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.
With broad index funds you’re merely following the average market sentiment. So you’re only bullish to the extent that the stock market as a whole is bullish on those stocks. What you’re really doing is betting that you’d be unlikely to perform better with active investments. Which is a good bet insofar as most active funds underperform in comparison.
How does your first premise follow from the second? Yes, you're not bullish on these companies specifically, but you're effectively giving them (and some others) your money and inflating their valuations. You're bullish on the status quo and they're a large part of the status quo.
In fact, it's arguably worse than deliberately investing in them, because you're completely indifferent to the soundness of their business model. The hope is just that through the magic of "efficient markets", someone else will arbitrage your errors away. I don't know if there are enough takers for a bet of this size.
They want to make it sound like a bunch of older people on fixed incomes are getting scammed. "Retirement savings" to the post-war generation is often millions in securities, real estate, and other assets
>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 $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 article acts as if this means there are $15T of funds that Coreweave can tap into at will, but all this means is that 401k plan admins are allowed to add private equity to the list of options in 401ks. I expect quite a small percent of plan participants to actually make use of said options even IF they are added, unless plan admins start changing the default investments to include them. Not saying that can't happen, but it hasn't happened yet.
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
Then again, when you look at the performance of your typical pension fund or university endowment, and then see the actual incentives of the people managing the money (as there's ultimately managers there looking for their personal best interests), then you see that said argument one could make is not exactly going to do well empirically.
The main reason we are seeing private equity now being offered in 401ks isn't that it's going to be great returns for your average mostly-self-directed worker, but because those managing private equity believe they will make more money if they managed more capital. There's no guarantee that they are making any choices there that provide good risk-adjusted returns. But the managers sure would be making more on fees.
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.
Specifically I believe the concern is pension funds.
Your 401K is invested however you choose, but the people with pension plans don't get any input on how those are invested or what risks they take. They have historically been cesspools of fraud and shady deals.
You have the option of rearranging. your 401k investments where you can choose to invest in individual companies instead of the grab bag fund where the managers invest in a little bit, parceled out to many companies where they give equal weight to investing in Intel, Dell, Microsoft and Apple. Which is a horrible deal because Apple, for example, has outperform those three companies by a wide margin over the last 20 years.
Note: you have to go out of your way. to make this happen. Most funds prefer to dump everything together, so they don’t have to make individual tough decisions.
not all those 401ks offer the level of granularity you're espousing, i've been looking to divest certain holdings based on religious views and can't figure out how to blacklist certain companies directly.
edit:
i'd like to see a situation where an employee's private 401k is liberalized to the point where we can select not just the offerings but the offeree.
Where does this bailout narrative come from? There seems to be this 100% certain idea that the AI companies will collapse and when they do the government will bail them out.
They’re not banks which would wreck the economy by collapsing and they’re nothing like General Motors which needed a bailout to save 1.2 million jobs.
They also appear to be very profitable businesses and yet supposedly they will collapse.
I’m spending quite a bit of money on subscriptions and API tokens and so are many people like me. The revenue numbers in the prospectus and what is known about AI revenue across the industry is real and significant revenue. Yes the capex is big but also exaggerated as they report 10 year numbers on contracts that have flexible cancellations etc.
I have no idea why people think AI will need a bailout. It appears to be one of the most rapidly profitable and expanding businesses we have ever seen.
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.
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.
Chinese labs are not going to care about whatever anti-datacenter measures you propose. It'd take an unprecedented effort of international collaboration to slow down AI training.
(Before anyone mentions nuclear, the amount of nuclear warheads grew a lot after the non-proliferation treaty. Historically that was how collaborative big countries were.)
The non-proliferation treaty was mostly to prevent non-nuclear states from gaining nukes (that's what "proliferation" means). It had a section about disarmament but that was aspirational.
Wouldn't slowing down AI training in the United States insulate the retirement investments of U.S. citizens from the LLM market, regardless of what happens abroad?
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.
