This Number Is Higher Than It Was Before The 1929 Crash — We Had To React

Key Takeaway

Today, write down one investing rule you will follow before emotions take over: for example, a maximum percentage in one sector, a valuation threshold, or a rebalancing trigger. Then compare your current holdings against that rule and identify any concentration you would be uncomfortable holding through a 15-year recovery. The episode’s core lesson is not to predict a crash or copy Warren Buffett, but to replace autopilot and hype-driven decisions with diversification, liquidity, and predetermined criteria.

Episode Overview

Tom Bilyeu reacts to a video about Warren Buffett’s growing Treasury-bill position and reduced exposure to major holdings, arguing that several valuation, concentration, and macroeconomic indicators warrant caution. The discussion compares today’s AI-led market enthusiasm with the Nifty Fifty and dot-com eras, while repeatedly emphasizing that no one can time markets perfectly. Its practical message is to build a diversified, metrics-based strategy while emotionally sober rather than making all-in decisions.

Full Transcript

Transcript of This Number Is Higher Than It Was Before The 1929 Crash — We Had To React from Impact Theory. Auto-generated from episode audio; may contain minor errors.

Everyone is comparing the current AI stock boom to the dot-com bubble of 1999, but the sharpest minds on Wall Street have a different view. One of them is Warren Buffett. I know that Warren Buffett no longer actively runs Berkshire Hathaway, although he remains chairman of the board . But what he and his company are doing really points to something that everyone needs to understand. If you don't understand this, you will be managing your portfolio in one of the riskiest periods in a completely unwise manner. We are almost certainly facing economic turmoil in the near future, but no one can predict the exact moment.

So it's about understanding economic forces, signs to look out for, and how to maintain a balanced stance. That is what we will discuss today. So let's begin. Everyone thinks Warren Buffett is selling Apple to avoid a potential capital gains tax hike to 21%, but that doesn't fit his story. Buffett has always been a long- term investor. He doesn't panic or sell assets. Something else is at work here . He is accumulating cash and actively moving into short-term U.S. Treasury bills on a scale rarely seen in his portfolio.

Such steps usually occur when cracks begin to appear in the economy, even before they become noticeable. Because when Buffett stops holding assets, he's not reacting to news headlines, but to what's coming next. At the end of the first quarter of 2026, Warren Buffett's holding company, Berkshire Hathaway, held a record cash reserve. This amount amounted to $397.4 billion . Not stocks, not businesses, just cash and government securities. Let's define the terms. So, the probability that Warren Buffett has a significant amount of "clean " cash is almost zero.

He essentially keeps everything in public debt. So keep that in mind when he talks about it . He will still receive income from his money. He's just trying to be in the safest place possible because he looks at the market and says, "Okay, I think everything is overvalued right now ." "There are no profitable deals." We'll get to that soon, but Buffett has done something like this before. By the way, this video was provided to us by The Infographics Show. This is a channel I recently discovered.

So, very interesting. Be sure to support the channels we feature here in the Reacts section. They create truly incredible things. So , it's important to understand what Buffett is actually doing, what these signals mean, and what he himself says about it. It seems to me that at some points this video may follow typical narratives about Buffett, rather than reflecting the real state of affairs. So we 'll deal with this gradually. But as you consider this, think about your own portfolio. This is the main thing. Understanding why Buffett does what he does and how you are subject to the same forces.

Buffett made his choice about how to act. Ultimately, you will have to make your own choice. We'll go over some in-depth facts from Buffett's decision history that aren't quite covered in the video, but I'll fill in those gaps. To put that into perspective : this is more than the annual production of countries like Finland, Portugal, or Chile. That's how much money Buffett has in his cash reserves . This is an amount comparable to the value of many of the world's largest companies. And it didn't appear suddenly.

Between 2023 and 2024, Berkshire disposed of a net $172.9 billion in shares, with approximately $134 billion worth of assets sold in 2024 alone. It was the biggest sale in the company's history. While markets were reaching record highs, Buffett was doing the opposite. He sold quarter after quarter, and the sales never stopped. In the first quarter of 2026, the firm shed another $8.1 billion. After the bear market of 2022, the next two years weren't supposed to be scary. 2023 and 2024 have been some of the strongest years for US stocks in recent decades.

Markets were rising, portfolios were recovering, and it seemed to many that the only mistake was to be out of the market. And right in the middle of all this, Buffett was building up his reserves. His cash reserves more than doubled. People should have paid attention to this . All the business shows on TV call it smart tax planning. A prudent person reduces their tax bill before rates increase. He's going to say that this doesn't quite line up with Buffett's story, but I want to be very clear.

Buffett himself says: "I'm exiting the market because of tax strategy." When people talk about Buffett, they create a narrative as if he has a “ danger line” or a “ red line,” I forget what he calls it. He'll remember that in a minute. And they pretend that's the only thing that drives Buffett's decisions. He said that once you cross this line, he's out, and everything else he says is nonsense or something . Listen, I think Buffett is very cautious in his statements . I think he understands what affects the markets.

But, according to Buffett himself, it's about strategic cash planning . It is quite clear that according to Buffett's own analysis , no matter what analysis you do, and we will list the various indicators that Buffett has used historically, including the one he calls the main one, they all signal danger. So I highly doubt, although the timing probably also has something to do with his strategic approach, that tax efficiency is perhaps the most important factor for an investor to secure a profitable position. And if you think now is the time to sell, he's done it before, he's already sold off assets.

