Are AI stocks the new railroad bonds?

Katie Martin (0:06)

Pushkin. You want to figure out what financial markets are up to, what they're trying to tell us, the go-to way that professionals try and do that is by looking not at the future, but at the past. So if you look at the AI boom in markets today, the big question is whether this is like the.com boom and bust of 25 years ago. This game is less about gazing into a crystal ball and more about being low-key a bit of a history nerd. So today on the show, why it pays to know your financial history.

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, where we have a wobbly bond market and a local election coming up. What can possibly go wrong? Joining me today, I have a two-fer, ladies and gents. Yes, I have that big Rob Armstrong over there in New York. Rob, say hi.

Robert Armstrong (1:00)

Hello.

Katie Martin (1:03)

Don't put on a funny English accent, Rob, because we also have...

Robert Armstrong (1:07)

An actual funny English accent.

Katie Martin (1:10)

An actual funny English accent from Robin Wigglesworth, who's the editor of FT Alphaville and also a card-carrying financial history nerd over there in sunny Oslo. Robin, hello.

Robin Wigglesworth (1:21)

Hello. Should I do a Norwegian accent today, then?

Katie Martin (1:24)

No need for that.

So, Robin, I know you are loathed to indulge in shameless self-promotion, but you've been deep in the weeds on financial history lately. The thing you're doing at the moment is this podcast, also in the FT stable, with Gillian Tett, about the story of money, which is about financial history. Why would you do such a thing? Who cares about the deep history of finance? Why is this important?

Robin Wigglesworth (1:51)

Well, I do it because I love it. I mean, as you repeatedly point out, a massive nerd about these things.

I just love it for its own sake. I just think it's fascinating. But like you say, we do learn a lot from the past. You can choose the George Santayana quote or the Winston Churchill quote, or even go back to Edmund Burke. But those that learn from the past usually repeat some of the screw-ups in the future.

Robert Armstrong (2:19)

I've always thought that this quote was absolutely true, but those who do know the past are also doomed to repeat it. So, it's a bit of a problem.

Katie Martin (2:31)

But bringing this somewhat more up to date, like the thing that is really driving stock markets at the moment, stock markets have decided that the Iran War is like old news and they are just like ploughing on regardless. And one of the reasons they're ploughing on regardless is that they are really tightly, tightly glued to corporate earnings and really big companies, particularly kind of AI-flavoured, tech-flavoured companies, are just making money hand over fist. But that sort of links back to this sort of gnawing thing that people have in the back of their head, which is, is this a little bit like the dot-com boom and bust of sort of 1999, 2000? Or worse, is this like the US railroad boom and bust, which happened sort of from the late end of the 19th century? And I guess you can draw a thread from there through to the proper Wall Street crash of the 30s.

You've been talking about this on the pod lately. What, like, do you think there are? Well, first of all, for people who don't know, what was the US railroad boom and bust?

Robin Wigglesworth (3:37)

Well, essentially, in the 19th century, there was this gargantuan, and I mean it, you know, that's, I'm not exaggerating, it was a gargantuan build up of railways around the world. It was, you know, even the AI boom today, it looks like a tiny little gnat on the arse of an elephant compared to the railway boom. So, you know, I saw some numbers from Morgan Stanley, they think that the hyperscalers are going to spend maybe a trillion dollars on data centers by 2027 now.

But the railway boom, just in the US, just on the bond issuance, there was around five, six billion dollars worth of bonds issued, and that doesn't sound like much, but if you scale it relative to the size of the GDP at the time, because the US was a small economy, that's the equivalent of 10 trillion dollars today.

Katie Martin (4:26)

Wow.

Robin Wigglesworth (4:27)

So the railway boom, the bond issuance, and some of this was financed by stocks and government grants and so on, but largely by bonds was around 10 times the size of today's AI.