[Market Analysis] Artificial Intelligence Bubble · Private Credit · Oil Price Shock… Three Time Bombs Ticking Simultaneously

The stock market is quite strange. Consumer confidence is faltering, the private credit market is deteriorating, Middle Eastern conflicts persist, and the profitability of AI data centers is full of questions, yet the market hasn’t collapsed. Whenever selling pressure seems to emerge, there’s always a short squeeze rebound somewhere, repeating this cycle. This pattern has lasted for 17 years since late 2009.

Some believe this is no coincidence. Today’s stock market no longer functions as a pricing mechanism reflecting future cash flows. Massive passive funds combined with information asymmetry have solidified into a structure that artificially maintains upward momentum. This is why short-selling strategies have repeatedly failed over the past 17 years.

Time Bomb 1 — The Shadow of the Private Credit Market

After the 2008 financial crisis, risk assets shifted from bank books to asset management firms like Blackstone, KKR, and Blue Owl. On the surface, risks seem to have dispersed from the banking system, but in reality, not much has changed. Currently, 17% of bank loans flow to these asset management companies. There’s just an extra step involved; the same risk assets are still circulating with the same funds.

The Federal Home Loan Bank plays a crucial role here. Originally established to purchase mortgage loans, since 1999, its scope has expanded to include small and medium-sized enterprise and agricultural loans. It has effectively become an opaque funding channel for the private credit market. The biggest issue with private credit is the lack of market pricing. Valuations can be subjective, and when problems surface, it’s often too late to fix. Some private credit funds have begun restricting redemptions, indicating problems are fermenting. Some interpret this as asset management firms trying to buy time and quietly unwind positions.

Warnings suggest that as long as the Federal Home Loan Bank continues accepting private credit as collateral, a full collapse could be delayed. But if it ultimately fails, the entire housing finance market will be shaken, potentially causing a sharp decline in real estate prices.

Time Bomb 2 — The Physical Limits of the AI Bubble

Why does Meta continue investing in data centers even after cutting 20% of its staff? Is it because they believe they can become winners strategically, or because stopping investment would cause valuations to collapse?

Some argue that AI data center models face physical limits. The massive “Stargate” data center park under construction in Euless, Texas, requires 10 billion watts of power—equivalent to 10 nuclear power plants—and must ensure supply over the next two years. Such numbers are practically impossible to achieve.

Profitability is also a concern. Currently, no revenue has proven the massive investments justified. The MAG-7 companies are supporting the AI bubble with their operating cash flow. But once cash runs out or further restructuring becomes impossible, the game is over.

Nvidia is at its peak. Valued at $4.5 trillion, it’s often compared to a plane that crashes if it loses its minimum speed. Like Icarus in Greek mythology, flying too high comes with deadly risks. If Nvidia collapses, the S&P 500 and Nasdaq will be impacted. With major tech stocks fully betting on AI, a burst of the AI bubble would mean a stock market crash.

Additionally, the risk of surplus Nvidia chips and memory stocks flooding the market when demand evaporates cannot be ignored.

Time Bomb 3 — The Paradox of Oil Prices and Consumption

Do rising oil prices trigger inflation or produce effects similar to rate hikes? One interpretation is the latter. High oil prices erode consumers’ spending power, suppressing demand.

The problem is that today’s consumers are not like in 2022, when government stimulus checks supported the economy. Back then, large fiscal expenditures, including immigration support, created demand. Now, the opposite is true. With oil shocks and high interest rates squeezing households simultaneously, some believe the market’s focus should shift from inflation to deflation. The basis for this is that people are increasingly unable to afford food, insurance, mortgages, and property taxes.

The Federal Reserve should be actively cutting rates but is instead using rising oil prices and inflation as a shield to justify inaction. This is the backdrop to criticism that the central bank is standing by while the economy burns.

Converging Crises — The Intersection of Three Triggers

The system has not yet collapsed because each problem has not yet reached a critical point, and government and market buffers are still functioning. A full contagion like 2008 or Y2K has not yet occurred.

But warnings suggest that if all three time bombs converge at the end of this year, the situation could be very different. Especially in Europe and Asia, which lack abundant energy resources compared to the US and are more vulnerable to oil shocks. Predictions indicate that Western Europe, particularly the UK, France, and Germany, could face severe economic and financial shocks.

The US is in a relatively better position. It has energy self-sufficiency, and reindustrialization—a new growth driver—is in its early stages but has already begun. However, it’s still too early to be complacent. Funds tied to index ETFs and passive funds have no escape route in a crisis. Everyone holds, directly or indirectly, Nvidia and Microsoft, and short-selling forces have essentially disappeared from the market. When the decline begins, there will be no brake. Some warn that index funds could become a trap with no exit in a crisis.