US economy in general is starting to make me nervous.
Quite hard to diversify away though because that means missing out on AI boom and if the US shits the bed then chance are everything else gets sucked down with it
But yeah. I looked at how my pension funds are invested, and it's like 70% in the US. Even more than the sovereign wealth fund, which is apparently around 50% (if a quick AI search can be trusted).
Thing is, I'm not sure I will like the world where OpenAI and co. are as wildly successful as their valuation suggests either. So maybe I should invest in them, so that if it comes to pass, I at least have money?
> Thing is, I'm not sure I will like the world where OpenAI and co. are as wildly successful as their valuation suggests either. So maybe I should invest in them, so that if it comes to pass, I at least have money?
I think their current valuation isn't suggestive of a world that's going to change very much.
If investors were taking seriously the idea that this could be "it" with AI enabling even full automation — not superhuman AI, not even a fast learner, just AI that can fully automate everything we've currently got and not be limited to the subset of desk jobs that LLMs can do OK — it would allow the economy to double in size in whatever wall-clock time period it takes for the AI to gather enough training data by simply observing human workers doing the things the AI has not yet learned to do.
If self-driving cars are a good example in this regard, that observation time may quite large:
Current AI has not yet mastered full self-driving of cars in general conditions, despite all the cameras on cars gathering data about how all the other (human-driven) cars around them behave in real conditions. To take a somewhat arbitrary cut-off points for the sake of illustration, going from the 2007 DARPA Grand Challenge to today in self-driving cars, would suggest a growth of 3.9%/year.
Global GDP growth of 3.9%/year would be worth a much higher valuation than the AI companies are getting, and yet still be slow change.
Waymo is the best, but IMO even they are not yet a counterpoint, because they're geo-fenced.
If I had to put money on who gets fully-general first, I'd put it on Waymo; but I have no idea what anyone in China is doing so there's plenty of room for surprises.
The geofenced part is what I failed to consider. I guess you can't consider it general purpose unless you can just throw the system into a new environment with a reasonable probability of success.
> f investors were taking seriously the idea that this could be "it" with AI enabling even full automation — not superhuman AI, not even a fast learner, just AI that can fully automate everything we've currently got and not be limited to the subset of desk jobs that LLMs can do OK — it would allow the economy to double in size in whatever wall-clock time period it takes for the AI to gather enough training data by simply observing human workers doing the things the AI has not yet learned to do.
This assumes that the economy and the governments will happily suffer the electricity and financial demands that Sam and co would give and the world would accept. Even if Sam's words were true, it is still a leap of faith because there is no data backing those words.
My take in late 2023 was that GPT-5 would either further push transformers into the "there is still a real chance transformers might be IT" or will become the unquestionable sign that transformers have peaked as a general technology. My take in 2024 was that the AI bubble was going to be noticed. My take in 2025 is that AI companies (other than the big ones like OpenAI) are going to struggle getting funding.
> This assumes that the economy and the governments will happily suffer the electricity and financial demands that Sam and co would give and the world would accept. Even if Sam's words were true, it is still a leap of faith because there is no data backing those words.
Most economic growth since electricity became economically relevant assumes that, the only thing that changes are the names of who (supplies and) demands the energy.
> Even if Sam's words were true, it is still a leap of faith because there is no data backing those words.
Ignore Sam's, assume mine in the hypotheticals of my comment: even something slower than Musk's ongoing failure to make FSD is still a massive increase over the status quo that justifies the price, yet it can do so in a way that's still not going to feel like a radical shift to live through.
> My take in 2025 is that AI companies (other than the big ones like OpenAI) are going to struggle getting funding.
Mine is that there's definitely a bubble overall, but not necessarily in any single player: who wins the pop and who disappears is unclear, but whoever does survive can easily reduce spending when there's no competition and they're consequently not having to put 1/3rd of their compute budget into the next marginal improvement needed to beat whoever else just beat them.
> just AI that can fully automate everything we've currently got and not be limited to the subset of desk jobs that LLMs can do OK — it would allow the economy to double in size in whatever wall-clock time period it takes for the AI to gather enough training data by simply observing human workers doing the things the AI has not yet learned to do.
That would nuke the economy, as it currently exists. What's any modern American business following McKinsey "best practices" going to do to the people whose jobs it can automate? It'll fire them all, ASAP (except maybe one or two left to do supervision and monitoring, if it's not totally brain dead). Then the entire mass-consumer-driven economy would collapse and wither, due to mass unemployment.
But the stock would go up this quarter, so it's a win that must be pursued.
That would happen even with UBI, because it's not like they'd replace your salary with free money. You'd have to shrink your lifestyle to live like the bottom quintile. You'd get just enough so you'd not be desperate enough to topple the system that no longer values you, and not a penny more.
And I think none of that's going to stop anyone. If AI gets to the point you described, our current economy will be destroyed, most people will be left behind, and the economy will reorient into a weird thing chiefly concerned with satisfying the whims of the riches billionaires.
> That would nuke the economy, as it currently exists. What's any modern American business following McKinsey "best practices" going to do to the people whose jobs it can automate? It'll fire them all, ASAP (except maybe one or two left to do supervision and monitoring, if it's not totally brain dead). Then the entire mass-consumer-driven economy would collapse and wither, due to mass unemployment.
I also said "not even a fast learner".
If everything is just automated, all immediately at once and the AI is forever able to just do all possible labour, rather than as I suggested a case where it takes the AI as long to gather sufficient training data from watching humans as self-driving cars are taking to do that, that nukes the (human relevance to the) economy.
But that's not the scenario I gave there.
This scenario I gave is one in which humans do still have a comparative advantage: we learn faster, so we can get working on new jobs and make a decent amount in each of them before any given AI has time to master the skills needed for that job's tasks by watching us.
(That said, and I didn't think of this with the previous comment, there's also a whole bunch of questions that start with "yes, but how much does it cost?" and then dive into a huge level of detail).
> You'd have to shrink your lifestyle to live like the bottom quintile.
Way ahead of you :P
Actually, while bottom quintile would be an increase for me (though an unnecessary one as I'm fine because I don't care about the materialist lifestyle), keeping even that would rely on my tenant still being able to pay me rent, so in any realistic scenario I'd still have problems.
> and the economy will reorient into a weird thing chiefly concerned with satisfying the whims of the riches billionaires.
It will definitely be weird, but I suspect most or all the current big winners are likely to be very unsatisfied. Outside Context Problem.
> This scenario I gave is one in which humans do still have a comparative advantage: we learn faster, so we can get working on new jobs and make a decent amount in each of them before any given AI has time to master the skills needed for that job's tasks by watching us.
