The Canary in the Data Center: CoreWeave, PPI & the AI Bubble

Steve Blumenthal, author of On My Radar and founder of CMG, seated in front of a wood-panel wall

October 16, 2026
By Steve Blumenthal

“All great technology changes produce bubbles… pricking is the converting of wealth into money.”
– Ray Dalio (Bloomberg, June 2026)

I’m sure you remember the story about the canary in the coal mine. For most of the last century, coal miners carried a small yellow bird down into the shafts. The idea is credited to John Scott Haldane, a Scottish physiologist. Canaries breathe faster than we do and are far more sensitive to carbon monoxide. When the bird stopped singing, the miners knew they had a few precious minutes to get out before the bad air got to them. British mines didn’t fully retire the canary until 1986.

I thought about that canary a lot this week. Two things happened that I believe matter for the big picture. First, inflation came in hot again, and it’s hotter beneath the surface than the headline suggests. Second, CoreWeave, one of the poster children of the AI build-out, had one of its worst days as a public company, and its bonds slid into distressed territory. Neither event, on its own, tells us that the mine is collapsing. But both are birds that have gone quiet.

Grab your coffee and find your favorite chair. This week, we’ll take a look at two canaries that have stopped singing. Feel free to skim the inflation section (unless you want to nerd out). You already feel the pain at the pump and grocery store. The CoreWeave section is the one I most want you to read. CoreWeave reminds me so much of the Bear Stearns mortgage hedge funds that blew up in 2007 (canary). The AI industry is throwing trillions of dollars (mostly debt-financed) into data center build-out, and it just feels to me like we are creating too much excess capacity. CoreWeave bond yields have blown out, now yielding north of 15%. The bondholders are sending a message. They are the first to act. Equities tend to follow. You’ll also find the updated equity market valuation charts and what they suggest about returns over the next ten years. Read a section, stop, reheat, and power on.

On My Radar: The Canary in the Data Center

Inflation: CPI Was Hot. PPI Was Hotter.
CoreWeave: The First Real Crack in the AI Bubble
Equity Markets and Valuations
The Yen Carry Trade and Key Data Charts
Trade Signals: October 15, 2026
Personal Note: Homecoming, Boston and Florida
OMR is for informational and educational purposes only. No consideration is given to your specific investment needs, objectives, or tolerances.
Please see the Important Disclosures at the bottom of this page. Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion and educational purposes only.

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Inflation: CPI Was Hot. PPI Was Hotter.

Wednesday’s CPI made the headlines. Consumer prices rose 0.6% in September and 3.7% over the past year, up from 3.4% in August and above the 3.6% economists expected. Gasoline did much of the heavy lifting. It was up 9.1% in the month and 34.2% from a year ago, accounting for more than half of the monthly increase. Core CPI, which excludes food and energy, rose 0.3% and is up 2.6% year over year.

Thursday’s Producer Price Index (PPI) is the number I want you to focus on. PPI measures what businesses pay. It’s the cost side of the economy before it shows up at the checkout counter.

Headline PPI jumped 1.3% in September. That’s more than double the 0.6% forecast and the largest one-month increase since March 2022, right after Russia’s invasion of Ukraine sent energy and food prices soaring. August was revised up to 0.5%.
Over the past year, PPI is up 6.3%. That’s the fastest pace since December 2022 and well above the 5.4% consensus.
Core PPI (excluding food and energy) rose 0.7% versus the 0.3% forecast. Measured excluding food, energy, and trade services, it’s up 5.0% over the past year. Source provided below.

Put simply, producer inflation is running about 2.5 percentage points above consumer inflation, on both the headline and core measures. I’ll say something I don’t think it gets enough attention: CPI doesn't tell the full story. Businesses are absorbing cost increases they haven’t yet passed along, and in many cases they can’t. H/t to my friend Peter Boockvar.

Inflation is sounding extra sticky to me.

Where is the immediate inflation coming from? Energy, first and foremost, and, of course, deficit spending and the ongoing money printing to finance it. Energy prices rose 10.8% in the month, and gasoline prices rose 20.3%. Diesel rose 21.0% and is now up roughly 115% from a year ago, having climbed nearly 50% in August and September combined.

Diesel is in everything! It moves food from the farm, lumber to the job site, and goods to the shelf. When diesel doubles, everything that rides in a truck costs more.

Truck freight prices jumped 3.8% in September and are up a striking 19.3% over the past 12 months. Final demand goods prices rose 2.6%, the largest increase since the series began in 2009. Sources below.