So, regardless of whether it contradicts the fact that there were times when he didn't sell because of taxes, remember: if he's entering a phase where he knows he's going to sell, and that means a tax burden, then doing it in the most tax- efficient way is logical. So I don't think, even though it's presented as, " Okay, what Buffett is doing is essentially imposing a false narrative on you. He's doing something different." I don't think that's entirely true. I believe Buffett knows he's going to sell , for reasons we'll explore in detail shortly.

He knows what he will sell, so he will do it in the most tax- efficient way. And this is exactly what you , as investors, should be thinking about —how to act tax- efficiently. This is very, very important. A cautious man cuts his tax bills ahead of rate hikes, but that goes against Buffett's own past. In 1986, the corporate tax rate was to increase from 28% to 34%. This should have triggered a sell-off if taxes ever influenced his decision. Instead, he left his core assets unchanged.

For 60 years, he increased his fortune while maintaining peace. Tax rules never forced him to abandon stocks he believed in . Buffett said that his favorite term for asset ownership is forever. The best time to sell a great business is almost never. Coca-Cola is proof of that. He has owned it for decades. Buffett makes it clear that his favorite term for owning something is forever, but that's not the only factor that determines when he sells something. So this is where understanding the nuances will become very important.

When people think of investing as a bumper sticker , they make mistakes. So approach this with caution. Failure. He never dumped stocks, even to avoid taxes. So we're supposed to believe he sold Apple shares just to save a few cents on his tax return? Buffett didn't just trim his portfolio. He reduced Apple's stake from nearly half of all Berkshire shares to one-fifth. And then he did something even stranger. On January 1, 2026, he stepped down as chairman of Berkshire Hathaway. I really like this video. I think it's truly phenomenal.

So, sorry for getting hung up on some points. But are we supposed to believe he's handing over the reins right now? Although, damn it , this guy is so old. So the fact that he is retiring right now should come as no surprise to anyone. I'm surprised he lasted this long. I don't think there are any secret schemes here. In my opinion, it's simply time to retire. He did everything he planned. He has a successor, whom he has been preparing for a long time. He will remain as chairman of the board of directors.

There is nothing strange here. It's like how people talk about the Rothschilds, trying to add mystique and mystery, instead of asking, " What simple explanation fits all the facts we see?" » A simple explanation for Buffett's actions: I'm getting very old. I ran this company extremely successfully. I realize I'm slowing down. It's time for me to hand over the reins. I look at the market and, like in 1969, which we'll talk about later, I'm going to get out of it completely. Well, not completely, but to a large extent I sell out because there are certain indicators that I focus on.

And when these limits are crossed, I— unlike those who invest emotionally and want to squeeze the last dollar out of a “ bull” market— don’t do that. I have some kind of " fuses". When the fuse blows, I understand : there are no more profitable deals. And I'm leaving. Now that I know what I'm selling, I need to do it with minimal taxes. So, even though at other times when companies weren't so insanely overvalued, I could see them eventually climbing out of the pit of overvalued valuations, I just held the stock.

There is no need to rush and exit the market with every move. I'm going to wait it out, but right now, and that's why I want to show this video, things are different now. Something else is happening that makes me want to get out. This is the very moment, if you want to see me sound the alarm, then this is exactly the case. The person who usually holds the stock says, "I'll explain to you why I'm getting out." And there are quite clear numbers that you can look at to understand that it's time to get out.

Now I will explain briefly. Everything that is happening now is explained by the fact that the stock market has become overvalued. This is both my view of what Warren Buffett was saying , and what I think he's saying with all these steps, and what I see in my own analysis: we're reaching historic levels of overinvestment. Ahem. We'll see that specific number in a second, but we're exceeding a very important figure even more than before the crash of 1929 that led to the Great Depression, okay? That's how " hot," to use such a mild term, the stock market is right now.

Everyone who invests is simply pouring money into this meager number of shares, effectively making one big bet on AI. And Buffett tells you that's too much. This is too much . And now that I know I'm going to get out, I'm doing it with tax minimization, and it coincided with the fact that my partner and probably best friend Charlie Munger died a year ago. It's time for me. So again, looking for conspiracies like wolves howling will blind you to the very simple things that you see in mathematics, which are quite obvious.

And if you put aside your emotions, suddenly everything becomes very clear. Time mattered. The cash reserve had already been built up and the main sale had already taken place before the transition. And Able's first step as the new manager was to continue selling. Yes, okay, that's philosophy. It's still too hot. This is too hot. hot. There have only been a few moments in Buffett's career when he has almost completely given up on stocks. One of them was 1969. The markets were “hot,” fueled by what was later called the Nifty 50.

These were big names like Polaroid, Xerox, and Avon, which investors considered guaranteed winners. Buffett looked at the bigger picture and decided there was nothing left to buy. So he did the unthinkable. He closed his investment partnership and returned the money to his investors. He just left. What happened next proved him right. By 1973, this bubble burst, and a brutal bear market wiped out years of profits. Big names were defeated. Polaroid shares have fallen about 91% from their peak. Avon fell by about 86%, and Xerox by almost 71%.

These were not little-known or low-quality companies. These were some of the most respected names on the market at the time. A great company is not the same as a great stock. Okay, we need to talk about what really happened in 1969. He admits, and I want to be very clear. The guy who made this video knows about it. He just doesn't waste time explaining. He shortens it to the words: " It later became known as the Nifty Fifty." The reason I think Buffett came out in '69 is because of what came before it, namely—the Go-Go era.

