Transcription
Market crashes don't come out of nowhere. There's always a warning. And it looks strangely similar every time if you know what you're looking for.
In June, nearly $2 trillion was wiped out of the markets in a single day. An entire national stock exchange had to halt trading. And then within weeks, stocks were pushing record highs like it never even happened. 2008 felt exactly like that before one of the biggest crashes in history. And I know because I lived through it with millions of dollars on the line and came out stronger than before.
Look, I've been investing for 40 years. And I'll be the first to tell you that these crashes aren't random. They actually follow a five-stage pattern. And we just reached stage five. So, let's unpack each of them, discuss exactly what's triggered each stage this time around, and most importantly, what you can do to protect yourself.
I want you to think about the last time you talked yourself into something you already knew was a bad idea. Maybe it was a car you couldn't quite afford. Or maybe it was something simple like eating a second slice of cake you definitely didn't need. It's hard to explain, but I think we could all agree there's quite a specific feeling in that moment. A little voice in your head that knows the truth and a much louder voice that says, "Ah, screw it. It'll be fine just this once."
Now, imagine that feeling, but shared by the entire stock market at the same time. We've seen this time and time before, especially with com stocks back in 2000. But I won't bore you with the history lesson because I know you've heard it over a hundred times before. But in all of those past moments, smart people convinced themselves that the old rules about money and value didn't apply anymore. And this time, it was different.
There's a measure Warren Buffett once called the best single gauge of where valuations stand at any given moment. People call it the Buffett indicator. And all it does is compare the total value of the US stock market to the size of the entire US economy. Right now, as I'm recording this video, that number hit an all-time record high of around 238%. But I know that number on its own doesn't really mean anything. So, let's put it this way. Warren Buffett himself, who is universally considered the greatest investor of all time, said that when that number gets near 200%, you're playing with fire. We're now sitting well above that, higher than the dot bubble and higher than ever in recorded history.
Wall Street's own analysts are forecasting long-term earnings growth for America's biggest companies of around 25% a year, which sounds great because who doesn't like a bit of profit? But when you zoom out a little, that's a higher level of confidence than investors were pricing in right at the very top of the dotcom bubble just before everything came crashing down. Companies like Nvidia and Broadcom have been trading at well over 20 times their sales. Not their profits, their sales. And when you think about it, that kind of valuation only makes sense if you believe that the growth never slows down, which is far from guaranteed.
None of this is a secret. Every person I quote in this video knows these exact numbers. And Buffett himself is sitting on a mountain of cash, which I think already tells you what he thinks. I mean, right now, there's loads of videos being put out there talking about the AI bubble. I've even made a couple myself, and everyone in the comments seems to agree that we're in trouble. Yet, at the same time, people still decide to invest in these risky companies. But that's the worrying part about the delusion stage because it's clearly not a lack of information. Clever people are just looking at the same warning signs and deciding that it doesn't really apply this time around. I mean, I've sat at dinners where someone lays out in perfect detail exactly why something is overvalued and then in the next breath they tell you they just bought more of it. It's not really stupidity and more so just human nature. Everybody crumbles under the fear of missing out. And if I'm being honest, I feel it, too. I'm 58 years old. I've been doing this for nearly 40 years, and I still get that itch when I see people making money on something exciting without me. But every single crash I've ever witnessed started with the delusion that value doesn't matter anymore.
A market being expensive isn't exactly a crime, and isn't what kills people either. I've overpaid for plenty of things in my life and lived to tell the tell. The real trouble only starts when you can't actually trust the companies you're overpaying for. Which brings me on to, have you ever tried to read something so complicated like a phone contract or an insurance policy that your mind just gives up and you tick the box anyway? I think everyone's done that well, at least once in their life. But that little moment of giving up is a blind spot. And when the financial market gets so complicated, the people whose job it is to monitor it just tick the box and move on.
In 1987, it was portfolio insurance, which was a clever bit of financial engineering that was supposed to make crashing impossible, but instead helped to cause one. In 2008, it was mortgages chopped up and repackaged so many times that the people buying them genuinely had no idea what was inside. In both cases, the complexity was the danger because nobody even bothered to check what was going on. For me, 2026's version of this is something called circular financing, and it's happening within the world of AI. I've spoken about this before, but I think it's too big and too relevant not to discuss here. And if you've already heard this, stick with me because I also have some new information which I'll get into in a second.
Picture three companies in a circle. Nvidia, which designs computer chips, Open AI, which runs the LLMs, and Oracle, which provides the cloud computing to run it all. Now, watch the money move. Nvidia invests billions into Open AI. Open AI then takes the money and commits hundreds of billions of dollars to Oracle for computing power. And Oracle takes that money and spends it by buying computer chips from Nvidia. The same dollars have gone all the way around the circle and landed back right where they started. And every time they pass through a company, that company gets to record it as brand new demand and growth. By some estimates, around a trillion dollars in deals is now looping around the same small handful of companies like this. Even though no new money has actually entered, if you've been watching from the outside, it looked like separate transactions. And that's the bit that's worrying me because some of what the market is calling roaring demand for AI might just be the same money getting counted three or four times.