That's pretty terrible outcome too. So what if you learn faster, if your "career" will only last 5-10 years and you have to start over. It would be a profoundly unstable and anti-human lifestyle.
> It will definitely be weird, but I suspect most or all the current big winners are likely to be very unsatisfied. Outside Context Problem.
That's probably true (say, the Waltons will be a lot poorer), but I think the end state remains the same. Maybe it's just Bezos, Musk, Altman, and two dudes TBD harnessing all the word's resources to build ziggurats to memorialize their own power. They key point is all the wealth will be focused in a very few individuals, with no economic need to spread the wealth around. It doesn't really matter if those individuals are an old or new set.
I wouldn’t worry about being 70% of the US, especially since you have that 30% not in the US.
Many corporations are listed in the US even if they do a lot/most/all of their business overseas. Heck, there are Chinese companies that sell nothing in the USA listed on the US stock exchanges like XPENG.
Yeah, I really don't know what scenario leads to the US economy not dragging down the rest with it.
Is there an argument that other economies would recover better than the US, in the long term? But at that point, one could just diversify during/after the crash.
Unfortunately, that seems to be happening already.
YTD, US equities have underperformed most other equity indexes.
The argument is that a weakened dollar, political / economic unpredictability, politicization of the fed, and big spending bills are starting to weigh on investors’ minds.
Personally, I don’t think a dramatic “crash” is the most likely outcome. I think it would look more like a slow erosion of US growth and dominance compared with other economies.
> I don’t think a dramatic “crash” is the most likely outcome.
There's lots of crashes, but they're over-predicted. A quote I can't remember perfectly, "we predicted 10 of the last 3 stock market crashes".
That said, if the levers of power in the USA stop being independent, if they all become bound to the will of the President, there's a strong risk of someone — could be the President who ends their independence, could be a successor — crashing it all very hard. If whoever is in charge at the time hates intellectuals, I mean it can be Pol Pot hard; but even if the leader at that point tries to do it all right and listens to sane advisors, it can still crash as hard as the Chinese famine resulting from the Four Pests campaign.
The USA isn't there yet. That's the direction of motion, but even with the current speed of change, there's enough independence that it's not even close to that bad yet.
Monarchists-esque governments arguably have a stronger incentive to preserve and generate wealth than elected officials, so it's not really a given that a dictatorship style government would be bad for equities.
The UAE, Kuwait, Qatar, Oman and Saudi monarchies, all around 10x higher GDP per capita than Arab non-monarchies Egypt, Lebanon and Yemen. The exception being Jordan, an Arab monarchy that still manages to be relatively poor.
Holy confounded variables, Batman! You're measuring oil wealth, not government organization.
And at least arguably, the causality goes the other way: restless populations in poorer nations are more likely to drive democratic reforms, where wealthy folks tend not to rock the boat.
I am not a CFA, and this is not financial advice (and I believe you learn what people really believe by what they hold, not what they say :) )
So telling you what I hold: I’m long the market, mostly in US equities (60%), developed economy international equities 20%), and intermediate term US bonds (20%).
My investment horizon is 20+ years, so in general, I don’t pay attention to the short term vol.
I have cash I need to invest. I'm not looking to change any of my existing investments, so it's more a question of what the right move is there, with the wrinkle that I now live in the EU (again) after spending my whole adult life in the USA.
I don't believe (or have interest) in making any short term moves. I don't think I need to (and feel very fortunate).
We have the same 20+ horizon, but I guess the crux of the issue (and the point of my initial entry into this thread) is: how different do I think the world will be in 20+ years, and even if I'm confident it'll change, do I know what it'll become to make the right moves now?
I don't think I do (and I'm somewhat skeptic anyone else really does either).
I diversified away from the US to international equities VTI -> VSUX starting at the beginning of the year. My thesis is that trade is rearranging due to US trade policy. If you look at the S&P500, growth has been flat since 2022 for anything that isn't Big Tech AI bubble. Therefore, I believe that between go forward US economic policy and global trade reconfiguration, non US will outperform the US over the next five years.
I also adjusted some towards VXUS which was a great move in hindsight from fx alone. I bought property in the EU a couple years ago which is also benefiting from fx moves.
With that said, the biggest US companies are pretty exposed internationally already. I'm not sure someone needs to or it would be prudent to say dump VOO and move to VXUS 100%.
Agreed; to be clear, I still have US equities exposure, but it has been reduced to <50% of my total securities portfolio. This balances, imho, potential gains with managing risk around valuations. "Be fearful when others are greedy."
The thing is, if you accept the Trump Tariffmania (and the associated move to balance trade and export more), then the dollar would have to continue lower, so you (as a US investor) would benefit just on that thesis alone.
It's the reverse for EU investors, where you have to now accept pretty big currency risks to ride the A.I train (If you add in the EUR/USD rally I think you're flat to negative on your SP500 as an EU investor for example).
I leave most of it in an Index fund. I rise and fall with everyone else.
It's either that, or I try to compete with professionals, that have tools I do not have, info I do not have, algos that I do not have, and the ability to cheat the market with dark pools, which I do not have.
As an alternative to diversification, I'm running fairly tight stops on my positions. If the market really shifts, or my positions shift, that'll trigger a sell, and then I reevaluate the positions and the market before buying back in.
You can hedge with PUTS, move into precious metals, put your money in CHF, etc. There are all kinds of ways of maneuvering financial turmoil (albeit, sometimes with non-productive assets), but it really depends on your risk outlook, and as we all know, we're bad at predicting the future.
Alas can't - employer prohibits any use of derivatives.
Plus my last adventure down that lane didn't go great. (Some big wins, some big losses and a realisation that I better leave things I don't fully understand alone - like the options greeks).
Of course you have to do whatever makes sense for you, but nothing is stopping you (or anyone) from spinning up a Fidelity account and hedging against whatever is driving your 401k, etc. Portfolios don't have to exist as monoliths.
>from what I've heard, seen and read in the last 6 months.
Except they've been saying that for the last 2-3 years.
I have lunch with a friend every 2-3 weeks, and he self-manages his retirement, and he's retired. It was ~2.5 years ago that he said "A lot of the financial news guys I follow say there's going to be a crash in the next 3-6 months."
At every lunch we've been following up on that, and it just hasn't crashed yet.
I'm not saying it won't, I'm not saying it's risky, but just getting out of the market is not an ideal solution either.
