The Anatomy of AI Illusions: A Forecast for 2026–2028❗️Disclaimer: This idea is part of a larger series regarding capital market bubbles. To fully grasp the context and depth of this analysis, please refer to the core article: 🎈The Five Bubbles of Technocracy .
A quick heads-up: You are about to encounter a wide range of information—from specialized banking mechanisms to crypto and mass psychology. I hope not to overwhelm you with theory, but to see the coherent structure behind the market chaos, we must briefly dissect each of these layers. Without this groundwork, the panoramic picture of the coming shifts simply won't click into place.
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🩻 Anatomy of AI Illusions: What Really Drives the Market?
To understand the outlook for 2026–2028, we first need to dismantle the current "bull" trend and see how it was built. This isn't random growth—it’s the work of a finely tuned machine where every gear has a role. In this article, we will step-by-step deconstruct the entire process: from hidden banking transactions to fundamental signals of overheating. Here are the main stops on our route:
🏦 The Multiplication Mechanism: We’ll analyze how Reverse Repo (RRP) operations created a foundation for bank liquidity between 2023-2025 where it seemingly shouldn't have existed.
♻️ Corporate Buybacks: We’ll look at how companies support their stock prices via "artificial respiration" by repurchasing their own shares.
🛡️ Isolated Macro-Zones: We’ll evaluate the global transition toward a new model of closed economic blocs.
⛩️ The External Detonator: We’ll discover why the Japanese Carry Trade and the Eurodollar system are the primary factors to watch.
📊 The Four Horsemen of the Apocalypse: We’ll study three key indicators (Buffett, Shiller, and the Confidence Index) that reveal the true "boiling point" of the market at the end of 2025.
Finally, we will move to the 📈 Main Chart Analysis and peek into the 📅 "Narrow Bottleneck" of 2026 .
⚡ The Engine Under the Hood: QE, Buybacks, and Liquidity
For those still searching for the truth in quarterly reports and believing the mainstream news cycle, this chart will be a cold shower. In Western capital markets since the 2008 financial crisis, there has been only one true growth driver: Liquidity. Everything else is just stage dressing.
Liquidity is the primary fuel for capital markets, but all fuel has a limit. For the liquidity that drove the markets over the last two years, that limit is here today. To understand the trap we will find ourselves in by 2026, we must expose the mechanics of the "success story" of recent years. Why did the stock market hit record highs while the liquidity index was stagnating? The answer: the media-driven AI revolution narrative and the Reverse Repo (RRP) facility—a "hidden pump" that worked at full capacity but is now starting to "suck air."
Chart Legend:
🔴 Red: Reverse REPO — The "Stash"
🔵 Blue: S&P 500 Index
⚪️ White: Market Cap of "Selected" Crypto
🟡 Yellow: GLI — Global Liquidity Index*
*In this version of the GLI indicator, the influence of Chinese liquidity ( PBoC and CNM2) is excluded.
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🏦 The Multiplication Mechanism: RRP as the Foundation for Banking Maneuvers
It is crucial to understand that the draining of liquidity from the RRP between 2022-2024 served not only as a direct market injection but also as a critical stabilizer for the entire banking system . In modern financial architecture, banks are not just intermediaries; they are “factories” for creating money out of thin air through lending, complex derivatives, and other legalized maneuvers.
As the $2.5 trillion "stash" accumulated in 2021-2022 flowed from the Repo facility into bank reserves, it provided the necessary "margin of safety," allowing financial institutions to inflate leverage and maintain the illusion of stability. However, now that this stabilizer is exhausted, banks are left without insurance in the face of a massive debt bubble. Without "cheap money" or RRP/QE injections, the money-creation mechanism breaks down, turning the banking sector from a growth driver into the epicenter of a future systemic shock.
♻️ Corporate Cannibalism: Buybacks as Artificial Respiration
Beyond the banking multiplier, massive share buybacks have been a vital fuel for inflating bubbles. In 2023–2025, US corporations—having amassed huge cash reserves in previous "fat" years (QE 2020)—directed record sums toward repurchasing their own shares.
This creates a closed loop: companies spend liquidity not on expanding production or real innovation, but on artificially reducing the number of shares in circulation. This "paints" a beautiful Earnings Per Share (EPS) figure even when revenue is stagnant, creating forced demand and preventing indices from falling. Buybacks act as an internal stabilizer, but this resource is not infinite. Like the RRP stash, the cash reserves for buybacks are depleting, leaving companies defenseless against the coming correction.
