alt Hacker NewsBerkshire's $397B Bet Against an Overheated Market
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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).
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
> 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.
> 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.
I think it's a good time to re-read "A Short History of Financial Euphoria". A classic I always recommend :)
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’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.
The 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!
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 really should be a domain authority check so people can't randomly submit HN news links to spammy websites.
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.