---
title: 'The "Dragon" Stock Market Crash is Starting'
source: 'https://youtube.com/watch?v=0v8UeBPfLhg'
video_id: '0v8UeBPfLhg'
date: 2026-07-01
duration_sec: 1485
---

# The "Dragon" Stock Market Crash is Starting

> Source: [The "Dragon" Stock Market Crash is Starting](https://youtube.com/watch?v=0v8UeBPfLhg)

## Summary

The video discusses a significant stock market selloff driven by liquidity issues from SpaceX and Google, combined with Bank of America's 'dragon' warning (CPI exceeding unemployment). The speaker analyzes how these factors, along with the Fed's higher-for-longer rate stance, create stagflation risks and a bear flattener in the yield curve.

### Key Points

- **SpaceX Plummets** [01:44] — SpaceX stock down 16.4% on the day due to liquidity concerns and refinancing $20 billion in debt.
- **Google's Massive Stock Sale** [03:12] — Google is selling $70 billion in stock, with $30 billion expected by end of June, adding selling pressure.
- **Bank of America Dragon Warning** [08:53] — Bank of America's 'dragon' warning: CPI (4.2%) is near the unemployment rate (4.3%), signaling stagflation risk.
- **Bear Flattener in Yield Curve** [11:45] — The yield curve is experiencing a bear flattener: yields rising while spread between 2-year and 10-year narrows.
- **AI Token Growth Deceleration** [10:28] — AI token usage growth slowed from 50x (2024-25) to 6.7x (2025-26), indicating commoditization and reduced need for capex.
- **Extreme Bull Positioning** [21:36] — Bank of America bull-bear indicator at 9.2 (extreme bullish), with sell signals historically leading to 2-3% average loss.

## Transcript

Wow, what a wipeout in the stock market.
We need to talk about what's going on
and specifically the Bank of America red
dragon warning. Really, the dragon
warning. It's just often called a red
dragon because well, it means stocks end
up going red. We're going to talk about
that. We're going to break down exactly
what's going on with this liquidity
issue coming from SpaceX, Google, and
the timing around these. Very important.
uh some miscellaneous other news in
addition to what's going on with Micron
Wednesday. We already have a full
breakdown video on that. Uh then we'll
be moving into the Bank of America
Dragon warning and then of course we'll
talk about the Federal Reserve and
something that's really contributing to
some of the pain that we're seeing
today. So let's get some of the simpler
news out of the way first. Uh of course
you've probably already seen it at this
point. SpaceX is refinancing about $20
billion of their debt that was really
due within the next year. And so it
makes sense they're trying to get rid of
that debt. But the problem is they're
already going back to the market after
raising 75 billion plus another10
billion dollar green shoe. And now
they're hitting up bankers for even more
money. It is a suck of liquidity.
There's only so much to go around. Uh
and so unsurprisingly that momentum that
SpaceX had been experiencing with just
4.2ish% two-ish percent of the stock
available to trade. Uh that really
helped propel the stock up well over
$200 uh up to like $217 per share after
IPO has now completely reversed as that
initial lack of access for shares and
momentum trading has turned into a
downward trending disaster. The stock
now down 16.4%
just on the day. This is not a surprise.
This is what we expected going through
the company's fundamentals. Although, I
will say it happened about a week
earlier than I expected. I thought we'd
have at least until that NASDAQ 100
inclusion before we'd start seeing
SpaceX fall. It started falling before
that. And you know, usually the market
is forward looking, so maybe that's not
a terrible surprise. But as a result,
the NASDAQ is also going down in part
because of SpaceX. Because even though
SpaceX isn't part of NASDAQ, the NASDAQ
100, we expect it will be within 15 days
of trading. And so therefore, when
SpaceX plummets, people start selling
off the index as a whole, which then
indiscriminately sells everything.
That's not great at the same time as you
have liquidity concerns. Look at, for
example, what's happening over at
Google. We had already previously heard
about the $80 billion stock sale, but
the timing of it of that $80 billion
stock sale actually really matters. See,
Berkshire Hathaway underwrote about a
$10 billion private placement and they
got a discount for doing that of about
7%. Which I personally thought was not
enough. They should really be trying to
go for like a reinvest style 20%
discount like we do on real estate. So,
I think this was a little surprising. I
think Greg Ael kind of needed to show he
was able to do a deal and get a
discount, but it certainly wasn't what
we're used to when it comes to Buffett
style negotiated discounts. So a 7%
discount has already basically been
evaporated in the market. And the issue
with that is what's going on with the
other $70 billion that Google is trying
to move into the market with their stock
sale. $30 billion of which are expected
to hit the market as soon as the end of
June. So that means between June and
July and August, we're expecting to see
$30 billion of Google stock dump so
Google can raise money for their
artificial intelligence endeavors. But
on top of that, their at the money $40
billion portion begins in the third
quarter as well, which is July, August,
September. So you potentially have this
overlapping $70 billion of selling
pressure for Google. And so it's no
surprise that right now the stock is
down about 12% off all-time highs. Still
obviously a great company, still doing
really well. It's up 33% year to date.
