Transcription
Oh boy, it's getting hot in here! We just heard from the Fed, and we got some valuation numbers to talk about, as well as what else is going on in this economy and what to expect in the coming weeks. It is a doozy!
Let's go through all of it.
Uh, first, the S&P 500 PE ratio is at 21.6. That's the highest we've seen since around the end of 2021, you know, that last major run-up we had before the substantial 30 to 40% sell-down in 2022. The S&P 500 MAG 7 sits over 27 with a PE ratio, and the S&P 500 price-to-sales ratio just logged its highest ever figure at 2.87 times. We've never seen a number higher than that on a price-to-sales valuation.
Now, part of that could be because, frankly, you get a lot of software service businesses that—well, let's just put it this way—they don't take a lot to the bottom line of earnings, but they still collect money in terms of sales. It's kind of like MicroStrategy. This morning, briefly on the opening live stream and then more in detail in our course member live stream, we went deep on MicroStrategy, and we're like, "Hmm, this company's losing money hand over fist on its services, and its book value is sitting at more than three times in terms of market cap what it actually has in book in Bitcoin net of debt."
In English, Bitcoin dollar here at like 11, market cap here at like 40, and then using losing money to make up that $30 billion valuation.
Uh, anyway, it seems like after that course member live stream, the market actually started finally turning on MicroStrategy. I don't have any shorts on it, but I did see it go from positive to negative pretty rapidly—in just the last few hours, actually conveniently right after the course member live stream—it seems like it just tanked.
But anyway, we did also have Governor Waller come out with some numbers, and this is setting up for a little bit of a doozy here. Mr. Waller from the Federal Reserve just warned that payrolls, in part due to layoffs we're hearing about over at B, which is substantial—right? Weaker companies issue layoffs first because their stock is already hammered; stronger companies quietly lay off and then lay off in effect later than weaker companies.
This makes sense. Governor Waller sees payrolls at the beginning of November coming in 100,000 lower, and even though the labor market right now, at a snapshot, is healthy, it's important that we keep lowering rates, and the direction is clear: we're going to go down with rates. There's a long way to go between now and neutral, which is probably somewhere between 3 and 3.12%, per the Fed. Lower in my opinion.
Uh, and he indicates the direction is clear. The problem is, how much is the labor market going to weaken? And this is obviously—you already know this; this is where I'm like, "Um, y'all are flying really close to the Sun," let's just put it that way.
Uh, this next labor report that I'll read you out the, you know, prediction right now comes out November 11th, which is crazy to say, but that's just a little bit more than 2 weeks away. That means we'll be going through Halloween already in about 2 weeks and 3 days. Crazy!
So I got my little, uh, woke Halloween cup here. What do you think about that? Look at that! Woke Halloween, my friends.
#NotSponsored; they can't afford it anyway.
Uh, November 1st, change in non-farm payrolls expected to come down from 254,000 to 110,000. So that $100,000 drop is being picked up by markets.
Now, the—or the 100,000 job drop there—is being picked up by markets. The question is, will it come in even lower than that? And how much are we going to revise that prior 254,000 report? Of course, we also get a lot of earnings between now and then, so we have to be cautious to not be too much of a bear here.
I mean, after all, hey, you know, things might be slowing, like advertising demand at Google is slowing, but they're still making money hand over fist. And yeah, I know numbers might be a little weird. Like the bull case for NVIDIA is so high, it's literally triggering hope and dream charts.
And the fact is, the numbers are going off the chart. Let me translate that. This is a fancy way of saying right now we're seeing the highest ratio of valuation at NVIDIA that is not explained by its forward three years earnings projections that we have seen since September of 2000.
Translate it just one more time. I feel like I'm kind of just like running it through the filter: okay, NVIDIA is damn expensive, and it hasn't been this expensive since September of 2000.
Now, I actually, when I calculate it on a PEG ratio, I don't see it as horribly explosive, so it depends on sort of what metrics you're looking at it from. I think a lot of people are very enthused by NVIDIA's Blackwell chip and understandably so. I mean, there were originally concerns that Blackwell was being delayed, and this was sitting around basically $110, $108 as a stock, and now it's sitting at $139.
So when you divide that, you're up 275%! Wow!
Since concerns about Blackwell, and really, you started rising when Jensen went on Jim Kramer's show on CNBC and said, "Oh, demand is infinite! There's no limit to the amount of demand; demand is so huge for the Blackwell chips! Nobody knows Blackwell better than I do!"
