Monday morning.
The pension fund’s command staff gathered in the Risk Team with dark expressions. The KOSPI, which had been soaring, had given up the 4,500 line and slumped back to the 4,000 level.
The reason the KOSPI, which had seemed as if it would print money forever, had surrendered 500 points in just a week was because of the AI bubble theory.
And it wasn’t entirely unfounded. The recent upward momentum in the Nasdaq and KOSPI had been terrifying.
The Nasdaq had always been in good shape, but the KOSPI had risen nearly twofold from its low, at a pace even faster than when Korea had emerged from the IMF crisis.
“It’s been a while since we’ve had a proper risk meeting.”
The meeting began as the division chief entered.
“We all know what needs to be said, so let’s skip the unnecessary preamble. Department Head Oh?”
“Yes.”
At the call, Department Head Oh rose from his seat.
“To summarize the current market conditions, the Nasdaq is down roughly 20% from its high. Accordingly, the KOSPI has fallen by a similar degree.”
“This isn’t just a simple correction, is it? Not if it’s lost 500 points in one week?”
“No. Recently, the KOSPI’s movement has been coupled with the Nasdaq. If the outlook for the Nasdaq is dark, then naturally our market is bound to be at risk as well.”
It was only natural.
If the prime contractor’s future wasn’t bright, how could the subcontractor’s future be bright? The AI bubble theory that had struck Wall Street ultimately meant that our semiconductors, supplied to Big Tech, were also in a bubble, and the resulting confusion was considerable.
“Therefore, starting last quarter, the Risk Team began asset allocation. We disposed of equity market assets and invested in alternative investments. Through our entrusted management firms, we concentrated investments in Seoul real estate and the like, and fortunately, the results have been good.”
“And going forward?”
“We intend to increase alternative investments further. Mainly in commodities and real estate. If real economic indicators improve, then commodities and real estate indicators will eventually improve as well, so we are continuing to research currently undervalued assets.”
Still, the pension fund was in a better position.
Right before the plunge, they had diverted investment funds to the Alternative Investment Office and secured real estate in advance, and the profits had been quite decent. Though the citizens of Seoul had let out more than a few cries of agony.
Department Head Oh continued his presentation and gave me a wink. It seemed to mean thanks.
“Good. Proactive response, very nice. I’d already been worried about risk lately, what with the stock market flying so high. Alternative Investment Office?”
—Yes, sir.
“I’ll support you aggressively for the time being, so find plenty of good products. And I hear oil prices have bottomed out recently, so bring me a report on what the outlook will be.”
—Understood.
“By the way, Department Head Oh. What on earth is this? If it’s a 500-point drop in one week, there should be some plausible reason. Has the U.S. real economy worsened?”
Department Head Oh gave a bitter smile.
“No. While the unemployment rate indicator has risen, when looking at the overall employment indicators, it’s a very localized issue.”
“Then is it really because expectations for a Fed rate cut have gone down the drain?”
“To be honest, I think even that depends on interpretation. During the last circuit breaker, the Fed’s signal of a rate cut was instead seen as a sign of recession. In fact, within our Risk Team, we interpreted the Fed’s rate freeze as confidence in economic indicators. Frankly speaking, if even one of the production, consumption, or investment indexes had been bad, would the Fed have implied a freeze?”
“Then if there’s nothing particularly wrong with U.S. real indicators, why is it falling? Is it because of Envidi?”
“…Actually, I don’t think that’s a major reason either. Envidi’s earnings announced last week exceeded market expectations, and the outlook hasn’t changed much. We also conducted our own analysis of the ‘credit transaction’ trend pointed out by leading investors, but our internal conclusion is that it’s neither inflated sales nor funneling work to affiliates.”
As the frustrating meeting continued for an hour, the division chief let out heavy sighs.
The AI bubble theory that had recently emerged kept muddying the global stock market. The Nasdaq graph, which had surged in a short period, kept reminding people of the “dot-com bubble” from thirty years ago.
In truth, even back then, the “internet” was already the trend. Every economist and investor unanimously said that the age of networks would soon arrive.
But apparently, the idea that one could watch an LA Dodgers game from a corner of one’s own room was impossible for people at the time to accept with common sense. Along with the Nasdaq’s massive crash, the KOSPI and KOSDAQ also suffered a Cretaceous-level mass extinction, falling by around 80%, and countless ventures were delisted from the market.
“So in the end, the dot-com bubble keeps coming to mind in the current market, is that it?”
“Yes, that seems to be the case. Investors appear to be interpreting the AI-related stocks that have risen sharply as a bubble.”
“What do the others think? Is the current market similar to the dot-com era?”
At the division chief’s question, Team Leader Choi raised his hand.
—Sir, I think it is similar. Of course, the dot-com bubble had several factors. Due to the Fed’s low interest rate stance that began in the 1990s, liquidity overflowed in the market, IT startups spread like a fad, and the market became filled with bubbles. But the data I recently looked into is not much different.
“How so?”
—Not only domestically, but also in and outside the United States, household debt has reached a record high. Margin buying of stocks is also at an all-time high. Financial authorities are continuing to point out the problem of “debt-fueled investing.”
“So you think it’s a bubble?”
—Yes, I do. As the world expected at the time, the internet did become the center of cutting-edge industry, but whatever the case, a sharp rise in a short period is a sign of overheating. Accordingly, I believe we should also shift our positions from equity market assets to safe assets such as bonds.
When Team Leader Choi’s impassioned speech ended, Senior Manager Kim raised his hand as if he had been waiting.
—Sir, that reasoning is weak. Household debt and margin buying have always been at record highs. When have they ever decreased?
