This reminds me of around 2002 when I wrote an article looking at how all the web behemoths at the time were claiming profitability through ad sales, but actually the vast majority of ads were from one web behemoth advertising on an other's site and vice versa.
This is How Larry Elisson beat Musk for a short while although Oracle was struggling.' The deals among Oracle, Nvidia, and OpenAI have raised concerns about their circular and potentially risky nature. Oracle is reportedly spending tens of billions on Nvidia's advanced chips, Nvidia plans to invest up to $100 billion in OpenAI, and OpenAI uses Oracle's cloud infrastructure through Microsoft's Azure, creating a closed loop of financing and business. Some analysts warn this creates a reflexive loop or "dangerous bubble" where valuations may be inflated artificially by the circular flow of capital and resources, reminiscent of past booms that ended in sharp market corrections.
You can't discount the impact this will have on global stock markets and what that may do to both individuals and, more importantly, pension funds, as a large swath of people are retiring
Damage is unavoidable, we can only hope that it happens to someone deserving. Innocent individuals and pension funds still have time to retreat; if they don't it will be their fault.
We are moving towards gerontocracy - if pension funds will have large losses it’s very likely that young, working age people will be taxed extra heavily to keep the QOL of pensioners.
That would likely lead to a revolution: Millennials are 30-45 and they’re not in a good place; neither is Gen Z.
We’re already seeing revolutions elsewhere — and it’s likely that trying to loot them further by generations who sold out the nation will simply lead to social collapse.
Have you ever battled an 87-year-old wearing mechanized battle armour? They're crazed, hopped on speed, eyes goggling in their sockets
A pack of 3 oldies burst through our perimeter one winter night... the screaming woke me up. Outside my tent the forest was lit up red by our laser blasts, trying desparately to take them out.
We thought that a revolution would be a good idea, but an upside-down population pyramid is a hell of a thing when you're on the bottom.
Yes but this is by design. Wealthy people want bubbles, when they pop, you can gobble up all the value at all time lows. Then you hold until you don't feel like it anymore as the market goes back to growing. You see this as how private equity has bought up real estate across the USA to turn into rentals after 2008, for example.
Aren’t extremely wealthy people that wealthy due to the valuation of their stock? IIRC generally the higher the networth, the higher share is kept in stocks
And they don't spend money, they take debt against their existing assets to fund projects and investments. So long as they can service the loans across economic downturns, they don't particularly have to feel the effects of a recession, outside of the mentioned opportunities to buy the market at a discount.
I suspect $$ is just a number for them. Being able to control more resources is the ultimate game. You gotta have zillions of $$ to join the tournament, though.
Person A has a net worth of 2B
Person A has a loan at 500M backed by their holdings
Stocks drop 50%, Net worth is now 1B
Person A buys $500m of stocks
Market Recovers 100%
Person A now has 2B original holdings and 1B gains, $500m owned = 2.5B
Very simple example, and not the only way to do it - but people need to remember net worth being 500B is not 500B in the bank, and at some point the number doesnt matter
More importantly you keep the portfolio semi-balanced.
Just using Google / Gold as a comparison [1].
Assume you have 100 units of each.
In late 2021, Googs gone up ~100% so you have to rebalance because you have $200 in Goog and $92 in Gold. So lets say you rebalance to 80 Goog (160$) and 144 Gold ($130).
In late 2022, Googs gone down ~40% so you have to rebalance because you have $96 in Goog and $141 in Gold. So lets say you rebalance to 100 Goog ($120) and 118 Gold ($112).
So over the course of 2 years Goog has gone up 20% and Golds gown down 5% but your investments are overall up 16%. Obviously a 100% Goog investment is higher but with more risk.
If you didn't do any rebalancing then you have a gain of 7.5% (100*1.2 + 100*0.95 = 215)
There was an article here recently about alpha school that mentioned this is how of of its backers made a lot in the aftermath of the dot com bubble - picking up companies with products that happened to implode in the bust. He's not the only one and that's not the only bubble that had that happen
> If this means that the fall of OpenAI will cause Oracle and Nvidia to crash and downsize
Only if those are the only actual real customers. It's not. The pie is a lot bigger. And with the current hype some other AI company will just take over and the bubble will continue.
