It took less than a week for Caribbean bond king Gregory Fisher, now at US investment bank Jefferies, to be proven right about the dangers of the artificial intelligence (AI)-driven momentum of the current Wall Street rally and the likely volatility of the US stock market.

Interestingly, in the Chinese year of the snake, the Monday sell-off was driven by the announcement by Chinese AI start-up Deepseek wiping off US$589 billion of the value of AI star chip maker Nvidia alone, with what looks like a cheaper, more efficient generative-AI product apparently threatening the current view of American exceptionalism.

Last week Tuesday, Fisher, who has been a lead sponsor of the Jamaica stock market conference for nearly two decades, noted that after two years of stellar US stock performance on the heels of the AI craze, seasoned investors should be expecting far less momentum trading and more normalised returns as it is doubtful that the Standard and Poors (S&P) 500 can post a third year of 20 plus percentage returns and quoted Barron’s investment magazine as saying, “Parties, after all, are often followed by a hangover.”

In his view, current projected earnings growth in the US is just too lofty, even with the AI craze, noting he personally saw an eerily similar craze called “the Internet” in the late 90s that led to the dot-com bubble bursting only a few years later. Like AI, the Internet was a real game changer, but when the markets price in all the upside valuation, history tends to repeat.

Unlike the Internet companies back in the 90s, the AI stocks are real companies with solid earnings growth; however, in his view, they are at unrealistic and unsustainable levels, with the market pricing in most of these assets as riskless, and as he put it, “Riskless securities do not exist.” All the expected revenue generation has been built into current equity valuations, and although exponentially rising markets go further than you think, these sort of “manias” do not correct sideways.

He noted that 2025 was the Chinese year of the snake, like 1929, 1941, 1953, 1965, 1977, 1989, and 2001, all years of either war, economic maladies, recessions, or political and financial instability. The average return for the S&P 500 in these past years of the snake was five per cent.

Interestingly, he noted that anyone who told you in 1980 that the Reagan Revolution of 1981 would lead to more than 20 per cent decline — “an official bear market” — in the first six months would have been the laughing stock of Wall Street after the “animal spirits” of his election led the S&P stock index to shoot up nearly nine per cent.

He believes the Federal Reserve (Fed) will continue to lower rates, albeit more slowly than we thought a few months ago, and projects that it will end up cutting more than two times in 2025, an argument for buying bonds, based on the idea that the “soft landing” narrative is much more “a fantasy than an inevitable reality”.

Turning to his universe of bonds, he notes the riskiest higher yield bonds returned 13 per cent, led by “junk” countries (Argentina, Sri Lanka, Ecuador and Zambia) emerging from debt restructuring similar to Jamaica’s a decade ago, or double the 6.5 per cent return of the more diversified emerging market index.

Jamaica no longer fits into the high-yield category, and although still rated a low BB by the major agencies, all have positive outlooks and are likely to go even higher in the near future. The market is already pricing Jamaica as being at or near investment grade, with Jamaican international bonds behaving more like their investment grade, so Jamaica bond returns are more likely to be governed by the movement in underlying US Treasuries going forward.

The bad news is that Jamaican bonds are not currently attractive to international investors right now due to their tight spreads despite Jamaica’s positive economic policy trajectory. The good news is that Jamaican bonds are now more likely to be viewed by the international community as a real haven by investors.

He also believes global markets would welcome more corporate and quasi-sovereign issuance out of Jamaica, given the most recent positive transaction of Kingston’s Norman Manley International Airport, and that there is more demand from international investors for Jamaican dollar-denominated debt due to Jamaica’s monetary and fiscal policy credibility.

Preceding Fisher’s presentation was an important presentation by Angus Young, the new Trinidadian chief executive officer of leading local broker dealer NCB Capital Markets. He started by noting that Jamaica’s capital market is the deepest and most sophisticated in the Caribbean, or the most “efficient” in the region.

Very importantly, he argued that as broker-dealers, we have to take “ownership” of our markets and we have to go against anything that will negatively affect our market’s reputation and integrity. “There is no mother land coming to save us if we screw up, this is why we must adopt the ownership mindset toward the continuous development and safeguarding of our capital markets.”

He also noted that in the 2008 global financial crisis broker-dealers played a pivotal role in amplifying risk in the financial system: “We, as broker-dealers cannot let that happen to our capital markets.”

Very importantly, he said that in Jamaica “the retail investor is a significant participant in our markets. They rely on us to sift through complexities, identify risks, and endorse investments that uphold the principles of transparency, accountability, and sustainability”. Retail investors should be able to rely on the advice of their brokers; as such, we as broker-dealers must always act as the first layer of adjudication, the first filter, the first underwriter.

Some argue that, that is not the role of the broker and the market ought to decide what degree of risk it takes. And in a perfect environment, perhaps there is an argument to be made, but in our capital markets, in which the retail segment is so involved, I am of the opinion that we as broker-dealer have a burden of responsibility to make sure that we think long, that we think “for country”, and in so doing, make sure that we act responsibly in what we bring to market. By doing so we do more than safeguard individual transactions — we preserve the credibility of the entire system… and this is something we must own as broker-dealers”.