Transcription
Hello. Hello everyone. Welcome back to another episode of the weekend charts. Charlie Bleello here bringing you once again [music] the most important charts and themes I'm seeing today in markets and investing. You're watching [music] this on YouTube. Quick reminder, hit that subscribe button for all the latest content from us. [music]
So much to talk about today. The 100-year flood. Something doesn't add up. I'll tell you what that is. There's a few more warning signs I want to touch on here in terms of the general market. When valuations matter, a bad choice. I'll tell you about that story from a few years ago. A housing affordability crisis update. Narratives follow prices. That's always true. And we'll end with something positive, as we always do. That would be don't bet against America. Here we go.
The hundred-year flood. What am I talking about? Comments from Tim Cook from Apple. Apple raising prices on MacBook, iPad, other products as well. Big price increases coming. Why? Because of the memory shortage, uh, driving up prices for them. And now they're turning that into price increases for consumers. It's not just Apple. I'm giving you illustration here of different products. MacBook Pro going up $300, $1699 to $1999. Microsoft Surface Pro $999 going up to $1599. The iPhone 18 has this hasn't been announced yet, but they're estimating a $200 increase, uh, from $1099 to $1299. Then you have other products here, the iPad, the Sony, PS5, you got Xbox, you got Nintendo Switch, the HomePod, Apple TV across the board increases, not small amounts here.
This is the comment from Tim Cook here. This is a 100-year flood. I've never seen anything like it in any area in over 40 years. Extreme statement, but this is what's causing these price increases, the huge increases that Apple is paying and Microsoft and all these other companies are paying for memory components. And Elon Musk concurred with Tim Cook saying essentially, this is the biggest price jump in anything I've ever seen, too. And so what we're seeing in here is AI in the short run because of the demand for memory chips is becoming highly inflationary. AI was supposed to be a deflationary force and long-term it probably will be like other technological revolutions. But in the short run because demand is outstripping supply by such an extreme amount, it's causing inflation in many different places. We've seen it in electricity prices. We're seeing it now in consumer products. I suspect we're going to see it in other areas before this infrastructure boom is over because there's simply so much money chasing so few goods. And that's really the definition of inflation when you get down to it.
And here's an example of that in terms of South Korean companies. The two biggest companies there are Samsung and SK Hynix. And they're paying these enormous bonuses to their employees. It's really mind-boggling the numbers here. A memory chip worker at Samsung with a base salary of $52,000 is expected to get a bonus this year of $410,000. So over nine times their base salary in a bonus. SK Hynix employees are expected to receive even more, a $454,000 bonus. And what we're seeing as a result of this really a windfall in terms of these bonuses and windfall in terms of profits for these two companies is we're seeing a huge boom in luxury sales. I'm giving you two examples here. Luxury jewelry sales up 146% year-over-year. Luxury watch sales up 85% year-over-year. And the bonuses haven't been paid yet, but this is just on the expectation they're going to see these enormous bonuses. People are going out and spending that money. And the interesting thing is the Bank of South Korea is looking at this as an input in terms of inflation. It's likely to drive up prices. Inflation is going up there like most places around the world. And that might factor into the central bank's policy. So AI supposed to be deflationary here and now. It's been inflationary so far and the expectation is we're not done yet.
You look at the prices of DRAM memory here, uh, you can see most of the increase, 600% increase that we've seen in the past few years. Most of that coming in the last few quarters and the estimates, who knows if they'll be right, but if the estimates are higher clearly, they're expecting that this price increases are not over. So demand still outstripping supply to an extent where there's an extreme shortage. That gives these memory companies pricing power, essentially charging whatever they want, receiving windfall profits here. And so three companies I've talked about in the memory space, Micron, Samsung, SK Hynix, really getting the lion's share of the profit so far. And the demand for the stocks of these companies going through the roof because they're seeing the net income of these companies go exponential. And what we're seeing here in terms of this ETF, the DRAM ETF, like nothing we've seen before. Money pouring into this thing every single week. I'm talking about a new milestone here. Just last week I was talking about the first ETF to hit $20 billion. Now we're already at $25 billion here. Haven't seen this since the ARK Innovation Fund. I think that peaked out the main fund at a little less than $30 billion. And the money here in a short period of time, it launched on April 2nd. So not even three months into this, already at $25 billion. I've noted the past few weeks, I've never seen money flowing into an area like this and not be end with some type of disappointment. Usually the money flows come after the enormous returns. And of course, that's happening again today. The only question is when are we going to see that slowdown in terms of returns?
