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So, we're living in a time that might be remembered as one of the biggest bubbles in history. And that's because in the next few weeks, your retirement account and your 401k is going to be buying shares in some of the biggest IPOs in human history, even though you might not want to. Okay, how's that going to happen? It's going to happen because the rules of the financial system were just rewritten to make sure that your money is going to be buying it automatically. Now, this is actually more than just a theory. Larry Frink from BlackRock, which is the biggest asset management company in the world, said that your retirement funds and pension funds will be used to build out this AI infrastructure.
And so much of this money, not just the project, is going to be coming from the private sector, from savings accounts, from pension accounts, from insurance companies, and on. So, let me explain how this is going to happen. In the finance world, there's a concept called the IPO or the initial public offering. That's when a private company goes public, right? It's when investors all around the world are finally able to buy shares and invest in a company. And one of those companies that's going public soon is SpaceX. And the value of that company is going to be $1.75 trillion. Now, to put that number in perspective, it would make SpaceX on day one more valuable than every American defense contractor combined. It
would also be the biggest IPO in human history, even bigger than Saudi Aramco, which held that record since 2019. The difference though is that Saudi Aramco was the most profitable company on the planet when it listed. But SpaceX lost $5 billion last year. Now, the craziest part about all of this though is that the financial rules that are supposed to protect us from buying these overpriced investments at the wrong time were also just changed right before these IPOs. That's because on May 1st, the NASDAQ introduced something called the fast entry rule, which cuts the waiting period for a company to be included in an index from 3 months to just 15 trading days. And what it also does is it gets rid of something called the
float requirement that would have disqualified SpaceX, for example, from being included. The rule change will also force index funds to artificially inflate how much of the company they'll have to buy. So, what we now have is a handful of insiders that got in really early at low prices and now they need to exit. And to exit, they need buyers. They need a lot of buyers. buyers that are going to absorb trillions of dollars worth of stock at peak values so that the insiders can walk away. But finding enough of these buyers for the biggest IPOs in history is going to be really hard unless you change the rules. Which means now your 401k might be the exit liquidity they need. Now the story gets
even crazier because SpaceX is just the first company in line, but right behind it is OpenAI and Anthropic. They're doing their own IPOs and going public. So, we'll have three companies with a combined valuation of about $4 trillion. So, SpaceX, OpenAI, and Anthropic would leapfrog every other company in America, basically on day one. And that's why some people are saying that this is going to be a bubble the likes of which we have never seen before, and we're all going to fund it with our own retirement money. So, in today's video, I want to show you how this is all going to work and the accounting trick they're going to use to make this AI boom look a lot more profitable than it really is and
what you might be able to do about it. So, with that said, let's get into it. Hi, my name is Andre Jick. Hope you're doing well. Come for the finance and stay for the AI bubble. So, first I want to explain exactly how your money is going to end up buying all of these IPOs. This is why the financial industrial complex is as powerful as it is. Because they control the flow of capital, aka the flow of where money goes. Here's how. There's something called the NASDAQ 100. It's basically the gold standard index for tech companies. It tracks the top 100 tech stocks. There's over $600 billion worth of investment products that track this stuff. Meaning when a company gets added to the NASDAQ 100, every single one of
these funds that tracks the index is forced to automatically buy that stock. And they don't get a choice or a vote in this. And that automatic buying is worth billions and billions of dollars in demand for whichever company gets added. So getting into the NASDAQ 100 is like being given a money printer cuz the moment that company is included, they get access to hundreds of billions of dollars in passive investment flows that has to buy their stock whether they want to or not. Now what's most interesting though is that the rules around getting into the index just changed on May 1st. The NASDAQ introduced something called the fast entry rule and it changed three things. First, it changed something
