DebtDeflation

Better than continuing to show me ads for vacuum cleaners two months after I purchased one after searching for them.

Meanwhile, there seems to be a massive pivot underway at OpenAI away from AGI hype and model development overall and towards just becoming a product company that monetizes their current tech via mundane stuff like Instant Checkout.

Google "round tripping". It's a tale as old as time and has led to many financial scandals and bubbles/collapses.

That sounds a lot like the "everyone has to live somewhere and historically house prices never decrease" argument circa 2006-2007.

Equities are not the only asset class in existence and in any market people can sell just as easily as they can buy.

Not to mention, in addition to the GFC, it took the stock market until 1954 to recover the 1929 highs and in Japan it took until 2024 to recover from the 1989 crash, so there are clear examples where the stock market doesn't always go up for very long periods of time.

We're in this weird situation where:

1) the average American is heavily dependent on equities in their 401k for retirement,

2) so the stock market has to go up,

3) but the stock market is already at record valuations and it's difficult to see how forecasted growth levels justify the current valuation let alone an increased valuation,

4) without revenue growth, the only way for companies to sustain EPS growth is massive reduction in costs,

5) labor is the primary cost for most companies,

6) in come the AI folks telling CEOs that "AI can replace most of their workforce",

7) and so as the article states, everyone goes all in and "America is one big bet on AI"

That leaves us with only 2 possibilities - AI either replaces a significant part of the workforce or it does not. If it does not, the bubble bursts and the economy crashes. If it does, the economy still crashes because consumer spending is 70% of GDP and if the majority of the population becomes unemployed then spending collapses.

I don't think people have realized the latter (or at least they're deliberately choosing to ignore it). That said, I believe the former is more likely (AI not replacing the majority of the workforce in the near future). Either way, buckle up.

Even a couple of years ago it was mindboggling to look at their corporate structure:

A non-profit parent entity with a wholly owned for-profit subsidiary (actually, the non-profit wholly owns and controls a third "manager" entity which in turn is the controlling but not majority shareholder of the for-profit subsidiary) where the profit of the for-profit entity is "capped" and oh by the way, that for-profit subsidiary has a 49% shareholder who happens to be Microsoft (but despite a 49% stake gets 75% of their profit..........until their initial investment is recouped). Employees get Profit Participation Units (PPUs) which are NOT equity but which entitle employees to a percentage of profits, again up to the "cap". Then of course, when OpenAI achieves AGI, whatever the hell that is is, then everything from that point forward reverts back to the non-profit entity.

I know it's changed since then, but it has always been a sort of financial Rube Goldberg contraption setup.

OpenAI isn't giving AMD money to get AMD stock. AMD is giving OpenAI its stock (in the form of a call option with a $0.01 strike).

Not really. This is AMD investing in OpenAI (albeit in an unusual way, with stock options) not the reverse. Same as the Nvidia deal. Same as hyperscaler investment in OpenAI and Anthropic. The people selling stuff to the AI Labs are the same ones funding them.

Oh, we saw it before. 1998-2000. Cisco, Sun, et al, "investing" in the dotcoms so those dotcoms could turn around and use the funds to buy servers and routers from them.

It's just round tripping with an extra step or two. AMD giving OpenAI money (via stock options) that they can use to buy AMD chips.

For the 95% of people who get all their income from W2/1099 compensation, bank accounts, and brokerage accounts and who either take the standard deduction or whose only itemised deductions are dependents, mortgage interest, and SALT, there's really no need for filing tax returns at all. But the tax accounting and tax software industries lobby to prevent it.

Historically, the worst busts following the bursting of an asset price bubble, in terms of real economic impact, have been from debt fueled bubbles (Great Depression, Global Financial Crisis). You can read Hyman Minsky and Irving Fisher for a detailed analysis of why, but it mainly comes down to the fact that the financial obligations remain once prices and expectations have reset.

Then you have the busts that follow public equity fueled bubbles (Dotcom crash). Nowhere near as bad as the former, but still a moderate impact on the economy due to the widely dispersed nature of the equity holdings and the resulting wealth effect.

What we have now is more of a narrowly held private equity bubble (acknowledging that there's still an impact through the SP500 given widespread index investing). If OpenAI, Anthropic, Perplexity, and a bunch of AI startups go bust, who loses money and what impact does it have on the rest of the economy?

