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<p>Hi, I'm Matt Turner, the editor in chief of business at Insider. Welcome back to Insider Today's Sunday edition, a roundup of some of our top stories. </p><p><strong>On the agenda today:</strong></p><ul><li>Two multibillion-dollar lawsuits could radically reshape how we buy and <a href="https://www.businessinsider.com/real-estate-agents-lawsuits-buy-sell-homes-forever-housing-market-2023-6">sell homes forever</a>.</li><li>In the age of remote work, employers are <a href="https://www.businessinsider.com/work-from-home-employers-quiet-quitting-contractors-part-time-gig-2023-6">quiet quitting on employees</a>.</li><li>Decision-makers at family offices revealed what it's really like <a href="https://www.businessinsider.com/family-offices-wealth-management-secrets-2023-6">managing billions</a> for the ultra wealthy. </li><li>Silicon Valley is bracing for a startup "<a href="https://www.businessinsider.com/silicon-valley-fears-exctinction-event-startup-failure-rate-increase-2023-6">mass-extinction event</a>." </li></ul><p><strong>But first: </strong>It's shaping up to be a <a href="https://www.businessinsider.com/airbnb-vrbo-hosts-summer-slowdown-new-normal-2023-6">cruel summer for Airbnb</a> and Vrbo hosts. Read on for more.</p><p><em>If this was forwarded to you, </em><a href="https://www.businessinsider.com/subscription/newsletter/insider-today-sunday-edition"><em>sign up here</em></a><em>.  Download Insider's app </em><a href="https://www.insider.com/app"><em>here.</em></a></p><h2><strong>Airbnb's meh middle</strong></h2><div type="image" title="Airbnb CEO Brian Chesky speaks onstage during &quot;Introducing Trips&quot; Reveal at Airbnb Open LA on November 17, 2016 in Los Angeles, California." height="3054" width="4084" msid="101436011" hostid="261" sizebytes="1990096"></div><p>A <a href="https://www.insider.com/fourth-of-july-travel-airport-chaos-united-flight-delays-cancellations-2023-6">record-breaking number of Americans</a> are expected to fly this weekend. Many of them will be traveling to stay with friends or family, but some, like me, will be heading to short-term rentals. I'll be staying in an Airbnb in upstate New York with friends. </p><p>Demand for short-term rentals on platforms like Airbnb and Vrbo <a href="https://www.businessinsider.com/how-much-airbnb-hosts-earn-in-a-year-revenue-income-2022-3">surged coming out of the pandemic</a> and has continued to increase into this year. One analytics site forecast a 10% increase in nights booked on these platforms for the year. </p><p>But with many more listings available, the increased supply has more than offset the pickup in demand. That's left hosts having to hustle, dropping prices and worrying about whether last-minute guests will come through. </p><p>The slowdown is particularly pronounced for hosts with properties in the "meh middle" of listings. </p><p>While luxe rentals with hot tubs and firepits book months in advance and cheap and cheerful locations attract budget-conscious travelers, the properties in between are getting squeezed.</p><p><a href="https://www.businessinsider.com/airbnb-listings-summer-mediocre-middle-2023-7"><strong>The Airbnb hosts getting squeezed</strong></a></p><h2><strong>Real-estate reshape</strong></h2><div type="image" title="real estate" height="3640" width="4860" msid="101436014" hostid="261" sizebytes="2172204"></div><p>The real-estate industry is facing an existential threat. Two class-action lawsuits say home sellers are getting bilked out of billions of dollars every year through a circuitous method of paying real-estate agents. </p><p>If the plaintiffs succeed, the rules about how agents get paid could be rewritten. It could result in increased competition among agents, dramatically lower commissions, and as much as $30 billion a year in savings for consumers. </p><p><a href="https://www.businessinsider.com/real-estate-agents-lawsuits-buy-sell-homes-forever-housing-market-2023-6"><strong>Homebuying as we know it could change</strong></a><strong>. </strong></p><h2><strong>Workforce 'Uberization'</strong></h2><div type="image" title="An Uber Eats bicyclist" height="1333" width="2000" msid="101436016" hostid="261" sizebytes="62814"></div><p>Workers aren't the only ones <a href="https://www.businessinsider.com/quiet-quitting-job-limits-companies-manager-employee-unpaid-work-2022-8">quiet quitting</a>. In the age of remote work, employers are doing it, too. After the pandemic showed that staff were capable of doing their jobs from home, some employers are now hunting for the cheapest remote workers possible. </p><p>They're stocking up on part-time employees, temps, independent contractors, and outsourced positions both at home and abroad. A professor at Stanford University described it as the "Uberization of the workforce." In other words: fewer full-time jobs, more low-paying gigs.</p><p><a href="https://www.businessinsider.com/work-from-home-employers-quiet-quitting-contractors-part-time-gig-2023-6"><strong>How companies are gig-ifying the American workforce</strong></a>.</p><p>Also read:</p><ul><li><a href="https://www.businessinsider.com/first-there-was-quiet-quitting-now-its-become-grumpy-staying-2023-6">First there was quiet quitting. Now it's become grumpy staying.</a></li></ul><h2><strong>Family office secrets</strong></h2><div type="image" title="IMG_5753" height="963" width="1284" msid="101436018" hostid="261" sizebytes="96768"></div><p>Family offices manage billions for the likes of the <a href="https://www.businessinsider.com/family-office-women-cio-investments-bezos-expeditions-brin-bayshore-2022-8">Waltons and Bezoses</a> — but how much do you know about their inner workings? Likely not much. </p><p>Insider's Ben Bergman did what few have managed: He spoke with six people running family offices and they pulled back the curtain to reveal what goes on behind the scenes. They discussed "managing personalities," focusing on wealth preservation, and more. </p><p><a href="https://www.businessinsider.com/family-offices-wealth-management-secrets-2023-6"><strong>Read the full story</strong></a><strong>. </strong></p><p>Also read:</p><ul><li><a href="https://www.businessinsider.com/family-offices-ai-rich-americans-wealthy-investing-hype-2023-6">How rich American families are pumping money into AI despite fears of a bubble</a></li></ul><h2><strong>'Extinction event'</strong></h2><p><strong></strong></p><div type="image" title="A paper graph is folded in waves as it pushes against the skyline of San Francisco, the hub of Silicon Valley. The graph has a stark red arrow pointing downward. The background is a textured gradient purple and orange." height="600" width="1200" msid="101436020" hostid="261" sizebytes="157622"></div><p>Startups are about to have a "Darwinian moment." As venture capital dries up, founders are bracing for a "mass-extinction event" toward the end of this year. </p><p>Already, many startups have spectacularly <a href="https://www.businessinsider.com/robot-pizza-startup-zume-shutting-down-raised-500-million-softban-2023-6?utm_medium=newsletter&amp;utm_source=Sailthru&amp;utm_campaign=Insider%20Today%20-%20June%2029%2C%202023">flamed out</a> — and those left standing often have less than 12 months of runway in the tank. When their funding runs out, data points toward one scenario: a startup bloodbath. </p><p><a href="https://www.businessinsider.com/silicon-valley-fears-exctinction-event-startup-failure-rate-increase-2023-6"><strong>What's in store for startups</strong></a><strong>. </strong></p><p><strong>Also read: </strong></p><ul><li><a href="https://www.businessinsider.com/fractal-vertical-software-startup-venture-studio-ownership-founder-equity-grant-2023-6">Startup studio Fractal created 130 companies in three years. Founders say the deal structure has led VCs to 'blacklist' them</a>.</li></ul><p><strong>This week's quote:</strong></p><p>"Here employees take pay cuts as our company and leadership make record profits. It's not right, no other way to look at it."</p><ul><li>A leaked message from an internal Microsoft message board, posted by an angry employee after CEO Satya Nadella thanked the troops <a href="https://www.businessinsider.com/angry-microsoft-employees-snap-at-satya-nadellas-thank-you-message-2023-6">for a "landmark" fiscal year</a>.</li></ul><p><strong>More of this week's top reads:</strong></p><ul><li>The Supreme Court's rejection of Biden's student-loan-forgiveness plan will make a <a href="https://www.businessinsider.com/economic-impact-supreme-court-student-loan-forgiveness-ruling-what-means-2023-6">looming economic slowdown even worse</a>.</li><li>OpenAI is <a href="https://www.businessinsider.com/openai-unique-compensation-package-among-tech-companies-ppu-2023-6">reinventing tech compensation</a> with flat salaries, no bonuses and no negotiation.</li><li>A huge New York landlord says Fridays in the office are "<a href="https://www.businessinsider.com/return-to-office-landlord-friday-dead-forever-hybrid-rto-wfh-2023-5">dead forever</a>."</li><li>Scammers are using AI-generated voices of people's children to <a href="https://www.businessinsider.com/ai-voice-generator-phone-scam-imposter-crime-money-cash-2023-6">swindle them</a>.</li><li>Apple, TSMC, and Mazda are moving supply chains out of China. We break down <a href="https://www.businessinsider.com/companies-leaving-china-diversifying-supply-chains-apple-tsmc-mazda-2023-6">how they're doing it</a>. </li><li>A $7 billion startup wanted to build patient-friendly healthcare. Its bet on<a href="https://www.businessinsider.com/ro-weight-loss-program-insurance-delays-wegovy-shortage-2023-6"> buzzy weight-loss drugs is testing that vision.</a></li><li>Experts say the sun's activity could peak early, frying satellites and causing radio blackouts by the end of <a href="https://www.businessinsider.com/solar-maximum-could-sooner-than-expected-2023-6">this year</a>.</li><li>What did Jeffrey Epstein's bankers know, and <a href="https://www.businessinsider.com/jpmorgan-chase-drawn-out-breakup-with-jeffrey-epstein-2023-6">what should they have known?</a> </li></ul><p><em>Curated by Matt Turner. Edited by Hallam Bullock and Lisa Ryan. Get in touch: insidertoday@insider.com</em></p>

It's a cruel summer for Airbnb and Vrbo hosts, and meh listings are getting squeezed hard

