The Road To Ruin

Prologue

The economic and financial history that follows can be summarized quite succinctly as a series of ever-larger and more lethal asset bubbles arising as a consequence of free trade, imported poverty-driven deflation, fiat monetary expansion, technology obsession, and good old fashioned greed. All of which have led to inevitable disaster.

At the outset I will clarify my definitions of inflation versus deflation to avoid later confusion. Since the pandemic, the global economy has been beset by persistent cyclical inflation. This stems from commodity shortages, semiconductor shortages, supply chain bottlenecks, and the Fed’s non-normalized balance sheet (excess money supply). Some of that inflationary pressure was relieved by central bank rate hikes in 2022, however inflation began to show up again during the Trump trade war in 2025 due to the 1930s-level tariffs. The deflationary paradigm by contrast is the longer term force at work on the economy. Deflation stems from mass immigration, cheap imports from developing nations, and of course automation and technology. Deflation is pushing down wages while inflation is pushing up prices. The worst case scenario. But it's the secular deflationary forces that have allowed central banks since the GFC to use monetary policy far beyond what was historically normal. Without these deflationary forces, no monetary asset bubble of the current magnitude would have been possible. The bond market would have imploded a long time ago. 

That said, fifteen years after the Global Financial crisis there is no reason for anyone to believe that the laws of economics have been eliminated. There is no reason to suggest the business cycle no longer exists. And yet that is the common belief that abides at the end of this longest uninterrupted economic expansion in U.S. history: That central banks now have total control over both the economy and markets to the extent that they can both inflate asset bubbles and then fully control their soft landing - perpetually, even as the asset bubbles grew more and more concentrated into fewer stocks and wealthier ultra-billionaires. Until such time that now we have the so-called “Magnificent 7” mega cap Tech stocks which represent almost 40% of the S&P 500 market cap. Forty percent in seven stocks. These are the Tech oligarchs of our time. Quasi-monopolies that account for almost the entirety of profit growth emanating from the deflated “economy”. 

But first we have to go back in time to determine, how did this happen? 

The 401k Experiment Is A Disaster

Before we delve into the (recent) history of asset bubbles I want to state for the record that a significant portion of blame for this financial disaster lies in the fact that today the majority of retirement funds are self-managed in “401k” retirement accounts. These are tax free accounts that are managed by the employees themselves. Historically private and public employers managed employee retirement funds in traditional defined benefit pension plans. These are professionally managed pensions with money managers who have been trained to manage large amounts of money. A typical 401k account by comparison is a single person account that is personally managed by someone who usually has zero investment management training. What’s worse is that the self-manager is emotionally attached to their own savings so they historically make the worst decisions at the worst times. Jumping in at the top and jumping out at the bottom. Whereas a professional manager who is not managing their own money is far more likely to be measured and objective and has oversight from an investment committee to make sure they are taking appropriate levels of risk. All of this 401k related risk is well known, but companies have shirked their retirement duties and they have punted retirement risk to their employees which is an impending disaster. Now layer all of that risk on top of the largest asset bubble in human history.

In China and Japan where the deflationary market roller coaster has been too much for the average household to stomach, small investors save more, work longer, spend less, and avoid debt. Because that is the only proven retirement plan when markets can’t be trusted. And that’s what is coming to the U.S. when this bubble bursts. 

The First Tech Bubble (1995-2000)

This history could begin at any point in time from the late 1970s onwards - what is widely considered the peak of U.S. middle class prosperity, job security, and benefits. The pre-Free Trade era. However, my own personal association with the monetary bubble era begins in the 1990s with the first Tech bubble. Therefore that is where the story will begin. Despite my public persona as a bearish blogger, I began my investing career in the early 1990s both highly optimistic and highly bullish. My first job out of college in 1990 was working as a technology consultant for Andersen Consulting which is now known as Accenture. Andersen Consulting was the IT spinoff from Arthur Andersen accounting which was bankrupted by the Enron fiasco in 2001. Which I will discuss further below. 

When I started my career, the internet was not widely used by the corporate sector at that time, so I started out as a client-server programmer which was a precursor to web server technology. I was a business degree graduate with a staid view of investing. However, as the 1990s continued, the dawn of the internet gave rise to internet-based stock trading. Before that time, for most people, stock investing meant buying and holding mutual funds bought through the mail.

Then along came Netscape in 1996, which was the first mass-adopted internet browser. It was ostensibly “invented” by Marc Andreesen, but was merely a rebranded copy of the Mosaic browser used extensively at universities. Soon after came E*Trade, the first web-based stock trading platform, and soon every major mutual fund company had a web trading platform based upon Web 1.0 technology and 56k dial-up internet access. My broker of choice was Fidelity from my mutual fund investing days. Soon we were all using the Netscape browser to buy the Netscape stock. The internet craze had begun.

