We have a blooming oil war that could take chunks of the global economy with it, booming and teetering credit levels threatening collapse, the “AI” companies have a lot of tinkerbell magic and impossible returns needed to justify their stocks, major cash rich tech giants are suddenly hands-out pockets-out for big money, and … well: Elon is the worlds richest man/CEO who also shamelessly lies in public about being super great at a no-life action RPG he’s paying other people to play for him so he can look cool to his Twitter fans; Twitter is now maybe better understood as a market manipulation device; and Sam Altman seems distinctly truth challenged as a people pleaser who will tell you whatever numbers your wallet needs to hear… They are our 2026 IPO lords, trusted corporate leaders acting like extra shady manipulators.
I’m struggling because on the one hand, it seems like the time to hop out of the market, but on the other, whatever shady crap these guys do after it all goes ‘boom’ to save their wallets is only gonna reward people in the market.
It feels like gambling on whether they’re more incompetent or successfully corrupt.
In a world where Tesla has stayed at "severely overvalued" stock prices for about a decade, with occasional crashes to just "overvalued", I'm not so sure the big AI companies really need returns that justify their stocks. Sam Altman and Dario Amodei are both in their own ways trying to capture that same lighting in a bottle where the company is evaluated solely on the CEO's vision
Yeah. This is the whole “market can stay irrational longer than you can stay solvent” thing. I think there’s almost always a plausible bearish case to be made. Hence: permabears.
I feel like this is dot com 2.0. The dot com's valuations eventually were proven to be true, only way too early. With investing Timing is everything, if you invest in Pets.com you lost, if you invested in chewy.com you won. If you invested in Broadcast.com you lost, if you invested in YouTube.com you won.
AI is going to transform things but these current prices are crazy.
For how long can the gamble be detached from real life?
It's an honest question. In the real world, resources and people are finite. Things have to make sense, the bills have to be paid.
In the stock market however, a company can be completely worthless in the real life, but if the money blobs all agree to pumo money into it the stock price goes up anyway.
Wealth is not in fact finite. If you take a piece of lumber and carve it into a dresser you've just generated wealth. Resources kind of are but not really, extraction takes it from unusable to usable and essentially creates it (also, trees literally grow out of the ground). Similarly Tesla has made a lot of cars that people drive and AI companies have created products that have hundreds of millions of DAU.
Whether that "justifies" the market prices is orthogonal, all the market price says is that people want to own a piece of the pie at the current price being offered. It can stay that high as long as there continue to be people interested in owning shares of the companies.
Well the question is what's a more appealing place to put your money? Because in the absence of one the stock market by default is viewed as an appealing place which drives up demand for it. You might say well folks should just spend their money and enjoy it instead of putting it in the market but that's a whole different strategy. You might say folks should buy real estate well that's a whole different strategy. You might say folks should sit on cash and bonds and other low-risk assets well that's another strategy. High interest rates actually make cash or at least bank savings rates more appealing than they were 5 years ago... yet folks are still seeking those double digit returns. Can you blame them? What will trigger the downturn will be folks who've overextended themselves on margin forced to sell in order to liquidate assets
The problem is, the last two decades were marked by extremely low, zero and sometimes outright negative interest rates plus a ton of outright printed money that got blown up the arses of the big banks. Worldwide.
That money sought returns and found them in hypergrowth of increasingly dumber nonsense. First it was Meta (or back then, just Facebook), then Tesla, then during Covid cryptocurrencies and NFTs, and now it's AI... but now, there seems nothing to be the "next big thing" to sink money into when the old thing dies down in growth and expectation and matures. Maybe gambling, but that's not sustainable, the number of whales/marks to make money from is finite.
IMHO, we're headed for a very big worldwide correction to deflate the markets and hand back a lot of the money to the central banks where it can be taken out of circulation, and it will be an event larger than the dotcom bust plus 2007ff combined. But, unfortunately, the markets can stay irrational longer than a good short-seller can stay solvent...
Right now it seems like space, defense, robotics, and in the fullness of time quantum computing are very clearly positioned as the next big things. Let alone bio and healthcare stuff which is always humming along especially after ozempic shakes things up
Good advice. Ironically most long term folks that just buy low cost index funds and take a nap outperform most of the market stressing out daily on their next move. That’s the cruel reality of investing.
When you factor in the opportunity cost of all that stress and managing an active portfolio the percentage of successful active portfolio managers likely falls down to single digits.
Invest early, invest consistently and often in up or down markets, and the math says you will do very well.
Though I keep wondering if the ‘invest consistently whether the market goes up or down’ defeats the point of a stock market in the first place.
People effectively keep throwing money at mediocre or failing endeavours, which magnifies any structural problem, and everything seems to keep going up whether it’s good news or bad news, until the bottom falls out.
My reading might be wrong, but since 2020 there is no bad news that seems to faze the market by an iota.
Well, that is what markets do: behave. Rationally or not.
The 1929 panic was also irrational but it happened. There is no way to solve that.
Panics happen and bubbles too, and in the meantime, very long term investments tend to grow (in average), as long as the economy works as expected (improving in average, long-term).
Of course, catastrophes are not impossible (the Black Death, the French Revolution, World Wars...).
> My reading might be wrong, but since 2020 there is no bad news that seems to faze the market by an iota.
Or maybe - because it's the bad news that sells - there is much more of the good (or neutral) news that outvalue the bad news, that is just unknown to you?
This has been my investment philosophy as well, but I'm starting to realize that this is forgetting that "past performance does not guarantee future results". It only works when the index goes up, and I don't see any fundamental reason that should be true on the long term. I don't know of a better alternative though.
Well the fundamental reason boils down to the idea that these companies that you're investing in employ a bunch of sophisticated professionals who wake up everyday aiming to grow the success of their businesses. In other words you're really investing in their potential. Compare that to for example something that's purely speculative like gold.. a useless piece of metal that just sits there. Buffett has really helped me see this difference
It's almost the inverse of a cruel reality? Just stick it all in low cost index funds and go to the beach. You'll do as good or better than 99% of actively invested funds. That's not cruel at all, that's actually a pretty comfy reality.
That's not true. It's only been true on American stock markets, and we only have ~100 years of data.
Many other major stock markets in the world have had ~20 year periods where you would have been better off with your money in bonds than in stocks.
I think the average world stock market is a much better predictor of American stock markets over the next 100 years than past performance of American stock markets. The last 100 years have been exceptional for America vs the world -- it seems very likely that the next 100 years won't be.
The most extreme example is Germany 1914. If you would have invested in the German stock market in 1914 it would have taken you 100 years to break even. I'm not saying that American stock markets will be that bad, but it's an example that disproves the thesis that long term stock markets always win.
You do, your children will live. Or, if you don't have children, your non-profit does not.
I wish people would stop using this "we all die" slogan when it comes to their financial lives, and think a bit about the people who will be left after you retire.
I hate that having children is apparently the only purpose anyone has in life because I don't have children or a purpose in life and I'm pretty sure I would be even more depressed if I had children.
Living only for yourself gets really boring. Children give you a life-long purpose. That and the evolutionary purpose, or drive, of life is reproduction.
Note that I am not arguing that children is the purpose in life for everyone. For some it is, for others it is not.
I believe that the majority of child bearers are "on program" driven by their biological imperatives. I believe that among the voluntary non-children people (of which I am one) there's plenty of values, goals, hopes and aspirations. In fact, for me, life is so rich that that is why I do not want children.
There's billions of people all over the planet to carry the burden for me. Sure, if we were in an extinction scenario, I might reconsider, but we're far, far from it.
So while I continue to enjoy life and full freedom, I'll let the people who are "on program" deal with the poop and worry for their offspring.
