Category: The Party that would Never End

This post is focused on a possible near-term event, namely a high probability of a stock market correction – possibly a very deep one, leading to usage of the word “crash.” But also hints of other aspects relating to reality, or rather, activities and trends that are in various ways are in contradiction to what actually is the case. And which I take as symptoms of The Decline.

In broad strokes the market has greatly diverged from the real economy. By a number of metrics it is extremely overvalued. The prime example is the Buffett Indicator, which has now reached a record 210%. Adding to this is the red flag of a concerning low level of breadth, with a small group of stocks (“Magnificent Seven”) accounting for the bulk of recent gains for the NASDAQ and S&P 500 (both in record territory – even as the signs accumulate of deterioration in the real economy).

In a word, the market is in a bubble, Those who say we can only identify a bubble in hindsight are at best clueless. Especially as we note the extreme concentration in a handful of stocks that are most tied to AI development. The usage of the term “bubble” is showing up more in a number of places. Of all people Sam Altman of OpenAI has said succinctly that we’re seeing an AI-based bubble.

The following chart, created by Dr. Jean-Paul Rodrigue, is a frequently referenced map of bubble progression. Where are we now? Squarely in the Mania Phase for sure, and most likely past Enthusiasm into Greed and Delusion.

Pinprick (Reality)

What has recently occurred that could be that proverbial pinprick? Consider some recent developments:

• The recent report from MIT (as described in this article from Yahoo Finance), in which for “AI enterprise solutions” there has been something like a 95% failure rate.
• The recent problematic release of OpenAI’s ChatGPT 5. Reactions vary from “lame” to disastrous. Sam Altman issued an apology of sorts. And a few wondering if LLMs have perhaps reached a kind of limit.
• Recent announcements from competitors of Nvidia, such as the most recent one from the Chinese company Alibaba. The thing is, Nvidia hasn’t created some super technology that no one else can emulate some way, albeit involving a lot of intellectual effort and cost – namely, chips designed to work on large data sets and embody parallel processing. But many “investors” appear to believe Nvidia will always be the dominant, or even sole, player in this space.

There are some other items to consider. Such as reports of surges in electricity bills for those living near some of the new data centers that are being built. Add problematic outcomes of usage of LLM models – weird results such as “hallucinations” that are not just concerning but eye-opening (see Addendum for an example). Even if there has been only a single or handful of outcomes such as suicide from someone seeking help relating to mental issues, it still doesn’t look good. The point is, systems like ChatGPT simply aren’t infallible.

Then there are all the tech companies laying off or holding off on hiring, with CEOs saying outright they are filling roles with AI agents. A worrying number of new college grads are having difficulty landing that first job, and some of this can be attributed to AI usage – the unemployment rate for new grads is now well above the official unemployment rate.

And speaking of high tech work, we see other reality checks. Earlier in the year the CEO of Anthropic (major AI player) confidently predicted that in six months 90% of new software would be written by AI – basically around the time of this writing (September). For one, we are not even close to that mark. But we are now getting reports of a software engineers finding themselves in a new role, namely, cleaning up problems in AI-generated code. One example involves security, with some security experts estimating that this code has about ten times the vulnerability in terms of security than code that has been written by humans. (to do bring in references – such as by Futurism)

An Initial Reaction to Reality Meeting AI Hype

In early August 2025 the market significantly pulled back in reaction to the report by MIT referenced above. Companies like Nvidia and Palantir Technologies saw their stock valuations crater. Part of the reaction was also a general reaction to high valuations of technology stocks.

We can see this event as a kind of taste of what’s to come.

And Then a Comeback

But it didn’t take long for the market to recover… and surge to new (record) highs. Which are still in effect as of this writing, in September.

For one, there were clarifications that the MIT report was really describing the failure of implementations of AI technology, not the technology itself. It’s not clear if this conclusively negates concern, but in any case “investors” took heart in this. Even so, a number of issues remain – note some of the problems described above. In the midst of a Mania phase, glimpses of reality have a shortened life.

But this was then superseded by something else that ignited the enthusiasm (Greenspan’s irrational exuberance) of many “investors” in spectacular fashion. Namely, imminent rate cuts by the Fed! As has been seen before in history, expectations for cuts has acted like a drug (see Hopium). It’s really quite remarkable. Especially as once again looking through history, such cuts have almost always failed to have an immediate stimulative effect on the economy (note the chart in the Addendum). By the way, remember the cuts last fall? No? But maybe you forgot because… the economy continued to deteriorate. And it was deteriorating, a view bolstered by the recently released BLS report, which found that in the year up to this March (2025) the agency had misstated the number of jobs created by… 911,000. And then there was the surge of the long end of the yield curve (the one that mortgages for example are tied to)… upward.

