Last Update - Sun Aug 30 2026
PM, DPM
82, 83
OG
Economy
Youtube Link (timestamped):HERE
Leo Marinopoulos
OG | PM | 82
Anyone who's familiar with the business cycle knows that booms and busts come around.
The only question is how big this one will be. We haven't had one in quite a while, and the question is how big that one would be.
Fluctuation in the market economy happens….
Boom and bust: describes a recurring economic cycle where a period of rapid growth, high employment, and soaring asset prices (the boom) is followed by a sudden collapse, market contraction, and economic hardship
What we're going to say from Opening Government is that, in the next 5 years, you're likely to see a confluence of various factors, those being essentially massive overpricing of AI companies in particular, as well as likely to see an energy crisis, potential invasion of Taiwan, and interest rates going significantly higher.
Variety of different claims as to why the economy might be effected
All of which, we think, or some of which—you don't need all of those to happen—but a confluence of which would lead to a very, very significant correction within the stock market.
Roughly speaking, so there is a bit of a question in terms of 2008, in terms of how big it was.
The motion demands a market crash comparative to 2008
Are we including, like, all of, you know, since 2008 to the lowest it could possibly go, or are we comparing the immediate effect?
The threshold for what comparisons needs to be made is defined to be a) the initial shock b) downward trajectory
I think, again, it just depends on your time horizon. We think the initial shock is going to be roughly the same size as the initial shock of 2008, and we think that the long-term effects would also continue downwards, as they did in 2008 as well.
- burdens set were reasonably intuitive
1st Argument
Claim
So, the first thing to explain is why we think that AI companies are significantly overvalued right now.
Analysis
There are a few things to understand.
Sub-Claim
The first is just, if you look at the multiples of these companies, they're actually unheard of, right?
Evaluations of these AI companies is astronomically higher than similar tech companies in the past
Valuation multiples: Compares a company's market or enterprise value to a financial metric like earnings or sales. Common types include Price-to-Earnings (P/E), EV/EBITDA, and Price-to-Sales (P/S). EV/EBITDA: Compares Enterprise Value to earnings before interest, taxes, depreciation, and amortization; widely used for established businesses.
So, you see companies like, you know, OpenAI having revenues around 12 billion and having valuations of over 1 trillion, even though, obviously, those aren't public yet, but, you know, expected valuations. Or, like, Palantir having P/E ratios of over 200.
Mechanism
These are generally unheard of, and what that means is that the actual valuations are not currently backed by revenue. They're backed by the expectations of revenues, and we think those are unlikely to manifest, as I'll explain later.
When the valuation of a company is backed by exaggerated expectations instead of actual revenues, financial bubbles tends to form
Sub Claim 2
Moreover, you're seeing things like circular financing.
Analysis
This is the classic thing that everyone is kind of familiar with, but essentially what's happening is, like, Nvidia, for example, pays 100 billion to OpenAI, much of which then goes for them to buy the chips from Nvidia back. And then OpenAI pays, like, 300 billion to Oracle, in order to buy their services, which Oracle then places into Nvidia to buy their chips in order to sustain the cloud.
This artificially inflates revenue growth on both sides.
Impact
And so, what essentially this means is that these are companies pumping money into each other and all increasing their valuations, while the underlying revenue doesn't actually significantly increase.
And I want to clear up the crucial misconception, because a lot of the narrative that goes on here is that these companies have so much cash, so they can afford to do it.
Refutation towards the general perception that these companies have alot of money
Otherside opp could justify their spending if it’s on “real tangible assets”
Well, that is partly true, but it's also very true that much of this is debt financed, right? So, it is true that almost 1 trillion in debt will be used for data centers just by 2027 alone. This is true for smaller companies, but even larger ones. So, Oracle, for example, is borrowing, like, 20 billion from Blue Owl to build just some data centers in Texas. Meta recently borrowed another 27 billion from the same one to build some of Louisiana stuff.
Why a decent chunk of invest is debt financed
2nd Argument
Claim
And crucially, the question then is, why do people continue investing in these, right? Is it that they expect the revenues? A few things to note.
