We are about to dive!

Before talking about what may happen by the end of 2026, let’s first look at how accurate the expectations I made at the end of 2025 have turned out to be.

They turned out to be accurate.

As we could see, the markets moved with previously unseen volatility, following minute-by-minute narratives like “the collapse of an ancient civilization,” only to wake up the next morning to “a tremendous victory” and “a great deal.”

Not long ago, the first transaction involving tokenized Treasuries took place. Cryptocurrency as a whole stagnated, recovering only slightly after a massive collapse, while gold began losing its position under the pressure of real life rather than myths about a “safe haven” – demand in India declined, and some central banks, such as Turkey and Russia, began selling parts of their reserves on the market.

So far, the predictions made at the end of 2025 are coming true.

So what are we expecting before the end of this year?

As the title says – nothing good.

Unfortunately, the global economy has accumulated a set of circumstances that are likely to lead to unpleasant economic consequences.

Let’s begin with politics.

Historically, U.S. midterm election years have usually been weak for markets. Which is understandable – in conditions of uncertainty, investment and consumption tend to decline, while people and companies postpone spending until “later.”

Another important factor is the change of leadership at the Federal Reserve. It has often happened that within 6–9 months after a change of Fed leadership, the U.S. entered a recession. On a basic human level this also makes sense – a great deal of management exists “at the fingertips,” and when the management team changes, control can temporarily weaken.

To this we should add that the new Fed chairman, Warsh, is not a supporter of the “quantitative easing” approach that became standard after 2008 – quite the opposite.

Therefore, expecting the same old “Fed put” is probably unrealistic.

The third issue is the critically high level reached by long-end bond yields in both the United States and Japan. Japanese 30-year bonds recently hit a historic record, while U.S. long-term yields are approaching a critical zone after which yields could surge toward 6–8 percent. That would lead to a sharp slowdown in the mortgage sector and multiple defaults.

Oil prices equal inflation.

Just recently, the IEA confirmed that 2026 will become the first deficit year for the oil market in many years. The probability of a quick peace settlement in the Persian Gulf remains low, and even if peace suddenly arrived tomorrow, it would still take months or even years for energy exports to return to pre-war levels.

So oil above $100 per barrel is almost guaranteed for a long time.

And finally – the “cure for everything”: AI.

Beyond the absolute overvaluation and all the classic signs of a bubble, very few people are thinking about another problem.

Even before the conflict, representatives of AI companies were traveling across Middle Eastern countries seeking massive investments for data-center construction, while enormous infrastructure projects for such centers were planned throughout the Gulf region.

Today, many of these countries are facing serious budgetary and liquidity problems, and something tells me that not all of their promised investments will actually materialize. This will inevitably affect plans for bringing new capacity online.

Very few people have also noticed that due to the sharp rise in costs, cash flows across the AI sector have already turned deeply negative. In other words, these companies themselves are no longer capable of financing the heavily advertised plans to purchase endless quantities of chips.

Who will pay for this banquet?

There may be problems when the dinner bill arrives.

And if we add to this picture the lack of a settlement in Ukraine and the possibility of further escalation there as well – the outlook becomes even more unpleasant.

Perhaps I am wrong.

Perhaps the Trump administration will achieve a “great deal” with Iran, oil will begin flowing freely again, and both oil prices and inflation will decline.

Perhaps the new Fed chairman Warsh will somehow rapidly defeat inflation, leading to an unprecedented boom in investment and consumption in the United States and then across the world.

Perhaps peace will finally come to Ukraine, and the enormous military budgets allocated by all sides will instead be redirected toward infrastructure and social development.

Perhaps the AI capitalists will realize their ambitious plans, building data centers around the world, and AI will indeed sharply increase labor productivity.

I would very much like this to happen.

But my experience tells me that it most likely will not.

I would like to be wrong.

And I wish you a good future!

www.konstantinshvarts.com