The AI Bubble is COLLAPSING in South Korea, The World is Next...

ASML (maker of state-of-the-art chip manufacturing equipment) is reporting that orders for their equipment have plunged dramatically, not gradually, indicating a sharp drop in demand.

“a dut company asml they build these high-end The Most Extreme Machines for building chips state-of-the-art machines what are they saying do orders for their equipment literally just plung not a little bit but like right off a cliff”

The AI investment boom across Asia has been one of the few sources of strength for the global economy as the global economy has headed in the wrong direction.

“the AI bubble in stocks has had a real impact on the global economy particularly Asia the investment boom has Unleashed has been one of the few sources of strength for the global economy as the global economy has headed in the wrong direction”

South Korea's weakness is not solely due to AI investment faltering, but also reflects weakness in automobile exports—another sector showing global demand weakness alongside China's trade partner difficulties.

“with South Korea it's not just about AI either we're also seeing weakness in exports of automobiles which is another huge sour spot for the global economy we've heard from automakers all over the map from the United States to especially Europe the European car business is in real deep trouble and now South Korea is saying we're seeing the same kind of weakness especially with our major trade Partners in China as well as other places around Asia”

The fundamental problem limiting demand is not high interest rates but weak consumer finances: low savings rates, slowing income growth, softening labor markets, cut hours, and elevated debt levels affect consumers globally.

“Consumers and the problem is as you know their savings rates are low their income growth is slowing the labor market starting to get soft hours work they getting cut and debt levels are too high consumers no matter in the US or all over world they're facing the same issues here”

The core problem is a misalignment between the amount of work available and the number of employees still employed, which will continue to drive labor market weakness until this imbalance is corrected.

“so long as that the and balance continues to be you know misalignment between labor market demand actual labor market demand the misalignment between the actual amount of work that labor is supposed to do and what the amount of employees that are still employed the labor market is going to continue to be weak”

Even before recent high interest rate period, auto sales lagged and never recovered from the pandemic, indicating that rate levels are not the primary constraint on auto purchasing.

“that's not what the data actually shows even before we got to high rates auto sales lag behind and never actually recovered from the pandemic”

Rate cuts stimulate demand only to the extent they pull forward consumption that would have happened anyway—if someone was going to buy a car in a few months, a rate cut might accelerate the purchase by months, but it doesn't create new demand from those without income to support purchases.

“if I'm going to go out and buy an expensive car and rates get cut maybe I was going to wait a few months but hey all of a sudden rates get cut and I was going to buy it anyway so maybe it pulls some demand forward but if I don't have the income to buy it it doesn't matter what a rate cut does”

Researchers acknowledge that export momentum in South Korea has sputtered unexpectedly early, earlier than anticipated, suggesting the AI investment cycle may be shorter than previously assumed.

“no one knew the export momentum would sputter so early that's a that's a questionable statement there but with uncertainties rising over the US economy and War risks intensifying in the mid East they are likely to meet expectations talking about the general economy”

Tech companies can manufacture spending through new product releases because they generate billions of dollars in revenue, enabling them to inject capital into the economy for AI and other investments.

“these tech companies well they manufacture money I mean they just have so much of it they come out with a new device or new product and next thing you know billions of dollars are rolling in so they can afford to inject lots of money into the economy”

Companies are buying AI chips and making large AI investments without clear understanding of what the technology will do or how it will generate revenue, following the pattern of past technology bubbles.

“we've talked about this before not on our show here but we've talked about how AI fits the classic mold of brand new disruptive technology whenever it shows up like in the dotc era or even the social media wave that that that hit the world a couple years ago um essentially these new disruptive Technologies show up and everybody wants to be a part of it while it's new and everybody just kind of hopes that someone will figure out a way to make it useful and then not just make it useful then make it into a packageable product that people can make money off of that seems to be where are in AI people are throwing massive amounts of Investments not just real not just stock market Capital but actual investments in these places building productive facilities almost hoping that while they're doing this that someone somewhere will figure out some way to use this Ai and make it into a profitable product”

Facebook reported that its revenue growth offsets (and is beginning to outpace) its spending on AI, suggesting the company may be finding ways to monetize AI that justify investment.