H, I've heard that before, and then the stock traded sideways and down for the next three years.
But what is really interesting is I've been reading this—and this is not sponsored here—but I've been reading this, and I found it very interesting because to me, this book has kind of given me a little bit of, um, how should I put it, perspective.
I really enjoy it: *The Art of War*. A lot of people have been recommending that I read it, probably because some people have heard, you know, how I internalize things or look at life.
And one of the things that I just came out of it was this idea that if you are true to yourself, you will win battles, and you will lose battles. But if you don't know what your truth is, you will always lose.
And I thought that was really interesting because honestly, I feel kind of lonely. I've been a bull since like November of 2022, and I'm like, Nike Swoosh, volatile Nike Swoosh! We're going up, up, up, up! We're going to the moon, baby!
And I've been so excited to be a part of that run-up, but since like July, I've turned a little bearish, and it's very, very lonely. Now, I recognize that comes across as like, okay, well, maybe that's just like you're losing battle period of time, but I haven't changed my mind. I haven't changed my opinion since July. People know this. People who watch the channel, they know this.
And every single day, I'm like, okay, is this good or bad, or how is, you know, where does this fit in, does this make me more bullish more bearish?
And this was a really interesting quote. So in honor of that, and there's no pressure, but you know, you want my analysis or whatever on like, oh look, Celsius is really expensive, and then it drops, uh, what? 50% in value?
It's crazy! After a course member analysis, it plummets in value. After our course member analysis on McDonald's a few months ago, the sucker is up like 20%. It's amazing! Also invested in McDonald's.
But I know it's kind of crazy to hear, right? But yeah, I mean we saw Celsius pricing power going down and McDonald's pricing power go up, and wow, surprise, surprise! McDonald's is doing really well.
But in honor of this book, again, not sponsored here, but we made a coupon code called "Art of War" that you could use on the courses. We haven't actually had a sale in like, what feels like a week or two, certainly at least one week.
So if you want to check those out over at MeetKevin.com and be part of all the course member live streams and the entire archive going back to what, 2017 or 2018 or something like that, go to MeetKevin.com.
But anyway, I do want to just sort of add my opinion here. I do think that the market is trading on borrowed time with where these S&P 500 and NASDAQ valuations are.
I do recognize—because, you know, I was one of the earliest people to suggest this—I do recognize that if you take the NASDAQ and you take the prior all-time highs, which would be right here about 404, if you just sort of look at it this way, right?
And then what you do is you add in inflation, so you basically multiply it by, you know, maybe 28%. You get to about 517, which gives you like maybe another four or 5% upside from here just in inflation adjusting.
Now, usually earnings should be catching up with that, and they're not. They're not keeping up with the same pace of inflation because earnings are getting squeezed, and that's what makes the market feel expensive.Earnings should be catching up faster, but they're not, because companies are losing their pricing power.
There are very few companies with really good pricing power right now; everybody's really struggling. And even though McDonald's has shown signs of increasing pricing power, it's still a little floppy. I mean, it still leaves something to be desired.
Okay, it's like, is this working or not?
Anyway, what I sort of have believed—and I watch for this every day—is, are we really flying with a gas tank that's still pretty full to where we could price in a no landing? Or are we flying on vapors, like we’re out of gas, and it's just sort of like the vapors that are left in the engine that are burning, or in the tank?
And it’s really hard to know what's going on because the engine's starting to sputter in some places, and you know, the seats on the plane are starting to rattle a little bit.
And it's kind of like, okay, do they just kind of need to hit the thrust and go? Oh, okay, it feels a whole lot better! Or, you know, are we going down? Nobody really knows.
But what seems to be based on where valuations are, it seems like we are pricing in the usual post-election upside, and we're pricing in artificial intelligence fully. We're pricing in energy upside fully for artificial intelligence; nuclear energy is getting priced in as well.
And even though we're seeing earnings projections for this next quarter coming up here get revised down, we think we're going to beat those handsomely.
So, you know, you kind of look at the market and you go, "Okay, cool! So like, you're kind of not pricing in a recession; you're pricing in a no landing; you're pricing in AI keeps growing forever, and energy upside keeps going up forever. Where's the downside protection?"
And so I was studying this a little bit, and we actually are starting to see downside protection finally start rising again.
It's one of the reasons why, despite stocks going up, we've actually, over the past few days, seen the volatility index move up. This is pretty rare.
