PodcastAdam Taggart | Thoughtful Money®Jim Iuorio

AI Bubble + Rising Rates = Time For Caution | Jim Iuorio

The discussion weighs AI’s potential to drive productivity against the risks of weak returns, reduced capital spending, worker displacement, and a concentrated market rally. Speakers also examine oil’s inflationary shock and possible later economic drag, alongside fiscal policy and other growth factors. Iuorio flags low volatility and narrow equity leadership as risks, while outlining conditions that could bring Fed intervention or rate cuts and affect bonds and debasement-trade assets.

Artificial IntelligenceMarket ValuationsMarket BreadthInterest RatesInflationOil

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Key Takeaways

The speakers see AI as both a potential economic engine and a source of downside risk: Iuorio says it is a major, lasting disruptive force, but warns that if companies do not realize meaningful returns, technology executives may cut capital spending. He and the host say an AI stumble could weaken both AI-related investment and the wealth effect, while AI investment and data-center construction are inflationary even as productivity gains and job replacement could become disinflationary over time.

The host worries AI and robotics could displace millions to tens of millions of workers over the next decade and argues that support should extend beyond UBI to include transitional assistance and meaningful work. Iuorio offers a more adaptive possibility, saying people may find new activities or start businesses faster than expected, as supply routes were rerouted more quickly than analysts anticipated.

Iuorio says the AI-led market is vulnerable because leadership is unusually narrow: seven stocks represented 35% of S&P market capitalization in May, and Micron and Nvidia were projected to account for a third of Q3 earnings growth. He also points to weak breadth, a 300% eight-week rally in Micron, and his finding that many corrections of 20% or more begin with the VIX below 20; he cautions that these signals do not identify when a correction will occur.

Iuorio describes an oil shock as initially inflationary through higher input costs, especially diesel, but potentially recessionary and disinflationary after roughly 8 to 14 months as elevated prices drain spending. Conversely, he says the economy could gain momentum if oil falls another $10 or $15, alongside support from small-business expensing, deregulation, and foreign direct investment.

TECHNOLOGY

AI Returns — The speakers say they have heard few reports of large profit gains from companies adopting AI. Jim Iuorio argues that if those returns fail to materialize, technology executives may cut capital spending. He also says he believes AI is a major disruptive force that will be around for a long time.

“I'm not hearing like a ton of stories and earnings calls like oh we adopted AI and bam our corporate profits went up by 20%…”—

ECONOMY

Worker Displacement — The host worries that AI and robotics could displace millions to tens of millions of workers over the next decade, with no easy next step for them. The speakers call for a national discussion of support beyond UBI, noting that people want meaningful work and transitional assistance can help.

“I do worry that, you know, for the tens of thousands of, you know, certainly service jobs, the kind of low-skll service jobs that employ a lot of people in…”—

Fed Balance Sheet — Jim Iuorio says the Fed had increased its balance sheet by $200 billion through Treasury bill purchases that facilitated Treasury bill sales. He says the activity seemed to have leveled off over the prior month, but the Fed was not shrinking its balance sheet.

“The Fed started increasing its balance sheet buying shortend notes I mean bills whatever like eight months ago they've increased it by 200 billion dollars their balance sheet by buying…”—

Warsh’s Policy Thresholds — Iuorio says he believes Kevin Warsh is serious about his stated approach, but a severe market and economic shock could change his course. He says the 10-year yield would need to approach 5.5%, the Nasdaq to fall 35%, the S&P 25%, and the economic outlook to deteriorate substantially.

“I believe that Kevin Warsh is serious when he says it. And I believe there is a there is a significant chance that he means every word of it…”—

MARKETS

AI Market Risk — Iuorio calls the AI trade a bubble but cautions that identifying a bubble does not show when it will burst. He says AI is driving the economy and stock market, citing weak breadth, unusually concentrated S&P market capitalization, and Micron and Nvidia accounting for a projected third of Q3 earnings growth. He sees narrow leadership as leaving the market vulnerable to a material correction if that group falters.

“I argue that this is a bubble, which by the way, that opinion means nothing because you can identify a bubble as it's inflating and still be 3 years too…”—

Low VIX Risk — Iuorio says his research indicates that most corrections of 20% or more begin when the VIX is below 20, often around 15 or 16. He sees a low VIX as a sign that investors may not be adequately recognizing or hedging risk, and says he responds by adding puts.

“I'm not sure how well it works anymore considering that everybody trades options and I think it might be obiscating the signals a little bit that come from the VIX…”—

Micron Risk Management — Iuorio says Micron's 300% rally in eight weeks was abnormal and that his statistics showed the market had moved far and fast. He describes replacing his SMH holdings with a defined-risk options position while retaining the potential to gain exposure if the market rises another 10%.

“And so the point is that people who didn't understand that, you're not supposed if you know trade options, you're not supposed to understand it…”—

FORECASTS

Yield Intervention — Iuorio believes the Fed could step in to compress long-term yields if they reach roughly 5.3% to 5.4%. He sees a strong possibility of intervention, but says it is neither a high-conviction view nor an immediate certainty. If the Fed buys long-end bonds, he expects gold, silver, real estate, farmland, and platinum to become attractive again as debasement-trade assets; he is less certain about Bitcoin.