That does not, however, mean I do not have to care about people. If anything, the fact that I do not have children, gives me the opportunity to care _more_ about people in general, than the people who are busy with raising children.
Hence my idea about a non-profit, that will outlast me for some time.
Yeah, I used to feel life was rich too, and then I very suddenly became aware that it was finite and anything I could possibly do is just leading towards the same fixed point ending. I think mentally healthy humans have ways to avoid thinking about this.
Find purpose which aligns with "progress or wellbeing of our species". Making kids is one, making inventions is another, helping poor or sweeping roads fits too. If you see that your "way of living" will affect people positively, typically you will have a "good life purpose".
What happens when you have kids? You leave something that will last after your death. Then you make sure that they are properly raised and have enough resources, so that your "mark on the world" is more appreciated by other people. Ultimately all the "good life" have one thing in common. Improving life of our species.
This is not childish. It means you have no purpose in life. If you feel life is not worth living, find purpose and you will feel better. "Make more life", "make life more bearable for me" and "make life more bearable for others" are good universal ones, to have a starting point. If you don't like them, find a better one. Of course, if you DO want to be unhappy, please continue as is :), accumulated unhappiness sometimes leads to big things.
Religion, children, and legacy are the ways people cope with this. For the vast, vast majority of human history, 99% of people believed either in an afterlife or reincarnation or something of the sort. Having children, who were molded in your image and expected to take over your life's work, doing the same work you did. Or otherwise leaving an impact in the world, hoping that your legacy would be remembered and to pass on your teachings and experiences to future generations even if not to your own children.
I think advances in scientific understanding may have unfortunately been detrimental to mental wellbeing at scale. Knowing that there is no higher power or grand purpose, knowing that our civilization is probably cooked in the near term, and knowing that even if our civilization isn't immediately cooked, Earth and eventually the universe is, are all not greatly emotionally satisfying.
It probably doesn't help that every scientific advance gets co-opted to make the rich richer and civilization worse.
I guess the world oscillates between good times and bad times. Those who are born in bad times get to see the world improve drastically and helping that along is a purpose. Those who are unlucky enough to be born in good times get to see everything crumble. At best they can inspire the rebuilding just before dying of old age.
We shouldn't be so sure about the fate of the universe. If you were born after 1980 you probably feel more certain about the eventual fate of the universe than people born in 1940. A lot of scientific advances that enabled us to even predict the universe isn't steady-state are less than 100 years old. They may change, and our predictions accordingly, in the next 100 years. In fact they did change several times. There was the steady state, then the big crunch, then the big rip, then the heat death. We can't be sure about heat death either - dark energy adds more energy into an expanding universe, which may be exploitable forever.
Holding cash is a terrible strategy, the US dollar is going to get devalued by the end of the Orange Troll's term due to money printing/bond market repression/trade hijinks.
We're in the pump of a pump and dump by the richest people in the world, who are trying to engineer exit liquidity in a way that doesn't immediately crash the market. They're going to cycle their holdings several times before things go to shit to avoid the brunt of it, we'll be able to see the wave on the horizon. I don't think just the SpaceX dumping will trigger a broader loss of confidence, but Anthropic + OpenAI dumping post IPO will ripple through to the neoclouds, which will ripple through to the semis, and probably tank things. In the short term (pre AI IPO) the market is volatile but pretty safe IMO, so just trade techically.
In the medium-long term I'd hold a mix of mining/industrial equipment/etc stocks in Euros, and Chinese AI/renewables stocks in Renminbi. The Euro stocks are safer and a significant portion of their increased valuation will come from currency shifts, and the Chinese stocks are riskier but have a big upside and are likely to benefit from Renminbi revaluation as China onshores "finishing"/final assembly of products (which much of the world is going to push them to do).
The thing I worry about is: what happens when an actual set of adults get back into the White House?
That could well be the trigger for the crash of all crashes because they might actually bring some reality pins with them, which are the antithesis of the growing, in size and number, fantasy balloons of hot-air the current cough leadership cough is facilitating.
> what happens when an actual set of adults get back into the White House?
Not just White House though, it's all the leaders of various government organisations, and private companies too. Nasdaq didn't need to change the rules for SpaceX IPO, rotten at the top.
The opposition in the US doesn't believe in anything except "stability". That means they'll probably keep most actual Trump administration policies. Probably even the war on Iran, though they might stop pretending to call it off every weekend.
To people who think I'm cynical (and are presumably downvoting), I present this nice example which just turned up: "Kirsten Gillibrand wants to save crypto - but Trump windfall is a political obstacle"
Which will trigger even more wealth transfer to the top .1%, which the 99% will blame on the administration, and put the corrupt lot back in a few years later
Eventually though the world moves on and China takes over
China's got its own set of economic problems that they're masking. Their domestic economy is stagnant and they're trying to keep factories pumping out stuff. Since their domestic economy isn't biting, they're flooding the world with exports. This isn't sustainable, especially if and probably when the rest of the world decides that they're done with government backed Chinese companies killing theirs (and you're starting to see that).
> This isn't sustainable, especially if and probably when the rest of the world decides that they're done with government backed Chinese companies killing theirs (and you're starting to see that).
Well... China's foreign currency reserves are practically infinite and the rest of the world knows they can't push back on China too hard or lose a lot of important imports. For Europe for example, India and China together make 80% of the foundational ingredients for medicine [1]. Our supply chains are gone, even if we wanted to, it would take years to have fabs ready that could produce the domestic demand for stuff as simple but vital such as painkillers and antibiotics.
I don't subscribe to the "China is just to big and important to fight" arguments. Countries that peg their currencies distort markets, mask problems, and eventually that comes crashing down (see also Asian financial crisis, the Bank of England pegging in the early 1990s, etc).
There’s always money to be made in a bubble implosion. The challenge is there’s a very thin line between major bank and losing your shirt. Because of that most long terms smart investors just sit it out which is likely why you see Berkshire sitting on treasury bills.
> “It feels like gambling on whether they’re more incompetent or successfully corrupt.”
What you say has a ring to it. A good idea held in tension—provided ‘incompetence’ is the true opposite extreme.
Though it’s difficult to see the picture clearly, because to all _appearances_ Musk is doing well. US Culture collectively believes incompetence will not succeed for long, and this undermines my assessment.
“Twitter is now maybe better understood as a market manipulation device.”
And there’s the obfuscation. If you can manipulate at large scale and your followers somehow profit by following you, then it’s not competence but “confidence”. It’s all a game and our group is waiting for their turn, their opportunity to profit, get a great tip, win big.
> on the other, whatever shady crap these guys do after it all goes ‘boom’ to save their wallets is only gonna reward people in the market
Yup. That's kind of my feeling. Are we in a bubble? Obviously. But the people who have the most to lose have never been more intertwined with the rule makers and have never been so shameless about it.
"Don't bet against the house" has never been more appropriate. We may well be on the verge of the 2nd Great Depression, but you can be damn sure that the last ones to lose will be the billionaires hanging out in the new ballroom. We'll be burning poor people for warmth before they allow the asset prices to collapse.
Fall was upon a remote reservation when the Indian tribe asked their new Chief what the coming winter was going to be like. The modern day Chief had never been taught the secrets of the ancients. When he looked at the sky he couldn't tell what the winter was going to be like.
Better safe than sorry, he said to himself and told his tribe that the winter was indeed expected to be cold and that the members of the village should stock up on firewood to be prepared.
After several days, our modern Chief got an idea. He went to the phone booth, called the National Weather Service and asked, "Is the coming winter going to be cold?"
"It looks like this winter is going to be quite cold," the meteorologist at the weather service responded.
