Blain’s Morning Porridge 3rd October 2024: Sam Altman, OpenAI, Musk and Peak Free Markets
“All these things will be lost… like tears in the rain.”
When a firm losing $5 bln per annum is valued at $160 bln, what won’t it do to post a profit? OpenAI’s new investors expect much of Sam Altman. But what does the insane and widening income inequality at the core of the repeating US Tech booms say about Peak Free Markets?
Whom the Gods intend to destroy, they first drive mad..
I should start by stating: “Other AI firms are also available.”
I’m trying think past the headlines about OpenAI and Sam Altman. Talking with clients y’day and reading the headlines this morning about The US Election, OpenAI and Tesla I am more and more convinced that what it all really means is we are close to Peak Free Markets.
That might sound a bad thing – after all Free Markets, Capitalism and Entrepreneurship have been the critical ingredients enabling the success of the West; fostering growth, progress, economic security, and our high standards of living. Let’s not ever lose sight of that. But Free Markets come with inherent danger – inequality and concentration of power. When these become entrenched, they will shake the economy off its’ optimal path.
Yesterday the headlines were about money and Altmans’ rumoured 7% stake. Not what might be created. They were about the value of OpenAI and its fantabulous wealth possibilities – which contrasted with the negativity around Tesla’s deliveries (which are a rounding error). There were even comments about Altman as the next Elon Musk. Wow. That would scare me if I was Altman, and it certainly pissed-off Musk. OpenAI is the next Nvidia, the next Tesla…
Sadly, that seems to be where the US is heading. Fixated on money and wealth. It’s what the economy is in danger of becoming – a tiny number of uber-wealthy elites while the middle and working classes are reduced too little better than indentured servitude. Curiously it was Fredrick Hayek who wrote about the dangers of what happens if the economy moves too far the other direction, towards too much state control – “The Road to Serfdom”. As usual for Libertarians, he got it wrong – it’s his side that look set to wipe out personal freedoms.
Does my picture of the US economy sound too Nihilistic and Dystopian?
Maybe, but look around and it is already happening – Boeing workers are striking for the restitution of their pensions and the reality they were underpaid for decades. Elon Musk is reckoned to be on course to become the first Dollar Trillionaire – but how many staff has he blithely sacked at Tesla and Twitter, and what kind of work culture is said to exist in Space X?
We need to restore some balance.
US Investment Bank Goldman Sachs was once famously described by Matt Tabbi as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells of money”. That pretty much seems to spell the goal of many American board rooms today – and the financiers that own them. The tech revolution and all that it once promised in terms of giving us all a life of ease is now a plethora of subliminal ways to address our desperations. Online gambling is one of the fastest ways to get rich by emptying our wallets into the pockets of the wealthy. Where is the social benefit in it?
Worker earnings have effectively flatlined across the West for decades. Workers are increasingly resigned to being peons. The squeezed middle classes are struggling -that will never be free of debt and see the pernicious incremental costs of everything rising.
Yet, it’s an unshakable tenant of today’s Free Market Right that state intervention – memorably summed up in Ronald Reagan’s most dangerous words: “I’m from Government and I’m here to help” – is the biggest danger to the economy say today’s MAGA Republicans. They are funded by the billionaires who have most to gain from them doing so. That is, perhaps, the real crisis in America. The inequality of income, and the fact money buys power.
Saying this does not make me a dangerous socialist. It means I am pointing out a crisis in the efficiency of the economy. Power Corrupts, absolute power corrupts absolutely. The right balance between Free Enterprise and Competent Government should be our Holy Grail.
Let’s start by being honest about inequality.
The average US CEO now earns some 350 times the salary of their average employee. To justify that level of reward they have to be brutal, pragmatic and profit focused – there are plenty prepared to fill their shoes. There is no room for altruism when their shareholders demand returns. Their employees pay the costs. They are the ones scrabbling to pay their bills, mortgages, educate their kids, and can’t see any chance of participating in the fantabulous wealth and riches of their bosses, let alone ever afford the stuff they create…
It’s beyond a let them eat cake moment – something is going to snap.
