Berkshire's $397B Bet Against an Overheated Market
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We have a blooming oil war that could take chunks of the global economy with it, booming and teetering credit levels threatening collapse, the “AI” companies have a lot of tinkerbell magic and impossible returns needed to justify their stocks, major cash rich tech giants are suddenly hands-out pockets-out for big money, and … well: Elon is the worlds richest man/CEO who also shamelessly lies in public about being super great at a no-life action RPG he’s paying other people to play for him so he can look cool to his Twitter fans; Twitter is now maybe better understood as a market manipulation device; and Sam Altman seems distinctly truth challenged as a people pleaser who will tell you whatever numbers your wallet needs to hear… They are our 2026 IPO lords, trusted corporate leaders acting like extra shady manipulators.
I’m struggling because on the one hand, it seems like the time to hop out of the market, but on the other, whatever shady crap these guys do after it all goes ‘boom’ to save their wallets is only gonna reward people in the market.
It feels like gambling on whether they’re more incompetent or successfully corrupt.
Short term: high volatility and uncertainty, feels more like gambling at a casino
Medium term: the world is too unstable, best to hold cash
Long term: dollar cost averaging and time in the market always win so depending how long your horizon is, it’s a good time as any to invest
Longer term: we all die
When you factor in the opportunity cost of all that stress and managing an active portfolio the percentage of successful active portfolio managers likely falls down to single digits.
Invest early, invest consistently and often in up or down markets, and the math says you will do very well.
People effectively keep throwing money at mediocre or failing endeavours, which magnifies any structural problem, and everything seems to keep going up whether it’s good news or bad news, until the bottom falls out.
My reading might be wrong, but since 2020 there is no bad news that seems to faze the market by an iota.
The 1929 panic was also irrational but it happened. There is no way to solve that.
Panics happen and bubbles too, and in the meantime, very long term investments tend to grow (in average), as long as the economy works as expected (improving in average, long-term).
Of course, catastrophes are not impossible (the Black Death, the French Revolution, World Wars...).
Or maybe - because it's the bad news that sells - there is much more of the good (or neutral) news that outvalue the bad news, that is just unknown to you?
My sneaking doubt is whether the index can keep growing, because doesn’t that depend on infinite growth based ultimately on mostly finite natural resources, manpower, and land? But maybe we can always extract and produce more with new technology, and that manpower may get leveraged or extended by AI and robotics. Or maybe just financial magic beyond my understanding.
Regardless I have been thinking a lot about what aging and declining populations might do to the economy in the medium-long term. I only know that I know nothing.
There is no practical limit to the price of the index. Shares may represent some claim on those things you mentioned, but shares outstanding have been steadily shrinking for decades, essentially since the dot-com boom [0]. Meanwhile, governments have been printing money like it's going out of style, and most of it has been ending up with the wealthy, who, lacking any practical way to spend it all on consumption, use it to bid up asset prices. It is no wonder that the price of a shrinking pool of actual resources [1] has risen dramatically when measured in a growing supply of money (which is only a relative resource, not a real one).
One could certainly look at the rise of the 401k as a retirement vehicle, and conclude that at some point those flows are going to reverse. One could also look at the US SSA statistics on the number of workers per retiree, and its trend over time, and paint a pretty grim picture, but is that enough to offset the combined forces of inflation and the compounding wealth of the ultra-wealthy?
Man, I don't know, either.
The good news is "nothing" is all you need to know to invest in an index fund.
[0] This has actually reversed recently with the AI boom, but it is the first time in a while that companies have tried harder to raise capital to grow the pie than to buy back shares to return cash to shareholders.
[1] Rather, a shrinking pool of claims on those resources, each claim increasing its value measured in real resources as companies buy back shares, an effect Buffett famously loves.
I wish people would stop using this "we all die" slogan when it comes to their financial lives, and think a bit about the people who will be left after you retire.
I believe that the majority of child bearers are "on program" driven by their biological imperatives. I believe that among the voluntary non-children people (of which I am one) there's plenty of values, goals, hopes and aspirations. In fact, for me, life is so rich that that is why I do not want children.
There's billions of people all over the planet to carry the burden for me. Sure, if we were in an extinction scenario, I might reconsider, but we're far, far from it.
So while I continue to enjoy life and full freedom, I'll let the people who are "on program" deal with the poop and worry for their offspring.
That does not, however, mean I do not have to care about people. If anything, the fact that I do not have children, gives me the opportunity to care _more_ about people in general, than the people who are busy with raising children.