It isn’t only energy. Stripping energy out, PPI still rose 0.7% in the month and 4.7% over the year. And the pipeline is full. Crude petroleum rose 28.3%, and unprocessed intermediate goods rose 8.4%. Those costs take months to work through supply chains, even if oil prices settle down. Sources below.

This is the part that concerns me most: businesses are eating the cost. Gasoline prices rose 20.3%, yet fuel retailers' margins fell 30.3%. More revenue, less profit. Builders' energy costs jumped 18.5% while the prices they charge stayed flat. And roughly 71% of September's retail sales gain came from gas stations. Paying more for gas doesn't mean the consumer is strong. Sources: BLS — Producer Price Index, September 2026 (October 15 release), BLS - CPI, September 2026, CBS, TradingKey.

Bottom line: This is a supply shock running into a late-cycle economy. The Fed raised rates in September for the first time since 2023, to 3.75%–4.00%, and signaled another hike may come this year. Perhaps as early as this month, given this week’s CPI and PPI prints.

The Fed can cool demand. It can’t reopen shipping lanes or add refining capacity. This looks more like the energy shocks of the 1970s and the 2007 oil squeeze than an economy running hot. My concern is that inflation eventually comes down not because things have gotten better, but because businesses cut production, investment, and jobs. It’s something we have to keep our eye on. In a word, recession.

Here’s a big twist. With inflation this hot, you’d expect bond yields to rise. The 10-year Treasury touched 5.33% prior to the CPI report. Then it reversed. On Thursday, it fell roughly 10 basis points, its biggest one-day drop since August 2025, to about 5.09%, where it sits as I write. TD Securities’ Prashant Newnaha called the rally “highly counter-intuitive.” I think the explanation is a flight to safety. Source

Technically, I expected a return to the 5% level to test the important breakout above 5%. That has now occurred. My betting mind believes we hold above 5%, and my fundamental mind believes we are on our way to 6%. We’ll see.

Let’s now turn to the second canary, CoreWeave. You may need a second coffee for this one.

CoreWeave: The First Real Crack in the AI Bubble?

If you haven’t followed it, CoreWeave is part of a group of companies sometimes called “neoclouds.” It buys Nvidia chips by the warehouse-load and rents out the computing power to AI companies. Think of it as a landlord in the AI boom that built its buildings largely with borrowed money.

Here’s how the past week unfolded:

October 8: A report showed OpenAI’s annualized revenue reached about $50 billion at the end of September, some $20 billion below figures discussed only weeks earlier. The Nasdaq fell 1.4%, the semiconductor index dropped 3.4%, and the DRAM index fell 5.1%. Treasury yields fell as money moved into bonds.
Wednesday, October 14: CoreWeave shares fell more than 15%, the steepest one-day decline in the company’s history (per @GlobalMktObserv). Its bonds due 2032 fell below 80 cents on the dollar, yielding about 15%.
Thursday, October 15: The shares slid again in early trading. Yields on CoreWeave’s 2031 bonds rose above 16%, and the credit default swap market priced in roughly a 63% chance of default within five years, up from about 30% a year ago. Rival neoclouds Nebius, Applied Digital and Iren fell 3% to 5%.

Now look at the math. CoreWeave carries roughly $50 billion in debt. It has guided to $35–$39 billion of capital spending this year, against expected revenue of about $13 billion and an expected loss of around $2.1 billion. That means it’s spending roughly three dollars for every dollar it brings in, and borrowing much of the difference when the risk-free rate is above 5%. Its CEO told employees in a memo that markets can sometimes “misunderstand and act irrationally.” Maybe. But Gartner’s Will Sommer put the bigger question plainly: “our research indicates enterprise and consumer AI revenue will be insufficient to support profitable returns” on planned AI spending.

Let me be fair here. AI is real, and so is the productivity it will bring. But bubbles almost always form around something real. Railroads were real. The internet was real. The question is never whether the technology works. It’s whether the price paid, and the debt used to pay it, can be earned back.

That’s why the Dalio quote at the top caught my attention. Speaking in Singapore on October 7, he said we’re in the part of the cycle “approaching” the point where the AI bubble bursts, and he explained why: “everybody says ‘I’m worth a billion dollars’ but ok, try to spend that.” To spend it, you have to sell, and that’s when bubbles pop. Look at what the CoreWeave bond market is doing. Lenders want cash, not promises. That’s wealth being converted into money.

