Hey everyone, Hedgie here.

What a week. Markets posted their worst performance since the tariff selloffs in April, with the S&P down 1.9% and Nasdaq dropping 2.7%. Bitcoin is having its worst month since the 2022 crypto collapse. And consumer sentiment is sitting near record lows while families earning six figures are painting rocks for Christmas gifts because they can't afford anything else.

Let me break down what's actually happening.

The AI Story Is Getting Harder to Believe

Nvidia beat earnings estimates and the stock still tanked. That almost never happens, only eight times since 1957 has a stock opened up big on earnings and closed red. The market is telling us something.

Here's what bothers me: Rothschild just put numbers on the AI infrastructure problem. For every dollar companies spend on AI, they're getting back 20 cents. Traditional cloud spending? $1.40 back per dollar. That's not early-stage friction, that's just bad economics.

Then Meta's former AI chief, the guy who built their entire AI division, walked out saying the technology everyone's betting on isn't even the right approach. The science isn't settled, but $500 billion in infrastructure commitments already happened. Companies are building data centers for technology that one of the field's pioneers says is a dead end.

Oracle's credit default swaps hit three-year highs because investors are finally asking how they'll pay for a $300 billion bet on OpenAI, a company that lost $12 billion last quarter.

The Private Credit Thing You Need to Understand

I know private credit sounds like Wall Street jargon, but here's why it matters to regular people.

Private credit hit $3 trillion. It's basically loans made by investment firms instead of banks. The problem is these loans get rated by firms that the borrowers themselves pay. It's like letting students grade their own tests.

Why should you care? Because if you have life insurance or an annuity, over 35% of that money is sitting in these loans. Your insurance company is betting your retirement on debt that gets valued in secret by people with every incentive to say everything's fine.

The IMF, the Bank for International Settlements, and Moody's are all waving red flags. JPMorgan's Jamie Dimon called recent failures "the first cockroaches." When that many serious people are worried, I pay attention.

Consumers Are Running on Empty

This is the part that really gets me. The middle class burned through all their pandemic savings by early 2025 just keeping up with costs that are 25% higher than 2020.

I read about a Connecticut family earning $115,000 who sits in the dark with LED lights to save on electricity and is painting rocks as Christmas gifts. A Virginia teacher making $90,000 works until 9:30 PM four nights a week teaching extra classes and can only save $50 per paycheck for retirement.

Consumer sentiment dropped to 51 with personal finances at the worst levels since 2009. Then you add ACA subsidies expiring, which means health insurance premiums jumping 100% to 250% for millions of families. Goldman found 20% of people who lost pay or hours turned to gig work earning half to two-thirds of what they made before.

Tyson just announced they're closing a beef plant with 3,200 workers because cattle supplies hit 75-year lows. That's 3,200 jobs gone in a town of 10,000 people, right before Christmas.

The Circular Financing Problem

Here's something that should bother everyone. Nvidia invests in OpenAI. OpenAI uses that money to buy Nvidia chips. Nvidia books it as revenue. Microsoft invests in OpenAI. OpenAI commits to Azure. Microsoft counts it as cloud growth.

How much of the "AI demand" everyone's celebrating is just the same money going in circles? That's not real demand, that's accounting that makes everyone's numbers look better than they are.

China's Slow-Motion Train Wreck

House prices in China fell for 40 straight months, but Goldman just raised their GDP forecast. How does that work? They're propping up growth with debt-fueled infrastructure spending while actual consumption collapses.

At 287% debt-to-GDP, China added more leverage than any major economy since 2008. When they're eventually forced to deal with it, commodity prices go with them. Australia's iron ore miners are betting this can go another two to three years, but the clock is ticking.

What I'm Watching This Week

The Fed is basically flying blind right now. October CPI got canceled because of the shutdown. Jobs data is delayed. December rate cut odds swung from 100% to 30% back to 70% in a single week. They don't know what the economy is actually doing, and neither does anyone else.

My Take

Look, I'm not predicting a crash tomorrow. Markets can stay irrational longer than anyone expects. But the stuff I've been tracking isn't getting better.

AI spending that loses money for every dollar invested. Private credit hiding stress in places nobody can see until it surfaces all at once. Consumers stretched to breaking with household debt at $18.59 trillion. Governments at 110% debt-to-GDP with less room to help than they had in 2008 or COVID.

The big tech companies can afford their AI bets. The ecosystem around them probably can't. And when those weaker players start failing, the fallout won't stay contained because everyone is connected through investments, contracts, and infrastructure deals.

This isn't about timing the top. It's about understanding that the foundation is shakier than the headlines suggest.

What's Coming

Stay sharp out there.

Hedgie 🦔