<ul class="summary-list"><li>Investors at JetBlue Ventures, Mighty Capital, and other VC firms shared their favorite podcasts.</li><li>They include "All-In" with Chamath Palihapitiya and "The Future of Everything" by the WSJ.</li></ul><p>Global venture-capital funding in 2022 may have <a href="https://www.cbinsights.com/research-state-of-venture?utm_campaign=marketing_state-venture_2022-07&amp;campaignid=17130804447&amp;adgroupid=137057131835&amp;utm_term=venture%20capital%20slowdown&amp;utm_source=google&amp;utm_medium=cpc&amp;utm_content=adwords-reports-quarterly-annual-reports&amp;hsa_tgt=kwd-1684919686729&amp;hsa_grp=137057131835&amp;hsa_src=g&amp;hsa_net=adwords&amp;hsa_mt=e&amp;hsa_ver=3&amp;hsa_ad=610211246529&amp;hsa_acc=5728918340&amp;hsa_kw=venture%20capital%20slowdown&amp;hsa_cam=17130804447&amp;gclid=CjwKCAjw3qGYBhBSEiwAcnTRLkGjbBXo9pQ9StzEkoAmJNP6qyrlitI9FHW1DcBuaftyueWz6eCwMhoCMqkQAvD_BwE">dipped 35%</a> from 2021, according to a report by analytics company CB Insights, but <a href="https://www.businessinsider.com/vc-startup-investors-ramp-up-deals-after-summer-slowdown-2022-9">VCs are still eager to make deals</a>. </p><p>It's a tough market right now, though, and investors need reliable insights, news, and information to spot opportunities and avoid making the wrong moves. </p><p>Podcasts can help. Here are 11 great options, recommended by VCs,  founders, CEOs, and other industry insiders.</p><h2><strong style="color: #000000;">1. 'The Full Ratchet' with Nick Moran</strong></h2><p>Steve Taub, the managing director of investments at <a href="https://affiliate.insider.com?postID=63c19fa7232821203b57cc2b&amp;site=bi&amp;u=https%3A%2F%2Fwww.linkedin.com%2Fcompany%2Fjetblue-ventures%2F">JetBlue Ventures</a>, JetBlue Airways' VC firm that's invested in startups like <a href="https://www.jobyaviation.com/">Joby</a> and <a href="https://flyrlabs.com/">Flyr Labs</a>, said he likes "<a href="https://fullratchet.net/">The Full Ratchet</a>" because it "demystifies" the VC world. The podcast's host, Nick Moran — the founder and general partner of <a href="http://newstack.vc/">New Stack Ventures</a> — has interviewed VCs and startup founders like <a href="https://podcasts.apple.com/gb/podcast/118-economic-theory-in-venture-capital-part-1-mark-suster/id888084300?i=1000378448924">Mark Suster</a>, <a href="https://fullratchet.net/135-dispelling-conventional-wisdom-in-vc-part-1-eric-paley/">Eric Paley</a>, and <a href="https://fullratchet.net/ep30-the-dark-side-of-vc-predatory-investor-practices-joanne-wilson/">Joanne Wilson</a> on how they build great companies.</p><p>"Moran often has interesting guest interviews, and I like the short 'investor stories' about lessons learned and unusual situations," Taub said. "I like that they're brief so I can listen to them when I don't have time for a full interview." </p><h2><strong style="color: #000000;">2. 'Catalyst' with Shayle Kann </strong></h2><p>Taub is also a fan of "<a href="https://www.canarymedia.com/podcasts/catalyst-with-shayle-kann">Catalyst</a>," which interviews investors, researchers, and executives knowledgeable about the world of climate tech. </p><p>While this isn't a strictly VC-focused podcast, the host, Shayle Kann, is a partner at <a href="https://www.energyimpactpartners.com/">Energy Impact Partners</a> and leads EIP's investments at the frontier of climate tech, so the show covers timely topics in the climate-tech space.</p><p>Taub told Insider he listens to "Catalyst" because the threat of climate change — and humanity's response to it — is among the defining issues of the 21st century. "It will shape almost every aspect of our society and economy, so it's creating enormous opportunities for innovation and entrepreneurs," Taub said. "I think Kann does a great job of finding people with interesting ideas in the space, and he teases out the real challenges they need to overcome to be successful, so it's not just cheerleading."</p><h2><strong style="color: #000000;">3. 'The Twenty Minute VC' with Harry Stebbings</strong></h2><p><a href="https://affiliate.insider.com?postID=63c19fa7232821203b57cc2b&amp;site=bi&amp;u=https%3A%2F%2Fwww.linkedin.com%2Fin%2Fandrewger%2F">Andrew Gershfeld</a>, a partner at the Boston-based investment fund <a href="https://flintcap.com/">Flint Capital</a> — whose investments include the unicorns <a href="https://www.crunchbase.com/organization/socure">Socure</a> (valued at $4.5 billion) and <a href="https://www.crunchbase.com/organization/walkme">WalkMe</a> (valued at $2.5 billion at IPO) — is a fan of "<a href="https://www.thetwentyminutevc.com/">The Twenty Minute VC</a>" podcast. </p><p>"Permanent lack of time in an investor's life makes you very picky when it comes to podcasts," he told Insider. "I find the '20VC' podcast very useful and insightful. Listening to how other VCs speak about themselves and how entrepreneurs describe the VCs they work with helped me understand how to differentiate our firm from the crowd." </p><p>Gershfeld said the host, Harry Stebbings, asks high fliers from successful VC firms — including <a href="https://twitter.com/wquist">Will Quist,</a> a partner at <a href="https://slow-prod.herokuapp.com/">Slow Ventures</a>, and <a href="https://contrary.com/blog/welcoming-kyle-harrison">Kyle Harrison</a>, a general partner at <a href="https://contrary.com/">Contrary</a> — how they forged investment scenarios to achieve big goals and what's impacted their leadership approach. </p><p>"The main thing about the VC world is building relationships, and Harry is an example of a great networker," Gershfeld said. "He's a self-made VC professional who turned from a VC fan in his teens into a full-fledged investor who manages over <a href="https://www.businessinsider.com/vc-lerer-hippeau-hosting-summit-for-gen-z-tech-startup-2021-7">$140 million</a>."</p><h2><strong style="color: #000000;">4. 'All-In' with Chamath Palihapitiya, Jason Calacanis, David Sacks, and David Friedberg </strong></h2><p>Gershfeld loves the podcast "<a href="https://www.allinpodcast.co/">All-In</a>" because so few podcasts cover "all major things of the week" — from economics and technology to politics and social agendas. He said the four hosts possess "unmatched experience" and knowledge about technology and the VC market. </p><p>"Chamath Palihapitiya appears to be one of the few investors who has gone from VC into hedge-fund management," Gershfeld said. "Jason Calacanis has more than two decades in tech. David Sacks has over 20 unicorns in his portfolio, including Airbnb, Facebook, SpaceX, Twitter, and Uber. And David Friedberg of Climate Corporation, one of the first 1,000 employees at Google, helped run Google's AdWords and worked with Larry Page, Google's cofounder."</p><p>Gershfeld favorite segments include "<a href="https://podcasts.apple.com/us/podcast/e100-reflecting-on-the-first-100-shows-fan-questions/id1502871393?i=1000582630529">Reflecting on the first 100 shows</a>," and "<a href="https://podcasts.apple.com/us/podcast/e91-softbanks-%2421b-vision-fund-loss-signals-of/id1502871393?i=1000575944980">Softbank's $21B+ Vision Fund loss</a>."</p><h2><strong>5. '</strong><strong>The Future of Everything</strong><strong>'</strong><strong> by The Wall Street Journal</strong></h2><p>The WSJ's "<a href="https://www.wsj.com/podcasts/wsj-the-future-of-everything">The Future of Everything</a>" podcast is the top pick of Ryan Nelson, a partner at the early-stage venture studio and VC fund <a href="https://www.wearejobi.com/">Jobi</a> and the cofounder of Jobi Brands, which has helped build celebrity brands like Courteney Cox's home-care brand <a href="https://affiliate.insider.com?postID=63c19fa7232821203b57cc2b&amp;site=bi&amp;u=https%3A%2F%2Fhomecourt.co%2F">Homecourt</a> and Kate Hudson's wellness brand <a href="https://www.tobeinbloom.com/">Inbloom</a>. </p><p>"I love this podcast for being very far-forward-looking and covering potential changes in technology that could dramatically alter our world," Nelson said. "Personally, I'm interested in how our lives and societal trends will evolve and be shaped by new inventions — or new applications of older technologies.  </p><p>"I think it's worthwhile to understand what types of opportunities to be on the lookout for in the near to medium term that are in line with these longer-term movements. By the time things are very obvious and in the mainstream, it can be too late to capitalize fully on the opportunity provided." </p><h2><strong>6. '</strong><strong>Venture Unlocked</strong><strong>'</strong><strong> with Samir Kaji</strong></h2><p>Jenny He — the founder and general partner of <a href="https://streaklinks.com/BNja_QseHqTfmoTefw6BSMbj/https%3A%2F%2Fwww.positionventures.com%2F">Position Ventures</a>, an early-stage venture fund backed by Bain Capital Ventures and Tiger Global that's invested in <a href="https://fractal.ai/">Fractal</a>, <a href="https://www.anrok.com/">Anrok</a>, and <a href="https://www.workwhilejobs.com/">WorkWhile</a> — said the <a href="https://www.allocate.co/">Allocate</a> CEO and founder Samir Kaji's "<a href="https://streaklinks.com/BNja_QouLnvoaZO00QsqsQtJ/https%3A%2F%2Fpodcasts.apple.com%2Fus%2Fpodcast%2Fventure-unlocked-the-playbook-for-venture-capital%2Fid1535501313">Venture Unlocked</a>" podcast is "a must-listen for any emerging manager or anyone looking to get into venture capital."</p><p>The podcast interviews fund managers from all walks of life to reveal their approach to venture, trends they're seeing in the market, and how they got started with their first fund, featuring interviews with established VCs as well as emerging managers on their first fund. One of He's favorite episodes is "<a href="https://podcasts.apple.com/us/podcast/776s-alexis-ohanian-on-the-new-era-of-vc/id1535501313?i=1000557512012">Alex Ohanian on the new era of VC</a>."</p><p>"'Venture Unlocked' gives listeners unique access into the world of starting and scaling a venture-capital firm — as well as a rare glimpse into the LP perspective, which few people know the ins and outs of," He said. "As a first-time fund manager, it was valuable to hear from other fund managers on how they got started, as starting a fund is also a founder journey." </p><h2><strong>7. '</strong><strong>Capital Allocators</strong><strong>'</strong><strong> with Ted Seides</strong></h2><p>Ted Seides, an allocator and asset-management expert, hosts "<a href="https://podcasts.apple.com/us/podcast/capital-allocators-inside-the-institutional/id1223764016">Capital Allocators — Inside the Institutional Investment Industry</a>," which <a href="http://www.scmoatti.com/">SC Moatti</a>, the founding managing partner of the San Francisco-based VC firm <a href="https://mighty.capital/">Mighty Capital</a>, a backer of Airbnb and Amplitude, said has "the most quality, in-depth discussions on how institutional investors select the VCs they invest in." </p><p>"My favorite series of the show is their manager interviews, where an endowment will invite one of the venture funds they invested in — great nuggets on what makes VCs get excited about deals," Moatti added.</p><h2><strong>8. '</strong><strong>Masters of Scale</strong><strong>'</strong><strong> with Reid Hoffman</strong></h2><p>Chenxi Wang, the founder and general partner of the Silicon Valley-based venture fund <a href="http://www.raincapital.vc/">Rain Capital</a> and a former executive at Intel and Forrester, is a fan of the "<a href="https://podcasts.apple.com/ro/podcast/masters-of-scale/id1227971746">Masters of Scale</a>" podcast, where the LinkedIn cofounder Reid Hoffman proves unconventional theories about how businesses scale and interviews top CEOs.</p><p>"As a general partner of a venture fund, I don't have a lot of time, but I can always learn something valuable from Reid's conversations with leaders who have scaled a massively successful business," Wang said. "In my opinion, building a successful startup is 30% about the idea and 70% about the ability to scale up the operation. Scaling a business is about building repeatable motions, establishing meaningful business metrics, and responding to evolving market conditions. The 'Masters of Scale' podcast hits on those aspects really well, and I recommend all founders listen to this podcast and make it a regular resource."</p><h2><strong style="color: #000000;">9. 'What Is Money?' with Robert Breedlove</strong></h2><p>Nathan Montone, the cofounder and CEO of <a href="https://www.m31.capital/">M31 Capital Management</a>, a global investment firm focused exclusively on crypto assets and blockchain technology, and an early backer and advisor to Helium, lists "<a href="https://podcasts.apple.com/us/podcast/the-what-is-money-show/id1541404400">What Is Money?</a>" with Robert Breedlove, a former hedge-fund manager and philosopher in the bitcoin space, as one of his favorite podcasts and the best starting point for anyone looking for a "first principles understanding" of monetary technologies.</p><p>"'What Is Money?' takes deep philosophical dives into the importance of bitcoin through historical, political, technical, and spiritual lenses," Montone said. "BTC is the single-most important asset in the world, and that podcast gets to the heart of why that is."</p><h2><strong>10. '</strong><strong>Origins</strong><strong>'</strong><strong> by Notation</strong></h2><p>Jenny Rooke, the managing director of <a href="http://www.genoavc.com/">Genoa Ventures</a>, a VC investing in early-stage companies like <a href="https://www.crunchbase.com/organization/intabio">Intabio</a> and <a href="https://intervenn.com/">InterVenn</a> in the biology and tech sectors, said "<a href="https://podcasts.apple.com/us/podcast/origins-a-podcast-about-limited-partners-created-by/id1111792048">Origin,</a>" a podcast created by Alex Lines and Nick Chirls, partners at the VC firm <a href="https://notation.vc/">Notation Capital</a>, is "excellent" for providing the LP perspective. </p><p>"The Notation Capital hosts ask LPs the questions that are on general partners' minds, such as how LPs think about allocating to new and emerging managers, tips and guidance for communicating well with LPs, and the LP view on markets and trends that need to be reflected in a manager's evolving strategy in order to stay current and succeed," Rooke said.</p><h2><strong>11.</strong> <strong>'</strong><strong>Built to Sell Radio</strong><strong>'</strong> <strong>with John Warrillow</strong></h2><p>"<a href="https://podcasts.apple.com/us/podcast/built-to-sell-radio/id1018988393">Built to Sell Radio</a>" airs weekly and features an entrepreneur who's recently sold their business to share why they sold it, focusing on their mistakes and victories along the way.</p><p>"Host John Warrillow is a thought leader in his own right, focused on creating and maximizing business value on the customer side and on the exit side," SC Moatti said. </p><p>"A great show to hear stories about entrepreneurs who made it all the way, with stories of entrepreneurs selling their businesses," Moatti added. "So many lessons that can be applied to early-stage startups, because at the end of the day, it doesn't matter how much money you raise, it's all about the exit and being able to land that plane."</p>

