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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

#331

Post by bandrami »

jerf wrote: post #107
chasd00 wrote: post #23

Are they really "trying to hide" this debt? I think it's pretty common knowledge that a lot of these companies are using debt/bonds for funding. The debt not showing up where the author wants is a reporting formality not an attempt to hide it.

It's an interesting counter to the efficient market hypothesis. "Everybody" knows about this debt. It's in the most public news outlets there are, and the word has been getting around. It's about as secret as Taylor Swift's concert schedules. Any serious investor knows about this debt. And yet... the companies do this because it works. If they held this debt on balance sheet, the sensible assumption is that their sto…

> the companies do this because it works

Until it doesn't. I'm not only old enough to remember Enron, I'm old enough to remember the S&Ls.

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

#332

Post by bandrami »

Xalutiono wrote: post #25

And? Its not my debt. If they continue investing in compute, memory, memory bandwidth, network infrastructure, etc. it makes a relevant contribution of progress in all of these fields which I will leverage. A small form factor PC with 100gb fast memory and being able to run something like sonnet or opus level LLM would be massive. I have so many things i want to do and still sitting it out due to cost.

> Its not my debt.

Neither was AIG's, until we all woke up one day and suddenly it was

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

#333

Post by pastel8739 »

marcus_holmes wrote: post #323
LadyCailin wrote: post #299

Earlier quoted context omitted.

I love when religions have rule lawyers like this. It readily discredits the religion. As if their all powerful god can be fooled by fancy paperwork or legal loopholes.

The bit that isn't rules-lawyered away is that the risk is shared. For the deal to be compliant with the religious law, the lender must accept the same risk as the borrower, equally. So I guess in this case if the house burns down and the insurance only pays 50% of the agreed value then the lender only receives 50% of their agreed repayment.

Isn’t there still risk for a lender in a typical interest-bearing loan? That the borrower will default?

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

#334

Post by marcus_holmes »

pastel8739 wrote: post #333
marcus_holmes wrote: post #323

Earlier quoted context omitted.

The bit that isn't rules-lawyered away is that the risk is shared. For the deal to be compliant with the religious law, the lender must accept the same risk as the borrower, equally. So I guess in this case if the house burns down and the insurance only pays 50% of the agreed value then the lender only receives 50% of their agreed repayment.

Isn’t there still risk for a lender in a typical interest-bearing loan? That the borrower will default?

Usually an interest-paying loan is backed by a guarantee, so the lender can pursue the borrower for repayment by claims on other assets.

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

#335

Post by yeeeloit »

hualapais wrote: post #315
maroonblazer wrote: post #308

Earlier quoted context omitted.

>in effect asking for more units of money than actually exist in the whole system. Depends on how you define the 'whole system'. If I borrow $100 and make $110, the latter didn't appear out of nowhere. The lender, too, could have turned that $100 into $110. Why shouldn't they be compensated for that opportunity cost?

The opportunity cost point is fair enough if one is thinking in terms of two concrete individuals. The illustration I offered was meant at a more abstract level, the two persons standing in for the creditor side and the debtor side of a closed economy taken as wholes. In that framing the issue is not whether a particular borrower can put the money to productive use (clearly he can), but that the system as a whole is…

Can you recommend a book to learn more about this concept?

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

#336

Post by parpfish »

Terr_ wrote: post #276
MattGrommes wrote: post #166

Earlier quoted context omitted.

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 we…

it's also why you shouldn't hold equity in your own company any longer than necessary (e.g., an apple employee shouldn't tie up the majority of their networth in apple stock).

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

#337

Post by hiAndrewQuinn »

hualapais wrote: post #315
maroonblazer wrote: post #308

Earlier quoted context omitted.

>in effect asking for more units of money than actually exist in the whole system. Depends on how you define the 'whole system'. If I borrow $100 and make $110, the latter didn't appear out of nowhere. The lender, too, could have turned that $100 into $110. Why shouldn't they be compensated for that opportunity cost?

The opportunity cost point is fair enough if one is thinking in terms of two concrete individuals. The illustration I offered was meant at a more abstract level, the two persons standing in for the creditor side and the debtor side of a closed economy taken as wholes. In that framing the issue is not whether a particular borrower can put the money to productive use (clearly he can), but that the system as a whole is…

This still seems off to me. If I were a potential creditor in such a closed loop system, and I was told I absolutely could not charge interest due to these monetary supply constraints, I would either just stop lending entirely or I would demand something that isn't strictly denominated in money to make the risk I'm taking on, etc worth my capital outlay.

But then eventually, if the system were sufficiently complex, I'd probably tire of whatever complicated barter system we have already going on, and then it's likely some third party would step in offering something that's totally not money, dude, trust me, it's just like a handy clearinghouse of IOUs for people engaged in the trade of these non-monetary favors for favors...

Some people who hold or offer such IOUs might then take the bold step of calling them non-exclusive, as in I will mow the lawn of whoever happens to have my "one lawn mowed" voucher, I just happened to originally give it to this first guy, I have no idea what he did with it after that... Other people realize this "non exclusivity" deal actually makes the voucher strictly more valuable, you can do more things with it than you could otherwise... You see where I'm going with this. It's not passing my sniff test.

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

#338

Post by fsckboy »

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?

>How would it affect retirees if they dropped 40-50%, likely taking the market with them?

a drop of 40-50% in the S&P 500!? That didn't even happen in the market crash of 1929. It would lead to unemployment and breadlines for the majority of the population, and retirees would get in line like everybody else. Making income from your savings requires a productive economy; bonds are not the answer because bonds also stop getting paid, and even govt bonds would be erased by inflation.

it's just not a scenario that should be on your radar, the chance is tiny, and the result would be completely non-linear. if you tried to hedge yourself against that, not only would you fail (it's simply out of your control, like an earthquake or tornado), you also wouldn't make any income in good times, and most times are good and it's sensible to plan for that retirement.

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

#339

Post by hn_throwaway_99 »

postalcoder wrote: post #145
throwaway667555 wrote: post #142

Earlier quoted context omitted.

The pertinent comparison in valuations is debt vs equity, not debt vs cash as you noted.

My point was more of an exercise to point out that finance is about mutating resources. A lot of cash can be a good thing or a bad thing. Same for debt. There’s nothing inherently bad about levels.

While there may not be anything inherently bad about debt levels, the level of debt fundamentally affects stock price by the equation of total enterprise value = stock + debt - cash (i.e. total enterprise value is the amount someone would need to pay to buy all the outstanding equity AND take on or retire the outstanding debt). So if there is hidden debt that isn't being factored in by investors in means the stock price should go down because "how much a company is worth" (i.e total enterprise value) would remain the same, it's just now that more is debt and less is shareholder equity.

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

#340

Post by BrenBarn »

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…

We are definitely not fine. The mere fact that this amount of money is flowing to these operations is already a problem.
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