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The $3 Trillion Day: Why the AI Bubble Just Cracked (And It's Not Only Tech)

What does it mean when stocks crash and bonds rally at the same time? This episode breaks down a major single-day market selloff, using commentary from Jeff...

36m

Summary published by , updated .

Impact Theory

Key Takeaway

Pay attention to what the bond market is pricing, not just the stock market.

When stocks fall, check whether treasury yields are also falling. A simultaneous bond rally signals that large investors are fleeing risk broadly, which suggests something more systemic than a single-sector correction.

Jeff Snyder's analysis in this episode argues that bonds were already pricing weak consumer demand and energy-driven demand destruction long before the AI selloff made headlines. Watching both markets together gives a more complete picture of where the economy is heading.

Episode Overview

What does it mean when stocks crash and bonds rally at the same time?

This episode breaks down a major single-day market selloff, using commentary from Jeff Snyder of Eurodollar University to explain what the simultaneous moves in equities and treasuries are revealing about the broader economy.

The conversation covers three connected problems:

  • The AI capital expenditure bubble. Enormous spending on data centers and chips was justified by assumptions that now look increasingly fragile, including unlimited demand growth, cheap financing, and smooth construction.
  • Consumer demand destruction. Rising energy and living costs have been quietly eroding household spending for some time, well before the market took notice.
  • Political resistance to AI infrastructure. Election results raised the possibility of regulatory and construction obstacles, which exposed how many valuations depended on everything going exactly right.

Snyder uses the term "demand destruction" to describe what happens when prices rise faster than wages or credit, eventually reducing overall spending volume rather than generating ongoing inflation.

Main Insights

1. A stock crash means more when bonds are rallying too

On the day described in this episode, stocks fell sharply across technology, industrials, financials, and consumer brands. That alone could be explained as a reaction to one piece of bad news.

What made it harder to dismiss was the bond market. Treasury yields were falling simultaneously, meaning large investors were moving into the safety of government debt. That pattern points to concern about the economy as a whole, not just a reassessment of one sector.

Snyder argues the bond rally had been building for weeks before the stock drop, suggesting the market was already pricing weaker growth and demand destruction. When both signals align, the case for "this is temporary" becomes much harder to make.

2. AI valuations required too many things to go right at once

The host reads through the conditions that would need to hold simultaneously to justify current AI stock prices:

  • Data centers had to be approved and built quickly.
  • Power had to become available at scale.
  • Chips had to retain their value as collateral.
  • Financing had to stay cheap.
  • Customer demand had to expand continuously.
  • The broader economy had to remain strong enough to support all of it.

None of those assumptions was individually unreasonable, but all of them had to be true at the same time. When lenders started demanding stronger guarantees on chip financing, and Chinese AI stocks began collapsing months earlier, the probability of that perfect outcome was already shrinking. The election result was one more weight added to a structure that was already under strain.

3. Demand destruction is quieter than inflation but harder to reverse

When energy and essential costs rise faster than wages or credit, households don't generate new money to cover the difference. They spend less elsewhere.

The host describes this cycle plainly: higher fuel costs mean fewer restaurant visits, fewer retail purchases, less discretionary spending across the board. Businesses face the same squeeze from higher transportation and production costs, but can't raise prices on customers who are already stretched.

The result is falling volume, not rising prices. If that continues, it tips from inflation into deflation driven by crisis, which the host describes as a considerably worse outcome. Snyder's read is that the bond market, particularly inflation-protected treasuries, has been pricing this dynamic for months while most commentary was focused on inflation alone.

4. Political risk repriced faster than its actual probability justified

A proposed national moratorium on data centers was not law when this episode was recorded and may never become law. Yet it contributed to a significant one-day selloff.

The host explains why: financial markets had been assuming data center construction could proceed almost without political limitation. The election results didn't create a new obstacle so much as reveal how fragile that assumption was. Once investors began pricing any meaningful political risk, it exposed how many valuations depended on frictionless construction.

This is a useful pattern to recognize in any industry. When a narrative assumes regulatory and logistical problems will remain manageable, even a credible threat to that assumption can move markets well beyond its immediate probability.

5. China's AI selloff is a leading indicator worth watching

By the time of this episode, a major index of Chinese technology and semiconductor companies had already fallen roughly 40% from its mid-year peak. Chinese authorities had intervened with liquidity support, reduced financing costs, and encouraged share buybacks. The market had not durably recovered.

