AI Bubble, Market Cracks, Crash Warning

● AI Bubble, Market Cracks, Crash Warning

The content I have prepared for you today is packed with top-tier information that you will truly regret missing out on. It is not just the cliché talk about AI changing the world, but it contains everything from how Wall Street capital is actually moving, when the astronomical infrastructure investments of big tech companies will burst like a bubble, to the signals of ‘cracks’ of collapse currently being detected throughout the stock market.On top of this, we will also cover in detail what stance investors like us should actually take to survive when market volatility, or VIX, skyrockets. If you read until the end, you will get a clear sense of how to adjust your portfolio right now.

[In-depth Analysis] The Reality of AI Adoption and the True Speed of Job Destruction

1. Market Fear vs. Actual Speed of Corporate Adoption

In recent weeks, there has been a flood of terrifying articles predicting that AI will replace 50% of white-collar and blue-collar jobs within 18 to 24 months.As a parent of a college-bound son and a high school daughter, I also often worry whether there will be any jobs left for them to get in 3 to 4 years.Things like deal memos, which junior bankers used to stay up all night creating in the past, can now be processed in an instant by AI bots.Looking just at logistics warehouses, a single robot like Optimus or Figure AI does the work of three employees, takes no sick leave, goes on no vacations, and requires no severance pay or health insurance, so employers have no reason to refuse them.However, data from top-tier financial firms like Citadel tell a slightly different story.To give you the conclusion first, it is true that an innovative artificial intelligence trend is sweeping the world, but there is surprisingly massive friction in actually plugging this technology into production lines at the corporate level.

2. Why is AI Adoption Slower Than Expected? (Causes of Friction)

If you try implementing an AI agent like Terminal X into an actual investment firm, it is rarely blocked by technical limitations.The real barriers are the massive existing infrastructure those companies have, outdated IT systems, ironclad data security, complex compliance, and the legal team’s approval lines.Moreover, decades of corporate know-how are fragmented across employees’ minds, personal emails, Excel files, and local drives.Since these are financial firms managing other people’s money, they cannot innovate by ‘moving fast and breaking things’ like Silicon Valley.Even after deciding to adopt AI, the reality is that it takes at least several months to over a year just to test, evaluate, negotiate, and build new processes.

[Big Tech Spending Check] Is the Massive CapEx of Hyperscalers a Bubble?

1. The Current State of Cloud Infrastructure Investment

Looking at current Bank of America data, cloud capital expenditures are expected to surge by 45% year-over-year.Since running AI requires tremendous computing power, electricity, and infrastructure, these data center investments are a very justified and essential trend.However, looking historically, just as the Miami real estate boom occurred and then crashed in 2007 with an overflow of unsold condos, there is always ‘overbuilding’ in every cycle.

2. The Possibility of a Bubble Burst Within 1 to 2 Years?

Then, will these big tech investments be proven excessive and collapse within the next 1 to 2 years?Combining expert networks and the current explosive demand, in the short term, infrastructure is still lacking, so investments are highly likely to continue cruising smoothly.However, looking back about 5 years from now, there is certainly a possibility that it will be evaluated as having built too much at that time.Therefore, we must continuously monitor that critical point for successful big tech investments to ensure that big tech companies are not burning too much capital ahead of demand.

💡 [Key Takeaway Differentiation Point] The Hidden Truth of AI Trends No One Else is Talking About

This part is truly important. Other YouTube channels or news outlets simply generalize by saying that AI will replace all lawyers, accountants, and bankers, but the reality is completely different.

1. Finance is a More Difficult Domain for AI Than Law

Many people mistakenly believe that because the financial industry deals with numbers, AI will conquer it first.However, fundamentally, legal work is text-based research and relies on previous precedents and regulations, making it the most vulnerable to large language models.On the other hand, the financial industry is not just about calculating numbers. It involves much more complex and quantitative judgments, such as mathematical verification for edge cases or exceptional situations, sensitivity analysis, and contextual modeling based on previous deals.Therefore, while mechanical processes like financial auditing, tax, and human resources will be quickly replaced, it will take a much longer time than expected for AI to perform advanced financial modeling 100% independently.

