Stocks Bonds Gold Crypto Crash Whats Going On

TITLE: Stocks, Bonds, Gold & Crypto Crash - What’s Going On? CHANNEL: Infranomics DATE: 2026-06-05 ---TRANSCRIPT--- Everything is crashing lower. Stocks are dumping. Gold is down 3%. Bitcoin is down 4% now below 60,000. Bonds are crashing and yields are soaring. What is going on? So, we have everything moving lower today. We have the stock market down more than 4% for the NASDAQ, more than 2% for the S&P 500. We have gold and crypto also crashing. We also have bonds crashing, aka yields are soaring. We have a lot to get to, a lot of volatility. Why did it all start? Well, this morning we got non-farm payrolls report and as we can see here uh the report was released about an hour before the market opened and we can see everything summarily crashed. Gold, Bitcoin, bonds. Remember the yield is inverse to the bond price. Here we’re looking at the bond price with futures and of course the equity market really really having a tough time right now. The NASDAQ again down more than 4%. So did we lose half a million jobs in the month of May? No, we actually gained 172,000 jobs, which was about double uh the median estimate from the Wall Street economists. Now, it’s important to point out the break even rate now or the number of jobs that must be added for unemployment rate to not go up is much lower than it was say 3 4 years ago when we had NFP prints above 400,000. And that is due to the fact that the unemployment rate is a fraction number of unemployed divided by the total labor force. Well, if you are uh growing the labor force uh very very rapidly like the last administration, you have to add a ton of jobs otherwise uh the unemployment rate is going to go up. Well, now net migration has gone negative uh and we have to add much fewer jobs. Uh right now the break even rate is about 30,000. So we came in well above that and again well above the median estimate. And it should be noted that this marks a trend change. Here is a moving average cross that we can see the three-month average moving above the long run average for NFP which has been declining uh that long run 12-month average. We are getting a clear trend change here with the three-month and the six-month moving average moving above indicating a trend change. Now, here’s kind of a broad look overview before we dive into each asset class. We have volatility going vertical. VIX now above 19. Uh we have the NASDAQ dumping uh quite the candle on the NASDAQ again down more than 4%. We have Bitcoin continuing to have a very rough time of it. Uh now uh testing $60,000 per Bitcoin. We have gold down at the lowest level going back to uh February of this year. And really what is probably the most important uh we’ll get to at the end of the video is the US Treasury market. We have bonds especially at the front end of the yield curve uh absolutely dumping. We have a dramatic bare flattener occurring in uh the US Treasury market. We’ll get to that at the end. But as we can see uh bonds are getting sold across the curve, but again is mainly at the front end where we have the 2-year Treasury at the highest level going back to February of 2025. Now, we’ll get into why that is important, what it indicates about the Fed and what the Fed might be doing. And as a result of what’s going on with this hot economic data, we have the dollar index. Uh, one of the few things that is green. I want to start with the equity market and I want to start with something many normal people are probably not aware of. It is something called the imply correlation index. And what this measures is the amount that investors in the options market specifically are expecting everything to move in unison. When uh the expectation is that everything moves together both up and down, uh that is a high implied correlation or a low dispersion. Well, uh the opposite is also true. That is what we’ve been seeing recently which is very very low implied correlations and record high dispersion. So it is the AI names verse everything else. A huge amount of macro complacency uh from the equity market and investors. No macro risk is really being priced in. The only thing that we see is uh you know a small handful of names really really doing well really outperforming in a bubblelike fashion and then everything else which is actually as we’ll see uh there are more decliners than there are advancers in the S&P 500. This is causing systematic funds to crowd in by the way selling index volatility and buying uh single name volatility mainly via calls. Uh assuming that dispersion continues to grind higher. Well obviously that is not uh what is playing out today and it never does. Uh that kind of complacency that you see where implied correlations go very low is always uh succeeded by a huge spike in implied correlations and volatility as we will see here. So here is the put call skew. Uh the put call skew refers to how many calls verse how many puts are being purchased. And we can see a record uh not a record but at least over the past 5 years a record uh low amount of puts being uh purchased and a record