Mechanism
1. Firstly, I think, if you understand that a lot of this is driven by just retail sentiment—that's people like, I guess, average individuals who don't have much insight into the market and are just seeing high returns and want to get in on that—that's a lot of money that's going into these kinds of companies. That's around 30% of the market.
2. Moreover, a lot of the borrowing that I'm talking about happens in, like, SPVs, so special purpose vehicles, which essentially mean that the debt doesn't show up on the balance sheet of the main company, which makes it significantly harder for individuals to identify what's actually going on here.
Why the average retail investor is unaware of debt financing thats exists with-in the tech industry
3. And crucially, again, the fact that the returns are exceptionally high means even institutions are kind of forced to invest in them.
Example
Like, as a portfolio manager at Citadel, you're basically fired if you don't generate a certain amount of returns in, you know, the coming 6 months. And so, if you're just seeing the stock market and certain stocks go up by, like, 40%, and you're just sitting back and not investing in that, you're probably getting fired.
Impact
So, there's a real pressure on everyone in the market to invest in these just because of how much their valuations are increasing so far.
3rd Argument
Framing
So, none of this yet means that we're going to see this bubble pop or say that, you know, this is actually going to happen.
Makes it sound like you are taking a more reasonable approach to the case
Claim
But what do we think could actually trigger events for this kind of bubble to pop, I guess?
Mechanism
Essentially, a few things. The first, and crucial of which, is you could see the companies that build the data centers and that are peripheral to the actual frontier models collapsing. So, if you have a company like CoreWeave, for example, or a company like Crusoe that builds the data centers, and those start collapsing, that kind of is the bottom of the pyramid that everyone relies on. And that means that a lot of the valuations of the other companies go down significantly.
Portions of the supply chain (i.e companies that make data centres) that others are reliant on crashes, so does everyone else.
What causes "collapse"?
What are the potential trigger events for that? The first is, I think, we can have a serious energy crisis, like is happening right now.
Now, you may think, "Oh, well, the stock market is at all-time highs right now," or recently. True. The reason for this is, to a large degree, because the actual energy effect of the foremost crisis has not actually kicked in.
Preempts a possible rebuttal and why it doesn’t work
You see, future contracts obviously go higher, but to a large degree governments are currently just putting the bill in many of the Western countries and just basically subsidizing energy.
Effects of the energy crisis hasn’t affected markets yet
Moreover, you have, like, reserves. The US has released, like, millions of barrels from their special reserves, but those need to be replenished, right? Because if you don't—and in the future, like, those take decades to build up, basically, right? So, you've currently been seeing incredible government support of energy prices.
And we think if this continues for another, like, year, perhaps, or if this ends in, like, 3 months and then happens again 3 or 4 years down the line, well, that's something that the governments just don't have the ability to borrow that much from because of how expensive debt has gotten. But they literally just don't have the physical oil in reserves to just unleash it to the market to kind of stop that situation.
Limited capacity for the government to subsidize energy in the future since
a)borrowing becomes more expensive
b) and oil reserves are limited
Weighing
So, we think that's a serious risk if a Hormuz-level incident happens again. And we think it's pretty plausible that something like that could happen, given Iran right now knows that it has the capacity to do that, since it was able to basically choke off the entire economy.
Another global crisis could happen in the future
Please be a bit more quiet. And the issue is that, like, just deal-making between the US and Iran has really, really fallen apart in terms of the trust between these guys. They violated the ceasefire so many times, so why would they continue trusting them?
Why is the crisis likely to occur?
POI
Yes. Not only is there a real risk due to the scale of this thing, but…Why I think they're fine.
Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.
The second thing—I'll get to that. The second thing I promised you is the invasion of Taiwan, potentially.
Impact
So, the other bottom line besides energy—and obviously it—sorry. So, energy prices mean that energy costs escalate massively. So, the cost for all of running these data centers increases massively. Many of these data centers may have—many of these companies may be unable to finance their debt, or their debt costs increase to the degree that they're unable to borrow. If they're unable to borrow, obviously that means that you take away a lot of trust from that.
