, I highlighted what I'm uploading every week, which I will upload again to the website for subscribers, which is this exhaustion model, which I put in to break everything down by extreme exhaustion, elevated exhaustion, somewhat exhausted, and low exhaustion. And to highlight how it worked on Tuesday, here are the movements linking everything together. Now, some of these extreme exhaustion are semis. In fact, I'll go back and show you. Some of them uh are optical and inter. So, I took all of the ones in the extreme exhaustion, all of the ones in the elevated, all of the ones there. I had open claw go out and just tell me what the moves were for both an average and a median for each of these. And what you can see for the average move, 4.1, it's exactly there. So, the exhaustion model's been tested. If you guys want to go see the ones and go look for volatility for you option traders, this is the way I would use it is go see what's had the biggest move. Go through the list, find the names, and see which implied VSS have not had the similar type move. These were average moves. This is the median, uh, except for this one point here. Everything again lined up. And when you're building analytics, that's the kind of stuff you want to look for.
Now, here were the signs that I showed on Tuesday. The cost be 50. You had this. So when you have exhaustion signals, what I'm looking for candlestick patterns. Candlestick patterns basically show you visually the fight going on between supply and demand. So we had a day with a big reversal. Here is SKH. We had a day with a big reversal. I'm not going to show you the updated one, but let's just say the battle has continued inside there. If you use Micron, by the way, look at how many candlestick wicks we've had in the last eight days. Basically, seven of the last eight days have had large wicks. I don't care whether it's an upside wick, meaning a day that opened on the lows and then closed on the high, or opened mid, sold off, and then rallied back. We had a bunch of those. We also had ones where it opened high and sold off. When you have big wicks and candlesticks, that is an exact definition about the buyers and sellers at that point fighting each other.
Um, here is Soytech. I mean, this move has gone from 20 to 180, a ninebagger on something that I recommended to a few of you back when it was in the 30s. Um, I'm not stupid. These types of things don't happen. Nothing has changed enough for this to be a ninebagger in that short amount of time. So, it had a reversal day on the candlestick. So, I showed you Korea and I showed you France. Um, we saw one in Japan as well, which I didn't include in this. Um, and basically, and that's the Japan one shooting star. Here's the way I would upload the exhaustion model with whatever charts you have that look that way and have it go through. And basically, it gave you what the candlestick pattern is saying. And overall, the summary, the AI semiconductor momentum trade is still alive, but it is stretched. The next phase is likely more selective and more volatile.
Um, so that was the point of it, and I wanted to show that SKHENX has had such a big impact on all the AI trades. This is the overlay between my thematic portfolio wasn't as correlated or direct overlay as then. But in this parabolic move, basically there's been a clear move by people to get weighted into this. This was probably the most important part of the video. The thing that I think is the the most important for you to think about. So in turbulence models or any kind of indicator, I'm looking for things which there's a breaking correlation and volatility between things that are in there. If I could do a turbulence model right now of just the AI thematic portfolio, which I probably will do this week, the problem is we've seen now the oil sensitive things which were very correlated to SKHEX start to break. So SKHEX is this orange or this yellow line here. This is the Cosby machinery index which peaked and started to break down. The white one is the construction. When I start seeing things like that, that is like a warning signal that we're breaking off, that not everything is benefiting, and that's going to be because of oil.
This chart probably bothers me the most though. I wrote I highlighted a thing video on here about doing an edge device thing for someone, and I did it back in early, no, it was even late March about power semis. This is a this is six names of power semis that I recommended. This movement here in a matter of less than a month on names that haven't even really seen the demand yet. Most of this has been the fact that they are cheap, but the demand hasn't come through yet because the power semi side, which is going to be driven by a part partly uh edge devices, but also partly the DC convert the DC 800DC uh movement for Nvidia, which I highlighted was something they were looking for. A lot of these things are on the come, guys. So when prices start moving ahead that fast, that definitely has the category of let's just ride the trend and go with momentum. And for people that have made money on it, it's fantastic. I think when you're trading parabas though, as I said, at some point here, you got to be ready for the turn. And I think we're increasing the probability of the turn for a lot of the reasons that I'm going through now. This bothered me, too. Uh, it's Saturday morning here. I got in late last night. This is from Goldman Sachs um desk. Our trading desk. We have seen sovereign wealth funds and asset managers getting stopped into this tape as buyers since the calendar flipped to May. A clear momo chase, which is highly concentrated in everything AI. Sell losers, buy winners. This is the rotation that I wrote about, guys.
