Remember that scene where Wile E. Coyote runs off a cliff, keeps sprinting through thin air, and only realizes he’s doomed when he looks down? Yeah, that’s basically the US economy right now, according to UBS’s chief economist Paul Donovan. And honestly, he’s not wrong.
Here’s the deal: consumers are still spending like nothing’s wrong, even though oil prices are climbing faster than a cat up a tree. The Iran war has sent energy costs through the roof, which should be eating into everyone’s wallets. But people? They’re just… spending anyway. It’s like we’re all collectively ignoring the fact that gravity exists.
The disconnect is wild. Consumer sentiment has tanked to record lows—people are genuinely worried. Yet spending is up at its strongest rate since early 2023. How? Well, higher-income folks are keeping the party going, while lower-income households are basically sacrificing their savings to maintain their lifestyle. Welcome to the K-shaped economy, where the rich stay rich and everyone else gets squeezed.
Donovan’s warning is simple: this can’t last forever. Eventually, people will realize they’ve been running on fumes, and when they do, it’s going to be ugly. “Economic gravity has yet to exert itself,” he wrote. Translation: we’re all about to plummet.
But wait, there’s more! The stock market is having its own Looney Tunes moment. Piper Sandler’s Craig Johnson describes the current market as “trying to outrun a bear”—and that bear is very real. We’re hitting record highs while ignoring massive risks. Oil shocks, geopolitical chaos, potential Strait of Hormuz disruptions—all the stuff that should terrify investors. But instead, everyone’s just… bullish.
The funny part? Investors don’t know how to price geopolitical risk, so they’re just pretending it doesn’t exist. “They don’t know how to trade it. They don’t know how to put risk to it. So we’ll just ignore it,” Johnson said. It’s the financial equivalent of covering your ears and going “la la la la.”
Sentiment has actually gotten *more* bullish since the war started. Nearly half of investors are now optimistic, compared to about a third before the conflict began. That’s not confidence—that’s delusion.
The real kicker? The market’s been propped up partly by AI hype and the belief that artificial intelligence will somehow offset inflation. Maybe it will. Or maybe we’re all just running across thin air, waiting for someone to point out that there’s no ground beneath our feet.
So what’s the takeaway? Enjoy the rally while it lasts, but keep one eye on the horizon. Because when gravity finally kicks in—and it will—the landing’s going to hurt.
