"The stock market has never been the economy - it’s really a reflection of what the economy dreams it could be in a world where share buybacks translate to meaningful productivity." 🔥🔥🔥
Share buybacks are arguably a way for companies to say "we don't see a good way to invest this money. We're returning this capital to investors so it can be redeployed."
Seems like it makes the economy as a whole much more efficient if companies have the option of saying that.
My only suggestion relative to the AI circular economy and governance is to additionally mark how the govt spends within the AI "technosphere" (or bubble if you prefer). A lot of DoD and DHS spending, as far as I can discern, seems to go into arms technology and surveillance, which is under the domain of such companies as Palantir, Scale AI and Oculus (the latter two, I believe, are now under the umbrella of Meta, much of whose VR/metaverse R&D seems to have been repurposed for drone operation systems). I am not exactly ready to start wearing the tinfoil hat just yet, but AI / AI related companies are looking for markets for revenue... and I haven't seen any spending cuts applied to those govt depts.
excellent addition - I was also thinking about govt contracting in the AI space - funding from the DoD is always steady and always increasing! and it makes me all the more afraid of the many malicious ways these technologies can and will be used. but maybe i need to take my own tinfoil hat off...
i overall agree with your thesis that the government is borrowing on the confidence of AI sustaining our economy, but i do have a minor point to pick at with the section `Everyone Gets a Social Media Company`.
while i'm not really in doubt Vibes will have ads in it, and possible Sora as well, i fundamentally disagree with the notion that ads are the play that these apps are about. i mean you laid it out yourself: Apple, Amazon, Alphabet, Microsoft, Meta, and Nvidia's revenues combined won't cover what's needed to justify these investments – Alphabet and Meta are essentially the two largest advertising companies in the world. there isn't enough attention *in the entire world* to justify this investment. these apps are data plays and, in my opinion that no one has to agree with, quite creative in how they're trying to get more data. the reason i complain is because i think this perspective, that this slop is for the sake of more attention so someone can buy more ads, is overly-cynical in one aspect (what an AI company's end goal is) while obfuscating the things we should care about (are we building AI in a society-aligned way, what should we do if it works and a lot of people lose their jobs). i've heard many complain about how anti-creative these slop machines are – which i do agree with! - but it ultimately feels like losing the forest for the trees on this a little. i fear the loss of human creativity, and maybe i'm just too optimistic, but i feel like we'll hit a wall where slop just isn't that interesting. i think we forget slop, while sloppy, is also novel.
and especially when you look at this report from Ramp i just read - https://econlab.substack.com/p/are-we-in-an-ai-bubble - my prediction is that AI companies are not actually doubling down on slop, their end goal is government contracts. which all bring us back to this fusion of the government and stock market, borrowed confidence – is the government going to actually be capture by AI models no one voted for, doing work we haven't signed off on, while enriching everyone involved in the administration?
Great read. Sometimes I drive home through our struggling main street listening to NPR celebrate the stock market gains that day and think to myself Wall Street isn't Main Street - in fact it isn't even a real street. I really was hoping the S&P would be a greater check on Washington than it has proven to be. Now I am searching elsewhere for hope.
You have distilled so much into one compact analysis, it needs to read again and again to fully grasp the enormity of economic changes Trump has wrought in only 9 months.
Tariffs to revitalize traditional manufacturing industries has not brought in significant new investment. They are destroying some parts of the economy like soybean farming,
Tariffs are (or were) more of political gain for Trump, than they are an economic gain for the U.S.
Personally, he is not interested in investing in U.S. manufacturing. Creating sweetheart deals for cronies like John Paulson (mining) and Larry Ellison (Tik Tok), as well as for the Trump family, is at the core of Trump's let's-make-a-deal mentality. He would much rather make a deal with Qatar for a Trump family crypto venture or Trump casinos. Qatar is also supposed to get a piece of Tik Tok. He really likes Qatar for some reason.
AI is the shiny new object he is pushing. There are lots of room for deals. Plus the circular investing keeps the stock market happy.
What could possibly go wrong when you have a grifter president turning a robust capitalist economy into an insular mercantilist economy?
Thanks, Kyla, for putting this all together. I read the Wall Street Journal daily and subscribe to Barrons, but I don't gain the broad understanding you have. Humpty Dumpty is here. I'm a long-term investor, but at 82, I need stability for my assets for the next ten years. I'll keep O'Reilly Automotive (everyone seems to always need car parts. Stock has gained steadily over 20% a year for 25 years), some Singapore Index Funds, and I guess gold. We've been being bamboozled by government for years, but the current administration seems to have elevated the trade to a sacrament.
So many good points! I am fixated on what seems to be a killer combination of a lack of AI productivity gains, low consumer demand, backlash to the tech and its crazy cost. It just feels entirely unsustainable
My fear is that, as typically happens, the "crash" when AI companies won't hit that 2T revenue target will just be mitigated by government intervention. Maybe not on a 2008 scale, but through some brute-force method like the current "i'm gonna buy part of your company" approach.