Reality

But the stock market is only one aspect of extreme dynamics.

Economically – with overlap with social and psychological reality – there is the huge divergence (and disconnect) between those enjoying asset prices that continue to surge (stock prices especially) and a much larger portion of the population that is at best struggling to keep their heads above water. The latter are dealing with the reality of increased cost of everyday living, showing up in groceries, rent, the cost of cars, insurance (auto, home, healthcare), medical costs (including premiums), as well as a number of other items. And then there is the true state of the job market – now being revealed as, simply, not good.

But there are other things to consider. Such as the increased tension in social dynamics. As of this writing the assassination of MAGA figure Charlie Kirk has triggered an upsurge of toxic rhetoric in the wake of this killing (such as Democrats are part of a terrorist organization). There is a feeling that “knives came out,” with a slight cooling on learning that the shooter was a white kid from a solid Mormon family.

This theme is far from being exhausted. There are all sorts of realities that remain despite optimism that continues (albeit now in weaker forms) concerning the economy and prospects for the empire.

But I will end with just a quick reference to something much larger. Namely, the accumulating signs of deterioration in the biosphere. The warnings contained in a study by MIT that came out in 1972 (referenced in this article) can be used as a proxy for this overall situation. Some recent studies suggest that the gist of the report is still very much intact. And that we are headed for some sort of collapse by 2040. What’s troubling is that most can’t really address this issue – even if they acknowledge it – when dealing with financial and social issues that are in themselves overwhelming. So looming over our society – civilization – is reality: the consequences of our enormous and mostly deleterious effect on the planet. As per science fiction writer P. K. Dick’s quip about reality, just because a large portion of America – and the world – doesn’t believe there is much to worry about, such as the build up of CO2 leading to global warming, or the accumulation of micro-plastic throughout the biosphere (which includes our own bodies), doesn’t mean these problems will just fade away…

Addendum

So as of this writing the enthusiasm for AI is in place. But in researching for this post I came upon an example of AI hallucination that really encapsulates this problem.

In this post a situation is described in which ChatGPT was asked “what is the world record for crossing the English channel entirely on foot?” It answered, and without hedging: “The world record for crossing the English Channel entirely on foot is held by Christof Wandratsch of Germany, who completed the crossing in 14 hours and 51 minutes on August 14, 2020.”

Yeah, I definitely would stake my life on such technology.

Reality of Fed Rate Cuts

Note the Fed funds rate in relation to recession (courtesy of the Fed itself). Do you see it? Not long after the Fed begins to cut rates, a recession occurs. Some will say they are too late, but the funds rate usually lags various bond rates, such as the two year Treasury. It can be argued that the bond market actually has a handle on the true state of things (economy), taking in consideration data points that many “investors” either outright miss or are too busy being bullish to care.

Magical Thinking / Delusion

There is an uncomfortable overlap of mania and delusion. The market is supposed to be a “voting machine” but many times is overtaken by psychology – such as we see in the Manic phase. BTW, on the opposite side of the coin is panic. Which leads to corrections and crashes. This manic behavior is very similar to that of a gambler.

One theme to be developed is a possible connection, in terms of psychology, of the propensity for magical thinking in the face of a sense of a stalling and unraveling. Yes, hard to pin down, as it can’t be measured in the same way as, net worth or debt levels, for example. This sense comes out in various ways, but is mostly deflected by MSM and other means. This is The Mirage. What am I talking about? Check out large swaths of America that are shabby, showing signs of deep decay. Populated by a substantial portion of the population if not living in poverty, dealing with precarity. And includes millions who see Trump, for example, as a means to magically transform America into a new “Golden Age” (Trump’s words). As I write this I see this is something I want to develop further – so it constitutes a major “to do” in further posts.

At the time of writing, mid September, there is a major example of this unraveling. Namely, the “knives are out” in the wake of a major MAGA figure’s assassination. Right, even as the rhetoric becomes disturbing, and tension rises… the market goes up!

