Markets Finally Price-In Reality
Weekly Investment Update | By Brian Schreiner
Pressure is building simultaneously in the war with Iran and the asset markets.
Global liquidity is drying up. Has the “Everything Bubble” found its elusive pin?
The sell-off in software and technology stocks intensifies.
The challenges facing AI present a problem for investors.
Wall Street is tokenizing stocks and ETFs.
The initial market optimism surrounding the war with Iran collided with a number of harsh realities last week. Stocks were down for the fifth week in a row—the longest streak since 2022. The S&P 500 Index reached a six-month low. Bonds edged lower marking the second week in a row that both stock and bonds were down together. Gold and commodities were up and bitcoin was down.
The Trump Administration is facing another potential "TACO” moment as Iran has hunkered down, attempting to win the war by losing it. Pressure on the U.S. is growing as losses in the financial markets, surging energy costs and a number of other problems are starting to hit home. Unlike a trade war, which can be resolved by stroke of a pen, the war with Iran presents a range of problems that can’t be undone without real consequences.
Beyond higher oil prices, global markets are facing a supply cliff in several commodities that have no easy substitutes. The closure of the Strait of Hormuz has halted nearly a fifth of the world’s liquefied natural gas and a third of seaborn helium, which is critical for cooling the magnets used in semiconductor manufacturing.
Furthermore, a massive spike in nitrogen-based fertilizers threatens global food security just as the northern hemisphere enters the spring planting season. Even if a diplomatic breakthrough occurs by the April 6th deadline, the logistical logjam means that scarcity and inflationary pressure will persist long after the headlines fade. If the war drags on into May, global markets could become unhinged.
The tide of global liquidity is going out.
Global liquidity is the hidden engine of the modern financial system. Liquidity is more than the supply of money (or M2)—it’s balance sheet capacity. Specifically, it’s the total volume of credit and funding available to finance asset purchases and settle and refinance debt. There are three core components: central bank liquidity, private sector credit and cross-border flows.
Central bank liquidity is measured by the amount of money being injected into the economy by governments. Think of policy actions such as Quantitative Easing or “QE.” Private sector credit is measured by the amount of lending being done through both commercial banks and the shadow banking system. Think traditional banks and private credit. And lastly, cross-border liquidity is the movement of capital between nations, such as institutional and sovereign asset movements into and out of foreign stocks and bonds.
In the U.S., the Federal Reserve is stuck between a rock and a hard place. Economic growth has slowed to less than one percent and labor market conditions are deteriorating—hiring has slowed to a crawl. These signals would typically cause the Fed to cut interest rates to stimulate growth, but with inflation around 3% and trending the wrong direction and energy prices spiking, cutting rates would drive inflation to unacceptable levels. Hiking rates to fight inflation could push the economy into recession, so the Fed is left with only one option—leaving rates unchanged.
After the Great Financial Crisis developed economies shifted away from growth driven by new investment to growth driven by debt financing and financial engineering. In 2007, total global debt was $97 trillion. And it's been rising steadily ever since—at more than twice the inflation rate. Last year alone, global debt increased by $29 trillion to an all-time high of $348 trillion. Most of that debt will never be paid off—it will get refinanced.
For nearly two decades, the stock market has become addicted to a steady drip of central bank stimulus and low interest rates, but the tide of liquidity is going out.
According to the Global Liquidity Index, the current cycle has reached a mature peak. After bottoming in late 2022, liquidity surged for nearly 40 months, fueling the AI boom and the record-breaking run in stocks. But now we’re shifting from speculation phase to a liquidity vacuum, where the volume of money available to support high asset prices is shrinking.
Two decades of massive growth in debt and liquidity have been the primary driver of the so-called Everything Bubble. In our 2026 Investment Outlook: Bubble Watch and the Elusive Pin, I explained that the inevitable crash will come sooner or later. The "elusive pin" may not be a single geopolitical event or a sudden interest rate hike, but rather the structural exhaustion of the debt supercycle.
Markets are facing a looming “Wall of Refinancing.” This year alone, advanced economies are facing a staggering $30 trillion of debt that must be refinanced. Over the next three years, more than $100 trillion must be rolled over—and all of it at higher interest rates. These higher debt servicing costs will be another headwind to the global economy and a drain from financial markets that can’t be plugged by central banks or government policy.
