Please read my full disclaimer at the bottom of this post and on my “About” page.
I’ve been increasingly vocal about the possibility that the AI bubble could pop sooner rather than later. Core CPI came in hot this morning. Valuations, expectations, capital spending and investor enthusiasm around AI have reached levels that make me increasingly uncomfortable, and I think there is a legitimate possibility that we eventually look back at this period as another historic speculative mania.
That doesn’t mean I think shorting this market is easy. Or that anyone should do it. In fact, I think being short equities here carries significant risk, even if you believe the fundamental bearish thesis is correct.
That’s because, as always, it’s you versus “the house”, and the house has endless loopholes, tricks, end-arounds and other bullshit at its disposal to subvert, prevent, stop, redirect, or otherwise stave off any meaningful selloff in U.S. equities.
After all, everyone in the world has modeled these markets to go up 7% per year forever, and upon that assumption rests the balance of the entire debt-based global Ponzi scheme. So, to say there is no consequences <cough> *end of the fucking world *<cough> to markets moving lower would be a gross understatement.
Instead, in my view, the market is increasingly entering what I call the Venezuela stage of asset price inflation.
The currency and the measuring stick become part of the problem, nominal asset prices can continue screaming higher even while the underlying economic picture deteriorates, and anyone betting purely on lower nominal prices can get steamrolled.
I think that dynamic could become even more extreme if policymakers eventually resort to some form of yield curve control, which at this point seems inevitable, and is what I based my favorite investment in the world on right now.
I can simultaneously believe that parts of the equity market are in a historic bubble and believe that being structurally short the market is an extraordinarily dangerous trade. Those two ideas are not contradictory, especially when you consider what has happened to people who have tried to fight the long term nominal direction of the stock market (spoiler alert: stocks only go “up”).
Nominally, people who have stayed short the U.S. stock market for long periods of time have gotten thrashed. There have obviously been spectacular crashes and bear markets along the way, but over sufficiently long periods the dominant direction of nominal stock prices has been higher. And recently, thanks to printing a pornographic amount of money out of thin air, it has been *parabolic. *
Look at the NASDAQ compared to the above chart of Venezuela’s stock market.
Anyways, said printed money, along with the occasional productivity, economic growth and the natural upward bias of successful businesses all make permanently fighting that trend an incredibly difficult proposition. You can have a perfectly intelligent bearish thesis, be fundamentally correct about enormous problems in the system and still lose a staggering amount of money waiting for nominal prices to reflect your view. Ask me how I know.
So I want to be extremely careful about how I say this. I am not suggesting people short the market. But if somebody absolutely insists on expressing a bearish view here, I wanted to point out one “off the path” idea for getting exposure that I think could surprise everyone and actually outperform a tech short if the bubble winds up bursting…and then smoldering for another 6-12 months after.
