Source: Fortune
Summary
Owen Lamont, portfolio manager at Acadian Asset Management and former University of Chicago finance professor, argues that the current AI-driven market is not a bubble due to the lack of equity issuance, a key indicator of a bubble. He notes that corporations are buying back shares, and the Shiller CAPE ratio is not at extreme levels. Lamont believes that the market is missing the “smart money” exit, a crucial sign of a bubble. He defines a bubble as a situation where people trade assets they believe are overvalued, and notes that the current market has not yet reached the terminal phase of a bubble.
Our Reading
The announcement sounds familiar.
Owen Lamont’s comments on the AI-driven market echo those of other experts who have noted the lack of equity issuance. Corporations are buying back shares, and the Shiller CAPE ratio is not at extreme levels. Lamont’s “Four Horsemen” framework for detecting bubbles includes overvaluation, bubble beliefs, issuance, and inflows. While three of these are present, the absence of issuance disqualifies the current cycle from bubble status. The economist’s views on the market’s rationality and the potential for a bubble are tempered by his acknowledgment of the uncertainty surrounding AI’s impact on the economy.
The numbers tell a story of caution.
Lamont’s observations on the market’s behavior are a reminder that even in times of rapid growth, caution is warranted. The lack of equity issuance and the absence of “smart money” exit are signs that the market is not yet in a bubble. However, the potential for a bubble remains, and investors should be aware of the risks.
