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Everyone is euphoric right now. And I want you to hear that as a warning, not a compliment. I've been doing this for over 40 years. I was working through 1987, through the dotcom collapse, through 2008, through the pandemic crash. And I can count on one hand the number of times a setup looked the way this one looks today.
Here's the strange part. It's not because stocks are cheap. They're not. It's not because people are scared. Nobody is. Everyone is comfortable. Everyone is making money. And that is exactly the problem because somewhere underneath this market in a place almost nobody is watching, something has started to change.
It's small. It doesn't make headlines. But I've seen it before, right before some of the biggest breaks of the last hundred years. Now, I'm not going to tell you a crash is coming next Tuesday. Anyone who says that is guessing. What I am going to tell you is that there's a signal, a very specific one, with a habit of showing up months before the damage is obvious.
And when it shows up, there's a short window where the people who notice can protect themselves and even position for what comes after. Everybody else finds out when it's already on the news. I think we're standing in that window right now. By the end of this video, you'll know what the signal is, why it matters, how much time it might give you, and what I'd actually do about it.
Before I go any further, I need you to do something. And I need you to actually do it instead of just nodding along. Hit subscribe. I don't say that to push a number up on a screen. I say it because what I'm about to walk you through is the same kind of thinking that has paid me well over a lot of decades.
It's the kind of thinking hedge funds charge 2% of your money and 20% of your profits for. You're getting it free, but only if you stay. I'm going to build this argument piece by piece, and if you leave halfway through, you walk away with half the picture. And half the picture is dangerous. So, subscribe, stay with me, and let's get into it.
Let's start with what's sitting right in front of us because most people are looking at the wrong thing entirely. Everybody watches the S&P 500. Did it make a new high yesterday? Is it up or down today? I stopped caring about the index level a long time ago because the index is an average and averages hide the truth.
What I watch is who is doing the lifting. Right now, a handful of companies carry a huge share of this market. Five of the biggest names make up roughly a quarter of the entire S&P 500. You know who they are. I don't need to list them again. When a few stocks carry that much weight, the index stops being a picture of the economy and becomes a picture of those few stocks.
Now, that alone isn't unusual. Every big bull market has leaders. What's unusual is what those leaders are doing with their money. Take the four biggest spenders, Amazon, Alphabet, Microsoft, and Meta. Their combined spending plans for this year are around $725 billion. Last year it was about $410 billion.
That's a jump of roughly 77% in 12 months. And analysts at the big banks are already penciling in more than a trillion for next year. Let me put that in perspective. Goldman Sachs pointed out that around $700 billion a year would put this buildout on par with the peak of the late '90s telecom frenzy.
And remember how that one ended. We'll get to it. Think about a restaurant that spends more every single year on a bigger kitchen before it is proven the customers will actually show up to fill the seats. For a while, the construction itself looks like success. The contractors are paid, the suppliers are thrilled, everybody is busy.
But busy is not the same as profitable. When I see spending accelerate like this, my first instinct isn't excitement. It's suspicion. Because in every big infrastructure boom I've studied, the spending eventually outran the real demand for what was being built. And the market did not figure that out gradually.
It figured it out all at once. Here's the part most people miss, and it's the part that matters for your money. It is not the spending that kills a boom. Spending is fine. Spending is even good in the early innings. Something else kills it. I'll show you exactly what in a few minutes. But first, I need to clear something up because I can already hear what some of you are thinking.
Am I saying AI is fake? No. Let me be as clear as I can. I am not a skeptic of the technology. I think it's probably going to reshape entire industries over the next 20 years. The infrastructure being built is real. The demand is real. The progress is real. But being right about the technology and being right about the timing of the investment are two completely different questions.
and mixing them up is how smart, careful people lose a third of their net worth in a stretch that looks completely obvious in hindsight. Think about the internet. It was real. It changed the world and it's still changing it. And yet people who bought the biggest internet names at the top waited about 15 years to get back to even.
The technology won. The investors lost. Both things were true at the same time. That's the trap. So, let me take you through three of these booms because if you understand them, you'll understand exactly why I'm as animated about this as I am. I'll start with the one I lived through. The late '9s, the internet was going to change everything.