The dawn of the mid 1990s commercialized world wide web (WWW) which runs on top of the 1960s-era DARPA internet (TCP/IP based technology) marked the beginning of the internet as a weaponized disinformation platform. Something no one had seen before, but which in the years since has gone into AI overdrive. We are now constantly bombarded by a level of mass information and disinformation formerly impossible in human history. Which means that we now have the personal choice to be either as highly informed or as totally misled to a greater extent than any human in history. And we know which option most people choose. Nothing is more seductive than self-delusion, especially when it comes to financial markets. This newfound level of disinformation has been a rocket fueled accelerant to the reckless age of financial bubbles.   

By the late 1990s, the proliferation of profitless “dotcom” internet stocks intersected with internet-based stock gambling, and a burgeoning IT bubble that was further stoked by the need to rewrite/replace legacy computer systems to prepare for the year 2000. As a corporate IT programmer I was heavily involved in the replacement of corporate systems for Y2K. This involved changing all dates to include a four digit year instead of a two digit year as many systems pre-Y2k had been written. The fear was that as the year 2000 dawned, computer systems would think that it was 1900 instead of 2000 and all manner of disaster would take place. We were told that planes would fall out of the sky. As an interesting aside, I was on call for my employer on New Year’s Eve of Y2K and I remember waiting for midnight to roll around, but then I watched the fireworks in Australia which was early afternoon East Coast U.S. time and I then realized that it was a massive non-event. Nothing bad happened. Anywhere. Nevertheless, far ahead of time to ease the economic uncertainty of this impending date change event, the Greenspan Fed had first delayed late cycle rate hikes and then outright eased rates in 1998 due to the Asian Financial crisis and the infamous LTCM hedge fund collapse. Meaning they were highly accommodative all the way through 1999. All of these “bullish” factors coalesced in the late 1990s to create a Tech stock melt-up of unprecedented magnitude. When New Year 2000 dawned without any plane crashes, Tech stocks went vertical. None of us had ever seen anything like it before and indeed the internet WAS growing by leaps and bounds so we all just assumed it was real and sustainable. There were few if any skeptics of this newfound Tech bubble/monetary wealth paradigm. 

Of course it ended extremely violently and unexpectedly in March 2000, but throughout that entire year 2000 I and many others expected Tech stocks to quickly recover. By early 2001 recession took hold and then the true stock market pain took hold as the Nasdaq ultimately lost -80% of value at the nadir in late 2002. It would take over 15 years for the Nasdaq 100 to recover its Y2K high. 

What is interesting to note is that the internet DID continue to grow for years and decades afterwards - both in terms of total users AND of course in terms of available bandwidth. In the year 2000 there were an estimated 350 million global internet users which grew to 5 billion as of 2025. So it wasn’t a lack of growth that caused the bubble to end, it was rampant speculation and leverage that ended the financial bubble WAY before the internet build-out peaked. The poster child stock of the era was Cisco Systems, the networking behemoth that reached a record $500 billion in market cap in March 2000 just before the bubble exploded. That stock lost 80% of its value by the lows of 2002 and took until October 2025 to regain the prior high. Coincidentally, Nvidia which is the poster child stock of the AI era is now worth 10x Cisco circa Y2K i.e. $5 trillion. A warning which has not been heeded in this AI era. 

In the aftermath of the DotCom bubble, there were many massive frauds revealed that had been concealed by the internet growth bubble. Among the most famous was the collapse of Enron, an energy trading company based in Houston. It turns out that the company was cooking the books and had been audited by Arthur Andersen. So when the fraud was revealed, the company collapsed and the Arthur Andersen accountancy was dissolved by their coincident legal liability. By that time, I had left Andersen Consulting years earlier and Andersen Consulting was a standalone company (Accenture) that was not affected by Enron. 

Another well known fraud involved Worldcom which was a telecom conglomerate that was massively over-leveraged and therefore collapsed when the IT spending bubble imploded. The company's CEO was a former gym teacher named Bernie Ebbers who was convicted of financial fraud. 

For those of us who lived through that era, it was an extremely painful lesson. However, what’s troubling is that it meant nothing to the next generation and was soon forgotten by the financial press as well. It seems that there is always a generation of new investors that is willing to ignore the lessons not just of the past, but of the immediate past as well. It’s a proclivity for risk that would come to haunt us all in the years to come. 

