Are We In An AI Bubble? 10 Charts Claude Picked

Cold Open: Nobody Held A Press Conference For AI

[0:00] DANO WEIR: I love when you're on like your third turn with it and it's like and you've been like what about this oh yeah this and be like well what about this oh yeah just kidding it's this and then like the third time you're like okay but what about this and it's like now you're really right you know you're like okay yeah so my let's start I start the episode by saying my wife makes fun of me because I, it's a great way to start the episode.

[0:24] DANO WEIR: I constantly say to her, I say, I was never told. I was, they never told me. They just, it just all of a sudden it's just out there and oh, now it's going to be chat GPT. And you're like, what? No one told me.

[0:38] CHRIS SIPES CFP®: Right.

[0:39] DANO WEIR: We had a structure in place. It was called press conferences. Okay. And we would put a person on the moon. And then the president and other people in suits would sit there and there'd be all the camera, the bulbs would be going off.

[0:51] CHRIS SIPES CFP®: You will have been told.

[0:52] DANO WEIR: We did the thing, right? Yes. That never happened. But there is such a thing as AI now. And we are going to figure out today if we're in a bubble or not.

[1:08] DANO WEIR: Financial confidence for your hip pocket. Money is really good energy. If you're checking out, It's All Money.

Welcome: Are We In An AI Bubble?

[1:20] DANO WEIR: Welcome to the Sonoma Wealth Conference Room off the Sonoma Square. My name is Dano Weir. I'm the Marketing Director for Sonoma Wealth. We are a financial advisor, and of course, we should know about an AI bubble or not in the market. I'm joined by our Managing Principal, Chris Sipes. Chris, to start the episode here, what is the idea of a bubble? And what is the idea of an AI bubble specifically?

Why Bubbles Are Only Clear In Hindsight

[1:41] CHRIS SIPES CFP®: Well, I'll start as our compliance officer. By saying we will not definitively find out if we're in a bubble today. Marketing guy and the compliance guy.

[1:52] CHRIS SIPES CFP®: Because there's no way to really know except for in hindsight, like so many of things in life. Correct. But I think we're going to just take a look at some, you know, arguments that we may be in a bubble and arguments that we might not be as well. Now, the other thing is timing of these things.

[2:09] CHRIS SIPES CFP®: I just listened to this great interview with Roger Ibbotson, who put out he's a Yale professor and he's got a lot of great investment information. And the comment was about the Cape, the Shiller Cape ratio, the cyclically adjusted price to earnings and who was, was created by an associate professor with Igbetson.

[2:32] CHRIS SIPES CFP®: His name's Robert Shiller. And he said, yeah, but you have to remember, things are high based on that now, but you have to remember that the Schiller Cape, Robert Schiller sold all his stocks in the mid 90s, and he missed out on the late 90s.

[2:51] CHRIS SIPES CFP®: So yes, he missed the drop in the 2000s, but he also missed a significant up portion in the late 90s, right? And the book happened to come out in, I think, the early 2000s about the Cape and how it was predictive and blah, It was just a good time for that to come out.

[3:09] CHRIS SIPES CFP®: But I think that's a really good point is that the timing of these things is impossible. And you shouldn't expect that you're going to time it perfectly. It's just not going to happen.

[3:19] DANO WEIR: I misspoke. I shouldn't have indicated that we would have a definitive answer. Chris is correct. But I think it's a thought on everyone's mind. And we're seeing what is definitely a transformative new technology.

[3:32] CHRIS SIPES CFP®: Yes.

[3:33] DANO WEIR: It's absolutely, I mean you can just sense that there's like a moment going on, you just don't know exactly which way it's going to go.

[3:41] DANO WEIR: If we were watching a stage play, you could tell that perhaps the killer is on the stage. Something's going to happen, but you just don't know what yet. And so how has that played out in the market? And again, the idea of a bubble. What is a bubble? And what might an AI bubble be? Can you define that to start?

Two Kinds Of Bubbles

[3:58] CHRIS SIPES CFP®: Yeah, I think there's different types of bubbles. And, you know, this one, so for example, we talked about the tulip mania in one of our past episodes. Historical bubble.