Uh, I was at an institutional investor. They're one of the preeminent uh publications, especially for public funds and endowments and foundations. They published my article, which I spoke about at their event. Your capex is my opportunity. The benchmark arbitrage of the AI buildout. This is about being underweight all of those things. So the reason that there was a chase is highly because they've been underweight a lot of the things that are working, and they needed to chase and get rid of the things that they're overweight. That is what the benchmark arbitrage, that is what I am trying to get raas FAS to focus on. This will be a permanent part of the next decade. There will be temporary disruptions, but it will be permanent. Bubbles, parabas, and speed crashes, the end of human market structure. That was the title last week. Again, I think you have to start paying attention that momentum is going to be a part of our our life in this uh market because the numbers are going to be enormous, but I do think the rate of change from Q1 is going to be an impact.
Um, we finished the week for the thematic portfolio down 46 basis points. Uh, I'm showing that not to say it was a good week for it. I'm showing it more to say we just finished explosive weeks. This is the first down week. I think there's a risk that this continues. Um, and I would be, I already have, but I would be looking and be just one eye open. If you're momentum trading and you're going with stuff, shorting bubbles, uh, is a dangerous game. Uh, but I do think switching things into call options and being more involved, expecting that we're going to have more of an issue here.
Uh, I just want to highlight, I think you guys should read this. This is from April 8th. Gartner forecasts worldwide semiconductor revenue to exceed 1.3 trillion in 2026. Uh, which would be, this is what it was last year. This what is this year. So there's two things about this. Number one, absolutely positively this is justified for what has happened. Now you can sit there and argue that next year it'll be 1 trillion and you think this is a bubble, and that's what people are doing. I think that is foolish. I think absolutely it'll be higher next year because the capex numbers are what's driving this. I think what's interesting is they're saying 500, so 60 plus% increase, but then next year dropping off significantly. That is the rate of change thing that I think you have to be prepared for to see how markets will handle. Sometimes you extrapolate things that far, and all it takes is a big change or bottlenecks because you can't sell things if they can't be made, and that's where the issue is. It's a production risk, not a price risk, even though I do think prices are going to come down. So that means in Q1 the biggest factor was heavy orders. So production numbers were, volume numbers were up, but at the same time prices were up dramatically. If you get a scenario now for the rest of the year where we're not able to meet the production numbers because of the impact from Hormoose and the impact of buying everything in Q1, you're going to see volumes slow down, and if prices actually start to normalize because volumes are slowing down, then you end up getting the whammy of both of them. And that's what I think the risk is, and it's the reason why I think at this point we've built in a lot of them. And when you have eight baggers and nine baggers, as I shown in in a span of months, that doesn't go on forever.
Global semiconductor sales hit nearly 300 billion in Q1. They're on track. Volume is up 25% quarter over quarter, and sales totaled 99 billion in March alone. Okay. So again, I'm going to show you some charts as to why this is justified um for people. This is the imports of capital goods versus the imports of consumer goods. So think every single consumer name seems to be trading right now on a 52-week low related to household durables. I'm going to go through a lot of that. And everything related to the capital goods side is through the roof. Now, this obviously does include semiconductors. So that's one of the big things. But you got to look, this is back to 1992. This is out of nowhere. And that's why the earnings are justified in terms of the rotation as well. Here's the overlay with socks over the NDX. So you got the semis over the NDX following that trade. This is DRAM prices. And again, I'm showing this for two reasons. One is look at this here. I'll show more about this in a second. Um, but socks over the NDX makes sense. And so over the NDX at this point is mainly semiconductors relative to again, software was a heav he heavier waiting. Uh, and also the hyperscalers, suspenders. So, it's justified for anyone saying this is a bubble. The bubble is the spending and the try to catch up. Uh, there's two ways for bubbles to end. You can get the.com bubble, which I don't think is the case, or you can get it where we run into bottlenecks, which is what I think it is, and I think people are going to have to adjust to that.
