A big night on Thursday Island

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Stocks

I am suspicious of the public markets. They have become a soup kitchen for retail clients to eat once the main meal is over. Perhaps the best example on a foodie theme is Beyond Meat. They raised their first private round in 2011. A few years prior to listing, they raised more money to great fanfare from Leonardo DiCaprio, Snoop Dogg and Jessica Chastain amongst others. Presumably for their retail appeal and it worked. The IPO price of $25, popped on day one, closing at $65 with the company valued at $3.8 billion. 

Arguably, it was a good investment. For at least four years, you could get out ahead. Now, not so much. They have never made a profit and their most recent quarter saw a 20% sales decline. There’s nothing nefarious about any of it, it could have worked. It just didn’t and I think that’s why they IPO’d. That’s my issue with public markets, why is it coming to the public market at all?

In the old days, it was genuinely easier to raise money as a public company, I don’t think that’s true any longer. Being a public company is a massive drag on everything. Costs, huge disclosure requirements and overwhelming scrutiny on the business and its executives. Also, because everything is so public it makes lending and reputational risk higher. 

Given two identical companies, one public and one private, which is actually riskier to lend to?  It should be the public company but to my mind the private business is much less risky. You just wouldn’t go public now unless your shareholders wanted out.

Today on stocks all I hear is “highest valuations ever”, NASDAQ “highest ever” blah blah anything “highest ever”. So, despite my suspicion of public stocks, because everyone is saying it, my default assumption is that it's probably wrong.  

First. Highest ever in currency terms but really the thing that is “highest ever” is the measurement basis. Money “M2” is indeed the highest ever. Because there is so much of it, nominally everything is the highest it has ever been. My morning coffee, highest ever. Indeed, recent new highs of $4.20 (double-shot, for peak value extraction of course). 

So stocks “highest ever” is really “amount of money is highest ever”. 

Using another measurement basis. Here is the NASDAQ divided by Gold: Index Points per ounce. Not the highest ever, but gold has been on a charge. It's high, but not bonkers. 

Let's do NASDAQ divided by Walmart. I chose Walmart because it’s a big stock that can’t really grow much quicker than the US economy. It’s just boring done well. They can only really squeeze profit from productivity improvements because they are already at scale. Walmart doesn’t make the NASDAQ appear expensive. 

Second. PE ratios. A counter-argument here might be using stocks with high PE ratios (Walmart 40x) doesn’t really fill us with confidence. We are just discounting the NASDAQ with something expensive but…Walmart is about to benefit from something enormous. 

One of their major costs is staff, 2.1 million people worldwide. Let’s say they save 30% on staff cost over the next few years (I think it will be more once the robots come). Their PE drops from 40x to 26x, which is below the historic average. I guessed at the labour cost (implying ~$16k per head, though with many part-time staff it may be higher). 

Current ratios don’t mean much if you believe in automation. Profit and loss accounts are going to change. Costs are going to drop off sharply but balance sheet investment is going to get larger. There will be a huge expansion of the capital base. Massive capex and the disruptive cost of introducing robotics will be expensive, but you never go back. You replace someone ok, that sleeps and gets sick, with something problematic and expensive who only ever gets better, works 24/7 and never leaves. It's not really a choice for business, it’s when. When are we doing it? 

It will be a disaster initially, the news will be filled with robots falling over and spilling products and bashing into customers…..and then it won’t be. 

So everyone knows what everyone knows. Stock ATH, going to come down, have to come down, it's obvious etc. They probably will. 30%, 40%, who cares? The vectors driving them, which are money supply and automation aren’t coming down. Companies that have distribution meaning they can deploy capital at scale and remove cost as a result are going to clean up with AI. None of them dare say it but the market is saying it. Everyone does not seem to know that at least. 