It's interesting though because as a middle class person, I'd say my finances have crashed. I know it's not a big "economic crash" but there is zero way anyone can deny that most people are much worse off then they were 4 years ago. It's not "horrible" but I'd call it a kind of "middle class" economic crash.
Simple example but real. Parmesan cheese. It was just a staple for me, I'd use it like water, now I literally think twice when making pasta because it's so cost prohibitive to use.
So your friends finances may not have "crashed" but he will be much much worse off then he retires and I doubt his wealth has really gained much of anything in the last few years either.
Why do people persist in repeating this dumb meme? Tyler Cowen, who should really know better, does it too. To be profitable shorting, you have to not only be right about the direction of the market but you have to time it precisely. Shorting is not 'I think the market is going to decline at some point in the future', or else we'd all do it.
You're borrowing to short, and your broker can call your loan at any time for any reason or no reason at all, including 'our risk algos felt nervous this afternoon'. If you try to short a stock or ETF and the market surges in a dead cat bounce before declining, you get completely wiped out even if you're going to be eventually right
I going to defend Zoltan here and say the comment they responded to had about the same level of thought. "I read the market is overvalued" is no different than asking about short positions. I've been reading about the market being overvalued for like a decade at this point, meanwhile we've had the longest bull market in history. I feel for all the people who have been sitting cash all this time because they heard somewhere things were overvalued.
The train of thought is
1. The economy is making me nervous.
2. You're right to be nervous.
3. Then what are your short positions, since you're so smart?
no, neither of you are right. to short you just need to buy ATM puts. while technically not the classical short, if you believe it's downhill from there, this will pay.
get ATM into 2028dec and you're good if it crashes.
There’s no such thing as an easy short. Going short doesn’t mean predicting a downturn, it means being precise in your predictions about when that downturn will happen. Look at the last few major stock market drops and try to retrospectively time when they would happen from the moment all of the underlying causes of the upcoming crash became apparent: in most cases you get a huge range of values.
As John Maynard Keynes supposedly said, and I've seen play out over the past quarter century, "Markets can remain irrational longer than you can remain solvent."
Cash is safe. Gold is at a record high for a reason. There are still some companies worth owning.
In general, the thing to look at is the level of liquidity in the market. The liquidity is there, but the problem is there's too much uncertainty for many companies to be able/willing to invest, so it mimics a lack of liquidity.
Cash is absolutely not safe. Between the fx risk and inflation risk out there, cash is losing purchasing power daily.
Gold is interesting because it was a hedge for a long time, but with the recent run up I wonder if it's entering meme territory. Now that it's moving, people are jumping into it.
Real estate outside the US is going to be reasonably predictable for a while yet. That's only going to get truly shaky after the baby boomers head into nursing homes in a big way and population decline sets in (the market is absolutely not ready for a glut of supply IMO).
It would be difficult to lose money on Manhattan or coastal Californian property as well.
The dollar has really taken a beating though. It has fallen ~11% this year and is predicted to fall another 10% next year. If you're in cash, you're basically betting the market is going to fall over 20% between the beginning of 2025 and the end of 2026.
Cash is worse than even the worst observed scenarios of stock market investing.
E.g., cash is worse than if you had bought your whole portfolio with the worst timing possible like right before the 2008 crash.
I calculated this out comparing typical savings account APY with S&P
500 and the break even recovery of the S&P account is 2013, with annualized returns at 7.4% for your investments versus 2% APY for cash. That means your cash account is less than half the size of your investment account by 2024. And this is the worst case scenario with a massive market crash and the entire portfolio purchased at the exact wrong time - very unlikely, most people invest continually over time.
The only purpose of cash is for immediate liquidity.
People who invest in the stock market expect large fluctuations including major market crashes. That risk is baked in to the expectation of long-term reward.
If you need to stabilize your portfolio to prepare to withdraw from it soon and preserve its value, talk to a professional if you don’t know what you’re doing. They probably won’t recommend 100% cash deposits unless you’re literally spending it all this year.
> US economy in general is starting to make me nervous.
There's a little restructuring going on, so it' bound to be a bit bumpy which would make some folks nervous, but you have nothing to fear. The end result will be a stronger economy than we've had in decades, and the entire world will be better for it.
can someone explain what this means for the general economy? my understanding is that the spread widening is compared against the US treasury bill, and these junk bonds' prices are going down.
as the junk bond prices decreases and the demand for yield increases, this increases the cost of borrowing and can potentially create a ripple effect of defaults.
It's difficult to say with any certainty what it means for the general economy, but your understanding of what this is saying about the junk bonds themselves is basically correct.
Whether it leads to a lot of defaults depends on a lot of factors. A sell-off in bonds can really screw a company if it happens to have immediate financing needs at the time, but otherwise it doesn't really impact the company directly. Junk bonds are, as the name suggests, known to be risky assets, so they are generally the first to be sold when things get a bit choppy and investors decide to sit the market out for a bit to see how events unfold.
This seems like it is pretty clearly a response to the recent tariff escalation so, as with all the other tariff announcements, it will depend on whether the recent announcement is a change in policy or another negotiating tactic.
You also see a lot of headlines like "worst losses in six months!" "biggest sell-off since September!" but these are fairly short timeframes and a lot of this is just trying to make some news out of the usual market noise.
This doesn't mean a lot. People made bets on lower rates which drove money into junk. Those prices renormalized to levels seen over the past year.
In fact, lots of business had the opportunity to roll their debt over the past year, so bankruptcy in the medium term seems unlikely.
The broader question is why now and so quickly. In my view, people got way over their skis in rate-based trades which drove a lot of things higher including tech multiples. This likely why we also have the NASDAQ down 3.5% in a single session.
US Junk Bonds can be used as an early economic indicator. Potentially indicating downturns in GDP and increases in unemployment up to one year earlier than other indicators.
When Junk Bond yields are low, it suggests investor confidence is high (and a low risk of corporates defaulting). The article notes that yields are rising, this is understood to be a signal of economic uncertainty (i.e. greater chance of defaults/increased risk of investing.)
There are considerations to be made regarding about what caused the changes - in this case the presidents declaration of additional tariffs on China. Since this is an arbitrary decision, and not say the result of an economic trend, the certainty around the correlation is lower. Nevertheless the randomness of the actions are themselves a source of uncertainty, which too scares away investment.
Bond spreads widening reflect lenders' fear that borrowers will default. So what this means is that on average people think that the lowest class of borrowers (junk) are going to struggle to repay. That means it is more expensive for them to borrow, which is going to generally discourage those companies from investing in projects or starting new things which require debt finance. So you would expect the knock-on effect to be less activity in general.