Paul Tudor Jones added to the chorus on CNBC on Tuesday. He said “2027 is going to be really, really challenging for the stock market,” and pointed to a wave of new stock supply from IPOs (SpaceX is done, and OpenAI and Anthropic are expected) as “the most negative flow picture for the U.S. stock market that we’ve had, say, since 2002.” He compared today to 1999, yet he still sees room for a rally into year-end. More on PTJ below.

Regular readers know I’ve been on this theme for a while: the “four o’s” of overvalued, overconcentrated, overowned, and overleveraged (see Look Up, June 2026), and record margin debt (see Rising Tide, July 3, 2026). CoreWeave is the overleveraged “o” showing up in real time in the credit market, where problems usually surface first.

Bottom line: I’m not calling the top. When Bear Stearns' two mortgage hedge funds blew up in the summer of 2007, the stock market didn't peak until that October. The canary died months before the miners felt it. Ray Dalio says we're approaching the point where the bubble pops. Paul Tudor Jones was on CNBC this week, and he believes 2027 is the year. Howard Marks is telling us there are too few winning tickets in the fish bowl.

This week, two canaries stopped chirping: hot producer prices and CoreWeave's bonds. What I'm watching next:

Credit spreads across AI infrastructure and the hyperscalers’ spending plans when they report earnings over the next few weeks, and
whether the 10-year keeps acting as a safe haven or moves higher again chasing inflation.

Good friend CJ Brown, a hedge fund money manager/credit specialist, sent me a note yesterday. With his permission, I am sharing his LinkedIn post with you. Put your geek goggles on - he’s super smart.

In his post, CJ reflects back on his days at Bear Stearns, where he had a front-row seat to the 2007/08 canary that first chirped, then died. I believe the credit guys are always one step ahead of the equity guys.

CJ does some comparative analysis and concludes, “Sometimes the most interesting insights about equities come from watching the bond market.” The bond market suggests CoreWeave’s share price should be materially lower.

You can find his full post by clicking on the image:

Late afternoon today, I received the following from CJ: “This is the tricky part, though. NVDA owns 10.29% of the company and has a tremendous incentive to keep one of its biggest customers succeeding. I think they are about 5%-7% of NVDA's revenues. So, it will be hard to see the company fail with such a strong backer. It just seems like bondholders are valuing the company in a downside scenario because they don't get as much upside but could get a goose egg in a downside scenario. The equity values it as a tremendously valuable option, with backing from NVDA.” That makes a lot of sense to me.

Who said investing was easy?

Hot inflation, 5+% yields, and a debt-funded boom are an unpleasant mix. Keep that seat belt buckled!

Opinions are subject to change. Not a recommendation to buy or sell any security. Provided for discussion and educational purposes only. Past performance is not indicative of future results.

Equity Markets and Valuations

First, a few posts to set the footing on the extent of the current decline - various sectors:

Sources: @GlobalMktObserv, @charliebilello

Next are a few of my favorite valuation charts:

1) Stock Market Capitalization as a Percentage of Gross Domestic Income

This chart compares the total value of U.S. stocks to the income generated by the U.S. economy. Simply put, it helps us determine whether stocks are expensive or inexpensive relative to the size of the economy. Historically, major market peaks have occurred when stocks were in the overvalued zone, while major market bottoms have occurred when stocks were in the undervalued zone. The dashed lines identify these extremes, and the table at the bottom shows how stocks have performed in the years that followed. From NDR, “We use this chart as a valuable long-term perspective on valuations and market risk.”

Here’s how to read the chart:

The orange line plots the monthly data going back to 1925.
The light blue line in the lower section plots just how far the orange line is from its long-term dotted trend line. You can see that the blue line is as overvalued as it was in 2021, 2000, and all the way back to the 1930s. Only 1928 was more overvalued.
NDR ranks each month-end data point and sorts the numbers into 10 buckets that go from Top Quintile (most overvalued readings) to Bottom Quintile (best bargains).
Lastly, look at the data box at the very bottom. Note the returns in the subsequent 1-, 3-, 5-, 7-, 9-, and 11-year periods. In short, expect flat to negative returns over the coming 11 years.
Not only is the S&P 500 Index in the top quintile, but its current level is also among the highest in history.
Bottom line: hedge what you must hold, raise cash, and remain patient. We are looking to strike when the orange line drops below the dotted line.