🛡️ The Birth of Isolated Economic Macro-Zones
In this version of the GLI indicator, I have deliberately excluded the influence of Chinese liquidity (PBoC and M2 money supply). In the era of hybrid World War III and aggressive trade restrictions, the old "communicating vessels" model has stopped working. If previously a rise in the Chinese credit impulse automatically lifted all boats, including the S&P 500, today we are witnessing a deep financial fragmentation. Chinese liquidity is now "sterile" for Western markets: it is trapped inside the PRC to combat an internal deflationary crisis and no longer feeds US tech giants as it once did.
This "sanitary cordon" between US and Chinese capital is leading to the creation of Isolated Economic Zones . The US market is turning into an autonomous addict, hooked exclusively on the internal needles of the Fed and the Treasury. This means no help is coming from the outside: when the internal "stash" of the RRP runs dry, the US system finds itself in an absolute vacuum. This factor makes the upcoming "narrow bottleneck" of 2026 inevitable—the US authorities no longer have an external donor capable of financing their next round of consumption.
⛩️ The External Detonator: The Japanese Carry Trade and the Eurodollar System
While all eyes are on the Fed and the White House, another, far more powerful detonator has activated on the horizon: the Japanese Carry Trade. For decades, Japan has been the global donor of cheap liquidity: investors borrowed Yen at near-zero rates and flooded that money into US Treasuries and Tech, collecting a lazy 3-5% annual yield. Today, this volume has reached 25-year highs, and the rules of the game are changing:
Capital Returning Home: As Japanese 30-year bond yields TVC:JP30Y hit critical levels, a massive amount of capital is beginning its evacuation. Investors no longer see the point in taking USD risks when they can get guaranteed yields in Yen.
The Blow to the Eurodollar: The collapse of the carry trade means a forced, massive sell-off of US assets. This undermines the foundation of the entire global Eurodollar system. When Japanese capital exits dollar instruments to cover losses or lock in profits, a liquidity deficit arises that cannot be covered by internal injections alone.
Chain Reaction: This is the external trigger that could turn the "bottleneck" of 2026 into an uncontrollable catastrophe. If high interest rates, a turned-off "printing press" (QE), and a zero RRP balance represent a lack of free fuel, and GLI cyclicality is the "market's breath" (contracting the air in the system), then the break of the carry trade is a Category 5 hurricane hitting head-on!
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📊 The Four Horsemen of the Apocalypse: Overheating Indicators
To grasp the scale of the current "AI-idiocracy," looking at Nvidia or Microsoft charts isn't enough. We need to look under the hood, where four independent sensors are screaming about a critical overheat:
The Buffett Indicator: The market has swallowed the economy (250%). This ratio—total market cap to GDP—is Warren Buffett’s favorite "thermometer." Today, it shows a high-grade fever.
The Shiller PE Ratio (CAPE): This is the "truth serum" for the market, revealing long-term overvaluation.
The Consumer Confidence Index (USCCI): The voice of the "street." While Wall Street celebrates new ATHs, the American consumer feels like it’s 2008-2009.
NDQ/Gold Ratio: This ratio shows the real value of tech, stripped of dollar inflation.
1️⃣ The Buffett Indicator (Market Cap / GDP)
Warren Buffett believes that when the stock market becomes significantly heavier than the real economy, it’s a bubble. By late 2025, this indicator surged past 220%. This means the US stock market is valued at more than double what the entire US economy can produce in a year. Even during the 2000 Dot-com peak, this figure was much lower (~142%). Investors are buying miracles, ignoring physical economic limits.
2️⃣ The Shiller PE Ratio (CAPE Ratio)
Professor Robert Shiller suggests looking at average inflation-adjusted earnings over the last 10 years to filter out temporary hype. In 2025, the Shiller PE MULTPL:SHILLER_PE_RATIO_MONTH stands at 40.4. For context, the 100-year historical average is around 17. Stocks are currently twice as expensive as their fundamental value—levels seen only in 1929 and 2000.
3️⃣ Consumer Confidence Index (USCCI)
Since consumer spending accounts for nearly 70% of the US economy, this index is the best predictor of future profits. In 2025, we see a terrifying divergence: the stock market is hitting records (elite euphoria) while the USCCI has collapsed to 2008 crisis levels (mass depression). History teaches that Wall Street cannot feast for long while Main Street starves. When consumers stop spending, those sky-high corporate multiples will come crashing down.
4️⃣ NDQ/Gold Ratio — The Financial Lie Detector
When we value the tech sector in "hard" Gold rather than depreciating Fed "paper," the truth emerges.
The 1980s – 2000: The Era of Genuine Growth. From the late '80s, the Nasdaq-100 index and the NDQ/Gold ratio moved hand in hand. This was a period of true appreciation in technology's value relative to gold: rising from 0.30–0.50 to a peak of 17 ounces per index unit in the year 2000 . That was the moment when you had to pay 17 ounces of gold for a single "basket" of Nasdaq-100 stocks.
