Wow. Intel has lost 1/3 of its market cap. In just two days.

Aug 2, 2024, 1:01 PM

Seems normal to me.

TLDNR - Our economy is at great risk due to the monetization of demand.

Tiggity discusses the importance of the connection between currency, value, and labor in communism.
Money quantifies labor and represents the value of assets obtained through labor, facilitating the exchange of labor and goods made with labor.
In the US, we tend to think of dollars more in terms of money than labor. Capitalism has advantages to communism, but its Achilles heel is that it can destroy itself if not properly controlled.
Instead of using currency to quantify labor, there is a tendency to use it to quantify demand, which is the cornerstone of capitalism.
Labor always creates the supply which meets the demand, and supply is a finite resource.
Tiggity suggests that automation can increase supply, but no matter the automation, no labor, no supply.
The real problem in America's economy is that we have monetized demand without regard to labor.

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I thought about posting the other day but held off. But I'll go ahead and do it. America has lost its way economically I think. But in college I read Das Kapital by Karl Marx. And the Communist Manifesto. Read probably 100,000 pages in through college. The ONE thing in that entire book that struck me was at the beginning. It's a typical thought/philosophy book, where the author starts off with a VERY strong, and impressive analysis and premise, then runs on for several hundred more pages off on a tangent of lunacy. The initial premise of the book is the ONLY THING that lends credence to what follows, and often what follows is given far more credit because the author started off so lucidly and rational.

I will sum up Marx's initial brilliant premise in a simple sentence. Money is simply an arbitrary unit used to quantify LABOR. Central to the concept of communism is this connection between currency, value, and labor. Only from this does an "economy" grow. In communism, and in almost all economies, money quantifies labor. It represents labor. A dollar, rupe, lira, peso, euro, etc. is only worth the amount of labor someone is willing to expend, or exchange, for it. This is the traditional, time tested, PURPOSE of money. It quantifies labor, or the value of assets obtained through labor, and facilitates the exchange of labor, and goods made with labor.

Ok.....where am I going with this? Well, in the US, we do dollars (currency) differently. We are capitalist, and capitalism has MANY advantages to communism, as communism can not work without forced coercion. Add freedom with capitalism, and you get a much better economy. Cold War proved this. But the achilles heel of capitalism, which Marx pointed out in slightly different terms, was capitalism can destroy itself if not properly controlled. The key weakness of capitalism is simple. Instead of using the currency (dollar) to quantify labor, there is a tendency to use the currency to quantify (and as such MONETIZE).....DEMAND. Good old Supply and Demand, the cornerstone of capitalism. BUT, where is labor in this equation? LABOR produces the supply which meets the demand. And we all know labor is a finite resource. You can make strides in efficiency, automation, and whatever else, but you can not escape the core fact supply comes from labor. And labor is a finite resource. As such, supply is a finite supply. Supply can increase with more labor, or more automation, but labor always creates the supply at the end of the day. If you automate the labor, and still run short, export the labor to other countries. let them automate, and this is how you increase supply. Still, end of the day, no matter the automation, no labor, no supply.

In America we look at dollars. We want dollars. We think of dollars far more than we should. We don't think in terms of labor. The old adage nothing is free, we've shitcanned that idea in the US. We think there really is something called free, because we have forgotten and neglected the role of labor to the dollar. If you win the lottery, that's "free" money. It's free to you, but the money, itself, is NOT free. Someone, somewhere, worked, expended their labor, to get paid a dollar, which they used to purchase a lottery ticket, that ended up in your pocket. When you "win" the jackpot, say $500 million, that's TWENTY FIVE MILLION HOURS OF PEOPLE WORKING, assuming an average $20/hr wage. You are winning, for "free", the fruits of 25 MILLION hours of SOMEONE ELSE'S LABOR, at say $20 an hour.

But again the real problem in America, with our economy, is we have monetized DEMAND, without regard to labor. The vast majority of people know, we are all told, Elon Musk is "worth" $200 billion. We are told Nvidia, the company, is "worth" $3 trillion. But Elon Musk doesn't HAVE 200 billion DOLLARS. What Musk has is 411,062,076 SHARES of Tesla stock, worth $X.XX DOLLARS each, AT CURRENT MARKET DEMAND/VALUE. SHARES, not DOLLARS. Now supply and demand works in the stock market the same way as elsewhere. There is a finite amount of stock at any given time that can be purchased. And then there is an INFINITE potential for DEMAND for that stock, IF you can control the supply. This is why billionaires (in stocks) never sell it (all). And when Tesla has a bad quarterly report, or Musk does something stupid like agree to buy Twitter for $50 billion, the DEMAND for that stock falls, and the market value of the shares Musk holds, fall. And we hear Elon Musk "lost" $100 billion DOLLARS. Or Nvidia LOST $1 trillion DOLLARS in market cap. Those are NOT DOLLARS LOST OR GAINED. THAT IS SIMPLY DEMAND DISAPPEARING, quantified by the value of the stock in dollars. But those dollars represent nothing more or less than demand lost for the shares.

