Stock markets in the United States and the United Kingdom are flashing increasingly serious warning signs. Share prices are at extreme valuations, confidence is weakening, and the artificial intelligence boom is beginning to look much less convincing than investors expected.
In this video, I explain why these risks are reinforcing each other and why the consequences could extend far beyond those who directly own shares.
Robert Shiller’s cyclically adjusted price-to-earnings ratio, commonly known as the CAPE ratio, is now close to levels previously associated with the Wall Street crash of 1929 and the dot-com bubble of 2000. History does not tell us exactly when markets will fall, but it does tell us that valuations of this kind cannot be assumed to continue indefinitely.
The danger is not confined to the stock market. Banks and shadow banks have lent vast sums against inflated financial assets. A sharp fall in share prices could therefore spread through the financial system, threaten pensions, undermine lending and create a wider economic crisis.
AI may provide the trigger. The technology is expensive, unreliable and taking longer to implement than many forecasts assumed. If expected profits fail to materialise, the companies supporting today’s extraordinary market valuations could fall sharply.
Is Andy Burnham’s government prepared for that possibility? There is little evidence that it is.
Take a look at the poll below: https://www.youtube.com/post/UgkxP1CL83yVcBaOw8KgHysVPZZjYbk9M7NT
00:00 Could Markets Fall by 50%?
01:02 Three Major Warning Signs
01:53 Confidence Is Collapsing
03:08 The AI Boom Is Weakening
04:48 The Backlash Against AI
06:11 Extreme Share Valuations
08:08 What Could Trigger a Crash?
09:25 How Far Could Markets Fall?
10:12 The Risk to Banks
11:17 Is the Government Prepared?
TRANSCRIPT
A transcript for this video is available at: https://www.taxresearch.org.uk
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ABOUT RICHARD MURPHY
Richard Murphy is Emeritus Professor of Accounting Practice at Sheffield University Management School. He is director of Tax Research LLP and the author of the Funding the Future blog. His best-known book is ‘The Joy of Tax’.
This video was edited by Thomas Murphy.
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