Is This the End of Normal? The Market Is in 'Opposite Land'

Michael Zuber (0:02)

Don't look now, but PPI just printed an ugly number, and the 10-year note is crashing. Folks, normally you get a reading like we did on PPI today, and the 10-year note would rise, odds of rate increases and the like, but yet the 10-year note is frankly falling off a cliff. What is happening? Well, near as I can tell, there is a rush to safety, and at the end of the day, the 10-year note is still the safest thing on the street. So it looks like the AI bubble is at least in question, if not been popped, and thus there is a lot of money, even with this nasty PPI print, which we will get to in a minute, is, yeah, the 10-year note is falling. It peaked at 5.34. It's now 5.05. Mortgage rates will certainly be falling on this. I mean, the 10-year note's down 14 basis points today. And that is with PPI printing, perhaps one of the ugliest numbers I've seen. PPI printed a month-on-month increase of 1.3. Folks, that's a 15% annualized run rate. That is horrific.

Year-on-year printed 6.3. I'll say that again, 6.3. Expectations were for 5.3. So again, a massive beat to the upside. Now, if you are looking for good news inside the PPI number, you can directly link, track, trace 50% of that increase to energy. There is without question, 50% of this nasty number is directly related to energy. But that still leaves the other 50%.

It does seem like inflation is broadening out, which is frankly not good. But you get a nasty number like this, and you get tech stocks selling off for the second day in a row, people will flee, rush to the 10-year note. And that's what we are seeing today. On top of that, we got retail sales. Retail sales appeared to be strong, came in at .8. Expectations were for .3. But in my opinion, because retail sales are nominal, they are not adjusted for inflation, this number is not nearly as strong as it would look on the surface. So again, very interesting to look at. Don't know if you caught this. Yesterday, I gave a rather negative or ominous daily financial news. And I just wanted to be clear. I've been creating content for eight years. I've been doing the daily financial news for seven years. And I am the most negative on the US economy for the next six to nine months than I've ever been. I see lots of challenges in front of us, most of them somewhere between not good and ugly. We will of course get through them, but sometimes you got to crawl through glass to get to the other side. So again, being that guy for you that's generally glass half full, that is always looking for the opportunity, I just want you to realize that I am, for the first time, looking at the puzzle of the US economy, and it looks, it doesn't look great to me. So this is not an act, this is not clickbait, there's nothing to it. I am generally concerned about the US economy to the summer of next year. It's about as far as I can look. So I just want to make that clear. This is not a game. It doesn't bring me any joy to say any of this. But as always, where there's great pain, there is great opportunity. So I just wanted to be clear with all of you.

I am nervous. I am certainly nervous. Don't know if you saw this yesterday, but this might have been the spark. There, when I was working, there was a company called the Gartner Group. Now I think it's just called Gartner Consulting or something like that.

The Gartner Group put out an article, or I should say, a research paper yesterday. At least I saw it yesterday. It may have come out the day before, where it said that 80 percent, 80, four out of five, NeoCloud providers will cease to exist independent operation by 2030

Dude, 2030 is like tomorrow in the tech world. And Gartner is saying 80 percent of them will essentially be out of business.

From that article, and then, oh, by the way, what does that mean? The NeoClouds have committed 3.5 trillion dollars. I'll say that again. 3.5 trillion dollars to infrastructure build out. If these people don't exist, that money don't get spent, and even worse, if the money does get spent, it doesn't get paid back. That debt blows up.

So, what happened? Well, one of the NeoClouds yesterday, let me get to my notes, CoreWeave took it on the chin. Their bonds are now trading like junk, paying 15% interest. I think they went out at 9 Now, they're paying 15 The bond value has fallen, which means the rate has gone up. So, I think there is a general feeling that maybe all this CapEx, this circular financing, this counting revenue twice, or whatever the heck they're doing, is starting to be put into question. So, again, very, very interesting.