So, what I did was take the two charts that I just showed separately, the prices of DRAM and this. Can you match up the time periods in these charts and overlay them with them each other to see how they line up? Make them one of them green, the other red. The first one is the six-month rate of change of DRAM prices, and the second is a chart of the socks relative to the NDX. Here's what we got. So, back to 2017, using Zcores, uh, they've tracked pretty well. So what that basically means is when DRAM prices start hitting the second derivative, meaning when they start to roll over. That's usually historically when stocks over the NDX has rolled over. It led here, it coincided here. It coincided here, they bottomed exactly at the same point. This one bottomed a little bit before. I just think this is important because now the DRAM prices, the the rate of change has turned negative. So I would just be very wary about this in terms of semiconductors. Um, and this is the way it goes. DRAM pricing momentum is fading, but semiconductor relative performance is still rising. The risk is that once DRAM momentum rolls over, the semi-trade becomes more sensitive to bad news because the market can no longer rely on accelerating memory prices to drive vision. This is why the bottlenecks matter so much. Again, any kind of bad news at this point becomes an issue because you have everyone in. And I think we're certainly going to have it. Remember, we've already ignored things like Turbo Quant, which was an issue. It helped drive uh Micron down from the high 400s to the low 300s in a short amount of time. We're going to get episodic moves at this point.
Um, this came out in Korea, which I just want to make sure people understand whether or not this happens or not. In a world where we're taxing wealthy, an AI windfall tax, that is what started the whole thing in Korea to show how concentrated this is even in momentum. I don't know if I've ever seen this momentum has been isolated to the AI trade. So with inside other sectors, so this is basically healthcare, consumer discretionary, TMT, financials, industrials, energy and materials. This is industrials and TMT. So this is TMT. This is industrials. I I don't even know what to say other than this is all the AI trade, the winners and losers. So this has really been concentrated into complete momentum. Now we hit the momentum on on the momentum factor on a weekly and a daily basis. Both of them hit 70. I'm sorry, weekly and monthly. So, what I wanted to do is when you hit them both on this, what typically goes on, and these are the periods of time that they both happen. So again, you don't get collapses. This one you did, this one you did later. For the most part, momentum when it gets this overbought, it starts to run into something, and then you don't make money in momentum usually for another year. So, it wouldn't surprise me if we start running into issues. I think you just have to realize that this is very extended. The RSIs on both the monthly and the weekly are up there. And historically, when we've had this, it's gone. This is another way to look at it. Uh, price momentum versus minal, and we're at a five standard deviation overshoot. Here's another way. Um, semiconductors remarkably trading 62% above the 20 the 200 day moving average, and he just gives the times in history. I don't even know how he's got that on this, but good for him. Back to 1718. Um, the reality is we're very extended on this in the short term.
Um, the reason this is an issue or not an issue in the long term, guys, you could have called this a bubble from 2006 to 2020. This is Amazon over retail. Let's just take it from here to here. The issue is not semi doing this. I think this is going to continue. I think the issue is the time side that it did. The reason this one didn't get called a bubble was because it took five years for this to do what it did. But look at the numbers. These numbers are insane. I mean, you're talking about from 400 to here. So you are talking about a ninebagger. It just didn't happen in six weeks. So again, I remind you, we're running hot into scarcity. This trade has been the call all year. Uh, at some point you run into the issue here, which is bottlenecks and shortages. And that's the whole point of this video. And a reminder, you get the bubbles, you get the parabas, you also get speed crashes. That is the risk. And that is the thing you have to watch out for. Uh, and remember, people have been trying to call the top of IGV versus SMH versus IGV for some time now. In fact, all throughout most of here, and we've just continued to go higher. But now again, two and a half bagger in a short amount of time.
