The Things We Do To Ourselves

Markets are human creations. And market outcomes are the results of our daily individual and collective actions.

Which means when there's a "market accident" — whether it's a fund blowing up somewhere, a market crash, or a proper global crisis — the cause is almost always us, not nature.

We trick ourselves into thinking "fun" but unreliable thoughts, often nicely fitting under the heading "wouldn't it be great if..." Wouldn't it be great if making money was easy. Wouldn't it be great if this time really is different.

We travel down that road collectively for too long, and eventually something prompts us to realize that easy isn't on the menu — not at scale, and not for long.

Which takes me to the stock market. The U.S. stock market in particular. And to be even more specific, Nvidia, which is now the largest company in the world at $4.5 trillion and makes up roughly 8% of the S&P 500.

(For reference, and using round figures, Exxon Mobil was once the largest company in the world. It was then worth about $500 billion, and accounted for 4% of the S&P 500. Exxon Mobil is still worth right around $500 billion now but it is only 1% — actually slightly less — of the S&P 500 today. Growth and dominance have seasons).

The market has decided to give itself a proper scare this week when it comes to Nvidia and U.S. stocks.

Following the regular (and much appreciated) schedule of American capitalism, Nvidia released its latest financial results this week. Nvidia's earnings have grown extraordinarily over the last few years, as its business fundamentally shifted from selling chips that can be used to play video games, to selling chips that can be used to "mine" Bitcoin, to (and this is the big one) selling chips that can be used to run the most sophisticated AI models out there. That once-in-a-generation business evolution has caused this.

From $150 billion to $4.5 trillion since the start of 2020. That's almost 3,000%. Truly historic, and indeed based on a radical improvement in the economic value of the product they sell, from video games to top technological and geopolitical priority. Whether the price of Nvidia stock is too high, too low, or just right will depend on whether revenue and earnings growth continue without a hiccup.

As Yogi Berra famously said, "making predictions is hard, especially about the future" — and projecting the recent past into the immediate future is called nowcasting, and it can get you into a whole lot of trouble.

In the meantime, as unknowable as the future of Nvidia share prices is, a look at the U.S. stock market relative to its own history and relative to other markets at least provides some context for what we are contending with.

This chart plots the famous Shiller P/E ratio (named after Yale Professor and Nobel Prize winner Robert Shiller) going back as far as the good professor has taken it. It measures how expensive stocks are relative to the stream of earnings accrued to shareholders over the previous 10 years. The punchline is simple: U.S. stocks are nearly as expensive as they were at the height of the 1990s Tech Bubble and more expensive than in 1929.

The international context is helpful too.

U.S. stocks aren't just expensive relative to their own history; they are expensive relative to other stock markets around the world. The comparison chart below comes from my former colleagues at Research Affiliates, based on October 2025 data. The round dot is the current value (Shiller's measure also being known as CAPE or cyclically-adjusted P/E ratio among academics), and the X marks a reasonable estimate of where it may be 10 years from now. Whatever happens, it's clear that U.S. stocks are expensive relative to history in a way that is not true of other markets around the world.

This is a winner-take-all situation, and it's anyone's guess who that winner will be.

Now, as I said, this is largely a game of chicken we have set up for ourselves as human psychology turns hopes into greed and beliefs into delusions. Always has, always will. And this era of economic fears and anxiety on every floor only adds gasoline to the fire. A lot of money in our accounts would indeed solve a lot of problems, wouldn't it?

But some of this is done to us.

We have a 24/7 investment-entertainment complex, ranging from business TV channels to social media. We have apps on our phones that blur the line between investing and gambling. And we have a system for retirement saving that auto-buys more U.S. stocks twice a month. (You should read the very thoughtful Michael Green on that topic.)

On the topic of fear, greed, and the redistribution of wealth.