If you look at the VIX, you'll find that the bottom was around September 27th and then again the second week of August. But the volatility index has risen throughout really the end of September and first week of October.
And people are like, "Why is volatility going up? Stocks are just going straight up." It's that hedging that's starting to come into the market.
Now some people say that another thing that we're seeing right now is a little bit more of a pricing in of Donald Trump potentially winning. For example, Bitcoin might actually be moving up for this idea that markets are pricing in some more Donald Trump now.
Uh, you're not going to find that on the average of polls, though. A lot of people just say the polls don't matter; they skew Democratic in terms of survey participation.
I don't know why that changed over here when Trump was leading for all these polls, but whatever.
Another thing people do is they say, "Well, you know, Trump's now leading and these polls haven't shown it yet because of the government's lackluster hurricane response." You go to the Electoral College map, and we've still got a lot of these swing states up in the air: Georgia, North Carolina, Pennsylvania, Michigan, Wisconsin, Minnesota.
Uh, you know, you've got Nevada and Arizona over here, so still TBD on some of these, but we'll see where those end up.
And then if you look at the betting markets, you actually see Trump at 53 and Poly Market taking the lead at about 55 to 45.
Now, what's interesting is if you actually look at the volume of these and you click on, let's say, Donald Trump, the top 10 holders of votes pro Donald Trump make up about $34 million in bets. Like, this one Freddy guy has like 14.6 million, and you only have about 19 million in bets on Harris.
And we started seeing volume explode for these sort of bets, right? Like, the two days after Elon Musk met Donald Trump on stage—there we go—right here, he met him on stage on the sixth, and then like right when the news cycle starts on the 8th, volume spikes, and it stays elevated.
Now that's either elevated—we're getting close to the election—or, who knows? Maybe somebody is trying to rig these markets by buying up the order book.
‘Cause really, these predicted markets—yes, people put their money on it—but it'd be really smart for these, you know, super PACs or whatever to just throw money at this because the mainstream news covers this stuff daily.
And if you just buy out the order book, you know, you'd pretty much always be in the lead.
Anyway, so keep that in mind when it comes to some of these polls, but I do think you're getting some Trump pricing right now.
And what's interesting is I think this cycle, rather than having election uncertainty in September and October before the election, we actually might have it after.
Now, I know that sounds crazy because usually, you have less uncertainty after, but I think everybody has sort of been brainwashed—and I'm partially responsible for it—to think that the market goes up after an election.
Well, now the market's skyrocketing like crazy before the election, and I'm like, okay, does everybody know the market's going to go up after the election? So now everybody's buying before, which means how many buyers are left after the election if everybody's expecting the same thing?
So it is really interesting. What are people pricing in?
You know, Wall Street's now offering a 1.75x leverage product on MicroStrategy, which is basically already three times the market cap of its underlying Bitcoin. It's basically already 3x leveraged.
And so now you have more leverage coming through this leveraged ETF, which is wild. I mean, it's down a chunk right now.
You know, if you want to buy the dip or look at it, it's MSTX. But to me, it just sort of screams that the market is pricing in no landing.
And it feels like Wall Street greed is coming out, going, okay, cool, what products can we sell people to get them to, you know, speculate more on basically an order book of euphoria?
And I hate to say it, but MicroStrategy is an order book of euphoria. It probably won't fundamentally last. In fact, I would be very concerned as a MicroStrategy investor. I'd be very, very concerned with how wide we've gotten with the spread.
And again, I have no position on MicroStrategy; it doesn't matter to me if it goes up or down. I'm just trying to provide a service here, but year to date, this sucker's up like 200%, which don't get me wrong: congratulations, it’s freaking amazing!
I'm just saying maybe tax loss harvest something else and take some profits here and just diversify a little bit, you know? Just take off the tip. Not personalized advice, but just think about this from the POV of just logic.
Okay, why—is it outpaced Bitcoin on a rate of 4 to 1? I don't want that downside to hit.
Like, what if Bitcoin sells down 20% because we go into a recession or like 50% and then this is down like 90%?
Let's just put it this way: I wouldn't be buying it at this point; I'd certainly be thinking about profit taking. But then again, who knows? You know, maybe it goes to 250 or whatever, and that's a stupid thing to suggest.
So I think that's where a lot of people will say, "Oh, I'll just take, like, my investment off the table and then let the rest run so I'm playing with the house's money." Fine.
Uh, I find that interesting.