Because our economy isn't actually really growing right now in terms of actual consumer consumption, it does really seem like money is only going two places (other than purely speculative assets like gold): Moonshots and rent-seeking. AI is the moonshot, while all the big investors quietly buy up housing and electrical companies and farmland on the side. That future seems pretty clear to me: We'll own nothing, pay exhorbitant rates for all our necessities, and spend our remaining waking hours being sold homeopathic cures by AI-generated Will Smith or something. Won't even matter if AI is useful if all of our corporate overlords decide it is; there won't be any other options.
it does feel like the push and pull here makes it completely untenable to last for more than 6 more months - but who knows. stuff like this can go on for a lot longer than anyone can stay solvent
"Here’s two things that happened within twenty four hours of each other last Wednesday, September 23rd / 24th, 2025:
American taxpayers, in keeping with the clearly expressed will of the American people, announced their plan to Make Argentina Great Again by sending some or all of a $20 billion savings account called the Exchange Stabilisation Fund to Argentina, the western hemisphere’s finest purveyor of economic panics.
Tether, theoretically one of the most profitable companies in the history of the world and the central bank of international criminal finance the crypto industry, unexpectedly announced it would be raising $20 billion from a “private placement”, meaning it was looking to sell a $20 billion chunk of itself to someone it didn’t want to have to name publicly.
The fact that both of these events involved the same amount of money and happened at pretty much exactly the same time struck me as kind of… “odd”."
I don't have any direct investments in AI outside of pensions but I wonder what will happen when the bubble does pop? How quickly might the line go down, and what will the government pivot to?
3 things---sounds, smells, and looks like a whole lot like Vendor financing. Does Greensill, and Wirecard ring a bell. Next, where is the productivity lift? It looks very negative to me--lots of spend, but not much output. Finally, do you recall the capex spend of the dotcom era. Global Crossing and Worldcom. They died. I think at least 2 of these current Mag-7 monsters could go to the wall. Sounds a shocking thing to say, but it should at least by a possibility that is seriously considered, even if they are monopolies--it might not end well
"The stock market has never been the economy - it’s really a reflection of what the economy dreams it could be in a world where share buybacks translate to meaningful productivity." 🔥🔥🔥
Stop the buybacks!!
I might be missing a joke but you don’t like buybacks?
I think that companies could use their money in better ways like investing in workers or long-term growth instead of short-term stock spikes.
buybacks were illegal until 1982, considered a form of stock manipulation.
Which they are!
Share buybacks are arguably a way for companies to say "we don't see a good way to invest this money. We're returning this capital to investors so it can be redeployed."
Seems like it makes the economy as a whole much more efficient if companies have the option of saying that.
This analysis at least gives me some structure to pin the very strange realities we are living through onto? Thanks for putting it out
thanks for reading!
Thank you for the excellent newsletter.
My only suggestion relative to the AI circular economy and governance is to additionally mark how the govt spends within the AI "technosphere" (or bubble if you prefer). A lot of DoD and DHS spending, as far as I can discern, seems to go into arms technology and surveillance, which is under the domain of such companies as Palantir, Scale AI and Oculus (the latter two, I believe, are now under the umbrella of Meta, much of whose VR/metaverse R&D seems to have been repurposed for drone operation systems). I am not exactly ready to start wearing the tinfoil hat just yet, but AI / AI related companies are looking for markets for revenue... and I haven't seen any spending cuts applied to those govt depts.
I think you're onto something for sure
excellent addition - I was also thinking about govt contracting in the AI space - funding from the DoD is always steady and always increasing! and it makes me all the more afraid of the many malicious ways these technologies can and will be used. but maybe i need to take my own tinfoil hat off...
i overall agree with your thesis that the government is borrowing on the confidence of AI sustaining our economy, but i do have a minor point to pick at with the section `Everyone Gets a Social Media Company`.
while i'm not really in doubt Vibes will have ads in it, and possible Sora as well, i fundamentally disagree with the notion that ads are the play that these apps are about. i mean you laid it out yourself: Apple, Amazon, Alphabet, Microsoft, Meta, and Nvidia's revenues combined won't cover what's needed to justify these investments – Alphabet and Meta are essentially the two largest advertising companies in the world. there isn't enough attention *in the entire world* to justify this investment. these apps are data plays and, in my opinion that no one has to agree with, quite creative in how they're trying to get more data. the reason i complain is because i think this perspective, that this slop is for the sake of more attention so someone can buy more ads, is overly-cynical in one aspect (what an AI company's end goal is) while obfuscating the things we should care about (are we building AI in a society-aligned way, what should we do if it works and a lot of people lose their jobs). i've heard many complain about how anti-creative these slop machines are – which i do agree with! - but it ultimately feels like losing the forest for the trees on this a little. i fear the loss of human creativity, and maybe i'm just too optimistic, but i feel like we'll hit a wall where slop just isn't that interesting. i think we forget slop, while sloppy, is also novel.
and especially when you look at this report from Ramp i just read - https://econlab.substack.com/p/are-we-in-an-ai-bubble - my prediction is that AI companies are not actually doubling down on slop, their end goal is government contracts. which all bring us back to this fusion of the government and stock market, borrowed confidence – is the government going to actually be capture by AI models no one voted for, doing work we haven't signed off on, while enriching everyone involved in the administration?
excellent points
Great read. Sometimes I drive home through our struggling main street listening to NPR celebrate the stock market gains that day and think to myself Wall Street isn't Main Street - in fact it isn't even a real street. I really was hoping the S&P would be a greater check on Washington than it has proven to be. Now I am searching elsewhere for hope.