called the waiting period because before a new company had to wait until the NASDAQ's next yearly review before it could be added, and that could take up to a year. The fasttrack entry rule cuts that down to just 15 trading days. Now, the second thing it changed was something called the float requirement. A float is the percentage of company shares that are available for the public to buy and sell. So for example, if I was a company and I had 100 shares in total, but only 10 were available for people to invest in, my float would be 10%. Okay, but in the old rule, the NASDAQ wanted a minimum 10% public float to even qualify for an inclusion into the index. But SpaceX is planning to
list with a float of around 4 to 5%. So under the old rules, that would be an automatic disqualification. Now the third change is a hidden multiplier right and what that means is for any company listing with a float less than 20%. The NASDAQ now artificially inflates how the stock is weighed in the index. So a 4% float gets treated as if it were 12%. A 5% float is treated like 15%. So this multiplier is now 3x, which means index funds are now legally required to buy more stock than the actual available supply would normally justify. Now, what's important to understand here is that the NASDAQ didn't just write these rules for SpaceX specifically. They wrote them for a whole class of companies and SpaceX just
happens to be the first in line for these IPOs, but right behind them is OpenAI and Anthropic, and they're planning to do their own public listings. So, just three companies that are going public are going to be potentially funneling as much as $4 trillion worth of newly issued stock into passive retirement accounts within a couple months of each other. And the NASDAQ, by the way, is not alone. The FTSE, Russell, another index is doing the same thing. They are allowing the index inclusion after just 5 days, right? S&P is doing the same thing. So, what we have is every major index provider is racing to update their rules at the same time. Now, you could look at this and say, okay, well, maybe the
rules needed updating. Maybe the system just needed a firmware upgrade. Maybe. Some people say though that the timing of all of this is just very suspicious because every single one of these rule changes was announced just weeks and months before the biggest IPOs in human history. Right? All of these companies are being listed within just months of each other. So that is the mechanism of how your retirement account will end up owning SpaceX, OpenAI and Anthropic whether you want to or not because the rules are changing to accommodate them. So now the question is well why are they trying to force everyone to buy these companies and why right now? Now speaking of things that take money out
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They also have over 14,000 excellent reviews on Trustpilot with a 4.5 score. You can build your own plan at to.com. The link is down below. Thank you to T for sponsoring this segment. And now, let's get back to it. Okay, so why are they trying to get everyone to buy these IPOs? And the basic answer is that these companies need to sell trillions of dollars worth of stock. And the only buyer that's big enough to absorb that much supply is the passive investment complex. the trillions of dollars that's sitting in our 401ks and index funds across the whole country because remember passive investors don't choose what they buy. They just buy whatever makes up the index. So if you want a
guaranteed demand for your IPO, you don't go to the investors and try to pitch to them. You just try to get into the index. But if the rules say, well, you don't qualify for the index, you change the rules, right? That is the name of the game. But for this game to work though, they need something else. They need an epic story, right? They need a dream because investors love to buy the dream. And SpaceX has one of the best dreams ever told. Because if you ask anyone on the street what SpaceX does, most people will probably tell you something about rockets, right? maybe going to Mars, maybe Elon doing something crazy. Most people's perception is that they're trying to make humanity become a space exploring
civilization, and that is worth a lot of money. But behind this dream, SpaceX is actually made up of three completely different businesses. There's the rocket business that's made up of things like government contracts, NASA missions, reusable rockets, and last year they did around $4 billion in revenue. That's a lot of money until you realize that's only about a quarter of the company's total business. The second business is Starlink, which is that satellite internet provider. They have 10 million subscribers across 150 countries and they made 11.4 billion in revenue with 63% profit margins. It's all really impressive. So Starlink is actually genuinely doing really good. And if all
SpaceX was Starlink and these reusable rockets, then maybe this is a completely different story. But there's a third business and that business is losing a lot of money. It's called XAI, Elon's artificial intelligence company. But that company burns over a billion a month. So when you look at SpaceX and the three separate companies that it is, the overall picture is that SpaceX actually lost $5 billion last year. So Starlink makes money, right? Rockets make money and then XAI kind of like lights it on fire. So what you're actually being asked to buy right now at 1.75 trillion is all of that bundled together at the biggest IPO values in human history. And the only reason that