So the Chief went back to his people and told them to collect even more firewood in order to be prepared. A week later he called the National Weather Service again. "Does it still look like it is going to be a very cold winter?"
"Yes," the man at National Weather Service again replied, "It's going to be a very cold winter."
The Chief again went back to his people and ordered them to collect every scrap of firewood they could find. Two weeks later the Chief called the National Weather Service again. "Are you absolutely sure that the winter is going to be very cold?"
"Absolutely," the man replied. "It's looking more and more like it is going to be one of the coldest winters ever."
"How can you be so sure?" the Chief asked.
The weatherman replied, "The Indians are collecting firewood like crazy."
Yeah but that is likely the normal state of things - high status people are human too, we're all shocked. And on Twitter comment - mass media has been a tool of propaganda since shortly after it was invented. Twitter is substantially better than something like a newspaper or TV channel.
The difference in the modern era is the internet is such a robust communication channel that the ultra-wealthy can't pay money to have the negative stories suppressed any more. If anything the current crop seem to be unusually well behaved by historical standards because there are so many eyes on them. Scandals like the whole Epstein thing or #metoo would simply have vanished into silence before the 2000s unless they were being used to lever out someone uncooperative for political purposes.
I would rename the title to “The Buffett Indicator shows an overvalued market”. For those curious of its definition (from the article):
> The Buffett Indicator, a ratio that measures the market cap of the entire stock market against the GDP of the United States, has hit a record of ~232%. Historically, anything above ~120% is a signal of the market being overvalued.
That being said, it’s not clear that the Buffet Indicator is fully relevant, as a lot of the US AI and AI hardware companies’ market caps which are driving the stock market valuation growth involve a significant portion of their revenue from outside the US, and thus this wouldn’t necessarily count fully to the US’s GDP (for example, tax entity workarounds for foreign obtained revenue).
The fact the AI emperor wears no clothes seems clear to me at least. The dot-com bubble looked obvious in 1997; it popped in 2000. Anyone shorting in '97-'98 was carried out on a stretcher before being vindicated. In fact 2000-2002 fell in three brutal legs over two years, and anyone who leveraged up after the first 25% leg was destroyed by the next two.
My strat is to accumulate cash to buy the drop. The danger with this is; will the bubble continue until the bottom is even higher than today? I’ll take that bet.
Yeah. This is why BRK is in cash equivalents rather than being short.
Buffett has said a number of times that he never is intentionally sitting on the sidelines as a bet that things will go down. He’s simply there because he can’t find value. He’s also said that if he was dealing with millions rather than billions, he could probably find loads of value.
My guess is that is still true today, so the rest of us can probably find deals even in this market.
This is the way. Did the same thing for 3 years before corona. Drop came, went all in, fast forward a year or two, we did not die, and the stocks were about 150%-200% higher.
I'm doing the same thing now. Slowly starting to sell off the shares I have, putting the profit in bonds/interest accounts, when the bubble pops, I'll go all-in (phasing it in over a few quarters most likely) and then profit after 1-2 years.
My favorite finance podcast (actually, just favorite podcast) does a variety of episodes related to this, including deep dives on the academic literature. Some highlights:
> The Buffett Indicator, a ratio that measures the market cap of the entire stock market against the GDP of the United States, has hit a record of ~232%. Historically, anything above ~120% is a signal of the market being overvalued.
So nearly 2x over-valued. A market correction would take that to ~0.5x possibly, so a loss (for those getting in now) of 75% is on the cards.
It seems like of the most outdated and inflexible indicators that's widely used though? Does not account that a much higher proportion of the US economy might be represented in the stock market and that US service companies are generating massive revenue outside of US (in some cases the majority). That wasn't the case 50 years ago.
There’s really not much question we are in a giant bubble that’s broadly been fueled by AI hype. The only serious question is how do we get out of it.
In a controlled scenario the AI sector gets a severe correction with many AI-focused companies wiped out but broader damage more limited. In an uncontrolled scenario the AI bubble bursts and takes the whole economy with it.
The likelihood of a scenario where suddenly the economics of AI suddenly start to make sense and enough $ flows in to make the present valuations defensible seems around 5% now and rapidly falling towards zero.
> In an uncontrolled scenario the AI bubble bursts and takes the whole economy with it.
How is the whole economy exposed to AI? Will Anthropic or SpaceX cratering threaten the entire financial system? NVDA will certainly correct, which is probably the biggest risk to the market, but then what? All the FCF being spent by Google, Amazon, MS, Meta, etc... will suddenly start flowing to dividends and stock buybacks again. It's not like their core business is selling AI. Apple will be able to get cheap RAM/chips again while also keeping their recently increased prices.
I could see an argument that the economy is currently being propped up by the hope of AI productivity gains, but that seems spurious.
EDIT
A comment above mentioned oil, and thus the inflation coming with prolonged high prices. That's way more of a concern than anything happening in AI.
Out of fear/ uncertainty, investors don't just pull out of AI, but the stock market in general.
More money shifts to bonds/commodities, not just people selling AI, but Coca-Cola and Johnson and Johnson, etc.
Of course, the impact would not be equally distributed, staple stocks will crash less, but there will probably be overall a huge pull out as people panic shift assets.
The resulting downturn likely means a crashing job market (temporarily) as government says "there's no way we could have known" and slowly try to stem the bleeding... Meanwhile unemployment shoots up in any industry that needs consumers (retail, food services, etc., but less so healthcare, government), and companies are nervous to hire on a shaky economy (see: early COVID).
The energy shock will also say inflation should go up, but the crash would want to decrease inflation... Companies will likely have to eat costs to keep prices low to sell inventory that cost them more to acquire.
It's all one big economy.
Note: this is all big hand wavey speculating. The moment things start to turn south there numerous things governments can do to help (e.g. handouts, reduce interest, open oil reserves, etc) so what ultimately does happen is anyone's guess. This is just one scenario based on the fact the current US government prefers uncertainty in the market, e.g. we've had peace with Iran ~8 times according to the USA, but Iran claims some of those statements are false. The straight had been reopened ~5 times, but Iran disagrees there to. Seems like the _goal_ is uncertainty
Who cares if "investors" are getting out of the market? They are not literally pulling money out of those companies but out of a casino that is the stock market.
One good thing in all this is, at least, if the AI stocks collapse that should not result in large-scale lay-offs. :) Quite the contrary.
The people in charge of companies usually have large amounts of stock in their companies... And often bonuses tied to metrics that often includes stock. If their share price drops 50%, that's a personal "net worth" and/or "salary" loss which, unlike most people, they have bounce-back control.
"We need to trim the workforce", "improve margins", "show we are still a solid company"
The above doesn't just happen in AI/Tech stocks, it happens EVERYWHERE... Small business owners see their retirement portfolio hurt, they can't fix those companies, but they might reevaluate what they do in the next 2-3 years so they can get their retirement back on track... How do they increase profits while lowing costs? Try to cut staff/hours, find (perhaps foreign?) cheaper suppliers.
I think AI stock bubble bursting won't result in large scale layoffs, I think it will result in large-scale _trimming_ across the economy, which is almost worse. AI will be expected to fill in the gaps to increase productivity for less than the cost of an employee, which means slower rehiring .. AI will rebound at a "more correct" evaluation. And hiring will slowly pick up as companies see they still need people to produce.
Viewing the stock market as purely a casino -- the executives are the house at various casinos... and the house likes to win at the expense of the players (anyone not a casino)
All that AI capital investment is flowing down into construction, utilities, raw materials and many other industries that on the surface appear unrelated to AI.