You have distilled so much into one compact analysis, it needs to read again and again to fully grasp the enormity of economic changes Trump has wrought in only 9 months.
Tariffs to revitalize traditional manufacturing industries has not brought in significant new investment. They are destroying some parts of the economy like soybean farming,
Tariffs are (or were) more of political gain for Trump, than they are an economic gain for the U.S.
Personally, he is not interested in investing in U.S. manufacturing. Creating sweetheart deals for cronies like John Paulson (mining) and Larry Ellison (Tik Tok), as well as for the Trump family, is at the core of Trump's let's-make-a-deal mentality. He would much rather make a deal with Qatar for a Trump family crypto venture or Trump casinos. Qatar is also supposed to get a piece of Tik Tok. He really likes Qatar for some reason.
AI is the shiny new object he is pushing. There are lots of room for deals. Plus the circular investing keeps the stock market happy.
What could possibly go wrong when you have a grifter president turning a robust capitalist economy into an insular mercantilist economy?
Another terrifying post that I can’t stop myself from reading. 10/10
thank you!
Thanks, Kyla, for putting this all together. I read the Wall Street Journal daily and subscribe to Barrons, but I don't gain the broad understanding you have. Humpty Dumpty is here. I'm a long-term investor, but at 82, I need stability for my assets for the next ten years. I'll keep O'Reilly Automotive (everyone seems to always need car parts. Stock has gained steadily over 20% a year for 25 years), some Singapore Index Funds, and I guess gold. We've been being bamboozled by government for years, but the current administration seems to have elevated the trade to a sacrament.
So many good points! I am fixated on what seems to be a killer combination of a lack of AI productivity gains, low consumer demand, backlash to the tech and its crazy cost. It just feels entirely unsustainable
the rising consumer backlash is definitely something to watch
Read Apricitas Economics for more details about how the regime’s tariff policy supports the shift to AI and enrichment of the oligarchs. https://open.substack.com/pub/apricitas/p/the-tariff-exemption-behind-the-ai?r=9yt42&utm_medium=ios
ALWAYS read joey - I linked him in the piece, he's incredible!!
Textbook economics in Banana Republics such as mine.
Inequality will destroy more than just your democracy, alas :-/
My fear is that, as typically happens, the "crash" when AI companies won't hit that 2T revenue target will just be mitigated by government intervention. Maybe not on a 2008 scale, but through some brute-force method like the current "i'm gonna buy part of your company" approach.
Because our economy isn't actually really growing right now in terms of actual consumer consumption, it does really seem like money is only going two places (other than purely speculative assets like gold): Moonshots and rent-seeking. AI is the moonshot, while all the big investors quietly buy up housing and electrical companies and farmland on the side. That future seems pretty clear to me: We'll own nothing, pay exhorbitant rates for all our necessities, and spend our remaining waking hours being sold homeopathic cures by AI-generated Will Smith or something. Won't even matter if AI is useful if all of our corporate overlords decide it is; there won't be any other options.
Our future is that rainy alleyway in “Blade Runner” … 😑
I just feel like this contradiction in economic pressures just can not last for much longer. Something has to give.
it does feel like the push and pull here makes it completely untenable to last for more than 6 more months - but who knows. stuff like this can go on for a lot longer than anyone can stay solvent
I imagine the smart money is working out ways to short democracy right now. Great essay, you are a creative thinker and writer..
There's chicanery afoot in the financial system.
"Here’s two things that happened within twenty four hours of each other last Wednesday, September 23rd / 24th, 2025:
American taxpayers, in keeping with the clearly expressed will of the American people, announced their plan to Make Argentina Great Again by sending some or all of a $20 billion savings account called the Exchange Stabilisation Fund to Argentina, the western hemisphere’s finest purveyor of economic panics.
Tether, theoretically one of the most profitable companies in the history of the world and the central bank of international criminal finance the crypto industry, unexpectedly announced it would be raising $20 billion from a “private placement”, meaning it was looking to sell a $20 billion chunk of itself to someone it didn’t want to have to name publicly.
The fact that both of these events involved the same amount of money and happened at pretty much exactly the same time struck me as kind of… “odd”."
https://cryptadamus.substack.com/p/make-argentina-gold-again
I don't have any direct investments in AI outside of pensions but I wonder what will happen when the bubble does pop? How quickly might the line go down, and what will the government pivot to?
3 things---sounds, smells, and looks like a whole lot like Vendor financing. Does Greensill, and Wirecard ring a bell. Next, where is the productivity lift? It looks very negative to me--lots of spend, but not much output. Finally, do you recall the capex spend of the dotcom era. Global Crossing and Worldcom. They died. I think at least 2 of these current Mag-7 monsters could go to the wall. Sounds a shocking thing to say, but it should at least by a possibility that is seriously considered, even if they are monopolies--it might not end well