A shareholder going bust is a no-op. However, the loss of large customer, is concerning, but less so, relative to the market souring on AI investments as a whole, which would be not great for AMD, but disastrous for Nvidia.
I doubt, or at least hope, that no sort of managed fund for retirement (read: low risk) is going 15% on AI stuff. Regardless of what one thinks might happen, it has to be accepted at this is an obviously very high risk bet, because this all is screaming bubble even more than the era of 'zomg i flipped this house i financed on an insta-approved loan, installed granite counter tops, and walked away with $20k profit in 4 days.'
Failing to diversify is the fund managers' problem. Pension funds shouldn't have all their investment in a single countries' stock market (doesn't matter that most, if not all, of those companies operate worldwide, they are still from the US), not even in equity markets. A wiser investment manager (or individual investor) would put a chunk in different kind of equities, and diversify into fixed rate, precious metals, perhaps real estate... Not bet it all to the volatile S&P 500. "Past performance does not guarantee future results.".
If it’s a bubble, then the long term value people are now counting on to retire with in the future is not actually real though, right? Like a bubble popping doesn’t destroy real value that used to exist, it exposes fictional value that never really existed.
What’s the mechanism you have in mind for that happening via bubble? They sell early before the crash? I’m curious if that actually happens, since the mass psychological nature of market crashes seems to make them difficult to predict reliably, even for people with a lot of resources.
Inflation on the other hand definitely does reallocate real value to whoever already owns a lot of assets, and I believe inflation often goes along with bubbles, since credit expansion is what usually kicks off the bubble in the first place.
Is it fair to say OpenAI is in a sense “washing” the money passing between Nvidia and Oracle? And instead of taking a cut in the traditional money laundering they are enjoying massive valuation gains?
When the fed investigates this does it matter if one of the 3 companies is not a publicly traded company?
I guess you could see it like that but I don’t think it’s “wash trading” in the sense that they’re coordinating it. I don’t really know what the fed would investigate here.
What you're missing is that real value can be created in these exchanges - Nvidia really makes chips for example.
The issue is that it's an industry of investment which exists solely to power more investment in AI - the entire chain is still assuming that someone will eventually pay for this.
At the end of the day all that money leaks out to employees and suppliers...but no one those people transact with may have any interest in buying what was produced.
That's only really value if the chips are useful and if there are people buying the chips for something they want to do with them.
It's entirely based on the perception that LLM training & inference is here to stay at ever growing scales when the shortcomings of Artificial Dreaming are increasingly scrutinized. Not all businesses want to end up paying refunds to their clients like Deloitte [1] because the LLM hallucinated crap into their reports (and they failed to correct it).
> It's entirely based on the perception that LLM training & inference is here to stay at ever growing scales when the shortcomings of Artificial Dreaming are increasingly scrutinized. Not all businesses want to end up paying refunds to their clients like Deloitte [1] because the LLM hallucinated crap into their reports (and they failed to correct it).
This assumes Deloitte didn't make more $$$ from the deal by "outsourcing" it to AI than not. It was a partial refund.
> You haven’t brought in the side costs into your analysis
And you haven't considered that Deloitte might get this money some other way anyway. It's been budgeted and needs to be spent by the government department for this financial year. They'll find another project to hand out.
That's very cool. I was going to get a hetzner for some hobby projects.
Can you get that without adding a payment mechanism? For some reason, I'd be more cautious about putting my card into Oracle's offering than anyone else.
> Can you get that without adding a payment mechanism?
No!
There are actually two free tiers.
The limited free tier you get without adding a CC and then this advanced "always free" tier I am using, where you have to use and verify a CC and have to pay big bucks if you mess up.
So it's free... Until is not. My take on this would be that if Oracle makes any change to that "free" tier and you do not take proper action you might be automatically charged hefty amounts from your credit card. No, thanks. It's way way safer to spend few bucks a month in other VPS options than get a big surprise on your credit card.
I know Oracle are notorious for scummy license enforcement, but in practice their Always Free tier is superior to Amazon's precisely because they will cut off your service rather than bill you arbitrary (huge) amounts.
The big limitation is the 10mbit egress bandwidth, but you can work around that with (free) Cloudflare.