11 podcasts that busy venture capitalists and founders say they trust right now

<p><a href="https://www.businessinsider.com/category/master-your-crypto"></a></p><div type="image" title="People playing video games" height="4480" width="5973" msid="94207720" hostid="261"></div><ul class="summary-list"><li>Insider spoke with industry experts about gaming's potential to take crypto to a broader audience. </li><li><strong>Blockchain gaming VC investments notched $2.5 billion during Q2 2022, according to DappRadar.</strong></li></ul><p>Blockchain gaming raked in $2.5 billion in funding during Q2, 2022, according to a DappRadar <a href="https://www.businessinsider.com/crypto-gaming-blockchain-report-growth-slows-still-less-volatile-market-2022-7">report</a>. The burgeoning space has attracted some of the biggest names in Silicon Valley, with Andreessen Horowitz <a href="https://www.wsj.com/articles/andreessen-horowitz-debuts-600-million-gaming-fund-to-add-to-web3-bets-11652878800">debuting</a> a $600 million fund for gaming startups in May. Animoca Brands, a Hong Kong-based game developer and crypto investor, also <a href="https://www.forbes.com/sites/zinnialee/2022/07/12/animoca-brands-hits-59-billion-valuation-as-crypto-winter-deepens/?sh=7d12d3f8469d">secured</a> a $75 million raise at a $5.9 billion valuation in July. </p><p>Total investments in the sector this year, by some <a href="https://www.businessinsider.com/crypto-gaming-blockchain-report-growth-slows-still-less-volatile-market-2022-7">measures</a>, are outpacing last year's by around 33%.</p><p>Franklin Bi, the director of portfolio development at crypto hedge fund Pantera Capital, previously told <a href="https://www.businessinsider.com/crypto-gaming-blockchain-report-growth-slows-still-less-volatile-market-2022-7">Insider</a> that it is blockchain gaming's "perfect moment" to "take off."</p><p>"The gaming industry travels in cycles. New cycles are historically marked by new tech or new business models or novel user experiences. Crypto and NFTs have opened up all of the above," Bi said in a statement.</p><p>There have been a slew of household names jumping on the blockchain gaming bandwagon. Microsoft Corp. <a href="https://decrypt.co/90634/microsoft-69b-activision-blizzard-deal-metaverse-move">announced</a> plans in January to acquire Activision Blizzard Inc. – commonly known as the publisher of franchises like Minecraft and Call of Duty – for $68.7 billion. Microsoft says the deal will help develop "building blocks for the metaverse," according to a statement from CEO and Chairman Satya Nadella. </p><p>With the gaming market <a href="https://newzoo.com/insights/trend-reports/newzoo-global-games-market-report-2022-free-version">valued</a> at almost $200 billion this year, there is potential in onboarding a critical mass of users through blockchain games. Insider spoke with industry experts about the nascent space and its potential to take crypto to a broader audience. </p><h2>NFTs as a way to own in-game assets</h2><p>Gaming may be one of the main driving forces for mainstream adoption in crypto, Pavel Bains, the CEO of blockchain startup Bluzelle, says.</p><p>"I have three kids who grew up on Fortnite, Minecraft, and Roblox," Bains told Insider in a statement. "Virtual currencies and acquiring in-game digital assets is what they already know." </p><p>He added: "The power of crypto can help turn those virtual goods into tangible assets for committed gamers. It's a natural progression for the upcoming generation and they will use it as a vehicle to learn valuable finance lessons at the same time."</p><p>In traditional games, players commonly buy skins or virtual cosmetics for their characters. This is a market, per trading platform <a href="https://venturebeat.com/2020/12/18/newzoo-u-s-gamers-are-in-love-with-skins-and-in-game-cosmetics/">DMarket,</a> that generates roughly $40 billion in annual revenue. These assets belong to the studio, instead of the buyer, which could make NFTs an attractive alternative to the traditional gaming model. </p><p>"So what's happened with the advent of blockchain games is that now those virtual goods and items can be put on-chain and you can have actual ownership of that," Justin Kan, cofounder of NFT marketplace Fractal, previously told <a href="https://www.businessinsider.com/nfts-in-gaming-twitch-justin-kan-investing-outlook-advice-2022-4">Insider.</a> "The only difference is that these companies themselves are giving up control and what they get in exchange is a more robust economy."</p><p>NFTs verify ownership of a player's asset because it's recorded on a public ledger via the blockchain. Instead of holding these assets with a Web2 gaming studio, participants can hold tokens in their crypto wallets or some other more decentralized custodian.</p><p>"We believe ownership of digital assets will open up another layer of excitement and experience for gamers as they will now have additional motivation playing the games they enjoy," Kyu Lee, a partner at venture capital firm CRIT Ventures, told Insider in a statement.</p><h2>Games are entertaining and people want to play them</h2><p>Gaming is an effective onboarding tool, STEPN's Shiti Rastogi Manghani says, because it's entertaining and accessible to a broader audience. STEPN, dubbed a "move-to-earn app," allows users to earn game tokens through exercising. </p><p>"Anything that is fun, social, engaging will get the users in the door," Manghani, the startup's CMO, told Insider in a statement. "We've seen this time and again in multiple industries like retail, e-commerce, and social media. It serves basic human needs. Gaming or any utility app that checks those boxes will go mainstream. If it benefits the users in the process, that's icing on the cake." </p><p>Younger generations, in particular, are long accustomed to playing video games. Games have always been at the "forefront of emerging technologies" because humans love to be entertained, Shahaf Bar Geffen, the chairman of Web3 startup UnCaged Games, says. </p><p><strong>"</strong>The game of Tetris was built by Alexey Pajitnov to make computers less intimidating and more accessible to people," Geffen told Insider in a statement. </p><h2>Roadblocks to blockchain gaming</h2><p>With any new technology – and especially one in a volatile market – comes plenty of obstacles.</p><p>Amid a crypto bear market, blockchain gaming has shown signs of slowing down as well. Axie Infinity, the game which once had the largest user base in the industry, had 83% fewer participants in Q2 than in Q1, according to <a href="https://www.businessinsider.com/crypto-gaming-blockchain-report-growth-slows-still-less-volatile-market-2022-7">DappRadar.</a> The downtrend in players steepened following a $650 million hack on its Ethereum-linked sidechain, Ronin.</p><p>"While gaming activity still dominates the overall landscape, we have also begun to see the first cracks appearing in the industry, and many top blockchain games started to show weakness," the DappRadar report says.  </p><p>Potential hurdles for mainstream adoption are a game's usability, Steven Goldfeder, the CEO and cofounder of Ethereum scaling solution provider Offchain Labs, says. Is it fun or are people just playing for the returns and financial rewards? </p><p>"A good blockchain game needs to be a game first, and a blockchain application second," Goldfeder said in a statement to Insider. "The incorporation of blockchain technology should be purely additive, enhancing the gaming experience for users that wish to engage with the blockchain, but not by limiting accessibility to those who just want to play the game."</p><p>He added: "Ironically, in order for blockchain to go mainstream, it needs to be able to operate in the background, and core to that are ease of onboarding, fast confirmation times, and low transaction costs that are abstracted away from users." </p><p><em>This article is intended to provide generalized information designed to educate a broad segment of the public; it does not give personalized investment, legal, or other business and professional advice. Before taking any action, you should always consult with your own financial, legal, tax, investment, or other professional for advice on matters that affect you and/or your business.</em></p>

Web3 founders and top VCs break down how blockchain gaming can take crypto mainstream &ndash; and explain potential hurdles for widespread adoption

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Courtesy of Denise Shull.</span></p><p class="caption">ReThink Group founder Denise Shull.</p></div><p></p></div></div></p><p>Wall Street is full of investors and traders with big egos, and Denise Shull sees them at their most vulnerable.</p><p>She's the founder of <a href="https://therethinkgroup.net/">the ReThink Group</a>, a performance coaching group that specializes in clients on Wall Street. <a href="http://fortune.com/2016/02/04/showtime-billions-performance-coaches-therapists/">She's also one of the inspirations for Maggie Rhoades</a>, the in-house psychiatrist at the fictional hedge fund starring in Showtime's hit show "Billions."</p><p>Shull isn't a psychiatrist, but established her coaching method on the neuropsychology of unconscious thought, tailored to the needs of investors and traders. It's a combination drawn from her own life: She studied the neuropsychology of unconscious thought at the University of Chicago and spent 15 years as an equities trader.</p><p>She started ReThink in 2003 to put her own spin on the niche market of Wall Street performance coaching, <a href="https://dealbook.nytimes.com/2009/11/30/ari-kiev-psychiatrist-to-traders-dies-at-75/">a path paved by the late psychiatrist Ari Kiev</a>, who was employed by Steve Cohen's hedge fund SAC Capital.</p><p>Over the past 13 years, Shull says she has worked with hundreds of clients who include traders, portfolio managers, risk managers, and private equity investors.</p><p>She explained to Business Insider how her approach is based on what she considers to be the widely misunderstood dynamic between thoughts and emotions, and the role that her clients' past plays into their current problems.</p><p>Below are five truths about human behavior Shull uses to stop her Wall Street clients from being their own worst enemies, when they could be losing tremendous amounts of other people's money and risk losing their jobs.</p><h2>1. Pure resolve won't get results.</h2><p>Shull thinks many people have assumptions based on an outdated theory of the "triune brain," which basically says emotions, thoughts, and basic functions are handled separately within the brain; the reality, she says, is that all three of these roles are related in brain mechanics. Too many people, she said, think that "if we have a plan and that we're disciplined then we'll be able to do the things that we want. ... It doesn't work like that."</p><p>It's why Shull has clients in the first place, she explained. The clients know that they are underperforming and they see their mistakes. But no pep talk from a manager or colleague and no <a href="http://www.businessinsider.com/the-philosophy-of-roman-emperor-marcus-aurelius-is-supposed-to-help-you-be-more-resilient-and-at-peace-heres-how-to-master-it-in-7-days-2016-10">Stoic denial of feelings</a> can get them back to their peak.</p><h2>2. You're going to make the same mistake over and over.</h2><p>"Everyone has a fingerprint of what they do right and what they do wrong in the market and it's kind of like personality," Shull said. It's why she considers the market to be a sort of Rorshach test, on which investors and traders can project all of their beliefs and insecurities.</p><p>She's found that everyone has mistakes they regularly repeat, and for her clients, these mistakes have become overwhelming. These could be tendencies such as:</p><ul><li>"I get too big when things aren't going well."</li><li>"I don't get big enough when things are going right."</li><li>"I over-trade when I'm bored."</li><li>"I take too long to analyze and then miss opportunities."</li></ul><p>"I first help them realize all of their feelings around that weak point," Shull said. It's important to attach a label to these feelings, rather than leaving them an ambiguous jumble. She won't accept explanations for what they're feeling - each feeling has to be identified as concern, worry, anxiety, or whatever it is.</p><p>"The more they can put the right label on it, for whatever level of intensity the feeling is, the less chance they act it out," Shull said.</p><h2><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>"Billions"/Showtime</span></p><p class="caption">Wendy Rhoades (Maggie Siff) coaches hedge fund manager Bobby Axelrod (Damian Lewis) in the show "Billions."</p></div><p></p></div></div></h2><h2>3. Your personal and professional life aren't as separate as you think.</h2><p>Shull asks her clients about their personal lives in their first session. She's found that every recurring mistake tied to an insecurity has roots in a person's biography outside of their professional lives. "Someone's actual background matters more than anything," she said.</p><p>This is due to what she calls fractal emotions, where patterns develop throughout someone's life in different manifestations, the same way a fractal is a whole composed of pieces that have the same characteristics as the whole.</p><p>Examples: She had a client who had a crisis of confidence in his abilities that mirrored the one he had when he realized he had to give up his sporting career at some point in college; a client who was over-trading would seek out experiences that gave him a feeling of power, the same reason he played rugby; another client who had developed a fight or flight reaction to unexpected movements in the market displayed this in other aspects of his life, built on a childhood where his missionary parents uprooted the family repeatedly.</p><h2>4. And ignoring your emotions won't get you anywhere.</h2><p>Once these feelings are identified, Shull has her clients dive as deeply as possible into them, since she's found that ignoring or trying to negate these feelings are what cause her clients to continue repeating mistakes.</p><p>"These emotions always exist in an iceberg, so you have the stuff you know you feel on the top, about the here and now," she said. "If you've just had a disaster, we're just going to have the feelings about the disaster. We're going to be upset and I'm going to help you be upset, which means you're going to be mad at yourself, you're going to be mad at the markets, you're going to be mad with your risk manager, you're going to feel stupid. I'm going to help you feel all those sh---y things, frankly, that you don't want to feel. Why? Because you basically have to go through a grieving process."</p><p>The idea is to get her clients feeling these debilitating emotions in the room with her so that they confront them when they're at their office. When clients can stop hiding from the emotions tied to their weaknesses, they can embrace them and pull the power from them.</p><h2>5. In fact, choosing the emotions you want will make all the difference.</h2><p>Then it's time to replace bad behavior.</p><p>"Everyone else tries to fight behavior with thoughts," Shull said, referring to traditional ways of working through a down period. "What works better is to create behavior through expected feelings."</p><p>She has her clients decide how they want to feel in a given week. She said that actions follow, and stick when the negative emotions clients worked through have been stripped of their control.</p><p>"If you consciously exchange future feelings for each other, your chances of doing what you want to do, and having discipline, go wildly up," she said.</p><p>"If you work on the level of feelings, the thoughts take care of themselves."</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/navy-seals-stategy-military-leadership-check-your-ego-2017-1">Navy SEALs explain how a leader's ego can destroy a team</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="FiYXR1ODE6uniXMY-Y2MXMmMVN2RKpL-" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

