(Ir)rational exuberance?

From January 1980 to August 1995, the stock market experienced a phenomenal run. The S&P 500 delivered a total return of approximately +833% (including dividends reinvested), corresponding to a compound annual growth rate (CAGR) of roughly 15–16% over this 15–16 year period. Since its inception in 1926, the S&P 500 has averaged about 10.4% annualized return, making it reasonable to expect some mean reversion in the years that followed.

However, when Netscape IPO debuted on August 9, 1995, its stock price leaped from $28 to $75, marking a pivotal moment that ignited investor enthusiasm for internet companies. Over the next 333 trading days, the S&P 500 gained an additional ~30%.

On December 5, 1996, then-Federal Reserve Chairman Alan Greenspan famously described the market euphoria as “irrational exuberance”. The Tokyo market, open during the televised speech, immediately fell and closed down by 3%, with markets worldwide following suit. Yet the correction proved short-lived: the S&P 500 continued to surge for another 3.3 years, ultimately peaking in March 2000, averaging a CAGR of roughly 26% after the Greenspan speech.

The 2000–2002 bear market, triggered by the bursting of the dot-com bubble, was exacerbated by the terrorist attacks on September 11, 2001. The S&P 500 bottomed out around 776 on October 9, 2002. From its March 2000 peak (~1,527), the index lost roughly 49% of its value. The Nasdaq-100 index, heavily weighted toward technology stocks, fell even more dramatically to 815—an approximate 82% decline from the peak (~4,700).

It took the S&P 500 roughly five years to climb back to 1,565 by October 2007, before plunging again to 676 on March 9, 2009, a level the index had first reached as early as July 1996. 

Following this low, the S&P 500 entered a prolonged bull run, averaging a CAGR of 16~17% over the next 16 years. The tech-heavy Nasdaq-100 Index, the major growth driver of S&P 500, achieved an even higher CAGR of roughly 20~21%. As of August 21, 2025, the Nasdaq-100 has a total market capitalization of ~$30 trillion, accounting for about 60% of the S&P 500’s total market cap (~$57 trillion).

The release of ChatGPT on November 30, 2022  was an event as transformative as Netscape’s IPO was for the Internet era, marking the beginning of a new AI era.

Over the past 2.5 years, an AI bubble has clearly been forming: valuations of AI startups and compensation for top AI engineers have soared to levels that would have seemed unimaginable just five years ago

Suppose the unfolding of this AI bubble follows the timeline of the dot-com bubble, and someone as prominent as Alan Greenspan warns that the current market euphoria is irrational exuberance. How would you invest? 

Are you going to act on the irrational exuberance that will burst in 2~3 years, or the rational exuberance that will be realized in 20~30 years? 

If you're concerned with a near-term crash, is it realistic for you to stay out of the market for ~6 years (as in Oct 2002) or ~13 years (as in Oct 2007)? 

Even if you have the foresight and patience, how would you determine the right moment to re-enter the market without missing a long bull run, like the one from 2009 to today?

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p.s. Zuck on AI CapEx bubble

https://x.com/The_AI_Investor/status/1969042538976751937

pp.s. AI CapEx and Revenue

ppp.s. The infinite money machine

In Tech/AI We Trust

I haven’t actively traded since I retired four years ago. That changed on Liberation Day, when I was drawn back into the market, in hope of taking advantage of an expected crash. My short position, however, didn’t deliver much—Trump backed down too quickly on April 9 and I failed to realize the gain. 

For most of May and June, I stayed on the sidelines while others were busy trading TACO. My thumb-sucking stopped when Trump managed to bomb Iran’s nuclear site and simultaneously avert a war. I was genuinely impressed by his ability to thread the needle. No U.S. president since Jimmy Carter had pulled off something like that.  

I came to believe that Trump administration, working with tech entrepreneurs, could spark a major tech/AI-led boom in the U.S. market. So I started loading up on TQQQ in July. My current non-RE portfolio looks roughly like this:

• 90%: TQQQ/UPRO
• 10%: SHV/BND

It’s a sharp departure from my original retirement plan. If the Internet and mobile revolutions were 100-foot waves, the incoming AI revolution could be a 1,000-foot tsunami. The future arrived in Silicon Valley a couple of years ago—it just hasn’t fully spread to the rest of the economy yet.

Like the Internet and mobile boom, AI’s short-term promise may be overhyped, but its long-term impact is likely underestimated. For investors with a 10–20 year horizon and beyond, tech/AI seems a sure bet.

Of course, no one knows exactly who will capture the profits from this revolution. Back in the 1990s, people saw the Internet’s potential and went all-in on false promises like AOL, Yahoo, Cisco, Xerox, IBM, and Kodak, or even outright frauds like Enron, WorldCom, and Global Crossing. Many of those names didn’t survive. The true winners—the so-called MAG 7—were still beyond the horizon at the time.

