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Hello everyone! So you better get ready, because everything is about to go to hell. Okay, I know this joke is getting old, but this time there's something really wrong with our economy. And what worries me the most is that most investors have absolutely no understanding of what is about to happen. After all, with inflation rising, nearly 40% of S&P 500 companies already in a bear market, and with cracks appearing across the U.S., we could be on the verge of something no one is prepared for. That's why we need to take a detailed look at what the Federal Reserve just announced a few hours ago and what impact it will have on stocks, the midterm elections, and the entire economy. And most importantly, what can you do about it today? Because the real danger is not what
everyone is worried about. On the contrary, it's something everyone ignores, and we'll discuss it once you hit the like button and subscribe if you haven't already Okay, I know you're tired of me constantly asking for likes. I don't like it either, but helps the channel tremendously. And as a thank you for this, I'll give $100 to a random commenter if you leave one within the next 12 hours. How do you like that? I hope this makes up for my requests. Thank you very much, and also a big thank you to SoFi for sponsoring this video, but more on that later. So, in relation to what Kevin Warsh said, the risks to the economy that almost no one is talking about, and
most importantly, what you can do today to get ahead of events, we need to talk about Treasury bonds. Listen, very briefly: I've said this before, but for those who don't know, Treasury bonds are actually the foundation of our financial system because their interest rates determine the cost of borrowing money for everything. We're talking about mortgage rates, consumer loans, lines of credit. Basically, consider it a promissory note. And in this case, the borrower is the US government, which pays you virtually guaranteed interest. So what's the problem?
Well, in the past few weeks, those interest rates have skyrocketed, and 20-year Treasury bonds have hit their highest levels in a decade, all thanks to the never-ending horror of inflation. In this regard, unfortunately, according to all available data, prices for almost everything are getting out of control. In fact, inflation rose to 3.7% in September, returning to a level we have n't actually seen since 2023. Furthermore, the situation could get even worse as another inflation report is out giving us a glimpse of what's coming next. This is the so-called producer price index. Essentially, it measures how much a business pays for goods and services before passing those costs on to you. And if we talk about these indicators, then, frankly
, the situation is quite bad. For example, in September alone, wholesale prices jumped by 1.3%-more than double economists' forecasts. Furthermore, these prices have increased by an impressive 6.3% over the past year-the highest annual increase in almost 4 years. Or, to sum it all up, these factors have caused interest rates to soar to unprecedented levels over the past 3-4 weeks. This posed a very interesting question for investors: if you can earn over 5.5% per annum without any risk for 30 years under the guarantee of the US government, simply by owning Treasury bonds, then why buy stocks? Why
buy real estate? Why risk any investments when you can get a guaranteed income by buying US bonds? And yes, you understand what I'm getting at. We have been seeing a pretty dramatic sell-off in the markets over the past few days. And when investors sell their stocks out of fear of how much these companies are spending and potentially losing on AI development, they often put their money in the safest places they can find-which is, of course, you guessed it, the same Treasury bonds backed by the US government. And this is what leads to a sell-off in the market.
Listen, if we talk about the stock market, if we step back and look at the profitability since the beginning of the year, objectively the stock prices look very successful. However, if you look deeper and exclude the seven largest companies that control the entire market, it turns out that everything else is in complete decline. No joke, according to a Reuters analysis, more than four out of ten stocks in the S&P 500 index have fallen in price over the year. How is that? Remember that the S&P 500 index is not 500 equal shares. It is weighted by market capitalization, which means that the seven companies we are talking about-Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla -make up over 35% of the
entire index, which is a greater concentration than any other sector in history, with the exception of the " railroad bubble" in the 1800s. Or, essentially, think of it this way. When you invest $1,000 in an S&P 500 index fund, $400 of it goes to just 10 companies, and the remaining $600 is distributed among the others. This means that when the top seven make a move, your entire portfolio moves with them. And, surprisingly, these top 10 stocks accounted for 59% of all gains this year. That's why we have a K-shaped economy in the stock market that is completely split in half. Furthermore, this bifurcated market does not only apply to stocks. This is literally happening everywhere. For example, ING claims that AI investments alone are driving a third of
all US economic growth this year. Meanwhile, the rest of the economy is barely moving. For example, in September, employers added only 29,000 jobs. July figures were revised downward to losses, with new home construction falling 5.2%, with one economist warning that the housing market was heading for a deep freeze. This means that both our economy and our stock market are completely dependent on a few companies spending hundreds of billions of dollars on AI. And look, don't get me wrong. If everything goes well, we'll all make a lot of money. But if not, investors will start thinking: "Come to your senses.