The weaker companies experience the impacts of financial stress more quickly, and investors start to flee to safety.
Running an economy based on the whims of a decrepit old man and the weirdos he surrounds himself with introduces a lot of risk. It doesn’t mean that the end is nigh, but large money flows are going towards lower risk.
Barely surviving companies might die. And stop employing people, buying and selling... Thus they can then have at least short term effects on both up and downstream...
So in worst case enough triggers might result in larger collapse. Basically big enough issue anywhere not just in AI might bring rest down with it.
My slightly informed cynical opinion is that if a consensus existed for what this meant for the general economy, plenty of experts would be telling you. So, we don't know.
Feedback effects ("ripple effect" in your usage) are a genuine risk of economic systems, but by their nature they aren't predictable. You get the non-linear feedback we're all terrified of (a "crash") when some buffer or another runs dry: some notable demographic needs money, normally gets it from place X (for example: selling stock, repackaging and selling mortgage securities, raising a series B round, issuing corporate bonds, etc...) and suddenly X doesn't produce the same returns. So they need to do another one of those things, which drives that price down, which causes the demographics that depend on that resource to run dry, etc...
This is a metric for just one buffer: the amount of cash available to issuers of high interest bonds. Is that the tipping point? We don't know, and won't until it tips.
I used to be pretty into junk bonds during my MBA (I don't do this at all professionally, so YMMV with my commentary here), and I think, as usual, a lot of context would help with understanding what this could mean, which ajross described. In the most simple terms, as other have also mentioned, it's basically non-investment grade companies (and there are a lot of em - you'd be surprised at the names on the list) now have to pay more for money. This could mean that investors are worried and want more compensation for risk, which means that the reality of the economy is shakier. OTOH, it could mean that investors are being more realistic, and not letting risky companies just have cheaper money to make value destructive decisions could be a good sign of sanity in the markets, and thus (in theory) the economy. It's hard to know with a simple headline or article. Even if you dig into all the numbers and do all the reading, it's still hard to know since the world is really complex.
I look at this as a single data point amongst many re: how I end up assessing my feelings about the economy. Truth be told, I'm probably more concerned about what lots of news outlets are discussing - all the AI capex spend. Apparently there's more financing being negotiated with fewer restrictions on the debt, which tends to be a really bad sign of a bubble.
All that said, my slightly informed mildly-hysterical opinion is that aggregate downside risk is absolutely out of control in the markets right now. Valuations of basically everything are at all time highs relative to production. Volatilities are high. And non-economic risks are off the charts.
Basically, everyone is placing too many bets. AI stocks are bets, sure. VCs have too much money in play. Datacenter spending is a giant bet.
But the Trump administration is also placing bets on world trade markets, expecting to win the trade wars it keeps provoking. Likewise it's betting on US labor stability with mass deportations, and now para-sorta-maybe-martial-law decrees. I mean, let's be honest: the risk of a general strike in the USA is probably higher now than at any point in the last century.
Oh, and Russia seems about to hit a tipping point in its refining capacity, which says dark things about Europe too if that goes awry.
Basically most of these look "not really that scary" from a fundamentals perspective. But what are the chances we make it through the next 9-12 months with none of them having gone sour? And any of them could be the trigger for a real market crash!
I'm moving almost everything out of volatiles, personally. The loss of the next 10-20% of upside seems like a good bet vs. what-maybe-50%-or-more downside.
To late to edit it in, but you'll note in my doomeration of downside risks I completely forgot that the government is shutdown! Things are messed up enough that I can't even remember why they're messed up!
> The US junk bond rally came to a halt on Friday with the biggest one-day loss in six months, as the risk premium surged to near a four-month peak of 304 basis points. Yields climbed to 6.99%, the highest in more than two months.
> The losses accelerated after President Trump threatened to impose huge tariffs on imports from China and said he saw no reason to meet with Chinese President Xi Jinping, causing concerns about trade relations between the world’s two biggest economies.
> The weekly loss of 0.73% was also the biggest since April. The losses spanned across ratings amid the renewed tariff fears. Junk bond yields rose 15 basis on Friday and 31 basis for the week, the biggest increase in six months.
> CCC yields rose above 10% to a five-week high of 10.14% and spreads widened to a six-week high of 632 basis points. Spreads climbed 32 basis points on Friday, the most in one day since April. CCCs racked up a loss of 0.6% on Friday, the worst one-day loss in six months. CCCs closed the week with a loss of 1.05%, also the most in six months.
Yes, but there's also an indicator that the size of the losses is correlating to "size and sentiment of junk bonds", meaning, there may be a few too many building up. Ultimately, if equities seesaw enough, there can be some collapsing.
US economy in general is starting to make me nervous.
Quite hard to diversify away though because that means missing out on AI boom and if the US shits the bed then chance are everything else gets sucked down with it
Too big to fail, nation state edition?
But yeah. I looked at how my pension funds are invested, and it's like 70% in the US. Even more than the sovereign wealth fund, which is apparently around 50% (if a quick AI search can be trusted).
Thing is, I'm not sure I will like the world where OpenAI and co. are as wildly successful as their valuation suggests either. So maybe I should invest in them, so that if it comes to pass, I at least have money?
> if it comes to pass, I at least have money?
I bet 20 GBP that Brexit would happen for that reason. Ended up with around 100 GBP to drown my sorrows :(
> Thing is, I'm not sure I will like the world where OpenAI and co. are as wildly successful as their valuation suggests either. So maybe I should invest in them, so that if it comes to pass, I at least have money?
I think their current valuation isn't suggestive of a world that's going to change very much.
If investors were taking seriously the idea that this could be "it" with AI enabling even full automation — not superhuman AI, not even a fast learner, just AI that can fully automate everything we've currently got and not be limited to the subset of desk jobs that LLMs can do OK — it would allow the economy to double in size in whatever wall-clock time period it takes for the AI to gather enough training data by simply observing human workers doing the things the AI has not yet learned to do.
If self-driving cars are a good example in this regard, that observation time may quite large:
Current AI has not yet mastered full self-driving of cars in general conditions, despite all the cameras on cars gathering data about how all the other (human-driven) cars around them behave in real conditions. To take a somewhat arbitrary cut-off points for the sake of illustration, going from the 2007 DARPA Grand Challenge to today in self-driving cars, would suggest a growth of 3.9%/year.
Global GDP growth of 3.9%/year would be worth a much higher valuation than the AI companies are getting, and yet still be slow change.
>Current AI has not yet mastered full self-driving of cars in general conditions.
