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I'm sure trading on margin is for some reason actually a positive concept for the economy at large for reasons I can't understand, but god damn does it feel lik

• mathgradthrow 1y ago
  when people are botroing like crazy, it means that interest rates are too low.
• prasadjoglekar 1y ago
  The index fund itself is mostly Tesla, FB, Google etc..at this point. 35% +/- in my quick check
  • JKCalhoun 1y ago
    I assume you mean an S&P500 tied index fund? I asked "a friend": • Meta (META) ~3.1 % • Alphabet (GOOGL + GOOG) ~3.8 % • Tesla (TSLA) ~1.6 % So just under 9%. Significant, I suppose, for just 3 of 500 stocks. EDIT: since "etc." was mentioned, I thought I'd toss in some of the other top stocks in the S&P500: • Apple Inc. (AAPL) ~6.7 % • Microsoft Corp. (MSFT). ~6.6 % • NVIDIA Corp. (NVDA) ~6.0 % Amazon.com Inc. (AMZN) ~3.8 % Another 20% or so. So the above seven stocks comprise about 30% of the S&P500 (Apple, Microsoft and NVIDIA are the "Big 3" at about 20% when combined).
    • RickJWagner 1y ago
      Assume a market weighted index fund, not an equal weighted index fund.
      • JKCalhoun 1y ago
        Sure, the above was for Vanguard (VOO or VFIAX).
    • baxtr 1y ago
      On a P/E basis neither Meta nor Alphabet seem overvalued.
      • westpfelia 1y ago
        Not when compared to the likes of Tesla and Palantir. But once upon a time a P/E of 35 was insane. For meta I still feel like its too much. Apple.. Well less so. The question is do you think you can get 35 years of this level of earnings out of a company. If yes or more then it makes sense. But a whole hell of a lot can happen in 35 years.
        • JKCalhoun 1y ago
          Does P/E ratio (example you gave: 35) actually equate to years of profitability (also example you gave: 35 years)?
          • prepend 1y ago
            It means you’d need 35 years of earnings to equal the price paid today. So, yeah it’s sort of like using that logic. Not exact as a dollar 35 years from now isn’t now, but you get the gist.
            • JKCalhoun 1y ago
              Thanks!
        • DonnyV 1y ago
          Meta makes 95%+ of its revenue on their ads. Whats crazy is that they own the platforms that most of their ads run on. Instagram, Facebook, WhatsApp, etc. How do we know they're not fudging the stats on the ads? They're already known not to be trusted. How has a third party Ad Verification system not popped up by now. Not for just Meta but for all Ad networks.
          • Schiendelman 1y ago
    • ectospheno 1y ago
      > I assume you mean an S&P500 tied index fund? I would assume VT and/or BNDW. Most sane index fund fans aren’t all in on s&p 500.
  • dillydogg 1y ago
    It's crazy to me that these companies are essentially holding up the stock market, but are hemorrhaging money on buying GPUs. The magnificent 7 have spent $560 billion of capital expenditures between 2024 and 2025 leading to $35 billion of revenue, and zero profit. It feels like a complete house of cards to me. No one has made any profit on AI.
    • Workaccount2 1y ago
      High capital expenditure like this is viewed favorably. Investors are investing in AI, and high cap-ex is a strong signal that the companies are going after AI i.e. doing what investors want them to do.
      • dillydogg 1y ago
        Very interesting, thank you. I'm not in business so I don't have a good understanding of these expectations.
      • prasadjoglekar 1y ago
        It's only favorable, because there's no better alternative for the money. In a sense, interest rates are still low, for this risky of a bet to be the better alternative.
        • bpt3 1y ago
          Google and the like aren't borrowing money to light on fire with their misguided attempts at new products, they're supplying it themselves from their highly profitable core business lines. Therefore their failure to produce returns aren't an indictment of current interest rates. What they probably should start doing is paying a meaningful dividend to shareholders because they've repeatedly demonstrated they aren't capable of producing additional shareholder value with new product/business lines, but I don't see that as very likely in the near to medium term. That's because it's more risky for the careers of the decision makers to hand cash back to shareholders and say they don't know what to do with it than it is to lay claim to some moonshot with a < 1% chance of success.
