Then and now

150 years ago

In his most satirical book, ‘The Way We Live Now’ (1875), Anthony Trollope outlines in some detail, showing his personal expertise in matters of business, the working of the financial markets in Victorian London and the personal characters of his model participants. The book is far from flattering, any more than his portrayal of the church was in The Barchester Chronicles.

Early on in the book, a rather innocent English businessman, whom one might today call a venture capitalist, is suddenly called upon by his American partner to come up with a few wealthy investors to finance the launch of a company that will ostensibly fund a new railway across a large swathe of the still undeveloped USA. The young Englishman naturally makes logical enquiries about the likely success of the project, what stage the planning is at, risks and so on.

These enquiries are brushed aside by the American (co-incidentally called Fisker – a more recent Fisker has managed to lose around $0.5 Billion of US tax payers money), who states that the present objective is not to build a railway, but to promote and float a company. Building the railway will be someone else’s problem.

If they can raise £3 million (a pretty massive sum at the time, of course) and promote the project with glossy literature touting the support of the government and the massive potential in a new untapped market, they ought to be able to get the share price up 10% in short order after ‘subscription’ (no listing rules then) and the initial investors can sell out and bank £300,000 (around £40 million today) between them for very little work!

Apart from highlighting the point that trading in shares is often very little to do with actual capitalism, the account highlights that those who are already rich can usually get richer without having to undertake anything more than some promotional activity that pulls in the naive, usually using the psychological trick of what we now call the ‘fear of missing out..

Now

Very recently, Open AI, a company that has no money from retained profits, has never even made a profit and which expects to burn through billions of dollars over the next few years, placed an order with Oracle, the data handling business, that was so large, the Oracle share price was pushed up over 45%, making its principle share holder even richer than Elon Musk.

Musk was obviously peeved by this, so he bought a large block of Tesla shares, causing the ‘Teslarati’ (not the brightest investors in the world) to pile in too and thereby boost the Tesla share price and put Musk ahead again. The very fact that Musk needed to do that tells you so much about his character.

It is said that Oracle has an advantage in that it can gets its hands on a larger share of the critical Nvidia GPU chips than some competitors in the AI supercomputer space. However, Oracle would of course have to pay for these processors and build the datacenters/supercomputers for OpenAI to be able to play with them. Who fronts up money first is an open question.

In essence the valuation of Oracle went up billions (and Nvidias share price was helped too) because an order was placed for services that some believe may never even be required (one survey shows that 95% of AI projects to date are not traditionally profitable) by a company that has no money until the market chooses to suppy it.

Many business writers and media content makers have pointed out that this is serious evidence of an AI sector bubble. That is hardly an intellectual stretch. My observation is at a more ethical level – two of the richest men in the world can get to be billions of dollars richer without any actual work being done, no improvement in the human condition, no employment opportunities created, in fact no enterprise and arguably not even any capitalism!

To repeat Trollope: it’s the way we live now. Or, as was recorded by the scribe of the Old Testament – there is nothing new under the sun.