Below are some of the most interesting things I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.
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“Why would successful companies and intelligent executives make decisions that, in any other context, they’d reject out of hand? They’re swept up in a fad. We’ve seen managerial fads before,” writes Gautam Mukunda.
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It’s not just successful companies and intelligent executives, either. Robin Wigglesworth reports, “There seems to be so much ravenous demand for leveraged US equity investments — especially in hot AI and AI-adjacent sectors — that it’s causing short-term funding markets to bifurcate.”
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That ravenous demand comes even though, according to Joachim Klement and Francisca Reis, “If we correct for the earnings bubble, the current CAPE would be 67.6x or 4.6 standard deviations above trend, a bubble that surpasses anything ever seen in US history by an extreme margin.”
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As to the factors behind the earnings bubble, Jon Sindreu points out that, “Conventional wisdom holds that the current bull market is all about AI. But if investors’ gains are down to a ‘large deficit model’,
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Finally, as Eric Basmajian writes, “In the 1960s, real net investment in structures ran 7 to 9% of GDP while equipment and IP ran under 1%. Today they’re about 2.1% each. This is an extraordinary shift, and it has real consequences. The problem is… the returns to intangible capital flow to a shrinking share of the population, while the majority interact every day with the country’s physical infrastructure.”
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