The Subprime Bubble (2002-2007)

Someone reading this story for the first time will probably not believe what actually happened next. After the DotCom bubble collapsed and recession took hold, the Fed lowered rates all the way down to 1%. That was the lowest interest rate in almost 50 years, going all the way back to 1960. In addition, Fed chairman Alan Greenspan famously publicly advocated for the widespread origination of adjustable rate mortgages (ARM) to lower borrowing costs for homebuyers. For those who are not apprised of the mortgage market, historically most U.S. mortgages are “fixed” wherein BOTH the term and amortization of the mortgage are the same - typically 15 years or 30 years. However, with an adjustable rate mortgage, the amortization period is still 15 or 30 years, but the maturity term is less, usually five years. What that means is that this type of mortgage has to be refinanced every five years at the borrower’s risk. If rates rise in the meantime, then the payment increases commensurately. The combination of lowered lending standards aka. “subprime” mortgages, rampant short-term ARM mortgage originations, and low interest rates caused an all new bubble, this time in housing market speculation. The Tech stock speculators that had been stoked by low interest rates in 1999 flowed immediately out of stocks straight into the housing market aided and abetted by Fed policy. So what did the Fed do next? As soon as the economy stabilized, they raised interest rates 17 times in a row (¼ point increments) from 1% to 5.25% from 2004 to 2006.

Now imagine millions of borrowers refinancing into ARM mortgages at 1% to LOWER their payments in 2002. But then within just a few years later by 2006 the Greenspan Fed had raised rates to 5.25% (aka. 425%). They were financially decimated. Instantly bankrupted the day their ARM mortgages came due. Sadly, you could calculate to the day how many people would lose their homes in any given month based upon the schedule of loan maturations which was published on a regular basis by Wall Street analysts. All that malfeasance occurred because the Fed was desperate to get people to buy houses to stoke the economy at the nadir of the recession. That’s when I lost total confidence in the Federal Reserve and their use of monetary policy to encourage reckless profligacy. I stopped trading stocks and stopped taking pro-market risk of any kind. That’s also when I started my first blog “Ponzi World” back in December of 2006 to warn people of the calamity that was about to occur. I couldn’t believe the level of stupidity that was taking place a mere four years after the lows of the DotCom fiasco. 

The Big Long (2007-2008)

Most people know the story of the Big Short because it was first a book and then a well known movie with a pantheon of famous actors including Brad Pitt, Margot Robbie, and Matthew McConaughy. There were several Big Short protagonists, but the main one was Michael Burry, played by Christian Bale. Although he was virtually unknown in 2007, Burry (among others) famously “shorted” the subprime mortgage market by buying Credit Default Swap (CDS) contracts that paid off when subprime mortgages imploded (more on that below). The movie essentially turned a financial disaster into an entertaining story, in the Hollywood tradition. Suffice to say, it wasn’t entertaining to the people who lived through it. I personally never liked the title “The Big Short” because it implied that most people were short the stock/housing markets. They weren’t. Most people were in fact long and got burned in the process, by the corruption that is entertainingly depicted in the movie. 

Here is a short synopsis of The Big Short, all of which is fully elucidated in the book - At the height of the housing bubble Wall Street was packaging and selling garbage subprime loans into securitized bond-like instruments called “Collateralized Debt Obligations” (CDOs) and then those same Wall Street prime brokers (Goldman Sachs, Morgan Stanley) that issued these securities were also betting that their own financial product would fail using an instrument called a Credit Default Swap (CDS) which was sold by other less-savvy Wall Street entities (Bear Stearns, Merrill Lynch, Deutsche Bank). It was the height of corruption, because the originating brokers knew these subprime CDOs would fail and yet they somehow got the ratings agencies to certify them as AAA quality, which lowered the cost for betting against their own financial product. What’s worse is that as counter-party risk spread in October 2008 taking down all of the financial dominoes it soon engulfed AIG, the company that had insured the CDS. And then the Treasury-led TARP program bailed out AIG such that Wall Street which created the entire financial crisis in the first place - got bailed out 100 cents on the dollar. They MADE money off of the financial crisis they created and then Michael Lewis somehow made it into a quasi-comedy. If you read the book which is quite a bit less comedic than the movie, it explains that Goldman Sachs was at first selling CDS to people like Michael Burry and the other Big Short sellers who were profiting from the subprime collapse. But then Goldman realized that they were on the wrong side of the trade and started to actively BUY CDS from other brokers to also profit from the collapse. Which effectively had them shorting their own CDO product. And then they started creating “synthetic” CDOs which represented a virtual index of the riskiest housing markets because there was huge institutional demand for high yields when the Fed started taking down rates in 2007. In other words as the crisis metastasized, there was even MORE reach for risk on the way down due to the collapse in yields. Until it all went into meltdown of course. 

The financial crisis actually metastasized slowly in 2007 and then accelerated throughout 2008 up until the Lehman crisis in September 2008 which was the “last straw” for markets. The first company to fail was a little known subprime mortgage originator called “New Century Financial” which imploded in April 2007 due to insolvency. Markets yawned at the news. In July of that same year two Bear Stearns hedge funds spontaneously imploded. But there was still no real fear until March of 2008 when Bear Stearns itself - a storied Wall Street broker - collapsed over one weekend. On Monday morning it was announced that JP Morgan Chase had bought the broker for $2 per share, which sent shockwaves through markets. The final price was later adjusted slightly higher, but the point was made loud and clear - the Fed was NOT going to bail out anyone. Yet.

