I'm guessing this is worse due to the super high valuations of these companies? Mag7 make up like 1/3 of the S&P 500. Even if you buy a low cost index fund with the goal of diversification, your portfolio still includes a lot of this stuff.
Market neutral index fund investment can not be accurately described as fueling a bubble, though. You're neither bullish nor bearish on Mag7 in particular.
>Similarly, thanks to recent efforts by the Trump administration, the $15 trillion held in private sector workers’ retirement accounts is now, for the first time in history, available to be invested in private funds.
The argument is that retirement savings are being invested in different ways than before.
I'd like to see some quantification for their statement. It's unclear to me how much has actually been invested in private funds. I think that pensions invest, (and that the economy is linked together) is a far more persuasive (note that neoclouds and the hyperscalers are all public as are some of the private credit firms and banks bankrolling the build out).
Specifically I believe the concern is pension funds.
Your 401K is invested however you choose, but the people with pension plans don't get any input on how those are invested or what risks they take. They have historically been cesspools of fraud and shady deals.
The language the author uses there obfuscates rather than clarifies. 401(k) holders can choose to invest in private credit, but it is never going to be the default investment option, and they control that choice. (Unlike public employees, who typically have no control over how their pension savings are invested.)
there is an argument to be made that investors with long investment horizons and predictable flows aka insurance companies and retirement funds are exactly the ones who should be taking risky long term bets instead of looking to next quarter
Then again, when you look at the performance of your typical pension fund or university endowment, and then see the actual incentives of the people managing the money (as there's ultimately managers there looking for their personal best interests), then you see that said argument one could make is not exactly going to do well empirically.
The main reason we are seeing private equity now being offered in 401ks isn't that it's going to be great returns for your average mostly-self-directed worker, but because those managing private equity believe they will make more money if they managed more capital. There's no guarantee that they are making any choices there that provide good risk-adjusted returns. But the managers sure would be making more on fees.
There is, but the presumption in that argument is that those risky bets bring higher returns. If that assumption is invalid, the argument falls apart. (I'm not especially confident myself that private credit can actually bring higher returns over a long time horizon.)
Or perhaps not. You don't want to retire at a moment when the retirement fund is down 20% and decides to pay no interest on your savings for the next 10 years. Or not pay you at all.
Intentionally using them as human shields before the fact is different than using this as a political narrative to justify what they want to do anyway after the fact.
AI companies and hyperscalers' kamikaze spending on data centers may not be profitable. But they seemingly have no choice because everyone else is doing it.
Would anti-data center measures be like an arms control treaty in this arms race? Maybe if they force companies to spend slower it'll actually be good for everyone's finances.
That's how arms races work though. Everyone spends a ton of money to end up no further ahead compared to their rivals and peers.
"The share price will tank if we're not seen as AI-forward" is a legitimate fear for many CEOs. It's the only logical explanation for tokenmaxxing and other behavior that only makes sense from a game theoretical perspective.
If that were true then management could've spent some time coming up with better metrics than "tokens burned". They could just halve deadlines for every project, as an extreme example.
Data centers are profitable. Even before ChatGPT came out the hyperscalers were having capacity issues. Non-AI growth is explosive since 2020. Cloud customers complain they can't spin up the resources they want to spin up in the cloud, and again, not just GPU SKU's.
Retirement savings are 401ks in the US and they're managed by _NOT_ the retirees, but random middle managers. Those are the people who are chasing whatever the bubble is producing because their "due diligence" requires them to be bootlickers.
The same can be said of many of the tech moguls who've sworn fealty to trump; if they didn't lick the boot, they could be considered acting against shareholders value.
So, like most things in America: the people are not in control of their actual power. Not in retirement funds, not in healthcare, and not in education. They've all been turned into bizare economic dependent indirect funding programs.
I didn't say anything about the management of retirement savings.
The author claims two things:
1. AI company valuations dropped because of fears that Democrats would restrict data center construction.
2. The AI industry is doomed because of unsustainable spending on data centers.
If 1 is true then investors clearly believe that the current level of spending is appropriate and any restrictions on it are harmful to long term returns.
If 2 is true and unsustainable spending continues despite a lack of RoI, then "arms race" is the only explanation for the irrationality. It is driven by the fear that if you don't spend big, you'll be part of the permanent underclass of companies.
This in turn implies a data center construction moratorium is a blessing in disguise. Everyone has an ironclad excuse to reduce financially-irresponsible but mania-driven data center investments.