401K’s can be self-managed. But you have to take it upon yourself to do so if you don’t, you will get dumped into a hodgepodge fund where you have the high performing and the low performing thrown together, the purpose is to average everything out in a safe conservative investment strategy.
If you take control and invest in individual companies and pay attention to what they’re actually doing, your returns can be a lot higher over time, however not all blue chip stocks are equal. Many are slugs some of the lowest performing stocks cruising on past reputation ie.. IBM or Intel, for example, both have come up a little bit from their low watermarks but they are nowhere near what they were in their heyday and probably never will be.
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].
That might be a financial risk, but it's only a financial risk.
Even if OpenAI goes bankrupt, someone will buy their models in bankruptcy to run them. Also, other companies will be able to hire the people who are laid off to apply the same techniques to get similar models.
So from the point of view of technological / AI progress we'll be fine.
Some investors might lose some money, but humanity will keep going forward.
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
Lucky enough we don't live in a free market. US America perhaps more than germany, non the less there are plenty of regulations to protect consumers.
If a recession was started because someone else is taking your retirement fonds and putting them in companies overvaluated to move money from retirement fonds to random other people, and this is closer to gambling than investment, regulators should step in.
1) "I vaguely disapprove of this framing for reasons I choose not to explain?" Or do you mean,
2) "Each step violates any reasonable duty, and wouldn't be taken in a world that punished people for taking wild risks with the money of retirees, or in a world that expected the "risk" that people took when investing in stocks to actually be "risky" instead of ultimately backstopped by the taxpayers?"
In fact, the problem is that they keep bailing us out of recessions, which will eventually lead to a collapse and possibly a depression.
2019: That bond bailout you didn't hear about
2020: COVID bailout
2022: Various credit/liquidity facilities and the slow-walked rate hikes
2023: Bank bailouts
I dunno what happens this time. So many cards have been played out and a lot of entities seem to be white-knuckling it.
The boom-and-bust cycle is a natural consequence of running an economy on debt: margin leads to speculation which leads to overheating, and then it has to cool off. It is entirely possible to guarantee the public's welfare during busts; you just have to sacrifice not having a ceiling on earnings/wealth.
If we are lucky, all of this will not matter if we reach post scarcity.
Would be even really really good if we would start breaking through barriers regarding state spending and allowing more to do so in a way that inflation is not affected.
Like allowing every state on the planet to 'spend' money on certain things like renewable or teachers or care workers.
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.
People keep bringing up Zitron because they are wishful-thinking that he’ll eventually be right. But yeah, it seems that he’s been plenty wrong so far.
I don't understand his phenomenon either. Listened to a few long podcasts with Zitron. He had about 10-15 minutes worth of ideas and not much beyond that, mostly anecdotal stories about excesses. Nothing of it was particularly novel. Are AI companies in a huge bubble? Most likely. Is there a shitload of grifting? Yes, there is. Is AI itself useful? Not to the degree it's hyped, but yes, it has its uses. And that's about it. Nobody knows how the events will unfold, and listening to speculation feels like a complete waste of time.
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 ones most inclined to completely ignore the topics 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 is losing gargantuan stacks of cash and is running on the fumes of hype and cope.
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.
> What's your proposal for the people who lose their retirement?
You would only lose your retirement if 100% of your savings was invested in company(s) that eventually went to zero.
Even if you're 100% equities, and concentrated in (e.g.) the S&P 500, that would mean that the five hundred largest companies in the US would have to go to zero before you would "lose" your retirement.
One could also go for a total US market fund (Russell 3000, $VTI) or total world market fund ($VT). Further, having a bit of bonds (10-20%) would allow you to be cushioned for things like the '00s, where the S&P 500 returned 0% for the decade:
If your retirement savings went down by 20% and you had to put off retirement by 5 years, but then you died after 5 years, you've lost your retirement!
Assuming you're talking about people who are actively retired, or who are close to retirement, one would hope they have planned a proper asset allocation and not be so exposed to stocks. Otherwise you have to trust that history will continue to repeat itself and all losses will come back and then some.
Even if you're retiring tomorrow, you're not going to be pulling everything out at once. The stock market going down isn't anyone "losing their retirement". They still own all the same stocks they did.