So you can't really, you know, uh, slate
them here for for wanting to raise
money. But the point is it's happening
at the same time as SpaceX is raising
money. At the same time, companies are
starting to go, it's getting a little
more expensive and harder to raise money
at the same time as yields keep rising
following Worsh. Now, we're going to
talk a lot about that because obviously
yields have been rising. If we actually
look at the bond market, we can see the
10-year is up about six basis points
today. The 2-year as well. So, the
entire yield curve just moved in the
bearish direction. We didn't really get
any kind of flattening or steepening. we
just went straight bearish where
basically both the 10 and the two are
going up aggressively in the same
direction. Not ideal. And eventually it
becomes a longerterm risk for the stock
market because one of the things that
keeps the stock market moving is the
fact that there's been relatively cheap
access to capital. But SpaceX, because
its fundamentals are kind of crappy, is
having to raise at higher interest rates
than people expected. Especially now
with the stock falling, you're probably
going to see even more of a premium for
SpaceX level bonds. And it just means
the entire artificial intelligence
capital stack has to pay more money in
interest than they could spend on
hardware or otherwise. That said, we
still had decent movement today on
stocks like uh Micron or SanDisk. Micron
today was up 6.8% which is great. Marll
was pretty much flat today. SanDisk was
up 4%. A lot of this is anticipation
around uh not only earnings for Micron
on Wednesday, but they also had this
really weird which I thought was just
sort of a pump announcement. This
morning, Micron announced basically
nothing right before earnings, but it
got a lot of news attention where Micron
announced that they are partnering with
Anthropic to optimize systems for
workloads and secure the supply that
Anthropic needs. And so then when I
actually got to like, okay, cool. So
what does this mean? like you guys can
make a chip together, you guys going to
like invest in a fab together? No, it
literally says Micron and Anthropic are
basically agreeing to quote will I
should rephrase the grammar here, but
I'll just quote it here. Micron and
Anthropic quote will analyze how memory
and storage subsystems perform across
various workloads and interact across
the full infrastructure stack. Like
what? Wait, so you guys announced this
crazy multi-year partnership to analyze
how things are going and you know to me
that helped pump those stocks today
because pretty much everything else sold
off. You know in this morning's alpha
report uh a few things happened. Uh we
correctly identified that software was
still going to be bearish for the next 3
to 6 months. This is not a very hard
estimate to make but we did correctly
say like be careful. Uh we also did
correctly say that SpaceX we maintain
our bearishness on it. And if you
actually look at SpaceX this morning in
the pre-market, and mind you, I'm in
Hawaii, so the time zone is crazy, but
in the pre-market, SpaceX was actually
okay. It was down like a percent or two.
And in our alpha report, we're like
super bearish on SpaceX. The thing
freaking tanks another 14%. So, the
alpha hit it there. Where it did not hit
though was, and I should have seen this
coming. It's hard to be bearish SpaceX
and bullish on the cues, and that was my
fault. Last week, I was optimistic on us
getting over 740, regaining an easy 735
on the NASDAQ and breaking through 740.
That's what happened last week. Today, I
was bullish that we'd be able to push
further and through those levels.
Unfortunately, I didn't reconcile that
if SpaceX tanks, even though it's not in
the index, it's also potentially going
to take the market with it a little bit.
Now, the market only went down 25 basis
points on the cues, so NASDAQ 100 isn't
really down that much. Uh and news out
of Iran was pretty much just
embarrassing and didn't really move any
needles this weekend. We've got oil
flowing in the straight of Hormuz. We
know that we've given up a lot to Iran.
Iran has a lot of strength that they
didn't have previously. Iran not only
able to likely monetize the straight of
horses, but frankly they they might not
even need a bomb to exert their
leverage. They have a new bomb called
the straight of Hormuz. Iran is keeping
their missiles. They're gaining leverage
over Donald Trump. At the same time,
Trump is undermining Israel in their
fight in Lebanon. So, it really seems
like, as The Economist puts it, that
Iran is going to get their yellow cake
and eat it too, which is of course a
reference to highlyenriched uranium.
