Footnotes is a monthly publication that summarizes our monthly “First Friday” online seminar presentations. It aims to capture our webinar’s most essential data points, making it easier for The Abernathy Group Family Office members to make informed decisions based on facts and data, rather than potentially conflicted opinions from the mainstream media.
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As a short reminder to each Family Office member, The Abernathy Group Family Office has now sponsored 20+ “First Friday” webinars. All of them are available on our website and “YouTube” Channel if you would like to go back and see how we have interpreted the economic signals, while doing our best to cancel the noise. Our goal: to help you spend less time making intelligent financial decisions, by focusing on causal, predictive data (signals); and ignoring the clamor of biased, irrelevant data (noise).
Commentary from the June 2025 “First-Friday” meeting:
Today’s presentation discusses the period labeled as Dot-Com in the late 1990s vs today’s market characterized by the emergence of Artificial Intelligence (A.I.) Our goal is to make note of both the similarities and the differences while avoiding the likely downturn brought on by the maturation of the eventual “S Curve” which seems to emerge during each technology cycle.
In our meeting today, we will mainly focus on the risks in today’s public markets, while hoping our investment portfolio naturally benefits from the positives.
One of the clear risks on the radar is the valuation of the public market, fueled by technological advancements in Artificial Intelligence.
This type of technological progress typically occurs every 15-30 years. As this Artificial Intelligence transitions from adoption to a daily necessity, there are often some obstacles we’d prefer to avoid.
While we don’t recommend trying to time the markets, we always suggest avoiding overpriced assets because they offer little to no upside and carry significant downside risk if the future, which is priced for “perfection,” does not meet expectations.
Today, we will briefly compare the current major technological event we’re experiencing, the AI bubble, to the Dot-Com bubble, which was the previous significant technological shift. This comparison aims to highlight the excesses and hardships caused when investors chase overvalued assets.
Over the past four months, we have warned everyone about the following market characteristics:
- Most public markets are priced for perfection,
- Speculation is abundant, and
- Policy continues to change rapidly.
Historically, this combination of events has created a recipe for trouble at best, and at worst, it results in a significant decline in asset values as expected earnings fall short. When earnings miss their targets, the story shifts from speculative trading based on the belief that the market always bounces back quickly from small declines to recognizing that the future is uncertain and far riskier than initially thought.
Today, we will record our prepared comments since other families who cannot attend have requested the recording.
Our comments today will last about 30 minutes, giving us plenty of time to answer everyone’s questions on the call.
* If you have questions during or after today’s presentation, please type them into the “Chat” box at the bottom of your screen or write them down and raise your hand at the end of the remarks by clicking the icon at the bottom of the screen.
Our goal has always been to transform this monthly presentation into a town hall-style meeting, as we understand that the topics discussed and our comments may prompt both related and unrelated questions.
The primary purpose of this monthly meeting is to ensure that everyone’s questions are answered with sufficient data support, while steering clear of the bias typical of most Wall Street analysts.
As you are aware, we do not sell any products and have no incentives other than helping the families we serve make informed decisions.
We encourage you to send us your questions, since others might have the same or similar ones. It makes the discussion more engaging, so please don’t hesitate to ask away!
One final NOTE: Please remember to “Mute” your device’s microphone and stay on “Mute” unless you have a question, as background noise is audible and distracting.
By the way, if you haven’t visited our website lately, please take a look.
There is a wealth of information available. Content is added frequently, and research reports are accessible, along with videos and summaries of each “First Friday” meeting dating back years.
That said, I’ll now pass it to Matt Daley, who will lead today’s presentation.
Matt: Thanks, Steven. There is a lot to cover today, so let’s get started.
Slide 2
Today, as Steven mentioned, we are going to compare the Dot-Com bubble to the AI bubble we are experiencing now, hoping that this comparison will help each family set realistic expectations for future investment returns and understand the volatility that has commonly occurred when new technologies are introduced, tested, adopted, and eventually become part of our daily lives.
We will do our best to discuss where we are today, then talk a bit about the “S” curve, which has been proven to describe the adoption cycle for technologies over the past 100 years, to help each family set realistic expectations for future volatility – both upside and downside.
Toward the end of the presentation, we will discuss some alternatives and hope to remind each of you about the saying “A Bird in The Hand May Be Worth Two in The Bush.”
So, first, Steven, where are we today? Are we poised to move higher as the world becomes much less risky geopolitically? Or are the valuations seemingly prohibitive for those investors who are trying to make intelligent decisions by being value investors?
Slide 3
Thanks, Matt. That’s the question most of us are trying to answer. It feels like everyone is so confident that the U.S. Federal Reserve will come to the rescue if we fall and skin our knees that this risk should be discounted, because the downside will be offset by an upside when the money floods into the market.
