The Bubble Is Bursting

Let me be the first and only pundit to acknowledge that the Artificial Intelligence super asset bubble is officially imploding. It's all falling apart while investors are celebrating.

Reading this, GOP acolytes will assume that I blame Trump for all of the problems. I don't, I blame rampant ignorance for this collapse, putting Trump at the epicenter. He is joined by his entire economic team, financial media pundits, Wall Street, Silicon Valley, and the masses at large. Trade war inflation has kept the Fed on the sidelines for far too long which is now leading to a simultaneous housing collapse, bank implosion, and incipient stock market meltdown. As I showed in my last blog post, the Fed is behind the 2008 curve on cutting interest rates for where we are in the cycle. The economy is no longer leading the markets, the markets are now driving the economy. So when the AI Ponzi bubble reaches its nadir, all of today's pollyannah economic predictions will be off by a minus sign. EVERYTHING is now 100% leveraged to the AI super asset bubble, which is what the Wall Street Journal admitted this week:

"The resulting game of financial one-upmanship has tied the fates of the world’s biggest semiconductor and cloud companies—and vast swaths of the U.S. economy—to OpenAI, essentially making it too big to fail. All of them are now betting on the success of a startup that is nowhere near turning a profit and facing a mounting list of business challenges.

Investors aren’t bothered."

Not yet.

Before I show the various asset classes that are simultaneously imploding, I first want to talk about the macroeconomic policies that have led to this critical juncture. When Trump cut taxes for the ultra wealthy he said that he wanted to use the trade war to pay for the tax cut. There was no way to pay for the entire tax cut but the tariffs are no doubt paying for part of it. Selectively putting tariffs on goods that the U.S. makes would have protected working class jobs, but indiscriminately putting tariffs on ALL goods across the board is a de facto tax increase on the working class, because most of the tariffs are NOT protecting American jobs but they are raising prices regardless. Therefore the trade war has served to be a tax on the working class to pay for a tax cut for the ultra wealthy. And the end result has been inflation.

We just got CPI this morning and we are told that this gives the green light for another Fed rate cut next week, but what it really means is that rate cuts will be few and far between. Historically, the Fed has never cut rates with inflation this high, therefore they risk causing a resurgence in inflation. So by and large nothing has changed: Inflation is STILL too high to save the imploding jobs market and housing market.

Investors are not worried. They are convinced that low interest rates always mean higher stock prices no matter the economic circumstances. They have been fed this lie by the Wall Street crime syndicate who never believe there is any reason to sell stocks.

Which gets us to the housing market that everyone knows has been slowly imploding for the past year as interest rates stayed too high for too long. In the initial stages of any housing market decline housing inventory increases because sellers expect high prices and buyers expect low prices. This causes the overall pace of sales to collapse, until the dam breaks and the bid-ask spread is crossed causing prices to decline:

“Home price growth on the national basis has slowed to basically flat year-over-year, and now home prices are declining in almost half the states in the U.S. Meanwhile, rent growth has slowed to its slowest level in 14 years, indicating that we are just seeing inventory pile up all across the housing market.”

In Gerli’s opinion, the combination of these two factors could signal “the precipice of a big decline,” as he expects to see price decreases continue next year.

New one family homes for sale:

Then there are the resurgent bank issues that I mentioned in my last blog post. The worst thing policy-makers can do at the end of an economic cycle is ease lending conditions and that is exactly what Trump did when he took office.

Minsky Hypothesis:

"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate."

This week the gold and metal stocks imploded and took down momentum stocks along with them. It turns out that gold which used to be a safe haven is now at the epicenter of momentum stock collapse.

Here we see metals and miners are imploding in tandem with high octane momentum stocks. They are now the same market whereas back in February they were trading inverse to one another:

I would point out that when metals and miners imploded back in 2022 that was the WORST part of the bear market. Except back then the rest of the market had already rolled over. Now metals will already be in a bear market by the time they hit the 50 day moving average which is the first line of support.

In summary, the bubble is bursting and they didn't see it coming last time either.