Markets struggle with AI, Bonds and Tweets.

“You need me to lie to old people and scare them intobuying fake medicine? I get it.”

There is nothing like a Trump tweet to set the tone for the week. Feels like the markets are living on borrowed time re AI, US Treasuries and current valuations. All look strong, but what if the bottom falls out? Relax… the sun will come up tomorrow.

 Last Friday I wrote about my rising doubts on the sustainabilityof the AI Bubble: AI – Noise, Signal, Brace. I reckon the only way to stem the rising tide of doubt against markets is liquidity. Lots of it. Sure enough, everyone from Ray Dalio upwards is warning about what markets pumped with liquidity will mean – clue:upside. Many folk fear the New Fed will sash rates and resume QE to maintain the illusion of a strong economy by propping up markets. Great for returns… until it isn’t.

Pumping markets with cheap liquidity is hardly a new notion.Through 2009-2023, the QE era, we learnt that copious liquidity in the form of ultra-low interest rates translated not into investments into productive new plant, infrastructure, jobs and productivity gains, but into the financial asset market. By ballooning the balance sheets of central banks as they forced yields down by buying bonds, and all that money was responsible for one of the greatest stock rallies in global history.