I am inclined to agree but Waymo seems to provide a counterpoint? Is this because they have a good system for keeping human managers in the loop?
Waymo is the best, but IMO even they are not yet a counterpoint, because they're geo-fenced.
If I had to put money on who gets fully-general first, I'd put it on Waymo; but I have no idea what anyone in China is doing so there's plenty of room for surprises.
The geofenced part is what I failed to consider. I guess you can't consider it general purpose unless you can just throw the system into a new environment with a reasonable probability of success.
> f investors were taking seriously the idea that this could be "it" with AI enabling even full automation — not superhuman AI, not even a fast learner, just AI that can fully automate everything we've currently got and not be limited to the subset of desk jobs that LLMs can do OK — it would allow the economy to double in size in whatever wall-clock time period it takes for the AI to gather enough training data by simply observing human workers doing the things the AI has not yet learned to do.
This assumes that the economy and the governments will happily suffer the electricity and financial demands that Sam and co would give and the world would accept. Even if Sam's words were true, it is still a leap of faith because there is no data backing those words.
My take in late 2023 was that GPT-5 would either further push transformers into the "there is still a real chance transformers might be IT" or will become the unquestionable sign that transformers have peaked as a general technology. My take in 2024 was that the AI bubble was going to be noticed. My take in 2025 is that AI companies (other than the big ones like OpenAI) are going to struggle getting funding.
> This assumes that the economy and the governments will happily suffer the electricity and financial demands that Sam and co would give and the world would accept. Even if Sam's words were true, it is still a leap of faith because there is no data backing those words.
Most economic growth since electricity became economically relevant assumes that, the only thing that changes are the names of who (supplies and) demands the energy.
> Even if Sam's words were true, it is still a leap of faith because there is no data backing those words.
Ignore Sam's, assume mine in the hypotheticals of my comment: even something slower than Musk's ongoing failure to make FSD is still a massive increase over the status quo that justifies the price, yet it can do so in a way that's still not going to feel like a radical shift to live through.
> My take in 2025 is that AI companies (other than the big ones like OpenAI) are going to struggle getting funding.
Mine is that there's definitely a bubble overall, but not necessarily in any single player: who wins the pop and who disappears is unclear, but whoever does survive can easily reduce spending when there's no competition and they're consequently not having to put 1/3rd of their compute budget into the next marginal improvement needed to beat whoever else just beat them.
> just AI that can fully automate everything we've currently got and not be limited to the subset of desk jobs that LLMs can do OK — it would allow the economy to double in size in whatever wall-clock time period it takes for the AI to gather enough training data by simply observing human workers doing the things the AI has not yet learned to do.
That would nuke the economy, as it currently exists. What's any modern American business following McKinsey "best practices" going to do to the people whose jobs it can automate? It'll fire them all, ASAP (except maybe one or two left to do supervision and monitoring, if it's not totally brain dead). Then the entire mass-consumer-driven economy would collapse and wither, due to mass unemployment.
But the stock would go up this quarter, so it's a win that must be pursued.
That would happen even with UBI, because it's not like they'd replace your salary with free money. You'd have to shrink your lifestyle to live like the bottom quintile. You'd get just enough so you'd not be desperate enough to topple the system that no longer values you, and not a penny more.
And I think none of that's going to stop anyone. If AI gets to the point you described, our current economy will be destroyed, most people will be left behind, and the economy will reorient into a weird thing chiefly concerned with satisfying the whims of the riches billionaires.
> That would nuke the economy, as it currently exists. What's any modern American business following McKinsey "best practices" going to do to the people whose jobs it can automate? It'll fire them all, ASAP (except maybe one or two left to do supervision and monitoring, if it's not totally brain dead). Then the entire mass-consumer-driven economy would collapse and wither, due to mass unemployment.
I also said "not even a fast learner".
If everything is just automated, all immediately at once and the AI is forever able to just do all possible labour, rather than as I suggested a case where it takes the AI as long to gather sufficient training data from watching humans as self-driving cars are taking to do that, that nukes the (human relevance to the) economy.
But that's not the scenario I gave there.
This scenario I gave is one in which humans do still have a comparative advantage: we learn faster, so we can get working on new jobs and make a decent amount in each of them before any given AI has time to master the skills needed for that job's tasks by watching us.
(That said, and I didn't think of this with the previous comment, there's also a whole bunch of questions that start with "yes, but how much does it cost?" and then dive into a huge level of detail).
> You'd have to shrink your lifestyle to live like the bottom quintile.
Way ahead of you :P
Actually, while bottom quintile would be an increase for me (though an unnecessary one as I'm fine because I don't care about the materialist lifestyle), keeping even that would rely on my tenant still being able to pay me rent, so in any realistic scenario I'd still have problems.
> and the economy will reorient into a weird thing chiefly concerned with satisfying the whims of the riches billionaires.
It will definitely be weird, but I suspect most or all the current big winners are likely to be very unsatisfied. Outside Context Problem.
> This scenario I gave is one in which humans do still have a comparative advantage: we learn faster, so we can get working on new jobs and make a decent amount in each of them before any given AI has time to master the skills needed for that job's tasks by watching us.
That's pretty terrible outcome too. So what if you learn faster, if your "career" will only last 5-10 years and you have to start over. It would be a profoundly unstable and anti-human lifestyle.
> It will definitely be weird, but I suspect most or all the current big winners are likely to be very unsatisfied. Outside Context Problem.
That's probably true (say, the Waltons will be a lot poorer), but I think the end state remains the same. Maybe it's just Bezos, Musk, Altman, and two dudes TBD harnessing all the word's resources to build ziggurats to memorialize their own power. They key point is all the wealth will be focused in a very few individuals, with no economic need to spread the wealth around. It doesn't really matter if those individuals are an old or new set.
You can't invest directly in OpenAI because it's privately held. Many investors have been putting their money into OpenAI's suppliers such as Nvidia.
Clearly you just need to invest in any company open ai might express interest in as they all go up 20% on public announcements
I wouldn’t worry about being 70% of the US, especially since you have that 30% not in the US.
Many corporations are listed in the US even if they do a lot/most/all of their business overseas. Heck, there are Chinese companies that sell nothing in the USA listed on the US stock exchanges like XPENG.
Yeah, I really don't know what scenario leads to the US economy not dragging down the rest with it.
Is there an argument that other economies would recover better than the US, in the long term? But at that point, one could just diversify during/after the crash.
Unfortunately, that seems to be happening already.
YTD, US equities have underperformed most other equity indexes.
The argument is that a weakened dollar, political / economic unpredictability, politicization of the fed, and big spending bills are starting to weigh on investors’ minds.