Financial bubbles can take years to "pop". It's usually not an instantaneous thing. Tech stocks have taken a beating lately, but is this the start of a long deflation or just a blip on the way to new highs? Savings haven't been wiped out yet and people who are invested in the tech sector need to remember that stocks can go down as well as up. As an individual investor, nobody owes you a thing if you choose stocks that go down.
Of course, if a public pension fund is run this poorly, they will almost inevitably be bailed out at the cost of younger generations. Betting it all on one sector and refusing to blink when it looks like a bubble might be popping is not what I'd call competent management. That's just too much risk in the mix for a fund that needs to be there. If pension funds are overly exposed to one volatile sector, some really dumb people are about to lose their jobs, and rightfully so.
Ideally, they should be allowed to withdraw their funds and invest them as they wish. The root issue here is people not being in control of their investments.
Government bailout. It was a "conspiracy theory" three months ago, now they're on CNBC saying "of course we have to do a bailout, unless you want to be ruled by China."
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.
Maybe a normal healthy market isn't normal or healthy for people?
Why are we assuming a market is an inherent good and its needs are to be prioritized?
If a bunch of people might be reduced to poverty in old age and that's a sign of a healthy market, then I'm not super sold on this healthy market pitch...
People always say, "maximizing shareholder value" like it's obviously a bad thing, when actually every retiree and prospective retiree is a shareholder.
The key question is (a) whether the risks are really identified and understood; and (b) whether opacity is fueling risk transfer to public markets.
Retirement funds or not, big tech companies have diversified to the point that investors cannot assess their risks (except for Apple).
There's ordinary non-market factors (esp. electric subsidies and their secondary markets), mark-to-market income on cross-equity investments, debt load and contracts off the books, etc.
The cross-investment is usually somewhat stabilizing, since it e.g., aligns nvidia with its customers' success; that's how keiretsu works.
However, Microsoft, Google, and Amazon are at risk of losing a large proportion of their cloud profit-centers, and the threat to Google's ad franchise is already biting deep. Each company's equity would drain if they had no compelling path to take part of the AI proceeds. So they are compelled by both market and capital competition.
As in politics, we used to be able to assume people in power were operating as expected to gain profits or maintain political power in the relatively near term. However, as the advantages of disinformation and dark money (for politics) and the prospects of economy-scale disruption (for AI) both give significant advantages to aggressive and strategic behaviors in the relatively near term, it basically creates moral hazards that are unavoidable, and leader cohorts respond by ousting anyone with doubts. So for voters or investors, the "representative" proxy of leadership character is less useful, and everyone has to fall back to watching the weather and assuming the worst about leadership.
Apple has long decided: (a) equity buy-backs, not peripheral ventures; (b) AI as consumer, local and otherwise, with privacy focus (whatever that can be). However, Apple's also in a tough position: outside of AI, nothing really drives new purchases because even old hardware is plenty for most customers, and memory prices are biting into margins. So Apple is an understandable bet, but not necessarily a great one.
Where's the money to go, in a world where everyone depends not on the red wheel barrow for food but on 8% annually to beat inflation?
Apple is only good as long as they keep iterating. Once they decide to sit at the top like Microsoft, IBM, Xerox, Kodak, US Steel, Intel or Motorola when they were around, that’s when you know the lights are out/dimming and you had better make plans to move away.
Apple currently has a challenge: what are they going to do about memory? Are they going to sit back and accept the status quo, or are they going to leverage the Apple Silicon design group to engineer around the problem? That will determine whether or not their company/shares prosper in the future, or sink.
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".)
Reminder that Fidelity back in March gave notice that they no longer would limit the largest holdings to 5% (e.g., in FITLX). So even if you noticed, and if you wanted to control your own risk, you'd have to sell your holdings, a taxable event.
So index funds are no solution, unfortunately. They'll lose deposits if they sit on the sidelines (as people compare 8% returns to 15+%), so their incentives are not aligned with avoiding the bubble.
