Why The REAL AI Crash Starts This Year...

Submitted by QTR's Fringe Finance

The following piece represents my opinion only. Please read my full disclaimer below.

It’s tough timing bubbles bursting. Just ask any short seller or Austrian economist, including myself, who is constantly ridiculed for being a “broken clock” over and over until, of course, their thesis plays out…just never on the timetable that made it comfortable to hold. Today I’ll do what I rarely do, which is make a measured guess about the AI bubble and timing, hereinafter referred to as hanging my balls out there.

After years of euphoria, soaring valuations and trillions in increasingly circular investment, I think the end of 2026 and beginning of 2027 might finally mark the moment the AI boom begins to live up to next season’s name: the fall. I have five key reasons I believe this, which I will discuss below.

But first, let’s set the table. The most dangerous sentence in markets today is that artificial intelligence is real. It is real, of course, and it will almost certainly reshape enormous parts of the economy, but that fact has become the de facto answer by every lobotomized automaton that appears on CNBC daily to a completely different question: whether the trillions of dollars now being spent, borrowed, committed and capitalized around AI can possibly earn an adequate return.

It’s a total non-sequitur. Most people know the basics of the “overshooting the mark on the buildout” thesis. I highlighted both Michael Burry and Jim Chanos’ excellent thoughts on this. Railroads changed America and destroyed fortunes. Fiber optic cable became the backbone of the internet after helping bankrupt the companies that laid too much of it. The internet itself exceeded almost every grand prediction made about its importance in 1999, while the Nasdaq still managed to fall roughly 80 percent.

So someone inform the next brilliant Series 63 holder on CNBC that transformative technology and catastrophic overinvestment have always been perfectly capable of occupying the same room.

That is increasingly the right framework for understanding AI right now. The technology is extraordinary, but the capital cycle built around it has gone much further than the economics can support, in my opinion. Investors have taken perhaps the most consequential technological development since the internet and done what investors reliably do with consequential technological developments: extrapolated the eventual destination backward into today’s valuation, financed the intervening decade (or even more) in advance, and then congratulated themselves on the resulting growth.

In other words…we are no longer merely betting that AI becomes enormous. We are betting that it becomes enormous quickly enough to justify an infrastructure buildout measured in trillions of dollars, while maintaining attractive returns on capital despite rapidly falling inference costs, intense competition and technological obsolescence that can make expensive hardware look old remarkably quickly.

The timing could hardly be worse. The AI capital boom is reaching its most aggressive phase after years of positive real interest rates have worked their way through the rest of the economy, as I have consistently written about.

Not only that, but bonds both in the U.S. and Japan are screaming that risk is underpriced. Bond yields are scorching higher on both sides of the Pacific. In the last 24 hours, Japan’s 10-year JGB touched 2.93%, its highest since 1996, while the U.S. 30-year Treasury recently hit 5.27%, a level not seen since 2007.

The simultaneous surge in long-term borrowing costs is striking given...(READ THIS FULL COLUMN 100% FREE HERE).