Personally, I don’t think a dramatic “crash” is the most likely outcome. I think it would look more like a slow erosion of US growth and dominance compared with other economies.
https://www.bloomberg.com/news/articles/2025-10-11/a-great-y...
> I don’t think a dramatic “crash” is the most likely outcome.
There's lots of crashes, but they're over-predicted. A quote I can't remember perfectly, "we predicted 10 of the last 3 stock market crashes".
That said, if the levers of power in the USA stop being independent, if they all become bound to the will of the President, there's a strong risk of someone — could be the President who ends their independence, could be a successor — crashing it all very hard. If whoever is in charge at the time hates intellectuals, I mean it can be Pol Pot hard; but even if the leader at that point tries to do it all right and listens to sane advisors, it can still crash as hard as the Chinese famine resulting from the Four Pests campaign.
The USA isn't there yet. That's the direction of motion, but even with the current speed of change, there's enough independence that it's not even close to that bad yet.
Monarchists-esque governments arguably have a stronger incentive to preserve and generate wealth than elected officials, so it's not really a given that a dictatorship style government would be bad for equities.
Take a look at Dubai, for instance.
The UAE, Kuwait, Qatar, Oman and Saudi monarchies, all around 10x higher GDP per capita than Arab non-monarchies Egypt, Lebanon and Yemen. The exception being Jordan, an Arab monarchy that still manages to be relatively poor.
Are you normalizing by oil per capita?
Holy confounded variables, Batman! You're measuring oil wealth, not government organization.
And at least arguably, the causality goes the other way: restless populations in poorer nations are more likely to drive democratic reforms, where wealthy folks tend not to rock the boat.
Gives me the goosebumps.
I hope we never get there.
Yeah I kinda regretted writing "crash".
Your comment lines up with my sentiment, though I don't put a ton of stock (pun somewhat intended) in mine due to "amateur" status.
But I guess the "if not US, where?" question remains for me. Diversity "everywhere", try to be smartly selective?
I am not a CFA, and this is not financial advice (and I believe you learn what people really believe by what they hold, not what they say :) )
So telling you what I hold: I’m long the market, mostly in US equities (60%), developed economy international equities 20%), and intermediate term US bonds (20%).
My investment horizon is 20+ years, so in general, I don’t pay attention to the short term vol.
That's not too dissimilar from mine.
I have cash I need to invest. I'm not looking to change any of my existing investments, so it's more a question of what the right move is there, with the wrinkle that I now live in the EU (again) after spending my whole adult life in the USA.
I don't believe (or have interest) in making any short term moves. I don't think I need to (and feel very fortunate).
We have the same 20+ horizon, but I guess the crux of the issue (and the point of my initial entry into this thread) is: how different do I think the world will be in 20+ years, and even if I'm confident it'll change, do I know what it'll become to make the right moves now?
I don't think I do (and I'm somewhat skeptic anyone else really does either).
If you ever figure out what the future holds, let me know :)
Best I can do is I know that the future holds that I don't know what the future holds.
Which economy would you bet on, though? To recover in the long-term. In my mind they all give me reason for pause for various reasons
No idea, personally.
My question in the second paragraph was definitely not rhetorical. :)
Not investing advice.
I diversified away from the US to international equities VTI -> VSUX starting at the beginning of the year. My thesis is that trade is rearranging due to US trade policy. If you look at the S&P500, growth has been flat since 2022 for anything that isn't Big Tech AI bubble. Therefore, I believe that between go forward US economic policy and global trade reconfiguration, non US will outperform the US over the next five years.
I also adjusted some towards VXUS which was a great move in hindsight from fx alone. I bought property in the EU a couple years ago which is also benefiting from fx moves.
With that said, the biggest US companies are pretty exposed internationally already. I'm not sure someone needs to or it would be prudent to say dump VOO and move to VXUS 100%.
Agreed; to be clear, I still have US equities exposure, but it has been reduced to <50% of my total securities portfolio. This balances, imho, potential gains with managing risk around valuations. "Be fearful when others are greedy."
Maybe not investing advice but reasonable-sounding nonetheless.
The thing is, if you accept the Trump Tariffmania (and the associated move to balance trade and export more), then the dollar would have to continue lower, so you (as a US investor) would benefit just on that thesis alone.
It's the reverse for EU investors, where you have to now accept pretty big currency risks to ride the A.I train (If you add in the EUR/USD rally I think you're flat to negative on your SP500 as an EU investor for example).
> Quite hard to diversify away though because that means missing out on AI boom
I find it easier to live with lower/no gains than in constant FOMO
Yes, though a couple 100% lucky gains sure can accelerate the journey.
I leave most of it in an Index fund. I rise and fall with everyone else.
It's either that, or I try to compete with professionals, that have tools I do not have, info I do not have, algos that I do not have, and the ability to cheat the market with dark pools, which I do not have.
As an alternative to diversification, I'm running fairly tight stops on my positions. If the market really shifts, or my positions shift, that'll trigger a sell, and then I reevaluate the positions and the market before buying back in.
You can hedge with PUTS, move into precious metals, put your money in CHF, etc. There are all kinds of ways of maneuvering financial turmoil (albeit, sometimes with non-productive assets), but it really depends on your risk outlook, and as we all know, we're bad at predicting the future.
>You can hedge with PUTS
Alas can't - employer prohibits any use of derivatives.
Plus my last adventure down that lane didn't go great. (Some big wins, some big losses and a realisation that I better leave things I don't fully understand alone - like the options greeks).
Of course you have to do whatever makes sense for you, but nothing is stopping you (or anyone) from spinning up a Fidelity account and hedging against whatever is driving your 401k, etc. Portfolios don't have to exist as monoliths.
This AI Boom? https://www.scottishfinancialnews.com/articles/imf-and-bank-...
Avoiding it seems wise.
You'd be crazy not to be nervous about it from what I've heard, seen and read in the last 6 months.
>from what I've heard, seen and read in the last 6 months.
Except they've been saying that for the last 2-3 years.
I have lunch with a friend every 2-3 weeks, and he self-manages his retirement, and he's retired. It was ~2.5 years ago that he said "A lot of the financial news guys I follow say there's going to be a crash in the next 3-6 months."
At every lunch we've been following up on that, and it just hasn't crashed yet.
I'm not saying it won't, I'm not saying it's risky, but just getting out of the market is not an ideal solution either.
It's interesting though because as a middle class person, I'd say my finances have crashed. I know it's not a big "economic crash" but there is zero way anyone can deny that most people are much worse off then they were 4 years ago. It's not "horrible" but I'd call it a kind of "middle class" economic crash.
