Speaker 1: Oh boy, the U.S. economy just walked into the wilderness, sculled with all of its GDP. Oh man, what does that mean for us? Why is it happening? And is this going to be a buy the dip opportunity? I'll let you know in this video, especially since this is Fed Week and we've got a lot to buckle up on. So let's get started with, well, first of all, I'm gonna take this sip of coffee, but then I want you to know why. Why all of a sudden did the NASDAQ, now it's recovered a little bit, but in pre-market dropped one, essentially the entire market, sold off $1.2 trillion of market capitalization, 3.4% here on the NASDAQ. It was even lower just a few minutes ago. Tesla's down 3%. And if you look at NVIDIA, it's down 11.56% in the pre-market. What is going on? And why is Apple only down one quarter of a percent? Well, all of it can be explained, and that's what we're gonna do in this video, in this AM edition of the Meet Kevin Report. News that makes you money. All right, what's going on? Well, listen, look, yesterday and on Friday, I made videos covering the Deep Seek story. That is exactly what's going on. And in this video, I'm not going to reiterate to you how basically there is a new artificial intelligence model that allegedly can perform as well as some of the best quality versions of chatbots from Facebook or OpenAI, you know, competitor to GPT, with a fraction of the training expense, potentially as little as 95%, or as much as 95% less actual compute or training expense to have similar results. Now, a lot of people are saying, I don't know, there's something sus about the Chinese. They're lying to us. But the problem is the code for this AI is open source. So every hedge fund and institution that can express jade on the internet, you know they're downloading the app in the App Store, which is now number one in the App Store. They're going to Deep Seek and they're making burner accounts and they're testing it. They're running it against the money, the hundreds of millions, hundreds of, I'm sorry, billions of dollars that are being spent on compute every single year just for artificial intelligence models that now China is putting to shame. Consider this for a moment. Just to train a traditional model usually takes somewhere around half a billion dollars. That's to train one model that they just did, the Chinese via Deep Seek, allegedly for less than $5.6 million. That means we're spending a lot of unnecessary brute force money on artificial intelligence chips and server centers. But it's not just that money. I mean, consider the first half of last year, we spent about 200, I'm sorry, we spent about $120 billion on artificial intelligence and artificial intelligence related. We think that by the end of the year, our US economy probably spent about 200 to $225 billion on artificial intelligence. And that's just really on like chip making investments. Now you might not think, okay, well, I mean, come on, Kevin, we have a $23 trillion economy. That's maybe 1% of our economy. Why does that matter? Well, there are a few reasons that spending matters. Number one has to do with the velocity of money. So this is an old economic principle that basically says when one person spends a dollar and it goes into the economy, it cycles through the economy and actually generates spending between three to $4 for every dollar that is spent. And there are different types of velocity of money, right? So when you put your money in a savings account, the velocity of money is closer to one. When you go spend your money, the velocity of money is closer to three to four. Well, AI spending is well, a form of spending. So we actually create a substantially strong contribution to GDP through, quite frankly, artificial intelligence spending. And it could be why we've avoided a recession. See, again, if you take, let's call it 1% contribution towards GDP, it doesn't sound like that much, but then recognize, oh my gosh, GDP is growing at about 2.5% to 3% with AI and then apply a 3x multiplier to that 1%. That means all of the 3% growth could be attributed to artificial intelligence and the additional spending that comes via the velocity of money. This is a really big problem because it potentially means our GDP without artificial intelligence spending, if all of a sudden we pair back the spending, if, you know, that's a big if, right? We could keep spending. But if all of a sudden corporations like Microsoft and Meta are like, damn, we've been duped. Well, you know what? We've got big data centers. Let's try to use the technology DeepSeek has with all of the infrastructure we have. Let's pause on new infrastructure spending and let's try to innovate with what we have, which we have plenty. And now all of a sudden you have a license basically for Amazon, Meta, Microsoft, Google to spend less money on artificial intelligence and say, let's work with what we