00:00Today on Forbes, it's not just an AI bubble. Here's everything at risk.
00:07Asset bubbles give off a cent. Stocks far outpace earnings. Junk debt looks gold-plated.
00:14But no matter how good the rally feels, eventually skepticism arises.
00:19The question is whether the smoke alarm is chirping from a dead battery or fire.
00:24The S&P 500, as of last week, sat at 6,700, nearly double what it was five years ago.
00:32The magnificent seven tech titans are the rocket fuel.
00:36They account for nearly 40% of the index, and they're placing trillion-dollar bets that AI rewires the world.
00:44It's not just frothy stocks. Gold is near record highs, as is coffee.
00:50Bitcoin, the ultimate risk-on asset, is up more than 130% since it was packaged into exchange-traded funds in January 2024.
00:59Amid bidding wars, home prices rise further out of reach for buyers.
01:04Even junk bonds trade as if nothing can go wrong.
01:08Economist John Kenneth Galbraith wrote that bubbles form the same way every time.
01:13A new idea casts a spell. Credit expands. Prices rise. Everyone feels smarter.
01:21Then crack. Reality bites, and it all comes crashing down.
01:26Galbraith argued the real fuel isn't credit, it's boundless hope and fleeting memory.
01:31Each generation convinces itself that this time is different.
01:35Nobody rings a bell at the top, of course, and trusted detectors can sound false alarms.
01:42The yield curve was inverted from June 2022 to August 2024.
01:47That usually portends recessions within 24 months.
01:51By that rule, the slowdown should have started already.
01:55Yet investors who sold on the signal missed the second-strongest start to a rally in half a century.
02:01You can blame AI for that, too.
02:04Deutsche Bank says without spending on AI infrastructure, the U.S. would already be in recession.
02:11That's one reason why this market feels off.
02:14Perhaps that's why gold is near a record high, something that rarely happens alongside rising stocks.
02:21One reflects optimism, the other fear.
02:24It could just be a market hedging its bets.
02:26Or maybe it's a sign some investors have been smelling smoke before the rest of us.
02:31Here are some of the smoke alarms to watch.
02:34The Cape-Schiller Ratio
02:36The Cape-Ratio, created by Nobel Prize-winning economist Robert Schiller,
02:42compares stock prices to 10 years of inflation-adjusted earnings.
02:45It's now near 40, below the 44 peak of the internet bubble,
02:50but well above its 28 average since 1995.
02:53Gold
02:55Inflation-adjusted gold prices have doubled since 2023,
03:00topping $4,000 an ounce for the first time.
03:03Investors are rushing to hard assets,
03:05a signal that confidence in paper wealth may be thinning even as markets keep reaching new highs.
03:12Margin debt cost as a percentage of GDP
03:15What investors pay to borrow money to buy assets now equals 0.35% of nominal GDP,
03:22the highest since at least 1995.
03:25As Jim Stack, CEO of Stack Financial Management, says,
03:29leverage doesn't cause bear markets, but it does amplify them.
03:33The S&P Cryptocurrency Index
03:36The S&P Cryptocurrency Index has more than doubled since 2023 and is back near record highs.
03:44Once easy to ignore, crypto is now woven into mainstream finance through ETFs,
03:50making its swings more consequential for the broader market.
03:54Median Home Price-to-Income Ratio
03:57Median U.S. home prices now exceed five times median household income,
04:02up from four times in the 1990s.
04:05Tight Supply explains some of it,
04:07but it also suggests buyers are stretching
04:09and housing may be losing its anchor to reality.
04:14High Yield Credit Spread
04:16The ICE-B of A High Yield Index Spread
04:19shows investors accepting abnormally low premiums for riskier debt.
04:24When junk bonds trade like blue chips,
04:26it's often a sign that markets have grown complacent about the possibility of defaults.
04:32Coffee Prices
04:33Coffee futures hit $4 a pound for the first time,
04:37lifted by droughts, Trump tariffs, and inflation.
04:41Commodity spikes like this are a reminder that bubbles aren't limited to Wall Street.
04:46Morningstar Pitchbook Unicorn 30 Index
04:50The Morningstar Pitchbook Unicorn 30 tracks private market heavyweights
04:54like OpenAI, SpaceX, and Stripe.
04:58It's back to all-time highs after a 50% drawdown in 2022.
05:03AI is inflating public markets,
05:05but the unraveling may start in private ones.
05:09For full coverage, check out Brandon Kokodin's piece on Forbes.com.
05:16This is Kieran Meadows from Forbes.
05:18Thanks for tuning in.
05:19Your Sel ê¾¹ and I will continue to skip that while at $34 a pound of dollars in 2021.
05:22See us yesterday.
05:23For full coverage, check out Brandon McKinnon.
05:23See you today.
05:24Bye now.
05:28Yay!
05:32Bye now.
05:33Bye now.
05:41Bye now.
05:42Bye now.
05:45Bye now.
05:46Cheers.
05:46Bye now.
05:47Bye now.
Comments
1