Everyone was simply overvaluing stocks, and things were going through the roof. This eventually led to the Nifty Fifty, or Nifty 50, where we saw such massive consolidation where everyone thought, "Okay, these are the so-called one-solution stocks." "You decide to buy them and you just keep them forever ." Buffett looks at people's behavior and says, "Wait, you're taking away so much future revenue that it's going to be almost impossible for these companies to meet those expectations." This is important to understand. We've talked a lot about how the current AI situation parallels the events of the dot-com bubble.

This is 100% true. But we've seen this pattern repeat itself before, and now we can observe Buffett's behavior over time. He sees it at the end of the Go-Go era and realizes, "Yeah, wait a second." " These estimates are becoming extreme." They are starting to rise above Buffett's red line, which is the amount at which these stocks are trading divided by GDP. And when that number reaches 200%, meaning when the value of the stock market is 200% of the value of GDP, oh, you start to get into a scary place.

And that's why it was then that he historically retreated. So we see this, moving into the go-go era, leading to what would become known as the Nifty 50. And now the most important thing, and damn it , if you haven't been listening, I want you to listen right now. So, we'll be back to the show soon, but for now, let's talk about what it really takes to create video content at scale. Most people think you need a videographer, editor, motion designer, and social media manager. This is a full-fledged production department, and most companies don't have the budget for it .

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Now let's get back to the show. Guess what happened in 1973. So he says, "Hey, the bubble burst in 1973." The event of 1973 that made Warren Buffett look like a genius was the Arab oil embargo . Then there was an oil supply shock, which led to a huge wave of inflation. Now, for the reasons we have already discussed, the situation is developing completely differently. But the fact that we have the same level of volatility in the same region of the world that caused huge problems back then and completely crashed the market -- and Buffett said at the time, " Thank God I got out." We see something very similar.

So why isn't the same happening in the Middle East? Why did we get massive inflation before, when we had a supply shock? We now have a supply shock, and we are seeing a little inflation, but not the catastrophic one that we expected. We are seeing a collapse in demand. The answer is that the economy was already very weak in terms of oil production and demand, especially in China— even more so in China than in the United States. China accounts for approximately 74% of the decline in oil demand.

So they were able to just completely shut down their demand, somehow, and I think the answer is—we've already discussed this in detail , so let's go over it quickly. The fact that they did not maintain their refineries, which has nothing to do with supply, but only with demand; The fact that they turned it off, and that they didn't continue to buy when prices fell, suggests that China is actually struggling with a previous drop in demand, using the cover of the Iran war to hide the lack of demand.

So they stopped filling their storage to the billion barrels they had and just said, "We'll pretend it's because of the war in Iran, but really it's a demand collapse." That's why we don't see the same thing . But we have instability in the same region that caused the problem in 1973 that led to the market crash when we had a similar concentration of stocks. So, the Nifty 50 index was affected by the oil crisis in the Middle East, which caused the collapse of that bubble. Now we see this repeating itself in a very similar way in the history of the dot-com bubble.

People usually rightly talk about the dot-com bubble as an event associated with large-scale infrastructure deployment. This gap arises between the moment when the debt needs to be repaid and the moment when the income actually comes in. This is a direct parallel to artificial intelligence, but there is also the fact that even before the advent of AI, we had the " Magnificent Seven." We are seeing a massive reduction in the number of stocks that are actually growing productively. And because of that, and also because people continue to invest in an attempt to avoid inflation, right?

You have to hide in the stock market. This pushes estimates to levels that go beyond any normal range. So, we are again approaching Buffett's "red line"—the ratio of the value of the stock market to GDP, and we have the so-called CAPE ratio. And the CAPE ratio has once again become completely inadequate. So the CAPE average, just so you know, was developed by Nobel laureate Robert Shiller, it's short for cyclically adjusted price/ earnings, so CAPE is sometimes called the Shiller P/E ratio. It divides the current price of an index, usually the S&P 500, by the 10-year average earnings per share, adjusted for inflation.

Why this is important is because standard trailing 12-month P/E ratios are very misleading, you know? Because during economic upswings, corporate profits temporarily rise, and this creates the impression that stocks are cheap on paper. But when a recession hits, profits collapse , making stocks look expensive. So, the idea behind introducing the CAPE ratio is to smooth out all these cyclical distortions by looking at a 10-year slice of the business cycle . So it provides a much more realistic fundamental basis, you know? And the crazy thing right now is that the historical long-term average of the CAPE ratio is about 16-17.

The CAPE ratio for the S&P 500 index is currently at 40 . This is madness. In the entire history of US capital markets, a CAPE ratio above 40 has only been achieved and sustained once, during the absolute peak of the dot-com bubble in 1999–2000, you know? We reached this level just before the Nasdaq lost 75% of its value . And this is what I was hinting at earlier. Even the 1929 market peak that led to the Great Depression didn't rise that high. It didn't reach the CAPE level that we have now.

So the question is whether Buffett actually uses the CAPE ratio, although, incidentally, he doesn't seem to and hardly talks about it. He has another indicator that we talked about, but both of them are now signaling danger. So it almost doesn't matter what metric you look at these days. Is it a concentration on a few stocks? Is it the market value divided by GDP? Is this the stock performance over the last 10 years? No matter how you look at it, everything points to overheating. Everything is red .