How long will it take for this to start turning a profit, and what if it doesn't? This is where we will run into problems. So, in terms of what's next, how the midterm elections could change everything, and what Kevin Warsh just warned us about with interest rates-this is what you came here for. Because I have a hunch that the real danger is probably not what you expect. Before we get to that, though, I just want to say that while everyone is focused on the Federal Reserve, interest rates, and what's next for our economy, there's another major shift happening in our markets. And it's all related to cryptocurrency. When it comes down it, there are, without exaggeration, so many new potential opportunities on the horizon, but getting started can often seem
overwhelming and confusing. And with so many platforms, it can be hard to know where to even start. But this is where our sponsor, SoFi, can help. In fact, from now until December 2nd, you can earn up to a thousand dollars in your chosen cryptocurrency. But more details about that very soon. For those who don't know, SoFi is the first nationally licensed bank where you can buy, sell, and store cryptocurrency in one simple app. This means that instead of putting your money somewhere and hoping for the best, SoFi offers you a federally regulated platform with all the security guarantees of a bank. They even provide tips in the app so you can learn as you go, better understanding your actions before making any decisions.
Plus, I like that they allow you to buy and sell cryptocurrency in the same SoFi app as the rest of your finances. This means you can manage your cryptocurrency alongside your SoFi checking, savings, and investment accounts without having to switch between platforms. Of course, cryptocurrency is inherently risky, and before investing, you should make sure it is appropriate for your financial situation. But if you're ready to explore cryptocurrency with SoFi, a national bank, simply go to sofi.com/graham or click the link in the description below to start your crypto journey with SoFi today. In addition, as I already said, new customers will be able to receive up to $1,000 in cryptocurrency of their choice: Bitcoin, Solana, or Ethereum. All information
is below in the description. Thank you very much, and now let's get back to the video. So, before we discuss what Kevin O'Leary just said, the impact this will have on our entire economy, and, most importantly, what you can do about it, there's another catalyst that no one's talking about, but it's happening next week. And this is what is known as the "curse of the midterm elections." For those who don't know, historically midterm election years are the weakest for markets during any presidential cycle. In fact, since 1970, the stock market has risen an average of 7.5% in midterm election years compared to 12.4% in all other years. And since 1950, the average peak-to- trough decline during a midterm election year has been 17.5%
-the deepest of any year in the cycle. As for the reasons, the market hates uncertainty. Therefore, instead of taking risks, investors are more likely to withdraw their capital from the markets, hold it aside until they see what is likely to happen, and then plan their actions accordingly. For example, right now, election forecasts are pointing to a potential Democratic victory, which of course could be a big change from what we have now. However, even though the election year itself is usually quite weak, the good news is that markets tend to rise after the election results are announced. As for how much money you can make, since 1950 the S&P 500 has risen 12 months after every midterm election-19 times out of 19, with an average return of about 15%.
