How Dangerous Is This Market?

So dangerous, with a lack of conviction, that a work of dystopian fiction – described by its authors as a "thought exercise" – could freak out investors.

If you’re not currently a premium subscriber to my Red Flag Alerts, if nothing else, the market’s reaction yesterday to Citrini’s essay about a post-AI world two years out shows just how propped up on wobbly stilts stocks are… and why, if you are a stock-picker, you should subscribe now to Red Flag Alerts. You can find out more here and subscribe here.

---

▶I’ve been saying for what seems like forever that this market is hanging by the thread of the next headline…

Who knew that headline would be a work of dystopian fiction by a research firm many, if not most, people have never heard of, headlined, “THE 2028 GLOBAL INTELLIGENCE CRISIS,” with the subhed: “Thought Exercise in Financial History, from the Future.” You can read the report from Citrini Research here…

THE 2028 GLOBAL INTELLIGENCE CRISIS

The Cliff’s Notes version of the report: Two years from now, thanks largely to AI, in keeping with what some have been forecasting, we’re f*cked screwed. The report, a long-awaited sequel to Kurt Vonnegut’s Player Piano, names some names and lays out some scenarios.

Never mind that its authors call it a “thought exercise,” and acknowledge, “We are certain some of these scenarios won’t materialize.” Or that Citrini, on Twitter, wrote…

Or that the report’s co-author, Alap Shah, told Bloomberg yesterday, about the market’s reaction…

I thought there was going to be a small reaction — it was definitely larger than we expected.

Therein Lies the Story…

Regardless of whether all, none, or part of the report turns out to have been truly prophetic – and more than a few elements likely will – the bigger point is this: Their essay landed just as concerns over private credit being used to fuel the AI buildout are growing, as geopolitical risks are on the rise, and as the gamification and outright speculation of the markets has hit full tilt… all while the President of the United States is trumpeting the Dow having hit 50,000 in the midsts of all of this as if it it’s a measure of him rather than the market being the market.

With that perfect storm of timing as the backdrop, the essay shook investors who’ve become accustomed to 20%, 30%, 40% swings in the prices of individual stocks in a heartbeat… as if that’s normal. (Hint: It’s not.)

For its part, Citrini’s bias is that “the premium on ‘human intelligence will narrow.” And that, “We still have time to assess how much of our portfolios are built upon assumptions that won’t survive the decade.”

On The Other Hand…

“Peak fear” is how one buddy, who has for several years been actively invested in some of the big AI winners and short its losers, told me yesterday as stocks were getting rattled.

Or as my pal, the contrarian’s contrarian Peter Atwater put it in his Financial Insyghts, “Pure fantastical fear.”

Peter, who wrote the books “The Confidence Map” and “Moods of the Markets,” is also fond of saying that “stories follow mood.” And, to that point, he adds that selling like yesterday’s can be “contagious.” If others are now running for the exit, so must I, lest I be eaten alive by headless zombies.”

But Peter takes it one step further, adding this twist…

To support the current selling frenzy, investors have had to embrace wild narratives, just as they did last year as stocks like Nvidia shot to the moon. Somehow, the extreme distance covered must be rationalized. And from the looks of things, the crowd is willing to turn to anything for support.

Like dystopian fiction.

Depending, of course, on which way the market winds are blowing. And as the Citrini report shows, among investors, there is zero conviction about who, what, when, where, and why whatever happens… happens next.

As always, interpret at will.

Feel free to hit the like button and share with your friends. If you haven’t already, become a premium subscriber! After all, the risk is real!

---

DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I have no position in any stock mentioned here.

I can be reached at herb@herbgreenberg.com.