On My Radar: Gravity Returns
September 25, 2026
By Steve Blumenthal
“Interest rates are to asset prices what gravity is to the apple.”
— Warren Buffett
“In investing, the greatest puzzle for me is risk, how we should think about it, and how we can work with it.”
— Howard Marks
In 1720, the most brilliant mind in England bought shares in the South Sea Company. Isaac Newton, the man who explained gravity, made a tidy profit early and sold. Then he watched his friends keep getting richer. He bought back in near the top, with far more money. When the bubble burst, Newton lost a fortune, roughly £20,000, or millions in today's dollars.
Legend has it he later said he could calculate the motions of the heavenly bodies, but not the madness of people.
The South Sea Company wasn't Newton's mistake. He paid too much, bet too big, and got back in because everyone around him was getting rich. The man who discovered gravity forgot that it applies to markets too.
This week, gravity showed up.
Grab your coffee and find your favorite chair. What a week! The long bond hit its highest yield since 2004. A weak Treasury auction sent the 5-year above 5%. The Fed is hiking again, with more penciled in. Stocks wobbled under two-decade highs in yields. Thin tanker traffic through Hormuz kept Brent oil above $100. The dollar is rising, and the yen is falling again.
Lower rates reduce the gravitational pull on asset prices; higher rates increase it. In a world flooded with debt, higher rates are the match that lights the fuse.
This week, we look at both sides of the ledger. First, the opportunity: AI's productivity boom and what Brad Gerstner says it will take to keep the AI trade intact. Then, the risk: Howard Marks on what risk really is, and why it matters now. Finally, we take a look at the signals flashing yellow: the 10-year, the yen, high yield and a "minus 2" signal I've been waiting to write about.
Bottom line: Brace for opportunity.
On My Radar: Gravity Returns
Brace for Opportunity
Risk Revisited — Howard Marks Meets the AI Trade
The 10-year - The Yen - And Watch Out For -2
Trade Signals: September 24, 2026
Personal Note: 5-0-1
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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Brace For Opportunity
One bullish area is the productivity coming from AI. We've been teaching AI to think, and are now teaching it to move, see and build. Think: robots, factories, power plants and power grids.
In this regard, I found Brad Gerstner's All In Summit presentation to be concise, balanced and insightful. It helps to frame risk and reward.
Gerstner's point comes down to this: AI's economic payoff is real, but it's now priced in. The easy money has been made, and from here the market will reward facts, not faith.
The revenue showed up. Last fall, the big question was how AI labs could commit to $1 trillion of spending with only about $13 billion in revenue. Then Anthropic answered it. Its monthly revenue went from $2 billion in January to $4 billion in February to $11 billion in March. That set off the April–May rally.
The math that matters. Microsoft, Google, Amazon and the rest of the Mag 5 are building about $1.5 trillion a year in data centers. They aren't the end users; they're building to rent. Someone has to pay the rent. The top three labs (Anthropic, OpenAI and SpaceX) were running at about $100 billion a year this summer. Gerstner thinks that needs to reach roughly $200 billion by year-end, then $450 billion, and eventually $1 trillion, to justify the buildout. His key number to watch is whether each leading lab is bringing in closer to $4 billion or $8 billion a month.
Demand isn't the problem. Knowledge work may be the largest market in history, and AI needs only about 4% of it ($1.2 trillion) to fund its spending. Enterprise AI spending is up 17x in 18 months. His firm, like many others, he said, "can't operate our business without buying AI."
The productivity dividend. From 2015 to 2025, Nasdaq earnings grew about 10% a year: 6% from revenue growth and about 0.38% from wider profit margins. Gerstner thinks AI can push that margin gain to 1% a year. Uber and Snowflake plan to grow 20–30% without adding headcount. Companies aren't firing people; they're just hiring far fewer. That's where the productivity gain shows up.
Three risks:
Regulation. He points to the U.S. shutting down 67 nuclear reactors after activists pushed back. Fear-driven rules could do the same to AI.
Power. The forecast calls for adding 43 gigawatts of compute next year. The whole country has only about 40 gigawatts today. Think about that: we'd more than double our total compute in a single year. Permits, grid hookups, labor and equipment are all bottlenecks. He expects closer to 25 gigawatts, which he thinks is still enough to hit the revenue targets.
Rates. Gerstner spoke the day before the Fed's September 16 meeting and put the odds of a hike above 90%. The Fed raised rates the next day. Data centers are built with borrowed money, so higher rates raise the bar every project has to clear. Remember Buffett's gravity: a 10-year Treasury at 5.5% would weigh heavily on stocks.
How he's positioned: medium. He'll add if AI lab revenues come in strong and oil prices fall, and cut back if they don't. From 2023 to 2025, you only had to get one thing right: own AI. In 2026, his advice is: "Stay mentally flexible. Follow the facts. Don't YOLO." (You Only Live Once.)
Why it matters now: This week the 10-year hit 5.22%, and the 30-year neared 5.5%. We're already close to the level Gerstner calls a burden for stocks. The opportunity is real, and so is the gravity. That tension is exactly why it pays to brace for opportunity with a plan.