Snyder and the host treat this as a warning rather than a separate story. Government liquidity can slow a decline but cannot create profitable demand for AI services that isn't there yet. The Chinese experience also illustrates how quickly a technology-heavy market can fall once investors become less certain about demand growth, technological progress, and continued policy support. All three of those uncertainties now exist in the US market as well.

Frameworks or Models

Demand destruction cycle

Snyder and the host use this term to describe a specific sequence of economic events that differs from standard inflation.

  1. Essential costs rise (energy, fuel, utilities) faster than wages or available credit.
  2. Households have less money for discretionary spending, so volume falls in restaurants, retail, and other categories.
  3. Businesses face higher production and transportation costs but cannot raise prices on already-stretched customers.
  4. Revenue falls, margins compress, and investment slows.
  5. If the cycle continues, prices eventually fall not because the economy is healthy but because demand has collapsed, which can tip into deflation.

The practical implication is that weak oil demand and falling yields can be warning signs of this cycle rather than evidence that inflation has been solved.

Notable Quotes

"The election didn't create the wall. It may have pushed the industry into a wall that was already directly in front of it."

Jeff Snyder

"Demand destruction, demand destruction. That is why oil did not reach $200 a barrel."

Host

"The bubble hasn't burst yet. Not fully. Not in the United States at least. But the warning signs, the warning signals in more places, they are beginning to pile up."

Jeff Snyder

"Without rapid wage growth, which let's face it, is not happening, expanding credit or some other broad increase in income, the energy shock can't generate an endless inflationary spiral. It destroys volume."

Jeff Snyder

Action Items

Suggested exercises inspired by the conversation.

  • 1
    Track bond yields alongside stock headlines

    The next time you see a significant stock market decline in the news, look up the current 2-year and 10-year US treasury yields before forming an opinion.

    • If yields are rising while stocks fall, investors may be rotating but not fleeing.
    • If yields are falling while stocks fall, investors are moving toward safety, which suggests broader concern.

    This takes about two minutes and gives you a second data point that most news coverage skips.

  • 2
    Audit your assumptions about one investment thesis you hold

    Pick one sector or company you're currently positive on and list the conditions that need to remain true for it to perform as expected.

    • How many of those conditions are independent of each other?
    • Which ones are hardest to verify?
    • What would change your view?

    The AI analysis in this episode shows how a thesis can look solid on any single assumption while being fragile across all of them simultaneously.

  • 3
    Look for demand destruction in your own spending

    The episode argues that demand destruction happens quietly, through reduced volume rather than obvious crisis.

    Review your last three months of discretionary spending:

    • Which categories have you quietly reduced without consciously deciding to?
    • Have essential costs like fuel, utilities, or groceries risen as a share of your budget?

    Your own behavior is a small but concrete data point in the larger pattern the bond market is already pricing.

  • 4
    Read a market commentary from someone who tracks international flows

    The host recommends following Jeff Snyder at Eurodollar University specifically because Snyder tracks how international dollar markets and global capital flows influence domestic conditions.

    • Find one piece of his commentary on the eurodollar system or global liquidity.
    • Note where his explanation differs from standard Federal Reserve-focused analysis.

    The point is to add one perspective that connects domestic market moves to their international context, which is where a significant amount of the signal actually originates.

Go deeper

Full Transcript

Read or copy the complete episode transcript.