have. Well, then all of a sudden you're in a place where maybe you end up getting the contribution to GDP sitting instead of at 1% and then as a result, the velocity of money at 3%, you actually end up sitting at 0% GDP growth. Well, what happens when you have 0% GDP growth and a federal reserve that is freaking out over a resurgence in inflation? Well, what you have is textbook stagflation. And the silence from people like Elon Musk actually speaks volumes to how much of a risk DeepSeek could actually be. If you scroll through Elon Musk's latest tweets, there is not a single mention of DeepSeek. And he tweets a lot. Why all of a sudden are we going quiet? Now, maybe I've missed a reply somewhere, but usually Elon is very, very vocal. And there is a potential. There is a chance that maybe Elon's looking at this going, oh my gosh, this is the valuation of XAI, poof. That's the extreme. I'm not saying that's exactly what's going to happen. I'm not saying the economy is going to go into stagflation, but we're gonna have a highlighter on a Fed meeting this week. And we're gonna be looking for something very specific. We're going to all be going to meetkevin.com because we've got a trading challenge that starts in like four days here and a huge Trumponomics coupon code. So if you're nervous about any of this that's going on, check out the Trumponomics coupon over at meetkevin.com. That's because if you wanna get through the madness that 2025 is going to be in the market and via Trump, you want somebody on your side every day. We are going to be conducting course member live streams. You get to be a part of them every single morning. You can ask me any questions you have, but you're also getting access to all of the Trumponomics content, including the trading challenge and options alerts that begin February 1st. In addition to that, we're releasing content around tax strategies under Trump, investing under Trump, hedging under Trump, real estate under Trump, building an entrepreneurial brand under Trump and marketing under Trump. All aspects of essentially making money under the Trump administration, we're covering in Trumponomics. And the amount of content that's out right now is a fraction of the new content that's coming, which means if you lock in your price today, you get all of that content going forward for the life of the course under Donald Trump. So check out the Trumponomics course, join Trumponomics. I can't wait to see you there and get in before the price goes up because the price will probably be double where it sits right now. And I can't wait to have you. If you have any questions, email us at staff at meetkevin.com. Otherwise check it out over at meetkevin.com. So what else do we have to know? Well, we have the Federal Reserve this week. This is very, very important. The Federal Reserve this week is expecting to tell us, hey, we are going to pause, but markets are actually going to start pricing in the potential for more interest rate cuts if GDP tumbles. Now, remember, I have been one of the people who's been basically called a clown because I've argued that at some point, there is going to be an efficiency movement. But I have said time and time again that when you look at a chip like Blackwell that uses 25% of the energy as an H100 to perform the same type of training, then you don't need as much energy and as much electricity or utility investments as people think. Now, what's actually happened is not only are you getting chip-based efficiency, but now you're getting model or demand-side efficiency, which means your demand for energy will fall under new efficiency models, but also your demand falls under more efficient chip models. This makes utilities specifically exposed to, unfortunately, the negative risks of efficiency from better training compute, especially since you're in a place where you don't actually have that much profitability coming from artificial intelligence today. A lot of people are wondering, is this overblown spending? Now, look, I'm a big fan of artificial intelligence and the things that can come out of artificial intelligence. Consider for a moment that companies like Tesla, or I hate to say it, but Tesla's competitors, might actually now be able to engineer full self-driving versions much more efficiently than they have previously. The holdup is all going to come down to data. Tesla has the highest access to data today, but what happens when training gets so inexpensive that you could actually train using artificial intelligence simulated models plus collecting data or even buying data? Well, at some point, that moat for Tesla's FSD will begin to shrink, and I have concerns that at some point, that moat shrinks before Tesla actually makes it to the level of robo-taxis, allowing multiple entrants of robo-taxis at the same time. This is not to be bearish. Tesla actually think, I'm very, very