Treasury Yields, AI Drive Reverse Current

Professor Kim Kwang-suk compared economic phenomena to "mokse," where sand accumulates carried by waves. He defined "reverse current" as the phenomenon where sand accumulates in places other than where it usually would.

This concept emphasizes that the path of wealth accumulation has changed in response to shifts in economic conditions.

The biggest issue in the current economic market is Treasury yields. As discussed in the already uploaded 'Kyungiknam Signature Lecture,' the economic significance of the Treasury bond turnover phenomenon is very substantial.

Through a specific analysis of this phenomenon, we will deeply examine the impact of Treasury yields on the market. This aims to re-evaluate market trends based on the points mentioned earlier.

The structural factor driving the rise in Treasury yields is also this turnover.

As the U.S. Federal Reserve reduces its proportion of Treasury holdings and this volume is acquired by the private sector, upward pressure on interest rates intensifies.

The private sector demands much higher interest rates than the Fed, and BIS research shows that if the Fed sells $200 million in Treasury bonds, interest rates rise by 0.1 percentage point during private absorption.

This turnover phenomenon acts as a key factor driving the structural increase in Treasury yields.

As the main investment entity shifts from the central bank to the private sector, there is a high probability that a high-interest-rate structure will become entrenched, given the private sector's characteristic of demanding sufficiently high interest rates compared to other assets.

SK Hynix around October 27, and big tech companies including ASML and TSMC, are scheduled to announce their earnings at the end of this month. In addition, SK Hynix around October 27, ASML, TSMC, and major big tech companies plan to announce their earnings at the end of this month.

Like Micron's earnings soaring by 379% year-on-year, semiconductor companies' performance now holds macro-economic influence comparable to national economic indicators.

Micron's 379% year-on-year earnings surge demonstrates the ripple effect of the semiconductor industry on the overall economy. Polarization in fundraising and investment capabilities between the AI value chain and other companies is deepening.

Currently, in a high-interest-rate environment, funds are flocking only to a few companies in the AI value chain, while general companies are facing difficulties in bond issuance and fundraising.

This is analyzed as funds flowing in a reverse current to the AI value chain, contrary to traditional economic logic. Even amid a low-growth trend, capital concentration in specific highly profitable sectors is prominent.

Considering the geopolitical realities of the U.S.-China hegemonic war and fierce technological competition between companies, along with the prisoner's dilemma, it is difficult to artificially slow down the pace of AI development.

Amid fierce technological competition among companies and the reality of the U.S.-China hegemonic war, an artificial halt to technological development is almost impossible.

Arguments for controlling AI speed differ in their stated reasons and true intentions based on companies' financial situations, and agreements are difficult due to national interests at stake for each country.

In conclusion, AI technological competition is expected to accelerate further.

By introducing legal and ethical algorithms, such as research guidelines after the Dolly the sheep cloning or the Chemical Weapons Convention, the indiscriminate spread and misuse of AI can be sufficiently controlled. Past examples mentioned for controlling indiscriminate spread include research guidelines after the Dolly cloning, the Chemical Weapons Convention, and the Montreal Protocol.

Establishing ethical algorithms for AI to control technical risks is a realistic alternative.

The U.S. economic fundamentals show a robust trend that allows for further interest rate hikes. The U.S. unemployment rate remains around 4.2%, GDP growth for Q1-Q2 recorded 2.1-2.2%, and Q3 growth is projected at 2.3-3.7%.

This strength is limited to the AI value chain, while a recession persists in the general economic sector.

In conclusion, falling Treasury yields have a positive impact on all asset markets, including stocks and cryptocurrencies.

The current market situation is not moving in a positive direction as initially intended.

The administration itself is largely responsible for the major factors contributing to rising interest rates. Policy responses have failed, and the Treasury yield management system is broken.

The Biden administration's sanctions against Russia led to energy shocks and inflation. The 2024 Iran war also caused energy supply instability, pressuring interest rate increases.

Interest rate hikes intended to combat inflation, contrary to their aim, resulted in increased burdens for the general public.

An analysis suggests that the outbreak of the Iran war reignited energy instability and soaring international oil prices, moving away from an interest rate reduction environment. As a result, an era of high Treasury yields continues.

Professor Kim Kwang-suk predicted that if there had been no Iran war, major countries such as the U.S., UK, Korea, and the Eurozone would currently be cutting interest rates, and Japan would have found it difficult to implement further rate hikes.

Professor Kim Kwang-suk expressed a skeptical view that not all administrative actions and policy decisions unfold as intended. He cited the example of the Biden administration's economic sanctions against Russia, which were expected to stop the war but did not.

The complexity of policy intentions and outcomes not aligning is also evident in the Trump administration's policies and the situation after the assassination of Soleimani.