Markets on Edge: Is the Reckoning Here?

Today, I’m committing a cardinal sin: publicly sharing my market predictions. It’s a risky move, one that could easily come back to make me look like a complete fool. But here we are.

Over the past few years, as the AI rally exploded, I’ve held the view that this bubble would ultimately resemble the Dotcom era — a breathtaking surge fueled by the excitement of a world-changing technology, followed by an equally brutal collapse.

Now, with markets in freefall and sentiment gripped by extreme fear following Donald Trump's newly announced tariff policies, the obvious question arises: Has the bubble burst? Are we heading into a painful recession?

The S&P 500 is currently down about 17% from its February high. Geopolitical tensions are flaring across multiple fronts. Many believe this is the beginning of a deep and prolonged depression.

I’ve spent a lot of time researching data-driven historical models, and in previous blog posts, I’ve argued that based on the patterns established by the data, a major crisis was on the horizon. Is this it? Is this the great unraveling we’ve been inching toward? Let’s take a closer look.

I Believe We're Close — But Not Quite There Yet

Right now, market sentiment is in extreme fear. CNN’s Fear & Greed Index is sitting at 4 — one of the lowest readings ever recorded. Everyone and their grandma is calling for a recession. Historically, when sentiment reaches these kinds of extremes, the market tends to do the opposite, fear sets the stage for rallies, just as euphoria often precedes crashes.

That said, it’s important to acknowledge that these are not normal times. There’s a valid argument to be made that traditional indicators may not function as expected in this kind of environment. But then again — what if they still do? Are there reasons for why those old contrarian signals might prove themselves right once more?

1. Tariff Uncertainty

   It’s been widely speculated that Trump’s tariffs are primarily intended as a negotiating tool. If other countries come to the table and strike favorable deals, it’s entirely possible that many of these tariffs could be scaled back or removed altogether. The market could be reacting to short-term fear over policies that end up being just temporary leverage.

   
   

2. Trump Tax Cuts

   By now, everyone’s heard about Trump’s tariffs — but that’s not the only thing he’s been loudly and repeatedly pushing. He’s also floated the idea of eliminating income taxes altogether. If he’s serious, and manages to push that legislation through, it would be wildly bullish for the markets.

   
   

   Why? Because it would give consumers a massive boost to their discretionary spending power. Suddenly, any price increases caused by tariffs would be far less of a concern, people would have more money in their pockets to absorb the impact. Whether it’s realistic or not, the possibility of such a move could fuel a strong short-term rally.

   
   

3. Monetary Policy Shift

   Throughout the entire bull run since 2022, the Fed has maintained a tight monetary policy, with quantitative tightening (QT) still in effect, though at a reduced pace. The Fed has already announced plans to end QT this year, which alone would offer relief to the markets.

   
   

   If recession fears continue to intensify, particularly in response to Trump’s tariff policies, it’s not unrealistic to expect the Fed to accelerate its timeline, or even pivot back toward quantitative easing (QE). On top of that, the market is currently pricing in four rate cuts for the remainder of 2025. Taken together, these potential shifts in monetary policy could act as a powerful tailwind for risk assets, just as bearish sentiment hits its peak.

   

It’s even been speculated that the true motive behind the trade war is to pressure the Federal Reserve into cutting interest rates. Why? Because $9.5 trillion worth of COVID-era government bonds are set to mature this year, nearly a third of total U.S. government debt. To avoid a funding crisis, the Treasury will need to issue new debt to replace the old, effectively "refinancing" at current interest rates.

If Trump can push the Fed to lower rates, that refinancing becomes dramatically cheaper. From this perspective, the tariffs may have less to do with trade policy, and more to do with manufacturing enough economic stress to force the Fed’s hand. And if that’s the playbook, it raises an interesting question: Should we expect Trump to roll back the tariffs once the Fed cuts rates?

Here’s what Trump himself posted on social media the day after announcing the new tariffs, suggesting that an interest rate cut just might be his intention:

4. AI Efficiency Is Finally Hitting the Real Economy

   This recent LinkedIn post from my cousin, an expert in AI, captures just how rapidly the technology is advancing in 2025 (while also poking fun at the recent Studio Ghibli controversy):

   

   I believe 2025 is the year we begin to see the real-world impact of AI in a meaningful way, particularly in the form of operational efficiency. Personally, I use a wide range of AI tools daily to run my business, and I can confidently say they’ve multiplied my productivity, often even allowing me to create value that I simply could never have created without them.