I will labour this point with a further example. The black charts above are built by GPT5-Codex (the new one from this week). I tasked it as follows:

“provide me charts that map the NASDAQs performance relative to gold and the relative to the Walmart stock, I want consistent charts that look like they are from Bloomberg Terminals, separate the stylisation from pricing work itself so I can reuse the chart style in future”

Here is what it did (in about 3 minutes). It wrote stylisation code so it looks like Bloomberg. It wrote the plot code and pulled it from Yahoo Finance with an API; it then generated the charts. It did it iteratively, I did not intervene. The charts above are one-shot efforts. The code is now reusable for any similar comparison set. The stylisation is also a reusable tool. It didn’t just go “here’s a picture that's roughly ok”, it is an auditable result. 

A human could easily do the number bits in about an hour (less for an expert). They could likely not build stylisation for repeat use though because number people aren't often graphics people. You almost never get numerical, graphical and coding capability together. I don’t personally know anybody with strong skills in all those areas. Obviously on Tuesday this when week I employed 10,000 of them for $200/month.  

People tell me that these tools aren’t taking people’s jobs. I don’t believe them. I simply do not believe them. 

Outrage of the week

Old people got rich! The FT certainly isn’t happy about it. I wonder though, as an objective I think having a very well remunerated older cohort is an excellent goal. Consider the breadlines of the Soviet Union in the 1980s when old people had absolutely nothing, and no way out because they could no longer work. They died.  

Does the chart show pensioner income growing “far more quickly”. I don’t think so. 

Real GDP growth in the UK and France is similar over the 40 year period. about 180% (a dismal effort, by the way). Older people got close to enjoying that growth because they worked at a time when labour commanded a higher economic share, all the while being heavily substituted for software and tech. Those cohorts also enjoyed the productivity gains of that tech. 

Younger people have arrived and labour is straightforwardly worth less. Much less and it's declining all the time. The charts seemed designed to upset people and turn cohort on cohort, you guys stole our money with inflation and debt etc. That is not what happened.

Wages simply collapsed. They are going to keep collapsing. Will it shine a light on the relative gap between workers and the retired? Yes. Will it have the right outcome…..nobody knows. The fact is, the tech is here, the people who adopt it and leverage it will have incomes that don’t fit on the FT’s scale. Turn up to a job interview and just say: 

“It's not just me, it's me and ten thousand AI agents that I recently programmed to do {X}, let me show you.”

You will be instantly employed and most likely given a window seat. 

I am reminded of Alec Baldwin in Glengarry Glenross. His iconic speech sets the tone for the early adopters of tech:

“the money's out there; you pick it up it's yours; you don't I got no sympathy for you. Go out in those suits tonight and close; close and it's yours. If not, you're gonna be shining my shoes”

The good news is this. If you do it, you will never have to do boring work. You will never have to train an assistant ever again. You can have 10,000 people working for today if you want to. Those that embrace will have incomes that go to the moon. Those that don’t……they are the people on the FT’s chart. 

How to be a rich country

Have the most energy per capita. 

The greatest living scientist, David Deutsch, has explained that wealth is simply the number of physical transformations you can make, either as a person or a country. Buying a handbag? Lots of transformations. A handmade one? Even more transformations—and more expensive. It could not be simpler and transformations always require energy. 

Energy is not a lagging indicator. You have to have it first to get the other things. For that reason, the build out of power around the world is absolutely off the charts. China and India know, the USA knows. The energy is the money.  

So it was with trepidation that I awaited the announcement from “Energy Minister” Chris Bowen this week. 

I think he meant ‘will make Australian’s poor’. 

In his press release his total mentions of power generation were zero. Energy costs, zero. It took the CEO of Australia’s largest miner, BHP to remind him later in the day that energy production matters. He pointed out that development of the Olympic Dam project has ground to a halt due to energy prices (3x higher than his competitors).

Olympic Dam, also known as the Australian Economy, is the largest copper mine in the country and the world's largest known single deposit of uranium. We cannot afford the energy to dig it out of the ground. Particularly not in South Australia.  

It’s not just Olympic Dam though. The whole world is moving to AI, it uses giant amounts of energy. Remember when they used to say “Bitcoin uses more energy than Belgium” (it does by the way). You don’t hear that now because AI uses far more and is considered good. The two biggest mega-trends of the decade are huge energy consumers and cannot profitably be operated in Australia. It is not a coincidence that such massive wealth generating machines are both giant energy consumers either. Energy = Transformations =Wealth. 

