⚖️ Carpe Diem: Borrowed Conviction and the $165 Billion Selloff Warning

Goldman Sachs and JPMorgan Warn That Record Leverage and Crowded AI Trades Could Trigger Market Volatility

"Only when the tide goes out do you discover who's been swimming naked."

— Warren Buffett

Global hedge fund leverage is approaching multi-year highs.

Goldman Sachs warns that net leverage has climbed to four-year highs. JPMorgan estimates that quarter-end rebalancing could unleash as much as $165 billion in equity selling before June ends.

Meanwhile, semiconductor stocks have become increasingly crowded.

And the broader stock market?

Still expensive.

None of this guarantees a correction.

But history suggests one thing:

Gravity has not been abolished.

☀️ FunMacro Index™: 8.7 / 10

Measures the degree to which macroeconomic conditions, valuations, leverage, and market psychology deserve humility rather than heroism.

⚛️ FUNanc1al Atomic Statements

⚖️ The Borrowed Conviction Principle™

Conviction financed with leverage has a funny tendency to disappear exactly when conviction is needed most.

🌳 The Trees Don't Reach the Sky Rule™

Bull markets convince investors that valuation no longer matters. Bear markets tend to rediscover arithmetic.

🚪 The Fire Exit Principle™

Crowded trades look perfectly liquid—until everyone remembers where the exit is at the same time.

🤖 The AI Humility Principle™

Artificial intelligence may transform civilization. That does not guarantee every AI-related stock deserves any price.

🤖 Leverage Builds Inside a Crowded AI Trade

According to Goldman Sachs and JPMorgan, leverage and concentration have quietly become major themes underneath the market's surface.

Goldman's prime brokerage data previously showed gross hedge fund leverage near:

294%

a five-year high.

Meanwhile, net leverage recently climbed to four-year highs.

JPMorgan strategist Nikolaos Panigirtzoglou highlighted another concern.

Semiconductor stocks now account for a share of global equity capitalization that is more than six times their share of revenues.

That ratio is more than twice the comparable level for the Magnificent Seven.

In plain English:

Many investors have crowded into the same trade.

And crowded trades occasionally experience unpleasant surprises.

🎭 Apparently AI Already Solved Mathematics

Artificial intelligence may very well change the world.

It may revolutionize:

• medicine;
• robotics;
• science;
• transportation;
• productivity.

Bulls may ultimately be proven right.

But some semiconductor valuations increasingly resemble science fiction.

Apparently AI has already solved arithmetic.

Physicists remain unconvinced.

💸 Why the $165 Billion Stock Selloff Matters

JPMorgan estimates that quarter-end rebalancing could drive approximately:

$165 billion

of equity selling.

Among the biggest contributors:

🇯🇵 Japan's Government Pension Investment Fund

Approximately:

$60 billion

of potential selling.

🇺🇸 U.S. pension funds

Approximately:

$55 billion.

Additional selling pressure may come from:

• Norway;
• Switzerland;
• sovereign wealth funds;
• institutional portfolio rebalancing.

None of these investors are expressing opinions.

They're simply following formulas.

Markets occasionally move for emotional reasons.

Sometimes they move because computers and pension committees say so.

📈 Problem #1: The Market Is Still Expensive

The S&P 500 currently trades around:

Trailing P/E: 32.1

versus historical averages of:

• Mean: 16.2
• Median: 15.1

In other words:

The market trades at roughly double its long-term norms.

That does not mean disaster is imminent.

History teaches something subtler:

Expensive assets possess less margin for error.

🎭 Trees, Meet Gravity

For centuries, physicists have stubbornly insisted that gravity exists.

Wall Street periodically disagrees.

The debate usually ends badly.

📌 Signal Extract

Bull markets create optimism. Leverage creates fragility. When the two combine, humility becomes an asset class.

🌐 Problem #2: Fragility Doesn't Stop at Stocks

One lesson from modern markets:

Everything is connected.

High leverage and forced selling rarely remain confined to one corner of the financial world.

Stress often spills into:

• cryptocurrencies;
• momentum stocks;
• speculative assets;
• private equity;
• venture capital;
• high-beta sectors.

Bitcoin, once marketed as digital gold, increasingly behaves like a leveraged technology stock.

Recently, the cryptocurrency weakened alongside volatility surrounding:

• Federal Reserve policy;
• AI stocks;
• broader risk appetite.

Meanwhile, JPMorgan has noted that Bitcoin's network hash rate is becoming increasingly sensitive to price fluctuations.

That means more miners appear to be operating near breakeven levels.

Another reminder that leverage and fragility often hide where investors least expect them.

🪙 Digital Gold Occasionally Behaves Like Digital Silicon

Bitcoin believers often speak of independence from traditional finance.

Markets occasionally have other ideas.

Apparently, digital gold sometimes wakes up and decides it is actually Nvidia with a different logo.

⛏️ Even Gold Miners Deserve Humility

Gold mining remains an area we continue to monitor closely.

One of our favorites, Barrick Mining Corp. (B), trades at:

Trailing P/E: 11.1

Forward P/E: 10.3

Reasonable.

But not necessarily screaming bargains.

