Is that why China pushing for open weight models? If these models are on par with the quality of the proprietary ones, the US stock market will go south fairly fast, imho.
AI Companies Are Trying to Hide a Staggering Amount of Debt
271–280 of 407 posts
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#272Earlier quoted context omitted.
The tax advantages of being forced to pay ordinary income rates on your distributions as compared to long term capital gains (which are low, capped, can be exercised before a tax hike, and avoided entirely if you just need collateral)?
401k reduces your taxable income when depositing money, this is more tax efficient than paying normal income taxes and then also paying capital gains. 401k lets you rebalance a portfolio with zero tax implications. The downsides are generally high fees and a 10% penalty for early withdrawal which makes them surprisingly bad for young people. They tend to start in lower tax brackets, have fewer reserves when unemploye…
I am alone in my peer group for doing something like this.
Cars, student debt, credit card debt all gone. (And I dread needing a new car). Covered downpayment on my house and cash for a nice shed that matches the house and a fence so my kid can play in the back yard with no issue.
Invested low 5 figures into myself taking a year off and now I am getting serious about the 401k at 41. And I am ok with that.
I never worked at a big tech company and I covered my mom's down payment and appliances and new carpet and part of her move for her to move close to me. Dad died when I was 11 so I am all she has and she was a public school teacher so she's on a small pension.
We all walk a different life and I know people that make my entire life savings in a year but I will eventually grow a retirement to get me through 10-15 years and then it will be what it will be. (Maybe a tank of helium and bag)
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#273Earlier quoted context omitted.
These companies have valuations reflecting a debt light business. At a minimum, 420 billion in debt is enough to change the stock price by 10-20%. If the company plans to add another 400 billion in debt you need to give it the side eye. If 50 billion in revenue is from other companies debt spending… then You have a problem.
> These companies have valuations By the time we're reading headlines about this debt, it has been known to institutional investors for a long time. The debt is priced into the valuation.
Ooh look! “The x is priced in”! My favourite financial thought terminating cliche!
No need to worry or discuss further, it’s all priced in! Everything’s totally fine!!
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#274As 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…
There is ZERO chance the modern oligo-kleptocracy isn't going to socialize the losses onto the little guy
Yeah, hence all the talk about forcing "public" ownership. Becomes easier to justify a bailout when you create some legal fiction compelling the government to do so.
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#275If you're talking about dodgy accounting at hyperscalers, a larger worry might be that they are overstating profits by depreciating their assets (such as datacenters and CPUs/GPUs) too slowly. Estimates are that this could overstate profits by tens of percent. (However, this only allows earnings to be "pulled forward" - sooner or later the servers must be written off and the accounting catches up.) See e.g. https://d…
They’re talking about accounting at big tech and not hyperscalers
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#276Earlier quoted context omitted.
It’s an interesting thought. The growth is so extreme that if the S&P 500 fell 50% today it would reach levels last seen in 2022. Given that the timespan is so short, I’m honestly not sure it would be as bad for 401ks as people expect unless all of your investment was concentrated in the last 4 years. I suppose it’s worse if your calculation is, “I’ll retire when my 401k hits $X absolute value,” but I think most peop…
One of the big issues with this is sequence of returns risk. If you retire and rely on your portfolio but the market dives for a year or two right after you leave the workforce, your total portfolio value is screwed because you were selling at a low point.
Tangentially: I think a lot of people forget/underestimate the degree to which the industries behind their job are ones that they need to diversify away-from.
In other words, a programmer should invest a bit more away from software than average, a realtor should invest a bit more away from properties than average, a coal-miner should invest a bit more away from energy and mining, etc.
If you have your job, you can weather a stock-downturn, and if investments are solid, you can weather a period of unemployment by liquidating some, but if both hit trouble simultaneously then that's much much worse.
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#277Earlier quoted context omitted.
I think the risk for increasing your bond exposure as compensation would be if instead of a low growth/low inflation scenario (Bonds do well) there's a low growth+high inflation scenario (1940s, 1970s, 2022) and the negative correlation between stocks and bonds doesn't hold.
Yeah, but in the abstract that's just saying "if you time the market, you can beat it", and we know that generally, the only way people are able to time the market is with random luck. And more specifically, it's not low growth/high inflation that kills bond portfolio returns, it's interest rates increasing that devalue bonds, i.e. the transition from low inflation to high inflation. So yeah, you can construct a port…
In that sense, isn't the 60/40 or Boglehead perspective also timing the market, in the sense that you are betting the regime of the past will continue into the near future?
To me the diversification hedge options (say GUNR) seem like they are helping you get closer to regime neutral. Or in other words you are giving up returns to cover more macro scenarios and betting less on what the future looks like.
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#278Earlier quoted context omitted.
During the dot-com crisis. Nasdaq fell around 78% from its peak and S&P by around 49% so it isn't unprecedented (ironically has both aspects of being both tech and are within the same time-era) It created an actual recession albeit thankfully short one for the case of dotcom (sadly not for 2007) and a really recessionary environment which causes unemployment and just straight up fear and panic. I do understand what y…
> (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…
The cost of insurance is carry e.g. when you buy an option you are paying for the convexity with time decay. It is quite expensive.
It is worth saying however that part of tail hedging is that the payoff is worth a lot more when everything else has tanked, so e.g. even if you (say) get 10% on your puts when the wider portfolio is still down 40% (made up numbers), you can deploy that capital at probably quite a high expected return.
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#279Earlier quoted context omitted.
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.
Indeed, we have just been through arguably the largest (nominal) drawdown in the history of fixed income.
Re: AI Companies Are Trying to Hide a Staggering Amount of Debt
#280Earlier quoted context omitted.
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?
NVidia makes up 7.5% of the SP500. If it lost 50%, it would be a 3% loss for the index. The concentration is bad, but it would not cause a drop of 50% retirement funds by itself. If you take an all world index, it's even less. Still, if NVidia lost 50% of their market share, we would probably see a big collapse of the stock market. EDIT: to note, the top ten companies in SP500 make up an unprecedented concentration b…
A risk in this situation is that in names that are dominated by passive flows there is a pro-cyclical effect where because the name is valued in terms of the overall index but is also part of said index that you end up with a positive feedback loop - which will eventually be arrested by speculators.