[4:11] CHRIS SIPES CFP®: So sometimes bubbles revolve around things that don't really have any value or, or, you know, they're not going to be life-changing to society. And then there are times where bubbles do revolve around a new technology that is transformative and will impact, you know, human humanity.

[4:29] CHRIS SIPES CFP®: Like the internet bubble is a common example of that. And I would say the AI falls in the second one. Thankfully, you know, we went through that period out of COVID where like, NFTs, a whole bunch of cryptocurrencies. Peloton.

[4:45] DANO WEIR: Just random things that are just going through to the moon. And you're like, is this really going to be a thing?

[4:51] CHRIS SIPES CFP®: Things that you would say were a bubble, but you're like, wait, what's the transformative technology here? What's, you know. So it kind of, in my opinion, it depends on what the ultimate outcome is for society on like what type of bubble it is.

[5:07] CHRIS SIPES CFP®: But a lot of the feelings that drive the markets underneath are very similar. This feeling of missing out, this feeling of it's this is the hot thing. This this we can't go wrong that that's present in bubbles.

Claude Picks 10 Slides From A Year Of On The Markets

[5:23] DANO WEIR: So what I did today was one is. Chris is saying this is a general conversation and we're going to look at some aspects of what a bubble could look like. Are we in one? And then for you as a perspective, either client or as a client with a portfolio, what that could mean for your portfolio.

[5:44] DANO WEIR: As we look at this today, what I did, Chris, in the spirit of the episode, we have another podcast called On the Markets, which is much more market focused. So It's All Money. This podcast is a little bit more evergreen. In depth. We've got the full camera set up on the markets you, myself, and Daren do every week.

[6:02] DANO WEIR: And we were looking hard at the markets. We're looking at the technicals. You put together a slide deck every single week of economic and market slides, information that you find interesting. So in the spirit of today's episode, what I did is I took every single deck we've done this year and I went to Claude and I gave Claude all the decks.

[6:22] DANO WEIR: And I said, hey, Claude, I want you. To look at all these decks and find me the 10 slides you think show that we are in fact in an AI bubble. So that is what we're going to look at today. You've got the list in front of you. And let's find out what that means. You mentioned the Shiller-Cape ratio, and that's actually where we're going to start.

[6:43] DANO WEIR: If you're wondering if this is going to be a little over your head today, my whole purpose at the firm is to be a translator if the market isn't necessarily your forte. So let's get the first one up on the screen, guys.

The Shiller CAPE Ratio

[6:55] CHRIS SIPES CFP®: It stands for cyclically adjusted price to earnings. It is somewhat related, so we'll get around to this. But it looks at earnings over the previous 10 years and it smooths those out so that you're not just looking at a moment in time for the price to earnings ratio, which is important because a lot of industries are very cyclical.

[7:18] CHRIS SIPES CFP®: Like semiconductors are kind of classically thought of cyclical industries. And so it's easy to.

[7:25] DANO WEIR: Walmart might do better at Christmas than they do in June or something like that.

[7:29] CHRIS SIPES CFP®: And so it's easy to get the wrong idea when you're looking at a price to earnings ratio at a specific moment in time versus looking at it over a smooth out. Time period. So that is elevated. It's only been, it's only been higher one other time in history, which was the.com bubble.

[7:47] CHRIS SIPES CFP®: And so we're in the mid forties right now on that, which is, which is high.

Half The S&P 500 Above 10x Sales

[7:52] CHRIS SIPES CFP®: And what this is showing is the price to sales ratio, which isn't earnings because earnings you'll notice is sales minus expenses.

[8:05] CHRIS SIPES CFP®: That's your profits. That's, that's the earnings. This is just times sales, so what your revenue is. And this is showing the number of companies with a price to sales ratio over 10. So 10 times the sales in the S&P 500. In the S&P 500. And at the time of this chart coming out, which was earlier this year, about half of the companies in the S&P were selling for 10 times their sales number or more.

[8:39] CHRIS SIPES CFP®: And the CEO of Sun Microsystems is famous for his whole quote after the dot-com bubble bursting of saying, you guys were crazy. You gave me a price on my company that before I take out any money for expenses would take me 10 years to pay you back.

[8:58] CHRIS SIPES CFP®: So we'll see. But the, the point of this is that there's a lot of growth already priced in the expectations are high. And so the market, is, is not so much about who's right or wrong, but what what those expectations are relative to what everybody thought was going to happen.

