Just catching up here (sup y'all) and wondering your thoughts on the next couple of years, economically overall?
Recession seems imminent, maybe already underway. AI is already impacting tech jobs, serps, & traffic --effects likely to get worse. Feds have made 3 cuts in a row and Debbie doesn't think that they've had much impact.
Tariffs have hurt small biz & farmers bigtime but the losses haven't been fully realized yet.
It's hard to say how much the hospitality industry is suffering. International tourism is down, but local travel may be taking up some of the slack.
Restaurants seem to be hurting pretty much across the board.
Dollar General is reporting puchase downshift by poorer customers but an increase of middle class customers.
All in all, pretty dark --but, hey, this is Debbie Downer speaking, hhh.
What does your Debbie say?
The correlation of professional economists' predictions of recession and the occurrence of recessions are near zero.
That tells me that anything I would say is random guessing.
My goal is to try to have a plan that avoids catastrophe without doing too much catastrophizing.
My worry is less that a recession is here or imminent than the signs that our system is in an unusually brittle period. The problem with brittle is that everything looks okay until it shatters.
The way things are currently held up in a sort of house of cards means that things could spin out of control very fast, much faster than in 2008.
So we can spin out scenarios of the perfect storm that result in a crash bigger than anything we've seen since the Great Depression. I can't think of a time in my life where we had the confluence of so many troubling factors.
But that doesn't mean that it's going to happen. There was a time when the number one concern of elementary school kids was nuclear war. Sci-fi written in the late 1950s to late 1960s took it as a given that there would be an all out nuclear war by 2000 or, at the latest, in the early 2000s. We had a Civil Defense unit in 5th grade where we learned about washing off radiation dust and storing water. And yet...
So rather than betting on one future or another, my goal is more to reduce the brittleness in my own plan.
Having gotten all that out of the way... I've never been more nervous about the economy. On the other hand, I don't actually think much about nuclear war.
PS - an old friend of mine looks at the spending, consumer debt, government debt, concentration of the stock market, P/E values, consumer confidence index and says, "This can't go on."
He's been saying that as long as I've known him and always for the same reasons.
But to avoid being so wishy washy, I am sort of betting* on a sluggish economy, a slow recovery and a 20% drop in the stock market in the next couple of years, but I am betting that the big crash will not come for 3-8 years and still may be averted if people stop acting like it's impossible.
Anecdotally, everywhere I go out to eat looks maybe half at best what they were 6 months ago. Commercial money has been super tight the last 4-5 months. And we're usually rather insulated from national swings here.
It seems the stock market is propped up by ai. Execs are finally figuring out it ain't what's been sold as. Nvidia, ram, etc. numbers are just crazy from the ai bubble. Tech people losing their jobs to "ai" when it's now just offshored. I've been thinking this thing was going to pop soon before the idea became national news and when fully realized, it's not gonna be fun for anyone.
The gap between the haves and the have-nots seems much wider this year. If millions lose ACA plan access, it will just compound.
I think we're in for a rough ride sometime soon. I just don't know how soon. Personally, I really hope we have a slightly above average year in 26 and we don't actually feel all of this until mid 27, but I'm just huffing hopium at this point.
I am also reminded of my pops talking about a bubble popping for more than 2 decades before it finally did, and not exactly for reasons he expected. It seems like uncharted territory and we've decided to head towards the storm. I'm definitely uneasy and packing on everything I can for now.
>> goal is more to reduce the brittleness in my own plan.
That's about the most that we ordinary mortals can do.
Now to figure out what that actually means!
AI and data centers are becoming synonymous in the public eye. Local opposition here is growing against data centers.
Besides having a big noisy concrete box next door there is the fear that costs for water and added electricity will be fobbed off on residential consumers by the utility companies. So if AI data centers cause the costs of water and electricity to go up at the same time ACA goes up and healthcare in general goes up plus inflation, it's like the perfect storm. There will be trouble.
If you subtract AI we are already in a recession with AI being responsible for 92% of the US's growth in the first 6 months of 2025. When we take into account a lot of the Round Robbin spending between OpenAI, MS, Nvidia, Oracle and the like I think we're very likely heading to a substantial crash.
I don't really trust the inflation and employment numbers being published right now to be accurate.
My Debby says there is going to be an AI bust, then the poor performances of the rest of the economy will be harder to ignore. The average Joe has very little faith in the economy right now and that sentiment is just going to get stronger.
Even if AI doesn't bust and they figure out how to make it profitable, it is going to come at the expense of the middle class, as the ultimate "win" for AI is a "loss" for jobs. We just have the Camel's nose in the tent in that regard. This is inevitable imo.