A Wall Street psychologist who's consulted on Showtime's 'Billions' outlines 5 truths of human behavior all her clients must face

<p><strong><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Denise Shull</span></p></div><p></p></div></div></strong></p><p>Denise Shull is a decision coach and performance architect who<span> consulted on Showtime's </span><em>BILLIONS </em>for the Wendy Rhodes character, the <span>in-house psychotherapist for Axelrod hedge fund. </span></p><p>A former trader, <span>Shull graduated from Harvard Kennedy's executive program in "Investment Decisions and Behavioral Finance"  and holds a Masters in neuroscience from the University of Chicago. Her thesis research, "The Neurobiology of Freud's Repetition Compulsion" was</span><span> cited as one of the earliest groundbreaking papers in the emerging field of neuropsychoanalysis. <span>Bloomberg's Tradebook created their <a href="http://www.businessinsider.com/bloomberg-tradebook-launches-trader-brain-exercise-based-on-brain-research-2016-6">trader brain exercise game</a> based on her work.  </span><em> </em></span></p><p><strong>Tina Wadhwa:</strong><span style="font-weight: 400;"> How do people's emotions shape their feelings about investments and risk-taking? </span></p><p><strong>Denise Shull: </strong>H<span style="font-weight: 400;">ow investors think they make decisions isn't really what's happening. It only looks like a purely thought driven, mathematical analysis. Neuroscience consistently demonstrates that thoughts are the product of feelings, emotions and the body. These elements constantly cycle in a reciprocal way and create what we call confidence or conviction - the aspect of decision making that investors do acknowledge but that is feeling/emotion based. </span></p><p>There are levels of feeling and emotion that play into perception: Basic body - tiredness will cause you to see less risk. Affect - or the difference before and after coffee, like a mood or outlook. Emotion - an intense form of affect with meaning that is partially about the situation and partially about one's personality and past.</p><p><span style="font-weight: 400;"><em><strong>For investors and traders, two examples are the fear of missing out and the fear of future regret.</strong> </em>FOMO, a term I began using in 2007, causes people to get into positions they haven't fully vetted. FOFR causes them to say in positions that aren't working. In the latter, there is a great fear of getting out at the worst possible moment and feeling "stupid." </span><strong><em>Investors want to avoid that at any cost and it keeps them in losers for too long.</em></strong></p><p>Fractal emotions are the expectations and explanations for why things happen to you in the same way. The repetitive emotions we all feel that make one situation look like another. This is where life experience really comes into play.</p><p>Examples from my clients include a former rugby player who always wanted to add to a position whenever it wasn't going well - he was trying to power through it. Conversely, an equity derivatives guy who could never get as big as he wanted into a position. This came from a mother who was so risk-averse she wouldn't let him play soccer growing up.</p><p><strong><div class="KonaFilter image-container display-table float_left"><div><div class="image on-image"><p class="source"><span>Daniel Goodman / Business Insider</span></p></div><p></p></div></div>Wadhwa: </strong><span style="font-weight: 400;">How can investors protect themselves from emotional reactions in decision making or trading scenarios? </span></p><p><strong>Schull:</strong><span style="font-weight: 400;"> Learn to separate the integral emotions - the ones with market info - from the incidental - the irrelevant ones. </span></p><p>The mistake is trying to set all emotion aside. It won't work and you don't want it to otherwise you would have no confidence or conviction. Worse, by setting it all aside, the fractal or life experience ones will win at the worst possible moment. Their energy builds up to the point that it compels action - if the emotions are shunned.</p><p>Emotional sophistication - understanding both how emotions work and how they work for you - allows an investor or trader to glean important information from their unconscious pattern recognition which is delivered as a what we call gut feel or intuition. It may just be telling you to dig deeper. Fear in it's pure form is trying to help you by pointing out a risk or deficit in information.</p><p>Within all of this, one way to help oneself is to understand the true nature of the market: A never-ending global poker game. This matters because in contrast to sports, where the game or race always has a known end-point, your brain plays tricks on you because there is always another quarter to play. This level of possibility plays into fear of future regret for example. The uncertainty, you can always make a case for up and down, also causes your brain to go to context and pattern recognition more than it would if you were engineering a bridge where there are specific quantifiable relationships.</p><p>Investors try to deduce those same type of relationships but they don't exist. <em><strong>The market is a social, human game.</strong> </em>All you are ever doing is better that someone else will think it's a good idea to pay more for something in a year. It's really social prediction which is uncertain. But it helps to recognize the essential question of why will the guy next door buy this from me for more. Brain science shows that people who are good at that question are better price predictors.</p><p><span style="font-weight: 400;">Feeling the angst of the uncertain, unknowable market future helps one navigate it better. Research shows that labeling one's feelings precisely and accurately is the best way to sort them, the best way to not act on the irrelevant or incidental ones and the best way to understand the information component in the body-based sensations of affect and emotion.</span></p><p>The ability to recognize the sensations of your body is called interoception and it's associated with greater P&amp;L and longer track records in traders. It's also associated with more loss aversion but not more risk aversion - meaning that the person can get out of positions that aren't working and get into ones that are.</p><p><strong><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span>Showtime</span></p></div><p></p></div></div>Wadhwa:</strong><span style="font-weight: 400;"> What types of personalities show up in high-stakes situations? </span></p><p><span style="font-weight: 400;"><strong>Shull:</strong> I think there are some personalities who love the game of risk more than others. They love the human game of it and it's really about that - everyone thinks it's about the big paycheck but it's not. It's about winning the poker game - being able to predict the future, the way the cards will play out, better than the next guy. </span></p><p><strong>Wadhwa: </strong><span style="font-weight: 400;">What are the biggest mistakes investors and traders make?</span></p><p><span style="font-weight: 400;"><span><strong>Shull: </strong>It's fair to say that holding onto positions too long -  looking for more profit or hoping to recoup a loss -  is the biggest mistake. Both stem from unrealized fears - fear of missing out or fear of future regret respectively but in their quest to set their emotions aside, investors fail to recognize these fears as the motivating factors and rationalize not getting out. To behavioral finance, it looks like confirmation bias and on one level it is, just driven by the fears of missing out on more profits or the regret of getting out right before the position comes back to you.</span></span></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/tech-finance-coinbase-buy-sell-trade-bitcoin-app-coinbase-2017-1">Here's how to use one of the many apps to buy and trade bitcoin</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="8xa3Z1ODE6jmPca8bIn4JsdTak2saJbY" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

A trader psychologist who consulted on Showtime's 'Billions' reveals the biggest mistake traders make

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"></div><p></p></div></div>This week, an art collector paid almost $180 million for <a href="http://www.businessinsider.com/this-picasso-just-became-the-most-expensive-piece-of-art-sold-at-auction-2015-5">a single artwork by Pablo Picasso</a>. </p><p>That's a record for a public sale of art (though not close to the actual record if you <a href="http://www.vanityfair.com/unchanged/2012/02/qatar-buys-cezanne-card-players-201202">include private sales</a>).</p><p>Over at the <a href="http://www.nytimes.com/2015/05/14/upshot/the-179-million-picasso-that-explains-global-inequality.html?rref=upshot&amp;abt=0002&amp;abg=0">Upshot</a>, Neil Irwin folds this into the inequality story: the rich are getting exponentially richer, while most people see their incomes stagnating. And you can see how much richer the wealthy are getting by looking at skyrocketing art market prices: </p><p style="padding-left: 30px;">One of the most important findings of the leading economists who study inequality is that wealth and incomes at the very top are "fractal." What they mean is that when you zoom in on the upper end of wealth distribution, patterns repeat themselves in an ever more finely grained pattern.</p><p style="padding-left: 30px;">Partners at law firms who are in the top 1 percent of all earners have seen their incomes rise faster than successful dentists who are in the top 10 percent. But by a similar margin C.E.O.s of large companies who are in the top 0.1 percent are seeing incomes rise faster than those law firm partners. Hedge fund managers in the top 0.01 percent are similarly outperforming the C.E.Os.</p><p style="padding-left: 30px;">And the kind of people who can comfortably afford to pay a nine-figure sum for a Picasso, the top 0.001 percent, say, are doing still better than that. You can draw that conclusion by reading the work of the French economists Thomas Piketty and Emmanuel Saez. Or you can form it by looking carefully at the market for the work of a certain Spanish painter.</p><p>He goes on to point out that the number of people who are able to "afford" the painting - assuming they are willing to pay "1 percent of net worth" and their net worth according to the Forbes billionaire list is correct - has increased by a lot since it was last sold in 1997. </p><p>More very wealthy people, continuously getting wealthier, means the price for very rare luxuries are going to skyrocket. We shouldn't be surprised to see more record prices for art, jewelry, wine, classic cars, and other prized collectibles. </p><p>At least until they go out of fashion.</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/what-happens-after-black-widow-spider-bite-poison-2015-4">Here's what happens when you get bitten by a black widow</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="5wdGFndDqN2zqp8TnWPghhDHfhDWYD_r" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

