I'm guessing this is worse due to the super high valuations of these companies? Mag7 make up like 1/3 of the S&P 500. Even if you buy a low cost index fund with the goal of diversification, your portfolio still includes a lot of this stuff.
Market neutral index fund investment can not be accurately described as fueling a bubble, though. You're neither bullish nor bearish on Mag7 in particular.
>Similarly, thanks to recent efforts by the Trump administration, the $15 trillion held in private sector workers’ retirement accounts is now, for the first time in history, available to be invested in private funds.
The argument is that retirement savings are being invested in different ways than before.
I'd like to see some quantification for their statement. It's unclear to me how much has actually been invested in private funds. I think that pensions invest, (and that the economy is linked together) is a far more persuasive (note that neoclouds and the hyperscalers are all public as are some of the private credit firms and banks bankrolling the build out).
The language the author uses there obfuscates rather than clarifies. 401(k) holders can choose to invest in private credit, but it is never going to be the default investment option, and they control that choice. (Unlike public employees, who typically have no control over how their pension savings are invested.)
there is an argument to be made that investors with long investment horizons and predictable flows aka insurance companies and retirement funds are exactly the ones who should be taking risky long term bets instead of looking to next quarter
There is, but the presumption in that argument is that those risky bets bring higher returns. If that assumption is invalid, the argument falls apart. (I'm not especially confident myself that private credit can actually bring higher returns over a long time horizon.)
Or perhaps not. You don't want to retire at a moment when the retirement fund is down 20% and decides to pay no interest on your savings for the next 10 years. Or not pay you at all.
AI companies and hyperscalers' kamikaze spending on data centers may not be profitable. But they seemingly have no choice because everyone else is doing it.
Would anti-data center measures be like an arms control treaty in this arms race? Maybe if they force companies to spend slower it'll actually be good for everyone's finances.
That's how arms races work though. Everyone spends a ton of money to end up no further ahead compared to their rivals and peers.
"The share price will tank if we're not seen as AI-forward" is a legitimate fear for many CEOs. It's the only logical explanation for tokenmaxxing and other behavior that only makes sense from a game theoretical perspective.
If that were true then management could've spent some time coming up with better metrics than "tokens burned". They could just halve deadlines for every project, as an extreme example.
Data centers are profitable. Even before ChatGPT came out the hyperscalers were having capacity issues. Non-AI growth is explosive since 2020. Cloud customers complain they can't spin up the resources they want to spin up in the cloud, and again, not just GPU SKU's.
Retirement savings are 401ks in the US and they're managed by _NOT_ the retirees, but random middle managers. Those are the people who are chasing whatever the bubble is producing because their "due diligence" requires them to be bootlickers.
The same can be said of many of the tech moguls who've sworn fealty to trump; if they didn't lick the boot, they could be considered acting against shareholders value.
So, like most things in America: the people are not in control of their actual power. Not in retirement funds, not in healthcare, and not in education. They've all been turned into bizare economic dependent indirect funding programs.
I didn't say anything about the management of retirement savings.
The author claims two things:
1. AI company valuations dropped because of fears that Democrats would restrict data center construction.
2. The AI industry is doomed because of unsustainable spending on data centers.
If 1 is true then investors clearly believe that the current level of spending is appropriate and any restrictions on it are harmful to long term returns.
If 2 is true and unsustainable spending continues despite a lack of RoI, then "arms race" is the only explanation for the irrationality. It is driven by the fear that if you don't spend big, you'll be part of the permanent underclass of companies.
This in turn implies a data center construction moratorium is a blessing in disguise. Everyone has an ironclad excuse to reduce financially-irresponsible but mania-driven data center investments.
Bottomline:
"Data center restrictions are bad for the industry"
and
"Data center spending is unsustainable"
are polar opposite viewpoints and imply vastly different outcomes of the current buildout.
I don't know which one is true. And like most things, I suspect the truth is in the middle. But they can't be simultaneously true.
I think 1. and 2. could both be true at the same time.
1. is claimed to have happened because INVESTORS in AI companies rerated their investment due to a threat of construction restriction
2. is a prediction about the future of how the industry will turn out
Someone who believes (2) is less likely to have been an investor to begin with and therefore didn't participate in the price rerating for (1)
I do agree with your point that a reduction in spending would have a positive outcome overall if we turn out to be in an "arms race" with a lack of ROI.
I despise target retirement age funds for exactly this reason and I have all my 401k funding in major index funds that I do not care about beyond that on a day to day basis.
