[pu_pe]

The stock market doesn't operate on long-term principles anymore. So, in some sense, it is immaterial that the rosy scenarios where AI is responsible for >$30 trillion in the next decade are unlikely. If you bet against the hype and it goes on for a few more months/years you lose as much or more than if you went along for the ride.

Burry is well aware of this, he has written about how passive investing is contributing to this problem.

[WinstonSmith84]

> If you bet against the hype and it goes on for a few more months/years you lose as much or more than if you went along for the ride.

> Burry is well aware of this ...

Well, no he isn't well aware of this, apparently. He's been right in 2008 but he has been spectacularly wrong for the last 5 to 10 years, like shorting Tesla or Nvidia at the worst possible moments - and eventually closing his hedge fund...

[ffsm8]

> shorting Tesla or Nvidia at the worst possible moments - and eventually closing his hedge fund...

He just didn't take to heart that the market can stay irrational for longer then he could stay solvent.

Both Tesla and Nvidia valuations are irrational from a market perspective. Doesn't mean they'll crash within the next months or even years, but it wouldn't be surprising if they did

[jjav]

> Both Tesla and Nvidia valuations are irrational from a market perspective.

Different levels though. NVDA P/E is 31 which is slightly high but not crazy. The AI datacenter investments might dry up and then earnings drop, but who knows. So it's defensible, at least.

TSLA is in another universe though, P/E of ~360!

I am convinced spacex will acquire TSLA just to avoid seeing it crash.

[mgh2]

Sure, no one can predict the future. But even then, Tesla's fundamentals are shaky and it is held by Musk's ability to sell his story and brand, only some fundamentals hold- albeit the same 'fans' buying its cars might be invested in its stock. Same thing might be happening with Nvidia- hyperscalers heavily investing in infrastructure and pushing AI adoption to justify ROI.

[Haven880]

He didn't realized that speculating stocks allowed by Fed and both parties. The vast majority money needed to prop up American economy right now (or in the last 10 years) have nothing to do with econ 101. It is purely money printing at its finest making Japanese banana money and Germans look amateurish. Fed now basically print money to bank and directed bank to buy stocks and loans as they like to certain orgs and individuals. Any short selling or whistleblowers suicided.

[IAmBroom]

Outlandish claims require substantial citations.

[heisgone]

He was wrong about the timing of the bubble popping and might well still be too early, as passive investing might allow for the market to keep inflating for many years to come. Mike Green explaining it better, about how mathematically, there is an inflexion point where if x% of investment is passive, it could make the whole system unstable (I don't remember the specific number) and crash, but until then, it will keep rising.

[panarky]

"As long as the music is playing, you've got to get up and dance."

[A_D_E_P_T]

> The stock market doesn't operate on long-term principles anymore.

It has been broken since ~2008 (ZIRPs, etc.) and has really gone off the rails since BTC and memestocks have taken off. Now everything's a memestock. It's all vibes-based.

[fireflash38]

People have seen others make insane, life changing money at this slot machine and are wanting to take their chances.

There are no fundamentals.

There is very low signal to the noise.

[bumby]

>People have seen others make insane, life changing money at this slot machine and are wanting to take their chances.

Isn’t this the exact same sentiment from the late 1920s when people were making “insane, life changing” money by buying equities on margin?

[Eddy_Viscosity2]

This time is different.

It may well though, because now we have an automatic buy from the government to 'fix' the market if it 'breaks'. The line goes up.

[dualvariable]

The fact that so many people think the Fed will step in and magically keep the number up is why I'm pretty certain this is going to turn out like the late-20s.

The cynical nihilists have capitulated to the stock market always going up, that has to be flashing a very bearish warning sign.

[idiotsecant]

That just means it's like the 1920s even harder, just on a time delay fuse

[timacles]

People really think we have found a way to negate the laws of physics. As of there can exist a system without entropy.

Humans are prisoners of the present moment, but just think what a market is. What does it really mean as it accumulates disorder for decade plus.

Can the market just continue to deviate from a markets actual purpose forever? Hell, can anything in this universe exist in a particular state forever.

If it can’t, then it means at some point things have to go in the other direction. Use your imagination what that means for the largest most complex (man made) system in the history of this planet.

[bumby]

Given the current sentiment as well as the past response for "too big to fail", I can definitely see why one might think this time is different.

[surgical_fire]

The question is how long until things break.

I wouldn't advocate for betting against any of this. But I took my money out of the stock market a few months ago.

Shorting is too risky and depends a lot on timing. Staying clear of this mess is a safer bet.

[dgllghr]

The Stock Market of the Spectacle

[bdcravens]

Honestly you can go back much further than that. Every few years it's broken for different reasons, but the exuberance is irrational all the same.

[maeln]

I don't think there is a single thing that explain the absolute joke that is the current market. Algorithmic trading, high-frequency trading, deregulation, passive investment, “finance” influencer pump and dumping ... But in general, I do believe it has the same issues that you can say about anything these days. It's not like those things didn't exist into a form or another in the past, but it's just so, so much faster these days.

To make a parallel, it's not like disinformation didn't exist in the past, but nowadays with social media, llms and image gen tools and a few armies of bots, you can spread whatever bullshit you want at lightning speed.

[A_D_E_P_T]

It's a confluence of factors, but the really big ones are, IMO, what I mentioned:

- ZIRP and similar policies essentially forced everybody to get into the stock market if they wanted to tread water.