So, knowing that no one can predict the perfect moment, and that there may be a period ahead—a day, a year, or five years—when there is still a lot of money to be made in a bull market, and those who make it will seem like geniuses, what do you do with this information? You will have to make your own decision. But the fact that all these alarm bells are going off at the same time should make people think about their actions. Okay, we're going to talk more about what Buffett did historically, because a lot of people talk about his actions in '69, but we want to find out what he actually did.

We'll talk about that in a minute. But yes, you want to put all these pieces together. What to do? What should you actually do at such moments? Okay, let's continue. Buffett understood this years before others did. 30 years later, he repeated the same thing , but in a milder form. In 1999, the dot-com mania was in full swing . Companies without profits were valued in the billions. pets.com became known more for its advertising than its business model. While the market celebrated the new era, Buffett publicly spoke out against it, warning that profits built on speculation would not last long.

He didn't give in to the hype. He believed the market was so overvalued that growth would be meager for years. Here is an important idea that we need to explore in more detail . He is talking about people who invest based on speculation. That is, speculation, as opposed to a situation where the value of the company is real and high. So when you look at a company, you evaluate it in terms of how much free cash flow it will have access to. By the way, Warren Buffett, when questioned, calls this indicator the most important, although he clearly emphasizes that you should not judge something by just one indicator, because times are uncertain and the context is always changing.

There is nothing here that is set in stone. But, according to Buffett, if you're looking for one main criterion to rely on, it's discounted future cash flows. This is a somewhat complicated idea that depends on what inflation rates and interest rates are likely to be. You will have to make a lot of assumptions about the future. But now you're trying to realistically estimate, given all the difficulties and what could happen in the economy—that's part of discounting—what the future cash flows of this business are going to be?

Now, as to why cash is so important: you'll hear from investors, including Ray Dalio, that cash is garbage. But from a business perspective, you'll hear that free cash flow is everything. The reason why free cash flow is everything, why people in 2000 should have been more aware of the problems, and why we need to be vigilant now with AI, is that cash flow from operating activities shows that your services are really needed. People pay for it. They are willing to give up their hard-earned money because they want to use this product.

This means that the business is a real operating structure. If a business, like OpenAI or Anthropic, is known as " dead by default," it means it doesn't generate enough revenue to survive. If they can't borrow money or sell a stake in the company, they simply close. This is where the real problems begin. Therefore, future discounted cash flows become a big issue, for example, in the field of AI. There's a lot of faith, a lot of hype, a lot of people who are excited about what this could be, but really they're betting on speculation.

They don't know for sure whether this income will come. They don't know exactly when this income will arrive. They are speculating on this fact, they are simply gambling . They hope that someone else will believe in the profits, and that they will be able to come out on time or that, in the end, these profits will definitely come, because artificial intelligence is such a revolution. Or again, at least someone else will believe it and I can sell them my share and get out at the right time.

So when you bet on speculation, the price goes up somehow and somewhere for someone, and then I can get out when I need to, unlike when you bet on fundamentals. I believe that this company will remain on the market for a long time, which is also a risk, but I am betting that it will last a long time, based on the fact that people actually pay for the services or products that it creates. And because they do it quite profitably, they will be able to survive an economic downturn much more quickly, even despite possible shocks .

If you look at the " dot-com bubble" of the 2000s, you will realize that companies like Amazon survived, not pets.com. Pets.com had to constantly raise funds to stay viable, much like Anthropic and OpenAI have to do today. It's not that they don't have income, but that it's not enough to cover the so-called capital expenditures, or CapEx. How much money do I have to spend year after year to actually build the business, pay employees and all that. Although technically CapEx is just what you buy. Anyway, what is my cost structure?

You will often hear about CapEx in the AI ​​field, as it is perhaps the biggest problem they deal with: building data centers, upgrading chips, etc. So, what are the business needs and are they ahead of or lagging behind revenues? If you looked at Amazon back then, you would see the business and say, "Oh , this is a real business ." They had real money. And although their stock price fell by about 97%, the business was still making real money. So their growth rate could slow down.

Their stock price, of course, fell sharply, but they were able to survive the colossal economic downturn caused by the bursting of that "bubble" because they had real cash. So if you accurately predicted their discounted future cash flows, you would realize: okay, these guys are worth a bet, because I can see their growth rate, they're actually selling real products, they're showing momentum , they're profitable, yeah, I'm in the game. If you look at something that loses money—it's an unwise bet. And so when you start to put all of this together, hopefully this moment in the world becomes clearer for everyone, but it certainly becomes clear why Buffett does what he does, right?

Let 's get back to this. The Nasdaq began a decline that erased about three-quarters of its value. Pets.com went straight to ground zero. Microsoft shares have fallen 50% in a year. It took 17 long years to get back. Intel did even worse. What connects these two moments is not luck. When he stepped down in 1969, his reasoning was simple. He couldn't find anything worth buying at a reasonable price. He did not foresee the collapse. He simply saw a gap between what companies were worth and what people were paying for them.

He doesn't predict the storm. He simply watches the gap between price and value and only steps back when that gap becomes too large. Two exits, two moments when he stepped aside. This is something he almost never did. Now superimpose the beginning of 2026 on this. The total value of the US stock market relative to the real economy is once again at historically stretched levels. By some indicators, it coincides with previous peaks. For others, it surpasses them. Buffett even has a name for it—the Buffett indicator. It compares the value of all stocks to the size of the economy.