• electrograv 1y ago
  The thing is, you can simultaneously be completely correct about the market being insane, while also entirely wrong in expecting it to behave in a sane way. Cue the famous quote: “The market can remain irrational longer than you can remain solvent.” I have a vague theory that as the amount of wealth inequality increases in a system along with “money printing” (lending, hypothecation, etc where the wealthy are permitted privileged leverage and risk), the more detached markets become from reality in general. In such a case, an increasing majority of the money circulating has no need to be grounded in anything close to the common basic needs and values that most normal people have to live with. Instead, most important to such wealth is to tap into the source of inflation to be on the winning side of that. This becomes a game of its own, where an investment’s connection to reality or fundamental value is mostly irrelevant compared to how it leverages or monopolizes the state-created and privately created instruments of “money printing” (sketchy lending, rehypothecation, etc.) and other such “games” that only the wealthy are allowed in on.
  • lazide 1y ago
    Notably, very little of the US economy is plausibly basic needs (a roof over ones head, basic nutrition, actual basic medical care, etc.). The vast, vast majority is essentially luxury goods and services, but Americans have been conditioned to think what the rest of the world considers luxury is actually basics. If Americans actually cut back to actual basics (a fixer upper small house in a less desirable area), shared a older used car instead of buying several new ones (or a big truck!), made homecooked stews and beans and rice instead of eating out all the time or prepackaged food, stopped buying the latest fancy phones, took care of their health instead of gastric bypasses, dialysis, etc. Hell, even if the average American stopped taking expensive vacations! The world economy would likely collapse overnight, no joke. And it would likely be uglier than the Great Depression domestically.
    • like_any_other 1y ago
      > a fixer upper small house in a less desirable area A lot of an area's desirability has to do with crime rate. Bulgaria has a homicide rate of 1.088, and the US 5.763. So what would be considered a very safe, friendly neighborhood in the US, would be average or worse in Bulgaria. In this sense, "luxury" is flipped - what Bulgarians would consider basic, would be "luxuriously safe" in the US.
• infecto 1y ago
  There can be a lot of mundane reasons to use margin. Making purchases while cash is in movement as an example. This type of debt is one of the safest as you are borrowing against assets with an up to date valuation.
• slipperydippery 1y ago
  I’ve seen nobody talking about this, so it’s probably wrong, but I can’t shake the feeling that a lot of the seemingly-nuts things we’ve seen the last 20ish years, from house prices going to the moon to LOLWTF P/E ratios sustained for years on end, and even the magnitude of VC activity, are an outcome of having way too large a proportion of our money in capital, desperately seeking investments to buy, with an underlying economy (ignore stock prices and net-drag economic activity like over-paying for healthcare, I mean actual productivity) that hasn’t grown anywhere near fast enough to give that money anything useful to do.
  • je_bailey 1y ago
    I've had the exact same thoughts, so if you're wrong you aren't alone. I personally believe this is due to the imbalance of wealth. Where money isn't circulating properly and we end up with these massive funds that move from one investment type to another destroying everything in their wake
  • fergie 1y ago
    Every independent economist has been saying this for the last 10 years- see for example "Capital in the Twenty-First Century", a book written by French economist Thomas Piketty.
    • slipperydippery 1y ago
      Time flies, and he’s been on my to-read list for… a while. Need to finally get around to it I guess.
      • andrepd 1y ago
        He recently released a book that's kind of an abridged version. Capital in the 21st Century is 800 pages, so I don't blame you!
        • marbartolome 1y ago
          What's it called?
• qalmakka 1y ago
  Nvidia has current market cap equivalent to ~8 times ExxonMobil. If tomorrow ExxonMobil disappears from existence, you'd get half of the world paralysed. If Nvidia tomorrow gets replaced by a massive hole in the ground, you'd just shrug, go down the road a bit and buy AMD. Sure, they can't make cards as fast as Nvidia does, but they still work, the old cards won't suddenly stop working, and they don't even manufacture their own hardware. The AI stocks nowadays are pumped up by pure hype, and it's inevitable that the market will recalibrate sooner or later
  • intotheabyss 1y ago
    I think you're missing part of the story with stocks like NVDA. The value of a stock is also based on expectations, so it could be that all of NVDA's growth for the next decade has already been frontrun by the market, and it's essentially partly a prediction market on how valuable the infrastructure will be for AI, given that the chip requirements will only increase as AI systems are implemented in more and more hardware (robots / appliances / transportation / medicine, etc.). While the growth potential of carbon fuels really remains as it is with modest growths aligned with demand/population, but tempered by alternate energy taking greater and greater marketshare. So it could simultaneously be hype (very optimistic predictions) and yet still valued appropriatey by the market with future expectations priced in, just with some additional premium due to that demand/hype.
