The top three headlines from an FT newsletter this morning are
The first two read so much like 1999. Just spend, spend, and spend and the riches will roll was the theory back then. But it did not happen.
The last shows that despite all the spending in IT, it can still fail.
Tech is helpful: I rely on it in almost all aspects of my working life. But let's not pretend it solves all problems or is the source of all profit, because it most definitely is not.
And let's remember that over-valued US stock markets are based on the belief that AI will deliver a land of milk and honey. For most, there is no sign that will happen, and plenty that the opposite might be the case.
We are in bubble territory.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
There is an aphorism attributed to Roy Amara, that we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.
AI is a case in point. Everyone is excitedly expecting a revolution tomorrow. There will be change but it won’t be immediate. It will take time for us to work out how to use this new technology well. And then – like desktop computers and the internet and mobile phones – after a decade or two the impact will be immense.
Agreed
But given markets discount a great deal of the future the current hype is just that.
And much current investment will be misdirected.
Also note, profits might well be overstated now as expenses that would otherwise be charged to P&L are capitalised…
Interestingly, given other recent posts, we have seen this before – prior to the 1929 crash!
The wonder tech stock then was RCA (Radio Corporation of America). People could see the potential of radio to transform the world, as indeed it has done. It underpins most modern technology including Wifi and mobile/cell phones. But it has taken an awfully long time to reach its potential.
During the 1920’s RCA stock rose in price 200-fold, one of the largest increases in the history of the stock market. After the 1929 peak, the stock collapsed, declining from 114.75 in September 1929 to 2.625 in May 1932, a 98% decline. Eventually the stock price did recover.
I suspect AI may be similar. It has great potential. Many people can see this. The stock prices are exploding. We’re definitely in bubble territory. But the full potential is many years away. A crash is likely before then.
Thank you
Really good example
There are undoubtedly some listed companies in AI in particular that have the potential for growth almost whatever happens.
But the bulk of them dont…………..
And thats before we get to the motor industry that is looking a bit sick again whatever happens
I agree. Regarding aeroplanes, some readers may have been following events in Russia/Aeroflot. Aeroflot discovered the other day, that all its computer systems (operative word ALL) have no data – wiped clean by Ukrainian and Belarussian hackers. This has grounded most Aeroflot flights for the foreseeable future (= months).
This raises the question: how secure UK critical infra?
Most computer systems (software) are built down to a cost – not to a suitable level of performance (or indeed security).
Market crash? – doubtless.
That’s cyber warfare at a new level – literally
Mike Parr wrote:
“how secure UK critical infra?”
Oh, it’s far worse than you think. The IT infrastructure in the UK has been completely outsourced: all the software is running in the (US-based) Cloud and all the hardware is from China and maintained by China. In short: we’re fucked.
Aeroflot were reportedly running their systems on top of Windows XP and it has been reported that their CEO hadn’t changed his password for 3 years. Not exactly the best security policies in place there! A good reflection on the state of Russian industry which is so riddled with corruption that actually ensuring proper security and record-keeping isn’t desirable.
It is notable that most of these types of hacks come from tricking somebody into handing over their personal access details or installing a trojan/keylogger on their PCs as much as finding unpatched holes in the systems. In spite of improved security options such as fido keys, authenticator apps and the like, the hacks will continue as long as people are gullible, which is going to be a very long time.
The company I work for is very focussed on the fact that it’s employees are the weak link in terms of data security. Too many companies in recent years have been hit by cyber attacks and companies are getting better at protecting themselves. I did however, have a conversation with a senior engineer at Yorkshire Water who was musing on how vulnerable our infrastructure is. It would be very easy to hack a motor control centre on a pumping station and allow a flood to happen. and don’t get me started physical on security at Sellafield, let alone cyber.
FYI
Lecture 6 on Minsky, Financial Instability, the Great Depression & the Global Financial Crisis
Steve Keen on the process of increasing private debt , over confidence leading to a crash (boom bust cycles in economies).
https://www.youtube.com/watch?v=G9_nqc-A5_Y
I keep reading about tech companies, and other companies, but tech in particular, doing a thing called a stock buyback. Google, for example, sacked 8,000 engineers, then bought its stock to artificially inflate its worth. So, they weakened the company’s ability to function, but then made the company appear more valuable? I don’t understand it fully, but that seems like a bubble that could burst to me.
It is…
By how much does your analysis tell you that the major markets are overvalued?
More than correction territory
A video on who actually benefitted from the Wall Street crash on 1929 and how they did it would be of interest in present times.
That’s an interesting one.
The answer is, of course, those who bought at the bottom.
And eventually the arms manufacturers of the world as a whole.
Maybe what we do need is for the bubble to burst and no rescue from the government. The system we created led to this, it won’t change unless a huge amount of harm is caused to either a lot of people or vested interests in government.
I know it will hurt me, Paul at the local shop and Emily next door more but sometimes the best thing to do is let it happen or you risk a bigger fall later given how corrupt and fallible our political systems are.
I am afraid we cannot let the banking system collpase.
You can look at what I wrote in October 2008 to find what I think we shouild do then, though. I haev been doing this that long.
While I agree for banking, even if we did it once and they’re back to the same old tricks, but this bubble isn’t just banking. It’s a stock and in particular US companies borrowing huge amounts to out compete or aggressively expand in an area and then when they have a monopoly enshitify it and extract huge profits. I was sort of musing, as much as my millennial experience and youth wants the system burned down, I also know the horrors and suffering it will likely bring.
Will look into it, thanks Richard.