The Last Asset Inflation (AI) Bubble

Entering the week of Monday November 10th, markets are bid on the belief that the end of the government shutdown is imminent. Hence there is now widespread belief that this is the beginning of the end of year Santa Rally. It's our job to ask in this largest Ponzi market of all time, what could go wrong?

The health of this Potemkin economy now rests soley on this Asset Inflation (AI) bubble, because investors who are locked in their own happy AI circle jerk are spending freely, while the working class implodes.

That's what the Wall Street Journal said TODAY:

"Americans with large investment portfolios feel markedly better about the economy than those who don’t own stocks, according to the University of Michigan sentiment index. Sentiment among people who don’t own stocks is at the lowest level on a three-month moving average since the university began tracking it in 1998."

Here we see U. Michigan Consumer sentiment which is at all time lows with stocks at all time highs. That has never happened before. We also learned last week that U.S. layoffs (via Challenger) are the highest since 2009 on a 10 month rolling average basis (pandemic data suppressed). In 2009, stocks were down -50% for the year whereas currently the S&P 500 is up 35% since the April lows.

Again, we've never seen this before:

The WSJ article continues:

"This all makes the economy especially vulnerable to a stock market swoon. Gains in AI stocks are behind much of the market’s gains this year, so any downturn in that sector could reverberate through consumer spending across the country."

This chart shows that YTD, AI stocks (Semiconductors) account for ALL of the 2025 gain. The average U.S. stock is up less than 1% as of Friday's close.

In other words, there is a chasmic divergence in the stock market between the average stock and the AI bubble, that mirrors the divergence in the economy between the Ponzi class who own the AI bubble and everyone else. And the belief is that this record asset bubble will continue to inflate into the end of the year.

The rank stupidity of the math behind this epic AI circle jerk was brought up again last week by the passing of the largest CEO pay package in human history. By orders of magnitude:

"Is Elon Musk’s newly approved $1 trillion pay package yet more evidence that the stock market is in the midst of a dangerous, even surreal, mania?

Sure looks like it."

"Kupperman calculates that tech companies are on track to invest roughly $400 billion in data centers this year. Using some unchallenging assumptions, such as depreciation over five years, he estimates “the industry probably needs a revenue range that is closer to … $320 billion to $480 billion … just to break even on the capex to be spent this year....But the actual revenues from AI are running at maybe $15 billion to $20 billion a year, he says"

I would point out (again) that these massive data centers are now running into all sorts of local grassroots resistance due to soaring electricity costs and also due to their massive drain on local water supplies. The key constraint for AI is no longer computer chips, it's a lack of natural resources:

“The biggest issue we are now having is not a compute glut, but it’s power"

“So, if you can’t do that, you may actually have a bunch of chips sitting in inventory that I can't plug in. In fact, that is my problem today. It’s not a supply issue of chips; it's actually the fact that I don't have warm shells to plug into.”

Recognising the lack of power marks a dramatic U-turn for the industry which has previously managed semiconductor shortages."

In other words for the past three years we HAD a semiconductor SHORTAGE deja vu of the pandemic, but now we are heading into a semiconductor GLUT deja vu of 2022.

In summary, this is merely ANOTHER Asset Inflation (AI) bubble that has been inflated by global central banks cutting rates at the fastest pace since the pandemic. And in the meantime Ponzified investors are merely making up stories to justify their over-allocation to over-valuation.