  • JKCalhoun 1y ago
    I wouldn't be so quick to pick on AI hype. Investors are always desperately looking for where to put their money. That it is AI suggests, perhaps, that all the alternatives look less promising right now? (And that is a bit tragic.)
  • wongarsu 1y ago
    I'm not sure that's a fair comparison. The difference in the product lifecycle is too big. A GPU has a 3 year depreciation cycle and continues working for well over a decade after that, if I buy gas today I need new gas tomorrow. The market can react in the timespan of years, it can't react in the timespan of weeks, and having a product that isn't used up makes timelines more elastic. If we eliminate both factors by imagining a world where GPUs just stop working every three years and where AMD doesn't have time to ramp up production we'd be pretty screwed without Nvidia, and everything depending on GPUs would quickly grind to a halt. AMD sells a tiny number of dedicated GPUs compared to Nvidia, and right now they have no spare capacity
• Fade_Dance 1y ago
  Data shows that retail participation has been near all-time highs, which does tend to correlate with bubbly market activity. The market in general is fairly highly valued when looking at the standard valuation metrics, but corporate earnings have been strong as well. That said, the most obvious grey swan would be the market concentration in the top names, which market cap weighted index funds do not avoid and indeed contribute to on a mechanical level. That said, the names will eventually swap around within the index, and as long as capital flows to US financial markets don't reverse (see the back to back 7% down days for market cap weighted indexes during the tariff scare) these rotations won't ultimately be a problem. Beyond that though, it's not as bad as it looks at first glance. Other areas of the market have pretty large pockets of value, or at least more average valuations. Some names in consumer discretionary are still at the bombed out post tariff scare valuations (ex: LULU which is a good example of a name that had optimism and now has extreme pessimism and low valuation, ANF which has good earnings despite tariffs and is cranking buybacks sub-10 PE) and sectors like healthcare (you have to be a real contrarian to get in here, but when Buffett is buying the value proposition is usually pretty extreme), and energy (quality energy names like FANG trading near single digit PE with management that is showing extreme capital restraint in the face of uncertainty, for once). Smallcaps in general aren't that expensive, since they are on the back-end of the huge, crowded long/short trade (that has been unwinding for a few days now). Even in megacaps it isn't all bubbly. Google has a lot of pessimism and isn't that expensive, which may or may not be warranted but it is a counterexample. The ridiculous valuations are quite concentrated in the AI related space, specifically in specific names which retail is obsessed with (ex: PLTR( or hedge funds are obsessed with (ex: GEV).
  • Hizonner 1y ago
    > as long as capital flows to US financial markets don't reverse A rather large and probably counterfactual assumption, if the US continues, or even looks like it might continue, on the path it's been on.
    • Fade_Dance 1y ago
      The April meltdown was a great example of how markets react to net capital outflows from global investors. Interestingly enough, since the foreign buyer strike, money has been roaring back into US financial markets. I'll zip my mouth when it comes to judging their decision on that front, but I'll at least say that I suspect that the AI narrative has a strong pull, and much of the world really has no good option to participate in this apparently extremely intoxicating investing narrative other than to buy US tech. To be fair, the US has these sorts of narratives running more often than not, so we'll see how it plays out long term. As of now, talk of foreign money being pulled from the US was a flash in the pan.
• deadbabe 1y ago
  Stop worrying about P/E. If you had only invested in companies with sane P/E in the 2010s you would have probably missed some of the biggest runs for companies that today are some of the most valued in the world. Worrying about P/E is more for really big institutional sized investors who are very conservative because the loss of principal is far more difficult to recover for even small % of loss. You are an individual investor who can probably recover losses with a year or two of salary.
