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
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.
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.
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.
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).
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...).
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.
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).
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.
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.
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 babe purpose. Those who are unlucky enough to be born in good times get to see everything crumble.
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.
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.
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.
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.
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.
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.
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).
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!
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.
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.
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.
AI is going to transform things but these current prices are crazy.
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.
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.
Eventually though the world moves on and China takes over
(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)
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
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.
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.
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...).
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).
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 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.
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 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.
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 babe purpose. Those who are unlucky enough to be born in good times get to see everything crumble.
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.
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."
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 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).
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.
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.
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.
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
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
- "Do Expected Stock Returns Wear a CAPE": https://rationalreminder.ca/podcast/146
- "What about Warren Buffet?": https://rationalreminder.ca/podcast/335
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.
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
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.
I may soon increase my 401k share of VTIAX.
https://www.telegraph.co.uk/money/investing/stocks-shares/go...
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.
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
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 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’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.
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.
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.
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?
https://en.wikipedia.org/wiki/Railway_Mania : for "railway" substitute "data center".
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.
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.
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).
In fact anyone reading should ask fable about indicators and ai bubbles, I just did and it was startling!
The big investors can do whatever they want. They don't have the final control here.
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
“Nobody knows nothing.”