Is AI Overheating?
Is AI Overheating?
Paul Craig Roberts
On November 17 Bloomberg reported that Peter Thiel’s hedge fund sold its 537,742 shares of Nvidia during the third quarter. This month SoftBank sold its stake in Nvidia reportedly worth $5.8 billion. Bloomberg sees the sales as a retreat from investments in Nvidia, the leading provider of artificial intelligence chips. However, SoftBank says it sold its Nvidia shares in order to increase its investments in OpenAI. These are large numbers, but small compared to Nvidia’s $4.6 trillion market capitalization. It is the size of the market capitalization and the large depreciation that might be the problem.
Michael Burry’s expressed uneasiness about problems resulting from very rapid developments in AI, especially as they relate to Nvidia and Palantir (Nvidia makes AI chips and Painter develops AI software) has focused some attention on the depreciation problem resulting from rapid change that could bring down share prices in the AI arena, including Google and Microsoft.
Michael Burry was the only person who saw in advance the collapse of the mortgage derivative market. No one in the financial sector saw it coming, and neither did the Secretary of the Treasury, the Chairman of the Federal Reserve, and the Chairman of the Securities and Exchange Commission. These three stooges went to Congress and stopped Brooksley Born , Chairman of the Commodity Futures Trading Commission, from regulating derivatives.
We can conclude from this that the people assumed to be smart are not. The only smart people are the few who can get outside of the box and look at reality objectively.
Larry Sparano (On Target) recently interviewed me about the situation. See here: https://www.youtube.com/watch?v=oKGkVWvN2c0
A Possible AI Collapse
The basic problem seems to be that AI investments rapidly depreciate because of the rapid rate of change, with the result that the rapidly rising depreciation requires ever more new investments into the industry.
Some of the financing seems to be circular. Here is a possible scenario. The company OpenAI contracts to spend more money than they have. The money is to go to Oracle. On the basis of expected incoming revenue from OpenAI, Oracle announces it is going to buy massive amounts of chips from Nvidia. Nvidia then makes a $100 billion investment in OpenAI. It other words it is a credit circle.
The massive data centers being built by Google and Microsoft are not a one-time investment, they are a huge recurring expense. The data centers depreciate rapidly because of rapid developments such as the displacement of CPU processors by the faster GPU processors. If the companies underestimate the speed at which their investments are depreciating, they could be faced with a depreciation tsunami with depreciation write downs exceeding new investment inflows and cash flow. It is possible to have profits and no cash flow, because reported profit doesn’t include the capital spending necessary to keep up with rapid technological development. For now it seems that new investments into the companies are taking the place of profits, and it is new investments into AI that are creating the bubble. However, expenses cannot forever exceed profits without stock prices and high P/E ratios collapsing.
One way to hide the problem is to extend the expected life of the investments from, say, three years to six years. This gives a longer time to spread out the depreciation and thereby a less of a hit on cash flow. But if the life of the assets turns out to be three years, the company is in trouble.
Yet another problem is that rapidly depreciating computer units are being used as collateral to finance loans, and new businesses called neoclouds borrow money to use to offer computing units for rent. As the business is rapidly growing, there quickly will be hundreds of billions of dollars in loans based on rapidly expiring collateral.
If I have managed to understand the situation, the AI boom is dependent on new money entering the industry to provide the money to renew rapidly depreciating assets. If the inflow of new money reduces or halts, the bubble pops.
As my readers perhaps know, I am more interested in the societal affects of AI than in a market crash from an AI bubble. The societal effects are more deadly than a market crash.
Is Trump Killing His Movement and was Epstein Running a Mossad Blackmail Operation?
Is Trump Killing His Movement and was Epstein Running a Mossad Blackmail Operation?
Paul Craig Roberts
Nima and I discuss these issues. We do not discuss whether Epstein was murdered, which is the question at the heart of the matter. If he was murdered, why? Was Epstein murdered because he threatened to reveal that he was running a blackmail operation, not a sex-trafficking operation? Was he murdered because he had the dirt on too many elite Americans? Did the CIA have him murdered as revenge for Israel’s spying on the US?
The circumstances suggest that he was murdered. A high profile prisoner, he was in a suicide-proof cell watched by two guards and by security cameras. For the brief period during which he died, the guards happened to wander off the job. The security cameras malfunctioned or were turned off. In other words, not just part of security failed. All of it did.
There is no evidence of suicide. There is only assertion by authorities. How often do authorities tell the truth? President John F. Kennedy’s assassination? His brother, Robert F. Kennedy’s assassination? 9/11?, Saddam Hussein’s weapons of mass destruction? Assad’s use of chemical weapons? The lies about Gaddafi? The examples of authorities saying the opposite of the truth are endless.
If Epstein was running an Israeli blackmail operation to ensure American conformity with Israel’s policy of expansion in the Middle East, it is unlikely any youths below the age of sexual consent were present involuntary. Israel would hire young women rather than jeopardize an important operation by kidnapping underaged girls and holding them in sexual bondage, which could lead to an investigation. Moreover, whether or not 17-year old Virginia Giuffre was underaged depends on her state of residency. In the 50 US states the age varies from 16 to 18 years old. In 31 of the 50 states the age of consent is 16. In eight of the states the age of consent is 17. In eleven of the states the age of consent is 18.
The age of sexual consent is arbitrary. In 1871 Delaware lowered the age of female sexual consent from 10 to 7 years old. In the rest of the US at that time the age was 10 to 12 years old. Today in some South American and African countries the age of female consent is 12. In Austria it is 14. In France, Poland, the Czech Republic, Sweden, Greece, Denmark and Iceland, the age of consent is 15. In the rest of Europe the age of consent is 16 or 17. In China the age of consent is 14. In Japan the age was recently raised from 13 to 16. In many Muslim countries sexual intercourse outside of marriage is prohibited. In Iran males can marry at 15 and girls at 13.
In the US the age of consent was raised partly to reduce teenage pregnancy. Today this problem is combated by mothers having 12-year old daughters on birth control pills. Moreover, whether or not sex with an underaged female is a criminal offense depends on the age of the male. As long as the male is not 21, the arbitrary age of adulthood, it is not a criminal offense.
Consider the paradox, an 18 year old American, a non-adult, cannot purchase alcohol or a gun, but can be sent as a soldier to kill and die abroad. This shows how arbitrary the age definitions are.
The narrative that Epstein was running a sex trafficking operation for pedophiles appeals to MAGA-Americans who see the elite as a corrupt class. As many MAGA-Americans are Christian Zionists, they don’t want to hear that Israel was entrapping Americans for blackmail purposes. Male-hating feminists also prefer the sex-trafficking narrative as it lays the blame on men. Emotions and indoctrination predispose much of the public to see the Epstein saga as an underage sex-trafficking business. This predisposition protects Israel by dismissing a blackmail operation as anti-semitism and a conspiracy theory.
The question is whether there are sufficient Americans free of indoctrination and brainwashing who are capable of rational analysis instead of emotional responses to ever reach the truth about anything. If a person reads comment sections on articles and podcasts that are posted, he sees a lot of emotion and little thought. A person also discovers that people follow websites, podcasts and social media that support what they already believe. There are not many whose beliefs are based on objective analysis of facts. Indeed, what the actual facts are is becoming harder to ascertain. How likely is it that a majority can arrive at the truth of any issue?
https://www.youtube.com/live/RpFc7qBDUK4
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