Image Source: Pixabay

Below are some of the most interesting things I came across this week.

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Ruchir Sharma writes, “The four ‘O’s that shape a bubble are overvaluation, over-ownership, over-investment and over-leverage… Tallying up, to varying degrees all four of the Os suggest AI is a bubble, and it has reached an advanced stage.”

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As to the extent of the overvalaution, GMO writes, “One striking sign of investor euphoria: more than 30% of U.S. market capitalization now trades above 10x sales, a level reminiscent of the tech bubble. History suggests such extremes rarely persist without painful corrections.”

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Carlyle quantifies this risk in noting, “If we assume that the PP&E on balance sheet should be valued at cost and assign a 10x P/B multiple to the rest, the hyperscalers’ market caps would be roughly half of what they are today.”

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But it’s not just AI. “If you define a speculative bubble as any phenomenon where the worth of a certain asset rises unsustainably beyond a definable fundamental value, then bubbles are pretty much everywhere you look. And they seem to be inflating and deflating in lockstep,” reports Bloomberg.

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As John Authers writes, this is a product of the distorted version of capitalism dominating the global economy today: “From 1945 to 1985 there was no recession caused by the instability of investment prompted by financial speculation. And since 1985 there has been no recession that has not been caused by these factors.”

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