Name: AI, credit bubbles ‘cracking’, gold and defense seen as safe bets
Uploaded: 2025-11-19T03:18:07.133Z
Duration: 5 min 33 s
Description: David Roche told CNBC the AI and credit bubbles are starting to crack, warning of rising economic risks. He said the damage won’t mirror 1929 due to likely policy support but urged investors to shift toward safety, highlighting gold and defense stocks as the most reliable plays.

David Roche told CNBC the AI and credit bubbles are starting to crack, warning of rising economic risks. He said the damage won’t mirror 1929 due to likely policy support but urged investors to shift toward safety, highlighting gold and defense stocks as the most reliable plays.

New York

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Rise of AI

Recent analysis highlights emerging cracks in two major financial bubbles: non-bank financial credit and artificial intelligence (AI) assets in the United States. The scale of U.S. non-bank credit is nearly four times the country's annual GDP, and AI investment is seen as unsustainably high compared to China, raising concerns about economic repercussions if these bubbles burst.

Experts suggest that the potential fallout could be more severe than the dot-com bust, possibly resembling the 2008 housing crisis due to the broader impact on credit and the real economy. In response, wealth protection strategies are shifting toward hard assets like gold and defense stocks, while skepticism grows around equities and bonds. Additionally, political efforts to exert greater control over the Federal Reserve are viewed as negative for the U.S. dollar.

AI, credit bubbles ‘cracking’, gold and defense seen as safe bets

Well, I think the bubble has started to burst. And the bubble is in two areas. One is credit, which is non-bank financial credit, which is now in the United States nearly four times annual GDP. And the other is, of course, the well-known asset bubble of AI, which is not saying that AI is not useful or productive. It's saying that the amount of capital being put into it in the United States compared to China makes the U.S. pricing look absurd. And I think that amount of capital will not be remunerated. So I think those two bubbles are starting to crack. So this is the beginning of something which could have serious economic consequences, because the damage to credit and credit transmission is key to whether a bubble really hurts the economy or not. And I think the AI optimism and AI itself pervades the economy so deeply, like really arteries in a human body, that if the outlook for that is changed, it's not going to be like the dot-com bubble. It's far more economically relevant. So that's my dominant thinking about the economy. Of course, I think about a lot of other things, too. Yeah, yeah, which we can talk about, David. But look, I was going to just ask you, if you do see bad things happening with this whole AI trade, are we talking about another dot-com bubble and bust, or are we talking about 1929? I mean, some people have, they've been starting to draw those kinds of comparisons as well. No. Martin, I'm sorry to be so cheerful, but no, I can't go to 1929. And I'll tell you why. It is because the third chapter, first you have to look at credit, second you have to look at the size of the bubble and what damage it could do to the economy. But the third chapter is the policy response to bubbles. Now, I think we are not looking at 1929 because the policy response back there was to tighten budgets, return to the gold standard, and basically deflate the economies, putting on lots of trade tariffs. So that echoes today. But no, we're not going to repeat that if the bubble bursts, because the Fed will ease, fiscal policy will ease, and so on. Where I think it is not like is like the dot-com bubble, which was really isolated within the dot-com sector. Credit wasn't harmed and the economy wasn't greatly harmed. There was, what, one down quarter for the US GDP? I think that is a little bit too mild. The more serious aspect, I think, it's more like the housing bubble burst in the United States, the 2008 recession, in terms of the damage to credit and in terms of the damage to the real economy. And that, of course, was a much more serious affair. And I think we are looking more at something like that. Oh, dear. OK, so what are you selling investors to do? What should they be doing? Well, you know, my own portfolio is very wealth protection oriented. So there's a lot of hard assets in there. There are things like gold, and we can talk about gold as another chapter. But I think that is a core to any portfolio. There are things like oil and real assets like certain metals. If you can get hold of strategic metals, good luck to you. But that would obviously be a place I would still be. I would be very negative on equities personally, except for defense stocks and stocks which I can see really benefiting from the lack of a new world order which is emerging. So kind of nuclear defense and traditional defense stocks would be very core to the portfolio. And I would be negative generally worldwide on bonds, partly because of the cost of defense, but partly also because I think the policies in most countries point to much higher deficits and an ongoing question mark over the sustainability of sovereign debt in the United States, much of Europe and certainly Japan. And David, we've got some commentary. This is actually U.S. Treasury Secretary Scott Besson speaking to Fox News saying that President Trump may announce the next Fed chair before Christmas. And not that we didn't really see this coming or anything, but all these efforts to somehow mute the power, the influence of the Federal Reserve. Is that part of the mix for your views? Oh, very much so. I think that all populist governments want all the institutions of state to be subjugated to their control because that's the only way they can finance their often absurd and certainly profligate policies. So the Trump administration in the United States is no exception. They want to bring the Fed under their control and they're doing it piecemeal by piecemeal. So that endeavor to actually control the appointment of governors to the FOMC, both rotating governors and who get renewed next year, and also the current FOMC, plus to try and get Powell to look like he's a loser, which he's certainly not. I think all of that is part of a plan to subjugate the Federal Reserve and the determination of interest rates and monetary policy to political control. And it is very negative for the dollar.

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AI, credit bubbles ‘cracking’, gold and defense seen as safe bets

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