high amount of calls being purchased. Now why this matters is when you go buy a call option, you’re betting the stock is going to go up. Say the stock is trading at 50, you think it’s going to 100. So you buy a hundred strike call option. That gives you the right but not the obligation to buy a hundred shares of that company at expiration at $100. Now the person that sold you that call option has to hedge, right? Imagine the stock goes to $1,000 per share. You want to collect, you want to exercise and buy your shares at a h 100red. Well, they would have to go, if they did not hedge, they would have to go and buy at a,000 and then immediately sell to you at 100. Obviously that is not tenable. So there’s something known as delta hedging. This is uh when you sell an option you are hedging that kind of risk both on the call and put side uh in different uh ways. So when you’re buying a call the dealer on the other end is going out and buying underlying shares uh depending on what the delta is that tells them kind of roughly how many shares they have to buy to remain delta hedged. That causes the stock price to go up. Well, that means that more people’s call options go closer to in the money. Meaning that delta for other people’s call options starts to go higher as the likelihood of the contract going in the money goes higher. Delta goes higher and therefore there is more buying that must occur to all the people, all the firms and market makers that sold the various call options. Well, that pushes the stock price even higher which cause causes delta to move higher and that is basically a gamma squeeze. as what we have been seeing in the US stock market over the past couple months. Here we can see calls as a percent of the overall tape relative to puts and uh this might be a more intuitive way to think about it. There is an extreme amount of euphoria right now. Very very bubble-like conditions in the stock market. Very frothy euphoric kind of conditions. And the problem there is that if everyone is out rushing and buying calls, that is actually going to lead to a spot up regime. And we’ve been seeing that over the past couple weeks as I’ve been pointing out which is that volatility has actually been moving higher even though the stock market has been moving higher. What does that indicate? That is abnormal. Well, that means that people are buying a lot of call options. And again, that hedging dynamic, that delta hedging gamma squeeze kind of dynamic is pushing stocks higher, which is causing delta of everyone’s call options out there to move higher. meaning the dealers uh that sold the options have to buy even more of the underlying that pushes the stock price higher. Delta goes even higher and you can see how it becomes a reflexive loop. But what do you think happens when stock prices start to move lower? Well, the exact opposite. uh the dealer that might have owned 80 90 shares uh on your various option contract. Well, as stock price moves lower, the delta is going to move lower and therefore they are going to sell some of the shares that they had bought to hedge. And so just as it can cause a violent gamma squeeze higher, it can also uh cause pretty dramatic moves lower. And I think that that is a large amount of what we are seeing right now in the stock market. But I want to point to this which is the Cosby index. Uh this is the South Korean stock index. I’m going to zoom way out. We can see it has gone absolutely parabolic. You’ve had some really kind of absurd uh euphoric kind of things going on over in South Korea where pensioners are going out and liquidating their retirement fund and going uh uh fullport, you know, levered long on margin, you know, 2x, 3x levered. Uh just absolutely insane things. You have margin debt, you know, absolutely soaring. You have people overdrafting their checking account. There’s a name that they’ve come up with for this some kind of loan. It’s not a loan. You’re overdrafting your checking account uh to go buy really it’s just a couple names over in South Korea. SKH Highix, Samsung, some of these AI names. And as we can see, uh the Cosby started to have a bit of trouble here a couple days ago on Monday. Well, as we can see, the green line here shows the S&P 500. So, the euphoria and the mania and the just absolutely deranged behavior over in South Korea uh can have an impact here on your retirement and your uh uh pension, you know, your savings here over in the US. So, it’s really important to point out the modern-day financial system is global and it is interconnected. you know, hedge funds are going long on uh the Cosby and using that as uh collateral for uh to to to fund a position over here in the US and so forth. So all of this can unwind. Again, not just the implied correlation dispersion trade, but some of these other kind of pair trades, right, where people are long the Cosby and short consumer staples or something to that effect. Well, when that starts to go in the wrong way, it violently unwinds and it is going to be global. So here’s another way of thinking about what’s been occurring in