We live in the Golden Age of Grift. Doing means nothing. Saying means everything. No claim, no matter how outlandish, is checked for veracity before being pronounced as truth.
This is not just true about politics. It’s also true in markets. When markets become untethered from objective reality, people can become phenomenally rich without doing anything. But the phenomenally rich can lose it all in a heartbeat.
Om Malik calls this “the announcement economy.” It’s a house of lies. (Image from Gemini.)
Let’s take, for example, the $110 billion OpenAI funding that closed over the weekend.
Was it real? Om went to the primary sources, funding documents filed with the Securities and Exchange Commission. Amazon claims to be in the deal for $50 billion, but only $15 billion is promised by March 31. The rest is conditional on either OpenAI going public (ka-ching!) or “artificial general intelligence” (which doesn’t exist).
The rest of the $110 billion is even less real. Softbank is tossing in $10 billion, assuming they can borrow it. (Tough time to be trying to borrow money, you think?) Nvidia, which was originally in for $100 billion, is now only talking about $30 billion, a “letter of intent” and an agreement “subject to certain closing conditions.” Translating from the lawyer language, this means maybe.
This smaller pile of money does exist. Nvidia had about $61 billion in cash at the end of last year. Amazon reported $123 billion in cash at the end of last year. The point is that not all that cash is being committed. The deal is mostly backed by weasel words.
An Aging Czar Goes All-In
Now let’s turn to the other big news of the weekend, Paramount. Let’s talk about a Cloud Czar throwing his crown into the fire. (Image from ChatGPT.)
Paramount says it’s paying $110 billion for the Warner Brothers studio, its film library, and a bunch of cable networks Netflix didn’t want to bid on. Many are panicking because this includes CNN.
Much of the money will come from debt. Paramount will end up with $79 billion of it. The company’s bonds are already being rated as “junk,” which pays out at twice the rate of inflation. Ironically, that interest rate is now being quoted as 6.66%.
The deal is affordable only because CEO David Ellison’s daddy Larry is standing behind it. But will Larry be able to fund ongoing operations? Because Paramount isn’t making any money right now.
Oracle sold $25 billion of debt just last month, and will likely double that before year-end. Fine and dandy if Oracle’s equity remains strong, but that value has fallen by more than half in less than six months. What looked like a $1 trillion company in September is now a $425 billion company. You want to lend based on that collateral?
Larry is not the sharpest tool in the shed, no matter what he or Wall Street may tell you. He missed out on the cloud last decade. He missed out on open source. Then he fought a decade-long war against open source. While he won in court, open source won in the market. By holding onto his dominant position in Oracle he’s still worth $197 billion, according to Forbes, but that includes his Paramount stake.
The Lesson
Wars are unhealthy for economies and other living things. Also, booms do bust.
I’ve written before about how certain that is, in the case of AI, which keeps promising stuff it can’t deliver. At some point, and we seem very near to that point, people stop believing, especially since the devil wants cash, not debt, and not promises, when it comes time to replenish his ammunition.
The Big Boys can pull out of their commitments if it all goes pear-shaped, then pick up the pieces of OpenAI for pennies. Larry Ellison has committed his entire fortune to this fiction and used that fiction to back his effort to destroy CNN as he did CBS. (Sheriff Country? Really?)
Given his long-time look of a devilish mustache and soul patch, a look that’s doubtless backed by a portrait of a ravaged man of 81 somewhere in the attic (although his new Chinese wife is 33), maybe Ellison is just going out with a bang.
Maybe we all are. Apres nous, le deluge?
