Seven Tech Companies Now Account for More than a Third of the Value of the S&P 500 and Trade at Prices 70 Times Higher than Their Earnings, on Average
And the more conservative view is that we are witnessing an AI bubble that may bring Wall Street to its knees. The question is, will it be its knees or its senses. Who in their right mind invests at a seventy to one ratio, except for the expectation of the price advancing.
That’s not investment, it’s casino mania.
And then, on top of that, here’s the Warren Buffett caution.
My favorite sage, in all things investment-wise, warns of eminent disaster, and attributes that to a stock market total and GDP convergence.
According to Warren, his past experience shows that every time the American GDP approaches an equalization with the total value of Wall Street investments, a severe recession follows. We are at that point right now, and what has been called ‘The Magnificent Seven’ lead the charge. Price evaluations at seventy times earnings are evidence of enthusiasm in the face of reality.
It’s always been a wise investment strategy to hoard cash when markets show either weakness or the potential of bubbles in the general economic outlook. Tech-centric industries and AI look very bubbly at the moment, running as they are against a very strong current of negative public economic health.
Main Street has never been weaker compared to Wall Street, with the possible exception of 2008.
Small businesses across America face largely impossible debt levels, fueled by decades of zero-interest loans, now that interest rates are finally increaseing Student loans, auto loans, mortgage payments, and credit-card debt are all at record levels, as wages stagnate and many families face a choice between eating and heating.
Carefully weighing those circumstances, along with GDP / stock market equality, Warren Buffett’s Berkshire Hathaway has stashed a record cash position of approximately $344 billion, which includes cash, cash equivalents, and short-term investments like U.S. Treasury bills. This large cash reserve is a result of the company being a net seller of stocks for several consecutive quarters, reflecting its view that many stock valuations are unrealistic.
Warren didn’t get the nickname as ‘Sage of Omaha’ by accident.
One of his best known quotes is “be fearful when others are greedy and be greedy only when others are fearful.” Fear is everywhere in America today, both politically and economically. Except for its stock markets and they are, at the very least, unrealistic.
I would never describe Warren as greedy, it’s simply not his reputation, nor has it ever been. But holding $344 billion in reserve sends a potent message.
“It takes 20 years to build a reputation and five minutes to ruin it,” Buffett is fond of saying.
If not in five minutes, ruination may not be all that far off.
But not for America’s newly minted Billionaire Class.
Like the Big Banks before them, they are now Too Big to Fail.