Hence my idea about a non-profit, that will outlast me for some time.
I think advances in scientific understanding may have unfortunately been detrimental to mental wellbeing at scale. Knowing that there is no higher power or grand purpose, knowing that our civilization is probably cooked in the near term, and knowing that even if our civilization isn't immediately cooked, Earth and eventually the universe is, are all not greatly emotionally satisfying.
It probably doesn't help that every scientific advance gets co-opted to make the rich richer and civilization worse.
I guess the world oscillates between good times and bad times. Those who are born in bad times get to see the world improve drastically and helping that along is a purpose. Those who are unlucky enough to be born in good times get to see everything crumble. At best they can inspire the rebuilding just before dying of old age.
We shouldn't be so sure about the fate of the universe. If you were born after 1980 you probably feel more certain about the eventual fate of the universe than people born in 1940. A lot of scientific advances that enabled us to even predict the universe isn't steady-state are less than 100 years old. They may change, and our predictions accordingly, in the next 100 years. In fact they did change several times. There was the steady state, then the big crunch, then the big rip, then the heat death. We can't be sure about heat death either - dark energy adds more energy into an expanding universe, which may be exploitable forever.
What happens when you have kids? You leave something that will last after your death. Then you make sure that they are properly raised and have enough resources, so that your "mark on the world" is more appreciated by other people. Ultimately all the "good life" have one thing in common. Improving life of our species.
We're in the pump of a pump and dump by the richest people in the world, who are trying to engineer exit liquidity in a way that doesn't immediately crash the market. They're going to cycle their holdings several times before things go to shit to avoid the brunt of it, we'll be able to see the wave on the horizon. I don't think just the SpaceX dumping will trigger a broader loss of confidence, but Anthropic + OpenAI dumping post IPO will ripple through to the neoclouds, which will ripple through to the semis, and probably tank things. In the short term (pre AI IPO) the market is volatile but pretty safe IMO, so just trade techically.
In the medium-long term I'd hold a mix of mining/industrial equipment/etc stocks in Euros, and Chinese AI/renewables stocks in Renminbi. The Euro stocks are safer and a significant portion of their increased valuation will come from currency shifts, and the Chinese stocks are riskier but have a big upside and are likely to benefit from Renminbi revaluation as China onshores "finishing"/final assembly of products (which much of the world is going to push them to do).
That's not true. It's only been true on American stock markets, and we only have ~100 years of data.
Many other major stock markets in the world have had ~20 year periods where you would have been better off with your money in bonds than in stocks.
I think the average world stock market is a much better predictor of American stock markets over the next 100 years than past performance of American stock markets. The last 100 years have been exceptional for America vs the world -- it seems very likely that the next 100 years won't be.
The most extreme example is Germany 1914. If you would have invested in the German stock market in 1914 it would have taken you 100 years to break even. I'm not saying that American stock markets will be that bad, but it's an example that disproves the thesis that long term stock markets always win.
The difference in the modern era is the internet is such a robust communication channel that the ultra-wealthy can't pay money to have the negative stories suppressed any more. If anything the current crop seem to be unusually well behaved by historical standards because there are so many eyes on them. Scandals like the whole Epstein thing or #metoo would simply have vanished into silence before the 2000s unless they were being used to lever out someone uncooperative for political purposes.
That could well be the trigger for the crash of all crashes because they might actually bring some reality pins with them, which are the antithesis of the growing, in size and number, fantasy balloons of hot-air the current cough leadership cough is facilitating.
Eventually though the world moves on and China takes over
(I would say that, within that implication, it would be understood that corruption is not a problem that is being solved in that transfer of power)
Well... China's foreign currency reserves are practically infinite and the rest of the world knows they can't push back on China too hard or lose a lot of important imports. For Europe for example, India and China together make 80% of the foundational ingredients for medicine [1]. Our supply chains are gone, even if we wanted to, it would take years to have fabs ready that could produce the domestic demand for stuff as simple but vital such as painkillers and antibiotics.
[1] https://www.diepresse.com/17552998/80-prozent-der-wirkstoffe...
Not just White House though, it's all the leaders of various government organisations, and private companies too. Nasdaq didn't need to change the rules for SpaceX IPO, rotten at the top.
https://theintercept.com/2026/07/13/gillibrand-crypto-trump-...
I am not exaggerating.
You can find a Democrat on both sides of every issue. It's a big tent party, and houses a lot of oddballs.
