Analyzing the current macroeconomy: AI is the only engine driving the economy, and the market is driven by emotions and capital flow.

Written by: arndxt, encryption KOL

Compiled by: Felix, PANews

The only engine driving GDP now is artificial intelligence, while everything else is on the decline, such as the labor market, family conditions, purchasing power, and asset acquisition ability. Everyone is waiting for the so-called “cycle reversal.” But there is fundamentally no cycle. The fact is:

The market is not currently focused on the fundamentals.

Capital expenditures on artificial intelligence are actually key to preventing a technological recession.

In 2026, a wave of liquidity will arrive, and the market consensus has not even begun to price this in.

Inequality is a headwind that hinders macroeconomic development, forcing the government to introduce policies.

The bottleneck of artificial intelligence lies not in GPUs, but in energy.

For the younger generation, cryptocurrency is becoming the only asset class with real upward potential, making it meaningful.

Do not misjudge this transformation risk and invest funds in the wrong party.

1 Market dynamics are not driven by fundamentals.

In the past month, despite no new economic data being released, price fluctuations have been dramatic due to the shift in the Federal Reserve's tone.

The probability of interest rate cuts dropped from 80% to 30% and then rose back to 80%, entirely based on the remarks of individual Federal Reserve officials. This aligns with the situation where systematic capital flows in the market surpass subjective macro views.

Here is some evidence regarding microstructural aspects:

Funds targeting volatility mechanically reduce leverage when volatility spikes and increase leverage when volatility declines. These funds do not care about the “economy” as they adjust their risk exposure based solely on one variable: the level of market volatility. When volatility rises, they reduce risk → sell. When volatility falls, they increase risk → buy. This leads to automatic selling during market weakness and automatic buying during market strength, amplifying bidirectional volatility.

Commodity Trading Advisors (CTAs) switch long and short positions at preset trend levels, causing mandatory capital flows. CTAs follow strict trend rules:

If the price breaks through a certain level → buy.

If the price falls below a certain level → sell.

There is no “opinion” behind this, only mechanical operation.

Therefore, even if the fundamentals do not change, when enough traders set stop-loss orders at the same price level at the same time, large-scale, coordinated buying or selling behavior will occur.

These fund flows can sometimes cause the entire index to fluctuate for several consecutive days.

Stock buybacks remain the largest single source of net stock demand. In the stock market, companies repurchasing their own shares are the largest net buyers, surpassing retail investors, hedge funds, and pension funds. During the open buyback window, companies consistently inject billions of dollars into the market each week.

This caused:

The inherent upward trend during the repurchase season

The noticeable weakness after the buyback window closes.

Structural demand unrelated to macro data

This is why stock prices may still rise even when market sentiment is extremely poor.

The VIX curve inversion reflects a short-term hedging imbalance rather than “panic.” Typically, long-term volatility (3-month VIX) is higher than short-term volatility (1-month VIX). When this situation reverses, meaning the near-month contract price becomes higher, people will interpret that as “panic sentiment has intensified.”

But nowadays, it is usually caused by the following factors:

short-term hedging demand

Options traders adjust risk exposure

Weekly Options Fund Inflow

Systematic strategies hedge at the end of the month.

This means:

The VIX index soaring ≠ panic sentiment.

VIX index surges = hedge fund flows.

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

This has led to the current market environment being more sensitive to market sentiment and more reliant on capital flows. Economic data has become a lagging indicator of asset prices, while the communication from the Federal Reserve has become the main trigger for volatility.

Liquidity, positions, and policy tone now drive price discovery more than fundamentals.

2 Artificial intelligence is preventing a full recession

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

It effectively replaced cyclical hiring, supported corporate profitability, and maintained GDP growth in the face of weak labor fundamentals.

This means that the U.S. economy's dependence on artificial intelligence capital expenditures far exceeds the level publicly acknowledged by policymakers.

Artificial intelligence is suppressing the demand for the one-third of the workforce that is low-skilled and most easily replaceable. This is precisely where cyclical recessions typically manifest first.

The increase in productivity has masked the widespread deterioration of the labor market that would have otherwise been apparent. Output remains stable because machines are taking on the tasks previously performed by entry-level workers.

Companies benefit from a reduction in the number of employees, while families bear the socioeconomic burden. This shifts income from labor to capital—an典型的 recession dynamic, obscured by the increase in productivity.

Capital formation related to artificial intelligence artificially maintains the resilience of GDP. Without capital expenditures on artificial intelligence, the overall GDP data would be significantly weaker.

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

3 Inequality has become a macro constraint factor

Mike Green's analysis (the poverty line is around $130,000 to $150,000) has sparked strong opposition, indicating how widely the issue resonates.

The core fact is:

Childcare costs are higher than rent/mortgage.

Housing is structurally difficult to obtain.

Baby Boomers dominate asset ownership

Young people only have income, not capital.

The gap of asset inflation is increasing year by year.

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

Encryption currency has become a tool for the population, serving as a means for the younger generation to achieve capital growth.

4 The bottleneck of artificial intelligence lies in energy rather than computing power.

Energy will become a new focal topic. Without the corresponding expansion of energy infrastructure, the artificial intelligence economy cannot scale. The discussion around GPUs overlooks a larger bottleneck:

electricity

grid capacity

Nuclear and natural gas construction

cooling infrastructure

Copper and critical 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 types of economies are rising, and the gap is widening.

The American economy is being divided into a capital-driven artificial intelligence industry and a labor-intensive traditional industry, with almost no overlap between the two.

The incentive mechanisms of these two systems are becoming increasingly different:

Artificial Intelligence Economy (Scalability)

High productivity

high profit margin

light labor input

strategic protection

High capital attraction

real economy (contraction)

Weak absorptive capacity of labor force

Consumer pressure is high

Liquidity decline

High asset concentration

Inflation pressure is high

In the next ten years, the most valuable companies will build solutions that can reconcile or leverage these structural differences.

6 Future Outlook

Artificial intelligence will be supported, as there is no other choice; otherwise, it will lead to economic recession.

The liquidity led by the Ministry of Finance will replace quantitative easing as the main policy channel.

Cryptocurrency will become a class of political assets linked to intergenerational wealth.

Energy will become the real bottleneck for artificial intelligence, rather than computing power.

In the next 12 to 18 months, the market will still be driven by sentiment and capital flows.

Inequality will increasingly influence policy decisions.