might not sound crazy to some people is because they believe in the dream, right? Which is this AI boom and the artificial intelligence is going to change everything and make everything grow forever and ever, right? Maybe, right? But some people say the problem with that dream is that if you look at the math, it just doesn't make any sense right now. Now, so far I've explained the mechanism of how your money will get funneled into these IPOs automatically and maybe how they might not be worth that much, but what I haven't explained is why are these companies trying to go public specifically right now? So, one of the best theories I've been able to find about why they're all trying to go
public right now is because this whole debt based AI boom, right? The trillions of dollars in valuations and the record profits that are in the headlines about tech companies printing money, a big part of this is sort of an illusion. It's a paper illusion that is built on an accounting trick where money is passed from one company to the next to the next and back to that same company. Right? which artificially increases how much money it looks like they're making. Now, that strategy works for only as long as the markets stay strong. But remember, there's also a geopolitical context to consider and what's happening
in the Middle East because the longer they wait, the more likely that the financial markets could break by the reality of the supply chains. So, they need to move fast. They need to pump up the value as high as possible and get as many people to buy it. So, let me just give you an easy example of how they're pumping this. And then we'll get into the specifics. But imagine I lend you $100, right? And then you use that $100 to buy a Pokémon card. That card goes up in value $1,000. I then get to write down on my tax return that I made $900 in profit, even though I never sold anything. Even though that $900 exists only on paper. And then I use that paper profit to justify lending you another
$5,000 to buy even more cards, right? That is roughly a simple way of explaining what's happening between all these tech companies. So, let me show you. A group of analysts at the Financial Times looked at something called the capex, which is capital expenditure. a fancy way of saying how much money Microsoft, Google, Amazon, Meta, and Oracle are planning to spend on building out AI infrastructure between now and 2030. And then they looked at how much revenue those same companies are expected to make from those investments over the same time period. And so they asked, okay, are these companies going to make more money than they spent? And the answer for almost every single one of them was no.
Under the most generous assumptions possible, assuming zero costs, no salaries, no electricity, no overhead, nothing, Microsoft's implied return on its AI investment was 9.2%. Google was negative 15.7%. Meta's negative 28.8%. Oracle's negative 35.6%. The only company that clears it into positive is Amazon at just 7.2%. These aren't worst case scenario numbers. Remember, these are the best case numbers, assuming it costs these companies literally nothing to build and run their AI infrastructure. They all still lose money. Now, let's look at how they're funding all of this. Where do they get the money to do this? This year alone, those very same companies have issued over $150 billion in what are
called corporate bonds to fund this AI spending. Now, to put that in perspective, that is more than double what they were doing just 2 years ago. And look what's happening to what's called their free cash flow. As a result, Microsoft, Meta, Google have all seen their free cash flow margins, which is the actual money left over after spending, collapse towards zero when you account for their AI capital expenditure. JP Morgan's analysts are projecting that by 2027, several of these companies will have negative free cash flow, meaning they will be spending more than what they'll be bringing in. from companies that were just a few years ago the most profitable businesses in human history. But it gets crazier. On the other side of that
spending, look at who they're spending it with. It is all with each other. Open AAI has committed 280 billion to Microsoft and 138 billion to Amazon. Anthropic committed 30 billion to Microsoft and 100 billion to Amazon. In total, OpenAI and anthropic spending commitments represent roughly half of Microsoft's entire revenue backlog. 54% of Oracles, 51% of Amazon's. So, what you actually have is a system where big tech invests into AI startups. The AI startups then use that money to rent computing power back from big tech. Big tech books the investment gains as profit and then uses that profit to
justify spending even more. The money is mostly going in a circle. Michael Bur's company recently did a deep dive on this exact thing. And the circle only keeps spinning as long as everyone sort of agrees about the valuations which sort of brings us back to the IPO. The second these companies go public, the valuations stop being whatever just a couple investors decided they were in a private funding round, right? They become whatever the open market decides they're worth. And if those numbers come in lower than what Google and Amazon have been booking as profit, then those profits have to get revised, right? The earnings that justified the stock prices get revised downward and then the whole