At the top of summer 2025, there is unbridled optimism among a portion of Americans: those at the top of the economic pyramid and others with the wherewithal to continue speculating in assets such as stocks and crypto. Aided by Cheerleaders in the MSM (see quote below), we get sentiment along the following lines: The economy is on a roll! Or about to take off! In any event, it is not in recession, and if one occurs it is still sometime off in the future. The tariffs are turning out to be a “nothing burger.” And so on. The problem is this optimism is not shared by a large number of Americans. And the economic data, if looked at in its entirety, is anything but a cause for celebration.

In the midst of writing this post, the BLS came out with their July report. Hmm, only 73,000 new jobs were created in July. But what was shocking were the large revisions for previous months. Now we are getting a dose of reality, with an average of 35,000 jobs created over three months ending in July (prior three months saw an average of 128,000), and a meek 1.2% average annualized GDP reading for the first half of the year (vs 2.8% for 2024). The markets initially reacted with a modest selloff. However, in the following days that selloff was erased and the optimism appears to be intact (and the Party continues, perhaps with some doubts creeping in). We’ll see how long it can continue. But given there has been as yet no “severe” reaction, I will continue as if this news can be treated as a “bump in the road,” and that the “great news” remains.

This quote of an analyst seems to encapsulate the prevailing view among those mentioned at the top of the post – those doing pretty damn well, damn any indication that the economy is anything but “robust:”

“No one expects the US economy to enter recession anymore.“

(Further update: as we continue into August, signs of doubt about the health of the economy are starting to pile up, some of them to be detailed below. However, the Party continues as the markets are still hitting all-time highs.)

The Great News Concerning the US Economy

So, what is the basis of such great news?

Well, look at the stock market! Back to making all-time highs!

And there is the historically low unemployment! Healthy amounts of new jobs are being created. The economy must be in great shape!

Perhaps there remains some pesky inflation, but the current rate is a lot less from what was seen in the previous year.

Oh, and we get a GDP print of 3.0 for Q2! Hallelujah!

So much for any major hit from the tariffs. The Party is intact!

But…

It’s kind of annoying to have to put in the effort to go through the above indications and give the details that are left out – either by laziness or intentionally – at least by MSM.

GDP and the Labor Market

Let’s get the GDP out of the way. I will have to give the MSM credit for stating at the outset that the import component to the calculation made a large difference. Namely, the large decline in imports (a negative factor in the calculation) was a major factor in that modestly high GDP print. Of course, this was a result of tariffs. Another factor has been the so-called front-running of the tariffs – economic “activity” that is misleading as to the true state of the economy. This included a build-up of inventory in anticipation of tariffs.

Mid-July the Federal Reserve put out its so-called Beige Book. This is the Fed’s take on the economy, which is broken down into 12 regions. In this report only 3 of the 12 regions showed growth, 2 of them only slightly. Not exactly an upbeat assessment.

And then there are all those jobs! Except, many of them have turned out to be a… mirage. We’ll put aside the chiding from LISEP, for example, who point out how a large number of these jobs are basically bs jobs – with wages not coming close to providing the wherewithal to cover the cost of living that an increasing number of Americans are having difficulty keeping up with.

But then the BLS came out with the July non-farm payroll numbers, along with revisions to prior months. And we got… a dose of reality. An average of 35,000 jobs created per month for the last three months (ending in July) should be the equivalent of being doused by a bucket of ice water. Also, the BLS notes that continuing claims remains elevated. This dovetails with anecdotal statements from a number of workers who report having difficulty finding work, especially in the tech sector. Corroborated by the University of Michigan survey, with an elevated % of those surveyed saying jobs are hard to find.

Inflation

Inflation, as measured by the CPI, has become, at best, subdued. There actually has in the last several months a slight uptick, such as in the related PCE. The latter could possibly be an indication that fallout of the tariffs has begun. One thing that many seem to miss, is that it was not realistic to think the fallout would be close to being immediate. A few voices, some major investors, pointed out that the effects would see a lag in roughly a six month time frame.

But one thing with the CPI and related, is that inflation as being broadly measured is flawed. Folks “on the ground” are sounding an alarm, based on grocery bills that only seem to climb as time goes by. If we just look at food prices, a more realistic picture emerges: in the first half of 2025, food prices have increased 12.5%, way beyond the more tepid readings. How could this be? The CPI is looking at all sorts of goods and services, a broad range – when, for example, did you last purchase a TV (whose prices have moderated)?

