I’m So Bored With the USA: Walls Come Tumbling Down

 

“You don’t have to take this crap You don’t have to sit back and relax”

 

As the year approaches its end I wanted to take this opportunity to look forward to 2026. It appears that the only thing that is certain is uncertainty.

 

The war in Ukraine looks likely to continue, with a belligerent Putin-led Russia not prepared to concede their gains, and the Ukrainians, quite rightly, not prepared to give-up any sovereign territory.

In Gaza, the make believe cease fire continues to hold in some way, shape of form, but a lasting peace is no closer. This is hardly surprising given the belligerent anti-Arab stance of the Israeli leadership. This is unlikely to end anytime soon as Israel continues to be buoyed by growing Islamophobia in many countries, and the fact that no one is prepared to challenge their behaviour.

Islamophobia appears to show no sign of abating, and is a part of the racism baked into the dual rise of populism and nationalism in many European countries. This is all part of the demise of democratic centrist governments, who, for whatever reason have been unable to deal with a series of consistent problems including anaemic economic growth, burgeoning budget deficits exacerbated by aging populations, leading to increasing inequality and poverty.

Populists are exploiting this chaos, by distilling all the problems down to their simple methodology, which, whilst, it offers no workable solution, catches the mood of soundbite politics which is part and parcel of a social media dominated era. The simplicity of, it all will all be better once immigration stops and we send them all back, chimes well with electorates that have been starved of improvement by mainstream governments.

Another area of contention for populism is global warming, which despite clearly happening is continually denied, in-place of small government and lower taxes. As the late Gorgio Armani said: “We only have one planet, and we have to preserve it”.

The overall cause of this ongoing uncertainty is the Trump regime in the US, which has served only to destabilise the old world order and global trade.

 

“we have seen an increase in the rising perception the AI Bubble is about to burst”

 

It isn’t solely Trump that makes me nervous of 2026 and the US, it’s the economy, and how much of that is predicated by the fortunes of the stockmarket. Whilst the market benchmark might still be the S&P500, it is the magnificent-7 that drive it; Alphabet (Google), Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, in-turn their share price is driven by the expectations of AI.

The facts are simple; the US stock market is up over 40% based solely on whatever value AI might create in future revenues, whilst the actual economy is looking, at best, mixed. Conclusion: speculation is leading common sense.

In the last few weeks, we have seen an increase in the rising perception the AI Bubble is about to burst. As this grows there is the “guilty by association” contagion risks across global markets, which we are all massively overweighted in favour of AI linked investments.

Commentators are beginning to draw parallels with previous financial crashes, and the extremely high concentration risk is a massive concern. There is much evidence to suggest these concerns are merited.

Nvidia’s Jason Huang telling the FT China is going to win in AI race – energy, infrastructure, discounting, and costs show China is ready while the USA plays catch-up.

In “Beware of President’s Bearing Gifts” I highlighted the circularity of Nvidia’s business model when they invested $100bn in Open AI to enable them to buy more of their chips. Essentially, there is a small number of customers funding each other to drive each other’s build-out.

Similarly, Oracle is expected to borrow billions to finance the equipment it is selling to Open AI.

Huang has other concerns too; the famous contrarian investor Michael Burry, of “The Big Short” fame, is short both Nvidia and Palantir.

 

‘contrarian investor Michael Burry, of “The Big Short” fame, is short both Nvidia and Palantir’

 

Another cause for concern, is the dominance of index-tracking instruments, such as ETF’s. As the magnificent 7 shares rise in value, trackers have to replicate that to ensure they meet their investment objective. Whilst this helps on the up-side, it further multiplies the concentration risks. But, when markets sell-off the spiral reverses itself multiplying the downside.

There is little clarity on where the returns on AI investment will come from, with the energy/data cost imbalance further constraining the potential. Less than 5% of ChatGPT users pay.

