Blow Lunch
A few years ago, my son and I watched as some inebriated patrons of one our favorite Bay Area restaurants came to blows in the parking lot. One of the guys who worked at the restaurant explained that these kinds of tensions were becoming more prevalent as lifelong residents of the community became increasingly frustrated that the increased cost of living was pricing them out of their own hometown. This story is nothing new in my neck of the woods where tech booms from PCs to the internet to AI have repeatedly drawn people to the region of the original gold rush for even more profitable digital versions. Because of rising local prices, especially in housing, the boom and bust cycles often emerge simultaneously. That’s why headlines about the breathtaking levels of wealth being created by the AI explosion can be coupled with stories like this from WaPo (Gift Article): Poverty spikes in the land of the tech billionaires. “For the first time in more than a decade, the Bay Area’s poverty rate is rising significantly, jumping by more than 4 percent in less than a year, according to an analysis released Wednesday by Tipping Point Community, a San Francisco-based anti-poverty nonprofit organization.” This divide between Wall Street and Main Street, playing out in a parking lot near you, is a story as old as the market. But today, there’s another divide. Think of this divide as Wall Street vs the Rest of Wall Street. It’s between a handful of trillion dollar companies that are gaining value hand over fist and the rest of the market, where there’s a better and better understanding of the frustration that can lead to parking lot fisticuffs. “A group of trillion-dollar brands known as the ‘Magnificent Seven’ — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — has been at the forefront of those gains, thanks in large part to corporate spending and intense interest in artificial intelligence. But economists and investors are raising concerns about the companies that aren’t part of the AI investment boom — in other words, most businesses in the United States. An index that leaves out the seven high-flying tech firms — call it the S&P 493 — reveals a far weaker picture, as smaller and lower-tech companies report lackluster sales and declining investment.” WaPo (Gift Article): What the S&P 500 is hiding about the economy.
+ Much of the market, and much of the economy, is currently being driven by AI-focused companies that are in a weight class all their own and are raising an unprecedented amount of investment dollars and debt. So we all depend on their accounting. In the WSJ, Jonathan Weil, highlights a few concerns (with a red pen) in the ol’ Excel spreadsheet. “It seems like a marvel of financial engineering: Meta Platforms META 3.34%increase; green up pointing triangle is building a $27 billion data center in Louisiana, financed with debt, and neither the data center nor the debt will be on its own balance sheet. That outcome looks too good to be true, and it probably is.” AI Meets Aggressive Accounting at Meta’s Gigantic New Data Center. It’s worth noting that Jonathan Weil is most famous for a September of 2000 article titled Energy Traders Cite Gains, But Some Math Is Missing, in which he was the first reporter to challenge Enron’s accounting. No, I’m not suggesting that the AI revolution is anything like the Enron scandal. I’m just thinking it might be worth keeping your guard up.
