Since writing his previous column, the author witnessed a trio of space-related events in the UK: the Perseid meteor shower, a solar eclipse, and massive spring tides. For those living by the sea, the August 14 tides revealed 20 feet of white sand and exposed a concrete breakwater usually submerged. This natural phenomenon serves as a metaphor for financial markets. Warren Buffett's famous line — "It's only when the tide goes out that you discover who's been swimming naked" — originally referred to overexposed reinsurance companies, but has since been applied to firms taking on excessive debt. Receding tides now symbolize higher interest costs or slower growth, explaining recent worries about rising sovereign bond yields. Markets worry about inflation and government spending, fearing that borrowing costs will expose overly indebted entities.

However, the author argues against the prevailing narrative. He contends that rising long-term yields are not primarily driven by inflation fears, at least not in the US or Britain, where inflation expectations remain anchored. Instead, higher real rates reflect the economy's natural rate (r*), which rises with increased growth potential. The author posits that AI is driving these real rates up as markets price in future productivity gains. While acknowledging counter-arguments — such as the historical tendency for rates to drop after new AI releases — he maintains that the remaining workforce will generate significantly higher revenues, warranting a higher natural rate for yields, though not sky-high levels.