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Berkshire's $397B Bet Against an Overheated Market

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Re: Berkshire's $397B Bet Against an Overheated Market

#3

Post by elil17 »

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

Re: Berkshire's $397B Bet Against an Overheated Market

#4

Post by cmiles8 »

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.

Re: Berkshire's $397B Bet Against an Overheated Market

#6

Post by rajnathani »

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).

Re: Berkshire's $397B Bet Against an Overheated Market

#7

Post by bonesss »

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.

Re: Berkshire's $397B Bet Against an Overheated Market

#8

Post by sph »

bonesss wrote: post #7

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 sha…

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

Re: Berkshire's $397B Bet Against an Overheated Market

#9

Post by matwood »

cmiles8 wrote: post #4

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 t…

> 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.

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