loop goes in reverse, right? So this theory says that is why the timing of all of this is so important to them. That's why they changed the rules. That is why there's such an urgency to get these IPOs to go public as fast as possible. They need these IPOs to validate the paper before the paper runs out or gets exposed by some conflict in the Middle East. So now the question is, well, has this happened before in history? And what happened to the stock market? Turns out it has happened before. Now there's a famous saying in the investment world that says history doesn't repeat itself, but it rhymes. So it might not happen the same way again, but this has happened before and it did not lead to good things. There's a chart
from the Financial Times that I think is really interesting. It shows the biggest, most hyped, most culturally significant IPOs in American history against the S&P 500, aka the stock market. It shows companies like Xerox went public when investors were desperate to own it and then the market peaked right after. Ford went public when investors were desperate to own it. Right? The market peaked right after. McDonald's, Apple, Goldman Sachs, Blackstone, every single one of these companies went public at the same moment when public excitement about owning them was at the highest point. And in almost every single case, the market peaked
right after. That's because the IPO is rarely about the company needing money, right? It's almost always about the seller needing a buyer. And the best time to find a buyer is when everyone wants what you're selling. And that brings us to right now. By the time SpaceX, OpenAI, and Anthropic complete their IPOs, they will have raised as much money as all the 300.com IPOs from the year 2000 combined. and that's adjusted for inflation. That is unbelievable. Now, a lot of people have said that the AI boom is nothing like the.com bubble. And they do have a point cuz one of the classic signs of a bubble is when values get completely disconnected from reality. That's when something called the PE ratios, the
price to earnings ratio goes up really fast, right? And companies start trading at hundreds of times what they make without any profit. And by that measure, the AI boom looks different. The PE ratios of most of these companies are not that insane. The valuations look kind of reasonable. But that's what makes maybe this bubble more dangerous than any other one. Because according to BCA research, for example, the AI bubble is not a valuation bubble. It might be what's called an earnings bubble. Earnings bubbles are much harder to see coming. What's the difference? In a normal bubble, the stock price goes up while the earnings of the company stays flat. So, the price to earnings ratio
goes up really fast with no correlation to its earnings. But an earnings bubble like this one might be. It's that the earnings themselves that are inflated, right? The price to earnings ratio can still stay low and look reasonable. And that's because it's that E, right? the earnings number. That's what's being artificially propped up, which is exactly what could be happening with that accounting trick we talked about, right? The paper gains from anthropic investments are inflating the earnings of Google and Amazon, and it's making their PE ratios look healthier than they might actually be. And history has a very clear track record with earnings bubbles. It happened with homebuilders
before 2008. Their PE ratios looked reasonable right up until the moment they didn't. It happened with banks before the financial crisis. Perfectly healthy earnings numbers right until the earnings themselves were shown to be built on assets that were worth a fraction of what they were being carried at on the books. And the theory is that it's happening right now with semiconductors. Look at this chart. Global semiconductor sales have gone completely parabolic. A straight vertical line up, right? And every time in history that semiconductor sales have looked like this, what followed was a very brutal earnings collapse. In almost
every historical case, the stock price peaked before the earnings did. Which means by the time the earnings started going down, the stock had already been dropping for months and nobody had connected the dots yet. Look at Nvidia for example. In December 2001, Nvidia peaked and then went down 83% before earnings caught up. In November 2021, it peaked and went down 53% before earnings caught up. There's Micron, Intel, the S&P 500 tech sector. The same pattern repeats across every single semiconductor cycle in modern history. The stock sort of always knows before the earnings do. And right now, something very weird is happening in the broader market. That suggests that the stock market might already be starting