[9:16] DANO WEIR: And so what that means is I'm just going to pick one at random. Microsoft is part of this, right? Microsoft is very involved with open AI. And so if you were a new investor, not if you had held Microsoft for a while, but if you were brand new coming in or thinking about making some moves and you're going, I want to think about Microsoft, you're getting in there. You're getting in where it's already.

[9:38] CHRIS SIPES CFP®: I'm not sure what Microsoft specifically, what their price to sales is. But this is 50% of the S&P 500, so roughly 500 companies. 250 or more of those companies are selling for more than 10 times their sales.

[9:53] DANO WEIR: Okay, let's look at the next one.

Claude's Top Slide: Market Concentration Through History

[9:56] CHRIS SIPES CFP®: So this one, according to your friend, friend, Claude is the single best slide of the whole run.

[10:03] CHRIS SIPES CFP®: So, so take it in.

[10:05] DANO WEIR: Unless you said, I don't like that. And it would have said, you're right to push back. I'm so sorry.

[10:10] CHRIS SIPES CFP®: This is the single best one.

[10:11] DANO WEIR: Yeah. All right. And what are we looking at here?

[10:13] CHRIS SIPES CFP®: Okay. So this is from Bank Of America showing the history of market concentration.

[10:21] CHRIS SIPES CFP®: And this would be in the top 10 companies, I believe, as a percentage of the overall market cap. And you can see that the railroads in the 1800s was the only one that was kind of higher than where we're at today. The others have been roughly in this area. And they've got the nifty 50 in there, which was the, you know, the 50 best companies of that time. One that I remember is Kodak.

[10:51] CHRIS SIPES CFP®: Utilities and telecom so electricity came out in the 20s right and that was a a transformative technology i mean imagine imagine that rush and at the time those companies only took up 36 percent of of the of the market and then you've got Japan the run-up in the 80s of Japan as a percentage of the market cap so right now the the only one that makes the current day look dwarfed is is the railroads in the 1800s.

[11:23] DANO WEIR: And so this is what percentage of the stock market is concentrated in just a few companies? Is that what we're looking at?

[11:31] CHRIS SIPES CFP®: That's right.

[11:32] DANO WEIR: So 40% of the market right now is concentrated in the Mag 7.

[11:36] CHRIS SIPES CFP®: Yep, yep. The top 10 companies. Yep.

[11:42] DANO WEIR: Okay.

[11:42] CHRIS SIPES CFP®: 40% of the value of the S&P 500. So if you're going to value every company in the S&P 500, you take those top 10, they make up 40% of that total value.

[11:55] DANO WEIR: So we've got the...

[11:56] DANO WEIR: Railroads we've got the nifty 50 what's the tmt that was the the internet oh okay okay and then a we're looking at various what are after the fact deemed bubbles yes and you can see a pattern where it starts to really say the entire market is saying hey this is the thing right now we're all into pokemon you know i'm giving an example of something random but we all love this one thing and so these are the companies are doing that one thing we're all focused on Kodak right now yes and so we are experiencing only only dwarfed you say by the railroads and speaking of the railroads i know you mentioned to me before the show just if you could talk about a book you've been reading called 1873 because the railroads are very analogous right now to what we're experiencing in AI.

[12:43] DANO WEIR: Yeah.

Railroads Then, AI Now

[12:44] CHRIS SIPES CFP®: I mean, think back to that time you're going from, it would have taken months to get from the East coast of the United States to the West Coast. You know, if you wanted to travel there, world travel was, would take forever from months to days.

[12:58] CHRIS SIPES CFP®: I mean, life-changing and, and, and then think about all the freight that they could carry compared to, you know, horse and buggy. So it was, it was also a completely life-changing technology for society. As a whole.

[13:13] CHRIS SIPES CFP®: It also required a lot of infrastructure build out like the AI situation is, you know, so like the Japan bubble, not so much the the nifty 50, even even the internet bubble, other than laying cable wasn't so much about like infrastructure, whereas AI is much more like we need the energy, we need the data centers, we need, we need a lot of stuff to make AI work.

[13:38] DANO WEIR: Next slide.

The AI CapEx Build-Out

[13:39] CHRIS SIPES CFP®: So to that end, this is...

