with tech stocks having gyrated wildly this week, there is intensifying debate about whether we have just witnessed a bubble linked to hype about artificial intelligence, which is now set to burst. Invoking history is currently all the rage, whether your year of choice is 1929, 2000 or 2008. “I got lucky”, Sorkin told me during a debate this week, with a chuckle.

what lessons can investors learn? The most significant one here is that manias are never “just” about stock market swings, however eye-catching — they are also about excess leverage, ample liquidity and investor lunacy.

"AI mania is a symptom, not just a cause, of other imbalances in a world of easy money."

if you take a longer-term look at the financial system, liquidity seems abundant, if not excessive, in many other areas, due to the past decade of quantitative easing, the low level of US real interest rates, fiscal stimulus and private credit creation. Indeed, the Goldman Sachs financial conditions index has loosened markedly this year — and will probably loosen further given the Fed’s stance.

does this mean we should expect a replay of 1929? Not necessarily, in Sorkin’s view. Although he expects a financial market correction, he does not think this need be followed by a 1930s-style depression, since central banks have learnt lessons from history and will once again inject liquidity to prevent a slump, as they did after 2008 and in 2020.

CONCLUSION:

in the long run bubbles do always deflate, often when least expected. In public markets this can be a sudden “pop”; in private finance (which matters now), it is more often a long, slow “hiss”. Either way, keep watching leverage and liquidity, and remember that some lunacies often only become clear in hindsight — just as in 1929.