to know. The S&P 500 has just hit four consecutive record highs on what's called negative market breadth. Meaning the index keeps going up, but more stocks are actually going down than going up, right? The gains are being driven by just a handful of the very biggest companies while everything else is just deteriorating. And according to the data, this has literally never happened before in market history. Four consecutive record highs with negative breadth. This just basically means the S&P 500 as an all-time high and it's kind of hiding what's actually happening. And what's happening is a market that is concentrating. It's becoming more and more dependent on a smaller and smaller group of companies to hold the whole thing up. And here's
exactly what that looks like. By the way, right now AI related stocks make up almost 49% of the whole S&P 500's market cap. 41 stocks out of 500, about half the entire index. Which means if anything goes wrong with AI, it won't just hurt tech stocks. It will hurt retirement accounts. And that's because almost 50% of our retirement accounts is essentially a bet on AI right now if you're in these indexes. Right? These are the same companies, by the way, that are about to be joined by the three biggest IPOs in history. So, let me tie all of this together and give you the big picture of what's happening. So far, the US personal savings rate just hit 2.6%. And that's the lowest that it's
been in 4 years, which means the average American almost has nothing left in reserve. And also, the real wages are going down. The bottom half of the consumer economy is already in distress. In fact, what's mind-blowing is that the top 10% of earners right now are the only reason the economy is not in a recession. The top 10% of spenders are holding up half of the economy. Now, here's another chart that shows exactly why it's happening and why it's probably going to get worse. Corporate earnings are going up, which is good, but workers incomes are not. They're flat and that's not good, right? The gap between those two lines is AI. Remember when companies were laying people off and telling us
it's because of AI? That's why that gap is there. Companies are automating their way to higher profits while the people who work for them are starting to make less and less. One researcher said, "At the limit, firms automate their way to boundless productivity and zero demand." Right? Think about this passive investment money that SpaceX and OpenAI and Anthropic are counting on to buy their stock. That only exists as long as American workers have paychecks to invest that money every 2 weeks. Right? The moment that AI displaces those paychecks, the very thing that these companies are exploiting, well, that starts to get smaller. there's less money for them because they got rid of their own workers, which is another
reason why this window might be closing and why these companies want to go public right now. But remember, there's also the straight of her rem. It's been closed for 3 months due to the Iran war. Exon Mobile's senior vice president went on stage at a conference in New York and said that oil inventories are going to hit critically low levels within the next 2 to 3 weeks. And when that happens, the price of oil goes up. His estimate was $150 to $160 a barrel. If that happens, that would mean every country that imports oil, which is most of them, they'll suddenly need a lot more dollars to pay for this oil. And when countries need their dollars fast,
where do they go to get them? They sell whatever dollar denominated assets they own. And the biggest dollar denominated assets most countries hold are US Treasury bonds. So they sell US treasuries. And when you sell treasuries, interest rates go up because the US needs more buyers. And the way to get more buyers is to tempt them with higher interest rates, right? But when rates go up, borrowing gets more expensive for everyone, for governments, for companies, for consumers. Here's a chart from FFTT. Since the beginning of the Iran war, wherever oil goes, Treasury yields follow almost perfectly, which means if Exxon Mobile's right about $150 oil coming in the next few weeks, Treasury yields are likely going
to levels that start breaking things. And we're kind of starting to see the early signs of that. Emerging market countries sold US treasuries in March at the fastest rate since at least 2023. 27 countries have approached the World Bank looking for emergency crisis funding. Global bond yields are breaking out of multi-year consolidations across the US, UK, Germany, Japan, and Canada. And sitting right in the middle of all of this is the new Federal Reserve chairman Kevin Worsh, who remember was hired by President Trump to lower interest rates. except the market right now is predicting that interest rates will go up. For the first time in four
years, the two-year Treasury yield is above the federal fund rate, which is basically the market's way of telling the Fed it should be increasing interest rates, not lowering them. But if Kevin Walsh lowers interest rates into an inflation spike when oil is going up, right, then the dollar falls, inflation gets worse, and bond yields go up even higher as more countries and investors lose confidence and sell more of their US bonds. But if he increases interest rates, the stock market drops because corporate borrowing costs go up. And this whole AI spending boom that's been holding up 93% of US GDP growth now has a much higher cost of capital. Right?