Bottomline:
"Data center restrictions are bad for the industry"
and
"Data center spending is unsustainable"
are polar opposite viewpoints and imply vastly different outcomes of the current buildout.
I don't know which one is true. And like most things, I suspect the truth is in the middle. But they can't be simultaneously true.
I think 1. and 2. could both be true at the same time.
1. is claimed to have happened because INVESTORS in AI companies rerated their investment due to a threat of construction restriction
2. is a prediction about the future of how the industry will turn out
Someone who believes (2) is less likely to have been an investor to begin with and therefore didn't participate in the price rerating for (1)
I do agree with your point that a reduction in spending would have a positive outcome overall if we turn out to be in an "arms race" with a lack of ROI.
I despise target retirement age funds for exactly this reason and I have all my 401k funding in major index funds that I do not care about beyond that on a day to day basis.
The major target retirement date funds are just "funds of funds" that are distributed across stock and bond index funds in an age appropriate allocation. e.g. https://investor.vanguard.com/investment-products/mutual-fun... They're generally not actively managed funds chasing bubbles.
Chinese labs are not going to care about whatever anti-datacenter measures you propose. It'd take an unprecedented effort of international collaboration to slow down AI training.
(Before anyone mentions nuclear, the amount of nuclear warheads grew a lot after the non-proliferation treaty. Historically that was how collaborative big countries were.)
Wouldn't slowing down AI training in the United States insulate the retirement investments of U.S. citizens from the LLM market, regardless of what happens abroad?
> What's your proposal for the people who lose their retirement?
You would only lose your retirement if 100% of your savings was invested in company(s) that eventually went to zero.
Even if you're 100% equities, and concentrated in (e.g.) the S&P 500, that would mean that the five hundred largest companies in the US would have to go to zero before you would "lose" your retirement.
One could also go for a total US market fund (Russell 3000, $VTI) or total world market fund ($VT). Further, having a bit of bonds (10-20%) would allow you to be cushioned for things like the '00s, where the S&P 500 returned 0% for the decade:
Assuming you're talking about people who are actively retired, or who are close to retirement, one would hope they have planned a proper asset allocation and not be so exposed to stocks. Otherwise you have to trust that history will continue to repeat itself and all losses will come back and then some.
Even if you're retiring tomorrow, you're not going to be pulling everything out at once. The stock market going down isn't anyone "losing their retirement". They still own all the same stocks they did.
Ideally, they should be allowed to withdraw their funds and invest them as they wish. The root issue here is people not being in control of their investments.
Government bailout. It was a "conspiracy theory" three months ago, now they're on CNBC saying "of course we have to do a bailout, unless you want to be ruled by China."
Maybe a normal healthy market isn't normal or healthy for people?
Why are we assuming a market is an inherent good and its needs are to be prioritized?
If a bunch of people might be reduced to poverty in old age and that's a sign of a healthy market, then I'm not super sold on this healthy market pitch...
will it (be allowed to) work as intended? the sector becomes/is too big to fail and is deemed a national security concern - we might see backstopping in that case, also it's really the only thing keeping the economy from contracting. i expect the downturn, if it comes, to be more like a megafire that burns white hot through fuel rather than the controlled burn we need, so I don't know that leaving it alone solves anything, given how many actors are actively meddling.
The risk of all risks today is wether OpenAI will survive. I just watched Zitron is convinced they will not [1]. Eisman said OpenAI flop will cause recession [2].
That might be a financial risk, but it's only a financial risk.
Even if OpenAI goes bankrupt, someone will buy their models in bankruptcy to run them. Also, other companies will be able to hire the people who are laid off to apply the same techniques to get similar models.
So from the point of view of technological / AI progress we'll be fine.
Some investors might lose some money, but humanity will keep going forward.
I have lived through 1 recession. I will unfortunately have to live through another recession because yet again regulators have been taking a xanny/tranquilized; and unchecked greed of Wall Street and billionaires
In fact, the problem is that they keep bailing us out of recessions, which will eventually lead to a collapse and possibly a depression.
2019: That bond bailout you didn't hear about
2020: COVID bailout
2022: Various credit/liquidity facilities and the slow-walked rate hikes
2023: Bank bailouts
I dunno what happens this time. So many cards have been played out and a lot of entities seem to be white-knuckling it.
The boom-and-bust cycle is a natural consequence of running an economy on debt: margin leads to speculation which leads to overheating, and then it has to cool off. It is entirely possible to guarantee the public's welfare during busts; you just have to sacrifice not having a ceiling on earnings/wealth.
