Speaking on the Peter Schiff Show podcast, the economist and longtime Bitcoin critic said AI trading opened up this week even as broader indexes held up. Alphabet fell 10% after the company announced higher capital spending than investors expected. Oracle fell nearly 8% for the week and is now down 41% for the year. Meta fell 7.3%, Amazon fell 6.8% and Microsoft fell 2.7%, pushing its year-to-date decline to 19.3%, close to bear market territory.
Schiff said the market reaction marks a change from previous quarters, when hyperscalers announcing bigger artificial intelligence (AI) budgets typically saw their stock prices rise. “Investors are finally starting to question whether these investments are actually going to pay off,” he said.
SpaceX and Tesla pay the price
SpaceX shares fell another 7.7% during the week and are now trading 49% below the post-IPO high. The company’s free float is expected to increase from 5% to 40% of shares by the end of the year, a change that Schiff said could increase pressure on the stock.
Tesla has fallen 18% in the same period and is 35% below its 52-week high. Combined, the declines of Tesla and SpaceX cost Elon Musk nearly $100 billion in a single week, according to Schiff’s estimates.
A dot-com comparison
The gold proponent and economist likened the roughly three-quarters of a trillion dollars in annual capital spending on AI to the buildup that preceded the dot-com crash. He said many of the early Internet favorites that investors poured money into ultimately went bankrupt without ever recouping their expenses. He doesn’t doubt the long-term potential of AI, but says markets are overestimating short-term returns on hyperscaler investments.
Japanese bond market under pressure
Schiff highlighted Japan as a bigger and more immediate risk than the AI sell-off. The yen fell to its lowest level against the dollar in 40 years. The yield on 30-year Japanese government bonds closed at almost 4%, a record for that maturity, while the yield on Japan’s 10-year bonds climbed to levels last seen in 1996.
Japan’s public debt exceeds 200% of gross domestic product and the country’s benchmark policy rate remains at just 1%. Schiff said the Bank of Japan faced a choice between aggressively raising rates, which could trigger a domestic recession and a wave of capital repatriation, or remaining passive and risking a currency collapse. Either path, Schiff emphasized, has consequences for the United States.
Japan holds more than $1.1 trillion in U.S. treasures, the largest foreign holding of any country. Schiff said a Japanese debt crisis could force a large-scale sell-off of the position. “This may be the pin that pricks our bubble,” he said of Japan’s situation relative to the U.S. economy. Schiff added:
“The bursting of the Japanese bubble ends up puncturing the even bigger American bubble. »
U.S. Treasury Yields Hit Multi-Decade Highs
The 30-year U.S. Treasury yield closed the week at 5.16%, its highest level since 2006, while the national debt topped $39.6 trillion. Schiff noted that the government is carrying more than four times more debt than it held in 2006, making current borrowing costs harder to absorb than the last time yields were this high.
Oil, gold and inflationary pressure
Oil prices soared above $100 per barrel and rose about 30% in July alone, driven by Iran-related tensions. Schiff said the increase virtually guarantees a higher reading in the consumer price index when July data is released in August.
Gold rose about 1% for the week despite rising bond yields and oil prices, a combination Schiff called remarkable given gold’s recent inverse relationship with oil since the start of the Iran conflict. Mining stocks outperformed the metal, with the GDX index up 5.6% and the GDXJ up 5.8%, a move Schiff interpreted as a possible signal that a bottom is forming in the sector.
The labor market and Trump’s tariffs
Schiff also took issue with the Trump administration’s framing of a recent decline in weekly jobless claims to 187,000, arguing that the growth of gig work and weak hiring trends make that indicator far less meaningful than in previous decades. Separately, he criticized new tariffs imposed on some 60 countries under a provision of the Trade Act of 1974 targeting products linked to forced labor, calling the policy an unconstitutional tax that ultimately falls on American consumers rather than foreign governments.