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AI Companies Are Trying to Hide a Staggering Amount of Debt

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Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#181

Post by epolanski »

skohan wrote: post #62
senshan wrote: post #56

As long as this debt does not make it into life insurance and pension funds, we are fine. The trouble is that private credit is taking control of some life insurance companies and off-loads this debt to these. When these fail, it will become everyone's problem. > Risks to financial stability may also stem from entities with particularly high exposure to private credit markets, such as insurers influenced by private e…

Couldn't it be a problem given the concentration of the S&P in these companies? At this point these companies make up a huge portion of 401k's for a huge chunk of Americans. How would it affect retirees if they dropped 40-50%, likely taking the market with them?

There is no data showing that high concentration is bad in an index.

No correlation with future returns.

On the other hand the world is leveraged to insane levels not seen since world wars or global recessions.

At the same time yields are low while inflation is high.

There is definitely a high level of risk in the financial markets.

A risk nobody, especially politicians, want to look at, because it would unavoidably lead to some major pains, so procrastinating until it's unavoidable seems the way to go.

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#182

Post by dualvariable »

gsky wrote: post #174
wongarsu wrote: post #53

Do they? Is a company with $200 billion annual revenue and earnings (EBITDA) of $100 billion having $420 billion of off-balance-sheet debt really staggering? In many other industries that would be a perfectly normal amount of debt to have. It's only unusual because we are used to tech companies having so much cash on hand they don't know where to put it

People used to complain that these big companies were sitting on money and not investing.

Which routed those funds through the economy's financial circuit and caused ZIRP, inflation in asset prices, and the evaporation of risk premiums.

But the pendulum swinging rapidly to the other side has routed all those funds through the real economy, caused goods inflation, and looks like it will crash the economy.

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#183

Post by hdgvhicv »

duzer65657 wrote: post #179
rwmj wrote: post #171

Earlier quoted context omitted.

Which is why you keep 3-5 years of spending money in cash (or a bond ladder if you want to be fancy).

most don't even have 3-5 years "spending money" (whatever that is) in total savings; if you're keeping that in cash you're getting 2-3% annually while the market has doubled.

People return with less than 4 years expenses in retirement funds

Surely you need about 20 years?

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#184

Post by rwmj »

duzer65657 wrote: post #179
rwmj wrote: post #171

Earlier quoted context omitted.

Which is why you keep 3-5 years of spending money in cash (or a bond ladder if you want to be fancy).

most don't even have 3-5 years "spending money" (whatever that is) in total savings; if you're keeping that in cash you're getting 2-3% annually while the market has doubled.

Sure, but we're not talking about people who have no savings. FIRE people have huge investment portfolios while being frugal with their spending, and understand the risk of keeping 5-10% of their total net worth in cash equivalents (not dissimilar to having insurance).

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#185

Post by wonnage »

skohan wrote: post #95
swarnie wrote: post #77

Earlier quoted context omitted.

I'm not familiar with 401k rules but presumably they get a choice of markets and products? If one is over concentrated its easily avoided.

The problem some have pointed out is that these companies are such a huge portion of the market right now. The sound advice for the past decades has been, just invest in a low-cost ETF tracking the S&P instead of picking stocks to minimize risk and invest in the market broadly. So a huge number of people have done that, believing they're diversified, while tech makes up 40% of the index. Yes you could sell your S&P a…

It’s probably not even a good idea to try and defend against the bubble by switching up your stock allocation. After all the whole reason passive investing works is that active investment rarely beats the market and if you’ve just been in SPY the whole time it’s unlike you have any edge to gain by switching to an active strategy every time fear creeps up

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#186

Post by dualvariable »

pingou wrote: post #4
elmer2 wrote: post #2

It won't pay off if LLMs efficiency gets good enough to make those data centers obsolete. It's a huge gamble.

Wouldn't improving LLM efficiency make them even more useful across the board, then they can enjoy the nice economies of scale? The plan is to have LLM working completely autonomously, in that case, the more resources you have, the better. Perhaps people will use local LLM to ask questions, or coders use them for their personal projects, but that's not where the real money is.

The problem is that if the AI companies pass through the actual costs they're incurring, then charges to those companies will >10x.

If the companies don't see that kind of value (so LLMs don't become dramatically better in some kind of quantum leap from where they are now), they won't want to pay those costs. Already, most AI projects in corporations tend to fail.

If the efficiency of LLMs gets 10x better, then either corporations will "private cloud" their own AI or start using competitors that aren't carrying those kinds of debt loads from the "gold rush" phase.

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#187

Post by logicallee »

They're obviously not taking on enough debt because I'm paying $200 per month for one AI, $100 per month for a second, a $20 "donation" to Gemini[1] paying for a service I never use just to fund its development, and yet here I am doing my own laundry, making my own damn breakfast, lunch, and dinner and manually tracking my Calories and macros, I'm putting my own damn dishes away, racking and unracking my own damn weights at home, and taking minutes to set up and record my exercise form and then take screenshots of it of key frames that I manually ask the AI's to form check (they don't consume video natively as an input) rather than have a robot do any of the above (including act as a fitness coach) because where's my household robot I can rent on a monthly payment? Can't be that expensive, servos and pressure sensors and cameras are cheap, what's missing here is that here we are and AI can't do shit for me day to day other than knowledge work and software engineering. I'd like these companies to take on as much debt as possible and rent me a robot that can do stuff for me. I have a petition for this that you can sign here if you want:

https://www.change.org/p/create-a-physical-embodiment-for-cl...

[1] I don't use Gemini for anything ever, I pay just to put my vote to them making a useful model (I know my $20 isn't much but I apply Kant'e categorical imperative - if everyone did it they'd take their AI seriously and not be in last place behind OpenAI, Anthropic, and even open-weight models).

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#188

Post by ligne »

matwood wrote: post #167
toomuchtodo wrote: post #139

Earlier quoted context omitted.

> (supposing that they had their investments in stocks, I wouldn't consider that any retiree would have all their money in stocks but there have been some other comments which show a sizable amount, @kipchak's comment shows 50% stock for retirement. so a 50% shock on top of that could lead to a wipe out of 25% of your retirement fund which is honestly still pretty crazy.) What do you think the cost would be for prote…

Even someone close to retirement doesn't need to go 100% bonds. It's not like someone needs all their retirement money on day 1. The part that remains in equities will continue generating dividends that will get reinvested, and recover over time.

100% of anything is a bad idea if you're going to have to draw on them any time soon. Bonds are less volatile than equity, but they're still subject to drops in value.

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#189

Post by Marsymars »

intrasight wrote: post #163
Marsymars wrote: post #156

Earlier quoted context omitted.

> What do you think the cost would be for protective puts per $1M of equity exposure of a portfolio on a monthly basis? "Bubble Insurance" if you will. I expect that would not be a cost-effective way of attaining the risk profile you'd be looking for. I expect there won't be a more cost-effective way of managing your portfolio risk than by simply adjusting your split of broadly-diversified equities vs bonds.

My homeowners insurance isn't "cost-effective" either but I still do it. I think the reason that investors don't is because they are greedy or irrational or both. That was the message that I got from a financial podcast I listened to a couple weeks ago anyway.

I'd content that homeowners' insurance is quite cost-effective, because there isn't a cheaper alternative to hedge your risk.

I'm saying that for the cost of buying puts to hedge against equity downside in a retirement portfolio, for any given level of risk, you'd probably be better off just selling some of the equities and buying bonds instead.

e.g. try and find any equity-focused ETF with downside protection that generally outperforms a bog-standard stock/bond split total-market ETF for whatever measure of volatility/downside protection that you want.

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