Scott Galloway, the entrepreneur and NYU Stern marketing professor, issued a stark warning about the economy over the weekend on his Prof G Markets podcast, co-hosted with Ed Elson. But one of his colleagues, NYU Finance Professor Aswath Damodaran, offered up an even bleaker view. The market isn\u2019t pricing in something \u201cpotentially catastrophic,\u201d Damadoran said, so taking your money out of stocks and moving it into baseball cards isn\u2019t a crazy idea.<\/p>\n<\/p>\n
Top financial commentator Robert Armstrong, of the Financial Times\u2018 Unhedged blog<\/a>, took notice (Armstrong famously coined the term \u201cTACO\u201d trade, for \u201cTrump always chickens out\u201d). Damadoran is unusual, Armstrong wrote, because he\u2019s not a perma bear like, say, Michael Burry of \u201cThe Big Short\u201d fame, who has warned of a bubble and cryptically closed his hedge fund. Damadoran is \u201ca true enthusiast\u201d who \u201clikes investing, believes in markets, and has a strong risk appetite.\u201d<\/p>\n Armstrong argued the view is worth considering, even if you believe, as Armstrong does, that a growing U.S. economy and strong cash flow and less-wild valuations elsewhere in the Magnificent 7 aren\u2019t at bubble levels. He said he can only offer \u201ca mild level of disagreement\u201d with Damadoran\u2019s statement that there\u2019s \u201cnowhere to hide in stocks\u201d amid the AI boom\/bubble situation. Galloway has been saying there\u2019s nowhere to hide somewhat often recently<\/a>, as he and Elson found Sam Altman\u2019s recent statements to be an \u201cemperor has no clothes\u201d kind of moment.<\/p>\n Here\u2019s what Galloway, Elson and Damadoran discussed. Warning: it\u2019s grim.<\/p>\n Regarding the trajectory of the American economy, Galloway forecast an inevitable reckoning within the next 12 months. He said the U.S. faces either \u201cchaos in the labor markets\u201d due to generational inequality, or a severe market correction that could see the \u201cMagnificent 7\u201d technology stocks \u201ccut in half.\u201d<\/p>\n Galloway suggested that the only visible return on investment (ROI) from the massive AI spending so far is \u201cefficiencies\u201d\u2014which he describes as \u201cLatin for layoffs.\u201d This would be a disaster given the increasing levels of concentration in the S&P 500, with a calculation in October<\/a> finding that 75% of gains and 80% of profits in the index were somehow AI-related since the release of ChatGPT three years earlier.<\/p>\n While acknowledging that cyclical bubbles are a natural part of markets, Galloway and Damadoran discussed how the scale of the current risk is amplified because 40% of the S&P\u2019s total market cap rests in just 10 companies\u2014including the \u201cMagnificent Seven\u201d\u2014 creating an unhealthy and fragile market susceptible to a global ripple effect if the AI bubble bursts.<\/p>\n Damodaran largely validated this \u201cbroader thesis,\u201d noting there is \u201cvery little evidence right now\u201d of a lucrative AI product and service market. He said to justify the current investment in AI architecture, the AI products and services market must generate approximately $4 trillion in revenues\u2014a far cry from the tens of billions it generates today.<\/p>\n