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The S&P 500 dropped 4%, heading for its worst day since April 2025. The Dow lost more than 1,650 points as of this recording, erasing almost its entire post-election rally in a single session. That's the wild thing, is understanding that for a second it looked like we were going to be doing good, and then it completely flipped. But the bigger question that we're going to be getting into is, where is this all going? Is this only a tech story, or is there something larger? And I'm telling you right now, this is not only a tech story, and it is very important to understand why this isn't only a tech story, why we are likely to see a reversal where the Fed thought they were going, and what this is going to mean down the road. Again, the epicenter seems to be artificial intelligence. Broadcom and NVIDIA fell approximately 9%, Oracle dropped 8%, AMD and Micron lost around 15% each. These are just one-day totals. Semiconductor ETF fell roughly 11%, putting it on track for the worst day since the COVID outbreak in March of 2020. But this is no longer just a technology sell-off, at least today. Caterpillar fell 5%, JP Morgan dropped 4%, Boeing lost 4%, Nike declined 3%. These are catastrophic losses. I know those numbers sound small, but when you put them in historical moves, they are gargantuan. But at the same time, maybe more importantly, treasury bonds are rallying. Not just a fluctuation, we're seeing a bond market rally develop. The two-year yield has fallen to a recent low near 4.48%, down almost half a percentage point in five weeks. Now, the question is, what does that say? The 10-year is around 4.83, heading toward 4.80, roughly 50 basis points below its recent high. It says I'm going to need to be safe. I can feel something coming. I know bad things are going to be happening in the market. They're not going to be brief, and I need somewhere to put my money. When people want to be in U.S. treasuries, that means that people do not like the risk in the markets. September's technical effects are gone, just as I told you they would be. And the market is increasingly free to price the fundamentals. And the fundamentals are becoming more concerning. So the immediate explanation for today's stock crash is that the midterm election results may make data centers harder to build. Investors are worried about more regulation, environmental restrictions, and even proposals for a national moratorium. But that is only the proximate cause. It is one more concern, perhaps one too many concerns, piled on top of anxieties that have been building for months. This is a big thing that I think people are missing, is that the economy has been weak for a long time. Consumer demand has been declining. AI was part of what was competing with the treasury market. A big part of the reason that rates were going up, up, up, is the debt demand in AI was far more exciting, and it was absolutely massive. And so money was racing into that, making it hard for the government to raise the debt that it needed, which was making it look like, whoa, maybe are people really beginning to lose belief in the U.S. government in terms of the stability of the dollar? That doesn't actually seem to be true, and that's very good news. But now all of this is starting to point out there's actually been something else that's been going on for quite a while, as the consumer demand was held afloat for a long time by the people at the top of the K, and then by the people at the bottom of the K burning through savings and buying on credit. But now as that's run out, we realize that the economy was a lot weaker than we thought. Remember, we've been talking about this for a while, with why did the cost of oil not absolutely skyrocket, hit $200 a barrel. There was a ton of people saying that that's exactly what was going to happen, but that didn't happen. And the question is, why didn't it happen? And the hypothesis that we've been talking about that I still think is true is demand destruction. And so now you've got shaky consumer demand meeting something starting to wobble in the AI trade. The spending was already enormous. The financial commitments were becoming increasingly difficult to justify. Credit markets, they've been resisting the weakest AI borrowers. Too much had to go perfectly to support current stock prices and valuations. Now the path to perfection looks increasingly less likely. Does anybody see a path to perfection? I don't think anybody has that on their bingo card. I think people would be way surprised, and I think that the way that people are investing shows that more and more. Now, they may not want to give up on the whole only-up phenomenon just yet, but I think everybody's starting to wobble, which is why people are beginning to diversify away. Remember, we're seeing a transition. It's actually a rotation. So people aren't leaving the entire market, at least as of a few days ago, more so now. But they weren't leaving the entire market. What they were doing is saying, I'm way over-indexed on tech. I need to get out into the broader market. Now the fact that the broader market is also taking a hit is more worrisome, but at first it was just, okay, maybe I'm over-indexed on tech specifically. Bonds are not merely pricing an AI bust. They're pricing energy-driven demand destruction, weak economic fundamentals, and the possibility that if the AI boom does turn into a bust, which we know it will at some point, that will remove one of the few major sources of investment keeping the economy afloat. All right, that is the thing that I want to hit like a hammer blow. This is why I'm looking at the jobs data and I'm like, yeah, I'm not expecting it to hold. I am definitely expecting it to be revised down because the thing that's making the US economy work is AI, and we are in the middle of watching that bubble wobble hard. We all know this boom will eventually