If we are lucky, all of this will not matter if we reach post scarcity.
Would be even really really good if we would start breaking through barriers regarding state spending and allowing more to do so in a way that inflation is not affected.
Like allowing every state on the planet to 'spend' money on certain things like renewable or teachers or care workers.
Lucky enough we don't live in a free market. US America perhaps more than germany, non the less there are plenty of regulations to protect consumers.
If a recession was started because someone else is taking your retirement fonds and putting them in companies overvaluated to move money from retirement fonds to random other people, and this is closer to gambling than investment, regulators should step in.
Technically she wasn’t a regulator - I believe she was at one of the ratings agencies. In their defense, it looks like Anthropic’s IPO is going to receive a junk rating.
Why do people keep bringing up Zitron in these discussions. He's literally just some guy. And with all due respect to Steve Eisman, he's been wrong plenty of times, most recently with bond prices going above 5% being a trigger. And he's still recommending that you should hold SPX or a combination with QQQ like, hilariously, that's supposed to be diversification or something.
Because he actually analyzes the rather ugly financials of the companies in the bubble.
For some reason the people who hate him the most are the ones most inclined to completely ignore the topics he actually talks about.
They all get hooked on anthropic screeching about ending humanity or some other nonsense and forget that this is a business. A business which is losing gargantuan stacks of cash and is running on the fumes of hype and cope.
I don't understand his phenomenon either. Listened to a few long podcasts with Zitron. He had about 10-15 minutes worth of ideas and not much beyond that, mostly anecdotal stories about excesses. Nothing of it was particularly novel. Are AI companies in a huge bubble? Most likely. Is there a shitload of grifting? Yes, there is. Is AI itself useful? Not to the degree it's hyped, but yes, it has its uses. And that's about it. Nobody knows how the events will unfold, and listening to speculation feels like a complete waste of time.
Because he has been one of the few people doing actual research on the financials around AI and reporting on exactly why it looks like a massive bubble.
If any boosters can provide the type of evidence that Zitron has I’d love to see it.
The owners of existing data centers might make more money if new data centers are blocked, because there is currently plenty of demand and they will have less competition. Or maybe not. There are a zillion other considerations like this. Do you really think you can figure it out?
For retirement savings, index funds are hard to beat, and it's hard to say whether tech stocks should be over- or under-weighted compared to the index. Tech stocks went down recently, but maybe it's a good time to buy? People who invested in 2008 did well.
Reminder that VTSAX, VTBLX and VTIAX are all you need. 50/25/25 split, as per Bogleheads. (FXAIX, FXNAX, FSPSX if your acct is on Fidelity).
(Also a reminder that target funds are expensive and will sometimes be over-allocated towards hot industries depending on the retirement year "target".)
Reminder that Fidelity back in March gave notice that they no longer would limit the largest holdings to 5% (e.g., in FITLX). So even if you noticed, and if you wanted to control your own risk, you'd have to sell your holdings, a taxable event.
So index funds are no solution, unfortunately. They'll lose deposits if they sit on the sidelines (as people compare 8% returns to 15+%), so their incentives are not aligned with avoiding the bubble.
The perfect scam, er virus, lives well enough to spread but doesn't kill quickly.
This seems like pure slopulism to me, to be honest. It doesn't back its claim that pensions funds are fueling the supposed bubble, just that pension funds are invested in AI companies. The given solution of completely divesting from index funds (since some AI companies are in the Nasdaq) is also completely unreasonable.
>Are we on the brink of the next financial crisis? Last Thursday, there was a “bloodbath in tech stocks,” as the stock market lost $3.2 trillion in a single day.
Sounds bad, until you take a closer look and see that this was just a 4% decrease.
>In the longer term, with enough political will, we can redirect our retirement savings towards productive investment, such as building out affordable housing and funding the renewable energy transition. For example, NYC Comptroller Mark Levine announced a $4 billion affordable housing initiative in April. Pension fund trustees could follow his lead rather than direct money towards Blackstone, one of the country’s largest landlords and a major fund manager for public pensions.
The slop bells are deafening. I suspect that the author is driven more by political motives than a sincere belief that the AI industry is financially doomed.
Especially obvious political agenda when they advocate using retirement savings to fund affordable housing. Is it actually better for retirees to subsidize something that the free market struggles to fund profitably?
Literal slop for negative expected return. No way affordable housing is an investment. The delinquency rates would kill any return.