And there is undoubtedly some truth in this way of thinking. If you are entering a difficult situation and you have 4 aces in your hand, it may make sense to ignore the economic ups and downs happening all around you.
And while our U.S. Federal Reserve supports the world’s currency, it is not the same as having four aces. Therefore, we must remain especially vigilant of the risks that lie ahead.
Slide 4
We are entering a zone of significant risk. The risk may or may not materialize; yet, make no mistake, we are priced at levels that only make sense if the world unfolds perfectly, just as our investing public expects it to… and even if perfection becomes reality, upside is likely already reflected in current valuations.
Any result other than perfection will cause pain.
As you can see in the chart below, we are priced at levels that have historically proven to be risky at best and disastrous at worst because the fundamental earnings supporting the current valuations are too high. They are pricing in a future of perfection, which we rarely see.
Matt: So why are you worried about this market today, Steven? It appears that we are in a significantly better position today than we were three to six months ago.
Slide 5
Steven: I always worry when markets start pricing in perfection. There are reasons why markets tend to correct when valuations become unrealistic. It’s because smart investors stop participating, and when the market notices this, the narrative shifts from “risk-on” to “risk-off.” When this shift occurs, the investing public realizes that the returns built into current valuations offer little to no growth, so they sell and look for alternatives.
We may have reached that level today.
Keep in mind, this is not a market prediction. The market could stay at these levels or even rise from here, as we will discuss in a few minutes. Liquidity is plentiful, and both liquidity and animal spirits are two of the most influential and compelling market drivers in the short term.
And as you can see from the chart, current valuations are higher than those of similar bubbles in the past 60 years.
Matt: Yes, we can clearly see these periods, yet each of them lasted for many years. Can’t this one also last for years? Especially since we have a big brother in the form of the U.S. Federal Reserve, who is ready to come to our rescue if we get into trouble.
Steven: Yes, your statement is correct, and history supports your thesis. However, it may take time to unfold. Still, anyone who chooses to play with this “fire” should understand the risks associated with similar periods of history.
Slide 6
Here are some similarities between the most recent technological change and the one we are experiencing today.
During the Dot-Com bubble, we experienced a 500% increase from 1995 to 2000, before reality set in. During that period, the market reached all-time highs and the economy was booming. Every company was spending vast amounts of money on internet infrastructure… so much that the narrative changed from earnings per share to eyeballs per share which referred to the idiotic narrative that if your website or your signpost attracted visitors, they will come and spend money – so don’t worry about revenue generation, just worry about getting people to visit your website. As mentioned, the narrative was buy more stocks every time there was a dip, and the world has changed, so don’t apply the old rules of valuation… I might say those were some truly famous last words.
Matt: You are not kidding. Those were truly famous last words!
Slide 7
So, here we are today. There are some similarities in that the market’s valuation has increased by hundreds of percent over the last five years or so.
Capital expenditures on AI infrastructure are nearing $1 trillion—a figure that barely existed during the previous bubble, when billions were considered a substantial amount of money (funny how inflation quietly accumulates over time!).
The AI narrative is that it will change the world. And we believe it will – for better, and sometimes for worse. It will be a world changer, but is it worth paying hundreds of times “future,” “expected” earnings when those earnings are based on thin air? We do not believe so, as we have stated in our recent presentations.
Today, the narrative is that profits are not significant; building the models and owning the data are what matter. History tells us a different story. Profits clearly matter to all investors.
In short, the investing public has all but forgotten about the economic model represented by the “S Curve.” And it’s not a new model. It’s one that has played out time and time again. And while few futures in life are guaranteed, the “S Curve” has a very high probability of occurring again.
Matt: Let’s spend a few minutes discussing the importance of the “S Curve.”
Slide 8
This slide shows you the classic “S Curve.”
What the “S Curve” describes is that technology—whether it’s the car replacing the horse, the semiconductor replacing the typewriter, or the computer and the internet—follows a pattern in each technology cycle. There are three phases: an introduction period, a testing period, and an adoption period.
We are currently in the most explosive period represented by the steepest portion of the “S.”
Eventually, everything slows down as humans learn to utilize technology to simplify their lives. This typically occurs after the initial rapid growth phase, when only a few people are using the technology, and industry comparisons suggest that growth is extraordinary and will last indefinitely, although it eventually moderates. A slowdown then occurs as comparisons become more difficult. The “S Curve” illustrates this process, and we will likely reach that point eventually.
Slide 9
However, this is where we are now. We are in the adoption phase, and we don’t know how long it will take for the world to become addicted to AI, much like people are today to their computers, phones, and social media. These periods often last a decade. Yet eventually, reality sets in, and we realize our expectations have become too high.
Matt: What happens then? When we realize that the technology is excellent and potentially world-changing, will it take some time to become part of our daily lives?
Well, Matt, we’re not sure – and we can’t say for certain that the “S Curve” is still in play, but it’s still a strong economic possibility – and here is what usually happens.