Simple example but real. Parmesan cheese. It was just a staple for me, I'd use it like water, now I literally think twice when making pasta because it's so cost prohibitive to use.
So your friends finances may not have "crashed" but he will be much much worse off then he retires and I doubt his wealth has really gained much of anything in the last few years either.
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Why do people persist in repeating this dumb meme? Tyler Cowen, who should really know better, does it too. To be profitable shorting, you have to not only be right about the direction of the market but you have to time it precisely. Shorting is not 'I think the market is going to decline at some point in the future', or else we'd all do it.
You're borrowing to short, and your broker can call your loan at any time for any reason or no reason at all, including 'our risk algos felt nervous this afternoon'. If you try to short a stock or ETF and the market surges in a dead cat bounce before declining, you get completely wiped out even if you're going to be eventually right
I going to defend Zoltan here and say the comment they responded to had about the same level of thought. "I read the market is overvalued" is no different than asking about short positions. I've been reading about the market being overvalued for like a decade at this point, meanwhile we've had the longest bull market in history. I feel for all the people who have been sitting cash all this time because they heard somewhere things were overvalued.
The train of thought is 1. The economy is making me nervous. 2. You're right to be nervous. 3. Then what are your short positions, since you're so smart?
Non-sequitur.
>> To be profitable shorting, you have to not only be right about the direction of the market but you have to time it precisely.
It's even worse than that, you also have to get the price right. If everyone wants to short the same stocks, it's going to be expensive to do so.
no, neither of you are right. to short you just need to buy ATM puts. while technically not the classical short, if you believe it's downhill from there, this will pay.
get ATM into 2028dec and you're good if it crashes.
There’s no such thing as an easy short. Going short doesn’t mean predicting a downturn, it means being precise in your predictions about when that downturn will happen. Look at the last few major stock market drops and try to retrospectively time when they would happen from the moment all of the underlying causes of the upcoming crash became apparent: in most cases you get a huge range of values.
As John Maynard Keynes supposedly said, and I've seen play out over the past quarter century, "Markets can remain irrational longer than you can remain solvent."
Cheap shot. Going long is easy, going short is very risky even if you get the general trend right.
John Maynard Keynes — 'Markets can remain irrational longer than you can remain solvent.'
"Nervous" does not equal "sure that it's going to go down".
Or even "sure what the right move is".
Yes I didn't mean it's certain to be ruinous! But wow, things have changed fast.
Cash is safe. Gold is at a record high for a reason. There are still some companies worth owning.
In general, the thing to look at is the level of liquidity in the market. The liquidity is there, but the problem is there's too much uncertainty for many companies to be able/willing to invest, so it mimics a lack of liquidity.
Cash is absolutely not safe. Between the fx risk and inflation risk out there, cash is losing purchasing power daily.
Gold is interesting because it was a hedge for a long time, but with the recent run up I wonder if it's entering meme territory. Now that it's moving, people are jumping into it.
Real estate outside the US is going to be reasonably predictable for a while yet. That's only going to get truly shaky after the baby boomers head into nursing homes in a big way and population decline sets in (the market is absolutely not ready for a glut of supply IMO).
It would be difficult to lose money on Manhattan or coastal Californian property as well.
I also own RE in the EU, but I'm planning to live/retire in it.
Took me way too many seconds to sort out RE wasn't Regular Expression.
The dollar has really taken a beating though. It has fallen ~11% this year and is predicted to fall another 10% next year. If you're in cash, you're basically betting the market is going to fall over 20% between the beginning of 2025 and the end of 2026.
Gold is at a record high for a reason.
Generally, ‘this asset is at a record high’ is not a reason to get into it.
OTOH, USD cash is almost always at a record low in real terms since at least the 70s.
Cash is safe only if you ignore inflation or foreign exchange.
Don’t spread this kind of financial illiteracy.
Cash is worse than even the worst observed scenarios of stock market investing.
E.g., cash is worse than if you had bought your whole portfolio with the worst timing possible like right before the 2008 crash.
I calculated this out comparing typical savings account APY with S&P 500 and the break even recovery of the S&P account is 2013, with annualized returns at 7.4% for your investments versus 2% APY for cash. That means your cash account is less than half the size of your investment account by 2024. And this is the worst case scenario with a massive market crash and the entire portfolio purchased at the exact wrong time - very unlikely, most people invest continually over time.
The only purpose of cash is for immediate liquidity.
People who invest in the stock market expect large fluctuations including major market crashes. That risk is baked in to the expectation of long-term reward.
If you need to stabilize your portfolio to prepare to withdraw from it soon and preserve its value, talk to a professional if you don’t know what you’re doing. They probably won’t recommend 100% cash deposits unless you’re literally spending it all this year.
> US economy in general is starting to make me nervous.
There's a little restructuring going on, so it' bound to be a bit bumpy which would make some folks nervous, but you have nothing to fear. The end result will be a stronger economy than we've had in decades, and the entire world will be better for it.
I wish I had your confidence in this current plan leading to certain stronger economy
That seems airily optimistic. What is your factual basis for claiming this is true? What is your logic?
can someone explain what this means for the general economy? my understanding is that the spread widening is compared against the US treasury bill, and these junk bonds' prices are going down.
as the junk bond prices decreases and the demand for yield increases, this increases the cost of borrowing and can potentially create a ripple effect of defaults.
recent cracks where these these companies issued junk bonds include First Brands, Tricolor, and Saks: https://www.bloomberg.com/news/features/2025-10-12/first-bra...
It's difficult to say with any certainty what it means for the general economy, but your understanding of what this is saying about the junk bonds themselves is basically correct.
Whether it leads to a lot of defaults depends on a lot of factors. A sell-off in bonds can really screw a company if it happens to have immediate financing needs at the time, but otherwise it doesn't really impact the company directly. Junk bonds are, as the name suggests, known to be risky assets, so they are generally the first to be sold when things get a bit choppy and investors decide to sit the market out for a bit to see how events unfold.
This seems like it is pretty clearly a response to the recent tariff escalation so, as with all the other tariff announcements, it will depend on whether the recent announcement is a change in policy or another negotiating tactic.
You also see a lot of headlines like "worst losses in six months!" "biggest sell-off since September!" but these are fairly short timeframes and a lot of this is just trying to make some news out of the usual market noise.
This doesn't mean a lot. People made bets on lower rates which drove money into junk. Those prices renormalized to levels seen over the past year.