The dominance of data centres is fast consuming America’s farmland, but cannot operate without electricity, which is dependent on when China supplies the copper wire needed

McKinsey report’s that 80% of companies have seen any meaningful impact from AI on the bottom line, MIT says 95%!

Despite all of this, AI is here to stay, but, as with the dot.com bubble their will be many casualties, both providers and investors.

There will also be country’s winning and losing. In effect, it’s the US versus China, the winner may well take all!

If the 100-yrs from 1919-2019, was the era of America, is the next 100-yrs the era of China?

Some of the reason countries dominate era’s is their entrepreneurialism, access to capital, and willingness to innovate. There is now a new requirement – energy.

China has moved to ensure that they have both the power and the associated infrastructure needed. In addition, they’ve adopted smaller AI models using less power. Perhaps the true paradigm shift is the fact they’ve built their own AI ecosystem on cheaper chips which are thought to be almost as good as the US one’s, at a fraction of the price.

This has the added benefit of independence from Trump, taking away a crucial trade negotiating card from him.

 

‘they’ve built their own AI ecosystem on cheaper chips which are thought to be almost as good as the US one’s, at a fraction of the price’

 

To date, global markets have assumed that AI is synonymous with American firms, but, as we saw last year when China unveiled Deepseek, there are two playing this game.

Elsewhere in the economy, Trump has sought to use tariffs to bring countries to heel. Putting aside the legality of this, which the supreme court will shortly rule on, they are the tools of a bully.

China, forewarned and forearmed used the time to build export markets away from the US. The latest trade talks between the two countries was just kicking the can down the road; let’s talk again next year.

The problem with being a bully is that once you’re not the toughest/biggest/best it’s over, there’s a new kid in-town. All of a sudden countries won’t bow down. Some like Argentina are too beholden not to, but others, or, more likely trading blocs such as the EU, will seek options.

 

‘The problem with being a bully is that once you’re not the toughest/biggest/best it’s over, there’s a new kid in-town’

 

Of course, Brexit isolated the UK, and with Farage firmly in Trump’s orbit we will be joining Argentina in the beholden queue.

In effect, the old political and economic order is ending. China and the global south now account for more of the world economy than the US, Japan, Europe and the many others that form the “capitalist core”.

With this change there may be a new definition of capitalism. The elites who prospered under the regimes shaped by Reagan and Thatcher are now redefining their nations into narrower, meaner, harsher societies, ditching the old commitments to multiculturalism and equality for women.

In the 90s and 00s, the centre-left’s response to Reagan and Thatcher was Clinton, Blair, a third-way. They compromised with the new money and triangulated their electoral bases – and they held power, for a while.

Today, voters have given-up with their solution, turning to more extreme measures: ICE, climate denial and oligarch’s.

AI alone isn’t the shift, but it is a symptom of it. From an investor’s perspective, should China’s open-AI capture significant market share, it will change perceptions of US tech exceptionalism. With this there will be the knock-on effect on the valuations of US tech firms.

Where the US goes, depends on what Trump does in the next 12-months. The mid-terms are due, and if he fares badly, losing control of the House or Senate, or both, he could become a lame duck president.

Conversely, if he continue to tighten his grip on power, there are two further questions. Will there be mid-terms? If there are, will he accept the result?

Trump, like most populists has a mass powerbase, his MAGA followers. But, what if the veneer comes off? His promises to make them better-off don’t materialise? His tariff either fail or cause inflation. His “big beautiful” bill is exposed for what it is; unaffordable tax cuts for the rich.

 

‘Where the US goes, depends on what Trump does in the next 12-months’

 

A clue as to what might happen was seen in the mayoral election in NYC, where the election of Zorham Mamdani saw an alternative path for the US. Whereas Trump is leading America towards ethnonationalism(1) and Darwinian economics, Mamdani stands for immigrants and a city affordable for all. He understands the urban working class is not just white, but often black and brown.

