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:
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.
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.
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.
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 in fact legal market manipulation
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)
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?
1850-1929 was filled with absolutely spectacular boom-bust cycles. Something working long term and having a bubble and crash in the long term are not mutually exclusive.
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.
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.
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.
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 AI and AI hardware companies’ market cap which are driving the stock market valuation growth involve their revenue from outside the US, and thus this wouldn’t necessarily count fully to the US 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.
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.
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.
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.
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.
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.
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).
> 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"
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.
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
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.
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
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.
> “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.
> 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.
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 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!
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.
I've scanned the whole S&P 500 with a DCF calculator I wrote and everything is over valued right now. DCF is not the end all of valuation but its a big part for the Buffet style of investing. The goal of an investor is not to make returns every year but to make returns in the long term. Returns that are higher than the S&P 500 as an aggregate.
Also, with the amount of cash BH is playing with those smaller distressed companies don't make a dent in their portfolio. They need the big corporations to be undervalued before they get in.
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.
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.
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[ 0.19 ms ] story [ 14.7 ms ] thread- "Do Expected Stock Returns Wear a CAPE": https://rationalreminder.ca/podcast/146
- "What about Warren Buffet?": https://rationalreminder.ca/podcast/335
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.
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.
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 in fact legal market manipulation
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)
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?
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.
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.
> 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 AI and AI hardware companies’ market cap which are driving the stock market valuation growth involve their revenue from outside the US, and thus this wouldn’t necessarily count fully to the US 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.
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
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.
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.
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.
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)
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...
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.
https://theintercept.com/2026/07/13/gillibrand-crypto-trump-...
I am not exaggerating.
You can find a Democrat on both sides of every issue. It's a big tent party, and houses a lot of oddballs.
AI is going to transform things but these current prices are crazy.
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...
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.
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.
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.
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 may soon increase my 401k share of VTIAX.
https://www.telegraph.co.uk/money/investing/stocks-shares/go...
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
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
The big investors can do whatever they want. They don't have the final control here.
In fact anyone reading should ask fable about indicators and ai bubbles, I just did and it was startling!
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).
Also, with the amount of cash BH is playing with those smaller distressed companies don't make a dent in their portfolio. They need the big corporations to be undervalued before they get in.
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.
“Nobody knows nothing.”