Hey everyone, Hedgie here. This week brought a collapse in consumer sentiment to near-record lows, household debt hitting all-time highs, and warnings from major financial institutions about AI bubble risks. The data is confirming what I've been tracking: the structure is cracking across multiple points simultaneously while markets hit records.

US consumer sentiment tumbled to 50.3, near the lowest on record and just above June 2022's weakest reading since 1978. Current economic conditions plunged 6.3 points to a record low of 52.3 as anxiety mounted about the government shutdown. Among Democrats and independents, confidence slid to the lowest in data back to 1984.

Fears about unemployment jumped, with 71% of respondents expecting it to rise in the year ahead, more than double the year-ago share. The average chance of losing a job reached the highest reading since March 2025. A separate New York Fed survey showed a third straight month of increasing job market anxiety, with perceived likelihood of unemployment climbing to 43% in October, the highest since April.

Current personal finances declined to a six-year low while buying conditions for big-ticket goods were considered the worst since mid-2022.

American household debt reached a record $18.59 trillion in Q3 2025, rising $197 billion from the prior quarter according to the New York Fed. Mortgage balances grew $137 billion to $13.07 trillion, credit card balances rose $24 billion to $1.23 trillion, and student loans increased $15 billion to $1.65 trillion.

Overall delinquency rates remained elevated at 4.5%, with debt flow into serious delinquency at 3.03%, up from 1.68% in Q3 2024. Student loan delinquencies hit 9.4% at 90+ days delinquent or in default after credit bureau reporting resumed.

Fed Chair Powell described the "bifurcated economy" where "consumers at the lower end are struggling and buying less and shifting to lower-cost products, but at the top, people are spending at the higher end of income and wealth."

US companies announced 153,074 job cuts in October, nearly triple the number from a year ago and the most for any October since 2003, according to Challenger, Gray & Christmas. Year-to-date cuts exceeded 1 million, the most since the pandemic.

US employers announced the fewest hiring plans since 2011, with seasonal hiring plans through October the lowest since tracking began in 2012. Warehousing and technology sectors led the surge. Amazon, Meta, Target, and Paramount were among last month's job-cut headlines.

"Those laid off now are finding it harder to quickly secure new roles, which could further loosen the labor market," said Andy Challenger.

DoubleLine Capital warned fixed-income investors to be cautious about AI debt. "You have to be not only cautious about the tech sector, but the tangential, related sectors providing support for these projects. Who knows what the spillover will be if the music stops?" said Robert Cohen, director of global developed credit.

Morgan Stanley forecasts hyperscalers will spend $3 trillion on infrastructure through 2028. Cash flow can fund about half, requiring significant debt issuance. Cohen warned about novel off-balance sheet structures and noted no one knows if these projects will be profitable. "At some point, it's going to have to be proven that these projects are profitable. If we find that most of them are not, then there's going to be a severe reaction."

TCW Group CEO Katie Koch said she's "very nervous" about parts of private credit, with TCW positioned 15% underweight credit. Deutsche Bank is exploring ways to hedge its billions in AI data center exposure, including shorting AI stocks and buying default protection on debt.

An estimated half a trillion dollars was wiped from financial markets this week as Nvidia, Microsoft, and Palantir saw sizeable drops. Goldman Sachs and Morgan Stanley predict a 10-20% decline in equities over the next one to two years. Singapore's central bank joined the IMF and Fed Chair Powell warning about overvalued stocks fueled by "optimism in AI's ability to generate sufficient future returns."

Since ChatGPT's release in late 2022, the Magnificent Seven have soared nearly 190%, lifting the S&P 500 by 75%, but creating unprecedented market concentration. Today, the top 10 stocks account for over 40% of the S&P 500's market capitalization.

At the center is Nvidia, which recently became the first company to surpass a $5 trillion market cap. For context, that's larger than five of the S&P 500's 11 sectors, equal to 60% of the entire Russell 2000 small-cap universe, half the size of Europe's STOXX 600 benchmark, and bigger than Germany's GDP.

Key differences from the dot-com bubble:

However, Nvidia's gains have been driven primarily by earnings growth rather than just valuation expansion.

Meta secured $60 billion in capital to build data centers, with $30 billion hidden off its balance sheet using special purpose vehicles (SPVs). Morgan Stanley estimates tech firms will need $800 billion from private credit in off-balance-sheet deals by 2028.

UBS notes AI debt building at $100 billion per quarter "raises eyebrows for anyone that has seen credit cycles." Musk's xAI is pursuing a $20 billion SPV deal where its only exposure is paying rent on Nvidia chips via a 5-year lease.

This echoes the financial engineering that triggered Enron's collapse and the 2008 mortgage crisis. In 2008, banks moved mortgages into off-balance sheet vehicles claiming non-recourse protection, but when assets failed simultaneously, reputational risk and counterparty exposure forced liabilities back onto balance sheets.

Office CMBS delinquency rate spiked to 11.8% in October, the worst ever and over a percentage point higher than the Financial Crisis peak. In October 2022, the rate was just 1.8%. In three years, it exploded by 10 percentage points.