Trump and Vance are telling us only they can solve the current consumer crisis because they will deal with the bad foreign nations stealing American jobs, the immigrants bring crime, drugs and destitution in their wake, and that only they can restore the liberty, equality and justice of the American system. Remind me of Vance’s career before he became the Hill-Billy naif he pretends to be? Oh, he is Peter Thiel and Bill Ackman’s protége, who staked his hedge fund.
It is not Chinese widget makers who are slashing American worker’s incomes – its corporates cutting their wages, reducing their benefits and offshoring their businesses… Address that, and you make all Americans rich again.
The problems for the US are actually relatively simple:
- Restore the Balance Between Government and Free Markets
- Encourage Growth, Prosperity and Equality.
All of which, the above rant, leads us into today’s bit about actual markets – Open AI.
How do you value a $160 bln company that makes a $5 bln loss per annum? The smart money (although can you call anything Masayoshi Son invests in “smart”?) is betting Sam Altman will be ruthless enough to make it work and monetizable. They have empowered him to remould the firm from its original altruistic aim of making the world safe for AI, into a for-profits firm. He has “exited” the original founders – it is his to make work with apparently 7% of the equity.
I can’t help but think Sam Altman’s assent to Pantheon of American Financial Gods is going to end badly. Elon Musk is peeved – and not just because he sees his own AI-X as his potential lifeboat. His own transformation to a demi-god is not ending well.
Decades ago Musk was a socially challenging but exceptionally bright innovator with a business brain the size of planet. He levered his position in PayPal into his stake into Tesla, which through focus and willpower – not to mention burning through hundreds of engineers and assembly workers, while dealing with rapacious financiers and bankers – he made one of the most valuable companies on the planet. His ambition knew no bounds – he repeated the formula at Space X: identify a market niche everyone else thinks too hard, too difficult, too all-consuming, and by ripping up the rules and employing the right people, he made work.
To millions Musk is the ultimate Tech Wizard. While some of us have always considered him a gifted Charlatan, in recent years his deliberate erraticism has veered from amusingly calculated to dark and worrying. His enthusiasm for Trump, and his veer towards autocracy has particularly incensed the lefty liberals that once bought his cars.
- Telsa’s stock price is down 40% since its peak of $407 back in November 2021.
- On the other hand, it’s up 120% since its low back in Jan 2023.
Its effectively range trading. The headlines say it blipped downwards last night because it missed Q3 delivery expectations – by an infinitesimally small number, about 100 cars, according to whose numbers you use. Don’t worry about Tesla’s deliveries. That’s not the problem.
Tesla is doing quite well from the perspective of maintaining its lead as the world’s No 1 EV maker: it out-delivered BYD – which briefly was once the top maker of EVs. However, the downsides are multiple. Tesla is maintaining it’s lead in a market that seems to have reached saturation point in terms of the pure EVs it is still making. There was a time when Tesla delivered more EVs than the rest of the market put together. It had first mover advantage. Now the rest of the world’s Auto makers are catching up. GM and Ford delivered some 55k EVs this year. It will be more next. Other firms are now competing hard in the EV space, and wisely have spotted EVs are now mature – growth will come in Hybrids, where Tesla is in British Leyland territory. At that point Musk’s glamour cracks.
Next week we will get Tesla’s Robotaxi unveil. It will be spectacular, it will be irresistible, it will be hailed the greatest of all great things, and Musk will brag and brag about it making Tesla unassailable….. but at the edge of the crowd a small boy will be asking his father why that plump middle aged man is standing there stark-b*ll*cks naked…
Out of time, and back to the day job
Bill Blain
Author of the Morning Porridge, founder of Wind Shift Capital
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Keep fighting the good fight!