The perfect scam, er virus, lives well enough to spread but doesn't kill quickly.
Index funds are the only way to guarantee that you will out perform the "average" investor. Why? Because the median investor underperforms the market, hence, buy the market and you are better than median.
I feel pretty safe that if the AI stuff underperforms for whatever reason, that excess capital will flow back into boring things like Walmart. Or if AI eats the world, well, owning an index means I still have a piece of the pie.
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?
Affordable housing initiatives in major US cities are somewhere between charity for the poor and a sinecure for people who have lived in that city for a long time as renters (that actively harms everyone else who would like to live in that city). It is not something that people should expect to make money investing in.
Anyway yeah this entire article is left-progressive slop. If you go to the About page (https://lpeproject.org/about/) you will find the text "We believe that developments over the last several decades in legal scholarship and policy helped to facilitate rising inequality and precarity, political alienation, the entrenchment of racial hierarchies and intersectional exploitation, and ecological and social catastrophe." These are all left-progressive political shibboleths.
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?
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?
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.
That seems like a pretty shallow dismissal: Perhaps it indicates a person is simply more-engaged with their real work than trying to be a terminally-online micro-celebrity.
More likely it's just a specific oversight with this one shared blog, because it lists four items for them and the oldest is 2018.
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.
Doesn’t retirement savings fuel every bubble?
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.
You are copying what active investors (in aggregate) are doing so if they’re fueling a bubble so are you.
With massive concentration like this you are forced to be bullish, as your success is predicated on the bubble not bursting.
With broad index funds you’re merely following the average market sentiment. So you’re only bullish to the extent that the stock market as a whole is bullish on those stocks. What you’re really doing is betting that you’d be unlikely to perform better with active investments. Which is a good bet insofar as most active funds underperform in comparison.
How does your first premise follow from the second? Yes, you're not bullish on these companies specifically, but you're effectively giving them (and some others) your money and inflating their valuations. You're bullish on the status quo and they're a large part of the status quo.
In fact, it's arguably worse than deliberately investing in them, because you're completely indifferent to the soundness of their business model. The hope is just that through the magic of "efficient markets", someone else will arbitrage your errors away. I don't know if there are enough takers for a bet of this size.
Value funds. If you buy stocks that make, like, actual profits, your exposure to AI "tech" is low.
Are there any mutual funds that track these types of companies?
Yes. https://investor.vanguard.com/investment-products/etfs/profi...
N.b. I wouldn’t recommend it for various reasons, but it exists.
Microsft, Google, Nvidia, and Facebook earn tons of money and fuel the bubble.
They all have tiny dividend yield.
They want to make it sound like a bunch of older people on fixed incomes are getting scammed. "Retirement savings" to the post-war generation is often millions in securities, real estate, and other assets
>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).
I second this, has anybody properly measured how much has actually been invested from private funds/pension funds? Is this really difficult to do?
I think the answer is extremely little.
> 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 article acts as if this means there are $15T of funds that Coreweave can tap into at will, but all this means is that 401k plan admins are allowed to add private equity to the list of options in 401ks. I expect quite a small percent of plan participants to actually make use of said options even IF they are added, unless plan admins start changing the default investments to include them. Not saying that can't happen, but it hasn't happened yet.
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
Then again, when you look at the performance of your typical pension fund or university endowment, and then see the actual incentives of the people managing the money (as there's ultimately managers there looking for their personal best interests), then you see that said argument one could make is not exactly going to do well empirically.
The main reason we are seeing private equity now being offered in 401ks isn't that it's going to be great returns for your average mostly-self-directed worker, but because those managing private equity believe they will make more money if they managed more capital. There's no guarantee that they are making any choices there that provide good risk-adjusted returns. But the managers sure would be making more on fees.
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.)
I swear to god, people use "high risk bet" as synonym for "sure gain with no danger". You see it on HN all the time.
The defining thing about "high risk" is that risk part will happen and that creates a lot of loosers. That is the whole point!
But HN treats "high risk" as something that is expected to always give you reward.
russian roulette?
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.