That’s currently all being kept alive by artificial cash flow broadly funded with loans and VC investment. When that hiccups the blast radius is much much bigger than a few AI companies just folding.
I think the market is discounting some of the AI driven growth or maybe pricing in the likelihood of a correction. Look at some of the blow out earnings recently where the market shrugs it off. To your point, many non-AI companies are now driven by AI spend that seems unlikely to be durable.
I’m not a pro here but to me it would seem like an AI crash would hit certain companies really hard (SpaceX, Oracle, NVDA, etc), most other might take a small correction to reset AI driven gains, and potentially some deflation.
If the AI game ends then suddenly there is a return to free cash flow from hyperscalers, some goods and utilities cost less and a lot of investment dollars need a place to eventually go.
You could see a scenario where the overall market keeps chugging and the AI crash ends up being a rotation.
The same people pull the oil strings, crypto strings and AI strings. The whole economy suffering part intensifies when the "gubmint" bails its best friends out when the music stops.
I hope the general market will not drop by more than 25%-35%, while most AI companies will be wiped out.
I also expect Facebook, Microsoft, Google, to survive, and buy the good pieces that remains after the bubble popped. They each have income from other areas so are well position to survive the AI bubble.
Pure AI plays are the ones who will be annihilated. The best of the pure AI plays will be acquired by the old guard.
Bull markets are born out of skepticism. Everyone is fearful that there's a giant bubble so all eyes are on the fundamentals. When euphoria sets in, i.e. neighbors and co-workers start telling you how easy it is to make money on stocks, that's when you know you're at the top. We're not at the top and have seen multiple corrections/bear markets over the past 5-6 years.
Berkshire themselves have made investments into Google this year, a company at the center of this supposed "bubble"... make of it what you will but I think the market is setup to do pretty well in the near future.
A controlled scenario also looks very unlikely, right? I think some people with influence believe (rightly or wrongly) they can get even more power from an uncontrolled scenario.
> There’s really not much question we are in a giant bubble
IIUC, some indicators correlated with previous bubbles are lighting up now, which is being interpreted as evidence that AI is likewise a bubble. But what about indicators of previous non-bubbles? How did it look when textile mills were first industrialised, or kerosene replaced whale oil for lighting, or the electric grid became widespread, etc. -- real advances that materially increased productivity in a lasting way? If these same indicators lit up in those cases too, how can we distinguish bubble from genuine advance?
A number of things were both: the railway bubble was pretty bad for investors even if railways were a genuinely transformative technology that remains in use.
I just don't think AI is any of those things. I understand that my argument is anecdotal and qualitative, but I just don't see AI (LLMs) materially increasing net productivity in the economy.
1850-1929 was filled with absolutely spectacular boom-bust cycles. Something working long term and having a bubble and crash in the short term are not mutually exclusive.
This bubble will never burst. The big investors are feeding a leverage cycle and cannot afford to stop. In addition, corporate nepotism has taken hold - for example, AI firms(the current flavor of software) invest in hardware companies. Hardware companies make money as the AI firms buy their product. Hardware companies then take that money and in vest in AI firms. The 'free market' no longer looks at 'value' to assess prices. And as equity prices become a reflection of the algorithmic trading that AI is doing, we have no way of knowing when and if they will decline.
The big investors don't have control over the leverage cycle; the banks do. What kills a leveraged bubble is when banks won't lend any more for leveraged investments. Then leverage quits making the market go up. Then people realize that the market isn't going up constantly any more, and so a few get out. Then the market goes down a bit, and some people who are leveraged panic and get out. So the market goes down more, and a lot more people who are leveraged panic...
The big investors can do whatever they want. They don't have the final control here.
You might find some areas to criticize Berkshire Hathaway but I don't see being lazy as one of them. This is one of the most successful investment companies of all time and they got that way by being better than most at judging when the right time to get in and get out of the market, and by putting in the work on researching where/when to buy.
Might there be opportunities they miss? I'm sure there will be, but perhaps finding those is just too risky at the moment, so they've looked at the options and decided not to invest.
> This is one of the most successful investment companies
It was for a long time. There is not a lot of evidence that's still the case (so far at least but even if the crash comes but its not big enough its not guaranteed they will outperform S&P 500 over a several year period).
I rather doubt the folks at Berkshire are sitting on their thumbs or playing golf all day and just forgot to buy anything. It's a measure of discipline, they won't invest in something without a good margin of safety. They'd rather miss out on a lot of good opportunities than pile money into bad (or even mediocre) ones.
Doom and gloom articles are what make people get out of the market in fear and lose in the long run.
An individual investor isn't in the same stock market as Berkshire. Their investments move prices and they can't just allocate 50K on a XYZ fund. They have to find multi billion single stock investments, and that's a completely different problem than what us poor mortals face.
The conclusion I came to on this was to watch for indicators it’s not working out. Canceling these large capex projects is one. Meta scaling back on their compute recently eerily fits that indicator.
In fact anyone reading should ask fable about indicators and ai bubbles, I just did and it was startling!
Reminder: Jack Bogle, the man who popularized the index fund, democratized wealth accumulation, and made more millionaires than anyone in history, has a famous saying for those pondering this situation.
It’s such an odd time investment wise…
We have a blooming oil war that could take chunks of the global economy with it, booming and teetering credit levels threatening collapse, the “AI” companies have a lot of tinkerbell magic and impossible returns needed to justify their stocks, major cash rich tech giants are suddenly hands-out pockets-out for big money, and … well: Elon is the worlds richest man/CEO who also shamelessly lies in public about being super great at a no-life action RPG he’s paying other people to play for him so he can look cool to his Twitter fans; Twitter is now maybe better understood as a market manipulation device; and Sam Altman seems distinctly truth challenged as a people pleaser who will tell you whatever numbers your wallet needs to hear… They are our 2026 IPO lords, trusted corporate leaders acting like extra shady manipulators.
I’m struggling because on the one hand, it seems like the time to hop out of the market, but on the other, whatever shady crap these guys do after it all goes ‘boom’ to save their wallets is only gonna reward people in the market.
It feels like gambling on whether they’re more incompetent or successfully corrupt.
In a world where Tesla has stayed at "severely overvalued" stock prices for about a decade, with occasional crashes to just "overvalued", I'm not so sure the big AI companies really need returns that justify their stocks. Sam Altman and Dario Amodei are both in their own ways trying to capture that same lighting in a bottle where the company is evaluated solely on the CEO's vision
Yeah. This is the whole “market can stay irrational longer than you can stay solvent” thing. I think there’s almost always a plausible bearish case to be made. Hence: permabears.
I feel like this is dot com 2.0. The dot com's valuations eventually were proven to be true, only way too early. With investing Timing is everything, if you invest in Pets.com you lost, if you invested in chewy.com you won. If you invested in Broadcast.com you lost, if you invested in YouTube.com you won.
AI is going to transform things but these current prices are crazy.
In 2022, Tesla had a P/E of 34 and a growth rate of 50%.
For how long can the gamble be detached from real life?
It's an honest question. In the real world, resources and people are finite. Things have to make sense, the bills have to be paid.
In the stock market however, a company can be completely worthless in the real life, but if the money blobs all agree to pumo money into it the stock price goes up anyway.
Wealth is not in fact finite. If you take a piece of lumber and carve it into a dresser you've just generated wealth. Resources kind of are but not really, extraction takes it from unusable to usable and essentially creates it (also, trees literally grow out of the ground). Similarly Tesla has made a lot of cars that people drive and AI companies have created products that have hundreds of millions of DAU.
Whether that "justifies" the market prices is orthogonal, all the market price says is that people want to own a piece of the pie at the current price being offered. It can stay that high as long as there continue to be people interested in owning shares of the companies.
