CoreMacro

The AI boom will increase inflation in the near term and could also raise it over the long term. The Fed’s reluctance to hike rates is understandable, but it risks amplifying what may already be a brewing stock market bubble.

Special Report

The magnitude of US tech/AI capital spending already rivals past bubble thresholds, threatening hyperscalers’ future returns on capital. There are echoes of previous market tops. Our preferred overlay strategy for equity portfolios remains long semiconductor producers / short hyperscalers.

The AI bubble is a different type of bubble. It is primarily an earnings bubble rather than a valuation bubble. Like all bubbles, the AI bubble will burst. For now, however, our AI demand indicators do not suggest that this is imminent.

AI excels at IQ but fails miserably at EQ. Hence, AI will obsolete any job that relies on IQ, including many graduate-level jobs. But high-EQ humans will be in high demand to pair up with AI, and many of these jobs will be middle income jobs. We discuss the implication for the economy and markets. Plus, a new tactical trade is underweight global tech versus healthcare.

Special Report

AI could be as transformative as the Agricultural or Industrial Revolutions. However, the fact that you are reading these words at the dawn of the AI age hints at a darker possibility, which is that AI will lead to humanity's demise. Fortunately, the most straightforward interpretation of quantum mechanics suggest you will only be conscious in those timelines where the world survives.

US stocks and bonds are on a collision course. Only a meaningful equity selloff is likely to pull bond yields considerably lower. Global equity risk-reward looks poor. The dollar will stay firm near term, but its medium- and long-term outlook remains bearish.

Special Report

The US-China trade truce is getting bigger and better, but a grand strategic bargain on Iran and Taiwan is not happening.

Special Report

A market becomes inefficient, illiquid, and vulnerable to a phase transition when the ‘wisdom of crowds’ switches to the ‘madness of crowds.’ This switch from market wisdom to market madness may be the most significant recurring behavioural opportunity in active fund management and can be exploited in real-time by measuring the market’s complexity.

The global economy has weathered the oil shock reasonably well so far. However, the risk of a recession will increase meaningfully if the Strait of Hormuz remains closed into June.

Central banks remain on hold amid heightened uncertainty. We rely on BCA’s Central Bank Monitors to assess the current policy stance of major central banks, and highlight the tactical opportunities across bond markets and currencies.