Prevaricating Powell Makes the Blunder of the Century
And it wasn't his interest cut, though that is not going to help matters, but his Mr. Magoo blindness to the massive coming crash.
The only thing remarkable about the Powell Presser after the Fed decided predictably to lower interest rates one more time was his naive claim that AI stocks are nothing like the dot-com bubble. I guess he didn’t feel foolish enough after losing face when he claimed inflation was transitory back in ‘21 or when he claimed the Fed’s QT would continue on autopilot indefinitely, agreeing with Janet Yellen that it would be a boring as watching her old bones turn brittle or something like that—only to be forced into a face-planting screech of the brakes and rapid reversal when the repo crisis hit in 2019. Now he wants to miss the next event as big as the dot-com bust.
First, here are his main claims on that matter today:
Federal Reserve Chair Jerome Powell said on Wednesday that the artificial intelligence boom is different from the dotcom bubble of the late 1990s.
“This is different in the sense that these companies, the companies that are so highly valued, actually have earnings and stuff like that….”
AI investments in data centers and chips are also a major source of economic growth, he said. In the dotcom era, numerous companies raced to big valuations before going bankrupt due to hefty losses.
So the difference is that back then the roaring companies were taking hefty losses and now they're not. This Powell said as Nvidia tried to back him up today by becoming the first company to reach a $5-trillion stock valuation, perhaps with the help of the Powell put followed by the Powell publicity push.
Not everyone saw things as Mr. Magoo did:
A dizzying AI-fueled market rally has prompted some to raise the alarm on fears of a bubble.
Ya think? I’m sure you think. I’m not sure Powell does. I’ll guess he was reaching for cover for his rate cut because people are wondering if he isn’t just fueling another massive bubble in the middle of a massive bubble that will blow up all over everyone, which, of course, he is.
Now, Nvidia, of course is making profits—huge profits:
The latest move higher comes shortly after CEO Jensen Huang said Nvidia expects $500 billion in artificial intelligence chip orders and announced plans to build seven new supercomputers for the U.S. government.
Orders aren’t profits, but Nvidia is making profits, and Nvidia's rise carried along other top tech in its wake to their new records today:
The major averages were boosted by gains in tech, with Apple and Microsoft, both reaching a market value of more than $4 trillion after their shares rose.
No rush to insanity in those record-busting climbs.
The dizzying rally for U.S. stocks comes despite lingering concerns over a bubble, particularly as AI-driven spending has led to record deals and valuations.
Naturally, with Powell creating easier money to help fuel the madness along, he had to come up with something to explain why he was doing this during the heat of such an obvious bubble, so he laid out how this was different because back in 2000 it call came down because high tech wasn’t making profits to justify the high evaluations as everyone anticipated the internet would massively change the business world, which, of course, it eventually did! So, they were willing to go long—really long!
“If our expectations for AI … are correct, we are at the very beginning of a technology revolution,” Wood [of Arc Invest] told CNBC on the sidelines of Saudi Arabia’s Future Investment Initiative in Riyadh.
Yes, and they were back then, too! That’s what the blind are willfully forgetting just as investors willfully ignored intelligent warnings back then and made up endless narrative to say things would be fine. The internet was a massive technology revolution that made sweeping changes in how people do business and in what kinds of businesses that never existed before could soar to success. It created a tsunami of changes in the publishing world, but was far from limited to making transformations there. It changed how most people live, now practically addicted to the internet for the connectivity and social media that came along with it.
So, there is nothing different about AI. The internet was transformational. AI will be, too. Maybe on a bigger scale even than the internet eventually; but the same rules of needing to make a profit still apply, and on that critical note Powell was painfully wrong.
While Nvidia is generating big profits, high-valued startups OpenAI and Anthropic have been burning cash as they develop and expand their services.
Well, how 1999 of them! That is what everyone was doing in the lead-up to the dot-com bust, constantly excusing their lack of profits as being driven by the opportunity to grow and the need to excel quickly at that growth to get a head-start over all the competitors. No one knows that better than Bill Gates, whose company began in a garage, grew at an astronomical pace for nearly twenty years and did become one of those transformation companies that went on to continue to excel long after the dot-com bust, BUT not without taking a massive crash right along with everyone else (and it WAS making profits at the time—huge profits with massive cash flow).
So, as the roaring twenties of the new millennium sweep by us, perhaps it would be good to take note of Gates’s comments today on this same nonsense. After all, it took Microsoft stock fourteen years to recover its lost value, and that’s without adjusting the later valuations down for inflation!
Let’s cut right to the chase:
Bill Gates says we’re in an AI bubble similar to the dot-com bubble….
The billionaire philanthropist does think the current bubble is akin to the dot-com bubble of the late 1990s and early aughts, when several Internet-based companies turned out to be overvalued, resulting in a significant crash.
“In the end, something very profound happened. The world was very different,” Gates said. “Some companies succeeded, but a lot of the companies were kind of me-too, fell behind, burning capital companies.”
“Absolutely, there are a ton of these investments that will be dead ends,” Gates added.
Gates also said that AI has been “the biggest technical thing ever in my lifetime.”
Revolutionary as AI is in how it will change the world, just like the dawn of the industrial age did in the roaring twenties of the last century of the past millennium and as the internet and all the technology did again at the change of the millennium, so AI will do now. However, there will be huge winners and a lot more huge losers, just like there was in the automotive world coming out of the early Industrial Revolution days.
“The value is extremely high, just like creating the internet ended up being, in net, very valuable,” Gates said. “But you have a frenzy. And some of these companies will be glad they spent all this money. Some of them, you know, they’ll commit to data centers whose electricity is too expensive.”
The problem is, as Gates experienced with his own highly profitable company, when the mountain of giants slides, everything goes down with it. Now, when it will fall, that’s harder to say. I had put my money on this year, reaching its perilous heights and then crashing with the help of economic and dollar destruction from the tariff wars.
(Article for the quotes above, appear in boldface in the following headlines:)