Well the question is what's a more appealing place to put your money? Because in the absence of one the stock market by default is viewed as an appealing place which drives up demand for it. You might say well folks should just spend their money and enjoy it instead of putting it in the market but that's a whole different strategy. You might say folks should buy real estate well that's a whole different strategy. You might say folks should sit on cash and bonds and other low-risk assets well that's another strategy. High interest rates actually make cash or at least bank savings rates more appealing than they were 5 years ago... yet folks are still seeking those double digit returns. Can you blame them? What will trigger the downturn will be folks who've overextended themselves on margin forced to sell in order to liquidate assets
The problem is, the last two decades were marked by extremely low, zero and sometimes outright negative interest rates plus a ton of outright printed money that got blown up the arses of the big banks. Worldwide.
That money sought returns and found them in hypergrowth of increasingly dumber nonsense. First it was Meta (or back then, just Facebook), then Tesla, then during Covid cryptocurrencies and NFTs, and now it's AI... but now, there seems nothing to be the "next big thing" to sink money into when the old thing dies down in growth and expectation and matures. Maybe gambling, but that's not sustainable, the number of whales/marks to make money from is finite.
IMHO, we're headed for a very big worldwide correction to deflate the markets and hand back a lot of the money to the central banks where it can be taken out of circulation, and it will be an event larger than the dotcom bust plus 2007ff combined. But, unfortunately, the markets can stay irrational longer than a good short-seller can stay solvent...
Right now it seems like space, defense, robotics, and in the fullness of time quantum computing are very clearly positioned as the next big things. Let alone bio and healthcare stuff which is always humming along especially after ozempic shakes things up
How I view the market:
Short term: high volatility and uncertainty, feels more like gambling at a casino
Medium term: the world is too unstable, best to hold cash
Long term: dollar cost averaging and time in the market always win so depending how long your horizon is, it’s a good time as any to invest
Longer term: we all die
Good advice. Ironically most long term folks that just buy low cost index funds and take a nap outperform most of the market stressing out daily on their next move. That’s the cruel reality of investing.
When you factor in the opportunity cost of all that stress and managing an active portfolio the percentage of successful active portfolio managers likely falls down to single digits.
Invest early, invest consistently and often in up or down markets, and the math says you will do very well.
Though I keep wondering if the ‘invest consistently whether the market goes up or down’ defeats the point of a stock market in the first place.
People effectively keep throwing money at mediocre or failing endeavours, which magnifies any structural problem, and everything seems to keep going up whether it’s good news or bad news, until the bottom falls out.
My reading might be wrong, but since 2020 there is no bad news that seems to faze the market by an iota.
Well, that is what markets do: behave. Rationally or not.
The 1929 panic was also irrational but it happened. There is no way to solve that.
Panics happen and bubbles too, and in the meantime, very long term investments tend to grow (in average), as long as the economy works as expected (improving in average, long-term).
Of course, catastrophes are not impossible (the Black Death, the French Revolution, World Wars...).
Always bet on black at the roulette table, over and over and over again.
> My reading might be wrong, but since 2020 there is no bad news that seems to faze the market by an iota.
Or maybe - because it's the bad news that sells - there is much more of the good (or neutral) news that outvalue the bad news, that is just unknown to you?
This has been my investment philosophy as well, but I'm starting to realize that this is forgetting that "past performance does not guarantee future results". It only works when the index goes up, and I don't see any fundamental reason that should be true on the long term. I don't know of a better alternative though.
Well the fundamental reason boils down to the idea that these companies that you're investing in employ a bunch of sophisticated professionals who wake up everyday aiming to grow the success of their businesses. In other words you're really investing in their potential. Compare that to for example something that's purely speculative like gold.. a useless piece of metal that just sits there. Buffett has really helped me see this difference
Does it follow that the price of the index should go up in perpetuity because workers are motivated?
It's almost the inverse of a cruel reality? Just stick it all in low cost index funds and go to the beach. You'll do as good or better than 99% of actively invested funds. That's not cruel at all, that's actually a pretty comfy reality.
> always win
That's not true. It's only been true on American stock markets, and we only have ~100 years of data.
Many other major stock markets in the world have had ~20 year periods where you would have been better off with your money in bonds than in stocks.
I think the average world stock market is a much better predictor of American stock markets over the next 100 years than past performance of American stock markets. The last 100 years have been exceptional for America vs the world -- it seems very likely that the next 100 years won't be.
The most extreme example is Germany 1914. If you would have invested in the German stock market in 1914 it would have taken you 100 years to break even. I'm not saying that American stock markets will be that bad, but it's an example that disproves the thesis that long term stock markets always win.
You do, your children will live. Or, if you don't have children, your non-profit does not.
I wish people would stop using this "we all die" slogan when it comes to their financial lives, and think a bit about the people who will be left after you retire.
I hate that having children is apparently the only purpose anyone has in life because I don't have children or a purpose in life and I'm pretty sure I would be even more depressed if I had children.
Living only for yourself gets really boring. Children give you a life-long purpose. That and the evolutionary purpose, or drive, of life is reproduction.
Note that I am not arguing that children is the purpose in life for everyone. For some it is, for others it is not.
I believe that the majority of child bearers are "on program" driven by their biological imperatives. I believe that among the voluntary non-children people (of which I am one) there's plenty of values, goals, hopes and aspirations. In fact, for me, life is so rich that that is why I do not want children.
There's billions of people all over the planet to carry the burden for me. Sure, if we were in an extinction scenario, I might reconsider, but we're far, far from it.
So while I continue to enjoy life and full freedom, I'll let the people who are "on program" deal with the poop and worry for their offspring.
That does not, however, mean I do not have to care about people. If anything, the fact that I do not have children, gives me the opportunity to care _more_ about people in general, than the people who are busy with raising children.
Hence my idea about a non-profit, that will outlast me for some time.
Yeah, I used to feel life was rich too, and then I very suddenly became aware that it was finite and anything I could possibly do is just leading towards the same fixed point ending. I think mentally healthy humans have ways to avoid thinking about this.
Find purpose which aligns with "progress or wellbeing of our species". Making kids is one, making inventions is another, helping poor or sweeping roads fits too. If you see that your "way of living" will affect people positively, typically you will have a "good life purpose".
What happens when you have kids? You leave something that will last after your death. Then you make sure that they are properly raised and have enough resources, so that your "mark on the world" is more appreciated by other people. Ultimately all the "good life" have one thing in common. Improving life of our species.
I understand this is childish, but nobody asked me if I wanted to be on this rock hurling through space at 230K/s. Thanks, parents :)
This is not childish. It means you have no purpose in life. If you feel life is not worth living, find purpose and you will feel better. "Make more life", "make life more bearable for me" and "make life more bearable for others" are good universal ones, to have a starting point. If you don't like them, find a better one. Of course, if you DO want to be unhappy, please continue as is :), accumulated unhappiness sometimes leads to big things.
Many people feel they live on through their children. Or through the people they've influenced. It's all a question of how you think about things
Yeah, like having kids.
Religion, children, and legacy are the ways people cope with this. For the vast, vast majority of human history, 99% of people believed either in an afterlife or reincarnation or something of the sort. Having children, who were molded in your image and expected to take over your life's work, doing the same work you did. Or otherwise leaving an impact in the world, hoping that your legacy would be remembered and to pass on your teachings and experiences to future generations even if not to your own children.
I think advances in scientific understanding may have unfortunately been detrimental to mental wellbeing at scale. Knowing that there is no higher power or grand purpose, knowing that our civilization is probably cooked in the near term, and knowing that even if our civilization isn't immediately cooked, Earth and eventually the universe is, are all not greatly emotionally satisfying.