He says that if the danger line approaches 200%, you are playing with fire. It reached this level in 1999, right before the crash. In early 2026, she is there again. The market is now dominated by a handful of tech giants , known as the "Magnificent Seven." Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla. At times, these seven names together accounted for a third of the entire S&P 500 index. This level of concentration means that a small group of stocks is doing a huge share of the market's heavy lifting.

Icily. A similar pattern was in 1969 during the " Nifty 50" era. This is almost pedantic, but technically, the Nifty 50 era fell more on the 70s-72s. So let's call it '71, '72—they were the peak. The explosion finally happened in '73. He is in any case confusing the "go-go" era with the " Nifty 50". And more about recognition . Because when the same structure appears again, it's usually not a coincidence. For years, Apple was Buffett's undisputed favorite, the only technology business he said he truly understood.

And then he got rid of it. Between 2022 and 2024, Apple's sales grew by about 1.5% per year . It's certainly a successful company, but it's not growing fast. At the same time, stocks continued to rise. By 2024, investors were paying more than 30 times the company's annual profits to own it. The shares significantly outperformed the actual business performance. Apple's growth really picked up later, when new iPhone cycles pushed sales up in 2025 and 2026 . But time is of the essence . By the time growth returned, the price had already far outpaced it.

This is what Buffett is looking for. He knows what's coming next, better than anyone. A great business can continue to operate successfully, increasing profits every year, and the stock can still fall. Why? Because the price was an advance payment for a future that never came. You must understand this. When people trade at current levels, they are saying: " I believe that future returns are guaranteed, they will be huge, so I am willing to pay this money now for such a distant prospect." But remember, the price will only continue to rise if we inflate the bubble, so people just believe, “Oh, no, no, no, we don’t need the returns promised in 10 years .” Forget about it.

I am willing to pay for the income that will come in the next 20 years. Forget about it. "I'm willing to pay for the income that will come in the next 30 years." This is where you get into bubble-blowing territory, because eventually someone says, “I’m not willing to pay for income that won’t come in for the next 20 years. " Too many things can go wrong between now and then. " Again , thinking about discounted cash flows, I don't believe things will happen the way they say.

I think there will be competition. I think there will be changes that will make them vulnerable, and so people will start selling assets. Of course, Buffett sells early, but what actually happens in the end is that people simply stop believing this story because it is purely psychological. Right now, people are desperately trying to invest their money somewhere. They're desperately trying to find growth somewhere, but if the actual profits of the business aren't growing, you just say, "I have more confidence in the future." But honestly, I think people are just asking, "Where is everyone putting their money right now?" They invest them in technology.

Technology is the bet. I need to invest my money somewhere, so I'll invest it there. Most people don't have the discipline like Buffett to say, "Okay, I'll probably lose some of my profits, but I'll be in a safer position if everything starts to fall." If the market crashes, if the bubble bursts, or whatever, I'll be in a much safer position. So, someone has to look investors in the eye and say, "Listen, guys, we're holding money in Treasury bonds that are yielding, say, 4.75, 5%, 5.5%, something like that, and your friends are getting 17% of the return." It becomes very difficult to justify for more than a year, maybe two, because people really believe in you, you're Warren Buffett.

You start to get into your third year and people say, "Listen, dude, you shouldn't have my money . You're clearly doing something wrong. I need to start taking my money." And this is where things get complicated, because people are telling the truth: no one knows the future, no one knows when it will happen, and I'd rather take a risk. So my advice to you is: you don't have to use Buffett's metric, but I would have some kind of metric. So, what is your metric? What is that factor when you say, "Okay, if this is done, then I'll do something different." He sold because the stock and the business itself told two different stories.

At some point, Buffett had to decide which one he believed in. But Apple wasn't alone. The largest technology firms invested more than $200 billion in AI equipment in 2024. Microsoft, Google, Amazon, and Meta have led the way , building data centers and buying up mountains of chips from Nvidia. It was an arms race in spending the likes of which has rarely been seen. And what about the returns, the real profits that come from products with artificial intelligence? Goldman Sachs carefully studied this and found it to be painfully meager.

OpenAI is the main symbol of the AI ​​boom. The world sees it as a money machine, but its own numbers tell a darker story. It brings in billions from sales, but loses significantly more than it earns. For every dollar of profit, she burns a dollar and twenty-five cents . And this money moves between the giants in a strange circle. Nvidia is pouring billions into OpenAI . OpenAI then spends this money on buying Nvidia chips. Microsoft also gives OpenAI billions, but some is returned as credit for using Microsoft's own cloud service.

Money comes out of one pocket and immediately goes into another. None of this requires an actual third-party client to generate a profit. Money simply circulates from one giant to another. This looks like a successful business ecosystem. Instead, it's just a closed circle of corporations paying each other. In the late 1990s, during the dot-com boom, the country was covered in mountains of fiber optic cable. Companies were betting that demand for the Internet would explode instantly. That didn't happen, at least not that quickly. Most of these cables remained inactive for years, and the companies that laid them went bankrupt.

Buffett's late partner Charlie Munger said much the same thing about AI fever before his death. In his recent interviews, he criticized this hype, calling it madness and putting it on a par with risky crypto bets. He spent his last days warning anyone who would listen. The tech world is laying the " dark" cable again, only faster. So, what will pull the plug this time ? There have never been any alarm signals in the stock market. They were in the job market, and Buffett's asset sale coincided almost perfectly with that.