I think the point here is that free beats easy peasy, especially when learning a new skill, where your easy peasy isn't their easy peasy. And getting something up and running on Oracle Cloud with Terraform is nowhere near easy peasy for someone who never did anything with Terraform ;)
Even smart people belive a lot of untrue things, and his domain of knowledge isn't likely to include much more biology than my GCSE grade C and a handfull of brilliant.org micro-lessons; it's quite possible, though I would not put specific odds on it, that he's seen e.g. the sudden change in the rate of progress in protein folding, where before it was ~ one PhD thesis per protein and then suddenly AlphaFold did all of them, and extrapolated from that to everything else like an over-enthusiastic PopSci reporter.
We're actually in a great place to reverse aging already with off the shelf stuff you can get from the grey market. We have countless interventions that show improvements in aging-related metrics in humans that show verified longevity benefits in animal models. That's about as good as you can hope for without waiting a lifetime to actually confirm the human actuarial benefit, which is inherently a losing strategy.
(Interestingly, some of the world's dictators do seem to have an interest in the current state of the art in prolonging life. For example Xi and Putin chatted about organ replacement https://www.bbc.com/news/articles/cr70rvrd41ko)
Ah yes, my favourite philosophical dilemma, The Organs of Theseus, and whether or not a sufficiently organ-replaced person is absolved of their previous actions by virtue of not necessarily being the same person.
As a more serious point related to this though, I was under the impression that organ replacement didn't address issues with telomere length?
> What's he going to do with all that money, and what does he care for the risk it's bad or shady?
The thing that unites Ellison, Trump, Musk, Thiel and a fair few of the other politically active billionaires is the obsession with "legacy" - they want to leave their mark in the history books, figures which will likely be remembered and taught in schools in thousands of years similar to Roman emperors.
Musk is the most obvious with his obsession of settling (and eventually dying) on Mars, Trump is dreaming of getting a Nobel Peace Prize (if only to not let Obama be the only US President who got one), and the rest is hunting for the "invented AGI" crown.
Obama was the fourth U.S. president to be awarded the Nobel Peace Prize, after Theodore Roosevelt (1906) and Woodrow Wilson (1919)—both of whom received the award during their terms—and Jimmy Carter (2002), who received the award 21 years after leaving office. - wikipedia
What does Ellisons personal wealth have to do with this? The concern is that the circular pattern of shifting money between these companies is artificially inflating the stock market to heights that will crash very very badly when this bubble finally pops.
>By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"
That's not how Ponzi schemes work. Yahoo had a defacto _monopoly_ and the market had bad discovery leading to bad price information. There was no point at which the internet was /not/ worth investing in and everyone who had experience with it knew that.
The real problem seemed to be that you can only put so much money into pets.com before it becomes stupid. You had more short term investment capital than could be _effectively_ spent at the time. The long term players, as usual, avoided the Archimedian idealism, and were heavily rewarded anyways.
Same issue with LLMs - there probably is real value there, but investors have rammed 10 years' worth of investment into the market in 10 months.
That means:
1) Late investors end up taking a bath because it will actually take 10x longer to get a return than they thought.
2) Investment becomes inefficient - there are lot of GPUs being bought in 2025 that should have been bought in 2030. By the time 2030 comes along, those 2025 GPUs will be outdated, so the value they will provide will be less than if they had been purchased at the correct time
>There was no point at which the internet was /not/ worth investing in and everyone who had experience with it knew that.
I don't get this. Of course there was. Specifically, March 10, 2000.
To declare that something is not worth investing in doesn't imply that it's useless. (and actually, swing investors will argue something can be worth investing in even though it is in fact useless, e.g. web3 and most crypto).
Why is it so popular to "akshually, Ponzi schemes are different!" these days?
Words have meaning in context, and calling something a "Ponzi scheme" these days means any pyramid-like system that only works as long as new investors come to the table, because that new investor money is the sole source of gains for earlier investors. But once you run out of new investors, which is inevitable, the whole thing collapses. What pg described was exactly a Ponzi scheme in that sense, even if it wasn't a deliberate scam. And that's very different from other types of business ventures that eventually fail because of the more "normal" reason that they just don't gain traction.