2000 – 2011: The Great "Scissors." After the Dot-com crash, the correlation broke. While the Nasdaq-100 was painfully struggling to recover, gold was rising much faster. By 2011, we reached a ratio of 1.15 — essentially, in 2011, one unit of the Nasdaq index and one ounce of gold were worth roughly the same.
2011 – 2021: Digital Revenge. A decade of cheap money allowed the Nasdaq to outpace gold once again, establishing a local peak at the level of 9.00 in 2021. But take note: this was nearly two times lower than the level seen in the year 2000.
Current Ratio Value (January 2026): 5.88. Today, the Nasdaq index in US dollars sits at the peak of the AI bubble, having gained +400% since its 2000 highs. But when we view it through the "Golden Filter," a striking picture emerges: the technology sector today is worth three times less than it was a quarter-century ago at the height of the Dot-com bubble, when measured in gold.
*️⃣ The Growth that Isn't There — "Negative Growth"
The fourth horseman confirms: the phenomenal post-2000 rise of the Nasdaq is not real value growth, but excess liquidity absorption . In gold terms, the Nasdaq hasn't even broken its 2021 local highs, let alone the 2000 peak.
Strategic Conclusion: 2026 will be the year of great disappointment for those who trusted screen digits while ignoring the streets. When the "financial scissors" close, the fall will be as rapid as the rise was artificial.
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📊 The Main Chart: Reading from Left to Right
1️⃣ 2021–2022: Honest Correlation
When Global Liquidity (GLI) stopped growing and the Reverse Repo (RRP) balance was being covertly pumped, markets fell. S&P 500 dropped -27%, and the cap of ETH+SOL+HBAR collapsed -77%. No liquidity = No growth.
2️⃣ 2023–2024: The Disconnect (RRP Steroids for AI)
While GLI* stayed flat for two years, markets went up. How? The Treasury spent the $2.5 trillion RRP "stash" $FRED:RRPONTSYD. This liquidity injection allowed OANDA:SPX500USD to surge +75% during the AI craze. Crypto recovery was selective; ETH+SOL+HBAR regained 2021 levels, but it was just an imitation of life fueled by Repo injections.
3️⃣ 2025: The Empty Trough and "Negative Alt-Season"
The $2.5T RRP stash is gone. In early 2025, reality hit. January 2025 saw a panic sell-off (S&P 500 -21%, selected crypto -57% in 40 days). Trump’s administration softened its stance to appease the market, and a brief recovery followed on buybacks. However, by late summer 2025, GLI* growth stalled, and ETH+SOL+HBAR immediately dropped -40%. Fact: Top-tier crypto has not grown since 2021—it has been sideways for four years. The rest of the "alts" are simply drilling into the bottom. This is the "negative growth" alt-season.
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📊 Fascinating Statistics: Top 7 Market Cap
1.NVDA: $4.6T
2. AAPL: $4.1T
3. GOOG: $3.8T
4. MSFT: $3.6T
5. AMZN: $2.5T
6. META: $1.7T
7. AVGO: $1.6T
Top 7 Combined = $22 Trillion
Global Stock Market Caps for Comparison:
1. USA: >$50T
2. China: ~$11T
3. Japan: ~$5.8T
4. India: ~$5T
5. UK: ~$3.2 trillion
Think about this absurdity: The top 7 US tech companies are now worth more than the markets of China, Japan, and India combined. It’s one thing to blow an AI bubble when the economy is healthy and rates are low. It’s quite another to drag the market to all-time highs in 2025 with the highest rates in 25 years, shrinking liquidity, and manipulated BLS statistics. The timeline for the "Technocracy" is tight, but even for a speculator, this level of delusion is unprecedented.
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📅 Outlook for 2026–2028: The "Narrow Bottleneck" and the New Architecture
1️⃣ 2026: Political Engineering and the Reset of Speculative Capital The political cycle dictates the rules. A probable Democratic comeback in late 2026 requires a repeat of the Republicans' 2022 "trick." For the system to enter a new cycle, it needs a deep purge.
▫️ The Mechanics of the Crash: Since the RRP balance is empty, there is nothing left to replace the falling Global Liquidity (GLI). From the start of the year, the US market enters a steep nose-dive.
▫️ Downside Targets: By year-end, the S&P 500 will collapse by -40%. The combined market cap of CRYPTOCAP:ETH + CRYPTOCAP:HBAR + CRYPTOCAP:SOL will plummet another -70% from current levels.