What's a gigawatt, and why 43 is a big number
A quick sidebar to help you understand just how big the need is:"
A gigawatt (GW) is a billion watts. A large nuclear reactor produces about 1 GW, which is enough to power roughly 750,000 American homes.
Here's how fast data centers are growing:
2024: about 25 GW of data centers were running across the U.S.
2025: the total rose to about 31 GW, after roughly 8.5 GW was added.
2026: it's expected to reach about 41 GW. That's Gerstner's "less than 40," give or take.
Next year (the forecast): 43 GW added in one year, alone!
So in two years, the country went from about 25 GW to about 40 GW, a jump of more than 50%. The forecast now calls for adding more than our entire current total in a single year.
To picture it, 43 GW is roughly:
43 new nuclear reactors. The U.S. has about 94 today, and each new one takes many years to build.
Power for about 32 million homes, roughly one in four U.S. households.
That's why Gerstner thinks 43 is too aggressive and expects closer to 25. Even 25 GW would be a record year. The chips can be built. The hard part is the power plants, transmission lines, transformers, permits, and electricians.
Sources: BloombergNEF – US data center capacity outlook · Goldman Sachs – US data center power demand · Utility Dive – BNEF 106 GW by 2035 · John D. Cook – How much is a gigawatt?
For the replay, start at the 5:07 mark:
Source: All In Podcast, YouTube
Source: Altimeter
Opinions are subject to change. Not a recommendation to buy or sell any security. Provided for discussion and educational purposes only.
Risk Revisited — Howard Marks Meets the AI Trade
Howard Marks has written about risk for more than 35 years. His 2015 memo Risk Revisited Again is one I come back to often, and he revisited it at Wharton this spring. Read next to Gerstner's talk; it gives us a simple framework for today's AI trade.
Marks' core ideas:
Risk isn't volatility. It's permanent loss. You can ride out a drawdown. You can't undo a permanent loss. Those usually come from selling in a panic, overpaying, or using leverage that forces you to sell at the bottom.
The future is a range of outcomes, not a forecast. Nobody knows what will happen. The edge goes to investors who understand the range of possibilities, weigh the odds and look for lopsided bets.
Risk is counterintuitive. When prices rise and everyone feels safe, risk is highest. When prices fall and everyone is scared, risk is lowest.
Two ways to lose. Either the business disappoints (fundamental risk), or you paid too much for it (valuation risk). A great company bought at the wrong price can still be a bad investment.
Leverage and funding risk. Borrowed money makes good outcomes better and bad ones fatal. If funding dries up before the payoff arrives, you can be right and still lose.
Avoiding risk means avoiding returns. The risk of missing out is real too. The goal is to control risk, not escape it. For that, Marks says, you need "humility, lack of hubris, and knowing what you don't know."
How it connects to Gerstner's view of AI:
Real fundamentals, rising valuation risk. Gerstner sees no shortage of demand for AI. Revenues are surging, enterprise spending is up 17x, and he expects margins to widen. That's the fundamental side. He also says "it's all priced now," and that's Marks' valuation risk. Today's question is less "is AI real?" and more "what's already in the price?"
Thinking in ranges. Gerstner's "flight path" is the probability thinking Marks describes. If lab revenues run near $8 billion a month and oil falls, the AI trade takes off. If revenues are closer to $4 billion and the 10-year heads to 5.5%, stocks face gravity. He's watching the data rather than betting on one outcome.
Leverage is the permanent-loss risk. "Don't YOLO" is Gerstner's version of Marks' warning. And the $1.5 trillion AI buildout runs largely on borrowed money. With the 10-year at 5.22%, the bar every data-center project has to clear keeps rising. That's funding risk at the scale of a whole economy.
Forecasts can overshoot. Gerstner thinks the forecast of 43 gigawatts of new compute next year is too aggressive and expects closer to 25. That's Marks' point about models built on assumptions: permits, power equipment and labor don't scale on a spreadsheet's schedule.
Medium, not all-in or all-out. Neither man says to get out. Gerstner is running a "medium" position, ready to add or trim as the facts change. That's Marks' balance: control risk without avoiding return, and keep adjusting rather than reacting once the damage is done.
The takeaway: AI may be the biggest productivity story of our lifetimes. That's the opportunity. The risk isn't that AI fails. The risk is paying too much, borrowing too much, or holding a position so large that a normal pullback turns into a permanent loss. Newton learned that the hard way. Brace for opportunity, size it with humility, and know what you want to buy when a leveraged, forced market unwind presents itself.
Sources: Risk Revisited Again (Oaktree PDF, June 2015) · StreetFins memo breakdown · Oaktree memo video · Wharton Howard Marks Investor Series
If you have time, plug in your earbuds and go for a nice walk. Click on the photo - totally worth the listen:
Opinions are subject to change. Not a recommendation to buy or sell any security. Provided for discussion and educational purposes only.