[13:41] CHRIS SIPES CFP®: Just showing the percentage of cap x that's expected between now and 2030 cap x is we're spending money on major infrastructure for the company yes yep we got to build we got to build out we're a theme park company and we're going to build a new ride we're doing something functional correct yep now this is obviously projections you know this this has not happened but this is the consensus on where that is going to be.

[14:11] CHRIS SIPES CFP®: Coming from and you can see that the the expectation from what they call the hyper five here pretty much dwarfs where we were in say 23 in total CapEx for the the S&P 500 altogether.

[14:27] DANO WEIR: Hyper five is what Google meta it's going to be the companies that are building the stuff that's needed for for AI okay so this slide just simply saying the amount of money that they're expecting to spend on this is massive.

[14:42] CHRIS SIPES CFP®: Is massive, yes. So the market is reacting to a very real, you know, new technology and a very real amount of spending that is happening globally. That's why you've seen interest rates go up, the cost of money. You know, interest rates are just the price of money, which is driven by supply and demand. There's a lot of demand for money right now.

Data Centers And Your Electricity Bill

[15:04] DANO WEIR: And that ends up rolling downhill to you, by the way, for power. Things like power, this coming from Goldman Sachs. U.S. Electricity prices rose 6.9% in 2025 over double headline inflation. Data centers drive 40% of demand growth through 2030.

[15:22] DANO WEIR: And then it gives an example of D.C. And Maryland. Maryland rates up 74 to 94% since 2021. That number feels closer to us in California. So again, we're doing this thing and they're going to find a way to make money off of it.

[15:37] CHRIS SIPES CFP®: Right. Right. And so, so a lot of money going into it now at first, this was coming via cashflow. A lot of, I mean, these are the biggest, most well-funded companies in the world. And most of them had very little debt coming into this. But that has started to change now where instead of taking, taking out of cash flow, they're borrowing and needing to borrow to build out the CapEx that's needed.

AI Demand vs. Consumer Demand

[16:01] DANO WEIR: All right, next slide. What matters today? Consumption and AI are powering domestic demand. What is this saying?

[16:07] CHRIS SIPES CFP®: Well, you know, we talk a lot about the fact that like, gosh, the market's still up despite like all these things in the leading economic indicators and such that would have shown we should have had a recession, you know, probably in 2022 or 20, maybe early 23. But if you're going to do that, but it was all floated by this AI demand that came out towards the end of 23.

[16:31] CHRIS SIPES CFP®: And this is just showing consumer demand in the dark blue versus the AI demand in the light blue. And so you can see right where we hit more AI demand in 2025 and coming into 26, and that has just continued to expand. So the demand doesn't matter as much. From the everyday person anymore.

[16:56] DANO WEIR: The demand of what? The demand of the use of AI or of power or of what is this?

[17:01] CHRIS SIPES CFP®: Goods, services, you know, consumption.

[17:04] DANO WEIR: So you're saying that for 26Q1, the demand of all stuff from consumers, from 49er hats to butter to eggs.

[17:15] CHRIS SIPES CFP®: Domestic demand.

[17:16] DANO WEIR: Is the dark blue and the light blue is AI.

[17:19] CHRIS SIPES CFP®: That's right. And look at back here in 24, how much more used to be consumer driven versus as the AI build out has taken off, you know, the competition for those goods and services is going into AI. You know, and we're seeing that even within our own company.

[17:41] CHRIS SIPES CFP®: Right? You know, we've, we've put a lot into the infrastructure of our AI over the last year and a half or so to get our systems up to date and make sure that we're, you know, as efficient. As we can be.

How Sonoma Wealth Uses AI

[17:57] DANO WEIR: Well, share that. So before we get on to the next slide, as a firm, what is our, because this episode might purport to be that since we're talking about an AI bubble, that we maybe are anti-AI, and that's not the case. Simply looking at some market conditions, what is our firm's view on the use of AI within the firm?

[18:16] CHRIS SIPES CFP®: We want to use it in a way that can help us deliver a better experience to the end client, whether that's by automating tasks that would have taken taken time away from clients. If we can automate those, we're using a lot on the compliance side of things to help do audits and checks of, you know, information, things that would have taken hours, if not weeks before it can be done by, by AI instead.