Then came several more regional bank failures culminating in the epic failure of Fannie Mae and Freddie Mac both of which are Federally controlled financial entities. At the time, these were publicly traded companies that had as their Federal charter to buy up the packaged mortgages that were originated by banks in order to provide liquidity to the mortgage market. Clearly they had bought up too many junk mortgages until they too imploded in early September 2008. Then came the outright failure of Lehman Brothers on September 15th, 2008. Unlike all of the other major failures to date, the Fed couldn’t find anyone willing to buy the collapsed Lehman so they announced that the company would fail and the losses would fall where they may. The problem was that Lehman was counter-party to several other Wall Street investment banks, so those investment banks faced huge losses on their ill-gotten gains from shorting subprime. By October the global market meltdown had spread across Wall Street and both the Treasury Department (Hank Paulson/Neel Kashkari) and the Fed (Bernanke) had to step in to bailout banks and brokers with a myriad of bailout programs sporting an alphabet soup of acronyms, the biggest of which was the TARP (Troubled Asset Relief Program). With this TARP program, banks could “sell” their junk assets to the Treasury Department in return for cash at 100% of face value, despite the fact that those assets were trading at a fraction of face value on the open market. But then the banks were on the hook to pay back the difference over a period of years. Basically it bought them time to “work off” the loan. Nobody questioned any of it at the time, because they were shell shocked by the meltdown. It was “shock doctrine” at its finest.

Importantly, neither the TARP nor the massive QE monetary injection by the Fed actually stopped the markets decline. Stocks continued to decline throughout Q4 2008 and made their bottom on March 9th, 2009 at the infamous S&P 500 666 index level. It was a -55% loss from market high in October 2007 to the lows of March 2009. The Treasury bond market was the first to find bottom in December of 2008 and then sky-rocketed vertically as markets took in the record Quantitative Easing injection of $1.5 trillion. 

It’s a known fact that there were no indictments on Wall Street over the Global Financial Crisis. None. Zero. The most famous indictment was of Bernie Madoff whose Ponzi scheme was merely revealed by the collapse of global markets. Madoff himself did not create the crisis that cost millions their homes and their savings. That was all Wall Street criminality that got bailed out 100 cents on the dollar. The seeds of Wall Street moral hazard had been sown: Heads we win, tails you lose.  

The Age Of Monetary Moral Hazard 

From this point forward, the story that follows is one of monetary moral hazard. Which means that the more people get bailed out, the more risk they take. Until such time as the central banks that create the asset bubbles can no longer bail out everyone who buys the asset bubble. This is all merely commonsense and human nature, but somehow our policy-makers never figured out that they were creating an inevitable financial catastrophe. 

Many pundits will claim with a straight face that the 2008 financial system bailout was fully paid back by the banks that received the bailout money. That is true of TARP. However, on a much larger scale than TARP, 2008 began the current era of monetary moral hazard. The proactive and ever-increasing use of monetary policy to support markets. The Fed used $3.5 trillion of Quantitative Easing monetary expansion to bailout markets from 2008 through 2014. And then they used an even larger $5 trillion during the pandemic. Of that total $8.5 trillion, to-date the Fed has only “paid back” a little over $2 trillion through their Quantitative Tightening program. So whereas interest rates were fully normalized back to 2007 levels after the pandemic which crushed borrowers, the QE market stimulus has never been normalized, and so beginning in late 2022 it stoked an entirely new AI bubble, which will be discussed further, below. 

Broken Markets

No discussion of the post-GFC era would be complete without discussing the proliferation of bearish blogs that lambasted the moral hazard and overt market manipulation of the new monetary bubble era - including my first blog Ponzi World. After 2008, global central banks were signaling through their actions that going forward markets would be “risk free”. Of all of the newfound critics however, Zerohedge, which was run by former Wall Street traders, was the most infamous. In the early days I was an avid reader of Zerohedge which seemed to hold many insider secrets that most of us retail traders had no clue about. In particular they were dialed into the inner market workings that were becoming increasingly manipulated by Wall Street “dark pools”, High Frequency Trading (HFT) and various other Wall Street fabrications that were cornering financial markets at retail trader expense. It was all very fascinating until the market “broke” in May 2010 in what was widely called “The Flash Crash” - a very fast and short-lived market crash in which the Dow lost 10% almost instantly. In some ways that jarring event marked peak Zerohedge hysteria because central banks would soon euthanize markets to eliminate any chance of further market dislocation. In doing so they took all volatility out of markets, in both directions. That’s when Zerohedge turned to focus on conspiracy theories and alt-right politics. Eventually, one by one most of the bearish bloggers disappeared, believing that central banks now had full control over markets. However it was clear to me that we were heading for a much larger financial catastrophe, one monetary bailout at a time. Investors were becoming systematically conditioned to view economic collapse as a buying opportunity in anticipation of their next monetary bailout. And therefore they would continue to increase leverage until they were ultimately destroyed by their own willful moral hazard.   

