End of Cycle Risk

Pundits are starting to debate the AI bubble. Are we even in a bubble? Which stocks do you buy in a bubble?

"Worries grow that stocks are in a bubble. There’s a way to trade one.

Oddly enough, that means staying invested in equities for the moment, while also betting against bonds."

Bubbles usually take years to burst"

Worst advice ever, but par for the course.

Pundits have already forgotten about the pandemic bubble - there is no need to go back 25 years to Y2K. Below we see this AI bubble has already lasted longer than the pandemic bubble. And we also see the same pattern of lagging breadth (new highs) in the lower pane is deja vu of 2021.

A lot of people forget that Ark ETFs, IPOs/SPACs, Cryptos and Chinese stocks were down -80% after the pandemic bubble burst.

Unlike the pandemic, there are reasons to believe this bubble is the end of the cycle.

First off, the stock market is no longer following the economy, the economy is following the stock market, due to the wealth effect.

“Sentiment for consumers with larger stock holdings held steady in September, while for those with smaller or no holdings, sentiment decreased.”

“The economy’s very vulnerable if the stock market does turn south, for whatever reason”

The economy is now dependent upon a stock market bubble. And the stock market bubble is dependent upon the Artificial Intelligence scam which we learned this week will never pay off:

"This week, consultants at Bain & Co. estimated the wave of AI infrastructure spending will require $2 trillion in annual AI revenue by 2030. By comparison, that is more than the combined 2024 revenue of Amazon, Apple, Alphabet, Microsoft, Meta and Nvidia,"

Morgan Stanley estimates that last year there was around $45 billion of revenue for AI products. The sector makes money from a combination of subscription fees for chatbots such as ChatGPT"

Chatbots are currently making 2% ($45b versus $2t) of the revenue that is required to justify current levels of investment over the next five years, but there is no real business model in sight. Worse yet, mainline companies are planning to use mass layoffs to "pay for AI", which will collapse the economy.

Which means that the "economy" such as it is, consists of investing totally unsustainable amounts of money on AI which is feeding back into the stock market, giving the illusion of an economy.

“This is bigger than all the other tech bubbles put together,” said Roger McNamee, co-founder of tech investor Silver Lake Partners, who has been critical of some tech giants. “This industry can be as successful as the most successful tech products ever introduced and still not justify the current levels of investment.”

My humble advice is don't go long stocks and short bonds in the largest Tech bubble in human history. Because history says it doesn't work out too well