Executive Summary Similarities of the AI Bubble to the Housing Bubble/Financial Crisis of 2008 include the excessive use of debt and complex financial arrangements leading to financial risks outside of traditional corporate and banking relationships. As written about in previous newsletters, AI demand for investment in data [...]

Executive Summary The S&P 500 appears expensive when compared with the fundamentals of the companies in the index. Two common valuation measures—the trailing twelve-month price-to-earnings ratio (P/E) and the Shiller P/E—are both well above their long-term median (73% and 150% respectively - see first & second graph). [...]

Executive Summary At the peak of the 2000 Technology Bubble, tech and telecommunication stocks comprised about 41% of the S&P 500. Currently AI stocks, similar to 2000, by some estimates make up nearly 50% concentration of the S&P 500 Index. While Mark Twain stated, “history may not [...]

Executive Summary As I have written before, the Fed has boxed itself in a corner. The current administration wants lower interest rates, but the Fed’s 2% inflation target suggests rate increases. The short-term Fed Funds Rate, shown in the first graph, is the only rate the Fed [...]

Executive Summary Every time a crisis occurred in recent history, global central banks have created more money to “paper over” any disruptions to global economies (see first graph). Interestingly, one can see the rate of change in liquidity far exceeds the rate of change in growth of [...]

Executive Summary This week’s newsletter builds on the August 18th issue, which examined circular financing in the A.I. space. Billions of dollars are being borrowed and spent to build A.I. infrastructure, with investors betting on miraculous, life-changing results. Much of this issue draws on The New York [...]

Executive Summary Long-term interest rates are typically determined by economic conditions. Last week, in addition to U.S. debt crossing $40 trillion, Treasury Secretary Scott Bessent announced that the Treasury Department would double its bond buyback operation. On Monday, August 24, Bessent revealed his concern about long-term rates [...]

Executive Summary U.S. stock market capitalization has reached nearly $75 trillion, but many investors may not understand what is happening beneath the surface. Alongside enormous interest in AI, margin borrowing to buy stocks has increased (see first graph). Another sign of speculation, sometimes described as gambling, is [...]

Executive Summary Market pundits closely watch the monthly jobs report, but recent large annual revisions—911,000 and 598,000 jobs removed over the past two years—raise questions about its reliability. Since the working-age population grows by roughly 200,000 people per month, job creation generally needs to exceed that level [...]

Executive Summary Recently I have written about the increase in speculation in the stock market as evidenced by margin debt (see first graph). Below I provide two historical valuation measures, including the Price/Sales Ratio, which is less manipulated, to show the extremes to which valuations have reached. [...]