the stock market. We can see it is tech and then it is everything else. These are just three different ways of looking at it. Financials relative to tech uh financials relative to the S&P 500 market cap weighted is uh very near to an all-time low going back to right before 2008 in the great financial crisis. Generally not a good indication by the way. equal weight. Uh so of course the market cap weight, the larger the company, the more share they have in the overall index. The equal weight, every company is given an equal waiting in the S&P 500. Uh equal weight as a share of tech. Uh and consumer staples as a share of tech. Everything has just been moving lower relative to tech. It is just a couple names, you know, 5 10 15 names in the AI sphere relative to everything else. And uh that is that high dispersion that we were talking about earlier. Here’s another way of thinking just how crazy everything has gotten. Now you might have seen the Buffett indicator. This is the stock market cap or the total value of all stocks in a given stock market relative to that country’s GDP. And here in the US uh we are hitting an all-time high of 231%. Which is crazy enough on its own. But as we can see here, Taiwan 531%. Now this is mainly the semiconductor uh uh story right with TSMC those kind of names powering the kind of picks and shovels of the AI trade and then we have South Korea the Cosby uh which has just about overtaken the US uh and gone much more in a parabolic fashion uh when it comes to uh the Buffett indicator we have been kind of grinding higher here in the US but you can see Taiwan and South Korea I think really illustrate what is going on in the equity market. So here is really really important. So we have been moving higher setting new all-time highs on the stock market on negative breadth. What that means is that more we are setting new all-time highs on the spy. Uh but more companies are declining than advancing. More companies are going down than are going up and this is of course due to the waiting. Right now we have about 40% uh market cap waiting 40% attributable uh to just you know the AI names and is important to mention that is historically bubble territory. Uh so we have the negative breath which means it’s really just a small number of companies powering everything higher. Here we can see another kind of representation of AI uh versus everything that is not AI making up the large majority of gains. Here is another way. Infoch exposure as a share of total equity market exposure parabolic. Here is another way. This is momentum stocks versus the minimum volatility stocks. You could think things maybe like Coca-Cola. And we can see five standard deviation overshoot on the high momentum names. You know the AI and chip names. Here is another really really important thing and it gets into the bond market that we’re going to cover in a second. This is one of the reason equities are moving lower. bond yields are moving higher and remember when you buy an equity you are buying discounted future cash flow there’s a couple issues there number one the discount rate which is the uh US treasury the risk-free rate those are moving higher and here we can see the equity risk premium remember you take a lot of risk when you buy an equity that equity risk premium is actually negative the earnings yield on the S&P 500 is now below uh the 10-year Treasury yield so uh risk free you can go buy a 10-year Treasury and uh your yield is going to be higher than the earnings yield of the S&P 500. So it’s part of the reason why the bond market matters so much for your stock portfolio which is the discount rate the future cash flow that you’ve bought uh is of course valued at a price to earnings ratio uh but is discounted by the risk-free rate and that is the US treasury yield. So as treasury yields are moving higher uh this is why stocks start to move lower. So here’s another way of looking at just how insane the size of this bubble has gotten. Public construction spending, total infrastructure spending, uh you know, bridges and airports and roads versus data centers. And we can see it has just now overtaken total infrastructure spending. Here is that capex, that capital expenditure from just again five companies. We can see for uh 2026 it is going to be about a trillion dollars of capital expenditures and that number is growing. It is about doubling every single year going back to 2024 that capex is doubling uh pretty much every year and here we can see the issue which is that their free cash flow is rolling over. So free cash flow uh you know back in 2022 23 24 25 these companies were growing their free cash flow at insane amounts and not only that but they were getting huge amount of net interest income due to the fact that interest rates were moving higher on their money market funds. So they were making a lot in both directions. it made sense kind of in 23 24 for them to be leading the stock market and and and concentration to uh be there because they were growing their free cash flow at a huge uh uh uh degree. Well, the problem is that has started