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.
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.
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.
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.
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.
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.
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.
> 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.
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:
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.
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.
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.
> 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 in fact legal market manipulation
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.
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?
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
> 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.
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
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.
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...
There really should be a domain authority check so people can't randomly submit HN news links to spammy websites.
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.
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.
> 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 in fact legal market manipulation
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.
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?
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.
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".
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.
all of the text implies the opposite of the headline?
That title really is bonkers, in a flammable/inflammable kind of way.