The $304 million mortgage on Bravern Office Commons in Bellevue, WA (formerly Microsoft-occupied) went delinquent. Purchased in 2020 for $585 million and appraised at $605 million, Morningstar now values it at $268 million, a 56% haircut.

Multifamily CMBS delinquency rate rose to 7.1%, the worst since December 2015. These bonds are held by institutional investors like pension funds, insurers, and bond funds. Banks originated the loans but are off the hook, so investors eat the losses.

Nobel laureate Geoffrey Hinton, the "godfather of AI," warns the future is likely an economic dystopia. "Big companies are betting on massive job replacement by AI, because that's where the big money is." Asked whether AI investments could pay off without eviscerating the job market, Hinton said: "I believe that it can't. To make money you're going to have to replace human labor."

OpenAI accounted for over $1 trillion in AI infrastructure deals and lost $11.5 billion in the last three months. Tech researcher Jathan Sadowski notes AI "promises to solve the problems of capitalism by eliminating labor costs, deskilling workers, optimizing efficiency."

Companies are building "arm farms" where workers remotely control robots to generate training data. Figure AI is spending much of its $1 billion to collect movement data from 100,000 homes. Scale AI collected 100,000 hours of training footage for robotics. Nvidia projects a $38 billion humanoid robot market over the next decade.

Microsoft, Alphabet, Meta, and Amazon will spend roughly $370 billion on capital expenditures in 2025, with expectations to rise in 2026. Harvard economist Jason Furman estimates data center investment accounted for nearly all US GDP growth in H1 2025.

But the US isn't building enough grid capacity to support the data centers being built. Energy analyst Zachary Krause says "it is very likely we'll see facilities constructed with computing equipment but there won't be electrons to power them." American utilities sought $30 billion in rate increases in H1 2025.

The US deployed 49 GW of renewable energy infrastructure last year while China added 429 GW. Tech companies estimate chips will last six years when Nvidia releases new GPUs approximately every two years. If they need to upgrade sooner to stay competitive, that could eat into profits.

Treasury market bulls and bears fought to a draw this week as conflicting private-sector data left expectations for a December Fed rate cut in limbo. The 10-year yield ended at 4.07%, virtually unchanged. The Labor Department's employment report failed to materialize for a second straight month as the government shutdown became the longest on record.

BlackRock's Jeff Rosenberg said alternative data validates "a slowdown in the labor markets," pointing to 70% odds of the Fed continuing its easing cycle in December. But Fed Chair Powell said a December cut is "not a foregone conclusion."

Markets face fresh demand tests next week with $125 billion in auctions of three-year, 10-year notes and 30-year bonds.

Consumer sentiment at near-record lows with 71% expecting unemployment to rise shows real deterioration. Household debt hit $18.59 trillion while serious delinquencies nearly doubled. October job cuts at 153,074 were the highest in over two decades.

Geoffrey Hinton said explicitly that to make money from AI "you're going to have to replace human labor." This explains $1 trillion in OpenAI deals losing $11.5 billion. The value isn't current productivity, it's future labor elimination. Companies spending $370 billion on infrastructure while building arm farms where workers train their replacements.

Major credit investors are positioning defensively. DoubleLine warns about spillover effects, TCW is 15% underweight credit, Deutsche Bank hedging billions in AI exposure. Goldman and Morgan Stanley predict 10-20% equity declines. Meta hid $30 billion off its balance sheet. Commercial real estate cracking with office CMBS at 11.8% delinquency, worse than the Financial Crisis.

The top 10 stocks account for over 40% of the S&P 500. This concentration means any AI correction cascades through markets. I see conditions cracking simultaneously: sentiment collapsing, debt at records with rising delinquencies, job cuts at 22-year highs, institutions warning and hedging, commercial real estate losses spreading.

The historical pattern repeats. After margin accounts (1929), junk bonds (1989), mortgage-backed securities (2008), private credit at $1.7 trillion with $800 billion more off-balance sheet by 2028 is the latest iteration. The difference: governments used their fiscal capacity. With debt at 110% of GDP, capacity to cushion the next crisis is limited.

I don't think we're preparing for a crisis. The data shows we're in the early stages of one unfolding. This isn't a time to chase momentum, it's a time to reduce concentration and position for multiple outcomes.

Stay sharp out there.

Hedgie

Important economic data for the week ahead include CPI and PPI inflation, retail sales and hourly earnings. Government data could continue to be delayed due to the government shutdown.

Markets face $125 billion in Treasury auctions (three-year, 10-year notes, and 30-year bonds) starting Monday, testing demand while economic uncertainty remains elevated.

Over the last 6 years, home insurance rates have increased by up to 76% in some states. Between inflation, costlier repairs, and extreme weather, premiums are climbing fast – but that doesn’t mean you have to overpay. Many homeowners are saving hundreds a year by switching providers. Check out Money’s home insurance tool to compare companies and see if you can save.

Compare coverage