The Stealth Recession Is Creeping Back, Even as AI Stocks Go for Broke

The economy is sneaking toward a second run at recession, even as GDP appears to be lingering positive. The monster never really left. It just hid behind tariff front-running.

Oct 06, 2025

At the start of the year, I was calling it a “stealth recession.” News today is that 22 states are fully in recession. Half of the rest are just “treading water,” and the remaining quarter or so are still hanging in there on the positive side.

The U.S. economy is very close to falling into a damaging contraction — and many states are already experiencing a recession, according to Mark Zandi, chief economist at Moody’s Analytics.

As a result, it is not too surprising, that only 2-in-10 people surveyed think Trump is doing a good job on the economy. That number, however, also means a good portion of Republicans think he’s doing poorly with the economy, which is a little surprising. A total of 74% of people polled rate the economy as either “fair” or “poor.” The Republican party, as a whole, however still ranks higher in almost everything than the Democratic Party.

“Who leads on the economy? Republicans by seven. Immigration? Republicans by 13. How about crime? A big issue for Donald Trump and the Republicans. Look at that lead, by 22 points!… So the bottom line is, at this particular point, the ball may be on the ground, but the Democrats have not picked up the ball and running [sic.] with it. If anything, at this particular point, it’s the Republicans who are running with the ball on the top issues, the economy, immigration and crime.”

Going for broke

In real terms of how the economy is impacting individuals, Chapter 7 bankruptcies for individuals are up by 15% for the first nine months of the year.

The sharp rise highlights mounting financial pressure on households, Michael Hunter, vice president of bankruptcy data provider Epiq AACER, said in the ABI statement.
“The growth in active Chapter 13 case inventory suggests more consumers are turning to bankruptcy as a necessary financial reset. We expect this upward trend to continue, with a strong likelihood of accelerating into 2026.”

Commercial bankruptcy filings are also on the rise.

AI is also going for broke, too

But it is doing it by going up. The rush into AI stocks is looking like the prelude to the 2000 dot-com bust.

The world is spending record-breaking amounts on Artificial Intelligence. Experts have been warning that the current AI craze might be a speculative bubble — just like the dot-com bubble of the 1990s which ended in a big crash and bankruptcies.

Ya think?

To give you a sense of scale for how high the mania is running …

Tech firms are pouring hundreds of billions into AI chips, massive data centers, and tools to keep up with chatbots like ChatGPT, Gemini, and Claude. The total AI spending could reach trillions of dollars. The money is coming from venture capital, loans, and even unusual deals that are worrying Wall Street investors, as per the report by Bloomberg.
Even top AI supporters admit the market is “frothy” but believe the technology will change the world….
However, no one really knows how AI will make steady profits yet. Many executives are spending heavily on AI out of fear of falling behind rivals — not because profits are guaranteed.

That was exactly what happened leading up to the dot-com bust. Fortunes were invested in companies that had never showed a dime in profits, but no one wanted to get left behind on the tech that would and eventually did change the world. Some of those companies like Amazon did go on to make it big. Many went bust. The NASDAQ crumbled into dust and did not fully recover for a decade.

The exuberance today for AI is even more extraordinary than the froth that boiled over for internet companies back then:

In January, OpenAI CEO Sam Altman announced a $500 billion “Stargate” AI infrastructure plan at the White House, shocking many with the price tag. Meta’s Mark Zuckerberg followed by promising to invest hundreds of billions in AI data centers. Altman later said OpenAI could spend “trillions” on AI infrastructure, as stated by Bloomberg report.

Half a trillion dollars pledged by just one AI company! Yet, no one is quite sure yet how AI will turn a profit and few AI ventures have. Eventually, of course, a few will go on to be the next industry giants. Many others will fail. Here is the clincher, though: Back in 2000, even the companies that went on to become the industry giants for the next quarter century, crashed so hard it took years for their overvalued stocks to recover all that was lost, too.

With AI presently priced to the stratosphere …

Hedge fund manager David Einhorn warned, “There’s a reasonable chance that a tremendous amount of capital destruction is going to come through this cycle.”

Goldman Sachs is issuing a similar warning in our headlines today. Goldman’s CEO David Solomon said the market has been propelled to record highs by “AI frenzy.”

I’m not so sure the frenzy isn’t being created by AI, which may have taken over the algorithms that have been the market makers in investing for the last ten years, unbeknownst to anyone since their barely pre-AI algos were all designed to reprogram themselves in the first place; and their designers have said they don’t even know in what ways they have reprogrammed themselves because the designers cannot keep up with the ongoing daily tweaks, as they adjust their formulation based on what moves proved successful. If AI cannot run the major market algos or reprogram them directly to benefit its own development (perhaps at the behest or demand of the AI companies who are creating the AI), AI certainly can figure out how to game them indirectly. But my guess is AI companies are well ahead of the game, turning their own AI supercomputers to such tasks in order to drive their own stock values up.

Solomon’s warning continued,

“Markets run in cycles, and whenever we’ve historically had a significant acceleration in a new technology that creates a lot of capital formation, and therefore lots of interesting new companies around it, you generally see the market run ahead of the potential ... there are going to be winners and losers….”
Solomon pointed to the mass adoption of the internet in the late 1990s and early 2000s, which led to the emergence of some of the world’s largest companies — but also saw investors lose money to what became known as the “dotcom bubble….”
“I think that there will be a lot of capital that’s deployed that will turn out to not deliver returns, and when that happens, people won’t feel good….”
Solomon is not alone in having concerns about current market levels. Speaking at the same event, Amazon founder Jeff Bezos said Friday that artificial intelligence is currently in an “industrial bubble….”
And earlier this week, veteran investor Leon Cooperman told CNBC that we are in the late innings of a bull market where bubbles can form — something Warren Buffett had warned about….
Karim Moussalem, chief investment officer of equities at Selwood Asset Management, meanwhile, warned of “enormous risks” on the horizon for the AI trade which could rapidly unravel. “The AI trade is beginning to resemble one of the great speculative manias of market history.”

The only real question is when does the long cascade down begin. I thought we saw it getting started last spring, but then it got strangely shortstopped as tariffs began flashing on and off.

The slow decline of the economy also got shortstopped after a first quarter of negative (recessionary) GDP growth due to the front-running of tariffs that I said would give a temporary reprieve. However, the decline has now resumed based on other metrics than GDP. I dug deeper into those metrics that reveal a significant actual people-hurting decline of the economy in my weekend Deeper Dive and explained why some metrics like job reports, unemployment and GDP are likely to be unreliable for some time.

We’ve seen these cycles before:

DOWNTIME: The same characters who created bailout bonanzas for banksters in the Great Recession are doing it again.