The following item is appearing in this week’s EIR Strategic Alert Service, no. 47.
On Nov. 12, the president of the New York Federal Reserve met with leaders of Wall Street banks to discuss using the former’s Standing Repo Facility (SRF) over the coming period to keep the financial system functioning, as reported by Reuters. The SRF allows for banks to sell various bonds and securities they are holding to the Federal Reserve (Fed), thereby creating the effect of liquidity on their books. In other words, cash is injected to keep the markets happy.
Thus, the Fed is preparing for financial shocks over the coming period, and the need for banks to have access to emergency liquidity. Reuters cites rising money market rates and the federal funds rate as reasons for the expected increase in borrowing. The untold story is that the origin of such market “turmoil” is the ongoing collapse of the AI bubble, which might take on panic dimensions on Nov. 19, when AI giant Nvidia publishes its earnings report. In anticipation of negative news, hedge funds, including Peter Thiel’s Macro, have been selling or taking short positions on Nvidia stocks. A bad report could trigger a panic sellout of all AI-related stocks, which amount to one third of the S&P 500 Index, of which Nvidia alone is one fourth.
The total capitalization of S&P is $57-58 trillion, having grown by 32% in the last year and a half. In the same period, the nominal US GDP has grown 3-4%. The sheer increase of the S&P index is half of the total GDP size and it was driven by the AI bubble. The share of AI companies, including tech giants building the AI infrastructure and the large enterprises embedding it into their core operations, is enormous: ca. $19 trillion (30%). The value of Nvidia alone now exceeds 16% of US GDP: $5 trillion.