Other metrics suggest caution:

• PEG ratio: 2.04 (well above 1)
• Price/Sales: 3.59
• Price/Book: 2.47

Those numbers whisper moderation rather than shout opportunity.

Even beloved sectors deserve discipline.

⚖️ Problem #3: Insiders Are Buying… But Not Necessarily AI

One of the more fascinating developments of 2026:

Corporate insiders have been active buyers.

Yet relatively few purchases have involved:

• semiconductor stocks;
• AI darlings;
• crowded momentum trades.

Instead, insiders frequently targeted:

• financials;
• industrials;
• insurance companies;
• consumer businesses;
• deep value opportunities;
• special situations.

Perhaps that's coincidence.

Or perhaps smart money occasionally prefers neglected assets over fashionable narratives.

📚 Where We Continue Looking

Readers interested in contrarian opportunities may wish to explore:

👉 FUNanc1al's Stock & Fun Opportunities Hub

👉 FUNanc1al's Insider Buying Hub

👉 FUNanc1al's Value Investing Hub

The list of potential ideas remains long.

Fashion, by contrast, rarely lasts forever.

⚛️ Additional Atomic Statements

🧠 The Humility Asset Class™

When leverage rises, valuations expand, and everyone crowds into the same trade, humility itself becomes an asset class.

🎯 The Contrarian Compass Principle™

Corporate insiders often prefer boring opportunities while television prefers exciting stories. History suggests one of these groups generally sleeps better.

⛵ The Margin-of-Error Rule™

Expensive assets are not necessarily bad investments. They simply offer less room for human imperfection and may underperform for some period of time.

🎭 More FUNanc1al Humor

🚪 The Fire Drill Nobody Ordered

Leveraged funds are wonderful.

Until volatility rises.

Then investors discover that emergency exits are considerably smaller than they remembered.

🤖 Artificial Intelligence Meets Natural Gravity

Artificial intelligence may transform civilization.

Gravity, meanwhile, remains undefeated.

📺 The Magnificent Seven and the Magnificent Expectations

Markets occasionally price companies for perfection.

Unfortunately, perfection has a long history of missing earnings estimates.

📌 Signal Extract

Bull markets create optimism. Leverage creates fragility. When the two combine, humility becomes an asset class.

🎯 High-Conviction Takeaway

Artificial intelligence may indeed transform the world. But paying any price for anything has historically been a poor investment strategy.

⚡ Quick Take

Positives

✅ AI remains a transformational force.

✅ Economic growth remains relatively resilient.

✅ Insider buying remains healthy.

✅ Value opportunities continue to exist.

✅ Corrections often create future opportunities.

Risks

❌ Elevated valuations.

❌ Record leverage.

❌ Crowded semiconductor trades.

❌ Mechanical quarter-end selling.

❌ Cross-asset contagion.

❌ Rising volatility.

❓ FAQ

Does this mean a crash is coming?

Not necessarily.

Neither Goldman Sachs nor JPMorgan is forecasting catastrophe.

The warning concerns fragility and positioning rather than certainty.

Is AI a bubble?

Not necessarily.

Artificial intelligence may prove revolutionary.

History simply suggests that revolutionary technologies can coexist with excessive valuations.

Railroads, automobiles, and the internet all experienced both.

Is Bitcoin a safe haven?

Increasingly, Bitcoin appears to behave like a high-beta technology asset rather than a traditional store of value.

Are value stocks automatically safer?

No.

But lower expectations often create larger margins of safety.

What are insiders buying?

Interestingly, insiders have frequently targeted sectors outside the crowded AI trade, including financials, industrials, insurance, and various deep-value situations.

☀️ Carpe Diem

At FUNanc1al, we have absolutely no idea whether the market's next move will be:

• +10%;
• -10%;
• or sideways.

Neither does Goldman Sachs.

Neither does JPMorgan.

Neither does the Federal Reserve.

And neither, for that matter, do AI or ChatGPT.

But we do know a few things.

Valuation matters.

Leverage matters.

Humility matters.

And life matters far more than quarterly rebalancing.

Invest thoughtfully.

Enjoy your family.

Watch the World Cup.

Walk by the ocean.

Write poetry.

Laugh often.

Love deeply.

And remember:

The market does not owe us permanent gains.

Fortunately, life still offers plenty of dividends.

Carpe Diem. ☀️

👤 About the Author

Frédéric Marsanne is the founder of FUNanc1al and an entrepreneur, investor, writer, and incurable optimist. Through FUNanc1al, he seeks to FUNalize investing, health, technology, travel, music, and life itself. His philosophy is simple: laugh more, learn constantly, love deeply, and invest wisely. When not analyzing insider purchases or pondering Stoic philosophy, he enjoys writing fiction, painting, discovering new passions, and building Cl1Q, a social network centered around passions and human connection.

⚖️ Disclaimer

This article is provided for informational and entertainment purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. Investing involves risks, including the possible loss of principal. Readers should conduct their own due diligence and consult qualified financial professionals before making investment decisions. The author may hold positions in securities discussed. Past performance does not guarantee future results.

Final Thought

Artificial intelligence may change the future.

Human nature, however, has been running the same software for thousands of years.

And leverage, enthusiasm, and overconfidence have always been among its favorite bugs.

☀️📈🍷🏛️🌎