But this isn't just a modern problem. And back in 1999, there was a company called Lucent Technologies, which at its peak was the most widely held stock in America. Lucent's customers were new telecom startups that couldn't actually afford its equipment. So Lucent lent them the money to buy it and recorded the sales as new revenue. They called it vendor financing and for 2 years or so it looked absolutely amazing until the startups ran out of money couldn't make the payments and loosen stock fell 99% as they discovered they never actually made the money their sales numbers suggested.
So with that in mind you'd like to think someone official would be keeping an eye on things. However, the US Treasury only produced its first proper draft warning about the AI bubble risk just this month, and global regulators have only just started warning that the AI infrastructure spending could become a real threat to the wider financial system. But we're already years into the buildout. And that's the annoying thing about regulators. They're almost never early. By the time the official warning arrives, the risk it's outlining is usually already old news. They act like they're shining a light in the dark, but in reality, they're warning you about a pothole that just bursts your tire. A rule that's never let me down is not to wait for a regulator to tell you something's risky, because they don't get paid to be early. They get paid to be right, which usually comes afterwards. And you shouldn't need some guy wearing a suit to confirm what your eyes are already seeing.
But the thing is, a blind spot doesn't automatically mean disaster. And this AI problem could potentially go on for years before anyone gets hurt. What accelerates it is adding fuel to the fire. The stock market dropping 10% is completely normal, and I'd even go as far to say it's healthy. Most corrections come and go, and no one even remembers them a year later. So, what turns a normal market correction into 2008 all over again? Well, the answer almost every time is debt.
If we go back to 2008 for a moment, house prices falling on their own would have been painful. No doubt about it, but definitely survivable. What turned it into a global catastrophe was the fact that the whole thing was built on borrowed money. When you buy an asset with your own money and it drops, you might feel poorer, but when you buy it with borrowed money, you can get wiped out completely and so can whoever lent you the money. Basically, debt is the fuel. And in 2026, it's hiding in a corner of the market that most everyday people have never even heard of, which is partially what makes it such a big problem. It's called private credit, which is essentially when lending happens away from traditional banks like big funds lending money directly to companies out of sight and off the public books. And over the last couple of years, a huge chunk of it has been poured directly into AI, which to put it lightly is a very speculative and somewhat controversial investment. I mean, some people believe is the future. Others think it's dangerous, and some people say it's just a fad that will fizzle out in a few years. AI related deals made up around a third of all private credit issued in 2025, which is pretty crazy. But it gets even crazier when you consider that over the previous 5 years, that figure averaged just 17%. So in a very short space of time, the world of private credit has become completely drenched in AI risk. And now the people who lend this money for a living are starting to get a little bit shaky. >> I don't get nervous, but I'm starting to get a bit shaky. You know what I mean? I'm a little bit >> big banks have started modeling what happens if the AI spending doesn't turn into real revenue fast enough. Morgan Stanley reckons default rates in private lending could surge to 8%. And UBS says if the AI disruption is rapid and severe, they could hit 15%. And this isn't just hypothetical. One closely watched measure of private credit defaults has already climbed to a record of 6%. To put that into perspective, those numbers start approaching the kind of stress we saw during the pandemic. And because so much of this debt is private, everyday people like you and me can't easily see the cracks forming. We only really find out that it was cracking after it's already broken.
The main problem here, at least in my opinion, is that a lot of this money was lent against the exact companies AI is supposed to replace, like software firms, for example. They sell you a subscription to a tool to complete a task that if the AI dreamers are right and AI will soon do instead. If AI fails or even fall short, all that spending was for nothing and the loans go bad. But if they succeed, it kills the companies that the money was lent against and the loans go bad anyway. It's like flipping a coin but losing whether you pick heads or tails, which makes no sense whatsoever, but that's where the financial system is heading.
But if that's true, it raises the obvious question. Why is everyone still buying? When I first started investing, the risk felt real. And that fear kept people honest and made them ask hard questions before they invested. But that mindset is basically dead now. I mean, if you think back over the last 15 years or so, every time the market has had a serious decline, something has been there to catch its fall. Whether it was a rate cut, emergency lending, a bailout, or a policy reversal, it doesn't matter. The point is that every time investors have looked down and seen the ground rushing up towards them, a safety net has appeared out of nowhere. And as humans, we're pretty good at learning patterns, do something enough times, and we internalize it completely. So, a whole generation of investors has been essentially trained to believe that someone always steps in to save the day. It's kind of like the one friend everyone has whose parents always give them money when they make a mistake. It seems great, but you'll notice that that person never learns. And one day, they'll mess something up beyond repair and have one big lesson that could have easily been avoided by making a few smaller mistakes first. On Wall Street, they've got a nickname for a version of this called the Fed put. It's basically the idea that the central bank will always come to the rescue if things get bad enough. But honestly, I think it's grown into something much bigger than the Fed. It's become a kind of blind faith in the entire system. A belief that no matter how reckless things get, someone with a big enough checkbook is watching and they won't let it fall.
