The Great Reboot: A tale of bursting bubbles and the new world norm

AI bubble, debt bubble, recession, market crash, war… the list of pessimism is endless. I like to call this The Great Reboot (not Depression because we are optimistic, tech-savvy people!). Whether you are the greatest investment banker or a simple girl trying to finish up your work, every single one of us needs to understand what is happening and where we are heading because this time, it will come biting on all of us – brutally, unapologetically.

Debt bubble

Debt bubble has been a long-standing issue. For years analysts and economists have been warning about unsustainable levels of debt so let me not bore you by re-iterating the same story. Global debt to GDP was at 235% in 2024 according to IMF. The debt to GDP was at excruciatingly high levels (c.230% in 2019) pre-COVID but thanks to the pandemic, central banks across the world (including and specially the US) expanded their assets i.e. printed money to provide aid. Since then, the series of economic events have not given any governments chance to correct this which means, we are deeply doomed. High debt with high money printing makes the system so fragile – this is a risk that many have flagged. One trigger can shake up the entire system. I’m sure there will be a way out of this and maybe this will be acceptable level of debt in the future but really, we need to ask how so? Of course we are not saying pay off the debt in entirety but how do the governments make sure this does not burst because that will mean a recession so bad (maybe worse than the Great Depression) that it will be a massive reset – all of us starting from zero! Well, before we get too worked up, even if this bursts, it will mean that every country (or major economies) default on their bond payments or print so much money that it causes inflation. In default scenario, there will be major implications – markets will crash, people will lose money, inflation will be a bi-product, more debt will be needed. And printing money, as we see now, is keeping inflation levels high. So it seems that this bubble won’t burst as such, rather in either scenario, it will just mean inflation and potentially a recession – two things we are not unfamiliar with since COVID. So what do we do? On a personal level keep debt sustainable (don’t max out your Amex!) and start saving up for contingency funds (we still have time to do this!).

AI and tech bubble

Moving on to AI and tech bubble – this has been the talk of the town! Stocks are volatile, big shots are shorting the sector. I have also posted about this on my reels so again won’t bore you with the same thing. In summary, AI and tech valuations are inflated. How do we know this? Simply, most AI / tech businesses do not have good earnings or revenue growth but are getting value on a tech which has not yet shown any result. This is not a pick at any AI / tech business – I understand you need money to implement the tech you have developed. AI / tech businesses have genuine value to offer in terms of increasing the efficiency and productivity across the board. While many AI / tech companies trade in the 30-70× PE range, a handful of ultra-high-growth names are above 200×, which highlights the huge spread and the size of the speculative tail. The core technology and the concept of AI is here to stay – it will be integrated into daily life, people have to upgrade their skills and the new norm will be driven by AI. And since AI is so new and so heavily relies on data centres, there is indeed a need to invest heavily to build the infrastructure. The concern is, within all this, there are some businesses which are baseless – not investing genuinely for improving the tech. In my view, a crash is now overdue, the more it gets delayed, the worse the crash will be. If you have patience (by that I mean TRUE patience) then don’t go deep into the sector yet – wait for a proper crash so you can bag quality assets when the crash happens. If you don’t want to wait or think the crash isn’t happening (we have to agree to disagree here) then also snap up businesses which have a genuinely healthy book and performance. Jumping on the bandwagon may give you short-term gains but if you are a long-term investor, it will come biting at you.

Geopolitics, wars and everything else…

What is funnier than a core socialist being elected in a fundamentally capitalist state – if you know, you know! Clearly in geopolitics we are witnessing major shifts – US government shutdown, Emanuel Macron resigning in France, and the headlines are endless. These political shifts have a major impact on economic policies which eventually impact trade policies and how we invest. For example, “free trade” is the core principle of capitalism. America is a country built on capitalism. But tariffs and socialist leaders being elected are quite the opposite of capitalism. I am not commenting on whether this is good or bad. The point here is that core principles are changing, the way people think is changing (because people elect their leaders who then draw out policies), the way countries function is shifting… we now cannot assume anything about any country. And with the internet “change” is so quick – within days a government gets thrown out with a new one elected and within months entire policy gets implemented. How companies used to trade with America in Jan 2024 vs today (literally just 2 years) has drastically changed. At my work (in M&A), the narratives around the US have completely changed. Wars are also the same story – Russia-Ukraine war, endless wars in the Middle East, they have all become such a common theme that people have started living with it. So what do we do about all this noise? Cut the noise! As boring as it may sound, don’t put all your eggs in one basket (one country) because it only takes a handful of days for the basket to be flipped over.

The new world norm

You must have already figured how conservative I am but there is optimism about all of this. I stand by my controversial opinion – drop the effort to elongate a stagnation (which is causing a stagflation really) and let the recession happen, let it correct (this will impact me too but only in the short term). Then take corrective actions, ease out the policies guilt-free and put the world in the path of recovery. This is of course easier said than done and the complexities we currently live in don’t allow for such an easy solution. But in the long-term, say 5 years or so, it is clear we will be reliant on AI for most of the work, skills and infrastructure around AI will be crucial, politically – it is what it is and we take it as it comes than get bogged down on why and what is right, and expect a structural shift at central bank level across the world. There is certainly a reset, a reboot needed in this world system, it is inevitable at this point – only a matter of time! So, be cautious, invest in quality (read my articles on investing to understand how you can start investing in quality businesses) and have contingency funds ready.

Stay safe, stay happy!

Disclaimer: This article is for educational and informational purposes only and does not constitute financial, investment or professional advice. The views expressed are my own and may not suit your personal financial situation. The views are not intended to provoke any extremism or debate. Always do your own research or consult a qualified advisor before making investment decisions.