The Tao of Quantum: Warning Signs of a Market Crash

Part II — AI Bubble Mechanics, Circular Financing & the 1929 Echo

← Back to Part I

1) Anatomy of an AI-driven bubble

• Extreme concentration: A handful of mega-caps drive index performance, raising fragility if leadership stumbles.
• Expectations vs. earnings: Capex and narrative outpace realized profit conversion.
• Circular financing optics: Capital raised by AI firms is spent within the same ecosystem (cloud credits, GPUs, models), inflating headline growth.

2) The 1929 rhyme: GM & GMAC ↔ AI 2025

In the late-1920s, GM’s financing arm (GMAC) turbocharged demand by extending credit to buyers — while investors and lenders also bid up GM equity. Demand, earnings, and stock prices fed each other until credit snapped in 1929. Today’s AI ecosystem rhymes with that structure: multi-billion investments, pre-purchased cloud credits, and GPU spend circulate among a small set of players, creating a feedback loop that flatters growth until it doesn’t.

Figure 2 — Circular financing rhymes: GM & GMAC (1929) vs. the modern AI loop (OpenAI–Microsoft–Nvidia). When the loop tightens, fragility rises.

3) Triggers to watch

• Hardware lead indicators: Semiconductor index (SOX) underperforms while mega-caps hold up.
• Funding & credit stress: Tighter financing or credit accidents inside the ecosystem.
• Policy shocks: New tariff rounds, sanctions, or prolonged shutdowns pressuring earnings multiples.

4) Risk hygiene (The Tao of Quantum)

The crest seeds the trough: as Yang (optimism/expansion) peaks, Yin (correction/restoration) emerges. Translate that into practice — right-size positions, diversify, add asymmetry (hedges), and prioritize capital preservation over return maximization.

Continue exploring Part I — Gold & Macros, or review the source notes below.

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Full Reference List (live links)

• World Gold Council — Central Bank Gold Reserves Survey 2025
• World Gold Council — Central bank gold buying rebounds (Oct 2025)
• Reuters — Gold rises to record on U.S.–China tensions (Oct 13, 2025)
• Reuters / BofA — BofA hikes gold forecast to $5,000 (2026)
• Financial Times — Gold tops $4,000 for first time
• TradingEconomics — Gold spot dashboard
• GoldPrice.org — 10-year gold chart (image used above)
• Bank of England warning on AI bubble — example coverage: TechCentral (Oct 13, 2025)
• Jamie Dimon — correction risk comments: Morningstar/MarketWatch roundup

Note: If any news links sit behind a paywall, include an accessible mirror or summary.