Why is this downvoted?
It probably doesn't help that every scientific advance gets co-opted to make the rich richer and civilization worse.
I guess the world oscillates between good times and bad times. Those who are born in bad times get to see the world improve drastically and helping that along is a purpose. Those who are unlucky enough to be born in good times get to see everything crumble. At best they can inspire the rebuilding just before dying of old age.
We shouldn't be so sure about the fate of the universe. If you were born after 1980 you probably feel more certain about the eventual fate of the universe than people born in 1940. A lot of scientific advances that enabled us to even predict the universe isn't steady-state are less than 100 years old. They may change, and our predictions accordingly, in the next 100 years. In fact they did change several times. There was the steady state, then the big crunch, then the big rip, then the heat death. We can't be sure about heat death either - dark energy adds more energy into an expanding universe, which may be exploitable forever.
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Holding cash is a terrible strategy, the US dollar is going to get devalued by the end of the Orange Troll's term due to money printing/bond market repression/trade hijinks.
We're in the pump of a pump and dump by the richest people in the world, who are trying to engineer exit liquidity in a way that doesn't immediately crash the market. They're going to cycle their holdings several times before things go to shit to avoid the brunt of it, we'll be able to see the wave on the horizon. I don't think just the SpaceX dumping will trigger a broader loss of confidence, but Anthropic + OpenAI dumping post IPO will ripple through to the neoclouds, which will ripple through to the semis, and probably tank things. In the short term (pre AI IPO) the market is volatile but pretty safe IMO, so just trade techically.
In the medium-long term I'd hold a mix of mining/industrial equipment/etc stocks in Euros, and Chinese AI/renewables stocks in Renminbi. The Euro stocks are safer and a significant portion of their increased valuation will come from currency shifts, and the Chinese stocks are riskier but have a big upside and are likely to benefit from Renminbi revaluation as China onshores "finishing"/final assembly of products (which much of the world is going to push them to do).
Instead of cash, I like debt like mortgage funds. High single-digit returns with low volatility.
If short term is high volatility and the medium term is too unstable, why is the VIX as low as it is? Am I missing something, or is the VIX mispriced?
The thing I worry about is: what happens when an actual set of adults get back into the White House?
That could well be the trigger for the crash of all crashes because they might actually bring some reality pins with them, which are the antithesis of the growing, in size and number, fantasy balloons of hot-air the current cough leadership cough is facilitating.
> what happens when an actual set of adults get back into the White House?
Not just White House though, it's all the leaders of various government organisations, and private companies too. Nasdaq didn't need to change the rules for SpaceX IPO, rotten at the top.
The opposition in the US doesn't believe in anything except "stability". That means they'll probably keep most actual Trump administration policies. Probably even the war on Iran, though they might stop pretending to call it off every weekend.
To people who think I'm cynical (and are presumably downvoting), I present this nice example which just turned up: "Kirsten Gillibrand wants to save crypto - but Trump windfall is a political obstacle"
https://theintercept.com/2026/07/13/gillibrand-crypto-trump-...
I am not exaggerating.
Which will trigger even more wealth transfer to the top .1%, which the 99% will blame on the administration, and put the corrupt lot back in a few years later
Eventually though the world moves on and China takes over
China's got its own set of economic problems that they're masking. Their domestic economy is stagnant and they're trying to keep factories pumping out stuff. Since their domestic economy isn't biting, they're flooding the world with exports. This isn't sustainable, especially if and probably when the rest of the world decides that they're done with government backed Chinese companies killing theirs (and you're starting to see that).
> This isn't sustainable, especially if and probably when the rest of the world decides that they're done with government backed Chinese companies killing theirs (and you're starting to see that).
Well... China's foreign currency reserves are practically infinite and the rest of the world knows they can't push back on China too hard or lose a lot of important imports. For Europe for example, India and China together make 80% of the foundational ingredients for medicine [1]. Our supply chains are gone, even if we wanted to, it would take years to have fabs ready that could produce the domestic demand for stuff as simple but vital such as painkillers and antibiotics.
[1] https://www.diepresse.com/17552998/80-prozent-der-wirkstoffe...
I don't subscribe to the "China is just to big and important to fight" arguments. Countries that peg their currencies distort markets, mask problems, and eventually that comes crashing down (see also Asian financial crisis, the Bank of England pegging in the early 1990s, etc).
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I think China isn't exactly a good example of corruption-free administration...
I took their implication as China is essentially next in line to be the dominant superpower.
(I would say that, within that implication, it would be understood that corruption is not a problem that is being solved in that transfer of power)
There’s always money to be made in a bubble implosion. The challenge is there’s a very thin line between major bank and losing your shirt. Because of that most long terms smart investors just sit it out which is likely why you see Berkshire sitting on treasury bills.
> “It feels like gambling on whether they’re more incompetent or successfully corrupt.”
What you say has a ring to it. A good idea held in tension—provided ‘incompetence’ is the true opposite extreme.
Though it’s difficult to see the picture clearly, because to all _appearances_ Musk is doing well. US Culture collectively believes incompetence will not succeed for long, and this undermines my assessment.
“Twitter is now maybe better understood as a market manipulation device.”
And there’s the obfuscation. If you can manipulate at large scale and your followers somehow profit by following you, then it’s not competence but “confidence”. It’s all a game and our group is waiting for their turn, their opportunity to profit, get a great tip, win big.
> on the other, whatever shady crap these guys do after it all goes ‘boom’ to save their wallets is only gonna reward people in the market
Yup. That's kind of my feeling. Are we in a bubble? Obviously. But the people who have the most to lose have never been more intertwined with the rule makers and have never been so shameless about it.
"Don't bet against the house" has never been more appropriate. We may well be on the verge of the 2nd Great Depression, but you can be damn sure that the last ones to lose will be the billionaires hanging out in the new ballroom. We'll be burning poor people for warmth before they allow the asset prices to collapse.
I'll believe Musk is a trillionaire when the free float of spcx is 95%, not 5%
He's not even a trillionaire with a free float of 5%. Now that SPCX has almost returned to IPO prices, Elon is "only" worth $0.9T.
This is their 14th straight quarter of piling cash. Will the same article be written on their 15th, and 16th?
Fall was upon a remote reservation when the Indian tribe asked their new Chief what the coming winter was going to be like. The modern day Chief had never been taught the secrets of the ancients. When he looked at the sky he couldn't tell what the winter was going to be like.
Better safe than sorry, he said to himself and told his tribe that the winter was indeed expected to be cold and that the members of the village should stock up on firewood to be prepared.
After several days, our modern Chief got an idea. He went to the phone booth, called the National Weather Service and asked, "Is the coming winter going to be cold?"
"It looks like this winter is going to be quite cold," the meteorologist at the weather service responded.
So the Chief went back to his people and told them to collect even more firewood in order to be prepared. A week later he called the National Weather Service again. "Does it still look like it is going to be a very cold winter?"
"Yes," the man at National Weather Service again replied, "It's going to be a very cold winter."
The Chief again went back to his people and ordered them to collect every scrap of firewood they could find. Two weeks later the Chief called the National Weather Service again. "Are you absolutely sure that the winter is going to be very cold?"
"Absolutely," the man replied. "It's looking more and more like it is going to be one of the coldest winters ever."
"How can you be so sure?" the Chief asked.
The weatherman replied, "The Indians are collecting firewood like crazy."
They are one of the best value investors ever to do it. If they see no value, that is actually information about the state of the market.
Yeah but that is likely the normal state of things - high status people are human too, we're all shocked. And on Twitter comment - mass media has been a tool of propaganda since shortly after it was invented. Twitter is substantially better than something like a newspaper or TV channel.
