Davos Disaster

Davos of course is the name of the Swiss village where the annual summit of global CEOs and ultra-wealthy elite takes place each January. It's at Davos that global "planners" - of whatever we call this imploding global economic model - assemble to plan out the year ahead. Trump was the first harbinger of global disintegration in 2016 but this second term strategy is even more disruptive to the globalized model. Ironically he is attending a confab that he is actively imploding. Nevertheless, the "elite" will pretend that everything is still on track next week despite the widest wealth gap in human history. What economists are euphemistically calling a "K" shaped economy - rising for the elite, and collapsing for everyone else. Below is my depiction of the "K" from a U.S. perspective:

What it shows is that Tech oligarchs are seeing unprecedented gains in wealth which are paid for by their own circular over-investment in Artificial Intelligence. AI being their not-so-secret plan to replace all of humanity with ChatBots. Who needs Davos conspiracy theories when everyone already knows that the AI business case is predicated on mass layoffs of white collar workers?

And then far down the wealth spectrum is everyone else who is not highly invested in Tech stocks, who are experiencing ongoing price inflation, wage stagnation, job stagnation, sky-rocketing medical bills, and stubbornly high interest rates on mortgages and credit cards.

The back of the "K" being the Global Financial Bailout, origin of divergence.

Shock Doctrine at its finest.

First off, an update on the AI super bubble. At this latent juncture, it's widely known that the OpenAI business model is a vendor-financed Ponzi circle jerk that is already imploding vendor companies such as Oracle and CoreWeave. In addition, Michael Burry has raised attention to the accounting shenanigans surrounding AI hardware depreciation. He contends that companies are massively under-stating their depreciation costs by making false public assumptions about the useful life of AI equipment. Further to that point, Nvidia has accelerated their product launches to an annual upgrade cycle and Nvidia CEO Jensen Huang has made a point of informing his customers that each new product line obsoletes the prior one. But then he also publicly contends that five year old hardware still has useful life. The hardware salesman side of his job is in conflict with his larger role of keeping the AI bubble inflated. The fact is that no Big Tech company can afford to run on obsolete equipment. No one can claim they have the "fifth best" AI system in the world. They all have to be on the efficient hardware frontier to stay in the game. Which means they are going to turn over their equipment every few years whether the accountants like it or not.

But the real issue isn't even the Ponzi financing or the fraudulent accounting, it's the blatant fact that AI really hasn't come that far in the past three years of mega investment. Three years ago we were talking about text ChatBots, and almost $1 trillion later we are just now experiencing video and image ChatBots. In other words we have almost nothing to show for three years of massive over-investment. In the equivalent three years from 1997 to 2000 EVERY major U.S. company established an internet e-Commerce presence and moved their entire operations online. In that timeframe, every U.S. company swapped out their decades old mainframe computer systems for state of the art client-server based ERP systems from SAP, Oracle, and Peoplesoft. It was a herculean effort. What do we have now? AI software "assistants" that are interfering with productivity just as much as they are increasing it.

Clearly we are STILL a long way from the mythical "AGI" (Artificial General Intelligence) moment when human intelligence is achieved and global corporations can finally realize THEIR ROI by replacing humans with highly intelligent ChatBots. But when that moment arrives - however many years down the road - ALL prior generations of AI hardware will be instantly obsoleted. And the arms race will continue. Contrary to Wall Street belief, AI dominance is not a one time event.

Which is why we are now seeing a lot of bifurcation in the Tech space between the supposed "winners" and "losers". The big AI processor giants (Nvidia/Broadcom) are rolling over, but the memory chip companies (Micron, Samsung, SK Hynix) along with the disk drive companies (Western Digital, Seagate, Sanddisk) are parabolic. Hyperscalers (MSFT, ORCL, META) are imploding while chip equipment companies (AMAT, KLA Tencor, Lam Research) are vertical.

In other words, I believe that we are on the cusp of an AI winter similar to a Crypto winter. In which asset prices give back a sizable amount of their gains before eventually rallying back towards the AGI miracle. Which could be another false dawn. As I contended on Twitter, at some point bulls will be unable to afford this level of "success".

Here is where it gets interesting ahead of Davos next week:

For the past two weeks since the start of the year, Trump has been unveiling one plan after another to reduce costs for working class consumers. None of which have been market friendly. Similar to last year after his January inauguration when he announced his global trade war, the New Year barely dawned when Trump launched his new populist economic program. This is already the Black Swan event that financial pundits failed to foresee a few weeks ago while making their 2026 Magic 8 Ball predictions: That Trump would pivot to a populist policy ahead of the mid-term elections due to consumer sentiment hovering at a 50 year low.

First came his invasion of Venezuela which has the largest oil reserves in the world, as part of his plan to vastly increase the U.S. resource empire and drive down energy costs, which I discussed in my prior blog post. In addition to his overseas real estate acquisition strategy, Trump recently proposed a ban on hedge fund robo buying of homes that have been driving up home prices. Financial pundits disagree on whether or not this will bring down home prices. Suffice to say that since robo home buying became common over the past decade, home prices have sky-rocketed far beyond the historical norm. So one can hardly argue that robo home buying is deflationary to home prices. But these pundits would argue that home prices would have gone even higher without robo home buying. What these hedge fund defenders seem to not understand is that housing is not like other types of manufactured products - you can't just run the assembly line at double speed. There are now 350 million people in the U.S. and they are not making more land. Hence we need Greenland to bring down home prices.

Next on his populist mid-term agenda, Trump proposed capping credit card interest rates - a policy that spontaneously imploded U.S. banks and credit card companies. The financial industry is going to fight this one all out, because it will likely cut off a lot of people from getting credit cards. When you think about it, someone who has their finances in order can dodge these high interest rates by paying their credit card on time. Whereas someone who is maxed out on debt is going to get soaked by their credit card companies BUT these people also have much higher default rates. So bringing down credit card interest rates seems noble but it will implode the working class faster than they're already being imploded. Because they will be cut off from access to credit.

But the most shocking thing Trump did these past two weeks - beyond invading another country - is launch a criminal investigation against the head of the Federal Reserve J. Powell, for cost overruns in the Fed headquarters (Marriner Eccles building) upgrade. Granted I've seen this building up close in D.C. and it's not that big so you wonder how it could cost so much money ($2.5 billion) unless they are using $1,000 bills for wallpaper. But massive inefficiency and corruption in government contracting has nothing to do with J. Powell, he isn't even overseeing the construction.

The whole idea is to get Powell to step down sooner than later and replace him with a stooge Fed head who reports directly to Trump. Needless to say this whole plan is backfiring by driving long-term rates higher not lower. Which means that it's highly unlikely that long term rates will come down UNTIL Trump stops trying to take over the Federal Reserve.

The irony of all of these populist policies is that in 2026 the inflation trade has gone parabolic. In other words, markets are saying that the Trump populist program is going to INCREASE inflation.

"Frenzied buying in China across multiple metals has stoked the recent moves while investors have been seeking safe havens amid geopolitical flashpoints from Venezuela to Iran and the Trump administration’s attacks on the US Federal Reserve."

The top performing asset class in 2025 is now the top performing asset class in 2026:

In summary, some observers would argue that it's very cynical for Trump to pander to markets in the second half of 2025 which gave Wall Street a very good year indeed, and then immediately pivot back to the working class at the start of 2026 ahead of the mid-term elections. Perhaps.

But here's the thing - Trump got the populist memo. Which means that markets are going to get the memo next.

And then the Davos elite will be handed the populist bill. And they won't be happy.

You can either believe me, or place your faith in the strength of numbers. Which bulls have in spades.