Now, I do think that analyzing pricing power stocks has gotten a little challenging because so few companies truly have pricing power right now. It's sort of like you're just picking amongst the worst.
And bonds are probably getting close to a bottom here. It's still remarkable and blows my mind that yields could go up 50, 60 basis points on this, this, you know, recent data that we've gotten after the Fed cuts.
50 while the oil market is screaming things are slowing down, China's exports are slowing down, you've got the quits rate falling, you've got the job openings rate falling, you've now got layoffs at some of the weak companies getting revised, like, pushed out.
On top of that, you have hurricane-related layoffs that are going to show up in the October numbers. They might even start showing up in continuing claims this Thursday and then, of course, November 1st.
And the reality is the last labor market data we looked at was total bull crap. I— you know that—like, and I’m not trying to sound jaded on the data, but let's be real. You had 785,000 government workers added, and you lost over 253,000 private workers.
So in other words, if this is zero, the government's like, "We got lots of jobs!" and the private sector's like, "We lost some jobs."
And then you average it together like, "Oh, the unemployment rate went down!" That's nuts! And that doesn't even count teachers going back to school.
It's just somehow, I guess, governments hired another 785,000 people seasonally adjusted. Not seasonally adjusted was closer to 1.4 million, which is just absolutely nuts.
But that's okay. That's okay. I’m just going to continue to let you know on a regular basis where I stand, and I’m sorry I’m still on like a four on the bear-bull scale, you know?
Which has me looking at these numbers and being somewhat uninterested. You know, I am kind of interested in the Enphase dip that we've seen; it's trading at 101 right now.
But the problem is, you know, part of the reason it's trading down is because people are pricing in Trump. So you've got that whole election trade going on.
And if that happens at the same time, uh, as you know, potentially a market slowdown and bad jobs—yikes!
It's possible. Honestly, the way to play this would be to see how bad the jobs report is November 1st and then decide how much of your cash you want to deploy into the stocks or, you know, if a market crash starts then.
Although I am going on vacation next week, so get your puts. I’ll be gone, you know, Friday midday probably after the market closes, so you still have time this week.
But anyway, this to me is very reminiscent of 2021. It's a market that feels euphoric. Uh, except in 2021 we were printing money and we were expanding employment; today, we're tightening and we're not expanding.
So I recognize this is unpopular. You know, nobody likes a bear. Uh, everybody wants to be a bull. Even in bad times, everybody likes the Bulls.
I just—I'm always going to come to you with my most realistic opinions, and when I see research that makes me nervous, I'll tell you about it. If there are things I'm excited about, I'll tell you about it.
And look, I honestly, I am excited about AI long term. I really am! I am excited about Tesla long term. I'm excited about so much long term!
I've been like killing it in terms of the work over at House Hack that I'm putting in, that the team's putting in. Everybody’s killing it, really!
There are so many things long run I'm excited about. I just, um, don't feel good encouraging buying at these prices right now.
Maybe that'll change when some of this data clears, and if the data clears and it's all good, yeah—you know, the buying cost might be even higher than it is now.
But I just know the psychology of what happens when the market starts falling is really nasty.
So you peak out, the market starts falling, and people are like, "I'm still up a lot! I'm still up a lot! I'm still up a lot!" Okay, I'm break-even. "Okay, I'm only down a little."
"Okay, well at this point, I may as well just huddle," and then eventually get to this sort of capitulation state, which, uh, you know, I think as we trend towards that, bonds will skyrocket in value, yields will plummet, and we'll actually be trying to pull our market out of deflation much like China is.
Although prices are still declining at the fastest pace that we've seen since the 990s in China and for the longest period of time.
So even with their—well, I mean, it's probably too early for the stimulus to really hit other than the, uh, you know, super—or other than the—what am I trying to say?
Uh, the stock market. We'll see. We'll see.
So, um, anyway, that's my take. I hope this is useful. Do check out that coupon code link down below: Art of War. I think it's really, really cool.
Art of War is the coupon code for the courses on building your wealth, and I would love to see you there. Thanks so much, and we'll talk to you in the next one.
Goodbye and good luck out there!
Can not advertise these things that you told us here. I feel like nobody else knows about this! We'll try a little advertising and see how it goes.
Congratulations, man; you have done so much! People love you; people look up to you. Kevin Paffrath, the financial analyst and YouTuber, Meet Kevin!
Always great to get your take. Even though I'm a licensed financial adviser, licensed real estate broker, and becoming a stockbroker, this video is not personalized advice for you.
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