Invasion of Taiwan
In terms of the invasion of Taiwan, I think this is quite plausible, in terms of Xi having promised this so many times to his population. He's nearing the age of 80 or something. So, you know, if you want to do it within his lifetime, it should come very soon. And I think now is a good time generally because the US has run out of a significant amount of, like, the Hellfire missiles and so on. Moreover, just the Department of Defense is low-key loaded with people who are not the most competent in terms of running a war. It's also the case that China has the capacity to do this because they could, like, destroy the cliff defenses or just overwhelm Taiwan in a very short amount of time before US air carriers can get there. So, they have the incentive and a relative capacity to do this.
Impact
If they did that, the global economy kind of comes to a halt because they're the only company (country) that can make the high-level semiconductors that are required for the companies in this case.
What does this actually look like, right? Because what would one of these triggers actually taking place look like?
Mechanism
Because the way that Wall Street risk management models work is, for all intents and purposes, they use volatility in the markets as an indicator of risk. So, if you suddenly have a very significant amount of volatility, a lot of these huge managers of money all have, like, models that automatically sell a substantial amount of their holdings just because of the volatility spike.
Why is the instantaneous shock likely to occur ?
Once you sell that, more and more people sell because volatility increases more and more, and that's the way you have a huge, huge sell-off that basically is, I guess, a bank run on stocks, if it helps to think about it that way.
The trajectory is bad because of the snowball effect
Conclusion
So, I think all of this is likely to happen in the next 5 years, and you should all be quite scared.
Maximus Papaioannides | DPM | 83
Youtube Link (timestamped):HERE
All right. So, I thought Tin (LO) was a first speaker, but there was genuinely 30 seconds of constructive in that speech. All of that was just mitigation.
Let's first talk about how predictions motions work.
As of the 2027 WUDC manual burden for TH Predicts motions is now equivalent to THBT
We give you roughly three plausible things which might crash the market: energy generally, Taiwan generally, and I also add private credit as an issue. What you need to believe for our motion in the past is that each of these have roughly a 20% chance of occurring individually, which means the cumulative probability of at least one of them occurring, if you do 0.8% to the power of three, is roughly 50%. So they need to show that none of these have approximately a 20% probability of occurring in the next 5 years.
Let's first talk about AI. The first mitigation we get from OO is that AI actually does have money eventually. And there, the explanation doesn't show that. It shows AI is useful, although it's profitable. First of all, the revenue just isn't there. It hasn't been there. Look at the financial systems. Second of all, the reason for this is that it's a hyper-competitive market. There are very low switching costs for consumers. I can switch from one AI to another whenever I want. Second, many of these are open source, which means you can just make a copy of the AI 6 months earlier, which means no one fucking paid premium for that. So the revenues are very, very low. It also means it's very hard for you to lock in long-term contracts, which are where safe profits come from. Fourth, it means it's very hard for you as an individual company to exercise pricing power, like when you're dealing with a large buyer, like maybe, you know, a consultancy company or a finance company, etc.
All of this means that in the immediate future, until the market consolidates, stabilizes, the profit won't occur. So you are seeing companies which have massive sort of, how you say, uh, debt, but none of the valuation. And any plausible risk without occurring says, ah, before you know what is in the market. No, we gave you a very compelling explanation. Many people can think it's a bubble, but until it bursts, an issue. There's a variety of funds which saw the dot-com bubble, the 2008 bubble, coming, but they invested too early and didn't go to the bank. But there are, like, several of these. The problem with a bubble is that you don't know if you... it's not if you know you're in it. Everyone knows. It's knowing when it bursts.
Second, energy and inflation. The Democrats winning is pricing at 50% on the bet, 55% of the betting markets. They can't hedge their stake on that. And the way we think energy likely manifests in the future is twofold. First of all, there has already been massive damage to the infrastructure of Gulf States, of Iran, of a lot of boats being bombed, of a lot of, like, Saudi Arabian pipelines, you know, Qatari refiners, all of these sorts of things, which means supply is going to be constrained substantially. Second of all, we think the war as busy and the tolls being restricted probably continue happening. There is no deal with an end in sight. Like, genuine negotiations are cooked because they're being led by Jared [ __ ] Kushner.