We Are All Japan Now (2012-2014)

When the recession ended in 2010, the Fed slowly attempted to normalize monetary policy in 2011 which was an untimely disaster that coincided with the U.S. debt downgrade and corresponding markets crash in July 2011. By September 2011 the Fed was back to actively supporting markets again. They learned the hard way that they wouldn’t be able to take the training wheels off of markets for years, if ever. Likewise in Europe there was the Greek financial crisis which led the ECB to support those markets. So from 2012-2014 the major global central banks were effectively euthanizing markets with slow and steady QE, which served to subdue volume and volatility. It was an extremely boring time in the markets and led to a lot of frustration with the economy. Effectively, the entire world had turned into Japan - a nominal economy with minimal growth, 0% interest rates, and slow but steady markets grinding higher. 

These were all factors that would help Trump get elected in 2016 on the widespread belief that the economy was no longer “working”. It felt like a perpetual recession even though things were not that bad. Or good.

Shanghai Surprise (2015)

The real action during those boring years was in China which was not content to go the slow and steady route of the U.S. and Europe. They were actively supporting their markets and economy with fiscal and monetary stimulus and “Keynesian” 1930s-style domestic building projects. Stories abounded that they were building “ghost cities” - entire cities that were unoccupied, all to stimulate the economy. Their full court stimulus experiment came to a shocking denouement in 2015 when the central bank injected massive liquidity into the stock market in order to generate a wealth effect to stimulate domestic consumption. The initial effect was to cause the Chinese stock market to sky-rocket, but then it rolled over and collapsed even faster. In an uncontrolled fashion. Speculators were margined out en masse. The whole thing backfired. I called it “Shanghai Surprise” because the Shanghai Composite fell back below the origin of the rally. 

So what did the Chinese government do next - they did something even worse, they panic devalued their currency to make their export sector more competitive. That Yuan devaluation in August 2015 domino collapsed global markets. Markets suddenly got interesting again. The Yellen Fed canceled their planned rate increase for September. Global markets stabilized towards the end of 2015 but then in early 2016 the wheels came off the bus globally in January and central banks were back to supporting markets all over again. The Yellen Fed put off their first planned rate hike in a decade, for another year.   

Anti-Globalization 1.0 (2016-2020)

At the lows of January 2016, global central banks coordinated another monetary bailout of financial markets. It’s never actually called a bailout, but any time they inject monetary stimulus into markets they are boosting the bond market which lowers bond yields and stimulates speculation. Overall however, the theme of 2016 was Anti-Globalization which was widely viewed as having collapsed markets in 2008 leading to mass bankruptcy and a zombified economy. People were unhappy. And Trump took full advantage of that discontent.  

Many liberals view Trump as the regrettable demise of progressive politics and the start of an alt-right social revolution. I view it as an inevitable consequence of “Supply Side” economic policies that had crushed the U.S. middle class, all of which started with Reagan in 1980. Everything Trump was ostensibly against was what the Republican party had championed since Reagan - in particular free trade and mass immigration. Both of which are extremely corporate friendly policies. Therefore, Trump forced the Democratic party to cross the aisle and bizarrely defend Supply Side policies they had abjectly opposed forty years earlier. It was all very confusing to hear Trump’s economic advisor Larry Kudlow explain that he WAS a free trader up until 2016 but now he was a protectionist. No one thought to call him out on that.     

It all started in June 2016 with the UK Brexit referendum which was widely expected to vote to stay with the European Union. The vote didn’t go as planned and global markets imploded on the news. U.S. stocks opened limit down the day after the vote. But as the U.S. election approached, markets stabilized thinking that Hillary Clinton would beat Trump easily. Well, that didn’t happen. Global markets imploded the night of the election, but then Trump said in his victory speech that his first order of business was a tax cut. The U.S. opened up big and never looked back. After his election, Trump followed the same script that he followed in his second term, only it was the lite version: First cut taxes, then start a trade war, then de-regulate banks. Global markets were happy for the first year (2017) but after that year the rest of the World (ROW) imploded in early 2018 during the infamous February 2018 “VixPlosion”. The Fed had taken the tax cut as their very first opportunity to begin raising rates for the first time since 2010. Which they did with alacrity starting in late 2016. By the fourth quarter of 2018 even U.S. markets were rolling over, and briefly touched bear market in December 2018. In a premonition of his second term, Trump demanded that Powell either pivot on rates or be fired on the spot. Markets soared in early January 2019 when Powell capitulated. In mid-2019 the Fed cut rates three times (.75%) and called it a “mid-cycle adjustment”. Those three rate cuts came in year nine of what was by then the longest economic expansion in U.S. history - coddled the entire time by the Fed. Hardly a “mid-cycle adjustment”. Nevertheless, we don’t know how the Trump story would have ended, because along came the pandemic aka. COVID-2019.