The 10-year - The Yen - And Watch Out For -2
This may be the best call we’ve made, helping us avoid losses in the fixed-income bond market since early 2020. Yields spiked higher, breaching the 5% level that proved resistance since 2023. Note the spike higher to 5.23% this week.
Source: StockCharts.com, CMG annotations (arrows)
The Bank of Japan is having difficulty pushing the yen higher. Red bars reflect the weekly price movement over the last two weeks. The yen is lower, testing the late-July coordinated intervention (Japan and Bessent), and has given up nearly all of the gains from the second intervention that began three weeks ago. Each bar equals the price activity for one week. A lower yen means higher inflation for Japanese citizens. The risk to US interest rates is that they sell their large US Treasury holdings and repatriate the proceeds (sell US bonds, sell dollars, buy yen). That may be what we are seeing in the higher 5-year, 10-year, and 30-year US Treasury yields this week.
Source: StockCharts.com, CMG annotations
Don’t Fight the Tape or the Fed - “Watch Out for -2”
This indicator combines two simple ideas: follow the market's trend, and follow interest rates.
The Tape: NDR's Big Mo Multi-Cap Tape Composite rolls more than 100 trend and momentum indicators into a single reading of the stock market's health.
The Fed: an interest-rate trend. When the 10-year Treasury yield is below its longer-term trend (10-week vs. 70-week), stocks have historically done better.
The score: each signal counts as +1 (bullish) or -1 (bearish), so the combined score runs from +2 to -2. Historically, the S&P 500's best gains came at +2 and its worst stretches at -2.
Today: -2. Both the trend and rates are working against stocks.
Source: The great NDR
High-yield is an early “canary in the coal mine” like indicator. I’ve been using it since 1992.
Source: StockCharts.com, CMG arrows
Here is another HY trend chart I keep my eye on. Note that the monthly MACD is signaling a downtrend. No major deterioration yet. Watch for acceleration in price decline.
Source: StockCharts.com w CMG trend arrows
Another risk signal to watch for the Yen Carry Trade unwinding: Emerging market CDX (CDX EM Diversified Debt)
This is S&P Global’s official page for the CDX.EM 5-year index. The 5-year contract is generally the one people refer to when discussing EM sovereign credit conditions. Source: S&PGlobal
The following chart is what I shared with you last week. Pay attention to the second chart, updated today. Calm and steady is good; a sharp rise is a warning.
Last week:
Source: CBonds, https://cbonds.com/indexes/379/?utm_source=chatgpt.com
This week’s chart:
Source: StockCharts.com, CMG arrows
Other important signals: The Japan 10-year JGB yield is at 3.08% today, the highest level since September 1996. What is important about this is that high JGB yields choke off the carry trade at the source.
Bottom line: Flashing yellow.
Source: StockCharts.com
Opinions are subject to change. Not a recommendation to buy or sell any security. Provided for discussion and educational purposes only.
Other Interesting Charts
Source: @GlobalMktObserv
Source: @Barchart, Redfin
Source: Goldman Sachs, @GlobalMktObserv
Source: @TruthGundlach, @TaviCosta
That should be enough to make your head spin. Let’s call it a day and enjoy the weekend.
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: September 24, 2026 Update
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Personal Note: 5-0-1
The travel schedule is picking up. Next Friday, I head to Penn State to catch up with some of my former teammates and watch our Nittany Lions men's soccer team take on Ohio State. After the game, we'll likely head to The Phyrst for a few beers and throw a jab or two at each other. We were a close-knit team from 1979 to 1983, and I think that chemistry was a big reason for our success. It will be good to be with old friends.
Speaking of chemistry, Coach Sue's MP Friars played a close one last Monday. The game was tied 1–1 at the end of regulation and went to overtime. In the huddle before extra time, one of the boys said, "Get the ball to Dom." Dom is a tremendous goal scorer. Then our left-footed star, Chase O, made a quick move just outside the 18-yard box and drilled home the game-winner.
I smiled, thinking back to our 1979 NCAA Final Four run. Everyone knew the job: hold the line on defense, don't break, and get the ball to Jimmy Stamatis. Jimmy won the Hermann Trophy that year as the nation's most outstanding college player. He was the key to our success, but it takes a team, especially one with great chemistry. On Monday night, the plan was Dom, and the finish was Chase. The celebration was fun to watch.
The Friars sit at 5–0–1, and the season's challenging Inter-Ac league play begins next week. I'm loving being on the sidelines with Susan and getting to know the young men. This group is special. What a wonderful, fun distraction from investment risk management.
I'll be in NYC in early October and then in Boston at the end of the month for the annual Schwab conference. One of our private equity investments just signed a major technology deal with Schwab, and the partnership kicks off at the conference.
Lastly, the Northeast is in for a rough weekend. A slow-moving nor'easter is bringing the risk of coastal flooding, beach erosion, high surf, and locally heavy rain. If it affects your area, stay safe!
Hope your young sports stars are enjoying their teams.
Have a great weekend!
Kind regards,
Steve
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Stephen B. Blumenthal
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. 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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