It's easy to find evidence that a recession has started and that an AI bubble will pop. What's always hard is pinning it down to 2026.
So evidence rolls in....
Goldman Sachs makes unemployment prediction
https://www.msn.com/en-us/money/markets/goldman-sachs-makes-unemployment-prediction/ar-AA1Sp6BG
And then there is all the big structural stuff we have in the data center thread, which littleman alludes to as well.
And then there is the fact that the top 10% accounted for 49.2% of consumer spending in Q2 2025.
So you have a perfect storm where
- all the growth in GDP and the stock market comes down to the Mag10.
- consumer spending is overwhelmingly accounted for by the top 20%
- the top 20% are particularly sensitive to portfolio health when it comes to spending
- so a minor drop in valuations based on AI gains spreads quickly into consumer spending which spiral the economy down
In the bad case scenario, that has other follow on effects
- people get spooked and pull out of the market, but since so many investors are in index funds, the drop in AI-based valuations then takes everything down
- wealthy people pull back even more on spending
- older workers decide to work longer, putting even more pressure on the increasing unemployment for the young
- bond investors get spooked. One big change in the bond market is that more and more bonds are held by hedge funds, and that means that once they think it's not a good hedge, they pull out. So bonds have more potential than usual for volatility.
- this keeps the spiral going.
In the really bad case, the government tries another bailout but finds out that investors just don't want to buy T-bills at the price offered and the government has to offer more interest and this sets off a really bad spiral.
Many people don't realize that government debt is not like a 30-year mortgage. A lot of it is held in short-term bonds, so when interest rates go up and those bonds mature, they get turned over into higher rate bonds, which means debt service can go up very rapidly in that case.
That ultimately means that the government cannot actually do a bailout because it doesn't have enough credit, so the mechanism that has saved us in every downturn since the Depression fails and things start to really spin out of control.
Whew!
Okay, so all of that is, I think, plausible. The problem is whether that will happen in 2026 or 2030 or 2036 or we get our act together and avert that scenario.
So I tend to look at all of this and spin out doom scenarios, but let's try to "red team" all of that.
Here's why we are not going to have a major downturn in 2026.
First, Fed rate cuts. We've already had a few and the Fed has announced another, but remember that Trump is going to appoint one of his lackey's when Powell's turn is up. The main requirement of this lackey will be to print money and juice the economy to try to keep the cadaver alive through the 2026 mid-terms.
Second, Redfin sees a "reset" in the housing market where things will start to pick up there.
The Great Housing Reset will take shape in 2026. It won't be a quick price correction, and it won't be a recession. Instead, the Great Housing Reset will be a yearslong period of gradual increases in home sales and normalization of prices as affordability gradually improves.
https://www.redfin.com/news/housing-market-predictions-2026/?msockid=28b967ad448061130d12713a45cf60e8
Meanwhile, all the TALK of an AI bubble means that investors are already spooked and already starting to take the bubble into account. The bubble alarm got sounded fairly early on this one, so it will be a fizzle more than a boom.
Finally, we have the unemployment problem. This makes a lot of headlines in tech and among young people, but this reflects overhiring during Covid, not a structural problem due to AI or a slowing economy. We are bringing the numbers in line with where they should be.
So all in all, 2026 will be a bit turbulent with some trouble signs, but in the end the economy will hum along for at least another year before a big downturn
Of course... that's getting harder and harder to steel man
- Powell just said labor market continues to soften as inflation remains elevated
- Florida leads nation in wave of foreclosures (Money Talks News
- China has seen the first investment decline in 3 decades (NYT)
- China faces deteriorating economy on three fronts (WSJ)
- California LAO says deficit will hit $18b, $5b more than planned and is "structural" and will go through at least 2029
- McKinsey plots thousands of job cuts in consulting (Bloomberg). But not that if you want to buy into the "red team" argument above: " From 2012 to 2022, the firm's employee count climbed from 17,000 to as high as 45,000. Since then, it has slid to around 40,000."
And those are just the headlines I saw in the few minutes since making the last post
It doesn't look good friends
US corporate bankruptcies set to hit 15-year high amid credit jitters, S&P data shows | Reuters
https://www.reuters.com/legal/litigation/us-corporate-bankruptcies-set-hit-15-year-high-amid-credit-jitters-sp-data-shows-2025-11-13/
If you look at Google Trends, search interest in "housing bubble" peaked in August 2005. By 2008, it had come most of the way back down.
Trends only goes back to 2004, so there's no similar data for "tech bubble" or "dot com bubble" or "internet bubble" but an analyst who was in telecoms in the late 1980s through the crash claimed that there was a lot of talk of a bubble in 1997-98, but by 1999 the "this time it's different" narrative had taken hold.