The Global Pandemic Asset Bubble (2020-2021)

When the pandemic first became widely known in early 2020, markets were complacent. In January 2020 China started actively priming their markets to prevent a meltdown since they were the locus of the pandemic. Soon that excessive monetary stimulus spread globally and ironically caused a melt-up across stock markets into late February 2020 even after everyone knew the pandemic was going global. Then came the big crash. U.S. stocks imploded in late February 2020 and declined to the 50 day moving average at which point they bounced. But then the Fed panic lowered interest rates .5% in an emergency meeting - markets wondered what do they know that we don’t know. Stocks went limit down immediately after the rate cut and there was a huge rotation into bonds. Next came the infamous mandatory “lockdown” wherein everyone was told to stay home and not go anywhere, even to work (except “essential workers”). Borders were closed internationally. Thousands of daily flights were cancelled indefinitely. That’s when the global meltdown accelerated in mid-March 2020. The Fed quickly cut rates all the way to 0% and then they cranked up the QE printing press to maximum volume. Still, it took a full two weeks to get markets under control, by which time the S&P 500 was -35%. No surprise, Tech stocks led the rally out of the collapse as everyone was “working from home” and that meant buying new computers and monitors, virtual Zoom sessions, and cloud storage etc. Still, there was so much global monetary stimulus AND fiscal stimulus in the form of “stimmy” checks sent directly to households that you could buy any stock and it would go up. “Investing” had never been easier or dumber. At one point, sports gambler turned stock trader Dave Portnoy declared that he was a better investor than Warren Buffett because high beta stocks that are MOST tied to the economy were higher by June than they were prior to the pandemic crash, even though most of the companies were experiencing collapsed revenue. 

Unfortunately, the pandemic is what lured younger generations into financial markets without any concerns whatsoever. Why? Because it was the shortest bear market in U.S. history and it rewarded extreme speculators with unprecedented riches which were flaunted all over the internet. Lamborghinis all around. The more risk you took, the more money you made. Off of the lows of March 2020 even bankrupt companies (e.g. Hertz) were making massive gains. To give a comparison, it took a mere four months for the Nasdaq 100 to make a new high after the pandemic crash. Whereas in Y2K, it took over fifteen years for the Nasdaq 100 to make a new high. Something of a difference. And yet younger generations were only too happy to inform us older folks that we have no idea what we are talking about when it comes to markets. All you need are “diamond hands” - just hold on until you are making money again, a few weeks later. 

History will say that the unprecedented global pandemic bailout is what sealed the fate of an entire generation to gamble their way into penury.

The company that epitomized the excesses of the pandemic monetary bubble the most was Robinhood markets. The new broker’s trading app was expressly intended to “gamify” stock trading to lure in younger generations. At the lows of 2022 the stock had collapsed -90%, however as of Q3 2025 it was the top performing stock in the S&P 500 year to date and its new mission was to create as much risk as possible: 

This headline was circa November 25th, 2025:

WSJ: 

The Asset Inflation (AI) Bubble (2023-2025)

All of the aforementioned risk factors went into overdrive in the final and most lethal monetary asset bubble - The Artificial Intelligence (AI) asset bubble. Monetary moral hazard, exotic and lethal derivatives-driven ETFs, extreme Tech concentration, and of course the deflationary economic forces destroying the jobs market. I call it the Asset Inflation (AI) bubble because in reality that’s all it was, merely another monetary asset bubble, however this time under the imprimatur of a “world saving” technology embraced with messianic fervor. A technology that we were told would save the world, but in the meantime would destroy the economy, the environment, and the financial markets. One wondered if there would be anything left to save by the time the Master Control Program (MCP) was finally invented. Conveniently, there was no timeline given for completion or even any agreement on what completion would entail. AI was a never-ending race to the horizon as depicted by author Karen Hao in the book Empire of AI, which I highly recommend.   

AI speculation reaching its apex in conjunction with the trade war is what caused all of these oppressive economic factors to go into overdrive. Tariff-driven goods inflation. Commodity inflation from the massive investment in AI putting upward pressure on semiconductors, copper, electricity, and all types of electronics. Wage and job deflation stemming from Wall Street’s persistent corporate imperative to reduce jobs and increase AI. The middle class was getting crushed by all sides. So it can come as no surprise that consumer sentiment had collapsed to an all time low at the end of 2025.