Uh, I just wanted to highlight this too. This is Micron. So the reason I am out of uh Micron now is because I was lucky enough to buy from here to here. This is where my purchases were. I to be able to get any time in your life, um, you know, a five to eight bag where I think the first part I sold out was somewhere in here, and then by the time I was done, I probably averaged in here, and maybe it does go up higher and I miss it, and maybe it just continues to go and I never get a chance to buy it again. That would not surprise me. But here are the Mag 7 x Nvidia. So this is uh, well, this is Amazon, Google, Apple, Meta, and Microsoft, and this is back to 2018. So just think about how much Micron has gone. It was the worst performer as of the first quarter of 2025, and now it is by far the best. Here are the winners over the last five years. If you guys have not seen this, so the S&P since December of '21, this is obviously before the rate hikes, was up 57, is up 57% over the four and a half years. I want you to look at the names. Every single one of these names, this is sorted by performance. Every one of them is an AI name except for a rocket ship name and a rocket ship name. Every other one. So, if you've been avoiding this bubble over the last five years, I mean, this is a 37 bagger. I like, I don't even know what to tell you in terms of how far these things have gone. You've obviously missed the move. So, this is why people don't want to be even talking about it in terms of it being a a real thing. But the reality is everyone benefited in this one. They didn't call this one a problem, Nvidia. But now you have all of these other names, and there's no way they could possibly grow this fast. The issue is, what is it going to look like a year from now? Is this going to still be higher than than than these numbers? Maybe it will, but the reality is at this point, it's really hard to look at that performance and not realize that it is all part of the AI trade, and it all started in 2021.
This is from a code presentation. Um, I think this is critical to look at. So this is the number of days with a one a plus or minus one and a half% move in the US momentum index. First of all, the trend here since the end of 2020 is very clear. It's up. Now, we were mean reverting in 2021. Then we had the rate hikes. But now since then, this has gone up. Just look at what the norm was in the world before, especially in the QE world. We are in a period now where we are having a lot more momentum shifts plus and minus on a daily basis, which means they can move violently in in in a much bigger way. This is the speed crashes, and this is the unwinds, and this is the stuff that goes. And this is why when I do this, I have a long-term thesis for the next 10 years, but to maximize money during it, I think there's going to be periods of time where you need to be very, very cautious in the names that you have and think about things.
Uh, Jensen Huang said this week, "Agentic AI requires 1,000 times more compute than generative AI." He's comparing the shift to the world suddenly needing a thousand times more cars. I've done that same thing for imagine if we had 8 billion more people in a year. We wouldn't have enough food. That's what he's talking about. And that's what's happening with digital agents. Digital agents don't eat food. They eat compute. Compute is chips and power. That's why these trades are going to continue to work. The only thing that can end that trade is total efficiency and algorithmic gains, which are going to take some time to get in there. But there will be at some point a massive discovery on how to do this without as much memory and everything along those lines. And when that happens, it will probably coincide with more supply coming in. So sometime over the course of the next year, I would imagine that that will be a story, and then the earnings that have been brought up will come down so violently because you won't need nearly as much memory, and the prices will come down, and that's the diff, that's the problem when you have earnings growing this fast. And this is the risk. So when you look at earnings and everyone says, well, this is what it is. There is an assumption in 2028 that all of these semi and and and memory names are going to be higher in terms of earnings than they were, and a lot of them will be, but I'm not sure all of them will. And that's why when it gets very concentrated, you have to look. But this is the reason why people are capitulating because there's a fundamental reason for it.
Um, first quarter profits have surged 27%. The only time we've seen this is coming out of a recession. So I don't know if that's a good thing or not, but I do know that it is lumped up, and that eventually you run into issues. All 11 sectors. So it's broad positive earnings growth, but again, when you look at this and you go through the numbers, it is very, very isolated in terms of the high growth here. So these are positive, but not many are above 10. It's when you start getting into some of the things in here that you're getting them above. So, I would just keep track of that in terms of going through it. Here are the profit margins. Again, profit margins very easy to grow when you're able to extend price to some incredibly high number. The question is, is this going to continue, or is this mainly about the hoarding that has gone on and the supply, the demand relative to supply that came out of nowhere?