2️⃣ The New Market "Savior" and the Risk-OFF Trap
At the height of the 2026 crash, a new Fed Chair—the "Savior"—steps onto the stage. Their actions are predictable: aggressive rate cuts and the launch of the printing press (QE). However, initially, this won't stop the panic. The market, shocked by the sudden shift from Risk-ON to Risk-OFF, will continue to crumble. Capital will flee in terror—first into the USD, and then into the "safe haven" of long-term US Treasuries. This is a highly desired outcome for financial authorities, as only during a panic can the US national debt be refinanced relatively cheaply.
Early 2025, when Trump entered the Oval Office and initiated global tariffs, was the first attempt to flip the switch to Risk-OFF (where the 30-year yield TVC:US30Y dropped from 5% to 4.33%), but the equity crash was abruptly halted. Now, in early 2026, we will likely see a "flashback," where US indices begin to sharply bleed out against the backdrop of a potential government shutdown.
Knockdown Totals (from 2025 peaks to late 2026):
Crypto: -70-90%
Nasdaq-100: -55%
S&P 500: -40%
Russell 2000: -30%
Gold: -30% | Silver: -40%
DXY: +10-20%
TLT: +20-30% | TMF: +70-100%
The principle is simple: wherever the maddened crowd dumped the most speculative leveraged capital, the drawdowns will be the deepest.
3️⃣ 2026–2028: Matrix "Reloaded" and Bubble №4
On the ruins of the crash and the heavy sobering from AI hallucinations, the construction of a "new digital pillar" will begin. In 2026, the Technocracy will present a new narrative: "DLT/RWA (Tokenization of Real World Assets) will save us all." Under this banner, Wall Street will inflate the next bubble. At first, the battered masses won't believe in the growth, but as fresh liquidity is pumped in, the eternal mechanism of greed and FOMO will kick in. By the peak in ~2028, naive retail will once again go "all-in" with maximum leverage.
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🧩 Conclusion: Seeing the Structure Behind the Chaos
The period of "stunning success" provided by hidden reserves and financial acrobatics is over. The system stayed afloat through corporate "cannibalism" (buybacks), banking multiplier sleight-of-hand, and the burning of the RRP stash.
Today, all the fuses have blown. China is building its own isolated economic zone, US internal reserves are depleted, and the Japanese carry trade has turned into a high-explosive mine under the Eurodollar system. 2026 will be the moment of truth. This is not just a correction; it is a systemic "narrow bottleneck" required to reset the optimism of "dumb money" and prepare the ground for a new capital management architecture. For the Technocracy, a crisis is not a failure—it is a tool.
Speculative bubbles are the perfect psychological "carrot," turning the construction of total control infrastructure into a gambling game for the masses. No sane person would voluntarily finance the tools of their own surveillance. But when these technologies are wrapped as "stocks of the future" or "revolutionary AI," the crowd lines up to throw their savings into the capital pump. Retail greed becomes the main investor in building the walls of their own electronic stall.
From a systemic perspective, bubbles are a harsh economic necessity to sterilize excess liquidity . If trillions of "helicopter dollars" hit the real economy directly, they would destroy the system via hyperinflation. Bubbles act as a giant "steam whistle," pulling fiat mass away and locking it in overvalued assets. When the fever breaks and prices crash -50–80%, the "extra money" is burned off, clearing the system's balance sheet. The cynicism lies in the fact that the physical infrastructure built with those funds—factories, data centers, fiber optics, and algorithms—does not disappear . it remains in the hands of the Technocracy, fully paid for by the "young investors" who were just fleeced.
📉 SP500 Forecast for 2026
In short: after an expected drop of -40-50% (from 6900 down to ~4000) by late 2026 as the AI bubble bursts, the US authorities will likely begin inflating Bubble №4 (DLT/Tokenization). This cycle may take another two years, reaching its peak by early 2029.
Strategic Plan:
Recognize the Vacuum: Understand there is no "donor" left. Neither China, Japan, nor the US Treasury will provide another shoulder. Growth without fresh liquidity is a trap.
Endurance in the Epicenter: When the Risk-OFF regime burns everything in 2026, do not seek safety where the crowd is huddled.
The New Narrative: The real game starts in 2027–2028. While the masses mourn their losses, strategic capital will inflate Bubble №4 and then Bubble №5. The AI crash is just site clearance for the new technological order. In 2026-2028, institutional digital nodes will be created for the future system of global wealth tokenization.
The map of the future is drawn. While retail looks for reasons in news headlines, those who understand liquidity move into position.
Be the one who sees the structure, not the naive extra in someone else's play.
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❗️Disclaimer: This idea is part of a larger series regarding capital market bubbles. To fully grasp the context and depth of this analysis, please refer to the core article: 🎈The Five Bubbles of Technocracy