[18:45] CHRIS SIPES CFP®: So, but it takes a lot of change as you've been witness of. It's a lot of training for all of us to learn about it and how to use the tools. Of course, you've got to make sure that you're using the right tools.

[18:55] CHRIS SIPES CFP®: Make it safe so that it, you know, information and such doesn't escape the system. So you got to spend a lot on, the security infrastructure to make sure that your, your, your information is, is protected. So, but it's been. You know, like every other conversation, just been dominated by AI over the last year and a half.

[19:18] DANO WEIR: And getting back to the press conference that they never had. If they came out, because they came out, you know, and it's multiple people, and they don't have the press event anymore. They have a product launch and there's a merging of science and product.

[19:33] DANO WEIR: Yeah. Right. They didn't come out and say, Hey, we have this incredible technology. It's, we have a product and I'm wearing a black turtleneck. You know, everyone wants to be seat jobs so bad.

[19:45] DANO WEIR: They came out and said, hey, we'll make, we can get rid of Hollywood, we can make videos for you now. And I think that really freaked everybody out. If they come out and said, hey, you don't have to read support articles anymore. When your outlook's broken, you can just take a screenshot and send it to the bot and it is able to talk to you.

[20:03] DANO WEIR: That stuff has just been absolute. I never wanted to read a support article, man. I never wanted to write one. You know, it's like I didn't want to write the best YouTube descriptions either, but it was just something you had to do.

[20:14] DANO WEIR: If those types of things can get taken off the plate, well, I can make more podcast episodes. That's great, you know. But there's a way that that can get out of control too. So I think that's a little bit of just about how we've encountered it here at the firm. Let's talk about Google.

Google's Other Income And Circular Financing

[20:29] CHRIS SIPES CFP®: Okay.

[20:30] DANO WEIR: Alphabet.

[20:31] CHRIS SIPES CFP®: So this gets into a little bit of the supposed circular financing, and we're not experts in this area because we generally do not, you know, recommend individual stocks and such.

[20:45] CHRIS SIPES CFP®: But this was Google's earnings, and where their income... So if you think about like their actual operating income from, you know, paying for ads or whatever, you know, those types of things, that's in the gold. And you can see that's been pretty flat.

[21:06] CHRIS SIPES CFP®: But what has gone up is the other income, the red there, which is contributing to the total income. Now, what is that red? That is the unrealized gains. A lot of that is the unrealized gains on their investments in other companies. So in their case, it was SpaceX as part of this.

[21:31] CHRIS SIPES CFP®: So a lot of these companies have investments in each other. You mentioned Microsoft. And open AI. And so the way that this is coming through from an accounting perspective is into income.

[21:46] CHRIS SIPES CFP®: Even though these are unrealized gains and investments within other companies. So to me, in my mind of what's income, that's different than investments in companies, especially since those valuations of those investments in those companies can change rapidly.

[22:08] DANO WEIR: A lot of people, I think, don't know that, that Google, because you think about Tesla, you think about SpaceX, and that feels like a completely separate company, and yet Google has a position in there. Right.

[22:19] DANO WEIR: And NVIDIA and Twitter and Grok, which is not Tesla, which is Tesla, which they have a relationship, and they give you the chips, and then they give you the compute, and there's a lot of that cyclical, circular relationship going on. I will not purport to be an expert in that, neither are you.

[22:42] DANO WEIR: Some might even say that it's impossible to get the full picture of those relationships. But we know that there's a lot of that happening, which in general... Can feel unsettling if you're investing in an environment like that. Cause you don't feel like you don't have, like you have the full picture.

[22:58] CHRIS SIPES CFP®: Yeah. It's the, the accounting feels a little foggy. Cause like you take an NVIDIA, which is considered like the central bank of the AI, you know, because they'll, they'll put money into a company that company will turn around and buy, you know, chips from NVIDIA, which NVIDIA is counting as income to them selves. Right.

[23:20] CHRIS SIPES CFP®: Plus the value of that company that NVIDIA is investing in is going up which is getting counted in other income which is then going back into buying more chips so there's also these leases and everything that's kind of like off balance sheet of like we're we're going to be you know paying for this data center over time but it's just a lease so it's not an actual liability on our balance sheet right so There's a lot of stuff like that that's like.