break. They all do. What we don't know is when and how violent that will be when it happens, but that is always in the back of everyone's minds, especially those who are investing in stock markets as well as the bond market. And so because it's always there, it's always something you have to keep in mind and think about. The reactions can be violent in the short run because everybody knows how this ends. We just don't know when, which means you really got to pay attention to all of these signals. Now again, the immediate catalyst for today's selloff is the possibility that America's data center expansion will become politically more difficult. America has certainly turned against data centers. That's been happening for a while. Following a democratic sweep of both chambers of Congress and victories in several important gubernatorial races, investors are now reassessing the regulatory outlook for AI infrastructure. It's not good. Senator Bernie Sanders, the crazy guy from up there in Vermont, called for a national data center moratorium, arguing that Americans don't want technology companies damaging the environment, eliminating jobs, and threatening the public's future. A national moratorium is not currently law. It may never become law. That isn't the point. Financial markets have spent the last several years assuming data centers could be constructed as quickly as financing, as quickly as equipment, and as quickly as power became available. Political resistance was treated as a manageable local inconvenience. That assumption is now being increasingly challenged. There's always a collection. That's his favorite soundbite. You're going to hear that like three more times in this video alone. Data centers require enormous amounts of electricity and water. They need transmission lines, backup generation, cooling systems, land connections. What's really interesting, by the way, is right now you're seeing a switch in the way, certainly, that open AI is approaching the data center buildout. They've obviously been feeling this tension building up for a while. Now they're putting new strategies in place. They're talking about, we're going to pay for all of the power grid upgrades. We're going to be completely transparent on our water usage. There were a bunch of other things they were doing trying to make these data centers more appealing to people, including now changing the name. They're not calling them data centers anymore. They're calling them compute campuses, which just sounds stupid. Anyway, they're doing anything they can to try to rebrand this to get people to be less antagonistic. I think they are going to have to work way harder. We've got to flip the mentality that people have that this is going to be bad for them. We've got to show them how this is benefiting them. If we can't make them feel it in the economy, you're never going to convince them. There are already straining the power grids. These requirements are becoming increasingly visible to voters. Communities are being asked to tolerate higher electricity demand, new infrastructure, and potentially higher utility bills. The politics were always going to become more difficult. Investors simply weren't pricing that difficulty because the AI narrative assumed infrastructure would be built almost without limitation. Today, along with some of the stuff in the credit markets, the markets are beginning to price limitations. Neo cloud companies were hit particularly hard. Corweave, that's one that's been in the news a lot lately, fell approximately 13%. Nibias lost 16%. Iron dropped 17%. That's brutal. Not just today. It's been coming for some time. These companies are far more dependent on continuous AI construction than, say, Microsoft, Amazon, and Google. Here's one thing I will say. It's not predicated on building out the data centers. It's that to hit their revenue targets, they would need an inflow of demand that would require the data centers. That difference is huge because we don't know that we're going to have that continued appetite. The problem is that when you look at it, I think people were expecting to have a lot of companies competing for all of this compute. Now, the reality is that if rumors can be believed that there are people that were inquiring about buying compute that was much more expensive, and now it's coming down, and now people are coming in offering them more hours than they were originally going for because it's possible that we've already overbuilt based on the rate of demand that's coming in. The question is, is the real wall going to be electricity, or is the real wall going to be demand? Gigantic advertising, retail, and software businesses that are capable of subsidizing years of uncertain returns. So if data center projects are delayed, their revenue is delayed. It's not the data centers, it's the demand. Now, if the demand is there, and then the data centers aren't built, then yes, it would be the data centers. But you have to have the demand first, and there are question marks on that one. If projects are canceled, their expected revenue path disappears, while financing obligations they've already taken on, those remain. That's what I'm talking about with the mismatch in time between your debt obligations and the revenue. This is the tale as old as time. If lenders conclude political risk has made future construction less predictable, the cost of financing rises before a single project is officially stopped. That is why one proposed moratorium can have a much larger financial effect than its immediate probability would suggest. It exposes just how many valuations depended on almost everything going exactly right, and how that was never a realistic possibility. Truth. Never. There's a big mistake that- Nothing's ever perfect. A lot of gold investors are making right now, and it has nothing to do with the price of gold. You might have bought gold 5, 10 years ago, watched the price