Slide 10
We wake up to find that our expectations are too high, the vast majority of the investing public has overpaid for a future that may well come to pass, yet it will take some time, and everyone realizes they have gone too far. In short, they experience a Wile E. Coyote moment…
Matt: Current valuations suggest that if this happens, there will be some losses, and given our debt, these losses could compound and create a domino effect. How can we avoid this disaster – or is it unavoidable? Does this simply represent a typical technology cycle?
Slide 11
Matt, you have described it well, and no, most of these technological and economic cycles can’t be avoided; yet they can be lessened. They can be minimized if the U.S. Federal Reserve comes to the rescue.
However, this has some notable long-term disadvantages of its own. The point is that this cycle is very likely ongoing, and it is expected to be subdued mainly by the U.S. Federal Reserve, as they stand ready to rescue us from every downside economic cycle. The question may become, “Can the U.S. Federal Reserve continue to rescue the U.S. economy from every economic downturn?”
Fortunately, an additional layer of protection may help cushion an economic downturn.
Slide 12
The latest bill in Congress, called the Big Beautiful Bill (BBB), aims to increase our deficit just like the spending from the previous administration. This chart clearly shows that the U.S. government plans to keep printing money and injecting it into our economy. As long as this continues, it’s unlikely that our economy will face a recession or a downturn.
However, it seems our U.S. economy has become dependent on outside help from our very generous Uncle Sam. This dependency is likely to continue until the rest of the world forces us to change. Our current reliance on spending more than we earn is not sustainable. We believe it will end badly. At some point in the “Musical Chairs” game, the music will stop.
Our goal is to make sure we don’t end up without a chair.
The key takeaway? We have choices today. We need will power. If we stop voluntarily, we can make choices that might avoid maximum economic pain. If forced to stop by the global markets, avoiding economic pain will be at the bottom of the list.
The reason we bring this up? If our government spends 6-7% more than it earns and our economy grows at 2%, we are technically in a recession, yet we never have to acknowledge this because government spending overwhelms our tax revenues. We never have to change our ways. We never have to use common sense and live within our means… until we become Argentina – and the world forces us to live within our means. But that is not today.
Matt: Why do you say that? Why do you think we can keep going down this path for an unknown amount of time?
Steven: Mainly because we are the world’s currency, and this isn’t going to change anytime soon—or even in the longer term. Additionally, we have sufficient dry powder to sustain the narrative from the talking heads (Everything is great! The sky is the limit!) for quite some time.
Take a look at this slide.
Slide 13
Here’s a slide showing the amount of money sitting in money markets. These assets are confused about the current valuations or are hesitant to invest in overpriced securities. They are unsure whether they should accept the 2-3% guaranteed returns in a money market fund or move into the overpriced stock market and face the risk of a 50% downturn (or more) for the 10-15%1 return experienced over the last 5 years.
So, suppose the U.S. Federal Reserve comes to the rescue by lowering interest rates or injecting money into the economy. In that case, it’s pretty likely we will avoid the necessary correction a recession typically brings. In short, we could sidestep a recession thanks to the large amount of money waiting on the sidelines for any dip.
Yet here is where it gets interesting!
Matt: Yes. If all goes as you described, there is a pretty good chance we will be able to avoid disaster.
However, what happens if the increase in wages and the increase in tariffs are passed along to consumers, which in turn increases inflation and lowers earnings?
And then what happens if our GDP does start to decline, bringing stagflation into our future?
Slide 14
Steven: Then we have a very different type of economic environment to deal with. And this is one type of future that becomes imposed because our debt levels are such that we are spending all of our revenue to pay interest expense. We cannot allocate funds to growth initiatives that will enable us to grow our way out of debt, as the growth money must be used to pay interest on our existing debt.
This is a problem.
Matt, what are the other topics we should be thinking about?
Matt: If we can dodge the “S Curve” downturn, can we make it through the economic rainy day and come out the other side with little or no damage?
Slide 15
The missing information? Can the nearly trillion dollars spent to build our AI revolution start producing real revenue before a) the market gets tired of waiting or b) before the narrative from the talking heads changes?
Here is a slide that allows us to think about the risks that are in front of us if the technological AI boom misses the “S curve” and if we sail through our slowdown period.
Firstly, it is unlikely, yet possible, that the Israel-Iran conflict is nearing an end. History tells us that there may be a lull, yet this is not the end; it just morphs into a different dimension.
Matt, can you provide a comment or two on this, as we previously discussed?
Matt: Cybersecurity presents a significant risk, and at a minimum, it’s reasonable to expect retaliation from the Iranian conflict to evolve into a different form, especially since they are unable to fight a war on the military front. In short, it might be a mistake to think the war in the Middle East has truly ended.