Stock Market

The stock market is, in a word, in a bubble.

There are a number of metrics that bolster such a view:

• The Buffett Indicator
• The CAPE Index
• Breadth

Tariffs

So much for all the deals that Trump boasted on concluding. At the time of writing, after the extensions ended, full-scale tariffs have hit close to 70 countries. Except some extensions are still in place. Such as with China. Which only means the full-scale tariffs are not yet in place.

A few people have noted that this on-again/off-again/abrupt change in course behavior makes it difficult for companies to make plans. This isn’t political: such behavior comes off as being fickle and, really, kind of dumb.

What remains to be seen is when the full-on effects of the tariffs hit. As yet, so far there has been no major problem with prices, except we have seen evidence that some prices related to imports are indeed rising. But you got to love it, more than a few analysts/etc have made the simple statement that the effects of the tariffs will take months to fully manifest. I say that because there seems to be a number of analysts/commentators/etc who appear to implicitly believe that the effects should have been seen almost immediately – and since they weren’t, well… time for those Victory Laps!

Analogy of Basal Melting

The image at the top is a simplified view of basal melting. The basic point of the analogy is that the deterioration of the ice shelf as depicted occurs from below, as warmer water (“A”) eats away at the underneath of the ice. And it does so out of view.

The Cheerleader type prancing about on the surface of the ice shelf thinks, wow, I don’t see any problem. Things must be fine! So much for the doomers. To rub it in the face of the latter the Cheerleader engages in a victory dance!

And that encapsulates much of what passes for expert analysis these days.

But out of direct view things are deteriorating. And direct view includes the data the majority of what the MSM chooses to present. The following is an enumeration of many of the signs that the economy is in a not-so-great shape. They interrelate in various feedback loops with each other, as well as other factors such large-scale climate patterns. They can be seen as cracks in the ice shelf.

To organize them they are grouped by categories.

Debt

In a word, we are drowning in debt. In all major sectors: government, consumer, and corporate. We’ll focus on the consumer:

• Total consumer debt, all categories: $18.4 trillion
• Credit card debt: $ 1.2 trillion
• Auto loans: $ 1.6 trillion
• Student loans: $ 1.6 trillion

That $18 trillion number, btw, is on par with the combined GDP of [ all of the ] Americas and the European Union.

Delinquency and Default

This category is basically Debt, but with a focus on increasing difficulty in handling the various types of debt.

This should be another wake-up call, akin to those recent job numbers, with credit card debt, auto loans, and student loan delinquencies approaching 2010 GFC levels.

One shocking element in this category is that the income group seeing the highest rate of rising delinquency are those making [ over $150k/ year – do do, check ].

Labor Market

The BLS has been having trouble reporting close-to-accurate figures for some time. They are reliant on surveys – two of them, the Establishment (business) and Household. The headline number given by the MSM is derived from the former.

One component of the labor market is the number of those with continuing claims.

Overall, some are calling the current situation “low hire, low fire.” The “low fire” part is deceptive –

Housing

The housing market has, in a word, stalled.

Affordability [ lowest on record ]

Commercial Real Estate

This sector is in big trouble. And very little of the “cracks” in this sector is reported by the MSM.

Sentiment

Overall, sentiment among Americans has reached levels that reflect their condition…

Cracks

The preceding gives a picture of an economy that is at best stalling. One that is facing all manner of vulnerabilities. Vulnerabilities that could, with the right trigger, lead to major events such as mass layoffs, a stock market crash, and a financial crisis (with banks imploding, for example).

The Victory Laps are basically a species of delusion. We are in the position of someone who believes, standing on a crumbling ice shelf, that what is beneath their feet is solid. Unable to see the deterioration that is otherwise hidden from their sight.

…easy. Or so the song goes (lyrics are from the opera Porgy and Bess).

It’s easy for some, I guess. Like those set to benefit from the markets poised to make new all time highs (S&P 500 anyway, at the time of writing).

(Update, on 6/27 the S&P 500 “squeaked” to a new record high – hurray!?).

And what is the great news triggering the markets to shoot into the stratosphere?

No WWIII, for one (f or the time being at least). And oil appears to not be surging into the stratosphere. But it’s not as if the dust has really settled. But many “investors” with ADHD (helped by Hopium) have concluded the bombing, for now, is done with and there is a cease fire between Israel and Iran. So time to move on!