And it did. Telecom companies raced to lay fiber across continents and under oceans, borrowing heavily because everybody believed demand would double and double again. And demand did grow. It just didn't grow nearly as fast as the cable went into the ground. For years afterward, a huge amount of that fiber sat dark, literally unused.
Here's what I remember. The darlings, the companies building the pipes, started to stumble while the broader market kept climbing for a little while longer. The leaders cracked first. The crowd was still cheering. Then the NASDAQ peaked in March of 2000 and fell off a cliff. It took about 15 years to reclaim that high.
I knew sharp men back then, good investors. Some of them never fully recovered professionally because they couldn't accept that the thing everyone agreed was the future could still crush a portfolio in the present. Now, an honest note cuz I'm not going to oversell this. The lag between the leaders cracking and the market rolling over was not a perfect stopwatch every time.
History is messier than that. The details vary. What doesn't vary is the order of events. The builders crack first. The index follows. And the gap between those two is measured in months, not years. That's the part worth watching. The second example is older and most people have never even heard of it.
Britain, the 1840s. Railway mania. A real technology, one that genuinely transformed the world, financed with an amount of money wildly disconnected from what the economy could use. Landowners and speculators poured capital into rival rail lines that ran parallel to each other for miles, racing to build track nobody needed yet.
Why? because everyone else was doing it and nobody wanted to be the one left behind. When the money finally dried up, it did not dry up gently. Share prices collapsed. Many of those companies failed and the survivors spent years growing into the network they'd built. The railways did change the world.
The investors who financed them, for the most part, did not get rich. The third example is the 1920s. Electricity. Nobody doubted it was the technology of the century and the utilities were the darlings of Wall Street. They borrowed heavily and built far ahead of what ordinary families could afford to use, stacking holding companies on top of holding companies.
When confidence broke, that structure unwound and utilities became a symbol of the excess. I'll be honest with you, that one is the messiest of the three to line up with the market's timing. And I won't pretend otherwise, but the shape is the same. real technology, capital running ahead of demand, and the leaders punished when reality showed up.
Three centuries, three completely different technologies, and the same emotional arc every single time because the technology changes, but the people building it and financing it do not. What strikes me every time I go back and study these periods is how obvious they look from a distance and how invisible they were up close.
The men financing those railways were not fools. Many of them were the sharpest capital allocators of their era. They simply got caught in a room full of other smart people, all reinforcing each other's confidence. And rooms like that are very hard to walk out of while everyone else is still cheering.
I've been in rooms like that myself more than once. And I can tell you the hardest thing in this business isn't spotting the risk. It's having the discipline to act on it while the crowd around you is still making money and still laughing at the people who left the party early. So if the pattern is the same, the question becomes simple.
Where are we in it right now? And how much time is actually left? Most analysis falls apart right here. People either panic and think the end is tomorrow or they get complacent and assume it's years away. Neither one is useful. So let me show you what I actually watch. It's the relationship between the companies doing the spending and everything else.
That's it. As long as the big spenders are outperforming, the boom still has fuel in the tank. No matter how overextended it looks, the market is still rewarding the spending. But the moment that flips, the moment the spenders start lagging while the crowd is still euphoric, that's the crack. That's the market telling you something true before the headlines do.
Now, here's what I'm seeing, and I want to be careful here because these are mid-year numbers. And I'll put the latest ones on screen. Through the first half of this year, the market was punishing the biggest spenders, even as the chip and memory companies that sell to them were soaring. Here's a clean way to see it.
The equal weighted S&P 500, where every company counts the same, was up roughly 10 12% for the year by late June. The regular index, the one dominated by the Giants, was up about 7 and a half. When the average stock is beating the index, it tells you the Giants are dragging. And I'm not the only one noticing.
Strategists at JP Morgan described the split between the big spenders and the chip makers as unsustainable. And they pointed out that the same kind of divergence showed up in the months before the dot crash. Now, let me give you a name for what's going on because naming things makes them easier to remember.
I call it the check writer problem. The spenders write the checks. The chip makers, the memory makers, the power equipment companies, they cash them. And right now, the index mostly shows you the good news from the people cashing the checks. Their earnings are exploding. Their stocks are soaring. But every dollar of that revenue is somebody else's spending.