   
   

   And I doubt I’m alone in this. As more companies begin to integrate these tools effectively, I expect massive efficiency gains for the early adopters. Those gains will start to show up on balance sheets and earnings reports by year-end, potentially driving renewed strength in many sectors of the market.

Comparisons to the Dotcom Bubble

As the old saying goes, history doesn’t repeat, but it often rhymes. With that in mind, I’d argue that today’s market setup closely resembles August 1998, during the Dotcom bubble. At the time, Russia defaulted on its debt and devalued the ruble, sparking panic across global markets. An entirely different reason, but a similar level of panic saw the S&P 500 fall 22% in value.

In response, the Fed cut interest rates three times, injecting fresh liquidity into the system. What followed was the final, euphoric phase of the Dotcom boom, with tech stocks soaring throughout 1999 and into early 2000.

Next, I want to highlight an interesting observation originally made by Benjamin Cowen on X/Twitter: when studying the S&P 500 divided by the total US M2 money supply, this current tariff-driven drawdown began at the exact same relative valuation level as the aforementioned 1998 Russian debt crisis. A very interesting tidbit, coincidence or not.

Dividing by M2 money supply is used by some analysts to help adjust for the effects of monetary expansion over time. It offers a clearer lens on real market valuation, filtering out the distortion of inflated nominal prices. In essence, it helps us ask: “Is the market actually growing in real value, or is there just more money sloshing around?”

Now, this is obviously purely speculative, and I'm only pointing it out because it's interesting, but if history were to repeat — and we were to also bounce from the exact same level as we did after that crisis (a level that has since acted as resistance five separate times in the years following the crash, making it a clearly significant historical threshold) — then we’d expect a further drawdown of around 7% from current levels before the next leg up begins.

What About the Crash that Follows?

If I’m right, and we do get a final blow-off top similar to the late 1990s, playing out over the next 12 - 24 months, then yes, I’m also suggesting that what comes afterward will be far worse than a typical correction. And I don’t say this to be alarmist, but based on the patterns I see, I believe the stage is being set for a crash of historic proportions.

We’re entering a critical period. One in which human society as a whole will need to be fundamentally reshaped. While I genuinely believe that, in the end, humanity will emerge stronger and better than ever, the transition will be tough.

Here are a few reasons why:

1. AI Will Trigger Mass Unemployment

   In the short term, AI is likely to deliver massive efficiency gains, a clear win for both markets and consumers. But in the medium term, the picture becomes more complicated.

   
   

   As these efficiency gains become embedded, businesses will begin to lay off workers, realizing they can maintain productivity with a much smaller workforce. New markets, products, and services won't emerge quickly enough to absorb the displaced labor, and we may face a period of structural unemployment unlike anything we've seen before.

I like to compare AI to the invention of the combine harvester. It revolutionized farming by making food production vastly more efficient, which led to more food and far fewer farmers. But even the harvester still needed a driver.

With AI, we're witnessing a similar leap, except this time, it’s happening across nearly every industry at once. Over time, I believe we will eventually discover new industries and roles that emerge from the rise of AI, just as we have with every major technological shift. But that transition won’t be immediate. It could take decades, and the period in between may be deeply disruptive.

2. Geopolitical Order Is Changing

   The post–World War II geopolitical order, built on American dominance, global institutions, and a liberal economic framework, is rapidly losing its grip on reality. That system was forged in a world where the U.S. stood alone as a military and economic superpower. But that world no longer exists.

   
   

   Today, rising powers like China and India are demanding a seat at the table, while long-standing alliances are fraying. The U.S. is turning inward, distracted by domestic instability. Meanwhile, global institutions like the UN, NATO, and the WTO are increasingly seen as outdated, ineffective, or biased.

   
   

   The balance of power is shifting, but a new order has not yet emerged to take its place. What fills the void remains to be seen. But one thing is clear: the old rules no longer apply, and the new rules are yet to be written.

   
   

   The geopolitical landscape will get worse before it stabilizes, and whatever form that shift ultimately takes, it will almost certainly coincide with major market turbulence. Periods of power realignment rarely happen quietly, and markets tend to reflect that chaos.

