Ponzi Asset Crash

There are many reasons to believe that the Ponzi Asset Crash has already begun, let's review...

First off, a brief discussion about the war. Two weekends ago, Trump declared that a "Memorandum of Understanding" had been reached with Iran. Then this past week, markets screamed higher on the news. However, over this last weekend, the stability of that ceasefire came into question as Israel continued attacking Lebanon. Subsequently, Trump has made it clear to friend and foe alike that he wants this war to be over.

More importantly, markets believe this war is ALREADY over and are NOT priced for another round of oil market dislocation.

This second quarter has already been the best gain for semiconductors in history, including Y2K:

In my last blog post I mentioned that the new Fed Chairman turned out to be far more hawkish last week than markets had expected. Which means that this year will be the first global synchronized tightening since the 2022 bear market. Everyone knows that the $2 trillion private credit market is imploding, but up until now investors have decided that the risk is "contained". Regardless, it's a clear sign that liquidity is declining across all markets due to global central bank tightening:

In addition, several central banks have warned about the liquidity drain caused by the AI bubble. The Bank of England warned about the AI bubble back in October 2025. However, this week the Bank of Canada is warning about the effects that the AI bubble is having on global capital flows:

“Large capital inflows into the US could once again be misallocated — stretching valuations in equities and credit and setting the stage for a painful correction,” Macklem said Tuesday. “Those flows could reverse suddenly. Either outcome could send stress far beyond US borders.” 

This is the biggest near-term problem with the AI bubble - there have been MASSIVE global capital flows into the U.S. AI bubble that can unwind at the drop of a hat.

The biggest example of course is Japan where that currency has collapsed relative to the U.S. dollar, deja vu of Q2 2024 just before global markets imploded.

Now of course the AI bubble is even more overbought than it was two years ago.

And when the AI bubble final collapses then ALL of the risks related to the AI bubble will finally come to the forefront again, such as the viability of the private AI companies OpenAI and Anthropic which are burning cash like an open furnace:

"The Silicon Data LLM Token Expenditures Index has been falling sharply over the last few weeks, and this index is known as the AI CapEx sustainability gauge. The implication is that the AI CapEx is potentially peaking."

The problem is that agentic AI works continuously and thus uses a very large number of tokens. This could potentially work, but only if the token price was very cheap; otherwise, the adoption of agentic AI would not be profitable"

The implication of AI users switching to cheaper Chinese AI models is that the massive AI data center investment now has negative ROI.

In summary, global central banks have been coddling markets continuously since the lows of the Global Financial Crisis. This monetary support went into overdrive during the pandemic. Now however, at the apex of the largest asset bubble in history with credit markets already imploding, global central banks are finally withdrawing that market support.

And 3x leveraged markets are NOT happy.

"South Korea's top financial regulator expressed regret Monday over approving a batch of high-leverage single-stock ETFs last month, setting off a violent selloff in memory chip shares that spread from Seoul and Hong Kong into US pre-market trading"

"These are high-risk products...Despite consumer warnings, trading hasn't cooled."