Because it's a very different type of math than that used in Quant Finance. Econ PhD programs don't want people with broad math skills, they want people who know the very narrow slice of math needed to solve these very unusual models. Quant Finance mainly uses PDEs and Brownian Motion stuff that all Math and Physics majors learn.

This. My undergrad was in Economics (a long time ago). There was a time I thought about doing a PhD, but ended up doing an MS in Quant Finance instead. It's hard to believe that anyone can take a DSGE model seriously as a model of how the economy works.

For the unaware - graduate level Economics is nothing like pop Economics, it's essentially an applied math degree. But the math in question is extremely wonky. Mostly using Convex Set Theory and Brouwer Fixed Point Theorem from topology to prove the existence, uniqueness, and stability of a general equilibrium solution for a "market" of price-quantity commodity pairs. The assumptions needed to make it work are literally absurd.

>data-center related spending...probably accounted for half of GDP growth in the first half of the year. Which is absolutely bananas.

What? If that figure is true then "absolutely bananas" is the understatement of the century and "batshit insane" would be a better descriptor (though still an understatement).

Labor really is not fungible that way. On shore H1B Indians generally are higher skilled than offshore Indians, perform different roles at companies, and are paid more. Many of them could have chosen different careers than Tech and likely will if they move back to India.

Multiple things can be true at once. Some jobs have been eliminated by AI. The H1B system is being abused by employers. Offshoring has replaced more American jobs than H1Bs. Corporations are lying to investors about the impact of AI on their headcount. All of the above are true.

What you describe is certainly possible, but it's not what's happening. You can go on Blind, Fishbowl, any work related subreddit, etc. and hear the same story over and over and over - "My company replaced half my department with H1Bs or simply moved it to an offshore center in India, and then on the next earnings call announced that they had replaced all those jobs with AI". There's a reason why "AI = Actually Indians" is a meme everywhere on the internet, and it isn't racism, it's just people observing the reality around them.

You also need to consider the impact of offshoring. Accenture's layoffs of 11,000 workers is listed in the chart, but a few days earlier they announced they were opening a new campus in India and hiring 12,000.

"How do I do XYZ in Python?"

ChatGPT: I've found the following Python books that contain explanations of how to complete that task. Which one would you like to purchase?"

"None. I just want an answer."

ChatGPT: Ok, perhaps you were looking to purchase a python. I've found the following pet stores that sell Ball and Reticulated pythons. Which one would you like to purchase?"

"Aaaaaarrrrrrrggggghhhhhhh"

One additional reason: all the other CEOs are mandating it at their companies. Can't be the odd man out in the CEO group chat.

Wouldn't Nvidia be better served investing the $100B in expanding GPU manufacturing capacity?

Wouldn't they be better served investing the $100B in expanding GPU manufacturing capacity?

In 20 years, Kurzweil will write another book entitled, "The Singularity is Almost Here".

The plan seems to be to hope that AI will be able to replace the senior ICs in the near future. They're certainly gutting the ranks of management today in a way that presupposes there will be far fewer ICs of all levels to manage soon.

Decentralized Finance!

> OpenAI signed a contract with Oracle to purchase $300 billion in computing power over roughly five years

>The deal is one of the largest cloud contracts ever signed

>The Oracle contract will require 4.5 gigawatts of power capacity, roughly comparable to the electricity produced by more than two Hoover Dams or the amount consumed by about four million homes.

And where is all of this data center capacity going to come from?

It's utterly bizarre. I was impacted by that outage a year or so ago and they claimed that they were going provide offline syncing in the future but I still don't see it. It seems the flow is Watch ->(Bluetooth)-> Phone ->(LTE/WiFi) -> Garmin Cloud ->(LTE/WiFi) Phone. There's no reason for the Cloud step other than that Garmin wants your data but the sync won't work without it.

People forget that in the long history of human civilization, the idea of working as an employee of a big company only goes back about 150 years, the idea of white collar office work in that context only goes back about 75 years, and the idea of a "career" (as opposed to just doing the same job forever) is even newer.

Don't believe the narrative that these layoffs are being driven by AI replacing humans. They're being driven by a need to meet Wall Street's EPS expectation during a time of slower Revenue growth. In some cases the jobs aren't even being eliminated, they're just being moved to India. In other cases these CEOs think they can replicate what Musk did with Twitter when he bought them and fired all the workers (except they aren't Twitter). AI replacing jobs right now is just a fairy tale being told to investors.