Claudia Sam, a former Federal Reserve economist, invented one of the simplest recession warning systems. It only tracks one thing— unemployment. More specifically, it looks for a very specific change in the unemployment rate that has reliably occurred every time the economy has started to decline. The rule is simple. It tracks the 3-month average of unemployment and compares it to the lowest point over the past year. When the average rises half a point above the low, history says that a recession has probably already begun. In the 11 recessions since 1950, this signal has been triggered every time.

In August 2024, the signal crossed the mark again. The value reached 0.53 points above the minimum level. This is, um, one of those things I've been saying for a while: we're almost certainly in a hidden recession, and have been for quite some time. Uh, you always have to be very careful with how people interpret the data, um, because they've changed the numbers so many times on how we track inflation . This created the impression that we were supposedly not in an inflationary space, but in reality it is simply shocking and makes you wonder what indicators we are even tracking.

I've already forgotten whether we've reached two quarters of GDP decline to meet the official definition, but what is this definition even trying to achieve? It's trying to convey that people are feeling poorer, that the economy is shrinking, and I think everyone understands: people have been feeling impoverished for a long time. That's why most people call it a " hidden recession ," and I think that's pretty obvious. The situation on the labor market has become even worse . So yes, this is a red flag that should be taken seriously .

Oh, my friend. Both Apple and Bank of America fell into the same time frame. He cut his stake in Apple by almost 50% from April to June 2024 . Bank of America stock sales took place from July to September, when the red line was crossed. At that very moment, the most cautious investor in the world headed for the exit. This same alarm about jobs was sounded in 2001, 16 months after the dot-com crash of 2000. It sounded again a few months after the start of the great crash of 2008 and again after the shock of 2020.

Each time, it worked before the official figures caught up with reality. Stock prices can remain disconnected from reality for years. They can grow on optimism, inertia, and the belief that tomorrow will be better than today. With hiring, things are different. The moment real companies start cutting real jobs, something fundamentally breaks down. The Sami rule worked in 2024, but the recession everyone was waiting for never fully materialized . Instead, the Federal Reserve lowered interest rates, hiring stabilized, and the economy was able to achieve something close to a soft landing.

By the beginning of 2026, the indicator returned to normal levels. Even Sama herself warned against perceiving it as a magic bullet. The post-pandemic labor market was so unusual, she argued, that it might not match the patterns of past cycles. If this was just a short-term recession bet, this was his moment to get back in. He could admit that he jumped to conclusions and return to the market that proved him wrong. Instead, he did the opposite. Berkshire Hathaway's cash reserves have grown to record levels, even after fears supposedly passed.

And that says a lot. The market behaved as if the danger had passed. Buffett acted as if it hadn't even happened yet. Buffett was believed to have a special, almost sacred, connection with Bank of America. In 2011, the institution was bleeding. Buffett arrived with a $5 billion lifeline and a public show of confidence. This step stabilized the entire bank. He became his " white knight". He began selling his stake in July 2024 and continued to reduce it until 2026. There is a hidden asset in the bank's statements called bonds to maturity.

The bank bought them when interest rates were close to zero, planning to hold them for years. Then rates rose sharply, and the market value of all those old bonds collapsed . The losses were enormous. By 2023, Bank of America had over $100 billion in paper losses. At its peak, the amount exceeded 130 billion. Imagine buying a house at the peak of the bubble and taking out a cheap mortgage. Then interest rates double and the housing market collapses. Your house is suddenly worth a lot less than you paid for it .

You can't sell it. Selling would record a large loss, enough to bankrupt you. So you try to wait it out. You hold an asset that is gradually losing value and pray that the market recovers sooner. This is the bond-to- maturity trap. This $ 100 billion “black hole” is almost seven times larger than the loss that ruined Silicon Valley Bank in 2023. The bank disappeared in a matter of days, as soon as depositors realized the danger . The pressure on Bank of America has not disappeared. He stayed.

This affects more than one bank. This is a threat to the entire system. Almost every major American lender amassed similar low-yield bonds during the “ cheap money” years. JP Morgan did it, as did the regional banks, and now they all have the same hidden losses . The damage itself is not fatal. The bank can simply wait for the bonds to mature and receive their full value. The problem is that banks do not control when depositors demand their money back. And if withdrawals become massive, it's impossible to wait .

Bonds have to be sold , and losses cease to be theoretical. Silicon Valley Bank proved how quickly this death spiral can unfold. This took days. Buffett knows banking better than almost anyone else. He saved Bank of America with his own money. He saw what was coming and just left. For two years, everyone watched the inverted yield curve. The problem could arise in the residential sector, and you know, it could be very detrimental. What we actually planned to discuss today, but didn't have time. The largest mortgage lender in the US is now in trouble.

So, their shares are falling, probably due to poor financial performance reports. So, yes, we have an ongoing problem. There she is right here. So, uh, here it is. Given the importance, yes, the tweet says: " The largest mortgage lender in the United States, United Wholesale Mortgage, has fallen to an all-time low after the biggest crash in history." And if you look at the screen, that's a steep drop, man . It's like a cliff. Minus 35% that trading day. Oh. Oh. In one day. So, if there is tension in the mortgage market; if there is tension, which we have already talked about, in the private lending market, the extent of which no one knows, but everyone knows that there is a problem, because some of the largest companies, like Blue Owl, have simply had to deny people the opportunity to withdraw their money from the program .