• yieldcrv 1y ago
  Palantir is closer to an East India Company Perhaps there is a different valuation metric relevant for a nearly sovereign entity. Nobody is buying shares for "money returned to shareholders", because nobody is using shares as a conduit, the corporation relies on a low-float to pump their own stocks and delete the shares in buybacks that squeeze the price.
  • arduanika 1y ago
    > "money returned to shareholders" > buybacks I'm not sure you understand what a buyback is, and given that display of ignorance, I don't see why anyone would care about your (entirely unrelated) observation about Palantir.
    • yieldcrv 1y ago
      shares exist as conduits to return money to shareholders via dividends buybacks are more efficient but only pump the shares on the open market, by nature, some shareholders are essentially getting money returned, but primarily its to reduce scarcity so all shareholders just have higher value shares for utility at their own discretion
      • arduanika 1y ago
        No, all shareholders are essentially getting money returned. "Higher value shares for utility at their own discretion" = negotiable securities = money. This conspiratorial "some" is...not a good sign that you're well calibrated enough to tell me what long-dead companies Palantir is or is not like. I'll take my critiques of Palantir from people who understand what they're talking about.
        • yieldcrv 1y ago
          “some” was actually included predicting you would just as be pedantic if I didn't mention the people that sold their shares during the buyback by just happenstance of selling at the same time you are trying to make a point about me but provided none, while agreeing with what I said that was…. predictable
• wilkommen 1y ago
  > I'm sure trading on margin is for some reason actually a positive concept for the economy at large for reasons I can't understand. Don't underestimate yourself! A lot of times when something seems stupid and socially corrosive, it is. I don't think there is any reason for margin trading other than it makes a few people a lot of money.
  • cosmicgadget 1y ago
    With margin trading you don't need to worry about your cash balance. It can be in something like COST or TLT and you can still trade.
• FredPret 1y ago
  These high PE's imply an expectation of further profit growth - by rational investors. There's a strong element of less rational investors with FOMO jumping on as well. Index funds offer some defense against crazy PE's through diversification, but keep in mind that when an asset bubbles, it also takes up a greater percentage of the index fund. The big tech stocks make up a significant % of the SP500.
• alphazard 1y ago
  > Macroeconomics is way out of my wheelhouse Many of us consider macroeconomics to be out of humanity's wheelhouse. The divide between micro and macro economics is where the real science ends and the bullshit starts. Many of the findings in macroeconomics are politically motivated, tenuous, and haven't reproduced well, just like in the other social "sciences".
• jandrewrogers 1y ago
  If a company has strong growth in real dollars or inflation is high then a higher P/E is approximately valuation neutral. P/E ratios don't exist in a vacuum and low isn't always better. The price-to-sales ratio is often more indicative of whether something is overvalued than P/E in high-growth cases because earnings are used to finance growth. P/E ratios tend to be small only if revenue growth in nominal dollars is flat, which tacitly treats the stock more like a bond.
• sharpy 1y ago
  I do trade using margin account, but I don't borrow. The primary reason I use margin account is to be able to trade with unsettled funds. Probably don't need it now that the settlement times are T+1, but when it was T+2, it was kinda annoying.
• gen220 1y ago
  Disclaimer that if you own any of the popular market-cap-weighted index funds (VOO, VGT, VTI) you are exposed to this risk and, conversely, have benefited from this ballooning in valuations. NVDA, AAPL, TSLA and PLTR are together ~16% of VOO at the moment. NVDA alone is ~8%. Berkshire Hathaway is about the same % as TSLA, 1.61%.
• antithesizer 1y ago
  One of the two major worldviews (ideologies) says the market is fully valued. One says it's severely undervalued. Nobody is capable of considering that their world view is wrong and they're living in a fantasy. The next 12 months will be fascinating and (for some) extremely satisfying.
• gwbas1c 1y ago
  High amounts of margin debt indicate that a crash is coming. When a lot of the investments fail, the whole house of cards unwinds: A lot of the debts go bad, and then there isn't enough lending to create investments which are then used to create jobs.
  • cosmicgadget 1y ago
    Also margin calls will force selling of equities, driving the prices down.