Now, let's talk about something not adding up here. At least to me, it doesn't add up and I don't think this can continue for very much longer. The disconnect between semiconductors and other technology stocks. So we got semis here, updated this chart here, rolling 14-month returns, now the biggest in history, 246% increase. That exceeds the increase we saw during the dot-com bubble, which peaked at a 234% increase at the end of February 2000. And at the same time, semiconductors are going bananas this year, more than doubling. We're not even six months through the year. More than doubling on the year. We have the Magnificent 7, the old guard, the big leaders who were supposed to be the beneficiaries of AI. That was the case in 2024, 2023, 2025. Not the case this year. Very much not so. Down 7% on the year. The MAG 7 names. So, we got a lot of hyperscalers in this ETF. Got Amazon, got Meta, got Microsoft, you got Google, all of them. Put them together, they're actually down on the year while the semiconductors have more than doubled. So this is a huge divergence. I talked about this last week in terms of the spread between the best performers in tech and the worst performers. Widest we've seen since 2000. There's no other comparable period.
And why are we seeing it? Because these MAG 7 companies are spending a good portion of their free cash flow now on semiconductors. And the beneficiaries of these companies are just reaping massive, massive gains. If we look at Micron Technology, I talked about how the stock is up 10x in the last year. Where if we look up at net income here, they just reported earnings, 15x increase in one year. So $28 billion in net income for Micron last quarter. Just a stunning number. Compare it to Apple, one of the biggest companies, well-known companies in the world. Apple did $29 billion in net income last quarter and Micron's doing $28, just behind it. So we're seeing really a transfer of wealth here, transfer of resources from the MAG 7, from the hyperscalers. They're really fighting each other to pay the highest price imaginable for these memory components, driving up the stocks in the memory space while their own shares are declining. So really the narrative today is buy the companies selling the shovels, sell the companies paying for all the shovels. That would be the MAG 7. And assume that that spending never slows. And I'm being sarcastic here and saying that makes perfect sense because to me it doesn't make perfect sense. We're going to hit a point in the next quarter or two where I think these companies are going to start to question it. Their shareholders are going to question it. We're spending all of this money. Our free cash flow numbers are going down. We're having to issue debt, issue equity in order to fund this at this point because we can't do it from existing operations and we're giving these windfall profits to memory stocks and other semiconductor stocks while our own share prices are suffering. We haven't yet seen it in the net income because these things are being depreciated over a series of years. So, it still looks like the MAG 7 is highly profitable because they're not showing up in the expense side, but it will. And as it does, I think you're start going to see these companies start to question this type of spending. And eventually, the cure for high prices is high prices. That's a saying in the commodities market. I think it's true here as well. Memory components. I understand there's a severe shortage, harder than maybe a general commodity to increase production there, but it will reach a point where the price gets so high that demand goes down. And when that happens and demand goes down, you're going to see the price go down as well and then the profits of these companies go down. So, I think when it happens, it's going to be a shock to everyone assuming that this spending is never going to slow and that's going to continue for a few more years. I think there's going to be a realization among these hyperscalers that they simply can't do it at the pace they're doing it or the price they're doing it. When that happens, there's going to be a big reckoning in terms of the market and probably a rotation back the other direction. But for now, this is what the narrative, uh, that people are talking about and justifying the price increases. The narratives always follow prices. So as the prices change and let's say we see a pullback in terms of semiconductor stocks or the DRAM stocks, then you're going to see the narrative changes as well. But I don't think this is sustainable, uh, by any means. And I think there'll be a point, a breaking point. We don't know where that is, where you're going to see a sudden, sudden and rapid shift and one company after another is going to be announcing that shift.
Let's talk about a few more warning signs, uh, in terms of the broad markets here. Number one, sentiment from the analyst perspective. So, Wall Street analysts put out these buy, sell, or hold ratings on stocks. So, this is looking at S&P 500 stocks. Well, this is now at close to 60% of the ratings are buy ratings. That's the highest on record going back to 2009. So expectations are very high coming into this next quarter's earnings. Really, the highest we've seen in the past, uh, going back to 2009. And what that means simply is that when expectations are so high, they're harder to beat. So we saw in the first quarter the expectations were blown away in terms of earnings. Well, now that's been reset. So the expectations going into second quarter in terms of earnings, much, much higher than the first quarter. So what this means from a sentiment perspective or contrarian perspective, you'd rather see the analysts negative on average, bearish, have sell ratings than buy ratings. And the last time we saw a big peak in terms of increases in buy ratings was back in 2021.
