I've never felt right about the framing of "destroying wealth" when stock prices go to some new number. If anything, the word "reflecting" seems more applicable?
Indeed, it just means that the really expensive thing that people put a lot of time into building turned out not to be as valuable as expected. The wealth isn't destroyed, it's being discovered not to exist; a vanishing mirage.
The relevant question is 'What is a custom Meta AI datacenter valuable for, after a hypothetical AI crash?'
Crypto -> LLM -> Repurpose Crypto Power Contracts to Feed LLM Datacenters -> AI crash -> Repurpose LLM Hardware/Power for Crypto ?
Would be curious if anyone has run the numbers on what LLM hardware capacity (including upcoming) would do to blockchains, if a big chunk were reallocated.
Also: "The stock market is the only market where people complain when things go on sale." -Warren Buffet
If you're in a "selling stock" part of your life I understand, but if you're in a "buying stock" part of your life it's worth reflecting on the quote until you can shake the "recent price action IS investor psychology" out of your head.
That's very witty, but not really accurate. I think in any market where you're the seller, you will complain (or at least be grumpy) when your competitors slash prices. Especially when you're not sure the sale is temporary, and the market price is now below your cost basis on your inventory. And especially if your accountants are forced to write down your inventory value to the new, lower price.
Even when people are only buying with no intent to sell, they'll often complain if prices fall right after they've bought an item, and ask for a rebate for the difference, because they feel they deserve the new lower price. Many retailers are aware of this psychology and do offer some sort of forward-looking price match, both to help buyers overcome that hesitation, and to avoid going through the paperwork of returning and refunding a used item just to sell the same thing again anyway. But the stock market offers no such buyer protections.
The numbers in your brokerage account invite you to pretend that you are a seller at times when you are not. It's a nice fiction when prices are going up and a dark story when prices are going down but it's just as illusory either way. We are in violent agreement that price action is psychology, the point of the quote is to fight the loss aversion bias that was calibrated for hunting animals in the savannah not trading stocks. It's a point of fact that if you're a net buyer, gaining the option to buy at a low price outweighs losing the option to sell at a high price, and if you let the latter psych you into not taking advantage of the former you are doing yourself a very common, very human disservice.
But the people complaining the most about falling prices are the sellers, of which there are necessarily many. (If there weren't, the price wouldn't be falling!)
It's not a flaw for people to think from the seller's perspective. For you to be a net buyer, someone else has to be a net seller.
Not to mention the unhappiest of all: the people who borrowed money against the value of the assets they owned.
Timing the market is hard. You might get lucky, but you probably won’t. By that reason, you are unlikely to get unlucky if your horizon for holding the stock is far enough off.
Globally, pension funds hold approximately $5–7 trillion directly in the top US tech stocks (the "Magnificent Seven" and adjacent AI infrastructure).
Also in the last couple of years many pension funds have moved money into Private Equity and Private Credit to chase higher returns and they're the backstop for all the off-books AI datacenter buildout debt?
Yes, it would assuming pension funds have AI/Tech stock exposure.
- A rule of thumb suggested by one study is that every $100 drop in stock market wealth leads, on average, to a $3.20 drop in consumer spending. Under such an assumption, a dotcom-style crash would cut American consumption by about $890bn, or 2.9% of GDP.
Don't the invested dollars poured into infrastructure that won't yield gains represent a loss of value? Especially if the same investment could have been put to work somewhere more fruitful.
It's (1) a loss of expected value (2) misspent resources.
You spent $X to buy RAM chips, expecting that you could produce $Y with it. But you didn't. So you (1) failed to realize the expected value $Y, and (2) misallocated $X, which in hindsight you would have used differently.
Again, that's all learning that future expectations do not match reality.
The decision/action happened earlier, and is separate from the realization. Attributing the material loss to the realization is misplaced.
At the same time, retail investing has grown a lot in the last 10 years. A lot of people treat their portfolios as a line-only-goes-up bank account because that has been mostly true for a while.
Yeah. Investing in stupid things can absolutely destroy wealth. But it's not the correction that does the destruction; that's just when people notice it has been destroyed.
Indeed. If it is all a Ponzi/bubble there was no wealth to begin with.
More important for the wider economy is how much liquidity it destroyed and the mayhem it will do in the bond markets.
But, since the top 10% of American savers (including almost all of US Congress) put most of their savings in stocks they will get a massive bailout. It will make the 2008 Wall Street bailouts look like pocket change. I bet they will say it's for national security or some other lame excuse.
Every right-thinking plutocrat knows to use catastrophized language for any serious drop in his paper wealth. Otherwise, how would he argue for a fat government bail-out?
It's so blatantly tied to who's likely to lose the most money. The unreal part to me is that the major news outlets are so much more obvious in their framing now.
AI has a lot of rich people riding on its success, and this time's different for, IMO, two major reasons...
- First, the companies most invested in AI are perfusing it everywhere. Many parts of these big businesses, if not the business as a whole, is invested heavily in the success of LLM-based products. Microsoft is probably the poster child for this, where you can't use practically any of their modern products without copilot or some such being shoved in your face. OpenAI and Anthropic are both companies whose existence is predicated only by a viable LLM-based product. Nvidia and (as of their last-week's announcement) Micron are both now also heavily invested in the success of this technology, though they're also surely not the only companies in the hardware sector to be following this path to some degree.
- Second, the actual individuals behind these companies are the world's richest people, and much of their fortune comes from stock in these companies, and loans taken out against that stock.
They stand to *personally* lose a significant-even-to-them sum of money if the bottom falls out of this thing. If this weren't the case, I'm absolutely certain we wouldn't be seeing as much reporting about how an AI crash would hurt the average household. When smaller crashes happen (even those that affect more average households), it's inevitable, or it's good for the economy in the long-term (it's a correction, after all -- how could that possibly be bad?), or it's the consequence of people's personal choice to invest one way or another, but because the uber-rich were spared, it's *not really that bad.*
This is a disgusting turn in the state of journalism. I don't pretend know what comes next, or how this can be remedied. Crowdsourced news is as prone to manipulation as "traditional" centralized news, so that's not it, and I don't think people have the depth of knowledge to use something purely fact-based (like bellingcat) for every domain of day-to-day life (which is less an effect of the US education system being in continuous decline over decades, and more an effect of the cognitive load it takes to be familiar enough with everything to be able to draw reasonable conclusions about it.