So, the program was originally designed so that people could come and pick up their money whenever they wanted. The problem is that there is a mismatch between the amount of free cash they can realistically provide to people and the speed at which someone might want to withdraw it. So you're creating the possibility of a banking panic, which is exactly what was described, uh, within this private lending market. And now we have a shaky private lending market with unknown potential for massive systemic impact, and we have a residential mortgage market; at least, you know, if the largest of them is an indicator, which of course it is, then you see some volatility there.

So again , looking at the fact that similar historical things have happened before, and when we saw problems in the housing market, it was evidence of something much larger that was either building up in the system before that or was about to cause a systemic domino effect. But an inversion is often just a warning. The real trouble usually comes later, when the curve starts to flatten and the economy catches up to what the bond market has been pointing to all along. Think of it as an earthquake warning system.

An inversion is an early jolt, a long, low rumble that says pressure is building. Everyone tenses up during the rumble, but the real damage, the kind that levels buildings to the ground, comes when the shaking stops and the ground suddenly settles. This subsidence is the way out of the inversion. The American curve entered this phase in late 2024, returning to normal throughout 2025 and into 2026. The record inversion of 2022 and 2023 has now started to level out. This is the same sequence that preceded the recessions of 2000 and 2008 .

It's not because a flattened curve is dangerous in itself, it's dangerous because of what usually causes it. The curve normalizes when the Federal Reserve starts to cut rates, and the Fed does not apply the emergency brake when the path is clear. The reverse inversion is not the cause of the storm, but proof that the people with the most data have decided that things are serious and are seeing the cracks in real time. When the alarm goes off, they've already decided that the earth is about to shake, and the average investor, well, he watches the curve return to normal and feels relieved.

This is good news for them . Look at the entire timeline and the picture will become clear. A labor market warning appeared in 2024. Buffett's biggest sell-off occurred during this period. The yield curve has started to return to normal. Banks were still suffering losses from the rate shock, and quarter after quarter Berkshire's cash pile continued to grow . Any of these events could be dismissed individually, but together they explain why Buffett did not behave like a man who believed the risks were over. He was selling.

He hoarded cash and continued to do so even as markets reached new heights. This is exactly what is important, because Buffett is not known for predicting crashes. He is known for refusing to pay today's prices for tomorrow's assets. And by the beginning of 2026, he was holding nearly $400 billion , waiting for what he thought was worth the wait. Now we are approaching Buffett's end game. At the end of 2024, Berkshire's Treasury bill holdings reached approximately $288 billion. This was more short-term government debt than the Federal Reserve itself held at the time.

By the first quarter of 2026, Berkshire's total cash stock was approaching $400 billion. Buffett has been telling investors throughout his career that cash is a terrible long-term asset . So why was he suddenly holding her more than ever before? The answer is that Buffett never viewed cash as an investment. He views it as purchasing power. When assets become expensive, cash seems "lazy." When assets become cheaper, cash becomes valuable very quickly . He's played this card before. In 2008, while the rest of the financial system struggled for liquidity, Buffett was one of the few who could provide it.

He provided Goldman Sachs with a $ 5 billion bailout loan . The conditions were so favorable that they are still studied in business schools. He made a similar deal with General Electric. He had cash on hand and the determination to use it. This sums it all up: there are a lot of things in the economy right now that are red flags . It doesn't matter which indicator you choose: CAPE, the Buffett indicator , the unemployment rate, or the limited number of stocks that make up the majority of the value— they all signal danger.

So the question is: what will you do at this point? I am , of course, not qualified to give you advice on this. You should talk to a professional about what to do with the money, but I think this is an extremely important time. We have, um, what's his name? Ray Dalio says we're about 80% through the bull market, so there's still some money to be made , but it certainly won't last forever. You have all these red flags, and there's the fact that people are just looking for where to put their money.

We have enormous uncertainty in the Middle East, which has historically created problems when we have been in a similar situation before. You have problems in the mortgage lending market. You are having problems with private lending. So, everyone is betting on artificial intelligence. In fact, one global bet is being made on AI. And historically, when there is such a concentrated rate, and people are building expensive infrastructure with debt, they don't come at the same time. So the first wave of investors usually fails, and then comes a generation of successors who pick up dark fiber, or rail, or, in this case, data centers, and turn it into a profit.

Of course, no one can predict the future , and I'm certainly no exception. You need to be very, very careful. But as I said earlier today, this video prompted me to go to my own investment team and push for the strategy that I use—the optionality that he talked about here. First, I want to have good diversification . I don't want to be too attached to AI or tech stocks, to the "Big Seven." I do n't want to be too dependent on the stock market. Well, I want to be a little bit in the risk zone, in stocks, because you never know for sure.

So I don't want to just stand by, you know, sit back for three years and miss opportunities. But at the same time, I don't know if there will be any collapse at all . I don't know if it will happen tomorrow. So I want to make sure that I'm prepared for any eventuality so that no matter what happens, I'll definitely limit my profits, but also limit my losses. So again, you have to make sure you're building a strategy that makes sense for you, but there are so many red flags and vulnerabilities that if you don't see something that others don't, I think it's worth being cautious.