"The Tories in England long imagined that they were enthusiastic about monarchy, the church and the beauties of the old English Constitution, until the day of danger wrung from them the confession that they are enthusiastic only about ground rent."
In 2022 we still had ZIRP, so a P/E of 34 was relatively low. (Interest rates are E/P for cash).
AI is going to transform things but these current prices are crazy.
During bubbles valuations are driven by growth at any cost.
During crashes businesses are kept alive by their ability to function profitably.
So if trying to separate winners from losers, then central question is "Do I believe this company has an ability to pivot from growth to profitability without torpedoing itself?"
Which ultimately gets to unit economics and cost vs profit scaling trends.
That money sought returns and found them in hypergrowth of increasingly dumber nonsense. First it was Meta (or back then, just Facebook), then Tesla, then during Covid cryptocurrencies and NFTs, and now it's AI... but now, there seems nothing to be the "next big thing" to sink money into when the old thing dies down in growth and expectation and matures. Maybe gambling, but that's not sustainable, the number of whales/marks to make money from is finite.
IMHO, we're headed for a very big worldwide correction to deflate the markets and hand back a lot of the money to the central banks where it can be taken out of circulation, and it will be an event larger than the dotcom bust plus 2007ff combined. But, unfortunately, the markets can stay irrational longer than a good short-seller can stay solvent...
A 1-device to rule them all could be very empowering. Sodium batteries will be big. True wireless power would be huge for solar energy generation from space and sent to Earth. Any power breakthroughs are very noteworthy as the effects cascade.
Lots of 'next big things' (and people) likely 'shelved' on purpose as too disruptive. Welcome to Earth. It's not so much 'what' will be big, but 'who.' Headshots and lineage still matter. Heart and soul is really the only big thing.
A bulls### detector (and repellent in an aerosol) would also be a timeless classic. As would a latent human superpower training and attunement school - until it gets shutdown.
It's an honest question. In the real world, resources and people are finite. Things have to make sense, the bills have to be paid.
In the stock market however, a company can be completely worthless in the real life, but if the money blobs all agree to pumo money into it the stock price goes up anyway.
Curious question... do the ultra wealthy ever get margin called on personal loans secured by unsold equity?
I'd assume the folks we're talking about doing that have sufficiently small loan to value (a year's expenses vs all their stock) to avoid, even in a downturn.
Maybe at the more upper income segment where LTVs on smaller equity totals are higher?
Whether that "justifies" the market prices is orthogonal, all the market price says is that people want to own a piece of the pie at the current price being offered. It can stay that high as long as there continue to be people interested in owning shares of the companies.
I'd make the note that you've converted raw materials and labor (and maybe some capital machinery/tools) into a finished good.
Whether the market will value that finished good at more than the sum of what you paid for its parts is a fair question though!
It's entirely possible to have net-unprofitable economic activities, especially in a bubble.
There's real wealth and there is all of the manipulation to drive up prices.
What you say has a ring to it. A good idea held in tension—provided ‘incompetence’ is the true opposite extreme.
Though it’s difficult to see the picture clearly, because to all _appearances_ Musk is doing well. US Culture collectively believes incompetence will not succeed for long, and this undermines my assessment.
“Twitter is now maybe better understood as a market manipulation device.”
And there’s the obfuscation. If you can manipulate at large scale and your followers somehow profit by following you, then it’s not competence but “confidence”. It’s all a game and our group is waiting for their turn, their opportunity to profit, get a great tip, win big.
Better safe than sorry, he said to himself and told his tribe that the winter was indeed expected to be cold and that the members of the village should stock up on firewood to be prepared.
After several days, our modern Chief got an idea. He went to the phone booth, called the National Weather Service and asked, "Is the coming winter going to be cold?"
"It looks like this winter is going to be quite cold," the meteorologist at the weather service responded.
So the Chief went back to his people and told them to collect even more firewood in order to be prepared. A week later he called the National Weather Service again. "Does it still look like it is going to be a very cold winter?"
"Yes," the man at National Weather Service again replied, "It's going to be a very cold winter."
The Chief again went back to his people and ordered them to collect every scrap of firewood they could find. Two weeks later the Chief called the National Weather Service again. "Are you absolutely sure that the winter is going to be very cold?"
"Absolutely," the man replied. "It's looking more and more like it is going to be one of the coldest winters ever."
"How can you be so sure?" the Chief asked.
The weatherman replied, "The Indians are collecting firewood like crazy."
Yup. That's kind of my feeling. Are we in a bubble? Obviously. But the people who have the most to lose have never been more intertwined with the rule makers and have never been so shameless about it.