2) S&P 500 - Trend Channel

Here’s how to read the chart:

I really like this one, which I shared with you previously, because it compares three popular valuation metrics (Price to Book, Price to Dividend, and Price to Earnings) against past market cycle highs and lows.
The “Current (9/30/2026) data is in the last row of the upper left data box.
Compare the “Current” vs. the average high, low, and average lows (disinflationary) and average lows (inflationary) periods.
Bottom line: the current P/B, P/D, and P/E readings are crazy high.
For even more fun, compare the “Current” to the actual readings recorded at all prior market cycle highs and lows (bottom-right data box).

Put your geek goggles back on your shelf. Let’s call it a day. I hope this helps you think about risk and reward. Nothing is ever certain.

I’ll close with a comment about being prepared. Market corrections in the 20% range are normal, and I’d argue healthy. Market crashes result from the accumulation of excess leverage. It is why I’m so obsessively focused on the Yen Carry Trade, margin debt, and hedge fund debt.

Crashes have nothing to do with whether a stock is fairly valued. It has everything to do with forced selling and margin calls. Would-be buyers would back away and let the market clear. They happen once or twice a generation. You and I will both be scared out of our minds - that will be our buy trigger!

Not saying it is going to happen, but it sure makes sense to me to have a buy list and some available cash so as to act.

Opinions are subject to change. Not a recommendation to buy or sell any security. Provided for discussion and educational purposes only.

The Yen Carry Trade and Key Data Charts

I’m going to keep updating this section each week due to the critical importance of the Yen Carry Trade and the leverage that currently sits in the markets.

Interest rates are the cost of money. Everything macro is tied to the cost of money. The match that lights the fuse to the global leverage problem is rising rates. We should all be on high alert.

Tracking the potential unwinding of the yen carry trade, here is the bottom line:

Across each of the key risk assets, we are seeing red flags. Signs risk is unwinding. Risk of a disruptive event is high.
Since we are at a critical point in terms of rising yields at a time of extreme system-wide leverage (the Yen Carry Trade, Government Debt, global developed market debt, and US margin debt), I’m going to update the following charts each week going forward as we may be near a critical inflection point.
When viewing the MACD signals, keep the following in mind. For example, the Monthly MACD signals the dominant trend over the next 8 to 20 months from the signal date. Note: nothing is perfect in investing. The idea here is to understand what price activity (actual buyers and sellers) indicates.
- The Daily (short-term) MACD Trend: ~ 8 days to 20 days
- The Weekly (intermediate-term) MACD Trend: ~ 8 weeks to 20 weeks
- The Monthly (long-term) MACD Trend: ~ 8 months to 20 months
Updated charts with brief notes follow:

The 10-year Treasury - Monthly MACD

After peaking at 5.36% last week, the yield is at 5.09% at the time of this writing.

Source: StockCharts.com, CMG annotations (arrows)

The Yen: No Significant Move Since Last Week

The Bank of Japan needs the yen to be higher to fight off inflation.
They would prefer not to raise their interest rates, which would increase the interest costs they pay on their debt and risk unwinding the leveraged yen carry trade (borrowing near 0% and investing in higher-yielding assets elsewhere).
When the borrow-for-free spread goes away, the leverage likely unwinds. That’s what risks forced selling across the system.
The current trend, as measured by the weekly MACD, points to a higher yen.
The recent intervention to push the yen higher appears to be stalling.
Each bar equals the price activity for one week. A lower yen vs. the dollar means higher inflation for Japanese citizens.
The risk to US interest rates is that the Japanese sell their large US Treasury holdings and repatriate the proceeds (sell US bonds, sell dollars, buy yen; they need the yen higher).

Source: StockCharts.com, CMG annotations

The Dollar: Lower Since Last Week, but Weekly MACD Price Trend is Up

‍Note the sharp price move higher over the last three weeks.
The Weekly MACD trend signal is pointing to a higher dollar.

Source: StockCharts.com, CMG Investment Research

High-yield bonds - Monthly MACD Bear Trend Signal

Next is the “canary in the coal mine” indicator I’ve been using since 1992.
The long-term monthly MACD price trend remains bearish (the monthly MACD is the dominant long-term trend; the weekly is the intermediate-term trend).

High-yield bond yields are spiking higher.

Emerging Market Local Currency Bond ETF - Monthly MACD Bear Trend Signal

Another signal to watch: EM debt, where some of the carry-trade leverage sits (borrow cheaply in yen, invest in higher-yielding EM bonds).