The major target retirement date funds are just "funds of funds" that are distributed across stock and bond index funds in an age appropriate allocation. e.g. https://investor.vanguard.com/investment-products/mutual-fun... They're generally not actively managed funds chasing bubbles.
The risk of all risks today is wether OpenAI will survive. I just watched Zitron is convinced they will not [1]. Eisman said OpenAI flop will cause recession [2].
I have lived through 1 recession. I will unfortunately have to live through another recession because yet again regulators have been taking a xanny/tranquilized; and unchecked greed of Wall Street and billionaires
Technically she wasn’t a regulator - I believe she was at one of the ratings agencies. In their defense, it looks like Anthropic’s IPO is going to receive a junk rating.
Why do people keep bringing up Zitron in these discussions. He's literally just some guy. And with all due respect to Steve Eisman, he's been wrong plenty of times, most recently with bond prices going above 5% being a trigger. And he's still recommending that you should hold SPX or a combination with QQQ like, hilariously, that's supposed to be diversification or something.
Because he actually analyzes the rather ugly financials of the companies in the bubble.
For some reason the people who hate him the most are the most inclined to ignore the things he actually talks about.
They all get hooked on anthropic screeching about ending humanity or some other nonsense and forget that this is a business. A business which isnt making money.
Because he has been one of the few people doing actual research on the financials around AI and reporting on exactly why it looks like a massive bubble.
If any boosters can provide the type of evidence that Zitron has I’d love to see it.
will it (be allowed to) work as intended? the sector becomes/is too big to fail and is deemed a national security concern - we might see backstopping in that case, also it's really the only thing keeping the economy from contracting. i expect the downturn, if it comes, to be more like a megafire that burns white hot through fuel rather than the controlled burn we need, so I don't know that leaving it alone solves anything, given how many actors are actively meddling.
Intentionally using them as human shields before the fact is different than using this as a political narrative to justify what they want to do anyway after the fact.
The owners of existing data centers might make more money if new data centers are blocked, because there is currently plenty of demand and they will have less competition. Or maybe not. There are a zillion other considerations like this. Do you really think you can figure it out?
For retirement savings, index funds are hard to beat, and it's hard to say whether tech stocks should be over- or under-weighted compared to the index. Tech stocks went down recently, but maybe it's a good time to buy? People who invested in 2008 did well.
Reminder that VTSAX, VTBLX and VTIAX are all you need. 50/25/25 split, as per Bogleheads. (FXAIX, FXNAX, FSPSX if your acct is on Fidelity).
(Also a reminder that target funds are expensive and will sometimes be over-allocated towards hot industries depending on the retirement year "target".)
This seems like pure slopulism to me, to be honest. It doesn't back its claim that pensions funds are fueling the supposed bubble, just that pension funds are invested in AI companies. The given solution of completely divesting from index funds (since some AI companies are in the Nasdaq) is also completely unreasonable.
>Are we on the brink of the next financial crisis? Last Thursday, there was a “bloodbath in tech stocks,” as the stock market lost $3.2 trillion in a single day.
Sounds bad, until you take a closer look and see that this was just a 4% decrease.
>In the longer term, with enough political will, we can redirect our retirement savings towards productive investment, such as building out affordable housing and funding the renewable energy transition. For example, NYC Comptroller Mark Levine announced a $4 billion affordable housing initiative in April. Pension fund trustees could follow his lead rather than direct money towards Blackstone, one of the country’s largest landlords and a major fund manager for public pensions.
The slop bells are deafening. I suspect that the author is driven more by political motives than a sincere belief that the AI industry is financially doomed.
Especially obvious political agenda when they advocate using retirement savings to fund affordable housing. Is it actually better for retirees to subsidize something that the free market struggles to fund profitably?
Literal slop for negative expected return. No way affordable housing is an investment. The delinquency rates would kill any return.
> 4% decrease
-4.3% that day, as of today its -0.81% since then. who cares about 1 day moves? where is the new article about the 2.6T in gains? big number bad or big number good?
Heh. Don't worry, by the time those missing savings would really have an effect, they won't be needed; AI will be providing all the basics+ for free. Or things will be so bad that they'd be worthless anyway.
Is this really the best argument they can make? A 4.5% correction bringing the S&P500 down to only a 11.5% YTD return? And a quote from a guy who's predicted 14 out of the last 2 bubbles? That's it?
I don’t think they’re talking about 401ks, since I don’t think those are significantly invested in corporate bonds. The article specifically calls out pension funds.