Um, revisions are still massively positive. The reason I wanted to show that is it is very hard to have a sustainable down move in the market without these red bars coming out of nowhere or a peak. This is what I would be more worried about is a peak in things that starts to go down, and that a market that again, because it had a parabolic move. This is what caused the fall, and then this is what caused the rise. So these were the revisions move lower because of things like airlines and all things resulting in oil. The problem is, I do think you're probably going to have supply disruptions from Hormoose into the semiconductors that will impact the ability to produce. So again, remember when you're selling something, it's not just are prices and demand high. It's can you actually make the volume that's necessary? And at some point, you're selling everything off the shelf, and then you don't have anything to sell anymore. And if production can't keep up, it's an issue. But again, a data center and the ability of now going from a GPU, which was Nvidia, to where we are now, there's a reason why every single semiconductor has gone higher. And that's part of the packaging, the advanced packaging. That's what the basket is for. So you can get disruptions. And if one piece can't get done, makes it very difficult for the rest of it get done. So you have correlation to supply chain risk that I think is a real risk. And again, I'm talking about the risk-reward changing because prices moved higher, earnings have gone up, and the supply disruption and things that went on are happening. They're real. Hormuz has not been fixed. So if that's the case, I think you have to be worried that potentially there could be a shift.
Here's estimate revisions. Uh, the estimate revision factor to the S&P. So again, justified for the S&P to go higher. Revisions have gone higher. If revisions start to move lower, that's where the issue will be. One other reason to not even listen to people saying this is a bubble. Um, this is from this week. Since the start of 2026, the S&P has risen by 8%. Consensus forward estimates have risen by 13, meaning the multiple has gone down. In bubbles, multiples go higher. Nothing on the turbulent side. And I've been asked a lot of questions about this. The reason there's nothing on the turbulent side is because this has all been one trade. Rates had not moved until Friday. Oil had moved higher, and that's what this line here was about oil and the yen. But overall, because this has got a lot of macro factors, we just haven't seen anything. I would imagine we will, but where we are seeing things is in this. So the S&P has had continued to extend higher. This is the S&P relative to the VIX meaning, and I showed this on the weekly update for the subscribers, which is when you start seeing this, you're getting divergences. So the S&P is way above the highs here. What has not is the VIX is much higher than it was back then. Here's a way to look at it. Here's the S&P inverted going down. And here's the VIX for the sixth contract, which went higher on this had been over the course of the last six months. So this rally here, the VIX has stayed higher, meaning you can take it as there's a lot of people that are still buying hedges, but sixth contract takes you out quite a way, and that says to me that the risk is growing.
Uh, Charlie McGillicut notes that while there has been relative calm at the VIX surface, the action underneath has been anything but, with a warning that many others have mentioned. These sorts of things tend to collapse under their own weight. He's got a variety of different components in here. SMH at three-month at money V, like all of these things are saying that the V market, despite being quiet, an issue. Breath is bad too. The S&P 500 breath. So, not the broader market, and I like to use the S&P breath as as a warning signal because it typically does peak before the market has a fall. It did it here. It did it here. It started to break down here at the same time. Well, it's broken down and it actually broke the 50-day moving average, but if you look at it, it's basically unchanged since the end of January. We got Hindenberg Omens.
Um, again, Hindenberg Omens, this is one of those signals that I always love to know about, and I'll always show it when they happen. And the reason is because that means you have a lot of new highs at the same time. It is not a lot of new lows, but the breath is breaking down at the same time. So, a lot of new highs, a lot of new lows, breath is breaking down, and then you need the market to be going higher. So, it was triggered for the NYSE and the NASDAQ at the same time. This has happened only 19 times historically. The S&P win rate over the next five months is below 50%. Two of those signals happened before crashes. I don't care about that part, but I do care that we're seeing these. Uh, the only precedent for when the S&P 500 has been at record highs while fewer than 60% of stocks were above their 50 and 200 day moving averages. Again, you start getting into uh issues. We still have the financials not only below the 200 day with the 200 day pointing down, but it is headed down again. And I told you this has never been a good thing ever in markets.