to roll over and actually go negative uh for a number of these hyperscaler companies. Well, how are they going to do this spend a trillion dollars uh this year if their free cash flow is going negative? Well, they can issue debt. And sure enough, we are seeing this from, for example, Google. Uh I think they had about a $80 billion debt offering uh not too long ago, about a month ago. Here is technologies debt uh investment grade debt. The share that the technology sector’s uh share of debt relative to total private sector debt issuance and we can see is even higher than the.com bubble. And uh the credit default swaps on these companies are absolutely soaring. So here’s Meta and of course Oracle which is really incredible even higher than going into the 2008 great financial crisis. Yes CDS or credit default swap that is what uh happened you know part of the story with 2008 that is a bet that the company will not be able to uh pay back their debt and and have to default on their debt obligations. Not only are the credit default swaps uh the the spread starting to blow out, but the size the net notional uh uh position the size of credit default swaps on these companies is absolutely soaring. Uh and not only that, but it should be pointed out that there’s a lot of kind of vendor financing, circular revenue, uh you know, a kind of a a a self-referential sort of loop here where uh you know, it’s 10 companies are just kind of passing money back and forth to each other getting larger and larger valuations. Here’s one way of looking at that. This is the AI hyperscaler quote unquote other income as a share of their total net income. So remember Google, Meta, these various companies, they own uh private equity. You know, uh Open AAI and Anthropic are not public yet, but they own equity in those uh AI labs. Well, as the valuation in the private market of the AI labs goes up, uh you know, these public companies get to report higher quote unquote other income and uh therefore uh you know, it’s kind of the self-referential loop that I think is really really uh important for people to understand. Now there’s two names in particular with the equity market with the AI trade in particular that I think are worth pointing out. Broadcom uh which is really absolutely cratered going back to their earnings report where they give uh kind of uh lackluster guidance moving forward. Their earnings themselves were not too bad uh but it was mainly a story about guidance moving forward. And of course Google uh Google took the option. Remember we were talking about if their free cash flow is shrinking uh and they are trying to spend a trillion dollars per year. How can you do that? Well, you can do it by issuing debt as we looked at in the credit default swap soaring or you can do it by issuing equity in the at the money or ATM equity offering. Well, that is dilutive. And so Google uh announced an at the money equity offering and uh there’s a number of questions there. You know, why weren’t you able to uh uh issue debt? Was there not enough demand? Why are you having to dilute your equity holders, which by the way is kind of the exact opposite of what companies like to do with their share buybacks? You’re actually increasing the amount of equity and diluting people uh and and why is that? You know, are you not able to offer debt? What what what is the reason for having to choose an at the money equity dilution? So, Google and uh Broadcom are two of the kind of names again with the Cosby. I think that that is another large driver in terms of what is going on here. Now, to get to the bond market, it’s important to point out the 2-year Treasury is really uh what you should look at if you’re curious about the Fed. As you can see, the two-year Treasury move uh always occurs before the Fed starts to either hike rates or to cut rates. Here, we can see that every time the two-year Treasury peaks, it is before the Fed starts cutting interest rates. uh the two-year Treasury really determines where the equity market is going and sure, excuse me, where the Fed is going to go. And remember that the uh 10-year Treasury, it depends on the duration of the equity. Uh but you know, on average, the average equity probably has a duration of about 10 years. So you should look to the 10-year treasury for that discount rate again which is critical because uh the free the the free cash the future cash flow of the company that you are buying share of equity in uh it is it is discounted by that risk-free rate by the discount rate that is mainly the tenure and the tenure is going to influence things uh like your credit card interest your mortgage your auto loan interest everything in real life is influenced and priced off the tenure but the Fed is priced off the 2-year, you should look to the 2-year. And sure enough, the 2-year has been going absolutely vertical above the Fed funds, indicating, as we can see here from CME’s Fed Watch, uh, that the Fed is probably going to hike interest rates, at least according to what the bond market is pricing in. And here, this kind of neon green line is