And speculation is increasing the Fed will cut rates sometime… soon. Oh joyous news that will be (even if the short term rates will do little to help much of anyone, at least in the short term; keep in mind mortgages, for one, are based on long-term interest rates, out of the Fed’s scope).

But maybe there is no real reason other than the conviction that stocks are so close to all-time highs so it’s time to pile in. Generating wealth… for top income tiers… who are really the main beneficiaries of these manic surges.

But really, how about a reality check?

• Starting off, Q1 GDP has just been revised again. Down a bit. Hmm, not exactly great news. At -0.5% that means the economy was indeed contracting.
• Continuing unemployment claims have been steadily rising. They are now at 1.937 million, the highest since November 2021.
• Housing price drops are being reported in certain housing regions, such as the South. Could be good news, but then we get the headline: US New-Home Sales Drop by Most Since 2022 on Poor Affordability.
• Oh, as to inflation: “core” PCE, the figure closely watched by The Fed, ticked up. Maybe not much, but it appears the best you can say is that it is sticky, not disappearing as some had hoped/predicted.

More broadly:

• We hear from both consumers (informally, on social media) as well as from corporate CEOs (Starbucks, McDonald’s, many other fast food franchises) that for growing numbers fast food has simply become too expensive. Remember when fast food wasn’t just about convenience but cost?
• And at least some franchises have started to issue concern. Like Starbucks, with five consecutive quarters of declining sales.
• Consumer debt (principally credit card) remains at record levels.
• There is an uptick in delinquencies in this debt.
• And more consumers are resorting to Buy Now, Pay Later (BNPL) plans. They are being used not just for discretionary items such as concerts (ex. Coachella, where it was found about 60% of tickets bought were on BNPL plans), but also for groceries. That is, for everyday expenses. Note that there is an uptick in such loans becoming delinquent or in default.
• More debt: about one in three student loan borrowers risk default. That is about 5.8 million borrowers who were 90 days or more past due on loan payment, as of April 2025.
• Speaking of college grads, the difficulty of many new grads with degrees like Computer Science in landing a job is getting attention. In some situations it appears that AI is at least partly to blame. Last I heard 1/3rd of software written at IBM is being done by AI.
• Consumer confidence, as tracked by the Conference Board, “unexpectedly” declined in June.
• The list could go on and on. With horrible data for the housing market, for example (with low sales figures and rock bottom affordability). But I will end with this: corporate bankruptcies, where 188 companies filed for bankruptcy in the first quarter of 2025. This figure is the highest seen for this period since the Great Recession, and is a “significant increase” over the 139 filings for Q1 2024.

Yep, a “solid” economy! (adjective used by The Oracle and MSM).

The job market is not close to being “strong” as you will see being stated in MSM (just today, saw an article in The Guardian attempting to answer why college grads are having a difficult time, while the job market is “strong”). Inflation is still around, and paychecks are not keeping up for significant segment of the working population (remember, wages by themselves do not directly transfer to paychecks – hours worked is usually and conveniently left out). And there are signs the economy is not firing on all cylinders.

One word for this: stagflation. The keyword for the Summer of Our Discontent.

By the way, on top of the preceding that “big beautiful (stupid) bill” will end up gutting the safety net (for ex Medicare and SNAP). Some Americans, the most vulnerable, are set to lose big.

Behind the platitude of “the living is easy” there is growing frustration and dismay. But the stock market, as hyped by the machinery of The Mirage, is fantastic. And there you have the current state of America in a nutshell, with winners drowning in “wealth” and a lot of Americans getting screwed.

…..

Some related thoughts:

Much of the preceding would suggest something “big” is in the works. As in some sort of unpleasant financial event. And yet, the can continues to get kicked. More debt! Including even larger deficits that will result from that “big beautiful (stupid) bill.”

Gershwin’s Porgy and Bess is an example of American Genius. It’s not that there aren’t interesting artists and acts in the current scene, but we seem to be bereft of real genius. Instead, for example in many mainstream movies, we get stale rehashings of stories that are being sequel’d to death. (It’s as if a lot of these stories are written by AI; come to think of it, there is talk of incursion of AI into Hollywood… with jobs, including for writers, on the chopping block)

Lastly, a recent blog post from the Federal Reserve, Real GDP Growth by State is quite enlightening, and sobering. 39 of the 50 states saw contracting economies in the first quarter of 2025. Texas and California saw slight contraction, but because of the size of their economies that contraction is very significant.