This is the psychological engine that drives everything we're discussing in this video. It's why stage 1, 2, and three can all be true at the same time, but the market still climbs. Because if you genuinely believe you can't lose, then why would you ever bother pricing in risk or worrying about debt? It just seems like unnecessary stress. A lot of people assume that market crashes happen because no one's really paying attention. But it's actually quite the opposite. Everyone's paying attention. Everyone can see the warning signs and chooses to ignore them. Not out of stupidity, although it is stupid, but on purpose. Because they've decided that a rescue is guaranteed and nothing else matters. This is a market that in a single month saw major tech stocks crash, panic spread throughout global markets, and even warnings emerge about the AI bubble, then still ended at record highs. Anyway, now some people will look at that and call it the market being resilient. And maybe they're right. But I've been around long enough to know that sometimes the most dangerous markets are the ones that stop reacting to bad news. Because when investors become convinced that every warning can be ignored, that's usually when complacency starts creeping in.
Complacency is what leads us on to. Markets don't usually go from calm to chaos in a single day. More often than not, there's a tremor first. And in June, we had one of those moments. It all started with memory chips. Not because prices fell, but because investors suddenly doubted the AI spending propping them up. The NASDAQ had one of its worst stretches in a long time. Micron fell around 13%. Samsung and SK Highex dropped around 12% and then it went global. South Korea's Cosby index fell 10% in a single day, so fast that the exchange had to halt trading altogether. And by the time the dust had settled, close to a trillion dollars had been completely wiped out. For a few days, it felt like the floor was giving way and then it just stopped. And within three weeks, the S&P 500 climbed all the way back to the very edge of its record high.
Now, I've watched the market pull this move before, but there's one time in particular that I've never forgotten. March 2008, one of the biggest, most respected investment banks on Wall Street, Bear Sterns, basically fell apart over a single weekend. It was so bad that it had to be rescued in a rush takeover with JP Morgan buying the company for a fraction of what it had been worth before. And for a few days, just like this June, it felt like the end of the world. And do you know how the market responded? It went up. There was a clear warning. And for the next couple of months, stocks rallied anyway because people decided that Bear Sterns was a one-off and the scare was over. 6 months later, Lehman Brothers collapsed and took the entire global economy down with it. going to be one of the watershed days in financial markets history. >> It was a manic Monday in the financial markets. The Dow tumbled more than 500 points after two pillars of the street tumbled over the weekend. >> Bear Sterns was never the crash. Bear Sterns was the tremor. And that's kind of what June feels like to me. But I want to be careful with my words here because I'm not saying June is definitely our version of this. I don't know that for sure. No one does. and anyone pretending to is lying. I'm just making a comparison and flagging that it has similarities. A serious crack, a brief moment when everybody stops and notices, then a very quick decision to move on like nothing ever happened.
But not knowing isn't a reason to switch off. And in my opinion at least, it's more of a reason to stay awake because we've had our warning and now it's time to find out what it was warning us about. The exact sequence of everything we've just discussed has played out for 400 years. Whether it was tulips in Holland, railways, the roaring 20s, or this, the assets change every time. But the psychology underneath is always the same. I've watched this five-stage pattern play out multiple times throughout my life while having millions invested, and I've made it out the other side richer every time. Not by being clever, but by refusing to believe that this time it'll be different, while also not panicking and selling everything. That balance of staying invested, but not becoming delusional is basically the entire game of a successful investor. It's funny really because when you think about it, it's actually very easy. But not many people manage to do it.
So, as for what I'm doing, well, I'm still investing every single month, the same as always. I'm well aware that a crash could be right around the corner, but it could also be years away and trying to time the top is one of the most expensive mistakes I see people make and I've even made it myself in the past. However, I'm making sure that I'm not fixated on the same AI companies that everyone else has piled into because when everyone is standing on the same side of the boat, I start to get nervous. And as things stand, the market is leaning hard on about seven companies. So, I've deliberately spread myself wider than that. A lot of people, like Warren Buffett, for example, are sitting on record levels of cash at the moment, and I'll admit that I'm keeping a meaningful cash position on the side. Now, you might think this is just trying to time the market, but like I said, I'm still investing consistently because if that June tremor turns into any sort of crash, I want to be the person calmly buying while everyone else is panicking.
If you want to understand the riskiest moment of the AI bubble, then I'm going to leave that video right up there. But don't click on it just yet. Make sure to subscribe if you want to stay ahead of everyone else. Okay, I'll see you over