So follow this chain with me. If the spenders ever slow down, the suppliers lose revenue. When the suppliers lose revenue, their stocks fall. And when they fall, the index loses its engine. The people cashing the checks depend entirely on the people writing them. Look at the cash. Alphabet's free cash flow, the money left over after running the business and building everything, is down about 38% from a year ago.
Microsoft says roughly $25 billion of its $190 billion spending plan isn't more capacity at all. It's just higher prices for components. They're paying more to build the same thing. And a lot of what they're buying are chips that wear out and become outdated far faster than a building or a power plant.
So this isn't like pouring concrete for a railway that lasts a century. It's closer to renting a very expensive treadmill that needs replacing every few years. Now, I always make myself argue the other side. So here it is. Google's cloud business grew about 63% last quarter. Microsoft says it's still short of capacity.
If those companies can turn this spending into real profits fast enough, the spenders catch up to the suppliers and everything I've said looks premature. So, what would prove me wrong? Two things. First, the spenders start beating the market again on earnings, not on hope. Second, when they announce even bigger spending, the stock goes up instead of down.
That's the market still giving them the benefit of the doubt. And you're going to get a test of that very soon. These companies report earnings again in the coming weeks. Watch what happens to the stock when they raise their spending. Does the market cheer or does it flinch? Now, you've probably noticed I used to call this a clock.
I've changed how I think about it. It isn't a countdown. It's a trip wire. And the lead time, if you get any, is measured in months, not years. That's the first half of the story. But there's a second piece. Almost nobody is connecting to it. And honestly, it might be the more important half. While all of this spending has been happening, something else has been happening quietly in the background.
Governments, ours included, have been running deficits at a pace that used to happen only during wars or genuine emergencies. That debt has to go somewhere. Somebody has to buy it. And here's why that matters for the AI story. When you combine an overbuilt, overextended private sector boom with a government that struggles to live within its means, you get a very specific kind of instability.
Think of a fire department whose hose is also feeding the fire. Normally, when markets crack, the central bank shows up with lower interest rates and rescues everyone. But if inflation is still lurking and the government is still borrowing heavily, cutting rates gets a lot riskier. That's a trap. I've rarely seen policy makers boxed in this tightly.
And boxed in policymakers make mistakes. Now, there's a piece of the bond market that almost never gets mentioned on financial television, and it's one of the clearest tells I know. When a government keeps issuing more and more debt, the buyers eventually start demanding a higher price for the risk of holding it.
You can watch this happen by watching long-term interest rates. When those rates climb, even while the central bank is trying to keep things calm, that's the bond market telling the government it's losing patience. I've watched bond markets discipline governments in other countries and in other decades.
It is never gentle. It shows up as a currency that suddenly weakens. A stock market that can't shake off bad news the way it used to. And a central bank with far fewer good options than the headlines assume. And this is where it touches your life. Higher long-term rates mean higher mortgage rates, higher car loan payments, a grocery bill that quietly creeps up while the number in your bank account stays the same.
I'll put the current numbers for deficits and yields on screen because they change. The point is the mechanism. A bust in the AI trade would land in a world where the safety net is thinner than it used to be. This is exactly why I keep saying the old playbook, buy the dip, hold the index, let compounding do the work, may not serve you the way it has for the last 15 years.
It worked beautifully when the Fed could always show up and paper over a mess with cheap money. I'm not sure that's still guaranteed. So, you'd think with all of this laid out, everyone would act. They won't. And I want to tell you why. Because human beings are wired to extrapolate the recent past forward forever.
If stocks went up last year and the year before that, our brains assume they'll keep going up right up until the moment they don't. I've sat across the table from some of the smartest people in this business, PhDs, people who could run circles around me on a spreadsheet, and I've watched them get wiped out because they couldn't emotionally accept that a trend they'd profited from for a decade could reverse.
Being early feels identical to being wrong, right up until it doesn't. That's the crulest part of this business. The people who position for a turn months before it happens look foolish. They look overly cautious. They look like they're missing the party all the way up until the exact week it turns.