It doesn't really matter. 20% down from peak after 30 years of growth is going to be far over your book value.
The Dotcom Bubble isn't coming back for 20%. It's coming back for everything.
Isn't this precisely what target date funds are for?
No, these are who should make conservative slow raise, be sure not to crash bets. Cause when they crash, whole lot of people suffer.
Specifically I believe the concern is pension funds.
Your 401K is invested however you choose, but the people with pension plans don't get any input on how those are invested or what risks they take. They have historically been cesspools of fraud and shady deals.
You have the option of rearranging. your 401k investments where you can choose to invest in individual companies instead of the grab bag fund where the managers invest in a little bit, parceled out to many companies where they give equal weight to investing in Intel, Dell, Microsoft and Apple. Which is a horrible deal because Apple, for example, has outperform those three companies by a wide margin over the last 20 years.
Note: you have to go out of your way. to make this happen. Most funds prefer to dump everything together, so they don’t have to make individual tough decisions.
not all those 401ks offer the level of granularity you're espousing, i've been looking to divest certain holdings based on religious views and can't figure out how to blacklist certain companies directly.
edit: i'd like to see a situation where an employee's private 401k is liberalized to the point where we can select not just the offerings but the offeree.
And things that are not bubbles.
the worrying thing is how some AI exposed companies got fast tracked into the indexes or how because of AI some indexes r now overexposed to AI
And pension funds almost certainly are in the VC funds getting huge windfalls from Anthropic and OpenAI exits.
Also, one can imagine the opposite situation creating the same outcry: "retirees are being frozen out of AI returns".
Human shields for their bailout. "Bail us out of this mess before grandma becomes homeless! "
Where does this bailout narrative come from? There seems to be this 100% certain idea that the AI companies will collapse and when they do the government will bail them out.
They’re not banks which would wreck the economy by collapsing and they’re nothing like General Motors which needed a bailout to save 1.2 million jobs.
They also appear to be very profitable businesses and yet supposedly they will collapse.
I’m spending quite a bit of money on subscriptions and API tokens and so are many people like me. The revenue numbers in the prospectus and what is known about AI revenue across the industry is real and significant revenue. Yes the capex is big but also exaggerated as they report 10 year numbers on contracts that have flexible cancellations etc.
I have no idea why people think AI will need a bailout. It appears to be one of the most rapidly profitable and expanding businesses we have ever seen.
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.
Somebody explain:
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.
> But they seemingly have no choice because everyone else is doing it.
doesn't sound like valid reason
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.
Tokenmaxxing was the management buying the marketing that AGI was here and if employees would only use AI they would herald their own replacement?
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.
I thought tokenmaxxing was their proxy for this: more tokens burnt = more productivity = more projects completed.
"A strange game. The only winning move is not to play." -WOPR
big if true
Clearly true though. “Not reveryone” is doing it. Most of the bubbly(?) trillions are.
In other words, those who are doing it are winning and those who are not doing it are losing.
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.
Chinese labs are not going to care about whatever anti-datacenter measures you propose. It'd take an unprecedented effort of international collaboration to slow down AI training.
(Before anyone mentions nuclear, the amount of nuclear warheads grew a lot after the non-proliferation treaty. Historically that was how collaborative big countries were.)
I'm not proposing anything. The article is.
The non-proliferation treaty was mostly to prevent non-nuclear states from gaining nukes (that's what "proliferation" means). It had a section about disarmament but that was aspirational.
Wouldn't slowing down AI training in the United States insulate the retirement investments of U.S. citizens from the LLM market, regardless of what happens abroad?
I think you're taking off in the wrong direction.
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.
You're right 1 and 2 are different groups of people.
Article is about pension funds.
401ks are self-managed, though many stick with the default investments.
401K’s can be self-managed. But you have to take it upon yourself to do so if you don’t, you will get dumped into a hodgepodge fund where you have the high performing and the low performing thrown together, the purpose is to average everything out in a safe conservative investment strategy.
