The real state of our current economy

Author: arndxt; Source: X, @arndxt_xo; Compiled by: Shaw Golden Finance

I want to dive deep into analyzing the real state of our current economy today. If you have been keeping an eye on the previous macroeconomics, you should be able to get some hints from it.

Currently, only artificial intelligence is driving GDP forward, while other aspects such as the labor market, households, affordability, and asset acquisition are all declining.

Everyone is waiting for the “cycle reversal.” But there is no cycle at all.

The fact is:

• The market is no longer trading based on fundamentals.
• Capital expenditure on artificial intelligence is actually a key factor in preventing technological recession.
• A wave of liquidity is expected in 2026, and the market consensus has not even begun to price this in.
• Inequality is a macro constraint on policy-making.
• The bottleneck of artificial intelligence is not in GPU computing power, but in energy.
• Cryptocurrency is becoming the only asset class with genuine upside potential for the younger generation, which gives it political significance.

Do not misjudge this transformation risk and mismatched investments, thus missing out on good opportunities.

1. Market dynamics are not driven by fundamentals

In the past month, the asset market price fluctuations occurred without the release of new economic data, but there were significant fluctuations due to the change in the Federal Reserve's stance.

The probability of interest rate cuts fell from 80% to 30%, and then returned to 80%, merely due to the remarks of individual Federal Reserve officials. This aligns with the market situation where systemic capital flows overwhelmingly surpass macro judgments.

Here is some microstructure evidence:

• Volatility target funds mechanically deleverage when volatility surges and re-leverage when volatility compresses.

These funds do not care about the “economy” because they adjust their risk exposure based on only one variable: the level of market volatility. When volatility increases, they reduce risk exposure → sell. When volatility decreases, they increase risk exposure → buy. This leads to automatic selling during market weakness and automatic buying during market strength, thereby amplifying bidirectional fluctuations.

• CTA will switch long and short positions at preset trend levels, resulting in mandatory capital flows.

CTA (Commodity Trading Advisor) follows strict trend rules:

• Buy if the price breaks through a certain level.

• If the price falls below a certain level → sell.

There is no “logic” behind this. It is purely mechanical. Therefore, when enough CTAs set stop-loss orders at the same price point at the same time, large-scale, coordinated buying or selling behavior can occur, even though there are no fundamental changes. These capital flows can impact the entire index within a matter of days.

• The stock buyback window remains the largest source of net equity demand.

Corporate buybacks of their own stocks are the largest net buyers in the stock market, surpassing the purchasing scale of retail investors, hedge funds, and pension funds. During the stock repurchase window period, companies consistently inject tens of billions of dollars into the market each week.

This will produce: 1. An inherent upward trend during the buyback season; 2. A noticeable weakening when the window closes; 3. A structural buying pressure that is unrelated to macro data. This is why the stock market can rise even when market sentiment is extremely poor.

• The VIX curve inversion reflects a short-term hedging imbalance, rather than “panic”.

Typically, the long-term volatility (3-month VIX) is higher than the short-term volatility (1-month VIX). When this situation reverses, meaning the near-month option prices rise, people tend to think that “panic is surging.” However, nowadays, the inversion of the VIX curve is often caused by the following factors: short-term hedging demand; option traders adjusting risk exposure; inflows into weekly options; and systematic strategies hedging at the end of the month. This means: VIX surge ≠ panic. VIX surge = hedging capital flow.

This distinction is crucial as it indicates that volatility is now driven by trading rather than by market sentiment.

This has made the current market environment more sensitive to market sentiment and capital flows. Economic data has become a lagging indicator of asset prices, while the Federal Reserve's communications have become the main trigger for market volatility.

Nowadays, liquidity, positioning, and policy tone are more influential in price discovery than fundamentals.

2. Artificial Intelligence is Preventing a Full-Blown Economic Recession

Artificial intelligence has begun to play the role of a macro stabilizer.

It effectively replaced cyclical recruitment, supported corporate profitability, and maintained GDP growth in the context of a weak labor market.

This means that the U.S. economy's dependence on artificial intelligence capital spending is far greater than policymakers publicly acknowledge.

• Artificial intelligence is suppressing the demand for the lowest-skilled and most easily replaceable one-third of the workforce. This is often the area where the effects of cyclical economic downturns are first evident.
• The increase in productivity has masked the overall deterioration of the labor market. Output remains stable because machines have taken over the jobs previously done by entry-level workers.
• Corporate profits increase due to a reduction in the number of employees, while households bear the resulting socio-economic burdens.
• This has led to a shift in income from labor to capital — a typical dynamic of economic recession, yet obscured by improvements in productivity.
• Capital related to artificial intelligence has artificially sustained the resilience of GDP. Without capital expenditures in the field of artificial intelligence, the overall GDP data would show significant weakness.

Regulators and policymakers will inevitably support capital expenditures in artificial intelligence through industrial policies, credit expansion, or strategic incentives; otherwise, an economic recession will occur.

3. Inequality has become a macro constraint factor

Mike Green's analysis (poverty line ≈ $130,000 to $150,000) has sparked strong opposition, indicating how deeply this issue has resonated.

Core Facts:

• Child-rearing expenses > rent/mortgage;
• Housing structure is difficult to afford;
• Baby Boomers dominate asset ownership;
• The younger generation only has income, not capital;
• Asset inflation is exacerbating this gap every year.

Inequality will force adjustments in fiscal policy, regulatory stances, and asset market interventions.

Cryptocurrency is becoming a demographic tool that allows the younger generation to participate in capital appreciation. Policymakers will make corresponding adjustments based on this.

4. The current bottleneck for artificial intelligence expansion lies in energy rather than computing power.

Energy will become a new narrative theme.

Without the corresponding expansion of energy infrastructure, the artificial intelligence economy cannot develop and grow.

The discussion around GPUs overlooks a larger bottleneck:

• Electricity
• Grid Capacity
• Nuclear and natural gas construction
• Cooling Infrastructure
• Copper and key minerals
• Data center site selection restrictions

Energy is becoming a limiting factor in the development of artificial intelligence.

Energy, especially nuclear energy, natural gas, and grid modernization, will become one of the most influential investment and policy areas in the next decade.

5. Two economies are rising, but the gap is widening.

The U.S. economy is splitting into a capital-driven artificial intelligence sector and a labor-intensive traditional sector, with almost no overlap between the two.

These two systems are increasingly adopting different incentive mechanisms to operate.

Artificial Intelligence Economy (Expansion)

• High Productivity
• High Profit
• Low labor intensity
• Strategic Protection Strong
• Strong capital attraction

Real Economy (Contraction)

• Weak labor absorption capacity
• Consumer Pressure
• Decreased mobility
• Asset Concentration
• High inflation pressure

The most valuable companies in the next decade will build solutions to bridge or leverage these structural differences.

6. My Outlook on the Future

1. Artificial intelligence will receive support; otherwise, it will fall into economic recession.
2. Liquidity led by the Ministry of Finance will replace quantitative easing and become the main policy channel.
3. Cryptocurrencies have become a category of political asset linked to intergenerational equity.
4. Energy will become the real bottleneck for the development of artificial intelligence, rather than computing power.
5. In the next 12 to 18 months, the market will still be driven by sentiment and capital flows.
6. Inequality will increasingly influence policy decisions.