The AI Bubble Has Burst. Is Recession Next?

Your Personal Bank

The AI tech bubble has burst due to a weak unemployment report, poor earnings, and a surprise Japanese interest rate increase. A popular institutional trade was to borrow money cheaply in Japan, then use margin to invest in assets that vary in value like tech stocks. When the cost of borrowing increased, so did the capital required to borrow. This created a huge amount of margin calls. The massive selling created panic in the markets. If the economy was strong the market would likely move on from the recent crisis. The excess savings from COVID relief is gone. Consumer household debt has increased 25% in the past 3 years and hit new records. Unemployment has increased in the past four months. These are all signs that predict recession is ahead. There were calls for emergency rate cuts. The Federal Reserve response was "There’s nothing in the Fed’s mandate that’s about making sure the stock market is comfortable." Don't expect a Federal Reserve bailout. Inflation has been above 3% for 39 consecutive months. The Fed is more concerned about inflation than recession. In fact, a recession helps the Fed fight inflation. It is clear volatility has increased and not likely to disappear any time soon. It would be prudent to protect your assets. Diversify. Reduce your risk. Reduce your tax liability. Increase returns safely. Increase liquidity to take advantage of future opportunities.

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