Other sign here looking at deal value. Last four quarters hit a record high. So M&A activity exploding higher, $1.89 trillion over the last four quarters. That exceeds the two prior peaks. Last one was in 2021, right near the market peak. Before that was around 2000 at the dot-com bubble peak. So when you see the surge in activity, means people's confidence is up. They're thinking about making a deal. They're thinking about purchasing a company. They're not worried about valuation. And that tends to coincide with a market peak. The question is, well, can this continue for a few more quarters and get even more insane? Absolutely it could. We still have two major IPOs out there. We still have a lot of demand for AI in terms of M&A activity there. So, we could see this thing get even higher before it peaks out during this cycle.
And then we have just the speculative activity within the market. We saw this back in 2021. Um, five years later, it seems like all the lessons learned from back then are gone because they're doing the same things again with speculating on meme stocks. So, we got the meme stock ETF up 68% so far this year. This is an ETF that came out back then, 2021, crashed, it delisted, and now it's back again and investors are actually buying this thing. Then you have high momentum stocks and high beta stocks widely outperforming the market, up 38%. The momentum ETF, high beta ETF up, up 35%. Very rare to see this type of outperformance from momentum stocks in this short of a period of time. Really have to go back to 2021 before that, maybe the 1999-2000 period to see momentum this strong. And the lessons from 2021 were very simple, that when you have a huge boom in an area that's not supported by fundamentals and valuations get to extreme levels on a variety of names and a variety of different industries, uh, but the story seems compelling. The story seems like it can't change. Well, that's when it's ripe, uh, for the biggest declines. And we saw that back in 2020 that I'm showing you here in this table with the highest growth names, what they did in 2021 and 2022 after peaking out, huge declines, 70%, 80%, 90% declines. The meme stocks all came back to earth because eventually the weighing machine sets in. Eventually people care about fundamentals and you have to show profits and if the high valuations aren't supported by extreme growth, then you have a repricing. And in terms of the mania, what phase we're in, we're definitely in the mania phase. And this is an example I've been talking about where companies are trying to pivot or say they're AI companies even though they have nothing to do with it. Allbirds is a shoe company, now it's changing its name to Allbirds AI. The stock exploded higher. I talked about this last month. Uh, they, they're actually changing the name now. Exploded higher again and then crashed again. So, this is not sustainable. This is something that you have to prove yourself, obviously, if you're going to make this pivot and actually do something. But people are just speculating on the stock. It goes up, but then it comes crashing down. And we've seen this with so many meme stocks that you think that the moves wouldn't happen anymore, but I think meme stocks will always be around as long as you have herd behavior, as long as you have crowding, so long as you have these message boards where people get excited about a name that has high short interest. The latest name was Wendy's where they pushed it up 18%. And, uh, there'll be many other Wendy's. And the stock came back, ended up coming back down. We've seen it with so many names in the past few years. It seems like these types of lessons can only be learned the hard way. You have to see the losses and then you actually learn the lesson. You can tell somebody that speculating on these types of stuff is not going to end well. But until they do it and actually experience the losses, it's hard to really convey that lesson.
When valuations matter, it's too late to care about them. And I've given many examples over the years, but this was one of the most extreme, uh, that I've ever seen in my entire career covering the markets, was Palantir last November. It was trading at over 240 times forward earnings. So the expectations were just enormous. That was the biggest at the time that I've ever seen for a company of its size in terms of trading that high of a forward earnings multiple. $491 billion market cap at the peak last year. And pretty much this was the peak of Palantir when I posted about this. And a lot of people are saying, you don't understand, this is the company's revolutionary, they're going to have an extreme increase in their earnings, their revenues. And they did. There was growth, but when you're valued this high, anything but perfection doesn't measure up. And investors start to look forward into the future and any type of weakness and they're going to sell the stock because it's just such an extreme valuation. And if we fast forward to today, this is what's happened so far. 48% decline. Uh, can it go lower from here? Of course it can. Maybe it'll stop here. But the lesson is valuations always matter in the end. But once you start to care about them, it's almost too late. So if you're looking at something like Palantir today and you bought the stock last year and now you're saying, well, valuations matter, well, your position's already been cut in half. So the time to care about valuations, obviously, is when they're at their most extreme levels, and that's exactly when most people don't care about them.
