Charlie Munger’s triad has manifested perfectly: Liquor is the intoxicating narrative of infinite AI scaling that defies gravity. Ladies is Ms. Alice Huang, the alleged spy who compromised the King. And Leverage is Nvidia itself—the underwriting spider at the centre of a massively leveraged web of debt and circular financing.

This is looking a critical week for AI. Some market watchers see last week’s wobbles as a brief bout of indigestion with the market poised for further gravity defying upside. Or have we already seen Peak-AI? The most likely clues on direction are not in stock prices, but in bond spreads, where traders are rightly concerned there is a mismatch between spending and likely revenues!

Elon Musk has been described as the biggest loser from the Blue Tsunami midterms – what will it mean for his firms’ valuations, and his future influence. We need to know what really went on between Musk and Trump. Even more critical is the utility of SpaceX’s technology and Starlink’s satellite constellation as a Strategic Resource. Some tough decisions, but sensible choices lie ahead.

AI is changing the world. It’s the greatest new, new thing ever… since the last new, new thing and till the next new, new thing emerges. Given all the risks around business adoption, growth, the bursting bubble in NeoCloud debt, and AI competition, can you really justify a $1.5 trillion valuation for Anthropic, a firm that recorded a $81 bln loss over the first half of this year!

It’s been a bad week in the AI markets. Suddenly folk are waking up to the growing gap between inflated expectations and disappointing revenues, and the risks which include competition. It’s a pattern that reoccurs repeatedly in markets. The name to watch will be CoreWeave – illustrating what can go wrong when blithe assumptions about fantabulous upside ignore the rules of financial commonsense. A default or troubling rescue is on the cards.

Just how much money is the AI boom going to make? No one really knows, but everyone is placing their bets. AI dominates the stock markets, but is beginning to worry many investors in terms of likely returns. While AI technologies are changing the world, what we see today may not be what we get tomorrow if new technologies emerge, and the current valuation metrics change. AI may be distracting us from real economic impacts elsewhere – like shipping costs.

There is a rising kerfuffle around the safety of AI. There are good reasons to be fearful. The leading AI Tech Lords now acknowledge there are serious dangers – but AI is now a strategic resource! Thus, there are games of national and company self-interest, and geopolitics all at play in terms of how to harness it. What it all means for markets is still unclear – but some reassessment of the risks should be considered. The horses are running and the stable door is wide open.

If there is a 10% chance AI is going to kill us all, then that’s probably bad news for bond markets. There are a lots of things that threaten us, but fortunately most of them are quite unlikely. A 1 in 10 chance we’re all toast is not. Global markets will probably choose to look the other way, but how would your own investment decisions change if you knew the Terminator is about to knock on the door?

Narratives are what drive stock markets. Robots are seen as a massive multi-trillion-dollar Total Addressable Market – with strategic and social implications that will utterly change economies. Musk expects to sell millions every year. The reality is likely to be very different – robotics and society will evolve and probably end up unlike anything we envisage today.

The factor that’s enabled the extraordinary success and longevity of the AI bubble has been the willingness of the markets to finance it. What happens if the liquidity machine driving AI were to suddenly stop? As the limits of bond markets, private credit, and using insurance companies to park risk, become increasingly apparent – what would a liquidity event do to current markets? Ouch!