The difference in the modern era is the internet is such a robust communication channel that the ultra-wealthy can't pay money to have the negative stories suppressed any more. If anything the current crop seem to be unusually well behaved by historical standards because there are so many eyes on them. Scandals like the whole Epstein thing or #metoo would simply have vanished into silence before the 2000s unless they were being used to lever out someone uncooperative for political purposes.
The information control meta has evolved from suppression to distraction.
Na. Its just the status quoe with diffrent charectors, same game. Jobs/musk. Altman/gates. Etc
I would rename the title to “The Buffett Indicator shows an overvalued market”. For those curious of its definition (from the article):
> The Buffett Indicator, a ratio that measures the market cap of the entire stock market against the GDP of the United States, has hit a record of ~232%. Historically, anything above ~120% is a signal of the market being overvalued.
That being said, it’s not clear that the Buffet Indicator is fully relevant, as a lot of the US AI and AI hardware companies’ market caps which are driving the stock market valuation growth involve a significant portion of their revenue from outside the US, and thus this wouldn’t necessarily count fully to the US’s GDP (for example, tax entity workarounds for foreign obtained revenue).
The fact the AI emperor wears no clothes seems clear to me at least. The dot-com bubble looked obvious in 1997; it popped in 2000. Anyone shorting in '97-'98 was carried out on a stretcher before being vindicated. In fact 2000-2002 fell in three brutal legs over two years, and anyone who leveraged up after the first 25% leg was destroyed by the next two.
My strat is to accumulate cash to buy the drop. The danger with this is; will the bubble continue until the bottom is even higher than today? I’ll take that bet.
Yeah. This is why BRK is in cash equivalents rather than being short.
Buffett has said a number of times that he never is intentionally sitting on the sidelines as a bet that things will go down. He’s simply there because he can’t find value. He’s also said that if he was dealing with millions rather than billions, he could probably find loads of value.
My guess is that is still true today, so the rest of us can probably find deals even in this market.
This is the way. Did the same thing for 3 years before corona. Drop came, went all in, fast forward a year or two, we did not die, and the stocks were about 150%-200% higher.
I'm doing the same thing now. Slowly starting to sell off the shares I have, putting the profit in bonds/interest accounts, when the bubble pops, I'll go all-in (phasing it in over a few quarters most likely) and then profit after 1-2 years.
I was to conservative on the corona drop. I was expecting a dead cat bounce that never came, it was truly v-shaped.
2017 the SPY went from 2200 to 2600, in March 2017 it was around 2350.
The lowest it hit in March 2020 was 2190, on March 23rd. It was back at 2500 3 days later.
Well done on your 7% discount. Hope you didn't sleep in that day
Timing the market is far harder to predict than it will crash. As you said in 1997.
In 1997 the Nasdaq was about 1700. In hindsight sure, sit on cash and buy at 1200 in 2002.
In reality you'd have either bought around the 1900 mark in 2001, or perhaps waited until 2003 when it was back to 1900.
Then come 2009 you'd be back down to 1300, so would you have waited 12 years?
You are
1) betting the bubble continue until the bottom is even higher than today
2) betting that AI won't be bailed out by the most honest administration ever seen
3) betting that you can accurately time the bottom of the market
Good luck catching your falling knife
The Buffett indicator has been over 120% since December 2016. It dipped to 130% in March 2020.
My favorite finance podcast (actually, just favorite podcast) does a variety of episodes related to this, including deep dives on the academic literature. Some highlights:
- "Do Expected Stock Returns Wear a CAPE": https://rationalreminder.ca/podcast/146
- "What about Warren Buffet?": https://rationalreminder.ca/podcast/335
Let's not forget the good old Single Greatest Predictor ( https://www.philosophicaleconomics.com/2013/12/the-single-gr... ), which hit an all-time high in Q4 2025 ( https://fred.stlouisfed.org/graph/?g=1Wc2g ).
> The Buffett Indicator, a ratio that measures the market cap of the entire stock market against the GDP of the United States, has hit a record of ~232%. Historically, anything above ~120% is a signal of the market being overvalued.
So nearly 2x over-valued. A market correction would take that to ~0.5x possibly, so a loss (for those getting in now) of 75% is on the cards.
It seems like of the most outdated and inflexible indicators that's widely used though? Does not account that a much higher proportion of the US economy might be represented in the stock market and that US service companies are generating massive revenue outside of US (in some cases the majority). That wasn't the case 50 years ago.
It's been over 120% since 2013. You can spend your entire earning career waiting for a crash
In the aftermarth of 2008 it bottomed out about 70%, similar after the dot-com crash in 2000. Before 1995 those were "bubble peaks"
I'm not convinced "historically" means anything in a globalised world that's very different to 50 years ago
I think it's a good time to re-read "A Short History of Financial Euphoria". A classic I always recommend :)
There’s really not much question we are in a giant bubble that’s broadly been fueled by AI hype. The only serious question is how do we get out of it.
In a controlled scenario the AI sector gets a severe correction with many AI-focused companies wiped out but broader damage more limited. In an uncontrolled scenario the AI bubble bursts and takes the whole economy with it.
The likelihood of a scenario where suddenly the economics of AI suddenly start to make sense and enough $ flows in to make the present valuations defensible seems around 5% now and rapidly falling towards zero.
> In an uncontrolled scenario the AI bubble bursts and takes the whole economy with it.
How is the whole economy exposed to AI? Will Anthropic or SpaceX cratering threaten the entire financial system? NVDA will certainly correct, which is probably the biggest risk to the market, but then what? All the FCF being spent by Google, Amazon, MS, Meta, etc... will suddenly start flowing to dividends and stock buybacks again. It's not like their core business is selling AI. Apple will be able to get cheap RAM/chips again while also keeping their recently increased prices.
I could see an argument that the economy is currently being propped up by the hope of AI productivity gains, but that seems spurious.
EDIT
A comment above mentioned oil, and thus the inflation coming with prolonged high prices. That's way more of a concern than anything happening in AI.
> How is the whole economy exposed to AI?
Out of fear/ uncertainty, investors don't just pull out of AI, but the stock market in general.
More money shifts to bonds/commodities, not just people selling AI, but Coca-Cola and Johnson and Johnson, etc.
Of course, the impact would not be equally distributed, staple stocks will crash less, but there will probably be overall a huge pull out as people panic shift assets.
The resulting downturn likely means a crashing job market (temporarily) as government says "there's no way we could have known" and slowly try to stem the bleeding... Meanwhile unemployment shoots up in any industry that needs consumers (retail, food services, etc., but less so healthcare, government), and companies are nervous to hire on a shaky economy (see: early COVID).
The energy shock will also say inflation should go up, but the crash would want to decrease inflation... Companies will likely have to eat costs to keep prices low to sell inventory that cost them more to acquire.
It's all one big economy.
Note: this is all big hand wavey speculating. The moment things start to turn south there numerous things governments can do to help (e.g. handouts, reduce interest, open oil reserves, etc) so what ultimately does happen is anyone's guess. This is just one scenario based on the fact the current US government prefers uncertainty in the market, e.g. we've had peace with Iran ~8 times according to the USA, but Iran claims some of those statements are false. The straight had been reopened ~5 times, but Iran disagrees there to. Seems like the _goal_ is uncertainty
Who cares if "investors" are getting out of the market? They are not literally pulling money out of those companies but out of a casino that is the stock market.
One good thing in all this is, at least, if the AI stocks collapse that should not result in large-scale lay-offs. :) Quite the contrary.
That's a very narrow view...