"Don't bet against the house" has never been more appropriate. We may well be on the verge of the 2nd Great Depression, but you can be damn sure that the last ones to lose will be the billionaires hanging out in the new ballroom. We'll be burning poor people for warmth before they allow the asset prices to collapse.
> The Buffett Indicator, a ratio that measures the market cap of the entire stock market against the GDP of the United States, has hit a record of ~232%. Historically, anything above ~120% is a signal of the market being overvalued.
That being said, it’s not clear that the Buffet Indicator is fully relevant, as a lot of the US AI and AI hardware companies’ market caps which are driving the stock market valuation growth involve a significant portion of their revenue from outside the US, and thus this wouldn’t necessarily count fully to the US’s GDP (for example, tax entity workarounds for foreign obtained revenue).
My strat is to accumulate cash to buy the drop. The danger with this is; will the bubble continue until the bottom is even higher than today? I’ll take that bet.
I'm doing the same thing now. Slowly starting to sell off the shares I have, putting the profit in bonds/interest accounts, when the bubble pops, I'll go all-in (phasing it in over a few quarters most likely) and then profit after 1-2 years.
The lowest it hit in March 2020 was 2190, on March 23rd. It was back at 2500 3 days later.
Well done on your 7% discount. Hope you didn't sleep in that day
In 1997 the Nasdaq was about 1700. In hindsight sure, sit on cash and buy at 1200 in 2002.
In reality you'd have either bought around the 1900 mark in 2001, or perhaps waited until 2003 when it was back to 1900.
Then come 2009 you'd be back down to 1300, so would you have waited 12 years?
You are
1) betting the bubble continue until the bottom is even higher than today
2) betting that AI won't be bailed out by the most honest administration ever seen
3) betting that you can accurately time the bottom of the market
Good luck catching your falling knife
Buffett has said a number of times that he never is intentionally sitting on the sidelines as a bet that things will go down. He’s simply there because he can’t find value. He’s also said that if he was dealing with millions rather than billions, he could probably find loads of value.
My guess is that is still true today, so the rest of us can probably find deals even in this market.
- "Do Expected Stock Returns Wear a CAPE": https://rationalreminder.ca/podcast/146
- "What about Warren Buffet?": https://rationalreminder.ca/podcast/335
I may soon increase my 401k share of VTIAX.
https://www.telegraph.co.uk/money/investing/stocks-shares/go...
So nearly 2x over-valued. A market correction would take that to ~0.5x possibly, so a loss (for those getting in now) of 75% is on the cards.
In the aftermarth of 2008 it bottomed out about 70%, similar after the dot-com crash in 2000. Before 1995 those were "bubble peaks"
I'm not convinced "historically" means anything in a globalised world that's very different to 50 years ago
In a controlled scenario the AI sector gets a severe correction with many AI-focused companies wiped out but broader damage more limited. In an uncontrolled scenario the AI bubble bursts and takes the whole economy with it.
The likelihood of a scenario where suddenly the economics of AI suddenly start to make sense and enough $ flows in to make the present valuations defensible seems around 5% now and rapidly falling towards zero.
How is the whole economy exposed to AI? Will Anthropic or SpaceX cratering threaten the entire financial system? NVDA will certainly correct, which is probably the biggest risk to the market, but then what? All the FCF being spent by Google, Amazon, MS, Meta, etc... will suddenly start flowing to dividends and stock buybacks again. It's not like their core business is selling AI. Apple will be able to get cheap RAM/chips again while also keeping their recently increased prices.
I could see an argument that the economy is currently being propped up by the hope of AI productivity gains, but that seems spurious.
EDIT
A comment above mentioned oil, and thus the inflation coming with prolonged high prices. That's way more of a concern than anything happening in AI.
That’s currently all being kept alive by artificial cash flow broadly funded with loans and VC investment. When that hiccups the blast radius is much much bigger than a few AI companies just folding.
I’m not a pro here but to me it would seem like an AI crash would hit certain companies really hard (SpaceX, Oracle, NVDA, etc), most other might take a small correction to reset AI driven gains, and potentially some deflation.
If the AI game ends then suddenly there is a return to free cash flow from hyperscalers, some goods and utilities cost less and a lot of investment dollars need a place to eventually go.
You could see a scenario where the overall market keeps chugging and the AI crash ends up being a rotation.
Out of fear/ uncertainty, investors don't just pull out of AI, but the stock market in general.