go up and thought, I've done pretty well. But here's the question almost nobody asked. How many more ounces of gold could you own today if your gold had been earning you more gold this entire time? Think about it. Most people buy gold, pay to store it and insure it, and then just sit there waiting for the price to go higher. Your gold isn't producing anything. That's what makes monetary metals interesting. They've created a way for eligible investors to earn up to 4% annually on their gold through their gold yield marketplace. But here's the important distinction. That yield is paid in additional physical gold, not dollars. So instead of only watching the dollar price of your gold change, you have the opportunity to increase the amount of gold that you own. And those additional ounces can potentially appreciate alongside your original holdings if gold prices rise. Now, monetary metals has been doing this for nearly a decade, and they've paid out thousands of ounces of precious metals to their clients. So here's the question. If you're already holding gold for the long term, why wouldn't you at least investigate whether it could be earning you more gold? The real opportunity cost may not be the price that you paid for your gold. It could instead be all the ounces that you're not accumulating. Go to monetary-metals.com slash Snyder and learn how their gold yield marketplace works. If this was only a one-day re-reaction after yesterday's non-reaction reaction, we wouldn't be seeing what we're seeing in the bond market. The bond market, the treasury market in particular, is now rallying. It's not just a fluctuation, not just a short-run blip. This is an honest-to-goodness treasury market rally, which has much broader implications, particularly since it began long before the election results on Tuesday. As of last check, the two-year yield is now at 4.48%, down almost half a point from its recent high. That is wild. Remember how fast it was going up? There was so much chatter about, oh my God, where is this going to stop? And now, as people are beginning to back off of pouring money into AI debt, and there's more uncertainty in the stock market, all of a sudden, the prices are coming down because more people are flooding in. They want their treasuries. seeing how fast that turned around. Here's around 480 or so, approximately 50 basis points below its peak. This matters a great deal because the earlier rise in yield had two main components to it. The first was, as I pointed out to you several times, September. Treasury markets often encounter seasonal pressure at the end of the third quarter as dealer balance sheets become constrained and intermediaries become less willing to warehouse duration. This year, those pressures amplified an already difficult sell-off. The second component, the primary component, was the Fed. Following Kevin Warsh's Jackson Hole remarks, markets began pricing the risk the Fed would respond aggressively to an energy-driven increase in headline inflation. Which makes no sense. You can't raise rates and open the straight. That's not how this game works. It was weird when it happened, and I said so then, I reiterate now. Even though expensive energy was simultaneously weakening the real economy underneath, that pushed expected short-term rates higher and farther into the future. Now, I will always give the devil his due. There is that one side, and we're actually seeing it play out now, which is, if your goal isn't to address an energy-led inflation shock, but instead you see way too much money going into the AI industry and you're actually trying to slow that down, that would be the only thing that would make sense. Because by the AI trade getting less interesting to people, therefore the debt being less interesting, now you are seeing the rates come down on certainly the treasuries. We'll see what ends up happening with overall inflation when we get the next read on that. But yeah, spiking because you think that you, hiking because you think that you have an energy problem is dumb. September is now over, which removes the seasonal pressure. Therefore, the September effects are now fully into, well, I guess it's not, thank God it's October. Thank God it's October, now November. More importantly, though, the economy is beginning to limit how much room the Fed has to overreact and trichet itself. The worse the economic outlook becomes, the less credible an extended series of rate increases also becomes. The upper portion of the forward rate curve, that's the term so for futures, it has been compressing hard because traders are pricing less room for the Fed to continue hiking before something really breaks. That process accelerated during today's stock market sell-off. The probability in options markets of a quarter point increase in December from the Fed fell to approximately 70%, down from nearly 83% just yesterday. The probability the Fed does nothing in December increased to almost 30%. Markets are still pricing a meaningful risk of another trichet, another rate hike out of policymakers, but the Fed's margin for doing so is shrinking. And the reason it is shrinking is because the market is becoming less confident in the economy's ability to absorb energy expenses, a worsening credit cycle, and now a potential reversal in AI investment all at the same time. Luxury brands are not charging you more for better cashmere. 