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Berkshire's $397B Bet Against an Overheated Market
- dinkblam 3mo agoall of the text implies the opposite of the headline?
- deleted 3mo ago[deleted]
- actionfromafar 3mo agoThat title really is bonkers, in a flammable/inflammable kind of way.
- elil17 3mo agoMy 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 https://rationalreminder.ca/podcast/146 - "What about Warren Buffet?": https://rationalreminder.ca/podcast/335 https://rationalreminder.ca/podcast/335
- cmiles8 3mo agoThere’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.
- matwood 3mo ago> 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.
- actionfromafar 3mo agoThe 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.
- cmiles8 3mo agoAll 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.
- rubyfan 3mo agoI 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.
- actionfromafar 3mo agoA 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.
- akoboldfrying 3mo ago> 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?
- nixon_why69 3mo ago1850-1929 was filled with absolutely spectacular boom-bust cycles. Something working long term and having a bubble and crash in the short term are not mutually exclusive.
- pjc50 3mo agoA 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 https://en.wikipedia.org/wiki/Railway_Mania : for "railway" substitute "data center".
- roncesvalles 3mo agoI 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.
- hypeatei 3mo agoBull 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.
- abc123abc123 3mo agoI 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.
- rajnathani 3mo agoI 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).
- le-mark 3mo agoThe 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.
- abc123abc123 3mo agoThis 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.
- le-mark 3mo agoI was to conservative on the corona drop. I was expecting a dead cat bounce that never came, it was truly v-shaped.
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- bonesss 3mo agoIt’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.
- sph 3mo agoHow 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
- cmiles8 3mo agoGood 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.
- sph 3mo ago
- chasil 3mo agoI 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/golden-decade-us-equities-may-have-run-its-course/ https://www.telegraph.co.uk/money/investing/stocks-shares/go...
- v4dm 3mo agoThere really should be a domain authority check so people can't randomly submit HN news links to spammy websites.
- 374884848 3mo agoheavy bags?
- weregiraffe 3mo agoGo back to wallstreetbets
- sscaryterry 3mo ago> 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.
- iso1631 3mo agoIt's been over 120% since 2013. You can spend your entire earning career waiting for a crash 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
- ywvcbk 3mo agoIt 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.
- bawana 3mo agoThis 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.
- 374884848 3mo agothe thing with leverage is that eventually you have to pay the debt back 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
- AnimalMuppet 3mo agoThe 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.
- le-mark 3mo agoThe 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!
- kriro 3mo agoI think it's a good time to re-read "A Short History of Financial Euphoria". A classic I always recommend :)
- khurs 3mo ago> Berkshire Hathaway just reported a record $397.4 billion in cash and T-bills, 59% of its investable portfolio. 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.
- enoint 3mo agoFrom 2000-2002, Buffet kept liquidity and ended up buying companies like Moody’s and private businesses.
- raesene9 3mo agoYou 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.
- ywvcbk 3mo ago> 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).
- raesene9 3mo agoFuture returns are never guaranteed but over the course of the orgs history (since 1965) they've done a fair bit better than the S&P 500.... https://www.visualcapitalist.com/warren-buffett-vs-the-sp-500-growth-of-100-1965-2025/ https://www.visualcapitalist.com/warren-buffett-vs-the-sp-50...
- DonsDiscountGas 3mo ago
- glimshe 3mo agoDoom 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.
- RickJWagner 3mo agoReminder: 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. “Nobody knows nothing.”
- AnodicElegy 3mo agoLet's not forget the good old Single Greatest Predictor ( https://www.philosophicaleconomics.com/2013/12/the-single-greatest-predictor-of-future-stock-market-returns/ https://www.philosophicaleconomics.com/2013/12/the-single-gr... ), which hit an all-time high in Q4 2025 ( https://fred.stlouisfed.org/graph/?g=1Wc2g https://fred.stlouisfed.org/graph/?g=1Wc2g ).