Undeterred, Chris launched boondoggle after boondoggle. Frameworks, Committees, Disclosures. It was all there. My favourite was the $15m to appoint Climate Experts in and around Torres Strait and Northern Peninsula Area. At the last census, 4,124 people lived there. $3 grand each. Huge night in prospect at the Thursday Island pub. Quite literally, “Australia’s Top Pub”. 

Happily the administrators of these funds have a new website which lays out how funds will be allocated.  

Each of these authorities and trusts also has a website (all of them) and their own committees. Decision making should be easy. 

I should think even getting the group together will cost $50,000. Site visit (takes 3 days minimum), $500k for all them. 

It’s easy. If you were really ambitious. 

1. Close the door because 500,000 extra people a year create emissions, right? You can always reopen it.

2. Build a lot of power stations, natural gas, solar, nuclear. Build. 

3. Build a lot of data centres. 

4. Import Robots by the 100 thousand, make Australia the leading expert in their deployment

5. SELF DRIVING ELECTRIC CARS. Why don’t we have them?

That’s it. 10 years. Richest country on the planet. It wouldn't be close. Emissions would halve purely from the impact on transport alone. 

Boondoggle Bowen has zero vision. It’s backwards to the energy abyss. 

The story so far….kind of

Barron's magazine this week. First of all, it's true. Gold has outperformed bitcoin this year. Perhaps though, it is not the entire story. We don’t have to zoom out too far to find that bitcoin has outperformed gold by quite a margin over a longer period. 

The first comparison, “this year” is not relevant. Equally, my ten year comparison is also no longer relevant because Bitcoin’s base was so low in 2015. The main point here is that bitcoin is taking market share from gold and has been for a long time.  

That market share derives from a genuine concern that global money is being devalued.

It doesn’t matter if you are a nation state as big as China, or if you're serving fries in Illinois. You don’t want your fiat currency value destroyed by someone who has created an issue they can’t resolve any other way.

So people buy gold, and they buy bitcoin. My estimation remains that more people will favour bitcoin over time because it has so many advantages over gold. Also, the simple demographic trend sits with bitcoin, not gold. 

Gold is bitcoin’s marketing department

. We need it to go well. 

**Further AI Footnote: the numbers in the chart are correct but I had asked that the font mimic the style of Bloomberg. Actually Bloomberg's font is proprietary so it attempted to get close without copying. I think it failed on this.  

Euro-Trash

It was interest rate day in Europe and nothing changed. Everything is on-track-tickety-boo. As usual the ECB treated us to another explanatory slide show, commonly known as “Women in Europe only wear trousers”.

Interest rates and inflation at 2%. Mission accomplished. 

It would not be so long ago that this would have been considered extremely radical monetary policy. The real rate of interest is 0%, but to believe that you have to believe that the reported CPI is 2%. The reality is that real interest rates are about -2%. Monetary policy in Europe has hugely expansionary settings, and still nothing grows. 

The long term interest rate reflects the birth rate. Collapsing birth rate means collapsing long term interest rates. Europe is Japan. Sure there will be blips along the way when it rises, sometimes sharply. The basic truth though is that it is falling over the long term and will keep falling. 

Not sure about that last one. The collapsed balloon of Europe being reflated by defense spending but also more private sector demand?. Simultaneously? In an economy with near zero growth. It is very unclear how this will happen or indeed, be paid for.

Importantly, there is a strong showing here from the Euro-Women’s trouser brigade with yet another 100% clean sweep. I promise you that in the four years since they have been doing this that has been the case. Everyone in trousers, always. 

Its relevance? I suspect that the European Central Bank is more of a political organisation than an economic one. All the time, every utterance, every release. Politics. It may also be a test for readers for their own organisations. If you said such a thing? Would you get sacked? Or would you just keep quiet and not run the risk?

Further Information

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