2. The One Thing That Can Never Be Replaced, ‘Human Relationships’

AI can drastically boost the work efficiency of junior bankers, allowing one person to handle 5 deals a week.However, the market ultimately revolves around ‘human relationships’.When trading bonds in the credit market, subtle nuances like how much volume that seller is holding or what the market color is can never be grasped by a machine.Algorithms are trading beyond highly liquid stocks, government bonds, and foreign exchange into liquid corporate bonds, but areas like private credit or tight-knit sales relationship networks are the last bastion that machines cannot invade.It is the same principle as when I make a volatility bet; rather than leaving it to an algorithm, I directly call a trader friend who is fiercely trading on the front lines every day to get the vivid color of the market.

[Risk Management] Cracks of Collapse Currently Appearing in the Market

1. Crisis Signals in Commercial and Residential Real Estate

Right now, not only in the private credit or software markets, but in places like Texas, a massive 800 million dollars, approximately one trillion won, in foreclosures occurred just last month.The shocking part is that 70% of this was residential real estate like multi-family apartments.The reason is simple. They bought buildings and took out loans in the past, but now that maturity has arrived, interest rates have spiked from the 4% range to the 8% level.Even if the building is fully occupied with tenants, they cannot afford the higher interest, failing to meet debt service coverage ratios, and situations are continuously emerging where owners hand the buildings over to the bank.

2. The Controversy Over Historical Overvaluation in the Stock Market

To accurately analyze the current US stock market, we must look at valuation indicators objectively.The forward price-to-earnings ratio of the S&P 500 is around 22 times, far exceeding the 30-year historical average of 17 times, which statistically puts it in an overheated zone outside one standard deviation of 20.4 times.What is even more frightening is the cyclically adjusted price-to-earnings ratio, or CAPE, whose historical average is 17, but currently reaches a whopping 40. For reference, the peak in the year 2000, just before the dot-com bubble burst, was 44.2.The price-to-sales ratio is also at a level of 3.4 times, far surpassing the average of 1.8 times.

[Practical Response Strategy] Does This Mean the Market Will Crash Tomorrow?

1. Stance in a Market Where the Margin of Error Has Disappeared

These indicators do not mean that a financial crisis like 2008 is coming tomorrow.However, when asset prices are cheap, the market does not drop significantly even if bad news hits, but when all indicators are at historical highs like now, the market can fluctuate wildly from even the smallest mistake or shock.In short, the ‘degree of error’ has become extremely narrow, so a conservative approach based on a systematic global economic outlook is necessary.

2. Expanding Cash Allocation and How to Utilize the VIX Index

Therefore, right now, a defensive asset allocation strategy of increasing cash weighting higher than usual and investing in gold, silver, and commodities whenever the market undergoes a correction is effective.In particular, you must watch the VIX index very closely.Hedging costs are not as cheap as they used to be, with the VIX recently jumping from 17 to 28 in an instant.However, when extreme fear hits the market and the VIX breaks through 35 to 40, you should rather seize it as an opportunity to boldly buy risk assets.Conversely, when the VIX is calm at the 10 to 13 level, a strategy of gradually reducing risk assets is wise.

< Summary >

The Reality of AI Adoption: The fear of job destruction is high, but due to the legacy of existing companies including infrastructure, regulations, and security, the actual speed of AI adoption is progressing slower than expected.
Big Tech Investment Cycle: The massive investments by hyperscalers are essential for the next 1 to 2 years, but there is a potential risk that they will be proven as overbuilding 5 years from now.
What AI Cannot Do: Legal work is vulnerable to AI large language models, but financial modeling that requires edge case calculations and the tight-knit ‘sales relationships’ of humans are very difficult for machines to replace.
Real Estate and Stock Market Cracks: Large-scale apartment foreclosures in Texas are occurring due to high interest rates, and valuations such as the CAPE ratio of the S&P 500 are approaching dot-com bubble levels.
Investment Strategy: Since we are in an overvalued zone that can drop significantly even from a small shock, increase the proportion of cash and gold/silver, but in a panic market where the VIX index soars above 35 to 40, a strategy of buying risk assets instead is necessary.

*Source: 뉴욕주민

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