While Bitcoin and other crypto tokens may be highly imperfect currencies and stores of value, they all seem to be a very efficient mechanism for moving wealth from one person's pocket to another. For reference, Bitcoin just went from roughly $124,000 in October to $84,000 this week, down roughly 30% in barely more than a month.

Now there are arguments for holding crypto, including my version of Dave Nadig's painfully insightful argument here.

But it all becomes a matter of personal choice.

Lucky us, we still have that.

Dave’s choice? “Personally, I can’t bring myself to bet on the collapse of Western Democratic Capitalism. I don’t judge those who go all in, but I’m not short any asset, much less my country.”

When I was interviewed in April about crypto going “mainstream” this year, I took what seemed like a pretty obvious path to me.

If you don’t have a valuation model, it’s all pure faith. And faith has a nasty habit of having legs in markets until it doesn’t. That was the point I was making last time in Up and to the Right. When blind faith gives, you get people saying things like this.

What’s the stuff worth? In the case of crypto, the scientific answer is “unknowable.”

And then, there are the cracks appearing in private-credit land.

This is getting pretty obscure, so I'll keep it short. I wrote about private credit a while back when the push into non-institutional (or "retail," as they call it) investment channels was heating up.

Here is the simplistic version:

• Once upon a time, lending largely happened at institutions called banks.

• Then we had the 2008 Financial Crisis, and banks got blamed for making loans they shouldn't have.

• So we told them — via legislation like the Dodd-Frank Act and related regulation — to make fewer loans.

• Lending is a basic function of finance that must and will happen, and a classic move is for someone who's more lightly regulated to take over core financial functions from someone who is newly over-regulated (and thus made less competitive). That's called "regulatory arbitrage."

• Investment groups figured they could raise money from investors and lend "directly." No bank, no depositors, private deals made among consenting adults.

• What could possibly go wrong?

As it turns out, regulatory arbitrage has a tendency to play out badly when done at mega-scale. The short version is: regulation — however poorly calibrated — was properly motivated.

There is systemic risk in them hills, not just gold.

I talked about this with the great Jane Buchan on Treussard Talks recently.

I will let you read John Authers over at Bloomberg for more on the cracks in private credit, if you have appetite here. The key passage from Authers?

Possibly most damaging to confidence was the news from Blue Owl Capital, a private asset manager that last month made headlines with angry rebuttals of Dimon's "cockroach" comments. In the face of accelerating redemptions, the Financial Times revealed that Blue Owl was "merging" two funds. "Spin aside, the upshot is that the firm has effectively gated an open-ended fund and is forcing investors into its closed-end peer with a 20% haircut."

And finally, this easy explanation of where we find ourselves from Jeffrey Gundlach: "garbage lending" at "unhealthy valuations."

And then you wonder why I put acknowledging fear and managing risk at the center of things...

One last thing.

I had a fabulous conversation with Frazer Rice recently.

Frazer is the author of Wealth Actually and an expert on ultra-high-net-worth estate planning. We walked through the 2025 tax law (H.R.1).

But the conversation quickly moved past tax mechanics to the harder question:

Why do so many well-crafted estate plans fail when they're actually needed?

The answer isn't technical—it's human. Institutional knowledge trapped in generation one's minds. Siblings thrust into trustee roles they're unprepared for or don't want. Structures designed five years ago that no longer reflect family realities.

Frazer argues the biggest threat to wealth isn't the IRS—it's family dysfunction, poor succession planning, and values that never get transmitted.

Simply put, tax efficiency means nothing if your heirs are fighting, your structures are staffed with the wrong people, or the "why" behind your wealth dies with you. The wealthy don't lose their fortunes to taxes—they lose them to bad execution and broken communication.

We talked about:

• The concept of family "disaster recovery" planning—who do you call, what happens in the first 30 days, where's the playbook

• How to transmit values and institutional knowledge, not just commas and zeros

• The importance of regular "fire drills" so families aren't experiencing structures for the first time during crisis

Explore Beyond Tax Optimization — Estate and Wealth Planning with Frazer Rice here.

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