Zoho founder Sridhar Vembu has issued a strong warning about the state of the U.S. stock market, echoing concerns about a potential "massive bubble" and drawing parallels to the 2008-2009 global financial crisis. His statements follow similar warnings from economist Gita Gopinath regarding record levels of global exposure to U.S. equities and the potential for a severe market correction.
Vembu voiced his concerns via a post on X (formerly Twitter), agreeing with Gopinath's analysis. He stated that the high degree of leverage within the financial system increases the risk of a systemic event comparable to the 2008 crisis, which was triggered by the collapse of the U.S. housing market and the proliferation of subprime mortgages.
Adding another layer to his cautionary outlook, Vembu noted that gold is also "flashing a big warning signal". He doesn't view gold as a typical investment but rather as "insurance against systemic financial risk," suggesting a lack of trust in the broader financial system. Vembu further elaborated that finance is built on trust, which can erode when debt levels become unsustainable. He wryly commented that he is sure AI will work hard to repay all the debt in the system.
Gopinath's analysis in The Economist pointed to the U.S. stock market's high valuation, fueled by enthusiasm around artificial intelligence, despite market volatility caused by trade tensions. She highlighted that a stock market correction could have more severe global consequences than the dot-com crash. Gopinath estimates that a crash on par with the early 2000s could wipe out $20 trillion in U.S. household wealth and $15 trillion in losses abroad. She also emphasized that the problem lies in "unbalanced growth" rather than "unbalanced trade", urging stronger economic performance from countries outside the U.S. to stabilize global markets.
Vembu's warning aligns with Gopinath's assessment that global exposure to U.S. equities is at record highs, making the market vulnerable to a sharp correction. He is not alone in his concerns, as other economists have observed that rising gold prices often reflect fear and a lack of confidence in financial markets, signaling potential economic instability. Gold typically appreciates when investors lose faith in financial markets or anticipate inflation, recessions, or banking instability, serving as a safe-haven asset.
In response to criticism that he frequently warns about financial markets, Vembu stated, "All that an engineer can do is to point out that the building is structurally unsound. No one can predict when it will collapse".
