b.AI.t and Switch: The Confidence Game
and the Soros-FinTwit effect
The launch of ChatGPT and its explosive growth in users has been the key catalyst of this AI-driven cycle, ever since its inception in late 2022. At the same time, the importance of the cycle on the broader economy cannot be understated.
In fact, the AI cycle was the main reason why rate hikes by the Fed didn’t cause an economic slowdown. With post-Covid deficits by both Biden and Trump also aiding the economy, in classic Keynesian deficit-spending fashion.
Now the process is maturing and past the early stages in its life cycle. We mapped out the boom/bust process in a piece from 2024 — using Sorosian boom/bust analysis to understand the process and its flaws.
Note: The flaws are the most important part of the analysis.
The flaw we outlined then, recently started to make headlines.
How much value does AI really create?
The Bust 🔻🔄
The cycle is starting to reverse.
The first hit was Oracle and their terrible OpenAI RPO deal — with the sharp reversal of their share price. We wrote about this in Wake Up Call.
Now, while the marginal rate of development in AI is slowing — expectations of what AI can achieve are actually accelerating.
But I recently observed something even more interesting.
As marginal development in AI is tapering — expectations of AI effects in the real economy are accelerating. Refer to the recent software stock selloff as an example.
We recently published a thought piece to touch on a few misplaced narratives that we see the market adopting.
Almost anyone can linearly extrapolate the present into the future, drawing extreme conclusions that don’t stand the test of time.
But value comes from the times you have variant perception and act on it intelligently — not by telling everyone what they want to hear.
On Reflexivity
The Soros-FinTwit Effect
A phenomenon where a sophisticated theory (e.g. reflexivity) becomes widely cited in online finance circles, while genuine understanding of its mechanisms declines as popularity increases.
This is a phenomenon I observed on X a long time ago.
I recently identified an interesting reflexive connection between the cycle of AI and the economy. The connection can be both positively and negatively reinforcing to the cycle — and that’s what makes it special and complicated.
The outcome will be decided by which of the two effects of this reflexive connection will win out. Honestly, things could get crazy from here.
I will share my thoughts on it in this upcoming piece for subscribers — where we will first map out the reversal of the AI cycle and how it connects to the broader economy.
Philo 🦉