“what did we hear from Facebook recently they said hey our income our revenues offset a lot of our spend on AI”

Central banks would prefer to have rate cuts already in the pipeline before economic weakness arrives, so they can claim to be responding proactively and blame external factors rather than monetary policy for any deterioration.

“the idea that you know Central Bankers they they would love to probably have some rate Cuts in play here before this happen so they could at least say hey we were doing our part now you and I know the rate Cuts aren't going to make any difference but that doesn't matter because people think they do and that's the perception that really does matter here”

When the Federal Reserve cuts rates, new orders from manufacturers tend to decline, not increase, which is counterintuitive to policy theory but empirically observed.

“we know that's exactly why you tend to see when fed's cutting rates new orders across manufacturers they don't go up they go down”

Companies are beginning to face Wall Street pressure to justify their massive AI spending and demonstrate return on investment, with consequences coming potentially in fourth quarter or first quarter earnings.

“there is a point where Wall Street says spend billions and tens of billion dollars on AI and we're excited about how you're going to make so much money and what did we hear from Facebook recently they said hey our income our revenues offset a lot of our spend on AI and that's interesting because what we're going to start to see is companies have to justify the amount of money they're spending and then what's going to happen is say hey if you're not generating Revenue off this investment or we know see a path to it you're going to get hammered by it that's the risk that's probably coming I wouldn't say obviously this quarter but it's possible when we get fourth quarter earnings or even first quarter next year that wall Street's going to really start scrutinizing this investment and saying look youall spent a lot of money we need to see some return on it”

Currently, AI is being used primarily as a branding tool rather than for genuine functional capability, as companies race to add 'AI' to products like new iPhone editions to stimulate sales.

“it might sell new iPhones just remember it's the new AI Edition you know you might get some sales off that yeah it's more of a branding thing than anything right now which is another indication of where we're going”

South Korean companies are in early stages of pulling back on building new AI fabrication facilities because they are uncertain about having use cases for equipment they have already built.

“we're okay we're not necessarily pessimistic on it or we haven't changed our mind but we're going to pull back on building new stuff because we're not really sure we have a use for the stuff that we've already built and that's just the first step in the process because then as they start to pull back on their new facilities that leads to as steep always points out fing orders for a whole bunch of other stuff”

Rate cuts do not revive demand when companies face genuine demand problems: Volkswagen shutting down factories due to lack of demand will not restart operations because of a 50 basis point ECB rate cut.

“the reality is is a company like vwag talking about shutting an entire Factory down in Germany because they don't have demand if the ECB says hey we're going to cut another 50 basis points do you think the executives and V MERS say oh 50 basis points well never mind turn the factory back on let's crank out some cars because demand's coming back and we know that's not true”

The AI boom will follow the pattern of previous disruptive technology waves with a huge runup, then a decline, before settling into a more efficient and productive trend leading to longer-run success.

“if the a I bubble and boom and this this entire wave works out the way it does in past waves then we see this huge runup and then there's this decline before it finally settles into a more uh more efficient and productive uh productive uh Trend that leads to longer run success”

The underlying economic problem originated in 2021 when companies mistakenly staffed up to permanent levels based on a misinterpretation of that year as a sustained recovery plateau rather than a temporary post-pandemic surge.

“the real problem here goes back beyond all that I mean it's not going to be solved by R Cuts anyway the reason why the labor market is soft to begin with is because way too many companies around the world bought into 2021 as a recovery they thought that this was a permanent plateau of prosperity and so they staffed up as much as they possibly could”

China's government stimulus measures (the so-called Beijing bazooka) do not appear to be fixing the weakness in the Chinese economy according to market assessments.

“the weakness in China that is at least according to many mark markets that is not look looking like it's being fixed by what the B the government in China has doing with its so-called Beijing bazooka”

The idea that companies will suddenly increase spending once elections conclude, or that consumers will increase spending because election uncertainty is resolved, is false—the real issue is demand, not election-induced restraint.

“the idea that okay once the ctions are over that's just going to free up spending that companies are just executives are sitting there go like God as soon as we know who's in the White House let's write some checks that consumers are just sitting on their credit card saying hey you know what I don't want to go and spend because I just don't know who's going to be in office that's ridiculous”