If you take control and invest in individual companies and pay attention to what they’re actually doing, your returns can be a lot higher over time, however not all blue chip stocks are equal. Many are slugs some of the lowest performing stocks cruising on past reputation ie.. IBM or Intel, for example, both have come up a little bit from their low watermarks but they are nowhere near what they were in their heyday and probably never will be.
The article is not strictly about pension funds. There are several mentions of individual retirement accounts.
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].
1 https://www.youtube.com/watch?v=YB3XE8mWNF0
2 https://www.youtube.com/watch?v=w1dRDj1QRks
That might be a financial risk, but it's only a financial risk.
Even if OpenAI goes bankrupt, someone will buy their models in bankruptcy to run them. Also, other companies will be able to hire the people who are laid off to apply the same techniques to get similar models.
So from the point of view of technological / AI progress we'll be fine.
Some investors might lose some money, but humanity will keep going forward.
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
You'll live through many recessions in your lifetime regardless. The implication that regulators can/should prevent all recessions is suspect to me.
Lucky enough we don't live in a free market. US America perhaps more than germany, non the less there are plenty of regulations to protect consumers.
If a recession was started because someone else is taking your retirement fonds and putting them in companies overvaluated to move money from retirement fonds to random other people, and this is closer to gambling than investment, regulators should step in.
Each step of this is a leap:
> someone else is taking your retirement fond
> and putting them in companies overvaluated
> to move money from retirement fonds to random other people,
> and this is closer to gambling than investment
Define "leap." Do you mean
1) "I vaguely disapprove of this framing for reasons I choose not to explain?" Or do you mean,
2) "Each step violates any reasonable duty, and wouldn't be taken in a world that punished people for taking wild risks with the money of retirees, or in a world that expected the "risk" that people took when investing in stocks to actually be "risky" instead of ultimately backstopped by the taxpayers?"
I suspect 1.
Neither? Weird framing. I mean each is an independent claim that is not necessarily the clear default.
In fact, the problem is that they keep bailing us out of recessions, which will eventually lead to a collapse and possibly a depression.
2019: That bond bailout you didn't hear about
2020: COVID bailout
2022: Various credit/liquidity facilities and the slow-walked rate hikes
2023: Bank bailouts
I dunno what happens this time. So many cards have been played out and a lot of entities seem to be white-knuckling it.
The boom-and-bust cycle is a natural consequence of running an economy on debt: margin leads to speculation which leads to overheating, and then it has to cool off. It is entirely possible to guarantee the public's welfare during busts; you just have to sacrifice not having a ceiling on earnings/wealth.
If we are lucky, all of this will not matter if we reach post scarcity.
Would be even really really good if we would start breaking through barriers regarding state spending and allowing more to do so in a way that inflation is not affected.
Like allowing every state on the planet to 'spend' money on certain things like renewable or teachers or care workers.
tulips generally are perennial plants and re-grow every year. we will have bubbles and bursts as long as this is true
The regulator in The Big Short is still hilarious. Blinded because she had gone to an eye doctor. What a metaphor.
I'm not sure I'd call her a regulator... she worked at the one of the ratings agencies.
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.
People keep bringing up Zitron because they are wishful-thinking that he’ll eventually be right. But yeah, it seems that he’s been plenty wrong so far.
My sentiment exactly, and I'm not exactly an AI fanboy here. I just don't see why he's viewed as some kind of authority or particularly insightful.
I don't understand his phenomenon either. Listened to a few long podcasts with Zitron. He had about 10-15 minutes worth of ideas and not much beyond that, mostly anecdotal stories about excesses. Nothing of it was particularly novel. Are AI companies in a huge bubble? Most likely. Is there a shitload of grifting? Yes, there is. Is AI itself useful? Not to the degree it's hyped, but yes, it has its uses. And that's about it. Nobody knows how the events will unfold, and listening to speculation feels like a complete waste of time.
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 ones most inclined to completely ignore the topics 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 is losing gargantuan stacks of cash and is running on the fumes of hype and cope.
For some reason the people who hate him the most are the ones most inclined to completely ignore the topics he actually talks about.