The last and largest bubble began at the market lows of late 2022 with Tech oligarchs sitting on massive amounts of unused cash in a bear market, when along came the ChatGPT internet bot which went instantly viral. What to do with all of that cash but to deploy it into Artificial Intelligence on an existential scale at the behest of a totally unprofitable company called OpenAI. The goal was to take what was left of the economy - the remaining white collar “good jobs”, automate them out of existence, and thereby massively increase profits. It seemed like a good idea at the time.   

Much of this following history I learned from Empire of AI by Karen Hao:

OpenAI was founded in 2015 as a non-profit entity with a founding charter to monitor the developments of the artificial intelligence Tech sector and ensure they were to the benefit of humanity. Over time the company systematically abandoned this oversight role to pursue privately profitable AI research. In 2025 it became a full fledged for-profit company, completely abandoning its prior oversight charter. The company has been unprofitable since inception and relies upon steady inflows of capital investment in order to fund its goal of AI dominance.

The mission of creating an AI arms race was the brainchild of OpenAI CEO Sam Altman. Altman is a controversial figure who was briefly fired by the OpenAI board of directors in 2023 for violating the company’s original non-profit charter. But then the employees threatened to quit en masse, so the board let Altman remain CEO. Altman’s plan was to acquire as much computing power as possible in order for OpenAI to brute force their way to market dominance. By late 2025 OpenAI had committed to a staggering $1.4 trillion of data center hosting contracts for future “compute” against a mere $20 billion of revenue. All predicated on the theory that the company would one day become wildly profitable once it won the AI arms race. Many pundits questioned this strategy of entering into future-based contracts that were funded by the suppliers themselves, the largest being Microsoft, Nvidia, Amazon, Oracle, Broadcom, and AMD. They were funding their own customer in what many decried as a “circular financing” arrangement. 

This strategy of reaching for as much computing power as possible through future-dated vendor agreements is what has fueled the AI stock market bubble to ever dizzier heights. Each time Sam Altman signed another circular contract with another vendor, the vendor’s stock would go vertical. Tech sector valuations soared out of control as every company merely mentioning “AI” in their quarterly conference calls saw their stock soar. It’s all deja vu of the DotCom Tech bubble circa 1999 but instead of profitless internet companies, at the center of the AI bubble is a profitless and ludicrously overvalued private AI research company that has been openly manipulating the stock market. Many pundits claimed it was “different this time”, but it’s not. Only the fools who believe in it are different.

Altman is by no means alone in pumping up the AI bubble. Most of the other Tech CEOs have played a role in the bubble as well. In particular, Nvidia CEO Jensen Huang has been a constant bubble booster while assiduously ignoring the risks of AI to the economy, to the environment and to markets. And by all accounts it worked because by late 2025, hedge funds doubled down on AI:

Dec. 4th, 2025:

“NEW YORK, Dec 3 (Reuters) - Hedge funds are using near-record levels of leverage to trade equities and betting on debt-backed strategies in efforts to juice returns, making the most of markets buoyed by a boom in artificial intelligence.”

AI: The Greatest Cash Burning Machine In History

From the outset, Wall Street has done their best to minimize and otherwise obfuscate the growing risks of the AI bubble. This article demonstrates the convoluted logic behind Wall Street’s fear reduction campaign:

Dec. 3rd, 2025

Fortune: BofA Calls It An Air Pocket Not A Bubble

“Is this 2000? Are we in a bubble? No”

The article claims that there is less extreme speculation in unprofitable companies taking place now relative to the DotCom bubble, but the article admits that hyperscaler capex spending poses risks to investors. First off, I have pointed out many times that the company at the center of the AI bubble - OpenAI - is a totally unprofitable company that has a private market cap of $500b which handily exceeds the total market cap of every DotCom stock from Y2K COMBINED. Most unprofitable Y2K DotComs had a valuation FAR less than $1 billion. Secondly, I have pointed out that in Y2K, even the most profitable companies (Cisco, Microsoft, Oracle, Sun, Dell, Intel) saw massive price declines when the bubble burst. Microsoft had the smallest decline at -60%. However, the biggest risk separating the DotCom bubble and the AI bubble is highlighted in the article above - which is that increasingly, the mega cap Techs are putting their own balance sheets at stake in this AI bubble by turning to debt; whereas in Y2K, none of the mega caps were using debt: 

 “Capex funded by operating cash flow is running out,” Subramanian noted, with hyperscalers increasingly funding operations through debt. She noted the supply of AI infrastructure [debt] has increased by more than 1,000% from 2024 to 2025.”

