Spatially Regarded

Apple's latest costly gizmo, mixed reality checks and the whacky world of meta finance...

(Source: Getty Images)

Bill Bonner, reckoning today from Youghal, Ireland...

This week, we have another big player on the field of dreams. The most celebrated home run hitter of all time has stepped up to the plate.  

Apple has been warming up in the tech bullpen for years. And on Monday, it got its turn at bat, unveiling what is supposed to be the Next Big Thing in the tech world.  Spatial computing.

What’s that?

We have no idea. But it looks like what Facebook was trying to do with its META rebranding. You put on the headset and you have 12 cameras, five sensors and six microphones working for you. What do all those gadgets do? We don’t know that either, but we suspect they are going to waste a lot of time for a lot of people.  Business Insider:

There's one product which has been making all the headlines from Apple's WWDC on Monday.

The Vision Pro headset marks the tech giant's foray into the metaverse — although the company stayed clear of using that branding.

But on TikTok and Twitter, everyone's been laughing about the audience's reaction to the Vision Pro's eye-watering price tag.

Show Me the Money!

The laughter came after Apple told its audience that it would offer its new gizmo for $3,499, or with add-ons, about 10% of an average person’s income. “Who’s going to buy them?” wonders colleague, Dan Denning. “With what money?”  

The advertising tells us that this device will ‘take you into a different dimension…a different world’ with a ‘mixed reality.’ The message is lost on us. The 3 dimensions we have already seem completely adequate…and our real world, such as it is, is spooky enough.

The fans pushed shares in Apple’s stock to a new high after the announcement. Up 38% this year, the company now has a market cap of $2.85 trillion. That’s 27x forward earnings and more than 7 times sales.

“Mixed reality” is what we live with in the financial world. Apple is a fantastic company. It is real. It makes real products. It earns real profits. But ‘mixed’ with the reality of it is a substantial amount of fairy dust. Is a company that makes electronic devices really worth more than all US automakers…and its entire construction industry – put together?  Is it really worth one tenth of US GDP?   

We doubt it. Apple’s stock in trade is popular technology. But the fashions of the tech world change, and there is little likelihood that Apple will be able to stay on top of them.  The newest technology always gets replaced by even newer technology. And while the future is always full of surprises, they are rarely happy ones for investors who buy a mature tech company at 27 times its future earnings. Things go right; things go wrong. But when you’ve bet heavily on an aging player, whose fame and fortune could scarcely improve, the risk of a strike-out is high.  

Mind the Gap

Yesterday, we were exploring the gap between reality …and hope, dreams…and the future conditional (subjunctive mood) tense.  

We guessed that between the two, for the 21^st century alone, is a gap of $160 trillion minus $25 trillion…or about $135 trillion. That’s the amount – grosso modo – that asset prices worldwide would have to fall in order to get back into sync with the real economy of goods and services.  

This calculation is a very rough guess…not even using the back of an envelope. It is just meant to show that there is a large reckoning ahead. Water seeks its own level…and, one way or another, sooner or later, somehow, asset prices and real output have to get back into whack. How, why, when…to be determined. 

Nvidia has provided us with an illustration. Either the company is going to sell so many more chips (about 40 times as many) that it is actually worth today’s price.  Or, today’s price will have to come down. The shares might someday be worth $391. Or, they might not.    

Space to Let

And that is true of the entire capital structure – stocks, bonds, property. Either it gained $160 trillion in real value over the last 23 years. Or, that number is just a feint…a fraud foisted on us by money-printing central banks worldwide. And how about those $32 trillion in US bonds? How much are they really worth? How much will they be worth if the Fed continues to raise rates…or allows interest rates to go up on their own? How much will they be worth if it doesn’t?

Have you been to San Francisco lately? A quarter to a third of the office space is vacant. Even in those buildings with active tenants, only a third to a half of workers show up. The owners often used cheap short-term credit to buy their buildings, counting on rents to pay their mortgages. Now, they have to refinance at higher rates…with less rental income. How much are those buildings worth now?

How much is Apple worth? Nvidia? The entire edifice of jumped up capital prices?

We don’t know.

But we’re all going to find out.     

Regards,

Bill Bonner

Joel’s Note: Speaking of commercial real estate, here comes the proverbial “other shoe to drop.” From yesterday’s Wall Street Journal…

Interest-only loans as a share of new commercial mortgage-backed securities issuance increased to 88% in 2021, up from 51% in 2013, according to Trepp. Nearly $1.5 trillion in commercial mortgages are coming due over the next three years.

Fitch Ratings recently estimated that 35% of pooled securitized commercial mortgages coming due between April and December 2023 won’t be able to refinance based on current interest rates and the properties’ incomes and values. While many malls and hotels face high default risks, the situation is particularly dire for office owners. 

Mark Edelstein, chair of law firm Morrison Foerster’s global real-estate group, said he is seeing more lenders take over office buildings than at any point since the early 1990s. 

Such are the constraints of the merely three-dimensional world, dear reader. Debts mount. Loans come due. And a reckoning must be had.

According to Xiaojing Li, managing director at data company CoStar’s risk analytics team, as much as 83% of outstanding securitized office loans won’t be able to refinance if interest rates stay at current levels.

And if they go higher?

Look out below!