The Macro Minute: Is the AI capex bubble’s reliance on circular financing bullish or bearish?

The AI capital expenditure bubble increasingly relies on circular financing, a development that serves as a double-edged sword for global markets. This mechanism is currently bullish because transferable compute acts as collateral, shifting financing burdens to institutional investors and reducing marginal equity supply. However, these agreements risk artificially inflating industry demand and concentration risk, potentially creating excessive leverage for AI productivity gains that may not materialize on the timeline expected by the S&P 500. Beyond AI, the Federal Reserve remains in modestly accommodative territory with a monetary base at 17% of GDP, suggesting that cyclical tightening would likely suppress bond market volatility rather than trigger a collapse. Additional market pressures include the failed Japanese Yen interventions and their implications for the carry trade, alongside a forward-looking analysis of U.S. economic health via small business optimism data.