Here's another one. This is the equal weight consumer discretionary versus equal weight consumer staples. This one historically is a leading indicator for correction, correction, correction. It typically does not happen. But look at this divergence. I've never seen anything like this. This is basically saying that the consumer is in trouble. Equal weight. This is not cap weight. So, this is not Amazon and Tesla in there. This is equal weight relative to consumer staples. We are now at the lowest level since basically around liberation day. Um, again, you look for these warnings. If you haven't seen this, here are the household durable names year to date. There's 26 of them. Four of them are up on the year. Here's the restaurants. Look at some of these names are down. Door Dash is down 34%. Wing Stop down 50. Um, here is the bottom end of the retail part. All of these names, I mean, these are just huge, huge, huge moves. Breath can be bad for a long time. But I've said I believe we're in the 1970s, which means we're going to see up, down, up, down, up, down. But over the course of the next decade from the disruption of AI, I believe it's going to be very difficult, particularly since the capex names in my opinion, the spenders are going to continue to see multiple compression.
This is part of the code report. I love the code reports. I think they have a lot of good charts in them. Uh, and again, fighting right now between the sellers, which are the ones selling the tokens, and the buyer, the Amazons, the Metas, the Microsofts, the Googles, the hyperscalers. My hyperscaler chart. Uh, the sellers again, the new leaders, cash flow today, not in the future. That's the issue. These guys are getting tons of cash flow now. These guys are spending, and it's not hurting their earnings because they get to depreciate those capexes. So you get this again earnings boom, which isn't going away, by the way. So significant pricing power, all-time high margins. Here are the numbers. You're going free cash flow. So, capex, free cash flow, and it is penalizing them. Their multiples are going down slowly here, but they are going down. And here's the deal. Um, year-to-date return, and again, this was obviously a while ago before these were there, but you get 107% in these names, a doubling, and it's coming at the expense of these guys. And the difference in market cap does it here is now Microsoft having capex equal to 37% of its revenues. Now they now they have a ton of revenues to come seen through the RPOS, and I think it's 700 billionish or something. So uh again, they could get the revenues in, but if the bottlenecks take too long, they won't be able to realize them.
Um, here's what has taken the market higher in my opinion. The market would not have gone higher. The semis would not have worked. Momentum and retail would not have been involved to the degree it is if it wasn't for this. This here is the hyperscalers. So they bounced, the spenders bounced. The reason I have this up is this is a GARP software basket for Goldman Sachs. This typically is extremely correlated to it. Now it's broken apart. And so this is sitting down here. These rallied. Um, I think the hyperscalers are the thing to watch to see when this is going to break. Here's the chart of the hyperscalers relative to the S&P. So they went up with the S&P. That's why I'm saying they still didn't do well. They did well from here. They're still down year to date relative to the S&P. I'd be watching that chart.
Um, I wanted to now add Nvidia to this just to show that Micron is here, but since 2018, Nvidia is still the the the winner and king. I added now also Bitcoin. And I added Bitcoin because eventually, in the course of the next few years, I think Bitcoin will be the one that is above them. And if I take
it back further, it obviously is. But that's the story right now on that framework.
Now, two-year yields broke out, three-month bills. This is one of the differences I want to make sure you realize as you're thinking about where to rotate. I do not think, uh, we're going to go into a crash mode. I do think, uh, we're due for a correction. How far that goes, we'll just play it week by week and see where it goes, if it happens.
Um, the difference is this time and when people talk about what's going on with inflation back in 2022, uh, this is the yield curve in three-month bills versus 10-year rates. So we have a steepening happening right now. And this is the issue that comes in is the government. I, we, we, we don't have the same situation as we had back here. So remember back here, the curve flattened dramatically. It was massively negative for stocks.