Either way, it looks like yields are going to go up and higher yields are the one thing that could pop everything we've talked about like all the paper profits and the circular spending and the $150 billion in corporate bonds that all these companies issue to fund their AI spending, right? All of it gets more expensive and it comes under pressure right at the three biggest IPOs in history. So that is the macro big picture reason for why they might be changing these rules right now because the window might be closing and maybe the people on the inside kind of know that. Okay. So how do you make money or at the very least not lose money in that case? because I don't want you to walk
away from this video thinking that investing is bad or that SpaceX or AI is a fraud or a scam or that technology doesn't work. Right? It does work and I think Starlink is genuinely one of the most amazing things that's been built in the last decade and AI is real and it is going to change the world in the next century. But I also think there's a big difference between a technology winning and investors winning. Right? Those are two completely separate things and we have a lot of historical examples of this. Like in the late 1800s, for example, the railroad boom changed America forever. Railroads connected the whole country and they expanded commerce at a scale that was impossible before.
They transformed things like agriculture and manufacturing, supply chains, everything. The technology was real and the railroads are still here today. But almost every single investor who funded the railroad boom got wiped out. Those companies went bankrupt and their stocks collapsed. Right? The people who built the railroads lost everything. But then a new group of investors came in. They bought the same railroads out of bankruptcy at pennies on the dollar and they made fortunes. The same thing happened with the fiber optic cable boom of the 1990s. Hundreds of billions of dollars were spent laying cable across the whole country and under the ocean.
Right? The companies that laid it though went bankrupt in the dotcom crash. And then a decade later, that same fiber optic infrastructure became the backbone of the internet. That's how you're able to watch this video right now. Technology won, but the initial investors lost. And it was the people who bought those assets afterward that built the world we live in today. That has always been the pattern. And that pattern is what I think will most likely happen with AI. I think it's the initial investors, the people buying at $1.75 trillion valuations, the passive funds that are forced in by these rule changes. They're going to absorb any potential losses. the technology itself
will keep on evolving and a new group of investors will pick it up at much lower prices and they'll build the next era on top of it. Okay, then so what do you actually do with this information? And I think the first thing is just understand what your index funds actually own because then the next few weeks they're going to own SpaceX and after that open AI and anthropic at values that history suggests is extremely unfavorable entry points for passive investors. Now I'm not saying you should sell everything, but you should know what you own and why. The second thing you might be able to do is actually know where your money should be invested right now to protect yourself against all the possible
outcomes because maybe none of this matters. Maybe it's not a bubble, right? Maybe the IPOs will go great and Kevin Worsh might thread the needle at the next Fed meeting. Hermuse might reopen next week. The AI boom might generate returns that justify all the money that's been spent. History might not rhyme this time. Maybe. For me personally, I just like to think that the job of investing is not for me to be right about a specific thing. The job of investing is to put my money into multiple outcomes cuz no one knows what's going to happen based on their probabilities of happening. Now, if you're interested in seeing how I'm preparing and how I'd like to invest, those videos live in the premium member
section where you'll also get access to my main videos earlier. And if that's valuable to you, the link is down below. It allows me to make more videos like this one and take on fewer sponsors. Thank you so much for watching this extremely long video and being a member. I hope you have a wonderful rest of your day. Smash the like button. Subscribe if you haven't already. I'll see you next week. Bye-bye.