Anyway, uh so, you know, none of that
really ideal. some of these negotiations
with Vance. You know, there were some
moments over the weekend about what was
going on, but so far most of this ended
up relatively bullish. The problem that
really hit markets, in my opinion, is
this liquidity issue with SpaceX and
Google, those Google shares starting to
hit the market, but also the warning
around what Bank of America calls the
dragon. Now, the dragon is basically an
instance where all of a sudden you see
the CPI rate go above the unemployment
rate and that's a concern where the
unemployment rate is low, you know,
4.3ish%
right now. Uh, and the expectation is
that CPI inflation in the United States
could exceed that 4.3%. Right now, in
the last 12 months, ending May of 2026,
it was at 4.2. 2%. Now, of course, we
expect that's going to roll over. Well,
at least I do. But because of the
near-term damage that does to the
economy uh by keeping rates higher for
longer, you could actually be
intentionally keeping rates higher to
fight down CPI like Kevin Walsh said he
was going to do, especially when CPI
exceeds the unemployment rate. Now you
have to stay high for even longer, more
aggressive with those rates, which means
you squeeze AI liquidity even more at a
time when it might not be that capable
of absorbing any more of that squeeze. I
mean, Satya Nadella literally just
started talking about the
commoditization of artificial
intelligence, which you know, it's not
great when they start talking about
this. We started talking about this. I
mean, well, we started warning about
this years ago, but more recently,
Google's IO really told us the
commoditization is starting where we're
starting to see the growth rates in
token usage on a second derivative fall.
That's scary. Basically, we grew token
usage 50x from 24 to 25 on a 1-month
period. And then from 25 to 26, we grew
at 6.7x.
So, the growth rate is negative on token
usage. At the same time, we've got more
efficient models, more efficient chips.
Uh, and so that value per token is
starting to fade. It's probably also why
we're starting to see stocks like Google
fall because Google had really been
crushing it with their Gemini model in
November of last year. Anthropic really
took the lead here in the spring, but
now you're actually seeing a little bit,
this is me saying this early, a little
bit of a chat GPT resurgence. I hate to
say it, but but they're they're you
know, all of them are close, but I'm
seeing a little bit of an edge ahead in
chat right now. Uh and maybe that's why
there's no surprise that you've actually
got one of the co-leads of Gemini and a
VP of engineering, uh Noam Charzier.
Probably screwed that name up. Sorry.
But anyway, he just left Google to join
Open AI and he had been only been there
for like two years or whatever, but
whatever, you know. So, all of this kind
of comes together. So what is the dragon
warning? Well, the dragon is basically
the Fed keeping rates too high for too
long and then what you end up with is
what is called a bare flattener. A bare
flattener is basically when we
cyclically go from a boom. Commodities
are winning like gold earlier this year.
Stocks are booming. Everything's
booming. Kevin Worsh gets appointed. It
signals the top for gold, the top for
some commodities, but it also post the
Iran war ceasefire at the beginning of
April, quote unquote ceasefire, what do
we get? We start getting a bare
flattening. Remember on Okay, let me
explain this because I know this one's a
little complicated and convoluted.
Basically, there's this line called the
spread between the 2-year yield and the
10-year yield. And if you chart the
difference between the two, you get a
curve, which is a fancy mathematical way
of calling a line something that goes up
and down. Okay, Iran war starts, that
sucker goes all the way up to 71, which
is like well in shock territory. It's
often the market starting to say, "Crap,
we're possibly going to have to print
money because we're going to get driven
into a recession with the closed
straight of our moves." when we get
ceasefire and now we're starting to see
a recovery post that or have seen that
in the stock market. What do we actually
have? We have a very low uh spread
between the two. In fact, we are at the
lowest levels in all of Donald Trump's
second term and we are at the lowest
levels that we have seen since uh right
before his term about December of 2024.
That is a sign that that curve is
flattening. The number is going down.