Why Picassos are going to keep selling for record-breaking prices

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Courtesy of Amy Webb</span></p><p class="caption">NYU Professor Amy Webb, author of "The Big Nine: How The Tech Titans and Their Thinking Machines Could Warp Humanity"</p></div><p></p></div></div></p><ul><li><strong>Amy Webb is a professor of strategic foresight at NYU's Stern School of Business. </strong></li><li><strong>In this excerpt from her new book "<a href="https://www.amazon.com/Big-Nine-Thinking-Machines-Humanity-ebook/dp/B07H7G7CMN/ref=sr_1_1?ie=UTF8&amp;qid=1550880103&amp;sr=8-1&amp;keywords=the+big+nine">The Big Nine: How The Tech Titans and Their Thinking Machines Could Warp Humanity</a>," Webb explains why it's so important that artificial intelligence is built to keep human values. </strong></li><li><strong>Without more transparency about how AI "thinks," she argues, we run the risk that algorithms will start making decisions that don't necessarily have humanity's interests at heart. </strong></li></ul><p>In the absence of codified humanistic values within the big tech giants, personal experiences and ideals are driving decision-making. This is particularly dangerous when it comes to AI, because students, professors, researchers, employees, and managers are making millions of decisions every day, from seemingly insignificant (what database to use) to profound (who gets killed if an autonomous vehicle needs to crash).</p><p>Artificial intelligence might be inspired by our human brains, but humans and AI make decisions and choices differently. Princeton professor Daniel Kahneman and Hebrew University of Jerusalem professor Amos Tversky spent years studying the human mind and how we make decisions, ultimately discovering that we have two systems of thinking: one that uses logic to analyze problems, and one that is automatic, fast, and nearly imperceptible to us. Kahneman describes this dual system in his award-winning book Thinking, Fast and Slow. Difficult problems require your attention and, as a result, a lot of mental energy. That's why most people can't solve long arithmetic problems while walking, because even the act of walking requires that energy-hungry part of the brain. It's the other system that's in control most of the time. Our fast, intuitive mind makes thousands of decisions autonomously all day long, and while it's more energy efficient, it's riddled with cognitive biases that affect our emotions, beliefs, and opinions.</p><p>We make mistakes because of the fast side of our brain. We overeat, or drink to excess, or have unprotected sex. It's that side of the brain that enables stereotyping. Without consciously realizing it, we pass judgment on other people based on remarkably little data. Or those people are invisible to us. The fast side makes us susceptible to what I call the paradox of the present: when we automatically assume our present circumstances will not or cannot ever change, even when faced with signals pointing to something new or different. We may think that we are in complete control of our decision-making, but a part of us is continually on autopilot.</p><p>Mathematicians say that it's impossible to make a "perfect decision" because of systems of complexity and because the future is always in flux, right down to a molecular level. It would be impossible to predict every single possible outcome, and with an unknowable number of variables, there is no way to build a model that could weigh all possible answers. Decades ago, when the frontiers of AI involved beating a human player at checkers, the decision variables were straightforward. Today, asking an AI to weigh in on a medical diagnosis or to predict the next financial market crash involves data and decisions that are orders of magnitude more complex. So instead, our systems are built for optimization. Implicit in optimizing is unpredictability-to make choices that deviate from our own human thinking.</p><p>When DeepMind's AlphaGo Zero abandoned human strategy and invented its own last year, it wasn't deciding between preexisting alternatives; it was making a deliberate choice to try something completely different. It's the latter thinking pattern that is a goal for AI researchers, because that's what theoretically leads to great breakthroughs. So rather than training AI to make absolutely perfect decisions every time, instead they're being trained to optimize for particular outcomes. But who-and what-are we optimizing for? To that end, how does the optimization process work in real time? That's actually not an easy question to answer. Machine- and deep-learning technologies are more cryptic than older hand-coded systems, and that's because these systems bring together thousands of simulated neurons, which are arranged into hundreds of complicated, connected layers. After the initial input is sent to neurons in the first layer, a calculation is performed and a new signal is generated. That signal gets passed on to the next layer of neurons and the process continues until a goal is reached. All of these interconnected layers allow AI systems to recognize and understand data in myriad layers of abstraction. For example, an image recognition system might detect in the first layer that an image has particular colors and shapes, while in higher layers it can discern texture and shine. The topmost layer would determine that the food in a photograph is cilantro and not parsley.</p><p>The future of AI - and by extension, the future of humanity - is controlled by just nine companies, who are developing the frameworks/ chipsets/ networks, funding the majority of research, earning the lion's share of patents, and in the process mining our data in ways that aren't transparent or observable to us. Six are in the US, and I call them the G-MAFIA: Google, Microsoft, Amazon, Facebook, IBM and Apple. Three are in China, and they are the BAT: Baidu, Alibaba and Tencent. Here's an example of how optimizing becomes a problem when the Big Nine use our data to build real-world applications for commercial and government interests. Researchers at New York's Ichan School of Medicine ran a deep-learning experiment to see if it could train a system to predict cancer. The school, based within Mount Sinai Hospital, had obtained access to the data for 700,000 patients, and the data set included hundreds of different variables. Called Deep Patient, the system used advanced techniques to spot new patterns in data that didn't entirely make sense to the researchers but turned out to be very good at finding patients in the earliest stages of many diseases, including liver cancer. Somewhat mysteriously, it could also predict the warning signs of psychiatric disorders like schizophrenia. But even the researchers who built the system didn't know how it was making decisions. The researchers built a powerful AI-one that had tangible commercial and public health benefits-and to this day they can't see the rationale for how it was making its decisions. Deep Patient made clever predictions, but without any explanation, how comfortable would a medical team be in taking next steps, which could include stopping or changing medications, administering radiation or chemotherapy, or going in for surgery?</p><p>That inability to observe how AI is optimizing and making its decisions is what's known as the "black box problem." Right now, AI systems built by the Big Nine might offer open-source code, but they all function like proprietary black boxes. While they can describe the process, allowing others to observe it in real time is opaque. With all those simulated neurons and layers, exactly what happened and in which order can't be easily reverse-engineered. <br />One team of Google researchers did try to develop a new technique to make AI more transparent. In essence, the researchers ran a deep-learning image recognition algorithm in reverse to observe how the system recognized certain things such as trees, snails, and pigs. The project, called DeepDream, used a network created by MIT's Computer Science and AI Lab and ran Google's deep-learning algorithm in reverse. Instead of training it to recognize objects using the layer-by-layer approach-to learn that a rose is a rose, and a daffodil is a daffodil-instead it was trained to warp the images and generate objects that weren't there. Those warped images were fed through the system again and again, and each time DeepDream discovered more strange images. In essence, Google asked AI to daydream. Rather than training it to spot existing objects, instead the system was trained to do something we've all done as kids: stare up at the clouds, look for patterns in abstraction, and imagine what we see. Except that DeepDream wasn't constrained by human stress or emotion: what it saw was an acid-trippy hellscape of grotesque floating animals, colorful fractals, and buildings curved and bent into wild shapes.</p><p>When the AI daydreamed, it invented entirely new things that made logical sense to the system but would have been unrecognizable to us, including hybrid animals, like a "Pig-Snail" and "Dog-Fish." AI daydreaming isn't necessarily a concern; however, it does highlight the vast differences between how humans derive meaning from real-world data and how our systems, left to their own devices, make sense of our data. The research team published its findings, which were celebrated by the AI community as a breakthrough in observable AI. Meanwhile, the images were so stunning and weird that they made the rounds throughout the internet. A few people used the DeepDream code to build tools allowing anyone to make their own trippy photos. Some enterprising graphic designers even used DeepDream to make strangely beautiful greeting cards and put them up for sale on Zazzle.com.</p><p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Sean Gallup/Getty Images</span></p><p class="caption">The AI-powered "DeepDream" turns any photo or image into a hallucinatory masterpiece.</p></div><p></p></div></div></p><p>DeepDream offered a window into how certain algorithms process information; however, it can't be applied across all AI systems. How newer AI systems work-and why they make certain decisions-is still a mystery. Many within the AI tribe will argue that there is no black box problem-but to date, these systems are still opaque. Instead, they argue that to make the systems transparent would mean disclosing proprietary algorithms and processes. This makes sense, and we should not expect a public company to make its intellectual property and trade secrets freely available to anyone-especially given the aggressive position China has taken on AI.</p><p>However, in the absence of meaningful explanations, what proof do we have that bias hasn't crept in? Without knowing the answer to that question, how would anyone possibly feel comfortable trusting AI?</p><p>We aren't demanding transparency for AI. We marvel at machines that seem to mimic humans but don't quite get it right. We laugh about them on late-night talk shows, as we are reminded of our ultimate superiority. Again, I ask you: What if these deviations from human thinking are the start of something new?</p><p>Here's what we do know. Commercial AI applications are designed for optimization-not interrogation or transparency. DeepDream was built to address the black box problem-to help researchers understand how complicated AI systems are making their decisions. It should have served as an early warning that AI's version of perception is nothing like our own. Yet we're proceeding as though AI will always behave the way its creators intended.</p><p>The AI applications built by the Big Nine are now entering the mainstream, and they're meant to be user-friendly, enabling us to work faster and more efficiently. End users-police departments, government agencies, small and medium businesses-just want a dashboard that spits out answers and a tool that automates repetitive cognitive or administrative tasks. We all just want computers that will solve our problems, and we want to do less work. We also want less culpability- if something goes wrong, we can simply blame the computer system. This is the optimization effect, where unintended outcomes are already affecting everyday people around the world. Again, this should raise a sobering question: How are humanity's billions of nuanced differences in culture, politics, religion, sexuality, and morality being optimized? In the absence of codified humanistic values, what happens when AI is optimized for someone who isn't anything like you?</p><p><em>Excerpted from: The Big Nine: How the Tech Titans and Their Thinking Machines Could Warp Humanity by Amy Webb. Copyright © by Amy Webb. Published by arrangement with PublicAffairs, an imprint of Hachette Book Group.</em></p><p class="tagline">Get the latest Google stock price<a href="http://markets.businessinsider.com/stock/GOOG-Quote"> here.</a></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/secret-room-facts-mount-rushmore-presidents-south-dakota-inaccessible-tourists-lincoln-2017-1">There's a secret room behind Mount Rushmore that's inaccessible to tourists</a></h3>        <div>                    </div>    </div>

An NYU professor explains why it's so dangerous that Silicon Valley is building AI to make decisions without human values