There's an AI bubble, but it's very clearly not the same as the dot com bubble or the housing bubble. The common thread on both of those was that too many people/companies had no chance in hell of returning either profits or the money lent to them to buy houses. We are not there yet, the AI bubble/euphoria is funded by the biggest cash printing companies in history. Even with ludicrous investing, their cash flow has only now and this barely gone negative. And the demand is still there. We have some ways to go with this.
The argument is that retirement savings are being invested in different ways than before.
AI companies and hyperscalers' kamikaze spending on data centers may not be profitable. But they seemingly have no choice because everyone else is doing it.
Would anti-data center measures be like an arms control treaty in this arms race? Maybe if they force companies to spend slower it'll actually be good for everyone's finances.
doesn't sound like valid reason
"The share price will tank if we're not seen as AI-forward" is a legitimate fear for many CEOs. It's the only logical explanation for tokenmaxxing and other behavior that only makes sense from a game theoretical perspective.
Clearly true though. “Not reveryone” is doing it. Most of the bubbly(?) trillions are.
Retirement savings are 401ks in the US and they're managed by _NOT_ the retirees, but random middle managers. Those are the people who are chasing whatever the bubble is producing because their "due diligence" requires them to be bootlickers.
The same can be said of many of the tech moguls who've sworn fealty to trump; if they didn't lick the boot, they could be considered acting against shareholders value.
So, like most things in America: the people are not in control of their actual power. Not in retirement funds, not in healthcare, and not in education. They've all been turned into bizare economic dependent indirect funding programs.
The author claims two things:
1. AI company valuations dropped because of fears that Democrats would restrict data center construction.
2. The AI industry is doomed because of unsustainable spending on data centers.
If 1 is true then investors clearly believe that the current level of spending is appropriate and any restrictions on it are harmful to long term returns.
If 2 is true and unsustainable spending continues despite a lack of RoI, then "arms race" is the only explanation for the irrationality. It is driven by the fear that if you don't spend big, you'll be part of the permanent underclass of companies.
This in turn implies a data center construction moratorium is a blessing in disguise. Everyone has an ironclad excuse to reduce financially-irresponsible but mania-driven data center investments.
Bottomline:
"Data center restrictions are bad for the industry"
and
"Data center spending is unsustainable"
are polar opposite viewpoints and imply vastly different outcomes of the current buildout.
I don't know which one is true. And like most things, I suspect the truth is in the middle. But they can't be simultaneously true.
1. is claimed to have happened because INVESTORS in AI companies rerated their investment due to a threat of construction restriction 2. is a prediction about the future of how the industry will turn out
Someone who believes (2) is less likely to have been an investor to begin with and therefore didn't participate in the price rerating for (1)
I do agree with your point that a reduction in spending would have a positive outcome overall if we turn out to be in an "arms race" with a lack of ROI.
401ks are self-managed, though many stick with the default investments.
1 https://www.youtube.com/watch?v=YB3XE8mWNF0
2 https://www.youtube.com/watch?v=w1dRDj1QRks
For some reason the people who hate him the most are the most inclined to ignore the things he actually talks about.
They all get hooked on anthropic screeching about ending humanity or some other nonsense and forget that this is a business. A business which isnt making money.
If any boosters can provide the type of evidence that Zitron has I’d love to see it.
Also, one can imagine the opposite situation creating the same outcry: "retirees are being frozen out of AI returns".
For retirement savings, index funds are hard to beat, and it's hard to say whether tech stocks should be over- or under-weighted compared to the index. Tech stocks went down recently, but maybe it's a good time to buy? People who invested in 2008 did well.
(Also a reminder that target funds are expensive and will sometimes be over-allocated towards hot industries depending on the retirement year "target".)
>This account doesn’t exist. Try searching for another.
>Are we on the brink of the next financial crisis? Last Thursday, there was a “bloodbath in tech stocks,” as the stock market lost $3.2 trillion in a single day.
Sounds bad, until you take a closer look and see that this was just a 4% decrease.
>In the longer term, with enough political will, we can redirect our retirement savings towards productive investment, such as building out affordable housing and funding the renewable energy transition. For example, NYC Comptroller Mark Levine announced a $4 billion affordable housing initiative in April. Pension fund trustees could follow his lead rather than direct money towards Blackstone, one of the country’s largest landlords and a major fund manager for public pensions.
The slop bells are deafening. I suspect that the author is driven more by political motives than a sincere belief that the AI industry is financially doomed.
> 4% decrease
-4.3% that day, as of today its -0.81% since then. who cares about 1 day moves? where is the new article about the 2.6T in gains? big number bad or big number good?
> I'm not convinced the AI bubble exists
a few days ago?
https://news.ycombinator.com/item?id=50418975