"I get the willies when I see closed doors."
Joseph Heller, opening line from the novel, Something Happened, 1974
There is always something to worry about. Most of it won't come true. Some will, though.
Don't mind me. I am an old man with too much experience.
Americans who watch financial markets know the warnings about a tech stock bubble. People with money or careers at risk during the internet boom and bust understand the risk. The potential is that artificial intelligence will unlock giant gains in productivity. The worry is AI companies won't earn monopoly profits from AI anytime soon, therefore the stock prices of companies spending money to create AI platforms are running ahead of their current value.
Deutsche Bank asked its customers to list the biggest risks to market stability in 2026. Fifty-seven percent listed a tech bubble. The second was the fear that the new Fed chair would try to please the president who had just appointed him by lowering interest rates too far and too fast. Well down the list are other things readers have heard about: a crypto crisis, a China attack of Taiwan. Russia-Ukraine escalation, energy infrastructure failure, and a global trade war. Here is a chart, oriented in two directions for readabilty.
The best evidence that there is no AI bubble is that people worry about a bubble. If prices reflect nervous, skeptical investors, it is less likely to be a bubble. Bubble prices come from unchecked optimism.
Impending disasters are obvious -- in hindsight. Anybody can see that making mortgage loans to people without assets, income, or jobs is foolish, but from 2004 to 2007 bankers imagined that as long as they packaged bad loans with other bad loans, the resulting sausage was perfectly safe and AAA-rated and could be sold to pension funds or held on their own books. People were making great money creating those loans; it is hard to knock success. Nobody likes a naysayer. Same with people worried about the Magnificent Seven stocks. So far, so good on them.
There is no shortage of hazards and warnings. Many people distrust the U.S. dollar as a storehouse of wealth -- a reasonable fear. Readers who have scrolled social media this week are learning about a new reason for worry: a short squeeze on silver. An ounce of silver has gone from $30 to $80 in a year, and from $40 to $80 since September. Silver prices aren't reflecting industrial and jewelry supply and demand. They reflect stress in the financial markets.
Bank trading desks with short futures positions on silver must deliver silver. Funds that contracted to match ounce-for-ounce in physical silver their investors' deposits in their funds also need physical silver. It isn't available. What could go wrong?
I worry about the optimistic people holding crypto "assets." Crypto money is the equivalent of electronic baseball cards, but without the nostalgia. Crypto assets are valuable as long as people think the price of fairy-dust will go up. The prices reflect a social consensus that if there is a price there must be value, at least one that can be captured if sold to someone else. Banks go where the opportunities are and where federal regulators permit risk-taking. Banks are loaning money collateralized by crypto. What could go wrong?
There is a mismatch between incomes and home prices. President Trump's solution is more leverage and debt, now in the form of 50-year mortgages. What could go wrong?
There could be a geopolitical crisis. The U.S. has had 24 years where we are doing the bombing: Iraq: Afghanistan: Iran: this month Venezuela; this week Nigeria. We dish it out; we feel both invincible and entitled. No one has bigger aircraft carriers. What will go wrong will likely be a surprise. It probably wont be an airliner crashing into a building. It will be something new. The U.S. does not have a monopoly on shock and awe.
I am glad there are young people with optimistic entrepreneurial spirit starting new enterprises in garages and dorm rooms. I am glad there is competition among the companies creating AI platforms. I am glad Americans see opportunity and are racing to take advantage of it.
I reflect a different perspective. I am OK with my age and situation. I hedge my bets. My goal is to survive bad times. I don't consider that pessimistic. I think it is realistic and good. If bad times come, the U.S. will need survivors.
12 comments:
As a retired financial professional, I believe that being financially conservative is the way to go. You may not hit a home run, but then you're not going to strike-out either.
Crypto has no value, yet expectations are that momentum will increase its price for no reason, and that's foolish.
Real estate and stocks generate revenue, while silver doesn't. Aside from industrial uses, silver (and gold) are pure speculation.