> 4% decrease
-4.3% that day, as of today its -0.81% since then. who cares about 1 day moves? where is the new article about the 2.6T in gains? big number bad or big number good?
Is this really the best argument they can make? A 4.5% correction bringing the S&P500 down to only a 11.5% YTD return? And a quote from a guy who's predicted 14 out of the last 2 bubbles? That's it?
Heh. Don't worry, by the time those missing savings would really have an effect, they won't be needed; AI will be providing all the basics+ for free. Or things will be so bad that they'd be worthless anyway.
I don’t think they’re talking about 401ks, since I don’t think those are significantly invested in corporate bonds. The article specifically calls out pension funds.
There's an AI bubble, but it's very clearly not the same as the dot com bubble or the housing bubble. The common thread on both of those was that too many people/companies had no chance in hell of returning either profits or the money lent to them to buy houses. We are not there yet, the AI bubble/euphoria is funded by the biggest cash printing companies in history. Even with ludicrous investing, their cash flow has only now and this barely gone negative. And the demand is still there. We have some ways to go with this.
The argument is that retirement savings are being invested in different ways than before.
Your 401K is invested however you choose, but the people with pension plans don't get any input on how those are invested or what risks they take. They have historically been cesspools of fraud and shady deals.
The main reason we are seeing private equity now being offered in 401ks isn't that it's going to be great returns for your average mostly-self-directed worker, but because those managing private equity believe they will make more money if they managed more capital. There's no guarantee that they are making any choices there that provide good risk-adjusted returns. But the managers sure would be making more on fees.
The defining thing about "high risk" is that risk part will happen and that creates a lot of loosers. That is the whole point!
But HN treats "high risk" as something that is expected to always give you reward.
Also, one can imagine the opposite situation creating the same outcry: "retirees are being frozen out of AI returns".
AI companies and hyperscalers' kamikaze spending on data centers may not be profitable. But they seemingly have no choice because everyone else is doing it.
Would anti-data center measures be like an arms control treaty in this arms race? Maybe if they force companies to spend slower it'll actually be good for everyone's finances.
doesn't sound like valid reason
"The share price will tank if we're not seen as AI-forward" is a legitimate fear for many CEOs. It's the only logical explanation for tokenmaxxing and other behavior that only makes sense from a game theoretical perspective.
Clearly true though. “Not reveryone” is doing it. Most of the bubbly(?) trillions are.
Retirement savings are 401ks in the US and they're managed by _NOT_ the retirees, but random middle managers. Those are the people who are chasing whatever the bubble is producing because their "due diligence" requires them to be bootlickers.
The same can be said of many of the tech moguls who've sworn fealty to trump; if they didn't lick the boot, they could be considered acting against shareholders value.
So, like most things in America: the people are not in control of their actual power. Not in retirement funds, not in healthcare, and not in education. They've all been turned into bizare economic dependent indirect funding programs.
The author claims two things:
1. AI company valuations dropped because of fears that Democrats would restrict data center construction.
2. The AI industry is doomed because of unsustainable spending on data centers.
If 1 is true then investors clearly believe that the current level of spending is appropriate and any restrictions on it are harmful to long term returns.
If 2 is true and unsustainable spending continues despite a lack of RoI, then "arms race" is the only explanation for the irrationality. It is driven by the fear that if you don't spend big, you'll be part of the permanent underclass of companies.
This in turn implies a data center construction moratorium is a blessing in disguise. Everyone has an ironclad excuse to reduce financially-irresponsible but mania-driven data center investments.
Bottomline:
"Data center restrictions are bad for the industry"
and
"Data center spending is unsustainable"
are polar opposite viewpoints and imply vastly different outcomes of the current buildout.
I don't know which one is true. And like most things, I suspect the truth is in the middle. But they can't be simultaneously true.
1. is claimed to have happened because INVESTORS in AI companies rerated their investment due to a threat of construction restriction 2. is a prediction about the future of how the industry will turn out
Someone who believes (2) is less likely to have been an investor to begin with and therefore didn't participate in the price rerating for (1)
I do agree with your point that a reduction in spending would have a positive outcome overall if we turn out to be in an "arms race" with a lack of ROI.
401ks are self-managed, though many stick with the default investments.
(Before anyone mentions nuclear, the amount of nuclear warheads grew a lot after the non-proliferation treaty. Historically that was how collaborative big countries were.)
You would only lose your retirement if 100% of your savings was invested in company(s) that eventually went to zero.
