Mag Seven Goes Bafooey

Most dot.coms disappeared. It turned out, they weren’t really offering ‘knowledge,’ but just information, and much of it was false, misleading, or unnecessary. In other words, it was a waste of time.

Jan 16, 2025

Thursday, January 16^th, 2025

Bill Bonner, writing from Baltimore, Maryland

One of the most puzzling features of the 21st century is the almost total failure of its new technology... along with astonishing prices for the companies that produce it. Last year, the Visual Capitalist reported that the Magnificent Seven were worth nearly $16 trillion:

Since 2012, the first year all seven companies were public, the Magnificent Seven has grown 13.5 times larger. Nvidia has seen the highest relative growth, with its market cap jumping 360 times larger over the same time frame. Nvidia’s size is especially impressive when you compare its market cap to other chipmakers.

There is only so much ‘value’ or real wealth available in the world – cars, art, wool socks, beef ravioli. A man with a stock worth $100 has a claim on one hundred dollars’ worth of it. If his stock goes to $1,000…he can claim 10 times as much.

The Ford Motor company was valuable from the beginning — there were thousands of Ford trucks and autos to prove it. The company rose in value as its own output increased the nation’s real wealth. .

But what about those Magnificent Seven tech stocks? They are now worth $13 trillion more than in 2012. Where’s the beef?

The industrial age made us all much better off. No question about it.

The common chainsaw provides the easiest demonstration. It is a simple machine, little changed in the last half a century. We had one in the 1960s, which was already at least ten years old. It was big, heavy and noisy... but it did the job. Today, they are lighter and more reliable.

A small internal combustion engine takes gasoline (usually mixed with oil... in 2-stroke engines) and cranks a shaft that turns a sharpened chain. With it, in one day you can cut as much firewood as would have taken weeks or even months before.

The amount of fuel used is trivial. The pile of wood is impressive.

Firewood is a real thing... with real value... it warms our houses, greatly improving the quality of life. The chainsaw’s value can be measured by the cords of wood it cuts. More firewood = more value.

Almost everything that now creates our quality of life — automobiles, houses, food, clothing — relies on Industrial Age innovations.

Each one took a combination of labor (including the invention... design... and development... as well as actual manufacturing) and capital. It took a lot of money to build the factories... and the power grid, delivery systems, railroads and highways that brought the chainsaws into the local hardware stores. Even the movies we watch on our computer screens still require huge amounts of real things — fuel, time, props, transportation, lodging — to make.

And for each of these things, there is output to justify the capital value. More cars. More pants. More films.

Then came the Internet... and the communications revolution, largely built out in the 1990s. Widely discussed was the promise that ubiquitous information would reduce the need for capital. Rather than trial and error... hit or miss... entrepreneurs would have the world’s knowledge at their fingertips and could avoid dead ends and mistakes.

Capitalists would no longer need to take the risk of financing new projects, since the risk would be largely eliminated by knowledge. Growth rates would pick up. And the knowledge peddlers would be the new store of value.

That didn’t happen. Growth rates slowed. Most of the dot.coms disappeared. It turned out, they weren’t really offering ‘knowledge,’ but just information, and much of it was false, misleading, or unnecessary. In other words, it was a waste of time – squandering our most precious asset.

The dot.coms blew up 25 years ago. How much of the new tech, developed since then is a genuine improvement? How much is just nuisance?

Checking in to our nifty ‘health portal’ at Johns Hopkins hospital, for example, we were told that our password was incorrect. Then giving our name and birthday, the machine told us that our information was ‘invalid,’ as if it knew when we were born better than we did. But try to get a straight answer from an AI-enhanced communications system!

Our home heating system wouldn’t work. The Industrial Age part was still functioning — plenty of fuel... plenty of spark. But the ‘electronics’ had gone bafooey. Same thing happened with one of our trucks. Engine, no problem. But an electronic control had tripped, immobilizing the truck until a technician finally figured out the problem.

Today, if you have a flat tire, can AI fix it? Not as far as we know. The most obvious and helpful new developments to come out of the Information Age are the many short videos that show you how to do non-electronic things, such as change a tire. They also make it easy to ‘find a garage near you’ and make a restaurant reservation for the evening.

And so, on this cold, wintry day, warmed by the wood burning in our own fireplace, we pace the hardwood floor and fake Aubusson rug. We lean back in our plastic office chair... we tap our fingers on the mahogany desk... take a sip of hot tea from a ceramic cup, stare at the plaster molding around the ceiling...

And wonder — are the techs really worth as much as they think they are?

Where is that $13 trillion pile of wood?

Stay tuned...

Regards,

Bill Bonner

The S&P 5

In mid-December, the five largest stocks in the S&P 500 were worth as much as the bottom 407. As of today, the ‘Magnificent 7’ stocks (Apple, Nvidia, Microsoft, Amazon, Google, Meta, and Tesla) have a combined market capitalization of $17.63 trillion, or 35% of the S&P’s total market value of $50 trillion. Yet none of the Mag 7 are in the S&P’s top performers just over two weeks into the year. The top five so far are: Constellation Energy [CEG] up 34.45%, Walgreens Boots Alliance [WBA] up 34.30%, Texas Pacific Land [TPL] up 24.33%, Vistra Corp [VST] up 22.70%, and Micron Technology [MU] up 22.61%.