This monetization of demand has the effect of making people think they have more than they really have. Again, the labor aspect is shitcanned in the US. Sure, there are people who work for an hourly rate of pay, in dollars, for their labor. But alongside that traditional economy (the poors today), we have a whole other economy based on the monetization of DEMAND, instead of labor. And this is WHY the IRS will never tax assets (capital gains) like they tax labor (income). Because one represents monetized demand (which is inherently volatile), and the other represents monetized labor (which is finite). Labor, again, is pure, and finite. DEMAND, however, has no limits and can jump or crater instantly. Demand is, in other words, NOT a reliable resource to quantify with money (OR LOANS). It's how artwork becomes "priceless". No one can buy the Mona Lisa, because literally every human on Earth would want to own the Mona Lisa. The DEMAND for that painting is such there is no labor, or money, that can buy it.

And Americans are (probably 95% or more anyway) ignorant to this. Take the $400 quadrillion dollar diamond asteroid as an example. Boy, I sure would like to have that asteroid. Why? Because the supply of diamonds (on Earth) is limited, finite, (controlled actually to keep demand high - another story). If you went out, grabbed that asteroid, brought it back to Earth, and cut it into 40 billion 2-carat diamonds, and sold them all, you wouldn't clear $100. That's 5 2-carat diamonds for every human on Earth. Market is flooded. Supply explodes, demand craters, and you're left BROKE AS CRAP with a mountain of WORTHLESS, unsold diamonds. Stocks are similar. And this is the problem when you monetize demand, and ignore supply, and labor. It's the problem that always plagues capitalism, again if not controlled. And the smartest people know this, particularly those "worth billions" in monetized DEMAND. Someone once asked Warren Buffett what is the most valuable asset you can have. His answer was not a stock, not a trading card, not a gem, not a piece of artwork, not a piece of real estate. His answer was brutally simple, and 100% correct. Your best asset is to have a skill or knowledge, a skill or knowledge that is in demand and useful, and preferably critically essential, or useful enough it becomes essential. Some skill that helps people to the extent they will exchange their labor for your skill. If you have that, you will never go broke. NEVER. Can't. You can pour your life's labor and money into a stock that tanks, and you will lose everything. Some kid the other day took his recently deceased mother's inheritance and bought Intel stock. In a single day he lost 1/3 of it. Why? Because demand cratered for Intel stock by 1/3. He took the lifetime of labor of his mother, and purchased an asset which represents monetized demand, and the demand fell. He can't get those dollars back unless/until more people want to buy Intel stock.

Anyway, this is how I see things. I know it's an odd way to look at things, but I believe it to be the correct way, as odd as it may appear. The drive to be rich, though, seduces most people to ride demand to wealth train. And that's shaky ground. If you board this train, the worst thing you can do is think you HAVE those dollars. You don't own or possess the dollars a stock represents, you own a piece of a company with some level of demand for the stock. Your value in your stock is tied to that demand. It is critical as that is the basis for your 'wealth". Your best bet is to diversify, which most billionaires (in stocks) do. Sell a little, you monetize that demand, and then buy something else with a more stable demand. Gold, real estate, bonds, a yacht, land, whatever else.

And in America we have doubled down on monetizing demand in derivatives markets as well. You can take out a loan, based on the value (demand-based) of your stock holdings, real estate, anything really. The GFC in 2008, that was an omen of what to watch out for. Way back in the day a banker came up with the idea of creating mortgage-backed securities. It was a solid idea, on paper, because who doesn't pay their mortgage? And demand went through the roof for these securities. Instead of investing in a stock, which is volatile, invest in this with a guaranteed return, over time. Easy, secure value, and profitable. The MBS became an asset, with their own market driven by demand. Over time, lenders learned they could make riskier and riskier mortgages, bundle them with less risky mortgages, and the AAA rating remained on the bundle, and the security of that asset, never changed. Banks made more loans, bigger loans, to people with worse and worse credit. In 2002-3 lenders came up with another brilliant idea, which revolutionized the profitability of the MBS markets, and sent demand skyrocketing as well. The 5 year interest only loan. They got greedy. Basically you, the lender, calculate what the borrower can afford to pay monthly (easy math) based on their income. You then find an interest rate that, for 5 years the borrower can afford to pay, at their max. Now this rate is even lower than the US market rate. Tie it to LIBOR, traditionally lower than standard US market interest rates. Then max out the size of the mortgage to make that initial 5 years of interest at the LIBOR rate 100% of what the borrower could afford. When you secure that mortgage from the borrower, you can then turn around and sell it based on the total payout value of the 30-year instrument (with 25 years of higher rates). The lender can double, or triple what they make on the mortgage when they sell it. And the buyer of the MBS still thinks they have a secure asset worth double or triple the value of a traditional MBS.

Well, someone, one day, figured out this scheme and shorted it. But, right on cue, come 2008, year five started rolling around on these mortgages, and borrowers were bailing. Houses went up for sale everywhere, and DEMAND for real estate tanked. Likewise, DEMAND for sub-prime MBS tanked, and the derivatives collateralized with those MBS made this a problem for the entire financial system. Monetized demand disappeared, and the real loans collateralized with that monetized demand, were suddenly a liability. It was a crisis much, much larger than anyone realized. Real money had been spent on collateralized financial instruments which were, essentially, secured with monetized DEMAND. The achilles heel of capitalism.

Now the question right now and for many years is simple. How much "money" in the markets represent monetized DEMAND, versus tangible assets and realistic future profitability? The answer is no one knows. Just like how many 5-year interest only ARMS were "safe" as assets, versus unsafe as a liability? You won't know until demand craters. But we can all look at Nvidia and we all know it isn't "worth" $3 trillion, or $129 million per employee. So what is the value? It's whatever the Monetized DEMAND value is at the time you sell, plus actual value. Where is the bottom, where the monetized DEMAND is excluded and you're left with actual company assets, products, profitability, etc? 10%, 30%, 80%? You won't know until something happens to collapse the demand.

And recently things have gotten worse, with stocks and crypto, thanks to the internet and social media. Demand can now be manufactured or boosted, with coordinated marketing campaigns on social media. The product/asset doesn't matter. It can be some crypto coin, a stock, whatever. You release a fake story on some potential for the crypto coin, a future potential use, get some heavy investors flush with cash to start buying it, increasing demand, mouth-breathers see the coin skyrocketing as advertized and publicize on social media, and they pour in, and at the end of the day the originator of the scheme, and the minions who ran the social media bots, and write the fake news stories, etc, they're all paid, and the mouth-breathers are left holding their balls. AMC, Game Stop, now moving to larger companies like Nvidia (with the AI promises), people are now making money CREATING DEMAND and then monetizing DEMAND when they sell, and the losers are those people who invest using money exchanged for labor (that's the mouth-breathers).

It's a good system gone bad, and we just go along for the ride because most have so much skin in the game, and most don't even have a clue, like buyers of MBS, what they actually have, until they don't.

And please don't think this is some generic, random circumstance that has happened or evolved over the decades. For all the TRILLIONS of DOLLARS of toxic, bad, ILLEGAL mortgages lent by banks that caused the GFC in 2008, exactly TWO people went to jail. White collar crimes, and walked shortly after. THAT WAS IT. Even those caught doing white collar crimes, never serve long sentences, and as broad as the crimes are, as many thousands of people may be involved who knowingly broke laws, they always jail just a few bad apples with 2-5 year sentences in Club Med fed prisons. Then they're back out.

And with my 100,000 pages of reading in college, and my 17 years of education, I was never once taught how to write a check, balance a checkbook, was taught nothing about insurance, taxes, saving, investing, credit cards, estates, real estate, nothing. Now I was approached several dozen times in college and offered a free T-shirt for signing up for a "free" credit card. And throughout life I've always wondered how people make money when I buy something. I would never have a credit card if I didn't know how the credit card company made money. Likewise, I'd never take a job where I could not see the utility of it for the company and/or customers. I have to know HOW my contribution (labor) is useful to contribute. If someone says sit in this cubicle and push these papers all day and I'll pay you $2,000 a week. I would not take it until I knew HOW my pushing those papers provides $2,000 a week of benefit to the company, or the customer. Otherwise I would never feel secure in the job, and that would mean I'd never give my 100% effort as I'd always be concerned the job may disappear. if I took it, I'd be looking for, and keeping another job on the backburner where I could see my value.