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Well, we gotta see what's actually happening with inflation. I think if they keep getting inflation numbers, the Fed is still gonna push, which is wild. But nonetheless, if inflation goes in the wrong direction, I think he'd hike again. Flight to safety, lower growth and inflation expectations, less interference from the Fed, lower bond yields. The treasury market is now in rally mode. The data center backlash that we're now seeing emerge didn't create the AI industry's financial problems that we've been talking about for a lot longer than just this past week. In fact, it became harder and harder to ignore by the time we got to the election on Tuesday. So again, maybe one straw too many for the camel to keep going. Amazon recently spent about $77 billion on property and equipment in a single quarter, contributing to a free cash flow outflow of approximately $42.4 billion. That is so wild. Guys, that is so wild. That's so much money. For these guys to go from having more money than God to be negative cash flow is wild. There's no surprise in the fact that the market's responding to that. Supplier financing arrangements that could allow it to borrow as much as $80 billion against the hardware it purchases. Alphabet faces more than a trillion in reported future payments connected to data centers, computing capacity, and energy. Even as investors continue asking how generative AI will be monetized without damaging Google's existing search average. Bro, that is the question. How are these guys gonna build the future without eliminating their revenue model now? And how do you walk that balance of everybody can see in the data that the reality is as they are bringing in or bringing online more AI and more of their searches are done via their AI mode that there's just less traffic being moved to other sites, which means they're getting paid less money. People are getting the answer, saying thank you and doing nothing else. If my behavior were universal, I'm just in Claude all the time. I'm not doing searches almost ever. I went from doing, I can't even imagine how many searches a day, to less than one a day, for sure less than one a day. So if that is indicative of the way a lot of people are behaving, that revenue is going to continue to die off even if not another data center is built. So it becomes a question of how many people are actively using AI. If that number keeps going up, ooh, buddy, it's gonna get weird for Google especially. We'll see. Microsoft offered voluntary buyouts to approximately 60,000 employees as it seeks additional flexibility while continuing its own enormous AI infrastructure program. These companies, these specific ones I just went over, are not speculative startups. They are among the most profitable corporations in history. Yet even they are being forced to conserve cash, find new financing structures, and prioritize AI investments over all other kinds of expenses. And below them, much weaker layer of Neo clouds, data center operators, and AI laboratories without profitable independent businesses. Those guys, Neo clouds, would not want to be one right about now. They need financing before revenue even exists. Lenders are being asked to fund GPUs, the networking equipment, the land purchases, and all the power associated with everything based on projections of what customers may eventually pay after the infrastructure is completed. That was becoming a difficult proposition long before we got to the election. Banks nearly backed away from a reported $63 billion financing package for Broadcom chips and networking equipment that was intended for anthropic, but lenders demanded higher interest rates and stronger protection against those losses. Broadcom reportedly had to provide residual value support because the banks weren't comfortable relying entirely on the finance chips as collateral. It had told us something very important before we got to the election this week. There's always a connection. The same chips described as the most valuable and strategically important assets in the world apparently aren't sufficient collateral on their own without additional guarantees from Broadcom, the supplier. Yep, let that sink in, man. Like the money is being spent on all these chips and now people are more and more going, yeah, maybe those will be valuable, maybe they won't. The fact that people are starting to have questions about the chips, I mean, the chips have been viewed as like manna from heaven. Buy them at any price. This is the very thing that is like pissing the average person off. It's like, bro, anything that requires memory is inflating to high heaven. You guys are storing these in warehouses. This is crazy. Now people are saying, yeah, I don't know if we're gonna give you as much credit for those as we used to. Now it's not looking so good to have a warehouse full of chips. Why? Because uncertainty is enormous and getting bigger. Add political and construction risks to that equation and financing becomes even more difficult. The election didn't create the wall. It may have pushed the industry into a wall that was already directly in front of it. That's what I was saying earlier, man. You got that wall and now is what's happening and basically the blue tsunami, is it just taking the back of like the economy's head and ramming it into the wall? That is, it didn't create the wall as he said, but boy, oh boy, did it give some acceleration on the rate at which our face planted into that wall. Remember, $3 trillion almost lost in a single day of trading. You gotta keep in mind too that this AI possible bust, we aren't there yet, but the possibility of an AI bust adds to an already difficult situation. That's what the bond market has been pricing even though everybody was hyper-focused on the September sell-off and Kevin Warsh and the Federal Reserve's role in that sell-off. The Fed has been hiking rates for CPI pressures that it sees and therefore imagines down the road while the bond market continues to price all the negatives in the real economy that exist and have evidence for and AI would just be one more of those. Demand destruction, demand destruction. That is why oil did not reach $200 a barrel and it isn't just here, it's in China as well. There's demand destruction, man. Nobody wants to face that and this is a bad time to have a crisis in AI as well because now no part of the economy is working well, but yeah, demand