I don’t know how many of today’s MAG 7 and hot tech/AI startups will still dominate 10–20 years from now. The greatest risk, however, is not taking the risk. Even though I can’t predict who will be the winners, it's likely they’ll become major components of QQQ—that's essentially my bet for the next decade. 

All I can do now is to sit back and watch how reality unfolds.

Brace for Impact

Trump is set to announce his reciprocal tariff on April 2, a move that will reshape the global trade and mark a paradigm shift in the U.S. foreign and economic policy. 

The transition could be turbulent—potentially triggering a market crash, a brief economic downturn or recession, rapid Fed rate cuts, and eventually, a recovery. It’s starting to feel eerily reminiscent of late January 2020, similar to the unsettling period just before the first confirmed COVID case hit the U.S.

My portfolio before:

40% UPRO/TQQQ
40% SHV
20% Real Estate (Primary home + 2 rentals)

To brace for impact: 

10% UPRO
5% YANG
5% TMF 
60% SHV/BND
20% Real Estate

Let’s see if reality unfolds as expected.

=========== Update on April 2 ===============

Last warning before the storm...

=========== Update on April 3 ===============

The market did crash today. Now, let's see if it continues to play out as expected:

It’s been clear for some time that the US equity market was propped up by unsustainable deficit spending and the manipulation of treasury duration. The interest payment in the US has exceeded the defense spending - a dangerous sign. The status quo cannot continue forever, something has to break.

=========== Update on April 4 ===============

China retaliated with a 34% reciprocal tariff. The ball is back in Trump’s court. Meanwhile, Xi has his own internal political dynamics to manage. Neither can afford showing weakness anytime soon. The trade war is likely to escalate before de-escalating. How this game of chicken will end is beyond anyone’s control.

The market continues to collapse today. These developments seem to align with the Trump administration’s objectives:

• The 10-year Treasury yield has dropped below 4%, which is beneficial for refinancing over $9T in Treasuries.
• Oil, gold, and most commodities are coming down, which helps lower inflation.
• The dollar is depreciating, which should, in theory, boost U.S. exports.

The next question is when the Fed will intervene. My guess is it won’t cut preemptively unless:

1. The market downturn triggers widespread margin calls, risking a financial crisis.

2. Clear evidence of economic pains emerges, though that may take months to develop.

YANG and TMF appreciate ~25% and 5%, respectively, but my bet is too small to change anything. 

Hope to capture some of the upside in the future.

=========== Update on April 5 ===============

Weekend readings for the paradigm shift:

1. Scott Bessent on Trump's tariff policy:

2. Joseph Wang on the Fed, interest rate, and macro (https://fedguy.com/)

3. Matthew Klein and Michael Pettis on trade wars:

=========== Update on April 6 ===============

Nikkei futures suspended after hitting circuit breaker.

Russell 2000 circuit breaker hit in the overnight session.

CME group futures markets are putting out circuit breaker warnings for tomorrow.

Trump is pressuring the Fed to cut interest rates:

It’s shaping up to be a high-stakes, three-way game of chicken between Trump, Xi, and the Fed. With neither Trump nor Xi showing any signs of backing down in their standoff, the pressure is mounting on the Fed to make the first move.

However, Jerome Powell can’t simply cut rates like during the GFC or the COVID crisis—he’ll need a credible justification. Until that cover materializes, global markets are likely to remain on edge, and next week could bring extreme volatility as investors try to read Trump's Xi's, and the Fed’s next move in this economic standoff.

=========== Update on April 7 ===============

Trump doubled down as expected:

YANG surged as anticipated, while TMF unexpectedly reversed its gains. I closed both positions today, the YANG bet returned about 55% in a few days but TMF was only break-even. My main decision is to close large position on UPRO/TQQQ before the tariff announcement, which saved me from big losses.

There's speculation China has sold $50B in U.S. Treasuries—potentially a signal of its intent to escalate financial tensions. If China decides to weaponize its Treasury holdings, the traditional correlation between the stock market and Treasuries may begin to break down. In light of this, I exited my position in TMF. So, this is about a break-even bet.

=========== Update on April 8 ===============

The Trump administration attempts o calm the market by signaling progress on trade negotiations. The stock market opens up with a ~3% rebound right now. 

Financial markets usually move ahead of real economic shifts. With reciprocal tariffs set to take effect tomorrow, their impact will gradually ripple through the global value chain. People and businesses start to change their behaviors in response to the incentives, but it may take time for the world to adjust accordingly. I expect more negative news bubbled up from real economic before it's safe to be fully invested.

Updated: The rebound was short-lived, and the market ultimately closed lower. The new tariff will take effect at midnight tonight. As the pain spreads through the economy, its impact will be reflected in corporate balance sheets and macro stats. Only then, things start to settle and the market can recover sustainably.