- Then people saw with BTC (and similar, e.g. ETH,) that these so-called "market investments" don't need to be rooted in any kind of fundamental. They can be weightless tokens. This, in short order, lead to silly things like memestocks and NFTs -- but they also twisted the hell out of the markets. The valuation of TSLA has long been an example of this.

Then there's inflation, which has inflated stock market prices as much as it has inflated anything else. And there are toothless regulators who would deserve our sympathy if they weren't so lackadaisical. There are also llms, social media, etc. -- but those feed on the above.

[martinclayton]

(Agreeing with you) In the 1980s Gary Shilling said:

The market can remain irrational longer than you can remain solvent.

A long-term principle that I think does still apply.

[throwfaraway4]

The extent to which you’re exposed to long term principles is directly related to the time you’re in the market. Ie trader vs investor

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine”

- benjamin graham

[rchaud]

Graham died back when stocks were traded by guys shouting orders from a pit. High frequency trading was decades away, as was Wall Street's push for:

- creative accounting (Enron, Worldcom)

- zero-interest rate policy

- SPAC IPOs

- exotic securitization (credit default swaps)

...that made valuation more opaque over time. The age of value investing is long gone.

[chung8123]

The US is adding so much money to the economy every year and all that money has to go somewhere. I used to think this would come crashing down but at this point no one cares about debt and by the time we do it will be too late.

[kamaal]

>>The stock market doesn't operate on long-term principles anymore.

Nah, it might appear so, but the moment of reckoning always arrives, always. Like eventually, it arrives.

Its a different argument, that most people themselves are not long-term investors, in that case of course, such a thing doesn't even apply to you.

I think Fidelity did some research that the most profitable accounts belonged to dead people. The proven formula is to pick the best stocks out there, pyramid upwards and be patient.

[bumby]

Can you elaborate on how passive investing contributes to this?

[tristanj]

Passive investing funnels money into the market without accounting for business fundamentals. It simply allocates funding by looking at sector and market cap. It's the definition of dumb money.

As long as companies can make it into the index, passive investors will funnel money into buying stock of these companies, no matter how badly these companies are run.

[panarky]

Doesn't that passive process reverse at some point?

The trillions that mechanically and automatically flowed into index funds in pensions and 401k accounts must mechanically and automatically flow right back out after retirement, right?

Especially when younger generations are too poor to save for retirement and most companies don't offer pensions to younger workers any more, where will the inflows come from to offset the outflows?

[tristanj]

As long as the money supply keeps increasing, excess money has few places to go (bank deposits, stocks, real estate, and physical goods). Most of it will go into the stock market, since it's quite liquid with and has good investment returns.

Also, a significant part of the stock market is driven by foreign investment. The US has few capital controls and is an easy market for foreigners to invest in. Around 1/3rd of US stocks are owned by foreigners.

Even if the older generation sells during retirement, foreign investment will be more than enough to replace it.

[ghtbircshotbe]

https://news.ycombinator.com/item?id=33493662

[deepserket]

note that the comments on that post were written in the middle of the 2022 bear market, that's why the tone is more depressed than average.

[mschuster91]

Simple. Most "passive investors" are ETFs and pension funds that sometimes by law, sometimes by statute/sales prospect are limited to being low-risk, i.e. the monthly contributions go towards "safe" asset classes, and in addition retail customers prefer low-fee (and thus low-management) funds.

That in turn means that a lot of the invested money goes towards ultra-safe stuff like government bonds, which is about the only thing keeping the US government afloat (if there is always a healthy amount of buyers, you can go into debt no matter if it is sustainable), and what remains of the hundreds of billions of dollars that flow into these funds each month (and [1] is just pension funds, not 401k and other forms of privately-held retirement assets) and is not earmarked for such safe asset classes spills onto the ordinary stock market, i.e. S&P 500, NASDAQ et al.

And here comes the trap with low-fee investment funds... when the ETF or pension fund's policy is "we'll track NASDAQ 100" and SpaceX enters NASDAQ 100, they have no choice than to shift billions of dollars worth of assets into SpaceX at whatever is the market price at that point. No matter if the fund managers think that the valuation is excessive, if SpaceX has a long term viable business strategy, nothing can prevent this.

To make it worse: once in NASDAQ 100, you as a company have no incentive to behave. You cannot be punished by free-market means (aka going under), simply because your inclusion in the NASDAQ 100 means that any significant loss in value would wipe out way too much value in pension funds.

The US' idea to completely tie pensions to the stock market will fry the US economy alive. We've already seen this during and past Covid... first, lockdowns got relaxed because it fried the stock markets too heavily, thus giving us four massive waves until vaccine distribution caught up, and then remote work that was allowed in many countries by law got slowly axed because REITs (real estate investment trusts) got screwed by companies quitting expensive rental contracts for office space. But that pales in comparison to what we'll see when the AI bubble pops.

[1] Q1 20: 23T, Q1 21: 26T => about 3T/y, 250B/mo, per https://fred.stlouisfed.org/series/BOGZ1FL594090005Q

[bumby]

Isn't a counter argument that there are index funds for just about everything? Ie, I'm sure there will be an index for "Everything in S&P Except SpaceX" for those who think SpaceX doesn't belong there. There are even "anti-index index funds" that are defined by being the opposite of another ETF.

[mschuster91]

Pension funds don't use these and most retail users are lazy af. The only ones putting funds into niche funds are gamblers and nerds, a tiny minority.

[bdcravens]

> The stock market doesn't operate on long-term principles anymore

by "anymore" I assume you mean for a few decades now