When the number goes down, it means it's
flattening and it's bearish because
while the spread is shrinking or
flattening, yields are going up. And
that Bank of America says usually means
we are moving into an era of stagflation
where cash is more desirable. Now, the
only way we can really get bailed out of
this is if inflation rolls over. So, we
get oil prices fall more than they
already have, right? Because even though
oil prices are down, they're still
obviously up from where we have been. If
we look at uh oil prices right now,
we're at 78 on Brent. At the beginning
of the year, we were at like 60 bucks a
barrel. So, we're well above where we
were at the beginning of the year. I
mean, we dropped to like 59 there. kind
of dragging dragging along the anchor,
if you will, along the floor of 60 bucks
there on Brent. So, we're still quite a
bit higher. I mean, that's about 30%
higher still on Brett, even though oil
has come down. So, we're still more
expensive on oil. Yields are rising
because people are like, "Oh, AI
spending isn't stopping." Yet, because
AI spenders are spending and borrowing
like crazy at the same time as yields
are going up, people are going, "Man,
there's actually not going to be as much
money left because you're going to spend
more on higher interest rates." Look at
what's happening with SpaceX. Now,
again, you get bailed out of this by
oil falling and ideally AI disinflation
and a tariff rollover. So, we want a lot
of disinflation. If we get disinflation,
then we could go back to bullishness
where yields come down. That would be
really, really good. We want that. What
we don't want is yields to come down and
then we go back into a reinverted yield
curve because the Fed was too late and
then we end up triggering a recession.
Now, that's moving way too far down the
curve. And I'm sorry to talk, you know,
so like I feel like I I'm speaking in
tongue about this. So, I'm just going to
try to simplify this. Uh, just to to
send this point home, okay? Go to
mekevin.com, join the courses of
building your wealth. Use coupon code
pope. You could see the co pope's nod. I
almost said cop pope pope's nod on
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Instagram from Hawaii. Uh but anyway,
let's let's focus for a moment on on
rephrasing that and get into some of the
other data here. Uh that coupon, by the
way, we've got another like week and a
bit before that comes to expire. So,
there's no major rush, but if you want
to join the alpha membership and see
what we're talking about every day and
what stocks we're looking at, you can
always do that over at mekevin.com. Uh
now, and and keep in mind, you know, I'm
not always perfect. I mean, I think the
SpaceX calls were great. The calls on
AMD and Marll and all of that in the
near term were great. uh the last like I
feel like five QQQ price targets we've
had. We've hit them all. Just got a
little too excited over this last week
here without recognizing that SpaceX was
going to drag the QQQ calls down. Uh so
we missed that by about nine bucks on
the QQQ for our near-term target. Little
bummed about that, but that's also why I
like studying what's going on in the
market so we could talk knowledge
knowledgeably. Let's make sure this is
still recording. Yeah, we're still
recording. Okay, good. knowledgeably
about what the heck is uh is going on
out there. So, to simplify this and then
we're going to get into a little bit
more data and and look at this from
another point of view. Basically, uh the
money vacuum is going on, right? You've
got a lot of companies spending a lot of
money chasing tokens when we don't
actually really need that many more
tokens. We're kind of plateauing out
with the usage of artificial
intelligence in terms of what it's good
for. Yes, it's fantastic for coding.
Yes, it's fantastic for cyber security,
but beyond that, we sort of cap out and
even in coding, there's going to be a
cap out. There are only so many
databases every engineer can make and
eventually those have to have a usage
and they have to prove profitability.
And when you got Satiana going, "Yeah,
go ahead open AAI, go to anyone else."
What you really have is companies like
Microsoft saying, "hm, all this crap is
commoditizing so fast that we just need
to be the one who actually profits from
AI rather than goes all in on all of
this capex." Now, they're still spending
money and blowing money on capex, but
that's going to flip. And the beauty
about when that flips is Microsoft's all
of a sudden going to look really
profitable again. Now, that's not the
case now. Microsoft stock was down like
another 3% today. That's okay because
right now they're still spending. Yeah.
Down 3.18%. But what'll happen in the
future is companies like Meta and
Microsoft will actually turn around be
like look at how much money we make. And
people are going to be like wait I
thought you were blowing all your money
on capex. And then people are going to
go or sp Microsoft and Met are going to
go not anymore. We actually just make
money through advertising and providing
uh services you know productized
services. Great. That's that's a cool
long-term investment thesis for
advertising plays or software plays.
That's going to take time to play out
though. In the near term, what we're
most worried about is this dragon
warning because Kevin Worsh is taking
this approach of yeah uh I need to
distance myself from uh Donald Trump
pressuring me to cut rates. So, what's
the easiest way to do that? Oh, uh let
me just look at the clock over here. Oh,
I know. I'll buy time. Now, how is Kevin
Worsh going to possibly buy time if he
just says, "Oh, yeah, JK, I don't want
to cut rates. Donald Trump will just
harp on him." Not that that necessarily
should matter. Oh, Kevin Worsh could
just end up being another drone Powell
where you just take it. Um or you pull
what Kevin Worsh did and you do a uh
we're going to consult five different
tasks for task forces and you know I
think it's going to take them until the
end of the year to really give me
guidance on what's going on out there.