“Senior Manager Kim, you think it isn’t a bubble?”
—Yes. The main cause of the dot-com bubble back then was the reckless proliferation of IT startups, but the current market is being dominated by Envidi and Big Tech. And the Fed isn’t exactly maintaining a low interest rate stance; we’re in a situation where it’s debating whether to lower rates from high levels or not. How can we say the market is overflowing with cash liquidity? Alternative products are one thing, but safe assets like bonds are tantamount to letting money sit idle.
As his speech ended, a small war of nerves unfolded between Team Leader Choi and Senior Manager Kim.
—Look, Senior Manager Kim. Isn’t it a hundred times better to let money sit idle than to lose it? Anyone can see that the Nasdaq index, which has recently surged, has surged too much. From Fed officials to leading investment firms, everyone is pouring out concerns about overheating.
—Those people’s job is to say things are risky, isn’t it? Even among the people saying it’s dangerous, no one is actually telling people to actively sell. Saying not to borrow money to invest is just a textbook statement.
—What do you mean no one is? Mykol Burry, who called the subprime crisis! His side keeps pointing to Envidi’s credit transactions and calling out inflated sales. Envidi’s earnings surprise isn’t something to take at face value.
—Mykol Burry has been muddle-headed for ages. Frankly, has that man made a proper prediction since subprime?
—Attack the message, not the messenger! Can you refute Envidi’s credit sales?!
—I don’t feel the need to! It just looks like a short-selling investor nitpicking everything possible to tear them down.
—Nitpicking? Envidi’s accounts receivable have roughly doubled this year, and there’s no guarantee when they’ll collect that money.
—That’s called proactive investment! Tesla was in the red for more than a decade before turning profitable, and Coupang and Baemin were all in the red before dominating their markets! If we’re going to judge corporate value based only on ledger entries, shouldn’t Asan Motors have a market cap ten times higher than Tesla’s?
The bloody war of words between the two soon led to a civil war within the risk meeting.
—No, Team Leader Choi is right on this! It’s overheated! Let’s look at the indicators calmly!
—If you look only at the indicators calmly, Senior Manager Kim is right! U.S. employment and inflation indicators, Envidi’s earnings indicators, they’re all stable. In what sense is it overheated?
—Isn’t the statistic showing increased debt-fueled investing clearly a risk indicator? I think everyone is far too excited because of the recent stock market boom!
—Senior Manager Oh, you’re the one who needs to calm down! The Fed says it will maintain a high interest rate stance, so how is this a liquidity trap?
The command staff let the team leaders and senior managers argue as if they were watching a soccer match.
In truth, whether or not the market was in a bubble was something even God didn’t know. Stock prices were an indicator that reflected future value in advance, so even present accounting ledgers were not particularly important.
In the end, the most important question was whether the future we were currently predicting would be realized exactly as expected, without the slightest deviation. But since that was the realm of the future, no one could guarantee it.
“Fine, everyone, that’s enough. From here on, we’re just repeating the same points.”
After a marathon meeting lasting three hours, the division chief opened his mouth.
“Both sides have valid points, but personally, I sympathize a bit more with the view that it’s overheated. Of course, that doesn’t mean I’ll decide however I please. Department Head Oh?”
“Yes.”
“Receive reports from each team and compile your opinion. Each team leader and senior manager should attach proper references and submit their views. Let’s finish next week’s risk meeting and decide our position then.”
Department Head Oh nodded.
“Understood.”
*
When the fierce meeting ended, Department Head Oh returned to his office and sank into his chair as if collapsing.
“Damn it. The good days are all over. This is going to give us headaches for a while.”
He tilted his head toward me.
“Team Leader Lee. You usually like running your mouth, so why haven’t you said a single word?”
“Was that so?”
“From Silicon Bank to Pengda’s bankruptcy… Calling bubbles is your specialty, isn’t it? I thought you’d have the most to say, so why haven’t you said a word?”
“What is there to say? I think the concerns are excessive.”
“What?”
I scratched my head.
If my memory was correct, the AI bubble theory wasn’t an issue that would end today or tomorrow. From now on, every time the stock market underwent a correction, the bubble theory would pop up, and then it would rise again anyway.
“So you’re saying it isn’t overheated? The Nasdaq has already fallen 20% from its high.”
“…That isn’t a bubble. It’s a bargain sale.”
If my memory was correct, that was how it went.
Every now and then, the Nasdaq held a bargain sale for people who hadn’t been able to buy a ticket to wealth. If you didn’t borrow money to invest and simply invested a fixed amount every month, you could at least live without worrying about retirement.
“A bargain sale…? Even so, isn’t that too optimistic? It’s true that Envidi’s credit sales have increased, and even to my eyes, the recent stock market fever looks a bit dangerous. It also feels like people are trusting AI far too blindly.”
“…Sir, the Nobel Prize in Physics and Chemistry winners the year before last were AI. How much more does the AI megatrend need to be proven?”
If my memory was correct, it wasn’t blind faith. It was reality.
The reason China, which had been hot on America’s heels, fell into sluggish growth was something around America’s AI-based robotics innovation. From the point when robotics became cheaper than labor costs, the gap between the U.S. and China began widening again.
And when robots, as the public had feared, took too many human jobs, every country gradually implemented communist-style rationing systems.
Of course, no one would believe me even if I told them.
“Sir, the truth is, that isn’t what’s important right now.”
“No, the KOSPI just dropped 500 points in a week, and our Risk Team is on maximum alert. How is this not important?”
“There’s something more important than that. Next week is the final week of the Sovereign Project. Hynix and Nave have advanced to the final round, and it looks like Nave will be selected in the end.”
“What?”