<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span>Hulton Archive /Getty Images</span></p><p class="caption">Wall Street in 1929.</p></div><p></p></div>As regular readers will know, I have recently become concerned about <a href="http://www.businessinsider.com/stocks-market-crash-2014-1">the possibility of a stock-market crash</a> - or, at the very least, a long period of crappy stock returns.</p>
<p>Importantly, I'm not <em>predicting</em> a crash, but I think the odds of one are increasing. And I am holding onto my own stocks only because I have a balanced portfolio and a long-enough investment horizon that I am comfortable with the possibility of stocks plunging, say, 50%, over the next year or two.</p>
<p>Of course, stocks have done so well over the past five years that almost everyone is bullish these days, so whenever I talk about the possibility of a market crash, people cackle with laughter or dismiss me as hater, shortseller, or moron.</p>
<p>For what it's worth, I'm not short stocks. I'm very long. <span style="line-height: 1.5em;">I hope stocks continue to charge higher, but I just can't find much </span><em style="line-height: 1.5em;">valid</em><span style="line-height: 1.5em;"> data to suggest that they will. I only have vague hopes that the Fed will continue to pump air into the market balloon, the U.S. economy will finally start cranking again, and corporations will continue to find ways to cut more costs and grow their already record-high profit margins and earnings.</span></p>
<p>Meanwhile:</p>
<ul>
<li><span style="line-height: 1.5em;">Every valid valuation measure I look at suggests that stocks are at least 40% overvalued</span></li>
<li><span style="line-height: 1.5em;">Corporate profit margins look like they might finally be rolling over, and</span></li>
<li><span style="line-height: 1.5em;">Lots of sentiment indicators are flashing ever-brighter warning signs</span></li>
</ul>
<p>None of this means that stocks will crash. But, the valuation data, at least, does suggest that, at best, stocks are<a href="http://www.businessinsider.com/stock-market-crash-2013-9"> likely to produce lousy returns over the next 10 years</a> (0%-2% per year, including dividends).</p>
<p>I'll describe these issues in detail below. Before I do, though, I want to stress that I am not giving you<em> investment advice</em>. I know nothing about your personal investment goals, risk tolerance, or time horizon, and without that information, I have no idea what you should do with your portfolio. (I'm also not <em>allowed</em> to give you investment advice, but that's a different story). What I <em>do</em> think you should do is ask yourself, "If stocks dropped 50% over the next two years, would I be comfortable with that?" If your answer is "no" - if a drop of that magnitude would cause you to lose sleep or panic and sell - then I would respectfully suggest that you consider rebalancing your portfolio. Not selling <em>all</em> of your stocks - for many reasons, that would almost certainly be dumb. Just rebalancing.</p>
<p>Okay, which valuation measures suggest the stock market is very overvalued?</p>
<p>These, among others:</p>
<ul>
<li>Cyclically adjusted price-earnings ratio (current P/E is 26X vs. 15X average - higher than any time in the past century with the exception of 1999-2000 and, very briefly, in 1929).</li>
<li>Market cap to revenue (current ratio of 1.6 vs. 1.0 average).</li>
<li>Market cap to GDP (double the pre-1990s norm).</li>
</ul>
<p>(See charts below.)</p>
<p>And what about profit margins? Why are they important?</p>
<p>One of the reasons stocks have done so well over the past 5 years is that US companies have been able to hike their profit margins and profits every year, in part by firing people and replacing them with technology. The trouble with this is two-fold. First, it's not a sustainable way to grow profits: Margins can't go up for ever or eventually they'll be more than revenue. Second, by firing employees, companies are putting the actual spenders in the economy out of work. As a result, too many American consumers are still broke. And consumer spending accounts for about 70% of the economy. So the collective short-term effort of companies to grow earnings by cutting costs is actually making it harder for companies to grow revenue. In any event, profit margins are already at an all-time high, and some analysts think they are rolling over. (See charts below.)</p>
<p>Lastly, sentiment...</p>
<p>One of the few folks on Wall Street who shares my concern about the market just sent me a note about various sentiment indicators - measures of the number of analysts who are bullish vs. bearish, etc. By themselves, none of these indicators is particularly meaningful. But it is rare to see so many indicators flashing yellow (extreme bullishness) at the same time.</p>
<p>Below, some charts with more details on why I am concerned ...</p>
<h2><strong>1. Valuation.</strong></h2>
<p>The following three charts show three long-term, time-tested valuation measures, all of which suggest the market is drastically overvalued.</p>
<p>First, from Bill Hester of the Hussman Funds, a recent chart of Professor Robert Shiller's "CAPE" (cyclically-adjusted PE ratio). The blue line shows the prediction for 10-year returns. The red line shows the actual returns. If you have heard people say, "CAPE doesn't work anymore," you might want to read <a href="http://www.hussmanfunds.com/rsi/cape.htm">Bill Hester's analysis</a>. He looks at all the arguments why CAPE doesn't work and concludes that it does. (We'll know for sure in 10 years.)</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/rsi/cape.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<p>Second, in case you have been convinced that the "CAPE" ratio no longer works, here's a look at <strong>price-to-revenue</strong>. This measure is calling for a slightly better long-term return for the S&amp;P 500 - just under 5% - but still a far cry from the long-term average.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></div></p>
<p>Third, in case your favorite bulls wave away both earnings and revenue, here's a chart of <strong>market-value-to-GDP.</strong> It's the most pessimistic of the lot. This chart suggests that the S&amp;P 500's average annual returns for the next 10 years will be negative.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></div></p>
<h2><strong>2. A bogus (but popular!) valuation measure.</strong></h2>
<p>One thing that people do when stocks get expensive is to find ways to explain why they aren't expensive. They don't do this to hoodwink you. They do this because stocks have been expensive for so long that the obvious conclusion must be that they're not expensive - that it's different this time.</p>
<p>One measure that people are using right now to argue that stocks are not expensive is the difference between the "earnings yield" and "Treasury yield." Interest rates are low and earnings are high, so it appears that stocks are delivering far higher "yields" than bonds and are therefore cheap.</p>
<p>The problem with this analysis is that it doesn't work. Check out this chart below <a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">from John Hussman,</a> which "backtests" the analysis. It doesn't have any predictive power at all.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<h2><strong>3. Profits</strong></h2>
<p>Over the long haul, stocks track profits. And profits and profit margins are at record highs. Every time previously that profit margins have gotten way above or below average, they have violently reverted to the mean. Many people, including me, think this will happen again this time. The only question is when.</p>
<p>Here's a long-term look at profit margins. Note how high they are. Note what has happened every time this has been the case in the past.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.businessinsider.com/">Business Insider, St. Louis Fed</a></span></p></div><p></p></div></p>
<p>Byron Wien, a strategist at Blackstone, is worried about profit margins. He also just circulated this chart, which he says suggests that profit margins are "rolling over." This, he says, is bad news for earnings in 2014.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span>Blackstone, Wisdomtree</span></p></div><p></p></div></div></p>
<p>John Hussman is also worried about profits. He thinks profit margins are so out of whack that corporate earnings will <em>decline</em> at 10% per year for the next four years.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<p>Hussman thinks that two things might cause profits to tank: 1) the decline of government deficits (which have been going directly into corporate coffers), and 2) increasing labor costs, as the labor market gets tighter. Hussman believes that these factors are already causing profits to miss estimates. This, Hussman suggests, may be why there are suddenly way more companies missing profit estimates than beating them:</p>
<h2><div class="KonaFilter image-container"><div class="image on-image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div> <strong>4. When?</strong></h2>
<p>Market timing is always tough, and I don't know when profits and the market might break down. That really is anyone's guess.</p>
<p>John Hussman has posted a fun technical chart that addresses this question, though. Technical analysis is generally bunk, and I would never bet a dime on it. But it's also often fun. And this chart is especially fun.</p>
<p>This chart, a "log-periodic bubble" analysis, suggests that the S&amp;P rise off the 2009 bottom has followed a clear "fractal" pattern that is often seen near the end of speculative advances. This chart suggests that the S&amp;P 500 (blue) might hit 1900 before collapsing. (It's at about 1,850 now). According to Hussman, the chart also suggests that the market will peak between December 31, 2013 and January 13, 2014 - e.g., now.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc140106.htm">John Hussman, Hussman Funds</a></span></p></div><p></p></div></p>
<p class="largeText">Anyway, none of these indicators mean that the market will definitely crash, let alone when. And market timing is a dangerous and destructive investment strategy. So bear that in mind. But if the spectacular run-up of the past 5 years has given you too much equity exposure, well, then, this might be a smart time to consider rebalancing.</p>

Sorry, Folks, It's Time To Warn You About The Latest Data Suggesting That Stocks Might Crash...

<p><div class="KonaFilter image-container"><div class="image on-image"><p class="source"><span> MPI/Getty Images</span></p></div><p></p></div>The stock market continues to set new highs, which is exciting and fun for those of us who own stocks.</p>
<p>I own stocks, so I'm certainly enjoying it.</p>
<p>I hope stocks continue to charge higher through 2014, but I can't find much data to suggest that they will. I only have a vague hope that the Fed will continue to pump air into the balloon, the U.S. economy will finally start cranking again, and corporations will continue to find ways to cut more costs and grow their already record-high profit margins and earnings.</p>
<p>Meanwhile, every <em>valid</em> valuation measure I look at suggests that stocks are at least 40% overvalued and, therefore, are<a href="http://www.businessinsider.com/stock-market-crash-2013-9"> likely to produce lousy returns over the next 10 years</a>.</p>
<p>Which valuation measures suggest the stock market is very overvalued?</p>
<p>These, among others:</p>
<ul>
<li>Cyclically adjusted price-earnings ratio (current P/E is 25X vs. 15X average)</li>
<li>Market cap to revenue (current ratio of 1.6 vs. 1.0 average)</li>
<li>Market cap to GDP (double the pre-1990s norm)</li>
</ul>
<p>(See charts below.)</p>
<p>How lousy do these measures suggest stock returns will be over the next decade?</p>
<p>About 2% per year for the S&amp;P 500, including dividends - a far cry from the double-digit returns of the past 5 years and the ~10% long-term average.</p>
<p>If stocks just park here for a decade and return 2% a year through dividends, that wouldn't be particularly traumatic. But stocks rarely "park." They usually boom and bust. So the farther we get away from average valuations, the more the potential for a bust increases.</p>
<p>So the higher we go, the less surprised I will be to see the stock market crash. </p>
<p>How big a crash could we get?</p>
<p>According to the aforementioned valuation measures, and <a href="http://www.hussmanfunds.com/wmc/wmc131104.htm">the work of fund manager John Hussman of the Hussman Funds</a>, 40%-55%.</p>
<p>A 50% crash would take the S&amp;P 500 below 900 and the DOW below 8,000.</p>
<p>Is that going to happen?</p>
<p>I don't know. But it wouldn't surprise me. </p>
<p>One thing I do know is that no one else knows, either. We're all just dealing in probabilities. And, just as importantly, no one knows <em>when</em>. Valuation measures like the ones above are unfortunately not helpful in predicting short- or intermediate-term market moves. So, maybe the market will continue to move higher through 2014. I certainly would be happy about that.</p>
<p>But a careful study of history suggests that a crash is increasingly likely and that long-term stock returns from this level are likely to be crappy.</p>
<p>I've explained <a href="http://www.hussmanfunds.com/wmc/wmc131104.htm">in detail here why I think the odds of a crash are increasing</a>. And I've also explained why, despite this, <a href="http://www.businessinsider.com/why-im-not-selling-stocks-2013-9">I'm not selling my stocks</a>. (In short, because I am a long-term investor, I am mentally prepared for a crash, and I am planning to ride out any crash, the same way I did with the 2008-2009 crash. And also because none of the other major asset classes are particularly compelling investments at these prices, either.).</p>
<p><span>Importantly, there are at least three sophisticated arguments about why the aforementioned valuation measures are wrong - and, therefore, that "it's different this time."</span></p>
<ul>
<li><span style="line-height: 1.5em;">Interest rates are likely to stay near zero for many more years, and in a near-zero interest rate environment, the fair value for stocks is much higher than it is in a normal interest rate environment.</span></li>
</ul>
<ul>
<li><span style="color: #222222; line-height: 1.5em;">On average, stocks are getting increasingly less risky - and, therefore, that old "average" valuation measures don't apply. </span></li>
</ul>
<ul>
<li><span style="color: #222222; line-height: 1.5em;">Changes in accounting rules and aberrant earnings performance during the financial crisis have skewed average long-term valuation measures, making stocks look more expensive than they actually are.</span></li>
</ul>
<p>These are all sophisticated arguments, and they merit close consideration.</p>
<p>After considering them, however, I don't find any of them particularly persuasive. Or, more accurately, I don't find any of them to be <em>more</em> persuasive than the long-term valuation measures I have cited above.</p>
<p>All of these bullish arguments, moreover, boil down to the following:</p>
<p>"It's different this time."</p>
<p>"It's different this time," are known as "the four most expensive words in the English language." Because, too often, when investors and analysts try to justify high prices by arguing that "it's different this time," it turns out not to be different, and the investors and analysts end up losing their shirts.</p>
<p>(I know this from experience. Back in 1999, I used a variety of "it's different this time" arguments to persuade myself and others that the dotcom stocks could continue appreciating. They could have. But they didn't.)</p>
<p>Of course, you can't just scoff at those arguing that it's different this time by saying that it's <em>never</em> different this time, because sometimes it is.</p>
<p>And that, among other reasons, is why it makes little sense to expend too much energy trying to forecast the market. Because it's really hard to be right consistently enough to avoid costing yourself serious money.</p>
<p>But making specific forecasts is different than managing your own expectations.</p>
<p>And my own expectations are that 1) stocks will have lousy returns over the next decade, and 2) the odds of a severe market pullback are steadily increasing.</p>
<p>I will therefore not be surprised to see stocks crash in 2014. And neither should you!</p>
<p>Below are some of the charts that show why I am concerned...</p>
<h2><strong>1. Valuation.</strong></h2>
<p>The following three charts show three long-term, time-tested valuation measures, all of which suggest the market is drastically overvalued.</p>
<p>First, from Bill Hester of the Hussman Funds, a recent chart of <strong>Professor Robert Shiller's "CAPE" (cyclically-adjusted PE ratio).</strong>  The blue line shows the prediction for 10-year returns. The red line shows the actual returns. If you have heard people say, "CAPE doesn't work anymore," you might want to read <a href="http://www.hussmanfunds.com/rsi/cape.htm">Bill Hester's analysis</a>. He looks at all the arguments why CAPE doesn't work and concludes that it does. (We'll know for sue in 10 years).</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/rsi/cape.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<p> </p>
<p>Second, in case you have been convinced that "CAPE" no longer works, here's a look at <strong>price-to-revenue</strong>. This measure is calling for a slightly better long-term return for the S&amp;P 500 - just under 5% - but still a far cry from the long-term average.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></div></p>
<p><br />Third, in case your favorite bulls wave away both earnings and revenue, here's a chart of <strong>market-value-to-GDP.</strong> It's the most pessimistic of the lot. This chart suggests that the S&amp;P 500's average annual returns for the next 10 years will be negative.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></div></p>
<h2><strong>2. A bogus (but popular!) valuation measure.</strong></h2>
<p>One thing that people do when stocks get expensive is to find ways to explain why they aren't expensive. They don't do this to hoodwink you. They do this because stocks have been expensive for so long that the obvious conclusion must be that they're not expensive - that it's different this time.</p>
<p>One measure that people are using right now to argue that stocks are not expensive is the difference between the "earnings yield" and "Treasury yield." Interest rates are low and earnings are high, so it appears that stocks are delivering far higher "yields" than bonds and are therefore cheap.</p>
<p>The problem with this analysis is that it doesn't work. Check out this chart below <a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">from John Hussman,</a> which "backtests" the analysis. It doesn't have any predictive power at all.</p>
<p><div class="KonaFilter image-container"><div class="image on-image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<h2><strong><br />3. Profits</strong></h2>
<p>Over the long haul, stocks track profits. And profits and profit margins are at record highs. Every time previously that profit margins have gotten way above or below average, they have violently reverted to the mean. Many people, including me, think this will happen again this time. The only question is when.</p>
<p>Here's a long-term look at profit margins. Note how high they are. Note what has happened every time this has happened in the past.</p>
<p><div class="KonaFilter image-container"><div class="image on-image"><p class="source"><span><a href="http://www.businessinsider.com/">Business Insider, St. Louis Fed</a></span></p></div><p></p></div></p>
<p><br />Byron Wien, a strategist at Blackstone, is worried about profit margins. He also just circulated this chart, which he says suggests that profit margins are "rolling over." This, he says, is bad news for earnings in 2014.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Blackstone, Wisdomtree</span></p></div><p></p></div></div></p>
<p><br />John Hussman is also worried about profits. He thinks profit margins are so out of whack that corporate earnings will <em>decline</em> at 10% per year for the next 4 years.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<p> </p>
<p>Hussman thinks that two things might cause profits to tank: 1) the decline of government deficits (which have been going directly into corporate coffers), and 2) increasing labor costs, as the labor market gets tighter. Hussman believes that these factors are already causing profits to miss estimates. This, Hussman suggests, may be why there are suddenly way more companies missing profit estimates than beating them:</p>
<p><div class="KonaFilter image-container"><div class="image on-image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div> </p>
<h2><strong>4. When?</strong></h2>
<p>Market timing is always tough, and I don't know when profits and the market might break down. That really is anyone's guess.</p>
<p>John Hussman has posted a fun technical chart addressing this question, though. Technical analysis is generally bunk, and I would never bet a dime on it. But it's also often fun. And this chart is especially fun.</p>
<p>This chart suggests that the S&amp;P rise off the 2009 bottom has followed a clear "fractal" pattern that is often seen near the end of speculative advances. This chart suggests that the S&amp;P 500 (blue) might hit 1900 before collapsing. (It's at about 1,820 now).</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></div></p>
<p class="largeText"><br />Anyway, maybe it is indeed "different this time." So do what you want. But don't say you weren't warned!</p>
<p class="largeText"><strong>SEE ALSO:<a href="http://www.businessinsider.com/stock-market-crash-2013-9"> I Think There's A Decent Chance Of A Stock-Market Crash</a></strong></p>