So we're just going to be patient. It
takes some time. Well that time gives
him the luxury of saying to Donald
Trump, "Hey, as soon as the task forces
get back, we'll work at lower rates."
But between now and then, he could
actually make sure oil prices come down.
He can make sure AI disinflation starts
coming. Maybe some of the crazy capex
investment starts slowing down. In that
case, he's going to have a free license
to cut rates. The problem with the
dragon warning is how long can the
economy sustain rates basically high
while CPI is at the same level as the
unemployment rate or higher. Basically
in the same spot right now and then you
end up crushing the economy. Now, not
everybody thinks this way. You have the
hawks over at TS Lombard who are
actually pro a potential rate hike. They
think inflation is going to last years.
I think they're totally wrong. Now, in
fairness, I know there are some of you
right now that are like, "No, Kevin, I
think you're wrong." But Kevin,
inflation is going to stay higher for
longer. That's fine. I respect that. I
highly disagree with that. I highly
think we are going to see massive
deflation and the biggest concern that I
have is that we have a Kevin Bush who
doesn't help pump us out of that because
we will be in the dumps for years. I
hope that doesn't happen. Uh now the
argument that the inflation hooks have
is basically, oh this is good. Kevin
Walsh taking his time and not rushing to
cut rates is great. We were worried he
was going to be too doubbish, especially
at a time where tech companies are
taking on more leverage. Uh, and what we
need to do is keep rates high to prevent
them from levering up too quickly.
That's why we need to raise rates to
constrain AI spending. Now, that's fair.
I get it. Like, if it keeps going like
drunken sailor style spending, sure. But
if at the same time you stay hawkish on
rates and the companies themselves start
spending less money then you get
pressure down on pressure down and you
really rapidly you turn the economy
down. So there are arguments here on
both sides. The dragon just says we're
at an aggressive time. In addition to
what the dragon article says is that
they talk about that right now the uh
Bank of America bull bear indicator is
sitting at a 9.2. This is a very high
level. This is an extreme bull
positioning. Their sell trigger
triggered uh last month and uh of their
last 17 sell signals since 2002, the
average loss for global stocks over the
next 2 to 3 months was 2 to 3% with a
hit ratio of 60% and a max draw down of
20%. So, you know, I personally don't
think any of that is scary enough to run
for the exits, but I do think it is
enough information to say, okay, maybe
we have to be careful betting on this
short-term everybody's going to believe
in the disinflation narrative and the
stock market's going to keep going to
the moon at the same time as a meme like
SpaceX rolls over, those probably don't
align. Probably going to need some more
patience. And the big thing that's next
is Micron earnings. Now, if Micron
misses on anything, one little thing,
the stock will be down 16% or more,
it'll be down like 30%. Overnight,
there's no like and and I don't play
earnings, so I'm not making this bet
year. I'm just saying if I were a
betting man, there's no way in hell I
would buy calls for Micron. Now, famous
last words, it could skyrocket the next
day. Fine. I actually think Micron is
relatively cheap, but all like there's
so much hope on this company that one
little thing they say wrong and that
stock tanks and it'll tank really fast.
Now, keep in mind I have a full micron
video that I made at the end of last
week. I highly encourage you watch it.
It was basically in the same setting
here. Uh and it, you know, it made it
very clear what the expectations are for
the company. At the same time that
Microsoft Meta and Walmart are starting
to limit their artificial intelligence
usage. We talked about that. We also
talked about the core components of why
Micron is making so much money right
now. Why they're sitting at a 1.1 peg
which is very cheap, but what it
requires to stay that cheap. All of that
is in the other video. So that is more
than a micron video. That is like your
AI market video and I highly encourage
you watch it. Rest in peace to Alan
Greenspan. This is like losing a uh uh
Jerome Powell of the prior generation.
So, a little sad the guy was in um I
mean he was a hund so you know good for
him on that side. But uh you know he was
if I have it correct he was in his
chairmanship from 1987 through 2006.
So the guy saw some stuff over at the
Fed. But uh anyway that's what I got. So
thank you so much for watching. Consider
subscribing to the YouTube channel.
Follow me on Instagram at me Kevin.
Follow me on uh actually Instagram is
real Kevin and yeah. No, no, no. That's
right. Instagram is me Kevin. X is
realme Kevin. Yeah, gold's down again
over here. Uh and um yeah, consider
sharing the video. Ah, yeah. Gold really
peaked out right there when we said it
would after that Kevin War confirmation.
That was a good call. Uh but uh I can't
get them all. My goal is just to be
right more than I'm wrong, as everybody,
right? Thank you so much for watching.
We'll see you in the next one. Goodbye.
Good luck and enjoy your day.