the one-year Treasury yield minus the Fed funds. uh and we can see that that is a positive 23 basis points. So we are about pricing in again with the one-year Treasury over the next one year. There’s about a 100% probability uh that the Fed hikes rates by 25 bips or a quarter of 1% at least one time. And again uh the Fed watch tool shows you some people are pricing in two rate hikes uh over the next 12 months. Now again that would blow out interest expense because we are financing more and more of our uh uh government debt in the front end in treasury bills in those short duration treasuries. So when you hike interest rates uh with the Fed that is going to drag uh T bill yields higher or constantly rolling over debt about $600 billion every five days. Well, it’s going to get rolled over at a higher interest rate if the Fed hikes uh which is going to lead to higher interest expense. Higher interest expense. we don’t pay it out of tax revenue. We issue even more debt uh to pay the interest on the old debt and so forth. So as debt is rolled over. Uh this is part of the reason I think that uh they cannot necessarily hike or the bar to hike interest rates is probably much higher uh than some people might imagine due to that kind of fiscal dominance uh sort of pressure that I’ve been talking about on the channel. So here is the 10-year Treasury minus the Fed funds. So you hear the Fed funds report and what the Fed is doing, but this is showing you that what uh influences your life, your credit card interest, your mortgage loan, the things that really matter to the average American, the spread on the 10-year Treasury relative to the Fed funds, uh is near to a record high going all the way back to 2022. Right now, 91 basis points above the Fed funds. And uh I had mentioned that dramatic bare flattener. This is where interest rates are moving higher. But the spread the difference between uh the long uh uh the 30-year Treasury yield and the two-year Treasury yield. That spread is growing narrower in a flattening yield curve and is growing wider in a steepening yield curve. We have been flattening uh going back months now to the start of the war and even arguably before that. We have been kind of vaccillating between a bull flattener and a bare flattener. But in either direction is clear that the yield curve has been flattening. This indicates that the bond market is more uncertain. Uh this is generally not exactly a sign of a reaceleration uh that some people are calling for with the US economy especially when you get a bear flattener that is indicating uh uncertainty with you know interest rate hikes uh and and and increasing likelihood of interest rate hikes which is obviously not going to be good uh for the US economy. It’s going to tighten financial conditions, constrain debt growth and credit growth and therefore constrain economic activity and not only that but of course uh we also have uh the interest uh with regard to the government. So uh finally to end here on gold I wanted to show real yields uh which we can see here relative to gold. Now historically this showed a very very tight uh negative correlation as real yields moved higher uh meaning the inflationadjusted yield was moving up gold didn’t like that and it would move lower. Uh we have seen definitely a breakdown in that correlation over the past five or six years. Uh but you know if treasury yields are moving higher even if it is happening kind of at mainly at the front end of the old curve that is going to pressure things like gold that is going to pressure things like Bitcoin anything that is basically a short dollar asset like gold or bitcoin is going to suffer when real yields are moving higher uh and nominal yields to some degree which uh we certainly see real yields on the tenure uh if you use the 10-year break even rate uh are about 2 and a.5%. So real yields are quite robust. Now we know inflation is uh undercounted and all that kind of thing. But uh using the metrics that the bond market looks at and that investors on Wall Street look at real yields are quite high and generally that’s not good for things like gold, things like Bitcoin uh and things of course like the equity market. So here uh we can see less of a correlation. This is the S&P 500 one-year change inverted relative to real yields and it is not as strong of a correlation, but real yields moving higher is not going to do well. Again, remember what you’re buying with an equity is discounted future cash flow. And again, the equity risk premium, the discount rate due to interest rates moving higher in the treasury market has led to that discount rate moving higher. And therefore uh your equity uh uh uh risk premium your earnings yield is actually moving below what your yield is in the treasury market risk-free with no equity market risk. Remember there’s a lot of risk when you buy an equity and here you get less risk in the bond market uh and of course higher yield. So uh this is going to be another headwind for the stock market as well. So anyways, hopefully that was helpful and I will catch you in the next