I Certainly Won't Be Surprised To See Stocks Crash Next Year (And You Shouldn't Be, Either!)

<p><div class="KonaFilter image-container"><div class="image on-image"><p class="source"><span>Archives</span></p><p class="caption">The New York Stock Exchange in 1929.</p></div><p></p></div>As regular readers know, I have a cautious outlook for the <a href="http://www.businessinsider.com/stocks-market-crash-2014-1">stock market</a> these days.</p>
<p>I'm not predicting a crash, per se, but <a href="http://www.businessinsider.com/stocks-market-crash-2014-1">I would not be surprised if we saw one</a>.  Mostly, I think that from today's levels, stocks are likely to deliver lousy returns for the next 7 or so years. I am holding onto my own stocks only because 1) I have a balanced portfolio and a long-enough investment horizon that I am comfortable with the possibility of stocks plunging, say, 50%, over the next year or two, and 2) the likely returns on bonds and cash are also lousy.</p>
<p>Over the last few months, when I have aired this view, it has been <a href="http://www.businessinsider.com/stocks-market-crash-2014-1">met with snickering and ridicule,</a> because stocks were still going up. Now, stocks have begun to go down, so more observers are voicing concern. (Market views follow the market.) But, by and large, the recent ~4% drop off the peak is viewed as a buying opportunity, not the start of a bear market. Most people think stocks are soon going to blast off to the moon. </p>
<p>For what it's worth, I <a href="http://www.businessinsider.com/stock-market-forecast-2014-1">have no idea whether the recent dip is the start of a bear market or whether stocks are going to blast off to the moon</a>. I just know that <a href="http://www.businessinsider.com/stock-market-forecast-2014-1">no one else knows, either</a>. And I find the arguments that stocks are alarmingly expensive and vulnerable more persuasive and rigorous than the arguments suggesting that stocks are cheap and safe. I'm also not short stocks. I'm very long. <span style="line-height: 1.5em;">I hope stocks continue to charge higher, but I just can't find much </span><em style="line-height: 1.5em;">valid</em><span style="line-height: 1.5em;"> data to suggest that they will. </span></p>
<p>Meanwhile:</p>
<ul>
<li><span style="line-height: 1.5em;"><strong>Every valid valuation measure I look at suggests that stocks are at least 40% overvalued</strong> (see charts below). Importantly, I am not just referring to the much derided "CAPE Ratio" popularized by Nobel Prize-winner Robert Shiller. The CAPE Ratio is almost certainly still valid, but it actually suggests that stocks are <em>less</em> overvalued than other measures. Even <a href="http://www.businessinsider.com/warren-buffett-stock-market-value-2014-1">Warren Buffett's favorite indicator suggests that stocks are very overvalued</a>!</span></li>
<li><span style="line-height: 1.5em;"><strong>Corporate profit margins are at record levels and look like they might finally be rolling over. </strong>America's companies have never been this profitable before, and profit margins rarely stay at such extremes for long. Yes, some of this has to do with "mix" - we have a higher percentage of high-margin tech and finance companies than we used to - and some of it has to do with globalization. But even if you "normalize" for those things, profit margins are high.</span></li>
<li><span style="line-height: 1.5em;"><strong>Lots of sentiment indicators are flashing warning signs (folks are just way too bullish).</strong> For example, last week, fund manager John Hussman noted that<a href="http://www.hussmanfunds.com/wmc/wmc140127.htm"> the average of advisory "bulls" vs. "bears" was a record 58% to 15%</a>.  And margin debt, the amount of money traders have borrowed to finance stock purchases on the NYSE, recently hit 2.5% of GDP.</span></li>
</ul>
<p>None of this means that stocks will crash. But, the valuation data, at least, does suggest that, at best, stocks are<a href="http://www.businessinsider.com/stock-market-crash-2013-9"> likely to produce lousy returns over the next 10 years</a> (0%-2% per year, including dividends).</p>
<p>And what are the arguments that these concerns are silly and that stocks will keep rising?</p>
<p><strong>Well, one of the big ones seems to be that "there's no catalyst" for a crash or bear market.</strong> I don't mean to be the bearer of bad news, but anyone who thinks <a href="http://www.businessinsider.com/catalyst-for-a-market-crash-2013-12">we need a "catalyst" for a market break should brush up on their history.</a> If it were possible to consistently identify "catalysts" for market changes ahead of time, everyone would identify them, and markets would adjust. To the extent that there ever are "catalysts" for market moves, they're usually only obvious after the fact.</p>
<p>A<strong>nother bullish argument is that the economy's getting better.</strong> Happily, this is true. The pace of that improvement still leaves much to be desired, however. And stocks don't usually follow the economy. Rather, they <em>lead</em> the economy - and, particularly, profits. If our sluggish recovery ever stumbles, the stock market will see it long before everyone else does.</p>
<p><strong>Lastly, there's a general sense that the financial crisis is finally over and that everything finally feels fine.</strong> Happily, this is also true. Alas, what things feel like today doesn't tell you much about what they'll feel like six months from now. When I was in Davos a couple of weeks ago, a brilliant CEO billionaire on a panel made exactly this observation-that the financial crisis is finally over and everything finally feels fine. Then, with a wink, another brilliant CEO billionaire on the panel chimed in with the money line: "Yes.... It feels just like 2007!"</p>
<p>Perhaps you have more persuasive arguments than these as to why I should reconsider my cautious view of the stock market and become extremely bullish. If so, please share them.</p>
<p>In the meantime, I'll tell you more about my concerns.</p>
<p>For example, which valuation measures suggest the stock market is very overvalued?</p>
<p>These, among others:</p>
<ul>
<li><strong>Cyclically adjusted price-earnings ratio</strong> (current P/E is 25X vs. 15X average - higher than any time in the past century with the exception of 1999-2000 and, very briefly, in 1929).</li>
<li><strong>Market cap to revenue</strong> (current ratio of 1.6 vs. 1.0 average).</li>
<li><strong>Market cap to GDP</strong> (double the pre-1990s norm).</li>
</ul>
<p>(See charts below.)</p>
<p>And what about profit margins? Why are they important?</p>
<p>One of the reasons stocks have done so well over the past 5 years is that US companies have been able to hike their profit margins and profits every year, in part by firing people and replacing them with technology. The trouble with this is two-fold. First, it's not a sustainable way to grow profits: Margins can't go up for ever or eventually they'll be more than revenue. Second, by firing employees, companies are putting the actual spenders in the economy out of work. As a result, too many American consumers are still broke. And consumer spending accounts for about 70% of the economy. So the collective short-term effort of companies to grow earnings by cutting costs is actually making it harder for companies to grow revenue. </p>
<p>Below, some charts with more details on why I am concerned ...</p>
<h2><strong>1. Valuation.</strong></h2>
<p>The following three charts show three long-term, time-tested valuation measures, all of which suggest the market is drastically overvalued.</p>
<p>First, from Bill Hester of the Hussman Funds, a recent chart of Professor Robert Shiller's "CAPE" (cyclically-adjusted PE ratio). The blue line shows the prediction for 10-year returns. The red line shows the actual returns. If you have heard people say, "CAPE doesn't work anymore," you might want to read <a href="http://www.hussmanfunds.com/rsi/cape.htm">Bill Hester's analysis</a>. He looks at all the arguments why CAPE doesn't work and concludes that it does. (We'll know for sure in 10 years.)</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/rsi/cape.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<p>Second, in case you have been convinced that the "CAPE" ratio no longer works, here's a look at <strong>price-to-revenue</strong>. This measure is calling for a slightly better long-term return for the S&amp;P 500 - just under 5% - but still a far cry from the long-term average.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></div></p>
<p>Third, in case your favorite bulls wave away both earnings and revenue, here's a chart of <strong>market-value-to-GDP.</strong> It's the most pessimistic of the lot. This chart suggests that the S&amp;P 500's average annual returns for the next 10 years will be negative.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></div></p>
<h2><strong>2. A bogus (but popular!) valuation measure.</strong></h2>
<p>One thing that people do when stocks get expensive is to find ways to explain why they aren't expensive. They don't do this to hoodwink you. They do this because stocks have been expensive for so long that the obvious conclusion must be that they're not expensive - that it's different this time.</p>
<p>One measure that people are using right now to argue that stocks are not expensive is the difference between the "earnings yield" and "Treasury yield." Interest rates are low and earnings are high, so it appears that stocks are delivering far higher "yields" than bonds and are therefore cheap.</p>
<p>The problem with this analysis is that it doesn't work. Check out this chart below <a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">from John Hussman,</a> which "backtests" the analysis. It doesn't have any predictive power at all.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<h2><strong>3. Profits</strong></h2>
<p>Over the long haul, stocks track profits. And profits and profit margins are at record highs. Every time previously that profit margins have gotten way above or below average, they have violently reverted to the mean. Many people, including me, think this will happen again this time. The only question is when.</p>
<p>Here's a long-term look at profit margins. Note how high they are. Note what has happened every time this has been the case in the past.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.businessinsider.com/">Business Insider, St. Louis Fed</a></span></p></div><p></p></div></p>
<p>Byron Wien, a strategist at Blackstone, is worried about profit margins. He also just circulated this chart, which he says suggests that profit margins are "rolling over." This, he says, is bad news for earnings in 2014.</p>
<p><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span>Blackstone, Wisdomtree</span></p></div><p></p></div></div></p>
<p>John Hussman is also worried about profits. He thinks profit margins are so out of whack that corporate earnings will <em>decline</em> at 10% per year for the next four years.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div></p>
<p>Hussman thinks that two things might cause profits to tank: 1) the decline of government deficits (which have been going directly into corporate coffers), and 2) increasing labor costs, as the labor market gets tighter. Hussman believes that these factors are already causing profits to miss estimates. This, Hussman suggests, may be why there are suddenly way more companies missing profit estimates than beating them:</p>
<h2><div class="KonaFilter image-container"><div class="image on-image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></span></p></div><p></p></div> <strong>4. When?</strong></h2>
<p>Market timing is always tough, and I don't know when profits and the market might break down. That really is anyone's guess.</p>
<p>John Hussman has posted a fun technical chart that addresses this question, though. Technical analysis is generally bunk, and I would never bet a dime on it. But it's also often fun. And this chart is especially fun.</p>
<p>This chart, a "log-periodic bubble" analysis, suggests that the S&amp;P rise off the 2009 bottom has followed a clear "fractal" pattern that is often seen near the end of speculative advances. This chart suggests that the S&amp;P 500 (blue) might hit 1900 before collapsing. (It peaked around 1,850). According to Hussman, the chart also suggests that the market will peak between December 31, 2013 and January 13, 2014 - e.g., a few weeks ago.</p>
<p><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://www.hussmanfunds.com/wmc/wmc140106.htm">John Hussman, Hussman Funds</a></span></p></div><p></p></div></p>
<p class="largeText">Again, none of these indicators mean that the market will crash, let alone when. And market timing is a dangerous and destructive investment strategy. But the valuation measures, at least, do suggest that long-term stock returns from these levels are likely to be lousy.</p>

Please... Tell Me Again Why I Should Be Bullish About The Stock Market?

