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Discussion (54 Comments)Read Original on HackerNews
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.
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
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.
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.
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.
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.
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.
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
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.
- "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.
I may soon increase my 401k share of VTIAX.
https://www.telegraph.co.uk/money/investing/stocks-shares/go...
In fact anyone reading should ask fable about indicators and ai bubbles, I just did and it was startling!
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".