overall bullish. Long-term Tesla, optimist, robo-taxi, very excited. The problem that we all face though right now comes down to valuation, and I hate being that person that brings up valuation, but let's just consider for a moment what valuations look like in the market. So when we jump into US versus global equities and valuations thereof, take a look at what we have. We have the Magnificent Seven sitting at the highest level that we've seen compared to the rest of the world ever. Now, keep in mind, and these are obviously adjusted over time here, the problem with this chart is it doesn't consider the fact that earnings are disproportionately showing up in the United States because of artificial intelligence. So I actually think you're better off using an inflation-adjusted sort of P-E multiple, right? A multiple of earnings. How many times earnings on an inflation-adjusted basis are US stocks trading for, and how does that compare to other points in history? And this is actually where you come up with the Buffett measure or the Cape-Shiller P-E multiple, the Cape ratio, for, what do we have? Valuations in the US stock market. And what you'll find is that US valuations right now sit at the high that we sat at in December of 2021, which was also the time the Federal Reserve became more aggressive again. And that's somewhat what we're going to hear likely this week, an aggressive Fed in the face of inflation fears, also while the market is going to be concerned about growth fears. That's not an ideal duality. That's going to be very similar to what we saw in December of 2021. And the fears today about the Federal Reserve actually began on December 18. It sounds very similar to December of 2021, which is when we had a similar valuation peak. If we go back to the dot-com recession, the bubble, we actually see that valuations were quite a chunk higher. If today we're sitting at 38.47, then we sat at about 44.5. So if I just divide those into each other, we could see that valuations were about 15% higher in the dot-com bubble than they are now. But we're still at the fourth most expensive time in the history of the stock market. And when I bring up that the stock market is at its fourth most expensive time in history, I tend to get comments that make me very nervous. I get comments from people that say things like, but Kevin, everybody has an app on their phone today and everybody can buy the dip on stocks. So what's going to end up happening? Everybody can buy the dip and stocks will never crash again. And it's as soon as I hear people say things like, the stock market's never going to crash again, or the business cycle is dead, that I start to think, or quite frankly, when like, you know, random people at grocery stores working the checkout lines are like, hey, Kevin, which meme coin should I buy? I heard if I invest $1,000, I could turn it into $100,000. I get a little concerned that we're close to a cycle top, especially since now you've got, oh, okay, MicroStrategy today announced the launch of STRK, a new convertible preferred stock offering, ah, for institutional investors. Right, okay, so at least MicroStrategy is going to buy the dip by diluting their stock more. That'll be fine, I'm sure. UBS cuts hundreds of Swiss jobs in latest wave of cuts. All right, whatever. Anyway, so what do we want to pay attention to? Well, not just valuations, right? Because remember, Nvidia's valuation actually looks pretty decent if you assume the growth that they have been projecting. Nvidia's valuation looks like they're trading for a 1.7 peg. It's actually pretty decent, but that's based on 30% growth. Well, what does Nvidia look like if you cut their growth down to 5%? Well, it looks like a 10.2 peg, which is more expensive than Palantir is today, which is crazy. So then you have to wonder, okay, well, what stocks are most resilient to any kind of sort of AI sell-off? Well, certainly not Advantest Corp, which is an Nvidia supplier, which was down over 8% in Tokyo trading. It's potentially the Chinese stock market. I know some people are investing in the Hang Seng Tech Index, which was up over 1.3%. A lot of people are frustrated with SoftBank because they see them as dumping money into ARM and they own a lot of ARM, and SoftBank stock was down over 6% in Japanese trade today, and we'll see how ARM performs today. But a lot of folks wonder, okay, maybe the place to actually go run and hide is one of two places. You look for a pricing power style stock that isn't highly exposed to artificial intelligence spending, but could be a beneficiary of more efficient AI models. What kind of company does that sound like? Well, to me, it sounds like Apple. Apple could potentially be a beneficiary here, and I think that's why they're only down 0.13%. In fact, I mentioned this in my video yesterday that Apple has a big moat, just like Facebook. People are still gonna spend with Facebook ads. People are still gonna buy iPhones, and these products will be enhanced by the commodity that is a good chatbot. Now, I got a lot of complaints yesterday that, oh, but Kevin, you know, this company secretly used a lot of Nvidia H100s. That's fine. In fact, I already addressed that in my videos. That has nothing to do with why Nvidia should somehow not sell off. In fact, it has everything to do with why Nvidia should sell off. Even if DeepSeek is using the best Nvidia chips available today, they still only need 5% of the compute power. 