There is no AL (Artificial Intelligence). AI is only what man programs into the computer. AI doesn't generate original thoughts or ideas. In 2000, we experienced the dot-com bubble. In 2026, it's going to be the AI bubble. Enormous amount were invested in AI because of false promises from guys like Sam Altman, and AI isn't going to be the savior promised, and investors will lose billions of dollars.
In my old age, I think that there's no better investment than real estate. There's more leverage in real estate, too.
The origin of the 2008 real estate crash was a government initiative in the 1990s to make it easier for minorities to get mortgages.
The only way to do this was to lower the financial eligibility standards. This made those mortgages more likely to default. The lending institutions figured out a way to deal with this increased risk: packaging those “subprime“ mortgages with other mortgages that met the usual standard.
We all know how that worked out.
My source for this is a book by New York Times financial reporters:
Reckless Endangerment by Gretchen Morgenson and Joshua Rosner
Economists try to tell us the 2008 real estate crash was due to multiple factors such as mortgage-backed securities, derivatives, deregulation and lack of oversight, but I should have known those pesky minorities were behind it all along.
Relaxing the lending criteria was the initial cause that sent the snowball rolling down the hill, becoming an avalanche on the way. I didn’t claim that there weren’t other factors going into the 2008 crash, but it never would have happened without that initial push.
There is no AI (Artificial Intelligence). AI is only what man programs into the computer. AI doesn't generate original thoughts or ideas.
This is just wrong, and it reflects a fundamental misunderstanding of the current AI SYSTEM technology..
No one “programs“ any specific thing into an AI. It would be more accurate to say we “grow” them, than that we program them.
No one told AlphaGo how to make its amazing and decisive move in the Go game in which it defeated Lee Sudol,, the reigning human Go champion.
The 2008 real estate crash was NOT because of minorities. It was due to LAX mortgage requirements which required no proof of income, and anybody could qualify for a loan based upon oral representation. With easy money, then real estate became a speculative game, and people with little income could play the game. During this period, I know of white folks with little income who bought houses in Medford while they were being built, then sold them when the house was completed. They could speculate on home prices with no skin in the game, and when the loans became due, they couldn't service the loan. Essentially, people who were unqualified financially to buy a home then did, and later they defaulted on the loan. It has nothing to do with ethnicity. I know of white home developers who went bankrupt.
AI derives all its information from the internet; humans have programmed all the information and misinformation on the internet; ergo, ...
For those of us working in the “AI space”, the jury is still out. The difference between 2000 and now (on the tech side at least) is that the “irrational exuberance” of dot-com was fed by IPO-funded companies with weak or even zero legitimate business models. The AI phenomenon is funded by large Techcos and lots of private equity, but it’s a circular economy right now. All those hyper scale data centers and the energy to support them are driving the manufacturing and construction industries. But once built- nobody has figured out how to turn a real profit from it. But that was true with Social Media until Fb added “Likes” and ad-revenue exploded.
So I agree with MT regarding AI. It is more powerful than most people realize and it has the potential to restructure nearly every domain of our lives- including geopolitics and the global economy. It’s too soon to tell, but the shedding of formerly high-paying tech-sector jobs is surely a telltale sign.
Those lax and ultimately devastating mortgage requirements were installed from specific, misguided policy auspices—to permit otherwise unqualified members of “oppressed” ethnic minorities to get mortgages. Banking arms were twisted accordingly. Sure, others took advantage—or crashed—as well, but MT is correct about the original impetus and the primary blame.
Poor people wanted a piece of the American Dream, the near-certain escalator of wealth. Don't blame minorities. More poor Whites took advantage of the opportunity than did minorities. The people who were criminal in their behavior were the bankers and credit agencies. They knew they were packaging garbage to resell to the rubes. They sold the idea that people always pay their mortgages and that home prices only go up. People believed it, even at first the bankers. It is best we not point to ethnic groups as the malefactors here. I prefer to discourage dog whistle antisemitism, and pointing at minorities as the underlying cause of the problem is a slippery slope that leads in multiple bad directions.
There are people who consider minorities as primarily to blame for all our problems, and even have a pseudoscience known as "scientific racism" to back it up.
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