u/Enigma343

Good catch by Matt Stoller, whose specialty is antitrust:

> I had an interesting conversation with a Wall Street analyst, and he pointed out something unsettling. This week, four of the most important companies in the stock market - Google Meta, Amazon, and Microsoft released earnings. All four companies delivered their numbers not just on the same day, but, as Bloomberg noted, “within the span of two minutes.” That, my contact said, is very weird.

> Here’s why. Wall Street analysts are given responsibility by sector, so one analyst at a bank will look at all telecom companies, a different one will look at all trucking and rail, a third will examine AI/big tech, and so forth. The same analyst or team responsible for understanding Microsoft is often also responsible for Meta, Amazon, and Google. And there is simply no way he or she can analyze four earnings releases on the same day, let alone at the same time. And yet they still have to tell their clients what those earnings mean.

>The net result is that these analysts have to take what the companies say at face value, without more analysis. The investment narrative is thus more easily controlled by big tech. Within a few days, the smarter players have figured out what the results mean, but by then the conventional wisdom in the markets are set.

There's already plenty of breathlessly parroting the corporate narrative going on, but this nonetheless would escalate it further. These desperate hacks will do anything.

Hi all,

I’ve been mulling whether the ongoing and escalating oil crisis is a big pressure point on the AI bubble. I imagine everyone is aware it is bad, but it is worth highlighting just how bad it is.

The IEA chief has said that the current crisis is worse than 1973 (OPEC Embargo, 1979 (Iranian revolution), and 2022 (Russia attacking Ukraine) combined. Daily supply loss is 11-13 million barrels per day, something like 10-12% of daily oil demand. Unlike previous crises, where there was a disruption and where oil was available but expensive, the oil is gone this time.

The last tankers from the Strait arrived in Asia a while ago and in Europe more recently, so it only tightens from there. Even if the Strait opened tomorrow, prices would likely remain at $110/barrel for the rest of the year, as it will take months for ship traffic to resume, for gulf oil production to resume, and years to repair energy infrastructure damaged so far in the war.

To illustrate the level of demand destruction needed to reduce oil consumption by 10%: the Great Financial Crisis in 2008/2009 did not see this level of demand reduction. Oil consumption only hit this level during the depths of April 2020.

This is just oil. I haven’t even talked about 20% fertilizer supply cut, which will result in significantly lower food yields a few months from now and undo decades of international progress in food insecurity, or the 33% helium supply cut, a non-negotiable input for semiconductor fabs and medical equipment like MRIs.

The incoming wave of stagflation will put a lot of pressure on the economy. In this K-shaped economy, where the top 10% of income earners drive 50% of retail spending and something like a third of Buy Now Pay Later users use them for groceries or other necessities, lower income Americans will get absolutely hammered. I suspect that the wealth effect is sustaining spending among the affluent, and that could reverse in the event of a market crash. The Federal Reserve cannot lower rates in such an environment (or at least they would, but who knows with Kevin Warsh), keeping the cost of data center debt high and pressuring zombie SaaS companies trying to repay their loans.

It would also (indirectly) increase electricity costs, which isn’t good for power-hungry data centers, directly affecting AI bottom lines.

And once oil demand destruction kicks in, that will absolutely crash the economy. If companies like Google or Meta see declining advertising revenue because of the economy, their ability to cover up tepid AI revenues or defend massive capex spend erodes significantly. If GPUs are just sitting in warehouses, how many are willing to continue squandering their money on GPUs? They will scramble to reduce costs in a recessionary scenario, and hundreds of billions of wasteful spending are sitting right there.

I wasn’t really sure whether the AI bubble could skate past 2026 before crashing later, but at this point I honestly don’t see how this lasts until the end of the year.