Flying Blind. Into The Ground
- MAC10
- Oct 6
- 3 min read
We are now in a government shutdown induced data blackout in a record Tech bubble. But don't worry, be fat dumb and happy.
The Fed is flying blind into an economic slowdown while still preoccupied by trade war inflation. Meanwhile, markets and pundits are universally ignoring job market implosion. Last week, ADP reported -32,000 jobs versus 55,000 jobs that were expected by economists. The stock market cheered the news, because it means more rate cuts. Then there was no official jobs report on Friday due to the government shutdown, which was also cheered by overzealous markets. Because what can be better than a data blackout in an incipient recession?
Here we see the August hiring rate which shows the number of hires relative to the size of the overall jobs market, has collapsed down to pandemic/recession levels:
Over in Ponzi news, today OpenAI announced that it was taking a stake in AMD in exchange for buying billions of dollars worth of AMD hardware, which will be financed by Nvidia - via a separate deal announced last week. The AI Ponzi bubble is now a vendor financing bubble similar to the Y2k telecom bubble that imploded Lucent, Worldcom and Nortel 25 years ago.
I asked AI if AI is a vendor financing bubble. Here's what it said:
"Yes, artificial intelligence is currently exhibiting characteristics of a vendor financing circle, a dynamic that has drawn comparisons to the dot-com bubble. In this circular arrangement, AI-related companies are raising vast amounts of capital, which is then used to buy hardware, cloud services, and other technology from a small number of powerful infrastructure providers, whose revenues and market value surge as a result."
This is how the AI vendor financing cycle operates:
Capital investment: A select few AI companies, such as OpenAI, Anthropic, and xAI, receive massive funding rounds from venture capitalists and tech giants.
Purchase of infrastructure: The capital raised is immediately funneled back into the AI ecosystem, primarily to purchase the immense computing power needed to train large language models and run other AI applications.This influx of cash becomes revenue for a small number of key infrastructure suppliers.
Perception of demand: The cycle can create a perception of enormous market demand, potentially inflating the value of AI companies beyond what their actual revenue streams currently support.
In a recent post I noted that Bain & Co. have calculated that as of full year 2024, AI revenue ($45b) is a mere 2% of the $2 trillion revenue that will be required to justify today's level of hardware invesment by 2030, a mere five years away. Below we see that AI solutions providers have STILL not recovered above their 2021 high while we know that the AI hardware providers are driving the entire market higher (not shown). Which clearly indicates there is no revenue follow-through from all of this hardware investment.
For now the high end consumer is keeping this economy afloat due to the wealth effect. That combined with a 6% tax cut driven Federal deficit plus the record AI investment is masking economic collapse. Of course pundits know that middle class consumers are struggling as there has been a rash of "subprime" auto bankruptcies in the past few weeks that were completely ignored:
"A surge in delinquencies recently has forced several subprime lenders into bankruptcy, per Bloomberg. Last year, reports also indicated massive increases in car repossessions."
I can't show a chart of a bankrupt and delisted subprime auto loan company, but I can show CarMax at pandemic lows:
Meanwhile, bullish pundits have switched from saying that AI is not a bubble, to admitting that of course AI IS a bubble, but there is no sign it's ending, yet. Wall Street is tripping over each other to keep the sheeple from bolting from the casino, so they invent any excuse to keep ratcheting S&P price targets higher.
"Global equity exchange-traded funds (ETFs) drew record inflows of $152 billion over the past three weeks, according to Bank of America."
Once again we are told that central banks are easing due to economic implosion which is good news for stocks and the only thing that could end this massive bubble is tightening.
Pundits have forgotten that global central banks ALREADY tightened the most since 2007. And now they are easing the most since 2007.
Which, was not bullish for the bubble.
In summary, history will say that this aging society was close to retirement but they needed one more asset bubble to push them over the finish line.
And they got it in the Trump Artificial Intelligence bubble.
The irony was biblical.