This is an example I pretty much point to every single year in terms of a company losing money. It's Trump Media and Technology Group. Uh, it had a, you could call it a meme stock of sorts, went parabolic, but never had the underlying fundamentals in terms of profits. And if we fast forward to today, talking about almost five years later here, 96% decline from the peak. There's a million examples of these things from 2021 and there'll be a million examples of these in the future as well. But this is the type of thing I'm hearing about today. New names. So there's no, uh, they're not talking about Palantir. They're not talking about Trump Media. They're talking about a new set of names and they're trying to justify valuations, extreme valuations, saying they don't matter anymore. But they always do. It's just a matter of time. You don't know when.
A bad choice here. Clearly, if we fast forward to today, this was a post on Reddit from a few years ago around the peak in terms of MicroStrategy. This was from the Reddit message boards back in October of 2024. "I put my entire life savings on MSTU. It's a 2x leveraged version of MicroStrategy, which is now called Strategy. If you're not familiar with it, it's a Bitcoin treasury company. And this person said, 'I'm only 22. I plan to hold it for one plus years. I hope it will not be a bad choice. My entire portfolio, 100%.'" Now, it ended up being a bad choice. We don't know if this person sold. Hopefully, they did. Ended up being a bad choice. But even if it wasn't a bad choice, uh, the idea of putting 100% of your money in a leveraged product like this and thinking you're going to hold it for years, and the expectation is that you're going to have a hugely successful outcome. Low probability event, obviously. Could it have worked out? Sure. Or if you put it in some leveraged product that was tracking semiconductors, it would have worked out very well. In this example here, not very well, because the underlying stock actually went down over 80%. Now, this is Strategy. And if we do a 2x leveraged version of that, it's down about 98%. So 98% from this period of time. And what a lot of people said when I posted about this on X is this person was 22. It probably didn't have a lot of money and it was a costly lesson, perhaps, but the amount was probably small and was probably a good lesson to learn at that point in time. And I would 100% agree with that sentiment. Hopefully, it was a very small amount. Hopefully, this was just tuition and learning not to do this again. Concentration, very tempting. Of course, it's the fastest way to build wealth, but it's also the fastest way to destroy it. Boring, very boring is putting money in your 401k or your IRA every couple of weeks when you get your paycheck, but that's a much higher probability bet in terms of building long-term wealth over time. So, you could get lucky and get the timing right with these vehicles, but the odds are really stacked against you.
Why is MicroStrategy going down? I talked about it last week, uh, with their preferred equity offering. It's down even more since then. It's really just a story of the underlying here, down 53% now. Bitcoin, uh, hitting, crossing below $60,000. So this is now the biggest and longest drawdown for Bitcoin since 2022. But not as deep as back then. Then we saw a 78% decline. So we're at 53% today.
Let's talk about the housing affordability crisis. We haven't touched on this in a while. I thought this was an interesting poll related to the housing affordability crisis from the Wall Street Journal, talking about the lack of confidence that people have that their life for their children will be better than theirs. And that lack of confidence is going up, meaning people are less confident that their children's lives will be better than theirs. In 2019, we look at, and they break it down by upper and middle class, upper middle, middle class, and working class, and lower class. So I guess based on income. And in all three of these, so it doesn't matter what your income level is. Over the past seven years, we've seen a dramatic increase in the lack of confidence that their children's lives will be better. Talking about now, all three income levels here, saying over 80% of them lacking that confidence that their children's lives will be better than theirs. And a big part of that is the affordability crisis. I've touched on the housing market a lot in the past few years, but it's still there. It's, it's, it's still the number one issue for most young people because the change in the last decade is just so stunning in terms of affordability here.
I'm just outlining you, uh, what's gone on here. 10 years ago, you had a 30-year mortgage rate of 3.5%. The average new home price in the US was $350,000. Today, 30-year mortgage rate is 3% higher, so 6.5%. And the average new home price is $540,000. So price went up from $350 to $540 and mortgage rate goes up from 3.5 to 6.5%. So assuming a 20% down payment, you have now a 117% increase on what that monthly payment would be, plus you need another $38,000 to meet that down payment because of the price increase. So needless to say, this is unaffordable to most young people, this type of increase because their incomes haven't gone up nearly as much. And this is just talking about the price of the home and the cost to finance it. What we haven't talked about is all the other stuff related to housing that's gone up a lot as well. If we look at property taxes, insurance, maintenance, repairs, all these things are up more than the rate of inflation over the past few years since 2019. So housing, most unaffordable housing market in history, really continues. It's been really a few years now. We keep talking about it. Thankfully, the rate of appreciation has slowed. So, it's almost flat now if we're looking on a year-over-year basis. Uh, but what you really need to see is either mortgage rates to come down, people's incomes to really go up a lot, or prices to come down. And that last part really hasn't happened enough to make a meaningful dent in terms of that lack of affordability.