Steven: We have not mentioned some of the known knowns that are worrisome. And student loans come to the front of the class. The vast majority of investors have not followed this, and don’t know how large it has become. The U.S. government has created a monster of an asset class. At $1.7 trillion, this has become a significant challenge if it can’t be repaid.
Here is a chart showing what has taken place over the last 19 years.
Slide 16
We have $1.7 trillion in student loans outstanding today.
Is this an accident waiting to happen?
Can the young people who have borrowed this money for a degree in European history or a master’s degree in 17th-century art repay these loans?
Matt: I know you are not trying to demean these degrees in any way. The students probably worked hard to get these degrees. The question becomes: will the degrees they worked hard for allow them to translate their education into a career that will enable them to repay their loans?
Steven: We are not sure, because we don’t have much history on student loan payments. What we do have is a graph that shows a lack of payments, and it’s concerning.
Slide 17
Here is a slide that shows the state of student loan repayments. And here is what we are worried about.
Slide 18
I haven’t seen a change in delinquencies like this in a long time. It does not mean the world is coming to an end. It does add another potential bump in the road that may cause a recession, a downturn, or a change in the narrative.
Matt: Are there more worries out there?
Steven: Yes, many “soft data” points seem to indicate we are nearing a downturn, or that asset values are too rich.
Slide 19
Here is one that does not act as a market timing variable, yet it is always worth tracking.
Insider buys and sells – as mentioned, not a market timing instrument; yet, when those who know the companies they work for best start to exit, it’s worth knowing why. It is quite likely that valuation is the culprit for this level of insider selling. As we mentioned many times, the public markets are overvalued, and insiders probably realize this.
Here’s another one.
Slide 20
When the market becomes concentrated, it indicates that a few stocks have become so large and are appreciating at an unusual rate because almost every investor has invested already. There is probably no one left to buy… By examining this chart, you can see the similarities in concentration between the Dot-Com bubble and the AI bubble.
This is another sign that the market is overpriced and needs to correct itself… which is a polite way of saying we’re headed for a downturn at some point.
Matt: Each of the topics you just mentioned is a historical indicator of caution, but none of them provides insight into our future returns. Are there more reliable indicators that can help us set expectations for future returns based on our current valuations?
Slide 21
Here is an incredibly reliable slide, highlighting extensive information from the outstanding analyst John Hussman, who conducts excellent research. Each of you on this call should follow his data closely, in my opinion.
This slide charts the current valuation with the subsequent 10-year returns. There is an important explanation behind this, but for the purpose of this conversation, all you need to know is that as valuation increases, future investor returns decrease. Said differently, the more you pay for an asset’s future appreciation up front, the less appreciation is left when expectations are met.
Currently, we are at a level that indicates investors in the market today should expect a return of -2% on their money for the next 10 years. While this information is statistically significant, it does not guarantee returns or indicate timing. However, investors who ignore this information are taking some significant risks that they may regret.
Matt: Okay, that worries us. What are some ideas for shelter during the storm? Or where might we find some returns that are a bit higher than -2% since that doesn’t seem very appealing?
Slide 22
Here is a slide that outlines the categories of public companies that have underperformed over the past few years.
We want to emphasize the value of getting paid while you wait. Said differently, dividends are a crucial component of investment returns. Many investors pay scant attention to the returns generated by dividends, although almost 50% of total returns since 1900 have been generated by dividend income.
This is similar to how real estate investors receive rent while waiting for their property to appreciate over time. Rent is a meaningful return stream, similar to that of dividends.
This is truly an underappreciated strategy that our Family Office has been advocating for more than the last few years, and the market is starting to come around to this fact –
high-quality, dividend-paying companies that are dedicated to paying their investors through dividends and stock buybacks tend to deliver performance nearly equal to that of the fastest-growing companies in the world, with less than half the volatility (meaning less stress).
Take a look at this chart.
Slide 23
This slide documents the performance of the NASDAQ in relation to the Utility Index from 1971 through June 2025. As you can see, the long-term returns from the Utility Index are nearly identical to the long-term returns delivered by the largely technology-related NASDAQ.
Our point in showing this slide is that, although the total ending returns are almost the same, the way the returns were achieved is quite different. As shown in the chart, the Utility Index is in “white” and the NASDAQ is in “red.” The dividend-heavy Utility Index offers a return that is much less volatile. For those who want to sleep well at night during an overvalued market, it may provide returns that are appreciated.
For those of you interested in learning more about the importance of dividends, the link which follows is for a very short, well-written paper about the role dividends play in Warren Buffett-like portfolios. It’s written by Richard Bernstein, who often offers sage advice during periods of turmoil. Title: A Bird in the Hand. It is an article worth reading when your time allows.
https://www.rbadvisors.com/insights/a-bird-in-the-hand/
1 this is called recency bias, and it is in full gear today – *note: this ends badly