“But here's what's long been my thesis is that I believe that yields will get to such a point and is it 5.3 is it 5…”—

2027 Rate Cuts — Iuorio says he thinks the Fed will lower rates about four or five months into 2027.

“And what I think is they will be lowering rates probably by about four or five months into 2027.”—

How Jim sees the economy and the markets right now

Iuorio characterizes the economy and market as increasingly driven by the AI boom, while warning that narrow market breadth and accelerating yields make conditions unusually risky.

The AI mania and the relentless rise in the 10-year

He calls AI a potentially bubble-like mania and says the persistent rise in 10-year yields reflects deficits, inflation concerns, foreign dollar shifts, and competition for investment capital.

Stay invested, but pigs get slaughtered

Iuorio recommends staying invested selectively rather than abandoning the rally or letting gains ride unchecked, emphasizing profit-taking and the danger of greed.

Four reasons long-term yields are climbing

He identifies heavy government borrowing, inflation, foreign central-bank diversification, and AI investment demand as forces behind rising long-term yields.

Why both forces at once make him more uncomfortable

Having both an AI-driven market mania and climbing Treasury yields makes him more uneasy than either risk would alone.

Carrying more puts and trading more cautiously

Iuorio is carrying more protective puts and trading cautiously while retaining exposure, because yield pressure adds a warning sign to the AI rally.

Are we in 1997 or early 2000 of this bubble?

The speakers say it is impossible to know whether the AI boom resembles an early bubble phase or is much closer to a major reversal.

Dancing closer to the exit while the music plays

Iuorio's approach is to keep participating in the rally but manage risk, take profits, and stay closer to an exit than an all-in investor would.

Low VIX readings and when big corrections tend to start

He says major corrections often begin when VIX is relatively low, suggesting investors may be underpricing risk and neglecting protection.

Capping downside in SMH after the Micron melt-up

After large gains in Micron, AMD, and chip stocks, Iuorio replaced his SMH position with options that define downside while preserving some upside.

Seven stocks at 35% of the S&P, worse than 2000

The speakers note that a handful of mega-cap companies account for an unprecedented share of S&P capitalization and earnings growth, leaving the market vulnerable to setbacks.

The music will stop; his 8-to-18-month guess

Iuorio expects the rally's momentum eventually to end, guessing that a meaningful break could be eight to 18 months away without claiming precise timing.

Margin quality, and why mom-and-pop leverage isn’t here yet

He watches who is using leverage, arguing that institutional margin is different from widespread household speculation and that mom-and-pop borrowing has not yet reached past-bubble levels.

Record equity exposure, especially among older investors

The host flags unusually high retail equity exposure, especially among older investors; Iuorio says aggregate margin data alone cannot show whether households or institutions are taking the risk.

Zero-day options as a short-term volatility threat

Iuorio believes retail investors are more sophisticated than in earlier bubbles, though easier access to options may also encourage speculation and dangerous leverage.

Yields: worried they go higher, but doesn’t believe they will

He argues that zero-day options can amplify short-term volatility without necessarily creating systemic risk, since reckless traders may be forced out before imbalances build.

Bessent, Fed bill buying, and a soft cap near 5.5%

Iuorio worries about yields rising but doubts they will climb indefinitely, citing Treasury actions, Fed bill purchases, and the possibility of intervention near 5.5%.

Gold, silver, and the debasement trade if the Fed buys bonds

If the Fed buys long-dated bonds, he expects gold, silver, and other debasement-sensitive assets to benefit, with Bitcoin a less certain possible participant.

Does Warsh mean it, or does he get punched in the face?

He thinks Treasury Secretary Scott Bessent could exploit a natural reversal in bond shorts, while the Fed has far more capacity to cap long-term yields.

His pain threshold: 5.5% yields, Nasdaq down 35%

The host questions whether Kevin Warsh would support bond buying; Iuorio says Warsh may mean his discipline-first stance but could change course after a severe shock.

Is AI actually showing up in corporate profits?

Iuorio believes a combination of 10-year yields near 5.5%, a 35% Nasdaq decline, and a much weaker economic outlook could prompt Fed intervention.

Jobs lag, dog groomers, and Keynes on displacement

The host argues that an AI downturn could hit growth twice through both reduced capital spending and a diminished wealth effect; he asks whether AI is lifting corporate profits.

Oil now, disinflation by the second half of 2027

Iuorio sees AI productivity gains emerging and believes the technology is a lasting force, while cautioning that investors should diversify rather than assume the AI stock trade lasts.

Why he still likes gold after selling into the January spike

They discuss job displacement: Iuorio expects new work to emerge over time, while the host worries rapid AI and robotics adoption could leave many workers without an obvious next step.

France, Japan, and a yen-carry contagion risk

They expect oil's inflationary shock to give way to disinflation as high prices weaken demand, delayed rate effects arrive, and AI productivity gains eventually outweigh buildout costs.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

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