In fact, lots of business had the opportunity to roll their debt over the past year, so bankruptcy in the medium term seems unlikely.
The broader question is why now and so quickly. In my view, people got way over their skis in rate-based trades which drove a lot of things higher including tech multiples. This likely why we also have the NASDAQ down 3.5% in a single session.
[0]: https://www.tradingview.com/chart/?symbol=AMEX%3AJNK
US Junk Bonds can be used as an early economic indicator. Potentially indicating downturns in GDP and increases in unemployment up to one year earlier than other indicators.
When Junk Bond yields are low, it suggests investor confidence is high (and a low risk of corporates defaulting). The article notes that yields are rising, this is understood to be a signal of economic uncertainty (i.e. greater chance of defaults/increased risk of investing.)
There are considerations to be made regarding about what caused the changes - in this case the presidents declaration of additional tariffs on China. Since this is an arbitrary decision, and not say the result of an economic trend, the certainty around the correlation is lower. Nevertheless the randomness of the actions are themselves a source of uncertainty, which too scares away investment.
Bond spreads widening reflect lenders' fear that borrowers will default. So what this means is that on average people think that the lowest class of borrowers (junk) are going to struggle to repay. That means it is more expensive for them to borrow, which is going to generally discourage those companies from investing in projects or starting new things which require debt finance. So you would expect the knock-on effect to be less activity in general.
The weaker companies experience the impacts of financial stress more quickly, and investors start to flee to safety.
Running an economy based on the whims of a decrepit old man and the weirdos he surrounds himself with introduces a lot of risk. It doesn’t mean that the end is nigh, but large money flows are going towards lower risk.
Barely surviving companies might die. And stop employing people, buying and selling... Thus they can then have at least short term effects on both up and downstream...
So in worst case enough triggers might result in larger collapse. Basically big enough issue anywhere not just in AI might bring rest down with it.
> can someone explain what this means for the general economy?
Borrowing rates reflect other indices like 10-year treasuries, not short-term ones.
My slightly informed cynical opinion is that if a consensus existed for what this meant for the general economy, plenty of experts would be telling you. So, we don't know.
Feedback effects ("ripple effect" in your usage) are a genuine risk of economic systems, but by their nature they aren't predictable. You get the non-linear feedback we're all terrified of (a "crash") when some buffer or another runs dry: some notable demographic needs money, normally gets it from place X (for example: selling stock, repackaging and selling mortgage securities, raising a series B round, issuing corporate bonds, etc...) and suddenly X doesn't produce the same returns. So they need to do another one of those things, which drives that price down, which causes the demographics that depend on that resource to run dry, etc...
This is a metric for just one buffer: the amount of cash available to issuers of high interest bonds. Is that the tipping point? We don't know, and won't until it tips.
Great comment :)
I used to be pretty into junk bonds during my MBA (I don't do this at all professionally, so YMMV with my commentary here), and I think, as usual, a lot of context would help with understanding what this could mean, which ajross described. In the most simple terms, as other have also mentioned, it's basically non-investment grade companies (and there are a lot of em - you'd be surprised at the names on the list) now have to pay more for money. This could mean that investors are worried and want more compensation for risk, which means that the reality of the economy is shakier. OTOH, it could mean that investors are being more realistic, and not letting risky companies just have cheaper money to make value destructive decisions could be a good sign of sanity in the markets, and thus (in theory) the economy. It's hard to know with a simple headline or article. Even if you dig into all the numbers and do all the reading, it's still hard to know since the world is really complex.
I look at this as a single data point amongst many re: how I end up assessing my feelings about the economy. Truth be told, I'm probably more concerned about what lots of news outlets are discussing - all the AI capex spend. Apparently there's more financing being negotiated with fewer restrictions on the debt, which tends to be a really bad sign of a bubble.
All that said, my slightly informed mildly-hysterical opinion is that aggregate downside risk is absolutely out of control in the markets right now. Valuations of basically everything are at all time highs relative to production. Volatilities are high. And non-economic risks are off the charts.
Basically, everyone is placing too many bets. AI stocks are bets, sure. VCs have too much money in play. Datacenter spending is a giant bet.
But the Trump administration is also placing bets on world trade markets, expecting to win the trade wars it keeps provoking. Likewise it's betting on US labor stability with mass deportations, and now para-sorta-maybe-martial-law decrees. I mean, let's be honest: the risk of a general strike in the USA is probably higher now than at any point in the last century.
Oh, and Russia seems about to hit a tipping point in its refining capacity, which says dark things about Europe too if that goes awry.
Basically most of these look "not really that scary" from a fundamentals perspective. But what are the chances we make it through the next 9-12 months with none of them having gone sour? And any of them could be the trigger for a real market crash!
I'm moving almost everything out of volatiles, personally. The loss of the next 10-20% of upside seems like a good bet vs. what-maybe-50%-or-more downside.
To late to edit it in, but you'll note in my doomeration of downside risks I completely forgot that the government is shutdown! Things are messed up enough that I can't even remember why they're messed up!
https://archive.ph/sxOOn
> The US junk bond rally came to a halt on Friday with the biggest one-day loss in six months, as the risk premium surged to near a four-month peak of 304 basis points. Yields climbed to 6.99%, the highest in more than two months.
> The losses accelerated after President Trump threatened to impose huge tariffs on imports from China and said he saw no reason to meet with Chinese President Xi Jinping, causing concerns about trade relations between the world’s two biggest economies.
> The weekly loss of 0.73% was also the biggest since April. The losses spanned across ratings amid the renewed tariff fears. Junk bond yields rose 15 basis on Friday and 31 basis for the week, the biggest increase in six months.
> CCC yields rose above 10% to a five-week high of 10.14% and spreads widened to a six-week high of 632 basis points. Spreads climbed 32 basis points on Friday, the most in one day since April. CCCs racked up a loss of 0.6% on Friday, the worst one-day loss in six months. CCCs closed the week with a loss of 1.05%, also the most in six months.
graph https://dgz78a1ch9fm7v.archive.ph/sxOOn/4d36a1090f1a44927848...
Seems like a non-story. Junk bonds are corralated with equities, so Trump's tariff comment caused equities and by association junk bonds to go down.
Yes, but there's also an indicator that the size of the losses is correlating to "size and sentiment of junk bonds", meaning, there may be a few too many building up. Ultimately, if equities seesaw enough, there can be some collapsing.
The Shiller ratio also indicates the US economy is in for a major correction. https://www.multpl.com/shiller-pe
Yeah but trading based on Shiller ratio wouldn't have worked out so well in the last 10 years so who knows.