The people in charge of companies usually have large amounts of stock in their companies... And often bonuses tied to metrics that often includes stock. If their share price drops 50%, that's a personal "net worth" and/or "salary" loss which, unlike most people, they have bounce-back control.
"We need to trim the workforce", "improve margins", "show we are still a solid company"
The above doesn't just happen in AI/Tech stocks, it happens EVERYWHERE... Small business owners see their retirement portfolio hurt, they can't fix those companies, but they might reevaluate what they do in the next 2-3 years so they can get their retirement back on track... How do they increase profits while lowing costs? Try to cut staff/hours, find (perhaps foreign?) cheaper suppliers.
I think AI stock bubble bursting won't result in large scale layoffs, I think it will result in large-scale _trimming_ across the economy, which is almost worse. AI will be expected to fill in the gaps to increase productivity for less than the cost of an employee, which means slower rehiring .. AI will rebound at a "more correct" evaluation. And hiring will slowly pick up as companies see they still need people to produce.
Viewing the stock market as purely a casino -- the executives are the house at various casinos... and the house likes to win at the expense of the players (anyone not a casino)
All that AI capital investment is flowing down into construction, utilities, raw materials and many other industries that on the surface appear unrelated to AI.
That’s currently all being kept alive by artificial cash flow broadly funded with loans and VC investment. When that hiccups the blast radius is much much bigger than a few AI companies just folding.
I think the market is discounting some of the AI driven growth or maybe pricing in the likelihood of a correction. Look at some of the blow out earnings recently where the market shrugs it off. To your point, many non-AI companies are now driven by AI spend that seems unlikely to be durable.
I’m not a pro here but to me it would seem like an AI crash would hit certain companies really hard (SpaceX, Oracle, NVDA, etc), most other might take a small correction to reset AI driven gains, and potentially some deflation.
If the AI game ends then suddenly there is a return to free cash flow from hyperscalers, some goods and utilities cost less and a lot of investment dollars need a place to eventually go.
You could see a scenario where the overall market keeps chugging and the AI crash ends up being a rotation.
The same people pull the oil strings, crypto strings and AI strings. The whole economy suffering part intensifies when the "gubmint" bails its best friends out when the music stops.
I hope the general market will not drop by more than 25%-35%, while most AI companies will be wiped out.
I also expect Facebook, Microsoft, Google, to survive, and buy the good pieces that remains after the bubble popped. They each have income from other areas so are well position to survive the AI bubble.
Pure AI plays are the ones who will be annihilated. The best of the pure AI plays will be acquired by the old guard.
Bull markets are born out of skepticism. Everyone is fearful that there's a giant bubble so all eyes are on the fundamentals. When euphoria sets in, i.e. neighbors and co-workers start telling you how easy it is to make money on stocks, that's when you know you're at the top. We're not at the top and have seen multiple corrections/bear markets over the past 5-6 years.
Berkshire themselves have made investments into Google this year, a company at the center of this supposed "bubble"... make of it what you will but I think the market is setup to do pretty well in the near future.
A controlled scenario also looks very unlikely, right? I think some people with influence believe (rightly or wrongly) they can get even more power from an uncontrolled scenario.
> There’s really not much question we are in a giant bubble
IIUC, some indicators correlated with previous bubbles are lighting up now, which is being interpreted as evidence that AI is likewise a bubble. But what about indicators of previous non-bubbles? How did it look when textile mills were first industrialised, or kerosene replaced whale oil for lighting, or the electric grid became widespread, etc. -- real advances that materially increased productivity in a lasting way? If these same indicators lit up in those cases too, how can we distinguish bubble from genuine advance?
A number of things were both: the railway bubble was pretty bad for investors even if railways were a genuinely transformative technology that remains in use.
https://en.wikipedia.org/wiki/Railway_Mania : for "railway" substitute "data center".
I just don't think AI is any of those things. I understand that my argument is anecdotal and qualitative, but I just don't see AI (LLMs) materially increasing net productivity in the economy.
1850-1929 was filled with absolutely spectacular boom-bust cycles. Something working long term and having a bubble and crash in the short term are not mutually exclusive.
I have read another article recently indicating that the S&P 500 is overvalued compared to international indexes.
I may soon increase my 401k share of VTIAX.
https://www.telegraph.co.uk/money/investing/stocks-shares/go...
This bubble will never burst. The big investors are feeding a leverage cycle and cannot afford to stop. In addition, corporate nepotism has taken hold - for example, AI firms(the current flavor of software) invest in hardware companies. Hardware companies make money as the AI firms buy their product. Hardware companies then take that money and in vest in AI firms. The 'free market' no longer looks at 'value' to assess prices. And as equity prices become a reflection of the algorithmic trading that AI is doing, we have no way of knowing when and if they will decline.
The big investors don't have control over the leverage cycle; the banks do. What kills a leveraged bubble is when banks won't lend any more for leveraged investments. Then leverage quits making the market go up. Then people realize that the market isn't going up constantly any more, and so a few get out. Then the market goes down a bit, and some people who are leveraged panic and get out. So the market goes down more, and a lot more people who are leveraged panic...
The big investors can do whatever they want. They don't have the final control here.
the thing with leverage is that eventually you have to pay the debt back
in the best case scenario the government backstops it via money printing but that's just distributing the pain to the little guys
the destruction still happens
> Berkshire Hathaway just reported a record $397.4 billion in cash and T-bills, 59% of its investable portfolio.
Isn't that just lazy?
Even if the market is overheated, there will be opportunities in non-overheated areas/other countries/distressed companies etc?
Unless they are sure of a crash and need funds to buy on the cheap.
You might find some areas to criticize Berkshire Hathaway but I don't see being lazy as one of them. This is one of the most successful investment companies of all time and they got that way by being better than most at judging when the right time to get in and get out of the market, and by putting in the work on researching where/when to buy.
Might there be opportunities they miss? I'm sure there will be, but perhaps finding those is just too risky at the moment, so they've looked at the options and decided not to invest.
> This is one of the most successful investment companies
It was for a long time. There is not a lot of evidence that's still the case (so far at least but even if the crash comes but its not big enough its not guaranteed they will outperform S&P 500 over a several year period).
Future returns are never guaranteed but over the course of the orgs history (since 1965) they've done a fair bit better than the S&P 500.... https://www.visualcapitalist.com/warren-buffett-vs-the-sp-50...
I rather doubt the folks at Berkshire are sitting on their thumbs or playing golf all day and just forgot to buy anything. It's a measure of discipline, they won't invest in something without a good margin of safety. They'd rather miss out on a lot of good opportunities than pile money into bad (or even mediocre) ones.
From 2000-2002, Buffet kept liquidity and ended up buying companies like Moody’s and private businesses.
Doom and gloom articles are what make people get out of the market in fear and lose in the long run.
An individual investor isn't in the same stock market as Berkshire. Their investments move prices and they can't just allocate 50K on a XYZ fund. They have to find multi billion single stock investments, and that's a completely different problem than what us poor mortals face.
The conclusion I came to on this was to watch for indicators it’s not working out. Canceling these large capex projects is one. Meta scaling back on their compute recently eerily fits that indicator.
In fact anyone reading should ask fable about indicators and ai bubbles, I just did and it was startling!
all of the text implies the opposite of the headline?
That title really is bonkers, in a flammable/inflammable kind of way.
There really should be a domain authority check so people can't randomly submit HN news links to spammy websites.
heavy bags?
Go back to wallstreetbets
Reminder: Jack Bogle, the man who popularized the index fund, democratized wealth accumulation, and made more millionaires than anyone in history, has a famous saying for those pondering this situation.
“Nobody knows nothing.”