And you do recognize the context of those words was 15 years ago at this point?
> was exactly a Ponzi scheme in that sense, even if it wasn't a deliberate scam
There are better terms of art to describe the scenario. If we lacked for those words I might grant you this point, but since we don't, I find the description lacking in precision if not completely faulty.
> the more "normal" reason that they just don't gain traction.
Is that actually the "normal reason" most businesses fail? I'm not sure it is.
Agree, people became extremely pedantic with words and it's incorrect to assume they only mean what is described in a dictionary, as if we are in a court.
Language is fluid, and many of words got their very known & popular meanings later, when people used for things that it didn't exactly mean what it was initially intended to, and it got popular.
People are ever less empathetic and sociable, this being the reason for such comments.
People become pedantic when it's the only way to defend themselves and their friends or to argue against someone.
In this case dotcom investing was so stupid that it should have been recognized as stupid at the time, without hindsight.
For someone who lost money, gave bad advice etc. insisting that they didn't fall for a Ponzi scheme means representing themselves as less terrible investors, regardless of facts.
But you can't fake profits that way (without cooking the books); you can only fake revenue. That's why profits matter.
Though I guess with high velocity of money circulating in tight loops, everyone involved can feel rich. 1 million dollars changing hands once per day can potentially mint 365 'millionaires' during the course of a year. If they just pass it back and forth among themselves to buy each other's stocks and products and don't let that money escape their network to actually pay for something useful, they can all be millionaires... On paper.
Not to mention how relatively small amounts of money, moving at high velocity, can inflate asset prices... On Alice's birthday, Bob can buy 100 shares of Alice's shell company at a price of $10 per share. If Alice owns 1 million shares of the company (which she founded), it means that Alice's net worth is at least $10 million... It cost Bob only $1000 to give Alice a net worth of $10 million. Now imagine that same $1000 moving in and out of that company's stock, traded 1000 times per day between various people. With just $1000 circulating back-and-forth at high frequency (A.K.A. high-frequency trading), you can generate a trade volume of $1 million per day... So it all seems reasonable; a company with a $10 million valuation with $1 million daily trade volume... Nothing suspicious. So you can basically start a shell company and fake everything; from the market cap, to the trade volume; using only a relatively small amount of money. This is what they were doing in the early days of crypto.
The same money can hop around in circles between an insane number of people when it's just 'revenue' because revenue is not taxed (after expenses). Only profits are taxed... But the same money, as profit, can barely hop between 6 people before it's taxed down to just 10% of its original number. High-velocity revenue can severely distort people's perceptions of the market, especially in the era of media filter bubbles.
Damn. Didn't think of that. Seems I have a very naive definition of 'profit'.
It's crazy how all these small subtleties in definitions of various terms can create something so abominable in the aggregate. Makes one want to reach for a tinfoil hat. Not sure I can even trust the company which makes the tinfoil at this point.
In the very short term yeah, but in the long term GAAP still sniffs this out. Eventually Company A will need to use some form of mark to market valuation to assign a value to that $1M they invested. If Company B is a dumpster fire then eventually the $1M investment will be worth much less (or zero) and balance is restored to the world.
You see companies hand waving this sort of thing away on earnings calls when they have a really bad quarter but the CEO is blowing smoke at shareholders saying “On non-GAAP this was an amazing corner.” Which is code speak for “that terrible decision I made a few quarters ago is coming home to roost and our lawyers have said I need to reflect that on our books. If you ignore where we screwed up badly, our numbers look good!”
> it means that Alice's net worth is at least $10 million...
Some people might interpret or represent the aforementioned transaction as justification for thinking Alice's net worth is at least $10M, but it is not an objective measure of Alice's purchasing power (as it would be in the case that Alice had $10M cash).
>The same money can hop around in circles between an insane number of people when it's just 'revenue' because revenue is not taxed (after expenses). Only profits are taxed
On the US federal level. Not sure about other countries, but quite a few other governments in the US do tax revenue.
>Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes. Delaware, Oregon, and Tennessee impose gross receipts taxes in addition to their corporate income taxes. Some localities in Pennsylvania, Virginia, and West Virginia likewise impose gross receipts taxes, which are generally understood to be more economically harmful than corporate income taxes.