Then there is the MASSIVE depreciation costs highlighted in the article above by the CEO of IBM, and which have recently been the subject of Michael Burry scrutiny. The problem with AI hardware is that it becomes obsolete much faster than traditional computer hardware and if the goal is “AI domination”, then Tech competitors can’t afford to be behind the curve on hardware upgrades. Therefore with a maximum useful life of five years - a schedule that Burry believes is too optimistic - that implies an annual depreciation rate of 20% minimum. If AI capex totals $3 trillion by 2028 as Wall Street predicts, then that equals $600 billion of depreciation PER YEAR. Which is currently offset by negligible revenue from AI. 

What these numbers suggest is that the Tech mega caps that were sitting on abundant cash just three years ago are now onboarding a level of financial leverage that dwarfs the DotCom bubble. Forty percent of the S&P 500 by market cap is committing financial harakiri. Therefore their stock price declines will easily equal or exceed what was seen by the largest stocks in Y2K. 

AI: The Greatest Job Killing Machine In History

It’s no secret that AI is a job killing machine. While it may appear to make sense for  corporations to want to exchange workers for cheap AI bots to increase profits, it’s a strategy that will backfire when they all attempt it at the same time. In the process they will destroy their own corporate revenue along with GDP. It’s important for CEOs to understand that AI bots don’t go shopping, they don’t travel, and they don’t contribute to the demand side of the economy. Meanwhile, corporate profits from AI will fall to the bottom line of the ultra-wealthy where they will sit in large bank accounts waiting to be used for yacht upgrades. The marginal propensity to spend of the ultra-wealthy is a fraction of the middle class. Which means that it makes zero sense for the U.S. government to pursue AI as a matter of industrial policy. Historically, the U.S. has seldom pursued industrial policy other than during WWII and prior to that in the 1930s Great Depression. The 1930s Tennessee Valley Project was intended to create thousands of jobs at a time when there were very few jobs being created. Therefore it’s confounding to understand why the Trump administration is pursuing AI dominance with wild abandon. Do they want to be on the record having actively encouraged a KNOWN job killing disaster? The White House AI “Genesis Mission” will end up contributing to widespread unemployment at a time when the economy desperately needs more job creation:

“Today, America is in a race for global technology dominance in the development of artificial intelligence (AI), an important frontier of scientific discovery and economic growth.”

It’s a race to see whose economy will implode first. As I’ve explained in my blog and on Twitter, whatever “growth” AI contributes will be on the front-end of development. Once AI is fully “developed” it will kill far more jobs than it creates. Even worse, it will create mostly temporary construction jobs that will disappear once the data centers are completed, but it will destroy permanent white collar jobs. Even if one argues that those white collar jobs would have been eliminated over time anyways, to wipeout thousands or millions of jobs all at one time is economic suicide. The economy can’t handle such a massive deflationary shock all at once.

There is no doubt that AI will soon be the most hated and feared technology invention in our lifetimes and anyone who is advocating for it will be reviled.

As of this writing we have no official jobs data due to the government shutdown. However, the private ADP payrolls data below shows job creation at the lowest level since the 2008 recession (dotted blue vertical line). While stocks are diverging higher, which is not what we saw in 2008.

This is moral hazard visualized:

“A weakening job market is being taken as good news, firming up the case for interest-rate cuts from the Fed.”

The Incipient NDFI Loan Crisis

NDFI stands for “Non-Depository Financial Institution”. NDFIs are the moral hazard consequence of the 2008 bank bailout. After the GFC, banks were heavily restricted from making risky loans. So a new crop of hedge fund-like financial companies sprang up to fill the void aka. NDFIs. These shadow banks borrow from the regulated chartered banks and lend that money to subprime “junk” corporate borrowers. NDFI loan creation has grown steadily from the ashes of the GFC and recently reached $1.75 trillion (November 2025) - a figure larger than subprime 2007 ($1.4t). Recently those NDFIs started to spontaneously explode, particularly in the subprime auto market. Bond king Jeff Gundlach blames “garbage lending”:

“The next big crisis in the financial markets is going to be private credit,” he said. “It has the same trappings as subprime mortgage repackaging had back in 2006.”

Global Shanghai Surprise

In summary, in mid-2025 the World Bank lowered their global GDP forecast for all of 2025 to the lowest level since 2008. Meanwhile, global central banks have been cutting interest rates at the fastest pace since the pandemic. They are actively stoking the AI bubble with global stock markets at all time highs, which is the opposite of prior monetary expansions in 2008, 2011, 2016 and 2020 when markets were at bear market lows. As monetary moral hazard would expect, financial speculators are actively front-running central banks into recession, likely depression. What global central banks are doing is what China had attempted in 2015 which was to stoke a stock market bubble amid an economic collapse that got totally out of control. Consumer sentiment has collapsed but asset markets are at all time highs, and deja vu of October 2008 central banks will have no means to stop the selling.

Again.