Huh? His predictions on both the financial and technical sides (see https://danluu.com/zitron/) have been spectacularly wrong.
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.
Zitron had an extremely poor track record. https://danluu.com/zitron/
Well Anthropic having revenue of $34.5B in 2027 being "laughable" is correct, just not quite how he intended.
If you see this as a problem to be solved, please don't do anything. This is how the normal healthy market works. Leave it alone.
What's your proposal for the people who lose their retirement?
> What's your proposal for the people who lose their retirement?
You would only lose your retirement if 100% of your savings was invested in company(s) that eventually went to zero.
Even if you're 100% equities, and concentrated in (e.g.) the S&P 500, that would mean that the five hundred largest companies in the US would have to go to zero before you would "lose" your retirement.
One could also go for a total US market fund (Russell 3000, $VTI) or total world market fund ($VT). Further, having a bit of bonds (10-20%) would allow you to be cushioned for things like the '00s, where the S&P 500 returned 0% for the decade:
* https://www.forbes.com/sites/advisor/2010/09/13/its-not-real...
Historically, even if you only invested lump sums just before crashes, you would have done fine as long as you stuck with it:
* https://awealthofcommonsense.com/2014/02/worlds-worst-market...
The stock market is basically the anti-casino: the longer you participate the better your chances of coming out ahead:
* https://awealthofcommonsense.com/2023/05/the-stock-market-is...
I mean you're right but also not right.
If your retirement savings went down by 20% and you had to put off retirement by 5 years, but then you died after 5 years, you've lost your retirement!
Assuming you're talking about people who are actively retired, or who are close to retirement, one would hope they have planned a proper asset allocation and not be so exposed to stocks. Otherwise you have to trust that history will continue to repeat itself and all losses will come back and then some.
Even if you're retiring tomorrow, you're not going to be pulling everything out at once. The stock market going down isn't anyone "losing their retirement". They still own all the same stocks they did.
Excepting shares of bankrupt companies, of course.
Financial bubbles can take years to "pop". It's usually not an instantaneous thing. Tech stocks have taken a beating lately, but is this the start of a long deflation or just a blip on the way to new highs? Savings haven't been wiped out yet and people who are invested in the tech sector need to remember that stocks can go down as well as up. As an individual investor, nobody owes you a thing if you choose stocks that go down.
Of course, if a public pension fund is run this poorly, they will almost inevitably be bailed out at the cost of younger generations. Betting it all on one sector and refusing to blink when it looks like a bubble might be popping is not what I'd call competent management. That's just too much risk in the mix for a fund that needs to be there. If pension funds are overly exposed to one volatile sector, some really dumb people are about to lose their jobs, and rightfully so.
Ideally, they should be allowed to withdraw their funds and invest them as they wish. The root issue here is people not being in control of their investments.
Government bailout. It was a "conspiracy theory" three months ago, now they're on CNBC saying "of course we have to do a bailout, unless you want to be ruled by China."
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.
Maybe a normal healthy market isn't normal or healthy for people?
Why are we assuming a market is an inherent good and its needs are to be prioritized?
If a bunch of people might be reduced to poverty in old age and that's a sign of a healthy market, then I'm not super sold on this healthy market pitch...
People always say, "maximizing shareholder value" like it's obviously a bad thing, when actually every retiree and prospective retiree is a shareholder.
Becoming a well-off retiree doesn’t compensate for everything getting enshittified due to profitmaxxing.
The key question is (a) whether the risks are really identified and understood; and (b) whether opacity is fueling risk transfer to public markets.
Retirement funds or not, big tech companies have diversified to the point that investors cannot assess their risks (except for Apple).
There's ordinary non-market factors (esp. electric subsidies and their secondary markets), mark-to-market income on cross-equity investments, debt load and contracts off the books, etc.
The cross-investment is usually somewhat stabilizing, since it e.g., aligns nvidia with its customers' success; that's how keiretsu works.
However, Microsoft, Google, and Amazon are at risk of losing a large proportion of their cloud profit-centers, and the threat to Google's ad franchise is already biting deep. Each company's equity would drain if they had no compelling path to take part of the AI proceeds. So they are compelled by both market and capital competition.