In fact, the best performance was 33% in 1954, and the worst was still plus 1.1% after 1986, which, incidentally, was even after the Black Monday crash of 1987. Although, if we talk about this election year, this is where 2026 becomes very interesting. Surprisingly, this year has broken almost every historical trend that has ever existed. For example, instead of the typical 17.5% drop, the biggest decline so far has been only 9%, and the market was already up 10% on the eve of the election, which raises a very interesting question. Did we get a post-election rally early, before the midterm elections even took place? Well, to answer that, we have to go all the way back to 1874, because believe it or not, the stock market
has been up after 32 out of 38 midterm elections, or about 84% of the time. Of course, these are pretty good historical odds that yes, we will continue to grow. Of course, this is not a guarantee. But what interested me most was that midterm elections have no effect on market returns at all: who gains seats, who loses, who wins, who loses- it doesn't matter at all. Instead, the only thing that matters is that the results are calculated and investors can plan their next steps. So, while the midterm elections are coming up soon, which in theory should bring some nice gains, there's another hurdle for the economy, and that's the main reason I'm posting this video today. And that, of course, brings us to the Federal Reserve. As I mentioned,
a few hours ago the Federal Reserve decided to pause any interest rate hikes and leave everything unchanged until the December meeting. At this point, let's be honest, anything can happen. After all, they say, inflation is still high. They have already raised interest rates and have a lot more work to do, which likely points to higher rates in the future. But unfortunately, Fed Chairman Kevin Warsh refuses to give us any predictions about what will happen next. After all, they say, inflation is high, they've already raised rates, and there's still a lot of work to do. So, this most likely indicates higher interest rates in the future. But unfortunately, Fed Chairman Kevin Warsh refuses to tell us what happens next. As he did earlier in the month,
he stated that he was not jumping to conclusions about the meetings, but in terms of warning the markets, he said that we are not doing that anymore, which is actually another way of saying that we are all on our own. As before, under Jerome Powell, the market received step-by-step explanations. He was giving indications of what they were probably going to do. He added little hints. He spoke to journalists and clearly indicated his intentions for the future so that the market had time to adapt. But this time we get absolutely nothing. That's why the market is now pricing in a very high probability of another rate hike, unfortunately in December, with approximately 50 basis points of increases over the next 6 months. So if you're waiting for lower mortgage
rates or perhaps better terms on personal loans, all I can say is -good luck. Whatever the case, the best-case scenario is for oil prices to cool, for an interim deal with Iran to be reached that is sufficient to temporarily resolve the situation, and then we would only get one rate hike and that would be it. But the worst-case scenario is that oil prices continue to rise, inflation increases, and the Fed raises interest rates while we create fewer jobs than in recent years. So, in my opinion, what most people miss, and most importantly, what you can do about it, this is what you came here for. In general, I will be frank with you. I am a little more cautious about stock market valuations today than I have been in the
past. Not because I think there's going to be a crash soon, but simply because when I look at the ratings, it makes me a little cautious, a little nervous. For example, look at the S&P 500's Capex ratio. It compares prices to earnings over the past 10 years, and it's currently around 41. For reference, the only time it's been higher was at the peak of the dot-com bubble at 44. To be fair, prices could just as easily continue to rise, and the case for a bull market is pretty strong. For example, if you look at the expected earnings of the S&P 500, the index is trading at around a 20-to- earnings multiple, which is actually quite close to its 5- year average. And unlike, these companies are making huge money. There's so much money in the world, it's
just mind-boggling, and it makes me think: hey, we might still be a long way from the end. That's why today's question is n't whether stocks are overvalued, but whether their earnings can justify current prices, or whether earnings will eventually have to decline to reflect reality. Or, from my perspective, that's why I like to have a small buffer, so that if something happens, I have some cash or Treasury bonds that I can rely on to keep buying on the dip. Again, it's not because I'm expecting a crash or anything like that and I'm like, "Oh, I'll just go and buy at the bottom."
Look, I'm not trying to guess the perfect moment in the market, but I want to make sure that I'm never forced to sell, and that if the market does fall, I'll have the funds to keep buying. Additionally, I also believe it is very important to have a diversified portfolio. Make sure you don't keep all your money in just the S &P 500 index or just tech stocks. Instead, you might want to look at international stocks, bonds, Treasuries, a little cash, maybe a little cryptocurrency or gold. It doesn't matter. It is very important that if one thing falls, you have something else to rely on. And finally, just make sure you have a stable income, because with this hiring slowdown, your job is likely to weigh a lot more than what's going on in the market. So do
everything you can to keep your job and a steady income, and then you can keep investing, even if the market goes down, you can just keep buying. Ultimately, I just believe that we should hope for the best but also prepare for the worst because I'm not going to pretend that this market is cheap, but I'm also not going to pretend that I know what's going to happen. And my whole strategy from the beginning is to just keep buying no matter what, and also hit the like button and subscribe if you haven't already So, with that in mind, thank you very much for watching. Also, if you want to receive bonus videos from me every week, as well as have early access to content that I don't publish for everyone, join the
channel sponsors. You will be able to receive additional videos from me that are sometimes too specific for YouTube or this channel. So I really hope you enjoy these apps. These are topics that I really enjoy talking about, but I know they won't be suitable for a wide audience. I hope you like it. Join me in this, I'd be happy to. Thank you very much, and see you next time.