It is important to make sure that you can act if the market goes down so that you have the opportunity to get back in if you want, at very good prices. But yes, now is the time to be very, very thoughtful . As an absolute minimum, figure out what your evaluation criteria are. So, if Warren Buffett uses discounted future cash flows, what are you looking at? Make sure you are focusing on something. Make sure you are not driven by emotions, that you have a predetermined indicator to which you will respond, adopted when you are emotionally sober.

Don't wait until you are in the thick of things, whether losing money or making money, because then you won't be able to see things clearly because you will be overwhelmed by emotions. I get a bunch of questions from guys in the chat. Is it worth going out in cash? Is it worth buying gold? Is it worth doing this? Should we sit idly by ? So, knowing this, you say: invest anyway, buy assets, but just make sure you have an indicator that you rely on in your research so that you understand why you are doing what you are doing.

So, remember, what I feel in moments like this is uncertainty. I don't feel confident . So I'm happy to talk to people about what I do, but the least I want is for people to misunderstand that he knows. Oh my god, he sees everything clearly. Yes, I just have to do the same thing as him. I'm not even sure about my own life, so people should be extremely careful. But the way I look at Buffett's actions—there is a certain set of metrics that he pays attention to that are related to the absolute fundamental health of the business.

When I look at the fundamental health of AI, it's not there. When I look at history, our entire stock market is based on AI. So I look at the fundamental state of AI companies—the foundation of what people are betting on—and it's not there. I look at historical trends of what new technologies look like with massive infrastructure construction. They turn into bubbles that eventually burst because so much debt accumulates that a real physical problem arises: these debts have to be paid, and there is no income to service the debt.

So eventually people stop lending to you, stop buying stocks, and you find yourself in a situation where you just go bankrupt. It happened with WorldCom, it happened with many railroad companies during similar large-scale developments. So I look at this and think: oh my. I look at the labor force participation rate. People are leaving the game en masse. I look at our overall economic growth. He is very short. I look at the instability in the Middle East. I see that this instability in the Middle East has not caused a recession.

For the first time in a long time, we have been able to actually reduce energy demand. This indicates that something else is happening. I, of course, already talked about China. I think they are in a big bind right now, which means that the two largest economies in the world are on shaky ground. So I look at all these things and think, “Okay, this was a great period of market growth. I made an obscene amount of money on this "bullish" trend. Am I ready to take a step back for a while now?

Not quite. I'm still going to stay in the stock market, but my direction right now is to reduce my exposure to stocks, especially... no, not completely, but to reduce my percentage of stocks , especially those related to AI. I think AI is the most transformative technology in history, but I have a hunch— based on everything I just said—that eventually there will be a gap between the collapse of the first companies and the arrival of others who will learn from those mistakes, use the infrastructure that has been created, and move on.

But through this period of turmoil, there will be an opportunity to buy them back at a lower price. And here's what we have n't talked about yet: when you bring in all this revenue up front and say, "Hey, it's going to be 15 years before this materializes." This is exactly what we saw with Microsoft during the dot-com boom. That is, "Yes, Microsoft is a real company, it's absolutely phenomenal, and it eventually recovered." It took them about 15-17 years to return to their bubble highs of 2000.

Now imagine you're not selling. You say, " I'll just wait it out ." "Microsoft is going to be incredible." "No one will replace them." The irony is that you would be right. You would indeed be right, but it would take you over 15 years to get back to that level. When you start counting, it turns out that it's already the 2040s, man. So, are you ready to say, "Hey, I'm going to hold this stock ." "Let's say you're right about Anthropic, OpenAI, Nvidia, or whoever." But let's say, like in 1973 , when the Nifty Fifty bubble burst, and those stocks eventually came back, but it took a very long time.

Are you willing to say, "I won't have access to this money for 15 years." "If you're willing to say, 'Yes, I agree that they will be frozen.'" I don't want to think about it ." I am not a day trader. I think Thomas is crazy. No one can predict the future ." Which, by the way, I say too , and it's the absolute truth." So I'll just let it take its course." There's no problem here, as long as I'm willing to wait." Great. If you're willing to hold those assets, that's phenomenal.

It's... if you're diversified enough, the market is likely to recover. They even seem to have done the math for the Nifty 50. If you had a broad asset allocation in the Nifty 50 and were willing to wait about 15 years for things to recover, you would eventually be in line with the market. The result was almost identical to the decimal point if you were in the S&P 500. So if you have that amount of time and you're not worried about that money, that's great. Simple and easy.

And that's what I'm going to do with a significant amount of money. I'm going to leave it in the market. I'm not going to worry about it. I don't have to touch it for literally decades, and I'm going to be profitable. That's great. So for me, the question is not whether to be in the market or out of it. For me, the question is what are your percentages. But that's just me. Again , you have to make your own decisions. Don't blindly do what I do, just in case I'm wrong.

I'm trying to show you the cause and effect relationships. I'm trying to give you metrics that are probably worth looking at. I'm trying to give you the context of one of the greatest investors of all time, what he's looking at, putting it back into historical context and comparing it to that, not conspiracy theories. When you start to put all these pieces together, you feel like this is not the time to be on autopilot. Not that you should run away, but this is not the time to be on autopilot; make sure you have a strategy based on metrics that you identified when you were emotionally sober so that you're not making decisions in a state of panic .

If you enjoyed this talk, watch this episode to learn more. One of the most important things that we're all going to be thinking about during this time is what economic philosophy we will support. Once we understand that economics becomes war,

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