The implication of this, combined, mind you, with very lucrative European government subsidies, which means European energy consumption doesn't adjust for the pricing effect, which means the world price is much higher than it would be had the market reasonably adjusted, means the price of energy remains very high, which means the UK, the US, competing in a competitive market for energy, has their price being high, which means, first of all, you have energy inflation, but second, you have the second-order impact of food and transport becoming more expensive, and therefore you have a massive inflation shock, and the fairly independent, at this point, Federal Reserve will likely raise interest rates as a result. I think it's a very intuitive explanation.
The reason why then this is very problematic for the market, and here's why this is distinct in 2008, is that the market currently is very sensitive to interest rates because the biggest companies, the ones which, like, are the, I guess, source of exceeding valuations from the Magnificent 7 and all the really big AI companies, which these people are getting a lot of hype and valuation from, are very sensitive to credit, which means a one or a 2% increase in interest rates means these companies need to pay tens and hundreds of billions more every year. And because the profits haven't took in yet, they are structurally unable to do this. And because of this, it also means that bailouts are very difficult because the government is already overboard in the US, and therefore their ability to borrow more to bail out these massive trillion-dollar companies is constrained.
Lastly, in terms of Taiwan, they likely cave because China is much bigger. They know the US are incredibly unreliable, especially under Trump, and, you know, pro-Chinese sentiment is not very small in Taiwan. And the implication is very simply that China is very likely to engage. Also, China doesn't care about the stock market. They care much more for the One China Policy. They care much more for distracting their people from all of these things. Xi, even if China generally cares, Xi cares a lot more about his personal legacy, smelling himself up there as people like Mao are, completing these things. And because the clock is ticking and he will soon kick the bucket, unfortunately for him, now is probably where this is happening.
Let's talk about transmission mechanisms. What this does is very simply it shows the degree to which the stock needs to fall itself is lower. Basically, when the stock falls, this basically has second-order effects, and you create a bit of a spiral.
Several transmission mechanisms we observe in the current market. First of all, the rise of retail investors. Retail investors make an increasingly larger side of the market. It's like, what, 20%? *[laughter]* 40%, says Leo in his communication. I'm not sure if he's allowed to do that.
What do these people do? First of all, they're a lot more risk averse. When they see bad news, when they see a valuation, they pull out their money a lot more because they don't have the same financial models, etc. Second, when these people lose their money because they might do by a small market crash, consumption drops because most of their savings have dropped, which means there's a transition mechanism between speculative AI and general consumption. How much do people buy cars, like eggs, houses, anything else in the economy? Which means that a demand shock, additionally to the stock market job.
Second of all, because inflation has been very high recently, the degree of discretionary savings most people have has decreased, which means when the stock market goes down and their pension fund has a bit less every year, or they get paid a bit less by their company, that is when the consumption drops a lot more, which means you have more of a transmission mechanism from the stock market to the real economy.
Those? Yeah. So the AI modeling financial... they're similar to search engines, and yet the fact that they, in fact, are free for you to use and all that is... so search engines advertise. They can monetize who comes up on the search engine. AI can't do it. If they do, some other cheaper AI is going to undercut them. So that doesn't work because search engines have much higher barriers to entry.
Let's talk to you about private credit, which is, mind you, its own [ __ ] risk of transmission. Private credit controls 12 trillion on their assets, 10% of all assets. It's going to be around 24 by 2028. And they have a very similar issue as debt bundling in the 2008 financial crisis because they borrow their money from their limited partners, your pension funds, your asset managers, etc. And then they give loans to companies.
And this has several issues because they're paid on commission. Their main incentive is just exchange money all around. And this creates several issues. First of all, it's unclear where they're giving money to. And oftentimes, competition for wages and principal-agent issues, in terms of the bonus, of the people in these means they give loans to bad companies. We got Tricker, we got First Brands, who recently defaulted.
Second of all, they borrow versus their portfolio value. So if I own this amount of money, I can borrow against that money, which means they're, like, oftentimes triple and quadruple leverage, which means a small reduction, a small bankruptcy on their portfolio, can have massive effects. And importantly, these aren't regulated by post-2008 financial, uh, regulations. They aren't regulated by central banks. The Bank of England had *[laughter]* to ask Apollo to submit its documents for regulation. You can be sure what Apollo said: no.
Which means a small decrease in profit, a small increase in interest rates, has a massive impact in a very, very important industry.