3. Inflation Will Return

   Much of what we've discussed today — tariffs, tax cuts, and a shift toward looser monetary policy — are inherently inflationary. Add to that the likely disruptions to global supply chains caused by rising geopolitical tensions, and the return of inflation seems not just possible, but probable.

   
   

   As in past cycles, food and energy prices are likely to lead the way. These essentials are far less elastic and much harder to scale quickly than manufactured goods, whose supply can adjust more readily to demand. In short, the ingredients for another inflationary wave are already being put in place.

   
   

4. The Long-Term Debt Supercycle Is Ending

   We are approaching the end of a long-term debt supercycle, a period spanning decades in which both private and sovereign debt have steadily accumulated, pushing global economies beyond sustainable limits.

   
   

   Today, debt levels are at all-time highs, while currencies are being debased at unprecedented speed. Trust in central banks and fiat monetary systems is eroding, and fear of capital controls is entering the mainstream.

   
   

   Historically, the conclusion of a debt supercycle is not mild. It tends to involve a currency collapse, a sovereign default (either soft via inflation or hard via nonpayment), and/or the emergence of a new monetary architecture altogether. The end of the cycle is near — and with it, a monetary system reset seems likely.

But again, this isn’t a shift that happens overnight. Historically, monetary resets unfold over decades, not years. The unraveling is gradual at first, marked by creeping instability, loss of confidence, and stopgap measures, until eventually, the old system gives way to something entirely new. Markets will not respond well to the instability created by such a transition.

5. Population Growth Is About To Turn Negative

   In most Western countries, deaths already outnumber births, and population growth has been kept artificially positive through high levels of immigration. But even that is reaching its limits, as public sentiment increasingly shifts toward tightening borders.

   
   

   Population growth is a key driver of economic expansion, so a declining population is a concerning signal, particularly for markets. While this trend may be positive for workers, who could benefit from higher wages due to reduced labor supply, it’s not good news for investors. Higher labor costs eat into corporate profits, which in turn puts pressure on stock valuations. What benefits the working class in this scenario may come at the expense of the markets.

   
   

6. The End of the Current Political Legitimacy Arc

   Historically, systems of government have tended to last between 200 to 300 years before their internal contradictions lead to fragmentation and collapse. The United States will turn 250 in 2026, placing it squarely in the middle of it's expected lifespan, based on historical patterns.

   
   

   The symptoms of a system nearing its expiration are already visible: elite overproduction, permanent political gridlock, and a loss of national cohesion. The cracks are widening, and the rise of Caesarist energy through movements like Trumpism signals a growing appetite for strongman politics and revolutionary change.

   
   

   Whatever transformation takes place in the U.S. is unlikely to remain contained. Just as the democratic revolutions of the late 18th and early 19th centuries spread across the globe, any rupture in the American political order is likely to spark a global chain reaction, reshaping the legitimacy of governments far beyond its borders.

Conclusion

The list of reasons arguing for a crash above is by no means exhaustive. There are countless other issues I haven’t touched on, and even the ones I did mention could each be explored in far greater depth. But what’s clear is this: we’re facing a convergence of major systemic pressures, any one of which would be concerning on its own. Not all of them will necessarily materialize, but to suggest none will is ludicrous. Enough are already in motion that some form of historic crisis seems inevitable.

And as is often the case, these pressures won’t unfold in isolation, they’ll likely coincide with each other, as they amplify one another, compounding their effects and accelerating the breakdown.

When the crash comes, it will reshape society at a fundamental level. Hopefully, that transformation will ultimately be for the better, as has usually been the case throughout history. But it will also likely serve as a complete system reset. Many who are considered "rich" before it begins, will not be afterward. The slate will, in many ways, be wiped clean.

Resets like this have happened again and again throughout history. It would be arrogant to believe we’re immune. When inequality becomes too extreme, it breeds inefficiency, instability, and fragility. And when those imbalances become too great, the system must reset. It’s not the end — it’s evolution.

Of course, I could be completely wrong. Maybe the crash never comes, or maybe it does, but I’m calling it ten years too early. Maybe the market doesn’t play out like the Dotcom-style blowoff top I’ve been anticipating. Anything could happen, really — I’m just some guy writing out my thoughts.

But for now? I’m still long on the market, and expecting one last hurrah!