<p><span><div class="image-container"><div class="image"><p class="source"> Hulton Archive/Getty Images</p></div></div><keyword id="6354298" type="ORGANIZATION" weightage="60" keywordseo="stocks">Stocks</keyword> have started trading in the new year of 2014.</span></p>
<p><span></span><span style="line-height: 1.5em;">They're down!</span></p>
<p>Fortunately, they're not down much. Yet. But one alarming thing about making any negative observation about the stock market these days is that you quickly get heaped with scorn and ridicule. Meanwhile, Wall Street strategists are already one-upping each other in <a href="http://www.businessinsider.com/david-zervos-dump-the-hedge-2014-1">the race to be the most bullish</a>.</p>
<p>The amazing run that stocks have had over the last several years has certainly been exciting and fun for those of us who own stocks.</p>
<p>I own stocks, so I have certainly enjoyed it.</p>
<p>I hope stocks continue to charge higher through 2014, but, unlike most Wall Street strategists, I can't find much data to suggest that they will. I only have a vague hope that the Fed will continue to pump air into the balloon and corporations will continue to find ways to cut more costs and grow their already record-high profit margins and earnings. And, yes, if<span> the U.S. economy finally starts cranking again, that will likely be a huge help.</span></p>
<p>But, meanwhile, every <em>valid</em> valuation measure I look at suggests that stocks are at least 40% overvalued.</p>
<p>That doesn't mean that stocks will crash. But it does strongly suggest that, at best, stocks are<a href="http://www.businessinsider.com/stock-market-crash-2013-9"> likely to produce lousy returns over the next 10 years</a>.</p>
<p>Which valuation measures suggest the stock market is very overvalued?</p>
<p>These, among others:</p>
<ul>
<li>Cyclically adjusted price-earnings ratio (current P/E is 25X vs. 15X average).</li>
<li>Market cap to revenue (current ratio of 1.6 vs. 1.0 average).</li>
<li>Market cap to GDP (double the pre-1990s norm).</li>
</ul>
<p>(See charts below.)</p>
<p>How lousy do these measures suggest stock returns will be over the next decade?</p>
<p>About 2% per year for the S&amp;P 500, including dividends - a far cry from the double-digit returns of the past five years and the ~10% long-term average.</p>
<p>If stocks just park at this level for a decade and return 2% a year through dividends, that wouldn't be particularly traumatic. But stocks rarely "park." They usually boom and bust. So the farther we get away from average valuations, the more the potential for a bust increases.</p>
<p>So the higher we go, the less surprised I will be to see the stock market crash. </p>
<p>How big a crash could we get?</p>
<p>According to the aforementioned valuation measures, and <a href="http://www.hussmanfunds.com/wmc/wmc131104.htm">the work of analysts like John Hussman of the Hussman Funds</a>, 40%-55%.</p>
<p>A 50% crash would take the S&amp;P 500 below 900 and the DOW below 8,000.</p>
<p>Is that going to happen?</p>
<p>I don't know. But it wouldn't surprise me. </p>
<p>One thing I do know is that no one else knows, either. We're all just dealing in probabilities. And, just as importantly, no one knows <em>when</em>. Valuation measures like the ones above are unfortunately not helpful in predicting short- or intermediate-term market moves.</p>
<p>So, maybe the market will continue to move higher through 2014. I certainly would be happy about that. <span>But a careful study of history suggests that a crash is increasingly likely and that long-term stock returns from this level are likely to be crappy.</span></p>
<p>I've explained <a href="http://www.hussmanfunds.com/wmc/wmc131104.htm">here why I think the odds of a crash are increasing</a>. And I've also explained why, despite this, <a href="http://www.businessinsider.com/why-im-not-selling-stocks-2013-9">I'm not selling my stocks</a>. (In short, because I am a long-term investor, I am mentally prepared for a crash, and I am planning to ride out any crash, the same way I did with the 2008-2009 crash. And also because none of the other major asset classes are particularly compelling investments at these prices, either.). I have also argued that <a href="http://www.businessinsider.com/catalyst-for-a-market-crash-2013-12">everyone who thinks we will all see a "sign" or "catalyst" before a crash should brush up on their history</a>. </p>
<p><span>In defense of the bulls, there are at least three sophisticated arguments about why the aforementioned valuation measures are wrong - and, therefore, that "it's different this time."</span></p>
<ul>
<li>Interest rates are likely to stay near zero for many more years, and in a near-zero rate environment, the fair value for stocks is higher than in a normal rate environment.</li>
</ul>
<ul>
<li>On average, stocks are getting increasingly less risky - and, therefore, old "average" valuation measures don't apply. </li>
</ul>
<ul>
<li>Changes in accounting rules and aberrant earnings performance during the financial crisis have skewed average long-term valuation measures, making stocks look more expensive than they actually are.</li>
</ul>
<p>These are all sophisticated arguments, and they merit close consideration.</p>
<p>After considering them, however, I don't find any of them particularly persuasive. Or, more accurately, I don't find any of them to be <em>more</em> persuasive than the long-term valuation measures I have cited above.</p>
<p>All of these bullish arguments, moreover, boil down to the following:</p>
<p>"It's different this time."</p>
<p>"It's different this time," are known as "the four most expensive words in the English language." Because, too often, when investors and analysts try to justify high prices by arguing that "it's different this time," it turns out not to be different, and the investors and analysts end up losing their shirts.</p>
<p>(I know this from experience. Back in 1999, I used a variety of "it's different this time" arguments to persuade myself and others that the dotcom stocks could continue appreciating. They could have. But they didn't.)</p>
<p>Of course, you can't just scoff at those arguing that it's different this time by saying that it's <em>never</em> different this time, because sometimes it is.</p>
<p>And that, among other reasons, is why it makes little sense to expend too much energy trying to forecast the market. Because it's really hard to be right consistently enough to avoid costing yourself serious money.</p>
<p>But making specific forecasts is different from managing your own expectations and being comfortable with a range of possible outcomes.</p>
<p>And my own expectations are that 1) stocks will have lousy returns over the next decade, and 2) the odds of a severe market pullback are steadily increasing.</p>
<p>I will therefore not be surprised to see stocks crash in 2014. And neither should you!</p>
<p>Below are some of the charts that show why I am concerned ...</p>
<h2><strong>1. Valuation.</strong></h2>
<p>The following three charts show three long-term, time-tested valuation measures, all of which suggest the market is drastically overvalued.</p>
<p>First, from Bill Hester of the Hussman Funds, a recent chart of Professor Robert Shiller's "CAPE" (cyclically-adjusted PE ratio). The blue line shows the prediction for 10-year returns. The red line shows the actual returns. If you have heard people say, "CAPE doesn't work anymore," you might want to read <a href="http://www.hussmanfunds.com/rsi/cape.htm">Bill Hester's analysis</a>. He looks at all the arguments why CAPE doesn't work and concludes that it does. (We'll know for sure in 10 years.)</p>
<p><div class="image-container"><div class="image"><p class="source"><a href="http://www.hussmanfunds.com/rsi/cape.htm">Hussman Funds</a></p></div></div></p>
<p>Second, in case you have been convinced that "CAPE" no longer works, here's a look at <strong>price-to-revenue</strong>. This measure is calling for a slightly better long-term return for the S&amp;P 500 - just under 5% - but still a far cry from the long-term average.</p>
<p><div class="image-container display-table"><div><div class="image"><p class="source"><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></p></div></div></div></p>
<p>Third, in case your favorite bulls wave away both earnings and revenue, here's a chart of <strong>market-value-to-GDP.</strong> It's the most pessimistic of the lot. This chart suggests that the S&amp;P 500's average annual returns for the next 10 years will be negative.</p>
<p><div class="image-container display-table"><div><div class="image"><p class="source"><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></p></div></div></div></p>
<h2><strong>2. A bogus (but popular!) valuation measure.</strong></h2>
<p>One thing that people do when stocks get expensive is to find ways to explain why they aren't expensive. They don't do this to hoodwink you. They do this because stocks have been expensive for so long that the obvious conclusion must be that they're not expensive - that it's different this time.</p>
<p>One measure that people are using right now to argue that stocks are not expensive is the difference between the "earnings yield" and "Treasury yield." Interest rates are low and earnings are high, so it appears that stocks are delivering far higher "yields" than bonds and are therefore cheap.</p>
<p>The problem with this analysis is that it doesn't work. Check out this chart below <a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">from John Hussman,</a> which "backtests" the analysis. It doesn't have any predictive power at all.</p>
<p><div class="image-container"><div class="image"><p class="source"><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></p></div></div></p>
<h2><strong>3. Profits</strong></h2>
<p>Over the long haul, stocks track profits. And profits and profit margins are at record highs. Every time previously that profit margins have gotten way above or below average, they have violently reverted to the mean. Many people, including me, think this will happen again this time. The only question is when.</p>
<p>Here's a long-term look at profit margins. Note how high they are. Note what has happened every time this has been the case in the past.</p>
<p><div class="image-container"><div class="image"><p class="source"><a href="http://www.businessinsider.com/">Business Insider, St. Louis Fed</a></p></div></div></p>
<p>Byron Wien, a strategist at Blackstone, is worried about profit margins. He also just circulated this chart, which he says suggests that profit margins are "rolling over." This, he says, is bad news for earnings in 2014.</p>
<p><div class="image-container display-table"><div><div class="image"><p class="source">Blackstone, Wisdomtree</p></div></div></div></p>
<p>John Hussman is also worried about profits. He thinks profit margins are so out of whack that corporate earnings will <em>decline</em> at 10% per year for the next four years.</p>
<p><div class="image-container"><div class="image"><p class="source"><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></p></div></div></p>
<p>Hussman thinks that two things might cause profits to tank: 1) the decline of government deficits (which have been going directly into corporate coffers), and 2) increasing labor costs, as the labor market gets tighter. Hussman believes that these factors are already causing profits to miss estimates. This, Hussman suggests, may be why there are suddenly way more companies missing profit estimates than beating them:</p>
<h2><div class="image-container"><div class="image"><p class="source"><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></p></div></div><strong>4. When?</strong></h2>
<p>Market timing is always tough, and I don't know when profits and the market might break down. That really is anyone's guess.</p>
<p>John Hussman has posted a fun technical chart addressing this question, though. Technical analysis is generally bunk, and I would never bet a dime on it. But it's also often fun. And this chart is especially fun.</p>
<p>This chart suggests that the S&amp;P rise off the 2009 bottom has followed a clear "fractal" pattern that is often seen near the end of speculative advances. This chart suggests that the S&amp;P 500 (blue) might hit 1900 before collapsing. (It's at about 1,820 now).</p>
<p><div class="image-container display-table"><div><div class="image"><p class="source"><a href="http://www.hussmanfunds.com/wmc/wmc131216.htm">Hussman Funds</a></p></div></div></div></p>
<p class="largeText">Anyway, maybe it is indeed "different this time." So do what you want. But don't say you weren't warned!</p>

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