[23:51] CHRIS SIPES CFP®: Who knows? But it feels like it could be one of those situations where we look back and go, oh, like it was obvious at the time, but we just kind of looked past it because we were all so excited about the fact that, you know, the technology is amazing.

[24:09] DANO WEIR: And a good, if we're talking about bubbles, if we're talking about market action. Where things got out of control, not the same as the secular financing we're talking about there, but the 2008 mortgage crisis is a perfect example of...

Double Backflip Finance And 2008

[24:26] DANO WEIR: What I call double backflip finance, which is you were doing a bunch of stuff and it was all working as long as contention on you hitting all three legs of your parlay.

[24:34] CHRIS SIPES CFP®: Like, yes.

[24:36] DANO WEIR: And that is an example of how it can all very quickly fall in on itself.

[24:41] CHRIS SIPES CFP®: And when it's all working, everybody's looking the other direction. Like, hey, you know, don't be the wet blanket on the party, right?

[24:48] DANO WEIR: Stop doing your episode, man. You're killing the vibe, dude.

[24:51] CHRIS SIPES CFP®: Once the market adjusts and you look... Back and you go oh gosh why were you lending millions of dollars to somebody with no income like that's crazy you know yeah maybe we'll look back and be like how could they have been counting you know, investments in other companies as income, you know?

[25:10] DANO WEIR: Maybe not.

[25:10] CHRIS SIPES CFP®: Maybe not.

From Cash Flow To Borrowing

[25:12] DANO WEIR: Next slide. All right, what are we looking at here?

[25:14] CHRIS SIPES CFP®: Okay, so this was what we were talking about earlier with the CapEx as a percentage of cash flow. So previous, prior to really coming into 2025, a lot of this was... Was funded via cashflow, which without leverage, without borrowing money, the risk is much lower. You know, so if, if Google is just making fistfuls of cash and they want to go out and, you know, build a, an AI data center with that cash, so be it.

[25:46] CHRIS SIPES CFP®: But if Google's borrowing money and then building that AI data center, now there's a different chain and more risk is introduced there. So you can see that the percentage of cash flow has gone up here pretty dramatically coming into 2026. And what this is mirroring, I believe, was the...

[26:14] CHRIS SIPES CFP®: The, the.com bubble in 2000. So you can see, we did, we did something similar where we just started borrowing a lot of money, to, to fund that, that build out of the internet at that time.

[26:27] CHRIS SIPES CFP®: And, when that came crashing down, it, you know, leveled off for a long period of time. And it's not like we're at those extreme levels yet, according to this chart. But it's definitely heading back in that direction.

The Hyperscaler Debt Surge

[26:39] CHRIS SIPES CFP®: Okay, so hyperscaler debt.

[26:42] CHRIS SIPES CFP®: And this is just illustrating that, right? This is from Bloomberg showing that the long-term borrowing was on a pretty normal upward slope. And then it's just, boom, taken off in 2026 with the build-outs that have come on for the big five.

[27:03] CHRIS SIPES CFP®: And it's really because it's this race of like, you have to be, you have to be the top. And we've seen like open AI was the best. Then they were the worst. And Gemini was the best. And then Claude. And then now open AI is great again. Like it's, it's really crazy how fast it can change. And so they're in this.

[27:22] CHRIS SIPES CFP®: In this arms race and they're borrowing money to do it okay and so let's see here there are seven seven on this is this is the mag seven so i'm assuming when they're talking about the the hyper five that would be the Google meta Microsoft amazon and oracle which makes sense right think about amazon especially but Google is probably the largest you know in terms of their overall CapEx spending and they're the top It says NVIDIA and Broadcom disclosed off balance sheet commitments, totaling more than 3.1 trillion with more financing structures under development.

[28:09] CHRIS SIPES CFP®: So even though NVIDIA and, and Broadcom are at the bottom here, the, those off balance sheet commitments are the 3 trillion. So Seems like a lot, right?

[28:25] DANO WEIR: That seems like a large number to not be on the balance sheet.

[28:29] CHRIS SIPES CFP®: Yeah.

[28:29] DANO WEIR: But that is how you were able to say that we had record earnings, I guess.

[28:34] CHRIS SIPES CFP®: Yeah, I guess so.

