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Ray Dalio’s AI Bubble Warning: What the Options Market Can Tell Us
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ticker lesson
Breakdown
0:00lesson
AI boom compared to past bubbles
- AI has hallmarks of classic bubble
- Debt used to fund AI as rates climb
- Bubble begins to pop
- Investors sell assets to spend paper wealth
- AI boom compared to 1920 crash and 2000 dotcom bubble
2:32NASDAQ· ticker
NASDAQ lost 80% value
- NASDAQ lost nearly 80% of value
- Erase more than 20,000 points
- NASDAQ 100 closed at 30,725
- 78% drop like 2000 would take it to 6750
- 1929 style drop would mean 3,380
4:2310-year Treasury· ticker
10-year Treasury at 5.28%
- 10-year Treasury sits around 5.28%
- Great technology often comes with great bubbles
- Question whether prices match productivity
6:14lesson
Debt in AI buildout
- Debt used to finance AI buildout
- Circular debt situations
- Nvidia giving money to XYZ company
- Investors should be nervous
6:15NASDAQ· ticker
NASDAQ options analysis
- Options pricing in $2,000 move
- Implied volatility based on current data
- Expected moves both plus and minus
- 10,000 expected move by December 2019
6:16NDX· ticker
NDX expected move analysis
- NDX could go 10,000 points higher or lower
- Debt auctions at 5-6% rates
- Price agnostic debt financings
- Debt levels not at record levels
6:17Nvidia· ticker
Nvidia's AI buildout
- Nvidia is poster child for AI
- Pricing in 102 points in either direction
- Expected move to $329 or $331
- Downside to $127
6:18lesson
Market risks and potential changes
- Debt sustainability questionable
- Potential rate cuts from Fed
- White House-Fed connection
- US-Iran relations affecting oil and inflation
6:19Bonds· ticker
Bonds and yield changes
- Bonds moving impact market
- Yields and debt levels critical
- Changes in calculus due to yields
- Bonds as key market driver
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