How to read the chart:

Calm and steady is good; a sharp price decline is a warning. Prices down mean yields are up.
The following is the Monthly MACD trend signal: a sell (downward price trend) signal. This is the first signal since the buy trend signal in early 2023.
Bottom line: A warning sign of the unwinding of the leveraged yen carry trade.

The Japan 10-year JGB yield - Monthly MACD Signaling Higher Yields (Bearish for global liquidity)

The current yield is 2.93%, down from the recent yield high of 3.12% earlier this month.
Higher JGB yields shrink the benefit of the yen carry trade.

Bottom line: Flashing yellow.

Opinions are subject to change. Not a recommendation to buy or sell any security. Provided for discussion and educational purposes only.

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Trade Signals: October 15, 2026 Update

Market Commentary

New this week: the CMG Risk Gauge

Here’s something new: a single read on where we stand. The gauge rolls the dashboard into one number on a 1-to-10 scale, the way I framed risk/reward in last week’s OMR. As Howard Marks frames it: are the risk/reward odds in your favor? Ten is the least favorable.

Our gauge looks at the various signals I update each week. It weighs valuation (20%), price trend (30%), rates, Fed and liquidity (20%), sentiment (15%, read as a contrarian), and the economy and credit (15%). It is designed to give our investment team a systematic way to assess risk vs. reward in the equity and fixed-income markets. Tickets in a fish bowl, as Howard Marks writes about risk. See On My Radar: A Game of Reward vs. Risk for more.

This week’s reading is 7.7 (High), up from 7.6 last week. The S&P daily sell signal added risk; the turn in high yield took a little away. Please know that CMG’s view of the current state of investment markets suggests hedging long-term equity exposure and seeking alternative solutions to traditional bond investing.

Not a recommendation to buy or sell any security.

Trade Signals is free for CMG clients and a paid subscription service for others. Selfishly, I write it for myself each week, and have for years, with the goal of staying disciplined in the markets.

Trade Signals

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Valuations and Subsequent 10-year Returns
Supporting Charts with Explanations

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The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only.

Personal Note: Homecoming

First, a quick Malvern Prep Friars update. The boys have gone 1-3-1 over the last five games and stand at 6-3-2. On Tuesday, Coach Sue’s team led Springside Chestnut Hill Academy 1-0 with about 10 minutes left. Our center back boxed out their forward and let the ball roll over the end line. It should have been our goal kick. To our surprise, the referee called a corner, and Springside headed it home to tie the game. With two minutes to go, they scored again. Of the five big league games so far, I’d say we were the stronger team in three. That’s soccer. Five games remain, and tomorrow at 10 a.m. is Homecoming. Coach and the boys need a win.

Now a fun story. Years ago, Susan (Coach Sue, my wife, whom I’m endlessly crazy about) worked for what became the Philadelphia Union Academy, where she built the Little Kickers program for ages 4 to 7. The owner, who was also a part-owner of the Philly Union MLS team, asked her whether a new hire could work alongside her. He was a former MLS player named Jim Curtin. They became good friends. Jim went on to coach the Philadelphia Union for seven seasons, and after this season he became head coach of Austin FC. We joke about Susan being his first boss. He and Susan remain close.

Jim lives in the Philly area, and his son plays for Springside Chestnut Hill. Before Tuesday’s game, one of our players spotted him walking across the field. I turned and greeted him with a big hug. He’s volunteering as an assistant coach for Springside’s varsity this fall. Let’s just say his post-game IPA tasted a little better than Susan’s and mine. A cold beer always tastes better after a W. But the real win is what sports (and life) teach us, the friendships we make along the way, and the kids we hope to help build the skills for a happy, creative, purposeful life. Winning and losing are powerful teachers.

On the road: I’ll be in Boston October 27–29 for the Schwab conference and visiting clients in Florida in November. If you’re nearby, I’d love to connect.

Ahhh, and basketball season is here. Tonight I’m taking a few close friends to the Sixers–Celtics preseason game. I may need to pick up a few LeBron James #23 Sixers jerseys for the kids. I still can’t believe I just typed that sentence.

Best of luck to your favorite teams. Mine have mostly stunk, except the 76ers. Let’s go, Sixers!

And finally, how about the Milwaukee Brewers! They swept the two-time defending champion Dodgers to reach their first World Series since 1982. Wow. I’m pulling for them and for all my friends in the Midwest.

Have a great week!

Kind regards,

Steve

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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its CEO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.

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