The AI narrative is BS and here is why!
I dont see anyone talking about is.
I think this answers the question about where the AI liquidity came from.
The Nasdaq has followed the central bank liquidity (the pink line) since the end of the covid crash in March of 2020. But in March of 2023, a divergence where central bank liquidity has gone down while the AI bull run took off. The money flowed into mainly 7 stocks - Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta.
We can see when SVB and Republic bank failed in March of 2023 a new liquidity arrived to the market - Bank Term Funding Program (the blue line), which is money loaned to other troubled banks. Small and midsize banks are taking billions of loans from the Fed reserves every week and we can see the strong correlation between the Nasdaq rise and the beginning of the Bank Term Funding Program in March of 2023. The money flowed into the 7 AI stocks and the media created a AI narrative around it.
Why did money flow into these stock? My theory is that these stock compose of a huge percentage of the Nasdaq market cap 55%. So there is plenty of buyers and sellers waiting at any point in time. So the big players can sell their position as the market goes up, the summer months are low volume, which makes the market is easier to move up or down, and there was a short squeeze with tons of put positions (short covering took place).
So what happens if or when the Bank Term Funding Program ends?
What happens if these banks slow down on taking these loans?
It seems pretty clear that there is going to moved down in the market when this program comes to an end and the fed is still reducing their liquidity.
I think this answers the question about where the AI liquidity came from.
The Nasdaq has followed the central bank liquidity (the pink line) since the end of the covid crash in March of 2020. But in March of 2023, a divergence where central bank liquidity has gone down while the AI bull run took off. The money flowed into mainly 7 stocks - Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta.
We can see when SVB and Republic bank failed in March of 2023 a new liquidity arrived to the market - Bank Term Funding Program (the blue line), which is money loaned to other troubled banks. Small and midsize banks are taking billions of loans from the Fed reserves every week and we can see the strong correlation between the Nasdaq rise and the beginning of the Bank Term Funding Program in March of 2023. The money flowed into the 7 AI stocks and the media created a AI narrative around it.
Why did money flow into these stock? My theory is that these stock compose of a huge percentage of the Nasdaq market cap 55%. So there is plenty of buyers and sellers waiting at any point in time. So the big players can sell their position as the market goes up, the summer months are low volume, which makes the market is easier to move up or down, and there was a short squeeze with tons of put positions (short covering took place).
So what happens if or when the Bank Term Funding Program ends?
What happens if these banks slow down on taking these loans?
It seems pretty clear that there is going to moved down in the market when this program comes to an end and the fed is still reducing their liquidity.