Credit Default Swaps Start To Climb

[28:37] CHRIS SIPES CFP®: And so these things are going to get, you can go to the next slide. These things are going to get priced in by the market. What this is, is the credit default swaps. So essentially it's like the market price.

[28:48] DANO WEIR: That's a 2008 term. I've heard that in 2008. Right. I feel like I've seen this movie.

[28:55] CHRIS SIPES CFP®: Yeah.

[28:55] DANO WEIR: Where's Steve Carell?

[28:57] CHRIS SIPES CFP®: So if you're trying to ensure your risk against the default of these bonds, let's say, the insurance companies are not dumb. The investors are not dumb. There's going to be a price for that. And that price, as it becomes more possible that there could be a default. That cost of insuring is going to go higher.

[29:16] CHRIS SIPES CFP®: So everybody in California is familiar with, you live in a fire zone, your insurance is going to be insanely expensive, if not impossible to get, right? And, so, so that's the nature of insurance. And we're starting to see earlier in the year, the cost going up for all of these providers based on there being more debt, more risk, more chance of a default.

[29:42] CHRIS SIPES CFP®: Now it's still, it's not like it's, it's imminent or anything like that. And it's, and because they started from such a low level of debt, there's probably a long way to go before that actually becomes a problem, but you never know the timing of these Thank you.

The Biggest Trading Losses Of All Time

[29:56] DANO WEIR: Things is really difficult next okay now this one i do know which is There was a hedge fund. His name was Leopold. He was an AI unicorn. He used to work at OpenAI. Everyone loved this guy. He started a hedge fund. It was called Situational Awareness.

[30:16] DANO WEIR: It had incredible gains all in AI, but they were very leveraged, meaning he borrowed a lot of money to make these moves. And then on the weekend of this guy's wedding, because of action in the market, he ended up getting completely wiped out.

[30:34] CHRIS SIPES CFP®: Yes. Yeah. And you can see this is the biggest trading losses of all time. The largest 25 trading losses incurred by funds are in blues and blue. Financials are in pink and others are in. The the teal so this is ranked by u.s dollar losses in July of 2026 the one that i remember from this is the long-term capital management which is you know rough roughly a third of the way down there.

[31:07] CHRIS SIPES CFP®: That one was a similar situation where the hedge fund, this was like the most brilliant people. Everybody was giving them their money, but then they used a lot of leverage and they blew up. And that ended up being a trigger of the crisis in 2000.

[31:29] CHRIS SIPES CFP®: You know, it was early and, and so far we've, you know, knock on wood, not seeing any fallout from the Situational Awareness blow up.

[31:40] CHRIS SIPES CFP®: Luckily but the market at large has not seen what you're saying correct yeah and in fact you know a lot of these AI stocks have recovered since that blow up a few weeks ago a couple months ago i think it was in July maybe so so those those stocks have really recovered but You got to feel like when a fund that large gets vaporized in that way, like there's got to be repercussions somewhere, right?

[32:09] DANO WEIR: It's not a boring time in the market when you have the greatest loss by a large market.

[32:14] CHRIS SIPES CFP®: Margin of all time yeah that's not a that's not a ho-hum 2022 yep yeah and the arc archegos capital management that was fairly recently that was i want to say maybe 21 or 22, three arrows capital. That was the crypto. That was the crypto blow up.

[32:37] CHRIS SIPES CFP®: So that's, that's interesting to, you know, we've, we've lived through a few of them now.

Arguing The Other Side

[32:44] DANO WEIR: Thankfully we weren't part of any of them. Yeah. Yes. I can hear Daren in my head right now, which is argue the other side, because that is one thing we're famous for here at the firm.

[32:55] DANO WEIR: I think the purpose of today's episode, if perhaps you got a little heartburn seeing all those, the purpose of today's episode was to talk about, these are things that are really happening in the market. These are signals that we're seeing, but everybody's portfolio is different. Everybody's positions are different.

[33:15] DANO WEIR: If you were one of our clients watching this, or if you were talking to one of our clients after they watch this, what might you tell them? What is the perspective they should have on the potential of a bubble?

What Investors Might Keep In Mind

[33:26] CHRIS SIPES CFP®: Try not to time it. Try to control your emotions around the fear of missing out.