destruction. It's coming, it's already here and it's only gonna accelerate. It will be very interesting to see what the numbers are for the Christmas holiday, for the holiday season. Much broader than just strictly technology. The energy shock has been described primarily as an inflation problem. That interpretation ignores what expensive energy does when incomes and credit aren't growing nearly fast enough to absorb it. Households can't create money because gasoline, electricity, and now their utility bills are gonna cost a lot more. If consumers have to spend an initial $100 on fuel, that's $100 they can't spend at restaurants, retailers, or other discretionary expenses. One category's higher price becomes another category's lost revenue. That's what the bond market, especially TIPS, have been explicitly pricing this entire time. Businesses face the same constraint and so that's in bond yields too. It really bond spreads. Higher transportation, electricity, production costs, they reduce margins unless they can pass those costs onto their customers. But customers already face higher household expenses, therefore they can't accept another round of price increases. That's what we keep hearing all across the economy. Without rapid wage growth, which let's face it, is not happening, expanding credit or some other broad increase in income, the energy shock can't generate an endless inflationary spiral. It destroys volume. This is so important. All right, so if you've got a system where the prices are going up and up and up and up, wages aren't keeping up with that, then you end up going in the exact opposite direction. You get demand destruction, then people start lowering their prices because they're trying to capture what money there is out there. But unfortunately, now that's crisis-led deflation and you're in bad news territory. It isn't like, oh, you know, inflation is bad and oh, what a tough break. It's like you start getting into stagflation and now prices are going up, people can afford less, and it literally just breaks the economy. That's why gasoline demand and other measures of discretionary activity are such a big part of it. If fuel consumption weakens, for example, while energy remains expensive, the economy is revealing that demand is being rationed. Treasuries are really recognizing the higher likelihood and maybe even a sooner arrival of that destruction. Falling yields don't mean the energy shock is. Disappeared they mean the market increasingly believes the economy can't tolerate the shock without at the very least Slowing down more than it has and that also explains why today's broad stock decline is a big part of it, too Caterpillar JP Morgan Boeing Nike They aren't direct AI infrastructure trades at all Their declines demonstrate that investors are moving beyond a narrow reassessment of semiconductor valuations Caterpillar reflects investment in construction JP Morgan credit in the wider financial system the credit cycle Boeing industrial demand and financing conditions Nike Consumers, but a lot more trouble there at night Alongside technology the market is no longer only asking whether Nvidia's valuation for example is too high It's asking where the economic foundation beneath the entire marketplace is weaker than previously if you're not looking at your screen the US industrial production revised 2025 revised numbers down yikes yikes Weaker than previously told or really really really weaker than previously hoped and believe it or not The United States is not the only market to suffer these types of questions in fact The Chinese marketplace the Chinese tech marketplace the Chinese position in the AI bubble has already been far more advanced than what we're seeing here in the US and In fact China's technology bubble may have already burst. I'm so curious to know what's actually going on in the Chinese economy, man It is possible that those guys are in worse shape than we are which will actually end up buying time If they're in dire economic straits and needing to rebuild there It's possible that their window to go after Taiwan and 27 may have already closed That would be good news index of major Chinese technology and semiconductor companies has fallen roughly 40% from its mid-year peak Destroying approximately half a trillion US dollar equivalent out in market value China's broader CSI 300 dropped around eight and a half percent in October its worst monthly decline in more than a decade Technology and AI shares have become an enormous portion of the market capitalization and trading activity and once those stocks reversed Very few investors escaped the damage Beijing has of course attempted to stabilize the market authorities announced another round of central bank swap operations with securities firms and fund managers applying for more than a hundred billion yuan or approximately 15 billion US dollar equivalent of liquidity support Financing costs for share buybacks were reduced and major technology companies were encouraged to repurchase their stocks so far Measures haven't created a durable recovery in the marketplace And that's is a warning American investors and global investors overall should heed Now liquidity from any source can slow a decline Share buybacks can create temporary demand and government support can prevent disorderly selling but none of those measures are going to be able to manufacture a Profitable and demand state for AI services now China's sell-off was also intensified by its weak domestic Economic situation its prolonged property downturn, but also maybe this is a point. We should all pay most attention to Disappointing technological progress and concerns about restrictions on Chinese equipment The exact catalyst was less important than the accumulated imbalance valuations required sustained technological progress Rapid demand growth forever into the future Extrapolating and continued support from all parts of the Chinese