And then suddenly they look like geniuses. There is no way to get the applause and the correct timing at the same time. You have to choose one. Let me tell you a story that still bothers me a little even now. Years ago, I moved a significant portion of a portfolio out of the most popular, most beloved trade of that era.
Months before it peaked. For those months, I looked slow. I looked like I'd lost my nerve. People I worked with questioned it politely at first and less politely later because the trade kept working without me. I remember the specific feeling of watching something I'd owned keep climbing and sitting with the discomfort of maybe being wrong, maybe having moved too soon, maybe having let a good thing go for no reason.
Then it turned and it turned fast, faster than even I expected. The months of looking foolish were forgotten within about 3 weeks. Now, I'm not telling you that to brag. Plenty of times in my career, the opposite happened. I moved early into nothing and just lost time and a little money for my trouble.
But I'm telling you because the discomfort of being early is real, and it is not a sign that you're wrong. If you wait until protecting yourself feels comfortable, you will always be too late. There's also a simpler reason people miss it, and it's less about psychology and more about attention. Most financial content is designed to keep you comfortable, not informed.
Nobody wants to hear that the thing that made them money for 3 years running might be entering dangerous territory. So the content that gets rewarded with clicks is the content that tells people what they already believe. I've made a career out of not caring whether what I say is popular. I care whether it's true and whether the person listening has time to act on it before it's obvious to everyone.
What I'm giving you isn't certainty. Nobody has certainty in this business and anyone who claims to is lying to you. What I'm giving you is a hard-earned read on where we are in a cycle I've watched play out before. So, let's talk about what I'd actually do. I'm not going to hand you a ticker. Anyone who does that on the internet is selling you something, not helping you.
What I'll give you is a framework because the framework protects you when the names change, and they always change. Think of it as preparing for two outcomes. In one, the system holds, the spenders find their footing, and the boom keeps going. In the other, the signal I've been describing turns out to be the first crack.
I'd want to be fine in both. First, I'd take a hard, honest look at how concentrated my own portfolio is in the exact handful of companies driving this boom. Concentration made people rich on the way up. It will make people poor on the way down if they're not paying attention. When leadership stocks fall, they tend to fall harder and faster than the average, not softer.
Second, I'd build a real position in hard assets, things that have preserved purchasing power through currency troubles throughout recorded history, not as a trade, as insurance, the kind you actually hope you never need. Third, I'd watch that relationship I told you about, the spenders versus the broader market, because it tells you when to act, not just when to worry.
Worrying too early costs you nothing. Acting too early can cost you real opportunity. Acting too late can cost you everything. Fourth, and this is the one people resist the most. I'd keep meaningful cash or cash equivalents on hand. Not because cash is a great long-term investment. It isn't, but because dry powder during an actual unwind is worth more than almost any asset you can name.
I've bought some of my best positions ever in the middle of other people's forced selling. That doesn't happen if you're fully invested with nothing left to deploy. Now, none of this means panic. None of this means selling everything tomorrow morning and hiding under a rock. Markets can stay irrational longer than most people can stay patient.
I've lost money betting against euphoria too early more than once. So, I'm not telling you the top is tomorrow. What I'm telling you is that the window to position thoughtfully, calmly with your eyes open is open right now. And windows like this don't send you a calendar invite. So, here's my challenge to you, and I mean this sincerely.
Don't just watch this video and move on like it was entertainment. Go look at your own portfolio tonight. Ask yourself honestly how concentrated you are. How much of your future depends on a handful of companies continuing to spend at a pace history says is hard to sustain and whether you have any real protection in place if the pattern I just walked you through plays out again.
For every holding, ask one question. Would I buy this today at this price knowing what I know? I've been wrong in this business plenty of times and I'll be wrong again before I'm done. But I have never once regretted preparing early for a shift I could see coming. And I have absolutely regretted the times I told myself I had more time than I actually did.
This isn't financial advice tailored to your situation. Talk to someone who knows your full picture before you make any big moves. But the history is real, the framework is real, and the window is real. Subscribe if you haven't because the next few months are going to move fast and I plan on breaking down exactly what to watch in real time as these companies report.
Take care of your money like nobody else is going to because nobody else will. I'll see you in the next one.
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