There has been a lot of discussion in recent weeks about the financial markets’ concentration in AI-related companies, with the question whether AI can fulfill its promise at the center of the debate. However, the concentration in AI is only one of five elements in a much bigger and more extreme concentration in the global financial system, reflecting how vulnerable the system has become in the past few years. First, the share of the US stock market as a percentage of the global stock market is at a record high (65%), making many investors, including pension funds, extremely sensitive to a correction in the US stock market. Second, the size of the US stock market relative to the size of the US economy is also at a record high (221%), suggesting that much of the recent growth is based on financial speculation rather than ‘real’ economic value. Third, the share of the top 10 companies in the US stock market is at a record high (41%), indicating that the rest of the economy is growing at a much slower pace (without investments by AI-related companies, the US economy was in recession in 2025). Fourth, US households have never been more invested in the stock market (43% of their wealth), implying that a correction would hit households’ finances relatively hard. Finally, the top 10% of US households (measured by income) own around 90% of the US stock market (a record high) and account for 34% of US consumption (also a record high), suggesting that a market downturn could slow consumer spending and trigger a recession—an unprecedented scenario, as historically it is usually the recession that triggers the market downturn, not the other way around.
Since this year, central banks hold more gold than US Treasury bonds for the first time since 1996. This trend is driven by two mechanisms. The first is a new type of US foreign policy: as the US seeks to reshape the world order through escalating international conflicts, gold serves as a safer asset compared to US dollars, especially for foreign central banks. Last week, The Financial Times reported that the Chinese central bank may have purchased up to ten times more gold in recent years than official figures suggest. The second mechanism is the fear of a “debasement” of the US dollar, a scenario in which the United States tolerates a higher level of inflation to deflate its large government debt. This fear grows as long as the US president pressures the Federal Reserve to cut interest rates while inflation remains unstable. In the period after 1945, such monetary debasement accounted for at least half of the reduction in government debt in many Western countries, particularly the United States, the United Kingdom, and France.
Amid the focus on Europe’s new defense projects, Germany’s own investment plans have received surprisingly little attention. By removing its budget deficit limit in March of this year, Germany opened the door for government spending that rivals some of history’s largest investment projects. It is set to far exceed the Marshall Plan to rebuild Europe after 1945 and come close to the spending for Germany’s reunification after 1990. It is also expected to surpass US government spending since 2020 (relative to their domestic GDP), which significantly boosted the American stock market over the past five years. Recent reports suggest that nearly 90% of Germany’s investments will flow directly to German companies—a move that could put Berlin at odds with the EU.
