AI stock bubble at risk from Iran war inflation and liquidity drain
An opinion piece in the South China Morning Post suggests that the AI stock bubble is on the verge of bursting, as increasing prices are draining liquidity from financial markets, including bonds. The ongoing war in Iran has led to stagflation and food shortages due to significant cuts in oil and fertilizer supplies, which are heightening inflationary pressures. As inflation diverts liquidity from financial markets to the real economy, global bond yields are rising. Should these yields increase by over a percentage point before the end of the year, the AI bubble could burst. The current oil crisis may surpass the 2007-2008 situation, pushing petrol prices to potentially reach US$10 a gallon this summer.
Key facts
- AI stock bubble is ripe for bursting due to rising prices draining liquidity from financial markets
- Iran war has reduced oil and fertiliser supply, causing stagflation and starvation
- Inflationary pressure is increasing, sucking liquidity out of financial markets into the real economy
- Bond yields are rising globally; a rise of more than one percentage point could pop the AI bubble
- Current oil shock may be greater than the 2007-8 crisis when oil reached US$150 per barrel
- Petrol prices could hit US$10 a gallon this summer
- Oil in tankers at sea is likely to be used up, and strategic reserves may not be released
- US could halt petroleum exports to keep domestic prices low, but that would spike international prices and harm Europe and Japan
- Dow Jones briefly hit 50,000, closing up over 600 points on May 6, as Iran conflict eased
Entities
Institutions
- South China Morning Post
- Dow Jones
- Getty Images
- AFP
Locations
- Iran
- United States
- Europe
- Japan