As in politics, we used to be able to assume people in power were operating as expected to gain profits or maintain political power in the relatively near term. However, as the advantages of disinformation and dark money (for politics) and the prospects of economy-scale disruption (for AI) both give significant advantages to aggressive and strategic behaviors in the relatively near term, it basically creates moral hazards that are unavoidable, and leader cohorts respond by ousting anyone with doubts. So for voters or investors, the "representative" proxy of leadership character is less useful, and everyone has to fall back to watching the weather and assuming the worst about leadership.
Apple has long decided: (a) equity buy-backs, not peripheral ventures; (b) AI as consumer, local and otherwise, with privacy focus (whatever that can be). However, Apple's also in a tough position: outside of AI, nothing really drives new purchases because even old hardware is plenty for most customers, and memory prices are biting into margins. So Apple is an understandable bet, but not necessarily a great one.
Where's the money to go, in a world where everyone depends not on the red wheel barrow for food but on 8% annually to beat inflation?
Apple is only good as long as they keep iterating. Once they decide to sit at the top like Microsoft, IBM, Xerox, Kodak, US Steel, Intel or Motorola when they were around, that’s when you know the lights are out/dimming and you had better make plans to move away.
Apple currently has a challenge: what are they going to do about memory? Are they going to sit back and accept the status quo, or are they going to leverage the Apple Silicon design group to engineer around the problem? That will determine whether or not their company/shares prosper in the future, or sink.
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".)
Reminder that Fidelity back in March gave notice that they no longer would limit the largest holdings to 5% (e.g., in FITLX). So even if you noticed, and if you wanted to control your own risk, you'd have to sell your holdings, a taxable event.
So index funds are no solution, unfortunately. They'll lose deposits if they sit on the sidelines (as people compare 8% returns to 15+%), so their incentives are not aligned with avoiding the bubble.
The perfect scam, er virus, lives well enough to spread but doesn't kill quickly.
Index funds are the only way to guarantee that you will out perform the "average" investor. Why? Because the median investor underperforms the market, hence, buy the market and you are better than median.
I feel pretty safe that if the AI stuff underperforms for whatever reason, that excess capital will flow back into boring things like Walmart. Or if AI eats the world, well, owning an index means I still have a piece of the pie.
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?
Affordable housing initiatives in major US cities are somewhere between charity for the poor and a sinecure for people who have lived in that city for a long time as renters (that actively harms everyone else who would like to live in that city). It is not something that people should expect to make money investing in.
Anyway yeah this entire article is left-progressive slop. If you go to the About page (https://lpeproject.org/about/) you will find the text "We believe that developments over the last several decades in legal scholarship and policy helped to facilitate rising inequality and precarity, political alienation, the entrenchment of racial hierarchies and intersectional exploitation, and ecological and social catastrophe." These are all left-progressive political shibboleths.
Yeah, anytime someone doesn't use percentages for stock moves I know they have some agenda they are pushing.
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?
Hey aren't you the same guy that posted
> I'm not convinced the AI bubble exists
a few days ago?
https://news.ycombinator.com/item?id=50418975
Correct. I'm still open-minded to the possibility that I'm wrong on that one, but this article certainly isn't helping.
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?
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.
https://x.com/lenorepalladino
>This account doesn’t exist. Try searching for another.
That must just be outdated. She's on bluesky: https://bsky.app/profile/lenorepalladino.bsky.social
>Sign-in Required This account has requested that users sign in to view their profile.
Pretty typical for social media websites to be largely private in 2026.
Can't be bothered to update her socials says a great deal.
That seems like a pretty shallow dismissal: Perhaps it indicates a person is simply more-engaged with their real work than trying to be a terminally-online micro-celebrity.
More likely it's just a specific oversight with this one shared blog, because it lists four items for them and the oldest is 2018.
Didn't see them complaining when their fund went to the moon tho
Who are they?
them? their? Do you not participate in a 401k?
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.
Was Zitron right all along?