If you look at Google ngrams, occurrences of those bubble terms trail way behind the events, but that is probably due to how long it takes to get a book out.
Search interest in "AI bubble" is about half of what "housing bubble" search interest was in 2005.
https://trends.google.com/trends/explore?hl=en-US&tz=480&date=all&geo=US&hl=en&q=housing+bubble,ai+bubble&sni=3
Anyway, the fact that peak concern about a housing bubble was in 2005 means that I'm mistaken to believe that if so many people are worried about an AI bubble, maybe that will help us avert the worst of it.
The Concentration Bears Have Steered You Wrong
https://www.downtownjoshbrown.com/p/the-concentration-bears-have-steered-you-wrong
>bears
I'm getting ready to go cash on a family trust I manage.
I'm too young for that. I think I hold too much in cash as it is.
But obviously, age, total savings, risk tolerance, ability to re-enter the work force, confidence in pension payments and so forth all determine the mix.
Scott Galloway's predictions for 2026
https://www.profgalloway.com/2026-predictions/
Expect the expected.
- Cheap Chinese models pop the AI bubble
- Data center bubble pops with it
And relevant for RC's post on Tesla: Waymo eats Tesla
"Sellers are pulling homes off the market at the fastest pace in decades." Intro to video about Redfin report
"Massive shift from a sellers' market to a buyers' market." - CEO of Redfin, Glenn Kelman
"Critical mass of sellers are giving up"
He notes that people often take homes off the market for winter so they can relax and celebrate the holidays. That's true for my dad - he didn't want to keep the house showing ready all winter.
Kelman says that houses will come back on the market, generally after the Superbowl. We're likely to see the highest level of supply when houses come back on the market since 2016.
Active listings are at highs and demand is at lows not seen since the Great Recession.
https://www.youtube.com/watch?v=cS5MlkymPPI&list=WL&index=42
On the other end, we should see a gradual rise in unemployment as companies slowly figure out how to cut jobs by using AI. I suspect it will be slow at first, but become much more of a factor in the economy in the next few years.
I am sure I an not the only one to have had the thought that the global rise in authoritarianism is directly linked to the foreseen fall in the value of labor. I can't quite see the timing though. Is this all happening in the next two years or in 15? In a weird way it could all be accelerated by the AI Bubble as companies scramble to cut costs for surviving the bust.
"ChatGPT reached a hundred million users, 'making it the fastest-growing consumer tech product in history'.
This was the point at which everything blew up. The value of the world's top ten companies is $25.6 trillion. Of that, $15.1 trillion has accumulated since 30 November 2022 and is directly linked to the AI boom. Nvidia's technology was the first factor driving the explosion – its most powerful chip, the H200, is a must-have for 'frontier' AI developers. A single H200 retails for between $30,000 and $40,000, depending on the configuration. The company is worth over eleven times more than it was on the day ChatGPT launched.
After Nvidia's chips, the second big factor driving the boom was the hype created by Sam Altman and OpenAI."
John Lanchester · King of Cannibal Island: Will the AI bubble burst?
https://www.lrb.co.uk/the-paper/v47/n23/john-lanchester/king-of-cannibal-island
"We are poised for an economic boom the likes of which the world has never seen."
-- Donald J. Trump in his year-end address.
So there's one opinion on 2026.
>getting ready to go cash on a family trust
Orders issued. Ball to start rolling Jan 01. I'm guessing that this'll take some time to cash out but I'm hoping the stocks go pretty quickly (while the oligarchs are pumping up the market). Maybe the bonds will, too.
Total employment by small businesses in decline - see attached image
employment by business size.png
via https://paulkrugman.substack.com/p/magas-betrayal-of-small-business
>small businesses in decline
I've heard from a couple lately. They say the tariffs have hiked prices on their supplies to nose-bleed levels. They have trouble passing on the increased costs to customers. Sales lost to sticker shock.
Quote from: rcjordan on December 30, 2025, 03:11:37 AM>small businesses in decline
I've heard from a couple lately. They say the tariffs have hiked prices on their supplies to nose-bleed levels. They have trouble passing on the increased costs to customers. Sales lost to sticker shock.
Yeah, I am experiencing this too.
From this morning's feed...
@dandouglas.bsky.social
my disposable income is dwindling but luckily all of the nice local cafes and delis where i spent that disposable income are closing so i probably won't even notice
<+>
@petermanseau.bsky.social
2026 has a lot to live up to. Can it continue the ten-year streak of every year being the worst year ever?
I like Morgan Housel's perspective...
OP: "Billionaire investor Mark Cuban has said that he believes a recession is imminent, per IB Times."