[33:33] CHRIS SIPES CFP®: It's died down a lot now, but there was a time where basically every phone call was, how do I get into AI stocks? How do I put more into AI?

[33:40] DANO WEIR: It's called na-vi-di-ca. How do I get it?

[33:45] CHRIS SIPES CFP®: Heard from so and so i saw a barbecue stop going to barbecues yeah so so it's kind of knowing knowing thyself right and trying to stay boring but diversified there's there's a reason why diversification has worked in the past and i i believe that it's going to work in the future and if you're someone that's been lucky enough to kind of hit the jackpot in some of these areas maybe it's time to start thinking about, you know, know when to hold them, know when to fold them, know when to walk away.

[34:18] CHRIS SIPES CFP®: Right.

[34:19] DANO WEIR: Right.

[34:20] CHRIS SIPES CFP®: And, and so, but the timing is, is anybody's guess. We could be still talking about this three years from now. I really hope not, but we could be right.

[34:30] DANO WEIR: Yeah. I think that's, that's the takeaway today is, understanding this is a real thing in the market and yet that has the real potential to have some real gains for you. Right. I mean, that's what. They're selling. That's the narrative they're selling. This is life changing. Don't miss out on this moment.

[34:47] CHRIS SIPES CFP®: There's already a lot of good news. Priced in correct correct the spread if you're talking about betting in sports the spread is large right everybody knows they're gonna win there's a large spread the the you're not getting the chiefs in year one thinking that you know nobody knows about them right this is this is the you're.

[35:08] DANO WEIR: Betting on favorites at this point so i i think just the the takeaway is it was one we wanted to have the conversation about it because it is the elephant in the room Two, you know, the approach and the perspective that if you like, you know, if you like, if you feel like you're going to have that FOMO or the upside, if you're ready to take that risk, you know, talk to your advisor.

[35:31] DANO WEIR: And if you're seeing some of those charts and you're thinking, gosh, I don't want to see a 50% haircut, who would?

[35:36] DANO WEIR: You know, talk to your advisor, you know, because there are all manner of approaches to address and mitigate, you know, whatever outcome you're looking for, I think.

Closing Thoughts

[35:45] DANO WEIR: Thank you so much for checking out the episode. This is It's All Money from Sonoma Wealth Advisors. My name is Dano Weir. I'm the marketing director.

[35:53] DANO WEIR: We really appreciate your time checking out the show, learning about our perspective and take on what's going on in the markets. Wherever you found the show, whether it's on YouTube or Spotify or Apple Podcasts, interact in any way you see fit, whether it's leaving a review, whether it's leaving a comment, whether it's following us, whether it's hitting the bell to subscribe and get notifications.

[36:14] DANO WEIR: However, if you liked it, let us know and learn more about our firm at SonomaWealth.Com. We'll see you next episode.

Credits & Outro

[36:39] DANO WEIR: Sonoma Wealth Advisors helps individuals and families in Northern California and across the country with building, managing, and sustaining wealth.

[36:50] DANO WEIR: Sonoma Wealth is a comprehensive, holistic finance solution offering financial planning, asset management, tax planning, 401k solutions, and appropriate insurance. Take our free wealth analysis now at SonomaWealth.Com. If you haven't already, Like and subscribe to It's All Money on YouTube, Spotify, and Apple Podcasts.

[37:13] DANO WEIR: It's All Money features human hosts, musicians, editors, video crew, and voiceover talent. Video production by Forz Media in Roanoke Park, California. Online at forzmedia.com. Music by Neon Beach, Sparkle Rising on Soundstripe. Voiceover by me, Dano. Thank you for listening to the very end. We appreciate you. Diligent viewers and listeners.

[37:38] DANO WEIR: Fermata Advisors LLC is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. This content was produced by Fermata Advisors LLC, DBA Sonoma Wealth Advisors, DBA Fermata 401K, DBA Fermata Tax.

[38:01] DANO WEIR: The opinions expressed by Fermata Advisors LLC on this show are their own. Information presented on this program is believed to be factual and up-to-date, but we do not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed.

[38:15] DANO WEIR: Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the options presented. Information presented is for educational purposes only.

[38:32] DANO WEIR: And does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual.

[38:53] DANO WEIR: Viewers and listeners are encouraged to seek advice from a qualified tax, legal, or investment advisor and to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.