Mamdani is the first left-winger to show that politicians can not only face down Trumpism, they can beat him. Moreover it was NYC, Trump’s city which wasn’t lost on Mamdani: “If anyone can show a nation betrayed by Donald Trump how to defeat him, it is the city that gave rise to him.”

Mamdani might be the poster-boy, but it wasn’t solely about him.

Mikie Sherrill and Abigail Spanberger won the governors’ races in New Jersey and Virginia by double digit percentages, marking the first time that Democrats have won three consecutive gubernatorial elections in New Jersey since 1961.

In California voters approved new congressional district boundaries as Democrats seek to fight back against Republican redistricting efforts ahead of next year’s battle for the House of Representatives.

Democrats retained three crucial seats on the Pennsylvania supreme court. In the Virginia state legislature, House Democrats flipped 13 seats for their biggest majority in nearly 40 years.

The results were in part a referendum on Trump, whose approval rating has never been lower. Are you better off than you were a year ago? Voters said no.

What shouldn’t be overlooked in NYC, is the fact that C.1m Jews live in and around the city, the largest population of Jewish people in a city outside Israel. Mamdani made reaching out to Jewish communities a key part of his campaign and has been vocal against antisemitism.

In his victory speech, Mamdani said: “We will build a City Hall that stands steadfast alongside Jewish New Yorkers and does not waver in the fight against the scourge of antisemitism.”

Despite, Trump smearing Mamdani as a “Jew hater” on his social media platform and calling all Jews who voted for him “stupid”, a CNN exit poll suggested Mamdani may have won up to 1:3Jewish votes.

We finish with the UK.

What does 2026 hold? More of the same, as the country continues to slide inexorably towards a Reform government.

Labour appears to be not only clueless, but split too.

 

‘the year isn’t quite over, and there will be much more to come, including a budget’

 

The party’s newly elected deputy leader, Lucy Powell, said they should stand by their manifesto commitment not to raise income tax, national insurance or VAT, saying it was “really important we stand by the promises we were elected on and do what we said we would do”.

This was in stark contrast to a speech from chancellor Reeves, which was widely interpreted as making the case for tax rises to allow greater investment in public services: “It is important that everyone – the public and politicians – understands that reality. The less we spend on debt interest, the more we can spend on the priorities of working people … our NHS, our schools, our national security … the public services essential to a decent society and a strong economy.”

It will be interesting to see how this play’s out. Powell is in a unique position to challenge Starmer and Reeves as she was chosen by the membership in preference to the government’s choice, Bridget Phillipson. Powell had previously been pushed out of her job as leader of the House of Commons during a recent reshuffle is therefore not bound by collective responsibility.

Still the year isn’t quite over, and there will be much more to come, including a budget.

Just when I thought it couldn’t get any worse…

 

 

“There’s no need to say shit, you already know The question is just “How far will this go?”

 

 

Notes:

1. An ideology that defines a nation and its people in terms of shared ethnicity, ancestry, culture, and language

 

This week, we look at what might happen in 2026, with a focus on the US and China, and the race that is AI.

The US market looks overblown, but as I write this, it is still going up. But, what goes up must come down.

Trump continues to hog the headlines, whether it’s the BBC, or anything else.

Labour continues to bounce along the bottom, and the comments of the new deputy leader suggest a rift between the members and MPs. This leads to the question of will we see a leadership challenge next year?

The PM is currently at Cop (out) whatever number. Probably getting away from it all.

Of course, it’s a waste of time. There is no such thing as global warming, climate change, it’s a communist plot!

Which leads me onto our gardens. More specifically, there is no need to bother, a hosepipe ban next summer will be the least of it, as water companies and the government are drawing up emergency plans for a drought next year more extreme than we have seen in decades.

Is there nothing left?

Lyrically, we start with the Style Council and “Walls Come Tumblin’ Down”, we end with “Things Get Worse” by B.o.B. and Eminem

I won’t even be able to enjoy my garden now!

PG 

 

@coldwarsteve

 

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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