As an investor, in this environment, defense is your best offence. Asset preservation should be your primary objective. Now is not the time to be chasing returns in high-growth tech stocks. Passive buy-and-hold investing is high-risk investing, but that doesn’t mean you should be fully in cash—it means your portfolio should take a more defensive posture. If you’d like to know how my clients are invested, read our Investment Outlook or email me.
The sell-off in software and technology stocks intensifies.
Even the specter of decades of AI dominance can't spark the "Magnificent Seven" right now. Every Magnificent Seven stock is down double-digits from its 52-week high. Microsoft (MSFT) is down more than 30% from its highs after reporting slowing growth.
The four major tech players, Google, Microsoft, Amazon and Meta are expected to spend a combined $650 billion this year—a 60% increase from last year. Investors may be concerned that the level of capex spend will cut into profit margins or they’ve finally realized these company's stock prices are insanely over-valued.
The challenges facing AI present a problem for investors.
Steve Eisman, the famous investor who profited from the 2008 housing crash and was played by Steve Carell in the movie The Big Short, has a great podcast, called The Real Eisman Playbook, which I highly recommend.
In his recent interview with AI expert Gary Marcus, the two discussed why the AI Revolution may not be all it’s hyped up to be.
Marcus says current AI models are "autocomplete on steroids." Today’s Large Language Models (LLMs) don’t actually "think" or understand the world—they’re statistical engines that guess the next word in a sentence based on patterns.
Because they lack a "world model" (an actual understanding of logic, physics, or even the rules of a game) they often hallucinate or confidently make things up.
By the way, I’ve been taking note of some egregious and disastrous examples of AI failures. These aren’t just silly mishaps. AI has some horrific errors that have caused real injuries to real people. In a case I learned about last week, a grandmother from Tennessee was put in jail for six months after being incorrectly identified by AI software.
The biggest bet in the market right now is "scaling”—the idea that if we just throw more data and more chips at the problem, true intelligence will eventually pop out. Marcus calls this the "Trillion-Pound Baby Fallacy." Just because a baby doubles in weight in its first month doesn't mean it will eventually grow to be the size of a skyscraper. The AI industry is already seeing diminishing returns. While the jump from GPT-2 to GPT-4 was massive, recent updates feel like incremental tweaks. Investors are currently spending hundreds of billions on hardware for gains that are getting smaller and smaller.
Eisman and Marcus discuss the circular financing keeping the sector afloat—where AI companies essentially trade venture dollars back and forth—suggesting these kinds of deals have inherent limits and risks. Another risk facing AI is that it feels like a commodity without a moat. In other words, at the end of the day—Google, Meta, OpenAI and any number of open-source models from China and around the world—are using the same basic recipe. There’s no real real secret sauce, which means the market for AI services will likely turn into a brutal price war where providers with the most efficient business models will eventually win-out.
None of this means AI isn’t real or isn’t going to change the world. AI may well be revolutionary and have massive benefits for consumers and businesses.
In my view, from an investment standpoint, the questions investors should be asking themselves are: How far away is agentic AI? Do the current stock prices of the hyperscalers offer an attractive risk/reward proposition? Are they a good opportunity to buy-low and sell-high? And how do these potential investments compare to others?
In my view, the answers are: years, no, no and low. I believe we are years away from high-level agents. I believe current stock prices do not offer an attractive risk/reward; do not offer a good opportunity to buy-low and sell high and when compared to other investment opportunities, they’re unattractive.
Wall Street is tokenising stocks and ETFs.
The tokenization of stocks has emerged as a fast-growing sector, captivating major exchanges such as Nasdaq and The New York Stock Exchange. There were two major developments last week on the two largest U.S. exchanges.
On Tuesday the New York Stock Exchange announced its partnership with Securitize to launch a "Digital Trading Platform," a dedicated venue for trading tokenized stocks and ETFs. Unlike traditional markets, this blockchain-based system aims to offer 24/7 trading and near-instant settlement. By appointing Securitize as its first digital transfer agent, the exchange plans to facilitate native tokenization, ensuring that digital tokens represent actual ownership and grant investors the same dividends and voting rights as traditional shareholders.
On Wednesday, the Securities and Exchange Commission approved Nasdaq's plan to let certain securities trade in tokenized form, integrating blockchain technology into U.S. equity markets. Under the new framework, eligible Nasdaq participants can opt to settle trades as blockchain-based tokens that trade alongside traditional shares with the same tickers, prices and investor rights.
The SEC said the structure meets investor protection standards, noting that surveillance, data reporting and settlement timelines remain intact while allowing near-instant, around-the-clock trading with tokens tied to real-world assets.
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