More money shifts to bonds/commodities, not just people selling AI, but Coca-Cola and Johnson and Johnson, etc.
Of course, the impact would not be equally distributed, staple stocks will crash less, but there will probably be overall a huge pull out as people panic shift assets.
The resulting downturn likely means a crashing job market (temporarily) as government says "there's no way we could have known" and slowly try to stem the bleeding... Meanwhile unemployment shoots up in any industry that needs consumers (retail, food services, etc., but less so healthcare, government), and companies are nervous to hire on a shaky economy (see: early COVID).
The energy shock will also say inflation should go up, but the crash would want to decrease inflation... Companies will likely have to eat costs to keep prices low to sell inventory that cost them more to acquire.
It's all one big economy.
Note: this is all big hand wavey speculating. The moment things start to turn south there numerous things governments can do to help (e.g. handouts, reduce interest, open oil reserves, etc) so what ultimately does happen is anyone's guess. This is just one scenario based on the fact the current US government prefers uncertainty in the market, e.g. we've had peace with Iran ~8 times according to the USA, but Iran claims some of those statements are false. The straight had been reopened ~5 times, but Iran disagrees there to. Seems like the _goal_ is uncertainty
One good thing in all this is, at least, if the AI stocks collapse that should not result in large-scale lay-offs. :) Quite the contrary.
The people in charge of companies usually have large amounts of stock in their companies... And often bonuses tied to metrics that often includes stock. If their share price drops 50%, that's a personal "net worth" and/or "salary" loss which, unlike most people, they have bounce-back control.
"We need to trim the workforce", "improve margins", "show we are still a solid company"
The above doesn't just happen in AI/Tech stocks, it happens EVERYWHERE... Small business owners see their retirement portfolio hurt, they can't fix those companies, but they might reevaluate what they do in the next 2-3 years so they can get their retirement back on track... How do they increase profits while lowing costs? Try to cut staff/hours, find (perhaps foreign?) cheaper suppliers.
I think AI stock bubble bursting won't result in large scale layoffs, I think it will result in large-scale _trimming_ across the economy, which is almost worse. AI will be expected to fill in the gaps to increase productivity for less than the cost of an employee, which means slower rehiring .. AI will rebound at a "more correct" evaluation. And hiring will slowly pick up as companies see they still need people to produce.
Viewing the stock market as purely a casino -- the executives are the house at various casinos... and the house likes to win at the expense of the players (anyone not a casino)
IIUC, some indicators correlated with previous bubbles are lighting up now, which is being interpreted as evidence that AI is likewise a bubble. But what about indicators of previous non-bubbles? How did it look when textile mills were first industrialised, or kerosene replaced whale oil for lighting, or the electric grid became widespread, etc. -- real advances that materially increased productivity in a lasting way? If these same indicators lit up in those cases too, how can we distinguish bubble from genuine advance?
https://en.wikipedia.org/wiki/Railway_Mania : for "railway" substitute "data center".
Berkshire themselves have made investments into Google this year, a company at the center of this supposed "bubble"... make of it what you will but I think the market is setup to do pretty well in the near future.
I also expect Facebook, Microsoft, Google, to survive, and buy the good pieces that remains after the bubble popped. They each have income from other areas so are well position to survive the AI bubble.
Pure AI plays are the ones who will be annihilated. The best of the pure AI plays will be acquired by the old guard.
in the best case scenario the government backstops it via money printing but that's just distributing the pain to the little guys
the destruction still happens
The big investors can do whatever they want. They don't have the final control here.
Isn't that just lazy?
Even if the market is overheated, there will be opportunities in non-overheated areas/other countries/distressed companies etc?
Unless they are sure of a crash and need funds to buy on the cheap.
Might there be opportunities they miss? I'm sure there will be, but perhaps finding those is just too risky at the moment, so they've looked at the options and decided not to invest.
It was for a long time. There is not a lot of evidence that's still the case (so far at least but even if the crash comes but its not big enough its not guaranteed they will outperform S&P 500 over a several year period).
Also, with the amount of cash BH is playing with those smaller distressed companies don't make a dent in their portfolio. They need the big corporations to be undervalued before they get in.
An individual investor isn't in the same stock market as Berkshire. Their investments move prices and they can't just allocate 50K on a XYZ fund. They have to find multi billion single stock investments, and that's a completely different problem than what us poor mortals face.
In fact anyone reading should ask fable about indicators and ai bubbles, I just did and it was startling!
“Nobody knows nothing.”