This is the BCOM index. So this is commodities. It was hit in 2022, uh, as we saw the yield curve flatten out. And this is the component of seeing it. So as the yield curve went down, you saw commodities go down. We're not raising short-term rates the way we did. Um, and that's where I believe that this is important for things like the Strait of Hormuz. Uh, copper prices are moving higher. Gold started to move, or silver started to move higher. That's where I've rotated a lot of the micron money.
Um, it came right back down. This thing peaked here. It's taking a while. This is the way the next phase takes. I wouldn't be surprised if we spend more time in here, but eventually, as we get through this, when the government decides that it is not going to be raising rates, whether it's a dovish meeting or whatever, um, I think you're going to see this go higher. Gold, same thing. But while the rate fears are top of mind, that becomes an issue.
We did see one break and then it came back. And what I wanted to say is crude was going higher at the same time gold and silver. That was a break in this negative correlation. And then as we saw rates break higher. So rates are the critical components why you want to pay attention to the Fed. What makes it very difficult to compare what happened back here?
Here is CPI year-over-year. This is wages. Wages were going up with CPI. This is the critical component for the central banks, which is the reason why you want to be long commodities. This is not going to stop things. We're going to have shortages. You want to be looking to buy commodities into weakness because they are not going to be able to use short-term rates to go, because look at the wage pressure. We got the lowest wage print yet in median Atlanta Fed wage. They were correlated before. They are not going to be correlated right now.
Here's the real wage component. This is a big move. So you now have CPI year-over-year above real wages. This is going to be a midterm issue. You don't get this too often. This is what feeds into why Bitcoin is the endgame. Here's negative real yields. So, be patient with everything, guys. This is the regime that we're going to be in for the rest of the year. It may take time for the technicals to break out, but Bitcoin, those are its numbers and times.
We got close to this moving average and we failed again on Friday as the market headed lower. If the market heads lower, you're going to have it again. I want to do a comparison now. Just remember, so this is building something and it's going to sit here. I think it's going to break higher. And part of the reason I'm being patient is because we had this. So think of this as Bitcoin. Maybe we need to have one more move lower in Bitcoin. I don't know. But this was Micron. And like I said, during this period in here, nobody wanted to touch it. It was a $100 stock. Nobody wanted to be involved in it.
I am going to be watching Dogecoin now. XDG and Bloomberg, guys. Um, this is the retail fire. So when this breaks out above this level, that's when I believe that you're going to have retail involved with crypto. And I think it needs the energy. It's going to look for its next parabola. And that's where I think over the course of the next year, the parabola will start. It took a while for Micron to become a retail name. It basically took a year, so it might take a year for a lot of this stuff to go. But Dogecoin will be the signal to me.
Um, you should read the Coinbase earnings report just to see the reason why the digital economy is going to be the next parabola. I believe that we are starting the next parabola. I don't think it's going to be the AI trade. I think we're going to see these things consolidate. There'll be ups and downs within the different names that are going to do well. They'll do better than the S&P, but I think as a whole, the thematic part of AI is going to have to consolidate some of the moves. And you'll have some names go up, some names go down. But crypto to me is going to be the next phase that you are going to be forced to be buying into. And that's because we have parabolas in here too.
Here's tokenization. Here's stablecoin. The parabolas are happening here just like Anthropic. And it is the very early stages. So you will have to get involved. And it's all coinciding with AI agents. Introducing Amazon Bedrock Agent Core payments with Coinbase and Stripe. Everything is happening. We got Clarity Act movement. We're up to 72% before the end of the year, which I view as a big positive. You've got the UK relaxing stablecoin restrictions.
And again, here's Micron. Here's Nvidia. This is over since 2018. Bitcoin is sitting here. I believe the next phase it will look like a parabola as well. And here's what Bitcoin has done over the course of the last 15 years. The next parabola in Bitcoin will come with an ETF. It will come with sponsorship from the government. It will come from things that you can do discounted cash flows on, like Ethereum and Circle and all of these different components. So, the narrative will shift. Software will still be under attack.
That's it for this week, guys. I'll see you next week.