Most of us know the feeling. We're driving along happily when a warning light comes on. If we're sensible, we get it checked out as soon as possible to avoid a small problem becoming a big one.

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So why are we ignoring the warning lights that have been flashing orange and red in world stock markets for months now? They've been warning that the markets are so dangerously overheated by the high-octane AI boom that if they don't ease off on the accelerator we could be in for a breakdown or, worst case scenario, a crash.

These are the fear gauges, which warn of trouble ahead. The best known is the Shiller price-to-earnings ratio, which compares the price of equities on the S&P 500 to their real value, or earnings. It's been red-lining for months now, the ratio as high as it was when the dotcom tech bubble burst in 2000. The higher the ratio, the bigger the gap between price and earnings. Or, put another way, the lower the return on investment.

The PE ratio has been in territory that at best suggests a correction is coming or at worst the bubble is at risk of bursting. Yet the markets are not only ignoring the PE warning light, they're shrugging off the wild volatility already experienced, thanks to fears over the sustainability of the AI boom.

If you'd kept an eye on South Korea's benchmark KOSPI index the past few months, you'd be suffering motion sickness from the rollercoaster ride it's taken. Surging to record highs in mid-June on the AI frenzy, it then plunged a dizzying 35 per cent in a huge correction.

The tech-heavy KOSPI is renowned for its volatility but this year has been its wildest and has cost investors dearly. Many had bought stocks on borrowed money and were subject to margin calls - the lender demanding the loan be repaid - when those stocks plummeted in value.

Closer to home, another warning light came on last week. When the Reserve Bank announced it was holding the cash rate steady, it also issued a warning over the AI frenzy. The rush to build new data centres was straining the economy's already stretched construction capacity, making it harder for the state and federal governments to meet their housing targets while fuelling inflation.

The AI hype has put us slap bang into the........

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