system This is why you got to focus on innovation man all of our hopes and dreams in terms of an economy always going up are predicated on in Ovation now China has not exactly made a name for themselves of innovating. They've made a name for themselves off of Copying innovations from the US and others and the problem is the US is now moving away from being innovators themselves Which is a big part of our problem This is one of the things that I'm worried about with the blue wave that represents energy in culture culture is moving away from Embracing innovation people are terrified of AI. We're doing a horrible job of explaining to them why this is going to be useful why? The thing that should not be occupying their thoughts is oh my god. I might lose my job it's how do I use AI to have more freedom more sovereignty more ability to Be the last person standing at my job If that's the direction that we're headed or being able to start something on my own being able to control my own destiny We're not telling people that story. We're letting their brains turn to mush because we're Putting them in a relationship with AI that's just like go do it for me rather than Help me learn and understand what this thing is so that I can go do something We're allowing people to wallow in fear. I cannot stress enough Young people must be taught to be optimistic. They must be taught to be Aggressive and Constantly trying to improve and do better and if we're giving them this never-ending buffet of fear Then they're never gonna get anywhere useful And so all of that takes a concentrated effort on our part and instead what we're seeing now is people saying basically Anti-innovation messages that we should be doing a moratorium. We should not be building these data centers AI is bad. We should not be doing this it is Potentially deeply problematic and this is the kind of thing That we've really got to look at this from first principles. Where does AI go from here? Why does AI matter? Why is it such an important technology? Why is it already had such a big impact and why are we going to? Struggle to shift the old revenue stream into the new revenue stream because that in and of itself is going to cause a shakeup So we're gonna have to be very smart about how we proceed Otherwise, we're going to do one of two things. We were on the path to just over leveraging ourselves and crashing Due to the bubble popping very historically The thing that people tend to do and now we've got a new trajectory of we're just gonna tap out go be more like Europe Find ourselves in ten years with the streets on fire Because we're just drowning in so much debt. Remember France is a debt crisis happening in real time to Europe writ large So yeah, that is not the direction that we want to go we we want to get back to being the innovators It's driving not only us but has massive impacts on the second biggest economy in the world China when investors became less certain about all three Prices fell much faster than the underlying story which had changed and this is where bonds and technology stocks finally converge the AI capital expenditure boom has been one of the few one of the few legitimate economic tailwinds for the United States and Really around the rest of the world. Just look at global trade and how much that has been this year in particular Really boosted by the technology sector so today's stock crash is being blamed on the political fallout from the election and the Possibility that building data centers will become politically more difficult and that is technically correct But is also an incomplete explanation for everything that we're seeing here political resistance is only the latest concern The industry was already consuming extraordinary amounts of cash financing structures were becoming increasingly circular Lenders were demanding stronger guarantees credit protection costs were already rising Chinese AI stocks had already collapsed too many assumptions had to remain true Simultaneously data centers had to be approved power had to become available chips had to retain their value Financing had to remain cheap AI demand had to expand exponentially and continuously Customers had to accept prices and the broader economy had to remain Resilient enough in truth to support all of it markets are now seeing a narrower path to that perfect outcome Stocks are price stocks are pricing the direct threat to earnings and valuations at least the narrative about understandably So bonds are pricing the broader economic consequences energy driven demand destruction The energy shock hasn't gone anywhere weak real economy potential tighter credit from the credit cycle downturn that downturns even more And the possibility that an AI reversal removes one of the economy's largest remaining investment engines The bubble hasn't burst yet Not fully not in the United States at least but the warning signs the warning signals in more places They are beginning to pile up and when both stocks and bonds begin sending the same message It's much harder to dismiss this as a post election hangover for a single daily crash The market is beginning to ask what are these AI stocks actually worth? The wider marketplace is beginning to wonder what happens to the broader economy if that worth never gets realized preach brother preach my man, Jeff Snyder over at Eurodollar University He's incredible Is somebody who really I think has a very good understanding of the much larger international Influence that all of the different markets have on each other. Hence the name I think his read on all this has really been great. So definitely give Jeff Snyder a follow for more of this kind of stuff He's absolutely fantastic. Let's talk about a pattern that is guaranteed to be killing your progress You know what you need to do. You need consistent nutrition. We all do you need vitamins probiotics greens? 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