And the two big things that contributed to the increases in home prices, the really irrational increases. So home prices outpacing inflation, outpacing incomes. Why did that happen? Well, we printed money. We had artificially low interest rates and we had huge amount of deficit spending at the government level, and that created a massive amount of inflation. And unfortunately, we're not learning our lesson because we're still increasing the money supply. It's actually gaining steam again on a year-over-year basis. Not what you want to see here. Hitting another record high last month at $23 trillion, up over 5% in the last year. So, we're increasing the money supply and we're continuing to do massive deficit spending. The national debt, uh, last July, uh, was raised the debt ceiling by $5 trillion and in just less than one year here, we've already increased by over $3 trillion. So, we're going to be talking about another national debt milestone pretty soon here. And by next year, so 2027, we're going to see another fight about increasing that debt ceiling.
So, how can we make the housing market more affordable? Stop printing money, stop subsidizing demand, and you'll see prices fall, and they'll be immediately affordable. I think we'll get there anyway. It's just going to take a long, much longer than if we actually rip the band-aid off and actually let the free market take hold because eventually you're going to have prices normalize to the point where they're affordable based on income. So you can take 10 years to get there or you can have a real housing market based on real demand. And that means stop the subsidization, Fanny Mae, Freddy Mac, stop the Fed buying mortgage bonds, artificially lowering interest rates, and you'll see the housing market correct. You'll see affordability come back and that'll be great for the younger generation. The problem is there's very little demand to enact those policies. Instead, you're seeing these housing bills that include nothing really that's going to make a dent in terms of this affordability picture anytime soon.
So, let's talk about quickly here. Narratives follow prices. So this is always true in markets and what I say is the one prediction that I'll always make is that as prices change, the narratives are going to change along with it. Here's a stunning one in just the last five months. So five months ago, if you remember, everyone's saying the dollar is doomed. Gold and silver going to the moon because gold and silver went parabolic, had their biggest increases since 1979, 1980, and the US dollar was under pressure, having a pretty bad year last year. And then in January, it was down a little bit more. And we saw the sentiment just entirely flip here, essentially on a dime. So, gold peaked, silver peaked, they turned around. We fast forward to today. Last five months, the dollar index ETF's actually up 6%. Gold is down 20% in the last five months and silver's down 44%. So, just a stunning reversal tells you a lot about narratives because now you don't hear that same narrative in terms of the dollar. In terms of gold and silver are going to benefit from a weaker dollar. Is having people question gold and silver, I think more now because the Fed is not going to be unnecessarily cutting interest rates. That was a big factor in the moves that we saw in 2025. That's now off the table and perhaps they're going to hike interest rates. That's putting pressure on gold and silver. They lost that narrative. But as prices change, the narratives will change. So if we see gold and silver recover, dollar fall, you'll see the narratives change as well. But it's just stunning to see this and it's a lesson also when a trade gets really crowded and everybody's expecting the same thing in terms of gold and silver. They're making these extreme price targets back in January. Everybody's talking about the same thing. That's when you really have the most difficult in terms of the go forward from there because everyone's already buying into that narrative.
So let's end as we always do with something positive and that would be don't bet against America. I want to end with one of my favorite quotes from Warren Buffett, or coming up on the 4th of July here. He said, "No one has ever been a success betting against America since 1776 and they're not going to be a success in the future doing it either." And this is a chart really illustrating that. A dollar back in 1870, invested a dollar into the US stock market, you had a lot of bad things happen. You had panics, depressions, recessions, wars, pandemics, and on and on and on. And yet, $1 adjusted for inflation over this period of time is now worth over $35,000. This is an incredible testament to the resilience of the American people, the American economy. And there's going to be many more bad things that happen going forward, take the stock market down in the short run. In the long run, big mistake. Agree with Warren Buffett. [music] Big mistake to bet against America. We'll end it right there. Thank you everyone for joining me. Have a great week. Have a happy 4th of July. And I'll see you next time on the Week in Charts.