Even if you're 100% equities, and concentrated in (e.g.) the S&P 500, that would mean that the five hundred largest companies in the US would have to go to zero before you would "lose" your retirement.
One could also go for a total US market fund (Russell 3000, $VTI) or total world market fund ($VT). Further, having a bit of bonds (10-20%) would allow you to be cushioned for things like the '00s, where the S&P 500 returned 0% for the decade:
* https://www.forbes.com/sites/advisor/2010/09/13/its-not-real...
Historically, even if you only invested lump sums just before crashes, you would have done fine as long as you stuck with it:
* https://awealthofcommonsense.com/2014/02/worlds-worst-market...
The stock market is basically the anti-casino: the longer you participate the better your chances of coming out ahead:
* https://awealthofcommonsense.com/2023/05/the-stock-market-is...
Why are we assuming a market is an inherent good and its needs are to be prioritized?
If a bunch of people might be reduced to poverty in old age and that's a sign of a healthy market, then I'm not super sold on this healthy market pitch...
1 https://www.youtube.com/watch?v=YB3XE8mWNF0
2 https://www.youtube.com/watch?v=w1dRDj1QRks
Even if OpenAI goes bankrupt, someone will buy their models in bankruptcy to run them. Also, other companies will be able to hire the people who are laid off to apply the same techniques to get similar models.
So from the point of view of technological / AI progress we'll be fine.
Some investors might lose some money, but humanity will keep going forward.
2019: That bond bailout you didn't hear about
2020: COVID bailout
2022: Various credit/liquidity facilities and the slow-walked rate hikes
2023: Bank bailouts
I dunno what happens this time. So many cards have been played out and a lot of entities seem to be white-knuckling it.
The boom-and-bust cycle is a natural consequence of running an economy on debt: margin leads to speculation which leads to overheating, and then it has to cool off. It is entirely possible to guarantee the public's welfare during busts; you just have to sacrifice not having a ceiling on earnings/wealth.
Would be even really really good if we would start breaking through barriers regarding state spending and allowing more to do so in a way that inflation is not affected.
Like allowing every state on the planet to 'spend' money on certain things like renewable or teachers or care workers.
If a recession was started because someone else is taking your retirement fonds and putting them in companies overvaluated to move money from retirement fonds to random other people, and this is closer to gambling than investment, regulators should step in.
> someone else is taking your retirement fond
> and putting them in companies overvaluated
> to move money from retirement fonds to random other people,
> and this is closer to gambling than investment
For some reason the people who hate him the most are the ones most inclined to completely ignore the topics he actually talks about.
They all get hooked on anthropic screeching about ending humanity or some other nonsense and forget that this is a business. A business which is losing gargantuan stacks of cash and is running on the fumes of hype and cope.
If any boosters can provide the type of evidence that Zitron has I’d love to see it.
For retirement savings, index funds are hard to beat, and it's hard to say whether tech stocks should be over- or under-weighted compared to the index. Tech stocks went down recently, but maybe it's a good time to buy? People who invested in 2008 did well.
(Also a reminder that target funds are expensive and will sometimes be over-allocated towards hot industries depending on the retirement year "target".)
So index funds are no solution, unfortunately. They'll lose deposits if they sit on the sidelines (as people compare 8% returns to 15+%), so their incentives are not aligned with avoiding the bubble.
The perfect scam, er virus, lives well enough to spread but doesn't kill quickly.
>This account doesn’t exist. Try searching for another.
>Are we on the brink of the next financial crisis? Last Thursday, there was a “bloodbath in tech stocks,” as the stock market lost $3.2 trillion in a single day.
Sounds bad, until you take a closer look and see that this was just a 4% decrease.
>In the longer term, with enough political will, we can redirect our retirement savings towards productive investment, such as building out affordable housing and funding the renewable energy transition. For example, NYC Comptroller Mark Levine announced a $4 billion affordable housing initiative in April. Pension fund trustees could follow his lead rather than direct money towards Blackstone, one of the country’s largest landlords and a major fund manager for public pensions.
The slop bells are deafening. I suspect that the author is driven more by political motives than a sincere belief that the AI industry is financially doomed.
> 4% decrease
-4.3% that day, as of today its -0.81% since then. who cares about 1 day moves? where is the new article about the 2.6T in gains? big number bad or big number good?
> I'm not convinced the AI bubble exists
a few days ago?
https://news.ycombinator.com/item?id=50418975