5% of the compute power is 1 20th. So for every one Blackwell chip somebody else is buying, or I should say for every 20 Blackwell chips another company is buying, they only need one. I don't understand really how some people believe that that all of a sudden is going to create more demand for Nvidia, and I broke down my thesis on that yesterday, so if you haven't seen that yet, make sure you watch the full video yesterday, and you'll understand some of the context around this. Now, some of the comments that were coming in were things like, oh, but Kevin, you know, this just means that people are gonna be able to research more and their demand will go up. This assumes that artificial intelligence models are going to be better than they are today. We are not limited, we're not practically limited with a supply of artificial intelligence capacity today, but it's just sort of at a 4.0 level, a GPT 4.0 level, and then add, you know, the asterisk of reasoning for 0.1. But that's not good enough to actually get us to AGI. We're a long way away from that. We, quite frankly, have a commodities dictionary. That's what markets have today. Everybody now has a chatbot, which is as good as a dictionary that actually tells you what you want when you have questions about it. And so the second potential investment that could be very interesting to pay attention to in today's market would be bonds. Bonds are a bit more of a flight-to-safety tool, and they're really only something that you should consider using because they can lose you a lot of money. They should really only be something that you consider using if you think that inflation is going to go away and you need a downside market hedge. So take it with a grain of salt, but the bond market is up quite a bit today. Yields are down, which means bonds are up. 8.7 bps on the 10-year is great. Now, what you wanna do is you wanna look at the difference between the 10 and the two-year. We're at 4.53 here. We're now at 4.2 here. So we've got about a difference of about 33 basis points. What you wanna watch for is, is this going to be the catalyst that all of a sudden pushes that spread between the 10 and the two-year up to about 50 to 90? Because if it does, that's when you trigger the recession alarm and you wanna be very, very cautious. I'm not saying that's going to happen, but I do want you to take away from this video that there are going to be great companies, Apple, Microsoft, Meta, that yes, maybe they overspent on AI, but they're still going to have a lot of pricing power. But your chip and chip-adjacent companies are probably going to get hit decently hard in this sort of environment if the data ends up being true. And again, since it's an open-source model, it probably is. These efficiencies are going to spread to all of the other AI modeling companies. And the demand for, quite frankly, new compute chips may fall off a cliff rapidly. And therefore, your chip and chip-adjacent stocks are likely to get hit the hardest, including plans for Stargate. I'm really curious to see what someone like Elon Musk eventually says, but I do think your highest pricing power stocks, like again, even a Tesla from this point of view, at this point with an FSD technology they have, they should be more insulated. Yes, they spend money on chips that maybe they don't need as many of right now, but that's fine. They have the tools, they'll figure out how to use them, but they don't necessarily need to buy more. Will this lead to a broad and continuous market crash? I have no idea. I hope not. Because if it does, you have to remember that as soon as the stock market really and deeply and meaningfully sells off, we're probably going to end up seeing a lot of layoffs. And I do not want to see a layoff recession. So with that said, I encourage you to head over to meetkevin.com. Check out the courses on building your wealth, especially that Trumponomics course. You're not going to regret that purchase. Promise you, you're going to love it. And I look forward to seeing you in the course member livestream. Thank you so much for being here. Remember, trade alerts start soon. We'll talk soon. Thanks, bye. Goodbye. Why 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 there, financial analyst and YouTuber. Meet Kevin, always great to get your take.