MH: "It is imminent -- the only thing that's unknown is the timing, location, duration, magnitude, policy response, recovery dynamics, and cultural impact."
https://x.com/morganhousel/status/2021954619795202152
If you exclude healthcare and private education, the US has lost jobs for 24 months
https://x.com/Malone_Wealth/status/2021810571365015562/photo/1
A U.S. 'debt spiral' could start soon as the interest rate on government borrowing is poised to exceed economic growth, budget watchdog saysQuote"CBO's latest baseline shows an unsustainable fiscal outlook, with debt approaching record levels, deficits remaining elevated at more than twice a reasonable target, and interest costs exploding," the Committee for a Responsible Federal Budget said in a note on Wednesday. "Later in the decade, under CBO's baseline, the average interest rate on all federal debt will exceed nominal economic growth, which could represent the start of a debt spiral."
https://finance.yahoo.com/news/u-debt-spiral-could-start-185301459.html
>A U.S. 'debt spiral' could start soon as the interest rate on government borrowing is poised to exceed economic growth, budget watchdog says
I guess we really shouldn't have let someone who bankrupted three casino become president.
On the other hand, we have a "very stable genius" who can fix surely fix anything.
BTW... one other thing about his business acumen. One of the things Trump loves to brag about is that he graduated #1 from Wharton. He *did* graduate from Wharton, but public records of who graduated with honors in his class (let alone #1) and who made the Dean's List are available and Donald J. Trump is not on any of the lists.
Quote from: littleman on March 19, 2026, 10:05:09 PM>A U.S. 'debt spiral' could start soon as the interest rate on government borrowing is poised to exceed economic growth, budget watchdog says
I guess we really shouldn't have let someone who bankrupted three casino become president.
The man seems to have an inverse King Midas touch.
I was really feeling good about this year and into early '27 after this thread. With the war, I'm thinking we'll be lucky to finish decently in 26.
Quote from: Drastic on March 27, 2026, 04:34:34 PMI was really feeling good about this year
That is the rhythm of our time. Just when you feel like, "Okay, I think this is going to work out okay," things get dialed up another notch.
Initially, this was certainly intentional. It was Bannon's "flooding the zone" strategy: keep doing things at a rate that people can never find their footing and your opponents are perpetually thrown off balance. The idea is that you do the next thing before people even mount a response to the previous thing so that you have focus but your opponents do not.
Lately, this feels more like just the problem you have in strongman government where staffers and Congress fear the strongman more than they fear the people or fear doing something colossally stupid or evil. The people around the strongman become averse to saying anything the strongman doesn't like. So plenty of people think that Ukraine won't just roll over and die, but Putin actively excludes those people until everyone around him says, "Oh yeah, Ukraine will roll over and die."
Same in the White House. In the first term, there were people like John Bolton saying that the Iranians will attack their neighbors and close the Strait of Hormuz (as advisors also told Obama). But not only does Trump exclude those people, recent reporting quoted military sources as saying that their "briefings" for Trump consist of 2-minute videos of things being blown up. That's the limit of his attention span.
So there we are.
James Madison believed that "ambition must be made to counteract ambition." In his view, the ambitions of Congress would counteract the ambitions of the executive.
But as Rand Paul said recently, "Madison never imagined or envisioned a Congress with no ambition."
On the other hand, on the original question
1. All of this stuff is taking a lot heat out of the economy and the stock market, which decreases the AI bubble problem (though obviously not economic problems)
2. Anthropic has seen a doubling of revenue in just the last quarter, which is an exceptional rate of growth. So that also mitigates against the risk of an AI bubble.
Unfortunately, now there seem to be 2-3 other worries that overshadow the AI Bubble.
As in... Doctor: "Good news, the heart problem isn't going to kill you so we can take you off statins. Bad news, you have Stage IV pancreatic cancer."
OTOH...
If Trump's war in Iran spirals into a full-blown recession, it could crush the AI industry and spark a catastrophic polycrisis
https://www.msn.com/en-us/money/markets/if-trump-s-war-in-iran-spirals-into-a-full-blown-recession-it-could-crush-the-ai-industry-and-spark-a-catastrophic-polycrisis/ar-AA1ZBJUx
Reports of AI chip obsolence greatly exaggerated
(https://substackcdn.com/image/fetch/$s_!lHt4!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F38f1fb37-5532-4fbc-b2c3-24276f0a45f3_2000x1892.png)
From https://www.a16z.news/p/charts-of-the-week-learning-to-weld
A chap I sail with has just been made redundant from a firm that codes SAP software. He developed a copilot replacement for himself, then took redundancy.