The mother of all busts: Jim Walker on why US exceptionalism is running out of steam – News Air Insight

Spread the love


For years, the bull case for US markets rested on a simple foundation: American exceptionalism. Superior growth, dominant technology companies, and the unrivalled reserve status of the dollar. Jim Walker, Chief Economist at Aletheia Capital, thinks that foundation is cracking — and that equity markets have simply not caught up with the reality yet.

“Our year-end strategy report was called the Mother of all Busts,” Walker told ET Now. “And we are still heading into that — not in the sense of the stock market, but bust egos, bust capital expenditure plans, and I am afraid bust economic growth.”

Tariff chaos is burning another year

Walker’s near-term concern centres on the ongoing uncertainty surrounding US trade tariffs. Under current rules, the administration can impose a 15% tariff for only 150 days before being required to shift to a different legal mechanism — a technical constraint that virtually guarantees policy will remain in flux for the foreseeable future.

The economic cost of that uncertainty is not abstract. Walker argues that businesses do not wait for bad policy; they respond to unclear policy. When investment decisions cannot be made with confidence, they are simply deferred. Deferred investment means slower hiring, slower capacity expansion, and ultimately slower growth.

“There is going to be no clarity on these tariffs certainly for the next six months,” he said. “This is another year wasted where people are just going to anticipate uncertainty — and uncertainty equals lower investment, which means lower growth.”

The dollar is already telling the story

One of the more striking elements of Walker’s view is where he says US exceptionalism is already visibly deflating: the dollar. While US equity indices have remained broadly resilient, the gold price — which he views as a mirror image of dollar confidence — has been signalling stress for some time.

The dollar’s global role, Walker argues, is on a structural downtrend. That is a significant claim. The dollar’s reserve currency status has underpinned decades of cheap US borrowing, persistent current account deficits, and the ability to run large fiscal gaps without immediate market punishment. A genuine erosion of that status would have consequences far beyond currency traders.

Big tech’s capital plans don’t add up

Perhaps Walker’s most pointed argument concerns the investment ambitions of America’s largest technology companies. The scale of capital expenditure being discussed — on data centres, AI infrastructure, and computing capacity — is, in his assessment, simply not executable given the physical constraints the US economy faces
.
Electricity supply and skilled labour are the binding constraints. The US grid is not being built fast enough to power the AI infrastructure that Big Tech is promising. The pool of engineers and technicians required to construct and operate that infrastructure is not large enough to meet projected demand on the timelines being discussed. These are not financial constraints that can be solved by raising more capital — they are real-world bottlenecks.

“The economics of impossibility,” is how Walker described it. Markets, he believes, have not yet priced in the likelihood that these capital plans will disappoint. When that reassessment arrives, it will force a broader rethink of US equity valuations that have been substantially built on the assumed profitability of this AI-driven investment wave.

When does reality set in?

Walker does not offer a precise timeline for when equity markets will begin reflecting what he sees as a deteriorating fundamental picture. The resilience of US stocks in the face of macro headwinds has surprised many — himself included, implicitly. But his view is that the eventual reassessment is a matter of when, not if.

The triggers he is watching are familiar: earnings delivery against the enormous expectations baked into large-cap tech valuations, signs of electricity and labour bottlenecks visibly slowing AI infrastructure build-outs, and any evidence that dollar weakness is beginning to affect the cost of US capital more meaningfully.

For global investors, the read-through is significant. If Walker is right, the world’s largest equity market may be approaching a period of painful mean reversion — and the capital that flows out of it will need somewhere to go.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *