I've been told the following (obviously negative) narrative. Can someone verify/refute some of these? I've put (?) next to questionable claims.
1. Twitter is purchased with debt
2. Debt is transferred to xAI via acquisition of X/Twitter
3. Debt is further transferred to SpaceX via acquisition of xAI
4. SpaceX IPO offered at extreme valuation
5. Index fund inclusion rules waived for SpaceX IPO: profitability requirement, inclusion period cut from 90 to 5 days
6. Index funds are largely held by passive investors such as pension funds.
7. Index fund managers are not incentivized to exclude a SpaceX from their indexes. (?)
8. Holders of original X/Twitter debt (banks) incentivized to support the rule waiver since post IPO, SpaceX will have liquidity to service/pay the debt.
9. Passive investors are unable to rapidly respond to these types of changes because liquidating portfolios will incur capital gains taxes. (?)
10. SpaceX is in Texas jurisdiction, where shareholder lawsuits are not possible and must instead go for arbitration. (?)
> 7. Index fund managers are not incentivized to exclude a SpaceX from their indexes. (?)
Correction: index funds don't have a choice. They must follow the index, and so must buy the stock.
side effect: they'll have to sell other stocks, pushing their prices and weighting in market cap weighted indexes down.
> Passive investors are unable to rapidly respond to these types of changes because liquidating portfolios will incur capital gains taxes. (?)
For some active investors, yes. For passive investors (say you through your employer's pension fund), the tax isn't the problem. It's that the market has such a short time to adjust the price of these companies before indexes are forced to include them--and so might buy them at wildly inflated prices. Then, not too long after, the early investors can sell at still-high prices as soon as their lockup periods end. It's a massive transfer of wealth from pension funds and index investors to the early investors in those companies.
> Correction: index funds don't have a choice. They must follow the index, and so must buy the stock.
Maybe, most indexes do not have to follow the index. they just need to match the returns. An index fund manager has choice of what stocks to buy. However an index fund doesn't have enough managers to make many choices and so they normally buy just what is in the index. However all index fund managers know they are large enough that if they change their holdings "instantly" when the index it self changes the market will collapse and so the fund will under perform. Thus index fund managers are always trying to figure out what the index will do so they can start buying/selling stocks in smaller amounts before the change happens.
How each fund handles this is up to the managers. (and "total market" funds have less ability and need to do this)
The whole point of index funds is that you don't have to pay management fees to managers. It's very expensive to hire a team of people to analyze the entire stock market in detail and chose the best 500 companies, and historically people who did that on average didn't beat the S&P500.
Just look up the performance of Mutual Funds vs S&P500.
That is the point, and index funds pay many less managers. However they all have a few managers to handle the various paperwork needed and those managers do make some decisions. They have much less influence vs a traditional funds, but it is slightly above zero.
I think the point is that they don't have the influence to intentionally deviate from the index because they think they know better. If your mandate is to be passive, then you need an index to follow. If you are that sure the S&P 500 index is wrong for some reason, or whatever other index you follow, then you need to invent a new index. Then, you can follow the new index.
At least my index funds do that. They don't get to constantly trade like non-index funds do, and they typically stick with the index, but every index fund I own has a line about "we select stocks that we think will match the index", which is different from buying the stocks from the index.
Again, the vast majority of the time they are matching the index stocks. However they have the right.
I guess that's true but put yourself in the position of a major fund manager. Would you rather explain "We lost 3% this year because of a dumb IPO because we track an index that includes dumb IPOs," or would you rather say, "We lost 3% this year because I decided, as a passive fund manager, that the index was wrong and I knew better"?
Your career would be over.
Or at least, you would have to transition over to an active fund!
No, that's not how it works. The resource managers who hire and promote fund managers are well aware of how trading large blocks too quickly can skew pricing. No one expects performance to exactly match the index. Read the prospectus.
I'm willing to buy the idea that most fund managers have the lattitude to give SpaceX the standard seasoning period, instead of buying in right when they hit the index. Which funds will do that? If it's all or most of them, that'd be nice.
I don't know what to tell you guys because I am not a fund manager. If any of you are, then I'll go with what you're saying. But I do know how large organizations work first hand, and I'm sure lots of us do on here.
Who exactly do you think wants to stick their neck out and say, "I work for a passive index fund. The whole premise of our career is that we don't try to play the market. But just this one time, I'm going to play the market anyway, and I'm going to use your money to do it."
Sorry, not happening. If you don't like the fact that this stuff is going to be included in the index, then your only option is to stop buying the index. Of course they think they would think they're right. Everyone doing active investing always, every time, thinks they're right. They will buy the index the way they always do, and then they will say, "If you don't like it, take it up with the index."
Watch the scene in Big Short at the bond rating agency for an indication of what's really going on here, is my guess.
Yeah, it's a 24 year old company that controls space Internet and is the most competent company building data centers. If a passive index doesn't include it they are taking a much stronger opinion on the stock than if they do include it.
If it's a poorly run fraudulent company the regulators and the banks are at fault for letting it go public not the indicies
The problem is, if you deviate too far from the index, your head is on the chopping block. There is no incentive to outperform the index, and every incentive to not meaningfully underperform it. Anyone bought into an index fund expects exact index performance (whether or not the prospectus technically allows for deviation).
So any manager who values his pay check will say "the index may go up, may go down. The investor's paper wealth may increase or decrease. That's not my problem! And in a market like this, I risk underperforming if I don't own this asset. So of course I'm going to buy it!"
> Maybe, most indexes do not have to follow the index. they just need to match the returns.
This is a great technical point, and in a scenario where a constituent has a lot of obvious correlations it might be relevant, but when you've got something that is effectively a meme stock with erratic leadership and a huge range in possible outcomes from bankrupt to most valuable company ever in the universe [claude tells me I should say 'idiosyncratic returns' instead of this rant], I don't see how you promise to match the performance of an index where it's a significant component except by buying it.
but any upside to second guessing the index gets allocated to the management, right? just like any downside, so its kind of immaterial for the end users, they're effectively bought into to SpaceX anyways
They are judged by how close to the index their returns are. If there a significant deviation either way they are judged harshly. Each fund is different, but they typical thing they will do is buy a competitor of some company in the index once in a while.
Typically managers pay is such that they don't get awards for guessing correctly, so they won't get any upside from a correct second guess, and they will see downsides from incorrect guesses.
Also unlike traditional funds, there are not enough managers to follow every company, so they can't pick stocks that will win just because they don't have enough to time research the stock. When they pick a stock they are just looking at the high level will this company perform like the other peers in the industry long term.
They do track the index.
The leeway to deviate is not intended to make bets on individual equities, but to - for example - match index returns with fewer execution costs.
For example an index fund that tracks a global equity index may not find it practical to own shares in every listed company globally, but absolutely will be judged on its tracking error vs the benchmark index.
But surely the managers of those pension funds can see this happening, and will not likely take on the risk of shares that are that young, no? The index funds hands are tied, i agree, but passive retirement funds are largely managed by people who are motivated for them to succeed. If this were not the case, then pension funds could have been looted long ago...
Pension funds that are actively tweaking the mix of stocks they hold likely might decide to play it safe.
On the other hand, do you want to be the one who says, "As a rule we follow the index, but this time we decided to break our own rule, and as a result we lost X% of returns"?
Better wrong with everybody else than wrong on my own.
The reason pension funds include index funds in their mix of investments is because those funds have two features that are exactly what pension funds are aiming for: (1) broad diversification, and (2) conservative inclusion rules that avoid undue exposure to highly volatile firms.
Changing one of those features undermines the reasons for including the index. Doing it specifically for the purpose of including a firm where large pension funds have also been extraordinarily critical of the governance structure as a particular source of risk [0] even moreso.
I was looking at it from a more institutionalized perspective I guess. At least in my field, I know how this works because I see it play out. People are conservative and sometimes would rather be wrong with the herd as long as it means they're not risking being wrong on their own.
Having said that I guess you have a valid point. Once major institutional investors decide an index has basically gone corrupted, then they won't actually buy the index fund anymore. They will just buy all the stocks in the index, and underweight the parts they think are tainted. That's what I would do, anyways.
>Correction: index funds don't have a choice. They must follow the index, and so must buy the stock.
Right, if they've advertised as an S&P 500 index fund, they have to robotically follow the S&P 500, stupid inclusions and all. Changing that strategy would require ... a lengthy process involving input from shareholders.
However, someone can still start e.g. a "classic S&P 500" fund that follows the old rules for inclusion, and I suspect we'll see that in response to these recent decision.
It's not the advertising that matters, it's the prospectus. Read the prospectus for any index fund and you'll find that out gives the fund managers a lot of leeway.
Sure, I was simplifying a bit with the technicals. But you're sure their leeway is enough that they can say "nah, we don't like what the index is doing now, we'll do our own deviations from it?" That seems implausible but I don't know enough about mutual fund/ETF regulations to say for sure.
I'm aware I can read the prospectus. And, to the extent that I found the relevant portion of the prospectus (that you could have done yourself and posted) here's what I see:
>The Fund employs an indexing investment approach designed to track the performance of the S&P 500 Index (the “Target Index”), a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the stocks that make up the Target Index. The Fund attempts to replicate the Target Index by investing all, or substantially all, of its assets in the stocks that make up the Target Index, holding each stock in approximately the same proportion as its weighting in the Target Index.
That doesn't sound like a lot of leeway to arbitrarily ignore major new additions that make up a few percent of the index. They'd have to say "no, we're not holding each stock anymore".
It would be more informative to see SEC or court rulings on a mutual fund that tried something like this.
Or, we could just go the way HN normally works, and settle it by who can write the most confidently.
The twitter debt is a negligible portion of the money at stake here. It’s a footnote compared to the trillions of dollars in wealth that are moving around. We are only talking about it because the internet commentariat has special interest in twitter. Not worth wasting time thinking about it if you are deciding how to allocate your portfolio.
Nevertheless it is part of a pattern of weird deals in Elon’s companies. He’ll do anything to move the goalposts and turn his failures into successes. There is no norm he won’t violate, no boundary he won’t cross.
Sure, I don't like him either but it shouldn't be about him. It should be about the institutions we trusted to keep our index funds safe. Or was this always based on "vibes"? Was VOO never safe? Was it always possible for the people in charge of the stock market to simply include some money pit into our retirement funds? I feel like the people responsible for these decisions must fear life in prison or this will keep happening.
These are indices created by private entities. They are free to change their rules are they not? Maybe this is the wake up call to the risks of concentrated passive investment vehicles the public needed.
If you think it's a wakeup call about passive investment I think you're asking the wrong question. The vast majority of people do not want to become experts in the financials of 800 different companies in order to maximize their account return on investment over the next 20 years. It's a part time job to do that. Some people do that successfully but most people recognize that they won't. Passive investment was supposed to be a tool for those people. If you ignore all of that, then sure they can just change the rules whenever they like. But that totally ignores the reason a lot of these rules exist in the first place. In my book we're about to get a taste of why we don't want private enterprise responsible for this stuff in the first place.
Exactly all this. The whole idea of passing investing is "hardly any of us know better than the market as a whole." If you don't agree with that, then you don't agree with passive investing. Which, whatever. Live your life.
But the story is not about all indices being wrong, the story is about index management being corrupted. Like bond ratings on mortgages in the run-up to 2008.
> Passive investment was supposed to be a tool for those people.
And it was, for a while. Then financial vultures realized there's huge pots of money tied up for 40+ years in funds that the person doesn't directly manage or have a say in. And if the investments are in indices then the index gets to vote on company matters across the economy on your behalf. What could go wrong?
If you dont like it, you need to choose something else. I dont know how people can keep throwing money at the thing they dont like and then complain it isnt doing what they want.
"Im too busy to spend 30 minutes to move my retirement somewhere I trust" just doesnt cut it.
I'm happy for you that you're always the perfectly informed player in every transaction you ever make having the most up to date information, ensuring that you're getting the best deal possible at any given second, groceries and all.
Sadly, some poor slobs are too lazy to be as informed as you.
I do none of those things, but I understand that there is a chance of losing money gambling in the stock market. Its not a free lunch with 100% upside.
I'm not arguing for myself, I'm arguing for the tens of millions of people who do not understand this system, are not aware of how it works, and are constantly pressured through employer plans, tax deferment, and other aspects of the system to choose the path of least resistance and put their money into a 401k. For a system to work properly it has to account for all of the users and not the top 5% or 1% of the users.
> For a system to work properly it has to account for all of the users and not the top 5% or 1% of the users.
The system doesn't work properly. Retirement is fundamentally broken in the US. The sooner people realize and wake up to that the sooner things might change.
A "401(k)" is not a monolithic entity. In practice, most employers offer a choice of funds, with the most popular being a year-targeted fund that rebalances between equities and bonds as you get closer to retirement. Having said that, you can probably dump your entire portfolio into government bonds, small cap stocks, or euro futures.
I have had jobs with good 401ks and terrible ones. The terrible ones usually have some bond/ saving option. When you leave the job you stick the money in a full service brokerage IRA. The problem is when you are at the same job for too long.
Doesn’t it say that it’s a retirement fund, intended to be saved until retirement age? The 10% penalty is little more than a wrist slap level deterrent, too. It’s usually like ~1 year of returns. Not a huge deal if you need to dip into it.
(There’s plenty to criticize about the whole 401k system of retirement accounts. But these criticisms seem misguided)
People putting retirement funds in a pile of companies that often have little impact on local communities they live in.
They’re changing laws to fast-track sketchy IPOs, putting hard earned money at risk why? So we can send people on a death-mission to Mars?
Point being, they are doing what they will with other people’s money and won’t suffer the consequences. Removing the checks and balances is exactly how financial disasters happen.
Exactly right, there's even ones so conservative they market themselves as cash equivalent. Basically zero gain/loss in those funds. If you're so worried then go login to your 401k and change it.
If I could pick from any possible retirement plan, I'd want in on the UK pension system that's guaranteed to beat inflation and earnings growth. Until the money runs out, at least!
Because it's not an actual investment and can't run out. Like US Social Security and many other national schemes, the UK is pay-as-you-go. Money coming in is immediately paid out.
Any funds lying around are supposed to be for temporary imbalances, but became significant due to a major demographic imbalance: the Baby Boom.
You can buy i-bonds in the US. You are limited in how much though. They are pegged above CPI. You never hear about them because no one makes money on it. And maybe it isn't that great of an investment.
I believe the (apparently AGI-pilled?) folks running the indices are more afraid of the public’s pitchforks in the scenario where the AI stocks go public at $3T value, then increase to $30T before the index rules dictate they buy in. Hence the rule change to prevent that from happening.
For a moment step into the theory of mind of the AI believer. That’s the common mindset in finance today. You believe that AI is displacing white collar work, and soon with robots it will displace physical work. Your personal job is to help set the rules for stocks to be included in the index. You believe that the point of indices is for passive investors to automatically be invested in the diversified set of top public companies (weighted by market cap). During previous economic shifts, where companies went public early and were already in the index during their growth phase, passive investors broadly benefited from that growth. These new AI companies have stayed private much longer, meaning that the index has missed the opportunity to “buy low” and build up a stake so far.
You believe that the owners of the leading AI companies stand to become owners of most wealth. Furthermore, that we are at an inflection point where the value of these companies rises so rapidly that delays in index investment will set in stone a permanent inequality, where early tech VC and other private funds own a huge portion of the economy. The few-$T downside risk of AI bubble popping this year feels to you like a minor concern compared to index funds being shut out of this wealth due to some arbitrary rules, which have been changed before and can be changed again. Delaying investment in these huge public companies feels like a more dangerous decision than buying in when they become public.
In short, there are two possible stories here:
1) Wall Street is AGI-pilled and thinks AI companies will be worth many trillions of dollars
2) Wall Street expects the AI bubble to pop and is trying to make the public into bag holders by selling a few hundreds of billions of dollars in the IPO
I think the second story actually doesn’t hold together, because Wall Street is making a bunch of correlated bets. The IPO cash is just one more source of capital, and much of it going to be used to make investments which are also correlated bets.
It doesn't matter what individuals believe. The rules exist to prevent people from doing dumb things that destabilize the market and when those rules are bypasses for belief reasons then the market will take that into account and discount the rules and the market loses its integrity. At that point you have signaled that the rules exist in order to facilitate corruption not oppose it, and you end up who knows where, but it certainly isn't better.
1) If the AI companies do end up running half the economy, we will have discussion for the rest of the human history about how the public got scammed by not being able buy in earlier at a lower price and how the late IPOs set in stone the oligarchy.
2) If the AI companies crash and burn, we will have discussion for several years about how everyone involved in running and financing them is a scoundrel who needs to go to jail for scamming us by selling us stock.
No, they absolutely don't fear prison (but they should).
It's just the aggregate behaviour of a group of people optimizing for short term profit and self-enrichment over everything and without any need for long-term careful planning because for various reasons they are pursuing the short term at all costs.
This was always the endgame of moving away from managed pensions to 401k's. First you get everyone's retirement income into the stock market, and then you use the stock market to take it all away from them.
Space is raising $75B at an expected valuation of $750B so the Twitter value is just 5% of SpaceX’s IPO valuation and if it goes up then the fraction gets smaller.
It’s a footnote because SpaceX is going to be worth trillions. If Twitter were fully written down right after IPO SpaceX’s shares might not even have a bad day.
It may or may not be worth trillions. But the valuation right now based on the IPO sale price is .75 trillion. Which makes it vastly bigger than Twitter regardless.
It could nonetheless be worth trillions by the end of the day.
Space is the next great frontier and right now every single other company, and even country, remain orders of magnitude behind SpaceX. This could change in the future and viable competitors could emerge, public ownership could ruin SpaceX, or humanity's further entry into the cosmos could be delayed (Americans circa 1969 certainly probably also felt they were on the cusp of something great). But at current trajectories you're looking at something akin to there being one company that made ships better way better than everybody else, right before the Age of Sail kicked off.
Bro, they make 99% of the revenue providing internet connection where markets and governments have failed to provide good options. A trillion dollar valuation competing with the commodity cost of running fiber. Supporting off-grid internet is not a trillion dollar industry even combining it with all the revenue from other uses of satellites. It’s the next step in rockets which is more equivalent to better horse shoes than the age of sail.
I think most people, especially in this topic, know essentially nothing about SpaceX and are just going off political stuff. SpaceX have dropped the price to get stuff to space by about two orders of magnitude already, and there's no apparent reason Starship might not succeed in which case you're looking at even more orders of magnitude cost deduction.
Space is not, and cannot be, a frontier when it costs thousands of dollars to get a bottle of water into orbit. That suddenly changes when costs reach a sufficiently low threshold, and SpaceX is not only leading the race there but really the only significant player. Even China, with their vast resources, won't be able to compete unless they can reach near to technical parity with SpaceX. And, for now at least, they don't seem especially close and are, by far, the closest competitor SpaceX has, bro.
A similar path to Microsoft. Being the primary gate holder to a developing market segment aka space. In our modern overvalued stock indexes they are worth 750 billion before considering future growth.
The idea that companies can corner entire markets has been proven false time and time again. Every "tech" unicorn has their valuation propped up by the idea they'll be the "primary gate holder" to some billion or trillion dollar industry. For Uber it was Taxis, for Tesla basically all ground transport, etc. None of them have been borne out and competitors are already well established. Blue Origin is already nipping at their heels with the recovery of Never Tell Me the Odds last year.
UFO soft-disclosure is already underway (the Pentagon releases more and more evidence). The USA will go full disclosure before the end of Trump's second term. SpaceX will be granted monopoly on the reverse-engineered alien spacetime propulsion tech, becoming the most valuable company ever. The SpaceX IPO is the final act of the plan that was set in motion when president Eisenhower signed the pact with the Zeta Reticulans (aka "the greys") at Holloman Air Force Base in 1954.
To explore this (hopefully parody) alt history, I don't know why the us gov wouldn't waited 70 some years for spacex to reach this point to grant that monopoly versus handing it off to the usual collection of defense contractors, eg raytheon (or whatever they're called now), Rand, etc.
The Holloman Pact made the alien technology transfer contingent on launching an alien-human hybrid program. You see, the Zeta Reticulans mandate their technology to be stewarded by hybrids (similar to how China requires a 50% Chinese joint venture to gain access to their markets). The two species' geneticists started working together, and in 1971 the first viable hybrid was born: Elon Musk. Then we had to wait for the hybrid to mature, before it could be given stewardship of this sensitive technology. Meanwhile a generations-long cultural manipulation program was also underway, to prepare humanity for disclosure.
No joke the actor who played Cigarette Smoking Man (William Davis) has said that he got all kinds of mail from people who had "proof" of aliens and for some reason thought he'd be the right one to share it with.
Of course it's sarcasm, but if it WAS true, it would be because the government was working in cahoots with all those defense contractors all along, until the Trump administration came along and decided to privatize it, at which point SpaceX seized its opportunity.
It’s a category error to compare the equity value of Twitter during its purchase to the amount of cash to be raised by SpaceX during its IPO.
Twitter has about $13B of debt, and about $1.5B of annual interest payments (that’s how much cash it actually needs to come up with this year). SpaceX has a planned IPO market cap of $2T and plans to raise $75B cash during the IPO.
"He’ll do anything to move the goalposts and turn his failures into successes. There is no norm he won’t violate, no boundary he won’t cross."
Unfortunately, if you really start digging in to what is going on in the financial world, you will find he has violated no norms here. This is not a defense of Elon; this is a condemnation of the entire financial industry.
The whole thing scares me, honestly. It has never been a clean happy market where lots of honest people get together and are just honestly trying to make a better world for each other, there is no golden past where people were just nice or anything, but damn if computers don't let people build some structures that the robber barons of old could only have dreamt of. I'm really concerned that "index and chill" doesn't just have a "best by" date but that the best-by date could be in the past; I've heard of an awful lot of ways of exploiting it and other retirements schemes we have, this is just one. I find it implausible that these ideas exist but nobody is doing them.
It was much safer before the indexes decided to throw off all the safety hurdles designed to make sure stocks were relatively healthy and the price was reasonably well settled before they were included. And the core idea that a random investor probably can't reliably pick stocks that will out perform the broad indexes is probably going to remain true, even at the high evaluation SpaceX is a relatively small piece of the total index, it's just disasterous for public trust to see the safe guards thrown down like this imo.
if you're invested in a broadly diversified index you can be annoyed by this thing, but it won't impact you a lot.
E.g. if you owned something based on MSCI ACWI, which is free float weighted and global, SpaceX will end up being less than 1% of your portfolio even at a trillion dollar valuation.
It's just NASDAQ which is complicit in this scam by overweighting SpaceX.
6. Pension funds tend not to exclusively hold index funds. Individual retail investors do in their 401ks or personally. Pension funds tend to be fairly sophisticated and can easily insulate themselves from SpaceX/OpenAI/Anthropic if they want either by owning index funds and shorting the other companies or by not purchasing the stock. Also, pension funds are immune to (9) as taxes are handled differently for them.
7. ETF managers that track an index aren't allowed to put discretion into what they buy. They offer much lower fees because they don't have to do any thinking, just executing on an algorithm.
8. SpaceX servicing the X/Twitter debt isn't really a question. The total amount of debt is equal to about one year of revenue at the moment, and it's under 3% of the expected market cap of SpaceX. It's less than a third of what SpaceX's IPO is expected to generate selling new shares to the public. It's a non-issue. On the other hand, the fees the banks will get for the IPO could easily convince them to support the rules waivers.
9. This is true of some passive investors. It is not true of pension funds (which are usually not passive) or 401ks or other tax-advantaged retirement accounts. It is likely to be partly true for any individual depending on how much of their assets is in a tax-advantaged account vs a regular account.
10. Yes to Texas. It seems like the arbitration part is likely to be true (SpaceX is certainly claiming it in the prospectus), but there is not the certainty of having a long history of litigation.
Returning to 2+3:
The rolling up of all other private Musk companies into SpaceX certainly impacted the investors in those companies, and how much Musk owns vs other people. But the equity adjustments there would be interesting, not the debt.
Pensions are not ETFs, they are very different purchasers of securities. Pension funds are sometimes referred to as relatively passive investors, but even to the extent that there may be a sense where that is accurate, they are not the same kind of passive as ETFs. They do actively make decisions about what to invest in and alter those with changing curcumstances, and they do at times actively engage with the governance of the firms that they directly invest in (and they definitely engage about the governance structures, in part to manage risk and minimize the need to engage with governance details.)
> Index funds are largely held by passive investors such as pension funds.
Pension operators are not typically passive. It's a different story to say that maybe they should be given that their returns don't always match up with index funds.
They still hold a fairly large amount of money in index funds "about 19.2 percent for public pension plans and 11.2 percent for corporate plans" [0 (2015)] That's a significant sum of money that will be forced into purchasing SpaceX well before it normally would be.
The twitter purchase was "only" 44 billion dollars. Thats a lot of money, but compared to the apparent valuation of the xAI branch of ~1 trillion (based on SpaceX being considered ~800B valuation last funding round), the vast majority of the new value seems to be coming from xAI, which is the least profitable of the labs spending on that scale. So its probably worse than that.
To be pedantic, the S&P 500 is a large portion of the stock market, not the economy. Its value is about 75% of the value in stocks. But stocks are only 25% of all stores value. Real estate is twice the size of the stock market. The rest is mostly corporate and govt bonds.
This is why the real estate crash of 2008 caused the Great Recession, while the Internet Bubble bursting was a small recession.
I remember once a colleague receiving a call about a non-functional test environment during his commute, and he wanted to tell the ops person to restart all the processes. I think fellow passengers in his bus were not comforted to hear someone say over the phone "yeah, kill them all".
I can provide a data point for what the article calls pseudo productivity: I extensively use LLMs as semantic search engines or expert systems (but not as agents). Recently I asked one how to consume a Google Pub/Sub topic using Python (context: I come from an C++/Java/JS background with some Python knowledge). The LLM gave me a good intro and some code. As it usually happens, I had a few follow up questions/clarifications, and then had to clarify the intent behind the code I requested. After a few relatively effortless rounds of back and forth, I got what I needed. It felt productive. But looking at the clock, about 20 minutes had passed without me even realizing it. Then I went and looked at the official overview page for the Google Pub/Sub Python client. It had everything I needed (including the code), in a more condensed, well-structured form. I could probably have arrived at the same outcome in 5-10 minutes. The only difference was that the latter method required some focus/discipline.
I'm wondering whether this is what they call pseudo-productivity: a lot of low-friction back and forth that feels productive, and perhaps even enjoyable, but in objective terms, takes longer?
This is a very common effect and I don't want to be defending LLMs here. But I've seen the same study with CLIs - people using them feel more productive but take longer than using GUIs.
What I want to say is that it's very situational and it's likely good to focus on the average. Using LLMs as docs are bad when good docs exist, but if you aren't sure if they do, it's a gamble. A much better approach would be to have somebody pre-create and edit the docs with an LLM for each service with bad docs.
Only when your situation isn't covered would it make sense to create new docs.
You are good with that 20 mins :)
I wrote a maxscript for 3Dmax to speed up some tasks, and i got stuck in coding. Then I asked the AI for debug, then to write a snippet, etc...I lost 3-4 days. At the end I found a developer on Fiverr who fixed my script for $20 :)
That's something that is really really common in other contexts as well. For example lower level languages and especially more verbose languages make one feel a lot more productive. Another example is over-engineered infrastructure and especially cloud infrastructure that somehow make me feel very productive, because you have to think about certain details and things can feel puzzly where just running a service with a service file or init script on a random server might get you just as far and provide a lot less surface for things to go wrong.
I think another set of related effects might when people switch programming languages. There two major things tend to happen. Rewrites of something they now understand way better and having a clean slate. As well as - in case of new programming languages - way less historical bagged, 15 ways of doing the same way, deprecated tools, lots of the "new way" code in dependencies and "old ways".
What I mean with that is that there are a lot of overlooked things going on. And humans in general are really good at mistaking moving a problem somewhere else as not having to deal with that problem. Sometimes that is the case, sometimes even moving things to another apartment or being able to move work to a free coworker is a worthwhile investment even if it adds overhead. But it's also really easy to forget about how you didn't make issues disappear but just moved the issue somewhere else.
I think psychology plays a much bigger role in many of these things than technology does.
These are just examples. I don't argue against any of these things, also because whether they are worthwhile depends a lot on context. However, I do think that LLMs aren't the first example of that happening.
I think the answer is in the second sentence of the article. The most valuable person in this new world (using the author's own phrasing from the penultimate paragraph) is the one who is good at "building a working model of the domain in [their] head".
Depending on the domain, this may either be the domain expert themselves, or someone else trained in formal logic, data structures and organizing information into coherent hierarchies. If this is neither the domain expert nor the programmer, then it must be someone in between. In the old world, this role was called "business analyst".
I'm this person, and I do find AI to be quite helpful, though I'm mostly just playing around at this point.
I'm the daughter and granddaughter of programmers, and I learned the basics of how to code as a kid. I'm good at it and have a knack for it, but I didn't want to do it for 8+ hours a day and then spend my nights on it as well, so I didn't pursue it as a career. I did an undergraduate degree in Linguistics, which has been really helpful for having an intuitive sense for what 'language as data' can accomplish and for a strong understanding of the difference between language as data and language as meaning. I studied formal logic systems. Then I did a graduate degree in Library Science and worked in libraries for a decade and a half.
I can organize and define systems very well, and I'm trained in how to wheedle information people don't consciously know out of them without them knowing I'm doing it. I've spent enough time around actual devs to understand where my limitations are and when to loop in someone who knows more to check my work, and when it's important for the work to be super accurate versus when I can learn by fucking around. (Front end and design? Fuck around! Database structure? Fuck around but with an exceptionally robust backup system kept outside of the AI tools' purview + don't fuck around in prod. Storing credentials and people's information? Ask someone.)
The problem companies are going to have is I'm very disinclined to work for them doing this, particularly if they want us because they think we're going to be cheaper. Most people who are in this category a.) could be devs and opted not to, and there's a reason for that and/or b.) are the children, cousins, etc. of programmers. We're not stupid: we know we're just as disposable as they're trying to make devs.
> which has been really helpful for having an intuitive sense for what 'language as data' can accomplish and for a strong understanding of the difference between language as data and language as meaning.
100%. I think, intuitively, software developers understand that there's a strong connection here, but most fail to translate that into practice. It always amuses me when someone comments on the triviality of creating CRUD apps. Setting aside the fact that people usually get the mechanics of it wrong (despite it being a solved problem), they overlook the difficulty of producing a good information design.I've developed software in a variety of industries, and I would say maybe 5% of the designs I inherit are well-done and represent the concepts they're trying to model in an elegant, parsimonious way. Rather, most examples are replete with ambiguity, orthogonal concepts smashed together into single elements, and misleading naming and relationships.
And even when there is a well laid out information design, it often is laid out from the wrong point of view. Elegant information design should create a pattern subconsciously enabling people to build a mental model of the tool they're using without realizing they're doing it. But software whose information design works wonderfully from the point of view of a SDE is not going to be approachable to the average user. There are so many tools I've used where I can very clearly see the reasoning behind the decisions and the design and use it well and also be aware I could never explain how they work to the average person.
Having descended from a humanities social background and blundered into professional programming rather incidentally, a lot of this resonates with me.
I've frequently been credited as a person who can really string all the disparate elements of tacit knowledge together into a unified fabric in our particular subdomain, and helped a lot of people plug Swiss cheese gaps in their knowledge that way and come away with the feeling that it's all been tied together theoretically.
However, it's not immediately obvious to me how, in our LLM psychosis cultural moment, this facility shoots to the top of the value chain.
In theory, it's because we're going to be better at steering an LLM in some ways. A lot of the friction and hold up in building comes in the communication between people/departments/organization. If you eliminate that by holding the knowledge in one person/department, you see an efficiency gain.
What they're not saying is that they think we're more valuable because they think we'll be cheaper. They think they can have us do 2 jobs and pay us for 1: probably less than a decent SDE made in 2019.
Personally, I think it's likely to be a shitshow and backfire if that's how companies decide to try to go that route (especially the largest ones). First, if we wanted to be devs, we would be (like you). Most people with the knack for programming and thinking in systems know they have that knack, and if they haven't jumped ship to SDE before now, there's a reason. I could definitely hack a junior SDE role, skill wise, but I don't want to. Second, finding people like us is difficult. The hiring process (which is becoming more and more Gilliamesque by the day) is really bad at identifying us. There aren't credentials, and this sort of work tends to reside in the gaps, as you identified. It's harder for it to show up on a resume. Hiring is optimizing for exact matches and experience, and that's the opposite of how this skill set actually functions. I've found these skills are best developed by being placed in a room where you know very little about what's going on and forcing you to develop heuristics and approaches over time for getting that context. Thirdly, I can't speak for you, but I've developed this perspective over decades and if people want it, they're going to pay appropriately. If they think I'm going to do any of this at my current salary level, they're deranged. And lastly, while most people in our position might roll our eyes at some techie discussions and culture, we do fundamentally like techies/devs and we tend towards placing a greater value on things like relationships than a pure SDE does. (Just speaking in generalities). So 'is willing to replace and/or toss out a category of people I like and respect' is a hint to us to start out assuming this is a hostile negotiation. (Whereas SDEs as a cohort over the last 20 years extended a lot of goodwill at first). We're far more likely to work somewhere, get enough domain knowledge, and then bounce to start our own thing, especially since as a population we're more likely to have devs who will work with us as non-technical founders. Someone who's decent at marketing/sales/the stupid 'people stuff', understands a domain, and understands when a proper dev tells them what is and isn't possible and can even help with some of the most boring, rote parts of the technical side if needed/in crunch is an excellent non-technical founder, and as a group we're also more likely to have access to the technical connections that we'd need if we wanted to build something beyond our ability.
This is an underappreciated bit of insight and perspective, and I thank you for sharing it.
Thoughts that really stood out for congruence with my own experience:
> Most people with the knack for programming and thinking in systems know they have that knack
> Hiring is optimizing for exact matches and experience, and that's the opposite of how this skill set actually functions.
> I've found these skills are best developed by being placed in a room where you know very little about what's going on and forcing you to develop heuristics and approaches over time for getting that context.
> We're far more likely to work somewhere, get enough domain knowledge, and then bounce to start our own thing
If you consider that profit is a function of price and cost, and price is a function of scarcity (i.e. demand relative to supply), then over time, logic dictates that a strategy of profit maximization will work to create scarcity as soon as the profit curve plateaus. In economic orthodoxy, the only defense against this is the hope that there is more than one supplier and that they will remain adversarial, which is not an equilibrium state if you consider that a strategy of cooperative pricing and supply curtailment can at times maximize profits more effectively than competitive oversupply. Perhaps we've been judging the benefits of unregulated free markets based solely on our observations of the first half of the profit curve. Perhaps we're now seeing many of the world's markets moving to the latter half.
This is a rather strong analysis. And especially the point on behaviour change once market growth plateaus was new to me. Thanks!
I do want to nitpick on “unregulated free markets”. Because it’s almost an oxymoron. At least if one wants to rely on the theorems that prove free markets are best.
Those theorems assume a bit more than just a lack of regulation. They assume no information imbalance between parties. No ways outside of competition to keep out market entrants, and no collusion between market parties.
All of those assumptions, in order to approach them in the real world, really require some strong regulation.
Hence I would argue that the problem isn’t just the growth curve flattening, but also a US (and EU) halt to Trust busting. Massive weakening of consumer protection agencies, and a general weakening of regulatory agencies by e.g. court cases.
It’s not just that we need stronger regulation because tech companies reached a point in their lifecycle where they wish to exploit more, as you so clearly argued. On top of that, regulatory power has been pulled back.
Agreed. I would define a market as a mutual social contract that favours voluntary estimation of resource value, and exchange thereof, over violent competition for resources. Such a contact must necessarily be enforced, since voluntary compliance among humans is never 100%. So yes, some form of regulation is built into the very definition of a free market. I'm fond of saying that, as rules approach zero, competition approaches war.
When I first saw the third generation Nissan Primera [1] many years ago, this is the thought that occurred to me: some bold, enterprising designer somehow managed to convince the organization to push through a radical, risky departure from their usual aesthetic. The 2010 Nissan Juke too, felt similar (I owned one myself). In my view, both models worked out. I don't think Ferrari was that lucky.
I vaguely remember living room chairs with built in ash trays (like how some have cup holders now).
And in the late 90s, being on a plane and the chairs had a metal folding door on the armrest that exposed an ash tray. Smoking on planes was already gone or going away, but the hardware lingered for quite some time.
I've heard people describe commodity fetishism as replacing social relationships with relationships to things you own (e.g. your car, your iPhone etc). Is this accurate?
The issue is not primarily psychological attachment to objects, but that private labor (labor carried out independently by separate producers, whose social validity is only realized through exchange) takes on the appearance of its opposite: labor in a directly social form through exchange. Through exchange, the values of commodities appear to individuals not as a relation between producers, but as a property inherent in things themselves. Use-value appears as value, concrete labor appears as abstract labor, private labor appears as social labor.
This has a ton of effects. Some of the most important: it obscures exploitation (profit appears to derive from capital/risk/trade/etc., i.e. anything but labor), it naturalizes capitalism (markets, competition, money, and wage labor seem transhistorical), it disempowers producers (alienation), and it produces ideological mystification in general (people attribute to greed, unfair exchange, moral failure, production scale, division of labor, or technologies what should be attributed to the specific historical form of labor).
So your example is probably a third-order effect of commodity fetishism.
This condensation of the concept really sucked. I suggest struggling through Capital Vol. I, Ch. 1.
1. Twitter is purchased with debt
2. Debt is transferred to xAI via acquisition of X/Twitter
3. Debt is further transferred to SpaceX via acquisition of xAI
4. SpaceX IPO offered at extreme valuation
5. Index fund inclusion rules waived for SpaceX IPO: profitability requirement, inclusion period cut from 90 to 5 days
6. Index funds are largely held by passive investors such as pension funds.
7. Index fund managers are not incentivized to exclude a SpaceX from their indexes. (?)
8. Holders of original X/Twitter debt (banks) incentivized to support the rule waiver since post IPO, SpaceX will have liquidity to service/pay the debt.
9. Passive investors are unable to rapidly respond to these types of changes because liquidating portfolios will incur capital gains taxes. (?)
10. SpaceX is in Texas jurisdiction, where shareholder lawsuits are not possible and must instead go for arbitration. (?)
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